Form 497 for iShares Inc.
January 1, 2013
(as revised April 8, 2013)
iShares MSCI Emerging Markets Index Fund
EEM •
NYSE ARCA
The Securities and Exchange Commission
(“SEC”) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
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“MSCI Emerging Markets Index” is a servicemark of
MSCI Inc. and has been licensed for use for certain purposes by BlackRock Fund Advisors or its affiliates. iShares® is a registered trademark of BlackRock Fund Advisors or its
affiliates. The Fund is not sponsored, endorsed, sold, or promoted by MSCI Inc., nor does MSCI Inc. make any representation regarding the advisability of investing in the Fund.
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iSHARES® MSCI EMERGING MARKETS INDEX FUND
Ticker: EEMStock Exchange:
NYSE Arca
Investment Objective
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 Index (the “Underlying Index”).
Fees and Expenses
The following table describes the fees and expenses that you
will incur if you own shares of the Fund. The investment advisory agreement between iShares, Inc. (the “Company”) and BlackRock Fund Advisors (“BFA”) (the “ Investment Advisory Agreement”) provides that BFA will
pay all operating expenses of the Fund, except interest expenses, taxes, brokerage expenses, future distribution fees or expenses, and extraordinary expenses. “Acquired Fund Fees and Expenses” reflect the Fund's pro rata share of the fees and expenses incurred by investing in other investment companies. The impact of Acquired Fund Fees and Expenses is included in the total returns of the Fund. Acquired Fund Fees and
Expenses are not used to calculate the Fund's net asset value per share (“NAV”) and are not included in the calculation of the ratio of expenses to average net assets shown in the Financial
Highlights section of the Fund's prospectus (the “Prospectus”). BFA, the investment adviser to the Fund, has contractually agreed to waive a portion of its management fees in an amount equal to the Acquired Fund Fees and Expenses
attributable to the Fund's investments in other iShares funds through June 30, 2014. The contractual waiver may be terminated prior to June 30, 2014 only upon written agreement of the Company and BFA. During the most recently completed fiscal year,
the amount of such expenses incurred and fees waived rounded to 0.00%.
You may also incur usual and customary brokerage commissions
when buying or selling shares of the Fund, which are not reflected in the example that follows:
Annual
Fund Operating Expenses (ongoing expenses that you pay each year as a percentage of the value of your investments) |
Management
Fees |
|
Distribution
and Service (12b-1) Fees |
|
Other
Expenses |
|
Acquired
Fund Fees and Expenses |
|
Total
Annual Fund Operating Expenses |
|
Fee
Waiver |
|
Total
Annual Fund Operating Expenses After Fee Waiver |
0.69%
|
|
None
|
|
None
|
|
0.00%
|
|
0.69%
|
|
(0.00)%
|
|
0.69%
|
Example. This Example is
intended to help you compare the cost of owning shares of the Fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would
be:
1
Year |
|
3
Years |
|
5
Years |
|
10
Years |
|
$70
|
|
$221
|
|
$384
|
|
$859
|
|
Portfolio Turnover. The Fund
may pay transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are
held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the Example, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 15% of the average value
of its portfolio.
Principal Investment
Strategies
The Underlying Index is designed to measure
equity market performance in the global emerging markets. As of June 30, 2012, the Underlying Index consisted of the following 21 emerging market indexes: Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Hungary, India, Indonesia,
Malaysia, Mexico, Morocco, Peru, the Philippines, Poland, Russia, South Africa, South Korea, Taiwan, Thailand and Turkey. Components primarily include energy, financial, information technology and materials companies. The components of the
Underlying Index, and the degree
to which these components represent certain industries, may change over
time.
BFA uses a “passive” or indexing
approach to try to achieve the Fund’s investment objective. Unlike many investment companies, the Fund does not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear
overvalued.
Indexing may eliminate the chance that the
Fund will substantially outperform the Underlying Index but also may reduce some of the risks of active management, such as poor security selection. Indexing seeks to achieve lower costs and better after-tax performance by keeping portfolio turnover
low in comparison to actively managed investment companies.
BFA uses a representative sampling indexing strategy to manage
the Fund. “Representative sampling” is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are
expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return
variability and yield) and liquidity measures similar to those of the
Underlying Index. The Fund may or may not hold all of the securities in the Underlying Index.
The Fund generally invests at least 90% of its assets in the
securities of its Underlying Index and in depositary receipts representing securities in its Underlying Index. The Fund may invest the remainder of its assets in other securities, including securities not in the Underlying Index, but which BFA
believes will help the Fund track the Underlying Index, and in other investments, including futures contracts, options on futures contracts, other types of options and swaps related to its Underlying Index, as well as cash and cash equivalents,
including shares of money market funds advised by BFA or its affiliates. BFA will waive portfolio management fees in an amount equal to the portfolio management fees of such other iShares funds for any portion of the Fund's assets invested in shares
of such other funds.
The Fund invests all of its assets
that are invested in India in a wholly owned subsidiary located in the Republic of Mauritius (the “Subsidiary”). BFA serves as investment adviser to both the Fund and the Subsidiary. Unless otherwise indicated, the term
“Fund,” as used in this Prospectus, means the Fund and/or the Subsidiary, as applicable.
The Fund may lend securities representing up to one-third of
the value of the Fund's total assets (including the value of the collateral received).
The Underlying Index is sponsored by an organization (the
“Index Provider”) that is independent of the Fund and BFA. The
Index Provider determines the composition and relative weightings of the
securities in the Underlying Index and publishes information regarding the market value of the Underlying Index. The Fund’s Index Provider is MSCI Inc. (“MSCI”).
Industry Concentration Policy.
The Fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries, which may
include large-, mid- or small-capitalization companies, to approximately the same extent that the Underlying Index is concentrated. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities) and
repurchase agreements collateralized by U.S. government securities are not considered to be issued by members of any industry.
Summary of Principal Risks
As with any investment, you could lose all or part of your
investment in the Fund, and the Fund's performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund's NAV, trading price, yield, total return and ability to
meet its investment objective.
Asset Class Risk. Securities in the Underlying Index or in the Fund's portfolio may underperform in comparison to the general securities markets or other asset classes.
Commodity Exposure Risk. The Fund invests in economies that are susceptible to fluctuations in certain commodity markets. Any negative changes in commodity markets could
have an adverse impact on those economies.
Concentration Risk. To the extent that the Fund's investments are concentrated in a particular issuer, region, country, market, industry or asset class, the Fund may be susceptible to loss due to adverse occurrences
affecting that issuer, region, country, market, industry or asset class.
Currency Risk. Because the Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if the currency of a non-U.S. market in which the Fund invests depreciates against the U.S. dollar.
Custody Risk. Less developed markets are more likely to experience problems with the clearing and settling of trades and the holding of securities by local banks, agents and depositories.
Energy Sector Risk. The value of securities issued by companies in the energy sector may decline for many reasons, including, without limitation, changes in energy prices, government regulations, energy conservation
efforts and potential civil liabilities.
Equity
Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes.
Financial Sector Risk. Performance of companies in the financial sector may be adversely impacted by many factors, including, among others, government regulations, economic conditions, credit rating downgrades, changes in
interest rates, and decreased liquidity in credit markets. This sector has experienced significant losses in the recent past, and the impact of more stringent capital requirements and of recent or future
regulation on any individual financial company or on the sector as a whole
cannot be predicted.
Geographic Risk. A natural or other disaster could occur in a geographic region in which the Fund invests, which could affect the economy or particular business operations of
companies in the specific geographic region, causing an adverse impact on the Fund's investments in the affected region.
Index-Related Risk. There is no guarantee that the Fund will achieve a high degree of correlation to the Underlying Index and therefore achieve its investment objective. Market disruptions and regulatory restrictions are
likely to have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Underlying Index.
Information Technology Sector Risk. Information technology companies face intense competition and potentially rapid product obsolescence. They are also heavily dependent on intellectual property rights and may be adversely affected by
loss or impairment of those rights.
Issuer Risk. Fund performance depends on the performance of individual securities to which the Fund has exposure. Changes in the financial condition or credit rating of an
issuer of those securities may cause the value of the securities to decline.
Management Risk. As the Fund may not fully replicate the Underlying Index, it is subject to the risk that BFA's investment management strategy may not produce the intended results.
Market Risk. The Fund could lose money over short periods due to short-term market movements and over
longer periods during market downturns.
Market Trading Risk. The Fund faces numerous market trading risks, including the potential lack of an active market for Fund shares, losses from trading in secondary markets, periods of high volatility and disruption in
the creation/redemption process of the Fund. ANY OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV.
Materials Sector Risk. Companies in the materials sector may be adversely impacted by the volatility of commodity prices, exchange rates, depletion of resources, over-production, litigation and government regulations, among
other factors.
Non-U.S. Securities Risk. Investments in the securities of non-U.S. issuers are subject to the risks associated with investing in those non-U.S. markets, such as heightened risks of
inflation or nationalization. The Fund may lose money due to political, economic and geographic events affecting a non-U.S. issuer or market. The Fund is specifically exposed to Asian Economic Risk and Central and South American Economic Risk.
Passive Investment Risk. The Fund is not actively managed and BFA does not attempt to take defensive positions under any market conditions, including declining markets.
Privatization Risk. Some countries in which the Fund invests have privatized, or have begun the process of privatizing, certain entities and industries. Privatized entities may lose money or be
re-nationalized.
Reliance on Trading Partners
Risk. The Fund invests in countries whose economies are heavily dependent upon trading with key partners. Any reduction in this trading may have an adverse
impact on the Fund's investments. The Fund is specifically exposed to Asian Economic Risk, Central and South
American Economic Risk, European Economic Risk and
U.S. Economic Risk.
Risk of Investing in Emerging Markets. The Fund's investments in emerging markets may be subject to a greater risk of loss than investments in more developed markets. Emerging markets may be more
likely to experience inflation risk, political turmoil and rapid changes in economic conditions than more developed markets. Emerging markets often have less uniformity in accounting and reporting requirements, unreliable securities valuation and
greater risk associated with custody of securities.
Risk of Investing in
India. Investments in Indian issuers involves risks that are specific to India, including legal, regulatory, political and economic risks. The securities
markets in India are relatively underdeveloped and may subject the Fund to higher transaction costs or greater uncertainty than investments in more developed securities markets.
Risk of Investing in Russia. Investing in Russian securities involves significant risks, including legal, regulatory and economic risks that are specific to Russia. In addition, investing in Russian securities involves risks
associated with the settlement of portfolio transactions and loss of the Fund’s ownership rights in its portfolio securities, as a result of
the system of share registration and custody in Russia.
Securities Lending Risk. The Fund may engage in securities lending. Securities lending involves the risk that the Fund may lose money because the borrower of the Fund's loaned securities fails to return the securities in a
timely manner or at all. The Fund could also lose money in the event of a decline in the value of the collateral provided for loaned securities or a decline in the value of any investments made with cash collateral. These events could also trigger
adverse tax consequences for the Fund.
Securities
Market Risk. Non-U.S. securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of
holdings difficult or impossible at times.
Security
Risk. Some countries and regions in which the Fund invests have experienced security concerns. Incidents involving a country's or region's security may cause
uncertainty in these markets and may adversely affect their economies and the Fund's investments.
Structural Risk. The countries in which the Fund invests may be subject to considerable degrees of economic, political and social instability.
Tracking Error Risk. Tracking error is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities held in the Fund’s
portfolio and those included in the
Underlying Index, pricing differences, transaction costs, the Fund’s
holding of cash, differences in timing of the accrual of dividends, changes to the Underlying Index or the need to meet various new or existing regulatory requirements. This risk may be heightened during times of increased market volatility or other
unusual market conditions. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. BFA EXPECTS THAT THE FUND MAY EXPERIENCE HIGHER TRACKING ERROR THAN IS TYPICAL FOR SIMILAR INDEX
EXCHANGE-TRADED FUNDS.
Treaty/Tax Risk. The Fund and the Subsidiary rely on the Double Tax Avoidance Agreement between India and Mauritius (“DTAA”) for relief from certain Indian taxes.
Treaty renegotiation (particularly to introduce a limitation of benefit clause) or recent legislative changes may result in the Fund withdrawing from the Subsidiary, which may result in higher taxes and/or lower returns for the Fund.
Valuation Risk. The sale price the Fund could receive for a security may differ from the Fund's valuation of the security and may differ from the value used by the Underlying Index, particularly for securities
that trade in low volume or volatile markets or that are valued using a fair value methodology. In addition, the value of the securities in the Fund's portfolio may change on days when shareholders will not be able to purchase or sell the Fund's
shares.
Performance Information
The bar chart and table that follow show how the Fund has
performed on a calendar year basis and provide an indication of the risks of investing in the Fund. Both assume that all dividends and distributions have been reinvested in the Fund. Past performance (before and after taxes) does not necessarily
indicate how the Fund will perform in the future. Supplemental information about the Fund’s performance is shown under the heading Total Return Information in the
Supplemental Information section of the Prospectus. If BFA had not waived certain Fund fees during certain periods, the Fund's returns would have been lower.
Year by Year Returns1 (Years Ended December 31)
1 |
The Fund’s total return
for the nine months ended September 30, 2012 was 11.14%. |
The best calendar quarter return during the periods shown above
was 31.57% in the 2nd quarter of 2009; the worst was -26.18% in the 4th quarter of 2008.
Updated performance information is available at www.iShares.com
or by calling 1-800-iShares (1-800-474-2737) (toll free).
Average Annual Total Returns
(for the periods ended December 31, 2011)
|
One
Year |
|
Five
Year |
|
Since
Fund Inception |
(Inception
Date: 4/7/2003) |
|
|
|
|
|
Return
Before Taxes |
-18.87%
|
|
1.68%
|
|
16.63%
|
Return
After Taxes on Distributions1 |
-18.91%
|
|
1.61%
|
|
16.55%
|
Return
After Taxes on Distributions and Sale of Fund Shares1 |
-11.71%
|
|
1.65%
|
|
15.24%
|
MSCI
Emerging Markets Index (Index returns do not reflect deductions for fees, expenses or taxes) |
-18.42%
|
|
2.40%
|
|
16.96%
|
1 |
After-tax returns in the
table above are calculated using the historical highest individual U.S. federal marginal income tax rates and do not reflect the impact of state or local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from
those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts (“IRAs”). Fund returns after taxes
on distributions and sales of Fund shares are calculated assuming that an investor has sufficient capital gains of the same character from other investments to offset any capital losses from the sale of Fund shares. As a result, Fund returns after
taxes on distributions and sales of Fund shares may exceed Fund returns before taxes and/or returns after taxes on distributions. |
Management
Investment Adviser. BlackRock
Fund Advisors.
Portfolio Managers. Christopher Bliss, Rene Casis, Diane Hsiung, Jennifer Hsui and Greg Savage (the “Portfolio Managers”) are primarily responsible for the day-to-day management of the Fund. Each Portfolio Manager supervises a
portfolio management team. Mr. Bliss, Mr. Casis, Ms. Hsiung, Ms. Hsui and Mr. Savage have been Portfolio Managers of the Fund since 2011, 2011, 2008, 2012 and 2008, respectively.
Purchase and Sale of Fund Shares
The Fund is an exchange-traded fund (commonly referred to as an
“ETF”). Individual Fund shares may only be purchased and sold on a national securities exchange through a broker-dealer. The price of Fund shares is based on market price, and because ETF shares trade at market prices rather than NAV,
shares may trade at a price greater than NAV (a premium) or less than NAV (a discount). The Fund will only issue or redeem shares that have been aggregated into blocks of 450,000 shares or multiples thereof (“Creation Units”) to
authorized participants who have entered into agreements with the Fund's distributor. The Fund generally will issue or redeem Creation Units in return for a designated portfolio of securities (and an amount of cash) that the Fund specifies each
day.
Tax Information
The Fund intends to make distributions that may be taxable to
you as ordinary income or capital gains, unless you are investing through a tax-deferred arrangement such as a 401(k) plan or an IRA.
Payments to Broker-Dealers and other Financial
Intermediaries
If you purchase shares of the Fund through
a broker-dealer or other financial intermediary (such as a bank), BFA or other related companies may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development of technology platforms
and reporting systems or other services related to the sale or promotion of the Fund. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary’s website for more information.
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More Information About the Fund
This Prospectus contains important information about investing
in the Fund. Please read this Prospectus carefully before you make any investment decisions. Additional information regarding the Fund is available at www.iShares.com.
BFA is the investment adviser to the Fund. Shares of the Fund
are listed for trading on NYSE Arca, Inc. (“NYSE Arca”). The market price for a share of the Fund may be different from the Fund’s most recent NAV.
ETFs are funds that trade like other publicly traded
securities. The Fund is designed to track an index. Similar to shares of an index mutual fund, each share of the Fund represents a partial ownership in an underlying portfolio of securities intended to track a market index. Unlike shares of a mutual
fund, which can be bought and redeemed from the issuing fund by all shareholders at a price based on NAV, shares of the Fund may be purchased or redeemed directly from the Fund at NAV solely by authorized participants. Also unlike shares of a mutual
fund, shares of the Fund are listed on a national securities exchange and trade in the secondary market at market prices that change throughout the day.
The Fund invests in a particular segment of the securities
markets and seeks to track the performance of a securities index that generally is not representative of the market as a whole. The Fund is designed to be used as part of broader asset allocation strategies. Accordingly, an investment in the Fund
should not constitute a complete investment program.
An
index is a theoretical financial calculation while the Fund is an actual investment portfolio. The performance of the Fund and the Underlying Index may vary due to transaction costs, non-U.S. currency valuations, asset valuations, corporate actions
(such as mergers and spin-offs), timing variances and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions (such as diversification requirements) that apply to the Fund but not to the Underlying
Index or to the use of representative sampling. “Tracking error” is the divergence of the performance (return) of the Fund's portfolio from that of the Underlying Index. BFA expects that, over time, the Fund’s tracking error will
not exceed 5%. Because the Fund uses a representative sampling indexing strategy, it can be expected to have a larger tracking error than if it used a replication indexing strategy. “Replication” is an indexing strategy in which a fund
invests in substantially all of the securities in its underlying index in approximately the same proportions as in the underlying index.
An investment in the Fund is not a bank deposit and it is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, BFA or any of its affiliates.
The Fund's investment objective and the Underlying Index may be
changed without shareholder approval.
A Further Discussion of Principal Risks
The Fund is subject to various risks, including the principal
risks noted below, any of which may adversely affect the Fund’s NAV, trading price, yield, total return and ability to meet its investment objective. You could lose all or part of your investment in the Fund, and the Fund could underperform
other investments.
Asian Economic Risk. Investment in securities of issuers in Asia involves risks and special considerations not typically associated with investment in the U.S. securities markets. Certain Asian economies have experienced high inflation,
high unemployment, currency devaluations and restrictions, and over-extension of credit. Many Asian economies have experienced rapid growth and industrialization, and there is no assurance that this growth rate will be maintained. During the recent
global recession, many of the export-driven Asian economies experienced the effects of the economic slowdown in the United States and Europe, and certain Asian governments implemented stimulus plans, low-rate monetary policies and currency
devaluations. Economic events in any one Asian country may have a significant economic effect on the entire Asian region, as well as on major trading partners outside Asia. Any adverse event in the Asian markets may have a significant adverse effect
on some or all of the economies of Asian countries in which the Fund invests. Many Asian countries are subject to political risk, including corruption and regional conflict with neighboring countries. In addition, many Asian countries are subject to
social and labor risks associated with demands for improved political, economic and social conditions. These risks, among others, may adversely affect the value of the Fund’s investments.
Asset Class Risk. The
securities in the Underlying Index or in the Fund’s portfolio may underperform the returns of other securities or indexes that track other countries, groups of countries, regions, industries, groups of industries, markets, asset classes or
sectors. Various types of securities or indexes tend to experience cycles of outperformance and underperformance in comparison to the general securities markets.
Central and South American Economic Risk. The economies of certain Central and South American countries have experienced high interest rates, economic volatility, inflation, currency devaluations, government defaults and high unemployment rates. In addition,
commodities (such as oil, gas and minerals) represent a significant percentage of exports for these regions and many economies in these regions are particularly sensitive to fluctuations in commodity prices. Adverse economic events in one country
may have a significant adverse effect on other countries in these regions.
Commodity Exposure Risk. The
energy, materials, and agriculture sectors account for a large portion of the exports of certain countries in which the Fund invests. Any changes in these sectors or fluctuations in the commodity markets could have an adverse impact on a country's
economy. Commodity prices may be influenced or characterized by unpredictable factors, including, where applicable, high volatility, changes in supply and demand relationships, weather, agriculture, trade, pestilence, political instability, changes
in interest rates and monetary and other governmental policies. Securities of companies held by the Fund that are dependent on a single
commodity, or are concentrated in a single commodity sector, may typically
exhibit even higher volatility attributable to commodity prices.
Concentration Risk. To the
extent that the Fund's portfolio reflects the Underlying Index's concentration in the securities of a particular issuer or issuers in a particular country, group of countries, region, market, industry, group of industries, sector or asset class, the
Fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that issuer or issuers,
country, group of countries, region, market, industry, group of industries, sector or asset class.
Currency Risk. Because the
Fund’s NAV is determined on the basis of the U.S. dollar, investors may lose money if the currency of a non-U.S. market in which the Fund invests depreciates against the U.S. dollar, even if the local currency value of the Fund's holdings in
that market increases.
Custody Risk. Custody risk refers to the risks inherent in the process of clearing and settling trades and the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less developed
markets may make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that may not be subject to independent evaluation. Local agents are held only to the
standards of care of their local markets. In general, the less developed a country’s securities market is, the greater the likelihood of custody problems.
Energy Sector Risk. The energy
sector of an economy is cyclical and highly dependent on energy prices. The market values of companies in the energy sector are strongly affected by the levels and volatility of global energy prices, energy supply and demand, capital expenditures on
exploration and production, energy conservation efforts, exchange rates, interest rates, economic conditions, tax treatment, increased competition and technological advances, among other factors. Companies in this sector may be subject to
substantial government regulation and contractual fixed pricing, which may increase the cost of business and limit these companies’ earnings. A significant portion of revenues of these companies depends on a relatively small number of
customers, including governmental entities and utilities. As a result, governmental budget constraints may have a material adverse effect on the stock prices of companies in this industry. Energy companies may also operate in or engage in
transactions involving countries with less developed regulatory regimes or a history of expropriation, nationalization or other adverse policies. Energy companies also face a significant risk of civil liability from accidents resulting in injury or
loss of life or property, pollution or other environmental mishaps, equipment malfunctions or mishandling of materials and a risk of loss from terrorism, political strife and natural disasters. Any such event could have serious consequences for the
general population of the area affected and result in a material adverse impact on the Fund’s portfolio and the performance of the Fund. Energy companies can be significantly affected by the supply of, and demand for, specific products
(e.g., oil and natural gas) and services, exploration and production spending, government regulation and subsidization, world events and general
economic conditions.
Equity Securities Risk. The
Fund invests in equity securities, which are subject to changes in value that may be attributable to market perception of a particular issuer or to general stock market fluctuations that affect all issuers. Investments in equity securities may be
more volatile than investments in other asset classes.
European Economic Risk. The
Economic and Monetary Union (the “EMU”) of the European Union (the “EU”) requires compliance with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal and monetary controls, each of which may
significantly affect every country in Europe. Decreasing imports or exports, changes in governmental or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member country on its sovereign
debt, and/or an economic recession in an EU member country may have a significant adverse effect on the economies of EU member countries and their trading partners. The European financial markets have recently experienced volatility and adverse
trends due to concerns about economic downturns or rising government debt levels in several European countries, including Greece, Ireland, Italy, Portugal and Spain. These events have adversely affected the exchange rate of the euro, the common
currency of certain EU countries, and may continue to significantly affect every country in Europe, including countries that do not use the euro.
Responses to the financial problems by European governments,
central banks and others, including austerity measures and reforms, may not work, may result in social unrest and may limit future growth and economic recovery or have other unintended consequences. Further defaults or restructurings by governments
and other entities of their debt could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition, one or more countries may abandon the euro and/or withdraw from the EU. The impact of these
actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far-reaching.
Financial Sector Risk.
Companies in the financial sector of an economy are often subject to extensive governmental regulation and, recently, government intervention and the potential for additional regulation, which may adversely affect the scope of their activities, the
prices they can charge and the amount of capital they must maintain. Governmental regulation may change frequently and may have significant adverse consequences for companies in the financial sector, including effects not intended by such
regulation. The impact of recent or future regulation in various countries on any individual financial company or on the sector as a whole cannot be predicted. Certain risks may impact the value of investments in the financial sector more severely
than investments outside this sector, including the risks associated with companies that operate with substantial financial leverage. Companies in the financial sector may also be adversely affected by increases in interest rates and loan losses,
decreases in the availability of money or asset valuations, credit rating downgrades and adverse conditions in other related markets. Insurance companies, in particular, may be subject to severe price competition and/or rate regulation, which may
have an adverse impact on their profitability. In the recent past, deterioration of the credit markets impacted a broad range of mortgage, asset-backed, auction rate, sovereign debt and other markets, including U.S. and non-U.S. credit and interbank
money markets, thereby affecting a wide range of financial institutions and markets. A number
of large financial institutions have failed, merged with stronger institutions
or have had significant government infusions of capital. This situation created instability in the financial markets and caused certain financial companies to incur large losses. Some financial companies experienced declines in the valuations of
their assets, took actions to raise capital (such as the issuance of debt or equity securities), or even ceased operations. Some financial companies borrowed significant amounts of capital from government sources and may face future
government-imposed restrictions on their businesses or increased government intervention. Those actions caused the securities of many financial companies to decline in value. The financial sector is particularly sensitive to fluctuations in interest
rates.
Geographic Risk.
Some of the markets in which the Fund invests are located in parts of the world that have historically been prone to natural disasters, such as earthquakes, volcanoes, drought, hurricanes or tsunamis, and are economically sensitive to environmental
events. A natural or other disaster could have a significant adverse impact on the economies of these geographic areas and the securities to which the Fund has exposure.
Index-Related Risk. In order to
meet its investment objective, the Fund will seek to achieve a return, which reflects the return of the Underlying Index as published by the relevant index provider. While index providers do provide descriptions of what the Underlying Index is
designed to achieve, index providers do not generally provide any warranty or accept any liability in relation to the quality, accuracy or completeness of data in respect of their indices, and do not guarantee that the published indices will be in
line with their described index methodologies. Errors in respect of the quality, accuracy and completeness of the data may occur from time to time and may not be identified and corrected for a period of time, particularly where the indices are less
commonly used. During a period where the Underlying Index contains incorrect constituents, the Fund would have market exposure to such constituents. As such, errors may potentially result in a negative or positive performance impact to the Fund and
the Shareholders.
Apart from scheduled rebalances,
the Index Provider may carry out additional ad hoc rebalances to the Underlying Index in order, for example, to correct an error in the selection of index constituents. Where the Underlying Index of a Fund is rebalanced and the Fund in turn
rebalances its portfolio to bring it in line with its Underlying Index, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund and, by extension, its Shareholders.
Therefore, errors and additional ad hoc rebalances carried out
by an index provider to the Fund’s Underlying Index may increase the costs and market exposure risk of the Fund.
Information Technology Sector Risk. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Like other technology companies, information technology companies may
have limited product lines, markets, financial resources or personnel. The products of information technology companies may face obsolescence due to rapid technological developments and frequent new product introduction, unpredictable changes in
growth rates and competition for the services of qualified
personnel. Companies in the information technology sector are heavily
dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies.
Issuer Risk. The performance of
the Fund depends on the performance of individual securities to which the Fund has exposure. Any issuer of these securities may perform poorly, causing the value of its securities to decline. Poor performance may be caused by poor management
decisions, competitive pressures, changes in technology, expiration of patent protection, disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in times of distress or at
their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Management Risk. The Fund may
not fully replicate the Underlying Index and may hold securities not included in the Underlying Index. As a result, the Fund is subject to the risk that BFA’s investment management strategy, the implementation of which is subject to a number
of constraints, may not produce the intended results.
Market Risk. The Fund could
lose money due to short-term market movements and over longer periods during market downturns. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the markets. The value of a
security may decline due to general market conditions, economic trends or events that are not specifically related to the issuer of the security or to factors that affect a particular industry or group of industries. During a general downturn in the
securities markets, multiple asset classes may be negatively affected.
Market Trading Risk
Absence of Active Market.
Although shares of the Fund are listed for trading on one or more stock exchanges, there can be no assurance that an active trading market for such shares will develop or be maintained.
Risk of Secondary Listings.
The Fund's shares may be listed or traded on U.S. and non-U.S. stock exchanges other than the U.S. stock exchange where the Fund's primary listing is maintained. There can be no assurance that the Fund's shares will
continue to trade on any such stock exchange or in any market or that the Fund's shares will continue to meet the requirements for listing or trading on any exchange or in any market. The Fund's shares may be less actively traded in certain markets
than others, and investors are subject to the execution and settlement risks and market standards of the market where they or their broker direct their trades for execution. Certain information available to investors who trade Fund shares on a U.S.
stock exchange during regular U.S. market hours may not be available to investors who trade in other markets, which may result in secondary market prices in such markets being less efficient.
Secondary Market Trading Risk.
Shares of the Fund may trade in the secondary market at times when the Fund does not accept orders to purchase or redeem shares. At such times, shares may trade in the secondary market with more significant premiums or discounts than might be
experienced at times when the Fund accepts purchase and redemption orders.
Secondary market trading in Fund shares may be halted by a
stock exchange because of market conditions or other reasons. In addition, trading in Fund shares on a stock exchange or in any market may be subject to trading halts caused by extraordinary market volatility pursuant to “circuit
breaker” rules on the stock exchange or market. There can be no assurance that the requirements necessary to maintain the listing or trading of Fund shares will continue to be met or will remain unchanged.
Shares of the Fund, similar to shares of other issuers listed
on a stock exchange, may be sold short and are therefore subject to the risk of increased volatility associated with short selling.
Shares of the Fund May Trade at Prices Other Than NAV. Shares of the Fund trade on stock exchanges at prices at, above or below their most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the
Fund’s holdings since the most recent calculation. The trading prices of the Fund's shares fluctuate continuously throughout trading hours based on market supply and demand rather than NAV. As a result, the trading prices of the Fund's
shares may deviate significantly from NAV during periods of market volatility. ANY OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND'S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. However, because shares can be created and redeemed in Creation Units at NAV (unlike shares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes at premiums to, their NAVs), BFA
believes that large discounts or premiums to the NAV of the Fund are not likely to be sustained over the long-term. While the creation/redemption feature is designed to make it likely that the Fund’s shares normally will trade on stock
exchanges at prices close to the Fund’s next calculated NAV, exchange prices are not expected to correlate exactly with the Fund's NAV due to timing reasons as well as market supply and demand factors. In addition, disruptions to creations and
redemptions or extreme market volatility may result in trading prices for shares of the Fund that differ significantly from its NAV.
Costs of Buying or Selling
Fund Shares. Buying or selling Fund shares on an exchange involves two types of costs that apply to all securities transactions. When buying or selling shares of the Fund
through a broker, you will likely incur a brokerage commission or other charges imposed by brokers as determined by that broker. In addition, you may incur the cost of the “spread,” that is, the difference between what investors are
willing to pay for Fund shares (the “bid” price) and the price at which they are willing to sell Fund shares (the “ask” price). Because of the costs inherent in buying or selling Fund shares, frequent trading may detract
significantly from investment results and an investment in Fund shares may not be advisable for investors who anticipate regularly making small investments.
Materials Sector Risk.
Companies in the materials sector may be adversely affected by commodity price volatility, exchange rates, import controls, increased competition, depletion of resources, technical progress, labor relations and government regulations, among other
factors. Also, companies in the materials sector are at risk of liability for environmental damage and product liability claims. Production of materials may exceed demand as a result of market imbalances or economic downturns, leading to poor
investment returns.
Non-U.S. Securities Risk.
Investments in the securities of non-U.S. issuers are subject to all of the risks of investing in the markets where such issuers are located, including heightened risks of inflation or nationalization and market fluctuations caused by economic and
political developments. As a result of investing in non-U.S. securities, the Fund may be subject to increased risk of loss caused by any of the factors listed below:
■ |
Lower levels of liquidity and
market efficiency; |
■ |
Greater securities price
volatility; |
■ |
Exchange rate fluctuations
and exchange controls; |
■ |
Less availability of public
information about issuers; |
■ |
Limitations on foreign
ownership of securities; |
■ |
Imposition of withholding or
other taxes; |
■ |
Imposition of restrictions on
the expatriation of the funds or other assets of the Fund; |
■ |
Higher transaction and
custody costs and delays in settlement procedures; |
■ |
Difficulties in enforcing
contractual obligations; |
■ |
Lower levels of regulation of
the securities market; |
■ |
Weaker accounting, disclosure
and reporting requirements; and |
■ |
Legal principles relating to
corporate governance, directors’ fiduciary duties and liabilities and stockholders’ rights in markets in which the Fund invests may differ and/or may not be as extensive or protective as those that apply in the United States.
|
Passive Investment Risk. The Fund is not actively managed and may be affected by a general decline in market segments related to the Underlying Index. The Fund invests in securities included in, or representative of, the Underlying Index,
regardless of their investment merits. BFA generally does not attempt to take defensive positions under any market conditions, including declining markets.
Privatization Risk. Some
countries in which the Fund invests have privatized, or have begun the process of privatizating, certain entities and industries. In some cases, investors in some newly privatized entities have suffered losses due to inability of the newly
privatized entities to adjust quickly to a competitive environment or to changing regulatory and legal standards. There is no assurance that such losses will not recur.
Reliance on Trading Partners Risk. Economies in emerging market countries generally are heavily dependent upon commodity prices and international trade. Accordingly, these countries have been and may continue to be affected adversely by the economies of
their trading partners, trade barriers, exchange controls or managed adjustments in relative currency values and may suffer from extreme and volatile debt burdens or inflation rates.
Risk of Investing in Emerging Markets. Investments in emerging markets are subject to a greater risk of loss than investments in more developed markets. This is due to, among other things, the potential for greater market volatility, lower trading volume,
inflation, political and economic instability, greater risk of a market shutdown
and
more governmental limitations on foreign investments than typically found in more developed markets. In addition, emerging markets often have less uniformity in accounting and reporting requirements, unreliable securities valuation and greater risks
associated with custody of securities, as well as greater risk of capital controls through such measures as taxes or interest rate control. Certain emerging market countries may also lack the infrastructure necessary to attract large amounts of
foreign trade and investment.
Risk of Investing in India. India is an emerging market and exhibits significantly greater market volatility from time to time in comparison to more developed markets. Political and legal uncertainty, greater government control over the economy,
currency fluctuations or blockage, and the risk of nationalization or expropriation of assets may result in higher potential for losses.
Moreover, governmental actions can have a significant effect on
the economic conditions in India, which could adversely affect the value and liquidity of the Fund's investments. The securities markets in India are comparatively underdeveloped, and stockbrokers and other intermediaries may not perform as well as
their counterparts in the United States and other more developed securities markets. The limited liquidity of the Indian securities markets may also affect the Fund’s ability to acquire or dispose of securities at the price and time that it
desires.
Global factors and foreign actions may inhibit
the flow of foreign capital on which India is dependent to sustain its growth. In addition, the Reserve Bank of India (“RBI”) has imposed limits on foreign ownership of Indian securities, which may decrease the liquidity of the
Fund’s portfolio and result in extreme volatility in the prices of Indian securities. These factors, coupled with the lack of extensive accounting, auditing and financial reporting standards and practices, as compared to the United States, may
increase the Fund's risk of loss.
Further, certain Indian
regulatory approvals, including approvals from the Securities and Exchange Board of India (“SEBI”), the RBI, the central government and the tax authorities (to the extent that tax benefits need to be utilized), may be required before the
Fund can make investments in the securities of Indian companies.
Risk of Investing in Russia.
Investing in Russian securities involves significant risks, in addition to those described under “Risk of Investing in Emerging Markets” and “Non-U.S. Securities Risk” that are not typically associated with investing in U.S.
securities, including:
■ |
The risk of delays in
settling portfolio transactions and the risk of loss arising out of the system of share registration and custody used in Russia; |
■ |
Risks in connection with the
maintenance of the Fund’s portfolio securities and cash with foreign sub-custodians and securities depositories, including the risk that appropriate sub-custody arrangements will not be available to the Fund; |
■ |
The risk that the
Fund’s ownership rights in portfolio securities could be lost through fraud or negligence as a result of the fact that ownership in shares of Russian companies is recorded by the companies themselves and by registrars, rather than by a central
registration system; and |
■ |
The risk that the Fund may
not be able to pursue claims on behalf of its |
shareholders because of the system of share registration
and custody, and because Russian banking institutions and registrars are not guaranteed by the government.
Securities Lending Risk. The
Fund may engage in securities lending. Securities lending involves the risk that the Fund may lose money because the borrower of the Fund's loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money
in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events could also trigger adverse tax consequences for the Fund.
Securities Market Risk. Local
securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible at times. Settlement procedures in emerging
market countries are frequently less developed and reliable than those in the United States (and other developed countries). In addition, significant delays may occur in certain markets in registering the transfer of securities. Settlement or
registration problems may make it more difficult for the Fund to value its portfolio securities.
Security Risk. Some geographic
areas in which the Fund invests have experienced acts of terrorism or strained international relations due to territorial disputes, historical animosities or other defense concerns. These situations may cause uncertainty in the markets of these
geographic areas and may adversely affect their economies.
Structural Risk. Certain
emerging market countries are subject to a considerable degree of economic, political and social instability.
Economic Risk. Some emerging market
countries have experienced currency devaluations and substantial (and, in some cases, extremely high) rates of inflation, while others have experienced economic recessions causing a negative effect on the economies and securities markets of such
emerging countries.
Expropriation Risk. Investing in emerging market countries involves a great risk of loss due to expropriation,
nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments and repatriation of capital invested by certain emerging market countries.
Political and Social Risk. Some governments in emerging market countries are authoritarian in nature or have been installed or removed as a result of
military coups, and some governments have periodically used force to suppress civil dissent. Disparities of wealth, the pace and success of democratization, and ethnic, religious and racial disaffection, have also led to social unrest, violence
and/or labor unrest in some emerging market countries. Unanticipated political or social developments may result in sudden and significant investment losses.
Tracking Error Risk. Tracking
error is the divergence of the Fund’s performance from that of the Underlying Index. Tracking error may occur because of differences between the securities held in the Fund’s portfolio and those included in the Underlying Index, pricing
differences, transaction costs, the Fund’s holding of cash, differences in timing of the accrual of dividends, changes to the Underlying Index or the need to meet various new or existing regulatory requirements. This risk may be heightened
during
times
of increased market volatility or other unusual market conditions. Tracking error also may result because the Fund incurs fees and expenses, while the Underlying Index does not. BFA EXPECTS THAT THE FUND MAY EXPERIENCE HIGHER TRACKING ERROR THAN IS
TYPICAL FOR SIMILAR INDEX EXCHANGE-TRADED FUNDS.
Treaty/Tax
Risk. The Fund operates, in part, through the Subsidiary, which in turn invests in securities of Indian issuers. At this time, the Subsidiary should be eligible to take advantage of the benefits of the DTAA.
Numerous investors have relied on the benefits of the DTAA to invest in India through Mauritius in the past. However, in the past 10-15 years a number of parties have challenged the DTAA or the interpretation of the DTAA. Circular 789, issued on
April 13, 2000 by the Indian Central Board of Direct Taxes (“CBDT”), clarifies that whenever the Mauritius revenue authorities have issued a certificate of tax residence, such certificate would constitute sufficient evidence for
accepting the status of residence of Mauritius tax residents for purposes of applying the provisions of the DTAA. The Supreme Court of India in 2003 subsequently held and declared Circular 789 to be valid following litigation regarding Circular 789.
As of the date of this Prospectus, Circular 789 is still valid and in force.
However, recently issued rulings suggest that the Indian tax
administration’s analysis may have changed, and that the tax authorities may now focus on a number of factors when assessing whether a foreign entity is eligible for the benefit of the provisions of a tax treaty, including, among others, the
place of management of the foreign resident company and the level of substance in the jurisdiction in which it is incorporated. In addition, both the Indian tax administration and Indian courts seem now to be taking aggressive efforts to challenge
structures involving offshore funds investing directly or indirectly in India, in particular those from Mauritius. Further, the Finance Act, 2012 (the “Finance Act”) has made the submission of a tax residency certificate
(“TRC”) containing prescribed particulars mandatory for claiming treaty benefits. Some of the prescribed particulars are: name of the assessee, status, nationality, residential status for tax purposes, period for which the certificate is
applicable and address of the applicant for such period. This will come into force on April 1, 2013. The memorandum to the Finance Act further states that the TRC may not be sufficient for claiming treaty benefits.
It is possible that the governments of India and Mauritius may
renegotiate the terms of the DTAA to include, among other things, a limitation of benefit clause. No assurance can be given that the terms of the DTAA will not be renegotiated or subject to a different interpretation in the future. Any change in the
provisions of the DTAA or in its applicability to the Subsidiary could result in the imposition of withholding and capital gains taxes and other taxes on the Subsidiary by tax authorities in India. This could significantly reduce the return to the
Fund on its investments and the return received by the Fund’s shareholders.
Indian Tax Risk. In 2010, it
was proposed that the Income Tax Act (“IT Act”) may be replaced with the Direct Taxes Code. The Parliamentary Standing Committee released its comments on the Direct Taxes Code on March 9, 2012. The Finance Act was thereafter presented by
the Finance Minister on March 16, 2012, proposing certain amendments to the IT Act. The Finance Minister highlighted that the enactment of the
Direct
Taxes Code will be made, at the earliest, after considering the recommendations of the Parliamentary Standing Committee.
Given the delay in enacting the Direct Taxes Code, the
Government of India, through the Finance Act, which was enacted on May 28, 2012, has introduced certain key changes to the existing tax framework in India. This legislation includes provisions that impose Indian tax and withholding obligations with
respect to the transfer of shares in an overseas company that derives its value substantially from assets situated in India. Because the Fund invests in Indian securities through the Subsidiary, this legislation by its terms subjects shareholder
redemptions of Fund shares and sales of Fund investments to Indian tax and withholding obligations, both prospectively as well as retroactively. However, the CBDT issued a letter on May 29, 2012 clarifying the reopening of completed assessments as a
result of the retroactive amendments introduced by the Finance Act. Under this letter, the CBDT has directed Indian tax authorities to not reopen any assessment proceedings that were completed before April 1, 2012 and where no notice for
reassessment has been issued prior to that date. It has also been clarified that any assessment or any other order which stands validated due to the amendments in the Finance Act would be enforced. Given this clarification issued by the CBDT, the
Fund does not expect that shareholders or the Fund will become subject to tax or to withholding obligations with respect to this particular provision of the Finance Act.
In addition, the Finance Act introduced the general tax
anti-avoidance rule (“GAAR”), which disallows “impermissible avoidance arrangements.” If the Fund’s use of the Subsidiary were considered to be such an impermissible avoidance arrangement, the Fund would become subject
directly to taxation in India. GAAR is expected to come into force in April 2013. The burden of proof in enforcing the rule will reside with the Indian government, not the taxpayer, and India’s current double tax treaty arrangements will
remain in force. However, GAAR may prevent the Fund from realizing the planned tax benefits of the Subsidiary, irrespective of existing beneficial treaty provisions, may lead to the imposition of tax liabilities and withholding obligations, and may
lead the Fund to modify or disassemble its Subsidiary structure.
A Committee was established by the Government of India to
provide recommendations on the guidelines for implementing GAAR under the Direct Taxes Code. With GAAR provisions having been introduced in the Finance Act, the Committee came out with its report on June 28, 2012.
The Prime Minister’s Office formed an experts committee
(the “Panel”) to hold
consultations with stakeholders and the general public to rework the draft guidelines on GAAR and create a roadmap for implementation. The Panel submitted its draft recommendations on September 1, 2012. The
recommendations have been given on the basis that GAAR is not for the purpose of generating revenue but to deter arrangements to avoid tax. Some of the key recommendations are:
(a) |
Deferring the implementation
of GAAR for 3 years on administrative grounds (e.g., training of tax officers, establishing Approving Panel, etc.); |
(b) |
All investments made and
existing on the commencement of GAAR should be grandfathered so that on exit GAAR is not invoked; |
(c) |
Where CBDT Circular 789 of
2000 is applicable, GAAR should not be invoked; and |
(d) |
Where a treaty has specific
anti-avoidance provisions, GAAR should not override the treaty. |
This report was submitted to the Ministry of Finance of the
Government of India, on October 1, 2012.
Provisions of
the Finance Act and the Direct Taxes Code (if enacted), could change the manner in which the Subsidiary is currently taxed in India and could adversely impact the returns to the Fund/Subsidiary and its shareholders. The Fund will continue to monitor
developments in India with respect to these matters. Investors are urged to consult their own tax advisers with respect to their own tax situations and the tax consequences of an investment in the Fund.
U.S. Economic Risk. The United
States is a significant trading partner of many emerging markets in which the Fund invests. Decreasing U.S. imports, new trade regulations, changes in the U.S. dollar exchange rates or a recession in the United States may have an adverse impact on
these markets and, as a result, securities to which the Fund has exposure.
Valuation Risk. The sale price
the Fund could receive for a security may differ from the Fund's valuation of the security and may differ from the value used by the Underlying Index, particularly for securities that trade in low volume or volatile markets, or that are valued
using a fair value methodology. Because non-U.S. exchanges may be open on days when the Fund does not price its shares, the value of the securities in the Fund’s portfolio may change on days when shareholders will not be able to purchase or
sell the Fund’s shares. In addition, for purposes of calculating the Fund's NAV, the value of assets denominated in non-U.S. currencies is converted into U.S. dollars using exchange rates deemed appropriate by BFA. This conversion may result
in a difference between the prices used to calculate the Fund's NAV and the prices used by the Underlying Index, which, in turn, could result in a difference between the Fund's performance and the performance of the Underlying Index.
A Further Discussion of Other Risks
The Fund may also be subject to certain other risks associated
with its investments and investment strategies.
African
Economic Risk. Investing in the economies of African countries involves risks not typically associated with investments in securities of issuers in more developed economies, countries or geographic regions that may
negatively affect the value of investments in the Fund. Such heightened risks include, among others, expropriation and/or nationalization of assets, restrictions on and government intervention in international trade, confiscatory taxation, political
instability, including authoritarian and/or military involvement in governmental decision making, armed conflict, civil war, and social instability as a result of religious, ethnic and/or socioeconomic unrest.
The securities markets in Africa are underdeveloped and are
often considered to be less correlated to global economic cycles than markets located in more developed countries or geographic regions. Securities markets in Africa are subject to greater
risks
associated with market volatility, lower market capitalization, lower trading volume, illiquidity, inflation, greater price fluctuations, uncertainty regarding the existence of trading markets, governmental control and heavy regulation of labor and
industry. Moreover, trading on securities markets may be suspended altogether.
Certain governments in Africa may restrict or control to
varying degrees the ability of foreign investors to invest in securities of issuers located or operating in those countries. These restrictions and/or controls may at times limit or prevent foreign investment in securities of issuers located or
operating in countries in Africa. Moreover, certain countries in Africa may require governmental approval or special licenses prior to investment by foreign investors; may limit the amount of investment by foreign investors in a particular industry
and/or issuer; may limit such foreign investment to a certain class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domestic investors of those countries; and/or may impose additional
taxes on foreign investors. These factors, among others, make investing in issuers located or operating in countries in Africa significantly riskier than investing in issuers located or operating in more developed countries.
Consumer Discretionary Sector Risk. The success of consumer product manufacturers and retailers is tied closely to the performance of domestic and international economies, interest rates, exchange rates, competition, consumer confidence, changes in
demographics and consumer preferences. Companies in the consumer discretionary sector depend heavily on disposable household income and consumer spending, and may be strongly affected by social trends and marketing campaigns. These companies may be
subject to severe competition, which may have an adverse impact on their profitability.
Consumer Staples Sector Risk.
The consumer staples sector may be affected by the permissibility of using various product components and production methods, marketing campaigns and other factors affecting consumer demand. Tobacco companies, in particular, may be adversely
affected by new laws, regulations and litigation. The consumer staples sector may also be adversely affected by changes or trends in commodity prices, which may be influenced or characterized by unpredictable factors.
Eastern European Economic Risk.
An investment in Eastern European issuers may subject the Fund to legal, regulatory, political, currency, security and economic risks specific to Eastern Europe. Economies of certain Eastern European countries rely
heavily on export of commodities, including oil and gas, and certain metals. As a result, such economies will be impacted by international commodity prices and are particularly vulnerable to global demand for these products. Acts of terrorism in
certain Eastern European countries may cause uncertainty in their financial markets and adversely affect the performance of the issuers to which the Fund has exposure. The securities markets in Eastern European countries are substantially smaller
and inexperienced, with less government supervision and regulation of stock exchanges and less liquid and more volatile than securities markets in the United States or Western European countries. In addition, investing in securities of Eastern
European issuers involves:
■ |
The risk of delays in
settling portfolio transactions and the risk of loss arising out of the system of share registration and custody used in certain Eastern European countries; |
■ |
Risks in connection with the
maintenance of the Fund's portfolio securities and cash with foreign sub-custodians and securities depositories, including the risk that appropriate sub-custody arrangements will not be available to the Fund; |
■ |
The risk that the Fund's
ownership rights in portfolio securities could be lost through fraud or negligence as a result of the fact that ownership in shares of certain Eastern European companies is recorded by the companies themselves and by registrars, rather than a
central registration system; |
■ |
The risk that the Fund may
not be able to pursue claims on behalf of its shareholders because of the system of share registration and custody, and because certain Eastern European banking institutions and registrars are not guaranteed by their respective governments; and
|
■ |
Risks in connection with
Eastern European countries' dependence on the economic health of Western European countries and the EU as a whole. |
Other risks related to investing in securities of Eastern
European issuers include: the absence of legal structures governing private and foreign investments and private property; the possibility of the loss of all or a substantial portion of the Fund’s assets invested in Eastern European issuers as
a result of expropriation; and certain national policies which may restrict the Fund’s investment opportunities, including, without limitation, restrictions on investing in issuers or industries deemed sensitive to relevant national
interests.
Industrials Sector Risk. The value of securities issued by companies in the industrials sector may be affected by supply and demand, both for their specific product or service and for industrials sector products in general. The products of
manufacturing companies may face obsolescence due to rapid technological developments and frequent new product introduction. Government regulations, world events, economic conditions and exchange rates affect the performance of companies in the
industrials sector. Companies in the industrials sector may be adversely affected by liability for environmental damage and product liability claims. The industrials sector may also be adversely affected by changes or trends in commodity prices,
which may be influenced by unpredictable factors.
Mid-Capitalization Companies Risk. Stock prices of mid-capitalization companies may be more volatile than those of large-capitalization companies and, therefore, the Fund’s share price may be more volatile than those of funds that invest a larger
percentage of their assets in stocks issued by large-capitalization companies. Stock prices of mid-capitalization companies are also more vulnerable than those of large-capitalization companies to adverse business or economic developments, and the
stocks of mid-capitalization companies may be less liquid, making it difficult for the Fund to buy and sell them. In addition, mid-capitalization companies generally have less diverse product lines than large-capitalization companies and are more
susceptible to adverse developments related to their products.
Telecommunications Sector Risk. The telecommunications sector of an economy is often subject to extensive government regulation. The costs of complying with governmental regulations, delays or failure to receive required regulatory approvals, or the
enactment of new adverse regulatory requirements may negatively affect the business of the telecommunications companies. Government actions around the world, specifically in the area of pre-marketing clearance of products and prices, can be
arbitrary and unpredictable. Companies in the telecommunications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new
technology. Technological innovations may make the products and services of telecommunications companies obsolete.
Portfolio Holdings Information
A description of the Company's policies and procedures with
respect to the disclosure of the Fund's portfolio securities is available in the Fund's Statement of Additional Information (“SAI”). The top holdings of the Fund can be found at www.iShares.com. Fund fact sheets provide information
regarding the Fund's top holdings and may be requested by calling 1-800-iShares (1-800-474-2737).
Management
Investment Adviser. As
investment adviser, BFA has overall responsibility for the general management and administration of the Company. BFA provides an investment program for the Fund and manages the investment of the Fund’s assets. In managing the Fund, BFA may
draw upon the research and expertise of its asset management affiliates with respect to certain portfolio securities. In seeking to achieve the Fund's investment objective, BFA uses teams of portfolio managers, investment strategists and other
investment specialists. This team approach brings together many disciplines and leverages BFA’s extensive resources.
Pursuant to the Investment Advisory Agreement between BFA and
the Company (entered into on behalf of the Fund), BFA is responsible for substantially all expenses of the Fund, except interest expenses, taxes, brokerage expenses, future distribution fees or expenses and extraordinary expenses.
For its investment advisory services to the Fund, BFA is
entitled to receive a management fee from the Fund corresponding to the Fund’s allocable portion of an aggregate management fee based on the aggregate average daily net assets of the following iShares funds: iShares MSCI All Country Asia ex
Japan Index Fund, iShares MSCI BRIC Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging Markets Eastern Europe Index Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares
MSCI Emerging Markets Financials Sector Index Fund, iShares MSCI Emerging Markets Index Fund, iShares MSCI Emerging Markets Materials Sector Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund and iShares MSCI Emerging Markets
Small Cap Index Fund. The aggregate management fee is calculated as follows: 0.75% per annum of the aggregate net assets less than or equal to $14.0 billion, plus 0.68% per annum of the aggregate net assets over $14.0 billion, up to and including
$28.0
billion, plus 0.61% per annum of the aggregate net assets over $28.0 billion,
up to and including $42.0 billion, plus 0.56% per annum of the aggregate net assets over $42.0 billion, up to and including $56.0 billion, plus 0.50% per annum of the aggregate net assets over $56.0 billion, up to and including $70.0 billion, plus
0.45% per annum of the aggregate net assets over $70.0 billion, up to and including $84.0 billion, plus 0.40% per annum of the aggregate net assets in excess of $84.0 billion. Based on assets of the iShares funds enumerated above as of August 31,
2012, for its investment advisory services to the Fund, BFA is entitled to receive a management fee from the Fund, based on a percentage of the Fund’s average daily net assets, at an annual rate of 0.69%. BFA has contractually agreed to waive
a portion of its management fees in an amount equal to the Fund’s pro rata share of the fees and expenses attributable to the Fund’s investments in other iShares funds, “Acquired Fund Fees
and Expenses,” through June 30, 2014. The contractual waiver may be terminated prior to June 30, 2014 only upon written agreement of the Company and BFA. BFA may voluntarily waive a portion of the management fee, as it determines, from time to
time; the aforementioned management fee does not reflect such waivers or reimbursements. Any such voluntary waiver or reimbursement may be eliminated by BFA at any time.
BFA is located at 400 Howard Street, San Francisco, CA 94105.
It is an indirect wholly owned subsidiary of BlackRock, Inc. (“BlackRock”). As of September 30, 2012, BFA and its affiliates provided investment advisory services for assets in excess of $3.67 trillion. BFA and its affiliates deal, trade
and invest for their own accounts in the types of securities in which the Fund may also invest.
A discussion regarding the basis for the Company's Board of
Directors' (the “Board”) approval of the Investment Advisory Agreement with BFA is available in the Fund's annual report for the period ended August 31.
Portfolio Managers. Christopher
Bliss, Rene Casis, Diane Hsiung, Jennifer Hsui and Greg Savage are primarily responsible for the day-to-day management of the Fund. Each Portfolio Manager is responsible for various functions related to portfolio management, including, but not
limited to, investing cash inflows, coordinating with members of his or her portfolio management team to focus on certain asset classes, implementing investment strategy, researching and reviewing investment strategy and overseeing members of his or
her portfolio management team that have more limited responsibilities.
Christopher Bliss has been employed by BFA (formerly, Barclays
Global Fund Advisors (“BGFA”)) and BlackRock Institutional Trust Company, N.A. (“BTC”) (formerly, Barclays Global Investors, N.A. (“BGI”)) as a senior portfolio manager since 2005. Prior to that, Mr. Bliss was a
portfolio manager from 2004 to 2005 for BGFA and BGI. Mr. Bliss has been a Portfolio Manager of the Fund since 2011.
Rene Casis has been employed by BFA and BTC as a senior
portfolio manager since 2009. From 2005 to 2009, Mr. Casis was a trader at Barclays Capital. Prior to that, Mr. Casis was a portfolio manager from 2000 to 2005 for BGFA and BGI. Mr. Casis has been a Portfolio Manager of the Fund since 2011.
Diane Hsiung has been employed by BFA and BTC as a senior
portfolio manager since 2007. Prior to that, Ms. Hsiung was a portfolio manager from 2002 to 2006 for BGFA and BGI. Ms. Hsiung has been a Portfolio Manager of the Fund since 2008.
Jennifer Hsui has been employed by BFA and BTC as a senior
portfolio manager since 2007. Prior to that, Ms. Hsui was a portfolio manager from 2006 to 2007 for BGFA and BGI. Ms. Hsui has been a Portfolio Manager of the Fund since 2012.
Greg Savage has been employed by BFA and BTC as a senior
portfolio manager since 2006. Prior to that, Mr. Savage was a portfolio manager from 2001 to 2006 for BGFA and BGI. Mr. Savage has been a Portfolio Manager of the Fund since 2008.
The Fund's SAI provides additional information about the
Portfolio Managers' compensation, other accounts managed by the Portfolio Managers and the Portfolio Managers' ownership (if any) of shares in the Fund.
Administrator, Custodian and Transfer Agent. State Street Bank and Trust Company (“State Street”) is the administrator, custodian and transfer agent for the Fund.
Conflicts of Interest. BFA
wants you to know that there are certain entities with which BFA has relationships that may give rise to conflicts of interest, or the appearance of conflicts of interest. These entities are BFA’s affiliates, including BlackRock and the PNC
Financial Services Group, Inc., and each of their affiliates, directors, partners, trustees, managing members, officers and employees (collectively, the “Affiliates”).
The activities of BFA and the Affiliates in the management of,
or their interest in, their own accounts and other accounts they manage, may present conflicts of interest that could disadvantage the Fund and its shareholders. BFA and the Affiliates provide investment management services to other funds and
discretionary managed accounts that may follow an investment program similar to that of the Fund. BFA and the Affiliates are involved worldwide with a broad spectrum of financial services and asset management activities and may engage in the
ordinary course of business in activities in which their interests or the interests of their clients may conflict with those of the Fund. BFA or one or more of the Affiliates acts, or may act, as an investor, investment banker, research provider,
investment manager, financier, underwriter, advisor, market maker, trader, prime broker, lender, agent or principal, and have other direct and indirect interests, in securities, currencies and other instruments in which the Fund may directly or
indirectly invest. Thus, it is likely that the Fund will have multiple business relationships with and will invest in, engage in transactions with, make voting decisions with respect to, or obtain services from, entities for which BFA or an
Affiliate seeks to perform investment banking or other services.
BFA or one or more Affiliates may engage in proprietary trading
and advise accounts and funds that have investment objectives similar to those of the Fund and/or that engage in and compete for transactions in the same types of securities, currencies and other instruments as the Fund, including in securities
issued by other open-end and closed-end investment management companies, including investment companies that are affiliated with the Fund and BFA, to the extent permitted under the Investment Company Act of 1940, as amended (the “1940
Act”). The trading activities of BFA and
these
Affiliates are carried out without reference to positions held directly or indirectly by the Fund and may result in BFA or an Affiliate having positions that are adverse to those of the Fund.
No Affiliate is under any obligation to share any investment
opportunity, idea or strategy with the Fund. As a result, an Affiliate may compete with the Fund for appropriate investment opportunities. As a result of this and several other factors, the results of the Fund's investment activities may differ from
those of an Affiliate and of other accounts managed by an Affiliate, and it is possible that the Fund could sustain losses during periods in which one or more Affiliates and other accounts achieve profits on their trading for proprietary or other
accounts. The opposite result is also possible.
The Fund
may, from time to time, enter into transactions in which BFA or an Affiliate's clients have an interest adverse to the Fund. Furthermore, transactions undertaken by Affiliate-advised clients may adversely impact the Fund. Transactions by one or more
Affiliate-advised clients or BFA may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of the Fund.
The Fund's activities may be limited because of regulatory
restrictions applicable to one or more Affiliates, and/or their internal policies designed to comply with such restrictions. In addition, the Fund may invest in securities of companies with which an Affiliate has developed or is trying to develop
investment banking relationships or in which an Affiliate has significant debt or equity investments. The Fund also may invest in securities of companies for which an Affiliate provides or may someday provide research coverage. An Affiliate may have
business relationships with, and purchase, distribute or sell services or products from or to, distributors, consultants or others who recommend the Fund or who engage in transactions with or for the Fund, and may receive compensation for such
services. The Fund may also make brokerage and other payments to Affiliates in connection with the Fund's portfolio investment transactions.
Pursuant to a securities lending program approved by the Board,
the Fund has retained an Affiliate of BFA to serve as the securities lending agent for the Fund to the extent that the Fund participates in the securities lending program. For these services, the lending agent may receive a fee from the Fund,
including a fee based on the returns earned on the Fund’s investment of the cash received as collateral for any loaned securities. In addition, one or more Affiliates may be among the entities to which the Fund may lend its portfolio
securities under the securities lending program.
The
activities of BFA or the Affiliates may give rise to other conflicts of interest that could disadvantage the Fund and its shareholders. BFA has adopted policies and procedures designed to address these potential conflicts of interest. See the Fund's
SAI for further information.
Legal Proceedings. On January 18, 2013, a lawsuit was filed in the United States District Court for the Middle District of Tennessee by Laborers' Local 265 Pension Fund and Plumbers and Pipefitters Local No. 572 Pension Fund against BFA,
BTC, and the current members of the iShares Trust Board of Trustees and the Board of Directors of iShares, Inc. (collectively, “Defendants”) for alleged violations of, among other things, Sections 36(a) and 36(b) of the 1940 Act. The
complaint purports to be brought
derivatively on behalf of iShares Trust and iShares, Inc., as well as the
following eight funds: iShares Russell MidCap Index Fund; iShares MSCI EAFE Index Fund; iShares MSCI Emerging Markets Index Fund; iShares Russell 2000 Growth Index Fund; iShares Russell 2000 Value Index Fund; iShares Core S&P Mid-Cap ETF;
iShares Core S&P Small-Cap ETF; and iShares Dow Jones U.S. Real Estate Index Fund (the “Funds”). The complaint alleges, among other things, that BFA and BTC breached their fiduciary duties under the 1940 Act by charging allegedly
excessive fees in connection with the provision of securities lending services to the Funds, that the individual defendants breached their fiduciary duties under the 1940 Act by approving those fee arrangements, and that the securities lending
contracts are unenforceable under Section 47(b) of the 1940 Act. Plaintiffs seek injunctive relief, rescission of the securities lending contracts and, monetary damages of an unspecified amount. Defendants believe the claims are without merit and
intend to vigorously defend themselves against the allegations in the lawsuit. On March 11, 2013, the Defendants filed a motion to dismiss the lawsuit.
Shareholder Information
Additional shareholder information, including how to buy and
sell shares of the Fund, is available free of charge by calling toll-free: 1-800-iShares (1-800-474-2737) or visiting our website at www.iShares.com.
Buying and Selling Shares.
Shares of the Fund may be acquired or redeemed directly from the Fund only in Creation Units or multiples thereof, as discussed in the Creations and Redemptions section of this Prospectus. Only an Authorized Participant (as defined in the Creations and Redemptions section) may
engage in creation or redemption transactions directly with the Fund. Once created, shares of the Fund generally trade in the secondary market in amounts less than a Creation Unit.
Shares of the Fund are listed on a national securities exchange
for trading during the trading day. Shares can be bought and sold throughout the trading day like shares of other publicly traded companies. The Company does not impose any minimum investment for shares of the Fund purchased on an exchange. The
Fund's shares trade under the trading symbol “EEM.”
Buying or selling Fund shares on an exchange involves two types
of costs that may apply to all securities transactions. When buying or selling shares of the Fund through a broker, you will likely incur a brokerage commission or other charges determined by your broker. The commission is frequently a fixed amount
and may be a significant proportional cost for investors seeking to buy or sell small amounts of shares. In addition, you may incur the cost of the “spread,” that is, any difference between the bid price and the ask price. The spread
varies over time for shares of the Fund based on the Fund’s trading volume and market liquidity, and is generally lower if the Fund has a lot of trading volume and market liquidity, and higher if the Fund has little trading volume and market
liquidity.
The Board has adopted a policy of not
monitoring for frequent purchases and redemptions of Fund shares (“frequent trading”) that appear to attempt to take advantage of a potential arbitrage opportunity presented by a lag between a change in the value of the Fund’s
portfolio securities after the close of the primary markets for the Fund’s portfolio securities and the reflection of that change in the Fund’s NAV
(“market timing”), because the Fund generally sells and redeems
its shares directly through transactions that are in-kind and/or for cash, subject to the conditions described below under Creations and Redemptions. The Board has not adopted a policy of monitoring for other
frequent trading activity because shares of the Fund are listed for trading on a national securities exchange.
The national securities exchange on which the Fund's shares are
listed is open for trading Monday through Friday and is closed on weekends and the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The Fund’s primary listing exchange is NYSE Arca.
Section 12(d)(1) of the 1940 Act restricts investments by
investment companies in the securities of other investment companies. Registered investment companies are permitted to invest in the Fund beyond the limits set forth in Section 12(d)(1), subject to certain terms and conditions set forth in SEC rules
or in an SEC exemptive order issued to the Company. In order for a registered investment company to invest in shares of the Fund beyond the limitations of Section 12(d)(1) pursuant to the exemptive relief obtained by the Company, the registered
investment company must enter into an agreement with the Company.
Book Entry. Shares of the Fund
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its nominee is the record owner of all outstanding shares of the Fund and is recognized as the owner of all shares
for all purposes.
Investors owning shares of the
Fund are beneficial owners as shown on the records of DTC or its participants. DTC serves as the securities depository for shares of the Fund. DTC participants include securities brokers and dealers, banks, trust companies, clearing corporations and
other institutions that directly or indirectly maintain a custodial relationship with DTC. As a beneficial owner of shares, you are not entitled to receive physical delivery of stock certificates or to have shares registered in your name, and you
are not considered a registered owner of shares. Therefore, to exercise any right as an owner of shares, you must rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other securities that
you hold in book-entry or “street name” form.
Share Prices. The trading
prices of the Fund’s shares in the secondary market generally differ from the Fund’s daily NAV and are affected by market forces such as supply and demand, economic conditions and other factors. Information regarding the intraday value
of shares of the Fund, also known as the “indicative optimized portfolio value” (“IOPV”), is disseminated every 15 seconds throughout the trading day by the national securities exchange on which the Fund's shares are listed
or by market data vendors or other information providers. The IOPV is based on the current market value of the securities and/or cash required to be deposited in exchange for a Creation Unit. The IOPV does not necessarily reflect the precise
composition of the current portfolio of securities held by the Fund at a particular point in time or the best possible valuation of the current portfolio. Therefore, the IOPV should not be viewed as a “real-time” update of the Fund's
NAV, which is computed only once a day. The IOPV is generally determined by using both current market quotations and/or price quotations obtained
from
broker-dealers that may trade in the portfolio securities held by the Fund. The quotations of certain Fund holdings may not be updated during U.S. trading hours if such holdings do not trade in the United States. The Fund is not involved in, or
responsible for, the calculation or dissemination of the IOPV and makes no representation or warranty as to its accuracy.
Determination of Net Asset Value. The NAV of the Fund normally is determined once daily Monday through Friday, generally as of the regularly scheduled close of business of the New York Stock Exchange (“NYSE”) (normally 4:00 p.m., Eastern
time) on each day that the NYSE is open for trading, based on prices at the time of closing provided that (a) any Fund assets or liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the prevailing
market rates on the date of valuation as quoted by one or more data service providers (as detailed below) and (b) U.S. fixed-income assets may be valued as of the announced closing time for trading in fixed-income instruments in a particular market
or exchange. The NAV of the Fund is calculated by dividing the value of the net assets of the Fund (i.e., the value of its total assets less total
liabilities) by the total number of outstanding shares of the Fund, generally rounded to the nearest cent.
The value of the securities and other assets and liabilities
held by the Fund are determined pursuant to valuation policies and procedures approved by the Board. The Fund's assets and liabilities are valued primarily on the basis of market quotations.
Equity investments are valued at market value, which is
generally determined using the last reported official closing price or last trading price on the exchange or market on which the security is primarily traded at the time of valuation.
The Fund invests in non-U.S. securities. Foreign currency
exchange rates are generally determined as of 4:00 p.m., London time. Non-U.S. securities held by the Fund may trade on weekends or other days when the Fund does not price its shares. As a result, the Fund’s NAV may change on days when
Authorized Participants will not be able to purchase or redeem Fund shares.
Generally, trading in non-U.S. securities, U.S. government
securities, money market instruments and certain fixed-income securities is substantially completed each day at various times prior to the close of business on the NYSE. The values of such securities used in computing the NAV of the Fund are
determined as of such times.
When market quotations are
not readily available or are believed by BFA to be unreliable, the Fund’s investments are valued at fair value. Fair value determinations are made by BFA in accordance with policies and procedures approved by the Fund’s Board. BFA may
conclude that a market quotation is not readily available or is unreliable if a security or other asset or liability does not have a price source due to its lack of liquidity, if a market quotation differs significantly from recent price quotations
or otherwise no longer appears to reflect fair value, where the security or other asset or liability is thinly traded, or where there is a significant event subsequent to the most recent market quotation. A “significant event” is an
event that, in the judgment of BFA, is likely to cause a material change to the closing market price of the asset or liability held by the Fund. Non-U.S. securities whose values are affected by volatility that
occurs
in U.S. markets on a trading day after the close of non-U.S. securities markets may be fair valued.
Fair value represents a good faith approximation of the value
of an asset or liability. The fair value of an asset or liability held by the Fund is the amount the Fund might reasonably expect to receive from the current sale of that asset or the cost to extinguish that liability in an arm’s-length
transaction. Valuing the Fund’s investments using fair value pricing will result in prices that may differ from current market valuations and that may not be the prices at which those investments could have been sold during the period in which
the particular fair values were used. Use of fair value prices and certain current market valuations could result in a difference between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which, in turn,
could result in a difference between the Fund’s performance and the performance of the Underlying Index.
The value of assets or liabilities denominated in non-U.S.
currencies will be converted into U.S. dollars using exchange rates deemed appropriate by BFA as investment adviser. Use of a rate different from the rate used by the Index Provider may adversely affect the Fund’s ability to track the
Underlying Index.
Dividends and Distributions
General Policies. Dividends
from net investment income, if any, generally are declared and paid semi-annually by the Fund. Distributions of net realized securities gains, if any, generally are declared and paid once a year, but the Company may make distributions on a more
frequent basis for the Fund. The Company reserves the right to declare special distributions if, in its reasonable discretion, such action is necessary or advisable to preserve its status as a regulated investment company (“RIC”) or to
avoid imposition of income or excise taxes on undistributed income or realized gains.
Dividends and other distributions on shares of the Fund are
distributed on a pro rata basis to beneficial owners of such shares. Dividend payments are made through DTC participants and indirect participants to beneficial owners then of record with proceeds received
from the Fund.
Dividend Reinvestment Service. No dividend reinvestment service is provided by the Company. Broker-dealers may make available the DTC book-entry Dividend Reinvestment Service for use by beneficial owners of the Fund for reinvestment of their dividend
distributions. Beneficial owners should contact their broker to determine the availability and costs of the service and the details of participation therein. Brokers may require beneficial owners to adhere to specific procedures and timetables. If
this service is available and used, dividend distributions of both income and realized gains will be automatically reinvested in additional whole shares of the Fund purchased in the secondary market.
Taxes. As with any investment,
you should consider how your investment in shares of the Fund will be taxed. The tax information in this Prospectus is provided as general information, based on current law. You should consult your own tax professional about the tax consequences of
an investment in shares of the Fund.
Unless your investment in Fund shares is made through a
tax-exempt entity or tax-deferred retirement account, such as an IRA, you need to be aware of the possible tax consequences when the Fund makes distributions or you sell Fund shares.
Taxes on Distributions.
Distributions from the Fund’s net investment income (other than qualified dividend income), including distributions of income from securities lending and distributions out of the Fund’s net short-term capital gains, if any, are taxable
to you as ordinary income. Distributions by the Fund of net long-term capital gains in excess of net short-term capital losses (capital gain dividends) are taxable to you as long-term capital gains, generally at a 15% tax rate (0% at certain income
levels), regardless of how long you have held the Fund’s shares. Distributions by the Fund that qualify as qualified dividend income are taxable to you at long-term capital gain rates for taxable years beginning on or before December 31, 2012.
For taxable years beginning after December 31, 2012, all dividend income is scheduled to be taxed to individuals at ordinary income rates, the top marginal rate for which is schedule to rise from 35% to 39.6%. The 15% and 0% tax rates expire for
taxable years beginning after December 31, 2012. Maximum long-term capital gain income tax rates are scheduled to rise to 20% in 2013. Beginning in 2013, a 3.8% U.S. federal Medicare contribution tax will be imposed on “net investment
income,” including, but not limited to, interest, dividends, and net gain, of U.S. individuals with income exceeding $200,000 (or $250,000 if married and filing jointly), and of estates and trusts.
Dividends will be qualified dividend income to you if they are
attributable to qualified dividend income received by the Fund. Generally, qualified dividend income includes dividend income from taxable U.S. corporations and qualified non-U.S. corporations, provided that the Fund satisfies certain holding period
requirements in respect of the stock of such corporations and has not hedged its position in the stock in certain ways. Substitute dividends received by the Fund with respect to dividends paid on securities lent out will not be qualified dividend
income. For this purpose, a qualified non-U.S. corporation means any non-U.S. corporation that is eligible for benefits under a comprehensive income tax treaty with the United States, which includes an exchange of information program or if the stock
with respect to which the dividend was paid is readily tradable on an established U.S. securities market. The term excludes a corporation that is a passive foreign investment company.
Dividends received by the Fund from a real estate investment
trust (“REIT”) or another RIC generally are qualified dividend income only to the extent the dividend distributions are made out of qualified dividend income received by such REIT or RIC. It is expected that dividends received by the
Fund from a REIT and distributed to a shareholder generally will be taxable to the shareholder as ordinary income.
For a dividend to be treated as qualified dividend income, the
dividend must be received with respect to a share of stock held without being hedged by the Fund, and with respect to a share of the Fund held without being hedged by you, for 61 days during the 121-day period beginning at the date which is 60 days
before the date on which such share becomes ex-dividend with respect to such dividend or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date.
If your Fund shares are loaned out pursuant to a securities
lending arrangement, you may lose the ability to use foreign tax credits passed through by the Fund or to treat Fund dividends paid while the shares are held by the borrower as qualified dividend income.
In general, your distributions are subject to U.S. federal
income tax for the year when they are paid. Certain distributions paid in January, however, may be treated as paid on December 31 of the prior year.
If the Fund’s distributions exceed current and
accumulated earnings and profits, all or a portion of the distributions made in the taxable year may be recharacterized as a return of capital to shareholders. Distributions in excess of the Fund’s minimum distribution requirements, but not in
excess of the Fund’s earnings and profits, will be taxable to shareholders and will not constitute nontaxable returns of capital. The Fund’s capital loss carryforwards, if any, carried from taxable years beginning before 2011 do not
reduce current earnings and profits, even if such carryforwards offset current year realized gains. A return of capital distribution generally will not be taxable but will reduce the shareholder’s cost basis and result in a higher capital gain
or lower capital loss when those shares on which the distribution was received are sold. Once a shareholder's cost basis is reduced to zero, further distributions will be treated as capital gain, if the shareholder holds shares of the Fund as
capital assets.
If you are neither a resident nor a
citizen of the United States or if you are a non-U.S. entity, the Fund’s ordinary income dividends (which include distributions of net short-term capital gains) will generally be subject to a 30% U.S. withholding tax, unless a lower treaty
rate applies, provided that withholding tax will generally not apply to any gain or income realized by a non-U.S. shareholder in respect of any distributions of long-term capital gains or upon the sale or other disposition of shares of the
Fund.
A 30% withholding tax will be imposed on dividends
paid after December 31, 2013, and redemption proceeds paid after December 31, 2016, to (i) foreign financial institutions including non-U.S. investment funds unless they agree to collect and disclose to the Internal Revenue Service
(“IRS”) information regarding their direct and indirect U.S. account holders and (ii) certain other foreign entities, unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign
financial institutions will (i) need to enter into agreements with the IRS that state that they will provide the IRS information, including the name, address and taxpayer identification number of direct and indirect U.S. account holders, comply with
due diligence procedures with respect to the identification of U.S. accounts, report to the IRS certain information with respect to U.S. accounts maintained, agree to withhold tax on certain payments made to non-compliant foreign financial
institutions or to account holders who fail to provide the required information, and determine certain other information as to their account holders, or (ii) in the event that an applicable intergovernmental agreement and implementing legislation
are adopted, provide local revenue authorities with similar account holder information. Other foreign entities will need to provide the name, address, and taxpayer identification number of each substantial U.S. owner or certifications of no
substantial U.S. ownership unless certain exceptions apply or agree to provide certain information to other revenue authorities for transmittal to the IRS.
Dividends, interest and capital gains earned by the Fund with
respect to non-U.S. securities may give rise to withholding and other taxes imposed by non-U.S. countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If more than 50% of the total assets of
the Fund at the close of a year consists of non-U.S. stocks or securities, the Fund may “pass through” to you certain non-U.S. income taxes (including withholding taxes) paid by the Fund. This means that you would be considered to have
received as an additional dividend your share of such non-U.S. taxes, but you may be entitled to either a corresponding tax deduction in calculating your taxable income, or, subject to certain limitations, a credit in calculating your U.S. federal
income tax.
For purposes of foreign tax credits for U.S.
shareholders of the Fund, foreign capital gains taxes may not produce associated foreign source income, thereby limiting a U.S. person's ability to use such credits.
If you are a resident or a citizen of the United States, by
law, back-up withholding will apply to your distributions and proceeds if you have not provided a taxpayer identification number or social security number and made other required certifications.
Taxes When Shares are Sold.
Currently, any capital gain or loss realized upon a sale of Fund shares is generally treated as a long-term gain or loss if the shares have been held for more than one year. Any capital gain or loss realized upon a sale of Fund shares held for one
year or less is generally treated as short-term gain or loss, except that any capital loss on the sale of shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid with respect to
such shares. Beginning in 2013, any such capital gains, including from sales of Fund shares or from capital gain dividends, will be included in “net investment income” for purposes of the 3.8% U.S. federal Medicare contribution tax
mentioned above.
The foregoing discussion
summarizes some of the consequences under current U.S. federal tax law of an investment in the Fund. It is not a substitute for personal tax advice. You may also be subject to state and local taxation on Fund distributions and sales of shares.
Consult your personal tax adviser about the potential tax consequences of an investment in shares of the Fund under all applicable tax laws.
Mauritius Tax Disclosure. The
Fund conducts its investment activities in India through the Subsidiary. In order to be eligible to claim benefits under the DTAA, the Subsidiary must satisfy certain conditions, including the establishment and maintenance of a valid tax residence
in Mauritius. The Subsidiary has obtained a certificate from the Mauritius authorities providing that it is a resident of Mauritius under the DTAA. The Fund expects the Subsidiary to maintain its Mauritius tax residency. 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%. 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.
Indian Tax Disclosure. In the
event the benefits under the DTAA are denied, the following rates of tax under the Indian IT Act will be applicable (these rates are inclusive of applicable surcharges):
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Dividend: Dividend income earned by the Subsidiary will not be subject to Indian tax. However, the Indian company declaring and paying such dividend would be subject to Dividend Distribution Tax at an effective rate of 16.223% on
the amount of the dividend paid out. |
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Interest: Interest paid to the Subsidiary in respect of debt obligations of Indian issuers will be subject to Indian income tax. The tax rate in the case of a rupee-denominated debt obligation is 42.024%. In the case of a
foreign-currency denominated debt obligation, the tax rate is 21.012%. For approved foreign-currency loans advanced from July 1, 2012 to July 1, 2015, the tax rate on interest is 5.25%. However, if the Subsidiary is registered as a sub-account with
SEBI, interest from securities will be subject to tax at the rate of 21.012%. |
■ |
Securities Transaction Tax: Transactions involving the purchase or sale of shares or any other security traded on a recognized Indian stock exchange are subject to Securities Transaction Tax (“STT”) at the rate of 0.1% on the
transaction value of the purchase or sale on the stock exchange and at the rate of 0.2% on the sale of unlisted shares in an initial public offering. This STT is not applicable to primary issuances of equity shares by a company or to off-market
transactions. Hence, STT will be payable if the Subsidiary buys or sells listed securities on a recognized Indian stock exchange. |
■ |
Capital Gains: With respect to the Subsidiary, capital gains will be taxed as follows: (i) short-term: 15.759% with respect to shares listed on any recognized stock exchange in India and where the sale is subject to STT, and 42.024% in
any other case; however, if the Subsidiary is registered as a sub-account with SEBI, this rate will be 31.518%; and (ii) long-term: 0% with respect to shares listed on any recognized stock exchange in India and where the sale is subject to STT, of
10.506% with respect to unlisted securities and 21.012% in any other case; however, if the Subsidiary is a SEBI registered sub-account, this rate will be 10.506%. |
The Direct Taxes Code, 2010 and the Finance Act, 2012. In 2010, it was proposed that the IT Act may be replaced with the Direct Taxes Code. The Parliamentary Standing Committee released its comments on the Direct Taxes Code on March 9, 2012. The Finance Act was thereafter
presented by the Finance Minister on March 16, 2012 proposing certain amendments to the IT Act. The Finance Minister highlighted that the enactment of the Direct Taxes Code will be made, at the earliest, after considering the recommendations of the
Parliamentary Standing Committee.
Given the delay
in enacting the Direct Taxes Code, the Government of India, through the Finance Act, which was enacted on May 28, 2012, has introduced certain key changes to the existing tax framework in India. These include:
(a) |
Taxation of indirect
transfers: Indirect transfers by a foreign company of shares or interest, if the value is substantially derived, directly or indirectly, from assets located in India, is deemed resident and taxable in India with retroactive effect. A non-resident
buyer is required to withhold Indian tax on such sale transaction. |
|
However, the CBDT has
clarified, through a notification dated May 29, 2012, that the tax authorities should not reopen any assessment proceedings that have been completed before April 1, 2012 and contain no notice for reassessment issued prior to that date; and
|
(b) |
GAAR: It has been proposed
that GAAR will come into effect from April 1, 2013 and applies to “impermissible avoidance arrangements,” whose dominant purpose is to avail tax benefits. Wide powers have been granted to tax authorities to deny tax treaty benefits,
disregard or recharacterize transactions, recharacterize equity into debt and vice versa. However, the onus to prove tax avoidance is on tax authorities, not on the taxpayer. |
|
A committee was established by
the Government of India to provide recommendations on the guidelines for implementing GAAR. The committee came out with its report on June 28, 2012. In addition to other recommendations, it stated that GAAR should not be invoked for foreign
institutional investors (“FIIs”) taxed in India. However, GAAR will apply to FIIs if such FIIs are claiming treaty benefits. |
The Prime Minister’s Office has created an experts
committee that will hold consultations with stakeholders and the general public and rework the draft guidelines on GAAR and create a roadmap for implementation. The Panel submitted its draft recommendations on September 1, 2012. With regard to
invoking GAAR for FIIs, the panel has recommended that whether an FII chooses or does not choose to take a treaty benefit, GAAR provisions would not be invoked in the case of a non-resident who has invested, directly or indirectly, in the FII (i.e. where the investment of the non-resident has underlying assets as investments made by the FII in India). This report was submitted to the Ministry of Finance of the Government of India, on October 1,
2012.
Creations and Redemptions. Prior to trading in the secondary market, shares of the Fund are “created” at NAV by market makers, large investors and institutions only in block-size Creation Units of 450,000 shares or multiples thereof.
Each “creator” or “Authorized Participant” enters into an authorized participant agreement with the Fund's distributor, BlackRock Investments, LLC (the “Distributor”), an affiliate of BFA.
A creation transaction, which is subject to acceptance by the
transfer agent, generally takes place when an Authorized Participant deposits into the Fund a designated portfolio of securities (including any portion of such securities for which cash may be substituted) (“Deposit Securities”) and a
specified amount of cash approximating the holdings of the Fund in exchange for a specified number of Creation Units. To the extent practicable, the composition of such portfolio generally corresponds pro rata
to the holdings of the Fund.
Similarly, shares can be
redeemed only in Creation Units, generally for a designated portfolio of securities (including any portion of such securities for which cash may be substituted) held by the Fund (“Fund Securities”) and a specified amount of cash. Except when aggregated in Creation Units, shares are not redeemable by the Fund.
The prices at which creations and redemptions occur are based
on the next calculation of NAV after a creation or redemption order is received in an acceptable form under the authorized participant agreement.
The portfolio of securities required for purchase of a Creation
Unit may be different
than
the portfolio of securities the Fund will deliver upon redemption of Fund shares. The Deposit Securities and Fund Securities, as applicable, in connection with a purchase or redemption of a Creation Unit, generally will correspond pro rata, to the extent practicable, to the securities held by the Fund.
Only an Authorized Participant may create or redeem Creation
Units directly with the Fund.
As a result of any system
failure or other interruption, orders to purchase or redeem Creation Units either may not be executed according to the Fund's instructions or may not be executed at all, or the Fund may not be able to place or change orders.
To the extent the Fund engages in in-kind transactions, the
Fund intends to comply with the U.S. federal securities laws in accepting securities for deposit and satisfying redemptions with redemption securities by, among other means, assuring that any securities accepted for deposit and any securities used
to satisfy redemption requests will be sold in transactions that would be exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). Further, an Authorized Participant that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the 1933 Act, will not be able to receive securities that are restricted securities eligible for resale under Rule 144A.
Creations and redemptions must be made through a firm that is
either a member of the Continuous Net Settlement System of the National Securities Clearing Corporation or a DTC participant and has executed an agreement with the Distributor with respect to creations and redemptions of Creation Unit aggregations.
Information about the procedures regarding creation and redemption of Creation Units (including the cut-off times for receipt of creation and redemption orders) is included in the Fund's SAI.
Because new shares may be created and issued on an ongoing
basis, at any point during the life of the Fund a “distribution,” as such term is used in the 1933 Act, may be occurring. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a manner that could render them statutory underwriters and subject to the prospectus delivery and liability provisions of the 1933 Act. Any determination of whether one is
an underwriter must take into account all the relevant facts and circumstances of each particular case.
Broker-dealers should also note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted to ordinary secondary transactions), and thus dealing with shares that are part of an “unsold allotment” within the meaning of Section 4(3)(C) of the 1933
Act, would be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the 1933 Act. For delivery of prospectuses to exchange members, the prospectus delivery mechanism of Rule 153 under the 1933 Act is available
only with respect to transactions on a national securities exchange.
Costs Associated with Creations and Redemptions. Authorized Participants are charged standard creation and redemption transaction fees to offset transfer, processing and other transaction costs associated with the issuance and redemption of Creation Units. The
standard creation and redemption transaction fees are set forth in the table below. The standard creation and redemption transaction fees are charged on each Creation Unit created or redeemed, as applicable, by an Authorized Participant on the day
of the transaction. The standard transaction fee is generally fixed at the amount shown in the table regardless of the number of Creation Units being purchased
or
redeemed, but may be reduced by the Fund if transfer and processing expenses associated with the creation or redemption are anticipated to be lower than the stated fee. If a purchase or redemption consists solely or partially of cash, the Authorized
Participant may be required to pay an additional transaction charge (up to the maximum amounts shown in the table below) to cover brokerage and certain other costs related to a creation or redemption transaction. Investors who use the services of a
broker or other financial intermediary to acquire or dispose of Fund shares may pay fees for such services.
The following table shows, as of September 30, 2012, the
approximate value of one Creation Unit, standard fees and maximum additional charges for creations and redemptions (as described above):
Approximate
Value of a Creation Unit |
|
Creation
Unit Size |
|
Standard
Creation/ Redemption Transaction Fee |
|
Maximum
Additional Charge for Creations* |
|
Maximum
Additional Charge for Redemptions* |
$18,697,500
|
|
450,000
|
|
$7,700
|
|
3.0%
|
|
2.0%
|
* |
As a percentage of the net
asset value per Creation Unit, inclusive, in the case of redemptions, of the standard redemption transaction fee. |
If a purchase or redemption consists solely or partially of
cash and the Fund places a brokerage transaction for portfolio securities with the Authorized Participant or its affiliated broker-dealer, the Authorized Participant (or its affiliated broker-dealer) may be required, in its capacity as broker-dealer
with respect to that transaction, to cover certain brokerage, tax, foreign exchange, execution, and market impact costs through a brokerage execution guarantee, as further described in the Fund’s SAI.
Householding. Householding is
an option available to certain Fund investors. Householding is a method of delivery, based on the preference of the individual investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same
address, even if their accounts are registered under different names. Please contact your broker-dealer if you are interested in enrolling in householding and receiving a single copy of prospectuses and other shareholder documents, or if you are
currently enrolled in householding and wish to change your householding status.
Distribution
The Distributor or its agent distributes Creation Units for the
Fund on an agency basis. The Distributor does not maintain a secondary market in shares of the Fund. The Distributor has no role in determining the policies of the Fund or the securities that are purchased or sold by the Fund. The
Distributor’s principal address is 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310.
In addition, BFA or its Affiliates make payments to
broker-dealers, registered investment advisors, banks or other intermediaries (together, “intermediaries”) related to marketing activities and presentations, educational training programs, conferences, the development of technology
platforms and reporting systems, or their making shares of the Fund and certain other iShares funds available to their customers generally and in certain investment programs. Such payments, which may be significant to the intermediary, are not made
by the Fund. Rather, such payments are made by BFA or its Affiliates from their own resources, which come directly or
indirectly in part from fees paid by the iShares funds complex. Payments of
this type are sometimes referred to as revenue-sharing payments. A financial intermediary may make decisions about which investment options it recommends or makes available, or the level of services provided, to its customers based on the payments
it is eligible to receive. Therefore, such payments to an intermediary create conflicts of interest between the intermediary and its customers and may cause the intermediary to recommend the Fund or other iShares funds over another investment. More
information regarding these payments is contained in the Fund’s SAI. Please contact your salesperson or other investment professional for more information regarding any such payments his or her firm may receive
from BFA or its Affiliates.
Financial
Highlights
The financial highlights table is intended to
help investors understand the Fund’s financial performance for the past five years. Certain information reflects financial results for a single share of the Fund. The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of all dividends and distributions. This information has been audited by PricewaterhouseCoopers LLP, whose report is included, along with the Fund's financial statements, in the
Fund's Annual Report (available upon request).
Financial
Highlights
(For a share outstanding throughout each period)
|
Year
ended Aug. 31, 2012 (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. |
Index Provider
MSCI is a leading provider of global indexes and benchmark
related products and services to investors worldwide. MSCI is not affiliated with the Company, BFA, State Street, the Distributor or any of their respective affiliates.
BFA or its affiliates have entered into a license agreement
with the Index Provider to use the Underlying Index. BFA or its affiliates sublicense rights in the Underlying Index to the Company at no charge.
Disclaimers
This Prospectus and the SAI have not been filed with SEBI, and
SEBI will not in any manner vouch for the financial soundness of the Fund/Subsidiary, BFA or the Portfolio Managers, or for the adequacy of the statements made in this Prospectus and the SAI. BFA or the Portfolio Managers will not be registered with
SEBI.
The Fund is not sponsored, endorsed, sold or promoted
by MSCI or any affiliate of MSCI. Neither MSCI nor any other party makes any representation or warranty, express or implied, to the owners of the shares of the Fund or any member of the public regarding advisability of investing in funds generally
or in the Fund particularly or the ability of the Underlying Index to track general stock market performance. MSCI is the licensor of certain trademarks, service marks and trade names of MSCI and of the Underlying Index which is determined, composed
and calculated by MSCI without regard to the Company, BFA or its affiliates or the Fund. MSCI has no obligation to take the needs of the BFA or its affiliates or the owners of the shares of the Fund into consideration in determining, composing or
calculating the Underlying Index. MSCI is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the Fund to be issued or in the determination or calculation of the equation by which the Fund
is redeemable for cash. Neither MSCI nor any other party has any obligation or liability to owners of the shares of the Fund in connection with the administration, marketing or trading of the Fund.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR
USE IN THE CALCULATION OF THE INDEXES FROM SOURCES WHICH MSCI CONSIDERS RELIABLE, NEITHER MSCI NOR ANY OTHER PARTY GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES OR ANY DATA INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES
ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE SHARES OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES OR ANY DATA INCLUDED THEREIN IN
CONNECTION WITH THE RIGHTS LICENSED BY MSCI FOR USE HEREIN OR FOR ANY OTHER USE. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND MSCI HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL MSCI OR ANY OTHER PARTY HAVE ANY LIABILITY FOR DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Shares of the Fund are not sponsored, endorsed or promoted by
NYSE Arca. NYSE Arca makes no representation or warranty, express or implied, to the owners of the shares of the Fund or any member of the public regarding the ability of the Fund to track the total return performance of the Underlying Index or the
ability of the Underlying Index to track stock market performance. NYSE Arca is not responsible for, nor has it participated in, the determination of the compilation or the calculation of the Underlying Index, nor in the determination of the timing
of, prices of, or quantities of shares of the Fund to be issued, nor in the determination or calculation of the equation by which the shares are redeemable. NYSE Arca has no obligation or liability to owners of the shares of the Fund in connection
with the administration, marketing or trading of the shares of the Fund.
NYSE Arca does not guarantee the accuracy and/or the completeness
of the Underlying Index or any data included therein. NYSE Arca makes no warranty, express or implied, as to results to be obtained by the Company on behalf of the Fund as licensee, licensee’s customers and counterparties, owners of the shares
of the Fund, or any other person or entity from the use of the subject index or any data included therein in connection with the rights licensed as described herein or for any other use. NYSE Arca makes no express or implied warranties and hereby
expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing, in no event shall NYSE Arca have any liability for
any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
BFA does not guarantee the accuracy or the completeness of the
Underlying Index or any data included therein and BFA shall have no liability for any errors, omissions or interruptions therein.
BFA makes no warranty, express or implied, to the owners of
shares of the Fund or to any other person or entity, as to results to be obtained by the Fund from the use of the Underlying Index or any data included therein. BFA makes no express or implied warranties and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing, in no event shall BFA have any liability for any special, punitive, direct, indirect
or consequential damages (including lost profits), even if notified of the possibility of such damages.
Supplemental Information
I. 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 NAV. NAV is the price at which the Fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing
mutual fund shares. The price used to calculate market returns (“Market Price”) of the Fund generally is determined using the midpoint between the highest bid and the lowest offer on the primary securities exchange on which 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 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 the 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 of distributions
of premiums and discounts for the Fund for each full calendar quarter of 2011 through September 30, 2012.
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.
Premium/Discount
Range |
|
Number
of Days |
|
Percentage
of Total Days |
|
Greater
than 3.5% and Less than 4.0% |
|
1
|
|
0.23%
|
|
Greater
than 3.0% and Less than 3.5% |
|
1
|
|
0.23
|
|
Greater
than 2.5% and Less than 3.0% |
|
4
|
|
0.91
|
|
Greater
than 2.0% and Less than 2.5% |
|
6
|
|
1.36
|
|
Greater
than 1.5% and Less than 2.0% |
|
5
|
|
1.14
|
|
Greater
than 1.0% and Less than 1.5% |
|
26
|
|
5.91
|
|
Greater
than 0.5% and Less than 1.0% |
|
79
|
|
17.96
|
|
Less
than 0.5% and Greater than -0.5% |
|
204
|
|
46.35
|
|
Less
than -0.5% and Greater than -1.0% |
|
70
|
|
15.91
|
|
Less
than -1.0% and Greater than -1.5% |
|
24
|
|
5.45
|
|
Less
than -1.5% and Greater than -2.0% |
|
8
|
|
1.82
|
|
Less
than -2.0% and Greater than -2.5% |
|
5
|
|
1.14
|
|
Less
than -2.5% and Greater than -3.0% |
|
3
|
|
0.68
|
|
Less
than -3.0% and Greater than -3.5% |
|
2
|
|
0.45
|
|
Less
than -3.5% and Greater than -4.0% |
|
1
|
|
0.23
|
|
Less
than -4.0% and Greater than -4.5% |
|
1
|
|
0.23
|
|
|
|
440
|
|
100.00%
|
|
II. Total Return Information
The tables that follow present information about the total
returns of the Fund and the Underlying Index as of the fiscal year ended August 31, 2012.
“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 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 of the Fund. 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, 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, the Underlying 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 returns shown in the following tables do 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.
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%
|
* |
Total returns for the period
since inception are calculated from the inception date of the Fund (4/7/03). The first day of secondary market trading in shares of the Fund was 4/11/03. |
For more information visit
www.iShares.com or call 1-800-474-2737
Copies of the Prospectus, SAI and recent shareholder reports
can be found on our website at www.iShares.com. For more information about the Fund, you may request a copy of the SAI. The SAI provides detailed information about the Fund and is incorporated by reference into this Prospectus. This means that the
SAI, for legal purposes, is a part of this Prospectus.
Additional information about the Fund's investments is
available in the Fund's Annual and Semi-Annual reports to shareholders. In the Fund's Annual Report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during the last
fiscal year.
If you have any questions about the Company
or shares of the Fund or you wish to obtain the SAI, Semi-Annual or Annual report free of charge, please:
Call:
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1-800-iShares
or 1-800-474-2737 (toll free) Monday through Friday, 8:30 a.m. to 6:30 p.m. (Eastern time) |
Email:
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iSharesETFs@blackrock.com
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Write:
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c/o
BlackRock Investments, LLC 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310 |
Information about the Fund (including the SAI) can be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. Reports and other information about the Fund are available on the
EDGAR database on the SEC's website at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-1520.
No person
is authorized to give any information or to make any representations about the Fund and its shares not contained in this Prospectus and you should not rely on any other information. Read and keep the Prospectus for future reference.
Investment Company Act File No.: 811-09102
iShares®, Inc.
Statement of Additional Information
Dated September 1, 2012
(as revised April 8, 2013)
This Statement of
Additional Information (SAI) is not a prospectus. It should be read in conjunction with the current prospectus (the Prospectus) for the following fund of iShares, Inc. (the Company):
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Fund |
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Ticker |
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Stock Exchange |
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iShares Asia/Pacific Dividend 30 Index Fund (the Fund) |
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DVYA |
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NYSE Arca |
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The Prospectus for the Fund is dated September 1, 2012, as amended and supplemented from time to time. Capitalized terms used
herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. The Financial Statements and Notes contained in the Annual Reports of the Company for the Fund are incorporated by reference into and are deemed to be
part of this SAI. A copy of the Prospectus and Annual Report may be obtained without charge by writing to the Companys distributor, BlackRock Investments, LLC (the Distributor or BRIL), 525 Washington Boulevard, Suite
1405, Jersey City, NJ 07310, calling 1-800-iShares (1-800-474-2737) or visiting www.iShares.com. The Funds Prospectus is incorporated by reference to this SAI.
iShares® is a
registered trademark of BlackRock Fund Advisors (BFA) or its affiliates.
TABLE OF CONTENTS
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General Description of the Company and the Fund
The Company currently consists of more than 55 investment series or portfolios. The Company was organized as a Maryland corporation on August 31, 1994 and is
authorized to have multiple series or portfolios. The Company is an open-end management investment company registered with the U.S. Securities and Exchange Commission (the SEC) under the Investment Company Act of 1940, as amended (the
1940 Act). The offering of the Companys shares is registered under the Securities Act of 1933, as amended (the 1933 Act). This SAI relates solely to the Fund.
The investment objective of the Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of a specified benchmark index (the Underlying
Index) representing publicly-traded equity securities of issuers in a particular broad market, market segment, market sector or group of industries. The Fund is managed by BFA, an indirect wholly owned subsidiary of BlackRock, Inc.
The Fund offers and issues shares at their net asset value per share (NAV) only in aggregations of a specified number of shares (Creation
Unit), generally in exchange for a designated portfolio of securities (including any portion of such securities for which cash may be substituted) included in its Underlying Index (the Deposit Securities), together with the deposit
of a specified cash payment (the Cash Component). Shares of the Fund are listed for trading on NYSE Arca, Inc. (NYSE Arca or the Listing Exchange), a national securities exchange. Shares of the Fund are traded in
the secondary market and elsewhere at market prices that may be at, above or below the Funds NAV. Shares are redeemable only in Creation Units, and, generally, in exchange for portfolio securities and a Cash Component. Creation Units typically
are a specified number of shares, generally 50,000 or multiples thereof.
The Company reserves the right to permit or require that creations and
redemptions of shares are effected fully or partially in cash. Shares may be issued in advance of receipt of Deposit Securities, subject to various conditions, including a requirement to maintain with the Company a cash deposit equal to at least
105% and up to 115%, which percentage BFA may change from time to time, of the market value of the omitted Deposit Securities. See the Creation and Redemption of Creation Units section of this SAI. Transaction fees and other costs associated
with creations or redemptions that include a cash portion may be higher than the transaction fees and other costs associated with in-kind creations or redemptions. In all cases, conditions and fees will be limited in accordance with the requirements
of SEC rules and regulations applicable to management investment companies offering redeemable securities.
Exchange Listing
and Trading
A discussion of exchange listing and trading matters associated with an investment in the Fund is contained in the Shareholder
Information section of the Funds Prospectus. The discussion below supplements, and should be read in conjunction with, that section of the Prospectus.
Shares of the Fund are listed for trading, and trade throughout the day, on the Listing Exchange and other secondary markets. Shares of the Fund may also be listed on certain non-U.S. exchanges. There can be no
assurance that the requirements of the Listing Exchange necessary to maintain the listing of shares of the Fund will continue to be met. The Listing Exchange may, but is not required to, remove the shares of the Fund from listing if
(i) following the initial 12-month period beginning upon the commencement of trading of Fund shares, there are fewer than 50 beneficial owners of shares of the Fund for 30 or more consecutive trading days, (ii) the value of the Underlying
Index on which the Fund is based is no longer calculated or available, (iii) the indicative optimized portfolio value (IOPV) of the Fund is no longer calculated or available, or (iv) any other event shall occur or
condition shall exist that, in the opinion of the Listing Exchange, makes further dealings on the Listing Exchange inadvisable. The Listing Exchange will also remove shares of the Fund from listing and trading upon termination of the Fund.
As in the case of other publicly-traded securities, when you buy or sell shares through a broker, you will incur a brokerage commission determined by
that broker.
In order to provide additional information regarding the indicative value of shares of the Fund, the Listing Exchange or a market data
vendor disseminates information every 15 seconds through the facilities of the Consolidated Tape Association,
or through other widely disseminated
means, an updated IOPV for the Fund as calculated by an information provider or market data vendor. The Company is not involved in or responsible for any aspect of the calculation or dissemination of the IOPVs and makes no representation or warranty
as to the accuracy of the IOPVs.
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An IOPV has an equity securities component and a cash component. The equity securities values included in an IOPV are
the values of the Deposit Securities for the Fund. While the IOPV reflects the current value of the Deposit Securities required to be deposited in connection with the purchase of a Creation Unit, it does not necessarily reflect the precise
composition of the current portfolio of securities held by the Fund at a particular point in time because the current portfolio of the Fund may include securities that are not a part of the current Deposit Securities. Therefore, the Funds IOPV
disseminated during the Listing Exchange trading hours should not be viewed as a real-time update of the Funds NAV, which is calculated only once a day.
The cash component included in an IOPV consists of estimated accrued interest, dividends and other income, less expenses. If applicable, each IOPV also reflects changes in currency exchange rates between the U.S.
dollar and the applicable currency.
The Company reserves the right to adjust the share prices of the Fund in the future to maintain convenient trading
ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Fund or an investors equity interest in the Fund.
Investment Strategies and Risks
The
Fund seeks to achieve its objective by investing primarily in securities issued by issuers that comprise its Underlying Index and through transactions that provide substantially similar exposure to securities in the Underlying Index. The Fund
operates as an index fund and will not be actively managed. Adverse performance of a security in the Funds portfolio will ordinarily not result in the elimination of the security from the Funds portfolio.
The Fund engages in representative sampling, which is investing in a sample of securities selected by BFA to have a collective investment profile similar to that
of the Funds Underlying Index. Securities selected have aggregate investment characteristics (based on market capitalization and industry weightings), fundamental characteristics (such as return variability, earnings valuation and yield) and
liquidity measures similar to those of the Underlying Index. Funds that use representative sampling generally do not hold all of the securities that are in their relevant underlying indexes.
Borrowing. The Fund may borrow as a temporary measure for extraordinary or emergency purposes, including to meet redemptions or to facilitate the settlement of securities
or other transactions. Under normal market conditions, any borrowing by the Fund will not exceed 10% of the Funds net assets; however, the Fund generally does not intend to borrow money.
The purchase of securities while borrowings are outstanding will have the effect of leveraging the Fund. Such leveraging increases the Funds exposure to
capital risk, and borrowed funds are subject to interest costs that will reduce net income. The use of leverage by a Fund creates an opportunity for greater total return, but, at the same time, creates special risks. For example, leveraging may
exaggerate changes in the net asset value of Fund shares and in the yield on the Funds portfolio. Although the principal of such borrowings will be fixed, the Funds assets may change in value during the time the borrowings are
outstanding. Borrowings will create interest expenses for the Fund that can exceed the income from the assets purchased with the borrowings. To the extent the income or capital appreciation derived from securities purchased with borrowed funds
exceeds the interest the Fund will have to pay on the borrowings, the Funds return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such borrowed funds is
not sufficient to cover the cost of borrowing, the return to the Fund will be less than if leverage had not been used and, therefore, the amount available for distribution to shareholders as dividends will be reduced. In the latter case, BFA in its
best judgment nevertheless may determine to maintain the Funds leveraged position if it expects that the benefits to the Funds shareholders of maintaining the leveraged position will outweigh the current reduced return.
Certain types of borrowings by the Fund may result in the Fund being subject to covenants in credit agreements relating to asset coverage, portfolio composition
requirements and other matters. It is not anticipated that observance of such covenants would impede BFA from managing a Funds portfolio in accordance with the Funds investment objectives and policies. However, a breach of any such
covenants not cured within the specified cure period may result in acceleration of outstanding indebtedness and require the Fund to dispose of portfolio investments at a time when it may be disadvantageous to do so.
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Currency Transactions. The Fund does not expect to engage in currency transactions
for the purpose of hedging against declines in the value of the Funds assets that are denominated in a non-U.S. currency. The Fund may enter into non-U.S. currency forward and non-U.S. currency futures contracts to facilitate local securities
settlements or to protect against currency exposure in connection with its distributions to shareholders, but may not enter into such contracts for speculative purposes.
A forward currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. A currency futures contract is a contract involving an obligation to deliver or acquire the specified amount of a specific currency, at a specified price and at a specified future time. Currency futures contracts may be
settled on a net cash payment basis rather than by the sale and delivery of the underlying currency. To the extent required by law, liquid assets committed to forwards and futures contracts will be maintained.
Foreign exchange transactions involve a significant degree of risk and the markets in which foreign exchange transactions are effected are highly volatile, highly
specialized and highly technical. Significant changes, including changes in liquidity and prices, can occur in such markets within very short periods of time, often within minutes. Foreign exchange trading risks include, but are not limited to,
exchange rate risk, counterparty risk, maturity gap, interest rate risk, and potential interference by foreign governments through regulation of local exchange markets, foreign investment or particular transactions in non-U.S. currency. If BFA
utilizes foreign exchange transactions at an inappropriate time or judges market conditions, trends or correlations incorrectly, foreign exchange transactions may not serve their intended purpose of improving the correlation of the Funds
return with the performance of the Underlying Index and may lower the Funds return. The Fund could experience losses if the value of its currency forwards, options and futures positions are poorly correlated with its other investments or if it
cannot close out its positions because of an illiquid market. In addition, the Fund could incur transaction costs, including trading commissions, in connection with certain non-U.S. currency transactions.
Diversification Status. The Fund is classified as non-diversified. A non-diversified fund is a fund that is not
limited by the 1940 Act with regard to the percentage of its assets that may be invested in the securities of a single issuer. The securities of a particular issuer (or securities of issuers in particular industries) may dominate the underlying
index of such a fund and, consequently, the funds investment portfolio. This may adversely affect the funds performance or subject the funds shares to greater price volatility than that experienced by more diversified investment
companies.
The Fund intends to maintain the required level of diversification and otherwise conduct its operations so as to qualify as a regulated
investment company (RIC) for purposes of the U.S. Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and to relieve the Fund of any liability for U.S. federal income tax to the extent that its earnings are
distributed to shareholders, provided that the Fund satisfies a minimum distribution requirement. Compliance with the diversification requirements of the Internal Revenue Code may limit the investment flexibility of the Fund and may make it less
likely that the Fund will meet its investment objective.
Futures and Options. Futures contracts and options may be
used by the Fund to simulate investment in its Underlying Index, to facilitate trading or to reduce transaction costs. The Fund may enter into futures contracts and options that are traded on a U.S. or non-U.S. exchange. The Fund will not use
futures or options for speculative purposes.
Futures contracts provide for the future sale by one party and purchase by another party of a specified
amount of a specific instrument or index at a specified future time and at a specified price. Stock index contracts are based on investments that reflect the market value of common stock of the firms included in the investments. The Fund may enter
into futures contracts to purchase securities indexes when BFA anticipates purchasing the underlying securities and believes prices will rise before the purchase will be made. To the extent required by law, liquid assets committed to futures
contracts will be maintained.
A call option gives a holder the right to purchase a specific security at a specified price (exercise price)
within a specified period of time. A put option gives a holder the right to sell a specific security at a specified exercise price within a specified period of time. The initial purchaser of a call option pays the writer a premium, which
is paid at the time of purchase and is retained by the writer whether or not such option is exercised. The Fund may purchase put options to hedge its portfolio against the risk of a decline in the market value of securities held and may purchase
call options to hedge against an increase in the price of securities it is committed to purchase. The Fund may write put and call options along with a long position in options to increase its ability to hedge against a change in the market value of
the securities it holds or is committed to purchase. Investments in futures contracts and other investments that contain leverage may require the Fund to maintain
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liquid assets. Generally, the Fund maintains an amount of liquid assets equal to its obligations relative to the position involved, adjusted daily on a marked-to-market basis. With respect to
futures contracts that are contractually required to cash-settle, the Fund maintains liquid assets in an amount at least equal to the Funds daily marked-to-market obligation (i.e., the Funds daily net liability, if
any), rather than the contracts notional value (i.e., the value of the underlying asset). By maintaining assets equal to its net obligation under cash-settled futures contracts, the Fund may employ leverage to a greater extent than if
the Fund sets aside assets equal to the futures contracts full notional value. The Fund bases its asset maintenance policies on methods permitted by the staff of the SEC and may modify these policies in the future to comply with any changes in
the guidance articulated from time to time by the SEC or its staff.
Illiquid Securities. The Fund may invest up to an
aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment). Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available
markets as determined in accordance with SEC staff guidance.
Lending Portfolio Securities. The Fund may lend portfolio
securities to certain creditworthy borrowers, including borrowers affiliated with BFA. The borrowers provide collateral that is maintained in an amount at least equal to the current market value of the securities loaned. No securities loan shall be
made on behalf of the Fund if, as a result, the aggregate value of all securities loans of the Fund exceeds one-third of the value of the Funds total assets (including the value of the collateral received). The Fund may terminate a loan at any
time and obtain the return of the securities loaned. The Fund receives the value of any interest or cash or non-cash distributions paid on the loaned securities.
With respect to loans that are collateralized by cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. The Fund is compensated by the difference between the amount earned on
the reinvestment of cash collateral and the fee paid to the borrower. In the case of collateral other than cash, the Fund is compensated by a fee paid by the borrower equal to a percentage of the market value of the loaned securities. Any cash
collateral may be reinvested in certain short-term instruments either directly on behalf of the lending Fund or through one or more joint accounts or money market funds, including those affiliated with BFA; such reinvestments are subject to
investment risk. BFA may receive compensation for managing the reinvestment of the cash collateral.
Securities lending involves exposure to certain
risks, including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process), gap risk (i.e., the risk of a mismatch between the return on cash collateral reinvestments and
the fees the Fund has agreed to pay a borrower), and credit, legal, counterparty and market risk. If a securities lending counterparty were to default, the Fund would be subject to the risk of a possible delay in receiving collateral or in
recovering the loaned securities, or to a possible loss of rights in the collateral. In the event a borrower does not return the Funds securities as agreed, the Fund may experience losses if the proceeds received from liquidating the
collateral do not at least equal the value of the loaned security at the time the collateral is liquidated, plus the transaction costs incurred in purchasing replacement securities. This event could trigger adverse tax consequences for the Fund. The
Fund could lose money if its short-term investment of the collateral declines in value over the period of the loan. Substitute payments for dividends received by the Fund for securities loaned out by the Fund will not be considered qualified
dividend income. The Fund may take the tax effects of this difference into account in its securities lending program.
The Fund pays a portion of the
interest or fees earned from securities lending to a borrower as described above and to a securities lending agent who administers the lending program in accordance with guidelines approved by the Companys Board of Directors (the
Board or the Directors). To the extent that the Fund engages in securities lending, BlackRock Institutional Trust Company, N.A. (BTC) acts as securities lending agent for the Fund, subject to the overall
supervision of BFA. BTC receives a portion of the revenues generated by securities lending activities as compensation for its services.
Non-U.S. Securities. The Fund intends to purchase publicly-traded common stocks of non-U.S. issuers. To the extent the Fund invests in stocks of non-U.S. issuers, the Funds investment in such stocks may be in the form of American
Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) and European Depositary Receipts (EDRs) (collectively, Depositary Receipts). Depositary Receipts are receipts, typically issued by a bank
or trust issuer, which evidence ownership of underlying securities issued by a non-U.S. issuer. For ADRs, the depository is typically a U.S. financial institution and the underlying securities are issued by a non-U.S. issuer. For other forms of
Depositary Receipts, the depository may be a non-U.S. or a U.S. entity, and the underlying securities may be issued by a non-U.S. or a U.S. issuer. Depositary Receipts are not necessarily denominated in the same currency as their underlying
securities. Generally, ADRs, issued in registered form, are designed for use in the U.S. securities markets, and EDRs, issued in bearer form, are designed for use in European securities markets. GDRs are tradable both in the United States and in
Europe and are designed for use throughout the world.
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The Fund will not invest in any unlisted Depositary Receipt or any Depositary Receipt that BFA deems illiquid at the
time of purchase or for which pricing information is not readily available. In general, Depositary Receipts must be sponsored, but the Fund may invest in unsponsored Depositary Receipts under certain limited circumstances. The issuers of unsponsored
Depositary Receipts are not obligated to disclose material information in the United States. Therefore, there may be less information available regarding such issuers and there may be no correlation between available information and the market value
of the Depositary Receipts.
Investing in the securities of non-U.S. issuers involves special risks and considerations not typically associated with
investing in U.S. issuers. These include differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political
instability which could affect U.S. investments in non-U.S. countries, and potential restrictions on the flow of international capital. Non-U.S. issuers may be subject to less governmental regulation than U.S. issuers. Moreover, individual non-U.S.
economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product (GDP), rate of inflation, capital reinvestment, resource self-sufficiency and balance of payment positions.
Options on Futures Contracts. An option on a futures contract, as contrasted with the direct investment in such a
contract, gives the purchaser the right, in return for the premium paid, to assume a position in the underlying futures contract at a specified exercise price at any time prior to the expiration date of the option. Upon exercise of an option, the
delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writers futures margin account that represents the amount by which the market price of
the futures contract exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. The potential for loss related to the purchase of an option on a futures contract is limited to the
premium paid for the option plus transaction costs. Because the value of the option is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of
the option changes daily and that change would be reflected in the NAV of the Fund. The potential for loss related to writing call options is unlimited. The potential for loss related to writing put options is limited to the agreed upon price per
share, also known as the strike price, less the premium received from writing the put.
The Fund may purchase and write put and call options
on futures contracts that are traded on an exchange as a hedge against changes in value of its portfolio securities, or in anticipation of the purchase of securities, and may enter into closing transactions with respect to such options to terminate
existing positions. There is no guarantee that such closing transactions can be effected.
Upon entering into a futures contract, the Fund will be
required to deposit with the broker an amount of cash or cash equivalents known as initial margin, which is in the nature of a performance bond or good faith deposit on the contract and is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied. Subsequent payments, known as variation margin, to and from the broker will be made daily as the price of the index underlying the futures contract fluctuates,
making the long and short positions in the futures contract more or less valuable, a process known as marking-to-market. At any time prior to the expiration of a futures contract, the Fund may elect to close the position by taking an
opposite position, which will operate to terminate the Funds existing position in the contract.
Regulation
Regarding Derivatives. Effective December 31, 2012, the Commodity Futures Trading Commission (CFTC) adopted certain regulatory changes that subject registered investment companies and advisers to registered investment companies to
regulation by the CFTC if a fund invests more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps (CFTC Derivatives), or if the fund markets itself as providing investment exposure to such
instruments. To the extent the Fund uses CFTC-regulated futures, options and swaps, it intends to do so below such prescribed levels and will not market itself as a commodity pool or a vehicle for trading such instruments. Accordingly,
BFA has claimed an exclusion from the definition of the term commodity pool operator under the Commodity Exchange Act (CEA) pursuant to Rule 4.5 under the CEA. BFA is not, therefore, subject to registration or regulation as a
commodity pool operator under the CEA in respect of the Fund.
Repurchase Agreements. A repurchase
agreement is an instrument under which the purchaser (i.e., the Fund) acquires the security and the seller agrees, at the time of the sale, to repurchase the security at a mutually agreed upon time and price, thereby determining the yield
during the purchasers holding period. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser. If a repurchase agreement is construed to be a
collateralized loan, the underlying securities will not be considered to be owned by the Fund
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but only to constitute collateral for the sellers obligation to pay the repurchase price, and, in the event of a default by the seller, the Fund may suffer time delays and incur costs or
losses in connection with the disposition of the collateral.
In any repurchase transaction, the collateral for a repurchase agreement may include:
(i) cash items; (ii) obligations issued by the U.S. government or its agencies or instrumentalities; or (iii) obligations that, at the time the repurchase agreement is entered into, are rated in the highest rating category generally
by at least two nationally recognized statistical rating organizations (NRSROs), or, if unrated, determined to be of comparable quality by BFA. Collateral, however, is not limited to the foregoing and may include, for example,
obligations rated below the highest category by NRSROs. Collateral for a repurchase agreement may also include securities that the Fund could not hold directly without the repurchase obligation. Irrespective of the type of collateral underlying the
repurchase agreement, in the case of a repurchase agreement entered into by a non-money market fund, the repurchase obligation of a seller must be of comparable credit quality to securities which are rated in the highest two short-term rating
categories by at least one NRSRO or, if unrated, deemed by BFA to be of equivalent quality.
Repurchase agreements pose certain risks for the Fund,
should it decide to utilize them. Such risks are not unique to the Fund, but are inherent in repurchase agreements. The Fund seeks to minimize such risks, but because of the inherent legal uncertainties involved in repurchase agreements, such risks
cannot be eliminated. Lower quality collateral and collateral with longer maturities may be subject to greater price fluctuations than higher quality collateral and collateral with shorter maturities. If the repurchase agreement counterparty were to
default, lower quality collateral may be more difficult to liquidate than higher quality collateral. Should the counterparty default and the amount of collateral not be sufficient to cover the counterpartys repurchase obligation, the Fund
would retain the status of an unsecured creditor of the counterparty (i.e., the position the Fund would normally be in if it were to hold, pursuant to its investment policies, other unsecured debt securities of the defaulting counterparty)
with respect to the amount of the shortfall. As an unsecured creditor, the Fund would be at risk of losing some or all of the principal and income involved in the transaction.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and
interest payment and have the characteristics of borrowing. Generally, the effect of such transactions is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase
agreement, while in many cases the Fund is able to keep some of the interest income associated with those securities. Such transactions are advantageous only if the Fund has an opportunity to earn a rate of interest on the cash derived from these
transactions that is greater than the interest cost of obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and the
Fund intends to use the reverse repurchase technique only when BFA believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any interim increase or decrease in the value of the Funds assets. The
Funds exposure to reverse repurchase agreements will be covered by liquid assets having a value equal to or greater than such commitments.
Securities of Investment Companies. The Fund may invest in the securities of other investment companies (including money market funds) to the extent allowed by law. Pursuant to the 1940 Act, the Funds investment in registered
investment companies is limited to, subject to certain exceptions: (i) 3% of the total outstanding voting stock of any one investment company; (ii) 5% of the Funds total assets with respect to any one investment company; and
(iii) 10% of the Funds total assets with respect to investment companies in the aggregate. To the extent allowed by law or regulation, the Fund may invest its assets in the securities of investment companies that are money market funds,
including those advised by or otherwise affiliated with BFA, in excess of the limits discussed above. Other investment companies in which the Fund may invest can be expected to incur fees and expenses for operations, such as investment advisory and
administration fees, which would be in addition to those incurred by the Fund.
Short-Term
Instruments and Temporary Investments. The Fund may invest in short-term instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term
investments that may include but are not limited to: (i) shares of money market funds (including those advised by BFA or otherwise affiliated with BFA); (ii) obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (CDs), bankers acceptances, fixed-time deposits and other obligations of U.S. and non-U.S. banks (including non-U.S.
branches) and similar institutions; (iv) commercial paper rated, at the date of purchase, Prime-1 by
Moodys® Investors Service, Inc., F-1 by Fitch Inc., or A-1 by Standard &
Poors® Financial Services LLC, a subsidiary of The McGraw-Hill Companies (Standard & Poors
Ratings Services), or if unrated, of comparable quality as determined by BFA; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days
and that
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satisfy the rating requirements set forth in Rule 2a-7 under the 1940 Act; (vi) repurchase agreements; and (vii) short-term U.S. dollar-denominated obligations of non-U.S. banks
(including U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by the Fund. Any of these instruments may be purchased on a current or forward-settled basis. Time deposits are
non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with international
transactions.
Swap Agreements. Swap agreements are contracts between parties in which one party agrees to make
periodic payments to the other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make periodic payments to the first party based on the return of a different specified rate,
index or asset. Swap agreements will usually be performed on a net basis, with the Fund receiving or paying only the net amount of the two payments. The net amount of the excess, if any, of the Funds obligations over its entitlements with
respect to each swap is accrued on a daily basis and an amount of liquid assets having an aggregate value at least equal to the accrued excess will be maintained by the Fund.
The use of interest rate and index swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. These
transactions generally do not involve the delivery of securities or other underlying assets or principal.
Tracking
Stocks. A tracking stock is a separate class of common stock whose value is linked to a specific business unit or operating division within a larger company and that is designed to track the performance of such business unit or
division. The tracking stock may pay dividends to shareholders independent of the parent company. The parent company, rather than the business unit or division, generally is the issuer of tracking stock. However, holders of the tracking stock may
not have the same rights as holders of the companys common stock.
Future Developments. The Board may, in the
future, authorize the Fund to invest in securities contracts and investments, other than those listed in this SAI and in the Prospectus, provided they are consistent with the Funds investment objective and do not violate any of its investment
restrictions or policies.
General Considerations and Risks
A discussion of some of the principal risks associated with an investment in the Fund is contained in the Prospectus.
An investment in the Fund should be made with an understanding that the value of the Funds portfolio securities may fluctuate in accordance with changes in
the financial condition of the issuers of the portfolio securities, the value of stocks in general, and other factors that affect the market.
Borrowing Risk. Borrowing may exaggerate changes in the net asset value of Fund shares and in the return on the Funds portfolio. Borrowing will cost the Fund interest expense and other fees. The costs of borrowing may reduce the
Funds return. Borrowing may cause the Fund to liquidate positions when it may not be advantageous to do so to satisfy its obligations.
Cyber Security Issues. With the increased use of technologies such as the Internet to conduct business, the Fund is susceptible to operational and information security risks. In general, cyber incidents can result from deliberate attacks
or unintentional events. Cyber attacks include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber
attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches by the Funds third party service providers (including,
but not limited to index providers, fund accountants and transfer agents) and the issuers of securities in which the Fund invests, have the ability to cause disruptions and impact business operations potentially resulting in financial losses, the
inability of the Funds shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In
addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The Fund and its shareholders could be negatively impacted as a result. While the Fund has established business continuity plans and risk
management systems to prevent such cyber-attacks, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, the Fund cannot control the cyber security plans and
systems put in place by issuers in which the Fund invests.
7
Dividend Risk. There is no guarantee that the issuer of the stocks held by the Fund
will declare dividends in the future or that if declared, they will either remain at current levels or increase over time.
Dividend-Paying Stock Risk. The Funds strategy of investing in dividend-paying stocks involves the risk that such stocks
may fall out of favor with investors and underperform the market. Companies that issue dividend-paying stocks are not required to continue to pay dividends on such stocks. Therefore, there is the possibility that such companies could reduce or
eliminate the payment of dividends in the future or the anticipated acceleration of dividends could not occur. Depending upon market conditions, dividend-paying stocks that meet the Funds investment criteria may not be widely available and/or
may be highly concentrated in only a few market sectors.
Risks of Derivatives. A derivative is a financial contract,
the value of which depends on, or is derived from, the value of an underlying asset such as a security or an index. The Fund may invest in stock index futures contracts and other derivatives. Compared to conventional securities, derivatives can be
more sensitive to changes in interest rates or to sudden fluctuations in market prices and thus the Funds losses may be greater if it invests in derivatives than if it invests only in conventional securities. Derivatives are also subject to
counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligations.
Risks of Equity Securities. An investment in the Fund should be made with an understanding of the risks inherent in an investment
in equity securities, including the risk that the financial condition of issuers may become impaired or that the general condition of stock markets may deteriorate (either of which may cause a decrease in the value of the portfolio securities and
thus in the value of shares of the Fund). Common stocks are susceptible to general stock market fluctuations and to increases and decreases in value as market confidence and perceptions of their issuers change. These investor perceptions are based
on various and unpredictable factors, including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic or banking crises.
Holders of common stocks incur more risks than holders of preferred stocks and debt obligations because common stockholders generally have rights to receive payments from stock issuers that are inferior to the rights of creditors, or holders of debt
obligations or preferred stocks. Further, unlike debt securities, which typically have a stated principal amount payable at maturity (the value of which, however, is subject to market fluctuations prior to maturity), or preferred stocks, which
typically have a liquidation preference and which may have stated optional or mandatory redemption provisions, common stocks have neither a fixed principal amount nor a maturity.
Although most of the securities in the Underlying Index are listed on a national securities exchange, the principal trading market for some of the securities may be in the over-the-counter market. The existence of
a liquid trading market for certain securities may depend on whether dealers will make a market in such securities. There can be no assurance that a market will be made or maintained or that any such market will be or remain liquid. The price at
which securities may be sold and the value of the Funds shares will be adversely affected if trading markets for the Funds portfolio securities are limited or absent, or if bid/ask spreads are wide.
Risks of Futures and Options Transactions. There are several risks accompanying the utilization of futures contracts and options
on futures contracts. A position in futures contracts and options on futures contracts may be closed only on the exchange on which the contract was made (or a linked exchange). While the Fund plans to utilize futures contracts only if an active
market exists for such contracts, there is no guarantee that a liquid market will exist for the contract at a specified time. Futures contracts, by definition, project price levels in the future and not current levels of valuation, therefore market
circumstances may result in a discrepancy between the price of the stock index future and the movement in the Funds Underlying Index. In the event of adverse price movements, the Fund would continue to be required to make daily cash payments
to maintain its required margin. In such situations, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to deliver the instruments underlying the future contracts it has sold.
The risk of loss in trading futures contracts or uncovered call
options in some strategies (e.g., selling uncovered stock index futures contracts) is potentially unlimited. The Fund does not plan to use futures and options contracts in this way. The risk of a futures position may still be large as
traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin
deposit. The Fund, however, intends to utilize futures and options contracts in a manner designed to limit the risk exposure to levels comparable to a direct investment in the types of stocks in which it invests.
8
Utilization of futures and options on futures by the Fund involves the risk of imperfect or even negative correlation
to the Underlying Index if the index underlying the futures contract differs from the Underlying Index. There is also the risk of loss of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in the futures
contract or option. The purchase of put or call options will be based upon predictions by BFA as to anticipated trends, which predictions could prove to be incorrect.
Because the futures market generally imposes less burdensome margin requirements than the securities market, an increased amount of participation by speculators in the futures market could result in price
fluctuations. Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount by which the price of a futures contract may vary
either up or down from the previous days settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. It is possible
that futures contract prices could move to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting the Fund to substantial losses. In the event of
adverse price movements, the Fund would be required to make daily cash payments of variation margin.
Risks of Investing
in Non-U.S. Equity Securities. An investment in the Fund involves risks similar to those of investing in portfolios of equity securities traded on non-U.S. exchanges. These risks include market fluctuations caused by such factors as economic and
political developments, changes in interest rates and perceived trends in stock prices. Investing in securities issued by issuers domiciled in countries other than the domicile of the investor and denominated in currencies other than an
investors local currency entails certain considerations and risks not typically encountered by the investor in making investments in its home country and in that countrys currency. These considerations include favorable or unfavorable
changes in interest rates, currency exchange rates, exchange control regulations and the costs that may be incurred in connection with conversions between various currencies. Investing in the Fund also involves certain risks and considerations not
typically associated with investing in a fund whose portfolio contains exclusively securities of U.S. issuers. These risks include generally less liquid and less efficient securities markets; generally greater price volatility; less publicly
available information about issuers; the imposition of withholding or other taxes; the imposition of restrictions on the expatriation of funds or other assets of the Fund; higher transaction and custody costs; delays and risks attendant in
settlement procedures; difficulties in enforcing contractual obligations; lower liquidity and significantly smaller market capitalization; different accounting and disclosure standards; lower levels of regulation of the securities markets; more
substantial government interference with the economy; higher rates of inflation; greater social, economic, and political uncertainty; the risk of nationalization or expropriation of assets; and the risk of war.
Risks of Swap Agreements. The risk of loss with respect to swaps generally is limited to the net amount of payments that the Fund
is contractually obligated to make. Swap agreements are subject to the risk that the swap counterparty will default on its obligations. If such a default occurs, the Fund will have contractual remedies pursuant to the agreements related to the
transaction. However, such remedies may be subject to bankruptcy and insolvency laws which could affect the Funds rights as a creditor (e.g., the Fund may not receive the net amount of payments that it is contractually entitled to
receive).
Risks of Investing in Asia. Investments in securities of issuers in certain Asian countries involve risks
not typically associated with investments in securities of issuers in other regions. Such heightened risks include, among others, expropriation and/or nationalization of assets, confiscatory taxation, political instability, including authoritarian
and/or military involvement in governmental decision-making, armed conflict and social instability as a result of religious, ethnic and/or socio-economic unrest.
Certain Asian countries have democracies with relatively short histories, which may increase the risk of political instability. These countries have faced political and military unrest, and further unrest could
present a risk to their local economies and securities markets. Indonesia and the Philippines have each experienced violence and terrorism, which has negatively impacted their economies. North Korea and South Korea each have substantial military
capabilities, and historical tensions between the two countries present the risk of war. Any outbreak of hostilities between the two countries could have a severe adverse effect on the South Korean economy and securities market. Increased political
and social unrest in these geographic areas could adversely affect the performance of investments in this region.
Certain governments in this region
administer prices on several basic goods, including fuel and electricity, within their respective countries. Certain governments may exercise substantial influence over many aspects of the private sector in their respective countries and may own or
control many companies. Future government actions could have a significant effect on the economic conditions in this region, which in turn could have a negative impact on private sector companies. There is also the possibility of diplomatic
developments adversely affecting investments in the region.
9
Corruption and the perceived lack of a rule of law in dealings with international companies in certain Asian countries
may discourage foreign investment and could negatively impact the long-term growth of certain economies in this region. In addition, certain countries in the region are experiencing high unemployment and corruption, and have fragile banking sectors.
Some economies in this region are dependent on a range of commodities, including oil, natural gas and coal. Accordingly, they are strongly affected by
international commodity prices and particularly vulnerable to any weakening in global demand for these products. The market for securities in this region may also be directly influenced by the flow of international capital, and by the economic and
market conditions of neighboring countries. Adverse economic conditions or developments in neighboring countries may increase investors perception of the risk of investing in the region as a whole, which may adversely impact the market value
of the securities issued by companies in the region.
Risks of Investing in Australasia. The economies of Australasia,
which include Australia and New Zealand, are dependent on exports from the agricultural and mining sectors. This makes Australasian economies susceptible to fluctuations in the commodity markets. Australasian economies are also increasingly
dependent on their growing service industries. Australia and New Zealand are located in a part of the world that has historically been prone to natural disasters, such as drought and flooding. Any such event in the future could have a significant
adverse impact on the economies of Australia and New Zealand and affect the value of securities held by the Fund. The economies of Australia and New Zealand are dependent on trading with certain key trading partners. The AustraliaU.S. Free
Trade Agreement has significantly expanded the trading relationship between the United States and Australia. In 2003, Australia and Singapore entered into the Singapore-Australia Free Trade Agreement (SAFTA). SAFTA is intended to further
expand the economic relationship with Singapore, Australias largest trade and investment partner in South-East Asia. Thus, economic events in the United States, Asia, or in other key trading countries can have a significant economic effect on
the Australian economy. The economies of Australia and New Zealand are heavily dependent on the mining sector. Passage of new regulations limiting foreign ownership of companies in the mining sector or imposition of new taxes on profits of mining
companies may dissuade foreign investment, and as a result, have a negative impact on companies to which the Fund has exposure.
Risks of Investing in the Capital Goods Sector. The capital goods sector may be affected by fluctuations in the business cycle
and by other factors affecting manufacturing demands. The capital goods sector depends heavily on corporate spending. The capital goods sector may perform well during times of economic expansion, and as economic conditions worsen, the demand for
capital goods may decrease. Many capital goods are sold internationally and such companies are subject to market conditions in other countries and regions.
Risks of Investing in the Consumer Discretionary Sector. Companies engaged in the design, production or distribution of products or services for the consumer discretionary sector
(including, without limitation, television and radio broadcasting, manufacturing, publishing, recording and musical instruments, motion pictures, photography, amusement and theme parks, gaming casinos, sporting goods and sports arenas, camping and
recreational equipment, toys and games, apparel, travel-related services, automobiles, hotels and motels, and fast food and other restaurants) are subject to the risk that their products or services may become obsolete quickly. The consumer
discretionary sector may be significantly affected by several factors, including, without limitation, the performance of domestic and international economies, exchange rates, changing consumer tastes and trends, marketing campaigns, cyclical revenue
generation, consumer confidence, commodity price volatility, labor relations, interest rates, import and export controls, intense competition, technological developments and government regulation.
Risks of Investing in the Consumer Goods Sector. The consumer goods sector may be strongly affected by trends, marketing
campaigns and other factors affecting consumer demand. Governmental regulation affecting the use of various food additives may affect the profitability of certain companies in the consumer goods sector. In addition, tobacco companies may be
adversely affected by new laws, regulations and litigation. Many consumer goods may be marketed globally, and consumer goods companies may be affected by the demand and market conditions in other countries and regions.
Risks of Investing in the Consumer Services Sector. The success of consumer product manufacturers and retailers (including food
and drug retailers, general retailers, media, and travel and leisure) is tied closely to the performance of the domestic and international economy, interest rates, exchange rates, competition and consumer confidence. The consumer services sector
depends heavily on disposable household income and consumer spending. Companies in the consumer services sector may be subject to severe competition, which may also have an adverse impact on their profitability. Changes in consumer demographics and
preferences may affect the success of consumer products.
Risks of Investing in the Consumer Staples Sector. Companies
in the consumer staples sector may be adversely affected by changes in the global economy, consumer spending, competition, demographics and consumer preferences, and production spending. Companies in the consumer staples sector also may be affected
by changes in government regulation, global
10
economic, environmental and political events, economic conditions and the depletion of resources. In addition, companies in the consumer staples sector may be subject to risks pertaining to the
supply of, demand for and prices of raw materials. The prices of raw materials fluctuate in response to a number of factors, including, without limitation, changes in government agricultural support programs, exchange rates, import and export
controls, changes in international agricultural and trading policies, and seasonal and weather conditions.
Risks of
Investing in the Energy Sector. Companies in the energy sector may be strongly affected by the levels and volatility of global energy prices, energy supply and demand, government regulations and policies, energy production and conservation
efforts, and technological change. Prices and supplies of energy may fluctuate significantly over short and long periods of time due to national and international political changes, Organization of Petroleum Exporting Countries (OPEC)
policies, changes in relationships among OPEC members and between OPEC and oil-importing nations, the regulatory environment, taxation policies, and the economy of the key energy-consuming countries. In addition, companies in the energy sector are
at risk of civil liability from accidents resulting in injury, loss of life or property, pollution or other environmental damage claims and risk of loss from terrorism and natural disasters. Disruptions in the oil industry or shifts in fuel
consumption may significantly impact companies in this sector. In addition, because a significant portion of revenues of companies in this sector are derived from a relatively small number of customers that are largely composed of governmental
entities and utilities, governmental budget constraints may have a significant impact on the stock prices of companies in this industry.
Risks of Investing in the Financial Sector. Companies in the financial sector include regional and money center banks, securities brokerage firms, asset management companies, savings banks and thrift institutions, specialty finance
companies (e.g., credit card, mortgage providers), insurance and insurance brokerage firms, financial conglomerates and foreign banking and financial companies. The global financial markets have recently experienced very difficult conditions
and volatility as well as significant adverse trends. The deteriorating conditions in these markets have resulted in a decrease in availability of corporate credit, capital and liquidity and have led indirectly to the insolvency, closure or
acquisition of a number of financial institutions. These conditions have also contributed to consolidation within the financial industry. In addition, the global financial industry has been materially and adversely affected by a significant decline
in the value of mortgage-backed and asset-backed securities, and by the sovereign debt crisis. The prospects of many financial companies are questionable and continue to evolve as financial companies revise their outlooks and write down assets that
they hold.
Most financial companies are subject to extensive governmental regulation, which limits their activities and may affect their ability to
earn a profit from a given line of business. Government regulation may change frequently and may have significant adverse consequences for companies in the financial sector, including effects not intended by the regulation. Direct governmental
intervention in the operations of financial companies and financial markets may materially and adversely affect the companies in which the Fund invests, including recent legislation in many countries that may increase government regulation,
repatriation and other intervention. The impact of governmental intervention and recent legislation on any individual financial company or on the financial sector as a whole cannot be predicted. The valuation of financial companies has been and
continues to be subject to unprecedented volatility and may be influenced by unpredictable factors, including interest rate risk and sovereign debt default. Certain financial businesses are subject to intense competitive pressures, including market
share and price competition. Financial companies in foreign countries are subject to market specific and general regulatory and interest rate concerns. In particular, government regulation in certain foreign countries may include taxes and controls
on interest rates, credit availability, minimum capital requirements, ban on short sales, prices and currency transfers.
The profitability of banks,
savings and loan associations and financial companies is largely dependent on the availability and cost of capital funds and can fluctuate significantly when interest rates change. In addition, general economic conditions are important to the
operations of these concerns, with exposure to credit losses resulting from financial difficulties of borrowers having an adverse effect on the profitability of financial companies. Financial companies can be highly dependent upon access to capital
markets and any impediments to such access, such as adverse overall economic conditions or a negative perception in the capital markets of a financial companys financial condition or prospects, could adversely affect its business.
Risks of Investing in the Healthcare Sector. Companies in the healthcare sector are often issuers whose profitability may be
affected by extensive government regulation, restrictions on government reimbursement for medical expenses, rising or falling costs of medical products and services, pricing pressure, an increased emphasis on outpatient services, limited number of
products, industry innovation, changes in technologies and other market developments. Many healthcare companies are heavily dependent on patent protection and the actual or perceived safety and efficiency of their products. The expiration of patents
may adversely affect the profitability of these companies. Many healthcare companies are subject to extensive litigation based on product liability and similar claims. Healthcare companies are subject to competitive forces
11
that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the healthcare sector may be subject to regulatory approvals. The process of
obtaining such approvals may be long and costly, and may diminish the opportunity for a company to profit from a new product or to bring a new product to market. Many healthcare-related companies are relatively small and unseasoned. Healthcare
companies may also be strongly affected by scientific bio-technology or technological developments and their products may quickly become obsolete. Also, many healthcare companies offer products and services that are subject to governmental
regulation and may be adversely affected by changes in governmental policies or laws.
Risks of Investing in the
Industrials Sector. The stock prices of companies in the industrials sector may be affected by supply and demand both for their specific product or service and for industrials sector products in general. The products of manufacturing companies
may face product obsolescence due to rapid technological developments and frequent new product introduction. Government regulations, world events and economic conditions affect the performance of companies in the industrials sector. Companies in the
industrials sector may be adversely affected by liability for environmental damage, product liability claims and exchange rates. The industrials sector may also be adversely affected by changes or trends in commodity prices, which may be influenced
by unpredictable factors. Aerospace and defense companies, a component of the industrials sector, can be significantly affected by government spending policies because companies involved in this industry rely, to a significant extent, on government
demand for their products and services. Thus, the financial condition of, and investor interest in, aerospace and defense companies are heavily influenced by governmental defense spending policies, which are typically under pressure from efforts to
control government budgets. Transportation stocks, a component of the industrials sector, are cyclical and can be significantly affected by economic changes, fuel prices, labor relations and insurance costs. Transportation companies in certain
countries may also be subject to significant government regulation and oversight, which may adversely affect their businesses.
Risks of Investing in the Information Technology Sector. Information technology companies face intense competition, both
domestically and internationally, which may have an adverse effect on profit margins. Like other technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. The products of
information technology companies may face product obsolescence due to rapid technological developments and frequent new product introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in
the information technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies.
Risks of Investing in the Materials Sector. Companies in the materials sector may be adversely affected by commodity price
volatility, exchange rates, import controls, increased competition, depletion of resources, technical progress, labor relations and government regulations, among other factors. Also, companies in the materials sector are at risk of liability for
environmental damage and product liability claims. Production of materials may exceed demand as a result of market imbalances or economic downturns, leading to poor investment returns.
Risks of Investing in the Oil and Gas Sector. Companies in the oil and gas sector are strongly affected by the levels and volatility of global energy prices, oil and gas supply and
demand, government regulations and policies, oil and gas production and conservation efforts and technological change. Prices and supplies of oil and gas may fluctuate significantly over short and long periods of time due to national and
international political changes, Organization of Petroleum Exporting Countries (OPEC) policies, changes in relationships among OPEC members and between OPEC and oil-importing nations, the regulatory environment, taxation policies, and
the economies of key energy-consuming countries. Disruptions in the oil industry or shifts in energy consumption may significantly impact companies in this sector. Companies that own or operate gas pipelines are subject to certain risks, including
pipeline and equipment leaks and ruptures, explosions, fires, unscheduled downtime, transportation interruptions, discharges or releases of toxic or hazardous gases and other environmental risks.
Risks of Investing in the Technology Sector. Technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Technology companies may have limited product lines, markets, financial resources or personnel. The products of technology companies may face product obsolescence due to rapid
technological developments and frequent new product introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the technology sector are heavily dependent on patent and intellectual
property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. The technology sector may also be adversely affected by changes or trends in commodity prices, which may be influenced or
characterized by unpredictable factors.
12
Risks of Investing in the Telecommunications Sector. The telecommunications sector
of an economy is often subject to extensive government regulation. The costs of complying with governmental regulations, delays or failure to receive required regulatory approvals, or the enactment of new adverse regulatory requirements may
negatively affect the business of the telecommunications companies. Government actions around the world, specifically in the area of pre-marketing clearance of products and prices, can be arbitrary and unpredictable. Companies in the
telecommunications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new technology. Technological innovations may
make the products and services of telecommunications companies obsolete.
Risks of Investing in the Utilities Sector.
Investments in utility companies involve special considerations, including the risk of changing commodity prices, government regulation stipulating rates charged by utilities, increased tariffs, changes in tax laws, interest rate fluctuations
and changes in the cost of providing specific utility services. The utilities industry is also subject to potential terrorist attacks, natural disasters and severe weather conditions, as well as regulatory and operational burdens associated with the
operation and maintenance of nuclear facilities. Government regulators monitor and control utility revenues and costs, and therefore may limit utility profits. In certain countries regulatory authorities may also restrict a companys access to
new markets, thereby diminishing the companys long-term prospects. The deregulation of certain utility companies may eliminate restrictions on profits but may also subject these companies to greater risks of loss.
Proxy Voting Policy
The Company has
adopted, as its proxy voting policies for the Fund, the proxy voting guidelines of BFA, the investment adviser to the Fund. The Company has delegated to BFA the responsibility for voting proxies on the portfolio securities held by the Fund. The
remainder of this section discusses the Funds proxy voting guidelines and BFAs role in implementing such guidelines.
BFA votes (or refrains
from voting) proxies for the Fund in a manner that BFA, in the exercise of its independent business judgment, concludes is in the best economic interests of the Fund. In some cases, BFA may determine that it is in the best economic interests of the
Fund to refrain from exercising the Funds proxy voting rights (such as, for example, proxies on certain non-U.S. securities that might impose costly or time-consuming in-person voting requirements). With regard to the relationship between
securities lending and proxy voting, BFAs approach is also driven by the Funds economic interests. The evaluation of the economic desirability of recalling loans involves balancing the revenue-producing value of loans against the likely
economic value of casting votes. Based on our evaluation of this relationship, we believe that the likely economic value of casting a vote generally is less than the securities lending income, either because the votes will not have significant
economic consequences or because the outcome of the vote would not be affected by BFA recalling loaned securities in order to ensure they are voted. Periodically, BFA analyzes the process and benefits of voting proxies for securities on loan, and
will consider whether any modification of its proxy voting policies or procedures are necessary in light of any regulatory changes. BFA will normally vote on specific proxy issues in accordance with its proxy voting guidelines. BFAs proxy
voting guidelines provide detailed guidance as to how to vote proxies on certain important or commonly raised issues. BFA may, in the exercise of its business judgment, conclude that the proxy voting guidelines do not cover the specific matter upon
which a proxy vote is requested, or that an exception to the proxy voting guidelines would be in the best economic interests of the Fund. BFA votes (or refrains from voting) proxies without regard to the relationship of the issuer of the proxy (or
any shareholder of such issuer) to the Fund, the Funds affiliates (if any), BFA or BFAs affiliates, or the Distributor or the Distributors affiliates. When voting proxies, BFA attempts to encourage issuers to follow practices that
enhance shareholder value and increase transparency and allow the market to place a proper value on their assets. With respect to certain specific issues:
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The Fund generally supports the boards nominees in the election of directors and generally supports proposals that strengthen the independence of boards of
directors; |
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The Fund generally does not support proposals on social issues that lack a demonstrable economic benefit to the issuer and the Fund investing in such issuer; and
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The Fund generally votes against anti-takeover proposals and proposals that would create additional barriers or costs to corporate transactions that are likely
to deliver a premium to shareholders. |
BFA maintains institutional policies and procedures that are designed to prevent any
relationship between the issuer of the proxy (or any shareholder of the issuer) and the Fund, the Funds affiliates (if any), BFA or BFAs affiliates (if any) or the
13
Distributor or the Distributors affiliates, from having undue influence on BFAs proxy voting activity. In certain instances, BFA may determine to engage an independent fiduciary to
vote proxies as a further safeguard against potential conflicts of interest or as otherwise required by applicable law. The independent fiduciary may either vote such proxies or provide BFA with instructions as to how to vote such proxies. In the
latter case, BFA votes the proxy in accordance with the independent fiduciarys determination.
Information with respect to how BFA voted proxies
relating to the Funds portfolio securities during the 12-month period ending June 30 will be available: (i) without charge, upon request, by calling 1-800-iShares (1-800-474-2737) or through the Funds website at
www.iShares.com; and (ii) on the SECs website at www.sec.gov.
Portfolio Holdings Information
The Board has adopted a policy regarding the disclosure of the Funds portfolio holdings information that requires that such information be disclosed in a
manner that: (i) is consistent with applicable legal requirements and in the best interests of the Funds shareholders; (ii) does not put the interests of BFA, the Distributor or any affiliated person of BFA or the Distributor, above
those of Fund shareholders; (iii) does not advantage any current or prospective Fund shareholders over any other current or prospective Fund shareholders, except to the extent that certain Entities (as described below) may receive portfolio
holdings information not available to other current or prospective Fund shareholders in connection with the dissemination of information necessary for transactions in Creation Units, as discussed below; and (iv) does not provide selective
access to portfolio holdings information except pursuant to the procedures outlined below and to the extent appropriate confidentiality arrangements limiting the use of such information are in effect. The Entities referred to in
sub-section (iii) above are generally limited to National Securities Clearing Corporation (NSCC) members, subscribers to various fee-based subscription services, large institutional investors (known as Authorized
Participants) that have been authorized by the Distributor to purchase and redeem large blocks of shares pursuant to legal requirements and other institutional market participants and entities that provide information services.
Each business day, the Funds portfolio holdings information will be provided to the Distributor or other agent for dissemination through the facilities of
the NSCC and/or other fee-based subscription services to NSCC members and/or subscribers to those other fee-based subscription services, including Authorized Participants, and to entities that publish and/or analyze such information in connection
with the process of purchasing or redeeming Creation Units or trading shares of the Fund in the secondary market. This information typically reflects the Funds anticipated holdings on the following business day.
Daily access to information concerning the Funds portfolio holdings is permitted (i) to certain personnel of those service providers that are involved
in portfolio management and providing administrative, operational, risk management, or other support to portfolio management, including affiliated broker-dealers and Authorized Participants; and (ii) to other personnel of the Funds
investment adviser and the Distributor, administrator, custodian and fund accountant who deal directly with or assist in, functions related to investment management, distribution, administration, custody and fund accounting, as may be necessary to
conduct business in the ordinary course in a manner consistent with agreements with the Fund and the terms of the Funds current registration statement. In addition, the Fund discloses its portfolio holdings and the percentages they represent
of the Funds net assets at least monthly, and as often as each day the Fund is open for business, at www.iShares.com. More information about this disclosure is available at www.iShares.com.
Portfolio holdings information made available in connection with the creation/redemption process may be provided to other entities that provide services to the
Fund in the ordinary course of business after it has been disseminated to the NSCC. From time to time, information concerning portfolio holdings other than portfolio holdings information made available in connection with the creation/redemption
process, as discussed above, may be provided to other entities that provide services to the Fund, including rating or ranking organizations, in the ordinary course of business, no earlier than one business day following the date of the information.
The Fund will disclose its complete portfolio holdings schedule in public filings with the SEC within 70 days after the end of each fiscal quarter and
will provide that information to shareholders as required by federal securities laws and regulations thereunder. The Fund may, however, voluntarily disclose all or part of its portfolio holdings other than in connection with the creation/redemption
process, as discussed above, in advance of required filings with the SEC, provided that such information is made generally available to all shareholders and other interested parties in a manner that is consistent with the above
14
policy for disclosure of portfolio holdings information. Such information may be made available through a publicly-available website or other means that make the information available to all
likely interested parties contemporaneously.
The Companys Chief Compliance Officer may authorize disclosure of portfolio holdings information
pursuant to the above policy and procedures.
The Board reviews the policy and procedures for disclosure of portfolio holdings information at least
annually.
Construction and Maintenance of the Underlying Index
A description of the Underlying Index is provided below.
The Dow Jones Indexes
Component Selection Criteria. The Underlying Index includes the top 30 stocks by dividend yield subject to the following selection processes
designed to limit turnover: (i) stocks in the Underlying Index universe are ranked in descending order by indicated annual dividend yield, defined as a stocks unadjusted indicated annual dividend (not including any special dividends)
divided by its unadjusted price; (ii) all current component stocks that are among the top 60 stocks are included in the Underlying Index; (iii) noncomponent stocks are added to the Underlying Index based on their rankings until the
component count reaches 30; and (iv) no more than 15 companies from each eligible country can be included in the Underlying Index at any time. Component weightings are assigned based on dividend yield. The dividend yield values used to
calculate share factors are capped at 20%. The weights of individual securities are capped at 15% within the Underlying Index. The Underlying Index is reviewed annually in December.
Dow Jones Asia/Pacific Select Dividend 30 Index
Number of Components:
approximately 30
Index Description. The Underlying Index measures the stock performance of high dividend paying companies listed in
Australia, China, Hong Kong, Japan, New Zealand and Singapore. The Underlying Index measures the performance of a selected group of equity securities issued by companies that have provided relatively high dividend yields on a consistent basis over
time. Dividend yield is calculated using a stocks unadjusted indicated annual dividend (not including any special dividends) divided by its unadjusted price.
Investment Limitations
The Board has adopted as a non-fundamental policy the investment
objective of the Fund. Therefore, the Fund may change its investment objective and its Underlying Index without a shareholder vote. The Board has adopted as fundamental policies the following numbered investment restrictions, which cannot be changed
without the approval of the holders of a majority of the Funds outstanding voting securities. A vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of (a) 67% or more of the voting securities
present at a fund meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy and (b) more than 50% of outstanding voting securities of the fund.
The Fund will not:
1. |
Concentrate its investments (i.e., invest 25% or more of its total assets in the securities of a particular industry or group of industries), except that the Fund will
concentrate to approximately the same extent that the Underlying Index concentrates in the securities of a particular industry or group of industries. For purposes of this limitation, securities of the U.S. government (including its agencies and
instrumentalities), repurchase agreements collateralized by U.S. government securities, and securities of state or municipal governments and their political subdivisions are not considered to be issued by members of any industry.
|
15
2. |
Borrow money, except that (i) the Fund may borrow from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might
otherwise require the untimely disposition of securities; and (ii) the Fund may, to the extent consistent with its investment policies, enter into repurchase agreements, reverse repurchase agreements, forward roll transactions and similar
investment strategies and techniques. To the extent that it engages in transactions described in (i) and (ii), the Fund will be limited so that no more than 33 1/3% of the value of its total assets (including the amount borrowed) is derived
from such transactions. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law. |
3. |
Issue any senior security, except as permitted under the 1940 Act, as interpreted, modified or otherwise permitted by any regulatory authority having jurisdiction, from time to
time. |
4. |
Make loans, except as permitted under the 1940 Act, as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
|
5. |
Purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this restriction shall not prevent the Fund from investing in
securities of companies engaged in the real estate business or securities or other instruments backed by real estate or mortgages), or commodities or commodity contracts (but this restriction shall not prevent the Fund from trading in futures
contracts and options on futures contracts, including options on currencies to the extent consistent with the Funds investment objective and policies). |
6. |
Engage in the business of underwriting securities issued by other persons, except to the extent that the Fund may technically be deemed to be an underwriter under the 1933 Act,
in disposing of portfolio securities. |
In addition to the investment restrictions adopted as fundamental policies set forth above, the
Fund has adopted a non-fundamental policy not to invest in the securities of a company for the purpose of exercising management or control or purchase or otherwise acquire any illiquid security, except as permitted under the 1940 Act, which
currently permits up to 15% of the Funds net assets to be invested in illiquid securities (calculated at the time of investment).
BFA monitors
the liquidity of restricted securities in the Funds portfolio. In reaching liquidity decisions, BFA considers the following factors:
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The frequency of trades and quotes for the security; |
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The number of dealers wishing to purchase or sell the security and the number of other potential purchasers; |
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Dealer undertakings to make a market in the security; and |
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The nature of the security and the nature of the marketplace in which it trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). |
If any percentage restriction described above is complied with at the time of an
investment, a later increase or decrease in percentage resulting from a change in values of assets will not constitute a violation of such restriction, except that certain percentage limitations will be observed continuously in accordance with
applicable law.
The Fund has adopted a non-fundamental investment policy in accordance with Rule 35d-1 under the 1940 Act to invest, under normal
circumstances, at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in securities of the Underlying Index or in Depositary Receipts representing securities in the Underlying Index. The Fund also has
adopted a policy to provide its shareholders with at least 60 days prior written notice of any change in such policy. If, subsequent to an investment, the 80% requirement is no longer met, the Funds future investments will be made in a
manner that will bring the Fund into compliance with this policy.
The Fund has adopted a non-fundamental limitation such that, under normal market
conditions, any borrowings by the Fund will not exceed 10% of the Funds net assets.
The Fund may invest in shares of other open-end management
investment companies or unit investment trusts subject to the limitations of Section 12(d)(1) of the 1940 Act, including the rules, regulations and exemptive orders obtained thereunder; provided, however, that if the Fund has knowledge that its
shares are purchased by another investment company investor in reliance on the provisions of subparagraph (G) of Section 12(d)(1) of the 1940 Act, the Fund will not acquire any securities of other open-end management investment companies
or unit investment trusts in reliance on the provisions of subparagraph (G) of Section 12(d)(1) of the 1940 Act.
16
Continuous Offering
The method by which Creation Units are created and traded may raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by the Fund on an ongoing basis, at any point a
distribution, as such term is used in the 1933 Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a
distribution in a manner that could render them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the 1933 Act.
For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent shares and sells such
shares directly to customers or if it chooses to couple the creation of new shares with an active selling effort involving solicitation of secondary market demand for shares. A determination of whether one is an underwriter for purposes of the 1933
Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not underwriters but are
effecting transactions in shares, whether or not participating in the distribution of shares, generally are required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the 1933 Act is not available in
respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus delivery obligation with respect to shares of the Fund are reminded that, pursuant to Rule 153 under the 1933 Act, a prospectus delivery
obligation under Section 5(b)(2) of the 1933 Act owed to an exchange member in connection with a sale on the Listing Exchange is satisfied by the fact that the prospectus is available at the Listing Exchange upon request. The prospectus
delivery mechanism provided in Rule 153 is available only with respect to transactions on an exchange.
Management
Directors and Officers. The Board has responsibility for the overall management and operations of the 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, Chief Compliance Officer, 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) of the Company
are referred to as independent directors (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). The Fund is included in the BlackRock
Fund Complex referred to as the Exchange-Traded Fund Complex. Each Director also serves as a Trustee of iShares Trust and a Director of iShares MSCI Russia Capped Index Fund, Inc. and, as a result, oversees a total of 278 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 this SAI, which is available without charge,
upon request, by calling toll-free 1-800-iShares (1-800-474-2737).
17
Interested Directors
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5 Years |
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Other Directorships Held by Director |
Robert S.
Kapito1 (55) |
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Director (since 2009). |
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President and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRocks Portfolio Management Group (since its formation in
1998) and BlackRocks predecessor entities (since 1988); Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Childrens Cancer Fund (since 2002); President of the Board of Directors,
Periwinkle Theatre for Youth (since 1983). |
|
Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of BlackRock, Inc. (since 2007). |
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Michael
Latham2 (46) |
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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 of BGI
(2003-2007). |
|
Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). |
|
1 |
Robert S. Kapito is deemed to be an interested person (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc.
|
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2 |
Michael Latham is deemed to be an interested person (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its
affiliates. |
Independent Directors
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5 Years |
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Other Directorships Held by Director |
Robert H. Silver (57) |
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Director (since 2007); Independent Chairman (since
2012). |
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President and Co-Founder of The Bravitas Group, Inc. (since 2006); Member, Non-Investor Advisory Board of Russia Partners II, LP (since 2006); Director and Vice Chairman of the YMCA of
Greater NYC (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). |
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Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Independent Chairman of iShares Trust and of iShares MSCI Russia Capped Index
Fund, Inc. (since 2012). |
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George G.C. Parker (73) |
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Director (since 2000). |
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Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University: Graduate School of Business (Professor since 1973; Emeritus since 2006). |
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Trustee of iShares Trust (since 2000); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of Tejon Ranch Company (since 1999); Director of Threshold
Pharmaceuticals (since 2004); Director of Colony Financial, Inc. (since 2009); Director of First Republic Bank (since 2010). |
18
|
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|
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5 Years |
|
Other Directorships Held by Director |
John E. Martinez (51) |
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Director (since 2003); Securities Lending Committee Chair (since 2012). |
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Director of FirstREX Agreement Corp. (since 2005). |
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Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). |
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Cecilia H. Herbert (63) |
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Director (since 2005); Nominating and Governance Committee Chair and Equity Plus Committee Chair (since 2012). |
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Director (since 1998) and President (2007-2010) of the Board of Directors, Catholic Charities CYO; Trustee of Pacific Select Funds (2004-2005); Trustee (2002-2011) and Chair of the Finance
Committee (2006-2009) and Investment Committee (2006-2011) of the Thacher School; Member (since 1994) and Chair (1994-2005) of Investment Committee, Archdiocese of San Francisco; Trustee and Member of the Investment Committee (since 2011), WNET, the
New York public broadcasting company. |
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Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director, Forward Funds (34 portfolios) (since 2009). |
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Charles A. Hurty (68) |
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Director (since 2005); Audit Committee Chair (since 2006). |
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Retired; Partner, KPMG LLP (1968- 2001). |
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Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002);
Director of SkyBridge Multi-Adviser Hedge Fund Portfolios LLC (2 portfolios) (since 2002). |
John E. Kerrigan (57) |
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Director (since 2005); Fixed Income Plus Committee Chair (since 2012). |
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Chief Investment Officer, Santa Clara University (since 2002). |
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Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). |
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Madhav V. Rajan (48) |
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Director (since 2011); 15(c) Committee Chair (since 2012). |
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Gregor G. Peterson Professor of Accounting and Senior Associate Dean for Academic Affairs, Stanford University: Graduate School of Business (since 2001); Professor of Law (by courtesy),
Stanford Law School (since 2005); Visiting Professor, University of Chicago (Winter 2007-2008). |
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Trustee of iShares Trust (since 2011); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2011). |
Officers
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5
Years |
Jack Gee (52) |
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Treasurer and Chief Financial Officer (since 2008). |
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Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business of BGI (2009); Director of Fund Administration of Intermediary Investor
Business of BGI (2004-2009). |
19
|
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|
|
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5
Years |
Eilleen M. Clavere (60) |
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Secretary (since 2007). |
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Director of Global Fund Administration, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business of BGI (2006-2009); Legal Counsel and Vice President of
Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc. (2005-2006); Counsel of Kirkpatrick & Lockhart LLP (2001-2005). |
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Edward B. Baer (43) |
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Vice President and Chief Legal Officer (since 2012). |
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Managing Director of Legal & Compliance, BlackRock (since 2006); Director of Legal & Compliance, BlackRock (2004-2006). |
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Scott Radell (43) |
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Executive Vice President (since 2012). |
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Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007); Credit
Research Analyst, BGI (2003-2005). |
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Amy Schioldager (49) |
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Executive Vice President (since 2007). |
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Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI
(2001-2006). |
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Ira P. Shapiro (49) |
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Vice President (since 2007). |
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Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange- Traded Fund Complex (2007-2012); Associate General Counsel, BGI (2004-2009). |
The Board has concluded that, based on each Directors experience, qualifications, attributes or skills on an individual basis
and in combination with those of the other Directors, each Director should serve as a Director of the Board. Among the attributes common to all Directors are their ability to review critically, evaluate, question and discuss information provided to
them, to interact effectively with the Funds investment adviser, other service providers, counsel and the independent registered public accounting firm, and to exercise effective business judgment in the performance of their duties as
Directors. A Directors ability to perform his or her duties effectively may have been attained through the Directors educational background or professional training; business, consulting, public service or academic positions; experience
from service as a board member of the Fund and the other funds in the Company (and any predecessor funds), other investment funds, public companies, or non-profit entities or other organizations; and/or other life experiences. Also, set forth below
is a brief discussion of the specific experience, qualifications, attributes or skills of each Director that led the Board to conclude that he or she should serve as a Director.
Robert Kapito has been a Director of the Company since 2009. Mr. Kapito has served as a Trustee of iShares Trust since 2009, a Director
of iShares MSCI Russia Capped Index Fund, Inc. since 2010 and a Director of BlackRock, Inc. since 2007. In addition, he has over 20 years of experience as part of BlackRock, Inc. and BlackRocks predecessor entities. Mr. Kapito serves as
President and Director of BlackRock, Inc., and is the Chairman of the Operating Committee, a member of the Office of the Chairman, the Leadership Committee and the Corporate Council. He is responsible for day-to-day oversight of BlackRocks key
operating units, including the Account Management and Portfolio Management Groups, Real Estate Group and BlackRock
Solutions®. Prior to assuming his current responsibilities in 2007, Mr. Kapito served as Head of BlackRocks
Portfolio Management Group. In that role, he was responsible for overseeing all portfolio management within BlackRock, including the Fixed-Income, Equity, Liquidity, and Alternative Investment Groups. Mr. Kapito serves as a member of the Board
of Trustees of the University of Pennsylvania. He has also been President of the Board of Directors for the Hope &
20
Heroes Childrens Cancer Fund since 2002 and President of the Board of Directors for Periwinkle Theatre for Youth, a national non-profit arts-in-education organization, since 1983.
Mr. Kapito earned a BS degree in economics from the Wharton School of the University of Pennsylvania in 1979, and an MBA degree from Harvard Business School in 1983.
Michael Latham has been a Director of the Company since 2010 and President of the Company since 2007. Mr. Latham served as Principal Financial Officer of the Company from 2002 until 2007. Mr. Latham has
served as a Trustee of iShares Trust since 2010, President of iShares Trust since 2007, Principal Financial Officer of iShares Trust from 2002 until 2007, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010 and President of iShares
MSCI Russia Capped Index Fund, Inc. since 2010. Mr. Latham is the Chairman of BlackRocks iShares exchange-traded fund business. In addition, he has over 15 years of experience as part of BlackRock, Inc. and BlackRocks predecessor
entities. Prior to assuming his current responsibilities in September 2011, he was the global head of BlackRocks iShares exchange-traded fund business. Prior to April 2009, he was head of BlackRocks iShares exchange-traded fund business
for the United States and Canada, and Chief Operating Officer for the U.S. iShares business. He previously held a variety of operating positions within the firm. Mr. Latham earned a BS degree in business administration from California State
University at San Francisco in 1988.
Robert H. Silver has been a Director of the Company since 2007 and Chairman of the Companys Board since
2012. Mr. Silver has served as a Trustee of iShares Trust since 2007, Chairman of iShares Trusts Board since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010 and Chairman of iShares MSCI Russia Capped Index Fund,
Inc.s Board since 2012. Mr. Silver is President and a co-founder of The Bravitas Group Inc., a firm dedicated to advising and investing in emerging business enterprises and to supporting philanthropic activities that benefit under-served
urban youth. Previously, Mr. Silver served as the President and Chief Operating Officer of UBS Financial Services Inc., the registered broker dealer comprising the Wealth Management USA business unit of UBS AG. Mr. Silver also served on
the Board of Directors of EPAM, a provider of software engineering outsourcing services in Central and Eastern Europe, the Depository Trust and Clearing Corporation (DTCC) and served as a governor of the Philadelphia Stock Exchange. In addition,
Mr. Silver was a Vice Chairman and a Member of the Board of Directors for the YMCA of Greater New York and chaired its Fund Development Committee from 2001 until 2011 and Co-Founder and Vice President of Parentgiving Inc. since 2008.
Mr. Silver began his career as a CPA at KPMG LLP from 1977 until 1983. Mr. Silver has a BS degree in business administration from the University of North Carolina.
George G.C. Parker has been a Director of the Company since 2002. Mr. Parker served as Chair of the Companys Board from 2010 until 2012, Lead Independent Director of the Company from 2006 until 2010 and
Chair of the Nominating and Governance Committee of the Company from 2002 until 2010. Mr. Parker has served as a Trustee of iShares Trust since 2000, Chair of iShares Trusts Board from 2010 until 2012, Lead Independent Trustee of iShares
Trust from 2006 until 2010, Chair of the Nominating and Governance Committee of iShares Trust from 2002 until 2010, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010 and Chair of iShares MSCI Russia Capped Index Fund, Inc.s
Board from 2010 until 2012. Mr. Parker also serves as Director on four other boards. Mr. Parker is the Dean Witter Distinguished Professor of Finance (Emeritus) at the Stanford Graduate School of Business. He teaches courses in Corporate
Finance in the MBA Program, Stanford Sloan Program for Executives, and in various other Executive Education Programs at Stanford University. Mr. Parkers teaching and research interests are primarily in the field of corporate finance,
management of financial institutions, and corporate governance, and he has written numerous case studies related to these subjects. He has also authored several articles on capital structure, risk management, and corporate valuation. Mr. Parker
holds MBA and Ph.D. degrees from the Stanford Graduate School of Business.
John E. Martinez has been a Director of the Company since 2003 and Chair of
the Securities Lending Committee of the Company since 2012. Mr. Martinez has served as a Trustee of iShares Trust since 2003, Chair of the Securities Lending Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index
Fund, Inc. since 2010 and Chair of the Securities Lending Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012. Mr. Martinez is a Director of FirstREX Agreement Corp. (previously EquityRock, Inc.), providing governance oversight
and consulting services to this privately held firm that develops products and strategies for homeowners in managing the equity in their homes. Mr. Martinez previously served as Director of Barclays Global Investors (BGI) UK Holdings, where he
provided governance oversight representing BGIs shareholders (Barclays PLC, BGI management shareholders) through oversight of BGIs worldwide activities. Since 2003, he is a Director and Executive Committee Member for Larkin Street Youth
Services, providing governance oversight and strategy development to an agency that provides emergency and transitional housing, health care, education, job and life skills training to homeless youth. Mr. Martinez has an AB degree in economics
from The University of California, Berkeley and holds an MBA degree in finance and statistics from the Graduate School of Business, University of Chicago.
21
Cecilia H. Herbert has been a Director of the Company since 2005 and Chair of the Nominating and Governance Committee
and the Equity Plus Committee of the Company since 2012. Ms. Herbert has served as a Trustee of iShares Trust since 2005, Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares Trust since 2012, a Director of
iShares MSCI Russia Capped Index Fund, Inc. since 2010 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012. She is Director of the Board of the Catholic
Charities CYO, among the Bay Areas largest private social services organizations serving the homeless, poor, aged, families, children and AIDS/HIV victims, on which she has served since 1998. Ms. Herbert is a member of the Finance
Council, Archdiocese of San Francisco since 1994, which she chaired from 1994 to 2005. She has served on numerous non-profit boards. Ms. Herbert is also a Director and Advisory Board Member since 2009 of the Forward Funds. Ms. Herbert
previously served as a Trustee for the Pacific Select Funds and The Montgomery Funds. Ms. Herbert previously served as Managing Director of J.P. Morgan/Morgan Guaranty Trust Company responsible for product development, marketing and credit for
U.S. multinational corporations and as head of its San Francisco office and as Assistant Vice President, Signet Banking Corporation. Ms. Herbert has a BA degree in economics and communications from Stanford University and an MBA degree in
finance from Harvard Business School.
Charles A. Hurty has been a Director of the Company since 2005 and Chair of the Audit Committee of the Company
since 2006. Mr. Hurty has served as a Trustee of iShares Trust since 2005, Chair of the Audit Committee of iShares Trust since 2006, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010 and Chair of the Audit Committee of
iShares MSCI Russia Capped Index Fund, Inc. since 2010. In addition, Mr. Hurty serves as Director of the GMAM Absolute Return Strategy Fund since 2002, Director of the SkyBridge Multi-Adviser Hedge Fund Portfolios LLC (formerly, Citigroup
Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC) since 2002 and was a Director of the CSFB Alternative Investment Funds from 2005 to December 2009, when the funds were liquidated. Mr. Hurty was formerly a Partner at KPMG, LLP
from 1968 to 2001. Mr. Hurty has a BS degree in accounting from the University of Kansas.
John E. Kerrigan has been a Director of the Company
since 2005 and Chair of the Fixed Income Plus Committee of the Company since 2012. Mr. Kerrigan served as Chair of the Nominating and Governance Committee of the Company from 2010 until 2012. Mr. Kerrigan has served as a Trustee of iShares
Trust since 2005, Chair of the Fixed Income Plus Committee of iShares Trust since 2012, Chair of the Nominating and Governance Committee of iShares Trust from 2010 until 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010,
Chair of the Fixed Income Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012 and Chair of the Nominating and Governance Committee of iShares MSCI Russia Capped Index Fund, Inc. from 2010 until 2012. Mr. Kerrigan serves as
Chief Investment Officer, Santa Clara University since 2002. Mr. Kerrigan was formerly a Managing Director at Merrill Lynch & Co., including the following responsibilities: Global Manager of Institutional Client Division eCommerce,
Global Manager of Technology Specialists Sales and Chair, Performance Measurement, Evaluation & Compensation Task Force. Mr. Kerrigan is a Trustee, since 2008, of Sacred Heart Schools, Atherton, CA, and Director, since 1999, of The
BASIC Fund (Bay Area Scholarships for Inner City Children). Mr. Kerrigan has a BA degree from Boston College and is a Chartered Financial Analyst.
Madhav V. Rajan has been a Director of the Company since 2011 and Chair of the 15(c) Committee of the Company since 2012. Mr. Rajan has served as a Trustee of
iShares Trust since 2011, Chair of the 15(c) Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2011 and Chair of the 15(c) Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012.
Mr. Rajan is the Gregor G. Peterson Professor of Accounting at the Stanford Graduate School of Business. He has taught accounting for over 20 years to undergraduate, MBA and law students, as well as to senior executives. Mr. Rajan serves
as the Senior Associate Dean for Academic Affairs and head of the MBA Program at the Stanford Graduate School of Business. Mr. Rajan served as editor of The Accounting Review from 2002 to 2008 and is co-author of Cost
Accounting: A Managerial Emphasis, a leading cost accounting textbook. Mr. Rajan holds MS, MBA and Ph.D. degrees in Accounting from Carnegie Mellon University.
BoardLeadership Structure and Oversight Responsibilities
Overall responsibility for oversight of the
Fund rests with the Board. The Board has engaged BFA to manage the Fund on a day-to-day basis. The Board is responsible for overseeing BFA and other service providers in the operations of the Fund in accordance with the provisions of the 1940 Act,
applicable provisions of state and other laws and the Companys charter. The Board is currently composed of nine members, seven of whom are Independent Directors (defined below). The Board currently conducts regular meetings four times a year.
In addition, the Board frequently holds special in-person or telephonic meetings or informal conference calls to discuss specific matters that may arise or require action between regular meetings. The Independent Directors meet regularly outside the
presence of management, in executive session or with other service providers to the Company.
22
The Board has appointed an Independent Director to serve in the role of Chairman. The Chairmans role is to
preside at all meetings of the Board and to act as a liaison with service providers, officers, attorneys, and other Directors generally between meetings. The Chairman may also perform such other functions as may be delegated by the Board from time
to time. The Board has established six standing Committees: a Nominating and Governance Committee, an Audit Committee, a 15(c) Committee, a Securities Lending Committee, an Equity Plus Committee and a Fixed Income Plus Committee to assist the Board
in the oversight and direction of the business and affairs of the Fund, and from time to time may establish ad-hoc committees or informal working groups to review and address the policies and practices of the Fund with respect to certain specified
matters. The Chair of each standing Committee is an Independent Director. The role of the Chair of each Committee is to preside at all meetings of the Committee and to act as a liaison with service providers, officers, attorneys and other Directors
between meetings. Each Committee meets regularly to conduct the oversight functions delegated to the Committee by the Board and reports its finding to the Board. The Board and each standing Committee conduct annual assessments of their oversight
function and structure. The Board has determined that the Boards leadership structure is appropriate because it allows the Board to exercise independent judgment over management and it allocates areas of responsibility among committees of
Independent Directors and the full Board to enhance effective oversight.
Day-to-day risk management with respect to the Fund is the responsibility of
BFA or other service providers (depending on the nature of the risk), subject to the supervision of BFA. The Fund is subject to a number of risks, including investment, compliance, operational and valuation risks, among others. While there are a
number of risk management functions performed by BFA and other service providers, as applicable, it is not possible to eliminate all of the risks applicable to the Fund. The Directors have an oversight role in this area, satisfying themselves that
risk management processes are in place and operating effectively. Risk oversight forms part of the Boards general oversight of the Fund and is addressed as part of various Board and committee activities. The Board, directly or through a
committee, also reviews reports from, among others, management and the independent registered public accounting firm for the Company, as appropriate, regarding risks faced by the Fund and managements risk functions. The Board has appointed a
Chief Compliance Officer who oversees the implementation and testing of the Companys compliance program and reports to the Board regarding compliance matters for the Company and its principal service providers. In testing and maintaining the
compliance program, the Chief Compliance Officer assesses key compliance risks affecting the Fund, and addresses them in reports to the Board. The Independent Directors have engaged independent legal counsel to assist them in performing their
oversight responsibilities.
Committees of the Board of Directors. Each Independent Director serves on the Audit
Committee. The Chair of the Audit Committee is Charles A. Hurty. The purposes of the Audit Committee are to assist the Board (i) in its oversight of the Companys accounting and financial reporting principles and policies and related
controls and procedures maintained by or on behalf of the Company; (ii) in its oversight of the Companys financial statements and the independent audit thereof; (iii) in selecting, evaluating and, where deemed appropriate, replacing
the independent accountants (or nominating the independent accountants to be proposed for shareholder approval in any proxy statement); (iv) in evaluating the independence of the independent accountants; (v) in complying with legal and
regulatory requirements that relate to the Companys accounting and financial reporting, internal controls and independent audits; and (vi) to assume such other responsibilities as may be delegated by the Board. The Audit Committee met six
times during the fiscal year ended April 30, 2012.
The members of the Nominating and Governance Committee are Cecilia H. Herbert (Chair), Charles
A. Hurty, Madhav V. Rajan and John E. Kerrigan, all of whom are Independent Directors. The Nominating and Governance Committee nominates individuals for Independent Director membership on the Board. The Nominating and Governance Committee functions
include, but are not limited to, the following: (i) reviewing the qualifications of any person properly identified or nominated to serve as an Independent Director; (ii) recommending to the Board and current Independent Directors the
nominee(s) for appointment as an Independent Director by the Board and current Independent Directors and/or for election as Independent Directors by shareholders to fill any vacancy for a position of Independent Director(s) on the Board;
(iii) recommending to the Board and current Independent Directors the size and composition of the Board and Board committees and whether they comply with applicable laws and regulations; (iv) recommending a current Independent Director to
the Board and current Independent Directors to serve as Lead Independent Director; (v) periodic review of the Boards retirement policy; and (vi) recommending an appropriate level of compensation for the Independent Directors for
their services as Directors, members or chairpersons of committees of the Board, Lead Independent Director, Chairperson of the Board and any other positions as the Nominating and Governance Committee considers appropriate. The Nominating and
Governance Committee does not consider Board nominations recommended by shareholders (acting solely in their capacity as a shareholder and not in any other capacity). The Nominating and Governance Committee met six times during the fiscal year ended
April 30, 2012.
23
The members of the 15(c) Committee are Madhav V. Rajan (Chair), Cecilia H. Herbert, Charles A. Hurty and John E.
Martinez, all of whom are Independent Directors. The principal responsibilities of the 15(c) Committee are to support, oversee and organize on behalf of the Board the process for the annual review and renewal of the Companys advisory and
sub-advisory agreements. These responsibilities include: (i) meeting with BlackRock, Inc. in advance of the Board meeting at which the Companys advisory and sub-advisory agreements are to be considered to discuss generally the process for
providing requested information to the Board and the format in which information will be provided; and (ii) considering and discussing with BlackRock, Inc. such other matters and information as may be necessary and appropriate for the Board to
evaluate the investment advisory and sub-advisory agreements of the Company. The 15(c) Committee was formed on June 20, 2012 and therefore did not meet during the fiscal year ended April 30, 2012.
The members of the Securities Lending Committee are John E. Martinez (Chair), John E. Kerrigan and George G.C. Parker, all of whom are Independent Directors. The
principal responsibilities of the Securities Lending Committee are to support, oversee and organize on behalf of the Board the process for oversight of the Companys securities lending activities. These responsibilities include:
(i) requesting that certain information be provided to the Committee for its review and consideration prior to such information being provided to the Board; (ii) considering and discussing with BlackRock, Inc. such other matters and
information as may be necessary and appropriate for the Board to oversee the Companys securities lending activities and make required findings and approvals; and (iii) providing a recommendation to the Board regarding the annual approval
of the Companys Securities Lending Guidelines and the required findings with respect to, and annual approval of, the Companys agreement with the lending agent. The Securities Lending Committee was formed on June 20, 2012 and
therefore did not meet during the fiscal year ended April 30, 2012.
The members of the Equity Plus Committee are Cecilia H. Herbert (Chair), John
E. Martinez and George G.C. Parker, all of whom are Independent Directors. The principal responsibilities of the Equity Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of Company performance and
related matters for equity funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters that should be brought to the attention
of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as appropriate. The Equity Plus Committee
was formed on June 20, 2012 and therefore did not meet during the fiscal year ended April 30, 2012.
The members of the Fixed Income Plus
Committee are John E. Kerrigan (Chair), Charles A. Hurty and Madhav V. Rajan, all of whom are Independent Directors. The principal responsibilities of the Fixed Income Plus Committee are to support, oversee and organize on behalf of the Board the
process for oversight of Company performance and related matters for fixed income or multi-asset funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net
assets to identify any matters that should be brought to the attention of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report
or recommendation to the Board as appropriate. The Fixed Income Plus Committee was formed on June 20, 2012 and therefore did not meet during the fiscal year ended April 30, 2012.
As the Chairman of the Board, Robert H. Silver may participate in each Committees meetings.
The following
table sets forth, as of December 31, 2011, the dollar range of equity securities beneficially owned by each Director in the Fund and in other registered investment companies overseen by the Director within the same family of investment
companies as the Company. If a fund is not listed below, the Director did not own any securities in that fund as of the date indicated above:
|
|
|
|
|
|
|
Name of Director |
|
Fund |
|
Dollar Range of Equity Securities in the
Fund |
|
Aggregate Dollar Range of Equity Securities in all Registered Investment Companies Overseen
by Director in Family of Investment Companies |
Robert S. Kapito |
|
iShares Dow Jones U.S. Real Estate Index Fund |
|
$10,001-$50,000 |
|
Over $100,000 |
|
|
iShares MSCI Australia Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI Brazil Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Canada Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Emerging Markets Index Fund |
|
Over $100,000 |
|
|
24
|
|
|
|
|
|
|
Name of Director |
|
Fund |
|
Dollar Range of Equity Securities in the
Fund |
|
Aggregate Dollar Range of Equity Securities in all Registered Investment Companies Overseen
by Director in Family of Investment Companies |
|
|
iShares MSCI Japan Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares FTSE China 25 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Growth Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell Midcap Index Fund |
|
Over $100,000 |
|
|
|
|
|
|
Michael Latham |
|
iShares MSCI ACWI ex US Index Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares MSCI
EAFE® Small Cap Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI
EAFE® Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Emerging Markets Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 3000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell Microcap Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P California AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P National AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
|
|
Robert H. Silver |
|
iShares Barclays 1-3 Year Credit Bond Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares Barclays 1-3 Year Treasury Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares Barclays Aggregate Bond Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Dow Jones U.S. Broker-Dealers Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Dow Jones U.S. Financial Services Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Dow Jones U.S. Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares Dow Jones U.S. Regional Banks Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares High Dividend Equity Fund |
|
Over $100,000 |
|
|
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI ACWI ex US Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI BRIC Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Emerging Markets Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Russell 1000 Growth Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Growth Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
$1-$10,000 |
|
|
|
|
iShares Russell 2000 Value Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares Russell 3000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P Europe 350 Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P U.S. Preferred Stock Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P/Citigroup International Treasury Bond Fund |
|
$1-$10,000 |
|
|
|
|
|
|
George G.C. Parker |
|
iShares Barclays Aggregate Bond Fund |
|
$10,001-$50,000 |
|
Over $100,000 |
|
|
iShares Dow Jones Select Dividend Index Fund |
|
Over $100,000 |
|
|
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 100 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P California AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
|
|
John E. Martinez |
|
iShares Barclays TIPS Bond Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares MSCI All Country Asia ex Japan Index Fund |
|
Over $100,000 |
|
|
25
|
|
|
|
|
|
|
Name of Director |
|
Fund |
|
Dollar Range of Equity Securities in the
Fund |
|
Aggregate Dollar Range of Equity Securities in all Registered Investment Companies Overseen
by Director in Family of Investment Companies |
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P Emerging Markets Infrastructure Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P Global Consumer Staples Sector Index Fund |
|
Over $100,000 |
|
|
|
|
|
|
Cecilia H. Herbert |
|
iShares FTSE China 25 Index Fund |
|
$10,001-$50,000 |
|
$10,001-$50,000 |
|
|
|
|
Charles A. Hurty |
|
iShares Dow Jones U.S. Financial Sector Index Fund |
|
$1-$10,000 |
|
Over $100,000 |
|
|
iShares Dow Jones Select Dividend Index Fund |
|
$1-$10,000 |
|
|
|
|
iShares Dow Jones U.S. Energy Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Dow Jones U.S. Technology Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares FTSE China 25 Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI Japan Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P Global Energy Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P Global Technology Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P North American Technology-Multimedia Networking Index Fund |
|
$10,001-$50,000 |
|
|
John E. Kerrigan |
|
iShares MSCI ACWI ex US Index Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares S&P Short Term National AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
|
|
Madhav V. Rajan |
|
iShares Dow Jones Select Dividend Index Fund |
|
$10,001-$50,000 |
|
Over $100,000 |
|
|
iShares High Dividend Equity Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund |
|
$10,001-$50,000 |
|
|
As of December 31, 2011, none of the Independent Directors or their immediate family members owned beneficially or of record
any securities of BFA (the Funds investment adviser), the Distributor or any person controlling, controlled by or under common control with BFA or the Distributor.
Remuneration of Directors. Each current Independent Director is paid an annual retainer of $250,000 for his or her services as a Board member to the BlackRock-advised Funds in the
Exchange-Traded Fund Complex, together with out-of-pocket expenses in accordance with a Boards policy on travel and other business expenses relating to attendance at meetings. The Independent Chairman of the Boards is paid an additional annual
retainer of $50,000. The Chair of the Audit Committees is paid an additional annual retainer of $40,000. The Chair of the Nominating and Governance Committees is paid an additional annual retainer of $15,000. Each Independent Director that serves as
a director of subsidiaries of the Exchange-Traded Complex is paid an additional annual retainer of $10,000 (plus an additional $1,765 paid annually to compensate for taxes due in the Republic of Mauritius).
26
The table below sets forth the compensation earned by each Independent Director and Interested Director from the Fund
for the fiscal year ended April 30, 2012 and the aggregate compensation paid to them by the Exchange-Traded Complex for the calendar year ended December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors |
|
Asia/Pacific Dividend 30 Index Fund |
|
|
Pension or Retirement Benefits Accrued As Part of Company Expenses1 |
|
|
Estimated Annual Benefits
Upon Retirement1 |
|
|
Total Compensation From the Fund and Fund Complex2 |
|
Name of Independent Director: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George G.C. Parker |
|
$ |
6 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
$ |
300,000 |
|
John E. Kerrigan |
|
|
6 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
276,765 |
|
Charles A. Hurty |
|
|
6 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
290,000 |
|
Cecilia H. Herbert |
|
|
5 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
261,765 |
|
Robert H. Silver |
|
|
5 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
250,000 |
|
Darrell
Duffie3 |
|
|
1 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
62,500 |
|
John E. Martinez |
|
|
5 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
261,765 |
|
Madhav V.
Rajan4 |
|
|
4 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
187,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Interested Director: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert S. Kapito |
|
$ |
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
$ |
0 |
|
Michael Latham |
|
|
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
0 |
|
|
1 |
No Director or officer is entitled to any pension or retirement benefits from the Company. |
|
2 |
Includes compensation for service on the Board of Trustees of iShares Trust and the Board of Directors of iShares MSCI Russia Capped Index Fund, Inc.
|
|
3 |
Served as Director through March 19, 2011. |
|
4 |
Appointed to serve as Independent Director of the Company effective May 16, 2011. |
Control Persons and Principal Holders of Securities.
The Directors and officers of the Company collectively owned less than 1% of the Funds outstanding shares as of July 31, 2012.
Although the Company does not have information concerning the beneficial ownership of shares held in the names of Depository Trust Company (DTC) participants (as defined below), as of July 31,
2012, the name and percentage ownership of each DTC participant that owned of record 5% or more of the outstanding shares of the Fund were as follows:
|
|
|
Name and Address |
|
Percentage of Ownership |
Northern Trust Company (The) 801 South Canal Street Chicago, IL 60612 |
|
64.26% |
|
|
National Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
6.29% |
Potential Conflicts of Interest. The PNC Financial Services Group, Inc. (PNC) has a
significant economic interest in BlackRock, Inc., the parent of BFA, the Funds investment adviser. PNC is considered to be an affiliate of BlackRock, Inc., under the 1940 Act. Certain activities of BFA, BlackRock, Inc. and their affiliates
(collectively, BlackRock) and PNC and its affiliates (collectively, PNC and together with BlackRock, Affiliates), with respect to the Fund and/or other accounts managed by BlackRock or PNC, may give rise to actual
or perceived conflicts of interest such as those described below.
BlackRock is one of the worlds largest asset management firms. PNC is a
diversified financial services organization spanning the retail, business and corporate markets. BlackRock and PNC are affiliates of one another under the 1940 Act. BlackRock and PNC and their respective affiliates (including, for these purposes,
their directors, partners, trustees, managing members, officers and employees), including the entities and personnel who may be involved in the investment activities and business operations of the Fund, are engaged worldwide in businesses, including
equity, fixed-income, cash management and
27
alternative investments. These are considerations of which investors in the Fund should be aware, and which may cause conflicts of interest that could disadvantage the Fund and its shareholders.
These activities and interests include potential multiple advisory, transactional, financial and other interests in securities and other instruments that may be purchased or sold by the Fund.
BlackRock and its Affiliates have proprietary interests in, and may manage or advise with respect to, accounts or funds (including separate accounts and other funds and collective investment vehicles) that have
investment objectives similar to those of the Fund and/or that engage in transactions in the same types of securities, currencies and instruments as the Fund. One or more Affiliates are also major participants in the global currency, equities, swap
and fixed-income markets, in each case both on a proprietary basis and for the accounts of customers. As such, one or more Affiliates are or may be actively engaged in transactions in the same securities, currencies, and instruments in which the
Fund invests. Such activities could affect the prices and availability of the securities, currencies, and instruments in which the Fund invests, which could have an adverse impact on the Funds performance. Such transactions, particularly in
respect of most proprietary accounts or customer accounts, will be executed independently of the Funds transactions and thus at prices or rates that may be more or less favorable than those obtained by the Fund. When BlackRock and its
Affiliates purchase or sell the same assets for their managed accounts, including the Fund, the assets actually purchased or sold may be allocated among the accounts on a basis determined in their good faith discretion to be equitable. In some
cases, this system may adversely affect the size or price of the assets purchased or sold for the Fund. In addition, transactions in investments by one or more other accounts managed by BlackRock or its Affiliates may have the effect of diluting or
otherwise disadvantaging the values, prices or investment strategies of the Fund, particularly, but not limited to, with respect to small capitalization, emerging market or less liquid strategies. This may occur when investment decisions regarding
the Fund are based on research or other information that is also used to support decisions for other accounts. When BlackRock or its Affiliates implements a portfolio decision or strategy on behalf of another account ahead of, or contemporaneously
with, similar decisions or strategies for the Fund, market impact, liquidity constraints, or other factors could result in the Fund receiving less favorable trading results and the costs of implementing such decisions or strategies could be
increased or the Fund could otherwise be disadvantaged. BlackRock or its Affiliates may, in certain cases, elect to implement internal policies and procedures designed to limit such consequences, which may cause the Fund to be unable to engage in
certain activities, including purchasing or disposing of securities, when it might otherwise be desirable for it to do so.
Conflicts may also arise
because portfolio decisions regarding the Fund may benefit other accounts managed by BlackRock or its Affiliates. For example, the sale of a long position or establishment of a short position by the Fund may impair the price of the same security
sold short by (and therefore benefit) one or more Affiliates or their other accounts, and the purchase of a security or covering of a short position in a security by the Fund may increase the price of the same security held by (and therefore
benefit) one or more Affiliates or their other accounts.
BlackRock and its Affiliates and their clients may pursue or enforce rights with respect to an
issuer in which the Fund has invested, and those activities may have an adverse effect on the Fund. As a result, prices, availability, liquidity and terms of the Funds investments may be negatively impacted by the activities of BlackRock or
its Affiliates or their clients, and transactions for the Fund may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.
The results of the Funds investment activities may differ significantly from the results achieved by BlackRock and its Affiliates for their proprietary accounts or other accounts (including investment
companies or collective investment vehicles) managed or advised by them. It is possible that one or more Affiliate-managed accounts and such other accounts will achieve investment results that are substantially more or less favorable than the
results achieved by the Fund. Moreover, it is possible that the Fund will sustain losses during periods in which one or more Affiliate-managed accounts achieve significant profits on their trading for proprietary or other accounts. The opposite
result is also possible. The investment activities of one or more Affiliates for their proprietary accounts and accounts under their management may also limit the investment opportunities for the Fund in certain emerging and other markets in which
limitations are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated foreign investors.
From time to time,
the Funds activities may also be restricted because of regulatory restrictions applicable to one or more Affiliates, and/or their internal policies designed to comply with such restrictions. As a result, there may be periods, for example, when
BlackRock, and/or one or more Affiliates, will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which BlackRock and/or one or more Affiliates are performing services or when position limits
have been reached.
28
In connection with its management of the Fund, BlackRock may have access to certain fundamental analysis and
proprietary technical models developed by one or more Affiliates. BlackRock will not be under any obligation, however, to effect transactions on behalf of the Fund in accordance with such analysis and models. In addition, neither BlackRock nor any
of its Affiliates will have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for the benefit of the management of the Fund
and it is not anticipated that BlackRock will have access to such information for the purpose of managing the Fund. The proprietary activities or portfolio strategies of BlackRock and its Affiliates, or the activities or strategies used for accounts
managed by them or other customer accounts could conflict with the transactions and strategies employed by BlackRock in managing the Fund.
In addition,
certain principals and certain employees of BlackRock are also principals or employees of Affiliates. As a result, the performance by these principals and employees of their obligations to such other entities may be a consideration of which
investors in the Fund should be aware.
BlackRock may enter into transactions and invest in securities, instruments and currencies on behalf of the Fund
in which customers of BlackRock or its Affiliates, or, to the extent permitted by the SEC, BlackRock or another Affiliate, serves as the counterparty, principal or issuer. In such cases, such partys interests in the transaction will be adverse
to the interests of the Fund, and such party may have no incentive to assure that the Fund obtains the best possible prices or terms in connection with the transactions. In addition, the purchase, holding and sale of such investments by the Fund may
enhance the profitability of BlackRock or its Affiliates. One or more Affiliates may also create, write or issue derivatives for their customers, the underlying securities, currencies or instruments of which may be those in which the Fund invests or
which may be based on the performance of the Fund. The Fund may, subject to applicable law, purchase investments that are the subject of an underwriting or other distribution by one or more Affiliates and may also enter into transactions with other
clients of an Affiliate where such other clients have interests adverse to those of the Fund.
At times, these activities may cause departments of
BlackRock or its Affiliates to give advice to clients that may cause these clients to take actions adverse to the interests of the Fund. To the extent affiliated transactions are permitted, the Fund will deal with BlackRock and its Affiliates on an
arms-length basis. BlackRock or its Affiliates may also have an ownership interest in certain trading or information systems used by the Fund. The Funds use of such trading or information systems may enhance the profitability of BlackRock and
its Affiliates.
One or more Affiliates may act as broker, dealer, agent, lender or adviser or in other commercial capacities for the Fund. It is
anticipated that the commissions, mark-ups, mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and commitment fees, brokerage fees, other fees, compensation or profits, rates, terms and conditions charged by
an Affiliate will be in its view commercially reasonable, although each Affiliate, including its sales personnel, will have an interest in obtaining fees and other amounts that are favorable to the Affiliate and such sales personnel.
Subject to applicable law, the Affiliates (and their personnel and other distributors) will be entitled to retain fees and other amounts that they receive in
connection with their service to the Fund as broker, dealer, agent, lender, adviser or in other commercial capacities and no accounting to the Fund or its shareholders will be required, and no fees or other compensation payable by the Fund or its
shareholders will be reduced by reason of receipt by an Affiliate of any such fees or other amounts.
When an Affiliate acts as broker, dealer, agent,
adviser or in other commercial capacities in relation to the Fund, the Affiliate may take commercial steps in its own interests, which may have an adverse effect on the Fund. The Fund will be required to establish business relationships with its
counterparties based on the Funds own credit standing. Neither BlackRock nor any of the Affiliates will have any obligation to allow their credit to be used in connection with the Funds establishment of its business relationships, nor is
it expected that the Funds counterparties will rely on the credit of BlackRock or any of the Affiliates in evaluating the Funds creditworthiness.
Purchases and sales of securities for the Fund may be bunched or aggregated with orders for other BlackRock client accounts. BlackRock, however, is not required to bunch or aggregate orders if portfolio management
decisions for different accounts are made separately, or if it determines that bunching or aggregating is not practicable or required, or in cases involving client direction.
Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and
the Fund will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Fund. In addition, under certain circumstances, the Fund will not be charged the same
commission or commission equivalent rates in connection with a bunched or aggregated order.
29
BlackRock may select brokers (including, without limitation, Affiliates) that furnish BlackRock, the Fund, other
BlackRock client accounts or other Affiliates or personnel, directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRocks view, appropriate assistance to BlackRock in the investment
decision-making process (including with respect to futures, fixed-price offerings and over-the-counter transactions). Such research or other services may include, to the extent permitted by law, research reports on companies, industries and
securities; economic and financial data; financial publications; proxy analysis; trade industry seminars; computer data bases; research-oriented software and other services and products. Research or other services obtained in this manner may be used
in servicing any or all of the Fund and other BlackRock client accounts, including in connection with BlackRock client accounts other than those that pay commissions to the broker relating to the research or other service arrangements. Such products
and services may disproportionately benefit other BlackRock client accounts relative to the Fund based on the amount of brokerage commissions paid by the Fund and such other BlackRock client accounts. For example, research or other services that are
paid for through one clients commissions may not be used in managing that clients account. In addition, other BlackRock client accounts may receive the benefit, including disproportionate benefits, of economies of scale or price
discounts in connection with products and services that may be provided to the Fund and to such other BlackRock client accounts. To the extent that BlackRock uses soft dollars, it will not have to pay for those products and services itself.
BlackRock may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer.
To the extent that BlackRock receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the
execution, clearing, and settlement services provided by the broker-dealer and will not be paid by BlackRock.
BlackRock may endeavor to execute trades
through brokers who, pursuant to such arrangements, provide research or other services in order to ensure the continued receipt of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from
time to time choose not to engage in the above described arrangements to varying degrees. BlackRock may also enter into commission sharing arrangements under which BlackRock may execute transactions through a broker-dealer, including, where
permitted, an Affiliate, and request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to BlackRock. To the extent that BlackRock engages in commission sharing arrangements,
many of the same conflicts related to traditional soft dollars may exist.
BlackRock may utilize certain electronic crossing networks (ECNs)
in executing client securities transactions for certain types of securities. These ECNs may charge fees for their services, including access fees and transaction fees. The transaction fees, which are similar to commissions or markups/markdowns, will
generally be charged to clients and, like commissions and markups/markdowns, would generally be included in the cost of the securities purchased. Access fees may be paid by BlackRock even though incurred in connection with executing transactions on
behalf of clients, including the Fund. In certain circumstances, ECNs may offer volume discounts that will reduce the access fees typically paid by BlackRock. This would have the effect of reducing the access fees paid by BlackRock. BlackRock will
only utilize ECNs consistent with its obligation to seek to obtain best execution in client transactions.
BlackRock has adopted policies and procedures
designed to prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including the Fund, and to help ensure that such decisions are made in accordance with BlackRocks fiduciary
obligations to its clients. Nevertheless, notwithstanding such proxy voting policies and procedures, actual proxy voting decisions of BlackRock may have the effect of favoring the interests of other clients or businesses of other divisions or units
of BlackRock and/or its Affiliates, provided that BlackRock believes such voting decisions to be in accordance with its fiduciary obligations. For a more detailed discussion of these policies and procedures, see the Proxy Voting Policy
section of this SAI.
It is also possible that, from time to time, BlackRock or its Affiliates may, although they are not required to, purchase and
hold shares of the Fund. Increasing the Funds assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the Funds expense ratio. BlackRock and its Affiliates reserve the
right to redeem at any time some or all of the shares of the Fund acquired for their own accounts. A large redemption of shares of the Fund by BlackRock or its Affiliates could significantly reduce the asset size of the Fund, which might have an
adverse effect on the Funds investment flexibility, portfolio diversification and expense ratio. BlackRock will consider the effect of redemptions on the Fund and other shareholders in deciding whether to redeem its shares.
30
It is possible that the Fund may invest in securities of companies with which an Affiliate has or is trying to develop
investment banking relationships as well as securities of entities in which BlackRock or its Affiliates has significant debt or equity investments or in which an Affiliate makes a market. The Fund also may invest in securities of companies to which
an Affiliate provides or may someday provide research coverage. Such investments could cause conflicts between the interests of the Fund and the interests of other clients of BlackRock or its Affiliates. In making investment decisions for the Fund,
BlackRock is not permitted to obtain or use material non-public information acquired by any division, department or Affiliate of BlackRock in the course of these activities. In addition, from time to time, the activities of an Affiliate may limit
the Funds flexibility in purchases and sales of securities. When an Affiliate is engaged in an underwriting or other distribution of securities of an entity, BlackRock may be prohibited from purchasing or recommending the purchase of certain
securities of that entity for the Fund.
BlackRock and its Affiliates, their personnel and other financial service providers may have interests in
promoting sales of the Fund. With respect to BlackRock and its Affiliates and their personnel, the remuneration and profitability relating to services to and sales of the Fund or other products may be greater than remuneration and profitability
relating to services to and sales of certain funds or other products that might be provided or offered. BlackRock and its Affiliates and their sales personnel may directly or indirectly receive a portion of the fees and commissions charged to the
Fund or its shareholders. BlackRock and its advisory or other personnel may also benefit from increased amounts of assets under management. Fees and commissions may also be higher than for other products or services, and the remuneration and
profitability to BlackRock or its Affiliates and such personnel resulting from transactions on behalf of or management of the Fund may be greater than the remuneration and profitability resulting from other funds or products.
BlackRock and its Affiliates and their personnel may receive greater compensation or greater profit in connection with an account for which BlackRock serves as an
adviser than with an account advised by an unaffiliated investment adviser. Differentials in compensation may be related to the fact that BlackRock may pay a portion of its advisory fee to its Affiliate, or relate to compensation arrangements,
including for portfolio management, brokerage transactions or account servicing. Any differential in compensation may create a financial incentive on the part of BlackRock or its Affiliates and their personnel to recommend BlackRock over
unaffiliated investment advisers or to effect transactions differently in one account over another.
BlackRock and its Affiliates may provide valuation
assistance to certain clients with respect to certain securities or other investments and the valuation recommendations made for their clients accounts may differ from the valuations for the same securities or investments assigned by the
Funds pricing vendors, especially if such valuations are based on broker-dealer quotes or other data sources unavailable to the Funds pricing vendors. While BlackRock will generally communicate its valuation information or determinations
to the Funds pricing vendors and/or fund accountants, there may be instances where the Funds pricing vendors or fund accountants assign a different valuation to a security or other investment than the valuation for such security or
investment determined or recommended by BlackRock.
As disclosed in more detail in the Determination of Net Asset Value section of the
Funds Prospectus, when market valuations are not readily available or such valuations do not reflect current market values, the affected investments will be valued using fair value pricing, pursuant to procedures adopted by the Funds
Board. As a result, the Funds sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BlackRock (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing
the economic interest of existing shareholders.
To the extent permitted by applicable law, the Fund may invest all or some of its short-term cash
investments in any money market fund or similarly-managed private fund advised or managed by BlackRock. In connection with any such investments, the Fund, to the extent permitted by the 1940 Act, may pay its share of expenses of a money market fund
in which it invests, which may result in the Fund bearing some additional expenses.
BlackRock and its Affiliates and their directors, officers and
employees, may buy and sell securities or other investments for their own accounts, and may have conflicts of interest with respect to investments made on behalf of the Fund. As a result of differing trading and investment strategies or constraints,
positions may be taken by directors, officers, employees and Affiliates of BlackRock that are the same, different from or made at different times than positions taken for the Fund. To lessen the possibility that the Fund will be adversely affected
by this personal trading, the Fund, BFA and BlackRock each has adopted a Code of Ethics in compliance with Section 17(j) of the 1940 Act that restricts securities trading in the personal accounts of investment professionals and others who
normally come into possession of information regarding the Funds portfolio transactions. Each Code of Ethics can be reviewed and copied at the SECs Public Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at (202) 551-8090. Each
31
Code of Ethics is also available on the EDGAR Database on the SECs Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at
publicinfo@sec.gov or by writing the SECs Public Reference Section, Washington, DC 20549-1520.
BlackRock and its Affiliates will not purchase
securities or other property from, or sell securities or other property to, the Fund, except that the Fund may in accordance with rules adopted under the 1940 Act engage in transactions with accounts that are affiliated with the Fund as a result of
common officers, directors, or investment advisers or pursuant to exemptive orders granted to the Fund and/or BlackRock by the SEC. These transactions would be affected in circumstances in which BlackRock determined that it would be appropriate for
the Fund to purchase and another client of BlackRock to sell, or the Fund to sell and another client of BlackRock to purchase, the same security or instrument on the same day. From time to time, the activities of the Fund may be restricted because
of regulatory requirements applicable to BlackRock or its Affiliates and/or BlackRocks internal policies designed to comply with, limit the applicability of, or otherwise relate to such requirements. A client not advised by BlackRock would not
be subject to some of those considerations. There may be periods when BlackRock may not initiate or recommend certain types of transactions, or may otherwise restrict or limit their advice in certain securities or instruments issued by or related to
companies for which an Affiliate is performing investment banking, market making or other services or has proprietary positions. For example, when an Affiliate is engaged in an underwriting or other distribution of securities of, or advisory
services for, a company, the Fund may be prohibited from or limited in purchasing or selling securities of that company. Similar situations could arise if personnel of BlackRock or its Affiliates serve as directors of companies the securities of
which the Fund wishes to purchase or sell. However, if permitted by applicable law, the Fund may purchase securities or instruments that are issued by such companies or are the subject of an underwriting, distribution, or advisory assignment by an
Affiliate, or in cases in which personnel of BlackRock or its Affiliates are directors or officers of the issuer.
The investment activities of one or
more Affiliates for their proprietary accounts and for client accounts may also limit the investment strategies and rights of the Fund. For example, in regulated industries, in certain emerging or international markets, in corporate and regulatory
ownership definitions, and in certain futures and derivative transactions, there may be limits on the aggregate amount of investment by affiliated investors that may not be exceeded without the grant of a license or other regulatory or corporate
consent or, if exceeded, may cause BlackRock, the Fund or other client accounts to suffer disadvantages or business restrictions.
If certain aggregate
ownership thresholds are reached or certain transactions undertaken, the ability of BlackRock on behalf of clients (including the Fund) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted
by regulation or otherwise impaired. As a result, BlackRock, on behalf of clients (including the Fund), may limit purchases, sell existing investments, or otherwise restrict or limit the exercise of rights (including voting rights) when BlackRock,
in its sole discretion, deems it appropriate.
BlackRock and its Affiliates may maintain securities indices as part of their product offerings. Index
based funds seek to track the performance of securities indices and may use the name of the index in the fund name. Index providers, including BlackRock and its Affiliates may be paid licensing fees for use of their index or index name. BlackRock
and its Affiliates will not be obligated to license their indices to BlackRock, and BlackRock cannot be assured that the terms of any index licensing agreement with BlackRock and its Affiliates will be as favorable as those terms offered to other
index licensees.
BlackRock and its Affiliates may serve as Authorized Participants in the creation and redemption of exchange-traded funds, including
funds advised by Affiliates of BlackRock. As described in greater detail in the Creations and Redemptions section of the prospectus, BlackRock and its Affiliates may therefore be deemed to be participants in a distribution of iShares funds
that could render them statutory underwriters.
Present and future activities of BlackRock and its Affiliates, including BFA, in addition to those
described in this section, may give rise to additional conflicts of interest.
32
Investment Advisory, Administrative and Distribution Services
Investment Adviser. BFA serves as investment adviser to the Fund pursuant to an Investment Advisory Agreement between the
Company, on behalf of the Fund, and BFA. BFA is a California corporation indirectly owned by BlackRock, Inc. and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the Investment Advisory Agreement,
BFA, subject to the supervision of the Board and in conformity with the stated investment policies of the Fund, manages and administers the Company and the investment of the Funds assets. BFA is responsible for placing purchase and sale orders
and providing continuous supervision of the investment portfolio of the Fund.
Pursuant to the Investment Advisory Agreement, BFA may, from time to
time, in its sole discretion and to the extent permitted by applicable law, appoint one or more sub-advisers, including, without limitation, affiliates of BFA, to perform investment advisory or other services with respect to the Fund. In addition,
BFA may delegate certain of its investment advisory functions under the Investment Advisory Agreement to one or more of its affiliates to the extent permitted by applicable law. BFA may terminate any or all sub-advisers or such delegation
arrangements in its sole discretion upon appropriate notice at any time to the extent permitted by applicable law.
BFA is responsible, under the
Investment Advisory Agreement, for substantially all expenses of the Fund, including the cost of transfer agency, custody, fund administration, legal, audit and other services. BFA is not responsible for, and the Fund will bear the cost of, interest
expense, taxes, brokerage expenses and other expenses connected with the execution of portfolio securities transactions, distribution fees and extraordinary expenses.
For its investment advisory services to the Fund, BFA is entitled to receive a management fee from the Fund, based on a percentage of the Funds average daily net assets, at an annual rate of 0.49%. Because
the Fund has been in operation for less than one full fiscal year, this percentage reflects the rate at which BFA will be paid.
|
|
|
|
|
|
|
|
|
Management Fee |
|
Fund Inception Date |
|
Management Fees Paid for Fiscal Year Ended April 30, 2012 |
|
Management Fees Paid for Fiscal Year Ended April 30, 2011 |
|
Management Fees Paid for Fiscal
Year Ended April 30, 2010 |
0.49% |
|
02/23/12 |
|
$8,726 |
|
N/A |
|
N/A |
The Investment Advisory Agreement with respect to the Fund continues in effect for two years from its effective date, and
thereafter is subject to annual approval by (i) the Board, or (ii) the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, provided that in either event such continuance also is approved by a
majority of the Board who are not interested persons (as defined in the 1940 Act) of the Fund, by a vote cast in person at a meeting called for the purpose of voting on such approval.
The Investment Advisory Agreement with respect to the Fund is terminable without penalty, on 60 days notice, by the Board or by a vote of the holders of a majority of the Funds outstanding voting
securities (as defined in the 1940 Act). The Investment Advisory Agreement is also terminable upon 60 days notice by BFA and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
Current interpretations of U.S. federal banking laws and regulations (i) may prohibit BlackRock, Inc., BFA or its affiliates from controlling or underwriting
the shares of the Fund, but (ii) do not prohibit BlackRock, Inc. or BFA generally from acting as an investment adviser, administrator, transfer agent or custodian to the Fund or from purchasing shares as agent for and upon the order of a
customer.
BFA believes that it may perform advisory and related services for the Company without violating applicable banking laws or regulations.
However, the legal requirements and interpretations about the permissible activities of banks and their affiliates may change in the future. These changes could prevent BFA from continuing to perform services for the Company. If this happens, the
Board would consider selecting other qualified firms. Any new investment advisory agreement would be subject to shareholder approval.
33
If current restrictions on bank activities with mutual funds were relaxed, BFA, or its affiliates, would consider
performing additional services for the Company. BFA cannot predict whether these changes will be enacted, or the terms under which BFA, or its affiliates, might offer to provide additional services.
Portfolio Managers. As of April 30, 2012, the individuals named as Portfolio Managers in the Funds Prospectus were
also primarily responsible for the day-to-day management of other iShares funds and certain other types of portfolios and/or accounts as follows:
|
|
|
|
|
|
|
|
|
Rene Casis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
222 |
|
|
$ |
350,000,000,000 |
|
Other Pooled Investment Vehicles |
|
|
62 |
|
|
$ |
46,500,000,000 |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rene Casis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diane Hsiung |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
220 |
|
|
$ |
350,000,000,000 |
|
Other Pooled Investment Vehicles |
|
|
14 |
|
|
$ |
9,100,000,000 |
|
Other Accounts |
|
|
3 |
|
|
$ |
5,000,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jennifer Hsui |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
5 |
|
|
$ |
2,900,000,000 |
|
Other Pooled Investment Vehicles |
|
|
49 |
|
|
$ |
238,000,000,000 |
|
Other Accounts |
|
|
86 |
|
|
$ |
215,000,000,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg Savage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
225 |
|
|
$ |
352,600,000,000 |
|
Other Pooled Investment Vehicles |
|
|
68 |
|
|
$ |
54,000,000,000 |
|
Other Accounts |
|
|
3 |
|
|
$ |
5,000,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
Each of the portfolios or accounts for which the Portfolio Managers are primarily responsible for the day-to-day management seeks
to track the rate of return, risk profile and other characteristics of independent third-party indexes by either replicating the same combination of securities that constitute those indexes or through a representative sampling of the securities that
constitute those indexes based on objective criteria and data. Pursuant to BFA policy, investment opportunities are allocated equitably among the Fund and other portfolios and accounts. For example, under certain circumstances, an investment
opportunity may be restricted due to limited supply on the market, legal constraints or other factors, in which event the investment opportunity will be allocated equitably among those portfolios and accounts, including the Fund seeking such
investment opportunity. As a consequence, from time to time the Fund may receive a smaller allocation of an investment opportunity than it would have if the Portfolio Managers and BFA and its affiliates did not manage other portfolios or accounts.
Like the Fund, the other portfolios or accounts for which the Portfolio Managers are primarily responsible for the day-to-day portfolio management
generally pay an asset-based fee to BFA or its affiliates, as applicable, for its advisory services. One or more of those other portfolios or accounts, however, may pay BFA or its affiliates an incentive-based fee in lieu of, or in addition to, an
asset-based fee for its advisory services. A portfolio or account with an incentive-based fee would pay BFA or its affiliates a portion of that portfolios or accounts gains, or would pay BFA or its affiliates more for its services than
would otherwise be the case if BFA or any of its affiliates meets or exceeds specified performance targets. By their nature, incentive-
34
based fee arrangements could present an incentive for BFA or its affiliates to devote greater resources, and allocate more investment opportunities, to the portfolios or accounts that have those
fee arrangements, relative to other portfolios or accounts, in order to earn larger fees. Although BFA and each of its affiliates has an obligation to allocate resources and opportunities equitably among portfolios and accounts and intends to do so,
shareholders of the Fund should be aware that, as with any group of portfolios and accounts managed by an investment adviser and/or its affiliates pursuant to varying fee arrangements, including incentive-based fee arrangements, there is the
potential for a conflict of interest that may result in the Portfolio Managers favoring those portfolios or accounts with incentive-based fee arrangements.
The tables below show, for each Portfolio Manager, the number of portfolios or accounts of the types set forth in the above tables and the aggregate of total assets in those portfolios or accounts with respect to
which the investment management fees are based on the performance of those portfolios or accounts as of April 30, 2012:
|
|
|
|
|
|
|
|
|
Rene Casis |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts
with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diane Hsiung |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts
with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jennifer Hsui |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts
with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg Savage |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
The discussion below describes the Portfolio Managers compensation as of April 30, 2012.
Portfolio Manager Compensation Overview
BlackRock,
Inc.s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and
may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive
compensation programs established by BlackRock, Inc.
Base compensation. Generally, portfolio managers receive base compensation based on their
position with the firm.
35
Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components:
the performance of BlackRock, Inc., the performance of the portfolio managers group within BlackRock, Inc. and the individuals performance and contribution to the overall performance of these portfolios and BlackRock, Inc.
Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and
BlackRock, Inc. restricted stock units which vest ratably over a number of years. The BlackRock, Inc. restricted stock units, if properly vested, will be settled in BlackRock, Inc. common stock. Typically, the cash bonus, when combined with base
salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of annual bonuses in stock puts compensation earned by a portfolio manager for a given year at risk based on BlackRock, Inc.s
ability to sustain and improve its performance over future periods.
Long-Term Incentive Plan AwardsFrom time to time, long-term incentive
equity awards are granted to certain key employees to aid in retention, align their interests with long-term shareholder interests and motivate performance. Equity awards are generally granted in the form of BlackRock, Inc. restricted stock units
that, once vested, settle in BlackRock, Inc. common stock.
Deferred Compensation ProgramA portion of the compensation paid to eligible
BlackRock, Inc. employees may be voluntarily deferred at their election for defined periods of time into an account that tracks the performance of certain of the firms investment products. All of the eligible portfolio managers have
participated in the deferred compensation program.
Other Compensation Benefits. In addition to base compensation and discretionary incentive
compensation, portfolio managers may be eligible to receive or participate in one or more of the following:
Incentive Savings
PlansBlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock
Employee Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement
contribution equal to 3-5% of eligible compensation up to the U.S. Internal Revenue Service (the IRS) limit ($250,000 for 2012). The RSP offers a range of investment options, including registered investment companies and collective
investment funds managed by the firm. BlackRock, Inc. contributions follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested into an index target date fund that
corresponds to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in
the ESPP is limited to the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the Purchase Date. Rene Casis, Diane Hsiung, Jennifer Hsui and Greg Savage are each eligible to participate in these
plans.
As of April 30, 2012, the Portfolio Managers did not beneficially own shares of the Fund.
Codes of Ethics. The Company, BFA and the Distributor have adopted Codes of Ethics pursuant to Rule 17j-1 of the 1940 Act.
The Codes of Ethics permit personnel subject to the Codes of Ethics to invest in securities, subject to certain limitations, including securities that may be purchased or held by the Fund. The Codes of Ethics are on public file with, and are
available from, the SEC.
Anti-Money Laundering Requirements. The Fund is subject to the USA PATRIOT Act (the
Patriot Act). The Patriot Act is intended to prevent the use of the U.S. financial system in furtherance of money laundering, terrorism or other illicit activities. Pursuant to requirements under the Patriot Act, the Fund may request
information from Authorized Participants to enable it to form a reasonable belief that it knows the true identity of its Authorized Participants. This information will be used to verify the identity of Authorized Participants or, in some cases, the
status of financial professionals; it will be used only for compliance with the requirements of the Patriot Act.
The Fund reserves the right to reject
purchase orders from persons who have not submitted information sufficient to allow the Fund to verify their identity. The Fund also reserves the right to redeem any amounts in the Fund from persons whose identity it is unable to verify on a timely
basis. It is the Funds policy to cooperate fully with appropriate regulators in any investigations conducted with respect to potential money laundering, terrorism or other illicit activities.
Administrator, Custodian and Transfer Agent. State Street Bank and Trust Company (State Street) serves as
administrator, custodian and transfer agent for the Fund under the Master Services Agreement and related Service Schedule (the Service Module). State Streets principal address is 200 Clarendon Street, Boston, MA 02116. Pursuant to
the Service
36
Module for Fund Administration and Accounting Services with the Company, State Street provides necessary administrative, legal, tax and accounting and financial reporting services for the
maintenance and operations of the Company and the Fund. In addition, State Street makes available the office space, equipment, personnel and facilities required to provide such services. Pursuant to the Service Module for Custodial Services with the
Company, State Street maintains, in separate accounts, cash, securities and other assets of the Company and the Fund, keeps all necessary accounts and records and provides other services. State Street is required, upon the order of the Company, to
deliver securities held by State Street and to make payments for securities purchased by the Company for the Fund. State Street is authorized to appoint certain foreign custodians or foreign custody managers for Fund investments outside the United
States. Pursuant to the Service Module for Transfer Agency Services with the Company, State Street acts as a transfer agent for the Funds authorized and issued shares of beneficial interest, and as dividend disbursing agent of the Company. As
compensation for these services, State Street receives certain out-of-pocket costs, transaction fees and asset-based fees which are accrued daily and paid monthly by BFA from its management fee.
The following table sets forth the administration, transfer agency and custodian expenses of the Fund paid by BFA to State Street for the fiscal years noted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Inception Date |
|
Custody, Administration, Transfer Agency Expenses Paid During Fiscal Year
Ended April 30, 2012 |
|
|
Custody, Administration, Transfer Agency Expenses Paid During Fiscal Year
Ended April 30, 2011 |
|
|
Custody, Administration, Transfer Agency Expenses Paid During Fiscal Year Ended April 30, 2010 |
|
02/23/12 |
|
$ |
2,073 |
|
|
|
N/A |
|
|
|
N/A |
|
Distributor. The Distributors principal address is 525 Washington Boulevard, Suite 1405,
Jersey City, NJ 07310. Shares are continuously offered for sale by the Fund through the Distributor or its agent only in Creation Units, as described in the Prospectus and below in the Creation and Redemption of Creation Units section of this
SAI. Fund shares in amounts less than Creation Units are generally not distributed by the Distributor or its agent. The Distributor or its agent will arrange for the delivery of the Prospectus and, upon request, this SAI to persons purchasing
Creation Units and will maintain records of both orders placed with it or its agents and confirmations of acceptance furnished by it or its agents. The Distributor is a broker-dealer registered under the Securities Exchange Act of 1934, as amended
(the 1934 Act), and a member of the Financial Industry Regulatory Authority, Inc. (FINRA).
The Distribution Agreement for the
Fund provides that it may be terminated at any time, without the payment of any penalty, on at least 60 days prior written notice to the other party following (i) the vote of a majority of the Independent Directors, or (ii) the vote
of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund. The Distribution Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities dealers (Soliciting Dealers) who will solicit purchases of Creation Units of Fund
shares. Such Soliciting Dealers may also be Authorized Participants (as defined below), Depository Trust Company (DTC) participants and/or investor services organizations.
BFA or its affiliates may, from time to time and from its own resources, pay, defray or absorb costs relating to distribution, including payments out of its own resources to the Distributor, or to otherwise promote
the sale of shares.
The Distributor serves as the Funds distributor effective April 1, 2012. Prior to that date, SEI Investments
Distribution Co. (SEI), located at One Freedom Valley Drive, Oaks, PA 19456, served as the distributor to the Fund. The following table sets forth the compensation paid by BFA to BRIL and SEI for certain services, not primarily intended
to result in the sale of Fund shares, provided to the Fund during the fiscal years noted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Inception Date |
|
Distributor Compensation Paid From April 1, 2012 to April 30, 20121 |
|
|
Distributor Compensation Paid From February 23, 2012 to March 31, 20122 |
|
|
Distributor Compensation Paid During Fiscal Year Ended April 30, 20112 |
|
|
Distributor Compensation Paid During Fiscal Year Ended April 30, 20102 |
|
02/23/12 |
|
$ |
827 |
|
|
$ |
1,712 |
|
|
|
N/A |
|
|
|
N/A |
|
|
1 |
BRIL serves as the distributor to the Fund effective April 1, 2012. These fees reflect payments made to SEI, acting as an agent of the Distributor.
|
|
2 |
SEI served as the distributor to the Fund through March 31, 2012. |
37
Payments by BFA and its Affiliates. BFA and/or its affiliates (BFA
Entities) pay certain broker-dealers, banks and other financial intermediaries (Intermediaries) for certain activities related to the Funds, other iShares funds or exchange-traded products in general. BFA Entities make these
payments from their own assets and not from the assets of the Funds. Although a portion of BFA Entities revenue comes directly or indirectly in part from fees paid by the Funds and other iShares funds, these payments do not increase the price
paid by investors for the purchase of shares of, or the cost of owning, the Fund or other iShares funds. BFA Entities make payments for Intermediaries participation in activities that are designed to make registered representatives, other
professionals and individual investors more knowledgeable about exchange-traded products, including the Funds, or for other activities, such as participation in marketing activities and presentations, educational training programs, conferences, the
development of technology platforms and reporting systems (Education Costs). BFA Entities also make payments to Intermediaries for certain printing, publishing and mailing costs associated with the Funds or materials relating to
exchange-traded products in general (Publishing Costs). In addition, BFA Entities make payments to Intermediaries that make shares of the Funds and certain other iShares funds available to their clients, develop new products that feature
iShares or otherwise promote the Funds and other iShares funds. BFA Entities may also reimburse expenses or make payments from their own assets to Intermediaries or other persons in consideration of services or other activities that the BFA Entities
believe may benefit the iShares business or facilitate investment in iShares funds. Payments of the type described above are sometimes referred to as revenue-sharing payments.
Payments to an Intermediary may be significant to the Intermediary, and amounts that Intermediaries pay to your salesperson or other investment professional may also be significant for your salesperson or other
investment professional. Because an Intermediary may make decisions about which investment options it will recommend or make available to its clients or what services to provide for various products based on payments it receives or is eligible to
receive, such payments may create conflicts of interest between the Intermediary and its clients and these financial incentives may cause the Intermediary to recommend the Fund and other iShares funds over other investments. The same conflict of
interest and financial incentive exist with respect to your salesperson or other investment professional if he or she receives similar payments from his or her Intermediary firm.
As of March 1, 2013, BFA Entities have contractual arrangements to make payments (in addition to payments for Education Costs or Publishing Costs) to one Intermediary, Fidelity Brokerage Services LLC
(FBS). Pursuant to this special, long-term and significant arrangement (the Marketing Program), FBS and certain affiliates (collectively Fidelity) have agreed, among other things, to actively promote iShares funds
to customers and investment professionals and in advertising campaigns as the preferred exchange-traded product, to offer certain iShares funds in certain Fidelity platforms and investment programs, in some cases at a reduced commission rate, and to
provide marketing data to BFA Entities. BFA Entities have agreed to facilitate the Marketing Program by, among other things, making certain payments to FBS for marketing and implementing certain brokerage and investment programs. Upon termination of
the arrangement, the BFA Entities will make additional payments to FBS based upon a number of criteria, including the overall success of the Marketing Program and the level of services provided by FBS during the wind-down period.
Any additions, modifications, or deletions to Intermediaries listed above that have occurred since the date noted above are not included in the list. Further, BFA
Entities make Education Costs and Publishing Costs payments to other Intermediaries that are not listed above. BFA Entities may determine to make such payments based on any number of metrics. For example, BFA Entities may make payments at year-end
or other intervals in a fixed amount, an amount based upon an Intermediarys services at defined levels or an amount based on the Intermediarys net sales of one or more iShares funds in a year or other period, any of which arrangements
may include an agreed-upon minimum or maximum payment, or any combination of the foregoing. As of the date of this SAI, BFA anticipates that the payments paid by BFA Entities in connection with the Funds, iShares funds and exchange-traded products
in general will be immaterial to BFA Entities in the aggregate for the next year. Please contact your salesperson or other investment professional for more information regarding any such payments his or her Intermediary firm may receive. Any
payments made by the BFA Entities to an Intermediary may create the incentive for an Intermediary to encourage customers to buy shares of iShares funds.
The Fund may participate in certain market maker incentive programs of a national securities exchange in which an affiliate of the Fund would pay a fee to the exchange used for the purpose of incentivizing one or
more market makers in the securities of the Fund to enhance the liquidity and quality of the secondary market of securities of the Fund. The fee would then be credited by the exchange to one or more market makers that meet or exceed liquidity
and market quality standards with respect to the securities of the Fund. Each market maker incentive program is subject to approval from the SEC. Any such fee payments made to an exchange will be made by an affiliate of the Fund solely for
the benefit of the Fund and will not be paid from any Fund assets.
38
Brokerage Transactions
BFA assumes general supervision over placing orders on behalf of the Fund for the purchase and sale of portfolio securities. In selecting brokers or dealers for any transaction in portfolio securities, BFAs
policy is to make such selection based on factors deemed relevant, including but not limited to, the breadth of the market in the security, the price of the security, the reasonableness of the commission or mark-up or mark-down, if any, execution
capability, settlement capability, back office efficiency and the financial condition of the broker or dealer, both for the specific transaction and on a continuing basis. The overall reasonableness of brokerage commissions paid is evaluated by BFA
based upon its knowledge of available information as to the general level of commissions paid by other institutional investors for comparable services. Brokers may also be selected because of their expertise in certain markets or with certain
securities, or their ability to handle special or difficult executions, such as may be involved in large block trades, less liquid securities, broad distributions, or other circumstances. BFA does not consider the provision or value of research,
products or services a broker or dealer may provide, if any, as a factor in the selection of a broker or dealer or the determination of the reasonableness of commissions paid in connection with portfolio transactions. The Company has adopted
policies and procedures that prohibit the consideration of sales of the Funds shares as a factor in the selection of a broker or a dealer to execute its portfolio transactions.
The table below sets forth the brokerage commissions paid by the Fund for the fiscal years noted. Any differences in brokerage commissions paid by the Fund from year to year are due to increases or decreases in the
Funds assets over those periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Inception Date |
|
Brokerage Commissions Paid During Fiscal Year Ended April 30, 2012 |
|
|
Brokerage Commissions Paid During Fiscal Year Ended April 30, 2011 |
|
|
Brokerage Commissions Paid During Fiscal Year Ended April 30, 2010 |
|
02/23/12 |
|
$ |
76 |
|
|
|
N/A |
|
|
|
N/A |
|
The Fund did not pay any brokerage commissions to BlackRock, an affiliate of BFA, and a subsidiary of BTC, during the fiscal year
ended April 30, 2012.
The Funds purchase and sale orders for securities may be combined with those of other investment companies, clients or
accounts that BFA or its affiliates manage or advise and for which they have brokerage placement authority. If purchases or sales of portfolio securities of the Fund and one or more other accounts managed or advised by BFA or its affiliates are
considered at or about the same time, transactions in such securities are allocated among the Fund and the other accounts in a manner deemed equitable to all by BFA and its affiliates. In some cases, this procedure could have a detrimental effect on
the price or volume of the security as far as the Fund is concerned. However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate lower transaction costs will be beneficial to the Fund. BFA and its
affiliates may deal, trade and invest for their own account in the types of securities in which the Fund may invest. BFA and its affiliates may, from time to time, effect trades on behalf of and for the account of the Fund with brokers or dealers
that are affiliated with BFA, in conformity with the 1940 Act and SEC rules and regulations. Under these provisions, any commissions paid to affiliated brokers or dealers must be reasonable and fair compared to the commissions charged by other
brokers or dealers in comparable transactions. The Fund will not deal with affiliates in principal transactions unless permitted by applicable SEC rules or regulations, or by SEC exemptive order.
Portfolio turnover may vary from year to year, as well as within a year. High turnover rates may result in comparatively greater brokerage expenses. The table
below sets forth the portfolio turnover rates of the Fund for the fiscal years noted:
|
|
|
|
|
Fiscal Year ended April 30, 2012 |
|
Fiscal Year ended April 30, 2011 |
|
1% |
|
|
N/A |
|
39
Additional Information Concerning the Company
Capital Stock. The Company currently is comprised of 56 series referred to as funds. Each series issues shares of common stock,
par value $0.001 per share. The Company has authorized and issued the following funds as separate series of capital stock: iShares Asia/Pacific Dividend 30 Index Fund, iShares Emerging Markets Corporate Bond Fund, iShares Emerging Markets Dividend
Index Fund, iShares Emerging Markets High Yield Bond Fund, iShares Emerging Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund, iShares Global High Yield Corporate Bond Fund, iShares Latin America Bond Fund,
iShares MSCI All Country World Minimum Volatility Index Fund, iShares MSCI Australia Index Fund, iShares MSCI Austria Investable Market Index Fund, iShares MSCI Belgium Investable Market Index Fund, iShares MSCI Brazil Index Fund, iShares MSCI BRIC
Index Fund, iShares MSCI Canada Index Fund, iShares MSCI Chile Investable Market Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging Markets Eastern
Europe Index Fund, iShares MSCI Emerging Markets EMEA Index Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets 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, iShares MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Frontier 100 Index Fund, iShares MSCI
Germany Index Fund, 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, iShares MSCI Global Silver
Miners Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI Israel Capped Investable Market Index Fund, iShares MSCI Italy Index Fund, iShares MSCI Japan Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Malaysia Index Fund, iShares
MSCI Mexico Investable Market Index Fund, iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI South Africa Index Fund, iShares MSCI South Korea Index Fund,
iShares MSCI Spain Index Fund, iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Index Fund, iShares MSCI Taiwan Index Fund, iShares MSCI Thailand Investable Market Index Fund, iShares MSCI Turkey Investable Market Index Fund, iShares MSCI
United Kingdom Index Fund, iShares MSCI USA Index Fund and iShares MSCI World Index Fund. The Company has authorized for issuance, but is not currently offering for sale to the public, ten additional series of shares of common stock. The Board may
designate additional series of common stock and classify shares of a particular series into one or more classes of that series. The Amended and Restated Articles of Incorporation confers upon the Board the power to establish the number of shares
which constitute a Creation Unit or by resolution, restrict the redemption right to Creation Units.
Each share issued by a fund has a pro rata
interest in the assets of that fund. The Company is currently authorized to issue 31.85 billion shares of common stock. The following number of shares is currently authorized for each of the funds: iShares Asia/Pacific Dividend 30 Index Fund,
500 million shares; iShares Emerging Markets Corporate Bond Fund, 500 million shares; iShares Emerging Markets Dividend Index Fund, 500 million shares; iShares Emerging Markets High Yield Bond Fund, 500 million shares; iShares
Emerging Markets Local Currency Bond Fund, 500 million shares; iShares Global ex USD High Yield Corporate Bond Fund, 500 million shares; iShares Global High Yield Corporate Bond Fund, 500 million shares; iShares Latin America Bond
Fund, 500 million shares; iShares MSCI All Country World Minimum Volatility Index Fund, 500 million shares; iShares MSCI Australia Index Fund, 627.8 million shares; iShares MSCI Austria Investable Market Index Fund, 100 million
shares; iShares MSCI Belgium Investable Market Index Fund, 136.2 million shares; iShares MSCI Brazil Index Fund, 500 million shares; iShares MSCI BRIC Index Fund, 500 million shares; iShares MSCI Canada Index Fund, 340.2 million
shares; iShares MSCI Chile Investable Market Index Fund, 200 million shares; iShares MSCI Emerging Markets Asia Index Fund, 500 million shares; iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, 500 million
shares; iShares MSCI Emerging Markets Eastern Europe Index Fund, 200 million shares; iShares MSCI Emerging Markets EMEA Index Fund, 500 million shares; iShares MSCI Emerging Markets Energy Sector Capped Index Fund, 500 million shares;
iShares MSCI Emerging Markets Growth Index Fund, 500 million shares; iShares MSCI Emerging Markets Index Fund, 2 billion shares; iShares MSCI Emerging Markets Minimum Volatility Index Fund, 500 million shares; iShares MSCI Emerging Markets
Small Cap Index Fund, 500 million shares; iShares MSCI Emerging Markets Value Index Fund, 500 million shares; iShares MSCI EMU Index Fund, 1 billion shares; iShares MSCI France Index Fund, 340.2 million shares; iShares MSCI Frontier
100 Index Fund, 500 million shares; iShares MSCI Germany Index Fund, 382.2 million shares; iShares MSCI Global Agriculture Producers Fund, 500 million shares; iShares MSCI Global Energy Producers Fund, 500 million shares; iShares
MSCI Global Gold Miners Fund, 500 million shares; iShares MSCI Global Select Metals & Mining Producers Fund, 500 million shares; iShares MSCI Global Silver Miners Fund, 500 million shares; iShares MSCI Hong Kong Index Fund,
250 million shares; iShares MSCI Israel Capped Investable Market Index Fund, 500 million shares; iShares MSCI Italy Index Fund, 63.6 million shares; iShares MSCI Japan Index Fund, 2.1246 billion shares; iShares MSCI Japan Small Cap
Index Fund, 500 million shares; iShares MSCI Malaysia Index Fund, 300 million shares; iShares MSCI Mexico Investable Market Index Fund, 255 million shares; iShares MSCI
40
Netherlands Investable Market Index Fund, 255 million shares; iShares MSCI Pacific ex-Japan Index Fund, 1 billion shares; iShares MSCI Singapore Index Fund, 300 million shares; iShares
MSCI South Africa Index Fund, 400 million shares; iShares MSCI South Korea Index Fund, 200 million shares; iShares MSCI Spain Index Fund, 127.8 million shares; iShares MSCI Sweden Index Fund, 63.6 million shares; iShares MSCI
Switzerland Index Fund, 318.625 million shares; iShares MSCI Taiwan Index Fund, 900 million shares; iShares MSCI Thailand Investable Market Index Fund, 200 million shares; iShares MSCI Turkey Investable Market Index Fund,
200 million shares; iShares MSCI United Kingdom Index Fund, 934.2 million shares; iShares MSCI USA Index Fund, 500 million shares; and iShares MSCI World Index Fund, 500 million shares. Fractional shares will not be issued.
Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each share is entitled to participate equally in dividends and distributions declared by the Board with respect to the relevant fund, and in the net
distributable assets of such fund on liquidation. Shareholders are entitled to require the Company to redeem Creation Units of their shares. The Articles of Incorporation confer upon the Board the power, by resolution, to alter the number of shares
constituting a Creation Unit or to specify that shares of common stock of the Company may be individually redeemable.
Each share has one vote with
respect to matters upon which a stockholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder and the Maryland General Corporation Law. Stockholders have no cumulative voting rights with respect
to their shares. Shares of all funds vote together as a single class except that, if the matter being voted on affects only a particular fund or, if a matter affects a particular fund differently from other funds, that fund will vote separately on
such matter.
Under Maryland law, the Company is not required to hold an annual meeting of stockholders unless required to do so under the 1940 Act. The
policy of the Company is not to hold an annual meeting of stockholders unless required to do so under the 1940 Act. Under Maryland law, Directors of the Company may be removed by vote of the stockholders.
Following the creation of the initial Creation Unit(s) of shares of a fund and immediately prior to the commencement of trading in the funds shares, a holder
of shares may be a control person of the fund, as defined in the 1940 Act. The fund cannot predict the length of time for which one or more stockholders may remain a control person of the fund.
Stockholders may make inquiries by writing to iShares, Inc., c/o BlackRock Investments, LLC, 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310.
Absent an applicable exemption or other relief from the SEC or its staff, beneficial owners of more than 5% of the shares of a fund may be subject to
the reporting provisions of Section 13 of the 1934 Act and the SECs rules promulgated thereunder. In addition, absent an applicable exemption or other relief from the SEC or its staff, officers and directors of the fund and beneficial
owners of 10% of the shares of the fund (Insiders) may be subject to the insider reporting, short-swing profit and short sale provisions of Section 16 of the 1934 Act and the SECs rules promulgated thereunder. Beneficial
owners and Insiders should consult with their own legal counsel concerning their obligations under Sections 13 and 16 of the 1934 Act.
Termination of the Company or the Fund. The Company or the Fund may be terminated by a majority vote of the Board, or the affirmative vote of a supermajority of the shareholders of the Company or the Fund entitled to vote on termination.
Although the shares are not automatically redeemable upon the occurrence of any specific event, the organizational documents provide that the Board will have the unrestricted power to alter the number of shares in a Creation Unit. In the event of a
termination of the Company or the Fund, the Board, in its sole discretion, could determine to permit the shares to be redeemable in aggregations smaller than Creation Units or to be individually redeemable. In such circumstance, the Company may make
redemptions in-kind, for cash or for a combination of cash or securities.
DTC as Securities Depository for Shares of the
Fund. Shares of the Fund are represented by securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC.
DTC,
a limited-purpose trust company, was created to hold securities of its participants (DTC Participants) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through
electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (NYSE), the NYSE Amex Equities and
FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (Indirect
Participants).
41
Beneficial ownership of shares is limited to DTC Participants, Indirect Participants and persons holding interests
through DTC Participants and Indirect Participants. Ownership of beneficial interests in shares (owners of such beneficial interests are referred to herein as Beneficial Owners) is shown on, and the transfer of ownership is effected only
through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through
the DTC Participant a written confirmation relating to their purchase of shares. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the
ability of certain investors to acquire beneficial interests in shares.
Conveyance of all notices, statements and other communications to Beneficial
Owners is effected as follows. Pursuant to the Depositary Agreement between the Company and DTC, DTC is required to make available to the Company upon request and for a fee to be charged to the Company a listing of the shares of the Fund held by
each DTC Participant. The Company shall inquire of each such DTC Participant as to the number of Beneficial Owners holding shares, directly or indirectly, through such DTC Participant. The Company shall provide each such DTC Participant with copies
of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or
indirectly, to such Beneficial Owners. In addition, the Company shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory
requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all shares of the Company. DTC
or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants accounts with payments in amounts proportionate to their respective beneficial interests in shares of the Fund as shown on the records of DTC or
its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the
accounts of customers in bearer form or registered in a street name, and will be the responsibility of such DTC Participants.
The Company
has no responsibility or liability for any aspect of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such shares, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests, or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through
such DTC Participants. DTC may decide to discontinue providing its service with respect to shares of the Company at any time by giving reasonable notice to the Company and discharging its responsibilities with respect thereto under applicable law.
Under such circumstances, the Company shall take action to find a replacement for DTC to perform its functions at a comparable cost.
Creation and Redemption of Creation Units
General. The Company issues and sells shares of the Fund only in
Creation Units on a continuous basis through the Distributor or its agent, without a sales load, at a price based on the Funds NAV next determined after receipt, on any Business Day (as defined below), of an order received by the Distributor
or its agent in proper form. The following table sets forth the number of shares of the Fund that constitute a Creation Unit for the Fund and the value of such Creation Unit as of May 31, 2012:
|
|
|
|
|
Shares Per
Creation Unit |
|
Value Per Creation Unit (U.S.$) |
|
50,000 |
|
$ |
2,375,000 |
|
The Board reserves the right to declare a split or a consolidation in the number of shares outstanding of the Fund, and to make a
corresponding change in the number of shares constituting a Creation Unit, in the event that the per share price in the secondary market rises (or declines) to an amount that falls outside the range deemed desirable by the Board.
A Business Day with respect to the Fund is any day on which the Listing Exchange on which the Fund is listed for trading is open for business. As of
the date of this SAI, the Listing Exchange observes the following holidays, as observed: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
42
Fund Deposit. The consideration for purchase of Creation Units of the Fund generally
consists of the in-kind deposit of a designated portfolio of securities (including any portion of such securities for which cash may be substituted) (Deposit Securities) and the Cash Component computed as described below. Together, the
Deposit Securities and the Cash Component constitute the Fund Deposit, which, when combined with the Funds portfolio securities is designed to generate performance that has a collective investment profile similar to that of the
Underlying Index. The Fund Deposit represents the minimum initial and subsequent investment amount for a Creation Unit of the Fund.
The Cash
Component is an amount equal to the difference between the net asset value of the shares (per Creation Unit) and the Deposit Amount, which is an amount equal to the market value of the Deposit Securities, and serves to compensate
for any differences between the net asset value per Creation Unit and the Deposit Amount. Payment of any stamp duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Securities are the sole
responsibility of the Authorized Participant purchasing the Creation Unit.
BFA makes available through the NSCC on each Business Day prior to the
opening of business on the Listing Exchange, the list of names and the required number of shares of each Deposit Security and the amount of the Cash Component to be included in the current Fund Deposit (based on information as of the end of the
previous Business Day for the Fund). Such Fund Deposit is applicable, subject to any adjustments as described below, to purchases of Creation Units of shares of the Fund until such time as the next-announced Fund Deposit is made available.
The identity and number of shares of the Deposit Securities change pursuant to changes in the composition of the Funds portfolio and as
rebalancing adjustments and corporate action events are reflected from time to time by BFA with a view to the investment objective of the Fund. The composition of the Deposit Securities may also change in response to adjustments to the weighting or
composition of the component securities constituting the Underlying Index.
The Fund reserves the right to permit or require the substitution of a
cash in lieu amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through DTC. The Fund also reserves the right to
permit or require a cash in lieu amount in certain circumstances, including circumstances in which (i) the delivery of the Deposit Security by the Authorized Participant (as described below) would be restricted under applicable
securities or other local laws or (ii) the delivery of the Deposit Security to the Authorized Participant would result in the disposition of the Deposit Security by the Authorized Participant becoming restricted under applicable securities or
other local laws, or in certain other situations.
Cash Purchase Method. Although the Company does not ordinarily
permit partial or full cash purchases of Creation Units of iShares funds, when partial or full cash purchases of Creation Units are available or specified for the Fund, they will be effected in essentially the same manner as in-kind purchases
thereof. In the case of a partial or full cash purchase, the Authorized Participant must pay the cash equivalent of the Deposit Securities it would otherwise be required to provide through an in-kind purchase, plus the same Cash Component required
to be paid by an in-kind purchaser.
Role of the Authorized Participant. Creation Units may be purchased only by or
through a DTC Participant that has entered into an Authorized Participant Agreement with the Distributor (an Authorized Participant). Such Authorized Participant will agree, pursuant to the terms of such Authorized Participant Agreement
and on behalf of itself or any investor on whose behalf it will act, to certain conditions, including that such Authorized Participant will make available in advance of each purchase of shares an amount of cash sufficient to pay the Cash Component,
once the net asset value of a Creation Unit is next determined after receipt of the purchase order in proper form, together with the transaction fees described below. An Authorized Participant, acting on behalf of an investor, may require the
investor to enter into an agreement with such Authorized Participant with respect to certain matters, including payment of the Cash Component. Investors who are not Authorized Participants must make appropriate arrangements with an Authorized
Participant. Investors should be aware that their particular broker may not be a DTC Participant or may not have executed an Authorized Participant Agreement and that orders to purchase Creation Units may have to be placed by the investors
broker through an Authorized Participant. As a result, purchase orders placed through an Authorized Participant may result in additional charges to such investor. The Company does not expect to enter into an Authorized Participant Agreement with
more than a small number of DTC Participants. A list of current Authorized Participants may be obtained from the Distributor.
Purchase Orders. To initiate an order for a Creation Unit, an Authorized Participant must submit to the Distributor or its agent an irrevocable order to purchase shares of the Fund generally no later than 4:00 p.m., Eastern time on any
Business Day to receive that days NAV. On days when the Listing Exchange closes earlier than normal, the Fund may require orders for Creation Units to be placed earlier in the day. The Distributor or its agent will notify BFA and the custodian
of such order.
43
The custodian will then provide such information to any appropriate sub-custodian. Procedures and requirements governing the delivery of the Fund Deposit are set forth in the procedures handbook
for Authorized Participants and may change from time to time. Investors, other than Authorized Participants, are responsible for making arrangements for a creation request to be made through an Authorized Participant. The Distributor or its agent
will provide a list of current Authorized Participants upon request. Those placing orders to purchase Creation Units through an Authorized Participant should allow sufficient time to permit proper submission of the purchase order to the Distributor
or its agent by the Cutoff Time (as defined below) on such Business Day.
The Authorized Participant must also make available on or before the
contractual settlement date, by means satisfactory to the Fund, immediately available or same day funds estimated by the Fund to be sufficient to pay the Cash Component next determined after acceptance of the purchase order, together with the
applicable purchase transaction fees. Any excess funds will be returned following settlement of the issue of the Creation Unit. Those placing orders should ascertain the deadline for cash transfers by contacting the operations department of the
broker or depositary institution effectuating the transfer of the Cash Component. This deadline is likely to be significantly earlier than the Cutoff Time of the Fund. Investors should be aware that an Authorized Participant may require orders for
purchases of shares placed with it to be in the particular form required by the individual Authorized Participant.
The Authorized Participant is
responsible for any and all expenses and costs incurred by the Fund, including any applicable cash amounts, in connection with any purchase order.
Timing of Submission of Purchase Orders. An Authorized Participant must submit an irrevocable order to purchase shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that days NAV. Creation
Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor or its agent pursuant to procedures set forth in the Authorized Participant Agreement, as described below. Economic or
market disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor or its agent or an Authorized Participant. Orders to create shares of the Fund that are submitted on the Business Day
immediately preceding a holiday or a day (other than a weekend) when the equity markets in the relevant non-U.S. market are closed may not be accepted. The Funds deadline specified above for the submission of purchase orders is referred to as
the Funds Cutoff Time. The Distributor or its agent, in their discretion, may permit the submission of such orders and requests by or through an Authorized Participant at any time (including on days on which the Listing Exchange is
not open for business) via communication through the facilities of the Distributors or its agents proprietary website maintained for this purpose. Purchase orders and redemption requests, if accepted by the Company, will be processed
based on the NAV next determined after such acceptance in accordance with the Funds Cutoff Times as provided in the Authorized Participant Agreement and disclosed in this SAI.
Acceptance of Orders for Creation Units. Subject to the conditions that (i) an irrevocable purchase order has been submitted by the Authorized Participant (either on its own
or another investors behalf) and (ii) arrangements satisfactory to the Fund are in place for payment of the Cash Component and any other cash amounts which may be due, the Fund will accept the order, subject to the Funds right (and
the right of the Distributor and BFA) to reject any order until acceptance, as set forth below.
Once the Fund has accepted an order, upon the next
determination of the net asset value of the shares, the Fund will confirm the issuance of a Creation Unit, against receipt of payment, at such net asset value. The Distributor or its agent will then transmit a confirmation of acceptance to the
Authorized Participant that placed the order.
The Fund reserves the absolute right to reject or revoke a creation order transmitted to it by the
Distributor or its agent if (i) the order is not in proper form; (ii) the investor(s), upon obtaining the shares ordered, would own 80% or more of the currently outstanding shares of the Fund; (iii) the Deposit Securities delivered do
not conform to the identity and number of shares specified, as described above; (iv) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (v) acceptance of the Fund Deposit would, in the opinion of
counsel, be unlawful; (vi) acceptance of the Fund Deposit would, in the discretion of the Fund or BFA, have an adverse effect on the Fund or the rights of beneficial owners; or (vii) circumstances outside the control of the Fund, the
Distributor or its agent and BFA make it impracticable to process purchase orders. The Distributor or its agent shall notify a prospective purchaser of a Creation Unit and/or the Authorized Participant acting on behalf of such purchaser of its
rejection of such order. The Fund, State Street, the sub-custodian and the Distributor or its agent are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall any of them incur any
liability for failure to give such notification.
44
Issuance of a Creation Unit. Except as provided herein, a Creation Unit will not be
issued until the transfer of good title to the Fund of the Deposit Securities and the payment of the Cash Component have been completed. When the sub-custodian has confirmed to the custodian that the securities included in the Fund Deposit (or the
cash value thereof) have been delivered to the account of the relevant sub-custodian or sub-custodians, the Distributor or its agent and BFA shall be notified of such delivery and the Fund will issue and cause the delivery of the Creation Unit.
Creation Units typically are issued on a T+3 basis (i.e., three Business Days after trade date). However, as discussed in the Regular Holidays section, the Fund reserves the right to settle Creation Unit transactions on a
basis other than T+3 in order to accommodate non-U.S. market holiday schedules, to account for different treatment among non-U.S. and U.S. markets of dividend record dates and ex-dividend dates (i.e., the last day the holder of a security can
sell the security and still receive dividends payable on the security) and in certain other circumstances.
To the extent contemplated by an Authorized
Participants agreement with the Distributor, the Fund will issue Creation Units to such Authorized Participant, notwithstanding the fact that the corresponding Fund Deposits have not been received in part or in whole, in reliance on the
undertaking of the Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participants delivery and maintenance of collateral having a value at least equal to
105% and up to 115%, which percentage BFA may change at any time, in its sole discretion, of the value of the missing Deposit Securities in accordance with the Funds then-effective procedures. The only collateral that is acceptable to the Fund
is cash in U.S. dollars. Such cash collateral must be delivered no later than 2:00 p.m., Eastern time on the contractual settlement date. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized
Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. Information concerning the Funds current procedures for collateralization of missing Deposit Securities is available from the Distributor
or its agent. The Authorized Participant Agreement will permit the Fund to buy the missing Deposit Securities at any time and will subject the Authorized Participant to liability for any shortfall between the cost to the Fund of purchasing such
securities and the cash collateral.
In certain cases, Authorized Participants may create and redeem Creation Units on the same trade date and in these
instances, the Fund reserves the right to settle these transactions on a net basis or require a representation from the Authorized Participants that the creation and redemption transactions are for separate beneficial owners. All questions as to the
number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Fund and the Funds determination shall be final and
binding.
Costs Associated with Creation Transactions. A standard creation transaction fee is imposed to offset the
transfer and other transaction costs associated with the issuance of Creation Units. The standard creation transaction fee is charged to the Authorized Participant on the day such Authorized Participant creates a Creation Unit, and is the same,
regardless of the number of Creation Units purchased by the Authorized Participant on the applicable Business Day. The Authorized Participant may also be required to cover certain brokerage, tax, foreign exchange, execution, market impact and other
costs and expenses related to the execution of trades resulting from such transaction (up to the maximum amount shown below). Authorized Participants will also bear the costs of transferring the Deposit Securities to the Fund. Investors who use the
services of a broker or other financial intermediary to acquire Fund shares may be charged a fee for such services.
The following table sets forth the
Funds standard creation transaction fees and maximum additional charge (as described above):
|
|
|
|
|
Standard Creation Transaction Fee |
|
Maximum Additional Charge for Creations* |
|
$800 |
|
|
3.0 |
% |
|
* |
As a percentage of the net asset value per Creation Unit. |
Redemption of Creation Units. Shares of the Fund may be redeemed by Authorized Participants only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor and only on a Business
Day. The Fund will not redeem shares in amounts less than Creation Units. There can be no assurance, however, that there will be sufficient liquidity in the secondary market at any time to permit assembly of a Creation Unit. Investors should expect
to incur brokerage and other costs in connection with assembling a sufficient number of shares to constitute a Creation Unit that could be redeemed by an Authorized Participant. Beneficial owners also may sell shares in the secondary market.
45
The Fund generally redeems Creation Units for Fund Securities. Please see the Cash Redemption Method section
below and the following discussion summarizing the in-kind method for further information on redeeming Creation Units of the Fund.
BFA makes available
through the NSCC, prior to the opening of business on the Listing Exchange on each Business Day, the designated portfolio of securities (including any portion of such securities for which cash may be substituted) that will be applicable (subject to
possible amendment or correction) to redemption requests received in proper form (as defined below) on that day (Fund Securities), and an amount of cash (the Cash Amount, as described below). Such Fund Securities and the
corresponding Cash Amount (each subject to possible amendment or correction) are applicable, in order to effect redemptions of Creation Units of the Fund until such time as the next announced composition of the Fund Securities and Cash Amount is
made available. Fund Securities received on redemption may not be identical to Deposit Securities that are applicable to creations of Creation Units.
Unless cash redemptions are available or specified for the Fund, the redemption proceeds for a Creation Unit generally consist of Fund Securities, plus the Cash
Amount, which is an amount equal to the difference between the net asset value of the shares being redeemed, as next determined after the receipt of a redemption request in proper form, and the value of Fund Securities, less a redemption transaction
fee (as described below).
The Company may, in its sole discretion, substitute a cash in lieu amount to replace any Fund Security. The
amount of cash paid out in such cases will be equivalent to the value of the substituted security listed as a Fund Security. In the event that the Fund Securities have a value greater than the NAV of the shares, a compensating cash payment equal to
the difference is required to be made by or through an Authorized Participant by the redeeming shareholder. The Fund generally redeems Creation Units for Fund Securities, but the Fund reserves the right to utilize a cash option for redemption of
Creation Units.
Cash Redemption Method. Although the Company does not ordinarily permit partial or full cash
redemptions of Creation Units of iShares funds, when partial or full cash redemptions of Creation Units are available or specified for the Fund, they will be effected in essentially the same manner as in-kind redemptions thereof. In the case of
partial or full cash redemption, the Authorized Participant receives the cash equivalent of the Fund Securities it would otherwise receive through an in-kind redemption, plus the same Cash Amount to be paid to an in-kind redeemer.
Costs Associated with Redemption Transactions. A redemption transaction fee is imposed to offset transfer and other transaction
costs that may be incurred by the Fund. The standard redemption transaction fee is charged to the Authorized Participant on the day such Authorized Participant redeems a Creation Unit, and is the same regardless of the number of Creation Units
redeemed by an Authorized Participant on the applicable Business Day. The Authorized Participant may also be required to cover certain brokerage, tax, foreign exchange, execution, market impact and other costs and expenses related to the execution
of trades resulting from such transaction (up to the maximum amount shown below). Authorized Participants will also bear the costs of transferring the Fund Securities from the Fund to their account on their order. Investors who use the services of a
broker or other financial intermediary to dispose of Fund shares may be charged a fee for such services.
The following table sets forth the Funds
standard redemption transaction fees and maximum additional charge (as described above):
|
|
|
|
|
Standard Redemption Transaction Fee |
|
Maximum Additional Charge for Redemptions* |
|
$800 |
|
|
2.0 |
% |
|
* |
As a percentage of the net asset value per Creation Unit, inclusive of the standard redemption transaction fee. |
Placement of Redemption Orders. Redemption requests for Creation Units of the Fund must be submitted to the Distributor or its
agent by or through an Authorized Participant. An Authorized Participant must submit an irrevocable request to redeem shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that days NAV. Investors,
other than Authorized Participants, are responsible for making arrangements for a redemption request to be made through an Authorized Participant. The Distributor or its agent will provide a list of current Authorized Participants upon request.
The Authorized Participant must transmit the request for redemption in the form required by the Fund to the Distributor or its agent in accordance with
procedures set forth in the Authorized Participant Agreement. Investors should be aware that
46
their particular broker may not have executed an Authorized Participant Agreement and that, therefore, requests to redeem Creation Units may have to be placed by the investors broker
through an Authorized Participant who has executed an Authorized Participant Agreement. At any time, only a limited number of broker-dealers will have an Authorized Participant Agreement in effect. Investors making a redemption request should be
aware that such request must be in the form specified by such Authorized Participant. Investors making a request to redeem Creation Units should allow sufficient time to permit proper submission of the request by an Authorized Participant and
transfer of the shares to the Funds transfer agent; such investors should allow for the additional time that may be required to effect redemptions through their banks, brokers or other financial intermediaries if such intermediaries are not
Authorized Participants.
A redemption request is considered to be in proper form if (i) an Authorized Participant has transferred or
caused to be transferred to the Funds transfer agent the Creation Unit being redeemed through the book-entry system of DTC so as to be effective by the Listing Exchange closing time on any Business Day, (ii) a request in form satisfactory
to the Fund is received by the Distributor or its agent from the Authorized Participant on behalf of itself or another redeeming investor within the time periods specified above and (iii) all other procedures set forth in the Authorized
Participant Agreement are properly followed. If the transfer agent does not receive the investors shares through DTCs facilities by 10:00 a.m., Eastern time on the Business Day next following the day that the redemption request is
received, the redemption request shall be rejected. Investors should be aware that the deadline for such transfers of shares through the DTC system may be significantly earlier
than the close of business on the Listing Exchange. Those making redemption requests should ascertain the deadline applicable to transfers of shares through the DTC system by contacting the operations department of
the broker or depositary institution effecting the transfer of the shares.
Upon receiving a redemption request, the Distributor or its agent shall
notify the Fund and the Funds transfer agent of such redemption request. The tender of an investors shares for redemption and the distribution of the securities and/or cash included in the redemption payment made in respect of Creation
Units redeemed will be made through DTC and the relevant Authorized Participant to the Beneficial Owner thereof as recorded on the book-entry system of DTC or the DTC Participant through which such investor holds, as the case may be, or by such
other means specified by the Authorized Participant submitting the redemption request.
A redeeming Beneficial Owner or Authorized Participant acting on
behalf of such Beneficial Owner must maintain appropriate security arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the portfolio securities are customarily traded, to which account
such portfolio securities will be delivered.
Deliveries of redemption proceeds by the Fund generally will be made within three Business Days
(i.e., T+3). However, as discussed in the Regular Holidays section, the Fund reserves the right to settle redemption transactions and deliver redemption proceeds on another basis to accommodate non-U.S. market holiday
schedules, to account for different treatment among non-U.S. and U.S. markets of dividend record dates and dividend ex-dates (i.e., the last date the holder of a security can sell the security and still receive dividends payable on the
security sold) and in certain other circumstances. The Regular Holidays section hereto identifies the instances, if any, where more than seven days would be needed to deliver redemption proceeds. Pursuant to an order of the SEC, the Company
will make delivery of redemption proceeds within the number of days stated in the Regular Holidays section to be the maximum number of days necessary to deliver redemption proceeds.
If neither the redeeming Beneficial Owner nor the Authorized Participant acting on behalf of such redeeming Beneficial Owner has appropriate arrangements to take delivery of Fund Securities in the applicable
non-U.S. jurisdiction and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of Fund Securities in such jurisdiction, the Company may in its discretion exercise its option to redeem such shares in cash,
and the redeeming Beneficial Owner will be required to receive its redemption proceeds in cash. In such case, the investor will receive a cash payment equal to the net asset value of its shares based on the NAV of the Fund next determined after the
redemption request is received in proper form (minus a redemption transaction fee and additional charges specified above to offset the Companys brokerage and other transaction costs associated with the disposition of Fund Securities).
Redemptions of shares for Fund Securities will be subject to compliance with applicable U.S. federal and state securities laws and the Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash
to the extent that the Fund cannot lawfully deliver specific Fund Securities upon redemptions or cannot do so without first registering the Fund Securities under such laws.
Although the Company does not ordinarily permit cash redemptions of Creation Units, in the event that cash redemptions are permitted or required by the Company, proceeds will be paid to the Authorized Participant
redeeming shares as soon as practicable after the date of redemption (within seven calendar days thereafter, except for the instances listed in the Regular Holidays section in which more than seven calendar days would be needed).
47
To the extent contemplated by an Authorized Participants agreement with the Distributor or its agent, in the
event an Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the Creation Unit to be redeemed to the Fund, at or prior to 10:00 a.m., Eastern time on the Listing Exchange business day
after the date of submission of such redemption request, the Distributor or its agent will accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing shares as soon as possible. Such undertaking
shall be secured by the Authorized Participants delivery and maintenance of collateral consisting of cash, in U.S. dollars in immediately available funds, having a value at least equal to 105% and up to 115%, which percentage BFA may change at
any time, in its sole discretion, of the value of the missing shares. Such cash collateral must be delivered no later than 10:00 a.m., Eastern time on the day after the date of submission of such redemption request and shall be held by State
Street and marked-to-market daily. The fees of State Street and any sub-custodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the Authorized Participant. The cash collateral posted by the
Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. The Authorized Participant Agreement permits the Fund to acquire shares of
the Fund at any time and subjects the Authorized Participant to liability for any shortfall between the aggregate of the cost to the Fund of purchasing such shares, plus the value of the Cash Amount, and the value of the cash collateral.
Because the Portfolio Securities of the Fund may trade on exchange(s) on days that the Listing Exchange is closed or are otherwise not Business Days for the Fund,
shareholders may not be able to redeem their shares of the Fund, or purchase or sell shares of the Fund on the Listing Exchange on days when the NAV of the Fund could be significantly affected by events in the relevant non-U.S. markets.
The right of redemption may be suspended or the date of payment postponed with respect to the Fund: (i) for any period during which the Listing Exchange is
closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the Listing Exchange is suspended or restricted; (iii) for any period during which an emergency exists as a result of which disposal of
the shares of the Funds portfolio securities or determination of its net asset value is not reasonably practicable; or (iv) in such other circumstance as is permitted by the SEC.
Taxation on Creation and Redemptions of Creation Units. An Authorized Participant generally will recognize either gain or loss upon the exchange of Deposit Securities for Creation
Units. This gain or loss is calculated by taking the market value of the Creation Units purchased over the Authorized Participants aggregate basis in the Deposit Securities exchanged therefor. However, the IRS may apply the wash sales rules to
determine that any loss realized upon the exchange of Deposit Securities for Creation Units is not currently deductible. Authorized Participants should consult their own tax advisors.
Current U.S. federal tax laws dictate that capital gain or loss realized from the redemption of Creation Units will generally create long-term capital gain or loss if the Authorized Participant holds the Creation
Units for more than one year, or short-term capital gain or loss if the Creation Units were held for one year or less, if the Creation Units are held as capital assets.
Regular Holidays. For every occurrence of one or more intervening holidays in the applicable non-U.S. market that are not holidays observed in the U.S. equity market, the
redemption settlement cycle will be extended by the number of such intervening holidays. In addition to holidays, other unforeseeable closings in a non-U.S. market due to emergencies may also prevent the Company from delivering securities within
normal settlement period.
The securities delivery cycles currently practicable for transferring portfolio securities to redeeming investors, coupled
with non-U.S. market holiday schedules, will require a delivery process longer than seven calendar days, in certain circumstances. The holidays applicable to the Fund during such periods are listed below, as are instances where more than seven days
will be needed to deliver redemption proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption proceeds in any given year is not expected to exceed the maximum number of
days listed below for the Fund. The proclamation of new holidays, the treatment by market participants of certain days as informal holidays (e.g., days on which no or limited securities transactions occur, as a result of
substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery practices, could affect the information set forth herein at some time in the future.
48
In calendar years 2012 and 2013, the dates of regular holidays affecting the relevant securities markets in which the
Fund invests are as follows (please note these holiday schedules are subject to potential changes in the relevant securities markets):
2012
|
|
|
|
|
|
|
Australia |
January 2 |
|
April 10 |
|
August 6 |
|
December 24 |
January 26 |
|
April 25 |
|
August 15 |
|
December 25 |
March 12 |
|
May 7 |
|
October 1 |
|
December 26 |
April 6 |
|
June 4 |
|
October 8 |
|
December 31 |
April 9 |
|
June 11 |
|
November 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
January 2 |
|
January 30 |
|
May 7 |
|
October 4 |
January 16 |
|
January 31 |
|
May 28 |
|
October 5 |
January 23 |
|
February 20 |
|
July 4 |
|
October 8 |
January 24 |
|
May 1 |
|
September 3 |
|
November 12 |
January 25 |
|
May 2 |
|
October 1 |
|
November 22 |
January 26 |
|
May 3 |
|
October 2 |
|
December 25 |
January 27 |
|
May 4 |
|
October 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong |
January 2 |
|
April 4 |
|
July 2 |
|
December 25 |
January 23 |
|
April 6 |
|
October 1 |
|
December 26 |
January 24 |
|
April 9 |
|
October 2 |
|
|
January 25 |
|
May 1 |
|
October 23 |
|
|
|
|
|
|
|
|
|
Japan |
January 2 |
|
April 30 |
|
September 17 |
|
December 31 |
January 3 |
|
May 3 |
|
October 8 |
|
|
January 9 |
|
May 4 |
|
November 23 |
|
|
March 20 |
|
July 16 |
|
December 24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
New Zealand |
January 2 |
|
April 9 |
|
December 25 |
|
|
January 3 |
|
April 25 |
|
December 26 |
|
|
February 6 |
|
June 4 |
|
|
|
|
April 6 |
|
October 22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Singapore |
January 2 |
|
May 1 |
|
November 13 |
|
|
January 23 |
|
August 9 |
|
December 25 |
|
|
January 24 |
|
August 20 |
|
|
|
|
April 6 |
|
October 26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
Australia |
January 1 |
|
April 1 |
|
June 10 |
|
November 5 |
January 28 |
|
April 25 |
|
August 5 |
|
December 25 |
March 4 |
|
May 6 |
|
August 14 |
|
December 26 |
March 11 |
|
May 20 |
|
September 30 |
|
|
March 29 |
|
June 3 |
|
October 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
January 1 |
|
February 14 |
|
May 7 |
|
October 3 |
January 21 |
|
February 15 |
|
May 27 |
|
October 4 |
February 7 |
|
February 18 |
|
July 4 |
|
October 7 |
February 8 |
|
May 1 |
|
September 2 |
|
October 14 |
February 11 |
|
May 2 |
|
September 30 |
|
November 11 |
February 12 |
|
May 3 |
|
October 1 |
|
November 28 |
February 13 |
|
May 6 |
|
October 2 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
Hong Kong |
January 1 |
|
April 4 |
|
September 20 |
|
December 26 |
February 11 |
|
May 1 |
|
October 1 |
|
December 31 |
February 12 |
|
May 17 |
|
October 14 |
|
|
March 29 |
|
June 12 |
|
December 24 |
|
|
April 1 |
|
July 1 |
|
December 25 |
|
|
|
|
|
|
|
|
|
Japan |
January 1 |
|
February 11 |
|
May 6 |
|
October 14 |
January 2 |
|
March 20 |
|
July 15 |
|
November 4 |
January 3 |
|
April 29 |
|
September 16 |
|
December 23 |
January 14 |
|
May 3 |
|
September 23 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
New Zealand |
January 1 |
|
February 6 |
|
June 3 |
|
|
January 2 |
|
March 29 |
|
October 28 |
|
|
January 21 |
|
April 1 |
|
December 25 |
|
|
January 28 |
|
April 25 |
|
December 26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Singapore |
January 1 |
|
May 24 |
|
November 2 |
|
|
February 11 |
|
May 25 |
|
November 4 |
|
|
February 12 |
|
August 8 |
|
December 25 |
|
|
March 29 |
|
August 9 |
|
|
|
|
May 1 |
|
October 15 |
|
|
|
|
49
Redemptions. The longest redemption cycle for the Fund is a function of the longest
redemption cycle among the countries whose securities comprise the Fund. In the calendar years 2012 and 2013, the dates of regular holidays affecting the following securities markets present the worst-case redemption cycles* for the Fund as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
Australia |
|
|
04/03/12 |
|
|
|
04/11/12 |
|
|
|
8 |
|
|
|
|
04/04/12 |
|
|
|
04/12/12 |
|
|
|
8 |
|
|
|
|
04/05/12 |
|
|
|
04/13/12 |
|
|
|
8 |
|
|
|
|
12/19/12 |
|
|
|
12/27/12 |
|
|
|
8 |
|
|
|
|
12/20/12 |
|
|
|
12/28/12 |
|
|
|
8 |
|
|
|
|
12/21/12 |
|
|
|
01/01/13 |
|
|
|
11 |
|
China |
|
|
01/18/12 |
|
|
|
02/01/12 |
|
|
|
14 |
|
|
|
|
01/19/12 |
|
|
|
02/02/12 |
|
|
|
14 |
|
|
|
|
01/20/12 |
|
|
|
02/03/12 |
|
|
|
14 |
|
|
|
|
04/26/12 |
|
|
|
05/08/12 |
|
|
|
12 |
|
|
|
|
04/27/12 |
|
|
|
05/09/12 |
|
|
|
12 |
|
|
|
|
04/30/12 |
|
|
|
05/10/12 |
|
|
|
12 |
|
|
|
|
09/26/12 |
|
|
|
10/09/12 |
|
|
|
13 |
|
|
|
|
09/27/12 |
|
|
|
10/10/12 |
|
|
|
13 |
|
|
|
|
09/28/12 |
|
|
|
10/11/12 |
|
|
|
13 |
|
Japan |
|
|
04/27/12 |
|
|
|
05/07/12 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
China |
|
|
02/04/13 |
|
|
|
02/19/13 |
|
|
|
15 |
|
|
|
|
02/05/13 |
|
|
|
02/20/13 |
|
|
|
15 |
|
|
|
|
02/06/13 |
|
|
|
02/21/13 |
|
|
|
15 |
|
|
|
|
04/26/13 |
|
|
|
05/08/13 |
|
|
|
12 |
|
|
|
|
04/29/13 |
|
|
|
05/09/13 |
|
|
|
10 |
|
|
|
|
04/30/13 |
|
|
|
05/10/13 |
|
|
|
10 |
|
|
|
|
09/25/13 |
|
|
|
10/08/13 |
|
|
|
13 |
|
|
|
|
09/26/13 |
|
|
|
10/09/13 |
|
|
|
13 |
|
|
|
|
09/27/13 |
|
|
|
10/10/13 |
|
|
|
13 |
|
|
* |
These worst-case redemption cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse) redemption cycles
are possible. |
Taxes
The following is a summary of certain material U.S. federal income tax considerations regarding the purchase, ownership and disposition of shares of the Fund. This summary does not address all of the potential U.S.
federal income tax consequences that may be applicable to the Fund or to all categories of investors, some of which may be subject to special tax rules. Current and prospective shareholders are urged to consult their own tax advisers with respect to
the specific federal, state, local and non-U.S. tax consequences of investing in the Fund. The summary is based on the laws in effect on the date of this SAI and existing judicial and administrative interpretations thereof, all of which are subject
to change, possibly with retroactive effect.
Regulated Investment Company Qualifications. The Fund intends to qualify
for treatment as a separate RIC under Subchapter M of the Internal Revenue Code. To qualify for treatment as a RIC, the Fund must annually distribute at least 90% of its investment company taxable income (which includes dividends, interest and net
short-term capital gains) and meet several other requirements. Among such other requirements are the following: (i) at least 90% of the Funds annual gross income must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or securities or non-U.S. currencies, other income (including, but not limited to, gains from options,
50
futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly-traded
partnerships (i.e., partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends, capital gains and other traditionally
permitted mutual fund income); and (ii) at the close of each quarter of the Funds taxable year, (a) at least 50% of the market value of the Funds total assets must be represented by cash and cash items, U.S. government
securities, securities of other RICs and other securities, with such other securities limited for purposes of this calculation in respect of any one issuer to an amount not greater than 5% of the value of the Funds assets and not greater than
10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of the Funds total assets may be invested in the securities (other than U.S. government securities or the securities of other RICs) of any one
issuer, of two or more issuers of which 20% or more of the voting stock is held by the Fund and that are engaged in the same or similar trades or businesses or related trades or businesses, or the securities of one or more qualified publicly-traded
partnerships.
The Fund may be able to cure a failure to derive 90% of its income from the sources specified above or a failure to diversify its
holdings in the manner described above by paying a tax and/or by disposing of certain assets. If, in any taxable year, the Fund fails one of these tests and does not timely cure the failure, the Fund will be taxed in the same manner as an ordinary
corporation and distributions to its shareholders will not be deductible by the Fund in computing its taxable income.
Although, in general, the passive
loss rules of the Internal Revenue Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to interests in qualified publicly-traded partnerships. The Funds investments in partnerships, including in qualified
publicly-traded partnerships, may result in the Fund being subject to state, local, or non-U.S. income, franchise or withholding tax liabilities.
Taxation of RICs. As a RIC, the Fund will not be subject to U.S. federal income tax on the portion of its taxable investment income and capital gains that it distributes to its shareholders, provided that it satisfies a minimum
distribution requirement. To satisfy the minimum distribution requirement, the Fund must distribute to its shareholders at least the sum of (i) 90% of its investment company taxable income (i.e., income other than its net
realized long-term capital gain over its net realized short-term capital loss), plus or minus certain adjustments, and (ii) 90% of its net tax-exempt income for the taxable year. The Fund will be subject to income tax at regular corporate rates
on any taxable income or gains that it does not distribute to its shareholders. If the Fund fails to qualify for any taxable year as a RIC or fails to meet the distribution requirement, all of its taxable income will be subject to tax at regular
corporate income tax rates without any deduction for distributions to shareholders, and such distributions generally will be taxable to shareholders as ordinary dividends to the extent of the Funds current and accumulated earnings and profits.
In such event, distributions to individuals should be eligible to be treated as qualified dividend income and distributions to corporate shareholders generally should be eligible for the dividends received deduction. Although the Fund intends to
distribute substantially all of its net investment income and its capital gains for each taxable year, the Fund will be subject to U.S. federal income taxation to the extent any such income or gains are not distributed. If the Fund fails to qualify
as a RIC in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a RIC. If the Fund fails to qualify as a RIC for a period greater than two taxable years, the Fund may be required to recognize any
net built-in gains with respect to certain of its assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if the Fund had been liquidated) if
it qualifies as a RIC in a subsequent year.
Excise Tax. The Fund will be subject to a 4% excise tax on certain
undistributed income if it does not distribute to its shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98.2% of its capital gain net income for the 12 months ended October 31 of such year. For
this purpose, however, any ordinary income or capital gain net income retained by the Fund that is subject to corporate income tax will be considered to have been distributed by year-end.
In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any underdistribution or overdistribution, as the case may be, from the
previous year. The Fund intends to declare and distribute dividends and distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax.
Net Capital Loss Carryforwards. Net capital loss carryforwards may be applied against any net realized capital gains in each succeeding year, until they have been reduced to zero.
As of April 30, 2012, the Fund had non-expiring capital loss carryforwards in the amount of $0 available to offset future realized capital gains.
51
Taxation of U.S. Shareholders. Dividends and other distributions by the Fund are
generally treated under the Internal Revenue Code as received by the shareholders at the time the dividend or distribution is made. However, any dividend or distribution declared by the Fund in October, November or December of any calendar year and
payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on December 31 of such calendar year and to have been paid by the Fund not later than such December 31,
provided such dividend is actually paid by the Fund during January of the following calendar year.
The Fund intends to distribute annually to its
shareholders substantially all of its net tax-exempt income, investment company taxable income and any net realized long-term capital gains in excess of net realized short-term capital losses (including any capital loss carryovers). However, if the
Fund retains for investment an amount equal to all or a portion of its net long-term capital gains in excess of its net short-term capital losses (including any capital loss carryovers), it will be subject to a corporate tax (currently at a maximum
rate of 35%) on the amount retained. In that event, the Fund will designate such retained amounts as undistributed capital gains in a notice to its shareholders who (a) will be required to include in income for U.S. federal income tax purposes,
as long-term capital gains, their proportionate shares of the undistributed amount, (b) will be entitled to credit their proportionate shares of the 35% tax paid by the Fund on the undistributed amount against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent their credits exceed their liabilities, if any, and (c) will be entitled to increase their tax basis, for U.S. federal income tax purposes, in their shares by an amount equal to 65% of the
amount of undistributed capital gains included in the shareholders income. Organizations or persons not subject to U.S. federal income tax on such capital gains will be entitled to a refund of their pro rata share of such taxes paid by
the Fund upon filing appropriate returns or claims for refund with the IRS.
Distributions of net realized long-term capital gains, if any, that the
Fund reports as capital gains dividends are taxable as long-term capital gains, whether paid in cash or in shares and regardless of how long a shareholder has held shares of the Fund. All other dividends of the Fund (including dividends from
short-term capital gains) from its current and accumulated earnings and profits (regular dividends) are generally subject to tax as ordinary income, subject to the discussion of qualified dividend income below.
If an individual receives a regular dividend qualifying for the long-term capital gains rates and such dividend constitutes an extraordinary dividend,
and the individual subsequently recognizes a loss on the sale or exchange of stock in respect of which the extraordinary dividend was paid, then the loss will be long-term capital loss to the extent of such extraordinary dividend. An
extraordinary dividend on common stock for this purpose is generally a dividend (i) in an amount greater than or equal to 10% of the taxpayers tax basis (or trading value) in a share of stock, aggregating dividends with
ex-dividend dates within an 85-day period, or (ii) in an amount greater than 20% of the taxpayers tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within a 365-day period.
Distributions in excess of the Funds current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to
the extent of a shareholders basis in shares of the Fund, and as a capital gain thereafter (if the shareholder holds shares of the Fund as capital assets). Shareholders receiving dividends or distributions in the form of additional shares
should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the shareholders receiving cash dividends or distributions will receive and should have a cost basis in the shares
received equal to such amount. Dividends paid by the Fund that are attributable to dividends received by the Fund from domestic corporations may qualify for the federal dividends received deduction for corporations.
Beginning in 2013, a 3.8% U.S. federal Medicare contribution tax will be imposed on net investment income, including interest, dividends, and capital gain, of U.S.
individuals with income exceeding $200,000 (or $250,000 if married and filing jointly), and of estates and trusts.
Investors considering buying shares
just prior to a dividend or capital gain distribution should be aware that, although the price of shares purchased at that time may reflect the amount of the forthcoming distribution, such dividend or distribution may nevertheless be taxable to
them. If the Fund is the holder of record of any security on the record date for any dividends payable with respect to such security, such dividends will be included in the Funds gross income not as of the date received but as of the later of
(a) the date such security became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the security would not be entitled to receive the declared, but unpaid, dividends); or (b) the date the Fund acquired
such security. Accordingly, in order to satisfy its income distribution requirements, the Fund may be required to pay dividends based on anticipated earnings, and shareholders may receive dividends in an earlier year than would otherwise be the
case.
52
In certain situations, the Fund may, for a taxable year, defer all or a portion of its net capital loss realized after
October and its late-year ordinary loss (defined as the excess of post-October foreign currency and passive foreign investment company (PFIC) losses and other post-December ordinary losses over post-October foreign currency
and PFIC gains and other post-December ordinary income) until the next taxable year in computing its investment company taxable income and net capital gain, which will defer the recognition of such realized losses. Such deferrals and other rules
regarding gains and losses realized after October (or December) may affect the tax character of shareholder distributions.
Sales of Shares. Upon the sale or exchange of shares of the Fund, a shareholder will realize a taxable gain or loss equal to the
difference between the amount realized and the shareholders basis in shares of the Fund. A redemption of shares by the Fund will be treated as a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholders hands and will be long-term capital gain or loss if the shares are held for more than one year and short-term capital gain or loss if the shares are held for one year or less. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced, including replacement through the reinvesting of dividends and capital gains distributions in the Fund, by, or by an option on, substantially identical shares within a
61-day period beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund
shares held by the shareholder for six months or less will be treated for U.S. federal income tax purposes as a long-term capital loss to the extent of any distributions or deemed distributions of long-term capital gains received by the shareholder
with respect to such share. The Medicare contribution tax described above will apply to the sale of Fund shares.
If a shareholder incurs a sales charge
in acquiring shares of the Fund, disposes of those shares within 90 days and then, on or before January 31 of the following calendar year, acquires shares in a mutual fund for which the otherwise applicable sales charge is reduced by reason of
a reinvestment right (e.g., an exchange privilege), the original sales charge will not be taken into account in computing gain/loss on the original shares to the extent the subsequent sales charge is reduced. Instead, the disregarded portion
of the original sales charge will be added to the tax basis of the newly acquired shares. Furthermore, the same rule also applies to a disposition of the newly acquired shares made within 90 days of the second acquisition. This provision prevents
shareholders from immediately deducting the sales charge by shifting their investments within a family of mutual funds.
Back-Up Withholding. In certain cases, the Fund will be required to withhold at the applicable withholding rate, and remit to the
U.S. Treasury such amounts withheld from any distributions paid to a shareholder who: (i) has failed to provide a correct taxpayer identification number; (ii) is subject to back-up withholding by the IRS; (iii) has failed to certify
to the Fund that such shareholder is not subject to back-up withholding; or (iv) has not certified that such shareholder is a U.S. person (including a U.S. resident alien). Back-up withholding is not an additional tax and any amount withheld
may be credited against a shareholders U.S. federal income tax liability.
Sections 351 and 362. The Company, on
behalf of the Fund, has the right to reject an order for a purchase of shares of the Fund if the purchaser (or group of purchasers) would, upon obtaining the shares so ordered, own 80% or more of the outstanding shares of the Fund and if, pursuant
to Sections 351 and 362 of the Internal Revenue Code, the Fund would have a basis in the securities different from the market value of such securities on the date of deposit. If the Funds basis in such securities on the date of deposit was
less than market value on such date, the Fund, upon disposition of the securities, would recognize more taxable gain or less taxable loss than if its basis in the securities had been equal to market value. It is not anticipated that the Company will
exercise the right of rejection except in a case where the Company determines that accepting the order could result in material adverse tax consequences to the Fund or its shareholders. The Company also has the right to require information necessary
to determine beneficial share ownership for purposes of the 80% determination.
Taxation of Certain Derivatives. The
Funds transactions in zero coupon securities, non-U.S. currencies, forward contracts, options and futures contracts (including options and futures contracts on non-U.S. currencies), to the extent permitted, will be subject to special
provisions of the Internal Revenue Code (including provisions relating to hedging transactions and straddles) that, among other things, may affect the character of gains and losses realized by the Fund (i.e., may
affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and defer Fund losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also
(a) will require the Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out at the end of each year) and (b) may cause the Fund to recognize income without receiving cash
with which to pay dividends or make distributions in amounts necessary to satisfy the distribution requirements for avoiding income and excise taxes. The Fund will monitor its transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any zero coupon security, non-U.S. currency, forward contract, option, futures contract or hedged investment in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a RIC.
53
The Funds investments in so-called Section 1256 contracts, such as regulated futures contracts, most
non-U.S. currency forward contracts traded in the interbank market and options on most security indexes, are subject to special tax rules. All Section 1256 contracts held by the Fund at the end of its taxable year are required to be marked to
their market value, and any unrealized gain or loss on those positions will be included in the Funds income as if each position had been sold for its fair market value at the end of the taxable year. The resulting gain or loss will be combined
with any gain or loss realized by the Fund from positions in Section 1256 contracts closed during the taxable year. Provided such positions were held as capital assets and were not part of a hedging transaction nor part of a
straddle, 60% of the resulting net gain or loss will be treated as long-term capital gain or loss, and 40% of such net gain or loss will be treated as short-term capital gain or loss, regardless of the period of time the positions were
actually held by the Fund.
As a result of entering into swap contracts, the Fund may make or receive periodic net payments. The Fund may also make or
receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute ordinary income or deductions, while termination of a swap will generally
result in capital gain or loss (which will be a long-term capital gain or loss if the Fund has been a party to the swap for more than one year). With respect to certain types of swaps, the Fund may be required to currently recognize income or loss
with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss.
Qualified Dividend Income. Distributions by the Fund of investment company taxable income (including any short-term capital gains), whether received in cash or shares, will be
taxable either as ordinary income or as qualified dividend income, eligible for the reduced maximum rate to individuals of 15% (0% for individuals in lower tax brackets) to the extent the Fund receives qualified dividend income on the securities it
holds and the Fund reports the distribution as qualified dividend income. Qualified dividend income is, in general, dividend income from taxable U.S. corporations (but generally not from U.S. REITs) and certain non-U.S. corporations (e.g.,
non-U.S. corporations that are not passive foreign investment companies and which are incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which
is readily tradable on an established securities market in the United States (where the dividends are paid with respect to such stock)). Under current IRS guidance, the United States has appropriate comprehensive income tax treaties with the
following countries: Australia, Austria, Bangladesh, Barbados, Belgium, Bulgaria, Canada, China (but not with Hong Kong, which is treated as a separate jurisdiction for U.S. tax purposes), Cyprus, the Czech Republic, Denmark, Egypt, Estonia,
Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Morocco, the Netherlands, New Zealand, Norway, Pakistan, the Philippines, Poland,
Portugal, Romania, Russia, the Slovak Republic, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, the United Kingdom, and Venezuela. Substitute payments received by
the Fund for securities lent out by the Fund will not be qualified dividend income.
A dividend from the Fund will not be treated as qualified dividend
income to the extent that (i) the shareholder has not held the shares on which the dividend was paid for 61 days during the 121-day period that begins on the date that is 60 days before the date on which the shares become ex-dividend with
respect to such dividend or the Fund fails to satisfy those holding period requirements with respect to the securities it holds that paid the dividends distributed to the shareholder (or, in the case of certain preferred stocks, the holding
requirement of 91 days during the 181-day period beginning on the date that is 90 days before the date on which the stock becomes ex-dividend with respect to such dividend); (ii) the Fund or the shareholder is under an obligation (whether
pursuant to a short sale or otherwise) to make related payments with respect to substantially similar or related property; or (iii) the shareholder elects to treat such dividend as investment income under Section 163(d)(4)(B) of the
Internal Revenue Code. Dividends received by the Fund from a REIT or another RIC may be treated as qualified dividend income only to the extent the dividend distributions are attributable to qualified dividend income received by such REIT or other
RIC. It is expected that dividends received by the Fund from a REIT and distributed to a shareholder generally will be taxable to the shareholder as ordinary income. The maximum 15% rate on qualified dividend income will not apply to dividends
received in taxable years beginning after December 31, 2012. Distributions by the Fund of its net short-term capital gains will be taxable as ordinary income. Capital gain distributions consisting of the Funds net capital gains will be
taxable as long-term capital gains.
If you lend your Fund shares pursuant to securities lending arrangements, you may lose the ability to use non-U.S.
tax credits passed through by the Fund or to treat Fund dividends (paid while the shares are held by the borrower) as qualified dividends. Consult your financial intermediary or tax advisor. If you enter into a short sale with respect to shares of
the Fund, substitute payments made to the lender of such shares may not be deductible. Consult your financial intermediary or tax advisor.
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Corporate Dividends Received Deduction. Dividends paid by the Fund that are
attributable to dividends received by the Fund from U.S. corporations may qualify for the U.S. federal dividends received deduction for corporations. A 46-day minimum holding period during the 90-day period that begins 45 days prior to ex-dividend
date (or 91-day minimum holding period during the 180 period beginning 90 days prior to ex-dividend date for certain preference dividends) during which risk of loss may not be diminished is required for the applicable shares, at both the Fund and
shareholder level, for a dividend to be eligible for the dividends received deduction. Restrictions may apply if indebtedness, including a short sale, is attributable to the investment.
Excess Inclusion Income. Under current law, the Fund will block unrelated business taxable income from being realized by its tax-exempt shareholders. Notwithstanding the foregoing,
a tax-exempt shareholder could realize unrelated business taxable income by virtue of its investment in the Fund if shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of
Section 514(b) of the Internal Revenue Code. Certain types of income received by the Fund from REITs, real estate mortgage investment conduits, taxable mortgage pools or other investments may cause the Fund to report some or all of its
distributions as excess inclusion income. To Fund shareholders, such excess inclusion income may (i) constitute taxable income, as unrelated business taxable income for those shareholders who would otherwise be tax-exempt such as
individual retirement accounts, 401(k) accounts, Keogh plans, pension plans and certain charitable entities; (ii) not be offset by otherwise allowable deductions for tax purposes; (iii) not be eligible for reduced U.S. withholding for
non-U.S. shareholders even from tax treaty countries; and (iv) cause the Fund to be subject to tax if certain disqualified organizations, as defined by the Internal Revenue Code, are Fund shareholders. If a charitable remainder
annuity trust or a charitable remainder unitrust (each as defined in Section 664 of the Internal Revenue Code) has unrelated business taxable income (UBTI) for a taxable year, a 100% excise tax on the UBTI is imposed on the trust.
Non-U.S. Investments. Under Section 988 of the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates between the time the Fund accrues income or receivables or expenses or other liabilities denominated in a non-U.S. currency and the time the Fund actually collects such income or pays such liabilities are generally
treated as ordinary income or ordinary loss. In general, gains (and losses) realized on debt instruments will be treated as Section 988 gain (or loss) to the extent attributable to changes in exchange rates between the U.S. dollar and the
currencies in which the instruments are denominated. Similarly, gains or losses on non-U.S. currency, non-U.S. currency forward contracts and certain non-U.S. currency options or futures contracts denominated in non-U.S currency, to the extent
attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or loss unless the Fund were to elect otherwise.
The Fund may be subject to non-U.S. income taxes withheld at the source. The Fund, if permitted to do so, may elect to pass through to its investors the amount of non-U.S. income taxes paid by the Fund
provided that the Fund held the security on the dividend settlement date and for at least 15 additional days immediately before and/or thereafter, with the result that each investor with respect to shares of the Fund held for a minimum 16-day
holding period at the time of deemed distribution will (i) include in gross income, even though not actually received, the investors pro rata share of the Funds non-U.S. income taxes, and (ii) either deduct (in
calculating U.S. taxable income, but only for investors who itemize their deductions on their personal tax returns) or credit (in calculating U.S. federal income tax) the investors pro rata share of the Funds non-U.S. income
taxes. A non-U.S. person invested in the Fund in a year that the Fund elects to pass through its non-U.S. taxes may be treated as receiving additional dividend income subject to U.S. withholding tax. A non-U.S. tax credit may not exceed
the investors U.S. federal income tax otherwise payable with respect to the investors non-U.S. source income. For this purpose, shareholders must treat as non-U.S. source gross income (i) their proportionate shares of non-U.S. taxes
paid by the Fund and (ii) the portion of any dividend paid by the Fund that represents income derived from non-U.S. sources; the Funds gain from the sale of securities will generally be treated as U.S.-source income. Certain limitations
will be imposed to the extent to which the non-U.S. tax credit may be claimed.
Passive Foreign Investment Companies.
If the Fund purchases shares in PFICs, it may be subject to U.S. federal income tax on a portion of any excess distribution or gain from the disposition of such shares even if such income is distributed as a taxable dividend by the
Fund to its shareholders. Additional charges in the nature of interest may be imposed on the Fund in respect of deferred taxes arising from such distributions or gains.
If the Fund were to invest in a PFIC and elect to treat the PFIC as a qualified electing fund under the Internal Revenue Code, in lieu of the foregoing requirements, the Fund might be required to
include in income each year a portion of the ordinary earnings and net capital gains of the qualified electing fund, even if not distributed to the Fund, and such amounts would be subject to the 90% and excise tax distribution requirements described
above. In order to make this election, the Fund would be required to obtain certain annual information from the PFICs in which it invests, which may be difficult or impossible to obtain.
55
Alternatively, the Fund may make a mark-to-market election that would result in the Fund being treated as if it had
sold and repurchased its PFIC stock at the end of each year. In such case, the Fund would report any such gains as ordinary income and would deduct any such losses as ordinary losses to the extent of previously recognized gains. The election must be
made separately for each PFIC owned by the Fund and, once made, would be effective for all subsequent taxable years, unless revoked with the consent of the IRS. By making the election, the Fund could potentially ameliorate the adverse tax
consequences with respect to its ownership of shares in a PFIC, but in any particular year may be required to recognize income in excess of the distributions it receives from PFICs and its proceeds from dispositions of PFIC stock. The Fund may have
to distribute this phantom income and gain to satisfy the 90% distribution requirement and to avoid imposition of the 4% excise tax.
The
Fund will make the appropriate tax elections, if possible, and take any additional steps that are necessary to mitigate the effects of these rules.
Reporting. If a shareholder recognizes a loss with respect to the Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a
disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but under current guidance, shareholders of a RIC are not exempted. The fact that a loss is reportable under
these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual
circumstances.
Other Taxes. Dividends, distributions and redemption proceeds may also be subject to additional
state, local and non-U.S. taxes depending on each shareholders particular situation.
Taxation of Non-U.S.
Shareholders. Dividends paid by the Fund to non-U.S. shareholders are generally subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty to the extent derived from investment income and short-term
capital gains. Dividends paid by the Fund from net tax-exempt income or long-term capital gains are generally not subject to such withholding tax. In order to obtain a reduced rate of withholding, a non-U.S. shareholder will be required to provide
an IRS Form W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax does not apply to regular dividends paid to a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends are effectively connected with
the non-U.S. shareholders conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. shareholder were a U.S. shareholder. A non-U.S.
corporation receiving effectively connected dividends may also be subject to additional branch profits tax imposed at a rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or other
applicable form may be subject to back-up withholding at the appropriate rate.
In general, U.S. federal withholding tax will not apply to any gain or
income realized by a non-U.S. shareholder in respect of any distributions of net long-term capital gains over net short-term capital losses, tax-exempt interest dividends, or upon the sale or other disposition of shares of the Fund. If the
Funds direct or indirect interests in U.S. real property were to exceed certain levels, distributions to a non-U.S. shareholder from the Fund attributable to a REITs distribution to the Fund of gain from a sale or exchange of a U.S. real
property interest and, in the case of a non-U.S. shareholder owning more than 5% of the class of shares throughout either such persons holding period for the redeemed shares or, if shorter, the previous five years, the gain on redemption will
be treated as real property gain subject to additional taxes or withholding and may result in the non-U.S. shareholder having additional filing requirements.
The rules laid out in the previous paragraph, other than the withholding rules, will apply notwithstanding the Funds participation in a wash sale transaction or its payment of a substitute dividend.
A 30% withholding tax will be imposed on dividends paid after December 31, 2013, and redemption proceeds paid after December 31, 2014, to
(i) foreign financial institutions, including non-U.S. investment funds, unless they agree to collect and disclose to the IRS information regarding their direct and indirect U.S. account holders; and (ii) certain other foreign entities,
unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions will need to enter into agreements with the IRS that state that they will provide the IRS information,
including the name, address and taxpayer identification number of direct and indirect U.S. account holders; comply with due diligence procedures with respect to the identification of U.S. accounts; report to the IRS certain information with respect
to U.S. accounts maintained; agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required information; and determine certain other information as to their
account holders. Other foreign entities will need to provide the name, address, and taxpayer identification number of each substantial U.S. owner or certifications of no substantial U.S. ownership, unless certain exceptions apply.
56
Shares of the Fund held by a non-U.S. shareholder at death will be considered situated within the United States and
subject to the U.S. estate tax.
The foregoing discussion is a summary of certain material U.S. federal income tax considerations only and is not
intended as a substitute for careful tax planning. Purchasers of shares should consult their own tax advisors as to the tax consequences of investing in such shares, including consequences under state, local and non-U.S. tax laws. Finally, the
foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date of this SAI. Changes in applicable authority could materially affect the
conclusions discussed above, and such changes often occur.
Financial Statements
The Funds audited Financial Statements, including the Financial Highlights, appearing in the Annual Report to Shareholders and the report therein of
PricewaterhouseCoopers LLP, an independent registered public accounting firm, are hereby incorporated by reference in this SAI. The Annual Report to Shareholders, which contains the referenced audited financial statements, is available upon request
and without charge.
Miscellaneous Information
Counsel. Willkie Farr & Gallagher LLP, located at 787 Seventh Avenue, New York, NY 10019, is counsel to the Company.
Independent Registered Public Accounting Firm. PricewaterhouseCoopers LLP, located at Three Embarcadero Center, San Francisco,
CA 94111, serves as the Companys independent registered public accounting firm, audits the Funds financial statements, and may perform other services.
Shareholder Communications to the Board. The Board has established a process for shareholders to communicate with the Board. Shareholders may contact the Board by mail.
Correspondence should be addressed to iShares Board of Directors, c/o BlackRock Institutional Trust Company, N.A.Mutual Fund Administration, 400 Howard Street, San Francisco, CA 94105. Shareholder communications to the Board should
include the following information: (i) the name and address of the shareholder; (ii) the number of shares owned by the shareholder; (iii) the Fund(s) of which the shareholder owns shares; and (iv) if these shares are owned
indirectly through a broker, financial intermediary or other record owner, the name of the broker, financial intermediary or other record owner. All correspondence received as set forth above shall be reviewed by the Secretary of the Company and
reported to the Board.
IS-SAI-DVYA-0413
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iShares®, Inc.
Statement of Additional Information
Dated September 1, 2012
(as revised April 8, 2013)
This Statement of
Additional Information (SAI) is not a prospectus. It should be read in conjunction with the current prospectus (the Prospectus) for the following fund of iShares, Inc. (the Company):
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The Prospectus for the Fund is dated September 1, 2012, as amended and supplemented from time to time. Capitalized terms used
herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. The Financial Statements and Notes contained in the Annual Reports of the Company for the Fund are incorporated by reference into and are deemed to be
part of this SAI. A copy of the Prospectus and Annual Report may be obtained without charge by writing to the Companys distributor, BlackRock Investments, LLC (the Distributor or BRIL), 525 Washington Boulevard, Suite
1405, Jersey City, NJ 07310, calling 1-800-iShares (1-800-474-2737) or visiting www.iShares.com. The Funds Prospectus is incorporated by reference to this SAI.
iShares® is a
registered trademark of BlackRock Fund Advisors (BFA) or its affiliates.
TABLE OF CONTENTS
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General Description of the Company and the Fund
The Company currently consists of more than 55 investment series or portfolios. The Company was organized as a Maryland corporation on August 31, 1994 and is
authorized to have multiple series or portfolios. The Company is an open-end management investment company registered with the U.S. Securities and Exchange Commission (the SEC) under the Investment Company Act of 1940, as amended (the
1940 Act). The offering of the Companys shares is registered under the Securities Act of 1933, as amended (the 1933 Act). This SAI relates solely to the Fund.
The investment objective of the Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of a specified benchmark index (the Underlying
Index) representing publicly-traded equity securities of issuers in a particular broad market, market segment, market sector or group of industries. The Fund is managed by BFA, an indirect wholly owned subsidiary of BlackRock, Inc.
The Fund offers and issues shares at their net asset value per share (NAV) only in aggregations of a specified number of shares (Creation
Unit), generally in exchange for a designated portfolio of securities (including any portion of such securities for which cash may be substituted) included in its Underlying Index (the Deposit Securities), together with the deposit
of a specified cash payment (the Cash Component). Shares of the Fund are listed for trading on NYSE Arca, Inc. (NYSE Arca or the Listing Exchange), a national securities exchange. Shares of the Fund are traded in
the secondary market and elsewhere at market prices that may be at, above or below the Funds NAV. Shares are redeemable only in Creation Units, and, generally, in exchange for portfolio securities and a Cash Component. Creation Units typically
are a specified number of shares, generally 50,000 or multiples thereof.
The Company reserves the right to permit or require that creations and
redemptions of shares are effected fully or partially in cash. Shares may be issued in advance of receipt of Deposit Securities, subject to various conditions, including a requirement to maintain with the Company a cash deposit equal to at least
105% and up to 115%, which percentage BFA may change from time to time, of the market value of the omitted Deposit Securities. See the Creation and Redemption of Creation Units section of this SAI. Transaction fees and other costs associated
with creations or redemptions that include a cash portion may be higher than the transaction fees and other costs associated with in-kind creations or redemptions. In all cases, conditions and fees will be limited in accordance with the requirements
of SEC rules and regulations applicable to management investment companies offering redeemable securities.
Exchange
Listing and Trading
A discussion of exchange listing and trading matters associated with an investment in the Fund is contained in the Shareholder
Information section of the Funds Prospectus. The discussion below supplements, and should be read in conjunction with, that section of the Prospectus.
Shares of the Fund are listed for trading, and trade throughout the day, on the Listing Exchange and other secondary markets. Shares of the Fund may also be listed on certain non-U.S. exchanges. There can be no
assurance that the requirements of the Listing Exchange necessary to maintain the listing of shares of the Fund will continue to be met. The Listing Exchange may, but is not required to, remove the shares of the Fund from listing if
(i) following the initial 12-month period beginning upon the commencement of trading of Fund shares, there are fewer than 50 beneficial owners of shares of the Fund for 30 or more consecutive trading days, (ii) the value of the Underlying
Index on which the Fund is based is no longer calculated or available, (iii) the indicative optimized portfolio value (IOPV) of the Fund is no longer calculated or available, or (iv) any other event shall occur or
condition shall exist that, in the opinion of the Listing Exchange, makes further dealings on the Listing Exchange inadvisable. The Listing Exchange will also remove shares of the Fund from listing and trading upon termination of the Fund.
As in the case of other publicly-traded securities, when you buy or sell shares through a broker, you will incur a brokerage commission determined by
that broker.
In order to provide additional information regarding the indicative value of shares of the Fund, the Listing Exchange or a market data
vendor disseminates information every 15 seconds through the facilities of the Consolidated Tape Association,
1
or through other widely disseminated means, an updated IOPV for the Fund as calculated by an information provider or market data vendor. The Company is not involved in or responsible for any
aspect of the calculation or dissemination of the IOPVs and makes no representation or warranty as to the accuracy of the IOPVs.
An IOPV has an equity
securities component and a cash component. The equity securities values included in an IOPV are the values of the Deposit Securities for the Fund. While the IOPV reflects the current value of the Deposit Securities required to be deposited in
connection with the purchase of a Creation Unit, it does not necessarily reflect the precise composition of the current portfolio of securities held by the Fund at a particular point in time because the current portfolio of the Fund may include
securities that are not a part of the current Deposit Securities. Therefore, the Funds IOPV disseminated during the Listing Exchange trading hours should not be viewed as a real-time update of the Funds NAV, which is calculated only once
a day.
The cash component included in an IOPV consists of estimated accrued interest, dividends and other income, less expenses. If applicable, each
IOPV also reflects changes in currency exchange rates between the U.S. dollar and the applicable currency.
The Company reserves the right to adjust the
share prices of the Fund in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Fund or an
investors equity interest in the Fund.
Investment Strategies and Risks
The Fund seeks to achieve its objective by investing primarily in securities issued by issuers that comprise its Underlying Index and through transactions that
provide substantially similar exposure to securities in the Underlying Index. The Fund operates as an index fund and will not be actively managed. Adverse performance of a security in the Funds portfolio will ordinarily not result in the
elimination of the security from the Funds portfolio.
The Fund engages in representative sampling, which is investing in a sample of securities
selected by BFA to have a collective investment profile similar to that of the Funds Underlying Index. Securities selected have aggregate investment characteristics (based on market capitalization and industry weightings), fundamental
characteristics (such as return variability, earnings valuation and yield) and liquidity measures similar to those of the Underlying Index. Funds that use representative sampling generally do not hold all of the securities that are in their relevant
underlying indexes.
Borrowing. The Fund may borrow as a temporary measure for extraordinary or
emergency purposes, including to meet redemptions or to facilitate the settlement of securities or other transactions. Under normal market conditions, any borrowing by the Fund will not exceed 10% of the Funds net assets; however, the
Fund generally does not intend to borrow money.
The purchase of securities while borrowings are outstanding will have the effect of leveraging the Fund.
Such leveraging increases the Funds exposure to capital risk, and borrowed funds are subject to interest costs that will reduce net income. The use of leverage by a Fund creates an opportunity for greater total return, but, at the same time,
creates special risks. For example, leveraging may exaggerate changes in the net asset value of Fund shares and in the yield on the Funds portfolio. Although the principal of such borrowings will be fixed, the Funds assets may change in
value during the time the borrowings are outstanding. Borrowings will create interest expenses for the Fund that can exceed the income from the assets purchased with the borrowings. To the extent the income or capital appreciation derived from
securities purchased with borrowed funds exceeds the interest the Fund will have to pay on the borrowings, the Funds return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the
securities purchased with such borrowed funds is not sufficient to cover the cost of borrowing, the return to the Fund will be less than if leverage had not been used and, therefore, the amount available for distribution to shareholders as dividends
will be reduced. In the latter case, BFA in its best judgment nevertheless may determine to maintain the Funds leveraged position if it expects that the benefits to the Funds shareholders of maintaining the leveraged position will
outweigh the current reduced return.
Certain types of borrowings by the Fund may result in the Fund being subject to covenants in credit agreements
relating to asset coverage, portfolio composition requirements and other matters. It is not anticipated that observance of such covenants would impede BFA from managing a Funds portfolio in accordance with the Funds investment objectives
and policies. However, a breach of any such covenants not cured within the specified cure period may result in acceleration of
2
outstanding indebtedness and require the Fund to dispose of portfolio investments at a time when it may be disadvantageous to do so.
Currency Transactions. The Fund does not expect to engage in currency transactions for the purpose of hedging against declines in the value of the Funds assets that are
denominated in a non-U.S. currency. The Fund may enter into non-U.S. currency forward and non-U.S. currency futures contracts to facilitate local securities settlements or to protect against currency exposure in connection with its distributions to
shareholders, but may not enter into such contracts for speculative purposes.
A forward currency contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. A currency futures contract is a contract involving an obligation to
deliver or acquire the specified amount of a specific currency, at a specified price and at a specified future time. Currency futures contracts may be settled on a net cash payment basis rather than by the sale and delivery of the underlying
currency. To the extent required by law, liquid assets committed to forwards and futures contracts will be maintained.
Foreign exchange transactions
involve a significant degree of risk and the markets in which foreign exchange transactions are effected are highly volatile, highly specialized and highly technical. Significant changes, including changes in liquidity and prices, can occur in such
markets within very short periods of time, often within minutes. Foreign exchange trading risks include, but are not limited to, exchange rate risk, counterparty risk, maturity gap, interest rate risk, and potential interference by foreign
governments through regulation of local exchange markets, foreign investment or particular transactions in non-U.S. currency. If BFA utilizes foreign exchange transactions at an inappropriate time or judges market conditions, trends or correlations
incorrectly, foreign exchange transactions may not serve their intended purpose of improving the correlation of the Funds return with the performance of the Underlying Index and may lower the Funds return. The Fund could experience
losses if the value of its currency forwards, options and futures positions are poorly correlated with its other investments or if it cannot close out its positions because of an illiquid market. In addition, the Fund could incur transaction costs,
including trading commissions, in connection with certain non-U.S. currency transactions.
Diversification Status.
The Fund is classified as non-diversified. A non-diversified fund is a fund that is not limited by the 1940 Act with regard to the percentage of its assets that may be invested in the securities of a single issuer. The securities of
a particular issuer (or securities of issuers in particular industries) may dominate the underlying index of such a fund and, consequently, the funds investment portfolio. This may adversely affect the funds performance or subject the
funds shares to greater price volatility than that experienced by more diversified investment companies.
The Fund intends to maintain the
required level of diversification and otherwise conduct its operations so as to qualify as a regulated investment company (RIC) for purposes of the U.S. Internal Revenue Code of 1986, as amended (the Internal Revenue Code),
and to relieve the Fund of any liability for U.S. federal income tax to the extent that its earnings are distributed to shareholders, provided that the Fund satisfies a minimum distribution requirement. Compliance with the diversification
requirements of the Internal Revenue Code may limit the investment flexibility of the Fund and may make it less likely that the Fund will meet its investment objective.
Futures and Options. Futures contracts and options may be used by the Fund to simulate investment in its Underlying Index, to facilitate trading or to reduce transaction costs.
The Fund may enter into futures contracts and options that are traded on a U.S. or non-U.S. exchange. The Fund will not use futures or options for speculative purposes.
Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific instrument or index at a specified future time and at a specified price. Stock index
contracts are based on investments that reflect the market value of common stock of the firms included in the investments. The Fund may enter into futures contracts to purchase securities indexes when BFA anticipates purchasing the underlying
securities and believes prices will rise before the purchase will be made. To the extent required by law, liquid assets committed to futures contracts will be maintained.
A call option gives a holder the right to purchase a specific security at a specified price (exercise price) within a specified period of time. A put option gives a holder the right to sell a specific
security at a specified exercise price within a specified period of time. The initial purchaser of a call option pays the writer a premium, which is paid at the time of purchase and is retained by the writer whether or not such option is
exercised. The Fund may purchase put options to hedge its portfolio against the risk of a decline in the market value of securities held and may purchase call options to hedge against an increase
3
in the price of securities it is committed to purchase. The Fund may write put and call options along with a long position in options to increase its ability to hedge against a change in the
market value of the securities it holds or is committed to purchase. Investments in futures contracts and other investments that contain leverage may require the Fund to maintain liquid assets. Generally, the Fund maintains an amount of liquid
assets equal to its obligations relative to the position involved, adjusted daily on a marked-to-market basis. With respect to futures contracts that are contractually required to cash-settle, the Fund maintains liquid assets in an
amount at least equal to the Funds daily marked-to-market obligation (i.e., the Funds daily net liability, if any), rather than the contracts notional value (i.e., the value of the underlying asset). By maintaining
assets equal to its net obligation under cash-settled futures contracts, the Fund may employ leverage to a greater extent than if the Fund sets aside assets equal to the futures contracts full notional value. The Fund bases its asset
maintenance policies on methods permitted by the staff of the SEC and may modify these policies in the future to comply with any changes in the guidance articulated from time to time by the SEC or its staff.
Illiquid Securities. The Fund may invest up to an aggregate amount of 15% of its net assets in illiquid securities (calculated
at the time of investment). Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets as determined in accordance with SEC staff guidance.
Lending Portfolio Securities. The Fund may lend portfolio securities to certain creditworthy borrowers, including borrowers
affiliated with BFA. The borrowers provide collateral that is maintained in an amount at least equal to the current market value of the securities loaned. No securities loan shall be made on behalf of the Fund if, as a result, the aggregate value of
all securities loans of the Fund exceeds one-third of the value of the Funds total assets (including the value of the collateral received). The Fund may terminate a loan at any time and obtain the return of the securities loaned. The Fund
receives the value of any interest or cash or non-cash distributions paid on the loaned securities.
With respect to loans that are collateralized by
cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. The Fund is compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the borrower. In the case of
collateral other than cash, the Fund is compensated by a fee paid by the borrower equal to a percentage of the market value of the loaned securities. Any cash collateral may be reinvested in certain short-term instruments either directly on behalf
of the lending Fund or through one or more joint accounts or money market funds, including those affiliated with BFA; such reinvestments are subject to investment risk. BFA may receive compensation for managing the reinvestment of the cash
collateral.
Securities lending involves exposure to certain risks, including operational risk (i.e., the risk of losses resulting from problems
in the settlement and accounting process), gap risk (i.e., the risk of a mismatch between the return on cash collateral reinvestments and the fees the Fund has agreed to pay a borrower), and credit, legal, counterparty and market
risk. If a securities lending counterparty were to default, the Fund would be subject to the risk of a possible delay in receiving collateral or in recovering the loaned securities, or to a possible loss of rights in the collateral. In the event a
borrower does not return the Funds securities as agreed, the Fund may experience losses if the proceeds received from liquidating the collateral do not at least equal the value of the loaned security at the time the collateral is liquidated,
plus the transaction costs incurred in purchasing replacement securities. This event could trigger adverse tax consequences for the Fund. The Fund could lose money if its short-term investment of the collateral declines in value over the period of
the loan. Substitute payments for dividends received by the Fund for securities loaned out by the Fund will not be considered qualified dividend income. The Fund may take the tax effects of this difference into account in its securities lending
program.
The Fund pays a portion of the interest or fees earned from securities lending to a borrower as described above and to a securities lending
agent who administers the lending program in accordance with guidelines approved by the Companys Board of Directors (the Board or the Directors). To the extent that the Fund engages in securities lending, BlackRock
Institutional Trust Company, N.A. (BTC) acts as securities lending agent for the Fund, subject to the overall supervision of BFA. BTC receives a portion of the revenues generated by securities lending activities as compensation for its
services.
Non-U.S. Securities. The Fund intends to purchase publicly-traded common stocks of non-U.S. issuers. To
the extent the Fund invests in stocks of non-U.S. issuers, the Funds investment in such stocks may be in the form of American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) and European Depositary
Receipts (EDRs) (collectively, Depositary Receipts). Depositary Receipts are receipts, typically issued by a bank or trust issuer, which evidence ownership of underlying securities issued by a non-U.S. issuer. For ADRs, the
depository is typically a U.S. financial institution and the underlying securities are issued by a non-U.S. issuer. For other forms of Depositary Receipts, the depository may be a non-U.S. or a U.S. entity, and the underlying
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securities may be issued by a non-U.S. or a U.S. issuer. Depositary Receipts are not necessarily denominated in the same currency as their underlying securities. Generally, ADRs, issued in
registered form, are designed for use in the U.S. securities markets, and EDRs, issued in bearer form, are designed for use in European securities markets. GDRs are tradable both in the United States and in Europe and are designed for use throughout
the world.
The Fund will not invest in any unlisted Depositary Receipt or any Depositary Receipt that BFA deems illiquid at the time of purchase or for
which pricing information is not readily available. In general, Depositary Receipts must be sponsored, but the Fund may invest in unsponsored Depositary Receipts under certain limited circumstances. The issuers of unsponsored Depositary Receipts are
not obligated to disclose material information in the United States. Therefore, there may be less information available regarding such issuers and there may be no correlation between available information and the market value of the Depositary
Receipts.
Investing in the securities of non-U.S. issuers involves special risks and considerations not typically associated with investing in U.S.
issuers. These include differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could
affect U.S. investments in non-U.S. countries, and potential restrictions on the flow of international capital. Non-U.S. issuers may be subject to less governmental regulation than U.S. issuers. Moreover, individual non-U.S. economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product (GDP), rate of inflation, capital reinvestment, resource self-sufficiency and balance of payment positions.
Options on Futures Contracts. An option on a futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a position in the underlying futures contract at a specified exercise price at any time prior to the expiration date of the option. Upon exercise of an option, the delivery of
the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writers futures margin account that represents the amount by which the market price of the futures
contract exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. The potential for loss related to the purchase of an option on a futures contract is limited to the premium
paid for the option plus transaction costs. Because the value of the option is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option
changes daily and that change would be reflected in the NAV of the Fund. The potential for loss related to writing call options is unlimited. The potential for loss related to writing put options is limited to the agreed upon price per share, also
known as the strike price, less the premium received from writing the put.
The Fund may purchase and write put and call options on futures
contracts that are traded on an exchange as a hedge against changes in value of its portfolio securities, or in anticipation of the purchase of securities, and may enter into closing transactions with respect to such options to terminate existing
positions. There is no guarantee that such closing transactions can be effected.
Upon entering into a futures contract, the Fund will be required to
deposit with the broker an amount of cash or cash equivalents known as initial margin, which is in the nature of a performance bond or good faith deposit on the contract and is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent payments, known as variation margin, to and from the broker will be made daily as the price of the index underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or less valuable, a process known as marking-to-market. At any time prior to the expiration of a futures contract, the Fund may elect to close the position by taking an opposite
position, which will operate to terminate the Funds existing position in the contract.
Regulation Regarding
Derivatives. Effective December 31, 2012, the Commodity Futures Trading Commission (CFTC) adopted certain regulatory changes that subject registered investment companies and advisers to registered investment companies to regulation
by the CFTC if a fund invests more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps (CFTC Derivatives), or if the fund markets itself as providing investment exposure to such instruments. To
the extent the Fund uses CFTC-regulated futures, options and swaps, it intends to do so below such prescribed levels and will not market itself as a commodity pool or a vehicle for trading such instruments. Accordingly, BFA has claimed
an exclusion from the definition of the term commodity pool operator under the Commodity Exchange Act (CEA) pursuant to Rule 4.5 under the CEA. BFA is not, therefore, subject to registration or regulation as a commodity
pool operator under the CEA in respect of the Fund.
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Repurchase Agreements. A repurchase agreement is an instrument under which the
purchaser (i.e., the Fund) acquires the security and the seller agrees, at the time of the sale, to repurchase the security at a mutually agreed upon time and price, thereby determining the yield during the purchasers holding period.
Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser. If a repurchase agreement is construed to be a collateralized loan, the underlying securities
will not be considered to be owned by the Fund but only to constitute collateral for the sellers obligation to pay the repurchase price, and, in the event of a default by the seller, the Fund may suffer time delays and incur costs or losses in
connection with the disposition of the collateral.
In any repurchase transaction, the collateral for a repurchase agreement may include: (i) cash
items; (ii) obligations issued by the U.S. government or its agencies or instrumentalities; or (iii) obligations that, at the time the repurchase agreement is entered into, are rated in the highest rating category generally by at least two
nationally recognized statistical rating organizations (NRSROs), or, if unrated, determined to be of comparable quality by BFA. Collateral, however, is not limited to the foregoing and may include, for example, obligations rated below
the highest category by NRSROs. Collateral for a repurchase agreement may also include securities that the Fund could not hold directly without the repurchase obligation. Irrespective of the type of collateral underlying the repurchase agreement, in
the case of a repurchase agreement entered into by a non-money market fund, the repurchase obligation of a seller must be of comparable credit quality to securities which are rated in the highest two short-term rating categories by at least one
NRSRO or, if unrated, deemed by BFA to be of equivalent quality.
Repurchase agreements pose certain risks for the Fund, should it decide to utilize
them. Such risks are not unique to the Fund, but are inherent in repurchase agreements. The Fund seeks to minimize such risks, but because of the inherent legal uncertainties involved in repurchase agreements, such risks cannot be eliminated. Lower
quality collateral and collateral with longer maturities may be subject to greater price fluctuations than higher quality collateral and collateral with shorter maturities. If the repurchase agreement counterparty were to default, lower quality
collateral may be more difficult to liquidate than higher quality collateral. Should the counterparty default and the amount of collateral not be sufficient to cover the counterpartys repurchase obligation, the Fund would retain the status of
an unsecured creditor of the counterparty (i.e., the position the Fund would normally be in if it were to hold, pursuant to its investment policies, other unsecured debt securities of the defaulting counterparty) with respect to the amount of
the shortfall. As an unsecured creditor, the Fund would be at risk of losing some or all of the principal and income involved in the transaction.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing.
Generally, the effect of such transactions is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases the Fund is able to keep some of
the interest income associated with those securities. Such transactions are advantageous only if the Fund has an opportunity to earn a rate of interest on the cash derived from these transactions that is greater than the interest cost of obtaining
the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and the Fund intends to use the reverse repurchase technique only when BFA
believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any interim increase or decrease in the value of the Funds assets. The Funds exposure to reverse repurchase agreements will be covered
by liquid assets having a value equal to or greater than such commitments.
Securities of Investment Companies.
The Fund may invest in the securities of other investment companies (including money market funds) to the extent allowed by law. Pursuant to the 1940 Act, the Funds investment in registered investment companies is limited to, subject to
certain exceptions: (i) 3% of the total outstanding voting stock of any one investment company; (ii) 5% of the Funds total assets with respect to any one investment company; and (iii) 10% of the Funds total assets with
respect to investment companies in the aggregate. To the extent allowed by law or regulation, the Fund may invest its assets in the securities of investment companies that are money market funds, including those advised by or otherwise affiliated
with BFA, in excess of the limits discussed above. Other investment companies in which the Fund may invest can be expected to incur fees and expenses for operations, such as investment advisory and administration fees, which would be in addition to
those incurred by the Fund.
Short-Term Instruments and Temporary Investments. The Fund may invest in short-term
instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that may include but are not limited to: (i) shares of money market
funds (including those advised by BFA or otherwise affiliated with BFA); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable
certificates of deposit (CDs), bankers
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acceptances, fixed-time deposits and other obligations of U.S. and non-U.S. banks (including non-U.S. branches) and similar institutions; (iv) commercial paper rated, at the date of
purchase, Prime-1 by Moodys® Investors Service, Inc., F-1 by Fitch Inc., or A-1
by Standard & Poors® Financial Services LLC, a subsidiary of The McGraw-Hill Companies
(Standard & Poors Ratings Services), or if unrated, of comparable quality as determined by BFA; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date
of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a-7 under the 1940 Act; (vi) repurchase agreements; and (vii) short-term U.S. dollar-denominated obligations of non-U.S. banks (including
U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by the Fund. Any of these instruments may be purchased on a current or forward-settled basis. Time deposits are non-negotiable
deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with international transactions.
Swap Agreements. Swap agreements are contracts between parties in which one party agrees to make periodic payments to the
other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make periodic payments to the first party based on the return of a different specified rate, index or asset. Swap
agreements will usually be performed on a net basis, with the Fund receiving or paying only the net amount of the two payments. The net amount of the excess, if any, of the Funds obligations over its entitlements with respect to each swap is
accrued on a daily basis and an amount of liquid assets having an aggregate value at least equal to the accrued excess will be maintained by the Fund.
The use of interest rate and index swaps is a highly specialized activity that involves investment techniques and risks different from those associated with
ordinary portfolio security transactions. These transactions generally do not involve the delivery of securities or other underlying assets or principal.
Tracking Stocks. A tracking stock is a separate class of common stock whose value is linked to a specific business unit or
operating division within a larger company and that is designed to track the performance of such business unit or division. The tracking stock may pay dividends to shareholders independent of the parent company. The parent company,
rather than the business unit or division, generally is the issuer of tracking stock. However, holders of the tracking stock may not have the same rights as holders of the companys common stock.
Future Developments. The Board may, in the future, authorize the Fund to invest in securities contracts and investments,
other than those listed in this SAI and in the Prospectus, provided they are consistent with the Funds investment objective and do not violate any of its investment restrictions or policies.
General Considerations and Risks
A
discussion of some of the principal risks associated with an investment in the Fund is contained in the Prospectus.
An investment in the Fund should be
made with an understanding that the value of the Funds portfolio securities may fluctuate in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of stocks in general, and other factors that
affect the market.
Borrowing Risk. Borrowing may exaggerate changes in the net asset value of Fund shares
and in the return on the Funds portfolio. Borrowing will cost the Fund interest expense and other fees. The costs of borrowing may reduce the Funds return. Borrowing may cause the Fund to liquidate positions when it may not be
advantageous to do so to satisfy its obligations.
Cyber Security Issues. With the increased use of
technologies such as the Internet to conduct business, the Fund is susceptible to operational and information security risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber attacks include, but are
not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does not
require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches by the Funds third party service providers (including, but not limited to index providers, fund accountants and
transfer agents) and the issuers of securities in which the Fund invests, have the ability to cause disruptions and impact business operations potentially resulting in financial losses, the inability of
7
the Funds shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs,
and/or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The Fund and its shareholders could be negatively impacted as a result. While the Fund has established
business continuity plans and risk management systems to prevent such cyber-attacks, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, the Fund cannot
control the cyber security plans and systems put in place by issuers in which the Fund invests.
Dividend Risk.
There is no guarantee that the issuer of the stocks held by the Fund will declare dividends in the future or that if declared, they will either remain at current levels or increase over time.
Dividend-Paying Stock Risk. The Funds strategy of investing in dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and
underperform the market. Companies that issue dividend-paying stocks are not required to continue to pay dividends on such stocks. Therefore, there is the possibility that such companies could reduce or eliminate the payment of dividends in the
future or the anticipated acceleration of dividends could not occur. Depending upon market conditions, dividend-paying stocks that meet the Funds investment criteria may not be widely available and/or may be highly concentrated in only a few
market sectors.
Risks of Derivatives. A derivative is a financial contract, the value of which depends on, or is
derived from, the value of an underlying asset such as a security or an index. The Fund may invest in stock index futures contracts and other derivatives. Compared to conventional securities, derivatives can be more sensitive to changes in interest
rates or to sudden fluctuations in market prices and thus the Funds losses may be greater if it invests in derivatives than if it invests only in conventional securities. Derivatives are also subject to counterparty risk, which is the risk
that the other party in the transaction will not fulfill its contractual obligations.
Risks of Equity Securities.
An investment in the Fund should be made with an understanding of the risks inherent in an investment in equity securities, including the risk that the financial condition of issuers may become impaired or that the general condition of stock
markets may deteriorate (either of which may cause a decrease in the value of the portfolio securities and thus in the value of shares of the Fund). Common stocks are susceptible to general stock market fluctuations and to increases and decreases in
value as market confidence and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors, including expectations regarding government, economic, monetary and fiscal policies, inflation and
interest rates, economic expansion or contraction, and global or regional political, economic or banking crises. Holders of common stocks incur more risks than holders of preferred stocks and debt obligations because common stockholders generally
have rights to receive payments from stock issuers that are inferior to the rights of creditors, or holders of debt obligations or preferred stocks. Further, unlike debt securities, which typically have a stated principal amount payable at maturity
(the value of which, however, is subject to market fluctuations prior to maturity), or preferred stocks, which typically have a liquidation preference and which may have stated optional or mandatory redemption provisions, common stocks have neither
a fixed principal amount nor a maturity.
Although most of the securities in the Underlying Index are listed on a national securities exchange, the
principal trading market for some of the securities may be in the over-the-counter market. The existence of a liquid trading market for certain securities may depend on whether dealers will make a market in such securities. There can be no assurance
that a market will be made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of the Funds shares will be adversely affected if trading markets for the Funds portfolio
securities are limited or absent, or if bid/ask spreads are wide.
Risks of Futures and Options Transactions.
There are several risks accompanying the utilization of futures contracts and options on futures contracts. A position in futures contracts and options on futures contracts may be closed only on the exchange on which the contract was made (or a
linked exchange). While the Fund plans to utilize futures contracts only if an active market exists for such contracts, there is no guarantee that a liquid market will exist for the contract at a specified time. Futures contracts, by definition,
project price levels in the future and not current levels of valuation, therefore market circumstances may result in a discrepancy between the price of the stock index future and the movement in the Funds Underlying Index. In the event of
adverse price movements, the Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, the Fund may be required to deliver the instruments underlying the future contracts it has sold.
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The risk of loss in trading futures contracts or uncovered call options in some strategies (e.g., selling
uncovered stock index futures contracts) is potentially unlimited. The Fund does not plan to use futures and options contracts in this way. The risk of a futures position may still be large as traditionally measured due to the low margin deposits
required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. The Fund, however, intends to utilize futures
and options contracts in a manner designed to limit the risk exposure to levels comparable to a direct investment in the types of stocks in which it invests.
Utilization of futures and options on futures by the Fund involves the risk of imperfect or even negative correlation to the Underlying Index if the index underlying the futures contract differs from the Underlying
Index. There is also the risk of loss of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in the futures contract or option. The purchase of put or call options will be based upon predictions by BFA as
to anticipated trends, which predictions could prove to be incorrect.
Because the futures market generally imposes less burdensome margin requirements
than the securities market, an increased amount of participation by speculators in the futures market could result in price fluctuations. Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during
a single trading day. The daily limit establishes the maximum amount by which the price of a futures contract may vary either up or down from the previous days settlement price at the end of a trading session. Once the daily limit has been
reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. It is possible that futures contract prices could move to the daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting the Fund to substantial losses. In the event of adverse price movements, the Fund would be required to make daily cash payments of variation margin.
Risks of Investing in Non-U.S. Equity Securities. An investment in the Fund involves risks similar to those of investing in
portfolios of equity securities traded on non-U.S. exchanges. These risks include market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. Investing in
securities issued by issuers domiciled in countries other than the domicile of the investor and denominated in currencies other than an investors local currency entails certain considerations and risks not typically encountered by the investor
in making investments in its home country and in that countrys currency. These considerations include favorable or unfavorable changes in interest rates, currency exchange rates, exchange control regulations and the costs that may be incurred
in connection with conversions between various currencies. Investing in the Fund also involves certain risks and considerations not typically associated with investing in a fund whose portfolio contains exclusively securities of U.S. issuers. These
risks include generally less liquid and less efficient securities markets; generally greater price volatility; less publicly available information about issuers; the imposition of withholding or other taxes; the imposition of restrictions on the
expatriation of funds or other assets of the Fund; restrictions on ownership of Indian securities by foreign entities; higher transaction and custody costs; delays and risks attendant in settlement procedures; difficulties in enforcing contractual
obligations; lower liquidity and significantly smaller market capitalization; different accounting and disclosure standards; lower levels of regulation of the securities markets; more substantial government interference with the economy; higher
rates of inflation; greater social, economic, and political uncertainty; the risk of nationalization or expropriation of assets; and the risk of war.
Risks of Swap Agreements. The risk of loss with respect to swaps generally is limited to the net amount of payments that the Fund is contractually obligated to make. Swap agreements are subject to the risk that the swap counterparty will
default on its obligations. If such a default occurs, the Fund will have contractual remedies pursuant to the agreements related to the transaction. However, such remedies may be subject to bankruptcy and insolvency laws which could affect the
Funds rights as a creditor (e.g., the Fund may not receive the net amount of payments that it is contractually entitled to receive).
Risks of Investing in Africa. Investments in securities of issuers in certain African countries involve heightened risks including, among others, expropriation and/or nationalization of assets, confiscatory taxation, political
instability, including authoritarian and/or military involvement in governmental decision-making, armed conflict, civil war, and social instability as a result of religious, ethnic and/or socioeconomic unrest and, in certain countries, genocidal
warfare.
Certain countries in Africa generally have less developed capital markets than traditional emerging market countries, and, consequently, the
risks of investing in foreign securities are magnified in such countries. Because securities markets of countries in Africa are underdeveloped and are less correlated to global economic cycles than those markets located in more developed countries,
securities markets in Africa are subject to greater risks associated with market volatility, lower market capitalization, lower trading volume, illiquidity, inflation, greater price fluctuations and uncertainty regarding the existence of trading
markets.
9
Moreover, trading on securities markets may be suspended altogether. Market volatility may also be heightened by the
actions of a small number of investors. Brokerage firms in certain countries in Africa may be fewer in number and less established than brokerage firms in more developed markets. Since the Fund may need to effect securities transactions through
these brokerage firms, the Fund is subject to the risk that these brokerage firms will not be able to fulfill their obligations to the Fund (i.e., counterparty risk). This risk is magnified to the extent that the Fund effects securities
transactions through a single brokerage firm or a small number of brokerage firms.
Certain governments in Africa restrict or control to varying degrees
the ability of foreign investors to invest in securities of issuers located or operating in those countries. These restrictions and/or controls may at times limit or prevent foreign investment in securities of issuers located or operating in
countries in Africa. Moreover, certain countries in Africa require governmental approval or special licenses prior to investment by foreign investors and may limit the amount of investment by foreign investors in a particular industry and/or issuer,
and may limit such foreign investment to a certain class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domestic investors of the countries and/or impose additional taxes on foreign
investors. A delay in obtaining a government approval or a license would delay investments in a particular country, and, as a result, the Fund may not be able to invest in certain securities while approval is pending. The government of a particular
country may also withdraw or decline to renew a license that enables the Fund to invest in such country. These factors make investing in issuers located or operating in countries in Africa significantly riskier than investing in issuers located or
operating in more developed countries, and any one of these factors could cause a decline in the value of the Funds investments.
Issuers located
or operating in countries in Africa are not subject to the same rules and regulations as issuers located or operating in more developed countries. Therefore, there may be less financial and other information publicly available with regard to issuers
located or operating in countries in Africa and such issuers are not subject to the uniform accounting, auditing and financial reporting standards applicable to issuers located or operating in more developed countries.
In addition, governments of certain countries in Africa in which the Fund may invest may levy withholding or other taxes on income such as dividends, interest and
realized capital gains. Although in certain countries in Africa a portion of these taxes are recoverable, the non-recovered portion of foreign withholding taxes will reduce the income received from investments in such countries.
Investment in countries in Africa may be subject to a greater degree of risk associated with governmental approval in connection with the repatriation of
investment income, capital or the proceeds of sales of securities by foreign investors. In addition, there is the risk that if an African countrys balance of payments declines, such African country may impose temporary restrictions on foreign
capital remittances. Consequently, the Fund could be adversely affected by delays in, or a refusal to grant, required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments.
Additionally, investments in countries in Africa may require the Fund to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to the Fund.
Securities laws in many countries in Africa are relatively new and unsettled and, consequently, there is a risk of rapid and unpredictable change in laws regarding
foreign investment, securities regulation, title to securities and shareholder rights. Accordingly, foreign investors may be adversely affected by new or amended laws and regulations. In addition, there may be no single centralized securities
exchange on which securities are traded in certain countries in Africa and the systems of corporate governance to which issuers located in countries in Africa are subject may be less advanced than those systems to which issuers located in more
developed countries are subject, and therefore, shareholders of issuers located in such countries may not receive many of the protections available to shareholders of issuers located in more developed countries. In circumstances where adequate laws
and shareholder rights exist, it may not be possible to obtain swift and equitable enforcement of the law. In addition, the enforcement of systems of taxation at federal, regional and local levels in countries in Africa may be inconsistent and
subject to sudden change.
Certain countries in Africa may be heavily dependent upon international trade and, consequently, have been and may continue
to be negatively affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These countries also have been and may
continue to be adversely affected by economic conditions in the countries with which they trade. Certain countries in Africa depend to a significant extent upon exports of primary commodities such as gold, silver, copper and diamonds. These
countries therefore are vulnerable to changes in commodity prices, which may be affected by a variety of factors. In addition, certain issuers located in countries in Africa in which the Fund invests may operate in, or have dealings with, countries
subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries
10
identified by the U.S. government as state sponsors of terrorism. As a result, an issuer may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings
with, such countries. The Fund, as an investor in such issuers, will be indirectly subject to those risks.
The governments of certain countries in
Africa may exercise substantial influence over many aspects of the private sector and may own or control many companies. Future government actions could have a significant effect on the economic conditions in such countries, which could have a
negative impact on private sector companies. There is also the possibility of diplomatic developments that could adversely affect investments in certain countries in Africa. Some countries in Africa may be affected by a greater degree of public
corruption and crime, including organized crime.
In addition, recent political instability and protests in North Africa and the Middle East have caused
significant disruptions to many industries. This instability has demonstrated that political and social unrest can spread quickly through the region, and that developments in one country can influence the political events in neighboring countries.
Some protests have turned violent, and civil war and political reconstruction in countries such as Libya poses a risk to investments in the region. Continued political and social unrest in these regions may negatively affect the value of your
investment in the Fund.
Risks of Investing in Asia. Investments in securities of issuers in certain Asian
countries involve risks not typically associated with investments in securities of issuers in other regions. Such heightened risks include, among others, expropriation and/or nationalization of assets, confiscatory taxation, political instability,
including authoritarian and/or military involvement in governmental decision-making, armed conflict and social instability as a result of religious, ethnic and/or socio-economic unrest.
Certain Asian countries have democracies with relatively short histories, which may increase the risk of political instability. These countries have faced political and military unrest, and further unrest could
present a risk to their local economies and securities markets. Indonesia and the Philippines have each experienced violence and terrorism, which has negatively impacted their economies. North Korea and South Korea each have substantial military
capabilities, and historical tensions between the two countries present the risk of war. Any outbreak of hostilities between the two countries could have a severe adverse effect on the South Korean economy and securities market. Increased political
and social unrest in these geographic areas could adversely affect the performance of investments in this region.
Certain governments in this region
administer prices on several basic goods, including fuel and electricity, within their respective countries. Certain governments may exercise substantial influence over many aspects of the private sector in their respective countries and may own or
control many companies. Future government actions could have a significant effect on the economic conditions in this region, which in turn could have a negative impact on private sector companies. There is also the possibility of diplomatic
developments adversely affecting investments in the region.
Corruption and the perceived lack of a rule of law in dealings with international companies
in certain Asian countries may discourage foreign investment and could negatively impact the long-term growth of certain economies in this region. In addition, certain countries in the region are experiencing high unemployment and corruption, and
have fragile banking sectors.
Some economies in this region are dependent on a range of commodities, including oil, natural gas and coal. Accordingly,
they are strongly affected by international commodity prices and particularly vulnerable to any weakening in global demand for these products. The market for securities in this region may also be directly influenced by the flow of international
capital, and by the economic and market conditions of neighboring countries. Adverse economic conditions or developments in neighboring countries may increase investors perception of the risk of investing in the region as a whole, which may
adversely impact the market value of the securities issued by companies in the region.
Risks of Investing in Central
and South America. The economies of certain countries in which the Fund invests are affected by the economies of other Central and South American countries, some of which have experienced high interest rates, economic volatility, inflation,
currency devaluations, government defaults and high unemployment rates. In addition, commodities (such as oil, gas and minerals) represent a significant percentage of the regions exports and many economies in this region are particularly
sensitive to fluctuations in commodity prices. Adverse economic events in one country may have a significant adverse effect on some or all of the countries to which the Fund has exposure.
Risks of Investing in Eastern Europe. Investing in the securities of Eastern European issuers is highly speculative and involves risks not usually associated with investing in
the more developed markets of Western Europe. Political and economic reforms
11
are too recent to establish a definite trend away from centrally planned economies and state-owned industries. In the past, some Eastern European governments have expropriated substantial amounts
of private property, and many claims of the property owners have never been fully settled.
Many Eastern European countries continue to move towards
market economies at different paces with appropriately different characteristics. Most Eastern European securities markets suffer from thin trading activity, dubious investor protections, and often a dearth of reliable corporate information.
Information and transaction costs, differential taxes, and sometimes political or transfer risk give a comparative advantage to the domestic investor rather than the foreign investor. In addition, these markets are particularly sensitive to social,
political, economic, and currency events in Russia and may suffer heavy losses as a result of their trading and investment links to the Russian economy and currency. Russia also may attempt to assert its influence in the region through economic or
even military measures, as it did with Georgia in the summer of 2008. Eastern European economies may also be particularly susceptible to changes in the international credit markets due to their reliance on bank related inflows of capital. The recent
global economic crisis has restricted international credit supplies, and several Eastern European economies have faced significant credit and economic crises. Although some Eastern European economies are expanding again, major challenges are still
present as a result of their continued dependence on the Western European zone for credit.
Risks of Investing in
Emerging Markets. Investments in emerging market countries may be subject to greater risks than investments in developed countries. These risks include: (i) less social, political, and economic stability; (ii) greater illiquidity and
price volatility due to smaller or limited local capital markets for such securities, or low or non-existent trading volumes; (iii) foreign exchanges and broker-dealers may be subject to less scrutiny and regulation by local authorities;
(iv) local governments may decide to seize or confiscate securities held by foreign investors and/or local governments may decide to suspend or limit an issuers ability to make dividend or interest payments; (v) local governments may
limit or entirely restrict repatriation of invested capital, profits, and dividends; (vi) capital gains may be subject to local taxation, including on a retroactive basis; (vii) issuers facing restrictions on dollar or euro payments
imposed by local governments may attempt to make dividend or interest payments to foreign investors in the local currency; (viii) investors may experience difficulty in enforcing legal claims related to the securities and/or local judges may
favor the interests of the issuer over those of foreign investors; (ix) bankruptcy judgments may only be permitted to be paid in the local currency; (x) limited public information regarding the issuer may result in greater difficulty in
determining market valuations of the securities, and (xi) lax financial reporting on a regular basis, substandard disclosure and differences in accounting standards may make it difficult to ascertain the financial health of an issuer.
Emerging market securities markets are typically marked by a high concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high concentration of ownership of such securities by a limited number of investors. In addition, brokerage and other costs associated with transactions in emerging markets securities
markets can be higher, sometimes significantly, than similar costs incurred in securities markets in developed countries. Although some emerging markets have become more established and tend to issue securities of higher credit quality, the markets
for securities in other emerging countries are in the earliest stages of their development, and these countries issue securities across the credit spectrum. Even the markets for relatively widely traded securities in emerging countries may not be
able to absorb, without price disruptions, a significant increase in trading volume or trades of a size customarily undertaken by institutional investors in the securities markets of developed countries. The limited size of many of these securities
markets can cause prices to be erratic for reasons apart from factors that affect the soundness and competitiveness of the securities issuers. For example, prices may be unduly influenced by traders who control large positions in these markets.
Additionally, market making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and reduced liquidity of such markets. The limited liquidity of emerging country securities may also
affect the Funds ability to accurately value its portfolio securities or to acquire or dispose of securities at the price and time it wishes to do so or in order to meet redemption requests.
Many emerging market countries suffer from uncertainty and corruption in their legal frameworks. Legislation may be difficult to interpret and laws may be too new
to provide any precedential value. Laws regarding foreign investment and private property may be weak or non-existent. Sudden changes in governments may result in policies which are less favorable to investors such as policies designed to
expropriate or nationalize sovereign assets. Certain emerging market countries in the past have expropriated large amounts of private property, in many cases with little or no compensation, and there can be no assurance that such
expropriation will not occur in the future.
Investment in the securities markets of certain emerging countries is restricted or controlled to varying
degrees. These restrictions may limit the Funds investment in certain emerging countries and may increase the expenses of the Fund. Certain
12
emerging countries require governmental approval prior to investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuers outstanding
securities or a specific class of securities which may have less advantageous terms (including price) than securities of the company available for purchase by nationals.
Many emerging market countries lack the social, political, and economic stability characteristic of the United States. Political instability among emerging market countries can be common and may be caused by an
uneven distribution of wealth, social unrest, labor strikes, civil wars, and religious oppression. Economic instability in emerging market countries may take the form of: (i) high interest rates; (ii) high levels of inflation, including
hyperinflation; (iii) high levels of unemployment or underemployment; (iv) changes in government economic and tax policies, including confiscatory taxation; and (v) imposition of trade barriers.
The Funds income and, in some cases, capital gains from foreign securities will be subject to applicable taxation in certain of the emerging market countries
in which it invests, and treaties between the United States and such countries may not be available in some cases to reduce the otherwise applicable tax rates.
Emerging markets also have different clearance and settlement procedures, and in certain of these emerging markets there have been times when settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions.
In the past, certain governments in emerging market countries have become overly
reliant on the international capital markets and other forms of foreign credit to finance large public spending programs, which in the past have caused huge budget deficits. Often, interest payments have become too overwhelming for a government to
meet, representing a large percentage of total GDP. These foreign obligations have become the subject of political debate and served as fuel for political parties of the opposition, which pressure the government not to make payments to foreign
creditors, but instead to use these funds for, among other things, social programs. Either due to an inability to pay or submission to political pressure, foreign governments have been forced to seek a restructuring of their loan and/or bond
obligations, have declared a temporary suspension of interest payments or have defaulted. These events have adversely affected the values of securities issued by foreign governments and corporations domiciled in those countries and have negatively
affected not only their cost of borrowing, but their ability to borrow in the future as well.
Risks of Investing in
Europe. The Economic and Monetary Union (the EMU) of the European Union (the EU) requires member countries to comply with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal and monetary
controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member
country on its sovereign debt, and/or an economic recession in an EU member country may have a significant adverse effect on the economies of EU member countries and their trading partners. Although certain European countries do not use the euro,
many of these countries are obliged to meet the criteria for joining the euro zone. Consequently, these countries must comply with many of the restrictions noted above. The European financial markets have recently experienced volatility and adverse
trends due to concerns about economic downturns, rising government debt levels and the possible default of government debt in several European countries, including Greece, Ireland, Italy, Portugal and Spain. In order to prevent further economic
deterioration, certain countries, without prior warning, can institute capital controls. Countries use these controls to restrict volatile movements of capital entering and exiting their country. Such controls may negatively affect the
Funds investments. A default or debt restructuring by any European country would adversely impact holders of that countrys debt and sellers of credit default swaps linked to that countrys creditworthiness, which may be located in
countries other than those listed above. In addition, the credit ratings of certain European countries were recently downgraded. These downgrades may result in further deterioration of investor confidence. These events have adversely affected the
value and exchange rate of the euro and may continue to significantly affect the economies of every country in Europe, including countries that do not use the euro and non-EU member countries.
Risks of Investing in Russia. Investing in the Russian securities market involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities market, and should be considered highly speculative. Risks include: the absence of developed legal structures governing private and foreign investments and private
property; the possibility of the loss of all or a substantial portion of the Funds assets invested in Russia as a result of expropriation; certain national policies which may restrict the Funds investment opportunities, including,
without limitation, restrictions on investing in issuers or industries deemed sensitive to relevant national interests; and potentially greater price volatility in, significantly smaller capitalization of, and relative illiquidity of, the Russian
market. There can also be no assurance that the Funds investments in the Russian securities market would not be expropriated, nationalized or otherwise
13
confiscated. In the event of the settlement of any such claims or such expropriation, nationalization or other confiscation, the Fund could lose its entire investment. In addition, it may be
difficult and more costly to obtain and enforce a judgment in the Russian court system.
Russia may also be subject to a greater degree of economic,
political and social instability than is the case in other developed countries. Such instability may result from, among other things, the following: (i) an authoritarian government or military involvement in political and economic
decision-making, including changes in government through extra-constitutional means; (ii) popular unrest associated with demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile
relations with neighboring countries; and (v) ethnic, religious and racial disaffection.
The Russian economy is heavily dependent upon the export
of a range of commodities including most industrial metals, forestry products and oil and gas. Accordingly, it is strongly affected by international commodity prices and is particularly vulnerable to any weakening in global demand for these
products. Any acts of terrorism or armed conflicts in Russia or internationally could have an adverse effect on the financial and commodities markets and the global economy. As Russia produces and exports large amounts of crude oil and gas, any acts
of terrorism or armed conflict causing disruptions of Russian oil and gas exports could negatively affect the Russian economy and, thus, adversely affect the financial condition, results of operations or prospects of related companies.
The Russian government may exercise substantial influence over many aspects of the private sector and may own or control many companies. Future government actions
could have a significant effect on the economic conditions in Russia, which could have a negative impact on private sector companies. There is also the possibility of diplomatic developments that could adversely affect investments in Russia. In
recent years, the Russian government has begun to take bolder steps to re-assert its regional geopolitical influence (including military steps). Such steps may increase tensions between Russia and its neighbors and Western countries and may
negatively affect economic growth.
Risks of Investing in South Africa. South Africas two-tiered economy,
with one rivaling developed countries and the other exhibiting many characteristics of developing countries, is characterized by uneven distribution of wealth and income and high rates of unemployment. Although economic reforms have been enacted to
promote growth and foreign investments, there can be no assurance that these programs will achieve the desired results. In addition, South Africas inadequate currency reserves have left its currency vulnerable at times to devaluation. Despite
significant reform and privatization, the South African government continues to control a large share of South African economic activity. Heavy regulation of labor and product markets is pervasive and may stifle South African economic growth or
cause prolonged periods of recession. The agriculture and mining sectors of South Africas economy account for a large portion of its exports and, thus, the South African economy is susceptible to fluctuations in these commodity markets.
Risks of Investing in Taiwan. The Funds investment in Taiwanese issuers may subject the Fund to loss in the
event of adverse political, economic, regulatory and other developments that affect Taiwan, including fluctuations of the New Taiwan dollar versus the U.S. dollar. Taiwan has few natural resources. Any fluctuation or shortage in the commodity
markets could have a negative impact on the Taiwanese economy. Appreciation of the New Taiwan dollar, rising labor costs, and increasing environmental consciousness have led some labor-intensive industries to relocate to other countries with cheaper
work forces. Continued labor outsourcing may adversely affect the Taiwanese economy. Taiwanese firms are among the worlds largest suppliers of computer monitors and leaders in personal computer manufacturing. A slowdown in global demand for
these products will likely have an adverse impact on the Taiwanese economy. The Chinese government views Taiwan as a renegade province and continues to contest Taiwans sovereignty. The outbreak of hostilities between the two nations, or even
the threat of an outbreak of hostilities will likely adversely impact the Taiwanese economy. Such risks, among others, may adversely affect the value of the Funds investments.
Risks of Investing in the Middle East. Many Middle Eastern countries have little or no democratic tradition, and the political and legal systems in such countries may have an
adverse impact on the Fund. Many economies in the Middle East are highly reliant on income from the sale of oil or trade with countries involved in the sale of oil, and their economies are therefore vulnerable to changes in the market for oil and
foreign currency values. As global demand for oil fluctuates, many Middle Eastern economies may be significantly impacted.
In addition, many Middle
Eastern governments have exercised and continue to exercise substantial influence over many aspects of the private sector. In certain cases, a Middle Eastern countrys government may own or control many companies, including some of the largest
companies in the country. Accordingly, governmental actions in the future could have a significant effect on economic conditions in Middle Eastern countries. This could affect private sector companies and the Fund, as well as the value of securities
in the Funds portfolio.
14
Certain Middle Eastern markets are in the earliest stages of development. As a result, there may be a high
concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Brokers in Middle Eastern countries
typically are fewer in number and less well capitalized than brokers in the United States.
The legal systems in certain Middle Eastern countries also
may have an adverse impact on the Fund. For example, the potential liability of a shareholder in a U.S. corporation with respect to acts of the corporation generally is limited to the amount of the shareholders investment. However, the notion
of limited liability is less clear in certain Middle Eastern countries. The Fund therefore may be liable in certain Middle Eastern countries for the acts of a corporation in which it invests for an amount greater than the Funds actual
investment in that corporation. Similarly, the rights of investors in Middle Eastern issuers may be more limited than those of shareholders of a U.S. corporation. It may be difficult or impossible to obtain and/or enforce a legal judgment in a
Middle Eastern country. Some Middle Eastern countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Fund. For example, certain countries may
require governmental approval prior to investment by foreign persons or limit the amount of investment by foreign persons in a particular issuer. They may also limit the investment by foreign persons to only a specific class of securities of an
issuer that may have less advantageous terms (including price) than securities of the issuer available for purchase by nationals.
The manner in which
foreign investors may invest in companies in certain Middle Eastern countries, as well as limitations on those investments, may have an adverse impact on the operations of the Fund. For example, in certain of these countries, the Fund may be
required to invest initially through a local broker or other entity and then have the shares that were purchased re-registered in the name of the Fund. Re-registration in some instances may not be possible on a timely basis. This may result in a
delay during which the Fund may be denied certain of its rights as an investor, including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where the Fund places a purchase order but is subsequently
informed, at the time of re-registration, that the permissible allocation of the investment to foreign investors has been filled.
Substantial
limitations may exist in certain Middle Eastern countries with respect to the Funds ability to repatriate investment income or capital gains. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental
approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investment.
Certain Middle Eastern countries may
be heavily dependent upon international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade. These countries also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. In addition, certain issuers located in Middle Eastern
countries in which the Fund invests may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. The Fund, as an investor in such issuers, will be indirectly subject to those risks.
Certain Middle Eastern countries have strained relations with other Middle Eastern countries due to territorial disputes, historical animosities or
defense concerns, which may adversely affect the economies of these Middle Eastern countries. Certain Middle Eastern countries experience significant unemployment, as well as widespread underemployment. Recently, many Middle Eastern countries have
experienced political, economic and social unrest as protestors have called for widespread reform. These protests may adversely affect the economies of these Middle Eastern countries.
Risks of Investing in the Basic Materials Sector. Issuers in the basic materials sector could be adversely affected by commodity price volatility, exchange rates, import
controls and increased competition. Production of industrial materials often exceeds demand as a result of over-building or economic downturns, leading to poor investment returns. Issuers in the basic materials sector are at risk for environmental
damage and product liability claims and may be adversely affected by depletion of resources, delays in technical progress, labor relations and government regulations.
Risks of Investing in the Capital Goods Sector. The capital goods sector may be affected by fluctuations in the business cycle and by other factors affecting manufacturing
demands. The capital goods sector depends heavily on corporate spending. The capital goods sector may perform well during times of economic expansion, and as economic conditions worsen, the demand for capital goods may decrease. Many capital goods
are sold internationally and such companies are subject to market conditions in other countries and regions.
15
Risks of Investing in the Consumer Discretionary Sector. Companies engaged in
the design, production or distribution of products or services for the consumer discretionary sector (including, without limitation, television and radio broadcasting, manufacturing, publishing, recording and musical instruments, motion pictures,
photography, amusement and theme parks, gaming casinos, sporting goods and sports arenas, camping and recreational equipment, toys and games, apparel, travel-related services, automobiles, hotels and motels, and fast food and other restaurants) are
subject to the risk that their products or services may become obsolete quickly. The consumer discretionary sector may be significantly affected by several factors, including, without limitation, the performance of domestic and international
economies, exchange rates, changing consumer tastes and trends, marketing campaigns, cyclical revenue generation, consumer confidence, commodity price volatility, labor relations, interest rates, import and export controls, intense competition,
technological developments and government regulation.
Risks of Investing in the Consumer Goods Sector. The
consumer goods sector may be strongly affected by trends, marketing campaigns and other factors affecting consumer demand. Governmental regulation affecting the use of various food additives may affect the profitability of certain companies in the
consumer goods sector. In addition, tobacco companies may be adversely affected by new laws, regulations and litigation. Many consumer goods may be marketed globally, and consumer goods companies may be affected by the demand and market conditions
in other countries and regions.
Risks of Investing in the Consumer Services Sector. The success of consumer
product manufacturers and retailers (including food and drug retailers, general retailers, media, and travel and leisure) is tied closely to the performance of the domestic and international economy, interest rates, exchange rates, competition and
consumer confidence. The consumer services sector depends heavily on disposable household income and consumer spending. Companies in the consumer services sector may be subject to severe competition, which may also have an adverse impact on their
profitability. Changes in consumer demographics and preferences may affect the success of consumer products.
Risks of
Investing in the Consumer Staples Sector. Companies in the consumer staples sector may be adversely affected by changes in the global economy, consumer spending, competition, demographics and consumer preferences, and production spending.
Companies in the consumer staples sector also may be affected by changes in government regulation, global economic, environmental and political events, economic conditions and the depletion of resources. In addition, companies in the consumer
staples sector may be subject to risks pertaining to the supply of, demand for and prices of raw materials. The prices of raw materials fluctuate in response to a number of factors, including, without limitation, changes in government agricultural
support programs, exchange rates, import and export controls, changes in international agricultural and trading policies, and seasonal and weather conditions.
Risks of Investing in the Energy Sector. Companies in the energy sector may be strongly affected by the levels and volatility of global energy prices, energy supply and demand,
government regulations and policies, energy production and conservation efforts, and technological change. Prices and supplies of energy may fluctuate significantly over short and long periods of time due to national and international political
changes, Organization of Petroleum Exporting Countries (OPEC) policies, changes in relationships among OPEC members and between OPEC and oil-importing nations, the regulatory environment, taxation policies, and the economy of the key
energy-consuming countries. In addition, companies in the energy sector are at risk of civil liability from accidents resulting in injury, loss of life or property, pollution or other environmental damage claims and risk of loss from terrorism and
natural disasters. Disruptions in the oil industry or shifts in fuel consumption may significantly impact companies in this sector. In addition, because a significant portion of revenues of companies in this sector are derived from a relatively
small number of customers that are largely composed of governmental entities and utilities, governmental budget constraints may have a significant impact on the stock prices of companies in this industry.
Risks of Investing in the Financial Sector. Companies in the financial sector include regional and money center banks,
securities brokerage firms, asset management companies, savings banks and thrift institutions, specialty finance companies (e.g., credit card, mortgage providers), insurance and insurance brokerage firms, financial conglomerates and foreign
banking and financial companies. The global financial markets have recently experienced very difficult conditions and volatility as well as significant adverse trends. The deteriorating conditions in these markets have resulted in a decrease in
availability of corporate credit, capital and liquidity and have led indirectly to the insolvency, closure or acquisition of a number of financial institutions. These conditions have also contributed to consolidation within the financial industry.
In addition, the global financial industry has been materially and adversely affected by a significant decline in the value of mortgage-backed and asset-backed securities, and by the sovereign debt crisis. The prospects of many financial companies
are questionable and continue to evolve as financial companies revise their outlooks and write down assets that they hold.
16
Most financial companies are subject to extensive governmental regulation, which limits their activities and may
affect their ability to earn a profit from a given line of business. Government regulation may change frequently and may have significant adverse consequences for companies in the financial sector, including effects not intended by the regulation.
Direct governmental intervention in the operations of financial companies and financial markets may materially and adversely affect the companies in which the Fund invests, including recent legislation in many countries that may increase government
regulation, repatriation and other intervention. The impact of governmental intervention and recent legislation on any individual financial company or on the financial sector as a whole cannot be predicted. The valuation of financial companies has
been and continues to be subject to unprecedented volatility and may be influenced by unpredictable factors, including interest rate risk and sovereign debt default. Certain financial businesses are subject to intense competitive pressures,
including market share and price competition. Financial companies in foreign countries are subject to market specific and general regulatory and interest rate concerns. In particular, government regulation in certain foreign countries may include
taxes and controls on interest rates, credit availability, minimum capital requirements, ban on short sales, prices and currency transfers.
The
profitability of banks, savings and loan associations and financial companies is largely dependent on the availability and cost of capital funds and can fluctuate significantly when interest rates change. In addition, general economic conditions are
important to the operations of these concerns, with exposure to credit losses resulting from financial difficulties of borrowers having an adverse effect on the profitability of financial companies. Financial companies can be highly dependent upon
access to capital markets and any impediments to such access, such as adverse overall economic conditions or a negative perception in the capital markets of a financial companys financial condition or prospects, could adversely affect its
business.
Risks of Investing in the Healthcare Sector. Companies in the healthcare sector are often issuers whose
profitability may be affected by extensive government regulation, restrictions on government reimbursement for medical expenses, rising or falling costs of medical products and services, pricing pressure, an increased emphasis on outpatient
services, limited number of products, industry innovation, changes in technologies and other market developments. Many healthcare companies are heavily dependent on patent protection and the actual or perceived safety and efficiency of their
products. The expiration of patents may adversely affect the profitability of these companies. Many healthcare companies are subject to extensive litigation based on product liability and similar claims. Healthcare companies are subject to
competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the healthcare sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and
costly, and may diminish the opportunity for a company to profit from a new product or to bring a new product to market. Many healthcare-related companies are relatively small and unseasoned. Healthcare companies may also be strongly affected by
scientific bio-technology or technological developments and their products may quickly become obsolete. Also, many healthcare companies offer products and services that are subject to governmental regulation and may be adversely affected by changes
in governmental policies or laws.
Risks of Investing in the Industrials Sector. The stock prices of companies in
the industrials sector may be affected by supply and demand both for their specific product or service and for industrials sector products in general. The products of manufacturing companies may face product obsolescence due to rapid technological
developments and frequent new product introduction. Government regulations, world events and economic conditions affect the performance of companies in the industrials sector. Companies in the industrials sector may be adversely affected by
liability for environmental damage, product liability claims and exchange rates. The industrials sector may also be adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable factors. Aerospace and defense
companies, a component of the industrials sector, can be significantly affected by government spending policies because companies involved in this industry rely, to a significant extent, on government demand for their products and services. Thus,
the financial condition of, and investor interest in, aerospace and defense companies are heavily influenced by governmental defense spending policies, which are typically under pressure from efforts to control government budgets. Transportation
stocks, a component of the industrials sector, are cyclical and can be significantly affected by economic changes, fuel prices, labor relations and insurance costs. Transportation companies in certain countries may also be subject to significant
government regulation and oversight, which may adversely affect their businesses.
Risks of Investing in the
Information Technology Sector. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face product obsolescence due to rapid technological developments and frequent new product introduction,
unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights
may adversely affect the profitability of these companies.
17
Risks of Investing in the Materials Sector. Companies in the materials sector
may be adversely affected by commodity price volatility, exchange rates, import controls, increased competition, depletion of resources, technical progress, labor relations and government regulations, among other factors. Also, companies in the
materials sector are at risk of liability for environmental damage and product liability claims. Production of materials may exceed demand as a result of market imbalances or economic downturns, leading to poor investment returns.
Risks of Investing in the Oil and Gas Sector. Companies in the oil and gas sector are strongly affected by the levels and
volatility of global energy prices, oil and gas supply and demand, government regulations and policies, oil and gas production and conservation efforts and technological change. Prices and supplies of oil and gas may fluctuate significantly over
short and long periods of time due to national and international political changes, Organization of Petroleum Exporting Countries (OPEC) policies, changes in relationships among OPEC members and between OPEC and oil-importing nations,
the regulatory environment, taxation policies, and the economies of key energy-consuming countries. Disruptions in the oil industry or shifts in energy consumption may significantly impact companies in this sector. Companies that own or operate gas
pipelines are subject to certain risks, including pipeline and equipment leaks and ruptures, explosions, fires, unscheduled downtime, transportation interruptions, discharges or releases of toxic or hazardous gases and other environmental risks.
Risks of Investing in the Technology Sector. Technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Technology companies may have limited product lines, markets, financial resources or personnel. The products of technology companies may face product obsolescence due to rapid
technological developments and frequent new product introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the technology sector are heavily dependent on patent and intellectual
property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. The technology sector may also be adversely affected by changes or trends in commodity prices, which may be influenced or
characterized by unpredictable factors.
Risks of Investing in the Telecommunications Sector. The
telecommunications sector of an economy is often subject to extensive government regulation. The costs of complying with governmental regulations, delays or failure to receive required regulatory approvals, or the enactment of new adverse regulatory
requirements may negatively affect the business of the telecommunications companies. Government actions around the world, specifically in the area of pre-marketing clearance of products and prices, can be arbitrary and unpredictable. Companies in
the telecommunications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new technology. Technological innovations may
make the products and services of telecommunications companies obsolete.
Risks of Investing in the Utilities Sector.
Investments in utility companies involve special considerations, including the risk of changing commodity prices, government regulation stipulating rates charged by utilities, increased tariffs, changes in tax laws, interest rate fluctuations
and changes in the cost of providing specific utility services. The utilities industry is also subject to potential terrorist attacks, natural disasters and severe weather conditions, as well as regulatory and operational burdens associated with the
operation and maintenance of nuclear facilities. Government regulators monitor and control utility revenues and costs, and therefore may limit utility profits. In certain countries regulatory authorities may also restrict a companys access to
new markets, thereby diminishing the companys long-term prospects. The deregulation of certain utility companies may eliminate restrictions on profits but may also subject these companies to greater risks of loss.
Proxy Voting Policy
The Company
has adopted, as its proxy voting policies for the Fund, the proxy voting guidelines of BFA, the investment adviser to the Fund. The Company has delegated to BFA the responsibility for voting proxies on the portfolio securities held by the Fund. The
remainder of this section discusses the Funds proxy voting guidelines and BFAs role in implementing such guidelines.
BFA votes (or refrains
from voting) proxies for the Fund in a manner that BFA, in the exercise of its independent business judgment, concludes is in the best economic interests of the Fund. In some cases, BFA may determine that it is in the best economic interests of the
Fund to refrain from exercising the Funds proxy voting rights (such as, for example, proxies on certain non-U.S. securities that might impose costly or time-consuming in-person voting requirements). With regard to the relationship between
securities lending and proxy voting, BFAs approach is also driven by the Funds economic interests. The
18
evaluation of the economic desirability of recalling loans involves balancing the revenue-producing value of loans against the likely economic value of casting votes. Based on our evaluation of
this relationship, we believe that the likely economic value of casting a vote generally is less than the securities lending income, either because the votes will not have significant economic consequences or because the outcome of the vote would
not be affected by BFA recalling loaned securities in order to ensure they are voted. Periodically, BFA analyzes the process and benefits of voting proxies for securities on loan, and will consider whether any modification of its proxy voting
policies or procedures are necessary in light of any regulatory changes. BFA will normally vote on specific proxy issues in accordance with its proxy voting guidelines. BFAs proxy voting guidelines provide detailed guidance as to how to vote
proxies on certain important or commonly raised issues. BFA may, in the exercise of its business judgment, conclude that the proxy voting guidelines do not cover the specific matter upon which a proxy vote is requested, or that an exception to the
proxy voting guidelines would be in the best economic interests of the Fund. BFA votes (or refrains from voting) proxies without regard to the relationship of the issuer of the proxy (or any shareholder of such issuer) to the Fund, the Funds
affiliates (if any), BFA or BFAs affiliates, or the Distributor or the Distributors affiliates. When voting proxies, BFA attempts to encourage issuers to follow practices that enhance shareholder value and increase transparency and allow
the market to place a proper value on their assets. With respect to certain specific issues:
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The Fund generally supports the boards nominees in the election of directors and generally supports proposals that strengthen the independence of boards of
directors; |
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The Fund generally does not support proposals on social issues that lack a demonstrable economic benefit to the issuer and the Fund investing in such issuer; and
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The Fund generally votes against anti-takeover proposals and proposals that would create additional barriers or costs to corporate transactions that are likely
to deliver a premium to shareholders. |
BFA maintains institutional policies and procedures that are designed to prevent any
relationship between the issuer of the proxy (or any shareholder of the issuer) and the Fund, the Funds affiliates (if any), BFA or BFAs affiliates (if any) or the Distributor or the Distributors affiliates, from having undue
influence on BFAs proxy voting activity. In certain instances, BFA may determine to engage an independent fiduciary to vote proxies as a further safeguard against potential conflicts of interest or as otherwise required by applicable law. The
independent fiduciary may either vote such proxies or provide BFA with instructions as to how to vote such proxies. In the latter case, BFA votes the proxy in accordance with the independent fiduciarys determination.
Information with respect to how BFA voted proxies relating to the Funds portfolio securities during the 12-month period ending June 30 will be
available: (i) without charge, upon request, by calling 1-800-iShares (1-800-474-2737) or through the Funds website at www.iShares.com; and (ii) on the SECs website at www.sec.gov.
Portfolio Holdings Information
The
Board has adopted a policy regarding the disclosure of the Funds portfolio holdings information that requires that such information be disclosed in a manner that: (i) is consistent with applicable legal requirements and in the best
interests of the Funds shareholders; (ii) does not put the interests of BFA, the Distributor or any affiliated person of BFA or the Distributor, above those of Fund shareholders; (iii) does not advantage any current or prospective
Fund shareholders over any other current or prospective Fund shareholders, except to the extent that certain Entities (as described below) may receive portfolio holdings information not available to other current or prospective Fund shareholders in
connection with the dissemination of information necessary for transactions in Creation Units, as discussed below; and (iv) does not provide selective access to portfolio holdings information except pursuant to the procedures outlined below and
to the extent appropriate confidentiality arrangements limiting the use of such information are in effect. The Entities referred to in sub-section (iii) above are generally limited to National Securities Clearing Corporation
(NSCC) members, subscribers to various fee-based subscription services, large institutional investors (known as Authorized Participants) that have been authorized by the Distributor to purchase and redeem large blocks of
shares pursuant to legal requirements and other institutional market participants and entities that provide information services.
Each business day,
the Funds portfolio holdings information will be provided to the Distributor or other agent for dissemination through the facilities of the NSCC and/or other fee-based subscription services to NSCC members and/or subscribers to those other
fee-based subscription services, including Authorized Participants, and to entities that publish and/or analyze such information in connection with the process of purchasing or redeeming Creation Units or trading shares of the Fund in the secondary
market. This information typically reflects the Funds anticipated holdings on the following business day.
19
Daily access to information concerning the Funds portfolio holdings is permitted (i) to certain personnel
of those service providers that are involved in portfolio management and providing administrative, operational, risk management, or other support to portfolio management, including affiliated broker-dealers and Authorized Participants; and
(ii) to other personnel of the Funds investment adviser and the Distributor, administrator, custodian and fund accountant who deal directly with or assist in, functions related to investment management, distribution, administration,
custody and fund accounting, as may be necessary to conduct business in the ordinary course in a manner consistent with agreements with the Fund and the terms of the Funds current registration statement. In addition, the Fund discloses its
portfolio holdings and the percentages they represent of the Funds net assets at least monthly, and as often as each day the Fund is open for business, at www.iShares.com. More information about this disclosure is available at www.iShares.com.
Portfolio holdings information made available in connection with the creation/redemption process may be provided to other entities that provide
services to the Fund in the ordinary course of business after it has been disseminated to the NSCC. From time to time, information concerning portfolio holdings other than portfolio holdings information made available in connection with the
creation/redemption process, as discussed above, may be provided to other entities that provide services to the Fund, including rating or ranking organizations, in the ordinary course of business, no earlier than one business day following the date
of the information.
The Fund will disclose its complete portfolio holdings schedule in public filings with the SEC within 70 days after the end of each
fiscal quarter and will provide that information to shareholders as required by federal securities laws and regulations thereunder. The Fund may, however, voluntarily disclose all or part of its portfolio holdings other than in connection with the
creation/redemption process, as discussed above, in advance of required filings with the SEC, provided that such information is made generally available to all shareholders and other interested parties in a manner that is consistent with the above
policy for disclosure of portfolio holdings information. Such information may be made available through a publicly-available website or other means that make the information available to all likely interested parties contemporaneously.
The Companys Chief Compliance Officer may authorize disclosure of portfolio holdings information pursuant to the above policy and procedures.
The Board reviews the policy and procedures for disclosure of portfolio holdings information at least annually.
Construction and Maintenance of the Underlying Index
A description of the Underlying Index is provided below.
The Dow Jones Indexes
Component Selection Criteria. Stocks in the selection pool are ranked in descending order by indicated annual dividend yield, defined as a
stocks unadjusted indicated annual dividend (not including any special dividends) divided by its unadjusted price. The top 100 stocks are selected as index components. No more than 30 stocks can be selected from any single country. Selections
are subject to the following buffers: (i) for countries that reach the 30-stock limit, non-components will replace current components if they are ranked among the top six within that country, and for countries that have not reached the 30-stock
limit, non-components will replace current components if they are ranked among the top fourteen collectively; (ii) if no country reaches the 30-stock limit, non-components will replace current components if they are ranked among the top 20; and
(iii) existing components are selected top-down from each list until the target component number is reached. Component weightings are assigned based on indicated annual yield. No single country can represent more than 25% of the Underlying
Index. The Underlying Index is reviewed annually in December.
To be included in the selection pool, stocks in the Underlying Index must satisfy the
following conditions: (i) have a non-negative trailing 12-month earnings per share (EPS); (ii) indicated annual dividend yield greater than 0%; (iii) have paid dividends during each of the past three years; (iv) float-adjusted
market capitalization of at least $250 million; (v) minimum 3-month daily average trading volume of at least $2 million for new components, or at least $500,000 for current components; and (vi) in the case of multiple classes of
securities, only the most liquid class is eligible.
20
Float-adjusted Market Capitalization. Free-float market capitalization is calculated by taking the
securitys price and multiplying it by the number of shares readily available in the market rather than the total number of shares outstanding.
Dow Jones Emerging Markets Select Dividend Index
Number of Components: approximately 100
Index Description. The Underlying Index measures the
performance of a selected group of equity securities issued by companies in emerging market countries that have provided relatively high dividend yields on a consistent basis over time. Dividend yield is calculated using a stocks unadjusted
indicated annual dividend (not including any special dividends) divided by its unadjusted price. The starting universe for the index is the Dow Jones Emerging Markets Total Stock Market Specialty Index, excluding countries classified as frontier
markets.
Investment Limitations
The Board has adopted as a non-fundamental policy the investment objective of the Fund. Therefore, the Fund may change its investment objective and its Underlying Index without a shareholder vote. The Board has
adopted as fundamental policies the following numbered investment restrictions, which cannot be changed without the approval of the holders of a majority of the Funds outstanding voting securities. A vote of a majority of the outstanding
voting securities is defined in the 1940 Act as the lesser of (a) 67% or more of the voting securities present at a fund meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy and
(b) more than 50% of outstanding voting securities of the fund.
The Fund will not:
1. |
Concentrate its investments (i.e., invest 25% or more of its total assets in the securities of a particular industry or group of industries), except that the Fund will
concentrate to approximately the same extent that the Underlying Index concentrates in the securities of a particular industry or group of industries. For purposes of this limitation, securities of the U.S. government (including its agencies and
instrumentalities), repurchase agreements collateralized by U.S. government securities, and securities of state or municipal governments and their political subdivisions are not considered to be issued by members of any industry.
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2. |
Borrow money, except that (i) the Fund may borrow from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might
otherwise require the untimely disposition of securities; and (ii) the Fund may, to the extent consistent with its investment policies, enter into repurchase agreements, reverse repurchase agreements, forward roll transactions and similar
investment strategies and techniques. To the extent that it engages in transactions described in (i) and (ii), the Fund will be limited so that no more than 33 1/3% of the value of its total assets (including the amount borrowed) is derived
from such transactions. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law. |
3. |
Issue any senior security, except as permitted under the 1940 Act, as interpreted, modified or otherwise permitted by any regulatory authority having jurisdiction, from time to
time. |
4. |
Make loans, except as permitted under the 1940 Act, as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
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5. |
Purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this restriction shall not prevent the Fund from investing in
securities of companies engaged in the real estate business or securities or other instruments backed by real estate or mortgages), or commodities or commodity contracts (but this restriction shall not prevent the Fund from trading in futures
contracts and options on futures contracts, including options on currencies to the extent consistent with the Funds investment objective and policies). |
6. |
Engage in the business of underwriting securities issued by other persons, except to the extent that the Fund may technically be deemed to be an underwriter under the 1933 Act,
in disposing of portfolio securities. |
In addition to the investment restrictions adopted as fundamental policies set forth above, the
Fund has adopted a non-fundamental policy not to invest in the securities of a company for the purpose of exercising management or control or purchase or otherwise acquire any illiquid security, except as permitted under the 1940 Act, which
currently permits up to 15% of the Funds net assets to be invested in illiquid securities (calculated at the time of investment).
21
BFA monitors the liquidity of restricted securities in the Funds portfolio. In reaching liquidity decisions, BFA
considers the following factors:
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The frequency of trades and quotes for the security; |
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The number of dealers wishing to purchase or sell the security and the number of other potential purchasers; |
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Dealer undertakings to make a market in the security; and |
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The nature of the security and the nature of the marketplace in which it trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). |
If any percentage restriction described above is complied with at the time of an
investment, a later increase or decrease in percentage resulting from a change in values of assets will not constitute a violation of such restriction, except that certain percentage limitations will be observed continuously in accordance with
applicable law.
The Fund has adopted a non-fundamental investment policy in accordance with Rule 35d-1 under the 1940 Act to invest, under normal
circumstances, at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in securities of the Underlying Index or in Depositary Receipts representing securities in the Underlying Index. The Fund also has
adopted a policy to provide its shareholders with at least 60 days prior written notice of any change in such policy. If, subsequent to an investment, the 80% requirement is no longer met, the Funds future investments will be made in a
manner that will bring the Fund into compliance with this policy.
The Fund has adopted a non-fundamental limitation such that, under normal market
conditions, any borrowing by the Fund will not exceed 10% of the Funds net assets.
The Fund may invest in shares of other open-end management
investment companies or unit investment trusts subject to the limitations of Section 12(d)(1) of the 1940 Act, including the rules, regulations and exemptive orders obtained thereunder; provided, however, that if the Fund has knowledge that its
shares are purchased by another investment company investor in reliance on the provisions of subparagraph (G) of Section 12(d)(1) of the 1940 Act, the Fund will not acquire any securities of other open-end management investment companies
or unit investment trusts in reliance on the provisions of subparagraph (G) of Section 12(d)(1) of the 1940 Act.
Continuous Offering
The method by
which Creation Units are created and traded may raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by the Fund on an ongoing basis, at any point a distribution, as such term is used in
the 1933 Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner that could render them statutory
underwriters and subject them to the prospectus delivery requirement and liability provisions of the 1933 Act.
For example, a broker-dealer firm or its
client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent shares and sells such shares directly to customers or if it chooses to couple the creation of new
shares with an active selling effort involving solicitation of secondary market demand for shares. A determination of whether one is an underwriter for purposes of the 1933 Act must take into account all the facts and circumstances pertaining to the
activities of the broker-dealer or its client in the particular case and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not underwriters but are effecting transactions in shares, whether or not participating in
the distribution of shares, generally are required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the 1933 Act is not available in respect of such transactions as a result of Section 24(d) of
the 1940 Act. Firms that incur a prospectus delivery obligation with respect to shares of the Fund are reminded that, pursuant to Rule 153 under the 1933 Act, a prospectus delivery obligation under Section 5(b)(2) of the 1933 Act owed to an
exchange member in connection with a sale on the Listing Exchange is satisfied by the fact that the prospectus is available at the Listing Exchange upon request. The prospectus delivery mechanism provided in Rule 153 is available only with respect
to transactions on an exchange.
22
Management
Directors and Officers. The Board 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, Chief Compliance Officer, 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) of the Company are referred to as independent directors (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). The Fund is included in the BlackRock Fund Complex referred to as the
Exchange-Traded Fund Complex. Each Director also serves as a Trustee of iShares Trust and a Director of iShares MSCI Russia Capped Index Fund, Inc. and, as a result, oversees a total of 278 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 this SAI, which is available without charge, upon request, by calling toll-free 1-800-iShares (1-800-474-2737).
Interested Directors
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5 Years |
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Other Directorships Held by Director |
Robert S. Kapito1 (55) |
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Director (since 2009). |
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President and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRocks Portfolio Management Group (since its formation in
1998) and BlackRocks predecessor entities (since 1988); Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Childrens Cancer Fund (since 2002); President of the Board of Directors,
Periwinkle Theatre for Youth (since 1983). |
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Trustee of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of BlackRock, Inc. (since 2007). |
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Michael
Latham2 (46) |
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Director (since 2010); President (since 2007). |
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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 of BGI
(2003-2007). |
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Trustee of iShares Trust (since 2010); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). |
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1 |
Robert S. Kapito is deemed to be an interested person (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc.
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2 |
Michael Latham is deemed to be an interested person (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its
affiliates. |
23
Independent Directors
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5 Years |
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Other Directorships Held by Director |
Robert H. Silver (57) |
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Director (since 2007); Independent Chairman (since 2012). |
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President and Co-Founder of The Bravitas Group, Inc. (since 2006); Member, Non-Investor Advisory Board of Russia Partners II, LP (since 2006); Director and Vice Chairman of the YMCA of
Greater NYC (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). |
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Trustee of iShares Trust (since 2007); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Independent Chairman of iShares Trust and of iShares MSCI Russia Capped Index
Fund, Inc. (since 2012). |
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George G.C. Parker (73) |
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Director (since 2000). |
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Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University: Graduate School of Business (Professor since 1973; Emeritus since 2006). |
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Trustee of iShares Trust (since 2000); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of Tejon Ranch Company (since 1999); Director of Threshold
Pharmaceuticals (since 2004); Director of Colony Financial, Inc. (since 2009); Director of First Republic Bank (since 2010). |
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John E. Martinez (51) |
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Director (since 2003); Securities Lending Committee Chair (since 2012). |
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Director of FirstREX Agreement Corp. (since 2005). |
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Trustee of iShares Trust (since 2003); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). |
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Cecilia H. Herbert (63) |
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Director (since 2005); Nominating and Governance Committee Chair and Equity Plus Committee Chair (since 2012). |
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Director (since 1998) and President (2007-2010) of the Board of Directors, Catholic Charities CYO; Trustee of Pacific Select Funds (2004-2005); Trustee (2002-2011) and Chair of the Finance
Committee (2006-2009) and Investment Committee (2006-2011) of the Thacher School; Member (since 1994) and Chair (1994-2005) of Investment Committee, Archdiocese of San Francisco; Trustee and Member of the Investment Committee (since 2011), WNET, the
New York public broadcasting company. |
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Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director, Forward Funds (34 portfolios) (since 2009). |
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Charles A. Hurty (68) |
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Director (since 2005); Audit Committee Chair (since 2006). |
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Retired; Partner, KPMG LLP (1968- 2001). |
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Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Director of GMAM Absolute Return Strategy Fund (1 portfolio) (since 2002);
Director of SkyBridge Multi-Adviser Hedge Fund Portfolios LLC (2 portfolios) (since 2002). |
24
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5 Years |
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Other Directorships Held by Director |
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John E. Kerrigan (57) |
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Director (since 2005); Fixed Income Plus Committee Chair (since 2012). |
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Chief Investment Officer, Santa Clara University (since 2002). |
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Trustee of iShares Trust (since 2005); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010). |
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Madhav V. Rajan (48) |
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Director (since 2011); 15(c) Committee Chair (since 2012). |
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Gregor G. Peterson Professor of Accounting and Senior Associate Dean for Academic Affairs, Stanford University: Graduate School of Business (since 2001); Professor of Law (by courtesy),
Stanford Law School (since 2005); Visiting Professor, University of Chicago (Winter 2007-2008). |
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Trustee of iShares Trust (since 2011); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2011). |
Officers
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Name (Age) |
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Position |
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Principal Occupation(s)
During the Past 5 Years |
Jack Gee (52) |
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Treasurer and Chief Financial Officer (since 2008). |
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Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business of BGI (2009); Director of Fund Administration of Intermediary Investor
Business of BGI (2004-2009). |
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Eilleen M. Clavere (60) |
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Secretary (since 2007). |
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Director of Global Fund Administration, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business of BGI (2006-2009); Legal Counsel and Vice President of
Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc. (2005-2006); Counsel of Kirkpatrick & Lockhart LLP (2001-2005). |
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Edward B. Baer (43) |
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Vice President and Chief Legal Officer (since 2012). |
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Managing Director of Legal & Compliance, BlackRock (since 2006); Director of Legal & Compliance, BlackRock (2004-2006). |
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Scott Radell (43) |
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Executive Vice President (since 2012). |
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Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007); Credit
Research Analyst, BGI (2003-2005). |
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Amy Schioldager (49) |
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Executive Vice President (since 2007). |
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Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI
(2001-2006). |
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Ira P. Shapiro (49) |
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Vice President (since 2007). |
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Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange- Traded Fund Complex (2007-2012); Associate General Counsel, BGI (2004-2009). |
25
The Board has concluded that, based on each Directors experience, qualifications, attributes or skills on an
individual basis and in combination with those of the other Directors, each Director should serve as a Director of the Board. Among the attributes common to all Directors are their ability to review critically, evaluate, question and discuss
information provided to them, to interact effectively with the Funds investment adviser, other service providers, counsel and the independent registered public accounting firm, and to exercise effective business judgment in the performance of
their duties as Directors. A Directors ability to perform his or her duties effectively may have been attained through the Directors educational background or professional training; business, consulting, public service or academic
positions; experience from service as a board member of the Fund and the other funds in the Company (and any predecessor funds), other investment funds, public companies, or non-profit entities or other organizations; and/or other life experiences.
Also, set forth below is a brief discussion of the specific experience, qualifications, attributes or skills of each Director that led the Board to conclude that he or she should serve as a Director.
Robert Kapito has been a Director of the Company since 2009. Mr. Kapito has served as a Trustee of iShares Trust since 2009, a Director
of iShares MSCI Russia Capped Index Fund, Inc. since 2010 and a Director of BlackRock, Inc. since 2007. In addition, he has over 20 years of experience as part of BlackRock, Inc. and BlackRocks predecessor entities. Mr. Kapito serves as
President and Director of BlackRock, Inc., and is the Chairman of the Operating Committee, a member of the Office of the Chairman, the Leadership Committee and the Corporate Council. He is responsible for day-to-day oversight of BlackRocks key
operating units, including the Account Management and Portfolio Management Groups, Real Estate Group and BlackRock
Solutions®. Prior to assuming his current responsibilities in 2007, Mr. Kapito served as Head of BlackRocks
Portfolio Management Group. In that role, he was responsible for overseeing all portfolio management within BlackRock, including the Fixed-Income, Equity, Liquidity, and Alternative Investment Groups. Mr. Kapito serves as a member of the Board
of Trustees of the University of Pennsylvania. He has also been President of the Board of Directors for the Hope & Heroes Childrens Cancer Fund since 2002 and President of the Board of Directors for Periwinkle Theatre for Youth, a
national non-profit arts-in-education organization, since 1983. Mr. Kapito earned a BS degree in economics from the Wharton School of the University of Pennsylvania in 1979, and an MBA degree from Harvard Business School in 1983.
Michael Latham has been a Director of the Company since 2010 and President of the Company since 2007. Mr. Latham served as Principal Financial Officer of the
Company from 2002 until 2007. Mr. Latham has served as a Trustee of iShares Trust since 2010, President of iShares Trust since 2007, Principal Financial Officer of iShares Trust from 2002 until 2007, a Director of iShares MSCI Russia Capped
Index Fund, Inc. since 2010 and President of iShares MSCI Russia Capped Index Fund, Inc. since 2010. Mr. Latham is the Chairman of BlackRocks iShares exchange-traded fund business. In addition, he has over 15 years of experience as part
of BlackRock, Inc. and BlackRocks predecessor entities. Prior to assuming his current responsibilities in September 2011, he was the global head of BlackRocks iShares exchange-traded fund business. Prior to April 2009, he was head of
BlackRocks iShares exchange-traded fund business for the United States and Canada, and Chief Operating Officer for the U.S. iShares business. He previously held a variety of operating positions within the firm. Mr. Latham earned a BS
degree in business administration from California State University at San Francisco in 1988.
Robert H. Silver has been a Director of the Company since
2007 and Chairman of the Companys Board since 2012. Mr. Silver has served as a Trustee of iShares Trust since 2007, Chairman of iShares Trusts Board since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010
and Chairman of iShares MSCI Russia Capped Index Fund, Inc.s Board since 2012. Mr. Silver is President and a co-founder of The Bravitas Group Inc., a firm dedicated to advising and investing in emerging business enterprises and to
supporting philanthropic activities that benefit under-served urban youth. Previously, Mr. Silver served as the President and Chief Operating Officer of UBS Financial Services Inc., the registered broker dealer comprising the Wealth Management
USA business unit of UBS AG. Mr. Silver also served on the Board of Directors of EPAM, a provider of software engineering outsourcing services in Central and Eastern Europe, the Depository Trust and Clearing Corporation (DTCC) and served as a
governor of the Philadelphia Stock Exchange. In addition, Mr. Silver was a Vice Chairman and a Member of the Board of Directors for the YMCA of Greater New York and chaired its Fund Development Committee from 2001 until 2011 and Co-Founder and
Vice President of Parentgiving Inc. since 2008. Mr. Silver began his career as a CPA at KPMG LLP from 1977 until 1983. Mr. Silver has a BS degree in business administration from the University of North Carolina.
George G.C. Parker has been a Director of the Company since 2002. Mr. Parker served as Chair of the Companys Board from 2010 until 2012, Lead
Independent Director of the Company from 2006 until 2010 and Chair of the Nominating and Governance Committee of the Company from 2002 until 2010. Mr. Parker has served as a Trustee of iShares Trust since 2000, Chair of iShares Trusts
Board from 2010 until 2012, Lead Independent Trustee of iShares Trust from 2006 until 2010, Chair of the Nominating and Governance Committee of iShares Trust from 2002 until 2010, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010
and Chair of iShares MSCI Russia Capped Index Fund, Inc.s Board from 2010 until 2012. Mr. Parker also serves as Director on four other boards. Mr. Parker is the Dean Witter Distinguished Professor of Finance (Emeritus) at the
Stanford Graduate School of Business. He teaches courses in Corporate Finance in the MBA Program, Stanford Sloan Program for Executives, and in various
26
other Executive Education Programs at Stanford University. Mr. Parkers teaching and research interests are primarily in the field of corporate finance, management of financial
institutions, and corporate governance, and he has written numerous case studies related to these subjects. He has also authored several articles on capital structure, risk management, and corporate valuation. Mr. Parker holds MBA and
Ph.D. degrees from the Stanford Graduate School of Business.
John E. Martinez has been a Director of the Company since 2003 and Chair of the
Securities Lending Committee of the Company since 2012. Mr. Martinez has served as a Trustee of iShares Trust since 2003, Chair of the Securities Lending Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index
Fund, Inc. since 2010 and Chair of the Securities Lending Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012. Mr. Martinez is a Director of FirstREX Agreement Corp. (previously EquityRock, Inc.), providing governance oversight
and consulting services to this privately held firm that develops products and strategies for homeowners in managing the equity in their homes. Mr. Martinez previously served as Director of Barclays Global Investors (BGI) UK Holdings, where he
provided governance oversight representing BGIs shareholders (Barclays PLC, BGI management shareholders) through oversight of BGIs worldwide activities. Since 2003, he is a Director and Executive Committee Member for Larkin Street Youth
Services, providing governance oversight and strategy development to an agency that provides emergency and transitional housing, health care, education, job and life skills training to homeless youth. Mr. Martinez has an AB degree in economics
from The University of California, Berkeley and holds an MBA degree in finance and statistics from the Graduate School of Business, University of Chicago.
Cecilia H. Herbert has been a Director of the Company since 2005 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of the Company since 2012. Ms. Herbert has served as a
Trustee of iShares Trust since 2005, Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010 and Chair of the Nominating and
Governance Committee and the Equity Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012. She is Director of the Board of the Catholic Charities CYO, among the Bay Areas largest private social services organizations serving
the homeless, poor, aged, families, children and AIDS/HIV victims, on which she has served since 1998. Ms. Herbert is a member of the Finance Council, Archdiocese of San Francisco since 1994, which she chaired from 1994 to 2005. She has served
on numerous non-profit boards. Ms. Herbert is also a Director and Advisory Board Member since 2009 of the Forward Funds. Ms. Herbert previously served as a Trustee for the Pacific Select Funds and The Montgomery Funds. Ms. Herbert
previously served as Managing Director of J.P. Morgan/Morgan Guaranty Trust Company responsible for product development, marketing and credit for U.S. multinational corporations and as head of its San Francisco office and as Assistant Vice
President, Signet Banking Corporation. Ms. Herbert has a BA degree in economics and communications from Stanford University and an MBA degree in finance from Harvard Business School.
Charles A. Hurty has been a Director of the Company since 2005 and Chair of the Audit Committee of the Company since 2006. Mr. Hurty has served as a Trustee of iShares Trust since 2005, Chair of the Audit
Committee of iShares Trust since 2006, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010 and Chair of the Audit Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2010. In addition, Mr. Hurty serves as Director of
the GMAM Absolute Return Strategy Fund since 2002, Director of the SkyBridge Multi-Adviser Hedge Fund Portfolios LLC (formerly, Citigroup Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC) since 2002 and was a Director of the CSFB
Alternative Investment Funds from 2005 to December 2009, when the funds were liquidated. Mr. Hurty was formerly a Partner at KPMG, LLP from 1968 to 2001. Mr. Hurty has a BS degree in accounting from the University of Kansas. John E.
Kerrigan has been a Director of the Company since 2005 and Chair of the Fixed Income Plus Committee of the Company since 2012. Mr. Kerrigan served as Chair of the Nominating and Governance Committee of the Company from 2010 until 2012.
Mr. Kerrigan has served as a Trustee of iShares Trust since 2005, Chair of the Fixed Income Plus Committee of iShares Trust since 2012, Chair of the Nominating and Governance Committee of iShares Trust from 2010 until 2012, a Director of
iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of the Fixed Income Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012 and Chair of the Nominating and Governance Committee of iShares MSCI Russia Capped Index Fund,
Inc. from 2010 until 2012. Mr. Kerrigan serves as Chief Investment Officer, Santa Clara University since 2002. Mr. Kerrigan was formerly a Managing Director at Merrill Lynch & Co., including the following responsibilities: Global
Manager of Institutional Client Division eCommerce, Global Manager of Technology Specialists Sales and Chair, Performance Measurement, Evaluation & Compensation Task Force. Mr. Kerrigan is a Trustee, since 2008, of Sacred Heart
Schools, Atherton, CA, and Director, since 1999, of The BASIC Fund (Bay Area Scholarships for Inner City Children). Mr. Kerrigan has a BA degree from Boston College and is a Chartered Financial Analyst.
Madhav V. Rajan has been a Director of the Company since 2011 and Chair of the 15(c) Committee of the Company since 2012. Mr. Rajan has served as a Trustee of
iShares Trust since 2011, Chair of the 15(c) Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2011 and Chair of the 15(c) Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012.
Mr. Rajan is the Gregor G. Peterson Professor of Accounting at the Stanford Graduate School of Business. He has taught accounting for over 20 years to undergraduate, MBA and law students, as well
27
as to senior executives. Mr. Rajan serves as the Senior Associate Dean for Academic Affairs and head of the MBA Program at the Stanford Graduate School of Business. Mr. Rajan served as
editor of The Accounting Review from 2002 to 2008 and is co-author of Cost Accounting: A Managerial Emphasis, a leading cost accounting textbook. Mr. Rajan holds MS, MBA and Ph.D. degrees in Accounting from Carnegie
Mellon University.
BoardLeadership Structure and Oversight Responsibilities
Overall responsibility for oversight of the Fund rests with the Board. The Board has engaged BFA to manage the Fund on a day-to-day basis. The Board is responsible for overseeing BFA and other service providers in
the operations of the Fund in accordance with the provisions of the 1940 Act, applicable provisions of state and other laws and the Companys charter. The Board is currently composed of nine members, seven of whom are Independent Directors
(defined below). The Board currently conducts regular meetings four times a year. In addition, the Board frequently holds special in-person or telephonic meetings or informal conference calls to discuss specific matters that may arise or require
action between regular meetings. The Independent Directors meet regularly outside the presence of management, in executive session or with other service providers to the Company.
The Board has appointed an Independent Director to serve in the role of Chairman. The Chairmans role is to preside at all meetings of the Board and to act as a liaison with service providers, officers,
attorneys, and other Directors generally between meetings. The Chairman may also perform such other functions as may be delegated by the Board from time to time. The Board has established six standing Committees: a Nominating and Governance
Committee, an Audit Committee, a 15(c) Committee, a Securities Lending Committee, an Equity Plus Committee and a Fixed Income Plus Committee to assist the Board in the oversight and direction of the business and affairs of the Fund, and from time to
time may establish ad-hoc committees or informal working groups to review and address the policies and practices of the Fund with respect to certain specified matters. The Chair of each standing Committee is an Independent Director. The role of the
Chair of each Committee is to preside at all meetings of the Committee and to act as a liaison with service providers, officers, attorneys and other Directors between meetings. Each Committee meets regularly to conduct the oversight functions
delegated to the Committee by the Board and reports its finding to the Board. The Board and each standing Committee conduct annual assessments of their oversight function and structure. The Board has determined that the Boards leadership
structure is appropriate because it allows the Board to exercise independent judgment over management and it allocates areas of responsibility among committees of Independent Directors and the full Board to enhance effective oversight.
Day-to-day risk management with respect to the Fund is the responsibility of BFA or other service providers (depending on the nature of the risk), subject to the
supervision of BFA. The Fund is subject to a number of risks, including investment, compliance, operational and valuation risks, among others. While there are a number of risk management functions performed by BFA and other service providers, as
applicable, it is not possible to eliminate all of the risks applicable to the Fund. The Directors have an oversight role in this area, satisfying themselves that risk management processes are in place and operating effectively. Risk oversight forms
part of the Boards general oversight of the Fund and is addressed as part of various Board and committee activities. The Board, directly or through a committee, also reviews reports from, among others, management and the independent registered
public accounting firm for the Company, as appropriate, regarding risks faced by the Fund and managements risk functions. The Board has appointed a Chief Compliance Officer who oversees the implementation and testing of the Companys
compliance program and reports to the Board regarding compliance matters for the Company and its principal service providers. In testing and maintaining the compliance program, the Chief Compliance Officer assesses key compliance risks affecting the
Fund, and addresses them in reports to the Board. The Independent Directors have engaged independent legal counsel to assist them in performing their oversight responsibilities.
Committees of the Board of Directors. Each Independent Director serves on the Audit Committee. The Chair of the Audit Committee is Charles A. Hurty. The purposes of the Audit
Committee are to assist the Board (i) in its oversight of the Companys accounting and financial reporting principles and policies and related controls and procedures maintained by or on behalf of the Company; (ii) in its oversight of
the Companys financial statements and the independent audit thereof; (iii) in selecting, evaluating and, where deemed appropriate, replacing the independent accountants (or nominating the independent accountants to be proposed for
shareholder approval in any proxy statement); (iv) in evaluating the independence of the independent accountants; (v) in complying with legal and regulatory requirements that relate to the Companys accounting and financial reporting,
internal controls and independent audits; and (vi) to assume such other responsibilities as may be delegated by the Board. The Audit Committee met six times during the fiscal year ended April 30, 2012.
The members of the Nominating and Governance Committee are Cecilia H. Herbert (Chair), Charles A. Hurty, Madhav V. Rajan and John E. Kerrigan, all of whom are
Independent Directors. The Nominating and Governance Committee nominates individuals for Independent Director membership on the Board. The Nominating and Governance Committee functions include, but are not
28
limited to, the following: (i) reviewing the qualifications of any person properly identified or nominated to serve as an Independent Director; (ii) recommending to the Board and
current Independent Directors the nominee(s) for appointment as an Independent Director by the Board and current Independent Directors and/or for election as Independent Directors by shareholders to fill any vacancy for a position of Independent
Director(s) on the Board; (iii) recommending to the Board and current Independent Directors the size and composition of the Board and Board committees and whether they comply with applicable laws and regulations; (iv) recommending a
current Independent Director to the Board and current Independent Directors to serve as Lead Independent Director; (v) periodic review of the Boards retirement policy; and (vi) recommending an appropriate level of compensation for
the Independent Directors for their services as Directors, members or chairpersons of committees of the Board, Lead Independent Director, Chairperson of the Board and any other positions as the Nominating and Governance Committee considers
appropriate. The Nominating and Governance Committee does not consider Board nominations recommended by shareholders (acting solely in their capacity as a shareholder and not in any other capacity). The Nominating and Governance Committee met six
times during the fiscal year ended April 30, 2012.
The members of the 15(c) Committee are Madhav V. Rajan (Chair), Cecilia H. Herbert, Charles A.
Hurty and John E. Martinez, all of whom are Independent Directors. The principal responsibilities of the 15(c) Committee are to support, oversee and organize on behalf of the Board the process for the annual review and renewal of the Companys
advisory and sub-advisory agreements. These responsibilities include: (i) meeting with BlackRock, Inc. in advance of the Board meeting at which the Companys advisory and sub-advisory agreements are to be considered to discuss generally
the process for providing requested information to the Board and the format in which information will be provided; and (ii) considering and discussing with BlackRock, Inc. such other matters and information as may be necessary and appropriate
for the Board to evaluate the investment advisory and sub-advisory agreements of the Company. The 15(c) Committee was formed on June 20, 2012 and therefore did not meet during the fiscal year ended April 30, 2012.
The members of the Securities Lending Committee are John E. Martinez (Chair), John E. Kerrigan and George G.C. Parker, all of whom are Independent Directors. The
principal responsibilities of the Securities Lending Committee are to support, oversee and organize on behalf of the Board the process for oversight of the Companys securities lending activities. These responsibilities include:
(i) requesting that certain information be provided to the Committee for its review and consideration prior to such information being provided to the Board; (ii) considering and discussing with BlackRock, Inc. such other matters and
information as may be necessary and appropriate for the Board to oversee the Companys securities lending activities and make required findings and approvals; and (iii) providing a recommendation to the Board regarding the annual approval
of the Companys Securities Lending Guidelines and the required findings with respect to, and annual approval of, the Companys agreement with the lending agent. The Securities Lending Committee was formed on June 20, 2012 and
therefore did not meet during the fiscal year ended April 30, 2012.
The members of the Equity Plus Committee are Cecilia H. Herbert (Chair), John
E. Martinez and George G.C. Parker, all of whom are Independent Directors. The principal responsibilities of the Equity Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of Company performance and
related matters for equity funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters that should be brought to the attention
of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as appropriate. The Equity Plus Committee
was formed on June 20, 2012 and therefore did not meet during the fiscal year ended April 30, 2012.
The members of the Fixed Income Plus
Committee are John E. Kerrigan (Chair), Charles A. Hurty and Madhav V. Rajan, all of whom are Independent Directors. The principal responsibilities of the Fixed Income Plus Committee are to support, oversee and organize on behalf of the Board the
process for oversight of Company performance and related matters for fixed income or multi-asset funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net
assets to identify any matters that should be brought to the attention of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report
or recommendation to the Board as appropriate. The Fixed Income Plus Committee was formed on June 20, 2012 and therefore did not meet during the fiscal year ended April 30, 2012.
As the Chairman of the Board, Robert H. Silver may participate in each Committees meetings.
29
The following table sets forth, as of December 31, 2011, the dollar range of equity securities beneficially owned
by each Director in the Fund and in other registered investment companies overseen by the Director within the same family of investment companies as the Company. If a fund is not listed below, the Director did not own any securities in that fund as
of the date indicated above:
|
|
|
|
|
|
|
Name of Director |
|
Fund |
|
Dollar Range of Equity Securities in the
Fund |
|
Aggregate Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director
in Family of Investment Companies |
Robert S. Kapito |
|
iShares Dow Jones U.S. Real Estate Index Fund |
|
$10,001-$50,000 |
|
Over $100,000 |
|
|
iShares MSCI Australia Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI Brazil Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Canada Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Emerging Markets Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Japan Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares FTSE China 25 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Growth Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell Midcap Index Fund |
|
Over $100,000 |
|
|
|
|
|
|
Michael Latham |
|
iShares MSCI ACWI ex US Index Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares MSCI
EAFE® Small Cap Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI
EAFE® Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Emerging Markets Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 3000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell Microcap Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P California AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P National AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
|
|
Robert H. Silver |
|
iShares Barclays 1-3 Year Credit Bond Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares Barclays 1-3 Year Treasury Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares Barclays Aggregate Bond Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Dow Jones U.S. Broker-Dealers Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Dow Jones U.S. Financial Services Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Dow Jones U.S. Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares Dow Jones U.S. Regional Banks Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares High Dividend Equity Fund |
|
Over $100,000 |
|
|
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI ACWI ex US Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI BRIC Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Emerging Markets Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Russell 1000 Growth Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Growth Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
$1-$10,000 |
|
|
|
|
iShares Russell 2000 Value Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares Russell 3000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P Europe 350 Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P U.S. Preferred Stock Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P/Citigroup International Treasury Bond Fund |
|
$1-$10,000 |
|
|
30
|
|
|
|
|
|
|
Name of Director |
|
Fund |
|
Dollar Range of Equity Securities in the
Fund |
|
Aggregate Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director
in Family of Investment Companies |
George G.C. Parker |
|
iShares Barclays Aggregate Bond Fund |
|
$10,001-$50,000 |
|
Over $100,000 |
|
|
iShares Dow Jones Select Dividend Index Fund |
|
Over $100,000 |
|
|
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 100 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P California AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
|
|
John E. Martinez |
|
iShares Barclays TIPS Bond Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares MSCI All Country Asia ex Japan Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI EAFE
® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P Emerging Markets Infrastructure Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P Global Consumer Staples Sector Index Fund |
|
Over $100,000 |
|
|
|
|
|
|
Cecilia H. Herbert |
|
iShares FTSE China 25 Index Fund |
|
$10,001-$50,000 |
|
$10,001-$50,000 |
|
|
|
|
Charles A. Hurty |
|
iShares Dow Jones U.S. Financial Sector Index Fund |
|
$1-$10,000 |
|
Over $100,000 |
|
|
iShares Dow Jones Select Dividend Index Fund |
|
$1-$10,000 |
|
|
|
|
iShares Dow Jones U.S. Energy Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Dow Jones U.S. Technology Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares FTSE China 25 Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI Japan Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P Global Energy Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P Global Technology Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P North American Technology- Multimedia Networking Index Fund |
|
$10,001-$50,000 |
|
|
|
|
|
|
John E. Kerrigan |
|
iShares MSCI ACWI ex US Index Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares S&P Short Term National AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
|
|
Madhav V. Rajan |
|
iShares Dow Jones Select Dividend Index Fund |
|
$10,001-$50,000 |
|
Over $100,000 |
|
|
iShares High Dividend Equity Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund |
|
$10,001-$50,000 |
|
|
As of December 31, 2011, none of the Independent Directors or their immediate family members owned beneficially or of record
any securities of BFA (the Funds investment adviser), the Distributor or any person controlling, controlled by or under common control with BFA or the Distributor.
Remuneration of Directors. Each current Independent Director is paid an annual retainer of $250,000 for his or her services as a Board member to the BlackRock-advised Funds in
the Exchange-Traded Fund Complex, together with out-of-pocket expenses in accordance with a Boards policy on travel and other business expenses relating to attendance at meetings. The Independent Chairman of the Boards is paid an additional
annual retainer of $50,000. The Chair of the Audit Committees is paid an additional annual retainer of $40,000. The Chair of the Nominating and Governance Committees is paid an additional annual retainer of $15,000. Each Independent Director that
serves as a director of subsidiaries of the Exchange-Traded Complex is paid an additional annual retainer of $10,000 (plus an additional $1,765 paid annually to compensate for taxes due in the Republic of Mauritius).
31
The table below sets forth the compensation earned by each Independent Director and Interested Director from the Fund
for the fiscal year ended April 30, 2012 and the aggregate compensation paid to them by the Exchange-Traded Complex for the calendar year ended December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors |
|
Emerging Markets Dividend Index Fund |
|
|
Pension or Retirement Benefits Accrued As Part of Company Expenses1 |
|
|
Estimated Annual Benefits
Upon Retirement1 |
|
|
Total Compensation From the Fund and Fund Complex2 |
|
Name of Independent Director: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George G.C. Parker |
|
$ |
9 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
$ |
300,000 |
|
John E. Kerrigan |
|
|
8 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
276,765 |
|
Charles A. Hurty |
|
|
8 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
290,000 |
|
Cecilia H. Herbert |
|
|
7 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
261,765 |
|
Robert H. Silver |
|
|
7 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
250,000 |
|
Darrell
Duffie3 |
|
|
2 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
62,500 |
|
John E. Martinez |
|
|
7 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
261,765 |
|
Madhav V.
Rajan4 |
|
|
5 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
187,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Interested Director: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert S. Kapito |
|
$ |
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
$ |
0 |
|
Michael Latham |
|
|
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
0 |
|
|
1 |
No Director or officer is entitled to any pension or retirement benefits from the Company. |
|
2 |
Includes compensation for service on the Board of Trustees of iShares Trust and the Board of Directors of iShares MSCI Russia Capped Index Fund, Inc.
|
|
3 |
Served as Director through March 19, 2011. |
|
4 |
Appointed to serve as Independent Director of the Company effective May 16, 2011. |
Control Persons and Principal Holders of Securities.
The Directors and officers of the Company collectively owned less than 1% of the Funds outstanding shares as of July 31, 2012.
Although the Company does not have information concerning the beneficial ownership of shares held in the names of Depository Trust Company (DTC) participants (as defined below), as of July 31,
2012, the name and percentage ownership of each DTC participant that owned of record 5% or more of the outstanding shares of the Fund were as follows:
|
|
|
Name and Address |
|
Percentage of Ownership |
Northern Trust Company (The) 801 South Canal Street Chicago, IL 60612 |
|
36.39% |
|
|
Merrill Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
12.30% |
Citigroup Global Markets Inc. 333 W 34th Street New York, NY 10001-2402 |
|
10.00% |
|
|
Charles Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
7.97% |
|
|
LPL Financial Corporation 9785 Towne Centre Drive
San Diego, CA 92121-1968 |
|
7.32% |
32
|
|
|
Name and Address |
|
Percentage of Ownership |
|
|
National Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
5.14% |
Potential Conflicts of Interest. The PNC Financial Services Group, Inc. (PNC) has
a significant economic interest in BlackRock, Inc., the parent of BFA, the Funds investment adviser. PNC is considered to be an affiliate of BlackRock, Inc., under the 1940 Act. Certain activities of BFA, BlackRock, Inc. and their affiliates
(collectively, BlackRock) and PNC and its affiliates (collectively, PNC and together with BlackRock, Affiliates), with respect to the Fund and/or other accounts managed by BlackRock or PNC, may give rise to actual
or perceived conflicts of interest such as those described below.
BlackRock is one of the worlds largest asset management firms. PNC is a
diversified financial services organization spanning the retail, business and corporate markets. BlackRock and PNC are affiliates of one another under the 1940 Act. BlackRock and PNC and their respective affiliates (including, for these purposes,
their directors, partners, trustees, managing members, officers and employees), including the entities and personnel who may be involved in the investment activities and business operations of the Fund, are engaged worldwide in businesses, including
equity, fixed-income, cash management and alternative investments. These are considerations of which investors in the Fund should be aware, and which may cause conflicts of interest that could disadvantage the Fund and its shareholders. These
activities and interests include potential multiple advisory, transactional, financial and other interests in securities and other instruments that may be purchased or sold by the Fund.
BlackRock and its Affiliates have proprietary interests in, and may manage or advise with respect to, accounts or funds (including separate accounts and other funds and collective investment vehicles) that have
investment objectives similar to those of the Fund and/or that engage in transactions in the same types of securities, currencies and instruments as the Fund. One or more Affiliates are also major participants in the global currency, equities, swap
and fixed-income markets, in each case both on a proprietary basis and for the accounts of customers. As such, one or more Affiliates are or may be actively engaged in transactions in the same securities, currencies, and instruments in which the
Fund invests. Such activities could affect the prices and availability of the securities, currencies, and instruments in which the Fund invests, which could have an adverse impact on the Funds performance. Such transactions, particularly in
respect of most proprietary accounts or customer accounts, will be executed independently of the Funds transactions and thus at prices or rates that may be more or less favorable than those obtained by the Fund. When BlackRock and its
Affiliates purchase or sell the same assets for their managed accounts, including the Fund, the assets actually purchased or sold may be allocated among the accounts on a basis determined in their good faith discretion to be equitable. In some
cases, this system may adversely affect the size or price of the assets purchased or sold for the Fund. In addition, transactions in investments by one or more other accounts managed by BlackRock or its Affiliates may have the effect of diluting or
otherwise disadvantaging the values, prices or investment strategies of the Fund, particularly, but not limited to, with respect to small capitalization, emerging market or less liquid strategies. This may occur when investment decisions regarding
the Fund are based on research or other information that is also used to support decisions for other accounts. When BlackRock or its Affiliates implements a portfolio decision or strategy on behalf of another account ahead of, or contemporaneously
with, similar decisions or strategies for the Fund, market impact, liquidity constraints, or other factors could result in the Fund receiving less favorable trading results and the costs of implementing such decisions or strategies could be
increased or the Fund could otherwise be disadvantaged. BlackRock or its Affiliates may, in certain cases, elect to implement internal policies and procedures designed to limit such consequences, which may cause the Fund to be unable to engage in
certain activities, including purchasing or disposing of securities, when it might otherwise be desirable for it to do so.
Conflicts may also arise
because portfolio decisions regarding the Fund may benefit other accounts managed by BlackRock or its Affiliates. For example, the sale of a long position or establishment of a short position by the Fund may impair the price of the same security
sold short by (and therefore benefit) one or more Affiliates or their other accounts, and the purchase of a security or covering of a short position in a security by the Fund may increase the price of the same security held by (and therefore
benefit) one or more Affiliates or their other accounts.
33
BlackRock and its Affiliates and their clients may pursue or enforce rights with respect to an issuer in which the
Fund has invested, and those activities may have an adverse effect on the Fund. As a result, prices, availability, liquidity and terms of the Funds investments may be negatively impacted by the activities of BlackRock or its Affiliates or
their clients, and transactions for the Fund may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.
The results of the Funds investment activities may differ significantly from the results achieved by BlackRock and its Affiliates for their proprietary accounts or other accounts (including investment
companies or collective investment vehicles) managed or advised by them. It is possible that one or more Affiliate-managed accounts and such other accounts will achieve investment results that are substantially more or less favorable than the
results achieved by the Fund. Moreover, it is possible that the Fund will sustain losses during periods in which one or more Affiliate-managed accounts achieve significant profits on their trading for proprietary or other accounts. The opposite
result is also possible. The investment activities of one or more Affiliates for their proprietary accounts and accounts under their management may also limit the investment opportunities for the Fund in certain emerging and other markets in which
limitations are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated foreign investors.
From time to time,
the Funds activities may also be restricted because of regulatory restrictions applicable to one or more Affiliates, and/or their internal policies designed to comply with such restrictions. As a result, there may be periods, for example, when
BlackRock, and/or one or more Affiliates, will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which BlackRock and/or one or more Affiliates are performing services or when position limits
have been reached.
In connection with its management of the Fund, BlackRock may have access to certain fundamental analysis and proprietary technical
models developed by one or more Affiliates. BlackRock will not be under any obligation, however, to effect transactions on behalf of the Fund in accordance with such analysis and models. In addition, neither BlackRock nor any of its Affiliates will
have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for the benefit of the management of the Fund and it is not
anticipated that BlackRock will have access to such information for the purpose of managing the Fund. The proprietary activities or portfolio strategies of BlackRock and its Affiliates, or the activities or strategies used for accounts managed by
them or other customer accounts could conflict with the transactions and strategies employed by BlackRock in managing the Fund.
In addition, certain
principals and certain employees of BlackRock are also principals or employees of Affiliates. As a result, the performance by these principals and employees of their obligations to such other entities may be a consideration of which investors in the
Fund should be aware.
BlackRock may enter into transactions and invest in securities, instruments and currencies on behalf of the Fund in which
customers of BlackRock or its Affiliates, or, to the extent permitted by the SEC, BlackRock or another Affiliate, serves as the counterparty, principal or issuer. In such cases, such partys interests in the transaction will be adverse to the
interests of the Fund, and such party may have no incentive to assure that the Fund obtains the best possible prices or terms in connection with the transactions. In addition, the purchase, holding and sale of such investments by the Fund may
enhance the profitability of BlackRock or its Affiliates. One or more Affiliates may also create, write or issue derivatives for their customers, the underlying securities, currencies or instruments of which may be those in which the Fund invests or
which may be based on the performance of the Fund. The Fund may, subject to applicable law, purchase investments that are the subject of an underwriting or other distribution by one or more Affiliates and may also enter into transactions with other
clients of an Affiliate where such other clients have interests adverse to those of the Fund.
At times, these activities may cause departments of
BlackRock or its Affiliates to give advice to clients that may cause these clients to take actions adverse to the interests of the Fund. To the extent affiliated transactions are permitted, the Fund will deal with BlackRock and its Affiliates on an
arms-length basis. BlackRock or its Affiliates may also have an ownership interest in certain trading or information systems used by the Fund. The Funds use of such trading or information systems may enhance the profitability of BlackRock and
its Affiliates.
One or more Affiliates may act as broker, dealer, agent, lender or adviser or in other commercial capacities for the Fund. It is
anticipated that the commissions, mark-ups, mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and commitment fees, brokerage fees, other fees, compensation or profits, rates, terms and conditions charged by
an Affiliate will be in its view commercially reasonable, although each Affiliate, including its sales personnel, will have an interest in obtaining fees and other amounts that are favorable to the Affiliate and such sales personnel.
34
Subject to applicable law, the Affiliates (and their personnel and other distributors) will be entitled to retain fees
and other amounts that they receive in connection with their service to the Fund as broker, dealer, agent, lender, adviser or in other commercial capacities and no accounting to the Fund or its shareholders will be required, and no fees or other
compensation payable by the Fund or its shareholders will be reduced by reason of receipt by an Affiliate of any such fees or other amounts.
When an
Affiliate acts as broker, dealer, agent, adviser or in other commercial capacities in relation to the Fund, the Affiliate may take commercial steps in its own interests, which may have an adverse effect on the Fund. The Fund will be required to
establish business relationships with its counterparties based on the Funds own credit standing. Neither BlackRock nor any of the Affiliates will have any obligation to allow their credit to be used in connection with the Funds
establishment of its business relationships, nor is it expected that the Funds counterparties will rely on the credit of BlackRock or any of the Affiliates in evaluating the Funds creditworthiness.
Purchases and sales of securities for the Fund may be bunched or aggregated with orders for other BlackRock client accounts. BlackRock, however, is not required to
bunch or aggregate orders if portfolio management decisions for different accounts are made separately, or if it determines that bunching or aggregating is not practicable or required, or in cases involving client direction.
Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When
this occurs, the various prices may be averaged, and the Fund will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Fund. In addition, under certain
circumstances, the Fund will not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.
BlackRock may select brokers (including, without limitation, Affiliates) that furnish BlackRock, the Fund, other BlackRock client accounts or other Affiliates or
personnel, directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRocks view, appropriate assistance to BlackRock in the investment decision-making process (including with respect to
futures, fixed-price offerings and over-the-counter transactions). Such research or other services may include, to the extent permitted by law, research reports on companies, industries and securities; economic and financial data; financial
publications; proxy analysis; trade industry seminars; computer data bases; research-oriented software and other services and products. Research or other services obtained in this manner may be used in servicing any or all of the Fund and other
BlackRock client accounts, including in connection with BlackRock client accounts other than those that pay commissions to the broker relating to the research or other service arrangements. Such products and services may disproportionately benefit
other BlackRock client accounts relative to the Fund based on the amount of brokerage commissions paid by the Fund and such other BlackRock client accounts. For example, research or other services that are paid for through one clients
commissions may not be used in managing that clients account. In addition, other BlackRock client accounts may receive the benefit, including disproportionate benefits, of economies of scale or price discounts in connection with products and
services that may be provided to the Fund and to such other BlackRock client accounts. To the extent that BlackRock uses soft dollars, it will not have to pay for those products and services itself.
BlackRock may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent
that BlackRock receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution,
clearing, and settlement services provided by the broker-dealer and will not be paid by BlackRock.
BlackRock may endeavor to execute trades through
brokers who, pursuant to such arrangements, provide research or other services in order to ensure the continued receipt of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from time to
time choose not to engage in the above described arrangements to varying degrees. BlackRock may also enter into commission sharing arrangements under which BlackRock may execute transactions through a broker-dealer, including, where permitted, an
Affiliate, and request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to BlackRock. To the extent that BlackRock engages in commission sharing arrangements, many of the same
conflicts related to traditional soft dollars may exist.
BlackRock may utilize certain electronic crossing networks (ECNs) in executing
client securities transactions for certain types of securities. These ECNs may charge fees for their services, including access fees and transaction fees. The transaction fees, which are similar to commissions or markups/markdowns, will generally be
charged to clients and, like commissions
35
and markups/markdowns, would generally be included in the cost of the securities purchased. Access fees may be paid by BlackRock even though incurred in connection with executing transactions on
behalf of clients, including the Fund. In certain circumstances, ECNs may offer volume discounts that will reduce the access fees typically paid by BlackRock. This would have the effect of reducing the access fees paid by BlackRock. BlackRock will
only utilize ECNs consistent with its obligation to seek to obtain best execution in client transactions.
BlackRock has adopted policies and procedures
designed to prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including the Fund, and to help ensure that such decisions are made in accordance with BlackRocks fiduciary
obligations to its clients. Nevertheless, notwithstanding such proxy voting policies and procedures, actual proxy voting decisions of BlackRock may have the effect of favoring the interests of other clients or businesses of other divisions or units
of BlackRock and/or its Affiliates, provided that BlackRock believes such voting decisions to be in accordance with its fiduciary obligations. For a more detailed discussion of these policies and procedures, see the Proxy Voting Policy
section of this SAI.
It is also possible that, from time to time, BlackRock or its Affiliates may, although they are not required to, purchase and
hold shares of the Fund. Increasing the Funds assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the Funds expense ratio. BlackRock and its Affiliates reserve the
right to redeem at any time some or all of the shares of the Fund acquired for their own accounts. A large redemption of shares of the Fund by BlackRock or its Affiliates could significantly reduce the asset size of the Fund, which might have an
adverse effect on the Funds investment flexibility, portfolio diversification and expense ratio. BlackRock will consider the effect of redemptions on the Fund and other shareholders in deciding whether to redeem its shares.
It is possible that the Fund may invest in securities of companies with which an Affiliate has or is trying to develop investment banking relationships as well as
securities of entities in which BlackRock or its Affiliates has significant debt or equity investments or in which an Affiliate makes a market. The Fund also may invest in securities of companies to which an Affiliate provides or may someday provide
research coverage. Such investments could cause conflicts between the interests of the Fund and the interests of other clients of BlackRock or its Affiliates. In making investment decisions for the Fund, BlackRock is not permitted to obtain or use
material non-public information acquired by any division, department or Affiliate of BlackRock in the course of these activities. In addition, from time to time, the activities of an Affiliate may limit the Funds flexibility in purchases and
sales of securities. When an Affiliate is engaged in an underwriting or other distribution of securities of an entity, BlackRock may be prohibited from purchasing or recommending the purchase of certain securities of that entity for the Fund.
BlackRock and its Affiliates, their personnel and other financial service providers may have interests in promoting sales of the Fund. With respect to
BlackRock and its Affiliates and their personnel, the remuneration and profitability relating to services to and sales of the Fund or other products may be greater than remuneration and profitability relating to services to and sales of certain
funds or other products that might be provided or offered. BlackRock and its Affiliates and their sales personnel may directly or indirectly receive a portion of the fees and commissions charged to the Fund or its shareholders. BlackRock and its
advisory or other personnel may also benefit from increased amounts of assets under management. Fees and commissions may also be higher than for other products or services, and the remuneration and profitability to BlackRock or its Affiliates and
such personnel resulting from transactions on behalf of or management of the Fund may be greater than the remuneration and profitability resulting from other funds or products.
BlackRock and its Affiliates and their personnel may receive greater compensation or greater profit in connection with an account for which BlackRock serves as an adviser than with an account advised by an
unaffiliated investment adviser. Differentials in compensation may be related to the fact that BlackRock may pay a portion of its advisory fee to its Affiliate, or relate to compensation arrangements, including for portfolio management, brokerage
transactions or account servicing. Any differential in compensation may create a financial incentive on the part of BlackRock or its Affiliates and their personnel to recommend BlackRock over unaffiliated investment advisers or to effect
transactions differently in one account over another.
BlackRock and its Affiliates may provide valuation assistance to certain clients with respect to
certain securities or other investments and the valuation recommendations made for their clients accounts may differ from the valuations for the same securities or investments assigned by the Funds pricing vendors, especially if such
valuations are based on broker-dealer quotes or other data sources unavailable to the Funds pricing vendors. While BlackRock will generally communicate its valuation information or determinations to the Funds pricing vendors and/or fund
accountants, there may be instances where the Funds pricing vendors or fund accountants assign a different valuation to a security or other investment than the valuation for such security or investment determined or recommended by BlackRock.
36
As disclosed in more detail in the Determination of Net Asset Value section of the Funds Prospectus, when
market valuations are not readily available or such valuations do not reflect current market values, the affected investments will be valued using fair value pricing, pursuant to procedures adopted by the Funds Board. As a result, the
Funds sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BlackRock (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest
of existing shareholders.
To the extent permitted by applicable law, the Fund may invest all or some of its short-term cash investments in any money
market fund or similarly-managed private fund advised or managed by BlackRock. In connection with any such investments, the Fund, to the extent permitted by the 1940 Act, may pay its share of expenses of a money market fund in which it invests,
which may result in the Fund bearing some additional expenses.
BlackRock and its Affiliates and their directors, officers and employees, may buy and
sell securities or other investments for their own accounts, and may have conflicts of interest with respect to investments made on behalf of the Fund. As a result of differing trading and investment strategies or constraints, positions may be taken
by directors, officers, employees and Affiliates of BlackRock that are the same, different from or made at different times than positions taken for the Fund. To lessen the possibility that the Fund will be adversely affected by this personal
trading, the Fund, BFA and BlackRock each has adopted a Code of Ethics in compliance with Section 17(j) of the 1940 Act that restricts securities trading in the personal accounts of investment professionals and others who normally come into
possession of information regarding the Funds portfolio transactions. Each Code of Ethics can be reviewed and copied at the SECs Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at (202) 551-8090. Each Code of Ethics is also available on the EDGAR Database on the SECs Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at
publicinfo@sec.gov or by writing the SECs Public Reference Section, Washington, DC 20549-1520.
BlackRock and its Affiliates will not purchase
securities or other property from, or sell securities or other property to, the Fund, except that the Fund may in accordance with rules adopted under the 1940 Act engage in transactions with accounts that are affiliated with the Fund as a result of
common officers, directors, or investment advisers or pursuant to exemptive orders granted to the Fund and/or BlackRock by the SEC. These transactions would be affected in circumstances in which BlackRock determined that it would be appropriate for
the Fund to purchase and another client of BlackRock to sell, or the Fund to sell and another client of BlackRock to purchase, the same security or instrument on the same day. From time to time, the activities of the Fund may be restricted because
of regulatory requirements applicable to BlackRock or its Affiliates and/or BlackRocks internal policies designed to comply with, limit the applicability of, or otherwise relate to such requirements. A client not advised by BlackRock would not
be subject to some of those considerations. There may be periods when BlackRock may not initiate or recommend certain types of transactions, or may otherwise restrict or limit their advice in certain securities or instruments issued by or related to
companies for which an Affiliate is performing investment banking, market making or other services or has proprietary positions. For example, when an Affiliate is engaged in an underwriting or other distribution of securities of, or advisory
services for, a company, the Fund may be prohibited from or limited in purchasing or selling securities of that company. Similar situations could arise if personnel of BlackRock or its Affiliates serve as directors of companies the securities of
which the Fund wishes to purchase or sell. However, if permitted by applicable law, the Fund may purchase securities or instruments that are issued by such companies or are the subject of an underwriting, distribution, or advisory assignment by an
Affiliate, or in cases in which personnel of BlackRock or its Affiliates are directors or officers of the issuer.
The investment activities of one or
more Affiliates for their proprietary accounts and for client accounts may also limit the investment strategies and rights of the Fund. For example, in regulated industries, in certain emerging or international markets, in corporate and regulatory
ownership definitions, and in certain futures and derivative transactions, there may be limits on the aggregate amount of investment by affiliated investors that may not be exceeded without the grant of a license or other regulatory or corporate
consent or, if exceeded, may cause BlackRock, the Fund or other client accounts to suffer disadvantages or business restrictions.
If certain aggregate
ownership thresholds are reached or certain transactions undertaken, the ability of BlackRock on behalf of clients (including the Fund) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted
by regulation or otherwise impaired. As a result, BlackRock, on behalf of clients (including the Fund), may limit purchases, sell existing investments, or otherwise restrict or limit the exercise of rights (including voting rights) when BlackRock,
in its sole discretion, deems it appropriate.
37
BlackRock and its Affiliates may maintain securities indices as part of their product offerings. Index based funds
seek to track the performance of securities indices and may use the name of the index in the fund name. Index providers, including BlackRock and its Affiliates may be paid licensing fees for use of their index or index name. BlackRock and its
Affiliates will not be obligated to license their indices to BlackRock, and BlackRock cannot be assured that the terms of any index licensing agreement with BlackRock and its Affiliates will be as favorable as those terms offered to other index
licensees.
BlackRock and its Affiliates may serve as Authorized Participants in the creation and redemption of exchange-traded funds, including funds
advised by Affiliates of BlackRock. As described in greater detail in the Creations and Redemptions section of the prospectus, BlackRock and its Affiliates may therefore be deemed to be participants in a distribution of iShares funds that
could render them statutory underwriters.
Present and future activities of BlackRock and its Affiliates, including BFA, in addition to those described
in this section, may give rise to additional conflicts of interest.
Investment Advisory, Administrative and Distribution
Services
Investment Adviser. BFA serves as investment adviser to the Fund pursuant to an Investment Advisory
Agreement between the Company, on behalf of the Fund, and BFA. BFA is a California corporation indirectly owned by BlackRock, Inc. and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the Investment
Advisory Agreement, BFA, subject to the supervision of the Board and in conformity with the stated investment policies of the Fund, manages and administers the Company and the investment of the Funds assets. BFA is responsible for placing
purchase and sale orders and providing continuous supervision of the investment portfolio of the Fund.
Pursuant to the Investment Advisory Agreement,
BFA may, from time to time, in its sole discretion and to the extent permitted by applicable law, appoint one or more sub-advisers, including, without limitation, affiliates of BFA, to perform investment advisory or other services with respect to
the Fund. In addition, BFA may delegate certain of its investment advisory functions under the Investment Advisory Agreement to one or more of its affiliates to the extent permitted by applicable law. BFA may terminate any or all sub-advisers or
such delegation arrangements in its sole discretion upon appropriate notice at any time to the extent permitted by applicable law.
BFA is responsible,
under the Investment Advisory Agreement, for substantially all expenses of the Fund, including the cost of transfer agency, custody, fund administration, legal, audit and other services. BFA is not responsible for, and the Fund will bear the cost
of, interest expense, taxes, brokerage expenses and other expenses connected with the execution of portfolio securities transactions, distribution fees and extraordinary expenses.
For its investment advisory services to the Fund, BFA is entitled to receive a management fee from the Fund, based on a percentage of the Funds average daily net assets, at an annual rate of 0.68%. Because
the Fund has been in operation for less than one full fiscal year, this percentage reflects the rate at which BFA will be paid. BFA has contractually agreed to waive a portion of its management fee in an amount equal to the Funds pro rata
share of the fees and expenses attributable to the Funds investments in other iShares funds, Acquired Fund Fees and Expenses, through December 31, 2014. In addition, BFA has entered into a Fee Waiver Agreement with the
Company, under which BFA agrees to waive a portion of the management fee that it is entitled to receive from the Fund in an amount equal to 0.19%. The Fee Waiver Agreement remains in effect until December 31, 2014. After giving effect to the
fee waiver, BFA will receive a management fee based on a percentage of the Funds average daily net assets, at the annual rate of 0.49%. Each contractual waiver may be terminated prior to December 31, 2014 only upon written agreement of
the Company and BFA. For the fiscal year ended April 30, 2012, BFA waived $4,150 of management fees.
|
|
|
|
|
|
|
|
|
Management Fee |
|
Fund Inception Date |
|
Management Fees Paid for
Fiscal Year Ended April 30, 2012 |
|
Management Fees Paid for Fiscal Year Ended April 30,
2011 |
|
Management Fees Paid for Fiscal Year Ended April 30,
2010 |
0.68% |
|
02/23/12 |
|
$14,853 |
|
N/A |
|
N/A |
38
The Investment Advisory Agreement with respect to the Fund continues in effect for two years from its effective date,
and thereafter is subject to annual approval by (i) the Board, or (ii) the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, provided that in either event such continuance also is approved by
a majority of the Board who are not interested persons (as defined in the 1940 Act) of the Fund, by a vote cast in person at a meeting called for the purpose of voting on such approval.
The Investment Advisory Agreement with respect to the Fund is terminable without penalty, on 60 days notice, by the Board or by a vote of the holders of a majority of the Funds outstanding voting
securities (as defined in the 1940 Act). The Investment Advisory Agreement is also terminable upon 60 days notice by BFA and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
Current interpretations of U.S. federal banking laws and regulations (i) may prohibit BlackRock, Inc., BFA or its affiliates from controlling or underwriting
the shares of the Fund, but (ii) do not prohibit BlackRock, Inc. or BFA generally from acting as an investment adviser, administrator, transfer agent or custodian to the Fund or from purchasing shares as agent for and upon the order of a
customer.
BFA believes that it may perform advisory and related services for the Company without violating applicable banking laws or regulations.
However, the legal requirements and interpretations about the permissible activities of banks and their affiliates may change in the future. These changes could prevent BFA from continuing to perform services for the Company. If this happens, the
Board would consider selecting other qualified firms. Any new investment advisory agreement would be subject to shareholder approval.
If current
restrictions on bank activities with mutual funds were relaxed, BFA, or its affiliates, would consider performing additional services for the Company. BFA cannot predict whether these changes will be enacted, or the terms under which BFA, or its
affiliates, might offer to provide additional services.
Portfolio Managers. As of April 30, 2012, the
individuals named as Portfolio Managers in the Funds Prospectus were also primarily responsible for the day-to-day management of other iShares funds and certain other types of portfolios and/or accounts as follows:
|
|
|
|
|
|
|
|
|
Christopher Bliss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
48 |
|
|
$ |
74,300,000,000 |
|
Other Pooled Investment Vehicles |
|
|
176 |
|
|
$ |
393,000,000,000 |
|
Other Accounts |
|
|
150 |
|
|
$ |
289,000,000,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
4 |
|
|
|
2,400,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rene Casis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
222 |
|
|
$ |
350,000,000,000 |
|
Other Pooled Investment Vehicles |
|
|
62 |
|
|
$ |
46,500,000,000 |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diane Hsiung |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
220 |
|
|
$ |
350,000,000,000 |
|
Other Pooled Investment Vehicles |
|
|
14 |
|
|
$ |
9,100,000,000 |
|
Other Accounts |
|
|
3 |
|
|
$ |
5,000,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
Jennifer Hsui |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
5 |
|
|
$ |
2,900,000,000 |
|
|
|
|
|
|
|
|
|
|
Other Pooled Investment Vehicles |
|
|
49 |
|
|
$ |
238,000,000,000 |
|
Other Accounts |
|
|
86 |
|
|
$ |
215,000,000,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/ A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg Savage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
225 |
|
|
$ |
352,600,000,000 |
|
Other Pooled Investment Vehicles |
|
|
68 |
|
|
$ |
54,000,000,000 |
|
Other Accounts |
|
|
3 |
|
|
$ |
5,000,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/ A |
|
|
|
N/A |
|
Each of the portfolios or accounts for which the Portfolio Managers are primarily responsible for the day-to-day management seeks
to track the rate of return, risk profile and other characteristics of independent third-party indexes by either replicating the same combination of securities that constitute those indexes or through a representative sampling of the securities that
constitute those indexes based on objective criteria and data. Pursuant to BFA policy, investment opportunities are allocated equitably among the Fund and other portfolios and accounts. For example, under certain circumstances, an investment
opportunity may be restricted due to limited supply on the market, legal constraints or other factors, in which event the investment opportunity will be allocated equitably among those portfolios and accounts, including the Fund seeking such
investment opportunity. As a consequence, from time to time the Fund may receive a smaller allocation of an investment opportunity than it would have if the Portfolio Managers and BFA and its affiliates did not manage other portfolios or accounts.
Like the Fund, the other portfolios or accounts for which the Portfolio Managers are primarily responsible for the day-to-day portfolio management
generally pay an asset-based fee to BFA or its affiliates, as applicable, for its advisory services. One or more of those other portfolios or accounts, however, may pay BFA or its affiliates an incentive-based fee in lieu of, or in addition to, an
asset-based fee for its advisory services. A portfolio or account with an incentive-based fee would pay BFA or its affiliates a portion of that portfolios or accounts gains, or would pay BFA or its affiliates more for its services than
would otherwise be the case if BFA or any of its affiliates meets or exceeds specified performance targets. By their nature, incentive-based fee arrangements could present an incentive for BFA or its affiliates to devote greater resources, and
allocate more investment opportunities, to the portfolios or accounts that have those fee arrangements, relative to other portfolios or accounts, in order to earn larger fees. Although BFA and each of its affiliates has an obligation to allocate
resources and opportunities equitably among portfolios and accounts and intends to do so, shareholders of the Fund should be aware that, as with any group of portfolios and accounts managed by an investment adviser and/or its affiliates pursuant to
varying fee arrangements, including incentive-based fee arrangements, there is the potential for a conflict of interest that may result in the Portfolio Managers favoring those portfolios or accounts with incentive-based fee arrangements.
The tables below show, for each Portfolio Manager, the number of portfolios or accounts of the types set forth in the above tables and the aggregate of
total assets in those portfolios or accounts with respect to which the investment management fees are based on the performance of those portfolios or accounts as of April 30, 2012:
|
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|
|
|
|
|
|
|
Christopher Bliss |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
4 |
|
|
$ |
2,400,000,000 |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
Rene Casis |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diane Hsiung |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jennifer Hsui |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jennifer Hsui |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg Savage |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
The discussion below describes the Portfolio Managers compensation as of April 30, 2012.
Portfolio Manager Compensation Overview
BlackRock,
Inc.s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and
may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive
compensation programs established by BlackRock, Inc.
Base compensation. Generally, portfolio managers receive base compensation based on their
position with the firm.
Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components: the
performance of BlackRock, Inc., the performance of the portfolio managers group within BlackRock, Inc. and the individuals performance and contribution to the overall performance of these portfolios and BlackRock, Inc.
Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and
BlackRock, Inc. restricted stock units which vest ratably over a number of years. The BlackRock, Inc. restricted stock units, if properly vested, will be settled in BlackRock, Inc. common stock. Typically, the cash bonus, when combined with base
salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of annual bonuses in stock puts compensation earned by a portfolio manager for a given year at risk based on BlackRock, Inc.s
ability to sustain and improve its performance over future periods.
41
Long-Term Incentive Plan AwardsFrom time to time, long-term incentive equity awards are granted to
certain key employees to aid in retention, align their interests with long-term shareholder interests and motivate performance. Equity awards are generally granted in the form of BlackRock, Inc. restricted stock units that, once vested, settle in
BlackRock, Inc. common stock.
Deferred Compensation ProgramA portion of the compensation paid to eligible BlackRock, Inc. employees may be
voluntarily deferred at their election for defined periods of time into an account that tracks the performance of certain of the firms investment products. All of the eligible portfolio managers have participated in the deferred compensation
program.
Other Compensation Benefits. In addition to base compensation and discretionary incentive compensation, portfolio managers may be
eligible to receive or participate in one or more of the following:
Incentive Savings PlansBlackRock, Inc. has created a variety of
incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer
contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution equal to 3-5% of eligible compensation up to the U.S.
Internal Revenue Service (the IRS) limit ($250,000 for 2012). The RSP offers a range of investment options, including registered investment companies and collective investment funds managed by the firm. BlackRock, Inc. contributions
follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested into an index target date fund that corresponds to, or is closest to, the year in which the participant attains
age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a
dollar value of $25,000 based on its fair market value on the Purchase Date. Christopher Bliss, Rene Casis, Diane Hsiung, Jennifer Hsui and Greg Savage are each eligible to participate in these plans.
As of April 30, 2012, the Portfolio Managers did not beneficially own shares of the Fund.
Codes of Ethics. The Company, BFA and the Distributor have adopted Codes of Ethics pursuant to Rule 17j-1 of the 1940 Act. The Codes of Ethics permit personnel subject to the
Codes of Ethics to invest in securities, subject to certain limitations, including securities that may be purchased or held by the Fund. The Codes of Ethics are on public file with, and are available from, the SEC.
Anti-Money Laundering Requirements. The Fund is subject to the USA PATRIOT Act (the Patriot Act). The Patriot Act
is intended to prevent the use of the U.S. financial system in furtherance of money laundering, terrorism or other illicit activities. Pursuant to requirements under the Patriot Act, the Fund may request information from Authorized Participants to
enable it to form a reasonable belief that it knows the true identity of its Authorized Participants. This information will be used to verify the identity of Authorized Participants or, in some cases, the status of financial professionals; it will
be used only for compliance with the requirements of the Patriot Act.
The Fund reserves the right to reject purchase orders from persons who have not
submitted information sufficient to allow the Fund to verify their identity. The Fund also reserves the right to redeem any amounts in the Fund from persons whose identity it is unable to verify on a timely basis. It is the Funds policy to
cooperate fully with appropriate regulators in any investigations conducted with respect to potential money laundering, terrorism or other illicit activities.
Administrator, Custodian and Transfer Agent. State Street Bank and Trust Company (State Street) serves as administrator, custodian and transfer agent for the Fund
under the Master Services Agreement and related Service Schedule (the Service Module). State Streets principal address is 200 Clarendon Street, Boston, MA 02116. Pursuant to the Service Module for Fund Administration and Accounting
Services with the Company, State Street provides necessary administrative, legal, tax and accounting and financial reporting services for the maintenance and operations of the Company and the Fund. In addition, State Street makes available the
office space, equipment, personnel and facilities required to provide such services. Pursuant to the Service Module for Custodial Services with the Company, State Street maintains, in separate accounts, cash, securities and other assets of the
Company and the Fund, keeps all necessary accounts and records and provides other services. State Street is required, upon the order of the Company, to deliver securities held by State Street and to make payments for securities purchased by the
Company for the Fund. State Street is authorized to appoint certain foreign custodians or foreign custody managers for Fund investments outside the United States. Pursuant to the Service Module for Transfer Agency Services with the Company, State
Street acts as a transfer agent for the Funds authorized and
42
issued shares of beneficial interest, and as dividend disbursing agent of the Company. As compensation for these services, State Street receives certain out-of-pocket costs, transaction fees and
asset-based fees which are accrued daily and paid monthly by BFA from its management fee.
The following table sets forth the administration, transfer
agency and custodian expenses of the Fund paid by BFA to State Street for the fiscal years noted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Inception Date |
|
Custody, Administration, Transfer Agency Expenses Paid During Fiscal Year Ended April 30,
2012 |
|
|
Custody, Administration, Transfer Agency Expenses Paid During Fiscal Year Ended April 30,
2011 |
|
|
Custody, Administration, Transfer Agency Expenses Paid During Fiscal Year Ended April 30,
2010 |
|
02/23/12 |
|
$ |
5,628 |
|
|
|
N/A |
|
|
|
N/A |
|
Distributor. The Distributors principal address is 525 Washington Boulevard, Suite
1405, Jersey City, NJ07310. Shares are continuously offered for sale by the Fund through the Distributor or its agent only in Creation Units, as described in the Prospectus and below in the Creation and Redemption of Creation Units section of
this SAI. Fund shares in amounts less than Creation Units are generally not distributed by the Distributor or its agent. The Distributor or its agent will arrange for the delivery of the Prospectus and, upon request, this SAI to persons purchasing
Creation Units and will maintain records of both orders placed with it or its agents and confirmations of acceptance furnished by it or its agents. The Distributor is a broker-dealer registered under the Securities Exchange Act of 1934, as amended
(the 1934 Act), and a member of the Financial Industry Regulatory Authority, Inc. (FINRA).
The Distribution Agreement for the
Fund provides that it may be terminated at any time, without the payment of any penalty, on at least 60 days prior written notice to the other party following (i) the vote of a majority of the Independent Directors, or (ii) the vote
of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund. The Distribution Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities dealers (Soliciting Dealers) who will solicit purchases of Creation Units of Fund
shares. Such Soliciting Dealers may also be Authorized Participants (as defined below), Depository Trust Company (DTC) participants and/or investor services organizations.
BFA or its affiliates may, from time to time and from its own resources, pay, defray or absorb costs relating to distribution, including payments out of its own resources to the Distributor, or to otherwise promote
the sale of shares.
The Distributor serves as the Funds distributor effective April 1, 2012. Prior to that date, SEI Investments
Distribution Co. (SEI), located at One Freedom Valley Drive, Oaks, PA 19456, served as the distributor to the Fund. The following table sets forth the compensation paid by BFA to BRIL and SEI for certain services, not primarily intended
to result in the sale of Fund shares, provided to the Fund during the fiscal years noted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Inception Date |
|
Distributor Compensation Paid From April 1, 2012 to April 30, 20121 |
|
|
Distributor Compensation Paid From February 23, 2012 to March 31, 20122 |
|
|
Distributor Compensation Paid During Fiscal Year Ended April 30, 20112 |
|
|
Distributor Compensation Paid During Fiscal Year Ended April 30, 20102 |
|
02/23/12 |
|
$ |
827 |
|
|
$ |
1,712 |
|
|
|
N/A |
|
|
|
N/A |
|
|
1 |
BRIL serves as the distributor to the Fund effective April 1, 2012. These fees reflect payments made to SEI, acting as an agent of the Distributor.
|
|
2 |
SEI served as the distributor to the Fund through March 31, 2012. |
Payments by BFA and its Affiliates. BFA and/or its affiliates (BFA Entities) pay certain broker-dealers, banks and other financial intermediaries
(Intermediaries) for certain activities related to the Funds, other iShares funds or exchange-traded products in general. BFA Entities make these payments from their own assets and not from the assets of the Funds. Although a portion of
BFA Entities revenue comes directly or indirectly in part from fees paid by the Funds and other iShares funds, these payments do not increase the price paid by investors for the purchase of shares of, or the cost of owning, the Fund or other
iShares funds. BFA Entities make payments for Intermediaries participation in activities that are designed to make registered representatives, other professionals and individual investors more knowledgeable about exchange-traded products,
including the Funds, or for other activities, such as participation in marketing activities and presentations,
43
educational training programs, conferences, the development of technology platforms and reporting systems (Education Costs). BFA Entities also make payments to Intermediaries for
certain printing, publishing and mailing costs associated with the Funds or materials relating to exchange-traded products in general (Publishing Costs). In addition, BFA Entities make payments to Intermediaries that make shares of the
Funds and certain other iShares funds available to their clients, develop new products that feature iShares or otherwise promote the Funds and other iShares funds. BFA Entities may also reimburse expenses or make payments from their own assets to
Intermediaries or other persons in consideration of services or other activities that the BFA Entities believe may benefit the iShares business or facilitate investment in iShares funds. Payments of the type described above are sometimes
referred to as revenue-sharing payments.
Payments to an Intermediary may be significant to the Intermediary, and amounts that Intermediaries pay to
your salesperson or other investment professional may also be significant for your salesperson or other investment professional. Because an Intermediary may make decisions about which investment options it will recommend or make available to its
clients or what services to provide for various products based on payments it receives or is eligible to receive, such payments may create conflicts of interest between the Intermediary and its clients and these financial incentives may cause the
Intermediary to recommend the Fund and other iShares funds over other investments. The same conflict of interest and financial incentive exist with respect to your salesperson or other investment professional if he or she receives similar payments
from his or her Intermediary firm.
As of March 1, 2013, BFA Entities have contractual arrangements to make payments (in addition to payments for
Education Costs or Publishing Costs) to one Intermediary, Fidelity Brokerage Services LLC (FBS). Pursuant to this special, long-term and significant arrangement (the Marketing Program), FBS and certain affiliates
(collectively Fidelity) have agreed, among other things, to actively promote iShares funds to customers and investment professionals and in advertising campaigns as the preferred exchange-traded product, to offer certain iShares funds in
certain Fidelity platforms and investment programs, in some cases at a reduced commission rate, and to provide marketing data to BFA Entities. BFA Entities have agreed to facilitate the Marketing Program by, among other things, making certain
payments to FBS for marketing and implementing certain brokerage and investment programs. Upon termination of the arrangement, the BFA Entities will make additional payments to FBS based upon a number of criteria, including the overall success of
the Marketing Program and the level of services provided by FBS during the wind-down period.
Any additions, modifications, or deletions to
Intermediaries listed above that have occurred since the date noted above are not included in the list. Further, BFA Entities make Education Costs and Publishing Costs payments to other Intermediaries that are not listed above. BFA Entities may
determine to make such payments based on any number of metrics. For example, BFA Entities may make payments at year-end or other intervals in a fixed amount, an amount based upon an Intermediarys services at defined levels or an amount based
on the Intermediarys net sales of one or more iShares funds in a year or other period, any of which arrangements may include an agreed-upon minimum or maximum payment, or any combination of the foregoing. As of the date of this SAI, BFA
anticipates that the payments paid by BFA Entities in connection with the Funds, iShares funds and exchange-traded products in general will be immaterial to BFA Entities in the aggregate for the next year. Please contact your salesperson or other
investment professional for more information regarding any such payments his or her Intermediary firm may receive. Any payments made by the BFA Entities to an Intermediary may create the incentive for an Intermediary to encourage customers to buy
shares of iShares funds.
The Fund may participate in certain market maker incentive programs of a national securities exchange in which an
affiliate of the Fund would pay a fee to the exchange used for the purpose of incentivizing one or more market makers in the securities of the Fund to enhance the liquidity and quality of the secondary market of securities of the Fund. The fee
would then be credited by the exchange to one or more market makers that meet or exceed liquidity and market quality standards with respect to the securities of the Fund. Each market maker incentive program is subject to approval from the
SEC. Any such fee payments made to an exchange will be made by an affiliate of the Fund solely for the benefit of the Fund and will not be paid from any Fund assets.
Brokerage Transactions
BFA assumes general supervision over placing orders on behalf
of the Fund for the purchase and sale of portfolio securities. In selecting brokers or dealers for any transaction in portfolio securities, BFAs policy is to make such selection based on factors deemed relevant, including but not limited to,
the breadth of the market in the security, the price of the security, the reasonableness of the commission or mark-up or mark-down, if any, execution capability, settlement capability, back office
44
efficiency and the financial condition of the broker or dealer, both for the specific transaction and on a continuing basis. The overall reasonableness of brokerage commissions paid is evaluated
by BFA based upon its knowledge of available information as to the general level of commissions paid by other institutional investors for comparable services. Brokers may also be selected because of their expertise in certain markets or with certain
securities, or their ability to handle special or difficult executions, such as may be involved in large block trades, less liquid securities, broad distributions, or other circumstances. BFA does not consider the provision or value of research,
products or services a broker or dealer may provide, if any, as a factor in the selection of a broker or dealer or the determination of the reasonableness of commissions paid in connection with portfolio transactions. The Company has adopted
policies and procedures that prohibit the consideration of sales of the Funds shares as a factor in the selection of a broker or a dealer to execute its portfolio transactions.
The table below sets forth the brokerage commissions paid by the Fund for the fiscal years noted. Any differences in brokerage commissions paid by the Fund from year to year are due to increases or decreases in the
Funds assets over those periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Inception Date |
|
Brokerage Commissions Paid DuringFiscal Year Ended April 30, 2012 |
|
|
Brokerage Commissions Paid DuringFiscal Year Ended April 30, 2011 |
|
|
Brokerage Commissions Paid During Fiscal YearEnded April 30, 2010 |
|
02/23/12 |
|
$ |
4,318 |
|
|
|
N/A |
|
|
|
N/A |
|
The Fund did not pay any brokerage commissions to BlackRock, an affiliate of BFA, and a subsidiary of BTC, during the fiscal year
ended April 30, 2012.
The Funds purchase and sale orders for securities may be combined with those of other investment companies, clients or
accounts that BFA or its affiliates manage or advise and for which they have brokerage placement authority. If purchases or sales of portfolio securities of the Fund and one or more other accounts managed or advised by BFA or its affiliates are
considered at or about the same time, transactions in such securities are allocated among the Fund and the other accounts in a manner deemed equitable to all by BFA and its affiliates. In some cases, this procedure could have a detrimental effect on
the price or volume of the security as far as the Fund is concerned. However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate lower transaction costs will be beneficial to the Fund. BFA and its
affiliates may deal, trade and invest for their own account in the types of securities in which the Fund may invest. BFA and its affiliates may, from time to time, effect trades on behalf of and for the account of the Fund with brokers or dealers
that are affiliated with BFA, in conformity with the 1940 Act and SEC rules and regulations. Under these provisions, any commissions paid to affiliated brokers or dealers must be reasonable and fair compared to the commissions charged by other
brokers or dealers in comparable transactions. The Fund will not deal with affiliates in principal transactions unless permitted by applicable SEC rules or regulations, or by SEC exemptive order.
Portfolio turnover may vary from year to year, as well as within a year. High turnover rates may result in comparatively greater brokerage expenses. The table
below sets forth the portfolio turnover rates of the Fund for the fiscal years noted:
|
|
|
|
|
Fiscal Year ended April 30, 2012 |
|
Fiscal Year ended April 30, 2011 |
|
2% |
|
|
N/A |
|
Creation or redemption transactions, to the extent consisting of cash, may require the Fund to contemporaneously transact with
broker-dealers for purchases of Deposit Securities (as defined below under Fund Deposit) or sales of Fund Securities (as defined below under Redemption of Creation Units), as applicable. Such transactions with a particular
broker-dealer may be conditioned upon the broker-dealers agreement to transact at guaranteed price levels in order to reduce transaction costs the Fund would otherwise incur as a consequence of settling creation or redemption baskets in cash
rather than in-kind.
Following the Funds receipt of an order to purchase or redeem creation or redemption baskets, to the extent such purchases
or redemptions consist of a cash portion, the Fund will enter an order with a broker or dealer to purchase or sell the Deposit Securities or Fund Securities, as applicable. The terms of such order may, depending on the timing of the transaction and
certain other factors, require the broker or dealer to guarantee that the Fund will achieve execution of its order at a price at least as favorable to the Fund as the Funds valuation of the Deposit Securities/Fund Securities used for purposes
of calculating the NAV applied to the creation or redemption transaction giving rise to the order (the Execution Performance Guarantee). Such orders may be placed with the purchasing or redeeming Authorized Participant in its capacity as
a broker-dealer or with its affiliated broker-dealer. The amount payable to the Fund in respect of any Execution Performance Guarantee will depend on the results achieved by the executing firm and will vary depending on market activity, timing and a
variety of other factors.
45
To ensure that an Execution Performance Guarantee will be honored on orders arising from creation transactions
executed by an Authorized Participant or its affiliate as broker-dealer, an Authorized Participant is required to deposit an amount with the Fund (the Execution Performance Deposit). If the broker-dealer executing the order achieves
executions in market transactions at a price equal to or more favorable than the Funds valuation of the Deposit Securities, the Fund receives the benefit of the favorable executions and returns to the Authorized Participant the Execution
Performance Deposit. If, however, the broker-dealer executing the order is unable to achieve executions in market transactions at a price at least equal to the Funds valuation of the securities, the Fund retains the portion of the Execution
Performance Deposit equal to the full amount of the execution shortfall (including any taxes, brokerage commissions or other costs) and may require the Authorized Participant to deposit any additional amount required to cover the full amount of the
actual Execution Performance Guarantee.
To ensure that an Execution Performance Guarantee will be honored for brokerage orders arising from redemption
transactions executed by an Authorized Participant or its affiliate as broker-dealer, an Authorized Participant agrees to pay the shortfall amount (the Execution Performance Offset). If the broker-dealer executing the order achieves
executions in market transactions at a price equal to or more favorable than the Funds valuation of the Fund Securities, the Fund receives the benefit of the favorable executions and the Authorized Participant is not called upon to honor the
Execution Performance Offset. If, however, the broker-dealer is unable to achieve executions in market transactions at a price at least equal to the Funds valuation of the securities, the Fund will be entitled to the portion of the Execution
Performance Offset equal to the full amount of the execution shortfall (including any taxes, brokerage commissions or other costs).
The circumstances
under which the Execution Performance Guarantee will be used and the expected amount of any Execution Performance Deposit or Execution Performance Offset for the Fund will be disclosed in the procedures handbook for Authorized Participants and may
change from time to time based on the actual experience of the Fund.
Additional Information Concerning the Company
Capital Stock. The Company currently is comprised of 56 series referred to as funds. Each series issues shares of
common stock, par value $0.001 per share. The Company has authorized and issued the following funds as separate series of capital stock: iShares Asia/Pacific Dividend 30 Index Fund, iShares Emerging Markets Corporate Bond Fund, iShares Emerging
Markets Dividend Index Fund, iShares Emerging Markets High Yield Bond Fund, iShares Emerging Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund, iShares Global High Yield Corporate Bond Fund, iShares Latin America
Bond Fund, iShares MSCI All Country World Minimum Volatility Index Fund, iShares MSCI Australia Index Fund, iShares MSCI Austria Investable Market Index Fund, iShares MSCI Belgium Investable Market Index Fund, iShares MSCI Brazil Index Fund, iShares
MSCI BRIC Index Fund, iShares MSCI Canada Index Fund, iShares MSCI Chile Investable Market Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging
Markets Eastern Europe Index Fund, iShares MSCI Emerging Markets EMEA Index Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets 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, iShares MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Frontier 100 Index Fund,
iShares MSCI Germany Index Fund, 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, iShares MSCI Global
Silver Miners Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI Israel Capped Investable Market Index Fund, iShares MSCI Italy Index Fund, iShares MSCI Japan Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Malaysia Index Fund,
iShares MSCI Mexico Investable Market Index Fund, iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI South Africa Index Fund, iShares MSCI South Korea
Index Fund, iShares MSCI Spain Index Fund, iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Index Fund, iShares MSCI Taiwan Index Fund, iShares MSCI Thailand Investable Market Index Fund, iShares MSCI Turkey Investable Market Index Fund,
iShares MSCI United Kingdom Index Fund, iShares MSCI USA Index Fund and iShares MSCI World Index Fund. The Company has authorized for issuance, but is not currently offering for sale to the public, ten additional series of shares of common stock.
The Board may designate additional series of common stock and classify shares of a particular series into one or more classes of that series. The Amended and Restated Articles of Incorporation confers upon the Board the power to establish the number
of shares which constitute a Creation Unit or by resolution, restrict the redemption right to Creation Units.
Each share issued by a fund has a pro
rata interest in the assets of that fund. The Company is currently authorized to issue 31.85 billion shares of common stock. The following number of shares is currently authorized for each of the funds: iShares
46
Asia/Pacific Dividend 30 Index Fund, 500 million shares; iShares Emerging Markets Corporate Bond Fund, 500 million shares; iShares Emerging Markets Dividend Index Fund, 500 million
shares; iShares Emerging Markets High Yield Bond Fund, 500 million shares; iShares Emerging Markets Local Currency Bond Fund, 500 million shares; iShares Global ex USD High Yield Corporate Bond Fund, 500 million shares; iShares Global
High Yield Corporate Bond Fund, 500 million shares; iShares Latin America Bond Fund, 500 million shares; iShares MSCI All Country World Minimum Volatility Index Fund, 500 million shares; iShares MSCI Australia Index Fund,
627.8 million shares; iShares MSCI Austria Investable Market Index Fund, 100 million shares; iShares MSCI Belgium Investable Market Index Fund, 136.2 million shares; iShares MSCI Brazil Index Fund, 500 million shares; iShares
MSCI BRIC Index Fund, 500 million shares; iShares MSCI Canada Index Fund, 340.2 million shares; iShares MSCI Chile Investable Market Index Fund, 200 million shares; iShares MSCI Emerging Markets Asia Index Fund, 500 million
shares; iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, 500 million shares; iShares MSCI Emerging Markets Eastern Europe Index Fund, 200 million shares; iShares MSCI Emerging Markets EMEA Index Fund,
500 million shares; iShares MSCI Emerging Markets Energy Sector Capped Index Fund, 500 million shares; iShares MSCI Emerging Markets Growth Index Fund, 500 million shares; iShares MSCI Emerging Markets Index Fund, 2 billion shares;
iShares MSCI Emerging Markets Minimum Volatility Index Fund, 500 million shares; iShares MSCI Emerging Markets Small Cap Index Fund, 500 million shares; iShares MSCI Emerging Markets Value Index Fund, 500 million shares; iShares MSCI
EMU Index Fund, 1 billion shares; iShares MSCI France Index Fund, 340.2 million shares; iShares MSCI Frontier 100 Index Fund, 500 million shares; iShares MSCI Germany Index Fund, 382.2 million shares; iShares MSCI Global Agriculture
Producers Fund, 500 million shares; iShares MSCI Global Energy Producers Fund, 500 million shares; iShares MSCI Global Gold Miners Fund, 500 million shares; iShares MSCI Global Select Metals & Mining Producers Fund,
500 million shares; iShares MSCI Global Silver Miners Fund, 500 million shares; iShares MSCI Hong Kong Index Fund, 250 million shares; iShares MSCI Israel Capped Investable Market Index Fund, 500 million shares; iShares MSCI
Italy Index Fund, 63.6 million shares; iShares MSCI Japan Index Fund, 2.1246 billion shares; iShares MSCI Japan Small Cap Index Fund, 500 million shares; iShares MSCI Malaysia Index Fund, 300 million shares; iShares MSCI Mexico Investable
Market Index Fund, 255 million shares; iShares MSCI Netherlands Investable Market Index Fund, 255 million shares; iShares MSCI Pacific ex-Japan Index Fund, 1 billion shares; iShares MSCI Singapore Index Fund, 300 million shares;
iShares MSCI South Africa Index Fund, 400 million shares; iShares MSCI South Korea Index Fund, 200 million shares; iShares MSCI Spain Index Fund, 127.8 million shares; iShares MSCI Sweden Index Fund, 63.6 million shares; iShares
MSCI Switzerland Index Fund, 318.625 million shares; iShares MSCI Taiwan Index Fund, 900 million shares; iShares MSCI Thailand Investable Market Index Fund, 200 million shares; iShares MSCI Turkey Investable Market Index Fund,
200 million shares; iShares MSCI United Kingdom Index Fund, 934.2 million shares; iShares MSCI USA Index Fund, 500 million shares; and iShares MSCI World Index Fund, 500 million shares. Fractional shares will not be issued.
Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each share is entitled to participate equally in dividends and distributions declared by the Board with respect to the relevant fund, and in the net
distributable assets of such fund on liquidation. Shareholders are entitled to require the Company to redeem Creation Units of their shares. The Articles of Incorporation confer upon the Board the power, by resolution, to alter the number of shares
constituting a Creation Unit or to specify that shares of common stock of the Company may be individually redeemable.
Each share has one vote with
respect to matters upon which a stockholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder and the Maryland General Corporation Law. Stockholders have no cumulative voting rights with respect
to their shares. Shares of all funds vote together as a single class except that, if the matter being voted on affects only a particular fund or, if a matter affects a particular fund differently from other funds, that fund will vote separately on
such matter.
Under Maryland law, the Company is not required to hold an annual meeting of stockholders unless required to do so under the 1940 Act. The
policy of the Company is not to hold an annual meeting of stockholders unless required to do so under the 1940 Act. Under Maryland law, Directors of the Company may be removed by vote of the stockholders.
Following the creation of the initial Creation Unit(s) of shares of a fund and immediately prior to the commencement of trading in the funds shares, a holder
of shares may be a control person of the fund, as defined in the 1940 Act. The fund cannot predict the length of time for which one or more stockholders may remain a control person of the fund.
Stockholders may make inquiries by writing to iShares, Inc., c/o BlackRock Investments, LLC, 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310.
Absent an applicable exemption or other relief from the SEC or its staff, beneficial owners of more than 5% of the shares of a fund may be subject to
the reporting provisions of Section 13 of the 1934 Act and the SECs rules promulgated thereunder. In addition, absent an applicable exemption or other relief from the SEC or its staff, officers and directors of the fund and beneficial
owners of 10% of the shares of the fund (Insiders) may be subject to the insider reporting, short-swing profit
47
and short sale provisions of Section 16 of the 1934 Act and the SECs rules promulgated thereunder. Beneficial owners and Insiders should consult with their own legal counsel concerning
their obligations under Sections 13 and 16 of the 1934 Act.
Termination of the Company or the Fund. The Company
or the Fund may be terminated by a majority vote of the Board, or the affirmative vote of a supermajority of the shareholders of the Company or the Fund entitled to vote on termination. Although the shares are not automatically redeemable upon the
occurrence of any specific event, the organizational documents provide that the Board will have the unrestricted power to alter the number of shares in a Creation Unit. In the event of a termination of the Company or the Fund, the Board, in its sole
discretion, could determine to permit the shares to be redeemable in aggregations smaller than Creation Units or to be individually redeemable. In such circumstance, the Company may make redemptions in-kind, for cash or for a combination of cash or
securities.
DTC as Securities Depository for Shares of the Fund. Shares of the Fund are represented by securities
registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold
securities of its participants (DTC Participants) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (NYSE), the NYSE Amex Equities and FINRA. Access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (Indirect Participants).
Beneficial ownership of shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in shares (owners of such beneficial interests are referred to herein as Beneficial Owners) is shown on, and the transfer of ownership is effected only through, records maintained by DTC
(with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through the DTC Participant a written
confirmation relating to their purchase of shares. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability of certain investors
to acquire beneficial interests in shares.
Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows.
Pursuant to the Depositary Agreement between the Company and DTC, DTC is required to make available to the Company upon request and for a fee to be charged to the Company a listing of the shares of the Fund held by each DTC Participant. The Company
shall inquire of each such DTC Participant as to the number of Beneficial Owners holding shares, directly or indirectly, through such DTC Participant. The Company shall provide each such DTC Participant with copies of such notice, statement or other
communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Company shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all shares of the Company. DTC or its nominee, upon
receipt of any such distributions, shall credit immediately DTC Participants accounts with payments in amounts proportionate to their respective beneficial interests in shares of the Fund as shown on the records of DTC or its nominee. Payments
by DTC Participants to Indirect Participants and Beneficial Owners of shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in a street name, and will be the responsibility of such DTC Participants.
The Company has no responsibility
or liability for any aspect of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such shares, or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests, or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC
Participants. DTC may decide to discontinue providing its service with respect to shares of the Company at any time by giving reasonable notice to the Company and discharging its responsibilities with respect thereto under applicable law. Under such
circumstances, the Company shall take action to find a replacement for DTC to perform its functions at a comparable cost.
48
Creation and Redemption of Creation Units
General. The Company issues and sells shares of the Fund only in Creation Units on a continuous basis through the Distributor
or its agent, without a sales load, at a price based on the Funds NAV next determined after receipt, on any Business Day (as defined below), of an order received by the Distributor or its agent in proper form. The following table sets forth
the number of shares of the Fund that constitute a Creation Unit for the Fund and the value of such Creation Unit as of May 31, 2012:
|
|
|
|
|
Shares Per Creation Unit |
|
Value Per Creation Unit (U.S.$) |
|
50,000 |
|
$ |
2,410,000 |
|
The Board reserves the right to declare a split or a consolidation in the number of shares outstanding of the Fund, and to make a
corresponding change in the number of shares constituting a Creation Unit, in the event that the per share price in the secondary market rises (or declines) to an amount that falls outside the range deemed desirable by the Board.
A Business Day with respect to the Fund is any day on which the Listing Exchange on which the Fund is listed for trading is open for business. As of
the date of this SAI, the Listing Exchange observes the following holidays, as observed: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
Fund Deposit. The consideration for purchase of Creation Units of the Fund generally consists of the in-kind
deposit of a designated portfolio of securities (including any portion of such securities for which cash may be substituted) (Deposit Securities) and the Cash Component computed as described below. Together, the Deposit Securities and
the Cash Component constitute the Fund Deposit, which, when combined with the Funds portfolio securities is designed to generate performance that has a collective investment profile similar to that of the Underlying Index. The Fund
Deposit represents the minimum initial and subsequent investment amount for a Creation Unit of the Fund.
The Cash Component is an amount
equal to the difference between the net asset value of the shares (per Creation Unit) and the Deposit Amount, which is an amount equal to the market value of the Deposit Securities, and serves to compensate for any differences between
the net asset value per Creation Unit and the Deposit Amount. Payment of any stamp duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Securities are the sole responsibility of the Authorized
Participant purchasing the Creation Unit. The Fund generally offers Creation Units partially for cash, but may, in certain circumstances, offer Creation Units solely for cash.
BFA makes available through the NSCC on each Business Day prior to the opening of business on the Listing Exchange, the list of names and the required number of shares of each Deposit Security and the amount of the
Cash Component to be included in the current Fund Deposit (based on information as of the end of the previous Business Day for the Fund). Such Fund Deposit is applicable, subject to any adjustments as described below, to purchases of Creation Units
of shares of the Fund until such time as the next-announced Fund Deposit is made available.
The identity and number of shares of the Deposit Securities
change pursuant to changes in the composition of the Funds portfolio and as rebalancing adjustments and corporate action events are reflected from time to time by BFA with a view to the investment objective of the Fund. The composition of the
Deposit Securities may also change in response to adjustments to the weighting or composition of the component securities constituting the Underlying Index.
The Fund reserves the right to permit or require the substitution of a cash in lieu amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient
quantity for delivery or that may not be eligible for transfer through DTC. The Fund also reserves the right to permit or require a cash in lieu amount in certain circumstances, including circumstances in which (i) the delivery of
the Deposit Security by the Authorized Participant (as described below) would be restricted under applicable securities or other local laws or (ii) the delivery of the Deposit Security to the Authorized Participant would result in the
disposition of the Deposit Security by the Authorized Participant becoming restricted under applicable securities or other local laws, or in certain other situations.
49
Cash Purchase Method. Although the Company does not ordinarily permit partial or
full cash purchases of Creation Units of iShares funds, when partial or full cash purchases of Creation Units are available or specified (Creation Units of the Fund are generally offered partially for cash), they will be effected in essentially the
same manner as in-kind purchases thereof. In the case of a partial or full cash purchase, the Authorized Participant must pay the cash equivalent of the Deposit Securities it would otherwise be required to provide through an in-kind purchase, plus
the same Cash Component required to be paid by an in-kind purchaser. The Authorized Participant will also be required to pay certain transaction fees and charges for cash purchases, as described below, and, if transacting as broker with the Fund,
may be required to cover certain brokerage, tax, foreign exchange, execution and market impact costs through an Execution Performance Guarantee, as described in the Brokerage Transactions section of this SAI.
Role of the Authorized Participant. Creation Units may be purchased only by or through a DTC Participant that has entered
into an Authorized Participant Agreement with the Distributor (an Authorized Participant). Such Authorized Participant will agree, pursuant to the terms of such Authorized Participant Agreement and on behalf of itself or any investor on
whose behalf it will act, to certain conditions, including that such Authorized Participant will make available in advance of each purchase of shares an amount of cash sufficient to pay the Cash Component, once the net asset value of a Creation Unit
is next determined after receipt of the purchase order in proper form, together with the transaction fees described below. An Authorized Participant, acting on behalf of an investor, may require the investor to enter into an agreement with such
Authorized Participant with respect to certain matters, including payment of the Cash Component. Investors who are not Authorized Participants must make appropriate arrangements with an Authorized Participant. Investors should be aware that their
particular broker may not be a DTC Participant or may not have executed an Authorized Participant Agreement and that orders to purchase Creation Units may have to be placed by the investors broker through an Authorized Participant. As a
result, purchase orders placed through an Authorized Participant may result in additional charges to such investor. The Company does not expect to enter into an Authorized Participant Agreement with more than a small number of DTC Participants. A
list of current Authorized Participants may be obtained from the Distributor.
Purchase Orders. To initiate an
order for a Creation Unit, an Authorized Participant must submit to the Distributor or its agent an irrevocable order to purchase shares of the Fund generally no later than 4:00 p.m., Eastern time on any Business Day to receive that days NAV.
On days when the Listing Exchange closes earlier than normal, the Fund may require orders for Creation Units to be placed earlier in the day. The Distributor or its agent will notify BFA and the custodian of such order. The custodian will then
provide such information to any appropriate sub-custodian. Procedures and requirements governing the delivery of the Fund Deposit are set forth in the procedures handbook for Authorized Participants and may change from time to time. Investors, other
than Authorized Participants, are responsible for making arrangements for a creation request to be made through an Authorized Participant. The Distributor or its agent will provide a list of current Authorized Participants upon request. Those
placing orders to purchase Creation Units through an Authorized Participant should allow sufficient time to permit proper submission of the purchase order to the Distributor or its agent by the Cutoff Time (as defined below) on such Business Day.
The Authorized Participant must also make available on or before the contractual settlement date, by means satisfactory to the Fund, immediately
available or same day funds estimated by the Fund to be sufficient to pay the Cash Component next determined after acceptance of the purchase order, together with the applicable purchase transaction fees. Any excess funds will be returned following
settlement of the issue of the Creation Unit. Those placing orders should ascertain the deadline for cash transfers by contacting the operations department of the broker or depositary institution effectuating the transfer of the Cash Component. This
deadline is likely to be significantly earlier than the Cutoff Time of the Fund. Investors should be aware that an Authorized Participant may require orders for purchases of shares placed with it to be in the particular form required by the
individual Authorized Participant.
The Authorized Participant is responsible for any and all expenses and costs incurred by the Fund, including any
applicable cash amounts, in connection with any purchase order.
Timing of Submission of Purchase Orders. An
Authorized Participant must submit an irrevocable order to purchase shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that days NAV. Creation Orders must be transmitted by an Authorized
Participant by telephone or other transmission method acceptable to the Distributor or its agent pursuant to procedures set forth in the Authorized Participant Agreement, as described below. Economic or market disruptions or changes, or telephone or
other communication failure, may impede the ability to reach the Distributor or its agent or an Authorized Participant. Orders to create shares of the Fund that are submitted on the Business Day immediately preceding a holiday or a day (other than a
weekend) when the equity markets in the relevant non-U.S. market are closed may not be accepted. The Funds deadline specified above for the submission of purchase orders is referred to as
50
the Funds Cutoff Time. The Distributor or its agent, in their discretion, may permit the submission of such orders and requests by or through an Authorized Participant at any
time (including on days on which the Listing Exchange is not open for business) via communication through the facilities of the Distributors or its agents proprietary website maintained for this purpose. Purchase orders and redemption
requests, if accepted by the Company, will be processed based on the NAV next determined after such acceptance in accordance with the Funds Cutoff Times as provided in the Authorized Participant Agreement and disclosed in this SAI.
Acceptance of Orders for Creation Units. Subject to the conditions that (i) an irrevocable purchase order has been
submitted by the Authorized Participant (either on its own or another investors behalf) and (ii) arrangements satisfactory to the Fund are in place for payment of the Cash Component and any other cash amounts which may be due, the Fund
will accept the order, subject to the Funds right (and the right of the Distributor and BFA) to reject any order until acceptance, as set forth below.
Once the Fund has accepted an order, upon the next determination of the net asset value of the shares, the Fund will confirm the issuance of a Creation Unit, against receipt of payment, at such net asset value. The
Distributor or its agent will then transmit a confirmation of acceptance to the Authorized Participant that placed the order.
The Fund reserves the
absolute right to reject or revoke a creation order transmitted to it by the Distributor or its agent if (i) the order is not in proper form; (ii) the investor(s), upon obtaining the shares ordered, would own 80% or more of the currently
outstanding shares of the Fund; (iii) the Deposit Securities delivered do not conform to the identity and number of shares specified, as described above; (iv) acceptance of the Deposit Securities would have certain adverse tax consequences
to the Fund; (v) acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would, in the discretion of the Fund or BFA, have an adverse effect on the Fund or the rights of beneficial
owners; or (vii) circumstances outside the control of the Fund, the Distributor or its agent and BFA make it impracticable to process purchase orders. The Distributor or its agent shall notify a prospective purchaser of a Creation Unit and/or
the Authorized Participant acting on behalf of such purchaser of its rejection of such order. The Fund, State Street, the sub-custodian and the Distributor or its agent are under no duty, however, to give notification of any defects or
irregularities in the delivery of Fund Deposits nor shall any of them incur any liability for failure to give such notification.
Issuance of a Creation Unit. Except as provided herein, a Creation Unit will not be issued until the transfer of good title to the Fund of the Deposit Securities and the payment of the Cash Component have been completed. When the
sub-custodian has confirmed to the custodian that the securities included in the Fund Deposit (or the cash value thereof) have been delivered to the account of the relevant sub-custodian or sub-custodians, the Distributor or its agent and BFA shall
be notified of such delivery and the Fund will issue and cause the delivery of the Creation Unit. Creation Units typically are issued on a T+3 basis (i.e., three Business Days after trade date). However, as discussed in the
Regular Holidays section, the Fund reserves the right to settle Creation Unit transactions on a basis other than T+3 in order to accommodate non-U.S. market holiday schedules, to account for different treatment among non-U.S. and U.S. markets
of dividend record dates and ex-dividend dates (i.e., the last day the holder of a security can sell the security and still receive dividends payable on the security) and in certain other circumstances.
To the extent contemplated by an Authorized Participants agreement with the Distributor, the Fund will issue Creation Units to such Authorized Participant,
notwithstanding the fact that the corresponding Fund Deposits have not been received in part or in whole, in reliance on the undertaking of the Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking
shall be secured by such Authorized Participants delivery and maintenance of collateral having a value at least equal to 105% and up to 115%, which percentage BFA may change at any time, in its sole discretion, of the value of the missing
Deposit Securities in accordance with the Funds then-effective procedures. The only collateral that is acceptable to the Fund is cash in U.S. dollars. Such cash collateral must be delivered no later than 2:00 p.m., Eastern time on the
contractual settlement date. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. Information
concerning the Funds current procedures for collateralization of missing Deposit Securities is available from the Distributor or its agent. The Authorized Participant Agreement will permit the Fund to buy the missing Deposit Securities at any
time and will subject the Authorized Participant to liability for any shortfall between the cost to the Fund of purchasing such securities and the cash collateral.
In certain cases, Authorized Participants may create and redeem Creation Units on the same trade date and in these instances, the Fund reserves the right to settle these transactions on a net basis or require a
representation from the Authorized Participants that the creation and redemption transactions are for separate beneficial owners. All questions as to
51
the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Fund
and the Funds determination shall be final and binding.
Costs Associated with Creation Transactions. A
standard creation transaction fee is imposed to offset the transfer and other transaction costs associated with the issuance of Creation Units. The standard creation transaction fee is charged on each Creation Unit created by an Authorized
Participant on the day of the transaction. The standard creation transaction fee is generally fixed at the amount shown in the table regardless of the number of Creation Units being purchased, but may be reduced by the Fund if transfer and
processing expenses associated with the creation are anticipated to be lower than the stated fee. If a purchase consists of a cash portion, the Authorized Participant may also be required to pay an additional transaction charge (up to the maximum
amount shown below) to cover brokerage and certain other costs related to the creation transaction. Authorized Participants will also bear the costs of transferring the Deposit Securities to the Fund. Investors who use the services of a broker or
other financial intermediary to acquire Fund shares may be charged a fee for such services.
The following table sets forth the Funds standard
creation transaction fees and maximum additional charge (as described above):
|
|
|
|
|
Standard Creation Transaction Fee |
|
Maximum Additional Charge for Creations* |
|
$3,000 |
|
|
3.0 |
% |
|
* |
As a percentage of the net asset value per Creation Unit. |
If a
purchase consists of a cash portion and the Fund places a brokerage transaction to purchase portfolio securities with the Authorized Participant or its affiliated broker-dealer, the Authorized Participant (or its affiliated broker-dealer) may be
required, in its capacity as broker-dealer with respect to that transaction, to cover certain brokerage, tax, foreign exchange, execution, and market impact costs through an Execution Performance Guarantee, as described in the Brokerage
Transactions section of this SAI.
Redemption of Creation Units. Shares of the Fund may be redeemed by
Authorized Participants only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor and only on a Business Day. The Fund will not redeem shares in amounts less than Creation Units.
There can be no assurance, however, that there will be sufficient liquidity in the secondary market at any time to permit assembly of a Creation Unit. Investors should expect to incur brokerage and other costs in connection with assembling a
sufficient number of shares to constitute a Creation Unit that could be redeemed by an Authorized Participant. Beneficial owners also may sell shares in the secondary market.
The Fund generally redeems Creation Units partially for cash. Please see the Cash Redemption Method section below and the following discussion summarizing the in-kind method for further information on
redeeming Creation Units of the Fund.
BFA makes available through the NSCC, prior to the opening of business on the Listing Exchange on each Business
Day, the designated portfolio of securities (including any portion of such securities for which cash may be substituted) that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined
below) on that day (Fund Securities), and an amount of cash (the Cash Amount, as described below). Such Fund Securities and the corresponding Cash Amount (each subject to possible amendment or correction) are applicable, in
order to effect redemptions of Creation Units of the Fund until such time as the next announced composition of the Fund Securities and Cash Amount is made available. Fund Securities received on redemption may not be identical to Deposit Securities
that are applicable to creations of Creation Units.
If redemptions are not paid in cash, the redemption proceeds for a Creation Unit generally consist
of Fund Securities, plus the Cash Amount, which is an amount equal to the difference between the net asset value of the shares being redeemed, as next determined after the receipt of a redemption request in proper form, and the value of Fund
Securities, less a redemption transaction fee (as described below).
The Company may, in its sole discretion, substitute a cash in lieu
amount to replace any Fund Security. The amount of cash paid out in such cases will be equivalent to the value of the substituted security listed as a Fund Security. In the event that the Fund Securities have a value greater than the NAV of the
shares, a compensating cash payment equal to the difference is required to be made by or through an Authorized Participant by the redeeming shareholder. The Fund generally redeems Creation Units partially for cash.
52
Cash Redemption Method. Although the Company does not ordinarily permit partial
or full cash redemptions of Creation Units of iShares funds, when partial or full cash redemptions of Creation Units are available or specified for the Fund, they will be effected in essentially the same manner as in-kind redemptions thereof. In the
case of partial or full cash redemption, the Authorized Participant receives the cash equivalent of the Fund Securities it would otherwise receive through an in-kind redemption, plus the same Cash Amount to be paid to an in-kind redeemer. The
Authorized Participant will also be required to pay certain transaction fees and charges for cash redemptions, as described below, and, if transacting as broker with the Fund, may be required to cover certain brokerage, tax, foreign exchange,
execution and market impact costs through a Execution Performance Guarantee, as described in the Brokerage Transactions section of this SAI.
Costs Associated with Redemption Transactions. A redemption transaction fee is imposed to offset transfer and other transaction costs that may be incurred by the Fund. The standard redemption transaction fee is charged on each Creation Unit
redeemed by an Authorized Participant on the day of the transaction. The standard redemption transaction fee is generally fixed at the amount shown in the table regardless of the number of Creation Units being redeemed, but may be reduced by the
Fund if transfer and processing expenses associated with the redemption are anticipated to be lower than the stated fee. If a redemption consists of a cash portion, the Authorized Participant may also be required to pay an additional transaction
charge (up to the maximum amount shown below) to cover brokerage and certain other costs related to the redemption transaction. Authorized Participants will also bear the costs of transferring the Fund Securities from the Fund to their account on
their order. Investors who use the services of a broker or other financial intermediary to dispose of Fund shares may be charged a fee for such services.
The following table sets forth the Funds standard redemption transaction fees and maximum additional charge (as described above):
|
|
|
|
|
Standard Redemption Transaction Fee |
|
Maximum Additional Charge for Redemptions* |
|
$3,000 |
|
|
2.0 |
% |
|
* |
As a percentage of the net asset value per Creation Unit, inclusive of the standard redemption transaction fee. |
If a redemption consists of a cash portion and the Fund places a brokerage transaction to sell portfolio securities with the Authorized Participant or its
affiliated broker-dealer, the Authorized Participant (or its affiliated broker-dealer) may be required, in its capacity as broker-dealer with respect to that transaction, to cover certain brokerage, tax, foreign exchange, execution, and market
impact costs through a Execution Performance Guarantee, as described in the Brokerage Transactions section of this SAI.
Placement of Redemption Orders. Redemption requests for Creation Units of the Fund must be submitted to the Distributor or its agent by or through an Authorized Participant. An Authorized Participant must submit an irrevocable request to
redeem shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that days NAV. Investors, other than Authorized Participants, are responsible for making arrangements for a redemption request to be
made through an Authorized Participant. The Distributor or its agent will provide a list of current Authorized Participants upon request.
The
Authorized Participant must transmit the request for redemption in the form required by the Fund to the Distributor or its agent in accordance with procedures set forth in the Authorized Participant Agreement. Investors should be aware that their
particular broker may not have executed an Authorized Participant Agreement and that, therefore, requests to redeem Creation Units may have to be placed by the investors broker through an Authorized Participant who has executed an Authorized
Participant Agreement. At any time, only a limited number of broker-dealers will have an Authorized Participant Agreement in effect. Investors making a redemption request should be aware that such request must be in the form specified by such
Authorized Participant. Investors making a request to redeem Creation Units should allow sufficient time to permit proper submission of the request by an Authorized Participant and transfer of the shares to the Funds transfer agent; such
investors should allow for the additional time that may be required to effect redemptions through their banks, brokers or other financial intermediaries if such intermediaries are not Authorized Participants.
A redemption request is considered to be in proper form if (i) an Authorized Participant has transferred or caused to be transferred to the
Funds transfer agent the Creation Unit being redeemed through the book-entry system of DTC so as to be effective by the Listing Exchange closing time on any Business Day, (ii) a request in form satisfactory to the Fund is received by the
Distributor or its agent from the Authorized Participant on behalf of itself or another redeeming investor within the
53
time periods specified above and (iii) all other procedures set forth in the Authorized Participant Agreement are properly followed. If the transfer agent does not receive the
investors shares through DTCs facilities by 10:00 a.m., Eastern time on the Business Day next following the day that the redemption request is received, the redemption request shall be rejected. Investors should be aware that the
deadline for such transfers of shares through the DTC system may be significantly earlier than the close of business on the Listing Exchange. Those making redemption requests should ascertain the deadline applicable to transfers of shares through
the DTC system by contacting the operations department of the broker or depositary institution effecting the transfer of the shares.
Upon receiving a
redemption request, the Distributor or its agent shall notify the Fund and the Funds transfer agent of such redemption request. The tender of an investors shares for redemption and the distribution of the securities and/or cash included
in the redemption payment made in respect of Creation Units redeemed will be made through DTC and the relevant Authorized Participant to the Beneficial Owner thereof as recorded on the book-entry system of DTC or the DTC Participant through which
such investor holds, as the case may be, or by such other means specified by the Authorized Participant submitting the redemption request.
A redeeming
Beneficial Owner or Authorized Participant acting on behalf of such Beneficial Owner must maintain appropriate security arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the portfolio
securities are customarily traded, to which account such portfolio securities will be delivered.
Deliveries of redemption proceeds by the Fund generally
will be made within three Business Days (i.e., T+3). However, as discussed in the Regular Holidays section, the Fund reserves the right to settle redemption transactions and deliver redemption proceeds on another basis to
accommodate non-U.S. market holiday schedules, to account for different treatment among non-U.S. and U.S. markets of dividend record dates and dividend ex-dates (i.e., the last date the holder of a security can sell the security and still
receive dividends payable on the security sold) and in certain other circumstances. The Regular Holidays section hereto identifies the instances, if any, where more than seven days would be needed to deliver redemption proceeds. Pursuant to
an order of the SEC, the Company will make delivery of redemption proceeds within the number of days stated in the Regular Holidays section to be the maximum number of days necessary to deliver redemption proceeds.
If neither the redeeming Beneficial Owner nor the Authorized Participant acting on behalf of such redeeming Beneficial Owner has appropriate arrangements to take
delivery of Fund Securities in the applicable non-U.S. jurisdiction and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of Fund Securities in such jurisdiction, the Company may in its discretion
exercise its option to redeem such shares in cash, and the redeeming Beneficial Owner will be required to receive its redemption proceeds in cash. In such case, the investor will receive a cash payment equal to the net asset value of its shares
based on the NAV of the Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee and additional charges specified above to offset the Companys brokerage and other transaction costs
associated with the disposition of Fund Securities). Redemptions of shares for Fund Securities will be subject to compliance with applicable U.S. federal and state securities laws and the Fund (whether or not it otherwise permits cash redemptions)
reserves the right to redeem Creation Units for cash to the extent that the Fund cannot lawfully deliver specific Fund Securities upon redemptions or cannot do so without first registering the Fund Securities under such laws.
Although the Company does not ordinarily permit cash redemptions of Creation Units (except that, as noted above, Creation Units of the Fund generally will be
redeemed partially for cash), in the event that cash redemptions are permitted or required by the Company, proceeds will be paid to the Authorized Participant redeeming shares as soon as practicable after the date of redemption (within seven
calendar days thereafter, except for the instances listed in the Regular Holidays section in which more than seven calendar days would be needed).
To the extent contemplated by an Authorized Participants agreement with the Distributor or its agent, in the event an Authorized Participant has submitted a
redemption request in proper form but is unable to transfer all or part of the Creation Unit to be redeemed to the Fund, at or prior to 10:00 a.m., Eastern time on the Listing Exchange business day after the date of submission of such redemption
request, the Distributor or its agent will accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing shares as soon as possible. Such undertaking shall be secured by the Authorized
Participants delivery and maintenance of collateral consisting of cash, in U.S. dollars in immediately available funds, having a value at least equal to 105% and up to 115%, which percentage BFA may change at any time, in its sole discretion,
of the value of the missing shares. Such cash collateral must be delivered no later than 10:00 a.m., Eastern time on the day after the date of submission of such redemption request and shall be held by State Street and marked-to-market daily.
The fees of State Street and any sub-custodians in respect of the delivery, maintenance and
54
redelivery of the cash collateral shall be payable by the Authorized Participant. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized
Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. The Authorized Participant Agreement permits the Fund to acquire shares of the Fund at any time and subjects the Authorized Participant to
liability for any shortfall between the aggregate of the cost to the Fund of purchasing such shares, plus the value of the Cash Amount, and the value of the cash collateral.
Because the Portfolio Securities of the Fund may trade on exchange(s) on days that the Listing Exchange is closed or are otherwise not Business Days for the Fund, shareholders may not be able to redeem their shares
of the Fund, or purchase or sell shares of the Fund on the Listing Exchange on days when the NAV of the Fund could be significantly affected by events in the relevant non-U.S. markets.
The right of redemption may be suspended or the date of payment postponed with respect to the Fund: (i) for any period during which the Listing Exchange is closed (other than customary weekend and holiday
closings); (ii) for any period during which trading on the Listing Exchange is suspended or restricted; (iii) for any period during which an emergency exists as a result of which disposal of the shares of the Funds portfolio
securities or determination of its net asset value is not reasonably practicable; or (iv)
in such other circumstance as is permitted by the SEC.
Taxation on Creation and Redemptions of Creation Units. An
Authorized Participant generally will recognize either gain or loss upon the exchange of Deposit Securities for Creation Units. This gain or loss is calculated by taking the market value of the Creation Units purchased over the Authorized
Participants aggregate basis in the Deposit Securities exchanged therefor. However, the IRS may apply the wash sales rules to determine that any loss realized upon the exchange of Deposit Securities for Creation Units is not currently
deductible. Authorized Participants should consult their own tax advisors.
Current U.S. federal tax laws dictate that capital gain or loss realized
from the redemption of Creation Units will generally create long-term capital gain or loss if the Authorized Participant holds the Creation Units for more than one year, or short-term capital gain or loss if the Creation Units were held for one year
or less, if the Creation Units are held as capital assets.
Regular Holidays. For every occurrence of one or more
intervening holidays in the applicable non-U.S. market that are not holidays observed in the U.S. equity market, the redemption settlement cycle will be extended by the number of such intervening holidays. In addition to holidays, other
unforeseeable closings in a non-U.S. market due to emergencies may also prevent the Company from delivering securities within normal settlement period.
The securities delivery cycles currently practicable for transferring portfolio securities to redeeming investors, coupled with non-U.S. market holiday schedules,
will require a delivery process longer than seven calendar days, in certain circumstances. The holidays applicable to the Fund during such periods are listed below, as are instances where more than seven days will be needed to deliver redemption
proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption proceeds in any given year is not expected to exceed the maximum number of days listed below for the Fund. The
proclamation of new holidays, the treatment by market participants of certain days as informal holidays (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the
elimination of existing holidays, or changes in local securities delivery practices, could affect the information set forth herein at some time in the future.
In calendar years 2012 and 2013, the dates of regular holidays affecting the relevant securities markets in which the Fund invests are as follows (please note these holiday schedules are subject to potential
changes in the relevant securities markets):
2012
|
|
|
|
|
|
|
Brazil |
January 25 |
|
April 6 |
|
September 7 |
|
December 24 |
February 20 |
|
May 1 |
|
October 12 |
|
December 25 |
February 21 |
|
June 7 |
|
November 2 |
|
December 31 |
February 22 |
|
July 9 |
|
November 15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
January 2 |
|
January 30 |
|
May 7 |
|
October 4 |
January 16 |
|
January 31 |
|
May 28 |
|
October 5 |
January 23 |
|
February 20 |
|
July 4 |
|
October 8 |
January 24 |
|
May 1 |
|
September 3 |
|
November 12 |
January 25 |
|
May 2 |
|
October 1 |
|
November 22 |
January 26 |
|
May 3 |
|
October 2 |
|
December 25 |
January 27 |
|
May 4 |
|
October 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
The Czech Republic |
April 9 |
|
July 6 |
|
December 26 |
|
|
May 1 |
|
September 28 |
|
|
|
|
May 8 |
|
December 24 |
|
|
|
|
July 5 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Egypt |
January 1 |
|
May 1 |
|
August 20 |
|
November 15 |
April 15 |
|
July 1 |
|
August 21 |
|
|
April 16 |
|
July 23 |
|
October 25 |
|
|
April 25 |
|
August 19 |
|
October 28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Egyptian market is closed every Friday. |
|
|
|
|
|
|
|
|
|
|
|
Hungary |
March 15 |
|
May 1 |
|
October 23 |
|
December 25 |
March 16 |
|
May 28 |
|
November 1 |
|
December 26 |
April 9 |
|
August 20 |
|
November 2 |
|
December 31 |
April 30 |
|
October 22 |
|
December 24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia |
January 23 |
|
August 17 |
|
November 15 |
|
|
March 23 |
|
August 20 |
|
November 16 |
|
|
April 6 |
|
August 21 |
|
December 24 |
|
|
May 17 |
|
August 22 |
|
December 25 |
|
|
May 18 |
|
October 26 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Malaysia |
January 2 |
|
February 7 |
|
September 17 |
|
|
January 23 |
|
May 1 |
|
October 26 |
|
|
January 24 |
|
August 19 |
|
November 13 |
|
|
February 1 |
|
August 20 |
|
November 15 |
|
|
February 6 |
|
August 31 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Philippines |
April 5 |
|
June 12 |
|
November 2 |
|
December 31 |
April 6 |
|
August 20 |
|
November 30 |
|
|
April 9 |
|
August 21 |
|
December 24 |
|
|
May 1 |
|
November 1 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Poland |
January 6 |
|
May 3 |
|
December 24 |
|
|
April 6 |
|
June 7 |
|
December 25 |
|
|
April 9 |
|
August 15 |
|
December 26 |
|
|
May 1 |
|
November 1 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Russia |
January 9 |
|
March 9 |
|
June 11 |
|
|
February 22 |
|
April 30 |
|
June 12 |
|
|
February 23 |
|
May 1 |
|
November 5 |
|
|
March 7 |
|
May 8 |
|
December 31 |
|
|
March 8 |
|
May 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Africa |
January 2 |
|
April 27 |
|
December 17 |
|
|
March 21 |
|
May 1 |
|
December 25 |
|
|
April 6 |
|
August 9 |
|
December 26 |
|
|
April 9 |
|
September 24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Korea |
January 23 |
|
May 28 |
|
December 19 |
|
|
January 24 |
|
June 6 |
|
December 25 |
|
|
March 1 |
|
August 15 |
|
December 31 |
|
|
April 11 |
|
October 1 |
|
|
|
|
May 1 |
|
October 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan |
January 23 |
|
January 27 |
|
May 1 |
|
|
January 24 |
|
February 27 |
|
October 10 |
|
|
January 25 |
|
February 28 |
|
December 31 |
|
|
January 26 |
|
April 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thailand |
January 2 |
|
April 16 |
|
August 2 |
|
December 10 |
March 7 |
|
May 1 |
|
August 13 |
|
December 31 |
April 6 |
|
May 7 |
|
October 23 |
|
|
April 13 |
|
June 4 |
|
December 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey |
April 23 |
|
August 21 |
|
October 25 |
|
|
May 1 |
|
August 30 |
|
October 26 |
|
|
August 20 |
|
October 24 |
|
October 29 |
|
|
2013
|
|
|
|
|
|
|
Brazil |
January 1 |
|
March 29 |
|
November 15 |
|
December 31 |
January 25 |
|
May 1 |
|
November 20 |
|
|
February 11 |
|
May 30 |
|
December 24 |
|
|
February 12 |
|
July 9 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
January 1 |
|
February 14 |
|
May 7 |
|
October 3 |
January 21 |
|
February 15 |
|
May 27 |
|
October 4 |
February 7 |
|
February 18 |
|
July 4 |
|
October 7 |
February 8 |
|
May 1 |
|
September 2 |
|
October 14 |
February 11 |
|
May 2 |
|
September 30 |
|
November 11 |
February 12 |
|
May 3 |
|
October 1 |
|
November 28 |
February 13 |
|
May 6 |
|
October 2 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
The Czech Republic |
January 1 |
|
July 5 |
|
December 26 |
|
|
April 1 |
|
October 28 |
|
December 31 |
|
|
May 1 |
|
December 24 |
|
|
|
|
May 8 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Egypt |
January 1 |
|
May 5 |
|
August 8 |
|
October 16 |
January 7 |
|
May 6 |
|
August 11 |
|
November 4 |
January 24 |
|
July 1 |
|
October 6 |
|
November 5 |
April 25 |
|
July 23 |
|
October 14 |
|
|
May 1 |
|
August 7 |
|
October 15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Egyptian market is closed every Friday. |
|
|
|
|
|
|
|
|
|
|
|
Hungary |
January 1 |
|
May 20 |
|
November 1 |
|
|
March 15 |
|
August 19 |
|
December 24 |
|
|
April 1 |
|
August 20 |
|
December 25 |
|
|
May 1 |
|
October 23 |
|
December 26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia |
January 1 |
|
May 9 |
|
August 12 |
|
December 24 |
January 25 |
|
June 7 |
|
August 13 |
|
December 25 |
March 12 |
|
August 7 |
|
October 15 |
|
December 26 |
March 29 |
|
August 8 |
|
November 4 |
|
December 30 |
April 11 |
|
August 9 |
|
November 5 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
Malaysia |
January 1 |
|
May 1 |
|
June 1 |
|
October 15 |
January 24 |
|
May 24 |
|
August 7 |
|
November 4 |
February 1 |
|
May 25 |
|
August 8 |
|
November 5 |
February 11 |
|
May 30 |
|
August 9 |
|
December 25 |
February 12 |
|
May 31 |
|
August 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Philippines |
January 1 |
|
April 8 |
|
August 8 |
|
December 24 |
February 25 |
|
May 1 |
|
August 9 |
|
December 25 |
March 28 |
|
May 13 |
|
August 21 |
|
December 30 |
March 29 |
|
June 12 |
|
November 1 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Poland |
January 1 |
|
May 3 |
|
November 11 |
|
|
March 29 |
|
May 30 |
|
December 25 |
|
|
April 1 |
|
August 15 |
|
December 26 |
|
|
May 1 |
|
November 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russia |
January 1 |
|
January 8 |
|
May 9 |
|
|
January 2 |
|
January 9 |
|
May 10 |
|
|
January 3 |
|
February 25 |
|
June 12 |
|
|
January 4 |
|
March 8 |
|
November 4 |
|
|
January 7 |
|
May 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Africa |
January 1 |
|
May 1 |
|
December 16 |
|
|
March 21 |
|
June 17 |
|
December 25 |
|
|
March 29 |
|
August 9 |
|
December 26 |
|
|
April 1 |
|
September 24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Korea |
January 1 |
|
May 17 |
|
September 19 |
|
|
February 11 |
|
June 6 |
|
September 20 |
|
|
March 1 |
|
July 17 |
|
October 3 |
|
|
April 5 |
|
August 15 |
|
December 25 |
|
|
May 1 |
|
September 18 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan |
January 1 |
|
February 12 |
|
April 4 |
|
October 10 |
February 7 |
|
February 13 |
|
May 1 |
|
|
February 8 |
|
February 14 |
|
June 12 |
|
|
February 11 |
|
February 28 |
|
September 19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thailand |
January 1 |
|
April 16 |
|
July 1 |
|
December 5 |
February 25 |
|
May 1 |
|
July 23 |
|
December 10 |
April 8 |
|
May 6 |
|
August 12 |
|
December 31 |
April 15 |
|
May 27 |
|
October 23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey |
January 1 |
|
August 9 |
|
October 16 |
|
October 29 |
April 23 |
|
August 30 |
|
October 17 |
|
|
August 7 |
|
October 14 |
|
October 18 |
|
|
August 8 |
|
October 15 |
|
October 28 |
|
|
Redemptions.
The longest redemption cycle for the Fund is a function of the longest redemption cycle among the countries whose stocks comprise the Fund. In the calendar years 2012 and 2013, the dates of regular holidays affecting the following securities
markets present the worst-case redemption cycle* for the Fund as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
Brazil |
|
|
02/15/12 |
|
|
|
02/23/12 |
|
|
|
8 |
|
|
|
|
02/16/12 |
|
|
|
02/24/12 |
|
|
|
8 |
|
|
|
|
02/17/12 |
|
|
|
02/27/12 |
|
|
|
10 |
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
China |
|
|
01/18/12 |
|
|
|
02/01/12 |
|
|
|
14 |
|
|
|
|
01/19/12 |
|
|
|
02/02/12 |
|
|
|
14 |
|
|
|
|
01/20/12 |
|
|
|
02/03/12 |
|
|
|
14 |
|
|
|
|
04/26/12 |
|
|
|
05/08/12 |
|
|
|
12 |
|
|
|
|
04/27/12 |
|
|
|
05/09/12 |
|
|
|
12 |
|
|
|
|
04/30/12 |
|
|
|
05/10/12 |
|
|
|
12 |
|
|
|
|
09/26/12 |
|
|
|
10/09/12 |
|
|
|
13 |
|
|
|
|
09/27/12 |
|
|
|
10/10/12 |
|
|
|
13 |
|
|
|
|
09/28/12 |
|
|
|
10/11/12 |
|
|
|
13 |
|
Czech Republic |
|
|
12/19/12 |
|
|
|
12/27/12 |
|
|
|
8 |
|
|
|
|
12/20/12 |
|
|
|
12/28/12 |
|
|
|
8 |
|
|
|
|
12/21/12 |
|
|
|
12/31/13 |
|
|
|
10 |
|
Egypt |
|
|
08/14/12 |
|
|
|
08/22/12 |
|
|
|
8 |
|
|
|
|
08/15/12 |
|
|
|
08/23/12 |
|
|
|
8 |
|
|
|
|
08/16/12 |
|
|
|
08/27/12 |
|
|
|
11 |
|
Hungary |
|
|
12/19/12 |
|
|
|
12/27/12 |
|
|
|
8 |
|
|
|
|
12/20/12 |
|
|
|
12/28/12 |
|
|
|
8 |
|
|
|
|
12/21/12 |
|
|
|
01/01/13 |
|
|
|
11 |
|
Indonesia |
|
|
08/14/12 |
|
|
|
08/23/12 |
|
|
|
9 |
|
|
|
|
08/15/12 |
|
|
|
08/24/12 |
|
|
|
9 |
|
|
|
|
08/16/12 |
|
|
|
08/27/12 |
|
|
|
11 |
|
Malaysia |
|
|
01/31/12 |
|
|
|
02/08/12 |
|
|
|
8 |
|
Philippines |
|
|
04/02/12 |
|
|
|
04/10/12 |
|
|
|
8 |
|
|
|
|
04/03/12 |
|
|
|
04/11/12 |
|
|
|
8 |
|
|
|
|
04/04/12 |
|
|
|
04/12/12 |
|
|
|
8 |
|
Poland |
|
|
12/19/12 |
|
|
|
12/27/12 |
|
|
|
8 |
|
|
|
|
12/20/12 |
|
|
|
12/28/12 |
|
|
|
8 |
|
|
|
|
12/21/12 |
|
|
|
01/01/13 |
|
|
|
11 |
|
Russia |
|
|
03/02/12 |
|
|
|
03/12/12 |
|
|
|
10 |
|
|
|
|
03/05/12 |
|
|
|
03/13/12 |
|
|
|
8 |
|
|
|
|
03/06/12 |
|
|
|
03/14/12 |
|
|
|
8 |
|
South Africa |
|
|
12/26/11 |
|
|
|
01/03/12 |
|
|
|
8 |
|
|
|
|
12/27/11 |
|
|
|
01/04/12 |
|
|
|
8 |
|
|
|
|
12/28/11 |
|
|
|
01/05/12 |
|
|
|
8 |
|
|
|
|
12/29/11 |
|
|
|
01/06/12 |
|
|
|
8 |
|
|
|
|
12/30/11 |
|
|
|
01/09/12 |
|
|
|
10 |
|
|
|
|
03/14/12 |
|
|
|
03/22/12 |
|
|
|
8 |
|
|
|
|
03/15/12 |
|
|
|
03/23/12 |
|
|
|
8 |
|
|
|
|
03/16/12 |
|
|
|
03/26/12 |
|
|
|
10 |
|
|
|
|
03/19/12 |
|
|
|
03/27/12 |
|
|
|
8 |
|
|
|
|
03/20/12 |
|
|
|
03/28/12 |
|
|
|
8 |
|
|
|
|
03/30/12 |
|
|
|
04/10/12 |
|
|
|
11 |
|
|
|
|
04/02/12 |
|
|
|
04/11/12 |
|
|
|
9 |
|
|
|
|
04/03/12 |
|
|
|
04/12/12 |
|
|
|
9 |
|
|
|
|
04/04/12 |
|
|
|
04/13/12 |
|
|
|
9 |
|
|
|
|
04/05/12 |
|
|
|
04/16/12 |
|
|
|
11 |
|
|
|
|
04/20/12 |
|
|
|
04/30/12 |
|
|
|
10 |
|
|
|
|
04/23/12 |
|
|
|
05/02/12 |
|
|
|
9 |
|
|
|
|
04/24/12 |
|
|
|
05/03/12 |
|
|
|
9 |
|
|
|
|
04/25/12 |
|
|
|
05/04/12 |
|
|
|
9 |
|
|
|
|
04/26/12 |
|
|
|
05/07/12 |
|
|
|
11 |
|
|
|
|
04/30/12 |
|
|
|
05/08/12 |
|
|
|
8 |
|
|
|
|
08/02/12 |
|
|
|
08/10/12 |
|
|
|
8 |
|
|
|
|
08/03/12 |
|
|
|
08/13/12 |
|
|
|
10 |
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
|
|
|
08/06/12 |
|
|
|
08/14/12 |
|
|
|
8 |
|
|
|
|
08/07/12 |
|
|
|
08/15/12 |
|
|
|
8 |
|
|
|
|
08/08/12 |
|
|
|
08/16/12 |
|
|
|
8 |
|
|
|
|
09/17/12 |
|
|
|
09/25/12 |
|
|
|
8 |
|
|
|
|
09/18/12 |
|
|
|
09/26/12 |
|
|
|
8 |
|
|
|
|
09/19/12 |
|
|
|
09/27/12 |
|
|
|
8 |
|
|
|
|
09/20/12 |
|
|
|
09/28/12 |
|
|
|
8 |
|
|
|
|
09/21/12 |
|
|
|
10/01/12 |
|
|
|
10 |
|
|
|
|
12/10/12 |
|
|
|
12/18/12 |
|
|
|
8 |
|
|
|
|
12/11/12 |
|
|
|
12/19/12 |
|
|
|
8 |
|
|
|
|
12/12/12 |
|
|
|
12/20/12 |
|
|
|
8 |
|
|
|
|
12/13/12 |
|
|
|
12/21/12 |
|
|
|
8 |
|
|
|
|
12/14/12 |
|
|
|
12/24/12 |
|
|
|
10 |
|
|
|
|
12/18/12 |
|
|
|
12/27/12 |
|
|
|
9 |
|
|
|
|
12/19/12 |
|
|
|
12/28/12 |
|
|
|
9 |
|
|
|
|
12/20/12 |
|
|
|
12/31/12 |
|
|
|
11 |
|
|
|
|
12/21/12 |
|
|
|
01/01/13 |
|
|
|
11 |
|
|
|
|
12/24/12 |
|
|
|
01/02/13 |
|
|
|
9 |
|
Taiwan |
|
|
01/19/12 |
|
|
|
01/30/12 |
|
|
|
11 |
|
|
|
|
01/20/12 |
|
|
|
01/31/12 |
|
|
|
11 |
|
Turkey |
|
|
10/19/12 |
|
|
|
10/30/12 |
|
|
|
11 |
|
|
|
|
10/22/12 |
|
|
|
10/31/12 |
|
|
|
9 |
|
|
|
|
10/23/12 |
|
|
|
11/01/12 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
China |
|
|
02/04/13 |
|
|
|
02/19/13 |
|
|
|
15 |
|
|
|
|
02/05/13 |
|
|
|
02/20/13 |
|
|
|
15 |
|
|
|
|
02/06/13 |
|
|
|
02/21/13 |
|
|
|
15 |
|
|
|
|
04/26/13 |
|
|
|
05/08/13 |
|
|
|
12 |
|
|
|
|
04/29/13 |
|
|
|
05/09/13 |
|
|
|
10 |
|
|
|
|
04/30/13 |
|
|
|
05/10/13 |
|
|
|
10 |
|
|
|
|
09/25/13 |
|
|
|
10/08/13 |
|
|
|
13 |
|
|
|
|
09/26/13 |
|
|
|
10/09/13 |
|
|
|
13 |
|
|
|
|
09/27/13 |
|
|
|
10/10/13 |
|
|
|
13 |
|
The Czech Republic |
|
|
12/19/13 |
|
|
|
12/27/13 |
|
|
|
8 |
|
|
|
|
12/20/13 |
|
|
|
12/30/13 |
|
|
|
10 |
|
|
|
|
12/23/13 |
|
|
|
01/02/14 |
|
|
|
10 |
|
Egypt |
|
|
10/08/13 |
|
|
|
10/17/13 |
|
|
|
9 |
|
|
|
|
10/09/13 |
|
|
|
10/18/13 |
|
|
|
9 |
|
|
|
|
10/10/13 |
|
|
|
10/21/13 |
|
|
|
11 |
|
|
|
|
10/29/13 |
|
|
|
11/06/13 |
|
|
|
8 |
|
|
|
|
10/30/13 |
|
|
|
11/07/13 |
|
|
|
8 |
|
|
|
|
10/31/13 |
|
|
|
11/08/13 |
|
|
|
8 |
|
Hungary |
|
|
12/19/13 |
|
|
|
12/27/13 |
|
|
|
8 |
|
|
|
|
12/20/13 |
|
|
|
12/30/13 |
|
|
|
10 |
|
|
|
|
12/23/13 |
|
|
|
12/31/13 |
|
|
|
8 |
|
Indonesia |
|
|
08/02/13 |
|
|
|
08/14/13 |
|
|
|
12 |
|
|
|
|
08/05/13 |
|
|
|
08/15/13 |
|
|
|
10 |
|
|
|
|
08/06/13 |
|
|
|
08/16/13 |
|
|
|
10 |
|
|
|
|
12/19/13 |
|
|
|
12/27/13 |
|
|
|
8 |
|
|
|
|
12/20/13 |
|
|
|
01/02/14 |
|
|
|
13 |
|
|
|
|
12/23/13 |
|
|
|
01/03/14 |
|
|
|
11 |
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
Malaysia |
|
|
08/02/13 |
|
|
|
08/12/13 |
|
|
|
10 |
|
|
|
|
08/05/13 |
|
|
|
08/13/13 |
|
|
|
8 |
|
|
|
|
08/06/13 |
|
|
|
08/14/13 |
|
|
|
8 |
|
The Philippines |
|
|
12/23/13 |
|
|
|
01/02/14 |
|
|
|
10 |
|
South Africa |
|
|
03/14/13 |
|
|
|
03/22/13 |
|
|
|
8 |
|
|
|
|
03/15/13 |
|
|
|
03/25/13 |
|
|
|
10 |
|
|
|
|
03/18/13 |
|
|
|
03/26/13 |
|
|
|
8 |
|
|
|
|
03/19/13 |
|
|
|
03/27/13 |
|
|
|
8 |
|
|
|
|
03/20/13 |
|
|
|
03/28/13 |
|
|
|
8 |
|
|
|
|
03/22/13 |
|
|
|
04/02/13 |
|
|
|
11 |
|
|
|
|
03/25/13 |
|
|
|
04/03/13 |
|
|
|
8 |
|
|
|
|
03/26/13 |
|
|
|
04/04/13 |
|
|
|
8 |
|
|
|
|
03/27/13 |
|
|
|
04/05/13 |
|
|
|
8 |
|
|
|
|
03/28/13 |
|
|
|
04/08/13 |
|
|
|
11 |
|
|
|
|
04/24/13 |
|
|
|
05/02/13 |
|
|
|
8 |
|
|
|
|
04/25/13 |
|
|
|
05/03/13 |
|
|
|
8 |
|
|
|
|
04/26/13 |
|
|
|
05/06/13 |
|
|
|
10 |
|
|
|
|
04/29/13 |
|
|
|
05/07/13 |
|
|
|
8 |
|
|
|
|
04/30/13 |
|
|
|
05/08/13 |
|
|
|
8 |
|
|
|
|
06/10/13 |
|
|
|
06/18/13 |
|
|
|
8 |
|
|
|
|
06/11/13 |
|
|
|
06/19/13 |
|
|
|
8 |
|
|
|
|
06/12/13 |
|
|
|
06/20/13 |
|
|
|
8 |
|
|
|
|
06/13/13 |
|
|
|
06/21/13 |
|
|
|
8 |
|
|
|
|
06/14/13 |
|
|
|
06/24/13 |
|
|
|
10 |
|
|
|
|
08/02/13 |
|
|
|
08/12/13 |
|
|
|
10 |
|
|
|
|
08/05/13 |
|
|
|
08/13/13 |
|
|
|
8 |
|
|
|
|
08/06/13 |
|
|
|
08/14/13 |
|
|
|
8 |
|
|
|
|
08/07/13 |
|
|
|
08/15/13 |
|
|
|
8 |
|
|
|
|
08/08/13 |
|
|
|
08/16/13 |
|
|
|
8 |
|
|
|
|
09/17/13 |
|
|
|
09/25/13 |
|
|
|
8 |
|
|
|
|
09/18/13 |
|
|
|
09/26/13 |
|
|
|
8 |
|
|
|
|
09/19/13 |
|
|
|
09/27/13 |
|
|
|
8 |
|
|
|
|
09/20/13 |
|
|
|
09/30/13 |
|
|
|
10 |
|
|
|
|
09/23/13 |
|
|
|
10/01/13 |
|
|
|
8 |
|
|
|
|
12/11/13 |
|
|
|
12/19/13 |
|
|
|
8 |
|
|
|
|
12/12/13 |
|
|
|
12/20/13 |
|
|
|
8 |
|
|
|
|
12/13/13 |
|
|
|
12/23/13 |
|
|
|
10 |
|
|
|
|
12/18/13 |
|
|
|
12/27/13 |
|
|
|
9 |
|
|
|
|
12/19/13 |
|
|
|
12/30/13 |
|
|
|
11 |
|
|
|
|
12/20/13 |
|
|
|
12/31/13 |
|
|
|
11 |
|
|
|
|
12/23/13 |
|
|
|
01/02/14 |
|
|
|
10 |
|
|
|
|
12/24/13 |
|
|
|
01/03/14 |
|
|
|
10 |
|
Taiwan |
|
|
02/05/13 |
|
|
|
02/15/13 |
|
|
|
10 |
|
|
|
|
02/06/13 |
|
|
|
02/18/13 |
|
|
|
12 |
|
Turkey |
|
|
10/10/13 |
|
|
|
10/21/13 |
|
|
|
11 |
|
|
|
|
10/11/13 |
|
|
|
10/22/13 |
|
|
|
11 |
|
|
* |
These worst-case redemption cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse) redemption cycles
are possible. |
60
Taxes
The following is a summary of certain material U.S. federal income tax considerations regarding the purchase, ownership and disposition of shares of the Fund. This summary does not address all of the potential U.S.
federal income tax consequences that may be applicable to the Fund or to all categories of investors, some of which may be subject to special tax rules. Current and prospective shareholders are urged to consult their own tax advisers with respect to
the specific federal, state, local and non-U.S. tax consequences of investing in the Fund. The summary is based on the laws in effect on the date of this SAI and existing judicial and administrative interpretations thereof, all of which are subject
to change, possibly with retroactive effect.
Regulated Investment Company Qualifications. The Fund intends to
qualify for treatment as a separate RIC under
Subchapter M of the Internal Revenue Code. To qualify for treatment as a RIC, the Fund must annually
distribute at least 90% of its investment company taxable income (which includes dividends, interest and net short-term capital gains) and meet several other requirements. Among such other requirements are the following: (i) at least 90% of the
Funds annual gross income must be derived from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities or non-U.S. currencies, other income (including, but not limited to,
gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly-traded partnerships (i.e., partnerships
that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends, capital gains and other traditionally permitted mutual fund income); and
(ii) at the close of each quarter of the Funds taxable year, (a) at least 50% of the market value of the Funds total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and
other securities, with such other securities limited for purposes of this calculation in respect of any one issuer to an amount not greater than 5% of the value of the Funds assets and not greater than 10% of the outstanding voting securities
of such issuer, and (b) not more than 25% of the value of the Funds total assets may be invested in the securities (other than U.S. government securities or the securities of other RICs) of any one issuer, of two or more issuers of which
20% or more of the voting stock is held by the Fund and that are engaged in the same or similar trades or businesses or related trades or businesses, or the securities of one or more qualified publicly-traded partnerships.
The Fund may be able to cure a failure to derive 90% of its income from the sources specified above or a failure to diversify its holdings in the manner described
above by paying a tax and/or by disposing of certain assets. If, in any taxable year, the Fund fails one of these tests and does not timely cure the failure, the Fund will be taxed in the same manner as an ordinary corporation and distributions to
its shareholders will not be deductible by the Fund in computing its taxable income.
Although, in general, the passive loss rules of the Internal
Revenue Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to interests in qualified publicly-traded partnerships. The Funds investments in partnerships, including in qualified publicly-traded
partnerships, may result in the Fund being subject to state, local, or non-U.S. income, franchise or withholding tax liabilities.
Taxation of RICs. As a RIC, the Fund will not be subject to U.S. federal income tax on the portion of its taxable investment income and capital gains that it distributes to its shareholders, provided that it satisfies a minimum
distribution requirement. To satisfy the minimum distribution requirement, the Fund must distribute to its shareholders at least the sum of (i) 90% of its investment company taxable income (i.e., income other than its net
realized long-term capital gain over its net realized short-term capital loss), plus or minus certain adjustments, and (ii) 90% of its net tax-exempt income for the taxable year. The Fund will be subject to income tax at regular corporate rates
on any taxable income or gains that it does not distribute to its shareholders. If the Fund fails to qualify for any taxable year as a RIC or fails to meet the distribution requirement, all of its taxable income will be subject to tax at regular
corporate income tax rates without any deduction for distributions to shareholders, and such distributions generally will be taxable to shareholders as ordinary dividends to the extent of the Funds current and accumulated earnings and profits.
In such event, distributions to individuals should be eligible to be treated as qualified dividend income and distributions to corporate shareholders generally should be eligible for the dividends received deduction. Although the Fund intends to
distribute substantially all of its net investment income and its capital gains for each taxable year, the Fund will be subject to U.S. federal income taxation to the extent any such income or gains are not distributed. If the Fund fails to qualify
as a RIC in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a RIC. If the Fund fails to qualify as a RIC for a period greater than two taxable years, the Fund may be required to recognize any
net built-in gains with respect to certain of its assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if the Fund had been liquidated) if
it qualifies as a RIC in a subsequent year.
61
Excise Tax. The Fund will be subject to a 4% excise tax on certain
undistributed income if it does not distribute to its shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98.2% of its capital gain net income for the 12 months ended October 31 of such year. For
this purpose, however, any ordinary income or capital gain net income retained by the Fund that is subject to corporate income tax will be considered to have been distributed by year-end. In addition, the minimum amounts that must be distributed in
any year to avoid the excise tax will be increased or decreased to reflect any underdistribution or overdistribution, as the case may be, from the previous year. The Fund intends to declare and distribute dividends and distributions in the amounts
and at the times necessary to avoid the application of this 4% excise tax.
Net Capital Loss Carryforwards. Net
capital loss carryforwards may be applied against any net realized capital gains in each succeeding year, until they have been reduced to zero.
As of
April
30, 2012, the Fund had non-expiring capital loss carryforwards in the amount of $32,766 available to offset future realized capital gains.
Taxation of U.S. Shareholders. Dividends and other distributions by the Fund are generally treated under the Internal Revenue Code as received by the shareholders at the time the dividend or distribution is made. However, any dividend or
distribution declared by the Fund in October, November or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on December 31 of such
calendar year and to have been paid by the Fund not later than such December 31, provided such dividend is actually paid by the Fund during January of the following calendar year.
The Fund intends to distribute annually to its shareholders substantially all of its net tax-exempt income, investment company taxable income and any net realized long-term capital gains in excess of net realized
short-term capital losses (including any capital loss carryovers). However, if the Fund retains for investment an amount equal to all or a portion of its net long-term capital gains in excess of its net short-term capital losses (including any
capital loss carryovers), it will be subject to a corporate tax (currently at a maximum rate of 35%) on the amount retained. In that event, the Fund will designate such retained amounts as undistributed capital gains in a notice to its shareholders
who (a) will be required to include in income for U.S. federal income tax purposes, as long-term capital gains, their proportionate shares of the undistributed amount, (b) will be entitled to credit their proportionate shares of the 35%
tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent their credits exceed their liabilities, if any, and (c) will be entitled to increase their tax basis,
for U.S. federal income tax purposes, in their shares by an amount equal to 65% of the amount of undistributed capital gains included in the shareholders income. Organizations or persons not subject to U.S. federal income tax on such capital
gains will be entitled to a refund of their pro rata share of such taxes paid by the Fund upon filing appropriate returns or claims for refund with the IRS.
Distributions of net realized long-term capital gains, if any, that the Fund reports as capital gains dividends are taxable as long-term capital gains, whether paid in cash or in shares and regardless of how long a
shareholder has held shares of the Fund. All other dividends of the Fund (including dividends from short-term capital gains) from its current and accumulated earnings and profits (regular dividends) are generally subject to tax as
ordinary income, subject to the discussion of qualified dividend income below.
If an individual receives a regular dividend qualifying for the
long-term capital gains rates and such dividend constitutes an extraordinary dividend, and the individual subsequently recognizes a loss on the sale or exchange of stock in respect of which the extraordinary dividend was paid, then the
loss will be long-term capital loss to the extent of such extraordinary dividend. An extraordinary dividend on common stock for this purpose is generally a dividend (i) in an amount greater than or equal to 10% of the
taxpayers tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within an 85-day period, or (ii) in an amount greater than 20% of the taxpayers tax basis (or trading value) in a share of
stock, aggregating dividends with ex-dividend dates within a 365-day period.
Distributions in excess of the Funds current and accumulated
earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of a shareholders basis in shares of the Fund, and as a capital gain thereafter (if the shareholder holds shares of the Fund as capital
assets). Shareholders receiving dividends or distributions in the form of additional shares should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the shareholders receiving
cash dividends or distributions will receive and should have a cost basis in the shares received equal to such amount. Dividends paid by the Fund that are attributable to dividends received by the Fund from domestic corporations may qualify for the
federal dividends received deduction for corporations.
62
Beginning in 2013, a 3.8% U.S. federal Medicare contribution tax will be imposed on net investment income, including
interest, dividends, and capital gain, of U.S. individuals with income exceeding $200,000 (or $250,000 if married and filing jointly), and of estates and trusts.
Investors considering buying shares just prior to a dividend or capital gain distribution should be aware that, although the price of shares purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them. If the Fund is the holder of record of any security on the record date for any dividends payable with respect to such security, such dividends will be included in the
Funds gross income not as of the date received but as of the later of (a) the date such security became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the security would not be entitled to receive
the declared, but unpaid, dividends); or (b) the date the Fund acquired such security. Accordingly, in order to satisfy its income distribution requirements, the Fund may be required to pay dividends based on anticipated earnings, and
shareholders may receive dividends in an earlier year than would otherwise be the case.
In certain situations, the Fund may, for a taxable year, defer
all or a portion of its net capital loss realized after October and its late-year ordinary loss (defined as the excess of post-October foreign currency and passive foreign investment company (PFIC) losses and other
post-December ordinary losses over post-October foreign currency and PFIC gains and other post-December ordinary income) until the next taxable year in computing its investment company taxable income and net capital gain, which will defer the
recognition of such realized losses. Such deferrals and other rules regarding gains and losses realized after October (or December) may affect the tax character of shareholder distributions.
Sales of Shares. Upon the sale or exchange of shares of the Fund, a shareholder will realize a taxable gain or loss equal to the difference between the amount realized and the
shareholders basis in shares of the Fund. A redemption of shares by the Fund will be treated as a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholders hands
and will be long-term capital gain or loss if the shares are held for more than one year and short-term capital gain or loss if the shares are held for one year or less. Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced, including replacement through the reinvesting of dividends and capital gains distributions in the Fund, by, or by an option on, substantially identical shares within a 61-day period beginning 30 days before and
ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six
months or less will be treated for U.S. federal income tax purposes as a long-term capital loss to the extent of any distributions or deemed distributions of long-term capital gains received by the shareholder with respect to such share. The
Medicare contribution tax described above will apply to the sale of Fund shares.
If a shareholder incurs a sales charge in acquiring shares of the
Fund, disposes of those shares within 90 days and then, on or before January 31 of the following calendar year, acquires shares in a mutual fund for which the otherwise applicable sales charge is reduced by reason of a reinvestment right
(e.g., an exchange privilege), the original sales charge will not be taken into account in computing gain/loss on the original shares to the extent the subsequent sales charge is reduced. Instead, the disregarded portion of the original sales
charge will be added to the tax basis of the newly acquired shares. Furthermore, the same rule also applies to a disposition of the newly acquired shares made within 90 days of the second acquisition. This provision prevents shareholders from
immediately deducting the sales charge by shifting their investments within a family of mutual funds.
Back-Up
Withholding. In certain cases, the Fund will be required to withhold at the applicable withholding rate, and remit to the U.S. Treasury such amounts withheld from any distributions paid to a shareholder who: (i) has failed to provide a
correct taxpayer identification number; (ii) is subject to back-up withholding by the IRS; (iii) has failed to certify to the Fund that such shareholder is not subject to back-up withholding; or (iv) has not certified that such
shareholder is a U.S. person (including a U.S. resident alien). Back-up withholding is not an additional tax and any amount withheld may be credited against a shareholders U.S. federal income tax liability.
Sections 351 and 362. The Company, on behalf of the Fund, has the right to reject an order for a purchase of shares of the
Fund if the purchaser (or group of purchasers) would, upon obtaining the shares so ordered, own 80% or more of the outstanding shares of the Fund and if, pursuant to Sections 351 and 362 of the Internal Revenue Code, the Fund would have a basis in
the securities different from the market value of such securities on the date of deposit. If the Funds basis in such securities on the date of deposit was less than market value on such date, the Fund, upon disposition of the securities, would
recognize more taxable gain or less taxable loss than if its basis in the securities had been equal to market value. It is not anticipated that the Company will exercise the right of rejection except in a case where the Company determines that
63
accepting the order could result in material adverse tax consequences to the Fund or its shareholders. The Company also has the right to require information necessary to determine beneficial
share ownership for purposes of the 80% determination.
Taxation of Certain Derivatives. The Funds
transactions in zero coupon securities, non-U.S. currencies, forward contracts, options and futures contracts (including options and futures contracts on non-U.S. currencies), to the extent permitted, will be subject to special provisions of the
Internal Revenue Code (including provisions relating to hedging transactions and straddles) that, among other things, may affect the character of gains and losses realized by the Fund (i.e., may affect whether gains or
losses are ordinary or capital), accelerate recognition of income to the Fund and defer Fund losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also (a) will require
the Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out at the end of each year) and (b) may cause the Fund to recognize income without receiving cash with which to pay
dividends or make distributions in amounts necessary to satisfy the distribution requirements for avoiding income and excise taxes. The Fund will monitor its transactions, will make the appropriate tax elections and will make the appropriate entries
in its books and records when it acquires any zero coupon security, non-U.S. currency, forward contract, option, futures contract or hedged investment in order to mitigate the effect of these rules and prevent disqualification of the Fund as a RIC.
The Funds investments in so-called Section 1256 contracts, such as regulated futures contracts, most non-U.S. currency forward
contracts traded in the interbank market and options on most security indexes, are subject to special tax rules. All Section 1256 contracts held by the Fund at the end of its taxable year are required to be marked to their market value, and any
unrealized gain or loss on those positions will be included in the Funds income as if each position had been sold for its fair market value at the end of the taxable year. The resulting gain or loss will be combined with any gain or loss
realized by the Fund from positions in Section 1256 contracts closed during the taxable year. Provided such positions were held as capital assets and were not part of a hedging transaction nor part of a straddle, 60% of
the resulting net gain or loss will be treated as long-term capital gain or loss, and 40% of such net gain or loss will be treated as short-term capital gain or loss, regardless of the period of time the positions were actually held by the Fund.
As a result of entering into swap contracts, the Fund may make or receive periodic net payments. The Fund may also make or receive a payment when a
swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute ordinary income or deductions, while termination of a swap will generally result in capital gain or
loss (which will be a long-term capital gain or loss if the Fund has been a party to the swap for more than one year). With respect to certain types of swaps, the Fund may be required to currently recognize income or loss with respect to future
payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss.
Qualified Dividend Income. Distributions by the Fund of investment company taxable income (including any short-term capital gains), whether received in cash or shares, will be taxable either as ordinary income or as qualified dividend
income, eligible for the reduced maximum rate to individuals of 15% (0% for individuals in lower tax brackets) to the extent the Fund receives qualified dividend income on the securities it holds and the Fund reports the distribution as qualified
dividend income. Qualified dividend income is, in general, dividend income from taxable U.S. corporations (but generally not from U.S. REITs) and certain non-U.S. corporations (e.g., non-U.S. corporations that are not passive foreign
investment companies and which are incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which is readily tradable on an established securities market
in the United States (where the dividends are paid with respect to such stock)). Under current IRS guidance, the United States has appropriate comprehensive income tax treaties with the following countries: Australia, Austria, Bangladesh, Barbados,
Belgium, Bulgaria, Canada, China (but not with Hong Kong, which is treated as a separate jurisdiction for U.S. tax purposes), Cyprus, the Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia,
Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Morocco, the Netherlands, New Zealand, Norway, Pakistan, the Philippines, Poland, Portugal, Romania, Russia, the Slovak Republic, Slovenia, South
Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, the United Kingdom, and Venezuela. Substitute payments received by the Fund for securities lent out by the Fund will not be
qualified dividend income.
A dividend from the Fund will not be treated as qualified dividend income to the extent that (i) the shareholder has
not held the shares on which the dividend was paid for 61 days during the 121-day period that begins on the date that is 60 days before the date on which the shares become ex-dividend with respect to such dividend or the Fund fails to satisfy those
holding period requirements with respect to the securities it holds that paid the dividends distributed to the shareholder (or, in the case of certain preferred stocks, the holding requirement of 91 days during the 181-day period beginning on the
date
64
that is 90 days before the date on which the stock becomes ex-dividend with respect to such dividend); (ii) the Fund or the shareholder is under an obligation (whether pursuant to a short
sale or otherwise) to make related payments with respect to substantially similar or related property; or (iii) the shareholder elects to treat such dividend as investment income under Section 163(d)(4)(B) of the Internal Revenue Code.
Dividends received by the Fund from a REIT or another RIC may be treated as qualified dividend income only to the extent the dividend distributions are attributable to qualified dividend income received by such REIT or other RIC. It is expected that
dividends received by the Fund from a REIT and distributed to a shareholder generally will be taxable to the shareholder as ordinary income. The maximum 15% rate on qualified dividend income will not apply to dividends received in taxable years
beginning after December 31, 2012. Distributions by the Fund of its net short-term capital gains will be taxable as ordinary income. Capital gain distributions consisting of the Funds net capital gains will be taxable as long-term capital
gains.
If you lend your Fund shares pursuant to securities lending arrangements, you may lose the ability to use non-U.S. tax credits passed through by
the Fund or to treat Fund dividends (paid while the shares are held by the borrower) as qualified dividends. Consult your financial intermediary or tax advisor. If you enter into a short sale with respect to shares of the Fund, substitute payments
made to the lender of such shares may not be deductible. Consult your financial intermediary or tax advisor.
Corporate Dividends Received Deduction. Dividends paid by the Fund that are attributable to dividends received by the Fund
from U.S. corporations may qualify for the U.S. federal dividends received deduction for corporations. A 46-day minimum holding period during the 90-day period that begins 45 days prior to ex-dividend date (or 91-day minimum holding period during
the 180 period beginning 90 days prior to ex-dividend date for certain preference dividends) during which risk of loss may not be diminished is required for the applicable shares, at both the Fund and shareholder level, for a dividend to be eligible
for the dividends received deduction. Restrictions may apply if indebtedness, including a short sale, is attributable to the investment.
Excess Inclusion Income. Under current law, the Fund will block unrelated business taxable income from being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder could realize unrelated business
taxable income by virtue of its investment in the Fund if shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Section 514(b) of the Internal Revenue Code. Certain types of income
received by the Fund from REITs, real estate mortgage investment conduits, taxable mortgage pools or other investments may cause the Fund to report some or all of its distributions as excess inclusion income. To Fund shareholders, such
excess inclusion income may (i) constitute taxable income, as unrelated business taxable income for those shareholders who would otherwise be tax-exempt such as individual retirement accounts, 401(k) accounts, Keogh plans, pension plans and
certain charitable entities; (ii) not be offset by otherwise allowable deductions for tax purposes; (iii) not be eligible for reduced U.S. withholding for non-U.S. shareholders even from tax treaty countries; and (iv) cause the Fund
to be subject to tax if certain disqualified organizations, as defined by the Internal Revenue Code, are Fund shareholders. If a charitable remainder annuity trust or a charitable remainder unitrust (each as defined in Section 664
of the Internal Revenue Code) has unrelated business taxable income (UBTI) for a taxable year, a 100% excise tax on the UBTI is imposed on the trust.
Non-U.S. Investments. Under Section 988 of the Internal Revenue Code, gains or losses attributable to fluctuations in exchange rates between the time the Fund accrues
income or receivables or expenses or other liabilities denominated in a non-U.S. currency and the time the Fund actually collects such income or pays such liabilities are generally treated as ordinary income or ordinary loss. In general, gains (and
losses) realized on debt instruments will be treated as Section 988 gain (or loss) to the extent attributable to changes in exchange rates between the U.S. dollar and the currencies in which the instruments are denominated. Similarly, gains or
losses on non-U.S. currency, non-U.S. currency forward contracts and certain non-U.S. currency options or futures contracts denominated in non-U.S currency, to the extent attributable to fluctuations in exchange rates between the acquisition and
disposition dates, are also treated as ordinary income or loss unless the Fund were to elect otherwise.
The Fund may be subject to non-U.S. income
taxes withheld at the source. The Fund, if permitted to do so, may elect to pass through to its investors the amount of non-U.S. income taxes paid by the Fund provided that the Fund held the security on the dividend settlement date and
for at least 15 additional days immediately before and/or thereafter, with the result that each investor with respect to shares of the Fund held for a minimum 16-day holding period at the time of deemed distribution will (i) include in gross
income, even though not actually received, the investors pro rata share of the Funds non-U.S. income taxes, and (ii) either deduct (in calculating U.S. taxable income, but only for investors who itemize their deductions on
their personal tax returns) or credit (in calculating U.S. federal income tax) the investors pro rata share of the Funds non-U.S. income taxes. A non-U.S. person invested in the Fund in a year that the Fund elects to pass
through its
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non-U.S. taxes may be treated as receiving additional dividend income subject to U.S. withholding tax. A non-U.S. tax credit may not exceed the investors U.S. federal income tax otherwise
payable with respect to the investors non-U.S. source income. For this purpose, shareholders must treat as non-U.S. source gross income (i) their proportionate shares of non-U.S. taxes paid by the Fund and (ii) the portion of any
dividend paid by the Fund that represents income derived from non-U.S. sources; the Funds gain from the sale of securities will generally be treated as U.S.-source income. Certain limitations will be imposed to the extent to which the non-U.S.
tax credit may be claimed.
Passive Foreign Investment Companies. If the Fund purchases shares in PFICs, it may
be subject to U.S. federal income tax on a portion of any excess distribution or gain from the disposition of such shares even if such income is distributed as a taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes arising from such distributions or gains.
If the Fund were to invest in a
PFIC and elect to treat the PFIC as a qualified electing fund under the Internal Revenue Code, in lieu of the foregoing requirements, the Fund might be required to include in income each year a portion of the ordinary earnings and net
capital gains of the qualified electing fund, even if not distributed to the Fund, and such amounts would be subject to the 90% and excise tax distribution requirements described above. In order to make this election, the Fund would be required to
obtain certain annual information from the PFICs in which it invests, which may be difficult or impossible to obtain.
Alternatively, the Fund may make
a mark-to-market election that would result in the Fund being treated as if it had sold and repurchased its PFIC stock at the end of each year. In such case, the Fund would report any such gains as ordinary income and would deduct any such losses as
ordinary losses to the extent of previously recognized gains. The election must be made separately for each PFIC owned by the Fund and, once made, would be effective for all subsequent taxable years, unless revoked with the consent of the IRS. By
making the election, the Fund could potentially ameliorate the adverse tax consequences with respect to its ownership of shares in a PFIC, but in any particular year may be required to recognize income in excess of the distributions it receives from
PFICs and its proceeds from dispositions of PFIC stock. The Fund may have to distribute this phantom income and gain to satisfy the 90% distribution requirement and to avoid imposition of the 4% excise tax.
The Fund will make the appropriate tax elections, if possible, and take any additional steps that are necessary to mitigate the effects of these rules.
Reporting. If a shareholder recognizes a loss with respect to the Funds shares of $2 million or more for an individual
shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but
under current guidance, shareholders of a RIC are not exempted. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Shareholders should
consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Other Taxes. Dividends, distributions and redemption proceeds may also be subject to additional state, local and non-U.S. taxes depending on each shareholders particular situation.
Taxation of Non-U.S. Shareholders. Dividends paid by the Fund to non-U.S. shareholders are generally subject to withholding
tax at a 30% rate or a reduced rate specified by an applicable income tax treaty to the extent derived from investment income and short-term capital gains. Dividends paid by the Fund from net tax-exempt income or long-term capital gains are
generally not subject to such withholding tax. In order to obtain a reduced rate of withholding, a non-U.S. shareholder will be required to provide an IRS Form W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax does
not apply to regular dividends paid to a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. shareholders conduct of a trade or business within the United States. Instead,
the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. shareholder were a U.S. shareholder. A non-U.S. corporation receiving effectively connected dividends may also be subject to additional branch
profits tax imposed at a rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or other applicable form may be subject to back-up withholding at the appropriate rate.
In general, U.S. federal withholding tax will not apply to any gain or income realized by a non-U.S. shareholder in respect of any distributions of net long-term
capital gains over net short-term capital losses, tax-exempt interest dividends, or upon the sale or other disposition of shares of the Fund. If the Funds direct or indirect interests in U.S. real property were to exceed
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certain levels, distributions to a non-U.S. shareholder from the Fund attributable to a REITs distribution to the Fund of gain from a sale or exchange of a U.S. real property interest and,
in the case of a non-U.S. shareholder owning more than 5% of the class of shares throughout either such persons holding period for the redeemed shares or, if shorter, the previous five years, the gain on redemption will be treated as real
property gain subject to additional taxes or withholding and may result in the non-U.S. shareholder having additional filing requirements.
The rules
laid out in the previous paragraph, other than the withholding rules, will apply notwithstanding the Funds participation in a wash sale transaction or its payment of a substitute dividend.
A 30% withholding tax will be imposed on dividends paid after December 31, 2013, and redemption proceeds paid after December 31, 2014, to
(i) foreign financial institutions, including non-U.S. investment funds, unless they agree to collect and disclose to the IRS information regarding their direct and indirect U.S. account holders; and (ii) certain other foreign entities,
unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions will need to enter into agreements with the IRS that state that they will provide the IRS information,
including the name, address and taxpayer identification number of direct and indirect U.S. account holders; comply with due diligence procedures with respect to the identification of U.S. accounts; report to the IRS certain information with respect
to U.S. accounts maintained; agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required information; and determine certain other information as to their
account holders. Other foreign entities will need to provide the name, address, and taxpayer identification number of each substantial U.S. owner or certifications of no substantial U.S. ownership, unless certain exceptions apply.
Shares of the Fund held by a non-U.S. shareholder at death will be considered situated within the United States and subject to the U.S. estate tax.
The foregoing discussion is a summary of certain material U.S. federal income tax considerations only and is not intended as a substitute for careful tax planning.
Purchasers of shares should consult their own tax advisors as to the tax consequences of investing in such shares, including consequences under state, local and non-U.S. tax laws. Finally, the foregoing discussion is based on applicable provisions
of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date of this SAI. Changes in applicable authority could materially affect the conclusions discussed above, and such changes often
occur.
Financial Statements
The Funds audited Financial Statements, including the Financial Highlights, appearing in the Annual Report to Shareholders and the report therein of PricewaterhouseCoopers LLP, an independent registered
public accounting firm, are hereby incorporated by reference in this SAI. The Annual Report to Shareholders, which contains the referenced audited financial statements, is available upon request and without charge.
Miscellaneous Information
Counsel. Willkie Farr
& Gallagher LLP, located at 787 Seventh Avenue, New York, NY 10019, is counsel to the Company.
Independent
Registered Public Accounting Firm. PricewaterhouseCoopers LLP, located at Three Embarcadero Center, San Francisco, CA 94111, serves as the Companys independent registered public accounting firm, audits the Funds financial statements,
and may perform other services.
Shareholder Communications to the Board. The Board has established a process for
shareholders to communicate with the Board. Shareholders may contact the Board by mail. Correspondence should be addressed to iShares Board of Directors, c/o BlackRock Institutional Trust Company, N.A.Mutual Fund Administration, 400
Howard Street, San Francisco, CA 94105. Shareholder communications to the Board should include the following information: (i) the name and address of the shareholder; (ii) the number of shares owned by the shareholder; (iii) the
Fund(s) of which the shareholder owns shares; and (iv) if these shares are owned indirectly through a broker, financial intermediary or other record owner, the name of the broker, financial intermediary or other record owner. All correspondence
received as set forth above shall be reviewed by the Secretary of the Company and reported to the Board.
IS-SAI-DVYE-0413
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iShares®, Inc.
Statement of Additional Information
Dated October 15, 2012
(as revised April 8, 2013)
This Statement of
Additional Information (SAI) is not a prospectus. It should be read in conjunction with the current prospectus (the Prospectus) for the following fund of iShares, Inc. (the Company):
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iShares Core MSCI Emerging Markets ETF (the Fund) |
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The Prospectus for the Fund is dated October 15, 2012, as amended and supplemented from time to time. Capitalized terms used
herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. A copy of the Prospectus may be obtained without charge by writing to the Companys distributor, BlackRock Investments, LLC (the
Distributor), 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310, calling 1-800-iShares (1-800-474-2737) or visiting www.iShares.com. The Funds Prospectus is incorporated by reference to this SAI.
iShares® is a
registered trademark of BlackRock Fund Advisors (BFA) or its affiliates.
TABLE OF CONTENTS
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General Description of the Company and the Fund
The Company currently consists of more than 55 investment series or portfolios. The Company was organized as a Maryland corporation on August 31, 1994 and is
authorized to have multiple series or portfolios. The Company is an open-end management investment company registered with the U.S. Securities and Exchange Commission (the SEC) under the Investment Company Act of 1940, as amended (the
1940 Act). The offering of the Companys shares is registered under the Securities Act of 1933, as amended (the 1933 Act). This SAI relates solely to the Fund.
The Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Investable Market Index (the Underlying Index)
representing large-, mid- and small-cap companies across 21 emerging market countries. The Fund is managed by BFA, an indirect wholly owned subsidiary of BlackRock, Inc.
The Fund offers and issues shares at their net asset value per share (NAV) only in aggregations of a specified number of shares (Creation Unit), generally in exchange for a designated
portfolio of securities (including any portion of such securities for which cash may be substituted) included in its Underlying Index (the Deposit Securities), together with the deposit of a specified cash payment (the Cash
Component). Shares of the Fund are listed for trading on NYSE Arca, Inc. (NYSE Arca or the Listing Exchange), a national securities exchange. Shares of the Fund are traded in the secondary market and elsewhere at market
prices that may be at, above or below the Funds NAV. Shares are redeemable only in Creation Units, and, generally, in exchange for portfolio securities and a Cash Component. Creation Units typically are a specified number of shares, generally
100,000 or multiples thereof.
The Company reserves the right to permit or require that creations and redemptions of shares are effected fully or
partially in cash. Shares may be issued in advance of receipt of Deposit Securities, subject to various conditions, including a requirement to maintain with the Company a cash deposit equal to at least 105% and up to 115%, which percentage BFA may
change from time to time, of the market value of the omitted Deposit Securities. See the Creation and Redemption of Creation Units section of this SAI. Transaction fees and other costs associated with creations or redemptions that include a
cash portion may be higher than the transaction fees and other costs associated with in-kind creations or redemptions. In all cases, conditions and fees will be limited in accordance with the requirements of SEC rules and regulations applicable to
management investment companies offering redeemable securities.
Exchange Listing and Trading
A discussion of exchange listing and trading matters associated with an investment in the Fund is contained in the Shareholder Information section of the
Funds Prospectus. The discussion below supplements, and should be read in conjunction with, that section of the Prospectus.
Shares of the Fund
are listed for trading, and trade throughout the day, on the Listing Exchange and other secondary markets. Shares of the Fund may also be listed on certain non-U.S. exchanges. There can be no assurance that the requirements of the Listing Exchange
necessary to maintain the listing of shares of the Fund will continue to be met. The Listing Exchange may, but is not required to, remove the shares of the Fund from listing if (i) following the initial 12-month period beginning upon the
commencement of trading of Fund shares, there are fewer than 50 beneficial owners of shares of the Fund for 30 or more consecutive trading days, (ii) the value of the Underlying Index on which the Fund is based is no longer calculated or
available, (iii) the indicative optimized portfolio value (IOPV) of the Fund is no longer calculated or available, or (iv) any other event shall occur or condition shall exist that, in the opinion of the Listing
Exchange, makes further dealings on the Listing Exchange inadvisable. The Listing Exchange will also remove shares of the Fund from listing and trading upon termination of the Fund.
As in the case of other publicly-traded securities, when you buy or sell shares through a broker, you will incur a brokerage commission determined by that broker.
In order to provide additional information regarding the indicative value of shares of the Fund, the Listing Exchange or a market data vendor disseminates
information every 15 seconds through the facilities of the Consolidated Tape Association, or through other widely disseminated means, an updated IOPV for the Fund as calculated by an information provider or
1
market data vendor. The Company is not involved in or responsible for any aspect of the calculation or dissemination of the IOPVs and makes no representation or warranty as to the accuracy of the
IOPVs.
An IOPV has an equity securities component and a cash component. The equity securities values included in an IOPV are the values of the Deposit
Securities for the Fund. While the IOPV reflects the current value of the Deposit Securities required to be deposited in connection with the purchase of a Creation Unit, it does not necessarily reflect the precise composition of the current
portfolio of securities held by the Fund at a particular point in time because the current portfolio of the Fund may include securities that are not a part of the current Deposit Securities. Therefore, the Funds IOPV disseminated during the
Listing Exchange trading hours should not be viewed as a real-time update of the Funds NAV, which is calculated only once a day.
The cash
component included in an IOPV consists of estimated accrued interest, dividends and other income, less expenses. If applicable, each IOPV also reflects changes in currency exchange rates between the U.S. dollar and the applicable currency.
The Company reserves the right to adjust the share prices of the Fund in the future to maintain convenient trading ranges for investors. Any
adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Fund or an investors equity interest in the Fund.
Investment Strategies and Risks
The Fund seeks to achieve its objective by investing
primarily in securities issued by issuers that comprise its Underlying Index and through transactions that provide substantially similar exposure to securities in the Underlying Index. The Fund operates as an index fund and will not be actively
managed. Adverse performance of a security in the Funds portfolio will ordinarily not result in the elimination of the security from the Funds portfolio.
The Fund engages in representative sampling, which is investing in a sample of securities selected by BFA to have a collective investment profile similar to that of the Funds Underlying Index. Securities
selected have aggregate investment characteristics (based on market capitalization and industry weightings), fundamental characteristics (such as return variability, earnings valuation and yield) and liquidity measures similar to those of the
Underlying Index. Funds that use representative sampling generally do not hold all of the securities that are in their relevant underlying indexes.
The
Fund will invest all its assets that are invested in Indian securities in a wholly owned subsidiary located in the Republic of Mauritius (the Subsidiary). The remaining assets will be invested directly by the Fund. The Subsidiary and the
Fund will collectively invest at least 80% of the Funds total assets in securities that comprise the Underlying Index and in depositary receipts representing securities of the Underlying Index. BFA will serve as investment adviser to both the
Fund and the Subsidiary. Unless otherwise indicated, the term Fund as used in this SAI means the Fund and/or the Subsidiary, as applicable.
Borrowing. The Fund may borrow as a temporary measure for extraordinary or emergency purposes, including to meet
redemptions or to facilitate the settlement of securities or other transactions. Under normal market conditions, any borrowing by the Fund will not exceed 10% of the Funds net assets.
The purchase of securities while borrowings are outstanding will have the effect of leveraging the Fund. Such leveraging increases the Funds exposure to
capital risk, and borrowed funds are subject to interest costs that will reduce net income. The use of leverage by a Fund creates an opportunity for greater total return, but, at the same time, creates special risks. For example, leveraging may
exaggerate changes in the net asset value of Fund shares and in the yield on the Funds portfolio. Although the principal of such borrowings will be fixed, the Funds assets may change in value during the time the borrowings are
outstanding. Borrowings will create interest expenses for the Fund that can exceed the income from the assets purchased with the borrowings. To the extent the income or capital appreciation derived from securities purchased with borrowed funds
exceeds the interest the Fund will have to pay on the borrowings, the Funds return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such borrowed funds is
not sufficient to cover the cost of borrowing, the return to the Fund will be less than if leverage had not been used and, therefore, the amount available for distribution to shareholders as dividends will be reduced. In the latter case, BFA in its
best judgment nevertheless may determine to maintain the Funds leveraged position if it expects that the benefits to the Funds shareholders of maintaining the leveraged position will outweigh the current reduced return.
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Certain types of borrowings by the Fund may result in the Fund being subject to covenants in credit agreements
relating to asset coverage, portfolio composition requirements and other matters. It is not anticipated that observance of such covenants would impede BFA from managing a Funds portfolio in accordance with the Funds investment objectives
and policies. However, a breach of any such covenants not cured within the specified cure period may result in acceleration of outstanding indebtedness and require the Fund to dispose of portfolio investments at a time when it may be disadvantageous
to do so.
Currency Transactions. The Fund does not expect to engage in currency transactions for the purpose of
hedging against declines in the value of the Funds assets that are denominated in a non-U.S. currency. The Fund may enter into non-U.S. currency forward and non-U.S. currency futures contracts to facilitate local securities settlements or to
protect against currency exposure in connection with its distributions to shareholders, but may not enter into such contracts for speculative purposes.
A forward currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract. A currency futures contract is a contract involving an obligation to deliver or acquire the specified amount of a specific currency, at a specified price and at a
specified future time. Currency futures contracts may be settled on a net cash payment basis rather than by the sale and delivery of the underlying currency. To the extent required by law, liquid assets committed to futures contracts will be
maintained.
Foreign exchange transactions involve a significant degree of risk and the markets in which foreign exchange transactions are effected are
highly volatile, highly specialized and highly technical. Significant changes, including changes in liquidity and prices, can occur in such markets within very short periods of time, often within minutes. Foreign exchange trading risks include, but
are not limited to, exchange rate risk, counterparty risk, maturity gap, interest rate risk, and potential interference by foreign governments through regulation of local exchange markets, foreign investment or particular transactions in non-U.S.
currency. If BFA utilizes foreign exchange transactions at an inappropriate time or judges market conditions, trends or correlations incorrectly, foreign exchange transactions may not serve their intended purpose of improving the correlation of the
Funds return with the performance of the Underlying Index and may lower the Funds
return. The Fund could experience losses if the value of
its currency forwards, options and futures positions are poorly correlated with its other investments or if it cannot close out its positions because of an illiquid market. In addition, the Fund could incur transaction costs, including trading
commissions, in connection with certain non-U.S. currency transactions.
Diversification Status. The Fund is
classified as diversified. With respect to 75% of the Funds total assets, a diversified fund is limited by the 1940 Act such that it does not invest more than 5% of its total assets in securities of any one issuer and
does not acquire more than 10% of the outstanding voting securities of any one issuer (excluding cash and cash items, government securities, and securities of other investment companies). The remaining 25% of the Funds total assets may be
invested in any manner.
The Fund intends to maintain the required level of diversification and otherwise conduct its operations so as to qualify as a
regulated investment company (RIC) for purposes of the U.S. Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and to relieve the Fund of any liability for U.S. federal income tax to the extent that its
earnings are distributed to shareholders, provided that the Fund satisfies a minimum distribution requirement. Compliance with the diversification requirements of the Internal Revenue Code may limit the investment flexibility of the Fund and may
make it less likely that the Fund will meet its investment objective.
Futures and Options. Futures contracts and
options may be used by the Fund to simulate investment in its Underlying Index, to facilitate trading or to reduce transaction costs. The Fund may enter into futures contracts and options that are traded on a U.S. or non-U.S. exchange. The Fund will
not use futures or options for speculative purposes.
Futures contracts provide for the future sale by one party and purchase by another party of a
specified amount of a specific instrument or index at a specified future time and at a specified price. Stock index contracts are based on investments that reflect the market value of common stock of the firms included in the investments. The Fund
may enter into futures contracts to purchase securities indexes when BFA anticipates purchasing the underlying securities and believes prices will rise before the purchase will be made. To the extent required by law, liquid assets committed to
futures contracts will be maintained.
A call option gives a holder the right to purchase a specific security at a specified price (exercise
price) within a specified period of time. A put option gives a holder the right to sell a specific security at a specified exercise price within a specified
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period of time. The initial purchaser of a call option pays the writer a premium, which is paid at the time of purchase and is retained by the writer whether or not such option is
exercised. The Fund may purchase put options to hedge its portfolio against the risk of a decline in the market value of securities held and may purchase call options to hedge against an increase in the price of securities it is committed to
purchase. The Fund may write put and call options along with a long position in options to increase its ability to hedge against a change in the market value of the securities it holds or is committed to purchase. Investments in futures contracts
and other investments that contain leverage may require the Fund to maintain liquid assets. Generally, the Fund maintains an amount of liquid assets equal to its obligations relative to the position involved, adjusted daily on a marked-to-market
basis. With respect to futures contracts that are contractually required to cash-settle, the Fund maintains liquid assets in an amount at least equal to the Funds daily marked-to-market obligation (i.e., the Funds
daily net liability, if any), rather than the contracts notional value (i.e., the value of the underlying asset). By maintaining assets equal to its net obligation under cash-settled futures contracts, the Fund may employ leverage to a
greater extent than if the Fund set aside assets equal to the futures contracts full notional value. The Fund bases its asset maintenance policies on methods permitted by the staff of the SEC and may modify these policies in the future to
comply with any changes in the guidance articulated from time to time by the SEC or its staff.
Illiquid Securities.
The Fund may invest up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment). Illiquid securities include securities subject to contractual or other restrictions on resale and other
instruments that lack readily available markets as determined in accordance with SEC staff guidance.
Lending
Portfolio Securities. The Fund may lend portfolio securities to certain creditworthy borrowers, including borrowers affiliated with BFA. The borrowers provide collateral that is maintained in an amount at least equal to the current market value
of the securities loaned. No securities loan shall be made on behalf of the Fund if, as a result, the aggregate value of all securities loans of the Fund exceeds one-third of the value of the Funds total assets (including the value of the
collateral received). The Fund may terminate a loan at any time and obtain the return of the securities loaned. The Fund receives the value of any interest or cash or non-cash distributions paid on the loaned securities.
With respect to loans that are collateralized by cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. The Fund is
compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the borrower. In the case of collateral other than cash, the Fund is compensated by a fee paid by the borrower equal to a percentage
of the market value of the loaned securities. Any cash collateral may be reinvested in certain short-term instruments either directly on behalf of the lending Fund or through one or more joint accounts or money market funds, including those
affiliated with BFA; such reinvestments are subject to investment risk. BFA may receive compensation for managing the reinvestment of the cash collateral.
Securities lending involves exposure to certain risks, including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process), gap risk
(i.e., the risk of a mismatch between the return on cash collateral reinvestments and the fees the Fund has agreed to pay a borrower), and credit, legal, counterparty and market risk. If a securities lending counterparty were to default, the
Fund would be subject to the risk of a possible delay in receiving collateral or in recovering the loaned securities, or to a possible loss of rights in the collateral. In the event a borrower does not return the Funds securities as agreed,
the Fund may experience losses if the proceeds received from liquidating the collateral do not at least equal the value of the loaned security at the time the collateral is liquidated, plus the transaction costs incurred in purchasing replacement
securities. This event could trigger adverse tax consequences for the Fund. The Fund could lose money if its short-term investment of the collateral declines in value over the period of the loan. Substitute payments for dividends received by the
Fund for securities loaned out by the Fund will not be considered qualified dividend income. The Fund may take the tax effects of this difference into account in its securities lending program.
The Fund pays a portion of the interest or fees earned from securities lending to a borrower as described above and to a securities lending agent who administers
the lending program in accordance with guidelines approved by the Companys Board of Directors (the Board or the Directors). To the extent that the Fund engages in securities lending, BlackRock Institutional Trust
Company, N.A. (BTC) acts as securities lending agent for the Fund, subject to the overall supervision of BFA. BTC receives a portion of the revenues generated by securities lending activities as compensation for its services.
Non-U.S. Securities. The Fund intends to purchase publicly-traded common stocks of non-U.S. issuers. To the extent the Fund
invests in stocks of non-U.S. issuers, the Funds investment in such stocks may be in the form of American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) and European Depositary Receipts (EDRs)
(collectively,
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Depositary Receipts). Depositary Receipts are receipts, typically issued by a bank or trust issuer, which evidence ownership of underlying securities issued by a non-U.S. issuer. For
ADRs, the depository is typically a U.S. financial institution and the underlying securities are issued by a non-U.S. issuer. For other forms of Depositary Receipts, the depository may be a non-U.S. or a U.S. entity, and the underlying securities
may be issued by a non-U.S. or a U.S. issuer. Depositary Receipts are not necessarily denominated in the same currency as their underlying securities. Generally, ADRs, issued in registered form, are designed for use in the U.S. securities markets,
and EDRs, issued in bearer form, are designed for use in European securities markets. GDRs are tradable both in the United States and in Europe and are designed for use throughout the world.
The Fund will not invest in any unlisted Depositary Receipt or any Depositary Receipt that BFA deems illiquid at the time of purchase or for which pricing information is not readily available. In general,
Depositary Receipts must be sponsored, but the Fund may invest in unsponsored Depositary Receipts under certain limited circumstances. The issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United
States. Therefore, there may be less information available regarding such issuers and there may be no correlation between available information and the market value of the Depositary Receipts.
Investing in the securities of non-U.S. issuers involves special risks and considerations not typically associated with investing in U.S. issuers. These include
differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S.
investments in non-U.S. countries, and potential restrictions on the flow of international capital. Non-U.S. issuers may be subject to less governmental regulation than U.S. issuers. Moreover, individual non-U.S. economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payment positions.
Options on Futures Contracts. An option on a futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified exercise price at any time prior to the expiration date of the option. Upon exercise of an option, the delivery of the futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the accumulated balance in the writers futures margin account that represents the amount by which the market price of the futures contract exceeds (in the case of a call) or is
less than (in the case of a put) the exercise price of the option on the futures contract. The potential for loss related to the purchase of an option on a futures contract is limited to the premium paid for the option plus transaction costs.
Because the value of the option is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option changes daily and that change would be
reflected in the NAV of the Fund. The potential for loss related to writing call options is unlimited. The potential for loss related to writing put options is limited to the agreed upon price per share, also known as the strike price,
less the premium received from writing the put.
The Fund may purchase and write put and call options on futures contracts that are traded on an
exchange as a hedge against changes in value of its portfolio securities, or in anticipation of the purchase of securities, and may enter into closing transactions with respect to such options to terminate existing positions. There is no guarantee
that such closing transactions can be effected.
Upon entering into a futures contract, the Fund will be required to deposit with the broker an amount
of cash or cash equivalents known as initial margin, which is in the nature of a performance bond or good faith deposit on the contract and is returned to the Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Subsequent payments, known as variation margin, to and from the broker will be made daily as the price of the index underlying the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking-to-market. At any time prior to the expiration of a futures contract, the Fund may elect to close the position by taking an opposite position, which will operate to
terminate the Funds existing position in the contract.
Regulation Regarding Derivatives. Effective
December 31, 2012, the Commodity Futures Trading Commission (CFTC) adopted certain regulatory changes that subject registered investment companies and advisers to registered investment companies to regulation by the CFTC if a fund
invests more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps (CFTC Derivatives), or if the fund markets itself as providing investment exposure to such instruments. To the extent the Fund
uses CFTC-regulated futures, options and swaps, it intends to do so below such prescribed levels and will not market itself as a commodity pool or a vehicle for trading such instruments. Accordingly, BFA
5
has claimed an exclusion from the definition of the term commodity pool operator under the Commodity Exchange Act (CEA) pursuant to Rule 4.5 under the CEA. BFA is not,
therefore, subject to registration or regulation as a commodity pool operator under the CEA in respect of the Fund.
Repurchase Agreements. A repurchase agreement is an instrument under which the purchaser (i.e., the Fund) acquires the security and the seller agrees, at the time of the sale, to repurchase the security at a mutually agreed upon time
and price, thereby determining the yield during the purchasers holding period. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser. If a
repurchase agreement is construed to be a collateralized loan, the underlying securities will not be considered to be owned by the Fund but only to constitute collateral for the sellers obligation to pay the repurchase price, and, in the event
of a default by the seller, the Fund may suffer time delays and incur costs or losses in connection with the disposition of the collateral.
In any
repurchase transaction, the collateral for a repurchase agreement may include: (i) cash items; (ii) obligations issued by the U.S. government or its agencies or instrumentalities; or (iii) obligations that, at the time the repurchase
agreement is entered into, are rated in the highest rating category generally by at least two nationally recognized statistical rating organizations (NRSROs), or, if unrated, determined to be of comparable quality by BFA. Collateral,
however, is not limited to the foregoing and may include, for example, obligations rated below the highest category by NRSROs. Collateral for a repurchase agreement may also include securities that the Fund could not hold directly without the
repurchase obligation. Irrespective of the type of collateral underlying the repurchase agreement, in the case of a repurchase agreement entered into by a non-money market fund, the repurchase obligation of a seller must be of comparable credit
quality to securities which are rated in the highest two short-term rating categories by at least one NRSRO or, if unrated, deemed by BFA to be of equivalent quality.
Repurchase agreements pose certain risks for the Fund, should it decide to utilize them. Such risks are not unique to the Fund, but are inherent in repurchase agreements. The Fund seeks to minimize such risks, but
because of the inherent legal uncertainties involved in repurchase agreements, such risks cannot be eliminated. Lower quality collateral and collateral with longer maturities may be subject to greater price fluctuations than higher quality
collateral and collateral with shorter maturities. If the repurchase agreement counterparty were to default, lower quality collateral may be more difficult to liquidate than higher quality collateral. Should the counterparty default and the amount
of collateral not be sufficient to cover the counterpartys repurchase obligation, the Fund would retain the status of an unsecured creditor of the counterparty (i.e., the position the Fund would normally be in if it were to hold,
pursuant to its investment policies, other unsecured debt securities of the defaulting counterparty) with respect to the amount of the shortfall. As an unsecured creditor, the Fund would be at risk of losing some or all of the principal and income
involved in the transaction.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the sale of
securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing. Generally, the effect of such transactions is that the Fund can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases the Fund is able to keep some of the interest income associated with those securities. Such transactions are advantageous only if
the Fund has an opportunity to earn a rate of interest on the cash derived from these transactions that is greater than the interest cost of obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to
or greater than the interest required to be paid may not always be available and the Fund intends to use the reverse repurchase technique only when BFA believes it will be advantageous to the Fund. The use of reverse repurchase agreements may
exaggerate any interim increase or decrease in the value of the Funds assets. The Funds exposure to reverse repurchase agreements will be covered by liquid assets having a value equal to or greater than such commitments.
Securities of Investment Companies. The Fund may invest in the securities of other investment companies (including money
market funds) to the extent allowed by law. Pursuant to the 1940 Act, the Funds investment in registered investment companies is generally limited to, subject to certain exceptions: (i) 3% of the total outstanding voting stock of any one
investment company; (ii) 5% of the Funds total assets with respect to any one investment company; and (iii) 10% of the Funds total assets with respect to investment companies in the aggregate. To the extent allowed by law or
regulation, the Fund intends to from time to time invest its assets in the securities of investment companies that are money market funds, including those advised by or otherwise affiliated with BFA, in excess of the limits discussed above. Other
investment companies in which the Fund may invest can be expected to incur fees and expenses for operations, such as investment advisory and administration fees, which would be in addition to those incurred by the Fund.
6
Short-Term Instruments and Temporary Investments. The Fund
may invest in short-term instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that may include but are not limited to:
(i) shares of money market funds (including those advised by BFA or otherwise affiliated with BFA); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored
enterprises); (iii) negotiable certificates of deposit (CDs), bankers acceptances, fixed-time deposits and other obligations of U.S. and non-U.S. banks (including non-U.S. branches) and similar institutions;
(iv) commercial paper rated, at the date of purchase, Prime-1 by Moodys® Investors Service, Inc.,
F-1 by Fitch Inc., or A-1 by Standard & Poors® Financial Services LLC, a subsidiary
of The McGraw-Hill Companies (Standard & Poors Ratings Services), or if unrated, of comparable quality as determined by BFA; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with
remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a-7 under the 1940 Act; (vi) repurchase agreements; and (vii) short-term U.S. dollar-denominated obligations
of non-U.S. banks (including U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by the Fund. Any of these instruments may be purchased on a current or forward-settled basis. Time
deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with
international transactions.
Swap Agreements. Swap agreements are contracts between parties in which one party
agrees to make periodic payments to the other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make periodic payments to the first party based on the return of a different
specified rate, index or asset. Swap agreements will usually be performed on a net basis, with the Fund receiving or paying only the net amount of the two payments. The net amount of the excess, if any, of the Funds obligations over its
entitlements with respect to each swap is accrued on a daily basis and an amount of liquid assets having an aggregate value at least equal to the accrued excess will be maintained by the Fund.
The use of interest rate and index swaps is a highly specialized activity that involves investment techniques and risks different from those associated with
ordinary portfolio security transactions. These transactions generally do not involve the delivery of securities or other underlying assets or principal.
Tracking Stocks. A tracking stock is a separate class of common stock whose value is linked to a specific business unit or
operating division within a larger company and that is designed to track the performance of such business unit or division. The tracking stock may pay dividends to shareholders independent of the parent company. The parent company,
rather than the business unit or division, generally is the issuer of tracking stock. However, holders of the tracking stock may not have the same rights as holders of the companys common stock.
Future Developments. The Board may, in the future, authorize the Fund to invest in securities contracts and investments,
other than those listed in this SAI and in the Prospectus, provided they are consistent with the Funds investment objective and do not violate any of its investment restrictions or policies.
General Considerations and Risks
A discussion of some of the principal risks associated with an investment in the Fund is contained in the Prospectus.
An investment in the Fund should be made with an understanding that the value of the Funds portfolio securities may fluctuate in accordance with changes in
the financial condition of the issuers of the portfolio securities, the value of stocks in general, and other factors that affect the market.
Borrowing Risk. Borrowing may exaggerate changes in the net asset value of Fund shares and in the return on the Funds portfolio. Borrowing will cost the Fund interest expense and other fees. The costs of borrowing may reduce the
Funds return. Borrowing may cause the Fund to liquidate positions when it may not be advantageous to do so to satisfy its obligations.
Cyber Security Issues. With the increased use of technologies such as the Internet to conduct business, the Fund is susceptible to operational and information security risks. In general, cyber incidents can result from deliberate
attacks or unintentional events. Cyber attacks include, but are not limited to, gaining unauthorized access to digital systems for
7
purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches by the Funds third party service providers (including, but not limited to index providers, fund accountants and transfer agents)
and the issuers of securities in which the Fund invests, have the ability to cause disruptions and impact business operations potentially resulting in financial losses, the inability of the Funds shareholders to transact business, violations
of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber
incidents in the future. The Fund and its shareholders could be negatively impacted as a result. While the Fund has established business continuity plans and risk management systems to prevent such cyber-attacks, there are inherent limitations
in such plans and systems including the possibility that certain risks have not been identified. Furthermore, the Fund cannot control the cyber security plans and systems put in place by issuers in which the Fund invests.
Dividend Risk. There is no guarantee that the issuer of the stocks held by the Fund will declare dividends in the future or
that if declared, they will either remain at current levels or increase over time.
Risks of Derivatives. A
derivative is a financial contract, the value of which depends on, or is derived from, the value of an underlying asset such as a security or an index. The Fund may invest in stock index futures contracts and other derivatives. Compared to
conventional securities, derivatives can be more sensitive to changes in interest rates or to sudden fluctuations in market prices and thus the Funds losses may be greater if it invests in derivatives than if it invests only in conventional
securities. Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligations.
Risks of Equity Securities. An investment in the Fund should be made with an understanding of the risks inherent in an investment in equity securities, including the risk that
the financial condition of issuers may become impaired or that the general condition of stock markets may deteriorate (either of which may cause a decrease in the value of the portfolio securities and thus in the value of shares of the Fund). Common
stocks are susceptible to general stock market fluctuations and to increases and decreases in value as market confidence and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors, including
expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic or banking crises. Holders of common stocks incur more risks than
holders of preferred stocks and debt obligations because common stockholders generally have rights to receive payments from stock issuers that are inferior to the rights of creditors, or holders of debt obligations or preferred stocks. Further,
unlike debt securities, which typically have a stated principal amount payable at maturity (the value of which, however, is subject to market fluctuations prior to maturity), or preferred stocks, which typically have a liquidation preference and
which may have stated optional or mandatory redemption provisions, common stocks have neither a fixed principal amount nor a maturity.
Although most of
the securities in the Underlying Index are listed on a national securities exchange, the principal trading market for some of the securities may be in the over-the-counter market. The existence of a liquid trading market for certain securities may
depend on whether dealers will make a market in such securities. There can be no assurance that a market will be made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of the
Funds shares will be adversely affected if trading markets for the Funds portfolio securities are limited or absent, or if bid/ask spreads are wide.
Risks of Futures and Options Transactions. There are several risks accompanying the utilization of futures contracts and options on futures contracts. A position in futures
contracts and options on futures contracts may be closed only on the exchange on which the contract was made (or a linked exchange). While the Fund plans to utilize futures contracts only if an active market exists for such contracts, there is no
guarantee that a liquid market will exist for the contract at a specified time. Futures contracts, by definition, project price levels in the future and not current levels of valuation, therefore market circumstances may result in a discrepancy
between the price of the stock index future and the movement in the Funds Underlying Index. In the event of adverse price movements, the Fund would continue to be required to make daily cash payments to maintain its required margin. In such
situations, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, the Fund may be required to deliver the instruments underlying
the future contracts it has sold.
The risk of loss in trading futures contracts or uncovered call options in some strategies (e.g., selling
uncovered stock index futures contracts) is potentially unlimited. The Fund does not plan to use futures and options contracts in this way. The risk
8
of a futures position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in
immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. The Fund, however, intends to utilize futures and options contracts in a manner designed to limit the risk exposure to levels comparable to a
direct investment in the types of stocks in which it invests.
Utilization of futures and options on futures by the Fund involves the risk of imperfect
or even negative correlation to the Underlying Index if the index underlying the futures contract differs from the Underlying Index. There is also the risk of loss of margin deposits in the event of bankruptcy of a broker with whom the Fund has an
open position in the futures contract or option. The purchase of put or call options will be based upon predictions by BFA as to anticipated trends, which predictions could prove to be incorrect.
Because the futures market generally imposes less burdensome margin requirements than the securities market, an increased amount of participation by speculators in
the futures market could result in price fluctuations. Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount by which the
price of a futures contract may vary either up or down from the previous days settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a
price beyond that limit. It is possible that futures contract prices could move to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting the Fund to
substantial losses. In the event of adverse price movements, the Fund would be required to make daily cash payments of variation margin.
Risks of Investing in Mid-Capitalization Companies. Stock prices of mid-capitalization companies may be more volatile than those of large-capitalization companies and, therefore, the Funds share price may be more volatile than those of
funds that invest a larger percentage of their assets in stocks issued by large-capitalization companies. Stock prices of mid-capitalization companies are also more vulnerable than those of large-capitalization companies to adverse business or
economic developments, and the stocks of mid-capitalization companies may be less liquid, making it more difficult for the Fund to buy and sell them. In addition, mid-capitalization companies generally have less diverse product lines than
large-capitalization companies and are more susceptible to adverse developments related to their products.
Risks of
Investing in Non-U.S. Equity Securities. An investment in the Fund involves risks similar to those of investing in portfolios of equity securities traded on non-U.S. exchanges. These risks include market fluctuations caused by such factors as
economic and political developments, changes in interest rates and perceived trends in stock prices. Investing in securities issued by issuers domiciled in countries other than the domicile of the investor and denominated in currencies other than an
investors local currency entails certain considerations and risks not typically encountered by the investor in making investments in its home country and in that countrys currency. These considerations include favorable or unfavorable
changes in interest rates, currency exchange rates, exchange control regulations and the costs that may be incurred in connection with conversions between various currencies. Investing in the Fund also involves certain risks and considerations not
typically associated with investing in a fund whose portfolio contains exclusively securities of U.S. issuers. These risks include generally less liquid and less efficient securities markets; generally greater price volatility; less publicly
available information about issuers; the imposition of withholding or other taxes; the imposition of restrictions on the expatriation of funds or other assets of the Fund; restrictions on ownership of Indian securities by foreign entities; higher
transaction and custody costs; delays and risks attendant in settlement procedures; difficulties in enforcing contractual obligations; lower liquidity and significantly smaller market capitalization; different accounting and disclosure standards;
lower levels of regulation of the securities markets; more substantial government interference with the economy; higher rates of inflation; greater social, economic, and political uncertainty; the risk of nationalization or expropriation of assets;
and the risk of war.
Risks of Investing in Small-Capitalization Companies. Stock prices of small-capitalization
companies may be more volatile than those of larger companies and therefore the Funds share price may be more volatile than those of funds that invest a larger percentage of their assets in stocks issued by large-capitalization companies.
Stock prices of small-capitalization companies are generally more vulnerable than those of large-capitalization companies to adverse business and economic developments. The stocks of small-capitalization companies may be thinly traded, making it
difficult for the Fund to buy and sell them. In addition, small-capitalization companies are typically less financially stable than larger, more established companies and may depend on a small number of essential personnel, making them more
vulnerable to loss of personnel. Small-capitalization companies also normally have less diverse product lines than large-capitalization companies and are more susceptible to adverse developments concerning their products.
9
Risks of Swap Agreements. The risk of loss with respect to swaps generally is
limited to the net amount of payments that the Fund is contractually obligated to make. Swap agreements are subject to the risk that the swap counterparty will default on its obligations. If such a default occurs, the Fund will have contractual
remedies pursuant to the agreements related to the transaction. However, such remedies may be subject to bankruptcy and insolvency laws which could affect the Funds rights as a creditor (e.g., the Fund may not receive the net amount of
payments that it is contractually entitled to receive).
Treaty/Tax Risk. The Fund intends to operate, in part,
through the Subsidiary, which would in turn invest in securities of Indian issuers. At this time, the Subsidiary should be eligible to take advantage of the benefits of the Double Tax Avoidance Agreement between India and Mauritius
(DTAA). Numerous investors have relied on the benefits of the DTAA to invest in India through Mauritius in the past. However, in the past 10-15 years a number of parties have challenged the DTAA or the interpretation of the DTAA.
Circular 789, issued on April 13, 2000 by the Indian Central Board of Direct Taxes (CBDT), clarifies that whenever the Mauritius revenue authorities have issued a certificate of tax residence, such certificate would constitute
sufficient evidence for accepting the status of residence of Mauritius tax residents for purposes of applying the provisions of the DTAA. The Supreme Court of India in 2003 subsequently held and declared Circular 789 to be valid following litigation
regarding Circular 789. As of the date of this SAI, Circular 789 is still valid and in force.
However, recently issued rulings suggest that the Indian
tax administrations analysis may have changed, and that the tax authorities may now focus on a number of factors when assessing whether a foreign entity is eligible for the benefit of the provisions of a tax treaty, including, among others,
the place of management of the foreign resident company and the level of substance in the jurisdiction in which it is incorporated. In addition, both the Indian tax administration and Indian courts seem now to be taking aggressive efforts to
challenge structures involving offshore funds investing directly or indirectly in India, in particular those from Mauritius. Further, the Finance Act, 2012 (the Finance Act) has made the submission of a tax residency certificate
(TRC) containing prescribed particulars mandatory for claiming treaty benefits. The memorandum to the Finance Act further states that the TRC may not be sufficient for claiming treaty benefits.
It is possible that the governments of India and Mauritius may renegotiate the terms of the DTAA to include, among other things, a limitation of benefit clause. No
assurance can be given that the terms of the DTAA will not be renegotiated or subject to a different interpretation in the future. Any change in the provisions of the DTAA or in its applicability to the Subsidiary could result in the imposition of
withholding and capital gains taxes and other taxes on the Subsidiary by tax authorities in India. This could significantly reduce the return to the Fund on its investments and the return received by the Funds shareholders.
Indian Tax Risk. In 2010, it was proposed that the Income Tax Act (IT Act) may be replaced with the Direct Taxes Code. The Parliamentary
Standing Committee released its comments on the Direct Taxes Code on March 9, 2012. The Finance Act was thereafter presented by the Finance Minister on March 16, 2012, proposing certain amendments to the IT Act. The Finance Minister
highlighted that the enactment of the Direct Taxes Code will be made, at the earliest, after considering the recommendations of the Parliamentary Standing Committee.
Given the delay in enacting the Direct Taxes Code, the Government of India, through the Finance Act, which was enacted on May 28, 2012, has introduced certain key changes to the existing tax framework in
India. This legislation includes provisions that impose Indian tax and withholding obligations with respect to the transfer of shares in an overseas company that derives its value substantially from assets situated in India. Because the Fund invests
in Indian securities through the Subsidiary, this legislation by its terms subjects shareholder redemptions of Fund shares and sales of Fund investments to Indian tax and withholding obligations, both prospectively as well as retroactively. However,
the CBDT issued a circular on May 29, 2012 clarifying the reopening of completed assessments as a result of the retrospective amendments introduced by the Finance Act. Under this circular, CBDT has directed Indian tax authorities to not reopen
any assessment proceedings that were completed before April 1, 2012 and where no notice for reassessment has been issued prior to that date. It has also been clarified that any assessment or any other order which stands validated due to the
amendments in the Finance Act would be enforced. Given this clarification issued by the CBDT, the Fund does not expect that shareholders or the Fund will become subject to tax or to withholding obligations with respect to this particular provision
of the Finance Act.
In addition, the Finance Act implemented the general tax anti-avoidance rule (GAAR), which disallows
impermissible avoidance arrangements. If the Funds use of the Subsidiary were considered to be such an impermissible avoidance arrangement, the Fund would become subject directly to taxation in India. GAAR is expected to come into
force from April 2013. The burden of proof in enforcing the rule will reside with the Indian government, not the taxpayer, and Indias current double tax treaty arrangements will remain in force. However, GAAR may prevent the Fund from
realizing the planned tax benefits of the Subsidiary, irrespective of existing beneficial treaty provisions, may lead to the imposition of tax liabilities and withholding obligations, and may lead the Fund to modify or disassemble its Subsidiary
structure.
10
A Committee was established by the Government of India to provide recommendations on the guidelines for implementing
GAAR under the Direct Taxes Code. With GAAR provisions having been introduced in the Finance Act, the Committee came out with its report on June 28, 2012. Some of the key recommendations made therein include:
(a) |
GAAR provisions should not apply to arrangements where the tax benefit does not exceed a prescribed monetary limit. The actual monetary limit has not been specified;
|
(b) |
GAAR should not be invoked against foreign institutional investors (FIIs) (or their non-resident investors) if such FIIs pay taxes under the IT Act. As a corollary,
GAAR could be invoked against FIIs that opt to claim tax benefits. However, even in such cases, GAAR would not be invoked against the non-resident investors of such FIIs; |
(c) |
GAAR provisions will apply to income accruing or arising on or after April 1, 2013; and |
(d) |
Tax consequences of an impermissible avoidance arrangement should not be on an overall basis, but should rather be limited to such part of the total arrangement as is
impermissible. |
Key procedural aspects recommended by the Committee include:
(a) |
Prescription of time limitsThe Committee has recommended time limits ranging between 60 days to 6 months for disposition of various references with a view towards ensuring
that the possibility of invocation of GAAR attains finality within a reasonable period of time; |
(b) |
Prescription of statutory formsWith the intent of ensuring transparency and consistency, the Committee has prescribed statutory forms that need to be filled by the
Assessing Officer and the Commissioner of Income Tax to, among other things, make a reference to the Commissioner of Income Tax or Approving Panel respectively. The proformas of the prescribed forms require the tax authorities to identify and
provide detailed reasons on account of which they seek to invoke the GAAR provisions; and |
(c) |
Constitution of Approving PanelIt is recommended that the Approving Panel should be comprised of 3 members, of which 2 members should be at the level of Chief Commissioner
of Income Tax and the third member should be an officer at the level of Joint Secretary or above from the Ministry of Law. |
The Prime
Ministers Office has constituted an experts committee that will hold consultations with stakeholders and the general public to rework the draft guidelines on GAAR and create a roadmap for implementation. This report was submitted to the
Government of India on September 30, 2012.
Provisions of the Finance Act and the Direct Taxes Code (if enacted), could change the manner in which
the Subsidiary is currently taxed in India and could adversely impact the returns to the Fund/Subsidiary and its shareholders. The Fund will continue to monitor developments in India with respect to these matters. Investors are urged to consult
their own tax advisers with respect to their own tax situations and the tax consequences of an investment in the Fund.
Risks of Investing in Africa. Investments in securities of issuers in certain African countries involve heightened risks
including, among others, expropriation and/or nationalization of assets, confiscatory taxation, political instability, including authoritarian and/or military involvement in governmental decision-making, armed conflict, civil war, and social
instability as a result of religious, ethnic and/or socioeconomic unrest and, in certain countries, genocidal warfare.
Certain countries in Africa
generally have less developed capital markets than traditional emerging market countries, and, consequently, the risks of investing in foreign securities are magnified in such countries. Because securities markets of countries in Africa are
underdeveloped and are less correlated to global economic cycles than those markets located in more developed countries, securities markets in Africa are subject to greater risks associated with market volatility, lower market capitalization, lower
trading volume, illiquidity, inflation, greater price fluctuations and uncertainty regarding the existence of trading markets.
Moreover, trading on
securities markets may be suspended altogether. Market volatility may also be heightened by the actions of a small number of investors. Brokerage firms in certain countries in Africa may be fewer in number and less established than brokerage firms
in more developed markets. Since the Fund may need to effect securities transactions through these brokerage firms, the Fund is subject to the risk that these brokerage firms will not be able to fulfill their obligations to the Fund (i.e.,
counterparty risk). This risk is magnified to the extent that the Fund effects securities transactions through a single brokerage firm or a small number of brokerage firms.
11
Certain governments in Africa restrict or control to varying degrees the ability of foreign investors to invest in
securities of issuers located or operating in those countries. These restrictions and/or controls may at times limit or prevent foreign
investment in
securities of issuers located or operating in countries in Africa. Moreover, certain countries in Africa require governmental approval or special licenses prior to investment by foreign investors and may limit the amount of investment by foreign
investors in a particular industry and/or issuer, and may limit such foreign investment to a certain class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domestic investors of the
countries and/or impose additional taxes on foreign investors. A delay in obtaining a government approval or a license would delay investments in a particular country, and, as a result, the Fund may not be able to invest in certain securities while
approval is pending. The government of a particular country may also withdraw or decline to renew a license that enables the Fund to invest in such country. These factors make investing in issuers located or operating in countries in Africa
significantly riskier than investing in issuers located or operating in more developed countries, and any one of these factors could cause a decline in the value of the Funds investments.
Issuers located or operating in countries in Africa are not subject to the same rules and regulations as issuers located or operating in more developed countries.
Therefore, there may be less financial and other information publicly available with regard to issuers located or operating in countries in Africa and such issuers are not subject to the uniform accounting, auditing and financial reporting standards
applicable to issuers located or operating in more developed countries.
In addition, governments of certain countries in Africa in which the Fund may
invest may levy withholding or other taxes on income such as dividends, interest and realized capital gains. Although in certain countries in Africa a portion of these taxes are recoverable, the non-recovered portion of foreign withholding taxes
will reduce the income received from investments in such countries.
Investment in countries in Africa may be subject to a greater degree of risk
associated with governmental approval in connection with the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, there is the risk that if an African countrys balance of payments
declines, such African country may impose temporary restrictions on foreign capital remittances. Consequently, the Fund could be adversely affected by delays in, or a refusal to grant, required governmental approval for repatriation of capital, as
well as by the application to the Fund of any restrictions on investments. Additionally, investments in countries in Africa may require the Fund to adopt special procedures, seek local government approvals or take other actions, each of which may
involve additional costs to the Fund.
Securities laws in many countries in Africa are relatively new and unsettled and, consequently, there is a risk
of rapid and unpredictable change in laws regarding foreign investment, securities regulation, title to securities and shareholder rights. Accordingly, foreign investors may be adversely affected by new or amended laws and regulations. In addition,
there may be no single centralized securities exchange on which securities are traded in certain countries in Africa and the systems of corporate governance to which issuers located in countries in Africa are subject may be less advanced than those
systems to which issuers located in more developed countries are subject, and therefore, shareholders of issuers located in such countries may not receive many of the protections available to shareholders of issuers located in more developed
countries.
In circumstances where adequate laws and shareholder rights exist, it may not be possible to obtain swift and equitable enforcement of the
law. In addition, the enforcement of systems of taxation at federal, regional and local levels in countries in Africa may be inconsistent and subject to sudden change.
Certain countries in Africa may be heavily dependent upon international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These countries also have been and may continue to be adversely affected by economic conditions in the countries with which they
trade. Certain countries in Africa depend to a significant extent upon exports of primary commodities such as gold, silver, copper and diamonds. These countries therefore are vulnerable to changes in commodity prices, which may be affected by a
variety of factors. In addition, certain issuers located in countries in Africa in which the Fund invests may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations,
and/or countries identified by the U.S. government as state sponsors of terrorism. As a result, an issuer may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. The Fund, as an
investor in such issuers, will be indirectly subject to those risks.
The governments of certain countries in Africa may exercise substantial influence
over many aspects of the private sector and may own or control many companies. Future government actions could have a significant effect on the economic
12
conditions in such countries, which could have a negative impact on private sector companies. There is also the possibility of diplomatic developments that could adversely affect investments in
certain countries in Africa. Some countries in Africa may be affected by a greater degree of public corruption and crime, including organized crime.
In
addition, recent political instability and protests in North Africa and the Middle East have caused significant disruptions to many industries. This instability has demonstrated that political and social unrest can spread quickly through the region,
and that developments in one country can influence the political events in neighboring countries. Some protests have turned violent, and civil war and political reconstruction in countries such as Libya poses a risk to investments in the region.
Continued political and social unrest in these regions may negatively affect the value of your investment in the Fund.
Risks of Investing in Asia. Investments in securities of issuers in certain Asian countries involve risks not typically
associated with investments in securities of issuers in other regions. Such heightened risks include, among others, expropriation and/or nationalization of assets, confiscatory taxation, political instability, including authoritarian and/or military
involvement in governmental decision-making, armed conflict and social instability as a result of religious, ethnic and/or socio-economic unrest. Many Asian economies have experienced rapid growth and industrialization, and there is no assurance
that this growth rate will be maintained.
Certain Asian countries have democracies with relatively short histories, which may increase the risk of
political instability. These countries have faced political and military unrest, and further unrest could present a risk to their local economies and securities markets. Indonesia and the Philippines have each experienced violence and terrorism,
which has negatively impacted their economies. North Korea and South Korea each have substantial military capabilities, and historical tensions between the two countries present the risk of war. Any outbreak of hostilities between the two countries
could have a severe adverse effect on the South Korean economy and securities market. Increased political and social unrest in these geographic areas could adversely affect the performance of investments in this region.
Certain governments in this region administer prices on several basic goods, including fuel and electricity, within their respective countries. Certain governments
may exercise substantial influence over many aspects of the private sector in their respective countries and may own or control many companies. Future government actions could have a significant effect on the economic conditions in this region,
which in turn could have a negative impact on private sector companies. There is also the possibility of diplomatic developments adversely affecting investments in the region.
Corruption and the perceived lack of a rule of law in dealings with international companies in certain Asian countries may discourage foreign investment and could negatively impact the long-term growth of certain
economies in this region. In addition, certain countries in the region are experiencing high unemployment and corruption, and have fragile banking sectors.
Some economies in this region are dependent on a range of commodities, including oil, natural gas and coal. Accordingly, they are strongly affected by international commodity prices and particularly vulnerable to
any weakening in global demand for these products. The market for securities in this region may also be directly influenced by the flow of international capital, and by the economic and market conditions of neighboring countries. Adverse economic
conditions or developments in neighboring countries may increase investors perception of the risk of investing in the region as a whole, which may adversely impact the market value of the securities issued by companies in the region.
Risks of Investing in Central and South America. The economies of certain Central and South American countries
are affected by the economies of other Central and South American countries, some of which have experienced high interest rates, economic volatility, inflation, currency devaluations, government defaults and high unemployment rates. In addition,
commodities (such as oil, gas and minerals) represent a significant percentage of the regions exports and many economies in this region are particularly sensitive to fluctuations in commodity prices. Adverse economic events in one country may
have a significant adverse effect on some or all of the countries in the region.
Risks of Investing in Eastern
Europe. Investing in the securities of Eastern European issuers is highly speculative and involves risks not usually associated with investing in the more developed markets of Western Europe. Political and economic reforms are too recent to
establish a definite trend away from centrally planned economies and state-owned industries. In the past, some Eastern European governments have expropriated substantial amounts of private property, and many claims of the property owners have never
been fully settled.
13
Many Eastern European countries continue to move towards market economies at different paces with appropriately
different characteristics. Most Eastern European securities markets suffer from thin trading activity, dubious investor protections, and often a dearth of reliable corporate information. Information and transaction costs, differential taxes, and
sometimes political or transfer risk give a comparative advantage to the domestic investor rather than the foreign investor. In addition, these markets are particularly sensitive to social, political, economic, and currency events in Russia and may
suffer heavy losses as a result of their trading and investment links to the Russian economy and currency. Russia also may attempt to assert its influence in the region through economic or even military measures, as it did with Georgia in the summer
of 2008. Eastern European economies may also be particularly susceptible to changes in the international credit markets due to their reliance on bank related inflows of capital. The recent global economic crisis has restricted international credit
supplies, and several Eastern European economies have faced significant credit and economic crises. Although some Eastern European economies are expanding again, major challenges are still present as a result of their continued dependence on the
Western European zone for credit.
Risks of Investing in Emerging Markets. Investments in emerging market
countries may be subject to greater risks than investments in developed countries. These risks include: (i) less social, political, and economic stability; (ii) greater illiquidity and price volatility due to smaller or limited local
capital markets for such securities, or low or non-existent trading volumes; (iii) foreign exchanges and broker-dealers may be subject to less scrutiny and regulation by local authorities; (iv) local governments may decide to seize or
confiscate securities held by foreign investors and/or local governments may decide to suspend or limit an issuers ability to make dividend or interest payments; (v) local governments may limit or entirely restrict repatriation of
invested capital, profits, and dividends; (vi) capital gains may be subject to local taxation, including on a retroactive basis; (vii) issuers facing restrictions on dollar or euro payments imposed by local governments may attempt to make
dividend or interest payments to foreign investors in the local currency; (viii) investors may experience difficulty in enforcing legal claims related to the securities and/or local judges may favor the interests of the issuer over those of
foreign investors; (ix) bankruptcy judgments may only be permitted to be paid in the local currency; (x) limited public information regarding the issuer may result in greater difficulty in determining market valuations of the securities,
and (xi) lax financial reporting on a regular basis, substandard disclosure and differences in accounting standards may make it difficult to ascertain the financial health of an issuer.
Emerging market securities markets are typically marked by a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a
high concentration of ownership of such securities by a limited number of investors. In addition, brokerage and other costs associated with transactions in emerging markets securities markets can be higher, sometimes significantly, than similar
costs incurred in securities markets in developed countries. Although some emerging markets have become more established and tend to issue securities of higher credit quality, the markets for securities in other emerging countries are in the
earliest stages of their development, and these countries issue securities across the credit spectrum. Even the markets for relatively widely traded securities in emerging countries may not be able to absorb, without price disruptions, a significant
increase in trading volume or trades of a size customarily undertaken by institutional investors in the securities markets of developed countries. The limited size of many of these securities markets can cause prices to be erratic for reasons apart
from factors that affect the soundness and competitiveness of the securities issuers. For example, prices may be unduly influenced by traders who control large positions in these markets. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased volatility and reduced liquidity of such markets. The limited liquidity of emerging country securities may also affect the Funds ability to accurately value its
portfolio securities or to acquire or dispose of securities at the price and time it wishes to do so or in order to meet redemption requests.
Many
emerging market countries suffer from uncertainty and corruption in their legal frameworks. Legislation may be difficult to interpret and laws may be too new to provide any precedential value. Laws regarding foreign investment and private property
may be weak or non-existent. Sudden changes in governments may result in policies which are less favorable to investors such as policies designed to expropriate or nationalize sovereign assets. Certain emerging market countries in the
past have expropriated large amounts of private property, in many cases with little or no compensation, and there can be no assurance that such expropriation will not occur in the future.
Investment in the securities markets of certain emerging countries is restricted or controlled to varying degrees. These restrictions may limit the Funds investment in certain emerging countries and may
increase the expenses of the Fund. Certain emerging countries require governmental approval prior to investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuers outstanding securities or a
specific class of securities which may have less advantageous terms (including price) than securities of the company available for purchase by nationals.
14
Many emerging market countries lack the social, political, and economic stability characteristic of the United States.
Political instability among emerging market countries can be common and may be caused by an uneven distribution of wealth, social unrest, labor strikes, civil wars, and religious oppression. Economic instability in emerging market countries may take
the form of: (i) high interest rates; (ii) high levels of inflation, including hyperinflation; (iii) high levels of unemployment or underemployment; (iv) changes in government economic and tax policies, including confiscatory
taxation; and (v) imposition of trade barriers.
The Funds income and, in some cases, capital gains from foreign securities will be subject
to applicable taxation in certain of the emerging market countries in which it invests, and treaties between the United States and such countries may not be available in some cases to reduce the otherwise applicable tax rates.
Emerging markets also have different clearance and settlement procedures, and in certain of these emerging markets there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions.
In the past, certain governments in
emerging market countries have become overly reliant on the international capital markets and other forms of foreign credit to finance large public spending programs, which in the past have caused huge budget deficits. Often, interest payments have
become too overwhelming for a government to meet, representing a large percentage of total GDP. These foreign obligations have become the subject of political debate and served as fuel for political parties of the opposition, which pressure the
government not to make payments to foreign creditors, but instead to use these funds for, among other things, social programs. Either due to an inability to pay or submission to political pressure, foreign governments have been forced to seek a
restructuring of their loan and/or bond obligations, have declared a temporary suspension of interest payments or have defaulted. These events have adversely affected the values of securities issued by foreign governments and corporations domiciled
in those countries and have negatively affected not only their cost of borrowing, but their ability to borrow in the future as well.
Risks of Investing in Europe. The Economic and Monetary Union of the European Union (the EU) requires member countries to comply with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal and monetary
controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member
country on its sovereign debt, and/or an economic recession in an EU member country may have a significant adverse effect on the economies of EU member countries and their trading partners. Although certain European countries do not use the euro,
many of these countries are obliged to meet the criteria for joining the euro zone. Consequently, these countries must comply with many of the restrictions noted above. The European financial markets have recently experienced volatility and adverse
trends due to concerns about economic downturns, rising government debt levels and the possible default of government debt in several European countries, including Greece, Ireland, Italy, Portugal and Spain. In order to prevent further economic
deterioration, certain countries, without prior warning, can institute capital controls. Countries use these controls to restrict volatile movements of capital entering and exiting their country. Such controls may negatively affect the
Funds investments. A default or debt restructuring by any European country would adversely impact holders of that countrys debt and sellers of credit default swaps linked to that countrys creditworthiness, which may be located in
countries other than those listed above. In addition, the credit ratings of certain European countries were recently downgraded. These downgrades may result in further deterioration of investor confidence. These events have adversely affected the
value and exchange rate of the euro and may continue to significantly affect the economies of every country in Europe, including countries that do not use the euro and non-EU member countries. Responses to the financial problems by European
governments, central banks and others, including austerity measures and reforms, may not work, may result in social unrest and may limit future growth and economic recovery or have other unintended consequences. Further defaults or restructurings by
governments and other entities of their debt could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition, one or more countries may abandon the euro, the common currency of the EU, and/or
withdraw from the EU. The impact of these actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far-reaching.
Risks of Investing in India. India is an emerging market and demonstrates significantly higher volatility from time to time in comparison to more developed markets. Political,
religious, and border disputes persist in India. India has recently experienced and may continue to experience civil unrest and hostilities with certain of its neighboring countries, including Pakistan, and the Indian government has confronted
separatist movements in several Indian states, including Kashmir. Government control over the economy, currency fluctuations or blockage, and the risk of nationalization or expropriation of assets may offer higher potential for losses. Governmental
actions could have a negative effect on the economic conditions
15
in India, which could adversely affect the value and liquidity of investments made by the Fund. The securities markets in India are comparatively underdeveloped and with some exceptions, consist
of a small number of listed companies with small market capitalization, greater price volatility and substantially less liquidity than companies in more developed markets. Stockbrokers and other intermediaries in India may not perform as well as
their counterparts in the United States or other, more developed countries. The limited liquidity of the Indian securities markets may also affect the Funds ability to acquire or dispose of securities at the price or time that it desires or
the Funds ability to track the Underlying Index.
Global factors and foreign actions may inhibit the flow of foreign capital on which India is
dependent to sustain its growth. In addition, the Reserve Bank of India has imposed limits on foreign ownership of Indian companies, which may decrease the liquidity of the Funds portfolio and result in extreme volatility in the prices of
Indian securities. These factors, coupled with the lack of extensive accounting, auditing and financial reporting standards and practices, as applicable in the United States, may increase the risk of loss for the Fund.
Securities laws in India are relatively new and unsettled and, as a result, there is a risk of significant and unpredictable change in laws governing foreign
investment, securities regulation, title to securities and shareholder rights. Foreign investors in particular may be adversely affected by new or amended laws and regulations. Certain Indian regulatory approvals, including approvals from the
Securities and Exchange Board of India, the central government and the tax authorities (to the extent that tax benefits need to be utilized), may be required before the Fund can make investments in Indian companies.
Technology and software sectors represent a significant portion of the total capitalization of the Indian securities markets. The value of these companies will
generally fluctuate in response to technological and regulatory developments, and, as a result, the Funds holdings are expected to experience correlated fluctuations.
Natural disasters, such as tsunamis, flooding or droughts, could occur in India, Mauritius or surrounding areas and could negatively affect the Indian economy or operations of the Subsidiary, and, in turn, could
negatively affect the Fund.
Risks of Investing in North America. The United States is Canadas and
Mexicos largest trading and investment partner. The Canadian and Mexican economies are significantly affected by developments in the U.S. economy. Since the implementation of the North American Free Trade Agreement (NAFTA) in 1994
among Canada, the United States and Mexico, total merchandise trade between the three countries has increased. To further this relationship, the three NAFTA countries entered into the Security and Prosperity Partnership of North America in March
2005, which may further affect Canadas and Mexicos dependency on the U.S. economy. Economic events in any one North American country can have a significant economic effect on the entire North American region, and on some or all of the
North American countries in which the Fund invests.
Risks of Investing in the Middle East. Many Middle Eastern
countries have little or no democratic tradition, and the political and legal systems in such countries may have an adverse impact on the Fund. Many economies in the Middle East are highly reliant on income from the sale of oil or trade with
countries involved in the sale of oil, and their economies are therefore vulnerable to changes in the market for oil and foreign currency values. As global demand for oil fluctuates, many Middle Eastern economies may be significantly impacted.
In addition, many Middle Eastern governments have exercised and continue to exercise substantial influence over many aspects of the private sector. In
certain cases, a Middle Eastern countrys government may own or control many companies, including some of the largest companies in the country. Accordingly, governmental actions in the future could have a significant effect on economic
conditions in Middle Eastern countries. This could affect private sector companies and the Fund, as well as the value of securities in the Funds portfolio.
Certain Middle Eastern markets are in the earliest stages of development. As a result, there may be a high concentration of market capitalization and trading volume in a small number of issuers representing a
limited number of industries, as well as a high concentration of investors and financial intermediaries. Brokers in Middle Eastern countries typically are fewer in number and less well capitalized than brokers in the United States.
The legal systems in certain Middle Eastern countries also may have an adverse impact on the Fund. For example, the potential liability of a shareholder in a U.S.
corporation with respect to acts of the corporation generally is limited to the amount of the shareholders investment. However, the notion of limited liability is less clear in certain Middle Eastern countries. The Fund therefore may be liable
in certain Middle Eastern countries for the acts of a corporation in which it invests for an amount greater than the Funds actual investment in that corporation. Similarly, the rights of investors in
16
Middle Eastern issuers may be more limited than those of shareholders of a U.S. corporation. It may be difficult or impossible to obtain and/or enforce a legal judgment in a Middle Eastern
country. Some Middle Eastern countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Fund. For example, certain countries may require
governmental approval prior to investment by foreign persons or limit the amount of investment by foreign persons in a particular issuer. They may also limit the investment by foreign persons to only a specific class of securities of an issuer that
may have less advantageous terms (including price) than securities of the issuer available for purchase by nationals.
The manner in which foreign
investors may invest in companies in certain Middle Eastern countries, as well as limitations on those investments, may have an adverse impact on the operations of the Fund. For example, in certain of these countries, the Fund may be required to
invest initially through a local broker or other entity and then have the shares that were purchased re-registered in the name of the Fund. Re-registration in some instances may not be possible on a timely basis. This may result in a delay during
which the Fund may be denied certain of its rights as an investor, including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where the Fund places a purchase order but is subsequently informed, at
the time of re-registration, that the permissible allocation of the investment to foreign investors has been filled.
Substantial limitations may exist
in certain Middle Eastern countries with respect to the Funds ability to repatriate investment income or capital gains. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Fund of any restrictions on investment.
Certain Middle Eastern countries may be heavily
dependent upon international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These countries also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. In addition, certain issuers located in Middle Eastern countries in which
the Fund invests may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of terrorism. As a
result, an issuer may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. The Fund, as an investor in such issuers, will be indirectly subject to those risks.
Certain Middle Eastern countries have strained relations with other Middle Eastern countries due to territorial disputes, historical animosities or defense
concerns, which may adversely affect the economies of these Middle Eastern countries. Certain Middle Eastern countries experience significant unemployment, as well as widespread underemployment. Recently, many Middle Eastern countries have
experienced political, economic and social unrest as protestors have called for widespread reform. These protests may adversely affect the economies of these Middle Eastern countries.
Risks of Investing in Russia. Investing in the Russian securities market involves a high degree of risk and special considerations not typically associated with investing in
the U.S. securities market, and should be considered highly speculative. Risks include: the absence of developed legal structures governing private and foreign investments and private property; the possibility of the loss of all or a substantial
portion of the Funds assets invested in Russia as a result of expropriation; certain national policies which may restrict the Funds investment opportunities, including, without limitation, restrictions on investing in issuers or
industries deemed sensitive to relevant national interests; and potentially greater price volatility in, significantly smaller capitalization of, and relative illiquidity of, the Russian market. There can also be no assurance that the Funds
investments in the Russian securities market would not be expropriated, nationalized or otherwise confiscated. In the event of the settlement of any such claims or such expropriation, nationalization or other confiscation, the Fund could lose its
entire investment. In addition, it may be difficult and more costly to obtain and enforce a judgment in the Russian court system.
Russia may also be
subject to a greater degree of economic, political and social instability than is the case in other developed countries. Such instability may result from, among other things, the following: (i) an authoritarian government or military
involvement in political and economic decision-making, including changes in government through extra-constitutional means; (ii) popular unrest associated with demands for improved political, economic and social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries; and (v) ethnic, religious and racial disaffection.
The Russian economy is
heavily dependent upon the export of a range of commodities including most industrial metals, forestry products and oil and gas. Accordingly, it is strongly affected by international commodity prices and is particularly
17
vulnerable to any weakening in global demand for these products. Any acts of terrorism or armed conflicts in Russia or internationally could have an adverse effect on the financial and
commodities markets and the global economy. As Russia produces and exports large amounts of crude oil and gas, any acts of terrorism or armed conflict causing disruptions of Russian oil and gas exports could negatively affect the Russian economy
and, thus, adversely affect the financial condition, results of operations or prospects of related companies.
The Russian government may exercise
substantial influence over many aspects of the private sector and may own or control many companies. Future government actions could have a significant effect on the economic conditions in Russia, which could have a negative impact on private sector
companies. There is also the possibility of diplomatic developments that could adversely affect investments in Russia. In recent years, the Russian government has begun to take bolder steps to re-assert its regional geopolitical influence (including
military steps). Such steps may increase tensions between Russia and its neighbors and Western countries and may negatively affect economic growth.
U.S. Trading Partners Risk. The United States is a significant, and in some cases the most significant, trading partner of or foreign investor in certain countries in which the Fund invests and the economies of these countries may be
particularly affected by changes in the U.S. economy. The U.S. economy has recently experienced very difficult conditions and volatility, as well as significant adverse trends. While government intervention and recent legislation has been enacted to
improve the U.S. economy, the recovery has been fragile and modest. Decreasing U.S. imports, new trade regulations, changes in the U.S. dollar exchange rate or a recession in the United States may have a material adverse effect on economies of these
countries and, as a result, securities to which the Fund has exposure.
Risks of Investing in the Consumer
Discretionary Sector. Companies engaged in the design, production or distribution of products or services for the consumer discretionary sector (including, without limitation, television and radio broadcasting, manufacturing, publishing,
recording and musical instruments, motion pictures, photography, amusement and theme parks, gaming casinos, sporting goods and sports arenas, camping and recreational equipment, toys and games, apparel, travel-related services, automobiles, hotels
and motels, and fast food and other restaurants) are subject to the risk that their products or services may become obsolete quickly. The consumer discretionary sector may be significantly affected by several factors, including, without limitation,
the performance of domestic and international economies, exchange rates, changing consumer tastes and trends, marketing campaigns, cyclical revenue generation, consumer confidence, commodity price volatility, labor relations, interest rates, import
and export controls, intense competition, technological developments and government regulation.
Risks of Investing
in the Consumer Staples Sector. Companies in the consumer staples sector may be adversely affected by changes in the global economy, consumer spending, competition, demographics and consumer preferences, and production spending. Companies in the
consumer staples sector also may be affected by changes in government regulation, global economic, environmental and political events, economic conditions and the depletion of resources. In addition, companies in the consumer staples sector may be
subject to risks pertaining to the supply of, demand for and prices of raw materials. The prices of raw materials fluctuate in response to a number of factors, including, without limitation, changes in government agricultural support programs,
exchange rates, import and export controls, changes in international agricultural and trading policies, and seasonal and weather conditions.
Risks of Investing in the Energy Sector. Companies in the energy sector may be strongly affected by the levels and volatility of global energy prices, energy supply and demand, government regulations and policies, energy production and
conservation efforts, and technological change. Prices and supplies of energy may fluctuate significantly over short and long periods of time due to national and international political changes, Organization of Petroleum Exporting Countries
(OPEC) policies, changes in relationships among OPEC members and between OPEC and oil-importing nations, the regulatory environment, taxation policies, and the economy of the key energy-consuming countries. In addition, companies in the
energy sector are at risk of civil liability from accidents resulting in injury, loss of life or property, pollution or other environmental damage claims and risk of loss from terrorism and natural disasters. Disruptions in the oil industry or
shifts in fuel consumption may significantly impact companies in this sector. In addition, because a significant portion of revenues of companies in this sector are derived from a relatively small number of customers that are largely composed of
governmental entities and utilities, governmental budget constraints may have a significant impact on the stock prices of companies in this industry.
Risks of Investing in the Financial Sector. Companies in the financial sector include regional and money center banks,
securities brokerage firms, asset management companies, savings banks and thrift institutions, specialty finance companies (e.g., credit card, mortgage providers), insurance and insurance brokerage firms, financial conglomerates and foreign
18
banking and financial companies. The global financial markets have recently experienced very difficult conditions and volatility as well as significant adverse trends. The deteriorating
conditions in these markets have resulted in a decrease in availability of corporate credit, capital and liquidity and have led indirectly to the insolvency, closure or acquisition of a number of financial institutions. These conditions have also
contributed to consolidation within the financial industry. In addition, the global financial industry has been materially and adversely affected by a significant decline in the value of mortgage-backed and asset-backed securities, and by the
sovereign debt crisis. The prospects of many financial companies are questionable and continue to evolve as financial companies revise their outlooks and write down assets that they hold.
Most financial companies are subject to extensive governmental regulation, which limits their activities and may affect their ability to earn a profit from a given line of business. Government regulation may change
frequently and may have significant adverse consequences for companies in the financial sector, including effects not intended by the regulation. Direct governmental intervention in the operations of financial companies and financial markets may
materially and adversely affect the companies in which the Fund invests, including recent legislation in many countries that may increase government regulation, repatriation and other intervention. The impact of governmental intervention and recent
legislation on any individual financial company or on the financial sector as a whole cannot be predicted. The valuation of financial companies has been and continues to be subject to unprecedented volatility and may be influenced by unpredictable
factors, including interest rate risk and sovereign debt default. Certain financial businesses are subject to intense competitive pressures, including market share and price competition. Financial companies in foreign countries are subject to market
specific and general regulatory and interest rate concerns. In particular, government regulation in certain foreign countries may include taxes and controls on interest rates, credit availability, minimum capital requirements, ban on short sales,
prices and currency transfers.
The profitability of banks, savings and loan associations and financial companies is largely dependent on the
availability and cost of capital funds and can fluctuate significantly when interest rates change. In addition, general economic conditions are important to the operations of these concerns, with exposure to credit losses resulting from financial
difficulties of borrowers having an adverse effect on the profitability of financial companies. Financial companies can be highly dependent upon access to capital markets and any impediments to such access, such as adverse overall economic
conditions or a negative perception in the capital markets of a financial companys financial condition or prospects, could adversely affect its business.
Risks of Investing in the Healthcare Sector. Companies in the healthcare sector are often issuers whose profitability may be affected by extensive government regulation,
restrictions on government reimbursement for medical expenses, rising or falling costs of medical products and services, pricing pressure, an increased emphasis on outpatient services, limited number of products, industry innovation, changes in
technologies and other market developments. Many healthcare companies are heavily dependent on patent protection and the actual or perceived safety and efficiency of their products. The expiration of patents may adversely affect the profitability of
these companies. Many healthcare companies are subject to extensive litigation based on product liability and similar claims. Healthcare companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result
in price discounting. Many new products in the healthcare sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly, and may diminish the opportunity for a company to profit from a new product or
to bring a new product to market. Many healthcare-related companies are relatively small and unseasoned. Healthcare companies may also be strongly affected by scientific bio-technology or technological developments and their products may quickly
become obsolete. Also, many healthcare companies offer products and services that are subject to governmental regulation and may be adversely affected by changes in governmental policies or laws.
Risks of Investing in the Industrials Sector. The stock prices of companies in the industrials sector may be affected by
supply and demand both for their specific product or service and for industrials sector products in general. The products of manufacturing companies may face product obsolescence due to rapid technological developments and frequent new product
introduction. Government regulations, world events and economic conditions affect the performance of companies in the industrials sector. Companies in the industrials sector may be adversely affected by liability for environmental damage, product
liability claims and exchange rates. The industrials sector may also be adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable factors.
Risks of Investing in the Information Technology Sector. Information technology companies face intense competition, both domestically and internationally, which may have an
adverse effect on profit margins. Like other technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face product
obsolescence due to rapid technological developments and frequent
19
new product introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the information technology sector are heavily dependent on
patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies.
Risks of Investing in the Materials Sector. Companies in the materials sector may be adversely affected by commodity price volatility, exchange rates, import controls, increased competition, depletion of resources, technical progress, labor
relations and government regulations, among other factors. Also, companies in the materials sector are at risk of liability for environmental damage and product liability claims. Production of materials may exceed demand as a result of market
imbalances or economic downturns, leading to poor investment returns.
Risks of Investing in the Telecommunications
Sector. The telecommunications sector of an economy is often subject to extensive government regulation. The costs of complying with governmental regulations, delays or failure to receive required regulatory approvals, or the enactment of new
adverse regulatory requirements may negatively affect the business of the telecommunications companies. Government actions around the world, specifically in the area of pre-marketing clearance of products and prices, can be arbitrary and
unpredictable. Companies in the telecommunications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new technology.
Technological innovations may make the products and services of telecommunications companies obsolete.
Risks of
Investing in the Utilities Sector. Investments in utility companies involve special considerations, including the risk of changing commodity prices, government regulation stipulating rates charged by utilities, increased tariffs, changes in tax
laws, interest rate fluctuations and changes in the cost of providing specific utility services. The utilities industry is also subject to potential terrorist attacks, natural disasters and severe weather conditions, as well as regulatory and
operational burdens associated with the operation and maintenance of nuclear facilities. Government regulators monitor and control utility revenues and costs, and therefore may limit utility profits. In certain countries regulatory authorities may
also restrict a companys access to new markets, thereby diminishing the companys long-term prospects. The deregulation of certain utility companies may eliminate restrictions on profits but may also subject these companies to greater
risks of loss.
Proxy Voting Policy
The Company has adopted, as its proxy voting policies for the Fund, the proxy voting guidelines of BFA, the investment adviser to the Fund. The Company has delegated to BFA the responsibility for voting proxies on
the portfolio securities held by the Fund. The remainder of this section discusses the Funds proxy voting guidelines and BFAs role in implementing such guidelines.
BFA votes (or refrains from voting) proxies for the Fund in a manner that BFA, in the exercise of its independent business judgment, concludes is in the best economic interests of the Fund. In some cases, BFA may
determine that it is in the best economic interests of the Fund to refrain from exercising the Funds proxy voting rights (such as, for example, proxies on certain non-U.S. securities that might impose costly or time-consuming in-person voting
requirements). With regard to the relationship between securities lending and proxy voting, BFAs approach is also driven by the Funds economic interests. The evaluation of the economic desirability of recalling loans involves balancing
the revenue-producing value of loans against the likely economic value of casting votes. Based on our evaluation of this relationship, we believe that the likely economic value of casting a vote generally is less than the securities lending income,
either because the votes will not have significant economic consequences or because the outcome of the vote would not be affected by BFA recalling loaned securities in order to ensure they are voted. Periodically, BFA analyzes the process and
benefits of voting proxies for securities on loan, and will consider whether any modification of its proxy voting policies or procedures are necessary in light of any regulatory changes. BFA will normally vote on specific proxy issues in accordance
with its proxy voting guidelines. BFAs proxy voting guidelines provide detailed guidance as to how to vote proxies on certain important or commonly raised issues. BFA may, in the exercise of its business judgment, conclude that the proxy
voting guidelines do not cover the specific matter upon which a proxy vote is requested, or that an exception to the proxy voting guidelines would be in the best economic interests of the Fund. BFA votes (or refrains from voting) proxies without
regard to the relationship of the issuer of the proxy (or any shareholder of such issuer) to the Fund, the Funds affiliates (if any), BFA or BFAs affiliates, or the Distributor or the Distributors affiliates. When voting proxies,
BFA attempts to encourage issuers to follow practices that
20
enhance shareholder value and increase transparency and allow the market to place a proper value on their assets. With respect to certain specific issues:
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The Fund generally supports the boards nominees in the election of directors and generally supports proposals that strengthen the independence of boards of
directors; |
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The Fund generally does not support proposals on social issues that lack a demonstrable economic benefit to the issuer and the Fund investing in such issuer; and
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The Fund generally votes against anti-takeover proposals and proposals that would create additional barriers or costs to corporate transactions that are likely
to deliver a premium to shareholders. |
BFA maintains institutional policies and procedures that are designed to prevent any
relationship between the issuer of the proxy (or any shareholder of the issuer) and the Fund, the Funds affiliates (if any), BFA or BFAs affiliates (if any) or the Distributor or the Distributors affiliates, from having undue
influence on BFAs proxy voting activity. In certain instances, BFA may determine to engage an independent fiduciary to vote proxies as a further safeguard against potential conflicts of interest or as otherwise required by applicable law. The
independent fiduciary may either vote such proxies or provide BFA with instructions as to how to vote such proxies. In the latter case, BFA votes the proxy in accordance with the independent fiduciarys determination.
Information with respect to how BFA voted proxies relating to the Funds portfolio securities during the 12-month period ended June 30 will be available:
(i) without charge, upon request, by calling 1-800-iShares (1-800-474-2737) or through the Funds website at www.iShares.com; and (ii) on the SECs website at www.sec.gov.
Portfolio Holdings Information
The Board has adopted a policy regarding the
disclosure of the Funds portfolio holdings information that requires that such information be disclosed in a manner that: (i) is consistent with applicable legal requirements and in the best interests of the Funds shareholders;
(ii) does not put the interests of BFA, the Distributor or any affiliated person of BFA or the Distributor, above those of Fund shareholders; (iii) does not advantage any current or prospective Fund shareholders over any other current or
prospective Fund shareholders, except to the extent that certain Entities (as described below) may receive portfolio holdings information not available to other current or prospective Fund shareholders in connection with the dissemination of
information necessary for transactions in Creation Units, as discussed below; and (iv) does not provide selective access to portfolio holdings information except pursuant to the procedures outlined below and to the extent appropriate
confidentiality arrangements limiting the use of such information are in effect. The Entities referred to in sub-section (iii) above are generally limited to National Securities Clearing Corporation (NSCC) members,
subscribers to various fee-based subscription services, large institutional investors (known as Authorized Participants) that have been authorized by the Distributor to purchase and redeem large blocks of shares pursuant to legal
requirements and other institutional market participants and entities that provide information services.
Each business day, the Funds portfolio
holdings information will be provided to the Distributor or other agent for dissemination through the facilities of the NSCC and/or other fee-based subscription services to NSCC members and/or subscribers to those other fee-based subscription
services, including Authorized Participants, and to entities that publish and/or analyze such information in connection with the process of purchasing or redeeming Creation Units or trading shares of the Fund in the secondary market. This
information typically reflects the Funds anticipated holdings on the following business day.
Daily access to information concerning the
Funds portfolio holdings is permitted (i) to certain personnel of those service providers that are involved in portfolio management and providing administrative, operational, risk management, or other support to portfolio management,
including affiliated broker-dealers and Authorized Participants; and (ii) to other personnel of the Funds investment adviser and the Distributor, administrator, custodian and fund accountant who deal directly with or assist in, functions
related to investment management, distribution, administration, custody and fund accounting, as may be necessary to conduct business in the ordinary course in a manner consistent with agreements with the Fund and the terms of the Funds current
registration statement. In addition, the Fund discloses its portfolio holdings and the percentages they represent of the Funds net assets at least monthly, and as often as each day the Fund is open for business, at www.iShares.com. More
information about this disclosure is available at www.iShares.com.
21
Portfolio holdings information made available in connection with the creation/redemption process may be provided to
other entities that provide services to the Fund in the ordinary course of business after it has been disseminated to the NSCC. From time to time, information concerning portfolio holdings other than portfolio holdings information made available in
connection with the creation/redemption process, as discussed above, may be provided to other entities that provide services to the Fund, including rating or ranking organizations, in the ordinary course of business, no earlier than one business day
following the date of the information.
The Fund will disclose its complete portfolio holdings schedule in public filings with the SEC within 70 days
after the end of each fiscal quarter and will provide that information to shareholders as required by federal securities laws and regulations thereunder. The Fund may, however, voluntarily disclose all or part of its portfolio holdings other than in
connection with the creation/redemption process, as discussed above, in advance of required filings with the SEC, provided that such information is made generally available to all shareholders and other interested parties in a manner that is
consistent with the above policy for disclosure of portfolio holdings information. Such information may be made available through a publicly-available website or other means that make the information available to all likely interested parties
contemporaneously.
The Companys Chief Compliance Officer may authorize disclosure of portfolio holdings information pursuant to the above policy
and procedures.
The Board reviews the policy and procedures for disclosure of portfolio holdings information at least annually.
Construction and Maintenance of the Underlying Index
A description of the Underlying Index is provided below.
The MSCI Indexes
The MSCI indexes were founded in 1969 by Capital International S.A. as the first international performance benchmarks constructed to facilitate accurate
comparison of world markets. The MSCI single country standard equity indexes have covered the worlds developed markets since 1969 and in 1987 MSCI commenced coverage of emerging markets.
Local stock exchanges traditionally calculated their own indexes, which were generally not comparable with one another due to differences in the representation of
the local market, mathematical formulas, base dates and methods of adjusting for capital changes. MSCI, however, applies the same calculation methodology to all markets for all single country standard equity indexes, both developed and emerging.
MSCIs Global Investable Market Indexes (the MSCI GIMI) provide exhaustive coverage and non-overlapping market segmentation by market
capitalization size and by style. The MSCI GIMI intends to target approximately 99% coverage of the free-float adjusted market capitalization in each market of large-, mid- and small-cap securities.
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MSCI Global Standard Indexes cover all investable large- and mid-cap securities by including approximately 85% of each markets free-float adjusted market
capitalization. |
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MSCI Global Small Cap Indexes provide coverage to all companies with a market capitalization below that of the companies in the MSCI Global Standard Indexes by
including above and beyond the coverage of the MSCI Global Standard Indexes. |
MSCI Global
Investable Market Indexes
Selection Criteria. MSCIs index construction process involves: (i) defining the equity universe;
(ii) determining the market investable equity universe for each market; (iii) determining market capitalization size segments for each market; (iv) applying final size segment investability requirements; and (v) applying index
continuity rules for the MSCI Global Standard Index.
22
Defining the Equity Universe. MSCI begins with securities listed in countries in the MSCI GIMI. Of these
countries, as of June 29, 2012, 22 are classified as developed markets, 21 as emerging markets, and 31 as frontier markets. All listed equity securities and listed securities that exhibit characteristics of equity securities, except mutual
funds, exchange traded funds, equity derivatives, limited partnerships and most investment trusts, are eligible for inclusion in the equity universe. Real estate investment trusts (REITs) in some countries and certain income trusts in
Canada are also eligible for inclusion. Each company and its securities (i.e., share classes) are classified in only one country.
Determining
the Market Investable Equity Universe for Each Market. The equity universe in any market is derived by applying investability screens to individual companies and securities in the equity universe of that market. Some investability requirements
are applied at the individual security level and some at the overall company level, represented by the aggregation of individual securities of the company. As a result, the inclusion or exclusion of one security does not imply the automatic
inclusion or exclusion of other securities of the same company.
Determining Market Capitalization Size Segments for Each Market. In each market,
MSCI creates an Investable Market Index, Standard Index, Large Cap Index, Mid Cap Index and Small Cap Index. The MSCI Global Standard Index is the aggregation of the Large Cap Index and Mid Cap Index. The MSCI GIMI is the aggregation of the MSCI
Global Standard Index and MSCI Global Small Cap Index. In order to create size components that can be meaningfully aggregated into composites, individual market size segments balance the following two objectives:
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Achieving global size integrity by ensuring that companies of comparable and relevant sizes are included in a given size segment across all markets in a
composite index; and |
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Achieving consistent market coverage by ensuring that each markets size segment is represented in its proportional weight in the composite universe.
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Applying Final Size Segment Investability Requirements. In order to enhance replicability of the indexes, additional size
segment investability requirements are set for the MSCI GIMI and MSCI Global Standard Index. These investability requirements include minimum free float market capitalization, minimum liquidity, minimum foreign limits and minimum length of trading.
Applying Index Continuity Rules for the Standard Index. In order to achieve index continuity as well as provide some basic level of
diversification within a market index, notwithstanding the effect of other index construction rules contained herein, a minimum number of five constituents will be maintained for a developed market Standard Index and a minimum number of three
constituents will be maintained for an emerging market Standard Index.
Weighting. All indexes of the MSCI GIMI are free-float weighted, i.e.,
companies are included in the indexes at the value of their free public float (free float multiplied by security price).
Regional Weights.
Market capitalization weighting, combined with a consistent target of approximately 99% of free-float adjusted market capitalization, helps ensure that each countrys weight in regional and international indexes approximates its weight in
the total universe of developing and emerging markets. A market is equivalent to a single country except for Europe, where all markets are aggregated into a single market for index construction purposes. Individual country indexes of the European
developed markets are derived from the constituents of the MSCI GIMI Europe Index.
Free Float. MSCI defines the free float of a security as the
proportion of shares outstanding that are deemed to be available for purchase in the public equity markets by international investors. In practice, limitations on free float available to international investors include: (i) strategic and other
shareholdings not considered part of available free float; and (ii) limits on share ownership for foreigners.
Under MSCIs free-float
adjustment methodology, a constituents inclusion factor is equal to its estimated free float rounded-up to the closest 5% for constituents with free float equal to or exceeding 15%. For example, a constituent security with a free float of
23.2% will be included in the index at 25% of its market capitalization. For securities with a free float of less than 15%, the estimated free float is adjusted to the nearest 1%.
Price and Exchange Rates
Prices. The prices used to calculate all MSCI indexes are the official
exchange closing prices or those figures accepted as such. MSCI reserves the right to use an alternative pricing source on any given day.
23
Exchange Rates. Since July 2000, MSCI uses the WM/Reuters Closing Spot Rates taken at 4:00 p.m. London time. In
case WM/Reuters does not provide rates for specific markets on given days (for example, Christmas Day and New Years Day), the previous business days rates are normally used. MSCI independently monitors the exchange rates on all its
indices. MSCI may under exceptional circumstances elect to use alternative sources of exchange rates if the WM/Reuters rates are not available, or if MSCI determines that the WM/Reuters rates are not reflective of market circumstances for a given
currency on a particular day. In such circumstances, an announcement would be sent to clients with the related information. If appropriate, MSCI may conduct a consultation with the investment community to gather feedback on the most relevant
exchange rate.
Changes to the Indexes. The MSCI GIMI is maintained with the objective of reflecting, on a timely basis, the evolution of the
underlying equity markets. In maintaining the MSCI indexes, emphasis is also placed on continuity, replicability and minimizing turnover in the indexes. Maintaining the MSCI indexes involves many aspects, including (i) additions to, and
deletions from, the indexes; (ii) changes in number of shares; and (iii) changes in inclusion factors as a result of updated free float estimates.
Index maintenance can be described by three broad categories of changes:
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Semi-Annual Index Reviews (SAIRs), conducted on a fixed semi-annual timetable that systematically reassess the various dimensions of the equity
universe for all markets; |
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Quarterly Index Reviews (QIRs), aimed at promptly reflecting other significant market events; and |
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Ongoing event-related changes, such as mergers, acquisitions, spin-offs, bankruptcies, reorganizations and other similar corporate events, which generally are
implemented in the indexes as they occur. |
Potential changes in the status of countries (stand-alone, frontier, emerging and
developed) follow their own implementation time tables.
MSCI conducts SAIRs generally as of the close of the last business day of May and November.
During the SAIRs, MSCI updates the investable equity universe and reassesses size segmentation investability requirements. MSCI also conducts QIRs generally as of the close of the last business day of February and August. During the QIRs, MSCI
reflects changes in the index that were not captured at the time of their actual occurrence, but are significant enough to be included before the next SAIR. The results of the SAIR and QIR are generally announced at least ten business days in
advance of implementation.
MSCI 25/50 Indexes
Each of the MSCI 25/50 Indexes (the 25/50 Indexes) is a sub-index of either an MSCI Global Standard Index or an MSCI GIMI. Their construction reflects
the diversification requirements applicable to RICs pursuant to Subchapter M of the Internal Revenue Code. Each 25/50 Index is constructed in such a way as to ensure that no single issuer represents more than 25% of the weight of the index and that
all issues that individually represent more than 5% of the weight of the index do not in the aggregate represent more than 50% of the weight of the index.
MSCI Emerging Markets Investable Market Index
Number of Components: approximately 2,622
Index Description. The MSCI Emerging Markets Investable Market Index is designed to measure equity market performance in the global
emerging markets. The Underlying Index captures large-, mid- and small-cap representation across 21 emerging market countries. With 2,622 constituents, the Underlying Index covers approximately 98% of the free float-adjusted market capitalization in
each country.
Investment Limitations
The Board has adopted as a non-fundamental policy the investment objective of the Fund. Therefore, the Fund may change its investment objective and its Underlying Index without a shareholder vote. The Board has
adopted as fundamental policies the following numbered investment restrictions, which cannot be changed without the approval of the holders of a majority of the Funds outstanding voting securities. A vote of a majority of the outstanding
voting securities is defined in the 1940
24
Act as the lesser of (a) 67% or more of the voting securities present at a fund meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by
proxy and (b) more than 50% of outstanding voting securities of the fund.
The Fund will not:
1. |
Concentrate its investments (i.e., invest 25% or more of its total assets in the securities of a particular industry or group of industries), except that the Fund will
concentrate to approximately the same extent that the Underlying Index concentrates in the securities of a particular industry or group of industries. For purposes of this limitation, securities of the U.S. government (including its agencies and
instrumentalities), repurchase agreements collateralized by U.S. government securities, and securities of state or municipal governments and their political subdivisions are not considered to be issued by members of any industry.
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2. |
Borrow money, except that (i) the Fund may borrow from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might
otherwise require the untimely disposition of securities; and (ii) the Fund may, to the extent consistent with its investment policies, enter into repurchase agreements, reverse repurchase agreements, forward roll transactions and similar
investment strategies and techniques. To the extent that it engages in transactions described in (i) and (ii), the Fund will be limited so that no more than 33 1/3% of the value of its total assets (including the amount borrowed) is derived
from such transactions. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law. |
3. |
Issue senior securities as defined in the 1940 Act and the rules, regulations and orders thereunder, except as permitted under the 1940 Act and the rules, regulation
and orders thereunder. |
4. |
Make loans, except as permitted under the 1940 Act and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
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5. |
Purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this restriction shall not prevent the Fund from investing in
securities of companies engaged in the real estate business or securities or other instruments backed by real estate or mortgages), or commodities or commodity contracts (but this restriction shall not prevent the Fund from trading in futures
contracts and options on futures contracts, including options on currencies to the extent consistent with the Funds investment objective and policies). |
6. |
Engage in the business of underwriting securities issued by other persons, except to the extent that the Fund may technically be deemed to be an underwriter under the 1933 Act,
in disposing of portfolio securities. |
In addition to the investment restrictions adopted as fundamental policies set forth above, the
Fund has adopted a non-fundamental policy not to invest in the securities of a company for the purpose of exercising management or control or purchase or otherwise acquire any illiquid security, except as permitted under the 1940 Act, which
currently permits up to 15% of the Funds net assets to be invested in illiquid securities (calculated at the time of investment).
BFA monitors
the liquidity of restricted securities in the Funds portfolio. In reaching liquidity decisions, BFA considers the following factors:
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The frequency of trades and quotes for the security; |
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The number of dealers wishing to purchase or sell the security and the number of other potential purchasers; |
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Dealer undertakings to make a market in the security; and |
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The nature of the security and the nature of the marketplace in which it trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). |
If any percentage restriction described above is complied with at the time of an
investment, a later increase or decrease in percentage resulting from a change in values of assets will not constitute a violation of such restriction, except that certain percentage limitations will be observed continuously in accordance with
applicable law.
The Fund has adopted a non-fundamental investment policy in accordance with Rule 35d-1 under the 1940 Act to invest, under normal
circumstances, at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in securities of the Underlying Index or in Depositary Receipts representing securities in the Underlying Index. The Fund also has
adopted a policy to provide its shareholders with at least 60 days prior written notice of any change in such
25
policy. If, subsequent to an investment, the 80% requirement is no longer met, the Funds future investments will be made in a manner that will bring the Fund into compliance with this
policy.
The Fund has adopted a non-fundamental limitation such that, under normal market conditions, any borrowing by the Fund will not exceed 10% of
the Funds net assets.
Continuous Offering
The method by which Creation Units are created and traded may raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by the Fund on an ongoing basis, at any point a
distribution, as such term is used in the 1933 Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a
distribution in a manner that could render them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the 1933 Act.
For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent shares and sells such
shares directly to customers or if it chooses to couple the creation of new shares with an active selling effort involving solicitation of secondary market demand for shares. A determination of whether one is an underwriter for purposes of the 1933
Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not underwriters but are
effecting transactions in shares, whether or not participating in the distribution of shares, generally are required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the 1933 Act is not available in
respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus delivery obligation with respect to shares of the Fund are reminded that, pursuant to Rule 153 under the 1933 Act, a prospectus delivery
obligation under Section 5(b)(2) of the 1933 Act owed to an exchange member in connection with a sale on the Listing Exchange is satisfied by the fact that the prospectus is available at the Listing Exchange upon request. The prospectus
delivery mechanism provided in Rule 153 is available only with respect to transactions on an exchange.
Management
Directors and Officers. The Board has responsibility for the overall management and operations of the 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, Chief Compliance Officer, 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) of the Company
are referred to as independent directors (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). The Fund is included in the BlackRock
Fund Complex referred to as the Exchange-Traded Fund Complex. Each Director 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 282 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 this SAI, which
is available without charge, upon request, by calling toll-free 1-800-iShares (1-800-474-2737).
26
Interested Directors
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5 Years |
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Other Directorships Held by Director |
Robert S.
Kapito1 (55) |
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Director (since 2009). |
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President and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRocks Portfolio Management Group (since its formation in
1998) and BlackRocks predecessor entities (since 1988); Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Childrens Cancer Fund (since 2002); President of the Board of Directors,
Periwinkle Theatre for Youth (since 1983). |
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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); Director of BlackRock, Inc. (since
2007). |
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Michael
Latham2 (47) |
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Director (since 2010); President (since 2007). |
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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 of BGI (2003-2007). |
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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). |
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1 |
Robert S. Kapito is deemed to be an interested person (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc.
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2 |
Michael Latham is deemed to be an interested person (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its
affiliates. |
Independent Directors
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5 Years |
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Other Directorships Held by Director |
Robert H. Silver (57) |
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Director (since 2007); Independent Chairman (since 2012). |
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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 Paine 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). |
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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
Trust, iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S. ETF Trust (since 2012). |
27
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Name (Age) |
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Position |
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Principal Occupation(s) During the Past 5 Years |
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Other Directorships Held by Director |
George G.C. Parker (73) |
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Director (since 2000). |
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Dean Witter Distinguished Professor of Finance, Emeritus, Stanford University Graduate School of Business (Professor since 1973; Emeritus since 2006). |
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Trustee of iShares Trust (since 2000); 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). |
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John E. Martinez (51) |
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Director (since 2003); Securities Lending Committee Chair (since 2012). |
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Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.) (since 2005). |
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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). |
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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 (2002-2011) and Chair of the Finance and Investment Committee (2006-2010) the
Thacher School; Member (since 1994) and Chair (1994-2005) of the Investment Committee, Archdiocese of San Francisco; Trustee and Member of the Investment Committee (since 2011), WNET, the New York public broadcasting company. |
|
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, Forward Funds (34
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). |
|
|
|
|
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). |
28
Officers
|
|
|
|
|
Name (Age) |
|
Position |
|
Principal Occupation(s) During the Past 5
Years |
Jack Gee (53) |
|
Treasurer and Chief Financial Officer (since 2008). |
|
Managing Director, BlackRock (since 2009); Senior Director of Fund Administration of Intermediary Investor Business of BGI (2009); Director of Fund Administration of Intermediary
Investor Business of BGI (2004-2009). |
|
|
|
Eilleen M. Clavere (60) |
|
Secretary (since 2007). |
|
Director of Global Fund Administration, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business of BGI (2006-2009); Legal Counsel and Vice President of
Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc. (2005-2006); Counsel of Kirkpatrick & Lockhart LLP (2001-2005). |
|
|
|
Edward B. Baer (44) |
|
Vice President and Chief Legal Officer (since 2012). |
|
Managing Director of Legal & Compliance, BlackRock (since 2006); Director of Legal & Compliance, BlackRock (2004-2006). |
|
|
|
Scott Radell (43) |
|
Executive Vice President (since 2012). |
|
Managing Director, BlackRock (since 2009); Head of Portfolio Solutions, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007);
Credit Research Analyst, BGI (2003-2005). |
|
|
|
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); Head of Domestic Equity Portfolio Management, BGI
(2001-2006). |
|
|
|
Ira P. Shapiro (49) |
|
Vice President (since 2007). |
|
Managing Director, BlackRock (since 2009); Chief Legal Officer, Exchange-Traded Fund Complex (2007-2012); Associate General Counsel, BGI (2004-2009). |
The Board has concluded that, based on each Directors experience, qualifications, attributes or skills on an individual basis
and in combination with those of the other Directors, each Director should serve as a Director of the Board. Among the attributes common to all Directors are their ability to review critically, evaluate, question and discuss information provided to
them, to interact effectively with the Funds investment adviser, other service providers, counsel and the independent registered public accounting firm, and to exercise effective business judgment in the performance of their duties as
Directors. A Directors ability to perform his or her duties effectively may have been attained through the Directors educational background or professional training; business, consulting, public service or academic positions; experience
from service as a board member of the Fund and the other funds in the Company (and any predecessor funds), other investment funds, public companies, or non-profit entities or other organizations; and/or other life experiences. Also, set forth below
is a brief discussion of the specific experience, qualifications, attributes or skills of each Director that led the Board to conclude that he or she should serve as a Director.
29
Robert Kapito has been a Director of the Company since 2009. Mr. Kapito has served as a
Trustee of iShares Trust since 2009, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a Trustee of iShares U.S. ETF Trust since 2011 and a Director of BlackRock, Inc. since 2007. In addition, he has over 20 years of experience
as part of BlackRock, Inc. and BlackRocks predecessor entities. Mr. Kapito serves as President and Director of BlackRock, Inc., and is the Chairman of the Operating Committee, a member of the Office of the Chairman, the Leadership
Committee and the Corporate Council. He is responsible for day-to-day oversight of BlackRocks key operating units, including the Account Management and Portfolio Management Groups, Real Estate Group and BlackRock Solutions®. Prior to assuming his current responsibilities in 2007, Mr. Kapito served as Head of BlackRocks Portfolio
Management Group. In that role, he was responsible for overseeing all portfolio management within BlackRock, including the Fixed-Income, Equity, Liquidity, and Alternative Investment Groups. Mr. Kapito serves as a member of the Board of
Trustees of the University of Pennsylvania. He has also been President of the Board of Directors for the Hope & Heroes Childrens Cancer Fund since 2002 and President of the Board of Directors for Periwinkle Theatre for Youth, a
national non-profit arts-in-education organization, since 1983. Mr. Kapito earned a BS degree in economics from the Wharton School of the University of Pennsylvania in 1979, and an MBA degree from Harvard Business School in 1983.
Michael Latham has been a Director of the Company since 2010 and President of the Company since 2007. Mr. Latham served as Principal Financial Officer of the
Company from 2002 until 2007. Mr. Latham has served as a Trustee of iShares Trust since 2010, President of iShares Trust since 2007, Principal Financial Officer of iShares Trust from 2002 until 2007, a Director of iShares MSCI Russia Capped
Index Fund, Inc. since 2010, President of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a Trustee and President of iShares U.S. ETF Trust since 2011. Mr. Latham is the Chairman of BlackRocks iShares exchange-traded fund
business. In addition, he has over 15 years of experience as part of BlackRock, Inc. and BlackRocks predecessor entities. Prior to assuming his current responsibilities in September 2011, he was the global head of BlackRocks iShares
exchange-traded fund business. Prior to April 2009, he was head of BlackRocks iShares exchange-traded fund business for the United States and Canada, and Chief Operating Officer for the U.S. iShares business. He previously held a variety of
operating positions within the firm. Mr. Latham earned a BS degree in business administration from California State University at San Francisco in 1988.
Robert H. Silver has been a Director of the Company since 2007 and Chairman of the Companys Board since 2012. Mr. Silver has served as a Trustee of iShares Trust since 2007, Chairman of iShares
Trusts Board since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chairman of iShares MSCI Russia Capped Index Fund, Inc.s Board since 2012, Trustee of iShares U.S. ETF Trust since 2011 and Chairman of
iShares U.S. ETF Trusts Board since 2012. Mr. Silver is President and a Co-Founder of The Bravitas Group Inc., a firm dedicated to advising and investing in emerging business enterprises and to supporting philanthropic activities that
benefit under-served urban youth. Previously, Mr. Silver served as the President and Chief Operating Officer of UBS Financial Services Inc. (formerly Paine Webber Inc.), the registered broker dealer comprising the Wealth Management USA business
unit of UBS AG, including the following responsibilities: President of Paine Webber Services, Director of Retail Products and Marketing, Director of Private Client Group Branch Offices, Director of Finance and Controls for PaineWebber, Inc. and
Chief Administrative Officer for the Paine Webber Private Client Group. Mr. Silver also served on the Board of Directors of EPAM Systems, Inc., a provider of software engineering outsourcing services in Central and Eastern Europe, served on the
Board and Executive Committee of the Depository Trust and Clearing Corporation (DTCC), chaired the National Securities Clearing Corporationss Membership and Risk Committee and served as Governor of the Philadelphia Stock Exchange. In addition,
Mr. Silver was a Vice Chairman and a Member of the Board of Directors for the YMCA of Greater New York and chaired its Fund Development Committee from 2001 until 2011 and Co-Founder and Vice President of Parentgiving Inc. since 2008.
Mr. Silver began his career as a CPA and Audit Manager at KPMG LLP (formerly Peat Marwick Mitchell) from 1977 until 1983. Mr. Silver has a BS degree in business administration from the University of North Carolina.
George G.C. Parker has been a Director of the Company since 2002. Mr. Parker served as Chair of the Companys Board from 2010 until 2012, Lead
Independent Director of the Company from 2006 until 2010 and Chair of the Nominating and Governance Committee of the Company from 2002 until 2010. Mr. Parker has served as a Trustee of iShares Trust since 2000, Chair of iShares Trusts
Board from 2010 until 2012, Lead Independent Trustee of iShares Trust from 2006 until 2010, Chair of the Nominating and Governance Committee of iShares Trust from 2002 until 2010, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010,
Chair of iShares MSCI Russia Capped Index Fund, Inc.s Board from 2010 until 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of iShares U.S. ETF Trusts Board from 2011 until 2012. Mr. Parker also serves as Director on
four other boards. Mr. Parker is the Dean Witter Distinguished Professor of Finance, Emeritus, at the Stanford University Graduate School of Business. He teaches courses in Corporate Finance in the MBA Program, Stanford Sloan Program for
Executives, and in various other Executive Education Programs at Stanford University. Mr. Parkers teaching and research interests are primarily in the field of corporate finance, management of financial
30
institutions, and corporate governance, and he has written numerous case studies related to these subjects. He has also authored several articles on capital structure, risk management, and
corporate valuation. Mr. Parker previously served as a Director of Continental Airlines and a Director of NETGEAR, Inc. Mr. Parker holds MBA and Ph.D. degrees from the Stanford University Graduate School of Business.
John E. Martinez has been a Director of the Company since 2003 and Chair of the Securities Lending Committee of the Company since 2012. Mr. Martinez has
served as a Trustee of iShares Trust since 2003, Chair of the Securities Lending Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of the Securities Lending Committee of iShares MSCI
Russia Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Securities Lending Committee of iShares U.S. ETF Trust since 2012. Mr. Martinez is a Director of FirstREX Agreement Corp. (formerly
EquityRock, Inc.), providing governance oversight and consulting services to this privately held firm that develops products and strategies for homeowners in managing the equity in their homes. Mr. Martinez previously served as Director of
Barclays Global Investors (BGI) UK Holdings, where he provided governance oversight representing BGIs shareholders (Barclays PLC, BGI management shareholders) through oversight of BGIs worldwide activities. Mr. Martinez also
previously served as Co-Chief Executive Officer of the Global Index and Markets Group of BGI, Chairman of Barclays Global Investor Services and Chief Executive Officer of the Capital Markets Group of BGI. Since 2003, he is a Director and Executive
Committee Member for Larkin Street Youth Services, providing governance oversight and strategy development to an agency that provides emergency and transitional housing, health care, education, job and life skills training to homeless youth.
Mr. Martinez has an AB degree in economics from The University of California, Berkeley and holds an MBA degree in finance and statistics from the Graduate School of Business, University of Chicago.
Cecilia H. Herbert has been a Director of the Company since 2005 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of the Company
since 2012. Ms. Herbert has served as a Trustee of iShares Trust since 2005, Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc.
since 2010, Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Nominating and Governance Committee
and the Equity Plus Committee of iShares U.S. ETF Trust since 2012. She is Director of the Board of the Catholic Charities CYO, one of the Bay Areas largest private social services organizations serving the homeless, poor, aged, families,
children and AIDS/HIV victims, on which she has served since 1998. Ms. Herbert is a member of the Investment Committee, Archdiocese of San Francisco since 1994, which she chaired from 1994 to 2005. She has served on numerous non-profit boards.
Ms. Herbert is also a Director and Advisory Board Member since 2009 of the Forward Funds. Ms. Herbert previously served as a Trustee for the Pacific Select Funds and The Montgomery Funds. Ms. Herbert previously served as Managing
Director of J.P. Morgan/Morgan Guaranty Trust Company responsible for product development, marketing and credit for U.S. multinational corporations and as head of its San Francisco office and as Assistant Vice President, Signet Banking Corporation.
Ms. Herbert has a BA degree in economics and communications from Stanford University and an MBA degree in finance from Harvard Business School.
Charles A. Hurty has been a Director of the Company since 2005 and Chair of the Audit Committee of the Company since 2006. Mr. Hurty has served as a Trustee
of iShares Trust since 2005, Chair of the Audit Committee of iShares Trust since 2006, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of the Audit Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a
Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Audit Committee of iShares U.S. ETF Trust since 2011. In addition, Mr. Hurty serves as Director of the GMAM Absolute Return Strategy Fund since 2002, Director of the SkyBridge
Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (formerly, Citigroup Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC) since 2002 and was a Director of the CSFB Alternative Investment Funds from 2005 to December 2009,
when the funds were liquidated. Mr. Hurty was formerly a Partner at KPMG, LLP from 1968 to 2001. Mr. Hurty has a BS degree in accounting from the University of Kansas.
John E. Kerrigan has been a Director of the Company since 2005 and Chair of the Fixed Income Plus Committee of the Company since 2012. Mr. Kerrigan served as Chair of the Nominating and Governance Committee of
the Company from 2010 until 2012. Mr. Kerrigan has served as a Trustee of iShares Trust since 2005, Chair of the Fixed Income Plus Committee of iShares Trust since 2012, Chair of the Nominating and Governance Committee of iShares Trust from
2010 until 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of the Fixed Income Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, Chair of the Nominating and Governance Committee of iShares
MSCI Russia Capped Index Fund, Inc. from 2010 until 2012, Trustee of iShares U.S. ETF Trust since 2011, Chair of the Fixed Income Plus Committee of iShares U.S. ETF Trust since 2012 and Chair of the Nominating and Governance Committee of iShares
U.S. ETF Trust from 2011 until 2012. Mr. Kerrigan serves as Chief Investment Officer, Santa Clara University since 2002. Mr. Kerrigan was formerly a Managing Director at Merrill Lynch & Co., including the following
responsibilities: Global
31
Manager of Institutional Client Division eCommerce, Global Manager of Technology Specialists Sales and Chair, Performance Measurement, Evaluation & Compensation Task Force.
Mr. Kerrigan is a Trustee, since 2008, of Sacred Heart Schools, Atherton, CA, and Director, since 1999, of The BASIC Fund (Bay Area Scholarships for Inner City Children). Mr. Kerrigan has a BA degree from Boston College and is a Chartered
Financial Analyst.
Madhav V. Rajan has been a Director of the Company since 2011 and Chair of the 15(c) Committee of the Company since 2012.
Mr. Rajan has served as a Trustee of iShares Trust since 2011, Chair of the 15(c) Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2011, Chair of the 15(c) Committee of iShares MSCI Russia
Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the 15(c) Committee of iShares U.S. ETF Trust since 2012. Mr. Rajan is the Robert K. Jaedicke Professor of Accounting at the Stanford University
Graduate School of Business. He has taught accounting for over 20 years to undergraduate, MBA and law students, as well as to senior executives. Mr. Rajan serves as the Senior Associate Dean for Academic Affairs and head of the MBA Program at
the Stanford University Graduate School of Business. Mr. Rajan served as editor of The Accounting Review from 2002 to 2008 and is co-author of Cost Accounting: A Managerial Emphasis, a leading cost accounting textbook.
Mr. Rajan holds MS, MBA and Ph.D. degrees in accounting from Carnegie Mellon University.
BoardLeadership Structure and Oversight
Responsibilities
Overall responsibility for oversight of the Fund rests with the Board. The Board has engaged BFA to manage the Fund on a day-to-day
basis. The Board is responsible for overseeing BFA and other service providers in the operations of the Fund in accordance with the provisions of the 1940 Act, applicable provisions of state and other laws and the Companys charter. The Board
is currently composed of nine members, seven of whom are Independent Directors. The Board currently conducts regular meetings four times a year. In addition, the Board frequently holds special in-person or telephonic meetings or informal conference
calls to discuss specific matters that may arise or require action between regular meetings. The Independent Directors meet regularly outside the presence of management, in executive session or with other service providers to the Company.
The Board has appointed an Independent Director to serve in the role of Chairman. The Chairmans role is to preside at all meetings of the Board
and to act as a liaison with service providers, officers, attorneys, and other Directors generally between meetings. The Chairman may also perform such other functions as may be delegated by the Board from time to time. The Board has established six
standing Committees: a Nominating and Governance Committee, an Audit Committee, a 15(c) Committee, a Securities Lending Committee, an Equity Plus Committee and a Fixed Income Plus Committee to assist the Board in the oversight and direction of the
business and affairs of the Fund, and from time to time may establish ad-hoc committees or informal working groups to review and address the policies and practices of the Fund with respect to certain specified matters. The Chair of each standing
Committee is an Independent Director. The role of the Chair of each Committee is to preside at all meetings of the Committee and to act as a liaison with service providers, officers, attorneys and other Directors between meetings. Each Committee
meets regularly to conduct the oversight functions delegated to the Committee by the Board and reports its finding to the Board. The Board and each standing Committee conduct annual assessments of their oversight function and structure. The Board
has determined that the Boards leadership structure is appropriate because it allows the Board to exercise independent judgment over management and it allocates areas of responsibility among committees of Independent Directors and the full
Board to enhance effective oversight.
Day-to-day risk management with respect to the Fund is the responsibility of BFA or other service providers
(depending on the nature of the risk), subject to the supervision of BFA. The Fund is subject to a number of risks, including investment, compliance, operational and valuation risks, among others. While there are a number of risk management
functions performed by BFA and other service providers, as applicable, it is not possible to eliminate all of the risks applicable to the Fund. The Directors have an oversight role in this area, satisfying themselves that risk management processes
are in place and operating effectively. Risk oversight forms part of the Boards general oversight of the Fund and is addressed as part of various Board and committee activities. The Board, directly or through a committee, also reviews reports
from, among others, management and the independent registered public accounting firm for the Company, as appropriate, regarding risks faced by the Fund and managements risk functions. The Board has appointed a Chief Compliance Officer who
oversees the implementation and testing of the Companys compliance program and reports to the Board regarding compliance matters for the Company and its principal service providers. In testing and maintaining the compliance program, the Chief
Compliance Officer assesses key compliance risks affecting the Fund, and addresses them in reports to the Board. The Independent Directors have engaged independent legal counsel to assist them in performing their oversight responsibilities.
32
Committees of the Board of Directors. Each Independent Director serves on the
Audit Committee. The Chair of the Audit Committee is Charles A. Hurty. The purposes of the Audit Committee are to assist the Board (i) in its oversight of the Companys accounting and financial reporting principles and policies and related
controls and procedures maintained by or on behalf of the Company; (ii) in its oversight of the Companys financial statements and the independent audit thereof; (iii) in selecting, evaluating and, where deemed appropriate, replacing
the independent accountants (or nominating the independent accountants to be proposed for shareholder approval in any proxy statement); (iv) in evaluating the independence of the independent accountants; (v) in complying with legal and
regulatory requirements that relate to the Companys accounting and financial reporting, internal controls and independent audits; and (vi) to assume such other responsibilities as may be delegated by the Board. The Audit Committee met
four times during the fiscal year ended August 31, 2012.
The members of the Nominating and Governance Committee are Cecilia H. Herbert (Chair),
Charles A. Hurty, Madhav V. Rajan and John E. Kerrigan, all of whom are Independent Directors. The Nominating and Governance Committee nominates individuals for Independent Director membership on the Board. The Nominating and Governance Committee
functions include, but are not limited to, the following: (i) reviewing the qualifications of any person properly identified or nominated to serve as an Independent Director; (ii) recommending to the Board and current Independent Directors
the nominee(s) for appointment as an Independent Director by the Board and current Independent Directors and/or for election as Independent Directors by shareholders to fill any vacancy for a position of Independent Director(s) on the Board;
(iii) recommending to the Board and current Independent Directors the size and composition of the Board and Board committees and whether they comply with applicable laws and regulations; (iv) recommending a current Independent Director to
the Board and current Independent Directors to serve as Lead Independent Director; (v) periodic review of the Boards retirement policy; and (vi) recommending an appropriate level of compensation for the Independent Directors for
their services as Directors, members or chairpersons of committees of the Board, Lead Independent Director, Chairperson of the Board and any other positions as the Nominating and Governance Committee considers appropriate. The Nominating and
Governance Committee does not consider Board nominations recommended by shareholders (acting solely in their capacity as a shareholder and not in any other capacity). The Nominating and Governance Committee met four times during the fiscal year
ended August 31, 2012.
The members of the 15(c) Committee are Madhav V. Rajan (Chair), Cecilia H. Herbert, Charles A. Hurty and John E. Martinez,
all of whom are Independent Directors. The principal responsibilities of the 15(c) Committee are to support, oversee and organize on behalf of the Board the process for the annual review and renewal of the Companys advisory and sub-advisory
agreements. These responsibilities include: (i) meeting with BlackRock, Inc. in advance of the Board meeting at which the Companys advisory and sub-advisory agreements are to be considered to discuss generally the process for providing
requested information to the Board and the format in which information will be provided; and (ii) considering and discussing with BlackRock, Inc. such other matters and information as may be necessary and appropriate for the Board to evaluate
the investment advisory and sub-advisory agreements of the Company. The 15(c) Committee met four times during the fiscal year ended August 31, 2012.
The members of the Securities Lending Committee are John E. Martinez (Chair), John E. Kerrigan and George G.C. Parker, all of whom are Independent Directors. The
principal responsibilities of the Securities Lending Committee are to support, oversee and organize on behalf of the Board the process for oversight of the Companys securities lending activities. These responsibilities include:
(i) requesting that certain information be provided to the Committee for its review and consideration prior to such information being provided to the Board; (ii) considering and discussing with BlackRock, Inc. such other matters and
information as may be necessary and appropriate for the Board to oversee the Companys securities lending activities and make required findings and approvals; and (iii) providing a recommendation to the Board regarding the annual approval
of the Companys Securities Lending Guidelines and the required findings with respect to, and annual approval of, the Companys agreement with the lending agent. The Securities Lending Committee met two times during the fiscal year ended
August 31, 2012.
The members of the Equity Plus Committee are Cecilia H. Herbert (Chair), John E. Martinez and George G.C. Parker, all of whom are
Independent Directors. The principal responsibilities of the Equity Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of Company performance and related matters for equity funds. These
responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters that should be brought to the attention of the Board; and (ii) considering
any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as appropriate. The Equity Plus Committee met one time during the fiscal year
ended August 31, 2012.
33
The members of the Fixed Income Plus Committee are John E. Kerrigan (Chair), Charles A. Hurty and Madhav V. Rajan, all
of whom are Independent Directors. The principal responsibilities of the Fixed Income Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of Company performance and related matters for fixed income or
multi-asset funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters that should be brought to the attention of the Board;
and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as appropriate. The Fixed Income Plus Committee met one
time during the fiscal year ended August 31, 2012.
As the Chairman of the Board, Robert H. Silver may participate in each Committees
meetings.
The following table sets forth, as of December 31, 2011, the dollar range of equity securities beneficially owned by each Director in
the Fund and in other registered investment companies overseen by the Director within the same family of investment companies as the Company. If a fund is not listed below, the Director did not own any securities in that fund as of the date
indicated above:
|
|
|
|
|
|
|
Name of Director |
|
Fund |
|
Dollar Range of Equity Securities in the
Fund |
|
Aggregate Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director
in Family of Investment Companies |
Robert S. Kapito |
|
iShares Dow Jones U.S. Real Estate Index Fund |
|
$10,001-$50,000 |
|
Over $100,000 |
|
|
iShares MSCI Australia Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI Brazil Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Canada Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Emerging Markets Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Japan Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares FTSE China 25 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Growth Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell Midcap Index Fund |
|
Over $100,000 |
|
|
|
|
|
|
Michael Latham |
|
iShares MSCI ACWI ex US Index Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares MSCI
EAFE® Small Cap Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI
EAFE® Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI Emerging Markets Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 3000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell Microcap Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P California AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P National AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
|
|
Robert H. Silver |
|
iShares Barclays 1-3 Year Credit Bond Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares Barclays 1-3 Year Treasury Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares Barclays Aggregate Bond Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Dow Jones U.S. Broker-Dealers Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Dow Jones U.S. Financial Services Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Dow Jones U.S. Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares Dow Jones U.S. Regional Banks Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares High Dividend Equity Fund |
|
Over $100,000 |
|
|
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI ACWI ex US Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI BRIC Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
34
|
|
|
|
|
|
|
Name of Director |
|
Fund |
|
Dollar Range of Equity Securities in the
Fund |
|
Aggregate Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director
in Family of Investment Companies |
|
|
iShares MSCI Emerging Markets Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Russell 1000 Growth Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Growth Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
$1-$10,000 |
|
|
|
|
iShares Russell 2000 Value Index Fund |
|
$50,001-$100,000 |
|
|
|
|
iShares Russell 3000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P Europe 350 Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P U.S. Preferred Stock Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P/Citigroup International Treasury Bond Fund |
|
$1-$10,000 |
|
|
|
|
|
|
George G.C. Parker |
|
iShares Barclays Aggregate Bond Fund |
|
$10,001-$50,000 |
|
Over $100,000 |
|
|
iShares Dow Jones Select Dividend Index Fund |
|
Over $100,000 |
|
|
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 100 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P California AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
|
|
John E. Martinez |
|
iShares Barclays TIPS Bond Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares MSCI All Country Asia ex Japan Index Fund |
|
Over $100,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 1000 Value Index Fund |
|
Over $100,000 |
|
|
|
|
iShares Russell 2000 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P Emerging Markets Infrastructure Index Fund |
|
Over $100,000 |
|
|
|
|
iShares S&P Global Consumer Staples Sector Index Fund |
|
Over $100,000 |
|
|
|
|
|
|
Cecilia H. Herbert |
|
iShares FTSE China 25 Index Fund |
|
$10,001-$50,000 |
|
$10,001-$50,000 |
|
|
|
|
Charles A. Hurty |
|
iShares Dow Jones U.S. Financial Sector Index Fund |
|
$1-$10,000 |
|
Over $100,000 |
|
|
iShares Dow Jones Select Dividend Index Fund |
|
$1-$10,000 |
|
|
|
|
iShares Dow Jones U.S. Energy Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares Dow Jones U.S. Technology Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares FTSE China 25 Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI
EAFE® Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares MSCI Japan Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P 500 Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P Global Energy Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P Global Technology Sector Index Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares S&P North American Technology-Multimedia Networking Index Fund |
|
$10,001-$50,000 |
|
|
|
|
|
|
John E. Kerrigan |
|
iShares MSCI ACWI ex US Index Fund |
|
Over $100,000 |
|
Over $100,000 |
|
|
iShares S&P Short Term National AMT-Free Municipal Bond Fund |
|
Over $100,000 |
|
|
|
|
|
|
Madhav V. Rajan |
|
iShares Dow Jones Select Dividend Index Fund |
|
$10,001-$50,000 |
|
Over $100,000 |
|
|
iShares High Dividend Equity Fund |
|
$10,001-$50,000 |
|
|
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund |
|
$10,001-$50,000 |
|
|
35
As of December 31, 2011, none of the Independent Directors or their immediate family members owned beneficially
or of record any securities of BFA (the Funds investment adviser), the Distributor or any person controlling, controlled by or under common control with BFA or the Distributor.
Remuneration of Directors. Each current Independent Director is paid an annual retainer of $250,000 for his or her services as a Board member to the BlackRock-advised Funds in
the Exchange-Traded Fund Complex, together with out-of-pocket expenses in accordance with a Boards policy on travel and other business expenses relating to attendance at meetings. The Independent Chairman of the Boards is paid an additional
annual retainer of $50,000. The Chair of the Audit Committees is paid an additional annual retainer of $40,000. The Chair of the Nominating and Governance Committees is paid an additional annual retainer of $15,000. Each Independent Director that
serves as a director of subsidiaries of the Exchange-Traded Complex is paid an additional annual retainer of $10,000 (plus an additional $1,765 paid annually to compensate for taxes due in the Republic of Mauritius).
The table below sets forth the compensation earned by each Independent Director and Interested Director from the Fund for the fiscal year ended August 31,
2012 and the aggregate compensation paid to them by the Exchange-Traded Complex for the calendar year ended December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors |
|
iShares Core MSCI Emerging Markets ETF |
|
|
Pension or Retirement Benefits Accrued As Part of Company Expenses1 |
|
|
Estimated Annual Benefits
Upon Retirement1 |
|
|
Total Compensation From the Fund and
Fund Complex2 |
|
Name of Independent Director: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert H. Silver |
|
$ |
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
$ |
250,000 |
|
George G.C. Parker |
|
|
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
300,000 |
|
John E. Kerrigan |
|
|
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
276,765 |
|
Charles A. Hurty |
|
|
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
290,000 |
|
Cecilia H. Herbert |
|
|
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
261,765 |
|
Darrell
Duffie3 |
|
|
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
62,500 |
|
John E. Martinez |
|
|
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
261,765 |
|
Madhav V.
Rajan4 |
|
|
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
187,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Interested Director: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert S. Kapito |
|
$ |
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
$ |
0 |
|
Michael Latham |
|
|
0 |
|
|
|
Not Applicable |
|
|
|
Not Applicable |
|
|
|
0 |
|
|
1 |
No Director or officer is entitled to any pension or retirement benefits from the Company. |
|
2 |
Includes compensation for service on the Board of Trustees of iShares Trust and the Board of Directors of iShares MSCI Russia Capped Index Fund, Inc.
|
|
3 |
Served as Director through March 19, 2011. |
|
4 |
Appointed to serve as Independent Director of the Company effective May 16, 2011. |
Control Persons and Principal Holders of Securities. Ownership information is not provided for the Fund as it has not
commenced operations as of the date of this SAI.
Potential Conflicts of Interest. The PNC Financial Services
Group, Inc. (PNC) has a significant economic interest in BlackRock, Inc., the parent of BFA, the Funds investment adviser. PNC is considered to be an affiliate of BlackRock, Inc., under the 1940 Act. Certain activities of BFA,
BlackRock, Inc. and their affiliates (collectively, BlackRock) and PNC and its affiliates (collectively, PNC and together with BlackRock, Affiliates), with respect to the Fund and/or other accounts managed by
BlackRock or PNC, may give rise to actual or perceived conflicts of interest such as those described below.
BlackRock is one of the worlds
largest asset management firms. PNC is a diversified financial services organization spanning the retail, business and corporate markets. BlackRock and PNC are affiliates of one another under the 1940 Act. BlackRock and PNC and their respective
affiliates (including, for these purposes, their directors, partners, trustees, managing members, officers and employees), including the entities and personnel who may be involved in the investment activities and business operations of the Fund, are
engaged worldwide in businesses, including equity, fixed-income, cash management and alternative investments. These are considerations of which investors in the Fund should be aware, and which may cause
36
conflicts of interest that could disadvantage the Fund and its shareholders. These activities and interests include potential multiple advisory, transactional, financial and other interests in
securities and other instruments that may be purchased or sold by the Fund.
BlackRock and its Affiliates have proprietary interests in, and may manage
or advise with respect to, accounts or funds (including separate accounts and other funds and collective investment vehicles) that have investment objectives similar to those of the Fund and/or that engage in transactions in the same types of
securities, currencies and instruments as the Fund. One or more Affiliates are also major participants in the global currency, equities, swap and fixed-income markets, in each case both on a proprietary basis and for the accounts of customers. As
such, one or more Affiliates are or may be actively engaged in transactions in the same securities, currencies, and instruments in which the Fund invests. Such activities could affect the prices and availability of the securities, currencies, and
instruments in which the Fund invests, which could have an adverse impact on the Funds performance. Such transactions, particularly in respect of most proprietary accounts or customer accounts, will be executed independently of the Funds
transactions and thus at prices or rates that may be more or less favorable than those obtained by the Fund. When BlackRock and its Affiliates purchase or sell the same assets for their managed accounts, including the Fund, the assets actually
purchased or sold may be allocated among the accounts on a basis determined in their good faith discretion to be equitable. In some cases, this system may adversely affect the size or price of the assets purchased or sold for the Fund. In addition,
transactions in investments by one or more other accounts managed by BlackRock or its Affiliates may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of the Fund, particularly, but not limited to,
with respect to small capitalization, emerging market or less liquid strategies. This may occur when investment decisions regarding the Fund are based on research or other information that is also used to support decisions for other accounts. When
BlackRock or its Affiliates implements a portfolio decision or strategy on behalf of another account ahead of, or contemporaneously with, similar decisions or strategies for the Fund, market impact, liquidity constraints, or other factors could
result in the Fund receiving less favorable trading results and the costs of implementing such decisions or strategies could be increased or the Fund could otherwise be disadvantaged. BlackRock or its Affiliates may, in certain cases, elect to
implement internal policies and procedures designed to limit such consequences, which may cause the Fund to be unable to engage in certain activities, including purchasing or disposing of securities, when it might otherwise be desirable for it to do
so.
Conflicts may also arise because portfolio decisions regarding the Fund may benefit other accounts managed by BlackRock or its Affiliates. For
example, the sale of a long position or establishment of a short position by the Fund may impair the price of the same security sold short by (and therefore benefit) one or more Affiliates or their other accounts, and the purchase of a security or
covering of a short position in a security by the Fund may increase the price of the same security held by (and therefore benefit) one or more Affiliates or their other accounts.
BlackRock and its Affiliates and their clients may pursue or enforce rights with respect to an issuer in which the Fund has invested, and those activities may have an adverse effect on the Fund. As a result,
prices, availability, liquidity and terms of the Funds investments may be negatively impacted by the activities of BlackRock or its Affiliates or their clients, and transactions for the Fund may be impaired or effected at prices or terms that
may be less favorable than would otherwise have been the case.
The results of the Funds investment activities may differ significantly from the
results achieved by BlackRock and its Affiliates for their proprietary accounts or other accounts (including investment companies or collective investment vehicles) managed or advised by them. It is possible that one or more Affiliate-managed
accounts and such other accounts will achieve investment results that are substantially more or less favorable than the results achieved by the Fund. Moreover, it is possible that the Fund will sustain losses during periods in which one or more
Affiliate-managed accounts achieve significant profits on their trading for proprietary or other accounts. The opposite result is also possible. The investment activities of one or more Affiliates for their proprietary accounts and accounts under
their management may also limit the investment opportunities for the Fund in certain emerging and other markets in which limitations are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated foreign
investors.
From time to time, the Funds activities may also be restricted because of regulatory restrictions applicable to one or more
Affiliates, and/or their internal policies designed to comply with such restrictions. As a result, there may be periods, for example, when BlackRock, and/or one or more Affiliates, will not initiate or recommend certain types of transactions in
certain securities or instruments with respect to which BlackRock and/or one or more Affiliates are performing services or when position limits have been reached.
37
In connection with its management of the Fund, BlackRock may have access to certain fundamental analysis and
proprietary technical models developed by one or more Affiliates. BlackRock will not be under any obligation, however, to effect transactions on behalf of the Fund in accordance with such analysis and models. In addition, neither BlackRock nor any
of its Affiliates will have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for the benefit of the management of the Fund
and it is not anticipated that BlackRock will have access to such information for the purpose of managing the Fund. The proprietary activities or portfolio strategies of BlackRock and its Affiliates, or the activities or strategies used for accounts
managed by them or other customer accounts could conflict with the transactions and strategies employed by BlackRock in managing the Fund.
In addition,
certain principals and certain employees of BlackRock are also principals or employees of Affiliates. As a result, the performance by these principals and employees of their obligations to such other entities may be a consideration of which
investors in the Fund should be aware.
BlackRock may enter into transactions and invest in securities, instruments and currencies on behalf of the Fund
in which customers of BlackRock or its Affiliates, or, to the extent permitted by the SEC, BlackRock or another Affiliate, serves as the counterparty, principal or issuer. In such cases, such partys interests in the transaction will be adverse
to the interests of the Fund, and such party may have no incentive to assure that the Fund obtains the best possible prices or terms in connection with the transactions. In addition, the purchase, holding and sale of such investments by the Fund may
enhance the profitability of BlackRock or its Affiliates. One or more Affiliates may also create, write or issue derivatives for their customers, the underlying securities, currencies or instruments of which may be those in which the Fund invests or
which may be based on the performance of the Fund. The Fund may, subject to applicable law, purchase investments that are the subject of an underwriting or other distribution by one or more Affiliates and may also enter into transactions with other
clients of an Affiliate where such other clients have interests adverse to those of the Fund.
At times, these activities may cause departments of
BlackRock or its Affiliates to give advice to clients that may cause these clients to take actions adverse to the interests of the Fund. To the extent affiliated transactions are permitted, the Fund will deal with BlackRock and its Affiliates on an
arms-length basis. BlackRock or its Affiliates may also have an ownership interest in certain trading or information systems used by the Fund. The Funds use of such trading or information systems may enhance the profitability of BlackRock and
its Affiliates.
One or more Affiliates may act as broker, dealer, agent, lender or adviser or in other commercial capacities for the Fund. It is
anticipated that the commissions, mark-ups, mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and commitment fees, brokerage fees, other fees, compensation or profits, rates, terms and conditions charged by
an Affiliate will be in its view commercially reasonable, although each Affiliate, including its sales personnel, will have an interest in obtaining fees and other amounts that are favorable to the Affiliate and such sales personnel.
Subject to applicable law, the Affiliates (and their personnel and other distributors) will be entitled to retain fees and other amounts that they receive in
connection with their service to the Fund as broker, dealer, agent, lender, adviser or in other commercial capacities and no accounting to the Fund or its shareholders will be required, and no fees or other compensation payable by the Fund or its
shareholders will be reduced by reason of receipt by an Affiliate of any such fees or other amounts.
When an Affiliate acts as broker, dealer, agent,
adviser or in other commercial capacities in relation to the Fund, the Affiliate may take commercial steps in its own interests, which may have an adverse effect on the Fund. The Fund will be required to establish business relationships with its
counterparties based on the Funds own credit standing. Neither BlackRock nor any of the Affiliates will have any obligation to allow their credit to be used in connection with the Funds establishment of its business relationships, nor is
it expected that the Funds counterparties will rely on the credit of BlackRock or any of the Affiliates in evaluating the Funds creditworthiness.
Purchases and sales of securities for the Fund may be bunched or aggregated with orders for other BlackRock client accounts. BlackRock, however, is not required to bunch or aggregate orders if portfolio management
decisions for different accounts are made separately, or if it determines that bunching or aggregating is not practicable or required, or in cases involving client direction.
Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and
the Fund will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Fund.
38
In addition, under certain circumstances, the Fund will not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.
BlackRock may select brokers (including, without limitation, Affiliates) that furnish BlackRock, the Fund, other BlackRock client accounts or other Affiliates or
personnel, directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRocks view, appropriate assistance to BlackRock in the investment decision-making process (including with respect to
futures, fixed-price offerings and over-the-counter transactions). Such research or other services may include, to the extent permitted by law, research reports on companies, industries and securities; economic and financial data; financial
publications; proxy analysis; trade industry seminars; computer data bases; research-oriented software and other services and products. Research or other services obtained in this manner may be used in servicing any or all of the Fund and other
BlackRock client accounts, including in connection with BlackRock client accounts other than those that pay commissions to the broker relating to the research or other service arrangements. Such products and services may disproportionately benefit
other BlackRock client accounts relative to the Fund based on the amount of brokerage commissions paid by the Fund and such other BlackRock client accounts. For example, research or other services that are paid for through one clients
commissions may not be used in managing that clients account. In addition, other BlackRock client accounts may receive the benefit, including disproportionate benefits, of economies of scale or price discounts in connection with products and
services that may be provided to the Fund and to such other BlackRock client accounts. To the extent that BlackRock uses soft dollars, it will not have to pay for those products and services itself.
BlackRock may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent
that BlackRock receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution,
clearing, and settlement services provided by the broker-dealer and will not be paid by BlackRock.
BlackRock may endeavor to execute trades through
brokers who, pursuant to such arrangements, provide research or other services in order to ensure the continued receipt of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from time to
time choose not to engage in the above described arrangements to varying degrees. BlackRock may also enter into commission sharing arrangements under which BlackRock may execute transactions through a broker-dealer, including, where permitted, an
Affiliate, and request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to BlackRock. To the extent that BlackRock engages in commission sharing arrangements, many of the same
conflicts related to traditional soft dollars may exist.
BlackRock may utilize certain electronic crossing networks (ECNs) in executing
client securities transactions for certain types of securities. These ECNs may charge fees for their services, including access fees and transaction fees. The transaction fees, which are similar to commissions or markups/markdowns, will generally be
charged to clients and, like commissions and markups/markdowns, would generally be included in the cost of the securities purchased. Access fees may be paid by BlackRock even though incurred in connection with executing transactions on behalf of
clients, including the Fund. In certain circumstances, ECNs may offer volume discounts that will reduce the access fees typically paid by BlackRock. This would have the effect of reducing the access fees paid by BlackRock. BlackRock will only
utilize ECNs consistent with its obligation to seek to obtain best execution in client transactions.
BlackRock has adopted policies and procedures
designed to prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including the Fund, and to help ensure that such decisions are made in accordance with BlackRocks fiduciary
obligations to its clients. Nevertheless, notwithstanding such proxy voting policies and procedures, actual proxy voting decisions of BlackRock may have the effect of favoring the interests of other clients or businesses of other divisions or units
of BlackRock and/or its Affiliates, provided that BlackRock believes such voting decisions to be in accordance with its fiduciary obligations. For a more detailed discussion of these policies and procedures, see the Proxy Voting Policy
section of this SAI.
It is also possible that, from time to time, BlackRock or its Affiliates may, although they are not required to, purchase and
hold shares of the Fund. Increasing the Funds assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the Funds expense ratio. BlackRock and its Affiliates reserve the
right to redeem at any time some or all of the shares of the Fund acquired for their own accounts. A large redemption of shares of the Fund by BlackRock or its Affiliates could significantly reduce the asset size of the Fund, which might have an
adverse
39
effect on the Funds investment flexibility, portfolio diversification and expense ratio. BlackRock will consider the effect of redemptions on the Fund and other shareholders in deciding
whether to redeem its shares.
It is possible that the Fund may invest in securities of companies with which an Affiliate has or is trying to develop
investment banking relationships as well as securities of entities in which BlackRock or its Affiliates has significant debt or equity investments or in which an Affiliate makes a market. The Fund also may invest in securities of companies to which
an Affiliate provides or may someday provide research coverage. Such investments could cause conflicts between the interests of the Fund and the interests of other clients of BlackRock or its Affiliates. In making investment decisions for the Fund,
BlackRock is not permitted to obtain or use material non-public information acquired by any division, department or Affiliate of BlackRock in the course of these activities. In addition, from time to time, the activities of an Affiliate may limit
the Funds flexibility in purchases and sales of securities. When an Affiliate is engaged in an underwriting or other distribution of securities of an entity, BlackRock may be prohibited from purchasing or recommending the purchase of certain
securities of that entity for the Fund.
BlackRock and its Affiliates, their personnel and other financial service providers may have interests in
promoting sales of the Fund. With respect to BlackRock and its Affiliates and their personnel, the remuneration and profitability relating to services to and sales of the Fund or other products may be greater than remuneration and profitability
relating to services to and sales of certain funds or other products that might be provided or offered. BlackRock and its Affiliates and their sales personnel may directly or indirectly receive a portion of the fees and commissions charged to the
Fund or its shareholders. BlackRock and its advisory or other personnel may also benefit from increased amounts of assets under management. Fees and commissions may also be higher than for other products or services, and the remuneration and
profitability to BlackRock or its Affiliates and such personnel resulting from transactions on behalf of or management of the Fund may be greater than the remuneration and profitability resulting from other funds or products.
BlackRock and its Affiliates and their personnel may receive greater compensation or greater profit in connection with an account for which BlackRock serves as an
adviser than with an account advised by an unaffiliated investment adviser. Differentials in compensation may be related to the fact that BlackRock may pay a portion of its advisory fee to its Affiliate, or relate to compensation arrangements,
including for portfolio management, brokerage transactions or account servicing. Any differential in compensation may create a financial incentive on the part of BlackRock or its Affiliates and their personnel to recommend BlackRock over
unaffiliated investment advisers or to effect transactions differently in one account over another.
BlackRock and its Affiliates may provide valuation
assistance to certain clients with respect to certain securities or other investments and the valuation recommendations made for their clients accounts may differ from the valuations for the same securities or investments assigned by the
Funds pricing vendors, especially if such valuations are based on broker-dealer quotes or other data sources unavailable to the Funds pricing vendors. While BlackRock will generally communicate its valuation information or determinations
to the Funds pricing vendors and/or fund accountants, there may be instances where the Funds pricing vendors or fund accountants assign a different valuation to a security or other investment than the valuation for such security or
investment determined or recommended by BlackRock.
As disclosed in more detail in the Determination of Net Asset Value section of the
Funds Prospectus, when market valuations are not readily available or such valuations do not reflect current market values, the affected investments will be valued using fair value pricing, pursuant to procedures adopted by the Funds
Board. As a result, the Funds sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BlackRock (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing
the economic interest of existing shareholders.
To the extent permitted by applicable law, the Fund may invest all or some of its short-term cash
investments in any money market fund or similarly-managed private fund advised or managed by BlackRock. In connection with any such investments, the Fund, to the extent permitted by the 1940 Act, may pay its share of expenses of a money market fund
in which it invests, which may result in the Fund bearing some additional expenses.
BlackRock and its Affiliates and their directors, officers and
employees, may buy and sell securities or other investments for their own accounts, and may have conflicts of interest with respect to investments made on behalf of the Fund. As a result of differing trading and investment strategies or constraints,
positions may be taken by directors, officers, employees and Affiliates of BlackRock that are the same, different from or made at different times than positions taken for the Fund. To lessen the possibility that the Fund will be adversely affected
by this personal trading, the Fund, BFA and BlackRock each has adopted a Code of Ethics in compliance with Section 17(j) of the 1940 Act that restricts securities trading in the personal
40
accounts of investment professionals and others who normally come into possession of information regarding the Funds portfolio transactions. Each Code of Ethics can be reviewed and copied
at the SECs Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (202) 551-8090. Each Code of Ethics is also available on the EDGAR Database on the
SECs Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at publicinfo@sec.gov or by writing the SECs Public Reference Section, Washington, DC 20549-1520.
BlackRock and its Affiliates will not purchase securities or other property from, or sell securities or other property to, the Fund, except that the Fund may in
accordance with rules adopted under the 1940 Act engage in transactions with accounts that are affiliated with the Fund as a result of common officers, directors, or investment advisers or pursuant to exemptive orders granted to the Fund and/or
BlackRock by the SEC. These transactions would be affected in circumstances in which BlackRock determined that it would be appropriate for the Fund to purchase and another client of BlackRock to sell, or the Fund to sell and another client of
BlackRock to purchase, the same security or instrument on the same day. From time to time, the activities of the Fund may be restricted because of regulatory requirements applicable to BlackRock or its Affiliates and/or BlackRocks internal
policies designed to comply with, limit the applicability of, or otherwise relate to such requirements. A client not advised by BlackRock would not be subject to some of those considerations. There may be periods when BlackRock may not initiate or
recommend certain types of transactions, or may otherwise restrict or limit their advice in certain securities or instruments issued by or related to companies for which an Affiliate is performing investment banking, market making or other services
or has proprietary positions. For example, when an Affiliate is engaged in an underwriting or other distribution of securities of, or advisory services for, a company, the Fund may be prohibited from or limited in purchasing or selling securities of
that company. Similar situations could arise if personnel of BlackRock or its Affiliates serve as directors of companies the securities of which the Fund wishes to purchase or sell. However, if permitted by applicable law, the Fund may purchase
securities or instruments that are issued by such companies or are the subject of an underwriting, distribution, or advisory assignment by an Affiliate, or in cases in which personnel of BlackRock or its Affiliates are directors or officers of the
issuer.
The investment activities of one or more Affiliates for their proprietary accounts and for client accounts may also limit the investment
strategies and rights of the Fund. For example, in regulated industries, in certain emerging or international markets, in corporate and regulatory ownership definitions, and in certain futures and derivative transactions, there may be limits on the
aggregate amount of investment by affiliated investors that may not be exceeded without the grant of a license or other regulatory or corporate consent or, if exceeded, may cause BlackRock, the Fund or other client accounts to suffer disadvantages
or business restrictions.
If certain aggregate ownership thresholds are reached or certain transactions undertaken, the ability of BlackRock on behalf
of clients (including the Fund) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired. As a result, BlackRock, on behalf of clients (including the Fund),
may limit purchases, sell existing investments, or otherwise restrict or limit the exercise of rights (including voting rights) when BlackRock, in its sole discretion, deems it appropriate.
BlackRock and its Affiliates may maintain securities indices as part of their product offerings. Index based funds seek to track the performance of securities indices and may use the name of the index in the fund
name. Index providers, including BlackRock and its Affiliates may be paid licensing fees for use of their index or index name. BlackRock and its Affiliates will not be obligated to license their indices to BlackRock, and BlackRock cannot be assured
that the terms of any index licensing agreement with BlackRock and its Affiliates will be as favorable as those terms offered to other index licensees.
BlackRock and its Affiliates may serve as Authorized Participants in the creation and redemption of exchange-traded funds, including funds advised by Affiliates of
BlackRock. As described in greater detail in the Creations and Redemptions section of the prospectus, BlackRock and its Affiliates may therefore be deemed to be participants in a distribution of iShares funds that could render them statutory
underwriters.
Present and future activities of BlackRock and its Affiliates, including BFA, in addition to those described in this section, may give
rise to additional conflicts of interest.
41
Investment Advisory, Administrative and Distribution Services
Investment Adviser. BFA serves as investment adviser to the Fund pursuant to an Investment Advisory Agreement between the
Company, on behalf of the Fund, and BFA. BFA is a California corporation indirectly owned by BlackRock, Inc., and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the Investment Advisory Agreement,
BFA, subject to the supervision of the Board and in conformity with the stated investment policies of the Fund, manages and administers the Company and the investment of the Funds assets. BFA is responsible for placing purchase and sale orders
and providing continuous supervision of the investment portfolio of the Fund.
Pursuant to the Investment Advisory Agreement, BFA may from time to time,
in its sole discretion to the extent permitted by applicable law, appoint one or more sub-advisers, including, without limitation, affiliates of BFA, to perform investment advisory or other services with respect to the Fund. In addition, BFA may
delegate certain of its investment advisory functions under the Investment Advisory Agreement to one or more of its affiliates to the extent permitted by applicable law. BFA may terminate any or all sub-advisers or such delegation arrangements in
its sole discretion upon appropriate notice at any time to the extent permitted by applicable law.
BFA is responsible, under the Investment Advisory
Agreement, for substantially all expenses of the Fund, including the cost of transfer agency, custody, fund administration, legal, audit and other services, except interest expense, taxes, brokerage expenses, distribution fees or expenses and
extraordinary expenses.
For its investment advisory services to the Fund, BFA will be paid a management fee from the Fund, based on a percentage of the
Funds average daily net assets, at the annual rate of 0.18%. BFA has contractually agreed to waive its management fees in an amount equal to the Funds pro rata share of the fees and expenses attributable to the Funds investments in
other iShares funds, Acquired Fund Fees and Expenses, through October 31, 2013.
The Investment Advisory Agreement with respect to the
Fund continues in effect for two years from its effective date, and thereafter is subject to annual approval by (i) the Board, or (ii) the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund,
provided that in either event such continuance also is approved by a majority of the Board who are not interested persons (as defined in the 1940 Act) of the Fund, by a vote cast in person at a meeting called for the purpose of voting on such
approval.
The Investment Advisory Agreement with respect to the Fund is terminable without penalty, on 60 days notice, by the Board or by a vote
of the holders of a majority of the Funds outstanding voting securities (as defined in the 1940 Act). The Investment Advisory Agreement is also terminable upon 60 days notice by BFA and will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
Current interpretations of U.S. federal banking laws and regulations (i) may prohibit BlackRock, Inc.,
BFA or its affiliates from controlling or underwriting the shares of the Fund, but (ii) do not prohibit BlackRock, Inc. or BFA generally from acting as an investment adviser, administrator, transfer agent or custodian to the Fund or from
purchasing shares as agent for and upon the order of a customer.
BFA believes that it may perform advisory and related services for the Company without
violating applicable banking laws or regulations. However, the legal requirements and interpretations about the permissible activities of banks and their affiliates may change in the future. These changes could prevent BFA from continuing to perform
services for the Company. If this happens, the Board would consider selecting other qualified firms. Any new investment advisory agreement would be subject to shareholder approval.
If current restrictions on bank activities with mutual funds were relaxed, BFA, or its affiliates, would consider performing additional services for the Company. BFA cannot predict whether these changes will be
enacted, or the terms under which BFA, or its affiliates, might offer to provide additional services.
The Subsidiary has entered into a separate
contract with BFA whereby BFA provides investment advisory services to the Subsidiary. BFA does not receive separate compensation from the Subsidiary for providing it with investment advisory
42
services. The Fund pays BFA a management fee based on the Funds assets, including the assets invested in the Subsidiary. 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 shall pay the costs and expenses related to the provision of those services.
Portfolio Managers. As of August 31, 2012, the individuals named as Portfolio Managers in the Funds Prospectus
were also primarily responsible for the day-to-day management of other iShares funds and certain other types of portfolios and/or accounts as follows:
|
|
|
|
|
|
|
|
|
Christopher Bliss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
45 |
|
|
$ |
59,300,000,000 |
|
Other Pooled Investment Vehicles |
|
|
161 |
|
|
|
392,800,000,000 |
|
Other Accounts |
|
|
150 |
|
|
|
278,800,000,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Rene Casis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
223 |
|
|
$ |
343,000,000,000 |
|
Other Pooled Investment Vehicles |
|
|
68 |
|
|
|
51,400,000,000 |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Diane Hsiung |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
221 |
|
|
$ |
342,800,000,000 |
|
Other Pooled Investment Vehicles |
|
|
15 |
|
|
|
8,000,000,000 |
|
Other Accounts |
|
|
4 |
|
|
|
113,400,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Jennifer Hsui |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
56 |
|
|
$ |
174,400,000,000 |
|
Other Pooled Investment Vehicles |
|
|
26 |
|
|
|
162,000,000,000 |
|
Other Accounts |
|
|
40 |
|
|
|
54,000,000,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Greg Savage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number |
|
|
Total Assets |
|
Registered Investment Companies |
|
|
226 |
|
|
$ |
345,500,000,000 |
|
Other Pooled Investment Vehicles |
|
|
83 |
|
|
|
55,300,000,000 |
|
Other Accounts |
|
|
3 |
|
|
|
64,400,000 |
|
Accounts with Incentive-Based Fee Arrangements |
|
|
N/A |
|
|
|
N/A |
|
Each of the portfolios or accounts for which the Portfolio Managers are primarily responsible for the day-to-day management seeks
to track the rate of return, risk profile and other characteristics of independent third-party indexes by either replicating the same combination of securities that constitute those indexes or through a representative sampling of the securities that
constitute those indexes based on objective criteria and data. Pursuant to BFA policy, investment opportunities are allocated equitably among the Fund and other portfolios and accounts. For example, under certain circumstances, an investment
opportunity may be restricted due to limited supply on the market, legal constraints or other factors, in which event the investment opportunity will be allocated equitably among those portfolios and accounts, including the Fund seeking such
investment opportunity. As a consequence, from time to time the Fund may receive a smaller allocation of an investment opportunity than it would have if the Portfolio Managers and BFA and its affiliates did not manage other portfolios or accounts.
Like the Fund, the other portfolios or accounts for which the Portfolio Managers are primarily responsible for the day-to-day portfolio management
generally pay an asset-based fee to BFA or its affiliates, as applicable, for its advisory services. One or
43
more of those other portfolios or accounts, however, may pay BFA or its affiliates an incentive-based fee in lieu of, or in addition to, an asset-based fee for its advisory services. A portfolio
or account with an incentive-based fee would pay BFA or its affiliates a portion of that portfolios or accounts gains, or would pay BFA or its affiliates more for its services than would otherwise be the case if BFA or any of its
affiliates meets or exceeds specified performance targets. By their nature, incentive-based fee arrangements could present an incentive for BFA or its affiliates to devote greater resources, and allocate more investment opportunities, to the
portfolios or accounts that have those fee arrangements, relative to other portfolios or accounts, in order to earn larger fees. Although BFA and each of its affiliates has an obligation to allocate resources and opportunities equitably among
portfolios and accounts and intends to do so, shareholders of the Fund should be aware that, as with any group of portfolios and accounts managed by an investment adviser and/or its affiliates pursuant to varying fee arrangements, including
incentive-based fee arrangements, there is the potential for a conflict of interest that may result in the Portfolio Managers favoring those portfolios or accounts with incentive-based fee arrangements.
The tables below show, for each Portfolio Manager, the number of portfolios or accounts of the types set forth in the above tables and the aggregate of total
assets in those portfolios or accounts with respect to which the investment management fees are based on the performance of those portfolios or accounts as of August 31, 2012:
|
|
|
|
|
|
|
|
|
Christopher Bliss |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts
with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rene Casis |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts
with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diane Hsiung |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jennifer Hsui |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg Savage |
|
|
|
|
|
|
|
|
Types of Accounts |
|
Number of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
|
Aggregate of Total Assets |
|
Registered Investment Companies |
|
|
N/A |
|
|
|
N/A |
|
Other Pooled Investment Vehicles |
|
|
N/A |
|
|
|
N/A |
|
Other Accounts |
|
|
N/A |
|
|
|
N/A |
|
The discussion below describes the Portfolio Managers compensation as of October 15, 2012.
44
Portfolio Manager Compensation Overview
BlackRock, Inc.s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources.
Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits
programs and one or more of the incentive compensation programs established by BlackRock, Inc.
Base compensation. Generally, portfolio managers
receive base compensation based on their position with the firm.
Discretionary Incentive Compensation. Discretionary incentive compensation is a
function of several components: the performance of BlackRock, Inc., the performance of the portfolio managers group within BlackRock, Inc. and the individuals performance and contribution to the overall performance of these portfolios
and BlackRock, Inc.
Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio
managers in a combination of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of years. The BlackRock, Inc. restricted stock units, if properly vested, will be settled in BlackRock, Inc. common stock. Typically, the
cash bonus, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of annual bonuses in stock puts compensation earned by a portfolio manager for a given year at risk
based on BlackRock, Inc.s ability to sustain and improve its performance over future periods.
Long-Term Incentive Plan AwardsFrom
time to time, long-term incentive equity awards are granted to certain key employees to aid in retention, align their interests with long-term shareholder interests and motivate performance. Equity awards are generally granted in the form of
BlackRock, Inc. restricted stock units that, once vested, settle in BlackRock, Inc. common stock.
Deferred Compensation ProgramA portion
of the compensation paid to eligible BlackRock, Inc. employees may be voluntarily deferred at their election for defined periods of time into an account that tracks the performance of certain of the firms investment products. All of the
eligible portfolio managers have participated in the deferred compensation program.
Other Compensation Benefits. In addition to base
compensation and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:
Incentive Savings PlansBlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate,
including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a company match equal to 50% of the first 8%
of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution equal to 3-5% of eligible compensation up to the U.S. Internal Revenue Service (the IRS) limit ($250,000 for 2012). The RSP offers a
range of investment options, including registered investment companies and collective investment funds managed by the firm. BlackRock, Inc. contributions follow the investment direction set by participants for their own contributions or, absent
participant investment direction, are invested into an index target date fund that corresponds to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on
the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the Purchase Date. Christopher Bliss,
Rene Casis, Diane Hsiung, Jennifer Hsui and Greg Savage are each eligible to participate in these plans.
As of October 15, 2012, the Portfolio
Managers did not beneficially own shares of the Fund.
Codes of Ethics. The Company, BFA and the Distributor have
adopted Codes of Ethics pursuant to Rule 17j-1 of the 1940 Act. The Codes of Ethics permit personnel subject to the Codes of Ethics to invest in securities, subject to certain limitations, including securities that may be purchased or held by the
Fund. The Codes of Ethics are on public file with, and are available from, the SEC.
Anti-Money Laundering
Requirements. The Fund is subject to the USA PATRIOT Act (the Patriot Act). The Patriot Act is intended to prevent the use of the U.S. financial system in furtherance of money laundering, terrorism or other illicit activities.
Pursuant to requirements under the Patriot Act, the Fund may request information from Authorized Participants to enable it
45
to form a reasonable belief that it knows the true identity of its Authorized Participants. This information will be used to verify the identity of Authorized Participants or, in some cases, the
status of financial professionals; it will be used only for compliance with the requirements of the Patriot Act.
The Fund reserves the right to reject
purchase orders from persons who have not submitted information sufficient to allow the Fund to verify their identity. The Fund also reserves the right to redeem any amounts in the Fund from persons whose identity it is unable to verify on a timely
basis. It is the Funds policy to cooperate fully with appropriate regulators in any investigations conducted with respect to potential money laundering, terrorism or other illicit activities.
Administrator, Custodian and Transfer Agent. State Street Bank and Trust Company (State Street) serves as
administrator, custodian and transfer agent for the Fund under the Master Services Agreement and related Service Schedule (the Service Module). State Streets principal address is 200 Clarendon Street, Boston, MA 02116. Pursuant to
the Service Module for Fund Administration and Accounting Services with the Company, State Street provides necessary administrative, legal, tax and accounting and financial reporting services for the maintenance and operations of the Company and the
Fund. In addition, State Street makes available the office space, equipment, personnel and facilities required to provide such services. Pursuant to the Service Module for Custodial Services with the Company, State Street maintains, in separate
accounts, cash, securities and other assets of the Company and the Fund, keeps all necessary accounts and records and provides other services. State Street is required, upon the order of the Company, to deliver securities held by State Street and to
make payments for securities purchased by the Company for the Fund. State Street is authorized to appoint certain foreign custodians or foreign custody managers for Fund investments outside the United States. Pursuant to the Service Module for
Transfer Agency Services with the Company, State Street acts as a transfer agent for the Funds authorized and issued shares of beneficial interest, and as dividend disbursing agent of the Company. As compensation for these services, State
Street receives certain out-of-pocket costs, transaction fees and asset-based fees which are accrued daily and paid monthly by BFA from its management fee.
Subsidiary Administrator. International Financial Services Limited (IFS) will serve as the Subsidiarys Mauritius administrator. Pursuant to an agreement with
IFS, the Subsidiary will pay a fee for administrative, legal, tax and accounting services to IFS for certain shareholder services and for providing office space, equipment, personnel and facilities required to provide such services to the
Subsidiary.
Distributor. The Distributors principal address is 525 Washington Boulevard, Suite 1405,
Jersey City, NJ 07310. Shares are continuously offered for sale by the Fund through the Distributor or its agent only in Creation Units, as described in the Prospectus and below in the Creation and Redemption of Creation Units section of this
SAI. Fund shares in amounts less than Creation Units are generally not distributed by the Distributor or its agent. The Distributor or its agent will arrange for the delivery of the Prospectus and, upon request, this SAI to persons purchasing
Creation Units and will maintain records of both orders placed with it or its agents and confirmations of acceptance furnished by it or its agents. The Distributor is a broker-dealer registered under the Securities Exchange Act of 1934, as amended
(the 1934 Act), and a member of the Financial Industry Regulatory Authority, Inc. (FINRA).
The Distribution Agreement for the
Fund provides that it may be terminated at any time, without the payment of any penalty, on at least 60 days prior written notice to the other party following (i) the vote of a majority of the Independent Directors, or (ii) the vote
of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund. The Distribution Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities dealers (Soliciting Dealers) who will solicit purchases of Creation Units of Fund
shares. Such Soliciting Dealers may also be Authorized Participants (as defined below), Depository Trust Company (DTC) participants and/or investor services organizations.
BFA or its affiliates may, from time to time and from its own resources, pay, defray or absorb costs relating to distribution, including payments out of its own resources to the Distributor, or to otherwise promote
the sale of shares.
Payments by BFA and its Affiliates. BFA and/or its affiliates (BFA Entities)
pay certain broker-dealers, banks and other financial intermediaries (Intermediaries) for certain activities related to the Funds, other iShares funds or exchange-traded products in general. BFA Entities make these payments from their
own assets and not from the assets of the Funds. Although a portion of BFA Entities revenue comes directly or indirectly in part from fees paid by the Funds and other iShares funds, these payments do not increase the price paid by investors
for the purchase of shares of, or the cost of owning, the Fund or other iShares funds. BFA Entities make payments for Intermediaries participation in activities that are designed to make registered representatives, other professionals and
individual investors more knowledgeable about exchange-traded products, including the Funds, or for other activities, such as participation in marketing activities and presentations,
46
educational training programs, conferences, the development of technology platforms and reporting systems (Education Costs). BFA Entities also make payments to Intermediaries for
certain printing, publishing and mailing costs associated with the Funds or materials relating to exchange-traded products in general (Publishing Costs). In addition, BFA Entities make payments to Intermediaries that make shares of the
Funds and certain other iShares funds available to their clients, develop new products that feature iShares or otherwise promote the Funds and other iShares funds. BFA Entities may also reimburse expenses or make payments from their own assets to
Intermediaries or other persons in consideration of services or other activities that the BFA Entities believe may benefit the iShares business or facilitate investment in iShares funds. Payments of the type described above are sometimes
referred to as revenue-sharing payments.
Payments to an Intermediary may be significant to the Intermediary, and amounts that Intermediaries pay to
your salesperson or other investment professional may also be significant for your salesperson or other investment professional. Because an Intermediary may make decisions about which investment options it will recommend or make available to its
clients or what services to provide for various products based on payments it receives or is eligible to receive, such payments may create conflicts of interest between the Intermediary and its clients and these financial incentives may cause the
Intermediary to recommend the Fund and other iShares funds over other investments. The same conflict of interest and financial incentive exist with respect to your salesperson or other investment professional if he or she receives similar payments
from his or her Intermediary firm.
As of March 1, 2013, BFA Entities have contractual arrangements to make payments (in addition to payments for
Education Costs or Publishing Costs) to one Intermediary, Fidelity Brokerage Services LLC (FBS). Pursuant to this special, long-term and significant arrangement (the Marketing Program), FBS and certain affiliates
(collectively Fidelity) have agreed, among other things, to actively promote iShares funds to customers and investment professionals and in advertising campaigns as the preferred exchange-traded product, to offer certain iShares funds in
certain Fidelity platforms and investment programs, in some cases at a reduced commission rate, and to provide marketing data to BFA Entities. BFA Entities have agreed to facilitate the Marketing Program by, among other things, making certain
payments to FBS for marketing and implementing certain brokerage and investment programs. Upon termination of the arrangement, the BFA Entities will make additional payments to FBS based upon a number of criteria, including the overall success of
the Marketing Program and the level of services provided by FBS during the wind-down period.
Any additions, modifications, or deletions to
Intermediaries listed above that have occurred since the date noted above are not included in the list. Further, BFA Entities make Education Costs and Publishing Costs payments to other Intermediaries that are not listed above. BFA Entities may
determine to make such payments based on any number of metrics. For example, BFA Entities may make payments at year-end or other intervals in a fixed amount, an amount based upon an Intermediarys services at defined levels or an amount based
on the Intermediarys net sales of one or more iShares funds in a year or other period, any of which arrangements may include an agreed-upon minimum or maximum payment, or any combination of the foregoing. As of the date of this SAI, BFA
anticipates that the payments paid by BFA Entities in connection with the Funds, iShares funds and exchange-traded products in general will be immaterial to BFA Entities in the aggregate for the next year. Please contact your salesperson or other
investment professional for more information regarding any such payments his or her Intermediary firm may receive. Any payments made by the BFA Entities to an Intermediary may create the incentive for an Intermediary to encourage customers to buy
shares of iShares funds.
The Fund may participate in certain market maker incentive programs of a national securities exchange in which an
affiliate of the Fund would pay a fee to the exchange used for the purpose of incentivizing one or more market makers in the securities of the Fund to enhance the liquidity and quality of the secondary market of securities of the Fund. The fee
would then be credited by the exchange to one or more market makers that meet or exceed liquidity and market quality standards with respect to the securities of the Fund. Each market maker incentive program is subject to approval from the
SEC. Any such fee payments made to an exchange will be made by an affiliate of the Fund solely for the benefit of the Fund and will not be paid from any Fund assets.
Brokerage Transactions
BFA assumes general supervision over placing orders on behalf
of the Fund for the purchase and sale of portfolio securities. In selecting brokers or dealers for any transaction in portfolio securities, BFAs policy is to make such selection based on factors deemed relevant, including but not limited to,
the breadth of the market in the security, the price of the security, the reasonableness of the commission or mark-up or mark-down, if any, execution capability, settlement capability, back office efficiency and the financial condition of the broker
or dealer, both for the specific transaction and on a continuing basis. The overall reasonableness of brokerage commissions paid is evaluated by BFA based upon its knowledge of available
47
information as to the general level of commissions paid by other institutional investors for comparable services. Brokers may also be selected because of their expertise in certain markets or
with certain securities, or their ability to handle special or difficult executions, such as may be involved in large block trades, less liquid securities, broad distributions, or other circumstances. BFA does not consider the provision or value of
research, products or services a broker or dealer may provide, if any, as a factor in the selection of a broker or dealer or the determination of the reasonableness of commissions paid in connection with portfolio transactions. The Company has
adopted policies and procedures that prohibit the consideration of sales of the Funds shares as a factor in the selection of a broker or a dealer to execute its portfolio transactions.
The Funds purchase and sale orders for securities may be combined with those of other investment companies, clients or accounts that BFA or its affiliates manage or advise and for which they have brokerage
placement authority. If purchases or sales of portfolio securities of the Fund and one or more other accounts managed or advised by BFA or its affiliates are considered at or about the same time, transactions in such securities are allocated among
the Fund and the other accounts in a manner deemed equitable to all by BFA and its affiliates. In some cases, this procedure could have a detrimental effect on the price or volume of the security as far as the Fund is concerned.
However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate lower transaction costs will be beneficial to the
Fund. BFA and its affiliates may deal, trade and invest for their own account in the types of securities in which the Fund may invest. BFA and its affiliates may, from time to time, effect trades on behalf of and for the account of the Fund with
brokers or dealers that are affiliated with BFA, in conformity with the 1940 Act and SEC rules and regulations. Under these provisions, any commissions paid to affiliated brokers or dealers must be reasonable and fair compared to the commissions
charged by other brokers or dealers in comparable transactions. The Fund will not deal with affiliates in principal transactions unless permitted by applicable SEC rules or regulations, or by SEC exemptive order.
Portfolio turnover may vary from year to year, as well as within a year. High turnover rates may result in comparatively greater brokerage expenses.
Creation or redemption transactions, to the extent consisting of cash, may require the Fund to contemporaneously transact with broker-dealers for purchases of
Deposit Securities (as defined below under Fund Deposit) or sales of Fund Securities (as defined below under Redemption of Creation Units), as applicable. Such transactions with a particular broker-dealer may be conditioned upon the
broker-dealers agreement to transact at guaranteed price levels in order to reduce transaction costs the Fund would otherwise incur as a consequence of settling creation or redemption baskets in cash rather than in-kind.
Following the Funds receipt of an order to purchase or redeem creation or redemption baskets, to the extent such purchases or redemptions consist of a cash
portion, the Fund will enter an order with a broker or dealer to purchase or sell the Deposit Securities or Fund Securities, as applicable. The terms of such order may, depending on the timing of the transaction and certain other factors, require
the broker or dealer to guarantee that the Fund will achieve execution of its order at a price at least as favorable to the Fund as the Funds valuation of the Deposit Securities/Fund Securities used for purposes of calculating the NAV applied
to the creation or redemption transaction giving rise to the order (the Execution Performance Guarantee). Such orders may be placed with the purchasing or redeeming Authorized Participant in its capacity as a broker-dealer or with its
affiliated broker-dealer. The amount payable to the Fund in respect of any Execution Performance Guarantee will depend on the results achieved by the executing firm and will vary depending on market activity, timing and a variety of other factors.
To ensure that an Execution Performance Guarantee will be honored on orders arising from creation transactions executed by an Authorized Participant or
its affiliate as broker-dealer, an Authorized Participant is required to deposit an amount with the Fund (the Execution Performance Deposit). If the broker-dealer executing the order achieves executions in market transactions at a price
equal to or more favorable than the Funds valuation of the Deposit Securities, the Fund receives the benefit of the favorable executions and returns to the Authorized Participant the Execution Performance Deposit. If, however, the
broker-dealer executing the order is unable to achieve executions in market transactions at a price at least equal to the Funds valuation of the securities, the Fund retains the portion of the Execution Performance Deposit equal to the full
amount of the execution shortfall (including any taxes, brokerage commissions or other costs) and may require the Authorized Participant to deposit any additional amount required to cover the full amount of the actual Execution Performance
Guarantee.
To ensure that an Execution Performance Guarantee will be honored for brokerage orders arising from redemption transactions executed by an
Authorized Participant or its affiliate as broker-dealer, an Authorized Participant agrees to pay the shortfall amount (the Execution Performance Offset). If the broker-dealer executing the order achieves executions in market
transactions at a price equal to or more favorable than the Funds valuation of the Fund Securities, the Fund receives the benefit of the favorable executions and the Authorized Participant is not called upon to honor the Execution Performance
48
Offset. If, however, the broker-dealer is unable to achieve executions in market transactions at a price at least equal to the Funds valuation of the securities, the Fund will be entitled
to the portion of the Execution Performance Offset equal to the full amount of the execution shortfall (including any taxes, brokerage commissions or other costs).
The circumstances under which the Execution Performance Guarantee will be used and the expected amount of any Execution Performance Deposit or Execution Performance Offset for the Fund will be disclosed in the
procedures handbook for Authorized Participants and may change from time to time based on the actual experience of the Fund.
Additional Information Concerning the Company
Capital Stock. The Company currently is comprised of 57 series
referred to as funds. Each series issues shares of common stock, par value $0.001 per share. The Company has authorized and issued the following funds as separate series of capital stock: iShares Asia/Pacific Dividend 30 Index Fund, iShares Core
MSCI Emerging Markets ETF, iShares Emerging Markets Corporate Bond Fund, iShares Emerging Markets Dividend Index Fund, iShares Emerging Markets High Yield Bond Fund, iShares Emerging Markets Local Currency Bond Fund, iShares Global ex USD High Yield
Corporate Bond Fund, iShares Global High Yield Corporate Bond Fund, iShares Latin America Bond Fund, iShares MSCI All Country World Minimum Volatility Index Fund, iShares MSCI Australia Index Fund, iShares MSCI Austria Investable Market Index Fund,
iShares MSCI Belgium Investable Market Index Fund, iShares MSCI Brazil Index Fund, iShares MSCI BRIC Index Fund, iShares MSCI Canada Index Fund, iShares MSCI Chile Investable Market Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging Markets Eastern Europe Index Fund, iShares MSCI Emerging Markets EMEA Index Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares MSCI
Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets 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, iShares
MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Frontier 100 Index Fund, iShares MSCI Germany Index Fund, 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, iShares MSCI Global Silver Miners Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI Israel Capped Investable Market Index Fund, iShares MSCI Italy Index Fund, iShares MSCI
Japan Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Malaysia Index Fund, iShares MSCI Mexico Investable Market Index Fund, iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares
MSCI Singapore Index Fund, iShares MSCI South Africa Index Fund, iShares MSCI South Korea Index Fund, iShares MSCI Spain Index Fund, iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Index Fund, iShares MSCI Taiwan Index Fund, iShares MSCI
Thailand Investable Market Index Fund, iShares MSCI Turkey Investable Market Index Fund, iShares MSCI United Kingdom Index Fund, iShares MSCI USA Index Fund and iShares MSCI World Index Fund. The Company has authorized for issuance, but is not
currently offering for sale to the public, eight additional series of shares of common stock. The Board may designate additional series of common stock and classify shares of a particular series into one or more classes of that series. The Amended
and Restated Articles of Incorporation confers upon the Board the power to establish the number of shares which constitute a Creation Unit or by resolution, restrict the redemption right to Creation Units.
Each share issued by a fund has a pro rata interest in the assets of that fund. The Company is currently authorized to issue 31.85 billion shares of common
stock. The following number of shares is currently authorized for each of the funds: iShares Asia/Pacific Dividend 30 Index Fund, 500 million shares; iShares Core MSCI Emerging Markets ETF, 250 million shares; iShares Emerging Markets
Corporate Bond Fund, 500 million shares; iShares Emerging Markets Dividend Index Fund, 500 million shares; iShares Emerging Markets High Yield Bond Fund, 500 million shares; iShares Emerging Markets Local Currency Bond Fund,
500 million shares; iShares Global ex USD High Yield Corporate Bond Fund, 500 million shares; iShares Global High Yield Corporate Bond Fund, 500 million shares; iShares Latin America Bond Fund, 500 million shares; iShares MSCI
All Country World Minimum Volatility Index Fund, 500 million shares; iShares MSCI Australia Index Fund, 627.8 million shares; iShares MSCI Austria Investable Market Index Fund, 100 million shares; iShares MSCI Belgium Investable
Market Index Fund, 136.2 million shares; iShares MSCI Brazil Index Fund, 500 million shares; iShares MSCI BRIC Index Fund, 500 million shares; iShares MSCI Canada Index Fund, 340.2 million shares; iShares MSCI Chile Investable
Market Index Fund, 200 million shares; iShares MSCI Emerging Markets Asia Index Fund, 500 million shares; iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, 500 million shares; iShares MSCI Emerging Markets
Eastern Europe Index Fund, 200 million shares; iShares MSCI Emerging Markets EMEA Index Fund, 500 million shares; iShares MSCI Emerging Markets Energy Sector Capped Index Fund, 500 million shares; iShares MSCI Emerging Markets Growth
Index Fund, 500 million shares; iShares MSCI Emerging Markets Index Fund, 2 billion shares; iShares MSCI Emerging Markets Minimum Volatility Index Fund, 500 million shares; iShares MSCI Emerging Markets Small Cap Index Fund,
500 million shares; iShares MSCI
49
Emerging Markets Value Index Fund, 500 million shares; iShares MSCI EMU Index Fund, 1 billion shares; iShares MSCI France Index Fund, 340.2 million shares; iShares MSCI Frontier 100
Index Fund, 500 million shares; iShares MSCI Germany Index Fund, 382.2 million shares; iShares MSCI Global Agriculture Producers Fund, 500 million shares; iShares MSCI Global Energy Producers Fund, 500 million shares; iShares
MSCI Global Gold Miners Fund, 500 million shares; iShares MSCI Global Select Metals & Mining Producers Fund, 500 million shares; iShares MSCI Global Silver Miners Fund, 500 million shares; iShares MSCI Hong Kong Index Fund,
250 million shares; iShares MSCI Israel Capped Investable Market Index Fund, 500 million shares; iShares MSCI Italy Index Fund, 63.6 million shares; iShares MSCI Japan Index Fund, 2.1246 billion shares; iShares MSCI Japan Small Cap
Index Fund, 500 million shares; iShares MSCI Malaysia Index Fund, 300 million shares; iShares MSCI Mexico Investable Market Index Fund, 255 million shares; iShares MSCI Netherlands Investable Market Index Fund, 255 million
shares; iShares MSCI Pacific ex-Japan Index Fund, 1 billion shares; iShares MSCI Singapore Index Fund, 300 million shares; iShares MSCI South Africa Index Fund, 400 million shares; iShares MSCI South Korea Index Fund, 200 million
shares; iShares MSCI Spain Index Fund, 127.8 million shares; iShares MSCI Sweden Index Fund, 63.6 million shares; iShares MSCI Switzerland Index Fund, 318.625 million shares; iShares MSCI Taiwan Index Fund, 900 million shares;
iShares MSCI Thailand Investable Market Index Fund, 200 million shares; iShares MSCI Turkey Investable Market Index Fund, 200 million shares; iShares MSCI United Kingdom Index Fund, 934.2 million shares; iShares MSCI USA Index Fund,
500 million shares; and iShares MSCI World Index Fund, 500 million shares. Fractional shares will not be issued. Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each share is entitled to
participate equally in dividends and distributions declared by the Board with respect to the relevant fund, and in the net distributable assets of such fund on liquidation. Shareholders are entitled to require the Company to redeem Creation Units of
their shares. The Articles of Incorporation confer upon the Board the power, by resolution, to alter the number of shares constituting a Creation Unit or to specify that shares of common stock of the Company may be individually redeemable.
Each share has one vote with respect to matters upon which a stockholder vote is required consistent with the requirements of the 1940 Act and the
rules promulgated thereunder and the Maryland General Corporation Law. Stockholders have no cumulative voting rights with respect to their shares. Shares of all funds vote together as a single class except that, if the matter being voted on affects
only a particular fund or, if a matter affects a particular fund differently from other funds, that fund will vote separately on such matter.
Under
Maryland law, the Company is not required to hold an annual meeting of stockholders unless required to do so under the 1940 Act. The policy of the Company is not to hold an annual meeting of stockholders unless required to do so under the 1940 Act.
Under Maryland law, Directors of the Company may be removed by vote of the stockholders.
Following the creation of the initial Creation Unit(s) of
shares of a fund and immediately prior to the commencement of trading in the funds shares, a holder of shares may be a control person of the fund, as defined in the 1940 Act. The fund cannot predict the length of time for which one
or more stockholders may remain a control person of the fund.
Stockholders may make inquiries by writing to iShares, Inc., c/o BlackRock Investments,
LLC, 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310.
Absent an applicable exemption or other relief from the SEC or its staff, beneficial
owners of more than 5% of the shares of a fund may be subject to the reporting provisions of Section 13 of the 1934 Act and the SECs rules promulgated thereunder. In addition, absent an applicable exemption or other relief from the SEC or
its staff, officers and directors of the fund and beneficial owners of 10% of the shares of the fund (Insiders) may be subject to the insider reporting, short-swing profit and short sale provisions of Section 16 of the 1934 Act and
the SECs rules promulgated thereunder. Beneficial owners and Insiders should consult with their own legal counsel concerning their obligations under Sections 13 and 16 of the 1934 Act.
Termination of the Company or the Fund. The Company or the Fund may be terminated by a majority vote of the Board, or the affirmative vote of a supermajority of the
shareholders of the Company or the Fund entitled to vote on termination. Although the shares are not automatically redeemable upon the occurrence of any specific event, the organizational documents provide that the Board will have the unrestricted
power to alter the number of shares in a Creation Unit. In the event of a termination of the Company or the Fund, the Board, in its sole discretion, could determine to permit the shares to be redeemable in aggregations smaller than Creation Units or
to be individually redeemable. In such circumstance, the Company may make redemptions in-kind, for cash or for a combination of cash or securities.
DTC as Securities Depository for Shares of the Fund. Shares of the Fund are represented by securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC.
50
DTC, a limited-purpose trust company, was created to hold securities of its participants (DTC
Participants) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for
physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More
specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (NYSE), the NYSE Amex Equities and FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (Indirect Participants).
Beneficial ownership of shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in shares
(owners of such beneficial interests are referred to herein as Beneficial Owners) is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC
Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of shares. The laws of
some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability of certain investors to acquire beneficial interests in shares.
Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the
Company and DTC, DTC is required to make available to the Company upon request and for a fee to be charged to the Company a listing of the shares of the Fund held by each DTC Participant. The Company shall inquire of each such DTC Participant as to
the number of Beneficial Owners holding shares, directly or indirectly, through such DTC Participant. The Company shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such
place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Company shall pay to each
such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all shares of the Company. DTC or its nominee, upon receipt of any such distributions, shall credit
immediately DTC Participants accounts with payments in amounts proportionate to their respective beneficial interests in shares of the Fund as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants
and Beneficial Owners of shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a
street name, and will be the responsibility of such DTC Participants.
The Company has no responsibility or liability for any aspect of the
records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests, or for any
other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants. DTC may decide to discontinue providing
its service with respect to shares of the Company at any time by giving reasonable notice to the Company and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Company shall take action to find
a replacement for DTC to perform its functions at a comparable cost.
Creation and Redemption of Creation Units
General. The Company issues and sells shares of the Fund only in Creation Units on a continuous basis through
the Distributor or its agent, without a sales load, at a price based on the Funds NAV next determined after receipt, on any Business Day (as defined below), of an order received by the Distributor or its agent in proper form. The following
table sets forth the number of shares of the Fund that constitute a Creation Unit for the Fund and the value of such Creation Unit as of October 15, 2012:
|
|
|
|
|
Shares Per Creation Unit |
|
Value Per Creation Unit (U.S.$) |
|
100,000 |
|
$ |
5,000,000 |
|
51
The Board reserves the right to declare a split or a consolidation in the number of shares outstanding of the Fund,
and to make a corresponding change in the number of shares constituting a Creation Unit, in the event that the per share price in the secondary market rises (or declines) to an amount that falls outside the range deemed desirable by the Board.
A Business Day with respect to the Fund is any day on which the Listing Exchange on which the Fund is listed for trading is open for
business. As of the date of this SAI, the Listing Exchange observes the following holidays, as observed: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Fund Deposit. The consideration for purchase of Creation Units of the Fund generally consists
of the in-kind deposit of a designated portfolio of securities (including any portion of such securities for which cash may be substituted) ( Deposit Securities) and the Cash Component computed as described below. Together, the Deposit
Securities and the Cash Component constitute the Fund Deposit, which, when combined with the Funds portfolio securities, is designed to generate performance that has a collective investment profile similar to that of the Underlying
Index. The Fund Deposit represents the minimum initial and subsequent investment amount for a Creation Unit of the Fund.
The Cash Component
is an amount equal to the difference between the net asset value of the shares (per Creation Unit) and the Deposit Amount, which is an amount equal to the market value of the Deposit Securities, and serves to compensate for any
differences between the net asset value per Creation Unit and the Deposit Amount. Payment of any stamp duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Securities are the sole responsibility of the
Authorized Participant purchasing the Creation Unit. The Fund generally offers Creation Units partially for cash, but may, in certain circumstances, offer Creation Units solely for cash.
BFA makes available through the NSCC on each Business Day prior to the opening of business on the Listing Exchange, the list of names and the required number of shares of each Deposit Security and the amount of the
Cash Component to be included in the current Fund Deposit (based on information as of the end of the previous Business Day for the Fund). Such Fund Deposit is applicable, subject to any adjustments as described below, to purchases of Creation Units
of shares of the Fund until such time as the next-announced Fund Deposit is made available.
The identity and number of shares of the Deposit Securities
change pursuant to changes in the composition of the Funds portfolio and as rebalancing adjustments and corporate action events are reflected from time to time by BFA with a view to the investment objective of the Fund. The composition of the
Deposit Securities may also change in response to adjustments to the weighting or composition of the component securities constituting the Underlying Index.
The Fund reserves the right to permit or require the substitution of a cash in lieu amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient
quantity for delivery or that may not be eligible for transfer through DTC. The Fund also reserves the right to permit or require a cash in lieu amount in certain circumstances, including circumstances in which (i) the delivery of
the Deposit Security by the Authorized Participant (as described below) would be restricted under applicable securities or other local laws or (ii) the delivery of the Deposit Security to the Authorized Participant would result in the
disposition of the Deposit Security by the Authorized Participant becoming restricted under applicable securities or other local laws, or in certain other situations.
Cash Purchase Method. Although the Company does not ordinarily permit partial or full cash purchases of Creation Units of iShares funds, when partial or full cash purchases of
Creation Units are available or specified (Creation Units of the Fund are generally offered partially for cash), they will be effected in essentially the same manner as in-kind purchases thereof. In the case of a partial or full cash purchase, the
Authorized Participant must pay the cash equivalent of the Deposit Securities it would otherwise be required to provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind purchaser. The Authorized Participant
will also be required to pay certain transaction fees and charges for cash purchases, as described below, and, if transacting as broker with the Fund, may be required to cover certain brokerage, tax, foreign exchange, execution and market impact
costs through an Execution Performance Guarantee, as described in the Brokerage Transactions section of this SAI.
Role of the Authorized Participant. Creation Units may be purchased only by or through a DTC Participant that has entered into an Authorized Participant Agreement with the Distributor (an Authorized Participant). Such Authorized
Participant will agree, pursuant to the terms of such Authorized Participant Agreement and on behalf of itself or any investor on whose behalf it will act, to certain conditions, including that such Authorized Participant will make available in
advance of each purchase of shares an amount of cash sufficient to pay the Cash Component, once the net asset value of a Creation Unit is
52
next determined after receipt of the purchase order in proper form, together with the transaction fees described below. An Authorized Participant, acting on behalf of an investor, may require the
investor to enter into an agreement with such Authorized Participant with respect to certain matters, including payment of the Cash Component. Investors who are not Authorized Participants must make appropriate arrangements with an Authorized
Participant. Investors should be aware that their particular broker may not be a DTC Participant or may not have executed an Authorized Participant Agreement and that orders to purchase Creation Units may have to be placed by the investors
broker through an Authorized Participant. As a result, purchase orders placed through an Authorized Participant may result in additional charges to such investor. The Company does not expect to enter into an Authorized Participant Agreement with
more than a small number of DTC Participants. A list of current Authorized Participants may be obtained from the Distributor.
Purchase Orders. To initiate an order for a Creation Unit, an Authorized Participant must submit to the Distributor or its agent an irrevocable order to purchase shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day
to receive that days NAV. On days when the Listing Exchange closes earlier than normal, the Fund may require orders for Creation Units to be placed earlier in the day. The Distributor or its agent will notify BFA and the custodian of such
order. The custodian will then provide such information to any appropriate sub-custodian. Procedures and requirements governing the delivery of the Fund Deposit are set forth in the procedures handbook for Authorized Participants and may change from
time to time. Investors, other than Authorized Participants, are responsible for making arrangements for a creation request to be made through an Authorized Participant. The Distributor or its agent will provide a list of current Authorized
Participants upon request. Those placing orders to purchase Creation Units through an Authorized Participant should allow sufficient time to permit proper submission of the purchase order to the Distributor or its agent by the Cutoff Time (as
defined below) on such Business Day.
The Authorized Participant must also make available on or before the contractual settlement date, by means
satisfactory to the Fund, immediately available or same day funds estimated by the Fund to be sufficient to pay the Cash Component next determined after acceptance of the purchase order, together with the applicable purchase transaction fees. Any
excess funds will be returned following settlement of the issue of the Creation Unit. Those placing orders should ascertain the deadline for cash transfers by contacting the operations department of the broker or depositary institution effectuating
the transfer of the Cash Component. This deadline is likely to be significantly earlier than the Cutoff Time of the Fund. Investors should be aware that an Authorized Participant may require orders for purchases of shares placed with it to be in the
particular form required by the individual Authorized Participant.
The Authorized Participant is responsible for any and all expenses and costs
incurred by the Fund, including any applicable cash amounts, in connection with any purchase order.
Timing of
Submission of Purchase Orders. An Authorized Participant must submit an irrevocable order to purchase shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that days NAV. Creation Orders must
be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor or its agent pursuant to procedures set forth in the Authorized Participant Agreement, as described below. Economic or market
disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor or its agent or an Authorized Participant. Orders to create shares of the Fund that are submitted on the Business Day immediately
preceding a holiday or a day (other than a weekend) when the equity markets in the relevant non-U.S. market are closed may not be accepted. The Funds deadline specified above for the submission of purchase orders is referred to as the
Funds Cutoff Time. The Distributor or its agent, in their discretion, may permit the submission of such orders and requests by or through an Authorized Participant at any time (including on days on which the Listing Exchange is not
open for business) via communication through the facilities of the Distributors or its agents proprietary website maintained for this purpose. Purchase orders and redemption requests, if accepted by the Company, will be processed based
on the NAV next determined after such acceptance in accordance with the Funds Cutoff Times as provided in the Authorized Participant Agreement and disclosed in this SAI.
Acceptance of Orders for Creation Units. Subject to the conditions that (i) an irrevocable purchase order has been submitted by the Authorized Participant (either on its
own or another investors behalf ) and (ii) arrangements satisfactory to the Fund are in place for payment of the Cash Component and any other cash amounts which may be due, the Fund will accept the order, subject to the Funds right
(and the right of the Distributor and BFA) to reject any order until acceptance, as set forth below.
Once the Fund has accepted an order, upon the next
determination of the net asset value of the shares, the Fund will confirm the issuance of a Creation Unit, against receipt of payment, at such net asset value. The Distributor or its agent will then transmit a confirmation of acceptance to the
Authorized Participant that placed the order.
53
The Fund reserves the absolute right to reject or revoke a creation order transmitted to it by the Distributor or its
agent if (i) the order is not in proper form; (ii) the investor(s), upon obtaining the shares ordered, would own 80% or more of the currently outstanding shares of the Fund; (iii) the Deposit Securities delivered do not conform to the
identity and number of shares specified, as described above; (iv) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (v) acceptance of the Fund Deposit would, in the opinion of counsel, be
unlawful; (vi) acceptance of the Fund Deposit would, in the discretion of the Fund or BFA, have an adverse effect on the Fund or the rights of beneficial owners; or (vii) circumstances outside the control of the Fund, the Distributor or
its agent and BFA make it impracticable to process purchase orders. The Distributor or its agent shall notify a prospective purchaser of a Creation Unit and/or the Authorized Participant acting on behalf of such purchaser of its rejection of such
order. The Fund, State Street, the sub-custodian and the Distributor or its agent are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall any of them incur any liability for
failure to give such notification.
In addition, the Company intends to exercise its right to reject any creation order for shares of the Fund on any
Business Day that is a holiday in the Indian market, but not a holiday observed in the U.S. equity market, and certain other holidays during the settlement cycle for Fund shares, in order to protect Fund shareholders from any dilutive costs that may
be associated with the purchase of Deposit Securities in connection with creation orders on such days.
Issuance of a
Creation Unit. Except as provided herein, a Creation Unit will not be issued until the transfer of good title to the Fund of the Deposit Securities and the payment of the Cash Component have been completed. When the sub-custodian has confirmed
to the custodian that the securities included in the Fund Deposit (or the cash value thereof ) have been delivered to the account of the relevant sub-custodian or sub-custodians, the Distributor or its agent and BFA shall be notified of such
delivery and the Fund will issue and cause the delivery of the Creation Unit. Creation Units typically are issued on a T+3 basis (i.e., three Business Days after trade date). However, as discussed in the Regular Holidays
section, the Fund reserves the right to settle Creation Unit transactions on a basis other than T+3 in order to accommodate non-U.S. market holiday schedules, to account for different treatment among non-U.S. and U.S. markets of dividend record
dates and ex-dividend dates (i.e., the last day the holder of a security can sell the security and still receive dividends payable on the security) and in certain other circumstances.
To the extent contemplated by an Authorized Participants agreement with the Distributor, the Fund will issue Creation Units to such Authorized Participant, notwithstanding the fact that the corresponding Fund
Deposits have not been received in part or in whole, in reliance on the undertaking of the Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participants
delivery and maintenance of collateral having a value at least equal to 105% and up to 115%, which percentage BFA may change at any time, in its sole discretion, of the value of the missing Deposit Securities in accordance with the Funds
then-effective procedures. The only collateral that is acceptable to the Fund is cash in U.S. dollars. Such cash collateral must be delivered no later than 2:00 p.m., Eastern time on the contractual settlement date. The cash collateral posted by the
Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. Information concerning the Funds current procedures for
collateralization of missing Deposit Securities is available from the Distributor or its agent. The Authorized Participant Agreement will permit the Fund to buy the missing Deposit Securities at any time and will subject the Authorized Participant
to liability for any shortfall between the cost to the Fund of purchasing such securities and the cash collateral.
In certain cases, Authorized
Participants may create and redeem Creation Units on the same trade date and in these instances, the Fund reserves the right to settle these transactions on a net basis or require a representation from the Authorized Participants that the creation
and redemption transactions are for separate beneficial owners. All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered
shall be determined by the Fund and the Funds determination shall be final and binding.
Costs Associated with
Creation Transactions. A standard creation transaction fee is imposed to offset the transfer and other transaction costs associated with the issuance of Creation Units. The standard creation transaction fee is charged on each Creation Unit
created by an Authorized Participant on the day of the transaction. The standard creation transaction fee is generally fixed at the amount shown in the table regardless of the number of Creation Units being purchased, but may be reduced by the Fund
if transfer and processing expenses associated with the creation are anticipated to be lower than the stated fee. If a purchase consists of a cash portion, the Authorized Participant may also be required to pay an additional transaction charge (up
to the maximum amount shown below) to cover brokerage and certain other costs related to the creation transaction. Authorized Participants will also bear the costs of transferring the Deposit Securities to the Fund. Investors who use the services of
a broker or other financial intermediary to acquire Fund shares may be charged a fee for such services.
54
The following table sets forth the Funds standard creation transaction fees and maximum additional charge (as
described above):
|
|
|
|
|
Standard Creation Transaction Fee |
|
Maximum Additional Charge for Creations* |
|
$43,700 |
|
|
5.0 |
% |
|
* |
As a percentage of the net asset value per Creation Unit. |
If a
purchase consists of a cash portion and the Fund places a brokerage transaction to purchase portfolio securities with the Authorized Participant or its affiliated broker-dealer, the Authorized Participant (or its affiliated broker-dealer) may be
required, in its capacity as broker-dealer with respect to that transaction, to cover certain brokerage, tax, foreign exchange, execution, and market impact costs through a Execution Performance Guarantee, as described in the Brokerage
Transactions section of this SAI.
Redemption of Creation Units. Shares of the Fund may be redeemed by
Authorized Participants only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor and only on a Business Day. The Fund will not redeem shares in amounts less than Creation Units.
There can be no assurance, however, that there will be sufficient liquidity in the secondary market at any time to permit assembly of a Creation Unit. Investors should expect to incur brokerage and other costs in connection with assembling a
sufficient number of shares to constitute a Creation Unit that could be redeemed by an Authorized Participant. Beneficial owners also may sell shares in the secondary market.
The Fund generally redeems Creation Units partially for cash. Please see the Cash Redemption Method section below and the following discussion summarizing the in-kind method for further information on
redeeming Creation Units of the Fund.
BFA makes available through the NSCC, prior to the opening of business on the Listing Exchange on each Business
Day, the designated portfolio of securities (including any portion of such securities for which cash may be substituted) that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined
below) on that day (Fund Securities), and an amount of cash (the Cash Amount, as described below). Such Fund Securities and the corresponding Cash Amount (each subject to possible amendment or correction) are applicable, in
order to effect redemptions of Creation Units of the Fund until such time as the next announced composition of the Fund Securities and Cash Amount is made available. Fund Securities received on redemption may not be identical to Deposit Securities
that are applicable to creations of Creation Units.
If redemptions are not paid in cash, the redemption proceeds for a Creation Unit generally consist
of Fund Securities, plus the Cash Amount, which is an amount equal to the difference between the net asset value of the shares being redeemed, as next determined after the receipt of a redemption request in proper form, and the value of Fund
Securities, less a redemption transaction fee (as described below).
The Company may, in its sole discretion, substitute a cash in lieu
amount to replace any Fund Security. The amount of cash paid out in such cases will be equivalent to the value of the substituted security listed as a Fund Security. In the event that the Fund Securities have a value greater than the NAV of the
shares, a compensating cash payment equal to the difference is required to be made by or through an Authorized Participant by the redeeming shareholder. The Fund generally redeems Creation Units partially for cash.
Cash Redemption Method. Although the Company does not ordinarily permit partial or full cash redemptions of Creation Units
of iShares funds, when partial or full cash redemptions of Creation Units are available or specified (Creation Units of the Fund are generally redeemed partially for cash), they will be effected in essentially the same manner as in-kind redemptions
thereof. In the case of partial or full cash redemption, the Authorized Participant receives the cash equivalent of the Fund Securities it would otherwise receive through an in-kind redemption, plus the same Cash Amount to be paid to an in-kind
redeemer. The Authorized Participant will also be required to pay certain transaction fees and charges for cash redemptions, as described below, and, if transacting as broker with the Fund, may be required to cover certain brokerage, tax, foreign
exchange, execution and market impact costs through a Execution Performance Guarantee, as described in the Brokerage Transactions section of this SAI.
Costs Associated with Redemption Transactions. A redemption transaction fee is imposed to offset transfer and other transaction costs that may be incurred by the Fund. The
standard redemption transaction fee is charged on each Creation
55
Unit redeemed by an Authorized Participant on the day of the transaction. The standard redemption transaction fee is generally fixed at the amount shown in the table regardless of the number of
Creation Units being redeemed, but may be reduced by the Fund if transfer and processing expenses associated with the redemption are anticipated to be lower than the stated fee. If a redemption consists of a cash portion, the Authorized Participant
may also be required to pay an additional transaction charge (up to the maximum amount shown below) to cover brokerage and certain other costs related to the redemption transaction. Authorized Participants will also bear the costs of transferring
the Fund Securities from the Fund to their account on their order. Investors who use the services of a broker or other financial intermediary to dispose of Fund shares may be charged a fee for such services.
The following table sets forth the Funds standard redemption transaction fees and maximum additional charge (as described above):
|
|
|
|
|
Standard Redemption Transaction Fee |
|
Maximum Additional Charge for Redemptions* |
|
$43,700 |
|
|
2.0 |
% |
|
* |
As a percentage of the net asset value per Creation Unit, inclusive of the standard redemption transaction fee. |
If a redemption consists of a cash portion and the Fund places a brokerage transaction to sell portfolio securities with the Authorized Participant or its
affiliated broker-dealer, the Authorized Participant (or its affiliated broker-dealer) may be required, in its capacity as broker-dealer with respect to that transaction, to cover certain brokerage, tax, foreign exchange, execution, and market
impact costs through a Execution Performance Guarantee, as described in the Brokerage Transactions section of this SAI.
Placement of Redemption Orders. Redemption requests for Creation Units of the Fund must be submitted to the Distributor by or through an Authorized Participant. An Authorized Participant must submit an irrevocable request to redeem shares of
the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that days NAV. Investors, other than Authorized Participants, are responsible for making arrangements for a redemption request to be made through an
Authorized Participant. The Distributor or its agent will provide a list of current Authorized Participants upon request.
The Authorized Participant
must transmit the request for redemption in the form required by the Fund to the Distributor or its agent in accordance with procedures set forth in the Authorized Participant Agreement. Investors should be aware that their particular broker may not
have executed an Authorized Participant Agreement and that, therefore, requests to redeem Creation Units may have to be placed by the investors broker through an Authorized Participant who has executed an Authorized Participant Agreement. At
any time, only a limited number of broker-dealers will have an Authorized Participant Agreement in effect. Investors making a redemption request should be aware that such request must be in the form specified by such Authorized Participant.
Investors making a request to redeem Creation Units should allow sufficient time to permit proper submission of the request by an Authorized Participant and transfer of the shares to the Funds transfer agent; such investors should allow for
the additional time that may be required to effect redemptions through their banks, brokers or other financial intermediaries if such intermediaries are not Authorized Participants.
A redemption request is considered to be in proper form if (i) an Authorized Participant has transferred or caused to be transferred to the Funds transfer agent the Creation Unit being
redeemed through the book-entry system of DTC so as to be effective by the Listing Exchange closing time on any Business Day, (ii) a request in form satisfactory to the Fund is received by the Distributor or its agent from the Authorized
Participant on behalf of itself or another redeeming investor within the time periods specified above and (iii) all other procedures set forth in the Authorized Participant Agreement are properly followed. If the transfer agent does not receive
the investors shares through DTCs facilities by 10:00 a.m., Eastern time on the Business Day next following the day that the redemption request is received, the redemption request shall be rejected. Investors should be aware that the
deadline for such transfers of shares through the DTC system may be significantly earlier than the close of business on the Listing Exchange. Those making redemption requests should ascertain the deadline applicable to transfers of shares through
the DTC system by contacting the operations department of the broker or depositary institution effecting the transfer of the shares.
Upon receiving a
redemption request, the Distributor or its agent shall notify the Fund and the Funds transfer agent of such redemption request. The tender of an investors shares for redemption and the distribution of the securities and/or cash included
in the redemption payment made in respect of Creation Units redeemed will be made through DTC and the relevant Authorized Participant to the Beneficial Owner thereof as recorded on the book-entry system of DTC or the DTC Participant
56
through which such investor holds, as the case may be, or by such other means specified by the Authorized Participant submitting the redemption request.
A redeeming Beneficial Owner or Authorized Participant acting on behalf of such Beneficial Owner must maintain appropriate security arrangements with a qualified
broker-dealer, bank or other custody providers in each jurisdiction in which any of the portfolio securities are customarily traded, to which account such portfolio securities will be delivered.
Deliveries of redemption proceeds by the Fund generally will be made within three Business Days (i.e., T+3). However, as discussed in the
Regular Holidays section, the Fund reserves the right to settle redemption transactions and deliver redemption proceeds on another basis to accommodate non-U.S. market holiday schedules, to account for different treatment among non-U.S. and
U.S. markets of dividend record dates and dividend ex-dates (i.e., the last date the holder of a security can sell the security and still receive dividends payable on the security sold) and in certain other circumstances. The Regular
Holidays section hereto identifies the instances, if any, where more than seven days would be needed to deliver redemption proceeds. Pursuant to an order of the SEC, the Company will make delivery of redemption proceeds within the number of days
stated in the Regular Holidays section to be the maximum number of days necessary to deliver redemption proceeds.
If neither the redeeming
Beneficial Owner nor the Authorized Participant acting on behalf of such redeeming Beneficial Owner has appropriate arrangements to take delivery of Fund Securities in the applicable non-U.S. jurisdiction and it is not possible to make other such
arrangements, or if it is not possible to effect deliveries of Fund Securities in such jurisdiction, the Company may in its discretion exercise its option to redeem such shares in cash, and the redeeming Beneficial Owner will be required to receive
its redemption proceeds in cash. In such case, the investor will receive a cash payment equal to the net asset value of its shares based on the NAV of the Fund next determined after the redemption request is received in proper form (minus a
redemption transaction fee and additional charges specified above to offset the Companys brokerage and other transaction costs associated with the disposition of Fund Securities). Redemptions of shares for Fund Securities will be subject to
compliance with applicable U.S. federal and state securities laws and the Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Fund cannot lawfully deliver specific
Fund Securities upon redemptions or cannot do so without first registering the Fund Securities under such laws.
Although the Company does not
ordinarily permit cash redemptions of Creation Units (except that, as noted above, Creation Units of the Fund may be redeemed partially for cash), in the event that cash redemptions are permitted or required by the Company, proceeds will be paid to
the Authorized Participant redeeming shares as soon as practicable after the date of redemption (within seven calendar days thereafter, except for the instances listed in the Regular Holidays section in which more than seven calendar days
would be needed).
To the extent contemplated by an Authorized Participants agreement with the Distributor or its agent, in the event an
Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the Creation Unit to be redeemed to the Fund, at or prior to 10:00 a.m., Eastern time on the Listing Exchange business day after the
date of submission of such redemption request, the Distributor or its agent will accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing shares as soon as possible. Such undertaking shall be
secured by the Authorized Participants delivery and maintenance of collateral consisting of cash, in U.S. dollars in immediately available funds, having a value at least equal to 105% and up to 115%, which percentage BFA may change at any
time, in its sole discretion, of the value of the missing shares. Such cash collateral must be delivered no later than 10:00 a.m., Eastern time on the day after the date of submission of such redemption request and shall be held by State Street and
marked-to-market daily. The fees of State Street and any sub-custodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the Authorized Participant. The cash collateral posted by the Authorized
Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. The Authorized Participant Agreement permits the Fund to acquire shares of the Fund
at any time and subjects the Authorized Participant to liability for any shortfall between the aggregate of the cost to the Fund of purchasing such shares, plus the value of the Cash Amount, and the value of the cash collateral.
Because the Portfolio Securities of the Fund may trade on exchange(s) on days that the Listing Exchange is closed or are otherwise not Business Days for the Fund,
shareholders may not be able to redeem their shares of the Fund, or purchase or sell shares of the Fund on the Listing Exchange on days when the NAV of the Fund could be significantly affected by events in the relevant non-U.S. markets.
57
The right of redemption may be suspended or the date of payment postponed with respect to the Fund: (i) for any
period during which the Listing Exchange is closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the Listing Exchange is suspended or restricted; (iii) for any period during which an
emergency exists as a result of which disposal of the shares of the Funds portfolio securities or determination of its net asset value is not reasonably practicable; or (iv) in such other circumstance as is permitted by the SEC.
Taxation on Creation and Redemptions of Creation Units. An Authorized Participant generally will recognize
either gain or loss upon the exchange of Deposit Securities for Creation Units. This gain or loss is calculated by taking the market value of the Creation Units purchased over the Authorized Participants aggregate basis in the Deposit
Securities exchanged therefor. However, the IRS may apply the wash sales rules to determine that any loss realized upon the exchange of Deposit Securities for Creation Units is not currently deductible. Authorized Participants should consult their
own tax advisors.
Current U.S. federal tax laws dictate that capital gain or loss realized from the redemption of Creation Units will generally create
long-term capital gain or loss if the Authorized Participant holds the Creation Units for more than one year, or short-term capital gain or loss if the Creation Units were held for one year or less, if the Creation Units are held as capital assets.
Regular Holidays. For every occurrence of one or more intervening holidays in the applicable non-U.S. market
that are not holidays observed in the U.S. equity market, the redemption settlement cycle will be extended by the number of such intervening holidays. In addition to holidays, other unforeseeable closings in a non-U.S. market due to emergencies may
also prevent the Company from delivering securities within normal settlement period.
The securities delivery cycles currently practicable for
transferring portfolio securities to redeeming investors, coupled with non-U.S. market holiday schedules, will require a delivery process longer than seven calendar days, in certain circumstances. The holidays applicable to the Fund during such
periods are listed below, as are instances where more than seven days will be needed to deliver redemption proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption
proceeds in any given year is not expected to exceed the maximum number of days listed below for the Fund. The proclamation of new holidays, the treatment by market participants of certain days as informal holidays (e.g., days on
which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery practices, could affect the information set forth herein at some
time in the future.
In calendar years 2012 and 2013, the dates of regular holidays affecting the relevant securities markets in which the Fund may
invest are as follows (please note these holiday schedules are subject to potential changes in the relevant securities markets):
2012
|
|
|
|
|
|
|
Brazil |
January 25 |
|
April 6 |
|
September 7 |
|
December 24 |
February 20 |
|
May 1 |
|
October 12 |
|
December 25 |
February 21 |
|
June 7 |
|
November 2 |
|
December 31 |
February 22 |
|
July 9 |
|
November 15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilé |
April 6 |
|
July 16 |
|
September 19 |
|
December 25 |
May 1 |
|
August 15 |
|
October 15 |
|
December 31 |
May 21 |
|
September 17 |
|
November 1 |
|
|
July 2 |
|
September 18 |
|
November 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
January 2 |
|
January 30 |
|
May 7 |
|
October 4 |
January 16 |
|
January 31 |
|
May 28 |
|
October 5 |
January 23 |
|
February 20 |
|
July 4 |
|
October 8 |
January 24 |
|
May 1 |
|
September 3 |
|
November 12 |
January 25 |
|
May 2 |
|
October 1 |
|
November 22 |
January 26 |
|
May 3 |
|
October 2 |
|
December 25 |
January 27 |
|
May 4 |
|
October 3 |
|
|
|
|
|
|
|
|
|
Colombia |
January 9 |
|
May 21 |
|
August 7 |
|
December 25 |
March 19 |
|
June 11 |
|
August 20 |
|
|
April 5 |
|
June 18 |
|
October 15 |
|
|
April 6 |
|
July 2 |
|
November 5 |
|
|
May 1 |
|
July 20 |
|
November 12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Czech Republic |
April 9 |
|
July 6 |
|
December 26 |
|
|
May 1 |
|
September 28 |
|
|
|
|
May 8 |
|
December 24 |
|
|
|
|
July 5 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Egypt |
January 1 |
|
May 1 |
|
August 20 |
|
November 15 |
April 15 |
|
July 1 |
|
August 21 |
|
|
April 16 |
|
July 23 |
|
October 25 |
|
|
April 25 |
|
August 19 |
|
October 28 |
|
|
The Egyptian market is closed every Friday.
58
|
|
|
|
|
|
|
Hungary |
March 15 |
|
May 1 |
|
October 23 |
|
December 25 |
March 16 |
|
May 28 |
|
November 1 |
|
December 26 |
April 9 |
|
August 20 |
|
November 2 |
|
December 31 |
April 30 |
|
October 22 |
|
December 24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
India |
January 26 |
|
April 6 |
|
October 2 |
|
December 25 |
February 20 |
|
May 1 |
|
October 24 |
|
|
March 8 |
|
July 2 |
|
October 26 |
|
|
March 23 |
|
August 15 |
|
November 13 |
|
|
April 2 |
|
August 20 |
|
November 14 |
|
|
April 5 |
|
September 19 |
|
November 28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia |
January 23 |
|
August 17 |
|
November 15 |
|
|
March 23 |
|
August 20 |
|
November 16 |
|
|
April 6 |
|
August 21 |
|
December 24 |
|
|
May 17 |
|
August 22 |
|
December 25 |
|
|
May 18 |
|
October 26 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Malaysia |
January 2 |
|
February 7 |
|
September 17 |
|
|
January 23 |
|
May 1 |
|
October 26 |
|
|
January 24 |
|
August 19 |
|
November 13 |
|
|
February 1 |
|
August 20 |
|
November 15 |
|
|
February 6 |
|
August 31 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico |
February 6 |
|
May 1 |
|
December 25 |
|
|
March 19 |
|
November 2 |
|
|
|
|
April 5 |
|
November 19 |
|
|
|
|
April 6 |
|
December 12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morocco |
January 11 |
|
August 14 |
|
November 6 |
|
|
February 6 |
|
August 20 |
|
November 15 |
|
|
May 1 |
|
August 21 |
|
|
|
|
July 30 |
|
October 26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peru |
April 5 |
|
August 30 |
|
December 25 |
|
|
April 6 |
|
October 8 |
|
|
|
|
May 1 |
|
November 1 |
|
|
|
|
June 29 |
|
December 8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Philippines |
April 5 |
|
June 12 |
|
November 2 |
|
December 31 |
April 6 |
|
August 20 |
|
November 30 |
|
|
April 9 |
|
August 21 |
|
December 24 |
|
|
May 1 |
|
November 1 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Poland |
January 6 |
|
May 3 |
|
December 24 |
|
|
April 6 |
|
June 7 |
|
December 25 |
|
|
April 9 |
|
August 15 |
|
December 26 |
|
|
May 1 |
|
November 1 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Russia |
January 9 |
|
March 9 |
|
June 11 |
|
|
February 22 |
|
April 30 |
|
June 12 |
|
|
February 23 |
|
May 1 |
|
November 5 |
|
|
March 7 |
|
May 8 |
|
December 31 |
|
|
March 8 |
|
May 9 |
|
|
|
|
South Africa |
January 2 |
|
April 27 |
|
December 17 |
|
|
March 21 |
|
May 1 |
|
December 25 |
|
|
April 6 |
|
August 9 |
|
December 26 |
|
|
April 9 |
|
September 24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Korea |
January 23 |
|
May 28 |
|
December 19 |
|
|
January 24 |
|
June 6 |
|
December 25 |
|
|
March 1 |
|
August 15 |
|
December 31 |
|
|
April 11 |
|
October 1 |
|
|
|
|
May 1 |
|
October 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan |
January 23 |
|
January 27 |
|
May 1 |
|
|
January 24 |
|
February 27 |
|
October 10 |
|
|
January 25 |
|
February 28 |
|
December 31 |
|
|
January 26 |
|
April 4 |
|
|
|
|
Thailand |
January 2 |
|
April 16 |
|
August 2 |
|
December 10 |
March 7 |
|
May 1 |
|
August 13 |
|
December 31 |
April 6 |
|
May 7 |
|
October 23 |
|
|
April 13 |
|
June 4 |
|
December 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey |
April 23 |
|
August 21 |
|
October 25 |
|
|
May 1 |
|
August 30 |
|
October 26 |
|
|
August 20 |
|
October 24 |
|
October 29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
59
2013
|
|
|
|
|
|
|
Brazil |
January 1 |
|
March 29 |
|
November 15 |
|
December 31 |
January 25 |
|
May 1 |
|
November 20 |
|
|
February 11 |
|
May 30 |
|
December 24 |
|
|
February 12 |
|
July 9 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilé |
January 1 |
|
May 27 |
|
November 1 |
|
|
March 29 |
|
August 15 |
|
December 25 |
|
|
May 1 |
|
September 18 |
|
December 31 |
|
|
May 21 |
|
September 19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
January 1 |
|
February 14 |
|
May 7 |
|
October 3 |
January 21 |
|
February 15 |
|
May 27 |
|
October 4 |
February 7 |
|
February 18 |
|
July 4 |
|
October 7 |
February 8 |
|
May 1 |
|
September 2 |
|
October 14 |
February 11 |
|
May 2 |
|
September 30 |
|
November 11 |
February 12 |
|
May 3 |
|
October 1 |
|
November 28 |
February 13 |
|
May 6 |
|
October 2 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
Colombia |
January 1 |
|
May 1 |
|
August 7 |
|
December 25 |
January 7 |
|
May 13 |
|
August 19 |
|
December 31 |
March 25 |
|
June 3 |
|
October 14 |
|
|
March 28 |
|
June 10 |
|
November 4 |
|
|
March 29 |
|
July 1 |
|
November 11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Czech Republic |
January 1 |
|
July 5 |
|
December 26 |
|
|
April 1 |
|
October 28 |
|
December 31 |
|
|
May 1 |
|
December 24 |
|
|
|
|
May 8 |
|
December 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Egypt |
January 1 |
|
May 5 |
|
August 8 |
|
October 16 |
January 7 |
|
May 6 |
|
August 11 |
|
November 4 |
January 24 |
|
July 1 |
|
October 6 |
|
November 5 |
April 25 |
|
July 23 |
|
October 14 |
|
|
May 1 |
|
August 7 |
|
October 15 |
|
|
The Egyptian market is closed every Friday.
|
|
|
|
|
|
|
Hungary |
January 1 |
|
May 20 |
|
November 1 |
|
|
March 15 |
|
August 19 |
|
December 24 |
|
|
April 1 |
|
August 20 |
|
December 25 |
|
|
May 1 |
|
October 23 |
|
December 26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
India |
January 25 |
|
April 20 |
|
August 10 |
|
November 4 |
January 26 |
|
April 23 |
|
August 15 |
|
November 5 |
March 27 |
|
May 1 |
|
August 22 |
|
November 14 |
March 29 |
|
May 25 |
|
September 9 |
|
November 15 |
April 1 |
|
June 29 |
|
September 30 |
|
December 25 |
April 11 |
|
July 1 |
|
October 2 |
|
|
April 19 |
|
August 9 |
|
October 16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia |
January 1 |
|
May 9 |
|
August 12 |
|
December 24 |
January 25 |
|
June 7 |
|
August 13 |
|
December 25 |
March 12 |
|
August 7 |
|
October 15 |
|
December 26 |
March 29 |
|
August 8 |
|
November 4 |
|
December 30 |
April 11 |
|
August 9 |
|
November 5 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
Malaysia |
January 1 |
|
May 1 |
|
June 1 |
|
October 15 |
January 24 |
|
May 24 |
|
August 7 |
|
November 4 |
February 1 |
|
May 25 |
|
August 8 |
|
November 5 |
February 11 |
|
May 30 |
|
August 9 |
|
December 25 |
February 12 |
|
May 31 |
|
August 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico |
January 1 |
|
March 21 |
|
September 16 |
|
December 25 |
February 4 |
|
March 28 |
|
November 18 |
|
|
February 5 |
|
March 29 |
|
November 20 |
|
|
March 18 |
|
May 1 |
|
December 12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Morocco |
January 1 |
|
May 1 |
|
August 14 |
|
October 17 |
January 11 |
|
July 30 |
|
August 20 |
|
November 5 |
January 24 |
|
August 8 |
|
August 21 |
|
November 6 |
January 25 |
|
August 9 |
|
October 16 |
|
November 18 |
|
|
|
|
|
|
|
|
|
|
|
Peru |
January 1 |
|
July 29 |
|
December 24 |
|
|
March 28 |
|
August 30 |
|
December 25 |
|
|
March 29 |
|
October 8 |
|
December 31 |
|
|
May 1 |
|
November 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Philippines |
January 1 |
|
April 8 |
|
August 8 |
|
December 24 |
February 25 |
|
May 1 |
|
August 9 |
|
December 25 |
March 28 |
|
May 13 |
|
August 21 |
|
December 30 |
March 29 |
|
June 12 |
|
November 1 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
Poland |
January 1 |
|
May 3 |
|
November 11 |
|
|
March 29 |
|
May 30 |
|
December 25 |
|
|
April 1 |
|
August 15 |
|
December 26 |
|
|
May 1 |
|
November 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
Russia |
January 1 |
|
January 8 |
|
May 9 |
|
|
January 2 |
|
January 9 |
|
May 10 |
|
|
January 3 |
|
February 25 |
|
June 12 |
|
|
January 4 |
|
March 8 |
|
November 4 |
|
|
January 7 |
|
May 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Africa |
January 1 |
|
May 1 |
|
December 16 |
|
|
March 21 |
|
June 17 |
|
December 25 |
|
|
March 29 |
|
August 9 |
|
December 26 |
|
|
April 1 |
|
September 24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Korea |
January 1 |
|
May 17 |
|
September 19 |
|
|
February 11 |
|
June 6 |
|
September 20 |
|
|
March 1 |
|
July 17 |
|
October 3 |
|
|
April 5 |
|
August 15 |
|
December 25 |
|
|
May 1 |
|
September 18 |
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan |
January 1 |
|
February 12 |
|
April 4 |
|
October 10 |
February 7 |
|
February 13 |
|
May 1 |
|
|
February 8 |
|
February 14 |
|
June 12 |
|
|
February 11 |
|
February 28 |
|
September 19 |
|
|
|
|
|
|
|
|
|
Thailand |
January 1 |
|
April 16 |
|
July 1 |
|
December 5 |
February 25 |
|
May 1 |
|
July 23 |
|
December 10 |
April 8 |
|
May 6 |
|
August 12 |
|
December 31 |
April 15 |
|
May 27 |
|
October 23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Turkey |
January 1 |
|
August 9 |
|
October 16 |
|
October 29 |
April 23 |
|
August 30 |
|
October 17 |
|
|
August 7 |
|
October 14 |
|
October 18 |
|
|
August 8 |
|
October 15 |
|
October 28 |
|
|
Redemptions.
The longest redemption cycle for the Fund is a function of the longest redemption cycle among the countries whose securities comprise the Fund. In the calendar years 2012 and 2013, the dates of regular holidays affecting the following securities
markets present the worst-case redemption cycles* for the Fund as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
Brazil |
|
|
02/15/12 |
|
|
|
02/23/12 |
|
|
|
8 |
|
|
|
|
02/16/12 |
|
|
|
02/24/12 |
|
|
|
8 |
|
|
|
|
02/17/12 |
|
|
|
02/27/12 |
|
|
|
10 |
|
China |
|
|
01/18/12 |
|
|
|
02/01/12 |
|
|
|
14 |
|
|
|
|
01/19/12 |
|
|
|
02/02/12 |
|
|
|
14 |
|
|
|
|
01/20/12 |
|
|
|
02/03/12 |
|
|
|
14 |
|
|
|
|
04/26/12 |
|
|
|
05/08/12 |
|
|
|
12 |
|
|
|
|
04/27/12 |
|
|
|
05/09/12 |
|
|
|
12 |
|
|
|
|
04/30/12 |
|
|
|
05/10/12 |
|
|
|
12 |
|
|
|
|
09/26/12 |
|
|
|
10/09/12 |
|
|
|
13 |
|
|
|
|
09/27/12 |
|
|
|
10/10/12 |
|
|
|
13 |
|
|
|
|
09/28/12 |
|
|
|
10/11/12 |
|
|
|
13 |
|
Czech Republic |
|
|
12/19/12 |
|
|
|
12/27/12 |
|
|
|
8 |
|
|
|
|
12/20/12 |
|
|
|
12/28/12 |
|
|
|
8 |
|
|
|
|
12/21/12 |
|
|
|
12/31/13 |
|
|
|
10 |
|
Egypt |
|
|
08/14/12 |
|
|
|
08/22/12 |
|
|
|
8 |
|
|
|
|
08/15/12 |
|
|
|
08/23/12 |
|
|
|
8 |
|
|
|
|
08/16/12 |
|
|
|
08/27/12 |
|
|
|
11 |
|
Hungary |
|
|
12/19/12 |
|
|
|
12/27/12 |
|
|
|
8 |
|
|
|
|
12/20/12 |
|
|
|
12/28/12 |
|
|
|
8 |
|
|
|
|
12/21/12 |
|
|
|
01/01/13 |
|
|
|
11 |
|
Indonesia |
|
|
08/14/12 |
|
|
|
08/23/12 |
|
|
|
9 |
|
|
|
|
08/15/12 |
|
|
|
08/24/12 |
|
|
|
9 |
|
|
|
|
08/16/12 |
|
|
|
08/27/12 |
|
|
|
11 |
|
Malaysia |
|
|
01/31/12 |
|
|
|
02/08/12 |
|
|
|
8 |
|
Philippines |
|
|
04/02/12 |
|
|
|
04/10/12 |
|
|
|
8 |
|
|
|
|
04/03/12 |
|
|
|
04/11/12 |
|
|
|
8 |
|
|
|
|
04/04/12 |
|
|
|
04/12/12 |
|
|
|
8 |
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
Poland |
|
|
12/19/12 |
|
|
|
12/27/12 |
|
|
|
8 |
|
|
|
|
12/20/12 |
|
|
|
12/28/12 |
|
|
|
8 |
|
|
|
|
12/21/12 |
|
|
|
01/01/13 |
|
|
|
11 |
|
Russia |
|
|
03/02/12 |
|
|
|
03/12/12 |
|
|
|
10 |
|
|
|
|
03/05/12 |
|
|
|
03/13/12 |
|
|
|
8 |
|
|
|
|
03/06/12 |
|
|
|
03/14/12 |
|
|
|
8 |
|
South Africa |
|
|
12/26/11 |
|
|
|
01/03/12 |
|
|
|
8 |
|
|
|
|
12/27/11 |
|
|
|
01/04/12 |
|
|
|
8 |
|
|
|
|
12/28/11 |
|
|
|
01/05/12 |
|
|
|
8 |
|
|
|
|
12/29/11 |
|
|
|
01/06/12 |
|
|
|
8 |
|
|
|
|
12/30/11 |
|
|
|
01/09/12 |
|
|
|
10 |
|
|
|
|
03/14/12 |
|
|
|
03/22/12 |
|
|
|
8 |
|
|
|
|
03/15/12 |
|
|
|
03/23/12 |
|
|
|
8 |
|
|
|
|
03/16/12 |
|
|
|
03/26/12 |
|
|
|
10 |
|
|
|
|
03/19/12 |
|
|
|
03/27/12 |
|
|
|
8 |
|
|
|
|
03/20/12 |
|
|
|
03/28/12 |
|
|
|
8 |
|
|
|
|
03/30/12 |
|
|
|
04/10/12 |
|
|
|
11 |
|
|
|
|
04/02/12 |
|
|
|
04/11/12 |
|
|
|
9 |
|
|
|
|
04/03/12 |
|
|
|
04/12/12 |
|
|
|
9 |
|
|
|
|
04/04/12 |
|
|
|
04/13/12 |
|
|
|
9 |
|
|
|
|
04/05/12 |
|
|
|
04/16/12 |
|
|
|
11 |
|
|
|
|
04/20/12 |
|
|
|
04/30/12 |
|
|
|
10 |
|
|
|
|
04/23/12 |
|
|
|
05/02/12 |
|
|
|
9 |
|
|
|
|
04/24/12 |
|
|
|
05/03/12 |
|
|
|
9 |
|
|
|
|
04/25/12 |
|
|
|
05/04/12 |
|
|
|
9 |
|
|
|
|
04/26/12 |
|
|
|
05/07/12 |
|
|
|
11 |
|
|
|
|
04/30/12 |
|
|
|
05/08/12 |
|
|
|
8 |
|
|
|
|
08/02/12 |
|
|
|
08/10/12 |
|
|
|
8 |
|
|
|
|
08/03/12 |
|
|
|
08/13/12 |
|
|
|
10 |
|
|
|
|
08/06/12 |
|
|
|
08/14/12 |
|
|
|
8 |
|
|
|
|
08/07/12 |
|
|
|
08/15/12 |
|
|
|
8 |
|
|
|
|
08/08/12 |
|
|
|
08/16/12 |
|
|
|
8 |
|
|
|
|
09/17/12 |
|
|
|
09/25/12 |
|
|
|
8 |
|
|
|
|
09/18/12 |
|
|
|
09/26/12 |
|
|
|
8 |
|
|
|
|
09/19/12 |
|
|
|
09/27/12 |
|
|
|
8 |
|
|
|
|
09/20/12 |
|
|
|
09/28/12 |
|
|
|
8 |
|
|
|
|
09/21/12 |
|
|
|
10/01/12 |
|
|
|
10 |
|
|
|
|
12/10/12 |
|
|
|
12/18/12 |
|
|
|
8 |
|
|
|
|
12/11/12 |
|
|
|
12/19/12 |
|
|
|
8 |
|
|
|
|
12/12/12 |
|
|
|
12/20/12 |
|
|
|
8 |
|
|
|
|
12/13/12 |
|
|
|
12/21/12 |
|
|
|
8 |
|
|
|
|
12/14/12 |
|
|
|
12/24/12 |
|
|
|
10 |
|
|
|
|
12/18/12 |
|
|
|
12/27/12 |
|
|
|
9 |
|
|
|
|
12/19/12 |
|
|
|
12/28/12 |
|
|
|
9 |
|
|
|
|
12/20/12 |
|
|
|
12/31/12 |
|
|
|
11 |
|
|
|
|
12/21/12 |
|
|
|
01/01/13 |
|
|
|
11 |
|
|
|
|
12/24/12 |
|
|
|
01/02/13 |
|
|
|
9 |
|
Taiwan |
|
|
01/19/12 |
|
|
|
01/30/12 |
|
|
|
11 |
|
|
|
|
01/20/12 |
|
|
|
01/31/12 |
|
|
|
11 |
|
Turkey |
|
|
10/19/12 |
|
|
|
10/30/12 |
|
|
|
11 |
|
|
|
|
10/22/12 |
|
|
|
10/31/12 |
|
|
|
9 |
|
|
|
|
10/23/12 |
|
|
|
11/01/12 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
China |
|
|
02/04/13 |
|
|
|
02/19/13 |
|
|
|
15 |
|
|
|
|
02/05/13 |
|
|
|
02/20/13 |
|
|
|
15 |
|
|
|
|
02/06/13 |
|
|
|
02/21/13 |
|
|
|
15 |
|
|
|
|
04/26/13 |
|
|
|
05/08/13 |
|
|
|
12 |
|
|
|
|
04/29/13 |
|
|
|
05/09/13 |
|
|
|
10 |
|
|
|
|
04/30/13 |
|
|
|
05/10/13 |
|
|
|
10 |
|
|
|
|
09/25/13 |
|
|
|
10/08/13 |
|
|
|
13 |
|
|
|
|
09/26/13 |
|
|
|
10/09/13 |
|
|
|
13 |
|
|
|
|
09/27/13 |
|
|
|
10/10/13 |
|
|
|
13 |
|
The Czech Republic |
|
|
12/19/13 |
|
|
|
12/27/13 |
|
|
|
8 |
|
|
|
|
12/20/13 |
|
|
|
12/30/13 |
|
|
|
10 |
|
|
|
|
12/23/13 |
|
|
|
01/02/14 |
|
|
|
10 |
|
Egypt |
|
|
10/08/13 |
|
|
|
10/17/13 |
|
|
|
9 |
|
|
|
|
10/09/13 |
|
|
|
10/18/13 |
|
|
|
9 |
|
|
|
|
10/10/13 |
|
|
|
10/21/13 |
|
|
|
11 |
|
|
|
|
10/29/13 |
|
|
|
11/06/13 |
|
|
|
8 |
|
|
|
|
10/30/13 |
|
|
|
11/07/13 |
|
|
|
8 |
|
|
|
|
10/31/13 |
|
|
|
11/08/13 |
|
|
|
8 |
|
Hungary |
|
|
12/19/13 |
|
|
|
12/27/13 |
|
|
|
8 |
|
|
|
|
12/20/13 |
|
|
|
12/30/13 |
|
|
|
10 |
|
|
|
|
12/23/13 |
|
|
|
12/31/13 |
|
|
|
8 |
|
Indonesia |
|
|
08/02/13 |
|
|
|
08/14/13 |
|
|
|
12 |
|
|
|
|
08/05/13 |
|
|
|
08/15/13 |
|
|
|
10 |
|
|
|
|
08/06/13 |
|
|
|
08/16/13 |
|
|
|
10 |
|
|
|
|
12/19/13 |
|
|
|
12/27/13 |
|
|
|
8 |
|
|
|
|
12/20/13 |
|
|
|
01/02/14 |
|
|
|
13 |
|
|
|
|
12/23/13 |
|
|
|
01/03/14 |
|
|
|
11 |
|
Malaysia |
|
|
08/02/13 |
|
|
|
08/12/13 |
|
|
|
10 |
|
|
|
|
08/05/13 |
|
|
|
08/13/13 |
|
|
|
8 |
|
|
|
|
08/06/13 |
|
|
|
08/14/13 |
|
|
|
8 |
|
The Philippines |
|
|
12/23/13 |
|
|
|
01/02/14 |
|
|
|
10 |
|
South Africa |
|
|
03/14/13 |
|
|
|
03/22/13 |
|
|
|
8 |
|
|
|
|
03/15/13 |
|
|
|
03/25/13 |
|
|
|
10 |
|
|
|
|
03/18/13 |
|
|
|
03/26/13 |
|
|
|
8 |
|
|
|
|
03/19/13 |
|
|
|
03/27/13 |
|
|
|
8 |
|
|
|
|
03/20/13 |
|
|
|
03/28/13 |
|
|
|
8 |
|
|
|
|
03/22/13 |
|
|
|
04/02/13 |
|
|
|
11 |
|
|
|
|
03/25/13 |
|
|
|
04/03/13 |
|
|
|
8 |
|
|
|
|
03/26/13 |
|
|
|
04/04/13 |
|
|
|
8 |
|
|
|
|
03/27/13 |
|
|
|
04/05/13 |
|
|
|
8 |
|
|
|
|
03/28/13 |
|
|
|
04/08/13 |
|
|
|
11 |
|
|
|
|
04/24/13 |
|
|
|
05/02/13 |
|
|
|
8 |
|
|
|
|
04/25/13 |
|
|
|
05/03/13 |
|
|
|
8 |
|
|
|
|
04/26/13 |
|
|
|
05/06/13 |
|
|
|
10 |
|
|
|
|
04/29/13 |
|
|
|
05/07/13 |
|
|
|
8 |
|
|
|
|
04/30/13 |
|
|
|
05/08/13 |
|
|
|
8 |
|
|
|
|
06/10/13 |
|
|
|
06/18/13 |
|
|
|
8 |
|
|
|
|
06/11/13 |
|
|
|
06/19/13 |
|
|
|
8 |
|
|
|
|
06/12/13 |
|
|
|
06/20/13 |
|
|
|
8 |
|
|
|
|
06/13/13 |
|
|
|
06/21/13 |
|
|
|
8 |
|
|
|
|
06/14/13 |
|
|
|
06/24/13 |
|
|
|
10 |
|
|
|
|
08/02/13 |
|
|
|
08/12/13 |
|
|
|
10 |
|
|
|
|
08/05/13 |
|
|
|
08/13/13 |
|
|
|
8 |
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Country |
|
Trade Date |
|
|
Settlement Date |
|
|
Number of Days to Settle |
|
|
|
|
08/06/13 |
|
|
|
08/14/13 |
|
|
|
8 |
|
|
|
|
08/07/13 |
|
|
|
08/15/13 |
|
|
|
8 |
|
|
|
|
08/08/13 |
|
|
|
08/16/13 |
|
|
|
8 |
|
|
|
|
09/17/13 |
|
|
|
09/25/13 |
|
|
|
8 |
|
|
|
|
09/18/13 |
|
|
|
09/26/13 |
|
|
|
8 |
|
|
|
|
09/19/13 |
|
|
|
09/27/13 |
|
|
|
8 |
|
|
|
|
09/20/13 |
|
|
|
09/30/13 |
|
|
|
10 |
|
|
|
|
09/23/13 |
|
|
|
10/01/13 |
|
|
|
8 |
|
|
|
|
12/11/13 |
|
|
|
12/19/13 |
|
|
|
8 |
|
|
|
|
12/12/13 |
|
|
|
12/20/13 |
|
|
|
8 |
|
|
|
|
12/13/13 |
|
|
|
12/23/13 |
|
|
|
10 |
|
|
|
|
12/18/13 |
|
|
|
12/27/13 |
|
|
|
9 |
|
|
|
|
12/19/13 |
|
|
|
12/30/13 |
|
|
|
11 |
|
|
|
|
12/20/13 |
|
|
|
12/31/13 |
|
|
|
11 |
|
|
|
|
12/23/13 |
|
|
|
01/02/14 |
|
|
|
10 |
|
|
|
|
12/24/13 |
|
|
|
01/03/14 |
|
|
|
10 |
|
Taiwan |
|
|
02/05/13 |
|
|
|
02/15/13 |
|
|
|
10 |
|
|
|
|
02/06/13 |
|
|
|
02/18/13 |
|
|
|
12 |
|
Turkey |
|
|
10/10/13 |
|
|
|
10/21/13 |
|
|
|
11 |
|
|
|
|
10/11/13 |
|
|
|
10/22/13 |
|
|
|
11 |
|
|
* |
These worst-case redemption cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse) redemption cycles
are possible. |
Taxes
The following is a summary of certain material U.S. federal income tax considerations regarding the purchase, ownership and disposition of shares of the Fund. This summary does not address all of the potential U.S.
federal income tax consequences that may be applicable to the Fund or to all categories of investors, some of which may be subject to special tax rules. Current and prospective shareholders are urged to consult their own tax advisers with respect to
the specific federal, state, local and non-U.S. tax consequences of investing in the Fund. The summary is based on the laws in effect on the date of this SAI and existing judicial and administrative interpretations thereof, all of which are subject
to change, possibly with retroactive effect.
Regulated Investment Company Qualifications. The Fund intends to
qualify for treatment as a separate RIC under Subchapter M of the Internal Revenue Code. To qualify for treatment as a RIC, the Fund must annually distribute at least 90% of its investment company taxable income (which includes dividends, interest
and net short-term capital gains) and meet several other requirements. Among such other requirements are the following: (i) at least 90% of the Funds annual gross income must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or securities or non-U.S. currencies, other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies, and net income derived from interests in qualified publicly-traded partnerships (i.e., partnerships that are traded on an established securities market or tradable on a secondary market,
other than partnerships that derive 90% of their income from interest, dividends, capital gains and other traditionally permitted mutual fund income); and (ii) at the close of each quarter of the Funds taxable year, (a) at least 50%
of the market value of the Funds total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited for purposes of this calculation in respect
of any one issuer to an amount not greater than 5% of the value of the Funds assets and not greater than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of the Funds total assets may
be invested in the securities (other than U.S. government securities or the securities of other RICs) of any one issuer, of two or more issuers of which 20% or more of the voting stock is held by the Fund and that are engaged in the same or similar
trades or businesses or related trades or businesses, or the securities of one or more qualified publicly-traded partnerships.
64
The Fund may be able to cure a failure to derive 90% of its income from the sources specified above or a failure to
diversify its holdings in the manner described above by paying a tax and/or by disposing of certain assets. If, in any taxable year, the Fund fails one of these tests and does not timely cure the failure, the Fund will be taxed in the same manner as
an ordinary corporation and distributions to its shareholders will not be deductible by the Fund in computing its taxable income.
Although, in general,
the passive loss rules of the Internal Revenue Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to interests in qualified publicly-traded partnerships. The Funds investments in partnerships, including
in qualified publicly-traded partnerships, may result in the Fund being subject to state, local, or non-U.S. income, franchise or withholding tax liabilities.
Taxation of RICs. As a RIC, the Fund will not be subject to U.S. federal income tax on the portion of its taxable investment income and capital gains that it distributes to
its shareholders, provided that it satisfies a minimum distribution requirement. To satisfy the minimum distribution requirement, the Fund must distribute to its shareholders at least the sum of (i) 90% of its investment company taxable
income (i.e., income other than its net realized long-term capital gain over its net realized short-term capital loss), plus or minus certain adjustments, and (ii) 90% of its net tax-exempt income for the taxable year.
The Fund will be subject to income tax at regular corporate rates on any taxable income or gains that it does not distribute to its shareholders. If the Fund fails
to qualify for any taxable year as a RIC or fails to meet the distribution requirement, all of its taxable income will be subject to tax at regular corporate income tax rates without any deduction for distributions to shareholders, and such
distributions generally will be taxable to shareholders as ordinary dividends to the extent of the Funds current and accumulated earnings and profits. In such event, distributions to individuals should be eligible to be treated as qualified
dividend income and distributions to corporate shareholders generally should be eligible for the dividends received deduction. Although the Fund intends to distribute substantially all of its net investment income and its capital gains for each
taxable year, the Fund will be subject to U.S. federal income taxation to the extent any such income or gains are not distributed. If the Fund fails to qualify as a RIC in any year, it must pay out its earnings and profits accumulated in that year
in order to qualify again as a RIC. If the Fund fails to qualify as a RIC for a period greater than two taxable years, the Fund may be required to recognize any net built-in gains with respect to certain of its assets (i.e., the excess of the
aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if the Fund had been liquidated) if it qualifies as a RIC in a subsequent year.
Excise Tax. The Fund will be subject to a 4% excise tax on certain undistributed income if it does not distribute to its
shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98.2% of its capital gain net income for the 12 months ended October 31 of such year. For this purpose, however, any ordinary income or capital
gain net income retained by the Fund that is subject to corporate income tax will be considered to have been distributed by year-end. In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will be increased or
decreased to reflect any underdistribution or overdistribution, as the case may be, from the previous year. The Fund intends to declare and distribute dividends and distributions in the amounts and at the times necessary to avoid the application of
this 4% excise tax.
Net Capital Loss Carryforwards. Net capital loss carryforwards may be applied against any
net realized capital gains in each succeeding year, until they have been reduced to zero.
Taxation of U.S.
Shareholders. Dividends and other distributions by the Fund are generally treated under the Internal Revenue Code as received by the shareholders at the time the dividend or distribution is made. However, any dividend or distribution declared by
the Fund in October, November or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on December 31 of such calendar year and to have
been paid by the Fund not later than such December 31, provided such dividend is actually paid by the Fund during January of the following calendar year.
The Fund intends to distribute annually to its shareholders substantially all of its net tax-exempt income, investment company taxable income and any net realized long-term capital gains in excess of net realized
short-term capital losses (including any capital loss carryovers). However, if the Fund retains for investment an amount equal to all or a portion of its net long-term capital gains in excess of its net short-term capital losses (including any
capital loss carryovers), it will be subject to a corporate tax (currently at a maximum rate of 35%) on the amount retained. In that event, the Fund will designate such retained amounts as undistributed capital gains in a notice to its shareholders
who (a) will be required to include in income for U.S. federal income tax purposes, as long-term capital gains, their proportionate shares of the undistributed amount, (b) will be entitled to credit their proportionate shares of the 35%
tax paid by the Fund on the
65
undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent their credits exceed their liabilities, if any, and (c) will be entitled to
increase their tax basis, for U.S. federal income tax purposes, in their shares by an amount equal to 65% of the amount of undistributed capital gains included in the shareholders income. Organizations or persons not subject to U.S. federal
income tax on such capital gains will be entitled to a refund of their pro rata share of such taxes paid by the Fund upon filing appropriate returns or claims for refund with the IRS.
Distributions of net realized long-term capital gains, if any, that the Fund reports as capital gains dividends are taxable as long-term capital gains, whether paid in cash or in shares and regardless of how long a
shareholder has held shares of the Fund. All other dividends of the Fund (including dividends from short-term capital gains) from its current and accumulated earnings and profits (regular dividends) are generally subject to tax as
ordinary income, subject to the discussion of qualified dividend income below.
If an individual receives a regular dividend qualifying for the
long-term capital gains rates and such dividend constitutes an extraordinary dividend, and the individual subsequently recognizes a loss on the sale or exchange of stock in respect of which the extraordinary dividend was paid, then the
loss will be long-term capital loss to the extent of such extraordinary dividend. An extraordinary dividend on common stock for this purpose is generally a dividend (i) in an amount greater than or equal to 10% of the
taxpayers tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within an 85-day period, or (ii) in an amount greater than 20% of the taxpayers tax basis (or trading value) in a share of
stock, aggregating dividends with ex-dividend dates within a 365-day period.
Distributions in excess of the Funds current and accumulated
earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of a shareholders basis in shares of the Fund, and as a capital gain thereafter (if the shareholder holds shares of the Fund as capital
assets). Distributions in excess of the Funds minimum distribution requirements, but not in excess of the Funds earnings and profits, will be taxable to shareholders and will not constitute nontaxable returns of capital. The Funds
capital loss carryovers, if any, carried from taxable years beginning before 2011 do not reduce current earnings and profits, even if such carryforwards offset current year realized gains. Shareholders receiving dividends or distributions in the
form of additional shares should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the shareholders receiving cash dividends or distributions will receive and should have a
cost basis in the shares received equal to such amount. Dividends paid by the Fund that are attributable to dividends received by the Fund from domestic corporations may qualify for the federal dividends received deduction for corporations.
Beginning in 2013, a 3.8% U.S. federal Medicare contribution tax will be imposed on net investment income, including interest, dividends, and capital
gain, of U.S. individuals with income exceeding $200,000 (or $250,000 if married and filing jointly), and of estates and trusts.
Investors considering
buying shares just prior to a dividend or capital gain distribution should be aware that, although the price of shares purchased at that time may reflect the amount of the forthcoming distribution, such dividend or distribution may nevertheless be
taxable to them. If the Fund is the holder of record of any security on the record date for any dividends payable with respect to such security, such dividends will be included in the Funds gross income not as of the date received but as of
the later of (a) the date such security became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the security would not be entitled to receive the declared, but unpaid, dividends); or (b) the date the
Fund acquired such security. Accordingly, in order to satisfy its income distribution requirements, the Fund may be required to pay dividends based on anticipated earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
In certain situations, the Fund may, for a taxable year, defer all or a portion of its net capital loss realized after October
and its late-year ordinary loss (defined as the excess of post-October foreign currency and passive foreign investment company (PFIC) losses and other post-December ordinary losses over post-October foreign currency and PFIC
gains and other post-December ordinary income) until the next taxable year in computing its investment company taxable income and net capital gain, which will defer the recognition of such realized losses. Such deferrals and other rules regarding
gains and losses realized after October (or December) may affect the tax character of shareholder distributions.
Sales of Shares. Upon the sale or exchange of shares of the Fund, a shareholder will realize a taxable gain or loss equal
to the difference between the amount realized and the shareholders basis in shares of the Fund. A redemption of shares by the Fund will be treated as a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholders hands and will be long-term capital gain or loss if the shares are held for more than one year and
66
short-term capital gain or loss if the shares are held for one year or less. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced,
including replacement through the reinvesting of dividends and capital gains distributions in the Fund, by, or by an option on, substantially identical shares within a 61-day period beginning 30 days before and ending 30 days after the disposition
of the shares. In such a case, the basis of the shares acquired will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six months or less will be treated for U.S.
federal income tax purposes as a long-term capital loss to the extent of any distributions or deemed distributions of long-term capital gains received by the shareholder with respect to such share. The Medicare contribution tax described above will
apply to the sale of Fund shares.
If a shareholder incurs a sales charge in acquiring shares of the Fund, disposes of those shares within 90 days and
then, on or before January 31 of the following calendar year, acquires shares in a mutual fund for which the otherwise applicable sales charge is reduced by reason of a reinvestment right (e.g., an exchange privilege), the original sales
charge will not be taken into account in computing gain/loss on the original shares to the extent the subsequent sales charge is reduced. Instead, the disregarded portion of the original sales charge will be added to the tax basis of the newly
acquired shares. Furthermore, the same rule also applies to a disposition of the newly acquired shares made within 90 days of the second acquisition. This provision prevents shareholders from immediately deducting the sales charge by shifting their
investments within a family of mutual funds.
Back-Up Withholding. In certain cases, the Fund will be required
to withhold at the applicable withholding rate, and remit to the U.S. Treasury such amounts withheld from any distributions paid to a shareholder who: (i) has failed to provide a correct taxpayer identification number; (ii) is subject to
back-up withholding by the IRS; (iii) has failed to certify to the Fund that such shareholder is not subject to back-up withholding; or (iv) has not certified that such shareholder is a U.S. person (including a U.S. resident alien).
Back-up withholding is not an additional tax and any amount withheld may be credited against a shareholders U.S. federal income tax liability.
Sections 351 and 362. The Company, on behalf of the Fund, has the right to reject an order for a purchase of shares of the Fund if the purchaser (or group of purchasers) would, upon obtaining the shares so ordered, own 80% or more of the
outstanding shares of the Fund and if, pursuant to Sections 351 and 362 of the Internal Revenue Code, the Fund would have a basis in the securities different from the market value of such securities on the date of deposit. If the Funds basis
in such securities on the date of deposit was less than market value on such date, the Fund, upon disposition of the securities, would recognize more taxable gain or less taxable loss than if its basis in the securities had been equal to market
value. It is not anticipated that the Company will exercise the right of rejection except in a case where the Company determines that accepting the order could result in material adverse tax consequences to the Fund or its shareholders. The Company
also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination.
Taxation of Certain Derivatives. The Funds transactions in zero coupon securities, non-U.S. currencies, forward contracts, options and futures contracts (including options and futures contracts on non-U.S. currencies), to the extent
permitted, will be subject to special provisions of the Internal Revenue Code (including provisions relating to hedging transactions and straddles) that, among other things, may affect the character of gains and losses
realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and defer Fund losses. These rules could therefore affect the character, amount and timing of distributions
to shareholders. These provisions also (a) will require the Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out at the end of each year) and (b) may cause the Fund to
recognize income without receiving cash with which to pay dividends or make distributions in amounts necessary to satisfy the distribution requirements for avoiding income and excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and records when it acquires any zero coupon security, non-U.S. currency, forward contract, option, futures contract or hedged investment in order to mitigate the effect of
these rules and prevent disqualification of the Fund as a RIC.
The Funds investments in so-called Section 1256 contracts, such as
regulated futures contracts, most non-U.S. currency forward contracts traded in the interbank market and options on most security indexes, are subject to special tax rules. All Section 1256 contracts held by the Fund at the end of its taxable
year are required to be marked to their market value, and any unrealized gain or loss on those positions will be included in the Funds income as if each position had been sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized by the Fund from positions in Section 1256 contracts closed during the taxable year. Provided such positions were held as capital assets and were not part of a hedging
transaction nor part of a straddle, 60% of the resulting net gain or loss will be treated as long-term capital gain or loss, and 40% of such net gain or loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the Fund.
67
As a result of entering into swap contracts, the Fund may make or receive periodic net payments. The Fund may also
make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute ordinary income or deductions, while termination of a swap will
generally result in capital gain or loss (which will be a long-term capital gain or loss if the Fund has been a party to the swap for more than one year). With respect to certain types of swaps, the Fund may be required to currently recognize income
or loss with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss.
Qualified Dividend Income. Distributions by the Fund of investment company taxable income (including any short-term capital gains), whether received in cash or shares, will
be taxable either as ordinary income or as qualified dividend income, eligible for the reduced maximum rate to individuals of 15% (0% for individuals in lower tax brackets) to the extent the Fund receives qualified dividend income on the securities
it holds and the Fund reports the distribution as qualified dividend income. Qualified dividend income is, in general, dividend income from taxable U.S. corporations (but generally not from U.S. REITs) and certain non-U.S. corporations (e.g.,
non-U.S. corporations that are not passive foreign investment companies and which are incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which
is readily tradable on an established securities market in the United States (where the dividends are paid with respect to such stock)). Under current IRS guidance, the United States has appropriate comprehensive income tax treaties with the
following countries: Australia, Austria, Bangladesh, Barbados, Belgium, Bulgaria, Canada, China (but not with Hong Kong, which is treated as a separate jurisdiction for U.S. tax purposes), Cyprus, the Czech Republic, Denmark, Egypt, Estonia,
Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Morocco, the Netherlands, New Zealand, Norway, Pakistan, the Philippines, Poland,
Portugal, Romania, Russia, the Slovak Republic, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, the United Kingdom, and Venezuela. Substitute payments received by
the Fund for securities lent out by the Fund will not be qualified dividend income.
A dividend from the Fund will not be treated as qualified dividend
income to the extent that (i) the shareholder has not held the shares on which the dividend was paid for 61 days during the 121-day period that begins on the date that is 60 days before the date on which the shares become ex-dividend with
respect to such dividend or the Fund fails to satisfy those holding period requirements with respect to the securities it holds that paid the dividends distributed to the shareholder (or, in the case of certain preferred stocks, the holding
requirement of 91 days during the 181-day period beginning on the date that is 90 days before the date on which the stock becomes ex-dividend with respect to such dividend); (ii) the Fund or the shareholder is under an obligation (whether
pursuant to a short sale or otherwise) to make related payments with respect to substantially similar or related property; or (iii) the shareholder elects to treat such dividend as investment income under Section 163(d)(4)(B) of the
Internal Revenue Code. Dividends received by the Fund from a REIT or another RIC may be treated as qualified dividend income only to the extent the dividend distributions are attributable to qualified dividend income received by such REIT or other
RIC. It is expected that dividends received by the Fund from a REIT and distributed to a shareholder generally will be taxable to the shareholder as ordinary income. The maximum 15% rate on qualified dividend income will not apply to dividends
received in taxable years beginning after December 31, 2012. Distributions by the Fund of its net short-term capital gains will be taxable as ordinary income. Capital gain distributions consisting of the Funds net capital gains will be
taxable as long-term capital gains.
If you lend your Fund shares pursuant to securities lending arrangements, you may lose the ability to use non-U.S.
tax credits passed through by the Fund or to treat Fund dividends (paid while the shares are held by the borrower) as qualified dividends. Consult your financial intermediary or tax advisor. If you enter into a short sale with respect to shares of
the Fund, substitute payments made to the lender of such shares may not be deductible. Consult your financial intermediary or tax advisor.
Corporate Dividends Received Deduction. Dividends paid by the Fund that are attributable to dividends received by the Fund from U.S. corporations may qualify for the U.S. federal dividends received deduction for corporations. A 46-day
minimum holding period during the 90-day period that begins 45 days prior to ex-dividend date (or 91-day minimum holding period during the 180 period beginning 90 days prior to ex-dividend date for certain preference dividends) during which risk of
loss may not be diminished is required for the applicable shares, at both the Fund and shareholder level, for a dividend to be eligible for the dividends received deduction. Restrictions may apply if indebtedness, including a short sale, is
attributable to the investment.
68
Issues Related to India and Mauritius Taxes. The following discussion does not
address the effect on investors, including residents of India and citizens of India (whether or not residing in India or other countries, including the United States), of holding shares of the Fund. Investors should consult their own tax advisors as
to these issues based upon their own personal situations.
Indian tax matters discussed herein are based on the provisions of the ITA, the provisions of
the DTAA and other laws currently in force as of the date of this SAI. All such laws and the DTAA are subject to prospective and retrospective legislative amendment, administrative rulings and judicial review.
The Fund will invest in India through the Subsidiary. For U.S. federal income tax purposes, the Subsidiary has elected to be treated as an entity disregarded from
its owner. Thus, for U.S. federal tax purposes, any income or loss realized by the Subsidiary will be treated as realized by the Fund. Therefore, any investment made by the Fund into the Subsidiary and any distributions received by the Fund from the
Subsidiary are disregarded for U.S. federal tax purposes. Furthermore, there is no tax on the Funds investment in the Subsidiary or on distributions made from the Subsidiary to the Fund.
No investor will be subject to taxation in India unless such investor is a resident of India or if a non-resident, has an Indian source income or income received
(whether accrued or otherwise) in India. The taxation of the Subsidiary and the Fund in India is governed by the provisions of the ITA, read with the provisions of the DTAA. As per Section 90(2) of the ITA, the provisions of the ITA would apply
to the extent they are more beneficial than the provisions of the DTAA. In order to claim the beneficial provisions of the DTAA, the Subsidiary must be a tax resident of Mauritius. Because the Subsidiary is a tax resident of Mauritius, only the
Subsidiary would be subject to Indian taxes.
The Central Board of Direct Taxes in India in its Circular 789, issued on April 13, 2000, concluded
that a valid residence certificate issued by the Mauritius authorities demonstrated Mauritian residency for purposes of establishing eligibility to qualify for benefits under the DTAA. The Circular was subject to judicial challenge in India by those
asserting that the standards for establishing Mauritian residency for purposes of the obtaining such a certificate were insufficient to establish residency for purposes of the DTAA. The Circular was successfully overturned in certain lower Indian
courts but was eventually upheld by the highest applicable court, the Supreme Court of India, on October 7, 2003, accordingly the Subsidiary should be eligible for benefits under the DTAA. However, recently issued rulings suggest that a number
of factors are being considered by the Indian tax administration when assessing whether a foreign entity is eligible for the benefit of the provisions of a tax treaty, including, among others, the place of management of the foreign resident company
and the level of substance in the jurisdiction in which it is incorporated. In addition, both the Indian tax administration and Indian courts seem to be very aggressive towards structures involving offshore funds investing directly or indirectly in
India, in particular from Mauritius.
The Subsidiary has been incorporated in Mauritius and has obtained a TRC from the Mauritius authorities that
establishes its residency in Mauritius under the DTAA. The TRC must be renewed annually. The Fund will expect the Subsidiary to maintain its Mauritius tax residency, but it cannot be assured that the Mauritius authorities will successfully renew its
TRC annually or that it will continue to be eligible to the DTAA benefits, particularly in light of the new requirements that may be introduced if the DTAA is re-negotiated.
Further, the Finance Act has made the submission of a TRC containing prescribed particulars mandatory for claiming treaty benefits. The memorandum to the Finance Act further states that the TRC may not be
sufficient for claiming treaty benefits.
The Subsidiary holds a Category 1 Global Business License issued by the Financial Services Commission of
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 which allows a tax credit against Mauritian taxes for foreign tax on a Mauritian entitys foreign source
income effectively reduces the Mauritius income tax rate to a maximum of 3% because the system presumes, in the absence of evidence, that the foreign tax paid is equal to 80% of the Mauritian tax. 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 Subsidiary will attempt to abide by the requirements of the DTAA, to maintain its residency in Mauritius, and to ensure that management and control of the
Subsidiary remain in Mauritius. It is uncertain whether the terms of this treaty will be renegotiated or subject to a different interpretation in the future. Any change in the provisions of the DTAA or in its applicability to the Subsidiary could
result in the Subsidiary and indirectly the Fund being subject to Indian income taxes, withholding taxes, and other taxes, as well as being subject to administrative or judicial assertion of such tax liabilities by the
69
tax authorities of India. This could significantly reduce the return of the Fund on its investments and the return received by Fund shareholders. Further, it is possible even with renegotiation
of the DTAA that the Indian tax authorities may seek to take the position that the Fund is not entitled to the benefits of the DTAA.
The Subsidiary is
expected to have income in the form of capital gains, income from dividends and income from interest. The Indian tax consequences for the Subsidiary on account of the application of the DTAA, read with the provisions of the ITA, would be as follows
(the rates are inclusive of applicable surcharges):
|
|
|
Capital gains resulting from the sale of Indian securities (including depositary receipts issued by Indian companies) will not be subject to tax in India,
provided the Subsidiary does not have Permanent Establishments (PE) in India; |
|
|
|
Dividends on shares received from an Indian company on which dividend distribution tax has been paid are exempt from tax in the hands of the shareholders.
However, the Indian company distributing dividends is subject to a dividend distribution tax at the rate of 16.223%; and |
|
|
|
Interest paid to the Subsidiary in respect of the debt obligations of Indian issuers will be subject to Indian income tax. The tax rate, in the case of
rupee-denominated debt obligations, is 42.024%. In the case of foreign currency- denominated debt obligations, the tax rate is 21.012%. For approved foreign currency loans advanced from July 1, 2012 to July 1, 2015, the tax rate on
interest is 5.25%. However, if the Subsidiary is a SEBI registered sub-account, the interest from securities will be subject to tax at the rate of 21.012%. |
In the event that the benefits of the DTAA are not available to the Subsidiary, or if the Subsidiary is held to have PE in India, taxation of interest and dividend income of the Subsidiary would be the same as
described above. The taxation of capital gains would be as follows:
|
|
|
Long-term capital gains (being gains on sale of securities held for a period of more than twelve months) listed on a recognized stock exchange would not be
taxable in India provided Securities Transaction Tax (STT) has been paid on the same (as discussed below); |
|
|
|
Short-term capital gains (being gains on sale of securities held for a period of twelve months or less) from the sale of Indian securities listed on a recognized
stock exchange will be taxed at the rate of 15.759% provided STT has been paid on the same; |
|
|
|
Capital gains realized on sale of listed equity shares not executed on a recognized stock exchange in India and other Indian-listed securities would be taxed at
the rate of 21.012% for long-term gains and at 42.024% in the case of short-term gains;* |
|
|
|
Long-term capital gains arising to the Subsidiary from the sale of unlisted securities will be taxed at the rate of 10.51% (without indexation) and short-term
capital gains will be taxed at the rate of 42.024%; and |
|
|
|
Capital gains arising from the transfer of depositary receipts outside India between non-resident investors will not be subject to tax in India.
|
|
* |
However, if the Subsidiary is a SEBI registered sub-account, the rates will be 10.506% and 31.518%, respectively. |
In a ruling issued by the Authority for Advance Rulings in India, gains earned by a private equity fund based in Mauritius were held to be business
income. It is possible that the Indian tax authorities may take a similar view in the case of the Subsidiary. In that event, such gains will not be taxable in India so long as the Fund/Subsidiary do not have a PE in India. In the event that
the Fund/Subsidiary are held to have a PE in India, gains attributable to the PE would be taxable in India at the rate of 42.024%.
Indian Minimum
Alternative Tax
In the event that the benefits of the DTAA are not available to the Subsidiary, or if the Subsidiary is held to have PE in India,
the Subsidiary may be subject to a Minimum Alternate Tax (MAT). In the event that a companys tax liability is less than 18% of its book profits, then instead of paying income tax at rates provided otherwise under the ITA, the
company will pay MAT on the adjusted book profits as prescribed below:
|
|
|
|
|
|
|
|
|
Companies |
|
For taxable income exceeding INR 10 million |
|
|
For taxable income less than or equal to INR 10
million |
|
Indian company |
|
|
20.008 |
% |
|
|
19.055 |
% |
Foreign company having a permanent establishment in India (including a branch and a project office) |
|
|
19.436 |
% |
|
|
19.055 |
% |
70
Indian Securities Transaction Tax
All transactions entered on a recognized stock exchange in India will be subject to STT levied on the transaction value. In the case of the purchase/sale of listed equity shares which is settled by way of actual
delivery or transfer of the equity share, STT will be levied at the rate of 0.1% on both the buyer and seller of the equity share. For sale of equity shares settled otherwise than by way actual delivery or transfer of the equity share, STT will be
levied at the rate of 0.025% on the seller of the equity share. A seller of derivatives would be subjected to an STT of 0.017%. The STT can be set off against business income tax calculated as per provisions of ITA.
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. Any change
in the DTAAs application could have a material adverse effect on the returns of the Fund . Further, it is possible that the Indian tax authorities may seek to take the position that the Fund is not entitled to the benefits of the DTAA.
The Direct Taxes Code and the Finance Act, 2012
Indian Tax Risk. In 2010, it was proposed that the IT Act may be replaced with the Direct Taxes Code. The Parliamentary Standing Committee released its
comments on the Direct Taxes Code on March 9, 2012. The Finance Act was thereafter presented by the Finance Minister on March 16, 2012, proposing certain amendments to the IT Act. The Finance Minister highlighted that the enactment of the
Direct Taxes Code will be made, at the earliest, after considering the recommendations of the Parliamentary Standing Committee.
Given the delay in
enacting the Direct Taxes Code, the Government of India, through the Finance Act, which was enacted on May 28, 2012, has introduced certain key changes to the existing tax framework in India. This legislation includes provisions that impose
Indian tax and withholding obligations with respect to the transfer of shares in an overseas company that derives its value substantially from assets situated in India. Because the Fund invests in Indian securities through the Subsidiary, this
legislation by its terms subjects shareholder redemptions of Fund shares and sales of Fund investments to Indian tax and withholding obligations, both prospectively as well as retroactively. However, the CBDT issued a circular on May 29, 2012
clarifying the reopening of completed assessments as a result of the retroactive amendments introduced by the Finance Act. Under this circular, CBDT has directed Indian tax authorities to not reopen any assessment proceedings that were completed
before April 1, 2012 and where no notice for reassessment has been issued prior to that date. It has also been clarified that any assessment or any other order which stands validated due to the amendments in the Finance Act would be enforced.
Given this clarification issued by the CBDT, the Fund does not not expect that shareholders or the Fund will become subject to tax or to withholding obligations with respect to this particular provision of the Finance Act.
In addition, the Finance Act implemented the GAAR, which disallows impermissible avoidance arrangements. If the Funds use of the Subsidiary were
considered to be such an impermissible avoidance arrangement, the Fund would become subject directly to taxation in India. GAAR is expected to come into force from April 2013. The burden of proof in enforcing the rule will reside with the Indian
government, not the taxpayer, and Indias current double tax treaty arrangements will remain in force. However, GAAR may prevent the Fund from realizing the planned tax benefits of the Subsidiary, irrespective of existing beneficial treaty
provisions, may lead to the imposition of tax liabilities and withholding obligations, and may lead the Fund to modify or disassemble its Subsidiary structure.
Provisions of the Finance Act and the Direct Taxes Code (if enacted), could change the manner in which the Subsidiary is currently taxed in India and could adversely impact the returns to the Fund/Subsidiary and
its shareholders. The Fund will continue to monitor developments in India with respect to these matters. Investors are urged to consult their own tax advisers with respect to their own tax situations and the tax consequences of an investment in the
Fund.
Excess Inclusion Income. Under current law, the Fund will block unrelated business taxable income from
being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder could realize unrelated business taxable income by virtue of its investment in the Fund if shares in the Fund constitute debt-financed property in
the hands of the tax-exempt shareholder within the meaning of Section 514(b) of the Internal Revenue Code. Certain types of income received by the Fund from REITs, real estate mortgage investment conduits, taxable mortgage pools or other
investments may cause the Fund to report some or all of its distributions as excess inclusion income. To Fund shareholders, such excess inclusion income may (i) constitute taxable income, as unrelated business taxable income for
those shareholders who would otherwise be tax-exempt such as individual retirement accounts, 401(k) accounts, Keogh plans, pension plans and certain charitable entities; (ii) not be offset by otherwise allowable deductions for tax purposes;
(iii) not be eligible for reduced U.S. withholding for non-U.S. shareholders even from tax treaty countries; and (iv) cause the Fund to be subject to
71
tax if certain disqualified organizations, as defined by the Internal Revenue Code, are Fund shareholders. If a charitable remainder annuity trust or a charitable remainder unitrust
(each as defined in Section 664 of the Internal Revenue Code) has unrelated business taxable income (UBTI) for a taxable year, a 100% excise tax on the UBTI is imposed on the trust.
Non-U.S. Investments. Under Section 988 of the Internal Revenue Code, gains or losses attributable to fluctuations in
exchange rates between the time the Fund accrues income or receivables or expenses or other liabilities denominated in a non-U.S. currency and the time the Fund actually collects such income or pays such liabilities are generally treated as ordinary
income or ordinary loss. In general, gains (and losses) realized on debt instruments will be treated as Section 988 gain (or loss) to the extent attributable to changes in exchange rates between the U.S. dollar and the currencies in which the
instruments are denominated. Similarly, gains or losses on non-U.S. currency, non-U.S. currency forward contracts and certain non-U.S. currency options or futures contracts denominated in non-U.S currency, to the extent attributable to fluctuations
in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or loss unless the Fund were to elect otherwise.
The Fund may be subject to non-U.S. income taxes withheld at the source. The Fund, if permitted to do so, may elect to pass through to its investors
the amount of non-U.S. income taxes paid by the Fund provided that the Fund held the security on the dividend settlement date and for at least 15 additional days immediately before and/or thereafter, with the result that each investor with respect
to shares of the Fund held for a minimum 16-day holding period at the time of deemed distribution will (i) include in gross income, even though not actually received, the investors pro rata share of the Funds non-U.S. income
taxes, and (ii) either deduct (in calculating U.S. taxable income, but only for investors who itemize their deductions on their personal tax returns) or credit (in calculating U.S. federal income tax) the investors pro rata share
of the Funds non-U.S. income taxes. A non-U.S. person invested in the Fund in a year that the Fund elects to pass through its non-U.S. taxes may be treated as receiving additional dividend income subject to U.S. withholding tax. A
non-U.S. tax credit may not exceed the investors U.S. federal income tax otherwise payable with respect to the investors non-U.S. source income. For this purpose, shareholders must treat as non-U.S. source gross income (i) their
proportionate shares of non-U.S. taxes paid by the Fund and (ii) the portion of any dividend paid by the Fund that represents income derived from non-U.S. sources; the Funds gain from the sale of securities will generally be treated as
U.S.-source income. Certain limitations will be imposed to the extent to which the non-U.S. tax credit may be claimed.
Passive Foreign Investment Companies. If the Fund purchases shares in PFICs, it may be subject to U.S. federal income tax
on a portion of any excess distribution or gain from the disposition of such shares even if such income is distributed as a taxable dividend by the Fund to its shareholders. Additional charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from such distributions or gains.
If the Fund were to invest in a PFIC and elect to treat the PFIC as a
qualified electing fund under the Internal Revenue Code, in lieu of the foregoing requirements, the Fund might be required to include in income each year a portion of the ordinary earnings and net capital gains of the qualified electing
fund, even if not distributed to the Fund, and such amounts would be subject to the 90% and excise tax distribution requirements described above. In order to make this election, the Fund would be required to obtain certain annual information from
the PFICs in which it invests, which may be difficult or impossible to obtain.
Alternatively, the Fund may make a mark-to-market election that would
result in the Fund being treated as if it had sold and repurchased its PFIC stock at the end of each year. In such case, the Fund would report any such gains as ordinary income and would deduct any such losses as ordinary losses to the extent of
previously recognized gains. The election must be made separately for each PFIC owned by the Fund and, once made, would be effective for all subsequent taxable years, unless revoked with the consent of the IRS. By making the election, the Fund could
potentially ameliorate the adverse tax consequences with respect to its ownership of shares in a PFIC, but in any particular year may be required to recognize income in excess of the distributions it receives from PFICs and its proceeds from
dispositions of PFIC stock. The Fund may have to distribute this phantom income and gain to satisfy the 90% distribution requirement and to avoid imposition of the 4% excise tax.
The Fund will make the appropriate tax elections, if possible, and take any additional steps that are necessary to mitigate the effects of these rules.
Reporting. If a shareholder recognizes a loss with respect to the Funds shares of $2 million or more for an individual shareholder or $10 million or more for a
corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but
72
under current guidance, shareholders of a RIC are not exempted. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers
treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Other Taxes. Dividends, distributions and redemption proceeds may also be subject to additional state, local and non-U.S. taxes depending on each shareholders
particular situation.
Taxation of Non-U.S. Shareholders. Dividends paid by the Fund to non-U.S. shareholders
are generally subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty to the extent derived from investment income and short-term capital gains. Dividends paid by the Fund from net tax-exempt income or
long-term capital gains are generally not subject to such withholding tax. In order to obtain a reduced rate of withholding, a non-U.S. shareholder will be required to provide an IRS Form W-8BEN certifying its entitlement to benefits under a treaty.
The withholding tax does not apply to regular dividends paid to a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. shareholders conduct of a trade or business within the
United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. shareholder were a U.S. shareholder. A non-U.S. corporation receiving effectively connected dividends may also be subject to
additional branch profits tax imposed at a rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or other applicable form may be subject to back-up withholding at the appropriate rate.
In general, U.S. federal withholding tax will not apply to any gain or income realized by a non-U.S. shareholder in respect of any distributions of net
long-term capital gains over net short-term capital losses, tax-exempt interest dividends, or upon the sale or other disposition of shares of the Fund. If the Funds direct or indirect interests in U.S. real property were to exceed certain
levels, distributions to a non-U.S. shareholder from the Fund attributable to a REITs distribution to the Fund of gain from a sale or exchange of a U.S. real property interest and, in the case of a non-U.S. shareholder owning more than 5% of
the class of shares throughout either such persons holding period for the redeemed shares or, if shorter, the previous five years, the gain on redemption will be treated as real property gain subject to additional taxes or withholding and may
result in the non-U.S. shareholder having additional filing requirements.
The rules laid out in the previous paragraph, other than the withholding
rules, will apply notwithstanding the Funds participation in a wash sale transaction or its payment of a substitute dividend.
A 30% withholding
tax will be imposed on dividends paid after December 31, 2013, and redemption proceeds paid after December 31, 2014, to (i) foreign financial institutions, including non-U.S. investment funds, unless they agree to collect and disclose
to the IRS information regarding their direct and indirect U.S. account holders; and (ii) certain other foreign entities, unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign
financial institutions will need to enter into agreements with the IRS that state that they will provide the IRS information, including the name, address and taxpayer identification number of direct and indirect U.S. account holders; comply with due
diligence procedures with respect to the identification of U.S. accounts; report to the IRS certain information with respect to U.S. accounts maintained; agree to withhold tax on certain payments made to non-compliant foreign financial institutions
or to account holders who fail to provide the required information; and determine certain other information as to their account holders. Other foreign entities will need to provide the name, address, and taxpayer identification number of each
substantial U.S. owner or certifications of no substantial U.S. ownership, unless certain exceptions apply.
Shares of the Fund held by a non-U.S.
shareholder at death will be considered situated within the United States and subject to the U.S. estate tax.
The foregoing discussion is a summary of
certain material U.S. federal income tax considerations only and is not intended as a substitute for careful tax planning. Purchasers of shares should consult their own tax advisors as to the tax consequences of investing in such shares, including
consequences under state, local and non-U.S. tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date of this
SAI. Changes in applicable authority could materially affect the conclusions discussed above, and such changes often occur.
73
Financial Statements
Financial statements for the Fund are not available because, as of the date of this SAI, the Fund has no financial information to report.
Miscellaneous Information
Counsel. Willkie
Farr & Gallagher LLP, located at 787 Seventh Avenue, New York, NY 10019, is counsel to the Company.
Independent Registered Public Accounting Firm. PricewaterhouseCoopers LLP, located at Three Embarcadero Center, San
Francisco, CA 94111, serves as the Companys independent registered public accounting firm, audits the Funds financial statements, and may perform other services.
Shareholder Communications to the Board. The Board has established a process for shareholders to communicate with the Board. Shareholders may contact the Board by mail.
Correspondence should be addressed to iShares Board of Directors, c/o BlackRock Institutional Trust Company, N.A.Mutual Fund Administration, 400 Howard Street, San Francisco, CA 94105. Shareholder communications to the Board should
include the following information: (i) the name and address of the shareholder; (ii) the number of shares owned by the shareholder; (iii) the Fund(s) of which the shareholder owns shares; and (iv) if these shares are owned
indirectly through a broker, financial intermediary or other record owner, the name of the broker, financial intermediary or other record owner. All correspondence received as set forth above shall be reviewed by the Secretary of the Company and
reported to the Board.
IS-SAI-IEMG-0413
74
iShares®
, Inc.
Statement of Additional Information
Dated January 1, 2013
(as revised April 8, 2013)
This combined Statement of Additional Information
(“SAI”) is not a prospectus. It should be read in conjunction with the current prospectuses (each, a “Prospectus” and collectively, the “Prospectuses”) for the following funds of iShares, Inc. (the
“Company”):
Funds
|
|
Ticker
|
|
Stock
Exchange |
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
|
ACWV
|
|
NYSE
Arca |
|
iShares
MSCI Brazil Capped Index Fund |
|
EWZ
|
|
NYSE
Arca |
|
iShares
MSCI BRIC Index Fund |
|
BKF
|
|
NYSE
Arca |
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
ECH
|
|
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 EMEA Index Fund |
|
EEME
|
|
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 Index Fund |
|
EEM
|
|
NYSE
Arca |
|
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
|
|
iShares
MSCI Frontier 100 Index Fund |
|
FM
|
|
NYSE
Arca |
|
iShares
MSCI Global Agriculture Producers Fund |
|
VEGI
|
|
NYSE
Arca |
|
iShares
MSCI Global Energy Producers Fund |
|
FILL
|
|
NYSE
Arca |
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
PICK
|
|
NYSE
Arca |
|
iShares
MSCI Malaysia Index Fund |
|
EWM
|
|
NYSE
Arca |
|
iShares
MSCI South Korea Capped Index Fund |
|
EWY
|
|
NYSE
Arca |
|
iShares
MSCI Taiwan Index Fund |
|
EWT
|
|
NYSE
Arca |
|
The Prospectuses for the above-listed funds (each, a
“Fund” and collectively, the “Funds”) are dated January 1, 2013, as amended and supplemented from time to time. Capitalized terms used herein that are not defined have the same meaning as in the applicable Prospectus, unless
otherwise noted. The Financial Statements and Notes contained in the Annual and Semi-Annual Reports of the Company for the Funds (with the exception of the iShares MSCI Frontier 100 Index Fund) are incorporated by reference into and are deemed to be
part of this SAI. A copy of each Prospectus, Annual Report and Semi-Annual Report for each Fund may be obtained without charge by writing to the Company's distributor, BlackRock Investments, LLC (the “Distributor” or “BRIL”),
525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310 calling 1-800-iShares (1-800-474-2737) or visiting www.iShares.com. Each Fund's Prospectus is incorporated by reference to this SAI.
iShares®
is a registered trademark of BlackRock Fund Advisors (“BFA”) or its affiliates.
General Description of the Company and its Funds
The Company currently consists of more than 55 investment
series or portfolios. The Company was organized as a Maryland corporation on August 31, 1994 and is authorized to have multiple series or portfolios. The Company is an open-end management investment company registered with the Securities and
Exchange Commission (the “SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The offering of the Company's shares is registered under the Securities Act of 1933, as amended (the “1933
Act”). This SAI relates to the following funds:
• |
iShares MSCI All Country
World Minimum Volatility Index Fund |
• |
iShares MSCI Brazil Capped
Index Fund1 |
• |
iShares MSCI BRIC Index Fund
|
• |
iShares MSCI Chile Capped
Investable Market Index Fund2 |
• |
iShares MSCI Emerging
Markets Asia Index Fund |
• |
iShares MSCI Emerging
Markets Consumer Discretionary Sector Index Fund |
• |
iShares MSCI Emerging
Markets EMEA Index Fund |
• |
iShares MSCI Emerging
Markets Energy Sector Capped Index Fund |
• |
iShares MSCI Emerging
Markets Growth Index Fund |
• |
iShares MSCI Emerging
Markets 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 |
• |
iShares MSCI Frontier 100
Index Fund |
• |
iShares MSCI Global
Agriculture Producers Fund |
• |
iShares MSCI Global Energy
Producers Fund |
• |
iShares MSCI Global Select
Metals & Mining Producers Fund |
• |
iShares MSCI Malaysia Index
Fund |
• |
iShares MSCI South Korea
Capped Index Fund3 |
• |
iShares MSCI Taiwan Index
Fund |
1
On February 12, 2013, the name of the Fund changed from the
iShares MSCI Brazil Index Fund to the iShares MSCI Brazil Capped Index Fund and the Fund’s Underlying Index changed from the MSCI Brazil Index to the MSCI Brazil 25/50 Index.
2 |
On February 12, 2013, the name
of the Fund changed from the iShares MSCI Chile Investable Market Index Fund to the iShares MSCI Chile Capped Investable Market Index Fund and the Fund’s Underlying Index changed from the MSCI Chile Investable Market Index to the MSCI Chile
IMI 25/50 Index. |
3 |
On February 12, 2013, the name
of the Fund changed from the iShares MSCI South Korea Index Fund to the iShares MSCI South Korea Capped Index Fund and the Fund’s Underlying Index changed from the MSCI Korea Index to the MSCI Korea 25/50 Index. |
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 a specified benchmark index (each, an “Underlying Index”) representing publicly-traded equity securities of issuers in a particular
broad market, market segment, market sector or group of industries. Each Fund is managed by BFA, an indirect wholly owned subsidiary of BlackRock, Inc.
Each Fund offers and issues shares at their net asset value
per share (“NAV”) only in aggregations of a specified number of shares (“Creation Unit”), generally in exchange for a designated portfolio of securities (including any portion of such securities for which cash may be
substituted) included in its Underlying Index (the “Deposit Securities”), together with the deposit of a specified cash payment (the “Cash Component”). Shares of the Funds are listed for trading on national securities
exchanges such as The NASDAQ Stock Market, LLC (“NASDAQ”) or NYSE Arca, Inc. (“NYSE Arca”) (each, a “Listing Exchange”). Shares of each Fund are traded in the secondary market and elsewhere at market prices that
may be at, above or
below the Fund's NAV. Shares are redeemable only in Creation Units, and,
generally, in exchange for portfolio securities and a Cash Component (other than the iShares MSCI Brazil Capped Index Fund, iShares MSCI Chile Capped Investable Market Index Fund, iShares MSCI Malaysia Index Fund, iShares MSCI South Korea Capped
Index Fund and iShares MSCI Taiwan Index Fund, which currently redeem Creation Units of its shares solely for cash). Creation Units typically are a specified number of shares, generally ranging from 50,000 to 450,000 shares or multiples
thereof.
The Company reserves the right to permit or
require that creations and redemptions of shares are effected fully or partially in cash. Shares may be issued in advance of receipt of Deposit Securities, subject to various conditions, including a requirement to maintain with the Company a cash
deposit equal to at least 105% and up to 115%, which percentage BFA may change from time to time, of the market value of the omitted Deposit Securities. See the Creation and Redemption of Creation Units
section of this SAI. Transaction fees and other costs associated with creations or redemptions that include a cash portion may be higher than the transaction fees and other costs associated with in-kind creations or redemptions. In all cases,
conditions and fees will be limited in accordance with the requirements of SEC rules and regulations applicable to management investment companies offering redeemable securities.
Exchange Listing and Trading
A discussion of exchange listing and trading matters
associated with an investment in each Fund is contained in the Shareholder Information section of each Fund's Prospectus. The discussion below supplements, and should be read in conjunction with, that section
of the applicable Prospectus.
Shares of each Fund are
listed for trading, and trade throughout the day, on the Listing Exchange and other secondary markets. Shares of the Funds may also be listed on certain non-U.S. exchanges. There can be no assurance that the requirements of the Listing Exchange
necessary to maintain the listing of shares of any Fund will continue to be met. The Listing Exchange may, but is not required to, remove the shares of a Fund from listing if (i) following the initial 12-month period beginning upon the commencement
of trading of Fund shares, there are fewer than 50 beneficial owners of shares of the Fund for 30 or more consecutive trading days, (ii) the value of the Underlying Index on which a Fund is based is no longer calculated or available, (iii) the
“indicative optimized portfolio value” (“IOPV”) of the Fund is no longer calculated or available, or (iv) any other event shall occur or condition shall exist that, in the opinion of the Listing Exchange, makes further
dealings on the Listing Exchange inadvisable. The Listing Exchange will also remove shares of a Fund from listing and trading upon termination of the Fund.
As in the case of other publicly-traded securities, when you
buy or sell shares through a broker, you will incur a brokerage commission determined by that broker.
In order to provide additional information regarding the
indicative value of shares of the Funds, the Listing Exchange or a market data vendor disseminates information every 15 seconds through the facilities of the Consolidated Tape Association, or through other widely disseminated means, an updated IOPV
for the Funds as calculated by an information provider or market data vendor. The Company is not involved in or responsible for any aspect of the calculation or dissemination of the IOPVs and makes no representation or warranty as to the accuracy of
the IOPVs.
An IOPV has an equity securities component
and a cash component. The equity securities values included in an IOPV are the values of the Deposit Securities for a Fund. While the IOPV reflects the current value of the Deposit Securities required to be deposited in connection with the purchase
of a Creation Unit, it does not necessarily reflect the precise composition of the current portfolio of securities held by the Fund at a particular point in time because the current portfolio of the Fund may include securities that are not a part of
the current Deposit Securities. Therefore, a Fund’s IOPV disseminated during the Listing Exchange trading hours should not be viewed as a real-time update of the Fund’s NAV, which is calculated only once a day.
The cash component included in an IOPV consists of estimated
accrued interest, dividends and other income, less expenses. If applicable, each IOPV also reflects changes in currency exchange rates between the U.S. dollar and the applicable currency.
The Company reserves the right to adjust the share prices of
the Funds in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Funds or an investor's equity
interest in the Funds.
Investment Strategies and Risks
Each of the iShares MSCI All Country World Minimum Volatility
Index Fund, iShares MSCI Brazil Capped Index Fund, iShares MSCI Chile Capped Investable Market Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging
Markets EMEA Index Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets Value Index Fund, iShares MSCI Frontier 100 Index Fund, iShares MSCI Global
Agriculture Producers Fund, iShares MSCI Global Energy Producers Fund, iShares MSCI Global Select Metals & Mining Producers Fund, iShares MSCI Malaysia Index Fund, iShares MSCI South Korea Capped Index Fund and iShares MSCI Taiwan Index Fund
seeks to achieve its objective by investing primarily in securities issued by issuers that comprise its relevant Underlying Index and through transactions that provide substantially similar exposure to securities in the relevant Underlying Index.
Each of the iShares MSCI BRIC Index Fund, iShares MSCI Emerging Markets Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund and iShares MSCI Emerging Markets Small Cap Index Fund seeks to achieve its objective by investing all
its assets that are invested in Indian securities in a wholly owned subsidiary located in the Republic of Mauritius (each, a “Subsidiary”). The remaining assets will be invested directly by each Fund. Each Subsidiary and Fund will
collectively invest at least 80% (for the iShares MSCI BRIC Index Fund) or 90% (for the iShares MSCI Emerging Markets Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund and iShares MSCI Emerging Markets Small Cap Index Fund) of
each Fund’s total assets in securities that comprise its relevant Underlying Index and depositary receipts representing securities of the relevant Underlying Index. Each of the 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 and iShares MSCI Emerging Markets Value Index Fund invests all its assets that
are invested in Indian securities in a Subsidiary (collectively, with each Subsidiary listed above, the “Subsidiaries”). The remaining assets will be invested directly by each Fund. Each Subsidiary and Fund will collectively invest at
least 80% of each Fund’s total assets in securities that comprise its relevant Underlying Index and in depositary receipts representing securities of the relevant Underlying Index.
BFA serves as investment adviser to both the Funds and the
Subsidiaries. Unless otherwise indicated, references made in this SAI to 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 Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and
iShares MSCI Emerging Markets Value Index Fund refer to each Subsidiary and/or each Fund, as applicable.
Each Fund operates as an index fund and will not be actively managed. Adverse performance of a security in a Fund’s portfolio will
ordinarily not result in the elimination of the security from the Fund’s portfolio.
Each Fund engages in representative sampling, which is
investing in a sample of securities selected by BFA to have a collective investment profile similar to that of the Fund's Underlying Index. Securities selected have aggregate investment characteristics (based on market capitalization and industry
weightings), fundamental characteristics (such as return variability, earnings valuation and yield) and liquidity measures similar to those of the Underlying Index. A fund that uses representative sampling generally does not hold all of the
securities that are in its underlying index.
In order to
permit investments by Chilean pension fund managers (Administradoras de Fondos de Pensions) (“Chilean fund managers”) in the iShares MSCI Chile Capped Investable Market Index Fund, such Fund expects to restrict investments in issuances
by such Chilean fund managers. This may result in tracking error.
Borrowing. Each Fund
may borrow as a temporary measure for extraordinary or emergency purposes, including to meet redemptions or to facilitate the settlement of securities or other transactions. Under normal market conditions, any borrowing by a Fund (except for the
iShares MSCI BRIC Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund) will not exceed 10%
of the Fund’s net assets; however, each Fund (except for 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 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 iShares MSCI Frontier 100 Index Fund)
generally does not intend to borrow money.
The purchase of securities while borrowings are outstanding
will have the effect of leveraging the Funds. Such leveraging increases a Fund’s exposure to capital risk, and borrowed funds are subject to interest costs that will reduce net income. The use of leverage by a Fund creates an opportunity for
greater total return, but, at the same time, creates special risks. For example, leveraging may exaggerate changes in the net asset value of Fund shares and in the yield on a Fund’s portfolio. Although the principal of such borrowings will be
fixed, a Fund’s assets may change in value during the time the borrowings are outstanding. Borrowings will create interest expenses for a Fund that can exceed the income from the assets purchased with the borrowings. To the extent the income
or capital appreciation derived from securities purchased with borrowed funds exceeds the interest a Fund will have to pay on the borrowings, a Fund’s return will be greater than if leverage had not been used. Conversely, if the income or
capital appreciation from the securities purchased with such borrowed funds is not sufficient to cover the cost of borrowing, the return to a Fund will be less than if leverage had not been used and, therefore, the amount available for distribution
to shareholders as dividends will be reduced. In the latter case, BFA in its best judgment nevertheless may determine to maintain a Fund’s leveraged position if it expects that the benefits to the Fund’s shareholders of maintaining the
leveraged position will outweigh the current reduced return.
Certain types of borrowings by a Fund may result in the Fund
being subject to covenants in credit agreements relating to asset coverage, portfolio composition requirements and other matters. It is not anticipated that observance of such covenants would impede BFA from managing a Fund’s portfolio in
accordance with the Fund’s investment objectives and policies. However, a breach of any such covenants not cured within the specified cure period may result in acceleration of outstanding indebtedness and require the Fund to dispose of
portfolio investments at a time when it may be disadvantageous to do so.
Currency
Transactions. The Funds do not expect to engage in currency transactions for the purpose of hedging against declines in the value of the Funds' assets that are denominated in a non-U.S. currency. A Fund may
enter into non-U.S. currency forward and non-U.S. currency futures contracts to facilitate local securities settlements or to protect against currency exposure in connection with its distributions to shareholders, but may not enter into such
contracts for speculative purposes.
A forward
currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract.
A
currency futures contract is a contract involving an obligation to deliver or acquire the specified amount of a specific currency, at a specified price and at a specified future time. Currency futures contracts may be settled on a net cash payment
basis rather than by the sale and delivery of the underlying currency. To the extent required by law, liquid assets committed to futures contracts will be maintained.
Foreign exchange transactions involve a significant degree of
risk and the markets in which foreign exchange transactions are effected are highly volatile, highly specialized and highly technical. Significant changes, including changes in liquidity and prices, can occur in such markets within very short
periods of time, often within minutes. Foreign exchange trading risks include, but are not limited to, exchange rate risk, counterparty risk, maturity gap, interest rate risk, and potential interference by foreign governments through regulation of
local exchange markets, foreign investment or particular transactions in non-U.S. currency. If BFA utilizes foreign exchange transactions at an inappropriate time or judges market conditions, trends or correlations incorrectly, foreign exchange
transactions may not serve their intended purpose of improving the correlation of a Fund's return with the performance of its Underlying Index and may lower the Fund’s return. Each Fund could experience losses if the value of its currency
forwards, options and futures positions were poorly correlated with its other investments or if it could not close out its positions because of an illiquid market. In addition, a Fund could incur transaction costs, including trading commissions, in
connection with certain non-U.S. currency transactions.
Diversification Status.
The following table sets forth the diversification status of each Fund:
Diversified
Funds |
|
Non-Diversified
Funds |
iShares
MSCI BRIC Index Fund |
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
iShares
MSCI Emerging Markets Asia Index Fund |
|
iShares
MSCI Brazil Capped Index Fund |
iShares
MSCI Emerging Markets Index Fund |
|
iShares
MSCI Chile Capped Investable Market Index Fund |
Diversified
Funds |
|
Non-Diversified
Funds |
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
|
iShares
MSCI Emerging Markets EMEA 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 |
|
|
iShares
MSCI Frontier 100 Index Fund |
|
|
iShares
MSCI Global Agriculture Producers Fund |
|
|
iShares
MSCI Global Energy Producers Fund |
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
|
iShares
MSCI Malaysia Index Fund |
|
|
iShares
MSCI South Korea Capped Index Fund |
|
|
iShares
MSCI Taiwan Index Fund |
With respect
to 75% of a Fund's total assets, a “diversified” fund is limited by the 1940 Act such that it may not invest more than 5% of its total assets in securities of any one issuer and does not acquire more than 10% of the outstanding voting
securities of any one issuer (excluding cash and cash items, government securities, and securities of other investment companies). The remaining 25% of the fund’s total assets may be invested in any manner.
A “non-diversified” fund is a fund that is not limited by
the 1940 Act with regard to the percentage of its assets that may be invested in the securities of a single issuer. The securities of a particular issuer (or securities of issuers in particular industries) may dominate the underlying index of such a
fund and, consequently, the fund’s investment portfolio. This may adversely affect the fund’s performance or subject the fund’s shares to greater price volatility than that experienced by more diversified investment
companies.
Each Fund intends to maintain the required
level of diversification and otherwise conduct its operations so as to qualify as a regulated investment company (“RIC”) for purposes of the U.S. Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and to
relieve the Fund of any liability for U.S. federal income tax to the extent that its earnings are distributed to shareholders, provided that the Fund satisfies a minimum distribution requirement. Compliance with the diversification requirements of
the Internal Revenue Code may limit the investment flexibility of the Funds and may make it less likely that the Funds will meet their respective investment objectives.
Futures and
Options. Futures contracts and options may be used by a Fund to simulate investment in its Underlying Index, to facilitate trading or to reduce transaction costs. Each Fund may enter into futures contracts and
options that are traded on a U.S. or non-U.S. exchange. Each Fund will not use futures or options for speculative purposes.
Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific instrument or index at a specified future time and at a specified price. Stock index contracts are based on investments that reflect the market value of common stock of the firms included
in the investments. Each Fund may enter into futures contracts to purchase securities indexes when BFA anticipates purchasing the underlying securities and believes prices will rise before the purchase will be made. To the extent required by law,
liquid assets committed to futures contracts will be maintained.
A call option gives a holder the right to purchase a specific
security at a specified price (“exercise price”) within a specified period of time. A put option gives a holder the right to sell a specific security at a specified exercise price within a specified period of time. The initial purchaser
of a call option pays the “writer” a premium, which is paid at the time of purchase and is retained by the writer whether or not such option is exercised. Each Fund may purchase put options to hedge its portfolio against the risk of a
decline in the market value of securities held and may purchase call options to hedge against an increase in the price of securities it is committed to purchase. Each Fund may write put and call options along with a long position in
options to increase its ability to hedge against a change in the market value
of the securities it holds or is committed to purchase. Investments in futures contracts and other investments that contain leverage may require each Fund to maintain liquid assets. Generally, each Fund maintains an amount of liquid assets equal to
its obligations relative to the position involved, adjusted daily on a marked-to-market basis. With respect to futures contracts that are contractually required to “cash-settle,” each Fund maintains liquid assets in an amount at least
equal to the Fund’s daily marked-to-market obligation (i.e., each Fund’s daily net liability, if any), rather than the contracts’ notional value (i.e.,
the value of the underlying asset). By maintaining assets equal to its net obligation under cash-settled futures contracts, each Fund may employ leverage to a greater extent than if the Fund set aside assets equal to the futures contracts’
full notional value. Each Fund bases its asset maintenance policies on methods permitted by the staff of the SEC and may modify these policies in the future to comply with any changes in the guidance articulated from time to time by the SEC or its
staff.
Illiquid Securities. Each Fund may invest up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment). Illiquid securities include securities subject to contractual or other
restrictions on resale and other instruments that lack readily available markets as determined in accordance with SEC staff guidance.
Lending Portfolio
Securities. Each Fund may lend portfolio securities to certain creditworthy borrowers, including borrowers affiliated with BFA. The borrowers provide collateral that is maintained in an amount at least equal
to the current market value of the securities loaned. No securities loan shall be made on behalf of a Fund if, as a result, the aggregate value of all securities loans of the particular Fund exceeds one-third of the value of such Fund's total assets
(including the value of the collateral received). A Fund may terminate a loan at any time and obtain the return of the securities loaned. Each Fund receives the value of any interest or cash or non-cash distributions paid on the loaned
securities.
With respect to loans that are
collateralized by cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. The Funds are compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the
borrower. In the case of collateral other than cash, a Fund is compensated by a fee paid by the borrower equal to a percentage of the market value of the loaned securities. Any cash collateral may be reinvested in certain short-term instruments
either directly on behalf of each lending Fund or through one or more joint accounts or money market funds, including those affiliated with BFA; such reinvestments are subject to investment risk. BFA may receive compensation for managing the
reinvestment of the cash collateral.
Securities lending
involves exposure to certain risks, including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process), “gap” risk (i.e., the risk of a mismatch between the return on cash collateral reinvestments and the fees each Fund has agreed to pay a borrower), and credit, legal, counterparty and market risk. If a securities lending
counterparty were to default, a Fund would be subject to the risk of a possible delay in receiving collateral or in recovering the loaned securities, or to a possible loss of rights in the collateral. In the event a borrower does not return a
Fund’s securities as agreed, the Fund may experience losses if the proceeds received from liquidating the collateral do not at least equal the value of the loaned security at the time the collateral is liquidated, plus the transaction costs
incurred in purchasing replacement securities. This event could trigger adverse tax consequences for the Funds. A Fund could lose money if its short-term investment of the collateral declines in value over the period of the loan. Substitute payments
for dividends received by a Fund for securities loaned out by the Fund will not be considered qualified dividend income. A Fund may take the tax effects of this difference into account in its securities lending program.
Each Fund pays a portion of the interest or fees earned from
securities lending to a borrower as described above and to a securities lending agent who administers the lending program in accordance with guidelines approved by the Company’s Board of Directors (the “Board” or the
“Directors”). To the extent that the Funds engage in securities lending, BlackRock Institutional Trust Company, N.A. (“BTC”) acts as securities lending agent for the Funds, subject to the overall supervision of BFA. BTC
receives a portion of the revenues generated by securities lending activities as compensation for its services.
Non-U.S. Securities.
Each Fund intends to purchase publicly-traded common stocks of non-U.S. issuers. To the extent a Fund invests in stocks of non-U.S. issuers, the Fund's investment in such stocks may be in the form of American Depositary Receipts
(“ADRs”), Global Depositary Receipts (“GDRs”) and European Depositary Receipts (“EDRs”) (collectively, “Depositary Receipts”). Depositary Receipts are receipts, typically issued by a bank or trust
issuer, which evidence ownership of underlying securities issued by a non-U.S. issuer. For ADRs, the depository is typically a U.S. financial institution and the underlying securities are issued by a non-U.S. issuer. For other forms of Depositary
Receipts, the depository may be a non-U.S. or a U.S. entity, and the underlying securities may be issued by a non-U.S. or a U.S. issuer. Depositary Receipts are not
necessarily denominated in the same currency as their underlying securities.
Generally, ADRs, issued in registered form, are designed for use in the U.S. securities markets, and EDRs, issued in bearer form, are designed for use in European securities markets. GDRs are tradable both in the United States and in Europe and are
designed for use throughout the world.
The Funds will not
invest in any unlisted Depositary Receipt or any Depositary Receipt that BFA deems illiquid at the time of purchase or for which pricing information is not readily available. In general, Depositary Receipts must be sponsored, but a Fund may invest
in unsponsored Depositary Receipts under certain limited circumstances. The issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United States. Therefore, there may be less information available
regarding such issuers and there may be no correlation between available information and the market value of the Depositary Receipts.
Investing in the securities of non-U.S. issuers involves
special risks and considerations not typically associated with investing in U.S. issuers. These include differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation, adverse changes
in investment or exchange control regulations, political instability which could affect U.S. investments in non-U.S. countries, and potential restrictions on the flow of international capital. Non-U.S. issuers may be subject to less governmental
regulation than U.S. issuers. Moreover, individual non-U.S. economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product (“GDP”), rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payment positions.
Options on Futures
Contracts. An option on a futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the premium paid, to assume a position in the underlying
futures contract at a specified exercise price at any time prior to the expiration date of the option. Upon exercise of an option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer’s futures margin account that represents the amount by which the market price of the futures contract exceeds (in the case of a call) or is less than (in the case of a put) the exercise price
of the option on the futures contract. The potential for loss related to the purchase of an option on a futures contract is limited to the premium paid for the option plus transaction costs. Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option changes daily and that change would be reflected in the NAV of each Fund. The potential for loss
related to writing call options is unlimited. The potential for loss related to writing put options is limited to the agreed upon price per share, also known as the “strike price,” less the premium received from writing the
put.
Each Fund may purchase and write put and call
options on futures contracts that are traded on an exchange as a hedge against changes in value of its portfolio securities, or in anticipation of the purchase of securities, and may enter into closing transactions with respect to such options to
terminate existing positions. There is no guarantee that such closing transactions can be effected.
Upon entering into a futures contract, a Fund will be required
to deposit with the broker an amount of cash or cash equivalents known as “initial margin,” which is in the nature of a performance bond or good faith deposit on the contract and is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent payments, known as “variation margin,” to and from the broker will be made daily as the price of the index underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or less valuable, a process known as “marking-to-market.” At any time prior to the expiration of a futures contract, each Fund may elect to close the position by taking an
opposite position, which will operate to terminate the Fund’s existing position in the contract.
Regulation Regarding Derivatives. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to registered investment
companies to regulation by the CFTC if a fund invests more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps (“CFTC Derivatives”), or if the fund markets itself as providing investment exposure
to such instruments. To the extent a Fund uses CFTC-regulated futures, options and swaps, it intends to do so below such prescribed levels and will not market itself as a “commodity pool” or a vehicle for trading such instruments.
Accordingly, BFA has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act (“CEA”) pursuant to Rule 4.5 under the CEA. BFA is not, therefore, subject to registration
or regulation as a “commodity pool operator” under the CEA in respect of such Fund.
The Funds may also have investments in “underlying
funds” not advised by BFA (which for purposes of the no-action letter referenced below may include certain securitized vehicles and/or mortgage REITS that may invest in CFTC Derivatives). BFA has no transparency into the holdings of these
underlying funds because they are not advised by BFA. To address this issue of lack of transparency, the CFTC staff issued a no-action letter on November 29, 2012 permitting the adviser of a fund that invests in such underlying funds and that would
otherwise have filed a claim of exclusion pursuant to Rule 4.5, to delay registration as a “commodity pool operator” until June 30, 2013 or six months from the date in which the CFTC issues additional guidance on the treatment of CFTC
Derivatives held by underlying funds. BFA, the adviser of the Funds, has filed a claim with the CFTC for certain of the Funds to rely on this no-action relief.
Repurchase Agreements. A
repurchase agreement is an instrument under which the purchaser (i.e., a Fund) acquires the security and the seller agrees, at the time of the sale,
to repurchase the security at a mutually agreed upon time and price, thereby determining the yield during the purchaser’s holding period. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured
by the securities transferred to the purchaser. If a repurchase agreement is construed to be a collateralized loan, the underlying securities will not be considered to be owned by a Fund but only to constitute collateral for the seller’s
obligation to pay the repurchase price, and, in the event of a default by the seller, the Fund may suffer time delays and incur costs or losses in connection with the disposition of the collateral.
In any repurchase transaction, the collateral for a repurchase
agreement may include: (i) cash items; (ii) obligations issued by the U.S. government or its agencies or instrumentalities; or (iii) obligations that, at the time the repurchase agreement is entered into, are rated in the highest rating category
generally by at least two nationally recognized statistical rating organizations (“NRSROs”), or, if unrated, determined to be of comparable quality by BFA. Collateral, however, is not limited to the foregoing and may include, for
example, obligations rated below the highest category by NRSROs. Collateral for a repurchase agreement may also include securities that a Fund could not hold directly without the repurchase obligation. Irrespective of the type of collateral
underlying the repurchase agreement, in the case of a repurchase agreement entered into by a non-money market fund, the repurchase obligation of a seller must be of comparable credit quality to securities that are rated in the highest two short-term
rating categories by at least one NRSRO or, if unrated, deemed by BFA to be of equivalent quality.
Repurchase agreements pose certain risks for a Fund that
utilizes them. Such risks are not unique to the Funds, but are inherent in repurchase agreements. The Funds seek to minimize such risks, but because of the inherent legal uncertainties involved in repurchase agreements, such risks cannot be
eliminated. Lower quality collateral and collateral with longer maturities may be subject to greater price fluctuations than higher quality collateral and collateral with shorter maturities. If the repurchase agreement counterparty were to default,
lower quality collateral may be more difficult to liquidate than higher quality collateral. Should the counterparty default and the amount of collateral not be sufficient to cover the counterparty’s repurchase obligation, a Fund would retain
the status of an unsecured creditor of the counterparty (i.e., the position the Fund would normally be in if it were to hold, pursuant to its investment policies, other unsecured debt securities of the
defaulting counterparty) with respect to the amount of the shortfall. As an unsecured creditor, a Fund would be at risk of losing some or all of the principal and income involved in the transaction.
Reverse Repurchase
Agreements. Reverse repurchase agreements involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of
borrowing. Generally, the effect of such transactions is that a Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases the Fund is able to keep
some of the interest income associated with those securities. Such transactions are advantageous only if a Fund has an opportunity to earn a rate of interest on the cash derived from these transactions that is greater than the interest cost of
obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and a Fund intends to use the reverse repurchase technique only
when BFA believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any increase or decrease in the value of a Fund’s assets. A Fund’s exposure to reverse repurchase agreements will be covered
by liquid assets having a value equal to or greater than such commitments. The use of reverse repurchase agreements is a form of leverage because the proceeds derived from reverse repurchase agreements may be invested in additional
securities.
Securities of Investment Companies. Each Fund may invest in the securities of other investment companies (including money market funds) and real estate investment trusts (“REITs”) to the extent allowed by law. Pursuant to the 1940 Act, a
Fund’s investment in registered investment companies is limited to, subject to certain exceptions: (i) 3% of the total outstanding voting stock of any one investment company; (ii) 5% of the Fund’s total assets with respect to any
one
investment company; and (iii) 10% of the Fund’s total assets with
respect to investment companies in the aggregate. To the extent allowed by law or regulation, each Fund may invest its assets in the securities of investment companies that are money market funds, including those advised by or otherwise affiliated
with BFA, in excess of the limits discussed above. The iShares MSCI Emerging Markets Index Fund, in order to improve its portfolio liquidity and its ability to track the MSCI Emerging Markets Index, may invest up to 10% of its assets in shares of
other iShares funds that invest in securities in the MSCI Emerging Markets Index. BFA will not charge advisory fees on that portion of the iShares MSCI Emerging Market Index Fund's assets invested in shares of other iShares funds. Other investment
companies in which a Fund may invest can be expected to incur fees and expenses for operations, such as investment advisory and administration fees, which would be in addition to those incurred by the Fund.
Short-Term Instruments and Temporary Investments. Each Fund may invest in short-term instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that
may include but are not limited to: (i) shares of money market funds (including those advised by BFA or otherwise affiliated with BFA); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including
government-sponsored enterprises); (iii) negotiable certificates of deposit (“CDs”), bankers’ acceptances, fixed-time deposits and other obligations of U.S. and non-U.S. banks (including non-U.S. branches) and similar institutions;
(iv) commercial paper rated, at the date of purchase, “Prime-1” by Moody's® Investors Service, Inc.,
“F-1” by Fitch Inc., or “A-1” by Standard & Poor's® Financial Services LLC, a subsidiary of The McGraw-Hill Companies (“Standard & Poor's Ratings
Services”), or if unrated, of comparable quality as determined by BFA; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a-7 under the 1940 Act; (vi)
repurchase agreements; and (vii) short-term U.S. dollar-denominated obligations of non-U.S. banks (including U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by a Fund. Any of
these instruments may be purchased on a current or forward-settled basis. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers’ acceptances are time drafts
drawn on commercial banks by borrowers, usually in connection with international transactions.
Swap Agreements. Swap
agreements are contracts between parties in which one party agrees to make periodic payments to the other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make periodic
payments to the first party based on the return of a different specified rate, index or asset. Swap agreements will usually be performed on a net basis, with a Fund receiving or paying only the net amount of the two payments. The net amount of the
excess, if any, of a Fund’s obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of liquid assets having an aggregate value at least equal to the accrued excess will be maintained by the
Fund.
The use of interest rate and index swaps is
a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. These transactions generally do not involve the delivery of securities or other underlying
assets or principal.
Tracking Stocks. A tracking stock is a separate class of common stock whose value is linked to a specific business unit or operating division within a larger company and that is designed to “track” the performance of
such business unit or division. The tracking stock may pay dividends to shareholders independent of the parent company. The parent company, rather than the business unit or division, generally is the issuer of tracking stock. However, holders of the
tracking stock may not have the same rights as holders of the company’s common stock.
Future Developments. The
Board may, in the future, authorize a Fund to invest in securities contracts and investments, other than those listed in this SAI and in the applicable Prospectuses, provided they are consistent with the Fund’s investment objective and do not
violate any of its investment restrictions or policies.
General Considerations and Risks
A discussion of some of the principal risks associated with an
investment in a Fund is contained in the applicable Prospectus.
An investment in a Fund should be made with an understanding
that the value of the Fund’s portfolio securities may fluctuate in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of stocks in general, and other factors that affect the
market.
Borrowing Risk. Borrowing
may exaggerate changes in the net asset value of Fund shares and in the return on a Fund’s
portfolio. Borrowing will cost the Fund interest expense and other fees. The costs of borrowing may reduce the Fund’s return. Borrowing may
cause a Fund to liquidate positions when it may not be advantageous to do so to satisfy its obligations.
Cyber Security Issues.
With the increased use of technologies such as the Internet to conduct business, each Fund is susceptible to operational and information security risks. In general, cyber incidents can result from deliberate
attacks or unintentional events. Cyber attacks include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption.
Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches by the Funds’ third party service providers
(including, but not limited to index providers, fund accountants and transfer agents) and the issuers of securities in which the Funds invest, have the ability to cause disruptions and impact business operations potentially resulting in financial
losses, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In
addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The Funds and their shareholders could be negatively impacted as a result. While the Funds have established business continuity plans and risk
management systems to prevent such cyber-attacks, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, the Funds cannot control the cyber security plans and
systems put in place by issuers in which the Funds invest.
Dividend Risk. There is
no guarantee that the issuer of the stocks held by a Fund will declare dividends in the future or that if declared, they will either remain at current levels or increase over time.
Risk of Derivatives. A
derivative is a financial contract, the value of which depends on, or is derived from, the value of an underlying asset such as a security or an index. A Fund may invest in stock index futures contracts and other derivatives. Compared to
conventional securities, derivatives can be more sensitive to changes in interest rates or to sudden fluctuations in market prices and thus a Fund’s losses may be greater if it invests in derivatives than if it invests only in conventional
securities. Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligations.
Risk of Equity Securities.
An investment in a Fund should be made with an understanding of the risks inherent in an investment in equity securities, including the risk that the financial condition of issuers may become impaired or that
the general condition of stock markets may deteriorate (either of which may cause a decrease in the value of the portfolio securities and thus in the value of shares of the Fund). Common stocks are susceptible to general stock market fluctuations
and to increases and decreases in value as market confidence and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors, including expectations regarding government, economic, monetary and
fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic or banking crises. Holders of common stocks incur more risks than holders of preferred stocks and debt obligations because
common stockholders generally have rights to receive payments from stock issuers that are inferior to the rights of creditors, or holders of debt obligations or preferred stocks. Further, unlike debt securities, which typically have a stated
principal amount payable at maturity (the value of which, however, is subject to market fluctuations prior to maturity), or preferred stocks, which typically have a liquidation preference and which may have stated optional or mandatory redemption
provisions, common stocks have neither a fixed principal amount nor a maturity.
Although most of the securities in each Underlying Index are
listed on a national securities exchange, the principal trading market for some of the securities may be in the over-the-counter market. The existence of a liquid trading market for certain securities may depend on whether dealers will make a market
in such securities. There can be no assurance that a market will be made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of a Fund’s shares will be adversely affected if
trading markets for the Fund’s portfolio securities are limited or absent, or if bid/ask spreads are wide.
Risk of Futures and Options Transactions. There are several risks accompanying the utilization of futures contracts and options on futures contracts. A position in futures contracts and options on futures contracts may be closed only on the exchange on
which the contract was made (or a linked exchange). While each Fund plans to utilize futures contracts only if an active market exists for such contracts, there is no guarantee that a liquid market will exist for the contract at a specified time.
Futures contracts, by definition, project price levels in the future and not current levels of valuation; therefore, market
circumstances may result in a discrepancy between the price of the stock index
future and the movement in a Fund's Underlying Index. In the event of adverse price movements, a Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if a Fund has insufficient cash, it
may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, a Fund may be required to deliver the instruments underlying the future contracts it has sold.
The risk of loss in trading futures contracts or uncovered call
options in some strategies (e.g., selling uncovered stock index futures contracts) is potentially unlimited. The Funds do not plan to use futures and options contracts in this way. The risk of a futures
position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to
the size of a required margin deposit. The Funds, however, intend to utilize futures and options contracts in a manner designed to limit their risk exposure to levels comparable to a direct investment in the types of stocks in which they
invest.
Utilization of futures and options on futures by
a Fund involves the risk of imperfect or even negative correlation to its Underlying Index if the index underlying the futures contract differs from the Underlying Index. There is also the risk of loss of margin deposits in the event of bankruptcy
of a broker with whom a Fund has an open position in the futures contract or option. The purchase of put or call options will be based upon predictions by BFA as to anticipated trends, which predictions could prove to be incorrect.
Because the futures market generally imposes less burdensome
margin requirements than the securities market, an increased amount of participation by speculators in the futures market could result in price fluctuations. Certain financial futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the maximum amount by which the price of a futures contract may vary either up or down from the previous day’s settlement price at the end of a trading session. Once the
daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. It is possible that futures contract prices could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions and subjecting each Fund to substantial losses. In the event of adverse price movements, each Fund would be required to make daily cash payments of variation margin.
Risk of Investing in Mid-Capitalization Companies. Stock prices of mid-capitalization companies may be more volatile than those of large-capitalization companies and, therefore, a Fund’s share price may be more volatile than those of funds that invest a
larger percentage of their assets in stocks issued by large-capitalization companies. Stock prices of mid-capitalization companies are also more vulnerable than those of large-capitalization companies to adverse business or economic developments,
and the stocks of mid-capitalization companies may be less liquid, making it more difficult for the Funds to buy and sell them. In addition, mid-capitalization companies generally have less diverse product lines than large-capitalization companies
and are more susceptible to adverse developments related to their products.
Risk of Investing in Non-U.S. Equity Securities. An investment in a Fund involves risks similar to those of investing in a portfolio of equity securities traded on foreign exchanges. These risks include market fluctuations caused by such factors as economic and
political developments, changes in interest rates and perceived trends in stock prices. Investing in securities issued by issuers domiciled in countries other than the domicile of the investor and denominated in currencies other than an
investor’s local currency entails certain considerations and risks not typically encountered by the investor in making investments in its home country and in that country’s currency. These considerations include favorable or unfavorable
changes in interest rates, currency exchange rates, exchange control regulations and the costs that may be incurred in connection with conversions between various currencies. Investing in any of the Funds also involves certain risks and
considerations not typically associated with investing in a fund whose portfolio contains exclusively securities of U.S. issuers. These risks include generally less liquid and less efficient securities markets; generally greater price volatility;
less publicly available information about issuers; the imposition of withholding or other taxes; the imposition of restrictions on the expatriation of funds or other assets of the Funds; restrictions on ownership of Indian securities by foreign
entities; higher transaction and custody costs; delays and risks attendant in settlement procedures; difficulties in enforcing contractual obligations; lower liquidity and significantly smaller market capitalization; different accounting and
disclosure standards; lower levels of regulation of the securities markets; more substantial government interference with the economy; higher rates of inflation; greater social, economic, and political uncertainty; the risk of nationalization or
expropriation of assets; and the risk of war.
Risk of Investing in Small-Capitalization Companies. Stock prices of small-capitalization companies may be more volatile than those of larger companies and therefore a Fund's share price may be more volatile than those of funds that invest a larger percentage of
their assets in stocks issued by large-capitalization companies. Stock prices of small-capitalization companies are generally more vulnerable than those of large-capitalization companies to adverse business and economic developments. The stocks of
small-capitalization companies may be thinly traded, making it difficult for the Funds to buy and sell them. In addition, small-capitalization companies are typically less financially stable than larger, more established companies and may depend on
a small number of essential personnel, making them more vulnerable to loss of personnel. Small-capitalization companies also normally have less diverse product lines than large-capitalization companies and are more susceptible to adverse
developments concerning their products.
Risk of Swap
Agreements. The risk of loss with respect to swaps generally is limited to the net amount of payments that a Fund is contractually obligated to make. Swap agreements are subject to the risk that the swap
counterparty will default on its obligations. If such a default occurs, a Fund will have contractual remedies pursuant to the agreements related to the transaction. However, such remedies may be subject to bankruptcy and insolvency laws which could
affect such Fund’s rights as a creditor (e.g., a Fund may not receive the net amount of payments that it is contractually entitled to
receive).
Treaty/Tax Risk. Each 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 Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets
Value Index Fund operate, in part, through the Subsidiaries, which in turn invest in securities of Indian issuers. At this time, the Subsidiaries should be eligible to take advantage of the benefits of the Double Tax Avoidance Agreement between
India and Mauritius (“DTAA”). Numerous investors have relied on the benefits of the DTAA to invest in India through Mauritius in the past. However, in the past 10-15 years a number of parties have challenged the DTAA or the
interpretation of the DTAA. Circular 789, issued on April 13, 2000 by the Indian Central Board of Direct Taxes (“CBDT”), clarifies that whenever the Mauritius revenue authorities have issued a certificate of tax residence, such
certificate would constitute sufficient evidence for accepting the status of residence of Mauritius tax residents for purposes of applying the provisions of the DTAA. The Supreme Court of India in 2003 subsequently held and declared Circular 789 to
be valid following litigation regarding Circular 789. As of the date of this SAI, Circular 789 is still valid and in force.
However, recently issued rulings suggest that the Indian tax
administration’s analysis may have changed, and that the tax authorities may now focus on a number of factors when assessing whether a foreign entity is eligible for the benefit of the provisions of a tax treaty, including, among others, the
place of management of the foreign resident company and the level of substance in the jurisdiction in which it is incorporated. In addition, both the Indian tax administration and Indian courts seem now to be taking aggressive efforts to challenge
structures involving offshore funds investing directly or indirectly in India, in particular those from Mauritius. Further, the Finance Act, 2012 (the “Finance Act”) has made the submission of a tax residency certificate
(“TRC”) containing prescribed particulars mandatory for claiming treaty benefits. Through the notification dated September 17, 2012, such particulars have been prescribed. Some of the prescribed particulars are: name of the assessee,
status, nationality, residential status for tax purposes, period for which the certificate is applicable and address of the applicant for such period. This will only come into force on April 1, 2013. The memorandum to the Finance Act further states
that the TRC may not be sufficient for claiming treaty benefits.
It is possible that the governments of India and Mauritius may
renegotiate the terms of the DTAA to include, among other things, a limitation of benefit clause. No assurance can be given that the terms of the DTAA will not be renegotiated or subject to a different interpretation in the future. Any change in the
provisions of the DTAA or in its applicability to the Subsidiaries could result in the imposition of withholding and capital gains taxes and other taxes on the Subsidiaries by tax authorities in India. This could significantly reduce the return to
each 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 Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund on its
investments and the return received by each Fund’s shareholders.
Indian Tax Risk. In 2010, it
was proposed that the Income Tax Act (“IT Act”) may be replaced with the Direct Taxes Code. The Parliamentary Standing Committee released its comments on the Direct Taxes Code on March 9, 2012. The Finance Act was thereafter presented by
the Finance Minister on March 16, 2012, proposing certain amendments to the IT Act. The Finance
Minister highlighted that the enactment of the Direct Taxes Code will be made,
at the earliest, after considering the recommendations of the Parliamentary Standing Committee.
Given the delay in enacting the Direct Taxes Code, the
Government of India, through the Finance Act, which was enacted on May 28, 2012, has introduced certain key changes to the existing tax framework in India. This legislation includes provisions that impose Indian tax and withholding obligations with
respect to the transfer of shares in an overseas company that derives its value substantially from assets situated in India. Because certain Funds invest in Indian securities through Subsidiaries, this legislation by its terms subjects shareholder
redemptions of Fund shares and sales of Fund investments to Indian tax and withholding obligations, both prospectively as well as retroactively. However, the CBDT issued a letter on May 29, 2012 clarifying the reopening of completed assessments as a
result of the retrospective amendments introduced by the Finance Act. Under this letter, CBDT has directed Indian tax authorities to not reopen any assessment proceedings that were completed before April 1, 2012 and where no notice for reassessment
has been issued prior to that date. It has also been clarified that any assessment or any other order which stands validated due to the amendments in the Finance Act would be enforced. Given this clarification issued by the CBDT, these Funds do not
expect that their respective shareholders or each Fund will become subject to tax or to withholding obligations with respect to this particular provision of the Finance Act.
In addition, the Finance Act introduced the general tax
anti-avoidance rule (“GAAR”), which disallows “impermissible avoidance arrangements.” If 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 Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI
Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund's use of a subsidiary was considered to be such an impermissible avoidance arrangement, the Funds would become subject directly to taxation in India. GAAR is
expected to come into force from April 2013. The burden of proof in enforcing the rule will reside with the Indian government, not the taxpayer, and India’s current double tax treaty arrangements will remain in force. However, GAAR may prevent
the Funds from realizing the planned tax benefits of the Subsidiaries, irrespective of existing beneficial treaty provisions, may lead to the imposition of tax liabilities and withholding obligations, and may lead the Funds to modify or disassemble
their Subsidiaries structure.
A Committee was established
by the Government of India to provide recommendations on the guidelines for implementing GAAR under the Direct Taxes Code. With GAAR provisions having been introduced in the Finance Act, the Committee came out with its report on June 28, 2012.
The Prime Minister’s Office constituted an experts
committee chaired by Parthasarathi Shome (the “Panel”) to hold consultations with stakeholders and the general public to rework the draft guidelines on GAAR and create a roadmap for implementation. The Panel submitted its draft
recommendations on September 1, 2012. The recommendations have been given on the basis that GAAR is not for the purpose of generating revenue but to deter arrangements to avoid tax. Some of the key recommendations are:
(a) |
Deferring the implementation
of GAAR by 3 years on administrative grounds (e.g., training of tax officers, establishing Approving Panel, etc.); |
(b) |
All investments made and
existing on commencement of GAAR should be grandfathered so that on exit GAAR is not invoked; |
(c) |
Where CBDT circular 789 of
2000 is applicable, GAAR should not be invoked; and |
(d) |
Where a treaty has specific
anti-avoidance provisions, GAAR should not override the treaty. |
This report was submitted to the Ministry of Finance,
Government of India on October 1, 2012.
Provisions of the
Finance Act and the Direct Taxes Code (if enacted), could change the manner in which Subsidiaries are currently taxed in India and could adversely impact the returns to each 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 Index Fund, iShares
MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund/Subsidiaries and its shareholders. Each 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 Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI
Emerging Markets Value Index Fund will continue to monitor developments in India with respect to these matters. Investors are urged to consult their own tax advisers with respect to their own tax situations and the tax consequences of an investment
in each 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 Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund.
Volatility Risk. The
value of the securities in the Fund’s portfolio may fluctuate, sometimes rapidly and unpredictably. The value of a security may fluctuate due to factors affecting markets generally or particular industries. The value of a security may also be
more volatile than the market as a whole. This volatility may affect the Fund’s NAV. Although the Underlying Index was created to seek lower volatility than the MSCI ACWI Index and the MSCI Emerging Markets Index, there is no guarantee that
these strategies will be successful. The Fund's name reflects the name of the Underlying Index as provided by the Index Provider. However, the Index Provider may be unsuccessful in creating an index that minimizes volatility, and there is a risk
that the Fund may experience more than minimum volatility. Securities in the Fund's portfolio may be subject to price volatility and the prices may not be any less volatile than the market as a whole and could be more volatile. Events or financial
circumstances affecting individual securities or sectors may increase the volatility of the Fund.
Risk of Investing in Africa.
Investments in securities of issuers in certain African countries involve heightened risks including, among others, expropriation and/or nationalization of assets, confiscatory taxation, political
instability, including authoritarian and/or military involvement in governmental decision-making, armed conflict, civil war, and social instability as a result of religious, ethnic and/or socioeconomic unrest and, in certain countries, genocidal
warfare.
Certain countries in Africa generally
have less developed capital markets than traditional emerging market countries, and, consequently, the risks of investing in foreign securities are magnified in such countries. Because securities markets of countries in Africa are underdeveloped and
are less correlated to global economic cycles than those markets located in more developed countries, securities markets in Africa are subject to greater risks associated with market volatility, lower market capitalization, lower trading volume,
illiquidity, inflation, greater price fluctuations and uncertainty regarding the existence of trading markets.
Moreover, trading on securities markets may be suspended
altogether. Market volatility may also be heightened by the actions of a small number of investors. Brokerage firms in certain countries in Africa may be fewer in number and less established than brokerage firms in more developed markets. Since a
Fund may need to effect securities transactions through these brokerage firms, the Fund is subject to the risk that these brokerage firms will not be able to fulfill their obligations to the Fund (i.e.,
counterparty risk). This risk is magnified to the extent that a Fund effects securities transactions through a single brokerage firm or a small number of brokerage firms.
Certain governments in Africa restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers located or operating in those countries. These restrictions and/or controls may at times limit or prevent foreign investment in securities of issuers located or operating in
countries in Africa. Moreover, certain countries in Africa require governmental approval or special licenses prior to investment by foreign investors and may limit the amount of investment by foreign investors in a particular industry and/or issuer,
and may limit such foreign investment to a certain class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domestic investors of the countries and/or impose additional taxes on foreign
investors. A delay in obtaining a government approval or a license would delay investments in a particular country, and, as a result, a Fund may not be able to invest in certain securities while approval is pending. The government of a particular
country may also withdraw or decline to renew a license that enables a Fund to invest in such country. These factors make investing in issuers located or operating in countries in Africa significantly riskier than investing in issuers located or
operating in more developed countries, and any one of these factors could cause a decline in the value of a Fund’s investments.
Issuers located or operating in countries in Africa are not
subject to the same rules and regulations as issuers located or operating in more developed countries. Therefore, there may be less financial and other information publicly available with
regard to issuers located or operating in countries in Africa and such issuers
are not subject to the uniform accounting, auditing and financial reporting standards applicable to issuers located or operating in more developed countries.
In addition, governments of certain countries in Africa in
which a Fund may invest may levy withholding or other taxes on income such as dividends, interest and realized capital gains. Although in certain countries in Africa a portion of these taxes are recoverable, the non-recovered portion of foreign
withholding taxes will reduce the income received from investments in such countries.
Investment in countries in Africa may be subject to a greater
degree of risk associated with governmental approval in connection with the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, there is the risk that if an African country’s
balance of payments declines, such African country may impose temporary restrictions on foreign capital remittances. Consequently, a Fund could be adversely affected by delays in, or a refusal to grant, required governmental approval for
repatriation of capital, as well as by the application to the Fund of any restrictions on investments. Additionally, investments in countries in Africa may require a Fund to adopt special procedures, seek local government approvals or take other
actions, each of which may involve additional costs to the Fund.
Securities laws in many countries in Africa are relatively new
and unsettled and, consequently, there is a risk of rapid and unpredictable change in laws regarding foreign investment, securities regulation, title to securities and shareholder rights. Accordingly, foreign investors may be adversely affected by
new or amended laws and regulations. In addition, there may be no single centralized securities exchange on which securities are traded in certain countries in Africa and the systems of corporate governance to which issuers located in countries in
Africa are subject may be less advanced than those systems to which issuers located in more developed countries are subject, and therefore, shareholders of issuers located in such countries may not receive many of the protections available to
shareholders of issuers located in more developed countries. In circumstances where adequate laws and shareholder rights exist, it may not be possible to obtain swift and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in countries in Africa may be inconsistent and subject to sudden change.
Certain countries in Africa may be heavily dependent upon
international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries
with which they trade. These countries also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. Certain countries in Africa depend to a significant extent upon exports of primary
commodities such as gold, silver, copper and diamonds. These countries therefore are vulnerable to changes in commodity prices, which may be affected by a variety of factors. In addition, certain issuers located in countries in Africa in which a
Fund invests may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of terrorism. As a
result, an issuer may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. A Fund, as an investor in such issuers, will be indirectly subject to those risks.
The governments of certain countries in Africa may exercise
substantial influence over many aspects of the private sector and may own or control many companies. Future government actions could have a significant effect on the economic conditions in such countries, which could have a negative impact on
private sector companies. There is also the possibility of diplomatic developments that could adversely affect investments in certain countries in Africa. Some countries in Africa may be affected by a greater degree of public corruption and crime,
including organized crime.
In addition, recent political
instability and protests in North Africa and the Middle East have caused significant disruptions to many industries. This instability has demonstrated that political and social unrest can spread quickly through the region, and that developments in
one country can influence the political events in neighboring countries. Some protests have turned violent, and civil war and political reconstruction in countries such as Libya poses a risk to investments in the region. Continued political and
social unrest in these regions may negatively affect the value of your investment in a Fund.
Risk of Investing in Asia.
Investments in securities of issuers in certain Asian countries involve risks not typically associated with investments in securities of issuers in other regions. Such heightened risks include, among others,
expropriation and/or nationalization of assets, confiscatory taxation, political instability, including authoritarian and/or military involvement in governmental decision-making, armed conflict and social instability as a result of religious, ethnic
and/or socio-economic unrest. Many Asian economies have experienced rapid growth and industrialization, and there is no assurance that this growth rate will be maintained.
Certain Asian countries have democracies with relatively short
histories, which may increase the risk of political instability. These countries have faced political and military unrest, and further unrest could present a risk to their local economies and securities markets. Indonesia and the Philippines have
each experienced violence and terrorism, which has negatively impacted their economies. North Korea and South Korea each have substantial military capabilities, and historical tensions between the two countries present the risk of war. Any outbreak
of hostilities between the two countries could have a severe adverse effect on the South Korean economy and securities market. Increased political and social unrest in these geographic areas could adversely affect the performance of investments in
this region.
Certain governments in this region
administer prices on several basic goods, including fuel and electricity, within their respective countries. Certain governments may exercise substantial influence over many aspects of the private sector in their respective countries and may own or
control many companies. Future government actions could have a significant effect on the economic conditions in this region, which in turn could have a negative impact on private sector companies. There is also the possibility of diplomatic
developments adversely affecting investments in the region.
Corruption and the perceived lack of a rule of law in dealings
with international companies in certain Asian countries may discourage foreign investment and could negatively impact the long-term growth of certain economies in this region. In addition, certain countries in the region are experiencing high
unemployment and corruption, and have fragile banking sectors.
Some economies in this region are dependent on a range of
commodities, including oil, natural gas and coal. Accordingly, they are strongly affected by international commodity prices and particularly vulnerable to any weakening in global demand for these products. The market for securities in this region
may also be directly influenced by the flow of international capital, and by the economic and market conditions of neighboring countries. Adverse economic conditions or developments in neighboring countries may increase investors' perception of the
risk of investing in the region as a whole, which may adversely impact the market value of the securities issued by companies in the region.
Risk of Investing in Australasia. The economies of Australasia, which include Australia and New Zealand, are dependent on exports from the agricultural and mining sectors. This makes Australasian economies susceptible to fluctuations in the
commodity markets. Australasian economies are also increasingly dependent on their growing service industries. Australia and New Zealand are located in a part of the world that has historically been prone to natural disasters, such as drought and
flooding. Any such event in the future could have a significant adverse impact on the economies of Australia and New Zealand and affect the value of securities held by a relevant Fund. The economies of Australia and New Zealand are dependent on
trading with certain key trading partners, including Asia, Europe and the United States. The Australia–U.S. Free Trade Agreement has significantly expanded the trading relationship between the United States and Australia. In 2003, Australia
and Singapore entered into the Singapore-Australia Free Trade Agreement (“ SAFTA”). SAFTA is intended to further expand the economic relationship with Singapore, Australia’s largest trade and investment partner in Southeast Asia.
Thus, economic events in the United States, Asia, or in other key trading countries can have a significant economic effect on the Australian economy. The economies of Australia and New Zealand are heavily dependent on the mining sector. Passage of
new regulations limiting foreign ownership of companies in the mining sector or imposition of new taxes on profits of mining companies may dissuade foreign investment, and as a result, have a negative impact on companies to which a Fund has
exposure.
Risk of Investing in Australia. A Fund’s investment in Australian issuers may subject the Fund to loss in the event of adverse political, economic, regulatory and other developments that affect Australia, including fluctuations of
Australian currency versus the U.S. dollar. Also, Australia is located in a part of the world that has historically been prone to natural disasters, such as drought and flooding. Any such event in the future could have a significant adverse impact
on the Australian economy. The Australian economy is dependent on trading with certain key trading partners. The Australia–U.S. Free Trade Agreement has significantly expanded the trading relationship between the United States and Australia.
In 2003, Australia and Singapore entered into the Singapore-Australia Free Trade Agreement (“SAFTA”). SAFTA is intended to further expand the economic relationship with Singapore, Australia’s largest trade and investment partner in
Southeast Asia. Thus, economic events in the United States, Asia, or in other key trading countries can have a significant economic effect on the Australian economy. The Australian economy is heavily dependent on the mining sector, passage of new
regulations limiting foreign ownership of companies in the mining sector or imposition of new taxes on profits of mining companies may dissuade foreign investment, and as a result, have a negative impact on companies to which a Fund has
exposure.
Risk of Investing in Brazil.
Investment in securities of companies domiciled in Brazil involves a high degree of risk and special considerations not typically associated with investing in the U.S. securities markets. Such heightened
risks include, among others, a high level of price volatility in the Brazilian equity and currency markets, chronic structural public sector deficits and disparities of wealth.
Brazil has historically experienced high rates of inflation and
may continue to do so in the future. An increase in prices for commodities, the depreciation of the Brazilian currency (the real) and potential future governmental measures seeking to maintain the value of the real in relation to the U.S. dollar,
may trigger increases in inflation in Brazil and may slow the rate of growth of the Brazilian economy. Inflationary pressures also may limit the ability of certain Brazilian issuers to access foreign financial markets and may lead to further
government intervention in the economy, including the introduction of government policies that may adversely affect the overall performance of the Brazilian economy, which in turn could adversely affect a Fund's investments.
The Brazilian government has exercised, and continues to
exercise, significant influence over the Brazilian economy, which may have significant effects on Brazilian companies and on market conditions and prices of Brazilian securities. The Brazilian economy has been characterized by frequent, and
occasionally drastic, intervention by the Brazilian government. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the core of Brazil’s economy. The Brazilian government’s
actions to control inflation and affect other economic policies have involved, among others, the setting of wage and price controls, blocking access to bank accounts, fluctuation of the base interest rates, imposing exchange controls and limiting
imports into Brazil. In the past, the Brazilian government has maintained domestic price controls, and no assurances can be given that price controls will not be re-imposed in the future.
Investments in Brazilian securities may be subject to certain
restrictions on foreign investment. Brazilian law provides that whenever a serious imbalance in Brazil’s balance of payments exists or is anticipated, the Brazilian government may impose temporary restrictions on the remittance to foreign
investors of the proceeds of their investment in Brazil and on the conversion of Brazilian currency into foreign currency. The likelihood of such restrictions may be affected by the extent of Brazil’s foreign currency reserves, the size of
Brazil’s debt service burden relative to the economy as a whole, and political constraints to which Brazil may be subject. There can be no assurance that the Brazilian government will not impose restrictions or restrictive exchange control
policies in the future, which could have the effect of preventing or restricting access to foreign currency.
The market for Brazilian securities is directly influenced by
the flow of international capital, and economic and market conditions of certain countries, especially other emerging market countries in Central and South America. Adverse economic conditions or developments in other emerging market countries have
at times significantly affected the availability of credit in the Brazilian economy and resulted in considerable outflows of funds and declines in the amount of foreign currency invested in Brazil. Crisis in neighboring emerging market countries
also may increase investors’ risk aversion, which may adversely impact the market value of the securities issued by Brazilian companies, including securities in which a Fund may invest.
Risk of Investing in Central and South America. The economies of certain Central and South American countries have experienced high interest rates, economic volatility, inflation, currency devaluations, government defaults and high unemployment rates. In
addition, commodities (such as oil, gas and minerals) represent a significant percentage of exports for the regions and many economies in these regions are particularly sensitive to fluctuations in commodity prices. Adverse economic events in one
country may have a significant adverse effect on other countries of these regions.
Risk of Investing in China.
Investments in securities of companies domiciled in China involves a high degree of risk and special considerations not typically associated with investing in the U.S. securities markets. Such heightened
risks include, among others, an authoritarian government, popular unrest associated with demands for improved political, economic and social conditions, the impact of regional conflict on the economy and hostile relations with neighboring
countries.
Military conflicts, either in response
to internal social unrest or conflicts with other countries, could disrupt economic development. The Chinese economy is vulnerable to the long-running disagreements with Hong Kong related to integration and religious and nationalist disputes with
Tibet. China has a complex territorial dispute regarding the sovereignty of Taiwan that has included threats of invasion; Taiwan-based companies and individuals are significant investors in China. Military conflict between China and Taiwan may
adversely affect securities of Chinese issuers. In addition, China has strained international relations with Japan, India, Russia and other neighbors due to territorial disputes, historical animosities and
other defense concerns. China could be affected by military events on the
Korean peninsula or internal instability within North Korea. These situations may cause uncertainty in the Chinese market and may adversely affect performance of the Chinese economy.
The Chinese government has implemented significant economic
reforms in order to liberalize trade policy, promote foreign investment in the economy, reduce government control of the economy and develop market mechanisms. But there can be no assurance that these reforms will continue or that they will be
effective. Despite reforms and privatizations of companies in certain sectors, the Chinese government still exercises substantial influence over many aspects of the private sector and may own or control many companies. The Chinese government
continues to maintain a major role in economic policy making and investing in China involves risk of loss due to expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments and on
repatriation of capital invested. In addition, there is less regulation and monitoring of Chinese securities markets and the activities of investors, brokers and other participants than in the United States. Accordingly, issuers of securities in
China are not subject to the same degree of regulation as are U.S. issuers with respect to such matters as insider trading rules, tender offer regulation, stockholder proxy requirements and the requirements mandating timely and accurate disclosure
of information. Stock markets in China are in the process of change and further development. This may lead to trading volatility, difficulty in the settlement and recording of transactions and difficulty in interpreting and applying the relevant
regulation.
While the Chinese economy has grown rapidly
in recent years, there is no assurance that this growth rate will be maintained. China may experience substantial rates of inflation or economic recessions, causing a negative effect on the economy and securities market. China’s economy is
heavily dependent on export growth. Reduction in spending on Chinese products and services, institution of tariffs or other trade barriers or a downturn in any of the economies of China’s key trading partners may have an adverse impact on the
securities of Chinese issuers.
The tax laws and
regulations in the People's Republic of China (“PRC”) are subject to change, including the issuance of authoritative guidance or enforcement, possibly with retroactive effect. The interpretation, applicability and enforcement of such
laws by PRC tax authorities are not as consistent and transparent as those of more developed nations, and may vary over time and from region to region. The application and enforcement of PRC tax rules could have a significant adverse effect on a
Fund and its investors, particularly in relation to capital gains withholding tax imposed upon non-residents.
Risk of Investing in Eastern Europe. Investing in the securities of Eastern European issuers is highly speculative and involves risks not usually associated with investing in the more developed markets of Western Europe. Political and economic
reforms are too recent to establish a definite trend away from centrally planned economies and state-owned industries. In the past, some Eastern European governments have expropriated substantial amounts of private property, and many claims of the
property owners have never been fully settled.
Many Eastern European countries continue to move towards market
economies at different paces with appropriately different characteristics. Most Eastern European securities markets suffer from thin trading activity, dubious investor protections, and often a dearth of reliable corporate information. Information
and transaction costs, differential taxes, and sometimes political or transfer risk give a comparative advantage to the domestic investor rather than the foreign investor. In addition, these markets are particularly sensitive to social, political,
economic, and currency events in Russia and may suffer heavy losses as a result of their trading and investment links to the Russian economy and currency. Russia also may attempt to assert its influence in the region through economic or even
military measures, as it did with Georgia in the summer of 2008. Eastern European economies may also be particularly susceptible to changes in the international credit markets due to their reliance on bank related inflows of capital. The global
economic crisis has restricted international credit supplies, and several Eastern European economies have faced significant credit and economic crises. Although some Eastern European economies are expanding again, major challenges are still present
as a result of their continued dependence on the Western European zone for credit.
Risk of Investing in Emerging Markets. Investments in emerging market countries may be subject to greater risks than investments in developed countries. These risks include: (i) less social, political, and economic stability; (ii) greater illiquidity
and price volatility due to smaller or limited local capital markets for such securities, or low or non-existent trading volumes; (iii) foreign exchanges and broker-dealers may be subject to less scrutiny and regulation by local authorities; (iv)
local governments may decide to seize or confiscate securities held by foreign investors and/or local governments may decide to suspend or limit an issuer's ability to make dividend or interest payments; (v) local governments may limit or entirely
restrict repatriation of invested capital, profits, and dividends; (vi) capital gains may be subject to local taxation, including on a
retroactive basis; (vii) issuers facing restrictions on dollar or euro
payments imposed by local governments may attempt to make dividend or interest payments to foreign investors in the local currency; (viii) investors may experience difficulty in enforcing legal claims related to the securities and/or local judges
may favor the interests of the issuer over those of foreign investors; (ix) bankruptcy judgments may only be permitted to be paid in the local currency; (x) limited public information regarding the issuer may result in greater difficulty in
determining market valuations of the securities, and (xi) lax financial reporting on a regular basis, substandard disclosure and differences in accounting standards may make it difficult to ascertain the financial health of an issuer.
Emerging market securities markets are typically marked by a
high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of ownership of such securities by a limited number of investors. In addition,
brokerage and other costs associated with transactions in emerging markets securities markets can be higher, sometimes significantly, than similar costs incurred in securities markets in developed countries. Although some emerging markets have
become more established and tend to issue securities of higher credit quality, the markets for securities in other emerging countries are in the earliest stages of their development, and these countries issue securities across the credit spectrum.
Even the markets for relatively widely traded securities in emerging countries may not be able to absorb, without price disruptions, a significant increase in trading volume or trades of a size customarily undertaken by institutional investors in
the securities markets of developed countries. The limited size of many of these securities markets can cause prices to be erratic for reasons apart from factors that affect the soundness and competitiveness of the securities issuers. For example,
prices may be unduly influenced by traders who control large positions in these markets. Additionally, market making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and reduced
liquidity of such markets. The limited liquidity of emerging country securities may also affect a Fund's ability to accurately value its portfolio securities or to acquire or dispose of securities at the price and time it wishes to do so or in order
to meet redemption requests.
Many emerging market
countries suffer from uncertainty and corruption in their legal frameworks. Legislation may be difficult to interpret and laws may be too new to provide any precedential value. Laws regarding foreign investment and private property may be weak or
non-existent. Sudden changes in governments may result in policies which are less favorable to investors such as policies designed to expropriate or nationalize “sovereign” assets. Certain emerging market countries in the past have
expropriated large amounts of private property, in many cases with little or no compensation, and there can be no assurance that such expropriation will not occur in the future.
Investment in the securities markets of certain emerging
countries is restricted or controlled to varying degrees. These restrictions may limit a Fund's investment in certain emerging countries and may increase the expenses of the Fund. Certain emerging countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuer's outstanding securities or a specific class of securities which may have less advantageous terms (including price) than securities of
the company available for purchase by nationals.
Many
emerging market countries lack the social, political, and economic stability characteristic of the United States. Political instability among emerging market countries can be common and may be caused by an uneven distribution of wealth, social
unrest, labor strikes, civil wars, and religious oppression. Economic instability in emerging market countries may take the form of: (i) high interest rates; (ii) high levels of inflation, including hyperinflation; (iii) high levels of unemployment
or underemployment; (iv) changes in government economic and tax policies, including confiscatory taxation; and (v) imposition of trade barriers.
A Fund's income and, in some cases, capital gains from foreign
securities will be subject to applicable taxation in certain of the emerging market countries in which it invests, and treaties between the United States and such countries may not be available in some cases to reduce the otherwise applicable tax
rates.
Emerging markets also have different clearance and
settlement procedures, and in certain of these emerging markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions.
In the past, certain governments in emerging market countries
have become overly reliant on the international capital markets and other forms of foreign credit to finance large public spending programs, which in the past have caused huge budget deficits. Often, interest payments have become too overwhelming
for a government to meet, representing a large percentage of total GDP. These foreign obligations have become the subject of political debate and served as fuel for political parties of the opposition, which pressure the government not to make
payments to foreign creditors, but instead to use these
funds for, among other things, social programs. Either due to an inability to
pay or submission to political pressure, foreign governments have been forced to seek a restructuring of their loan and/or bond obligations, have declared a temporary suspension of interest payments or have defaulted. These events have adversely
affected the values of securities issued by foreign governments and corporations domiciled in those countries and have negatively affected not only their cost of borrowing, but their ability to borrow in the future as well.
Risk of Investing in Europe.
The Economic and Monetary Union of the European Union (the “EU”) requires member countries to comply with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal and
monetary controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU
member country on its sovereign debt, and/or an economic recession among EU member countries may have a significant adverse effect on the economies of EU member countries and their trading partners. Although certain European countries do not use the
euro, many of these countries are obliged to meet the criteria for joining the euro zone. Consequently, these countries must comply with many of the restrictions noted above. The European financial markets have recently experienced volatility and
adverse trends due to concerns about economic downturns, rising government debt levels and the possible default of government debt in several European countries, including Greece, Ireland, Italy, Portugal and Spain. In order to prevent further
economic deterioration, certain countries, without prior warning, can institute “capital controls.” Countries may use these controls to restrict volatile movements of capital entering and exiting their country. Such controls may
negatively affect a Fund’s investments. A default or debt restructuring by any European country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's creditworthiness, which may be
located in countries other than those listed above. In addition, the credit ratings of certain European countries were recently downgraded. These downgrades may result in further deterioration of investor confidence. These events have adversely
affected the value and exchange rate of the euro and may continue to significantly affect the economies of every country in Europe, including countries that do not use the euro and non-EU member countries. Responses to the financial problems by
European governments, central banks and others, including austerity measures and reforms, may not work, may result in social unrest and may limit future growth and economic recovery or have other unintended consequences. Further defaults or
restructurings by governments and other entities of their debt could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition, one or more countries may abandon the euro, the common currency
of the EU, and/or withdraw from the EU. The impact of these actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far-reaching.
Risk of Investing in India.
India is an emerging market and demonstrates significantly higher volatility from time to time in comparison to more developed markets. Political, religious, and border disputes persist in India. India has
recently experienced and may continue to experience civil unrest and hostilities with certain of its neighboring countries, including Pakistan, and the Indian government has confronted separatist movements in several Indian states, including
Kashmir. Government control over the economy, currency fluctuations or blockage, and the risk of nationalization or expropriation of assets offer higher potential for losses. Governmental actions could have a negative effect on the economic
conditions in India, which could adversely affect the value and liquidity of investments made by a Fund. The securities markets in India are comparatively underdeveloped and with some exceptions, consist of a small number of listed companies with
small market capitalization, greater price volatility and substantially less liquidity than companies in more developed markets. Stockbrokers and other intermediaries in India may not perform as well as their counterparts in the United States or
other, more developed countries. The limited liquidity of the Indian securities markets may also affect a Fund’s ability to acquire or dispose of securities at the price or time that it desires or the Fund’s ability to track its
Underlying Index.
Global factors and foreign
actions may inhibit the flow of foreign capital on which India is dependent to sustain its growth. In addition, the Reserve Bank of India has imposed limits on foreign ownership of Indian companies, which may decrease the liquidity of a Fund’s
portfolio and result in extreme volatility in the prices of Indian securities. These factors, coupled with the lack of extensive accounting, auditing and financial reporting standards and practices, as applicable in the United States, may increase
the risk of loss for a Fund.
Securities laws in India are
relatively new and unsettled and, as a result, there is a risk of significant and unpredictable change in laws governing foreign investment, securities regulation, title to securities and shareholder rights. Foreign investors in particular may be
adversely affected by new or amended laws and regulations. Certain Indian regulatory approvals, including approvals from the Securities and Exchange Board of India, the central government and the tax authorities (to the extent that tax benefits need
to be utilized), may be required before a Fund can make investments in Indian companies.
Technology and software sectors represent a significant portion
of the total capitalization of the Indian securities markets. The value of these companies will generally fluctuate in response to technological and regulatory developments, and, as a result, a Fund’s holdings are expected to experience
correlated fluctuations.
Natural disasters, such as
tsunamis, flooding or droughts, could occur in India, Mauritius or surrounding areas and could negatively affect the Indian economy or operations of a Subsidiary, and, in turn, could negatively affect a Fund.
Risk of Investing in Latin America. A number of Latin American countries are among the largest debtors of developing countries and have a long history of foreign debt and default. In 2001, Argentina defaulted on its debt and many investors suffered
significant losses.
The majority of the region's
economies have become highly dependent upon foreign credit and loans from external sources to fuel their state-sponsored economic plans. Historically, government profligacy and ill-conceived plans for modernization have exhausted these resources
with little benefit accruing to the economy. Most countries have been forced to restructure their loans or risk default on their debt obligations. In addition, interest on the debt is subject to market conditions and may reach levels that would
impair economic activity and create a difficult and costly environment for borrowers. Accordingly, these governments may be forced to reschedule or freeze their debt repayment, which could negatively affect local markets. Because of their dependence
on foreign credit and loans, a number of Latin American economies face significant economic difficulties and some economies fell into recession as the recent global economic crisis tightened international credit supplies. While the region has
recently shown signs of economic improvement, recovery from past economic downturns in Latin America has historically been slow, and any such recovery, if sustained, may be gradual.
Substantial limitations may exist in certain Latin American
countries with respect to the Fund’s ability to repatriate investment income, capital or the proceeds of sales of securities. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Fund of any restrictions on investments and difficulties in enforcing legal judgments in non-U.S. courts. Legal remedies available to investors in certain Latin American countries may be
less extensive than those available to investors in the United States or other countries. In addition, certain Latin American countries may have legal systems that may make it difficult for the Fund to vote proxies, exercise shareholder rights, and
pursue legal remedies with respect to its investments. In the past, many Latin American countries have experienced substantial, and in some periods extremely high, rates of inflation for many years. For companies that keep accounting records in the
local currency, inflation accounting rules in some Latin American countries require, for both tax and accounting purposes, that certain assets and liabilities be restated on the company’s balance sheet in order to express items in terms of
currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits for certain Latin American companies.
Certain Latin American countries have entered into regional
trade agreements that are designed to, among other things, reduce barriers between countries, increase competition among companies and reduce government subsidies in certain industries. No assurance can be given that these changes will be successful
in the long term, or that these changes will result in the economic stability intended. There is a possibility that these trade arrangements will not be fully implemented, or will be partially or completely unwound. It is also possible that a
significant participant could choose to abandon a trade agreement, which could diminish its credibility and influence. Any of these occurrences could have adverse effects on the markets of both participating and non-participating countries,
including sharp appreciation or depreciation of participants’ national currencies and a significant increase in exchange rate volatility, a resurgence in economic protectionism, an undermining of confidence in the Latin American markets, an
undermining of Latin American economic stability, the collapse or slowdown of the drive towards Latin American economic unity, and/or reversion of the attempts to lower government debt and inflation rates that were introduced in anticipation of such
trade agreements. Such developments could have an adverse impact on the Fund’s investments in Latin America generally or in specific countries participating in such trade agreements.
Risk of Investing in the Middle East. Many Middle Eastern countries have little or no democratic tradition, and the political and legal systems in such countries may have an adverse impact on a Fund. Many economies in the Middle East are highly
reliant on income from the sale of oil or trade with countries involved in the sale of oil, and their economies are therefore vulnerable to changes in the market for oil and foreign currency values. As global demand for oil fluctuates, many Middle
Eastern economies may be significantly impacted.
In addition, many Middle Eastern governments have exercised and
continue to exercise substantial influence over many aspects of the private sector. In certain cases, a Middle Eastern country’s government may own or control many companies,
including some of the largest companies in the country. Accordingly,
governmental actions in the future could have a significant effect on economic conditions in Middle Eastern countries. This could affect private sector companies and a Fund, as well as the value of securities in a Fund's portfolio.
Certain Middle Eastern markets are in the earliest stages of
development. As a result, there may be a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial
intermediaries. Brokers in Middle Eastern countries typically are fewer in number and less well capitalized than brokers in the United States.
The legal systems in certain Middle Eastern countries also may
have an adverse impact on a Fund. For example, the potential liability of a shareholder in a U.S. corporation with respect to acts of the corporation generally is limited to the amount of the shareholder’s investment. However, the notion of
limited liability is less clear in certain Middle Eastern countries. Each Fund therefore may be liable in certain Middle Eastern countries for the acts of a corporation in which it invests for an amount greater than a Fund’s actual investment
in that corporation. Similarly, the rights of investors in Middle Eastern issuers may be more limited than those of shareholders of a U.S. corporation. It may be difficult or impossible to obtain and/or enforce a legal judgment in a Middle Eastern
country. Some Middle Eastern countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as a Fund. For example, certain countries may require
governmental approval prior to investment by foreign persons or limit the amount of investment by foreign persons in a particular issuer. They may also limit the investment by foreign persons to only a specific class of securities of an issuer that
may have less advantageous terms (including price) than securities of the issuer available for purchase by nationals.
The manner in which foreign investors may invest in companies
in certain Middle Eastern countries, as well as limitations on those investments, may have an adverse impact on the operations of a Fund. For example, in certain of these countries, a Fund may be required to invest initially through a local broker
or other entity and then have the shares that were purchased re-registered in the name of a Fund. Re-registration in some instances may not be possible on a timely basis. This may result in a delay during which a Fund may be denied certain of its
rights as an investor, including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where a Fund places a purchase order but is subsequently informed, at the time of re-registration, that the
permissible allocation of the investment to foreign investors has been filled.
Substantial limitations may exist in certain Middle Eastern
countries with respect to a Fund’s ability to repatriate investment income or capital gains. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by
the application to a Fund of any restrictions on investment.
Certain Middle Eastern countries may be heavily dependent upon
international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries
with which they trade. These countries also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. In addition, certain issuers located in Middle Eastern countries in which a Fund invests
may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of terrorism. As a result, an issuer
may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. A Fund, as an investor in such issuers, will be indirectly subject to those risks.
Certain Middle Eastern countries have strained relations with
other Middle Eastern countries due to territorial disputes, historical animosities or defense concerns, which may adversely affect the economies of these Middle Eastern countries. Certain Middle Eastern countries experience significant unemployment,
as well as widespread underemployment. Recently, many Middle Eastern countries have experienced political, economic and social unrest as protestors have called for widespread reform. These protests may adversely affect the economies of these Middle
Eastern countries.
Risk of Investing in North America. The United States is Canada’s and Mexico’s largest trading and investment partner. The Canadian and Mexican economies are significantly affected by developments in the U.S. economy. Since the
implementation of the North American Free Trade Agreement (“NAFTA”) in 1994 among Canada, the United States and Mexico, total merchandise trade between the three countries has increased. To further this relationship, the three NAFTA
countries entered
into the Security and Prosperity Partnership of North America in March 2005,
which may further affect Canada’s and Mexico’s dependency on the U.S. economy. Economic events in any one North American country can have a significant economic effect on the entire North American region, and on some or all of the North
American countries in which a Fund invests.
Risk of
Investing in Russia. Investing in the Russian securities market involves a high degree of risk and special considerations not typically associated with investing in the U.S. securities market, and should be
considered highly speculative. Risks include: the absence of developed legal structures governing private and foreign investments and private property; the possibility of the loss of all or a substantial portion of a Fund’s assets invested in
Russia as a result of expropriation; certain national policies which may restrict the Fund’s investment opportunities, including, without limitation, restrictions on investing in issuers or industries deemed sensitive to relevant national
interests; and potentially greater price volatility in, significantly smaller capitalization of, and relative illiquidity of, the Russian market. There can also be no assurance that a Fund’s investments in the Russian securities market would
not be expropriated, nationalized or otherwise confiscated. In the event of the settlement of any such claims or such expropriation, nationalization or other confiscation, a Fund could lose its entire investment. In addition, it may be difficult and
more costly to obtain and enforce a judgment in the Russian court system.
Russia may also be subject to a greater degree of economic,
political and social instability than is the case in other developed countries. Such instability may result from, among other things, the following: (i) an authoritarian government or military involvement in political and economic decision-making,
including changes in government through extra-constitutional means; (ii) popular unrest associated with demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring countries;
and (v) ethnic, religious and racial disaffection.
The
Russian economy is heavily dependent upon the export of a range of commodities including most industrial metals, forestry products and oil and gas. Accordingly, it is strongly affected by international commodity prices and is particularly vulnerable
to any weakening in global demand for these products. Any acts of terrorism or armed conflicts in Russia or internationally could have an adverse effect on the financial and commodities markets and the global economy. As Russia produces and exports
large amounts of crude oil and gas, any acts of terrorism or armed conflict causing disruptions of Russian oil and gas exports could negatively affect the Russian economy and, thus, adversely affect the financial condition, results of operations or
prospects of related companies.
The Russian government
may exercise substantial influence over many aspects of the private sector and may own or control many companies. Future government actions could have a significant effect on the economic conditions in Russia, which could have a negative impact on
private sector companies. There is also the possibility of diplomatic developments that could adversely affect investments in Russia. In recent years, the Russian government has begun to take bolder steps to re-assert its regional geopolitical
influence (including military steps). Such steps may increase tensions between Russia and its neighbors and Western countries and may negatively affect economic growth.
Risk of Investing in South Africa. South Africa’s two-tiered economy, with one rivaling developed countries and the other exhibiting many characteristics of developing countries, is characterized by uneven distribution of wealth and income
and high rates of unemployment. Although economic reforms have been enacted to promote growth and foreign investments, there can be no assurance that these programs will achieve the desired results. In addition, South Africa’s inadequate
currency reserves have left its currency vulnerable at times to devaluation. Despite significant reform and privatization, the South African government continues to control a large share of South African economic activity. Heavy regulation of labor
and product markets is pervasive and may stifle South African economic growth or cause prolonged periods of recession. The agriculture and mining sectors of South Africa’s economy account for a large portion of its exports and, thus, the South
African economy is susceptible to fluctuations in these commodity markets.
Risk of Investing in Taiwan.
The Fund’s investment in Taiwanese issuers may subject the Fund to loss in the event of adverse political, economic, regulatory and other developments that affect Taiwan, including fluctuations of the
New Taiwan dollar versus the U.S. dollar. Taiwan has few natural resources. Any fluctuation or shortage in the commodity markets could have a negative impact on the Taiwanese economy. Appreciation of the New Taiwan dollar, rising labor costs, and
increasing environmental consciousness have led some labor-intensive industries to relocate to other countries with cheaper work forces. Continued labor outsourcing may adversely affect the Taiwanese economy. Taiwanese firms are among the
world’s largest suppliers of computer monitors and leaders in personal computer manufacturing. A slowdown in global demand for these products will likely have an adverse impact on the Taiwanese economy. The Chinese government views Taiwan as
a
renegade province and continues to contest Taiwan’s sovereignty. The
outbreak of hostilities between the two nations, or even the threat of an outbreak of hostilities will likely adversely impact the Taiwanese economy. Such risks, among others, may adversely affect the value of a Fund’s investments.
Risk of Investing in the Automotive Industry. The automotive industry can be highly cyclical, and companies in the automotive industry may suffer periodic losses. The automotive industry is also highly competitive and there may be, at times, excess capacity
in the global and domestic automotive industry. Over the last few years, the U.S. automotive industry experienced a significant downturn; certain automotive companies required stimulus from the U.S. government, while others formed strategic industry
alliances in order to weather the substantially difficult market conditions. In general, the automotive industry is susceptible to labor disputes, product defect litigation, patent expiration, increased pension liabilities, rise in material or
component prices and changing consumer tastes.
Risk
of Investing in the Capital Goods Sector. The capital goods sector may be affected by fluctuations in the business cycle and by other factors affecting manufacturing demands. The capital goods sector depends
heavily on corporate spending. The capital goods sector may perform well during times of economic expansion, and as economic conditions worsen, the demand for capital goods may decrease. Many capital goods are sold internationally and such companies
are subject to market conditions in other countries and regions.
Risk of Investing in the Consumer Discretionary Sector. Companies engaged in the design, production or distribution of products or services for the consumer discretionary sector (including, without limitation, television and radio broadcasting, manufacturing,
publishing, recording and musical instruments, motion pictures, photography, amusement and theme parks, gaming casinos, sporting goods and sports arenas, camping and recreational equipment, toys and games, apparel, travel-related services,
automobiles, hotels and motels, and fast food and other restaurants) are subject to the risk that their products or services may become obsolete quickly. The consumer discretionary sector can be significantly affected by several factors, including,
without limitation, the performance of domestic and international economies, exchange rates, changing consumer tastes and trends, marketing campaigns, cyclical revenue generation, consumer confidence, commodity price volatility, labor relations,
interest rates, import and export controls, intense competition, technological developments and government regulation.
Risk of Investing in the Consumer Goods Sector. The consumer goods sector may be strongly affected by trends, marketing campaigns and other factors affecting consumer demand. Governmental regulation affecting the use of various food additives may affect the
profitability of certain companies in the consumer goods sector. In addition, tobacco companies may be adversely affected by new laws, regulations and litigation. Many consumer goods may be marketed globally, and consumer goods companies may be
affected by the demand and market conditions in other countries and regions.
Risk of Investing in the Consumer Staples Sector. Companies in the consumer staples sector may be adversely affected by changes in the global economy, consumer spending, competition, demographics and consumer preferences, and production spending. Companies in the
consumer staples sector are also affected by changes in government regulation, global economic, environmental and political events, economic conditions and the depletion of resources. In addition, companies in the consumer staples sector may be
subject to risks pertaining to the supply of, demand for and prices of raw materials. The prices of raw materials fluctuate in response to a number of factors, including, without limitation, changes in government agricultural support programs,
exchange rates, import and export controls, changes in international agricultural and trading policies, and seasonal and weather conditions.
Risk of Investing in the Energy Sector. Companies in the energy sector are strongly affected by the levels and volatility of global energy prices, energy supply and demand, government regulations and policies, energy production and conservation efforts,
and technological change. Prices and supplies of energy may fluctuate significantly over short and long periods of time due to national and international political changes, Organization of Petroleum Exporting Countries (“OPEC”) policies,
changes in relationships among OPEC members and between OPEC and oil-importing nations, the regulatory environment, taxation policies, and the economy of the key energy-consuming countries. In addition, companies in the energy sector are at risk of
civil liability from accidents resulting in injury, loss of life or property, pollution or other environmental damage claims and risk of loss from terrorism and natural disasters. Disruptions in the oil industry or shifts in fuel consumption may
significantly impact companies in this sector. In addition, because a significant portion of revenues of companies in this sector are derived from a relatively small number of customers that are largely composed of governmental entities and
utilities, governmental budget constraints may have a significant impact on the stock prices of companies in this industry.
Risk of Investing in the Financial Sector. Companies in the financial sector include regional and money center banks, securities brokerage firms, asset management companies, savings banks and thrift institutions, specialty finance companies (e.g., credit card, mortgage providers), insurance and insurance brokerage firms, financial conglomerates and foreign banking and financial companies. The global
financial markets have experienced very difficult conditions and volatility as well as significant adverse trends. The deteriorating conditions in these markets have resulted in a decrease in availability of corporate credit, capital and liquidity
and have led indirectly to the insolvency, closure or acquisition of a number of financial institutions. These conditions have also contributed to consolidation within the financial industry. In addition, the global financial industry has been
materially and adversely affected by a significant decline in the value of mortgage-backed and asset-backed securities, and by the sovereign debt crisis. The prospects of many financial companies are questionable and continue to evolve as financial
companies revise their outlooks and write down assets that they hold.
Most financial companies are subject to extensive governmental
regulation, which limits their activities and may affect their ability to earn a profit from a given line of business. Government regulation may change frequently and may have significant adverse consequences for companies in the financial sector,
including effects not intended by the regulation. Direct governmental intervention in the operations of financial companies and financial markets may materially and adversely affect the companies in which a Fund invests, including legislation in
many countries that may increase government regulation, repatriation and other intervention. The impact of governmental intervention and legislative changes on any individual financial company or on the financial sector as a whole cannot be
predicted. The valuation of financial companies has been and continues to be subject to unprecedented volatility and may be influenced by unpredictable factors, including interest rate risk and sovereign debt default. Certain financial businesses
are subject to intense competitive pressures, including market share and price competition. Financial companies in foreign countries are subject to market specific and general regulatory and interest rate concerns. In particular, government
regulation in certain foreign countries may include taxes and controls on interest rates, credit availability, minimum capital requirements, ban on short sales, prices and currency transfers.
The profitability of banks, savings and loan associations and
financial companies is largely dependent on the availability and cost of capital funds and can fluctuate significantly when interest rates change. In addition, general economic conditions are important to the operations of these concerns, with
exposure to credit losses resulting from financial difficulties of borrowers having an adverse effect on the profitability of financial companies. Financial companies can be highly dependent upon access to capital markets and any impediments to such
access, such as adverse overall economic conditions or a negative perception in the capital markets of a financial company’s financial condition or prospects, could adversely affect its business.
Risk of Investing in the Healthcare Sector. Companies in the healthcare sector are often issuers whose profitability may be affected by extensive government regulation, restrictions on government reimbursement for medical expenses, rising or falling costs
of medical products and services, pricing pressure, an increased emphasis on outpatient services, limited number of products, industry innovation, changes in technologies and other market developments. Many healthcare companies are heavily dependent
on patent protection and the actual or perceived safety and efficiency of their products. The expiration of patents may adversely affect the profitability of these companies. Many healthcare companies are subject to extensive litigation based on
product liability and similar claims. Healthcare companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the healthcare sector may be subject to
regulatory approvals. The process of obtaining such approvals may be long and costly, and may diminish the opportunity for a company to profit from a new product or to bring a new product to market. Many healthcare-related companies are relatively
small and unseasoned. Healthcare companies may also be strongly affected by scientific bio-technology or technological developments and their products may quickly become obsolete. Also, many healthcare companies offer products and services that are
subject to governmental regulation and may be adversely affected by changes in governmental policies or laws. The impact of recent legislation passed by the U.S. government and other legislation introduced or considered by other governments on any
individual healthcare company or on the healthcare sector as a whole cannot be predicted. These laws and proposals span a wide range of topics, including cost control, national health insurance, incentives for compensation in the provision of
healthcare services, tax incentives and penalties related to healthcare insurance premiums, and promotion of prepaid healthcare plans. No one can predict what proposals will be enacted or what potentially adverse effect they may have on
healthcare-related or biotechnology-related companies.
Risk of Investing in the Industrials Sector. The value of securities issued by companies in the industrials sector may be affected by supply and demand both for their specific product or service and for industrials sector products in general. The products of
manufacturing companies may face product obsolescence due to rapid technological developments and frequent new product introduction. Government regulations, world events and economic conditions affect the performance
of companies in the industrials sector. Companies in the industrials sector
may be adversely affected by liability for environmental damage, product liability claims and exchange rates. The industrials sector may also be adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable
factors. Aerospace and defense companies, a component of the industrials sector, can be significantly affected by government spending policies because companies involved in this industry rely, to a significant extent, on government demand for their
products and services. Thus, the financial condition of, and investor interest in, aerospace and defense companies are heavily influenced by governmental defense spending policies, which are typically under pressure from efforts to control
government budgets. Transportation stocks, a component of the industrials sector, are cyclical and can be significantly affected by economic changes, fuel prices, labor relations and insurance costs. Transportation companies in certain countries may
also be subject to significant government regulation and oversight, which may adversely affect their businesses.
Risk of Investing in the Information Technology Sector. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face product obsolescence due to rapid technological developments and frequent new product introduction,
unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights
may adversely affect the profitability of these companies.
Risk of Investing in the Materials Sector. Companies in the materials sector may be adversely affected by commodity price volatility, exchange rates, import controls, increased competition, depletion of resources, technical progress, labor relations and
government regulations, among other factors. Also, companies in the materials sector are at risk of liability for environmental damage and product liability claims. Production of materials may exceed demand as a result of market imbalances or
economic downturns, leading to poor investment returns.
Risk of Investing in the Media Sector. Companies in the media sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new
technology. Media companies are subject to risks that include cyclicality of revenues and earnings, a potential decrease in the discretionary income of targeted individuals, changing consumer tastes and interests, competition in the industry and the
potential for increased state and federal regulation. Advertising spending is an important source of revenue for media companies. During economic downturns, advertising spending typically decreases and, as a result, media companies tend to generate
less revenue.
Risk of Investing in the Oil and Gas
Sector. Companies in the oil and gas sector are strongly affected by the levels and volatility of global energy prices, oil and gas supply and demand, government regulations and policies, oil and gas
production and conservation efforts and technological change. Prices and supplies of oil and gas may fluctuate significantly over short and long periods of time due to national and international political changes, OPEC policies, changes in
relationships among OPEC members and between OPEC and oil-importing nations, the regulatory environment, taxation policies, and the economies of key energy-consuming countries. Disruptions in the oil industry or shifts in energy consumption may
significantly impact companies in this sector. Companies that own or operate gas pipelines are subject to certain risks, including pipeline and equipment leaks and ruptures, explosions, fires, unscheduled downtime, transportation interruptions,
discharges or releases of toxic or hazardous gases and other environmental risks.
Risk of Investing in the Real Estate Sector. Companies in the real estate sector include companies that invest in real estate, such as a real estate investment trust (“REIT”) or a real estate holding company (collectively, “Real Estate
Companies”). Investing in Real Estate Companies exposes investors to the risks of owning real estate directly, as well as to risks that relate specifically to the way in which Real Estate Companies are organized and operated. Real estate is
highly sensitive to general and local economic conditions and developments, and characterized by intense competition and periodic overbuilding. Investing in Real Estate Companies involves various risks. Some risks that are specific to Real Estate
Companies are discussed in greater detail below.
Interest Rate Risk. Rising
interest rates could result in higher costs of capital for Real Estate Companies, which could negatively impact a Real Estate Company’s ability to meet its payment obligations.
Leverage Risk. Real Estate
Companies may use leverage (and some may be highly leveraged), which increases investment risk and could adversely affect a Real Estate Company’s operations and market value in periods of rising interest rates as well as risks normally
associated with debt financing. Financial covenants related to a Real Estate Company’s leverage may affect the
ability of the Real Estate Company to operate effectively. In addition, real
property may be subject to the quality of credit extended and defaults by borrowers and tenants. If the properties do not generate sufficient income to meet operating expenses, including, where applicable, debt service, ground lease payments, tenant
improvements, third-party leasing commissions and other capital expenditures, the income and ability of a Real Estate Company to make payments of any interest and principal on its debt securities will be adversely affected.
Property Risk. Real Estate
Companies may be subject to risks relating to functional obsolescence or reduced desirability of properties; extended vacancies due to economic conditions and tenant bankruptcies; catastrophic events such as earthquakes, hurricanes and terrorist
acts; and casualty or condemnation losses. Real estate income and values also may be greatly affected by demographic trends, such as population shifts or changing tastes and values, or increasing vacancies or declining rents resulting from legal,
cultural, technological, global or local economic developments.
Management Risk. Real Estate
Companies are dependent upon management skills and may have limited financial resources. Real Estate Companies are generally not diversified and may be subject to heavy cash flow dependency, default by borrowers and self-liquidation. In addition,
transactions between Real Estate Companies and their affiliates may be subject to conflicts of interest, which may adversely affect a Real Estate Company’s shareholders. A Real Estate Company may also have joint venture investments in certain
of its properties and, consequently, its ability to control decisions relating to such properties may be limited.
Liquidity Risk. Investing in
Real Estate Companies may involve risks similar to those associated with investing in small-capitalization companies. Real Estate Company securities, like the securities of other smaller companies, may be more volatile than, and perform differently
from, shares of large capitalization companies. There may be less trading in Real Estate Company shares, which means that buy and sell transactions in those shares could have a magnified impact on share price, resulting in abrupt or erratic price
fluctuations. In addition, real estate is relatively illiquid and, therefore, a Real Estate Company may have a limited ability to vary or liquidate properties in response to changes in economic or other conditions.
Concentration Risk. Real
Estate Companies may own a limited number of properties and concentrate their investments in a particular geographic region or property type.
U.S. Tax Risk. Certain U.S.
Real Estate Companies are subject to special U.S. federal tax requirements. A REIT that fails to comply with such tax requirements may be subject to U.S. federal income taxation, which may affect the value of the REIT and the characterization of the
REIT’s distributions. The U.S. federal tax requirement that a REIT distribute substantially all of its net income to its shareholders may result in a REIT having insufficient capital for future expenditures.
Regulatory Risk. Real estate
income and values may be adversely affected by such factors as applicable domestic and foreign laws (including tax laws). Government actions, such as tax increases, zoning law changes or environmental regulations, also may have a major impact on
real estate.
Risk of Investing in the Retail Sector.
The retail sector may be affected by changes in domestic and international economies, consumer confidence, disposable household income and spending, and consumer tastes and preferences. Companies in the
retail sector face intense competition, which may have an adverse effect on their profitability. The success of companies in the retail sector may be strongly affected by social trends and marketing campaigns. Companies in the retail sector may be
dependent on outside financing, which may be difficult to obtain. Many of these companies are dependent on third party suppliers and distribution systems. Retail companies may be unable to protect their intellectual property rights or may be liable
for infringing the intellectual property rights of others.
Risk of Investing in the Telecommunications Sector. The telecommunications sector of an economy is often subject to extensive government regulation. The costs of complying with governmental regulations, delays or failure to receive required regulatory approvals, or
the enactment of new adverse regulatory requirements may negatively affect the business of the telecommunications companies. Government actions around the world, specifically in the area of pre-marketing clearance of products and prices, can be
arbitrary and unpredictable. Companies in the telecommunications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new
technology. Technological innovations may make the products and services of telecommunications companies obsolete.
Risk of Investing in the Technology Sector. Technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Technology companies may have limited product lines, markets, financial
resources or personnel. The products of technology companies may face product obsolescence due to rapid technological developments and frequent new product introduction, unpredictable changes in growth rates and competition for the services of
qualified personnel. Companies in the technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. The technology sector may
also be adversely affected by changes or trends in commodity prices, which may be influenced or characterized by unpredictable factors.
Risk of Investing in the Transportation Sector. Issuers in the transportation sector can be significantly affected by economic changes, fuel prices, labor relations, and insurance costs. Transportation companies in certain countries may also be subject to
significant government regulation and oversight, which may adversely affect their businesses. Other risk factors that may affect transportation companies include the risk of increases in fuel and other operating costs and the effects of regulatory
changes or other government decisions.
Risk of
Investing in the Utilities Sector. Investments in utility companies involve special considerations, including the risk of changing commodity prices, government regulation stipulating rates charged by
utilities, increased tariffs, changes in tax laws, interest rate fluctuations and changes in the cost of providing specific utility services. The utilities industry is also subject to potential terrorist attacks, natural disasters and severe weather
conditions, as well as regulatory and operational burdens associated with the operation and maintenance of nuclear facilities. Government regulators monitor and control utility revenues and costs, and therefore may limit utility profits. In certain
countries regulatory authorities may also restrict a company’s access to new markets, thereby diminishing the company’s long-term prospects. The deregulation of certain utility companies may eliminate restrictions on profits but may also
subject these companies to greater risks of loss.
Proxy Voting Policy
The Company has adopted, as its proxy voting policies for each
Fund, the proxy voting guidelines of BFA, the investment adviser to each Fund. The Company has delegated to BFA the responsibility for voting proxies on the portfolio securities held by each Fund. The remainder of this section discusses each
Fund’s proxy voting guidelines and BFA’s role in implementing such guidelines.
BFA votes (or refrains from voting) proxies for each Fund in a
manner that BFA, in the exercise of its independent business judgment, concludes is in the best economic interests of such Fund. In some cases, BFA may determine that it is in the best economic interests of a Fund to refrain from exercising the
Fund’s proxy voting rights (such as, for example, proxies on certain non-U.S. securities that might impose costly or time-consuming in-person voting requirements). With regard to the relationship between securities lending and proxy voting,
BFA’s approach is also driven by each Fund's economic interests. The evaluation of the economic desirability of recalling loans involves balancing the revenue-producing value of loans against the likely economic value of casting votes. Based
on our evaluation of this relationship, we believe that the likely economic value of casting a vote generally is less than the securities lending income, either because the votes will not have significant economic consequences or because the outcome
of the vote would not be affected by BFA recalling loaned securities in order to ensure they are voted. Periodically, BFA analyzes the process and benefits of voting proxies for securities on loan, and will consider whether any modification of its
proxy voting policies or procedures are necessary in light of any regulatory changes. BFA will normally vote on specific proxy issues in accordance with its proxy voting guidelines. BFA’s proxy voting guidelines provide detailed guidance as to
how to vote proxies on certain important or commonly raised issues. BFA may, in the exercise of its business judgment, conclude that the proxy voting guidelines do not cover the specific matter upon which a proxy vote is requested, or that an
exception to the proxy voting guidelines would be in the best economic interests of a Fund. BFA votes (or refrains from voting) proxies without regard to the relationship of the issuer of the proxy (or any shareholder of such issuer) to a Fund, a
Fund’s affiliates (if any), BFA or BFA’s affiliates, or the Distributor or the Distributor’s affiliates. When voting proxies, BFA attempts to encourage issuers to follow practices that enhance shareholder value and increase
transparency and allow the market to place a proper value on their assets. With respect to certain specific issues:
• |
Each Fund generally supports
the board’s nominees in the election of directors and generally supports proposals that strengthen the independence of boards of directors; |
• |
Each Fund generally does not
support proposals on social issues that lack a demonstrable economic benefit to the issuer and the Fund investing in such issuer; and |
• |
Each Fund generally votes
against anti-takeover proposals and proposals that would create additional barriers or costs to corporate transactions that are likely to deliver a premium to shareholders. |
BFA maintains institutional policies and procedures that are
designed to prevent any relationship between the issuer of the proxy (or any shareholder of the issuer) and a Fund, a Fund’s affiliates (if any), BFA or BFA’s affiliates (if any) or the Distributor or the Distributor’s affiliates,
from having undue influence on BFA’s proxy voting activity. In certain instances, BFA may determine to engage an independent fiduciary to vote proxies as a further safeguard against potential conflicts of interest or as otherwise required by
applicable law. The independent fiduciary may either vote such proxies or provide BFA with instructions as to how to vote such proxies. In the latter case, BFA votes the proxy in accordance with the independent fiduciary’s determination.
Information with respect to how BFA voted proxies relating to
the Funds' portfolio securities during the 12-month period
ended June 30 is available: (i) without charge, upon request, by calling 1-800-iShares (1-800-474-2737) or through the Funds' website at www.iShares.com; and (ii) on the SEC’s
website at www.sec.gov.
Portfolio Holdings
Information
The Board has adopted a policy regarding the
disclosure of the Funds' portfolio holdings information that requires that such information be disclosed in a manner that: (i) is consistent with applicable legal requirements and in the best interests of each Fund’s respective shareholders;
(ii) does not put the interests of BFA, the Distributor or any affiliated person of BFA or the Distributor, above those of Fund shareholders; (iii) does not advantage any current or prospective Fund shareholders over any other current or prospective
Fund shareholders, except to the extent that certain Entities (as described below) may receive portfolio holdings information not available to other current or prospective Fund shareholders in connection with the dissemination of information
necessary for transactions in Creation Units, as discussed below; and (iv) does not provide selective access to portfolio holdings information except pursuant to the procedures outlined below and to the extent appropriate confidentiality
arrangements limiting the use of such information are in effect. The “Entities” referred to in sub-section (iii) above are generally limited to National Securities Clearing Corporation (“NSCC”) members, subscribers to various
fee-based subscription services, large institutional investors (known as “Authorized Participants”) that have been authorized by the Distributor to purchase and redeem large blocks of shares pursuant to legal requirements and other
institutional market participants and entities that provide information services.
Each business day, each Fund's portfolio holdings information
is provided to the Distributor or other agent for dissemination through the facilities of the NSCC and/or other fee-based subscription services to NSCC members and/or subscribers to those other fee-based subscription services, including Authorized
Participants, and to entities that publish and/or analyze such information in connection with the process of purchasing or redeeming Creation Units or trading shares of the Funds in the secondary market. This information typically reflects each
Fund’s anticipated holdings on the following business day.
Daily access to information concerning the Funds' portfolio
holdings is permitted (i) to certain personnel of those service providers that are involved in portfolio management and providing administrative, operational, risk management, or other support to portfolio management, including affiliated
broker-dealers and Authorized Participants; and (ii) to other personnel of BFA and the Distributor, administrator, custodian and fund accountant who deal directly with or assist in, functions related to investment management, distribution,
administration, custody and fund accounting, as may be necessary to conduct business in the ordinary course in a manner consistent with agreements with the Funds and the terms of the Funds' current registration statements. In addition, each Fund
discloses its portfolio holdings and the percentages they represent of the Fund's net assets at least monthly, and as often as each day the Fund is open for business, at www.iShares.com. More information about this disclosure is available at
www.iShares.com.
Portfolio holdings information made
available in connection with the creation /redemption process may be provided to other entities that provide services to the Funds in the ordinary course of business after it has been disseminated to the NSCC. From time to time, information
concerning portfolio holdings other than portfolio holdings information made available in connection with the creation/redemption process, as discussed above, may be provided to other entities that provide services to the Funds, including rating or
ranking organizations, in the ordinary course of business, no earlier than one business day following the date of the information.
Each Fund discloses its complete portfolio holdings schedule
in public filings with the SEC within 70 days after the end of each fiscal quarter and will provide that information to shareholders as required by federal securities laws and regulations
thereunder. A Fund may, however, voluntarily disclose all or part of its
portfolio holdings other than in connection with the creation/redemption process, as discussed above, in advance of required filings with the SEC, provided that such information is made generally available to all shareholders and other interested
parties in a manner that is consistent with the above policy for disclosure of portfolio holdings information. Such information may be made available through a publicly-available website or other means that make the information available to all
likely interested parties contemporaneously.
The
Company's Chief Compliance Officer may authorize disclosure of portfolio holdings information pursuant to the above policy and procedures.
The Board reviews the policy and procedures for disclosure of
portfolio holdings information at least annually.
Construction and Maintenance of the Underlying Indexes
Descriptions of the Underlying Indexes are provided
below.
The MSCI Indexes
The MSCI indexes were founded in 1969 by Capital International
S.A. as the first international performance benchmarks constructed to facilitate accurate comparison of world markets. The MSCI single country standard equity indexes have covered the world's developed markets since 1969 and in 1987 MSCI commenced
coverage of emerging markets.
Local stock exchanges
traditionally calculated their own indexes, which were generally not comparable with one another due to differences in the representation of the local market, mathematical formulas, base dates and methods of adjusting for capital changes. MSCI,
however, applies the same calculation methodology to all markets for all single country standard equity indexes, both developed and emerging.
MSCI's Global Investable Market Indexes (the “MSCI
GIMI”) provide exhaustive coverage and non-overlapping market segmentation by market capitalization size and by style. The MSCI GIMI intends to target approximately 99% coverage of the free float-adjusted market capitalization in each market
of large-, mid- and small-cap securities.
• |
MSCI Global Standard Indexes
cover all investable large- and mid-cap securities by including approximately 85% of each market's free float-adjusted market capitalization. |
• |
MSCI Global Small Cap
Indexes provide coverage to all companies with a market capitalization below that of the companies in the MSCI Global Standard Indexes by including above and beyond the coverage of the MSCI Global Standard Indexes. |
MSCI Global Investable Market Indexes
Selection Criteria. MSCI's
index construction process involves: (i) defining the equity universe; (ii) determining the market investable equity universe for each market; (iii) determining market capitalization size segments for each market; (iv) applying final size segment
investability requirements; and (v) applying index continuity rules for the MSCI Global Standard Index.
Defining the Equity Universe.
MSCI begins with securities listed in countries in the MSCI GIMI. Of these countries, as of June 29, 2012, 22 are classified as developed markets, 21 as emerging markets, and 31 as frontier markets. All listed equity securities and listed securities
that exhibit characteristics of equity securities, except mutual funds, exchange traded funds, equity derivatives, limited partnerships and most investment trusts, are eligible for inclusion in the equity universe. REITs in some countries and
certain income trusts in Canada are also eligible for inclusion. Each company and its securities (i.e., share classes) are classified in only one
country.
Determining the Market Investable Equity
Universe for Each Market. The equity universe in any market is derived by applying investability screens to individual companies and securities in the equity universe of that market. Some investability requirements
are applied at the individual security level and some at the overall company level, represented by the
aggregation of individual securities of the company. As a result, the
inclusion or exclusion of one security does not imply the automatic inclusion or exclusion of other securities of the same company.
Determining Market Capitalization Size Segments for Each Market. In each market, MSCI creates an Investable Market Index, Standard Index, Large Cap Index, Mid Cap Index and Small Cap Index. The MSCI Global Standard Index is the aggregation of the Large Cap Index and Mid Cap Index.
The MSCI GIMI is the aggregation of the MSCI Global Standard Index and MSCI Global Small Cap Index. In order to create size components that can be meaningfully aggregated into composites, individual market size segments balance the following two
objectives:
• |
Achieving global size
integrity by ensuring that companies of comparable and relevant sizes are included in a given size segment across all markets in a composite index; and |
• |
Achieving consistent market
coverage by ensuring that each market's size segment is represented in its proportional weight in the composite universe. |
Applying Final Size Segment Investability Requirements. In order to enhance replicability of the indexes, additional size segment investability requirements are set for the MSCI GIMI and MSCI Global Standard Index. These investability requirements include minimum free-float
market capitalization, minimum liquidity, minimum foreign limits and minimum length of trading.
Applying Index Continuity Rules for the Standard Index. In order to achieve index continuity as well as provide some basic level of diversification within a market index, notwithstanding the effect of other index construction rules contained herein, a minimum number of five
constituents will be maintained for a developed market Standard Index and a minimum number of three constituents will be maintained for an emerging market Standard Index.
Weighting. All indexes of the
MSCI GIMI are free-float weighted, i.e., companies are included in the indexes at the value of their free public float (free float multiplied by
security price).
Regional Weights. Market capitalization weighting, combined with a consistent target of approximately 99% of free float-adjusted market capitalization, helps ensure that each country's weight in regional and international indexes
approximates its weight in the total universe of developing and emerging markets. A market is equivalent to a single country except for Europe, where all markets are aggregated into a single market for index construction purposes. Individual country
indexes of the European developed markets are derived from the constituents of the MSCI GIMI Europe Index.
Free Float. MSCI defines the
free float of a security as the proportion of shares outstanding that are deemed to be available for purchase in the public equity markets by international investors. In practice, limitations on free float available to international investors
include: (i) strategic and other shareholdings not considered part of available free float; and (ii) limits on share ownership for foreigners.
Under MSCI's free float-adjustment methodology, a constituent's
inclusion factor is equal to its estimated free float rounded-up to the closest 5% for constituents with free float equal to or exceeding 15%. For example, a constituent security with a free float of 23.2% will be included in the index at 25% of its
market capitalization. For securities with a free float of less than 15%, the estimated free float is adjusted to the nearest 1%.
Price and Exchange Rates
Prices. The prices used to
calculate all MSCI indexes are the official exchange closing prices or those figures accepted as such. MSCI reserves the right to use an alternative pricing source on any given day.
Exchange Rates. Since July
2000, MSCI uses the WM/Reuters Closing Spot Rates taken at 4:00 p.m. London time. In case WM/Reuters does not provide rates for specific markets on given days (for example, Christmas Day and New Year's Day), the previous business day's rates are
normally used. MSCI independently monitors the exchange rates on all its indices. MSCI may under exceptional circumstances elect to use alternative sources of exchange rates if the WM/Reuters rates are not available, or if MSCI determines that the
WM/Reuters rates are not reflective of market circumstances for a given currency on a particular day. In such circumstances, an announcement would be sent to clients with the related information. If appropriate, MSCI may conduct a consultation with
the investment community to gather feedback on the most relevant exchange rate.
Changes to the Indexes. The
MSCI GIMI is maintained with the objective of reflecting, on a timely basis, the evolution of the underlying equity markets. In maintaining the MSCI indexes, emphasis is also placed on continuity, replicability and minimizing turnover in the
indexes. Maintaining the MSCI indexes involves many aspects, including (i) additions to, and deletions from, the indexes; (ii) changes in number of shares; and (iii) changes in inclusion factors as a result of updated free float
estimates.
Index maintenance can be described by
three broad categories of changes:
• |
Semi-Annual Index Reviews
(“SAIRs”), conducted on a fixed semi-annual timetable that systematically reassess the various dimensions of the equity universe for all markets; |
• |
Quarterly Index Reviews
(“QIRs”), aimed at promptly reflecting other significant market events; and |
• |
Ongoing event-related
changes, such as mergers, acquisitions, spin-offs, bankruptcies, reorganizations and other similar corporate events, which generally are implemented in the indexes as they occur. |
Potential changes in the status of countries (stand-alone,
frontier, emerging and developed) follow their own implementation time tables.
MSCI conducts SAIRs generally as of the close of the last
business day of May and November. During the SAIRs, MSCI updates the investable equity universe and reassesses size segmentation investability requirements. MSCI also conducts QIRs generally as of the close of the last business day of February and
August. During the QIRs, MSCI reflects changes in the index that were not captured at the time of their actual occurrence, but are significant enough to be included before the next SAIR. The results of the SAIR and QIR are generally announced at
least ten business days in advance of implementation.
MSCI
25/50 Indexes
Each of the MSCI 25/50 Indexes (the
“25/50 Indexes”) is a sub-index of either an MSCI Global Standard Index or an MSCI GIMI. Their construction reflects the diversification requirements applicable to RICs pursuant to Subchapter M of the Internal Revenue Code. The 25/50
Indexes are free-float adjusted market capitalization weighted indexes with a capping methodology applied to issuer weights so that no single issuer of a component exceeds 25% of index weight and all issuers with weight above 5% do not exceed 50% of
the index weight.
MSCI Global Minimum Volatility
Indexes
MSCI Global Minimum Volatility Indexes are
designed to reflect lower volatility or lower risk than the capitalization-weighted indexes on which they are based. The indexes aim to reflect the performance of equity portfolios that have the lowest absolute volatility for a given set of
investment constraints. Each MSCI Global Minimum Volatility Index seeks lower volatility than the comparable capitalization-weighted MSCI Global Standard Index.
Historically, relative to the MSCI Global Standard Index, the
MSCI Global Minimum Volatility Indexes have demonstrated (i) lower portfolio beta; (ii) lower portfolio volatility; (iii) lower market capitalization bias; and (iv) bias towards securities with lower distinctive risk.
The MSCI Global Minimum Volatility Indexes begin with an
existing capitalization-weighted MSCI Global Standard Index for a geographic region, which will serve as the universe of eligible securities for performing total risk optimization. After identifying the investor’s base currency, the
optimization is performed by applying a security covariance matrix estimated from Barra’s multi-factor risk model to determine weights for securities in the index that minimizes total risk of the MSCI Global Standard Index for a given set of
constraints. The following investment constraints apply in constructing the MSCI Global Minimum Volatility Indexes:
• |
The maximum weight of an
index constituent will be the lower of 1.5% or 20 times its weight in the MSCI Global Standard Index; |
• |
The minimum weight of an
index constituent will be 0.05%; |
• |
For countries in the MSCI
Global Standard Index with weight greater than or equal to 2.5%, the MSCI Global Minimum Volatility Indexes weight will not deviate by more than ±5% of its weight in the MSCI Global Standard Index; |
• |
For countries in the MSCI
Global Standard Index with weight less than 2.5%, the maximum MSCI Global Minimum Volatility Indexes weight will be three times its weight in the MSCI Global Standard Index; |
• |
Sector weights will not
deviate by more than ±5% from its weight in the MSCI Global Standard Index; |
• |
Exposure to risk indices from
Barra’s multi-factor risk model, including (i) Momentum; (ii) Value; (iii) Size; (iv) Size Nonlinearity; (v) Growth; (vi) Liquidity; and (vii) Financial Leverage will be limited to ±0.25 standard deviations relative to the MSCI Global
Standard Index; exposure to the volatility risk index will be unlimited; and |
• |
The maximum one-way turnover
will be 10%. |
MSCI conducts SAIRs of
the MSCI Global Minimum Volatility Indexes at the end of May and November, coinciding with the semi-annual reviews of the MSCI Global Standard Indexes. The security covariance matrix used in the optimization for MSCI Global Minimum Volatility
Indexes is taken as of the end of April and October. Generally, the MSCI Global Minimum Volatility Indexes will follow the event maintenance of the MSCI Global Standard Index. Initial public offerings (IPOs) and other newly listed securities will
only be considered for inclusion in the MSCI Global Minimum Volatility Indexes at the next semi-annual index review, even if they qualify for early inclusion in the MSCI Global Standard Index. There will be no early inclusion of new securities in
the MSCI Global Minimum Volatility Indexes, except when a new security is the result of an event affecting an existing index constituent, such as a merger or spin-off. An index constituent will be deleted from the MSCI Global Minimum Volatility
Indexes following a corporate event or following a quarterly review of the MSCI Global Standard Index in which the index constituent is simultaneously deleted from the MSCI Global Standard Index.
MSCI ACWI Select Agriculture Producers Investable Market
Index
Number of
Components: approximately 158
Index Description. The MSCI ACWI Select Agriculture Producers Investable Market Index is a free float-adjusted market capitalization-weighted index comprised of select companies in both developed and emerging markets that are primarily
engaged in the business of agriculture at or near the initial phase of agricultural input production. Free-float market capitalization is calculated by taking the security’s price and multiplying it by the number of shares readily available in
the market rather than the total number of shares outstanding. The Underlying Index contains companies classified under fertilizers and agricultural chemicals and agricultural products GICS categories. In addition, companies classified under the
construction and farm machinery and heavy trucks GICS category are included provided they derive the majority of their revenues from farm machinery and related parts. Finally, companies classified under the packaged foods and meats GICS category are
included provided they derive the majority of their revenues from production, based on the following guidelines:
• |
Poultry and Livestock:
companies are included only if they are significantly involved in the breeding of animals by themselves or through contract farming; |
• |
Dairy: manufacturers of milk
and milk products such as cheese and yogurt, are excluded due to the absence of revenue break up; |
• |
Sugar: manufacturers of sugar
are included even if they do not farm sugarcane. Companies selling sweeteners, sugar free, syrups, etc. are excluded; |
• |
Edible oil: companies
processing edible oil without cultivating the plantation are excluded; |
• |
Confectioneries and snacks:
manufacturers of finished products are excluded due to their presence at the lower spectrum of the value chain; |
• |
Coffee: coffee companies are
excluded due to their reliance on external parties for raw materials; and |
• |
Fishing: fishing companies
are generally included whether they operate fisheries or receive their catch from the ocean. |
Calculation Methodology. The
Fund utilizes the Underlying Index calculated with net dividends reinvested. Net dividends means dividends after taxes withheld at the rate applicable to holders of the underlying stock that are resident in Luxembourg. Such withholding rates may
differ from those applicable to U.S. residents.
MSCI
ACWI Select Energy Producers Investable Market Index
Number of Components: approximately 319
Index Description. The MSCI
ACWI Select Energy Producers Investable Market Index is a free float-adjusted market capitalization-weighted index comprised of select companies primarily engaged in the business of energy exploration and production in both developed and emerging
markets. Free-float market capitalization is calculated by taking the security’s price and multiplying it by the number of shares readily available in the market rather than the total number of shares outstanding. The Underlying Index contains
securities classified under oil and gas exploration and production and coal and
consumable fuels GICS categories. In addition, securities classified under
integrated oil and gas and oil and gas refining and marketing GICS categories are included provided they do not derive a majority of their revenues from marketing, storage and/or transportation of oil and gas. Companies classified in those
sub-industries which do not separately disclose the refining and/or marketing operations in their financial statements are included. Companies primarily involved in alternative fuels are excluded.
Calculation Methodology. The
Fund utilizes the Underlying Index calculated with net dividends reinvested. Net dividends means dividends after taxes withheld at the rate applicable to holders of the underlying stock that are resident in Luxembourg. Such withholding rates may
differ from those applicable to U.S. residents.
MSCI
ACWI Select Metals & Mining Producers Ex Gold and Silver Investable Market Index
Number of Components:
approximately 337
Index Description. The MSCI ACWI Select Metals & Mining Producers ex Gold and Silver Investable Market Index is a free float-adjusted market capitalization-weighted index comprised 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. Free-float market capitalization is calculated by taking the security’s price and
multiplying it by the number of shares readily available in the market rather than the total number of shares outstanding. The Underlying Index includes companies classified under the aluminum, diversified metals and mining and steel GICS
categories. In addition, companies classified under the precious metals and minerals GICS category are included, provided they do not derive less than 50% of their revenues from gold mining or silver mining.
Calculation Methodology. The
Fund utilizes the Underlying Index calculated with net dividends reinvested. Net dividends means dividends after taxes withheld at the rate applicable to holders of the underlying stock that are resident in Luxembourg. Such withholding rates may
differ from those applicable to U.S. residents.
MSCI
All Country World Minimum Volatility Index
Number of Components: approximately 267
Index Description. The MSCI All
Country World Minimum Volatility Index measures the combined performance of equity securities in both emerging and developed markets that have lower absolute volatility. Component companies include consumer staples, financials and health care
companies. Each security included in the Underlying Index is a current constituent of the MSCI ACWI Index.
Calculation Methodology. The
Fund utilizes the Underlying Index calculated with net dividends reinvested. Net dividends means dividends after taxes withheld at the rate applicable to holders of the underlying stock that are resident in Luxembourg. Such withholding rates may
differ from those applicable to U.S. residents.
MSCI
Brazil 25/50 Index
Number of Components:
approximately 81 (as of 1/15/13)
Index Description. The MSCI Brazil 25/50 Index consists of stocks traded primarily on the BM&FBOVESPA (the Brazilian exchange).
MSCI BRIC Index
Number of Components:
approximately 320
Index Description. The MSCI BRIC 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) and consists of stocks traded
primarily on the BM&FBOVESPA, Russian Trading System Stock Exchange, Moscow Interbank Currency Exchange, National Stock Exchange of India, Shanghai Stock Exchange, Shenzhen Stock Exchange and the Stock Exchange of Hong Kong.
MSCI Chile IMI 25/50 Index
Number of Components:
approximately 42 (as of 1/15/13)
Index Description. The MSCI
Chile IMI 25/50 Index is an index designed to measure the broad-based equity market in Chile. The MSCI Chile IMI 25/50 Index consists of stocks traded primarily on the Santiago Stock Exchange.
MSCI Emerging Markets Asia Index
Number of Components:
approximately 542
Index Description. The MSCI Emerging Markets Asia Index is a free float-adjusted market capitalization-weighted index designed to measure equity market performance in the emerging market countries of Asia. Free-float market capitalization
is calculated by taking the security's price and multiplying it by the number of shares readily available in the market rather than the total number of shares outstanding.
MSCI Emerging Markets Consumer Discretionary Index
Number of Components:
approximately 81
Index Description. The MSCI Emerging Markets Consumer Discretionary Index is a free float-adjusted market capitalization-weighted index designed to measure the combined equity market performance of the consumer discretionary sector of
emerging markets countries. Free-float market capitalization is calculated by taking the security's price and multiplying it by the number of shares readily available in the market rather than the total number of shares outstanding.
MSCI Emerging Markets EMEA Index
Number of Components:
approximately 140
Index Description. The MSCI Emerging Markets EMEA Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of the emerging market countries of Europe, the Middle East
and Africa. Free-float market capitalization is calculated by taking the security's price and multiplying it by the number of shares readily available in the market rather than the total number of shares outstanding.
MSCI Emerging Markets Energy 25/50 Index
Number of Components:
approximately 51
Index Description. The MSCI Emerging Markets Energy 25/50 Index is a free float-adjusted market capitalization-weighted index designed to measure the performance of energy-related companies in emerging market countries. A capping
methodology is applied, which limits the weight of any single component to a maximum of 25% of the Underlying Index. Additionally, the sum of components that individually constitute more than 5% in weight of the Underlying Index cannot exceed a
maximum of 50% in the aggregate. Free-float market capitalization is calculated by taking the security's price and multiplying it by the number of shares readily available in the market rather than the total number of shares
outstanding.
MSCI Emerging Markets Growth
Index
Number of
Components: approximately 454
Index Description. The MSCI Emerging Markets Growth Index is a subset of the MSCI Emerging Markets Index. The Underlying Index generally represents approximately 50% of the free float-adjusted market capitalization of the MSCI Emerging
Markets Index and consists of those securities classified by MSCI as most representing the growth style. Securities classified as growth style generally tend to have higher forecasted earnings growth rates, lower book value to price ratios, lower
forward earnings to price ratios and lower dividend yields than securities representing the value style. MSCI uses a specialized framework to attribute both value and growth style characteristics to each security within the Underlying Index. Each
security is evaluated based on certain value factors and growth factors, which are then used to calculate a value score and growth score. Based upon these two scores, MSCI determines the extent to which each security is assigned to the value or
growth style. It is possible for a single security to have representation in both the value and growth style indexes; however, no more than 100% of a security’s float-adjusted market capitalization will be included within the combined style
framework. Free-float market capitalization is calculated by taking the security's price and multiplying it by the number of shares readily available in the market rather than the total number of shares outstanding.
MSCI Emerging Markets Index
Number of Components:
approximately 819
Index Description. The MSCI Emerging Markets Index is designed to measure equity market performance in the global emerging markets.
MSCI Emerging Markets Minimum Volatility Index
Number of Components:
approximately 212
Index Description. The MSCI Emerging Markets Minimum Volatility Index measures the performance of equity securities in global emerging markets that have lower absolute volatility. Component companies include consumer staples, financials
and telecommunication services companies. Each security included in the Underlying Index is a current constituent of the MSCI Emerging Markets Index.
Calculation Methodology. The
Fund utilizes the Underlying Index calculated with net dividends reinvested. Net dividends means dividends after taxes withheld at the rate applicable to holders of the underlying stock that are resident in Luxembourg. Such withholding rates may
differ from those applicable to U.S. residents.
MSCI
Emerging Markets Small Cap Index
Number of Components: approximately 1,821
Index Description. The MSCI
Emerging Markets Small Cap 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 MSCI Emerging Markets Index is designed to measure small cap equity market performance in the global emerging markets.
MSCI Emerging Markets Value Index
Number of Components:
approximately 481
Index Description. The MSCI Emerging Markets Value Index is a subset of the MSCI Emerging Markets Index. The Underlying Index generally represents approximately 50% of the free float-adjusted market capitalization of the MSCI Emerging
Markets Index and consists of those securities classified by MSCI as most representing the value style. Securities classified as value style generally tend to have higher book value to price ratios, higher forward earnings to price ratios, higher
dividend yields and lower forecasted earnings growth rates than securities representing the growth style. MSCI uses a specialized framework to attribute both value and growth style characteristics to each security within the Underlying Index. Each
security is evaluated based on certain value factors and growth factors, which are then used to calculate a value score and growth score. Based upon these two scores, MSCI determines the extent to which each security is assigned to the value or
growth style. It is possible for a single security to have representation in both value and growth style indexes; however, no more than 100% of a security’s float-adjusted market capitalization will be included within the combined style
framework. Free-float market capitalization is calculated by taking the security's price and multiplying it by the number of shares readily available in the market rather than the total number of shares outstanding.
MSCI Frontier Markets 100 Index
Number of Components:
approximately 100
Index Description. The MSCI Frontier Markets 100 Index is designed to measure equity market performance of a subset of frontier market countries that meet minimum liquidity standards. The Underlying Index is comprised of a subset of
securities from the MSCI Frontier Markets Index (the “Parent Index”). The eligible universe for the Underlying Index consists of all Parent Index constituents that meet certain liquidity and investability criteria. The 100 largest
securities are selected from the eligible universe and ranked by free float-adjusted market capitalization. Free-float market capitalization is calculated by taking the security’s price and multiplying it by the number of shares readily
available in the market, rather than the total number of shares outstanding. The number of securities in the Underlying Index could potentially differ from 100, depending on the size of the eligible universe. The weight of a single country in the
Underlying Index is capped at 50%, and the MSCI 25/50 Indexes methodology is then applied to the resulting securities in the Underlying Index.
MSCI Korea 25/50 Index
Number of Components:
approximately 104 (as of 1/15/13)
Index Description. The MSCI Korea 25/50 Index consists of stocks traded primarily on the Stock Market Division of the Korean Exchange.
MSCI Malaysia Index
Number of Components:
approximately 42
Index Description. The MSCI Malaysia Index consists of stocks traded primarily on the Kuala Lumpur Stock Exchange.
MSCI Taiwan Index
Number of Components:
approximately 114
Index Description. The MSCI Taiwan Index consists of stocks traded primarily on the Taiwan Stock Exchange.
Additional Information.
“MSCI,” MSCI ACWI Select Agriculture Producers Investable Market Index, MSCI ACWI Select Energy Producers Investable Market Index, MSCI ACWI Select Metals & Mining Producers Ex Gold and Silver
Investable Market Index, MSCI All Country World Minimum Volatility Index, MSCI Brazil 25/50 Index, MSCI BRIC Index, MSCI Chile IMI 25/50 Index, MSCI Emerging Markets Asia Index, MSCI Emerging Markets Consumer Discretionary Index, MSCI Emerging
Markets EMEA Index, MSCI Emerging Markets Energy 25/50 Index, MSCI Emerging Markets Growth Index, MSCI Emerging Markets Index, MSCI Emerging Markets Minimum Volatility Index, MSCI Emerging Markets Small Cap Index, MSCI Emerging Markets Value Index,
MSCI Frontier 100 Index, MSCI Korea 25/50 Index, MSCI Malaysia and MSCI Taiwan Index are servicemarks of MSCI Inc. and have been licensed for use by BFA or its affiliates. The Funds are neither sponsored, endorsed, sold nor promoted by MSCI Inc.,
and MSCI Inc. makes no representation regarding the advisability of investing in any of the Funds.
Investment Limitations
The Board has adopted as a non-fundamental policy the
investment objective of each Fund. Therefore, each Fund may change its investment objective and its Underlying Index without a shareholder vote. The Board has adopted as fundamental policies the following numbered investment restrictions, which
cannot be changed without the approval of the holders of a majority of the applicable Fund’s outstanding voting securities. A vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of (a) 67% or more
of the voting securities present at a fund meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy and (b) more than 50% of outstanding voting securities of the fund.
The iShares MSCI Emerging Markets Index Fund will not:
1. |
Make loans, except as
permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time; |
2. |
Issue any senior security,
except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time; |
3. |
Pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted borrowings. (The deposit of underlying securities and other assets in escrow and collateral arrangements with respect to initial or variation margin for currency transactions and
futures contracts will not be deemed to be pledges of the Fund’s assets); |
4. |
Purchase, hold or deal in
real estate, or oil, gas or mineral interests or leases, but the Fund may purchase and sell securities that are issued by companies that invest or deal in such assets; |
5. |
Act as an underwriter of
securities of other issuers, except to the extent the Fund may be deemed an underwriter in connection with the sale of securities in its portfolio; |
6. |
Purchase securities on
margin, except for such short-term credits as are necessary for the clearance of transactions, except that the Fund may make margin deposits in connection with transactions in currencies, options, futures and options on futures; |
7. |
Sell securities short; or
|
8. |
Invest in commodities or
commodity contracts, except that the Fund may buy and sell currencies and forward contracts with respect thereto, and may transact in futures contracts on securities, stock indices and currencies and options on such futures contracts and make margin
deposits in connection with such contracts. |
The iShares MSCI All Country World Minimum Volatility Index Fund,
iShares MSCI BRIC Index Fund, iShares MSCI Chile Capped Investable Market Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging Markets EMEA 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, iShares MSCI Frontier 100 Index Fund, iShares MSCI Global Agriculture Producers Fund, iShares MSCI Global Energy Producers Fund and iShares MSCI Global Select Metals & Mining Producers Fund will not:
1. |
Concentrate its investments (i.e., invest 25% or more of its total assets in the securities of a particular industry or group of industries), except that each Fund will concentrate to approximately the same extent that its Underlying Index
concentrates in the securities of such particular industry or group of industries. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal governments and their political subdivisions are not considered to be issued by members of any industry. |
2. |
Borrow money, except that (i)
each Fund may borrow from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might otherwise require the untimely disposition of securities; and (ii) each Fund may, to the extent consistent
with its investment policies, enter into repurchase agreements, reverse repurchase agreements, forward roll transactions and similar investment strategies and techniques. To the extent that it engages in transactions described in (i) and (ii), each
Fund will be limited so that no more than 33 1/3% of the value of its total assets (including the amount borrowed) is derived from such transactions. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law.
|
3. |
Issue any senior security,
except as permitted under the 1940 Act, as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
4. |
Make loans, except as
permitted under the 1940 Act, as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
5. |
Purchase or sell real estate
unless acquired as a result of ownership of securities or other instruments (but this restriction shall not prevent each Fund from investing in securities of companies engaged in the real estate business or securities or other instruments backed by
real estate or mortgages), or commodities or commodity contracts (but this restriction shall not prevent each Fund from investing in securities of companies engaged in the production, ownership or distribution of commodities or in commodity-related
businesses for the iShares Frontier 100 Index Fund, iShares MSCI Global Agriculture Producers Fund, iShares MSCI Global Energy Producers Fund and iShares MSCI Global Select Metals & Mining Producers Fund or from trading in futures contracts and
options on futures contracts, including options on currencies to the extent consistent with each Fund’s investment objective and policies). |
6. |
Engage in the business of
underwriting securities issued by other persons, except to the extent that each Fund may technically be deemed to be an underwriter under the 1933 Act, in disposing of portfolio securities. |
The iShares MSCI Brazil Capped Index Fund, iShares MSCI Malaysia
Index Fund, iShares MSCI South Korea Capped Index Fund and iShares MSCI Taiwan Index Fund, will not:
1. |
Lend any funds or other
assets except through the purchase of all or a portion of an issue of securities or obligations of the type in which it is permitted to invest (including participation interests in such securities or obligations) and except that a Fund may lend its
portfolio securities in an amount not to exceed 33 1/3% of the value of its total assets; |
2. |
Issue senior securities or
borrow money, except borrowings from banks for temporary or emergency purposes in an amount up to 33 1/3% of the value of the Fund’s total assets (including the amount borrowed), valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) valued at the time the borrowing is made, and the Fund will not purchase securities while borrowings in excess of 5% of the Fund’s total assets are outstanding, provided, that for purposes of this restriction,
short-term credits necessary for the clearance of transactions are not considered borrowings; |
3. |
Pledge, hypothecate, mortgage
or otherwise encumber its assets, except to secure permitted borrowings. (The deposit of underlying securities and other assets in escrow and collateral arrangements with respect to initial or variation margin for currency transactions and futures
contracts will not be deemed to be pledges of the Fund’s assets); |
4. |
Purchase a security (other
than obligations of the U.S. government, its agencies or instrumentalities) if as a result 25% or more of its total assets would be invested in a single issuer. (This restriction applies to the iShares MSCI South Korea Capped Index Fund only);
|
5. |
Purchase, hold or deal in
real estate, or oil, gas or mineral interests or leases, but a Fund may purchase and sell securities that are issued by companies that invest or deal in such assets; |
6. |
Act as an underwriter of
securities of other issuers, except to the extent the Fund may be deemed an underwriter in connection with the sale of securities in its portfolio; |
7. |
Purchase securities on
margin, except for such short-term credits as are necessary for the clearance of transactions, except that a Fund may make margin deposits in connection with transactions in currencies, options, futures and options on futures; |
8. |
Sell securities short; or
|
9. |
Invest in commodities or
commodity contracts, except that a Fund may buy and sell currencies and forward contracts with respect thereto, and may transact in futures contracts on securities, stock indices and currencies and options on such futures contracts and make margin
deposits in connection with such contracts. |
Industry concentration. Each
Fund (except for the iShares MSCI South Korea Capped Index Fund) will not concentrate its investments (i.e., hold 25% or more of its total assets in
the stocks of a particular industry or group of industries), except that, to the extent practicable, the Fund will concentrate to approximately the same extent that its benchmark MSCI Index concentrates in the stocks of such particular industry or
group of industries, provided that each Fund will comply with the diversification requirements of the Internal Revenue Code applicable to RICs, any underlying Treasury regulations or any successor provision.
The iShares MSCI South Korea Capped Index Fund has the
following concentration policy: With respect to the two most heavily weighted industries or groups of industries in its benchmark MSCI Index, a Fund will invest in securities (consistent with its investment objective and other investment policies)
so that the weighting of each such industry or group of industries in the Fund does not diverge by more than 10% from the respective weighting of such industry or group of industries in its benchmark MSCI Index. An exception to this policy is that
if investment in the stock of a single issuer would account for more than 25% of the Fund, the Fund will invest less than 25% of its net assets in such stock and will reallocate the excess to stock(s) in the same industry or group of industries,
and/or to stock(s) in another industry or group of industries, in its benchmark MSCI Index. The Fund will evaluate these industry weightings at least weekly, and at the time of evaluation will adjust its portfolio composition to the extent necessary
to maintain compliance with the above policy. The Fund may not concentrate its investments except as discussed above. The Board has adopted this policy as fundamental, which means that it may not be changed with respect to a Fund without the
approval of the holders of a majority of the Fund’s outstanding voting securities.
As of September 30, 2012, each of the following Funds was
concentrated (i.e., held 25% or more of its total assets) in the specified industries:
Fund
|
|
Industry
or Industries |
|
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
Auto
Manufacturers |
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
Retail
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
Oil
& Gas |
Fund
|
|
Industry
or Industries |
iShares
MSCI Global Agriculture Producers Fund |
|
Chemicals
|
iShares
MSCI Global Energy Producers Fund |
|
Oil
& Gas |
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
Mining
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
Iron
& Steel |
iShares
MSCI Malaysia Index Fund |
|
Banks
|
In addition to the investment
restrictions adopted as fundamental policies set forth above, each Fund has adopted a non-fundamental policy not to invest in the securities of a company for the purpose of exercising management or control or purchase or otherwise acquire any
illiquid security, except as permitted under the 1940 Act, which currently permits up to 15% of each Fund’s net assets to be invested in illiquid securities (calculated at the time of investment).
BFA monitors the liquidity of restricted securities in each
Fund’s portfolio. In reaching liquidity decisions, BFA considers the following factors:
• |
The frequency of trades and
quotes for the security; |
• |
The number of dealers
wishing to purchase or sell the security and the number of other potential purchasers; |
• |
Dealer undertakings to make
a market in the security; and |
• |
The nature of the security
and the nature of the marketplace in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). |
If any percentage restriction described above is complied with
at the time of an investment, a later increase or decrease in percentage resulting from a change in values of assets will not constitute a violation of such restriction, except that certain percentage limitations will be observed continuously in
accordance with applicable law.
Each Fund has adopted a
non-fundamental investment policy in accordance with Rule 35d-1 under the 1940 Act to invest, under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in securities of the
Underlying Index or in Depositary Receipts representing securities in the Underlying Index. Each Fund also has adopted a policy to provide its shareholders with at least 60 days’ prior written notice of any change in such policy. If,
subsequent to an investment, the 80% requirement is no longer met, a Fund’s future investments will be made in a manner that will bring the Fund into compliance with this policy.
Each Fund (except for the iShares MSCI BRIC Index Fund,
iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund) has adopted a non-fundamental limitation such
that, under normal market conditions, any borrowings by the Fund will not exceed 10% of the Fund's net assets.
Each Fund may not purchase securities of other investment
companies, except to the extent permitted by the Investment Company Act. As a matter of policy, however, a Fund will not purchase shares of any registered open-end investment company or registered unit investment trust, in reliance on Section
12(d)(1)(F) or (G) (the “fund of funds” provisions) of the Investment Company Act, at any time the Fund has knowledge that its shares are purchased by another investment company investor in reliance on the provisions of subparagraph (G)
of Section 12(d)(1).
Continuous Offering
The method by which Creation Units are created and traded may
raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by the Funds on an ongoing basis, at any point a “distribution,” as such term is used in the 1933 Act, may occur. Broker-dealers and
other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner that could render them statutory underwriters and subject them to the
prospectus delivery requirement and liability provisions of the 1933 Act.
For example, a broker-dealer firm or its client may be deemed a
statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent shares and sells such shares directly to customers or if it chooses to couple the creation of new shares with an active
selling effort involving solicitation of secondary market demand for shares. A determination of whether one is an underwriter for purposes of the 1933 Act must take into account all the facts and circumstances pertaining to the activities of the
broker-dealer or its client in the particular case and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not
“underwriters” but are effecting transactions in shares, whether or not participating in the distribution of shares, generally are required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the
1933 Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus delivery obligation with respect to shares of the Funds are reminded that, pursuant to Rule 153 under the 1933 Act,
a prospectus delivery obligation under Section 5(b)(2) of the 1933 Act owed to an exchange member in connection with a sale on the Listing Exchange is satisfied by the fact that the prospectus is available at the Listing Exchange upon request. The
prospectus delivery mechanism provided in Rule 153 is available only with respect to transactions on an exchange.
Management
Directors and Officers.
The Board has responsibility for the overall management and operations of the Funds, 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, Chief Compliance Officer, 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) of the Company are referred to as independent directors (“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 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 284 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 this SAI, which is available without charge, upon request, by calling toll-free 1-800-iShares (1-800-474-2737).
Interested Directors
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
Robert
S. Kapito1 (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). |
|
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); Director of BlackRock, Inc. (since 2007). |
|
Michael
Latham2 (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 of 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). |
|
1 |
Robert S. Kapito is deemed to
be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
2 |
Michael Latham is deemed to
be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
Independent Directors
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
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 Paine 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 Trust, iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S.
ETF Trust (since 2012). |
|
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 2000); 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). |
|
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). |
|
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 (2002-2011) and Chair of the Finance and Investment Committee (2006-2010) the Thacher School; Member (since 1994) and Chair (1994-2005) of the
Investment Committee, Archdiocese of San Francisco; Trustee and Member of the Investment Committee (since 2011), WNET, the New York public broadcasting company. |
|
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, Forward Funds (34 portfolios) (since 2009). |
|
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
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). |
|
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). |
|
Officers
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
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). |
|
Eilleen
M. Clavere (60) |
|
Secretary
(since 2007). |
|
Director
of Global Fund Administration, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc.
(2005-2006); Counsel of Kirkpatrick & Lockhart LLP (2001-2005). |
|
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Edward
B. Baer (44) |
|
Vice
President and Chief Legal Officer (since 2012). |
|
Managing
Director of Legal & Compliance, BlackRock (since 2006); Director of Legal & Compliance, BlackRock (2004-2006). |
|
Scott
Radell (44) |
|
Executive
Vice President (since 2012). |
|
Managing
Director, BlackRock (since 2009); Head of Portfolio Solutions, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007); Credit Research Analyst, BGI (2003-2005). |
|
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); Head of Domestic Equity Portfolio Management, BGI (2001-2006). |
|
Ira
P. Shapiro (49) |
|
Vice
President (since 2007). |
|
Managing
Director, BlackRock (since 2009); Chief Legal Officer, Exchange-Traded Fund Complex (2007-2012); Associate General Counsel, BGI (2004-2009). |
|
The Board has concluded that, based on each Director’s
experience, qualifications, attributes or skills on an individual basis and in combination with those of the other Directors, each Director should serve as a Director of the Board. Among the attributes common to all Directors are their ability to
review critically, evaluate, question and discuss information provided to them, to interact effectively with the Funds' investment adviser, other service providers, counsel and the independent registered public accounting firm, and to exercise
effective business judgment in the performance of their duties as Directors. A Director’s ability to perform his or her duties effectively may have been attained through the Director’s educational background or professional training;
business, consulting, public service or academic positions; experience from service as a board member of the Funds and the other funds in the Company (and any predecessor funds), other investment funds, public companies, or non-profit entities or
other organizations; and/or other life experiences. Also, set forth below is a brief discussion of the specific experience, qualifications, attributes or skills of each Director that led the Board to conclude that he or she should serve as a
Director.
Robert Kapito has been a Director of the
Company since 2009. Mr. Kapito has served as a Trustee of iShares Trust since 2009, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a Trustee of iShares U.S. ETF Trust since 2011 and a Director of BlackRock, Inc. since 2007. In
addition, he has over 20 years of experience as part of BlackRock, Inc. and BlackRock’s predecessor entities. Mr. Kapito serves as President and Director of BlackRock, Inc., and is the Chairman of the Operating Committee, a member of the
Office of the Chairman, the Leadership Committee and the Corporate Council. He is responsible for day-to-day oversight of BlackRock's key operating units, including the Account Management and Portfolio Management Groups, Real Estate Group and
BlackRock Solutions®. Prior to assuming his current responsibilities in 2007, Mr. Kapito served as Head of BlackRock's Portfolio Management Group. In that role, he was responsible for
overseeing all portfolio management within BlackRock, including the Fixed-Income, Equity, Liquidity, and Alternative Investment Groups. Mr. Kapito serves as a member of the Board of Trustees of the University of Pennsylvania. He has also been
President of the Board of Directors for the Hope & Heroes Children's Cancer Fund since 2002 and President of the Board of Directors for Periwinkle Theatre for Youth, a national non-profit arts-in-education organization, since 1983. Mr. Kapito
earned a BS degree in economics from the Wharton School of the University of Pennsylvania in 1979, and an MBA degree from Harvard Business School in 1983.
Michael Latham has been a Director of the Company since 2010
and President of the Company since 2007. Mr. Latham served as Principal Financial Officer of the Company from 2002 until 2007. Mr. Latham has served as a Trustee of iShares
Trust since 2010, President of iShares Trust since 2007, Principal Financial
Officer of iShares Trust from 2002 until 2007, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, President of iShares MSCI Russia Capped Index Fund, Inc. since 2010, and a Trustee and President of iShares U.S. ETF Trust since
2011. Mr. Latham is the Chairman of BlackRock’s iShares exchange-traded fund business. In addition, he has over 15 years of experience as part of BlackRock, Inc. and BlackRock’s predecessor entities. Prior to assuming his current
responsibilities in September 2011, he was the global head of BlackRock's iShares exchange-traded fund business. Prior to April 2009, he was head of BlackRock's iShares exchange-traded fund business for the United States and Canada, and Chief
Operating Officer for the U.S. iShares business. He previously held a variety of operating positions within the firm. Mr. Latham earned a BS degree in business administration from California State University at San Francisco in 1988.
Robert H. Silver has been a Director of the Company since 2007
and Chairman of the Company's Board since 2012. Mr. Silver has served as a Trustee of iShares Trust since 2007, Chairman of iShares Trust's Board since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chairman of iShares
MSCI Russia Capped Index Fund, Inc.'s Board since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chairman of iShares U.S. ETF Trust's Board since 2012. Mr. Silver is President and a Co-Founder of The Bravitas Group Inc., a firm dedicated
to advising and investing in emerging business enterprises and to supporting philanthropic activities that benefit under-served urban youth. Previously, Mr. Silver served as the President and Chief Operating Officer of UBS Financial Services Inc.
(formerly Paine Webber Inc.), the registered broker dealer comprising the Wealth Management USA business unit of UBS AG, including the following responsibilities: President of Paine Webber Services, Director of Retail Products and Marketing,
Director of Private Client Group Branch Offices, Director of Finance and Controls for Paine Webber, Inc. and Chief Administrative Officer for Paine Webber Private Client Group. Mr. Silver also served on the Board of Directors of EPAM Systems, Inc.,
a provider of software engineering outsourcing services in Central and Eastern Europe, served on the Board and Executive Committee of the Depository Trust and Clearing Corporation (DTCC), chaired the National Securities Clearing Corporations’
Membership and Risk Committee and served as Governor of the Philadelphia Stock Exchange. In addition, Mr. Silver was a Vice Chairman and a Member of the Board of Directors for the YMCA of Greater New York and chaired its Fund Development Committee
from 2001 until 2011 and Co-Founder and Vice President of Parentgiving Inc. since 2008. Mr. Silver began his career as a CPA and Audit Manager at KPMG LLP (formerly Peat Marwick Mitchell) from 1977 until 1983. Mr. Silver has a BS degree in business
administration from the University of North Carolina.
George G.C. Parker has been a Director of the Company since
2002. Mr. Parker served as Chair of the Company's Board from 2010 until 2012, Lead Independent Director of the Company from 2006 until 2010 and Chair of the Nominating and Governance Committee of the Company from 2002 until 2010. Mr. Parker has
served as a Trustee of iShares Trust since 2000, Chair of iShares Trust's Board from 2010 until 2012, Lead Independent Trustee of iShares Trust from 2006 until 2010, Chair of the Nominating and Governance Committee of iShares Trust from 2002 until
2010, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of iShares MSCI Russia Capped Index Fund, Inc.'s Board from 2010 until 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of iShares U.S. ETF Trust's Board
from 2011 until 2012. Mr. Parker also serves as Director on four other boards. Mr. Parker is the Dean Witter Distinguished Professor of Finance, Emeritus, at the Stanford University Graduate School of Business. He teaches courses in Corporate
Finance in the MBA Program, Stanford Sloan Program for Executives, and in various other Executive Education Programs at Stanford University. Mr. Parker's teaching and research interests are primarily in the field of corporate finance, management of
financial institutions, and corporate governance, and he has written numerous case studies related to these subjects. He has also authored several articles on capital structure, risk management, and corporate valuation. Mr. Parker previously served
as a Director of Continental Airlines and a Director of NETGEAR, Inc. Mr. Parker holds MBA and Ph.D. degrees from the Stanford University Graduate School of Business.
John E. Martinez has been a Director of the Company since 2003
and Chair of the Securities Lending Committee of the Company since 2012. Mr. Martinez has served as a Trustee of iShares Trust since 2003, Chair of the Securities Lending Committee of iShares Trust since 2012, a Director of iShares MSCI Russia
Capped Index Fund, Inc. since 2010, Chair of the Securities Lending Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Securities Lending Committee of iShares U.S. ETF
Trust since 2012. Mr. Martinez is a Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.), providing governance oversight and consulting services to this privately held firm that develops products and strategies for homeowners in managing
the equity in their homes. Mr. Martinez previously served as Director of Barclays Global Investors (BGI) UK Holdings, where he provided governance oversight representing BGI’s shareholders (Barclays PLC, BGI management shareholders) through
oversight of BGI’s worldwide activities. Mr. Martinez also previously served as Co-Chief Executive Officer of the Global Index and Markets Group of BGI, Chairman of Barclays Global Investor Services and Chief Executive Officer of the Capital
Markets Group of BGI. Since
2003, he is a Director and Executive Committee Member for Larkin Street Youth
Services, providing governance oversight and strategy development to an agency that provides emergency and transitional housing, healthcare, education, job and life skills training to homeless youth. Mr. Martinez has an AB degree in economics from
The University of California, Berkeley and holds an MBA degree in finance and statistics from The University of Chicago Booth School of Business.
Cecilia H. Herbert has been a Director of the Company since
2005 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of the Company since 2012. Ms. Herbert has served as a Trustee of iShares Trust since 2005, Chair of the Nominating and Governance Committee and the Equity Plus
Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a
Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares U.S. ETF Trust since 2012. She is Director of the Board of the Catholic Charities CYO, one of the Bay
Area’s largest private social services organizations serving the homeless, poor, aged, families, children and AIDS/HIV victims, on which she has served since 1998. Ms. Herbert is a member of the Investment Committee, Archdiocese of San
Francisco since 1992, which she chaired from 1994 to 2005. She has served on numerous non-profit boards. Ms. Herbert is also a Director and Advisory Board Member since 2009 of the Forward Funds. Ms. Herbert previously served as a Trustee for the
Pacific Select Funds and The Montgomery Funds. Ms. Herbert previously served as Managing Director of J.P. Morgan/Morgan Guaranty Trust Company responsible for product development, marketing and credit for U.S. multinational corporations and as head
of its San Francisco office and as Assistant Vice President, Signet Banking Corporation. Ms. Herbert has a BA degree in economics and communications from Stanford University and an MBA degree in finance from Harvard Business School.
Charles A. Hurty has been a Director of the Company since 2005
and Chair of the Audit Committee of the Company since 2006. Mr. Hurty has served as a Trustee of iShares Trust since 2005, Chair of the Audit Committee of iShares Trust since 2006, a Director of iShares MSCI Russia Capped Index Fund, Inc. since
2010, Chair of the Audit Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Audit Committee of iShares U.S. ETF Trust since 2011. In addition, Mr. Hurty serves as
Director of the GMAM Absolute Return Strategy Fund since 2002, Director of the SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (formerly, Citigroup Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC) since 2002
and was a Director of the CSFB Alternative Investment Funds from 2005 to December 2009, when the funds were liquidated. Mr. Hurty was formerly a Partner at KPMG, LLP from 1968 to 2001. Mr. Hurty has a BS degree in accounting from the University of
Kansas.
John E. Kerrigan has been a Director of the
Company since 2005 and Chair of the Fixed Income Plus Committee of the Company since 2012. Mr. Kerrigan served as Chair of the Nominating and Governance Committee of the Company from 2010 until 2012. Mr. Kerrigan has served as a Trustee of iShares
Trust since 2005, Chair of the Fixed Income Plus Committee of iShares Trust since 2012, Chair of the Nominating and Governance Committee of iShares Trust from 2010 until 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010,
Chair of the Fixed Income Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, Chair of the Nominating and Governance Committee of iShares MSCI Russia Capped Index Fund, Inc. from 2010 until 2012, Trustee of iShares U.S. ETF
Trust since 2011, Chair of the Fixed Income Plus Committee of iShares U.S. ETF Trust since 2012 and Chair of the Nominating and Governance Committee of iShares U.S. ETF Trust from 2011 until 2012. Mr. Kerrigan serves as Chief Investment Officer,
Santa Clara University since 2002. Mr. Kerrigan was formerly a Managing Director at Merrill Lynch & Co., including the following responsibilities: Global Manager of Institutional Client Division eCommerce, Global Manager of Technology
Specialists Sales and Chair, Performance Measurement, Evaluation & Compensation Task Force. Mr. Kerrigan is a Trustee, since 2008, of Sacred Heart Schools, Atherton, CA, and Director, since 1999, of The BASIC Fund (Bay Area Scholarships for
Inner City Children). Mr. Kerrigan has a BA degree from Boston College and is a Chartered Financial Analyst.
Madhav V. Rajan has been a Director of the Company since 2011
and Chair of the 15(c) Committee of the Company since 2012. Mr. Rajan has served as a Trustee of iShares Trust since 2011, Chair of the 15(c) Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since
2011, Chair of the 15(c) Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the 15(c) Committee of iShares U.S. ETF Trust since 2012. Mr. Rajan is the Robert K. Jaedicke
Professor of Accounting at the Stanford University Graduate School of Business. He has taught accounting for over 20 years to undergraduate, MBA and law students, as well as to senior executives. Mr. Rajan serves as the Senior Associate Dean for
Academic Affairs and head of the MBA Program at the Stanford University Graduate School of Business. Mr. Rajan served as editor of “The Accounting Review” from 2002 to 2008 and is co-author of “Cost Accounting: A Managerial
Emphasis,” a leading cost accounting textbook. Mr. Rajan holds MS, MBA and Ph.D. degrees in accounting from Carnegie Mellon University.
Board –
Leadership Structure and Oversight Responsibilities
Overall responsibility for oversight of the Funds rests with
the Board. The Board has engaged BFA to manage the Funds on a day-to-day basis. The Board is responsible for overseeing BFA and other service providers in the operations of the Funds in accordance with the provisions of the 1940 Act, applicable
provisions of state and other laws and the Company’s charter. The Board is currently composed of nine members, seven of whom are Independent Directors. The Board currently conducts regular meetings four times a year. In addition, the Board
frequently holds special in-person or telephonic meetings or informal conference calls to discuss specific matters that may arise or require action between regular meetings. The Independent Directors meet regularly outside the presence of
management, in executive session or with other service providers to the Company.
The Board has appointed an Independent Director to serve in the
role of Chairman. The Chairman’s role is to preside at all meetings of the Board and to act as a liaison with service providers, officers, attorneys, and other Directors generally between meetings. The Chairman may also perform such other
functions as may be delegated by the Board from time to time. The Board has established six standing Committees: a Nominating and Governance Committee, an Audit Committee, a 15(c) Committee, a Securities Lending Committee, an Equity Plus Committee
and a Fixed Income Plus Committee to assist the Board in the oversight and direction of the business and affairs of the Funds, and from time to time may establish ad-hoc committees or informal working groups to review and address the policies and
practices of the Funds with respect to certain specified matters. The Chair of each standing Committee is an Independent Director. The role of the Chair of each Committee is to preside at all meetings of the Committee and to act as a liaison with
service providers, officers, attorneys and other Directors between meetings. Each Committee meets regularly to conduct the oversight functions delegated to the Committee by the Board and reports its finding to the Board. The Board and each standing
Committee conduct annual assessments of their oversight function and structure. The Board has determined that the Board’s leadership structure is appropriate because it allows the Board to exercise independent judgment over management and it
allocates areas of responsibility among committees of Independent Directors and the full Board to enhance effective oversight.
Day-to-day risk management with respect to the Funds is the
responsibility of BFA or other service providers (depending on the nature of the risk), subject to the supervision of BFA. Each Fund is subject to a number of risks, including investment, compliance, operational and valuation risks, among others.
While there are a number of risk management functions performed by BFA and other service providers, as applicable, it is not possible to eliminate all of the risks applicable to the Fund. The Directors have an oversight role in this area, satisfying
themselves that risk management processes are in place and operating effectively. Risk oversight forms part of the Board’s general oversight of each Fund and is addressed as part of various Board and committee activities. The Board, directly
or through a committee, also reviews reports from, among others, management and the independent registered public accounting firm for the Company, as appropriate, regarding risks faced by each Fund and management’s risk functions. The Board
has appointed a Chief Compliance Officer who oversees the implementation and testing of the Company's compliance program and reports to the Board regarding compliance matters for the Company and its principal service providers. In testing and
maintaining the compliance program, the Chief Compliance Officer assesses key compliance risks affecting each Fund, and addresses them in reports to the Board. The Independent Directors have engaged independent legal counsel to assist them in
performing their oversight responsibilities.
Committees of
the Board of Directors. Each Independent Director serves on the Audit Committee. The Chair of the Audit Committee is Charles A. Hurty. The purposes of the Audit Committee are to assist the Board (i) in its
oversight of the Company's accounting and financial reporting principles and policies and related controls and procedures maintained by or on behalf of the Company; (ii) in its oversight of the Company's financial statements and the independent
audit thereof; (iii) in selecting, evaluating and, where deemed appropriate, replacing the independent accountants (or nominating the independent accountants to be proposed for shareholder approval in any proxy statement); (iv) in evaluating the
independence of the independent accountants; (v) in complying with legal and regulatory requirements that relate to the Company's accounting and financial reporting, internal controls and independent audits; and (vi) to assume such other
responsibilities as may be delegated by the Board. The Audit Committee met four times during the fiscal year ended August 31, 2012.
The members of the Nominating and Governance Committee are
Cecilia H. Herbert (Chair), Charles A. Hurty, Madhav V. Rajan and John E. Kerrigan, all of whom are Independent Directors. The Nominating and Governance Committee nominates individuals for Independent Director membership on the Board. The Nominating
and Governance Committee functions include, but are not limited to, the following: (i) reviewing the qualifications of any person properly identified or nominated to serve as an Independent Director; (ii) recommending to the Board and current
Independent Directors the nominee(s) for
appointment as an Independent Director by the Board and current Independent
Directors and/or for election as Independent Directors by shareholders to fill any vacancy for a position of Independent Director(s) on the Board; (iii) recommending to the Board and current Independent Directors the size and composition of the
Board and Board committees and whether they comply with applicable laws and regulations; (iv) recommending a current Independent Director to the Board and current Independent Directors to serve as Lead Independent Director; (v) periodic review of
the Board's retirement policy; and (vi) recommending an appropriate level of compensation for the Independent Directors for their services as Directors, members or chairpersons of committees of the Board, Lead Independent Director, Chairperson of
the Board and any other positions as the Nominating and Governance Committee considers appropriate. The Nominating and Governance Committee does not consider Board nominations recommended by shareholders (acting solely in their capacity as a
shareholder and not in any other capacity). The Nominating and Governance Committee met four times during the fiscal year ended August 31, 2012.
The members of the 15(c) Committee are Madhav V. Rajan (Chair),
Cecilia H. Herbert, Charles A. Hurty and John E. Martinez, all of whom are Independent Directors. The principal responsibilities of the 15(c) Committee are to support, oversee and organize on behalf of the Board the process for the annual review and
renewal of the Company's advisory and sub-advisory agreements. These responsibilities include: (i) meeting with BlackRock, Inc. in advance of the Board meeting at which the Company's advisory and sub-advisory agreements are to be considered to
discuss generally the process for providing requested information to the Board and the format in which information will be provided; and (ii) considering and discussing with BlackRock, Inc. such other matters and information as may be necessary and
appropriate for the Board to evaluate the investment advisory and sub-advisory agreements of the Company. The 15(c) Committee met four times during the fiscal year ended August 31, 2012.
The members of the Securities Lending Committee are John E.
Martinez (Chair), John E. Kerrigan and George G.C. Parker, all of whom are Independent Directors. The principal responsibilities of the Securities Lending Committee are to support, oversee and organize on behalf of the Board the process for
oversight of the Company's securities lending activities. These responsibilities include: (i) requesting that certain information be provided to the Committee for its review and consideration prior to such information being provided to the Board;
(ii) considering and discussing with BlackRock, Inc. such other matters and information as may be necessary and appropriate for the Board to oversee the Company's securities lending activities and make required findings and approvals; and (iii)
providing a recommendation to the Board regarding the annual approval of the Company's Securities Lending Guidelines and the required findings with respect to, and annual approval of, the Company's agreement with the lending agent. The Securities
Lending Committee met two times during the fiscal year ended August 31, 2012.
The members of the Equity Plus Committee are Cecilia H. Herbert
(Chair), John E. Martinez and George G.C. Parker, all of whom are Independent Directors. The principal responsibilities of the Equity Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of Company
performance and related matters for equity funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters that should be brought to the
attention of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as appropriate. The Equity Plus
Committee met one time during the fiscal year ended August 31, 2012.
The members of the Fixed Income Plus Committee are John E.
Kerrigan (Chair), Charles A. Hurty and Madhav V. Rajan, all of whom are Independent Directors. The principal responsibilities of the Fixed Income Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of
Company performance and related matters for fixed income or multi-asset funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters
that should be brought to the attention of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as
appropriate. The Fixed Income Plus Committee met one time during the fiscal year ended August 31, 2012.
As the Chairman of the Board, Robert H. Silver may participate
in each Committee's meetings.
The following table sets
forth, as of December 31, 2011, the dollar range of equity securities beneficially owned by each Director in the Funds and in other registered investment companies overseen by the Director within the same family of investment companies as the
Company. If a fund is not listed below, the Director did not own any securities in that fund as of the date indicated above:
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
Robert
S. Kapito |
|
iShares
Dow Jones U.S. Real Estate Index Fund |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
MSCI Australia Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI Brazil Capped Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Canada Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Japan Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
FTSE China 25 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Growth Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell Midcap Index Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Michael
Latham |
|
iShares
MSCI ACWI ex US Index Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
MSCI EAFE Small Cap Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 3000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell Microcap Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P California AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P National AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
iShares
Barclays 1-3 Year Credit Bond Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
Barclays 1-3 Year Treasury Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core Total U.S. Bond Market ETF |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Broker-Dealers Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Dow Jones U.S. Financial Services Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Regional Banks Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
High Dividend Equity Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
Over
$100,000 |
|
|
|
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
|
|
iShares
MSCI ACWI ex US Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI BRIC Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Russell 1000 Growth Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Growth Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
Russell 2000 Value Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
Russell 3000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Europe 350 Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P U.S. Preferred Stock Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P/Citigroup International Treasury Bond Fund |
|
$1-$10,000
|
|
|
|
|
|
|
|
|
|
|
|
George
G.C. Parker |
|
iShares
Core Total U.S. Bond Market ETF |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
Dow Jones Select Dividend Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P 100 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P California AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
John
E. Martinez |
|
iShares
Barclays TIPS Bond Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
MSCI All Country Asia ex Japan Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Emerging Markets Infrastructure Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Global Consumer Staples Sector Index Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
Cecilia
H. Herbert |
|
iShares
FTSE China 25 Index Fund |
|
$10,001-$50,000
|
|
$10,001-$50,000
|
|
|
|
|
|
|
|
|
|
Charles
A. Hurty |
|
iShares
Dow Jones U.S. Financial Sector Index Fund |
|
$1-$10,000
|
|
Over
$100,000 |
|
|
|
iShares
Dow Jones Select Dividend Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Energy Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Technology Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
FTSE China 25 Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI Japan Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P Global Energy Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P Global Technology Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P North American Technology-Multimedia Networking Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
|
|
|
|
|
|
John
E. Kerrigan |
|
iShares
MSCI ACWI ex US Index Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
S&P Short Term National AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Madhav
V. Rajan |
|
iShares
Dow Jones Select Dividend Index Fund |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
High Dividend Equity Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
$10,001-$50,000
|
|
|
|
As of December 31, 2011, none of the Independent Directors or
their immediate family members owned beneficially or of record any securities of BFA (the Funds' investment adviser), the Distributor or any person controlling, controlled by or under common control with BFA or the Distributor.
Remuneration of Directors.
Each current Independent Director is paid an annual retainer of $275,000 for his or her services as a Board member to the BlackRock-advised Funds in the Exchange-Traded Fund Complex, together with
out-of-pocket expenses in accordance with a Board's policy on travel and other business expenses relating to attendance at meetings. For the period January 1, 2011 through December 31, 2012, each current Independent Director was paid an annual
retainer of $250,000 for his or her services as a Board member to the BlackRock-advised Funds in the Exchange-Traded Fund Complex, together with out-of-pocket expenses in accordance with a Board’s policy on travel and other business expenses
relating to attendance at meetings. The Independent Chairman of the Boards is paid an additional annual retainer of $50,000. The Chair of the Audit Committees is paid an additional annual retainer of $40,000. The Chair of each of the Nominating and
Governance Committees, Equity Plus Committees, Fixed Income Plus Committees, Securities Lending Committees and 15(c) Committees is paid an additional annual retainer of $15,000. Each Independent Director that serves as a director of subsidiaries of
the Exchange-Traded Complex is paid an additional annual retainer of $10,000 (plus an additional $1,765 paid annually to compensate for taxes due in the Republic of Mauritius). Additionally, an Independent Director who travels to the Republic of
Mauritius to attend board meetings is paid an additional $12,000 (plus an additional $2,117 paid annually to compensate for taxes due in the Republic of Mauritius).
The table below sets forth the compensation earned by each
Independent Director and Interested Director from each Fund for the fiscal year ended August 31, 2012 and the aggregate compensation paid to them by the Exchange-Traded Complex for the calendar year ended December 31, 2011.
Directors
|
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
|
iShares
MSCI Brazil Capped Index Fund |
|
iShares
MSCI BRIC Index Fund |
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$
303 |
|
$
3,858 |
|
$
368 |
|
$
287 |
|
George
G.C. Parker |
|
363
|
|
4,630
|
|
442
|
|
345
|
|
John
E. Kerrigan |
|
321
|
|
4,090
|
|
1,174
|
|
305
|
|
Charles
A. Hurty |
|
351
|
|
4,475
|
|
427
|
|
333
|
|
Cecilia
H. Herbert |
|
303
|
|
3,858
|
|
1,152
|
|
287
|
|
Darrell
Duffie3 |
|
76
|
|
965
|
|
92
|
|
72
|
|
John
E. Martinez |
|
303
|
|
3,858
|
|
1,152
|
|
287
|
|
Madhav
V. Rajan4 |
|
227
|
|
2,894
|
|
276
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$
0 |
|
$
0 |
|
$
0 |
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Directors
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
iShares
MSCI Emerging Markets EMEA Index Fund |
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$
11 |
|
$
1 |
|
$5
|
|
$
1 |
|
George
G.C. Parker |
|
13
|
|
2
|
|
7
|
|
1
|
|
John
E. Kerrigan |
|
795
|
|
786
|
|
6
|
|
785
|
|
Charles
A. Hurty |
|
12
|
|
1
|
|
6
|
|
1
|
|
Cecilia
H. Herbert |
|
795
|
|
786
|
|
5
|
|
785
|
|
Darrell
Duffie3 |
|
3
|
|
0
|
|
1
|
|
0
|
|
John
E. Martinez |
|
795
|
|
786
|
|
5
|
|
785
|
|
Madhav
V. Rajan4 |
|
8
|
|
1
|
|
4
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$
0 |
|
$0
|
|
$
0 |
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Directors
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
|
iShares
MSCI Emerging Markets Index Fund |
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$
5 |
|
$
17,898 |
|
$
202 |
|
$
5 |
|
George
G.C. Parker |
|
6
|
|
21,478
|
|
243
|
|
5
|
|
John
E. Kerrigan |
|
790
|
|
19,756
|
|
999
|
|
789
|
|
Charles
A. Hurty |
|
6
|
|
20,762
|
|
234
|
|
5
|
|
Cecilia
H. Herbert |
|
790
|
|
18,683
|
|
986
|
|
789
|
|
Directors
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
|
iShares
MSCI Emerging Markets Index Fund |
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
Darrell
Duffie3 |
|
1
|
|
4,475
|
|
51
|
|
1
|
|
John
E. Martinez |
|
790
|
|
18,683
|
|
986
|
|
789
|
|
Madhav
V. Rajan4 |
|
4
|
|
13,424
|
|
152
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$
0 |
|
$
0 |
|
$
0 |
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Directors
|
|
iShares
MSCI Emerging Markets Value Index Fund |
|
iShares
MSCI Frontier 100 Index Fund |
|
iShares
MSCI Global Agriculture Producers Fund |
|
iShares
MSCI Global Energy Producers Fund |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$
5 |
|
$0
|
|
$5
|
|
$2
|
|
George
G.C. Parker |
|
6
|
|
0
|
|
6
|
|
3
|
|
John
E. Kerrigan |
|
789
|
|
0
|
|
6
|
|
3
|
|
Charles
A. Hurty |
|
6
|
|
0
|
|
6
|
|
3
|
|
Cecilia
H. Herbert |
|
789
|
|
0
|
|
5
|
|
2
|
|
Darrell
Duffie3 |
|
1
|
|
0
|
|
1
|
|
1
|
|
John
E. Martinez |
|
789
|
|
0
|
|
5
|
|
2
|
|
Madhav
V. Rajan4 |
|
4
|
|
0
|
|
4
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$0
|
|
$0
|
|
$0
|
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Directors
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
iShares
MSCI Malaysia Index Fund |
|
iShares
MSCI South Korea Capped Index Fund |
|
iShares
MSCI Taiwan Index Fund |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$2
|
|
$
491 |
|
$
1,395 |
|
$
1,172 |
|
George
G.C. Parker |
|
2
|
|
589
|
|
1,674
|
|
1,406
|
|
John
E. Kerrigan |
|
2
|
|
520
|
|
1,479
|
|
1,242
|
|
Charles
A. Hurty |
|
2
|
|
569
|
|
1,618
|
|
1,359
|
|
Cecilia
H. Herbert |
|
2
|
|
491
|
|
1,395
|
|
1,172
|
|
Darrell
Duffie3 |
|
0
|
|
123
|
|
349
|
|
293
|
|
John
E. Martinez |
|
2
|
|
491
|
|
1,395
|
|
1,172
|
|
Madhav
V. Rajan4 |
|
1
|
|
368
|
|
1,046
|
|
879
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$0
|
|
$
0 |
|
$
0 |
|
$
0 |
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Directors
|
|
Pension
or Retirement Benefits Accrued As Part of Company Expenses1 |
|
Estimated
Annual Benefits Upon Retirement1 |
|
Total
Compensation From the Funds and Fund Complex2 |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
Not
Applicable |
|
Not
Applicable |
|
$250,000
|
|
George
G.C. Parker |
|
Not
Applicable |
|
Not
Applicable |
|
300,000
|
|
John
E. Kerrigan |
|
Not
Applicable |
|
Not
Applicable |
|
276,765
|
|
Charles
A. Hurty |
|
Not
Applicable |
|
Not
Applicable |
|
290,000
|
|
Cecilia
H. Herbert |
|
Not
Applicable |
|
Not
Applicable |
|
261,765
|
|
Darrell
Duffie3 |
|
Not
Applicable |
|
Not
Applicable |
|
62,500
|
|
John
E. Martinez |
|
Not
Applicable |
|
Not
Applicable |
|
261,765
|
|
Madhav
V. Rajan4 |
|
Not
Applicable |
|
Not
Applicable |
|
187,500
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
Not
Applicable |
|
Not
Applicable |
|
$
0 |
|
Michael
Latham |
|
Not
Applicable |
|
Not
Applicable |
|
0
|
|
1 |
No Director or officer is
entitled to any pension or retirement benefits from the Company. |
2 |
Includes compensation for
service on the Board of Trustees of iShares Trust and the Board of Directors of iShares MSCI Russia Capped Index Fund, Inc. |
3 |
Served as Director through
March 19, 2011. |
4 |
Appointed to serve as
Independent Director of the Company effective May 16, 2011. |
The board of directors of each Subsidiary, which is
responsible for the overall management and operations of the Subsidiary, is partially comprised of certain members of the Board of Directors of the Company.
Control Persons and Principal Holders of Securities.
The Directors and officers of the Company collectively owned
less than 1% of each of the Funds' outstanding shares as of November 30, 2012.
Although the Company does not have information concerning the
beneficial ownership of shares held in the names of Depository Trust Company (“DTC”) participants (as defined below), as of November 30, 2012, the name and percentage ownership of each DTC participant that owned of record 5% or more of
the outstanding shares of a Fund were as follows:
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
|
Northern
Trust Company/United Nations Joint Staff Pension Funds 50 South LaSalle St. Chicago, IL 60675 |
|
80.00%
|
|
|
|
|
|
|
|
iShares
MSCI Brazil Capped Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
15.58%
|
|
|
|
Deutsche
Bank Securities Inc./Cedear 1251 Avenue of the Americas New York, NY 10020 |
|
8.14%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
6.77%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
6.19%
|
|
|
|
|
|
|
|
iShares
MSCI BRIC Index Fund |
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
16.92%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
8.99%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
6.78%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
6.45%
|
|
|
|
Deutsche
Bank Securities Inc./Cedear 1251 Avenue of the Americas New York, NY 10020 |
|
5.82%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
5.82%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
5.33%
|
|
|
|
|
|
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
Deutsche
Bank Securities Inc./Cedear 1251 Avenue of the Americas New York, NY 10020 |
|
18.10%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
12.45%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
9.29%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
8.42%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
8.42%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
5.16%
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
31.79%
|
|
|
|
Goldman,
Sachs & Co. 30 Hudson Street 16th Floor Jersey City, NJ 07302 |
|
25.32%
|
|
|
|
J.P.
Morgan Clearing Corp One Metrotech Center North Brooklyn, NY 11201 |
|
22.49%
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
Citigroup
Global Markets Inc. 333 W 34th Street New York, NY 10001-2402 |
|
64.20%
|
|
|
|
Merrill
Lynch, Pierce, Fenner & Smith Incorporated 101 Hudson Street 9th Floor Jersey City, NJ 07302-3997 |
|
16.22%
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
|
J.P.
Morgan Clearing Corp One Metrotech Center North Brooklyn, NY 11201 |
|
47.01%
|
|
|
|
UBS
AG Stamford Branch/As Custodian for UBS AG London Branch 1285 Avenue of the Americas New York, NY 10019 |
|
20.20%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
8.24%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
6.46%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
5.90%
|
|
|
|
|
|
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
Citigroup
Global Markets Inc. 333 W 34th Street New York, NY 10001-2402 |
|
81.80%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
7.74%
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
|
Citigroup
Global Markets Inc. 333 W 34th Street New York, NY 10001-2402 |
|
64.00%
|
|
|
|
CP_UMB
Bank-National Association 928 Grand Boulevard Kansas City, MO 64106 |
|
10.00%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
5.79%
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
16.65%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
16.61%
|
|
|
|
Mellon
Trust of New England, National Association Three Mellon Bank Center Floor 1533700 Pittsburgh, PA 15259 |
|
5.83%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
5.09%
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
|
Mellon
Trust of New England, National Association Three Mellon Bank Center Floor 1533700 Pittsburgh, PA 15259 |
|
14.72%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
13.06%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
11.66%
|
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
7.61%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
7.39%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
6.24%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
5.36%
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
Goldman,
Sachs & Co. 30 Hudson Street 16th Floor Jersey City, NJ 07302 |
|
13.95%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
11.76%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
11.49%
|
|
|
|
TD
Ameritrade Clearing, Inc. 1005 N. Ameritrade Place Bellevue, NE 68005 |
|
8.87%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
7.71%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
7.61%
|
|
|
|
J.P.
Morgan Clearing Corp One Metrotech Center North Brooklyn, NY 11201 |
|
7.55%
|
|
|
|
Fifth
Third Bank (The) 5001 Kingsley Drive Cincinnati, OH 45263 |
|
7.50%
|
|
|
|
Knight
Clearing Services LLC 545 Washington BLVD Jersey City, NJ 07310 |
|
5.58%
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Value Index Fund |
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
47.67%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
26.51%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
6.34%
|
|
|
|
VANGUARD
Marketing Corporation 100 Vanguard Boulevard Malvern, PA 19355 |
|
5.27%
|
|
|
|
|
|
|
|
iShares
MSCI Frontier 100 Index Fund |
|
Northern
Trust Company/United Nations Joint Staff Pension Funds 50 South LaSalle St. Chicago, IL 60675 |
|
61.54%
|
|
|
|
Knight
Clearing Services LLC 545 Washington BLVD Jersey City, NJ 07310 |
|
6.51%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
5.95%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
5.16%
|
|
|
|
|
|
|
|
iShares
MSCI Global Agriculture Producers Fund |
|
Merrill
Lynch, Pierce, Fenner & Smith Incorporated 101 Hudson Street 9th Floor Jersey City, NJ 07302-3997 |
|
18.50%
|
|
|
|
UBS
Financial Services Inc. 1000 Harbor Blvd. 4th Floor Weehawken, NJ 07087 |
|
11.85%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
9.30%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
7.66%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
7.60%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
6.75%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
6.57%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
5.71%
|
|
|
|
|
|
|
|
iShares
MSCI Global Energy Producers Fund |
|
Merrill
Lynch, Pierce, Fenner & Smith Incorporated 101 Hudson Street 9th Floor Jersey City, NJ 07302-3997 |
|
27.18%
|
|
|
|
J.P.
Morgan Clearing Corp One Metrotech Center North Brooklyn, NY 11201 |
|
18.78%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
11.72%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
8.04%
|
|
|
|
|
|
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
87.75%
|
|
|
|
|
|
|
|
iShares
MSCI Malaysia Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
15.41%
|
|
|
|
First
Clearing, LLC 901 East Byrd Street Richmond, VA 23219 |
|
9.11%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
6.87%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
6.00%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
5.75%
|
|
|
|
Northern
Trust Company (The) 801 South Canal Street Chicago, IL 60612 |
|
5.66%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
5.66%
|
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
5.33%
|
|
|
|
|
|
|
|
iShares
MSCI South Korea Capped Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
16.33%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
8.21%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
7.78%
|
|
|
|
First
Clearing, LLC 901 East Byrd Street Richmond, VA 23219 |
|
6.48%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
5.89%
|
|
|
|
|
|
|
|
iShares
MSCI Taiwan Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
22.38%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
13.01%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
9.30%
|
|
|
|
Northern
Trust Company/United Nations Joint Staff Pension Funds 50 South LaSalle St. Chicago, IL 60675 |
|
7.00%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
6.35%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
5.39%
|
|
Potential Conflicts of Interest. The PNC Financial Services Group, Inc. (“PNC”) has a significant economic interest in
BlackRock, Inc., the parent of BFA, the Funds' investment adviser. PNC is considered to be an affiliate of
BlackRock, Inc., under the 1940 Act. Certain activities of BFA, BlackRock, Inc. and their affiliates (collectively, “BlackRock”) and PNC and its affiliates (collectively, “PNC” and together with BlackRock,
“Affiliates”), with respect to the Funds and/or other accounts managed by BlackRock or PNC, may give rise to actual or perceived conflicts of interest such as those described below.
BlackRock is one of the world's largest asset management firms.
PNC is a diversified financial services organization spanning the retail, business and corporate markets. BlackRock and PNC are affiliates of one another under the 1940 Act. BlackRock and PNC and their respective affiliates (including, for these
purposes, their directors, partners, trustees, managing members, officers and employees), including the entities and personnel who may be involved in the investment activities and business operations of a Fund, are engaged worldwide in businesses,
including equity, fixed-income, cash management and alternative investments. These are considerations of which investors in a Fund should be aware, and which may cause conflicts of interest that could disadvantage the Fund and its shareholders.
These activities and interests include potential multiple advisory, transactional, financial and other interests in securities and other instruments that may be purchased or sold by a Fund.
BlackRock and its Affiliates have proprietary interests in, and
may manage or advise with respect to, accounts or funds (including separate accounts and other funds and collective investment vehicles) that have investment objectives similar to those of a Fund and/or that engage in transactions in the same types
of securities, currencies and instruments as the Fund. One or more Affiliates are also major participants in the global currency, equities, swap and fixed-income markets, in each case both on a proprietary basis and for the accounts of customers. As
such, one or more Affiliates are or may be actively engaged in transactions in the same securities, currencies, and instruments in which a Fund invests. Such activities could affect the prices and availability of the securities, currencies, and
instruments in which a Fund invests, which could have an adverse impact on the Fund's performance. Such transactions, particularly in respect of most proprietary accounts or customer accounts, will be executed independently of a Fund's transactions
and thus at prices or rates that may be more or less favorable than those obtained by the Fund. When BlackRock and its Affiliates purchase or sell the same assets for their managed accounts, including a Fund, the assets actually purchased or sold
may be allocated among the accounts on a basis determined in their good faith discretion to be equitable. In some cases, this system may adversely affect the size or price of the assets purchased or sold for a Fund. In addition, transactions in
investments by one or more other accounts managed by BlackRock or its Affiliates may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of a Fund, particularly, but not limited to, with respect to
small capitalization, emerging market or less liquid strategies. This may occur when investment decisions regarding a Fund are based on research or other information that is also used to support decisions for other accounts. When BlackRock or its
Affiliates implements a portfolio decision or strategy on behalf of another account ahead of, or contemporaneously with, similar decisions or strategies for a Fund, market impact, liquidity constraints, or other factors could result in the Fund
receiving less favorable trading results and the costs of implementing such decisions or strategies could be increased or the Fund could otherwise be disadvantaged. BlackRock or its Affiliates may, in certain cases, elect to implement internal
policies and procedures designed to limit such consequences, which may cause a Fund to be unable to engage in certain activities, including purchasing or disposing of securities, when it might otherwise be desirable for it to do so.
Conflicts may also arise because portfolio decisions regarding
a Fund may benefit other accounts managed by BlackRock or its Affiliates. For example, the sale of a long position or establishment of a short position by a Fund may impair the price of the same security sold short by (and therefore benefit) one or
more Affiliates or their other accounts, and the purchase of a security or covering of a short position in a security by a Fund may increase the price of the same security held by (and therefore benefit) one or more Affiliates or their other
accounts.
BlackRock and its Affiliates and their clients
may pursue or enforce rights with respect to an issuer in which a Fund has invested, and those activities may have an adverse effect on the Fund. As a result, prices, availability, liquidity and terms of a Fund's investments may be negatively
impacted by the activities of BlackRock or its Affiliates or their clients, and transactions for the Fund may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.
The results of a Fund's investment activities may differ
significantly from the results achieved by BlackRock and its Affiliates for their proprietary accounts or other accounts (including investment companies or collective investment vehicles) managed or advised by them. It is possible that one or more
Affiliate-managed accounts and such other accounts will achieve investment results that are substantially more or less favorable than the results achieved by a Fund. Moreover, it is possible
that a Fund will sustain losses during periods in which one or more
Affiliate-managed accounts achieve significant profits on their trading for proprietary or other accounts. The opposite result is also possible. The investment activities of one or more Affiliates for their proprietary accounts and accounts under
their management may also limit the investment opportunities for a Fund in certain emerging and other markets in which limitations are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated foreign
investors.
From time to time, a Fund's activities may
also be restricted because of regulatory restrictions applicable to one or more Affiliates, and/or their internal policies designed to comply with such restrictions. As a result, there may be periods, for example, when BlackRock, and/or one or more
Affiliates, will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which BlackRock and/or one or more Affiliates are performing services or when position limits have been reached.
In connection with its management of a Fund, BlackRock may have
access to certain fundamental analysis and proprietary technical models developed by one or more Affiliates. BlackRock will not be under any obligation, however, to effect transactions on behalf of a Fund in accordance with such analysis and models.
In addition, neither BlackRock nor any of its Affiliates will have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for
the benefit of the management of a Fund and it is not anticipated that BlackRock will have access to such information for the purpose of managing the Fund. The proprietary activities or portfolio strategies of BlackRock and its Affiliates, or the
activities or strategies used for accounts managed by them or other customer accounts could conflict with the transactions and strategies employed by BlackRock in managing a Fund.
In addition, certain principals and certain employees of
BlackRock are also principals or employees of Affiliates. As a result, the performance by these principals and employees of their obligations to such other entities may be a consideration of which investors in a Fund should be aware.
BlackRock may enter into transactions and invest in securities,
instruments and currencies on behalf of a Fund in which customers of BlackRock or its Affiliates, or, to the extent permitted by the SEC, BlackRock or another Affiliate, serves as the counterparty, principal or issuer. In such cases, such party's
interests in the transaction will be adverse to the interests of the Fund, and such party may have no incentive to assure that the Fund obtains the best possible prices or terms in connection with the transactions. In addition, the purchase, holding
and sale of such investments by a Fund may enhance the profitability of BlackRock or its Affiliates. One or more Affiliates may also create, write or issue derivatives for their customers, the underlying securities, currencies or instruments of
which may be those in which a Fund invests or which may be based on the performance of the Fund. A Fund may, subject to applicable law, purchase investments that are the subject of an underwriting or other distribution by one or more Affiliates and
may also enter into transactions with other clients of an Affiliate where such other clients have interests adverse to those of the Fund.
At times, these activities may cause departments of BlackRock
or its Affiliates to give advice to clients that may cause these clients to take actions adverse to the interests of the Fund. To the extent affiliated transactions are permitted, a Fund will deal with BlackRock and its Affiliates on an arms-length
basis. BlackRock or its Affiliates may also have an ownership interest in certain trading or information systems used by a Fund. A Fund's use of such trading or information systems may enhance the profitability of BlackRock and its Affiliates.
One or more Affiliates may act as broker, dealer, agent, lender
or adviser or in other commercial capacities for a Fund. It is anticipated that the commissions, mark-ups, mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and commitment fees, brokerage fees, other fees,
compensation or profits, rates, terms and conditions charged by an Affiliate will be in its view commercially reasonable, although each Affiliate, including its sales personnel, will have an interest in obtaining fees and other amounts that are
favorable to the Affiliate and such sales personnel.
Subject to applicable law, the Affiliates (and their personnel
and other distributors) will be entitled to retain fees and other amounts that they receive in connection with their service to the Funds as broker, dealer, agent, lender, adviser or in other commercial capacities and no accounting to the Funds or
their respective shareholders will be required, and no fees or other compensation payable by the Funds or their respective shareholders will be reduced by reason of receipt by an Affiliate of any such fees or other amounts.
When an Affiliate acts as broker, dealer, agent, adviser or in
other commercial capacities in relation to the Funds, the Affiliate may take commercial steps in its own interests, which may have an adverse effect on the Funds. A Fund will be required to
establish business relationships with its counterparties based on the Fund's
own credit standing. Neither BlackRock nor any of the Affiliates will have any obligation to allow their credit to be used in connection with a Fund's establishment of its business relationships, nor is it expected that the Fund's counterparties
will rely on the credit of BlackRock or any of the Affiliates in evaluating the Fund's creditworthiness.
Purchases and sales of securities for a Fund may be bunched or
aggregated with orders for other BlackRock client accounts. BlackRock, however, is not required to bunch or aggregate orders if portfolio management decisions for different accounts are made separately, or if it determines that bunching or
aggregating is not practicable or required, or in cases involving client direction.
Prevailing trading activity frequently may make impossible the
receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Funds will be charged or credited with the average price. Thus, the effect of the aggregation
may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the Funds will not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.
BlackRock may select brokers (including, without limitation,
Affiliates) that furnish BlackRock, the Funds, other BlackRock client accounts or other Affiliates or personnel, directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRock's view,
appropriate assistance to BlackRock in the investment decision-making process (including with respect to futures, fixed-price offerings and over-the-counter transactions). Such research or other services may include, to the extent permitted by law,
research reports on companies, industries and securities; economic and financial data; financial publications; proxy analysis; trade industry seminars; computer data bases; research-oriented software and other services and products. Research or
other services obtained in this manner may be used in servicing any or all of the Funds and other BlackRock client accounts, including in connection with BlackRock client accounts other than those that pay commissions to the broker relating to the
research or other service arrangements. Such products and services may disproportionately benefit other BlackRock client accounts relative to the Funds based on the amount of brokerage commissions paid by the Funds and such other BlackRock client
accounts. For example, research or other services that are paid for through one client's commissions may not be used in managing that client's account. In addition, other BlackRock client accounts may receive the benefit, including disproportionate
benefits, of economies of scale or price discounts in connection with products and services that may be provided to the Funds and to such other BlackRock client accounts. To the extent that BlackRock uses soft dollars, it will not have to pay for
those products and services itself.
BlackRock may receive
research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that BlackRock receives research on this basis, many of the same conflicts related to traditional soft
dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by BlackRock.
BlackRock may endeavor to execute trades through brokers who,
pursuant to such arrangements, provide research or other services in order to ensure the continued receipt of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from time to time choose
not to engage in the above described arrangements to varying degrees. BlackRock may also enter into commission sharing arrangements under which BlackRock may execute transactions through a broker-dealer, including, where permitted, an Affiliate, and
request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to BlackRock. To the extent that BlackRock engages in commission sharing arrangements, many of the same conflicts
related to traditional soft dollars may exist.
BlackRock
may utilize certain electronic crossing networks (“ECNs”) in executing client securities transactions for certain types of securities. These ECNs may charge fees for their services, including access fees and transaction fees. The
transaction fees, which are similar to commissions or markups/markdowns, will generally be charged to clients and, like commissions and markups/markdowns, would generally be included in the cost of the securities purchased. Access fees may be paid
by BlackRock even though incurred in connection with executing transactions on behalf of clients, including the Funds. In certain circumstances, ECNs may offer volume discounts that will reduce the access fees typically paid by BlackRock. BlackRock
will only utilize ECNs consistent with its obligation to seek to obtain best execution in client transactions.
BlackRock has adopted policies and procedures designed to
prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including the Funds, and to help ensure that such decisions are made in
accordance with BlackRock's fiduciary obligations to its clients.
Nevertheless, notwithstanding such proxy voting policies and procedures, actual proxy voting decisions of BlackRock may have the effect of favoring the interests of other clients or businesses of other divisions or units of BlackRock and/or its
Affiliates, provided that BlackRock believes such voting decisions to be in accordance with its fiduciary obligations. For a more detailed discussion of these policies and procedures, see the Proxy Voting
Policy section of this SAI.
It is also possible
that, from time to time, BlackRock or its Affiliates may, although they are not required to, purchase and hold shares of a Fund. Increasing a Fund's assets may enhance investment flexibility and diversification and may contribute to economies of
scale that tend to reduce the Fund's expense ratio. BlackRock and its Affiliates reserve the right to redeem at any time some or all of the shares of a Fund acquired for their own accounts. A large redemption of shares of a Fund by BlackRock or its
Affiliates could significantly reduce the asset size of the Fund, which might have an adverse effect on the Fund's investment flexibility, portfolio diversification and expense ratio. BlackRock will consider the effect of redemptions on a Fund and
other shareholders in deciding whether to redeem its shares.
It is possible that a Fund may invest in securities of
companies with which an Affiliate has or is trying to develop investment banking relationships as well as securities of entities in which BlackRock or its Affiliates has significant debt or equity investments or in which an Affiliate makes a market.
A Fund also may invest in securities of companies to which an Affiliate provides or may someday provide research coverage. Such investments could cause conflicts between the interests of a Fund and the interests of other clients of BlackRock or its
Affiliates. In making investment decisions for a Fund, BlackRock is not permitted to obtain or use material non-public information acquired by any division, department or Affiliate of BlackRock in the course of these activities. In addition, from
time to time, the activities of an Affiliate may limit a Fund's flexibility in purchases and sales of securities. When an Affiliate is engaged in an underwriting or other distribution of securities of an entity, BlackRock may be prohibited from
purchasing or recommending the purchase of certain securities of that entity for a Fund.
BlackRock and its Affiliates, their personnel and other
financial service providers may have interests in promoting sales of the Funds. With respect to BlackRock and its Affiliates and their personnel, the remuneration and profitability relating to services to and sales of the Funds or other products may
be greater than remuneration and profitability relating to services to and sales of certain funds or other products that might be provided or offered. BlackRock and its Affiliates and their sales personnel may directly or indirectly receive a
portion of the fees and commissions charged to the Funds or their respective shareholders. BlackRock and its advisory or other personnel may also benefit from increased amounts of assets under management. Fees and commissions may also be higher than
for other products or services, and the remuneration and profitability to BlackRock or its Affiliates and such personnel resulting from transactions on behalf of or management of the Funds may be greater than the remuneration and profitability
resulting from other funds or products.
BlackRock and its
Affiliates and their personnel may receive greater compensation or greater profit in connection with an account for which BlackRock serves as an adviser than with an account advised by an unaffiliated investment adviser. Differentials in
compensation may be related to the fact that BlackRock may pay a portion of its advisory fee to its Affiliate, or relate to compensation arrangements, including for portfolio management, brokerage transactions or account servicing. Any differential
in compensation may create a financial incentive on the part of BlackRock or its Affiliates and their personnel to recommend BlackRock over unaffiliated investment advisers or to effect transactions differently in one account over another.
BlackRock and its Affiliates may provide valuation assistance
to certain clients with respect to certain securities or other investments and the valuation recommendations made for their clients' accounts may differ from the valuations for the same securities or investments assigned by a Fund's pricing vendors,
especially if such valuations are based on broker-dealer quotes or other data sources unavailable to the Fund's pricing vendors. While BlackRock will generally communicate its valuation information or determinations to a Fund's pricing vendors
and/or fund accountants, there may be instances where the Fund's pricing vendors or fund accountants assign a different valuation to a security or other investment than the valuation for such security or investment determined or recommended by
BlackRock.
As disclosed in more detail in the Determination of Net Asset Value section of each Fund’s Prospectus, when market valuations are not readily available or such valuations do not reflect current market values, the affected investments will be
valued using fair value pricing, pursuant to procedures adopted by the Fund's Board. As a result, the Funds' sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BlackRock (pursuant to Board-adopted
procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
To the extent permitted by applicable law, a Fund may invest
all or some of its short-term cash investments in any money market fund or similarly-managed private fund advised or managed by BlackRock. In connection with any such investments, a Fund, to the extent permitted by the 1940 Act, may pay its share of
expenses of a money market fund in which it invests, which may result in a Fund bearing some additional expenses.
BlackRock and its Affiliates and their directors, officers and
employees, may buy and sell securities or other investments for their own accounts, and may have conflicts of interest with respect to investments made on behalf of a Fund. As a result of differing trading and investment strategies or constraints,
positions may be taken by directors, officers, employees and Affiliates of BlackRock that are the same, different from or made at different times than positions taken for the Fund. To lessen the possibility that a Fund will be adversely affected by
this personal trading, the Fund, BFA and BlackRock each has adopted a code of ethics in compliance with Section 17(j) of the 1940 Act that restricts securities trading in the personal accounts of investment professionals and others who normally come
into possession of information regarding the Fund's portfolio transactions. Each code of ethics can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at (202) 551-8090. Each code of ethics is also available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at publicinfo@sec.gov
or by writing the SEC's Public Reference Section, Washington, DC 20549-1520.
BlackRock and its Affiliates will not purchase securities or
other property from, or sell securities or other property to, a Fund, except that the Fund may in accordance with rules adopted under the 1940 Act engage in transactions with accounts that are affiliated with the Fund as a result of common officers,
directors, or investment advisers or pursuant to exemptive orders granted to the Funds and/or BlackRock by the SEC. These transactions would be affected in circumstances in which BlackRock determined that it would be appropriate for a Fund to
purchase and another client of BlackRock to sell, or the Fund to sell and another client of BlackRock to purchase, the same security or instrument on the same day. From time to time, the activities of a Fund may be restricted because of regulatory
requirements applicable to BlackRock or its Affiliates and/or BlackRock's internal policies designed to comply with, limit the applicability of, or otherwise relate to such requirements. A client not advised by BlackRock would not be subject to some
of those considerations. There may be periods when BlackRock may not initiate or recommend certain types of transactions, or may otherwise restrict or limit their advice in certain securities or instruments issued by or related to companies for
which an Affiliate is performing investment banking, market making or other services or has proprietary positions. For example, when an Affiliate is engaged in an underwriting or other distribution of securities of, or advisory services for, a
company, the Funds may be prohibited from or limited in purchasing or selling securities of that company. Similar situations could arise if personnel of BlackRock or its Affiliates serve as directors of companies the securities of which the Funds
wish to purchase or sell. However, if permitted by applicable law, the Funds may purchase securities or instruments that are issued by such companies or are the subject of an underwriting, distribution, or advisory assignment by an Affiliate, or in
cases in which personnel of BlackRock or its Affiliates are directors or officers of the issuer.
The investment activities of one or more Affiliates for their
proprietary accounts and for client accounts may also limit the investment strategies and rights of the Funds. For example, in regulated industries, in certain emerging or international markets, in corporate and regulatory ownership definitions, and
in certain futures and derivative transactions, there may be limits on the aggregate amount of investment by affiliated investors that may not be exceeded without the grant of a license or other regulatory or corporate consent or, if exceeded, may
cause BlackRock, the Funds or other client accounts to suffer disadvantages or business restrictions.
If certain aggregate ownership thresholds are reached or
certain transactions undertaken, the ability of BlackRock on behalf of clients (including the Funds) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired.
As a result, BlackRock, on behalf of clients (including the Funds), may limit purchases, sell existing investments, or otherwise restrict or limit the exercise of rights (including voting rights) when BlackRock, in its sole discretion, deems it
appropriate.
BlackRock and its Affiliates may maintain
securities indices as part of their product offerings. Index based funds seek to track the performance of securities indices and may use the name of the index in the fund name. Index providers, including BlackRock and its Affiliates may be paid
licensing fees for use of their index or index name. BlackRock and its Affiliates will not be obligated to license their indices to BlackRock, and BlackRock cannot be assured that the terms of any index licensing agreement with BlackRock and its
Affiliates will be as favorable as those terms offered to other index licensees.
BlackRock and its Affiliates may serve as Authorized
Participants in the creation and redemption of exchange-traded funds, including funds advised by Affiliates of BlackRock. As described in greater detail in the Creations and
Redemptions section of the Prospectus, BlackRock and its Affiliates may therefore be deemed to be participants in a distribution of iShares funds that could render them statutory underwriters.
Present and future activities of BlackRock and its Affiliates,
including BFA, in addition to those described in this section, may give rise to additional conflicts of interest.
Investment Advisory, Administrative and Distribution
Services
Investment Adviser. BFA serves as investment adviser to each Fund pursuant to an Investment Advisory Agreement between the Company, on behalf of each Fund, and BFA. BFA is a California corporation indirectly owned by BlackRock, Inc.,
and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the Investment Advisory Agreement, BFA, subject to the supervision of the Board and in conformity with the stated investment policies of each
Fund, manages and administers the Company and the investment of each Fund's assets. BFA is responsible for placing purchase and sale orders and providing continuous supervision of the investment portfolio of each Fund.
Pursuant to the Investment Advisory Agreement, BFA may from
time to time, in its sole discretion to the extent permitted by applicable law, appoint one or more sub-advisers, including, without limitation, affiliates of BFA, to perform investment advisory or other services with respect to the Fund. In
addition, BFA may delegate certain of its investment advisory functions under the Investment Advisory Agreement to one or more of its affiliates to the extent permitted by applicable law. BFA may terminate any or all sub-advisers or such delegation
arrangements in its sole discretion upon appropriate notice at any time to the extent permitted by applicable law.
BFA is responsible, under the Investment Advisory Agreement,
for substantially all expenses of the Funds, including the cost of transfer agency, custody, fund administration, legal, audit and other services, except interest expense, taxes, brokerage expenses, distribution fees or expenses and extraordinary
expenses. For its investment management services to each Fund, BFA received a management fee at the annual rates (as a percentage of each Fund’s average net assets) set forth below for the fiscal years noted:
For its investment advisory services to the iShares MSCI
Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets EMEA Index Fund, iShares MSCI Emerging Markets Growth Index Fund and iShares MSCI Emerging Markets Value Index Fund, BFA is paid a management fee based on a percentage of each Fund's
average daily net assets at an annual rate of 0.68%.
For its investment advisory services to the iShares MSCI Global Agriculture Producers Fund, iShares MSCI Global Energy Producers Fund and iShares MSCI Global Select Metals & Mining
Producers Fund, BFA is paid a management fee based on a percentage of each Fund's average daily net assets at an annual rate of 0.39%.
For its investment advisory services to certain of the Funds included in this SAI, BFA is entitled to receive
a management fee from such Funds corresponding to each of the Fund's allocable portion of an aggregate management fee based on the aggregate average daily net assets of the following iShares funds: iShares MSCI All Peru Capped Index Fund, iShares
MSCI Brazil Capped Index Fund, iShares MSCI Brazil Small Cap Index Fund, iShares MSCI Chile Capped Investable Market Index Fund, iShares MSCI China Index Fund, iShares MSCI China Small Cap Index Fund, iShares MSCI Indonesia Investable Market Index
Fund, iShares MSCI Israel Capped Investable Market Index Fund, iShares MSCI Philippines Investable Market Index Fund, iShares MSCI Poland Capped Investable Market Index Fund, iShares MSCI Russia Capped Index Fund, iShares MSCI South Africa Index
Fund, iShares MSCI South Korea Capped Index Fund, iShares MSCI Taiwan Index Fund, iShares MSCI Thailand Capped Investable Market Index Fund and iShares MSCI Turkey Investable Market Index Fund. The aggregate management fee is calculated as follows:
0.74% per annum of the aggregate net assets less than or equal to $2.0 billion, plus 0.69% per annum of the aggregate net assets over $2.0 billion, up to and including $4.0 billion, plus 0.64% per annum of the aggregate net assets over $4.0 billion,
up to and including $8.0 billion, plus 0.57% per annum of the aggregate net assets over $8.0 billion, up to and including $16.0 billion, plus 0.51% per annum of the aggregate net assets over $16.0 billion, up to and including $32.0 billion, plus
0.45% per annum of the aggregate net assets in excess of $32.0 billion.
For its investment advisory services to certain of the
Funds included in this SAI, BFA is entitled to receive a management fee from such Fund corresponding to the Fund's allocable portion of an aggregate management fee based on the aggregate average daily net assets of the following iShares funds:
iShares MSCI All Country Asia ex Japan Index Fund, iShares MSCI BRIC Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging Markets Eastern Europe Index Fund, iShares MSCI Emerging Markets Energy
Sector Capped Index Fund, iShares MSCI Emerging Markets Financials Sector Index Fund, iShares MSCI Emerging Markets Index Fund, iShares MSCI Emerging Markets Materials Sector Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund
and iShares MSCI Emerging Markets Small Cap Index Fund. The aggregate management fee is calculated as follows: 0.75% per annum of the aggregate net assets less than or equal to $14.0 billion, plus 0.68% per annum of the aggregate net assets over
$14.0 billion, up to and including $28.0 billion, plus 0.61% per annum of the aggregate net assets over $28.0 billion, up to and including $42.0 billion, plus 0.56% per annum of the aggregate net assets over $42.0 billion, up to and including $56.0
billion, plus 0.50% per annum of the aggregate net assets over $56.0 billion, up to and including $70.0 billion, plus 0.45% per annum of the aggregate net assets over $70.0 billion, up to and including $84.0 billion, plus 0.40% per annum of the
aggregate net assets in excess of $84.0 billion.
For its investment advisory services to certain of the Funds included in this SAI, BFA is entitled to receive a management fee from such Funds corresponding to each of the Fund's allocable portion
of an aggregate management fee based on the aggregate average daily net assets of the following iShares funds: iShares MSCI Australia Index Fund, iShares MSCI Austria Capped Investable Market Index Fund, iShares MSCI Belgium Capped Investable Market
Index Fund, iShares MSCI Canada Index Fund, iShares MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Germany Index Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI Ireland Capped Investable Market Index Fund, iShares MSCI Italy
Capped Index Fund, iShares MSCI Japan Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Malaysia Index Fund, iShares MSCI Mexico Capped Investable Market Index Fund, iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI
New Zealand Capped Investable Market Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI Spain Capped Index Fund, iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Capped Index Fund and iShares MSCI United Kingdom Index Fund. The
aggregate management fee is calculated as follows: 0.59% per annum of the aggregate net assets less than or equal to $7.0 billion, plus 0.54% per annum of the aggregate net assets over $7.0 billion, up to and including $11.0 billion, plus 0.49% per
annum of the aggregate net assets over $11.0 billion, up to and including $24.0 billion, plus 0.44% per annum of the aggregate net assets over $24.0 billion, up to and including $48.0 billion, plus 0.40% per annum of the aggregate net assets in
excess of $48.0 billion.
For its investment advisory services to certain of the Funds included in this SAI, BFA is entitled to receive a management fee from such Funds corresponding to each of the Fund’s allocable portion of an aggregate
management fee based on the aggregate average daily net assets of the following iShares funds: iShares Human Rights Index Fund, iShares MSCI ACWI ex US Index Fund, iShares MSCI ACWI Index Fund, iShares MSCI All Country World Minimum Volatility Index
Fund, iShares MSCI EAFE Index Fund and iShares MSCI EAFE Minimum Volatility Index Fund. The aggregate management fee is calculated as follows: 0.35% per annum of the aggregate net assets less than or equal to $30 billion, plus 0.32% per annum of the
aggregate net assets over $30.0 billion, up to and including $60.0 billion, plus 0.28% per annum of the aggregate net assets in excess of $60.0 billion.
Fund
|
|
Management
Fee for the Fiscal Year Ended August 31, 2012 |
|
Fund
Inception Date |
|
Management
Fees Paid For Fiscal Year Ended August 31, 2012 |
|
Management
Fees Paid For Fiscal Year Ended August 31, 2011 |
|
Management
Fees Paid For Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI All Country World Minimum Volatility Index Fund1 |
|
0.34%
|
|
10/18/11
|
|
$
538,193 |
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Brazil Capped Index Fund |
|
0.61%
|
|
07/10/00
|
|
55,389,902
|
|
$70,082,394
|
|
62,208,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI BRIC Index Fund2 |
|
0.69%
|
|
11/12/07
|
|
5,399,206
|
|
7,422,667
|
|
5,634,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
0.61%
|
|
11/12/07
|
|
3,655,560
|
|
5,158,425
|
|
2,148,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Management
Fee for the Fiscal Year Ended August 31, 2012 |
|
Fund
Inception Date |
|
Management
Fees Paid For Fiscal Year Ended August 31, 2012 |
|
Management
Fees Paid For Fiscal Year Ended August 31, 2011 |
|
Management
Fees Paid For Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI Emerging Markets Asia Index Fund3 |
|
0.68% |
|
02/08/12
|
|
64,202
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
0.68%
|
|
02/08/12
|
|
31,777
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets EMEA Index Fund4 |
|
0.68%
|
|
01/18/12
|
|
31,766
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
0.68%
|
|
02/08/12
|
|
28,472
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Growth Index Fund5 |
|
0.68%
|
|
02/08/12
|
|
39,428
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund6 |
|
0.69%
|
|
04/07/03
|
|
238,711,967
|
|
279,756,799
|
|
246,844,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund7 |
|
0.69%
|
|
10/18/11
|
|
726,408
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
0.69%
|
|
08/16/11
|
|
246,547
|
|
19,301
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Value Index Fund8 |
|
0.68%
|
|
02/08/12
|
|
36,290
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Frontier 100 Index Fund |
|
N/A
|
|
09/12/12
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Agriculture Producers Fund9 |
|
0.39%
|
|
01/31/12
|
|
11,217
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Energy Producers Fund |
|
0.39%
|
|
01/31/12
|
|
10,385
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund10 |
|
0.39%
|
|
01/31/12
|
|
6,435
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Malaysia Index Fund |
|
0.53%
|
|
03/12/96
|
|
4,728,077
|
|
5,141,467
|
|
3,134,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Korea Capped Index Fund |
|
0.61%
|
|
05/09/00
|
|
19,188,641
|
|
25,850,014
|
|
18,891,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Taiwan Index Fund |
|
0.61%
|
|
06/20/00
|
|
14,284,338
|
|
19,324,501
|
|
19,597,924
|
|
1 |
For the iShares MSCI All
Country World Minimum Volatility Index Fund, BFA has contractually agreed to waive its management fees, as of December 6, 2011, in an amount equal to the Fund's pro rata share of the fees and expenses
attributable to the Fund's investments in other iShares Funds, “Acquired Fund Fees and Expenses,” through June 30, 2014. Effective May 16, 2012, BFA has voluntarily agreed to waive a portion of its management fee in order to limit the
total annual fund operating expenses to 0.20%. For the fiscal year ended August 31, 2012, BFA waived $6,796 of its management fees. |
2 |
For the iShares MSCI BRIC
Index Fund, BFA may voluntarily waive a portion of the management fee, as it determines, from time to time. During the period from September 1, 2010 through December 31, 2010, BFA voluntarily waived a portion of its management fee. For the fiscal
years ended 2011 and 2012, BFA waived $31,041 and $0, respectively, of its management fees. |
3 |
For the iShares MSCI Emerging
Markets Asia Index Fund, BFA has contractually agreed to waive a portion of its management fee for its investment |
|
advisory services to the Fund
in order to limit Total Annual Fund Operating Expenses to 0.49% of average daily net assets until December 31, 2014. For the fiscal year ended August 31, 2012, BFA waived $17,939 of its management fees. |
4 |
For the iShares MSCI Emerging
Markets EMEA Index Fund, BFA has contractually agreed to waive a portion of its management fee for its investment advisory services to the Fund in order to limit Total Annual Fund Operating Expenses to 0.49% of average daily net assets until
December 31, 2014. For the fiscal year ended August 31, 2012, BFA waived $8,876 of its management fees. |
5 |
For the iShares MSCI Emerging
Markets Growth Index Fund, BFA has contractually agreed to waive a portion of its management fee for its investment advisory services to the Fund in order to limit Total Annual Fund Operating Expenses to 0.49% of average daily net assets until
December 31, 2014. For the fiscal year ended August 31, 2012, BFA waived $11,017 of its management fees. |
6 |
For the iShares MSCI Emerging
Markets Index Fund, BFA has contractually agreed to waive a portion of its management fees in an amount equal to the Fund's pro rata share of the fees and expenses attributable to the Fund's investments in
other iShares funds, “Acquired Fund Fees and Expenses,” through June 30, 2014. For the fiscal years ended 2010, 2011 and 2012, BFA waived $1,176,450, $496,608 and $4,168, respectively, of its management fees. Effective June 13, 2011, BFA
has voluntarily agreed to waive a portion of its management fee in order to limit the management fee to 0.68%. For the fiscal years ended 2011 and 2012, BFA waived $1,753,488 and $2,966,217, respectively. |
7 |
For the iShares MSCI Emerging
Markets Minimum Volatility Index Fund, BFA has contractually agreed to waive a portion of its management fee for its investment advisory services to the Fund in order to limit Total Annual Fund Operating Expenses to 0.25% of average daily net assets
until December 31, 2014. For the fiscal year ended August 31, 2012, BFA waived $461,865 of its management fees. |
8 |
For the iShares MSCI Emerging
Markets Value Index Fund, BFA has contractually agreed to waive a portion of its management fee for its investment advisory services to the Fund in order to limit Total Annual Fund Operating Expenses to 0.49% of average daily net assets until
December 31, 2014. For the fiscal year ended August 31, 2012, BFA waived $10,140 of its management fees. |
9 |
For the iShares MSCI Global
Agriculture Producers Fund, BFA has contractually agreed to waive a portion of its management fee in an amount equal to the Fund’s pro rata share of the fees and expenses attributable to the Fund’s
investments in other iShares funds, “Acquired Fund Fees and Expenses,” through December 31, 2014. The contractual waiver may be terminated prior to December 31, 2014 only upon written agreement of the Company and BFA. Acquired Fund Fees
and Expenses are based on estimated amounts for the current fiscal year. For the fiscal year ended August 31, 2012, BFA waived $206 of its management fees. |
10 |
For the iShares MSCI Global
Select Metals & Mining Producers Fund, BFA has contractually agreed to waive a portion of its management fee in an amount equal to the Fund’s pro rata share of the fees and expenses attributable to
the Fund’s investments in other iShares funds, “Acquired Fund Fees and Expenses,” through December 31, 2014. The contractual waiver may be terminated prior to December 31, 2014 only upon written agreement of the Company and BFA.
Acquired Fund Fees and Expenses are based on estimated amounts for the current fiscal year. For the fiscal year ended August 31, 2012, BFA waived $0 of its management fees. |
The investment advisory agreement with respect to each Fund
continues in effect for two years from its effective date, and thereafter is subject to annual approval by (i) the Board, or (ii) the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the applicable Fund,
provided that in either event such continuance also is approved by a majority of the Board who are not interested persons (as defined in the 1940 Act) of the applicable Fund, by a vote cast in person at a meeting called for the purpose of voting on
such approval.
The investment advisory agreement with
respect to each Fund is terminable without penalty, on 60 days' notice, by the Board or by a vote of the holders of a majority of the applicable Fund’s outstanding voting securities (as defined in the 1940 Act). The investment advisory
agreement is also terminable upon 60 days' notice by BFA and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
Current interpretations of U.S. federal banking laws and
regulations (i) may prohibit BlackRock, Inc., BFA or its affiliates from controlling or underwriting the shares of the Funds, but (ii) do not prohibit BlackRock, Inc. or BFA generally from acting as an investment adviser, administrator, transfer
agent or custodian to the Funds or from purchasing shares as agent for and upon the order of a customer.
BFA believes that it may perform advisory and related services
for the Company without violating applicable banking laws or regulations. However, the legal requirements and interpretations about the permissible activities of banks and their affiliates may change in the future. These changes could prevent BFA
from continuing to perform services for the Company. If this happens, the Board would consider selecting other qualified firms. Any new investment advisory agreement would be subject to shareholder approval.
If current restrictions on bank activities with mutual funds
were relaxed, BFA, or its affiliates, would consider performing additional services for the Company. BFA cannot predict whether these changes will be enacted, or the terms under which BFA, or its affiliates, might offer to provide additional
services.
Each Subsidiary has entered into a separate
contract with BFA whereby BFA provides investment advisory services to each Subsidiary. BFA does not receive separate compensation from each Subsidiary for providing it with investment advisory services. Each applicable Fund pays BFA a management
fee based on the Fund's assets, including the assets invested in each Subsidiary. Each Subsidiary has also entered into separate arrangements that provide for the provision of other services to
each Subsidiary (including administrative, custody, transfer agency and other
services), and BFA shall pay the costs and expenses related to the provision of those services.
Portfolio Managers. As
of August 31, 2012, the individuals named as Portfolio Managers in the Funds' Prospectuses were also primarily responsible for the day-to-day management of other iShares funds and certain other types of portfolios and/or accounts as
follows:
Christopher
Bliss |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
26
|
|
$
10,800,000,000 |
|
Other
Pooled Investment Vehicles |
|
161
|
|
$
392,800,000,000 |
|
Other
Accounts |
|
150
|
|
$278,800,000,000
|
|
Accounts
with Incentive-Based Fee Arrangements |
|
N/A
|
|
N/A
|
|
Rene
Casis |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
203
|
|
$293,000,000,000
|
|
Other
Pooled Investment Vehicles |
|
68
|
|
$
51,400,000,000 |
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
Accounts
with Incentive-Based Fee Arrangements |
|
N/A
|
|
N/A
|
|
Diane
Hsiung |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
201
|
|
$293,000,000,000
|
|
Other
Pooled Investment Vehicles |
|
15
|
|
$
8,000,000,000 |
|
Other
Accounts |
|
4
|
|
$
113,000,000 |
|
Accounts
with Incentive-Based Fee Arrangements |
|
N/A
|
|
N/A
|
|
Jennifer Hsui
|
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
56
|
|
$
174,400,000,000 |
|
Other
Pooled Investment Vehicles |
|
26
|
|
$162,000,000,000
|
|
Other
Accounts |
|
40
|
|
$
53,400,000,000 |
|
Accounts
with Incentive-Based Fee Arrangements |
|
N/A
|
|
N/A
|
|
Greg
Savage |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
206
|
|
$295,600,000,000
|
|
Other
Pooled Investment Vehicles |
|
83
|
|
$
55,300,000,000 |
|
Other
Accounts |
|
3
|
|
$
64,400,000 |
|
Accounts
with Incentive-Based Fee Arrangements |
|
N/A
|
|
N/A
|
|
Each of the portfolios or accounts for which the Portfolio
Managers are primarily responsible for the day-to-day management seeks to track the rate of return, risk profile and other characteristics of independent third-party indexes by either replicating the same combination of securities that constitute
those indexes or through a representative sampling of the securities that constitute those indexes based on objective criteria and data. Pursuant to BFA’s policy, investment opportunities are allocated equitably among the Funds and other
portfolios and accounts. For example, under certain circumstances, an investment opportunity may be restricted due to limited supply on the market, legal constraints or other factors, in which event the investment opportunity will be allocated
equitably among those portfolios and accounts, including the Funds seeking such
investment opportunity. As a consequence, from time to time each Fund may
receive a smaller allocation of an investment opportunity than it would have if the Portfolio Managers and BFA and its affiliates did not manage other portfolios or accounts.
Like the Funds, the other portfolios or accounts for which the
Portfolio Managers are primarily responsible for the day-to-day portfolio management generally pay an asset-based fee to BFA or its affiliates, as applicable, for its advisory services. One or more of those other portfolios or accounts, however, may
pay BFA or its affiliates an incentive-based fee in lieu of, or in addition to, an asset-based fee for its advisory services. A portfolio or account with an incentive-based fee would pay BFA or its affiliates a portion of that portfolio’s or
account’s gains, or would pay BFA or its affiliates more for its services than would otherwise be the case if BFA or any of its affiliates meets or exceeds specified performance targets. By their nature, incentive-based fee arrangements could
present an incentive for BFA or its affiliates to devote greater resources, and allocate more investment opportunities, to the portfolios or accounts that have those fee arrangements, relative to other portfolios or accounts, in order to earn larger
fees. Although BFA and each of its affiliates has an obligation to allocate resources and opportunities equitably among portfolios and accounts and intends to do so, shareholders of the Funds should be aware that, as with any group of portfolios and
accounts managed by an investment adviser and/or its affiliates pursuant to varying fee arrangements, including incentive-based fee arrangements, there is the potential for a conflict of interest that may result in the Portfolio Managers' favoring
those portfolios or accounts with incentive-based fee arrangements.
The tables below show, for each Portfolio Manager, the number
of portfolios or accounts of the types set forth in the above tables and the aggregate of total assets in those portfolios or accounts with respect to which the investment management fees are based on the performance of those portfolios or
accounts as of August 31, 2012:
Christopher
Bliss |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance-Based Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
Rene
Casis |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance-Based Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
Diane
Hsiung |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance-Based Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
Jennifer Hsui
|
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Jennifer Hsui
|
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
Greg
Savage |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance-Based Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
The discussion below describes the Portfolio Managers'
compensation as of August 31, 2012.
Portfolio Manager
Compensation Overview
BlackRock, Inc.'s financial
arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to
year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established
by BlackRock, Inc.
Base compensation. Generally, portfolio managers receive base compensation based on their position with the firm.
Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager's group within BlackRock, Inc. and the individual's performance and
contribution to the overall performance of these portfolios and BlackRock, Inc.
Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of years. The BlackRock, Inc. restricted
stock units, if properly vested, will be settled in BlackRock, Inc. common stock. Typically, the cash bonus, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of annual
bonuses in stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock, Inc.'s ability to sustain and improve its performance over future periods.
Long-Term Incentive Plan Awards — From time to time, long-term incentive equity awards are granted to certain key employees to aid in retention, align their interests with long-term shareholder interests and motivate performance. Equity awards are
generally granted in the form of BlackRock, Inc. restricted stock units that, once vested, settle in BlackRock, Inc. common stock.
Deferred Compensation Program
— A portion of the compensation paid to eligible BlackRock, Inc. employees may be voluntarily deferred at their election for defined periods of time into an account that tracks the performance of certain of the firm's investment products. All
of the eligible portfolio managers have participated in the deferred compensation program.
Other Compensation Benefits.
In addition to base compensation and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:
Incentive Savings Plans
— BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (“RSP”), and the BlackRock Employee
Stock Purchase Plan (“ESPP”). The employer contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution
equal to 3-5% of eligible compensation up to the U.S. Internal Revenue Service (the “IRS”) limit ($250,000 for 2012). The RSP offers a range of investment options, including registered investment companies and collective investment funds
managed by the firm. BlackRock, Inc. contributions follow the investment direction set by participants for their own
contributions or, absent participant investment direction, are invested into
an index target date fund that corresponds to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase
date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the Purchase Date. Christopher Bliss, Rene Casis, Diane Hsiung, Jennifer Hsui and Greg
Savage are each eligible to participate in these plans.
As of August 31, 2012, the Portfolio Managers beneficially
owned shares of the Funds, for which they are primarily responsible for the day-to-day management, in the amounts reflected in the following tables:
Christopher
Bliss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Brazil Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
|
|
|
X
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Value Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Frontier 100 Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Malaysia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Korea Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Taiwan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Rene
Casis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI All Country World Minimum Volatility Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Brazil Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI BRIC Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Rene
Casis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Value Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Frontier 100 Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Agriculture Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Energy Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Malaysia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Korea Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Taiwan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Diane
Hsiung |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI All Country World Minimum Volatility Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Brazil Capped Index Fund |
|
|
X
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI BRIC Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Value Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Frontier 100 Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Agriculture Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Diane
Hsiung |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Global Energy Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Malaysia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Korea Capped Index Fund |
|
|
X
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Taiwan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Jennifer Hsui
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI All Country World Minimum Volatility Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Brazil Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI BRIC Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
|
|
|
X
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Value Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Frontier 100 Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Agriculture Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Energy Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Malaysia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Korea Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Taiwan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg
Savage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI All Country World Minimum Volatility Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Brazil Capped Index Fund |
|
|
X
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI BRIC Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Value Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Frontier 100 Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Agriculture Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Energy Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Malaysia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Korea Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Taiwan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Codes of Ethics. The
Company, BFA and the Distributor have adopted codes of ethics pursuant to Rule 17j-1 of the 1940 Act.
The codes of ethics permit personnel subject to the codes of ethics to invest in securities, subject to certain limitations, including
securities that may be purchased or held by the Funds. The codes of ethics are on public file with, and are available from, the SEC.
Anti-Money Laundering Requirements. The Funds are subject to the USA PATRIOT Act (the “Patriot Act”). The Patriot Act is intended to prevent the use of the U.S. financial system in furtherance of money laundering, terrorism or other
illicit activities. Pursuant to requirements under the Patriot Act, a Fund may request information from Authorized Participants to enable it to form a reasonable belief that it knows the true identity of its Authorized Participants. This information
will be used to verify the identity of Authorized Participants or, in some cases, the status of financial professionals; it will be used only for compliance with the requirements of the Patriot Act.
The Funds reserve the right to reject purchase orders from
persons who have not submitted information sufficient to allow the Fund to verify their identity. Each Fund also reserves the right to redeem any amounts in a Fund from persons whose identity it is unable to verify on a timely basis. It is the
Funds' policy to cooperate fully with appropriate regulators in any investigations conducted with respect to potential money laundering, terrorism or other illicit activities.
Administrator, Custodian and Transfer Agent. State Street Bank and Trust Company (“State Street”) serves as administrator, custodian and transfer agent for the Funds under the Master Services Agreement and related Service Schedule (the
“Service Module”). State Street’s principal address is 200 Clarendon Street, Boston, MA 02116. Pursuant to the Service Module for Fund Administration and Accounting Services with the Company, State Street provides necessary
administrative, legal, tax and accounting and financial reporting services for the maintenance and operations of the Company and each Fund. In addition, State Street makes available the office space, equipment, personnel and facilities required to
provide such services. Pursuant to the Service Module for Custodial Services with the Company, State Street maintains, in separate accounts, cash, securities and other assets of the Company and each Fund, keeps all necessary accounts and records and
provides other services. State Street is required, upon the order of the Company, to deliver securities held by State Street and to make payments for securities purchased by the Company for each Fund. State Street is authorized to appoint certain
foreign custodians or foreign custody managers for Fund investments outside the United States. Pursuant to the Service Module for Transfer Agency Services with the Company, State Street acts as a transfer agent for each Fund’s authorized and
issued shares of beneficial interest, and as dividend disbursing agent of the Company. As compensation for these services, State Street receives certain out-of-pocket costs, transaction fees and asset-based fees which are accrued daily and paid
monthly by BFA from its management fee.
The
following table sets forth the administration, transfer agency and custodian expenses of each Fund paid by BFA to State Street for the fiscal years noted:
Fund
|
|
Fund
Inception Date |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended August 31, 2012 |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended August 31, 2011 |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
|
10/18/11
|
|
$
38,593 |
|
N/A
|
|
N/A
|
|
iShares
MSCI Brazil Capped Index Fund |
|
07/10/00
|
|
2,201,629
|
|
$
3,572,483 |
|
$2,856,615
|
|
iShares
MSCI BRIC Index Fund |
|
11/12/07
|
|
327,518
|
|
375,650
|
|
235,239
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
11/12/07
|
|
1,218,196
|
|
1,875,542
|
|
795,458
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
|
02/08/12
|
|
22,673
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
02/08/12
|
|
9,079
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
|
01/18/12
|
|
15,028
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
02/08/12
|
|
10,666
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
|
02/08/12
|
|
26,886
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Index Fund |
|
04/07/03
|
|
11,972,729
|
|
11,982,773
|
|
8,113,964
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
|
10/18/11
|
|
91,139
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
08/16/11
|
|
50,003
|
|
10,064
|
|
N/A
|
|
iShares
MSCI Emerging Markets Value Index Fund |
|
02/08/12
|
|
26,686
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Frontier 100 Index Fund |
|
09/12/12
|
|
N/A
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Agriculture Producers Fund |
|
01/31/12
|
|
11,700
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Energy Producers Fund |
|
01/31/12
|
|
12,779
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
01/31/12
|
|
14,747
|
|
N/A
|
|
N/A
|
|
Fund
|
|
Fund
Inception Date |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended August 31, 2012 |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended August 31, 2011 |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI Malaysia Index Fund |
|
03/12/96
|
|
354,845
|
|
519,684
|
|
283,792
|
|
iShares
MSCI South Korea Capped Index Fund |
|
05/09/00
|
|
656,330
|
|
1,026,895
|
|
715,573
|
|
iShares
MSCI Taiwan Index Fund |
|
06/20/00
|
|
721,934
|
|
1,324,096
|
|
1,186,654
|
|
Subsidiary Administrator.
International Financial Services Limited (“IFS”) serves as each Subsidiary's Mauritius
administrator. Pursuant to an agreement with IFS, each Subsidiary pays a fee for administrative, legal,
tax and accounting services to IFS, for certain shareholder services and for providing office space, equipment, personnel and facilities required to provide such services to each Subsidiary.
Distributor. The
Distributor's principal address is 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310. Shares are continuously offered for sale by the Funds through the Distributor or its agent only in Creation Units, as described in the applicable
Prospectus and below in the Creation and Redemption of Creation Units section of this SAI. Fund shares in amounts less than Creation Units are generally not distributed by the Distributor or its agent. The Distributor or its agent will arrange for the delivery of the applicable Prospectus
and, upon request, this SAI to persons purchasing Creation Units and will maintain records of both orders placed with it or its agents and confirmations of acceptance furnished by it or its agents. The Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934, as amended (the “1934 Act”), and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
The Distribution Agreement for each Fund provides that it may
be terminated at any time, without the payment of any penalty, on at least 60 days' prior written notice to the other party following (i) the vote of a majority of the Independent Directors, or (ii) the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the relevant Fund. The Distribution Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities
dealers (“Soliciting Dealers”) who will solicit purchases of Creation Units of Fund shares. Such Soliciting Dealers may also be Authorized Participants (as defined below), DTC participants and/or investor services organizations.
BFA or its affiliates may, from time to time and from its own
resources, pay, defray or absorb costs relating to distribution, including payments out of its own resources to the Distributor, or to otherwise promote the sale of shares.
The Distributor serves as the Funds' distributor as of April
1, 2012. Prior to that date, SEI Investments Distribution Co. (“SEI”), located at One Freedom Valley Drive, Oaks, PA 19456, served as the distributor to the Funds. The following table sets forth the compensation paid by BFA to SEI for
certain services, not primarily intended to result in the sale of Fund shares, provided to each Fund during the fiscal years noted:
Fund
|
Fund
Inception Date |
|
Distributor
Compensation Paid From April 1, 2012 to August 31, 20121 |
|
Distributor
Compensation Paid From September 1, 2011 to March 31, 20122 |
|
Distributor
Compensation Paid During Fiscal Year Ended August 31, 2011 |
|
Distributor
Compensation Paid During Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
10/18/11
|
|
$3,318
|
|
$
5,369 |
|
N/A
|
|
N/A
|
|
iShares
MSCI Brazil Capped Index Fund |
07/10/00
|
|
3,318
|
|
6,270
|
|
$
11,753 |
|
$
13,367 |
|
iShares
MSCI BRIC Index Fund |
11/12/07
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
11/12/07
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
02/08/12
|
|
3,318
|
|
1,712
|
|
N/A
|
|
N/A
|
|
Fund
|
Fund
Inception Date |
|
Distributor
Compensation Paid From April 1, 2012 to August 31, 20121 |
|
Distributor
Compensation Paid From September 1, 2011 to March 31, 20122 |
|
Distributor
Compensation Paid During Fiscal Year Ended August 31, 2011 |
|
Distributor
Compensation Paid During Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
02/08/12
|
|
3,318
|
|
1,712
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
01/18/12
|
|
3,318
|
|
2,621
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
02/08/12
|
|
3,318
|
|
1,712
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
02/08/12
|
|
3,318
|
|
1,712
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Index Fund |
04/07/03
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
10/18/11
|
|
3,318
|
|
5,369
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
08/16/11
|
|
3,318
|
|
6,270
|
|
948
|
|
N/A
|
|
iShares
MSCI Emerging Markets Value Index Fund |
02/08/12
|
|
3,318
|
|
1,712
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Frontier 100 Index Fund |
09/12/12
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Agriculture Producers Fund |
01/31/12
|
|
3,318
|
|
1,712
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Energy Producers Fund |
01/31/12
|
|
3,318
|
|
1,712
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
01/31/12
|
|
3,318
|
|
1,712
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Malaysia Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI South Korea Capped Index Fund |
05/09/00
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Taiwan Index Fund |
06/20/00
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
1 |
BRIL serves as the
distributor to the Funds effective April 1, 2012. These fees reflected payments made to SEI, acting as an agent of the Distributor. |
2 |
SEI served as the distributor
to the Funds through March 31, 2012. |
Payments by BFA and its Affiliates. BFA and/or its affiliates (“BFA Entities”) pay certain broker-dealers, banks and other financial intermediaries (“Intermediaries”) for certain activities related to the Funds, other iShares
funds or exchange-traded products in general. BFA Entities make these payments from their own assets and not from the assets of the Funds. Although a portion of BFA Entities’ revenue comes directly or indirectly in part from fees paid by the
Funds and other iShares funds, these payments do not increase the price paid by investors for the purchase of shares of, or the cost of owning, the Fund or other iShares funds. BFA Entities make payments for Intermediaries’ participation in
activities that are designed to make registered representatives, other professionals and individual investors more knowledgeable about exchange-traded products, including the Funds, or for other activities, such as participation in marketing
activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems (“Education Costs”). BFA Entities also make payments to Intermediaries for certain printing,
publishing and mailing costs associated with the Funds or materials relating to exchange-traded products in general (“Publishing Costs”). In addition, BFA Entities make payments to Intermediaries that make shares of the Funds and certain
other iShares funds available to their clients, develop new products that feature iShares or otherwise promote the Funds and other iShares funds. BFA Entities may also reimburse expenses or make payments from their own assets to Intermediaries or
other persons in consideration of services or other activities that the BFA Entities believe may benefit the iShares business or facilitate investment in iShares funds. Payments of the type described above are sometimes referred to as
revenue-sharing payments.
Payments to an
Intermediary may be significant to the Intermediary, and amounts that Intermediaries pay to your salesperson or other investment professional may also be significant for your salesperson or other investment professional. Because an Intermediary may
make decisions about which investment options it will recommend or make available to its clients or what services to provide for various products based on payments it receives or is eligible to receive, such payments may create conflicts of interest
between the Intermediary and its clients and these financial incentives may cause the
Intermediary to recommend the Fund and other iShares funds over other
investments. The same conflict of interest and financial incentive exist with respect to your salesperson or other investment professional if he or she receives similar payments from his or her Intermediary firm.
As of March 1, 2013, BFA Entities have contractual arrangements
to make payments (in addition to payments for Education Costs or Publishing Costs) to one Intermediary, Fidelity Brokerage Services LLC (“FBS”). Pursuant to this special, long-term and significant arrangement (the “Marketing
Program”), FBS and certain affiliates (collectively “Fidelity”) have agreed, among other things, to actively promote iShares funds to customers and investment professionals and in advertising campaigns as the preferred
exchange-traded product, to offer certain iShares funds in certain Fidelity platforms and investment programs, in some cases at a reduced commission rate, and to provide marketing data to BFA Entities. BFA Entities have agreed to facilitate the
Marketing Program by, among other things, making certain payments to FBS for marketing and implementing certain brokerage and investment programs. Upon termination of the arrangement, the BFA Entities will make additional payments to FBS based upon
a number of criteria, including the overall success of the Marketing Program and the level of services provided by FBS during the wind-down period.
Any additions, modifications, or deletions to Intermediaries
listed above that have occurred since the date noted above are not included in the list. Further, BFA Entities make Education Costs and Publishing Costs payments to other Intermediaries that are not listed above. BFA Entities may determine to make
such payments based on any number of metrics. For example, BFA Entities may make payments at year-end or other intervals in a fixed amount, an amount based upon an Intermediary’s services at defined levels or an amount based on the
Intermediary’s net sales of one or more iShares funds in a year or other period, any of which arrangements may include an agreed-upon minimum or maximum payment, or any combination of the foregoing. As of the date of this SAI, BFA anticipates
that the payments paid by BFA Entities in connection with the Funds, iShares funds and exchange-traded products in general will be immaterial to BFA Entities in the aggregate for the next year. Please contact your
salesperson or other investment professional for more information regarding any such payments his or her Intermediary firm may receive. Any payments made by the BFA Entities to an Intermediary may create the incentive for an Intermediary to
encourage customers to buy shares of iShares funds.
The Funds may participate in certain market maker incentive
programs of a national securities exchange in which an affiliate of the Funds would pay a fee to the exchange used for the purpose of incentivizing one or more market makers in the securities of a Fund to enhance the liquidity and quality of the
secondary market of securities of the Fund. The fee would then be credited by the exchange to one or more market makers that meet or exceed liquidity and market quality standards with respect to the securities of a Fund. Each market maker incentive
program is subject to approval from the SEC. Any such fee payments made to an exchange will be made by an affiliate of a Fund solely for the benefit of the Fund and will not be paid from any Fund assets.
Brokerage Transactions
BFA assumes general supervision over placing orders on behalf
of each Fund for the purchase and sale of portfolio securities. In selecting brokers or dealers for any transaction in portfolio securities, BFA’s policy is to make such selection based on factors deemed relevant, including but not limited to,
the breadth of the market in the security, the price of the security, the reasonableness of the commission or mark-up or mark-down, if any, execution capability, settlement capability, back office efficiency and the financial condition of the broker
or dealer, both for the specific transaction and on a continuing basis. The overall reasonableness of brokerage commissions paid is evaluated by BFA based upon its knowledge of available information as to the general level of commissions paid by
other institutional investors for comparable services. Brokers may also be selected because of their expertise in certain markets or with certain securities, or their ability to handle special or difficult executions, such as may be involved in
large block trades, less liquid securities, broad distributions, or other circumstances. BFA does not consider the provision or value of research, products or services a broker or dealer may provide, if any, as a factor in the selection of a broker
or dealer or the determination of the reasonableness of commissions paid in connection with portfolio transactions. The Company has adopted policies and procedures that prohibit the consideration of sales of a Fund’s shares as a factor in the
selection of a broker or a dealer to execute its portfolio transactions.
The table below sets forth the brokerage commissions paid by
each Fund for the fiscal years noted. Any differences in brokerage commissions paid by a Fund from year to year are due to increases or decreases in that Fund’s assets over those periods:
Fund
|
|
Fund
Inception Date |
|
Brokerage
Commissions Paid During Fiscal Year Ended August 31, 2012 |
|
Brokerage
Commissions Paid During Fiscal Year Ended August 31, 2011 |
|
Brokerage
Commissions Paid During Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
|
10/18/11
|
|
$
21,707 |
|
N/A
|
|
N/A
|
|
iShares
MSCI Brazil Capped Index Fund |
|
07/10/00
|
|
745,661
|
|
$
1,279,030 |
|
$
1,601,458 |
|
iShares
MSCI BRIC Index Fund |
|
11/12/07
|
|
454,612
|
|
97,224
|
|
60,875
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
11/12/07
|
|
469,532
|
|
96,901
|
|
48,961
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
|
02/08/12
|
|
5,255
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
02/08/12
|
|
1,969
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
|
01/18/12
|
|
830
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
02/08/12
|
|
1,313
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
|
02/08/12
|
|
2,115
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Index Fund |
|
04/07/03
|
|
6,520,213
|
|
9,556,194
|
|
12,161,035
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
|
10/18/11
|
|
137,666
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
08/16/11
|
|
24,118
|
|
1,125
|
|
N/A
|
|
iShares
MSCI Emerging Markets Value Index Fund |
|
02/08/12
|
|
2,140
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Frontier 100 Index Fund |
|
09/12/12
|
|
N/A
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Agriculture Producers Fund |
|
01/31/12
|
|
565
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Energy Producers Fund |
|
01/31/12
|
|
272
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
01/31/12
|
|
8,990
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Malaysia Index Fund |
|
03/12/96
|
|
286,073
|
|
186,798
|
|
71,874
|
|
iShares
MSCI South Korea Capped Index Fund |
|
05/09/00
|
|
924,271
|
|
290,364
|
|
213,823
|
|
iShares
MSCI Taiwan Index Fund |
|
06/20/00
|
|
819,930
|
|
274,912
|
|
226,077
|
|
None of the Funds paid any brokerage commissions to BlackRock,
an affiliate of BFA, or a subsidiary of BTC, during the fiscal year ended August 31, 2012.
The Funds’ purchase and sale orders for securities may
be combined with those of other investment companies, clients or accounts that BFA or its Affiliates manage or advise and for which they have brokerage placement authority. If purchases or sales of portfolio securities of the Funds and one or more
other accounts managed or advised by BFA or its Affiliates are considered at or about the same time, transactions in such securities are allocated among the Funds and the other accounts in a manner deemed equitable to all by BFA and its Affiliates.
In some cases, this procedure could have a detrimental effect on the price or volume of the security as far as the Funds are concerned. However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate
lower transaction costs will be beneficial to the Funds. BFA and its Affiliates may deal, trade and invest for their own account in the types of securities in which the Funds may invest. BFA and its Affiliates may, from time to time, effect trades
on behalf of and for the account of the Funds with brokers or dealers that are affiliated with BFA, in conformity with the 1940 Act and SEC rules and regulations. Under these provisions, any commissions paid to affiliated brokers or dealers must be
reasonable and fair compared to the commissions charged by other brokers or dealers in comparable transactions. The Funds will not deal with affiliates in principal transactions unless permitted by applicable SEC rules or regulations, or by SEC
exemptive order.
Portfolio turnover may vary from year to year as well as within
a year. High turnover rates may result in comparatively greater brokerage expenses.
The table below sets forth the portfolio turnover rates of each
Fund for the fiscal years noted:
Fund
|
|
Fiscal
Year Ended August 31, 2012 |
|
Fiscal
Year Ended August 31, 2011 |
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
|
22%
|
|
N/A
|
|
iShares
MSCI Brazil Capped Index Fund |
|
7%
|
|
11%
|
|
iShares
MSCI BRIC Index Fund |
|
32%
|
|
13%
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
48%
|
|
38%
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
|
3%
|
|
N/A
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
54%
|
|
N/A
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
|
5%
|
|
N/A
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
29%
|
|
N/A
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
|
12%
|
|
N/A
|
|
iShares
MSCI Emerging Markets Index Fund |
|
15%
|
|
17%
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
|
31%
|
|
N/A
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
32%
|
|
2%
|
|
iShares
MSCI Emerging Markets Value Index Fund |
|
12%
|
|
N/A
|
|
iShares
MSCI Frontier 100 Index Fund |
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Agriculture Producers Fund |
|
6%
|
|
N/A
|
|
iShares
MSCI Global Energy Producers Fund |
|
5%
|
|
N/A
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
1%
|
|
N/A
|
|
iShares
MSCI Malaysia Index Fund |
|
24%
|
|
49%
|
|
iShares
MSCI South Korea Capped Index Fund |
|
12%
|
|
18%
|
|
iShares
MSCI Taiwan Index Fund |
|
22%
|
|
23%
|
|
Creation or redemption transactions, to the extent consisting
of cash, may require a Fund to contemporaneously transact with broker-dealers for purchases of Deposit Securities (as defined below under Fund Deposit) or sales of Fund Securities (as defined below under Redemption of Creation Units), including any foreign exchange, as applicable. Such transactions with a particular broker-dealer may be conditioned upon the broker-dealer’s agreement to transact at guaranteed
price levels in order to reduce transaction costs the Funds would otherwise incur as a consequence of settling creation or redemption baskets in cash rather than in-kind.
Following each Fund’s receipt of an order to purchase or redeem
creation or redemption baskets, to the extent such purchases or redemptions consist of a cash portion, the Fund may enter an order with a broker or dealer to purchase or sell the Deposit Securities or Fund Securities, including any foreign exchange,
as applicable. The terms of such order may, depending on the timing of the transaction and certain other factors, require the broker or dealer to guarantee that a Fund will achieve execution of its order at a price at least as favorable to the Fund
as the Fund’s valuation of the Deposit Securities/Fund Securities used for purposes of calculating the NAV applied to the creation or redemption transaction giving rise to the order (the “Execution Performance Guarantee”). Such
orders may be placed with the purchasing or redeeming Authorized Participant in its capacity as a broker-dealer or with its affiliated broker-dealer. The amount payable to each Fund in respect of any Execution Performance Guarantee will depend on
the results achieved by the executing firm and will vary depending on market activity, timing and a variety of other factors.
To ensure that an Execution Performance Guarantee will be honored on orders arising from creation transactions executed
by an Authorized Participant or its affiliate as broker-dealer, an Authorized Participant is required to deposit an amount with each Fund (the “Execution Performance Deposit”). If the broker-dealer executing the order achieves executions
in market transactions at a price equal to or more favorable than a Fund’s valuation of the Deposit Securities, the Fund receives the benefit of the favorable executions and returns to the Authorized Participant the Execution Performance
Deposit. If, however, the broker-dealer executing the order is unable to achieve executions in market transactions at a price at least equal to a Fund’s valuation of the securities, the Fund retains the portion of the Execution Performance
Deposit equal to the full amount of the execution shortfall (including any taxes, brokerage commissions, foreign exchange or other costs) and may require the
Authorized Participant to deposit any additional amount required to cover the
full amount of the actual Execution Performance Guarantee.
To ensure that an Execution Performance Guarantee will be honored for brokerage orders arising from redemption transactions executed by an Authorized Participant or its affiliate as
broker-dealer, an Authorized Participant agrees to pay the shortfall amount (the “Execution Performance Offset”). If the broker-dealer executing the order achieves executions in market transactions at a price equal to or more favorable
than a Fund’s valuation of the Fund Securities, the Fund receives the benefit of the favorable executions and the Authorized Participant is not called upon to honor the Execution Performance Offset. If, however, the broker-dealer is unable to
achieve executions in market transactions at a price at least equal to a Fund’s valuation of the securities, the Fund will be entitled to the portion of the Execution Performance Offset equal to the full amount of the execution shortfall
(including any taxes, brokerage commissions, foreign exchange or other costs).
The circumstances under which the Execution Performance Guarantee will be used and the expected amount of any Execution Performance Deposit or Execution Performance
Offset for a Fund will be disclosed in the procedures handbook for Authorized Participants and may change from time to time based on the actual experience of the Fund.
Additional Information Concerning the Company
Capital Stock. The
Company currently is comprised of 57 series referred to as funds. Each series issues shares of common stock, par value $0.001 per share. The Company has authorized and issued the following funds as separate series of capital stock: iShares
Asia/Pacific Dividend 30 Index Fund, iShares Core MSCI Emerging Markets ETF, iShares Emerging Markets Corporate Bond Fund, iShares Emerging Markets Dividend Index Fund, iShares Emerging Markets High Yield Bond Fund, iShares Emerging Markets Local
Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund, iShares Global High Yield Corporate Bond Fund, iShares Latin America Bond Fund, iShares MSCI All Country World Minimum Volatility Index Fund, iShares MSCI Australia Index
Fund, iShares MSCI Austria Capped Investable Market Index Fund, iShares MSCI Belgium Capped Investable Market Index Fund, iShares MSCI Brazil Capped Index Fund, iShares MSCI BRIC Index Fund, iShares MSCI Canada Index Fund, iShares MSCI Chile Capped
Investable Market Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging Markets Eastern Europe Index Fund, iShares MSCI Emerging Markets EMEA Index
Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets 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, iShares MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Frontier 100 Index Fund, iShares MSCI Germany Index Fund, 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, iShares MSCI Global Silver Miners Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI
Israel Capped Investable Market Index Fund, iShares MSCI Italy Capped Index Fund, iShares MSCI Japan Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Malaysia Index Fund, iShares MSCI Mexico Capped Investable Market Index Fund,
iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI South Africa Index Fund, iShares MSCI South Korea Capped Index Fund, iShares MSCI Spain Capped Index
Fund, iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Capped Index Fund, iShares MSCI Taiwan Index Fund, iShares MSCI Thailand Capped Investable Market Index Fund, iShares MSCI Turkey Investable Market Index Fund, iShares MSCI United
Kingdom Index Fund, iShares MSCI USA Index Fund and iShares MSCI World Index Fund. The Company has authorized for issuance, but is not currently offering for sale to the public, ten additional series of shares of common stock. The Board may
designate additional series of common stock and classify shares of a particular series into one or more classes of that series. The Amended and Restated Articles of Incorporation confers upon the Board the power to establish the number of shares
which constitute a Creation Unit or by resolution, restrict the redemption right to Creation Units.
Each share issued by a fund has a pro rata interest in the assets of that fund. The Company is currently authorized to issue 31.85 billion shares of common stock. The following number of shares is currently authorized for each of the funds: iShares
Asia/Pacific Dividend 30 Index Fund, 500 million shares; iShares Core MSCI Emerging Markets ETF, 250 million shares; iShares Emerging Markets Corporate Bond Fund, 500 million shares; iShares Emerging Markets Dividend Index Fund, 500 million shares;
iShares Emerging Markets High Yield Bond Fund, 500 million shares; iShares Emerging Markets Local Currency Bond Fund, 500 million shares; iShares Global ex USD High Yield Corporate Bond Fund, 500 million shares; iShares Global High Yield Corporate
Bond Fund, 500 million shares; iShares Latin America Bond Fund, 500 million shares; iShares
MSCI All Country World Minimum Volatility Index Fund, 500 million shares;
iShares MSCI Australia Index Fund, 627.8 million shares; iShares MSCI Austria Capped Investable Market Index Fund, 100 million shares; iShares MSCI Belgium Capped Investable Market Index Fund, 136.2 million shares; iShares MSCI Brazil Capped Index
Fund, 500 million shares; iShares MSCI BRIC Index Fund, 500 million shares; iShares MSCI Canada Index Fund, 340.2 million shares; iShares MSCI Chile Capped Investable Market Index Fund, 200 million shares; iShares MSCI Emerging Markets Asia Index
Fund, 500 million shares; iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, 500 million shares; iShares MSCI Emerging Markets Eastern Europe Index Fund, 200 million shares; iShares MSCI Emerging Markets EMEA Index Fund, 500
million shares; iShares MSCI Emerging Markets Energy Sector Capped Index Fund, 500 million shares; iShares MSCI Emerging Markets Growth Index Fund, 500 million shares; iShares MSCI Emerging Markets Index Fund, 2 billion shares; iShares MSCI Emerging
Markets Minimum Volatility Index Fund, 500 million shares; iShares MSCI Emerging Markets Small Cap Index Fund, 500 million shares; iShares MSCI Emerging Markets Value Index Fund, 500 million shares; iShares MSCI EMU Index Fund, 1 billion shares;
iShares MSCI France Index Fund, 340.2 million shares; iShares MSCI Frontier 100 Index Fund, 500 million shares; iShares MSCI Germany Index Fund, 382.2 million shares; iShares MSCI Global Agriculture Producers Fund, 500 million shares; iShares MSCI
Global Energy Producers Fund, 500 million shares; iShares MSCI Global Gold Miners Fund, 500 million shares; iShares MSCI Global Select Metals & Mining Producers Fund, 500 million shares; iShares MSCI Global Silver Miners Fund, 500 million
shares; iShares MSCI Hong Kong Index Fund, 250 million shares; iShares MSCI Israel Capped Investable Market Index Fund, 500 million shares; iShares MSCI Italy Capped Index Fund, 63.6 million shares; iShares MSCI Japan Index Fund, 2.1246 billion
shares; iShares MSCI Japan Small Cap Index Fund, 500 million shares; iShares MSCI Malaysia Index Fund, 300 million shares; iShares MSCI Mexico Capped Investable Market Index Fund, 255 million shares; iShares MSCI Netherlands Investable Market Index
Fund, 255 million shares; iShares MSCI Pacific ex-Japan Index Fund, 1 billion shares; iShares MSCI Singapore Index Fund, 300 million shares; iShares MSCI South Africa Index Fund, 400 million shares; iShares MSCI South Korea Capped Index Fund, 200
million shares; iShares MSCI Spain Capped Index Fund, 127.8 million shares; iShares MSCI Sweden Index Fund, 63.6 million shares; iShares MSCI Switzerland Capped Index Fund, 318.625 million shares; iShares MSCI Taiwan Index Fund, 900 million shares;
iShares MSCI Thailand Capped Investable Market Index Fund, 200 million shares; iShares MSCI Turkey Investable Market Index Fund, 200 million shares; iShares MSCI United Kingdom Index Fund, 934.2 million shares; iShares MSCI USA Index Fund, 500
million shares; and iShares MSCI World Index Fund, 500 million shares. Fractional shares will not be issued. Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each share is entitled to participate
equally in dividends and distributions declared by the Board with respect to the relevant fund, and in the net distributable assets of such fund on liquidation. Shareholders are entitled to require the Company to redeem Creation Units of their
shares. The Articles of Incorporation confer upon the Board the power, by resolution, to alter the number of shares constituting a Creation Unit or to specify that shares of common stock of the Company may be individually redeemable.
Each share has one vote with respect to matters upon which a
stockholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder and the Maryland General Corporation Law. Stockholders have no cumulative voting rights with respect to their shares. Shares of all
funds vote together as a single class except that, if the matter being voted on affects only a particular fund or, if a matter affects a particular fund differently from other funds, that fund will vote separately on such matter.
Under Maryland law, the Company is not required to hold an
annual meeting of stockholders unless required to do so under the 1940 Act. The policy of the Company is not to hold an annual meeting of stockholders unless required to do so under the 1940 Act. Under Maryland law, Directors of the Company may be
removed by vote of the stockholders.
Following the
creation of the initial Creation Unit(s) of shares of a fund and immediately prior to the commencement of trading in such fund’s shares, a holder of shares may be a “control person” of the fund, as defined in the 1940 Act. A fund
cannot predict the length of time for which one or more stockholders may remain a control person of the fund.
Stockholders may make inquiries by writing to iShares, Inc.,
c/o BlackRock Investments, LLC, 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310.
Absent an applicable exemption or other relief from the SEC or
its staff, beneficial owners of more than 5% of the shares of a fund may be subject to the reporting provisions of Section 13 of the 1934 Act and the SEC’s rules promulgated thereunder. In addition, absent an applicable exemption or other
relief from the SEC or its staff, officers and directors of a fund and beneficial owners of 10% of the shares of a fund (“Insiders”) may be subject to the insider reporting, short-swing profit and short sale provisions of Section 16 of
the 1934 Act and the SEC’s rules promulgated thereunder. Beneficial owners and Insiders should consult with their own legal counsel concerning their obligations under Sections 13 and 16 of the 1934 Act.
Termination of the Company or a Fund. The Company or a Fund may be terminated by a majority vote of the Board, or the affirmative vote of a supermajority of the shareholders of the Company or such Fund entitled to vote on termination. Although the
shares are not automatically redeemable upon the occurrence of any specific event, the organizational documents provide that the Board will have the unrestricted power to alter the number of shares in a Creation Unit. In the event of a termination
of the Company or a Fund, the Board, in its sole discretion, could determine to permit the shares to be redeemable in aggregations smaller than Creation Units or to be individually redeemable. In such circumstance, the Company may make redemptions
in-kind, for cash or for a combination of cash or securities.
DTC as Securities Depository for Shares of the Funds. Shares of each Fund are represented by securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold
securities of its participants (“DTC Participants”) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities’ certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (“NYSE”), the NYSE Amex Equities and FINRA. Access to the DTC system is also available to
others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (“Indirect Participants”).
Beneficial ownership of shares is limited to DTC Participants,
Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in shares (owners of such beneficial interests are referred to herein as “Beneficial Owners”) is
shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of shares. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such laws may impair the ability of certain investors to acquire beneficial interests in shares.
Conveyance of all notices, statements and other communications
to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Company and DTC, DTC is required to make available to the Company upon request and for a fee to be charged to the Company a listing of the shares of each
Fund held by each DTC Participant. The Company shall inquire of each such DTC Participant as to the number of Beneficial Owners holding shares, directly or indirectly, through such DTC Participant. The Company shall provide each such DTC Participant
with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant,
directly or indirectly, to such Beneficial Owners. In addition, the Company shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and
regulatory requirements.
Share distributions shall be
made to DTC or its nominee, Cede & Co., as the registered holder of all shares of the Company. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants’ accounts with payments in amounts
proportionate to their respective beneficial interests in shares of each Fund as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of shares held through such DTC Participants
will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will be the responsibility of such DTC
Participants.
The Company has no responsibility or
liability for any aspect of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such shares, or for maintaining, supervising or reviewing any records relating to such beneficial
ownership interests, or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants. DTC may
decide to discontinue providing its service with respect to shares of the Company at any time by giving reasonable notice to the Company and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the
Company shall take action to find a replacement for DTC to perform its functions at a comparable cost.
Creation and Redemption of Creation Units
General. The Company
issues and sells shares of each Fund only in Creation Units on a continuous basis through the Distributor or its agent, without a sales load, at a price based on the NAV next determined after receipt, on any Business Day (as defined below), of an
order received by the Distributor or its agent in proper form. The following table sets forth the number of shares of a Fund that constitute a Creation Unit for the Fund and the value of such Creation Unit as of September 30, 2012:
Fund
|
|
Shares
Per Creation Unit |
|
Value
Per Creation Unit (U.S.$) |
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
|
100,000
|
|
$
5,668,000 |
|
iShares
MSCI Brazil Capped Index Fund |
|
50,000
|
|
$
2,701,000 |
|
iShares
MSCI BRIC Index Fund |
|
50,000
|
|
$
1,897,000 |
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
50,000
|
|
$
3,114,500 |
|
iShares
MSCI Emerging Markets Asia Index Fund |
|
200,000
|
|
$10,764,000
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
50,000
|
|
$
2,547,500 |
|
iShares
MSCI Emerging Markets EMEA Index Fund |
|
100,000
|
|
$
5,401,000 |
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
50,000
|
|
$
2,147,000 |
|
iShares
MSCI Emerging Markets Growth Index Fund |
|
50,000
|
|
$
2,676,500 |
|
iShares
MSCI Emerging Markets Index Fund |
|
450,000
|
|
$
18,697,500 |
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
|
100,000
|
|
$
5,740,000 |
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
200,000
|
|
$
9,246,000 |
|
iShares
MSCI Emerging Markets Value Index Fund |
|
50,000
|
|
$
2,406,500 |
|
iShares
MSCI Frontier 100 Index Fund |
|
50,000
|
|
$
1,299,500 |
|
iShares
MSCI Global Agriculture Producers Fund |
|
100,000
|
|
$
2,612,000 |
|
iShares
MSCI Global Energy Producers Fund |
|
100,000
|
|
$
2,428,000 |
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
100,000
|
|
$
2,028,000 |
|
iShares
MSCI Malaysia Index Fund |
|
75,000
|
|
$
1,106,250 |
|
iShares
MSCI South Korea Capped Index Fund |
|
50,000
|
|
$
2,988,500 |
|
iShares
MSCI Taiwan Index Fund |
|
200,000
|
|
$
2,696,000 |
|
The Board reserves the right to declare a split or a
consolidation in the number of shares outstanding of any Fund, and to make a corresponding change in the number of shares constituting a Creation Unit, in the event that the per share price in the secondary market rises (or declines) to an amount
that falls outside the range deemed desirable by the Board.
A “Business Day” with respect to each Fund is any
day on which the Listing Exchange on which the Fund is listed for trading is open for business. As of the date of this SAI, each Listing Exchange observes the following holidays, as observed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Fund Deposit. The
consideration for purchase of Creation Units of a Fund (except for the iShares MSCI Brazil Capped Index Fund, iShares MSCI Chile Capped Investable Market Index Fund, iShares MSCI Malaysia Index Fund, iShares MSCI South Korea Capped Index Fund and
iShares MSCI Taiwan Index Fund (each, a “Cash Fund” and collectively, the “Cash Funds”)), generally consists of the in-kind deposit of a designated portfolio of securities (including any portion of such securities for which
cash may be substituted) (i.e., the Deposit Securities) and the Cash Component computed as described below. Together, the Deposit Securities and the
Cash Component constitute the “Fund Deposit,” which will be applicable (subject to possible amendment or correction) to creation requests received in proper form. The Fund Deposit, when combined with the Fund's portfolio securities, is
intended to generate performance similar to that of the Underlying Index. The Fund Deposit represents the minimum initial and subsequent investment amount for a Creation Unit of any Fund.
The Cash Component is an amount equal to the difference
between the NAV of the shares (per Creation Unit) and the “Deposit Amount,” which is an amount equal to the market value of the Deposit Securities, and serves to compensate for any differences between the NAV per Creation Unit and the
Deposit Amount. Payment of any stamp duty or other similar fees and
expenses payable upon transfer of beneficial ownership of the Deposit
Securities are the sole responsibility of the Authorized Participant purchasing a Creation Unit.
Each Cash Fund’s current policy is to accept cash in substitution for the Deposit Securities it might otherwise accept as in-kind
consideration for the purchase of Creation Units. A Cash Fund may, at times, elect to receive Deposit Securities (i.e., the in-kind deposit of a designated portfolio of securities) and a Cash Component as consideration for the purchase of Creation
Units. If a Cash Fund elects to accept Deposit Securities, a purchaser's delivery of the Deposit Securities together with the Cash Component will constitute the “Fund Deposit,” which will represent the consideration for a Creation Unit
of the Fund. The iShares MSCI All Country World Minimum Volatility Index Fund, iShares MSCI BRIC Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Fund, iShares MSCI Emerging
Markets EMEA Index Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets 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, iShares MSCI Frontier 100 Index Fund, iShares MSCI Global Agriculture Producers Fund, iShares MSCI Global Energy Producers Fund and iShares MSCI Global
Select Metals & Mining Producers Fund (each, a “Partial Cash Fund” and collectively, the “Partial Cash Funds”) generally offer Creation Units partially for cash. Please see the Cash
Purchase Method section below and the following discussion summarizing the Deposit Security method for further information on purchasing Creation Units of the Funds.
For the iShares MSCI Emerging Markets Index Fund, the portfolio
of securities required for purchase of a Creation Unit may not be identical to the portfolio of securities the Fund will deliver upon redemption of Fund shares (“Fund Securities”). The Deposit Securities and Fund Securities, as
applicable, in connection with a purchase or redemption of a Creation Unit, will correspond pro rata, to the extent practicable, to the securities held by the Fund.
BFA makes available through the NSCC on each Business Day prior
to the opening of business on the Listing Exchange, the list of names and the required number of shares of each Deposit Security and the amount of the Cash Component to be included in the current Fund Deposit (based on information as of the end of
the previous Business Day for each Fund). Such Fund Deposit is applicable, subject to any adjustments as described below, to purchases of Creation Units of shares of a given Fund until such time as the next-announced Fund Deposit is made
available.
The identity and number of shares of the
Deposit Securities change pursuant to changes in the composition of a Fund's portfolio and as rebalancing adjustments and corporate action events are reflected from time to time by BFA with a view to the investment objective of the Fund. The
composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the component securities constituting the relevant Underlying Index.
The Funds reserve the right to permit or require the
substitution of a “cash in lieu” amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through DTC. The Funds also
reserve the right to permit or require a “cash in lieu” amount in certain circumstances, including circumstances in which (i) the delivery of the Deposit Security by the Authorized Participant (as described below) would be restricted
under applicable securities or other local laws or (ii) the delivery of the Deposit Security to the Authorized Participant would result in the disposition of the Deposit Security by the Authorized Participant becoming restricted under applicable
securities or other local laws, or in certain other situations. As noted above, Creation Units of the Cash Funds currently are available only for cash purchases.
Cash Purchase Method.
Although the Company does not ordinarily permit partial or full cash purchases of Creation Units of iShares funds, when partial or full cash purchases of Creation Units are available or specified (Creation
Units of the Cash Funds are generally offered solely for cash and Creation Units of the Partial Cash Funds are generally offered partially for cash), they will be effected in essentially the same manner as in-kind purchases thereof. In the case of a
partial or full cash purchase, the Authorized Participant must pay the cash equivalent of the Deposit Securities it would otherwise be required to provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind
purchaser. The Authorized Participant will also be required to pay certain transaction fees and charges for cash purchases, as described below, and, if transacting as broker with each Fund, may be required to cover certain brokerage, tax, foreign
exchange, execution and market impact costs through an Execution Performance Guarantee, as described in the Brokerage Transactions section of this
SAI.
Role of the Authorized Participant. Creation Units may be purchased only by or through a DTC Participant that has entered into an authorized participant agreement with the Distributor (an “Authorized Participant”). Such Authorized
Participant will agree, pursuant to the terms of such authorized participant agreement and on behalf of itself or any investor on whose behalf it will act, to certain conditions, including that such Authorized Participant will make available in
advance of each purchase of shares an amount of cash sufficient to pay the Cash Component, once the net asset value of a Creation Unit is next determined after receipt of the purchase order in proper form, together with the transaction fees
described below. An Authorized Participant, acting on behalf of an investor, may require the investor to enter into an agreement with such Authorized Participant with respect to certain matters, including payment of the Cash Component. Investors who
are not Authorized Participants must make appropriate arrangements with an Authorized Participant. Investors should be aware that their particular broker may not be a DTC Participant or may not have executed an authorized participant agreement and
that orders to purchase Creation Units may have to be placed by the investor's broker through an Authorized Participant. As a result, purchase orders placed through an Authorized Participant may result in additional charges to such investor. The
Company does not expect to enter into an authorized participant agreement with more than a small number of DTC Participants. A list of current Authorized Participants may be obtained from the Distributor.
Purchase Orders. Unless
otherwise described below, to initiate an order for a Creation Unit, an Authorized Participant must submit to the Distributor or its agent an irrevocable order to purchase shares of a Fund generally before 4:00 p.m., Eastern time on any
Business Day to receive that day’s NAV. An Authorized Participant must submit an irrevocable request to purchase shares of the iShares MSCI Emerging Markets Index Fund before 5:00 p.m., Eastern time (or by one hour after the close of the
Listing Exchange, if earlier) on any Business Day in order to receive the next Business Day’s NAV. On days when the Listing Exchange closes earlier than normal, the Funds may require orders for Creation Units to be placed earlier in the day.
The Distributor or its agent will notify BFA and the custodian of such order. The custodian will then provide such information to any appropriate sub-custodian. Procedures and requirements governing the delivery of the Fund Deposit are set forth in
the procedures handbook for Authorized Participants and may change from time to time. Investors, other than Authorized Participants, are responsible for making arrangements for a creation request to be made through an Authorized Participant. The
Distributor or its agent will provide a list of current Authorized Participants upon request. Those placing orders to purchase Creation Units through an Authorized Participant should allow sufficient time to permit proper submission of the purchase
order to the Distributor or its agent by the Cutoff Time (as defined below) on such Business Day.
The Authorized Participant must also make available on or
before the contractual settlement date, by means satisfactory to the Funds, immediately available or same day funds estimated by the Funds to be sufficient to pay the Cash Component next determined after acceptance of the purchase order, together
with the applicable purchase transaction fees. Any excess funds will be returned following settlement of the issue of the Creation Unit. Those placing orders should ascertain the applicable deadline for cash transfers by contacting the operations
department of the broker or depositary institution effectuating the transfer of the Cash Component. This deadline is likely to be significantly earlier than the Cutoff Time of the Funds. Investors should be aware that an Authorized Participant may
require orders for purchases of shares placed with it to be in the particular form required by the individual Authorized Participant.
The Authorized Participant is responsible for any and all
expenses and costs incurred by a Fund, including any applicable cash amounts, in connection with any purchase order.
Timing of Submission of Purchase Orders. An Authorized Participant must submit an irrevocable order to purchase shares of a Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that day's NAV. An Authorized Participant
must submit an irrevocable request to purchase shares of the iShares MSCI Emerging Markets Index Fund before 5:00 p.m., Eastern time (or by one hour after the close of the Listing Exchange, if earlier) on any Business Day in order to receive the
next Business Day’s NAV. Creation Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor or its agent pursuant to procedures set forth in the authorized participant
agreement, as described below. Economic or market disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor or its agent or an Authorized Participant. Orders to create shares of a Fund that
are submitted on the Business Day immediately preceding a holiday or a day (other than a weekend) when the equity markets in the relevant non-U.S. market are closed may not be accepted. Each Fund's deadline specified above for the submission of
purchase orders is referred to as that Fund's “Cutoff Time.” The Distributor or its agent, in their discretion, may permit the submission of such orders and requests by or through an Authorized Participant at any time (including on days
on which the Listing Exchange is not open for business) via communication through the facilities of the Distributor's or its
agent's proprietary website maintained for this purpose. Purchase orders and
redemption requests, if accepted by the Company, will be processed based on the NAV next determined after such acceptance in accordance with each Fund's Cutoff Times as provided in the authorized participant agreement and disclosed in this
SAI.
Acceptance of Orders for Creation Units. Subject to the conditions that (i) an irrevocable purchase order has been submitted by the Authorized Participant (either on its own or another investor's behalf) and (ii) arrangements satisfactory to the Funds
are in place for payment of the Cash Component and any other cash amounts which may be due, the Funds will accept the order, subject to each Fund's right (and the right of the Distributor and BFA) to reject any order until acceptance, as set forth
below.
Once a Fund has accepted an order, upon the
next determination of the net asset value of the shares, the Fund will confirm the issuance of a Creation Unit, against receipt of payment, at such net asset value. The Distributor or its agent will then transmit a confirmation of acceptance to the
Authorized Participant that placed the order.
Each Fund
reserves the absolute right to reject or revoke a creation order transmitted to it by the Distributor or its agent if (i) the order is not in proper form; (ii) the investor(s), upon obtaining the shares ordered, would own 80% or more of the
currently outstanding shares of the Fund; (iii) the Deposit Securities delivered do not conform to the identity and number of shares specified, as described above; (iv) acceptance of the Deposit Securities would have certain adverse tax consequences
to the Fund; (v) acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would, in the discretion of the Fund or BFA, have an adverse effect on the Fund or the rights of beneficial owners; or
(vii) circumstances outside the control of the Fund, the Distributor or its agent and BFA make it impracticable to process purchase orders. The Distributor or its agent shall notify a prospective purchaser of a Creation Unit and/or the Authorized
Participant acting on behalf of such purchaser of its rejection of such order. The Funds, State Street, the sub-custodian and the Distributor or its agent are under no duty, however, to give notification of any defects or irregularities in the
delivery of Fund Deposits nor shall any of them incur any liability for failure to give such notification.
In addition, the Company intends to exercise its right to
reject any creation order for shares 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 Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value
Index Fund on any Business Day that is a holiday in the Indian market, but not a holiday observed in the U.S. equity market, and certain other holidays during the settlement cycle for Fund shares, in order to protect Fund shareholders from any
dilutive costs that may be associated with the purchase of Deposit Securities in connection with creation orders on such days.
Issuance of a Creation
Unit. Except as provided herein, a Creation Unit will not be issued until the transfer of good title to the applicable Fund of the Deposit Securities and the payment of the Cash Component have been completed.
When the sub-custodian has confirmed to the custodian that the securities included in the Fund Deposit (or the cash value thereof) have been delivered to the account of the relevant sub-custodian or sub-custodians, the Distributor or its agent and
BFA shall be notified of such delivery and the applicable Fund will issue and cause the delivery of the Creation Unit. Creation Units typically are issued on a “ T+3 basis”
(i.e., three Business Days after trade date). For the iShares MSCI Emerging Markets Small Cap Index Fund, Creation Units typically are issued on a
“T+4 basis” (i.e., four Business Days after trade date). Creation Units for the iShares MSCI Chile Capped Investable Market Index Fund,
iShares MSCI South Korea Capped Index Fund and iShares MSCI Taiwan Index Fund typically are issued on a “T+2 basis” (i.e., two Business
Days after trade date). However, as discussed in the Regular Holidays section, each Fund reserves the right to settle Creation Unit transactions on a
basis other than T+3 or T+4 in order to accommodate non-U.S. market holiday schedules, to account for different treatment among non-U.S. and U.S. markets of dividend record dates and ex-dividend dates (i.e., the last day the holder of a security can sell the security and still receive dividends payable on the security) and in certain other
circumstances.
To the extent contemplated by an
Authorized Participant's agreement with the Distributor, each Fund will issue Creation Units to such Authorized Participant, notwithstanding the fact that the corresponding Fund Deposits have not been received in part or in whole, in reliance on the
undertaking of the Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participant's delivery and maintenance of collateral having a value at least equal to 105%
and up to 115%, which percentage BFA may change at any time, in its sole discretion, of the value of the missing Deposit Securities in accordance with the Funds' then-effective procedures. The only collateral that is acceptable to the Funds is cash
in U.S. dollars. Such cash collateral must be delivered no later than 2:00 p.m., Eastern
time on the contractual settlement date. The cash collateral posted by the
Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. Information concerning the Funds' current procedures for collateralization
of missing Deposit Securities is available from the Distributor or its agent. The authorized participant agreement will permit the Funds to buy the missing Deposit Securities at any time and will subject the Authorized Participant to liability for
any shortfall between the cost to the Funds of purchasing such securities and the cash collateral.
In certain cases, Authorized Participants may create and redeem
Creation Units on the same trade date and in these instances, the Funds reserve the right to settle these transactions on a net basis or require a representation from the Authorized Participants that the creation and redemption transactions are for
separate beneficial owners. All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by each Fund and the
Fund's determination shall be final and binding.
Costs
Associated with Creation Transactions. A standard creation transaction fee is imposed to offset the transfer, processing and other transaction costs associated with the issuance of Creation Units. The
standard creation transaction fee is charged on each Creation Unit created by an Authorized Participant on the day of the transaction. The standard creation transaction fee is generally fixed at the amount shown in the table regardless of the number
of Creation Units being purchased, but may be reduced by each Fund if transfer and processing expenses associated with the creation are anticipated to be lower than the stated fee. If a purchase consists of a cash portion, the Authorized Participant
may also be required to pay an additional transaction charge (up to the maximum amount shown below) to cover brokerage and certain other costs related to the creation transaction. Authorized Participants will also bear the costs of transferring the
Deposit Securities to the Funds. Investors who use the services of a broker or other financial intermediary to acquire Fund shares may be charged a fee for such services.
The following table sets forth each Fund's standard creation
transaction fees and maximum additional charge (as described above):
Fund
|
|
Standard
Creation Transaction Fee |
|
Maximum
Additional Charge for Creations* |
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
|
$
4,200 |
|
3.0%
|
|
iShares
MSCI Brazil Capped Index Fund |
|
2,400
|
|
7.0%
|
|
iShares
MSCI BRIC Index Fund |
|
5,900
|
|
7.0%
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
3,000
|
|
3.0%
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
|
16,500
|
|
3.0%
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
3,500
|
|
3.0%
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
|
5,500
|
|
3.0%
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
2,500
|
|
3.0%
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
|
14,500
|
|
3.0%
|
|
iShares
MSCI Emerging Markets Index Fund |
|
7,700
|
|
3.0%
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
|
6,100
|
|
3.0%
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
19,000
|
|
3.0%
|
|
iShares
MSCI Emerging Markets Value Index Fund |
|
16,000
|
|
3.0%
|
|
iShares
MSCI Frontier 100 Index Fund |
|
13,600
|
|
5.0%
|
|
iShares
MSCI Global Agriculture Producers Fund |
|
5,100
|
|
3.0%
|
|
iShares
MSCI Global Energy Producers Fund |
|
6,100
|
|
3.0%
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
8,400
|
|
3.0%
|
|
iShares
MSCI Malaysia Index Fund |
|
5,000
|
|
3.0%
|
|
iShares
MSCI South Korea Capped Index Fund |
|
4,000
|
|
3.0%
|
|
iShares
MSCI Taiwan Index Fund |
|
4,500
|
|
3.0%
|
|
* |
As a percentage of the net
asset value per Creation Unit. |
If a
purchase consists of a cash portion and each Fund places a brokerage transaction to purchase portfolio securities with the Authorized Participant or its affiliated broker-dealer, the Authorized Participant (or its affiliated broker-dealer) may be
required, in its capacity as broker-dealer with respect to that transaction, to cover certain brokerage, tax, foreign exchange,
execution, and market impact costs through an Execution Performance Guarantee,
as described in the Brokerage Transactions section of this SAI.
Redemption of Creation Units.
Shares of a Fund may be redeemed by Authorized Participants only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor or its agent and only on
a Business Day. The Funds will not redeem shares in amounts less than Creation Units. There can be no assurance, however, that there will be sufficient liquidity in the secondary market at any time to permit assembly of a Creation Unit. Investors
should expect to incur brokerage and other costs in connection with assembling a sufficient number of shares to constitute a Creation Unit that could be redeemed by an Authorized Participant. Beneficial owners also may sell shares in the
secondary market.
Each Cash Fund currently redeems
Creation Units solely for cash; however, each Cash Fund reserves the right to distribute securities in-kind as payment for Creation Units being redeemed. Each Partial Cash Fund generally redeems Creation Units partially for cash. Please see the Cash Redemption Method section below and the following discussion summarizing the in-kind method for further information on redeeming Creation Units of the Funds.
The Cash Funds generally redeem Creation Units solely for cash,
however, the Cash Funds reserve the right to distribute securities in-kind as payment for Creation Units being redeemed. With respect to each Fund BFA makes available through the NSCC, prior to the opening of business on the Listing Exchange on each
Business Day, the designated portfolio of securities (including any portion of such securities for which cash may be substituted) that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form
(as defined below) on that day (“Fund Securities”), and an amount of cash (the “Cash Amount,” as described below). Such Fund Securities and the corresponding Cash Amount (each subject to possible amendment or correction) are
applicable, in order to effect redemptions of Creation Units of a Fund until such time as the next announced composition of the Fund Securities and Cash Amount is made available. Fund Securities received on redemption may not be identical to Deposit
Securities that are applicable to creations of Creation Units.
Unless cash redemptions are available or specified for a Fund,
the redemption proceeds for a Creation Unit generally consist of Fund Securities, plus the Cash Amount, which is an amount equal to the difference between the net asset value of the shares being redeemed, as next determined after the receipt of a
redemption request in proper form, and the value of Fund Securities, less a redemption transaction fee (as described below).
The Company may, in its sole discretion, substitute a
“cash in lieu” amount to replace any Fund Security. The amount of cash paid out in such cases will be equivalent to the value of the substituted security listed as a Fund Security. In the event that the Fund Securities have a value
greater than the NAV of the shares, a compensating cash payment equal to the difference is required to be made by or through an Authorized Participant by the redeeming shareholder. The Cash Funds generally redeem Creation Units solely for cash. The
Partial Cash Funds generally redeem Creation Units partially for cash.
Cash Redemption Method.
Although the Company does not ordinarily permit partial or full cash redemptions of Creation Units of iShares funds, when partial or full cash redemptions of Creation Units are available or specified (Creation Units of the Cash Funds are generally
redeemed solely for cash and Creation Units of the Partial Cash Funds are generally redeemed partially for cash), they will be effected in essentially the same manner as in-kind redemptions thereof. In the case of partial or full cash redemption,
the Authorized Participant receives the cash equivalent of the Fund Securities it would otherwise receive through an in-kind redemption, plus the same Cash Amount to be paid to an in-kind redeemer. The Authorized Participant will also be required to
pay certain transaction fees and charges for cash redemptions, as described below, and, if transacting as broker with each Fund, may be required to cover certain brokerage, tax, foreign exchange, execution and market impact costs through a Execution
Performance Guarantee, as described in the Brokerage Transactions section of this SAI.
Costs Associated with Redemption Transactions. A redemption transaction fee is imposed to offset transfer, processing and other transaction costs that may be incurred by the relevant Fund. The standard redemption transaction fee is charged on each Creation
Unit redeemed by an Authorized Participant on the day of the transaction. The standard redemption transaction fee is generally fixed at the amount shown in the table regardless of the number of Creation Units being redeemed, but may be reduced by
each Fund if transfer and processing expenses associated with the redemption are anticipated to be lower than the stated fee. If a redemption consists of a cash portion, the Authorized Participant may also be required to pay an additional
transaction charge (up to the maximum amount shown below) to cover brokerage and certain
other costs related to the redemption transaction. Authorized Participants
will also bear the costs of transferring the Fund Securities from a Fund to their account on their order. Investors who use the services of a broker or other financial intermediary to dispose of Fund shares may be charged a fee for such
services.
The following table sets forth each Fund's
standard redemption transaction fees and maximum additional charge (as described above):
Fund
|
|
Standard
Redemption Transaction Fee |
|
Maximum
Additional Charge for Redemptions* |
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
|
$
4,200 |
|
2.0%
|
|
iShares
MSCI Brazil Capped Index Fund |
|
2,400
|
|
2.0%
|
|
iShares
MSCI BRIC Index Fund |
|
5,900
|
|
2.0%
|
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
3,000
|
|
2.0%
|
|
iShares
MSCI Emerging Markets Asia Index Fund |
|
16,500
|
|
2.0%
|
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
3,500
|
|
2.0%
|
|
iShares
MSCI Emerging Markets EMEA Index Fund |
|
5,500
|
|
2.0%
|
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
2,500
|
|
2.0%
|
|
iShares
MSCI Emerging Markets Growth Index Fund |
|
14,500
|
|
2.0%
|
|
iShares
MSCI Emerging Markets Index Fund |
|
7,700
|
|
2.0%
|
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
|
6,100
|
|
2.0%
|
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
19,000
|
|
2.0%
|
|
iShares
MSCI Emerging Markets Value Index Fund |
|
16,000
|
|
2.0%
|
|
iShares
MSCI Frontier 100 Index Fund |
|
13,600
|
|
2.0%
|
|
iShares
MSCI Global Agriculture Producers Fund |
|
5,100
|
|
2.0%
|
|
iShares
MSCI Global Energy Producers Fund |
|
6,100
|
|
2.0%
|
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
8,400
|
|
2.0%
|
|
iShares
MSCI Malaysia Index Fund |
|
5,000
|
|
2.0%
|
|
iShares
MSCI South Korea Capped Index Fund |
|
4,000
|
|
2.0%
|
|
iShares
MSCI Taiwan Index Fund |
|
4,500
|
|
2.0%
|
|
* |
As a percentage of the net
asset value per Creation Unit, inclusive of the standard redemption transaction fee. |
If a redemption consists of a cash portion and each Fund
places a brokerage transaction to sell portfolio securities with the Authorized Participant or its affiliated broker-dealer, the Authorized Participant (or its affiliated broker-dealer) may be required, in its capacity as broker-dealer with respect
to that transaction, to cover certain brokerage, tax, foreign exchange, execution, and market impact costs through a Execution Performance Guarantee, as described in the Brokerage Transactions section of this
SAI.
Placement of Redemption Orders. Redemption requests for Creation Units of any Fund must be submitted to the Distributor by or through an Authorized Participant. An Authorized Participant must submit an irrevocable request to redeem shares of a
Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that day's NAV. An Authorized Participant must submit an irrevocable request to redeem shares of the iShares MSCI Emerging Markets Index Fund before 5:00
p.m., Eastern time (or by one hour after the close of the Listing Exchange, if earlier) on any Business Day in order to receive the next Business Day’s NAV. Investors, other than Authorized Participants, are responsible for making arrangements
for a redemption request to be made through an Authorized Participant. The Distributor or its agent will provide a list of current Authorized Participants upon request.
The Authorized Participant must transmit the request for
redemption in the form required by the Funds to the Distributor or its agent in accordance with procedures set forth in the authorized participant agreement. Investors should be aware that their particular broker may not have executed an authorized
participant agreement and that, therefore, requests to redeem Creation Units may have to be placed by the investor's broker through an Authorized Participant who has executed an authorized participant agreement. At any time, only a limited number of
broker-dealers will have an authorized participant agreement in effect. Investors making a redemption request should be aware that such request must be in the form specified by such Authorized Participant. Investors making a request to redeem
Creation Units should allow sufficient time to permit
proper submission of the request by an Authorized Participant and transfer of
the shares to the Funds' transfer agent; such investors should allow for the additional time that may be required to effect redemptions through their banks, brokers or other financial intermediaries if such intermediaries are not Authorized
Participants.
A redemption request is considered to be in
“proper form” if (i) an Authorized Participant has transferred or caused to be transferred to the Funds' transfer agent the Creation Unit redeemed through the book-entry system of DTC so as to be effective by the Listing Exchange closing
time on any Business Day, (ii) a request in form satisfactory to the applicable Fund is received by the Distributor or its agent from the Authorized Participant on behalf of itself or another redeeming investor within the time periods specified
above and (iii) all other procedures set forth in the authorized participant agreement are properly followed. If the transfer agent does not receive the investor's shares through DTC's facilities by 10:00 a.m., Eastern time on the Business Day next
following the day that the redemption request is received, the redemption request shall be rejected. Investors should be aware that the deadline for such transfers of shares through the DTC system may be significantly earlier than the close of
business on the Listing Exchange. Those making redemption requests should ascertain the deadline applicable to transfers of shares through the DTC system by contacting the operations department of the broker or depositary institution effecting the
transfer of the shares.
Upon receiving a redemption
request, the Distributor or its agent shall notify the applicable Fund and the Fund's transfer agent of such redemption request. The tender of an investor's shares for redemption and the distribution of the securities and/or cash included in the
redemption payment made in respect of Creation Units redeemed will be made through DTC and the relevant Authorized Participant to the Beneficial Owner thereof as recorded on the book-entry system of DTC or the DTC Participant through which such
investor holds, as the case may be, or by such other means specified by the Authorized Participant submitting the redemption request.
A redeeming Beneficial Owner or Authorized Participant acting
on behalf of such Beneficial Owner must maintain appropriate security arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the portfolio securities are customarily traded, to which account
such portfolio securities will be delivered.
Deliveries
of redemption proceeds by each Fund typically will be made within three Business Days (i.e., “T+3”). For the iShares MSCI Chile Capped Investable Market Index Fund, iShares MSCI South Korea Capped
Index Fund and iShares MSCI Taiwan Index Fund, deliveries of redemption proceeds generally will be made within two Business Days (i.e., “T+2”). For the iShares MSCI Emerging Markets Small Cap Index
Fund, deliveries of redemption proceeds generally will be made within four Business Days (i.e., “T+4”). However, as discussed in the Regular Holidays
section, each Fund reserves the right to settle redemption transactions and deliver redemption proceeds on another basis to accommodate non-U.S. market holiday schedules, to account for different treatment among non-U.S. and U.S. markets of dividend
record dates and dividend ex-dates (i.e., the last date the holder of a security can sell the security and still receive dividends payable on the security sold) and in certain other circumstances. The Regular Holidays section hereto identifies the instances, if any, where more than seven days would be needed to deliver redemption proceeds. Pursuant to an order of the SEC, the Company will make delivery of
redemption proceeds within the number of days stated in the Regular Holidays section to be the maximum number of days necessary to deliver redemption proceeds.
If neither the redeeming Beneficial Owner nor
the Authorized Participant acting on behalf of such redeeming Beneficial Owner has appropriate arrangements to take delivery of Fund Securities in the applicable non-U.S. jurisdiction and it is not possible to make other such arrangements, or if it
is not possible to effect deliveries of Fund Securities in such jurisdiction, the Company may in its discretion exercise its option to redeem such shares in cash, and the redeeming Beneficial Owner will be required to receive its redemption proceeds
in cash. In such case, the investor will receive a cash payment equal to the net asset value of its shares based on the NAV of the Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee and
additional charges specified above to offset the Company's brokerage and other transaction costs associated with the disposition of Fund Securities). Redemptions of shares for Fund Securities will be subject to compliance with applicable U.S.
federal and state securities laws and the Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Fund cannot lawfully deliver specific Fund Securities upon redemptions
or cannot do so without first registering the Fund Securities under such laws.
Although the Company does not ordinarily permit cash redemptions of Creation Units (except that, as noted above, Creation Units of the Funds generally will be
redeemed partially for cash or solely for cash), in the event that cash redemptions are permitted or required by the Company, proceeds will be paid to the Authorized Participant redeeming shares as soon as
practicable after the date of redemption (within seven calendar days
thereafter, except for the instances listed in the Regular Holidays section in which more than seven calendar days would be needed).
To the extent contemplated by an Authorized Participant's
agreement with the Distributor or its agent, in the event an Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the Creation Unit to be redeemed to the Fund, at or prior to 10:00 a.m.,
Eastern time on the Listing Exchange business day after the date of submission of such redemption request, the Distributor or its agent will accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the
missing shares as soon as possible. Such undertaking shall be secured by the Authorized Participant's delivery and maintenance of collateral consisting of cash, in U.S. dollars in immediately available funds, having a value at least equal to 105%
and up to 115%, which percentage BFA may change at any time, in its sole discretion, of the value of the missing shares. Such cash collateral must be delivered no later than 10:00 a.m., Eastern time on the day after the date of submission of such
redemption request and shall be held by State Street and marked-to-market daily. The fees of State Street and any sub-custodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the Authorized
Participant. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. The authorized participant
agreement permits the Funds to acquire shares of the Funds at any time and subjects the Authorized Participant to liability for any shortfall between the aggregate of the cost to the Funds of purchasing such shares, plus the value of the Cash
Amount, and the value of the cash collateral.
Because the
portfolio securities of a Fund may trade on exchange(s) on days that the Listing Exchange is closed or are otherwise not Business Days for such Fund, shareholders may not be able to redeem their shares of such Fund, or purchase or sell shares of
such Fund on the Listing Exchange on days when the NAV of such a Fund could be significantly affected by events in the relevant non-U.S. markets.
The right of redemption may be suspended or the date of payment
postponed with respect to any Fund: (i) for any period during which the Listing Exchange is closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the Listing Exchange is suspended or restricted;
(iii) for any period during which an emergency exists as a result of which disposal of the shares of the Fund's portfolio securities or determination of its net asset value is not reasonably practicable; or (iv) in such other circumstance as is
permitted by the SEC.
Taxation on Creations and Redemptions
of Creation Units. An Authorized Participant generally will recognize either gain or loss upon the exchange of Deposit Securities for Creation Units. This gain or loss is calculated by taking the market value
of the Creation Units purchased over the Authorized Participant’s aggregate basis in the Deposit Securities exchanged therefor. However, the IRS may apply the wash sales rules to determine that any loss realized upon the exchange of Deposit
Securities for Creation Units is not currently deductible. Authorized Participants should consult their own tax advisors.
Current U.S. federal tax laws dictate that capital gain or loss
realized from the redemption of Creation Units will generally create long-term capital gain or loss if the Authorized Participant holds the Creation Units for more than one year, or short-term capital gain or loss if the Creation Units were held for
one year or less, if the Creation Units are held as capital assets.
Regular Holidays. For
every occurrence of one or more intervening holidays in the applicable non-U.S. market that are not holidays observed in the U.S. equity market, the redemption settlement cycle will be extended by the number of such intervening holidays. In addition
to holidays, other unforeseeable closings in a non-U.S. market due to emergencies may also prevent the Company from delivering securities within normal settlement period.
The securities delivery cycles currently practicable for
transferring portfolio securities to redeeming investors, coupled with non-U.S. market holiday schedules, will require a delivery process longer than seven calendar days, in certain circumstances. The holidays applicable to each Fund during such
periods are listed below, as are instances where more than seven days will be needed to deliver redemption proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption
proceeds in any given year is not expected to exceed the maximum number of days listed below for each Fund. The proclamation of new holidays, the treatment by market participants of certain days as “informal holidays” (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery
practices, could affect the information set forth herein at some time in the future.
In calendar years 2013 and 2014, the dates of regular holidays
affecting the relevant securities markets in which a Fund invests are as follows (please note these holiday schedules are subject to potential changes in the relevant securities markets):
2013
Australia
|
January
1 |
April
1 |
June
10 |
November
5 |
January
28 |
April
25 |
August
5 |
December
25 |
March
4 |
May
6 |
August
14 |
December
26 |
March
11 |
May
20 |
September
30 |
|
March
29 |
June
3 |
October
7 |
|
Austria
|
January
1 |
May
9 |
November
1 |
December
31 |
March
29 |
May
20 |
December
24 |
|
April
1 |
May
30 |
December
25 |
|
May
1 |
August
15 |
December
26 |
|
Belgium
|
January
1 |
May
9 |
November
1 |
|
March
29 |
May
10 |
November
11 |
|
April
1 |
May
20 |
December
25 |
|
May
1 |
August
15 |
December
26 |
|
Brazil
|
January
1 |
March
29 |
November
15 |
December
31 |
January
25 |
May
1 |
November
20 |
|
February
11 |
May
30 |
December
24 |
|
February
12 |
July
9 |
December
25 |
|
Canada
|
January
1 |
May
20 |
September
2 |
December
26 |
January
2 |
June
24 |
October
14 |
|
February
18 |
July
1 |
November
11 |
|
March
29 |
August
5 |
December
25 |
|
Chilé
|
January
1 |
May
27 |
November
1 |
|
March
29 |
August
15 |
December
25 |
|
May
1 |
September
18 |
December
31 |
|
May
21 |
September
19 |
|
|
China
|
January
1 |
February
14 |
May
7 |
October
3 |
January
21 |
February
15 |
May
27 |
October
4 |
February
7 |
February
18 |
July
4 |
October
7 |
February
8 |
May
1 |
September
2 |
October
14 |
February
11 |
May
2 |
September
30 |
November
11 |
February
12 |
May
3 |
October
1 |
November
28 |
February
13 |
May
6 |
October
2 |
December
25 |
Colombia
|
January
1 |
May
1 |
August
7 |
December
25 |
January
7 |
May
13 |
August
19 |
December
31 |
March
25 |
June
3 |
October
14 |
|
March
28 |
June
10 |
November
4 |
|
March
29 |
July
1 |
November
11 |
|
The
Czech Republic |
January
1 |
July
5 |
December
26 |
|
April
1 |
October
28 |
December
31 |
|
May
1 |
December
24 |
|
|
May
8 |
December
25 |
|
|
Denmark
|
January
1 |
April
26 |
December
24 |
|
March
28 |
May
9 |
December
25 |
|
March
29 |
May
20 |
December
26 |
|
April
1 |
June
5 |
December
31 |
|
Egypt
|
January
1 |
May
5 |
August
8 |
October
16 |
January
7 |
May
6 |
August
11 |
November
4 |
January
24 |
July
1 |
October
6 |
November
5 |
April
25 |
July
23 |
October
14 |
|
May
1 |
August
7 |
October
15 |
|
The Egyptian market is closed every Friday.
Finland
|
January
1 |
May
9 |
December
25 |
|
March
29 |
June
21 |
December
26 |
|
April
1 |
December
6 |
December
31 |
|
May
1 |
December
24 |
|
|
France
|
January
1 |
May
8 |
November
11 |
|
March
29 |
May
9 |
December
25 |
|
April
1 |
August
15 |
December
26 |
|
May
1 |
November
1 |
|
|
Germany
|
January
1 |
May
1 |
August
15 |
December
25 |
February
11 |
May
9 |
October
3 |
December
26 |
March
29 |
May
20 |
November
1 |
December
31 |
April
1 |
May
30 |
December
24 |
|
Greece
|
January
1 |
April
1 |
June
24 |
December
26 |
March
18 |
May
1 |
August
15 |
|
March
25 |
May
3 |
October
28 |
|
March
29 |
May
6 |
December
25 |
|
Hong
Kong |
January
1 |
April
4 |
September
20 |
December
26 |
February
11 |
May
1 |
October
1 |
December
31 |
February
12 |
May
17 |
October
14 |
|
March
29 |
June
12 |
December
24 |
|
April
1 |
July
1 |
December
25 |
|
Hungary
|
January
1 |
May
20 |
November
1 |
|
March
15 |
August
19 |
December
24 |
|
April
1 |
August
20 |
December
25 |
|
May
1 |
October
23 |
December
26 |
|
India
|
January
25 |
April
20 |
August
10 |
November
4 |
January
26 |
April
23 |
August
15 |
November
5 |
March
27 |
May
1 |
August
22 |
November
14 |
March
29 |
May
25 |
September
9 |
November
15 |
April
1 |
June
29 |
September
30 |
December
25 |
April
11 |
July
1 |
October
2 |
|
April
19 |
August
9 |
October
16 |
|
Indonesia
|
January
1 |
May
9 |
August
12 |
December
24 |
January
25 |
June
7 |
August
13 |
December
25 |
March
12 |
August
7 |
October
15 |
December
26 |
March
29 |
August
8 |
November
4 |
December
30 |
April
11 |
August
9 |
November
5 |
December
31 |
Ireland
|
January
1 |
May
1 |
October
28 |
December
27 |
March
18 |
May
6 |
December
24 |
|
March
29 |
June
3 |
December
25 |
|
April
1 |
August
5 |
December
26 |
|
Israel
|
February
24 |
April
14 |
September
4 |
September
19 |
March
25 |
April
15 |
September
5 |
September
25 |
March
26 |
May
14 |
September
6 |
September
26 |
March
31 |
May
15 |
September
13 |
|
April
1 |
July
16 |
September
18 |
|
The Israeli market is closed every Friday.
Italy
|
January
1 |
May
1 |
December
25 |
|
March
29 |
August
15 |
December
26 |
|
April
1 |
November
1 |
December
31 |
|
April
25 |
December
24 |
|
|
Japan
|
January
1 |
February
11 |
May
6 |
October
14 |
January
2 |
March
20 |
July
15 |
November
4 |
January
3 |
April
29 |
September
16 |
December
23 |
January
14 |
May
3 |
September
23 |
December
31 |
Malaysia
|
January
1 |
May
1 |
June
1 |
October
15 |
January
24 |
May
24 |
August
7 |
November
4 |
February
1 |
May
25 |
August
8 |
November
5 |
February
11 |
May
30 |
August
9 |
December
25 |
February
12 |
May
31 |
August
31 |
|
Mexico
|
January
1 |
March
21 |
September
16 |
December
25 |
February
4 |
March
28 |
November
18 |
|
February
5 |
March
29 |
November
20 |
|
March
18 |
May
1 |
December
12 |
|
Morocco
|
January
1 |
May
1 |
August
14 |
October
17 |
January
11 |
July
30 |
August
20 |
November
5 |
January
24 |
August
8 |
August
21 |
November
6 |
January
25 |
August
9 |
October
16 |
November
18 |
The
Netherlands |
January
1 |
April
30 |
May
20 |
|
March
29 |
May
1 |
December
25 |
|
April
1 |
May
9 |
December
26 |
|
New
Zealand |
January
1 |
February
6 |
June
3 |
|
January
2 |
March
29 |
October
28 |
|
January
21 |
April
1 |
December
25 |
|
January
28 |
April
25 |
December
26 |
|
Norway
|
January
1 |
May
1 |
December
24 |
|
March
28 |
May
9 |
December
25 |
|
March
29 |
May
17 |
December
26 |
|
April
1 |
May
20 |
December
31 |
|
Peru
|
January
1 |
July
29 |
December
24 |
|
March
28 |
August
30 |
December
25 |
|
March
29 |
October
8 |
December
31 |
|
May
1 |
November
1 |
|
|
The
Philippines |
January
1 |
April
8 |
August
8 |
December
24 |
February
25 |
May
1 |
August
9 |
December
25 |
March
28 |
May
13 |
August
21 |
December
30 |
March
29 |
June
12 |
November
1 |
December
31 |
Poland
|
January
1 |
May
3 |
November
11 |
|
March
29 |
May
30 |
December
25 |
|
April
1 |
August
15 |
December
26 |
|
May
1 |
November
1 |
|
|
Portugal
|
January
1 |
April
25 |
June
13 |
December
25 |
February
12 |
May
1 |
August
15 |
December
26 |
March
29 |
May
30 |
November
1 |
|
April
1 |
June
10 |
December
24 |
|
Russia
|
January
1 |
January
8 |
May
9 |
|
January
2 |
January
9 |
May
10 |
|
January
3 |
February
25 |
June
12 |
|
January
4 |
March
8 |
November
4 |
|
January
7 |
May
1 |
|
|
Singapore
|
January
1 |
May
24 |
November
2 |
|
February
11 |
May
25 |
November
4 |
|
February
12 |
August
8 |
December
25 |
|
March
29 |
August
9 |
|
|
May
1 |
October
15 |
|
|
South
Africa |
January
1 |
May
1 |
December
16 |
|
March
21 |
June
17 |
December
25 |
|
March
29 |
August
9 |
December
26 |
|
April
1 |
September
24 |
|
|
South
Korea |
January
1 |
May
17 |
September
19 |
|
February
11 |
June
6 |
September
20 |
|
March
1 |
July
17 |
October
3 |
|
April
5 |
August
15 |
December
25 |
|
May
1 |
September
18 |
December
31 |
|
Spain
|
January
1 |
March
29 |
May
15 |
December
25 |
January
7 |
April
1 |
August
15 |
December
26 |
March
19 |
May
1 |
November
1 |
|
March
28 |
May
2 |
December
6 |
|
Sweden
|
January
1 |
May
9 |
December
25 |
|
March
29 |
June
6 |
December
26 |
|
April
1 |
June
21 |
December
31 |
|
May
1 |
December
24 |
|
|
Switzerland
|
January
1 |
May
1 |
August
15 |
December
26 |
January
2 |
May
9 |
September
5 |
December
31 |
March
19 |
May
20 |
November
1 |
|
March
29 |
May
30 |
December
24 |
|
April
1 |
August
1 |
December
25 |
|
Taiwan
|
January
1 |
February
12 |
April
4 |
October
10 |
February
7 |
February
13 |
May
1 |
|
February
8 |
February
14 |
June
12 |
|
February
11 |
February
28 |
September
19 |
|
Thailand
|
January
1 |
April
16 |
July
1 |
December
5 |
February
25 |
May
1 |
July
23 |
December
10 |
April
8 |
May
6 |
August
12 |
December
31 |
April
15 |
May
27 |
October
23 |
|
Turkey
|
January
1 |
August
9 |
October
16 |
October
29 |
April
23 |
August
30 |
October
17 |
|
August
7 |
October
14 |
October
18 |
|
August
8 |
October
15 |
October
28 |
|
The
United Kingdom |
January
1 |
May
6 |
December
25 |
|
March
29 |
May
27 |
December
26 |
|
April
1 |
August
26 |
|
|
The
United States |
January
1 |
May
27 |
November
11 |
|
January
21 |
July
4 |
November
28 |
|
February
18 |
September
2 |
December
25 |
|
March
29 |
October
14 |
|
|
Australia
|
January
1 |
April
21 |
June
9 |
November
4 |
January
27 |
April
25 |
August
4 |
December
25 |
March
3 |
May
5 |
August
13 |
December
26 |
March
10 |
May
19 |
September
29 |
|
April
18 |
June
2 |
October
6 |
|
Austria
|
January
1 |
May
1 |
August
15 |
December
26 |
January
6 |
May
29 |
December
8 |
December
31 |
April
18 |
June
9 |
December
24 |
|
April
21 |
June
19 |
December
25 |
|
Belgium
|
January
1 |
May
29 |
August
15 |
|
April
18 |
May
30 |
November
11 |
|
April
21 |
June
9 |
December
25 |
|
May
1 |
July
21 |
December
26 |
|
Brazil
|
January
1 |
April
18 |
July
9 |
December
31 |
January
20 |
April
21 |
November
20 |
|
March
3 |
May
1 |
December
24 |
|
March
4 |
June
19 |
December
25 |
|
Canada
|
January
1 |
May
19 |
September
1 |
December
26 |
January
2 |
June
24 |
October
13 |
|
February
17 |
July
1 |
November
11 |
|
April
18 |
August
4 |
December
25 |
|
Chilé
|
January
1 |
June
16 |
December
8 |
|
April
18 |
August
15 |
December
25 |
|
May
1 |
September
18 |
December
31 |
|
May
21 |
September
19 |
|
|
China
|
January
1 |
February
6 |
May
7 |
October
6 |
January
20 |
February
7 |
May
26 |
October
7 |
January
30 |
February
17 |
July
4 |
October
13 |
January
31 |
May
1 |
September
1 |
November
11 |
February
3 |
May
2 |
October
1 |
November
27 |
February
4 |
May
5 |
October
2 |
December
25 |
February
5 |
May
6 |
October
3 |
|
Colombia
|
January
1 |
May
1 |
August
18 |
December
25 |
January
6 |
June
2 |
October
13 |
December
31 |
March
24 |
June
23 |
November
3 |
|
April
17 |
June
30 |
November
17 |
|
April
18 |
August
7 |
December
8 |
|
The
Czech Republic |
January
1 |
October
28 |
December
26 |
|
April
21 |
November
17 |
December
31 |
|
May
1 |
December
24 |
|
|
May
8 |
December
25 |
|
|
Denmark
|
January
1 |
May
16 |
December
24 |
|
April
17 |
May
29 |
December
25 |
|
April
18 |
June
5 |
December
26 |
|
April
21 |
June
9 |
December
31 |
|
Egypt
|
January
1 |
April
21 |
July
28 |
October
6 |
January
7 |
May
1 |
July
29 |
|
January
13 |
July
1 |
July
30 |
|
April
20 |
July
23 |
October
5 |
|
The Egyptian market is closed every Friday.
Finland
|
January
1 |
May
1 |
December
25 |
|
January
6 |
May
29 |
December
26 |
|
April
18 |
June
20 |
December
31 |
|
April
21 |
December
24 |
|
|
France
|
January
1 |
May
8 |
November
11 |
|
April
18 |
May
29 |
December
25 |
|
April
21 |
July
14 |
December
26 |
|
May
1 |
August
15 |
|
|
Germany
|
April
6 |
December
25 |
|
|
April
9 |
December
26 |
|
|
May
1 |
|
|
|
Greece
|
January
1 |
April
18 |
August
15 |
|
January
6 |
April
21 |
October
28 |
|
March
3 |
May
1 |
December
25 |
|
March
25 |
June
9 |
December
26 |
|
Hong
Kong |
January
1 |
April
21 |
July
1 |
December
24 |
January30
|
May
1 |
September
9 |
December
25 |
January
31 |
May
6 |
October
1 |
December
26 |
April
18 |
June
2 |
October
2 |
December
31 |
Hungary
|
January
1 |
June
9 |
December
24 |
|
April
21 |
August
20 |
December
25 |
|
May
1 |
October
23 |
December
26 |
|
May
2 |
October
24 |
|
|
India
|
January
14 |
April
18 |
August
15 |
October
6 |
February
27 |
May
1 |
August
18 |
October
23 |
March
17 |
May
14 |
August
23 |
November
4 |
March
31 |
June
30 |
August
29 |
November
6 |
April
1 |
July
1 |
September
30 |
December
25 |
April
8 |
July
29 |
October
2 |
|
April
14 |
July
30 |
October
3 |
|
Indonesia
|
January
1 |
May
15 |
July
30 |
December
24 |
January
13 |
May
26 |
July
31 |
December
25 |
January
31 |
May
29 |
August
1 |
December
26 |
March
31 |
July
28 |
August
18 |
December
31 |
April
18 |
July
29 |
October
6 |
|
Ireland
|
January
1 |
May
1 |
October
27 |
December
29 |
March
17 |
May
5 |
December
24 |
|
April
18 |
June
2 |
December
25 |
|
April
21 |
August
4 |
December
26 |
|
Israel
|
March
16 |
May
4 |
September
24 |
October
9 |
April
14 |
May
5 |
September
25 |
October
15 |
April
15 |
June
3 |
September
26 |
October
16 |
April
20 |
June
4 |
October
3 |
|
April
21 |
August
5 |
October
8 |
|
The Israeli market is closed every Friday.
Italy
|
January
1 |
April
25 |
December
8 |
December
31 |
January
6 |
May
1 |
December
24 |
|
April
18 |
June
2 |
December
25 |
|
April
21 |
August
15 |
December
26 |
|
Japan
|
January
1 |
February
11 |
July
21 |
November
3 |
January
2 |
March
21 |
September
15 |
November
24 |
January
3 |
April
29 |
September
23 |
December
23 |
January
13 |
May
5 |
October
13 |
December
31 |
Malaysia
|
January
1 |
February
3 |
June
7 |
October
6 |
January
14 |
May
1 |
July
28 |
October
22 |
January
30 |
May
13 |
July
29 |
October
23 |
January
31 |
May
15 |
July
30 |
October
25 |
February
1 |
May
30 |
September
1 |
December
25 |
Mexico
|
January
1 |
March
21 |
September
16 |
December
25 |
February
3 |
April
17 |
November
17 |
|
February
5 |
April
18 |
November
20 |
|
March
17 |
May
1 |
December
12 |
|
Morocco
|
January
1 |
July
28 |
August
20 |
November
18 |
January
14 |
July
29 |
August
21 |
|
January
15 |
July
30 |
October
6 |
|
May
1 |
August
14 |
November
6 |
|
The
Netherlands |
January
1 |
April
30 |
June
9 |
April
18 |
May
1 |
December
25 |
April
21 |
May
29 |
December
26 |
New
Zealand |
January
1 |
February
6 |
June
2 |
January
2 |
April
18 |
October
27 |
January
20 |
April
21 |
December
25 |
January
27 |
April
25 |
December
26 |
Norway
|
January
1 |
May
1 |
December
25 |
April
17 |
May
29 |
December
26 |
April
18 |
June
9 |
December
31 |
April
21 |
December
24 |
|
Peru
|
January
1 |
July
28 |
December
24 |
April
17 |
July
29 |
December
25 |
April
18 |
October
8 |
December
31 |
May
1 |
December
8 |
|
The
Philippines |
January
1 |
April
18 |
July
29 |
December
30 |
February
25 |
May
1 |
August
21 |
December
31 |
April
7 |
June
12 |
December
24 |
|
April
17 |
July
28 |
December
25 |
|
Poland
|
January
1 |
May
1 |
November
11 |
April
18 |
June
19 |
December
25 |
April
21 |
August
15 |
December
26 |
Portugal
|
January
1 |
April
25 |
June
19 |
December
24 |
March
4 |
May
1 |
August
15 |
December
25 |
April
18 |
June
10 |
December
1 |
December
26 |
April
21 |
June
13 |
December
8 |
|
Russia
|
January
1 |
January
8 |
May
9 |
January
2 |
February
24 |
June
12 |
January
3 |
March
10 |
June
13 |
January
6 |
May
1 |
November
3 |
January
7 |
May
2 |
November
4 |
Singapore
|
January
1 |
May
1 |
August
9 |
December
25 |
January
31 |
May
13 |
October
6 |
|
February
1 |
May
15 |
October
22 |
|
April
18 |
July
28 |
October
23 |
|
South
Africa |
January
1 |
April
28 |
December
16 |
March
21 |
May
1 |
December
25 |
April
18 |
June
16 |
December
26 |
April
21 |
September
24 |
|
South
Korea |
January
1 |
March
1 |
August
15 |
October
3 |
January
30 |
May
5 |
September
7 |
December
24 |
January
31 |
May
6 |
September
8 |
|
February
1 |
June
6 |
September
9 |
|
Spain
|
January
1 |
April
21 |
July
25 |
December
25 |
January
6 |
May
1 |
August
15 |
December
26 |
April
17 |
May
2 |
September
9 |
|
April
18 |
May
15 |
December
8 |
|
Sweden
|
January
1 |
May
1 |
December
24 |
January
6 |
May
29 |
December
25 |
April
18 |
June
6 |
December
26 |
April
21 |
June
20 |
December
31 |
Switzerland
|
January
1 |
April
21 |
August
1 |
December
25 |
January
2 |
May
1 |
August
15 |
December
26 |
January
6 |
May
29 |
September
11 |
December
31 |
March
19 |
June
9 |
December
8 |
|
April
18 |
June
19 |
December
24 |
|
Taiwan
|
January
1 |
January
31 |
May
1 |
|
January
28 |
February
3 |
September
8 |
|
January
29 |
February
4 |
October
10 |
|
January
30 |
February
28 |
|
|
Thailand
|
January
1 |
April
15 |
July
1 |
December
5 |
February
14 |
May
1 |
July
14 |
December
10 |
April
7 |
May
5 |
August
12 |
|
April
14 |
May
14 |
October
23 |
|
Turkey
|
January
1 |
July
28 |
October
3 |
October
28 |
April
23 |
July
29 |
October
6 |
October
29 |
May
19 |
July
30 |
October
7 |
|
The
United Kingdom |
January
1 |
May
26 |
April
18 |
August
25 |
April
21 |
December
25 |
May
5 |
December
26 |
The
United States |
January
1 |
May
26 |
November
11 |
January
20 |
July
4 |
November
27 |
February
17 |
September
1 |
December
25 |
April
18 |
October
13 |
|
Redemptions. The longest
redemption cycle for a Fund is a function of the longest redemption cycle among the countries
whose stocks comprise the Fund. In calendar years 2013 and 2014, the dates of regular holidays affecting the following securities markets present the
worst-case redemption cycles* for a Fund as follows:
2013 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
Austria
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
China
|
|
02/04/13
|
|
02/19/13
|
|
15
|
|
|
02/05/13
|
|
02/20/13
|
|
15
|
|
|
02/06/13
|
|
02/21/13
|
|
15
|
|
|
04/26/13
|
|
05/08/13
|
|
12
|
|
|
04/29/13
|
|
05/09/13
|
|
10
|
|
|
04/30/13
|
|
05/10/13
|
|
10
|
|
|
09/25/13
|
|
10/08/13
|
|
13
|
|
|
09/26/13
|
|
10/09/13
|
|
13
|
|
|
09/27/13
|
|
10/10/13
|
|
13
|
The
Czech Republic |
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
2013 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Denmark
|
|
03/25/13
|
|
04/02/13
|
|
8
|
|
|
03/26/13
|
|
04/03/13
|
|
8
|
|
|
03/27/13
|
|
04/04/13
|
|
8
|
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Egypt
|
|
10/08/13
|
|
10/17/13
|
|
9
|
|
|
10/09/13
|
|
10/18/13
|
|
9
|
|
|
10/10/13
|
|
10/21/13
|
|
11
|
|
|
10/29/13
|
|
11/06/13
|
|
8
|
|
|
10/30/13
|
|
11/07/13
|
|
8
|
|
|
10/31/13
|
|
11/08/13
|
|
8
|
Finland
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Germany
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Hungary
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
12/31/13
|
|
8
|
Indonesia
|
|
08/02/13
|
|
08/14/13
|
|
12
|
|
|
08/05/13
|
|
08/15/13
|
|
10
|
|
|
08/06/13
|
|
08/16/13
|
|
10
|
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
01/02/14
|
|
13
|
|
|
12/23/13
|
|
01/03/14
|
|
11
|
Ireland
|
|
12/19/13
|
|
12/30/13
|
|
11
|
|
|
12/20/13
|
|
12/31/13
|
|
11
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Italy
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Malaysia
|
|
08/02/13
|
|
08/12/13
|
|
10
|
|
|
08/05/13
|
|
08/13/13
|
|
8
|
|
|
08/06/13
|
|
08/14/13
|
|
8
|
The
Netherlands |
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
12/31/13
|
|
8
|
Norway
|
|
03/25/13
|
|
04/02/13
|
|
8
|
|
|
03/26/13
|
|
04/03/13
|
|
8
|
|
|
03/27/13
|
|
04/04/13
|
|
8
|
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
The
Philippines |
|
12/23/13
|
|
01/02/14
|
|
10
|
Portugal
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
12/31/13
|
|
8
|
2013 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
South
Africa |
|
03/14/13
|
|
03/22/13
|
|
8
|
|
|
03/15/13
|
|
03/25/13
|
|
10
|
|
|
03/18/13
|
|
03/26/13
|
|
8
|
|
|
03/19/13
|
|
03/27/13
|
|
8
|
|
|
03/20/13
|
|
03/28/13
|
|
8
|
|
|
03/22/13
|
|
04/02/13
|
|
11
|
|
|
03/25/13
|
|
04/03/13
|
|
8
|
|
|
03/26/13
|
|
04/04/13
|
|
8
|
|
|
03/27/13
|
|
04/05/13
|
|
8
|
|
|
03/28/13
|
|
04/08/13
|
|
11
|
|
|
04/24/13
|
|
05/02/13
|
|
8
|
|
|
04/25/13
|
|
05/03/13
|
|
8
|
|
|
04/26/13
|
|
05/06/13
|
|
10
|
|
|
04/29/13
|
|
05/07/13
|
|
8
|
|
|
04/30/13
|
|
05/08/13
|
|
8
|
|
|
06/10/13
|
|
06/18/13
|
|
8
|
|
|
06/11/13
|
|
06/19/13
|
|
8
|
|
|
06/12/13
|
|
06/20/13
|
|
8
|
|
|
06/13/13
|
|
06/21/13
|
|
8
|
|
|
06/14/13
|
|
06/24/13
|
|
10
|
|
|
08/02/13
|
|
08/12/13
|
|
10
|
|
|
08/05/13
|
|
08/13/13
|
|
8
|
|
|
08/06/13
|
|
08/14/13
|
|
8
|
|
|
08/07/13
|
|
08/15/13
|
|
8
|
|
|
08/08/13
|
|
08/16/13
|
|
8
|
|
|
09/17/13
|
|
09/25/13
|
|
8
|
|
|
09/18/13
|
|
09/26/13
|
|
8
|
|
|
09/19/13
|
|
09/27/13
|
|
8
|
|
|
09/20/13
|
|
09/30/13
|
|
10
|
|
|
09/23/13
|
|
10/01/13
|
|
8
|
|
|
12/11/13
|
|
12/19/13
|
|
8
|
|
|
12/12/13
|
|
12/20/13
|
|
8
|
|
|
12/13/13
|
|
12/23/13
|
|
10
|
|
|
12/18/13
|
|
12/27/13
|
|
9
|
|
|
12/19/13
|
|
12/30/13
|
|
11
|
|
|
12/20/13
|
|
12/31/13
|
|
11
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/24/13
|
|
01/03/14
|
|
10
|
Spain
|
|
03/25/13
|
|
04/02/13
|
|
8
|
|
|
03/26/13
|
|
04/03/13
|
|
8
|
|
|
03/27/13
|
|
04/04/13
|
|
8
|
Sweden
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Switzerland
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Taiwan
|
|
02/05/13
|
|
02/15/13
|
|
10
|
|
|
02/06/13
|
|
02/18/13
|
|
12
|
Turkey
|
|
10/10/13
|
|
10/21/13
|
|
11
|
2013 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
|
|
10/11/13
|
|
10/22/13
|
|
11
|
2014 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
Austria
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
China
|
|
01/27/14
|
|
02/10/14
|
|
14
|
|
|
01/28/14
|
|
02/11/14
|
|
14
|
|
|
01/29/14
|
|
02/12/14
|
|
14
|
|
|
04/28/14
|
|
05/08/14
|
|
10
|
|
|
04/29/14
|
|
05/09/14
|
|
10
|
|
|
04/30/14
|
|
05/12/14
|
|
12
|
|
|
09/26/14
|
|
10/08/14
|
|
12
|
|
|
09/29/14
|
|
10/09/14
|
|
10
|
|
|
09/30/14
|
|
10/10/14
|
|
10
|
The
Czech Republic |
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Denmark
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
04/14/14
|
|
04/23/14
|
|
8
|
|
|
04/15/14
|
|
04/24/14
|
|
8
|
|
|
04/16/14
|
|
04/25/14
|
|
8
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Egypt
|
|
12/31/13
|
|
01/08/14
|
|
8
|
|
|
01/06/14
|
|
01/14/14
|
|
8
|
|
|
04/14/14
|
|
04/22/14
|
|
8
|
|
|
04/15/14
|
|
04/23/14
|
|
8
|
|
|
04/16/14
|
|
04/24/14
|
|
8
|
|
|
04/17/14
|
|
04/27/14
|
|
10
|
|
|
07/21/14
|
|
07/31/14
|
|
10
|
|
|
07/22/14
|
|
08/03/14
|
|
12
|
|
|
07/24/14
|
|
08/04/14
|
|
11
|
|
|
09/29/14
|
|
10/07/14
|
|
8
|
|
|
09/30/14
|
|
10/08/14
|
|
8
|
|
|
10/01/14
|
|
10/09/14
|
|
8
|
|
|
10/02/14
|
|
10/12/14
|
|
10
|
Finland
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Hungary
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
12/31/14
|
|
8
|
Indonesia
|
|
12/23/13
|
|
01/02/14
|
|
10
|
2014 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
|
|
07/23/14
|
|
08/04/14
|
|
12
|
|
|
07/24/14
|
|
08/05/14
|
|
12
|
|
|
07/25/14
|
|
08/06/14
|
|
12
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
11
|
Ireland
|
|
12/23/14
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/30/14
|
|
11
|
|
|
12/22/14
|
|
12/31/14
|
|
9
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Italy
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Malaysia
|
|
01/27/14
|
|
02/04/14
|
|
8
|
|
|
01/28/14
|
|
02/05/14
|
|
8
|
|
|
01/29/14
|
|
02/06/14
|
|
8
|
|
|
07/23/14
|
|
07/31/14
|
|
8
|
|
|
07/24/14
|
|
08/01/14
|
|
8
|
|
|
07/25/14
|
|
08/04/14
|
|
10
|
Norway
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
04/14/14
|
|
04/22/14
|
|
8
|
|
|
04/15/14
|
|
04/23/14
|
|
8
|
|
|
04/16/14
|
|
04/24/14
|
|
8
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
The
Philippines |
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/26/13
|
|
01/03/14
|
|
8
|
|
|
12/27/13
|
|
01/06/14
|
|
10
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
|
|
12/26/14
|
|
01/05/15
|
|
10
|
|
|
12/29/14
|
|
01/06/15
|
|
8
|
Portugal
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
12/31/14
|
|
8
|
South
Africa |
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/24/13
|
|
01/03/14
|
|
10
|
|
|
12/27/13
|
|
01/06/14
|
|
10
|
|
|
12/30/13
|
|
01/07/14
|
|
8
|
|
|
12/31/13
|
|
01/08/14
|
|
8
|
|
|
03/14/14
|
|
03/24/14
|
|
10
|
|
|
03/17/14
|
|
03/25/14
|
|
8
|
|
|
03/18/14
|
|
03/26/14
|
|
8
|
|
|
03/19/14
|
|
03/27/14
|
|
8
|
|
|
03/20/14
|
|
03/28/14
|
|
8
|
|
|
04/11/14
|
|
04/22/14
|
|
9
|
|
|
04/14/14
|
|
04/23/14
|
|
9
|
|
|
04/15/14
|
|
04/24/14
|
|
9
|
|
|
04/16/14
|
|
04/25/14
|
|
9
|
2014 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
|
|
04/17/14
|
|
04/29/14
|
|
12
|
|
|
04/22/14
|
|
04/30/14
|
|
8
|
|
|
04/23/14
|
|
05/02/14
|
|
9
|
|
|
04/24/14
|
|
05/05/14
|
|
11
|
|
|
04/25/14
|
|
05/06/14
|
|
11
|
|
|
04/29/14
|
|
05/07/14
|
|
8
|
|
|
04/30/14
|
|
05/08/14
|
|
8
|
|
|
06/09/14
|
|
06/17/14
|
|
8
|
|
|
06/10/14
|
|
06/18/14
|
|
8
|
|
|
06/11/14
|
|
06/19/14
|
|
8
|
|
|
06/12/14
|
|
06/20/14
|
|
8
|
|
|
06/13/14
|
|
06/23/14
|
|
10
|
|
|
09/17/14
|
|
09/25/14
|
|
8
|
|
|
09/18/14
|
|
09/26/14
|
|
8
|
|
|
09/19/14
|
|
09/29/14
|
|
10
|
|
|
09/22/14
|
|
09/30/14
|
|
8
|
|
|
09/23/14
|
|
10/01/14
|
|
8
|
|
|
12/09/14
|
|
12/17/14
|
|
8
|
|
|
12/10/14
|
|
12/18/14
|
|
8
|
|
|
12/11/14
|
|
12/19/14
|
|
8
|
|
|
12/12/14
|
|
12/22/14
|
|
10
|
|
|
12/15/14
|
|
12/23/14
|
|
8
|
|
|
12/18/14
|
|
12/29/14
|
|
11
|
|
|
12/19/14
|
|
12/30/14
|
|
11
|
|
|
12/22/14
|
|
12/31/14
|
|
9
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
|
|
12/14/14
|
|
01/05/15
|
|
12
|
|
|
12/29/14
|
|
01/06/15
|
|
8
|
|
|
12/30/14
|
|
01/07/15
|
|
8
|
|
|
12/31/14
|
|
01/08/15
|
|
8
|
Spain
|
|
04/14/14
|
|
04/22/14
|
|
8
|
|
|
04/15/14
|
|
04/23/14
|
|
8
|
|
|
04/16/14
|
|
04/24/14
|
|
8
|
Sweden
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Switzerland
|
|
12/23/13
|
|
01/03/14
|
|
11
|
|
|
12/27/13
|
|
01/06/14
|
|
10
|
|
|
12/30/13
|
|
01/07/14
|
|
8
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/05/14
|
|
13
|
|
|
12/29/14
|
|
01/06/14
|
|
8
|
|
|
12/30/14
|
|
01/07/14
|
|
8
|
Taiwan
|
|
01/24/14
|
|
02/05/14
|
|
12
|
|
|
01/27/14
|
|
02/06/14
|
|
10
|
* |
These worst-case redemption
cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse) redemption cycles are possible. |
Taxes
The following is a summary of certain material U.S. federal
income tax considerations regarding the purchase, ownership and disposition of shares of a Fund. This summary does not address all of the potential U.S. federal income tax consequences that may be applicable to a Fund or to all categories of
investors, some of which may be subject to special tax rules. Current and prospective shareholders are urged to consult their own tax advisers with respect to the specific U.S. federal, state, local and non-U.S. tax consequences of investing in a
Fund. The summary is based on the laws in effect on the date of this SAI and existing judicial and administrative interpretations thereof, all of which are subject to change, possibly with retroactive effect.
Regulated Investment Company Qualifications. Each Fund intends to continue to qualify for treatment as a separate RIC under Subchapter M of the Internal Revenue Code. To qualify for treatment as a RIC, each Fund must annually distribute at least 90% of its
investment company taxable income (which includes dividends, interest and net short-term capital gains) and meet several other requirements. Among such other requirements are the following: (i) at least 90% of each Fund’s annual gross income
must be derived from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities or non-U.S. currencies, other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly-traded partnerships
(i.e., partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of
their income from interest, dividends, capital gains and other traditionally permitted mutual fund income); and (ii) at the close of each quarter of each Fund's taxable year, (a) at least 50% of the market value of each Fund’s total assets
must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited for purposes of this calculation in respect of any one issuer to an amount not greater than 5%
of the value of the Fund’s assets and not greater than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of each Fund's total assets may be invested in the securities (other than U.S. government
securities or the securities of other RICs) of any one issuer, of two or more issuers of which 20% or more of the voting stock is held by the Fund and that are engaged in the same or similar trades or businesses or related trades or businesses, or
the securities of one or more qualified publicly-traded partnerships.
A Fund may be able to cure a failure to derive 90% of its
income from the sources specified above or a failure to diversify its holdings in the manner described above by paying a tax and/or by disposing of certain assets. If, in any taxable year, a Fund fails one of these tests and does not timely
cure the failure, that Fund will be taxed in the same manner as an ordinary corporation and distributions to its shareholders will not be deductible by that Fund in computing its taxable income.
Although, in general, the passive loss rules of the Internal
Revenue Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to interests in qualified publicly-traded partnerships. A Fund's investments in partnerships, including in qualified publicly-traded partnerships, may
result in the Fund being subject to state, local, or non-U.S. income, franchise or withholding tax liabilities.
Taxation of RICs. As a
RIC, a Fund will not be subject to U.S. federal income tax on the portion of its taxable investment income and capital gains that it distributes to its shareholders, provided that it satisfies a minimum distribution requirement. To satisfy the
minimum distribution requirement, a Fund must distribute to its shareholders at least the sum of (i) 90% of its “investment company taxable income” (i.e., income other than its net realized long-term capital gain over its net realized short-term capital loss), plus or minus certain adjustments, and (ii) 90% of its net tax-exempt income for the taxable year. A Fund will
be subject to income tax at regular corporate rates on any taxable income or gains that it does not distribute to its shareholders. If a Fund fails to qualify for any taxable year as a RIC or fails to meet the distribution requirement, all of its
taxable income will be subject to tax at regular corporate income tax rates without any deduction for distributions to shareholders, and such distributions generally will be taxable to shareholders as ordinary dividends to the extent of the
Fund’s current and accumulated earnings and profits. In such event, distributions to individuals should be eligible to be treated as qualified dividend income and distributions to corporate shareholders generally should be eligible for the
dividends received deduction. Although each Fund intends to distribute substantially all of its net investment income and its capital gains for each taxable year, each Fund will be subject to U.S. federal income taxation to the extent any such
income or gains are not distributed. If a Fund fails to qualify as a RIC in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a RIC. If a Fund fails to qualify as a RIC for a period greater than
two taxable years, the Fund
may be required to recognize any net built-in gains with respect to certain of
its assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if the Fund had been liquidated) if it qualifies
as a RIC in a subsequent year.
Excise Tax. A Fund will be subject to a 4% excise tax on certain undistributed income if it does not distribute to its shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98.2% of
its capital gain net income for the 12 months ended October 31 of such year. For this purpose, however, any ordinary income or capital gain net income retained by a Fund that is subject to corporate income tax will be considered to have been
distributed by year-end. In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any underdistribution or overdistribution, as the case may be, from the previous year.
Each Fund intends to declare and distribute dividends and distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax.
Net Capital Loss Carryforwards.
Net capital loss carryforwards may be applied against any net realized capital gains in each succeeding year, until they have been reduced to zero or until their respective expiration dates, whichever
occurs first. Capital loss carryforwards from taxable years beginning after December 2010 are not subject to expiration.
The following Funds had tax basis net capital loss
carryforwards as of August 31, 2012, the tax year-end for the Funds listed:
Fund
|
|
Non-Expiring
1 |
|
Expiring
2013 |
|
Expiring
2014 |
|
Expiring
2015 |
|
Expiring
2016 |
|
Expiring
2017 |
|
Expiring
2018 |
|
Expiring
2019 |
|
Total
|
iShares
MSCI All Country World Minimum Volatility Index Fund |
|
$
1,876,800 |
|
$
— |
|
$
— |
|
$
— |
|
$
— |
|
$
— |
|
$
— |
|
$
— |
|
$
1,876,800 |
iShares
MSCI Brazil Capped Index Fund |
|
160,031,183
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
198,226,310
|
|
—
|
|
358,257,493
|
iShares
MSCI BRIC Index Fund |
|
63,224,174
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,540,740
|
|
11,268,086
|
|
7,760,558
|
|
83,793,558
|
iShares
MSCI Chile Capped Investable Market Index Fund |
|
30,504,831
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,886,881
|
|
11,712,090
|
|
976,991
|
|
45,080,793
|
iShares
MSCI Emerging Markets Asia Index Fund |
|
97,800
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
97,800
|
iShares
MSCI Emerging Markets Consumer Discretionary Sector Index Fund |
|
769,548
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
769,548
|
iShares
MSCI Emerging Markets EMEA Index Fund |
|
55,073
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
55,073
|
iShares
MSCI Emerging Markets Energy Sector Capped Index Fund |
|
911,455
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
911,455
|
iShares
MSCI Emerging Markets Growth Index Fund |
|
302,438
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
302,438
|
iShares
MSCI Emerging Markets Index Fund |
|
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
|
Fund
|
|
Non-Expiring
1 |
|
Expiring
2013 |
|
Expiring
2014 |
|
Expiring
2015 |
|
Expiring
2016 |
|
Expiring
2017 |
|
Expiring
2018 |
|
Expiring
2019 |
|
Total
|
iShares
MSCI Emerging Markets Minimum Volatility Index Fund |
|
1,248,753
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,248,753
|
iShares
MSCI Emerging Markets Small Cap Index Fund |
|
62,813
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
62,813
|
iShares
MSCI Emerging Markets Value Index Fund |
|
188,505
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
188,505
|
iShares
MSCI Frontier 100 Index Fund |
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
iShares
MSCI Global Agriculture Producers Fund |
|
20,341
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
20,341
|
iShares
MSCI Global Energy Producers Fund |
|
20,639
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
20,639
|
iShares
MSCI Global Select Metals & Mining Producers Fund |
|
9,471
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
9,471
|
iShares
MSCI Malaysia Index Fund |
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
39,171,645
|
|
—
|
|
—
|
|
39,171,645
|
iShares
MSCI South Korea Capped Index Fund |
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
60,990,953
|
|
226,591,665
|
|
78,503,704
|
|
366,086,322
|
iShares
MSCI Taiwan Index Fund |
|
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
|
1 |
Must be utilized prior to
losses subject to expiration. |
Taxation
of U.S. Shareholders. Dividends and other distributions by a Fund are generally treated under the Internal Revenue Code as received by the shareholders at the time the dividend or distribution is made.
However, any dividend or distribution declared by a Fund in October, November or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the Fund not later than such December 31, provided such dividend is actually paid by the Fund during January of the following calendar year.
Each Fund intends to distribute annually to its shareholders
substantially all of its net tax-exempt income, investment company taxable income and any net realized long-term capital gains in excess of net realized short-term capital losses (including any capital loss carryovers). However, if a Fund retains
for investment an amount equal to all or a portion of its net long-term capital gains in excess of its net short-term capital losses (including any capital loss carryovers), it will be subject to a corporate tax (currently at a maximum rate of 35%)
on the amount retained. In that event, the Fund will designate such retained amounts as undistributed capital gains in a notice to its shareholders who (a) will be required to include in income for U.S. federal income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed amount, (b) will be entitled to credit their proportionate shares of the 35% tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any,
and to claim refunds to the extent their credits exceed their liabilities, if any, and (c) will be entitled to increase their tax basis, for U.S. federal income tax purposes, in their shares by an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder’s income. Organizations or persons not subject to U.S. federal income tax on such capital gains will be entitled to a refund of their pro rata share of such
taxes paid by the Fund upon filing appropriate returns or claims for refund with the IRS.
Distributions of net realized long-term capital gains, if any,
that a Fund reports as capital gains dividends are taxable as long-term capital gains, whether paid in cash or in shares and regardless of how long a shareholder has held shares of the Fund. All other dividends of a Fund (including dividends from
short-term capital gains) from its current and accumulated earnings and profits (“regular dividends”) are generally subject to tax as ordinary income, subject to the discussion of qualified dividend income below.
If an individual receives a regular dividend qualifying for the
long-term capital gains rates and such dividend constitutes an “extraordinary dividend,” and the individual subsequently recognizes a loss on the sale or exchange of stock in respect of which the extraordinary dividend was paid, then the
loss will be long-term capital loss to the extent of such extraordinary dividend. An “extraordinary dividend” on common stock for this purpose is generally a dividend (i) in an amount greater than or equal to 10% of the taxpayer’s
tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within an 85-day period, or (ii) in an amount greater than 20% of the taxpayer’s tax basis (or trading value) in a share of stock, aggregating
dividends with ex-dividend dates within a 365-day period.
Distributions in excess of a Fund’s current and
accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of a shareholder’s basis in shares of the Fund, and as a capital gain thereafter (if the shareholder holds shares of the
Fund as capital assets). Distributions in excess of a Fund’s minimum distribution requirements, but not in excess of the Fund’s earnings and profits, will be taxable to shareholders and will not constitute nontaxable returns of capital.
Each Fund’s capital loss carryforwards, if any, carried from taxable years beginning before 2011 do not reduce current earnings and profits, even if such carryforwards offset current year realized gains. Shareholders receiving dividends or
distributions in the form of additional shares should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the shareholders receiving cash dividends or distributions will receive
and should have a cost basis in the shares received equal to such amount. Dividends paid by a Fund that are attributable to dividends received by a Fund from domestic corporations may qualify for the U.S. federal dividends received deduction for
corporations.
Beginning in 2013, a 3.8% U.S. federal
Medicare contribution tax will be imposed on net investment income, including, but not limited to, interest, dividends, and net gain, of U.S. individuals with income exceeding $200,000 (or $250,000 if married and filing jointly), and of estates and
trusts.
Investors considering buying shares just prior to
a dividend or capital gain distribution should be aware that, although the price of shares purchased at that time may reflect the amount of the forthcoming distribution, such dividend or distribution may nevertheless be taxable to them. If a Fund is
the holder of record of any security on the record date for any dividends payable with respect to such security, such dividends will be included in the Fund’s gross income not as of the date received but as of the later of (a) the date such
security became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the security would not be entitled to receive the declared, but unpaid, dividends); or (b) the date the Fund
acquired such security. Accordingly, in order to satisfy its income distribution requirements, a Fund may be required to pay dividends based on anticipated earnings, and shareholders may receive dividends in an earlier year than would otherwise be
the case.
In certain situations, a Fund may, for a
taxable year, defer all or a portion of its net capital loss realized after October and its late-year ordinary loss (defined as the excess of a Fund’s post-October foreign currency and “passive foreign investment company”
(“PFIC”) losses and other post-December ordinary losses over post-October foreign currency and PFIC gains and other post-December ordinary income) until the next taxable year in computing its investment company taxable income and net
capital gain, which will defer the recognition of such realized losses. Such deferrals and other rules regarding gains and losses realized after October (or December) may affect the tax character of shareholder distributions.
Sales of Shares. Upon
the sale or exchange of shares of a Fund, a shareholder will realize a taxable gain or loss equal to the difference between the amount realized and the shareholder’s basis in shares of the Fund. A redemption of shares by a Fund will be treated
as a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder’s hands and will be long-term capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced, including replacement through the reinvesting of dividends and
capital gains distributions in the Funds, by, or by an option on, substantially identical shares within a 61-day period beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired
will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder
for six months or less will be treated for U.S. federal income tax purposes as
a long-term capital loss to the extent of any distributions or deemed distributions of long-term capital gains received by the shareholder with respect to such share. The Medicare contribution tax described above will apply to the sale of Fund
shares.
If a shareholder incurs a sales charge in
acquiring shares of a Fund, disposes of those shares within 90 days and then, on or before January 31 of the following calendar year, acquires shares in a mutual fund for which the otherwise applicable sales charge is reduced by reason of a
reinvestment right (e.g., an exchange privilege), the original sales charge will not be taken into account in computing gain/loss on the original shares to the extent the subsequent sales charge is reduced.
Instead, the disregarded portion of the original sales charge will be added to the tax basis of the newly acquired shares. Furthermore, the same rule also applies to a disposition of the newly acquired shares made within 90 days of the second
acquisition. This provision prevents shareholders from immediately deducting the sales charge by shifting their investments within a family of mutual funds.
Back-Up Withholding. In
certain cases, a Fund will be required to withhold at the applicable withholding rate, and remit to the U.S. Treasury such amounts withheld from any distributions paid to a shareholder who: (i) has failed to provide a correct taxpayer identification
number; (ii) is subject to back-up withholding by the IRS; (iii) has failed to certify to a Fund that such shareholder is not subject to back-up withholding; or (iv) has not certified that such shareholder is a U.S. person (including a U.S. resident
alien). Back-up withholding is not an additional tax and any amount withheld may be credited against a shareholder's U.S. federal income tax liability.
Sections 351 and 362.
The Company, on behalf of each Fund, has the right to reject an order for a purchase of shares of the Fund if the purchaser (or group of purchasers) would, upon obtaining the shares so ordered, own 80% or
more of the outstanding shares of a given Fund and if, pursuant to Sections 351 and 362 of the Internal Revenue Code, that Fund would have a basis in the securities different from the market value of such securities on the date of deposit. If a
Fund’s basis in such securities on the date of deposit was less than market value on such date, the Fund, upon disposition of the securities, would recognize more taxable gain or less taxable loss than if its basis in the securities had been
equal to market value. It is not anticipated that the Company will exercise the right of rejection except in a case where the Company determines that accepting the order could result in material adverse tax consequences to a Fund or its
shareholders. The Company also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination.
Taxation of Certain
Derivatives. A Fund’s transactions in zero coupon securities, non-U.S. currencies, forward contracts, options and futures contracts (including options and futures contracts on non-U.S. currencies), to
the extent permitted, will be subject to special provisions of the Internal Revenue Code (including provisions relating to “hedging transactions” and “straddles”) that, among other things, may affect the character of gains
and losses realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and
defer Fund losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also (a) will require a Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out at the end of each year) and (b) may cause a Fund to recognize income without receiving cash with which to pay
dividends or make distributions in amounts necessary to satisfy the distribution requirements for avoiding income and excise taxes. Each Fund will monitor its transactions, will make the appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any zero coupon security, non-U.S. currency, forward contract, option, futures contract or hedged investment in order to mitigate the effect of these rules and prevent disqualification of the Fund as
a RIC.
A Fund’s investments in so-called
“Section 1256 contracts,” such as regulated futures contracts, most non-U.S. currency forward contracts traded in the interbank market and options on most security indexes, are subject to special tax rules. All Section 1256 contracts
held by a Fund at the end of its taxable year are required to be marked to their market value, and any unrealized gain or loss on those positions will be included in the Fund’s income as if each position had been sold for its fair market value
at the end of the taxable year. The resulting gain or loss will be combined with any gain or loss realized by the Fund from positions in Section 1256 contracts closed during the taxable year. Provided such positions were held as capital assets and
were not part of a “hedging transaction” nor part of a “straddle,” 60% of the resulting net gain or loss will be treated as long-term capital gain or loss, and 40% of such net gain or loss will be treated as short-term
capital gain or loss, regardless of the period of time the positions were actually held by the Fund.
As a result of entering into swap contracts, a Fund may make or
receive periodic net payments. A Fund may also make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute ordinary income or
deductions, while termination of a swap will
generally result in capital gain or loss (which will be a long-term capital
gain or loss if the Fund has been a party to the swap for more than one year). With respect to certain types of swaps, a Fund may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under
certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss.
Qualified Dividend Income.
Distributions by a Fund of investment company taxable income (including any short-term capital gains), whether received in cash or shares, will be taxable either as ordinary income or as qualified dividend
income, eligible for the reduced maximum rate to individuals of 15% (0% for individuals in lower tax brackets) to the extent the Fund receives qualified dividend income on the securities it holds and the Fund reports the distribution as qualified
dividend income. Qualified dividend income is, in general, dividend income from taxable U.S. corporations (but generally not from U.S. REITs) and certain non-U.S. corporations (e.g., non-U.S. corporations that are not “passive foreign investment companies” and which are incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the
United States, or the stock of which is readily tradable on an established securities market in the United States (where the dividends are paid with respect to such stock)). Under current IRS guidance, the United States has appropriate comprehensive
income tax treaties with the following countries: Australia, Austria, Bangladesh, Barbados, Belgium, Bulgaria, Canada, China (but not with Hong Kong, which is treated as a separate jurisdiction for U.S. tax purposes), Cyprus, the Czech Republic,
Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Morocco, the Netherlands, New Zealand, Norway, Pakistan,
the Philippines, Poland, Portugal, Romania, Russia, the Slovak Republic, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, the United Kingdom, and Venezuela.
Substitute payments received by a Fund for securities lent out by the Fund will not be qualified dividend income.
A dividend from a Fund will not be treated as qualified
dividend income to the extent that (i) the shareholder has not held the shares on which the dividend was paid for 61 days during the 121-day period that begins on the date that is 60 days before the date on which the shares become ex-dividend with
respect to such dividend or the Fund fails to satisfy those holding period requirements with respect to the securities it holds that paid the dividends distributed to the shareholder (or, in the case of certain preferred stocks, the holding
requirement of 91 days during the 181-day period beginning on the date that is 90 days before the date on which the stock becomes ex-dividend with respect to such dividend); (ii) the Fund or the shareholder is under an obligation (whether pursuant
to a short sale or otherwise) to make related payments with respect to substantially similar or related property; or (iii) the shareholder elects to treat such dividend as investment income under Section 163(d)(4)(B) of the Internal Revenue Code.
Dividends received by a Fund from a REIT or another RIC may be treated as qualified dividend income only to the extent the dividend distributions are attributable to qualified dividend income received by such REIT or other RIC. It is expected that
dividends received by a Fund from a REIT and distributed to a shareholder generally will be taxable to the shareholder as ordinary income. The maximum 15% rate on qualified dividend income will not apply to dividends received in taxable years
beginning after December 31, 2012. Distributions by a Fund of its net short-term capital gains will be taxable as ordinary income. Capital gain distributions consisting of a Fund’s net capital gains will be taxable as long-term capital
gains.
If you lend your Fund shares pursuant to
securities lending arrangements, you may lose the ability to use non-U.S. tax credits passed through by the Fund or to treat Fund dividends (paid while the shares are held by the borrower) as qualified dividends. Consult your financial intermediary
or tax advisor. If you enter into a short sale with respect to shares of the Fund, substitute payments made to the lender of such shares may not be deductible. Consult your financial intermediary or tax advisor.
Corporate Dividends Received Deduction. Dividends paid by a Fund that are attributable to dividends received by the Fund from U.S. corporations may qualify for the U.S. federal dividends received deduction for corporations. A 46-day minimum holding
period during the 90-day period that begins 45 days prior to ex-dividend date (or 91-day minimum holding period during the 180 period beginning 90 days prior to ex-dividend date for certain preference dividends) during which risk of loss may not be
diminished is required for the applicable shares, at both the Fund and shareholder level, for a dividend to be eligible for the dividends received deduction. Restrictions may apply if indebtedness, including a short sale, is attributable to the
investment.
Issues Related to India and Mauritius
Taxes. The following discussion does not address the effect on investors, including residents of India and citizens of India (whether or not residing in India or other countries, including the United States),
of holding shares 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 Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund. Investors should consult their own tax advisors as to these
issues based upon their own personal situations.
Indian
tax matters discussed herein are based on the provisions of the IT Act, the provisions of the DTAA and other laws currently in force as of the date of this SAI. All such laws and the DTAA are subject to prospective and retrospective legislative
amendment, administrative rulings and judicial review.
Each 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 Index
Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund invests in India through its Subsidiary. For U.S. federal income tax purposes,
each Subsidiary has elected to be treated as an entity disregarded from its owner. Thus, for U.S. federal tax purposes, any income or loss realized by a Subsidiary will be treated as realized by the applicable fund. Therefore, any investment made by
each Fund into a Subsidiary and any distributions received by the Fund from a Subsidiary are disregarded for U.S. federal tax purposes. Furthermore, there is no tax on each Fund's investment in a Subsidiary or on distributions made from a Subsidiary
to the Fund.
No investor in 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 Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund will be subject to taxation in India, unless such
investor is a resident of India or, if a non-resident, has an Indian source income or income received (whether accrued or otherwise) in India. The taxation of a Subsidiary and a Fund in India is governed by the provisions of the ITA, read with the
provisions of the DTAA. As per Section 90(2) of the ITA, the provisions of the ITA would apply to the extent they are more beneficial than the provisions of the DTAA. In order to claim the beneficial provisions of the DTAA, a Subsidiary must be a
tax resident of Mauritius. Because each Subsidiary is a tax resident of Mauritius, only the Subsidiaries would be subject to Indian taxes.
The Central Board of Direct Taxes in India in its Circular 789,
issued on April 13, 2000, concluded that a valid residence certificate issued by the Mauritius authorities demonstrated Mauritian residency for purposes of establishing eligibility to qualify for benefits under the DTAA. The Circular was subject to
judicial challenge in India by those asserting that the standards for establishing Mauritian residency for purposes of obtaining such a certificate were insufficient to establish residency for purposes of the DTAA. The Circular was successfully
overturned in certain lower Indian courts but was eventually upheld by the highest applicable court, the Supreme Court of India, on October 7, 2003, accordingly each Subsidiary should be eligible for benefits under the DTAA. However, recently issued
rulings suggest that a number of factors are being considered by the Indian tax administration when assessing whether a foreign entity is eligible for the benefit of the provisions of a tax treaty, including, among others, the place of management of
the foreign resident company and the level of substance in the jurisdiction in which it is incorporated. In addition, both the Indian tax administration and Indian courts seem to be very aggressive towards structures involving offshore funds
investing directly or indirectly in India, in particular from Mauritius.
Each Subsidiary has been incorporated in Mauritius and has
obtained a TRC from the Mauritius authorities that establishes its residency in Mauritius under the DTAA. The TRC must be renewed annually. Each 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 Index Fund, iShares MSCI Emerging Markets
Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund expects its Subsidiary to maintain its Mauritius tax residency, but it cannot be assured that the Mauritius
authorities will successfully renew its TRC annually or that it will continue to be eligible to the DTAA benefits, particularly in light of the new requirements that may be introduced if the DTAA is re-negotiated.
Further, the Finance Act has made the submission of a TRC
containing prescribed particulars mandatory for claiming treaty benefits. Some of the prescribed particulars are: name of the assessee, status, nationality, residential status for tax purposes,
period for which the certificate is applicable and address of the applicant
for such period. This will only come into force on April 1, 2013. The memorandum to the Finance Act further states that the TRC may not be sufficient for claiming treaty benefits.
Each Subsidiary holds a Category 1 Global Business License
issued by the Financial Services Commission of Mauritius. Each Subsidiary is subject to tax in Mauritius on its net income at the rate of 15%. However, a system of foreign tax credits which allows a tax credit against Mauritian taxes for foreign tax
on a Mauritian entity’s foreign source income effectively reduces the Mauritius income tax rate to a maximum of 3% because the system presumes, in the absence of evidence, that the foreign tax paid is equal to 80% of the Mauritian tax.
Further, a 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 a Subsidiary to each 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
Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund will also be exempt from tax in Mauritius.
Each Subsidiary will attempt to abide by the requirements of
the DTAA, to maintain its residency in Mauritius, and to ensure that management and control of the Subsidiary remain in Mauritius. It is uncertain whether the terms of this treaty will be renegotiated or subject to a different interpretation in the
future. Any change in the provisions of the DTAA or in its applicability to a Subsidiary could result in a Subsidiary and indirectly each 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 Index Fund, iShares MSCI Emerging Markets Minimum
Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund being subject to Indian income taxes, withholding taxes, and other taxes, as well as being subject to administrative or
judicial assertion of such tax liabilities by the tax authorities of India. This could significantly reduce the return of a Fund on its investments and the return received by Fund shareholders. Further, it is possible even with renegotiation of the
DTAA that the Indian tax authorities may seek to take the position that a Fund is not entitled to the benefits of the DTAA.
Each Subsidiary is expected to have income in the form of
capital gains, income from dividends and income from interest. The Indian tax consequences for a Subsidiary on account of the application of the DTAA, read with the provisions of the ITA, would be as follows (the rates are inclusive of applicable
surcharges):
• |
Capital gains resulting from
the sale of Indian securities (including depositary receipts issued by Indian companies) will not be subject to tax in India, provided the Subsidiary does not have Permanent Establishments (“PE”) in India; |
• |
Dividends on shares received
from an Indian company on which dividend distribution tax has been paid are exempt from tax in the hands of the shareholders. However, the Indian company distributing dividends is subject to a dividend distribution tax at the rate of 16.223%; and
|
• |
Interest paid to a Subsidiary
in respect of the debt obligations of Indian issuers will be subject to Indian income tax. The tax rate, in the case of rupee-denominated debt obligations, is 42.024%. In the case of foreign currency-denominated debt obligations, the tax rate is
21.012%. For approved foreign currency loans advanced from July 1, 2012 to July 1, 2015, the tax rate on interest is 5.25%. However, if the Subsidiary is a SEBI registered sub-account, the interest from securities will be subject to tax at the rate
of 21.012%. |
In the event that the
benefits of the DTAA are not available to the Subsidiary, or if the Subsidiary is held to have PE in India, taxation of interest and dividend income of the Subsidiary would be the same as described above. The taxation of capital gains would be as
follows:
• |
Long-term capital gains
(being gains on sale of shares held for a period of more than twelve months) listed on a recognized stock exchange would not be taxable in India provided Securities Transaction Tax (“ STT”) has been paid on the same (as discussed below);
|
• |
Short-term capital gains
(being gains on sale of shares held for a period of twelve months or less) from the sale of Indian shares listed on a recognized stock exchange will be taxed at the rate of 15.759% provided STT has been paid on the same; |
• |
Long-term capital gains
arising to the Subsidiary from the sale of unlisted securities will be taxed at the rate of 10.506% (without indexation) and short-term capital gains will be taxed at the rate of 42.024%*; |
• |
Capital gains realized on
sale of listed equity shares not executed on a recognized stock exchange in India and other securities would be taxed at the rate of 21.012% for long-term gains and at 42.024% in the case of short-term gains;* and |
• |
Capital gains arising from
the transfer of depositary receipts outside India between non-resident investors will not be subject to tax in India. |
* |
However, if the Subsidiary is
a SEBI registered sub-account, the rates will be 10.506% and 31.518%, respectively. |
In a ruling issued by the Authority for Advance Rulings in
India, gains earned by a private equity fund based in Mauritius were held to be “business income.” It is possible that the Indian tax authorities may take a similar view in the case of each Subsidiary. In that event, such gains will not
be taxable in India so long as 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 Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index
Fund/Subsidiaries do not have a PE in India. In the event that the Funds/Subsidiaries are held to have a PE in India, gains attributable to the PE would be taxable in India at the rate of 42.024%.
Indian Minimum Alternative Tax
In the event that the benefits of the DTAA are not available
to a Subsidiary, or if a Subsidiary is held to have PE in India, the Subsidiary may be subject to a Minimum Alternate Tax (“MAT”). In the event that a company’s tax liability is less than 18.5% of its book profits, then instead of
paying income tax at rates provided otherwise under the ITA, the company will pay MAT on the adjusted book profits as prescribed below:
Companies
|
|
For
taxable income exceeding INR 10 million |
|
For
taxable income less than or equal to INR 10 million |
Indian
company |
|
20.008%
|
|
19.055%
|
|
|
|
|
|
Foreign
company having a permanent establishment in India (including a branch and a project office) |
|
19.436%
|
|
19.055%
|
Indian Securities Transaction
Tax
All transactions entered on a recognized stock
exchange in India will be subject to STT levied on the transaction value. In the case of the purchase/sale of listed equity shares which is settled by way of actual delivery or transfer of the equity share, STT will be levied at the rate of 0.1% on
both the buyer and seller of the equity share and at the rate of 0.2% on the sale of unlisted shares in an initial public offering. For sale of equity shares settled otherwise than by way actual delivery or transfer of the equity share, STT will be
levied at the rate of 0.025% on the seller of the equity share. A seller of derivatives would be subjected to an STT of 0.017%. The STT can be set off against business income tax calculated as per provisions of ITA.
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. Any change in the DTAA's application could have a material adverse effect on the returns of each 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
Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund. Further, it is possible that the Indian tax authorities may seek to take
the position that a Fund is not entitled to the benefits of the DTAA.
The Direct Taxes Code and the Finance Act, 2012
Indian Tax Risk. In 2010, it
was proposed that the IT Act may be replaced with the Direct Taxes Code. The Parliamentary Standing Committee released its comments on the Direct Taxes Code on March 9, 2012. The Finance Act was thereafter presented by the Finance Minister on March
16, 2012, proposing certain amendments to the IT Act. The Finance Minister
highlighted that the enactment of the Direct Taxes Code will be made, at the
earliest, after considering the recommendations of the Parliamentary Standing Committee.
Given the delay in enacting the Direct Taxes Code, the
Government of India, through the Finance Act, which was enacted on May 28, 2012, has introduced certain key changes to the existing tax framework in India. This legislation includes provisions that impose Indian tax and withholding obligations with
respect to the transfer of shares in an overseas company that derives its value substantially from assets situated in India. Because each 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 Index Fund, iShares MSCI Emerging Markets Minimum
Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund invest in Indian securities through the Subsidiaries, this legislation by its terms subjects shareholder redemptions of Fund
shares and sales of Fund investments to Indian tax and withholding obligations, both prospectively as well as retroactively. However, the CBDT issued a letter on May 29, 2012 clarifying the reopening of completed assessments as a result of the
retroactive amendments introduced by the Finance Act. Under this letter, CBDT has directed Indian tax authorities to not reopen any assessment proceedings that were completed before April 1, 2012 and where no notice for reassessment has been issued
prior to that date. It has also been clarified that any assessment or any other order which stands validated due to the amendments in the Finance Act would be enforced. Given this clarification issued by the CBDT, the Funds do not expect that
shareholders or the Funds will become subject to tax or to withholding obligations with respect to this particular provision of the Finance Act.
In addition, the Finance Act introduced the GAAR, which
disallows “impermissible avoidance arrangements.” If the Funds' use of the Subsidiaries were considered to be such an impermissible avoidance arrangement, the Fund would become subject directly to taxation in India. GAAR is expected to
come into force from April 2013. The burden of proof in enforcing the rule will reside with the Indian government, not the taxpayer, and India’s current double tax treaty arrangements will remain in force. However, GAAR may prevent the Funds
from realizing the planned tax benefits of the Subsidiaries, irrespective of existing beneficial treaty provisions, may lead to the imposition of tax liabilities and withholding obligations, and may lead the Fund to modify or disassemble its
Subsidiaries structure.
Provisions of the Finance Act and
the Direct Taxes Code (if enacted), could change the manner in which the Subsidiaries are currently taxed in India and could adversely impact the returns to each 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 Index Fund, iShares MSCI Emerging
Markets Minimum Volatility Index Fund, iShares MSCI Emerging Markets Small Cap Index Fund and iShares MSCI Emerging Markets Value Index Fund/Subsidiaries and their respective shareholders. The Funds will continue to monitor developments in India
with respect to these matters. Investors are urged to consult their own tax advisers with respect to their own tax situations and the tax consequences of an investment in each of the Funds.
Excess Inclusion Income.
Under current law, the Funds serve to block unrelated business taxable income from being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder could realize
unrelated business taxable income by virtue of its investment in a Fund if shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Section 514(b) of the Internal Revenue Code. Certain
types of income received by a Fund from REITs, real estate mortgage investment conduits, taxable mortgage pools or other investments may cause the Fund to report some or all of its distributions as “excess inclusion income.” To Fund
shareholders, such excess inclusion income may (i) constitute taxable income, as unrelated business taxable income for those shareholders who would otherwise be tax-exempt such as individual retirement accounts, 401(k) accounts, Keogh plans, pension
plans and certain charitable entities; (ii) not be offset by otherwise allowable deductions for tax purposes; (iii) not be eligible for reduced U.S. withholding for non-U.S. shareholders even from tax treaty countries; and (iv) cause the Fund to be
subject to tax if certain “disqualified organizations,” as defined by the Internal Revenue Code, are Fund shareholders. If a charitable remainder annuity trust or a charitable remainder unitrust (each as defined in Section 664 of the
Internal Revenue Code) has unrelated business taxable income (“UBTI”) for a taxable year, a 100% excise tax on the UBTI is imposed on the trust.
Non-U.S. Investments.
Under Section 988 of the Internal Revenue Code, gains or losses attributable to fluctuations in exchange rates between the time a Fund accrues income or receivables or expenses or other liabilities
denominated in a non-U.S. currency and the time the Fund actually collects such income or pays such liabilities are generally treated as ordinary income or ordinary loss. In general, gains (and losses) realized on debt instruments will be treated as
Section 988 gain (or
loss) to the extent attributable to changes in exchange rates between the U.S.
dollar and the currencies in which the instruments are denominated. Similarly, gains or losses on non-U.S. currency, non-U.S. currency forward contracts and certain non-U.S. currency options or futures contracts denominated in non-U.S currency, to
the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or loss unless the Fund were to elect otherwise.
Each Fund may be subject to non-U.S. income taxes withheld at
the source. Each Fund, if permitted to do so, may elect to “pass through” to its investors the amount of non-U.S. income taxes paid by the Fund provided that the Fund held the security on the dividend settlement date and for at least 15
additional days immediately before and/or thereafter, with the result that each investor with respect to shares of the Fund held for a minimum 16-day holding period at the time of deemed distribution will (i) include in gross income, even though not
actually received, the investor’s pro rata share of the Fund’s non-U.S. income taxes, and (ii) either deduct (in calculating U.S. taxable income, but only for investors who itemize their deductions
on their personal tax returns) or credit (in calculating U.S. federal income tax) the investor’s pro rata share of the Fund’s non-U.S. income taxes. A non-U.S. person invested in the Fund in a year
that the Fund elects to “pass through” its non-U.S. taxes may be treated as receiving additional dividend income subject to U.S. withholding tax. A non-U.S. tax credit may not exceed the investor’s U.S. federal income tax otherwise
payable with respect to the investor’s non-U.S. source income. For this purpose, shareholders must treat as non-U.S. source gross income (i) their proportionate shares of non-U.S. taxes paid by the Fund and (ii) the portion of any dividend
paid by the Fund that represents income derived from non-U.S. sources; the Fund’s gain from the sale of securities will generally be treated as U.S.-source income. Certain limitations will be imposed to the extent to which the non-U.S. tax
credit may be claimed.
With respect to Brazil, a 6%
Imposto sobre Operacões Financeiras (IOF) tax, with the rate subject to change, applies to certain foreign exchange inflows into Brazil. Also, a 1.5% IOF tax applies to the creation of new American or Global Depositary Receipt issuances with
respect to Brazilian equities and a 0.38% IOF tax applies to the cancellation of American or Global Depositary Receipts if the underlying equities are then issued in the Brazil (local) markets. If incurred by the Fund, an IOF tax would not be
creditable against U.S. income tax liability.
Passive
Foreign Investment Companies. If a Fund purchases shares in PFICs, it may be subject to U.S. federal income tax on a portion of any “excess distribution” or gain from the disposition of such
shares even if such income is distributed as a taxable dividend by the Fund to its shareholders. Additional charges in the nature of interest may be imposed on the Fund in respect of deferred taxes arising from such distributions or
gains.
If a Fund were to invest in a PFIC and
elect to treat the PFIC as a “qualified electing fund” under the Internal Revenue Code, in lieu of the foregoing requirements, the Fund might be required to include in income each year a portion of the ordinary earnings and net capital
gains of the qualified electing fund, even if not distributed to the Fund, and such amounts would be subject to the 90% and excise tax distribution requirements described above. In order to make this election, the Fund would be required to obtain
certain annual information from the PFICs in which it invests, which may be difficult or impossible to obtain.
Alternatively, a Fund may make a mark-to-market election that
would result in the Fund being treated as if it had sold and repurchased its PFIC stock at the end of each year. In such case, the Fund would report any such gains as ordinary income and would deduct any such losses as ordinary losses to the extent
of previously recognized gains. The election must be made separately for each PFIC owned by the Fund and, once made, would be effective for all subsequent taxable years, unless revoked with the consent of the IRS. By making the election, the Fund
could potentially ameliorate the adverse tax consequences with respect to its ownership of shares in a PFIC, but in any particular year may be required to recognize income in excess of the distributions it receives from PFICs and its proceeds from
dispositions of PFIC stock. The Fund may have to distribute this “phantom” income and gain to satisfy the 90% distribution requirement and to avoid imposition of the 4% excise tax.
A Fund will make the appropriate tax elections, if possible,
and take any additional steps that are necessary to mitigate the effects of these rules.
Reporting. If a
shareholder recognizes a loss with respect to a Fund’s shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886.
Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but
under current guidance, shareholders of a RIC are not exempted. The fact that
a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations
in light of their individual circumstances.
Other Taxes. Dividends, distributions and redemption proceeds may also be subject to additional state, local and non-U.S. taxes depending on each shareholder’s particular situation.
Taxation of Non-U.S. Shareholders. Dividends paid by a Fund to non-U.S. shareholders are generally subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty to the extent derived from investment income
and short-term capital gains. Dividends paid by a Fund from net tax-exempt income or long-term capital gains are generally not subject to such withholding tax. In order to obtain a reduced rate of withholding, a non-U.S. shareholder will be required
to provide an IRS Form W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax does not apply to regular dividends paid to a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends are effectively
connected with the non-U.S. shareholder’s conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. shareholder were a U.S. shareholder.
A non-U.S. corporation receiving effectively connected dividends may also be subject to additional “branch profits tax” imposed at a rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or
other applicable form may be subject to back-up withholding at the appropriate rate.
In general, U.S. federal withholding tax will not apply to any
gain or income realized by a non-U.S. shareholder in respect of any distributions of net long-term capital gains over net short-term capital losses, tax-exempt interest dividends, or upon the sale or other disposition of shares of a Fund. If a
Fund’s direct or indirect interests in U.S. real property were to exceed certain levels, distributions to a non-U.S. shareholder from the Fund attributable to a REIT’s distribution to the Fund of gain from a sale or exchange of a U.S.
real property interest and, in the case of a non-U.S. shareholder owning more than 5% of the class of shares throughout either such person’s holding period for the redeemed shares or, if shorter, the previous five years, the gain on redemption
will be treated as real property gain subject to additional taxes or withholding and may result in the non-U.S. shareholder having additional filing requirements. The rules laid out in the previous paragraph, other than the withholding rules, will
apply notwithstanding the Funds' participation in a wash sale transaction or its payment of a substitute dividend.
A 30% withholding tax will be imposed on dividends paid after
December 31, 2013, and redemption proceeds paid after December 31, 2016, to (i) foreign financial institutions, including non-U.S. investment funds, unless they agree to collect and disclose to the IRS information regarding their direct and indirect
U.S. account holders; and (ii) certain other foreign entities, unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions will (i) need to enter into agreements with
the IRS that state that they will provide the IRS information, including the name, address and taxpayer identification number of direct and indirect U.S. account holders; comply with due diligence procedures with respect to the identification of
U.S. accounts; report to the IRS certain information with respect to U.S. accounts maintained; agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required
information; and determine certain other information as to their account holders, or (ii) in the event of an intergovernmental agreement and implementing legislation are adopted, provide local revenue authorities with similar account holder
information. Other foreign entities will need to provide the name, address, and taxpayer identification number of each substantial U.S. owner or certifications of no substantial U.S. ownership, unless certain exceptions apply or agree to provide
certain information to other revenue authorities for transmittal to the IRS.
Shares of a Fund held by a non-U.S. shareholder at death will
be considered situated within the United States and subject to the U.S. estate tax.
The foregoing discussion is a summary of certain material U.S.
federal income tax considerations only and is not intended as a substitute for careful tax planning. Purchasers of shares should consult their own tax advisors as to the tax consequences of investing in such shares, including consequences under
state, local and non-U.S. tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date of this SAI. Changes in
applicable authority could materially affect the conclusions discussed above, and such changes often occur.
Financial Statements
Each Fund's (with the exception of the iShares MSCI Frontier
100 Index Fund) audited Financial Statements, including the Financial Highlights, appearing in the Annual Report to Shareholders and the report therein of PricewaterhouseCoopers LLP, an independent registered public accounting firm, are hereby
incorporated by reference in this SAI. The applicable Annual Report to Shareholders, which contains the referenced audited financial statements, is available upon request and without charge.
Miscellaneous Information
Counsel. Willkie Farr
& Gallagher LLP, located at 787 Seventh Avenue, New York, NY 10019, is counsel to the Company.
Independent Registered Public Accounting Firm. PricewaterhouseCoopers LLP, located at Three Embarcadero Center, San Francisco, CA 94111, serves as the Company's independent registered public accounting firm, audits the Funds' financial statements, and may
perform other services.
Shareholder Communications
to the Board. The Board has established a process for shareholders to communicate with the Board. Shareholders may contact the Board by mail. Correspondence should be addressed to iShares Board of Directors,
c/o BlackRock Institutional Trust Company, N.A. – Mutual Fund Administration, 400 Howard Street, San Francisco, CA 94105. Shareholder communications to the Board should include the following information: (i) the name and address of the
shareholder; (ii) the number of shares owned by the shareholder; (iii) the Fund(s) of which the shareholder owns shares; and (iv) if these shares are owned indirectly through a broker, financial intermediary or other record owner, the name of the
broker, financial intermediary or other record owner. All correspondence received as set forth above shall be reviewed by the Secretary of the Company and reported to the Board.
iShares®
, Inc.
Statement of Additional Information
Dated January 1, 2013
(as revised April 8, 2013)
This combined Statement of Additional Information
(“SAI”) is not a prospectus. It should be read in conjunction with the current prospectuses (each, a “Prospectus” and collectively, the “Prospectuses”) for the following funds of iShares, Inc. (the
“Company”):
Funds
|
|
Ticker
|
|
Stock
Exchange |
|
iShares
MSCI Australia Index Fund |
|
EWA
|
|
NYSE
Arca |
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
EWO
|
|
NYSE
Arca |
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
EWK
|
|
NYSE
Arca |
|
iShares
MSCI Canada Index Fund |
|
EWC
|
|
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 Global Gold Miners Fund |
|
RING
|
|
NYSE
Arca |
|
iShares
MSCI Global Silver Miners Fund |
|
SLVP
|
|
NYSE
Arca |
|
iShares
MSCI Hong Kong Index Fund |
|
EWH
|
|
NYSE
Arca |
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
EIS
|
|
NYSE
Arca |
|
iShares
MSCI Italy Capped Index Fund |
|
EWI
|
|
NYSE
Arca |
|
iShares
MSCI Japan Index Fund |
|
EWJ
|
|
NYSE
Arca |
|
iShares
MSCI Japan Small Cap Index Fund |
|
SCJ
|
|
NYSE
Arca |
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
EWW
|
|
NYSE
Arca |
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
EWN
|
|
NYSE
Arca |
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
EPP
|
|
NYSE
Arca |
|
iShares
MSCI Singapore Index Fund |
|
EWS
|
|
NYSE
Arca |
|
iShares
MSCI South Africa Index Fund |
|
EZA
|
|
NYSE
Arca |
|
iShares
MSCI Spain Capped Index Fund |
|
EWP
|
|
NYSE
Arca |
|
iShares
MSCI Sweden Index Fund |
|
EWD
|
|
NYSE
Arca |
|
iShares
MSCI Switzerland Capped Index Fund |
|
EWL
|
|
NYSE
Arca |
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
THD
|
|
NYSE
Arca |
|
iShares
MSCI Turkey Investable Market Index Fund |
|
TUR
|
|
NYSE
Arca |
|
iShares
MSCI United Kingdom Index Fund |
|
EWU
|
|
NYSE
Arca |
|
iShares
MSCI USA Index Fund |
|
EUSA
|
|
NYSE
Arca |
|
iShares
MSCI World Index Fund |
|
URTH
|
|
NYSE
Arca |
|
The Prospectuses for the above-listed funds (each, a
“Fund” and collectively, the “Funds”) are dated January 1, 2013, as amended and supplemented from time to time. Capitalized terms used herein that are not defined have the same meaning as in the applicable Prospectus, unless
otherwise noted. The Financial Statements and Notes contained in the Annual and Semi-Annual Reports of the Company for the Funds are incorporated by reference into and are deemed to be part of this SAI. A copy of each Prospectus, Annual Report and
Semi-Annual Report for each Fund may be obtained without charge by writing to the Company's distributor, BlackRock Investments, LLC (the “Distributor” or “BRIL”), 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310
calling 1-800-iShares (1-800-474-2737) or visiting www.iShares.com. Each Fund's Prospectus is incorporated by reference to this SAI.
iShares®
is a registered trademark of BlackRock Fund Advisors (“BFA”) or its affiliates.
General Description of the Company and its Funds
The Company currently consists of more than 55 investment
series or portfolios. The Company was organized as a Maryland corporation on August 31, 1994 and is authorized to have multiple series or portfolios. The Company is an open-end management investment company registered with the Securities and
Exchange Commission (the “SEC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act” or the “1940 Act”). The offering of the Company's shares is registered under the Securities Act of
1933, as amended (the “1933 Act”). This SAI relates to the following funds:
• |
iShares MSCI Australia Index
Fund |
• |
iShares MSCI Austria Capped
Investable Market Index Fund1 |
• |
iShares MSCI Belgium Capped
Investable Market Index Fund2 |
• |
iShares MSCI Canada 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 Global Gold
Miners Fund |
• |
iShares MSCI Global Silver
Miners Fund |
• |
iShares MSCI Hong Kong Index
Fund |
• |
iShares MSCI Israel Capped
Investable Market Index Fund |
• |
iShares MSCI Italy Capped
Index Fund3 |
• |
iShares MSCI Japan Index
Fund |
• |
iShares MSCI Japan Small Cap
Index Fund |
• |
iShares MSCI Mexico Capped
Investable Market Index Fund4 |
• |
iShares MSCI Netherlands
Investable Market Index Fund |
• |
iShares MSCI Pacific
ex-Japan Index Fund |
• |
iShares MSCI Singapore Index
Fund |
• |
iShares MSCI South Africa
Index Fund |
• |
iShares MSCI Spain Capped
Index Fund5 |
• |
iShares MSCI Sweden Index
Fund |
• |
iShares MSCI Switzerland
Capped Index Fund6 |
• |
iShares MSCI Thailand Capped
Investable Market Index Fund7 |
• |
iShares MSCI Turkey
Investable Market Index Fund |
• |
iShares MSCI United Kingdom
Index Fund |
• |
iShares MSCI USA Index Fund
|
• |
iShares MSCI World Index
Fund |
1
On February 12, 2013, the name of the Fund changed from the
iShares MSCI Austria Investable Market Index Fund to the iShares MSCI Austria Capped Investable Market Index Fund and the Fund’s Underlying Index changed from the MSCI Austria Investable Market Index to the MSCI Austria IMI 25/50 Index.
2 |
On November 9, 2012, the name
of the Fund changed from the iShares MSCI Belgium Investable Market Index Fund to the iShares MSCI Belgium Capped Investable Market Index Fund and the Fund’s Underlying Index changed from the MSCI Belgium Investable Market Index to the MSCI
Belgium IMI 25/50 Index. |
3 |
On February 12, 2013, the name
of the Fund changed from the iShares MSCI Italy Index Fund to the iShares MSCI Italy Capped Index Fund and the Fund’s Underlying Index changed from the MSCI Italy Index to the MSCI Italy 25/50 Index. |
4 |
On February 12, 2013, the name
of the Fund changed from the iShares MSCI Mexico Investable Market Index Fund to the iShares MSCI Mexico Capped Investable Market Index Fund and the Fund’s Underlying Index changed from the MSCI Mexico Investable Market Index to the MSCI
Mexico IMI 25/50 Index. |
5 |
On February 12, 2013, the name
of the Fund changed from the iShares MSCI Spain Index Fund to the iShares MSCI Spain Capped Index Fund and the Fund’s Underlying Index changed from the MSCI Spain Index to the MSCI Spain 25/50 Index. |
6 |
On February 12, 2013, the name
of the Fund changed from the iShares MSCI Switzerland Index Fund to the iShares MSCI Switzerland Capped Index Fund and the Fund’s Underlying Index changed from the MSCI Switzerland Index to the MSCI Switzerland 25/50 Index. |
7 |
On February 12, 2013, the name
of the Fund changed from the iShares MSCI Thailand Investable Market Index Fund to the iShares MSCI Thailand Capped Investable Market Index Fund and the Fund’s Underlying Index changed from the MSCI Thailand Investable Market Index to the MSCI
Thailand IMI 25/50 Index. |
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 a specified benchmark index (each, an “Underlying Index”) representing
publicly-traded equity securities of issuers in a particular country, region or group of countries. Each Fund is managed by BFA, an indirect wholly owned subsidiary of BlackRock, Inc.
Each Fund offers and issues shares at their net asset value
per share (“NAV”) only in aggregations of a specified number of shares (“Creation Unit”), generally in exchange for a designated portfolio of securities (including any portion of such securities for which cash may be
substituted) included in its Underlying Index (the “Deposit Securities”), together with the deposit of a specified cash payment (the “Cash Component”). Shares of the Funds are listed and trade on NYSE Arca, Inc. (“NYSE
Arca” or the “Listing Exchange”), a national securities exchange. Shares of each Fund are traded in the secondary market and elsewhere at market prices that may be at, above or below the Fund's NAV. Shares are redeemable only in
Creation Units, and, generally, in exchange for portfolio securities and a Cash Component. Creation Units typically are a specified number of shares, generally ranging from 40,000 to 600,000 shares or multiples thereof.
The Company reserves the right to permit or require that
creations and redemptions of shares are effected fully or partially in cash. Shares may be issued in advance of receipt of Deposit Securities, subject to various conditions, including a requirement to maintain with the Company a cash deposit, equal
to at least 105% and up to 115%, which percentage BFA may change from time to time, of the market value of the omitted Deposit Securities. See the Creation and Redemption of Creation Units section of this SAI.
Transaction fees associated with creations or redemptions that include a cash portion may be higher than the transaction fees associated with in-kind creations or redemptions. In all cases, conditions and fees will be limited in accordance with the
requirements of SEC rules and regulations applicable to management investment companies offering redeemable securities.
Exchange Listing and Trading
A discussion of exchange listing and trading matters
associated with an investment in each Fund is contained in the Shareholder Information section of each Fund's Prospectus. The discussion below supplements, and should be read in conjunction with, that section
of the applicable Prospectus.
Shares of each Fund are
listed for trading, and trade throughout the day, on the Listing Exchange and other secondary markets. Shares of the Funds may also be listed on certain non-U.S. exchanges. There can be no assurance that the requirements of the Listing Exchange
necessary to maintain the listing of shares of any Fund will continue to be met. The Listing Exchange may, but is not required to, remove the shares of a Fund from listing if (i) following the initial 12-month period beginning upon the commencement
of trading of Fund shares, there are fewer than 50 beneficial owners of shares of the Fund for 30 or more consecutive trading days, (ii) the value of the Underlying Index on which a Fund is based is no longer calculated or available, (iii) the
“indicative optimized portfolio value” (“IOPV”) of the Fund is no longer calculated or available, or (iv) any other event shall occur or condition shall exist that, in the opinion of the Listing Exchange, makes further
dealings on the Listing Exchange inadvisable. The Listing Exchange will also remove shares of a Fund from listing and trading upon termination of the Fund.
As in the case of other publicly-traded securities, when you
buy or sell shares through a broker, you will incur a brokerage commission determined by that broker.
In order to provide additional information regarding the
indicative value of shares of the Funds, the Listing Exchange or a market data vendor disseminates information every 15 seconds through the facilities of the Consolidated Tape Association, or through other widely disseminated means, an updated IOPV
for the Funds as calculated by an information provider or market data vendor. The Company is not involved in or responsible for any aspect of the calculation or dissemination of the IOPVs and makes no representation or warranty as to the accuracy of
the IOPVs.
An IOPV has an equity securities component and
a cash component. The equity securities values included in an IOPV are the values of the Deposit Securities for a Fund. While the IOPV reflects the current value of the Deposit Securities required to be deposited in connection with the purchase of a
Creation Unit, it does not necessarily reflect the precise composition of the current portfolio of securities held by the Fund at a particular point in time because the current portfolio of the Fund may include securities that are not a part of the
current Deposit Securities. Therefore, a Fund’s IOPV disseminated during the Listing Exchange trading hours should not be viewed as a real-time update of the Fund’s NAV, which is calculated only once a day.
The cash component included in an IOPV consists of estimated
accrued interest, dividends and other income, less expenses. If applicable, each IOPV also reflects changes in currency exchange rates between the U.S. dollar and the applicable currency.
The Company reserves the right to adjust the share prices of
the Funds in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Funds or an investor's equity
interest in the Funds.
Investment Strategies and
Risks
Each Fund seeks to achieve its objective by
investing primarily in securities issued by issuers that comprise its relevant Underlying Index and through transactions that provide substantially similar exposure to securities in the Underlying Index. Each Fund operates as an index fund and will
not be actively managed. Adverse performance of a security in a Fund’s portfolio will ordinarily not result in the elimination of the security from the Fund’s portfolio.
Each Fund engages in representative sampling, which is
investing in a sample of securities selected by BFA to have a collective investment profile similar to that of the Fund's Underlying Index. Securities selected have aggregate investment characteristics (based on market capitalization and industry
weightings), fundamental characteristics (such as return variability, earnings valuation and yield) and liquidity measures similar to those of the Underlying Index. A fund that uses representative sampling generally does not hold all of the
securities that are in its underlying index.
Borrowing. Each Fund may borrow as a temporary measure for extraordinary or emergency purposes, including to meet redemptions or to facilitate the settlement of securities or other transactions. Under normal market
conditions, any borrowing by a Fund will not exceed 10% of the Fund’s net assets; however, each Fund generally does not intend to borrow money.
The purchase of securities while
borrowings are outstanding will have the effect of leveraging the Funds. Such leveraging increases a Fund’s exposure to capital risk, and borrowed funds are subject to interest costs that will reduce net income. The use of leverage by a Fund
creates an opportunity for greater total return, but, at the same time, creates special risks. For example, leveraging may exaggerate changes in the net asset value of Fund shares and in the yield on a Fund’s portfolio. Although the principal
of such borrowings will be fixed, a Fund’s assets may change in value during the time the borrowings are outstanding. Borrowings will create interest expenses for a Fund that can exceed the income from the assets purchased with the borrowings.
To the extent the income or capital appreciation derived from securities purchased with borrowed funds exceeds the interest a Fund will have to pay on the borrowings, a Fund’s return will be greater than if leverage had not been used.
Conversely, if the income or capital appreciation from the securities purchased with such borrowed funds is not sufficient to cover the cost of borrowing, the return to a Fund will be less than if leverage had not been used and, therefore, the
amount available for distribution to shareholders as dividends will be reduced. In the latter case, BFA in its best judgment nevertheless may determine to maintain a Fund’s leveraged position if it expects that the benefits to the Fund’s
shareholders of maintaining the leveraged position will outweigh the current reduced
return.
Certain types of borrowings by a Fund may result
in the Fund being subject to covenants in credit agreements relating to asset coverage, portfolio composition requirements and other matters. It is not anticipated that observance of such covenants would impede BFA from managing a Fund’s
portfolio in accordance with the Fund’s investment objectives and
policies. However, a breach of any such covenants not cured within the
specified cure period may result in acceleration of outstanding indebtedness and require the Fund to dispose of portfolio investments at a time when it may be disadvantageous to do so.
Currency
Transactions. The Funds do not expect to engage in currency transactions for the purpose of hedging against declines in the value of the Funds' assets that are denominated in a non-U.S. currency. A Fund may
enter into non-U.S. currency forward and non-U.S. currency futures contracts to facilitate local securities settlements or to protect against currency exposure in connection with its distributions to shareholders, but may not enter into such
contracts for speculative purposes.
A forward
currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract.
A
currency futures contract is a contract involving an obligation to deliver or acquire the specified amount of a specific currency, at a specified price and at a specified future time. Currency futures contracts may be settled on a net cash payment
basis rather than by the sale and delivery of the underlying currency. To the extent required by law, liquid assets committed to futures contracts will be maintained.
Foreign exchange transactions involve a significant degree of
risk and the markets in which foreign exchange transactions are effected are highly volatile, highly specialized and highly technical. Significant changes, including changes in liquidity and prices, can occur in such markets within very short
periods of time, often within minutes. Foreign exchange trading risks include, but are not limited to, exchange rate risk, counterparty risk, maturity gap, interest rate risk, and potential interference by foreign governments through regulation of
local exchange markets, foreign investment or particular transactions in non-U.S. currency. If BFA utilizes foreign exchange transactions at an inappropriate time or judges market conditions, trends or correlations incorrectly, foreign exchange
transactions may not serve their intended purpose of improving the correlation of a Fund's return with the performance of its Underlying Index and may lower the Fund’s return. Each Fund could experience losses if the value of its currency
forwards, options and futures positions were poorly correlated with its other investments or if it could not close out its positions because of an illiquid market. In addition, a Fund could incur transaction costs, including trading commissions, in
connection with certain non-U.S. currency transactions.
Diversification Status.
The following table sets forth the diversification status of each Fund:
Diversified
Funds |
|
Non-Diversified
Funds |
iShares
MSCI Canada Index Fund |
|
iShares
MSCI Australia Index Fund |
iShares
MSCI EMU Index Fund |
|
iShares
MSCI Austria Capped Investable Market Index Fund |
iShares
MSCI Japan Index Fund |
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
iShares
MSCI Japan Small Cap Index Fund |
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
iShares
MSCI Pacific ex-Japan Index Fund |
|
iShares
MSCI France Index Fund |
iShares
MSCI World Index Fund |
|
iShares
MSCI Germany Index Fund |
|
|
iShares
MSCI Global Gold Miners Fund |
|
|
iShares
MSCI Global Silver Miners Fund |
|
|
iShares
MSCI Hong Kong Index Fund |
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
|
iShares
MSCI Italy Capped Index Fund |
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
|
iShares
MSCI Singapore Index Fund |
|
|
iShares
MSCI South Africa Index Fund |
|
|
iShares
MSCI Spain Capped Index Fund |
|
|
iShares
MSCI Sweden Index Fund |
Diversified
Funds |
|
Non-Diversified
Funds |
|
|
iShares
MSCI Switzerland Capped Index Fund |
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
|
iShares
MSCI Turkey Investable Market Index Fund |
|
|
iShares
MSCI United Kingdom Index Fund |
|
|
iShares
MSCI USA Index Fund |
With respect to
75% of a Fund's total assets, a “diversified” fund is limited by the 1940 Act such that it may not invest more than 5% of its total assets in securities of any one issuer and does not acquire more than 10% of the outstanding voting
securities of any one issuer (excluding cash and cash items, government securities, and securities of other investment companies). The remaining 25% of the fund’s total assets may be invested in any manner.
A “non-diversified” fund is a fund that is not limited by
the 1940 Act with regard to the percentage of its assets that may be invested in the securities of a single issuer. The securities of a particular issuer (or securities of issuers in particular industries) may dominate the underlying index of such a
fund and, consequently, the fund’s investment portfolio. This may adversely affect the fund’s performance or subject the fund’s shares to greater price volatility than that experienced by more diversified investment
companies.
Each Fund intends to maintain the required
level of diversification and otherwise conduct its operations so as to qualify as a regulated investment company (“RIC”) for purposes of the U.S. Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and to
relieve the Fund of any liability for U.S. federal income tax to the extent that its earnings are distributed to shareholders, provided that the Fund satisfies a minimum distribution requirement. Compliance with the diversification requirements of
the Internal Revenue Code may limit the investment flexibility of the Funds and may make it less likely that the Funds will meet their respective investment objectives.
Futures and
Options. Futures contracts and options may be used by a Fund to simulate investment in its Underlying Index, to facilitate trading or to reduce transaction costs. Each Fund may enter into futures contracts and
options that are traded on a U.S. or non-U.S. exchange. Each Fund will not use futures or options for speculative purposes.
Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific instrument or index at a specified future time and at a specified price. Stock index contracts are based on investments that reflect the market value of common stock of the firms included
in the investments. Each Fund may enter into futures contracts to purchase securities indexes when BFA anticipates purchasing the underlying securities and believes prices will rise before the purchase will be made. To the extent required by law,
liquid assets committed to futures contracts will be maintained.
A call option gives a holder the right to purchase a specific
security at a specified price (“exercise price”) within a specified period of time. A put option gives a holder the right to sell a specific security at a specified exercise price within a specified period of time. The initial purchaser
of a call option pays the “writer” a premium, which is paid at the time of purchase and is retained by the writer whether or not such option is exercised. Each Fund may purchase put options to hedge its portfolio against the risk of a
decline in the market value of securities held and may purchase call options to hedge against an increase in the price of securities it is committed to purchase. Each Fund may write put and call options along with a long position in options to
increase its ability to hedge against a change in the market value of the securities it holds or is committed to purchase. Investments in futures contracts and other investments that contain leverage may require each Fund to maintain liquid assets.
Generally, each Fund maintains an amount of liquid assets equal to its obligations relative to the position involved, adjusted daily on a marked-to-market basis. With respect to futures contracts that are contractually required to
“cash-settle,” each Fund maintains liquid assets in an amount at least equal to the Fund’s daily marked-to-market obligation (i.e., each Fund’s daily net liability, if any), rather than
the contracts’ notional value (i.e., the value of the underlying asset). By maintaining assets equal to its net obligation under cash-settled futures contracts, each Fund may employ leverage to a greater
extent than if the Fund set aside assets equal to the futures contracts’ full notional value. Each Fund bases its asset maintenance policies on methods permitted by the staff of the SEC and may modify these policies in the future to comply
with any changes in the guidance articulated from time to time by the SEC or its staff.
Illiquid Securities. Each
Fund may invest up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment). Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments
that lack readily available markets as determined in accordance with SEC staff guidance.
Lending Portfolio
Securities. Each Fund may lend portfolio securities to certain creditworthy borrowers, including borrowers affiliated with BFA. The borrowers provide collateral that is maintained in an amount at least equal
to the current market value of the securities loaned. No securities loan shall be made on behalf of a Fund if, as a result, the aggregate value of all securities loans of the particular Fund exceeds one-third of the value of such Fund's total assets
(including the value of the collateral received). A Fund may terminate a loan at any time and obtain the return of the securities loaned. Each Fund receives the value of any interest or cash or non-cash distributions paid on the loaned
securities.
With respect to loans that are
collateralized by cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. The Funds are compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the
borrower. In the case of collateral other than cash, a Fund is compensated by a fee paid by the borrower equal to a percentage of the market value of the loaned securities. Any cash collateral may be reinvested in certain short-term instruments
either directly on behalf of each lending Fund or through one or more joint accounts or money market funds, including those affiliated with BFA; such reinvestments are subject to investment risk. BFA may receive compensation for managing the
reinvestment of the cash collateral.
Securities lending
involves exposure to certain risks, including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process), “gap” risk (i.e., the risk of a mismatch between the
return on cash collateral reinvestments and the fees each Fund has agreed to pay a borrower), and credit, legal, counterparty and market risk. If a securities lending counterparty were to default, a Fund would be subject to the risk of a possible
delay in receiving collateral or in recovering the loaned securities, or to a possible loss of rights in the collateral. In the event a borrower does not return a Fund's securities as agreed, the Fund may experience losses if the proceeds received
from liquidating the collateral do not at least equal the value of the loaned security at the time the collateral is liquidated, plus the transaction costs incurred in purchasing replacement securities. This event could trigger adverse tax
consequences for the Funds. A Fund could lose money if its short-term investment of the collateral declines in value over the period of the loan. Substitute payments for dividends received by a Fund for securities loaned out by the Fund will not be
considered qualified dividend income. A Fund may take the tax effects of this difference into account in its securities lending program.
Each Fund pays a portion of the interest or fees earned from
securities lending to a borrower as described above and to a securities lending agent who administers the lending program in accordance with guidelines approved by the Company's Board of Directors (the “Board” or the
“Directors”). To the extent that the Funds engage in securities lending, BlackRock Institutional Trust Company, N.A. (“BTC”) acts as securities lending agent for the Funds, subject to the overall supervision of BFA. BTC
receives a portion of the revenues generated by securities lending activities as compensation for its services.
Non-U.S. Securities.
Each Fund intends to purchase publicly-traded common stocks of non-U.S. issuers. To the extent a Fund invests in stocks of non-U.S. issuers, certain of the investments in such stocks may be in the form of American Depositary Receipts
(“ADRs”), Global Depositary Receipts (“GDRs”), Non-Voting Depositary Receipts (“NVDRs”) and European Depositary Receipts (“EDRs”) (collectively, “Depositary Receipts”). Depositary Receipts
are receipts, typically issued by a bank or trust issuer, which evidence ownership of underlying securities issued by a non-U.S. issuer. For ADRs, the depository is typically a U.S. financial institution and the underlying securities are issued by a
non-U.S. issuer. For other forms of Depositary Receipts, the depository may be a non-U.S. or a U.S. entity, and the underlying securities may be issued by a non-U.S. or a U.S. issuer. Depositary Receipts are not necessarily denominated in the same
currency as their underlying securities. Generally, ADRs, issued in registered form, are designed for use in the U.S. securities markets, and EDRs, issued in bearer form, are designed for use in European securities markets. NVDRs are designed for
use in the Thai securities market. GDRs are tradable both in the United States and in Europe and are designed for use throughout the world.
The Funds will not invest in any unlisted Depositary Receipt or
any Depositary Receipt that BFA deems illiquid at the time of purchase or for which pricing information is not readily available. In general, Depositary Receipts must be sponsored, but a Fund may invest in unsponsored Depositary Receipts under
certain limited circumstances. The issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United States. Therefore, there may be less information available regarding such issuers and there may be no
correlation between available information and the market value of the Depositary Receipts.
Investing in the securities of non-U.S. issuers involves
special risks and considerations not typically associated with investing in U.S. issuers. These include differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation, adverse changes
in investment or exchange control regulations, political instability which could affect U.S. investments in non-U.S. countries, and potential restrictions on the flow of international capital. Non-U.S. issuers may be subject to less governmental
regulation than U.S. issuers. Moreover, individual non-U.S. economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product (“GDP”), rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payment positions.
Options on Futures
Contracts. An option on a futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the premium paid, to assume a position in the underlying
futures contract at a specified exercise price at any time prior to the expiration date of the option. Upon exercise of an option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer’s futures margin account that represents the amount by which the market price of the futures contract exceeds (in the case of a call) or is less than (in the case of a put) the exercise price
of the option on the futures contract. The potential for loss related to the purchase of an option on a futures contract is limited to the premium paid for the option plus transaction costs. Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option changes daily and that change would be reflected in the NAV of each Fund. The potential for loss
related to writing call options is unlimited. The potential for loss related to writing put options is limited to the agreed upon price per share, also known as the “strike price,” less the premium received from writing the
put.
Each Fund may purchase and write put and call
options on futures contracts that are traded on an exchange as a hedge against changes in value of its portfolio securities, or in anticipation of the purchase of securities, and may enter into closing transactions with respect to such options to
terminate existing positions. There is no guarantee that such closing transactions can be effected.
Upon entering into a futures contract, a Fund will be required
to deposit with the broker an amount of cash or cash equivalents known as “initial margin,” which is in the nature of a performance bond or good faith deposit on the contract and is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent payments, known as “variation margin,” to and from the broker will be made daily as the price of the index underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or less valuable, a process known as “marking-to-market.” At any time prior to the expiration of a futures contract, each Fund may elect to close the position by taking an
opposite position, which will operate to terminate the Fund’s existing position in the contract.
Regulation Regarding Derivatives. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to registered investment
companies to regulation by the CFTC if a fund invests more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps (“CFTC Derivatives”), or if the fund markets itself as providing investment exposure
to such instruments. To the extent a Fund uses CFTC-regulated futures, options and swaps, it intends to do so below such prescribed levels and will not market itself as a “commodity pool” or a vehicle for trading such instruments.
Accordingly, BFA has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act (“CEA”) pursuant to Rule 4.5 under the CEA. BFA is not, therefore, subject to registration
or regulation as a “commodity pool operator” under the CEA in respect of such Fund.
The Funds may also have investments in “underlying
funds” not advised by BFA (which for purposes of the no-action letter referenced below may include certain securitized vehicles and/or mortgage REITS that may invest in CFTC Derivatives). BFA has no transparency into the holdings of these
underlying funds because they are not advised by BFA. To address this issue of lack of transparency, the CFTC staff issued a no-action letter on November 29, 2012 permitting the adviser of a fund that invests in such underlying funds and that would
otherwise have filed a claim of exclusion pursuant to Rule 4.5, to delay registration as a “commodity pool operator” until June 30, 2013 or six months from the date in which the CFTC issues additional guidance on the treatment of CFTC
Derivatives held by underlying funds. BFA, the adviser of the Funds, has filed a claim with the CFTC for certain of the Funds to rely on this no-action relief.
Repurchase Agreements. A
repurchase agreement is an instrument under which the purchaser (i.e., a Fund) acquires the security and the seller agrees, at the time of the sale,
to repurchase the security at a mutually agreed upon time and price, thereby determining the yield during the purchaser’s holding period. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured
by the securities transferred to the purchaser. If a repurchase agreement is construed to be a collateralized loan, the underlying securities will not be considered to be owned by a Fund but only to constitute collateral for the seller’s
obligation to pay the repurchase price, and, in the event of a default by the seller, the Fund may suffer time delays and incur costs or losses in connection with the disposition of the collateral.
In any repurchase transaction, the collateral for a repurchase
agreement may include: (i) cash items; (ii) obligations issued by the U.S. government or its agencies or instrumentalities; or (iii) obligations that, at the time the repurchase agreement is entered into, are rated in the highest rating category
generally by at least two nationally recognized statistical rating organizations (“NRSROs”), or, if unrated, determined to be of comparable quality by BFA. Collateral, however, is not limited to the foregoing and may include, for
example, obligations rated below the highest category by NRSROs. Collateral for a repurchase agreement may also include securities that a Fund could not hold directly without the repurchase obligation. Irrespective of the type of collateral
underlying the repurchase agreement, in the case of a repurchase agreement entered into by a non-money market fund, the repurchase obligation of a seller must be of comparable credit quality to securities that are rated in the highest two short-term
rating categories by at least one NRSRO or, if unrated, deemed by BFA to be of equivalent quality.
Repurchase agreements pose certain risks for a Fund that
utilizes them. Such risks are not unique to the Funds, but are inherent in repurchase agreements. The Funds seek to minimize such risks, but because of the inherent legal uncertainties involved in repurchase agreements, such risks cannot be
eliminated. Lower quality collateral and collateral with longer maturities may be subject to greater price fluctuations than higher quality collateral and collateral with shorter maturities. If the repurchase agreement counterparty were to default,
lower quality collateral may be more difficult to liquidate than higher quality collateral. Should the counterparty default and the amount of collateral not be sufficient to cover the counterparty’s repurchase obligation, a Fund would retain
the status of an unsecured creditor of the counterparty (i.e., the position the Fund would normally be in if it were to hold, pursuant to its investment policies, other unsecured debt securities of the
defaulting counterparty) with respect to the amount of the shortfall. As an unsecured creditor, a Fund would be at risk of losing some or all of the principal and income involved in the transaction.
Reverse Repurchase
Agreements. Reverse repurchase agreements involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of
borrowing. Generally, the effect of such transactions is that a Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases the Fund is able to keep
some of the interest income associated with those securities. Such transactions are advantageous only if a Fund has an opportunity to earn a rate of interest on the cash derived from these transactions that is greater than the interest cost of
obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and a Fund intends to use the reverse repurchase technique only
when BFA believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any increase or decrease in the value of a Fund’s assets. A Fund’s exposure to reverse repurchase agreements will be covered
by liquid assets having a value equal to or greater than such commitments. The use of reverse repurchase agreements is a form of leverage because the proceeds derived from reverse repurchase agreements may be invested in additional
securities.
Securities of Investment Companies. Each Fund may invest in the securities of other investment companies (including money market funds) to the extent allowed by law. Pursuant to the 1940 Act, a Fund’s investment in registered investment
companies is limited to, subject to certain exceptions: (i) 3% of the total outstanding voting stock of any one investment company; (ii) 5% of the Fund’s total assets with respect to any one investment company; and (iii) 10% of the
Fund’s total assets with respect to investment companies in the aggregate. To the extent allowed by law or regulation, each Fund may invest its assets in the securities of investment companies that are money market funds, including those
advised by or otherwise affiliated with BFA, in excess of the limits discussed above. Other investment companies in which a Fund may invest can be expected to incur fees and expenses for operations, such as investment advisory and administration
fees, which would be in addition to those incurred by the Fund.
Short-Term Instruments and Temporary Investments. Each Fund may invest in short-term instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that
may include but are not limited to: (i) shares of money market funds (including those advised by
BFA or otherwise affiliated with BFA); (ii) obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (“CDs”), bankers’ acceptances, fixed-time deposits and other obligations of U.S. and
non-U.S. banks (including non-U.S. branches) and similar institutions; (iv) commercial paper rated, at the date of purchase, “Prime-1” by Moody's® Investors Service, Inc., “F-1” by Fitch Inc., or “A-1” by Standard & Poor's® Financial Services LLC, a subsidiary
of The McGraw-Hill Companies (“Standard & Poor's Ratings Services”), or if unrated, of comparable quality as determined by BFA; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating
requirements set forth in Rule 2a-7 under the 1940 Act; (vi) repurchase agreements; and (vii) short-term U.S. dollar-denominated obligations of non-U.S. banks (including U.S. branches) that, in the opinion of BFA, are of comparable quality to
obligations of U.S. banks which may be purchased by a Fund. Any of these instruments may be purchased on a current or forward-settled basis. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time
at stated interest rates. Bankers’ acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with international transactions.
Swap Agreements. Swap
agreements are contracts between parties in which one party agrees to make periodic payments to the other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make periodic
payments to the first party based on the return of a different specified rate, index or asset. Swap agreements will usually be performed on a net basis, with a Fund receiving or paying only the net amount of the two payments. The net amount of the
excess, if any, of a Fund’s obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of liquid assets having an aggregate value at least equal to the accrued excess will be maintained by the
Fund.
The use of interest rate and index swaps is
a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. These transactions generally do not involve the delivery of securities or other underlying
assets or principal.
Tracking Stocks. A tracking stock is a separate class of common stock whose value is linked to a specific business unit or operating division within a larger company and that is designed to “ track” the performance of
such business unit or division. The tracking stock may pay dividends to shareholders independent of the parent company. The parent company, rather than the business unit or division, generally is the issuer of tracking stock. However, holders of the
tracking stock may not have the same rights as holders of the company’s common stock.
Future Developments. The
Board may, in the future, authorize a Fund to invest in securities contracts and investments, other than those listed in this SAI and in the applicable Prospectuses, provided they are consistent with the Fund’s investment objective and do not
violate any of its investment restrictions or policies.
General Considerations and Risks
A discussion of some of the principal risks associated with an
investment in a Fund is contained in the applicable Prospectus.
An investment in a Fund should be made with an understanding
that the value of the Fund’s portfolio securities may fluctuate in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of stocks in general, and other factors that affect the
market.
Borrowing
Risk. Borrowing may exaggerate changes in the net asset value of Fund shares and in the return on a Fund’s portfolio. Borrowing will cost the Fund interest expense and other fees. The costs of borrowing
may reduce the Fund’s return. Borrowing may cause a Fund to liquidate positions when it may not be advantageous to do so to satisfy its obligations.
Cyber Security
Issues. With the increased use of technologies such as the Internet to conduct business, each Fund is susceptible to operational and information security risks. In general, cyber incidents can result from
deliberate attacks or unintentional events. Cyber attacks include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational
disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches by the Funds’ third party service
providers (including, but not limited to index providers, fund accountants and transfer agents) and the issuers of securities in which the Funds invest, have the ability to cause disruptions and impact business operations potentially resulting in
financial losses, the inability of
Fund shareholders to transact business, violations of applicable privacy and
other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The
Funds and their shareholders could be negatively impacted as a result. While the Funds have established business continuity plans and risk management systems to prevent such cyber-attacks, there are inherent limitations in such plans and systems
including the possibility that certain risks have not been identified. Furthermore, the Funds cannot control the cyber security plans and systems put in place by issuers in which the Funds invest.
Dividend Risk. There is
no guarantee that the issuer of the stocks held by a Fund will declare dividends in the future or that if declared, they will either remain at current levels or increase over time.
Risk of Derivatives. A
derivative is a financial contract, the value of which depends on, or is derived from, the value of an underlying asset such as a security or an index. A Fund may invest in stock index futures contracts and other derivatives. Compared to
conventional securities, derivatives can be more sensitive to changes in interest rates or to sudden fluctuations in market prices and thus a Fund’s losses may be greater if it invests in derivatives than if it invests only in conventional
securities. Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligations.
Risk of Equity Securities.
An investment in a Fund should be made with an understanding of the risks inherent in an investment in equity securities, including the risk that the financial condition of issuers may become impaired or that
the general condition of stock markets may deteriorate (either of which may cause a decrease in the value of the portfolio securities and thus in the value of shares of the Fund). Common stocks are susceptible to general stock market fluctuations
and to increases and decreases in value as market confidence and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors, including expectations regarding government, economic, monetary and
fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic or banking crises. Holders of common stocks incur more risks than holders of preferred stocks and debt obligations because
common stockholders generally have rights to receive payments from stock issuers that are inferior to the rights of creditors, or holders of debt obligations or preferred stocks. Further, unlike debt securities, which typically have a stated
principal amount payable at maturity (the value of which, however, is subject to market fluctuations prior to maturity), or preferred stocks, which typically have a liquidation preference and which may have stated optional or mandatory redemption
provisions, common stocks have neither a fixed principal amount nor a maturity.
Although most of the securities in each Underlying Index are
listed on a national securities exchange, the principal trading market for some of the securities may be in the over-the-counter market. The existence of a liquid trading market for certain securities may depend on whether dealers will make a market
in such securities. There can be no assurance that a market will be made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of a Fund’s shares will be adversely affected if
trading markets for the Fund’s portfolio securities are limited or absent, or if bid/ask spreads are wide.
Risk of Futures and Options Transactions. There are several risks accompanying the utilization of futures contracts and options on futures contracts. A position in futures contracts and options on futures contracts may be closed only on the exchange on
which the contract was made (or a linked exchange). While each Fund plans to utilize futures contracts only if an active market exists for such contracts, there is no guarantee that a liquid market will exist for the contract at a specified time.
Futures contracts, by definition, project price levels in the future and not current levels of valuation; therefore, market circumstances may result in a discrepancy between the price of the stock index future and the movement in a Fund's Underlying
Index. In the event of adverse price movements, a Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if a Fund has insufficient cash, it may have to sell portfolio securities to meet
daily margin requirements at a time when it may be disadvantageous to do so. In addition, a Fund may be required to deliver the instruments underlying the future contracts it has sold.
The risk of loss in trading futures contracts or uncovered call
options in some strategies (e.g., selling uncovered stock index futures contracts) is potentially unlimited. The Funds do not plan to use futures and options contracts in this way. The risk of a futures
position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor
relative to the size of a required margin deposit. The Funds, however, intend
to utilize futures and options contracts in a manner designed to limit their risk exposure to levels comparable to a direct investment in the types of stocks in which they invest.
Utilization of futures and options on futures by a Fund
involves the risk of imperfect or even negative correlation to its Underlying Index if the index underlying the futures contract differs from the Underlying Index. There is also the risk of loss of margin deposits in the event of bankruptcy of a
broker with whom a Fund has an open position in the futures contract or option. The purchase of put or call options will be based upon predictions by BFA as to anticipated trends, which predictions could prove to be incorrect.
Because the futures market generally imposes less burdensome
margin requirements than the securities market, an increased amount of participation by speculators in the futures market could result in price fluctuations. Certain financial futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the maximum amount by which the price of a futures contract may vary either up or down from the previous day’s settlement price at the end of a trading session. Once the
daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. It is possible that futures contract prices could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions and subjecting each Fund to substantial losses. In the event of adverse price movements, each Fund would be required to make daily cash payments of variation margin.
Risk of Investing in Mid-Capitalization Companies. Stock prices of mid-capitalization companies may be more volatile than those of large-capitalization companies and, therefore, a Fund’s share price may be more volatile than those of funds that invest a
larger percentage of their assets in stocks issued by large-capitalization companies. Stock prices of mid-capitalization companies are also more vulnerable than those of large-capitalization companies to adverse business or economic developments,
and the stocks of mid-capitalization companies may be less liquid, making it more difficult for the Funds to buy and sell them. In addition, mid-capitalization companies generally have less diverse product lines than large-capitalization companies
and are more susceptible to adverse developments related to their products.
Risk of Investing in Non-U.S. Equity Securities. An investment in a Fund involves risks similar to those of investing in a portfolio of equity securities traded on foreign exchanges. These risks include market fluctuations caused by such factors as economic and
political developments, changes in interest rates and perceived trends in stock prices. Investing in securities issued by issuers domiciled in countries other than the domicile of the investor and denominated in currencies other than an
investor’s local currency entails certain considerations and risks not typically encountered by the investor in making investments in its home country and in that country’s currency. These considerations include favorable or unfavorable
changes in interest rates, currency exchange rates, exchange control regulations and the costs that may be incurred in connection with conversions between various currencies. Investing in any of these Funds also involves certain risks and
considerations not typically associated with investing in a fund whose portfolio contains exclusively securities of U.S. issuers. These risks include generally less liquid and less efficient securities markets; generally greater price volatility;
less publicly available information about issuers; the imposition of withholding or other taxes; the imposition of restrictions on the expatriation of funds or other assets of the Funds; higher transaction and custody costs; delays and risks
attendant in settlement procedures; difficulties in enforcing contractual obligations; lower liquidity and significantly smaller market capitalization; different accounting and disclosure standards; lower levels of regulation of the securities
markets; more substantial government interference with the economy; higher rates of inflation; greater social, economic, and political uncertainty; the risk of nationalization or expropriation of assets; and the risk of war.
Risk of Investing in Small-Capitalization Companies. Stock prices of small-capitalization companies may be more volatile than those of larger companies and therefore a Fund's share price may be more volatile than those of funds that invest a larger percentage of
their assets in stocks issued by large-capitalization companies. Stock prices of small-capitalization companies are generally more vulnerable than those of large-capitalization companies to adverse business and economic developments. The stocks of
small-capitalization companies may be thinly traded, making it difficult for the Funds to buy and sell them. In addition, small-capitalization companies are typically less financially stable than larger, more established companies and may depend on
a small number of essential personnel, making them more vulnerable to loss of personnel. Small-capitalization companies also normally have less diverse product lines than large-capitalization companies and are more susceptible to adverse
developments concerning their products.
Risk of Swap Agreements.
The risk of loss with respect to swaps generally is limited to the net amount of payments that a Fund is contractually obligated to make. Swap agreements are subject to the risk that the swap counterparty
will default on its obligations. If such a default occurs, a Fund will have contractual remedies pursuant to the agreements related to the transaction. However, such remedies may be subject to bankruptcy and insolvency laws which could affect such
Fund’s rights as a creditor (e.g., a Fund may not receive the net amount of payments that it is contractually entitled to
receive).
Risk of Investing in Africa. Investments in securities of issuers in certain African countries involve heightened risks including, among others, expropriation and/or nationalization of assets, confiscatory taxation, political instability,
including authoritarian and/or military involvement in governmental decision-making, armed conflict, civil war, and social instability as a result of religious, ethnic and/or socioeconomic unrest and, in certain countries, genocidal
warfare.
Certain countries in Africa generally
have less developed capital markets than traditional emerging market countries, and, consequently, the risks of investing in foreign securities are magnified in such countries. Because securities markets of countries in Africa are underdeveloped and
are less correlated to global economic cycles than those markets located in more developed countries, securities markets in Africa are subject to greater risks associated with market volatility, lower market capitalization, lower trading volume,
illiquidity, inflation, greater price fluctuations and uncertainty regarding the existence of trading markets.
Moreover, trading on securities markets may be suspended
altogether. Market volatility may also be heightened by the actions of a small number of investors. Brokerage firms in certain countries in Africa may be fewer in number and less established than brokerage firms in more developed markets. Since a
Fund may need to effect securities transactions through these brokerage firms, the Fund is subject to the risk that these brokerage firms will not be able to fulfill their obligations to the Fund (i.e.,
counterparty risk). This risk is magnified to the extent that a Fund effects securities transactions through a single brokerage firm or a small number of brokerage firms.
Certain governments in Africa restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers located or operating in those countries. These restrictions and/or controls may at times limit or prevent foreign investment in securities of issuers located or operating in
countries in Africa. Moreover, certain countries in Africa require governmental approval or special licenses prior to investment by foreign investors and may limit the amount of investment by foreign investors in a particular industry and/or issuer,
and may limit such foreign investment to a certain class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domestic investors of the countries and/or impose additional taxes on foreign
investors. A delay in obtaining a government approval or a license would delay investments in a particular country, and, as a result, a Fund may not be able to invest in certain securities while approval is pending. The government of a particular
country may also withdraw or decline to renew a license that enables a Fund to invest in such country. These factors make investing in issuers located or operating in countries in Africa significantly riskier than investing in issuers located or
operating in more developed countries, and any one of these factors could cause a decline in the value of a Fund’s investments.
Issuers located or operating in countries in Africa are not
subject to the same rules and regulations as issuers located or operating in more developed countries. Therefore, there may be less financial and other information publicly available with regard to issuers located or operating in countries in Africa
and such issuers are not subject to the uniform accounting, auditing and financial reporting standards applicable to issuers located or operating in more developed countries.
In addition, governments of certain countries in Africa in
which a Fund may invest may levy withholding or other taxes on income such as dividends, interest and realized capital gains. Although in certain countries in Africa a portion of these taxes are recoverable, the non-recovered portion of foreign
withholding taxes will reduce the income received from investments in such countries.
Investment in countries in Africa may be subject to a greater
degree of risk associated with governmental approval in connection with the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, there is the risk that if an African country’s
balance of payments declines, such African country may impose temporary restrictions on foreign capital remittances. Consequently, a Fund could be adversely affected by delays in, or a refusal to grant, required governmental approval for
repatriation of capital, as well as by the application to the Fund of any restrictions on investments. Additionally, investments in countries in Africa may require a Fund to adopt special procedures, seek local government approvals or take other
actions, each of which may involve additional costs to the Fund.
Securities laws in many countries in Africa are relatively new
and unsettled and, consequently, there is a risk of rapid and unpredictable change in laws regarding foreign investment, securities regulation, title to securities and shareholder rights. Accordingly, foreign investors may be adversely affected by
new or amended laws and regulations. In addition, there may be no single centralized securities exchange on which securities are traded in certain countries in Africa and the systems of corporate governance to which issuers located in countries in
Africa are subject may be less advanced than those systems to which issuers located in more developed countries are subject, and therefore, shareholders of issuers located in such countries may not receive many of the protections available to
shareholders of issuers located in more developed countries. In circumstances where adequate laws and shareholder rights exist, it may not be possible to obtain swift and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in countries in Africa may be inconsistent and subject to sudden change.
Certain countries in Africa may be heavily dependent upon
international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries
with which they trade. These countries also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. Certain countries in Africa depend to a significant extent upon exports of primary
commodities such as gold, silver, copper and diamonds. These countries therefore are vulnerable to changes in commodity prices, which may be affected by a variety of factors. In addition, certain issuers located in countries in Africa in which a
Fund invests may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of terrorism. As a
result, an issuer may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. A Fund, as an investor in such issuers, will be indirectly subject to those risks.
The governments of certain countries in Africa may exercise
substantial influence over many aspects of the private sector and may own or control many companies. Future government actions could have a significant effect on the economic conditions in such countries, which could have a negative impact on
private sector companies. There is also the possibility of diplomatic developments that could adversely affect investments in certain countries in Africa. Some countries in Africa may be affected by a greater degree of public corruption and crime,
including organized crime.
In addition, recent political
instability and protests in North Africa and the Middle East have caused significant disruptions to many industries. This instability has demonstrated that political and social unrest can spread quickly through the region, and that developments in
one country can influence the political events in neighboring countries. Some protests have turned violent, and civil war and political reconstruction in countries such as Libya poses a risk to investments in the region. Continued political and
social unrest in these regions may negatively affect the value of your investment in a Fund.
Risk of Investing in Asia.
Investments in securities of issuers in certain Asian countries involve risks not typically associated with investments in securities of issuers in other regions. Such heightened risks include, among others,
expropriation and/or nationalization of assets, confiscatory taxation, political instability, including authoritarian and/or military involvement in governmental decision-making, armed conflict and social instability as a result of religious, ethnic
and/or socio-economic unrest. Many Asian economies have experienced rapid growth and industrialization, and there is no assurance that this growth rate will be maintained.
Certain Asian countries have democracies with relatively short
histories, which may increase the risk of political instability. These countries have faced political and military unrest, and further unrest could present a risk to their local economies and securities markets. Indonesia and the Philippines have
each experienced violence and terrorism, which has negatively impacted their economies. North Korea and South Korea each have substantial military capabilities, and historical tensions between the two countries present the risk of war. Any outbreak
of hostilities between the two countries could have a severe adverse effect on the South Korean economy and securities market. Increased political and social unrest in these geographic areas could adversely affect the performance of investments in
this region.
Certain governments in this region
administer prices on several basic goods, including fuel and electricity, within their respective countries. Certain governments may exercise substantial influence over many aspects of the private sector in their respective countries and may own or
control many companies. Future government actions could have a significant effect on the economic conditions in this region, which in turn could have a negative impact on private sector companies. There is also the possibility of diplomatic
developments adversely affecting investments in the region.
Corruption and the perceived lack of a rule of law in dealings
with international companies in certain Asian countries may discourage foreign investment and could negatively impact the long-term growth of certain economies in this region. In addition, certain countries in the region are experiencing high
unemployment and corruption, and have fragile banking sectors.
Some economies in this region are dependent on a range of
commodities, including oil, natural gas and coal. Accordingly, they are strongly affected by international commodity prices and particularly vulnerable to any weakening in global demand for these products. The market for securities in this region
may also be directly influenced by the flow of international capital, and by the economic and market conditions of neighboring countries. Adverse economic conditions or developments in neighboring countries may increase investors' perception of the
risk of investing in the region as a whole, which may adversely impact the market value of the securities issued by companies in the region.
Risk of Investing in Australasia. The economies of Australasia, which include Australia and New Zealand, are dependent on exports from the agricultural and mining sectors. This makes Australasian economies susceptible to fluctuations in the
commodity markets. Australasian economies are also increasingly dependent on their growing service industries. Australia and New Zealand are located in a part of the world that has historically been prone to natural disasters, such as drought and
flooding. Any such event in the future could have a significant adverse impact on the economies of Australia and New Zealand and affect the value of securities held by a relevant Fund. The economies of Australia and New Zealand are dependent on
trading with certain key trading partners, including Asia, Europe and the United States. The Australia–U.S. Free Trade Agreement has significantly expanded the trading relationship between the United States and Australia. In 2003, Australia
and Singapore entered into the Singapore-Australia Free Trade Agreement (“ SAFTA”). SAFTA is intended to further expand the economic relationship with Singapore, Australia’s largest trade and investment partner in Southeast Asia.
Thus, economic events in the United States, Asia, or in other key trading countries can have a significant economic effect on the Australian economy. The economies of Australia and New Zealand are heavily dependent on the mining sector. Passage of
new regulations limiting foreign ownership of companies in the mining sector or imposition of new taxes on profits of mining companies may dissuade foreign investment, and as a result, have a negative impact on companies to which a Fund has
exposure.
Risk of Investing in Australia. A Fund’s investment in Australian issuers may subject the Fund to loss in the event of adverse political, economic, regulatory and other developments that affect Australia, including fluctuations of
Australian currency versus the U.S. dollar. Also, Australia is located in a part of the world that has historically been prone to natural disasters, such as drought and flooding. Any such event in the future could have a significant adverse impact
on the Australian economy. The Australian economy is dependent on trading with certain key trading partners. The Australia–U.S. Free Trade Agreement has significantly expanded the trading relationship between the United States and Australia.
In 2003, Australia and Singapore entered into the Singapore-Australia Free Trade Agreement (“SAFTA”). SAFTA is intended to further expand the economic relationship with Singapore, Australia’s largest trade and investment partner in
Southeast Asia. Thus, economic events in the United States, Asia, or in other key trading countries can have a significant economic effect on the Australian economy. The Australian economy is heavily dependent on the mining sector, passage of new
regulations limiting foreign ownership of companies in the mining sector or imposition of new taxes on profits of mining companies may dissuade foreign investment, and as a result, have a negative impact on companies to which a Fund has
exposure.
Risk of Investing in Eastern Europe. Investing in the securities of Eastern European issuers is highly speculative and involves risks not usually associated with investing in the more developed markets of Western Europe. Political and economic
reforms are too recent to establish a definite trend away from centrally planned economies and state-owned industries. In the past, some Eastern European governments have expropriated substantial amounts of private property, and many claims of the
property owners have never been fully settled.
Many Eastern European countries continue to move towards market
economies at different paces with appropriately different characteristics. Most Eastern European securities markets suffer from thin trading activity, dubious investor protections, and often a dearth of reliable corporate information. Information
and transaction costs, differential taxes, and sometimes political or transfer risk give a comparative advantage to the domestic investor rather than the foreign investor. In addition, these markets are particularly sensitive to social, political,
economic, and currency events in Russia and may suffer heavy losses as a result of their trading and investment links to the Russian economy and currency. Russia also may attempt to assert its influence in the region through economic or even
military measures, as it did with Georgia in the summer of 2008. Eastern European economies may also be particularly susceptible to changes in the international credit markets due to their reliance on bank related inflows of capital. The global
economic crisis has restricted international credit supplies, and several Eastern
European economies have faced significant credit and economic crises. Although
some Eastern European economies are expanding again, major challenges are still present as a result of their continued dependence on the Western European zone for credit.
Risk of Investing in Emerging Markets. Investments in emerging market countries may be subject to greater risks than investments in developed countries. These risks include: (i) less social, political, and economic stability; (ii) greater illiquidity
and price volatility due to smaller or limited local capital markets for such securities, or low or non-existent trading volumes; (iii) foreign exchanges and broker-dealers may be subject to less scrutiny and regulation by local authorities; (iv)
local governments may decide to seize or confiscate securities held by foreign investors and/or local governments may decide to suspend or limit an issuer's ability to make dividend or interest payments; (v) local governments may limit or entirely
restrict repatriation of invested capital, profits, and dividends; (vi) capital gains may be subject to local taxation, including on a retroactive basis; (vii) issuers facing restrictions on dollar or euro payments imposed by local governments may
attempt to make dividend or interest payments to foreign investors in the local currency; (viii) investors may experience difficulty in enforcing legal claims related to the securities and/or local judges may favor the interests of the issuer over
those of foreign investors; (ix) bankruptcy judgments may only be permitted to be paid in the local currency; (x) limited public information regarding the issuer may result in greater difficulty in determining market valuations of the securities,
and (xi) lax financial reporting on a regular basis, substandard disclosure and differences in accounting standards may make it difficult to ascertain the financial health of an issuer.
Emerging market securities markets are typically marked by a
high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of ownership of such securities by a limited number of investors. In addition,
brokerage and other costs associated with transactions in emerging markets securities markets can be higher, sometimes significantly, than similar costs incurred in securities markets in developed countries. Although some emerging markets have
become more established and tend to issue securities of higher credit quality, the markets for securities in other emerging countries are in the earliest stages of their development, and these countries issue securities across the credit spectrum.
Even the markets for relatively widely traded securities in emerging countries may not be able to absorb, without price disruptions, a significant increase in trading volume or trades of a size customarily undertaken by institutional investors in
the securities markets of developed countries. The limited size of many of these securities markets can cause prices to be erratic for reasons apart from factors that affect the soundness and competitiveness of the securities issuers. For example,
prices may be unduly influenced by traders who control large positions in these markets. Additionally, market making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and reduced
liquidity of such markets. The limited liquidity of emerging country securities may also affect a Fund's ability to accurately value its portfolio securities or to acquire or dispose of securities at the price and time it wishes to do so or in order
to meet redemption requests.
Many emerging market
countries suffer from uncertainty and corruption in their legal frameworks. Legislation may be difficult to interpret and laws may be too new to provide any precedential value. Laws regarding foreign investment and private property may be weak or
non-existent. Sudden changes in governments may result in policies which are less favorable to investors such as policies designed to expropriate or nationalize “sovereign” assets. Certain emerging market countries in the past have
expropriated large amounts of private property, in many cases with little or no compensation, and there can be no assurance that such expropriation will not occur in the future.
Investment in the securities markets of certain emerging
countries is restricted or controlled to varying degrees. These restrictions may limit a Fund's investment in certain emerging countries and may increase the expenses of the Fund. Certain emerging countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuer's outstanding securities or a specific class of securities which may have less advantageous terms (including price) than securities of
the company available for purchase by nationals.
Many
emerging market countries lack the social, political, and economic stability characteristic of the United States. Political instability among emerging market countries can be common and may be caused by an uneven distribution of wealth, social
unrest, labor strikes, civil wars, and religious oppression. Economic instability in emerging market countries may take the form of: (i) high interest rates; (ii) high levels of inflation, including hyperinflation; (iii) high levels of unemployment
or underemployment; (iv) changes in government economic and tax policies, including confiscatory taxation; and (v) imposition of trade barriers.
A Fund's income and, in some cases, capital gains from foreign
securities will be subject to applicable taxation in certain of the emerging market countries in which it invests, and treaties between the United States and such countries may not be available in some cases to reduce the otherwise applicable tax
rates.
Emerging markets also have different clearance and
settlement procedures, and in certain of these emerging markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions.
In the past, certain governments in emerging market countries
have become overly reliant on the international capital markets and other forms of foreign credit to finance large public spending programs, which in the past have caused huge budget deficits. Often, interest payments have become too overwhelming
for a government to meet, representing a large percentage of total GDP. These foreign obligations have become the subject of political debate and served as fuel for political parties of the opposition, which pressure the government not to make
payments to foreign creditors, but instead to use these funds for, among other things, social programs. Either due to an inability to pay or submission to political pressure, foreign governments have been forced to seek a restructuring of their loan
and/or bond obligations, have declared a temporary suspension of interest payments or have defaulted. These events have adversely affected the values of securities issued by foreign governments and corporations domiciled in those countries and have
negatively affected not only their cost of borrowing, but their ability to borrow in the future as well.
Risk of Investing in Japan.
Investments in securities issued by Japanese companies may be subject to additional risks.
Political Risk.
Historically, Japan has had unpredictable national politics and may experience frequent political turnover. Future political developments may lead to changes in policy that might adversely affect a Fund’s investments.
Large Government Debt
Risk. The Japanese economy faces several concerns, including a financial system with large levels of nonperforming loans, over-leveraged corporate balance sheets, extensive cross-ownership by major corporations, a
changing corporate governance structure, and large government deficits. These issues may cause a slowdown of the Japanese economy.
Currency Risk. The
Japanese yen has fluctuated widely at times and any increase in its value may cause a decline in exports that could weaken the economy.
Labor Risk. Japan has an
aging workforce. It is a labor market undergoing fundamental structural changes, as traditional lifetime employment clashes with the need for increased labor mobility, which may adversely affect Japan’s economic competitiveness.
Geographic Risk. Natural disasters, such as earthquakes, could occur in Japan or surrounding areas and could negatively affect the Japanese economy, and, in turn, could negatively affect a Fund.
Risk of Investing in North America. The United States is Canada’s and Mexico’s largest trading and investment partner. The Canadian and Mexican economies are significantly affected by developments in the U.S. economy. Since the
implementation of the North American Free Trade Agreement (“NAFTA”) in 1994 among Canada, the United States and Mexico, total merchandise trade between the three countries has increased. To further this relationship, the three NAFTA
countries entered into the Security and Prosperity Partnership of North America in March 2005, which may further affect Canada’s and Mexico’s dependency on the U.S. economy. Economic events in any one North American country can have a
significant economic effect on the entire North American region, and on some or all of the North American countries in which a Fund invests.
Risk of Investing in Russia.
Investing in the Russian securities market involves a high degree of risk and special considerations not typically associated with investing in the U.S. securities market, and should be considered highly
speculative. Risks include: the absence of developed legal structures governing private and foreign investments and private property; the possibility of the loss of all or a substantial portion of a Fund’s assets invested in Russia as a result
of expropriation; certain national policies which may restrict the Fund’s investment opportunities, including, without limitation, restrictions on investing in issuers or industries deemed sensitive to relevant national interests; and
potentially greater price volatility in, significantly smaller capitalization of, and relative illiquidity of, the Russian market. There can also be no assurance that a Fund’s investments in the Russian securities market would not be
expropriated, nationalized or otherwise
confiscated. In the event of the settlement of any such claims or such
expropriation, nationalization or other confiscation, a Fund could lose its entire investment. In addition, it may be difficult and more costly to obtain and enforce a judgment in the Russian court system.
Russia may also be subject to a greater degree of economic,
political and social instability than is the case in other developed countries. Such instability may result from, among other things, the following: (i) an authoritarian government or military involvement in political and economic decision-making,
including changes in government through extra-constitutional means; (ii) popular unrest associated with demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring countries;
and (v) ethnic, religious and racial disaffection.
The
Russian economy is heavily dependent upon the export of a range of commodities including most industrial metals, forestry products and oil and gas. Accordingly, it is strongly affected by international commodity prices and is particularly vulnerable
to any weakening in global demand for these products. Any acts of terrorism or armed conflicts in Russia or internationally could have an adverse effect on the financial and commodities markets and the global economy. As Russia produces and exports
large amounts of crude oil and gas, any acts of terrorism or armed conflict causing disruptions of Russian oil and gas exports could negatively affect the Russian economy and, thus, adversely affect the financial condition, results of operations or
prospects of related companies.
The Russian government
may exercise substantial influence over many aspects of the private sector and may own or control many companies. Future government actions could have a significant effect on the economic conditions in Russia, which could have a negative impact on
private sector companies. There is also the possibility of diplomatic developments that could adversely affect investments in Russia. In recent years, the Russian government has begun to take bolder steps to re-assert its regional geopolitical
influence (including military steps). Such steps may increase tensions between Russia and its neighbors and Western countries and may negatively affect economic growth.
Risk of Investing in the Capital Goods Sector. The capital goods sector may be affected by fluctuations in the business cycle and by other factors affecting manufacturing demands. The capital goods sector depends heavily on corporate spending. The capital
goods sector may perform well during times of economic expansion, and as economic conditions worsen, the demand for capital goods may decrease. Many capital goods are sold internationally and such companies are subject to market conditions in other
countries and regions.
Risk of Investing in the
Consumer Discretionary Sector. Companies engaged in the design, production or distribution of products or services for the consumer discretionary sector (including, without limitation, television and radio
broadcasting, manufacturing, publishing, recording and musical instruments, motion pictures, photography, amusement and theme parks, gaming casinos, sporting goods and sports arenas, camping and recreational equipment, toys and games, apparel,
travel-related services, automobiles, hotels and motels, and fast food and other restaurants) are subject to the risk that their products or services may become obsolete quickly. The consumer discretionary sector can be significantly affected by
several factors, including, without limitation, the performance of domestic and international economies, exchange rates, changing consumer tastes and trends, marketing campaigns, cyclical revenue generation, consumer confidence, commodity price
volatility, labor relations, interest rates, import and export controls, intense competition, technological developments and government regulation.
Risk of Investing in the Consumer Goods Sector. The consumer goods sector may be strongly affected by trends, marketing campaigns and other factors affecting consumer demand. Governmental regulation affecting the use of various food additives may affect the
profitability of certain companies in the consumer goods sector. In addition, tobacco companies may be adversely affected by new laws, regulations and litigation. Many consumer goods may be marketed globally, and consumer goods companies may be
affected by the demand and market conditions in other countries and regions.
Risk of Investing in the Consumer Staples Sector. Companies in the consumer staples sector may be adversely affected by changes in the global economy, consumer spending, competition, demographics and consumer preferences, and production spending. Companies in the
consumer staples sector are also affected by changes in government regulation, global economic, environmental and political events, economic conditions and the depletion of resources. In addition, companies in the consumer staples sector may be
subject to risks pertaining to the supply of, demand for and prices of raw materials. The prices of raw materials fluctuate in response to a number of factors, including, without limitation, changes in government agricultural support programs,
exchange rates, import and export controls, changes in international agricultural and trading policies, and seasonal and weather conditions.
Risk of Investing in the Energy Sector. Companies in the energy sector are strongly affected by the levels and volatility of global energy prices, energy supply and demand, government regulations and policies, energy production and conservation efforts,
and technological change. Prices and supplies of energy may fluctuate significantly over short and long periods of time due to national and international political changes, Organization of Petroleum Exporting Countries (“OPEC”) policies,
changes in relationships among OPEC members and between OPEC and oil-importing nations, the regulatory environment, taxation policies, and the economy of the key energy-consuming countries. In addition, companies in the energy sector are at risk of
civil liability from accidents resulting in injury, loss of life or property, pollution or other environmental damage claims and risk of loss from terrorism and natural disasters. Disruptions in the oil industry or shifts in fuel consumption may
significantly impact companies in this sector. In addition, because a significant portion of revenues of companies in this sector are derived from a relatively small number of customers that are largely composed of governmental entities and
utilities, governmental budget constraints may have a significant impact on the stock prices of companies in this industry.
Risk of Investing in the Financial Sector. Companies in the financial sector include regional and money center banks, securities brokerage firms, asset management companies, savings banks and thrift institutions, specialty finance companies (e.g., credit card, mortgage providers), insurance and insurance brokerage firms, financial conglomerates and foreign banking and financial companies. The global
financial markets have experienced very difficult conditions and volatility as well as significant adverse trends. The deteriorating conditions in these markets have resulted in a decrease in availability of corporate credit, capital and liquidity
and have led indirectly to the insolvency, closure or acquisition of a number of financial institutions. These conditions have also contributed to consolidation within the financial industry. In addition, the global financial industry has been
materially and adversely affected by a significant decline in the value of mortgage-backed and asset-backed securities, and by the sovereign debt crisis. The prospects of many financial companies are questionable and continue to evolve as financial
companies revise their outlooks and write down assets that they hold.
Most financial companies are subject to extensive governmental
regulation, which limits their activities and may affect their ability to earn a profit from a given line of business. Government regulation may change frequently and may have significant adverse consequences for companies in the financial sector,
including effects not intended by the regulation. Direct governmental intervention in the operations of financial companies and financial markets may materially and adversely affect the companies in which a Fund invests, including legislation in
many countries that may increase government regulation, repatriation and other intervention. The impact of governmental intervention and legislative changes on any individual financial company or on the financial sector as a whole cannot be
predicted. The valuation of financial companies has been and continues to be subject to unprecedented volatility and may be influenced by unpredictable factors, including interest rate risk and sovereign debt default. Certain financial businesses
are subject to intense competitive pressures, including market share and price competition. Financial companies in foreign countries are subject to market specific and general regulatory and interest rate concerns. In particular, government
regulation in certain foreign countries may include taxes and controls on interest rates, credit availability, minimum capital requirements, ban on short sales, prices and currency transfers.
The profitability of banks, savings and loan associations and
financial companies is largely dependent on the availability and cost of capital funds and can fluctuate significantly when interest rates change. In addition, general economic conditions are important to the operations of these concerns, with
exposure to credit losses resulting from financial difficulties of borrowers having an adverse effect on the profitability of financial companies. Financial companies can be highly dependent upon access to capital markets and any impediments to such
access, such as adverse overall economic conditions or a negative perception in the capital markets of a financial company’s financial condition or prospects, could adversely affect its business.
Risk of Investing in the Healthcare Sector. Companies in the healthcare sector are often issuers whose profitability may be affected by extensive government regulation, restrictions on government reimbursement for medical expenses, rising or falling costs
of medical products and services, pricing pressure, an increased emphasis on outpatient services, limited number of products, industry innovation, changes in technologies and other market developments. Many healthcare companies are heavily dependent
on patent protection and the actual or perceived safety and efficiency of their products. The expiration of patents may adversely affect the profitability of these companies. Many healthcare companies are subject to extensive litigation based on
product liability and similar claims. Healthcare companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the healthcare sector may be subject to
regulatory approvals. The process of obtaining such approvals may be long and costly, and may diminish the opportunity for a company to profit from a new product or to bring a new product to market. Many healthcare-related companies are relatively
small and unseasoned. Healthcare companies may also be strongly affected by scientific bio-technology or technological developments and their products may quickly become obsolete. Also, many healthcare
companies offer products and services that are subject to governmental
regulation and may be adversely affected by changes in governmental policies or laws. The impact of recent legislation passed by the U.S. government and other legislation introduced or considered by other governments on any individual healthcare
company or on the healthcare sector as a whole cannot be predicted. These laws and proposals span a wide range of topics, including cost control, national health insurance, incentives for compensation in the provision of healthcare services, tax
incentives and penalties related to healthcare insurance premiums, and promotion of prepaid healthcare plans. No one can predict what proposals will be enacted or what potentially adverse effect they may have on healthcare-related or
biotechnology-related companies.
Risk of Investing in the
Industrials Sector. The value of securities issued by companies in the industrials sector may be affected by supply and demand both for their specific product or service and for industrials sector products in
general. The products of manufacturing companies may face product obsolescence due to rapid technological developments and frequent new product introduction. Government regulations, world events and economic conditions affect the performance of
companies in the industrials sector. Companies in the industrials sector may be adversely affected by liability for environmental damage, product liability claims and exchange rates. The industrials sector may also be adversely affected by changes
or trends in commodity prices, which may be influenced by unpredictable factors. Aerospace and defense companies, a component of the industrials sector, can be significantly affected by government spending policies because companies involved in this
industry rely, to a significant extent, on government demand for their products and services. Thus, the financial condition of, and investor interest in, aerospace and defense companies are heavily influenced by governmental defense spending
policies, which are typically under pressure from efforts to control government budgets. Transportation stocks, a component of the industrials sector, are cyclical and can be significantly affected by economic changes, fuel prices, labor relations
and insurance costs. Transportation companies in certain countries may also be subject to significant government regulation and oversight, which may adversely affect their businesses.
Risk of Investing in the Information Technology Sector. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face product obsolescence due to rapid technological developments and frequent new product introduction,
unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights
may adversely affect the profitability of these companies.
Risk of Investing in the Insurance Industry. The insurance industry is subject to extensive government regulation in some countries and can be significantly affected by changes in interest rates, general economic conditions, price and marketing competition,
the imposition of premium rate caps or other changes in government regulation or tax law. Different segments of the insurance industry can be significantly affected by mortality and morbidity rates, environmental clean-up costs and catastrophic
events such as earthquakes, hurricanes and terrorist acts.
Risk of Investing in the Materials Sector. Companies in the materials sector may be adversely affected by commodity price volatility, exchange rates, import controls, increased competition, depletion of resources, technical progress, labor relations and
government regulations, among other factors. Also, companies in the materials sector are at risk of liability for environmental damage and product liability claims. Production of materials may exceed demand as a result of market imbalances or
economic downturns, leading to poor investment returns.
Risk of Investing in the Telecommunications Sector. The telecommunications sector of an economy is often subject to extensive government regulation. The costs of complying with governmental regulations, delays or failure to receive required regulatory approvals, or
the enactment of new adverse regulatory requirements may negatively affect the business of the telecommunications companies. Government actions around the world, specifically in the area of pre-marketing clearance of products and prices, can be
arbitrary and unpredictable. Companies in the telecommunications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new
technology. Technological innovations may make the products and services of telecommunications companies obsolete.
Risk of Investing in the Utilities Sector. Investments in utility companies involve special considerations, including the risk of changing commodity prices, government regulation stipulating rates charged by utilities, increased tariffs, changes in tax
laws, interest rate fluctuations and changes in the cost of providing specific utility services. The utilities industry is also subject to potential terrorist attacks, natural disasters and severe weather conditions, as well as regulatory and
operational
burdens associated with the operation and maintenance of nuclear facilities.
Government regulators monitor and control utility revenues and costs, and therefore may limit utility profits. In certain countries regulatory authorities may also restrict a company’s access to new markets, thereby diminishing the
company’s long-term prospects. The deregulation of certain utility companies may eliminate restrictions on profits but may also subject these companies to greater risks of loss.
Proxy Voting Policy
The Company has adopted, as its proxy voting policies for each
Fund, the proxy voting guidelines of BFA, the investment adviser to each Fund. The Company has delegated to BFA the responsibility for voting proxies on the portfolio securities held by each Fund. The remainder of this section discusses each
Fund’s proxy voting guidelines and BFA’s role in implementing such guidelines.
BFA votes (or refrains from voting) proxies for each Fund in a
manner that BFA, in the exercise of its independent business judgment, concludes is in the best economic interests of such Fund. In some cases, BFA may determine that it is in the best economic interests of a Fund to refrain from exercising the
Fund’s proxy voting rights (such as, for example, proxies on certain non-U.S. securities that might impose costly or time-consuming in-person voting requirements). With regard to the relationship between securities lending and proxy voting,
BFA’s approach is also driven by each Fund's economic interests. The evaluation of the economic desirability of recalling loans involves balancing the revenue-producing value of loans against the likely economic value of casting votes. Based
on our evaluation of this relationship, we believe that the likely economic value of casting a vote generally is less than the securities lending income, either because the votes will not have significant economic consequences or because the outcome
of the vote would not be affected by BFA recalling loaned securities in order to ensure they are voted. Periodically, BFA analyzes the process and benefits of voting proxies for securities on loan, and will consider whether any modification of its
proxy voting policies or procedures are necessary in light of any regulatory changes. BFA will normally vote on specific proxy issues in accordance with its proxy voting guidelines. BFA’s proxy voting guidelines provide detailed guidance as to
how to vote proxies on certain important or commonly raised issues. BFA may, in the exercise of its business judgment, conclude that the proxy voting guidelines do not cover the specific matter upon which a proxy vote is requested, or that an
exception to the proxy voting guidelines would be in the best economic interests of a Fund. BFA votes (or refrains from voting) proxies without regard to the relationship of the issuer of the proxy (or any shareholder of such issuer) to a Fund, a
Fund’s affiliates (if any), BFA or BFA’s affiliates, or the Distributor or the Distributor’s affiliates. When voting proxies, BFA attempts to encourage issuers to follow practices that enhance shareholder value and increase
transparency and allow the market to place a proper value on their assets. With respect to certain specific issues:
• |
Each Fund generally supports
the board’s nominees in the election of directors and generally supports proposals that strengthen the independence of boards of directors; |
• |
Each Fund generally does not
support proposals on social issues that lack a demonstrable economic benefit to the issuer and the Fund investing in such issuer; and |
• |
Each Fund generally votes
against anti-takeover proposals and proposals that would create additional barriers or costs to corporate transactions that are likely to deliver a premium to shareholders. |
BFA maintains institutional policies and procedures that are
designed to prevent any relationship between the issuer of the proxy (or any shareholder of the issuer) and a Fund, a Fund’s affiliates (if any), BFA or BFA’s affiliates (if any) or the Distributor or the Distributor’s affiliates,
from having undue influence on BFA’s proxy voting activity. In certain instances, BFA may determine to engage an independent fiduciary to vote proxies as a further safeguard against potential conflicts of interest or as otherwise required by
applicable law. The independent fiduciary may either vote such proxies or provide BFA with instructions as to how to vote such proxies. In the latter case, BFA votes the proxy in accordance with the independent fiduciary’s determination.
Information with respect to how BFA voted proxies relating to
the Funds' portfolio securities during the 12-month period
ended June 30 is available: (i) without charge, upon request, by calling 1-800-iShares (1-800-474-2737) or through the Funds' website at www.iShares.com; and (ii) on the SEC’s
website at www.sec.gov.
Portfolio Holdings Information
The Board has adopted a policy regarding the disclosure of the
Funds' portfolio holdings information that requires that such information be disclosed in a manner that: (i) is consistent with applicable legal requirements and in the best interests of each Fund’s respective shareholders; (ii) does not put
the interests of BFA, the Distributor or any affiliated person of BFA or the Distributor, above those of Fund shareholders; (iii) does not advantage any current or prospective Fund shareholders over any other current or prospective Fund
shareholders, except to the extent that certain Entities (as described below) may receive portfolio holdings information not available to other current or prospective Fund shareholders in connection with the dissemination of information necessary
for transactions in Creation Units, as discussed below; and (iv) does not provide selective access to portfolio holdings information except pursuant to the procedures outlined below and to the extent appropriate confidentiality arrangements limiting
the use of such information are in effect. The “ Entities” referred to in sub-section (iii) above are generally limited to National Securities Clearing Corporation (“NSCC”) members, subscribers to various fee-based
subscription services, large institutional investors (known as “Authorized Participants”) that have been authorized by the Distributor to purchase and redeem large blocks of shares pursuant to legal requirements and other institutional
market participants and entities that provide information services.
Each business day, each Fund's portfolio holdings information
is provided to the Distributor or other agent for dissemination through the facilities of the NSCC and/or other fee-based subscription services to NSCC members and/or subscribers to those other fee-based subscription services, including Authorized
Participants, and to entities that publish and/or analyze such information in connection with the process of purchasing or redeeming Creation Units or trading shares of the Funds in the secondary market. This information typically reflects each
Fund’s anticipated holdings on the following business day.
Daily access to information concerning the Funds' portfolio
holdings is permitted (i) to certain personnel of those service providers that are involved in portfolio management and providing administrative, operational, risk management, or other support to portfolio management, including affiliated
broker-dealers and Authorized Participants; and (ii) to other personnel of BFA and the Distributor, administrator, custodian and fund accountant who deal directly with or assist in, functions related to investment management, distribution,
administration, custody and fund accounting, as may be necessary to conduct business in the ordinary course in a manner consistent with agreements with the Funds and the terms of the Funds' current registration statements. In addition, each Fund
discloses its portfolio holdings and the percentages they represent of the Fund's net assets at least monthly, and as often as each day the Fund is open for business, at www.iShares.com. More information about this disclosure is available at
www.iShares.com.
Portfolio holdings information made
available in connection with the creation /redemption process may be provided to other entities that provide services to the Funds in the ordinary course of business after it has been disseminated to the NSCC. From time to time, information
concerning portfolio holdings other than portfolio holdings information made available in connection with the creation/redemption process, as discussed above, may be provided to other entities that provide services to the Funds, including rating or
ranking organizations, in the ordinary course of business, no earlier than one business day following the date of the information.
Each Fund discloses its complete portfolio holdings schedule
in public filings with the SEC within 70 days after the end of each fiscal quarter and will provide that information to shareholders as required by federal securities laws and regulations thereunder. A Fund may, however, voluntarily disclose all or
part of its portfolio holdings other than in connection with the creation/redemption process, as discussed above, in advance of required filings with the SEC, provided that such information is made generally available to all shareholders and other
interested parties in a manner that is consistent with the above policy for disclosure of portfolio holdings information. Such information may be made available through a publicly-available website or other means that make the information available
to all likely interested parties contemporaneously.
The
Company's Chief Compliance Officer may authorize disclosure of portfolio holdings information pursuant to the above policy and procedures.
The Board reviews the policy and procedures for disclosure of
portfolio holdings information at least annually.
Construction and Maintenance of the Underlying Indexes
Descriptions of the Underlying Indexes are provided
below.
The MSCI Indexes
The MSCI indexes were founded in 1969 by Capital International
S.A. as the first international performance benchmarks constructed to facilitate accurate comparison of world markets. The MSCI single country standard equity indexes have covered the world's developed markets since 1969 and in 1987 MSCI commenced
coverage of emerging markets.
Local stock exchanges
traditionally calculated their own indexes, which were generally not comparable with one another due to differences in the representation of the local market, mathematical formulas, base dates and methods of adjusting for capital changes. MSCI,
however, applies the same calculation methodology to all markets for all single country standard equity indexes, both developed and emerging.
MSCI's Global Investable Market Indexes (the “MSCI
GIMI”) provide exhaustive coverage and non-overlapping market segmentation by market capitalization size and by style. The MSCI GIMI intends to target approximately 99% coverage of the free float-adjusted market capitalization in each market
of large-, mid- and small-cap securities.
• |
MSCI Global Standard Indexes
cover all investable large- and mid-cap securities by including approximately 85% of each market's free float-adjusted market capitalization. |
• |
MSCI Global Small Cap
Indexes provide coverage to all companies with a market capitalization below that of the companies in the MSCI Global Standard Indexes by including above and beyond the coverage of the MSCI Global Standard Indexes. |
MSCI Global Investable Market Indexes
Selection Criteria. MSCI's
index construction process involves: (i) defining the equity universe; (ii) determining the market investable equity universe for each market; (iii) determining market capitalization size segments for each market; (iv) applying final size segment
investability requirements; and (v) applying index continuity rules for the MSCI Global Standard Index.
Defining the Equity Universe.
MSCI begins with securities listed in countries in the MSCI GIMI. Of these countries, as of June 29, 2012, 22 are classified as developed markets, 21 as emerging markets, and 31 as frontier markets. All listed equity securities and listed securities
that exhibit characteristics of equity securities, except mutual funds, exchange traded funds, equity derivatives, limited partnerships and most investment trusts, are eligible for inclusion in the equity universe. Real estate investment trusts
(“REITs”) in some countries and certain income trusts in Canada are also eligible for inclusion. Each company and its securities (i.e.,
share classes) are classified in only one country.
Determining the Market Investable Equity Universe for Each
Market. The equity universe in any market is derived by applying investability screens to individual companies and securities in the equity universe of that market. Some investability requirements are applied at the
individual security level and some at the overall company level, represented by the aggregation of individual securities of the company. As a result, the inclusion or exclusion of one security does not imply the automatic inclusion or exclusion of
other securities of the same company.
Determining
Market Capitalization Size Segments for Each Market. In each market, MSCI creates an Investable Market Index, Standard Index, Large Cap Index, Mid Cap Index and Small Cap Index. The MSCI Global Standard Index is the
aggregation of the Large Cap Index and Mid Cap Index. The MSCI GIMI is the aggregation of the MSCI Global Standard Index and MSCI Global Small Cap Index. In order to create size components that can be meaningfully aggregated into composites,
individual market size segments balance the following two objectives:
• |
Achieving global size
integrity by ensuring that companies of comparable and relevant sizes are included in a given size segment across all markets in a composite index; and |
• |
Achieving consistent market
coverage by ensuring that each market's size segment is represented in its proportional weight in the composite universe. |
Applying Final Size Segment Investability Requirements. In order to enhance replicability of the indexes, additional size segment investability requirements are set for the MSCI GIMI and MSCI Global Standard Index. These investability requirements include minimum free-float
market capitalization, minimum liquidity, minimum foreign limits and minimum length of trading.
Applying Index Continuity Rules for the Standard Index. In order to achieve index continuity as well as provide some basic level of diversification within a market index, notwithstanding the effect of other index construction rules contained herein, a minimum number of five
constituents will be maintained for a developed market Standard Index and a minimum number of three constituents will be maintained for an emerging market Standard Index.
Weighting. All indexes of the
MSCI GIMI are free-float weighted, i.e., companies are included in the indexes at the value of their free public float (free float multiplied by
security price).
Regional Weights. Market capitalization weighting, combined with a consistent target of approximately 99% of free float-adjusted market capitalization, helps ensure that each country's weight in regional and international indexes
approximates its weight in the total universe of developing and emerging markets. A market is equivalent to a single country except for Europe, where all markets are aggregated into a single market for index construction purposes. Individual country
indexes of the European developed markets are derived from the constituents of the MSCI GIMI Europe Index.
Free Float. MSCI defines the
free float of a security as the proportion of shares outstanding that are deemed to be available for purchase in the public equity markets by international investors. In practice, limitations on free float available to international investors
include: (i) strategic and other shareholdings not considered part of available free float; and (ii) limits on share ownership for foreigners.
Under MSCI's free float-adjustment methodology, a constituent's
inclusion factor is equal to its estimated free float rounded-up to the closest 5% for constituents with free float equal to or exceeding 15%. For example, a constituent security with a free float of 23.2% will be included in the index at 25% of its
market capitalization. For securities with a free float of less than 15%, the estimated free float is adjusted to the nearest 1%.
Price and Exchange Rates
Prices. The prices used to
calculate all MSCI indexes are the official exchange closing prices or those figures accepted as such. MSCI reserves the right to use an alternative pricing source on any given day.
Exchange Rates. Since July
2000, MSCI uses the WM/Reuters Closing Spot Rates taken at 4:00 p.m. London time. In case WM/Reuters does not provide rates for specific markets on given days (for example, Christmas Day and New Year's Day), the previous business day's rates are
normally used. MSCI independently monitors the exchange rates on all its indices. MSCI may under exceptional circumstances elect to use alternative sources of exchange rates if the WM/Reuters rates are not available, or if MSCI determines that the
WM/Reuters rates are not reflective of market circumstances for a given currency on a particular day. In such circumstances, an announcement would be sent to clients with the related information. If appropriate, MSCI may conduct a consultation with
the investment community to gather feedback on the most relevant exchange rate.
Changes to the Indexes. The
MSCI GIMI is maintained with the objective of reflecting, on a timely basis, the evolution of the underlying equity markets. In maintaining the MSCI indexes, emphasis is also placed on continuity, replicability and minimizing turnover in the
indexes. Maintaining the MSCI indexes involves many aspects, including (i) additions to, and deletions from, the indexes; (ii) changes in number of shares; and (iii) changes in inclusion factors as a result of updated free float
estimates.
Index maintenance can be described by
three broad categories of changes:
• |
Semi-Annual Index Reviews
(“SAIRs”), conducted on a fixed semi-annual timetable that systematically reassess the various dimensions of the equity universe for all markets; |
• |
Quarterly Index Reviews
(“QIRs”), aimed at promptly reflecting other significant market events; and |
• |
Ongoing event-related
changes, such as mergers, acquisitions, spin-offs, bankruptcies, reorganizations and other similar corporate events, which generally are implemented in the indexes as they occur. |
Potential changes in the status of countries (stand-alone,
frontier, emerging and developed) follow their own implementation time tables.
MSCI conducts SAIRs generally as of the close of the last
business day of May and November. During the SAIRs, MSCI updates the investable equity universe and reassesses size segmentation investability requirements. MSCI also conducts QIRs generally as of the close of the last business day of February and
August. During the QIRs, MSCI reflects changes in the index that were not captured at the time of their actual occurrence, but are significant enough to be included before the next SAIR. The results of the SAIR and QIR are generally announced at
least ten business days in advance of implementation.
MSCI
25/50 Indexes
Each of the MSCI 25/50 Indexes (the
“25/50 Indexes”) is a sub-index of either an MSCI Global Standard Index or an MSCI GIMI. Their construction reflects the diversification requirements applicable to RICs pursuant to Subchapter M of the Internal Revenue Code. The 25/50
Indexes are free-float adjusted market capitalization weighted indexes with a capping methodology applied to issuer weights so that no single issuer of a component exceeds 25% of index weight and all issuers with weight above 5% do not exceed 50% of
the index weight.
MSCI ACWI Select Gold Miners Investable
Market Index
Number of Components:
approximately 52
Index Description. The MSCI ACWI Select Gold Miners Investable Market Index is a capped free float-adjusted market capitalization-weighted index comprised of companies primarily engaged in the business of gold mining in both developed and
emerging markets.
MSCI ACWI Select Silver Miners
Investable Market Index
Number of Components: approximately 30
Index Description. The MSCI
ACWI Select Silver Miners Investable Market Index is a capped free float-adjusted market capitalization-weighted index compromised of companies primarily engaged in the business of silver mining in both developed and emerging markets.
MSCI Australia Index
Number of Components:
approximately 69
Index Description. The MSCI Australia Index consists of stocks traded primarily on the Australian Stock Exchange.
MSCI Austria IMI 25/50 Index
Number of Components:
approximately 30 (as of 1/15/13)
Index Description. The MSCI Austria IMI 25/50 Index consists of stocks traded primarily on the Vienna Stock Exchange.
MSCI Belgium IMI 25/50 Index
Number of Components:
approximately 48
Index Description. The MSCI Belgium IMI 25/50 Index consists of stocks traded primarily on the Brussels Stock Exchange.
MSCI Canada Index
Number of Components:
approximately 102
Index Description. The MSCI Canada Index consists of stocks traded primarily on the Toronto Stock Exchange.
MSCI Emerging Markets Eastern Europe Index
Number of Components:
approximately 54
Index Description. The MSCI Emerging Markets Eastern Europe Index is a free float-adjusted market capitalization index designed to measure the equity performance of companies domiciled in four Eastern European emerging market nations: the
Czech Republic, Hungary, Poland and Russia.
MSCI EMU
Index
Number of Components:
approximately 243
Index Description. The MSCI EMU Index consists of stocks from the following 11 markets: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal and Spain.
MSCI France Index
Number of Components:
approximately 73
Index Description. The MSCI France Index consists of stocks traded primarily on the Paris Stock Exchange.
MSCI Germany Index
Number of Components:
approximately 52
Index Description. The MSCI Germany Index consists of stocks traded primarily on the Frankfurt Stock Exchange.
MSCI Hong Kong Index
Number of Components:
approximately 42
Index Description. The MSCI Hong Kong Index consists of stocks traded primarily on the Stock Exchange of Hong Kong Limited (SEHK).
MSCI Israel Capped Investable Market Index
Number of Components:
approximately 69
Index Description. The MSCI Israel Capped Investable Market Index consists of stocks traded primarily on the Tel Aviv Stock Exchange.
MSCI Italy 25/50 Index
Number of Components:
approximately 25 (as of 1/15/13)
Index Description. The MSCI Italy 25/50 Index consists of stocks traded primarily on the Milan Stock Exchange.
MSCI Japan Index
Number of Components:
approximately 316
Index Description. The MSCI Japan Index consists of stocks traded primarily on the Tokyo Stock Exchange.
MSCI Japan Small Cap Index
Number of Components:
approximately 824
Index Description. The MSCI Japan Small Cap Index targets a coverage range between 85% and 99% of the free float-adjusted market capitalization, which consists of stocks traded primarily on the Tokyo Stock Exchange.
MSCI Mexico IMI 25/50 Index
Number of Components:
approximately 44 (as of 1/15/13)
Index Description. The MSCI Mexico IMI 25/50 Index consists of stocks traded primarily on the Mexican Stock Exchange.
MSCI Netherlands Investable Market Index
Number of Components:
approximately 55
Index Description. The MSCI Netherlands Investable Market Index consists of stocks traded primarily on the Amsterdam Stock Exchange.
MSCI Pacific ex-Japan Index
Number of Components:
approximately 148
Index Description. The MSCI Pacific ex-Japan Index is designed to measure equity market performance in the Australia, Hong Kong, New Zealand and Singapore equity markets.
MSCI Singapore Index
Number of Components:
approximately 32
Index Description. The MSCI Singapore Index consists of stocks traded primarily on the Singapore Stock Exchange.
MSCI South Africa Index
Number of Components:
approximately 50
Index Description. The MSCI South Africa Index consists of stocks traded primarily on the Johannesburg Stock Exchange.
MSCI Spain 25/50 Index
Number of Components:
approximately 23 (as of 1/15/13)
Index Description. The MSCI Spain 25/50 Index consists of stocks traded primarily on the Madrid Stock Exchange.
MSCI Sweden Index
Number of Components:
approximately 35
Index Description. The MSCI Sweden Index consists of stocks traded primarily on the Stockholm Stock Exchange.
MSCI Switzerland 25/50 Index
Number of Components:
approximately 39 (as of 1/15/13)
Index Description. The MSCI Switzerland 25/50 Index consists of stocks traded primarily on the Zurich Stock Exchange.
MSCI Thailand IMI 25/50 Index
Number of Components:
approximately 88 (as of 1/15/13)
Index Description. The MSCI Thailand IMI 25/50 Index is an index designed to measure broad-based equity market performance in Thailand. The MSCI Thailand IMI 25/50 Index consists of stocks traded primarily on the Stock Exchange of
Thailand (SET).
MSCI Turkey Investable Market
Index
Number of
Components: approximately 93
Index Description. The MSCI Turkey Investable Market Index consists of stocks traded primarily on the Istanbul Stock Exchange (ISE).
MSCI United Kingdom Index
Number of Components:
approximately 106
Index Description. The MSCI United Kingdom Index consists of stocks traded primarily on the London Stock Exchange.
MSCI USA Index
Number of Components:
approximately 605
Index Description. The MSCI USA 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.
MSCI World Index
Number of Components:
approximately 1,626
Index Description. The MSCI World Index is designed to measure the performance of equity securities in the top 85% of equity market capitalization, in certain developed market countries.
Additional Information.
“MSCI,” MSCI ACWI Select Gold Miners Investable Market Index, MSCI ACWI Select Silver Miners Investable Market Index, MSCI Australia Index, MSCI Austria IMI 25/50 Index, MSCI Belgium IMI 25/50 Index, MSCI Canada Index, MSCI Emerging
Markets Eastern Europe Index, MSCI EMU Index, MSCI France Index, MSCI Germany Index, MSCI Hong Kong Index, MSCI Israel Capped Investable Market Index, MSCI Italy 25/50 Index, MSCI Japan Index, MSCI Japan Small Cap Index, MSCI Mexico IMI 25/50 Index,
MSCI Netherlands Investable Market Index, MSCI Pacific ex-Japan Index, MSCI Singapore Index, MSCI South Africa Index, MSCI Spain 25/50 Index, MSCI Sweden Index, MSCI Switzerland 25/50 Index,
MSCI Thailand IMI 25/50 Index, MSCI Turkey Investable Market Index, MSCI
United Kingdom Index, MSCI USA Index and MSCI World Index are servicemarks of MSCI Inc. and have been licensed for use by BFA or its affiliates. The Funds are neither sponsored, endorsed, sold nor promoted by MSCI Inc., and MSCI Inc. makes no
representation regarding the advisability of investing in any of the Funds.
Investment Limitations
The Board has adopted as non-fundamental policies the
investment objectives of the Funds discussed in this SAI. Therefore, each of these Funds may change its investment objective and its Underlying Index without a shareholder vote. The Board has adopted as fundamental policies the following numbered
investment restrictions, which cannot be changed without the approval of the holders of a majority of the applicable Fund’s outstanding voting securities. A vote of a majority of the outstanding voting securities is defined in the 1940 Act as
the lesser of (a) 67% or more of the voting securities present at a fund meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy, and (b) more than 50% of outstanding voting securities.
The iShares MSCI Australia Index Fund, iShares MSCI Canada Index
Fund, iShares MSCI Germany Index Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI South Africa Index Fund and
iShares MSCI Switzerland Capped Index Fund, will not:
1. |
Lend any funds or other
assets except through the purchase of all or a portion of an issue of securities or obligations of the type in which it is permitted to invest (including participation interests in such securities or obligations) and except that a Fund may lend its
portfolio securities in an amount not to exceed 33 1/3% of the value of its total assets; |
2. |
Issue senior securities or
borrow money, except borrowings from banks for temporary or emergency purposes in an amount up to 33 1/3% of the value of the Fund’s total assets (including the amount borrowed), valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) valued at the time the borrowing is made, and the Fund will not purchase securities while borrowings in excess of 5% of the Fund’s total assets are outstanding, provided, that for purposes of this restriction,
short-term credits necessary for the clearance of transactions are not considered borrowings; |
3. |
Pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted borrowings. (The deposit of underlying securities and other assets in escrow and collateral arrangements with respect to initial or variation margin for currency transactions and
futures contracts will not be deemed to be pledges of the Fund’s assets); |
4. |
Purchase a security (other
than obligations of the U.S. government, its agencies or instrumentalities) if as a result 25% or more of its total assets would be invested in a single issuer. (This restriction applies to the iShares MSCI Singapore Index Fund only); |
5. |
Purchase, hold or deal in
real estate, or oil, gas or mineral interests or leases, but a Fund may purchase and sell securities that are issued by companies that invest or deal in such assets; |
6. |
Act as an underwriter of
securities of other issuers, except to the extent the Fund may be deemed an underwriter in connection with the sale of securities in its portfolio; |
7. |
Purchase securities on
margin, except for such short-term credits as are necessary for the clearance of transactions, except that a Fund may make margin deposits in connection with transactions in currencies, options, futures and options on futures; |
8. |
Sell securities short; or
|
9. |
Invest in commodities or
commodity contracts, except that a Fund may buy and sell currencies and forward contracts with respect thereto, and may transact in futures contracts on securities, stock indices and currencies and options on such futures contracts and make margin
deposits in connection with such contracts. |
The iShares MSCI Austria Capped Investable Market Index Fund,
iShares MSCI Belgium Capped Investable Market Index Fund, iShares MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Italy Capped Index Fund, iShares
MSCI Japan Index Fund, iShares MSCI Mexico Capped Investable Market Index Fund,
iShares MSCI Spain Capped Index Fund, iShares MSCI Sweden Index Fund and iShares MSCI United Kingdom Index Fund will not:
1. |
Make loans, except as
permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time; |
2. |
Issue any senior security,
except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time; |
3. |
Pledge, hypothecate, mortgage
or otherwise encumber its assets, except to secure permitted borrowings. (The deposit of underlying securities and other assets in escrow and collateral arrangements with respect to initial or variation margin for currency transactions and futures
contracts will not be deemed to be pledges of the Fund’s assets); |
4. |
Purchase, hold or deal in
real estate, or oil, gas or mineral interests or leases, but a Fund may purchase and sell securities that are issued by companies that invest or deal in such assets; |
5. |
Act as an underwriter of
securities of other issuers, except to the extent the Fund may be deemed an underwriter in connection with the sale of securities in its portfolio; |
6. |
Purchase securities on
margin, except for such short-term credits as are necessary for the clearance of transactions, except that a Fund may make margin deposits in connection with transactions in currencies, options, futures and options on futures; |
7. |
Sell securities short; or
|
8. |
Invest in commodities or
commodity contracts, except that a Fund may buy and sell currencies and forward contracts with respect thereto, and may transact in futures contracts on securities, stock indices and currencies and options on such futures contracts and make margin
deposits in connection with such contracts. |
The iShares MSCI Emerging Markets Eastern Europe Index Fund,
iShares MSCI Global Gold Miners Fund, iShares MSCI Global Silver Miners Fund, iShares MSCI Israel Capped Investable Market Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Thailand Capped Investable Market Index Fund, iShares MSCI
Turkey Investable Market Index Fund, iShares MSCI USA Index Fund and iShares MSCI World Index Fund will not:
1. |
Concentrate its investments (i.e., invest 25% or more of its total assets in the securities of a particular industry or group of industries), except that a Fund will concentrate to approximately the same extent that its Underlying Index
concentrates in the securities of such particular industry or group of industries. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal governments and their political subdivisions are not considered to be issued by members of any industry; |
2. |
Borrow money, except that (i)
each Fund may borrow from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might otherwise require the untimely disposition of securities, and (ii) each Fund may, to the extent consistent
with its investment policies, enter into repurchase agreements, reverse repurchase agreements, forward roll transactions and similar investment strategies and techniques; |
|
To the extent that it engages
in transactions described in (i) and (ii), each Fund will be limited so that no more than 33 1/3% of the value of its total assets (including the amount borrowed) is derived from such transactions. Any borrowings which come to exceed this amount
will be reduced in accordance with applicable law; |
3. |
Issue any senior security,
except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time; |
4. |
Make loans, except as
permitted under the 1940 Act, as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time; |
5. |
Purchase or sell real estate
unless acquired as a result of ownership of securities or other investments (but this restriction shall not prevent each Fund from investing in securities of companies engaged in the real estate business or |
|
securities or other
instruments backed by real estate or mortgages), or commodities or commodity contracts (but this restriction shall not prevent each Fund from trading in futures contracts and options on futures contracts, including options on currencies to the
extent consistent with each Fund's investment objectives and policies); or |
6. |
Engage in the business of
underwriting securities issued by other persons, except to the extent that each Fund may technically be deemed to be an underwriter under the 1933 Act, the disposing of portfolio securities. |
Industry concentration. The
iShares MSCI Singapore Index Fund has the following concentration policy: With respect to the two most heavily weighted industries or groups of industries in its benchmark MSCI Index, the Fund will invest in securities (consistent with its
investment objective and other investment policies) so that the weighting of each such industry or group of industries in the Fund does not diverge by more than 10% from the respective weighting of such industry or group of industries in its
benchmark MSCI Index. An exception to this policy is that if investment in the stock of a single issuer would account for more than 25% of the Fund, the Fund will invest less than 25% of its net assets in such stock and will reallocate the excess to
stock(s) in the same industry or group of industries, and/or to stock(s) in another industry or group of industries, in its benchmark MSCI Index. The Fund will evaluate these industry weightings at least weekly, and at the time of evaluation will
adjust its portfolio composition to the extent necessary to maintain compliance with the above policy. The Fund may not concentrate its investments except as discussed above. The Board has adopted this policy as fundamental, which means that it may
not be changed with respect to a Fund without the approval of the holders of a majority of the Fund's outstanding voting securities.
As of September 30, 2012, the following Fund was concentrated (i.e., invested 25% or more of its total assets) in the specified industry, which is approximately the same extent that the Fund's Underlying Index was concentrated:
Fund
|
|
Industry
or Industries |
iShares
MSCI Singapore Index Fund |
|
Banks
|
Each of the iShares MSCI Australia
Index Fund, iShares MSCI Austria Capped Investable Market Index Fund, iShares MSCI Belgium Capped Investable Market Index Fund, iShares MSCI Canada 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 Global Gold Miners Fund, iShares MSCI Global Silver Miners Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI Israel Capped Investable Market Index Fund, iShares MSCI
Italy Capped Index Fund, iShares MSCI Japan Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Mexico Capped Investable Market Index Fund, iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI Pacific ex-Japan Index
Fund, iShares MSCI South Africa Index Fund, iShares MSCI Spain Capped Index Fund, iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Capped Index Fund, iShares MSCI Thailand Capped Investable Market Index Fund, iShares MSCI Turkey Investable
Market Index Fund, iShares MSCI United Kingdom Index Fund, iShares MSCI USA Index Fund and iShares MSCI World Index Fund will not concentrate its investments (i.e., hold 25% or more of its total assets in the
stocks of a particular industry or group of industries), except that, to the extent practicable, the Fund will concentrate to approximately the same extent that its benchmark MSCI Index concentrates in the stocks of such particular industry or group
of industries, provided that the Fund will comply with the diversification requirements of the Internal Revenue Code applicable to RICs, any underlying Treasury regulations or any successor provision.
As of September 30, 2012, each of the following Funds was
concentrated (i.e., held 25% or more of its total assets) in the specified industries, which is approximately the same extent that the Funds Underlying Indexes are concentrated:
Fund
|
|
Industry
or Industries |
iShares
MSCI Australia Index Fund |
|
Banks
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
Beverages
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
|
Oil
& Gas |
iShares
MSCI Global Gold Miners Fund |
|
Mining
|
iShares
MSCI Global Silver Miners Fund |
|
Mining
|
Fund
|
|
Industry
or Industries |
iShares
MSCI Netherlands Investable Market Index Fund |
|
Food
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
Banks
|
iShares
MSCI Singapore Index Fund |
|
Banks
|
iShares
MSCI Spain Capped Index Fund |
|
Banks
|
iShares
MSCI Switzerland Capped Index Fund |
|
Pharmaceuticals
|
iShares
MSCI Switzerland Capped Index Fund |
|
Food
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
Banks
|
iShares
MSCI Turkey Investable Market Index Fund |
|
Banks
|
In addition to the investment
limitations adopted as fundamental as set forth above, each Fund observes the following restrictions, which may be changed by the Board without a shareholder vote. A Fund will not:
1. |
Invest in the securities of
a company for the purpose of exercising management or control, or in any event purchase and hold more than 10% of the securities of a single issuer, provided that the Company may vote the investment securities owned by each Fund in accordance with
its views; or |
2. |
Hold illiquid assets in
excess of 15% of its net assets. An illiquid asset is any asset which may not be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the Fund has valued the investment. |
For purposes of the percentage limitation on each Fund's
investments in illiquid securities, foreign equity securities, though not registered under the 1933 Act, are not deemed illiquid with respect to each Fund if they are otherwise readily marketable. Such securities ordinarily are considered to be
“readily marketable” if they are traded on an exchange or other organized market and are not legally restricted from sale by the Fund. BFA monitors the liquidity of restricted securities in each Fund's portfolio. In reaching liquidity
decisions, BFA considers the following factors:
1. |
The frequency of trades and
quotes for the security; |
2. |
The number of dealers
wishing to purchase or sell the security and the number of other potential purchasers; |
3. |
Dealer undertakings to make
a market in the security; and |
4. |
The nature of the security
and the nature of the marketplace in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). |
If any percentage restriction described above is complied with
to at the time of investment, a later increase or decrease in percentage resulting from any change in value or total or net assets will not constitute in a violation of such restriction, except that certain percentage limitations will be observed
continuously in accordance with applicable law.
Each
Fund has adopted a non-fundamental investment policy in accordance with Rule 35d-1 under the 1940 Act to invest, under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in
securities, and in ADRs based on securities, in its Underlying Index. Each Fund also has adopted a policy to provide its shareholders with at least 60 days' prior written notice of any change in such policy. If, subsequent to an investment, the 80%
requirement is no longer met, a Fund's future investments will be made in a manner that will bring the Fund into compliance with this policy.
Each Fund has adopted a non-fundamental limitation such that,
under normal market conditions, any borrowings by the Fund will not exceed 10% of the Fund's net assets.
Each Fund may not purchase securities of other investment
companies, except to the extent permitted by the Investment Company Act. As a matter of policy, however, a Fund will not purchase shares of any registered open-end investment company or registered unit investment trust, in reliance on Section
12(d)(1)(F) or (G) (the “fund of funds” provisions) of the Investment Company Act, at any time the Fund has knowledge that its shares are purchased by another investment company investor in reliance on the provisions of subparagraph (G)
of Section 12(d)(1).
Continuous Offering
The method by which Creation Units are created and traded may
raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by the Funds on an ongoing basis, at any point a “distribution,” as such term is used in the 1933 Act, may occur. Broker-dealers and
other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner that could render them statutory underwriters and subject them to the
prospectus delivery requirement and liability provisions of the 1933 Act.
For example, a broker-dealer firm or its client may be deemed
a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent shares and sells such shares directly to customers or if it chooses to couple the creation of new shares with an active
selling effort involving solicitation of secondary market demand for shares. A determination of whether one is an underwriter for purposes of the 1933 Act must take into account all the facts and circumstances pertaining to the activities of the
broker-dealer or its client in the particular case and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not
“underwriters” but are effecting transactions in shares, whether or not participating in the distribution of shares, generally are required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the
1933 Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus delivery obligation with respect to shares of the Funds are reminded that, pursuant to Rule 153 under the 1933 Act,
a prospectus delivery obligation under Section 5(b)(2) of the 1933 Act owed to an exchange member in connection with a sale on the Listing Exchange is satisfied by the fact that the prospectus is available at the Listing Exchange upon request. The
prospectus delivery mechanism provided in Rule 153 is available only with respect to transactions on an exchange.
Management
Directors and Officers.
The Board has responsibility for the overall management and operations of the Funds, 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, Chief Compliance Officer, 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) of the Company are referred to as independent directors (“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 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 284 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 this SAI, which is available without charge, upon request, by calling toll-free 1-800-iShares (1-800-474-2737).
Interested Directors
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
Robert
S. Kapito1 (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). |
|
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); Director of BlackRock, Inc. (since 2007). |
|
Michael
Latham2 (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 of 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). |
|
1 |
Robert S. Kapito is deemed to
be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
2 |
Michael Latham is deemed to
be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
Independent Directors
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
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 Paine 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 Trust, iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S.
ETF Trust (since 2012). |
|
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 2000); 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). |
|
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). |
|
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 (2002-2011) and Chair of the Finance and Investment Committee (2006-2010) the Thacher School; Member (since 1994) and Chair (1994-2005) of the
Investment Committee, Archdiocese of San Francisco; Trustee and Member of the Investment Committee (since 2011), WNET, the New York public broadcasting company. |
|
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, Forward Funds (34 portfolios) (since 2009). |
|
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
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). |
|
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). |
|
Officers
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
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). |
|
Eilleen
M. Clavere (60) |
|
Secretary
(since 2007). |
|
Director
of Global Fund Administration, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc.
(2005-2006); Counsel of Kirkpatrick & Lockhart LLP (2001-2005). |
|
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Edward
B. Baer (44) |
|
Vice
President and Chief Legal Officer (since 2012). |
|
Managing
Director of Legal & Compliance, BlackRock (since 2006); Director of Legal & Compliance, BlackRock (2004-2006). |
|
Scott
Radell (44) |
|
Executive
Vice President (since 2012). |
|
Managing
Director, BlackRock (since 2009); Head of Portfolio Solutions, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007); Credit Research Analyst, BGI (2003-2005). |
|
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); Head of Domestic Equity Portfolio Management, BGI (2001-2006). |
|
Ira
P. Shapiro (49) |
|
Vice
President (since 2007). |
|
Managing
Director, BlackRock (since 2009); Chief Legal Officer, Exchange-Traded Fund Complex (2007-2012); Associate General Counsel, BGI (2004-2009). |
|
The Board has concluded that, based on each Director’s
experience, qualifications, attributes or skills on an individual basis and in combination with those of the other Directors, each Director should serve as a Director of the Board. Among the attributes common to all Directors are their ability to
review critically, evaluate, question and discuss information provided to them, to interact effectively with the Funds' investment adviser, other service providers, counsel and the independent registered public accounting firm, and to exercise
effective business judgment in the performance of their duties as Directors. A Director’s ability to perform his or her duties effectively may have been attained through the Director’s educational background or professional training;
business, consulting, public service or academic positions; experience from service as a board member of the Funds and the other funds in the Company (and any predecessor funds), other investment funds, public companies, or non-profit entities or
other organizations; and/or other life experiences. Also, set forth below is a brief discussion of the specific experience, qualifications, attributes or skills of each Director that led the Board to conclude that he or she should serve as a
Director.
Robert Kapito has been a Director of the
Company since 2009. Mr. Kapito has served as a Trustee of iShares Trust since 2009, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a Trustee of iShares U.S. ETF Trust since 2011 and a Director of BlackRock, Inc. since 2007. In
addition, he has over 20 years of experience as part of BlackRock, Inc. and BlackRock’s predecessor entities. Mr. Kapito serves as President and Director of BlackRock, Inc., and is the Chairman of the Operating Committee, a member of the
Office of the Chairman, the Leadership Committee and the Corporate Council. He is responsible for day-to-day oversight of BlackRock's key operating units, including the Account Management and Portfolio Management Groups, Real Estate Group and
BlackRock Solutions®. Prior to assuming his current responsibilities in 2007, Mr. Kapito served as Head of BlackRock's Portfolio Management Group. In that role, he was responsible for
overseeing all portfolio management within BlackRock, including the Fixed-Income, Equity, Liquidity, and Alternative Investment Groups. Mr. Kapito serves as a member of the Board of Trustees of the University of Pennsylvania. He has also been
President of the Board of Directors for the Hope & Heroes Children's Cancer Fund since 2002 and President of the Board of Directors for Periwinkle Theatre for Youth, a national non-profit arts-in-education organization, since 1983. Mr. Kapito
earned a BS degree in economics from the Wharton School of the University of Pennsylvania in 1979, and an MBA degree from Harvard Business School in 1983.
Michael Latham has been a Director of the Company since 2010
and President of the Company since 2007. Mr. Latham served as Principal Financial Officer of the Company from 2002 until 2007. Mr. Latham has served as a Trustee of iShares
Trust since 2010, President of iShares Trust since 2007, Principal Financial
Officer of iShares Trust from 2002 until 2007, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, President of iShares MSCI Russia Capped Index Fund, Inc. since 2010, and a Trustee and President of iShares U.S. ETF Trust since
2011. Mr. Latham is the Chairman of BlackRock’s iShares exchange-traded fund business. In addition, he has over 15 years of experience as part of BlackRock, Inc. and BlackRock’s predecessor entities. Prior to assuming his current
responsibilities in September 2011, he was the global head of BlackRock's iShares exchange-traded fund business. Prior to April 2009, he was head of BlackRock's iShares exchange-traded fund business for the United States and Canada, and Chief
Operating Officer for the U.S. iShares business. He previously held a variety of operating positions within the firm. Mr. Latham earned a BS degree in business administration from California State University at San Francisco in 1988.
Robert H. Silver has been a Director of the Company since 2007
and Chairman of the Company's Board since 2012. Mr. Silver has served as a Trustee of iShares Trust since 2007, Chairman of iShares Trust's Board since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chairman of iShares
MSCI Russia Capped Index Fund, Inc.'s Board since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chairman of iShares U.S. ETF Trust's Board since 2012. Mr. Silver is President and a Co-Founder of The Bravitas Group Inc., a firm dedicated
to advising and investing in emerging business enterprises and to supporting philanthropic activities that benefit under-served urban youth. Previously, Mr. Silver served as the President and Chief Operating Officer of UBS Financial Services Inc.
(formerly Paine Webber Inc.), the registered broker dealer comprising the Wealth Management USA business unit of UBS AG, including the following responsibilities: President of Paine Webber Services, Director of Retail Products and Marketing,
Director of Private Client Group Branch Offices, Director of Finance and Controls for Paine Webber, Inc. and Chief Administrative Officer for Paine Webber Private Client Group. Mr. Silver also served on the Board of Directors of EPAM Systems, Inc.,
a provider of software engineering outsourcing services in Central and Eastern Europe, served on the Board and Executive Committee of the Depository Trust and Clearing Corporation (DTCC), chaired the National Securities Clearing Corporations’
Membership and Risk Committee and served as Governor of the Philadelphia Stock Exchange. In addition, Mr. Silver was a Vice Chairman and a Member of the Board of Directors for the YMCA of Greater New York and chaired its Fund Development Committee
from 2001 until 2011 and Co-Founder and Vice President of Parentgiving Inc. since 2008. Mr. Silver began his career as a CPA and Audit Manager at KPMG LLP (formerly Peat Marwick Mitchell) from 1977 until 1983. Mr. Silver has a BS degree in business
administration from the University of North Carolina.
George G.C. Parker has been a Director of the Company since
2002. Mr. Parker served as Chair of the Company's Board from 2010 until 2012, Lead Independent Director of the Company from 2006 until 2010 and Chair of the Nominating and Governance Committee of the Company from 2002 until 2010. Mr. Parker has
served as a Trustee of iShares Trust since 2000, Chair of iShares Trust's Board from 2010 until 2012, Lead Independent Trustee of iShares Trust from 2006 until 2010, Chair of the Nominating and Governance Committee of iShares Trust from 2002 until
2010, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of iShares MSCI Russia Capped Index Fund, Inc.'s Board from 2010 until 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of iShares U.S. ETF Trust's Board
from 2011 until 2012. Mr. Parker also serves as Director on four other boards. Mr. Parker is the Dean Witter Distinguished Professor of Finance, Emeritus, at the Stanford University Graduate School of Business. He teaches courses in Corporate
Finance in the MBA Program, Stanford Sloan Program for Executives, and in various other Executive Education Programs at Stanford University. Mr. Parker's teaching and research interests are primarily in the field of corporate finance, management of
financial institutions, and corporate governance, and he has written numerous case studies related to these subjects. He has also authored several articles on capital structure, risk management, and corporate valuation. Mr. Parker previously served
as a Director of Continental Airlines and a Director of NETGEAR, Inc. Mr. Parker holds MBA and Ph.D. degrees from the Stanford University Graduate School of Business.
John E. Martinez has been a Director of the Company since 2003
and Chair of the Securities Lending Committee of the Company since 2012. Mr. Martinez has served as a Trustee of iShares Trust since 2003, Chair of the Securities Lending Committee of iShares Trust since 2012, a Director of iShares MSCI Russia
Capped Index Fund, Inc. since 2010, Chair of the Securities Lending Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Securities Lending Committee of iShares U.S. ETF
Trust since 2012. Mr. Martinez is a Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.), providing governance oversight and consulting services to this privately held firm that develops products and strategies for homeowners in managing
the equity in their homes. Mr. Martinez previously served as Director of Barclays Global Investors (BGI) UK Holdings, where he provided governance oversight representing BGI’s shareholders (Barclays PLC, BGI management shareholders) through
oversight of BGI’s worldwide activities. Mr. Martinez also previously served as Co-Chief Executive Officer of the Global Index and Markets Group of BGI, Chairman of Barclays Global Investor Services and Chief Executive Officer of the Capital
Markets Group of BGI. Since
2003, he is a Director and Executive Committee Member for Larkin Street Youth
Services, providing governance oversight and strategy development to an agency that provides emergency and transitional housing, healthcare, education, job and life skills training to homeless youth. Mr. Martinez has an AB degree in economics from
The University of California, Berkeley and holds an MBA degree in finance and statistics from The University of Chicago Booth School of Business.
Cecilia H. Herbert has been a Director of the Company since
2005 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of the Company since 2012. Ms. Herbert has served as a Trustee of iShares Trust since 2005, Chair of the Nominating and Governance Committee and the Equity Plus
Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a
Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares U.S. ETF Trust since 2012. She is Director of the Board of the Catholic Charities CYO, one of the Bay
Area’s largest private social services organizations serving the homeless, poor, aged, families, children and AIDS/HIV victims, on which she has served since 1998. Ms. Herbert is a member of the Investment Committee, Archdiocese of San
Francisco since 1992, which she chaired from 1994 to 2005. She has served on numerous non-profit boards. Ms. Herbert is also a Director and Advisory Board Member since 2009 of the Forward Funds. Ms. Herbert previously served as a Trustee for the
Pacific Select Funds and The Montgomery Funds. Ms. Herbert previously served as Managing Director of J.P. Morgan/Morgan Guaranty Trust Company responsible for product development, marketing and credit for U.S. multinational corporations and as head
of its San Francisco office and as Assistant Vice President, Signet Banking Corporation. Ms. Herbert has a BA degree in economics and communications from Stanford University and an MBA degree in finance from Harvard Business School.
Charles A. Hurty has been a Director of the Company since 2005
and Chair of the Audit Committee of the Company since 2006. Mr. Hurty has served as a Trustee of iShares Trust since 2005, Chair of the Audit Committee of iShares Trust since 2006, a Director of iShares MSCI Russia Capped Index Fund, Inc. since
2010, Chair of the Audit Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Audit Committee of iShares U.S. ETF Trust since 2011. In addition, Mr. Hurty serves as
Director of the GMAM Absolute Return Strategy Fund since 2002, Director of the SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (formerly, Citigroup Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC) since 2002
and was a Director of the CSFB Alternative Investment Funds from 2005 to December 2009, when the funds were liquidated. Mr. Hurty was formerly a Partner at KPMG, LLP from 1968 to 2001. Mr. Hurty has a BS degree in accounting from the University of
Kansas.
John E. Kerrigan has been a Director of the
Company since 2005 and Chair of the Fixed Income Plus Committee of the Company since 2012. Mr. Kerrigan served as Chair of the Nominating and Governance Committee of the Company from 2010 until 2012. Mr. Kerrigan has served as a Trustee of iShares
Trust since 2005, Chair of the Fixed Income Plus Committee of iShares Trust since 2012, Chair of the Nominating and Governance Committee of iShares Trust from 2010 until 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010,
Chair of the Fixed Income Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, Chair of the Nominating and Governance Committee of iShares MSCI Russia Capped Index Fund, Inc. from 2010 until 2012, Trustee of iShares U.S. ETF
Trust since 2011, Chair of the Fixed Income Plus Committee of iShares U.S. ETF Trust since 2012 and Chair of the Nominating and Governance Committee of iShares U.S. ETF Trust from 2011 until 2012. Mr. Kerrigan serves as Chief Investment Officer,
Santa Clara University since 2002. Mr. Kerrigan was formerly a Managing Director at Merrill Lynch & Co., including the following responsibilities: Global Manager of Institutional Client Division eCommerce, Global Manager of Technology
Specialists Sales and Chair, Performance Measurement, Evaluation & Compensation Task Force. Mr. Kerrigan is a Trustee, since 2008, of Sacred Heart Schools, Atherton, CA, and Director, since 1999, of The BASIC Fund (Bay Area Scholarships for
Inner City Children). Mr. Kerrigan has a BA degree from Boston College and is a Chartered Financial Analyst.
Madhav V. Rajan has been a Director of the Company since 2011
and Chair of the 15(c) Committee of the Company since 2012. Mr. Rajan has served as a Trustee of iShares Trust since 2011, Chair of the 15(c) Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since
2011, Chair of the 15(c) Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the 15(c) Committee of iShares U.S. ETF Trust since 2012. Mr. Rajan is the Robert K. Jaedicke
Professor of Accounting at the Stanford University Graduate School of Business. He has taught accounting for over 20 years to undergraduate, MBA and law students, as well as to senior executives. Mr. Rajan serves as the Senior Associate Dean for
Academic Affairs and head of the MBA Program at the Stanford University Graduate School of Business. Mr. Rajan served as editor of “The Accounting Review” from 2002 to 2008 and is co-author of “Cost Accounting: A Managerial
Emphasis,” a leading cost accounting textbook. Mr. Rajan holds MS, MBA and Ph.D. degrees in accounting from Carnegie Mellon University.
Board –
Leadership Structure and Oversight Responsibilities
Overall responsibility for oversight of the Funds rests with
the Board. The Board has engaged BFA to manage the Funds on a day-to-day basis. The Board is responsible for overseeing BFA and other service providers in the operations of the Funds in accordance with the provisions of the 1940 Act, applicable
provisions of state and other laws and the Company’s charter. The Board is currently composed of nine members, seven of whom are Independent Directors. The Board currently conducts regular meetings four times a year. In addition, the Board
frequently holds special in-person or telephonic meetings or informal conference calls to discuss specific matters that may arise or require action between regular meetings. The Independent Directors meet regularly outside the presence of
management, in executive session or with other service providers to the Company.
The Board has appointed an Independent Director to serve in the
role of Chairman. The Chairman’s role is to preside at all meetings of the Board and to act as a liaison with service providers, officers, attorneys, and other Directors generally between meetings. The Chairman may also perform such other
functions as may be delegated by the Board from time to time. The Board has established six standing Committees: a Nominating and Governance Committee, an Audit Committee, a 15(c) Committee, a Securities Lending Committee, an Equity Plus Committee
and a Fixed Income Plus Committee to assist the Board in the oversight and direction of the business and affairs of the Funds, and from time to time may establish ad-hoc committees or informal working groups to review and address the policies and
practices of the Funds with respect to certain specified matters. The Chair of each standing Committee is an Independent Director. The role of the Chair of each Committee is to preside at all meetings of the Committee and to act as a liaison with
service providers, officers, attorneys and other Directors between meetings. Each Committee meets regularly to conduct the oversight functions delegated to the Committee by the Board and reports its finding to the Board. The Board and each standing
Committee conduct annual assessments of their oversight function and structure. The Board has determined that the Board’s leadership structure is appropriate because it allows the Board to exercise independent judgment over management and it
allocates areas of responsibility among committees of Independent Directors and the full Board to enhance effective oversight.
Day-to-day risk management with respect to the Funds is the
responsibility of BFA or other service providers (depending on the nature of the risk), subject to the supervision of BFA. Each Fund is subject to a number of risks, including investment, compliance, operational and valuation risks, among others.
While there are a number of risk management functions performed by BFA and other service providers, as applicable, it is not possible to eliminate all of the risks applicable to the Fund. The Directors have an oversight role in this area, satisfying
themselves that risk management processes are in place and operating effectively. Risk oversight forms part of the Board’s general oversight of each Fund and is addressed as part of various Board and committee activities. The Board, directly
or through a committee, also reviews reports from, among others, management and the independent registered public accounting firm for the Company, as appropriate, regarding risks faced by each Fund and management’s risk functions. The Board
has appointed a Chief Compliance Officer who oversees the implementation and testing of the Company's compliance program and reports to the Board regarding compliance matters for the Company and its principal service providers. In testing and
maintaining the compliance program, the Chief Compliance Officer assesses key compliance risks affecting each Fund, and addresses them in reports to the Board. The Independent Directors have engaged independent legal counsel to assist them in
performing their oversight responsibilities.
Committees of
the Board of Directors. Each Independent Director serves on the Audit Committee. The Chair of the Audit Committee is Charles A. Hurty. The purposes of the Audit Committee are to assist the Board (i) in its
oversight of the Company's accounting and financial reporting principles and policies and related controls and procedures maintained by or on behalf of the Company; (ii) in its oversight of the Company's financial statements and the independent
audit thereof; (iii) in selecting, evaluating and, where deemed appropriate, replacing the independent accountants (or nominating the independent accountants to be proposed for shareholder approval in any proxy statement); (iv) in evaluating the
independence of the independent accountants; (v) in complying with legal and regulatory requirements that relate to the Company's accounting and financial reporting, internal controls and independent audits; and (vi) to assume such other
responsibilities as may be delegated by the Board. The Audit Committee met four times during the fiscal year ended August 31, 2012.
The members of the Nominating and Governance Committee are
Cecilia H. Herbert (Chair), Charles A. Hurty, Madhav V. Rajan and John E. Kerrigan, all of whom are Independent Directors. The Nominating and Governance Committee nominates individuals for Independent Director membership on the Board. The Nominating
and Governance Committee functions include, but are not limited to, the following: (i) reviewing the qualifications of any person properly identified or nominated to serve as an Independent Director; (ii) recommending to the Board and current
Independent Directors the nominee(s) for
appointment as an Independent Director by the Board and current Independent
Directors and/or for election as Independent Directors by shareholders to fill any vacancy for a position of Independent Director(s) on the Board; (iii) recommending to the Board and current Independent Directors the size and composition of the
Board and Board committees and whether they comply with applicable laws and regulations; (iv) recommending a current Independent Director to the Board and current Independent Directors to serve as Lead Independent Director; (v) periodic review of
the Board's retirement policy; and (vi) recommending an appropriate level of compensation for the Independent Directors for their services as Directors, members or chairpersons of committees of the Board, Lead Independent Director, Chairperson of
the Board and any other positions as the Nominating and Governance Committee considers appropriate. The Nominating and Governance Committee does not consider Board nominations recommended by shareholders (acting solely in their capacity as a
shareholder and not in any other capacity). The Nominating and Governance Committee met four times during the fiscal year ended August 31, 2012.
The members of the 15(c) Committee are Madhav V. Rajan (Chair),
Cecilia H. Herbert, Charles A. Hurty and John E. Martinez, all of whom are Independent Directors. The principal responsibilities of the 15(c) Committee are to support, oversee and organize on behalf of the Board the process for the annual review and
renewal of the Company's advisory and sub-advisory agreements. These responsibilities include: (i) meeting with BlackRock, Inc. in advance of the Board meeting at which the Company's advisory and sub-advisory agreements are to be considered to
discuss generally the process for providing requested information to the Board and the format in which information will be provided; and (ii) considering and discussing with BlackRock, Inc. such other matters and information as may be necessary and
appropriate for the Board to evaluate the investment advisory and sub-advisory agreements of the Company. The 15(c) Committee met four times during the fiscal year ended August 31, 2012.
The members of the Securities Lending Committee are John E.
Martinez (Chair), John E. Kerrigan and George G.C. Parker, all of whom are Independent Directors. The principal responsibilities of the Securities Lending Committee are to support, oversee and organize on behalf of the Board the process for
oversight of the Company's securities lending activities. These responsibilities include: (i) requesting that certain information be provided to the Committee for its review and consideration prior to such information being provided to the Board;
(ii) considering and discussing with BlackRock, Inc. such other matters and information as may be necessary and appropriate for the Board to oversee the Company's securities lending activities and make required findings and approvals; and (iii)
providing a recommendation to the Board regarding the annual approval of the Company's Securities Lending Guidelines and the required findings with respect to, and annual approval of, the Company's agreement with the lending agent. The Securities
Lending Committee met two times during the fiscal year ended August 31, 2012.
The members of the Equity Plus Committee are Cecilia H. Herbert
(Chair), John E. Martinez and George G.C. Parker, all of whom are Independent Directors. The principal responsibilities of the Equity Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of Company
performance and related matters for equity funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters that should be brought to the
attention of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as appropriate. The Equity Plus
Committee met one time during the fiscal year ended August 31, 2012.
The members of the Fixed Income Plus Committee are John E.
Kerrigan (Chair), Charles A. Hurty and Madhav V. Rajan, all of whom are Independent Directors. The principal responsibilities of the Fixed Income Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of
Company performance and related matters for fixed income or multi-asset funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters
that should be brought to the attention of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as
appropriate. The Fixed Income Plus Committee met one time during the fiscal year ended August 31, 2012.
As the Chairman of the Board, Robert H. Silver may participate
in each Committee's meetings.
The following table sets
forth, as of December 31, 2011, the dollar range of equity securities beneficially owned by each Director in the Funds and in other registered investment companies overseen by the Director within the same family of investment companies as the
Company. If a fund is not listed below, the Director did not own any securities in that fund as of the date indicated above:
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
Robert
S. Kapito |
|
iShares
Dow Jones U.S. Real Estate Index Fund |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
MSCI Australia Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI Brazil Capped Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Canada Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Japan Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
FTSE China 25 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Growth Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell Midcap Index Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Michael
Latham |
|
iShares
MSCI ACWI ex US Index Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
MSCI EAFE Small Cap Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 3000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell Microcap Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P California AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P National AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
iShares
Barclays 1-3 Year Credit Bond Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
Barclays 1-3 Year Treasury Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core Total U.S. Bond Market ETF |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Broker-Dealers Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Dow Jones U.S. Financial Services Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Regional Banks Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
High Dividend Equity Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
Over
$100,000 |
|
|
|
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
|
|
iShares
MSCI ACWI ex US Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI BRIC Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Russell 1000 Growth Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Growth Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
Russell 2000 Value Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
Russell 3000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Europe 350 Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P U.S. Preferred Stock Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P/Citigroup International Treasury Bond Fund |
|
$1-$10,000
|
|
|
|
|
|
|
|
|
|
|
|
George
G.C. Parker |
|
iShares
Core Total U.S. Bond Market ETF |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
Dow Jones Select Dividend Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P 100 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P California AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
John
E. Martinez |
|
iShares
Barclays TIPS Bond Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
MSCI All Country Asia ex Japan Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Emerging Markets Infrastructure Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Global Consumer Staples Sector Index Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
Cecilia
H. Herbert |
|
iShares
FTSE China 25 Index Fund |
|
$10,001-$50,000
|
|
$10,001-$50,000
|
|
|
|
|
|
|
|
|
|
Charles
A. Hurty |
|
iShares
Dow Jones U.S. Financial Sector Index Fund |
|
$1-$10,000
|
|
Over
$100,000 |
|
|
|
iShares
Dow Jones Select Dividend Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Energy Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Technology Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
FTSE China 25 Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI Japan Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P Global Energy Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P Global Technology Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P North American Technology-Multimedia Networking Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
|
|
|
|
|
|
John
E. Kerrigan |
|
iShares
MSCI ACWI ex US Index Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
S&P Short Term National AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Madhav
V. Rajan |
|
iShares
Dow Jones Select Dividend Index Fund |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
High Dividend Equity Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
$10,001-$50,000
|
|
|
|
As of December 31, 2011, none of the Independent Directors or
their immediate family members owned beneficially or of record any securities of BFA (the Funds' investment adviser), the Distributor or any person controlling, controlled by or under common control with BFA or the Distributor.
Remuneration of Directors.
Each current Independent Director is paid an annual retainer of $275,000 for his or her services as a Board member to the BlackRock-advised Funds in the Exchange-Traded Fund Complex, together with
out-of-pocket expenses in accordance with a Board's policy on travel and other business expenses relating to attendance at meetings. For the period January 1, 2011 through December 31, 2012, each current Independent Director was paid an annual
retainer of $250,000 for his or her services as a Board member to the BlackRock-advised Funds in the Exchange-Traded Fund Complex, together with out-of-pocket expenses in accordance with a Board’s policy on travel and other business expenses
relating to attendance at meetings. The Independent Chairman of the Boards is paid an additional annual retainer of $50,000. The Chair of the Audit Committees is paid an additional annual retainer of $40,000. The Chair of each of the Nominating and
Governance Committees, Equity Plus Committees, Fixed Income Plus Committees, Securities Lending Committees and 15(c) Committees is paid an additional annual retainer of $15,000. Each Independent Director that serves as a director of subsidiaries of
the Exchange-Traded Complex is paid an additional annual retainer of $10,000 (plus an additional $1,765 paid annually to compensate for taxes due in the Republic of Mauritius). Additionally, an Independent Director who travels to the Republic of
Mauritius to attend board meetings is paid an additional $12,000 (plus an additional $2,117 paid annually to compensate for taxes due in the Republic of Mauritius).
The table below sets forth the compensation earned by each
Independent Director and Interested Director from each Fund for the fiscal year ended August 31, 2012 and the aggregate compensation paid to them by the Exchange-Traded Complex for the calendar year ended December 31, 2011.
Directors
|
|
iShares
MSCI Australia Index Fund |
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
iShares
MSCI Canada Index Fund |
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$
1,308 |
|
$28
|
|
$
13 |
|
$
2,230 |
George
G.C. Parker |
|
1,570
|
|
34
|
|
16
|
|
2,677
|
John
E. Kerrigan |
|
1,387
|
|
30
|
|
14
|
|
2,364
|
Charles
A. Hurty |
|
1,518
|
|
33
|
|
15
|
|
2,587
|
Cecilia
H. Herbert |
|
1,308
|
|
28
|
|
13
|
|
2,230
|
Darrell
Duffie3 |
|
327
|
|
7
|
|
3
|
|
558
|
John
E. Martinez |
|
1,308
|
|
28
|
|
13
|
|
2,230
|
Madhav
V. Rajan4 |
|
981
|
|
21
|
|
10
|
|
1,673
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$
0 |
|
$
0 |
|
$
0 |
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
Directors
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
|
iShares
MSCI EMU Index Fund |
|
iShares
MSCI France Index Fund |
|
iShares
MSCI Germany Index Fund |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$
11 |
|
$
417 |
|
$
211 |
|
$
1,468 |
|
George
G.C. Parker |
|
13
|
|
500
|
|
253
|
|
1,761
|
|
John
E. Kerrigan |
|
11
|
|
442
|
|
223
|
|
1,556
|
|
Charles
A. Hurty |
|
13
|
|
483
|
|
244
|
|
1,702
|
|
Cecilia
H. Herbert |
|
11
|
|
417
|
|
211
|
|
1,468
|
|
Darrell
Duffie3 |
|
3
|
|
104
|
|
53
|
|
367
|
|
John
E. Martinez |
|
11
|
|
417
|
|
211
|
|
1,468
|
|
Madhav
V. Rajan4 |
|
8
|
|
313
|
|
158
|
|
1,101
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$
0 |
|
$
0 |
|
$
0 |
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Directors
|
|
iShares
MSCI Global Gold Miners Fund |
|
iShares
MSCI Global Silver Miners Fund |
|
iShares
MSCI Hong Kong Index Fund |
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$
17 |
|
$
1 |
|
$
979 |
|
$36
|
|
George
G.C. Parker |
|
20
|
|
1
|
|
1,175
|
|
43
|
|
John
E. Kerrigan |
|
18
|
|
1
|
|
1,038
|
|
38
|
|
Charles
A. Hurty |
|
20
|
|
1
|
|
1,136
|
|
42
|
|
Cecilia
H. Herbert |
|
17
|
|
1
|
|
979
|
|
36
|
|
Directors
|
|
iShares
MSCI Global Gold Miners Fund |
|
iShares
MSCI Global Silver Miners Fund |
|
iShares
MSCI Hong Kong Index Fund |
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
Darrell
Duffie3 |
|
4
|
|
0
|
|
245
|
|
9
|
|
John
E. Martinez |
|
17
|
|
1
|
|
979
|
|
36
|
|
Madhav
V. Rajan4 |
|
13
|
|
1
|
|
734
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$0
|
|
$
0 |
|
$
0 |
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Directors
|
|
iShares
MSCI Italy Capped Index Fund |
|
iShares
MSCI Japan Index Fund |
|
iShares
MSCI Japan Small Cap Index Fund |
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$
103 |
|
$
2,471 |
|
$22
|
|
$
621 |
|
George
G.C. Parker |
|
124
|
|
2,966
|
|
27
|
|
745
|
|
John
E. Kerrigan |
|
109
|
|
2,620
|
|
24
|
|
658
|
|
Charles
A. Hurty |
|
119
|
|
2,867
|
|
26
|
|
720
|
|
Cecilia
H. Herbert |
|
103
|
|
2,471
|
|
22
|
|
621
|
|
Darrell
Duffie3 |
|
26
|
|
618
|
|
6
|
|
155
|
|
John
E. Martinez |
|
103
|
|
2,471
|
|
22
|
|
621
|
|
Madhav
V. Rajan4 |
|
77
|
|
1,854
|
|
17
|
|
465
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$
0 |
|
$
0 |
|
$
0 |
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Directors
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
iShares
MSCI Singapore Index Fund |
|
iShares
MSCI South Africa Index Fund |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$
41 |
|
$
1,673 |
|
$794
|
|
$
248 |
|
George
G.C. Parker |
|
49
|
|
2,008
|
|
952
|
|
297
|
|
John
E. Kerrigan |
|
44
|
|
1,773
|
|
841
|
|
262
|
|
Charles
A. Hurty |
|
48
|
|
1,941
|
|
921
|
|
287
|
|
Cecilia
H. Herbert |
|
41
|
|
1,673
|
|
794
|
|
248
|
|
Darrell
Duffie3 |
|
10
|
|
418
|
|
198
|
|
62
|
|
John
E. Martinez |
|
41
|
|
1,673
|
|
794
|
|
248
|
|
Madhav
V. Rajan4 |
|
31
|
|
1,255
|
|
595
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$
0 |
|
$
0 |
|
$
0 |
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Directors
|
|
iShares
MSCI Spain Capped Index Fund |
|
iShares
MSCI Sweden Index Fund |
|
iShares
MSCI Switzerland Capped Index Fund |
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$
102 |
|
$
195 |
|
$
291 |
|
$
313 |
George
G.C. Parker |
|
123
|
|
233
|
|
349
|
|
375
|
John
E. Kerrigan |
|
109
|
|
206
|
|
308
|
|
331
|
Charles
A. Hurty |
|
119
|
|
226
|
|
338
|
|
363
|
Cecilia
H. Herbert |
|
102
|
|
195
|
|
291
|
|
313
|
Darrell
Duffie3 |
|
26
|
|
49
|
|
73
|
|
78
|
John
E. Martinez |
|
102
|
|
195
|
|
291
|
|
313
|
Madhav
V. Rajan4 |
|
77
|
|
146
|
|
218
|
|
235
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$
0 |
|
$
0 |
|
$
0 |
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
Directors
|
|
iShares
MSCI Turkey Investable Market Index Fund |
|
iShares
MSCI United Kingdom Index Fund |
|
iShares
MSCI USA Index Fund |
|
iShares
MSCI World Index Fund |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
$295
|
|
$
712 |
|
$
76 |
|
$6
|
|
George
G.C. Parker |
|
353
|
|
854
|
|
92
|
|
7
|
|
John
E. Kerrigan |
|
312
|
|
754
|
|
81
|
|
6
|
|
Charles
A. Hurty |
|
342
|
|
826
|
|
89
|
|
7
|
|
Cecilia
H. Herbert |
|
295
|
|
712
|
|
76
|
|
6
|
|
Darrell
Duffie3 |
|
295
|
|
178
|
|
19
|
|
1
|
|
John
E. Martinez |
|
295
|
|
712
|
|
76
|
|
6
|
|
Madhav
V. Rajan4 |
|
221
|
|
534
|
|
57
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$
0 |
|
$
0 |
|
$0
|
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Directors
|
|
Pension
or Retirement Benefits Accrued As Part of Company Expenses1 |
|
Estimated
Annual Benefits Upon Retirement1 |
|
Total
Compensation From the Funds and Fund Complex2 |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
Not
Applicable |
|
Not
Applicable |
|
$250,000
|
|
George
G.C. Parker |
|
Not
Applicable |
|
Not
Applicable |
|
300,000
|
|
John
E. Kerrigan |
|
Not
Applicable |
|
Not
Applicable |
|
276,765
|
|
Charles
A. Hurty |
|
Not
Applicable |
|
Not
Applicable |
|
290,000
|
|
Cecilia
H. Herbert |
|
Not
Applicable |
|
Not
Applicable |
|
261,765
|
|
Darrell
Duffie3 |
|
Not
Applicable |
|
Not
Applicable |
|
62,500
|
|
John
E. Martinez |
|
Not
Applicable |
|
Not
Applicable |
|
261,765
|
|
Madhav
V. Rajan4 |
|
Not
Applicable |
|
Not
Applicable |
|
187,500
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
Not
Applicable |
|
Not
Applicable |
|
$0
|
|
Michael
Latham |
|
Not
Applicable |
|
Not
Applicable |
|
0
|
|
1 |
No Director or officer is
entitled to any pension or retirement benefits from the Company. |
2 |
Includes compensation for
service on the Board of Trustees of iShares Trust and the Board of Directors of iShares MSCI Russia Capped Index Fund, Inc. |
3 |
Served as Director through
March 19, 2011. |
4 |
Appointed to serve as
Independent Director of the Company effective May 16, 2011. |
Control Persons and Principal Holders of Securities.
The Directors and officers of the Company collectively owned
less than 1% of each of the Funds' outstanding shares as of November 30, 2012.
Although the Company does not have information concerning the
beneficial ownership of shares held in the names of Depository Trust Company (“DTC”) participants (as defined below), as of November 30, 2012, the name and percentage ownership of each DTC participant that owned of record 5% or more of
the outstanding shares of a Fund were as follows:
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
iShares
MSCI Australia Index Fund |
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
12.27%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
8.57%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
8.45%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
6.90%
|
|
|
|
Bank
of America, National Association 411 N. Akard Street 5th Floor Dallas, TX 75201 |
|
5.93%
|
|
|
|
|
|
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
13.44%
|
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
11.21%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
10.48%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
6.48%
|
|
|
|
First
Clearing, LLC 901 East Byrd Street Richmond, VA 23219 |
|
6.09%
|
|
|
|
TD
Ameritrade Clearing, Inc. 1005 N. Ameritrade Place Bellevue, NE 68005 |
|
5.27%
|
|
|
|
|
|
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
Union
Bank of California, N.A. 350 California St. 8th Floor San Francisco, CA 94104 |
|
20.40%
|
|
|
|
First
Clearing, LLC 901 East Byrd Street Richmond, VA 23219 |
|
19.07%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
10.79%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
6.99%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
6.36%
|
|
|
|
|
|
|
|
iShares
MSCI Canada Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
10.23%
|
|
|
|
Deutsche
Bank Securities Inc./Cedear 1251 Avenue of the Americas New York, NY 10020 |
|
8.92%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
8.55%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
7.41%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
6.57%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
6.25%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
6.19%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
5.57%
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
30.65%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
11.17%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
9.72%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
9.06%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
5.70%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
5.48%
|
|
|
|
|
|
|
|
iShares
MSCI EMU Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
27.71%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
23.98%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
7.71%
|
|
|
|
Curian
Clearing, LLC 8055 East Tufts Avenue 10th Floor Denver, CO 80237 |
|
6.76%
|
|
|
|
|
|
|
|
iShares
MSCI France Index Fund |
|
SG
Americas Securities, LLC 480 Washington Boulevard Jersey City, NJ 07310 |
|
15.65%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Deutsche
Bank Securities Inc./Cedear 1251 Avenue of the Americas New York, NY 10020 |
|
12.44%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
11.52%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
9.92%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
8.28%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
7.44%
|
|
|
|
|
|
|
|
iShares
MSCI Germany Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
26.96%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
13.93%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
12.32%
|
|
|
|
Deutsche
Bank Securities Inc./Cedear 1251 Avenue of the Americas New York, NY 10020 |
|
8.19%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
5.63%
|
|
|
|
|
|
|
|
iShares
MSCI Global Gold Miners Fund |
|
LPL
Financial Corporation 9785 Towne Centre Drive San Diego, CA 92121-1968 |
|
54.71%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
24.43%
|
|
|
|
|
|
|
|
iShares
MSCI Global Silver Miners Fund |
|
Merrill
Lynch, Pierce, Fenner & Smith Incorporated 101 Hudson Street 9th Floor Jersey City, NJ 07302-3997 |
|
49.79%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
10.41%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
5.39%
|
|
|
|
|
|
|
|
iShares
MSCI Hong Kong Index Fund |
|
Deutsche
Bank Securities Inc./Cedear 1251 Avenue of the Americas New York, NY 10020 |
|
26.03%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
18.55%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
7.71%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
6.19%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
5.94%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
5.11%
|
|
|
|
|
|
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
14.21%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
11.30%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
7.13%
|
|
|
|
First
Clearing, LLC 901 East Byrd Street Richmond, VA 23219 |
|
6.26%
|
|
|
|
J.P.
Morgan Clearing Corp One Metrotech Center North Brooklyn, NY 11201 |
|
5.72%
|
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
5.61%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
5.13%
|
|
|
|
|
|
|
|
iShares
MSCI Italy Capped Index Fund |
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
36.73%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
10.35%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
7.78%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
5.69%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
5.27%
|
|
|
|
|
|
|
|
iShares
MSCI Japan Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
12.67%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
9.39%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
8.22%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
7.08%
|
|
|
|
Deutsche
Bank Securities Inc./Cedear 1251 Avenue of the Americas New York, NY 10020 |
|
6.38%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
6.02%
|
|
|
|
|
|
|
|
iShares
MSCI Japan Small Cap Index Fund |
|
J.P.
Morgan Clearing Corp One Metrotech Center North Brooklyn, NY 11201 |
|
16.35%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
13.34%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
9.92%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
9.71%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
9.23%
|
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
5.44%
|
|
|
|
|
|
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
19.16%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
9.48%
|
|
|
|
Deutsche
Bank Securities Inc./Cedear 1251 Avenue of the Americas New York, NY 10020 |
|
6.39%
|
|
|
|
First
Clearing, LLC 901 East Byrd Street Richmond, VA 23219 |
|
5.66%
|
|
|
|
|
|
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
12.83%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
10.20%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
9.53%
|
|
|
|
UBS
Financial Services Inc. 1000 Harbor Blvd. 4th Floor Weehawken, NJ 07087 |
|
8.69%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
8.31%
|
|
|
|
|
|
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
17.77%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
10.34%
|
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
5.96%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
5.96%
|
|
|
|
|
|
|
|
iShares
MSCI Singapore Index Fund |
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
14.53%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
9.73%
|
|
|
|
Bank
of America, National Association 411 N. Akard Street 5th Floor Dallas, TX 75201 |
|
8.47%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
8.09%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
6.35%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
6.16%
|
|
|
|
First
Clearing, LLC 901 East Byrd Street Richmond, VA 23219 |
|
5.74%
|
|
|
|
|
|
|
|
iShares
MSCI South Africa Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
11.88%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Northern
Trust Company (The) 801 South Canal Street Chicago, IL 60612 |
|
9.78%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
6.61%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
5.40%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
5.14%
|
|
|
|
|
|
|
|
iShares
MSCI Spain Capped Index Fund |
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
10.85%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
8.78%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
7.80%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
7.42%
|
|
|
|
First
Clearing, LLC 901 East Byrd Street Richmond, VA 23219 |
|
6.85%
|
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
5.53%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
5.35%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
5.26%
|
|
|
|
|
|
|
|
iShares
MSCI Sweden Index Fund |
|
First
Clearing, LLC 901 East Byrd Street Richmond, VA 23219 |
|
12.39%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
10.78%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
9.21%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
7.30%
|
|
|
|
Citibank,
N.A. 3800 Citicorp Center Tampa Building B/Floor 1 Tampa, FL 33610 |
|
7.17%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
6.93%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
6.73%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
6.08%
|
|
|
|
|
|
|
|
iShares
MSCI Switzerland Capped Index Fund |
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
11.37%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
10.28%
|
|
|
|
First
Clearing, LLC 901 East Byrd Street Richmond, VA 23219 |
|
8.14%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
8.04%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
6.67%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
6.13%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Barclays
Capital Inc. /LE 70 Hudson St. Jersey City, NJ 07302 |
|
5.98%
|
|
|
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
5.90%
|
|
|
|
|
|
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
19.54%
|
|
|
|
Northern
Trust Company/United Nations Joint Staff Pension Funds 50 South LaSalle St. Chicago, IL 60675 |
|
12.86%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
7.16%
|
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
5.57%
|
|
|
|
|
|
|
|
iShares
MSCI Turkey Investable Market Index Fund |
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
14.67%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
14.20%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
8.98%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
6.35%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
6.26%
|
|
|
|
|
|
|
|
iShares
MSCI United Kingdom Index Fund |
|
State
Street Bank and Trust Company 1776 Heritage Drive North Quincy, MA 02171 |
|
12.94%
|
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
9.78%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Deutsche
Bank Securities Inc./Cedear 1251 Avenue of the Americas New York, NY 10020 |
|
6.51%
|
|
|
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
6.45%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
5.90%
|
|
|
|
|
|
|
|
iShares
MSCI USA Index Fund |
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
89.71%
|
|
|
|
U.S.
Bank N.A. 1555 North Rivercenter Dr. Suite 302 Milwaukee, WI 53212 |
|
5.15%
|
|
|
|
|
|
|
|
iShares
MSCI World Index Fund |
|
Citigroup
Global Markets Inc. 333 W 34th Street New York, NY 10001-2402 |
|
71.45%
|
|
|
|
RBC
Capital Markets Corporation One Liberty Plaza New York, NY 10006-1446 |
|
5.01%
|
|
Potential Conflicts of Interest. The PNC Financial Services Group, Inc. (“PNC”) has a significant economic interest in BlackRock, Inc., the parent of BFA, the Funds' investment adviser. PNC is considered to be an affiliate of
BlackRock, Inc., under the 1940 Act. Certain activities of BFA, BlackRock, Inc. and their affiliates (collectively, “BlackRock”) and PNC and its affiliates (collectively, “PNC” and together with BlackRock,
“Affiliates”), with respect to the Funds and/or other accounts managed by BlackRock or PNC, may give rise to actual or perceived conflicts of interest such as those described below.
BlackRock is one of the world's largest asset management
firms. PNC is a diversified financial services organization spanning the retail, business and corporate markets. BlackRock and PNC are affiliates of one another under the 1940 Act. BlackRock and PNC and their respective affiliates (including, for
these purposes, their directors, partners, trustees, managing members, officers and employees), including the entities and personnel who may be involved in the investment activities and business operations of a Fund, are engaged worldwide in
businesses, including equity, fixed-income, cash management and alternative investments. These are considerations of which investors in a Fund should be aware, and which may cause conflicts of interest that could disadvantage the Fund and its
shareholders. These activities and interests include potential multiple advisory, transactional, financial and other interests in securities and other instruments that may be purchased or sold by a Fund.
BlackRock and its Affiliates have proprietary interests in,
and may manage or advise with respect to, accounts or funds (including separate accounts and other funds and collective investment vehicles) that have investment objectives similar to those of a Fund and/or that engage in transactions in the same
types of securities, currencies and instruments as the Fund. One or more Affiliates are also major participants in the global currency, equities, swap and fixed-income markets, in each case both on a proprietary basis and for the accounts of
customers. As such, one or more Affiliates are or may be actively engaged in transactions in the same securities, currencies, and instruments in which a Fund invests. Such activities could affect the prices and availability of the securities,
currencies, and instruments in which a Fund invests, which could have an
adverse impact on the Fund's performance. Such transactions, particularly in
respect of most proprietary accounts or customer accounts, will be executed independently of a Fund's transactions and thus at prices or rates that may be more or less favorable than those obtained by the Fund. When BlackRock and its Affiliates
purchase or sell the same assets for their managed accounts, including a Fund, the assets actually purchased or sold may be allocated among the accounts on a basis determined in their good faith discretion to be equitable. In some cases, this system
may adversely affect the size or price of the assets purchased or sold for a Fund. In addition, transactions in investments by one or more other accounts managed by BlackRock or its Affiliates may have the effect of diluting or otherwise
disadvantaging the values, prices or investment strategies of a Fund, particularly, but not limited to, with respect to small capitalization, emerging market or less liquid strategies. This may occur when investment decisions regarding a Fund are
based on research or other information that is also used to support decisions for other accounts. When BlackRock or its Affiliates implements a portfolio decision or strategy on behalf of another account ahead of, or contemporaneously with, similar
decisions or strategies for a Fund, market impact, liquidity constraints, or other factors could result in the Fund receiving less favorable trading results and the costs of implementing such decisions or strategies could be increased or the Fund
could otherwise be disadvantaged. BlackRock or its Affiliates may, in certain cases, elect to implement internal policies and procedures designed to limit such consequences, which may cause a Fund to be unable to engage in certain activities,
including purchasing or disposing of securities, when it might otherwise be desirable for it to do so.
Conflicts may also arise because portfolio decisions regarding
a Fund may benefit other accounts managed by BlackRock or its Affiliates. For example, the sale of a long position or establishment of a short position by a Fund may impair the price of the same security sold short by (and therefore benefit) one or
more Affiliates or their other accounts, and the purchase of a security or covering of a short position in a security by a Fund may increase the price of the same security held by (and therefore benefit) one or more Affiliates or their other
accounts.
BlackRock and its Affiliates and their clients
may pursue or enforce rights with respect to an issuer in which a Fund has invested, and those activities may have an adverse effect on the Fund. As a result, prices, availability, liquidity and terms of a Fund's investments may be negatively
impacted by the activities of BlackRock or its Affiliates or their clients, and transactions for the Fund may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.
The results of a Fund's investment activities may differ
significantly from the results achieved by BlackRock and its Affiliates for their proprietary accounts or other accounts (including investment companies or collective investment vehicles) managed or advised by them. It is possible that one or more
Affiliate-managed accounts and such other accounts will achieve investment results that are substantially more or less favorable than the results achieved by a Fund. Moreover, it is possible that a Fund will sustain losses during periods in which
one or more Affiliate-managed accounts achieve significant profits on their trading for proprietary or other accounts. The opposite result is also possible. The investment activities of one or more Affiliates for their proprietary accounts and
accounts under their management may also limit the investment opportunities for a Fund in certain emerging and other markets in which limitations are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated
foreign investors.
From time to time, a Fund's activities
may also be restricted because of regulatory restrictions applicable to one or more Affiliates, and/or their internal policies designed to comply with such restrictions. As a result, there may be periods, for example, when BlackRock, and/or one or
more Affiliates, will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which BlackRock and/or one or more Affiliates are performing services or when position limits have been reached.
In connection with its management of a Fund, BlackRock may have
access to certain fundamental analysis and proprietary technical models developed by one or more Affiliates. BlackRock will not be under any obligation, however, to effect transactions on behalf of a Fund in accordance with such analysis and models.
In addition, neither BlackRock nor any of its Affiliates will have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for
the benefit of the management of a Fund and it is not anticipated that BlackRock will have access to such information for the purpose of managing the Fund. The proprietary activities or portfolio strategies of BlackRock and its Affiliates, or the
activities or strategies used for accounts managed by them or other customer accounts could conflict with the transactions and strategies employed by BlackRock in managing a Fund.
In addition, certain principals and certain employees of
BlackRock are also principals or employees of Affiliates. As a result, the performance by these principals and employees of their obligations to such other entities may be a consideration of which investors in a Fund should be aware.
BlackRock may enter into transactions and invest in securities,
instruments and currencies on behalf of a Fund in which customers of BlackRock or its Affiliates, or, to the extent permitted by the SEC, BlackRock or another Affiliate, serves as the counterparty, principal or issuer. In such cases, such party's
interests in the transaction will be adverse to the interests of the Fund, and such party may have no incentive to assure that the Fund obtains the best possible prices or terms in connection with the transactions. In addition, the purchase, holding
and sale of such investments by a Fund may enhance the profitability of BlackRock or its Affiliates. One or more Affiliates may also create, write or issue derivatives for their customers, the underlying securities, currencies or instruments of
which may be those in which a Fund invests or which may be based on the performance of the Fund. A Fund may, subject to applicable law, purchase investments that are the subject of an underwriting or other distribution by one or more Affiliates and
may also enter into transactions with other clients of an Affiliate where such other clients have interests adverse to those of the Fund.
At times, these activities may cause departments of BlackRock
or its Affiliates to give advice to clients that may cause these clients to take actions adverse to the interests of the Fund. To the extent affiliated transactions are permitted, a Fund will deal with BlackRock and its Affiliates on an arms-length
basis. BlackRock or its Affiliates may also have an ownership interest in certain trading or information systems used by a Fund. A Fund's use of such trading or information systems may enhance the profitability of BlackRock and its Affiliates.
One or more Affiliates may act as broker, dealer, agent, lender
or adviser or in other commercial capacities for a Fund. It is anticipated that the commissions, mark-ups, mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and commitment fees, brokerage fees, other fees,
compensation or profits, rates, terms and conditions charged by an Affiliate will be in its view commercially reasonable, although each Affiliate, including its sales personnel, will have an interest in obtaining fees and other amounts that are
favorable to the Affiliate and such sales personnel.
Subject to applicable law, the Affiliates (and their personnel
and other distributors) will be entitled to retain fees and other amounts that they receive in connection with their service to the Funds as broker, dealer, agent, lender, adviser or in other commercial capacities and no accounting to the Funds or
their respective shareholders will be required, and no fees or other compensation payable by the Funds or their respective shareholders will be reduced by reason of receipt by an Affiliate of any such fees or other amounts.
When an Affiliate acts as broker, dealer, agent, adviser or in
other commercial capacities in relation to the Funds, the Affiliate may take commercial steps in its own interests, which may have an adverse effect on the Funds. A Fund will be required to establish business relationships with its counterparties
based on the Fund's own credit standing. Neither BlackRock nor any of the Affiliates will have any obligation to allow their credit to be used in connection with a Fund's establishment of its business relationships, nor is it expected that the
Fund's counterparties will rely on the credit of BlackRock or any of the Affiliates in evaluating the Fund's creditworthiness.
Purchases and sales of securities for a Fund may be bunched or
aggregated with orders for other BlackRock client accounts. BlackRock, however, is not required to bunch or aggregate orders if portfolio management decisions for different accounts are made separately, or if it determines that bunching or
aggregating is not practicable or required, or in cases involving client direction.
Prevailing trading activity frequently may make impossible the
receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Funds will be charged or credited with the average price. Thus, the effect of the aggregation
may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the Funds will not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.
BlackRock may select brokers (including, without limitation,
Affiliates) that furnish BlackRock, the Funds, other BlackRock client accounts or other Affiliates or personnel, directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRock's view,
appropriate assistance to BlackRock in the investment decision-making process (including with respect to futures, fixed-price offerings and over-the-counter transactions). Such research or other services may include, to the extent permitted by law,
research reports on companies, industries and securities;
economic and financial data; financial publications; proxy analysis; trade
industry seminars; computer data bases; research-oriented software and other services and products. Research or other services obtained in this manner may be used in servicing any or all of the Funds and other BlackRock client accounts, including in
connection with BlackRock client accounts other than those that pay commissions to the broker relating to the research or other service arrangements. Such products and services may disproportionately benefit other BlackRock client accounts relative
to the Funds based on the amount of brokerage commissions paid by the Funds and such other BlackRock client accounts. For example, research or other services that are paid for through one client's commissions may not be used in managing that
client's account. In addition, other BlackRock client accounts may receive the benefit, including disproportionate benefits, of economies of scale or price discounts in connection with products and services that may be provided to the Funds and to
such other BlackRock client accounts. To the extent that BlackRock uses soft dollars, it will not have to pay for those products and services itself.
BlackRock may receive research that is bundled with the trade
execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that BlackRock receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research
effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by BlackRock.
BlackRock may endeavor to execute trades through brokers who,
pursuant to such arrangements, provide research or other services in order to ensure the continued receipt of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from time to time choose
not to engage in the above described arrangements to varying degrees. BlackRock may also enter into commission sharing arrangements under which BlackRock may execute transactions through a broker-dealer, including, where permitted, an Affiliate, and
request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to BlackRock. To the extent that BlackRock engages in commission sharing arrangements, many of the same conflicts
related to traditional soft dollars may exist.
BlackRock
may utilize certain electronic crossing networks (“ECNs”) in executing client securities transactions for certain types of securities. These ECNs may charge fees for their services, including access fees and transaction fees. The
transaction fees, which are similar to commissions or markups/markdowns, will generally be charged to clients and, like commissions and markups/markdowns, would generally be included in the cost of the securities purchased. Access fees may be paid
by BlackRock even though incurred in connection with executing transactions on behalf of clients, including the Funds. In certain circumstances, ECNs may offer volume discounts that will reduce the access fees typically paid by BlackRock. BlackRock
will only utilize ECNs consistent with its obligation to seek to obtain best execution in client transactions.
BlackRock has adopted policies and procedures designed to
prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including the Funds, and to help ensure that such decisions are made in accordance with BlackRock's fiduciary obligations to its
clients. Nevertheless, notwithstanding such proxy voting policies and procedures, actual proxy voting decisions of BlackRock may have the effect of favoring the interests of other clients or businesses of other divisions or units of BlackRock and/or
its Affiliates, provided that BlackRock believes such voting decisions to be in accordance with its fiduciary obligations. For a more detailed discussion of these policies and procedures, see the Proxy Voting
Policy section of this SAI.
It is also possible
that, from time to time, BlackRock or its Affiliates may, although they are not required to, purchase and hold shares of a Fund. Increasing a Fund's assets may enhance investment flexibility and diversification and may contribute to economies of
scale that tend to reduce the Fund's expense ratio. BlackRock and its Affiliates reserve the right to redeem at any time some or all of the shares of a Fund acquired for their own accounts. A large redemption of shares of a Fund by BlackRock or its
Affiliates could significantly reduce the asset size of the Fund, which might have an adverse effect on the Fund's investment flexibility, portfolio diversification and expense ratio. BlackRock will consider the effect of redemptions on a Fund and
other shareholders in deciding whether to redeem its shares.
It is possible that a Fund may invest in securities of
companies with which an Affiliate has or is trying to develop investment banking relationships as well as securities of entities in which BlackRock or its Affiliates has significant debt or equity investments or in which an Affiliate makes a market.
A Fund also may invest in securities of companies to which an Affiliate provides or may someday provide research coverage. Such investments could cause conflicts between the interests of a Fund and the interests of other clients of BlackRock or its
Affiliates. In making investment decisions for a Fund, BlackRock is not permitted to obtain or use material non-public information acquired by any division, department or Affiliate of BlackRock in
the course of these activities. In addition, from time to time, the activities
of an Affiliate may limit a Fund's flexibility in purchases and sales of securities. When an Affiliate is engaged in an underwriting or other distribution of securities of an entity, BlackRock may be prohibited from purchasing or recommending the
purchase of certain securities of that entity for a Fund.
BlackRock and its Affiliates, their personnel and other
financial service providers may have interests in promoting sales of the Funds. With respect to BlackRock and its Affiliates and their personnel, the remuneration and profitability relating to services to and sales of the Funds or other products may
be greater than remuneration and profitability relating to services to and sales of certain funds or other products that might be provided or offered. BlackRock and its Affiliates and their sales personnel may directly or indirectly receive a
portion of the fees and commissions charged to the Funds or their respective shareholders. BlackRock and its advisory or other personnel may also benefit from increased amounts of assets under management. Fees and commissions may also be higher than
for other products or services, and the remuneration and profitability to BlackRock or its Affiliates and such personnel resulting from transactions on behalf of or management of the Funds may be greater than the remuneration and profitability
resulting from other funds or products.
BlackRock and its
Affiliates and their personnel may receive greater compensation or greater profit in connection with an account for which BlackRock serves as an adviser than with an account advised by an unaffiliated investment adviser. Differentials in
compensation may be related to the fact that BlackRock may pay a portion of its advisory fee to its Affiliate, or relate to compensation arrangements, including for portfolio management, brokerage transactions or account servicing. Any differential
in compensation may create a financial incentive on the part of BlackRock or its Affiliates and their personnel to recommend BlackRock over unaffiliated investment advisers or to effect transactions differently in one account over another.
BlackRock and its Affiliates may provide valuation assistance
to certain clients with respect to certain securities or other investments and the valuation recommendations made for their clients' accounts may differ from the valuations for the same securities or investments assigned by a Fund's pricing vendors,
especially if such valuations are based on broker-dealer quotes or other data sources unavailable to the Fund's pricing vendors. While BlackRock will generally communicate its valuation information or determinations to a Fund's pricing vendors
and/or fund accountants, there may be instances where the Fund's pricing vendors or fund accountants assign a different valuation to a security or other investment than the valuation for such security or investment determined or recommended by
BlackRock.
As disclosed in more detail in the Determination of Net Asset Value section of each Fund’s Prospectus, when market valuations are not readily available or such valuations do not reflect current market values, the affected investments will be
valued using fair value pricing, pursuant to procedures adopted by the Fund's Board. As a result, the Funds' sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BlackRock (pursuant to Board-adopted
procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
To the extent permitted by applicable law, a Fund may invest
all or some of its short-term cash investments in any money market fund or similarly-managed private fund advised or managed by BlackRock. In connection with any such investments, a Fund, to the extent permitted by the 1940 Act, may pay its share of
expenses of a money market fund in which it invests, which may result in a Fund bearing some additional expenses.
BlackRock and its Affiliates and their directors, officers and
employees, may buy and sell securities or other investments for their own accounts, and may have conflicts of interest with respect to investments made on behalf of a Fund. As a result of differing trading and investment strategies or constraints,
positions may be taken by directors, officers, employees and Affiliates of BlackRock that are the same, different from or made at different times than positions taken for the Fund. To lessen the possibility that a Fund will be adversely affected by
this personal trading, the Fund, BFA and BlackRock each has adopted a code of ethics in compliance with Section 17(j) of the 1940 Act that restricts securities trading in the personal accounts of investment professionals and others who normally come
into possession of information regarding the Fund's portfolio transactions. Each code of ethics can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at (202) 551-8090. Each code of ethics is also available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at publicinfo@sec.gov
or by writing the SEC's Public Reference Section, Washington, DC 20549-1520.
BlackRock and its Affiliates will not purchase securities or
other property from, or sell securities or other property to, a Fund, except that the Fund may in accordance with rules adopted under the 1940 Act engage in transactions with accounts that
are affiliated with the Fund as a result of common officers, directors, or
investment advisers or pursuant to exemptive orders granted to the Funds and/or BlackRock by the SEC. These transactions would be affected in circumstances in which BlackRock determined that it would be appropriate for a Fund to purchase and another
client of BlackRock to sell, or the Fund to sell and another client of BlackRock to purchase, the same security or instrument on the same day. From time to time, the activities of a Fund may be restricted because of regulatory requirements
applicable to BlackRock or its Affiliates and/or BlackRock's internal policies designed to comply with, limit the applicability of, or otherwise relate to such requirements. A client not advised by BlackRock would not be subject to some of those
considerations. There may be periods when BlackRock may not initiate or recommend certain types of transactions, or may otherwise restrict or limit their advice in certain securities or instruments issued by or related to companies for which an
Affiliate is performing investment banking, market making or other services or has proprietary positions. For example, when an Affiliate is engaged in an underwriting or other distribution of securities of, or advisory services for, a company, the
Funds may be prohibited from or limited in purchasing or selling securities of that company. Similar situations could arise if personnel of BlackRock or its Affiliates serve as directors of companies the securities of which the Funds wish to
purchase or sell. However, if permitted by applicable law, the Funds may purchase securities or instruments that are issued by such companies or are the subject of an underwriting, distribution, or advisory assignment by an Affiliate, or in cases in
which personnel of BlackRock or its Affiliates are directors or officers of the issuer.
The investment activities of one or more Affiliates for their
proprietary accounts and for client accounts may also limit the investment strategies and rights of the Funds. For example, in regulated industries, in certain emerging or international markets, in corporate and regulatory ownership definitions, and
in certain futures and derivative transactions, there may be limits on the aggregate amount of investment by affiliated investors that may not be exceeded without the grant of a license or other regulatory or corporate consent or, if exceeded, may
cause BlackRock, the Funds or other client accounts to suffer disadvantages or business restrictions.
If certain aggregate ownership thresholds are reached or
certain transactions undertaken, the ability of BlackRock on behalf of clients (including the Funds) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired.
As a result, BlackRock, on behalf of clients (including the Funds), may limit purchases, sell existing investments, or otherwise restrict or limit the exercise of rights (including voting rights) when BlackRock, in its sole discretion, deems it
appropriate.
BlackRock and its Affiliates may maintain
securities indices as part of their product offerings. Index based funds seek to track the performance of securities indices and may use the name of the index in the fund name. Index providers, including BlackRock and its Affiliates may be paid
licensing fees for use of their index or index name. BlackRock and its Affiliates will not be obligated to license their indices to BlackRock, and BlackRock cannot be assured that the terms of any index licensing agreement with BlackRock and its
Affiliates will be as favorable as those terms offered to other index licensees.
BlackRock and its Affiliates may serve as Authorized
Participants in the creation and redemption of exchange-traded funds, including funds advised by Affiliates of BlackRock. As described in greater detail in the Creations and
Redemptions section of the Prospectus, BlackRock and its Affiliates may therefore be deemed to be participants in a distribution of iShares funds that could render them statutory underwriters.
Present and future activities of BlackRock and its Affiliates,
including BFA, in addition to those described in this section, may give rise to additional conflicts of interest.
Investment Advisory, Administrative and Distribution
Services
Investment Adviser. BFA serves as investment adviser to each Fund pursuant to an Investment Advisory Agreement between the Company, on behalf of each Fund, and BFA. BFA is a California corporation indirectly owned by BlackRock, Inc.,
and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the Investment Advisory Agreement, BFA, subject to the supervision of the Board and in conformity with the stated investment policies of each
Fund, manages and administers the Company and the investment of each Fund's assets. BFA is responsible for placing purchase and sale orders and providing continuous supervision of the investment portfolio of each Fund.
Pursuant to the Investment Advisory Agreement, BFA may from
time to time, in its sole discretion to the extent permitted by applicable law, appoint one or more sub-advisers, including, without limitation, affiliates of BFA, to perform investment advisory or other services with respect to the Fund. In
addition, BFA may delegate certain of its investment advisory functions under the Investment Advisory Agreement to one or more of its affiliates to the extent permitted by applicable law. BFA may terminate any or all sub-advisers or such delegation
arrangements in its sole discretion upon appropriate notice at any time to the extent permitted by applicable law.
BFA is responsible, under the Investment Advisory Agreement,
for substantially all expenses of the Funds, including the cost of transfer agency, custody, fund administration, legal, audit and other services, except interest expense, taxes, brokerage expenses, distribution fees or expenses and extraordinary
expenses. For its investment management services to each Fund, BFA received a management fee at the annual rates (as a percentage of each Fund’s average net assets) set forth below for the fiscal years noted:
For its investment advisory services to the iShares MSCI
Pacific ex-Japan Index Fund, BFA is paid a management fee based on a percentage of the Fund’s average daily net assets at an annual rate of 0.50%. The management fee charged on the aggregate average daily net assets of the iShares Dow Jones
Select Dividend Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares Russell 2000 Growth Index Fund, iShares Russell 2000 Index Fund, iShares Russell 2000 Value Index Fund, iShares S&P Latin America 40 Index Fund and iShares S&P
U.S. Preferred Stock Index Fund in excess of $46.0 billion is reduced by 5.0% per annum.
For its investment advisory services to certain of the Funds included in this SAI, BFA is entitled to receive a management fee from such Funds corresponding
to each of the Fund's allocable portion of an aggregate management fee based on the aggregate average daily net assets of the following iShares funds: iShares MSCI All Peru Capped Index Fund, iShares MSCI Brazil Capped Index Fund, iShares MSCI
Brazil Small Cap Index Fund, iShares MSCI Chile Capped Investable Market Index Fund, iShares MSCI China Index Fund, iShares MSCI China Small Cap Index Fund, iShares MSCI Indonesia Investable Market Index Fund, iShares MSCI Israel Capped Investable
Market Index Fund, iShares MSCI Philippines Investable Market Index Fund, iShares MSCI Poland Capped Investable Market Index Fund, iShares MSCI Russia Capped Index Fund, iShares MSCI South Africa Index Fund, iShares MSCI South Korea Capped Index
Fund, iShares MSCI Taiwan Index Fund, iShares MSCI Thailand Capped Investable Market Index Fund and iShares MSCI Turkey Investable Market Index Fund. The aggregate management fee is calculated as follows: 0.74% per annum of the aggregate net assets
less than or equal to $2.0 billion, plus 0.69% per annum of the aggregate net assets over $2.0 billion, up to and including $4.0 billion, plus 0.64% per annum of the aggregate net assets over $4.0 billion, up to and including $8.0 billion, plus
0.57% per annum of the aggregate net assets over $8.0 billion, up to and including $16.0 billion, plus 0.51% per annum of the aggregate net assets over $16.0 billion, up to and including $32.0 billion, plus 0.45% per annum of the aggregate net
assets in excess of $32.0 billion.
For its investment advisory services to certain of the Funds included in this SAI, BFA is entitled to receive a management fee from such Fund corresponding to the Fund's allocable portion of an aggregate
management fee based on the aggregate average daily net assets of the following iShares funds: iShares MSCI All Country Asia ex Japan Index Fund, iShares MSCI BRIC Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund,
iShares MSCI Emerging Markets Eastern Europe Index Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares MSCI Emerging Markets Financials Sector Index Fund, iShares MSCI Emerging Markets Index Fund, iShares MSCI Emerging
Markets Materials Sector Index Fund, iShares MSCI Emerging Markets Minimum Volatility Index Fund and iShares MSCI Emerging Markets Small Cap Index Fund. The aggregate management fee is calculated as follows: 0.75% per annum of the aggregate net
assets less than or equal to $14.0 billion, plus 0.68% per annum of the aggregate net assets over $14.0 billion, up to and including $28.0 billion, plus 0.61% per annum of the aggregate net assets over $28.0 billion, up to and including $42.0
billion, plus 0.56% per annum of the aggregate net assets over $42.0 billion, up to and including $56.0 billion, plus 0.50% per annum of the aggregate net assets over $56.0 billion, up to and including $70.0 billion, plus 0.45% per annum of the
aggregate net assets over $70.0 billion, up to and including $84.0 billion, plus 0.40% per annum of the aggregate net assets in excess of $84.0 billion.
For its investment advisory services to certain of the Funds included in this SAI, BFA is
entitled to receive a management fee from such Funds corresponding to each of the Fund's allocable portion of an aggregate management fee based on the aggregate average daily net assets of the following iShares funds: iShares MSCI Australia Index
Fund, iShares MSCI Austria Capped Investable Market Index Fund, iShares MSCI Belgium Capped Investable Market Index Fund, iShares MSCI Canada Index Fund, iShares MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Germany Index Fund,
iShares MSCI Hong Kong Index Fund, iShares MSCI Ireland Capped Investable Market Index Fund, iShares MSCI Italy Capped Index
Fund, iShares MSCI Japan Index Fund, iShares MSCI Japan Small Cap Index Fund,
iShares MSCI Malaysia Index Fund, iShares MSCI Mexico Capped Investable Market Index Fund, iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI New Zealand Capped Investable Market Index Fund, iShares MSCI Singapore Index Fund,
iShares MSCI Spain Capped Index Fund, iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Capped Index Fund and iShares MSCI United Kingdom Index Fund. The aggregate management fee is calculated as follows: 0.59% per annum of the aggregate net
assets less than or equal to $7.0 billion, plus 0.54% per annum of the aggregate net assets over $7.0 billion, up to and including $11.0 billion, plus 0.49% per annum of the aggregate net assets over $11.0 billion, up to and including $24.0 billion,
plus 0.44% per annum of the aggregate net assets over $24.0 billion, up to and including $48.0 billion, plus 0.40% per annum of the aggregate net assets in excess of $48.0 billion.
Fund
|
|
Management
Fee for the Fiscal Year Ended August 31, 2012 |
|
Fund
Inception Date |
|
Management
Fees Paid For Fiscal Year Ended August 31, 2012 |
|
Management
Fees Paid For Fiscal Year Ended August 31, 2011 |
|
Management
Fees Paid For Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI Australia Index Fund |
|
0.53%
|
|
03/12/96
|
|
$
13,830,149 |
|
$
15,491,910 |
|
$12,339,948
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
0.52%
|
|
03/12/96
|
|
350,168
|
|
858,928
|
|
822,617
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
0.53%
|
|
03/12/96
|
|
131,854
|
|
281,283
|
|
389,142
|
|
iShares
MSCI Canada Index Fund |
|
0.53%
|
|
03/12/96
|
|
23,683,748
|
|
26,198,533
|
|
17,081,917
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund1 |
|
0.69%
|
|
09/30/09
|
|
171,465
|
|
221,080
|
|
67,428
|
|
iShares
MSCI EMU Index Fund |
|
0.53%
|
|
07/25/00
|
|
3,695,691
|
|
4,477,629
|
|
4,463,524
|
|
iShares
MSCI France Index Fund |
|
0.53%
|
|
03/12/96
|
|
1,529,840
|
|
1,815,550
|
|
1,568,843
|
|
iShares
MSCI Germany Index Fund |
|
0.53%
|
|
03/12/96
|
|
14,093,002
|
|
13,628,580
|
|
5,468,927
|
|
iShares
MSCI Global Gold Miners Fund |
|
0.39%
|
|
01/31/12
|
|
53,344
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Silver Miners Fund |
|
0.39%
|
|
01/31/12
|
|
6,803
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Hong Kong Index Fund |
|
0.53%
|
|
03/12/96
|
|
9,202,379
|
|
10,481,935
|
|
9,797,546
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
0.61%
|
|
03/26/08
|
|
469,665
|
|
743,548
|
|
1,106,791
|
|
iShares
MSCI Italy Capped Index Fund |
|
0.53%
|
|
03/12/96
|
|
687,537
|
|
606,658
|
|
623,082
|
|
iShares
MSCI Japan Index Fund |
|
0.53%
|
|
03/12/96
|
|
28,798,955
|
|
30,400,171
|
|
27,202,065
|
|
iShares
MSCI Japan Small Cap Index Fund |
|
0.53%
|
|
12/20/07
|
|
291,630
|
|
270,288
|
|
177,474
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
0.53%
|
|
03/12/96
|
|
6,061,230
|
|
8,188,227
|
|
6,401,000
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
0.53%
|
|
03/12/96
|
|
373,539
|
|
874,624
|
|
599,732
|
|
iShares
MSCI Pacific ex-Japan Index Fund2 |
|
0.50%
|
|
10/25/01
|
|
16,176,388
|
|
20,163,744
|
|
18,876,847
|
|
iShares
MSCI Singapore Index Fund |
|
0.53%
|
|
03/12/96
|
|
7,690,242
|
|
10,268,194
|
|
7,922,869
|
|
iShares
MSCI South Africa Index Fund |
|
0.61%
|
|
02/03/03
|
|
3,145,182
|
|
3,648,638
|
|
3,137,352
|
|
iShares
MSCI Spain Capped Index Fund |
|
0.53%
|
|
03/12/96
|
|
705,321
|
|
1,076,007
|
|
1,298,278
|
|
iShares
MSCI Sweden Index Fund |
|
0.53%
|
|
03/12/96
|
|
1,624,714
|
|
2,536,271
|
|
1,105,743
|
|
iShares
MSCI Switzerland Capped Index Fund |
|
0.53%
|
|
03/12/96
|
|
2,708,262
|
|
2,569,744
|
|
1,783,191
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
0.61%
|
|
03/26/08
|
|
3,584,474
|
|
3,807,783
|
|
1,524,281
|
|
iShares
MSCI Turkey Investable Market Index Fund |
|
0.61%
|
|
03/26/08
|
|
2,589,437
|
|
4,021,933
|
|
2,492,426
|
|
iShares
MSCI United Kingdom Index Fund |
|
0.53%
|
|
03/12/96
|
|
6,994,397
|
|
6,213,817
|
|
4,977,068
|
|
iShares
MSCI USA Index Fund |
|
0.15%
|
|
05/05/10
|
|
147,696
|
|
2,853
|
|
1,127
|
|
iShares
MSCI World Index Fund |
|
0.24%
|
|
01/10/12
|
|
29,225
|
|
N/A
|
|
N/A
|
|
1 |
For the iShares MSCI Emerging
Markets Eastern Europe Index Fund, BFA may voluntarily waive a portion of the management fee, as it determines, from time to time. During the period from September 1, 2010 through December 31, 2010 BFA voluntarily waived a portion of its management
fee. For the fiscal year ended August 31, 2011, BFA waived $462 of its management fees. |
2 |
Effective June 30, 2012, the
management fee charged on the aggregate average daily net assets of the Fund and the iShares Dow Jones Select Dividend Index Fund, iShares Russell 2000 Growth Index Fund, iShares Russell 2000 Index Fund, iShares Russell 2000 Value Index Fund,
iShares S&P Latin America 40 Index Fund and iShares S&P U.S. Preferred Stock Index Fund in excess of $46 billion is reduced by 5.0% per annum. |
The investment advisory agreement with respect to each Fund
continues in effect for two years from its effective date, and thereafter is subject to annual approval by (i) the Board, or (ii) the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the applicable Fund,
provided that in either event such continuance also is approved by a majority of the Board who are not interested persons (as defined in the 1940 Act) of the applicable Fund, by a vote cast in person at a meeting called for the purpose of voting on
such approval.
The investment advisory agreement with
respect to each Fund is terminable without penalty, on 60 days' notice, by the Board or by a vote of the holders of a majority of the applicable Fund’s outstanding voting securities (as defined in the 1940 Act). The investment advisory
agreement is also terminable upon 60 days' notice by BFA and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
Current interpretations of U.S. federal banking laws and
regulations (i) may prohibit BlackRock, Inc., BFA or its affiliates from controlling or underwriting the shares of the Funds, but (ii) do not prohibit BlackRock, Inc. or BFA generally from acting as an investment adviser, administrator, transfer
agent or custodian to the Funds or from purchasing shares as agent for and upon the order of a customer.
BFA believes that it may perform advisory and related services
for the Company without violating applicable banking laws or regulations. However, the legal requirements and interpretations about the permissible activities of banks and their affiliates may change in the future. These changes could prevent BFA
from continuing to perform services for the Company. If this happens, the Board would consider selecting other qualified firms. Any new investment advisory agreement would be subject to shareholder approval.
If current restrictions on bank activities with mutual funds
were relaxed, BFA, or its affiliates, would consider performing additional services for the Company. BFA cannot predict whether these changes will be enacted, or the terms under which BFA, or its affiliates, might offer to provide additional
services.
Portfolio Managers. As of August 31, 2012, the individuals named as Portfolio Managers in the Funds' Prospectuses were
also primarily responsible for the day-to-day management of other iShares funds and certain other types of
portfolios and/or accounts as follows:
Christopher
Bliss |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
40
|
|
$
56,500,000,000 |
|
Other
Pooled Investment Vehicles |
|
161
|
|
$
392,800,000,000 |
|
Other
Accounts |
|
150
|
|
$278,800,000,000
|
|
Accounts
with Incentive-Based Fee Arrangements |
|
N/A
|
|
N/A
|
|
Rene
Casis |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
195
|
|
$315,000,000,000
|
|
Other
Pooled Investment Vehicles |
|
68
|
|
$
51,400,000,000 |
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
Accounts
with Incentive-Based Fee Arrangements |
|
N/A
|
|
N/A
|
|
Diane
Hsiung |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
193
|
|
$314,900,000,000
|
|
Other
Pooled Investment Vehicles |
|
15
|
|
$
8,000,000,000 |
|
Other
Accounts |
|
4
|
|
$
113,000,000 |
|
Accounts
with Incentive-Based Fee Arrangements |
|
N/A
|
|
N/A
|
|
Jennifer Hsui
|
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
56
|
|
$
174,400,000,000 |
|
Other
Pooled Investment Vehicles |
|
26
|
|
$162,000,000,000
|
|
Other
Accounts |
|
40
|
|
$
53,400,000,000 |
|
Accounts
with Incentive-Based Fee Arrangements |
|
N/A
|
|
N/A
|
|
Greg
Savage |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
198
|
|
$317,500,000,000
|
|
Other
Pooled Investment Vehicles |
|
83
|
|
$
55,300,000,000 |
|
Other
Accounts |
|
3
|
|
$
64,400,000 |
|
Accounts
with Incentive-Based Fee Arrangements |
|
N/A
|
|
N/A
|
|
Each of the portfolios or accounts for which the Portfolio
Managers are primarily responsible for the day-to-day management seeks to track the rate of return, risk profile and other characteristics of independent third-party indexes by either replicating the same combination of securities that constitute
those indexes or through a representative sampling of the securities that constitute those indexes based on objective criteria and data. Pursuant to BFA’s policy, investment opportunities are allocated equitably among the Funds and other
portfolios and accounts. For example, under certain circumstances, an investment opportunity may be restricted due to limited supply on the market, legal constraints or other factors, in which event the investment opportunity will be allocated
equitably among those portfolios and accounts, including the Funds seeking such investment opportunity. As a consequence, from time to time each Fund may receive a smaller allocation of an investment opportunity than it would have if the Portfolio
Managers and BFA and its affiliates did not manage other portfolios or accounts.
Like the Funds, the other portfolios or accounts for which the
Portfolio Managers are primarily responsible for the day-to-day portfolio management generally pay an asset-based fee to BFA or its affiliates, as applicable, for its advisory services. One or more of those other portfolios or accounts, however, may
pay BFA or its affiliates an incentive-based fee in lieu of, or in addition to, an asset-based fee for its advisory services. A portfolio or account with an incentive-based fee would pay BFA or its affiliates a portion of that portfolio’s or
account’s gains, or would pay BFA or its affiliates more for its services than would otherwise be the case if BFA or any of its affiliates meets or exceeds specified performance targets. By their nature, incentive-based fee arrangements could
present an incentive for BFA or its affiliates to devote greater resources, and allocate more investment opportunities, to the portfolios or accounts that have those fee arrangements, relative to other portfolios or accounts, in order to earn larger
fees. Although BFA and each of its affiliates has an obligation to allocate resources and opportunities equitably among portfolios and accounts and intends to do so, shareholders of the Funds should be aware that, as with any group of portfolios and
accounts managed by an investment adviser and/or its affiliates pursuant to varying fee arrangements, including incentive-based fee arrangements, there is the potential for a conflict of interest that may result in the Portfolio Managers' favoring
those portfolios or accounts with incentive-based fee arrangements.
The tables below show, for each Portfolio Manager, the number
of portfolios or accounts of the types set forth in the above tables and the aggregate of total assets in those portfolios or accounts with respect to which the investment management fees are based on the performance of those portfolios or
accounts as of August 31, 2012:
Christopher
Bliss |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance-Based Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
Rene
Casis |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance-Based Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
Diane
Hsiung |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance-Based Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
Jennifer Hsui
|
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
Greg
Savage |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance-Based Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
N/A
|
|
N/A
|
|
The discussion below describes the Portfolio Managers'
compensation as of August 31, 2012.
Portfolio Manager
Compensation Overview
BlackRock, Inc.'s financial
arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to
year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established
by BlackRock, Inc.
Base compensation. Generally, portfolio managers receive base compensation based on their position with the firm.
Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager's group within BlackRock, Inc. and the individual's performance and
contribution to the overall performance of these portfolios and BlackRock, Inc.
Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of years. The BlackRock, Inc. restricted
stock units, if properly vested, will be settled in BlackRock, Inc. common stock. Typically, the cash bonus, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying
a portion of annual bonuses in stock puts compensation earned by a portfolio
manager for a given year “at risk” based on BlackRock, Inc.'s ability to sustain and improve its performance over future periods.
Long-Term Incentive Plan Awards — From time to time, long-term incentive equity awards are granted to certain key employees to aid in retention, align their interests with long-term shareholder interests and motivate performance. Equity awards are
generally granted in the form of BlackRock, Inc. restricted stock units that, once vested, settle in BlackRock, Inc. common stock.
Deferred Compensation Program
— A portion of the compensation paid to eligible BlackRock, Inc. employees may be voluntarily deferred at their election for defined periods of time into an account that tracks the performance of certain of the firm's investment products. All
of the eligible portfolio managers have participated in the deferred compensation program.
Other Compensation Benefits. In
addition to base compensation and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:
Incentive Savings Plans
— BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (“RSP”), and the BlackRock Employee
Stock Purchase Plan (“ESPP”). The employer contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution
equal to 3-5% of eligible compensation up to the U.S. Internal Revenue Service (the “IRS”) limit ($250,000 for 2012). The RSP offers a range of investment options, including registered investment companies and collective investment funds
managed by the firm. BlackRock, Inc. contributions follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested into an index target date fund that corresponds to, or is
closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to
the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the Purchase Date. Christopher Bliss, Rene Casis, Diane Hsiung, Jennifer Hsui and Greg Savage are each eligible to participate in these
plans.
As of August 31, 2012, the Portfolio
Managers beneficially owned shares of the Funds, for which they are primarily responsible for the day-to-day management, in the amounts reflected in the following tables:
Christopher
Bliss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Africa Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Turkey Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Rene
Casis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Australia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Rene
Casis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Belgium Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Canada Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI EMU Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI France Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Germany Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Gold Miners Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Silver Miners Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Hong Kong Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Italy Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Japan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Japan Small Cap Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Singapore Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Africa Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Spain Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Sweden Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Switzerland Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Turkey Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI United Kingdom Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI USA Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI World Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Diane
Hsiung |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Australia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
|
X
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Canada Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Diane
Hsiung |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI EMU Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI France Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Germany Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Gold Miners Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Silver Miners Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Hong Kong Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Italy Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Japan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Japan Small Cap Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Singapore Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Africa Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Spain Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Sweden Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Switzerland Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Turkey Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI United Kingdom Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI USA Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI World Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Jennifer Hsui
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Australia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Canada Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI EMU Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI France Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Germany Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Gold Miners Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Silver Miners Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Jennifer Hsui
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Hong Kong Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Italy Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Japan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Japan Small Cap Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Singapore Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Africa Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Spain Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Sweden Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Switzerland Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Turkey Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI United Kingdom Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI USA Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI World Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg
Savage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
|
|
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Australia Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Canada Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI EMU Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI France Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Germany Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Gold Miners Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Global Silver Miners Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Hong Kong Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Italy Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Japan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg
Savage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
Range |
|
|
Fund
|
None
|
|
$1
to $10k |
|
$10,001
to $50k |
|
$50,001
to $100k |
|
$100,001
to $500k |
|
$500,001
to $1m |
|
over
$1m |
iShares
MSCI Japan Small Cap Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Singapore Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI South Africa Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Spain Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Sweden Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Switzerland Capped Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI Turkey Investable Market Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI United Kingdom Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI USA Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
iShares
MSCI World Index Fund |
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Codes of Ethics. The
Company, BFA and the Distributor have adopted codes of ethics pursuant to Rule 17j-1 of the 1940 Act.
The codes of ethics permit personnel subject to the codes of ethics to invest in securities, subject to certain limitations, including
securities that may be purchased or held by the Funds. The codes of ethics are on public file with, and are available from, the SEC.
Anti-Money Laundering Requirements. The Funds are subject to the USA PATRIOT Act (the “Patriot Act”). The Patriot Act is intended to prevent the use of the U.S. financial system in furtherance of money laundering, terrorism or other
illicit activities. Pursuant to requirements under the Patriot Act, a Fund may request information from Authorized Participants to enable it to form a reasonable belief that it knows the true identity of its Authorized Participants. This information
will be used to verify the identity of Authorized Participants or, in some cases, the status of financial professionals; it will be used only for compliance with the requirements of the Patriot Act.
The Funds reserve the right to reject purchase orders from
persons who have not submitted information sufficient to allow the Fund to verify their identity. Each Fund also reserves the right to redeem any amounts in a Fund from persons whose identity it is unable to verify on a timely basis. It is the
Funds' policy to cooperate fully with appropriate regulators in any investigations conducted with respect to potential money laundering, terrorism or other illicit activities.
Administrator, Custodian and Transfer Agent. State Street Bank and Trust Company (“State Street”) serves as administrator, custodian and transfer agent for the Funds under the Master Services Agreement and related Service Schedule (the
“Service Module”). State Street’s principal address is 200 Clarendon Street, Boston, MA 02116. Pursuant to the Service Module for Fund Administration and Accounting Services with the Company, State Street provides necessary
administrative, legal, tax and accounting and financial reporting services for the maintenance and operations of the Company and each Fund. In addition, State Street makes available the office space, equipment, personnel and facilities required to
provide such services. Pursuant to the Service Module for Custodial Services with the Company, State Street maintains, in separate accounts, cash, securities and other assets of the Company and each Fund, keeps all necessary accounts and records and
provides other services. State Street is required, upon the order of the Company, to deliver securities held by State Street and to make payments for securities purchased by the Company for each Fund. State Street is authorized to appoint certain
foreign custodians or foreign custody managers for Fund investments outside the United States. Pursuant to the Service Module for Transfer Agency Services with the Company, State Street acts as a transfer agent for each Fund’s authorized and
issued
shares of beneficial interest, and as dividend disbursing agent of the
Company. As compensation for these services, State Street receives certain out-of-pocket costs, transaction fees and asset-based fees which are accrued daily and paid monthly by BFA from its management fee.
The following table sets forth the administration, transfer
agency and custodian expenses of each Fund paid by BFA to State Street for the fiscal years noted:
Fund
|
|
Fund
Inception Date |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended August 31, 2012 |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended August 31, 2011 |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI Australia Index Fund |
|
03/12/96
|
|
$
260,347 |
|
$
344,773 |
|
$
254,789 |
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
03/12/96
|
|
19,323
|
|
42,435
|
|
41,110
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
03/12/96
|
|
9,296
|
|
17,533
|
|
20,736
|
|
iShares
MSCI Canada Index Fund |
|
03/12/96
|
|
302,024
|
|
410,956
|
|
252,407
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
|
09/30/09
|
|
71,820
|
|
57,888
|
|
11,860
|
|
iShares
MSCI EMU Index Fund |
|
07/25/00
|
|
91,925
|
|
130,735
|
|
106,995
|
|
iShares
MSCI France Index Fund |
|
03/12/96
|
|
34,682
|
|
52,221
|
|
48,247
|
|
iShares
MSCI Germany Index Fund |
|
03/12/96
|
|
230,545
|
|
281,912
|
|
109,518
|
|
iShares
MSCI Global Gold Miners Fund |
|
01/31/12
|
|
5,193
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Silver Miners Fund |
|
01/31/12
|
|
2,913
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Hong Kong Index Fund |
|
03/12/96
|
|
205,860
|
|
211,579
|
|
191,807
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
03/26/08
|
|
75,184
|
|
116,501
|
|
154,344
|
|
iShares
MSCI Italy Capped Index Fund |
|
03/12/96
|
|
15,532
|
|
16,538
|
|
16,317
|
|
iShares
MSCI Japan Index Fund |
|
03/12/96
|
|
227,756
|
|
311,780
|
|
252,341
|
|
iShares
MSCI Japan Small Cap Index Fund |
|
12/20/07
|
|
8,437
|
|
16,508
|
|
4,931
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
03/12/96
|
|
204,531
|
|
319,222
|
|
245,591
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
03/12/96
|
|
11,286
|
|
20,458
|
|
15,666
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
10/25/01
|
|
346,760
|
|
493,182
|
|
435,461
|
|
iShares
MSCI Singapore Index Fund |
|
03/12/96
|
|
226,563
|
|
382,591
|
|
221,345
|
|
iShares
MSCI South Africa Index Fund |
|
02/03/03
|
|
90,497
|
|
127,197
|
|
105,530
|
|
iShares
MSCI Spain Capped Index Fund |
|
03/12/96
|
|
12,459
|
|
22,840
|
|
25,178
|
|
iShares
MSCI Sweden Index Fund |
|
03/12/96
|
|
43,033
|
|
65,932
|
|
32,224
|
|
iShares
MSCI Switzerland Capped Index Fund |
|
03/12/96
|
|
44,241
|
|
52,803
|
|
36,466
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
03/26/08
|
|
92,955
|
|
124,819
|
|
48,341
|
|
iShares
MSCI Turkey Investable Market Index Fund |
|
03/26/08
|
|
190,383
|
|
370,844
|
|
255,152
|
|
iShares
MSCI United Kingdom Index Fund |
|
03/12/96
|
|
33,985
|
|
31,324
|
|
28,196
|
|
iShares
MSCI USA Index Fund |
|
05/05/10
|
|
17,572
|
|
2,477
|
|
2,694
|
|
iShares
MSCI World Index Fund |
|
01/10/12
|
|
40,355
|
|
N/A
|
|
N/A
|
|
Distributor. The
Distributor's principal address is 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310. Shares are
continuously offered for sale by the Funds through the Distributor or its agent only in Creation Units, as described in the applicable
Prospectus and below in the Creation and Redemption of Creation Units section of this SAI. Fund shares in amounts less than Creation Units are generally not distributed by the Distributor or its agent. The Distributor or its agent will arrange for the delivery of the applicable Prospectus
and, upon request, this SAI to persons purchasing Creation Units and
will maintain records of both orders placed with it or its agents and
confirmations of acceptance furnished by it or its agents. The Distributor is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “1934 Act”), and a member of the Financial Industry Regulatory Authority,
Inc. (“FINRA”).
The Distribution Agreement
for each Fund provides that it may be terminated at any time, without the payment of any penalty, on at least 60 days' prior written notice to the other party following (i) the vote of a majority of the Independent Directors, or (ii) the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of the relevant Fund. The Distribution Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities
dealers (“Soliciting Dealers”) who will solicit purchases of Creation Units of Fund shares. Such Soliciting Dealers may also be Authorized Participants (as defined below), DTC participants and/or investor services organizations.
BFA or its affiliates may, from time to time and from its own
resources, pay, defray or absorb costs relating to distribution, including payments out of its own resources to the Distributor, or to otherwise promote the sale of shares.
The Distributor serves as the Funds' distributor as of April 1,
2012. Prior to that date, SEI Investments Distribution Co. (“SEI”), located at One Freedom Valley Drive, Oaks, PA 19456, served as the distributor to the Funds. The following table sets forth the compensation paid by BFA to SEI for
certain services, not primarily intended to result in the sale of Fund shares, provided to each Fund during the fiscal years noted:
Fund
|
Fund
Inception Date |
|
Distributor
Compensation Paid From April 1, 2012 to August 31, 20121 |
|
Distributor
Compensation Paid From September 1, 2011 to March 31, 20122 |
|
Distributor
Compensation Paid During Fiscal Year Ended August 31, 2011 |
|
Distributor
Compensation Paid During Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI Australia Index Fund |
03/12/96
|
|
$3,318
|
|
$6,270
|
|
$
11,753 |
|
$
13,367 |
|
iShares
MSCI Austria Capped Investable Market Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Canada Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
09/30/09
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI EMU Index Fund |
07/25/00
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI France Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Germany Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Global Gold Miners Fund |
01/31/12
|
|
3,318
|
|
1,712
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Global Silver Miners Fund |
01/31/12
|
|
3,318
|
|
1,712
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Hong Kong Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
03/26/08
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Italy Capped Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Japan Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Japan Small Cap Index Fund |
12/20/07
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
10/25/01
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Singapore Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI South Africa Index Fund |
02/03/03
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Spain Capped Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Sweden Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Switzerland Capped Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
Fund
|
Fund
Inception Date |
|
Distributor
Compensation Paid From April 1, 2012 to August 31, 20121 |
|
Distributor
Compensation Paid From September 1, 2011 to March 31, 20122 |
|
Distributor
Compensation Paid During Fiscal Year Ended August 31, 2011 |
|
Distributor
Compensation Paid During Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
03/26/08
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI Turkey Investable Market Index Fund |
03/26/08
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI United Kingdom Index Fund |
03/12/96
|
|
3,318
|
|
6,270
|
|
11,753
|
|
13,367
|
|
iShares
MSCI USA Index Fund |
05/05/10
|
|
3,318
|
|
6,270
|
|
11,753
|
|
3,718
|
|
iShares
MSCI World Index Fund |
01/10/12
|
|
3,318
|
|
2,621
|
|
N/A
|
|
N/A
|
|
1 |
BRIL serves as the
distributor to the Funds effective April 1, 2012. These fees reflected payments made to SEI, acting as an agent of the Distributor. |
2 |
SEI served as the distributor
to the Funds through March 31, 2012. |
Payments by BFA and its Affiliates. BFA and/or its affiliates (“BFA Entities”) pay certain broker-dealers, banks and other financial intermediaries (“Intermediaries”) for certain activities related to the Funds, other iShares
funds or exchange-traded products in general. BFA Entities make these payments from their own assets and not from the assets of the Funds. Although a portion of BFA Entities’ revenue comes directly or indirectly in part from fees paid by the
Funds and other iShares funds, these payments do not increase the price paid by investors for the purchase of shares of, or the cost of owning, the Fund or other iShares funds. BFA Entities make payments for Intermediaries’ participation in
activities that are designed to make registered representatives, other professionals and individual investors more knowledgeable about exchange-traded products, including the Funds, or for other activities, such as participation in marketing
activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems (“Education Costs”). BFA Entities also make payments to Intermediaries for certain printing,
publishing and mailing costs associated with the Funds or materials relating to exchange-traded products in general (“Publishing Costs”). In addition, BFA Entities make payments to Intermediaries that make shares of the Funds and certain
other iShares funds available to their clients, develop new products that feature iShares or otherwise promote the Funds and other iShares funds. BFA Entities may also reimburse expenses or make payments from their own assets to Intermediaries or
other persons in consideration of services or other activities that the BFA Entities believe may benefit the iShares business or facilitate investment in iShares funds. Payments of the type described above are sometimes referred to as
revenue-sharing payments.
Payments to an
Intermediary may be significant to the Intermediary, and amounts that Intermediaries pay to your salesperson or other investment professional may also be significant for your salesperson or other investment professional. Because an Intermediary may
make decisions about which investment options it will recommend or make available to its clients or what services to provide for various products based on payments it receives or is eligible to receive, such payments may create conflicts of interest
between the Intermediary and its clients and these financial incentives may cause the Intermediary to recommend the Fund and other iShares funds over other investments. The same conflict of interest and financial incentive exist with respect to your
salesperson or other investment professional if he or she receives similar payments from his or her Intermediary firm.
As of March 1, 2013, BFA Entities have contractual
arrangements to make payments (in addition to payments for Education Costs or Publishing Costs) to one Intermediary, Fidelity Brokerage Services LLC (“FBS”). Pursuant to this special, long-term and significant arrangement (the
“Marketing Program”), FBS and certain affiliates (collectively “Fidelity”) have agreed, among other things, to actively promote iShares funds to customers and investment professionals and in advertising campaigns as the
preferred exchange-traded product, to offer certain iShares funds in certain Fidelity platforms and investment programs, in some cases at a reduced commission rate, and to provide marketing data to BFA Entities. BFA Entities have agreed to
facilitate the Marketing Program by, among other things, making certain payments to FBS for marketing and implementing certain brokerage and investment programs. Upon termination of the arrangement, the BFA Entities will make additional payments to
FBS based upon a number of criteria, including the overall success of the Marketing Program and the level of services provided by FBS during the wind-down period.
Any additions, modifications, or deletions to Intermediaries
listed above that have occurred since the date noted above are not included in the list. Further, BFA Entities make Education Costs and Publishing Costs payments to other Intermediaries
that are not listed above. BFA Entities may determine to make such payments
based on any number of metrics. For example, BFA Entities may make payments at year-end or other intervals in a fixed amount, an amount based upon an Intermediary’s services at defined levels or an amount based on the Intermediary’s net
sales of one or more iShares funds in a year or other period, any of which arrangements may include an agreed-upon minimum or maximum payment, or any combination of the foregoing. As of the date of this SAI, BFA anticipates that the payments paid by
BFA Entities in connection with the Funds, iShares funds and exchange-traded products in general will be immaterial to BFA Entities in the aggregate for the next year. Please contact your salesperson or other
investment professional for more information regarding any such payments his or her Intermediary firm may receive. Any payments made by the BFA Entities to an Intermediary may create the incentive for an Intermediary to encourage customers to buy
shares of iShares funds.
The Funds may participate
in certain market maker incentive programs of a national securities exchange in which an affiliate of the Funds would pay a fee to the exchange used for the purpose of incentivizing one or more market makers in the securities of a Fund to enhance
the liquidity and quality of the secondary market of securities of the Fund. The fee would then be credited by the exchange to one or more market makers that meet or exceed liquidity and market quality standards with respect to the securities of a
Fund. Each market maker incentive program is subject to approval from the SEC. Any such fee payments made to an exchange will be made by an affiliate of a Fund solely for the benefit of the Fund and will not be paid from any Fund assets.
Brokerage Transactions
BFA assumes general supervision over placing orders on behalf
of each Fund for the purchase and sale of portfolio securities. In selecting brokers or dealers for any transaction in portfolio securities, BFA’s policy is to make such selection based on factors deemed relevant, including but not limited to,
the breadth of the market in the security, the price of the security, the reasonableness of the commission or mark-up or mark-down, if any, execution capability, settlement capability, back office efficiency and the financial condition of the broker
or dealer, both for the specific transaction and on a continuing basis. The overall reasonableness of brokerage commissions paid is evaluated by BFA based upon its knowledge of available information as to the general level of commissions paid by
other institutional investors for comparable services. Brokers may also be selected because of their expertise in certain markets or with certain securities, or their ability to handle special or difficult executions, such as may be involved in
large block trades, less liquid securities, broad distributions, or other circumstances. BFA does not consider the provision or value of research, products or services a broker or dealer may provide, if any, as a factor in the selection of a broker
or dealer or the determination of the reasonableness of commissions paid in connection with portfolio transactions. The Company has adopted policies and procedures that prohibit the consideration of sales of a Fund’s shares as a factor in the
selection of a broker or a dealer to execute its portfolio transactions.
The table below sets forth the brokerage commissions paid by
each Fund for the fiscal years noted. Any differences in brokerage commissions paid by a Fund from year to year are due to increases or decreases in that Fund’s assets over those periods:
Fund
|
|
Fund
Inception Date |
|
Brokerage
Commissions Paid During Fiscal Year Ended August 31, 2012 |
|
Brokerage
Commissions Paid During Fiscal Year Ended August 31, 2011 |
|
Brokerage
Commissions Paid During Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI Australia Index Fund |
|
03/12/96
|
|
$150,277
|
|
$
152,979 |
|
$101,452
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
03/12/96
|
|
2,803
|
|
10,896
|
|
13,937
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
03/12/96
|
|
3,482
|
|
5,882
|
|
11,638
|
|
iShares
MSCI Canada Index Fund |
|
03/12/96
|
|
93,216
|
|
114,330
|
|
61,232
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
|
09/30/09
|
|
5,565
|
|
15,440
|
|
2,692
|
|
iShares
MSCI EMU Index Fund |
|
07/25/00
|
|
26,471
|
|
50,034
|
|
30,678
|
|
iShares
MSCI France Index Fund |
|
03/12/96
|
|
9,472
|
|
13,503
|
|
9,652
|
|
iShares
MSCI Germany Index Fund |
|
03/12/96
|
|
85,600
|
|
218,407
|
|
27,512
|
|
iShares
MSCI Global Gold Miners Fund |
|
01/31/12
|
|
745
|
|
N/A
|
|
N/A
|
|
Fund
|
|
Fund
Inception Date |
|
Brokerage
Commissions Paid During Fiscal Year Ended August 31, 2012 |
|
Brokerage
Commissions Paid During Fiscal Year Ended August 31, 2011 |
|
Brokerage
Commissions Paid During Fiscal Year Ended August 31, 2010 |
|
iShares
MSCI Global Silver Miners Fund |
|
01/31/12
|
|
76
|
|
N/A
|
|
N/A
|
|
iShares
MSCI Hong Kong Index Fund |
|
03/12/96
|
|
46,825
|
|
77,084
|
|
39,826
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
03/26/08
|
|
4,466
|
|
8,497
|
|
39,519
|
|
iShares
MSCI Italy Capped Index Fund |
|
03/12/96
|
|
14,811
|
|
16,323
|
|
10,810
|
|
iShares
MSCI Japan Index Fund |
|
03/12/96
|
|
115,204
|
|
121,836
|
|
172,772
|
|
iShares
MSCI Japan Small Cap Index Fund |
|
12/20/07
|
|
1,723
|
|
1,278
|
|
1,893
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
03/12/96
|
|
104,154
|
|
62,589
|
|
191,950
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
03/12/96
|
|
3,176
|
|
5,744
|
|
3,913
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
10/25/01
|
|
128,911
|
|
166,317
|
|
149,896
|
|
iShares
MSCI Singapore Index Fund |
|
03/12/96
|
|
53,389
|
|
113,886
|
|
83,246
|
|
iShares
MSCI South Africa Index Fund |
|
02/03/03
|
|
35,570
|
|
56,842
|
|
37,270
|
|
iShares
MSCI Spain Capped Index Fund |
|
03/12/96
|
|
14,139
|
|
16,635
|
|
20,964
|
|
iShares
MSCI Sweden Index Fund |
|
03/12/96
|
|
10,883
|
|
21,191
|
|
5,978
|
|
iShares
MSCI Switzerland Capped Index Fund |
|
03/12/96
|
|
36,744
|
|
13,341
|
|
26,875
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
03/26/08
|
|
165,916
|
|
196,525
|
|
48,858
|
|
iShares
MSCI Turkey Investable Market Index Fund |
|
03/26/08
|
|
46,012
|
|
116,660
|
|
114,341
|
|
iShares
MSCI United Kingdom Index Fund |
|
03/12/96
|
|
54,882
|
|
33,311
|
|
37,958
|
|
iShares
MSCI USA Index Fund |
|
05/05/10
|
|
1,499
|
|
20
|
|
34
|
|
iShares
MSCI World Index Fund |
|
01/10/12
|
|
238
|
|
N/A
|
|
N/A
|
|
The following table sets forth the names of the Funds'
“regular broker dealers,” as defined under Rule 10b-1 of the 1940 Act, which derive more than 15% of their gross revenues from securities-related activities and in which the Funds invest, together with the market value of each investment
as of the applicable Fund's fiscal year ended August 31, 2012.
Fund
|
|
Issuer
|
|
Market
Value of Investment |
|
iShares
MSCI Canada Index Fund |
|
Royal
Bank of Canada |
|
$
280,740,751 |
|
iShares
MSCI EMU Index Fund |
|
Deutsche
Bank AG |
|
$
9,437,997 |
|
iShares
MSCI Germany Index Fund |
|
Deutsche
Bank AG |
|
$
110,691,227 |
|
iShares
MSCI Switzerland Capped Index Fund |
|
Credit
Suisse Group AG |
|
$
14,254,395 |
|
iShares
MSCI USA Index Fund |
|
Citigroup,
Inc. |
|
$
956,424 |
|
|
|
Bank
of America Corp |
|
945,361
|
|
|
|
Goldman
Sachs Group, Inc. (The) |
|
542,026
|
|
|
|
Morgan
Stanley |
|
244,470
|
|
iShares
MSCI World Index Fund |
|
Citigroup,
Inc. |
|
$
37,732 |
|
|
|
Bank
of America Corp |
|
37,082
|
|
|
|
Royal
Bank of Canada |
|
34,605
|
|
|
|
Goldman
Sachs Group, Inc. (The) |
|
21,567
|
|
|
|
Deutsche
Bank AG |
|
14,541
|
|
|
|
Credit
Suisse Group AG |
|
10,105
|
|
|
|
Morgan
Stanley |
|
9,780
|
|
None of the Funds paid any brokerage commissions to BlackRock,
an affiliate of BFA, or a subsidiary of BTC, during the fiscal year ended August 31, 2012.
The Funds' purchase and sale orders for securities may be
combined with those of other investment companies, clients or accounts that BFA or its Affiliates manage or advise and for which they have brokerage placement authority. If purchases or sales of portfolio securities of the Funds and one or more
other accounts managed or advised by BFA or its Affiliates are considered at or about the same time, transactions in such securities are allocated among the Funds and the other accounts in a manner deemed equitable to all by BFA and its Affiliates.
In some cases, this procedure could have a detrimental effect on the price or volume of the security as far as the Funds are concerned. However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate
lower transaction costs will be beneficial to the Funds. BFA and its Affiliates may deal, trade and invest for their own account in the types of securities in which the Funds may invest. BFA and its Affiliates may, from time to time, effect trades
on behalf of and for the account of the Funds with brokers or dealers that are affiliated with BFA, in conformity with the 1940 Act and SEC rules and regulations. Under these provisions, any commissions paid to affiliated brokers or dealers must be
reasonable and fair compared to the commissions charged by other brokers or dealers in comparable transactions. The Funds will not deal with affiliates in principal transactions unless permitted by applicable SEC rules or regulations, or by SEC
exemptive order.
Portfolio turnover may vary from year to
year as well as within a year. High turnover rates may result in comparatively greater brokerage expenses.
The table below sets forth the portfolio turnover rates of each
Fund for the fiscal years noted:
Fund
|
|
Fiscal
Year Ended August 31, 2012 |
|
Fiscal
Year Ended August 31, 2011 |
|
iShares
MSCI Australia Index Fund |
|
9%
|
|
9%
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
13%
|
|
12%
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
19%
|
|
12%
|
|
iShares
MSCI Canada Index Fund |
|
5%
|
|
8%
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
|
8%
|
|
24%
|
|
iShares
MSCI EMU Index Fund |
|
7%
|
|
8%
|
|
iShares
MSCI France Index Fund |
|
6%
|
|
6%
|
|
iShares
MSCI Germany Index Fund |
|
4%
|
|
13%
|
|
iShares
MSCI Global Gold Miners Fund |
|
11%
|
|
N/A
|
|
iShares
MSCI Global Silver Miners Fund |
|
9%
|
|
N/A
|
|
iShares
MSCI Hong Kong Index Fund |
|
11%
|
|
15%
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
20%
|
|
17%
|
|
iShares
MSCI Italy Capped Index Fund |
|
14%
|
|
16%
|
|
iShares
MSCI Japan Index Fund |
|
3%
|
|
4%
|
|
iShares
MSCI Japan Small Cap Index Fund |
|
7%
|
|
10%
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
10%
|
|
5%
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
10%
|
|
6%
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
7%
|
|
10%
|
|
iShares
MSCI Singapore Index Fund |
|
3%
|
|
10%
|
|
iShares
MSCI South Africa Index Fund |
|
4%
|
|
4%
|
|
iShares
MSCI Spain Capped Index Fund |
|
17%
|
|
14%
|
|
iShares
MSCI Sweden Index Fund |
|
7%
|
|
9%
|
|
iShares
MSCI Switzerland Capped Index Fund |
|
8%
|
|
7%
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
12%
|
|
22%
|
|
iShares
MSCI Turkey Investable Market Index Fund |
|
9%
|
|
12%
|
|
iShares
MSCI United Kingdom Index Fund |
|
7%
|
|
4%
|
|
iShares
MSCI USA Index Fund |
|
6%
|
|
8%
|
|
iShares
MSCI World Index Fund |
|
3%
|
|
N/A
|
|
Additional Information Concerning the Company
Capital Stock. The
Company currently is comprised of 57 series referred to as funds. Each series issues shares of common stock, par value $0.001 per share. The Company has authorized and issued the following funds as separate series of capital stock: iShares
Asia/Pacific Dividend 30 Index Fund, iShares Core MSCI Emerging Markets ETF, iShares Emerging Markets Corporate Bond Fund, iShares Emerging Markets Dividend Index Fund, iShares Emerging Markets High Yield Bond Fund, iShares Emerging Markets Local
Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund, iShares Global High Yield Corporate Bond Fund, iShares Latin America Bond Fund, iShares MSCI All Country World Minimum Volatility Index Fund, iShares MSCI Australia Index
Fund, iShares MSCI Austria Capped Investable Market Index Fund, iShares MSCI Belgium Capped Investable Market Index Fund, iShares MSCI Brazil Capped Index Fund, iShares MSCI BRIC Index Fund, iShares MSCI Canada Index Fund, iShares MSCI Chile Capped
Investable Market Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging Markets Eastern Europe Index Fund, iShares MSCI Emerging Markets EMEA Index
Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets 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, iShares MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Frontier 100 Index Fund, iShares MSCI Germany Index Fund, 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, iShares MSCI Global Silver Miners Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI
Israel Capped Investable Market Index Fund, iShares MSCI Italy Capped Index Fund, iShares MSCI Japan Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Malaysia Index Fund, iShares MSCI Mexico Capped Investable Market Index Fund,
iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI South Africa Index Fund, iShares MSCI South Korea Capped Index Fund, iShares MSCI Spain Capped Index
Fund, iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Capped Index Fund, iShares MSCI Taiwan Index Fund, iShares MSCI Thailand Capped Investable Market Index Fund, iShares MSCI Turkey Investable Market Index Fund, iShares MSCI United
Kingdom Index Fund, iShares MSCI USA Index Fund and iShares MSCI World Index Fund. The Company has authorized for issuance, but is not currently offering for sale to the public, ten additional series of shares of common stock. The Board may
designate additional series of common stock and classify shares of a particular series into one or more classes of that series. The Amended and Restated Articles of Incorporation confers upon the Board the power to establish the number of shares
which constitute a Creation Unit or by resolution, restrict the redemption right to Creation Units.
Each share issued by a fund has a pro rata interest in the assets of that fund. The Company is currently authorized to issue 31.85 billion shares of common stock. The following number of shares is currently authorized for each of the funds: iShares
Asia/Pacific Dividend 30 Index Fund, 500 million shares; iShares Core MSCI Emerging Markets ETF, 250 million shares; iShares Emerging Markets Corporate Bond Fund, 500 million shares; iShares Emerging Markets Dividend Index Fund, 500 million shares;
iShares Emerging Markets High Yield Bond Fund, 500 million shares; iShares Emerging Markets Local Currency Bond Fund, 500 million shares; iShares Global ex USD High Yield Corporate Bond Fund, 500 million shares; iShares Global High Yield Corporate
Bond Fund, 500 million shares; iShares Latin America Bond Fund, 500 million shares; iShares MSCI All Country World Minimum Volatility Index Fund, 500 million shares; iShares MSCI Australia Index Fund, 627.8 million shares; iShares MSCI Austria
Capped Investable Market Index Fund, 100 million shares; iShares MSCI Belgium Capped Investable Market Index Fund, 136.2 million shares; iShares MSCI Brazil Capped Index Fund, 500 million shares; iShares MSCI BRIC Index Fund, 500 million shares;
iShares MSCI Canada Index Fund, 340.2 million shares; iShares MSCI Chile Capped Investable Market Index Fund, 200 million shares; iShares MSCI Emerging Markets Asia Index Fund, 500 million shares; iShares MSCI Emerging Markets Consumer Discretionary
Sector Index Fund, 500 million shares; iShares MSCI Emerging Markets Eastern Europe Index Fund, 200 million shares; iShares MSCI Emerging Markets EMEA Index Fund, 500 million shares; iShares MSCI Emerging Markets Energy Sector Capped Index Fund, 500
million shares; iShares MSCI Emerging Markets Growth Index Fund, 500 million shares; iShares MSCI Emerging Markets Index Fund, 2 billion shares; iShares MSCI Emerging Markets Minimum Volatility Index Fund, 500 million shares; iShares MSCI Emerging
Markets Small Cap Index Fund, 500 million shares; iShares MSCI Emerging Markets Value Index Fund, 500 million shares; iShares MSCI EMU Index Fund, 1 billion shares; iShares MSCI France Index Fund, 340.2 million shares; iShares MSCI Frontier 100
Index Fund, 500 million shares; iShares MSCI Germany Index Fund, 382.2 million shares; iShares MSCI Global Agriculture Producers Fund, 500 million shares; iShares MSCI Global Energy Producers Fund, 500 million shares; iShares MSCI Global Gold Miners
Fund, 500 million shares; iShares MSCI Global Select Metals & Mining Producers Fund, 500 million shares; iShares MSCI Global Silver Miners
Fund, 500 million shares; iShares MSCI Hong Kong Index Fund, 250 million
shares; iShares MSCI Israel Capped Investable Market Index Fund, 500 million shares; iShares MSCI Italy Capped Index Fund, 63.6 million shares; iShares MSCI Japan Index Fund, 2.1246 billion shares; iShares MSCI Japan Small Cap Index Fund, 500
million shares; iShares MSCI Malaysia Index Fund, 300 million shares; iShares MSCI Mexico Capped Investable Market Index Fund, 255 million shares; iShares MSCI Netherlands Investable Market Index Fund, 255 million shares; iShares MSCI Pacific
ex-Japan Index Fund, 1 billion shares; iShares MSCI Singapore Index Fund, 300 million shares; iShares MSCI South Africa Index Fund, 400 million shares; iShares MSCI South Korea Capped Index Fund, 200 million shares; iShares MSCI Spain Capped Index
Fund, 127.8 million shares; iShares MSCI Sweden Index Fund, 63.6 million shares; iShares MSCI Switzerland Capped Index Fund, 318.625 million shares; iShares MSCI Taiwan Index Fund, 900 million shares; iShares MSCI Thailand Capped Investable Market
Index Fund, 200 million shares; iShares MSCI Turkey Investable Market Index Fund, 200 million shares; iShares MSCI United Kingdom Index Fund, 934.2 million shares; iShares MSCI USA Index Fund, 500 million shares; and iShares MSCI World Index Fund,
500 million shares. Fractional shares will not be issued. Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each share is entitled to participate equally in dividends and distributions declared by
the Board with respect to the relevant fund, and in the net distributable assets of such fund on liquidation. Shareholders are entitled to require the Company to redeem Creation Units of their shares. The Articles of Incorporation confer upon the
Board the power, by resolution, to alter the number of shares constituting a Creation Unit or to specify that shares of common stock of the Company may be individually redeemable.
Each share has one vote with respect to matters upon which a
stockholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder and the Maryland General Corporation Law. Stockholders have no cumulative voting rights with respect to their shares. Shares of all
funds vote together as a single class except that, if the matter being voted on affects only a particular fund or, if a matter affects a particular fund differently from other funds, that fund will vote separately on such matter.
Under Maryland law, the Company is not required to hold an
annual meeting of stockholders unless required to do so under the 1940 Act. The policy of the Company is not to hold an annual meeting of stockholders unless required to do so under the 1940 Act. Under Maryland law, Directors of the Company may be
removed by vote of the stockholders.
Following the
creation of the initial Creation Unit(s) of shares of a fund and immediately prior to the commencement of trading in such fund’s shares, a holder of shares may be a “control person” of the fund, as defined in the 1940 Act. A fund
cannot predict the length of time for which one or more stockholders may remain a control person of the fund.
Stockholders may make inquiries by writing to iShares, Inc.,
c/o BlackRock Investments, LLC, 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310.
Absent an applicable exemption or other relief from the SEC or
its staff, beneficial owners of more than 5% of the shares of a fund may be subject to the reporting provisions of Section 13 of the 1934 Act and the SEC’s rules promulgated thereunder. In addition, absent an applicable exemption or other
relief from the SEC or its staff, officers and directors of a fund and beneficial owners of 10% of the shares of a fund (“Insiders”) may be subject to the insider reporting, short-swing profit and short sale provisions of Section 16 of
the 1934 Act and the SEC’s rules promulgated thereunder. Beneficial owners and Insiders should consult with their own legal counsel concerning their obligations under Sections 13 and 16 of the 1934 Act.
Termination of the Company or a Fund. The Company or a Fund may be terminated by a majority vote of the Board, or the affirmative vote of a supermajority of the shareholders of the Company or such Fund entitled to vote on termination. Although the
shares are not automatically redeemable upon the occurrence of any specific event, the Company's organizational documents provide that the Board will have the unrestricted power to alter the number of shares in a Creation Unit. In the event of a
termination of the Company or a Fund, the Board, in its sole discretion, could determine to permit the shares to be redeemable in aggregations smaller than Creation Units or to be individually redeemable. In such circumstance, the Company may make
redemptions in-kind, for cash or for a combination of cash or securities.
DTC as Securities Depository for Shares of the Funds. Shares of each Fund are represented by securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold
securities of its participants (“DTC Participants”) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities’ certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and
certain other organizations, some of whom (and/or their representatives) own
DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (“NYSE”), the NYSE Amex Equities and FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (“Indirect Participants”).
Beneficial ownership of shares is limited to DTC Participants,
Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in shares (owners of such beneficial interests are referred to herein as “Beneficial Owners”) is
shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of shares. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such laws may impair the ability of certain investors to acquire beneficial interests in shares.
Conveyance of all notices, statements and other communications
to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Company and DTC, DTC is required to make available to the Company upon request and for a fee to be charged to the Company a listing of the shares of each
Fund held by each DTC Participant. The Company shall inquire of each such DTC Participant as to the number of Beneficial Owners holding shares, directly or indirectly, through such DTC Participant. The Company shall provide each such DTC Participant
with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant,
directly or indirectly, to such Beneficial Owners. In addition, the Company shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and
regulatory requirements.
Share distributions shall be
made to DTC or its nominee, Cede & Co., as the registered holder of all shares of the Company. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants’ accounts with payments in amounts
proportionate to their respective beneficial interests in shares of each Fund as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of shares held through such DTC Participants
will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will be the responsibility of such DTC
Participants.
The Company has no responsibility or
liability for any aspect of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such shares, or for maintaining, supervising or reviewing any records relating to such beneficial
ownership interests, or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants. DTC may
decide to discontinue providing its service with respect to shares of the Company at any time by giving reasonable notice to the Company and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the
Company shall take action to find a replacement for DTC to perform its functions at a comparable cost.
Creation and Redemption of Creation Units
General. The Company
issues and sells shares of each Fund only in Creation Units on a continuous basis through the Distributor or its agent, without a sales load, at a price based on the NAV next determined after receipt, on any Business Day (as defined below), of an
order received by the Distributor or its agent in proper form. The following table sets forth the number of shares of a Fund that constitute a Creation Unit for such Fund and the value of such Creation Unit as of September 30, 2012:
Fund
|
|
Shares
Per Creation Unit |
|
Value
Per Creation Unit (U.S.$) |
|
iShares
MSCI Australia Index Fund |
|
200,000
|
|
$4,800,000
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
100,000
|
|
$
1,534,000 |
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
40,000
|
|
$
502,400 |
|
Fund
|
|
Shares
Per Creation Unit |
|
Value
Per Creation Unit (U.S.$) |
|
iShares
MSCI Canada Index Fund |
|
100,000
|
|
$
2,853,000 |
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
|
50,000
|
|
$
1,281,000 |
|
iShares
MSCI EMU Index Fund |
|
100,000
|
|
$
3,006,000 |
|
iShares
MSCI France Index Fund |
|
200,000
|
|
$
4,194,000 |
|
iShares
MSCI Germany Index Fund |
|
300,000
|
|
$
6,759,000 |
|
iShares
MSCI Global Gold Miners Fund |
|
100,000
|
|
$
2,266,000 |
|
iShares
MSCI Global Silver Miners Fund |
|
100,000
|
|
$
2,411,000 |
|
iShares
MSCI Hong Kong Index Fund |
|
75,000
|
|
$
1,370,250 |
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
50,000
|
|
$
2,013,000 |
|
iShares
MSCI Italy Capped Index Fund |
|
150,000
|
|
$
1,810,500 |
|
iShares
MSCI Japan Index Fund |
|
600,000
|
|
$
5,538,000 |
|
iShares
MSCI Japan Small Cap Index Fund |
|
100,000
|
|
$
4,400,000 |
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
100,000
|
|
$
6,549,000 |
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
50,000
|
|
$
924,000 |
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
300,000
|
|
$13,452,000
|
|
iShares
MSCI Singapore Index Fund |
|
100,000
|
|
$
1,348,000 |
|
iShares
MSCI South Africa Index Fund |
|
100,000
|
|
$
6,734,000 |
|
iShares
MSCI Spain Capped Index Fund |
|
75,000
|
|
$
2,079,750 |
|
iShares
MSCI Sweden Index Fund |
|
75,000
|
|
$
2,127,750 |
|
iShares
MSCI Switzerland Capped Index Fund |
|
125,000
|
|
$
3,071,250 |
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
50,000
|
|
$
3,816,000 |
|
iShares
MSCI Turkey Investable Market Index Fund |
|
50,000
|
|
$
2,803,000 |
|
iShares
MSCI United Kingdom Index Fund |
|
200,000
|
|
$
3,460,000 |
|
iShares
MSCI USA Index Fund |
|
50,000
|
|
$
1,546,000 |
|
iShares
MSCI World Index Fund* |
|
100,000
|
|
$
5,600,000 |
|
* The value per Creation Unit information is as of December 14, 2012.
The Board reserves the right to declare a split or a
consolidation in the number of shares outstanding of any Fund, and to make a corresponding change in the number of shares constituting a Creation Unit, in the event that the per share price in the secondary market rises (or declines) to an amount
that falls outside the range deemed desirable by the Board.
A “Business Day” with respect to each Fund is any
day on which the Listing Exchange on which the Fund is listed for trading is open for business. As of the date of this SAI, each Listing Exchange observes the following holidays, as observed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Fund Deposit. The
consideration for purchase of Creation Units of a Fund generally consists of the in-kind deposit of a designated portfolio of securities (including any portion of such securities for which cash may be substituted) (i.e., the Deposit Securities) and the Cash Component computed as described below. Together, the Deposit Securities and the Cash Component constitute the
“Fund Deposit,” which will be applicable (subject to possible amendment or correction) to creation requests received in proper form. The Fund Deposit, when combined with the Fund's portfolio securities, is intended to generate
performance similar to that of the Underlying Index. The Fund Deposit represents the minimum initial and subsequent investment amount for a Creation Unit of any Fund.
The Cash Component is an amount equal to the difference between the NAV of the
shares (per Creation Unit) and the “Deposit Amount,” which is an amount equal to the market value of the Deposit Securities, and serves to compensate for any differences between the NAV per Creation Unit and the Deposit Amount. Payment
of any stamp duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Securities are the sole responsibility of the Authorized Participant purchasing a Creation Unit.
BFA makes available through the NSCC on each Business Day
prior to the opening of business on the Listing Exchange, the list of names and the required number of shares of each Deposit Security and the amount of the Cash Component to be
included in the current Fund Deposit (based on information as of the end of
the previous Business Day for each Fund). Such Fund Deposit is applicable, subject to any adjustments as described below, to purchases of Creation Units of shares of a given Fund until such time as the next-announced Fund Deposit is made
available.
The identity and number of shares of the
Deposit Securities change pursuant to changes in the composition of a Fund's portfolio and as rebalancing adjustments and corporate action events are reflected from time to time by BFA with a view to the investment objective of the Fund. The
composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the component securities constituting the relevant Underlying Index.
The Funds reserve the right to permit or require the
substitution of a “cash in lieu” amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through DTC. The Funds also
reserve the right to permit or require a “cash in lieu” amount in certain circumstances, including circumstances in which (i) the delivery of the Deposit Security by the Authorized Participant (as described below) would be restricted
under applicable securities or other local laws or (ii) the delivery of the Deposit Security to the Authorized Participant would result in the disposition of the Deposit Security by the Authorized Participant becoming restricted under applicable
securities or other local laws, or in certain other situations.
Cash Purchase Method.
Although the Company does not ordinarily permit partial or full cash purchases of Creation Units of iShares funds, when partial or full cash purchases of Creation Units are available or specified for a Fund,
they will be effected in essentially the same manner as in-kind purchases thereof. In the case of a partial or full cash purchase, the Authorized Participant must pay the cash equivalent of the Deposit Securities it would otherwise be required to
provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind purchaser.
Role of the Authorized Participant. Creation Units may be purchased only by or through a DTC Participant that has entered into an authorized participant agreement with the Distributor (an “Authorized Participant”). Such Authorized
Participant will agree, pursuant to the terms of such authorized participant agreement and on behalf of itself or any investor on whose behalf it will act, to certain conditions, including that such Authorized Participant will make available in
advance of each purchase of shares an amount of cash sufficient to pay the Cash Component, once the net asset value of a Creation Unit is next determined after receipt of the purchase order in proper form, together with the transaction fees
described below. An Authorized Participant, acting on behalf of an investor, may require the investor to enter into an agreement with such Authorized Participant with respect to certain matters, including payment of the Cash Component. Investors who
are not Authorized Participants must make appropriate arrangements with an Authorized Participant. Investors should be aware that their particular broker may not be a DTC Participant or may not have executed an authorized participant agreement and
that orders to purchase Creation Units may have to be placed by the investor's broker through an Authorized Participant. As a result, purchase orders placed through an Authorized Participant may result in additional charges to such investor. The
Company does not expect to enter into an authorized participant agreement with more than a small number of DTC Participants. A list of current Authorized Participants may be obtained from the Distributor.
Purchase Orders. Unless
otherwise described below, to initiate an order for a Creation Unit, an Authorized Participant must submit to the Distributor or its agent an irrevocable order to purchase shares of a Fund generally before 4:00 p.m., Eastern time on any
Business Day to receive that day’s NAV. On days when the Listing Exchange closes earlier than normal, the Funds may require orders for Creation Units to be placed earlier in the day. The Distributor or its agent will notify BFA and the
custodian of such order. The custodian will then provide such information to any appropriate sub-custodian. Procedures and requirements governing the delivery of the Fund Deposit are set forth in the procedures handbook for Authorized Participants
and may change from time to time. Investors, other than Authorized Participants, are responsible for making arrangements for a creation request to be made through an Authorized Participant. The Distributor or its agent will provide a list of current
Authorized Participants upon request. Those placing orders to purchase Creation Units through an Authorized Participant should allow sufficient time to permit proper submission of the purchase order to the Distributor or its agent by the Cutoff Time
(as defined below) on such Business Day.
The
Authorized Participant must also make available on or before the contractual settlement date, by means satisfactory to the Funds, immediately available or same day funds estimated by the Funds to be sufficient to pay the Cash Component next
determined after acceptance of the purchase order, together with the applicable purchase transaction fees. Any excess funds will be returned following settlement of the issue of the Creation Unit. Those placing orders should ascertain the applicable
deadline for cash transfers by contacting the operations department of the broker or depositary institution effectuating the transfer of the Cash Component. This deadline is likely to be significantly earlier than the Cutoff Time of the Funds.
Investors
should be aware that an Authorized Participant may require orders for
purchases of shares placed with it to be in the particular form required by the individual Authorized Participant.
The Authorized Participant is responsible for any and all
expenses and costs incurred by a Fund, including any applicable cash amounts, in connection with any purchase order.
Timing of Submission of Purchase Orders. An Authorized Participant must submit an irrevocable order to purchase shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that day's NAV. Creation Orders must be
transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor or its agent pursuant to procedures set forth in the authorized participant agreement, as described below. Economic or market
disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor or its agent or an Authorized Participant. Orders to create shares of a Fund that are submitted on the Business Day immediately
preceding a holiday or a day (other than a weekend) when the equity markets in the relevant non-U.S. market are closed may not be accepted. Each Fund's deadline specified above for the submission of purchase orders is referred to as that Fund's
“Cutoff Time.” The Distributor or its agent, in their discretion, may permit the submission of such orders and requests by or through an Authorized Participant at any time (including on days on which the Listing Exchange is not open for
business) via communication through the facilities of the Distributor's or its agent's proprietary website maintained for this purpose. Purchase orders and redemption requests, if accepted by the Company, will be processed based on the NAV next
determined after such acceptance in accordance with each Fund's Cutoff Times as provided in the authorized participant agreement and disclosed in this SAI.
Acceptance of Orders for Creation Units. Subject to the conditions that (i) an irrevocable purchase order has been submitted by the Authorized Participant (either on its own or another investor's behalf) and (ii) arrangements satisfactory to the Funds
are in place for payment of the Cash Component and any other cash amounts which may be due, the Funds will accept the order, subject to each Fund's right (and the right of the Distributor and BFA) to reject any order until acceptance, as set forth
below.
Once a Fund has accepted an order, upon the
next determination of the net asset value of the shares, the Fund will confirm the issuance of a Creation Unit, against receipt of payment, at such net asset value. The Distributor or its agent will then transmit a confirmation of acceptance to the
Authorized Participant that placed the order.
Each Fund
reserves the absolute right to reject or revoke a creation order transmitted to it by the Distributor or its agent if (i) the order is not in proper form; (ii) the investor(s), upon obtaining the shares ordered, would own 80% or more of the
currently outstanding shares of the Fund; (iii) the Deposit Securities delivered do not conform to the identity and number of shares specified, as described above; (iv) acceptance of the Deposit Securities would have certain adverse tax consequences
to the Fund; (v) acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would, in the discretion of the Fund or BFA, have an adverse effect on the Fund or the rights of beneficial owners; or
(vii) circumstances outside the control of the Fund, the Distributor or its agent and BFA make it impracticable to process purchase orders. The Distributor or its agent shall notify a prospective purchaser of a Creation Unit and/or the Authorized
Participant acting on behalf of such purchaser of its rejection of such order. The Funds, State Street, the sub-custodian and the Distributor or its agent are under no duty, however, to give notification of any defects or irregularities in the
delivery of Fund Deposits nor shall any of them incur any liability for failure to give such notification.
Issuance of a Creation
Unit. Except as provided herein, a Creation Unit will not be issued until the transfer of good title to the applicable Fund of the Deposit Securities and the payment of the Cash Component have been completed.
When the sub-custodian has confirmed to the custodian that the securities included in the Fund Deposit (or the cash value thereof) have been delivered to the account of the relevant sub-custodian or sub-custodians, the Distributor or its agent and
BFA shall be notified of such delivery and the applicable Fund will issue and cause the delivery of the Creation Unit. Creation Units typically are issued on a “ T+3 basis”
(i.e., three Business Days after trade date). Creation Units for the iShares MSCI Germany Index Fund, iShares MSCI Hong Kong Index Fund and iShares
MSCI Turkey Investable Market Index Fund typically are issued on a “T+2 basis” (i.e., two Business Days after trade date). Creation Units
for the iShares MSCI South Africa Index Fund typically are issued on a “T+5 basis” (i.e., five Business Days after trade date). However,
as discussed in the Regular Holidays section, each Fund reserves the right to settle Creation Unit transactions on a basis other than T+3 in order to
accommodate non-U.S. market holiday schedules, to account for different treatment among non-U.S. and U.S. markets of dividend record dates and ex-dividend dates (i.e., the last day the holder of a security can sell the security and still receive dividends payable on the security) and in certain other circumstances.
To the extent contemplated by an Authorized Participant's
agreement with the Distributor, each Fund will issue Creation Units to such Authorized Participant, notwithstanding the fact that the corresponding Fund Deposits have not been received in part or in whole, in reliance on the undertaking of the
Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participant's delivery and maintenance of collateral having a value at least equal to 105% and up to 115%,
which percentage BFA may change at any time, in its sole discretion, of the value of the missing Deposit Securities in accordance with the Funds' then-effective procedures. The only collateral that is acceptable to the Funds is cash in U.S. dollars.
Such cash collateral must be delivered no later than 2:00 p.m., Eastern time on the contractual settlement date. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any,
on invested cash collateral will be paid to that Authorized Participant. Information concerning the Funds' current procedures for collateralization of missing Deposit Securities is available from the Distributor or its agent. The authorized
participant agreement will permit the Funds to buy the missing Deposit Securities at any time and will subject the Authorized Participant to liability for any shortfall between the cost to the Funds of purchasing such securities and the cash
collateral.
In certain cases, Authorized Participants may
create and redeem Creation Units on the same trade date and in these instances, the Funds reserve the right to settle these transactions on a net basis or require a representation from the Authorized Participants that the creation and redemption
transactions are for separate beneficial owners. All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined
by each Fund and the Fund's determination shall be final and binding.
Costs Associated with Creation Transactions. A standard creation transaction fee is imposed to offset the transfer and other transaction costs associated with the issuance of Creation Units. The standard creation transaction fee is charged to the Authorized
Participant on the day such Authorized Participant creates a Creation Unit, and is the same, regardless of the number of Creation Units purchased by the Authorized Participant on the applicable Business Day. The Authorized Participant may also be
required to cover certain brokerage, tax, foreign exchange, execution, market impact and other costs and expenses related to the execution of trades resulting from such transaction (up to the maximum amount shown below). Authorized Participants will
also bear the costs of transferring the Deposit Securities to the Funds. Investors who use the services of a broker or other financial intermediary to acquire Fund shares may be charged a fee for such services.
The following table sets forth each Fund's standard creation
transaction fees and maximum additional charge (as described above):
Fund
|
|
Standard
Creation Transaction Fee |
|
Maximum
Additional Charge for Creations* |
|
iShares
MSCI Australia Index Fund |
|
$2,400
|
|
3.0%
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
600
|
|
3.0%
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
700
|
|
3.0%
|
|
iShares
MSCI Canada Index Fund |
|
1,900
|
|
3.0%
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
|
800
|
|
3.0%
|
|
iShares
MSCI EMU Index Fund |
|
7,500
|
|
3.0%
|
|
iShares
MSCI France Index Fund |
|
2,900
|
|
3.0%
|
|
iShares
MSCI Germany Index Fund |
|
1,500
|
|
3.0%
|
|
iShares
MSCI Global Gold Miners Fund |
|
800
|
|
3.0%
|
|
iShares
MSCI Global Silver Miners Fund |
|
500
|
|
3.0%
|
|
iShares
MSCI Hong Kong Index Fund |
|
2,000
|
|
3.0%
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
3,300
|
|
3.0%
|
|
iShares
MSCI Italy Capped Index Fund |
|
1,400
|
|
3.0%
|
|
iShares
MSCI Japan Index Fund |
|
5,000
|
|
3.0%
|
|
iShares
MSCI Japan Small Cap Index Fund |
|
6,000
|
|
3.0%
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
1,400
|
|
3.0%
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
1,000
|
|
3.0%
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
6,000
|
|
3.0%
|
|
iShares
MSCI Singapore Index Fund |
|
2,000
|
|
3.0%
|
|
iShares
MSCI South Africa Index Fund |
|
1,200
|
|
3.0%
|
|
iShares
MSCI Spain Capped Index Fund |
|
1,500
|
|
3.0%
|
|
Fund
|
|
Standard
Creation Transaction Fee |
|
Maximum
Additional Charge for Creations* |
|
iShares
MSCI Sweden Index Fund |
|
1,300
|
|
3.0%
|
|
iShares
MSCI Switzerland Capped Index Fund |
|
1,500
|
|
3.0%
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
1,700
|
|
3.0%
|
|
iShares
MSCI Turkey Investable Market Index Fund |
|
1,600
|
|
3.0%
|
|
iShares
MSCI United Kingdom Index Fund |
|
3,500
|
|
3.0%
|
|
iShares
MSCI USA Index Fund |
|
1,700
|
|
3.0%
|
|
iShares
MSCI World Index Fund |
|
17,000
|
|
3.0%
|
|
* |
As a percentage of the net
asset value per Creation Unit. |
Redemption of Creation Units.
Shares of a Fund may be redeemed by Authorized Participants only in Creation Units at their
NAV next determined after receipt of a redemption request in proper form by the Distributor or its agent and
only on a Business Day. The Funds will not redeem shares in amounts less than Creation Units. There can be no assurance, however, that there will be sufficient liquidity in the secondary market at any time to permit assembly of a Creation Unit.
Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of shares to constitute a Creation Unit that could be redeemed by an Authorized Participant. Beneficial owners also may sell shares in
the secondary market.
Each Fund generally redeems
Creation Units for Fund Securities. Please see the Cash Redemption Method section below and the following discussion summarizing the in-kind method for further information on redeeming Creation Units of the
Funds.
BFA makes available through the NSCC, prior to
the opening of business on the Listing Exchange on each Business Day, the designated portfolio of securities (including any portion of such securities for which cash may be substituted) that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form (as defined below) on that day (“Fund Securities”), and an amount of cash (the “Cash Amount,” as described below). Such Fund Securities and the corresponding Cash
Amount (each subject to possible amendment or correction) are applicable, in order to effect redemptions of Creation Units of a Fund until such time as the next announced composition of the Fund Securities and Cash Amount is made available. Fund
Securities received on redemption may not be identical to Deposit Securities that are applicable to creations of Creation Units.
Unless cash redemptions are available or specified for a Fund,
the redemption proceeds for a Creation Unit generally consist of Fund Securities, plus the Cash Amount, which is an amount equal to the difference between the net asset value of the shares being redeemed, as next determined after the receipt of a
redemption request in proper form, and the value of Fund Securities, less a redemption transaction fee (as described below).
The Company may, in its sole discretion, substitute a
“cash in lieu” amount to replace any Fund Security. The amount of cash paid out in such cases will be equivalent to the value of the substituted security listed as a Fund Security. In the event that the Fund Securities have a value
greater than the NAV of the shares, a compensating cash payment equal to the difference is required to be made by or through an Authorized Participant by the redeeming shareholder. Each Fund generally redeems Creation Units for Fund Securities, but
each Fund reserves the right to utilize a cash option for redemption of Creation Units.
Cash Redemption Method.
Although the Company does not ordinarily permit partial or full cash redemptions of Creation Units of iShares funds, when partial or full cash redemptions of Creation Units are available or specified for a Fund, they will be effected in essentially
the same manner as in-kind redemptions thereof. In the case of partial or full cash redemption, the Authorized Participant receives the cash equivalent of the Fund Securities it would otherwise receive through an in-kind redemption, plus the same
Cash Amount to be paid to an in-kind redeemer.
Costs Associated with Redemption Transactions. A standard redemption transaction fee is imposed to offset transfer and other transaction costs that may be incurred by the relevant Fund. The standard redemption transaction fee is charged to the Authorized
Participant on the day such Authorized Participant redeems a Creation Unit, and is the same regardless of the number of Creation Units redeemed by an Authorized Participant on the applicable Business Day. The Authorized Participant may also be
required to cover certain brokerage, tax, foreign exchange, execution, market impact and other costs and
expenses related to the execution of trades resulting from such transaction
(up to the maximum amount shown below). Authorized Participants will also bear the costs of transferring the Fund Securities from a Fund to their account on their order. Investors who use the services of a broker or other financial intermediary to
dispose of Fund shares may be charged a fee for such services.
The following table sets forth each Fund's standard redemption
transaction fees and maximum additional charge (as described above):
Fund
|
|
Standard
Redemption Transaction Fee |
|
Maximum
Additional Charge for Redemptions* |
|
iShares
MSCI Australia Index Fund |
|
$
2,400 |
|
2.0%
|
|
iShares
MSCI Austria Capped Investable Market Index Fund |
|
600
|
|
2.0%
|
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
700
|
|
2.0%
|
|
iShares
MSCI Canada Index Fund |
|
1,900
|
|
2.0%
|
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
|
800
|
|
2.0%
|
|
iShares
MSCI EMU Index Fund |
|
7,500
|
|
2.0%
|
|
iShares
MSCI France Index Fund |
|
2,900
|
|
2.0%
|
|
iShares
MSCI Germany Index Fund |
|
1,500
|
|
2.0%
|
|
iShares
MSCI Global Gold Miners Fund |
|
800
|
|
2.0%
|
|
iShares
MSCI Global Silver Miners Fund |
|
500
|
|
2.0%
|
|
iShares
MSCI Hong Kong Index Fund |
|
2,000
|
|
2.0%
|
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
3,300
|
|
2.0%
|
|
iShares
MSCI Italy Capped Index Fund |
|
1,400
|
|
2.0%
|
|
iShares
MSCI Japan Index Fund |
|
5,000
|
|
2.0%
|
|
iShares
MSCI Japan Small Cap Index Fund |
|
6,000
|
|
2.0%
|
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
1,400
|
|
2.0%
|
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
1,000
|
|
2.0%
|
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
6,000
|
|
2.0%
|
|
iShares
MSCI Singapore Index Fund |
|
2,000
|
|
2.0%
|
|
iShares
MSCI South Africa Index Fund |
|
1,200
|
|
2.0%
|
|
iShares
MSCI Spain Capped Index Fund |
|
1,500
|
|
2.0%
|
|
iShares
MSCI Sweden Index Fund |
|
1,300
|
|
2.0%
|
|
iShares
MSCI Switzerland Capped Index Fund |
|
1,500
|
|
2.0%
|
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
1,700
|
|
2.0%
|
|
iShares
MSCI Turkey Investable Market Index Fund |
|
1,600
|
|
2.0%
|
|
iShares
MSCI United Kingdom Index Fund |
|
3,500
|
|
2.0%
|
|
iShares
MSCI USA Index Fund |
|
1,700
|
|
2.0%
|
|
iShares
MSCI World Index Fund |
|
17,000
|
|
2.0%
|
|
* |
As a percentage of the net
asset value per Creation Unit, inclusive of the standard redemption transaction fee. |
Placement of Redemption
Orders. Unless otherwise described below, redemption requests for Creation Units of any Fund must be submitted to the Distributor by or through an Authorized Participant. An Authorized Participant must submit
an irrevocable request to redeem shares of a Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that day's NAV. Investors, other than Authorized Participants, are responsible for making arrangements for a
redemption request to be made through an Authorized Participant. The Distributor or its agent will provide a list of current Authorized Participants upon request.
The Authorized Participant must transmit the request for
redemption in the form required by the Funds to the Distributor or its agent in accordance with procedures set forth in the authorized participant agreement. Investors should be aware that their particular broker may not have executed an authorized
participant agreement and that, therefore, requests to redeem Creation Units may have to be placed by the investor's broker through an Authorized Participant who has executed an authorized participant agreement. At any time, only a limited number of
broker-dealers will have an authorized participant agreement in effect. Investors making a redemption request should be aware that such request must be in the form specified by such Authorized Participant. Investors making a request to redeem
Creation Units should allow sufficient time to permit
proper submission of the request by an Authorized Participant and transfer of
the shares to the Funds' transfer agent; such investors should allow for the additional time that may be required to effect redemptions through their banks, brokers or other financial intermediaries if such intermediaries are not Authorized
Participants.
A redemption request is considered to be in
“proper form” if (i) an Authorized Participant has transferred or caused to be transferred to the Funds' transfer agent the Creation Unit redeemed through the book-entry system of DTC so as to be effective by the Listing Exchange closing
time on any Business Day, (ii) a request in form satisfactory to the applicable Fund is received by the Distributor or its agent from the Authorized Participant on behalf of itself or another redeeming investor within the time periods specified
above and (iii) all other procedures set forth in the authorized participant agreement are properly followed. If the transfer agent does not receive the investor's shares through DTC's facilities by 10:00 a.m., Eastern time on the Business Day next
following the day that the redemption request is received, the redemption request shall be rejected. Investors should be aware that the deadline for such transfers of shares through the DTC system may be significantly earlier than the close of
business on the Listing Exchange. Those making redemption requests should ascertain the deadline applicable to transfers of shares through the DTC system by contacting the operations department of the broker or depositary institution effecting the
transfer of the shares.
Upon receiving a redemption
request, the Distributor or its agent shall notify the applicable Fund and the Fund's transfer agent of such redemption request. The tender of an investor's shares for redemption and the distribution of the securities and/or cash included in the
redemption payment made in respect of Creation Units redeemed will be made through DTC and the relevant Authorized Participant to the Beneficial Owner thereof as recorded on the book-entry system of DTC or the DTC Participant through which such
investor holds, as the case may be, or by such other means specified by the Authorized Participant submitting the redemption request.
A redeeming Beneficial Owner or Authorized Participant acting
on behalf of such Beneficial Owner must maintain appropriate security arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the portfolio securities are customarily traded, to which account
such portfolio securities will be delivered.
Deliveries
of redemption proceeds by the Funds generally will be made within three Business Days (i.e., “T+3”). For the iShares MSCI Germany Index Fund, iShares MSCI Hong Kong Index Fund and iShares MSCI
Turkey Investable Market Index Fund, deliveries of redemption proceeds generally will be made within two Business Days (i.e., “T+2”).For the iShares MSCI South Africa Index Fund, deliveries of
redemption proceeds generally will be made within five Business Days (i.e., “T+5”). However, as discussed in the Regular Holidays section, each Fund reserves
the right to settle redemption transactions and deliver redemption proceeds on another basis to accommodate non-U.S. market holiday schedules, to account for different treatment among non-U.S. and U.S. markets of dividend record dates and dividend
ex-dates (i.e., the last date the holder of a security can sell the security and still receive dividends payable on the security sold) and in certain other circumstances. The
Regular Holidays section hereto identifies the instances, if any, where more than seven days would be needed to deliver redemption proceeds. Pursuant to an order of the SEC, the Company will make delivery of
redemption proceeds within the number of days stated in the Regular Holidays section to be the maximum number of days necessary to deliver redemption proceeds.
If neither the redeeming Beneficial Owner nor
the Authorized Participant acting on behalf of such redeeming Beneficial Owner has appropriate arrangements to take delivery of Fund Securities in the applicable non-U.S. jurisdiction and it is not possible to make other such arrangements, or if it
is not possible to effect deliveries of Fund Securities in such jurisdiction, a Fund may in its discretion exercise its option to redeem such shares in cash, and the redeeming Beneficial Owner will be required to receive its redemption proceeds in
cash. In such case, the investor will receive a cash payment equal to the net asset value of its shares based on the NAV of the relevant Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee
and additional charges specified above to offset the Fund's brokerage and other transaction costs associated with the disposition of Fund Securities). Redemptions of shares for Fund Securities will be subject to compliance with applicable U.S.
federal and state securities laws and each Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Fund cannot lawfully deliver specific Fund Securities upon redemptions
or cannot do so without first registering the Fund Securities under such laws.
Although the Company does not ordinarily permit cash redemptions of Creation Units, in the event that cash redemptions are permitted or required by the Company
proceeds will be paid to the Authorized Participant redeeming shares as soon as
practicable after the date of redemption (within seven calendar days
thereafter, except for the instances listed in the Regular Holidays section hereto where more than seven calendar days would be needed).
To the extent contemplated by an Authorized Participant's
agreement with the Distributor or its agent, in the event an Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the Creation Unit to be redeemed to the Fund, at or prior to 10:00 a.m.,
Eastern time on the Listing Exchange business day after the date of submission of such redemption request, the Distributor or its agent will accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the
missing shares as soon as possible. Such undertaking shall be secured by the Authorized Participant's delivery and maintenance of collateral consisting of cash, in U.S. dollars in immediately available funds, having a value at least equal to 105%
and up to 115%, which percentage BFA may change at any time, in its sole discretion, of the value of the missing shares. Such cash collateral must be delivered no later than 10:00 a.m., Eastern time on the day after the date of submission of such
redemption request and shall be held by State Street and marked-to-market daily. The fees of State Street and any sub-custodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the Authorized
Participant. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. The authorized participant
agreement permits the Funds to acquire shares of the Funds at any time and subjects the Authorized Participant to liability for any shortfall between the aggregate of the cost to the Funds of purchasing such shares, plus the value of the Cash
Amount, and the value of the cash collateral.
Because the
portfolio securities of a Fund may trade on exchange(s) on days that the Listing Exchange is closed or are otherwise not Business Days for such Fund, shareholders may not be able to redeem their shares of such Fund, or purchase or sell shares of
such Fund on the Listing Exchange on days when the NAV of such a Fund could be significantly affected by events in the relevant non-U.S. markets.
The right of redemption may be suspended or the date of payment
postponed with respect to any Fund: (i) for any period during which the Listing Exchange is closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the Listing Exchange is suspended or restricted;
(iii) for any period during which an emergency exists as a result of which disposal of the shares of the Fund's portfolio securities or determination of its net asset value is not reasonably practicable; or (iv) in such other circumstance as is
permitted by the SEC.
Taxation on Creations and Redemptions
of Creation Units. An Authorized Participant generally will recognize either gain or loss upon the exchange of Deposit Securities for Creation Units. This gain or loss is calculated by taking the market value
of the Creation Units purchased over the Authorized Participant’s aggregate basis in the Deposit Securities exchanged therefor. However, the IRS may apply the wash sales rules to determine that any loss realized upon the exchange of Deposit
Securities for Creation Units is not currently deductible. Authorized Participants should consult their own tax advisors.
Current U.S. federal tax laws dictate that capital gain or loss
realized from the redemption of Creation Units will generally create long-term capital gain or loss if the Authorized Participant holds the Creation Units for more than one year, or short-term capital gain or loss if the Creation Units were held for
one year or less, if the Creation Units are held as capital assets.
Regular Holidays. For
every occurrence of one or more intervening holidays in the applicable non-U.S. market that are not holidays observed in the U.S. equity market, the redemption settlement cycle will be extended by the number of such intervening holidays. In addition
to holidays, other unforeseeable closings in a non-U.S. market due to emergencies may also prevent the Company from delivering securities within normal settlement period.
The securities delivery cycles currently practicable for
transferring portfolio securities to redeeming investors, coupled with non-U.S. market holiday schedules, will require a delivery process longer than seven calendar days, in certain circumstances. The holidays applicable to each Fund during such
periods are listed below, as are instances where more than seven days will be needed to deliver redemption proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption
proceeds in any given year is not expected to exceed the maximum number of days listed below for each Fund. The proclamation of new holidays, the treatment by market participants of certain days as “informal holidays” (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery
practices, could affect the information set forth herein at some time in the future.
In calendar years 2013 and 2014, the dates of regular holidays
affecting the relevant securities markets in which a Fund invests are as follows (please note these holiday schedules are subject to potential changes in the relevant securities markets):
2013
Australia
|
January
1 |
April
1 |
June
10 |
November
5 |
January
28 |
April
25 |
August
5 |
December
25 |
March
4 |
May
6 |
August
14 |
December
26 |
March
11 |
May
20 |
September
30 |
|
March
29 |
June
3 |
October
7 |
|
Austria
|
January
1 |
May
9 |
November
1 |
December
31 |
March
29 |
May
20 |
December
24 |
|
April
1 |
May
30 |
December
25 |
|
May
1 |
August
15 |
December
26 |
|
Belgium
|
January
1 |
May
9 |
November
1 |
|
March
29 |
May
10 |
November
11 |
|
April
1 |
May
20 |
December
25 |
|
May
1 |
August
15 |
December
26 |
|
Canada
|
January
1 |
May
20 |
September
2 |
December
26 |
January
2 |
June
24 |
October
14 |
|
February
18 |
July
1 |
November
11 |
|
March
29 |
August
5 |
December
25 |
|
The
Czech Republic |
January
1 |
July
5 |
December
26 |
|
April
1 |
October
28 |
December
31 |
|
May
1 |
December
24 |
|
|
May
8 |
December
25 |
|
|
Finland
|
January
1 |
May
9 |
December
25 |
|
March
29 |
June
21 |
December
26 |
|
April
1 |
December
6 |
December
31 |
|
May
1 |
December
24 |
|
|
France
|
January
1 |
May
8 |
November
11 |
|
March
29 |
May
9 |
December
25 |
|
April
1 |
August
15 |
December
26 |
|
May
1 |
November
1 |
|
|
Germany
|
January
1 |
May
1 |
August
15 |
December
25 |
February
11 |
May
9 |
October
3 |
December
26 |
March
29 |
May
20 |
November
1 |
December
31 |
April
1 |
May
30 |
December
24 |
|
Greece
|
January
1 |
April
1 |
June
24 |
December
26 |
March
18 |
May
1 |
August
15 |
|
March
25 |
May
3 |
October
28 |
|
March
29 |
May
6 |
December
25 |
|
Hong
Kong |
January
1 |
April
4 |
September
20 |
December
26 |
February
11 |
May
1 |
October
1 |
December
31 |
February
12 |
May
17 |
October
14 |
|
March
29 |
June
12 |
December
24 |
|
April
1 |
July
1 |
December
25 |
|
Hungary
|
January
1 |
May
20 |
November
1 |
|
March
15 |
August
19 |
December
24 |
|
April
1 |
August
20 |
December
25 |
|
May
1 |
October
23 |
December
26 |
|
Ireland
|
January
1 |
May
1 |
October
28 |
December
27 |
March
18 |
May
6 |
December
24 |
|
March
29 |
June
3 |
December
25 |
|
April
1 |
August
5 |
December
26 |
|
Israel
|
February
24 |
April
14 |
September
4 |
September
19 |
March
25 |
April
15 |
September
5 |
September
25 |
March
26 |
May
14 |
September
6 |
September
26 |
March
31 |
May
15 |
September
13 |
|
April
1 |
July
16 |
September
18 |
|
The Israeli market is closed every Friday.
Italy
|
January
1 |
May
1 |
December
25 |
|
March
29 |
August
15 |
December
26 |
|
April
1 |
November
1 |
December
31 |
|
April
25 |
December
24 |
|
|
Japan
|
January
1 |
February
11 |
May
6 |
October
14 |
January
2 |
March
20 |
July
15 |
November
4 |
January
3 |
April
29 |
September
16 |
December
23 |
January
14 |
May
3 |
September
23 |
December
31 |
Mexico
|
January
1 |
March
21 |
September
16 |
December
25 |
February
4 |
March
28 |
November
18 |
|
February
5 |
March
29 |
November
20 |
|
March
18 |
May
1 |
December
12 |
|
The
Netherlands |
January
1 |
April
30 |
May
20 |
|
March
29 |
May
1 |
December
25 |
|
April
1 |
May
9 |
December
26 |
|
New
Zealand |
January
1 |
February
6 |
June
3 |
|
January
2 |
March
29 |
October
28 |
|
January
21 |
April
1 |
December
25 |
|
January
28 |
April
25 |
December
26 |
|
Poland
|
January
1 |
May
3 |
November
11 |
|
March
29 |
May
30 |
December
25 |
|
April
1 |
August
15 |
December
26 |
|
May
1 |
November
1 |
|
|
Portugal
|
January
1 |
April
25 |
June
13 |
December
25 |
February
12 |
May
1 |
August
15 |
December
26 |
March
29 |
May
30 |
November
1 |
|
April
1 |
June
10 |
December
24 |
|
Russia
|
January
1 |
January
8 |
May
9 |
|
January
2 |
January
9 |
May
10 |
|
January
3 |
February
25 |
June
12 |
|
January
4 |
March
8 |
November
4 |
|
January
7 |
May
1 |
|
|
Singapore
|
January
1 |
May
24 |
November
2 |
|
February
11 |
May
25 |
November
4 |
|
February
12 |
August
8 |
December
25 |
|
March
29 |
August
9 |
|
|
May
1 |
October
15 |
|
|
South
Africa |
January
1 |
May
1 |
December
16 |
|
March
21 |
June
17 |
December
25 |
|
March
29 |
August
9 |
December
26 |
|
April
1 |
September
24 |
|
|
Spain
|
January
1 |
March
29 |
May
15 |
December
25 |
January
7 |
April
1 |
August
15 |
December
26 |
March
19 |
May
1 |
November
1 |
|
March
28 |
May
2 |
December
6 |
|
Sweden
|
January
1 |
May
9 |
December
25 |
|
March
29 |
June
6 |
December
26 |
|
April
1 |
June
21 |
December
31 |
|
May
1 |
December
24 |
|
|
Switzerland
|
January
1 |
May
1 |
August
15 |
December
26 |
January
2 |
May
9 |
September
5 |
December
31 |
March
19 |
May
20 |
November
1 |
|
March
29 |
May
30 |
December
24 |
|
April
1 |
August
1 |
December
25 |
|
Thailand
|
January
1 |
April
16 |
July
1 |
December
5 |
February
25 |
May
1 |
July
23 |
December
10 |
April
8 |
May
6 |
August
12 |
December
31 |
April
15 |
May
27 |
October
23 |
|
Turkey
|
January
1 |
August
9 |
October
16 |
October
29 |
April
23 |
August
30 |
October
17 |
|
August
7 |
October
14 |
October
18 |
|
August
8 |
October
15 |
October
28 |
|
The
United Kingdom |
January
1 |
May
6 |
December
25 |
|
March
29 |
May
27 |
December
26 |
|
April
1 |
August
26 |
|
|
Australia
|
January
1 |
April
21 |
June
9 |
November
4 |
January
27 |
April
25 |
August
4 |
December
25 |
March
3 |
May
5 |
August
13 |
December
26 |
March
10 |
May
19 |
September
29 |
|
April
18 |
June
2 |
October
6 |
|
Austria
|
January
1 |
May
1 |
August
15 |
December
26 |
January
6 |
May
29 |
December
8 |
December
31 |
April
18 |
June
9 |
December
24 |
|
April
21 |
June
19 |
December
25 |
|
Belgium
|
January
1 |
May
29 |
August
15 |
|
April
18 |
May
30 |
November
11 |
|
April
21 |
June
9 |
December
25 |
|
May
1 |
July
21 |
December
26 |
|
Canada
|
January
1 |
May
19 |
September
1 |
December
26 |
January
2 |
June
24 |
October
13 |
|
February
17 |
July
1 |
November
11 |
|
April
18 |
August
4 |
December
25 |
|
The
Czech Republic |
January
1 |
October
28 |
December
26 |
|
April
21 |
November
17 |
December
31 |
|
May
1 |
December
24 |
|
|
May
8 |
December
25 |
|
|
Finland
|
January
1 |
May
1 |
December
25 |
|
January
6 |
May
29 |
December
26 |
|
April
18 |
June
20 |
December
31 |
|
April
21 |
December
24 |
|
|
France
|
January
1 |
May
8 |
November
11 |
|
April
18 |
May
29 |
December
25 |
|
April
21 |
July
14 |
December
26 |
|
May
1 |
August
15 |
|
|
Germany
|
April
6 |
December
25 |
|
|
April
9 |
December
26 |
|
|
May
1 |
|
|
|
Greece
|
January
1 |
April
18 |
August
15 |
|
January
6 |
April
21 |
October
28 |
|
March
3 |
May
1 |
December
25 |
|
March
25 |
June
9 |
December
26 |
|
Hong
Kong |
January
1 |
April
21 |
July
1 |
December
24 |
January30
|
May
1 |
September
9 |
December
25 |
January
31 |
May
6 |
October
1 |
December
26 |
April
18 |
June
2 |
October
2 |
December
31 |
Hungary
|
January
1 |
June
9 |
December
24 |
|
April
21 |
August
20 |
December
25 |
|
May
1 |
October
23 |
December
26 |
|
May
2 |
October
24 |
|
|
Ireland
|
January
1 |
May
1 |
October
27 |
December
29 |
March
17 |
May
5 |
December
24 |
|
April
18 |
June
2 |
December
25 |
|
April
21 |
August
4 |
December
26 |
|
Israel
|
March
16 |
May
4 |
September
24 |
October
9 |
April
14 |
May
5 |
September
25 |
October
15 |
April
15 |
June
3 |
September
26 |
October
16 |
April
20 |
June
4 |
October
3 |
|
April
21 |
August
5 |
October
8 |
|
The Israeli market is closed every Friday.
Italy
|
January
1 |
April
25 |
December
8 |
December
31 |
January
6 |
May
1 |
December
24 |
|
April
18 |
June
2 |
December
25 |
|
April
21 |
August
15 |
December
26 |
|
Japan
|
January
1 |
February
11 |
July
21 |
November
3 |
January
2 |
March
21 |
September
15 |
November
24 |
January
3 |
April
29 |
September
23 |
December
23 |
January
13 |
May
5 |
October
13 |
December
31 |
Mexico
|
January
1 |
March
21 |
September
16 |
December
25 |
February
3 |
April
17 |
November
17 |
|
February
5 |
April
18 |
November
20 |
|
March
17 |
May
1 |
December
12 |
|
The
Netherlands |
January
1 |
April
30 |
June
9 |
April
18 |
May
1 |
December
25 |
April
21 |
May
29 |
December
26 |
New
Zealand |
January
1 |
February
6 |
June
2 |
January
2 |
April
18 |
October
27 |
January
20 |
April
21 |
December
25 |
January
27 |
April
25 |
December
26 |
Poland
|
January
1 |
May
1 |
November
11 |
April
18 |
June
19 |
December
25 |
April
21 |
August
15 |
December
26 |
Portugal
|
January
1 |
April
25 |
June
19 |
December
24 |
March
4 |
May
1 |
August
15 |
December
25 |
April
18 |
June
10 |
December
1 |
December
26 |
April
21 |
June
13 |
December
8 |
|
Russia
|
January
1 |
January
8 |
May
9 |
January
2 |
February
24 |
June
12 |
January
3 |
March
10 |
June
13 |
January
6 |
May
1 |
November
3 |
January
7 |
May
2 |
November
4 |
Singapore
|
January
1 |
May
1 |
August
9 |
December
25 |
January
31 |
May
13 |
October
6 |
|
February
1 |
May
15 |
October
22 |
|
April
18 |
July
28 |
October
23 |
|
South
Africa |
January
1 |
April
28 |
December
16 |
March
21 |
May
1 |
December
25 |
April
18 |
June
16 |
December
26 |
April
21 |
September
24 |
|
Spain
|
January
1 |
April
21 |
July
25 |
December
25 |
January
6 |
May
1 |
August
15 |
December
26 |
April
17 |
May
2 |
September
9 |
|
April
18 |
May
15 |
December
8 |
|
Sweden
|
January
1 |
May
1 |
December
24 |
January
6 |
May
29 |
December
25 |
April
18 |
June
6 |
December
26 |
April
21 |
June
20 |
December
31 |
Switzerland
|
January
1 |
April
21 |
August
1 |
December
25 |
January
2 |
May
1 |
August
15 |
December
26 |
January
6 |
May
29 |
September
11 |
December
31 |
March
19 |
June
9 |
December
8 |
|
April
18 |
June
19 |
December
24 |
|
Thailand
|
January
1 |
April
15 |
July
1 |
December
5 |
February
14 |
May
1 |
July
14 |
December
10 |
April
7 |
May
5 |
August
12 |
|
April
14 |
May
14 |
October
23 |
|
Turkey
|
January
1 |
July
28 |
October
3 |
October
28 |
April
23 |
July
29 |
October
6 |
October
29 |
May
19 |
July
30 |
October
7 |
|
The
United Kingdom |
January
1 |
May
26 |
April
18 |
August
25 |
April
21 |
December
25 |
May
5 |
December
26 |
Redemptions. The longest
redemption cycle for a Fund is a function of the longest redemption cycle among the countries
and regions whose stocks comprise the Funds. In the calendar years 2013 and 2014, the dates of regular holidays affecting the following securities
markets present the worst-case redemption cycles1 for a Fund as follows:
2013 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
Austria
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
The
Czech Republic |
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Finland
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Germany
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Hungary
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
12/31/13
|
|
8
|
Ireland
|
|
12/19/13
|
|
12/30/13
|
|
11
|
|
|
12/20/13
|
|
12/31/13
|
|
11
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Italy
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Portugal
|
|
12/19/13
|
|
12/27/13
|
|
8
|
2013 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
12/31/13
|
|
8
|
South
Africa |
|
03/14/13
|
|
03/22/13
|
|
8
|
|
|
03/15/13
|
|
03/25/13
|
|
10
|
|
|
03/18/13
|
|
03/26/13
|
|
8
|
|
|
03/19/13
|
|
03/27/13
|
|
8
|
|
|
03/20/13
|
|
03/28/13
|
|
8
|
|
|
03/22/13
|
|
04/02/13
|
|
11
|
|
|
03/25/13
|
|
04/03/13
|
|
8
|
|
|
03/26/13
|
|
04/04/13
|
|
8
|
|
|
03/27/13
|
|
04/05/13
|
|
8
|
|
|
03/28/13
|
|
04/08/13
|
|
11
|
|
|
04/24/13
|
|
05/02/13
|
|
8
|
|
|
04/25/13
|
|
05/03/13
|
|
8
|
|
|
04/26/13
|
|
05/06/13
|
|
10
|
|
|
04/29/13
|
|
05/07/13
|
|
8
|
|
|
04/30/13
|
|
05/08/13
|
|
8
|
|
|
06/10/13
|
|
06/18/13
|
|
8
|
|
|
06/11/13
|
|
06/19/13
|
|
8
|
|
|
06/12/13
|
|
06/20/13
|
|
8
|
|
|
06/13/13
|
|
06/21/13
|
|
8
|
|
|
06/14/13
|
|
06/24/13
|
|
10
|
|
|
08/02/13
|
|
08/12/13
|
|
10
|
|
|
08/05/13
|
|
08/13/13
|
|
8
|
|
|
08/06/13
|
|
08/14/13
|
|
8
|
|
|
08/07/13
|
|
08/15/13
|
|
8
|
|
|
08/08/13
|
|
08/16/13
|
|
8
|
|
|
09/17/13
|
|
09/25/13
|
|
8
|
|
|
09/18/13
|
|
09/26/13
|
|
8
|
|
|
09/19/13
|
|
09/27/13
|
|
8
|
|
|
09/20/13
|
|
09/30/13
|
|
10
|
|
|
09/23/13
|
|
10/01/13
|
|
8
|
|
|
12/11/13
|
|
12/19/13
|
|
8
|
|
|
12/12/13
|
|
12/20/13
|
|
8
|
|
|
12/13/13
|
|
12/23/13
|
|
10
|
|
|
12/18/13
|
|
12/27/13
|
|
9
|
|
|
12/19/13
|
|
12/30/13
|
|
11
|
|
|
12/20/13
|
|
12/31/13
|
|
11
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/24/13
|
|
01/03/14
|
|
10
|
Spain
|
|
03/25/13
|
|
04/02/13
|
|
8
|
|
|
03/26/13
|
|
04/03/13
|
|
8
|
|
|
03/27/13
|
|
04/04/13
|
|
8
|
Sweden
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Switzerland
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Turkey
|
|
10/10/13
|
|
10/21/13
|
|
11
|
2013 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
|
|
10/11/13
|
|
10/22/13
|
|
11
|
2014 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
Austria
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
The
Czech Republic |
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Finland
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Hungary
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
12/31/14
|
|
8
|
Ireland
|
|
12/23/14
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/30/14
|
|
11
|
|
|
12/22/14
|
|
12/31/14
|
|
9
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Italy
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Japan
|
|
12/26/13
|
|
01/06/14
|
|
11
|
|
|
12/27/13
|
|
01/07/14
|
|
11
|
|
|
12/30/13
|
|
01/08/14
|
|
9
|
|
|
12/26/14
|
|
01/05/15
|
|
10
|
|
|
12/29/14
|
|
01/06/15
|
|
8
|
|
|
12/30/14
|
|
01/07/15
|
|
8
|
The
Philippines |
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/26/13
|
|
01/03/14
|
|
8
|
|
|
12/27/13
|
|
01/06/14
|
|
10
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
|
|
12/26/14
|
|
01/05/15
|
|
10
|
|
|
12/29/14
|
|
01/06/15
|
|
8
|
Russia
|
|
12/27/14
|
|
01/09/14
|
|
13
|
|
|
12/30/14
|
|
01/10/14
|
|
11
|
|
|
12/31/14
|
|
01/13/14
|
|
13
|
South
Africa |
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/24/13
|
|
01/03/14
|
|
10
|
|
|
12/27/13
|
|
01/06/14
|
|
10
|
|
|
12/30/13
|
|
01/07/14
|
|
8
|
|
|
12/31/13
|
|
01/08/14
|
|
8
|
|
|
03/14/14
|
|
03/24/14
|
|
10
|
2014 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
|
|
03/17/14
|
|
03/25/14
|
|
8
|
|
|
03/18/14
|
|
03/26/14
|
|
8
|
|
|
03/19/14
|
|
03/27/14
|
|
8
|
|
|
03/20/14
|
|
03/28/14
|
|
8
|
|
|
04/11/14
|
|
04/22/14
|
|
9
|
|
|
04/14/14
|
|
04/23/14
|
|
9
|
|
|
04/15/14
|
|
04/24/14
|
|
9
|
|
|
04/16/14
|
|
04/25/14
|
|
9
|
|
|
04/17/14
|
|
04/29/14
|
|
12
|
|
|
04/22/14
|
|
04/30/14
|
|
8
|
|
|
04/23/14
|
|
05/02/14
|
|
9
|
|
|
04/24/14
|
|
05/05/14
|
|
11
|
|
|
04/25/14
|
|
05/06/14
|
|
11
|
|
|
04/29/14
|
|
05/07/14
|
|
8
|
|
|
04/30/14
|
|
05/08/14
|
|
8
|
|
|
06/09/14
|
|
06/17/14
|
|
8
|
|
|
06/10/14
|
|
06/18/14
|
|
8
|
|
|
06/11/14
|
|
06/19/14
|
|
8
|
|
|
06/12/14
|
|
06/20/14
|
|
8
|
|
|
06/13/14
|
|
06/23/14
|
|
10
|
|
|
09/17/14
|
|
09/25/14
|
|
8
|
|
|
09/18/14
|
|
09/26/14
|
|
8
|
|
|
09/19/14
|
|
09/29/14
|
|
10
|
|
|
09/22/14
|
|
09/30/14
|
|
8
|
|
|
09/23/14
|
|
10/01/14
|
|
8
|
|
|
12/09/14
|
|
12/17/14
|
|
8
|
|
|
12/10/14
|
|
12/18/14
|
|
8
|
|
|
12/11/14
|
|
12/19/14
|
|
8
|
|
|
12/12/14
|
|
12/22/14
|
|
10
|
|
|
12/15/14
|
|
12/23/14
|
|
8
|
|
|
12/18/14
|
|
12/29/14
|
|
11
|
|
|
12/19/14
|
|
12/30/14
|
|
11
|
|
|
12/22/14
|
|
12/31/14
|
|
9
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
|
|
12/14/14
|
|
01/05/15
|
|
12
|
|
|
12/29/14
|
|
01/06/15
|
|
8
|
|
|
12/30/14
|
|
01/07/15
|
|
8
|
|
|
12/31/14
|
|
01/08/15
|
|
8
|
Spain
|
|
04/14/14
|
|
04/22/14
|
|
8
|
|
|
04/15/14
|
|
04/23/14
|
|
8
|
|
|
04/16/14
|
|
04/24/14
|
|
8
|
Sweden
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
1 |
These worst-case redemption
cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse) redemption cycles are possible. |
Taxes
The following is a summary of certain material U.S. federal
income tax considerations regarding the purchase, ownership and disposition of shares of a Fund. This summary does not address all of the potential U.S. federal income tax consequences that may be applicable to a Fund or to all categories of
investors, some of which may be subject to special tax rules. Current and prospective shareholders are urged to consult their own tax advisers with respect to the specific U.S. federal, state, local and non-U.S. tax consequences of investing in a
Fund. The summary is based on the laws in effect on the date of this SAI and existing judicial and administrative interpretations thereof, all of which are subject to change, possibly with retroactive effect.
Regulated Investment Company Qualifications. Each Fund intends to continue to qualify for treatment as a separate RIC under Subchapter M of the Internal Revenue Code. To qualify for treatment as a RIC, each Fund must annually distribute at least 90% of its
investment company taxable income (which includes dividends, interest and net short-term capital gains) and meet several other requirements. Among such other requirements are the following: (i) at least 90% of each Fund’s annual gross income
must be derived from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities or non-U.S. currencies, other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly-traded partnerships
(i.e., partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of
their income from interest, dividends, capital gains and other traditionally permitted mutual fund income); and (ii) at the close of each quarter of each Fund's taxable year, (a) at least 50% of the market value of each Fund’s total assets
must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited for purposes of this calculation in respect of any one issuer to an amount not greater than 5%
of the value of the Fund’s assets and not greater than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of each Fund's total assets may be invested in the securities (other than U.S. government
securities or the securities of other RICs) of any one issuer, of two or more issuers of which 20% or more of the voting stock is held by the Fund and that are engaged in the same or similar trades or businesses or related trades or businesses, or
the securities of one or more qualified publicly-traded partnerships.
A Fund may be able to cure a failure to derive 90% of its
income from the sources specified above or a failure to diversify its holdings in the manner described above by paying a tax and/or by disposing of certain assets. If, in any taxable year, a Fund fails one of these tests and does not timely
cure the failure, that Fund will be taxed in the same manner as an ordinary corporation and distributions to its shareholders will not be deductible by that Fund in computing its taxable income.
Although, in general, the passive loss rules of the Internal
Revenue Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to interests in qualified publicly-traded partnerships. A Fund's investments in partnerships, including in qualified publicly-traded partnerships, may
result in the Fund being subject to state, local, or non-U.S. income, franchise or withholding tax liabilities.
Taxation of RICs. As a
RIC, a Fund will not be subject to U.S. federal income tax on the portion of its taxable investment income and capital gains that it distributes to its shareholders, provided that it satisfies a minimum distribution requirement. To satisfy the
minimum distribution requirement, a Fund must distribute to its shareholders at least the sum of (i) 90% of its “investment company taxable income” (i.e., income other than its net realized long-term capital gain over its net realized short-term capital loss), plus or minus certain adjustments, and (ii) 90% of its net tax-exempt income for the taxable year. A Fund will
be subject to income tax at regular corporate rates on any taxable income or gains that it does not distribute to its shareholders. If a Fund fails to qualify for any taxable year as a RIC or fails to meet the distribution requirement, all of its
taxable income will be subject to tax at regular corporate income tax rates without any deduction for distributions to shareholders, and such distributions generally will be taxable to shareholders as ordinary dividends to the extent of the
Fund’s current and accumulated earnings and profits. In such event, distributions to individuals should be eligible to be treated as qualified dividend income and distributions to corporate shareholders generally should be eligible for the
dividends received deduction. Although each Fund intends to distribute substantially all of its net investment income and its capital gains for each taxable year, each Fund will be subject to U.S. federal income taxation to the extent any such
income or gains are not distributed. If a Fund fails to qualify as a RIC in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a RIC. If a Fund fails to qualify as a RIC for a period greater than
two taxable years, the Fund
may be required to recognize any net built-in gains with respect to certain of
its assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if the Fund had been liquidated) if it qualifies
as a RIC in a subsequent year.
Excise Tax. A Fund will be subject to a 4% excise tax on certain undistributed income if it does not distribute to its shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98.2% of
its capital gain net income for the 12 months ended October 31 of such year. For this purpose, however, any ordinary income or capital gain net income retained by a Fund that is subject to corporate income tax will be considered to have been
distributed by year-end. In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any underdistribution or overdistribution, as the case may be, from the previous year.
Each Fund intends to declare and distribute dividends and distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax.
Net Capital Loss Carryforwards.
Net capital loss carryforwards may be applied against any net realized capital gains in each succeeding year, until they have been reduced to zero or until their respective expiration dates, whichever
occurs first. Capital loss carryforwards from taxable years beginning after December 2010 are not subject to expiration.
The following Funds had tax basis net capital loss
carryforwards as of August 31, 2012, the tax year-end for the Funds listed:
Fund
|
|
Non-Expiring
1 |
|
Expiring
2013 |
|
Expiring
2014 |
|
Expiring
2015 |
|
Expiring
2016 |
|
Expiring
2017 |
|
Expiring
2018 |
|
Expiring
2019 |
|
Total
|
iShares
MSCI Australia Index Fund |
|
$23,345,303
|
|
$
384,424 |
|
$
— |
|
$
7,066 |
|
$
529,868 |
|
$
24,006,125 |
|
$
23,348,244 |
|
$
12,127,364 |
|
$
83.748,394 |
iShares
MSCI Austria Capped Investable Market Index Fund |
|
3,424,334
|
|
—
|
|
—
|
|
9,795,917
|
|
2,587,916
|
|
7,102,366
|
|
16,657,011
|
|
13,826,937
|
|
53,394,481
|
iShares
MSCI Belgium Capped Investable Market Index Fund |
|
3,414,294
|
|
33,969
|
|
—
|
|
—
|
|
1,698,444
|
|
5,953,120
|
|
10,826,174
|
|
19,023,517
|
|
40,949,518
|
iShares
MSCI Canada Index Fund |
|
31,451,368
|
|
2,931,648
|
|
—
|
|
5,363,291
|
|
5,107,471
|
|
27,886,883
|
|
68,928,677
|
|
14,903,919
|
|
156,573,257
|
iShares
MSCI Emerging Markets Eastern Europe Index Fund |
|
243,179
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
204,914
|
|
448,093
|
iShares
MSCI EMU Index Fund |
|
16,675,236
|
|
1,873,963
|
|
—
|
|
—
|
|
—
|
|
26,644,200
|
|
68,035,542
|
|
30,230,739
|
|
143,459,680
|
iShares
MSCI France Index Fund |
|
436,330
|
|
—
|
|
—
|
|
158,472
|
|
335,795
|
|
3,408,374
|
|
7,008,530
|
|
2,858,814
|
|
14,206,315
|
iShares
MSCI Germany Index Fund |
|
9,227,956
|
|
2,241,687
|
|
—
|
|
4,227,713
|
|
3,394,735
|
|
27,790,050
|
|
28,490,949
|
|
32,215,954
|
|
107,589,044
|
iShares
MSCI Global Gold Miners Fund |
|
259,179
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
259,179
|
iShares
MSCI Global Silver Miners Fund |
|
83,082
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
83,082
|
iShares
MSCI Hong Kong Index Fund |
|
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
|
iShares
MSCI Israel Capped Investable Market Index Fund |
|
3,141,756
|
|
—
|
|
—
|
|
—
|
|
—
|
|
784,479
|
|
10,801,191
|
|
7,130,249
|
|
21,857,675
|
iShares
MSCI Italy Capped Index Fund |
|
3,331,166
|
|
527,327
|
|
—
|
|
—
|
|
472,268
|
|
2,743,650
|
|
18,169,627
|
|
9,459,662
|
|
34,703,700
|
Fund
|
|
Non-Expiring
1 |
|
Expiring
2013 |
|
Expiring
2014 |
|
Expiring
2015 |
|
Expiring
2016 |
|
Expiring
2017 |
|
Expiring
2018 |
|
Expiring
2019 |
|
Total
|
iShares
MSCI Japan Index Fund |
|
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
|
iShares
MSCI Japan Small Cap Index Fund |
|
486,584
|
|
—
|
|
—
|
|
—
|
|
—
|
|
131,718
|
|
541,322
|
|
203,697
|
|
1,363,321
|
iShares
MSCI Mexico Capped Investable Market Index Fund |
|
6,596,203
|
|
12,912
|
|
632,766
|
|
—
|
|
853,150
|
|
8,973,988
|
|
2,789,471
|
|
22,863,665
|
|
42,722,155
|
iShares
MSCI Netherlands Investable Market Index Fund |
|
3,096,503
|
|
129,137
|
|
403,525
|
|
260,715
|
|
1,195,162
|
|
5,819,153
|
|
22,256,170
|
|
2,329,005
|
|
35,489,370
|
iShares
MSCI Pacific ex-Japan Index Fund |
|
59,368,214
|
|
—
|
|
—
|
|
—
|
|
—
|
|
66,207,828
|
|
104,799,503
|
|
36,600,987
|
|
266,976,532
|
iShares
MSCI Singapore Index Fund |
|
12,674,147
|
|
2,558,348
|
|
—
|
|
—
|
|
807,115
|
|
15,680,510
|
|
132,420,824
|
|
11,588,528
|
|
175,729,472
|
iShares
MSCI South Africa Index Fund |
|
5,013,197
|
|
—
|
|
260,738
|
|
1,607,845
|
|
972,024
|
|
15,339,464
|
|
14,856,365
|
|
6,137,142
|
|
44,186,775
|
iShares
MSCI Spain Capped Index Fund |
|
5,225,806
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,946,927
|
|
15,120,672
|
|
8,619,903
|
|
34,913,308
|
IShares
MSCI Sweden Index Fund |
|
5,222,903
|
|
—
|
|
107,613
|
|
—
|
|
100,015
|
|
13,686,746
|
|
8,483,510
|
|
5,244,977
|
|
32,845,764
|
iShares
MSCI Switzerland Capped Index Fund |
|
3,464,888
|
|
354,252
|
|
—
|
|
—
|
|
—
|
|
2,837,786
|
|
22,569,380
|
|
6,955,758
|
|
36,182,064
|
iShares
MSCI Thailand Capped Investable Market Index Fund |
|
2,373,181
|
|
—
|
|
—
|
|
—
|
|
—
|
|
555,444
|
|
2,321,428
|
|
1,304,910
|
|
6,554,963
|
iShares
MSCI Turkey Investable Market Index Fund |
|
4,821,444
|
|
—
|
|
—
|
|
—
|
|
—
|
|
720,636
|
|
5,982,737
|
|
3,859,184
|
|
15,384,001
|
iShares
MSCI United Kingdom Index Fund |
|
7,758,079
|
|
1,517,783
|
|
7,063,063
|
|
—
|
|
261,754
|
|
16,140,312
|
|
23,559,917
|
|
22,514,433
|
|
78,815,341
|
iShares
MSCI USA Index Fund |
|
2,724
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,724
|
iShares
MSCI World Index Fund |
|
19,493
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
19,493
|
1 |
Must be utilized prior to
losses subject to expiration. |
Taxation
of U.S. Shareholders. Dividends and other distributions by a Fund are generally treated under the Internal Revenue Code as received by the shareholders at the time the dividend or distribution is made.
However, any dividend or distribution declared by a Fund in October, November or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the Fund not later than such December 31, provided such dividend is actually paid by the Fund during January of the following calendar year.
Each Fund intends to distribute annually to its shareholders
substantially all of its net tax-exempt income, investment company taxable income and any net realized long-term capital gains in excess of net realized short-term capital losses (including any capital loss carryovers). However, if a Fund retains
for investment an amount equal to all or a portion of its net long-term capital gains in excess of its net short-term capital losses (including any capital loss carryovers), it will be subject to a corporate tax (currently at a maximum rate of 35%)
on the amount retained. In that event, the Fund will designate such
retained amounts as undistributed capital gains in a notice to its
shareholders who (a) will be required to include in income for U.S. federal income tax purposes, as long-term capital gains, their proportionate shares of the undistributed amount, (b) will be entitled to credit their proportionate shares of the 35%
tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent their credits exceed their liabilities, if any, and (c) will be entitled to increase their tax basis, for
U.S. federal income tax purposes, in their shares by an amount equal to 65% of the amount of undistributed capital gains included in the shareholder’s income. Organizations or persons not subject to U.S. federal income tax on such capital
gains will be entitled to a refund of their pro rata share of such taxes paid by the Fund upon filing appropriate returns or claims for refund with the IRS.
Distributions of net realized long-term capital gains, if any,
that a Fund reports as capital gains dividends are taxable as long-term capital gains, whether paid in cash or in shares and regardless of how long a shareholder has held shares of the Fund. All other dividends of a Fund (including dividends from
short-term capital gains) from its current and accumulated earnings and profits (“regular dividends”) are generally subject to tax as ordinary income, subject to the discussion of qualified dividend income below.
If an individual receives a regular dividend qualifying for the
long-term capital gains rates and such dividend constitutes an “extraordinary dividend,” and the individual subsequently recognizes a loss on the sale or exchange of stock in respect of which the extraordinary dividend was paid, then the
loss will be long-term capital loss to the extent of such extraordinary dividend. An “extraordinary dividend” on common stock for this purpose is generally a dividend (i) in an amount greater than or equal to 10% of the taxpayer’s
tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within an 85-day period, or (ii) in an amount greater than 20% of the taxpayer’s tax basis (or trading value) in a share of stock, aggregating
dividends with ex-dividend dates within a 365-day period.
Distributions in excess of a Fund’s current and
accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of a shareholder’s basis in shares of the Fund, and as a capital gain thereafter (if the shareholder holds shares of the
Fund as capital assets). Distributions in excess of a Fund’s minimum distribution requirements, but not in excess of the Fund’s earnings and profits, will be taxable to shareholders and will not constitute nontaxable returns of capital.
Each Fund’s capital loss carryforwards, if any, carried from taxable years beginning before 2011 do not reduce current earnings and profits, even if such carryforwards offset current year realized gains. Shareholders receiving dividends or
distributions in the form of additional shares should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the shareholders receiving cash dividends or distributions will receive
and should have a cost basis in the shares received equal to such amount. Dividends paid by a Fund that are attributable to dividends received by a Fund from domestic corporations may qualify for the U.S. federal dividends received deduction for
corporations.
Beginning in 2013, a 3.8% U.S. federal
Medicare contribution tax will be imposed on net investment income, including, but not limited to, interest, dividends, and net gain, of U.S. individuals with income exceeding $200,000 (or $250,000 if married and filing jointly), and of estates and
trusts.
Investors considering buying shares just prior to
a dividend or capital gain distribution should be aware that, although the price of shares purchased at that time may reflect the amount of the forthcoming distribution, such dividend or distribution may nevertheless be taxable to them. If a Fund is
the holder of record of any security on the record date for any dividends payable with respect to such security, such dividends will be included in the Fund’s gross income not as of the date received but as of the later of (a) the date such
security became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the security would not be entitled to receive the declared, but unpaid, dividends); or (b) the date the Fund
acquired such security. Accordingly, in order to satisfy its income distribution requirements, a Fund may be required to pay dividends based on anticipated earnings, and shareholders may receive dividends in an earlier year than would otherwise be
the case.
In certain situations, a Fund may, for a
taxable year, defer all or a portion of its net capital loss realized after October and its late-year ordinary loss (defined as the excess of a Fund’s post-October foreign currency and “passive foreign investment company”
(“PFIC”) losses and other post-December ordinary losses over post-October foreign currency and PFIC gains and other post-December ordinary income) until the next taxable year in computing its investment company taxable income and net
capital gain, which will defer the recognition of such realized losses. Such deferrals and other rules regarding gains and losses realized after October (or December) may affect the tax character of shareholder distributions.
Sales of Shares. Upon
the sale or exchange of shares of a Fund, a shareholder will realize a taxable gain or loss equal to the difference between the amount realized and the shareholder’s basis in shares of the Fund. A redemption of shares by a Fund will be treated
as a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder’s hands and will be long-term capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced, including replacement through the reinvesting of dividends and
capital gains distributions in the Funds, by, or by an option on, substantially identical shares within a 61-day period beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired
will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six months or less will be treated for U.S. federal income tax purposes as a long-term capital loss to the
extent of any distributions or deemed distributions of long-term capital gains received by the shareholder with respect to such share. The Medicare contribution tax described above will apply to the sale of Fund shares.
If a shareholder incurs a sales charge in acquiring shares of a
Fund, disposes of those shares within 90 days and then, on or before January 31 of the following calendar year, acquires shares in a mutual fund for which the otherwise applicable sales charge is reduced by reason of a reinvestment right (e.g., an exchange privilege), the original sales charge will not be taken into account in computing gain/loss on the original shares to the extent the subsequent sales charge is reduced. Instead, the disregarded
portion of the original sales charge will be added to the tax basis of the newly acquired shares. Furthermore, the same rule also applies to a disposition of the newly acquired shares made within 90 days of the second acquisition. This provision
prevents shareholders from immediately deducting the sales charge by shifting their investments within a family of mutual funds.
Back-Up Withholding. In
certain cases, a Fund will be required to withhold at the applicable withholding rate, and remit to the U.S. Treasury such amounts withheld from any distributions paid to a shareholder who: (i) has failed to provide a correct taxpayer identification
number; (ii) is subject to back-up withholding by the IRS; (iii) has failed to certify to a Fund that such shareholder is not subject to back-up withholding; or (iv) has not certified that such shareholder is a U.S. person (including a U.S. resident
alien). Back-up withholding is not an additional tax and any amount withheld may be credited against a shareholder's U.S. federal income tax liability.
Sections 351 and 362.
The Company, on behalf of each Fund, has the right to reject an order for a purchase of shares of the Fund if the purchaser (or group of purchasers) would, upon obtaining the shares so ordered, own 80% or
more of the outstanding shares of a given Fund and if, pursuant to Sections 351 and 362 of the Internal Revenue Code, that Fund would have a basis in the securities different from the market value of such securities on the date of deposit. If a
Fund’s basis in such securities on the date of deposit was less than market value on such date, the Fund, upon disposition of the securities, would recognize more taxable gain or less taxable loss than if its basis in the securities had been
equal to market value. It is not anticipated that the Company will exercise the right of rejection except in a case where the Company determines that accepting the order could result in material adverse tax consequences to a Fund or its
shareholders. The Company also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination.
Taxation of Certain
Derivatives. A Fund’s transactions in zero coupon securities, non-U.S. currencies, forward contracts, options and futures contracts (including options and futures contracts on non-U.S. currencies), to
the extent permitted, will be subject to special provisions of the Internal Revenue Code (including provisions relating to “hedging transactions” and “straddles”) that, among other things, may affect the character of gains
and losses realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and
defer Fund losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also (a) will require a Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out at the end of each year) and (b) may cause a Fund to recognize income without receiving cash with which to pay
dividends or make distributions in amounts necessary to satisfy the distribution requirements for avoiding income and excise taxes. Each Fund will monitor its transactions, will make the appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any zero coupon security, non-U.S. currency, forward contract, option, futures contract or hedged investment in order to mitigate the effect of these rules and prevent disqualification of the Fund as
a RIC.
A Fund’s investments in so-called
“Section 1256 contracts,” such as regulated futures contracts, most non-U.S. currency forward contracts traded in the interbank market and options on most security indexes, are subject to special tax rules. All Section 1256 contracts
held by a Fund at the end of its taxable year are required to be marked to their market value, and any unrealized gain or loss on those positions will be included in the Fund’s income as if each position had been sold for its fair
market value at the end of the taxable year. The resulting gain or loss will
be combined with any gain or loss realized by the Fund from positions in Section 1256 contracts closed during the taxable year. Provided such positions were held as capital assets and were not part of a “hedging transaction” nor part of
a “straddle,” 60% of the resulting net gain or loss will be treated as long-term capital gain or loss, and 40% of such net gain or loss will be treated as short-term capital gain or loss, regardless of the period of time the positions
were actually held by the Fund.
As a result of entering
into swap contracts, a Fund may make or receive periodic net payments. A Fund may also make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will
generally constitute ordinary income or deductions, while termination of a swap will generally result in capital gain or loss (which will be a long-term capital gain or loss if the Fund has been a party to the swap for more than one year). With
respect to certain types of swaps, a Fund may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary
income or loss.
Qualified Dividend Income. Distributions by a Fund of investment company taxable income (including any short-term capital gains), whether received in cash or shares, will be taxable either as ordinary income or as qualified dividend income,
eligible for the reduced maximum rate to individuals of 15% (0% for individuals in lower tax brackets) to the extent the Fund receives qualified dividend income on the securities it holds and the Fund reports the distribution as qualified dividend
income. Qualified dividend income is, in general, dividend income from taxable U.S. corporations (but generally not from U.S. REITs) and certain non-U.S. corporations (e.g., non-U.S. corporations that are not “passive foreign investment companies” and which are incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the
United States, or the stock of which is readily tradable on an established securities market in the United States (where the dividends are paid with respect to such stock)). Under current IRS guidance, the United States has appropriate comprehensive
income tax treaties with the following countries: Australia, Austria, Bangladesh, Barbados, Belgium, Bulgaria, Canada, China (but not with Hong Kong, which is treated as a separate jurisdiction for U.S. tax purposes), Cyprus, the Czech Republic,
Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Morocco, the Netherlands, New Zealand, Norway, Pakistan,
the Philippines, Poland, Portugal, Romania, Russia, the Slovak Republic, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, the United Kingdom, and Venezuela.
Substitute payments received by a Fund for securities lent out by the Fund will not be qualified dividend income.
A dividend from a Fund will not be treated as qualified
dividend income to the extent that (i) the shareholder has not held the shares on which the dividend was paid for 61 days during the 121-day period that begins on the date that is 60 days before the date on which the shares become ex-dividend with
respect to such dividend or the Fund fails to satisfy those holding period requirements with respect to the securities it holds that paid the dividends distributed to the shareholder (or, in the case of certain preferred stocks, the holding
requirement of 91 days during the 181-day period beginning on the date that is 90 days before the date on which the stock becomes ex-dividend with respect to such dividend); (ii) the Fund or the shareholder is under an obligation (whether pursuant
to a short sale or otherwise) to make related payments with respect to substantially similar or related property; or (iii) the shareholder elects to treat such dividend as investment income under Section 163(d)(4)(B) of the Internal Revenue Code.
Dividends received by a Fund from a REIT or another RIC may be treated as qualified dividend income only to the extent the dividend distributions are attributable to qualified dividend income received by such REIT or other RIC. It is expected that
dividends received by a Fund from a REIT and distributed to a shareholder generally will be taxable to the shareholder as ordinary income. The maximum 15% rate on qualified dividend income will not apply to dividends received in taxable years
beginning after December 31, 2012. Distributions by a Fund of its net short-term capital gains will be taxable as ordinary income. Capital gain distributions consisting of a Fund’s net capital gains will be taxable as long-term capital
gains.
If you lend your Fund shares pursuant to
securities lending arrangements, you may lose the ability to use non-U.S. tax credits passed through by the Fund or to treat Fund dividends (paid while the shares are held by the borrower) as qualified dividends. Consult your financial intermediary
or tax advisor. If you enter into a short sale with respect to shares of the Fund, substitute payments made to the lender of such shares may not be deductible. Consult your financial intermediary or tax advisor.
Corporate Dividends Received Deduction. Each Fund (with the exception of the iShares MSCI USA Index Fund) does not expect dividends that are paid to its corporate shareholders to be eligible, in the hands of such shareholders, for the corporate
dividends received deduction.
Dividends paid by the iShares MSCI USA Index Fund that are
attributable to dividends received by the Fund from U.S. corporations may qualify for the U.S. federal dividends received deduction for corporations. A 46-day minimum holding period during the 90-day period that begins 45 days prior to ex-dividend
date (or 91-day minimum holding period during the 180 period beginning 90 days prior to ex-dividend date for certain preference dividends) during which risk of loss may not be diminished is required for the applicable shares, at both the Fund and
shareholder level, for a dividend to be eligible for the dividends received deduction. Restrictions may apply if indebtedness, including a short sale, is attributable to the investment.
Excess Inclusion Income.
Under current law, the Funds serve to block unrelated business taxable income from being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder could realize
unrelated business taxable income by virtue of its investment in a Fund if shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Section 514(b) of the Internal Revenue Code. Certain
types of income received by a Fund from REITs, real estate mortgage investment conduits, taxable mortgage pools or other investments may cause the Fund to report some or all of its distributions as “excess inclusion income.” To Fund
shareholders, such excess inclusion income may (i) constitute taxable income, as unrelated business taxable income for those shareholders who would otherwise be tax-exempt such as individual retirement accounts, 401(k) accounts, Keogh plans, pension
plans and certain charitable entities; (ii) not be offset by otherwise allowable deductions for tax purposes; (iii) not be eligible for reduced U.S. withholding for non-U.S. shareholders even from tax treaty countries; and (iv) cause the Fund to be
subject to tax if certain “disqualified organizations,” as defined by the Internal Revenue Code, are Fund shareholders. If a charitable remainder annuity trust or a charitable remainder unitrust (each as defined in Section 664 of the
Internal Revenue Code) has unrelated business taxable income (“UBTI”) for a taxable year, a 100% excise tax on the UBTI is imposed on the trust.
Non-U.S. Investments.
Under Section 988 of the Internal Revenue Code, gains or losses attributable to fluctuations in exchange rates between the time a Fund accrues income or receivables or expenses or other liabilities
denominated in a non-U.S. currency and the time the Fund actually collects such income or pays such liabilities are generally treated as ordinary income or ordinary loss. In general, gains (and losses) realized on debt instruments will be treated as
Section 988 gain (or loss) to the extent attributable to changes in exchange rates between the U.S. dollar and the currencies in which the instruments are denominated. Similarly, gains or losses on non-U.S. currency, non-U.S. currency forward
contracts and certain non-U.S. currency options or futures contracts denominated in non-U.S currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or
loss unless the Fund were to elect otherwise.
Each
Fund may be subject to non-U.S. income taxes withheld at the source. Each Fund, if permitted to do so, may elect to “pass through” to its investors the amount of non-U.S. income taxes paid by the Fund provided that the Fund held the
security on the dividend settlement date and for at least 15 additional days immediately before and/or thereafter, with the result that each investor with respect to shares of the Fund held for a minimum 16-day holding period at the time of deemed
distribution will (i) include in gross income, even though not actually received, the investor’s pro rata share of the Fund’s non-U.S. income taxes, and (ii) either deduct (in calculating U.S.
taxable income) but only for investors who itemize their deductions on their personal tax returns) or credit (in calculating U.S. federal income tax) the investor’s pro rata share of the Fund’s
non-U.S. income taxes. A non-U.S. person invested in the Fund in a year that the Fund elects to “pass through” its non-U.S. taxes may be treated as receiving additional dividend income subject to U.S. withholding tax. A non-U.S. tax
credit may not exceed the investor’s U.S. federal income tax otherwise payable with respect to the investor’s non-U.S. source income. For this purpose, shareholders must treat as non-U.S. source gross income (i) their proportionate
shares of non-U.S. taxes paid by the Fund and (ii) the portion of any dividend paid by the Fund that represents income derived from non-U.S. sources; the Fund’s gain from the sale of securities will generally be treated as U.S.-source income.
Certain limitations will be imposed to the extent to which the non-U.S. tax credit may be claimed.
Passive Foreign Investment Companies. If a Fund purchases shares in PFICs, it may be subject to U.S. federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is
distributed as a taxable dividend by the Fund to its shareholders. Additional charges in the nature of interest may be imposed on the Fund in respect of deferred taxes arising from such distributions or gains.
If a Fund were to invest in a PFIC and elect to treat the PFIC
as a “qualified electing fund” under the Internal Revenue Code, in lieu of the foregoing requirements, the Fund might be required to include in income each year a portion of the ordinary earnings and net capital gains of the qualified
electing fund, even if not distributed to the Fund, and such amounts would be
subject to the 90% and excise tax distribution requirements described above.
In order to make this election, the Fund would be required to obtain certain annual information from the PFICs in which it invests, which may be difficult or impossible to obtain.
Alternatively, a Fund may make a mark-to-market election that
would result in the Fund being treated as if it had sold and repurchased its PFIC stock at the end of each year. In such case, the Fund would report any such gains as ordinary income and would deduct any such losses as ordinary losses to the extent
of previously recognized gains. The election must be made separately for each PFIC owned by the Fund and, once made, would be effective for all subsequent taxable years, unless revoked with the consent of the IRS. By making the election, the Fund
could potentially ameliorate the adverse tax consequences with respect to its ownership of shares in a PFIC, but in any particular year may be required to recognize income in excess of the distributions it receives from PFICs and its proceeds from
dispositions of PFIC stock. The Fund may have to distribute this “phantom” income and gain to satisfy the 90% distribution requirement and to avoid imposition of the 4% excise tax.
A Fund will make the appropriate tax elections, if possible,
and take any additional steps that are necessary to mitigate the effects of these rules.
Reporting. If a
shareholder recognizes a loss with respect to a Fund’s shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886.
Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but under current guidance, shareholders of a RIC are not exempted. The fact that a loss is reportable under these regulations does not affect
the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Other Taxes. Dividends,
distributions and redemption proceeds may also be subject to additional state, local and non-U.S. taxes depending on each shareholder’s particular situation.
Taxation of Non-U.S. Shareholders. Dividends paid by a Fund to non-U.S. shareholders are generally subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty to the extent derived from investment income
and short-term capital gains. Dividends paid by a Fund from net tax-exempt income or long-term capital gains are generally not subject to such withholding tax. In order to obtain a reduced rate of withholding, a non-U.S. shareholder will be required
to provide an IRS Form W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax does not apply to regular dividends paid to a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends are effectively
connected with the non-U.S. shareholder’s conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. shareholder were a U.S. shareholder.
A non-U.S. corporation receiving effectively connected dividends may also be subject to additional “branch profits tax” imposed at a rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or
other applicable form may be subject to back-up withholding at the appropriate rate.
In general, U.S. federal withholding tax will not apply to any
gain or income realized by a non-U.S. shareholder in respect of any distributions of net long-term capital gains over net short-term capital losses, tax-exempt interest dividends, or upon the sale or other disposition of shares of a Fund. If a
Fund’s direct or indirect interests in U.S. real property were to exceed certain levels, distributions to a non-U.S. shareholder from the Fund attributable to a REIT’s distribution to the Fund of gain from a sale or exchange of a U.S.
real property interest and, in the case of a non-U.S. shareholder owning more than 5% of the class of shares throughout either such person’s holding period for the redeemed shares or, if shorter, the previous five years, the gain on redemption
will be treated as real property gain subject to additional taxes or withholding and may result in the non-U.S. shareholder having additional filing requirements. The rules laid out in the previous paragraph, other than the withholding rules, will
apply notwithstanding the Funds' participation in a wash sale transaction or its payment of a substitute dividend.
A 30% withholding tax will be imposed on dividends paid after
December 31, 2013, and redemption proceeds paid after December 31, 2016, to (i) foreign financial institutions, including non-U.S. investment funds, unless they agree to collect and disclose to the IRS information regarding their direct and indirect
U.S. account holders; and (ii) certain other foreign entities, unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions will (i) need to enter into agreements with
the IRS that state that they will provide the IRS information, including the name, address and taxpayer identification number of direct and indirect U.S. account holders; comply with due diligence
procedures with respect to the identification of U.S. accounts; report to the
IRS certain information with respect to U.S. accounts maintained; agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required information; and determine
certain other information as to their account holders, or (ii) in the event of an intergovernmental agreement and implementing legislation are adopted, provide local revenue authorities with similar account holder information. Other foreign entities
will need to provide the name, address, and taxpayer identification number of each substantial U.S. owner or certifications of no substantial U.S. ownership, unless certain exceptions apply or agree to provide certain information to other revenue
authorities for transmittal to the IRS.
Shares of a Fund
held by a non-U.S. shareholder at death will be considered situated within the United States and subject to the U.S. estate tax.
The foregoing discussion is a summary of certain material U.S.
federal income tax considerations only and is not intended as a substitute for careful tax planning. Purchasers of shares should consult their own tax advisors as to the tax consequences of investing in such shares, including consequences under
state, local and non-U.S. tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date of this SAI. Changes in
applicable authority could materially affect the conclusions discussed above, and such changes often occur.
Financial Statements
Each Fund's audited Financial Statements, including the
Financial Highlights, appearing in the Annual Report to Shareholders and the report therein of PricewaterhouseCoopers LLP, an independent registered public accounting firm, are hereby incorporated by reference in this SAI. The applicable Annual
Report to Shareholders, which contains the referenced audited financial statements, is available upon request and without charge.
Miscellaneous Information
Counsel. Willkie Farr
& Gallagher LLP, located at 787 Seventh Avenue, New York, NY 10019, is counsel to the Company.
Independent Registered Public Accounting Firm. PricewaterhouseCoopers LLP, located at Three Embarcadero Center, San Francisco, CA 94111, serves as the Company's independent registered public accounting firm, audits the Funds' financial statements, and may
perform other services.
Shareholder Communications
to the Board. The Board has established a process for shareholders to communicate with the Board. Shareholders may contact the Board by mail. Correspondence should be addressed to iShares Board of Directors,
c/o BlackRock Institutional Trust Company, N.A. – Mutual Fund Administration, 400 Howard Street, San Francisco, CA 94105. Shareholder communications to the Board should include the following information: (i) the name and address of the
shareholder; (ii) the number of shares owned by the shareholder; (iii) the Fund(s) of which the shareholder owns shares; and (iv) if these shares are owned indirectly through a broker, financial intermediary or other record owner, the name of the
broker, financial intermediary or other record owner. All correspondence received as set forth above shall be reviewed by the Secretary of the Company and reported to the Board.
iShares®
, Inc.
Statement of Additional Information
Dated March 1, 2013
(as revised April 8, 2013)
This combined Statement of Additional Information
(“SAI”) is not a prospectus. It should be read in conjunction with the current prospectuses (each, a “Prospectus” and collectively, the “Prospectuses”) for the following funds of iShares, Inc. (the
“Company”):
Funds
|
|
Ticker
|
|
Stock
Exchange |
|
iShares
Emerging Markets Corporate Bond Fund |
|
CEMB
|
|
BATS
|
|
iShares
Emerging Markets High Yield Bond Fund |
|
EMHY
|
|
BATS
|
|
iShares
Emerging Markets Local Currency Bond Fund |
|
LEMB
|
|
NYSE
Arca |
|
iShares
Global ex USD High Yield Corporate Bond Fund |
|
HYXU
|
|
BATS
|
|
iShares
Global High Yield Corporate Bond Fund |
|
GHYG
|
|
BATS
|
|
The current Prospectuses for the various iShares Funds
included in this SAI are dated March 1, 2013, as amended and supplemented from time to time (each, a “Fund” and collectively, the “Funds”). Capitalized terms used herein that are not defined have the same meaning as in the
Prospectus for each Fund, unless otherwise noted. The Financial Statements and Notes contained in the Company's Annual Reports for the Funds are incorporated by reference into and deemed to be a part of this SAI. A copy of the Prospectus, Annual
Report and Semi-Annual Report for each Fund may be obtained without charge by writing to the Company’s distributor, BlackRock Investments, LLC (the “Distributor”), 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310,
calling 1-800-iShares (1-800-474-2737) or visiting www.iShares.com. The Funds' Prospectuses are incorporated by reference to this SAI.
iShares®
is a registered trademark of BlackRock Fund Advisors (“BFA”) or its affiliates.
General Description of the Company and the Funds
The Company currently consists of more than 55 investment
series or portfolios. The Company was organized as a Maryland corporation on August 31, 1994 and is authorized to have multiple series or portfolios. The Company is an open-end management investment company registered with the U.S. Securities and
Exchange Commission (the “SEC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act” or the “1940 Act”). The offering of the Company's shares is registered under the Securities Act of
1933, as amended (the “1933 Act”). This SAI relates to the following Funds:
• |
iShares Emerging Markets
Corporate Bond Fund |
• |
iShares Emerging Markets
High Yield Bond Fund |
• |
iShares Emerging Markets
Local Currency Bond Fund |
• |
iShares Global ex USD High
Yield Corporate Bond Fund |
• |
iShares Global High Yield
Corporate Bond Fund |
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 a specified benchmark index (each, an “Underlying Index”) representing the sovereign, local
currency bond market. Each Fund is managed by BFA, an indirect wholly owned subsidiary of BlackRock, Inc. BlackRock International Limited, an affiliate of BFA, serves as the sub-adviser (the “ Sub-Adviser”) to the iShares Emerging
Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund.
Each Fund offers and issues shares at their net asset value
per share (“NAV”) only in aggregations of a specified number of shares (“Creation Units”), generally in exchange for a designated portfolio of securities (including any portion of such securities for which cash may be
substituted) included in its Underlying Index (the “Deposit Securities”), together with the deposit of a specified cash payment (the “Cash Component”). Shares of the Funds are listed for trading on national securities
exchanges such as BATS Exchange, Inc. (“BATS”) or NYSE Arca, Inc. (“NYSE Arca”) (each, a “Listing Exchange”). Shares of each Fund are traded in the secondary market and elsewhere at market prices that may be at,
above or below the Fund's NAV. Shares are redeemable only in Creation Units, and, generally, in exchange for portfolio securities and a Cash Component. Creation Units typically are a specified number of shares, generally ranging from 100,000 to
200,000 shares or multiples thereof.
The Company
reserves the right to permit or require that creations and redemptions of shares are effected fully or partially in cash. Shares may be issued in advance of receipt of Deposit Securities, subject to various conditions, including a requirement to
maintain with the Company a cash deposit equal to at least 105% and up to 115%, which percentage BFA may change from time to time, of the market value of the omitted Deposit Securities. See the Creation and
Redemption of Creation Units section of this SAI. Transaction fees and other costs associated with creations or redemptions that include a cash portion may be higher than the transaction fees and other costs associated with in-kind creations
or redemptions. In all cases, conditions and fees will be limited in accordance with the requirements of SEC rules and regulations applicable to management investment companies offering redeemable securities.
Exchange Listing and Trading
A discussion of exchange listing and trading matters
associated with an investment in each Fund is contained in the Shareholder Information section of each Fund's Prospectus. The discussion below supplements, and should be read in conjunction with, that section
of the applicable Prospectus.
Shares of each Fund are
listed for trading, and trade throughout the day, on the applicable Listing Exchange and other secondary markets. Shares of the Funds may also be listed on certain non-U.S. exchanges. There can be no assurance that the requirements of the Listing
Exchange necessary to maintain the listing of shares of any Fund will continue to be met. The Listing Exchange may, but is not required to, remove the shares of a Fund from listing if (i) following the initial 12-month period beginning upon the
commencement of trading of Fund shares, there are fewer than 50 beneficial owners of shares of
the Fund for 30 or more consecutive trading days, (ii) the value of the
Underlying Index on which a Fund is based is no longer calculated or available, (iii) the “indicative optimized portfolio value” (“IOPV”) of the Fund is no longer calculated or available, or (iv) any other event shall occur
or condition shall exist that, in the opinion of the Listing Exchange, makes further dealings on the Listing Exchange inadvisable. The Listing Exchange will also remove shares of a Fund from listing and trading upon termination of the Fund.
As in the case of other publicly-traded securities, when you
buy or sell shares through a broker, you will incur a brokerage commission determined by that broker.
In order to provide additional information regarding the
indicative value of shares of the Funds, the Listing Exchange or a market data vendor disseminates information every 15 seconds through the facilities of the Consolidated Tape Association, or through other widely disseminated means, an updated IOPV
for the Funds as calculated by an information provider or market data vendor. The Company is not involved in or responsible for any aspect of the calculation or dissemination of the IOPVs and makes no representation or warranty as to the accuracy of
the IOPVs.
An IOPV has a fixed income securities
component and a cash component. The fixed income securities values included in an IOPV are the values of the Deposit Securities for a Fund. While the IOPV reflects the current value of the Deposit Securities required to be deposited in connection
with the purchase of a Creation Unit, it does not necessarily reflect the precise composition of the current portfolio of securities held by the Fund at a particular point in time because the current portfolio of the Fund may include securities that
are not a part of the current Deposit Securities. Therefore, a Fund’s IOPV disseminated during the Listing Exchange trading hours should not be viewed as a real-time update of the Fund’s NAV, which is calculated only once a day.
The cash component included in an IOPV consists of estimated
accrued interest, dividends and other income, less expenses. If applicable, each IOPV also reflects changes in currency exchange rates between the U.S. dollar and the applicable currency.
The Company reserves the right to adjust the share prices of
the Funds in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Funds or an investor's equity
interest in the Funds.
Investment Strategies and
Risks
Each Fund seeks to achieve its objective by
investing primarily in both fixed-income securities that comprise its relevant Underlying Index and through transactions that provide substantially similar exposure to securities in the Underlying Index. Each Fund operates as an index fund and will
not be actively managed. Adverse performance of a security in a Fund’s portfolio will ordinarily not result in the elimination of the security from the Fund’s portfolio.
Each Fund engages in representative sampling, which is
investing in a sample of securities selected by BFA to have a collective investment profile similar to that of the Fund's Underlying Index. Securities selected have aggregate investment characteristics (based on market capitalization and industry
weightings), fundamental characteristics (such as yield, credit rating, maturity and duration) and liquidity measures similar to those of the Underlying Index. A fund that uses representative sampling generally does not hold all of the securities
that are in its underlying index.
The iShares Emerging
Markets Corporate Bond Fund generally invests at least 80% of its assets in securities of its Underlying Index and in depositary receipts representing securities of its Underlying Index. However, the Fund may at times invest up to 20% of its assets
in certain futures, options and swap contracts, cash and cash equivalents, including money market funds advised by BFA or its affiliates, as well as in bonds not included in its Underlying Index, but which BFA believes will help the Fund track its
Underlying Index.
The iShares Emerging Markets Local
Currency Bond Fund generally invests at least 80% of its assets in the securities of its Underlying Index and in investments that provide substantially similar exposure to the securities in its Underlying Index. The Fund may invest the remainder of
its assets in certain futures, options and swap contracts, cash and cash equivalents, including money market funds advised by BFA or its affiliates, as well as in securities not included in its Underlying Index, but which BFA believes will help the
Fund track its Underlying Index.
Each of the iShares Emerging Markets High Yield Bond Fund,
iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund generally invests at least 80% of its assets in the securities of its Underlying Index and in investments that provide substantially similar
exposure to the securities in its Underlying Index. Each Fund may at times invest up to 20% of its assets in certain futures, options and swap contracts, cash and cash equivalents, including money market funds advised by BFA or its affiliates, as
well as in bonds not included in its Underlying Index, but which BFA believes will help the Fund track its Underlying Index.
Bonds. Each Fund, other
than the iShares Emerging Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund, invests a substantial portion of its assets in U.S. dollar-denominated bonds. The
iShares Emerging Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund, invest a substantial portion of their assets in non-U.S. dollar denominated bonds. A bond is
an interest-bearing security issued by a U.S. or non-U.S. company, or U.S. or non-U.S. governmental unit. The issuer of a bond has a contractual obligation to pay interest at a stated rate on specific dates and to repay principal (the bond’s
face value) periodically or on a specified maturity date. Bonds generally are used by corporations and governments to borrow money from investors.
An issuer may have the right to redeem or “call” a
bond before maturity, in which case a fund may have to reinvest the proceeds at lower market rates. Similarly, a fund may have to reinvest interest income or payments received when bonds mature, sometimes at lower market rates. Most bonds bear
interest income at a “coupon” rate that is fixed for the life of the bond. The value of a fixed-rate bond usually rises when market interest rates fall, and falls when market interest rates rise. Accordingly, a fixed-rate bond’s
yield (income as a percent of the bond’s current value) may differ from its coupon rate as its value rises or falls. When an investor purchases a fixed-rate bond at a price that is greater than its face value, the investor is purchasing the
bond at a premium. Conversely, when an investor purchases a fixed-rate bond at a price that is less than its face value, the investor is purchasing the bond at a discount. Fixed-rate bonds that are purchased at a discount pay less current income
than securities with comparable yields that are purchased at face value, with the result that prices for such fixed-rate securities can be more volatile than prices for such securities that are purchased at face value. Other types of bonds bear
interest at an interest rate that is adjusted periodically. Interest rates on “floating rate” or “variable rate” bonds may be higher or lower than current market rates for fixed-rate bonds of comparable quality with similar
final maturities. Because of their adjustable interest rates, the value of “floating rate” or “variable rate” bonds fluctuates much less in response to market interest rate movements than the value of fixed-rate bonds, but
the value may decline if their interest rates do not rise as much, or as quickly, as interest rates in general. Each Fund may treat some of these bonds as having a shorter maturity for purposes of calculating the weighted average maturity of its
investment portfolio. Generally, prices of higher quality issues tend to fluctuate less with changes in market interest rates than prices of lower quality issues and prices of longer maturity issues tend to fluctuate more than prices of shorter
maturity issues. Bonds may be senior or subordinated obligations. Senior obligations generally have the first claim on a corporation’s earnings and assets and, in the event of liquidation, are paid before subordinated obligations. Bonds may be
unsecured (backed only by the issuer’s general creditworthiness) or secured (backed by specified collateral).
Borrowing. Each Fund may
borrow as a temporary measure for extraordinary or emergency purposes, including to meet redemptions or to facilitate the settlement of securities or other transactions. Under normal market conditions, any borrowing by a Fund will not exceed 10% of
the Fund’s net assets; however, each Fund generally does not intend to borrow money.
The purchase of securities while borrowings are outstanding
will have the effect of leveraging the Funds. Such leveraging increases a Fund’s exposure to capital risk, and borrowed funds are subject to interest costs that will reduce net income. The use of leverage by a Fund creates an opportunity for
greater total return, but, at the same time, creates special risks. For example, leveraging may exaggerate changes in the net asset value of Fund shares and in the yield on a Fund’s portfolio. Although the principal of such borrowings will be
fixed, a Fund’s assets may change in value during the time the borrowings are outstanding. Borrowings will create interest expenses for a Fund that can exceed the income from the assets purchased with the borrowings. To the extent the income
or capital appreciation derived from securities purchased with borrowed funds exceeds the interest a Fund will have to pay on the borrowings, a Fund’s return will be greater than if leverage had not been used. Conversely, if the income or
capital appreciation from the securities purchased with such borrowed funds is not sufficient to cover the cost of borrowing, the return to a Fund will be less than if leverage had not been used and, therefore, the amount available for distribution
to shareholders as dividends will be reduced. In the latter case, BFA in its best judgment nevertheless may determine to maintain a Fund’s leveraged position if it expects that the benefits to the Fund’s shareholders of maintaining the
leveraged position will outweigh the current reduced return.
Certain types of borrowings by a Fund may result in the Fund
being subject to covenants in credit agreements relating to asset coverage, portfolio composition requirements and other matters. It is not anticipated that observance of such covenants would impede BFA from managing a Fund’s portfolio in
accordance with the Fund’s investment objectives and policies. However, a breach of any such covenants not cured within the specified cure period may result in acceleration of outstanding indebtedness and require the Fund to dispose of
portfolio investments at a time when it may be disadvantageous to do so.
Brady Bonds. Certain of
the Funds may invest in Brady bonds. Brady bonds are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings. Brady
bonds have been issued since 1989. In light of the history of defaults of countries issuing Brady bonds on their commercial bank loans, investments in Brady bonds may be viewed as speculative and subject to the same risks as emerging market
securities. Brady bonds may be fully or partially collateralized or uncollateralized, are issued in various currencies (but primarily the U.S. dollar) and are actively traded in over-the-counter (“OTC”) secondary markets. Incomplete
collateralization of interest or principal payment obligations results in increased credit risk. U.S. dollar-denominated collateralized Brady bonds, which may be either fixed-rate or floating-rate bonds, are generally collateralized by U.S. Treasury
securities.
Corporate Bonds. Certain of the Funds may invest in investment grade and/or high yield corporate bonds. The investment return of corporate bonds reflects interest earned on the security and changes in the market value of the
security. The market value of a corporate bond may be affected by changes in the market rate of interest, the credit rating of the corporation, the corporation’s performance and perceptions of the corporation in the market place. There is a
risk that the issuers of the securities may not be able to meet their obligations on interest or principal payments at the time called for by an instrument.
Diversification
Status. Each Fund is classified as “non-diversified.” A non-diversified fund is a fund that is not limited by the 1940 Act with regard to the percentage of its assets that may be invested in
the securities of a single issuer. The securities of a particular issuer (or securities of issuers in particular industries) may dominate the underlying index of such a fund and, consequently, the fund’s investment portfolio. This may
adversely affect the fund’s performance or subject the fund’s shares to greater price volatility than that experienced by more diversified investment companies.
Each Fund intends to maintain the required level of
diversification and otherwise conduct its operations so as to qualify as a regulated investment company (“RIC”) for purposes of the U.S. Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and to relieve
the Fund of any liability for U.S. federal income tax to the extent that its earnings are distributed to shareholders, provided that the Fund satisfies a minimum distribution requirement. Compliance with the diversification requirements of the
Internal Revenue Code may limit the investment flexibility of certain Funds and may make it less likely that the Funds will meet their respective investment objectives.
Futures and
Options. Futures contracts and options may be used by a Fund to simulate investment in its Underlying Index, to facilitate trading or to reduce transaction costs. Each Fund may enter into futures contracts and
options that are traded on a U.S. or non-U.S. exchange. Each Fund will not use futures or options for speculative purposes.
Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific instrument or index at a specified future time and at a specified price. Each Fund may enter into futures contracts to purchase securities indexes when BFA anticipates purchasing the
underlying securities and believes prices will rise before the purchase will be made. To the extent required by law, liquid assets committed to futures contracts will be maintained.
A call option gives a holder the right to purchase a specific
security at a specified price (“exercise price”) within a specified period of time. A put option gives a holder the right to sell a specific security at a specified exercise price within a specified period of time. The initial purchaser
of a call option pays the “writer” a premium, which is paid at the time of purchase and is retained by the writer whether or not such option is exercised. Each Fund may purchase put options to hedge its portfolio against the risk of a
decline in the market value of securities held and may purchase call options to hedge against an increase in the price of securities it is committed to purchase. Each Fund may write put and call options along with a long position in options to
increase its ability to hedge against a change in the market value of the securities it holds or is committed to purchase. Investments in futures contracts and other investments that contain leverage may require each Fund to maintain liquid assets.
Generally, each Fund maintains an amount of liquid assets equal to its obligations relative to the position involved, adjusted daily on a marked-to-market basis. With respect to futures contracts that are contractually required to
“cash-settle,” each Fund maintains liquid assets in an amount at least equal to the Fund’s daily marked-to-market obligation (i.e., each Fund’s daily net liability, if any), rather than
the contracts’ notional value (i.e., the value of the underlying asset). By
maintaining assets equal to its net obligation under cash-settled futures
contracts, each Fund may employ leverage to a greater extent than if the Fund set aside assets equal to the futures contracts’ full notional value. Each Fund bases its asset maintenance policies on methods permitted by the staff of the SEC and
may modify these policies in the future to comply with any changes in the guidance articulated from time to time by the SEC or its staff.
High Yield Securities.
Certain of the Funds may invest in high yield debt securities, sometimes referred to as “junk bonds.” High yield securities are debt securities rated below investment grade. Investments in high
yield securities generally provide greater potential income and increased opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility and credit risk. These high yield
securities are regarded as predominantly speculative with respect to the issuer’s continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers of debt securities that are high yield may be more
complex than for issuers of higher quality debt securities. In addition, high yield securities are often issued by smaller, less creditworthy issuers or by highly leveraged (indebted) firms, which are generally less able than more financially stable
firms to make scheduled payments of interest and principal. The risks posed by securities issued under such circumstances are substantial.
Investing in high yield debt securities involves risks that are
greater than the risks of investing in higher quality debt securities. These risks include: (i) changes in credit status, including weaker overall credit conditions of issuers and risks of default; (ii) industry, market and economic risk; and (iii)
greater price variability and credit risks of certain high yield securities such as zero coupon and payment-in-kind securities. While these risks provide the opportunity for maximizing return over time, they may result in greater volatility of the
value of each Fund than a fund that invests in higher-rated securities.
Furthermore, the value of high yield securities may be more
susceptible to real or perceived adverse economic, company or industry conditions than is the case for higher quality securities. The market values of certain of these lower-rated and unrated debt securities tend to reflect individual corporate
developments to a greater extent than do higher-rated securities which react primarily to fluctuations in the general level of interest rates, and tend to be more sensitive to economic conditions than are higher-rated securities. Adverse market,
credit or economic conditions could make it difficult at certain times to sell certain high yield securities held by each Fund.
The secondary market on which high yield securities are traded,
if any, may be less liquid than the market for higher grade securities. Less liquidity in the secondary trading market could adversely affect the price at which each Fund could sell a high yield security, and could adversely affect the daily net
asset value per share of each Fund. When secondary markets for high yield securities are less liquid than the market for higher grade securities, it may be more difficult to value the securities because there is less reliable, objective data
available.
The use of credit ratings as a principal
method of selecting high yield securities can involve certain risks. For example, credit ratings evaluate the safety of principal and interest payments, not the market value risk of high yield securities. Also, credit rating agencies may fail to
change credit ratings in a timely fashion to reflect events since the security was last rated.
Illiquid Securities. Each
Fund may invest up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment). Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments
that lack readily available markets as determined in accordance with SEC staff guidance.
Lending Portfolio
Securities. Each Fund may lend portfolio securities to certain creditworthy borrowers, including borrowers affiliated with BFA. The borrowers provide collateral that is maintained in an amount at least equal
to the current market value of the securities loaned. No securities loan shall be made on behalf of a Fund if, as a result, the aggregate value of all securities loans of the particular Fund exceeds one-third of the value of such Fund’s total
assets (including the value of the collateral received). A Fund may terminate a loan at any time and obtain the return of the securities loaned. Each Fund receives the value of any interest or cash or non-cash distributions paid on the loaned
securities.
With respect to loans that are collateralized by cash, the borrower will be
entitled to receive a fee based on the amount of cash collateral. The Funds are compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the borrower. In the case of collateral other than
cash, a Fund is compensated by a fee paid by the borrower equal to a percentage of the market value of the loaned securities. Any cash collateral may be reinvested in certain short-term instruments either directly on behalf of each lending Fund or
through one or more joint accounts or money market funds, including those affiliated with BFA; such reinvestments are subject to investment risk. BFA may receive compensation for managing the reinvestment of the cash collateral.
Securities lending involves exposure to certain risks,
including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process), “gap” risk (i.e., the risk of a
mismatch between the return on cash collateral reinvestments and the fees each Fund has agreed to pay a borrower), and credit, legal, counterparty and market risk. If a securities lending counterparty were to default, a Fund would be subject to the
risk of a possible delay in receiving collateral or in recovering the loaned securities, or to a possible loss of rights in the collateral. In the event a borrower does not return a Fund’s securities as agreed, the Fund may experience losses
if the proceeds received from liquidating the collateral do not at least equal the value of the loaned security at the time the collateral is liquidated, plus the transaction costs incurred in purchasing replacement securities. This event could
trigger adverse tax consequences for the Funds. A Fund could lose money if its short-term investment of the collateral declines in value over the period of the loan. Substitute payments for dividends received by a Fund for securities loaned out by
the Fund will not be considered qualified dividend income. A Fund may take the tax effects of this difference into account in its securities lending program.
Each Fund pays a portion of the interest or fees earned from
securities lending to a borrower as described above and to a securities lending agent who administers the lending program in accordance with guidelines approved by the Company’s Board of Directors (the “Board” or the
“Directors”). To the extent that the Funds engage in securities lending, BlackRock Institutional Trust Company, N.A. (“BTC”) acts as securities lending agent for the Funds, subject to the overall supervision of BFA. BTC
receives a portion of the revenues generated by securities lending activities as compensation for its services.
Non-U.S. Securities.
Certain of the Funds invest in certain obligations or securities of non-U.S. issuers. An issuer of a security may be deemed to be located in a particular country if (i) the principal trading market for the
security is in such country, (ii) the issuer is organized under the laws of such country, (iii) the issuer derives at least 50% of its revenues or profits from such country or has at least 50% of its assets situated in such country or, (iv) the
issuer is the particular country.
Options on Futures
Contracts. Each Fund may invest in options on futures contracts. An option on a futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified exercise price at any time prior to the expiration date of the option. Upon exercise of an option, the delivery of the futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account that represents the amount by which the market price of the futures contract exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the futures contract. The potential for loss related to the purchase of an option on a futures contract is limited to the premium paid for the option plus transaction costs. Because the
value of the option is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option changes daily and that change would be reflected in the
NAV of each Fund. The potential for loss related to writing call options is unlimited. The potential for loss related to writing put options is limited to the agreed upon price per share, also known as the “strike price,” less the
premium received from writing the put.
Each Fund
may purchase and write put and call options on futures contracts that are traded on an exchange as a hedge against changes in value of its portfolio securities, or in anticipation of the purchase of securities, and may enter into closing
transactions with respect to such options to terminate existing positions. There is no guarantee that such closing transactions can be effected.
Upon entering into a futures contract, each Fund will be
required to deposit with the broker an amount of cash or cash equivalents known as “initial margin,” which is in the nature of a performance bond or good faith deposit on the contract and is returned to each Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied. Subsequent payments, known as “variation margin,” to and from the broker will be made daily as the price of the index underlying the futures contract fluctuates,
making the long and short positions in the futures contract more or less valuable, a process known as “marking-to-market.” At any time prior to the expiration of a futures contract, each Fund may elect to close the position by taking an
opposite position, which will operate to terminate each Fund's existing position in the contract.
Privately-Issued
Securities. The iShares Emerging Markets Corporate Bond Fund, iShares Emerging Markets High Yield Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond
Fund may invest in privately-issued securities, including those that may be resold only in accordance with Rule 144A or Regulation S under the
1933 Act (“Restricted Securities”). Restricted Securities are not
publicly-traded and are subject to a variety of restrictions, which limit a purchaser's ability to acquire or resell such securities. Accordingly, the liquidity of the market for specific Restricted Securities may vary. Delay or difficulty in
selling such securities may result in a loss to a Fund.
Ratings. An
investment-grade rating means the security or issuer is rated investment-grade by Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor's Ratings Services, Fitch, Inc. (“Fitch”), Dominion Bond Rating
Service Limited (“Dominion”), or another credit rating agency designated as a nationally recognized statistical rating organization (“NRSRO”) by the SEC, or is unrated but considered to be of equivalent quality by BFA. Bonds
rated Baa3 or above by Moody’s, BBBL or above by Dominion or BBB- or above by Standard & Poor's Ratings Services and Fitch are considered “investment-grade” securities, bonds rated Baa are considered medium grade obligations
subject to moderate credit risk and may possess certain speculative characteristics, while bonds rated BBB are regarded as having adequate capacity to meet financial commitments.
Subsequent to purchase by a Fund, a rated security may cease to
be rated or its rating may be reduced below an investment-grade rating. Bonds rated lower than Baa3 by Moody’s or BBB- by Standard & Poor's Ratings Services or Fitch are considered below investment-grade quality and are obligations of
issuers that are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the possibility
of issuer default and bankruptcy and increased market price volatility. Such securities (“lower-rated securities”) are commonly referred to as “junk bonds” and are subject to a substantial degree of credit risk. Lower-rated
securities are often issued by smaller, less creditworthy companies or by highly leveraged (indebted) firms, which are generally less able than more financially stable firms to make scheduled payments of interest and principal. The risks posed by
securities issued under such circumstances are substantial. Bonds rated below investment-grade tend to be less marketable than higher-quality bonds because the market for them is less broad. The market for unrated bonds is even narrower. Please see
Appendix A of this SAI for a description of each rating category of Moody's, Standard & Poor's Ratings Services, Fitch and Dominion.
Regulation Regarding Derivatives. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to registered investment
companies to regulation by the CFTC if a fund invests more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps (“CFTC Derivatives”), or if the fund markets itself as providing investment exposure
to such instruments. To the extent a Fund uses CFTC-regulated futures, options and swaps, it intends to do so below such prescribed levels and will not market itself as a “commodity pool” or a vehicle for trading such instruments.
Accordingly, BFA has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act (“CEA”) pursuant to Rule 4.5 under the CEA. BFA is not, therefore, subject to registration
or regulation as a “commodity pool operator” under the CEA in respect of such Fund.
Repurchase Agreements. A
repurchase agreement is an instrument under which the purchaser (i.e., a Fund) acquires the security and the seller agrees, at the time of the sale,
to repurchase the security at a mutually agreed upon time and price, thereby determining the yield during the purchaser’s holding period. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured
by the securities transferred to the purchaser. If a repurchase agreement is construed to be a collateralized loan, the underlying securities will not be considered to be owned by a Fund but only to constitute collateral for the seller’s
obligation to pay the repurchase price, and, in the event of a default by the seller, the Fund may suffer time delays and incur costs or losses in connection with the disposition of the collateral.
In any repurchase transaction, the collateral for a repurchase
agreement may include: (i) cash items; (ii) obligations issued by the U.S. government or its agencies or instrumentalities; or (iii) obligations that, at the time the repurchase agreement is entered into, are rated in the highest rating category
generally by at least two nationally recognized statistical rating organizations (“NRSROs”), or, if unrated, determined to be of comparable quality by BFA. Collateral, however, is not limited to the foregoing and may include, for
example, obligations rated below the highest category by NRSROs. Collateral for a repurchase agreement may also include securities that a Fund could not hold directly without the repurchase obligation. Irrespective of the type of collateral
underlying the repurchase agreement, in the case of a repurchase agreement entered into by a non-money market fund, the repurchase obligation of a seller must be of comparable credit quality to securities that are rated in the highest two short-term
rating categories by at least one NRSRO or, if unrated, deemed by BFA to be of equivalent quality.
Repurchase agreements pose certain risks for a Fund, should it
decide to utilize them. Such risks are not unique to the Funds, but are inherent in repurchase agreements. The Funds seek to minimize such risks, but because of the inherent legal
uncertainties involved in repurchase agreements, such risks cannot be
eliminated. Lower quality collateral and collateral with longer maturities may be subject to greater price fluctuations than higher quality collateral and collateral with shorter maturities. If the repurchase agreement counterparty were to default,
lower quality collateral may be more difficult to liquidate than higher quality collateral. Should the counterparty default and the amount of collateral not be sufficient to cover the counterparty’s repurchase obligation, a Fund would retain
the status of an unsecured creditor of the counterparty (i.e., the position the Fund would normally be in if it were to hold, pursuant to its investment policies, other unsecured debt securities of the
defaulting counterparty) with respect to the amount of the shortfall. As an unsecured creditor, a Fund would be at risk of losing some or all of the principal and income involved in the transaction.
Reverse Repurchase
Agreements. Reverse repurchase agreements involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of
borrowing. Generally, the effect of such transactions is that a Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases the Fund is able to keep
some of the interest income associated with those securities. Such transactions are advantageous only if a Fund has an opportunity to earn a rate of interest on the cash derived from these transactions that is greater than the interest cost of
obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and a Fund intends to use the reverse repurchase technique only
when BFA believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any increase or decrease in the value of a Fund’s assets. The Fund’s exposure to reverse repurchase agreements will be covered
by liquid assets having a value equal to or greater than such commitments. The use of reverse repurchase agreements is a form of leverage because the proceeds derived from reverse repurchase agreements may be invested in additional
securities.
Securities of Investment Companies. Each Fund may invest in the securities of other investment companies (including money market funds) to the extent allowed by law, regulation, exemptive order or SEC staff guidance. Under the 1940 Act, a
Fund’s investment in investment companies is limited to, subject to certain exceptions, (i) 3% of the total outstanding voting stock of any one investment company, (ii) 5% of the Fund’s total assets with respect to any one investment
company, and (iii) 10% of the Fund’s total assets with respect to investment companies in the aggregate. To the extent allowed by law or regulation, a Fund may invest its assets in securities of investment companies that are money market
funds, including those advised by BFA or otherwise affiliated with BFA, in excess of the limits discussed above. Other investment companies in which a Fund invests can be expected to incur fees and expenses for operations, such as investment
advisory and administration fees, that would be in addition to those incurred by the Fund.
Short-Term Instruments and Temporary Investments. Each Fund may invest in short-term instruments, including variable
rate demand notes, short-term municipal securities, short-term municipal money market funds and money market instruments, on an ongoing basis
to provide liquidity or for other reasons. Money market instruments are generally short-term investments that may include but are not limited to: (i) shares of money market funds (including those advised by BFA or otherwise affiliated with BFA);
(ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (“CDs”), bankers’ acceptances, fixed-time
deposits and other obligations of U.S. and non-U.S. banks (including non-U.S. branches) and similar institutions; (iv) commercial paper rated, at the date of purchase, “Prime-1” by Moody's, “F-1” by Fitch or “A-1”
by Standard & Poor's Ratings Services, or if unrated, of comparable quality as determined by BFA; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a-7 under the 1940 Act; (vi) repurchase agreements; and
(vii) short-term U.S. dollar-denominated obligations of non-U.S. banks (including U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by a Fund. Any of these instruments may be
purchased on a current or forward-settled basis. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers’ acceptances are time drafts drawn on commercial
banks by borrowers, usually in connection with international transactions.
Sovereign and Quasi-Sovereign Obligations. Certain of the Funds may invest in sovereign and quasi-sovereign obligations. An investment in sovereign debt obligations involves special risks not present in corporate debt obligations. Sovereign debt includes
securities issued or guaranteed by a foreign sovereign government. Quasi-sovereign debt includes securities issued or guaranteed by an entity affiliated with or backed by a sovereign government. The issuer of the sovereign debt that controls the
repayment of the debt may be unable or unwilling to repay principal or interest when due, and a Fund may have limited recourse in the event of a default. Similar to other issuers, changes to financial condition or credit rating of a non-U.S.
government may cause the value of a sovereign debt to decline. During periods of economic uncertainty, the market prices of
sovereign debt obligations may be more volatile than prices of U.S. debt
obligations, which may affect a Fund's NAV. In the past, certain emerging market countries have encountered difficulties in servicing their debt obligations, withheld payments of principal and interest and declared moratoria on the payment of
principal and interest on their sovereign debts. Several sovereign issuers have experienced volatility and adverse trends due to concerns about rising government debt levels, including Greece, Ireland, Italy, Portugal and Spain. In the past,
sovereign issuers have also defaulted on their debt obligations, including Russia, Argentina, Indonesia and Uruguay.
A sovereign debtor's willingness or ability to repay principal
and pay interest in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its non-U.S. currency reserves, the availability of sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local political constraints. Sovereign debtors may also be dependent on expected disbursements from foreign governments, multilateral agencies and other entities to reduce
principal and interest arrears on their debt. The failure of a sovereign debtor to implement economic reforms, achieve specified levels of economic performance or repay principal or interest when due may result in the cancellation of third-party
commitments to lend funds to the sovereign debtor, which may further impair such debtor's ability or willingness to service its debts. Quasi-sovereign debt obligations are typically less liquid and less standardized than government debt.
Swap Agreements. Swap
agreements are contracts between parties in which one party agrees to make periodic payments to the other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make periodic
payments to the first party based on the return of a different specified rate, index or asset. Swap agreements will usually be performed on a net basis, with a Fund receiving or paying only the net amount of the two payments. The net amount of the
excess, if any, of a Fund’s obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of liquid assets having an aggregate value at least equal to the accrued excess will be maintained by the
Fund.
The use of interest rate and index swaps is
a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. These transactions generally do not involve the delivery of securities or other underlying
assets or principal.
U.S.-Registered Securities of Non-U.S.
Issuers. Each Fund (other than the iShares Emerging Markets Local Currency Bond Fund and iShares Global ex USD High Yield Corporate Bond Fund) may invest in U.S.-registered, U.S. dollar-denominated bonds of
non-U.S. governments, agencies, supranational entities and corporate issuers. Investing in U.S.-registered, U.S. dollar-denominated bonds issued by non-U.S. issuers involves some risks and considerations not typically associated with investing in
U.S. issuers. These include differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which
could affect U.S. investments in foreign countries, and potential restrictions of the flow of international capital. Non-U.S. issuers may be subject to less governmental regulation than U.S. issuers. In addition, the risk that the issuer may fail to
meet its obligations on these securities may be affected by fluctuations in non-U.S. currency exchange rates between the issuer's local currency and the U.S. dollar. Moreover, individual non-U.S. economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross domestic product (“GDP”), rate of inflation, capital reinvestment, resource self-sufficiency and balance of payment positions.
Future Developments. The
Board may, in the future, authorize each Fund to invest in securities contracts and investments other than those listed in this SAI and in the Prospectus, provided they are consistent with each Fund's investment objective and do not violate any
investment restrictions or policies.
General
Considerations and Risks
A discussion of some of the
principal risks associated with an investment in a Fund is contained in each Fund's Prospectus. An investment in a Fund should be made with an understanding that the value of the Fund’s portfolio securities may fluctuate in accordance with
changes in the financial condition of the issuers of the portfolio securities, the value of bonds in general, and other factors that affect the market.
Borrowing
Risk. Borrowing may exaggerate changes in the net asset value of Fund shares and in the return on a Fund’s portfolio. Borrowing will cost the Fund interest expense and other fees. The costs of borrowing
may reduce the Fund’s return. Borrowing may cause a Fund to liquidate positions when it may not be advantageous to do so to satisfy its obligations.
Call Risk. During
periods of falling interest rates, an issuer of a callable bond held by the Funds may “call” or repay the security before its stated maturity, which may result in a Fund having to reinvest the proceeds at lower interest rates, resulting
in a decline in the Fund's income.
Custody Risk. Custody risk refers to the risks inherent in the process of clearing and settling trades and to the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less
developed markets make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that may not be subject to independent evaluation. Local agents are held only to the
standards of care of their local markets. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Cyber Security Issues.
With the increased use of technologies such as the Internet to conduct business, each Fund is susceptible to operational and information security risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber
attacks include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber attacks may also be carried out in a
manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches by the Funds’ third party service providers (including, but not limited to index providers,
fund accountants and transfer agents) and the issuers of securities in which the Funds invest, have the ability to cause disruptions and impact business operations potentially resulting in financial losses, the inability of Fund shareholders to
transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In addition, substantial costs may be incurred in
order to prevent any cyber incidents in the future. The Funds and their shareholders could be negatively impacted as a result. While the Funds have established business continuity plans and risk management systems to prevent such cyber-attacks,
there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, the Funds cannot control the cyber security plans and systems put in place by issuers in which the Funds
invest.
Extension Risk. During periods of rising interest rates, certain obligations will be paid off substantially more slowly than originally anticipated and the value of those securities may fall sharply, resulting in a decline to a
Fund’s income and potentially in the value of a Fund’s investments.
Risk of Derivatives. A
derivative is a financial contract, the value of which depends on, or is derived from, the value of an underlying asset such as a security or an index. Each Fund may invest in variable rate demand notes and obligations, and tender option bonds,
which may be considered derivatives. Compared to conventional securities, derivatives can be more sensitive to changes in interest rates or to sudden fluctuations in market prices and thus a Fund's losses may be greater if it invests in derivatives
than if it invests only in conventional securities. Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligations.
Risk of Futures and Options Transactions. There are several risks accompanying the utilization of futures contracts and options on futures contracts. A position in futures contracts and options on futures contracts may be closed only on the exchange on
which the contract was made (or a linked exchange). While each Fund plans to utilize futures contracts only if an active market exists for such contracts, there is no guarantee that a liquid market will exist for the contract at a specified time.
Furthermore, because, by definition, futures contracts project price levels in the future and not current levels of valuation, market circumstances may result in a discrepancy between the price of the bond index future and the movement in the
relevant Underlying Index. In the event of adverse price movements, a Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if a Fund has insufficient cash, it may have to sell portfolio
securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, a Fund may be required to deliver the instruments underlying the future contracts it has sold.
The risk of loss in trading futures contracts or uncovered call
options in some strategies (e.g., selling uncovered bond index futures contracts) is potentially unlimited. Each Fund does not plan to use futures and options contracts in this way. The risk of a futures
position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to
the size of a required margin deposit. Each Fund, however, intends to utilize futures and options contracts in a manner designed to limit its risk exposure to levels comparable to a direct investment in the types of bonds in which it invest.
Utilization of futures and options on futures by a Fund
involves the risk of imperfect or even negative correlation to its Underlying Index if the index underlying the futures contract differs from the Underlying Index. There is also the risk of loss by a Fund of margin deposits in the event of
bankruptcy of a broker with whom a Fund has an open position in the futures contract or option. The purchase of put or call options will be based upon predictions by BFA as to anticipated trends, which predictions could prove to be incorrect.
Because the futures market generally imposes less burdensome
margin requirements than the securities market, an increased amount of participation by speculators in the futures market could result in price fluctuations. Certain financial futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the maximum amount by which the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily
limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. It is possible that futures contract prices could move to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and subjecting each Fund to substantial losses. In the event of adverse price movements, each Fund would be required to make daily cash payments of variation margin.
Risk of Investing in Non-U.S. Debt Securities. The Funds may invest in non-U.S. debt securities. An issuer of a security may be deemed to be located in a particular country if (i) the principal trading market for the security is in such country, (ii) the
issuer is organized under the laws of such country, (iii) the issuer derives at least 50% of its revenues or profits from such country or has at least 50% of its assets situated in such country, or (iv) the issuer is the particular country. An
investment in these Funds involves risks similar to those of investing in a portfolio of debt securities traded on foreign exchanges and over-the-counter in the respective countries covered by the Funds. These risks typically include market
fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in bond prices. Investing in a Fund whose portfolio contains non-U.S. issuers, involves certain risks and considerations not
typically associated with investing in the securities of U.S. issuers. These risks include generally less liquid and less efficient securities markets; generally greater price volatility; less publicly-available information about issuers; the
imposition of withholding or other taxes; the imposition of restrictions on the expatriation of funds or other assets of the Fund; higher transaction and custody costs; delays and risks attendant in settlement procedures; difficulties in enforcing
contractual obligations; lower liquidity and significantly smaller market capitalization of most non-U.S. securities markets; different accounting and disclosure standards; lower levels of regulation of the securities markets; more substantial
government interference with the economy; higher rates of inflation; greater social, economic, and political uncertainty; and the risk of nationalization or expropriation of assets and risk of war.
Risk of Investing in Africa.
Investments in securities of issuers in certain African countries involve heightened risks including, among others, expropriation and/or nationalization of assets, confiscatory taxation, political
instability, including authoritarian and/or military involvement in governmental decision-making, armed conflict, civil war, and social instability as a result of religious, ethnic and/or socioeconomic unrest and, in certain countries, genocidal
warfare.
Certain countries in Africa generally
have less developed capital markets than traditional emerging market countries, and, consequently, the risks of investing in foreign securities are magnified in such countries. Because securities markets of countries in Africa are underdeveloped and
are less correlated to global economic cycles than those markets located in more developed countries, securities markets in Africa are subject to greater risks associated with market volatility, lower market capitalization, lower trading volume,
illiquidity, inflation, greater price fluctuations and uncertainty regarding the existence of trading markets.
Moreover, trading on securities markets may be suspended
altogether. Market volatility may also be heightened by the actions of a small number of investors. Brokerage firms in certain countries in Africa may be fewer in number and less established than brokerage firms in more developed markets. Since a
Fund may need to effect securities transactions through these brokerage firms, the Fund is subject to the risk that these brokerage firms will not be able to fulfill their obligations to the Fund (i.e.,
counterparty risk). This risk is magnified to the extent that a Fund effects securities transactions through a single brokerage firm or a small number of brokerage firms.
Certain governments in Africa restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers located or operating in those countries. These restrictions and/or controls may at times limit or prevent foreign investment in securities of issuers located or operating in
countries in Africa. Moreover, certain countries in Africa require governmental approval or special licenses prior to investment by foreign investors and may limit the amount of investment by
foreign investors in a particular industry and/or issuer, and may limit such
foreign investment to a certain class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domestic investors of the countries and/or impose additional taxes on foreign investors. A delay in
obtaining a government approval or a license would delay investments in a particular country, and, as a result, a Fund may not be able to invest in certain securities while approval is pending. The government of a particular country may also
withdraw or decline to renew a license that enables a Fund to invest in such country. These factors make investing in issuers located or operating in countries in Africa significantly riskier than investing in issuers located or operating in more
developed countries, and any one of these factors could cause a decline in the value of a Fund’s investments.
Issuers located or operating in countries in Africa are not
subject to the same rules and regulations as issuers located or operating in more developed countries. Therefore, there may be less financial and other information publicly-available with regard to issuers located or operating in countries in Africa
and such issuers are not subject to the uniform accounting, auditing and financial reporting standards applicable to issuers located or operating in more developed countries.
In addition, governments of certain countries in Africa in
which a Fund may invest may levy withholding or other taxes on income such as dividends, interest and realized capital gains. Although in certain countries in Africa a portion of these taxes are recoverable, the non-recovered portion of foreign
withholding taxes will reduce the income received from investments in such countries.
Investment in countries in Africa may be subject to a greater
degree of risk associated with governmental approval in connection with the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, there is the risk that if an African country’s
balance of payments declines, such African country may impose temporary restrictions on foreign capital remittances. Consequently, a Fund could be adversely affected by delays in, or a refusal to grant, required governmental approval for
repatriation of capital, as well as by the application to the Fund of any restrictions on investments. Additionally, investments in countries in Africa may require a Fund to adopt special procedures, seek local government approvals or take other
actions, each of which may involve additional costs to the Fund.
Securities laws in many countries in Africa are relatively new
and unsettled and, consequently, there is a risk of rapid and unpredictable change in laws regarding foreign investment, securities regulation, title to securities and shareholder rights. Accordingly, foreign investors may be adversely affected by
new or amended laws and regulations. In addition, there may be no single centralized securities exchange on which securities are traded in certain countries in Africa and the systems of corporate governance to which issuers located in countries in
Africa are subject may be less advanced than those systems to which issuers located in more developed countries are subject, and therefore, shareholders of issuers located in such countries may not receive many of the protections available to
shareholders of issuers located in more developed countries. In circumstances where adequate laws and shareholder rights exist, it may not be possible to obtain swift and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in countries in Africa may be inconsistent and subject to sudden change.
Certain countries in Africa may be heavily dependent upon
international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries
with which they trade. These countries also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. Certain countries in Africa depend to a significant extent upon exports of primary
commodities such as gold, silver, copper and diamonds. These countries therefore are vulnerable to changes in commodity prices, which may be affected by a variety of factors. In addition, certain issuers located in countries in Africa in which a
Fund invests may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of terrorism. As a
result, an issuer may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. A Fund, as an investor in such issuers, will be indirectly subject to those risks.
The governments of certain countries in Africa may exercise
substantial influence over many aspects of the private sector and may own or control many companies. Future government actions could have a significant effect on the economic conditions in such countries, which could have a negative impact on
private sector companies. There is also the possibility of diplomatic developments that could adversely affect investments in certain countries in Africa. Some countries in Africa may be affected by a greater degree of public corruption and crime,
including organized crime.
In addition, recent political instability and protests in North
Africa and the Middle East have caused significant disruptions to many industries. This instability has demonstrated that political and social unrest can spread quickly through the region, and that developments in one country can influence the
political events in neighboring countries. Some protests have turned violent, and civil war and political reconstruction in certain countries such as Libya poses a risk to investments in the region. Continued political and social unrest in these
regions may negatively affect the value of an investment in a Fund.
Risk of Investing in Asia.
Investments in securities of issuers in certain Asian countries involve risks not typically associated with investments in securities of issuers in other regions. Such heightened risks include, among others,
expropriation and/or nationalization of assets, confiscatory taxation, political instability, including authoritarian and/or military involvement in governmental decision-making, armed conflict and social instability as a result of religious, ethnic
and/or socio-economic unrest. Many Asian economies have experienced rapid growth and industrialization, and there is no assurance that this growth rate will be maintained.
Certain Asian countries have democracies with relatively short
histories, which may increase the risk of political instability. These countries have faced political and military unrest, and further unrest could present a risk to their local economies and securities markets. Indonesia and the Philippines have
each experienced violence and terrorism, which has negatively impacted their economies. North Korea and South Korea each have substantial military capabilities, and historical tensions between the two countries present the risk of war. Any outbreak
of hostilities between the two countries could have a severe adverse effect on the South Korean economy and securities market. Increased political and social unrest in these geographic areas could adversely affect the performance of investments in
this region.
Certain governments in this region
administer prices on several basic goods, including fuel and electricity, within their respective countries. Certain governments may exercise substantial influence over many aspects of the private sector in their respective countries and may own or
control many companies. Future government actions could have a significant effect on the economic conditions in this region, which in turn could have a negative impact on private sector companies. There is also the possibility of diplomatic
developments adversely affecting investments in the region.
Corruption and the perceived lack of a rule of law in dealings
with international companies in certain Asian countries may discourage foreign investment and could negatively impact the long-term growth of certain economies in this region. In addition, certain countries in the region are experiencing high
unemployment and corruption, and have fragile banking sectors.
Some economies in this region are dependent on a range of
commodities, including oil, natural gas and coal. Accordingly, they are strongly affected by international commodity prices and particularly vulnerable to any weakening in global demand for these products. The market for securities in this region
may also be directly influenced by the flow of international capital, and by the economic and market conditions of neighboring countries. Adverse economic conditions or developments in neighboring countries may increase investors' perception of the
risk of investing in the region as a whole, which may adversely impact the market value of the securities issued by companies in the region.
Risk of Investing in Australasia. The economies of Australasia, which include Australia and New Zealand, are dependent on exports from the agricultural and mining sectors. This makes Australasian economies susceptible to fluctuations in the
commodity markets. Australasian economies are also increasingly dependent on their growing service industries. Australia and New Zealand are located in a part of the world that has historically been prone to natural disasters, such as drought and
flooding. Any such event in the future could have a significant adverse impact on the economies of Australia and New Zealand and affect the value of securities held by a relevant Fund. The economies of Australia and New Zealand are dependent on
trading with certain key trading partners, including Asia, Europe and the United States. The Australia–U.S. Free Trade Agreement has significantly expanded the trading relationship between the United States and Australia. In 2003, Australia
and Singapore entered into the Singapore-Australia Free Trade Agreement (“ SAFTA”). SAFTA is intended to further expand the economic relationship with Singapore, Australia’s largest trade and investment partner in Southeast Asia.
Thus, economic events in the United States, Asia, or in other key trading countries can have a significant economic effect on the Australian economy. The economies of Australia and New Zealand are heavily dependent on the mining sector. Passage of
new regulations limiting foreign ownership of companies in the mining sector or imposition of new taxes on profits of mining companies may dissuade foreign investment, and as a result, have a negative impact on companies to which a Fund has
exposure.
Risk of Investing in Central and South America. The economies of certain Central and South American countries have experienced high interest rates, economic volatility, inflation, currency devaluations, government defaults and high unemployment rates. In
addition, commodities (such as oil, gas and minerals) represent a significant percentage of exports for the regions and many economies in these regions are particularly sensitive to fluctuations in commodity prices. Adverse economic events in one
country may have a significant adverse effect on other countries of these regions.
Risk of Investing in Eastern Europe. Investing in the securities of Eastern European issuers is highly speculative and involves risks not usually associated with investing in the more developed markets of Western Europe. Political and economic
reforms are too recent to establish a definite trend away from centrally planned economies and state-owned industries. In the past, some Eastern European governments have expropriated substantial amounts of private property, and many claims of the
property owners have never been fully settled.
Many Eastern European countries continue to move towards market
economies at different paces with appropriately different characteristics. Most Eastern European securities markets suffer from thin trading activity, dubious investor protections, and often a dearth of reliable corporate information. Information
and transaction costs, differential taxes, and sometimes political or transfer risk give a comparative advantage to the domestic investor rather than the foreign investor. In addition, these markets are particularly sensitive to social, political,
economic, and currency events in Russia and may suffer heavy losses as a result of their trading and investment links to the Russian economy and currency. Russia also may attempt to assert its influence in the region through economic or even
military measures, as it did with Georgia in the summer of 2008. Eastern European economies may also be particularly susceptible to changes in the international credit markets due to their reliance on bank related inflows of capital. The global
economic crisis has restricted international credit supplies, and several Eastern European economies have faced significant credit and economic crises. Although some Eastern European economies are expanding again, major challenges are still present
as a result of their continued dependence on the Western European zone for credit.
Risk of Investing in Emerging Markets. Investments in emerging market countries may be subject to greater risks than investments in developed countries. These risks include: (i) less social, political, and economic stability; (ii) greater illiquidity
and price volatility due to smaller or limited local capital markets for such securities, or low or non-existent trading volumes; (iii) foreign exchanges and broker-dealers may be subject to less scrutiny and regulation by local authorities; (iv)
local governments may decide to seize or confiscate securities held by foreign investors and/or local governments may decide to suspend or limit an issuer's ability to make dividend or interest payments; (v) local governments may limit or entirely
restrict repatriation of invested capital, profits, and dividends; (vi) capital gains may be subject to local taxation, including on a retroactive basis; (vii) issuers facing restrictions on dollar or euro payments imposed by local governments may
attempt to make dividend or interest payments to foreign investors in the local currency; (viii) investors may experience difficulty in enforcing legal claims related to the securities and/or local judges may favor the interests of the issuer over
those of foreign investors; (ix) bankruptcy judgments may only be permitted to be paid in the local currency; (x) limited public information regarding the issuer may result in greater difficulty in determining market valuations of the securities,
and (xi) lax financial reporting on a regular basis, substandard disclosure and differences in accounting standards may make it difficult to ascertain the financial health of an issuer.
Emerging market securities markets are typically marked by a
high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of ownership of such securities by a limited number of investors. In addition,
brokerage and other costs associated with transactions in emerging markets securities markets can be higher, sometimes significantly, than similar costs incurred in securities markets in developed countries. Although some emerging markets have
become more established and tend to issue securities of higher credit quality, the markets for securities in other emerging countries are in the earliest stages of their development, and these countries issue securities across the credit spectrum.
Even the markets for relatively widely traded securities in emerging countries may not be able to absorb, without price disruptions, a significant increase in trading volume or trades of a size customarily undertaken by institutional investors in
the securities markets of developed countries. The limited size of many of these securities markets can cause prices to be erratic for reasons apart from factors that affect the soundness and competitiveness of the securities issuers. For example,
prices may be unduly influenced by traders who control large positions in these markets. Additionally, market making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and reduced
liquidity of such markets. The limited liquidity of emerging country securities may also affect a Fund's ability to accurately value its portfolio securities or to acquire or dispose of securities at the price and time it wishes to do so or in order
to meet redemption requests.
Many emerging market countries suffer from uncertainty and
corruption in their legal frameworks. Legislation may be difficult to interpret and laws may be too new to provide any precedential value. Laws regarding foreign investment and private property may be weak or non-existent. Sudden changes in
governments may result in policies which are less favorable to investors such as policies designed to expropriate or nationalize “sovereign” assets. Certain emerging market countries in the past have expropriated large amounts of private
property, in many cases with little or no compensation, and there can be no assurance that such expropriation will not occur in the future.
Investment in the securities markets of certain emerging
countries is restricted or controlled to varying degrees. These restrictions may limit a Fund's investment in certain emerging countries and may increase the expenses of the Fund. Certain emerging countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuer's outstanding securities or a specific class of securities which may have less advantageous terms (including price) than securities of
the company available for purchase by nationals.
Many
emerging market countries lack the social, political, and economic stability characteristic of the United States. Political instability among emerging market countries can be common and may be caused by an uneven distribution of wealth, social
unrest, labor strikes, civil wars, and religious oppression. Economic instability in emerging market countries may take the form of: (i) high interest rates; (ii) high levels of inflation, including hyperinflation; (iii) high levels of unemployment
or underemployment; (iv) changes in government economic and tax policies, including confiscatory taxation; and (v) imposition of trade barriers.
A Fund's income and, in some cases, capital gains from foreign
securities will be subject to applicable taxation in certain of the emerging market countries in which it invests, and treaties between the United States and such countries may not be available in some cases to reduce the otherwise applicable tax
rates.
Emerging markets also have different clearance and
settlement procedures, and in certain of these emerging markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions.
In the past, certain governments in emerging market countries
have become overly reliant on the international capital markets and other forms of foreign credit to finance large public spending programs, which in the past have caused huge budget deficits. Often, interest payments have become too overwhelming
for a government to meet, representing a large percentage of total GDP. These foreign obligations have become the subject of political debate and served as fuel for political parties of the opposition, which pressure the government not to make
payments to foreign creditors, but instead to use these funds for, among other things, social programs. Either due to an inability to pay or submission to political pressure, foreign governments have been forced to seek a restructuring of their loan
and/or bond obligations, have declared a temporary suspension of interest payments or have defaulted. These events have adversely affected the values of securities issued by foreign governments and corporations domiciled in those countries and have
negatively affected not only their cost of borrowing, but their ability to borrow in the future as well.
Risk of Investing in Europe.
The Economic and Monetary Union of the European Union (the “EU”) requires member countries to comply with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal and
monetary controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU
member country on its sovereign debt, and/or an economic recession in an EU member country may have a significant adverse effect on the economies of EU member countries and major trading partners outside Europe. Although certain European countries
do not use the euro, many of these countries are obliged to meet the criteria for joining the euro zone. Consequently, these countries must comply with many of the restrictions noted above. The European financial markets have recently experienced
volatility and adverse trends due to concerns about economic downturns, rising government debt levels and the possible default of government debt in several European countries, including Greece, Ireland, Italy, Portugal and Spain. In order to
prevent further economic deterioration, certain countries, without prior warning, can institute “capital controls.” Countries may use these controls to restrict volatile movements of capital entering and exiting their country. Such
controls may negatively affect a Fund’s investments. A default or debt restructuring by any European country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's creditworthiness,
which may be located in countries other than those listed above. In addition, the credit ratings of certain European countries were recently downgraded. These downgrades may result in further deterioration of investor confidence. These events have
adversely affected the value and exchange rate of the euro and may continue to significantly affect the economies of every country in Europe, including
countries that do not use the euro and non-EU member countries. Responses to
the financial problems by European governments, central banks and others, including austerity measures and reforms, may not work, may result in social unrest and may limit future growth and economic recovery or have other unintended consequences.
Further defaults or restructurings by governments and other entities of their debt could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition, one or more countries may abandon the euro,
the common currency of certain EU countries, and/or withdraw from the EU. The impact of these actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far-reaching.
Risk of Investing in the Middle East. Many Middle Eastern countries have little or no democratic tradition, and the political and legal systems in such countries may have an adverse impact on a Fund. Many economies in the Middle East are highly
reliant on income from the sale of oil or trade with countries involved in the sale of oil, and their economies are therefore vulnerable to changes in the market for oil and foreign currency values. As global demand for oil fluctuates, many Middle
Eastern economies may be significantly impacted.
In addition, many Middle Eastern governments have exercised and
continue to exercise substantial influence over many aspects of the private sector. In certain cases, a Middle Eastern country’s government may own or control many companies, including some of the largest companies in the country. Accordingly,
governmental actions in the future could have a significant effect on economic conditions in Middle Eastern countries. This could affect private sector companies and a Fund, as well as the value of securities in a Fund's portfolio.
Certain Middle Eastern markets are in the earliest stages of
development. As a result, there may be a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial
intermediaries. Brokers in Middle Eastern countries typically are fewer in number and less well capitalized than brokers in the United States.
The legal systems in certain Middle Eastern countries also may
have an adverse impact on a Fund. For example, the potential liability of a shareholder in a U.S. corporation with respect to acts of the corporation generally is limited to the amount of the shareholder’s investment. However, the notion of
limited liability is less clear in certain Middle Eastern countries. Each Fund therefore may be liable in certain Middle Eastern countries for the acts of a corporation in which it invests for an amount greater than a Fund’s actual investment
in that corporation. Similarly, the rights of investors in Middle Eastern issuers may be more limited than those of shareholders of a U.S. corporation. It may be difficult or impossible to obtain and/or enforce a legal judgment in a Middle Eastern
country. Some Middle Eastern countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as a Fund. For example, certain countries may require
governmental approval prior to investment by foreign persons or limit the amount of investment by foreign persons in a particular issuer. They may also limit the investment by foreign persons to only a specific class of securities of an issuer that
may have less advantageous terms (including price) than securities of the issuer available for purchase by nationals.
The manner in which foreign investors may invest in companies
in certain Middle Eastern countries, as well as limitations on those investments, may have an adverse impact on the operations of a Fund. For example, in certain of these countries, a Fund may be required to invest initially through a local broker
or other entity and then have the shares that were purchased re-registered in the name of a Fund. Re-registration in some instances may not be possible on a timely basis. This may result in a delay during which a Fund may be denied certain of its
rights as an investor, including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where a Fund places a purchase order but is subsequently informed, at the time of re-registration, that the
permissible allocation of the investment to foreign investors has been filled.
Substantial limitations may exist in certain Middle Eastern
countries with respect to a Fund’s ability to repatriate investment income or capital gains. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by
the application to a Fund of any restrictions on investment.
Certain Middle Eastern countries may be heavily dependent upon
international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries
with which they trade. These countries also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. In addition, certain issuers located in Middle Eastern countries in which a Fund invests
may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the
U.S. government as state sponsors of terrorism. As a result, an issuer may
sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. A Fund, as an investor in such issuers, will be indirectly subject to those risks.
Certain Middle Eastern countries have strained relations with
other Middle Eastern countries due to territorial disputes, historical animosities or defense concerns, which may adversely affect the economies of these Middle Eastern countries. Certain Middle Eastern countries experience significant unemployment,
as well as widespread underemployment. Recently, many Middle Eastern countries have experienced political, economic and social unrest as protestors have called for widespread reform. These protests may adversely affect the economies of these Middle
Eastern countries.
Risk of Investing in North America. The United States is Canada’s and Mexico’s largest trading and investment partner. The Canadian and Mexican economies are significantly affected by developments in the U.S. economy. Since the
implementation of the North American Free Trade Agreement (“NAFTA”) in 1994 among Canada, the United States and Mexico, total merchandise trade between the three countries has increased. To further this relationship, the three NAFTA
countries entered into the Security and Prosperity Partnership of North America in March 2005, which may further affect Canada’s and Mexico’s dependency on the U.S. economy. Economic events in any one North American country can have a
significant economic effect on the entire North American region, and on some or all of the North American countries in which a Fund invests.
Risk of Investing in the Basic Materials Sector. Issuers in the basic materials sector could be adversely affected by commodity price volatility, exchange rates, import controls and increased competition. Production of industrial materials often exceeds demand
as a result of over-building or economic downturns, leading to poor investment returns. Issuers in the basic materials sector are at risk for environmental damage and product liability claims and may be adversely affected by depletion of resources,
delays in technical progress, labor relations and government regulations.
Risk of Investing in the Capital Goods Sector. The capital goods sector may be affected by fluctuations in the business cycle and by other factors affecting manufacturing demands. The capital goods sector depends heavily on corporate spending. The capital
goods sector may perform well during times of economic expansion, and as economic conditions worsen, the demand for capital goods may decrease. Many capital goods are sold internationally and such companies are subject to market conditions in other
countries and regions.
Risk of Investing in the
Consumer Discretionary Sector. Companies engaged in the design, production or distribution of products or services for the consumer discretionary sector (including, without limitation, television and radio
broadcasting, manufacturing, publishing, recording and musical instruments, motion pictures, photography, amusement and theme parks, gaming casinos, sporting goods and sports arenas, camping and recreational equipment, toys and games, apparel,
travel-related services, automobiles, hotels and motels, and fast food and other restaurants) are subject to the risk that their products or services may become obsolete quickly. The consumer discretionary sector can be significantly affected by
several factors, including, without limitation, the performance of domestic and international economies, exchange rates, changing consumer tastes and trends, marketing campaigns, cyclical revenue generation, consumer confidence, commodity price
volatility, labor relations, interest rates, import and export controls, intense competition, technological developments and government regulation.
Risk of Investing in the Consumer Goods Sector. The consumer goods sector may be strongly affected by trends, marketing campaigns and other factors affecting consumer demand. Governmental regulation affecting the use of various food additives may affect the
profitability of certain companies in the consumer goods sector. In addition, tobacco companies may be adversely affected by new laws, regulations and litigation. Many consumer goods may be marketed globally, and consumer goods companies may be
affected by the demand and market conditions in other countries and regions.
Risk of Investing in the Consumer Services Sector. The success of consumer product manufacturers and retailers (including food and drug retailers, general retailers, media, and travel and leisure) is tied closely to the performance of the domestic and
international economy, interest rates, exchange rates, competition and consumer confidence. The consumer services sector depends heavily on disposable household income and consumer spending. Companies in the consumer services sector may be subject
to severe competition, which may also have an adverse impact on their profitability. Changes in consumer demographics and preferences may affect the success of consumer products.
Risk of Investing in the Consumer Staples Sector. Companies in the consumer staples sector may be adversely affected by changes in the global economy, consumer spending, competition, demographics and consumer preferences, and production spending. Companies in the
consumer staples sector are also affected by changes in government regulation, global economic, environmental and political events, economic conditions and the depletion of resources. In addition, companies in the consumer staples sector may be
subject to risks pertaining to the supply of, demand for and prices of raw materials. The prices of raw materials fluctuate in response to a number of factors, including, without limitation, changes in government agricultural support programs,
exchange rates, import and export controls, changes in international agricultural and trading policies, and seasonal and weather conditions.
Risk of Investing in the Energy Sector. Companies in the energy sector are strongly affected by the levels and volatility of global energy prices, energy supply and demand, government regulations and policies, energy production and conservation efforts,
and technological change. Prices and supplies of energy may fluctuate significantly over short and long periods of time due to national and international political changes, Organization of Petroleum Exporting Countries (“OPEC”) policies,
changes in relationships among OPEC members and between OPEC and oil-importing nations, the regulatory environment, taxation policies, and the economy of the key energy-consuming countries. In addition, companies in the energy sector are at risk of
civil liability from accidents resulting in injury, loss of life or property, pollution or other environmental damage claims and risk of loss from terrorism and natural disasters. Disruptions in the oil industry or shifts in fuel consumption may
significantly impact companies in this sector. In addition, because a significant portion of revenues of companies in this sector are derived from a relatively small number of customers that are largely composed of governmental entities and
utilities, governmental budget constraints may have a significant impact on the stock prices of companies in this industry.
Risk of Investing in the Financial Sector. Companies in the financial sector include regional and money center banks, securities brokerage firms, asset management companies, savings banks and thrift institutions, specialty finance companies (e.g., credit card, mortgage providers), insurance and insurance brokerage firms, financial conglomerates and foreign banking and financial companies. The global
financial markets have experienced very difficult conditions and volatility as well as significant adverse trends. The deteriorating conditions in these markets have resulted in a decrease in availability of corporate credit, capital and liquidity
and have led indirectly to the insolvency, closure or acquisition of a number of financial institutions. These conditions have also contributed to consolidation within the financial industry. In addition, the global financial industry has been
materially and adversely affected by a significant decline in the value of mortgage-backed and asset-backed securities, and by the sovereign debt crisis. The prospects of many financial companies are questionable and continue to evolve as financial
companies revise their outlooks and write down assets that they hold.
Most financial companies are subject to extensive governmental
regulation, which limits their activities and may affect their ability to earn a profit from a given line of business. Government regulation may change frequently and may have significant adverse consequences for companies in the financial sector,
including effects not intended by the regulation. Direct governmental intervention in the operations of financial companies and financial markets may materially and adversely affect the companies in which a Fund invests, including legislation in
many countries that may increase government regulation, repatriation and other intervention. The impact of governmental intervention and legislative changes on any individual financial company or on the financial sector as a whole cannot be
predicted. The valuation of financial companies has been and continues to be subject to unprecedented volatility and may be influenced by unpredictable factors, including interest rate risk and sovereign debt default. Certain financial businesses
are subject to intense competitive pressures, including market share and price competition. Financial companies in foreign countries are subject to market specific and general regulatory and interest rate concerns. In particular, government
regulation in certain foreign countries may include taxes and controls on interest rates, credit availability, minimum capital requirements, ban on short sales, prices and currency transfers.
The profitability of banks, savings and loan associations and
financial companies is largely dependent on the availability and cost of capital funds and can fluctuate significantly when interest rates change. In addition, general economic conditions are important to the operations of these concerns, with
exposure to credit losses resulting from financial difficulties of borrowers having an adverse effect on the profitability of financial companies. Financial companies can be highly dependent upon access to capital markets and any impediments to such
access, such as adverse overall economic conditions or a negative perception in the capital markets of a financial company’s financial condition or prospects, could adversely affect its business.
Risk of Investing in the Healthcare Sector. Companies in the healthcare sector are often issuers whose profitability may be affected by extensive government regulation, restrictions on government reimbursement for medical expenses, rising or falling costs
of medical products and services, pricing pressure, an increased emphasis on outpatient services, limited
number of products, industry innovation, changes in technologies and other
market developments. Many healthcare companies are heavily dependent on patent protection and the actual or perceived safety and efficiency of their products. The expiration of patents may adversely affect the profitability of these companies. Many
healthcare companies are subject to extensive litigation based on product liability and similar claims. Healthcare companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting.
Many new products in the healthcare sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly, and may diminish the opportunity for a company to profit from a new product or to bring a new product
to market. Many healthcare-related companies are relatively small and unseasoned. Healthcare companies may also be strongly affected by scientific bio-technology or technological developments and their products may quickly become obsolete. Also,
many healthcare companies offer products and services that are subject to governmental regulation and may be adversely affected by changes in governmental policies or laws.
Risk of Investing in the Industrials Sector. The value of securities issued by companies in the industrials sector may be affected by supply and demand both for their specific product or service and for industrials sector products in general. The products of
manufacturing companies may face product obsolescence due to rapid technological developments and frequent new product introduction. Government regulations, world events and economic conditions affect the performance of companies in the industrials
sector. Companies in the industrials sector may be adversely affected by liability for environmental damage, product liability claims and exchange rates. The industrials sector may also be adversely affected by changes or trends in commodity prices,
which may be influenced by unpredictable factors.
Risk of Investing in the Information Technology Sector. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face product obsolescence due to rapid technological developments and frequent new product introduction,
unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights
may adversely affect the profitability of these companies.
Risk of Investing in the Materials Sector. Companies in the materials sector may be adversely affected by commodity price volatility, exchange rates, import controls, increased competition, depletion of resources, technical progress, labor relations and
government regulations, among other factors. Also, companies in the materials sector are at risk of liability for environmental damage and product liability claims. Production of materials may exceed demand as a result of market imbalances or
economic downturns, leading to poor investment returns.
Risk of Investing in the Oil and Gas Sector. Companies in the oil and gas sector are strongly affected by the levels and volatility of global energy prices, oil and gas supply and demand, government regulations and policies, oil and gas production and
conservation efforts and technological change. Prices and supplies of oil and gas may fluctuate significantly over short and long periods of time due to national and international political changes, Organization of Petroleum Exporting Countries
(“OPEC”) policies, changes in relationships among OPEC members and between OPEC and oil-importing nations, the regulatory environment, taxation policies, and the economies of key energy-consuming countries. Disruptions in the oil
industry or shifts in energy consumption may significantly impact companies in this sector. Companies that own or operate gas pipelines are subject to certain risks, including pipeline and equipment leaks and ruptures, explosions, fires, unscheduled
downtime, transportation interruptions, discharges or releases of toxic or hazardous gases and other environmental risks.
Risk of Investing in the Real Estate Sector. Companies in the real estate sector include companies that invest in real estate, such as a real estate investment trust (“REIT”) or a real estate holding company (collectively, “Real Estate
Companies”). Investing in Real Estate Companies exposes investors to the risks of owning real estate directly, as well as to risks that relate specifically to the way in which Real Estate Companies are organized and operated. Real estate is
highly sensitive to general and local economic conditions and developments, and characterized by intense competition and periodic overbuilding. Investing in Real Estate Companies involves various risks. Some risks that are specific to Real Estate
Companies are discussed in greater detail below.
Interest Rate Risk. Rising
interest rates could result in higher costs of capital for Real Estate Companies, which could negatively impact a Real Estate Company’s ability to meet its payment obligations.
Leverage Risk. Real Estate
Companies may use leverage (and some may be highly leveraged), which increases investment risk and could adversely affect a Real Estate Company’s operations and market value in periods of rising interest rates as well as
risks normally associated with debt financing. Financial covenants related to
a Real Estate Company’s leverage may affect the ability of the Real Estate Company to operate effectively. In addition, real property may be subject to the quality of credit extended and defaults by borrowers and tenants. If the properties do
not generate sufficient income to meet operating expenses, including, where applicable, debt service, ground lease payments, tenant improvements, third-party leasing commissions and other capital expenditures, the income and ability of a Real Estate
Company to make payments of any interest and principal on its debt securities will be adversely affected.
Property Risk. Real Estate
Companies may be subject to risks relating to functional obsolescence or reduced desirability of properties; extended vacancies due to economic conditions and tenant bankruptcies; catastrophic events such as earthquakes, hurricanes and terrorist
acts; and casualty or condemnation losses. Real estate income and values also may be greatly affected by demographic trends, such as population shifts or changing tastes and values, or increasing vacancies or declining rents resulting from legal,
cultural, technological, global or local economic developments.
Management Risk. Real Estate
Companies are dependent upon management skills and may have limited financial resources. Real Estate Companies are generally not diversified and may be subject to heavy cash flow dependency, default by borrowers and self-liquidation. In addition,
transactions between Real Estate Companies and their affiliates may be subject to conflicts of interest, which may adversely affect a Real Estate Company’s shareholders. A Real Estate Company may also have joint venture investments in certain
of its properties and, consequently, its ability to control decisions relating to such properties may be limited.
Liquidity Risk. Investing in
Real Estate Companies may involve risks similar to those associated with investing in small-capitalization companies. Real Estate Company securities, like the securities of other smaller companies, may be more volatile than, and perform differently
from, shares of large capitalization companies. There may be less trading in Real Estate Company shares, which means that buy and sell transactions in those shares could have a magnified impact on share price, resulting in abrupt or erratic price
fluctuations. In addition, real estate is relatively illiquid and, therefore, a Real Estate Company may have a limited ability to vary or liquidate properties in response to changes in economic or other conditions.
Concentration Risk. Real
Estate Companies may own a limited number of properties and concentrate their investments in a particular geographic region or property type.
U.S. Tax Risk. Certain U.S.
Real Estate Companies are subject to special U.S. federal tax requirements. A REIT that fails to comply with such tax requirements may be subject to U.S. federal income taxation, which may affect the value of the REIT and the characterization of the
REIT’s distributions. The U.S. federal tax requirement that a REIT distribute substantially all of its net income to its shareholders may result in a REIT having insufficient capital for future expenditures.
Regulatory Risk. Real estate
income and values may be adversely affected by such factors as applicable domestic and foreign laws (including tax laws). Government actions, such as tax increases, zoning law changes or environmental regulations, also may have a major impact on
real estate.
Risk of Investing in the Technology
Sector. Technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Technology companies may have limited product lines, markets,
financial resources or personnel. The products of technology companies may face product obsolescence due to rapid technological developments and frequent new product introduction, unpredictable changes in growth rates and competition for the
services of qualified personnel. Companies in the technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. The technology
sector may also be adversely affected by changes or trends in commodity prices, which may be influenced or characterized by unpredictable factors.
Risk of Investing in the Telecommunications Sector. The telecommunications sector of an economy is often subject to extensive government regulation. The costs of complying with governmental regulations, delays or failure to receive required regulatory approvals, or
the enactment of new adverse regulatory requirements may negatively affect the business of the telecommunications companies. Government actions around the world, specifically in the area of pre-marketing clearance of products and prices, can be
arbitrary and unpredictable. Companies in the telecommunications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new
technology. Technological innovations may make the products and services of telecommunications companies obsolete.
Risk of Investing in the Utilities Sector. Investments in utility companies involve special considerations, including the risk of changing commodity prices, government regulation stipulating rates charged by utilities, increased tariffs, changes in tax
laws, interest rate fluctuations and changes in the cost of providing specific utility services. The utilities industry is also subject to potential terrorist attacks, natural disasters and severe weather conditions, as well as regulatory and
operational burdens associated with the operation and maintenance of nuclear facilities. Government regulators monitor and control utility revenues and costs, and therefore may limit utility profits. In certain countries, regulatory authorities may
also restrict a company’s access to new markets, thereby diminishing the company’s long-term prospects. The deregulation of certain utility companies may eliminate restrictions on profits but may also subject these companies to greater
risks of loss.
Proxy Voting Policy
The Company has adopted, as its proxy voting policies for each
Fund, the proxy voting guidelines of BFA, the investment adviser to each Fund. The Company has delegated to BFA the responsibility for voting proxies on the portfolio securities held by each Fund. The remainder of this section discusses each
Fund’s proxy voting guidelines and BFA’s role in implementing such guidelines.
BFA votes (or refrains from voting) proxies for each Fund in a
manner that BFA, in the exercise of its independent business judgment, concludes is in the best economic interests of such Fund. In some cases, BFA may determine that it is in the best economic interests of a Fund to refrain from exercising the
Fund’s proxy voting rights (such as, for example, proxies on certain non-U.S. securities that might impose costly or time-consuming in-person voting requirements). With regard to the relationship between securities lending and proxy voting,
BFA’s approach is also driven by each Fund's economic interests. The evaluation of the economic desirability of recalling loans involves balancing the revenue-producing value of loans against the likely economic value of casting votes. Based
on our evaluation of this relationship, we believe that the likely economic value of casting a vote generally is less than the securities lending income, either because the votes will not have significant economic consequences or because the outcome
of the vote would not be affected by BFA recalling loaned securities in order to ensure they are voted. Periodically, BFA analyzes the process and benefits of voting proxies for securities on loan, and will consider whether any modification of its
proxy voting policies or procedures are necessary in light of any regulatory changes. BFA will normally vote on specific proxy issues in accordance with its proxy voting guidelines. BFA’s proxy voting guidelines provide detailed guidance as to
how to vote proxies on certain important or commonly raised issues. BFA may, in the exercise of its business judgment, conclude that the proxy voting guidelines do not cover the specific matter upon which a proxy vote is requested, or that an
exception to the proxy voting guidelines would be in the best economic interests of a Fund. BFA votes (or refrains from voting) proxies without regard to the relationship of the issuer of the proxy (or any shareholder of such issuer) to a Fund, a
Fund’s affiliates (if any), BFA or BFA’s affiliates, or the Distributor or the Distributor’s affiliates. When voting proxies, BFA attempts to encourage issuers to follow practices that enhance shareholder value and increase
transparency and allow the market to place a proper value on their assets. With respect to certain specific issues:
• |
Each Fund generally supports
the board’s nominees in the election of directors and generally supports proposals that strengthen the independence of boards of directors; |
• |
Each Fund generally does not
support proposals on social issues that lack a demonstrable economic benefit to the issuer and the Fund investing in such issuer; and |
• |
Each Fund generally votes
against anti-takeover proposals and proposals that would create additional barriers or costs to corporate transactions that are likely to deliver a premium to shareholders. |
BFA maintains institutional policies and procedures that are
designed to prevent any relationship between the issuer of the proxy (or any shareholder of the issuer) and a Fund, a Fund’s affiliates (if any), BFA or BFA’s affiliates (if any) or the Distributor or the Distributor’s affiliates,
from having undue influence on BFA’s proxy voting activity. In certain instances, BFA may determine to engage an independent fiduciary to vote proxies as a further safeguard against potential conflicts of interest or as otherwise required by
applicable law. The independent fiduciary may either vote such proxies or provide BFA with instructions as to how to vote such proxies. In the latter case, BFA votes the proxy in accordance with the independent fiduciary’s determination.
Information with respect to how BFA voted proxies relating to
the Funds' portfolio securities during the 12-month period
ended June 30 is available: (i) without charge, upon request, by calling 1-800-iShares (1-800-474-2737) or through the Funds' website at www.iShares.com; and (ii) on the SEC’s
website at www.sec.gov.
Portfolio Holdings Information
The Board has adopted a policy regarding the disclosure of the
Funds' portfolio holdings information that requires that such information be disclosed in a manner that: (i) is consistent with applicable legal requirements and in the best interests of each Fund’s shareholders; (ii) does not put the
interests of BFA, the Distributor or any affiliated person of BFA or the Distributor, above those of Fund shareholders; (iii) does not advantage any current or prospective Fund shareholders over any other current or prospective Fund shareholders,
except to the extent that certain Entities (as described below) may receive portfolio holdings information not available to other current or prospective Fund shareholders in connection with the dissemination of information necessary for transactions
in Creation Units, as discussed below; and (iv) does not provide selective access to portfolio holdings information except pursuant to the procedures outlined below and to the extent appropriate confidentiality arrangements limiting the use of such
information are in effect. The “Entities” referred to in sub-section (iii) above are generally limited to National Securities Clearing Corporation (“NSCC”) members, subscribers to various fee-based subscription services,
large institutional investors (known as “Authorized Participants”) that have been authorized by the Distributor to purchase and redeem large blocks of shares pursuant to legal requirements and other institutional market participants and
entities that provide information services.
Each
business day, each Fund's portfolio holdings information is provided to the Distributor or other agent for dissemination through the facilities of the NSCC and/or other fee-based subscription services to NSCC members and/or subscribers to those
other fee-based subscription services, including Authorized Participants, and to entities that publish and/or analyze such information in connection with the process of purchasing or redeeming Creation Units or trading shares of the Funds in the
secondary market. This information typically reflects each Fund’s anticipated holdings on the following business day.
Daily access to information concerning the Funds' portfolio
holdings is permitted (i) to certain personnel of those service providers that are involved in portfolio management and providing administrative, operational, risk management, or other support to portfolio management, including affiliated
broker-dealers and Authorized Participants; and (ii) to other personnel of the Funds' investment adviser (and Sub-Adviser) and the Distributor, administrator, custodian and fund accountant who deal directly with or assist in, functions related to
investment management, distribution, administration, custody and fund accounting, as may be necessary to conduct business in the ordinary course in a manner consistent with agreements with the Funds and the terms of the Funds' current registration
statement. In addition, each Fund discloses its portfolio holdings and the percentages they represent of the Fund's net assets at least monthly, and as often as each day the Fund is open for business, at www.iShares.com. More information about this
disclosure is available at www.iShares.com.
Portfolio
holdings information made available in connection with the creation /redemption process may be provided to other entities that provide services to the Funds in the ordinary course of business after it has been disseminated to the NSCC. From time to
time, information concerning portfolio holdings other than portfolio holdings information made available in connection with the creation/redemption process, as discussed above, may be provided to other entities that provide services to the Funds,
including rating or ranking organizations, in the ordinary course of business, no earlier than one business day following the date of the information.
Each Fund discloses its complete portfolio holdings schedule
in public filings with the SEC within 70 days after the end of each fiscal quarter and will provide that information to shareholders as required by federal securities laws and regulations thereunder. A Fund may, however, voluntarily disclose all or
part of its portfolio holdings other than in connection with the creation/redemption process, as discussed above, in advance of required filings with the SEC, provided that such information is made generally available to all shareholders and other
interested parties in a manner that is consistent with the above policy for disclosure of portfolio holdings information. Such information may be made available through a publicly-available website or other means that make the information available
to all likely interested parties contemporaneously.
The
Company's Chief Compliance Officer may authorize disclosure of portfolio holdings information pursuant to the above policy and procedures.
The Board reviews the policy and procedures for disclosure of
portfolio holdings information at least annually.
Construction and Maintenance of the Underlying Index
The Fund invests substantially all of its assets in securities
in the Underlying Index.
Descriptions of the Underlying
Indexes are provided below.
The Barclays Indexes
The Barclays Indexes are maintained by Barclays Capital Inc.,
which is affiliated with, but a separate legal entity from, BFA. BFA will have no role in maintaining the Underlying Indexes.
Barclays Emerging Markets Broad Local Currency Bond Index
Number of Components:
approximately 300
Index Description. The Barclays Emerging Markets Broad Local Currency Bond Index measures the performance of the local currency-denominated sovereign bond markets of emerging market countries.
Index Methodology. In order to
be eligible for inclusion in the Underlying Index, a security must be issued by a country that meets certain eligibility requirements for emerging market countries, and meet certain requirements relating to outstanding face value, maturity and other
criteria.
Eligible issuer countries must have a
sovereign rating of A1/A+ or lower using the middle foreign currency long-term debt rating of Moody’s, Standard & Poor's Ratings Services, and Fitch, or be classified by the World Bank as a Low, Low/Middle, or Upper/Middle Income country
as of July 1 of the preceding year. Countries that are members of the eurozone will not be included in the Underlying Index, regardless of their rating or World Bank classification. Issuer countries included in the Underlying Index must also have
aggregate local currency treasury debt outstanding (with maturity greater than one year) of at least US $5 billion as of July 1 of the preceding year.
Securities must have the local currency equivalent of $1
billion face amount outstanding in order to be included in the Underlying Index. Each security in the Underlying Index must have an original maturity date of more than one year in the future, and pricing must be readily available. Treasury bills and
strips, floating-rate issues, inflation-linked bonds, dual currency bonds, and private placements are excluded from the Underlying Index.
The list of eligible issuer countries is reviewed every
September and rebalanced on an annual basis on January 1. At the security level, the Underlying Index is rebalanced monthly on the last business day of the month. No issuer country can hold greater than a 25% share of the Underlying Index. In
addition, no more than 48% of the Underlying Index can be comprised of issuer countries that individually hold a 5% or greater share of the Underlying Index. Finally, each issuer country that holds less than a 5% share of the Underlying Index is
capped at 4.5% of the total Underlying Index. These caps are imposed at each month-end rebalancing date. Adjustments to a given issuer country’s weight are applied proportionately to all of its constituent securities.
The total return of the Underlying Index is adjusted each
month by a fixed running cost, meant to reflect withholding and other local market taxes applicable to non-resident investors. Any changes in applicable taxes for any of the eligible issuer countries may result in a revision to the adjustment.
The Markit Indexes
Markit iBoxx Global Developed Markets ex-US High Yield
Index
Number of
Components: approximately 290
Index Description. The Markit iBoxx Global Developed Markets ex-US High Yield Index measures the performance of the global ex-U.S. dollar high yield corporate bond market. As of September 30, 2012, the Underlying Index is a rules-based
index consisting of approximately 290 high yield corporate bonds denominated in euros, British pounds sterling and Canadian
dollars. The Underlying Index seeks to maximize liquidity while maintaining
representation of the broader global ex-U.S. dollar high yield bond market.
Index Methodology. The
Underlying Index is a subset of a broader high yield universe of sub-investment grade bonds. Bonds in the Underlying Index are selected from the universe of eligible bonds using defined rules. The bonds eligible for inclusion in the Underlying Index
include corporate bonds that (i) are denominated in euros, British pounds sterling or Canadian dollars; (ii) are issued by companies domiciled in countries classified as developed markets by the index provider; (iii) are rated sub-investment grade
by Fitch, Moody’s or Standard & Poor's Ratings Services; (iv) are bond issues with at least €250 million for euro-denominated bonds, £250 million for British pound sterling-denominated bonds and C$100 million for Canadian
dollar-denominated bonds; (v) have original maturity dates of less than 15 years; and (vi) have at least one year remaining to maturity.
Component Selection Criteria.
Eligible bonds are chosen by applying the eligibility rules listed above. The Underlying Index is a market value weighted index with a cap on each issuer of 3%. There is no maximum number of bond issues per issuer eligible, but to avoid an
over-concentration in any single issuer, the methodology caps single issuer exposure to no more than 3% of the index weight, calculated on the last business day of each month. The Underlying Index is updated monthly on the last business day of each
month.
Markit iBoxx Global Developed Markets
High Yield Index
Number of Components:
approximately 966
Index Description. The Markit iBoxx Global Developed Markets High Yield Index measures the performance of the global high yield corporate bond market. As of September 30, 2012, the Underlying Index is a rules-based index consisting of
approximately 966 high yield corporate bonds denominated in U.S. dollars, euros, British pounds sterling and Canadian dollars. The Underlying Index seeks to maximize liquidity while maintaining representation of the broader global high yield bond
market.
Index Methodology. The Underlying Index is a subset of a broader high yield universe of sub-investment grade bonds. Bonds in the Underlying Index are selected from the universe of eligible bonds using defined rules. The bonds eligible for
inclusion in the Underlying Index include corporate bonds that (i) are denominated in U.S. dollars, euros, British pounds sterling or Canadian dollars; (ii) are issued by companies domiciled in countries classified as developed markets by the index
provider; (iii) are rated sub-investment grade by Fitch, Moody’s or Standard & Poor's Ratings Services; (iv) are from issuers with at least $1 billion of outstanding face value for U.S. dollar-denominated bonds; (v) are bond issues with at
least $400 million of outstanding value for U.S. dollar-denominated bonds, €250 million for euro-denominated bonds, £250 million for British pound sterling-denominated bonds and C$100 million for Canadian dollar-denominated bonds; (vi)
have original maturity dates of less than 15 years; and (vii) have at least one year remaining to maturity.
Component Selection Criteria.
Eligible bonds are chosen by applying the eligibility rules listed above. The Underlying Index is a market value weighted index with a cap on each issuer of 3%. There is no maximum number of bond issues per eligible issuer, but to avoid an
over-concentration in any single issuer, the methodology caps single issuer exposure to no more than 3% of the index weight, calculated on the last business day of each month. The Underlying Index is updated monthly on the last business day of each
month.
The Morningstar Indexes
Morningstar Emerging Markets Corporate Bond Index
Number of Components:
approximately 463
Index Description. The Morningstar Emerging Markets Corporate Bond Index tracks the performance of the U.S. dollar-denominated emerging market corporate bond market. All bonds included in the Underlying Index are selected according to a
set of rule-based inclusion criteria regarding issue size, bond type, maturity, and liquidity. The securities included in the Underlying Index are rebalanced on the first business day of each month. Eligible countries are rebalanced annually at the
end of September.
The Underlying Index includes bonds issued by corporations and
quasi-sovereign corporations (more than 50% government ownership) based in Latin American, Eastern European, Middle Eastern/African, and Asian (excluding Japan) countries which meet certain criteria to be classified as emerging market countries by
Morningstar, Inc’s (”Morningstar”) proprietary index methodology. Eligible individual securities must have a minimum outstanding face value of $500 million or more, and eligible issuers must have aggregate outstanding debt of $1
billion or more to be included in the Underlying Index. Bonds with less than $500 million of outstanding face value will be used for calculating and issuer's aggregate outstanding debt, but will not be eligible for inclusion in the Underlying Index.
All securities included in the Underlying Index must be U.S. dollar-denominated fixed rate bonds with a remaining maturity of 13 months or more at the time of rebalancing and a minimum of 36 months to maturity or greater at time of issuance. There
are no ratings restrictions on either the individual bonds or the country, but all bonds in the Underlying Index must have at least one credit rating from either Moody’s, Standard & Poor's Ratings Services or Fitch. Fixed to floating rate
bonds are removed from the Underlying Index at the next rebalancing subsequent to the last fixed payment. Bonds with imbedded options such as calls or puts and sinking funds are included as well, in the Underlying Index. Bonds issued by private
placement are included provided they meet certain criteria which is set forth in Morningstar's proprietary index methodology. Payment-in-kind bonds (commonly referred to as PIKs) and Sukuk (commonly referred to as Islamic bonds), as well as illiquid
bonds, are excluded from the Underlying Index. Corporate issues in default are removed from the Underlying Index at the next rebalancing. The Underlying Index is market capitalization weighted with a 5% capping of issuers and a pro rata distribution of any excess weight across the remaining issuers in the index.
Morningstar Emerging Markets High Yield Bond Index
Number of Components:
approximately 172
Index Description. The Morningstar Emerging Markets High Yield Bond Index tracks the performance of the below-investment-grade U.S. dollar-denominated emerging market sovereign and corporate bond market (also known as “junk
bonds”). All bonds included in the Underlying Index are selected according to a set of rule-based inclusion criteria regarding issue size, bond type, maturity, and liquidity. The securities included in the Underlying Index are rebalanced on
the first business day of each month. Eligible countries included in the Underlying Index are rebalanced annually at the end of September.
The Underlying Index includes bonds issued by corporations,
sovereignties and quasi-sovereign corporations (more than 50% government ownership) based in Latin American, Eastern European, Middle Eastern/African, and Asian (excluding Japan) countries that meet certain criteria to be classified as emerging
market countries by Morningstar’s proprietary index methodology. Eligible individual securities must have a minimum outstanding face value of $500 million or more, and eligible issuers must have aggregate outstanding debt of $1 billion or more
to be included in the Underlying Index. Bonds with less than $500 million of outstanding face value will be used for calculating an issuer's aggregate outstanding debt, but will not be eligible for inclusion in the Underlying Index. All securities
included in the Underlying Index must be U.S. dollar-denominated fixed rate bonds with a remaining maturity of 13 months or more at the time of rebalancing and a minimum of 36 months to maturity or greater at time of issuance. Bonds must have a
composite rating of BB+ or lower to be included in the Underlying Index and must have at least one credit rating from either Moody's, Standard& Poor's Ratings Services or Fitch. If a fixed- to floating-rate bond is included in the Underlying
Index, such a bond is removed from the Underlying Index at the next rebalancing subsequent to the last fixed payment. Bonds with imbedded options such as calls or puts and sinking funds are included in the Underlying Index. Bonds issued by private
placement are included as well, provided they meet certain criteria set forth in Morningstar's proprietary index methodology. Payment-in-kind bonds (commonly referred to as PIKs) and Sukuk (commonly referred to as Islamic bonds), as well as illiquid
bonds, are excluded from the Underlying Index. Corporate issues in default are removed from the Underlying Index at the next rebalancing. Sovereign issues in default are excluded from initial inclusion in the index but are not removed if a default
occurs after inclusion, provided no additional inclusion or exclusion criteria are violated. The Underlying Index employs a weight capping algorithm to limit exposure to single issues and issuers. Single issuers are capped at 23% of the Underlying
Index's portfolio, and the sum of all issuers over 5% is capped at 48%. Issuers under 5% are capped at 4.7%. In instances where an issuer exceeds the capping threshold, the weight is modified and allocated on a pro
rata basis to the remaining constituents.
Sovereign bond ratings are the lower of Moody’s or
Standard & Poor's Ratings Services. Corporate bond ratings are the average of Fitch, Moody’s and Standard & Poor's Ratings Services.
Investment Limitations
Each Fund has adopted its investment objective as a
non-fundamental investment policy. Therefore, each Fund may change its investment objective and its Underlying Index without shareholder approval. The Board has adopted as fundamental policies the following numbered investment restrictions, which
cannot be changed without the approval of the holders of a majority of the applicable Fund’s outstanding voting securities. A vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of (a) 67% or more
of the voting securities present at a fund meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy, or (b) more than 50% of outstanding voting securities.
The iShares Emerging Markets Local Currency Bond Fund will
not:
1. |
Concentrate its investments
(i.e., invest 25% or more of its total assets in the securities of a particular industry or group of industries), except that the Fund will concentrate to approximately the same extent that the Underlying
Index concentrates in the securities of a particular industry or group of industries. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal governments and their political subdivisions are not considered to be issued by members of any industry. |
2. |
Borrow money, except that
(i) the Fund may borrow from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might otherwise require the untimely disposition of securities; and (ii) the Fund may, to the extent
consistent with its investment policies, enter into repurchase agreements, reverse repurchase agreements, forward roll transactions and similar investment strategies and techniques. To the extent that it engages in transactions described in (i) and
(ii), the Fund will be limited so that no more than 33 1/3% of the value of its total assets (including the amount borrowed) is derived from such transactions. Any borrowings which come to exceed this amount will be reduced in accordance with
applicable law. |
3. |
Issue any senior security,
except as permitted under the 1940 Act, as interpreted, modified or otherwise permitted by any regulatory authority having jurisdiction, from time to time. |
4. |
Make loans, except as
permitted under the 1940 Act, as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
5. |
Purchase or sell real estate
unless acquired as a result of ownership of securities or other instruments (but this restriction shall not prevent the Fund from investing in securities of companies engaged in the real estate business or securities or other instruments backed by
real estate or mortgages), or commodities or commodity contracts (but this restriction shall not prevent the Fund from trading in futures contracts and options on futures contracts, including options on currencies to the extent consistent with the
Fund’s investment objective and policies). |
6. |
Engage in the business of
underwriting securities issued by other persons, except to the extent that the Fund may technically be deemed to be an underwriter under the 1933 Act, in disposing of portfolio securities. |
Each of iShares Emerging Markets Corporate Bond Fund, iShares
Emerging Markets High Yield Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund will not:
1. |
Concentrate its investments
(i.e., invest 25% or more of its total assets in the securities of a particular industry or group of industries), except that the Fund will concentrate to approximately the same extent that the Underlying
Index concentrates in the securities of a particular industry or group of industries. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal governments and their political subdivisions are not considered to be issued by members of any industry. |
2. |
Borrow money, except that
(i) the Fund may borrow from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might otherwise require the untimely disposition of securities; and (ii) the Fund may, to the extent
consistent with its investment policies, enter into repurchase agreements, reverse repurchase agreements, forward roll transactions and similar investment strategies and techniques. To the extent that it engages in transactions described in (i) and
(ii), the Fund will be limited so that no more than 33 1/3% of the value of its total assets (including the amount borrowed) is derived from such transactions. Any borrowings which come to exceed this amount will be reduced in accordance with
applicable law. |
3. |
Issue “senior
securities” as defined in the 1940 Act and the rules, regulations and orders thereunder, except as permitted under the 1940 Act and the rules, regulation and orders thereunder. |
4. |
Make loans, except as
permitted under the 1940 Act, as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
5. |
Purchase or sell real estate
unless acquired as a result of ownership of securities or other instruments (but this restriction shall not prevent the Fund from investing in securities of companies engaged in the real estate business or securities or other instruments backed by
real estate or mortgages), or commodities or commodity contracts (but this restriction shall not prevent the Fund from trading in futures contracts and options on futures contracts, including options on currencies to the extent consistent with the
Fund’s investment objective and policies). |
6. |
Engage in the business of
underwriting securities issued by other persons, except to the extent that the Fund may technically be deemed to be an underwriter under the 1933 Act, in disposing of portfolio securities. |
In addition to the investment restrictions adopted as
fundamental policies, set forth above, each Fund has adopted a non-fundamental policy not to invest in the securities of a company for the purpose of exercising management or control, or purchase or otherwise acquire any illiquid security, except as
permitted under the 1940 Act, which currently permits up to 15% of each Fund’s net assets to be invested in illiquid securities (calculated at the time of investment). Except with regard to investment limitation three above, if any percentage
restriction described above is complied with at the time of an investment, a later increase or decrease in percentage resulting from a change in values of assets will not constitute a violation of such restriction.
BFA monitors the liquidity of restricted securities in each
Fund’s portfolio. In reaching liquidity decisions, BFA considers the following factors:
• |
The frequency of trades and
quotes for the security; |
• |
The number of dealers wishing
to purchase or sell the security and the number of other potential purchasers; |
• |
Dealer undertakings to make a
market in the security; and |
• |
The nature of the security
and the nature of the marketplace in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). |
Each Fund has adopted a non-fundamental investment policy in
accordance with Rule 35d-1 under the 1940 Act to invest, under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in securities in each Fund's Underlying Index or in
depositary receipts representing securities of certain Underlying Indexes. Each Fund also has adopted a policy to provide its shareholders with at least 60 days’ prior written notice of any change in such policy. If, subsequent to an
investment, an 80% requirement is no longer met, a Fund’s future investments will be made in a manner that will bring the Fund into compliance with this policy.
Each Fund has adopted a non-fundamental limitation such that,
under normal market conditions, any borrowings by the Fund will not exceed 10% of the Fund's net assets.
Each Fund may not purchase securities of other investment
companies, except to the extent permitted by the Investment Company Act. As a matter of policy, however, a Fund will not purchase shares of any registered open-end investment company or registered unit investment trust, in reliance on Section
12(d)(1)(F) or (G) (the “fund of funds” provisions) of the Investment Company Act, at any time the Fund has knowledge that its shares are purchased by another investment company investor in reliance on the provisions of subparagraph (G)
of Section 12(d)(1).
Continuous Offering
The method by which Creation Units are created and traded may
raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by the Funds on an ongoing basis, at any point a “distribution,” as such term is used in the 1933 Act, may occur. Broker-dealers and
other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner that could render them statutory underwriters and subject them to the
prospectus delivery requirement and liability provisions of the 1933 Act.
For example, a broker-dealer firm or its client may be deemed a
statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent shares and sells such shares directly to customers or if it chooses to couple the creation of new shares with an active
selling effort involving solicitation of secondary market demand for shares. A determination of whether one is an underwriter for purposes of the 1933 Act must take into account all the facts and circumstances pertaining to the activities of the
broker-dealer or its client in the particular case and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not
“underwriters” but are effecting transactions in shares, whether or not participating in the distribution of shares, generally are required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the
1933 Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus delivery obligation with respect to shares of the Funds are reminded that, pursuant to Rule 153 under the 1933 Act,
a prospectus delivery obligation under Section 5(b)(2) of the 1933 Act owed to an exchange member in connection with a sale on the Listing Exchange is satisfied by the fact that the prospectus is available at the Listing Exchange upon request. The
prospectus delivery mechanism provided in Rule 153 is available only with respect to transactions on an exchange.
Management
Directors and Officers.
The Board has responsibility for the overall management and operations of the 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, Chief Compliance Officer, Treasurer and Secretary shall each hold office until their successors are chosen and qualify, 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) of the Company are referred to as independent directors (“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 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 287 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 this SAI, which is available without charge, upon request, by calling toll-free 1-800-iShares (1-800-474-2737).
Interested Directors
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
Robert
S. Kapito1 (56) |
|
Director
(since 2009). |
|
President
and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRock’s Portfolio Management Group (since its formation in 1998) and BlackRock’s predecessor entities (since 1988);
Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Children’s Cancer Fund (since 2002); President of the Board of Directors, Periwinkle Theatre for Youth (since 1983). |
|
Trustee
of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of BlackRock, Inc. (since 2007). |
|
Michael
Latham2 (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 of 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). |
|
1 |
Robert S. Kapito is deemed to
be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
2 |
Michael Latham is deemed to
be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
Independent Directors
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
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 Paine Webber Inc.) (2003-2005) 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 Trust, iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S.
ETF Trust (since 2012). |
|
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 2000); 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). |
|
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). |
|
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 (2002-2011) and Chair of the Finance and Investment Committee (2006-2010) the Thacher School; Member (since 1994) and Chair (1994-2005) of the
Investment Committee, Archdiocese of San Francisco; Trustee and Member of the Investment Committee, WNET, the New York public broadcasting company (since 2011). |
|
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 (34 portfolios) (since 2009). |
|
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
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 (2 portfolios) (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). |
|
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 (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). |
|
Officers
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
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). |
|
Eilleen
M. Clavere (60) |
|
Secretary
(since 2007). |
|
Director
of Global Fund Administration, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc.
(2005-2006); Counsel of Kirkpatrick & Lockhart LLP (2001-2005). |
|
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Edward
B. Baer (44) |
|
Vice
President and Chief Legal Officer (since 2012). |
|
Managing
Director of Legal & Compliance, BlackRock (since 2006); Director of Legal & Compliance, BlackRock (2004-2006). |
|
Scott
Radell (44) |
|
Executive
Vice President (since 2012). |
|
Managing
Director, BlackRock (since 2009); Head of Portfolio Solutions, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007); Credit Research Analyst, BGI (2003-2005). |
|
Amy
Schioldager (50) |
|
Executive
Vice President (since 2007). |
|
Senior
Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI (2001-2006). |
|
Ira
P. Shapiro (49) |
|
Vice
President (since 2007). |
|
Managing
Director, BlackRock (since 2009); Head of Strategic Product Initiatives for iShares (since 2012); Chief Legal Officer, Exchange-Traded Fund Complex (2007-2012); Associate General Counsel, BGI (2004-2009). |
|
The Board has concluded that, based on each Director’s
experience, qualifications, attributes or skills on an individual basis and in combination with those of the other Directors, each Director should serve as a Director of the Board. Among the attributes common to all Directors are their ability to
review critically, evaluate, question and discuss information provided to them, to interact effectively with the Funds' investment adviser, other service providers, counsel and the independent registered public accounting firm, and to exercise
effective business judgment in the performance of their duties as Directors. A Director’s ability to perform his or her duties effectively may have been attained through the Director’s educational background or professional training;
business, consulting, public service or academic positions; experience from service as a Board member of the Funds and the other funds in the Company (and any predecessor funds), other investment funds, public companies, or non-profit entities or
other organizations; and/or other life experiences. Also, set forth below is a brief discussion of the specific experience, qualifications, attributes or skills of each Director that led the Board to conclude that he or she should serve as a
Director.
Robert Kapito has been a Director of the
Company since 2009. Mr. Kapito has served as a Trustee of iShares Trust since 2009, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a Trustee of iShares U.S. ETF Trust since 2011 and a Director of BlackRock, Inc. since 2007. In
addition, he has over 20 years of experience as part of BlackRock, Inc. and BlackRock’s predecessor entities. Mr. Kapito serves as President and Director of BlackRock, Inc., and is the Chairman of the Operating Committee, a member of the
Office of the Chairman, the Leadership Committee and the Corporate Council. He is responsible for day-to-day oversight of BlackRock's key operating units, including the Account Management and Portfolio Management Groups, Real Estate Group and
BlackRock Solutions®. Prior to assuming his current responsibilities in 2007, Mr. Kapito served as Head of BlackRock's Portfolio Management Group. In that role, he was responsible for
overseeing all portfolio management within BlackRock, including the Fixed-Income, Equity, Liquidity, and Alternative Investment Groups. Mr. Kapito serves as a member of the Board of Trustees of the University of Pennsylvania. He has also been
President of the Board of Directors for the Hope & Heroes Children's Cancer Fund since 2002 and President of the Board of Directors for Periwinkle Theatre for Youth, a national non-profit arts-in-education organization, since 1983. Mr. Kapito
earned a BS degree in economics from the Wharton School of the University of Pennsylvania in 1979, and an MBA degree from Harvard Business School in 1983.
Michael Latham has been a Director of the Company since 2010
and President of the Company since 2007. Mr. Latham served as Principal Financial Officer of the Company from 2002 until 2007. Mr. Latham has served as a Trustee of iShares Trust since 2010, President of iShares Trust since 2007, Principal Financial
Officer of iShares Trust from 2002 until 2007, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, President of iShares MSCI Russia Capped Index Fund, Inc. since 2010, and a Trustee and President of iShares U.S. ETF Trust since
2011. Mr. Latham is the Chairman of BlackRock’s iShares exchange-traded fund business. In addition, he has over 15 years of experience as part of BlackRock, Inc. and BlackRock’s predecessor entities. Prior to assuming his current
responsibilities in September 2011, he was the global head of BlackRock's iShares exchange-traded fund business. Prior to April 2009, he was head of BlackRock's iShares exchange-traded fund business for the United States and Canada, and Chief
Operating Officer for the U.S. iShares business. He previously held a variety of operating positions within the firm. Mr. Latham earned a BS degree in business administration from California State University at San Francisco in 1988.
Robert H. Silver has been a Director of the Company since 2007
and Chairman of the Company's Board since 2012. Mr. Silver has served as a Trustee of iShares Trust since 2007, Chairman of iShares Trust's Board since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chairman of iShares
MSCI Russia Capped Index Fund, Inc.'s Board since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chairman of iShares U.S. ETF Trust's Board since 2012. Mr. Silver is President and a Co-Founder of The Bravitas Group Inc., a firm dedicated
to advising and investing in emerging business enterprises and to supporting philanthropic activities that benefit under-served urban youth. Previously, Mr. Silver served as the President and Chief Operating Officer of UBS Financial Services Inc.
(formerly Paine Webber Inc.), the registered broker dealer comprising the Wealth Management USA business unit of UBS AG, including the following responsibilities: President of Paine Webber Services, Director of Retail Products and Marketing,
Director of Private Client Group Branch Offices, Director of Finance and Controls for Paine Webber, Inc. and Chief Administrative Officer for Paine Webber Private Client Group. Mr. Silver also served on the Board of Directors of EPAM Systems, Inc.,
a provider of software engineering outsourcing services in Central and Eastern Europe, served on the Board and Executive Committee of the Depository Trust and Clearing Corporation (DTCC), chaired the National Securities Clearing Corporations’
Membership and Risk Committee and served as Governor of the Philadelphia Stock Exchange. In addition, Mr. Silver was a Vice Chairman and a Member of the Board of Directors for the YMCA of Greater New York and chaired its Fund Development Committee
from 2001 until 2011 and Co-Founder and Vice President of Parentgiving Inc. since 2008. Mr. Silver began his career as a CPA and Audit Manager at KPMG LLP (formerly Peat Marwick Mitchell) from 1977 until 1983. Mr. Silver has a BS degree in business
administration from the University of North Carolina.
George G.C. Parker has been a Director of the Company since
2002. Mr. Parker served as Chair of the Company's Board from 2010 until 2012, Lead Independent Director of the Company from 2006 until 2010 and Chair of the Nominating and Governance Committee of the Company from 2002 until 2010. Mr. Parker has
served as a Trustee of iShares Trust since 2000, Chair of iShares Trust's Board from 2010 until 2012, Lead Independent Trustee of iShares Trust from 2006 until 2010, Chair of the Nominating and Governance Committee of iShares Trust from 2002 until
2010, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of iShares MSCI Russia Capped Index Fund, Inc.'s Board from 2010 until 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of iShares U.S. ETF Trust's Board
from 2011 until 2012. Mr. Parker also serves as Director on four other boards. Mr. Parker is the Dean Witter Distinguished Professor of Finance, Emeritus, at the Stanford University Graduate School of Business. He teaches courses in Corporate
Finance in the MBA Program, Stanford Sloan Program for Executives, and in various other Executive Education Programs at Stanford University. Mr. Parker's teaching and research interests are primarily in the field of corporate finance, management of
financial institutions, and corporate governance, and he has written numerous case studies related to these subjects. He has also authored several articles on capital structure, risk management, and corporate valuation. Mr. Parker previously served
as a Director of Continental Airlines and a Director of NETGEAR, Inc. Mr. Parker holds MBA and Ph.D. degrees from the Stanford University Graduate School of Business.
John E. Martinez has been a Director of the Company since 2003
and Chair of the Securities Lending Committee of the Company since 2012. Mr. Martinez has served as a Trustee of iShares Trust since 2003, Chair of the Securities Lending Committee of iShares Trust since 2012, a Director of iShares MSCI Russia
Capped Index Fund, Inc. since 2010, Chair of the Securities Lending Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Securities Lending Committee of iShares U.S. ETF
Trust since 2012. Mr. Martinez is a Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.), providing governance oversight and consulting services to this privately held firm that develops products and strategies for homeowners in managing
the equity in their homes. Mr. Martinez previously served as Director of Barclays Global Investors (BGI) UK Holdings, where he provided governance oversight representing BGI’s shareholders (Barclays PLC, BGI management shareholders) through
oversight of BGI’s
worldwide activities. Mr. Martinez also previously served as Co-Chief
Executive Officer of the Global Index and Markets Group of BGI, Chairman of Barclays Global Investor Services and Chief Executive Officer of the Capital Markets Group of BGI. Since 2003, he is a Director and Executive Committee Member for Larkin
Street Youth Services, providing governance oversight and strategy development to an agency that provides emergency and transitional housing, healthcare, education, job and life skills training to homeless youth. Mr. Martinez has an AB degree in
economics from The University of California, Berkeley and holds an MBA degree in finance and statistics from The University of Chicago Booth School of Business.
Cecilia H. Herbert has been a Director of the Company since
2005 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of the Company since 2012. Ms. Herbert has served as a Trustee of iShares Trust since 2005, Chair of the Nominating and Governance Committee and the Equity Plus
Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a
Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares U.S. ETF Trust since 2012. She is Director of the Board of the Catholic Charities CYO, one of the Bay
Area’s largest private social services organizations serving the homeless, poor, aged, families, children and AIDS/HIV victims, on which she has served since 1998. Ms. Herbert is a member of the Investment Committee, Archdiocese of San
Francisco since 1992, which she chaired from 1994 to 2005. She has served on numerous non-profit boards. Ms. Herbert is also a Director and Advisory Board Member since 2009 of the Forward Funds. Ms. Herbert previously served as a Trustee for the
Pacific Select Funds and The Montgomery Funds. Ms. Herbert previously served as Managing Director of J.P. Morgan/Morgan Guaranty Trust Company responsible for product development, marketing and credit for U.S. multinational corporations and as head
of its San Francisco office and as Assistant Vice President, Signet Banking Corporation. Ms. Herbert has a BA degree in economics and communications from Stanford University and an MBA degree in finance from Harvard Business School.
Charles A. Hurty has been a Director of the Company since 2005
and Chair of the Audit Committee of the Company since 2006. Mr. Hurty has served as a Trustee of iShares Trust since 2005, Chair of the Audit Committee of iShares Trust since 2006, a Director of iShares MSCI Russia Capped Index Fund, Inc. since
2010, Chair of the Audit Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Audit Committee of iShares U.S. ETF Trust since 2011. In addition, Mr. Hurty serves as
Director of the GMAM Absolute Return Strategy Fund since 2002, Director of the SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (formerly, Citigroup Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC) since 2002
and was a Director of the CSFB Alternative Investment Funds from 2005 to December 2009, when the funds were liquidated. Mr. Hurty was formerly a Partner at KPMG, LLP from 1968 to 2001. Mr. Hurty has a BS degree in accounting from the University of
Kansas.
John E. Kerrigan has been a Director of the
Company since 2005 and Chair of the Fixed Income Plus Committee of the Company since 2012. Mr. Kerrigan served as Chair of the Nominating and Governance Committee of the Company from 2010 until 2012. Mr. Kerrigan has served as a Trustee of iShares
Trust since 2005, Chair of the Fixed Income Plus Committee of iShares Trust since 2012, Chair of the Nominating and Governance Committee of iShares Trust from 2010 until 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010,
Chair of the Fixed Income Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, Chair of the Nominating and Governance Committee of iShares MSCI Russia Capped Index Fund, Inc. from 2010 until 2012, Trustee of iShares U.S. ETF
Trust since 2011, Chair of the Fixed Income Plus Committee of iShares U.S. ETF Trust since 2012 and Chair of the Nominating and Governance Committee of iShares U.S. ETF Trust from 2011 until 2012. Mr. Kerrigan serves as Chief Investment Officer,
Santa Clara University since 2002. Mr. Kerrigan was formerly a Managing Director at Merrill Lynch & Co., including the following responsibilities: Global Manager of Institutional Client Division eCommerce, Global Manager of Technology
Specialists Sales and Chair, Performance Measurement, Evaluation & Compensation Task Force. Mr. Kerrigan is a Trustee, since 2008, of Sacred Heart Schools, Atherton, CA, and Director, since 1999, of The BASIC Fund (Bay Area Scholarships for
Inner City Children). Mr. Kerrigan has a BA degree from Boston College and is a Chartered Financial Analyst.
Madhav V. Rajan has been a Director of the Company since 2011
and Chair of the 15(c) Committee of the Company since 2012. Mr. Rajan has served as a Trustee of iShares Trust since 2011, Chair of the 15(c) Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since
2011, Chair of the 15(c) Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the 15(c) Committee of iShares U.S. ETF Trust since 2012. Mr. Rajan is the Robert K. Jaedicke
Professor of Accounting at the Stanford University Graduate School of Business. He has taught accounting for over 20 years to undergraduate, MBA and law students, as well as to senior executives. Mr. Rajan serves as the Senior Associate Dean for
Academic Affairs and head of the MBA Program at the Stanford University Graduate School of Business. Mr. Rajan served as editor of “The Accounting Review” from 2002 to 2008
and is co-author of “Cost Accounting: A Managerial Emphasis,” a
leading cost accounting textbook. Mr. Rajan holds MS, MBA and Ph.D. degrees in accounting from Carnegie Mellon University.
Board –
Leadership Structure and Oversight Responsibilities
Overall responsibility for oversight of the Funds rests with
the Board. The Board has engaged BFA to manage the Funds on a day-to-day basis. The Board is responsible for overseeing BFA and other service providers in the operations of the Funds in accordance with the provisions of the 1940 Act, applicable
provisions of state and other laws and the Company’s charter. The Board is currently composed of nine members, seven of whom are Independent Directors. The Board currently conducts regular meetings four times a year. In addition, the Board
frequently holds special in-person or telephonic meetings or informal conference calls to discuss specific matters that may arise or require action between regular meetings. The Independent Directors meet regularly outside the presence of
management, in executive session or with other service providers to the Company.
The Board has appointed an Independent Director to serve in the
role of Chairman. The Chairman’s role is to preside at all meetings of the Board and to act as a liaison with service providers, officers, attorneys, and other Directors generally between meetings. The Chairman may also perform such other
functions as may be delegated by the Board from time to time. The Board has established six standing Committees: a Nominating and Governance Committee, an Audit Committee, a 15(c) Committee, a Securities Lending Committee, an Equity Plus Committee
and a Fixed Income Plus Committee to assist the Board in the oversight and direction of the business and affairs of the Funds, and from time to time may establish ad-hoc committees or informal working groups to review and address the policies and
practices of the Funds with respect to certain specified matters. The Chair of each standing Committee is an Independent Director. The role of the Chair of each Committee is to preside at all meetings of the Committee and to act as a liaison with
service providers, officers, attorneys and other Directors between meetings. Each Committee meets regularly to conduct the oversight functions delegated to the Committee by the Board and reports its finding to the Board. The Board and each standing
Committee conduct annual assessments of their oversight function and structure. The Board has determined that the Board’s leadership structure is appropriate because it allows the Board to exercise independent judgment over management and it
allocates areas of responsibility among committees of Independent Directors and the full Board to enhance effective oversight.
Day-to-day risk management with respect to the Funds is the
responsibility of BFA or other service providers (depending on the nature of the risk), subject to the supervision of BFA. Each Fund is subject to a number of risks, including investment, compliance, operational and valuation risks, among others.
While there are a number of risk management functions performed by BFA and other service providers, as applicable, it is not possible to eliminate all of the risks applicable to the Fund. The Directors have an oversight role in this area, satisfying
themselves that risk management processes are in place and operating effectively. Risk oversight forms part of the Board’s general oversight of each Fund and is addressed as part of various Board and committee activities. The Board, directly
or through a committee, also reviews reports from, among others, management and the independent registered public accounting firm for the Company, as appropriate, regarding risks faced by each Fund and management’s risk functions. The Board
has appointed a Chief Compliance Officer who oversees the implementation and testing of the Company's compliance program and reports to the Board regarding compliance matters for the Company and its principal service providers. In testing and
maintaining the compliance program, the Chief Compliance Officer assesses key compliance risks affecting each Fund, and addresses them in reports to the Board. The Independent Directors have engaged independent legal counsel to assist them in
performing their oversight responsibilities.
Committees of
the Board of Directors. Each Independent Director serves on the Audit Committee. The Chair of the Audit Committee is Charles A. Hurty. The purposes of the Audit Committee are to assist the Board (i) in its
oversight of the Company's accounting and financial reporting principles and policies and related controls and procedures maintained by or on behalf of the Company; (ii) in its oversight of the Company's financial statements and the independent
audit thereof; (iii) in selecting, evaluating and, where deemed appropriate, replacing the independent accountants (or nominating the independent accountants to be proposed for shareholder approval in any proxy statement); (iv) in evaluating the
independence of the independent accountants; (v) in complying with legal and regulatory requirements that relate to the Company's accounting and financial reporting, internal controls and independent audits; and (vi) to assume such other
responsibilities as may be delegated by the Board. The Audit Committee met four times during the fiscal year ended October 31, 2012.
The members of the Nominating and Governance Committee are
Cecilia H. Herbert (Chair), Charles A. Hurty, Madhav V. Rajan and John E. Kerrigan, all of whom are Independent Directors. The Nominating and Governance Committee nominates
individuals for Independent Director membership on the Board. The Nominating
and Governance Committee functions include, but are not limited to, the following: (i) reviewing the qualifications of any person properly identified or nominated to serve as an Independent Director; (ii) recommending to the Board and current
Independent Directors the nominee(s) for appointment as an Independent Director by the Board and current Independent Directors and/or for election as Independent Directors by shareholders to fill any vacancy for a position of Independent Director(s)
on the Board; (iii) recommending to the Board and current Independent Directors the size and composition of the Board and Board committees and whether they comply with applicable laws and regulations; (iv) recommending a current Independent Director
to the Board and current Independent Directors to serve as Lead Independent Director; (v) periodic review of the Board's retirement policy; and (vi) recommending an appropriate level of compensation for the Independent Directors for their services
as Directors, members or chairpersons of committees of the Board, Lead Independent Director, Chairperson of the Board and any other positions as the Nominating and Governance Committee considers appropriate. The Nominating and Governance Committee
does not consider Board nominations recommended by shareholders (acting solely in their capacity as a shareholder and not in any other capacity). The Nominating and Governance Committee met three times during the fiscal year ended October 31,
2012.
The members of the 15(c) Committee are Madhav V.
Rajan (Chair), Cecilia H. Herbert, Charles A. Hurty and John E. Martinez, all of whom are Independent Directors. The principal responsibilities of the 15(c) Committee are to support, oversee and organize on behalf of the Board the process for the
annual review and renewal of the Company's advisory and sub-advisory agreements. These responsibilities include: (i) meeting with BlackRock, Inc. in advance of the Board meeting at which the Company's advisory and sub-advisory agreements are to be
considered to discuss generally the process for providing requested information to the Board and the format in which information will be provided; and (ii) considering and discussing with BlackRock, Inc. such other matters and information as may be
necessary and appropriate for the Board to evaluate the investment advisory and sub-advisory agreements of the Company. The 15(c) Committee met four times during the fiscal year ended October 31, 2012.
The members of the Securities Lending Committee are John E.
Martinez (Chair), John E. Kerrigan and George G.C. Parker, all of whom are Independent Directors. The principal responsibilities of the Securities Lending Committee are to support, oversee and organize on behalf of the Board the process for
oversight of the Company's securities lending activities. These responsibilities include: (i) requesting that certain information be provided to the Committee for its review and consideration prior to such information being provided to the Board;
(ii) considering and discussing with BlackRock, Inc. such other matters and information as may be necessary and appropriate for the Board to oversee the Company's securities lending activities and make required findings and approvals; and (iii)
providing a recommendation to the Board regarding the annual approval of the Company's Securities Lending Guidelines and the required findings with respect to, and annual approval of, the Company's agreement with the lending agent. The Securities
Lending Committee met two times during the fiscal year ended October 31, 2012.
The members of the Equity Plus Committee are Cecilia H. Herbert
(Chair), John E. Martinez and George G.C. Parker, all of whom are Independent Directors. The principal responsibilities of the Equity Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of Company
performance and related matters for equity funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters that should be brought to the
attention of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as appropriate. The Equity Plus
Committee met two times during the fiscal year ended October 31, 2012.
The members of the Fixed Income Plus Committee are John E.
Kerrigan (Chair), Charles A. Hurty and Madhav V. Rajan, all of whom are Independent Directors. The principal responsibilities of the Fixed Income Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of
Company performance and related matters for fixed income or multi-asset funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters
that should be brought to the attention of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as
appropriate. The Fixed Income Plus Committee met two times during the fiscal year ended October 31, 2012.
As the Chairman of the Board, Robert H. Silver may participate
in each Committee's meetings.
The following table sets forth, as of December 31, 2012, the
dollar range of equity securities beneficially owned by each Director in the Funds and in other registered investment companies overseen by the Director within the same family of investment companies as the Company. If a fund is not listed below,
the Director did not own any securities in that fund as of the date indicated above:
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
Robert
S. Kapito |
|
None
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
|
Michael
Latham |
|
iShares
MSCI ACWI ex US Index Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
MSCI EAFE Small Cap Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 3000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell Microcap Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P California AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Short Term National AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
iShares
Barclays 1-3 Year Credit Bond Fund |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
Barclays 1-3 Year Treasury Bond Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Core MSCI EAFE ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core MSCI Emerging Markets ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core MSCI Total International Stock ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core S&P Total U.S. Stock Market ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core Total U.S. Bond Market ETF |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones Select Dividend Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Broker-Dealers Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Dow Jones U.S. Financial Services Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Regional Banks Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
High Dividend Equity Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
J.P. Morgan USD Emerging Markets Bond Fund |
|
$1-$10,000
|
|
|
|
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
|
|
iShares
MSCI ACWI ex US Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI BRIC Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Russell 1000 Growth Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Growth Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Russell 2000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 3000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell Midcap Growth Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
Russell Midcap Value Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
S&P U.S. Preferred Stock Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P/Citigroup International Treasury Bond Fund |
|
$1-$10,000
|
|
|
|
|
|
|
|
|
|
|
|
George
G.C. Parker |
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
Core Total U.S. Bond Market ETF |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones Select Dividend Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P 100 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P California AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
John
E. Martinez |
|
iShares
Barclays TIPS Bond Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
Core MSCI Emerging Markets ETF |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI All Country Asia ex Japan Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Emerging Markets Infrastructure Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Global Consumer Staples Sector Index Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
Cecilia
H. Herbert |
|
iShares
Core MSCI Total International Stock ETF |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
Dow Jones International Select Dividend Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
FTSE China 25 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
iBoxx $ High Yield Corporate Bond Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
MSCI Japan Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
S&P National AMT-Free Municipal Bond Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P U.S. Preferred Stock Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
|
|
|
|
|
|
Charles
A. Hurty |
|
iShares
Core MSCI Emerging Markets ETF |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
Core S&P 500 ETF |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Energy Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Financial Sector Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Technology Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
FTSE China 25 Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
High Dividend Equity Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI Japan Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P Global Energy Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P Global Technology Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P North American Technology-Multimedia Networking Index Fund |
|
$1-$10,000
|
|
|
|
|
|
|
|
|
|
|
|
John
E. Kerrigan |
|
iShares
MSCI ACWI ex US Index Fund |
|
$10,001-$50,000
|
|
$50,001-$100,000
|
|
|
|
iShares
S&P Short Term National AMT-Free Municipal Bond Fund |
|
$50,001-$100,000
|
|
|
|
|
|
|
|
|
|
|
|
Madhav
V. Rajan |
|
iShares
Core MSCI Emerging Markets ETF |
|
$50,001-$100,000
|
|
Over
$100,000 |
|
|
|
iShares
Core S&P 500 ETF |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
Dow Jones Select Dividend Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
High Dividend Equity Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
$50,001-$100,000
|
|
|
|
As of December 31, 2012, none of the Independent Directors or
their immediate family members owned beneficially or of record any securities of BFA (the Funds' investment adviser), the Distributor or any person controlling, controlled by or under common control with BFA or the Distributor.
Remuneration of Directors.
Each current Independent Director is paid an annual retainer of $275,000 for his or her services as a Board member to the BlackRock-advised Funds in the Exchange-Traded Fund Complex, together with
out-of-pocket expenses in accordance with the Board's policy on travel and other business expenses relating to attendance at meetings. For the period from January 1, 2011 through December 31, 2012, each current Independent Director was paid an
annual retainer of $250,000 for his or her services as a Board member to the BlackRock-advised Funds in the Exchange-Traded Fund Complex, together with out-of-pocket expenses in accordance with the Board’s policy on travel and other business
expenses relating to attendance at meetings. The Independent Chairman of the Boards is paid an additional annual retainer of $50,000. The Chair of the Audit Committees is paid an additional annual retainer of $40,000. The Chair of each of the
Nominating and Governance Committees, Equity Plus Committees, Fixed Income Plus Committees, Securities Lending Committees and 15(c) Committees is paid an additional annual retainer of $15,000. Each Independent Director that serves as a director of
subsidiaries of the Exchange-Traded Complex is paid an additional annual retainer of $10,000 (plus an additional $1,765 paid annually to compensate for taxes due in the Republic of Mauritius). Additionally, an Independent Director who travels to the
Republic of Mauritius to attend board meetings is paid an additional $12,000 (plus an additional $2,117 paid annually to compensate for taxes due in the Republic of Mauritius).
The table below sets forth the compensation earned by each
Independent Director and Interested Director from each Fund for the fiscal year ended October 31, 2012 and the aggregate compensation paid to them by the Exchange-Traded Complex for the calendar year ended December 31, 2012.
Name
of Director |
|
iShares
Emerging Markets Corporate Bond Fund1 |
|
iShares
Emerging Markets High Yield Bond Fund1 |
|
iShares
Emerging Markets Local Currency Bond Fund |
|
iShares
Global ex USD High Yield Corporate Bond Fund1 |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George
G.C. Parker |
|
$
11 |
|
$86
|
|
$108
|
|
$
13 |
|
John
E. Kerrigan |
|
11
|
|
84
|
|
105
|
|
13
|
|
Charles
A. Hurty |
|
12
|
|
96
|
|
120
|
|
15
|
|
Cecilia
H. Herbert |
|
11
|
|
87
|
|
108
|
|
14
|
|
Robert
H. Silver |
|
12
|
|
96
|
|
120
|
|
15
|
|
John
E. Martinez |
|
11
|
|
83
|
|
104
|
|
13
|
|
Madhav
V. Rajan |
|
11
|
|
83
|
|
104
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$
0 |
|
$0
|
|
$0
|
|
$
0 |
|
Michael
Latham |
|
0
|
|
0
|
|
0
|
|
0
|
|
Name
of Director |
|
iShares
Global High Yield Corporate Bond Fund1 |
|
|
|
|
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George
G.C. Parker |
|
$
19 |
|
|
|
|
|
John
E. Kerrigan |
|
18
|
|
|
|
|
|
Charles
A. Hurty |
|
21
|
|
|
|
|
|
Cecilia
H. Herbert |
|
19
|
|
|
|
|
|
Robert
H. Silver |
|
21
|
|
|
|
|
|
John
E. Martinez |
|
18
|
|
|
|
|
|
Madhav
V. Rajan |
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
of Director |
|
iShares
Global High Yield Corporate Bond Fund1 |
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
$0
|
|
|
|
|
|
Michael
Latham |
|
0
|
|
|
|
|
|
Name
of Director |
|
Pension
or Retirement Benefits Accrued As Part of Company Expenses2 |
|
Estimated
Annual Benefits Upon Retirement2 |
|
Total
Compensation From the Funds and Fund Complex3 |
|
Independent
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George
G.C. Parker |
|
Not
Applicable |
|
Not
Applicable |
|
$
260,165 |
|
John
E. Kerrigan |
|
Not
Applicable |
|
Not
Applicable |
|
265,510
|
|
Charles
A. Hurty |
|
Not
Applicable |
|
Not
Applicable |
|
290,000
|
|
Cecilia
H. Herbert |
|
Not
Applicable |
|
Not
Applicable |
|
273,010
|
|
Robert
H. Silver |
|
Not
Applicable |
|
Not
Applicable |
|
289,835
|
|
John
E. Martinez |
|
Not
Applicable |
|
Not
Applicable |
|
261,760
|
|
Madhav
V. Rajan |
|
Not
Applicable |
|
Not
Applicable |
|
250,000
|
|
|
|
|
|
|
|
|
|
Interested
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
Not
Applicable |
|
Not
Applicable |
|
$
0 |
|
Michael
Latham |
|
Not
Applicable |
|
Not
Applicable |
|
0
|
|
1 |
Compensation reported is from
the Fund’s inception to October 31, 2012. |
2 |
No Director or officer is
entitled to any pension or retirement benefits from the Company. |
3 |
Includes compensation for
service on the Boards of Trustees of iShares Trust and iShares U.S. ETF Trust, and the Board of Directors of iShares MSCI Russia Capped Index Fund, Inc. |
Control Persons and Principal Holders of Securities.
The Directors and officers of the Company collectively owned
less than 1% of each of the Funds' outstanding shares as of January 31, 2013.
Although the Company does not have information concerning the
beneficial ownership of shares held in the names of Depository Trust Company (“DTC”) participants (as defined below), as of January 31, 2013, the name and percentage ownership of each DTC participant that owned of record 5% or more of
the outstanding shares of a Fund were as follows:
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
iShares
Emerging Markets Corporate Bond Fund |
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
32.74%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
19.53%
|
|
|
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
13.26%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
Brown
Brothers Harriman & Co. 525 Washington Blvd. 11th Floor Jersey City, NJ 07310 |
|
8.71%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
5.82%
|
|
|
|
|
|
|
|
iShares
Emerging Markets High Yield Bond Fund |
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
33.68%
|
|
|
|
American
Enterprise Investment Services Inc. 2178 AXP Financial Center Minneapolis, MN 55474 |
|
16.17%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
15.39%
|
|
|
|
Charles
Schwab & Co., Inc. 111 Pavonia Avenue Jersey City, NJ 07310 |
|
8.30%
|
|
|
|
LPL
Financial Corporation 9785 Towne Centre Drive San Diego, CA 92121-1968 |
|
5.42%
|
|
|
|
|
|
|
|
iShares
Emerging Markets Local Currency Bond Fund |
|
Mellon
Trust of New England, National Association Three Mellon Bank Center Floor 1533700 Pittsburgh, PA 15259 |
|
35.90%
|
|
|
|
Northern
Trust Company (The) 801 South Canal Street Chicago, IL 60612 |
|
25.64%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
11.64%
|
|
|
|
|
|
|
|
iShares
Global ex USD High Yield Corporate Bond Fund |
|
National
Financial Services LLC 200 Liberty Street 5th Floor New York, NY 10281 |
|
20.48%
|
|
|
|
Barclays
Global Investors, N.A. 400 Howard Street San Francisco, CA 94105 |
|
14.29%
|
|
|
|
UMB
Bank-National Association 928 Grand Boulevard Kansas City, MO 64106 |
|
9.43%
|
|
Fund
|
|
Name
|
|
Percentage
of Ownership |
|
|
|
J.P.
Morgan Clearing Corp One Metrotech Center North Brooklyn, NY 11201 |
|
8.71%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
7.74%
|
|
|
|
JPMorgan
Chase Bank, National Association 14201 Dallas Pkwy 12th Floor Dallas, TX 75240 |
|
5.70%
|
|
|
|
|
|
|
|
iShares
Global High Yield Corporate Bond Fund |
|
Morgan
Stanley & Co. Harbourside Financial Center Plaza 3, 1st Floor Jersey City, NJ 07311 |
|
17.19%
|
|
|
|
Merrill
Lynch, Pierce Fenner & Smith Safekeeping 101 Hudson Street 8th Floor Jersey City, NJ 07302 |
|
16.14%
|
|
|
|
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
|
12.46%
|
|
|
|
Merrill
Lynch, Pierce, Fenner & Smith Incorporated 101 Hudson Street 9th Floor Jersey City, NJ 07302-3997 |
|
9.41%
|
|
|
|
J.P.
Morgan Clearing Corp One Metrotech Center North Brooklyn, NY 11201 |
|
8.70%
|
|
|
|
The
Bank of New York Mellon 401 Salina Street 2nd Floor Syracuse, NY 13202 |
|
5.36%
|
|
Potential Conflicts of Interest. The PNC Financial Services Group, Inc. (“PNC”) has a significant economic interest in
BlackRock, Inc., the parent of BFA, the Funds' investment adviser. PNC is considered to be an affiliate of
BlackRock, Inc., under the 1940 Act. Certain activities of BFA, BlackRock, Inc. and their affiliates (collectively, “BlackRock”) and PNC and its affiliates (collectively, “PNC” and together with BlackRock,
“Affiliates”), with respect to the Funds and/or other accounts managed by BlackRock or PNC, may give rise to actual or perceived conflicts of interest such as those described below.
BlackRock is one of the world's largest asset management
firms. PNC is a diversified financial services organization spanning the retail, business and corporate markets. BlackRock and PNC are affiliates of one another under the 1940 Act. BlackRock and PNC and their respective affiliates (including, for
these purposes, their directors, partners, trustees, managing members, officers and employees), including the entities and personnel who may be involved in the investment activities and business operations of a Fund, are engaged worldwide in
businesses, including equity, fixed-income, cash management and alternative investments. These are considerations of which investors in a Fund should be aware, and which may cause
conflicts of interest that could disadvantage the Fund and its shareholders.
These activities and interests include potential multiple advisory, transactional, financial and other interests in securities and other instruments that may be purchased or sold by a Fund.
BlackRock and its Affiliates have proprietary interests in, and
may manage or advise with respect to, accounts or funds (including separate accounts and other funds and collective investment vehicles) that have investment objectives similar to those of a Fund and/or that engage in transactions in the same types
of securities, currencies and instruments as the Fund. One or more Affiliates are also major participants in the global currency, equities, swap and fixed-income markets, in each case both on a proprietary basis and for the accounts of customers. As
such, one or more Affiliates are or may be actively engaged in transactions in the same securities, currencies, and instruments in which a Fund invests. Such activities could affect the prices and availability of the securities, currencies, and
instruments in which a Fund invests, which could have an adverse impact on the Fund's performance. Such transactions, particularly in respect of most proprietary accounts or customer accounts, will be executed independently of a Fund's transactions
and thus at prices or rates that may be more or less favorable than those obtained by the Fund. When BlackRock and its Affiliates purchase or sell the same assets for their managed accounts, including a Fund, the assets actually purchased or sold
may be allocated among the accounts on a basis determined in their good faith discretion to be equitable. In some cases, this system may adversely affect the size or price of the assets purchased or sold for a Fund. In addition, transactions in
investments by one or more other accounts managed by BlackRock or its Affiliates may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of a Fund, particularly, but not limited to, with respect to
small capitalization, emerging market or less liquid strategies. This may occur when investment decisions regarding a Fund are based on research or other information that is also used to support decisions for other accounts. When BlackRock or its
Affiliates implements a portfolio decision or strategy on behalf of another account ahead of, or contemporaneously with, similar decisions or strategies for a Fund, market impact, liquidity constraints, or other factors could result in the Fund
receiving less favorable trading results and the costs of implementing such decisions or strategies could be increased or the Fund could otherwise be disadvantaged. BlackRock or its Affiliates may, in certain cases, elect to implement internal
policies and procedures designed to limit such consequences, which may cause a Fund to be unable to engage in certain activities, including purchasing or disposing of securities, when it might otherwise be desirable for it to do so.
Conflicts may also arise because portfolio decisions regarding
a Fund may benefit other accounts managed by BlackRock or its Affiliates. For example, the sale of a long position or establishment of a short position by a Fund may impair the price of the same security sold short by (and therefore benefit) one or
more Affiliates or their other accounts, and the purchase of a security or covering of a short position in a security by a Fund may increase the price of the same security held by (and therefore benefit) one or more Affiliates or their other
accounts.
BlackRock and its Affiliates and their clients
may pursue or enforce rights with respect to an issuer in which a Fund has invested, and those activities may have an adverse effect on the Fund. As a result, prices, availability, liquidity and terms of a Fund's investments may be negatively
impacted by the activities of BlackRock or its Affiliates or their clients, and transactions for the Fund may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.
The results of a Fund's investment activities may differ
significantly from the results achieved by BlackRock and its Affiliates for their proprietary accounts or other accounts (including investment companies or collective investment vehicles) managed or advised by them. It is possible that one or more
Affiliate-managed accounts and such other accounts will achieve investment results that are substantially more or less favorable than the results achieved by a Fund. Moreover, it is possible that a Fund will sustain losses during periods in which
one or more Affiliate-managed accounts achieve significant profits on their trading for proprietary or other accounts. The opposite result is also possible. The investment activities of one or more Affiliates for their proprietary accounts and
accounts under their management may also limit the investment opportunities for a Fund in certain emerging and other markets in which limitations are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated
foreign investors.
From time to time, a Fund's activities
may also be restricted because of regulatory restrictions applicable to one or more Affiliates, and/or their internal policies designed to comply with such restrictions. As a result, there may be periods, for example, when BlackRock, and/or one or
more Affiliates, will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which BlackRock and/or one or more Affiliates are performing services or when position limits have been reached.
In connection with its management of a Fund, BlackRock may have
access to certain fundamental analysis and proprietary technical models developed by one or more Affiliates. BlackRock will not be under any obligation, however, to effect transactions on behalf of a Fund in accordance with such analysis and models.
In addition, neither BlackRock nor any of its Affiliates will have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for
the benefit of the management of a Fund and it is not anticipated that BlackRock will have access to such information for the purpose of managing the Fund. The proprietary activities or portfolio strategies of BlackRock and its Affiliates, or the
activities or strategies used for accounts managed by them or other customer accounts could conflict with the transactions and strategies employed by BlackRock in managing a Fund.
In addition, certain principals and certain employees of
BlackRock are also principals or employees of Affiliates. As a result, the performance by these principals and employees of their obligations to such other entities may be a consideration of which investors in a Fund should be aware.
BlackRock may enter into transactions and invest in securities,
instruments and currencies on behalf of a Fund in which customers of BlackRock or its Affiliates, or, to the extent permitted by the SEC, BlackRock or another Affiliate, serves as the counterparty, principal or issuer. In such cases, such party's
interests in the transaction will be adverse to the interests of the Fund, and such party may have no incentive to assure that the Fund obtains the best possible prices or terms in connection with the transactions. In addition, the purchase, holding
and sale of such investments by a Fund may enhance the profitability of BlackRock or its Affiliates. One or more Affiliates may also create, write or issue derivatives for their customers, the underlying securities, currencies or instruments of
which may be those in which a Fund invests or which may be based on the performance of the Fund. A Fund may, subject to applicable law, purchase investments that are the subject of an underwriting or other distribution by one or more Affiliates and
may also enter into transactions with other clients of an Affiliate where such other clients have interests adverse to those of the Fund.
At times, these activities may cause departments of BlackRock
or its Affiliates to give advice to clients that may cause these clients to take actions adverse to the interests of the Fund. To the extent affiliated transactions are permitted, a Fund will deal with BlackRock and its Affiliates on an arms-length
basis. BlackRock or its Affiliates may also have an ownership interest in certain trading or information systems used by a Fund. A Fund's use of such trading or information systems may enhance the profitability of BlackRock and its Affiliates.
One or more Affiliates may act as broker, dealer, agent, lender
or adviser or in other commercial capacities for a Fund. It is anticipated that the commissions, mark-ups, mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and commitment fees, brokerage fees, other fees,
compensation or profits, rates, terms and conditions charged by an Affiliate will be in its view commercially reasonable, although each Affiliate, including its sales personnel, will have an interest in obtaining fees and other amounts that are
favorable to the Affiliate and such sales personnel.
Subject to applicable law, the Affiliates (and their personnel
and other distributors) will be entitled to retain fees and other amounts that they receive in connection with their service to the Funds as broker, dealer, agent, lender, adviser or in other commercial capacities and no accounting to the Funds or
their shareholders will be required, and no fees or other compensation payable by the Funds or their shareholders will be reduced by reason of receipt by an Affiliate of any such fees or other amounts.
When an Affiliate acts as broker, dealer, agent, adviser or in
other commercial capacities in relation to the Funds, the Affiliate may take commercial steps in its own interests, which may have an adverse effect on the Funds. A Fund will be required to establish business relationships with its counterparties
based on the Fund's own credit standing. Neither BlackRock nor any of the Affiliates will have any obligation to allow their credit to be used in connection with a Fund's establishment of its business relationships, nor is it expected that the
Fund's counterparties will rely on the credit of BlackRock or any of the Affiliates in evaluating the Fund's creditworthiness.
Purchases and sales of securities for a Fund may be bunched or
aggregated with orders for other BlackRock client accounts. BlackRock, however, is not required to bunch or aggregate orders if portfolio management decisions for different accounts are made separately, or if it determines that bunching or
aggregating is not practicable or required, or in cases involving client direction.
Prevailing trading activity frequently may make impossible the
receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Funds will be charged or
credited with the average price. Thus, the effect of the aggregation may
operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the Funds will not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.
BlackRock may select brokers (including, without limitation,
Affiliates) that furnish BlackRock, the Funds, other BlackRock client accounts or other Affiliates or personnel, directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRock's view,
appropriate assistance to BlackRock in the investment decision-making process (including with respect to futures, fixed-price offerings and over-the-counter transactions). Such research or other services may include, to the extent permitted by law,
research reports on companies, industries and securities; economic and financial data; financial publications; proxy analysis; trade industry seminars; computer data bases; research-oriented software and other services and products. Research or
other services obtained in this manner may be used in servicing any or all of the Funds and other BlackRock client accounts, including in connection with BlackRock client accounts other than those that pay commissions to the broker relating to the
research or other service arrangements. Such products and services may disproportionately benefit other BlackRock client accounts relative to the Funds based on the amount of brokerage commissions paid by the Funds and such other BlackRock client
accounts. For example, research or other services that are paid for through one client's commissions may not be used in managing that client's account. In addition, other BlackRock client accounts may receive the benefit, including disproportionate
benefits, of economies of scale or price discounts in connection with products and services that may be provided to the Funds and to such other BlackRock client accounts. To the extent that BlackRock uses soft dollars, it will not have to pay for
those products and services itself.
BlackRock may receive
research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that BlackRock receives research on this basis, many of the same conflicts related to traditional soft
dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by BlackRock.
BlackRock may endeavor to execute trades through brokers who,
pursuant to such arrangements, provide research or other services in order to ensure the continued receipt of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from time to time choose
not to engage in the above described arrangements to varying degrees. BlackRock may also enter into commission sharing arrangements under which BlackRock may execute transactions through a broker-dealer, including, where permitted, an Affiliate, and
request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to BlackRock. To the extent that BlackRock engages in commission sharing arrangements, many of the same conflicts
related to traditional soft dollars may exist.
BlackRock
may utilize certain electronic crossing networks (“ECNs”) in executing client securities transactions for certain types of securities. These ECNs may charge fees for their services, including access fees and transaction fees. The
transaction fees, which are similar to commissions or markups/markdowns, will generally be charged to clients and, like commissions and markups/markdowns, would generally be included in the cost of the securities purchased. Access fees may be paid
by BlackRock even though incurred in connection with executing transactions on behalf of clients, including the Funds. In certain circumstances, ECNs may offer volume discounts that will reduce the access fees typically paid by BlackRock. BlackRock
will only utilize ECNs consistent with its obligation to seek to obtain best execution in client transactions.
BlackRock has adopted policies and procedures designed to
prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including the Funds, and to help ensure that such decisions are made in accordance with BlackRock's fiduciary obligations to its
clients. Nevertheless, notwithstanding such proxy voting policies and procedures, actual proxy voting decisions of BlackRock may have the effect of favoring the interests of other clients or businesses of other divisions or units of BlackRock and/or
its Affiliates, provided that BlackRock believes such voting decisions to be in accordance with its fiduciary obligations. For a more detailed discussion of these policies and procedures, see the Proxy Voting
Policy section of this SAI.
It is also possible
that, from time to time, BlackRock or its Affiliates may, although they are not required to, purchase and hold shares of a Fund. Increasing a Fund's assets may enhance investment flexibility and diversification and may contribute to economies of
scale that tend to reduce the Fund's expense ratio. BlackRock and its Affiliates reserve the right to redeem at any time some or all of the shares of a Fund acquired for their own accounts. A large redemption of shares of a Fund by BlackRock or its
Affiliates could significantly reduce the asset size of the Fund, which might have an adverse effect on the
Fund's investment flexibility, portfolio diversification and expense ratio.
BlackRock will consider the effect of redemptions on a Fund and other shareholders in deciding whether to redeem its shares.
It is possible that a Fund may invest in securities of
companies with which an Affiliate has or is trying to develop investment banking relationships as well as securities of entities in which BlackRock or its Affiliates has significant debt or equity investments or in which an Affiliate makes a market.
A Fund also may invest in securities of companies to which an Affiliate provides or may someday provide research coverage. Such investments could cause conflicts between the interests of a Fund and the interests of other clients of BlackRock or its
Affiliates. In making investment decisions for a Fund, BlackRock is not permitted to obtain or use material non-public information acquired by any division, department or Affiliate of BlackRock in the course of these activities. In addition, from
time to time, the activities of an Affiliate may limit a Fund's flexibility in purchases and sales of securities. When an Affiliate is engaged in an underwriting or other distribution of securities of an entity, BlackRock may be prohibited from
purchasing or recommending the purchase of certain securities of that entity for a Fund.
BlackRock and its Affiliates, their personnel and other
financial service providers may have interests in promoting sales of the Funds. With respect to BlackRock and its Affiliates and their personnel, the remuneration and profitability relating to services to and sales of the Funds or other products may
be greater than remuneration and profitability relating to services to and sales of certain funds or other products that might be provided or offered. BlackRock and its Affiliates and their sales personnel may directly or indirectly receive a
portion of the fees and commissions charged to the Funds or their shareholders. BlackRock and its advisory or other personnel may also benefit from increased amounts of assets under management. Fees and commissions may also be higher than for other
products or services, and the remuneration and profitability to BlackRock or its Affiliates and such personnel resulting from transactions on behalf of or management of the Funds may be greater than the remuneration and profitability resulting from
other funds or products.
BlackRock and its Affiliates and
their personnel may receive greater compensation or greater profit in connection with an account for which BlackRock serves as an adviser than with an account advised by an unaffiliated investment adviser. Differentials in compensation may be
related to the fact that BlackRock may pay a portion of its advisory fee to its Affiliate, or relate to compensation arrangements, including for portfolio management, brokerage transactions or account servicing. Any differential in compensation may
create a financial incentive on the part of BlackRock or its Affiliates and their personnel to recommend BlackRock over unaffiliated investment advisers or to effect transactions differently in one account over another.
BlackRock and its Affiliates may provide valuation assistance
to certain clients with respect to certain securities or other investments and the valuation recommendations made for their clients' accounts may differ from the valuations for the same securities or investments assigned by a Fund's pricing vendors,
especially if such valuations are based on broker-dealer quotes or other data sources unavailable to the Fund's pricing vendors. While BlackRock will generally communicate its valuation information or determinations to a Fund's pricing vendors
and/or fund accountants, there may be instances where the Fund's pricing vendors or fund accountants assign a different valuation to a security or other investment than the valuation for such security or investment determined or recommended by
BlackRock.
As disclosed in more detail in the Determination of Net Asset Value section of each Fund’s Prospectus, when market valuations are not readily available or such valuations do not reflect current market values, the affected investments will be
valued using fair value pricing, pursuant to procedures adopted by the Fund's Board. As a result, the Funds' sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BlackRock (pursuant to Board-adopted
procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
To the extent permitted by applicable law, a Fund may invest
all or some of its short-term cash investments in any money market fund or similarly-managed private fund advised or managed by BlackRock. In connection with any such investments, a Fund, to the extent permitted by the 1940 Act, may pay its share of
expenses of a money market fund in which it invests, which may result in a Fund bearing some additional expenses.
BlackRock and its Affiliates and their directors, officers and
employees, may buy and sell securities or other investments for their own accounts, and may have conflicts of interest with respect to investments made on behalf of a Fund. As a result of differing trading and investment strategies or constraints,
positions may be taken by directors, officers, employees and Affiliates of BlackRock that are the same, different from or made at different times than positions taken for the Fund. To lessen the possibility that a Fund will be adversely affected by
this personal trading, the Fund, BFA and BlackRock each has adopted a code of ethics in compliance with Section 17(j) of the 1940 Act that restricts securities trading in the personal
accounts of investment professionals and others who normally come into
possession of information regarding the Fund's portfolio transactions. Each code of ethics can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by
calling the SEC at (202) 551-8090. Each code of ethics is also available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at publicinfo@sec.gov or by
writing the SEC's Public Reference Section, Washington, DC 20549-1520.
BlackRock and its Affiliates will not purchase securities or
other property from, or sell securities or other property to, a Fund, except that the Fund may in accordance with rules adopted under the 1940 Act engage in transactions with accounts that are affiliated with the Fund as a result of common officers,
directors, or investment advisers or pursuant to exemptive orders granted to the Funds and/or BlackRock by the SEC. These transactions would be affected in circumstances in which BlackRock determined that it would be appropriate for a Fund to
purchase and another client of BlackRock to sell, or the Fund to sell and another client of BlackRock to purchase, the same security or instrument on the same day. From time to time, the activities of a Fund may be restricted because of regulatory
requirements applicable to BlackRock or its Affiliates and/or BlackRock's internal policies designed to comply with, limit the applicability of, or otherwise relate to such requirements. A client not advised by BlackRock would not be subject to some
of those considerations. There may be periods when BlackRock may not initiate or recommend certain types of transactions, or may otherwise restrict or limit their advice in certain securities or instruments issued by or related to companies for
which an Affiliate is performing investment banking, market making or other services or has proprietary positions. For example, when an Affiliate is engaged in an underwriting or other distribution of securities of, or advisory services for, a
company, the Funds may be prohibited from or limited in purchasing or selling securities of that company. Similar situations could arise if personnel of BlackRock or its Affiliates serve as directors of companies the securities of which the Funds
wish to purchase or sell. However, if permitted by applicable law, the Funds may purchase securities or instruments that are issued by such companies or are the subject of an underwriting, distribution, or advisory assignment by an Affiliate, or in
cases in which personnel of BlackRock or its Affiliates are directors or officers of the issuer.
The investment activities of one or more Affiliates for their
proprietary accounts and for client accounts may also limit the investment strategies and rights of the Funds. For example, in regulated industries, in certain emerging or international markets, in corporate and regulatory ownership definitions, and
in certain futures and derivative transactions, there may be limits on the aggregate amount of investment by affiliated investors that may not be exceeded without the grant of a license or other regulatory or corporate consent or, if exceeded, may
cause BlackRock, the Funds or other client accounts to suffer disadvantages or business restrictions.
If certain aggregate ownership thresholds are reached or
certain transactions undertaken, the ability of BlackRock on behalf of clients (including the Funds) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired.
As a result, BlackRock, on behalf of clients (including the Funds), may limit purchases, sell existing investments, or otherwise restrict or limit the exercise of rights (including voting rights) when BlackRock, in its sole discretion, deems it
appropriate.
BlackRock and its Affiliates may maintain
securities indexes as part of their product offerings. Index based funds seek to track the performance of securities indexes and may use the name of the index in the fund name. Index providers, including BlackRock and its Affiliates may be paid
licensing fees for use of their index or index name. BlackRock and its Affiliates will not be obligated to license their indexes to BlackRock, and BlackRock cannot be assured that the terms of any index licensing agreement with BlackRock and its
Affiliates will be as favorable as those terms offered to other index licensees.
BlackRock and its Affiliates may serve as Authorized
Participants in the creation and redemption of exchange-traded funds, including funds advised by Affiliates of BlackRock. As described in greater detail in the Creations and
Redemptions section of each Prospectus, BlackRock and its Affiliates may therefore be deemed to be participants in a distribution of iShares funds that could render them statutory underwriters.
Present and future activities of BlackRock and its Affiliates,
including BFA, in addition to those described in this section, may give rise to additional conflicts of interest.
Investment Advisory, Administrative and Distribution
Services
Investment Adviser. BFA serves as investment adviser to each Fund pursuant to an investment advisory agreement between the Company, on behalf of each Fund, and BFA. BFA is a California corporation indirectly owned by BlackRock, Inc.
and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the investment advisory agreement, BFA, subject to the supervision of the Board and in conformity with the stated investment policies of each
Fund, manages and administers the Company and the investment of each Fund’s assets. BFA is responsible for placing purchase and sale orders and providing continuous supervision of the investment portfolio of each Fund.
BFA is responsible, under the investment advisory agreement,
for substantially all expenses of the Funds, including the cost of transfer agency, custody, fund administration, legal, audit and other services. BFA is not responsible for, and the Funds will bear the cost of, interest expense, taxes, brokerage
expenses and other expenses connected with the execution of portfolio securities transactions, distribution fees and extraordinary expenses.
For its investment advisory services to each Fund, BFA is paid
a management fee at the annual rates (as a percentage of such Fund's average net assets) set forth below.
The following table sets forth the management fees paid by the
Fund to BFA for the fiscal years noted:
Fund
|
|
Management
Fee |
|
Fund
Inception Date |
|
Management
Fees Paid for Fiscal Year Ended October 31, 2012 |
|
Management
Fees Paid for Fiscal Year Ended October 31, 2011 |
|
Management
Fees Paid for Fiscal Year Ended October 31, 2010 |
iShares
Emerging Markets Corporate Bond Fund |
|
0.60%
|
|
04/17/12
|
|
$
41,205 |
|
N/A
|
|
N/A
|
iShares
Emerging Markets High Yield Bond Fund |
|
0.65%
|
|
04/03/12
|
|
82,350
|
|
N/A
|
|
N/A
|
iShares
Emerging Markets Local Currency Bond Fund |
|
0.60%
|
|
10/18/11
|
|
288,363
|
|
$6,483
|
|
N/A
|
iShares
Global ex USD High Yield Corporate Bond Fund1 |
|
0.55%
|
|
04/03/12
|
|
77,202
|
|
N/A
|
|
N/A
|
iShares
Global High Yield Corporate Bond Fund2 |
|
0.55%
|
|
04/03/12
|
|
90,198
|
|
N/A
|
|
N/A
|
1 |
For the iShares Global ex USD
High Yield Corporate Bond Fund, BFA has contractually agreed to waive a portion of its management fee for its investment advisory services to the Fund in order to limit the Total Annual Fund Operating Expenses to 0.40% of average daily net assets
until December 31, 2014. For the fiscal year ended October 31, 2012, BFA waived $21,055 of its management fees. |
2 |
For the iShares Global High
Yield Corporate Bond Fund, BFA has contractually agreed to waive a portion of its management fee for its investment advisory services to the Fund in order to limit the Total Annual Fund Operating Expenses to 0.40% of average daily net assets until
December 31, 2014. For the fiscal year ended October 31, 2012, BFA waived $24,599 of its management fees. |
The investment advisory agreement with respect to each Fund
continues in effect for two years from its effective date, and thereafter is subject to annual approval by (i) the Board, or (ii) the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the applicable Fund,
provided that in either event such continuance also is approved by a majority of the Board members who are not interested persons (as defined in the 1940 Act) of the applicable Fund, by a vote cast in person at a meeting called for the purpose of
voting on such approval.
The investment advisory
agreement with respect to each Fund is terminable without penalty, on 60 days' notice, by the Board or by a vote of the holders of a majority of the applicable Fund’s outstanding voting securities (as defined in the 1940 Act). The investment
advisory agreement is also terminable upon 60 days' notice by BFA and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
Current interpretations of U.S. federal banking laws and
regulations (i) may prohibit BlackRock, Inc., BFA or their affiliates from controlling or underwriting the shares of the Funds, but (ii) do not prohibit BlackRock, Inc. or BFA generally from acting
as an investment adviser, administrator, transfer agent or custodian to the
Funds or from purchasing shares as agent for and upon the order of a customer.
BFA believes that it may perform advisory and related services
for the Company without violating applicable banking laws or regulations. However, the legal requirements and interpretations about the permissible activities of banks and their affiliates may change in the future. These changes could prevent BFA
from continuing to perform services for the Company. If this happens, the Board would consider selecting other qualified firms. Any new investment advisory agreement would be subject to shareholder approval.
If current restrictions on bank activities with mutual funds
were relaxed, BFA, or its affiliates, would consider performing additional services for the Company. BFA cannot predict whether these changes will be enacted, or the terms under which BFA, or its affiliates, might offer to provide additional
services.
Investment Sub-Adviser. Pursuant to the Investment Advisory Agreement between BFA and the Company entered into on
behalf of the Funds, BFA may from time to time, in its sole discretion, to the extent permitted by applicable law,
appoint one or more sub-advisers, including, without limitation, affiliates of BFA, to perform investment advisory services with respect to the Funds. In addition, BFA may delegate certain of its investment advisory functions under the Investment
Advisory Agreement to one or more of its affiliates to the extent permitted by applicable law. BFA may terminate any or all sub-advisers or such delegation arrangements in its sole discretion at any time to the extent permitted by applicable
law.
BFA has entered into an investment
sub-advisory agreement (the “Sub-Advisory Agreement” and together with the Investment Advisory Agreement, the “Advisory Agreements”) with the Sub-Adviser with respect to the iShares Emerging Markets Local Currency Bond Fund,
iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund. The Sub-Adviser is an investment adviser located in the United Kingdom. The Sub-Adviser is an affiliate of BFA and is a registered investment
adviser and a commodity pool operator organized in 1999. As of December 31, 2012, the Sub-Adviser’s total assets under management were approximately $23.5 billion.
Under the Sub-Advisory Agreement, subject to the supervision
and oversight of the Board and BFA, the Sub-Adviser is primarily responsible for execution of securities transactions outside the U.S. and Canada and may, from time to time, participate in the management of specified assets in each of the iShares
Emerging Markets Local Currency Bond Fund’s, iShares Global ex USD High Yield Corporate Bond Fund's and iShares Global High Yield Corporate Bond Fund's portfolio.
Pursuant to the Sub-Advisory Agreement, BFA pays the
Sub-Adviser for services it provides either: (i) a fee equal to a percentage of the management fee paid to BFA under the Investment Advisory Agreement, or (ii) an amount based on the cost of the services provided. If the Sub-Adviser provides
services relating to both portfolio management and trading it is entitled to receive, from BFA, an amount equal to 20% of BFA’s management fee, and if the Sub-Adviser provides services related solely to trading then it is entitled to receive,
from BFA, an amount equal to 110% of the actual pre-tax costs incurred by the Sub-Adviser. The Sub-Adviser may be responsible for the day-to-day management of the iShares Emerging Markets Local Currency Bond Fund, iShares Global ex USD High Yield
Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund or portions of the Funds.
Over the last three fiscal years, the amount paid by BFA to the
Sub-Adviser, with respect to the Funds has been $0.
Unless earlier terminated as described below, each Advisory
Agreement will remain in effect for an initial two year period and from year to year if approved annually (a) by the Board or by a vote of a majority of the applicable Fund's outstanding voting securities and (b) by a majority of the Directors who
are not parties to such agreement or interested persons (as defined in the 1940 Act) of any such party.
Each Advisory Agreement with respect to each Fund is terminable
without penalty, on 60 days' notice, by the Board or by a vote of the holders of a majority of the applicable Fund’s outstanding voting securities (as defined in the 1940 Act) and will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
Current
interpretations of U.S. federal banking laws and regulations (i) may prohibit BlackRock, Inc., BFA or their affiliates from controlling or underwriting the shares of the Funds, but (ii) do not prohibit BlackRock, Inc. or BFA generally from acting as
an investment adviser, administrator, transfer agent or custodian to the Funds or from purchasing shares as agent for and upon the order of a customer.
BFA believes that it may perform advisory and related services
for the Company without violating applicable banking laws or regulations. However, the legal requirements and interpretations about the permissible activities of banks and their affiliates may change in the future. These changes could prevent BFA
from continuing to perform services for the Company. If this happens, the Board would consider selecting other qualified firms. Any new investment advisory agreement would be subject to shareholder approval.
If current restrictions on bank activities with mutual funds
were relaxed, BFA, or its affiliates, would consider performing additional services for the Company. BFA cannot predict whether these changes will be enacted, or the terms under which BFA, or its affiliates, might offer to provide additional
services.
Portfolio Managers. As of October 31, 2012, the individuals named as Portfolio Managers in the Fund's prospectus were also primarily responsible for the day-to-day management of other iShares funds and certain other types of
portfolios and/or accounts as follows:
James
Mauro |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
49
|
|
$135,500,000,000
|
|
Other
Pooled Investment Vehicles |
|
14
|
|
$
23,800,000,000 |
|
Other
Accounts |
|
9
|
|
$
9,800,000,000 |
|
Accounts
with Incentive-Based Fee Arrangements |
|
1
|
|
$
530,000,000 |
|
Scott
Radell |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
50
|
|
$138,000,000,000
|
|
Other
Pooled Investment Vehicles |
|
5
|
|
$
3,400,000,000 |
|
Other
Accounts |
|
7
|
|
$
9,000,000,000 |
|
Accounts
with Incentive-Based Fee Arrangements |
|
2
|
|
$
1,500,000,000 |
|
Each of the portfolios or accounts for which the Portfolio
Managers are primarily responsible for the day-to-day management seeks to track the rate of return, risk profile and other characteristics of independent third-party indexes by either replicating the same combination of securities that compose those
indexes or through a representative sampling of the securities that compose those indexes based on objective criteria and data. Pursuant to BFA policy, investment opportunities are allocated equitably among the Funds and other portfolios and
accounts. For example, under certain circumstances, an investment opportunity may be restricted due to limited supply on the market, legal constraints or other factors, in which event the investment opportunity will be allocated equitably among
those portfolios and accounts, including the Funds, seeking such investment opportunity. As a consequence, from time to time the Funds may receive a smaller allocation of an investment opportunity than it would have if the Portfolio Managers and BFA
and its affiliates did not manage other portfolios or accounts.
Like the Funds, the other portfolios or accounts for which the
Portfolio Managers are primarily responsible for the day-to-day portfolio management generally pay an asset-based fee to BFA or its affiliates, as applicable, for its advisory services. One or more of those other portfolios or accounts, however, may
pay BFA an incentive-based fee in lieu of, or in addition to, an asset-based fee for its advisory services. A portfolio or account with an incentive-based fee would pay BFA a portion of that portfolio's or account's gains, or would pay BFA more for
its services than would otherwise be the case if BFA meets or exceeds specified performance targets. By their very nature, incentive-based fee arrangements could present an incentive for BFA or any of its affiliates to devote greater resources, and
allocate more investment opportunities, to the portfolios or accounts that have those fee arrangements, relative to other portfolios or accounts, in order to earn larger fees. Although BFA and its affiliates have an obligation to allocate resources
and opportunities equitably among portfolios and accounts and intends to do so, shareholders of the Funds should be aware that, as with any group of portfolios and accounts managed by an investment adviser and/or its affiliates pursuant to varying
fee arrangements, including incentive-based fee arrangements, there is the potential for a conflict-of-interest, that may result in the Portfolio Managers' favoring those portfolios or accounts with incentive-based fee arrangements.
The tables below show, for each Portfolio Manager, the number
of portfolios or accounts of the types set forth in the above tables and the aggregate of total assets in those portfolios or accounts with respect to which the investment management fees are based on the performance of those portfolios or
accounts as of October 31, 2012:
James
Mauro |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
1
|
|
$530,000,000
|
|
Scott
Radell |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
1
|
|
$900,000,000
|
|
Other
Accounts |
|
1
|
|
$600,000,000
|
|
The discussion below describes the Portfolio Managers'
compensation as of October 31, 2012.
Portfolio Manager
Compensation Overview
BlackRock, Inc.'s financial
arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to
year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established
by BlackRock, Inc.
Base compensation. Generally, portfolio managers receive base compensation based on their position with the firm.
Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager's group within BlackRock, Inc. and the individual's performance and
contribution to the overall performance of these portfolios and BlackRock, Inc.
Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of years. The BlackRock, Inc. restricted
stock units, if properly vested, will be settled in BlackRock, Inc. common stock. Typically, the cash bonus, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of annual
bonuses in stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock, Inc.'s ability to sustain and improve its performance over future periods.
Long-Term Incentive Plan Awards — From time to time, long-term incentive equity awards are granted to certain key employees to aid in retention, align their interests with long-term shareholder interests and motivate performance. Equity awards are
generally granted in the form of BlackRock, Inc. restricted stock units that, once vested, settle in BlackRock, Inc. common stock.
Deferred Compensation Program
— A portion of the compensation paid to eligible BlackRock, Inc. employees may be voluntarily deferred at their election for defined periods of time into an account that tracks the performance of certain of the firm's investment products. All
of the eligible portfolio managers have participated in the deferred compensation program.
Other Compensation Benefits.
In addition to base compensation and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:
Incentive Savings Plans
— BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (“RSP”), and the
BlackRock
Employee Stock Purchase Plan (“ESPP”). The employer contribution
components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution equal to 3-5% of eligible compensation up to the U.S. Internal
Revenue Service (the “IRS”) limit ($250,000 for 2012). The RSP offers a range of investment options, including registered investment companies and collective investment funds managed by the firm. BlackRock, Inc. contributions follow the
investment direction set by participants for their own contributions or, absent participant investment direction, are invested into an index target date fund that corresponds to, or is closest to, the year in which the participant attains age 65.
The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a dollar value
of $25,000 based on its fair market value on the Purchase Date. James Mauro and Scott Radell are each eligible to participate in these plans.
As of October 31, 2012, the Portfolio Managers did not
beneficially own any shares of the Funds.
Codes of Ethics. The Company, BFA, the Sub-Adviser and the Distributor have adopted codes of ethics pursuant to Rule 17j-1 of the 1940 Act. The codes of ethics permit personnel subject to the codes of ethics to invest in
securities, subject to certain limitations, including securities that may be purchased or held by the Funds. The codes of ethics are on public file with, and are available from, the SEC.
Anti-Money Laundering Requirements. The Funds are subject to the USA PATRIOT Act (the “Patriot Act”). The Patriot Act is intended to prevent the use of the U.S. financial system in furtherance of money laundering, terrorism or other
illicit activities. Pursuant to requirements under the Patriot Act, a Fund may request information from Authorized Participants to enable it to form a reasonable belief that it knows the true identity of its Authorized Participants. This information
will be used to verify the identity of Authorized Participants or, in some cases, the status of financial professionals; it will be used only for compliance with the requirements of the Patriot Act.
The Funds reserve the right to reject purchase orders from
persons who have not submitted information sufficient to allow the Fund to verify their identity. Each Fund also reserves the right to redeem any amounts in a Fund from persons whose identity it is unable to verify on a timely basis. It is the
Funds' policy to cooperate fully with appropriate regulators in any investigations conducted with respect to potential money laundering, terrorism or other illicit activities.
Administrator, Custodian and Transfer Agent. State Street Bank and Trust Company (“State Street”) serves as administrator, custodian and transfer agent for the Funds under the Master Services Agreement and related Service Schedule (the
“Service Module”). State Street’s principal address is 200 Clarendon Street, Boston, MA 02116. Pursuant to the Service Module for Fund Administration and Accounting Services with the Company, State Street provides necessary
administrative, legal, tax and accounting and financial reporting services for the maintenance and operations of the Company and each Fund. In addition, State Street makes available the office space, equipment, personnel and facilities required to
provide such services. Pursuant to the Service Module for Custodial Services with the Company, State Street maintains, in separate accounts, cash, securities and other assets of the Company and each Fund, keeps all necessary accounts and records and
provides other services. State Street is required, upon the order of the Company, to deliver securities held by State Street and to make payments for securities purchased by the Company for each Fund. State Street is authorized to appoint certain
foreign custodians or foreign custody managers for Fund investments outside the United States. Pursuant to the Service Module for Transfer Agency Services with the Company, State Street acts as a transfer agent for each Fund’s authorized and
issued shares of beneficial interest, and as dividend disbursing agent of the Company. As compensation for these services, State Street receives certain out-of-pocket costs, transaction fees and asset-based fees which are accrued daily and paid
monthly by BFA from its management fee.
The
following table sets forth the administration, transfer agency and custodian expenses of each Fund paid by BFA to State Street for the fiscal years noted:
Fund
|
|
Fund
Inception Date |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended October 31, 2012 |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended October 31, 2011 |
|
Custody,
Administration, Transfer Agency Expenses Paid During Fiscal Year Ended October 31, 2010 |
iShares
Emerging Markets Corporate Bond Fund |
|
04/17/12
|
|
$
4,263 |
|
N/A
|
|
N/A
|
iShares
Emerging Markets High Yield Bond Fund |
|
04/03/12
|
|
8,657
|
|
N/A
|
|
N/A
|
iShares
Emerging Markets Local Currency Bond Fund |
|
10/18/11
|
|
39,993
|
|
$5,219
|
|
N/A
|
iShares
Global ex USD High Yield Corporate Bond Fund |
|
04/03/12
|
|
7,320
|
|
N/A
|
|
N/A
|
iShares
Global High Yield Corporate Bond Fund |
|
04/03/12
|
|
5,614
|
|
N/A
|
|
N/A
|
Distributor. The Distributor's principal address is 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310. Shares are
continuously offered for sale by the Funds through the Distributor or its agent only in Creation
Units, as described in the applicable Prospectus and below in the Creation and Redemption
of Creation Units section of this SAI. Fund shares in amounts less than Creation Units are generally not distributed by the Distributor or its agent. The Distributor or its agent will arrange for the delivery
of the applicable Prospectus and, upon request, this SAI to persons purchasing Creation Units and will maintain records of both orders placed with it or its agents and confirmations of acceptance furnished by it or its agents. The Distributor is a
broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “1934 Act”), and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
The Distribution Agreement for each Fund provides that it may
be terminated at any time, without the payment of any penalty, on at least 60 days' prior written notice to the other party following (i) the vote of a majority of the Independent Directors, or (ii) the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the relevant Fund. The Distribution Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities
dealers (“Soliciting Dealers”) who will solicit purchases of Creation Units of Fund shares. Such Soliciting Dealers may also be Authorized Participants (as defined below), Depository Trust Company (“DTC”) participants and/or
investor services organizations.
BFA or its affiliates
may, from time to time and from its own resources, pay, defray or absorb costs relating to distribution, including payments out of its own resources to the Distributor, or to otherwise promote the sale of shares.
The Distributor serves as the Funds' distributor as of April
1, 2012. Prior to that date, SEI Investments Distribution Co. (“SEI”), located at One Freedom Valley Drive, Oaks, PA 19456, served as the distributor to the Funds. The following table sets forth the compensation paid by BFA to SEI for
certain services, not primarily intended to result in the sale of Fund shares, provided to each Fund during the fiscal years noted:
Fund
|
|
Fund
Inception Date |
|
Distributor
Compensation Paid From April 1, 2012 to October 31, 20121 |
|
Distributor
Compensation Paid From November 1, 2011 to March 31, 20122 |
|
Distributor
Compensation Paid During Fiscal Year Ended October 31, 20112 |
|
Distributor
Compensation Paid During Fiscal Year Ended October 31, 20102 |
iShares
Emerging Markets Corporate Bond Fund |
|
04/17/12
|
|
$4,403
|
|
N/A
|
|
N/A
|
|
N/A
|
iShares
Emerging Markets High Yield Bond Fund |
|
04/03/12
|
|
4,403
|
|
N/A
|
|
N/A
|
|
N/A
|
iShares
Emerging Markets Local Currency Bond Fund |
|
10/18/11
|
|
4,403
|
|
$3,355
|
|
$
913 |
|
N/A
|
Fund
|
|
Fund
Inception Date |
|
Distributor
Compensation Paid From April 1, 2012 to October 31, 20121 |
|
Distributor
Compensation Paid From November 1, 2011 to March 31, 20122 |
|
Distributor
Compensation Paid During Fiscal Year Ended October 31, 20112 |
|
Distributor
Compensation Paid During Fiscal Year Ended October 31, 20102 |
iShares
Global ex USD High Yield Corporate Bond Fund |
|
04/03/12
|
|
4,403
|
|
N/A
|
|
N/A
|
|
N/A
|
iShares
Global High Yield Corporate Bond Fund |
|
04/03/12
|
|
4,403
|
|
N/A
|
|
N/A
|
|
N/A
|
1 BRIL serves as the distributor to the
Funds effective April 1, 2012. These fees reflect payments made to SEI, acting as an agent of the Distributor.
2 SEI served as the distributor to the Funds
through March 31, 2012.
Payments by BFA and its
Affiliates. BFA and/or its affiliates (“BFA Entities”) pay certain broker-dealers, banks and other financial intermediaries (“Intermediaries”) for certain activities related to the
Funds, other iShares funds or exchange-traded products in general. BFA Entities make these payments from their own assets and not from the assets of the Funds. Although a portion of BFA Entities’ revenue comes directly or indirectly in part
from fees paid by the Funds and other iShares funds, these payments do not increase the price paid by investors for the purchase of shares of, or the cost of owning, the Fund or other iShares funds. BFA Entities make payments for
Intermediaries’ participation in activities that are designed to make registered representatives, other professionals and individual investors more knowledgeable about exchange-traded products, including the Funds, or for other activities,
such as participation in marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems (“Education Costs”). BFA Entities also make payments to
Intermediaries for certain printing, publishing and mailing costs associated with the Funds or materials relating to exchange-traded products in general (“Publishing Costs”). In addition, BFA Entities make payments to Intermediaries that
make shares of the Funds and certain other iShares funds available to their clients, develop new products that feature iShares or otherwise promote the Funds and other iShares funds. BFA Entities may also reimburse expenses or make payments from
their own assets to Intermediaries or other persons in consideration of services or other activities that the BFA Entities believe may benefit the iShares business or facilitate investment in iShares funds. Payments of the type described above are
sometimes referred to as revenue-sharing payments.
Payments to an Intermediary may be significant to the
Intermediary, and amounts that Intermediaries pay to your salesperson or other investment professional may also be significant for your salesperson or other investment professional. Because an Intermediary may make decisions about which investment
options it will recommend or make available to its clients or what services to provide for various products based on payments it receives or is eligible to receive, such payments may create conflicts of interest between the Intermediary and its
clients and these financial incentives may cause the Intermediary to recommend the Fund and other iShares funds over other investments. The same conflict of interest and financial incentive exist with respect to your salesperson or other investment
professional if he or she receives similar payments from his or her Intermediary firm.
As of March 1, 2013, BFA Entities have contractual
arrangements to make payments (in addition to payments for Education Costs or Publishing Costs) to one Intermediary, Fidelity Brokerage Services LLC (“FBS”). Pursuant to this special, long-term and significant arrangement (the
“Marketing Program”), FBS and certain affiliates (collectively “Fidelity”) have agreed, among other things, to actively promote iShares funds to customers and investment professionals and in advertising campaigns as the
preferred exchange-traded product, to offer certain iShares funds in certain Fidelity platforms and investment programs, in some cases at a reduced commission rate, and to provide marketing data to BFA Entities. BFA Entities have agreed to
facilitate the Marketing Program by, among other things, making certain payments to FBS for marketing and implementing certain brokerage and investment programs. Upon termination of the arrangement, the BFA Entities will make additional payments to
FBS based upon a number of criteria, including the overall success of the Marketing Program and the level of services provided by FBS during the wind-down period.
Any additions, modifications, or deletions to Intermediaries
listed above that have occurred since the date noted above are not included in the list. Further, BFA Entities make Education Costs and Publishing Costs payments to other Intermediaries that are not listed above. BFA Entities may determine to make
such payments based on any number of metrics. For example, BFA Entities may make payments at year-end or other intervals in a fixed amount, an amount based upon an Intermediary’s services at defined levels or an amount based on the
Intermediary’s net sales of one or more iShares funds in a year or other
period, any of which arrangements may include an agreed-upon minimum or
maximum payment, or any combination of the foregoing. As of the date of this SAI, BFA anticipates that the payments paid by BFA Entities in connection with the Funds, iShares funds and exchange-traded products in general will be immaterial to BFA
Entities in the aggregate for the next year. Please contact your salesperson or other investment professional for more information regarding any such payments his or her Intermediary firm may receive. Any payments
made by the BFA Entities to an Intermediary may create the incentive for an Intermediary to encourage customers to buy shares of iShares funds.
The Funds may participate in certain market maker incentive
programs of a national securities exchange in which an affiliate of the Funds would pay a fee to the exchange used for the purpose of incentivizing one or more market makers in the securities of a Fund to enhance the liquidity and quality of the
secondary market of securities of the Fund. The fee would then be credited by the exchange to one or more market makers that meet or exceed liquidity and market quality standards with respect to the securities of a Fund. Each market maker incentive
program is subject to approval from the SEC. Any such fee payments made to an exchange will be made by an affiliate of a Fund solely for the benefit of the Fund and will not be paid from any Fund assets.
Brokerage Transactions
BFA assumes general supervision over placing orders on behalf
of each Fund for the purchase and sale of portfolio securities. In selecting brokers or dealers for any transaction in portfolio securities, BFA’s policy is to make such selection based on factors deemed relevant, including but not limited to,
the breadth of the market in the security, the price of the security, the reasonableness of the commission or mark-up or mark-down, if any, execution capability, settlement capability, back office efficiency and the financial condition of the broker
or dealer, both for the specific transaction and on a continuing basis. The overall reasonableness of brokerage commissions paid is evaluated by BFA based upon its knowledge of available information as to the general level of commissions paid by
other institutional investors for comparable services. Brokers may also be selected because of their expertise in certain markets or with certain securities, or their ability to handle special or difficult executions, such as may be involved in
large block trades, less liquid securities, broad distributions, or other circumstances. BFA does not consider the provision or value of research, products or services a broker or dealer may provide, if any, as a factor in the selection of a broker
or dealer or the determination of the reasonableness of commissions paid in connection with portfolio transactions. The Company has adopted policies and procedures that prohibit the consideration of sales of a Fund’s shares as a factor in the
selection of a broker or a dealer to execute its portfolio transactions.
Purchases and sales of fixed-income securities for a Fund
usually are principal transactions and ordinarily are purchased directly from the issuer or from an underwriter or broker-dealer. Each Fund does not usually pay brokerage commissions in connection with such purchases and sales, but such transactions
may be subject to mark-ups or mark-downs.
There were no
brokerage commissions paid on behalf of each Fund for the fiscal years ended October 31, 2012, October 31, 2011, and October 31, 2010.
The following table sets forth the names of the Funds’
“regular” broker-dealers, as defined under Rule 10b-1 of the 1940 Act, which derive more than 15% of their gross revenues from securities-related activities and in which the Funds invest, together with the market value of each investment
as of the fiscal year ended October 31, 2012:
Fund
|
|
Issuer
|
|
Market
Value of Investment |
|
iShares
Global ex USD High Yield Corporate Bond Fund |
|
Royal
Bank of Scotland Group PLC |
|
$179,306
|
|
The Funds' purchase and sale orders for securities may be
combined with those of other investment companies, clients or accounts that BFA or its affiliates manage or advise and for which they have brokerage placement authority. If purchases or sales of portfolio securities of the Funds and one or more
other accounts managed or advised by BFA or its affiliates are considered at or about the same time, transactions in such securities are allocated among the Funds and the other accounts in a manner deemed equitable to all by BFA and its affiliates.
In some cases, this procedure could have an effect on the price or volume of the security that is detrimental to the Funds. However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate lower
transaction costs will be beneficial to the Funds. BFA and its affiliates may deal, trade and invest for their own account in the types of securities in which the Funds may invest. BFA and its affiliates may, from time to time, effect trades on
behalf of and for the account of the Funds with brokers or dealers that are affiliated with BFA, in conformity with the 1940 Act and SEC rules and regulations. Under these provisions, any commissions paid to
affiliated brokers or dealers must be reasonable and fair compared to the
commissions charged by other brokers or dealers in comparable transactions. The Funds will not deal with affiliates in principal transactions unless permitted by applicable SEC rules or regulations, or by SEC exemptive order.
Portfolio turnover may vary from year to year, as well as
within a year. High turnover rates may result in comparatively greater brokerage expenses. The table below sets forth the portfolio turnover rates of each Fund for the fiscal years noted:
Fund
|
|
Fiscal
Year ended October 31, 2012 |
|
Fiscal
Year ended October 31, 2011 |
iShares
Emerging Markets Corporate Bond Fund |
|
29%
|
|
N/A
|
iShares
Emerging Markets High Yield Bond Fund |
|
40%
|
|
N/A
|
iShares
Emerging Markets Local Currency Bond Fund |
|
61%
|
|
0%
|
iShares
Global ex USD High Yield Corporate Bond Fund |
|
18%
|
|
N/A
|
iShares
Global High Yield Corporate Bond Fund |
|
10%
|
|
N/A
|
Additional Information Concerning
the Company
Capital Stock. The Company currently is comprised of 57 series referred to as funds. Each series issues shares of common stock, par value $0.001 per share. The Company has authorized and issued the following funds as separate
series of capital stock: iShares Asia/Pacific Dividend 30 Index Fund, iShares Core MSCI Emerging Markets ETF, iShares Emerging Markets Corporate Bond Fund, iShares Emerging Markets Dividend Index Fund, iShares Emerging Markets High Yield Bond Fund,
iShares Emerging Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund, iShares Global High Yield Corporate Bond Fund, iShares Latin America Bond Fund, iShares MSCI All Country World Minimum Volatility Index Fund,
iShares MSCI Australia Index Fund, iShares MSCI Austria Investable Market Index Fund, iShares MSCI Belgium Capped Investable Market Index Fund, iShares MSCI Brazil Index Fund, iShares MSCI BRIC Index Fund, iShares MSCI Canada Index Fund, iShares
MSCI Chile Investable Market Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging Markets Eastern Europe Index Fund, iShares MSCI Emerging Markets
EMEA Index Fund, iShares MSCI Emerging Markets Energy Sector Capped Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets 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, iShares MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Frontier 100 Index Fund, iShares MSCI Germany Index Fund, 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, iShares MSCI Global Silver Miners Fund, iShares MSCI Hong Kong Index Fund,
iShares MSCI Israel Capped Investable Market Index Fund, iShares MSCI Italy Index Fund, iShares MSCI Japan Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Malaysia Index Fund, iShares MSCI Mexico Investable Market Index Fund,
iShares MSCI Netherlands Investable Market Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI South Africa Index Fund, iShares MSCI South Korea Index Fund, iShares MSCI Spain Index Fund, iShares
MSCI Sweden Index Fund, iShares MSCI Switzerland Index Fund, iShares MSCI Taiwan Index Fund, iShares MSCI Thailand Investable Market Index Fund, iShares MSCI Turkey Investable Market Index Fund, iShares MSCI United Kingdom Index Fund, iShares MSCI
USA Index Fund and iShares MSCI World Index Fund. The Company has authorized for issuance, but is not currently offering for sale to the public, nine additional series of shares of common stock. The Board may designate additional series of common
stock and classify shares of a particular series into one or more classes of that series. The Amended and Restated Articles of Incorporation confers upon the Board the power to establish the number of shares which constitute a Creation Unit or by
resolution, restrict the redemption right to Creation Units.
Each share issued by a fund has a pro rata interest in the assets of that fund. The Company is currently authorized to issue 31.85 billion shares of common stock. The following number of shares is currently authorized for each of the funds: iShares
Asia/Pacific Dividend 30 Index Fund, 500 million shares; iShares Core MSCI Emerging Markets ETF, 250 million shares; iShares Emerging Markets Corporate Bond Fund, 500 million shares; iShares Emerging Markets Dividend Index Fund, 500 million shares;
iShares Emerging Markets High Yield Bond Fund, 500 million shares; iShares Emerging Markets Local Currency Bond Fund, 500 million shares; iShares Global ex USD High Yield Corporate Bond Fund, 500 million shares; iShares Global High Yield Corporate
Bond Fund, 500 million shares; iShares Latin America Bond Fund, 500 million shares; iShares MSCI All Country World Minimum Volatility Index Fund, 500 million shares; iShares MSCI Australia Index Fund, 627.8 million shares; iShares MSCI Austria
Investable Market Index Fund, 100 million shares; iShares MSCI Belgium Capped Investable
Market Index Fund, 136.2 million shares; iShares MSCI Brazil Index Fund, 500
million shares; iShares MSCI BRIC Index Fund, 500 million shares; iShares MSCI Canada Index Fund, 340.2 million shares; iShares MSCI Chile Investable Market Index Fund, 200 million shares; iShares MSCI Emerging Markets Asia Index Fund, 500 million
shares; iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, 500 million shares; iShares MSCI Emerging Markets Eastern Europe Index Fund, 200 million shares; iShares MSCI Emerging Markets EMEA Index Fund, 500 million shares;
iShares MSCI Emerging Markets Energy Sector Capped Index Fund, 500 million shares; iShares MSCI Emerging Markets Growth Index Fund, 500 million shares; iShares MSCI Emerging Markets Index Fund, 2 billion shares; iShares MSCI Emerging Markets Minimum
Volatility Index Fund, 500 million shares; iShares MSCI Emerging Markets Small Cap Index Fund, 500 million shares; iShares MSCI Emerging Markets Value Index Fund, 500 million shares; iShares MSCI EMU Index Fund, 1 billion shares; iShares MSCI France
Index Fund, 340.2 million shares; iShares MSCI Frontier 100 Index Fund, 500 million shares; iShares MSCI Germany Index Fund, 382.2 million shares; iShares MSCI Global Agriculture Producers Fund, 500 million shares; iShares MSCI Global Energy
Producers Fund, 500 million shares; iShares MSCI Global Gold Miners Fund, 500 million shares; iShares MSCI Global Select Metals & Mining Producers Fund, 500 million shares; iShares MSCI Global Silver Miners Fund, 500 million shares; iShares MSCI
Hong Kong Index Fund, 250 million shares; iShares MSCI Israel Capped Investable Market Index Fund, 500 million shares; iShares MSCI Italy Index Fund, 63.6 million shares; iShares MSCI Japan Index Fund, 2.1246 billion shares; iShares MSCI Japan Small
Cap Index Fund, 500 million shares; iShares MSCI Malaysia Index Fund, 300 million shares; iShares MSCI Mexico Investable Market Index Fund, 255 million shares; iShares MSCI Netherlands Investable Market Index Fund, 255 million shares; iShares MSCI
Pacific ex-Japan Index Fund, 1 billion shares; iShares MSCI Singapore Index Fund, 300 million shares; iShares MSCI South Africa Index Fund, 400 million shares; iShares MSCI South Korea Index Fund, 200 million shares; iShares MSCI Spain Index Fund,
127.8 million shares; iShares MSCI Sweden Index Fund, 63.6 million shares; iShares MSCI Switzerland Index Fund, 318.625 million shares; iShares MSCI Taiwan Index Fund, 900 million shares; iShares MSCI Thailand Investable Market Index Fund, 200
million shares; iShares MSCI Turkey Investable Market Index Fund, 200 million shares; iShares MSCI United Kingdom Index Fund, 934.2 million shares; iShares MSCI USA Index Fund, 500 million shares; and iShares MSCI World Index Fund, 500 million
shares. Fractional shares will not be issued. Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each share is entitled to participate equally in dividends and distributions declared by the Board with
respect to the relevant fund, and in the net distributable assets of such fund on liquidation. Shareholders are entitled to require the Company to redeem Creation Units of their shares. The Articles of Incorporation confer upon the Board the power,
by resolution, to alter the number of shares constituting a Creation Unit or to specify that shares of common stock of the Company may be individually redeemable.
Each share has one vote with respect to matters upon which a
stockholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder and the Maryland General Corporation Law. Stockholders have no cumulative voting rights with respect to their shares. Shares of all
funds vote together as a single class except that, if the matter being voted on affects only a particular fund or, if a matter affects a particular fund differently from other funds, that fund will vote separately on such matter.
Under Maryland law, the Company is not required to hold an
annual meeting of stockholders unless required to do so under the 1940 Act. The policy of the Company is not to hold an annual meeting of stockholders unless required to do so under the 1940 Act. Under Maryland law, Directors of the Company may be
removed by vote of the stockholders.
Following the
creation of the initial Creation Unit(s) of shares of a fund and immediately prior to the commencement of trading in such fund’s shares, a holder of shares may be a “control person” of the fund, as defined in the 1940 Act. A fund
cannot predict the length of time for which one or more stockholders may remain a control person of the fund.
Stockholders may make inquiries by writing to iShares, Inc.,
c/o BlackRock Investments, LLC, 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310.
Absent an applicable exemption or other relief from the SEC or
its staff, beneficial owners of more than 5% of the shares of a fund may be subject to the reporting provisions of Section 13 of the 1934 Act and the SEC’s rules promulgated thereunder. In addition, absent an applicable exemption or other
relief from the SEC or its staff, officers and directors of a fund and beneficial owners of 10% of the shares of a fund (“Insiders”) may be subject to the insider reporting, short-swing profit and short sale provisions of Section 16 of
the 1934 Act and the SEC’s rules promulgated thereunder. Beneficial owners and Insiders should consult with their own legal counsel concerning their obligations under Sections 13 and 16 of the 1934 Act.
Termination of the Company or a Fund. The Company or a Fund may be terminated by a majority vote of the Board, or the affirmative vote of a supermajority of the stockholders of the Company or such Fund entitled to vote on termination. Although the
shares are not automatically redeemable upon the occurrence of any specific event, the organizational documents provide that the Board will have the unrestricted power to alter the number of shares in a Creation Unit. In the event of a termination
of the Company or a Fund, the Board, in its sole discretion, could determine to permit the shares to be redeemable in aggregations smaller than Creation Units or to be individually redeemable. In such circumstance, the Company may make redemptions
in-kind, for cash or for a combination of cash or securities.
DTC as Securities Depository for Shares of the Funds. Shares of each Fund are represented by securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold
securities of its participants (“DTC Participants”) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities’ certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (“NYSE”), the NYSE Amex Equities and FINRA. Access to the DTC system is also available to
others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (“Indirect Participants”).
Beneficial ownership of shares is limited to DTC Participants,
Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in shares (owners of such beneficial interests are referred to herein as “Beneficial Owners”) is
shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of shares.
Conveyance of all notices, statements and other communications
to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Company and DTC, DTC is required to make available to the Company upon request and for a fee to be charged to the Company a listing of the shares of each
Fund held by each DTC Participant. The Company shall inquire of each such DTC Participant as to the number of Beneficial Owners holding shares, directly or indirectly, through such DTC Participant. The Company shall provide each such DTC Participant
with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant,
directly or indirectly, to such Beneficial Owners. In addition, the Company shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and
regulatory requirements.
Share distributions shall be
made to DTC or its nominee, Cede & Co., as the registered holder of all shares of the Company. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants’ accounts with payments in amounts
proportionate to their respective beneficial interests in shares of each Fund as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of shares held through such DTC Participants
will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will be the responsibility of such DTC
Participants.
The Company has no responsibility or
liability for any aspect of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such shares, or for maintaining, supervising or reviewing any records relating to such beneficial
ownership interests, or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants. DTC may
decide to discontinue providing its service with respect to shares of the Company at any time by giving reasonable notice to the Company and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the
Company shall take action to find a replacement for DTC to perform its functions at a comparable cost.
Creation and Redemption of Creation Units
General. The Company
issues and sells shares of each Fund only in Creation Units on a continuous basis through the Distributor or its agent, without a sales load, at a price based on the Fund's NAV next determined after receipt, on any Business Day (as defined
below), of an order received by the Distributor or its agent in proper form. The following table sets forth the number of shares of a Fund that constitute a Creation Unit for such Fund and the value of such Creation Unit as of November 30,
2012:
Fund
|
|
Shares
Per Creation Unit |
|
Value
Per Creation Unit (U.S.$) |
|
iShares
Emerging Markets Corporate Bond Fund |
|
100,000
|
|
$
5,299,000 |
|
iShares
Emerging Markets High Yield Bond Fund |
|
100,000
|
|
5,438,000
|
|
iShares
Emerging Markets Local Currency Bond Fund |
|
200,000
|
|
10,444,000
|
|
iShares
Global ex USD High Yield Corporate Bond Fund |
|
100,000
|
|
5,258,000
|
|
iShares
Global High Yield Corporate Bond Fund |
|
100,000
|
|
5,182,000
|
|
The Board reserves the right to declare a split or a
consolidation in the number of shares outstanding of the Fund, and to make a corresponding change in the number of shares constituting a Creation Unit, in the event that the per share price in the secondary market rises (or declines) to an amount
that falls outside the range deemed desirable by the Board.
A “Business Day” with respect to each Fund is any
day on which the Listing Exchange on which the Fund is listed for trading is open for business. As of the date of this SAI, each Listing Exchange observes the following holidays, as observed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Fund Deposit. The
consideration for purchase of Creation Units of a Fund generally consists of the in-kind deposit of a designated portfolio of securities (including any portion of such securities for which cash may be substituted) (“Deposit Securities”)
and the Cash Component computed as described below. Together, the Deposit Securities and the Cash Component constitute the “Fund Deposit,” which, when combined with a Fund's portfolio securities, is designed to generate performance that
has a collective investment profile similar to that of the Underlying Index. The Fund Deposit represents the minimum initial and subsequent investment amount for a Creation Unit of any Fund.
The “Cash Component” is an amount equal to
the difference between the NAV of the shares (per Creation Unit) and the “Deposit Amount,” which is an amount equal to the market value of the Deposit Securities, and serves to compensate for any differences between the NAV per Creation
Unit and the Deposit Amount. Payment of any stamp duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Securities are the sole responsibility of the Authorized Participant purchasing the Creation Unit.
The iShares Emerging Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund generally offer Creation Units partially for cash.
The portfolio of securities required for purchase of a
Creation Unit may not be identical to the portfolio of securities a Fund will deliver upon redemption of Fund shares. The Deposit Securities and Fund Securities (as defined below under “Redemption of Shares in Creation Units”), as
applicable, in connection with a purchase or redemption of a Creation Unit, generally will correspond pro rata, to the extent practicable, to the securities held by such Fund.
BFA makes available through the NSCC on each Business Day
prior to the opening of business on the Listing Exchange, the list of names and the required number or par value of each Deposit Security and the amount of the Cash Component to be included in the current Fund Deposit (based on information as of the
end of the previous Business Day for each Fund). Such Fund Deposit is applicable, subject to any adjustments as described below, to purchases of Creation Units of shares of the Fund until such time as the next-announced Fund Deposit is made
available.
The identity and number or par value of the
Deposit Securities change pursuant to changes in the composition of a Fund's portfolio and as rebalancing adjustments and corporate action events are reflected from time to time by BFA with a view to the investment objective of the Fund. The
composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the component securities constituting the relevant Underlying Index.
The Funds reserve the right to permit or require the
substitution of a “cash in lieu” amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through DTC or the Clearing
Process (as discussed below). If permitted by applicable laws to offer Creation Units of the Fund in exchange for the Fund Deposit, the Funds also reserve the right to permit or require a “cash in lieu” amount in certain circumstances,
including circumstances in which (i) the delivery of the Deposit Security by the Authorized Participant (as described below) would be restricted under applicable securities or other local laws or (ii) the delivery of the Deposit Security to the
Authorized Participant would result in the disposition of the Deposit Security by the Authorized Participant becoming restricted under applicable securities or other local laws, or in certain other situations.
Cash Purchase Method.
Although the Company does not ordinarily permit partial or full cash purchases of Creation Units of iShares funds, when partial or full cash purchases of Creation Units are available or specified for a Fund
(Creation Units of the iShares Emerging Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund are generally offered partially for cash), they will be effected in
essentially the same manner as in-kind purchases thereof. In the case of a partial or full cash purchase, the Authorized Participant must pay the cash equivalent of the Deposit Securities it would otherwise be required to provide through an in-kind
purchase, plus the same Cash Component required to be paid by an in-kind purchaser.
Procedures for Creation of Creation Units. To be eligible to place orders with the Distributor and to create a Creation Unit of the Funds, an entity must be: (i) a “Participating Party,” i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the NSCC (the “Clearing Process”),
a clearing agency that is registered with the SEC, or (ii) a DTC Participant, and must have executed an agreement with the Distributor, with respect to creations and redemptions of Creation Units (“Authorized Participant Agreement”)
(discussed below). A Participating Party or DTC Participant who has executed an Authorized Participant Agreement is referred to as an “Authorized Participant.” All shares of the Funds, however created, will be entered on the records of
DTC in the name of Cede & Co. for the account of a DTC Participant.
Role of the Authorized Participant. Creation Units may be purchased only by or through a DTC Participant that has entered into an Authorized Participant Agreement with the Distributor. Such Authorized Participant will agree, pursuant to the terms of
such Authorized Participant Agreement and on behalf of itself or any investor on whose behalf it will act, to certain conditions, including that such Authorized Participant will make available in advance of each purchase of shares an amount of cash
sufficient to pay the Cash Component, once the net asset value of a Creation Unit is next determined after receipt of the purchase order in proper form, together with the transaction fees described below. An Authorized Participant, acting on behalf
of an investor, may require the investor to enter into an agreement with such Authorized Participant with respect to certain matters, including payment of the Cash Component. Investors who are not Authorized Participants must make appropriate
arrangements with an Authorized Participant. Investors should be aware that their particular broker may not be a DTC Participant or may not have executed an Authorized Participant Agreement and that orders to purchase Creation Units may have to be
placed by the investor's broker through an Authorized Participant. As a result, purchase orders placed through an Authorized Participant may result in additional charges to such investor. The Company does not expect to enter into an Authorized
Participant Agreement with more than a small number of DTC Participants. A list of current Authorized Participants may be obtained from the Distributor.
Placement of Creation
Orders. Fund Deposits must be delivered through the Federal Reserve System (for cash and U.S. government securities), through DTC (for corporate and municipal securities) or through a central depository
account, such as with Euroclear or DTC, maintained by State Street or a sub-custodian (a “Central Depository Account”). Any portion of a Fund Deposit that may not be delivered through the Federal Reserve System or DTC must be delivered
through a Central Depository Account. The Fund Deposit transfers made through DTC must be ordered by the DTC Participant in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities through DTC to the account of the
Funds generally before 3:00 p.m., Eastern time on the Settlement Date. Fund Deposit transfers made through the Federal Reserve System must be deposited by the participant institution in a timely fashion so as to ensure the delivery of the requisite
number or amount of Deposit Securities or cash through the Federal Reserve System to the account of the Funds generally before 3:00 p.m., Eastern time on the Settlement Date. Fund Deposit transfers made through a Central Depository Account must be
completed pursuant to the requirements established by the Custodian or sub-custodian for such Central Depository Account generally before 2:00 p.m., Eastern time on the Settlement Date. The “Settlement Date” for all funds is generally
the third business day after the Transmittal Date. All questions as to the number of Deposit Securities to be delivered, and the validity, form and eligibility (including time of receipt) for the deposit of any tendered securities, will be
determined by the Trust, whose determination shall be final and binding. The amount of cash equal to the Cash Component must be transferred
directly to State Street through the Federal Reserve Bank wire transfer system
in a timely manner so as to be received by State Street generally before 3:00 p.m., Eastern time on the Settlement Date. If the Cash Component and the Deposit Securities are not received by 3:00 p.m., Eastern time on the Settlement Date, the
creation order may be canceled. Upon written notice to the Distributor, such canceled order may be resubmitted the following Business Day using the Fund Deposit as newly constituted to reflect the then current NAV of the Funds. The delivery of
Creation Units so created generally will occur no later than the third Business Day following the day on which the purchase order is deemed received by the Distributor, provided that the relevant Fund Deposit has been received by the Fund prior to
such time.
Purchase Orders. To initiate an order for a Creation Unit, an Authorized Participant must submit to the Distributor or its agent an irrevocable order to purchase shares of a Fund generally before 4:00 p.m., Eastern time on
any Business Day to receive that day’s NAV. On days when the Listing Exchange or the bond markets close earlier than normal, the Funds may require orders for Creation Units to be placed earlier in the day. The Distributor or its agent will
notify BFA and the custodian of such order. The custodian will then provide such information to any appropriate sub-custodian. Procedures and requirements governing the delivery of the Fund Deposit are set forth in the procedures handbook for
Authorized Participants and may change from time to time. Investors, other than Authorized Participants, are responsible for making arrangements for a creation request to be made through an Authorized Participant. The Distributor or its agent will
provide a list of current Authorized Participants upon request. Those placing orders to purchase Creation Units through an Authorized Participant should allow sufficient time to permit proper submission of the purchase order to the Distributor or
its agent by the Cutoff Time (as defined below) on such Business Day.
The Authorized Participant must also make available on or
before the contractual settlement date, by means satisfactory to the Funds, immediately available or same day funds estimated by the Funds to be sufficient to pay the Cash Component next determined after acceptance of the purchase order, together
with the applicable purchase transaction fees. Any excess funds will be returned following settlement of the issue of the Creation Unit. Those placing orders should ascertain the applicable deadline for cash transfers by contacting the operations
department of the broker or depositary institution effectuating the transfer of the Cash Component. This deadline is likely to be significantly earlier than the Cutoff Time of the Funds. Investors should be aware that an Authorized Participant may
require orders for purchases of shares placed with it to be in the particular form required by the individual Authorized Participant.
The Authorized Participant is responsible for any and all
expenses and costs incurred by a Fund, including any applicable cash amounts, in connection with any purchase order.
Timing of Submission of Purchase Orders. An Authorized Participant must submit an irrevocable order to purchase shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that day's NAV. Creation Orders must be
transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor or its agent pursuant to procedures set forth in the Authorized Participant Agreement, as described below. Economic or market
disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor or its agent or an Authorized Participant. Orders to create shares of a Fund that are submitted on the Business Day immediately
preceding a holiday or a day (other than a weekend) when the equity markets in the relevant non-U.S. market are closed may not be accepted. Each Fund's deadline specified above for the submission of purchase orders is referred to as the Fund's
“Cutoff Time.” The Distributor or its agent, in their discretion, may permit the submission of such orders and requests by or through an Authorized Participant at any time (including on days on which the Listing Exchange is not open for
business) via communication through the facilities of the Distributor's or its agent's proprietary website maintained for this purpose. Purchase orders and redemption requests, if accepted by the Company, will be processed based on the NAV next
determined after such acceptance in accordance with each Fund's Cutoff Times as provided in the Authorized Participant Agreement and disclosed in this SAI.
Acceptance of Orders for Creation Units. Subject to the conditions that (i) an irrevocable purchase order has been submitted by the Authorized Participant (either on its own or another investor's behalf) and (ii) arrangements satisfactory to the Funds
are in place for payment of the Cash Component and any other cash amounts which may be due, the Funds will accept the order, subject to each Fund's right (and the right of the Distributor and BFA) to reject any order until acceptance, as set forth
below.
Once a Fund has accepted an order, upon the
next determination of the net asset value of the shares, the Fund will confirm the issuance of a Creation Unit, against receipt of payment, at such net asset value. The Distributor or its agent will then transmit a confirmation of acceptance to the
Authorized Participant that placed the order.
Each Fund reserves the absolute right to reject or revoke a
creation order transmitted to it by the Distributor or its agent if (i) the order is not in proper form; (ii) the investor(s), upon obtaining the shares ordered, would own 80% or more of the currently outstanding shares of the Fund; (iii) the
Deposit Securities delivered do not conform to the identity and number of shares specified, as described above; (iv) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (v) acceptance of the Fund Deposit
would, in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would, in the discretion of the Fund or BFA, have an adverse effect on the Fund or the rights of beneficial owners; or (vii) circumstances outside the control of the
Fund, the Distributor or its agent and BFA make it impracticable to process purchase orders. The Distributor or its agent shall notify a prospective purchaser of a Creation Unit and/or the Authorized Participant acting on behalf of such purchaser of
its rejection of such order. The Funds, State Street, the sub-custodian and the Distributor or its agent are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall any of them incur
any liability for failure to give such notification.
Issuance of a Creation
Unit. Except as provided herein, a Creation Unit will not be issued until the transfer of good title to the applicable Fund of the Deposit Securities and the payment of the Cash Component have been completed.
When the sub-custodian has confirmed to the custodian that the securities included in the Fund Deposit (or the cash value thereof) have been delivered to the account of the relevant sub-custodian or sub-custodians, the Distributor or its agent and
BFA shall be notified of such delivery and the applicable Fund will issue and cause the delivery of the Creation Unit. Creation Units typically are issued on a “ T+3 basis”
(i.e., three Business Days after trade date). However, as discussed in the Regular
Holidays section, the Fund reserves the right to settle Creation Unit transactions on a basis other than T+3 in order to accommodate non-U.S. market holiday schedules, to account for different treatment among
non-U.S. and U.S. markets of dividend record dates and ex-dividend dates (i.e., the last day the holder of a security can sell the security and still
receive dividends payable on the security) and in certain other circumstances.
To the extent contemplated by an Authorized Participant's
agreement with the Distributor, each Fund will issue Creation Units to such Authorized Participant, notwithstanding the fact that the corresponding Fund Deposits have not been received in part or in whole, in reliance on the undertaking of the
Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participant's delivery and maintenance of collateral having a value at least equal to 105% and up to 115%,
which percentage BFA may change at any time, in its sole discretion, of the value of the missing Deposit Securities in accordance with the Funds' then-effective procedures. The only collateral that is acceptable to the Funds is cash in U.S. dollars.
Such cash collateral must be delivered no later than 2:00 p.m., Eastern time on the contractual settlement date. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any,
on invested cash collateral will be paid to that Authorized Participant. Information concerning the Funds' current procedures for collateralization of missing Deposit Securities is available from the Distributor or its agent. The Authorized
Participant Agreement will permit the Funds to buy the missing Deposit Securities at any time and will subject the Authorized Participant to liability for any shortfall between the cost to the Funds of purchasing such securities and the cash
collateral.
In certain cases, Authorized Participants may
create and redeem Creation Units on the same trade date and in these instances, the Funds reserve the right to settle these transactions on a net basis or require a representation from the Authorized Participants that the creation and redemption
transactions are for separate beneficial owners. All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined
by each Fund and the Fund's determination shall be final and binding.
Costs Associated with Creation Transactions. A standard creation transaction fee is imposed to offset the transfer and other transaction costs associated with the issuance of Creation Units. The standard creation transaction fee is charged to the Authorized
Participant on the day such Authorized Participant creates a Creation Unit, and is the same, regardless of the number of Creation Units purchased by the Authorized Participant on the applicable Business Day. The Authorized Participant may also be
required to cover certain brokerage, tax, foreign exchange, execution, market impact and other costs and expenses related to the execution of trades resulting from such transaction (up to the maximum amount shown below). Authorized Participants will
also bear the costs of transferring the Deposit Securities to the Funds. Investors who use the services of a broker or other financial intermediary to acquire Fund shares may be charged a fee for such services.
The following table sets forth each Fund's standard creation
transaction fees and maximum additional charge (as described above):
Fund
|
|
Standard
Creation Transaction Fee |
|
Maximum
Additional Charge* |
|
iShares
Emerging Markets Corporate Bond Fund |
|
$
100 |
|
3.0%
|
|
iShares
Emerging Markets High Yield Bond Fund |
|
$
100 |
|
3.0%
|
|
iShares
Emerging Markets Local Currency Bond Fund |
|
$
2,000 |
|
7.0%
|
|
iShares
Global ex USD High Yield Corporate Bond Fund |
|
$
1,900 |
|
3.0%
|
|
iShares
Global High Yield Corporate Bond Fund |
|
$
1,250 |
|
3.0%
|
|
* |
As a percentage of the net
asset value per Creation Unit. |
Redemption of Creation Units.
Shares of a Fund may be redeemed by Authorized Participants only in Creation Units at their
NAV next determined after receipt of a redemption request in proper form by the Distributor or its agent and
only on a Business Day. The Funds will not redeem shares in amounts less than Creation Units. There can be no assurance, however, that there will be sufficient liquidity in the secondary market at any time to permit assembly of a Creation Unit.
Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of shares to constitute a Creation Unit that could be redeemed by an Authorized Participant. Beneficial owners also may sell shares in
the secondary market.
The iShares Emerging
Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund generally redeem Creation Units partially for cash; however, the Funds reserve the right to distribute
securities in-kind as payment for Creation Units being redeemed. Please see the Cash Redemption Method section below and the following discussion summarizing the in-kind method for further information on
redeeming Creation Units of the Funds.
BFA makes
available through the NSCC, prior to the opening of business on the Listing Exchange on each Business Day, the designated portfolio of securities (including any portion of such securities for which cash may be substituted) that will be applicable
(subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day (“Fund Securities”), and an amount of cash (the “Cash Amount,” as described below). Such Fund
Securities and the corresponding Cash Amount (each subject to possible amendment or correction) are applicable, in order to effect redemptions of Creation Units of a Fund until such time as the next announced composition of the Fund Securities and
Cash Amount is made available. Fund Securities received on redemption may not be identical to Deposit Securities that are applicable to creations of Creation Units.
Unless cash redemptions are available or specified for a Fund,
the redemption proceeds for a Creation Unit generally consist of Fund Securities, plus the Cash Amount, which is an amount equal to the difference between the net asset value of the shares being redeemed, as next determined after the receipt of a
redemption request in proper form, and the value of Fund Securities, less a redemption transaction fee (as described below).
The Company may, in its sole discretion, substitute a
“cash in lieu” amount to replace any Fund Security. The amount of cash paid out in such cases will be equivalent to the value of the substituted security listed as a Fund Security. In the event that the Fund Securities have a value
greater than the NAV of the shares, a compensating cash payment equal to the difference is required to be made by or through an Authorized Participant by the redeeming shareholder. Each Fund generally redeems Creation Units for Fund Securities
(except for the iShares Emerging Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund which generally redeem Creation Units partially for cash), but each Fund
reserves the right to utilize a cash option for redemption of Creation Units.
Cash Redemption Method.
Although the Company does not ordinarily permit partial or full cash redemptions of Creation Units of iShares funds, when partial or full cash redemptions of Creation Units are available or specified for a Fund (Creation Units for iShares Emerging
Markets Local Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund are generally redeemed partially for cash), they will be effected in essentially the same manner as in-kind
redemptions thereof. In the case of partial or full cash redemption, the Authorized Participant receives the cash equivalent of the Fund Securities it would otherwise receive through an in-kind redemption, plus the same Cash Amount to be paid to an
in-kind redeemer.
Costs Associated with Redemption Transactions. A standard redemption transaction fee is imposed to offset transfer and other transaction costs that may be incurred by the relevant Fund. The standard redemption transaction fee is charged to the Authorized
Participant on the day such Authorized Participant redeems a Creation Unit, and is the same regardless of the number of Creation Units redeemed by an Authorized Participant on the applicable Business Day. The Authorized Participant may also be
required to cover certain brokerage, tax, foreign exchange, execution, market impact and other costs and expenses related to the execution of trades resulting from such transaction (up to the maximum amount shown below). Authorized Participants will
also bear the costs of transferring the Fund Securities from a Fund to their account on their order. Investors who use the services of a broker or other financial intermediary to dispose of Fund shares may be charged a fee for such
services.
The following table sets forth each
Fund's standard redemption transaction fees and maximum additional charge (as described above):
Fund
|
|
Standard
Redemption Transaction Fee |
|
Maximum
Additional Charge* |
|
iShares
Emerging Markets Corporate Bond Fund |
|
$
100 |
|
2.0%
|
|
iShares
Emerging Markets High Yield Bond Fund |
|
$
100 |
|
2.0%
|
|
iShares
Emerging Markets Local Currency Bond Fund |
|
$
2,000 |
|
2.0%
|
|
iShares
Global ex USD High Yield Corporate Bond Fund |
|
$
1,900 |
|
2.0%
|
|
iShares
Global High Yield Corporate Bond Fund |
|
$
1,250 |
|
2.0%
|
|
* |
As a percentage of the net
asset value per Creation Unit, inclusive of the standard transaction fee. |
Placement of Redemption
Orders. Redemption requests for Creation Units of the Funds must be submitted to the Distributor by or through an Authorized Participant. An Authorized Participant must submit an irrevocable request to redeem
shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that day's NAV. On days when the Listing Exchange closes earlier than normal, the Fund may require orders to redeem Creation Units to be placed
earlier that day. Investors, other than Authorized Participants, are responsible for making arrangements for a redemption request to be made through an Authorized Participant. The Distributor or its agent will provide a list of current Authorized
Participants upon request.
The Authorized
Participant must transmit the request for redemption in the form required by the Funds to the Distributor or its agent in accordance with procedures set forth in the Authorized Participant Agreement. Investors should be aware that their particular
broker may not have executed an Authorized Participant Agreement and that, therefore, requests to redeem Creation Units may have to be placed by the investor's broker through an Authorized Participant who has executed an Authorized Participant
Agreement. At any time, only a limited number of broker-dealers will have an Authorized Participant Agreement in effect. Investors making a redemption request should be aware that such request must be in the form specified by such Authorized
Participant. Investors making a request to redeem Creation Units should allow sufficient time to permit proper submission of the request by an Authorized Participant and transfer of the shares to the Funds' transfer agent; such investors should
allow for the additional time that may be required to effect redemptions through their banks, brokers or other financial intermediaries if such intermediaries are not Authorized Participants.
A redemption request is considered to be in “proper
form” if (i) an Authorized Participant has transferred or caused to be transferred to the Funds' transfer agent the Creation Unit redeemed through the book-entry system of DTC so as to be effective by the Listing Exchange closing time on any
Business Day, (ii) a request in form satisfactory to the applicable Fund is received by the Distributor or its agent from the Authorized Participant on behalf of itself or another redeeming investor within the time periods specified above and (iii)
all other procedures set forth in the Authorized Participant Agreement are properly followed. If the transfer agent does not receive the investor's shares through DTC's facilities by 10:00 a.m., Eastern time on the Business Day next following the
day that the redemption request is received, the redemption request shall be rejected. Investors should be aware that the deadline for such transfers of shares through the DTC system may be significantly earlier than the close of business on the
Listing Exchange. Those making redemption requests should ascertain the deadline applicable to transfers of shares through the DTC system by contacting the operations department of the broker or depositary institution effecting the transfer of the
shares.
Upon receiving a redemption request, the
Distributor or its agent shall notify the applicable Fund and the Fund's transfer agent of such redemption request. The tender of an investor's shares for redemption and the distribution of the securities
and/or cash included in the redemption payment made in respect of Creation
Units redeemed will be made through DTC and the relevant Authorized Participant to the Beneficial Owner thereof as recorded on the book-entry system of DTC or the DTC Participant through which such investor holds, as the case may be, or by such
other means specified by the Authorized Participant submitting the redemption request.
A redeeming Beneficial Owner or Authorized Participant acting
on behalf of such Beneficial Owner must maintain appropriate security arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the portfolio securities are customarily traded, to which account
such portfolio securities will be delivered.
Deliveries
of redemption proceeds by the Funds generally will be made within three Business Days (i.e., “T+3”). However, as discussed in the Regular Holidays section,
each Fund reserves the right to settle redemption transactions and deliver redemption proceeds on another basis to accommodate non-U.S. market holiday schedules, to account for different treatment among non-U.S. and U.S. markets of dividend record
dates and dividend ex-dates (i.e., the last date the holder of a security can sell the security and still receive dividends payable on the security sold) and in certain other circumstances. The Regular Holidays section hereto identifies the instances, if any, where more than seven days would be needed to deliver redemption proceeds. Pursuant to an order of the SEC, the Company will make delivery of
redemption proceeds within the number of days stated in the Regular Holidays section to be the maximum number of days necessary to deliver redemption proceeds.
If neither the redeeming Beneficial Owner nor
the Authorized Participant acting on behalf of such redeeming Beneficial Owner has appropriate arrangements to take delivery of Fund Securities in the applicable non-U.S. jurisdiction and it is not possible to make other such arrangements, or if it
is not possible to effect deliveries of Fund Securities in such jurisdiction, a Fund may in its discretion exercise its option to redeem such shares in cash, and the redeeming Beneficial Owner will be required to receive its redemption proceeds in
cash. In such case, the investor will receive a cash payment equal to the net asset value of its shares based on the NAV of the relevant Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee
and additional charges specified above, to offset the Fund's brokerage and other transaction costs associated with the disposition of Fund Securities). Redemptions of shares for Fund Securities will be subject to compliance with applicable U.S.
federal and state securities laws and each Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Fund cannot lawfully deliver specific Fund Securities upon redemptions
or cannot do so without first registering the Fund Securities under such laws.
Although the Company does not ordinarily permit cash redemptions of Creation Units (except that, as noted above, Creation Units of the iShares Emerging Markets Local
Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund and iShares Global High Yield Corporate Bond Fund may be redeemed partially for cash), in the event that cash redemptions are permitted or required by the Company, proceeds
will be paid to the Authorized Participant redeeming shares as soon as practicable after the date of redemption (within seven calendar days thereafter, except for the instances listed in the Regular Holidays
section in which more than seven calendar days would be needed).
To the extent contemplated by an Authorized Participant's
agreement with the Distributor or its agent, in the event an Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the Creation Unit to be redeemed to the Fund, at or prior to 10:00 a.m.,
Eastern time on the Listing Exchange business day after the date of submission of such redemption request, the Distributor or its agent will accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the
missing shares as soon as possible. Such undertaking shall be secured by the Authorized Participant's delivery and maintenance of collateral consisting of cash, in U.S. dollars in immediately available funds, having a value at least equal to 105%
and up to 115%, which percentage BFA may change at any time, in its sole discretion, of the value of the missing shares. Such cash collateral must be delivered no later than 10:00 a.m., Eastern time on the day after the date of submission of such
redemption request and shall be held by State Street and marked-to-market daily. The fees of State Street and any sub-custodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the Authorized
Participant. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. The Authorized Participant
Agreement permits the Funds to acquire shares of the Funds at any time and subjects the Authorized Participant to liability for any shortfall between the aggregate of the cost to the Funds of purchasing such shares, plus the value of the Cash
Amount, and the value of the cash collateral.
Because the Portfolio Securities of the Fund may trade on
exchange(s) on days that the Listing Exchange is closed or are otherwise not Business Days for the Fund, shareholders may not be able to redeem their shares of the Fund, or purchase or sell shares of the Fund on the Listing Exchange on days when the
NAV of the Fund could be significantly affected by events in the relevant non-U.S. markets.
The right of redemption may be suspended or the date of payment
postponed with respect to the Fund: (i) for any period during which the Listing Exchange is closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the Listing Exchange is suspended or restricted;
(iii) for any period during which an emergency exists as a result of which disposal of the shares of the Fund's portfolio securities or determination of its net asset value is not reasonably practicable; or (iv) in such other circumstance as is
permitted by the SEC.
Taxation on Creations and Redemptions
of Creation Units. An Authorized Participant generally will recognize either gain or loss upon the exchange of Deposit Securities for Creation Units. This gain or loss is calculated by taking the market value
of the Creation Units purchased over the Authorized Participant’s aggregate basis in the Deposit Securities exchanged therefor. However, the IRS may apply the wash sales rules to determine that any loss realized upon the exchange of Deposit
Securities for Creation Units is not currently deductible. Authorized Participants should consult their own tax advisors.
Current U.S. federal tax laws dictate that capital gain or loss
realized from the redemption of Creation Units will generally create long-term capital gain or loss if the Authorized Participant holds the Creation Units for more than one year, or short-term capital gain or loss if the Creation Units were held for
one year or less, if the Creation Units are held as capital assets.
Regular Holidays. For
every occurrence of one or more intervening holidays in the applicable non-U.S. market or U.S. bond market that are not holidays observed in the U.S. equity market, the redemption settlement cycle will be extended by the number of such intervening
holidays. In addition to holidays, other unforeseeable closings in a non-U.S. market or U.S. bond market due to emergencies may also prevent the Company from delivering securities within normal settlement period.
The securities delivery cycles currently practicable for
transferring portfolio securities to redeeming investors, coupled with non-U.S. market or U.S. bond market holiday schedules, will require a delivery process longer than seven calendar days, in certain circumstances. The holidays applicable to each
Fund during such periods are listed below, as are instances where more than seven days will be needed to deliver redemption proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver
redemption proceeds in any given year is not expected to exceed the maximum number of days listed below for each Fund. The proclamation of new holidays, the treatment by market participants of certain days as “informal holidays” (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery
practices, could affect the information set forth herein at some time in the future.
In calendar years 2013 and 2014, the dates of regular holidays
affecting the relevant securities markets in which a Fund invests are as follows (please note these holiday schedules are subject to potential changes in the relevant securities markets):
2013
Argentina
|
January
1 |
May
1 |
November
6 |
|
March
28 |
June
17 |
December
24 |
|
March
29 |
July
9 |
December
25 |
|
April
1 |
August
19 |
December
31 |
|
Belarus
|
January
1 |
March
15 |
May
9 |
December
25 |
January
7 |
May
1 |
July
3 |
|
March
8 |
May
5 |
November
2 |
|
Brazil
|
January
1 |
March
29 |
November
15 |
December
31 |
January
25 |
May
1 |
November
20 |
|
February
11 |
May
30 |
December
24 |
|
February
12 |
July
9 |
December
25 |
|
Chile
|
January
1 |
May
27 |
November
1 |
|
March
29 |
August
15 |
December
25 |
|
May
1 |
September
18 |
December
31 |
|
May
21 |
September
19 |
|
|
China
|
January
1 |
February
14 |
May
7 |
October
3 |
January
21 |
February
15 |
May
27 |
October
4 |
February
7 |
February
18 |
July
4 |
October
7 |
February
8 |
May
1 |
September
2 |
October
14 |
February
11 |
May
2 |
September
30 |
November
11 |
February
12 |
May
3 |
October
1 |
November
28 |
February
13 |
May
6 |
October
2 |
December
25 |
Colombia
|
January
1 |
May
1 |
August
7 |
December
25 |
January
7 |
May
13 |
August
19 |
December
31 |
March
25 |
June
3 |
October
14 |
|
March
28 |
June
10 |
November
4 |
|
March
29 |
July
1 |
November
11 |
|
The
Czech Republic |
January
1 |
July
5 |
December
26 |
|
April
1 |
October
28 |
December
31 |
|
May
1 |
December
24 |
|
|
May
8 |
December
25 |
|
|
The
Dominican Republic |
January
1 |
April
29 |
November
4 |
|
January
21 |
May
30 |
December
25 |
|
February
27 |
August
19 |
|
|
March
29 |
September
24 |
|
|
Ecuador
|
January
1 |
March
29 |
August
10 |
November
3 |
February
11 |
May
1 |
October
9 |
December
25 |
February
12 |
May
24 |
November
2 |
|
Egypt
|
January
1 |
May
5 |
August
8 |
October
16 |
January
7 |
May
6 |
August
11 |
November
4 |
January
24 |
July
1 |
October
6 |
November
5 |
April
25 |
July
23 |
October
14 |
|
May
1 |
August
7 |
October
15 |
|
The Egyptian market is closed every Friday.
El
Salvador |
January
1 |
August
5 |
November
2 |
|
May
1 |
August
6 |
December
25 |
|
August
4 |
September
15 |
|
|
Hong
Kong |
January
1 |
April
4 |
September
20 |
December
26 |
February
11 |
May
1 |
October
1 |
December
31 |
February
12 |
May
17 |
October
14 |
|
March
29 |
June
12 |
December
24 |
|
April
1 |
July
1 |
December
25 |
|
Hungary
|
January
1 |
May
20 |
November
1 |
|
March
15 |
August
19 |
December
24 |
|
April
1 |
August
20 |
December
25 |
|
May
1 |
October
23 |
December
26 |
|
India
|
January
25 |
April
20 |
August
10 |
November
4 |
January
26 |
April
23 |
August
15 |
November
5 |
March
27 |
May
1 |
August
22 |
November
14 |
March
29 |
May
25 |
September
9 |
November
15 |
April
1 |
June
29 |
September
30 |
December
25 |
April
11 |
July
1 |
October
2 |
|
April
19 |
August
9 |
October
16 |
|
Indonesia
|
January
1 |
May
9 |
August
12 |
December
24 |
January
25 |
June
7 |
August
13 |
December
25 |
March
12 |
August
7 |
October
15 |
December
26 |
March
29 |
August
8 |
November
4 |
December
30 |
April
11 |
August
9 |
November
5 |
December
31 |
Israel
|
February
24 |
April
14 |
September
4 |
September
19 |
March
25 |
April
15 |
September
5 |
September
25 |
March
26 |
May
14 |
September
6 |
September
26 |
March
31 |
May
15 |
September
13 |
|
April
1 |
July
16 |
September
18 |
|
The Israeli market is closed every Friday.
Jamaica
|
January
1 |
April
1 |
August
6 |
December
26 |
February
13 |
May
23 |
October
21 |
|
March
29 |
August
1 |
December
25 |
|
Kazakhstan
|
January
1 |
May
1 |
October
25 |
|
January
7 |
May
9 |
December
16 |
|
March
8 |
August
30 |
|
|
March
21 |
October
15 |
|
|
Kuwait
|
January
3 |
February
26 |
October
14 |
November
7 |
January
24 |
June
6 |
October
15 |
|
February
24 |
August
8 |
October
16 |
|
February
25 |
August
11 |
October
17 |
|
The Kuwaiti market is closed every Friday.
Latvia
|
January
1 |
May
1 |
November
18 |
|
March
29 |
May
4 |
December
25 |
|
March
31 |
June
23 |
December
26 |
|
April
1 |
June
24 |
December
31 |
|
Lebanon
|
January
1 |
March
29 |
August
15 |
November
22 |
January
6 |
May
1 |
October
15 |
November
28 |
February
9 |
May
6 |
November
1 |
December
25 |
February
14 |
May
25 |
November
15 |
|
Malaysia
|
January
1 |
May
1 |
June
1 |
October
15 |
January
24 |
May
24 |
August
7 |
November
4 |
February
1 |
May
25 |
August
8 |
November
5 |
February
11 |
May
30 |
August
9 |
December
25 |
February
12 |
May
31 |
August
31 |
|
Mexico
|
January
1 |
March
21 |
September
16 |
December
25 |
February
4 |
March
28 |
November
18 |
|
February
5 |
March
29 |
November
20 |
|
March
18 |
May
1 |
December
12 |
|
Pakistan
|
January
1 |
July
11 |
August
14 |
November
14 |
January
25 |
August
2 |
October
15 |
November
15 |
February
5 |
August
6 |
October
16 |
December
25 |
March
23 |
August
8 |
October
17 |
|
May
1 |
August
9 |
October
18 |
|
July
1 |
August
10 |
November
9 |
|
Peru
|
January
1 |
July
29 |
December
24 |
|
March
28 |
August
30 |
December
25 |
|
March
29 |
October
8 |
December
31 |
|
May
1 |
November
1 |
|
|
The
Philippines |
January
1 |
April
8 |
August
8 |
December
24 |
February
25 |
May
1 |
August
9 |
December
25 |
March
28 |
May
13 |
August
21 |
December
30 |
March
29 |
June
12 |
November
1 |
December
31 |
Poland
|
January
1 |
May
3 |
November
11 |
|
March
29 |
May
30 |
December
25 |
|
April
1 |
August
15 |
December
26 |
|
May
1 |
November
1 |
|
|
Qatar
|
August
7 |
September
3 |
October
16 |
|
August
8 |
October
14 |
October
17 |
|
August
11 |
October
15 |
|
|
The Qatari market is closed every Friday.
Russia
|
January
1 |
January
8 |
May
9 |
|
January
2 |
January
9 |
May
10 |
|
January
3 |
February
25 |
June
12 |
|
January
4 |
March
8 |
November
4 |
|
January
7 |
May
1 |
|
|
Saudi
Arabia |
August
6 |
August
11 |
October
16 |
|
August
7 |
September
23 |
October
17 |
|
August
8 |
October
14 |
October
19 |
|
August
10 |
October
15 |
October
20 |
|
The Saudi Arabian market is closed every Thursday and
Friday.
Serbia
|
January
1 |
February
15 |
May
3 |
|
January
2 |
May
1 |
May
5 |
|
January
7 |
May
2 |
May
6 |
|
Singapore
|
January
1 |
May
24 |
November
2 |
|
February
11 |
May
25 |
November
4 |
|
February
12 |
August
8 |
December
25 |
|
March
29 |
August
9 |
|
|
May
1 |
October
15 |
|
|
South
Africa |
January
1 |
May
1 |
December
16 |
|
March
21 |
June
17 |
December
25 |
|
March
29 |
August
9 |
December
26 |
|
April
1 |
September
24 |
|
|
South
Korea |
January
1 |
May
17 |
September
19 |
|
February
11 |
June
6 |
September
20 |
|
March
1 |
July
17 |
October
3 |
|
April
5 |
August
15 |
December
25 |
|
May
1 |
September
18 |
December
31 |
|
Sri
Lanka |
January
1 |
March
29 |
July
22 |
October
16 |
January
14 |
April
12 |
August
8 |
October
18 |
January
24 |
April
15 |
August
9 |
December
16 |
January
25 |
April
25 |
August
20 |
December
25 |
February
4 |
May
1 |
September
18 |
|
February
25 |
May
23 |
September
19 |
|
March
26 |
May
24 |
October
15 |
|
Thailand
|
January
1 |
April
16 |
July
1 |
December
5 |
February
25 |
May
1 |
July
23 |
December
10 |
April
8 |
May
6 |
August
12 |
December
31 |
April
15 |
May
27 |
October
23 |
|
Trinidad
and Tobago |
No
holidays to report. |
|
|
|
|
|
|
|
|
|
|
|
Turkey
|
January
1 |
August
9 |
October
16 |
October
29 |
April
23 |
August
30 |
October
17 |
|
August
7 |
October
14 |
October
18 |
|
August
8 |
October
15 |
October
28 |
|
Ukraine
|
January
2 |
April
7 |
June
3 |
|
January
7 |
May
1 |
June
28 |
|
March
8 |
May
9 |
August
24 |
|
The
United Arab Emirates |
January
1 |
August
8 |
October
16 |
|
January
24 |
August
10 |
November
4 |
|
June
6 |
October
14 |
December
2 |
|
August
6 |
October
15 |
December
3 |
|
The United Arab Emirates market is closed every Friday.
The
United States |
January
1 |
May
24* |
October
14 |
December
24* |
January
21 |
May
27 |
November
11 |
December
25 |
February
18 |
July
4 |
November
28 |
December
31* |
March
29* |
September
2 |
November
29* |
|
* |
The U.S. bond market has
recommended early close. |
Uruguay
|
January
1 |
March
29 |
July
18 |
|
February
11 |
April
22 |
December
25 |
|
February
12 |
May
1 |
|
|
March
28 |
June
19 |
|
|
Venezuela
|
January
1 |
March
28 |
May
13 |
July
24 |
February
11 |
March
29 |
June
3 |
August
19 |
February
12 |
April
19 |
June
24 |
November
4 |
March
19 |
May
1 |
July
5 |
December
25 |
Vietnam
|
January
1 |
April
19 |
May
1 |
|
February
10 |
April
30 |
September
2 |
|
|
|
|
|
2014
Argentina
|
January
1 |
May
1 |
November
6 |
December
31 |
March
31 |
June
16 |
December
8 |
|
April
17 |
July
9 |
December
24 |
|
April
18 |
August
18 |
December
25 |
|
Belarus
|
January
1 |
March
15 |
May
9 |
|
January
7 |
April
20 |
July
3 |
|
March
8 |
May
1 |
November
2 |
|
Brazil
|
January
1 |
April
18 |
July
9 |
December
31 |
January
20 |
April
21 |
November
20 |
|
March
3 |
May
1 |
December
24 |
|
March
4 |
June
19 |
December
25 |
|
Chile
|
January
1 |
June
16 |
December
8 |
|
April
18 |
August
15 |
December
25 |
|
May
1 |
September
18 |
December
31 |
|
May
21 |
September
19 |
|
|
China
|
January
1 |
February
6 |
May
7 |
October
6 |
January
20 |
February
7 |
May
26 |
October
7 |
January
30 |
February
17 |
July
4 |
October
13 |
January
31 |
May
1 |
September
1 |
November
11 |
February
3 |
May
2 |
October
1 |
November
27 |
February
4 |
May
5 |
October
2 |
December
25 |
February
5 |
May
6 |
October
3 |
|
Colombia
|
January
1 |
May
1 |
August
18 |
December
25 |
January
6 |
June
2 |
October
13 |
December
31 |
March
24 |
June
23 |
November
3 |
|
April
17 |
June
30 |
November
17 |
|
April
18 |
August
7 |
December
8 |
|
The
Czech Republic |
January
1 |
October
28 |
December
26 |
|
April
21 |
November
17 |
December
31 |
|
May
1 |
December
24 |
|
|
May
8 |
December
25 |
|
|
The
Dominican Republic |
January
1 |
April
18 |
September
24 |
|
January
6 |
May
5 |
November
10 |
|
January
21 |
May
16 |
December
25 |
|
February
27 |
June
19 |
|
|
Ecuador
|
January
1 |
May
1 |
November
2 |
|
March
3 |
May
24 |
November
3 |
|
March
4 |
August
10 |
December
25 |
|
April
18 |
October
9 |
|
|
Egypt
|
January
1 |
April
21 |
July
28 |
October
6 |
January
7 |
May
1 |
July
29 |
|
January
13 |
July
1 |
July
30 |
|
April
20 |
July
23 |
October
5 |
|
The Egyptian market is closed every Friday.
El
Salvador |
January
1 |
August
5 |
December
25 |
|
April
18 |
August
6 |
|
|
May
1 |
September
15 |
|
|
August
4 |
November2
|
|
|
Hong
Kong |
January
1 |
April
21 |
July
1 |
December
24 |
January30
|
May
1 |
September
9 |
December
25 |
January
31 |
May
6 |
October
1 |
December
26 |
April
18 |
June
2 |
October
2 |
December
31 |
Hungary
|
January
1 |
June
9 |
December
24 |
|
April
21 |
August
20 |
December
25 |
|
May
1 |
October
23 |
December
26 |
|
May
2 |
October
24 |
|
|
India
|
January
14 |
April
18 |
August
15 |
October
6 |
February
27 |
May
1 |
August
18 |
October
23 |
March
17 |
May
14 |
August
23 |
November
4 |
March
31 |
June
30 |
August
29 |
November
6 |
April
1 |
July
1 |
September
30 |
December
25 |
April
8 |
July
29 |
October
2 |
|
April
14 |
July
30 |
October
3 |
|
Indonesia
|
January
1 |
May
15 |
July
30 |
December
24 |
January
13 |
May
26 |
July
31 |
December
25 |
January
31 |
May
29 |
August
1 |
December
26 |
March
31 |
July
28 |
August
18 |
December
31 |
April
18 |
July
29 |
October
6 |
|
Israel
|
March
16 |
May
4 |
September
24 |
October
9 |
April
14 |
May
5 |
September
25 |
October
15 |
April
15 |
June
3 |
September
26 |
October
16 |
April
20 |
June
4 |
October
3 |
|
April
21 |
August
5 |
October
8 |
|
The Israeli market is closed every Friday.
Jamaica
|
January
1 |
May
23 |
December
25 |
|
March
5 |
August
1 |
December
26 |
|
April
18 |
August
6 |
|
|
April
21 |
October
20 |
|
|
Kazakhstan
|
January
1 |
May
1 |
October
25 |
|
January
7 |
May
9 |
December
16 |
|
March
8 |
August
30 |
|
|
March
21 |
October
4 |
|
|
Kuwait
|
January
2 |
February
27 |
July
30 |
October
7 |
January
16 |
May
29 |
July
31 |
October
23 |
February
25 |
July
28 |
October
5 |
|
February
26 |
July
29 |
October
6 |
|
The Kuwaiti market is closed every Friday.
Latvia
|
January
1 |
May
1 |
November
18 |
|
April
18 |
May
4 |
December
25 |
|
April
20 |
June
23 |
December
26 |
|
April
21 |
June
24 |
December
31 |
|
Lebanon
|
January
1 |
April
20 |
August
15 |
December
18 |
January
6 |
May
1 |
October
4 |
December
25 |
January
13 |
May
6 |
October
25 |
|
February
9 |
May
25 |
November
3 |
|
April
18 |
July
28 |
November
22 |
|
Malaysia
|
January
1 |
February
3 |
June
7 |
October
6 |
January
14 |
May
1 |
July
28 |
October
22 |
January
30 |
May
13 |
July
29 |
October
23 |
January
31 |
May
15 |
July
30 |
October
25 |
February
1 |
May
30 |
September
1 |
December
25 |
Mexico
|
January
1 |
March
21 |
September
16 |
December
25 |
February
3 |
April
17 |
November
17 |
|
February
5 |
April
18 |
November
20 |
|
March
17 |
May
1 |
December
12 |
|
Pakistan
|
January
1 |
July
1 |
July
31 |
November
3 |
January
14 |
July
25 |
August
14 |
November
4 |
February
5 |
July
28 |
October
6 |
December
25 |
May
1 |
July
29 |
October
7 |
|
June
30 |
July
30 |
October
8 |
|
Peru
|
January
1 |
July
28 |
December
24 |
|
April
17 |
July
29 |
December
25 |
|
April
18 |
October
8 |
December
31 |
|
May
1 |
December
8 |
|
|
The
Philippines |
January
1 |
April
18 |
July
29 |
December
30 |
February
25 |
May
1 |
August
21 |
December
31 |
April
7 |
June
12 |
December
24 |
|
April
17 |
July
28 |
December
25 |
|
Poland
|
January
1 |
May
1 |
November
11 |
|
April
18 |
June
19 |
December
25 |
|
April
21 |
August
15 |
December
26 |
|
Qatar
|
July
28 |
July
31 |
October
6 |
July
29 |
September
3 |
October
7 |
July
30 |
October
5 |
|
The Qatari market is closed every Friday.
Russia
|
January
1 |
January
8 |
May
9 |
|
January
2 |
February
24 |
June
12 |
|
January
3 |
March
10 |
June
13 |
|
January
6 |
May
1 |
November
3 |
|
January
7 |
May
2 |
November
4 |
|
Saudi
Arabia |
July
26 |
July
30 |
October
4 |
July
27 |
July
31 |
October
5 |
July
28 |
September
23 |
October
6 |
July
29 |
October
2 |
October
7 |
The Saudi Arabian market is
closed every Thursday and Friday.
Serbia
|
January
1 |
February
15 |
April
21 |
|
January
2 |
April
18 |
May
1 |
|
January
7 |
April
20 |
May
2 |
|
Singapore
|
January
1 |
May
1 |
August
9 |
December
25 |
January
31 |
May
13 |
October
6 |
|
February
1 |
May
15 |
October
22 |
|
April
18 |
July
28 |
October
23 |
|
South
Africa |
January
1 |
April
28 |
December
16 |
|
March
21 |
May
1 |
December
25 |
|
April
18 |
June
16 |
December
26 |
|
April
21 |
September
24 |
|
|
South
Korea |
January
1 |
March
1 |
August
15 |
October
3 |
January
30 |
May
5 |
September
7 |
December
24 |
January
31 |
May
6 |
September
8 |
|
February
1 |
June
6 |
September
9 |
|
Sri
Lanka |
January
1 |
March
14 |
May
16 |
October
8 |
January
14 |
March
18 |
June
12 |
October
22 |
January
15 |
March
21 |
July
11 |
October
23 |
February
4 |
May
1 |
July
29 |
November
6 |
February
14 |
May
14 |
September
8 |
December
25 |
February
27 |
May
15 |
October
7 |
|
Thailand
|
January
1 |
April
15 |
July
1 |
December
5 |
February
14 |
May
1 |
July
14 |
December
10 |
April
7 |
May
5 |
August
12 |
|
April
14 |
May
14 |
October
23 |
|
Trinidad
and Tobago |
January
1 |
May
30 |
September
24 |
|
March
30 |
June
19 |
December
25 |
|
April
18 |
August
1 |
December
26 |
|
April
21 |
August
31 |
|
|
Turkey
|
January
1 |
July
28 |
October
3 |
October
28 |
April
23 |
July
29 |
October
6 |
October
29 |
May
19 |
July
30 |
October
7 |
|
Ukraine
|
January
1 |
May
1 |
June
30 |
|
January
7 |
May
2 |
August
25 |
|
March
8 |
May
9 |
|
|
April
21 |
June
9 |
|
|
The
United Arab Emirates |
January
1 |
July
29 |
October
6 |
|
January
13 |
August
6 |
October
25 |
|
May
26 |
October
4 |
December
2 |
|
July
28 |
October
5 |
December
3 |
|
The United Arab Emirates market is closed every Friday.
The
United States |
January
1 |
April
18 |
September
1 |
December
25 |
January
20 |
May
23* |
November
27 |
December
31* |
February
17 |
May
26 |
November
28* |
|
April
17* |
July
4 |
December
24* |
|
* |
The U.S. bond market has
recommended early close. |
Uruguay
|
January
1 |
April
17 |
July
18 |
|
January
6 |
April
18 |
August
25 |
|
March
3 |
May
1 |
December
25 |
|
March
4 |
June
19 |
|
|
Venezuela
|
January
1 |
April
17 |
June
24 |
|
January
6 |
April
18 |
July
24 |
|
March
3 |
May
1 |
August
18 |
|
March
4 |
June
2 |
December
8 |
|
March
19 |
June
16 |
December
25 |
|
Vietnam
|
January
1 |
February
2 |
May
1 |
September
8 |
January
23 |
February
14 |
May
6 |
November
20 |
January
30 |
March
8 |
June
2 |
December
25 |
January
31 |
April
9 |
August
10 |
|
February
1 |
April
30 |
September
2 |
|
Redemptions. The
longest redemption cycle for the Fund is a function of the longest redemption cycle among the countries
whose securities comprise the Fund. In calendar years 2013 and 2014, the dates of regular holidays affecting the following securities markets
present the worst-case redemption cycles* for the Fund as follows:
2013 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
The
Czech Republic |
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
Egypt
|
|
10/08/13
|
|
10/17/13
|
|
9
|
|
|
10/09/13
|
|
10/18/13
|
|
9
|
|
|
10/10/13
|
|
10/21/13
|
|
11
|
|
|
10/29/13
|
|
11/06/13
|
|
8
|
|
|
10/30/13
|
|
11/07/13
|
|
8
|
|
|
10/31/13
|
|
11/08/13
|
|
8
|
Hungary
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
12/30/13
|
|
10
|
|
|
12/23/13
|
|
12/31/13
|
|
8
|
Indonesia
|
|
08/02/13
|
|
08/14/13
|
|
12
|
|
|
08/05/13
|
|
08/15/13
|
|
10
|
|
|
08/06/13
|
|
08/16/13
|
|
10
|
|
|
12/19/13
|
|
12/27/13
|
|
8
|
|
|
12/20/13
|
|
01/02/14
|
|
13
|
|
|
12/23/13
|
|
01/03/14
|
|
11
|
Malaysia
|
|
08/02/13
|
|
08/12/13
|
|
10
|
|
|
08/05/13
|
|
08/13/13
|
|
8
|
|
|
08/06/13
|
|
08/14/13
|
|
8
|
The
Philippines |
|
12/23/13
|
|
01/02/14
|
|
10
|
South
Africa |
|
03/14/13
|
|
03/22/13
|
|
8
|
|
|
03/15/13
|
|
03/25/13
|
|
10
|
|
|
03/18/13
|
|
03/26/13
|
|
8
|
|
|
03/19/13
|
|
03/27/13
|
|
8
|
|
|
03/20/13
|
|
03/28/13
|
|
8
|
|
|
03/22/13
|
|
04/02/13
|
|
11
|
|
|
03/25/13
|
|
04/03/13
|
|
8
|
|
|
03/26/13
|
|
04/04/13
|
|
8
|
|
|
03/27/13
|
|
04/05/13
|
|
8
|
|
|
03/28/13
|
|
04/08/13
|
|
11
|
|
|
04/24/13
|
|
05/02/13
|
|
8
|
|
|
04/25/13
|
|
05/03/13
|
|
8
|
|
|
04/26/13
|
|
05/06/13
|
|
10
|
|
|
04/29/13
|
|
05/07/13
|
|
8
|
|
|
04/30/13
|
|
05/08/13
|
|
8
|
2013 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
|
|
06/10/13
|
|
06/18/13
|
|
8
|
|
|
06/11/13
|
|
06/19/13
|
|
8
|
|
|
06/12/13
|
|
06/20/13
|
|
8
|
|
|
06/13/13
|
|
06/21/13
|
|
8
|
|
|
06/14/13
|
|
06/24/13
|
|
10
|
|
|
08/02/13
|
|
08/12/13
|
|
10
|
|
|
08/05/13
|
|
08/13/13
|
|
8
|
|
|
08/06/13
|
|
08/14/13
|
|
8
|
|
|
08/07/13
|
|
08/15/13
|
|
8
|
|
|
08/08/13
|
|
08/16/13
|
|
8
|
|
|
09/17/13
|
|
09/25/13
|
|
8
|
|
|
09/18/13
|
|
09/26/13
|
|
8
|
|
|
09/19/13
|
|
09/27/13
|
|
8
|
|
|
09/20/13
|
|
09/30/13
|
|
10
|
|
|
09/23/13
|
|
10/01/13
|
|
8
|
|
|
12/11/13
|
|
12/19/13
|
|
8
|
|
|
12/12/13
|
|
12/20/13
|
|
8
|
|
|
12/13/13
|
|
12/23/13
|
|
10
|
|
|
12/18/13
|
|
12/27/13
|
|
9
|
|
|
12/19/13
|
|
12/30/13
|
|
11
|
|
|
12/20/13
|
|
12/31/13
|
|
11
|
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/24/13
|
|
01/03/14
|
|
10
|
Turkey
|
|
10/10/13
|
|
10/21/13
|
|
11
|
|
|
10/11/13
|
|
10/22/13
|
|
11
|
2014 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
China
|
|
01/27/14
|
|
02/10/14
|
|
14
|
|
|
01/28/14
|
|
02/11/14
|
|
14
|
|
|
01/29/14
|
|
02/12/14
|
|
14
|
|
|
04/28/14
|
|
05/08/14
|
|
10
|
|
|
04/29/14
|
|
05/09/14
|
|
10
|
|
|
04/30/14
|
|
05/12/14
|
|
12
|
|
|
09/26/14
|
|
10/08/14
|
|
12
|
|
|
09/29/14
|
|
10/09/14
|
|
10
|
|
|
09/30/14
|
|
10/10/14
|
|
10
|
The
Czech Republic |
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
Egypt
|
|
12/31/13
|
|
01/08/14
|
|
8
|
|
|
01/06/14
|
|
01/14/14
|
|
8
|
|
|
04/14/14
|
|
04/22/14
|
|
8
|
|
|
04/15/14
|
|
04/23/14
|
|
8
|
|
|
04/16/14
|
|
04/24/14
|
|
8
|
|
|
04/17/14
|
|
04/27/14
|
|
10
|
2014 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
|
|
07/21/14
|
|
07/31/14
|
|
10
|
|
|
07/22/14
|
|
08/03/14
|
|
12
|
|
|
07/24/14
|
|
08/04/14
|
|
11
|
|
|
09/29/14
|
|
10/07/14
|
|
8
|
|
|
09/30/14
|
|
10/08/14
|
|
8
|
|
|
10/01/14
|
|
10/09/14
|
|
8
|
|
|
10/02/14
|
|
10/12/14
|
|
10
|
Hungary
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
12/31/14
|
|
8
|
Indonesia
|
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
07/23/14
|
|
08/04/14
|
|
12
|
|
|
07/24/14
|
|
08/05/14
|
|
12
|
|
|
07/25/14
|
|
08/06/14
|
|
12
|
|
|
12/19/14
|
|
12/29/14
|
|
10
|
|
|
12/22/14
|
|
12/30/14
|
|
8
|
|
|
12/23/14
|
|
01/02/15
|
|
11
|
Malaysia
|
|
01/27/14
|
|
02/04/14
|
|
8
|
|
|
01/28/14
|
|
02/05/14
|
|
8
|
|
|
01/29/14
|
|
02/06/14
|
|
8
|
|
|
07/23/14
|
|
07/31/14
|
|
8
|
|
|
07/24/14
|
|
08/01/14
|
|
8
|
|
|
07/25/14
|
|
08/04/14
|
|
10
|
Pakistan
|
|
07/23/14
|
|
08/01/14
|
|
9
|
|
|
07/24/14
|
|
08/04/14
|
|
11
|
The
Philippines |
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/26/13
|
|
01/03/14
|
|
8
|
|
|
12/27/13
|
|
01/06/14
|
|
10
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
|
|
12/26/14
|
|
01/05/15
|
|
10
|
|
|
12/29/14
|
|
01/06/15
|
|
8
|
Qatar
|
|
07/23/14
|
|
08/03/14
|
|
11
|
|
|
07/24/14
|
|
08/04/14
|
|
11
|
|
|
07/27/14
|
|
08/05/14
|
|
11
|
|
|
09/30/14
|
|
10/08/14
|
|
8
|
|
|
10/01/14
|
|
10/09/14
|
|
8
|
|
|
10/02/14
|
|
10/12/14
|
|
10
|
Russia
|
|
12/27/14
|
|
01/09/14
|
|
13
|
|
|
12/30/14
|
|
01/10/14
|
|
11
|
|
|
12/31/14
|
|
01/13/14
|
|
13
|
Saudi
Arabia |
|
07/22/14
|
|
08/02/14
|
|
11
|
|
|
07/03/14
|
|
08/03/14
|
|
11
|
|
|
09/30/14
|
|
01/08/14
|
|
8
|
|
|
10/01/14
|
|
10/11/14
|
|
10
|
South
Africa |
|
12/23/13
|
|
01/02/14
|
|
10
|
|
|
12/24/13
|
|
01/03/14
|
|
10
|
|
|
12/27/13
|
|
01/06/14
|
|
10
|
|
|
12/30/13
|
|
01/07/14
|
|
8
|
|
|
12/31/13
|
|
01/08/14
|
|
8
|
|
|
03/14/14
|
|
03/24/14
|
|
10
|
2014 |
Country
|
|
Trade
Date |
|
Settlement
Date |
|
Number
of Days to Settle |
|
|
03/17/14
|
|
03/25/14
|
|
8
|
|
|
03/18/14
|
|
03/26/14
|
|
8
|
|
|
03/19/14
|
|
03/27/14
|
|
8
|
|
|
03/20/14
|
|
03/28/14
|
|
8
|
|
|
04/11/14
|
|
04/22/14
|
|
9
|
|
|
04/14/14
|
|
04/23/14
|
|
9
|
|
|
04/15/14
|
|
04/24/14
|
|
9
|
|
|
04/16/14
|
|
04/25/14
|
|
9
|
|
|
04/17/14
|
|
04/29/14
|
|
12
|
|
|
04/22/14
|
|
04/30/14
|
|
8
|
|
|
04/23/14
|
|
05/02/14
|
|
9
|
|
|
04/24/14
|
|
05/05/14
|
|
11
|
|
|
04/25/14
|
|
05/06/14
|
|
11
|
|
|
04/29/14
|
|
05/07/14
|
|
8
|
|
|
04/30/14
|
|
05/08/14
|
|
8
|
|
|
06/09/14
|
|
06/17/14
|
|
8
|
|
|
06/10/14
|
|
06/18/14
|
|
8
|
|
|
06/11/14
|
|
06/19/14
|
|
8
|
|
|
06/12/14
|
|
06/20/14
|
|
8
|
|
|
06/13/14
|
|
06/23/14
|
|
10
|
|
|
09/17/14
|
|
09/25/14
|
|
8
|
|
|
09/18/14
|
|
09/26/14
|
|
8
|
|
|
09/19/14
|
|
09/29/14
|
|
10
|
|
|
09/22/14
|
|
09/30/14
|
|
8
|
|
|
09/23/14
|
|
10/01/14
|
|
8
|
|
|
12/09/14
|
|
12/17/14
|
|
8
|
|
|
12/10/14
|
|
12/18/14
|
|
8
|
|
|
12/11/14
|
|
12/19/14
|
|
8
|
|
|
12/12/14
|
|
12/22/14
|
|
10
|
|
|
12/15/14
|
|
12/23/14
|
|
8
|
|
|
12/18/14
|
|
12/29/14
|
|
11
|
|
|
12/19/14
|
|
12/30/14
|
|
11
|
|
|
12/22/14
|
|
12/31/14
|
|
9
|
|
|
12/23/14
|
|
01/02/15
|
|
10
|
|
|
12/14/14
|
|
01/05/15
|
|
12
|
|
|
12/29/14
|
|
01/06/15
|
|
8
|
|
|
12/30/14
|
|
01/07/15
|
|
8
|
|
|
12/31/14
|
|
01/08/15
|
|
8
|
Sri
Lanka |
|
04/09/14
|
|
04/19/14
|
|
10
|
|
|
04/12/14
|
|
04/20/14
|
|
8
|
|
|
04/13/14
|
|
04/21/14
|
|
8
|
The
United Arab Emirates |
|
07/22/14
|
|
07/30/14
|
|
8
|
|
|
07/23/14
|
|
07/31/14
|
|
8
|
|
|
07/24/14
|
|
08/01/14
|
|
8
|
|
|
11/26/14
|
|
12/04/14
|
|
8
|
|
|
11/27/14
|
|
12/08/14
|
|
11
|
Vietnam
|
|
04/29/14
|
|
05/07/14
|
|
8
|
* |
These worst-case redemption
cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse) redemption cycles are possible. |
Taxes
The following is a summary of certain material U.S. federal
income tax considerations regarding the purchase, ownership and disposition of shares of a Fund. This summary does not address all of the potential U.S. federal income tax consequences that may be applicable to a Fund or to all categories of
investors, some of which may be subject to special tax rules. Current and prospective shareholders are urged to consult their own tax advisers with respect to the specific federal, state, local and non-U.S. tax consequences of investing in a Fund.
The summary is based on the laws in effect on the date of this SAI and existing judicial and administrative interpretations thereof, all of which are subject to change, possibly with retroactive effect.
Regulated Investment Company Qualification. Each Fund intends to qualify for and to elect treatment as a separate RIC under Subchapter M of the Internal Revenue Code. To qualify for treatment as a RIC, each Fund must annually distribute at least 90% of its
investment company taxable income (which includes dividends, interest and net short-term capital gains) and meet several other requirements. Among such other requirements are the following: (i) at least 90% of each Fund’s annual gross income
must be derived from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities or non-U.S. currencies, other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly-traded partnerships
(i.e., partnerships that are traded on an established securities market or tradable on a secondary market, other than a partnership that derives 90%
of its income from interest, dividends, capital gains and other traditionally permitted mutual fund income); and (ii) at the close of each quarter of each Fund’s taxable year, (a) at least 50% of the market value of each Fund’s total
assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited for purposes of this calculation in respect of any one issuer to an amount not greater
than 5% of the value of the Fund’s assets and not greater than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of the Fund’s total assets may be invested in the securities of any one
issuer, of two or more issuers of which 20% or more of the voting stock is held by the Fund and that are engaged in the same or similar trades or businesses or related trades or businesses (other than the securities of other RICs) or the securities
of one or more qualified publicly-traded partnerships.
A Fund may be able to cure a failure to derive 90% of its
income from the sources specified above or a failure to diversify its holdings in the manner described above by paying a tax, by disposing of certain assets, or by paying a tax and disposing of assets. If, in any taxable year, a Fund fails one of
these tests and does not timely cure the failure, that Fund will be taxed in the same manner as an ordinary corporation and distributions to its shareholders will not be deductible by that Fund in computing its taxable income.
Although in general the passive loss rules of the Internal
Revenue Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to an interest in a qualified publicly-traded partnership. A Fund’s investments in partnerships, including in qualified publicly-traded
partnerships, may result in the Fund being subject to state, local, or non-U.S. income, franchise or withholding tax liabilities.
Taxation of RICs. As a
RIC, a Fund will not be subject to U.S. federal income tax on the portion of its taxable investment income and capital gains that it distributes to its shareholders, provided that it satisfies a minimum distribution requirement. To satisfy the
minimum distribution requirement, a Fund must distribute to its shareholders at least the sum of (i) 90% of its “investment company taxable income” (i.e., income other than its net realized long-term capital gain over its net realized short-term capital loss), plus or minus certain adjustments, and (ii) 90% of its net tax-exempt income for the taxable year. A Fund will
be subject to income tax at regular corporate rates on any taxable income or gains that it does not distribute to its shareholders. If a Fund fails to qualify for any taxable year as a RIC or fails to meet the distribution requirement, all of its
taxable income will be subject to tax at regular corporate income tax rates without any deduction for distributions to shareholders, and such distributions generally will be taxable to shareholders as ordinary dividends to the extent of the
Fund’s current and accumulated earnings and profits. In such event, distributions to individuals should be eligible to be treated as qualified dividend income and distributions to corporate shareholders generally should be eligible for the
dividends-received deduction. Although each Fund intends to distribute substantially all of its net investment income and its capital gains for each taxable year, each Fund will be subject to U.S. federal income taxation to the extent any such
income or gains are not distributed. Moreover, if a Fund fails to qualify as a RIC in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a RIC. If a Fund fails
to qualify as a RIC for a period greater than two taxable years, the Fund may be required to recognize any net built-in gains with respect to certain of its assets (i.e., the excess of the aggregate gains,
including items of income, over aggregate losses that would have been realized with respect to such assets if the Fund had been liquidated) if it qualifies as a RIC in a subsequent year.
Net Capital Loss Carryforwards. Net capital loss carryforwards may be applied against any net realized capital gains in each succeeding year, until they have been reduced to zero or until their respective expiration dates, whichever occurs
first. Capital loss carryforwards from taxable years beginning after 2010 are not subject to expiration, and short-term and long-term capital loss carryforwards from such taxable years may only be applied against net realized short-term and
long-term capital gains, respectively.
The
following Funds had tax basis net capital loss carryforwards as of October 31, 2012, the tax year-end for the Funds listed:
Fund
|
|
Non-Expiring
|
|
Total
|
|
iShares
Emerging Markets High Yield Bond Fund |
|
$
11,104 |
|
$
11,104 |
|
iShares
Emerging Markets Local Currency Bond Fund |
|
123,087
|
|
123,087
|
|
iShares
Global ex USD High Yield Corporate Bond Fund |
|
75,095
|
|
75,095
|
|
iShares
Global High Yield Corporate Bond Fund |
|
36,747
|
|
36,747
|
|
Excise Tax. A Fund will
be subject to a 4% excise tax on certain undistributed income if it does not distribute to its
shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98.2% of its capital gain net income for the 12
months ended October 31 of such year. For this purpose, however, any ordinary income or capital gain net income retained by a Fund that is subject to corporate income tax will be considered to have been distributed by year-end. In addition, the
minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any underdistribution or overdistribution, as the case may be, from the previous year. Each Fund intends to declare and distribute
dividends and distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax.
Taxation of U.S. Shareholders.
Dividends and other distributions by a Fund are generally treated under the Internal Revenue Code as received by the shareholders at the time the dividend or distribution is made. However, any dividend or
capital gain distribution declared by a Fund in October, November or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on December 31 of
such calendar year and to have been paid by the Fund not later than such December 31, provided such dividend is actually paid by the Fund during January of the following calendar year.
Each Fund intends to distribute annually to its shareholders
substantially all of its net tax-exempt income, investment company taxable income and any net realized long-term capital gains in excess of net realized short-term capital losses (including any capital loss carryovers). However, if a Fund retains
for investment an amount equal to all or a portion of its net long-term capital gains in excess of its net short-term capital losses (including any capital loss carryovers), it will be subject to a corporate tax (at a maximum rate of 35%) on the
amount retained. In that event, the Fund will designate such retained amounts as undistributed capital gains in a notice to its shareholders who (a) will be required to include in income for U.S. federal income tax purposes, as long-term capital
gains, their proportionate shares of the undistributed amount, (b) will be entitled to credit their proportionate shares of the 35% tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to
claim refunds to the extent their credits exceed their liabilities, if any, and (c) will be entitled to increase their tax basis, for U.S. federal income tax purposes, in their shares by an amount equal to 65% of the amount of undistributed capital
gains included in the shareholder’s income. Organizations or persons not subject to U.S. federal income tax on such capital gains will be entitled to a refund of their pro rata share of such taxes paid
by the Fund upon filing appropriate returns or claims for refund with the IRS.
Distributions of net realized long-term capital gains, if any,
that a Fund reports as capital gain dividends are taxable as long-term capital gains, whether paid in cash or in shares and regardless of how long a shareholder has held shares of the Fund. All other dividends of a Fund (including dividends from
short-term capital gains) from its current and accumulated earnings
and profits (“regular dividends”) are generally subject to tax as
ordinary income. Long-term capital gains are eligible for taxation at a maximum rate of 15% for non-corporate shareholders with incomes below $400,000 ($450,000 if married filing jointly), 20% for individuals with any income above these amounts that
is long-term capital gain and 0% at certain income levels. In addition, the top marginal ordinary income tax rate is 39.6% for income in excess of the above thresholds.
If an individual receives a regular dividend qualifying for the
long-term capital gain rates and such dividend constitutes an “extraordinary dividend,” and the individual subsequently recognizes a loss on the sale or exchange of stock in respect of which the extraordinary dividend was paid, then the
loss will be long-term capital loss to the extent of such extraordinary dividend. An “extraordinary dividend” on common stock for this purpose is generally a dividend (i) in an amount greater than or equal to 10% of the taxpayer’s
tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within an 85-day period, or (ii) in an amount greater than 20% of the taxpayer’s tax basis (or trading value) in a share of stock, aggregating
dividends with ex-dividend dates within a 365-day period.
Distributions in excess of a Fund’s current and
accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of a shareholder’s basis in shares of the Fund, and as a capital gain thereafter (if the shareholder holds shares of the
Fund as capital assets). Distributions in excess of a Fund’s minimum distribution requirements, but not in excess of the Fund’s earnings and profits, will be taxable to shareholders and will not constitute nontaxable returns of capital.
The Fund's capital loss carryovers, if any, carried from taxable years beginning before 2011 do not reduce current earnings and profits, even if such carryforwards offset current year realized gains. Shareholders receiving dividends or distributions
in the form of additional shares should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the shareholders receiving cash dividends or distributions will receive and should
have a cost basis in the shares received equal to such amount. No deduction would be allowed to an investor for interest on indebtedness incurred or continued to purchase or carry shares of the Fund to the extent the interest deduction would relate
to exempt-interest dividends received.
Beginning in 2013,
a 3.8% U.S. federal Medicare contribution tax is imposed on net investment income, including, but not limited to, interest, dividends, and net gain from investments, of U.S. individuals with income exceeding $200,000 (or $250,000 if married filing
jointly), and of estates and trusts.
Investors
considering buying shares just prior to a dividend or capital gain distribution should be aware that, although the price of shares purchased at that time may reflect the amount of the forthcoming distribution, such dividend or distribution may
nevertheless be taxable to them. If a Fund is the holder of record of any security on the record date for any dividends payable with respect to such security, such dividends will be included in the Fund’s gross income not as of the date
received but as of the later of (i) the date such security became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the security would not be entitled to receive the declared, but
unpaid, dividends); or (ii) the date the Fund acquired such security. Accordingly, in order to satisfy its income distribution requirements, a Fund may be required to pay dividends based on anticipated earnings, and shareholders may receive
dividends in an earlier year than would otherwise be the case.
In certain situations, a Fund may, for a taxable year, defer
all or a portion of its net capital loss realized after October and its late-year ordinary loss (defined as the excess of post-October foreign currency and passive foreign investment company (“PFIC”) losses and other post-December
ordinary losses over post-October foreign currency and PFIC gains and other post-December ordinary income) until the next taxable year in computing its investment company taxable income and net capital gain, which will defer the recognition of such
realized losses. Such deferrals and other rules regarding gains and losses realized after October (or December) may affect the tax character of shareholder distributions.
Sales of Shares. Upon the
sale or exchange of shares of a Fund, a shareholder will realize a taxable gain or loss equal to the difference between the amount realized and the shareholder’s basis in shares of the Fund. A redemption of shares by a Fund will be treated as
a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder’s hands and will be long-term capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced, including replacement through the reinvesting of dividends and
capital gains distributions in the Fund, by, or by an option on, substantially identical shares within a 61-day period beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired
will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder
for six months or less will be treated for U.S. federal income tax purposes as
a long-term capital loss to the extent of any distributions or deemed distributions of long-term capital gains received by the shareholder with respect to such share. The Medicare contribution tax described above will apply to the sale of Fund
shares.
If a shareholder incurs a sales charge in
acquiring shares of a Fund, disposes of those shares within 90 days and then, on or before January 31 of the following calendar year, acquires shares in a mutual fund for which the otherwise applicable sales charge is reduced by reason of a
reinvestment right (e.g., an exchange privilege), the original sales charge will not be taken into account in computing gain/loss on the original shares to the extent the subsequent sales charge is reduced.
Instead, the disregarded portion of the original sales charge will be added to the tax basis of the newly acquired shares. Furthermore, the same rule also applies to a disposition of the newly acquired shares made within 90 days of the second
acquisition. This provision prevents a shareholder from immediately deducting the sales charge by shifting his or her investment within a family of mutual funds.
Back-Up Withholding. In
certain cases, a Fund will be required to withhold at a 28% rate and remit to the U.S. Treasury such amounts withheld from any distributions paid to a shareholder who: (i) has failed to provide a correct taxpayer identification number; (ii) is
subject to back-up withholding by the IRS; (iii) has failed to certify to a Fund that such shareholder is not subject to back-up withholding; or (iv) has not certified that such shareholder is a U.S. person (including a U.S. resident alien). Back-up
withholding is not an additional tax and any amount withheld may be credited against a shareholder's U.S. federal income tax liability.
Sections 351 and 362.
The Company, on behalf of each Fund, has the right to reject an order for a purchase of shares of the Fund if the purchaser (or group of purchasers) would, upon obtaining the shares so ordered, own 80% or
more of the outstanding shares of the Fund and if, pursuant to Sections 351 and 362 of the Internal Revenue Code, that Fund would have a basis in the securities different from the market value of such securities on the date of deposit. If a
Fund’s basis in such securities on the date of deposit was less than market value on such date, the Fund, upon disposition of the securities, would recognize more taxable gain or less taxable loss than if its basis in the securities had been
equal to market value. It is not anticipated that the Company will exercise the right of rejection except in a case where the Company determines that accepting the order could result in material adverse tax consequences to a Fund or its
shareholders. The Company also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination.
Taxation of Certain
Derivatives. A Fund’s transactions in zero coupon securities, non-U.S. currencies, forward contracts, options and futures contracts (including options and futures contracts on non-U.S. currencies), to
the extent permitted, will be subject to special provisions of the Internal Revenue Code (including provisions relating to “hedging transactions” and “straddles”) that, among other things, may affect the character of gains
and losses realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and
defer Fund losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also (a) will require the Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out at the end of each year) and (b) may cause the Fund to recognize income without receiving cash with which to pay
dividends or make distributions in amounts necessary to satisfy the distribution requirements for avoiding income and excise taxes. Each Fund will monitor its transactions, will make the appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any zero coupon security, non-U.S. currency, forward contract, option, futures contract or hedged investment in order to mitigate the effect of these rules and prevent disqualification of the Fund as
a RIC. A Fund’s investments in so-called “section 1256 contracts,” such as regulated futures contracts, most non-U.S. currency forward contracts traded in the interbank market and options on most security indexes, are subject to
special tax rules. All section 1256 contracts held by the Fund at the end of its taxable year are required to be marked to their market value, and any unrealized gain or loss on those positions will be included in the Fund’s income as if each
position had been sold for its fair market value at the end of the taxable year. The resulting gain or loss will be combined with any gain or loss realized by the Fund from positions in section 1256 contracts closed during the taxable year. Provided
such positions were held as capital assets and were not part of a “hedging transaction” nor part of a “straddle,” 60% of the resulting net gain or loss will be treated as long-term capital gain or loss, and 40% of such net
gain or loss will be treated as short-term capital gain or loss, regardless of the period of time the positions were actually held by the Fund. As a result of entering into swap contracts, a Fund may make or receive periodic net payments. A Fund may
also make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute ordinary income or deductions, while termination of a swap
will
generally result in capital gain or loss (which will be a long-term capital
gain or loss if the Fund has been a party to the swap for more than one year). The cost of any payments made by the Fund on a swap transaction will be netted pro rata against both tax exempt and taxable gross
income. With respect to certain types of swaps, a Fund may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax
purposes as ordinary income or loss.
Market Discount. Any market discount recognized on a bond is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below redemption value or adjusted issue price if issued with
original issue discount. Absent an election by a Fund to include the market discount in income as it accrues, gain on the Fund’s disposition of such an obligation will be treated as ordinary income rather than capital gain to the extent of the
accrued market discount.
Non-U.S. Investments. Income (including, in some cases, capital gains) received by certain of the Funds from investments in non-U.S. securities may be subject to withholding and other taxes imposed by non-U.S. countries. Tax
conventions between certain countries and the United States may reduce or eliminate such taxes in some cases. If more than 50% of a Fund’s total assets at the close of its taxable year consists of securities of non-U.S. corporations, the Fund
may elect for U.S. income tax purposes to treat non-U.S. income taxes paid by it as paid by its shareholders. A Fund may qualify for and make this election in some, but not necessarily all, of its taxable years. If a Fund were to make an election,
shareholders of the Fund would be required to take into account an amount equal to their pro rata portions of such non-U.S. taxes in computing their taxable income and then treat an amount equal to those non-U.S. taxes as a U.S. federal income tax
deduction or as a foreign tax credit against their U.S. federal income taxes. Shortly after any year for which it makes such an election, a Fund will report to its shareholders the amount per share of such non-U.S. income tax that must be included
in each shareholder’s gross income and the amount which will be available for the deduction or credit. No deduction for non-U.S. taxes may be claimed by a shareholder who does not itemize deductions. Certain limitations will be imposed on the
extent to which the credit (but not the deduction) for non-U.S. taxes may be claimed. Under Section 988 of the Internal Revenue Code, gains or losses attributable to fluctuations in exchange rates between the time a Fund accrues income or
receivables or expenses or other liabilities denominated in a non-U.S. currency and the time a Fund actually collects such income or pays such liabilities are generally treated as ordinary income or ordinary loss. In general, gains (and losses)
realized on debt instruments will be treated as Section 988 gain (or loss) to the extent attributable to changes in exchange rates between the U.S. dollar and the currencies in which the instruments are denominated. Similarly, gain or losses on
non-U.S. currency, non-U.S. currency forward contracts, certain non-U.S. currency options or futures contracts and the disposition of debt securities denominated in non-U.S. currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates, are also treated as ordinary income or loss unless the Fund were to elect otherwise.
Original Issue Discount.
Original issue discount (“OID”) on tax-exempt bonds is recognized over the term of the bond and is tax-exempt to the holder of the bond. Special U.S. federal income tax rules apply to
inflation-indexed bonds. Generally, all stated interest on such bonds is taken into income by a Fund under its regular method of accounting for interest income. The amount of a positive inflation adjustment, which results in an increase in the
inflation-adjusted principal amount of the bond, is treated as original issue discount. The OID is included in a Fund’s gross income ratably during the period ending with the maturity of the bond, under the general OID inclusion rules. The
amount of a Fund’s OID in a taxable year with respect to a bond will increase a Fund’s taxable income for such year without a corresponding receipt of cash, until the bond matures. As a result, a Fund may need to use other sources of
cash to satisfy its distributions for such year. The amount of negative inflation adjustment, which results in a decrease in the inflation-adjusted principal amount of the bond, reduces the amount of interest (including stated, interest, OID, and
market discount, if any) otherwise includible in a Fund’s income with respect to the bond for the taxable year.
Reporting. If a
shareholder recognizes a loss with respect to a Fund’s shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886.
Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but under current guidance, shareholders of a RIC are not exempted. The fact that a loss is reportable under these regulations does not affect
the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
Taxation of Non-U.S. Shareholders. Dividends paid by a Fund to non-U.S. shareholders are generally subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty to the extent derived from investment income
and short-term capital gains. Dividends paid by a Fund from net tax-exempt income or long-term capital gains are generally not subject to such withholding tax. In order to obtain a reduced rate of withholding, a non-U.S. shareholder will be
required
to provide an IRS Form W-8BEN certifying its entitlement to benefits under a
treaty. The withholding tax does not apply to regular dividends paid to a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. shareholder’s conduct of a trade or business
within the U.S. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. shareholder were a U.S. shareholder. A non-U.S. corporation receiving effectively connected dividends may also be subject to
additional “branch profits tax” imposed at a rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or other applicable form may be subject to back-up withholding at the appropriate rate.
For taxable years beginning before January 1, 2014,
properly-designated dividends are generally exempt from U.S. federal withholding tax where they (i) are paid in respect of the Fund’s “qualified net interest income” (generally, the Fund’s U.S. source interest income, other
than certain contingent interest and interest from obligations of a corporation or partnership in which the Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income); or (ii) are paid in respect of the Fund’s
“qualified short-term capital gains” (generally, the excess of the Fund’s net short-term capital gain over the Fund’s long-term capital loss for such taxable year). However, depending on its circumstances, the Fund may
designate all, some or none of its potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In
order to qualify for this exemption from withholding, a non-U.S. shareholder will need to comply with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN or substitute Form). In
the case of shares held through an intermediary, the intermediary may withhold even if the Fund designates the payment as qualified net interest income or qualified short-term capital gain. Non-U.S. shareholders should contact their intermediaries
with respect to the application of these rules to their accounts.
In general, U.S. federal withholding tax will not apply to any
gain or income realized by a non-U.S. shareholder in respect of any distributions of net long-term capital gains over net short-term capital losses, tax-exempt interest dividends, or upon the sale or other disposition of shares of a Fund. If a
Fund’s direct or indirect interests in U.S. real property were to exceed certain levels, distributions to a non-U.S. shareholder from a Fund attributable to a REIT’s distribution to a Fund of gain from a sale or exchange of a U.S. real
property interest and, in the case of a non-U.S. shareholder owning more than 5% of the class of shares throughout either such person’s holding period for the redeemed shares or, if shorter, the previous five years, the gain on redemption will
be treated as real property gain subject to additional taxes or withholding and may result in the non-U.S. shareholder having additional filing requirements.
A 30% withholding tax will be imposed on dividends paid after
December 31, 2013, and redemption proceeds paid after December 31, 2016, to (i) foreign financial institutions, including non-U.S. investment funds, unless they agree to collect and disclose to the IRS information regarding their direct and indirect
U.S. account holders and (ii) certain other foreign entities, unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions will need to (i) enter into agreements with
the IRS that state that they will provide the IRS information including the names, addresses and taxpayer identification numbers of direct and indirect U.S. account holders; comply with due diligence procedures with respect to the identification of
U.S. accounts; report to the IRS certain information with respect to U.S. accounts maintained; agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required
information; and determine certain other information as to their account holders, or (ii) in the event that an applicable intergovernmental agreement and implementing legislation are adopted, provide local revenue authorities with similar account
holder information. Other foreign entities will need to provide the name, address and taxpayer identification number of each substantial U.S. owner or certifications of no substantial U.S. ownership, unless certain exceptions apply or agree to
provide certain information to other revenue authorities for transmittal to the IRS.
Shares of a Fund held by a non-U.S. shareholder at death will
be considered situated within the United States and subject to the U.S. estate tax.
The foregoing discussion is a summary of certain material U.S.
federal income tax considerations only and is not intended as a substitute for careful tax planning. Purchasers of shares should consult their own tax advisors as to the tax consequences of investing in such shares, including consequences under
state, local and non-U.S tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date of this SAI. Changes in
applicable authority could materially affect the conclusions discussed above, and such changes often occur.
Financial Statements
Each Fund's audited Financial Statements, including the
Financial Highlights, appearing in the Annual Report to Shareholders and the report therein of PricewaterhouseCoopers LLP, an independent registered public accounting firm, are hereby incorporated by reference in this SAI. The applicable Annual
Report to Shareholders, which contains the referenced audited financial statements, is available upon request and without charge.
Miscellaneous Information
Counsel. Willkie Farr
& Gallagher LLP, located at 787 Seventh Avenue, New York, NY 10019, is counsel to the Company.
Independent Registered Public Accounting Firm. PricewaterhouseCoopers LLP, located at Three Embarcadero Center, San Francisco, CA 94111, serves as the Company's independent registered public accounting firm, audits the Funds' financial statements, and may
perform other services.
Shareholder Communications
to the Board. The Board has established a process for shareholders to communicate with the Board. Shareholders may contact the Board by mail. Correspondence should be addressed to iShares Board of Directors,
c/o BlackRock Institutional Trust Company, N.A. – Mutual Fund Administration, 400 Howard Street, San Francisco, CA 94105. Shareholder communications to the Board should include the following information: (i) the name and address of the
shareholder; (ii) the number of shares owned by the shareholder; (iii) the Fund(s) of which the shareholder owns shares; and (iv) if these shares are owned indirectly through a broker, financial intermediary or other record owner, the name of the
broker, financial intermediary or other record owner. All correspondence received as set forth above shall be reviewed by the Secretary of the Company and reported to the Board.
Appendix A
DESCRIPTION OF FIXED-INCOME RATINGS
A rating is generally assigned to a fixed-income security at
the time of issuance by a credit rating agency designated as a nationally recognized statistical rating organization (“NRSRO”) by the SEC. While NRSROs may from time to time revise such ratings, they undertake no obligation to do so, and
the ratings given to securities at issuance do not necessarily represent ratings which would be given to these securities on a particular subsequent date.
Fixed-income securities which are unrated expose the investor
to risks with respect to capacity to pay interest or repay principal which are similar to the risks of lower-rated speculative bonds. Evaluation of these securities is dependent on the investment adviser’s judgment, analysis and experience in
the evaluation of such securities.
Investors should note
that the assignment of a rating to a security by an NRSRO may not reflect the effect of recent developments on the issuer’s ability to make interest and principal payments or on the likelihood of default.
The descriptions below relate to general long-term and
short-term obligations of an issuer.
Moody’s
Ratings
Long-Term Obligations
Aaa: Obligations rated Aaa are
judged to be of the highest quality, subject to the lowest level of credit risk.
Aa: Obligations rated Aa are
judged to be of high quality and are subject to very low credit risk.
A: Obligations rated A are
judged to be upper-medium grade and are subject to low credit risk.
Baa: Obligations rated Baa are
judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Ba: Obligations rated Ba are
judged to be speculative and are subject to substantial credit risk.
B: Obligations rated B are
considered speculative and are subject to high credit risk.
Caa: Obligations rated Caa are
judged to be speculative of poor standing and are subject to very high credit risk.
Ca: Obligations rated Ca are
highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C: Obligations rated C are the
lowest rated and are typically in default, with little prospect for recovery of principal or interest.
Note: Moody's appends
numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of that generic rating category.
Absence of Rating: Where no
rating has been assigned or where a rating has been withdrawn, it may be for reasons unrelated to the credit worthiness of the issue.
Should no rating be assigned, the reason may be one of the
following:
1. An application was not received or
accepted.
2. The issue or issuer belongs to a group of
securities or entities that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue
or issuer.
4. The issue was privately placed, in which
case the rating is not published in Moody’s publications.
Withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons.
Short-Term Obligations
Moody’s short-term debt ratings are opinions of the
ability of issuers to honor short-term financial obligations, generally with an original maturity not exceeding thirteen months.
Moody's employs the following designations to indicate the
relative repayment ability of rated issuers:
P-1: Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2: Issuers (or supporting
institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3: Issuers (or supporting
institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP: Issuers (or supporting
institutions) rated Not Prime do not fall within any of the Prime rating categories.
Standard & Poor's Ratings Services
Long-Term Obligations
AAA: An obligation rated AAA
has the highest rating assigned by Standard & Poor's Ratings Services. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
AA: An obligation rated AA
differs from the highest rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment is very strong.
A: An obligation rated A is
somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still
strong.
BBB: An
obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
Obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to
the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B: An obligation rated B is
more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s
capacity or willingness to meet its financial commitment on the obligation.
CCC: An obligation rated CCC is
currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions,
the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is
currently highly vulnerable to nonpayment.
C: A C rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject
of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the C rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance
with the instrument's terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than
par.
D: An obligation rated D is in
payment default. The D rating category is used when payments on an obligation are not made on the date due, unless Standard & Poor’s Ratings Services believes that such payments will be made within five business days, irrespective of any
grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized. An obligation's rating is lowered to D upon completion of a distressed exchange
offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
Note: The ratings from AA to
CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
NR: NR indicates no rating has
been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's Ratings Services does not rate a particular obligation as a matter of policy.
Short-Term Obligations
A-1: A short-term obligation
rated A-1 is rated in the highest category by Standard & Poor's Ratings Services. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation
rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is
satisfactory.
A-3:
A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
B: A short-term obligation rated B is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitments.
C: A short-term obligation
rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D: A short-term obligation
rated D is in payment default. The D rating category is used when payments on an obligation are not made on the due date, unless Standard & Poor’s Ratings Services believes that such payments will be made within any stated grace period.
However, any stated grace period longer than five business days will be treated as five business days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
Fitch Ratings
Long-Term Obligations
AAA: Highest credit quality.
AAA ratings denote the lowest expectation of credit risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable
events.
AA: Very
high credit quality. AA ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A: High credit quality. A
ratings denote expectations of low credit risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher
ratings.
BBB: Good
credit quality. BBB ratings indicate that expectations of credit risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this
capacity.
BB: Speculative. BB ratings
indicate an elevated vulnerability to credit risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be
met.
B: Highly
speculative. B ratings indicate that material credit risk is present.
CCC: Substantial credit risk.
CCC ratings indicate that substantial credit risk is present.
CC: Very high levels of credit
risk. CC ratings indicate very high levels of credit risk.
C: Exceptionally high levels of
credit risk. C indicates exceptionally high levels of credit risk.
Defaulted obligations typically are not assigned D ratings, but
are instead rated in the B to C rating categories, depending upon their recovery prospects and other relevant characteristics. This approach better aligns obligations that have comparable overall expected loss but varying vulnerability to default
and loss.
Note:
The modifiers “+” or “-” may be
appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA obligation rating category, or to corporate finance obligation ratings in the categories below CCC.
The subscript 'emr' is appended to a rating to denote embedded
market risk which is beyond the scope of the rating. The designation is intended to make clear that the rating solely addresses the counterparty risk of the issuing bank. It is not meant to indicate any limitation in the analysis of the counterparty
risk, which in all other respects follows published Fitch criteria for analyzing the issuing financial institution. Fitch does not rate these instruments where the principal is to any degree subject to market risk.
Short-Term Obligations (Corporate and Public Finance)
Short-term ratings are assigned to obligations whose initial
maturity is viewed as “short-term” based on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
F1: Highest short-term credit
quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to denote any exceptionally strong credit feature.
F2: Good short-term credit
quality. Good intrinsic capacity for timely payment of financial commitments.
F3: Fair short-term credit
quality. The intrinsic capacity for timely payment of financial commitments is adequate.
B: Speculative short-term
credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
C: High short-term default
risk. Default is a real possibility.
RD: Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity ratings only.
D: Default. Indicates a
broad-based default event for an entity, or the default of a short-term obligation.
IS-SAI-10i-0513
iShares®
, Inc.
Statement of Additional Information
Dated March 1, 2013
(as revised April 8, 2013)
This Statement of Additional Information (“SAI”)
is not a prospectus. It should be read in conjunction with the current prospectus (the “Prospectus”) for the following fund of iShares, Inc. (the “Company”):
Fund
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iShares
Latin America Bond Fund (the “Fund”) |
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LTAM
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NASDAQ
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The Prospectus for the Fund is dated March 1, 2013, as amended
and supplemented from time to time. Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. A copy of the Prospectus may be obtained without charge by writing to the Company’s
distributor, BlackRock Investments, LLC (the “Distributor”), 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310, calling 1-800-iShares (1-800-474-2737) or visiting www.iShares.com. The
Fund's Prospectus is incorporated by reference to this SAI.
iShares®
is a registered trademark of BlackRock Fund Advisors (“BFA”) or its affiliates.
General Description of the Company and the Fund
The Company currently consists of more than 55 investment
series or portfolios. The Company was organized as a Maryland corporation on August 31, 1994 and is authorized to have multiple series or portfolios. The Company is an open-end management investment company registered with the U.S. Securities and
Exchange Commission (the “SEC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act” or the “1940 Act”). The offering of the Company's shares is registered under the Securities Act of
1933, as amended (the “1933 Act”). This SAI relates solely to the Fund.
The investment objective of the Fund is to seek investment
results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Latin America Bond Index (the “Underlying Index”), measuring the performance of U.S. dollar-denominated bond markets of
corporate, sovereign and quasi-sovereign issuers domiciled in Latin America.
The Fund offers and issues shares at their net asset value per
share (“NAV”) only in aggregations of a specified number of shares (“Creation Unit”), generally in exchange for a designated portfolio of securities (including any portion of such securities for which cash may be substituted)
included in its Underlying Index (the “Deposit Securities”), together with the deposit of a specified cash payment (the “Cash Component”). Shares of the Fund are listed and trade on The NASDAQ Stock Market
(“NASDAQ” or the “Listing Exchange”), a national securities exchange. Shares of the Fund are traded in the secondary market and elsewhere at market prices that may be at, above or below the Fund's NAV. Shares are redeemable
only in Creation Units, and, generally, in exchange for portfolio securities and a Cash Component. Creation Units typically are a specified number of shares, generally 200,000 or multiples thereof.
The Company reserves the right to permit or require that
creations and redemptions of shares are effected fully or partially in cash. Shares may be issued in advance of receipt of Deposit Securities, subject to various conditions, including a requirement to maintain with the Company a cash deposit equal
to at least 105% and up to 115%, which percentage BFA may change from time to time, of the market value of the omitted Deposit Securities. See the Creation and Redemption of Creation Units section of this SAI.
Transaction fees and other costs associated with creations or redemptions that include a cash portion may be higher than the transaction fees and other costs associated with in-kind creations or redemptions. In all cases, conditions and fees will be
limited in accordance with the requirements of SEC rules and regulations applicable to management investment companies offering redeemable securities.
Exchange Listing and Trading
A discussion of exchange listing and trading matters
associated with an investment in the Fund is contained in the Shareholder Information section of the Fund's Prospectus. The discussion below supplements, and should be read in conjunction with, that section of
the Prospectus.
Shares of the Fund are listed for
trading, and trade throughout the day, on the Listing Exchange and other secondary markets. Shares of the Fund may also be listed on certain non-U.S. exchanges. There can be no assurance that the requirements of the Listing Exchange necessary to
maintain the listing of shares of the Fund will continue to be met. The Listing Exchange may, but is not required to, remove the shares of the Fund from listing if (i) following the initial 12-month period beginning upon the commencement of trading
of Fund shares, there are fewer than 50 beneficial owners of shares of the Fund for 30 or more consecutive trading days, (ii) the value of the Underlying Index on which the Fund is based is no longer calculated or available, (iii) the
“indicative optimized portfolio value” (“IOPV”) of the Fund is no longer calculated or available, or (iv) any other event shall occur or condition shall exist that, in the opinion of the Listing Exchange, makes further
dealings on the Listing Exchange inadvisable. The Listing Exchange will also remove shares of the Fund from listing and trading upon termination of the Fund.
As in the case of other publicly-traded securities, when you
buy or sell shares through a broker, you will incur a brokerage commission determined by that broker.
In order to provide additional information regarding the
indicative value of shares of the Fund, the Listing Exchange or a market data vendor disseminates information every 15 seconds through the facilities of the Consolidated Tape Association, or through other widely disseminated means, an updated IOPV
for the Fund as calculated by an information provider or market data vendor. The Company is not involved in or responsible for any aspect of the calculation or dissemination of the IOPVs and makes no representation or warranty as to the accuracy of
the IOPVs.
An IOPV has a fixed income securities
component and a cash component. The fixed income securities values included in an IOPV are the values of the Deposit Securities for the Fund. While the IOPV reflects the current value of the Deposit Securities required to be deposited in connection
with the purchase of a Creation Unit, it does not necessarily reflect the precise composition of the current portfolio of securities held by the Fund at a particular point in time because the current portfolio of the Fund may include securities that
are not a part of the current Deposit Securities. Therefore, the Fund’s IOPV disseminated during the Listing Exchange trading hours should not be viewed as a real-time update of the Fund’s NAV, which is calculated only once a day.
The cash component included in an IOPV consists of estimated
accrued interest, dividends and other income, less expenses. If applicable, each IOPV also reflects changes in currency exchange rates between the U.S. dollar and the applicable currency.
The Company reserves the right to adjust the share prices of
the Fund in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Fund or an investor's equity interest
in the Fund.
Investment Strategies and Risks
The Fund seeks to achieve its objective by investing primarily
in both fixed-income securities that comprise the Underlying Index and through transactions that provide substantially similar exposure to securities in the Underlying Index. The Fund operates as an index fund and will not be actively managed.
Adverse performance of a security in the Fund’s portfolio will ordinarily not result in the elimination of the security from the Fund’s portfolio.
The Fund engages in representative sampling, which is
investing in a sample of securities selected by BFA to have a collective investment profile similar to that of the Fund's Underlying Index. Securities selected have aggregate investment characteristics (based on market capitalization and industry
weightings), fundamental characteristics (such as yield, credit rating, maturity and duration) and liquidity measures similar to those of the Underlying Index. A fund that uses representative sampling generally does not hold all of the securities
that are in its underlying index.
The Fund generally
invests at least 80% of its assets in the securities of the Underlying Index. However, the Fund may at times invest up to 20% of its assets in certain futures, options and swap contracts, cash and cash equivalents, including money market funds
advised by BFA or its affiliates, as well as in securities not included in the Underlying Index, but which BFA believes will help the Fund track the Underlying Index.
Bonds. The Fund invests
a substantial portion of its assets in U.S. dollar-denominated bonds. A bond is an interest-bearing security issued by a U.S. or non-U.S. company, or U.S. or non-U.S. governmental unit. The issuer of a bond has a contractual obligation to pay
interest at a stated rate on specific dates and to repay principal (the bond’s face value) periodically or on a specified maturity date. Bonds generally are used by corporations and governments to borrow money from investors.
An issuer may have the right to redeem or “call” a
bond before maturity, in which case a fund may have to reinvest the proceeds at lower market rates. Similarly, a fund may have to reinvest interest income or payments received when bonds mature, sometimes at lower market rates. Most bonds bear
interest income at a “coupon” rate that is fixed for the life of the bond. The value of a fixed-rate bond usually rises when market interest rates fall, and falls when market interest rates rise. Accordingly, a fixed-rate bond’s
yield (income as a percent of the bond’s current value) may differ from its coupon rate as its value rises or falls. When an investor purchases a fixed-rate bond at a price that is greater than its face value, the investor is purchasing the
bond at a premium. Conversely, when an investor purchases a fixed-rate bond at a price that is less than its face value, the investor is purchasing the bond at a discount. Fixed-rate bonds that are purchased at a discount pay less current income
than securities with comparable yields that are purchased at face value, with the result that prices for such fixed-rate securities can be more volatile than prices for such securities that are purchased at face value. Other types of bonds bear
interest at an interest rate that is adjusted periodically. Interest rates on “floating rate” or “variable rate” bonds may be higher or lower than current market rates for fixed-rate bonds of comparable quality with similar
final maturities.
Because of their adjustable interest rates, the value of “floating
rate” or “variable rate” bonds fluctuates much less in response to market interest rate movements than the value of fixed-rate bonds, but the value may decline if their interest rates do not rise as much, or as quickly, as interest
rates in general. The Fund may treat some of these bonds as having a shorter maturity for purposes of calculating the weighted average maturity of its investment portfolio. Generally, prices of higher quality issues tend to fluctuate less with
changes in market interest rates than prices of lower quality issues and prices of longer maturity issues tend to fluctuate more than prices of shorter maturity issues. Bonds may be senior or subordinated obligations. Senior obligations generally
have the first claim on a corporation’s earnings and assets and, in the event of liquidation, are paid before subordinated obligations. Bonds may be unsecured (backed only by the issuer’s general creditworthiness) or secured (backed by
specified collateral).
Borrowing. The Fund may borrow as a temporary measure for extraordinary or emergency purposes, including to meet redemptions or to facilitate the settlement of securities or other transactions.
The purchase of securities while borrowings are outstanding
will have the effect of leveraging the Fund. Such leveraging increases the Fund’s exposure to capital risk, and borrowed funds are subject to interest costs that will reduce net income. The use of leverage by a Fund creates an opportunity for
greater total return, but, at the same time, creates special risks. For example, leveraging may exaggerate changes in the net asset value of Fund shares and in the yield on the Fund’s portfolio. Although the principal of such borrowings will
be fixed, the Fund’s assets may change in value during the time the borrowings are outstanding. Borrowings will create interest expenses for the Fund that can exceed the income from the assets purchased with the borrowings. To the extent the
income or capital appreciation derived from securities purchased with borrowed funds exceeds the interest the Fund will have to pay on the borrowings, the Fund’s return will be greater than if leverage had not been used. Conversely, if the
income or capital appreciation from the securities purchased with such borrowed funds is not sufficient to cover the cost of borrowing, the return to the Fund will be less than if leverage had not been used and, therefore, the amount available for
distribution to shareholders as dividends will be reduced. In the latter case, BFA in its best judgment nevertheless may determine to maintain the Fund’s leveraged position if it expects that the benefits to the Fund’s shareholders of
maintaining the leveraged position will outweigh the current reduced return.
Certain types of borrowings by the Fund may result in the Fund
being subject to covenants in credit agreements relating to asset coverage, portfolio composition requirements and other matters. It is not anticipated that observance of such covenants would impede BFA from managing a Fund’s portfolio in
accordance with the Fund’s investment objectives and policies. However, a breach of any such covenants not cured within the specified cure period may result in acceleration of outstanding indebtedness and require the Fund to dispose of
portfolio investments at a time when it may be disadvantageous to do so.
Brady Bonds. The Fund
may invest in Brady bonds. Brady bonds are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings. Brady bonds have
been issued since 1989. In light of the history of defaults of countries issuing Brady bonds on their commercial bank loans, investments in Brady bonds may be viewed as speculative and subject to the same risks as emerging market securities. Brady
bonds may be fully or partially collateralized or uncollateralized, are issued in various currencies (but primarily the U.S. dollar) and are actively traded in over-the-counter (“OTC”) secondary markets. Incomplete collateralization of
interest or principal payment obligations results in increased credit risk. U.S. dollar-denominated collateralized Brady bonds, which may be either fixed-rate or floating-rate bonds, are generally collateralized by U.S. Treasury
securities.
Corporate Bonds. The Fund will invest in investment grade and high yield corporate bonds. High yield corporate bonds may be deemed speculative and more volatile than higher rated securities of similar maturity. The investment
return of corporate bonds reflects interest earned on the security and changes in the market value of the security. The market value of a corporate bond may be affected by changes in the market rate of interest, the credit rating of the corporation,
the corporation’s performance and perceptions of the corporation in the market place. There is a risk that the issuers of the securities may not be able to meet their obligations on interest or principal payments at the time called for by an
instrument.
Diversification Status. The Fund is classified as “non-diversified.” A non-diversified fund is a fund that is not limited by the 1940 Act with regard to the percentage of its assets that may be invested in the
securities of a single issuer. The securities of a particular issuer (or securities of issuers in particular industries) may dominate the underlying index of such a fund and, consequently, the fund’s investment portfolio. This may adversely
affect the fund’s performance or subject the fund’s shares to greater price volatility than that experienced by more diversified investment companies.
The Fund intends to maintain the required level of
diversification and otherwise conduct its operations so as to qualify as a regulated investment company (“RIC”) for purposes of the U.S. Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and to relieve
the Fund of any liability for U.S. federal income tax to the extent that its earnings are distributed to shareholders, provided that the Fund satisfies a minimum distribution requirement. Compliance with the diversification requirements of the
Internal Revenue Code may limit the investment flexibility of the Fund and may make it less likely that the Fund will meet its investment objective.
Futures and
Options. Futures contracts and options may be used by the Fund to simulate investment in its Underlying Index, to facilitate trading or to reduce transaction costs. The Fund may enter into futures contracts
and options that are traded on a U.S. or non-U.S. exchange. The Fund will not use futures or options for speculative purposes.
Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific instrument or index at a specified future time and at a specified price. The Fund may enter into futures contracts to purchase securities indexes when BFA anticipates purchasing the
underlying securities and believes prices will rise before the purchase will be made. To the extent required by law, liquid assets committed to futures contracts will be maintained.
A call option gives a holder the right to purchase a specific
security at a specified price (“exercise price”) within a specified period of time. A put option gives a holder the right to sell a specific security at a specified exercise price within a specified period of time. The initial purchaser
of a call option pays the “writer” a premium, which is paid at the time of purchase and is retained by the writer whether or not such option is exercised. The Fund may purchase put options to hedge its portfolio against the risk of a
decline in the market value of securities held and may purchase call options to hedge against an increase in the price of securities it is committed to purchase. The Fund may write put and call options along with a long position in options to
increase its ability to hedge against a change in the market value of the securities it holds or is committed to purchase. Investments in futures contracts and other investments that contain leverage may require the Fund to maintain liquid assets.
Generally, the Fund maintains an amount of liquid assets equal to its obligations relative to the position involved, adjusted daily on a marked-to-market basis. With respect to futures contracts that are contractually required to
“cash-settle,” the Fund maintains liquid assets in an amount at least equal to the Fund’s daily marked-to-market obligation (i.e., the Fund’s daily net liability, if any), rather than
the contracts’ notional value (i.e., the value of the underlying asset). By maintaining assets equal to its net obligation under cash-settled futures contracts, the Fund may employ leverage to a greater
extent than if the Fund set aside assets equal to the futures contracts’ full notional value. The Fund bases its asset maintenance policies on methods permitted by the staff of the SEC and may modify these policies in the future to comply with
any changes in the guidance articulated from time to time by the SEC or its staff.
High Yield Securities.
The Fund may invest in high yield debt securities, sometimes referred to as “junk bonds.” High yield securities are debt securities rated below investment grade. Investments in high yield
securities generally provide greater potential income and increased opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility and credit risk. These high yield
securities are regarded as predominantly speculative with respect to the issuer’s continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers of debt securities that are high yield may be more
complex than for issuers of higher quality debt securities. In addition, high yield securities are often issued by smaller, less creditworthy issuers or by highly leveraged (indebted) firms, which are generally less able than more financially stable
firms to make scheduled payments of interest and principal. The risks posed by securities issued under such circumstances are substantial.
Investing in high yield debt securities involves risks that are
greater than the risks of investing in higher quality debt securities. These risks include: (i) changes in credit status, including weaker overall credit conditions of issuers and risks of default; (ii) industry, market and economic risk; and (iii)
greater price variability and credit risks of certain high yield securities such as zero coupon and payment-in-kind securities. While these risks provide the opportunity for maximizing return over time, they may result in greater volatility of the
value of the Fund than a fund that invests in higher-rated securities.
Furthermore, the value of high yield securities may be more
susceptible to real or perceived adverse economic, company or industry conditions than is the case for higher quality securities. The market values of certain of these lower-rated and unrated debt securities tend to reflect individual corporate
developments to a greater extent than do higher-rated securities which react primarily to fluctuations in the general level of interest rates, and tend to be more sensitive to economic conditions than are higher-rated securities. Adverse market,
credit or economic conditions could make it difficult at certain times to sell certain high yield securities held by the Fund.
The secondary market on which high yield securities are traded,
if any, may be less liquid than the market for higher grade securities. Less liquidity in the secondary trading market could adversely affect the price at which the Fund could sell a high yield security, and could adversely affect the daily net
asset value per share of the Fund. When secondary markets for high yield securities are less liquid than the market for higher grade securities, it may be more difficult to value the securities because there is less reliable, objective data
available.
The use of credit ratings as a principal
method of selecting high yield securities can involve certain risks. For example, credit ratings evaluate the safety of principal and interest payments, not the market value risk of high yield securities. Also, credit rating agencies may fail to
change credit ratings in a timely fashion to reflect events since the security was last rated.
Illiquid Securities. The
Fund may invest up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment). Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments
that lack readily available markets as determined in accordance with SEC staff guidance.
Lending Portfolio
Securities. The Fund may lend portfolio securities to certain creditworthy borrowers, including borrowers affiliated with BFA. The borrowers provide collateral that is maintained in an amount at least equal to
the current market value of the securities loaned. No securities loan shall be made on behalf of the Fund if, as a result, the aggregate value of all securities loans of the Fund exceeds one-third of the value of the Fund's total assets (including
the value of the collateral received). The Fund may terminate a loan at any time and obtain the return of the securities loaned. The Fund receives the value of any interest or cash or non-cash distributions paid on the loaned
securities.
With respect to loans that are
collateralized by cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. The Fund is compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the
borrower. In the case of collateral other than cash, the Fund is compensated by a fee paid by the borrower equal to a percentage of the market value of the loaned securities. Any cash collateral may be reinvested in certain short-term instruments
either directly on behalf of the lending Fund or through one or more joint accounts or money market funds, including those affiliated with BFA; such reinvestments are subject to investment risk. BFA may receive compensation for managing the
reinvestment of the cash collateral.
Securities lending
involves exposure to certain risks, including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process), “gap” risk (i.e., the risk of a mismatch between the return on cash collateral reinvestments and the fees the Fund has agreed to pay a borrower), and credit, legal, counterparty and market risk. If a securities lending
counterparty were to default, the Fund would be subject to the risk of a possible delay in receiving collateral or in recovering the loaned securities, or to a possible loss of rights in the collateral. In the event a borrower does not return the
Fund’s securities as agreed, the Fund may experience losses if the proceeds received from liquidating the collateral do not at least equal the value of the loaned security at the time the collateral is liquidated, plus the transaction costs
incurred in purchasing replacement securities. This event could trigger adverse tax consequences for the Fund. The Fund could lose money if its short-term investment of the collateral declines in value over the period of the loan. Substitute
payments for dividends received by the Fund for securities loaned out by the Fund will not be considered qualified dividend income. The Fund may take the tax effects of this difference into account in its securities lending program.
The Fund pays a portion of the interest or fees earned from
securities lending to a borrower as described above and to a securities lending agent who administers the lending program in accordance with guidelines approved by the Company’s Board of Directors (the “Board” or the
“Directors”). To the extent that the Fund engages in securities lending, BlackRock Institutional Trust Company, N.A. (“BTC”) acts as securities lending agent for the Fund, subject to the overall supervision of BFA. BTC
receives a portion of the revenues generated by securities lending activities as compensation for its services.
Non-U.S. Securities. The
Fund invests in certain obligations or securities of non-U.S. issuers. An issuer of a security may be deemed to be located in a particular country if (i) the principal trading market for the security is in such country, (ii) the issuer is organized
under the laws of such country, (iii) the issuer derives at least 50% of its revenues or profits from such country or has at least 50% of its assets situated in such country or, (iv) the issuer is the particular country.
Options on Futures Contracts.
The Fund may invest in options on futures contracts. An option on a futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the premium
paid, to assume a position in the underlying futures contract at a specified exercise price at any time prior to the expiration date of
the option. Upon exercise of an option, the delivery of the futures position
by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account that represents the amount by which the market price of the futures contract exceeds (in the
case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. The potential for loss related to the purchase of an option on a futures contract is limited to the premium paid for the option plus
transaction costs. Because the value of the option is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option changes daily and that
change would be reflected in the NAV of the Fund. The potential for loss related to writing call options is unlimited. The potential for loss related to writing put options is limited to the agreed upon price per share, also known as the
“strike price,” less the premium received from writing the put.
The Fund may purchase and write put and call options on futures
contracts that are traded on an exchange as a hedge against changes in value of its portfolio securities, or in anticipation of the purchase of securities, and may enter into closing transactions with respect to such options to terminate existing
positions. There is no guarantee that such closing transactions can be effected.
Upon entering into a futures contract, the Fund will be
required to deposit with the broker an amount of cash or cash equivalents known as “initial margin,” which is in the nature of a performance bond or good faith deposit on the contract and is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied. Subsequent payments, known as “variation margin,” to and from the broker will be made daily as the price of the index underlying the futures contract fluctuates,
making the long and short positions in the futures contract more or less valuable, a process known as “marking-to-market.” At any time prior to the expiration of a futures contract, the Fund may elect to close the position by taking an
opposite position, which will operate to terminate the Fund's existing position in the contract.
Privately-Issued
Securities. The Fund may invest in privately-issued securities, including those that may be resold only in accordance with Rule 144A or Regulation S under the 1933 Act (“Restricted Securities”).
Restricted Securities are not publicly-traded and are subject to a variety of restrictions, which limit a purchaser's ability to acquire or resell such securities. Accordingly, the liquidity of the market for specific Restricted Securities may vary.
Delay or difficulty in selling such securities may result in a loss to the Fund.
Ratings. An
investment-grade rating means the security or issuer is rated investment-grade by Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor's Ratings Services, Fitch, Inc. (“Fitch”), or another credit
rating agency designated as a nationally recognized statistical rating organization (“NRSRO”) by the SEC, or is unrated but considered to be of equivalent quality by BFA. Bonds rated Baa3 or above by Moody’s or BBB- or above by
Standard & Poor's Ratings Services and Fitch are considered “investment-grade” securities, bonds rated Baa are considered medium grade obligations subject to moderate credit risk and may possess certain speculative characteristics,
while bonds rated BBB are regarded as having adequate capacity to meet financial commitments.
Subsequent to purchase by the Fund, a rated security may cease
to be rated or its rating may be reduced below an investment-grade rating. Bonds rated lower than Baa3 by Moody’s or BBB- by Standard & Poor's Ratings Services or Fitch are considered below investment-grade quality and are obligations of
issuers that are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the possibility
of issuer default and bankruptcy and increased market price volatility. Such securities (“lower-rated securities”) are commonly referred to as “junk bonds” and are subject to a substantial degree of credit risk. Lower-rated
securities are often issued by smaller, less creditworthy companies or by highly leveraged (indebted) firms, which are generally less able than more financially stable firms to make scheduled payments of interest and principal. The risks posed by
securities issued under such circumstances are substantial. Bonds rated below investment-grade tend to be less marketable than higher-quality bonds because the market for them is less broad. The market for unrated bonds is even narrower. Please see
Appendix A of this SAI for a description of each rating category of Moody's, Standard & Poor's Ratings Services and Fitch.
Regulation Regarding Derivatives. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to registered investment
companies to regulation by the CFTC if a fund invests more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps (“CFTC Derivatives”), or if the fund markets itself as providing investment exposure
to such instruments. To the extent the Fund uses CFTC-regulated futures, options and swaps, it intends to do so below such
prescribed levels and will not market itself as a “commodity pool”
or a vehicle for trading such instruments. Accordingly, BFA has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act (“CEA”) pursuant to Rule 4.5 under the CEA. BFA
is not, therefore, subject to registration or regulation as a “commodity pool operator” under the CEA in respect of the Fund.
Repurchase Agreements. A
repurchase agreement is an instrument under which the purchaser (i.e., the Fund) acquires the security and the seller agrees, at the time of the
sale, to repurchase the security at a mutually agreed upon time and price, thereby determining the yield during the purchaser’s holding period. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller
secured by the securities transferred to the purchaser. If a repurchase agreement is construed to be a collateralized loan, the underlying securities will not be considered to be owned by the Fund but only to constitute collateral for the
seller’s obligation to pay the repurchase price, and, in the event of a default by the seller, the Fund may suffer time delays and incur costs or losses in connection with the disposition of the collateral.
In any repurchase transaction, the collateral for a repurchase
agreement may include: (i) cash items; (ii) obligations issued by the U.S. government or its agencies or instrumentalities; or (iii) obligations that, at the time the repurchase agreement is entered into, are rated in the highest rating category
generally by at least two NRSROs, or, if unrated, determined to be of comparable quality by BFA. Collateral, however, is not limited to the foregoing and may include, for example, obligations rated below the highest category by NRSROs. Collateral
for a repurchase agreement may also include securities that the Fund could not hold directly without the repurchase obligation. Irrespective of the type of collateral underlying the repurchase agreement, in the case of a repurchase agreement entered
into by a non-money market fund, the repurchase obligation of a seller must be of comparable credit quality to securities that are rated in the highest two short-term rating categories by at least one NRSRO or, if unrated, deemed by BFA to be of
equivalent quality.
Repurchase agreements pose certain
risks for the Fund, should it decide to utilize them. Such risks are not unique to the Fund, but are inherent in repurchase agreements. The Fund seeks to minimize such risks, but because of the inherent legal uncertainties involved in repurchase
agreements, such risks cannot be eliminated. Lower quality collateral and collateral with longer maturities may be subject to greater price fluctuations than higher quality collateral and collateral with shorter maturities. If the repurchase
agreement counterparty were to default, lower quality collateral may be more difficult to liquidate than higher quality collateral. Should the counterparty default and the amount of collateral not be sufficient to cover the counterparty’s
repurchase obligation, the Fund would retain the status of an unsecured creditor of the counterparty (i.e., the position the Fund would normally be in if it were to hold, pursuant to its investment policies,
other unsecured debt securities of the defaulting counterparty) with respect to the amount of the shortfall. As an unsecured creditor, the Fund would be at risk of losing some or all of the principal and income involved in the transaction.
Reverse Repurchase
Agreements. Reverse repurchase agreements involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of
borrowing. Generally, the effect of such transactions is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases the Fund is able to
keep some of the interest income associated with those securities. Such transactions are advantageous only if the Fund has an opportunity to earn a rate of interest on the cash derived from these transactions that is greater than the interest cost
of obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and the Fund intends to use the reverse repurchase technique
only when BFA believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any increase or decrease in the value of the Fund’s assets. The Fund’s exposure to reverse repurchase agreements will be
covered by liquid assets having a value equal to or greater than such commitments. The use of reverse repurchase agreements is a form of leverage because the proceeds derived from reverse repurchase agreements may be invested in additional
securities.
Securities of Investment Companies. The Fund may invest in the securities of other investment companies (including money market funds) to the extent allowed by law, regulation, exemptive order or SEC staff guidance. Under the 1940 Act, the
Fund’s investment in investment companies is limited to, subject to certain exceptions, (i) 3% of the total outstanding voting stock of any one investment company, (ii) 5% of the Fund’s total assets with respect to any one investment
company, and (iii) 10% of the Fund’s total assets with respect to investment companies in the aggregate. To the extent allowed by law or regulation, the Fund may invest its assets in securities of investment companies that are money market
funds, including those advised by BFA or otherwise affiliated with BFA, in excess of the limits discussed above. Other investment companies in which the Fund invests can be expected to incur fees and expenses for operations, such as investment
advisory and administration fees, that would be in addition to those incurred by the Fund.
Short-Term Instruments and Temporary Investments. The Fund may invest in short-term instruments, including variable
rate demand notes, short-term municipal securities, short-term municipal money market funds and money market instruments, on an ongoing basis
to provide liquidity or for other reasons. Money market instruments are generally short-term investments that may include but are not limited to: (i) shares of money market funds (including those advised by BFA or otherwise affiliated with BFA);
(ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (“CDs”), bankers’ acceptances, fixed-time
deposits and other obligations of U.S. and non-U.S. banks (including non-U.S. branches) and similar institutions; (iv) commercial paper rated, at the date of purchase, “Prime-1” by Moody's, “F-1” by Fitch or “A-1”
by Standard & Poor's Ratings Services, or if unrated, of comparable quality as determined by BFA; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a-7 under the 1940 Act; (vi) repurchase agreements; and
(vii) short-term U.S. dollar-denominated obligations of non-U.S. banks (including U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by the Fund. Any of these instruments may be
purchased on a current or forward-settled basis. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers’ acceptances are time drafts drawn on commercial
banks by borrowers, usually in connection with international transactions.
Sovereign and Quasi-Sovereign Obligations. The Fund may invest in sovereign and quasi-sovereign obligations. An investment in sovereign debt obligations involves special risks not present in corporate debt obligations. Sovereign debt includes securities
issued or guaranteed by a foreign sovereign government. Quasi-sovereign debt includes securities issued or guaranteed by an entity affiliated with or backed by a sovereign government. Quasi-sovereign debt obligations are typically less liquid and
less standardized than sovereign debt obligations. The issuer of the sovereign debt that controls the repayment of the debt may be unable or unwilling to repay principal or interest when due, and the Fund may have limited recourse in the event of a
default. Similar to other issuers, changes to financial condition or credit rating of a non-U.S. government may cause the value of a sovereign debt to decline. During periods of economic uncertainty, the market prices of sovereign debt obligations
may be more volatile than prices of U.S. debt obligations, which may affect the Fund's NAV. In the past, certain emerging market countries have encountered difficulties in servicing their debt obligations, withheld payments of principal and interest
and declared moratoria on the payment of principal and interest on their sovereign debts. Several sovereign issuers have experienced volatility and adverse trends due to concerns about rising government debt levels, including Greece, Ireland, Italy,
Portugal and Spain.
A sovereign debtor's
willingness or ability to repay principal and pay interest in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its non-U.S. currency reserves, the availability of sufficient foreign exchange, the
relative size of the debt service burden, the sovereign debtor's policy toward principal international lenders and local political constraints. The failure of a sovereign debtor to implement economic reforms, achieve specified levels of economic
performance or repay principal or interest when due may result in the cancellation of third-party commitments to lend funds to the sovereign debtor, which may further impair such debtor's ability or willingness to service its debts. Quasi-sovereign
debt obligations are typically less liquid and less standardized than government debt.
Swap Agreements. Swap
agreements are contracts between parties in which one party agrees to make periodic payments to the other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make periodic
payments to the first party based on the return of a different specified rate, index or asset. Swap agreements will usually be performed on a net basis, with the Fund receiving or paying only the net amount of the two payments. The net amount of the
excess, if any, of the Fund’s obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of liquid assets having an aggregate value at least equal to the accrued excess will be maintained by the
Fund.
The use of interest rate and index swaps is
a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. These transactions generally do not involve the delivery of securities or other underlying
assets or principal.
U.S.-Registered Securities of Non-U.S.
Issuers. The Fund may invest in U.S.-registered, U.S. dollar-denominated bonds of non-U.S. governments, agencies, supranational entities and corporate issuers. The Fund may invest in Restricted Securities
issued by non-U.S. issuers. Investing in U.S.-registered, U.S. dollar-denominated bonds or Restricted Securities issued by non-U.S. issuers involves some risks and considerations not typically associated with investing in U.S. issuers. These include
differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation,
adverse changes in investment or exchange control regulations, political
instability which could affect U.S. investments in foreign countries, and potential restrictions of the flow of international capital. Non-U.S. issuers may be subject to less governmental regulation than U.S. issuers. In addition, the risk that the
issuer may fail to meet its obligations on these securities may be affected by fluctuations in non-U.S. currency exchange rates between the issuer's local currency and the U.S. dollar. Moreover, individual non-U.S. economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic product (“GDP”), rate of inflation, capital reinvestment, resource self-sufficiency and balance of payment positions.
Future Developments. The
Board may, in the future, authorize the Fund to invest in securities contracts and investments other than those listed in this SAI and in the Prospectus, provided they are consistent with the Fund's investment objective and do not violate any
investment restrictions or policies.
General
Considerations and Risks
A discussion of some of the
principal risks associated with an investment in the Fund is contained in the Fund's Prospectus. An investment in the Fund should be made with an understanding that the value of the Fund’s portfolio securities may fluctuate in accordance with
changes in the financial condition of the issuers of the portfolio securities, the value of bonds in general, and other factors that affect the market.
Borrowing
Risk. Borrowing may exaggerate changes in the net asset value of Fund shares and in the return on the Fund’s portfolio. Borrowing will cost the Fund interest expense and other fees. The costs of
borrowing may reduce the Fund’s return. Borrowing may cause the Fund to liquidate positions when it may not be advantageous to do so to satisfy its obligations.
Call Risk. During
periods of falling interest rates, an issuer of a callable bond held by the Fund may “call” or repay the security before its stated maturity, which may result in the Fund having to reinvest the proceeds at lower interest rates, resulting
in a decline in the Fund's income.
Custody Risk. Custody risk refers to the risks inherent in the process of clearing and settling trades and to the holding of securities by local banks, agents and depositories. Low trading volumes and volatile prices in less
developed markets make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that may not be subject to independent evaluation. Local agents are held only to the
standards of care of their local markets. The less developed a country’s securities market is, the greater the likelihood of custody problems.
Cyber Security Issues.
With the increased use of technologies such as the Internet to conduct business, the Fund is susceptible to operational and information security risks. In general, cyber incidents can result from deliberate
attacks or unintentional events. Cyber attacks include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption.
Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches by the Fund’s third party service providers
(including, but not limited to index providers, fund accountants and transfer agents) and the issuers of securities in which the Fund invests, have the ability to cause disruptions and impact business operations potentially resulting in financial
losses, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In
addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The Fund and its shareholders could be negatively impacted as a result. While the Fund has established business continuity plans and risk management
systems to prevent such cyber-attacks, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, the Fund cannot control the cyber security plans and systems put in
place by issuers in which the Fund invests.
Extension Risk. During
periods of rising interest rates, certain obligations will be paid off substantially more slowly than originally anticipated and the value of those securities may fall sharply, resulting in a decline to the Fund’s income and potentially in the
value of the Fund’s investments.
Risk of
Derivatives. A derivative is a financial contract, the value of which depends on, or is derived from, the value of an underlying asset such as a security or an index. The Fund may invest in variable rate
demand notes and obligations, and tender option bonds, which may be considered derivatives. Compared to conventional securities, derivatives can be more
sensitive to changes in interest rates or to sudden fluctuations in market
prices and thus the Fund's losses may be greater if it invests in derivatives than if it invests only in conventional securities. Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not
fulfill its contractual obligations.
Risk of Futures and
Options Transactions. There are several risks accompanying the utilization of futures contracts and options on futures contracts. A position in futures contracts and options on futures contracts may be closed
only on the exchange on which the contract was made (or a linked exchange). While the Fund plans to utilize futures contracts only if an active market exists for such contracts, there is no guarantee that a liquid market will exist for the contract
at a specified time. Furthermore, because, by definition, futures contracts project price levels in the future and not current levels of valuation, market circumstances may result in a discrepancy between the price of the bond index future and the
movement in the Underlying Index. In the event of adverse price movements, the Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if the Fund has insufficient cash, it may have to sell
portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, the Fund may be required to deliver the instruments underlying the future contracts it has sold.
The risk of loss in trading futures contracts or uncovered call
options in some strategies (e.g., selling uncovered bond index futures contracts) is potentially unlimited. The Fund does not plan to use futures and options contracts in this way. The risk of a futures
position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to
the size of a required margin deposit. The Fund, however, intends to utilize futures and options contracts in a manner designed to limit its risk exposure to levels comparable to a direct investment in the types of bonds in which it invests.
Utilization of futures and options on futures by the Fund
involves the risk of imperfect or even negative correlation to its Underlying Index if the index underlying the futures contract differs from the Underlying Index. There is also the risk of loss by the Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in the futures contract or option. The purchase of put or call options will be based upon predictions by BFA as to anticipated trends, which predictions could prove to be
incorrect.
Because the futures market generally imposes
less burdensome margin requirements than the securities market, an increased amount of participation by speculators in the futures market could result in price fluctuations. Certain financial futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount by which the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. It is possible that futures contract prices could move to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting the Fund to substantial losses. In the event of adverse price movements, the Fund would be required to make daily cash payments of
variation margin.
Risk of Investing in Brazil. Investment in securities of companies domiciled in Brazil involves a high degree of risk and special considerations not typically associated with investing in the U.S. securities markets. Such heightened risks
include, among others, a high level of price volatility in the Brazilian equity and currency markets, chronic structural public sector deficits and disparities of wealth.
Brazil has historically experienced high rates of inflation and
may continue to do so in the future. An increase in prices for commodities, the depreciation of the Brazilian currency (the real) and potential future governmental measures seeking to maintain the value of the real in relation to the U.S. dollar,
may trigger increases in inflation in Brazil and may slow the rate of growth of the Brazilian economy. Inflationary pressures also may limit the ability of certain Brazilian issuers to access foreign financial markets and may lead to further
government intervention in the economy, including the introduction of government policies that may adversely affect the overall performance of the Brazilian economy, which in turn could adversely affect the Fund's investments.
The Brazilian government has exercised, and continues to
exercise, significant influence over the Brazilian economy, which may have significant effects on Brazilian companies and on market conditions and prices of Brazilian securities. The Brazilian economy has been characterized by frequent, and
occasionally drastic, intervention by the Brazilian government. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the core of Brazil’s economy. The Brazilian government’s
actions to control inflation and affect other economic policies have involved, among others, the
setting of wage and price controls, blocking access to bank accounts,
fluctuation of the base interest rates, imposing exchange controls and limiting imports into Brazil. In the past, the Brazilian government has maintained domestic price controls, and no assurances can be given that price controls will not be
re-imposed in the future.
Investments in Brazilian
securities may be subject to certain restrictions on foreign investment. Brazilian law provides that whenever a serious imbalance in Brazil’s balance of payments exists or is anticipated, the Brazilian government may impose temporary
restrictions on the remittance to foreign investors of the proceeds of their investment in Brazil and on the conversion of Brazilian currency into foreign currency. The likelihood of such restrictions may be affected by the extent of Brazil’s
foreign currency reserves, the size of Brazil’s debt service burden relative to the economy as a whole, and political constraints to which Brazil may be subject. There can be no assurance that the Brazilian government will not impose
restrictions or restrictive exchange control policies in the future, which could have the effect of preventing or restricting access to foreign currency.
The market for Brazilian securities is directly influenced by
the flow of international capital, and economic and market conditions of certain countries, especially other emerging market countries in Central and South America. Adverse economic conditions or developments in other emerging market countries have
at times significantly affected the availability of credit in the Brazilian economy and resulted in considerable outflows of funds and declines in the amount of foreign currency invested in Brazil. Crisis in neighboring emerging market countries
also may increase investors’ risk aversion, which may adversely impact the market value of the securities issued by Brazilian companies, including securities in which the Fund may invest.
Risk of Investing in Emerging Markets. Investments in emerging market countries may be subject to greater risks than investments in developed countries. These risks include: (i) less social, political, and economic stability; (ii) greater illiquidity
and price volatility due to smaller or limited local capital markets for such securities, or low or non-existent trading volumes; (iii) foreign exchanges and broker-dealers may be subject to less scrutiny and regulation by local authorities; (iv)
local governments may decide to seize or confiscate securities held by foreign investors and/or local governments may decide to suspend or limit an issuer's ability to make dividend or interest payments; (v) local governments may limit or entirely
restrict repatriation of invested capital, profits, and dividends; (vi) capital gains may be subject to local taxation, including on a retroactive basis; (vii) issuers facing restrictions on dollar or euro payments imposed by local governments may
attempt to make dividend or interest payments to foreign investors in the local currency; (viii) investors may experience difficulty in enforcing legal claims related to the securities and/or local judges may favor the interests of the issuer over
those of foreign investors; (ix) bankruptcy judgments may only be permitted to be paid in the local currency; (x) limited public information regarding the issuer may result in greater difficulty in determining market valuations of the securities,
and (xi) lax financial reporting on a regular basis, substandard disclosure and differences in accounting standards may make it difficult to ascertain the financial health of an issuer.
Emerging market securities markets are typically marked by a
high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of ownership of such securities by a limited number of investors. In addition,
brokerage and other costs associated with transactions in emerging markets securities markets can be higher, sometimes significantly, than similar costs incurred in securities markets in developed countries. Although some emerging markets have
become more established and tend to issue securities of higher credit quality, the markets for securities in other emerging countries are in the earliest stages of their development, and these countries issue securities across the credit spectrum.
Even the markets for relatively widely traded securities in emerging countries may not be able to absorb, without price disruptions, a significant increase in trading volume or trades of a size customarily undertaken by institutional investors in
the securities markets of developed countries. The limited size of many of these securities markets can cause prices to be erratic for reasons apart from factors that affect the soundness and competitiveness of the securities issuers. For example,
prices may be unduly influenced by traders who control large positions in these markets. Additionally, market making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and reduced
liquidity of such markets. The limited liquidity of emerging country securities may also affect the Fund's ability to accurately value its portfolio securities or to acquire or dispose of securities at the price and time it wishes to do so or in
order to meet redemption requests.
Many emerging market
countries suffer from uncertainty and corruption in their legal frameworks. Legislation may be difficult to interpret and laws may be too new to provide any precedential value. Laws regarding foreign investment and private property may be weak or
non-existent. Sudden changes in governments may result in policies which are less favorable to investors such as policies designed to expropriate or nationalize “sovereign” assets. Certain emerging market
countries, including Argentina, in the past have expropriated large amounts of
private property, in many cases with little or no compensation, and there can be no assurance that such expropriation will not occur in the future.
Investment in the securities markets of certain emerging
countries is restricted or controlled to varying degrees. These restrictions may limit the Fund's investment in certain emerging countries and may increase the expenses of the Fund. Certain emerging countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuer's outstanding securities or a specific class of securities which may have less advantageous terms (including price) than securities of
the company available for purchase by nationals.
Many
emerging market countries lack the social, political, and economic stability characteristic of the United States. Political instability among emerging market countries can be common and may be caused by an uneven distribution of wealth, social
unrest, labor strikes, civil wars, and religious oppression. Economic instability in emerging market countries may take the form of: (i) high interest rates; (ii) high levels of inflation, including hyperinflation; (iii) high levels of unemployment
or underemployment; (iv) changes in government economic and tax policies, including confiscatory taxation; and (v) imposition of trade barriers.
The Fund's income and, in some cases, capital gains from
foreign securities will be subject to applicable taxation in certain of the emerging market countries in which it invests, and treaties between the United States and such countries may not be available in some cases to reduce the otherwise
applicable tax rates.
Emerging markets also have
different clearance and settlement procedures, and in certain of these emerging markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such
transactions.
In the past, certain governments in
emerging market countries have become overly reliant on the international capital markets and other forms of foreign credit to finance large public spending programs, which in the past have caused huge budget deficits. Often, interest payments have
become too overwhelming for a government to meet, representing a large percentage of total GDP. These foreign obligations have become the subject of political debate and served as fuel for political parties of the opposition, which pressure the
government not to make payments to foreign creditors, but instead to use these funds for, among other things, social programs. Either due to an inability to pay or submission to political pressure, foreign governments have been forced to seek a
restructuring of their loan and/or bond obligations, have declared a temporary suspension of interest payments or have defaulted. These events have adversely affected the values of securities issued by foreign governments and corporations domiciled
in those countries and have negatively affected not only their cost of borrowing, but their ability to borrow in the future as well.
Risk of Investing in Latin America. A number of Latin American countries are among the largest debtors of developing countries and have a long history of foreign debt and default. In 2001, Argentina defaulted on its debt and many investors suffered
significant losses.
The majority of the region's
economies have become highly dependent upon foreign credit and loans from external sources to fuel their state-sponsored economic plans. Historically, government profligacy and ill-conceived plans for modernization have exhausted these resources
with little benefit accruing to the economy. Most countries have been forced to restructure their loans or risk default on their debt obligations. In addition, interest on the debt is subject to market conditions and may reach levels that would
impair economic activity and create a difficult and costly environment for borrowers. Accordingly, these governments may be forced to reschedule or freeze their debt repayment, which could negatively affect local markets. Because of their dependence
on foreign credit and loans, a number of Latin American economies face significant economic difficulties and some economies fell into recession as the recent global economic crisis tightened international credit supplies. While the region has
recently shown signs of economic improvement, recovery from past economic downturns in Latin America has historically been slow, and any such recovery, if sustained, may be gradual.
Substantial limitations may exist in certain Latin American
countries with respect to the Fund’s ability to repatriate investment income, capital or the proceeds of sales of securities. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Fund of any restrictions on investments and difficulties in enforcing legal judgments in non-U.S. courts. Legal remedies available to investors in certain Latin American countries may be
less extensive than those available to investors in the United States or other countries. In addition, certain Latin American countries may have legal systems that may make it difficult for the Fund to vote proxies, exercise shareholder rights, and
pursue legal remedies with respect to its investments. In the past, many Latin
American countries have experienced substantial, and in some periods extremely
high, rates of inflation for many years. For companies that keep accounting records in the local currency, inflation accounting rules in some Latin American countries require, for both tax and accounting purposes, that certain assets and liabilities
be restated on the company’s balance sheet in order to express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits for certain Latin American companies.
Certain Latin American countries have entered into regional
trade agreements that are designed to, among other things, reduce barriers between countries, increase competition among companies and reduce government subsidies in certain industries. No assurance can be given that these changes will be successful
in the long term, or that these changes will result in the economic stability intended. There is a possibility that these trade arrangements will not be fully implemented, or will be partially or completely unwound. It is also possible that a
significant participant could choose to abandon a trade agreement, which could diminish its credibility and influence. Any of these occurrences could have adverse effects on the markets of both participating and non-participating countries,
including sharp appreciation or depreciation of participants’ national currencies and a significant increase in exchange rate volatility, a resurgence in economic protectionism, an undermining of confidence in the Latin American markets, an
undermining of Latin American economic stability, the collapse or slowdown of the drive towards Latin American economic unity, and/or reversion of the attempts to lower government debt and inflation rates that were introduced in anticipation of such
trade agreements. Such developments could have an adverse impact on the Fund’s investments in Latin America generally or in specific countries participating in such trade agreements.
Risk of Investing in Mexico.
Investment in Mexican issuers involves risks that are specific to Mexico, including regulatory, political, and economic risks. The Mexican economy, among other things, is dependent upon external trade with
other economies, specifically with the United States and certain Latin American countries. As a result, Mexico is dependent on, among other things, the U.S. economy and any change in the price or demand for Mexican exports may have an adverse impact
on the Mexican economy. Recently, Mexico has experienced an outbreak of violence related to drug trafficking. Incidents involving Mexico’s security may have an adverse effect on the Mexican economy and cause uncertainty in its financial
markets.
Risk of Investing in the Consumer
Discretionary Sector. Companies engaged in the design, production or distribution of products or services for the consumer discretionary sector (including, without limitation, television and radio
broadcasting, manufacturing, publishing, recording and musical instruments, motion pictures, photography, amusement and theme parks, gaming casinos, sporting goods and sports arenas, camping and recreational equipment, toys and games, apparel,
travel-related services, automobiles, hotels and motels, and fast food and other restaurants) are subject to the risk that their products or services may become obsolete quickly. The consumer discretionary sector can be significantly affected by
several factors, including, without limitation, the performance of domestic and international economies, exchange rates, changing consumer tastes and trends, marketing campaigns, cyclical revenue generation, consumer confidence, commodity price
volatility, labor relations, interest rates, import and export controls, intense competition, technological developments and government regulation.
Risk of Investing in the Consumer Staples Sector. Companies in the consumer staples sector may be adversely affected by changes in the global economy, consumer spending, competition, demographics and consumer preferences, and production spending. Companies in the
consumer staples sector are also affected by changes in government regulation, global economic, environmental and political events, economic conditions and the depletion of resources. In addition, companies in the consumer staples sector may be
subject to risks pertaining to the supply of, demand for and prices of raw materials. The prices of raw materials fluctuate in response to a number of factors, including, without limitation, changes in government agricultural support programs,
exchange rates, import and export controls, changes in international agricultural and trading policies, and seasonal and weather conditions.
Risk of Investing in the Energy Sector. Companies in the energy sector are strongly affected by the levels and volatility of global energy prices, energy supply and demand, government regulations and policies, energy production and conservation efforts,
and technological change. Prices and supplies of energy may fluctuate significantly over short and long periods of time due to national and international political changes, Organization of Petroleum Exporting Countries (“OPEC”) policies,
changes in relationships among OPEC members and between OPEC and oil-importing nations, the regulatory environment, taxation policies, and the economy of the key energy-consuming countries. In addition, companies in the energy sector are at risk of
civil liability from accidents resulting in injury, loss of life or property, pollution or other environmental damage claims and risk of loss from terrorism and natural disasters. Disruptions in the oil industry or shifts in fuel consumption
may
significantly impact companies in this sector. In addition, because a
significant portion of revenues of companies in this sector are derived from a relatively small number of customers that are largely composed of governmental entities and utilities, governmental budget constraints may have a significant impact on
the stock prices of companies in this industry.
Risk of
Investing in the Financial Sector. Companies in the financial sector include regional and money center banks, securities brokerage firms, asset management companies, savings banks and thrift institutions,
specialty finance companies (e.g., credit card, mortgage providers), insurance and insurance brokerage firms, financial conglomerates and foreign
banking and financial companies. The global financial markets have experienced very difficult conditions and volatility as well as significant adverse trends. The deteriorating conditions in these markets have resulted in a decrease in availability
of corporate credit, capital and liquidity and have led indirectly to the insolvency, closure or acquisition of a number of financial institutions. These conditions have also contributed to consolidation within the financial industry. In addition,
the global financial industry has been materially and adversely affected by a significant decline in the value of mortgage-backed and asset-backed securities, and by the sovereign debt crisis. The prospects of many financial companies are
questionable and continue to evolve as financial companies revise their outlooks and write down assets that they hold.
Most financial companies are subject to extensive governmental
regulation, which limits their activities and may affect their ability to earn a profit from a given line of business. Government regulation may change frequently and may have significant adverse consequences for companies in the financial sector,
including effects not intended by the regulation. Direct governmental intervention in the operations of financial companies and financial markets may materially and adversely affect the companies in which the Fund invests, including legislation in
many countries that may increase government regulation, repatriation and other intervention. The impact of governmental intervention and legislative changes on any individual financial company or on the financial sector as a whole cannot be
predicted. The valuation of financial companies has been and continues to be subject to unprecedented volatility and may be influenced by unpredictable factors, including interest rate risk and sovereign debt default. Certain financial businesses
are subject to intense competitive pressures, including market share and price competition. Financial companies in foreign countries are subject to market specific and general regulatory and interest rate concerns. In particular, government
regulation in certain foreign countries may include taxes and controls on interest rates, credit availability, minimum capital requirements, ban on short sales, prices and currency transfers.
The profitability of banks, savings and loan associations and
financial companies is largely dependent on the availability and cost of capital funds and can fluctuate significantly when interest rates change. In addition, general economic conditions are important to the operations of these concerns, with
exposure to credit losses resulting from financial difficulties of borrowers having an adverse effect on the profitability of financial companies. Financial companies can be highly dependent upon access to capital markets and any impediments to such
access, such as adverse overall economic conditions or a negative perception in the capital markets of a financial company’s financial condition or prospects, could adversely affect its business.
Risk of Investing in the Healthcare Sector. Companies in the healthcare sector are often issuers whose profitability may be affected by extensive government regulation, restrictions on government reimbursement for medical expenses, rising or falling costs
of medical products and services, pricing pressure, an increased emphasis on outpatient services, limited number of products, industry innovation, changes in technologies and other market developments. Many healthcare companies are heavily dependent
on patent protection and the actual or perceived safety and efficiency of their products. The expiration of patents may adversely affect the profitability of these companies. Many healthcare companies are subject to extensive litigation based on
product liability and similar claims. Healthcare companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the healthcare sector may be subject to
regulatory approvals. The process of obtaining such approvals may be long and costly, and may diminish the opportunity for a company to profit from a new product or to bring a new product to market. Many healthcare-related companies are relatively
small and unseasoned. Healthcare companies may also be strongly affected by scientific bio-technology or technological developments and their products may quickly become obsolete. Also, many healthcare companies offer products and services that are
subject to governmental regulation and may be adversely affected by changes in governmental policies or laws.
Risk of Investing in the Industrials Sector. The value of securities issued by companies in the industrials sector may be affected by supply and demand both for their specific product or service and for industrials sector products in general. The products of
manufacturing companies may face product obsolescence due to rapid technological developments and frequent new product introduction. Government regulations, world events and economic conditions affect the performance
of companies in the industrials sector. Companies in the industrials sector
may be adversely affected by liability for environmental damage, product liability claims and exchange rates. The industrials sector may also be adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable
factors.
Risk of Investing in the Materials Sector. Companies in the materials sector may be adversely affected by commodity price volatility, exchange rates, import controls, increased competition, depletion of resources, technical progress, labor relations and
government regulations, among other factors. Also, companies in the materials sector are at risk of liability for environmental damage and product liability claims. Production of materials may exceed demand as a result of market imbalances or
economic downturns, leading to poor investment returns.
Risk of Investing in the Real Estate Sector. Companies in the real estate sector include companies that invest in real estate, such as a real estate investment trust (“REIT”) or a real estate holding company (collectively, “Real Estate
Companies”). Investing in Real Estate Companies exposes investors to the risks of owning real estate directly, as well as to risks that relate specifically to the way in which Real Estate Companies are organized and operated. Real estate is
highly sensitive to general and local economic conditions and developments, and characterized by intense competition and periodic overbuilding. Investing in Real Estate Companies involves various risks. Some risks that are specific to Real Estate
Companies are discussed in greater detail below.
Interest Rate Risk. Rising
interest rates could result in higher costs of capital for Real Estate Companies, which could negatively impact a Real Estate Company’s ability to meet its payment obligations.
Leverage Risk. Real Estate
Companies may use leverage (and some may be highly leveraged), which increases investment risk and could adversely affect a Real Estate Company’s operations and market value in periods of rising interest rates as well as risks normally
associated with debt financing. Financial covenants related to a Real Estate Company’s leverage may affect the ability of the Real Estate Company to operate effectively. In addition, real property may be subject to the quality of credit
extended and defaults by borrowers and tenants. If the properties do not generate sufficient income to meet operating expenses, including, where applicable, debt service, ground lease payments, tenant improvements, third-party leasing commissions
and other capital expenditures, the income and ability of a Real Estate Company to make payments of any interest and principal on its debt securities will be adversely affected.
Property Risk. Real Estate
Companies may be subject to risks relating to functional obsolescence or reduced desirability of properties; extended vacancies due to economic conditions and tenant bankruptcies; catastrophic events such as earthquakes, hurricanes and terrorist
acts; and casualty or condemnation losses. Real estate income and values also may be greatly affected by demographic trends, such as population shifts or changing tastes and values, or increasing vacancies or declining rents resulting from legal,
cultural, technological, global or local economic developments.
Management Risk. Real Estate
Companies are dependent upon management skills and may have limited financial resources. Real Estate Companies are generally not diversified and may be subject to heavy cash flow dependency, default by borrowers and self-liquidation. In addition,
transactions between Real Estate Companies and their affiliates may be subject to conflicts of interest, which may adversely affect a Real Estate Company’s shareholders. A Real Estate Company may also have joint venture investments in certain
of its properties and, consequently, its ability to control decisions relating to such properties may be limited.
Liquidity Risk. Investing in
Real Estate Companies may involve risks similar to those associated with investing in small-capitalization companies. Real Estate Company securities, like the securities of other smaller companies, may be more volatile than, and perform differently
from, shares of large capitalization companies. There may be less trading in Real Estate Company shares, which means that buy and sell transactions in those shares could have a magnified impact on share price, resulting in abrupt or erratic price
fluctuations. In addition, real estate is relatively illiquid and, therefore, a Real Estate Company may have a limited ability to vary or liquidate properties in response to changes in economic or other conditions.
Concentration Risk. Real
Estate Companies may own a limited number of properties and concentrate their investments in a particular geographic region or property type.
U.S. Tax Risk. Certain U.S.
Real Estate Companies are subject to special U.S. federal tax requirements. A REIT that fails to comply with such tax requirements may be subject to U.S. federal income taxation, which may affect the value of the REIT and the characterization of the
REIT’s distributions. The U.S. federal tax requirement that a REIT distribute substantially all of its net income to its shareholders may result in a REIT having insufficient capital for future expenditures.
Regulatory Risk. Real estate
income and values may be adversely affected by such factors as applicable domestic and foreign laws (including tax laws). Government actions, such as tax increases, zoning law changes or environmental regulations, also may have a major impact on
real estate.
Risk of Investing in the Technology
Sector. Technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Technology companies may have limited product lines, markets,
financial resources or personnel. The products of technology companies may face product obsolescence due to rapid technological developments and frequent new product introduction, unpredictable changes in growth rates and competition for the
services of qualified personnel. Companies in the technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. The technology
sector may also be adversely affected by changes or trends in commodity prices, which may be influenced or characterized by unpredictable factors.
Risk of Investing in the Telecommunications Sector. The telecommunications sector of an economy is often subject to extensive government regulation. The costs of complying with governmental regulations, delays or failure to receive required regulatory approvals, or
the enactment of new adverse regulatory requirements may negatively affect the business of the telecommunications companies. Government actions around the world, specifically in the area of pre-marketing clearance of products and prices, can be
arbitrary and unpredictable. Companies in the telecommunications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new
technology. Technological innovations may make the products and services of telecommunications companies obsolete.
Risk of Investing in the Utilities Sector. Investments in utility companies involve special considerations, including the risk of changing commodity prices, government regulation stipulating rates charged by utilities, increased tariffs, changes in tax
laws, interest rate fluctuations and changes in the cost of providing specific utility services. The utilities industry is also subject to potential terrorist attacks, natural disasters and severe weather conditions, as well as regulatory and
operational burdens associated with the operation and maintenance of nuclear facilities. Government regulators monitor and control utility revenues and costs, and therefore may limit utility profits. In certain countries, regulatory authorities may
also restrict a company’s access to new markets, thereby diminishing the company’s long-term prospects. The deregulation of certain utility companies may eliminate restrictions on profits but may also subject these companies to greater
risks of loss.
Proxy Voting Policy
The Company has adopted, as its proxy voting policies for the
Fund, the proxy voting guidelines of BFA, the investment adviser to the Fund. The Company has delegated to BFA the responsibility for voting proxies on the portfolio securities held by the Fund. The remainder of this section discusses the
Fund’s proxy voting guidelines and BFA’s role in implementing such guidelines.
BFA votes (or refrains from voting) proxies for the Fund in a
manner that BFA, in the exercise of its independent business judgment, concludes is in the best economic interests of the Fund. In some cases, BFA may determine that it is in the best economic interests of the Fund to refrain from exercising the
Fund’s proxy voting rights (such as, for example, proxies on certain non-U.S. securities that might impose costly or time-consuming in-person voting requirements). With regard to the relationship between securities lending and proxy voting,
BFA’s approach is also driven by the Fund's economic interests. The evaluation of the economic desirability of recalling loans involves balancing the revenue-producing value of loans against the likely economic value of casting votes. Based on
our evaluation of this relationship, we believe that the likely economic value of casting a vote generally is less than the securities lending income, either because the votes will not have significant economic consequences or because the outcome of
the vote would not be affected by BFA recalling loaned securities in order to ensure they are voted. Periodically, BFA analyzes the process and benefits of voting proxies for securities on loan, and will consider whether any modification of its
proxy voting policies or procedures are necessary in light of any regulatory changes. BFA will normally vote on specific proxy issues in accordance with its proxy voting guidelines. BFA’s proxy voting guidelines provide detailed guidance as to
how to vote proxies on certain important or commonly raised issues. BFA may, in the exercise of its business judgment, conclude that the proxy voting guidelines do not cover the specific matter upon which a proxy vote is requested, or that an
exception to the proxy voting guidelines would be in the best economic interests of the Fund. BFA votes (or refrains from voting) proxies without regard to the relationship of the issuer of the proxy (or any shareholder of such issuer) to the Fund,
the Fund’s affiliates (if any), BFA or BFA’s affiliates, or the Distributor or the
Distributor’s affiliates. When voting proxies, BFA attempts to encourage
issuers to follow practices that enhance shareholder value and increase transparency and allow the market to place a proper value on their assets. With respect to certain specific issues:
• |
The Fund generally supports
the board’s nominees in the election of directors and generally supports proposals that strengthen the independence of boards of directors; |
• |
The Fund generally does not
support proposals on social issues that lack a demonstrable economic benefit to the issuer and the Fund investing in such issuer; and |
• |
The Fund generally votes
against anti-takeover proposals and proposals that would create additional barriers or costs to corporate transactions that are likely to deliver a premium to shareholders. |
BFA maintains institutional policies and procedures that are
designed to prevent any relationship between the issuer of the proxy (or any shareholder of the issuer) and the Fund, the Fund’s affiliates (if any), BFA or BFA’s affiliates (if any) or the Distributor or the Distributor’s
affiliates, from having undue influence on BFA’s proxy voting activity. In certain instances, BFA may determine to engage an independent fiduciary to vote proxies as a further safeguard against potential conflicts of interest or as otherwise
required by applicable law. The independent fiduciary may either vote such proxies or provide BFA with instructions as to how to vote such proxies. In the latter case, BFA votes the proxy in accordance with the independent fiduciary’s
determination.
Information with respect to how BFA voted
proxies relating to the Fund's portfolio securities during the 12-month period
ending June 30 will be available: (i) without charge, upon request, by calling 1-800-iShares (1-800-474-2737) or through the Fund's website at www.iShares.com; and
(ii) on the SEC’s website at www.sec.gov.
Portfolio Holdings Information
The Board has adopted a policy regarding the disclosure of the
Fund's portfolio holdings information that requires that such information be disclosed in a manner that: (i) is consistent with applicable legal requirements and in the best interests of the Fund’s shareholders; (ii) does not put the interests
of BFA, the Distributor or any affiliated person of BFA or the Distributor, above those of Fund shareholders; (iii) does not advantage any current or prospective Fund shareholders over any other current or prospective Fund shareholders, except to
the extent that certain Entities (as described below) may receive portfolio holdings information not available to other current or prospective Fund shareholders in connection with the dissemination of information necessary for transactions in
Creation Units, as discussed below; and (iv) does not provide selective access to portfolio holdings information except pursuant to the procedures outlined below and to the extent appropriate confidentiality arrangements limiting the use of such
information are in effect. The “Entities” referred to in sub-section (iii) above are generally limited to National Securities Clearing Corporation (“NSCC”) members, subscribers to various fee-based subscription services,
large institutional investors (known as “Authorized Participants”) that have been authorized by the Distributor to purchase and redeem large blocks of shares pursuant to legal requirements and other institutional market participants and
entities that provide information services.
Each
business day, the Fund's portfolio holdings information will be provided to the Distributor or other agent for dissemination through the facilities of the NSCC and/or other fee-based subscription services to NSCC members and/or subscribers to those
other fee-based subscription services, including Authorized Participants, and to entities that publish and/or analyze such information in connection with the process of purchasing or redeeming Creation Units or trading shares of the Fund in the
secondary market. This information typically reflects the Fund’s anticipated holdings on the following business day.
Daily access to information concerning the Fund's portfolio
holdings is permitted (i) to certain personnel of those service providers that are involved in portfolio management and providing administrative, operational, risk management, or other support to portfolio management, including affiliated
broker-dealers and Authorized Participants; and (ii) to other personnel of the Fund's investment adviser and the Distributor, administrator, custodian and fund accountant who deal directly with or assist in, functions related to investment
management, distribution, administration, custody and fund accounting, as may be necessary to conduct business in the ordinary course in a manner consistent with agreements with the Fund and the terms of the Fund's current registration statement. In
addition, the Fund discloses its portfolio holdings and the percentages they represent of the Fund's net assets at least monthly, and as often as each day the Fund is open for business, at www.iShares.com. More information about this disclosure is
available at www.iShares.com.
Portfolio holdings information made available in connection
with the creation /redemption process may be provided to other entities that provide services to the Fund in the ordinary course of business after it has been disseminated to the NSCC. From time to time, information concerning portfolio holdings
other than portfolio holdings information made available in connection with the creation/redemption process, as discussed above, may be provided to other entities that provide services to the Fund, including rating or ranking organizations, in the
ordinary course of business, no earlier than one business day following the date of the information.
The Fund will disclose its complete portfolio holdings schedule
in public filings with the SEC within 70 days after the end of each fiscal quarter and will provide that information to shareholders as required by federal securities laws and regulations thereunder. The Fund may, however, voluntarily disclose all
or part of its portfolio holdings other than in connection with the creation/redemption process, as discussed above, in advance of required filings with the SEC, provided that such information is made generally available to all shareholders and
other interested parties in a manner that is consistent with the above policy for disclosure of portfolio holdings information. Such information may be made available through a publicly-available website or other means that make the information
available to all likely interested parties contemporaneously.
The Company's Chief Compliance Officer may authorize disclosure
of portfolio holdings information pursuant to the above policy and procedures.
The Board reviews the policy and procedures for disclosure of
portfolio holdings information at least annually.
Construction and Maintenance of the Underlying Index
The Fund invests substantially all of its assets in securities
in the Underlying Index.
The Underlying Index is
maintained by Barclays Capital Inc. (“Barclays Capital”). Barclays Capital is not affiliated with the Company, BFA, State Street, the Distributor or any of their respective affiliates.
A description of the Fund's Underlying Index is provided
below.
Barclays Latin America Bond Index
Number of Components:
approximately 331
Index Description. The Barclays Latin America Bond Index is designed to measure the performance of U.S. dollar-denominated bond markets of corporate, sovereign and quasi-sovereign issuers domiciled in Latin America. Securities included in
the Underlying Index must be issued by entities domiciled in Latin America that satisfy certain eligibility requirements, and meet separate security-specific requirements. Each security issued by an eligible issuer included in the Underlying Index
must have a minimum maturity of one year and a minimum par amount outstanding, depending on the credit rating and country of domicile. A security is considered investment grade if it is rated Baa3 or higher by Moody’s or BBB- or higher by
Standard & Poor’s Ratings Services and Fitch, using the middle rating of Moody’s, Standard & Poor's Ratings Services and Fitch. When ratings from only two of these agencies are available, the lower rating is used. When a rating
from only one of these agencies is available, that rating is used to determine index eligibility.
The index includes both emerging market and non-emerging
market countries from Latin America. A country is considered an emerging market if it has a foreign currency sovereign rating of Baa1 or lower as determined by Moody’s or BBB+ or lower as determined by Standard & Poor's Ratings Services or
Fitch, using the middle rating of Moody’s, Standard & Poor's Ratings Services or Fitch. When ratings from only two of these agencies are available, the lower rating is used. When a rating from only one of these agencies is available, that
rating is used to determine index eligibility. A country is considered a non-emerging market country if it has a foreign currency sovereign rating of A3 or higher as determined by Moody’s or A- or higher as determined by Standard & Poor's
Ratings Services or Fitch.
Securities rated investment grade and domiciled in either an
emerging market or a non-emerging market country must have a minimum of $300 million par amount outstanding. Securities rated non-investment grade and domiciled in a non-emerging market country must have a minimum of $150 million par amount
outstanding. Securities rated non-investment grade and domiciled in an emerging market country must have a minimum of $500 million par amount outstanding; however, corporate issuers must have at least $1 billion of aggregate par amount
outstanding.
Warrants, convertible securities, private
placements, separate trading of registered interest and principal securities (“strips”) and inflation-linked bonds are excluded from the Underlying Index.
As of September 30, 2012, the Underlying Index’s five
highest weighted countries were Brazil, Mexico, Venezuela, Colombia and Chile.
The Underlying Index is rebalanced monthly on the last business
day of each month.
No issuer can hold greater than a 25%
share of the Underlying Index. In addition, no more than 48% of the Underlying Index can be comprised of issuers that individually hold a 5% or greater share of the Underlying Index. Finally, each issuer that holds less than a 5% share of the
Underlying Index is capped at 4.5% of the Underlying Index. These caps are imposed at each month-end rebalancing date. Adjustments to a given issuer’s weight are applied proportionately to all of its constituent securities. Between rebalancing
dates, issuer weights are allowed to float above the caps.
Investment Limitations
The Fund has adopted its investment objective as a
non-fundamental investment policy. Therefore, the Fund may change its investment objective and its Underlying Index without shareholder approval. The Board has adopted as fundamental policies the following numbered investment restrictions, which
cannot be changed without the approval of the holders of a majority of the Fund’s outstanding voting securities. A vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of (a) 67% or more of the
voting securities present at a fund meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy, or (b) more than 50% of outstanding voting securities.
The Fund will not:
1. |
Concentrate its investments
(i.e., invest 25% or more of its total assets in the securities of a particular industry or group of industries), except that the Fund will concentrate to approximately the same extent that the Underlying
Index concentrates in the securities of a particular industry or group of industries. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal governments and their political subdivisions are not considered to be issued by members of any industry. |
2. |
Borrow money, except that
(i) the Fund may borrow from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might otherwise require the untimely disposition of securities; and (ii) the Fund may, to the extent
consistent with its investment policies, enter into repurchase agreements, reverse repurchase agreements, forward roll transactions and similar investment strategies and techniques. To the extent that it engages in transactions described in (i) and
(ii), the Fund will be limited so that no more than 33 1/3% of the value of its total assets (including the amount borrowed) is derived from such transactions. Any borrowings which come to exceed this amount will be reduced in accordance with
applicable law. |
3. |
Issue “senior
securities” as defined in the 1940 Act and the rules, regulations and orders thereunder, except as permitted under the 1940 Act and the rules, regulation and orders thereunder. |
4. |
Make loans, except as
permitted under the 1940 Act, as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
5. |
Purchase or sell real estate
unless acquired as a result of ownership of securities or other instruments (but this restriction shall not prevent the Fund from investing in securities of companies engaged in the real estate business or securities or other instruments backed by
real estate or mortgages), or commodities or commodity contracts (but this restriction shall not prevent the Fund from trading in futures contracts and options on futures contracts, including options on currencies to the extent consistent with the
Fund’s investment objective and policies). |
6. |
Engage in the business of
underwriting securities issued by other persons, except to the extent that the Fund may technically be deemed to be an underwriter under the 1933 Act, in disposing of portfolio securities. |
In addition to the investment restrictions adopted as
fundamental policies, set forth above, the Fund has adopted a non-fundamental policy not to invest in the securities of a company for the purpose of exercising management or control, or purchase or otherwise acquire any illiquid security, except as
permitted under the 1940 Act, which currently permits up to 15% of the Fund’s net assets to be invested in illiquid securities (calculated at the time of investment). Except with regard to investment limitation three above, if any percentage
restriction described above is complied with at the time of an investment, a later increase or decrease in percentage resulting from a change in values of assets will not constitute a violation of such restriction.
BFA monitors the liquidity of restricted securities in the
Fund’s portfolio. In reaching liquidity decisions, BFA considers the following factors:
• |
The frequency of trades and
quotes for the security; |
• |
The number of dealers wishing
to purchase or sell the security and the number of other potential purchasers; |
• |
Dealer undertakings to make a
market in the security; and |
• |
The nature of the security
and the nature of the marketplace in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). |
The Fund has adopted a non-fundamental investment policy in
accordance with Rule 35d-1 under the 1940 Act to invest, under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in securities of the Underlying Index. The Fund also has
adopted a policy to provide its shareholders with at least 60 days’ prior written notice of any change in such policy. If, subsequent to an investment, an 80% requirement is no longer met, the Fund’s future investments will be made in a
manner that will bring the Fund into compliance with this policy.
The Fund may not purchase securities of other investment
companies, except to the extent permitted by the Investment Company Act. As a matter of policy, however, the Fund will not purchase shares of any registered open-end investment company or registered unit investment trust, in reliance on Section
12(d)(1)(F) or (G) (the “fund of funds” provisions) of the Investment Company Act, at any time the Fund has knowledge that its shares are purchased by another investment company investor in reliance on the provisions of subparagraph (G)
of Section 12(d)(1).
Continuous Offering
The method by which Creation Units are created and traded may
raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by the Fund on an ongoing basis, at any point a “distribution,” as such term is used in the 1933 Act, may occur. Broker-dealers and
other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner that could render them statutory underwriters and subject them to the
prospectus delivery requirement and liability provisions of the 1933 Act.
For example, a broker-dealer firm or its client may be deemed
a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent shares and sells such shares directly to customers or if it chooses to couple the creation of new shares with an active
selling effort involving solicitation of secondary market demand for shares. A determination of whether one is an underwriter for purposes of the 1933 Act must take into account all the facts and circumstances pertaining to the activities of the
broker-dealer or its client in the particular case and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not
“underwriters” but are effecting transactions in shares, whether or not participating in the distribution of shares, generally are required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the
1933 Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus delivery obligation with respect to shares of the Fund are reminded that, pursuant to Rule 153 under the 1933 Act,
a prospectus delivery obligation under Section 5(b)(2) of the 1933 Act owed to an exchange member in connection with a sale on the Listing Exchange is satisfied by the fact that the
prospectus is available at the Listing Exchange upon request. The prospectus
delivery mechanism provided in Rule 153 is available only with respect to transactions on an exchange.
Management
Directors and Officers.
The Board has responsibility for the overall management and operations of the Fund, including general supervision of the duties performed by BFA and other service providers. Each Director serves until he or
she resigns, is removed, dies, retires or becomes incapacitated. The President, Chief Compliance Officer, Treasurer and Secretary shall each hold office until their successors are chosen and qualify, 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) of the Company are referred to as independent directors (“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”). The Fund is included
in the BlackRock Fund Complex referred to as the Exchange-Traded Fund Complex. Each Director 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 287 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 this SAI, which is available without charge, upon request, by calling toll-free 1-800-iShares (1-800-474-2737).
Interested Directors
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
Robert
S. Kapito1 (56) |
|
Director
(since 2009). |
|
President
and Director, BlackRock, Inc. (since 2006 and 2007, respectively); Vice Chairman of BlackRock, Inc. and Head of BlackRock’s Portfolio Management Group (since its formation in 1998) and BlackRock’s predecessor entities (since 1988);
Trustee, University of Pennsylvania (since 2009); President of Board of Directors, Hope & Heroes Children’s Cancer Fund (since 2002); President of the Board of Directors, Periwinkle Theatre for Youth (since 1983). |
|
Trustee
of iShares Trust (since 2009); Director of iShares MSCI Russia Capped Index Fund, Inc. (since 2010); Trustee of iShares U.S. ETF Trust (since 2011); Director of BlackRock, Inc. (since 2007). |
|
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
Michael
Latham2 (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 of 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). |
|
1 |
Robert S. Kapito is deemed to
be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. |
2 |
Michael Latham is deemed to
be an “interested person” (as defined in the 1940 Act) of the Company due to his affiliations with BlackRock, Inc. and its affiliates. |
Independent Directors
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
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 Paine Webber Inc.) (2003-2005) 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 Trust, iShares MSCI Russia Capped Index Fund, Inc. and iShares U.S.
ETF Trust (since 2012). |
|
George
G.C. Parker (73) |
|
Director
(since 2000). |
|
Dean
Witter Distinguished Professor of Finance, Emeritus, Stanford University Graduate School of Business (Professor since 1973; Emeritus since 2006). |
|
Trustee
of iShares Trust (since 2000); 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). |
|
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
Other
Directorships Held by Director |
|
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). |
|
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 (2002-2011) and Chair of the Finance and Investment Committee (2006-2010) the Thacher School; Member (since 1994) and Chair (1994-2005) of the
Investment Committee, Archdiocese of San Francisco; Trustee and Member of the Investment Committee, WNET, the New York public broadcasting company (since 2011). |
|
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 (34 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 (2 portfolios) (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). |
|
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 (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). |
|
Officers
Name
(Age) |
|
Position
|
|
Principal
Occupation(s) During the Past 5 Years |
|
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). |
|
Eilleen
M. Clavere (60) |
|
Secretary
(since 2007). |
|
Director
of Global Fund Administration, BlackRock (since 2009); Director of Legal Administration of Intermediary Investor Business, BGI (2006-2009); Legal Counsel and Vice President of Atlas Funds, Atlas Advisers, Inc. and Atlas Securities, Inc.
(2005-2006); Counsel of Kirkpatrick & Lockhart LLP (2001-2005). |
|
Edward
B. Baer (44) |
|
Vice
President and Chief Legal Officer (since 2012). |
|
Managing
Director of Legal & Compliance, BlackRock (since 2006); Director of Legal & Compliance, BlackRock (2004-2006). |
|
Scott
Radell (44) |
|
Executive
Vice President (since 2012). |
|
Managing
Director, BlackRock (since 2009); Head of Portfolio Solutions, BlackRock (since 2009); Head of Portfolio Solutions, BGI (2007-2009); Credit Portfolio Manager, BGI (2005-2007); Credit Research Analyst, BGI (2003-2005). |
|
Amy
Schioldager (50) |
|
Executive
Vice President (since 2007). |
|
Senior
Managing Director, BlackRock (since 2009); Global Head of Index Equity, BGI (2008-2009); Global Head of U.S. Indexing, BGI (2006-2008); Head of Domestic Equity Portfolio Management, BGI (2001-2006). |
|
Ira
P. Shapiro (49) |
|
Vice
President (since 2007). |
|
Managing
Director, BlackRock (since 2009); Head of Strategic Product Initiatives for iShares (since 2012); Chief Legal Officer, Exchange-Traded Fund Complex (2007-2012); Associate General Counsel, BGI (2004-2009). |
|
The Board has concluded that, based on each Director’s
experience, qualifications, attributes or skills on an individual basis and in combination with those of the other Directors, each Director should serve as a Director of the Board. Among the attributes common to all Directors are their ability to
review critically, evaluate, question and discuss information provided to them, to interact effectively with the Fund's investment adviser, other service providers, counsel and the independent registered public accounting firm, and to exercise
effective business judgment in the performance of their duties as Directors. A Director’s ability to perform his or her duties effectively may have been attained through the Director’s educational background or professional training;
business, consulting, public service or academic positions; experience from service as a
Board member of the Fund and the other funds in the Company (and any
predecessor funds), other investment funds, public companies, or non-profit entities or other organizations; and/or other life experiences. Also, set forth below is a brief discussion of the specific experience, qualifications, attributes or skills
of each Director that led the Board to conclude that he or she should serve as a Director.
Robert Kapito has been a Director of the Company since 2009.
Mr. Kapito has served as a Trustee of iShares Trust since 2009, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a Trustee of iShares U.S. ETF Trust since 2011 and a Director of BlackRock, Inc. since 2007. In addition, he has
over 20 years of experience as part of BlackRock, Inc. and BlackRock’s predecessor entities. Mr. Kapito serves as President and Director of BlackRock, Inc., and is the Chairman of the Operating Committee, a member of the Office of the
Chairman, the Leadership Committee and the Corporate Council. He is responsible for day-to-day oversight of BlackRock's key operating units, including the Account Management and Portfolio Management Groups, Real Estate Group and BlackRock Solutions®. Prior to assuming his current responsibilities in 2007, Mr. Kapito served as Head of BlackRock's Portfolio Management Group. In that role,
he was responsible for overseeing all portfolio management within BlackRock, including the Fixed-Income, Equity, Liquidity, and Alternative Investment Groups. Mr. Kapito serves as a member of the Board of Trustees of the University of Pennsylvania.
He has also been President of the Board of Directors for the Hope & Heroes Children's Cancer Fund since 2002 and President of the Board of Directors for Periwinkle Theatre for Youth, a national non-profit arts-in-education organization, since
1983. Mr. Kapito earned a BS degree in economics from the Wharton School of the University of Pennsylvania in 1979, and an MBA degree from Harvard Business School in 1983.
Michael Latham has been a Director of the Company since 2010
and President of the Company since 2007. Mr. Latham served as Principal Financial Officer of the Company from 2002 until 2007. Mr. Latham has served as a Trustee of iShares Trust since 2010, President of iShares Trust since 2007, Principal Financial
Officer of iShares Trust from 2002 until 2007, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, President of iShares MSCI Russia Capped Index Fund, Inc. since 2010, and a Trustee and President of iShares U.S. ETF Trust since
2011. Mr. Latham is the Chairman of BlackRock’s iShares exchange-traded fund business. In addition, he has over 15 years of experience as part of BlackRock, Inc. and BlackRock’s predecessor entities. Prior to assuming his current
responsibilities in September 2011, he was the global head of BlackRock's iShares exchange-traded fund business. Prior to April 2009, he was head of BlackRock's iShares exchange-traded fund business for the United States and Canada, and Chief
Operating Officer for the U.S. iShares business. He previously held a variety of operating positions within the firm. Mr. Latham earned a BS degree in business administration from California State University at San Francisco in 1988.
Robert H. Silver has been a Director of the Company since 2007
and Chairman of the Company's Board since 2012. Mr. Silver has served as a Trustee of iShares Trust since 2007, Chairman of iShares Trust's Board since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chairman of iShares
MSCI Russia Capped Index Fund, Inc.'s Board since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chairman of iShares U.S. ETF Trust's Board since 2012. Mr. Silver is President and a Co-Founder of The Bravitas Group Inc., a firm dedicated
to advising and investing in emerging business enterprises and to supporting philanthropic activities that benefit under-served urban youth. Previously, Mr. Silver served as the President and Chief Operating Officer of UBS Financial Services Inc.
(formerly Paine Webber Inc.), the registered broker dealer comprising the Wealth Management USA business unit of UBS AG, including the following responsibilities: President of Paine Webber Services, Director of Retail Products and Marketing,
Director of Private Client Group Branch Offices, Director of Finance and Controls for Paine Webber, Inc. and Chief Administrative Officer for Paine Webber Private Client Group. Mr. Silver also served on the Board of Directors of EPAM Systems, Inc.,
a provider of software engineering outsourcing services in Central and Eastern Europe, served on the Board and Executive Committee of the Depository Trust and Clearing Corporation (DTCC), chaired the National Securities Clearing Corporations’
Membership and Risk Committee and served as Governor of the Philadelphia Stock Exchange. In addition, Mr. Silver was a Vice Chairman and a Member of the Board of Directors for the YMCA of Greater New York and chaired its Fund Development Committee
from 2001 until 2011 and Co-Founder and Vice President of Parentgiving Inc. since 2008. Mr. Silver began his career as a CPA and Audit Manager at KPMG LLP (formerly Peat Marwick Mitchell) from 1977 until 1983. Mr. Silver has a BS degree in business
administration from the University of North Carolina.
George G.C. Parker has been a Director of the Company since
2002. Mr. Parker served as Chair of the Company's Board from 2010 until 2012, Lead Independent Director of the Company from 2006 until 2010 and Chair of the Nominating and Governance Committee of the Company from 2002 until 2010. Mr. Parker has
served as a Trustee of iShares Trust since 2000, Chair of iShares Trust's Board from 2010 until 2012, Lead Independent Trustee of iShares Trust from 2006 until 2010, Chair of the Nominating and Governance Committee of iShares Trust from 2002 until
2010, a Director of iShares MSCI Russia Capped
Index Fund, Inc. since 2010, Chair of iShares MSCI Russia Capped Index Fund,
Inc.'s Board from 2010 until 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of iShares U.S. ETF Trust's Board from 2011 until 2012. Mr. Parker also serves as Director on four other boards. Mr. Parker is the Dean Witter Distinguished
Professor of Finance, Emeritus, at the Stanford University Graduate School of Business. He teaches courses in Corporate Finance in the MBA Program, Stanford Sloan Program for Executives, and in various other Executive Education Programs at Stanford
University. Mr. Parker's teaching and research interests are primarily in the field of corporate finance, management of financial institutions, and corporate governance, and he has written numerous case studies related to these subjects. He has also
authored several articles on capital structure, risk management, and corporate valuation. Mr. Parker previously served as a Director of Continental Airlines and a Director of NETGEAR, Inc. Mr. Parker holds MBA and Ph.D. degrees from the Stanford
University Graduate School of Business.
John E. Martinez
has been a Director of the Company since 2003 and Chair of the Securities Lending Committee of the Company since 2012. Mr. Martinez has served as a Trustee of iShares Trust since 2003, Chair of the Securities Lending Committee of iShares Trust since
2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of the Securities Lending Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the
Securities Lending Committee of iShares U.S. ETF Trust since 2012. Mr. Martinez is a Director of FirstREX Agreement Corp. (formerly EquityRock, Inc.), providing governance oversight and consulting services to this privately held firm that develops
products and strategies for homeowners in managing the equity in their homes. Mr. Martinez previously served as Director of Barclays Global Investors (BGI) UK Holdings, where he provided governance oversight representing BGI’s shareholders
(Barclays PLC, BGI management shareholders) through oversight of BGI’s worldwide activities. Mr. Martinez also previously served as Co-Chief Executive Officer of the Global Index and Markets Group of BGI, Chairman of Barclays Global Investor
Services and Chief Executive Officer of the Capital Markets Group of BGI. Since 2003, he is a Director and Executive Committee Member for Larkin Street Youth Services, providing governance oversight and strategy development to an agency that
provides emergency and transitional housing, healthcare, education, job and life skills training to homeless youth. Mr. Martinez has an AB degree in economics from The University of California, Berkeley and holds an MBA degree in finance and
statistics from The University of Chicago Booth School of Business.
Cecilia H. Herbert has been a Director of the Company since
2005 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of the Company since 2012. Ms. Herbert has served as a Trustee of iShares Trust since 2005, Chair of the Nominating and Governance Committee and the Equity Plus
Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a
Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Nominating and Governance Committee and the Equity Plus Committee of iShares U.S. ETF Trust since 2012. She is Director of the Board of the Catholic Charities CYO, one of the Bay
Area’s largest private social services organizations serving the homeless, poor, aged, families, children and AIDS/HIV victims, on which she has served since 1998. Ms. Herbert is a member of the Investment Committee, Archdiocese of San
Francisco since 1992, which she chaired from 1994 to 2005. She has served on numerous non-profit boards. Ms. Herbert is also a Director and Advisory Board Member since 2009 of the Forward Funds. Ms. Herbert previously served as a Trustee for the
Pacific Select Funds and The Montgomery Funds. Ms. Herbert previously served as Managing Director of J.P. Morgan/Morgan Guaranty Trust Company responsible for product development, marketing and credit for U.S. multinational corporations and as head
of its San Francisco office and as Assistant Vice President, Signet Banking Corporation. Ms. Herbert has a BA degree in economics and communications from Stanford University and an MBA degree in finance from Harvard Business School.
Charles A. Hurty has been a Director of the Company since 2005
and Chair of the Audit Committee of the Company since 2006. Mr. Hurty has served as a Trustee of iShares Trust since 2005, Chair of the Audit Committee of iShares Trust since 2006, a Director of iShares MSCI Russia Capped Index Fund, Inc. since
2010, Chair of the Audit Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2010, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the Audit Committee of iShares U.S. ETF Trust since 2011. In addition, Mr. Hurty serves as
Director of the GMAM Absolute Return Strategy Fund since 2002, Director of the SkyBridge Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC (formerly, Citigroup Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC) since 2002
and was a Director of the CSFB Alternative Investment Funds from 2005 to December 2009, when the funds were liquidated. Mr. Hurty was formerly a Partner at KPMG, LLP from 1968 to 2001. Mr. Hurty has a BS degree in accounting from the University of
Kansas.
John E. Kerrigan has been a Director of the
Company since 2005 and Chair of the Fixed Income Plus Committee of the Company since 2012. Mr. Kerrigan served as Chair of the Nominating and Governance Committee of the Company from 2010 until 2012. Mr. Kerrigan has served as a Trustee of iShares
Trust since 2005, Chair of the Fixed Income Plus Committee of
iShares Trust since 2012, Chair of the Nominating and Governance Committee of
iShares Trust from 2010 until 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since 2010, Chair of the Fixed Income Plus Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, Chair of the Nominating and Governance
Committee of iShares MSCI Russia Capped Index Fund, Inc. from 2010 until 2012, Trustee of iShares U.S. ETF Trust since 2011, Chair of the Fixed Income Plus Committee of iShares U.S. ETF Trust since 2012 and Chair of the Nominating and Governance
Committee of iShares U.S. ETF Trust from 2011 until 2012. Mr. Kerrigan serves as Chief Investment Officer, Santa Clara University since 2002. Mr. Kerrigan was formerly a Managing Director at Merrill Lynch & Co., including the following
responsibilities: Global Manager of Institutional Client Division eCommerce, Global Manager of Technology Specialists Sales and Chair, Performance Measurement, Evaluation & Compensation Task Force. Mr. Kerrigan is a Trustee, since 2008, of
Sacred Heart Schools, Atherton, CA, and Director, since 1999, of The BASIC Fund (Bay Area Scholarships for Inner City Children). Mr. Kerrigan has a BA degree from Boston College and is a Chartered Financial Analyst.
Madhav V. Rajan has been a Director of the Company since 2011
and Chair of the 15(c) Committee of the Company since 2012. Mr. Rajan has served as a Trustee of iShares Trust since 2011, Chair of the 15(c) Committee of iShares Trust since 2012, a Director of iShares MSCI Russia Capped Index Fund, Inc. since
2011, Chair of the 15(c) Committee of iShares MSCI Russia Capped Index Fund, Inc. since 2012, a Trustee of iShares U.S. ETF Trust since 2011 and Chair of the 15(c) Committee of iShares U.S. ETF Trust since 2012. Mr. Rajan is the Robert K. Jaedicke
Professor of Accounting at the Stanford University Graduate School of Business. He has taught accounting for over 20 years to undergraduate, MBA and law students, as well as to senior executives. Mr. Rajan serves as the Senior Associate Dean for
Academic Affairs and head of the MBA Program at the Stanford University Graduate School of Business. Mr. Rajan served as editor of “The Accounting Review” from 2002 to 2008 and is co-author of “Cost Accounting: A Managerial
Emphasis,” a leading cost accounting textbook. Mr. Rajan holds MS, MBA and Ph.D. degrees in accounting from Carnegie Mellon University.
Board –
Leadership Structure and Oversight Responsibilities
Overall responsibility for oversight of the Fund rests with the
Board. The Board has engaged BFA to manage the Fund on a day-to-day basis. The Board is responsible for overseeing BFA and other service providers in the operations of the Fund in accordance with the provisions of the 1940 Act, applicable provisions
of state and other laws and the Company’s charter. The Board is currently composed of nine members, seven of whom are Independent Directors. The Board currently conducts regular meetings four times a year. In addition, the Board frequently
holds special in-person or telephonic meetings or informal conference calls to discuss specific matters that may arise or require action between regular meetings. The Independent Directors meet regularly outside the presence of management, in
executive session or with other service providers to the Company.
The Board has appointed an Independent Director to serve in the
role of Chairman. The Chairman’s role is to preside at all meetings of the Board and to act as a liaison with service providers, officers, attorneys, and other Directors generally between meetings. The Chairman may also perform such other
functions as may be delegated by the Board from time to time. The Board has established six standing Committees: a Nominating and Governance Committee, an Audit Committee, a 15(c) Committee, a Securities Lending Committee, an Equity Plus Committee
and a Fixed Income Plus Committee to assist the Board in the oversight and direction of the business and affairs of the Fund, and from time to time may establish ad-hoc committees or informal working groups to review and address the policies and
practices of the Fund with respect to certain specified matters. The Chair of each standing Committee is an Independent Director. The role of the Chair of each Committee is to preside at all meetings of the Committee and to act as a liaison with
service providers, officers, attorneys and other Directors between meetings. Each Committee meets regularly to conduct the oversight functions delegated to the Committee by the Board and reports its finding to the Board. The Board and each standing
Committee conduct annual assessments of their oversight function and structure. The Board has determined that the Board’s leadership structure is appropriate because it allows the Board to exercise independent judgment over management and it
allocates areas of responsibility among committees of Independent Directors and the full Board to enhance effective oversight.
Day-to-day risk management with respect to the Fund is the
responsibility of BFA or other service providers (depending on the nature of the risk), subject to the supervision of BFA. The Fund is subject to a number of risks, including investment, compliance, operational and valuation risks, among others.
While there are a number of risk management functions performed by BFA and other service providers, as applicable, it is not possible to eliminate all of the risks applicable to the Fund. The Directors have an oversight role in this area, satisfying
themselves that risk management processes are in place and operating effectively. Risk oversight forms part of the Board’s general oversight of the Fund and is addressed as part of various Board and committee activities. The Board, directly or
through a committee, also reviews reports from, among others,
management and the independent registered public accounting firm for the
Company, as appropriate, regarding risks faced by the Fund and management’s risk functions. The Board has appointed a Chief Compliance Officer who oversees the implementation and testing of the Company's compliance program and reports to the
Board regarding compliance matters for the Company and its principal service providers. In testing and maintaining the compliance program, the Chief Compliance Officer assesses key compliance risks affecting the Fund, and addresses them in reports
to the Board. The Independent Directors have engaged independent legal counsel to assist them in performing their oversight responsibilities.
Committees of the Board of Directors. Each Independent Director serves on the Audit Committee. The Chair of the Audit Committee is Charles A. Hurty. The purposes of the Audit Committee are to assist the Board (i) in its oversight of the Company's
accounting and financial reporting principles and policies and related controls and procedures maintained by or on behalf of the Company; (ii) in its oversight of the Company's financial statements and the independent audit thereof; (iii) in
selecting, evaluating and, where deemed appropriate, replacing the independent accountants (or nominating the independent accountants to be proposed for shareholder approval in any proxy statement); (iv) in evaluating the independence of the
independent accountants; (v) in complying with legal and regulatory requirements that relate to the Company's accounting and financial reporting, internal controls and independent audits; and (vi) to assume such other responsibilities as may be
delegated by the Board. The Audit Committee met four times during the fiscal year ended October 31, 2012.
The members of the Nominating and Governance Committee are
Cecilia H. Herbert (Chair), Charles A. Hurty, Madhav V. Rajan and John E. Kerrigan, all of whom are Independent Directors. The Nominating and Governance Committee nominates individuals for Independent Director membership on the Board. The Nominating
and Governance Committee functions include, but are not limited to, the following: (i) reviewing the qualifications of any person properly identified or nominated to serve as an Independent Director; (ii) recommending to the Board and current
Independent Directors the nominee(s) for appointment as an Independent Director by the Board and current Independent Directors and/or for election as Independent Directors by shareholders to fill any vacancy for a position of Independent Director(s)
on the Board; (iii) recommending to the Board and current Independent Directors the size and composition of the Board and Board committees and whether they comply with applicable laws and regulations; (iv) recommending a current Independent Director
to the Board and current Independent Directors to serve as Lead Independent Director; (v) periodic review of the Board's retirement policy; and (vi) recommending an appropriate level of compensation for the Independent Directors for their services
as Directors, members or chairpersons of committees of the Board, Lead Independent Director, Chairperson of the Board and any other positions as the Nominating and Governance Committee considers appropriate. The Nominating and Governance Committee
does not consider Board nominations recommended by shareholders (acting solely in their capacity as a shareholder and not in any other capacity). The Nominating and Governance Committee met three times during the fiscal year ended October 31,
2012.
The members of the 15(c) Committee are Madhav V.
Rajan (Chair), Cecilia H. Herbert, Charles A. Hurty and John E. Martinez, all of whom are Independent Directors. The principal responsibilities of the 15(c) Committee are to support, oversee and organize on behalf of the Board the process for the
annual review and renewal of the Company's advisory and sub-advisory agreements. These responsibilities include: (i) meeting with BlackRock, Inc. in advance of the Board meeting at which the Company's advisory and sub-advisory agreements are to be
considered to discuss generally the process for providing requested information to the Board and the format in which information will be provided; and (ii) considering and discussing with BlackRock, Inc. such other matters and information as may be
necessary and appropriate for the Board to evaluate the investment advisory and sub-advisory agreements of the Company. The 15(c) Committee met four times during the fiscal year ended October 31, 2012.
The members of the Securities Lending Committee are John E.
Martinez (Chair), John E. Kerrigan and George G.C. Parker, all of whom are Independent Directors. The principal responsibilities of the Securities Lending Committee are to support, oversee and organize on behalf of the Board the process for
oversight of the Company's securities lending activities. These responsibilities include: (i) requesting that certain information be provided to the Committee for its review and consideration prior to such information being provided to the Board;
(ii) considering and discussing with BlackRock, Inc. such other matters and information as may be necessary and appropriate for the Board to oversee the Company's securities lending activities and make required findings and approvals; and (iii)
providing a recommendation to the Board regarding the annual approval of the Company's Securities Lending Guidelines and the required findings with respect to, and annual approval of, the Company's agreement with the lending agent. The Securities
Lending Committee met two times during the fiscal year ended October 31, 2012.
The members of the Equity Plus Committee are Cecilia H. Herbert
(Chair), John E. Martinez and George G.C. Parker, all of whom are Independent Directors. The principal responsibilities of the Equity Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of Company
performance and related matters for equity funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters that should be brought to the
attention of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as appropriate. The Equity Plus
Committee met two times during the fiscal year ended October 31, 2012.
The members of the Fixed Income Plus Committee are John E.
Kerrigan (Chair), Charles A. Hurty and Madhav V. Rajan, all of whom are Independent Directors. The principal responsibilities of the Fixed Income Plus Committee are to support, oversee and organize on behalf of the Board the process for oversight of
Company performance and related matters for fixed income or multi-asset funds. These responsibilities include: (i) reviewing quarterly reports regarding Company performance, secondary market trading and changes in net assets to identify any matters
that should be brought to the attention of the Board; and (ii) considering any performance or investment related matters as may be delegated to the Committee by the Board from time to time and providing a report or recommendation to the Board as
appropriate. The Fixed Income Plus Committee met two times during the fiscal year ended October 31, 2012.
As the Chairman of the Board, Robert H. Silver may participate
in each Committee's meetings.
The following table sets
forth, as of December 31, 2012, the dollar range of equity securities beneficially owned by each Director in the Fund and in other registered investment companies overseen by the Director within the same family of investment companies as the
Company. If a fund is not listed below, the Director did not own any securities in that fund as of the date indicated above:
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
Robert
S. Kapito |
|
None
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
|
Michael
Latham |
|
iShares
MSCI ACWI ex US Index Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
MSCI EAFE Small Cap Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 3000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell Microcap Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P California AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Short Term National AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Silver |
|
iShares
Barclays 1-3 Year Credit Bond Fund |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
Barclays 1-3 Year Treasury Bond Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Core MSCI EAFE ETF |
|
Over
$100,000 |
|
|
|
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
|
|
iShares
Core MSCI Emerging Markets ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core MSCI Total International Stock ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core S&P Total U.S. Stock Market ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
Core Total U.S. Bond Market ETF |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones Select Dividend Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Broker-Dealers Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Dow Jones U.S. Financial Services Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Regional Banks Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
High Dividend Equity Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
J.P. Morgan USD Emerging Markets Bond Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
MSCI ACWI ex US Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI BRIC Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Russell 1000 Growth Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Growth Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Russell 2000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 3000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell Midcap Growth Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
Russell Midcap Value Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
S&P U.S. Preferred Stock Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P/Citigroup International Treasury Bond Fund |
|
$1-$10,000
|
|
|
|
|
|
|
|
|
|
|
|
George
G.C. Parker |
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
Core Total U.S. Bond Market ETF |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones Select Dividend Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P 100 Index Fund |
|
Over
$100,000 |
|
|
|
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
|
|
iShares
S&P California AMT-Free Municipal Bond Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
John
E. Martinez |
|
iShares
Barclays TIPS Bond Fund |
|
Over
$100,000 |
|
Over
$100,000 |
|
|
|
iShares
Core MSCI Emerging Markets ETF |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
Core S&P 500 ETF |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI All Country Asia ex Japan Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 1000 Value Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
Russell 2000 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Emerging Markets Infrastructure Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
S&P Global Consumer Staples Sector Index Fund |
|
Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
Cecilia
H. Herbert |
|
iShares
Core MSCI Total International Stock ETF |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
Dow Jones International Select Dividend Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
FTSE China 25 Index Fund |
|
Over
$100,000 |
|
|
|
|
|
iShares
iBoxx $ High Yield Corporate Bond Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI Emerging Markets Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
MSCI Japan Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
S&P National AMT-Free Municipal Bond Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P U.S. Preferred Stock Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
|
|
|
|
|
|
Charles
A. Hurty |
|
iShares
Core MSCI Emerging Markets ETF |
|
$10,001-$50,000
|
|
Over
$100,000 |
|
|
|
iShares
Core S&P 500 ETF |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Energy Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Financial Sector Index Fund |
|
$1-$10,000
|
|
|
|
|
|
iShares
Dow Jones U.S. Technology Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
FTSE China 25 Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
High Dividend Equity Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
MSCI EAFE Index Fund |
|
$10,001-$50,000
|
|
|
|
Name
of Director |
|
Fund
|
|
Dollar
Range of Equity Securities in the Fund |
|
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies Overseen by Director in Family of Investment Companies |
|
|
|
iShares
MSCI Japan Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P Global Energy Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P Global Technology Sector Index Fund |
|
$10,001-$50,000
|
|
|
|
|
|
iShares
S&P North American Technology-Multimedia Networking Index Fund |
|
$1-$10,000
|
|
|
|
|
|
|
|
|
|
|
|
John
E. Kerrigan |
|
iShares
MSCI ACWI ex US Index Fund |
|
$10,001-$50,000
|
|
$50,001-$100,000
|
|
|
|
iShares
S&P Short Term National AMT-Free Municipal Bond Fund |
|
$50,001-$100,000
|
|
|
|
|
|
|
|
|
|
|
|
Madhav
V. Rajan |
|
iShares
Core MSCI Emerging Markets ETF |
|
$50,001-$100,000
|
|
Over
$100,000 |
|
|
|
iShares
Core S&P 500 ETF |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
Dow Jones Select Dividend Index Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
High Dividend Equity Fund |
|
$50,001-$100,000
|
|
|
|
|
|
iShares
iBoxx $ Investment Grade Corporate Bond Fund |
|
$50,001-$100,000
|
|
|
|
As of December 31, 2012, none of the Independent Directors or
their immediate family members owned beneficially or of record any securities of BFA (the Fund's investment adviser), the Distributor or any person controlling, controlled by or under common control with BFA or the Distributor.
Remuneration of Directors.
Each current Independent Director is paid an annual retainer of $275,000 for his or her services as a Board member to the BlackRock-advised Funds in the Exchange-Traded Fund Complex, together with
out-of-pocket expenses in accordance with the Board's policy on travel and other business expenses relating to attendance at meetings. For the period from January 1, 2011 through December 31, 2012, each current Independent Director was paid an
annual retainer of $250,000 for his or her services as a Board member to the BlackRock-advised Funds in the Exchange-Traded Fund Complex, together with out-of-pocket expenses in accordance with the Board’s policy on travel and other business
expenses relating to attendance at meetings. The Independent Chairman of the Boards is paid an additional annual retainer of $50,000. The Chair of the Audit Committees is paid an additional annual retainer of $40,000. The Chair of each of the
Nominating and Governance Committees, Equity Plus Committees, Fixed Income Plus Committees, Securities Lending Committees and 15(c) Committees is paid an additional annual retainer of $15,000. Each Independent Director that serves as a director of
subsidiaries of the Exchange-Traded Complex is paid an additional annual retainer of $10,000 (plus an additional $1,765 paid annually to compensate for taxes due in the Republic of Mauritius). Additionally, an Independent Director who travels to the
Republic of Mauritius to attend board meetings is paid an additional $12,000 (plus an additional $2,117 paid annually to compensate for taxes due in the Republic of Mauritius).
The table below sets forth the compensation earned by each
Independent Director and Interested Director from the Fund for the fiscal year ended October 31, 2012 and the aggregate compensation paid to them by the Exchange-Traded Complex for the calendar year ended December 31, 2012.
Name
of Trustee |
|
iShares
Latin America Bond Fund |
|
Pension
or Retirement Benefits Accrued As Part of Company Expenses2 |
|
Estimated
Annual Benefits Upon Retirement2 |
|
Total
Compensation From the Fund and Fund Complex3 |
|
Independent
Trustees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George
G.C. Parker |
|
$0
|
|
Not
Applicable |
|
Not
Applicable |
|
$
260,165 |
|
John
E. Kerrigan |
|
0
|
|
Not
Applicable |
|
Not
Applicable |
|
265,510
|
|
Charles
A. Hurty |
|
0
|
|
Not
Applicable |
|
Not
Applicable |
|
290,000
|
|
Cecilia
H. Herbert |
|
0
|
|
Not
Applicable |
|
Not
Applicable |
|
273,010
|
|
Robert
H. Silver |
|
0
|
|
Not
Applicable |
|
Not
Applicable |
|
289,835
|
|
John
E. Martinez |
|
0
|
|
Not
Applicable |
|
Not
Applicable |
|
261,760
|
|
Madhav
V. Rajan |
|
0
|
|
Not
Applicable |
|
Not
Applicable |
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
Interested
Trustees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Kapito |
|
0
|
|
Not
Applicable |
|
Not
Applicable |
|
$
0 |
|
Michael
Latham |
|
0
|
|
Not
Applicable |
|
Not
Applicable |
|
0
|
|
1 |
No Director or officer is
entitled to any pension or retirement benefits from the Company. |
2 |
Includes compensation for
service on the Boards of Trustees of iShares Trust and iShares U.S. ETF Trust, and the Board of Directors of iShares MSCI Russia Capped Index Fund, Inc. |
Control Persons and Principal Holders of Securities. Ownership information is not provided for the Fund as it has not commenced operations as of the date of this SAI.
Potential Conflicts of Interest. The PNC Financial Services Group, Inc. (“PNC”) has a significant economic interest in BlackRock, Inc., the parent of BFA, the Fund's investment adviser. PNC is considered to be an affiliate of
BlackRock, Inc., under the 1940 Act. Certain activities of BFA, BlackRock, Inc. and their affiliates (collectively, “BlackRock”) and PNC and its affiliates (collectively, “ PNC” and together with BlackRock,
“Affiliates”), with respect to the Fund and/or other accounts managed by BlackRock or PNC, may give rise to actual or perceived conflicts of interest such as those described below.
BlackRock is one of the world's largest asset management
firms. PNC is a diversified financial services organization spanning the retail, business and corporate markets. BlackRock and PNC are affiliates of one another under the 1940 Act. BlackRock and PNC and their respective affiliates (including, for
these purposes, their directors, partners, trustees, managing members, officers and employees), including the entities and personnel who may be involved in the investment activities and business operations of the Fund, are engaged worldwide in
businesses, including equity, fixed-income, cash management and alternative investments. These are considerations of which investors in the Fund should be aware, and which may cause conflicts of interest that could disadvantage the Fund and its
shareholders. These activities and interests include potential multiple advisory, transactional, financial and other interests in securities and other instruments that may be purchased or sold by the Fund.
BlackRock and its Affiliates have proprietary interests in,
and may manage or advise with respect to, accounts or funds (including separate accounts and other funds and collective investment vehicles) that have investment objectives similar to those of the Fund and/or that engage in transactions in the same
types of securities, currencies and instruments as the Fund. One or more Affiliates are also major participants in the global currency, equities, swap and fixed-income markets, in each case both on a proprietary basis and for the accounts of
customers. As such, one or more Affiliates are or may be actively engaged in transactions in the same securities, currencies, and instruments in which the Fund invests. Such activities could affect the prices and availability of the securities,
currencies, and instruments in which the Fund invests, which could have an adverse impact on the Fund's performance. Such transactions, particularly in respect of most proprietary accounts or customer accounts, will be executed independently of the
Fund's transactions and thus at prices or rates that may be more or less favorable than those obtained by the Fund. When BlackRock and its Affiliates purchase or sell the same assets for their
managed accounts, including the Fund, the assets actually purchased or sold
may be allocated among the accounts on a basis determined in their good faith discretion to be equitable. In some cases, this system may adversely affect the size or price of the assets purchased or sold for the Fund. In addition, transactions in
investments by one or more other accounts managed by BlackRock or its Affiliates may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of the Fund, particularly, but not limited to, with respect to
small capitalization, emerging market or less liquid strategies. This may occur when investment decisions regarding the Fund are based on research or other information that is also used to support decisions for other accounts. When BlackRock or its
Affiliates implements a portfolio decision or strategy on behalf of another account ahead of, or contemporaneously with, similar decisions or strategies for the Fund, market impact, liquidity constraints, or other factors could result in the Fund
receiving less favorable trading results and the costs of implementing such decisions or strategies could be increased or the Fund could otherwise be disadvantaged. BlackRock or its Affiliates may, in certain cases, elect to implement internal
policies and procedures designed to limit such consequences, which may cause the Fund to be unable to engage in certain activities, including purchasing or disposing of securities, when it might otherwise be desirable for it to do so.
Conflicts may also arise because portfolio decisions regarding
the Fund may benefit other accounts managed by BlackRock or its Affiliates. For example, the sale of a long position or establishment of a short position by the Fund may impair the price of the same security sold short by (and therefore benefit) one
or more Affiliates or their other accounts, and the purchase of a security or covering of a short position in a security by the Fund may increase the price of the same security held by (and therefore benefit) one or more Affiliates or their other
accounts.
BlackRock and its Affiliates and their clients
may pursue or enforce rights with respect to an issuer in which the Fund has invested, and those activities may have an adverse effect on the Fund. As a result, prices, availability, liquidity and terms of the Fund's investments may be negatively
impacted by the activities of BlackRock or its Affiliates or their clients, and transactions for the Fund may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.
The results of the Fund's investment activities may differ
significantly from the results achieved by BlackRock and its Affiliates for their proprietary accounts or other accounts (including investment companies or collective investment vehicles) managed or advised by them. It is possible that one or more
Affiliate-managed accounts and such other accounts will achieve investment results that are substantially more or less favorable than the results achieved by the Fund. Moreover, it is possible that the Fund will sustain losses during periods in
which one or more Affiliate-managed accounts achieve significant profits on their trading for proprietary or other accounts. The opposite result is also possible. The investment activities of one or more Affiliates for their proprietary accounts and
accounts under their management may also limit the investment opportunities for the Fund in certain emerging and other markets in which limitations are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated
foreign investors.
From time to time, the Fund's
activities may also be restricted because of regulatory restrictions applicable to one or more Affiliates, and/or their internal policies designed to comply with such restrictions. As a result, there may be periods, for example, when BlackRock,
and/or one or more Affiliates, will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which BlackRock and/or one or more Affiliates are performing services or when position limits have been
reached.
In connection with its management of the Fund,
BlackRock may have access to certain fundamental analysis and proprietary technical models developed by one or more Affiliates. BlackRock will not be under any obligation, however, to effect transactions on behalf of the Fund in accordance with such
analysis and models. In addition, neither BlackRock nor any of its Affiliates will have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts
managed by them, for the benefit of the management of the Fund and it is not anticipated that BlackRock will have access to such information for the purpose of managing the Fund. The proprietary activities or portfolio strategies of BlackRock and
its Affiliates, or the activities or strategies used for accounts managed by them or other customer accounts could conflict with the transactions and strategies employed by BlackRock in managing the Fund.
In addition, certain principals and certain employees of
BlackRock are also principals or employees of Affiliates. As a result, the performance by these principals and employees of their obligations to such other entities may be a consideration of which investors in the Fund should be aware.
BlackRock may enter into transactions and invest in securities,
instruments and currencies on behalf of the Fund in which customers of BlackRock or its Affiliates, or, to the extent permitted by the SEC, BlackRock or another Affiliate, serves as the counterparty, principal or issuer. In such cases, such party's
interests in the transaction will be adverse to the interests of the Fund, and such party may have no incentive to assure that the Fund obtains the best possible prices or terms in connection with the transactions. In addition, the purchase, holding
and sale of such investments by the Fund may enhance the profitability of BlackRock or its Affiliates. One or more Affiliates may also create, write or issue derivatives for their customers, the underlying securities, currencies or instruments of
which may be those in which the Fund invests or which may be based on the performance of the Fund. The Fund may, subject to applicable law, purchase investments that are the subject of an underwriting or other distribution by one or more Affiliates
and may also enter into transactions with other clients of an Affiliate where such other clients have interests adverse to those of the Fund.
At times, these activities may cause departments of BlackRock
or its Affiliates to give advice to clients that may cause these clients to take actions adverse to the interests of the Fund. To the extent affiliated transactions are permitted, the Fund will deal with BlackRock and its Affiliates on an
arms-length basis. BlackRock or its Affiliates may also have an ownership interest in certain trading or information systems used by the Fund. The Fund's use of such trading or information systems may enhance the profitability of BlackRock and its
Affiliates.
One or more Affiliates may act as broker,
dealer, agent, lender or adviser or in other commercial capacities for the Fund. It is anticipated that the commissions, mark-ups, mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and commitment fees,
brokerage fees, other fees, compensation or profits, rates, terms and conditions charged by an Affiliate will be in its view commercially reasonable, although each Affiliate, including its sales personnel, will have an interest in obtaining fees and
other amounts that are favorable to the Affiliate and such sales personnel.
Subject to applicable law, the Affiliates (and their personnel
and other distributors) will be entitled to retain fees and other amounts that they receive in connection with their service to the Fund as broker, dealer, agent, lender, adviser or in other commercial capacities and no accounting to the Fund or its
shareholders will be required, and no fees or other compensation payable by the Fund or its shareholders will be reduced by reason of receipt by an Affiliate of any such fees or other amounts.
When an Affiliate acts as broker, dealer, agent, adviser or in
other commercial capacities in relation to the Fund, the Affiliate may take commercial steps in its own interests, which may have an adverse effect on the Fund. The Fund will be required to establish business relationships with its counterparties
based on the Fund's own credit standing. Neither BlackRock nor any of the Affiliates will have any obligation to allow their credit to be used in connection with the Fund's establishment of its business relationships, nor is it expected that the
Fund's counterparties will rely on the credit of BlackRock or any of the Affiliates in evaluating the Fund's creditworthiness.
Purchases and sales of securities for the Fund may be bunched
or aggregated with orders for other BlackRock client accounts. BlackRock, however, is not required to bunch or aggregate orders if portfolio management decisions for different accounts are made separately, or if it determines that bunching or
aggregating is not practicable or required, or in cases involving client direction.
Prevailing trading activity frequently may make impossible the
receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Fund will be charged or credited with the average price. Thus, the effect of the aggregation
may operate on some occasions to the disadvantage of the Fund. In addition, under certain circumstances, the Fund will not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.
BlackRock may select brokers (including, without limitation,
Affiliates) that furnish BlackRock, the Fund, other BlackRock client accounts or other Affiliates or personnel, directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRock's view,
appropriate assistance to BlackRock in the investment decision-making process (including with respect to futures, fixed-price offerings and over-the-counter transactions). Such research or other services may include, to the extent permitted by law,
research reports on companies, industries and securities; economic and financial data; financial publications; proxy analysis; trade industry seminars; computer data bases; research-oriented software and other services and products. Research or
other services obtained in this manner may be used in servicing any or all of the Fund and other BlackRock client accounts, including in connection with BlackRock client accounts other than those that pay commissions to the broker relating to the
research or other service arrangements. Such products and services may disproportionately benefit other BlackRock client accounts relative to the Fund based on the amount of brokerage commissions paid by the Fund and such other BlackRock client
accounts. For example, research or other services
that are paid for through one client's commissions may not be used in managing
that client's account. In addition, other BlackRock client accounts may receive the benefit, including disproportionate benefits, of economies of scale or price discounts in connection with products and services that may be provided to the Fund and
to such other BlackRock client accounts. To the extent that BlackRock uses soft dollars, it will not have to pay for those products and services itself.
BlackRock may receive research that is bundled with the trade
execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that BlackRock receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research
effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by BlackRock.
BlackRock may endeavor to execute trades through brokers who,
pursuant to such arrangements, provide research or other services in order to ensure the continued receipt of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from time to time choose
not to engage in the above described arrangements to varying degrees. BlackRock may also enter into commission sharing arrangements under which BlackRock may execute transactions through a broker-dealer, including, where permitted, an Affiliate, and
request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to BlackRock. To the extent that BlackRock engages in commission sharing arrangements, many of the same conflicts
related to traditional soft dollars may exist.
BlackRock
may utilize certain electronic crossing networks (“ECNs”) in executing client securities transactions for certain types of securities. These ECNs may charge fees for their services, including access fees and transaction fees. The
transaction fees, which are similar to commissions or markups/markdowns, will generally be charged to clients and, like commissions and markups/markdowns, would generally be included in the cost of the securities purchased. Access fees may be paid
by BlackRock even though incurred in connection with executing transactions on behalf of clients, including the Fund. In certain circumstances, ECNs may offer volume discounts that will reduce the access fees typically paid by BlackRock. BlackRock
will only utilize ECNs consistent with its obligation to seek to obtain best execution in client transactions.
BlackRock has adopted policies and procedures designed to
prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including the Fund, and to help ensure that such decisions are made in accordance with BlackRock's fiduciary obligations to its
clients. Nevertheless, notwithstanding such proxy voting policies and procedures, actual proxy voting decisions of BlackRock may have the effect of favoring the interests of other clients or businesses of other divisions or units of BlackRock and/or
its Affiliates, provided that BlackRock believes such voting decisions to be in accordance with its fiduciary obligations. For a more detailed discussion of these policies and procedures, see the Proxy Voting
Policy section of this SAI.
It is also possible
that, from time to time, BlackRock or its Affiliates may, although they are not required to, purchase and hold shares of the Fund. Increasing the Fund's assets may enhance investment flexibility and diversification and may contribute to economies of
scale that tend to reduce the Fund's expense ratio. BlackRock and its Affiliates reserve the right to redeem at any time some or all of the shares of the Fund acquired for their own accounts. A large redemption of shares of the Fund by BlackRock or
its Affiliates could significantly reduce the asset size of the Fund, which might have an adverse effect on the Fund's investment flexibility, portfolio diversification and expense ratio. BlackRock will consider the effect of redemptions on the Fund
and other shareholders in deciding whether to redeem its shares.
It is possible that the Fund may invest in securities of
companies with which an Affiliate has or is trying to develop investment banking relationships as well as securities of entities in which BlackRock or its Affiliates has significant debt or equity investments or in which an Affiliate makes a market.
The Fund also may invest in securities of companies to which an Affiliate provides or may someday provide research coverage. Such investments could cause conflicts between the interests of the Fund and the interests of other clients of BlackRock or
its Affiliates. In making investment decisions for the Fund, BlackRock is not permitted to obtain or use material non-public information acquired by any division, department or Affiliate of BlackRock in the course of these activities. In addition,
from time to time, the activities of an Affiliate may limit the Fund's flexibility in purchases and sales of securities. When an Affiliate is engaged in an underwriting or other distribution of securities of an entity, BlackRock may be prohibited
from purchasing or recommending the purchase of certain securities of that entity for the Fund.
BlackRock and its Affiliates, their personnel and other
financial service providers may have interests in promoting sales of the Fund. With respect to BlackRock and its Affiliates and their personnel, the remuneration and profitability relating to services
to and sales of the Fund or other products may be greater than remuneration
and profitability relating to services to and sales of certain funds or other products that might be provided or offered. BlackRock and its Affiliates and their sales personnel may directly or indirectly receive a portion of the fees and commissions
charged to the Fund or its shareholders. BlackRock and its advisory or other personnel may also benefit from increased amounts of assets under management. Fees and commissions may also be higher than for other products or services, and the
remuneration and profitability to BlackRock or its Affiliates and such personnel resulting from transactions on behalf of or management of the Fund may be greater than the remuneration and profitability resulting from other funds or products.
BlackRock and its Affiliates and their personnel may receive
greater compensation or greater profit in connection with an account for which BlackRock serves as an adviser than with an account advised by an unaffiliated investment adviser. Differentials in compensation may be related to the fact that BlackRock
may pay a portion of its advisory fee to its Affiliate, or relate to compensation arrangements, including for portfolio management, brokerage transactions or account servicing. Any differential in compensation may create a financial incentive on the
part of BlackRock or its Affiliates and their personnel to recommend BlackRock over unaffiliated investment advisers or to effect transactions differently in one account over another.
BlackRock and its Affiliates may provide valuation assistance
to certain clients with respect to certain securities or other investments and the valuation recommendations made for their clients' accounts may differ from the valuations for the same securities or investments assigned by the Fund's pricing
vendors, especially if such valuations are based on broker-dealer quotes or other data sources unavailable to the Fund's pricing vendors. While BlackRock will generally communicate its valuation information or determinations to the Fund's pricing
vendors and/or fund accountants, there may be instances where the Fund's pricing vendors or fund accountants assign a different valuation to a security or other investment than the valuation for such security or investment determined or recommended
by BlackRock.
As disclosed in more detail in the Determination of Net Asset Value section of the Fund’s Prospectus, when market valuations are not readily available or such valuations do not reflect current market values, the affected investments will be
valued using fair value pricing, pursuant to procedures adopted by the Fund's Board. As a result, the Fund's sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BlackRock (pursuant to Board-adopted
procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
To the extent permitted by applicable law, the Fund may invest
all or some of its short-term cash investments in any money market fund or similarly-managed private fund advised or managed by BlackRock. In connection with any such investments, the Fund, to the extent permitted by the 1940 Act, may pay its share
of expenses of a money market fund in which it invests, which may result in the Fund bearing some additional expenses.
BlackRock and its Affiliates and their directors, officers and
employees, may buy and sell securities or other investments for their own accounts, and may have conflicts of interest with respect to investments made on behalf of the Fund. As a result of differing trading and investment strategies or constraints,
positions may be taken by directors, officers, employees and Affiliates of BlackRock that are the same, different from or made at different times than positions taken for the Fund. To lessen the possibility that the Fund will be adversely affected
by this personal trading, the Fund, BFA and BlackRock each has adopted a code of ethics in compliance with Section 17(j) of the 1940 Act that restricts securities trading in the personal accounts of investment professionals and others who normally
come into possession of information regarding the Fund's portfolio transactions. Each code of ethics can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at (202) 551-8090. Each code of ethics is also available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at publicinfo@sec.gov
or by writing the SEC's Public Reference Section, Washington, DC 20549-1520.
BlackRock and its Affiliates will not purchase securities or
other property from, or sell securities or other property to, the Fund, except that the Fund may in accordance with rules adopted under the 1940 Act engage in transactions with accounts that are affiliated with the Fund as a result of common
officers, directors, or investment advisers or pursuant to exemptive orders granted to the Fund and/or BlackRock by the SEC. These transactions would be affected in circumstances in which BlackRock determined that it would be appropriate for the
Fund to purchase and another client of BlackRock to sell, or the Fund to sell and another client of BlackRock to purchase, the same security or instrument on the same day. From time to time, the activities of the Fund may be restricted because of
regulatory requirements applicable to BlackRock or its Affiliates and/or BlackRock's internal policies designed to comply with, limit the applicability of, or otherwise relate to such requirements. A client not advised by BlackRock would not be
subject to some of those considerations. There may be periods
when BlackRock may not initiate or recommend certain types of transactions, or
may otherwise restrict or limit their advice in certain securities or instruments issued by or related to companies for which an Affiliate is performing investment banking, market making or other services or has proprietary positions. For example,
when an Affiliate is engaged in an underwriting or other distribution of securities of, or advisory services for, a company, the Fund may be prohibited from or limited in purchasing or selling securities of that company. Similar situations could
arise if personnel of BlackRock or its Affiliates serve as directors of companies the securities of which the Fund wishes to purchase or sell. However, if permitted by applicable law, the Fund may purchase securities or instruments that are issued
by such companies or are the subject of an underwriting, distribution, or advisory assignment by an Affiliate, or in cases in which personnel of BlackRock or its Affiliates are directors or officers of the issuer.
The investment activities of one or more Affiliates for their
proprietary accounts and for client accounts may also limit the investment strategies and rights of the Fund. For example, in regulated industries, in certain emerging or international markets, in corporate and regulatory ownership definitions, and
in certain futures and derivative transactions, there may be limits on the aggregate amount of investment by affiliated investors that may not be exceeded without the grant of a license or other regulatory or corporate consent or, if exceeded, may
cause BlackRock, the Fund or other client accounts to suffer disadvantages or business restrictions.
If certain aggregate ownership thresholds are reached or
certain transactions undertaken, the ability of BlackRock on behalf of clients (including the Fund) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired.
As a result, BlackRock, on behalf of clients (including the Fund), may limit purchases, sell existing investments, or otherwise restrict or limit the exercise of rights (including voting rights) when BlackRock, in its sole discretion, deems it
appropriate.
BlackRock and its Affiliates may maintain
securities indexes as part of their product offerings. Index based funds seek to track the performance of securities indexes and may use the name of the index in the fund name. Index providers, including BlackRock and its Affiliates may be paid
licensing fees for use of their index or index name. BlackRock and its Affiliates will not be obligated to license their indexes to BlackRock, and BlackRock cannot be assured that the terms of any index licensing agreement with BlackRock and its
Affiliates will be as favorable as those terms offered to other index licensees.
BlackRock and its Affiliates may serve as Authorized
Participants in the creation and redemption of exchange-traded funds, including funds advised by Affiliates of BlackRock. As described in greater detail in the Creations and
Redemptions section of the Prospectus, BlackRock and its Affiliates may therefore be deemed to be participants in a distribution of iShares funds that could render them statutory underwriters.
Present and future activities of BlackRock and its Affiliates,
including BFA, in addition to those described in this section, may give rise to additional conflicts of interest.
Investment Advisory, Administrative and Distribution
Services
Investment Adviser. BFA serves as investment adviser to the Fund pursuant to an investment advisory agreement between the Company, on behalf of the Fund, and BFA. BFA is a California corporation indirectly owned by BlackRock, Inc.
and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the investment advisory agreement, BFA, subject to the supervision of the Board and in conformity with the stated investment policies of the
Fund, manages and administers the Company and the investment of the Fund’s assets. BFA is responsible for placing purchase and sale orders and providing continuous supervision of the investment portfolio of the Fund.
Pursuant to the investment advisory agreement, BFA may, from
time to time, in its sole discretion and to the extent permitted by applicable law, appoint one or more sub-advisers, including, without limitation, affiliates of BFA, to perform investment advisory or other services with respect to the Fund. In
addition, BFA may delegate certain of its investment advisory functions under the investment advisory agreement to one or more of its affiliates to the extent permitted by applicable law. BFA may terminate any or all sub-advisers or such delegation
arrangements in its sole discretion upon appropriate notice at any time to the extent permitted by applicable law.
BFA is responsible, under the investment advisory agreement,
for substantially all expenses of the Fund, including the cost of transfer agency, custody, fund administration, legal, audit and other services. BFA is not responsible for, and the Fund will bear the cost of, interest expense, taxes, brokerage
expenses and other expenses connected with the execution of portfolio securities transactions, distribution fees and extraordinary expenses.
For its investment advisory services to the Fund, BFA is
entitled to receive a management fee from the Fund, based on a percentage of the Fund’s average daily net assets, at the annual rate of 0.49%. Because the Fund has been in operation for less than one full fiscal year, this percentage reflects
the rate at which BFA will be paid.
The investment
advisory agreement with respect to the Fund continues in effect for two years from its effective date, and thereafter is subject to annual approval by (i) the Board, or (ii) the vote of a majority of the outstanding voting securities (as defined in
the 1940 Act) of the Fund, provided that in either event such continuance also is approved by a majority of the Board members who are not interested persons (as defined in the 1940 Act) of the Fund, by a vote cast in person at a meeting called for
the purpose of voting on such approval.
The investment
advisory agreement with respect to the Fund is terminable without penalty, on 60 days' notice, by the Board or by a vote of the holders of a majority of the Fund’s outstanding voting securities (as defined in the 1940 Act). The investment
advisory agreement is also terminable upon 60 days' notice by BFA and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
Current interpretations of U.S. federal banking laws and
regulations (i) may prohibit BlackRock, Inc., BFA or its affiliates from controlling or underwriting the shares of the Fund, but (ii) do not prohibit BlackRock, Inc. or BFA generally from acting as an investment adviser, administrator, transfer
agent or custodian to the Fund or from purchasing shares as agent for and upon the order of a customer.
BFA believes that it may perform advisory and related services
for the Company without violating applicable banking laws or regulations. However, the legal requirements and interpretations about the permissible activities of banks and their affiliates may change in the future. These changes could prevent BFA
from continuing to perform services for the Company. If this happens, the Board would consider selecting other qualified firms. Any new investment advisory agreement would be subject to shareholder approval.
If current restrictions on bank activities with mutual funds
were relaxed, BFA, or its affiliates, would consider performing additional services for the Company. BFA cannot predict whether these changes will be enacted, or the terms under which BFA, or its affiliates, might offer to provide additional
services.
Portfolio Managers. As of October 31, 2012, the individuals named as Portfolio Managers in the Fund's prospectus were also
primarily responsible for the day-to-day management of other iShares funds and certain other types of
portfolios and/or accounts as follows:
James
Mauro |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
54
|
|
$136,000,000,000
|
|
Other
Pooled Investment Vehicles |
|
14
|
|
$
23,800,000,000 |
|
Other
Accounts |
|
9
|
|
$
8,800,000,000 |
|
Accounts
with Incentive-Based Fee Arrangements |
|
1
|
|
$
530,000,000 |
|
Scott
Radell |
|
|
|
|
|
Types
of Accounts |
|
Number
|
|
Total
Assets |
|
Registered
Investment Companies |
|
55
|
|
$138,000,000,000
|
|
Other
Pooled Investment Vehicles |
|
5
|
|
$
3,400,000,000 |
|
Other
Accounts |
|
7
|
|
$
9,000,000,000 |
|
Accounts
with Incentive-Based Fee Arrangements |
|
2
|
|
$
1,500,000,000 |
|
Each of the portfolios or accounts for which the Portfolio
Managers are primarily responsible for the day-to-day management seeks to track the rate of return, risk profile and other characteristics of independent third-party indexes by either replicating
the same combination of securities that compose those indexes or through a
representative sampling of the securities that compose those indexes based on objective criteria and data. Pursuant to BFA policy, investment opportunities are allocated equitably among the Fund and other portfolios and accounts. For example, under
certain circumstances, an investment opportunity may be restricted due to limited supply on the market, legal constraints or other factors, in which event the investment opportunity will be allocated equitably among those portfolios and accounts,
including the Fund, seeking such investment opportunity. As a consequence, from time to time the Fund may receive a smaller allocation of an investment opportunity than it would have if the Portfolio Managers and BFA and its affiliates did not
manage other portfolios or accounts.
Like the Fund, the
other portfolios or accounts for which the Portfolio Managers are primarily responsible for the day-to-day portfolio management generally pay an asset-based fee to BFA or its affiliates, as applicable, for its advisory services. One or more of those
other portfolios or accounts, however, may pay BFA an incentive-based fee in lieu of, or in addition to, an asset-based fee for its advisory services. A portfolio or account with an incentive-based fee would pay BFA a portion of that portfolio's or
account's gains, or would pay BFA more for its services than would otherwise be the case if BFA meets or exceeds specified performance targets. By their very nature, incentive-based fee arrangements could present an incentive for BFA or any of its
affiliates to devote greater resources, and allocate more investment opportunities, to the portfolios or accounts that have those fee arrangements, relative to other portfolios or accounts, in order to earn larger fees. Although BFA and its
affiliates have an obligation to allocate resources and opportunities equitably among portfolios and accounts and intends to do so, shareholders of the Fund should be aware that, as with any group of portfolios and accounts managed by an investment
adviser and/or its affiliates pursuant to varying fee arrangements, including incentive-based fee arrangements, there is the potential for a conflict-of-interest, that may result in the Portfolio Managers' favoring those portfolios or accounts with
incentive-based fee arrangements.
The tables below show,
for each Portfolio Manager, the number of portfolios or accounts of the types set forth in the above tables and the aggregate of total assets in those portfolios or accounts with respect to which the investment management fees are based on the
performance of those portfolios or accounts as of October 31, 2012:
James
Mauro |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
N/A
|
|
N/A
|
|
Other
Accounts |
|
1
|
|
$530,000,000
|
|
Scott
Radell |
|
|
|
|
|
Types
of Accounts |
|
Number
of Other Accounts with Performance Fees Managed by Portfolio Manager |
|
Aggregate
of Total Assets |
|
Registered
Investment Companies |
|
N/A
|
|
N/A
|
|
Other
Pooled Investment Vehicles |
|
1
|
|
$900,000,000
|
|
Other
Accounts |
|
1
|
|
$600,000,000
|
|
The discussion below describes the Portfolio Managers'
compensation as of October 31, 2012.
Portfolio Manager
Compensation Overview
BlackRock, Inc.'s financial
arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to
year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established
by BlackRock, Inc.
Base compensation. Generally, portfolio managers receive base compensation based on their position with the firm.
Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager's group within BlackRock, Inc. and the individual's performance and
contribution to the overall performance of these portfolios and BlackRock, Inc.
Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of years. The BlackRock, Inc. restricted
stock units, if properly vested, will be settled in BlackRock, Inc. common stock. Typically, the cash bonus, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of annual
bonuses in stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock, Inc.'s ability to sustain and improve its performance over future periods.
Long-Term Incentive Plan Awards — From time to time, long-term incentive equity awards are granted to certain key employees to aid in retention, align their interests with long-term shareholder interests and motivate performance. Equity awards are
generally granted in the form of BlackRock, Inc. restricted stock units that, once vested, settle in BlackRock, Inc. common stock.
Deferred Compensation Program
— A portion of the compensation paid to eligible BlackRock, Inc. employees may be voluntarily deferred at their election for defined periods of time into an account that tracks the performance of certain of the firm's investment products. All
of the eligible portfolio managers have participated in the deferred compensation program.
Other Compensation Benefits. In
addition to base compensation and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:
Incentive Savings Plans
— BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (“RSP”), and the BlackRock Employee
Stock Purchase Plan (“ESPP”). The employer contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution
equal to 3-5% of eligible compensation up to the U.S. Internal Revenue Service (the “IRS”) limit ($250,000 for 2012). The RSP offers a range of investment options, including registered investment companies and collective investment funds
managed by the firm. BlackRock, Inc. contributions follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested into an index target date fund that corresponds to, or is
closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to
the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the Purchase Date. James Mauro and Scott Radell are each eligible to participate in these plans.
As of October 31, 2012, the Portfolio Managers did not
beneficially own any shares of the Fund.
Codes of Ethics. The Company, BFA and the Distributor have adopted codes of ethics pursuant to Rule 17j-1 of the 1940 Act. The codes of ethics permit personnel subject to the codes of ethics to invest in securities, subject to
certain limitations, including securities that may be purchased or held by the Fund. The codes of ethics are on public file with, and are available from, the SEC.
Anti-Money Laundering Requirements. The Fund is subject to the USA PATRIOT Act (the “Patriot Act”). The Patriot Act is intended to prevent the use of the U.S. financial system in furtherance of money laundering, terrorism or other
illicit activities. Pursuant to requirements under the Patriot Act, the Fund may request information from Authorized Participants to enable it to form a reasonable belief that it knows the true identity of its Authorized Participants. This
information will be used to verify the identity of Authorized Participants or, in some cases, the status of financial professionals; it will be used only for compliance with the requirements of the Patriot Act.
The Fund reserves the right to reject purchase orders from
persons who have not submitted information sufficient to allow the Fund to verify their identity. The Fund also reserves the right to redeem any amounts in the Fund from persons whose identity it is unable to verify on a timely basis. It is the
Fund's policy to cooperate fully with appropriate regulators in any investigations conducted with respect to potential money laundering, terrorism or other illicit activities.
Administrator, Custodian and Transfer Agent. State Street Bank and Trust Company (“State Street”) serves as administrator, custodian and transfer agent for the Fund under the Master Services Agreement and related Service Schedule (the
“Service Module”). State Street’s principal address is 200 Clarendon Street, Boston, MA 02116. Pursuant to the Service Module for Fund Administration and Accounting Services with the Company, State Street provides necessary
administrative, legal, tax and accounting and financial reporting services for the maintenance and operations of the Company and the Fund. In addition, State Street makes available the office space, equipment, personnel and facilities required to
provide such services. Pursuant to the Service Module for Custodial Services with the Company, State Street maintains, in separate accounts, cash, securities and other assets of the Company and the Fund, keeps all necessary accounts and records and
provides other services. State Street is required, upon the order of the Company, to deliver securities held by State Street and to make payments for securities purchased by the Company for the Fund. State Street is authorized to appoint certain
foreign custodians or foreign custody managers for Fund investments outside the United States. Pursuant to the Service Module for Transfer Agency Services with the Company, State Street acts as a transfer agent for the Fund’s authorized and
issued shares of beneficial interest, and as dividend disbursing agent of the Company. As compensation for these services, State Street receives certain out-of-pocket costs, transaction fees and asset-based fees which are accrued daily and paid
monthly by BFA from its management fee.
Distributor.
The Distributor's principal address is 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310. Shares are continuously offered for sale by the Fund through the Distributor or its agent only in Creation
Units, as described in the Prospectus and below in the Creation and Redemption of Creation
Units section of this SAI. Fund shares in amounts less than Creation Units are generally not distributed by the Distributor or its agent. The Distributor or its agent will arrange for the delivery of the
Prospectus and, upon request, this SAI to persons purchasing Creation Units and will maintain records of both orders placed with it or its agents and confirmations of acceptance furnished by it or its agents. The Distributor is a broker-dealer
registered under the Securities Exchange Act of 1934, as amended (the “1934 Act”), and a member of the Financial Industry Regulatory Authority, Inc. (“ FINRA”).
The Distribution Agreement for the Fund provides that it may be
terminated at any time, without the payment of any penalty, on at least 60 days' prior written notice to the other party following (i) the vote of a majority of the Independent Directors, or (ii) the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund. The Distribution Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities
dealers (“Soliciting Dealers”) who will solicit purchases of Creation Units of Fund shares. Such Soliciting Dealers may also be Authorized Participants (as defined below), Depository Trust Company (“DTC”) participants and/or
investor services organizations.
BFA or its affiliates
may, from time to time and from its own resources, pay, defray or absorb costs relating to distribution, including payments out of its own resources to the Distributor, or to otherwise promote the sale of shares.
Payments by BFA and its Affiliates. BFA and/or its affiliates (“BFA Entities”) pay certain broker-dealers, banks and other financial intermediaries (“Intermediaries”) for certain activities related to the Funds, other iShares
funds or exchange-traded products in general. BFA Entities make these payments from their own assets and not from the assets of the Funds. Although a portion of BFA Entities’ revenue comes directly or indirectly in part from fees paid by the
Funds and other iShares funds, these payments do not increase the price paid by investors for the purchase of shares of, or the cost of owning, the Fund or other iShares funds. BFA Entities make payments for Intermediaries’ participation in
activities that are designed to make registered representatives, other professionals and individual investors more knowledgeable about exchange-traded products, including the Funds, or for other activities, such as participation in marketing
activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems (“Education Costs”). BFA Entities also make payments to Intermediaries for certain printing,
publishing and mailing costs associated with the Funds or materials relating to exchange-traded products in general (“Publishing Costs”). In addition, BFA Entities make payments to Intermediaries that make shares of the Funds and certain
other iShares funds available to their clients, develop new products that feature iShares or otherwise promote the Funds and other iShares funds. BFA Entities may also reimburse expenses or make payments from their own assets to Intermediaries or
other persons in consideration of services or other activities that the BFA Entities believe may benefit the iShares business or facilitate investment in iShares funds. Payments of the type described above are sometimes referred to as
revenue-sharing payments.
Payments to an
Intermediary may be significant to the Intermediary, and amounts that Intermediaries pay to your salesperson or other investment professional may also be significant for your salesperson or other investment professional.
Because an Intermediary may make decisions about which investment options it
will recommend or make available to its clients or what services to provide for various products based on payments it receives or is eligible to receive, such payments may create conflicts of interest between the Intermediary and its clients and
these financial incentives may cause the Intermediary to recommend the Fund and other iShares funds over other investments. The same conflict of interest and financial incentive exist with respect to your salesperson or other investment professional
if he or she receives similar payments from his or her Intermediary firm.
As of March 1, 2013, BFA Entities have contractual arrangements
to make payments (in addition to payments for Education Costs or Publishing Costs) to one Intermediary, Fidelity Brokerage Services LLC (“FBS”). Pursuant to this special, long-term and significant arrangement (the “Marketing
Program”), FBS and certain affiliates (collectively “Fidelity”) have agreed, among other things, to actively promote iShares funds to customers and investment professionals and in advertising campaigns as the preferred
exchange-traded product, to offer certain iShares funds in certain Fidelity platforms and investment programs, in some cases at a reduced commission rate, and to provide marketing data to BFA Entities. BFA Entities have agreed to facilitate the
Marketing Program by, among other things, making certain payments to FBS for marketing and implementing certain brokerage and investment programs. Upon termination of the arrangement, the BFA Entities will make additional payments to FBS based upon
a number of criteria, including the overall success of the Marketing Program and the level of services provided by FBS during the wind-down period.
Any additions, modifications, or deletions to Intermediaries
listed above that have occurred since the date noted above are not included in the list. Further, BFA Entities make Education Costs and Publishing Costs payments to other Intermediaries that are not listed above. BFA Entities may determine to make
such payments based on any number of metrics. For example, BFA Entities may make payments at year-end or other intervals in a fixed amount, an amount based upon an Intermediary’s services at defined levels or an amount based on the
Intermediary’s net sales of one or more iShares funds in a year or other period, any of which arrangements may include an agreed-upon minimum or maximum payment, or any combination of the foregoing. As of the date of this SAI, BFA anticipates
that the payments paid by BFA Entities in connection with the Funds, iShares funds and exchange-traded products in general will be immaterial to BFA Entities in the aggregate for the next year. Please contact your
salesperson or other investment professional for more information regarding any such payments his or her Intermediary firm may receive. Any payments made by the BFA Entities to an Intermediary may create the incentive for an Intermediary to
encourage customers to buy shares of iShares funds.
The Fund may participate in certain market maker incentive
programs of a national securities exchange in which an affiliate of the Fund would pay a fee to the exchange used for the purpose of incentivizing one or more market makers in the securities of the Fund to enhance the liquidity and quality of the
secondary market of securities of the Fund. The fee would then be credited by the exchange to one or more market makers that meet or exceed liquidity and market quality standards with respect to the securities of the Fund. Each market maker
incentive program is subject to approval from the SEC. Any such fee payments made to an exchange will be made by an affiliate of the Fund solely for the benefit of the Fund and will not be paid from any Fund assets.
Brokerage Transactions
BFA assumes general supervision over placing orders on behalf
of the Fund for the purchase and sale of portfolio securities. In selecting brokers or dealers for any transaction in portfolio securities, BFA’s policy is to make such selection based on factors deemed relevant, including but not limited to,
the breadth of the market in the security, the price of the security, the reasonableness of the commission or mark-up or mark-down, if any, execution capability, settlement capability, back office efficiency and the financial condition of the broker
or dealer, both for the specific transaction and on a continuing basis. The overall reasonableness of brokerage commissions paid is evaluated by BFA based upon its knowledge of available information as to the general level of commissions paid by
other institutional investors for comparable services. Brokers may also be selected because of their ability to handle special or difficult executions, such as may be involved in large block trades, less liquid securities, broad distributions, or
other circumstances. BFA does not consider the provision or value of research, products or services a broker or dealer may provide, if any, as a factor in the selection of a broker or dealer or the determination of the reasonableness of commissions
paid in connection with portfolio transactions. The Company has adopted policies and procedures that prohibit the consideration of sales of the Fund’s shares as a factor in the selection of a broker or a dealer to execute its portfolio
transactions.
Purchases and sales of fixed-income securities for the Fund
usually are principal transactions and ordinarily are purchased directly from the issuer or from an underwriter or broker-dealer. The Fund does not usually pay brokerage commissions in connection with such purchases and sales, but such transactions
may be subject to mark-ups or mark-downs.
The Fund's
purchase and sale orders for securities may be combined with those of other investment companies, clients or accounts that BFA or its affiliates manage or advise and for which they have brokerage placement authority. If purchases or sales of
portfolio securities of the Fund and one or more other accounts managed or advised by BFA or its affiliates are considered at or about the same time, transactions in such securities are allocated among the Fund and the other accounts in a manner
deemed equitable to all by BFA and its affiliates. In some cases, this procedure could have a detrimental effect on the price or volume of the security as far as the Fund is concerned. However, in other cases, it is possible that the ability to
participate in volume transactions and to negotiate lower transaction costs will be beneficial to the Fund. BFA and its affiliates may deal, trade and invest for their own account in the types of securities in which the Fund may invest. BFA and its
affiliates may, from time to time, effect trades on behalf of and for the account of the Fund with brokers or dealers that are affiliated with BFA, in conformity with the 1940 Act and SEC rules and regulations. Under these provisions, any
commissions paid to affiliated brokers or dealers must be reasonable and fair compared to the commissions charged by other brokers or dealers in comparable transactions. The Fund will not deal with affiliates in principal transactions unless
permitted by applicable SEC rules or regulations, or by SEC exemptive order.
Portfolio turnover may vary from year to year, as well as
within a year. High turnover rates may result in comparatively greater brokerage expenses.
Additional Information Concerning the Company
Capital Stock. The
Company currently is comprised of 57 series referred to as funds. Each series issues shares of common stock, par value $0.001 per share. The Company has authorized and issued the following funds as separate series of capital stock: iShares
Asia/Pacific Dividend 30 Index Fund, iShares Core MSCI Emerging Markets ETF, iShares Emerging Markets Corporate Bond Fund, iShares Emerging Markets Dividend Index Fund, iShares Emerging Markets High Yield Bond Fund, iShares Emerging Markets Local
Currency Bond Fund, iShares Global ex USD High Yield Corporate Bond Fund, iShares Global High Yield Corporate Bond Fund, iShares Latin America Bond Fund, iShares MSCI All Country World Minimum Volatility Index Fund, iShares MSCI Australia Index
Fund, iShares MSCI Austria Investable Market Index Fund, iShares MSCI Belgium Capped Investable Market Index Fund, iShares MSCI Brazil Index Fund, iShares MSCI BRIC Index Fund, iShares MSCI Canada Index Fund, iShares MSCI Chile Investable Market
Index Fund, iShares MSCI Emerging Markets Asia Index Fund, iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund, iShares MSCI Emerging Markets Eastern Europe Index Fund, iShares MSCI Emerging Markets EMEA Index Fund, iShares MSCI
Emerging Markets Energy Sector Capped Index Fund, iShares MSCI Emerging Markets Growth Index Fund, iShares MSCI Emerging Markets 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, iShares MSCI EMU Index Fund, iShares MSCI France Index Fund, iShares MSCI Frontier 100 Index Fund, iShares MSCI Germany Index Fund, 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, iShares MSCI Global Silver Miners Fund, iShares MSCI Hong Kong Index Fund, iShares MSCI Israel Capped Investable
Market Index Fund, iShares MSCI Italy Index Fund, iShares MSCI Japan Index Fund, iShares MSCI Japan Small Cap Index Fund, iShares MSCI Malaysia Index Fund, iShares MSCI Mexico Investable Market Index Fund, iShares MSCI Netherlands Investable Market
Index Fund, iShares MSCI Pacific ex-Japan Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI South Africa Index Fund, iShares MSCI South Korea Index Fund, iShares MSCI Spain Index Fund, iShares MSCI Sweden Index Fund, iShares MSCI
Switzerland Index Fund, iShares MSCI Taiwan Index Fund, iShares MSCI Thailand Investable Market Index Fund, iShares MSCI Turkey Investable Market Index Fund, iShares MSCI United Kingdom Index Fund, iShares MSCI USA Index Fund and iShares MSCI World
Index Fund. The Company has authorized for issuance, but is not currently offering for sale to the public, nine additional series of shares of common stock. The Board may designate additional series of common stock and classify shares of a
particular series into one or more classes of that series. The Amended and Restated Articles of Incorporation confers upon the Board the power to establish the number of shares which constitute a Creation Unit or by resolution, restrict the
redemption right to Creation Units.
Each share
issued by a fund has a pro rata interest in the assets of that fund. The Company is currently authorized to issue 31.85 billion shares of common stock. The following number of shares is currently authorized
for each of the funds: iShares Asia/Pacific Dividend 30 Index Fund, 500 million shares; iShares Core MSCI Emerging Markets ETF, 250 million shares;
iShares Emerging Markets Corporate Bond Fund, 500 million shares; iShares
Emerging Markets Dividend Index Fund, 500 million shares; iShares Emerging Markets High Yield Bond Fund, 500 million shares; iShares Emerging Markets Local Currency Bond Fund, 500 million shares; iShares Global ex USD High Yield Corporate Bond Fund,
500 million shares; iShares Global High Yield Corporate Bond Fund, 500 million shares; iShares Latin America Bond Fund, 500 million shares; iShares MSCI All Country World Minimum Volatility Index Fund, 500 million shares; iShares MSCI Australia
Index Fund, 627.8 million shares; iShares MSCI Austria Investable Market Index Fund, 100 million shares; iShares MSCI Belgium Capped Investable Market Index Fund, 136.2 million shares; iShares MSCI Brazil Index Fund, 500 million shares; iShares MSCI
BRIC Index Fund, 500 million shares; iShares MSCI Canada Index Fund, 340.2 million shares; iShares MSCI Chile Investable Market Index Fund, 200 million shares; iShares MSCI Emerging Markets Asia Index Fund, 500 million shares; iShares MSCI Emerging
Markets Consumer Discretionary Sector Index Fund, 500 million shares; iShares MSCI Emerging Markets Eastern Europe Index Fund, 200 million shares; iShares MSCI Emerging Markets EMEA Index Fund, 500 million shares; iShares MSCI Emerging Markets
Energy Sector Capped Index Fund, 500 million shares; iShares MSCI Emerging Markets Growth Index Fund, 500 million shares; iShares MSCI Emerging Markets Index Fund, 2 billion shares; iShares MSCI Emerging Markets Minimum Volatility Index Fund, 500
million shares; iShares MSCI Emerging Markets Small Cap Index Fund, 500 million shares; iShares MSCI Emerging Markets Value Index Fund, 500 million shares; iShares MSCI EMU Index Fund, 1 billion shares; iShares MSCI France Index Fund, 340.2 million
shares; iShares MSCI Frontier 100 Index Fund, 500 million shares; iShares MSCI Germany Index Fund, 382.2 million shares; iShares MSCI Global Agriculture Producers Fund, 500 million shares; iShares MSCI Global Energy Producers Fund, 500 million
shares; iShares MSCI Global Gold Miners Fund, 500 million shares; iShares MSCI Global Select Metals & Mining Producers Fund, 500 million shares; iShares MSCI Global Silver Miners Fund, 500 million shares; iShares MSCI Hong Kong Index Fund, 250
million shares; iShares MSCI Israel Capped Investable Market Index Fund, 500 million shares; iShares MSCI Italy Index Fund, 63.6 million shares; iShares MSCI Japan Index Fund, 2.1246 billion shares; iShares MSCI Japan Small Cap Index Fund, 500
million shares; iShares MSCI Malaysia Index Fund, 300 million shares; iShares MSCI Mexico Investable Market Index Fund, 255 million shares; iShares MSCI Netherlands Investable Market Index Fund, 255 million shares; iShares MSCI Pacific ex-Japan
Index Fund, 1 billion shares; iShares MSCI Singapore Index Fund, 300 million shares; iShares MSCI South Africa Index Fund, 400 million shares; iShares MSCI South Korea Index Fund, 200 million shares; iShares MSCI Spain Index Fund, 127.8 million
shares; iShares MSCI Sweden Index Fund, 63.6 million shares; iShares MSCI Switzerland Index Fund, 318.625 million shares; iShares MSCI Taiwan Index Fund, 900 million shares; iShares MSCI Thailand Investable Market Index Fund, 200 million shares;
iShares MSCI Turkey Investable Market Index Fund, 200 million shares; iShares MSCI United Kingdom Index Fund, 934.2 million shares; iShares MSCI USA Index Fund, 500 million shares; and iShares MSCI World Index Fund, 500 million shares. Fractional
shares will not be issued. Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each share is entitled to participate equally in dividends and distributions declared by the Board with respect to the
relevant fund, and in the net distributable assets of such fund on liquidation. Shareholders are entitled to require the Company to redeem Creation Units of their shares. The Articles of Incorporation confer upon the Board the power, by resolution,
to alter the number of shares constituting a Creation Unit or to specify that shares of common stock of the Company may be individually redeemable.
Each share has one vote with respect to matters upon which a
stockholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder and the Maryland General Corporation Law. Stockholders have no cumulative voting rights with respect to their shares. Shares of all
funds vote together as a single class except that, if the matter being voted on affects only a particular fund or, if a matter affects a particular fund differently from other funds, that fund will vote separately on such matter.
Under Maryland law, the Company is not required to hold an
annual meeting of stockholders unless required to do so under the 1940 Act. The policy of the Company is not to hold an annual meeting of stockholders unless required to do so under the 1940 Act. Under Maryland law, Directors of the Company may be
removed by vote of the stockholders.
Following the
creation of the initial Creation Unit(s) of shares of a fund and immediately prior to the commencement of trading in the fund’s shares, a holder of shares may be a “control person” of the fund, as defined in the 1940 Act. The fund
cannot predict the length of time for which one or more stockholders may remain a control person of the fund.
Stockholders may make inquiries by writing to iShares, Inc.,
c/o BlackRock Investments, LLC, 525 Washington Boulevard, Suite 1405, Jersey City, NJ 07310.
Absent an applicable exemption or other relief from the SEC or
its staff, beneficial owners of more than 5% of the shares of a fund may be subject to the reporting provisions of Section 13 of the 1934 Act and the SEC’s rules promulgated thereunder. In addition, absent an applicable exemption or other
relief from the SEC or its staff, officers and directors of the fund and
beneficial owners of 10% of the shares of the fund (“Insiders”)
may be subject to the insider reporting, short-swing profit and short sale provisions of Section 16 of the 1934 Act and the SEC’s rules promulgated thereunder. Beneficial owners and Insiders should consult with their own legal counsel
concerning their obligations under Sections 13 and 16 of the 1934 Act.
Termination of the Company or the Fund. The Company or the Fund may be terminated by a majority vote of the Board, subject to the affirmative vote of a majority of the stockholders of the Company or the Fund entitled to vote on termination. Although the
shares are not automatically redeemable upon the occurrence of any specific event, the organizational documents provides that the Board will have the unrestricted power to alter the number of shares in a Creation Unit. In the event of a termination
of the Company or the Fund, the Board, in its sole discretion, could determine to permit the shares to be redeemable in aggregations smaller than Creation Units or to be individually redeemable. In such circumstance, the Company may make redemptions
in-kind, for cash or for a combination of cash or securities.
DTC as Securities Depository for Shares of the Fund. Shares of the Fund are represented by securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold
securities of its participants (“DTC Participants”) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities’ certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (“NYSE”), the NYSE Amex Equities and FINRA. Access to the DTC system is also available to
others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (“Indirect Participants”).
Beneficial ownership of shares is limited to DTC Participants,
Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in shares (owners of such beneficial interests are referred to herein as “Beneficial Owners”) is
shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of shares.
Conveyance of all notices, statements and other communications
to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Company and DTC, DTC is required to make available to the Company upon request and for a fee to be charged to the Company a listing of the shares of the
Fund held by each DTC Participant. The Company shall inquire of each such DTC Participant as to the number of Beneficial Owners holding shares, directly or indirectly, through such DTC Participant. The Company shall provide each such DTC Participant
with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant,
directly or indirectly, to such Beneficial Owners. In addition, the Company shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and
regulatory requirements.
Share distributions shall be
made to DTC or its nominee, Cede & Co., as the registered holder of all shares of the Company. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants’ accounts with payments in amounts
proportionate to their respective beneficial interests in shares of the Fund as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of shares held through such DTC Participants will
be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will be the responsibility of such DTC
Participants.
The Company has no responsibility or
liability for any aspect of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such shares, or for maintaining, supervising or reviewing any records relating to such beneficial
ownership interests, or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants. DTC may
decide to discontinue providing its service with respect to shares of the Company at any time by giving reasonable notice to the Company and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the
Company shall take action to find a replacement for DTC to perform its functions at a comparable cost.
Creation and Redemption of Creation Units
General. The Company
issues and sells shares of the Fund only in Creation Units on a continuous basis through the Distributor or its agent, without a sales load, at a price based on the Fund's NAV next determined after receipt, on any Business Day (as defined
below), of an order received by the Distributor or its agent in proper form. The following table sets forth the number of shares of the Fund that constitute a Creation Unit for the Fund and the value of such Creation Unit as of November 30,
2012:
Shares
Per Creation Unit |
|
Value
Per Creation Unit (U.S.$) |
200,000
|
|
$10,000,000
|
The Board reserves the right to
declare a split or a consolidation in the number of shares outstanding of the Fund, and to make a corresponding change in the number of shares constituting a Creation Unit, in the event that the per share price in the secondary market rises (or
declines) to an amount that falls outside the range deemed desirable by the Board.
A “Business Day” with respect to the Fund is any
day on which the Listing Exchange on which the Fund is listed for trading is open for business. As of the date of this SAI, the Listing Exchange observes the following holidays, as observed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Fund Deposit. The
consideration for purchase of Creation Units of the Fund generally consists of the in-kind deposit of a designated portfolio of securities (including any portion of such securities for which cash may be substituted) (“Deposit
Securities”) and the Cash Component computed as described below. Together, the Deposit Securities and the Cash Component constitute the “Fund Deposit,” which, when combined with the Fund's portfolio securities is designed to
generate performance that has a collective investment profile similar to that of the Underlying Index. The Fund Deposit represents the minimum initial and subsequent investment amount for a Creation Unit of the Fund.
The “Cash
Component” is an amount equal to the difference between the NAV of the shares (per Creation Unit) and the “Deposit Amount,” which is an amount equal to the market value of the Deposit Securities, and serves to compensate for any
differences between the NAV per Creation Unit and the Deposit Amount. Payment of any stamp duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Securities are the sole responsibility of the Authorized
Participant purchasing the Creation Unit.
The
portfolio of securities required for purchase of a Creation Unit may not be identical to the portfolio of securities the Fund will deliver upon redemption of Fund shares. The Deposit Securities and Fund Securities (as defined below under
“Redemption of Shares in Creation Units”), as applicable, in connection with a purchase or redemption of a Creation Unit, generally will correspond pro rata, to the extent practicable, to the
securities held by the Fund.
BFA makes available through
the NSCC on each Business Day prior to the opening of business on the Listing Exchange, the list of names and the required number or par value of each Deposit Security and the amount of the Cash Component to be included in the current Fund Deposit
(based on information as of the end of the previous Business Day for the Fund). Such Fund Deposit is applicable, subject to any adjustments as described below, to purchases of Creation Units of shares of the Fund until such time as the
next-announced Fund Deposit is made available.
The
identity and number or par value of the Deposit Securities change pursuant to changes in the composition of the Fund's portfolio and as rebalancing adjustments and corporate action events are reflected from time to time by BFA with a view to the
investment objective of the Fund. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the component securities constituting the Underlying Index.
The Fund reserves the right to permit or require the
substitution of a “cash in lieu” amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through DTC or the Clearing
Process (as discussed below). If permitted by applicable laws to offer Creation Units of the Fund in exchange for the Fund Deposit, the Fund also reserves the right to permit or require a “cash in lieu” amount in certain circumstances,
including circumstances in which (i) the delivery of the Deposit Security by the
Authorized Participant (as described below) would be restricted under
applicable securities or other local laws or (ii) the delivery of the Deposit Security to the Authorized Participant would result in the disposition of the Deposit Security by the Authorized Participant becoming restricted under applicable
securities or other local laws, or in certain other situations.
Cash Purchase Method.
Although the Company does not ordinarily permit partial or full cash purchases of Creation Units of iShares funds, when partial or full cash purchases of Creation Units are available or specified for the
Fund, they will be effected in essentially the same manner as in-kind purchases thereof. In the case of a partial or full cash purchase, the Authorized Participant must pay the cash equivalent of the Deposit Securities it would otherwise be required
to provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind purchaser.
Procedures for Creation of Creation Units. To be eligible to place orders with the Distributor and to create a Creation Unit of the Fund, an entity must be: (i) a “Participating Party,” i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the NSCC (the “Clearing Process”),
a clearing agency that is registered with the SEC, or (ii) a DTC Participant, and must have executed an agreement with the Distributor, with respect to creations and redemptions of Creation Units (“Authorized Participant Agreement”)
(discussed below). A Participating Party or DTC Participant who has executed an Authorized Participant Agreement is referred to as an “Authorized Participant.” All shares of the Fund, however created, will be entered on the records of
DTC in the name of Cede & Co. for the account of a DTC Participant.
Role of the Authorized Participant. Creation Units may be purchased only by or through a DTC Participant that has entered into an Authorized Participant Agreement with the Distributor. Such Authorized Participant will agree, pursuant to the terms of
such Authorized Participant Agreement and on behalf of itself or any investor on whose behalf it will act, to certain conditions, including that such Authorized Participant will make available in advance of each purchase of shares an amount of cash
sufficient to pay the Cash Component, once the net asset value of a Creation Unit is next determined after receipt of the purchase order in proper form, together with the transaction fees described below. An Authorized Participant, acting on behalf
of an investor, may require the investor to enter into an agreement with such Authorized Participant with respect to certain matters, including payment of the Cash Component. Investors who are not Authorized Participants must make appropriate
arrangements with an Authorized Participant. Investors should be aware that their particular broker may not be a DTC Participant or may not have executed an Authorized Participant Agreement and that orders to purchase Creation Units may have to be
placed by the investor's broker through an Authorized Participant. As a result, purchase orders placed through an Authorized Participant may result in additional charges to such investor. The Company does not expect to enter into an Authorized
Participant Agreement with more than a small number of DTC Participants. A list of current Authorized Participants may be obtained from the Distributor.
Placement of Creation
Orders. Fund Deposits must be delivered through the Federal Reserve System (for cash and U.S. government securities), through DTC (for corporate and municipal securities) or through a central depository
account, such as with Euroclear or DTC, maintained by State Street or a sub-custodian (a “Central Depository Account”). Any portion of the Fund Deposit that may not be delivered through the Federal Reserve System or DTC must be delivered
through a Central Depository Account. The Fund Deposit transfers made through DTC must be ordered by the DTC Participant in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities through DTC to the account of the
Fund generally before 3:00 p.m., Eastern time on the Settlement Date. Fund Deposit transfers made through the Federal Reserve System must be deposited by the participant institution in a timely fashion so as to ensure the delivery of the requisite
number or amount of Deposit Securities or cash through the Federal Reserve System to the account of the Fund generally before 3:00 p.m., Eastern time on the Settlement Date. Fund Deposit transfers made through a Central Depository Account must be
completed pursuant to the requirements established by the Custodian or sub-custodian for such Central Depository Account generally before 2:00 p.m., Eastern time on the Settlement Date. The “Settlement Date” for the Fund is generally the
third business day after the Transmittal Date. All questions as to the number of Deposit Securities to be delivered, and the validity, form and eligibility (including time of receipt) for the deposit of any tendered securities, will be determined by
the Company, whose determination shall be final and binding. The amount of cash equal to the Cash Component must be transferred directly to State Street through the Federal Reserve Bank wire transfer system in a timely manner so as to be received by
State Street generally before 3:00 p.m., Eastern time on the Settlement Date. If the Cash Component and the Deposit Securities are not received generally before 3:00 p.m., Eastern time on the Settlement Date, the creation order may be canceled. Upon
written notice to the Distributor, such canceled order may be resubmitted the following Business Day using the Fund Deposit as newly constituted to reflect the then current NAV of the Fund. The delivery of Creation Units so created generally will
occur no later than the third Business Day following the day on which the purchase order is deemed received by the Distributor, provided that the relevant Fund Deposit has been received by the Fund prior to such time.
Purchase Orders. To
initiate an order for a Creation Unit, an Authorized Participant must submit to the Distributor or its agent an irrevocable order to purchase shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day to receive that
day’s NAV. On days when the Listing Exchange or the bond markets close earlier than normal, the Fund may require orders for Creation Units to be placed earlier in the day. The Distributor or its agent will notify BFA and the custodian of such
order. The custodian will then provide such information to any appropriate sub-custodian. Procedures and requirements governing the delivery of the Fund Deposit are set forth in the procedures handbook for Authorized Participants and may change from
time to time. Investors, other than Authorized Participants, are responsible for making arrangements for a creation request to be made through an Authorized Participant. The Distributor or its agent will provide a list of current Authorized
Participants upon request. Those placing orders to purchase Creation Units through an Authorized Participant should allow sufficient time to permit proper submission of the purchase order to the Distributor or its agent by the Cutoff Time (as
defined below) on such Business Day.
The
Authorized Participant must also make available on or before the contractual settlement date, by means satisfactory to the Fund, immediately available or same day funds estimated by the Fund to be sufficient to pay the Cash Component next determined
after acceptance of the purchase order, together with the applicable purchase transaction fees. Any excess funds will be returned following settlement of the issue of the Creation Unit. Those placing orders should ascertain the deadline for cash
transfers by contacting the operations department of the broker or depositary institution effectuating the transfer of the Cash Component. This deadline is likely to be significantly earlier than the Cutoff Time of the Fund. Investors should be
aware that an Authorized Participant may require orders for purchases of shares placed with it to be in the particular form required by the individual Authorized Participant.
The Authorized Participant is responsible for any and all
expenses and costs incurred by the Fund, including any applicable cash amounts, in connection with any purchase order.
Timing of Submission of Purchase Orders. An Authorized Participant must submit an irrevocable order to purchase shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that day's NAV. Creation Orders must be
transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor or its agent pursuant to procedures set forth in the Authorized Participant Agreement, as described below. Economic or market
disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor or its agent or an Authorized Participant. The Fund's deadline specified above for the submission of purchase orders is referred to
as the Fund's “Cutoff Time.” The Distributor or its agent, in their discretion, may permit the submission of such orders and requests by or through an Authorized Participant at any time (including on days on which the Listing Exchange is
not open for business) via communication through the facilities of the Distributor's or its agent's proprietary website maintained for this purpose. Purchase orders and redemption requests, if accepted by the Company, will be processed based on the
NAV next determined after such acceptance in accordance with the Fund's Cutoff Times as provided in the Authorized Participant Agreement and disclosed in this SAI.
Acceptance of Orders for Creation Units. Subject to the conditions that (i) an irrevocable purchase order has been submitted by the Authorized Participant (either on its own or another investor's behalf) and (ii) arrangements satisfactory to the Fund
are in place for payment of the Cash Component and any other cash amounts which may be due, the Fund will accept the order, subject to the Fund's right (and the right of the Distributor and BFA) to reject any order until acceptance, as set forth
below.
Once the Fund has accepted an order, upon
the next determination of the net asset value of the shares, the Fund will confirm the issuance of a Creation Unit, against receipt of payment, at such net asset value. The Distributor or its agent will then transmit a confirmation of acceptance to
the Authorized Participant that placed the order.
The
Fund reserves the absolute right to reject or revoke a creation order transmitted to it by the Distributor or its agent if (i) the order is not in proper form; (ii) the investor(s), upon obtaining the shares ordered, would own 80% or more of the
currently outstanding shares of the Fund; (iii) the Deposit Securities delivered do not conform to the identity and number of shares specified, as described above; (iv) acceptance of the Deposit Securities would have certain adverse tax consequences
to the Fund; (v) acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would, in the discretion of the Fund or BFA, have an adverse effect on the Fund or the rights of beneficial owners; or
(vii) circumstances outside the control of the Fund, the Distributor or its agent and BFA make it impracticable to process purchase orders. The Distributor or its agent shall notify a prospective purchaser of a Creation Unit and/or the Authorized
Participant acting on behalf of such purchaser of its rejection of such order. The Fund, State Street, the sub-custodian and
the Distributor or its agent are under no duty, however, to give notification
of any defects or irregularities in the delivery of Fund Deposits nor shall any of them incur any liability for failure to give such notification.
Issuance of a Creation
Unit. Except as provided herein, a Creation Unit will not be issued until the transfer of good title to the Fund of the Deposit Securities and the payment of the Cash Component have been completed. When the
sub-custodian has confirmed to the custodian that the securities included in the Fund Deposit (or the cash value thereof) have been delivered to the account of the relevant sub-custodian or sub-custodians, the Distributor or its agent and BFA shall
be notified of such delivery and the Fund will issue and cause the delivery of the Creation Unit. Creation Units typically are issued on a “T+3 basis” (i.e., three Business Days after trade date).
To the extent contemplated by an Authorized Participant's
agreement with the Distributor, the Fund will issue Creation Units to such Authorized Participant, notwithstanding the fact that the corresponding Fund Deposits have not been received in part or in whole, in reliance on the undertaking of the
Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participant's delivery and maintenance of collateral having a value at least equal to 105% and up to 115%,
which percentage BFA may change at any time, in its sole discretion, of the value of the missing Deposit Securities in accordance with the Fund's then-effective procedures. The only collateral that is acceptable to the Fund is cash in U.S. dollars.
Such cash collateral must be delivered no later than 2:00 p.m., Eastern time on the contractual settlement date. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any,
on invested cash collateral will be paid to that Authorized Participant. Information concerning the Fund's current procedures for collateralization of missing Deposit Securities is available from the Distributor or its agent. The Authorized
Participant Agreement will permit the Fund to buy the missing Deposit Securities at any time and will subject the Authorized Participant to liability for any shortfall between the cost to the Fund of purchasing such securities and the cash
collateral.
In certain cases, Authorized Participants may
create and redeem Creation Units on the same trade date and in these instances, the Fund reserves the right to settle these transactions on a net basis or require a representation from the Authorized Participants that the creation and redemption
transactions are for separate beneficial owners. All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined
by the Fund and the Fund's determination shall be final and binding.
Costs Associated with Creation Transactions. A standard creation transaction fee is imposed to offset the transfer and other transaction costs associated with the issuance of Creation Units. The standard creation transaction fee is charged to the Authorized
Participant on the day such Authorized Participant creates a Creation Unit, and is the same, regardless of the number of Creation Units purchased by the Authorized Participant on the applicable Business Day. The Authorized Participant may also be
required to cover certain brokerage, tax, foreign exchange, execution, market impact and other costs and expenses related to the execution of trades resulting from such transaction (up to the maximum amount shown below). Authorized Participants will
also bear the costs of transferring the Deposit Securities to the Fund. Investors who use the services of a broker or other financial intermediary to acquire Fund shares may be charged a fee for such services.
The following table sets forth the Fund's standard creation
transaction fees and maximum additional charge (as described above):
Standard
Creation Transaction Fee |
|
Maximum
Additional Charge for Creations* |
$1,300
|
|
3.0%
|
* |
As a percentage of the net
asset value per Creation Unit. |
Redemption of Creation Units.
Shares of the Fund may be redeemed by Authorized Participants only in Creation Units at
their NAV next determined after receipt of a redemption request in proper form by the Distributor or its agent and
only on a Business Day. The Fund will not redeem shares in amounts less than Creation Units. There can be no assurance, however, that there will be sufficient liquidity in the secondary market at any time to permit assembly of a Creation Unit.
Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of shares to constitute a Creation Unit that could be redeemed by an Authorized Participant. Beneficial owners also may sell shares in
the secondary market.
The Fund generally redeems Creation Units for Fund Securities.
Please see the Cash Redemption Method section below and the following discussion summarizing the in-kind method for further information on redeeming Creation Units of the Fund.
BFA makes available through the NSCC, prior to the opening of
business on the Listing Exchange on each Business Day, the designated portfolio of securities (including any portion of such securities for which cash may be substituted) that will be applicable (subject to possible amendment or correction) to
redemption requests received in proper form (as defined below) on that day (“Fund Securities”), and an amount of cash (the “Cash Amount,” as described below). Such Fund Securities and the corresponding Cash Amount (each
subject to possible amendment or correction) are applicable, in order to effect redemptions of Creation Units of the Fund until such time as the next announced composition of the Fund Securities and Cash Amount is made available. Fund Securities
received on redemption may not be identical to Deposit Securities that are applicable to creations of Creation Units.
Unless cash redemptions are available or specified for the
Fund, the redemption proceeds for a Creation Unit generally consist of Fund Securities, plus the Cash Amount, which is an amount equal to the difference between the net asset value of the shares being redeemed, as next determined after the receipt
of a redemption request in proper form, and the value of Fund Securities, less a redemption transaction fee (as described below).
The Company may, in its sole discretion, substitute a
“cash in lieu” amount to replace any Fund Security. The amount of cash paid out in such cases will be equivalent to the value of the substituted security listed as a Fund Security. In the event that the Fund Securities have a value
greater than the NAV of the shares, a compensating cash payment equal to the difference is required to be made by or through an Authorized Participant by the redeeming shareholder. The Fund generally redeems Creation Units for Fund Securities, but
the Fund reserves the right to utilize a cash option for redemption of Creation Units.
Cash Redemption Method.
Although the Company does not ordinarily permit partial or full cash redemptions of Creation Units of iShares funds, when partial or full cash redemptions of Creation Units are available or specified for the Fund, they will be effected in
essentially the same manner as in-kind redemptions thereof. In the case of partial or full cash redemption, the Authorized Participant receives the cash equivalent of the Fund Securities it would otherwise receive through an in-kind redemption, plus
the same Cash Amount to be paid to an in-kind redeemer.
Costs Associated with Redemption Transactions. A standard redemption transaction fee is imposed to offset transfer and other transaction costs that may be incurred by the Fund. The standard redemption transaction fee is charged to the Authorized Participant on
the day such Authorized Participant redeems a Creation Unit, and is the same regardless of the number of Creation Units redeemed by an Authorized Participant on the applicable Business Day. The Authorized Participant may also be required to cover
certain brokerage, tax, foreign exchange, execution, market impact and other costs and expenses related to the execution of trades resulting from such transaction (up to the maximum amount shown below). Authorized Participants will also bear the
costs of transferring the Fund Securities from the Fund to their account on their order. Investors who use the services of a broker or other financial intermediary to dispose of Fund shares may be charged a fee for such services.
The following table sets forth the Fund's standard redemption
transaction fees and maximum additional charge (as described above):
Standard
Redemption Transaction Fee |
|
Maximum
Additional Charge for Redemptions* |
$1,300
|
|
2.0%
|
* |
As a percentage of the net
asset value per Creation Unit, inclusive of the standard redemption transaction fee. |
Placement of Redemption
Orders. Redemption requests for Creation Units of the Fund must be submitted to the Distributor or its agent by or through an Authorized Participant. An Authorized Participant must submit an irrevocable
request to redeem shares of the Fund generally before 4:00 p.m., Eastern time on any Business Day in order to receive that day's NAV. On days when the Listing Exchange closes earlier than normal, the Fund may require orders to redeem Creation Units
to be placed earlier that day. Investors, other than Authorized Participants, are responsible for making arrangements for a redemption request to be made through an Authorized Participant. The Distributor or its agent will provide a list of current
Authorized Participants upon request.
The Authorized Participant must transmit the request for
redemption in the form required by the Fund to the Distributor or its agent in accordance with procedures set forth in the Authorized Participant Agreement. Investors should be aware that their particular broker may not have executed an Authorized
Participant Agreement and that, therefore, requests to redeem Creation Units may have to be placed by the investor's broker through an Authorized Participant who has executed an Authorized Participant Agreement. At any time, only a limited number of
broker-dealers will have an Authorized Participant Agreement in effect. Investors making a redemption request should be aware that such request must be in the form specified by such Authorized Participant. Investors making a request to redeem
Creation Units should allow sufficient time to permit proper submission of the request by an Authorized Participant and transfer of the shares to the Fund's transfer agent; such investors should allow for the additional time that may be required to
effect redemptions through their banks, brokers or other financial intermediaries if such intermediaries are not Authorized Participants.
A redemption request is considered to be in “proper
form” if (i) an Authorized Participant has transferred or caused to be transferred to the Fund's transfer agent the Creation Unit redeemed through the book-entry system of DTC so as to be effective by the Listing Exchange closing time on any
Business Day, (ii) a request in form satisfactory to the Fund is received by the Distributor or its agent from the Authorized Participant on behalf of itself or another redeeming investor within the time periods specified above and (iii) all other
procedures set forth in the Authorized Participant Agreement are properly followed. If the transfer agent does not receive the investor's shares through DTC's facilities by 10:00 a.m., Eastern time on the Business Day next following the day that the
redemption request is received, the redemption request shall be rejected. Investors should be aware that the deadline for such transfers of shares through the DTC system may be significantly earlier than the close of business on the Listing
Exchange. Those making redemption requests should ascertain the deadline applicable to transfers of shares through the DTC system by contacting the operations department of the broker or depositary institution effecting the transfer of the
shares.
Upon receiving a redemption request, the
Distributor or its agent shall notify the Fund and the Fund's transfer agent of such redemption request. The tender of an investor's shares for redemption and the distribution of the securities and/or cash included in the redemption payment made in
respect of Creation Units redeemed will be made through DTC and the relevant Authorized Participant to the Beneficial Owner thereof as recorded on the book-entry system of DTC or the DTC Participant through which such investor holds, as the case may
be, or by such other means specified by the Authorized Participant submitting the redemption request.
A redeeming Beneficial Owner or Authorized Participant acting
on behalf of such Beneficial Owner must maintain appropriate security arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the portfolio securities are customarily traded, to which account
such portfolio securities will be delivered.
To the
extent contemplated by an Authorized Participant's agreement with the Distributor or its agent, in the event an Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the Creation Unit to be
redeemed to the Fund, at or prior to 10:00 a.m., Eastern time on the Listing Exchange business day after the date of submission of such redemption request, the Distributor or its agent will accept the redemption request in reliance on the
undertaking by the Authorized Participant to deliver the missing shares as soon as possible. Such undertaking shall be secured by the Authorized Participant's delivery and maintenance of collateral consisting of cash, in U.S. dollars in immediately
available funds, having a value at least equal to 105% and up to 115%, which percentage BFA may change at any time, in its sole discretion, of the value of the missing shares. Such cash collateral must be delivered no later than 10:00 a.m., Eastern
time on the day after the date of submission of such redemption request and shall be held by State Street and marked-to-market daily. The fees of State Street and any sub-custodians in respect of the delivery, maintenance and redelivery of the cash
collateral shall be payable by the Authorized Participant. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that
Authorized Participant. The Authorized Participant Agreement permits the Fund to acquire shares of the Fund at any time and subjects the Authorized Participant to liability for any shortfall between the aggregate of the cost to the Fund of
purchasing such shares, plus the value of the Cash Amount, and the value of the cash collateral.
Because the portfolio securities of the Fund may trade on
exchange(s) on days that the Listing Exchange is closed or are otherwise not Business Days for the Fund, shareholders may not be able to redeem their shares of the Fund, or purchase or sell shares of the Fund on the Listing Exchange on days when the
NAV of the Fund could be significantly affected by events in the relevant non-U.S. markets.
The right of redemption may be suspended or the date of payment
postponed with respect to the Fund: (i) for any period during which the Listing Exchange is closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the Listing Exchange is suspended or restricted;
(iii) for any period during which an emergency exists as a result of which disposal of the shares of the Fund's portfolio securities or determination of its net asset value is not reasonably practicable; or (iv) in such other circumstance as is
permitted by the SEC.
Taxation on Creations and Redemptions
of Creation Units. An Authorized Participant generally will recognize either gain or loss upon the exchange of Deposit Securities for Creation Units. This gain or loss is calculated by taking the market value
of the Creation Units purchased over the Authorized Participant’s aggregate basis in the Deposit Securities exchanged therefor. However, the IRS may apply the wash sales rules to determine that any loss realized upon the exchange of Deposit
Securities for Creation Units is not currently deductible. Authorized Participants should consult their own tax advisors.
Current U.S. federal tax laws dictate that capital gain or loss
realized from the redemption of Creation Units will generally create long-term capital gain or loss if the Authorized Participant holds the Creation Units for more than one year, or short-term capital gain or loss if the Creation Units were held for
one year or less, if the Creation Units are held as capital assets.
Regular Holidays. For
every occurrence of one or more intervening holidays in the applicable non-U.S. market or U.S. bond market that are not holidays observed in the U.S. equity market, the redemption settlement cycle will be extended by the number of such intervening
holidays. In addition to holidays, other unforeseeable closings in a non-U.S. market or U.S. bond market due to emergencies may also prevent the Company from delivering securities within normal settlement period.
The securities delivery cycles currently practicable for
transferring portfolio securities to redeeming investors, coupled with non-U.S. market or U.S. bond market holiday schedules, will require a delivery process longer than seven calendar days, in certain circumstances. The holidays applicable to the
Fund during such periods are listed below, as are instances where more than seven days will be needed to deliver redemption proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver
redemption proceeds in any given year is not expected to exceed the maximum number of days listed below for the Fund. The proclamation of new holidays, the treatment by market participants of certain days as “informal holidays” (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery
practices, could affect the information set forth herein at some time in the future.
In calendar years 2013 and 2014, the dates of regular holidays
affecting the relevant securities markets in which the Fund invests are as follows (please note these holiday schedules are subject to potential changes in the relevant securities markets):
2013
The
United States |
January
1 |
May
24* |
October
14 |
December
24* |
January
21 |
May
27 |
November
11 |
December
25 |
February
18 |
July
4 |
November
28 |
December
31* |
March
29* |
September
2 |
November
29* |
|
* |
The U.S. bond market has
recommended early close. |
2014
The
United States |
January
1 |
April
18 |
September
1 |
December
25 |
January
20 |
May
23* |
November
27 |
December
31* |
February
17 |
May
26 |
November
28* |
|
April
17* |
July
4 |
December
24* |
|
* |
The U.S. bond market has
recommended early close. |
Taxes
The following is a summary of certain material U.S. federal
income tax considerations regarding the purchase, ownership and disposition of shares of the Fund. This summary does not address all of the potential U.S. federal income tax consequences that may be applicable to the Fund or to all categories of
investors, some of which may be subject to special tax rules. Current and prospective shareholders are urged to consult their own tax advisers with respect to the specific federal, state, local and non-U.S. tax consequences of investing in the Fund.
The summary is based on the laws in effect on the date of this SAI and existing judicial and administrative interpretations thereof, all of which are subject to change, possibly with retroactive effect.
Regulated Investment Company Qualification. The Fund intends to continue to qualify for and to elect treatment as a separate RIC under Subchapter M of the Internal Revenue Code. To qualify for treatment as a RIC, the Fund must annually distribute at least
90% of its investment company taxable income (which includes dividends, interest and net short-term capital gains) and meet several other requirements. Among such other requirements are the following: (i) at least 90% of the Fund’s annual
gross income must be derived from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities or non-U.S. currencies, other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly-traded partnerships (i.e., partnerships that are traded on an established securities market or tradable on a secondary market, other than a partnership that derives 90% of its income
from interest, dividends, capital gains and other traditionally permitted mutual fund income); and (ii) at the close of each quarter of the Fund’s taxable year, (a) at least 50% of the market value of the Fund’s total assets must be
represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited for purposes of this calculation in respect of any one issuer to an amount not greater than 5% of the
value of the Fund’s assets and not greater than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of the Fund’s total assets may be invested in the securities of any one issuer, of two or
more issuers of which 20% or more of the voting stock is held by the Fund and that are engaged in the same or similar trades or businesses or related trades or businesses (other than the securities of other RICs) or the securities of one or more
qualified publicly-traded partnerships.
The Fund
may be able to cure a failure to derive 90% of its income from the sources specified above or a failure to diversify its holdings in the manner described above by paying a tax, by disposing of certain assets, or by paying a tax and disposing of
assets. If, in any taxable year, the Fund fails one of these tests and does not timely cure the failure, the Fund will be taxed in the same manner as an ordinary corporation and distributions to its shareholders will not be deductible by the Fund in
computing its taxable income.
Although in general the
passive loss rules of the Internal Revenue Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to an interest in a qualified publicly-traded partnership. The Fund’s investments in partnerships, including
in qualified publicly-traded partnerships, may result in the Fund being subject to state, local, or non-U.S. income, franchise or withholding tax liabilities.
Taxation of RICs. As a
RIC, the Fund will not be subject to U.S. federal income tax on the portion of its taxable investment income and capital gains that it distributes to its shareholders, provided that it satisfies a minimum distribution requirement. To satisfy the
minimum distribution requirement, the Fund must distribute to its shareholders at least the sum of (i) 90% of its “investment company taxable income” (i.e., income other than its net realized long-term capital gain over its net realized short-term capital loss), plus or minus certain adjustments, and (ii) 90% of its net tax-exempt income for the taxable year. The Fund will
be subject to income tax at regular corporate rates on any taxable income or gains that it does not distribute to its shareholders. If the Fund fails to qualify for any taxable year as a RIC or fails to meet the distribution requirement, all of its
taxable income will be subject to tax at regular corporate income tax rates without any deduction for distributions to shareholders, and such distributions generally will be taxable to shareholders as ordinary dividends to the extent of the
Fund’s current and accumulated earnings and profits. In such event, distributions to individuals should be eligible to be treated as qualified dividend income and distributions to corporate shareholders generally should be eligible for the
dividends-received deduction. Although the Fund intends to distribute substantially all of its net investment income and its capital gains for each taxable year, the Fund will be subject to U.S. federal income taxation to the extent any such income
or
gains are not distributed. Moreover, if the Fund fails to qualify as a RIC in
any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a RIC. If the Fund fails to qualify as a RIC for a period greater than two taxable years, the Fund may be required to recognize any net built-in
gains with respect to certain of its assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if the Fund had
been liquidated) if it qualifies as a RIC in a subsequent year.
Net Capital Loss Carryforwards. Net capital loss carryforwards may be applied against any net realized capital gains in each succeeding year, until they have been reduced to zero.
Excise Tax. The Fund
will be subject to a 4% excise tax on certain undistributed income if it does not distribute to its shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98.2% of its capital gain net income for the 12
months ended October 31 of such year. For this purpose, however, any ordinary income or capital gain net income retained by the Fund that is subject to corporate income tax will be considered to have been distributed by year-end. In addition, the
minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any underdistribution or overdistribution, as the case may be, from the previous year. The Fund intends to declare and distribute
dividends and distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax.
Taxation of U.S. Shareholders.
Dividends and other distributions by the Fund are generally treated under the Internal Revenue Code as received by the shareholders at the time the dividend or distribution is made. However, any dividend or
capital gain distribution declared by the Fund in October, November or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on December 31
of such calendar year and to have been paid by the Fund not later than such December 31, provided such dividend is actually paid by the Fund during January of the following calendar year.
The Fund intends to distribute annually to its shareholders
substantially all of its net tax-exempt income, investment company taxable income and any net realized long-term capital gains in excess of net realized short-term capital losses (including any capital loss carryovers). However, if the Fund retains
for investment an amount equal to all or a portion of its net long-term capital gains in excess of its net short-term capital losses (including any capital loss carryovers), it will be subject to a corporate tax (at a maximum rate of 35%) on the
amount retained. In that event, the Fund will designate such retained amounts as undistributed capital gains in a notice to its shareholders who (a) will be required to include in income for U.S. federal income tax purposes, as long-term capital
gains, their proportionate shares of the undistributed amount, (b) will be entitled to credit their proportionate shares of the 35% tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to
claim refunds to the extent their credits exceed their liabilities, if any, and (c) will be entitled to increase their tax basis, for U.S. federal income tax purposes, in their shares by an amount equal to 65% of the amount of undistributed capital
gains included in the shareholder’s income. Organizations or persons not subject to U.S. federal income tax on such capital gains will be entitled to a refund of their pro rata share of such taxes paid
by the Fund upon filing appropriate returns or claims for refund with the IRS.
Distributions of net realized long-term capital gains, if any,
that the Fund reports as capital gain dividends are taxable as long-term capital gains, whether paid in cash or in shares and regardless of how long a shareholder has held shares of the Fund. All other dividends of the Fund (including dividends from
short-term capital gains) from its current and accumulated earnings and profits (“regular dividends”) are generally subject to tax as ordinary income. Long-term capital gains are eligible for taxation at a maximum rate of 15% for
non-corporate shareholders with incomes below $400,000 ($450,000 if married filing jointly), 20% for individuals with any income above these amounts that is long-term capital gain and 0% at certain income levels. In addition, the top marginal
ordinary income tax rate is 39.6% for income in excess of the above thresholds.
If an individual receives a regular dividend qualifying for
the long-term capital gain rates and such dividend constitutes an “extraordinary dividend,” and the individual subsequently recognizes a loss on the sale or exchange of stock in respect of which the extraordinary dividend was paid, then
the loss will be long-term capital loss to the extent of such extraordinary dividend. An “extraordinary dividend” on common stock for this purpose is generally a dividend (i) in an amount greater than or equal to 10% of the
taxpayer’s tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within an 85-day period, or (ii) in an amount greater than 20% of the taxpayer’s tax basis (or trading value) in a share of stock,
aggregating dividends with ex-dividend dates within a 365-day period.
Distributions in excess of the Fund’s current and
accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of a shareholder’s basis in shares of the Fund, and as a capital gain thereafter (if the
shareholder holds shares of the Fund as capital assets). Distributions in
excess of the Fund’s minimum distribution requirements, but not in excess of the Fund’s earnings and profits, will be taxable to shareholders and will not constitute nontaxable returns of capital. Shareholders receiving dividends or
distributions in the form of additional shares should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the shareholders receiving cash dividends or distributions will receive
and should have a cost basis in the shares received equal to such amount. No deduction would be allowed to an investor for interest on indebtedness incurred or continued to purchase or carry shares of the Fund to the extent the interest deduction
would relate to exempt-interest dividends received.
Beginning in 2013, a 3.8% U.S. federal Medicare contribution
tax is imposed on net investment income, including, but not limited to, interest, dividends, and net gain from investments, of U.S. individuals with income exceeding $200,000 (or $250,000 if married filing jointly), and of estates and trusts.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares purchased at that time may reflect the amount of the forthcoming distribution, such dividend or distribution may nevertheless be taxable to them. If the Fund is the holder
of record of any security on the record date for any dividends payable with respect to such security, such dividends will be included in the Fund’s gross income not as of the date received but as of the later of (i) the date such security
became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the security would not be entitled to receive the declared, but unpaid, dividends); or (ii) the date the Fund acquired such
security. Accordingly, in order to satisfy its income distribution requirements, the Fund may be required to pay dividends based on anticipated earnings, and shareholders may receive dividends in an earlier year than would otherwise be the
case.
In certain situations, the Fund may, for a taxable
year, defer all or a portion of its net capital loss realized after October and its late-year ordinary loss (defined as the excess of post-October foreign currency and passive foreign investment company (“PFIC”) losses and other
post-December ordinary losses over post-October foreign currency and PFIC gains and other post-December ordinary income) until the next taxable year in computing its investment company taxable income and net capital gain, which will defer the
recognition of such realized losses. Such deferrals and other rules regarding gains and losses realized after October (or December) may affect the tax character of shareholder distributions.
Sales of Shares. Upon the
sale or exchange of shares of the Fund, a shareholder will realize a taxable gain or loss equal to the difference between the amount realized and the shareholder’s basis in shares of the Fund. A redemption of shares by the Fund will be treated
as a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder’s hands and will be long-term capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced, including replacement through the reinvesting of dividends and
capital gains distributions in the Fund, by, or by an option on, substantially identical shares within a 61-day period beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired
will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six months or less will be treated for U.S. federal income tax purposes as a long-term capital loss to the
extent of any distributions or deemed distributions of long-term capital gains received by the shareholder with respect to such share. The Medicare contribution tax described above will apply to the sale of Fund shares.
If a shareholder incurs a sales charge in acquiring shares of
the Fund, disposes of those shares within 90 days and then, on or before January 31 of the following calendar year, acquires shares in a mutual fund for which the otherwise applicable sales charge is reduced by reason of a reinvestment right (e.g., an exchange privilege), the original sales charge will not be taken into account in computing gain/loss on the original shares to the extent the subsequent sales charge is reduced. Instead, the disregarded
portion of the original sales charge will be added to the tax basis of the newly acquired shares. Furthermore, the same rule also applies to a disposition of the newly acquired shares made within 90 days of the second acquisition. This provision
prevents a shareholder from immediately deducting the sales charge by shifting his or her investment within a family of mutual funds.
Back-Up Withholding. In
certain cases, the Fund will be required to withhold at a 28% rate and remit to the U.S. Treasury such amounts withheld from any distributions paid to a shareholder who: (i) has failed to provide a correct taxpayer identification number; (ii) is
subject to back-up withholding by the IRS; (iii) has failed to certify to the Fund that such shareholder is not subject to back-up withholding; or (iv) has not certified that such shareholder is a U.S. person (including a U.S. resident alien).
Back-up withholding is not an additional tax and any amount withheld may be credited against a shareholder's U.S. federal income tax liability.
Sections 351 and 362.
The Company, on behalf of the Fund, has the right to reject an order for a purchase of shares of the Fund if the purchaser (or group of purchasers) would, upon obtaining the shares so ordered, own 80% or more
of the outstanding shares of the Fund and if, pursuant to Sections 351 and 362 of the Internal Revenue Code, the Fund would have a basis in the securities different from the market value of such securities on the date of deposit. If the Fund’s
basis in such securities on the date of deposit was less than market value on such date, the Fund, upon disposition of the securities, would recognize more taxable gain or less taxable loss than if its basis in the securities had been equal to
market value. It is not anticipated that the Company will exercise the right of rejection except in a case where the Company determines that accepting the order could result in material adverse tax consequences to the Fund or its shareholders. The
Company also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination.
Taxation of Certain
Derivatives. The Fund’s transactions in zero coupon securities, non-U.S. currencies, forward contracts, options and futures contracts (including options and futures contracts on non-U.S. currencies), to
the extent permitted, will be subject to special provisions of the Internal Revenue Code (including provisions relating to “hedging transactions” and “straddles”) that, among other things, may affect the character of gains
and losses realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and
defer Fund losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also (a) will require the Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out at the end of each year) and (b) may cause the Fund to recognize income without receiving cash with which to pay
dividends or make distributions in amounts necessary to satisfy the distribution requirements for avoiding income and excise taxes. The Fund will monitor its transactions, will make the appropriate tax elections and will make the appropriate entries
in its books and records when it acquires any zero coupon security, non-U.S. currency, forward contract, option, futures contract or hedged investment in order to mitigate the effect of these rules and prevent disqualification of the Fund as a RIC.
The Fund’s investments in so-called “section 1256 contracts,” such as regulated futures contracts, most non-U.S. currency forward contracts traded in the interbank market and options on most security indexes, are subject to special
tax rules. All section 1256 contracts held by the Fund at the end of its taxable year are required to be marked to their market value, and any unrealized gain or loss on those positions will be included in the Fund’s income as if each position
had been sold for its fair market value at the end of the taxable year. The resulting gain or loss will be combined with any gain or loss realized by the Fund from positions in section 1256 contracts closed during the taxable year. Provided such
positions were held as capital assets and were not part of a “hedging transaction” nor part of a “straddle,” 60% of the resulting net gain or loss will be treated as long-term capital gain or loss, and 40% of such net gain or
loss will be treated as short-term capital gain or loss, regardless of the period of time the positions were actually held by the Fund. As a result of entering into swap contracts, the Fund may make or receive periodic net payments. The Fund may
also make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute ordinary income or deductions, while termination of a swap
will generally result in capital gain or loss (which will be a long-term capital gain or loss if the Fund has been a party to the swap for more than one year). The cost of any payments made by the Fund on a swap transaction will be netted pro rata against both tax exempt and taxable gross income. With respect to certain types of swaps, the Fund may be required to currently recognize income or loss
with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss.
Market Discount. Any
market discount recognized on a bond is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below redemption value or adjusted issue price if issued with original issue discount. Absent an
election by the Fund to include the market discount in income as it accrues, gain on the Fund’s disposition of such an obligation will be treated as ordinary income rather than capital gain to the extent of the accrued market
discount.
Non-U.S. Investments. Income (including, in some cases, capital gains) received by the Fund from investments in non-U.S. securities may be subject to withholding and other taxes imposed by non-U.S. countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes in some cases. If more than 50% of the Fund’s total assets at the close of its taxable year consists of securities of non-U.S. corporations, the Fund may elect for U.S.
income tax purposes to treat non-U.S. income taxes paid by it as paid by its shareholders. The Fund may qualify for and make this election in some, but not necessarily all, of its taxable years. If the Fund were to make this election, shareholders
of the Fund would be required to take into account an amount equal to their pro rata portions of such non-U.S. taxes in computing their taxable
income and then treat an amount equal to those non-U.S. taxes as a U.S. federal income tax deduction or as a foreign
tax credit against their U.S. federal income taxes. Shortly after any year for
which it makes such an election, the Fund will report to its shareholders the amount per share of such non-U.S. income tax that must be included in each shareholder’s gross income and the amount which will be available for the deduction or
credit. No deduction for non-U.S. taxes may be claimed by a shareholder who does not itemize deductions. Certain limitations will be imposed on the extent to which the credit (but not the deduction) for non-U.S. taxes may be claimed.
Under Section 988 of the Internal Revenue Code, gains or losses
attributable to fluctuations in exchange rates between the time the Fund accrues income or receivables or expenses or other liabilities denominated in a non-U.S. currency and the time the Fund actually collects such income or pays such liabilities
are generally treated as ordinary income or ordinary loss. In general, gains (and losses) realized on debt instruments will be treated as Section 988 gain (or loss) to the extent attributable to changes in exchange rates between the U.S. dollar and
the currencies in which the instruments are denominated. Similarly, gains or losses on non-U.S. currency, non-U.S. currency forward contracts, certain non-U.S. currency options or futures contracts and the disposition of debt securities denominated
in non-U.S. currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or loss unless the Fund were to elect otherwise.
Original Issue Discount.
Original issue discount (“OID”) on tax-exempt bonds is recognized over the term of the bond and is tax-exempt to the holder of the bond. Special U.S. federal income tax rules apply to
inflation-indexed bonds. Generally, all stated interest on such bonds is taken into income by the Fund under its regular method of accounting for interest income. The amount of a positive inflation adjustment, which results in an increase in the
inflation-adjusted principal amount of the bond, is treated as original issue discount. The OID is included in the Fund’s gross income ratably during the period ending with the maturity of the bond, under the general OID inclusion rules. The
amount of the Fund’s OID in a taxable year with respect to a bond will increase the Fund’s taxable income for such year without a corresponding receipt of cash, until the bond matures. As a result, the Fund may need to use other sources
of cash to satisfy its distributions for such year. The amount of negative inflation adjustment, which results in a decrease in the inflation-adjusted principal amount of the bond, reduces the amount of interest (including stated, interest, OID, and
market discount, if any) otherwise includible in the Fund’s income with respect to the bond for the taxable year.
Reporting. If a
shareholder recognizes a loss with respect to the Fund’s shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886.
Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but under current guidance, shareholders of a RIC are not exempted. The fact that a loss is reportable under these regulations does not affect
the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
Taxation of Non-U.S. Shareholders. Dividends paid by the Fund to non-U.S. shareholders are generally subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty to the extent derived from investment
income and short-term capital gains. Dividends paid by the Fund from net tax-exempt income or long-term capital gains are generally not subject to such withholding tax. In order to obtain a reduced rate of withholding, a non-U.S. shareholder will be
required to provide an IRS Form W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax does not apply to regular dividends paid to a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends are
effectively connected with the non-U.S. shareholder’s conduct of a trade or business within the U.S. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. shareholder were a U.S.
shareholder. A non-U.S. corporation receiving effectively connected dividends may also be subject to additional “branch profits tax” imposed at a rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide an IRS Form
W-8BEN or other applicable form may be subject to back-up withholding at the appropriate rate.
For taxable years beginning before January 1, 2014,
properly-designated dividends are generally exempt from U.S. federal withholding tax where they (i) are paid in respect of the Fund’s “qualified net interest income” (generally, the Fund’s U.S. source interest income, other
than certain contingent interest and interest from obligations of a corporation or partnership in which the Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income); or (ii) are paid in respect of the Fund’s
“qualified short-term capital gains” (generally, the excess of the Fund’s net short-term capital gain over the Fund’s long-term capital loss for such taxable year). However, depending on its circumstances, the Fund may
designate all, some or none of its potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In
order to qualify for this exemption from withholding, a non-U.S. shareholder will need to comply with applicable certification requirements
relating to its non-U.S. status (including, in general, furnishing an IRS Form
W-8BEN or substitute Form). In the case of shares held through an intermediary, the intermediary may withhold even if the Fund designates the payment as qualified net interest income or qualified short-term capital gain. Non-U.S. shareholders should
contact their intermediaries with respect to the application of these rules to their accounts.
In general, U.S. federal withholding tax will not apply to any
gain or income realized by a non-U.S. shareholder in respect of any distributions of net long-term capital gains over net short-term capital losses, tax-exempt interest dividends, or upon the sale or other disposition of shares of the Fund. If the
Fund’s direct or indirect interests in U.S. real property were to exceed certain levels, distributions to a non-U.S. shareholder from the Fund attributable to a REIT’s distribution to the Fund of gain from a sale or exchange of a U.S.
real property interest and, in the case of a non-U.S. shareholder owning more than 5% of the class of shares throughout either such person’s holding period for the redeemed shares or, if shorter, the previous five years, the gain on redemption
will be treated as real property gain subject to additional taxes or withholding and may result in the non-U.S. shareholder having additional filing requirements.
A 30% withholding tax will be imposed on dividends paid after
December 31, 2013, and redemption proceeds paid after December 31, 2016, to (i) foreign financial institutions, including non-U.S. investment funds, unless they agree to collect and disclose to the IRS information regarding their direct and indirect
U.S. account holders and (ii) certain other foreign entities, unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions will need to (i) enter into agreements with
the IRS that state that they will provide the IRS information including the names, addresses and taxpayer identification numbers of direct and indirect U.S. account holders; comply with due diligence procedures with respect to the identification of
U.S. accounts; report to the IRS certain information with respect to U.S. accounts maintained; agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required
information; and determine certain other information as to their account holders, or (ii) in the event that an applicable intergovernmental agreement and implementing legislation are adopted, provide local revenue authorities with similar account
holder information. Other foreign entities will need to provide the name, address and taxpayer identification number of each substantial U.S. owner or certifications of no substantial U.S. ownership, unless certain exceptions apply or agree to
provide certain information to other revenue authorities for transmittal to the IRS.
Shares of the Fund held by a non-U.S. shareholder at death will
be considered situated within the United States and subject to the U.S. estate tax.
The foregoing discussion is a summary of certain material U.S.
federal income tax considerations only and is not intended as a substitute for careful tax planning. Purchasers of shares should consult their own tax advisors as to the tax consequences of investing in such shares, including consequences under
state, local and non-U.S tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date of this SAI. Changes in
applicable authority could materially affect the conclusions discussed above, and such changes often occur.
Financial Statements
Financial statements for the Fund are not available because,
as of the date of this SAI, the Fund has no financial information to report.
Miscellaneous Information
Counsel. Willkie Farr
& Gallagher LLP, located at 787 Seventh Avenue, New York, NY 10019, is counsel to the Company.
Independent Registered Public Accounting Firm. PricewaterhouseCoopers LLP, located at Three Embarcadero Center, San Francisco, CA 94111, serves as the Company's independent registered public accounting firm, audits the Fund's financial statements, and may
perform other services.
Shareholder Communications
to the Board. The Board has established a process for shareholders to communicate with the Board. Shareholders may contact the Board by mail. Correspondence should be addressed to iShares Board of Directors,
c/o BlackRock Institutional Trust Company, N.A. – Mutual Fund Administration, 400 Howard Street, San Francisco, CA 94105.
Shareholder communications to the Board should include the following
information: (i) the name and address of the shareholder; (ii) the number of shares owned by the shareholder; (iii) the Fund(s) of which the shareholder owns shares; and (iv) if these shares are owned indirectly through a broker, financial
intermediary or other record owner, the name of the broker, financial intermediary or other record owner. All correspondence received as set forth above shall be reviewed by the Secretary of the Company and reported to the Board.
Appendix A
DESCRIPTION OF FIXED-INCOME RATINGS
A rating is generally assigned to a fixed-income security at
the time of issuance by a credit rating agency designated as a nationally recognized statistical rating organization (“NRSRO”) by the SEC. While NRSROs may from time to time revise such ratings, they undertake no obligation to do so, and
the ratings given to securities at issuance do not necessarily represent ratings which would be given to these securities on a particular subsequent date.
Fixed-income securities which are unrated expose the investor
to risks with respect to capacity to pay interest or repay principal which are similar to the risks of lower-rated speculative bonds. Evaluation of these securities is dependent on the investment adviser’s judgment, analysis and experience in
the evaluation of such securities.
Investors should note
that the assignment of a rating to a security by an NRSRO may not reflect the effect of recent developments on the issuer’s ability to make interest and principal payments or on the likelihood of default.
The descriptions below relate to general long-term and
short-term obligations of an issuer.
Moody’s
Ratings
Long-Term Obligations
Aaa: Obligations rated Aaa are
judged to be of the highest quality, subject to the lowest level of credit risk.
Aa: Obligations rated Aa are
judged to be of high quality and are subject to very low credit risk.
A: Obligations rated A are
judged to be upper-medium grade and are subject to low credit risk.
Baa: Obligations rated Baa are
judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Ba: Obligations rated Ba are
judged to be speculative and are subject to substantial credit risk.
B: Obligations rated B are
considered speculative and are subject to high credit risk.
Caa: Obligations rated Caa are
judged to be speculative of poor standing and are subject to very high credit risk.
Ca: Obligations rated Ca are
highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C: Obligations rated C are the
lowest rated and are typically in default, with little prospect for recovery of principal or interest.
Note: Moody's appends
numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of that generic rating category.
Absence of Rating: Where no
rating has been assigned or where a rating has been withdrawn, it may be for reasons unrelated to the credit worthiness of the issue.
Should no rating be assigned, the reason may be one of the
following:
1. An application was not received or
accepted.
2. The issue or issuer belongs to a group of
securities or entities that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue
or issuer.
4. The issue was privately placed, in which
case the rating is not published in Moody’s publications.
Withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons.
Short-Term Obligations
Moody’s short-term debt ratings are opinions of the
ability of issuers to honor short-term financial obligations, generally with an original maturity not exceeding thirteen months.
Moody's employs the following designations to indicate the
relative repayment ability of rated issuers:
P-1: Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2: Issuers (or supporting
institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3: Issuers (or supporting
institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP: Issuers (or supporting
institutions) rated Not Prime do not fall within any of the Prime rating categories.
Standard & Poor's Ratings Services
Long-Term Obligations
AAA: An obligation rated AAA
has the highest rating assigned by Standard & Poor's Ratings Services. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
AA: An obligation rated AA
differs from the highest rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment is very strong.
A: An obligation rated A is
somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still
strong.
BBB: An
obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
Obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to
the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B: An obligation rated B is
more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s
capacity or willingness to meet its financial commitment on the obligation.
CCC: An obligation rated CCC is
currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions,
the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is
currently highly vulnerable to nonpayment.
C: A C rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject
of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the C rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance
with the instrument's terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than
par.
D: An obligation rated D is in
payment default. The D rating category is used when payments on an obligation are not made on the date due, unless Standard & Poor’s Ratings Services believes that such payments will be made within five business days, irrespective of any
grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized. An obligation's rating is lowered to D upon completion of a distressed exchange
offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
Note: The ratings from AA to
CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
NR: NR indicates no rating has
been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's Ratings Services does not rate a particular obligation as a matter of policy.
Short-Term Obligations
A-1: A short-term obligation
rated A-1 is rated in the highest category by Standard & Poor's Ratings Services. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation
rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is
satisfactory.
A-3:
A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
B: A short-term obligation rated B is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitments.
C: A short-term obligation
rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D: A short-term obligation
rated D is in payment default. The D rating category is used when payments on an obligation are not made on the due date, unless Standard & Poor’s Ratings Services believes that such payments will be made within any stated grace period.
However, any stated grace period longer than five business days will be treated as five business days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
Fitch Ratings
Long-Term Obligations
AAA: Highest credit quality.
AAA ratings denote the lowest expectation of credit risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable
events.
AA: Very
high credit quality. AA ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A: High credit quality. A
ratings denote expectations of low credit risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher
ratings.
BBB: Good
credit quality. BBB ratings indicate that expectations of credit risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this
capacity.
BB: Speculative. BB ratings
indicate an elevated vulnerability to credit risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be
met.
B: Highly
speculative. B ratings indicate that material credit risk is present.
CCC: Substantial credit risk.
CCC ratings indicate that substantial credit risk is present.
CC: Very high levels of credit
risk. CC ratings indicate very high levels of credit risk.
C: Exceptionally high levels of
credit risk. C indicates exceptionally high levels of credit risk.
Defaulted obligations typically are not assigned D ratings, but
are instead rated in the B to C rating categories, depending upon their recovery prospects and other relevant characteristics. This approach better aligns obligations that have comparable overall expected loss but varying vulnerability to default
and loss.
Note:
The modifiers “+” or “-” may be
appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA obligation rating category, or to corporate finance obligation ratings in the categories below CCC.
The subscript 'emr' is appended to a rating to denote embedded
market risk which is beyond the scope of the rating. The designation is intended to make clear that the rating solely addresses the counterparty risk of the issuing bank. It is not meant to indicate any limitation in the analysis of the counterparty
risk, which in all other respects follows published Fitch criteria for analyzing the issuing financial institution. Fitch does not rate these instruments where the principal is to any degree subject to market risk.
Short-Term Obligations (Corporate and Public Finance)
Short-term ratings are assigned to obligations whose initial
maturity is viewed as “short-term” based on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
F1: Highest short-term credit
quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to denote any exceptionally strong credit feature.
F2: Good short-term credit
quality. Good intrinsic capacity for timely payment of financial commitments.
F3: Fair short-term credit
quality. The intrinsic capacity for timely payment of financial commitments is adequate.
B: Speculative short-term
credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
C: High short-term default
risk. Default is a real possibility.
RD: Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity ratings only.
D: Default. Indicates a
broad-based default event for an entity, or the default of a short-term obligation.
IS-SAI-LTAM-0513