LOGO

  FEBRUARY 28, 2022

 

    

  

2022 Semi-Annual Report

(Unaudited)

 

 

iShares, Inc.

 

·  

iShares MSCI Russia ETF | ERUS | NYSE Arca


The Markets in Review

Dear Shareholder,

The 12-month reporting period as of February 28, 2022 saw a continuation of the resurgent growth that followed the initial coronavirus (or “COVID-19”) pandemic reopening, albeit at a slower pace. The global economy weathered the emergence of several variant strains and the resulting peaks and troughs in infections amid optimism that increasing vaccinations and economic adaptation could help contain the pandemic’s disruptions. However, rapid changes in consumer spending led to supply constraints and elevated inflation. Moreover, while the foremost effect of Russia’s invasion of Ukraine has been a severe humanitarian crisis, the invasion has presented challenges for both investors and policymakers.

Equity prices were mixed, as persistently high inflation drove investors’ expectations for higher interest rates, which particularly weighed on relatively high valuation growth stocks and economically sensitive small-capitalization stocks. Overall, small-capitalization U.S. stocks declined, while large-capitalization U.S. stocks posted a solid advance. International equities from developed markets gained slightly, although emerging market stocks declined, pressured by rising interest rates and a strengthening U.S. dollar.

The U.S. Federal Reserve (the “Fed”) maintained accommodative monetary policy during the reporting period by keeping near-zero interest rates. However, the Fed’s tone shifted during the period, as it reduced its bond-buying program and raised the prospect of higher rates in 2022. Continued high inflation and the Fed’s new stance led many analysts to anticipate that the Fed will raise interest rates multiple times throughout the year.

In this environment, as we look ahead, we favor an overweight to equities, as we believe low interest rates and continued economic growth will support further gains, albeit likely more modest than what we saw in 2021. Sectors that are better poised to manage the transition to a lower-carbon world, such as technology and health care, are particularly attractive in the long term. U.S. and other developed market equities have room for further growth, while we believe Chinese equities stand to gain from a more accommodative monetary and fiscal environment. We are underweight long-term credit, but inflation-protected U.S. Treasuries, Asian fixed income, and emerging market local-currency bonds offer potential opportunities. We believe that international diversification and a focus on sustainability can help provide portfolio resilience, and the disruption created by the coronavirus appears to be accelerating the shift toward sustainable investments.

The horrific war in Ukraine has significantly clouded the outlook for the global economy. Sanctions on Russia and general wartime disruption are likely to drive already-high commodity prices even further upwards, and we have already seen spikes in energy and metal markets. While this will exacerbate inflationary pressure, it could also constrain economic growth, making the Fed’s way forward less clear. Its challenge will be combating inflation without stifling a recovery that is now facing additional supply shocks.

In light of these circumstances, effective March 1, 2022, the iShares MSCI Russia ETF (“ERUS”) temporarily suspended new creations of its shares until further notice and NYSE Arca, Inc. halted trading on March 4, 2022. We are monitoring regulatory and market developments, but it is incredibly difficult to predict when, or if, circumstances will change that would allow ERUS to re-open for creation orders or to resume trading.

Overall, our view is that investors need to think globally, extend their scope across a broad array of asset classes, and be nimble as market conditions change. We encourage you to talk with your financial advisor and visit iShares.com for further insight about investing in today’s markets.

Sincerely,

 

LOGO

Rob Kapito

President, BlackRock, Inc.

LOGO

Rob Kapito

President, BlackRock, Inc.

 

Total Returns as of February 28, 2022

 

 
     
    

  6-Month   

 

 

  12-Month   

 

   

U.S. large cap equities
(S&P 500® Index)

 

    (2.62 )%      16.39 %   
   

U.S. small cap equities
(Russell 2000® Index)

 

    (9.46     (6.01
   

International equities
(MSCI Europe, Australasia, Far East Index)

 

    (6.78     2.83  
   

Emerging market equities
(MSCI Emerging Markets Index)

 

    (9.81     (10.69
   

3-month Treasury bills
(ICE BofA 3-Month U.S. Treasury Bill Index)

 

    0.02       0.04  
   

U.S. Treasury securities
(ICE BofA 10-Year U.S. Treasury Index)

 

    (3.94     (1.67
   

U.S. investment grade bonds
(Bloomberg U.S. Aggregate Bond Index)

 

    (4.07     (2.64
   

Tax-exempt municipal bonds
(Bloomberg Municipal Bond Index)

 

    (3.09     (0.66
   

U.S. high yield bonds
(Bloomberg U.S. Corporate High Yield 2% Issuer Capped Index)

 

    (3.07     0.64  

Past performance is not an indication of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

 

 

 

 

 

2

 

T H I S   P A G E   I S   N O T   P A R T   O F   Y O U R   F U N D   R E P O R T


Table of Contents

 

     Page  

 

 

The Markets in Review

     2  

Fund Summary

     4  

About Fund Performance

     5  

Shareholder Expenses

     5  

Schedule of Investments

     6  

Financial Statements

  

Statement of Assets and Liabilities

     9  

Statement of Operations

     10  

Statements of Changes in Net Assets

     11  

Statement of Cash Flows

     12  

Financial Highlights

     13  

Notes to Financial Statements

     14  

Statement Regarding Liquidity Risk Management Program

     21  

Supplemental Information

     22  

General Information

     23  

Glossary of Terms Used in this Report

     24  

 

 

 


Fund Summary as of February 28, 2022    iShares® MSCI Russia ETF

 

Investment Objective

The iShares MSCI Russia ETF (the “Fund”) seeks to track the investment results of an index composed of Russian equities, as represented by the MSCI Russia 25/50 Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index.

Performance

 

             Average Annual Total Returns             Cumulative Total Returns  
     6 Months     

 

1 Year

     5 Years     10 Years              1 Year      5 Years      10 Years  

Fund NAV

    (82.46 )%       (78.61 )%       (20.74 )%      (13.87 )%        (78.61 )%       (68.71 )%       (77.54 )% 

Fund Market

    (58.47      (49.26      (5.80     (6.14       (49.26      (25.83      (46.93

Index

    (56.86      (47.23      (4.74     (5.22             (47.23      (21.55      (41.48

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 5 for more information.

Expense Example

 

Actual           Hypothetical 5% Return           

 

 

     

 

 

      
 

Beginning

Account Value

(09/01/21)

 

 

 

      

Ending

Account Value

(02/28/22)

 

 

 

      

Expenses

Paid During

the Period

 

 

 (a) 

              

Beginning

Account Value

(09/01/21)

 

 

 

      

Ending

Account Value

(02/28/22)

 

 

 

      

Expenses

Paid During

the Period

 

 

 (a) 

      

Annualized

Expense

Ratio

 

 

 

  $      1,000.00          $      175.40          $      1.69               $      1,000.00          $      1,021.90          $      2.91          0.58

 

  (a)

Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). Other fees, such as brokerage commissions and other fees to financial intermediaries, may be paid which are not reflected in the tables and examples above. See “Shareholder Expenses” for more information.

 

Portfolio Management Commentary

Russian stocks experienced a substantial decline for the reporting period ended February 28, 2022. On February 24, 2022, Russia launched an invasion of Ukraine in one the most significant military actions in decades. Russian stocks fell more than 30% in local currency terms on the day after the invasion, one of the largest single-day downturns in the history of the global equity markets. Russia’s central bank closed the stock market on February 28, 2022 and the nation’s government instituted capital controls to restrict the flow of funds in and out of the country.

The invasion prompted sanctions by the United States, the United Kingdom, the European Union and others, all of which implemented expansive measures to block Russia’s access to global capital markets and limit the operational activities of Russian companies. In addition, the sanctions prevented select Russian banks from using the SWIFT global payments system. Many high-profile global corporations also responded to the invasion by shutting down their operations in the country. In addition, major index providers removed Russian stocks from their global benchmarks. Russian exchanges remained closed as of the end of the period.

In light of these circumstances, effective March 1, 2022, the Fund temporarily suspended new creations of its shares until further notice. Additionally, on March 4, 2022, NYSE Arca, Inc. announced a trading halt of the Fund.

Portfolio Information

 

ALLOCATION BY SECTOR

 

 

   

Sector

 

   

 

Percent of
Total Investments

 

 
(a)  

 

Energy

    48.7

Materials

    23.3  

Financials

    13.3  

Communication Services

    10.0  

Consumer Staples

    3.0  

Utilities

    1.3  

Consumer Discretionary

 

   

 

0.4

 

 

 

TEN LARGEST HOLDINGS

 

 

   

Security

 

   

 

Percent of
Total Investments

 

 
(a)  

 

Gazprom PJSC

    19.0

LUKOIL PJSC

    14.4  

Sberbank of Russia PJSC

    8.0  

Mobile TeleSystems PJSC

    7.3  

MMC Norilsk Nickel PJSC

    6.3  

Novatek PJSC

    4.6  

Tatneft PJSC

    4.3  

Polyus PJSC

    3.2  

TCS Group Holding PLC

    3.2  

Severstal PAO

 

   

 

2.8

 

 

 

 

  (a) 

Excludes money market funds.

 

 

 

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About Fund Performance

 

Past performance is not an indication of future results. Financial markets have experienced extreme volatility and trading in many instruments has been disrupted. These circumstances may continue for an extended period of time and may continue to affect adversely the value and liquidity of the Fund’s investments. As a result, current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end is available at iShares.com. Performance results assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. The investment return and principal value of shares will vary with changes in market conditions. Shares may be worth more or less than their original cost when they are redeemed or sold in the market. Performance for certain funds may reflect a waiver of a portion of investment advisory fees. Without such a waiver, performance would have been lower.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Beginning August 10, 2020, the price used to calculate market return (“Market Price”) is the closing price. Prior to August 10, 2020, Market Price was determined using the midpoint between the highest bid and the lowest ask on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV, respectively.

An index is a statistical composite that tracks a specified financial market or sector. Unlike a fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by a fund. These expenses negatively impact fund performance. 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.

Shareholder Expenses

Shareholders of the Fund may incur the following charges: (1) transactional expenses, including brokerage commissions on purchases and sales of fund shares and (2) ongoing expenses, including management fees and other fund expenses. The expense example shown (which is based on a hypothetical investment of $1,000 invested at the beginning of the period and held through the end of the period) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other funds.

The expense example provides information about actual account values and actual expenses. Annualized expense ratios reflect contractual and voluntary fee waivers, if any. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number under the heading entitled “Expenses Paid During Period.”

The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as brokerage commissions and other fees paid on purchases and sales of fund shares. Therefore, the hypothetical example is useful in comparing ongoing expenses only and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.

 

 

B O U T  U N D  E R F O R M A N C E / S H A R E H O L D E R   E X P E N S E S

   5


 

Schedule of Investments (unaudited) 

February 28, 2022

  

iShares® MSCI Russia ETF

(Percentages shown are based on Net Assets)

 

Security   Shares     Value  

Common Stocks

   

Banks — 11.7%

   

Sberbank of Russia PJSC(a)

    18,835,860     $ 8,325,800  

TCS Group Holding PLC, GDR(a)

    289,152       3,329,930  

VTB Bank PJSC(a)

    8,307,845,016       555,177  
   

 

 

 
      12,210,907  
Capital Markets — 1.5%            

Moscow Exchange MICEX-RTS PJSC(a)

    4,737,800       1,594,638  
   

 

 

 

Chemicals — 2.6%

   

PhosAgro PJSC, GDR

    449,283       2,748,667  
   

 

 

 

Electric Utilities — 1.3%

   

Inter RAO UES PJSC(a)

    136,938,300       1,321,903  
   

 

 

 

Food & Staples Retailing — 3.1%

   

Magnit PJSC, GDR

    990,696       1,572,370  

X5 Retail Group NV, GDR(a)

    374,475       1,610,856  
   

 

 

 
      3,183,226  

Interactive Media & Services — 2.6%

   

VK Co. Ltd.(a)(b)

    393,252       399,597  

Yandex NV(a)(b)

    361,376       2,362,363  
   

 

 

 
      2,761,960  
Internet & Direct Marketing Retail — 0.4%        

Ozon Holdings PLC, ADR(a)(b)

    110,854       406,640  
   

 

 

 

Metals & Mining — 20.5%

   

Alrosa PJSC(a)

    7,486,250       2,180,684  

MMC Norilsk Nickel PJSC(a)

    96,437       6,532,865  

Novolipetsk Steel PJSC(a)

    4,388,590       2,787,124  

Polymetal International PLC(a)

    834,056       2,529,544  

Polyus PJSC(a)

    89,129       3,358,227  

Severstal PAO(a)

    604,068       2,884,928  

United Co. RUSAL International PJSC(a)(b)

    5,811,330       1,226,291  
   

 

 

 
        21,499,663  
Oil, Gas & Consumable Fuels — 46.1%        

Gazprom PJSC(a)

    24,553,290       19,793,229  

LUKOIL PJSC(a)

    856,438       14,949,553  

Security   Shares     Value  

 

 

Oil, Gas & Consumable Fuels (continued)

   

Novatek PJSC, GDR

    125,086     $ 4,818,576  

Rosneft Oil Co. PJSC(a)

    2,566,222       2,677,164  

Surgutneftegas PJSC(a)

    21,799,946       1,646,239  

Tatneft PJSC(a)

    3,516,781       4,465,713  
   

 

 

 
      48,350,474  
Wireless Telecommunication Services — 7.3%        

Mobile TeleSystems PJSC, ADR

    1,388,222       7,635,221  
   

 

 

 

Total Common Stocks — 97.1%
(Cost: $453,478,287)

      101,713,299  
   

 

 

 

Preferred Stocks

   
Oil, Gas & Consumable Fuels — 2.2%            

Surgutneftegas PJSC, Preference Shares, NVS(a)

    21,745,700       2,334,870  
   

 

 

 

Total Preferred Stocks — 2.2%
(Cost: $11,913,761)

      2,334,870  
   

 

 

 

Short-Term Investments

   
Money Market Funds — 0.9%            

BlackRock Cash Funds: Treasury, SL Agency Shares, 0.03%(c)(d)

    920,000       920,000  
   

 

 

 

Total Short-Term Investments — 0.9%
(Cost: $920,000)

      920,000  
   

 

 

 

Total Investments in Securities — 100.2%
(Cost: $466,312,048)

      104,968,169  

Other Assets, Less Liabilities — (0.2)%

      (163,302
   

 

 

 

Net Assets — 100.0%

    $   104,804,867  
   

 

 

 

 

(a)

Security is valued using significant unobservable inputs and is classified as Level 3 in the fair value hierarchy.

(b)

Non-income producing security.

(c)

Affiliate of the Fund.

(d)

Annualized 7-day yield as of period end.

 

Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the six months ended February 28, 2022 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

                   
Affiliated Issuer   Value at
08/31/21
    Purchases
at Cost
    Proceeds
from Sales
    Net Realized
Gain (Loss)
    Change in
Unrealized
Appreciation
(Depreciation)
    Value at
02/28/22
    Shares
Held at
02/28/22
    Income     Capital
Gain
Distributions
from
Underlying
Funds
 

BlackRock Cash Funds: Treasury, SL Agency Shares

  $ 970,000     $     $ (50,000 )(a)    $     $     $ 920,000       920,000     $ 72     $  
       

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

 

  (a) 

Represents net amount purchased (sold).

 

 

 

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Schedule of Investments (unaudited) (continued)

February 28, 2022

  

iShares® MSCI Russia ETF

 

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

 

 

 
Description   Number of
Contracts
    Expiration
Date
    Notional
Amount
(000)
     Value/
Unrealized
Appreciation
(Depreciation)
 

 

 

Long Contracts

        

MSCI Emerging Markets Index

    10       03/18/22     $ 588      $ (43,674
        

 

 

 

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statement of Assets and Liabilities were as follows:

 

 

 
    Equity
Contracts
 

 

 

Liabilities — Derivative Financial Instruments

 

Futures contracts

 

Unrealized depreciation on futures contracts(a)

  $ 43,674  
 

 

 

 

 

  (a)

Net cumulative unrealized appreciation (depreciation) on futures contracts are reported in the Schedule of Investments. In the Statement of Assets and Liabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings (loss).

 

For the period ended February 28, 2022, the effect of derivative financial instruments in the Statement of Operations was as follows:

 

 

 
     Equity
Contracts
 

 

 

Net Realized Gain (Loss) from:

  

Futures contracts

   $ (91,204
  

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on:

  

Futures contracts

   $ (41,628
  

 

 

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

 

 

Futures contracts:

  

Average notional value of contracts — long

   $ 740,075    

 

 

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuation of financial instruments, refer to the Notes to Financial Statements.

The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s financial instruments into major categories is disclosed in the Schedule of Investments above.

 

 

 
     Level 1        Level 2        Level 3        Total  

 

 

Investments

                 

Assets

                 

Common Stocks

   $ 16,774,834        $        $ 84,938,465        $ 101,713,299  

Preferred Stocks

                       2,334,870          2,334,870  

Money Market Funds

     920,000                            920,000  
  

 

 

      

 

 

      

 

 

      

 

 

 
   $   17,694,834        $        $ 87,273,335        $ 104,968,169  
  

 

 

      

 

 

      

 

 

      

 

 

 

Derivative financial instruments(a)

                 

Liabilities

                 

Futures Contracts

   $ (43,674      $                 —        $                 —        $ (43,674
  

 

 

      

 

 

      

 

 

      

 

 

 

 

  (a) 

Derivative financial instruments are futures contracts. Futures contracts are valued at the unrealized appreciation (depreciation) on the instrument.

 

 

 

S C H E D U L E    O F    I N V E S T M E N T S

  7


Schedule of Investments (unaudited) (continued)

February 28, 2022

  

iShares® MSCI Russia ETF

 

A reconciliation of Level 3 financial instruments is presented when the Fund had a significant amount of Level 3 investments and derivative financial instruments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:

 

 

 
    Common
Stocks
    Preferred
Stocks
    Total  

 

 

Assets:

     

Opening balance, as of August 31, 2021

  $     $     $  

Transfers into Level 3(a)

    511,933,597       11,100,929       523,034,526  

Transfers out of Level 3

                 

Accrued discounts/premiums

                 

Net realized gain (loss)

    (1,062,812     (61,247     (1,124,059

Net change in unrealized appreciation (depreciation)(b)(c)

    (443,573,197     (9,053,076     (452,626,273

Purchases

    36,287,146       586,461       36,873,607  

Sales

    (18,646,269     (238,197     (18,884,466
 

 

 

   

 

 

   

 

 

 

Closing balance, as of February 28, 2022

  $ 84,938,465     $ 2,334,870     $ 87,273,335  
 

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investment still held at February 28, 2022

  $ (439,068,322   $ (9,064,778   $ (448,133,100
 

 

 

   

 

 

   

 

 

 

 

(a)

As of August 31, 2021, local Russian equities were valued using a Systematic Fair Value Price, which resulted in these investments being classified as level 2. As of February 28, 2022, the Global Valuation Committee determined that the Systematic Fair Value Price for local Russian equities were unreliable and valued the securities using unobservable inputs which resulted in a transfer from level 2 to level 3. Additionally, as of August 31, 2021, Russian exposed ADR and GDR securities were valued using the exchange close price which resulted in these investments being classified as level 1. As of February 28, 2022, certain Russian exposed ADR and GDR securities were halted or suspended. The Global Valuation Committee valued those securities using unobservable inputs which resulted in a transfer from level 1 to level 3.

(b)

Included in the related net change in unrealized appreciation (depreciation) in the Statement of Operations.

(c)

Any difference between net change in unrealized appreciation (depreciation) and net change in unrealized appreciation (depreciation) on investments still held at February 28, 2022 is generally due to investments no longer held or categorized as Level 3 at period end.

The following table summarizes the valuation approaches used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 instruments as of period end.

 

       Value         
Valuation
Approach

 
    

Unobservable

Inputs

      

Range of
Unobservable

Inputs Utilized

 
 

(a) 

          

Common Stocks

   $ 84,938,465          Market        Liquidity Discount        25%       

Preferred Stocks

     2,334,870          Market        Liquidity Discount        25%       
  

 

 

                     
   $ 87,273,335                      

 

 

  (a) 

A significant change in unobservable input would have resulted in a correlated (inverse) significant change to value.

 

See notes to financial statements.

 

 

8  

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Statement of Assets and Liabilities (unaudited) 

February 28, 2022

 

   

iShares

MSCI Russia
ETF

 

 

 

ASSETS

 

Investments in securities, at value:

 

Unaffiliated(a)

  $ 104,048,169  

Affiliated(b)

    920,000  

Cash

    29,326  

Cash pledged:

 

Futures contracts

    26,000  

Receivables:

 

Capital shares sold

    88,052  

Dividends

    4,292  
 

 

 

 

Total assets

    105,115,839  
 

 

 

 

LIABILITIES

 

Payables:

 

Investments purchased

    88,052  

Variation margin on futures contracts

    7,350  

Investment advisory fees

    215,570  
 

 

 

 

Total liabilities

    310,972  
 

 

 

 

NET ASSETS

  $ 104,804,867  
 

 

 

 

NET ASSETS CONSIST OF:

 

Paid-in capital

  $ 616,756,637  

Accumulated loss

    (511,951,770
 

 

 

 

NET ASSETS

  $ 104,804,867  
 

 

 

 

Shares outstanding

    13,750,000  
 

 

 

 

Net asset value

  $ 7.62  
 

 

 

 

Shares authorized

    1 billion  
 

 

 

 

Par value

  $ 0.001  
 

 

 

 

(a)   Investments, at cost — Unaffiliated

  $ 465,392,048  

(b) Investments, at cost — Affiliated

  $ 920,000  

See notes to financial statements.

 

 

F I N A N C I A L    S T A T E M E N T S

  9


Statement of Operations (unaudited) 

Six Months Ended February 28, 2022

 

   

iShares
MSCI Russia

ETF

 
 

 

 

 

INVESTMENT INCOME

 

Dividends — Unaffiliated

  $ 14,523,812  

Dividends — Affiliated

    72  

Foreign taxes withheld

    (1,548,350
 

 

 

 

Total investment income

    12,975,534  
 

 

 

 

EXPENSES

 

Investment advisory fees

    1,647,114  

Commitment fees

    2,774  

Professional fees

    217  
 

 

 

 

Total expenses

    1,650,105  
 

 

 

 

Net investment income

    11,325,429  
 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS)

 

Net realized gain (loss) from:

 

Investments — Unaffiliated

    (955,043

Futures contracts

    (91,204

Foreign currency transactions

    (106,948
 

 

 

 

Net realized loss

    (1,153,195
 

 

 

 

Net change in unrealized appreciation (depreciation) on:

 

Investments — Unaffiliated

    (502,253,442

Futures contracts

    (41,628

Foreign currency translations

    560  
 

 

 

 

Net change in unrealized appreciation (depreciation)

    (502,294,510
 

 

 

 

Net realized and unrealized loss

    (503,447,705
 

 

 

 

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS

  $ (492,122,276
 

 

 

 

See notes to financial statements.

 

 

10  

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Statements of Changes in Net Assets

 

   

iShares

MSCI Russia ETF

 
 

 

 

 
    Six Months
Ended
02/28/22
(unaudited)
           Year Ended
08/31/21
 

 

 

INCREASE (DECREASE) IN NET ASSETS

      

OPERATIONS

      

Net investment income

  $ 11,325,429        $ 25,976,989  

Net realized loss

    (1,153,195        (4,659,173

Net change in unrealized appreciation (depreciation)

    (502,294,510                 133,025,100  
 

 

 

      

 

 

 

Net increase (decrease) in net assets resulting from operations

    (492,122,276        154,342,916  
 

 

 

      

 

 

 

DISTRIBUTIONS TO SHAREHOLDERS(a)

      

Decrease in net assets resulting from distributions to shareholders

    (22,039,990        (23,598,232
 

 

 

      

 

 

 

CAPITAL SHARE TRANSACTIONS

      

Net increase (decrease) in net assets derived from capital share transactions

    32,469,779          (11,450,216
 

 

 

      

 

 

 

NET ASSETS

      

Total increase (decrease) in net assets

    (481,692,487        119,294,468  

Beginning of period

    586,497,354          467,202,886  
 

 

 

      

 

 

 

End of period

  $ 104,804,867        $ 586,497,354  
 

 

 

      

 

 

 

 

(a) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

See notes to financial statements.

 

 

F I N A N C I A L   S T A T E M E N T S

  11


Statement of Cash Flows (unaudited) 

Six Months Ended February 28, 2022

 

   
iShares
MSCI Russia ETF
 
 

 

 

CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES

 

Net decrease in net assets resulting from operations

  $ (492,122,276

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:

 

Proceeds from sales of long-term investments(a)

    42,361,588  

Purchases of long term investments(a)

    (48,835,714

Net proceeds from sales of short-term securities

    50,000  

Net realized (gain) loss on investments

    955,043  

Net change in unrealized (appreciation) depreciation on investments

    502,253,442  

(Increase) decrease in assets:

 

Receivables:

 

Dividends

    16,837  

Variation margin on futures contracts

    12,350  

Increase (decrease) in liabilities:

 

Payables:

 

Investment advisory fees

    (63,708

Variation margin on futures contracts

    7,350  
 

 

 

 

Net cash provided by operating activities

    4,634,912  
 

 

 

 

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES

 

Cash dividends paid to shareholders

    (22,039,990

Proceeds from issuance of capital shares(a)

    17,405,467  
 

 

 

 

Net cash used for financing activities

    (4,634,523
 

 

 

 

CASH

 

Net increase in restricted and unrestricted cash

  $ 389  

Restricted and unrestricted cash at beginning of period

    54,937  
 

 

 

 

Restricted and unrestricted cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  $ 55,326  
 

 

 

 

RECONCILIATION OF RESTRICTED AND UNRESTRICTED CASH AT THE END OF PERIOD TO THE STATEMENT OF ASSETS AND LIABILITIES

 

Cash

  $ 29,326  

Cash pledged

 

Futures contracts

    26,000  
 

 

 

 
  $ 55,326  
 

 

 

 

 

(a) 

Excludes in-kind transactions, if any.

See notes to financial statements.

 

 

12  

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Financial Highlights

(For a share outstanding throughout each period)

 

    iShares MSCI Russia ETF  
 

 

 

 
   

Six Months Ended

02/28/22

(unaudited)

 

 

 

   

Year Ended

08/31/21

 

 

   

Year Ended

08/31/20

 

 

   

Year Ended

08/31/19

 

 

   

Year Ended

08/31/18

 

 

   

Year Ended

08/31/17

 

(a) 

 

 

Net asset value, beginning of period

    $ 45.29       $ 34.87       $ 37.81       $ 32.47       $ 32.13     $ 27.92  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Net investment income(b)

                   0.86         2.05         1.87         2.33         1.21       1.14  

Net realized and unrealized gain (loss)(c)

      (36.83       10.24         (1.99       5.04         0.22       4.07  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Net increase (decrease) from investment operations

      (35.97       12.29         (0.12       7.37         1.43       5.21  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Distributions(d)

                                                

From net investment income

      (1.70       (1.87       (2.82       (2.03                (1.09     (1.00
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Total distributions

      (1.70       (1.87       (2.82       (2.03       (1.09     (1.00
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Net asset value, end of period

    $ 7.62       $ 45.29       $ 34.87       $ 37.81       $ 32.47     $ 32.13  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Total Return(e)

                     

Based on net asset value

      (82.46 )%(f)        36.07       (1.28 )%        23.64       4.37     18.73
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Ratios to Average Net Assets(g)

                     

Total expenses

      0.58 %(h)         0.57       0.59       0.59       0.59     0.62
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Net investment income

      3.95 %(h)         5.26       4.97       6.60       3.50     4.27
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Supplemental Data

                     

Net assets, end of period (000)

    $ 104,805       $ 586,497       $ 467,203       $ 627,581       $ 478,860     $ 530,076  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

Portfolio turnover rate(i)

      4 %(f)        25       30       18       32     18
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

 

 

 

(a)

Per share amounts reflect a one-for-two reverse stock split effective after the close of trading on November 4, 2016.

(b)

Based on average shares outstanding.

(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)

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(e)

Where applicable, assumes the reinvestment of distributions.

(f)

Not annualized.

(g)

Excludes fees and expenses incurred indirectly as a result of investments in underlying funds.

(h)

Annualized.

(i)

Portfolio turnover rate excludes in-kind transactions.

See notes to financial statements.

 

 

F I N A N C I A L    H I G H L I G H T S

  13


Notes to Financial Statements (unaudited)

 

1.

ORGANIZATION

iShares, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Company is organized as a Maryland corporation and is authorized to have multiple series or portfolios.

These financial statements relate only to the following fund (the “Fund”):

 

   
iShares ETF  

Diversification  

Classification  

 

MSCI Russia

    Non-diversified    

 

2.

SIGNIFICANT ACCOUNTING POLICIES

The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:

Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are executed. Realized gains and losses on investment transactions are determined using the specific identification method. Dividend income and capital gain distributions, if any, are recorded on the ex-dividend date. Non-cash dividends, if any, are recorded on the ex-dividend date at fair value. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest.

Foreign Currency Translation: The Fund’s books and records are maintained in U.S. dollars. Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using prevailing market rates as quoted by one or more data service providers. Purchases and sales of investments are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the investments denominated in that currency will lose value; the opposite effect occurs if the U.S. dollar falls in relative value.

The Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of investments for financial reporting purposes. Accordingly, the effects of changes in exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for U.S. federal income tax purposes.

Foreign Taxes: The Fund may be subject to foreign taxes (a portion of which may be reclaimable) on income, stock dividends, capital gains on investments, or certain foreign currency transactions. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Fund invests. These foreign taxes, if any, are paid by the Fund and are reflected in its Statement of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on securities lending income are presented as a reduction of securities lending income, foreign taxes on stock dividends are presented as “Other foreign taxes”, and foreign taxes on capital gains from sales of investments and foreign taxes on foreign currency transactions are included in their respective net realized gain (loss) categories. Foreign taxes payable or deferred as of February 28, 2022, if any, are disclosed in the Statement of Assets and Liabilities.

The Fund files withholding tax reclaims in certain jurisdictions to recover a portion of amounts previously withheld. The Fund may record a reclaim receivable based on collectability, which includes factors such as the jurisdiction’s applicable laws, payment history and market convention. The Statement of Operations includes tax reclaims recorded as well as professional and other fees, if any, associated with recovery of foreign withholding taxes.

Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., futures contracts) that would be treated as “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and record cash or liquid assets having a market value at least equal to the amount of its future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

In-kind Redemptions: For financial reporting purposes, in-kind redemptions are treated as sales of securities resulting in realized capital gains or losses to the Fund. Because such gains or losses are not taxable to the Fund and are not distributed to existing Fund shareholders, the gains or losses are reclassified from accumulated net realized gain (loss) to paid-in capital at the end of the Fund’s tax year. These reclassifications have no effect on net assets or net asset value (“NAV”) per share.

Distributions: Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. Dividends and distributions are paid in U.S. dollars and cannot be automatically reinvested in additional shares of the Fund. The character and timing of distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

 

 

14   2 0 2 2   I S H A R E S   S E M I - A N N U A L    R E P O R T    T O    S H A R E H O L D E R S


Notes to Financial Statements (unaudited) (continued)

 

Indemnifications: In the normal course of business, the Fund enters into contracts that contain a variety of representations that provide general indemnification. The Fund’s maximum exposure under these arrangements is unknown because it involves future potential claims against the Fund, which cannot be predicted with any certainty.

 

3.

INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS

Investment Valuation Policies: The Fund’s investments are valued at fair value (also referred to as “market value” within the financial statements) each day that the Fund’s listing exchange is open and, for financial reporting purposes, as of the report date. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments using various independent dealers or pricing services under policies approved by the Board of Directors of the Company (the “Board”). If a security’s market price is not readily available or does not otherwise accurately represent the fair value of the security, the security will be valued in accordance with a policy approved by the Board as reflecting fair value. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to oversee the pricing function for all financial instruments.

Fair Value Inputs and Methodologies: The following methods and inputs are used to establish the fair value of the Fund’s assets and liabilities:

   

Equity investments traded on a recognized securities exchange are valued at that day’s official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last traded price.

   

Investments in open-end U.S. mutual funds (including money market funds) are valued at that day’s published NAV.

   

Futures contracts are valued based on that day’s last reported settlement or trade price on the exchange where the contract is traded.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of trading on the New York Stock Exchange (“NYSE”). Each business day, the Fund uses current market factors supplied by independent pricing services to value certain foreign instruments (“Systematic Fair Value Price”). The Systematic Fair Value Price is designed to value such foreign securities at fair value as of the close of trading on the NYSE, which follows the close of the local markets.

If events (e.g., market volatility, company announcement or a natural disaster) occur that are expected to materially affect the value of such investment, or in the event that application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global Valuation Committee include market approach, income approach and cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and are typically used in determining fair value. When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant and consistent with the principles of fair value measurement. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

Fair value pricing could result in a difference between the prices used to calculate a fund’s NAV and the prices used by the fund’s underlying index, which in turn could result in a difference between the fund’s performance and the performance of the fund’s underlying index.

Fair Value Hierarchy: Various inputs are used in determining the fair value of financial instruments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial reporting purposes as follows:

   

Level 1 – Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access;

   

Level 2 – Other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs); and

   

Level 3 – Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, (including the Global Valuation Committee’s assumptions used in determining the fair value of financial instruments).

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments classified within Level 3 have significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments. Level 3 investments include equity or debt issued by privately held companies or funds that may not have a secondary market and/or may have a limited number of investors. The categorization of a value determined for financial instruments is based on the pricing transparency of the financial instruments and is not necessarily an indication of the risks associated with investing in those securities.

 

4.

DERIVATIVE FINANCIAL INSTRUMENTS

Futures Contracts: Futures contracts are purchased or sold to gain exposure to, or manage exposure to, changes in interest rates (interest rate risk) and changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).

Futures contracts are exchange-traded agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and on a specified date. Depending on the terms of a contract, it is settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash amount on the settlement date. Upon entering into a futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities

 

 

N O T E S    T O    F I N A N C I A L    S T A T E M E N T S

  15


Notes to Financial Statements (unaudited) (continued)

 

in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Amounts pledged, which are considered restricted, are included in cash pledged for futures contracts in the Statement of Assets and Liabilities.

Securities deposited as initial margin are designated in the Schedule of Investments and cash deposited, if any, are shown as cash pledged for futures contracts in the Statement of Assets and Liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts in the Statement of Assets and Liabilities. When the contract is closed, a realized gain or loss is recorded in the Statement of Operations equal to the difference between the notional amount of the contract at the time it was opened and the notional amount at the time it was closed. The use of futures contracts involves the risk of an imperfect correlation in the movements in the price of futures contracts and interest rates, foreign currency exchange rates or underlying assets.

 

5.

INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Advisory Fees: Pursuant to an Investment Advisory Agreement with the Company, BlackRock Fund Advisors (“BFA”) manages the investment of the Fund’s assets. BFA is a California corporation indirectly owned by BlackRock, Inc. (“BlackRock”). Under the Investment Advisory Agreement, BFA is responsible for substantially all expenses of the Fund, except (i) interest and taxes; (ii) brokerage commissions and other expenses connected with the execution of portfolio transactions; (iii) distribution fees; (iv) the advisory fee payable to BFA; and (v) litigation expenses and any extraordinary expenses (in each case as determined by a majority of the independent directors).

For its investment advisory services to the Fund, BFA is entitled to an annual investment advisory fee, accrued daily and paid monthly by the Fund, based on the Fund’s allocable portion of the aggregate of the average daily net assets of the Fund and certain other iShares funds, as follows:

 

   
Aggregate Average Daily Net Assets   Investment Advisory Fee     

First $2 billion

    0.7400%  

Over $2 billion, up to and including $4 billion

    0.6900     

Over $4 billion, up to and including $8 billion

    0.6400     

Over $8 billion, up to and including $16 billion

    0.5700     

Over $16 billion, up to and including $24 billion

    0.5100     

Over $24 billion, up to and including $32 billion

    0.4800     

Over $32 billion, up to and including $40 billion

    0.4500     

Over $40 billion

    0.4275     

Distributor: BlackRock Investments, LLC, an affiliate of BFA, is the distributor for the Fund. Pursuant to the distribution agreement, BFA is responsible for any fees or expenses for distribution services provided to the Fund.

Officers and Directors: Certain officers and/or directors of the Company are officers and/or directors of BlackRock or its affiliates.

Other Transactions: Cross trading is the buying or selling of portfolio securities between funds to which BFA (or an affiliate) serves as investment adviser. At its regularly scheduled quarterly meetings, the Board reviews such transactions as of the most recent calendar quarter for compliance with the requirements and restrictions set forth by Rule 17a-7.

For the six months ended February 28, 2022, transactions executed by the Fund pursuant to Rule 17a-7 under the 1940 Act were as follows:

 

       
iShares ETF   Purchases      Sales     

Net Realized  

Gain (Loss)  

 

MSCI Russia

  $ 2,217,982      $ 766,239      $ 218,151    

The Fund may invest its positive cash balances in certain money market funds managed by BFA or an affiliate. The income earned on these temporary cash investments is shown as dividends – affiliated in the Statement of Operations.

A fund, in order to improve its portfolio liquidity and its ability to track its underlying index, may invest in shares of other iShares funds that invest in securities in the fund’s underlying index.

 

6.

PURCHASES AND SALES

For the six months ended February 28, 2022, purchases and sales of investments, excluding short-term investments and in-kind transactions, were as follows:

 

     
iShares ETF   Purchases      Sales    

MSCI Russia

  $ 27,810,825      $ 20,618,897    

 

 

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Notes to Financial Statements (unaudited) (continued)

 

For the six months ended February 28, 2022, in-kind transactions were as follows:

 

     
iShares ETF   In-kind
Purchases
    

In-kind  

Sales  

 

MSCI Russia

  $ 15,064,312      $ —    

 

7.

INCOME TAX INFORMATION

The Fund is treated as an entity separate from the Company’s other funds for federal income tax purposes. It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of its taxable income to its shareholders. Therefore, no U.S. federal income tax provision is required.

Management has analyzed tax laws and regulations and their application to the Fund as of February 28, 2022, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.

As of August 31, 2021, the Fund had non-expiring capital loss carryforwards available to offset future realized capital gains of $121,773,631.

A fund may own shares in certain foreign investment entities, referred to, under U.S. tax law, as “passive foreign investment companies.” Such fund may elect to mark-to-market annually the shares of each passive foreign investment company and would be required to distribute to shareholders any such marked-to-market gains.

As of February 28, 2022, gross unrealized appreciation and depreciation based on cost of investments (including short positions and derivatives, if any) for U.S. federal income tax purposes were as follows:

 

         
iShares ETF   Tax Cost      Gross Unrealized
Appreciation
     Gross Unrealized 
Depreciation 
    

Net Unrealized  

Appreciation   

(Depreciation)   

 

MSCI Russia

  $ 492,392,339      $      $ (387,467,844)      $ (387,467,844)    

 

8.

LINE OF CREDIT

The Fund, along with certain other iShares funds (“Participating Funds”), is a party to a $800 million credit agreement (“Syndicated Credit Agreement”) with a group of lenders, which expires on August 12, 2022. The line of credit may be used for temporary or emergency purposes, including redemptions, settlement of trades and rebalancing of portfolio holdings in certain target markets. The Funds may borrow up to the aggregate commitment amount subject to asset coverage and other limitations as specified in the Syndicated Credit Agreement. The Syndicated Credit Agreement has the following terms: a commitment fee of 0.15% per annum on the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR rate (not less than zero) plus 1.00% per annum or (b) the U.S. Federal Funds rate (not less than zero) plus 1.00% per annum on amounts borrowed. The commitment fee is generally allocated to each Participating Fund based on the lesser of a Participating Fund’s relative exposure to certain target markets or a Participating Fund’s maximum borrowing amount as set forth by the terms of the Syndicated Credit Agreement.

During the six months ended February 28, 2022, the Fund did not borrow under the Syndicated Credit Agreement.

 

9.

PRINCIPAL RISKS

In the normal course of business, the Fund invests in securities or other instruments and may enter into certain transactions, and such activities subject the Fund to various risks, including, among others, fluctuations in the market (market risk) or failure of an issuer to meet all of its obligations. The value of securities or other instruments may also be affected by various factors, including, without limitation: (i) the general economy; (ii) the overall market as well as local, regional or global political and/or social instability; (iii) regulation, taxation or international tax treaties between various countries; or (iv) currency, interest rate or price fluctuations. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the Fund and its investments. The Fund’s prospectus provides details of the risks to which the Fund is subject.

BFA uses a “passive” or index approach to try to achieve the Fund’s investment objective following the securities included in its underlying index during upturns as well as downturns. BFA does not take steps to reduce market exposure or to lessen the effects of a declining market. Divergence from the underlying index and the composition of the portfolio is monitored by BFA.

Market Risk: An outbreak of respiratory disease caused by a novel coronavirus has developed into a global pandemic and has resulted in closing borders, quarantines, disruptions to supply chains and customer activity, as well as general concern and uncertainty. The impact of this pandemic, and other global health crises that may arise in the future, could affect the economies of many nations, individual companies and the market in general in ways that cannot necessarily be foreseen at the present time. This pandemic may result in substantial market volatility and may adversely impact the prices and liquidity of a fund’s investments. Although vaccines have been developed and approved for use by various governments, the duration of this pandemic and its effects cannot be determined with certainty.

Valuation Risk: The market values of equities, such as common stocks and preferred securities or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company. They may also decline due to factors which affect a particular industry or

 

 

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  17


Notes to Financial Statements (unaudited) (continued)

 

industries. A fund may invest in illiquid investments. An illiquid investment is any investment that a fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. A fund may experience difficulty in selling illiquid investments in a timely manner at the price that it believes the investments are worth. Prices may fluctuate widely over short or extended periods in response to company, market or economic news. Markets also tend to move in cycles, with periods of rising and falling prices. This volatility may cause a fund’s NAV to experience significant increases or decreases over short periods of time. If there is a general decline in the securities and other markets, the NAV of a fund may lose value, regardless of the individual results of the securities and other instruments in which a fund invests.

The price the Fund could receive upon the sale of any particular portfolio investment may differ from the Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a fair valuation technique or a price provided by an independent pricing service. Changes to significant unobservable inputs and assumptions (i.e., publicly traded company multiples, growth rate, time to exit) due to the lack of observable inputs.

Counterparty Credit Risk: The Fund may be exposed to counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related to unsettled or open transactions, including making timely interest and/or principal payments or otherwise honoring its obligations. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is approximately their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.

A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.

With exchange-traded futures, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.

Concentration Risk: A diversified portfolio, where this is appropriate and consistent with a fund’s objectives, minimizes the risk that a price change of a particular investment will have a material impact on the NAV of a fund. The investment concentrations within the Fund’s portfolio are disclosed in its Schedule of Investments.

The Fund invests a significant portion of its assets in issuers located in a single country or a limited number of countries. When a Fund concentrates its investments in this manner, it assumes the risk that economic, regulatory, political and social conditions in that country or those countries may have a significant impact on the fund and could affect the income from, or the value or liquidity of, the Fund’s portfolio. Unanticipated or sudden political or social developments may cause uncertainty in the markets and as a result adversely affect the Fund’s investments. Foreign issuers may not be subject to the same uniform accounting, auditing and financial reporting standards and practices as used in the United States. Foreign securities markets may also be more volatile and less liquid than U.S. securities and may be less subject to governmental supervision not typically associated with investing in U.S. securities.

The Fund invests a significant portion of its assets in securities of issuers located in Europe or with significant exposure to European issuers or countries. The European financial markets have recently experienced volatility and adverse trends due to concerns about economic downturns in, or rising government debt levels of, several European countries as well as acts of war in the region. These events may spread to other countries in Europe and may affect the value and liquidity of certain of the Fund’s investments.

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 others of their debt could have additional adverse effects on economies, financial markets and asset valuations around the world. The United Kingdom has withdrawn from the European Union, and one or more other countries may withdraw from the European Union and/or abandon the Euro, the common currency of the European Union. The impact of these actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far reaching. In addition, Russia launched a large-scale invasion of Ukraine on February 24, 2022. The extent and duration of the military action, resulting sanctions and resulting future market disruptions in the region are impossible to predict, but could be significant and have a severe adverse effect on the region, including significant negative impacts on the economy and the markets for certain securities and commodities, such as oil and natural gas, as well as other sectors.

The Fund invests a significant portion of its assets in securities of issuers located in Russia or with significant exposure to Russian issuers or countries. Russia launched a large-scale invasion of Ukraine on February 24, 2022. Governments in the U.S. and many other countries have imposed economic sanctions on certain Russian individuals and Russian corporate and banking entities. Jurisdictions have instituted broader sanctions on Russia, including banning Russia from global payments systems that facilitate cross-border payments. The extent and duration of the military action, resulting sanctions and resulting future market disruptions, including declines in Russia’s stock markets and the value of the ruble against the U.S. dollar, are impossible to predict, but could be significant. Any such disruptions caused by the Russian military action or any response to such activity from the international community may negatively impact Russia’s economy and Russian issuers of securities in which the Fund invests.

 

 

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Notes to Financial Statements (unaudited) (continued)

 

The Fund invests a significant portion of its assets in securities within a single or limited number of market sectors. When a Fund concentrates its investments in this manner, it assumes the risk that economic, regulatory, political and social conditions affecting such sectors may have a significant impact on the fund and could affect the income from, or the value or liquidity of, the fund’s portfolio. Investment percentages in specific sectors are presented in the Schedule of Investments.

Significant Shareholder Redemption Risk: Certain shareholders may own or manage a substantial amount of fund shares and/or hold their fund investments for a limited period of time. Large redemptions of fund shares by these shareholders may force a Fund to sell portfolio securities, which may negatively impact the fund’s NAV, increase the fund’s brokerage costs, and/or accelerate the realization of taxable income/gains and cause the fund to make additional taxable distributions to shareholders.

LIBORTransition Risk: The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate (“LIBOR”). Although many LIBOR rates ceased to be published or no longer are representative of the underlying market they seek to measure after December 31, 2021, a selection of widely used USD LIBOR rates will continue to be published through June 2023 in order to assist with the transition. The Fund may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or investment value. The transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate effect of the LIBOR transition process on the Fund is uncertain.

 

10.

CAPITAL SHARE TRANSACTIONS

Capital shares are issued and redeemed by the Fund only in aggregations of a specified number of shares or multiples thereof (“Creation Units”) at NAV. Except when aggregated in Creation Units, shares of the Fund are not redeemable.

Transactions in capital shares were as follows:

 

 

 
   

Six Months Ended

02/28/22

    

Year Ended

08/31/21

 
 

 

 

    

 

 

 
iShares ETF   Shares      Amount      Shares      Amount  

 

 

MSCI Russia

          

Shares sold

    800,000      $ 32,469,779        900,000      $ 38,349,193  

Shares redeemed

                  (1,350,000      (49,799,409
 

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease)

    800,000      $ 32,469,779        (450,000    $ (11,450,216
 

 

 

    

 

 

    

 

 

    

 

 

 

The consideration for the purchase of Creation Units of a fund in the Company generally consists of the in-kind deposit of a designated portfolio of securities and a specified amount of cash. Certain funds in the Company may be offered in Creation Units solely or partially for cash in U.S. dollars. Investors purchasing and redeeming Creation Units may pay a purchase transaction fee and a redemption transaction fee directly to State Street Bank and Trust Company, the Company’s administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units, including Creation Units for cash. Investors transacting in Creation Units for cash may also pay an additional variable charge to compensate the relevant fund for certain transaction costs (i.e., stamp taxes, taxes on currency or other financial transactions, and brokerage costs) and market impact expenses relating to investing in portfolio securities. Such variable charges, if any, are included in shares sold in the table above.

From time to time, settlement of securities related to in-kind contributions or in-kind redemptions may be delayed. In such cases, securities related to in-kind transactions are reflected as a receivable or a payable in the Statement of Assets and Liabilities.

 

11.

SUBSEQUENT EVENTS

Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were available to be issued and the following items were noted:

Russia’s large-scale invasion of Ukraine has created circumstances that have continued to significantly impact the Fund’s operations since February 28, 2022. The United States, and many other countries, have imposed economic sanctions on certain Russian individuals and Russian corporate banking entities, including banning Russia from global payment systems that facilitate cross-border payments. In response, the Russian government imposed capital controls to restrict movements of capital from entering and exiting the country and have closed trading sessions for local Russian equities to non-residents, which have been in effect since February 28, 2022. In addition, trading of depository receipts for several Russia-based companies was halted on primary trading platforms in early March 2022.

The consequences of Russia’s invasion and unprecedented market and policy responses of various governments and regulators precipitated the absence of a functioning or orderly market to facilitate the liquidation and repatriation of securities for any Russian-based companies held by the Fund. As a result, the fair value of Russian securities and currency experienced significant declines.

Beginning in early March 2022, the following developments occurred: (i) the Fund temporarily suspended new creations of its shares until further notice; (ii) NYSE Arca, Inc. announced a trading halt of the Fund; (iii) BFA wrote down the value of all Russian equity securities to a nominal investment value; (iv) the index provider, similarly, and separately, wrote down the represented value of all Russian equities comprising the Fund’s benchmark, MSCI Russia 25/50 Index, to nominal investment values; (v) BFA implemented a voluntary waiver of its investment advisory fee for the Fund that may be eliminated at any time; (vi) Russia signed into law a requirement of Russian issuers

 

 

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  19


Notes to Financial Statements (unaudited) (continued)

 

to terminate deposit agreements related to their depository receipt program, with holders receiving local shares of the respective Russian issuers in place of the depository receipts; and (vii) the Fund was removed as a borrower from the line of credit facility as the trading halt by NYSE Arca, Inc. resulted in technical default under the Syndicated Credit Agreement.

As of March 7, 2022, the Fund’s net assets are composed primarily of cash, which is invested in an affiliated money market fund, instead of Russian equity securities of its underlying index. As a result, during this time, the Fund will not meet its investment objective and will likely experience increased tracking error.

Refer to the table below for changes in key measures reported on the Statement of Assets and Liabilities as of March 7, 2022 (date by which all material aforementioned subsequent events impacting net asset value were realized).

 

iShares MSCI Russia ETF   February 28,
2022
     March 7,
2022
 

 

 

ASSETS

    

Investments in Securities, at value

    

Unaffiliated

  $ 104,048,169      $ 49,286  

Affiliated

    920,000        910,000  

Other Assets

    147,670        123,246  

LIABILITIES

    

Investment advisory fees payable

    215,570         

Other Liabilities

    95,402        88,052  
 

 

 

    

 

 

 

NET ASSETS

  $ 104,804,867      $ 994,480  
 

 

 

    

 

 

 

Net asset value

  $ 7.62      $ 0.07  
 

 

 

    

 

 

 

 

 

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Statement Regarding Liquidity Risk Management Program (unaudited)

 

In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), iShares, Inc. (the “Company”) has adopted and implemented a liquidity risk management program (the “Program”) for iShares MSCI Russia ETF (the “Fund” or “ETF”), each a series of the Company, which is reasonably designed to assess and manage the Fund’s liquidity risk.

The Board of Directors (the “Board”) of the Company, on behalf of the Fund, met on December 9, 2021 (the “Meeting”) to review the Program. The Board previously appointed BlackRock Fund Advisors (“BlackRock”), the investment adviser to the Fund, as the program administrator for the Fund’s Program. BlackRock also previously delegated oversight of the Program to the 40 Act Liquidity Risk Management Committee (the “Committee”). At the Meeting, the Committee, on behalf of BlackRock, provided the Board with a report that addressed the operation of the Program and assessed its adequacy and effectiveness of implementation, including the management of the Fund’s Highly Liquid Investment Minimum (“HLIM”) where applicable, and any material changes to the Program (the “Report”). The Report covered the period from October 1, 2020 through September 30, 2021 (the “Program Reporting Period”).

The Report described the Program’s liquidity classification methodology for categorizing the Fund’s investments (including derivative transactions) into one of four liquidity buckets. It also referenced the methodology used by BlackRock to establish the Fund’s HLIM and noted that the Committee reviews and ratifies the HLIM assigned to the Fund no less frequently than annually. The Report also discussed notable events affecting liquidity over the Program Reporting Period, including extended market holidays and the imposition of capital controls in certain non-U.S. countries.

The Report noted that the Program complied with the key factors for consideration under the Liquidity Rule for assessing, managing and periodically reviewing the Fund’s liquidity risk, as follows:

 

  a)

The Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions. During the Program Reporting Period, the Committee reviewed whether the Fund’s strategy is appropriate for an open-end fund structure, with a focus on funds with more significant and consistent holdings of less liquid and illiquid assets. The Committee also factored a fund’s concentration in an issuer into the liquidity classification methodology by taking issuer position sizes into account. Derivative exposure was also considered in the calculation of a fund’s liquidity bucketing. Finally, a factor for consideration under the Liquidity Rule is a Fund’s use of borrowings for investment purposes. However, the Funds do not borrow for investment purposes.

 

  b)

Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions. During the Program Reporting Period, the Committee reviewed historical redemption activity and used this information as a component to establish each ETF’s reasonably anticipated trading size (“RATS”). The Committee may also take into consideration a fund’s shareholder ownership concentration (which, depending on product type and distribution channel, may or may not be available), a fund’s distribution channels, and the degree of certainty associated with a fund’s short-term and long-term cash flow projections.

 

  c)

Holdings of cash and cash equivalents, as well as borrowing arrangements. The Committee considered that ETFs generally do not hold more than de minimis amounts of cash. While the ETFs generally do not engage in borrowing, certain of the ETFs have the flexibility to draw on a line of credit to meet redemption requests or facilitate settlements.

 

  d)

The relationship between an ETF’s portfolio liquidity and the way in which, and the prices and spreads at which, ETF shares trade, including the efficiency of the arbitrage function and the level of active participation by market participants, including authorized participants. The Committee monitored the prevailing bid/ask spread and the ETF price premium (or discount) to NAV for all ETFs and reviewed any persistent deviations from long-term averages.

 

  e)

The effect of the composition of baskets on the overall liquidity of an ETF’s portfolio. In reviewing the linkage between the composition of custom baskets accepted by an ETF and any significant change in the liquidity profile of such ETF, the Committee reviewed changes in the proportion of each ETF’s portfolio comprised of less liquid and illiquid holdings to determine if applicable thresholds were met requiring enhanced review.

As part of BlackRock’s continuous review of the effectiveness of the Program, the Committee made the following material changes to the Program: (1) updates to certain model components in the Program’s methodology; and (2) certain iShares Funds entered into a $800 million credit agreement with a group of lenders that replaced a previous liquidity facility. The Report provided to the Board stated that the Committee concluded that based on the operation of the functions, as described in the Report, the Program is operating as intended and is effective in implementing the requirements of the Liquidity Rule.

 

 

S T A T E M E N T   R E G A R D I N G   L I Q U I D I T Y   R I S K   M A N A G E M E N T   P R O G R A M

  21


Supplemental Information (unaudited)

 

Regulation Regarding Derivatives

On October 28, 2020, the Securities and Exchange Commission (the “SEC”) adopted regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). The Fund will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented, Rule 18f-4 will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, treat derivatives as senior securities and require funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.

Section 19(a) Notices

The amounts and sources of distributions reported are estimates and are being provided pursuant to regulatory requirements and are not being provided for tax reporting purposes. The actual amounts and sources for tax reporting purposes will depend upon the Fund’s investment experience during the year and may be subject to changes based on tax regulations. Shareholders will receive a Form 1099-DIV each calendar year that will inform them how to report these distributions for federal income tax purposes.

February 28, 2022

 

     
    Total Cumulative Distributions
for the Fiscal Year-to-Date
     % Breakdown of the Total Cumulative
Distributions for the Fiscal Year-to-Date
 
iShares ETF   Net
Investment
Income
     Net Realized
Capital Gains
     Return of
Capital
     Total Per
Share
     Net
Investment
Income
    Net Realized
Capital Gains
    Return of
Capital
    Total Per
Share
 

MSCI Russia(a)

  $   1.427702      $      $   0.272784      $   1.700486        84         16     100

 

  (a)

The Fund estimates that it has distributed more than its net investment income and net realized capital gains; therefore, a portion of the distribution may be a return of capital. A return of capital may occur, for example, when some or all of the shareholder’s investment in the Fund is returned to the shareholder. A return of capital does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income”. When distributions exceed total return performance, the difference will incrementally reduce the Fund’s net asset value per share.

 

 

 

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General Information

 

Electronic Delivery

Shareholders can sign up for e-mail notifications announcing that the shareholder report or prospectus has been posted on the iShares website at iShares.com. Once you have enrolled, you will no longer receive prospectuses and shareholder reports in the mail.

To enroll in electronic delivery:

 

   

Go to icsdelivery.com.

   

If your brokerage firm is not listed, electronic delivery may not be available. Please contact your broker-dealer or financial advisor.

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 and Rule 30e-3 notices 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.

Availability of Quarterly Schedule of Investments

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at sec.gov. Additionally, the Fund makes its portfolio holdings for the first and third quarters of each fiscal year available at iShares.com/fundreports.

Availability of Proxy Voting Policies and Proxy Voting Records

A description of the policies and procedures that the iShares Funds use to determine how to vote proxies relating to portfolio securities and information about how the iShares Funds voted proxies relating to portfolio securities during the most recent twelve-month period ending June 30 is available without charge, upon request (1) by calling toll-free 1-800-474-2737; (2) on the iShares website at iShares.com; and (3) on the SEC website at sec.gov.

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 Prospectus. The Fund discloses its portfolio holdings daily and provides information regarding its top holdings in Fund fact sheets at iShares.com.

 

 

E N E R A L  N F O R M A T I O N

  23


Glossary of Terms Used in this Report

 

 

Portfolio Abbreviations - Equity
ADR    American Depositary Receipt
GDR    Global Depositary Receipt
NVS    Non-Voting Shares
PJSC    Public Joint Stock Company

 

 

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Want to know more?

iShares.com     |    1-800-474-2737

This report is intended for the Fund’s shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the current prospectus.

Investing involves risk, including possible loss of principal.

The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by MSCI Inc., nor does this company make any representation regarding the advisability of investing in the iShares Funds. BlackRock is not affiliated with the company listed above.

©2022 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc. or its subsidiaries. All other marks are the property of their respective owners.

iS-SAR-821-0222

 

 

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