<PAGE>
iShares, Inc.
(formerly, WEBS Index Fund, Inc.)
iShares, Inc. is an index fund consisting of separate series, each of which
seeks investment results similar to the performance of a single stock market or
all of the stock markets in a geographic region.
.iShares MSCI Australia Index Fund
.iShares MSCI Austria Index Fund
.iShares MSCI Belgium Index Fund
.iShares MSCI Brazil (Free) 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 Italy Index Fund
.iShares MSCI Japan Index Fund
.iShares MSCI Malaysia (Free) Index Fund
- --------------------------------------------------------------------------------
.iShares MSCI Mexico (Free) Index Fund
.iShares MSCI Netherlands Index Fund
.iShares MSCI Singapore (Free) 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 United Kingdom Index Fund
.iShares MSCI USA Index Fund
- --------------------------------------------------------------------------------
The iShares MSCI Index Fund Shares, known as "iSharesSM" and formerly known as
World Equity Benchmark SharesSM, or WEBSSM, are listed for trading on the
American Stock Exchange LLC. Individual iShares are not redeemable at their net
asset value, but trade on the AMEX during the day at prices that are normally
close to, but not the same as, their net asset value. There is no assurance
that an active trading market will be maintained for iShares or that market
prices of iShares of any iShares MSCI Index Fund will be close to their net
asset values in the future. Each iShares MSCI Index Fund issues and redeems
iShares on a continuous basis -- at net asset value -- only in large specified
numbers of iShares called "Creation Units", usually in exchange for a basket of
portfolio securities and an amount of cash.
Except when aggregated in Creation Units, iShares are not redeemable
securities.
iShares, Inc. will apply to have the iShares MSCI Brazil (Free), EMU, South
Africa, Taiwan and USA Index Funds listed on the AMEX. The iShares MSCI Brazil
(Free) and South Africa Index Funds are expected to be offered for sale to the
public beginning in June 2000, and the iShares MSCI EMU Index Fund is expected
to be offered for sale to the public beginning in July 2000.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the SEC determined whether the information in this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
Prospectus Dated December 30, 1999
(As Revised May 22, 2000)
<PAGE>
Table of Contents
Details on each Index Fund's market, benchmark index and performance
Details on the management and operations of the Index Funds
Details on buying and selling iShares
Details on the Rule 12b-1 Distribution Plan
Per share financial data for each Index Fund
<TABLE>
<S> <C>
Introduction................................................................ 1
Investment Objective........................................................ 1
Principal Investment Strategies............................................. 1
Principal Risk Factors...................................................... 2
Fees and Expenses........................................................... 3
The iShares MSCI Index Funds
iShares MSCI Australia Index Fund......................................... 7
iShares MSCI Austria Index Fund........................................... 8
iShares MSCI Belgium Index Fund........................................... 9
iShares MSCI Brazil (Free) Index Fund..................................... 10
iShares MSCI Canada Index Fund............................................ 11
iShares MSCI EMU Index Fund............................................... 12
iShares MSCI France Index Fund............................................ 13
iShares MSCI Germany Index Fund........................................... 14
iShares MSCI Hong Kong Index Fund......................................... 15
iShares MSCI Italy Index Fund............................................. 16
iShares MSCI Japan Index Fund............................................. 17
iShares MSCI Malaysia (Free) Index Fund................................... 18
iShares MSCI Mexico (Free) Index Fund..................................... 20
iShares MSCI Netherlands Index Fund....................................... 21
iShares MSCI Singapore (Free) Index Fund.................................. 22
iShares MSCI South Africa Index Fund...................................... 23
iShares MSCI South Korea Index Fund....................................... 24
iShares MSCI Spain Index Fund............................................. 25
iShares MSCI Sweden Index Fund............................................ 26
iShares MSCI Switzerland Index Fund....................................... 27
iShares MSCI Taiwan Index Fund............................................ 28
iShares MSCI United Kingdom Index Fund.................................... 29
iShares MSCI USA Index Fund............................................... 30
Investment Policies and Strategies.......................................... 31
Additional Information About Principal Risk Factors......................... 33
Management
Investment Adviser.......................................................... 36
Shareholder Information
Determination of Net Asset Value............................................ 36
Buying and Selling iShares.................................................. 36
Dividends and Capital Gains Distributions................................... 38
Tax Matters................................................................. 38
Distribution Arrangements................................................... 39
Financial Highlights........................................................ 40
</TABLE>
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iShares
page i
<PAGE>
Introduction
This Prospectus provides you with information you need to make an informed
decision about whether to invest in an iShares MSCI Index Fund (each an "Index
Fund" and collectively, the "Index Funds") of iShares, Inc. (the "Company"). It
is organized to provide you with important facts about the Company as a whole
and each particular Index Fund. The Investment Objective, Principal Investment
Strategies and Principal Risk Factors sections discuss the general strategies
and risks applicable to all Index Funds, while The iShares MSCI Index Funds
section provides important information about each particular Index Fund,
including a brief description of its benchmark index, specific risks associated
with a particular market or region and prior performance.
Investment Objective
Each Index Fund seeks investment results similar to the performance of a single
stock market or all of the stock markets in a geographic region. The
performance of these markets is measured by stock indices compiled by Morgan
Stanley Capital International Inc. ("MSCI"), and calculated based on the
reinvestment of net dividends (gross dividends in the case of the MSCI Mexico
(Free) Index).
Principal Investment Strategies
Unlike many investment companies, an Index Fund does not attempt to "beat" the
market or its benchmark index. Instead, it uses a "passive," or indexing,
investment approach to try to produce investment results that come as close as
possible to matching the performance of its benchmark index. The Index Fund
does this by investing in a representative sample of index stocks that the
investment adviser selects using a "portfolio sampling" technique. However,
most Index Funds do not usually invest in all of the stocks of a benchmark
index. Some Index Funds may even invest in stocks that are not in its benchmark
index. The benchmark indices used by the Index Funds are compiled by MSCI.
The use of an indexing approach may eliminate some of the risks of active
management such as poor stock selection. An indexing approach may also help
increase after-tax performance by keeping portfolio turnover low in comparison
to actively managed investment companies.
One negative feature of indexing is that the Company's investment adviser
cannot change a strategy even if it would be beneficial to do so. For example,
an Index Fund would not ordinarily sell a stock because its issuer was in
financial trouble. It would normally only sell a stock if the stock was removed
from an Index Fund's benchmark index by MSCI or if the investment adviser
believes that selling the stock would make an Index Fund's performance more
like that of its benchmark index.
Under each Index Fund's industry concentration policy, the industry weightings
in an Index Fund must be within 10% of the weightings of the two most heavily
weighted industries in its benchmark index.
iShares are designed for investors who want a relatively inexpensive passive
approach to investing in a portfolio of stocks from a single country or region.
International diversification is a generally recognized way to reduce
investment portfolio risk. Also, many of the foreign stocks in an Index Fund
(other than the iShares MSCI USA Index Fund) are difficult to purchase or hold,
or are, as a practical matter, not available to retail investors.
The Index Funds offer investors a convenient way to obtain index-based exposure
to the stock markets of a specific country or region. The prices of iShares may
be volatile. Therefore, if you purchase iShares, you should be able to tolerate
sudden, or even drastic, changes in the value of your investment. We cannot
assure that any Index Fund will achieve its investment objective, and you
should understand that your investment (other than an investment in the iShares
MSCI USA Index Fund) will be exposed to the risks of international equity
investing.
Each Index Fund issues and redeems iShares on a continuous basis -- at net
asset value -- only in large specified numbers of iShares called "Creation
Units" usually in exchange for a basket of portfolio
Introduction
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Page 1
<PAGE>
securities and an amount of cash. As a practical matter, only large
institutions purchase or redeem Creation Units of iShares. Information about
the fees paid when they do this is included in the Company's Statement of
Additional Information. Except when aggregated in Creation Units, iShares are
not redeemable securities.
Principal Risk Factors
You may lose money by investing in an Index Fund. Each Index Fund is also
subject to the following principal risks, more fully described in the
Additional Risk Considerations section in this prospectus. Additional risks
associated with a particular market or region in which an Index Fund invests
are discussed under each Index Fund's profile in The iShares MSCI Index Funds
section. Some or all of these risks may adversely affect an Index Fund's net
asset value, yield, total return and/or its ability to achieve its objective:
. Market Risk. The net asset value of an Index Fund will change with changes
in the market value of the stocks it holds.
. Foreign Security Risk. Each Index Fund invests entirely within the equity
markets of a single country or region. These markets (other than for the
iShares MSCI USA Index Fund) are subject to special risks associated with
foreign investment including, but not limited to: generally less liquid and
less efficient securities markets; generally greater price volatility;
exchange rate fluctuations and exchange controls; less publicly available
information about issuers; the imposition of taxes; exchange controls;
higher transaction and custody costs; settlement delays and risk of loss;
difficulties in enforcing contracts; less liquidity and smaller market
capitalizations; lesser regulation of securities markets; different
accounting and disclosure standards; governmental interference; higher
inflation; and social, economic and political uncertainties and the risk of
expropriation of assets.
. Management Risk. Because an Index Fund does not fully replicate its
benchmark index and may hold non-index stocks, it is subject to management
risk. This is the risk that the investment advisor's strategy, the
implementation of which is subject to a number of constraints, may not
produce the intended results.
. Currency Risk. Because each Index Fund's net asset value is determined on
the basis of US dollars, you may lose money if you invest in any Index Fund
other than the iShares MSCI USA Index Fund if the local currency of a
foreign market depreciates against the US dollar, even if the local currency
value of an Index Fund's holdings goes up.
. Emerging Market Risk. Some foreign markets in which the Index Funds invest
are considered to be emerging market countries. Investment in these
countries subjects an Index Fund to a greater risk of loss than investments
in a developed country. This is due to, among other things, greater market
volatility, lower trading volume, political and economic instability,
greater risk of market shut down and more governmental limitations on
foreign investment policy than those typically found in a developed market.
The following Index Funds invest in emerging markets: the iShares MSCI
Brazil (Free), South Korea, Malaysia (Free), Mexico (Free) South Africa and
Taiwan Index Funds.
. Non-Diversification Risk. Each Index Fund (except for the iShares MSCI
Canada, EMU, Japan, United Kingdom and USA Index Funds) is classified as
"non-diversified." This means that these Index Funds may invest most of
their assets in securities issued by a small number of companies. As a
result, these Index Funds are more susceptible to the risks associated with
these particular companies, or to a single economic, political or regulatory
occurrence.
. Trading Risk. While the creation/redemption feature of iShares is designed
to make it likely that iShares will trade close to their net asset value,
disruptions to creations and redemptions (as has occurred because of
Malaysia's capital controls) may result in trading prices that differ
significantly from net asset value. Also, there can be no assurance that an
active trading market will exist for iShares of each Index Fund on the AMEX.
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iShares
Page 2
<PAGE>
Fees and Expenses
If you invest in an Index Fund, you will pay various expenses, either directly
or indirectly. The following tables and examples describe the fees and expenses
that you may pay if you buy and hold iShares of an Index Fund.
Shareholder Transaction Fees (fees paid directly from your investment). When
buying or selling iShares of an Index Fund through a broker, you will incur
customary brokerage commissions and charges.*
Annual Index Fund Operating Expenses (expenses that are deducted from the Index
Fund's assets). For the Index Funds that have commenced investment operations
(except the iShares MSCI South Korea Index Fund, which commenced sales of
iShares to the public on May 12, 2000), total annual Index Fund operating
expenses are based on actual expenses accrued by those Index Funds for the
fiscal year ended August 31, 1999, but have been restated to reflect the
changes in the fee arrangements for the management fees and other expenses of
these Index Funds that were approved by their shareholders at or following a
special meeting held on May 5, 2000.
<TABLE>
<CAPTION>
Brazil
iShares MSCI Index Fund Australia Austria Belgium (Free)**
- ----------------------- --------- ------- ------- --------
<S> <C> <C> <C> <C>
Management fees.......................... 0.15% 0.00% 0.00% 0.74%
Distribution (Rule 12b-1) fees........... 0.25% 0.25% 0.25% 0.25%
Other expenses........................... 0.44% 0.74% 0.66% 0.53%
------ ------ ------ ------
Total annual Index Fund operating
expenses................................ 0.84% 0.99% 0.91% 1.52%
Expense Reimbursement by investment
adviser................................. 0.00% (0.15%) (0.07%) (0.53%)
------ ------ ------ ------
Net Expenses............................. 0.84% 0.84% 0.84% 0.99%
====== ====== ====== ======
<CAPTION>
iShares MSCI Index Fund Canada EMU** France Germany
- ----------------------- ------ --- ------ --------
<S> <C> <C> <C> <C>
Management fees.......................... 0.00% 0.59% 0.11% 0.17%
Distribution (Rule 12b-1) fees........... 0.25% 0.25% 0.25% 0.25%
Other expenses........................... 0.66% 0.41% 0.48% 0.42%
------ ------ ------ ------
Total annual Index Fund operating
expenses................................ 0.91% 1.25% 0.84% 0.84%
Expense Reimbursement by investment
adviser................................. (0.07%) (0.41%) 0.00% 0.00%
------ ------ ------ ------
Net Expenses............................. 0.84% 0.84% 0.84% 0.84%
====== ====== ====== ======
<CAPTION>
Malaysia
iShares MSCI Index Fund Hong Kong Italy Japan (Free)
- ----------------------- --------- ----- ----- --------
<S> <C> <C> <C> <C>
Management fees.......................... 0.18% 0.13% 0.22% 0.00%
Distribution (Rule 12b-1) fees........... 0.25% 0.25% 0.25% 0.25%
Other expenses........................... 0.41% 0.46% 0.37% 0.86%
------ ------ ------ ------
Total annual Index Fund operating
expenses................................ 0.84% 0.84% 0.84% 1.11%
Expense Reimbursement by investment
adviser................................. 0.00% 0.00% 0.00% (0.27%)
------ ------ ------ ------
Net Expenses............................. 0.84% 0.84% 0.84% 0.84%
====== ====== ====== ======
</TABLE>
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* Creation Unit Transaction Fees for Institutional Investors. The Company
issues and redeems shares of iShares only in "Creation Units", which are
large blocks of at least 50,000 to 600,000 shares, depending on the Index
Fund. As a practical matter, only institutions are capable of purchasing or
redeeming these Creation Units. In connection with the purchase or the
redemption of a Creation Unit of an Index Fund, an investor must pay to the
Company a purchase or redemption transaction fee, which is intended to
offset the issuance/redemption transaction costs incurred by that Index
Fund. The basic transaction fees (per Creation Unit purchase or redemption
transaction) range from maximums of $1,500 to $8,000, depending on the Index
Fund. In addition to the basic transaction fee, Creation Unit purchase or
redemption transactions for cash (only if available) require an additional
maximum variable charge based on the value of the Creation Unit being
purchased or redeemed, depending on the Index Fund. See "Shareholder
Information -- Buying and Selling iShares" in this Prospectus for a list of
the Creation Unit maximum transaction fees for each Index Fund.
** As of the date of this prospectus, this Index Fund has not started
investment operations (except the iShares MSCI South Korea Index Fund, which
commenced sales of iShares to the public on May 12, 2000). Therefore, these
expenses are based on estimated expenses the Index Fund expects to incur for
the current fiscal year. Fees paid to the administrator are included in
"other expenses" and are estimated based on assumed average daily net assets
of $50 million for each of the iShares MSCI Brazil (Free), EMU, South
Africa, South Korea, Taiwan and USA Index Funds.
Fees and Expenses
- --------------------------------------------------------------------------------
Page 3
<PAGE>
<TABLE>
<CAPTION>
Mexico Singapore South
iShares MSCI Index Fund (Free) Netherlands (Free) Africa**
- ----------------------- ------ ----------- --------- ------
<S> <C> <C> <C> <C>
Management fees.................... 0.00% 0.11% 0.20% 0.74%
Distribution (Rule 12b-1) fees..... 0.25% 0.25% 0.25% 0.25%
Other expenses..................... 0.72% 0.48% 0.39% 0.45%
------ ------ ------ ------
Total annual Index Fund operating
expenses.......................... 0.97% 0.84% 0.84% 1.44%
Expense Reimbursement by investment
adviser........................... (0.13%) 0.00% 0.00% (0.45%)
------ ------ ------ ------
Net Expenses....................... 0.84% 0.84% 0.84% 0.99%
====== ====== ====== ======
<CAPTION>
South
iShares MSCI Index Fund Korea** Spain Sweden Switzerland
- ----------------------- ----- ----- ------ -----------
<S> <C> <C> <C> <C>
Management fees.................... 0.74% 0.13% 0.04% 0.08%
Distribution (Rule 12b-1) fees..... 0.25% 0.25% 0.25% 0.25%
Other expenses..................... 0.48% 0.46% 0.55% 0.51%
------ ------ ------ ------
Total annual Index Fund operating
expenses.......................... 1.47% 0.84% 0.84% 0.84%
Expense Reimbursement by investment
adviser........................... (0.48%) 0.00% 0.00% 0.00%
------ ------ ------ ------
Net Expenses....................... 0.99% 0.84% 0.84% 0.84%
====== ====== ====== ======
<CAPTION>
United
iShares MSCI Index Fund Taiwan** Kingdom USA**
- ----------------------- ------ ------- ---
<S> <C> <C> <C> <C>
Management fees.................... 0.74% 0.20% 0.59%
Distribution (Rule 12b-1) fees..... 0.25% 0.25% 0.25%
Other expenses..................... 0.54% 0.39% 0.36%
------ ------ ------
Total annual Index Fund operating
expenses.......................... 1.53% 0.84% 1.20%
Expense Reimbursement by investment
adviser........................... (0.54%) 0.00% (0.36%)
------ ------ ------
Net Expenses....................... 0.99% 0.84% 0.84%
====== ====== ======
</TABLE>
- --------
** As of the date of this prospectus, this Index Fund has not started
investment operations (except the iShares MSCI South Korea Index Fund, which
commenced sales of iShares to the public on May 12, 2000). Therefore, these
expenses are based on estimated expenses the Index Fund expects to incur for
the current fiscal year. Fees paid to the administrator are included in
"other expenses" and are estimated based on assumed average daily net assets
of $50 million for each of the iShares MSCI Brazil (Free), EMU, South
Africa, South Korea, Taiwan and USA Index Funds.
- --------------------------------------------------------------------------------
iShares
Page 4
<PAGE>
Example of Expenses
These examples are intended to help you compare the cost of investing in an
Index Fund with the cost of investing in other mutual funds. We are assuming an
initial investment of $10,000, a 5% total return each year with no changes in
operating expenses and redemption at the end of each period. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
iShares MSCI Index Fund ($) ($) ($) ($)
----------------------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Australia......................................... 104 286 483 1,052
Austria........................................... 123 305 502 1,071
Belgium........................................... 134 316 513 1,081
Brazil (Free)..................................... 598 806 N/A N/A
Canada............................................ 131 313 510 1,078
EMU............................................... 260 473 N/A N/A
France............................................ 100 282 479 1,048
Germany........................................... 93 275 473 1,042
Hong Kong......................................... 171 352 549 1,116
Italy............................................. 90 281 478 1,047
Japan............................................. 103 285 482 1,051
Malaysia (Free)................................... 484 663 856 1,414
Mexico (Free)..................................... 118 299 497 1,065
Netherlands....................................... 119 301 498 1,066
Singapore (Free).................................. 147 329 526 1,094
South Africa...................................... 165 378 N/A N/A
South Korea....................................... 499 709 N/A N/A
Spain............................................. 110 292 489 1,058
Sweden............................................ 116 298 495 1,063
Switzerland....................................... 108 290 487 1,056
Taiwan............................................ 499 709 N/A N/A
United Kingdom.................................... 109 291 488 1,057
USA............................................... 95 277 N/A N/A
</TABLE>
The above examples are for illustration purposes only and are not a
representation of the Index Funds' actual expenses and returns, either past or
future (e.g., the above examples include the maximum transaction fees
chargeable by an Index Fund).
The iShares MSCI Index Series
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
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iShares
Page 6
<PAGE>
The iShares MSCI Index Funds
iShares MSCI Australia Index Fund
CUSIP: 464286103
AMEX Trading Symbol: EWA
Fund Investment Objective
The iShares MSCI Australia Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Australian market, as
measured by the MSCI Australia Index (the "Index").
Benchmark Index Information
The Index consists of 52 stocks traded primarily on the Australian Stock
Exchange. As of March 31, 2000, the Index's three largest stocks were Telstra
Corp., News Corp. and News Corp. PLVO (which comprise 15.43%, 12.28% and
10.96%, respectively, of the Index's market capitalization) and its three
largest industries were media, diversified telecommunication services and
metals & mining (which comprise 23.23%, 15.43% and 14.01%, respectively, of the
Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
(10.19%) 2.18% 19.24%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: (7.95%)
Best Quarter Worst Quarter
(12.94%)
13.59% (Quarter ended December 31, 1997)
(Quarter ended December 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
------ ---------------
<S> <C> <C>
Australia Index Fund 19.24% 5.57%
MSCI Australia Index 17.62% 6.06%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
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Page 7
<PAGE>
iShares MSCI Austria Index Fund
CUSIP: 464286202
AMEX Trading Symbol: EAO
Fund Investment Objective
The iShares MSCI Austria Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Austrian market, as
represented by the MSCI Austria Index (the "Index").
Benchmark Index Information
The Index consists of 18 stocks traded primarily on the Vienna Stock Exchange.
As of March 31, 2000, the Index's three largest stocks were Bank Austria,
Verbund Oesterreich Elektrik A and OMV Ag (which comprise 28.55%, 16.62% and
10.39%, respectively, of the Index's market capitalization) and its three
largest industries were banks, electric utilities and oil & gas (which comprise
28.55%, 16.62% and 10.39%, respectively, of the Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
[GRAPH]
Annual Total Returns as of 12/31/99
1.05% (1.83%) (10.36%)
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: (9.11%)
Best Quarter Worst Quarter
(23.45%)
12.76% (Quarter ended September 30, 1998)
(Quarter ended March 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------- ---------
<S> <C> <C>
Austria Index Fund (10.36%) (3.74%)
MSCI Austria Index (9.11%) (1.39%)
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
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iShares
Page 8
<PAGE>
iShares MSCI Belgium Index Fund
CUSIP: 464286301
AMEX Trading Symbol: EWK
Fund Investment Objective
The iShares MSCI Belgium Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Belgian market, as measured
by the MSCI Belgium Index (the "Index").
Benchmark Index Information
The Index consists of 14 stocks traded primarily on the Brussels Stock
Exchange. As of March 31, 2000, the Index's three largest stocks were Fortis
Belgium, Electrabel and KBC Bancassurance (which comprise 26.09%, 20.42% and
15.10%, respectively, of the Index's market capitalization) and its three
largest industries were diversified financials, electric utilities and banks
(which comprise 33.46%, 20.42% and 15.10%, respectively, of the Index's
market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
[GRAPH]
Annual Total Returns as of 12/31/99
11.84% 51.69% (14.05%)
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: (22.08%)
Best Quarter Worst Quarter
(14.06%)
17.78% (Quarter ended March 31, 1999)
(Quarter ended December 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
-------- ---------
<S> <C> <C>
Belgium Index Fund (14.05%) 12.92%
MSCI Belgium Index (14.26%) 17.05%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
Page 9
<PAGE>
iShares MSCI Brazil (Free) Index Fund
CUSIP: 464286400
AMEX Trading Symbol: EWZ
Fund Investment Objective
The iShares MSCI Brazil (Free) Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Brazilian market, as
measured by the MSCI Brazil (Free) Index (the "Index").
Benchmark Index Information
The Index consists of 46 stocks traded primarily on the Bolsa de Valores de Sao
Paulo. As of March 31, 2000, the Index's three largest stocks were Petrobras
Pn, Vale Do Rio Doce Pna and Eletrobras On (which comprise 10.88%, 9.41% and
8.45%, respectively, of the Index's market capitalization) and its three
largest industries were diversified telecommunication services, metals & mining
and electric utilities (which comprise 28.88%, 13.09% and 11.61%, respectively,
of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that Brazil has in recent history experienced
substantial economic instability resulting from, among other things, periods of
very high inflation and significant devaluations of the Brazilian currency.
Brazil also has suffered from chronic structural public sector deficits. Such
challenges have contributed to high price volatility in the Brazilian equity
markets.
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
- --------------------------------------------------------------------------------
iShares
Page 10
<PAGE>
iShares MSCI Canada Index Fund
CUSIP: 464286509
AMEX Trading Symbol: EWC
Fund Investment Objective
The iShares MSCI Canada Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Canadian market, as measured
by the MSCI Canada Index (the "Index").
Benchmark Index Information
The Index consists of 72 stocks traded primarily on the Toronto Stock Exchange.
As of March 31, 2000, the Index's three largest stocks were Nortel Networks
Corp., BCE Inc. and Seagram Co. (which comprise 35.61%, 15.92% and 5.10%,
respectively, of the Index's market capitalization) and its three largest
industries were communications equipment, electric utilities and media (which
comprise 36.75%, 17.31% and 10.36%, respectively, of the Index's
market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
10.91% (6.47%) 46.13%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: 9.03%
Best Quarter Worst Quarter
(24.40%)
21.44% (Quarter ended September 30, 1998)
(Quarter ended December 31, 1999)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
Canada Index Fund 46.13% 17.30%
MSCI Canada Index 53.74% 19.78%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
Page 11
<PAGE>
iShares MSCI EMU Index Fund
CUSIP: 464286608
AMEX Trading Symbol: EZU
Fund Investment Objective
The iShares MSCI EMU Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the European Monetary Union
(EMU) markets, as measured by the MSCI EMU Index (the "Index").
Benchmark Index Information
The Index is comprised of 307 stocks from the following ten countries: Austria,
Belgium, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal
and Spain. As of March 31, 2000, the Index's three largest stocks were Nokia
Corp., Deutsche Telekom and France Telecom (which comprise 6.83%, 6.49% and
4.69%, respectively, of the Index's market capitalization) and its three
largest industries were diversified telecommunication services, banks and
communications equipment (which comprise 18.85%, 9.70% and 8.41%, respectively,
of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that EMU was implemented only recently (January 1,
1999) and it is anticipated that additional countries will join the system over
time. Also, it is possible that countries may withdraw from EMU or that EMU may
be abandoned at some future time. Any change to EMU may adversely affect the
investment performance of the Fund. If EMU were to be abandoned the Board of
Directors would propose a change in the investment objective of the Series or
cause its liquidation.
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
- --------------------------------------------------------------------------------
iShares
Page 12
<PAGE>
iShares MSCI France Index Fund
CUSIP: 464286707
AMEX Trading Symbol: EWQ
Fund Investment Objective
The iShares MSCI France Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the French market, as measured
by the MSCI France Index (the "Index").
Benchmark Index Information
The Index consists of 56 stocks traded primarily on the Paris Stock Exchange.
As of March 31, 2000, the Index's three largest stocks were France Telecom,
Total Fina Elf, and Vivendi (which comprise 16.42%, 10.35% and 6.33%,
respectively, of the Index's market capitalization) and its three largest
industries were diversified telecommunication services, oil & gas and multi-
utilities (which comprise 16.42%, 10.35% and 9.51%, respectively, of the
Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
11.47% 40.78% 29.97%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: 1.94%
Best Quarter Worst Quarter
(16.16%)
23.51% (Quarter ended September 30, 1998)
(Quarter ended March 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
France Index Fund 29.97% 26.32%
MSCI France Index 29.27% 26.31%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
Page 13
<PAGE>
iShares MSCI Germany Index Fund
CUSIP: 464286806
AMEX Trading Symbol: EWG
Fund Investment Objective
The iShares MSCI Germany Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the German market, as measured
by the MSCI Germany Index (the "Index").
Benchmark Index Information
The Index consists of 55 stocks traded primarily on the Frankfurt Stock
Exchange. As of March 31, 2000, the Index's three largest stocks were Deutsche
Telekom, Allianz and Siemens (which comprise 25.43%, 10.44% and 8.90%,
respectively, of the Index's market capitalization) and its three largest
industries were diversified telecommunication services, insurance and
industrial conglomerates (which comprise 25.43%, 16.17% and 9.74%,
respectively, of the Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
[GRAPH]
Annual Total Returns as of 12/31/99
11.47% 40.78% 29.97%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: 3.44%
Best Quarter Worst Quarter
27.11% (15.76%)
(Quarter ended December 31, 1999) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
Germany Index Fund 20.87% 21.26%
MSCI Germany Index 20.04% 22.15%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
- --------------------------------------------------------------------------------
iShares
Page 14
<PAGE>
iShares MSCI Hong Kong Index Fund
CUSIP: 464286871
AMEX Trading Symbol: EWH
Fund Investment Objective
The iShares MSCI Hong Kong Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Hong Kong market, as
measured by the MSCI Hong Kong Index (the "Index").
Benchmark Index Information
The Index consists of 33 stocks traded primarily on the Stock Exchange of Hong
Kong Limited (SEHK). As of March 31, 2000, the Index's three largest stocks
were Hutchison Whampoa, Cheung Kong Holdings and Cable & Wireless HKT (which
comprise 29.54%, 14.52% and 13.46%, respectively, of the Index's market
capitalization) and its three largest industries were diversified financials,
real estate and diversified telecommunication services (which comprise 33.26%,
28.22% and 13.46%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that in recent times, Hong Kong's economy has been
adversely affected by the Asian economic crisis, contributing to the current
recession. Issues and uncertainties linger regarding the integration of Hong
Kong's economy with that of China, and the manner in which the Chinese
government will honor and interpret the agreement pursuant to which Hong Kong
was returned to China by the United Kingdom.
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
[GRAPH]
Annual Total Returns as of 12/31/99
(26.74%) (9.21%) 54.00%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: (2.01%)
Best Quarter Worst Quarter
(30.12%)
26.95% (Quarter ended December 31, 1997)
(Quarter ended December 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
Hong Kong Index Fund 54.00% 6.29%
MSCI Hong Kong Index 59.50% 10.89%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
Page 15
<PAGE>
iShares MSCI Italy Index Fund
CUSIP: 464286855
AMEX Trading Symbol: EWI
Fund Investment Objective
The iShares MSCI Italy Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Italian market, as measured
by the MSCI Italy Index (the "Index").
Benchmark Index Information
The Index consists of 48 stocks traded primarily on the Milan Stock Exchange.
As of March 31, 2000, the Index's three largest stocks were Tim Ord, Telecom
Italia Ord and ENI (which comprise 19.30%, 13.12% and 9.55%, respectively, of
the Index's market capitalization) and its three largest industries were
wireless telecommunication services, diversified telecommunication services and
banks (which comprise 21.06%, 18.74% and 16.51%, respectively, of the Index's
market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
[GRAPH]
Annual Total Returns as of 12/31/99
35.77% 50.24% 0.53%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: (0.92%)
Best Quarter Worst Quarter
(10.61%)
34.44% (Quarter ended September 30, 1998)
(Quarter ended March 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------ ---------
<S> <C> <C>
Italy Index Fund 0.53% 24.67%
MSCI Italy Index (0.26%) 24.65%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
- --------------------------------------------------------------------------------
iShares
Page 16
<PAGE>
iShares MSCI Japan Index Fund
CUSIP: 464286848
AMEX Trading Symbol: EWJ
Fund Investment Objective
The iShares MSCI Japan Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Japanese market, as measured
by the MSCI Japan Index (the "Index").
Benchmark Index Information
The Index consists of 296 stocks traded primarily on the Tokyo Stock Exchange.
As of March 31, 2000, the Index's three largest stocks were NTT Corp., Toyota
Motor Corp. and Sony Corp. (which comprise 7.16%, 6.97% and 4.44%,
respectively, of the Index's market capitalization) and its three largest
industries were banks, automobiles and household durables (which comprise
9.37%, 8.97% and 8.79%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that the Japanese economy faces several concerns,
including: a financial system with large levels of nonperforming loans; over-
leveraged corporate balance sheets; a labor market undergoing fundamental
structural changes, as traditional lifetime employment clashes with the need
for increased labor mobility; and a changing corporate governance structure.
Japan's economy is heavily dependent on international trade and has been
adversely affected by trade tariffs and other protectionist measures.
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
(23.63%) 3.53% 57.89%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: 0.68%
Best Quarter Worst Quarter
(19.80%)
26.25% (Quarter ended December 31, 1997)
(Quarter ended December 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
Japan Index Fund 57.89% 2.67%
MSCI Japan Index 61.53% 3.80%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
page 17
<PAGE>
iShares MSCI Malaysia (Free) Index Fund
CUSIP: 464286830
AMEX Trading Symbol: EWM
Fund Investment Objective
The iShares MSCI Malaysia (Free) Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Malaysian market, as
measured by the MSCI Malaysia (Free) Index (the "Index").
Benchmark Index Information
The Index consists of 74 stocks traded primarily on the Kuala Lumpur Stock
Exchange. As of March 31, 2000, the Index's three largest stocks were Telekom
Malaysia, Tenaga Nasional and Malayan Banking (which comprise 13.04%, 11.04%
and 10.65%, respectively, of the Index's market capitalization) and its three
largest industries were banks, electric utilities and diversified
telecommunication services (which comprise 20.47%, 15.12% and 14.30%,
respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that Malaysian currency volatility and general
economic deterioration led to the imposition of stringent capital controls in
September 1998, including a one-year prohibition on repatriation of capital and
an indefinite prohibition on free transfers of securities. The prohibition on
repatriation of capital was removed in February 1999 when a two-tier system of
graduated exit levies and levies on profits was introduced. This system was
further modified in September 1999. The Company suspended creations of the Fund
when the capital controls were implemented, and advised investors that it
would, to the extent possible under the applicable Malaysian regulations,
deliver Malaysian ringgits in satisfaction of redemption requests received. The
disruption of the creation/redemption mechanism for the Fund adversely affected
the trading market for iShares of the Fund, resulting in their trading at
prices that differed materially from their net asset value on many days. On May
12, 2000, the Company announced that Creation Units of the Fund would be
redeemed for cash in U.S. dollars. In connection with the decision to redeem
Creation Units of the Fund for U.S. dollars, the Company combined its accounts
in Malaysia effective May 12, 2000, and Malaysian securities acquired by the
Fund before September 1, 1998 acquired a basis for purposes of the Malaysian
profits levy equal to their fair market value at the time of the combination.
Previously, the proceeds of such securities could be repatriated without
payment of the profits levy. Under the current Malaysian capital controls, the
Fund will pay a profits levy at a rate of 10% (with any profits computed based
on the cost basis for purposes of the Malaysian capital controls) when it sells
Malaysian securities and repatriates the proceeds (e.g., in connection with
redemptions). Since the levy is not a foreign income tax it will not be "passed
through" to shareholders of the Fund for possible use as a foreign tax credit.
The Malaysian capital controls have been changed in significant ways since they
were first adopted without warning on September 1, 1998. There can be no
assurance that the Malaysian capital controls will not be changed in the future
in ways that adversely affect the Fund and its shareholders. Since the capital
controls were imposed, the iShares of the Fund have often traded at discounts
or premiums to their net asset value. There can be no assurance that the
Company's decision to permit redemptions of Creation Units of Fund's iShares
for U.S. dollars will result in the Fund's iShares trading close to their net
asset values.
- --------------------------------------------------------------------------------
iShares
page 18
<PAGE>
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
(66.93%) (29.31%) 92.98%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: 21.95%
Best Quarter Worst Quarter
(46.01%)
122.01% (Quarter ended June 30, 1998)
(Quarter ended June 30, 1999)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------ ---------
<S> <C> <C>
Malaysia (Free) Index Fund 92.98% (16.18%)
MSCI Malaysia (Free) Index 114.61% (14.70%)
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
page 19
<PAGE>
iShares MSCI Mexico (Free) Index Fund
CUSIP: 464286822
AMEX Trading Symbol: EWW
Fund Investment Objective
The iShares MSCI Mexico (Free) Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Mexican market, as
measured by the MSCI Mexico (Free) Index (the "Index").
Benchmark Index Information
The Index consists of 34 stocks traded primarily on the Mexican Stock Exchange.
As of March 31, 2000, the Index's three largest stocks were Telefonos Mexico L,
Telefonos Mexico A and Grupo Televisa CPO (which comprise 25.88%, 12.23% and
8.01%, respectively, of the Index's market capitalization) and its three
largest industries were diversified telecommunication services, beverages and
multiline retail (which comprise 38.11%, 9.64% and 9.42%, respectively, of the
Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that the Mexican economy is heavily dependent on
the health of the US economy, as the United States purchases most of Mexico's
exports. Mexico also has suffered from severe currency devaluations in the
past, and has been destabilized by local insurrections in certain regions,
particularly the State of Chiapas.
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
48.53% (35.00%) 76.12%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: 2.11%
Best Quarter Worst Quarter
(24.30%)
35.92% (Quarter ended September 30, 1998)
(Quarter ended December 31, 1999)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
Mexico (Free) Index Fund 76.12% 19.40%
MSCI Mexico (Free) Index 80.07% 22.57%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
- --------------------------------------------------------------------------------
iShares
page 20
<PAGE>
iShares MSCI Netherlands Index Fund
CUSIP: 464286814
AMEX Trading Symbol: EWN
Fund Investment Objective
The iShares MSCI Netherlands Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Dutch market, as measured
by the MSCI Netherlands Index (the "Index").
Benchmark Index Information
The Index consists of 26 stocks traded primarily on the Amsterdam Stock
Exchange. As of March 31, 2000, the Index's three largest stocks were Royal
Dutch Petroleum Co., Philips Electronics (Kon.) and KPN (Kon.) (which comprise
24.51%, 11.16% and 10.68%, respectively, of the Index's market capitalization)
and its three largest industries were oil & gas, household durables and
diversified telecommunication services (which comprise 24.51%, 11.16% and
10.68%, respectively, of the Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
[GRAPH]
Annual Total Returns as of 12/31/99
20.11% 24.09% 4.54%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: (4.83%)
Best Quarter Worst Quarter
(15.33%)
17.76% (Quarter ended September 30, 1998)
(Quarter ended December 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------ ---------
<S> <C> <C>
Netherlands Index Fund 4.54% 19.13%
MSCI Netherlands Index 6.88% 20.66%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
page 21
<PAGE>
iShares MSCI Singapore (Free) Index Fund
CUSIP: 464286673
AMEX Trading Symbol: EWS
Fund Investment Objective
The iShares MSCI Singapore (Free) Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Singaporean market, as
measured by the MSCI Singapore (Free) Index (the "Index").
Benchmark Index Information
The Index consists of 28 stocks traded primarily on the Singapore Stock
Exchange. As of March 31, 2000, the Index's three largest stocks were DBS Group
Holdings, Singapore Airlines and Singapore Telecom (which comprise 21.34%,
13.78% and 10.38%, respectively, of the Index's market capitalization) and its
three largest industries were banks, airlines and diversified telecommunication
services (which comprise 38.30%, 13.78% and 10.38%, respectively, of the
Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that as a small open economy, Singapore is
particularly vulnerable to external economic influences, including in recent
times the Asian economic crisis. While Singapore has been a leading
manufacturer of electronics goods, the extent to which other countries can
successfully compete with Singapore in this and related industries, and adverse
Asian economic influences generally, may adversely impact Singapore's economy.
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
[GRAPH]
Annual Total Returns as of 12/31/99
(43.87%) (5.44%) 55.35%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: (18.90%)
Best Quarter Worst Quarter
(36.28%)
55.99% (Quarter ended June 30, 1998)
(Quarter ended December 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
1 Since Inception
Year (3/12/96)
----- ---------------
<S> <C> <C>
Singapore (Free) Index Fund 55.35% (5.65%)
MSCI Singapore (Free) Index 60.17% (3.27%)
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
- --------------------------------------------------------------------------------
iShares
page 22
<PAGE>
iShares MSCI South Africa Index Fund
CUSIP: 464286780
AMEX Trading Symbol: EWR
Fund Investment Objective
The iShares MSCI South Africa Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the South African market, as
measured by the MSCI South Africa Index (the "Index").
Benchmark Index Information
The Index consists of 46 stocks traded primarily on the Johannesburg Stock
Exchange. As of March 31, 2000, the Index's three largest stocks were De Beers
Consolidated Mines, Dimension Data Holdings and Firstrand (which comprise
8.31%, 7.73% and 6.06%, respectively, of the Index's market capitalization) and
its three largest industries were metals & mining, diversified financials and
banks (which comprise 22.45%, 14.19% and 12.66%, respectively, of the Index's
market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that South Africa has in the past experienced
internal racial and political turmoil in connection with the recently-abolished
system of apartheid. While South Africa's international isolation ended with
the enfranchisement of the black majority, the country continues to face
significant social and economic challenges, including managing the expectations
of its people in the post-apartheid era.
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
page 23
<PAGE>
iShares MSCI South Korea Index Fund
CUSIP: 464286772
AMEX Trading Symbol: EWY
Fund Investment Objective
The iShares MSCI South Korea Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the South Korean market, as
measured by the MSCI Korea Index (the "Index").
Benchmark Index Information
The Index consists of 91 stocks traded primarily on the South Korean Stock
Exchange. As of March 31, 2000, the Index's three largest stocks were Samsung
Electronics Co., Kepco Korea Electric Power and SK Telecom Co. (which comprise
35.41%, 12.26% and 9.13%, respectively, of the Index's market capitalization)
and its three largest industries were semiconductor equipment & products,
electric utilities and wireless telecommunication services (which comprise
36.07%, 12.26% and 9.13%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that while South Korea's relations with communist
North Korea have improved somewhat in recent times, each has substantial
military capabilities, and there is a risk of war between North and South Korea
at any time. Any outbreak of hostilities between the two countries could have a
severe adverse effect on the South Korean economy.
Prior Performance
The Fund was first offered for sale to the public on May 12, 2000, and
therefore no prior performance information is available.
- --------------------------------------------------------------------------------
iShares
page 24
<PAGE>
iShares MSCI Spain Index Fund
CUSIP: 464286764
AMEX Trading Symbol: EWP
Fund Investment Objective
The iShares MSCI Spain Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Spanish market, as measured
by the MSCI Spain Index (the "Index").
Benchmark Index Information
The Index consists of 35 stocks traded primarily on the Madrid Stock Exchange.
As of March 31, 2000, the Index's three largest stocks were Telefonica, BSCH
BCO Santander Central and BBVA (BCC Bilbao Vizcaya) (which comprise 29.54%,
15.40% and 15.26%, respectively, of the Index's market capitalization) and its
three largest industries were banks, diversified telecommunication services and
electric utilities (electrical & gas) (which comprise 30.66%, 29.54% and
15.16%, respectively, of the Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
23.90% 51.30% (2.12%)
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: 1.67%
Best Quarter Worst Quarter
(16.56%)
38.58% (Quarter ended September 30, 1998)
(Quarter ended March 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
------ ---------------
<S> <C> <C>
Spain Index Fund (2.12%) 27.07%
MSCI Spain Index 4.83% 29.99%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
page 25
<PAGE>
iShares MSCI Sweden Index Fund
CUSIP: 464286756
AMEX Trading Symbol: EWD
Fund Investment Objective
The iShares MSCI Sweden Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Swedish market, as measured
by the MSCI Sweden Index (the "Index").
Benchmark Index Information
The Index consists of 34 stocks traded primarily on the Stockholm Stock
Exchange. As of March 31, 2000, the Index's three largest stocks were Ericsson
(Lm) B, Skandia Forsakring and Hennes & Mauritz B (which comprise 53.60%, 7.57%
and 7.19%, respectively, of the Index's market capitalization) and its three
largest industries were communications equipment, machinery and banks (which
comprise 53.60%, 8.12% and 7.36%, respectively, of the Index's market
capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
[GRAPH]
Annual Total Returns as of 12/31/99
11.00% 11.06% 63.93%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: 15.49%
Best Quarter Worst Quarter
(24.05%)
36.63% (Quarter ended September 30, 1998)
(Quarter ended December 31, 1999)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
------ ---------------
<S> <C> <C>
Sweden Index Fund 63.93% 29.47%
MSCI Sweden Index 79.74% 33.78%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
- --------------------------------------------------------------------------------
iShares
page 26
<PAGE>
iShares MSCI Switzerland Index Fund
CUSIP: 464286749
AMEX Trading Symbol: EWL
Fund Investment Objective
The iShares MSCI Switzerland Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Swiss market, as measured
by the MSCI Switzerland Index (the "Index").
Benchmark Index Information
The Index consists of 31 stocks traded primarily on the Zurich Stock Exchange.
As of March 31, 2000, the Index's three largest stocks were Novartis, Roche
Holding Genuss and Nestle (which comprise 18.21%, 14.09% and 13.04%,
respectively, of the Index's market capitalization) and its three largest
industries were pharmaceuticals, banks and food products (which comprise
35.94%, 20.48% and 13.04%, respectively, of the Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
[GRAPH]
Annual Total Returns as of 12/31/99
35.23% 18.27% (3.25%)
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: (5.16%)
Best Quarter Worst Quarter
(22.09%)
24.63% (Quarter ended September 30, 1998)
(Quarter ended December 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
------ ---------------
<S> <C> <C>
Switzerland Index Fund (3.25%) 12.00%
MSCI Switzerland Index (7.02%) 13.95%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
page 27
<PAGE>
iShares MSCI Taiwan Index Fund
CUSIP: 464286731
AMEX Trading Symbol: EWT
Fund Investment Objective
The iShares MSCI Taiwan Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Taiwanese market, as
measured by the MSCI Taiwan Index (the "Index").
Benchmark Index Information
The Index consists of 76 stocks traded primarily on the Taiwan Stock Exchange.
As of March 31, 2000, the Index's three largest stocks were Taiwan
Semiconductor Mfg, United Microelectronics and Asustek Computer (which comprise
17.67%, 11.98% and 4.91%, respectively, of the Index's market capitalization)
and its three largest industries were semiconductor equipment & products,
computers & peripherals and chemicals (which comprise 37.65%, 14.54% and 8.89%,
respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that owing to Taiwan's size and geographic
proximity to the People's Republic of China, and its history of political
contention with China (which regards Taiwan as a renegade province),
developments in Taiwan's ongoing relations with China, including the ongoing
risk of invasion by or war with China and other factors, may materially impact
the Taiwanese economy. The recent election of a new government in Taiwan has
resulted in increased tensions with China, which is concerned that the new
government is in favor of independence for Taiwan.
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
- --------------------------------------------------------------------------------
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<PAGE>
iShares MSCI United Kingdom Index Fund
CUSIP: 464286699
AMEX Trading Symbol: EWU
Fund Investment Objective
The iShares MSCI United Kingdom Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the British market, as
measured by the MSCI United Kingdom Index (the "Index").
Benchmark Index Information
The Index consists of 122 stocks traded primarily on the London Stock Exchange.
As of March 31, 2000, the Index's three largest stocks were Vodafone Airtouch,
BP Amoco and British Telecom (which comprise 16.70%, 8.82% and 6.00%,
respectively, of the Index's market capitalization) and its three largest
industries were wireless telecommunication services, banks and pharmaceuticals
(which comprise 16.70%, 13.74% and 12.35%, respectively, of the Index's market
capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
20.85% 18.42% 12.14%
<TABLE>
<S> <C> <C>
1997 1998 1999
</TABLE>
2000 Total Return as of March 31: (5.65%)
Best Quarter Worst Quarter
(10.56%)
18.43% (Quarter ended September 30, 1998)
(Quarter ended March 31, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
1 Since Inception
Year (3/12/96)
----- ---------------
<S> <C> <C>
United Kingdom Index Fund 12.14% 20.87%
MSCI United Kingdom Index 12.45% 21.64%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
The iShares MSCI Index Funds
- --------------------------------------------------------------------------------
page 29
<PAGE>
iShares MSCI USA Index Fund
CUSIP: 464286681
AMEX Trading Symbol: EZA
Fund Investment Objective
The iShares MSCI USA Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the U.S. market, as measured by
the MSCI USA Index (the "Index").
Benchmark Index Information
The Index consists of 323 stocks traded primarily on the New York Stock
Exchange. As of March 31, 2000, the Index's three largest stocks were Microsoft
Corp., Cisco Systems and General Electric Co. (which comprise 5.31%, 5.00% and
4.93%, respectively, of the Index's market capitalization) and its three
largest industries were communications equipment, software and pharmaceuticals
(which comprise 8.91%, 8.27% and 6.70%, respectively, of the Index's market
capitalization).
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
- --------------------------------------------------------------------------------
iShares
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<PAGE>
Investment Policies and Strategies
Indexing Investment Approach. Index Funds are not managed according to
traditional methods of "active" investment management, which involve the buying
and selling of securities based on economic, financial and market analysis and
investment judgment. Instead, each Index Fund, using a "passive" or indexing
investment approach, attempts to approximate the investment performance of its
benchmark MSCI Index by investing in a portfolio of stocks selected by using
quantitative analytical procedures. Stocks are selected for inclusion in an
Index Fund in order to have investment characteristics (based on market
capitalization and industry weightings), fundamental characteristics (such as
return variability, earnings valuation and yield) and liquidity measures that,
taken together, are similar to those of the benchmark MSCI Index taken in its
entirety.
Portfolio Sampling. Generally, an Index Fund does not hold all of the issues
that comprise its benchmark MSCI Index, due in part to the costs involved and,
in certain instances, the potential illiquidity of certain securities. Instead,
an Index Fund will attempt to hold a representative sample of the securities in
its benchmark MSCI Index, which will be selected by the investment adviser
using quantitative analytical models in a technique known as "portfolio
sampling". Under this technique, each stock is considered for inclusion in an
Index Fund based on its contribution to certain capitalization, industry and
fundamental investment characteristics. The investment adviser seeks to
construct the portfolio of an Index Fund so that, in the aggregate, its
capitalization, industry and fundamental investment characteristics perform
like those of its benchmark MSCI Index. Over time, the portfolio composition of
an Index Fund may be altered (or "rebalanced") to reflect changes in the
characteristics of its benchmark MSCI Index or to bring the performance and
characteristics of an Index Fund more in line with that of its benchmark MSCI
Index. Rebalancing may also be required for tax purposes. These rebalancings
will require an Index Fund to incur transaction costs and other expenses.
An Index Fund reserves the right to invest in all of the securities in its
benchmark MSCI Index, and an Index Fund with a benchmark index comprised of
relatively few stocks may do so on a regular basis. In addition, the iShares
MSCI Australia, Austria, Belgium, Brazil (Free), Hong Kong, Italy, South Korea,
Mexico (Free), Netherlands, Singapore (Free), South Africa, Spain, Sweden,
Switzerland and Taiwan Index Funds may hold stocks that are not in their
benchmark MSCI Index if the investment adviser determines this to be
appropriate in light of the Index Fund's investment objective and relevant
investment constraints.
Investment Assets. Each Index Fund has a policy to remain as fully invested as
practicable in a pool of equity securities. Each Index Fund will normally
invest at least 95% of its total assets in stocks that are represented in its
benchmark MSCI Index except, in limited circumstances, to help meet shareholder
redemptions of Creation Units. To comply with the US Internal Revenue Code, and
manage corporate actions and index changes in the smaller markets, each of the
iShares MSCI Australia, Austria, Belgium, Brazil (Free), Hong Kong, Italy,
South Korea, Mexico (Free), Netherlands, Singapore (Free), South Africa, Spain,
Sweden, Switzerland and Taiwan Index Funds will at all times invest at least
80% of its total assets in such stocks and at least half of the remaining 20%
of its total assets in such stocks or in stocks included in the relevant
market, but not in its benchmark MSCI Index.
Each Index Fund may invest its remaining assets in money market instruments or
funds that invest exclusively in money market instruments (subject to
applicable limitations under the Investment Company Act of 1940), in repurchase
agreements, in stocks that are in the relevant market but not its benchmark
MSCI Index (as indicated above), and/or in combinations of stock index futures
contracts, options on futures contracts, stock index options, stock index
swaps, cash, local currency and forward currency exchange contracts that are
intended to provide an Index Fund with exposure to a stock. The investment
adviser may attempt to reduce tracking error by using futures contracts whose
behavior is expected to represent the market performance of the Index Fund's
underlying securities, although there can be no assurance that these futures
will correlate with the performance of its benchmark MSCI Index. An Index Fund
will not use these instruments to leverage, or borrow against, their
Investment Policies and Strategies
- --------------------------------------------------------------------------------
Page 31
<PAGE>
securities holdings or for speculative purposes. In some cases the use of these
special investment techniques can adversely affect the performance of an Index
Fund.
Lending of Securities. Each Index Fund may lend its portfolio securities. In
connection with these loans, the Company receives liquid collateral equal to at
least 100% of the value of the portfolio securities being lent. This collateral
is marked to market on a frequent basis. Notwithstanding such collateral, the
Index Fund would lose value to the extent that a borrower defaults on its
obligation to return borrowed portfolio securities and the value of the
collateral is less than the value of the borrowed securities.
Industry Concentration. With respect to the two most heavily weighted
industries or groups of industries in its benchmark MSCI Index, an Index 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 Index 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 Index Fund, the Index 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. Each Index 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. An Index Fund
may not concentrate its investments except as discussed above. This policy is a
fundamental investment policy and may not be changed without the approval of a
majority of an Index Fund's shareholders.
As of March 31, 2000, as a result of this policy with respect to industry
concentration, the following Index Funds were concentrated (that is, invested
25% or more of the value of their assets) in the specified industries:
<TABLE>
<CAPTION>
Index Fund Industry or Industries
---------- ----------------------
<S> <C>
Austria Banks
Canada Communications Equipment
Hong Kong Diversified Financials
Italy Diversified Telecommunication Services
Singapore (Free) Banks
Switzerland Pharmaceuticals
</TABLE>
Borrowing Money. An Index Fund may borrow money from a bank up to a limit of
33% of the market value of its assets, but only for temporary or emergency
purposes. To the extent that an Index Fund borrows money, it may be leveraged;
at such times, the Index Fund's value may appreciate or depreciate more rapidly
than its benchmark MSCI Index. An Index Fund will not make cash purchases of
securities when the amount of money borrowed exceeds 5% of the market value of
its total assets.
Fundamental Policies. The concentration policy of each Index Fund is a
fundamental policy that may be changed only with shareholder approval. Each of
the other investment policies is a non-fundamental policy that may be changed
by the Board of Directors without shareholder approval. Shareholders will be
notified before any material change in these policies is implemented.
Tracking Error. Due to the use of the portfolio sampling technique described
above and other factors discussed in this Prospectus, an Index Fund is not
expected to track its benchmark MSCI Index with the same degree of accuracy as
would an investment vehicle that invested in every component security of its
benchmark index. The investment adviser expects that, over time, an Index
Fund's "expected tracking error" relative to the performance of its benchmark
index will be less than 5% and its tracking error will generally be greater if
its benchmark index has fewer rather than greater numbers of component stocks.
An expected tracking error of 5% means that there is a 68% probability that the
net asset value of an Index Fund will be within plus or minus 5% of its
benchmark MSCI Index level after
- --------------------------------------------------------------------------------
iShares
page 32
<PAGE>
one year, without rebalancing the portfolio composition. Thus, actual tracking
error in a period may exceed 5%, perhaps significantly, even though the
expected tracking error is less than 5%. In addition, it is possible that
future developments (e.g., the domination of an Index Fund's benchmark index by
a small number of stocks) may result in an Index Fund having an unexpected
tracking error of greater than 5%. For the fiscal year ended August 31, 1999,
the following Index Funds had a tracking error greater than 5%: Malaysia (Free)
(-18.87%); Mexico (Free) (-8.37%); and Singapore (Free) (10.47%). A tracking
error of 0% would indicate perfect tracking, which would be achieved when the
net asset value of an Index Fund increases or decreases in exact proportion to
changes in its benchmark MSCI Index.
The following factors may adversely affect the tracking of an Index Fund to
that of its benchmark MSCI Index:
. the Index Funds must pay various expenses, while the benchmark MSCI Index
does not reflect any expenses;
. since the investment portfolios of the Index Funds do not generally replicate
the underlying MSCI Indices, their investment performance is likely to differ
from that of the MSCI Indices;
. the portfolio sampling technique used to manage the Index Funds is based on
historical price relationships and changes to those relationships can
adversely affect tracking. In some situations, the requirements of the US
Internal Revenue Code can adversely affect tracking by preventing an Index
Fund from holding optimal positions in particular securities;
. an Index Fund must comply with regulatory constraints that do not affect the
calculation of its corresponding MSCI Index;
. the existence of uninvested assets in the portfolios (including cash and
deferred organizational expenses);
. the fact that each MSCI Index "smooths" dividend payments evenly over a year
while each Index Fund records dividends on the ex-dividend date; and
. the fact that an Index Fund may be subject to a different foreign withholding
tax rate than that assumed by its benchmark MSCI Index.
Although the investment adviser regularly monitors the tracking error of each
Index Fund, there can be no assurance that any Index Fund will achieve any
particular level of tracking error relative to the performance of its benchmark
MSCI Index. Semi-annual and annual reports of the Company disclose tracking
error for each Index Fund over the previous six-month period, and in the event
that tracking error exceeds 5%, the Board of Directors will consider whether it
would be appropriate to take action.
Additional Information About Principal Risk Factors
An investment in iShares of an Index Fund involves risks similar to those of
investing in a broad-based portfolio of equity securities traded on exchanges
in the relevant foreign securities market, including market fluctuations caused
by factors such as economic and political developments, changes in interest
rates and perceived trends in stock prices. Investing in iShares MSCI Index
Funds other than the iShares MSCI USA Index Fund generally involves certain
risks and considerations not typically associated with investing in a fund that
invests in the securities of US issuers. The principal risk factors, which
could decrease the value of your investment, are listed and described below:
. less liquid and less efficient securities markets;
. greater price volatility;
. exchange rate fluctuations and exchange controls;
Additional Information About Principal Risk Factors
- --------------------------------------------------------------------------------
page 33
<PAGE>
. 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 an Index Fund;
. higher transaction and custody costs and delays and risks of loss attendant
in settlement procedures;
. difficulties in enforcing contractual obligations;
. lesser levels of regulation of the securities markets;
. different accounting, disclosure and reporting requirements;
. more substantial government involvement in 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.
Index Funds that issue and/or redeem Creation Units for cash (the Brazil
(Free), Malaysia (Free), South Korea and Taiwan Index Funds) may have greater
tracking error than other Index Funds since they are at risk that the prices
they pay or receive for portfolio securities will be different than the prices
in effect when they determine the value of the Creation Units being issued
or redeemed.
Volatility of Foreign Equity Markets. The US dollar performance of foreign
equity markets, particularly emerging markets, has generally been substantially
more volatile than that of US markets. Greater volatility connotes greater
uncertainty as to a portfolio's liquidation value at a future point in time.
The volatility information below is a measurement of the standard deviation of
five years of monthly total returns of the MSCI Index. The percentages reflect
the historical average annual volatility for each MSCI Index, based on monthly
total returns of the MSCI Indices from November 30, 1994 to November 30, 1999.
<TABLE>
<S> <C> <S> <C>
MSCI Australia.......... 16.8% MSCI Mexico (Free)...... 40.4%
MSCI Austria............ 18.9% MSCI Netherlands........ 15.4%
MSCI Belgium............ 13.4% MSCI Singapore (Free)... 35.0%
MSCI Brazil (Free)...... 41.4% MSCI South Africa....... 29.5%
MSCI Canada............. 18.1% MSCI South Korea........ 57.6%
MSCI France............. 16.2% MSCI Spain.............. 21.3%
MSCI Germany............ 16.4% MSCI Sweden............. 20.0%
MSCI Hong Kong.......... 34.0% MSCI Switzerland........ 17.5%
MSCI Italy.............. 23.2% MSCI Taiwan............. 33.8%
MSCI Japan.............. 21.7% MSCI United Kingdom..... 10.9%
MSCI Malaysia (Free).... 47.7% MSCI USA................ 13.9%
</TABLE>
The larger the percentage stated for an MSCI Index, the greater the historical
average annual volatility of that MSCI Index. Among the listed MSCI Indices,
MSCI United Kingdom reflects the lowest historical volatility, and MSCI South
Korea reflects the highest historical volatility. Short-term volatility in
these markets can be significantly greater than average annual volatility.
Foreign Currency Fluctuations. Because each Index Fund's assets are generally
invested in non-US securities (except for the iShares MSCI USA Index Fund), and
because a substantial portion of the revenue and income of each Index Fund
(except for the iShares MSCI USA Index Fund) is received in a foreign currency,
the dollar value of an Index Fund's net assets is reduced by declines in the
value of the relevant foreign currency relative to the dollar and are
positively affected by increases in the value of that currency relative to the
dollar. Also, government or monetary authorities may impose or alter exchange
controls in a way that would adversely affect exchange rates.
- --------------------------------------------------------------------------------
iShares
page 34
<PAGE>
Any currency fluctuations will affect the net asset value of an Index Fund
regardless of the performance of its underlying portfolio. Other than to
facilitate settlements in local markets or to protect against currency exposure
in connection with its distributions to shareholders or borrowings, no Index
Fund expects to engage in currency transactions for the purpose of hedging
against a decline in value of any foreign currencies.
Concentration and Lack of Diversification of Certain Index Funds. Each Index
Fund (except for the iShares MSCI Canada, EMU, Japan, United Kingdom and USA
Index Funds) is classified as "non-diversified" for purposes of the Investment
Company Act of 1940, which means that it is not limited by that Act with regard
to the portion of its assets that may be invested in the securities of a single
issuer. In addition, a number of Index Funds concentrate their investments in
particular industries as noted in the descriptions of each non-diversified
Index Fund. Each Index Fund, however, whether diversified or non-diversified,
intends to maintain the required level of diversification and otherwise conduct
its operations so as to qualify as a "regulated investment company" for
purposes of the US Internal Revenue Code, to relieve the Index Fund of any
liability for federal income tax to the extent that its earnings are
distributed to shareholders. Compliance with the diversification requirements
of the US Internal Revenue Code severely limits the investment flexibility of
certain Index Funds and makes it less likely that such Index Funds will meet
their investment objectives.
The stocks of particular issuers, or of issuers in particular industries, may
dominate the benchmark index of an Index Fund and, consequently, the investment
portfolio of an Index Fund. This may adversely affect the performance of an
Index Fund or subject it to greater price volatility than that experienced by
more diversified investment companies. The iShares of an Index Fund may be more
susceptible to any single economic, political or regulatory occurrence than the
portfolio securities of an investment company that is more broadly invested in
the equity securities of the relevant market.
Trading Issues. Trading in iShares on the AMEX may be halted due to market
conditions or for reasons that, in the AMEX's view, make trading in iShares
inadvisable. In addition, trading in iShares on the AMEX is subject to trading
halts caused by extraordinary market volatility pursuant to AMEX "circuit
breaker" rules. If trading on the AMEX is halted, you may not be able to sell
your iShares until trading resumes. There can be no assurance that the
requirements of the AMEX necessary to maintain the listing of any Index Fund
will continue to be met or will remain unchanged.
Fluctuation of Net Asset Value and Trading Prices. The net asset value of
iShares of an Index Fund will fluctuate with changes in the market value of an
Index Fund's security holdings and changes in the exchange rate between the US
dollar and the subject foreign currency. The market prices of iShares will
fluctuate in accordance with changes in net asset value and supply and demand
on the AMEX. The Company cannot predict whether iShares will trade below, at or
above their net asset value. Price differences may be due, in large part, to
the fact that supply and demand forces in the secondary trading market for
iShares will be closely related, but not identical, to the same forces
influencing the prices of the stocks of the MSCI Index trading individually or
in the aggregate at any point in time. Given, however, that iShares must be
created and redeemed in Creation Unit aggregations (unlike shares of many
closed-end funds, which frequently trade at appreciable discounts from, and
sometimes at premiums to, their net asset value), the investment adviser
believes that ordinarily large discounts or premiums to the net asset value of
iShares should not be sustained. In the event that the Company must suspend or
discourage creations and/or redemptions of Creation Unit aggregations of
iShares of an Index Fund, we expect larger discounts or premiums. This occurred
in the case of the Malaysia (Free) Index Fund iShares, which have frequently
traded at prices that materially differed from their net asset values since
creations and "in kind" redemptions of the Malaysia (Free) Series iShares were
suspended in response to capital controls imposed by Malaysia from
September 1998.
Additional Information About Principal Risk Factors
- --------------------------------------------------------------------------------
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<PAGE>
Management
Investment Adviser
Barclays Global Fund Advisors (the "Advisor") is responsible for the investment
management of each Index Fund. The Advisor is a California corporation
indirectly owned by Barclays Bank PLC and is registered under the Investment
Advisers Act of 1940. Barclays Global Fund Advisors have managed equity
portfolios, including index funds and mutual funds, for over 25 years. As of
March 31, 2000, the investment adviser and its affiliates managed, administered
or advised assets aggregating in excess of $809 billion.
For the fiscal year ended August 31, 1999, the investment adviser received a
fee of 0.27% of average daily net assets of each of the iShares MSCI Australia,
Austria, Belgium, Canada, France, Germany, Hong Kong, Italy, Japan, Malaysia
(Free), Mexico (Free), Netherlands, Singapore (Free), Spain, Sweden,
Switzerland and United Kingdom Index Funds. In May 2000, the shareholders of
each of these Index Funds approved a new advisory agreement that provides for
the fee arrangements disclosed in the Fees and Expenses section of this
Prospectus.
Shareholder Information
Determination of Net Asset Value
The net asset value per iShares for each Index Fund is computed by dividing the
value of the net assets of an Index Fund (i.e., the value of its total assets
less total liabilities) by the total number of iShares outstanding, rounded to
the nearest cent. Expenses and fees, including the management, administration
and distribution fees, are accrued daily and taken into account for purposes of
determining net asset value. Except for the Index Funds named below, the net
asset value of each Index Fund is determined as of the close of the regular
trading session on the New York Stock Exchange, Inc. ("NYSE") (ordinarily
4:00 p.m., Eastern time) on each day that the NYSE is open. The net asset
values of the iShares MSCI South Korea, Malaysia (Free) and Taiwan Index Funds
are determined as of 8:30 a.m. (Eastern time) and the net asset value of the
iShares MSCI Brazil (Free) Index Fund is determined at 5:00 p.m. (Eastern
time), on each day that the NYSE is open. The price at which a purchase or
redemption of Creation Units of iShares is made is based on the next
calculation of net asset value. In the case of Index Funds that effect
creations and/or redemptions only for cash (i.e., the iShares MSCI Brazil
(Free), Malaysia (Free), South Korea and Taiwan Index Funds), it is possible
that portfolio securities transactions by the Company in the relevant local
markets of those Index Funds could affect the prices of those portfolio
securities at the time those Index Funds' net asset values are calculated.
Buying and Selling iShares
There are two ways for you to buy and sell iShares. Most investors buy and sell
iShares through a broker in transactions on the AMEX. iShares are also issued
and redeemed directly by the Company, but only in transactions involving
aggregations of very large numbers of iShares, referred to as Creation Units.
These transactions occur on an "in kind" basis for most Index Funds.
Institutions capable of purchasing or redeeming Creation Units of iShares
should refer to the Company's Statement of Additional Information for further
details.
In connection with the purchase or the redemption of a Creation Unit of an
Index Fund, an investor must pay to the Company a purchase or redemption
transaction fee, which is intended to offset the transfer and other transaction
costs incurred by that Index Fund. The maximum transaction fees that may apply
to in-kind Creation Unit purchases and redemptions are listed in the second
column on the table below. To the extent purchases and redemptions for cash are
available, additional variable
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iShares
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<PAGE>
charges, up to the maximums listed in the third and fourth columns of the table
below, will apply (in addition to the fees listed in the second column). This
table is subject to revision from time to time. (Investors are also responsible
for payment of the costs of transferring portfolio securities to the Company,
in the case of a purchase transaction, or from the Company to their own
account, in the case of a redemption transaction.)
<TABLE>
<CAPTION>
In-kind and Cash Additional Variable Additional Variable
iShares Purchases and Charge for Cash Charge for Cash
MSCI Index Series Redemptions Purchases* Redemptions*
----------------- ---------------- ------------------- -------------------
<S> <C> <C> <C>
Australia............... $1,750 0.60% 0.60%
Austria................. $1,600 0.67% 0.67%
Belgium................. $1,500 0.30% 0.30%
Brazil (Free)........... $4,725 ** ***
Canada.................. $3,250 0.30% 0.30%
EMU..................... $8,000 1.05% 1.05%
France.................. $3,400 0.25% 0.25%
Germany................. $2,400 0.25% 0.25%
Hong Kong............... $3,800 0.60% 0.60%
Italy................... $2,100 0.30% 0.30%
Japan................... $7,600 0.15% 0.40%
Malaysia (Free)......... $4,150 *** ***
Mexico (Free)........... $2,200 0.50% 0.50%
Netherlands............. $1,900 0.25% 0.25%
Singapore (Free)........ $2,500 1.60% 1.30%
South Africa............ $3,200 1.60% 1.60%
South Korea............. $4,400 *** ***
Spain................... $2,300 0.25% 0.45%
Sweden.................. $2,700 0.30% 0.30%
Switzerland............. $2,200 0.40% 0.40%
Taiwan.................. $7,200 *** ***
United Kingdom.......... $4,750 0.25% 0.75%
USA..................... $1,900 0.50% 0.50%
</TABLE>
--------
* As a percentage of amount invested.
** This percentage, when aggregated with the basic in-kind transaction
fee, will not exceed 3.00%.
***This percentage, when aggregated with the basic in-kind transaction
fee, will not exceed 2.00%.
iShares may trade on the AMEX at prices that differ to some degree from their
net asset value. If you buy or sell iShares in the secondary market, you will
incur customary brokerage commissions and charges and may pay some or all of
the difference between the bid price and the offered price in the secondary
market on each leg of a round trip (purchase and sale) transaction. Given that
iShares may be created or redeemed in Creation Units, however, the investment
adviser believes that ordinarily large discounts or premiums to the net asset
value of iShares should not be sustained for long periods. If creations or
redemptions of iShares in Creation Units are suspended or difficult to effect,
the iShares may trade at sustained discounts or premiums from net asset value.
This occurred in the case of iShares of the iShares MSCI Malaysia (Free) Index
Fund after the Company suspended creations and "in kind" redemptions of these
iShares in September 1998 as a result of capital controls imposed in Malaysia.
The AMEX disseminates during its trading day an indicative optimized portfolio
value, or IOPV, for each Index Fund. This should not be viewed as a real time
update of the net asset value per iShares of an Index Fund, which is calculated
only once a day, because it may not be computed in a manner consistent with
such net asset value.
The Depository Trust Company ("DTC") serves as securities depository for
iShares. iShares may be held only in book-entry form; stock certificates will
not be issued. DTC, or its nominee, is the record or registered owner of all
outstanding iShares of each Index Fund. Beneficial ownership of iShares will be
Shareholder Information
- --------------------------------------------------------------------------------
page 37
<PAGE>
shown on the records of DTC or its participants (described below). Beneficial
owners of iShares are not entitled to have iShares registered in their names,
will not receive or be entitled to receive physical delivery of certificates in
definitive form and are not considered the registered holder of iShares.
Accordingly, to exercise any rights of a holder of iShares, a beneficial owner
must rely on the procedures of (i) DTC; (ii) "DTC Participants", i.e.,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives)
own DTC; and (iii) "Indirect Participants", i.e., brokers, dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly, through which the beneficial
owner holds its interests.
As described above, the Company recognizes DTC or its nominee as the owner of
all iShares for all purposes.
The Company will send its shareholders, through DTC Participants, unaudited
semi-annual reports, audited annual reports and other information as may be
required by applicable laws, rules and regulations. Beneficial owners also
receive an annual notification as to the tax status of the
Company's distributions.
For purposes of the Investment Company Act of 1940, iShares are issued by the
Index Funds, and the acquisition of iShares by investment companies is subject
to the restrictions of section 12(d)(1) of the Investment Company Act.
Dividends and Capital Gains Distributions
Dividends from net investment income, including any net foreign currency gains,
are declared and paid at least annually and any net realized securities gains,
are distributed at least annually. In order to improve tracking error or comply
with the distribution requirements of the Internal Revenue Code of 1986,
dividends may be declared and paid more frequently than annually for certain
Index Funds. In addition, the Company intends to distribute, at least annually,
amounts representing the full dividend yield on the underlying portfolio
securities of each Index Fund, net of expenses, as if the Index Fund owned the
underlying portfolio securities for the entire dividend period. As a result,
some portion of each distribution may result in a return of capital. See "Tax
Matters" below. Dividends and securities gains distributions are distributed in
US dollars and cannot be automatically reinvested in additional iShares. The
Company will inform shareholders within 60 days after the close of an Index
Fund's taxable year of the amount and nature of all distributions made to them.
Tax Matters
As with any investment, you should consider how the iShares of an Index Fund
will be taxed. The tax information in this prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in iShares.
Unless your investment in an Index Fund is through a tax-exempt entity or
taxed-deferred retirement account, such as an IRA plan, you need to be aware of
the possible tax consequences when:
. An Index Fund makes distributions, and
. You sell iShares on the AMEX.
Taxes on Distributions. Each Index Fund will distribute annually any net
investment income, and any net realized long-term or short-term capital gains.
Each Index Fund may also pay a special distribution at the end of the calendar
year to comply with federal tax requirements. In general, your distributions
are subject to federal income tax when they are paid. Dividends paid out of an
Index Fund's income and net short-term gains, if any, are taxable as ordinary
income. Distributions of net long-term capital gains, if any, in excess of net
short-term capital losses are taxable as long-term capital gains, regardless of
how long you have held the iShares.
- --------------------------------------------------------------------------------
iShares
page 38
<PAGE>
Distributions in excess of an Index Fund's current and accumulated earnings and
profits are treated as a tax-free return of capital to the extent of your basis
in iShares, and as capital gain thereafter. A distribution may be taxable to
you as ordinary income or capital gain even though, from an investment
standpoint, it may constitute a return of capital.
Dividends and interest received by each Index Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Since more
than 50% of each Index Fund's total assets at the end of its taxable year will
consist of foreign stocks or securities, each Index Fund will "pass through" to
you any foreign income taxes (including withholding taxes) paid by an Index
Fund, if you held the Index Fund, and the Index Fund held the security, on the
dividend entitlement date and for at least fifteen additional days immediately
before and/or after. Subject to certain limitations, the foreign income taxes
passed through may qualify as a deduction in calculating US taxable income or
as a credit in calculating US federal income tax. You will be notified of your
portion of the foreign income taxes paid to each country and the portion of
dividends that represents income derived from sources within each country.
Taxes other than foreign income taxes, including any profits levy payable by
the iShares MSCI Malaysia (Free) Index Fund, are not passed through to you in
this way.
If you are neither a lawful permanent resident nor a citizen of the United
States or if you are a foreign entity, each Index Fund's ordinary income
dividends (which include distributions of net short-term capital gains) will
generally be subject to a 30% US withholding tax, unless a lower treaty rate
applies.
By law, each Index Fund must withhold 31% of a shareholder's distributions and
proceeds if the shareholder has not provided a taxpayer identification number
or social security number.
Taxes When iShares Are Sold on the AMEX. Currently, any capital gain or loss
realized upon a sale of iShares is generally treated as long-term capital gain
or loss if the iShares have been held for more than one year and as short-term
capital gain or loss if the iShares have been held for one year or less.
The foregoing discussion summarizes some of the consequences under current
federal tax law of an investment in an Index Fund. It is not a substitute for
personal tax advice. Consult your personal tax adviser about the potential tax
consequences of an investment in an Index Series under all applicable tax laws.
Distribution Arrangements
The Company has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 that allows the Company to pay distribution fees for the sale and
distribution of iShares. Because these fees are paid out of an Index Fund's
assets on an ongoing basis, over time the fees will increase the cost of your
investment and may cost you more than paying other types of sales charges. The
fees paid under the Rule 12b-1 Plan are calculated and paid monthly with
respect to each Index Fund at a rate set from time to time by the Board,
provided that the annual rate may not exceed .25% of the average daily net
assets of each Index Fund. These fees are currently being paid at the maximum
rate. The distribution fees payable under the 12b-1 Plan are used to pay
distributions-related expenses, including: compensation to the distributor at a
rate fixed by the Company's Board of Directors from time to time (currently
.02% of the Company's average daily net assets, subject to an annual minimum of
$845,000); compensation to a sales and marketing consultant retained by the
Company at a rate of .035% of the Company's average daily net assets; and
reimbursements of expenses incurred by the distributor and other persons
(including the investment adviser in connection with the distribution of the
Company's shares). In addition, the distributor has entered into sales and
investor services agreements with broker-dealers or other persons that are DTC
Participants to provide distribution assistance, including broker-dealer and
shareholder support and educational and promotional services. Under the terms
of each sales and investor services agreement, the distributor will pay broker-
dealers or other persons, out of 12b-1 fees received from an Index Fund, at the
annual rate of up to .25% of 1% of the average
Distribution Arrangements
- --------------------------------------------------------------------------------
page 39
<PAGE>
daily net asset value of iShares held through DTC for the account of such DTC
Participant. The amounts of the fees paid to the distributor and the sales and
marketing consultant are not dependent on the amount of distribution expenses
actually incurred by them. The distributor has no role in determining the
investment policies of any Index Fund or which securities are to be purchased
or sold by any Index Fund.
Financial Highlights
The financial highlights table is intended to help you understand the financial
performance since inception of the following Index Funds that have commenced
investment operations: the iShares MSCI Australia, Austria, Belgium, Canada,
France, Germany, Hong Kong, Italy, Japan, Malaysia (Free), Mexico (Free),
Netherlands, Singapore (Free), Spain, Sweden, Switzerland and United Kingdom
Index Funds. Certain information reflects financial results for a single
iShares of an Index Fund. The total returns in the table represent the rate
that a shareholder would have earned (or lost) on an investment in an Index
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young, LLP, whose report, along with
the financial statements of those Index Funds that have commenced operations,
is included in the Annual Report, which is incorporated by reference in the SAI
and available without charge upon request. In reviewing this information, you
should note that the fee arrangements for the Company were significantly
changed in May 2000, as described in the Fees and Expenses section of this
Prospectus.
- --------------------------------------------------------------------------------
iShares
page 40
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Australia Index Fund
------------------------------------------
For the For the For the For the
year year year period
ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period.......... $ 7.75 $ 10.35 $ 10.15 $ 9.95(1)
------- ------- ------- -------
Net investment
income/(loss)+.. 0.20 0.23 0.17 0.10
Net
realized and unrealized gain/(loss)
on investments
and foreign
currency related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies...... 2.29 (2.60) 0.47 0.29
------- ------- ------- -------
Net
increase/(decrease)
in net assets
resulting from
operations..... 2.49 (2.37) 0.64 0.39
------- ------- ------- -------
Less
Distributions
Dividends from net investment income.. (0.19) (0.23) (0.16) (0.08)
Dividends in
excess of net
investment
income.......... 0.00** 0.00** (0.04) (0.05)
Distributions
from net
realized gains.. -- -- (0.04) (0.02)
Distributions
in excess of net
realized gains.. -- -- -- --
Return of
capital......... (0.06) -- (0.20) (0.04)
------- ------- ------- -------
Total
dividends and
distributions.. (0.25) (0.23) (0.44) (0.19)
------- ------- ------- -------
Net asset value,
end of period... $ 9.99 $ 7.75 $ 10.35 $ 10.15
======= ======= ======= =======
Total Investment
Return(2)........ 32.09% (23.11)% 6.23% 3.88%(4)
<CAPTION>
iShares MSCI Austria Index Fund iShares MSCI Belgium Index Fund
--------------------------------------------- -------------------------------------------
For the For the For the For the For the For the For the For the
year year year period year year year period
ended ended ended 03/12/96*- ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 08/31/96 08/31/99 08/31/98 08/31/97 08/31/96
---------- --------- --------- -------------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period.......... $ 10.11 $10.51 $10.40 $ 10.91(1) $ 18.40 $ 15.64 $ 14.99 $14.92(1)
---------- --------- --------- -------------- ---------- --------- --------- ------------
Net investment
income/(loss)+.. 0.10 0.06 (0.02) 0.04 0.08 0.24 0.77 0.40
Net
realized and unrealized gain/(loss)
on investments
and foreign
currency related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies...... (0.98) 0.20 0.13 (0.41) (0.30) 6.09 0.62 0.36
---------- --------- --------- -------------- ---------- --------- --------- ------------
Net
increase/(decrease)
in net assets
resulting from
operations..... (0.88) 0.26 0.11 (0.37) (0.22) 6.33 1.39 0.76
---------- --------- --------- -------------- ---------- --------- --------- ------------
Less
Distributions
Dividends from net investment income.. (0.07) (0.04) -- (0.02) -- (0.27) (0.33) (0.54)
Dividends in
excess of net
investment
income.......... (0.01) (0.01) -- (0.01) (0.01) (1.21) (0.28) (0.09)
Distributions
from net
realized gains.. -- (0.61) -- (0.03) (1.19) (1.99) (0.12) (0.06)
Distributions
in excess of net
realized gains.. -- 0.00** -- -- -- -- -- --
Return of
capital......... (0.02) 0.00** -- (0.08) (0.91) (0.10) (0.01) --
---------- --------- --------- -------------- ---------- --------- --------- ------------
Total
dividends and
distributions.. (0.10) (0.66) -- (0.14) (2.11) (3.57) (0.74) (0.69)
---------- --------- --------- -------------- ---------- --------- --------- ------------
Net asset value,
end of period... $ 9.13 $10.11 $10.51 $ 10.40 $ 16.07 $ 18.40 $ 15.64 $14.99
========== ========= ========= ============== ========== ========= ========= ============
Total Investment
Return(2)........ (8.69)% 2.16% 1.06 % (3.39)%(4) (1.00)% 39.42% 9.26% 5.01%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's).......... $53,957 $34,099 $41,406 $12,177
Ratios of
expenses to
average net
assets(5)....... 1.00% 1.05 % 1.33% 1.59%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)....... 2.03% 2.38 % 1.57% 2.18%(3)
Portfolio
turnover(6)..... 13.83% 1.49 % 5.30% 8.84%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's).......... $12,776 $8,085 $4,205 $13,520 $13,496 $25,765 $32,528 $1,800
Ratios of
expenses to
average net
assets(5)....... 1.31 % 1.41% 1.68 % 1.56 %(3) 1.24 % 1.04% 1.24% 2.29%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)....... 1.04 % 0.51% (0.22)% 0.87 %(3) 0.45 % 1.28% 4.63% 5.67%(3)
Portfolio
turnover(6)..... 49.95 % 36.14% 28.47 % 9.60 %(4) 62.99 % 50.46% 16.83% 6.25%(4)
- ----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/(loss) to average net assets would have been as
follows:
Ratios of
expenses to
average net
assets before
waivers........ -- -- 1.33% 1.60%(3)
Ratios of net
investment
income/(loss)
to average net
assets before
waivers........ -- -- 1.57% 2.17%(3)
Ratios of
expenses to
average net
assets before
waivers........ -- -- 1.69 % 1.57%(3) -- -- 1.24% 2.30%(3)
Ratios of net
investment
income/(loss)
to average net
assets before
waivers........ -- -- (0.22)% 0.86%(3) -- -- 4.63% 5.66%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
iShares Financial Highlights
- --------------------------------------------------------------------------------
Page 41
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Canada Index Fund iShares MSCI France Index Fund
------------------------------------------ ----------------------------------------
For the For the For the For the For the For the For the For the
year year year period year year year period
ended ended ended 03/12/96*- ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 8/31/96 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 9.90 $13.43 $ 10.60 $10.17(1) $ 19.13 $ 14.50 $ 12.73 $ 12.42(1)
------ ------ ------- ------- ------- ------- ------- -------
Net investment
income/(loss)+... 0.07 0.07 0.05 0.04 0.14 0.30 0.17 0.17
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... 3.87 (2.89) 2.97 0.43 3.88 4.76 1.95 0.45
------ ------ ------- ------- ------- ------- ------- -------
Net
increase/(decrease)
in net assets
resulting from
operations...... 3.94 (2.82) 3.02 0.47 4.02 5.06 2.12 0.62
------ ------ ------- ------- ------- ------- ------- -------
Less Distributions
Dividends from
net investment
income........... (0.08) (0.13) (0.05) (0.03) (0.10) (0.19) (0.15) (0.09)
Dividends in
excess of net
investment
income........... (0.01) (0.00)** (0.00)** (0.01) (0.02) (0.03) -- (0.01)
Distributions
from net realized
gains............ (0.53) (0.58) (0.14) -- (0.05) (0.13) (0.20) 0.00**
Distributions in
excess of net
realized gains... -- -- -- 0.00** -- (0.01) -- --
Return of
capital.......... -- -- -- 0.00** (0.08) (0.07) -- (0.21)
------ ------ ------- ------- ------- ------- ------- -------
Total dividends
and
distributions... (0.62) (0.71) (0.19) (0.04) (0.25) (0.43) (0.35) (0.31)
------ ------ ------- ------- ------- ------- ------- -------
Net asset value,
end of period.... $13.22 $ 9.90 $ 13.43 $ 10.60 $ 22.90 $ 19.13 $ 14.50 $ 12.73
====== ====== ======= ======= ======= ======= ======= =======
Total Investment
Return(2)......... 39.71% (21.69)% 28.50% 4.63%(4) 21.01% 34.77% 16.60% 4.95%(4)
<CAPTION>
iShares MSCI Germany Index Fund
--------------------------------------------
For the For the For the For the
year year year period
ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 08/31/96
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 20.25 $ 16.31 $ 13.64 $ 13.23(1)
--------- ---------- --------- -------------
Net investment
income/(loss)+... 0.12 0.29 0.03 0.06
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... 1.31 3.92 2.77 0.47
--------- ---------- --------- -------------
Net
increase/(decrease)
in net assets
resulting from
operations...... 1.43 4.21 2.80 0.53
--------- ---------- --------- -------------
Less Distributions
Dividends from
net investment
income........... (0.10) (0.17) (0.03) (0.03)
Dividends in
excess of net
investment
income........... (0.01) (0.01) (0.01) (0.01)
Distributions
from net realized
gains............ (0.31) (0.01) (0.07) --
Distributions in
excess of net
realized gains... (0.08) 0.00** -- (0.01)
Return of
capital.......... (0.01) (0.08) (0.02) (0.07)
--------- ---------- --------- -------------
Total dividends
and
distributions... (0.51) (0.27) (0.13) (0.12)
--------- ---------- --------- -------------
Net asset value,
end of period.... $ 21.17 $ 20.25 $ 16.31 $ 13.04
========= ========== ========= =============
Total Investment
Return(2)......... 7.04% 25.69% 20.51% 4.00%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $9,253 $6,932 $24,168 $13,776 $77,885 $45,922 $14,519 $22,930
Ratios of
expenses to
average net
assets(5)........ 1.23% 1.14 % 1.35% 1.44%(3) 1.06% 1.18% 1.52% 1.84%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 0.53% 0.46 % 0.39% 0.79%(3) 0.67% 1.58% 1.17% 2.72%(3)
Portfolio
turnover(6)...... 11.66% 3.70 % 11.02% 0.00%(4) 0.00% 5.65% 7.13% 0.00%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $101,645 $72,934 $24,486 $28,664
Ratios of
expenses to
average net
assets(5)........ 1.00% 1.08% 1.37% 1.68%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 0.57% 1.43% 0.23% 1.00%(3)
Portfolio
turnover(6)...... 13.67% 0.64% 9.04% 0.00%(4)
- ----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed for purposes of this calculation, to be
reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/(loss) to average net assets would have been as
follows:
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.36% 1.45%(3) -- -- 1.52% 1.85%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 0.39% 0.78%(3) -- -- 1.17% 2.71%(3)
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.37% 1.69%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 0.22% 0.99%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
- --------------------------------------------------------------------------------
iShares
Page 42
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Hong Kong Index Fund iShares MSCI Italy Index Fund
------------------------------------------ ----------------------------------------
For the For the For the For the For the For the For the For the
year year year period year year year period
ended ended ended 03/12/96*- ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 08/31/96 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 6.41 $ 14.73 $ 13.05 $12.83(1) $ 22.89 $ 16.66 $ 13.79 $ 13.62(1)
------- ------- ------- ------ ------- ------- ------- -------
Net investment
income/(loss)+... 0.29 0.35 0.26 0.15 0.17 0.18 0.12 0.25
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... 5.49 (8.27) 2.12 0.27 1.05 7.94 3.10 0.31
------- ------- ------- ------ ------- ------- ------- -------
Net
increase/(decrease)
in net assets
resulting from
operations...... 5.78 (7.92) 2.38 0.42 1.22 8.12 3.22 0.56
------- ------- ------- ------ ------- ------- ------- -------
Less Distributions
Dividends from
net investment
income........... (0.31) (0.28) (0.21) (0.13) (0.06) (0.18) (0.11) (0.14)
Dividends in
excess of net
investment
income........... (0.05) 0.00** (0.01) (0.02) -- (1.02) (0.24) (0.03)
Distributions
from net realized
gains............ -- -- (0.34) (0.01) (2.24) (0.69) -- (0.14)
Distributions in
excess of net
realized gains... -- -- 0.00** -- -- -- -- --
Return of
capital.......... -- (0.12) (0.14) (0.04) (0.25) -- -- (0.08)
------- ------- ------- ------ ------- ------- ------- -------
Total dividends
and
distributions... (0.36) (0.40) (0.70) (0.20) (2.55) (1.89) (0.35) (0.39)
------- ------- ------- ------ ------- ------- ------- -------
Net asset value,
end of period.... $ 11.83 $ 6.41 $ 14.73 $13.05 $ 21.56 $ 22.89 $ 16.66 $ 13.79
======= ======= ======= ====== ======= ======= ======= =======
Total Investment
Return(2)......... 90.51% (54.22)% 17.80% 3.22%(4) 5.14% 47.66% 23.37% 4.11%(4)
<CAPTION>
iShares MSCI Japan Index Fund
-----------------------------------------------
For the For the For the For the
year year year period
ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 08/31/96
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 8.39 $ 12.61 $ 14.33 $ 14.79(1)
---------- ---------- ---------- --------------
Net investment
income/(loss)+... (0.03) (0.02) (0.06) (0.07)
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... 4.91 (4.19) (1.65) (0.39)
---------- ---------- ---------- --------------
Net
increase/(decrease)
in net assets
resulting from
operations...... 4.88 (4.21) (1.71) (0.46)
---------- ---------- ---------- --------------
Less Distributions
Dividends from
net investment
income........... -- -- -- --
Dividends in
excess of net
investment
income........... (0.04) -- -- --
Distributions
from net realized
gains............ -- 0.00** -- --
Distributions in
excess of net
realized gains... -- -- (0.01) --
Return of
capital.......... (0.01) (0.01) -- --
---------- ---------- ---------- --------------
Total dividends
and
distributions... (0.05) (0.01) (0.01) --
---------- ---------- ---------- --------------
Net asset value,
end of period.... $ 13.22 $ 8.39 $ 12.61 $ 14.33
========== ========== ========== ==============
Total Investment
Return(2)......... 58.14 % (33.38)% (11.97)% (3.11)%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $77,200 $49,973 $25,417 $7,845 $58,224 $58,368 $32,495 $35,170
Ratios of
expenses to
average net
assets(5)........ 1.01% 1.09 % 1.43% 1.52%(3) 1.03% 1.02% 1.33% 1.43%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 2.84% 3.76 % 1.71% 2.37%(3) 0.70% 0.76% 0.76% 3.69%(3)
Portfolio
turnover(6)...... 42.89% 21.50 % 22.90% 0.00%(4) 7.89% 8.16% 13.70% 19.80%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $713,653 $201,485 $158,957 $103,164
Ratios of
expenses to
average net
assets(5)........ 0.94 % 1.04 % 1.19 % 1.37 %(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ (0.27)% (0.21)% (0.48)% (1.01)%(3)
Portfolio
turnover(6)...... 0.00 % 0.00 % 12.90 % 21.54 %(4)
- ----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/(loss) to average net assets would have been as
follows:
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.43% 1.53%(3) -- -- 1.33% 1.44%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 1.71% 2.36%(3) -- -- 0.76% 3.68%(3)
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.19 % 1.38 %(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- (0.48)% (1.02)%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
iShares Financial Highlights
- --------------------------------------------------------------------------------
Page 43
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Malaysia
(Free) Index Fund iShares MSCI Mexico (Free) Index Fund
------------------------------------------ ----------------------------------------
For the For the For the For the For the For the For the For the
year year year period year year year period
ended ended ended 03/12/96*- ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 08/31/96 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 2.11 $ 8.23 $ 13.80 $13.24(1) $ 8.11 $15.11 $ 11.52 $ 9.95(1)
------- ------- ------- ------ ------- ------ ------- ------
Net investment
income/(loss)+... 0.01 0.06 0.01 (0.02) 0.06 0.09 0.02 0.00**
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... 3.67 (6.10) (5.55) 0.59 5.36 (6.71) 4.07 1.59
------- ------- ------- ------ ------- ------ ------- ------
Net
increase/(decrease)
in net assets
resulting from
operations...... 3.68 (6.04) (5.54) 0.57 5.42 (6.62) 4.09 1.59
------- ------- ------- ------ ------- ------ ------- ------
Less Distributions
Dividends from
net investment
income........... (0.01) (0.05) 0.00** -- (0.06) (0.09) (0.01) --
Dividends in
excess of net
investment
income........... -- -- (0.01) -- (0.01) -- (0.01) (0.01)
Distributions
from net realized
gains............ -- -- -- -- -- (0.29) (0.44) --
Distributions in
excess of net
realized gains... -- -- -- -- (0.01) -- -- --
Returns of
capital.......... (0.19) (0.03) (0.02) (0.01) (0.06) -- (0.04) (0.01)
------- ------- ------- ------ ------- ------ ------- ------
Total dividends
and
distributions... (0.02) (0.08) (0.03) (0.01) (0.14) (0.38) (0.50) (0.02)
------- ------- ------- ------ ------- ------ ------- ------
Net assets value,
end of period.... $ 5.59 $ 2.11 $ 8.23 $13.80 $ 13.39 $ 8.11 $ 15.11 $11.52
======= ======= ======= ====== ======= ====== ======= ======
Total Investment
Return(2)......... 185.81% (73.57)% (40.20)% 4.28 %(4) 66.92% (44.18)% 35.21% 15.93%(4)
<CAPTION>
iShares MSCI Netherlands Index Fund
-----------------------------------------
For the For the For the For the
year year year period
ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 08/31/96
--------- --------- -------- ------------
<S> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 23.50 $ 21.42 $17.36 $15.91(1)
--------- --------- -------- ------------
Net investment
income/(loss)+... 0.53 0.25 0.11 0.24
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... 1.60 3.53 4.79 1.54
--------- --------- -------- ------------
Net
increase/(decrease)
in net assets
resulting from
operations...... 2.13 3.78 4.90 1.78
--------- --------- -------- ------------
Less Distributions
Dividends from
net investment
income........... (0.43) (0.16) (0.10) (0.14)
Dividends in
excess of net
investment
income........... (0.01) -- (0.01) (0.01)
Distributions
from net realized
gains............ (1.42) (1.47) (0.71) (0.08)
Distributions in
excess of net
realized gains... (0.24) -- -- (0.01)
Returns of
capital.......... (0.08) (0.07) (0.02) (0.09)
--------- --------- -------- ------------
Total dividends
and
distributions... (2.18) (1.70) (0.84) (0.33)
--------- --------- -------- ------------
Net assets value,
end of period.... $ 23.45 $ 23.50 $21.42 $17.36
========= ========= ======== ============
Total Investment
Return(2)......... 8.98% 17.41% 28.04% 11.19%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $95,251 $35,867 $12,339 $9,318 $21,430 $7,296 $16,627 $5,759
Ratios of
expenses to
average net
assets(5)........ 1.43% 1.09 % 1.46 % 1.58 %(3) 1.26% 1.34 % 1.63% 1.75%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 0.33% 1.40 % 0.04 % (0.35)%(3) 0.52% 0.60 % 0.14% 0.01%(3)
Portfolio
turnover(6)...... 7.24% 2.11 % 0.00 % 0.00 %(4) 18.36% 14.05 % 22.80% 0.00%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $31,685 $22,349 $9,661 $6,962
Ratios of
expenses to
average net
assets(5)........ 1.07% 1.12% 1.46% 1.63%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 2.20% 1.00% 0.54% 2.93%(3)
Portfolio
turnover(6)...... 32.13% 15.81% 12.68% 4.32%(4)
- ----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/(loss) to average net assets would have been as
follows:
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.47% 1.59 %(3) -- -- 1.63% 1.76%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 0.04% (0.36)%(3) -- -- 0.13% 0.00%(3)
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.46% 1.64%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 0.53% 2.92%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
- --------------------------------------------------------------------------------
iShares
Page 44
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Singapore (Free) Index
Fund iShares MSCI Spain Index Fund
------------------------------------------ ---------------------------------------
For the For the For the For the For the For the For the For the
year year year period year year year period
ended ended ended 03/12/96*- ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 08/31/96 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 3.30 $ 8.66 $ 11.38 $12.24(1) $ 23.84 $ 18.49 $14.09 $13.28(1)
-------- ------- ------- ------ ------- ------- ------ ------
Net investment
income/(loss)+... 0.05 0.07 0.00** 0.04 0.09 0.16 0.19 0.14
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... 4.70 (5.37) (2.67) (0.86) 3.14 5.94 5.33 0.98
-------- ------- ------- ------ ------- ------- ------ ------
Net
increase/(decrease)
in net assets
resulting from
operations...... 4.75 (5.30) (2.67) (0.82) 3.23 6.10 5.52 1.12
-------- ------- ------- ------ ------- ------- ------ ------
Less Distributions
Dividends from
net investment
income........... (0.05) (0.04) 0.00** (0.03) (0.07) (0.12) (0.12) (0.18)
Dividends in
excess of net
investment
income........... (0.06) (0.01) (0.01) (0.01) (0.02) (0.02) (0.05) --
Distributions
from net realized
gains............ -- -- (0.02) -- (1.35) (0.55) (0.86) (0.13)
Distributions in
excess of net
realized gains... -- -- -- -- -- -- -- --
Return of
capital.......... (0.01) (0.01) (0.02) -- (0.04) (0.06) (0.09) --
-------- ------- ------- ------ ------- ------- ------ ------
Total dividends
and
distributions... (0.12) (0.06) (0.05) (0.04) (1.48) (0.75) (1.12) (0.31)
-------- ------- ------- ------ ------- ------- ------ ------
Net asset value,
end of period.... $ 7.93 $ 3.30 $ 8.66 $11.38 $ 25.59 $ 23.84 $18.49 $14.09
======== ======= ======= ====== ======= ======= ====== ======
Total Investment
Return(2)......... 144.52% (61.29)% (23.48)% (6.73)%(4) 13.39% 32.58% 39.15% 8.45%(4)
<CAPTION>
iShares MSCI Sweden Index Fund
------------------------------------------
For the For the For the For the
year year year period
ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 08/31/96
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 18.39 $ 18.32 $14.67 $13.22(1)
--------- --------- --------- ------------
Net investment
income/(loss)+... 0.10 0.10 (0.03) 0.20
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... 4.52 0.95 4.45 1.67
--------- --------- --------- ------------
Net
increase/(decrease)
in net assets
resulting from
operations...... 4.62 1.05 4.42 1.87
--------- --------- --------- ------------
Less Distributions
Dividends from
net investment
income........... (0.09) (0.08) -- (0.23)
Dividends in
excess of net
investment
income........... (0.01) (0.01) -- (0.07)
Distributions
from net realized
gains............ (0.62) (0.86) (0.77) (0.12)
Distributions in
excess of net
realized gains... (0.01) (0.01) -- --
Return of
capital.......... (0.02) (0.02) -- --
--------- --------- --------- ------------
Total dividends
and
distributions... (0.75) (0.98) (0.77) (0.42)
--------- --------- --------- ------------
Net asset value,
end of period.... $ 22.26 $ 18.39 $18.32 $14.67
========= ========= ========= ============
Total Investment
Return(2)......... 25.09% 5.48% 30.10 % 14.13%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $113,438 $47,248 $14,722 $9,107 $36,469 $25,029 $8,321 $4,227
Ratios of
expenses to
average net
assets(5)........ 0.97% 1.08 % 1.43 % 1.56 %(3) 1.04% 1.11% 1.67% 1.76%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 0.76% 1.17 % 0.03 % 0.69 %(3) 0.31% 0.61% 1.04% 2.04%(3)
Portfolio
turnover(6)...... 25.31% 67.17 % 13.40 % 26.29 %(4) 16.58% 9.10% 19.21% 4.73%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $20,034 $13,791 $8,243 $4,400
Ratios of
expenses to
average net
assets(5)........ 1.13% 1.17% 1.64 % 1.75%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 0.49% 0.48% (0.19)% 3.05%(3)
Portfolio
turnover(6)...... 33.44% 10.88% 13.71 % 5.87%(4)
- ----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/loss to average net assets would have been as
follows:
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.43% 1.57%(3) -- -- 1.67% 1.77%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 0.03% 0.68%(3) -- -- 1.04% 2.03%(3)
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.64 % 1.76%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- (0.19)% 3.04%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
iShares Financial Highlights
- --------------------------------------------------------------------------------
Page 45
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI United Kingdom Index
iShares MSCI Switzerland Index Fund Fund
-------------------------------------------- ----------------------------------------
For the For the For the For the For the For the For the For the
year year year period year year year period
ended ended ended 03/12/96*- ended ended ended 03/12/96*-
08/31/99 08/31/98 08/31/97 08/31/96 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period...... $ 15.55 $ 13.79 $ 12.29 $12.07(1) $ 18.48 $ 16.50 $ 13.15 $ 12.14(1)
------- ------- ------- ------ -------- ------- ------- -------
Net investment
income/loss+............. 0.04 (0.00)%** (0.04) 0.08 0.44 0.37 0.38 0.21
Net realized and
unrealized gain/ (loss)
on investments and
foreign currency related
transactions and
translation of other
assets and liabilities
denominated in foreign
currencies............... 0.19 3.01 2.11 0.24 2.40 2.12 3.62 1.06
------- ------- ------- ------ -------- ------- ------- -------
Net increase/(decrease)
in net assets resulting
from operations......... 0.23 3.01 2.07 0.32 2.84 2.49 4.00 1.27
------- ------- ------- ------ -------- ------- ------- -------
Less Distributions
Dividends from net
investment income........ (0.03) -- -- (0.10) (0.36) (0.29) (0.32) (0.20)
Dividends in excess of
net investment income.... (0.04) (0.01) -- -- (0.01) (0.04) (0.06) (0.03)
Distributions from net
realized gains........... (0.17) (1.21) (0.57) -- (0.60) (0.11) (0.17) 0.00**
Distributions in excess
of net realized gains.... (0.14) -- -- -- (0.02) -- -- --
Return of capital........ (0.01) (0.03) 0.00** -- (0.08) (0.07) (0.10) (0.03)
------- ------- ------- ------ -------- ------- ------- -------
Total dividends and
distributions........... (0.39) (1.25) (0.57) (0.10) (1.07) (0.51) (0.65) (0.26)
------- ------- ------- ------ -------- ------- ------- -------
Net asset value, end of
period................... $ 15.39 $ 15.55 $ 13.79 $12.29 $ 20.25 $ 18.48 $ 16.50 $ 13.15
======= ======= ======= ====== ======== ======= ======= =======
Total Investment
Return(2)................. 1.47% 21.24 % 16.69 % 2.60%(4) 15.33% 14.98% 30.48% 10.41%(4)
Ratios/Supplemental Data
Net assets, end of period
(in 000's)............... $38,499 $29,153 $13,805 $6,158 $113,402 $62,846 $29,721 $15,790
Ratios of expenses to
average net assets(5).... 1.09% 1.15 % 1.52 % 1.82%(3) 0.97% 1.03% 1.38% 1.61%(3)
Ratios of net investment
income/(loss) to average
net assets(5)............ 0.24% (0.03)% (0.29)% 1.39%(3) 2.16% 1.90% 2.47% 3.62%(3)
Portfolio turnover(6).... 35.10% 43.09 % 48.05 % 17.06%(4) 13.24% 2.83% 1.84% 0.00%(4)
- ----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/(loss) to average net assets would have been as
follows:
Ratios of expenses to
average net assets
before waivers.......... -- -- 1.53 % 1.83%(3) -- -- 1.38% 1.62%(3)
Ratios of net Investment
Income/(loss) to average
net assets before
waivers................. -- -- (0.29)% 1.38%(3) -- -- 2.47% 3.61%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
- --------------------------------------------------------------------------------
iShares
Page 46
<PAGE>
For More Information
FOR INVESTORS WHO WANT MORE INFORMATION ON
THE iSHARES MSCI INDEX FUNDS,
THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE UPON REQUEST:
Annual/Semi-Annual Reports: Contain performance data and information on
portfolio holdings for the Company's most recently completed fiscal year or
half year, a statement from management and, on an annual basis, the auditor's
report.
Statement of Additional Information (SAI): Contains more detailed information
about the Company's policies, investment restrictions, risks and business
structure. This Prospectus incorporates the SAI by reference.
Copies of these documents and answers to questions about Index Funds may be
obtained without charge by contacting:
iSHARES, INC.
(formerly WEBS Index Fund, Inc.)
400 Bellevue Parkway
Wilmington, Delaware 19809
1-800-474-2737
www.iShares.com
Information about Index Funds (including the SAI) can be viewed and copied at
the Public Reference Room of the SEC in Washington, D.C. Copies of this
information may be obtained, upon payment of a duplicating fee, by writing the
Public Reference Room of the SEC, Washington, D.C., 20549-6009. Information on
the operation of the Public Reference Room may be obtained by calling the SEC
at 1-800-SEC-0330. Reports and other information about Index Funds may be
viewed on-screen or downloaded from the SEC's Internet site at www.sec.gov.
FOR MORE INFORMATION ON iSHARES MSCI INDEX FUNDS, PLEASE CALL:
1-800-iSHARES
(1-800-474-2737)
Investment Company Act File No. 811-09102.
<PAGE>
iSHARES, INC.
(FORMERLY WEBS INDEX FUND, INC.)
(THE "COMPANY")
iSHARES MSCI INDEX FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 30, 1999
(AS REVISED MAY 22, 2000)
This Statement of Additional Information ("SAI") provides information about the
Company and its iShares MSCI Index Funds ("Index Funds"). This information is
in addition to the information contained in the Company's Prospectus dated
December 30, 1999, as revised May 22, 2000.
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Company's Annual Report dated August 31, 1999. The financial
statements and notes contained in the Annual Report are incorporated by
reference into this SAI. Copies of the Company's Prospectus and Annual Report
may be obtained free of charge by telephoning 1-800-iShares (1-800-474-2737).
iShares, Inc. will apply to have the iShares MSCI Brazil (Free), EMU and South
Africa Index Funds listed on the AMEX. It is expected that the iShares MSCI
Brazil (Free) and South Africa Index Funds will be offered for sale to the
public beginning in June 2000, and that the iShares MSCI EMU Index Fund will be
offered for sale to the public beginning in July 2000.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION.......................................................................... 1
INVESTMENT STRATEGIES AND RISKS.............................................................. 1
Exchange Listing and Trading.............................................................. 1
Lending Portfolio Securities.............................................................. 2
Repurchase Agreements..................................................................... 2
Currency Transactions..................................................................... 3
Futures Contracts and Options............................................................. 3
Futures Transactions.................................................................. 4
Restrictions on the Use of Futures Contracts and Options on Future Contracts.......... 5
Federal Tax Treatment of Futures Contracts............................................ 5
Future Developments................................................................... 6
Swap Agreements........................................................................... 6
Non-U.S. Equity Portfolios................................................................ 6
Concentrations and Lack of Diversification of Certain Index Funds......................... 6
Investments in Subject Equity Markets..................................................... 7
Regional and Country-Specific Economic Considerations..................................... 20
MSCI INDICES................................................................................. 34
INVESTMENT LIMITATIONS....................................................................... 38
MANAGEMENT OF THE COMPANY.................................................................... 40
Directors and Officers of the Company..................................................... 40
Directors' Compensation................................................................... 42
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.......................................... 42
INVESTMENT ADVISORY MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES..................... 48
Investment Adviser........................................................................ 48
Administrator............................................................................. 49
Sub-Administrator......................................................................... 50
Distributor............................................................................... 50
Custodian and Lending Agent............................................................... 52
Transfer Agent............................................................................ 52
BROKERAGE ALLOCATION......................................................................... 53
ADDITIONAL INFORMATION CONCERNING iSHARES.................................................... 53
Capital Stock............................................................................. 53
Book Entry Only System.................................................................... 54
PURCHASE AND REDEMPTION OF iSHARES........................................................... 56
Creation Units............................................................................ 56
Purchase and Issuance of iShares in Creation Units........................................ 56
Redemption of iShares in Creation Units................................................... 61
Determining Net Asset Value............................................................... 64
Continuous Offering....................................................................... 64
TAXES........................................................................................ 65
PERFORMANCE INFORMATION...................................................................... 66
COUNSEL AND INDEPENDENT AUDITORS............................................................. 69
Counsel................................................................................... 69
Independent Auditors...................................................................... 69
FINANCIAL STATEMENTS......................................................................... 69
APPENDIX A................................................................................... A-1
APPENDIX B................................................................................... B-1
</TABLE>
The information contained herein regarding Morgan Stanley Capital International
Inc. ("MSCI"), the MSCI Indices, local securities markets and The Depository
Trust Company ("DTC") was obtained from publicly available sources.
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MSCI is a company jointly owned by Morgan Stanley Dean Witter & Co.
("MSDW"), an international investment banking, asset management and brokerage
firm and The Capital Group Companies, Inc. ("Capital"), an international
investment management company that is not affiliated with MSDW. MSCI is the
owner of the MSCI Indices and has full responsibility for the design,
maintenance, production and distribution of the Indices, including additions and
deletions of constituents within the Indices.
iShares are not sponsored, endorsed, or promoted by MSDW or any of its
affiliates. Neither MSDW nor any of its affiliates make any representation or
warranty, express or implied, to the owners of the iShares of any Index Fund or
any member of the public regarding the advisability of investing in securities
generally, or in the iShares of any Index Fund particularly, or the ability of
the indices identified herein to track general stock market performance. The
MSCI Indices identified herein are determined, composed and calculated without
regard to the iShares of any Index Fund or the issuer thereof. Neither MSCI nor
either of its owners has any obligation to take the needs of the issuer of the
iShares of any Index Fund or the owners of the iShares of any Index Fund into
consideration in determining, composing, calculating or disseminating the
respective MSCI Indices. Neither MSCI nor either of its owners is responsible
for, nor have they participated in the determination of the timing of, prices
of, or quantities of the iShares of any Index Fund to be issued or in the
determination or calculation of the equation by which the iShares of any Index
Fund are redeemable. Neither MSCI nor either of its owners has any obligation or
liability to owners of the iShares of any Index Fund in connection with the
administration, marketing or trading of the iShares of any Index Fund.
Although MSCI and Capital, which are primarily responsible for formulating
the MSCI Indices, shall obtain information for inclusion in or for use in the
calculation of the MSCI Indices from sources which they consider reliable,
neither MSCI nor Capital guarantees the accuracy and/or the completeness of the
component data of any MSCI Index obtained from independent sources. Neither MSCI
nor Capital makes any warranty, express or implied, as to results to be obtained
by licensee, owners of the products, or any other person or entity from the use
of the MSCI Indices or any data included therein in connection with the rights
licensed under any license agreement or for any other use. Neither MSCI nor
Capital makes any express or implied warranties, and each hereby expressly
disclaims all warranties of merchantability or fitness for a particular purpose
with respect to the MSCI Indices or any data included therein. Without limiting
any of the foregoing, in no event shall MSCI or Capital 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.
Unless otherwise specified, all references in this SAI to "dollars,"
"USD," "US$" or "$" are to United States Dollars, all references to "AUD," or
"A$" are to Australian Dollars, all references to "ATS" are to Austrian
Schillings, all references to "BEF" are to Belgian Francs, all references to
"BRL" are to Brazilian Reals, all references to "CAD" or "CA$" are to Canadian
Dollars, all references to "EUR" are to Euros, all references to "FRF" or "FF"
are to French Francs, all references to "DEM" or "DM" are to the German Deutsche
Mark, all references to "HKD" or "HK$" are to Hong Kong Dollars, all references
to "ITL" or "LL" are to Italian Lira, all references to "JPY" or "Y" are to
Japanese Yen, all references to "KRW" are to Korean Wons, all references to
"MYR" are to Malaysian Ringgits, all references to "MXN" are to Mexican Pesos,
all references to "NLG" are to Netherlands Guilders, all references to "SGD" are
to Singapore Dollars, all references to "ZAR" are to South African Rands, all
references to "ESP" are to Spanish Pesetas, all references to "SEK" are to
Swedish Krona, all references to "CHF" are to Swiss Francs, all references to
"TWD" are to New Taiwan Dollars and all references to "GBP," "(Pounds)" or "L"
are to British Pounds Sterling. On August 31, 1999, the 4:00 p.m. buying rates
in New York City for cable transfers payable in the applicable currency, as
certified for customs purposes by the Federal Reserve Bank of New York, were as
follows for each US $1.00: AUD 1.569489, ATS 13.02755, BEF 38.1916, BRL 1.918,
CAD 1.4922, EUR 0.946746, FRF 6.21025, DEM 1.85165, HKD 7.76515, ITL 1833.15505,
JPY 109.645, KRW 1180.5, MYR 3.8, MXN 9.355, NLG 2.08635, SGD 1.6843, ZAR 6.082,
ESP 157.5252, SEK 8.259, CHF 1.5151, TWD 31.8425 and GBP 0.62191. Some numbers
in this SAI have been rounded. All US Dollar equivalents provided in this SAI
are calculated at the exchange rate prevailing on the date to which the
corresponding foreign currency amount refers.
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<PAGE>
GENERAL INFORMATION
iShares, Inc. (the "Company"), formerly WEBS Index Fund, Inc., was
organized as a Maryland corporation on August 31, 1994, and is an open-end
management investment company currently operating or proposing to operate 28
separate investment portfolios or "Index Funds". The following seventeen Index
Funds commenced operations on March 6, 1996: the iShares MSCI Australia Index
Fund, the iShares MSCI Austria Index Fund, the iShares MSCI Belgium Index Fund,
the iShares MSCI Canada Index Fund, the iShares MSCI France Index Fund, the
iShares MSCI Germany Index Fund, the iShares MSCI Hong Kong Index Fund, the
iShares MSCI Italy Index Fund, the iShares MSCI Japan Index Fund, the iShares
MSCI Malaysia (Free) Index Fund, the iShares MSCI Mexico (Free) Index Fund, the
iShares MSCI Netherlands Index Fund, the iShares MSCI Singapore (Free) Index
Fund, the iShares MSCI Spain Index Fund, the iShares MSCI Sweden Index Fund, the
iShares MSCI Switzerland Index Fund and the iShares MSCI United Kingdom Index
Fund. The iShares MSCI South Korea Index Fund commenced operations on May 8,
2000. The following Index Funds had not commenced operations as of the date of
this SAI: the iShares MSCI Brazil (Free) Index Fund, the iShares MSCI EMU Index
Fund, iShares MSCI South Africa Index Fund, the iShares MSCI Taiwan and the
iShares MSCI USA Index Fund. Each of the iShares MSCI Canada, EMU, Japan, United
Kingdom and USA Index Funds is classified as a "diversified" investment company
under the 1940 Act. Each of the other Index Funds offered hereby is classified
as a "non-diversified" investment company under the Investment Company Act of
1940. The Board of Directors of the Company may authorize additional Index Funds
in the future.
INVESTMENT STRATEGIES AND RISKS
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Index Funds.
Exchange Listing and Trading. Except for the iShares MSCI Brazil (Free),
----------------------------
EMU, South Africa, Taiwan and USA Index Funds, for which application will be
made, the iShares of each Index Fund have been listed for trading on the AMEX.
The AMEX has approved modifications to its Rules to permit the listing of
iShares. The non-redeemable iShares trade on the AMEX at prices that may differ
to some degree from their net asset value. See "Special Considerations and
Risks" and "Determining Net Asset Value". There can be no assurance that the
requirements of the AMEX necessary to maintain the listing of iShares of any
Index Fund will continue to be met. The AMEX may remove the iShares of an Index
Fund from listing if (1) following the initial twelve-month period beginning
upon the commencement of trading of an Index Fund, there are fewer than 50
beneficial holders of the iShares for 30 or more consecutive trading days, (2)
the value of the underlying index or portfolio of securities on which such Index
Fund is based is no longer calculated or available or (3) any other event shall
occur or condition exist that, in the opinion of the AMEX, makes further
dealings on the AMEX inadvisable. In addition, the AMEX will remove the shares
from listing and trading upon termination of the Company.
As in the case of other stocks traded on the AMEX, the brokers' commission
on transactions will be based on negotiated commission rates at customary levels
for retail customers and rates which range between $.015 to $.12 per share for
institutions and high net worth individuals.
In order to provide current iShares pricing information, the AMEX
disseminates through the facilities of the Consolidated Tape Association an
updated "indicative optimized portfolio value" ("IOPV") for each Index Fund as
calculated by Bloomberg, L.P ("Bloomberg"). The Company is not involved in or
responsible for any aspect of the calculation or dissemination of the IOPVs, and
makes no warranty as to the accuracy of the IOPVs. IOPVs are disseminated on a
per Index Fund basis every 15 seconds during regular AMEX trading hours of 9:30
a.m. to 4:00 p.m. Eastern time.
The IOPV has an equity securities value component and a cash component. The
equity securities values included in the IOPV are the values of the Deposit
Securities for each Index Fund. While the IOPV reflects the current market
value of the Deposit Securities required to be deposited in connection with the
purchase of a Creation Unit of iShares, it does not necessarily reflect the
precise composition of the current portfolio of securities held by the Company
for each Index Fund at a particular point in time, because the current portfolio
of an Index Fund may include securities that are not a part of the current
Deposit Securities. Therefore, the IOPV on a per Index Fund basis disseminated
during AMEX trading hours should not be viewed as a real time update of the net
asset value per
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<PAGE>
share of the Company, which is calculated only once a day. It is possible that
the value of the portfolio of securities held by the Company for a particular
Index Fund may diverge from the applicable IOPV during any trading day. In such
case, the IOPV would not precisely reflect the value of an Index Fund'
portfolio. In addition, the foreign exchange rate used by the Company in
computing net asset value of an Index Fund may differ materially from that used
by Bloomberg. See "Determining Net Asset Value" below.
The equity securities included in the IOPV reflect the same market
capitalization weighting as the Deposit Securities of the particular Index Fund.
In addition to the equity component described in the preceding paragraph, the
IOPV for each Index Fund includes a cash component consisting of estimated
accrued dividend and other income, less expenses. Each IOPV also reflects
changes in currency exchange rates between the U.S. dollar and the applicable
home foreign currency. For the iShares MSCI Australia, Hong Kong, Japan,
Malaysia (Free), Singapore (Free), South Korea and Taiwan Index Funds, there is
no overlap in trading hours between the foreign market and the AMEX. Therefore,
for each of these Index Funds, Bloomberg utilizes closing prices (in applicable
foreign currency prices) in the foreign market for securities in the Index
Fund's portfolio, and converts the price to U.S. dollars. This value is updated
every 15 seconds during AMEX trading hours to reflect changes in currency
exchange rates between the U.S. dollar and the applicable foreign currency. For
Index Funds which have trading hours overlapping regular AMEX trading hours,
Bloomberg updates the applicable IOPV every 15 seconds to reflect price changes
in the principal foreign market, and converts such prices into U.S. dollars
based on the current currency exchange rate. When the foreign market is closed
but the AMEX is open, the IOPV is updated every 15 seconds to reflect changes in
currency exchange rates after the foreign market closes.
Lending Portfolio Securities. The Company may lend portfolio securities to
----------------------------
brokers, dealers and other financial institutions needing to borrow securities
to complete transactions and for other purposes. Because the government
securities or other assets that are pledged as collateral to the Company in
connection with these loans generate income, securities lending enables an Index
Fund to earn additional income that may partially offset the expenses of such
Index Fund, and thereby reduce the effect that expenses have on such Index
Fund's ability to provide investment results that substantially correspond to
the price and yield performance of its respective MSCI Index. These loans may
not exceed 33% of an Index Fund's total assets. The documentation for these
loans provide that the Index Fund will receive collateral equal to at least 105%
of the current market value of the loaned securities, as marked to market each
day on the same basis as the net asset value of the Index Fund is determined,
consisting of government securities or other assets permitted by applicable
regulations and interpretations. An Index Fund pays reasonable administrative
and custodial fees in connection with the loan of securities. The Index Fund
invests collateral in short-term investments. The Chase Manhattan Bank ("Chase")
serves as Lending Agent of the Company and, in such capacity, shares equally
with the respective Index Fund any net income earned on invested collateral. An
Index Fund's share of income from the loan collateral is included in the Index
Fund's gross investment income.
The Company will comply with the conditions for lending established by the
SEC. The SEC currently requires that the following conditions be met whenever
portfolio securities are loaned: (1) the Index Fund must receive at least 105%
collateral from the borrower; (2) the borrower must increase such collateral
whenever the market value of the securities lent rises above the level of the
collateral; (3) the Index Fund must be able to terminate the loan at any time;
(4) the Index Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Index Fund may pay only reasonable custodian
fees in connection with the loan and will pay no finder's fees; and (6) while
voting rights on the loaned securities may pass to the borrower, the Company's
Board of Directors (the "Board" or the "Directors") must terminate the loan and
regain the right to vote the securities if a material event adversely affecting
the investment occurs. Although each Index Fund will receive collateral in
connection with all loans of portfolio securities, and such collateral will be
marked to market, the Index Fund will be exposed to the risk of loss should a
borrower default on its obligation to return the borrowed securities (e.g., the
loaned securities may have appreciated beyond the value of the collateral held
by the Company). In addition, each Index Fund bears the risk of loss of any cash
collateral that it invests in short-term investments.
Repurchase Agreements. Each Index Fund may invest in repurchase agreements
---------------------
with commercial banks, brokers or dealers to generate income from its excess
cash balances and to invest securities lending cash collateral. A repurchase
agreement is an agreement under which an Index Fund acquires a money market
instrument (generally a security issued by the U.S. Government or an agency
thereof, a banker's acceptance or a certificate of deposit)
2
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from a seller, subject to resale to the seller at an agreed upon price and date
(normally, the next business day). A repurchase agreement may be considered a
loan collateralized by securities. The resale price reflects an agreed upon
interest rate effective for the period the instrument is held by an Index Fund
and is unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by an Index Fund (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by the Company's custodian bank until
repurchased. In addition, the Company's Board of Directors monitors the
Company's repurchase agreement transactions generally and has established
guidelines and standards for review of the creditworthiness of any bank, broker
or dealer counterparty to a repurchase agreement with an Index Fund. No more
than an aggregate of 15% of the Index Fund's net assets will be invested in
repurchase agreements having maturities longer than seven days and securities
subject to legal or contractual restrictions on resale, or for which there are
no readily available market quotations. An Index Fund will enter into repurchase
agreements only with Federal Reserve member banks with minimum assets of at
least $2 billion or registered securities dealers.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Company may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by an Index Fund not within the
control of the Index Fund and therefore the Index Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Company's
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
Currency Transactions. The investment policy of each Index Fund is to
---------------------
remain as fully invested as practicable in the equity securities of the relevant
market. Hence, no Index Fund expects to engage in currency transactions for the
purpose of hedging against declines in the value of the Index Fund's currency.
An Index Fund (except for the iShares MSCI USA Index Fund) may enter into
foreign currency forward and foreign currency futures contracts to facilitate
local securities settlement or to protect against currency exposure in
connection with its distributions to shareholders, but may not enter into such
contracts for speculative purposes or as a way of protecting against anticipated
adverse changes in exchange rates between foreign currencies and the U.S.
dollar.
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 currency at a specified price at a
specified future time. Futures contracts may be settled on a net cash payment
basis rather than by the sale and delivery of the underlying currency.
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, maturity gaps, interest rate risk and potential
interference by foreign governments through regulation of local exchange
markets, foreign investment, or particular transactions in foreign currency. If
the Adviser 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 an Index Fund's return with the performance of the corresponding MSCI Index
and may lower the Index Fund's return. The Index Fund could experience losses if
the values 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, each Index Fund will incur
transaction costs, including trading commissions, in connection with certain of
its foreign currency transactions.
Futures Contracts and Options. Each Index Fund may utilize futures
-----------------------------
contracts and options to the extent described in the Prospectus. Futures
contracts generally provide for the future sale by one party and purchase by
another party of a specified commodity at a specified future time and at a
specified price. Stock index futures contracts are settled by the payment by one
party to the other of a cash amount based on the difference between the level of
the stock index specified in the contract and at maturity of the contract.
Futures contracts are standardized as to maturity date and underlying commodity
and are traded on futures exchanges. At the present time, there are no liquid
futures contracts traded on most of the benchmark indices of the Index Funds. In
such circumstances an Index
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Fund may use futures contracts, and options on futures contracts, based on other
local market indices or may utilize futures contracts, and options on such
contracts, on other indices or combinations of indices that the Adviser believes
to be representative of the relevant benchmark index.
Although futures contracts (other than cash settled futures contracts
including most stock index futures contracts) by their terms call for actual
delivery or acceptance of the underlying commodity, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold," or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract position is
opened or closed.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying commodity
or payment of the cash settlement amount) if it is not terminated prior to the
specified delivery date. Relatively low initial margin requirements are
established by the futures exchanges and may be changed. Brokers may establish
deposit requirements which are higher than the exchange minimums. Futures
contracts are customarily purchased and sold on margin deposits which may range
upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Company
expects to earn interest income on its margin deposits.
Each Index Fund may use futures contracts and options thereon, together
with positions in cash and Short-Term Investments, to simulate full investment
in the underlying index. As noted above, liquid futures contracts are not
currently available for the benchmark indices of many Index Funds. In addition,
the Company is not permitted to utilize certain stock index futures under
applicable law. Under such circumstances, the Adviser may seek to utilize other
instruments that it believes to be correlated to the underlying index.
Since there are very few futures traded on the MSCI Indices, an Index Fund
may need to utilize other futures contracts or combinations thereof to simulate
the performance of its benchmark MSCI Index. This process may magnify the
"tracking error" of an Index Fund's performance compared to that of its
benchmark MSCI Index, due to the lower correlation of the selected futures with
its benchmark MSCI Index. The investment adviser will attempt to reduce this
tracking error by using futures contracts whose behavior is expected to
represent the market performance of the Index Fund's underlying securities,
although there can be no assurance that these selected futures will in fact
correlate with the performance of its benchmark MSCI Index.
Futures Transactions. Positions in futures contracts and options thereon
may be closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract or option at any specific time. Thus,
it may not be possible to close a futures or options position. In the event of
adverse price movements, an Index Fund would continue to be required to make
daily cash payments to maintain its required margin. In such situations, if an
Index 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, an Index Fund may be required to make delivery of the
instruments underlying futures contracts it holds.
An Index Fund will minimize the risk that it will be unable to close out a
futures or options contract by only entering into futures and options for which
there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies is
potentially unlimited, due both to the low margin deposits required, and the
extremely high degree of leverage involved in futures pricing. As a result, a
relatively small price movement in a futures contract may result in immediate
and substantial loss (or gain) to the investor. For example, if at the time of
purchase, 10% of the value of a futures contract is deposited as margin, a
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subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, entering into long or short futures positions may result in losses
well in excess of the amount initially paid. However, given the limited purposes
for which futures contracts are used, and the fact that steps will be taken to
eliminate the leverage of any futures positions, an Index Fund would presumably
have sustained comparable losses if, instead of the futures contracts, it had
invested in the underlying financial instrument and sold it after the decline.
Utilization of futures transactions by an Index Fund involves the risk of
imperfect or no correlation to the benchmark index where the index underlying
the futures contracts being used differs from the benchmark index. There is also
the risk of loss by the Company of margin deposits in the event of bankruptcy of
a broker with whom an Index Fund has an open position in the futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that 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. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
Restrictions on the Use of Futures Contracts and Options on Futures
Contracts. An Index Fund will not enter into futures contract transactions for
purposes other than hedging to the extent that, immediately thereafter, the sum
of its initial margin deposits on open contracts exceeds 5% of the market value
of an Index Fund's total assets. Assets committed to initial margin deposits for
futures and options on futures are held in a segregated account at the Company's
custodian bank. Each Index Fund will take steps to prevent its futures positions
from "leveraging" its portfolio. When it has a long futures position, it will
maintain in a segregated account with its custodian bank, cash or high quality
debt securities having a value equal to the purchase price of the contract (less
any margin deposited in connection with the position). When it has a short
futures position, it will maintain in a segregated account with its custodian
bank assets substantially identical to those underlying the contract or cash and
high quality debt securities (or a combination of the foregoing) having a value
equal to its obligations under the contract (less the value of any margin
deposits in connection with the position).
Federal Tax Treatment of Futures Contracts. Each Index Fund is required
for federal income tax purposes to recognize as income for each taxable year its
net unrealized gains and losses on certain futures contracts as of the end of
the year as well as those actually realized during the year. In most cases, any
gain or loss recognized with respect to the futures contract is considered to be
60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the contract. Furthermore, sales of
futures contracts which hedge against a change in the value of securities held
by an Index Fund may affect the holding period of such securities and,
consequently, the nature of the gain or loss on such securities upon
disposition. An Index Fund may be required to defer the recognition of losses on
futures contracts to the extent of any unrecognized gains on related positions
held by the Index Fund.
In order for an Index Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities or of foreign currencies or other income derived with respect to the
Index Fund's business of investing in securities. It is anticipated that any net
gain realized from the closing out of futures contracts will be considered gain
from the sale of securities and therefore will be qualifying income for purposes
of the 90% requirement.
Each Index Fund distributes to shareholders annually any net capital gains
which have been recognized for federal income tax purposes (including unrealized
gains at the end of the Index Fund's fiscal year) on futures transactions. Such
distributions are combined with distributions of capital gains realized on the
Index Fund's other investments and shareholders are advised on the nature of the
distributions.
5
<PAGE>
Future Developments. Each Index Fund may take advantage of opportunities
in the area of options, and futures contracts, options on futures contracts,
warrants, swaps and any other investments which are not presently contemplated
for use by such Index Fund or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with an Index
Fund's investment objective and legally permissible for the Index Fund. Before
entering into such transactions or making any such investment, the Index Fund
will provide appropriate disclosure.
Swap Agreements. Each Index Fund may utilize swap agreements to the extent
---------------
described in the Prospectus. Swap agreements are contracts between parties in
which one party agrees to make payments to the other party based on the change
in market value or level of a specified index or asset. In return, the other
party agrees to make payments to the first party based on the return of a
different specified index or asset. Although swap agreements entail the risk
that a party will default on its payment obligations thereunder, each Index Fund
seeks to reduce this risk by entering into agreements that involve payments no
less frequently than quarterly. The net amount of the excess, if any, of an
Index Fund's obligations over its entitlements with respect to each swap is
accrued on a daily basis and an amount of cash or high quality debt securities
having an aggregate value at least equal to the accrued excess is maintained in
a segregated account at the Company's custodian bank.
Non-U.S. Equity Portfolios. An investment in iShares involves risks
--------------------------
similar to those of investing in a broad-based portfolio of equity securities
traded on exchanges in the respective countries covered by the individual Index
Fund. 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 companies 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 an Index 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 an Index Fund; higher transaction and
custody costs; delays and risks attendant in settlement procedures; difficulties
in enforcing contractual obligations; lesser liquidity and significantly smaller
market capitalization of most non-U.S. securities markets; lesser levels of
regulation of the securities markets; more substantial government involvement in
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.
Concentrations and Lack of Diversification of Certain Index Funds. Each
-----------------------------------------------------------------
Index Fund (except for the Canada, EMU, Japan, United Kingdom and USA Index
Funds) is classified as "non-diversified" for purposes of the Investment Company
Act of 1940, which means that it is not limited by that Act with regard to the
portion of its assets that may be invested in the securities of a single issuer.
In addition, a number of Index Funds concentrate their investments in particular
industries as noted in the descriptions of each Index Fund. Each Index Fund,
however, whether diversified or non-diversified, intends to maintain the
required level of diversification and otherwise conduct its operations so as to
qualify as a "regulated investment company" for purposes of the U.S. Internal
Revenue Code, to relieve the Index Fund of any liability for federal income tax
to the extent that its earnings are distributed to shareholders. Compliance
with the diversification requirements of the U.S. Internal Revenue Code severely
limits the investment flexibility of certain Index Funds and makes it less
likely that such Index Funds will meet their investment objectives.
The stocks of a particular issuers, or of issuers in particular industries,
may dominate the benchmark index of an Index Fund and, consequently, the
investment portfolio of an Index Fund. This may adversely affect the
performance of an Index Fund or subject it to greater price volatility than that
experienced by more diversified investment companies. The iShares of an Index
Fund may be more susceptible to any single economic, political or regulatory
occurrence than the portfolio securities of an investment company that is more
broadly invested in the equity securities of the relevant market.
6
<PAGE>
Investments in Subject Equity Markets. Brief descriptions of the equity markets
- --------------------------------------
in which the respective Index Fund are invested are provided below.
The Australian Equity Markets
General Background. Trading shares has taken place in Australia since
1828, but did not become significant until the latter half of the nineteenth
century when there was strong demand for equity capital to support the growth of
mining activities. A stock market was first formed in Melbourne in 1865. In
1885, the Melbourne market became The Stock Exchange of Melbourne, in which form
it has remained until recently. Other stock exchanges were also established in
Sydney (1871), Brisbane (1884), Adelaide (1887), Hobart (1891) and Perth (1891).
In 1937, the six capital city stock exchanges established the Australian
Associated Stock Exchanges (AASE) to represent them at a national level. In
1987, the regional exchanges merged to create the single entity -- The
Australian Stock Exchange (ASX). Trading is done via a computer link-up called
"SEATS." SEATS enables all exchanges to quote uniform prices. All the exchanges
are members of the ASX and are subject to the Securities Industry Act, which
regulates the major aspects of stock exchange operations. Although there are
stock exchanges in all six states, the Melbourne and Sydney Stock Exchanges are
the major centers, covering 90% of all trades.
Reporting, Accounting and Auditing. Australian reporting, accounting and
auditing standards differ substantially from U.S. standards. In general
Australian corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Australian equity markets was approximately AUD 562.1
billion or US$ 358.2 billion.
The Austrian Equity Markets
General Background. Relative to international standards, the Vienna stock
market is small in terms of total capitalization and yearly turnover. The Vienna
Stock Exchange (VSE) is one of the oldest in the world and was founded in 1771
as a state institution to provide a market for state-issued bonds, as well as
for exchange transactions. The Stock Exchange Act of 1875 (the "Act")
established the VSE as an autonomous institution. The Act is still in force,
placing control and administration of the exchange in the hands of the
Borsekammer (Board of Governors), chosen from among the members of the exchange.
The Borsekammer consists of 25 individuals with the title of Borserat (stock
exchange councillor). Some are elected by members and some are designated by
organizations of the securities industry for a period of five years. The
councillors must be members of the exchange and they elect from amongst
themselves a President and three Vice Presidents. Shares account for about 80%
and investment fund certificates for about 20% of total listed securities on the
VSE. Business of the exchange can be transacted only by members. Almost all the
credit institutions in Vienna, some in the Austrian provinces and the joint
stock banks are represented on the stock exchange, as well as the private banks,
savings banks and other credit institutions. Certain securities which do not
have an official listing may be dealt in on the floor of the stock exchange with
permission of the management. This unlisted trading is the main activity of the
free brokers (Frei Makeler).
Reporting, Accounting and Auditing. Austrian reporting, accounting and
auditing standards differ from U.S. standards. In general, Austrian corporations
do not provide all of the disclosure required by U.S. law and accounting
practice, and such disclosure may be less timely and less frequent than that
required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Austrian equity markets was approximately EUR 31.2 billion
or US$ 32.9 billion.
The Belgian Equity Markets
General Background. The Brussels Stock Exchange (BSE) was founded by
Napoleonic decree in 1801. Since January 1, 1991 the BSE has been officially
organized as the "Societe de la Bourse de Valeurs Mobileres de Bruxelles" (SBVM)
the shareholders of which are Belgian securities houses. The law of December 4,
1990 on financial operations and markets terminated the monopoly of the
individual brokers. Now only securities houses are
7
<PAGE>
allowed to carry out stock exchange orders. Brokers, banks, brokerage firms and
insurance companies can participate in the capital of a securities house. Its
management is composed of a majority of qualified people bearing the title of
stockbroker. The Banking and Finance Commission was granted the power to approve
securities houses by this law. The Board of Directors of the SBVM, the Stock
Exchange Committee organizes and supervises the different markets and ensures
market transparency. The Stock Exchange Committee also admits or dismisses
brokerage firms and ensures compliance with all regulations. The Stock Exchange
Committee is also in charge of the admission to listing and suspension of
listing. On the Brussels Stock Exchange equities are traded on three different
markets: the Official Market, which includes a Cash and a Forward Market, the
Second Market and an "Over the Counter Market."
Reporting, Accounting and Auditing. Belgian reporting, accounting and
auditing standards differ substantially from U.S. standards. In general Belgian
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Belgian equity markets was approximately EUR 180.8 billion
or US$ 191.0 billion.
The Brazilian Equity Markets
General Background. There are nine stock exchanges in Brazil. The Rio de
Janeiro exchange, or BVRJ (Bolsa de Valores de Rio de Janeiro) is the oldest,
but is overshadowed by the Sao Paulo exchange, called Bovespa (Bolsa de Valores
de Sao Paulo), which is the largest and accounts for about 90% of trading
activity. The over-the-counter market (Mercado de Balcao) trades non-listed
equities. Government securities, corporate bonds, and money market instruments
are traded on the open market. The Bolsa Mercdorias e de Futuros (BM&F), in Sao
Paulo, is Brazil's futures exchange. It is the third largest derivatives
exchange in the world in contract volume. Options on the futures also are
traded, but are less liquid. BM&F is the clearinghouse for all transactions.
The financial market is regulated by three main bodies: the National Monetary
Council, or CMN (Conselho Monetario Nacional); the Central Bank (Banco Central
do Brasil), and the Securities Commission, or CVM (Comissao de Valores
Mobiliarios).
Reporting, Accounting And Auditing. Brazilian reporting, auditing and
accounting standards differ from U.S. standards. In general, Brazilian
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Brazilian equity markets was approximately BRL 262.7
billion or US$ 137.0 billion.
The Canadian Equity Markets
General Background. The first Canadian stock exchange appeared in the
1870s. Today, Canada is the world's fourth largest public equity market by
trading volume and the fifth largest by market capitalization. There are five
stock exchanges across Canada, located in Toronto, Montreal, Vancouver, Calgary
and Winnipeg. Of these, the Toronto Stock Exchange is the largest, accounting
for almost 80% of Canadian trading volumes. Measured by the value of shares
traded, the Toronto Stock Exchange is the second largest organized securities
exchange in North America and among the ten largest in the world.
Reporting, Accounting and Auditing. According to the SEC in one of the
proposing releases relating to the Multijurisdictional Disclosure System,
Canadian reporting, accounting and auditing practices are closer to U.S.
standards than those of any other foreign jurisdiction. Every issuer that
qualifies an offering of securities for distribution in Canada becomes subject
to periodic disclosure requirements. Authoritative accounting and auditing
standards, which are uniform across Canada, are developed by a national body,
the Canadian Institute of Chartered Accountants ("CICA"). Although promulgated
auditing standards in Canada differ from U.S. standards in some respects,
generally accepted practices in Canada routinely encompass all significant
auditing procedures required by U.S. standards. Further, CICA periodically
evaluates new auditing standards adopted by the American Institute of Certified
Public Accountants, CICA's U.S. counterpart, to determine whether similar
guidelines may be appropriate
8
<PAGE>
for Canadian auditors. Canadian GAAP are similar to their U.S. counterparts,
although there are some differences in measurement and disclosure.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Canadian markets was approximately CAD 889.8 billion or
US$ 596.3 billion.
The EMU Equity Markets
The EMU equity markets are comprised of the equity markets from the
following eleven countries who are participating in the European economic and
monetary union or "EMU": Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Portugal and Spain. The MSCI EMU is
currently comprised of companies from ten of these EMU countries (i.e., all of
the EMU countries except Luxembourg).
General Background
- ------------------
Austria. Relative to international standards, the Vienna stock market is
small in terms of total capitalization and yearly turnover. The Vienna Stock
Exchange (VSE) is one of the oldest in the world and was founded in 1771 as a
state institution to provide a market for state-issued bonds, as well as for
exchange transactions. The Stock Exchange Act of 1875 (the "Act") established
the VSE as an autonomous institution. The Act is still in force, placing control
and administration of the exchange in the hands of the Borsekammer (Board of
Governors), chosen from among the members of the exchange. The Borsekammer
consists of 25 individuals with the title of Borserat (stock exchange
councillor). Some are elected by members and some are designated by
organizations of the securities industry for a period of five years. The
councillors must be members of the exchange and they elect from amongst
themselves a President and three Vice Presidents. Shares account for about 80%
and investment fund certificates for about 20% of total listed securities on the
VSE. Business of the exchange can be transacted only by members. Almost all the
credit institutions in Vienna, some in the Austrian provinces and the joint
stock banks are represented on the stock exchange, as well as the private banks,
savings banks and other credit institutions. Certain securities which do not
have an official listing may be dealt in on the floor of the stock exchange with
permission of the management. This unlisted trading is the main activity of the
free brokers (Frei Makeler).
Belgium. The Brussels Stock Exchange (BSE) was founded by Napoleonic
decree in 1801. Since January 1, 1991 the BSE has been officially organized as
the "Societe de la Bourse de Valeurs Mobileres de Bruxelles" (SBVM) the
shareholders of which are Belgian securities houses. The law of December 4, 1990
on financial operations and markets terminated the monopoly of the individual
brokers. Now only securities houses are allowed to carry out stock exchange
orders. Brokers, banks, brokerage firms and insurance companies can participate
in the capital of a securities house. Its management is composed of a majority
of qualified people bearing the title of stockbroker. The Banking and Finance
Commission was granted the power to approve securities houses by this law. The
Board of Directors of the SBVM, the Stock Exchange Committee organizes and
supervises the different markets and ensures market transparency. The Stock
Exchange Committee also admits or dismisses brokerage firms and ensures
compliance with all regulations. The Stock Exchange Committee is also in charge
of the admission to listing and suspension of listing. On the Brussels Stock
Exchange equities are traded on three different markets: the Official Market,
which includes a Cash and a Forward Market, the Second Market and an "Over the
Counter Market."
Finland. Organized securities trading has existed in Finland since the
1860s, but it was 1912 before a formal exchange, the Helsinki Arvopaperiporssi,
was founded. Since then there have been few changes in the rules governing
trading in Finland. In October 1984, the management of the stock exchange in
Helsinki was vested in a newly formed co-operative. That form of corporation
was chosen because Finnish legislation covering cooperatives does not limit the
number of members or the amount of capital. As a result, alone among the
world's stock exchanges, the Arvopaperiporssi accepts as members all companies
listed on its trading board and business organizations in addition to the
bankers and brokers. Decision-making and administration with the organization
are vested in the annual general meeting of the co-operative, which elects the
board of administration and the board of directors to manage the daily running
of the exchange.
9
<PAGE>
The OTC List established in 1984 acquired an organized form in September
1985, when the Association of Securities Brokers approved the listing and
regulations for the information requirements of listed companies. The brokers
and brokerage firms have undertaken to act as market makers. Mainly medium-
sized companies are traded on the OTC List. The OTC Market is based on an
agreement between a company seeking access to the share market and a brokerage
firm; both are subject to certain obligations.
France. Trading of securities in France is subject to the monopoly of the
Societe de Bourse, which replaced the individual agents de change in 1991 in
order to increase the cohesion of the French equity market. All purchases or
sales of equity securities in listed companies on any one of the French
exchanges must be executed through the Societe de Bourse. There are three
different markets on which French securities may be listed: (1) the official
list (La Cote Officielle), comprised of equity securities of large French and
foreign companies and most bond issues; (2) the second market (Le Second
Marche), designed for the trading of equity securities of smaller companies; and
(3) the "Hors-Cote" Market. Securities may only be traded on the official list
and the second market after they have been admitted for the listing by the
Conseil des Bourses de Valeurs (the "CBV"). By contrast, the Hors-Cote Market
has no prerequisites to listing, and shares of otherwise unlisted companies may
be freely traded there, once they have been introduced on the market by the
Societe de Bourse. Although the Hors-Cote Market is frequently referred to as an
over-the-counter market, this term is inaccurate in that, like the official list
and the second market, it is supervised by Societes des Bourses Francaises and
regulated by the CBV.
Although there are seven stock exchanges in France (located in Paris,
Bordeaux, Lille, Lyon, Marseille, Nancy and Nantes), the Paris Stock Exchange
handles more than 95% of transactions in the country. All bonds and shares,
whether listed or unlisted, must be traded on one of the seven exchanges.
Trading in most of the Paris exchange-listed stocks takes place through the
computer order-driven trading system CAC, launched in 1988. French market
capitalization constitutes approximately 30% of the French Gross Domestic
Product. Securities are denominated in the Euro. Unless otherwise provided by a
double tax treaty, dividends on French shares are subject to a withholding tax
of 25%.
Germany. The history of Frankfurt as a financial center can be traced back
to the early Middle Ages. Frankfurt had the right to issue coins as early as
1180; the first exchange office was opened in 1402. Germany has been without a
central stock exchange, the position formerly held by the Berlin exchange, since
1945. Today there are eight independent stock exchanges, of which Dusseldorf and
Frankfurt account for over three-quarters of the total volume. Frankfurt is the
main exchange in Germany. Exchange securities are denominated in the Euro.
Equities may be traded in Germany in one of three markets: (i) the official
market, comprised of trading in shares which have been formally admitted to
official listing by the admissions committee of the relevant stock exchange,
based on disclosure in the listing application; (ii) the "semi-official"
unlisted market, comprised of trading in shares not in the official listing; and
(iii) the unofficial, over-the-counter market, which is governed by the
provisions of the Civil Code and the Merchant Code and not by the provisions of
any stock exchange. There is no stamp duty in Germany, but a nonresident capital
gains tax may apply in certain circumstances.
Ireland. The Irish Stock Exchange, founded in the 18/th/ century, is the
second oldest in the world. Previously it operated as part of the International
Stock Exchange of the United Kingdom and Republic of Ireland. On December 8,
1995, it split from the U.K. Stock Exchange to form the Irish Stock Exchange
(ISE). The new exchange is committed to maintaining standards equivalent to
those of the London Stock Exchange (LSE), subject to adjustments dictated by
Irish Law. The ISE will sign a listing protocol with the LSE, under which the
ISE will maintain equivalence with the LSE rules. Companies that were listed on
both the Dublin and London exchanges may apply for dual primary listing, under
which they will be regulated to the same standard by both exchanges. A set of
procedures has been agreed with the LSE that will streamline companies' dealing
with the two exchanges.
Italy. The regulatory structure of the Italian Stock Exchange changed
radically in February 1997, when the Italian Stock Exchange Council set up a new
private company, "Borsa Italiana Spa", which is now responsible for the
regulation, promotion and management of the Stock Exchange, the unlisted
securities market and the Italian Derivatives Market (IDEM).
In 1991, the Parliament passed legislation creating Societa de
intermediazone mobiliare (SIMs). SIMS were created to regulate brokerage
activities in the securities market and are allowed to trade on their own and
for customers' accounts.
10
<PAGE>
In November 1994, the Italian Derivatives Market (IDEM) started trading its
first exchange-listed derivatives product, the Mib 30 index futures contract
(Fib 30). In November 1995, the MIB30 Index option (MIBO30) began trading on
the IDEM. In February 1996, options were introduced on single stocks, together
with the transfer of all shares to a rolling settlement basis. In March 1998,
the MIDEX Index contract, the futures contract on the 25 Mid-Cap Stock Index,
was launched.
Access to the Italian trading system can be obtained directly through the
terminals provided to users or indirectly through users' own front office
systems (using Application Programming Interfaces). The latter allows the use
of information, analytical and trading functions developed by the users.
Italy has one of the world's largest government securities markets. At the
end of 1998, issues of treasury bills, notes and bonds outstanding totaled US
$1,300 billion.
Netherlands. Trading securities on the AEX Stock Exchange (AEX) (formerly
the Amsterdam Stock Exchange) started at the beginning of the seventeenth
century. The United East India Company was the first company in the world
financed by an issue of shares, and such issue was effected through the
exchange. The Netherlands claims the honor of having the oldest established
stock exchange in existence. In 1611 a stock market began trading in the coffee
houses along the Dam Square. A more formal establishment, the Amsterdam Stock
Exchange Association, began trading industrial stocks in 1876, and until World
War II, Amsterdam ranked after New York and London as the third most important
stock market in the world. After the war, the AEX Stock Exchange only gradually
began to resume its activities, as members felt threatened by what they saw as
an impending socialist order which would leave little of the stock market
intact. Since the end of the war, the Dutch market has remained relatively
neglected, as local companies have found it more favorable to use bank financing
to meet their capital requirements. Trading in shares on the AEX may take place
on the official market or on the parallel market, which is available to medium-
sized and smaller companies that cannot yet meet the requirements demanded for
the official market.
Portugal. EU membership marked the start of a period that has seen
dramatic growth in the scope and activity of the Portuguese stock market. The
Lisbon Stock Exchange ("LSE") is divided into three markets, each with specific
requirements regarding admission to listing and trading: (1) the official
market, which was created on July 23, 1991; (2) the second market, created in
January 1992, which is intended for trading securities that do not meet all the
requirements for admission to the official market. The main purpose of this
market is to allow access to the stock exchange for small and medium-sized
companies; and (3) the unofficial market, created on October 22, 1991, is
intended for trading securities that do not meet the requirements for the other
two markets. Securities can be admitted to this market for a limited period of
time.
In 1992, the LSE was privatized. It is now under the management of the
Lisbon Stock Exchange Association.
Futures and Options. The Oporto Derivatives Exchange was established in
June 1996, where five futures contracts are traded.
Spain. The Securities Market Act (LMV) recognizes as official secondary
markets stock exchanges, the public debt market organized by the Bank of Spain,
and futures and options markets.
Stock exchanges in Spain (Madrid, Bilbao, Barcelona and Valencia) are the
official secondary markets which trade shares and convertible bonds or those
which grant the right of purchase or subscription. Issuers of shares go to the
stock market as the primary market, where they formalize transactions or capital
increases. Fixed-income securities (both governmental and private sector debt)
are also traded on the stock market.
The organization and functioning of each stock exchange is the
responsibility of each respective governing body (Sociedad Rectora), each of
which is a limited company whose sole shareholders are the dealer-brokers and
brokers and the stock exchanges themselves. The Sociedad de Bolsa, established
by the four stock exchanges, is responsible for the technical management of the
computerized trading system, which operates at a national level.
11
<PAGE>
The Spanish futures and options markets are organized by the holding
company MEFF (Mercado Espanol de Futuros Financieros) Sociedad Holding and two
subsidiaries: MEFF Renta Variable (equities), based in Madrid, and MEFF Renta
Fija (fixed-income securities), based in Barcelona. MEFF Renta Variable manages
the trading of options and futures on the Ibex-35 stock index, and individual
options on certain shares. MEFF Renta Fija manages the trading of futures and
options on interest rates and bonds.
Bonds, Treasury bills and debt issued by other public administrations and
organizations are traded in the public debt market. These securities are also
traded at the same time on the stock market, which has a specific trading system
for them. The Bank of Spain's Book-Entry Office is responsible for this market.
Reporting, Accounting and Auditing
- ----------------------------------
Reporting, accounting and auditing standards in the nations of the EMU
differ from U.S. standards. In general, corporations in the EMU do not provide
all of the disclosure required by U.S. law and accounting practice, and such
disclosure may be less timely and less frequent than that required of U.S.
corporations.
Structure of Equity Markets
- ---------------------------
As of August 31, 1999, the total market capitalization of the combined
equity markets of Austria, Belgium, Finland, France, Germany, Ireland, Italy,
the Netherlands, Portugal and Spain was approximately US$ 4.236 trillion.
The French Equity Markets
General Background. Trading of securities in France is subject to the
monopoly of the Societe de Bourse, which replaced the individual agents de
change in 1991 in order to increase the cohesion of the French equity market.
All purchases or sales of equity securities in listed companies on any one of
the French exchanges must be executed through the Societe de Bourse. There are
three different markets on which French securities may be listed: (1) the
official list (La Cote Officielle), comprised of equity securities of large
French and foreign companies and most bond issues; (2) the second market (Le
Second Marche), designed for the trading of equity securities of smaller
companies; and (3) the "Hors-Cote" Market. Securities may only be traded on the
official list and the second market after they have been admitted for the
listing by the Conseil des Bourses de Valeurs (the "CBV"). By contrast, the
Hors-Cote Market has no prerequisites to listing, and shares of otherwise
unlisted companies may be freely traded there, once they have been introduced on
the market by the Societe de Bourse. Although the Hors-Cote Market is frequently
referred to as an over-the-counter market, this term is inaccurate in that, like
the official list and the second market, it is supervised by Societes des
Bourses Francaises and regulated by the CBV.
Although there are seven stock exchanges in France (located in Paris,
Bordeaux, Lille, Lyon, Marseille, Nancy and Nantes), the Paris Stock Exchange
handles more than 95% of transactions in the country. All bonds and shares,
whether listed or unlisted, must be traded on one of the seven exchanges.
Trading in most of the Paris exchange-listed stocks takes place through the
computer order-driven trading system CAC, launched in 1988. French market
capitalization constitutes approximately 30% of the French Gross Domestic
Product. Exchange securities are denominated in the Euro. Unless otherwise
provided by a double tax treaty, dividends on French shares are subject to a
withholding tax of 25%.
Reporting, Accounting and Auditing. Although French reporting, accounting
and auditing standards are considered rather rigorous by European standards,
they differ from U.S. standards in certain material respects. In general, French
corporations are not required to provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the French equity markets was approximately EUR 1,036.6
billion or US$ 1,095.0 billion.
The German Equity Markets
General Background. The history of Frankfurt as a financial center can be
traced back to the early Middle Ages. Frankfurt had the right to issue coins as
early as 1180; the first exchange office was opened in 1402. Germany
12
<PAGE>
has been without a central stock exchange, the position formerly held by the
Berlin exchange, since 1945. Today there are eight independent stock exchanges,
of which Dusseldorf and Frankfurt account for over three-quarters of the total
volume. Frankfurt is the main exchange in Germany. Exchange securities are
denominated in the Euro. Equities may be traded in Germany in one of three
markets: (i) the official market, comprised of trading in shares which have been
formally admitted to official listing by the admissions committee of the
relevant stock exchange, based on disclosure in the listing application; (ii)
the "semi-official" unlisted market, comprised of trading in shares not in the
official listing; and (iii) the unofficial, over-the-counter market, which is
governed by the provisions of the Civil Code and the Merchant Code and not by
the provisions of any stock exchange. There is no stamp duty in Germany, but a
nonresident capital gains tax may apply in certain circumstances.
Reporting, Accounting and Auditing. German reporting, accounting and
auditing standards differ substantially from U.S. standards. In general, German
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Germany equity markets was approximately EUR 1,123.0
billion or US$ 1,186.2 billion.
The Hong Kong Equity Markets
General Background. Trading in equity securities in Hong Kong began in
1891 with the formation of the Association of Stockbrokers, which was changed in
1914 to the Hong Kong Stock Exchange. In 1921, a second stock exchange, The Hong
Kong Stockbrokers' Association, was established. In 1947, these two exchanges
were merged under the name The Hong Kong Stock Exchange Limited. Three
additional exchanges, the Far East Exchange Limited (1969), The Kam Ngan Stock
Exchange Limited (1971) and The Kowloon Stock Exchange (1972) also commenced
trading activities. These four exchanges were unified in 1986 to form The Stock
Exchange of Hong Kong Limited (the "SEHK"). The value of the SEHK constitutes
more than 100% of Hong Kong's Gross Domestic Product. Trading on the SEHK is
conducted in the post trading method, matching buyers and sellers through public
outcry. Securities are denominated in the official unit of currency, the Hong
Kong Dollar. Foreign investment in Hong Kong is generally unrestricted. All
investors are subject to a small stamp duty and a stock exchange levy, but
capital gains are tax-exempt.
Reporting, Accounting and Auditing. Hong Kong has significantly upgraded
the required presentation of financial information in the past decade.
Nevertheless, reporting, accounting and auditing practices remain significantly
less rigorous than U.S. standards. In general, Hong Kong corporations are not
required to provide all of the disclosure required by U.S. law and accounting
practice, and such disclosure may be less timely and less frequent than that
required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Hong Kong equity markets was approximately HKD 3,555.4
billion or US$ 457.9 billion.
The Italian Equity Markets
General Background. The regulatory structure of the Italian Stock Exchange
changed radically in February 1997, when the Italian Stock Exchange Council set
up a new private company, "Borsa Italiana Spa", which is now responsible for the
regulation, promotion and management of the Stock Exchange, the unlisted
securities market and the Italian Derivatives Market (IDEM).
In 1991, the Parliament passed legislation creating Societa de
intermediazone mobiliare (SIMs). SIMS were created to regulate brokerage
activities in the securities market and are allowed to trade on their own and
for customers' accounts.
In November 1994, the Italian Derivatives Market (IDEM) started trading its
first exchange-listed derivatives product, the Mib 30 index futures contract
(Fib 30). In November 1995, the MIB30 Index option (MIBO30) began trading on
the IDEM. In February 1996, options were introduced on single stocks, together
with
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the transfer of all shares to a rolling settlement basis. In March 1998, the
MIDEX Index contract, the futures contract on the 25 Mid-Cap Stock Index, was
launched.
Access to the Italian trading system can be obtained directly through the
terminals provided to users or indirectly through users' own front office
systems (using Application Programming Interfaces). The latter allows the use
of information, analytical and trading functions developed by the users.
Italy has one of the world's largest government securities markets. At the
end of 1998, issues of treasury bills, notes and bonds outstanding totaled US
$1,300 billion.
Reporting, Accounting and Auditing. Italian reporting, accounting and
auditing practices are regulated by Italy's National Control Commission
(Consob). These practices bear some similarities to United States standards.
However, in general, Italian corporations do not provide all of the disclosure
required by US law and accounting practice, and such disclosure may be less
timely, less frequent and less consistent than that required of US corporations.
Italy is, however, moving toward more transparency: from 2000, for example, the
law will require quarterly disclosure.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Italian equity markets was approximately EUR 500.1 billion
or US$ 528.2 billion.
The Japanese Equity Markets
General Background. The Japanese stock market has a history of over 100
years beginning with the establishment of the Tokyo Stock Exchange Company Ltd.
in 1878. Stock exchanges are located in eight cities in Japan (Tokyo, Osaka,
Nagoya, Kyoto, Hiroshima, Fukuoka, Niigata and Sapporo). There is also an over-
the-counter market. There are three distinct sections on the main Japanese stock
exchanges. The First Section trades in over 1,100 of the largest and most active
stocks, which account for over 95% of total market capitalization. The Second
Section consists of over 400 issues with lower turnover than the First Section,
which are newly quoted on the exchange or which are not listed and would
otherwise be traded over-the-counter. The Third Section consists of foreign
stocks which are traded over-the-counter. The main activity of the regular
exchange members is the buying and selling of securities on the floor of an
exchange, both for their customers and for their own account. Japan is second
only to the United States in aggregate stock market capitalization. Securities
are denominated in the official unit of currency, the Japanese Yen. Takeover
activity is negligible in Tokyo, and although foreign investors play a
significant role, the trend of the market is set by the domestic investor. The
statutory at-source withholding tax is 20% on dividends. There also is a
transaction tax on share trades and a small stamp duty.
Reporting, Accounting and Auditing. Although some Japanese reporting,
accounting and auditing practices are based substantially on U.S. principles,
they are not identical to U.S. standards in some important respects,
particularly with regard to unconsolidated subsidiaries and related structures.
In general, Japanese corporations are not required to provide all of the
disclosure required by U.S. law and accounting practice, and such disclosure may
be less timely and less frequent than that required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Japanese equity markets was approximately JPY 391,436.4
billion or US$ 3,570.3 billion.
The Malaysian Equity Markets
General Background. The securities industry in Malaysia dates back to the
early 1930's. Kuala Lumpur and Singapore were a single exchange until 1973 when
they separated and the Kuala Lumpur Stock Exchange (KLSE) was formed. The KLSE
operated under a provisional set of rules until 1983 when a new Securities
Industry Act came into force. As of April 30, 1993, 320 companies were listed on
the KLSE main board. A Second Board, established in 1988, allows smaller
companies to tap additional capital. Fifty-seven companies were listed on the
Second Board as of April 30, 1993. Over the years, the KLSE's close links with
the Stock Exchange of Singapore (SES) has rendered it very vulnerable to
developments in Singapore. Consequently, the Government decided, as a matter of
national policy, on a delisting of Malaysian incorporated companies from the
SES. This was effected on January 1, 1990. A similar move was made by Singapore,
resulting in the delisting of all Singapore companies on
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the KLSE on January 1, 1990. There are two main stock indices in Malaysia. The
wider ranging KLSE Composite represents 80 companies. The New Straits Times
Industrial Index is an average of 30 industrial stocks.
Malaysian currency volatility and general economic deterioration led to the
imposition of stringent capital controls in September 1998, including a one year
prohibition on repatriation of capital and an indefinite prohibition on free
transfers of securities. The prohibition on repatriation of capital was removed
in February 1999 but the controls have adversely impacted foreign investors,
including the Index Fund, which suspended creations in response to the controls.
This adversely affected the trading market for Malaysia Index Fund iShares.
Reporting, Accounting and Auditing. Malaysian reporting, accounting and
auditing standards differ substantially from U.S. standards. In general,
Malaysian corporations do not provide all of the disclosure required by U.S. law
and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Malaysian equity markets was approximately MYR 500.6
billion or US$ 131.7 billion.
The Mexican Equity Markets
General Background. There is only one stock exchange in Mexico, the Bolsa
Mexicana de Valores (BMV), which was established in 1894 and is located in
Mexico City. The stock exchange is a private corporation whose shares are owned
solely by its authorized members and operates under the stock market laws passed
by the government. The National Banking and Securities Commission (CNV)
supervises the stock exchange. The Mexican exchange operates primarily via the
open outcry method. However, firm orders in writing can supersede this system,
provided there is a perfect match of the details of a buy and sell order.
Executions on the exchange can be done by members only. Membership of the stock
exchange is restricted to Casas de Bolsa brokerage houses and Especialistas
Bursatiles (stock exchange specialists).
Reporting, Accounting and Auditing. Mexican reporting, accounting and
auditing standards differ substantially from U.S. standards. In general, Mexican
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Mexican equity markets was approximately MXN 1,278.8
billion or US$ 136.7 billion.
The Netherlands Equity Markets
General Background. Trading securities on the AEX Stock Exchange (AEX)
(formerly the Amsterdam Stock Exchange) started at the beginning of the
seventeenth century. The United East India Company was the first company in the
world financed by an issue of shares, and such issue was effected through the
exchange. The Netherlands claims the honor of having the oldest established
stock exchange in existence. In 1611 a stock market began trading in the coffee
houses along the Dam Square. A more formal establishment, the Amsterdam Stock
Exchange Association, began trading industrial stocks in 1876, and until World
War II, Amsterdam ranked after New York and London as the third most important
stock market in the world. After the war, the AEX Stock Exchange only gradually
began to resume its activities, as members felt threatened by what they saw as
an impending socialist order which would leave little of the stock market
intact. Since the end of the war, the Dutch market has remained relatively
neglected, as local companies have found it more favorable to use bank financing
to meet their capital requirements. Trading in shares on the AEX may take place
on the official market or on the parallel market, which is available to medium-
sized and smaller companies that cannot yet meet the requirements demanded for
the official market.
Reporting, Accounting and Auditing. Dutch reporting, accounting and
auditing standards differ substantially from U.S. standards. In general, Dutch
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
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Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Dutch equity markets was approximately EUR 534.2 billion
or US$ 564.3 billion.
The Singaporean Equity Markets
General Background. The Stock Exchange of Singapore (SES) was formed in
1973 with the separation of the joint stock exchange with Malaysia, which had
been in existence since 1938. The linkage between the SES and the Kuala Lumpur
Stock Exchange (KLSE) remained strong as many companies in Singapore and
Malaysia jointly listed on both exchanges, until January 1, 1990 when the dual
listing was terminated. SES has a tiered market, with the formation of the
second securities market, SESDAQ (Stock Exchange of Singapore Dealing and
Automated Quotation System) in 1987. SESDAQ was designed to provide an avenue
for small and medium-sized companies to raise funds for expansion. In 1990, SES
introduced an over-the-counter (OTC) market known as CLOB International, to
allow investors access to international securities listed on foreign exchanges.
SES also has a direct link with the National Association of Securities Dealers
Automated Quotation (NASDAQ) system, which was set up in March 1988 to allow
traders in the Asian time zone access to selected securities on the U.S. OTC
markets. This is made possible through a daily exchange of trading prices and
volumes of the stocks quoted on NASDAQ. The Singapore Stock Exchange is one of
the most developed in Asia and has a strong international orientation.
Reporting, Accounting and Auditing. Singaporean reporting, accounting and
auditing standards differ substantially from U.S. standards. In general,
Singaporean corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Singaporean markets was approximately SGD 269.4 billion or
US$ 159.9 billion.
The South African Equity Markets
General Background. The Johannesburg Stock Exchange (JSE), established in
1887, is the only stock exchange in South Africa. Its major traded shares have
been mining and gold stocks, such as De Beers and the Anglo American Corporation
of South Africa. The minerals-related sectors still account for 14% of the
market's capitalization, although there are now many other important sectors
including banking, insurance, industrials and leisure. The market
capitalization of the JSE has grown enormously from ZAR 13.3 billion in 1970 to
approximately ZAR 1022.0 billion in 1995.
Reporting, Accounting and Auditing. South African reporting, accounting
and auditing standards differ substantially from U.S. standards. In general,
South African corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Structure of Equity Markets. As of August 31, 1999, the total market
capitalization of the South African equity markets was approximately ZAR 1,298.3
billion or US$ 213.5 billion.
The South Korean Equity Markets
General Background. After the formation of South Korea in 1948, the
government issued Farmland Compensation Bonds to landowners in exchange for
their farmland, and Kunkuk Bonds to cover their financial debt. The Daehan
Stock Exchange was established in 1956 to enable trading of these bonds. The
South Korea Stock Exchange was established several years later. The government
enacted the Securities and Exchange Law in January 1962 as part of the First
Five Year Economic Plan. The law was intended to help South Korean companies
arrange funds for economic development by using the stock market. Within a year
the market boomed and crashed.
The Securities and Exchange Law was amended in April 1962 to impose
stricter regulatory measures on the operation of the securities market. The
stock exchange became a non-profit, government-owned corporation
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called the South Korea Stock Exchange. However, the securities market was unable
to overcome the aftermath of the crash and entered a period of inactivity.
In 1967, as part of the Second Five Year Economic Plan, the government
encouraged the public to invest in the stock market by increasing the number of
listed companies and the acceptability of equity shares. Tax advantages were
given to companies that went public. Further legislation was passed in 1972 to
encourage share flotation in the belief that corporations would reduce their
high financing costs by converting bank loans into share capital.
As a result of these market measures, the number of listed companies
started to increase. The Securities and Exchange Commission and its executive
body, the Securities Supervisory Board, were established to strengthen investor
protection.
The South Korea Securities Settlement Corporation, since renamed the South
Korea Depository Corporation (KSD), was set up in 1974 to act as the clearing
agent for the stock exchange and as the central depository. In 1977, the South
Korea Securities Computer Corporation was established as an electronic data
processing center for the securities industry to enable members to transmit
orders directly to the trading floor.
In 1981, the government announced its long-term plans for opening the South
Korean securities market to foreigners. International investment trusts were
established and the South Korea Fund and the South Korea Europe Fund were
incorporated overseas. In 1985, the government began to allow some domestic
corporations to issue convertible bonds, bonds with warrants and depository
receipts overseas. The government also eased controls to allow domestic
institutional investors to invest in foreign securities. In December 1988, a
new, detailed plan was put forward for the internationalization of the capital
market from 1989 to 1992. A more open capital market was proposed to improve the
financial structure of domestic firms and to strengthen their international
competitiveness. The firms would be given access to an expanded and revitalized
domestic capital market and cheaper sources of financing in the international
markets. The stock market began to be opened to foreign investors in January
1992.
Reporting, Accounting and Auditing. South Korean reporting, accounting and
auditing standards differ substantially from U.S. standards. In general, South
Korean corporations do not provide all of the disclosure required by U.S. law
and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Structure of Equity Markets. As of August 31, 1999, the total market
capitalization of the South Korean equity markets was approximately KRW
280,229.5 billion or US$ 237.4 billion.
The Spanish Equity Markets
General Background. The Securities Market Act (LMV) recognizes the
following as official secondary markets:
. stock exchanges;
. the public debt market organized by the Bank of Spain; and
. futures and options markets.
Stock exchanges in Spain (Madrid, Bilbao, Barcelona and Valencia) are the
official secondary markets which trade shares and convertible bonds or those
which grant the right of purchase or subscription. Issuers of shares go to the
stock market as the primary market, where they formalize transactions or capital
increases. Fixed-income securities (both governmental and private sector debt)
are also traded on the stock market.
The organization and functioning of each stock exchange is the
responsibility of each respective governing body (Sociedad Rectora), each of
which is a limited company whose sole shareholders are the dealer-brokers and
brokers and the stock exchanges themselves. The Sociedad de Bolsa, established
by the four stock exchanges, is responsible for the technical management of the
computerized trading system, which operates at a national level. Under the LMV,
the National Securities Market Commission (CNMV) is responsible for supervising
and inspecting the securities markets as well as the activity of all individuals
and companies who deal with the markets. It has the power to punish and other
functions.
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These Spanish futures and options markets are organized by the holding
company MEFF (Mercado Espanol de Futuros Financieros) Sociedad Holding and two
subsidiaries: MEFF Renta Variable (equities), based in Madrid, and MEFF Renta
Fija (fixed-income securities), based in Barcelona. MEFF Renta Variable manages
the trading of options and futures on the Ibex-35 stock index, and individual
options on certain shares. MEFF Renta Fija manages the trading of futures and
options on interest rates and bonds.
Bonds, Treasury bills and debt issued by other public administrations and
organizations are traded in the public debt market. These securities are also
traded at the same time on the stock market, which has a specific trading system
for them. The Bank of Spain's Book-Entry Office is responsible for supervising
the public debt market.
Reporting, Accounting and Auditing. Spanish reporting, accounting and
auditing standards differ substantially from US standards. In general, Spanish
corporations do not provide all of the disclosure required by US law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of US corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Spanish equity markets was approximately EUR 298.1 billion
or US$ 314.9 billion.
The Swedish Equity Markets
General Background. Organized trading of securities in Sweden can be traced
back to 1776. Although the Stockholm Stock Exchange was founded in 1864, the
real formation of a stock exchange in an international sense took place in 1901.
The statutes of the Stock Exchange were modified in 1906 and, from the beginning
of 1907, commercial banks were admitted as members. During the 1970s, the
Stockholm market had low turnover and dull trading conditions. The market
started to climb in 1980 and for several years Stockholm was one of the best
performing stock markets, in terms of both price and volume growth. This
regeneration of a market for risk capital was reflected in the large number of
companies introduced in the early 1980s. The Stockholm Stock Exchange is
structured on a membership basis, under the supervision of the Bank Inspection
Board. The Board consists of 11 directors and one chief executive. The directors
of the Board are elected by the Swedish government, the Association of the
Swedish Chamber of Commerce, the Federation of Swedish Industries and the member
companies of the Stock Exchange. There are three different markets for trading
shares in Sweden. The dominant market is the A-1 list, for the largest and most
heavily traded companies. The second market is the over-the-counter market,
which is more loosely regulated than the official market and caters to small-
and medium-sized companies. The third market is the unofficial parallel market,
which deals in unlisted shares, both on and off the exchange floor. The shares
most frequently traded on this market are those which have been de-listed from
other markets and those that are only occasionally available for trading.
On July 1, 1999, the Stockholm Stock Exchange and OM Stockholm merged to
create the OM Stockholm Exchange - OM Stockholmsborsen AB. In addition, the
Stockholm Stock Exchange and the Copenhagen Stock Exchange have signed an
agreement covering a common Nordic securities market, NOREX.
There are also two independent markets for options - the Swedish Options
Market (OM) and the Swedish Options and Futures Exchange (SOFE), which offer
calls, puts and forwards on Swedish stocks and stock market indices.
Reporting, Accounting and Auditing. Swedish reporting, accounting and
auditing standards differ substantially from US standards. In general, Swedish
corporations do not provide all of the disclosure required by US law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of US corporations. The basic concepts used are historical
cost, going concern, accrual basis, consistency and prudence.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Swedish equity markets was approximately SEK 2,219.0
billion or US$ 268.7 billion.
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The Swiss Equity Markets
General Background. There are three principal stock exchanges in
Switzerland, the largest of which is Zurich, followed by Geneva and Basle. The
Geneva exchange is the oldest and was formally organized in 1850. The Basle and
the Zurich exchanges were founded in 1876 and 1877, respectively. The Geneva
Exchange is a corporation under public law and in Zurich and Basle the exchanges
are institutions under public law. There are three different market segments
for the trading of equities in Switzerland. The first is the official market,
the second is the semi-official market, and the third is the unofficial market.
On the official market, trading takes place among members of the exchange on the
official trading floors. Trading in the semi-official market also takes place
on the floors of the exchanges, but this market has traditionally been reserved
for smaller companies not yet officially accepted on the exchange. Unofficial
market trading is conducted by members and non-members alike. Typical trading
on this market involves shares with small turnover. Both listed and unlisted
securities can, however, be traded on this market.
Since July 1998, SWX has provided facilities for electronic trading in
Eurobonds. Repo SWX, the first electronic market for repos with integrated
clearing and settlement, was inaugurated in June 1999. In addition, SWX
launched a new market segment for emerging-growth companies in July 1999, under
the name SWX New Market. Eurex, the first trans-national derivatives market, is
a co-operative venture between the SWX Swiss Exchange and Deutsche Borse Ag,
each of which holds a 50% stake. Eurex is the largest derivative exchange in
the world.
Reporting, Accounting and Auditing. Swiss reporting, accounting and
auditing standards differ substantially from US standards. In general, Swiss
corporations do not provide all of the disclosure required by US law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of US corporations.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the Swiss equity markets was approximately CHF 978.6 billion
or US$ 645.9 billion.
The Taiwanese Equity Markets
General Background. The Taiwan Stock Exchange, in Taipei, is the only stock
exchange in Taiwan. Its roots can be traced to the Land Reform Movement of 1953.
The government bought tracts of land from large landowners and paid for them
with bonds and shares in government-owned companies. The need to trade those
shares and bonds gradually bred the formation of a fledging over-the-counter
market. As the economy prospered, the importance of a securities market was
recognized. The government established the Securities Market Research Committee
to study the feasibility of a formal stock market. Consequently, the Securities
and Exchange Commission (SEC) was established on September 1, 1960, as a
department of the Ministry of Finance. The Taiwan Stock Exchange (TSE) was
founded a year later and officially commenced operation in February 1962.
In the exchange's first year, there were 18 listed companies with an
average trading volume of TWD 1,647,760. By 1963, there were 23 listed
companies; by 1980, there were 100. Listings steadily increased and the market
remained stable for several years. Since then, the number of brokerage firms
has multiplied and limitations on foreign investors have recently been relaxed.
Reporting, Accounting and Auditing. Taiwanese reporting, accounting and
auditing standards differ substantially from US standards. In general,
Taiwanese corporations do not provide all of the disclosure required by US law
and accounting practice, and such disclosure may be less timely and less
frequent than that required of US corporations.
Structure of Equity Markets. As of August 31, 1999, the total market
capitalization of the Taiwanese equity markets was approximately TWD 10,393.1
billion or US$ 326.4 billion.
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The United Kingdom Equity Markets
General Background. The UK is Europe's largest equity market in terms of
aggregate market capitalization. Trading is fully computerized under the SETS
System for FTSE- 100 (and 83 other) stocks and the Stock Exchange Automated
Quotation System (SEAQ) operates for international equities. The London Stock
Exchange exists alongside Tradepoint, while there is also a network of regional
offices. The London Stock Exchange has the largest volume of trading in
international equities in the world.
Reporting, Accounting and Auditing. Despite having a great deal of common
purpose and common concepts, the accounting principles in the UK and the US can
lead to markedly different financial statements. In the global market for
capital, investors may want to know about a company's results and financial
position under their own principles. This is particularly so in the US capital
markets. The overriding requirement for a UK company's financial statements is
that they give a 'true and fair' view. Accounting standards are an authoritative
source as to what is and is not a true and fair view, but do not define it
unequivocally. Ad hoc adaptations to specific circumstances may be required. In
the US, financial statements are more conformed because they must be prepared in
accordance with GAAP.
Size of Equity Markets. As of August 31, 1999, the total market
capitalization of the United Kingdom equity markets was approximately GBP
1,637.1 billion or US$ 2,632.4 billion.
Regional and Country-Specific Economic Considerations.
- ------------------------------------------------------
Europe. In 1986, the member states of the European Union (the "Member
States") signed the "Single European Act," an agreement to establish a free
market. The development of a unified common European market has promoted the
free flow of goods and services; however, since September 1992, Europe's
monetary policy has been affected by fluctuating currencies. Additionally,
1993's tight monetary policies and high inflation caused Europe's economies to
ebb into recession.
The Maastricht Treaty on economic and monetary union (the "EMU") is
intended to provide its members with a stable monetary framework. The prospect
of EMU has triggered a sharp convergence of interest rates across Europe, with
risk premium over the German interest rates levels having decreased. Adding to
the favorable monetary conditions, the monetary easing experienced by core
countries has triggered a strong depreciation of their currencies. Consequently,
European activity has accelerated again in 1997.
On January 1, 1999, the third and final stage of EMU began with the
establishment of a currency union encompassing 11 of the 15 Member States of the
European Union (EU) - Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Portugal, and Spain. On that date, these
countries locked their exchange rates and adopted the euro as their common
currency, with monetary and exchange rate policy determined by area-wide
institutions. Thus, each country will give up the possibility of independent
monetary and exchange rate policy.
EMU does not change the locus of responsibility for policies other than
monetary and exchange rate policies. Policies affecting external trade and the
integration of internal markets were already a matter of EU competence. Fiscal
and labor market policies will continue to be decided mostly at the national
level, albeit subject to closer surveillance by EU institutions. The Stability
and Growth Pact (SGP), agreed in June 1997, set out the procedures for
surveillance of national fiscal policies, strengthening the framework provided
in the Maastricht Treaty. Also, the Treaty of Amsterdam, signed in October 1997,
explicitly recognized labor market policies as a matter of common concern and
set out procedures for their surveillance. Except for monetary and exchange rate
policies, area-wide decision making and surveillance are the responsibility of
institutions of the EU as a whole. It has been agreed that ministers of euro-
area countries can meet (as the Euro-11 Group), to discuss issues related to the
single currency, but that formal surveillance and coordination decisions will be
the prerogative of the full EU Council of Ministers (ECOFIN). The prospective
euro-area rivals the United States in terms of output and trade. The delineation
of monetary, fiscal, and structural policy responsibility between the euro-area
institutions and national governments helps assign responsibility for these
policies, but also complicates their coordination.
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Austria. Following three years of acceleration, culminating in 3.3% GDP
growth in 1998, economic activity in Austria decelerated sharply in late 1998
and early 1999. The main culprit for the slowdown was the Russian crisis (which
hit Austria's exports to Central and Eastern Europe) and the generalized slowing
of growth in the euro area. However, there was a turnaround in foreign demand
and a continuation of solid consumer-spending growth in late 1999.
Consumer price inflation troughed at 0.2% year on year in April 1999,
following a deceleration from 1.2% a year earlier, because of falling oil
prices. The recovery in oil prices and the depreciation of the euro since the
start of the year led to a moderate acceleration in price increases, to 0.6% in
August 1999. Meanwhile, short-term interest rates declined from 3.7% in 1997 to
3.2% in 1998 and long-term interest rates fell from 5.5% in 1997 to 3.8% in
1998.
The general government deficit was 2.1% of GDP in 1998 and 1.9% of GDP in
1997. Tax cuts for low- and middle-income households planned for 2000 may mean
that the deficit could come dangerously close to the 3% Maastricht threshold.
Thus, one of the first tasks of the new government will be to prevent the
deficit from surpassing that level.
Belgium. Belgium joined the European Monetary Union on May 1, 1998.
Belgium shows a high degree of economic openness. It is therefore
extremely sensitive to economic developments abroad and, in particular, to those
occurring in the EMU, as activity in Belgium fluctuates almost exactly in line
with that of the euro area. The latest economic developments are no exception in
that respect. Thus, in 1998, along with the rest of the euro area, Belgium faced
a general slowdown of activity. Output growth slowed from a healthy 4% pace at
the beginning of the year to a sluggish 1.6% by the fourth quarter. During the
first two quarters of 1999, activity remained somewhat subdued, as output grew
by 1.6% to1.7%. Since late 1998, general economic sentiment, as measured by the
National Bank of Belgium, has been improving. Similarly, manufacturers have
completely recovered from their recent sluggishness.
The Belgian unemployment rate typically is lower than the rest of the EMU.
But that gap shrunk significantly in 1997 and 1998 and now amounts to less than
one percent. Total employment growth has remained strong and the unemployment
rate was below 9% in fall 1999.
Belgian consumers' prices rose by 0.9% in August and by 1.3% in September
against an average of 1.2% and 1.3%, respectively, in the euro area.
After some hard times, Belgian public finances have greatly improved. The
public sector borrowing requirement has been curbed from roughly 8% of GDP in
1992 to about 1% in 1998. Similarly, the primary surplus has risen from 3.0% of
GDP to 6.7%. Public debt has fallen from almost 128% of GDP in 1992 to 116% in
1998. The recovery of public finances is such that despite lower GDP growth,
the budget ministry decided, in last spring's budget review, to carry on with
its six-year program to cut permanently employers' social security contributions
and reduce labor costs by some 6%.
General elections were held on June 13, resulting in an historic shift of
power: Jean-Luc Dehaene's Christian Democrats lost the majority in the lower
house to Liberals for the first time in history. Now, Guy Verhofstadt's 'blue-
red-green' coalition made of French-and-Dutch speaking Liberals, Socialists and
Greens - the latter in a coalition for the first time - faces the task of
restoring public confidence after a series of political scandals.
France. Following a slowdown last winter, growth re-accelerated in the
second quarter of 1999. Since then, manufacturing companies have become
increasingly optimistic about trends in aggregate demand and their own
production plans. In September, they signaled that output prices should cease
declining for the first time since early 1996. On the demand side, retail sales
jumped sharply during the summer months, led by booming durable goods sales.
Employment growth remained surprisingly robust during the winter slowdown,
due to a buoyant services sector, in which new companies, having benefitted from
the deregulation of former state monopolies (such as telecoms, public utilities
and media) are doing well. On the other hand, French companies have kept wage
rates
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steady (up 1.5% year on year in the second quarter of 1999) in order to mitigate
the rise in labor costs that might result from the reduction of working hours
next year.
At 0.5% on average for 1999, French inflation is among the lowest in
Europe. On top of very slow wage growth, deregulation is taking its toll on
retail prices every month, largely offsetting cyclical forces.
The budget was slightly expansionary in 1999, as civil servants benefitted
from pay raises based on inflation forecasts that proved to be too high. The
2000 budget signals a return to orthodoxy.
The first two years of the government's five-year term were favorable for
corporate France, despite the rise of the corporate tax rate to 40% in 1997.
Large-scale privatization took place (France Telecom, Air France, Aerospatiale,
Credit Lyonnais, among others) and French companies, which had been hurt by
years of high real interest rates, fully reaped the benefits of EMU and its
generous monetary policy. Despite promises, it is unclear whether the corporate
tax rate will be cut next year. The pending reduction of the working week will
make business more costly and more complicated for medium-sized companies
(smaller companies will be hit only in 2001). Finally, the government is
planning to make restructuring more costly and short-term labor contracts (used
to encourage labor flexibility) more expensive for companies.
Germany. Germany, the third largest economy in the world, has faced
substantial economic and political challenges in the wake of reunification
between West and East Germany. Previously-communist eastern Germany, which had
been largely insulated from international competition, saw most of its capital
stock become obsolete after the reunification. Transforming eastern Germany
into a modern market economy has been more difficult and costly than anticipated
initially.
According to new measures of national accounts data, unified Germany's
economic growth in the period 1991-98 was worse than previously thought. For
instance, GDP rose by only 2.2% in 1998, when measured according to the new
standards, as compared to 2.8% under the old measure. Since Germany's 1993
recession, annual GDP growth has averaged only 1.8% according to the new
standards. An export-led, sharp deceleration of growth in the second half of
1998 resulted from the global recession, which meant that the German economy
started 1999 on a weak footing.
The Bundesbank no longer conducts an independent monetary policy, as it
surrendered its monetary policy-making ability to the European Central Bank in
1999. The German government recently introduced a reform package consisting of
reductions in personal and corporate income tax spending cuts. A corporate tax
reform will reduce the overall tax rate on German corporate profits to 35% by
2001, from more than 56% currently.
Italy. Italy's economic strength lies in manufacturing, mainly through
networks of small and medium-sized companies, producing in particular machine
tools and consumer goods. Two key service sectors are tourism and the rapidly
expanding telecom industry. In the early 1990's, industry began to struggle to
compete as a result of wage increases and a restrictive exchange rate policy
designed to put an 'external bound' on the inflation rate. But in September
1992, the lira collapsed and was forced to leave the Exchange Rate Mechanism
(ERM). The lira recovered in 1996 and returned to the ERM by the end of that
year.
The Italian economy has been characterized in recent years by the attempt
to reduce the significant public deficit, and reverse the dynamic of the public
debt, which reached a peak in 1995 at 125% of GDP. These efforts were
particularly strong in 1996 and 1997, in the run up to the European Monetary
Union, to comply with the Maastricht rules. The attempt was successful: the
public deficit was lowered to 2.7% of GDP in 1997 from 11%, which allowed Italy
to joint EMU from its inception. Restrictive budget measures were, however,
mainly responsible for the poor performance of the Italian economy in the 1990s
(the economy grew by 1.3% on average in 1990-1998).
The Italian unemployment rate is high (11.8%), although reforms in 1997
eased the rigidity in the labor market. As a consequence, a healthy increase in
employment has taken place since the beginning of 1998 (more than 1% yearly),
driven mostly by the development of part-time and short-term contracts.
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In 1992, Italy began a privatisation program by transferring major state
holdings to joint stock companies as an intermediate step to total or, at least
partial, floatation of those holdings on the stock exchange. Since then, Italy
has performed one of the world's largest privatization programs and is still
proceeding.
Currently, after having reached the much-desired EMU target and having
consolidated its public finances, the aim of the government is to rekindle with
growth, while pursuing a systematic and continued reduction of the public debt.
The Netherlands. The economic performance of the Netherlands, the fifth
largest economy in the European Union, has grown impressively in the past
decade. Emerging from a deep recession in the 1980s, the Netherlands' economy
has become one of the fastest growing in Europe and the pace at which new jobs
are generated is close to that of the United States.
In the first half of 1999, the Dutch economy expanded by about 3% over the
same period in 1998. GDP grew 0.7% in the first quarter of 1999 and by 0.8% in
the second quarter, which was more than twice the expected rate. The
unemployment rate is at 3.2% of the labor force. Despite a tight labor market,
collective wage agreements entered into this year have provided for relatively
moderate pay rises only.
The Dutch government has announced plans to bring the budget into surplus
in 2001, which would be the first surplus since 1974. Stronger-than-expected
growth created leeway to cut taxes and trim the budget deficit. The Dutch
government has also presented a comprehensive tax reform to be implemented in
2001, which would reduce the top income tax rate from 60% to 52% and the lowest
income tax rate from 36.5% to 20%. At the same time, the VAT will be raised by
1.5 %, to 19%. The tax reform is estimated to result in a net tax relief of NLG
5 billion (0.7% of GDP), with low income earners being the main beneficiaries.
In addition, the Dutch government has announced plans to cut the corporate tax
rate from 35% to 30%.
Spain. Spain's entry into the European Community in 1986 was followed by a
period of rapid economic growth and sharp restructuring. Strong growth did not
continue, however, and the government's restrictive monetary policy and the
overvalued peseta contributed to a downturn in investment, along with a rise in
unemployment, in the early 1990s. Despite the devaluation of the peseta and the
easing of monetary policy in 1993, Spain slipped into its worst recession in 30
years. Economic growth has recovered since then, averaging 3.0% from 1994 to
1998. The center-right government elected in 1996 has displayed a strong
ability to control public spending through structural reforms. In 1997, Spain
was able to fulfill all the Maastricht criteria and was among the eleven
participants in the European Monetary Union, which started at the beginning of
1999.
The Spanish unemployment rate is currently the highest in the European
Union, and unemployment is the main economic problem in Spain. In 1994 and
again in 1997, reforms in the labor market were undertaken, mainly to ease the
rigid regulations that govern permanent job contracts. The recent strong
economic growth and new reforms to improve the flexibility of the labor market
have decreased the rate of unemployment from 25% in 1994 to 16% in 1999.
Currently, the government faces the challenges of addressing the domestic
concerns of controlling inflation, at 2.4% yearly in August 1999, which was more
than one percentage point above the EMU average, and consolidating the
improvements in the labor market.
Sweden. Sweden has a highly developed and successful industrial sector.
The chief industries, most of which are privately owned, include textiles,
furniture, electronics, dairy, metals, ship building, clothing, engineering,
chemicals, food processing, fishing, paper, oil and gas, automobiles and
shipping. Productivity, as measured by GDP per capita, is well above the
European average, although two-thirds of GDP passes through the public sector.
Successive governments have traditionally afforded Swedes generous benefits
for unemployment, sick leave, childcare and general public welfare, along with
state medical care. This extensive social welfare system has become
unsustainable in recent years, notably when the economy slowed down
significantly in the early 1990s, which caused large government deficits. Almost
half of the personal disposable income received by Swedes resulted from transfer
payments, a system for redistributing income. Since then, a massive turnaround
in public
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finances has occurred thanks to years of fiscal restraint and an increase in
economic growth. The Swedish government has announced that it plans to cut taxes
within the next five years.
The Swedish economy has weathered an export slowdown, due mostly to the
currency depreciation of the third quarter of 1999. Further, the repo rate was
cut 1.45% between October 1998 and March 1999.
The Swedish central bank, the Riksbank, has a two-year forward inflation
target of 1.0% to 3.0%. The upside surprises on growth and the looming tax cuts
were not factored in the last inflation report, when two-years forward inflation
was foreseen to remain at 2.0%. Indeed, the Riksbank has repeatedly warned that
tax cuts boosting consumer spending may lead to an overexpansion of the economy.
Switzerland. Due to its lack of raw materials, Switzerland has based its
economic growth on its highly skilled labor market and technological
manufacturing expertise. Switzerland's strengths lie in chemicals and
pharmaceuticals, watches, precision instruments (machinery equipment),
engineering, food, financial services and tourism. Additionally, its small
domestic market's reliance on exports accounted for 36% of the GDP in 1994. It
therefore suffered significantly from the world trade slowdown of the second
half of 1998.
While the Swiss official unemployment rate fell to 2.5% in July 1999, the
underlying rate was 4.6%, i.e. above official estimates, which range between 2%
and 2.5%.
The VAT hike (from 6.5% to 7.5% on Jan 1st 1999), a tobacco tax increase
and oil prices have all pushed inflation away from deflationary readings since
early 1999, up to 0.9% for the year from August 1998 to August 1999.
The United Kingdom. The UK is a large, open economy with total exports
accounting for approximately 30% of GDP. The service sector's share in total
GDP has been on an upward trend and now stands at about two-thirds of overall
activity, as the UK has particularly strong business and financial services
sector. By contrast, the manufacturing sector's share in GDP has been declining
and is now estimated at just over 20%. The Bank of England was made independent
in May 1997 and conducts interest rate policy consistent with reaching an
inflation target (set by the government) two years hence.
Economic growth was slow throughout most of 1998 and early 1999. Last
year's slowdown in large part reflected a sharp deterioration in the net trade
position, prompted by continued currency strength and a weakening in world trade
and global economic growth. Net trade in 1998 fell by more than 2%.
Manufacturing output slowed accordingly, exhibiting growth of only 0.4% during
1998. The sector was in technical recession in the fourth quarter of 1998, but
contributed positively to output growth for the first time in a year by the
second quarter of 1999. The service sector meanwhile grew by 3.7% in 1998,
supported by robust activity across the range of sub-sectors, particularly
within business and financial services.
Strength in the service sector has to some extent been reflected within the
expenditure components of GDP, where domestic demand remained resilient,
expanding by 4.1% in 1998. Of this, just over 2% was household spending, while
total fixed investment contributed a further 1.5%. Household spending expanded
by an annualized rate of 5.5% during the first half of 1999. A sharp
(Pounds)1.8bn de-stocking weighed on total domestic demand during the second
quarter of 1999, but the underlying picture is very robust. Excluding stocks,
total demand expanded by 4.4% in the year from the second quarter of 1998 to the
second quarter of 1999.
Household spending growth has been underpinned by a strong labor market.
Manufacturing employment has fallen by some 5% since early 1998, but total
employment has risen by more than 0.5% over the same period. The labor market
has proved tighter than previously assumed. Declines in claimant count
unemployment have continued, while vacancies have remained high. Thus far,
inflation pressures have been subdued. The retail prices index excluding
mortgage interest payments (RPIX) - the government's target measure - stood at
3.2% in the year to May 1998, but fell to just 2.1% by August. This is explained
by goods price inflation, which eased from over 2% in early 1998 to a series-low
of 0.5% in August 1999. This in turn reflects sterling's persistent strength,
which has dragged import prices lower. From a peak of 7.5% in June 1998, the
Bank of England started lowering interest rates in October, because of perceived
undershooting of its inflation target. Rates bottomed at 5% in June 1999. But
with
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upside risks to the RPIX target gathering momentum, the Bank has started a
tightening cycle, raising interest rates to 5.25% in September 1999.
Real GDP Annual Rate of Growth (annual % change)
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
Austria 0.5 2.4 1.7 2.0 2.5 3.3
Belgium -1.5 2.6 2.3 1.3 3.0 3.0
France -1.3 2.8 2.1 1.6 2.3 3.2
Germany -1.1 2.4 1.8 0.8 1.8 2.3
Italy -0.9 2.2 2.9 0.9 1.5 1.3
Netherlands 0.8 3.2 2.3 3.1 3.6 3.8
Spain -1.2 2.1 2.9 2.4 3.7 4.0
Sweden -2.2 3.9 3.7 1.3 1.8 2.6
Switzerland -0.5 0.5 0.5 0.3 1.7 2.1
United Kingdom 2.3 4.4 2.8 2.6 3.5 2.2
Source: World Economic Outlook, October 1999 (International
Monetary Fund)
Japan, the Pacific Basin, and Southeast Asia. Many Asian countries may be
subject to a greater degree of social, political and economic instability than
is the case in the United States and Western European countries. Such
instability may result from (i) authoritarian governments or military
involvement in political and economic decision-making; (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 economies of most of the Asian countries continue to depend heavily
upon international trade and, accordingly, are affected by protective trade
barriers and the economic conditions of their trading partners, principally the
United States, Japan, China and the European Community. The enactment by the
United States or other principal trading partners of protectionist trade
legislation, along with the reduction of foreign investment in the local
economies and a general decline in the international securities markets, could
have a significant adverse effect upon the economies and securities markets of
the Asian countries.
The success of market reforms and a surge in infrastructure spending have
fueled rapid growth in many developing Asian countries. Rapidly rising household
incomes have fostered large middle classes and new waves of consumer spending.
The increases in infrastructure spending and consumer spending have made
domestic demand the growth engine for these countries. Thus, their growth now
depends less upon exports. While exports may no longer be the sole source of
growth for these developing economies, improved competitiveness in export
markets has contributed to growth in many of these nations. The increased
productivity of many Asian countries has enabled them to achieve, or continue,
their status as top exporters while improving their national living standards.
In the fourth quarter 1997, the Southeast Asian currency markets came under
severe selling pressure from abroad, as foreign investors and speculators alike
have heavily sold regional currencies viewed to be overvalued. The Thai Baht was
the first to come under pressure, but Indonesian, Malaysian, Phillipine,
Singaporean, Taiwanese, South Korean and Hong Kong currencies have all been
affected. Equity and fixed income markets have also faced selling pressure as
foreign investors have been concerned with the overall financial prospects of
the region.
Among the countries at the center of the Asian crisis, Korea and Thailand
have made encouraging advances toward restoring confidence and initiating
recovery, although their turnarounds remain at risk, including from the external
environment. The situation in Indonesia, however, remains very difficult.
Malaysia has resorted to external payments controls in an effort to insulate its
economy from the regional crisis. In Japan, despite substantial fiscal stimulus
and new initiatives to deal with banking sector problems, significant downside
risks remain. Growth in China appears to be slowing, and both the renminbi and
the Hong Kong dollar have been under considerable pressure.
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Australia. After a period of high growth in 1998 and early 1999, the
Australian economy began to show signs of slowing in the second quarter of 1999.
Private investment growth slowed to just 2.2% (annualized) in the first half of
1999, down from an average rate of approximately 9% in 1998. Consumer demand,
which fueled the economy through 1998, has remained reasonably strong. But
demand for some goods, such as autos and white goods, has been distorted by the
phasing-in of several tax reforms (the addition of a goods and services tax and
abolition of a wholesale sales tax). Meanwhile, inflation has been relatively
low. In the second quarter of 1999, Australia's consumer prices were up just
1.1% from a year earlier. The most recent national budget featured a surplus of
A$5.4 billion, or about 0.9% of GDP.
The Government, headed by John Howard, was reelected in October 1998 with a
mandate to overhaul Australia's tax system. After the implementation of goods
and services and personal income taxes, business tax reform is the next major
item it intends to push through the legislature. The Howard Government holds 80
of 148 seats in the Lower House and 35 out of 76 seats in the Senate. The next
general election is due by December 2001.
Hong Kong. The transfer of sovereignty from Britain to China, which has
created a sense of uncertainty in Hong Kong's economy, has largely been a smooth
transition. Under the principle of "one country, two systems," Hong Kong is now
a special administrative region (SAR) of the People's Republic of China and is
empowered with a high degree of autonomy. It has retained its administrative,
legislative and judicial systems. The SAR government has full control over its
monetary and fiscal policies and it maintains its own customs and immigration
control, separate from the mainland. Except for issues relating to national
security and foreign policy, the SAR is largely run as an independent territory.
The first chief executive of the SAR, Mr. C.H. Tung, a former shipping
tycoon, has vowed to make a difference in the lives of the people of Hong Kong,
by focusing his attention on the areas of housing, education and infrastructure.
In the past, the chronic shortage of housing has been a strong influence on the
property market. Hong Kong property prices today are among the highest in the
world. Worth noting is that there is heavy exposure to the property market in
Hong Kong's banking sector as well as the stock market as a whole.
The integration of Hong Kong's economy with that of the mainland continues
apace. While the integration process in the 1980's was driven by the relocation
of Hong Kong's labor-intensive manufacturing sector to Southern China, the
integration theme for the 1990's is that of Hong Kong becoming a service center
for China's fast growing economy. A large number of mainland companies have
established offices in Hong Kong as a window for interaction with the global
economy. The Hong Kong financial sector is increasing its role in the
intermediation of foreign funds for investment in China. Close to half of the
FDI into China goes through Hong Kong. Furthermore, Hong Kong is increasingly
playing a role in intermediating China's savings for investment in China. Hong
Kong is well on its way in becoming a bona fide financial center for China.
Hong Kong's economy has been in a recession since the Asian crisis that
began in the second half of 1998. Deflation has been a major problem, as it has
discouraged investment, postponed consumption and delayed a turnaround in the
inventory cycle. Nevertheless, GDP growth seems to be recovering somewhat, as
it has increased to a seasonally adjusted rate of 3.1% from the first quarter of
1999 to the second quarter of the year, as compared to an average 1998 GDP
growth rate of -5.1%.
The downward adjustment in goods and services prices in Hong Kong
continues; this is the natural process of restoring competitiveness against the
territory's devalued neighbors. Further, deflation deepened sharply in July and
August due to cuts in housing costs resulting from concessions on rates (taxes)
granted by the government. The CPI(A) declined 3.2% in the first eight months
of this year.
Despite loose liquidity conditions and the plunging of the loan-to-deposit
ratio to 1991 levels, Hong Kong's banking cartel raised interest rates in
August, following the Fed's latest move. Ongoing deflation has reduced the
demand for and supply of new loans; outstanding domestic credit has declined by
11.7% from the peak in September 1997.
Fiscal support remains key to Hong Kong's economy. The government ran a
HK$30 billion deficit in the first four months of fiscal year 2000 following one
of HK$31.5 billion (2.5% of GDP) in fiscal year 1999. The deficit has been
financed primarily by foreign reserves, which totaled US$89.2 billion at the end
of August. In
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efforts to maintain the level of foreign reserves, the government will start
selling off its local stock holdings, which could curb liquidity conditions.
Future sources of fiscal revenue include the privatization of water supply
services and the Mass Transit Railway Corp.
The trade deficit shrank in the first half of 1999 due to weak domestic
demand and the curtailing of smuggling into China. However, the deficit started
to expand again in July and August (on a year-on-year basis) as domestic demand
recovered. Domestic demand recovery is key to growth going forward.
The Hang Seng Index has been flat in the past few months. The government's
plan to dispose of its local stock holdings starting in October will increase
the supply of Hong Kong dollar assets.
Japan. Japan's economic growth in the 1990s has been substantially below
the levels of earlier decades. Major fiscal spending programs have brought
positive growth in some years, but Japan's gross national product shrank by 2.8%
in calendar 1998, its worst performance in the postwar period. A further round
of major fiscal spending was implemented in late 1998. Prices are largely
stable at the consumer level, even though deflation is occurring at the
wholesale level, and cash earnings per worker have continued to drop in nominal
terms. The unemployment rate has reached a historical peak of 4.9%.
Despite growth problems, the Japanese economy maintains several strengths.
The manufacturing sector includes some of the world's most innovative companies
in the electronics and precision machinery areas, along with world leaders in
automotive and machinery industries. Educational achievement levels are high in
comparison with other developed nations. Public sector infrastructure is also
extremely well developed.
Nevertheless, the Japanese economy faces significant weaknesses. The
financial system retains large levels of non-performing loans, which have made
intermediaries conservative in lending behavior. Many corporate balance sheets
remain overleveraged, with low returns on assets, compared to both some other
industrial countries and to Japan's own history. The labor market is undergoing
a fundamental structural change, because of the system of lifetime employment
clashes with the need for increased labor mobility to adapt to new technologies
and global competition. Corporate governance is also undergoing major changes,
with the introduction of new accounting rules, new decision making mechanisms,
and changed incentives for managers.
Growth may continue to be hindered in 2000, due to the difficulty of
expanding fiscal policy further and to the adverse effects of industrial and
financial sector restructuring on business investment and wages. Investors have
shown confidence, as the Japanese stock market has grown in the first nine
months of 1999. The macroeconomic performance of the Japanese economy could
suffer, however, as cuts in employment and investment may constrain income.
Interest rates in the overnight market are currently at 0.03% (effectively
zero), in light of the policy of the Bank of Japan to give maximum support to
the economy. Nevertheless, long term bond yields have risen since the end of
1998, because of high government deficits and the hesitant attitude on the part
of some institutions to buy securities with high duration risk, even if
government-issued.
The Japanese yen has fluctuated widely over the last year. At its most
recent trough, the currency was Y147/US$, in September 1998, just prior to the
adoption of financial sector reform bills by the Japanese Diet. After
strengthening early in 1999, then weakening at mid-year, the currency has
restrengthened, to Y104/US$ in mid-September 1999. Most observers view this
level of the yen as strong, and likely to have adverse impacts on the Japanese
economy, although neighboring Asian countries could benefit.
The political environment is stable, with the pending formation of a three-
party coalition government. The next general election (in which all seats of
the Lower House are up for re-election) must occur by November 2000, within one
month of the expiration of the 4 year term of the current Lower House. The next
election for the Upper House is scheduled for July 2001.
Japan has very large and active securities markets. The main stock
exchange is the Tokyo Stock Exchange, where a large majority of equity
transactions occur. This exchange is supported, however, by several regional
exchanges, which list local companies. Fixed income securities are traded
actively, usually off-exchange.
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Derivative markets in Japanese securities are well developed. The securities
markets are overseen by both private and public regulatory bodies. The Japan
Securities Dealers Association is the main private regulatory force. In the
public sector, a set of agencies under the Financial Regulatory Commission is
responsible for the oversight of trading activities and inspection of securities
companies.
Reporting, accounting and auditing standards differ considerably from those
in the United States. Stricter requirements have been introduced over the past
decade, however, and from March 2001, the method of the International Accounting
Standards system will become mandatory, as will mark-to-market valuation for
marketable securities held for trading purposes. In addition, discussions are
currently under way on whether to introduce a requirement that values for land
based on discounted cash flow models be disclosed, along with the current book
value disclosure. Auditing standards are also becoming more stringent.
Japan's heavy dependence on international trade has been adversely affected
by trade tariffs and other protectionist measures, as well as the economic
condition of its trading partners. Japan subsidizes its agricultural industry
since only 19% of its land is suitable for cultivation. It is only 50% self-
sufficient in food production. Accordingly, it is highly dependent on large
imports of wheat, sorghum and soybeans. In addition, industry, its most
important economic sector, depends on imported raw materials and fuels,
including iron ore, copper, oil and many forest products. Japan's high volume of
exports, such as automobiles, machine tools and semiconductors, has caused trade
tensions, particularly with the United States. Some trade agreements have been
implemented to reduce these tensions. The relaxing of official and de facto
barriers to imports, or hardships created by any pressures brought by trading
partners, could adversely affect Japan's economy. A substantial rise in world
oil or commodity prices could also have a negative affect. Since the Japanese
economy is so dependent on exports, any fall off in exports may be seen as a
sign of economic weakness, which may adversely affect the market. Japan's real
GDP for the first six months of 1998 was 2.7% less than the level achieved in
the first half of 1997.
Geologically, Japan is located in a volatile area of the world and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, which
resulted in the death of 5,000 people and billions of dollars of damage, natural
disasters can be significant enough to affect the country's economy.
Malaysia. Over the last two decades, Malaysia has experienced rapid
industrialization, transforming a once commodity driven economy to one dominated
by the manufacturing sector. Although commodities remain important to the
Malaysian economy, where tin, rubber, palm oil, timber, oil and gas have played
a leading role, the electronics sector is now the fastest growing and most
important sector by far. In fact, Malaysia has become the world's third-largest
producer of semiconductor devices (after the U.S. and Japan) and the world's
largest exporter of semiconductor devices.
The high rates of investment that have been required to sustain Malaysia's
rapid growth have been met with high rates of domestic savings and significant
inflows of foreign direct investment. This combination has been instrumental in
maintaining fast growth while simultaneously limiting inflationary pressures.
Although free repatriation of profits is allowed, Malaysia has experienced a
high rate of reinvestment of profits from foreign direct investment.
Until September 1, 1998 Bank Negara Malaysia (the central bank) managed the
exchange value of the ringgit against a basket of foreign currencies. During
the first nine months of 1998, investors sold ringgit together with other East
Asian currencies because of fundamental concerns over the economic conditions
within the region as reflected in the sharp contractions in some economies,
including Malaysia, as well as a general deterioration in sentiment toward
emerging markets, particularly following the Russian debt moratorium.
Malaysian currency volatility and general economic deterioration led to the
imposition of stringent capital controls in September 1998, including a one year
prohibition on repatriation of capital and an indefinite prohibition on free
transfers of securities. The prohibition on repatriation of capital was removed
in February 1999 but the controls have adversely impacted foreign investors,
including the Malaysia (Free) Index Fund, which suspended creations in response
to the controls. This adversely affected the trading market for the Malaysia
(Free) Index Fund.
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After contracting for five consecutive quarters, the Malaysian economy
returned to 4.1% growth in the second quarter of 1999. The GDP decline was a
severe 7.5% in 1998. The decline was particularly marked in the second half of
the year, at 10.6%. The expansionary monetary and fiscal policies implemented
since the second half of 1998 set the stage for economic recovery in 1999.
Added to this, the turnaround in global trade, especially electronics goods,
acted as a catalyst for economic recovery. A 38.3% growth in electronics
exports boosted overall export growth by 15.8% in the second quarter of 1999 and
28.9% in July.
Consumer prices have been quite stable since the beginning of the year.
However, on a year-on-year basis, inflation has declined steadily from 4% in the
first quarter to 2.4% in the July-August period. At this point, inflationary
pressure is still a non-issue. Year-to-date, inflation averaged 3.1%.
Monetary policy has been easing. Since the third quarter of 1998, the
central bank has cut the official three-month intervention rate nine times, for
a total cut of 5.5%. Most of the rate cuts were implemented between August and
November 1998. The statutory reserve requirement was cut by 6% during the third
quarter of 1998. The stringent rate cut effectively pushed down market interest
rates. The three-month interbank rate fell to a record low of 3.2% recently,
down from the peak of 11% in 1998.
After a 1.8% fiscal deficit in 1998, the Malaysian government budgeted for
a deeper deficit of 5.4% in 1999. This was due to a 9.3% increase in government
expenditure in nominal terms. In real terms, government consumption rose 13.9%
in the first half of 1999, against declines of 5.5% in the first half of 1998
and 9.5% in the second half of 1998.
The government pegged the ringgit at an undervalued rate of M$3.8:US$1 on
September 1, 1998. The undervaluation of the currency has supported export
growth. US dollar exports returned to growth starting from October last year,
half a year earlier than the export recovery in other Asian economies. Export
competitiveness has improved over time. Exports measured in US dollars rose
4.5% in the first quarter of 1999 and accelerated to 15.8% in the second quarter
of 1999. In July, exports surged 28.2%, led mainly by 56% growth in electronics
exports. Malaysia produces and packages about one-third of the world's
semiconductors and benefits from the strong demand for electronics worldwide.
Singapore. Singapore has become a high-income, highly industrialized
country though rapid growth in its manufacturing sector due largely to
significant foreign investment. Of particular importance is the electronics
industry in which Singapore is the leading producer of disk drives. The
financial and business services sector has also experienced recent growth, while
the mining and agriculture sectors are of minimal importance. Oil refining and
chemical industries have long been important and recently a significant
pharmaceutical sector has emerged. Since 1987, annual growth has been high,
ultimately reaching 10% in 1993 and 1994 and 9% in 1995. This sustained annual
growth can be attributed to high investment and exports. Personal consumption
growth has been low, which makes Singapore the highest saving country in the
world.
The government has followed an interventionist economic policy with respect
to its individual industries. To instill faith in its interventionist policies,
the government has sought to maintain economic stability. The taxes are
relatively high, but rates are stable. Monetary policy has aimed at keeping
inflation low by using the exchange rate as the main instrument. Labor market
pressure has been controlled by setting limits on the percentage of foreign
labor employed and applying a levy on employers of foreign labor. In addition,
the government, recognizing that land use is a constraint on growth, has sought
to make existing land use more efficient.
The government directly holds stakes in individual companies across the
board, from high-tech defense contractors to low-tech service businesses. The
government also holds indirect stakes in firms through a number of agencies.
Such government ownership interests may discourage the development of private
firms due to fears that the government entities may be given certain advantages
not available to private entities. Some privatization of state-owned businesses
is ongoing, however, such as the telephone business and certain other utilities.
As a small open economy, Singapore is particularly vulnerable to external
shocks. The Asian crisis that crushed its neighbors caused the economy to shrink
for two quarters in 1998. The economy has returned to growth since the first
quarter of 1999, led by the manufacturing sector. In the second quarter of 1999,
GDP growth accelerated to 6.7%. Although the recovery is becoming more broad-
based, not every sector is doing well.
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Consumer confidence resumed quickly as the rate of retrenchment slowed
substantially. External demand is recovering gradually but the investment sector
is still shrinking. Weak demand for disk drives and Indonesia's political
situation pose two big risks to the Singaporean economy.
The 11-month deflation spiral ended in April. Since then, the CPI has risen
moderately, averaging 0.4% for the three months through July. The import price
index registered four straight months of growth from April to July.
Singapore opts to control its exchange rate. This decision is based on the
economy's openness. By controlling the exchange rate, it is easier to attain the
objective of monetary policy -- price stability. The exchange rate policy was
eased at the height of the crisis to cushion the economy from adverse shocks.
This year, the trade-weighted exchange rate index (TWI) has returned to the pre-
crisis level. The exchange rate band has also narrowed as the crisis has
subsided. By ceding control of monetary aggregates, domestic interest rates are
moving in line with foreign interest rates. The spread between the three-month
interbank rate and the Federal Funds rate widened to about 8% at one stage; it
has since returned to its historical level of around 3%.
The Singapore government has historically been prudent in its fiscal
policy, keeping fiscal expenditure below 20% of GDP. In response to the Asian
crisis, the government announced two stimulus packages in 1998 -- a S$2 billion
off-budget package and a S$10.5 billion cost-cutting package. The cost-cutting
package has an impact on the current budget, raising government expenditure to
20.5% of GDP in fiscal year 1999 from 19.6% in fiscal year 1998.
Singapore's competitive advantage is in producing electronics goods.
Electronics goods account for about half of total manufacturing production and
two-thirds of domestic exports. The external trade account is, therefore, highly
sensitive to the global electronics cycle. Global electronics demand has revived
due to Year 2000 computer adaptability issues. Electronics production rose 14%
in the first quarter of 1999 and 23% in the second quarter of 1999. In July, it
accelerated to 34%. However, strong electronics production failed to boost
electronics exports. Exports of electronics goods rose a mere 1.4% in the second
quarter of 1999. Although they accelerated to 13% in July, exports slowed again
to 6.1% in August. Non-electronics goods, however, have become the main driver
for Singapore's overall export growth. After enjoying 18 months of trade
surplus, the external trade account reverted to a deficit for July and August.
South Korea. The South Korean economic recovery has gained momentum. After
recording 4.6% GDP growth in the first quarter of 1999, in August the government
announced stronger 9.8% GDP growth for the second quarter of the year.
Despite rising oil and commodity prices, inflation remained subdued during
the first eight months of 1999, averaging 0.6% for the period. Import prices
have risen faster recently, however.
In response to the Daewoo liquidity crunch and market uncertainty about
possible runs on investment trust companies (ITCs), the government has committed
to keep the official overnight call rate at the current level to help stabilize
long-term interest rates. In case of a liquidity squeeze, the central bank will
supply liquidity to narrow the spread between long-term and short-term interest
rates. The overnight call rate has been quite stable over the last four months
but the corporate bond yield has been under pressure. Since Daewoo's insolvency
was exposed in mid-July, the spread between the 3-year corporate bond yield and
the overnight call rate has increased by 2.25%.
The government has budgeted for a W22 trillion deficit this year,
equivalent to 5% of GDP. As the economy has recovered faster than expected, tax
revenue collected has been higher than the government's original projection.
Government outlays will continue to focus on social safety net and financial
sector restructuring. The government now expects the budget deficit to narrow to
4% this year and 3.5% for 2000, and seeks a balanced budget in 2003.
Moving to the third quarter of 1999, the external account improved
substantially. Double-digit export growth rates have been recorded since June.
Import growth rates have been even stronger, rising by more than 30%. The
collapse of imports in 1998 forced many firms to deplete their stocks. As export
orders mount, firms have the incentive to increase imports of raw materials in
machinery. South Korea now imports about US$10 billion a
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month, still considerably lower than the monthly rate of US$12 billion before
the crisis. Stronger imports have resulted in a shrinking trade surplus, and
hence a narrowing current account surplus.
Taiwan. The Central Bank has maintained an eased monetary policy in recent
times. This has not fueled inflation. The New Taiwan dollar has strengthened
against the US dollar. The government has tightened controls on the foreign-
exchange market. The budget deficit has eased.
The government has revised its forecast for economic growth in 1999 to at
least 5.5%. Private consumption indicators have remained weak. New domestic
investment fell by 12.5% year on year in January-June 1999.
The electronics sector has continued to perform strongly in 1999. Housing
construction performance has been mixed. A delay in a national high-speed rail
project has harmed construction companies.
Consumer prices have remained subdued and wholesale prices have continued
to fall through September 30, 1999. Unemployment rose to 2.9% in June 1999,
owing both to weaker domestic demand and technological innovations that reduce
the need for workers.
Non-performing loan ratios have remained high. The government announced in
May that all state banks would be privatized by 2002. Foreign banks have
established themselves in areas such as derivatives. Foreigners were net buyers
of Taiwan stocks, in the amount of NT$140bn (US$4.3bn) in January-June 1999. The
government intervened in July to prop up the stock market after military threats
from China caused a sharp fall in the TAIEX.
Merchandise exports rose by 5.4% year-on-year in US dollar terms in
January-July 1999. Merchandise imports have also started to revive. The
merchandise trade surplus totalled US$6.7bn in the first seven months of 1999,
nearly triple the level recorded in the same period in 1998. The current-account
surplus rose to US$1.7bn in the second quarter of 1999. Merchandise trade with
China has remained strong.
Real GDP Annual Rate of Growth (annual % change)
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
Australia 3.8 5.0 4.4 4.0 3.9 5.1
Hong Kong 6.1 5.4 3.9 4.5 5.3 -5.1
Japan 0.3 0.6 1.5 5.1 1.4 -2.8
Malaysia 8.4 9.3 9.4 8.6 7.7 -6.7
Singapore 12.8 11.4 8.2 7.5 9.0 0.4
South Korea 5.5 8.3 8.9 6.8 5.0 -5.8
Taiwan 6.3 6.5 6.0 5.7 6.8 4.9
Source: World Economic Outlook, October 1999 (International
Monetary Fund)
Brazil. Brazil is Latin America's largest economy and the world's tenth
largest. Manufacturing is the dominant industrial sector, generating 24% of GDP,
followed by agriculture at 12%; services represent 55% of GDP. In the period
from 1994 to 1998, annualized economic growth averaged 3.1%. Growth ended in
mid-1998, as fears of contagion from Russia caused a sharp loss of liquidity
through capital flight. The economy contracted 2.1% in the fourth quarter of
1998, bringing growth for the year to 0.1%. The economy fell 0.7% in the first
half of 1999, following January's currency devaluation.
The real stood at R$1.21/US$ at the end of 1998. Growing concerns over the
sustainability of the real's crawling peg exchange rate resulted in the
devaluation of the currency on January 13. By March 1, the currency had fallen
to R$2.13/US$, but it then rallied to R$1.66/US$ in early May. Concerns about
fiscal progress at home and general global concerns weakened the currency again,
to near R$2/US$ by mid-August.
Inflation tumbled from more than 2500% per annum in 1994 to 1.7% in 1998.
The January 1999 currency devaluation caused inflation to surge to 3.6% in
February, but it receded quickly thereafter.
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Despite tight control of monetary aggregates, real rates of interest have
decreased, with lower foreign exchange risk and reduced risk of an inflation
surge. Real rates of interest declined from 40% at the end of the first quarter
of 1999 to roughly 15% by mid-August. Further, after several failed attempts,
Congress passed fiscal adjustment measures in January-February 1999, after years
of delay.
Brazilian Real GDP Annual Rate of Growth (annual % change)
1998 0.1
1997 3.7
1996 2.8
1995 4.2
1994 5.9
1993 4.9
Source: World Economic Outlook, October 1999 (International Monetary
Fund)
Canada. The Canadian economy has performed well in recent quarters,
expanding at a 3.75% annualized pace in the first half of 1999. Growth in the
first half of 1999 was evenly balanced between the domestic and net export
sectors. Initial indicators suggest that the economy continued to expand in the
4% to 4.5% range in the second half of 1999, on average.
Underlying inflation pressure remains benign in Canada. The "core" CPI
inflation rate, which excludes food and energy prices, was 1.6% in August, at
roughly the mid-point of the Bank of Canada's 1% to 3% target band for core
inflation.
The Bank of Canada's primary policy objective is to target core inflation,
i.e. keep it to within a range of 1% to 3%. To achieve this goal, the
authorities have traditionally relied on their estimates of potential output
(and the output gap) to determine the inflation outlook. However, as the economy
nears theoretical levels of full capacity, the Bank has announced that it will
put increased emphasis on other measures of inflation and capacity pressures.
Meanwhile, the weak Canadian dollar has remained below US 69c (CAD 1.45).
Canada's Federal budget was balanced in 1997 and is forecast to remain in
balance for the next two years. Additionally, all ten provinces are expected to
post balanced budgets by 2000. This may speed a decline in Canada's public
sector debt-to-GDP ratio, which was 98% of GDP in 1997.
Separation politics seems to be on hold as Quebeckers seem more concerned
about employment growth and the provision of government services. One issue that
continues to rise to the surface nationally is whether Canada should enter a
currency union with the United States.
Canadian Real GDP Annual Rate of Growth (annual % change)
1998 3.1
1997 4.0
1996 1.7
1995 2.8
1994 4.7
1993 2.3
Source: World Economic Outlook, October 1999 (International Monetary
Fund)
Mexico. Mexico's economy is the second largest in Latin America. Post-NAFTA
integration with the U.S. has been the engine for growth in the Mexican economy
since the peso crisis of 1994-95. GDP growth was 7.0% in 1997 and 4.8% in 1998.
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Mexican inflation is sensitive to both monetary and exchange-rate policy.
In 1998, higher-than-expected inflation of 18.6%, up from 15.7% in 1997, was
generated by currency weakness, the decontrol of tortilla prices, and higher
crop prices due to El Nino. Real wages fell sharply in the 1995 recession and
had recovered only slightly by the end of the third quarter of 1999. The
strength of the peso, weak demand, and an ongoing restrictive monetary policy
have helped restrain inflation.
The peso is a floating currency that was priced at M$9.4/US$ at the end of
summer 1999. The peso ended 1998 at M$9.91/US$, down 23.0% for the year in
nominal terms. The peso's history since the late-1994 devaluation is a mixture
of periods of remarkable stability interwoven with episodes of sudden moves to
either weaker or stronger levels. Further, since the 1994 devaluation, Mexico
has assiduously adhered to tight monetary targets.
Timely fiscal cuts and very strong oil prices have helped the government
adhere to its 1.25% of GDP fiscal target for 1999. The cost of a bank support
program boosts actual deficit spending by about 1% of GDP per annum, but the
overall fiscal policy is prudent. The government reportedly is pushing for a 1%
deficit in 2000 and for a real spending hike of 5%.
Mexican Real GDP Annual Rate of Growth (annual % change)
1998 4.6
1997 7.0
1996 5.2
1995 -6.2
1994 4.4
1993 2.0
Source: World Economic Outlook, October 1999 (International Monetary
Fund)
South Africa. The South African economy is recovering slowly. 1999
second-quarter GDP gained 0.4% from the first quarter of 1999, following a 0.2%
rise in the first quarter of the year. In the first half of 1999, GDP grew 0.4%
from the second half of last year, while final sales grew by 1.1%.
Inflation in August declined to 3.2%. The decline, from almost 9% at the
beginning of the year, is due mainly to the effect of a 6% decline in mortgage
rates in 1999. Further, core inflation declined from 8.2% in July to 7.9% in
August.
Last year's state budget constituted 3.3% of GDP, compared with an original
target of 3.5% of GDP. Furthermore, the publication of the first inter-
governmental fiscal review revealed that the country's nine provinces managed to
run a combined surplus of R 1.1 billion in fiscal 1998-1999, a significant
improvement from the deficit of R 5.8 billion in the previous fiscal year,
suggesting that fiscal austerity has extended beyond the central government.
On September 23, 1999, commercial banks cut the prime rate by 1% to 15.5%.
The cut followed an accelerated pace of cuts in the official repo rate. This
accelerated pace is underscored by the economic data and the economy appears to
be recovering.
A rally in the price of gold, beginning with the second gold auction by the
Bank of England, highlighted improved sentiment in the gold market and supported
the rand. Finally, despite sharp interest rate cuts in recent months, bond-
market performance has continued to be disappointing.
South African Real GDP Annual Rate of Growth (annual % change)
1998 0.6
1997 2.5
1996 4.2
1995 3.1
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South African Real GDP Annual Rate of Growth (annual % change)
1994 3.2
1993 1.2
Source: World Economic Outlook, October 1999 (International Monetary
Fund)
The United States. The United States economy has grown consistently in the
1990s, while inflation has been kept to favorable levels in the last two years.
Recently, GDP has grown in the U.S. at a rate of 3.9% in both 1997 and 1998,
while inflation, measured by the Consumer Price Index, grew by 2.3% in 1997 and
1.5% in 1998.
While corporate profits, after tax, grew substantially in 1997, at a rate
of 7.5%, they slipped somewhat in 1998, to -2.2%, due mainly to the effects of
the world-wide slowdown caused by Russia's default on bond payments in August
1998 and the Asian recession that hindered world markets generally in the second
half of 1998.
Meanwhile, U.S. economic expansion in the 1990s led to the first U.S.
federal government surplus in decades: 0.8% of GDP in 1998. The federal budget
deficit had already begun to show signs of turning in 1997, when it was reduced
to -0.3%. The Federal Reserve's monetary policy continued to be favorable to
economic expansion in recent years, as the Federal Funds Rate was 5.5% in 1997
and 4.75% in 1998. The Federal Reserve increased its lending rate slightly to
5.25% in September 1999 to ameliorate inflationary concerns, but the U.S. equity
markets did not immediately slow as a result.
U.S. bond markets were relatively flat. The 30-year Treasury Bond yield
was 5.95% at the end of 1997 and 5.15% at the close of 1998, and increased
somewhat by September 1999 to approximately 6.0%.
United States Real GDP Annual Rate of Growth (annual % change)
1998 3.9
1997 3.9
1996 3.5
1995 2.3
1994 3.5
1993 2.3
Source: World Economic Outlook, October 1999 (International Monetary
Fund)
THE MSCI INDICES
In General. The Indices were founded in 1969 by Capital International S.A.
----------
as the first international performance benchmarks constructed to facilitate
accurate comparison of world markets. Morgan Stanley acquired rights to the
Indices in 1986. In November 1998, Morgan Stanley transferred all rights to the
MSCI Indices to Morgan Stanley Capital International Inc. ("MSCI"), a Delaware
corporation of which MSDW is the majority owner. The MSCI Indices have covered
the world's developed markets since 1969, and in 1988, MSCI commenced coverage
of the emerging markets.
Although local stock exchanges have traditionally calculated their own
indices, these are 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 applies the same criteria and
calculation methodology across all markets for all indices, developed and
emerging.
MSCI Indices are notable for the depth and breadth of their coverage. MSCI
generally seeks to have 60% of the capitalization of a country's stock market
reflected in the MSCI Index for such country. Thus, the MSCI Indices balance the
inclusiveness of an "all share" index against the replicability of a "blue chip"
index.
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<PAGE>
Weighting. All single-country MSCI Indices are market capitalization
---------
weighted, i.e., companies are included in the indices at their full market value
(total number of shares issued and paid up, multiplied by price). MSCI believes
full market capitalization weighting is preferable to other weighting schemes
for both theoretical and practical reasons.
MSCI calculates two indices in some countries in order to address the issue
of restrictions on foreign ownership in such countries. The additional indices
are called "free" indices, and they exclude companies and share classes not
purchasable by foreigners. Free indices are currently calculated for Brazil,
China, Indonesia, Malaysia, Mexico, the Philippines, Singapore and Thailand,
and for those regional and international indices which include such markets.
Indonesia, Malaysia, Singapore and Thailand currently impose foreign
ownership limits on domestic stock, and when the foreign ownership limit is
reached, foreigners may only trade with other foreigners, frequently at a price
that is higher than the price available to domestic investors. The Free Indices
for such countries are designed to reflect the actual investment conditions for
international investors by using the foreign prices for stocks where relevant.
The Free Indices for Indonesia, Malaysia, Singapore and Thailand will use
foreign prices only when a foreign ownership limit is reached on a constituent
stock and a determination is made that there is sufficient long-term liquidity
at the foreign price. To compensate for the distorting inflation of a company's
weight that may occur as a result of using the higher foreign prices for its
shares, a compensating factor called a Free Market Capitalization Factor
("FMCF") may be applied to the total number of shares of a "foreign priced"
constituent stock in the respective Index. A FMCF is the approximate ratio of
domestic price to foreign price and is applied in an effort to align the free
market capitalization weight with the domestic market capitalization weight.
Regional Weights. Market capitalization weighting, combined with a
consistent target of 60% of market capitalization, helps ensure that each
country's weight in regional and international indices approximates its weight
in the total universe of developing and emerging markets. Maintaining consistent
policy among MSCI developed and emerging market indices is also critical to the
calculation of certain combined developed and emerging market indices published
by MSCI.
Selection Criteria
------------------
The Universe of Securities. The constituents of a country index are
selected from the full range of securities available in the market, excluding
issues which are either small or highly illiquid. Non-domiciled companies and
investment trusts are also excluded from consideration. After the index
constituents are chosen, they are reclassified using MSCI's schema of 38
industries and 8 economic sectors in order to facilitate cross-country
comparisons.
The Optimization Process. The process of choosing index constituents from
the universe of available securities is consistent among indices. Determining
the constituents of an index is an optimization process which involves
maximizing float and liquidity, reflecting accurately the market's size and
industry profiles and minimizing cross-ownership. The optimization variables and
their targets are:
Market Coverage Target 60% of market
Industry Representation Mirror the local market
Liquidity Maximize
Float Maximize
Cross-Ownership Avoid/Minimize
Size Sample with size characteristics of universe
Coverage. To reflect accurately country-wide performance as well as the
performance of industry groups, MSCI aims to capture 60% of total market
capitalization at both the country and industry level. To reflect local market
performance, an index should contain a percentage of the market's overall
capitalization sufficient to achieve a high level of tracking. The greater the
coverage, however, the greater the risk of including securities which are
illiquid or have restricted float. MSCI's 60% coverage target reflects a balance
of these considerations.
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<PAGE>
Industry Representation. Within the overall target of 60% market coverage,
MSCI aims to capture 60% of the capitalization of each industry group, as
defined by local practice. MSCI believes this target assures that the index
reflects the industry characteristics of the overall market and permits the
construction of accurate industry indices.
MSCI may exceed the 60% of market capitalization target in the index for a
particular country because, e.g., one or two large companies dominate an
industry. Similarly, MSCI may underweight an industry in an index if, e.g., the
companies in such industry lack good liquidity and float, or because of
extensive cross-ownership.
Liquidity. Liquidity is measured by trading value, as reported by the
local exchanges. Trading value is monitored over time in order to determine
"normal" levels exclusive of short-term peaks and troughs. A stock's liquidity
is significant not only in absolute terms (i.e., a determination of the market's
most actively traded stocks), but also relative to its market capitalization and
to average liquidity for the country as a whole.
Float. Float, or the percentage of shares freely tradeable, is one measure
of potential short-term supply. Low float raises the risk of insufficient
liquidity. MSCI monitors float for every security in its coverage, and low float
may exclude a stock from consideration. However, float can be difficult to
determine. In some markets good sources are generally not available. In other
markets, information on smaller and less prominent issues can be subject to
error and time lags. Government ownership and cross-ownership positions can
change over time, and are not always made public. Float also tends to be defined
differently depending on the source. MSCI seeks to maximize float. As with
liquidity, float is an important determinant, but not a hard-and-fast screen for
inclusion of a stock in, or exclusion of a stock from, a particular index.
Cross-ownership. Cross-ownership occurs when one company has an ownership
position in another. In situations where cross-ownership is substantial,
including both companies in an index may skew industry weights, distort country-
level valuations and over-represent buyable opportunities. An integral part of
MSCI's country research is identifying cross-ownerships in order to avoid or
minimize them. Cross-ownership cannot always be avoided, especially in markets
where it is prevalent. When MSCI makes exceptions, it strives to select
situations where the constituents operate in different economic sectors, or
where the subsidiary company makes only a minor contribution to the parent
company's results.
Size. MSCI attempts to meet its 60% coverage target by including a
representative sample of large, medium and small capitalization stocks, in order
to capture the sometimes disparate performance of these sectors. In the emerging
markets, the liquidity of smaller issues can be a constraint. At the same time,
properly representing the lower capitalization end of the market risks
overwhelming the index with names. Within these constraints, MSCI strives to
include smaller capitalization stocks, provided they exhibit sufficient
liquidity.
Calculation Methodology. All MSCI Indices are calculated daily using
-----------------------
Laspeyres' concept of a weighted arithmetic average together with the concept of
"chain-linking," a classical method of calculating stock market indices. The
Laspeyres method weights stocks in an index by their beginning-of-period market
capitalization. Share prices are "swept clean" daily and adjusted for any rights
issues, stock dividends or splits. Most MSCI Indices are currently calculated in
local currency and in U.S. dollars, without dividends, with gross dividends
reinvested and with net dividends reinvested. With the exception of the iShares
MSCI Mexico (Free) Index Fund (where the MSCI Mexico (Free) Index with gross
dividends reinvested is utilized), the Company's Index Funds utilize MSCI
Indices calculated with net dividends reinvested. "Net dividends" means
dividends after reduction for taxes withheld at source at the rate applicable to
holders of the underlying stock that are resident in Luxembourg. With respect to
the iShares MSCI Australia, Austria and Germany Index Funds, such withholding
rate currently differs from that applicable to United States residents. So-
called "un-franked" dividends from Australian companies are withheld at a 30%
rate to Luxembourg residents and a 15% rate to the iShares MSCI Australia Index
Fund (there is no difference in the treatment of "franked" dividends). Austrian
companies impose a 15% dividend withholding on Luxembourg residents and an 11%
rate on the iShares MSCI Austria Index Fund. German companies impose a 15%
dividend withholding on Luxembourg residents and a 10% rate on the iShares MSCI
Germany Index Fund. "Gross dividends" means dividends before reduction for taxes
withheld at source.
Dividend Treatment. In respect of developed markets, MSCI Indices with
------------------
dividends reinvested constitute an estimate of total return arrived at by
reinvesting one twelfth of the year end yield at every month end.
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<PAGE>
In respect of emerging markets, MSCI has constructed its indices with
dividends reinvested as follows:
. In the period between the ex date and the date of dividend
reinvestment, a dividend receivable is a component of the index
return.
. Dividends are deemed received on the payment date.
. To determine the payment date, a fixed time lag is assumed to exist
between the ex date and the payment date. This time lag varies by
country, and is determined in accordance with general practice within
that market.
. Reinvestment of dividends occurs at the end of the month in which the
payment date falls.
Price and Exchange Rates.
------------------------
Prices. Prices used to calculate the MSCI Indices are the official
exchange closing prices. All prices are taken from the dominant exchange in each
market. In countries where there are foreign ownership limits, MSCI uses the
price quoted on the official exchange, regardless of whether the limit has been
reached.
Exchange Rates. MSCI uses WM/Reuters Closing Spot Rates for all developed
and emerging markets except those in Latin America. The WM/Reuters Closing Spot
Rates were established by a committee of investment managers and data providers,
including MSCI, whose object was to standardize exchange rates used by the
investment community. Exchange rates are taken daily at 4 p.m. London time by
the WM Company and are sourced whenever possible from multi-contributor quotes
on Reuters. Representative rates are selected for each currency based on a
number of "snapshots" of the latest contributed quotations taken from the
Reuters service at short intervals around 4 PM. WM/Reuters provides closing bid
and offer rates. MSCI uses these to calculate the mid-point to 5 decimal places.
MSCI continues to monitor exchange rates independently and may, under
exceptional circumstances, elect to use an alternative exchange rate if the
WM/Reuters rate is believed not to be representative for a given currency on a
particular day. Because of the high volatility of currencies in some Latin
American countries, MSCI continues to use its own timing and sources for these
markets. The exchange rate for the MSCI Mexico (Free) Index is that prevailing
as of 3:00 p.m. Eastern time.
Changes to the Indices. In changing the constituents of the indices, MSCI
----------------------
attempts to balance representativeness versus undue turnover. An index must
represent the current state of an evolving marketplace, yet at the same time
minimize turnover, which is costly as well as inconvenient for managers.
There are two broad categories of changes to the MSCI Indices. The first
consists of market-driven changes such as mergers, acquisitions, bankruptcies,
etc. These are announced and implemented as they occur. The second category
consists of structural changes to reflect the evolution of a market, for example
due to changes in industry composition or regulations. In the emerging markets,
index restructurings generally take place every one year to eighteen months.
Structural changes may occur only on four dates throughout the year: the first
business day of March, June, September and December. They are preannounced at
least two weeks in advance.
Additions. Restructuring an index involves a balancing of additions and
deletions. To maintain continuity and minimize turnover, MSCI is reluctant to
delete index constituents, and its approach to additions is correspondingly
stringent. As markets grow because of privatizations, investor interest, or the
relaxation of regulations, index additions (with or without corresponding
deletions) may be needed to bring industry representations up to the 60% target.
Companies are considered not only based on their broad industry, but also based
on their sub-sector, in order to achieve, if possible, a broader range of
economic activity. Beyond industry representativeness, new constituents are
selected based on the criteria discussed above, i.e. float, liquidity, cross-
ownership, etc.
New Issues. In general, new issues are not eligible for immediate
inclusion in the MSCI Indices because their liquidity remains unproven. Usually,
new issues undergo a "seasoning" period of one year to eighteen months between
index restructurings until a trading pattern and volume are established. After
that time, they are eligible for inclusion, subject to the criteria discussed
above (industry representation, float, cross-ownership, etc.).
37
<PAGE>
In the emerging markets, however, it is not uncommon that a large new
issue, usually a privatization, comes to market and substantially changes the
country's industry profile. In exceptional circumstances, where the issue's
size, visibility and investor interest assure high liquidity, and where
excluding it would distort the characteristics of the market, MSCI may decide to
include it immediately in the indices.
In other cases, MSCI may decide not to include a large new issue even in
the normal process of restructuring, and in spite of its substantial size and
liquidity.
Deletions. MSCI's primary concern when considering deletions is the
continuity of the indices. Of secondary concern are the turnover costs
associated with deletions. The indices must represent the full investment cycle,
including bear as well as bull markets. Out-of-favor stocks may exhibit
declining price, market capitalization or liquidity, and yet continue to be good
representatives of their industry.
Companies may be deleted because they have diversified away from their
industry classification, because the industry has evolved in a different
direction from the company's thrust, or because a better industry representative
exists (either a new issue or an existing company). In addition, in order not to
exceed the 60% target coverage of industries and countries, adding new index
companies may entail corresponding deletions. Usually such deletions take place
within the same industry, but there are occasional exceptions.
Each of the MSCI Indices utilized as the benchmark for an Index Fund is
calculated reflecting dividends reinvested. With the exception of the iShares
MSCI Mexico (Free) Index Fund, the Index Funds utilize MSCI Indices calculated
with net dividends reinvested. MSCI refers to each of its Indices calculated
reflecting net dividends reinvested as the "MSCI [relevant country] Index (with
net dividends reinvested)."
INVESTMENT LIMITATIONS
The Company has adopted the following investment restrictions as
fundamental policies with respect to each Index Fund. These restrictions cannot
be changed with respect to an Index Fund without the approval of the holders of
a majority of such Index Fund's outstanding voting securities. For purposes of
the 1940 Act, a majority of the outstanding voting securities of an Index Fund
means the vote, at an annual or a special meeting of the security holders of the
Company, of the lesser of (1) 67% or more of the voting securities of the Index
Fund present at such meeting, if the holders of more than 50% of the outstanding
voting securities of such Index Fund are present or represented by proxy, or (2)
more than 50% of the outstanding voting securities of the Index Fund. An Index
Fund may not:
1. Change its investment objective;
2. 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 an Index Fund may lend its
portfolio securities in an amount not to exceed 33% of the value of
its total assets;
3. Issue senior securities or borrow money, except borrowings from banks
for temporary or emergency purposes in an amount up to 33% of the
value of the Index 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 Index Fund will not purchase securities while
borrowings in excess of 5% of the Index 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;
4. 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 Index Fund's
assets);
38
<PAGE>
5. Purchase a security (other than obligations of the United States
Government, its agencies or instrumentalities) if as a result 25% or
more of its total assets would be invested in a single issuer;
6. Purchase, hold or deal in real estate, or oil, gas or mineral
interests or leases, but an Index Fund may purchase and sell
securities that are issued by companies that invest or deal in such
assets;
7. Act as an underwriter of securities of other issuers, except to the
extent the Index Fund may be deemed an underwriter in connection with
the sale of securities in its portfolio;
8. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, except that an Index
Fund may make margin deposits in connection with transactions in
currencies, options, futures and options on futures;
9. Sell securities short; or
10. Invest in commodities or commodity contracts, except that an Index
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. With respect to the two most heavily weighted
industries or groups of industries in its benchmark MSCI Index, an Index 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 Index 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 Index Fund, the Index 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. Each Index 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. An Index Fund
may not concentrate its investments except as discussed above. This policy is a
fundamental investment policy and may not be changed without the approval of a
majority of an Index Fund's shareholders.
As of March 31, 2000, as a result of this policy with respect to industry
concentration, the following Index Funds were concentrated (that is, invested
25% or more of the value of their assets) in the specified industries:
Index Fund Industry or Industries
-------------------------------------------------------------------
Austria Banks
Canada Communications Equipment
Hong Kong Diversified Financials
Italy Diversified Telecommunication Services
Singapore (Free) Banks
Switzerland Pharmaceuticals
In addition to the investment restrictions adopted as fundamental policies
as set forth above, each Index Fund observes the following restrictions, which
may be changed by the Board without a shareholder vote. An Index 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 Index 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 Index Fund has valued the investment.
39
<PAGE>
For purposes of the percentage limitation on each Index Fund's investments
in illiquid securities, with respect to each Index Fund, foreign equity
securities, though not registered under the Securities Act of 1933 (the
"Securities Act"), are not deemed illiquid 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 Index Fund. The Adviser monitors the liquidity of
restricted securities in each Index Fund's portfolio under the supervision of
the Company's Board. In reaching liquidity decisions, the Adviser considers,
inter alia, 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 a percentage limitation is adhered to at the time of investment or
contract, a later increase or decrease in percentage resulting from any change
in value or total or net assets will not result in a violation of such
restriction, except that the percentage limitations with respect to the
borrowing of money and illiquid securities will be observed continuously.
MANAGEMENT OF THE COMPANY
Directors and Officers of the Company. The Board has responsibility for
-------------------------------------
the overall management and operations of the Company, including general
supervision of the duties performed by the Adviser and other service providers.
The Board currently consists of five Directors. Nathan Most is an "interested"
director, as defined in the 1940 Act, by reason of his position as President of
the Company.
<TABLE>
<CAPTION>
Principal Occupations
Name and Address Position with the Company During Past Five Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nathan Most Director, President and Consultant to various companies including the
P.O. Box 193 Chairman of the Board investment advisor; Senior Vice President
Burlingame, CA 94011-0193 (retired) (from 1992 to 1996) and Vice
Age 84 President (from 1980 to 1992) of the American
Stock Exchange, Inc.; President and CEO
(retired) (from 1982 to 1996) of AMEX
Commodities Corporation.
John B. Carroll Director Vice President of Investment Management (since
Vice President, Investment Management 1984) of GTE Corporation; Advisory Board member
GTE Corporation of Ibbotson Assoc. (since 1998); former Trustee
One Stamford Forum and Member of the Executive Committee (since
Stamford, CT 06904 1991) of The Common Fund, a non-profit
Age 62 organization; Member of the Investment
Committee (since 1988) of the TWA Pilots
Annuity Trust Fund; former Vice Chairman and
Executive Committee Member (since 1992) of the
Committee on Investment of Employee Benefit
Assets of the Financial Executive Institute;
and Member (since 1986) of the Pension Advisory
Committee of the New York Stock Exchange.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name and Address Position with the Company During Past Five Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Timothy A. Hultquist Director Advisory Director (since 1995 and Managing
Advisory Director Director (from 1985 to 1995) of Morgan Stanley
Morgan Stanley & Co., Incorporated & Co., Incorporated; Chairman (since 1994) and
1221 Avenue of the Americas Trustee (since 1885) of the Board of Trustees
30/th/ Floor of Macalester College; Treasurer and Trustee
New York, NY 10020 (since 1995) of Russell Sage Foundation; Member
Age 48 (since 1994) of Wilmer Eye Institute Advisory
Counsel at John Hopkins University Hospital;
President (since 1992) of the Hultquist
Foundation; Chairman, Council of Board Chairmen
of Independent Colleges.
Lloyd N. Morrisett Director President (retired) of The John and Mary R.
Children's Television Workshop Markle Foundation (from 1969 to 1998); Chairman
One Lincoln Plaza, 4/th/ Floor (since 1970) of the Children's Television
New York, NY 10023 Workshop; Chairman (since 1998) and Director
Age 68 (since 1994) of Infonautics Corporation;
Trustee (from 1973 to 1983, from 1985 to 1995,
and since 1996) of RAND; Director (since 1976)
of Haskins Laboratories, Inc.; Director
(1990-January, 1997) of the Multimedia
Corporation; Director (since 1992) of
Classroom, Inc.; Director (since 1995) of Smith
College Center for the Study of Social and
Political Change; Director (since 1998) of
Public Agenda Foundation; Member of Board of
Overseers (from 1995 to 1998) of Dartmouth
School of Medicine; Member (since 1968) of the
Council on Foreign Relations; and Member (since
1970) of the American Association for the
Advancement of Science.
W. Allen Reed Director President and CEO and Director (since 1994) of
President General Motors Investment Management
General Motors Investment Management Corporation; Vice President and Treasurer (from
Corp. 1991 to 1994) of Hughes Electronics; President
767 Fifth Avenue (from 1984 to 1991) of Hughes Investment
New York, NY 10153 Management Company; Director (from 1995 to
Age 51 1998) of Taubman Centers, Inc. (a real estate
investment trust); Director (since 1992) of
FLIR Systems (an imaging technology company);
Director (since 1994) of General Motors
Acceptance Corporation; Director (since 1994)
of General Motors Insurance Corporation;
Director (since 1995) of Equity Fund of Latin
America; Director (since 1995) of the
Commonwealth Equity Fund; Member (from 1994 to
1998) of the Pension Managers Advisory
Committee of the New York Stock Exchange;
Member (since 1995) of the New York State
Retirement System Advisory Board; Chairman
(since 1995) of the Investment Advisory
Committee of Howard Hughes Medical Institute.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name and Address Position with the Company During Past Five Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stephen M. Wynne Treasurer Chairman of PFPC Trustee & Custodial Services
Executive Vice President Ltd. (since 1995); Executive Vice President and
PFPC Inc. Chief Accounting Officer (since 1993) and
400 Bellevue Parkway Senior Vice President and Chief Accounting
Wilmington, DE 19809 Officer (from 1991 to 1993) of PFPC Inc.;
Age 43 Executive Vice President (from 1993 to 1995) of
PFPC International.
R. Sheldon Johnson Secretary Managing Director, Global Equity
Managing Director Derivatives, Morgan Stanley & Co.
Morgan Stanley & Co. Incorporated Incorporated (since 1988).
1585 Broadway
New York, NY 10036
Age 50
</TABLE>
Directors' Compensation. The table below sets forth the compensation paid
-----------------------
to Directors and officers of the Company for the fiscal year ended August 31,
1999.
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Accrued from Registrant
Aggregate as Part of Estimated Annual and Company
Name of Person Compensation from Company Benefits Upon Complex Paid to
and Position Registrant Expenses Retirement Directors
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nathan Most, Director, $60,000 None None $60,000
President and Chairman
of the Board
John B. Carroll, $40,000 None None $40,000
Director
Timothy A. Hultquist, $40,000 None None $40,000
Director
Lloyd N. Morrisett, $40,000 None None $40,000
Director
W. Allen Reed, Director $40,000 None None $40,000
</TABLE>
No officer is entitled to any compensation, and no officer or Director is
entitled to any pension or retirement benefits, from the Company.
The Company does not have information concerning the beneficial ownership
of the iShares held in the names of such DTC Participants.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Although the Company does not have information concerning the beneficial
ownership of iShares held in the names of DTC Participants, as of March 6, 2000,
the name, address and percentage ownership of each DTC Participant that owned of
record 5% or more of the outstanding shares of an Index Fund were as follows:
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
- ----------------------- ---------------- -----------------------
<S> <C> <C>
Australia The Chase Manhattan Bank 53.95%
One Chase Manhattan Plaza
New York, NY 10081
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
- ----------------------- ---------------- -----------------------
<S> <C> <C>
The Bank of New York 7.39%
One Wall Street
New York, NY 10286
Bankers Trust 5.74%
648 Grassmere Park Road
Nashville, TN 37211
Austria The Bank of New York 22.65%
One Wall Street
New York, NY 10286
Salomon Smith Barney Inc. 16.96%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001
Brown Brothers Harriman & Co. 7.98%
63 Wall Street, 8th Floor
New York, NY 10005
National Financial Services Corporation 6.72%
1 World Financial Center, Tower A
New York, NY 10281
Belgium The Bank of New York 26.13%
One Wall Street
New York, NY 10286
Citibank, N.A. 7.65%
P.O. Box 30576
Tampa, FL 33630
Bear, Stearns Securities Corp. 7.11%
One Metrotech Center, North
Brooklyn, NY 11201
National Financial Services Corporation 6.35%
200 Liberty Street
New York, NY 10281
Salomon Smith Barney Inc. 5.94%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001
Canada Charles Schwab & Co., Inc. 18.48%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
Prudential Securities Incorporated 7.76%
1 New York Plaza, 9/th/ Floor
New York, NY 10292
Brown Bros. Harriman & Co. 7.50%
59 Wall Street
New York, NY 10005
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
- ----------------------- ---------------- -----------------------
<S> <C> <C>
Goldman, Sachs & Co. 7.32%
1 New York Plaza
New York, NY 10004
RBC Dominion Securities Inc. -- NSCC 6.46%
200 Bay Street, Royal Bank Plaza
Toronto, Ontario
Canada M5J 2W7
National Investors Services Corp. 5.46%
55 Water Street
New York, NY 10281
France Morgan Stanley & Co. Incorporated 16.00%
One Pierrepont Plaza
Brooklyn, NY 11201
State Street Bank & Trust Company 9.77%
1776 Heritage Drive
Quincy, MA 02171
The Bank of New York 9.20%
One Wall Street
New York, NY 10286
Brown Bros. Harriman & Co. 8.06%
59 Wall Street
New York, NY 10005
Wells Fargo Bank, N.A. 6.63%
464 California Street
San Francisco, CA 94104
Germany Brown Bros. Harriman & Co. 12.82%
59 Wall Street
New York, NY 10005
State Street Bank & Trust Company 10.18%
1776 Heritage Drive
Quincy, MA 02171
The Bank of New York 8.76%
One Wall Street
New York, NY 10286
Morgan Stanley & Co. Incorporated 5.17%
One Pierrepont Plaza
Brooklyn, NY 11201
Charles Schwab & Co., Inc. 5.01%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
Hong Kong Salomon Smith Barney Inc. 9.44%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
- ----------------------- ---------------- -----------------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated 8.82%
One Pierrepont Plaza
Brooklyn, NY 11201
Charles Schwab & Co., Inc. 6.32%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
Merrill Lynch Pierce Fenner & Smith Safek 6.28%
101 Hudson Street
Jersey City, NJ 07302
Brown Bros. Harriman & Co. 5.58%
59 Wall Street
New York, NY 10005
Italy Brown Bros. Harriman & Co. 21.61%
59 Wall Street
New York, NY 10005
The Bank of New York 16.57%
One Wall Street
New York, NY 10286
Bear, Stearns Securities Corp. 8.92%
One Metrotech Center North
Brooklyn, NY 11201-3859
Citibank, N.A. 7.74%
1410 Westshore Blvd.
Tampa, FL 33607
Japan Morgan Stanley & Co. Incorporated 13.55%
One Pierrepont Plaza
Brooklyn, NY 11201
Citibank, N.A. 7.74%
1410 Westshore Blvd.
Tampa, FL 33607
Brown Bros. Harriman & Co. 6.49%
59 Wall Street
New York, NY 10005
State Street Bank & Trust Company 6.19%
1776 Heritage Drive
Quincy, MA 02171
The Bank of New York 6.05%
One Wall Street
New York, NY 10286
Malaysia (Free) Brown Bros. Harriman & Co. 10.68%
59 Wall Street
New York, NY 10005
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
- ----------------------- ---------------- -----------------------
<S> <C> <C>
State Street Bank & Trust Company 9.01%
1776 Heritage Drive
Quincy, MA 02171
The Bank of New York 8.97%
One Wall Street
New York, NY 10286
Merrill Lynch Pierce Fenner & Smith Safek 7.26%
101 Hudson Street
Jersey City, NJ 07302
Salomon Smith Barney Inc. 6.84%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001
Charles Schwab & Co., Inc. 5.08%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
Mexico (Free) Morgan Stanley & Co. Incorporated 2 7.30%
One Pierrepont Plaza
Brooklyn, NY 11201
The Bank of New York 9.23%
One Wall Street
New York, NY 10286
Salomon Smith Barney Inc. 5.58%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001
Netherlands Brown Bros. Harriman & Co. 1 3.63%
59 Wall Street
New York, NY 10005
Morgan Stanley & Co. Incorporated 1 1.80%
One Pierrepont Plaza
Brooklyn, NY 11201
The Bank of New York
One Wall Street
New York, NY 10286
Citibank, N.A. 9.02%
1410 Westshore Blvd.
Tampa, FL 33607
Prudential Securities Incorporated 6.76%
1 New York Plaza
9/th/ Floor
New York, NY 10292
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
- ----------------------- ---------------- -----------------------
<S> <C> <C>
Singapore (Free) Charles Schwab & Co., Inc. 8.67%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
Morgan Stanley & Co. Incorporated 7.87%
One Pierrepont Plaza
Brooklyn, NY 11201
Salomon Smith Barney Inc. 7.60%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001
Merrill Lynch Pierce Fenner & Smith Safeke 6.02%
101 Hudson Street
Jersey City, NJ 07302
National Financial Services Corporation 5.74%
1 World Financial Center, Tower A
New York, NY 10281
Spain The Bank of New York 18.14%
One Wall Street
New York, NY 10286
Brown Bros. Harriman & Co. 11.88%
59 Wall Street
New York, NY 10005
Morgan Stanley & Co. Incorporated 11.08%
One Pierrepont Plaza
Brooklyn, NY 11201
Citibank, N.A. 7.67%
1410 Westshore Blvd.
Tampa, FL 33607
Sweden The Bank of New York 18.78%
One Wall Street
New York, NY 10286
Brown Bros. Harriman & Co. 9.91%
59 Wall Street
New York, NY 10005
Citibank, N.A. 9.05%
1410 Westshore Blvd.
Tampa, FL 33607
Merrill Lynch Pierce Fenner & Smith Safeke 7.26%
101 Hudson Street
Jersey City, NJ 07302
Spear, Leeds & Kellogg 5.25%
120 Broadway
New York, NY 10271
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
- ----------------------- ---------------- -----------------------
<S> <C> <C>
Switzerland Morgan Stanley & Co. Incorporated 14.22%
One Pierrepont Plaza
Brooklyn, NY 11201
Brown Bros. Harriman & Co. 13.30%
59 Wall Street
New York, NY 10005
Wells Fargo Bank, N.A. 12.28%
464 California Street
San Francisco, CA 94104
Citibank, N.A. 8.41%
1410 Westshore Blvd.
Tampa, FL 33607
State Street Bank & Trust Company 6.28%
1776 Heritage Drive
Quincy, MA 02171
The Bank of New York 6.27%
One Wall Street
New York, NY 10286
United Kingdom Brown Bros. Harriman & Co. 10.87%
59 Wall Street
New York, NY 10005
The Bank of New York 9.60%
One Wall Street
New York, NY 10286
State Street Bank & Trust Company 8.64%
1776 Heritage Drive
Quincy, MA 02171
Citibank, N.A. 8.53%
1410 Westshore Blvd.
Tampa, FL 33607
Morgan Stanley & Co. Incorporated 7.83%
One Pierrepont Plaza
Brooklyn, NY 11201
Prudential Securities Incorporated 5.52%
1 New York Plaza, 9/th/ Floor
New York, NY 10292
</TABLE>
INVESTMENT ADVISORY, MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES
Investment Adviser. Barclays Global Fund Advisors (the "Adviser") acts as
------------------
investment adviser to the Company and, subject to the supervision of the Board,
is responsible for the investment management of each Index Fund. The Adviser is
a California corporation indirectly owned by Barclays Bank PLC, and is
registered as an investment adviser under the Investment Advisers Act of 1940.
The Adviser and its parent, Barclays Global Investors, N.A., manage, administer
or advise assets aggregating in excess of $809 billion as of March 31, 2000.
48
<PAGE>
The Adviser serves as investment adviser to each Index Fund pursuant to an
Advisory Agreement (the "Advisory Agreement") between the Company and the
Adviser approved by shareholders on May 8, 2000. Under the Advisory Agreement,
the Adviser, subject to the supervision of the Company's Board and in conformity
with the stated investment policies of each Index Fund, manages the investment
of each Index Fund's assets. The Adviser may enter into subadvisory agreements
with additional investment advisers to act as subadvisers with respect to
particular Index Fund. The Adviser will pay subadvisers, if any, out of the fees
received by the Adviser. The Adviser is responsible for (i) placing purchase and
sale orders, (ii) providing continuous supervision of the investment portfolio
of each Index Fund, (iii) the general management of the Company's affairs, and
(iv) paying all expenses for Company operations and activities. For its
investment management services to each Index Fund, except the four (4) Index
Funds listed below, the Adviser is paid a fee equal to each of those Index
Fund's allocable portion of: .59% per annum of the aggregate net assets of those
Index Funds less than or equal to $7 billion, plus .54% per annum of the
aggregate net assets of those Index Funds between $7 billion and $11 billion,
plus .49% per annum of the aggregate net assets of those Index Funds in excess
of $11 billion; for its investment management services to the iShares MSCI
Brazil (Free), South Africa, South Korea and Taiwan Index Funds, the Adviser is
paid management fees equal to each of those Index Fund's allocable portion of:
0.74% per annum of the aggregate net assets of those Index Funds less than or
equal to $2 billion, plus 0.69% per annum of the aggregate net assets of those
Index Funds between $2 billion and $4 billion, plus 0.64% per annum of the
aggregate net assets of those Index Funds greater than $4 billion; provided,
however, that the fee paid to the Adviser with respect to each Index Fund shall
be reduced by the aggregate of such Index Funds' fees and expenses, other than
(i) expenses of the Index Funds incurred in connection with the execution of
portfolio securities transactions on behalf of such Index Funds, (ii) expenses
incurred in connection with any distribution plan adopted by the Company in
compliance with Rule 12b-1 under the 1940 Act, (iii) litigation expenses, (iv)
taxes (including, but not limited to, income, excise, transfer and withholding
taxes), (v) any cost or expense that a majority of the Directors of the Company
who are not "interested persons" (as defined in the 1940 Act) deems to be an
extraordinary expense and (vi) the advisory fee payable to the Adviser under the
Advisory Agreement; and provided, further, that the Adviser shall reimburse the
Company to the extent that the expenses of any Index Fund (other than the
expenses set forth in the foregoing proviso) exceed the amount set forth above
with respect to such Index Fund. The management fees are accrued daily and paid
by the Company as soon as practical after the last day of each calendar quarter.
The Adviser may from time to time reimburse expenses to one or more Index Funds.
The Company's management fees, like those paid by most index funds, are lower
than those paid by many actively managed funds. One reason for the difference in
fee levels is that passive management requires fewer investment, research and
trading decisions, thereby justifying lower fees. Pursuant to the Advisory
Agreement, the Adviser is not liable for any error of judgment or mistake of law
or for any loss suffered by the Company, unless caused by the Adviser's willful
malfeasance, bad faith or gross negligence in the performance of its duties or
reckless disregard of its duties and obligations under the Advisory Agreement.
The Advisory Agreement, with respect to all Index Funds, is subject to annual
approval by (1) the Company's Board or (2) vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Company, provided that in
either event the continuance also is approved by a majority of the Company's
Board who are not interested persons (as defined in the 1940 Act) of the Company
by vote cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement is terminable without penalty, on 60 days'
notice, by the Company's Board or by vote of the holders of a majority (as
defined in the 1940 Act) of the Company's outstanding voting securities. The
Advisory Agreement is also terminable upon 60 days' notice by the Adviser and
will terminate automatically in the event of its assignment (as defined in the
1940 Act).
For the fiscal years ended August 31, 1997, 1998 and 1999, respectively,
the Company paid fees to the Adviser for its advisory service as follows:
Australia Index Fund $49,326, $113,929 and $135,613; Austria Index Fund $8,459,
$17,769 and $27,123; Belgium Index Fund $38,995, $80,997 and $44,906; Canada
Index Fund $59,093, $56,716 and $33,205; France Index Fund $35,574, $74,578 and
$137,387; Germany Index Fund $49,546, $118,054 and $219,901; Hong Kong Index
Fund $40,743, $124,506 and $197,467; Italy Index Fund $78,513, $162,294 and
$186,292; Japan Index Fund $318,796, $433,508 and $1,096,060; Malaysia (Free)
Index Fund $44,814, $132,902 and $176,782; Mexico (Free) Index Fund $26,482,
$38,055 and $39,012; Netherlands Index Fund $22,577, $44,756 and $68,016;
Singapore (Free) Index Fund $34,141, $119,392 and $255,259; Spain Index Fund
$14,044, $53,561 and $92,868; Sweden Index Fund $15,088, $35,809 and $43,348;
Switzerland Index Fund $24,197, $64,666 and $93,758; and United Kingdom Index
Fund $57,283, $137,019 and $245,947.
Administrator. PFPC Inc. (the "Administrator"), an indirect wholly owned
-------------
subsidiary of PNC Bank Corp., acts as administration and accounting agent of the
Company pursuant to an Administration and Accounting
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Services Agreement with the Company and is responsible for certain clerical,
recordkeeping and bookkeeping services, except those to be performed by the
Adviser, by Chase in its capacity as Custodian, or by PNC Bank, N.A. ("PNC") in
its capacity as Transfer Agent. The Administrator has no role in determining the
investment policies of the Company or which securities are to be purchased or
sold by the Company. The principal business address of the Administrator is 400
Bellevue Parkway, Wilmington, DE 19809.
For the administrative and fund accounting services the Administrator
provides to the Company, PFPC is paid aggregate fees equal to each Index Fund's
allocable portion of: .15% per annum of the average aggregate daily net assets
of the Company up to $3 billion; plus .10% per annum of the average aggregate
daily net assets of the Company between $3 billion and $4.5 billion, plus .095%
per annum of the average aggregate daily net assets of the Company in excess of
$4.5 billion. The Administrator pays Morgan Stanley & Co. Incorporated a fee of
.05% of the average daily net assets of the Company for sub-administration
services as described under "The Sub-Administrator" below.
Pursuant to the Administration and Accounting Services Agreement, the
Administrator is liable for damages arising of its failure to perform its duties
due to willful misfeasance, bad faith, gross negligence or reckless disregard of
such duties. The Company will indemnify the Administrator for certain
liabilities, including certain liabilities arising under federal securities
laws, except for liabilities arising out of the Administrator's willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties.
For the fiscal years ended August 31, 1997, 1998 and 1999, respectively,
the Company paid fees to the Administrator for its administrative services as
follows: Australia Index Fund $31,057, $89,377 and $110,319; Austria Index Fund
$5,326, $14,128 and $22,059; Belgium Index Fund $24,552, $63,121 and $36,546;
Canada Index Fund $37,207, $44,201 and $27,026; France Index Fund $22,398,
$59,529 and $111,716; Germany Index Fund $31,196, $94,141 and $178,860; Hong
Kong Index Fund $25,653, $98,932 and $160,647; Italy Index Fund $49,434,
$128,961 and $151,590; Japan Index Fund $200,723, $340,915 and $890,839;
Malaysia (Free) Index Fund $28,216, $106,617 and $143,744; Mexico (Free) Index
Fund $16,674, $29,580 and $31,717; Netherlands Index Fund $14,215, $35,512 and
$55,318; Singapore (Free) Index Fund $21,496, $95,590 and $207,640; Spain Index
Fund $8,842, $42,795 and $75,553; Sweden Index Fund $9,500, $29,928 and $35,257;
Switzerland Index Fund $15,235, $51,205 and $76,274; and United Kingdom Index
Fund $36,067, $108,935 and $200,033.
Sub-Administrator. Morgan Stanley & Co. Incorporated provides certain sub-
-----------------
administrative services relating to the Company pursuant to a Sub-Administration
Agreement and receives a fee from the Administrator equal to .05% of the
Company's average daily net assets for providing such services. Morgan Stanley
& Co. Incorporated may from time to time reimburse expenses to one or more Index
Funds. Morgan Stanley & Co. Incorporated, as Sub-Administrator, has no role in
determining the investment policies of the Company or which securities are to be
purchased or sold by the Company. The principal business address of Morgan
Stanley & Co. Incorporated is 1585 Broadway, New York, New York, 10036.
For the period from the commencement of the sub-administration arrangements
on October 29, 1997 to August 31, 1998 and the fiscal year ended August 31,
1999, the Administrator paid sub-administration fees to a prior sub-
administrator (a former affiliate of the Sub-Administrator) for its services as
follows: Australia Index Fund - $17,644 and $25,114; Austria Index Fund -
$2,940 and $5,023; Belgium Index Fund - $12,122 and $8,316; Canada Index Fund -
$8,491 and $6,149; France Index Fund - $12,573 and $25,442; Germany Index Fund -
$19,811 and $40,722; Hong Kong Index Fund - $20,539 and $36,568; Italy Index
Fund - $26,776 and $34,499; Japan Index Fund - $67,965 and $202,974; Malaysia
(Free) Index Fund - $22,936 and $32,737; Mexico (Free) Index Fund - $5,620 and
$7,224; Netherlands Index Fund - $7,332 and $12,596; Singapore (Free) Index Fund
- - $20,417 and $47,270; Spain Index Fund - $9,072 and $17,198; Sweden Index Fund
- - $5,789 and $8,027; Switzerland Index Fund - $10,490 and $17,363; and United
Kingdom Index Fund - $22,664 and $45,546.
Distributor. Effective March 28, 2000, SEI Investments Distribution
-----------
Company (the "Distributor") became the principal underwriter and distributor of
iShares. The Distributor's principal offices are located at One Freedom Valley
Drive, Oaks, PA 19456. Investor information can be obtained by calling 1-800-
iShares (1-800-474-2737). The Distributor has entered into an agreement with the
Company which will continue for one year from its effective date, and which is
renewable annually thereafter (the "Distribution Agreement"), pursuant to which
it distributes Company shares. iShares will be continuously offered for sale by
the Company through the Distributor only in
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Creation Units, as described below under "Purchase and Issuance of iShares in
Creation Units." iShares in less than Creation Units are not distributed by the
Distributor. The Distributor also acts as agent for the Company. The Distributor
will deliver a prospectus to persons purchasing iShares in Creation Units and
will maintain records of both orders placed with it and confirmations of
acceptance furnished by it. The Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the
National Association of Securities Dealers, Inc. SEI Investments Distribution
Company as Distributor, has no role in determining the investment policies of
the Company or which securities are to be purchased or sold by the Company.
To compensate the Distributor for the distribution-related services it
provides, and broker-dealers authorized by the Distributor for distribution
services they provide, the Company has adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Company's Plan, for each
Index Fund the Distributor is entitled to receive a distribution fee, accrued
daily and paid monthly, calculated with respect to each Index Fund at a rate set
from time to time by the Board of Directors, provided that the annual rate may
not exceed .25% of the average daily net assets of such Index Fund. From time
to time the Distributor may waive all or a portion of these fees.
The Plan is designed to enable the Distributor to be compensated by the
Company for distribution services provided by it with respect to each Index
Fund. Payments under the Plan are not tied exclusively to the distribution
expenses actually incurred by the Distributor. The Board, including a majority
of the Directors who are not interested persons of the Company and who have no
direct or indirect financial interest in the operation of the Plan ("Independent
Directors"), evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in doing so consider all relevant factors, including
expenses borne by the Distributor in the current year and in prior years and
amounts received under the Plan.
Under its terms, the Plan remains in effect from year to year, provided
such continuance is approved annually by vote of the Board, including a majority
of the Independent Directors. The Plan may not be amended to increase materially
the amount to be spent for the services provided by the Distributor without
approval by the shareholders of the Index Fund to which the Plan applies, and
all material amendments of the Plan also require Board approval. The Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors, or, with respect to any Index Fund, by a vote of a
majority of the outstanding voting securities of such Index Fund (as such vote
is defined in the 1940 Act). If a Plan is terminated (or not renewed) with
respect to any one or more Index Funds, it may continue in effect with respect
to any Index Fund as to which it has not been terminated (or has been renewed).
Pursuant to the Distribution Agreement, the Distributor will provide the Board
periodic reports of any amounts expended under the Plan and the purpose for
which such expenditures were made.
The distribution fees payable under the 12b-1 Plan are used to pay
distribution related expenses, including: compensation to the distributor at a
rate fixed by the Company's Board of Directors from time to time (currently .02%
of the Company's average daily net assets, subject to an annual minimum of
$845,000); compensation to a sales and marketing consultant retained by the
Company at a rate of .035% of the Company's average daily net assets;
reimbursements of expenses incurred by the distributor and other persons
(including the investment adviser) in connection with the distribution of the
Company's shares. In addition, the Distributor also has entered into sales and
investor services agreements with broker-dealers or other persons that are DTC
Participants (as defined below) to provide distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
Under the terms of each sales and investor services agreement, the Distributor
will pay such broker-dealers or other persons, out of Rule 12b-1 fees received
from the Index Fund, at the annual rate of up to .25 of 1% of the average daily
net asset value of iShares held through DTC for the account of such DTC
Participant. The amounts of the fees paid to the distributor and the sales and
marketing consultant are not dependent on the amount of distribution expenses
actually incurred by such persons.
The Distribution Agreement provides that it may be terminated at any time,
without the payment of any penalty, (i) by vote of a majority of the Directors
who are not interested persons of the Company (as defined under the 1940 Act) or
(ii) by vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the relevant Index Fund, on at least 60 days' written
notice to the Distributor. The Distribution Agreement is also terminable upon 60
days' notice by the Distributor and will terminate automatically in the event of
its assignment (as defined in the 1940 Act).
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Prior to March 28, 2000, Funds Distributor, Inc. ("FDI"), located at 60
State Street, Suite 1300, Boston, MA 02109 served as the principle underwriter
and distributor of iShares. For the fiscal years ended August 31, 1997, 1998
and 1999, respectively, FDI received the following amounts pursuant to the Plan
with respect to each Index Fund: iShares MSCI Australia Index Fund, $45,672,
$87,845 and $100,454; iShares MSCI Austria Index Fund, $7,833, $13,513 and
$20,091; iShares MSCI Belgium Index Fund, $36,106, $62,876 and $33,264; iShares
MSCI Canada Index Fund, $54,716, $44,024 and $24,597; iShares MSCI France Index
Fund, $32,938, $56,481 and $101,768; iShares MSCI Germany Index Fund, $45,876,
$89,498 and $162,890; iShares MSCI Hong Kong Index Fund, $37,724, $94,745 and
$146,272; iShares MSCI Italy Index Fund, $72,698, $123,496 and $137,994; iShares
MSCI Japan Index Fund, $295,181, $333,432 and $811,896; iShares MSCI Malaysia
(Free) Index Fund, $41,495, $100,121 and $130,950; iShares MSCI Mexico (Free)
Index Fund, $24,521, $29,617 and $28,898; iShares MSCI Netherlands Index Fund,
$20,904, $34,109 and $50,383; iShares MSCI Singapore (Free) Index Fund, $31,612,
$90,132 and $189,081; iShares MSCI Spain Index Fund, $13,003, $40,521 and
$68,791; iShares MSCI Sweden Index Fund, $13,971, $25,775 and $32,110; iShares
MSCI Switzerland Index Fund, $22,405, $49,386 and $69,451; and iShares MSCI
United Kingdom Index Fund, $53,040, $104,206 and $182,183.
In the aggregate, FDI received $849,695, $1,379,777 and $2,291,073 for the
fiscal years ended August 31, 1997, 1998 and 1999, respectively, from the Index
Funds pursuant to the Plan, retaining $67,976, $133,964 and $229,107,
respectively, and paying out the remainder to unaffiliated third parties. The
retained amounts represent .02%, respectively, of the average daily net assets
of the Index Funds, which the Distributor received for monitoring the purchase
and redemption of Creation Units, as described below under the "Purchase and
Issuance of iShares in Creation Units" and "Redemption of iShares in Creation
Units." During the fiscal years ended August 31, 1997, 1998 and 1999, the FDI
paid $494,970, $885,446 and $1,553,929; $342,394, $248,720 and $347,662; and
$35,841, $111,647 and $160,375, respectively, for (1) postage and other expenses
of distributing prospectuses, statements of additional information and other
marketing materials, (2) advertising-related expenses and (3) compensation to
broker-dealers for distribution assistance, respectively, which amounts were
allocated to payments made under the Plan by each Index Fund based on its
average daily net assets for the period.
Custodian and Lending Agent. Chase serves as the Custodian for the cash
---------------------------
and portfolio securities of each Index Fund pursuant to a Custodian Agreement
between Chase and the Company and as Lending Agent for each Index Fund. As
Lending Agent, Chase causes the delivery of loaned securities from the Company
to borrowers, arranges for the return of loaned securities to the Company at the
termination of the loans, requests deposit of collateral, monitors daily the
value of the loaned securities and collateral, requests that borrowers add to
the collateral when required by the loan agreements, and provides recordkeeping
and accounting services necessary for the operation of the program. Chase may
from time to time reimburse expenses to one or more Index Funds. Chase, as
Custodian and Lending Agent, has no role in determining the investment policies
of the Company or which securities are to be purchased or sold by the Company.
The principal business address of Chase is One Pierrepont Plaza, Brooklyn, New
York, 11201.
For its custody services to each Index Fund, Chase will be paid per annum
fees based on the aggregate net assets of the Index Funds as follows: iShares
MSCI Australia Index Fund (0.05%); iShares MSCI Austria Index Fund (0.06%);
iShares MSCI Belgium Index Fund (0.05%); iShares MSCI Brazil (Free) Index Fund
(0.20%); iShares MSCI Canada Index Fund (0.02%); iShares MSCI France Index Fund
(0.05%); iShares MSCI Germany Index Fund (0.04%); iShares MSCI Hong Kong Index
Fund (0.04%); iShares MSCI Italy Index Fund (0.05%); iShares MSCI Japan Index
Fund (.026%); iShares MSCI Malaysia (Free) Index Fund (0.07%); iShares MSCI
Mexico (Free) Index Fund (0.15%); iShares MSCI Netherlands Index Fund (0.04%);
iShares MSCI Singapore (Free) Index Fund (0.05%); iShares MSCI South Africa
Index Fund (0.12%); iShares MSCI South Korea Index Fund (0.15%); iShares MSCI
Spain Index Fund (0.05%); iShares MSCI Sweden Index Fund (0.05%); iShares MSCI
Switzerland Index Fund (0.05%); iShares MSCI Taiwan Index Fund (0.20%); and
iShares MSCI United Kingdom Index Fund (0.11%). As remuneration for its
services in connection with lending portfolio securities of the Index Funds,
Chase is paid by the Company, in respect of each Index Fund, 40% of the net
investment income earned on the collateral for securities loaned.
Transfer Agent. PFPC Inc. (the "Transfer Agent"), an indirect wholly owned
--------------
subsidiary of PNC Bank Corp., provides transfer agency services pursuant to an
agreement with the Company. The Transfer Agent has no role in determining the
investment policies of the Company or which securities are to be purchased or
sold by the
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Company. The principal business address of the Transfer Agent is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19110.
BROKERAGE ALLOCATION
When selecting brokers and dealers to handle the purchase and sale of
portfolio securities, the Adviser looks for prompt execution of the order at a
favorable price. Generally, the Adviser works with recognized dealers in these
securities, except when a better price and execution of the order can be
obtained elsewhere. The Company will not deal with affiliates in principal
transactions unless permitted by exemptive order or applicable rule or
regulation. Since the investment objective of each Index Fund is investment
performance that corresponds to that of an index, the Adviser does not intend to
select brokers and dealers for the purpose of receiving research services in
addition to a favorable price and prompt execution either from that broker or an
unaffiliated third party.
Subject to allocating brokerage to receive a favorable price and prompt
execution, the Adviser may select brokers who are willing to provide payments to
third party service suppliers to an Index Fund, to reduce expenses of the Index
Fund.
The Adviser assumes general supervision over placing orders on behalf of
the Company for the purchase or sale of portfolio securities. If purchases or
sales of portfolio securities of the Company and one or more other investment
companies or clients supervised by the Adviser are considered at or about the
same time, transactions in such securities are allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Adviser, taking into account the sizes of such other investment companies and
clients and the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as the Company is concerned. However, in other cases it is possible that
the ability to participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to the Company. The primary
consideration is prompt execution of orders at the most favorable net price.
Portfolio turnover may vary from year to year, as well as within a year. High
turnover rates are likely to result in comparatively greater brokerage expenses.
The portfolio turnover rate for each Index Fund is expected to be under 50%. See
"Implementation of Policies" in the Prospectus. The overall reasonableness of
brokerage commissions is evaluated by the Adviser based upon its knowledge of
available information as to the general level of commissions paid by other
institutional investors for comparable services.
For the fiscal year ended August 31, 1999, the Company paid $704,320 in
aggregate brokerage commissions. During that fiscal year, certain portfolio
transactions were executed through Morgan Stanley & Co. Incorporated ("MS&Co."),
an affiliated broker of the Company due to the Company Secretary's position as a
Managing Director of MS&Co. As a percentage of aggregate brokerage commissions
paid during the fiscal year, MS&Co. received 5.72% of the aggregate dollar
amount ($40,300).
ADDITIONAL INFORMATION CONCERNING ISHARES
Capital Stock. The Company currently is comprised of twenty-eight series
-------------
of shares of common stock, par value $.001 per share, referred to herein as
iShares: the iShares MSCI Australia Index Fund, the iShares MSCI Austria Index
Fund, the iShares MSCI Belgium Index Fund, the iShares MSCI Brazil (Free) Index
Fund, the iShares MSCI Canada Index Fund, the iShares MSCI EMU Index Fund, the
iShares MSCI France Index Fund, the iShares MSCI Germany Index Fund, the iShares
MSCI Greece Index Fund, the iShares MSCI Hong Kong Index Fund, the iShares MSCI
Indonesia (Free) Index Fund, the iShares MSCI Italy Index Fund, the iShares MSCI
Japan Index Fund, the iShares MSCI Malaysia (Free) Index Fund, the iShares MSCI
Mexico (Free) Index Fund, the iShares MSCI Netherlands Index Fund, the iShares
MSCI Portugal Index Fund, the iShares MSCI Singapore (Free) Index Fund, the
iShares MSCI South Africa Index Fund, the iShares MSCI South Korea Index Fund,
the iShares MSCI Spain Index Fund, the iShares MSCI Sweden Index Fund, the
iShares MSCI Switzerland Index Fund, the iShares MSCI Taiwan Index Fund, the
iShares MSCI Thailand (Free) Index Fund, the iShares MSCI Turkey Index Fund, the
iShares MSCI United Kingdom Index Fund and the iShares MSCI USA Index Fund. Each
Index Fund has been issued a separate class of capital 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 Articles of Incorporation
provide that the shares of each series of common stock of the Company are
redeemable, at net asset value, at the option of the
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Company, in whole or any part, on such terms as the Board of Directors may by
resolution approve, without the consent of the holders thereof.
Each iShares issued by the Company has a pro rata interest in the assets of
the corresponding Index Fund. The Company is currently authorized to issue 10.9
billion shares of common stock. The following number of shares is currently
authorized for each Index Fund: the iShares MSCI Australia Index Fund, 127.8
million shares; the iShares MSCI Austria Index Fund, 19.8 million shares; the
iShares MSCI Belgium Index Fund, 136.2 million shares; the iShares MSCI Brazil
(Free) Index Fund, 500 million shares; the iShares MSCI Canada Index Fund, 340.2
million shares; the iShares MSCI EMU Index Fund, 500 million shares; the iShares
MSCI France Index Fund, 340.2 million shares; the iShares MSCI Germany Index
Fund, 382.2 million shares; the iShares MSCI Greece Index Fund, 200 million
shares; the iShares MSCI Hong Kong Index Fund, 191.4 million shares; the iShares
MSCI Indonesia (Free) Index Fund, 200 million shares; the iShares MSCI Italy
Index Fund, 63.6 million shares; the iShares MSCI Japan Index Fund, 2,124.6
million shares; the iShares MSCI Malaysia (Free) Index Fund, 127.8 million
shares; the iShares MSCI Mexico (Free) Index Fund, 255 million shares; the
iShares MSCI Netherlands Index Fund, 255 million shares, the iShares MSCI
Portugal Index Fund, 200 million shares; the iShares MSCI Singapore (Free)
Index Fund, 191.4 million shares; the iShares MSCI South Africa Index Fund, 200
million shares; the iShares MSCI South Korea Index Fund, 200 million shares; the
iShares MSCI Spain Index Fund, 127.8 million shares; the iShares MSCI Sweden
Index Fund, 63.6 million shares; the iShares MSCI Switzerland Index Fund,
318.625 million shares; the iShares MSCI Taiwan Index Fund, 200 million shares;
the iShares MSCI Thailand (Free) Index Fund, 200 million shares; the iShares
MSCI Turkey Index Fund, 200 million shares; the iShares MSCI United Kingdom
Index Fund, 943.2 million shares; and the iShares MSCI USA 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 Index Fund, and in the net
distributable assets of such Index Fund on liquidation. Shareholders are
entitled to require the Company to redeem Creation Units of their shares. The
Articles of Incorporation confers upon the Board of Directors 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 iShare 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
series vote together as a single class except that if the matter being voted on
affects only a particular Index Fund it will be voted on only by that Index Fund
and if a matter affects a particular Index Fund differently from other Index
Funds, that Index 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.
All shares of the Company (regardless of Index Fund) have noncumulative voting
rights for the election of Directors. Under Maryland law, Directors of the
Company may be removed by vote of the stockholders.
The Company issues through the Authorized Participants to its stockholders
semi-annual reports containing unaudited financial statements and annual reports
containing financial statements audited by independent auditors approved by the
Company's Directors and by the stockholders when meetings are held and such
other information as may be required by applicable laws, rules and regulations.
Beneficial Owners also receive annually notification as to the tax status of the
Company's distributions.
Stockholder inquiries may be made by writing to the Company, c/o PFPC Inc.,
400 Bellevue Parkway, Wilmington, DE 19809.
Book Entry Only System. DTC acts as securities depositary for iShares.
----------------------
iShares of each Index Fund are represented by global securities registered in
the name of DTC or its nominee and deposited with, or on behalf of, DTC. Except
as provided below, certificates will not be issued for iShares.
DTC has advised the Company as follows: it is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of its participants (the "DTC Participants") and to
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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, Inc., the AMEX and the National Association of Securities
Dealers, Inc. 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
(the "Indirect Participants"). DTC agrees with and represents to its
Participants that it will administer its book-entry system in accordance with
its rules and by-laws and requirements of law.
Beneficial ownership of iShares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in iShares (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 iShares. 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
iShares.
Beneficial Owners of iShares are not entitled to have iShares registered in
their names, will not receive or be entitled to receive physical delivery of
certificates in definitive form and are not considered the registered holder
thereof. Accordingly, each Beneficial Owner must rely on the procedures of DTC,
the DTC Participant and any Indirect Participant through which such Beneficial
Owner holds its interests, to exercise any rights of a holder of iShares. The
Company understands that under existing industry practice, in the event the
Company requests any action of holders of iShares, or a Beneficial Owner desires
to take any action that DTC, as the record owner of all outstanding iShares, is
entitled to take, DTC would authorize the DTC Participants to take such action
and that the DTC Participants would authorize the Indirect Participants and
Beneficial Owners acting through such DTC Participants to take such action and
would otherwise act upon the instructions of Beneficial Owners owning through
them. As described above, the Company recognizes DTC or its nominee as the owner
of all iShares for all purposes. 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 iShares holdings of each DTC Participant. The Company shall
inquire of each such DTC Participant as to the number of Beneficial Owners
holding iShares, 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.
iShares distributions shall be made to DTC or its nominee, Cede & Co., as
the registered holder of all iShares. 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
iShares as shown on the records of DTC or its nominee. Payments by DTC
Participants to Indirect Participants and Beneficial Owners of iShares 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 aspects of the records relating to or notices to Beneficial
Owners, or payments made on account of beneficial ownership interests in such
iShares, 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.
55
<PAGE>
DTC may determine to discontinue providing its service with respect to
iShares 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 either to find a replacement for
DTC to perform its functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing ownership of
iShares, unless the Company makes other arrangements with respect thereto
satisfactory to the AMEX (or such other exchange on which iShares may be
listed).
PURCHASE AND REDEMPTION OF ISHARES
Creation Units. The Company issues and redeems iShares of each Index Fund
--------------
only in aggregations of iShares specified for each Index Fund. The following
table sets forth the number of iShares of an Index Fund that constitute a
Creation Unit for such Index Fund and the value of such Creation Unit at March
31, 2000:
Value Per
iShares Per Creation
Index Fund Creation Unit Unit ($U.S.)
----------------------------------------------------------
Australia 200,000 $2,014,076
Austria 100,000 $ 788,172
Belgium 40,000 $ 502,261
Brazil (Free)* 50,000 $ 995,184
Canada 100,000 $1,799,288
EMU* 200,000 $1,543,702
France 200,000 $5,572,853
Germany 300,000 $8,117,788
Hong Kong 75,000 $1,024,220
Italy 150,000 $3,722,232
Japan 600,000 $9,757,487
Malaysia (Free) 75,000 $ 554,461
Mexico (Free) 100,000 $1,838,934
Netherlands 50,000 $1,193,353
Singapore (Free) 100,000 $ 755,175
South Africa* 50,000 $1,000,804
South Korea** 50,000 $ 998,659
Spain 75,000 $2,142,244
Sweden 75,000 $2,539,084
Switzerland 125,000 $1,908,054
Taiwan* 50,000 $1,995,106
United Kingdom 200,000 $4,040,192
USA* 500,000 $4,231,095
* Estimated.
** Value of creation unit as of May 17, 2000 since the iShares MSCI
South Korea Index Fund were first offered to the public on May
12, 2000.
See "Purchase and Issuance of iShares in Creation Units" and "Redemption of
iShares in Creation Units" below. The Board of Directors of the Company
reserves the right to declare a split or a consolidation in the number of
iShares outstanding of any Index Fund of the Company, and to make a
corresponding change in the number of iShares constituting a Creation Unit, in
the event that the per iShares price in the secondary market rises (or declines)
to an amount that falls outside the range deemed desirable by the Board.
Purchase and Issuance of iShares in Creation Units.
--------------------------------------------------
General. The Company issues and sells iShares only in Creation Units on a
continuous basis through the Distributor, without an initial sales load, at
their net asset value next determined after receipt, on any Business Day (as
defined herein), of an order in proper form.
56
<PAGE>
A "Business Day" with respect to each Index Fund is any day on which (i)
the New York Stock Exchange ("NYSE") and (ii) the stock exchange(s) and Company
subcustodian(s) relevant to such Index Fund are open for business. As of the
date of the Prospectus, the NYSE observes the following holidays: New Year's
Day, Dr. Martin Luther King, Jr. Day, President's Day (Washington's Birthday),
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The stock exchange and/or subcustodian holidays relevant
to each Index Fund are set forth in Appendix B to this SAI.
Portfolio Deposit. The consideration for purchase of a Creation Unit of
iShares of an Index Fund (except for the iShares MSCI South Korea Index Fund
which is currently offered, and the iShares MSCI Brazil (Free) and Taiwan Index
Funds which will be offered, in their iShares Creation Units solely for cash)
generally consists of the in-kind deposit of a designated portfolio of equity
securities (the "Deposit Securities") constituting an optimized representation
of the Index Fund's benchmark foreign securities index and an amount of cash
computed as described below (the "Cash Component"). Together, the Deposit
Securities and the Cash Component constitute the "Portfolio Deposit," which
represents the minimum initial and subsequent investment amount for shares of
any Index Fund of the Company. The Cash Component is an amount equal to the
Dividend Equivalent Payment (as defined below), plus or minus, as the case may
be, a Balancing Amount (as defined below). The "Dividend Equivalent Payment"
enables the Company to make a complete distribution of dividends on the next
dividend payment date, and is an amount equal, on a per Creation Unit basis, to
the dividends on all the Portfolio Securities with ex-dividend dates within the
accumulation period for such distribution (the "Accumulation Period"), net of
expenses and liabilities for such period, as if all of the Portfolio Securities
had been held by the Company for the entire Accumulation Period. The "Balancing
Amount" is an amount equal to the difference between (x) the net asset value
(per Creation Unit) of the Index Fund and (y) the sum of (i) the Dividend
Equivalent Payment and (ii) the market value (per Creation Unit) of the
securities deposited with the Company (the sum of (i) and (ii) is referred to as
the "Deposit Amount"). The Balancing Amount serves the function of compensating
for any differences between the net asset value per Creation Unit and the
Deposit Amount.
The Adviser makes available through the Distributor on each Business Day,
immediately prior to the opening of business on the AMEX (currently 9:30 a.m.,
Eastern time), the list of the names and the required number of shares of each
Deposit Security to be included in the current Portfolio Deposit (based on
information at the end of the previous Business Day) for each Index Fund. Such
Portfolio Deposit is applicable, subject to any adjustments as described below,
in order to effect purchases of Creation Units of iShares of a given Index Fund
until such time as the next-announced Portfolio Deposit composition is made
available.
The identity and number of shares of the Deposit Securities required for a
Portfolio Deposit for each Index Fund changes as rebalancing adjustments and
corporate action events are reflected from time to time by the Adviser with a
view to the investment objective of the Index Fund. The composition of the
Deposit Securities may also change in response to adjustments to the weighting
or composition of the securities constituting the relevant securities index. In
addition, the Company reserves the right to permit or require the substitution
of an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash
Component to replace any Deposit Security which may not be available in
sufficient quantity for delivery or for other similar reasons. The adjustments
described above will reflect changes, known to the Adviser on the date of
announcement to be in effect by the time of delivery of the Portfolio Deposit,
in the composition of the subject index being tracked by the relevant Index
Fund, or resulting from stock splits and other corporate actions.
In addition to the list of names and numbers of securities constituting the
current Deposit Securities of a Portfolio Deposit, the Distributor also makes
available (i) on each Business Day, the Dividend Equivalent Payment effective
through and including the previous Business Day, per outstanding iShares of each
Index Fund, and (ii) on a continuous basis throughout the day, the sum of the
Dividend Equivalent Payment effective through and including the close of the
previous trading session in the relevant foreign market, plus the current value
of the requisite Deposit Securities as in effect on such day.
Role of The Authorized Participant. Creation Units of iShares may be
purchased only by or through a DTC Participant that has entered into an
Authorized Participant Agreement with the Company and the Distributor
("Authorized Participant"). Such Authorized Participant will agree pursuant to
the terms of such Authorized Participant Agreement on behalf of itself or any
investor on whose behalf it will act, as the case may be, to certain conditions,
including that such Authorized Participant will make available in advance of
each purchase of iShares an
57
<PAGE>
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 fee described below. The Authorized
Participant 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 therefore orders to
purchase Creation Units of iShares 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 that have
international capabilities. A list of the current Authorized Participants may be
obtained from the Distributor.
Purchase Order. To initiate an order for a Creation Unit of iShares, the
Authorized Participant must give notice to the Distributor of its intent to
submit an order to purchase iShares after 9:00 a.m. but not later than 4:00
p.m., Eastern time on the relevant Business Day. The Distributor shall cause the
Adviser and the Custodian to be informed of such advice. The Custodian will then
provide such information to the appropriate subcustodian. For each Index Fund,
the Custodian shall cause the subcustodian of the Index Fund to maintain an
account into which the Authorized Participant shall deliver, on behalf of itself
or the party on whose behalf it is acting, the securities included in the
designated Portfolio Deposit (or the cash value of all or a part of such
securities, in the case of a permitted or required cash purchase or "cash in
lieu" amount), with any appropriate adjustments as advised by the Company.
Deposit Securities must be delivered to an account maintained at the
applicable local subcustodian.
Following the notice of intention, an irrevocable order to purchase
Creation Units, in the form required by the Company, must be received by the
Distributor from an Authorized Participant on its own or another investor's
behalf by the closing time of the regular trading session on the AMEX (currently
4:00 p.m., Eastern time) on the relevant Business Day. (The required form of an
order to purchase is available on request from the Distributor.) 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 by the cut-off time on such Business Day. Orders must be transmitted
by the Authorized Participant to the Distributor by facsimile or electronic
transmission as provided in the Authorized Participant Agreement.
The Authorized Participant must also make available on or before the
contractual settlement date, by means satisfactory to the Company, immediately
available or same day funds estimated by the Company to be sufficient to pay the
Cash Component next determined after acceptance of the purchase order, together
with the applicable purchase transaction fee. Any excess funds will be returned
following settlement of the issue of the Creation Unit of iShares. 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 closing time of the regular trading session on the AMEX.
Investors should be aware that an Authorized Participant may require orders
for purchases of iShares placed with it to be in the form required by the
individual Authorized Participant, which form will not be the same as the form
of purchase order specified by the Company, which the Authorized Participant
must deliver to the Distributor.
Acceptance of Purchase Order. Subject to the conditions that (i) a properly
completed irrevocable purchase order has been submitted by the Authorized
Participant (either on its own or another investor's behalf) not later than the
closing time of the regular trading session on the AMEX, and (ii) arrangements
satisfactory to the Company are in place for payment of the Cash Component and
any other cash amounts which may be due, the Company will accept the order,
subject to its right (and the right of the Distributor and the Adviser) to
reject any order until acceptance.
Once the Company has accepted an order, upon next determination of the net
asset value of the shares, the Company will confirm the issuance, against
receipt of payment, of a Creation Unit of iShares of the Index Fund at
58
<PAGE>
such net asset value. The Distributor will then transmit a confirmation of
acceptance to the Authorized Participant that placed the order.
The Company reserves the absolute right to reject a purchase order
transmitted to it by the Distributor in respect of any Index Fund if (a) the
purchaser or group of purchasers, upon obtaining the shares ordered, would own
80% or more of the currently outstanding shares of any Index Fund; (b) the
Deposit Securities delivered are not as specified by the Adviser, as described
above; (c) acceptance of the Deposit Securities would have certain adverse tax
consequences to the Index Fund; (d) the acceptance of the Portfolio Deposit
would, in the opinion of counsel, be unlawful; (e) the acceptance of the
Portfolio Deposit would otherwise, in the discretion of the Company or the
Adviser, have an adverse effect on the Company or the rights of beneficial
owners; or (f) in the event that circumstances outside the control of the
Company, the Distributor and the Adviser make it for all practical purposes
impossible to process purchase orders. The Company shall notify a prospective
purchaser of its rejection of the order of such person. The Company and the
Distributor are under no duty, however, to give notification of any defects or
irregularities in the delivery of Portfolio Deposits nor shall either of them
incur any liability for the failure to give any such notification.
Issuance of a Creation Unit. Except as provided herein, a Creation Unit of
iShares of an Index Fund will not be issued until the transfer of good title to
the Company of the Deposit Securities and the payment of the Cash Component have
been completed. When the subcustodian has confirmed to the Custodian that the
required securities included in the Portfolio Deposit (or the cash value
thereof) have been delivered to the account of the relevant subcustodian, the
Custodian shall notify the Distributor and the Adviser, and the Company will
issue and cause the delivery of the Creation Unit of iShares.
To the extent contemplated by an Authorized Participant's agreement with
the Company, the Company will issue Creation Units of iShares to such Authorized
Participant notwithstanding the fact that the corresponding Portfolio Deposits
have not been received in part or in whole, in reliance on the undertaking of
the Authorized Participant to deliver the missing Deposit Securities as soon as
possible, which undertaking shall be secured by such Authorized Participant's
delivery and maintenance of collateral consisting of cash or Short-Term
Investments having a value at least equal to such amount as required by the
Company in accordance with its then-effective procedures, provided that such
amount shall be no less than 125% of the value of the missing Deposit
Securities. Information concerning the Company's current procedures for
collateralization of missing Deposit Securities is available from the
Distributor. The Authorized Participant Agreement will permit the Company 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 Company of
purchasing such securities and the value of the collateral.
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 Company, and the Company's
determination shall be final and binding.
Cash Purchase Method. Although the Company does not ordinarily permit cash
purchases of Creation Units, when cash purchases of Creation Units of iShares
are available or specified for an Index Fund (Creation Units of the iShares MSCI
South Korea Index Fund are currently offered only for cash and Creation Units of
iShares MSCI Brazil (Free) and Taiwan Index Funds will be offered only for
cash), they will be effected in essentially the same manner as in-kind purchases
thereof. In the case of a cash purchase, the investor 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. In addition, to offset the Company's brokerage and other
transaction costs associated with using the cash to purchase the requisite
Deposit Securities, the investor will be required to pay a fixed purchase
transaction fee, plus an additional variable charge for cash purchases, which is
expressed as a percentage of the value of the Deposit Securities. The
transaction fees for in-kind and cash purchases of Creation Units of iShares are
described below.
Purchase Transaction Fee. A purchase transaction fee payable to the Company
is imposed to compensate the Company for the transfer and other transaction
costs of an Index Fund associated with the issuance of Creation Units of
iShares. Purchasers of Creation Units of iShares for cash are required to pay an
additional variable charge to compensate the relevant Index Fund for brokerage
and market impact expenses. Where the Company permits an in-kind purchaser to
substitute cash in lieu of depositing a portion of the Deposit Securities, the
purchaser will be
59
<PAGE>
assessed the additional variable charge for cash purchases on the "cash in lieu"
portion of its investment. Purchasers of iShares in Creation Units are
responsible for the costs of transferring the securities constituting the
Deposit Securities to the account of the Company. The purchase transaction fees
for in-kind purchases and cash purchases (when available) are listed in the
table below. This table is subject to revision from time to time. Investors are
also responsible for payment of the costs of transferring the Deposit Securities
to the Company.
Additional
Variable Charge
In-kind and cash for Cash
Index Fund purchases Purchases*
------------------------------------------------------------
Australia $1,750 0.60%
Austria $1,600 0.67%
Belgium $1,500 0.30%
Brazil (Free) $4,725 **
Canada $3,250 0.30%
EMU $8,000 1.05%
France $3,400 0.25%
Germany $2,400 0.25%
Hong Kong $3,800 0.60%
Italy $2,100 0.30%
Japan $7,600 0.15%
Malaysia (Free) $4,150 ***
Mexico (Free) $2,200 0.50%
Netherlands $1,900 0.25%
Singapore (Free) $2,500 1.60%
South Africa $3,200 1.60%
South Korea $4,400 ***
Spain $2,300 0.25%
Sweden $2,700 0.30%
Switzerland $2,200 0.40%
Taiwan $7,200 ***
United Kingdom $4,750 0.25%
USA $1,900 0.50%
* As a percentage of the value of amount invested.
** This percentage, when aggregated with the basic in-kind
transaction fee, will not exceed 3.00%.
*** This percentage, when aggregated with the basic in-kind
transaction fee, will not exceed 2.00%.
Example. A hypothetical example of the costs of creating a Creation Unit of
iShares of the Japan Index Fund is set forth below for illustrative purposes
only. The exchange rate reflected in the table is Y103.195 per US$1.
<TABLE>
<CAPTION>
Unit Creation Calculation Unit Creation Calculation Daily NAV Calculation in
in Japanese Yen United States Dollars United States Dollars
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Execution 938,463,276 9,094,077 9,094,077
Commissions 938,455 9,094 N/A
Stamp Taxes 0 0 N/A
Risk Premium 0 0 N/A
Accrued Income 1,358,872 13,168 13,168
Creation Charge 784,282 7,600 N/A
iShares Unit 941,544,885 9,123,939 9,107,245
Value
Per iShares 15.21 15.18
Shares 600,000
</TABLE>
60
<PAGE>
See "Investment Advisory, Management, Administrative and Distribution
Services" herein, for additional information concerning the distribution
arrangements for iShares.
Redemption of iShares in Creation Units. iShares may be redeemed only in
---------------------------------------
Creation Units at their net asset value next determined after receipt of a
redemption request in proper form by the Distributor and only on a day on which
the AMEX is open for trading. The Company will not redeem iShares in amounts
less than Creation Units. Beneficial Owners also may sell iShares in the
secondary market, but must accumulate enough iShares to constitute a Creation
Unit in order to have such shares redeemed by the Company. There can be no
assurance, however, that there will be sufficient liquidity in the public
trading market at any time to permit assembly of a Creation Unit of iShares.
Investors should expect to incur brokerage and other costs in connection with
assembling a sufficient number of iShares to constitute a redeemable Creation
Unit.
With respect to each Index Fund (other than the iShares MSCI Malaysia (Free)
and South Korea Index Funds, which currently redeem, and the iShares MSCI Brazil
(Free) and Taiwan Index Funds which will redeem, Creation Units of iShares
solely for cash) the Adviser makes available through the Distributor immediately
prior to the opening of business on the AMEX (currently 9:30 am, Eastern time)
on each day that the AMEX is open for business the Portfolio Securities that
will be applicable (subject to possible amendment or correction) to redemption
requests received in proper form (as defined below) on that day. Unless cash
redemptions are available or specified for an Index Fund, the redemption
proceeds for a Creation Unit generally consist of Deposit Securities as
announced by the Distributor on the Business Day of the request for redemption,
plus cash in an amount equal to the difference between the net asset value of
the shares being redeemed, as next determined after a receipt of a request in
proper form, and the value of the Deposit Securities, less the redemption
transaction fee described below. The redemption transaction fee described below
is deducted from such redemption proceeds. In the case of a resident Australian
or New Zealand holder, notwithstanding the foregoing, such holder is only
entitled to receive cash upon its redemption of Creation Units of iShares.
A redemption transaction fee payable to the Company is imposed to offset
transfer and other transaction costs that may be incurred by the relevant Index
Fund. The redemption transaction fee for redemptions in kind and for cash and
the additional variable charge for cash redemptions (when cash redemptions are
available or specified) are listed in the table below. Investors will also bear
the costs of transferring the Portfolio Deposit from the Company to their
account or on their order. Investors who use the services of a broker or other
such intermediary may be charged a fee for such services.
Additional variable
In-kind and cash charge for cash
Index Fund redemptions redemptions*
-----------------------------------------------------------
Australia $1,750 0.60%
Austria $1,600 0.67%
Belgium $1,500 0.30%
Brazil (Free) $4,725 **
Canada $3,250 0.30%
EMU $8,000 1.05%
France $3,400 0.25%
Germany $2,400 0.25%
Hong Kong $3,800 0.60%
Italy $2,100 0.30%
Japan $7,600 0.40%
Malaysia (Free) $4,150 **
Mexico (Free) $2,200 0.50%
Netherlands $1,900 0.25%
Singapore (Free) $2,500 1.30%
South Africa $3,200 1.60%
South Korea $4,400 **
Spain $2,300 0.45%
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<PAGE>
Additional variable
In-kind and cash charge for cash
Index Fund redemptions redemptions*
---------------------------------------------------------------
Sweden $2,700 0.30%
Switzerland $2,200 0.40%
Taiwan $7,200 **
United Kingdom $4,750 0.75%
USA $1,900 0.50%
* As a percentage of the value of amount invested.
** This percentage, when aggregated with the basic in-kind transaction
fee, will not exceed 2.00%.
Redemption requests in respect of Creation Units of any Index Fund must be
submitted to the Distributor by or through an Authorized Participant on a day
that the AMEX is open for business, between the hours of 9:00 a.m. and 4:00
p.m., Eastern time. Investors other than through Authorized Participants are
responsible for making arrangements for a redemption request to be made through
an Authorized Participant. The Distributor 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 Company, to the Distributor 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 given time there will be
only a limited number of broker-dealers that have executed an Authorized
Participant Agreement. Investors making a redemption request should be aware
that such request 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 iShares to the Company'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
Company's Transfer Agent the Creation Unit of iShares being redeemed through the
book-entry system of DTC so as to be effective by the AMEX closing time on a day
on which the AMEX is open for business and (ii) a duly completed request form is
received by the Distributor from the Authorized Participant on behalf of itself
or another redeeming investor after 9:00 a.m. and not later than 2:00 p.m. on
the next following day (on which the AMEX is open for business). If the Transfer
Agent does not receive the investor's iShares through DTC's facilities by 2:00
p.m. on the AMEX business day following the day that the redemption request is
received, the redemption request shall be rejected and may be resubmitted the
next day that the AMEX is open for business. 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 AMEX. 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 iShares.
Upon receiving a redemption request, the Distributor shall notify the
Company and the Company's Transfer Agent of such redemption request. The tender
of an investor's iShares for redemption and the distribution of the cash
redemption payment in respect of Creation Units redeemed will be effected
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 iShares, as the case may be, or by such other
means specified by the Authorized Participant submitting the redemption request.
See "Book-Entry System Only."
In connection with taking delivery of shares of Deposit Securities upon
redemption of iShares, 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.
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<PAGE>
Deliveries of redemption proceeds by the Index Funds relating to those
countries generally will be made within three business days. Due to the schedule
of holidays in certain countries, however, the delivery of in-kind redemption
proceeds may take longer than three business days after the day on which the
redemption request is received in proper form. For each country relating to an
Index Fund, Appendix B hereto identifies the instances where more than seven
days would be needed to deliver redemption proceeds. Pursuant to an order of the
SEC, in respect of each Index Fund, the Company will make delivery of in-kind
redemption proceeds within the number of days stated in Appendix B 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 the Portfolio Securities in the applicable foreign
jurisdiction and it is not possible to make other such arrangements, or if it is
not possible to effect deliveries of the Portfolio 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 net asset
value of iShares of the relevant Index Fund next determined after the redemption
request is received in proper form (minus a redemption transaction fee and
additional variable charge for cash redemptions specified above, to offset the
Company's brokerage and other transaction costs associated with the disposition
of Portfolio Securities of the Index Fund). Redemptions of iShares for Deposit
Securities will be subject to compliance with applicable United States federal
and state securities laws and each Index Fund (whether or not it otherwise
permits cash redemptions) reserves the right to redeem Creation Units for cash
to the extent that the Index Fund could not lawfully deliver specific Deposit
Securities upon redemptions or could not do so without first registering the
Deposit 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 MSCI
Brazil (Free), Malaysia (Free), South Korea and Taiwan Index Funds may be
redeemed only for cash, and resident Australian and New Zealand holders may
redeem 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 on behalf of the redeeming investor as soon as practicable
after the date of redemption (within seven calendar days thereafter, except for
the instances listed in Appendix B hereto where more than seven calendar days
would be needed).
To the extent contemplated by an Authorized Participant's agreement with
the Company, in the event the Authorized Participant that has submitted a
redemption request in proper form is unable to transfer all or part of the
Creation Units of iShares to be redeemed to the Distributor, on behalf of the
Company, at or prior to 2:00 p.m. on the AMEX business day after the date of
submission of such redemption request, the Distributor will nonetheless accept
the redemption request in reliance on the undertaking by the Authorized
Participant to deliver the missing iShares as soon as possible, which
undertaking shall be secured by the Authorized Participant's delivery and
maintenance of collateral consisting of cash having a value at least equal to
125% of the value of the missing iShares. The collateral is marked to market
daily in accordance with the Company's procedures. The Company's current
procedures for collateralization of missing iShares require, among other things,
that any cash collateral shall be in the form of U.S. dollars in immediately
available funds and shall be held by the Company's custodian and marked to
market daily, and that the fees of the custodian and any subcustodians in
respect of the delivery, maintenance and redelivery of the cash collateral shall
be payable by the Authorized Participant. The Authorized Participant Agreement
will permit the Company to purchase the missing iShares or acquire the Portfolio
Securities and the Cash Component underlying such iShares at any time and will
subject the Authorized Participant to liability for any shortfall between the
cost to the Company of purchasing such iShares, Portfolio Securities or Cash
Component and the value of the collateral.
Because the Portfolio Securities of an Index Fund may trade on the relevant
exchange(s) on days that the AMEX is closed or are otherwise not Business Days
for such Index Fund, stockholders may not be able to redeem their shares of such
Index Fund, or to purchase or sell iShares on the AMEX, on days when the net
asset value of such Index Fund could be significantly affected by events in the
relevant foreign markets.
The right of redemption may be suspended or the date of payment postponed
with respect to any Index Fund (1) for any period during which the New York
Stock Exchange is closed (other than customary weekend and
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<PAGE>
holiday closings); (2) for any period during which trading on the New York Stock
Exchange is suspended or restricted; (3) for any period during which an
emergency exists as a result of which disposal of the shares of the Index Fund's
portfolio securities or determination of its net asset value is not reasonably
practicable; or (4) in such other circumstance as is permitted by the SEC.
Determining Net Asset Value. Net asset value per share for each Index Fund
---------------------------
is computed by dividing the value of the net assets of such Index Fund (i.e.,
the value of its total assets less total liabilities) by the total number of
iShares outstanding, rounded to the nearest cent. Expenses and fees, including
the management, administration and distribution fees, are accrued daily and
taken into account for purposes of determining net asset value. Except in the
case of the iShares MSCI Brazil, Malaysia (Free), South Korea and Taiwan Index
Funds, the net asset value of each Index Fund is determined as of the close of
the regular trading session on the New York Stock Exchange, Inc. ("NYSE")
(ordinarily 4:00 p.m., Eastern time) on each day that the NYSE is open. The net
asset value of each of the iShares MSCI Malaysia (Free), South Korea and Taiwan
Index Funds is determined as of 8:30 a.m. (Eastern time) on each day that the
NYSE is open. The net asset value of the iShares MSCI Brazil Index Fund is
determined as of 5:00 p.m. (Eastern time) on each day that the NYSE is open.
In computing an Index Fund's net asset value, the Index Fund's portfolio
securities are valued based on their last quoted current price. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Securities regularly traded in an over-the-counter market
are valued at the latest quoted bid price in such market. Other portfolio
securities and assets for which market quotations are not readily available are
valued based on fair value as determined in good faith by the Adviser in
accordance with procedures adopted by the Board. Currency values generally are
converted into US dollars using the same exchange rates utilized by Morgan
Stanley Capital International in the calculation of the relevant MSCI Indices
(currently, exchange rates as of 4:00 p.m. London time, except that the exchange
rate for the MSCI Mexico (Free) Index is that as of 3:00 p.m. Eastern time).
However, the Company may use a different rate from the rate used by MSCI in the
event the Adviser concludes that such rate is more appropriate and, as of the
date of this SAI, is using a different rate than the MSCI in computing the net
asset value of the iShares MSCI Malaysia (Free) Index Fund. Any such use of a
different rate than MSCI may adversely affect an Index Fund ability to track its
benchmark MSCI Index.
Continuous Offering. The method by which Creation Units of iShares are
-------------------
created and traded may raise certain issues under applicable securities laws.
Because new Creation Units of iShares are issued and sold by the Company on an
ongoing basis, at any point a "distribution", as such term is used in the
Securities Act of 1933, may occur. Broker-dealers and other persons are
cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act. For example,
a broker-dealer firm or its client may be deemed a statutory underwriter if it
takes Creation Units after placing an order with the Distributor, breaks them
down into constituent iShares, and sells some or all of the iShares comprising
such Creation Units directly to its customers; or if it chooses to couple the
creation of a supply of New iShares with an active selling effort involving
solicitation of secondary market demand for iShares. A determination of whether
a person is an underwriter for the purposes of the Securities Act depends upon
all the facts and circumstances pertaining to that person's activities. Thus,
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 effecting
transactions in iShares, whether or not participating in the distribution of
iShares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(3) of the Securities Act is not
available in respect of such transactions as a result of Section 24(d) of the
1940 Act. The Company has, however, applied to the Securities and Exchange
Commission for an exemption from this prospectus delivery obligation in
ordinary iShares secondary market transactions under certain circumstances,
on the condition that iShares purchasers are provided with a iShares product
description. If the SEC granted the Company this relief, broker-dealer firms
should note that dealers who are not "underwriters" but are participating in a
distribution (as contrasted to ordinary secondary market transaction), and thus
dealing with iShares that are part of an "unsold allotment" within the meaning
of section 4(3)(C) of the Securities Act, would be unable to take advantage of
the prospectus delivery exemption provided by section 4(3) of the Securities
Act. Firms that incur a prospectus-delivery obligation with respect to iShares
are reminded that under Securities Act Rule 153 a prospectus delivery obligation
under Section 5(b)(2) of the Securities Act owed to an exchange member in
connection with a sale on the exchange is satisfied by the fact that the Index
Fund's prospectus is available at the
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<PAGE>
exchange (i.e., the AMEX) upon request. The prospectus delivery mechanism
provided in Rule 153 is only available with respect to transactions on an
exchange and not with respect to "upstairs" transactions.
TAXES
The Company on behalf of each Index Fund has the right to reject an order
for a purchase of iShares if the purchaser (or group of purchasers) would, upon
obtaining the iShares so ordered, own 80% or more of the outstanding iShares of
a given Index Fund and if, pursuant to section 351 of the Internal Revenue Code,
the respective Index Fund would have a basis in the securities different from
the market value of such securities on the date of deposit. The Company also has
the right to require information necessary to determine beneficial share
ownership for purposes of the 80% determination. See "Purchase and Issuance of
iShares in Creation Units."
Each Index 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, a company must annually distribute at least 90 percent of its net
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: (1) at least 90 percent of the company's annual
gross income must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies, or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (2) at the close of each quarter of
the company's taxable year, (a) at least 50 percent of the market value of the
company's total assets must be represented by cash and cash items, U.S.
government securities, securities of other regulated investment companies 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 company's assets and not greater than 10% of the outstanding voting
securities of such issuer, and (b) not more than 25 percent of the value of its
total assets may be invested in the securities of any one issuer or of two or
more issuers that are controlled by the company (within the meaning of Section
851(b)(3)(B) of the Internal Revenue Code) and that are engaged in the same or
similar trades or businesses or related trades or businesses (other than U.S.
government securities or the securities of other regulated investment
companies).
Each Index Fund may be subject to foreign income taxes withheld at source.
Each Index Fund will elect to "pass through" to its investors the amount of
foreign income taxes paid by the Index Fund provided that the investor held the
Index Fund, and the Index Fund held the security, on the dividend settlement
date and for at least fourteen additional days immediately before and/or
thereafter, with the result that each investor will (i) include in gross income,
even though not actually received, the investor's pro rata share of the Index
Fund's foreign income taxes, and (ii) either deduct (in calculating U.S. taxable
income) or credit (in calculating U.S. federal income tax) the investor's pro
rata share of the Index Fund's foreign income taxes. A foreign tax credit may
not exceed the investor's U.S. federal income tax otherwise payable with respect
to the investor's foreign source income. For this purpose, each shareholder must
treat as foreign source gross income (i) his proportionate share of foreign
taxes paid by the Index Fund and (ii) the portion of any dividend paid by the
Index Fund which represents income derived from foreign sources; the Index
Fund's gain from the sale of securities will generally be treated as U.S. source
income. This foreign tax credit limitation is applied separately to separate
categories of income; dividends from the Index Fund will be treated as "passive"
or "financial services" income for this purpose. The effect of this limitation
may be to prevent investors from claiming as a credit the full amount of their
pro rata share of the Index Fund's foreign income taxes. Taxes other than
foreign income taxes, including any profits levy payable by the iShares Malaysia
(Free) Index Fund, are not passed through to you in this way.
If any Index Fund owns shares in certain foreign investment entities,
referred to as "passive foreign investment companies," the Index Fund will be
subject to one of the following special tax regimes: (i) the Index Fund is
liable for U.S. federal income tax, and an additional charge in the nature of
interest, on a portion of any "excess distribution" from such foreign entity or
any gain from the disposition of such shares, even if the entire distribution or
gain is paid out by the Index Fund as a dividend to its shareholders; (ii) if
the Index Fund were able and elected to treat a passive foreign investment
company as a "qualified electing fund," the Index Fund would be required each
year to include in income, and distribute to shareholders in accordance with the
distribution requirements set forth above, the Index Fund's pro rata share of
the ordinary earnings and net capital gains of the passive foreign investment
company, whether or not such earnings or gains are distributed to the Index Fund
or (iii) the Index Fund is entitled to mark-to-market annually the shares of the
passive foreign investment company, and is
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<PAGE>
required to distribute to shareholders any such mark-to-market gains in
accordance with the distribution requirements set forth above.
An Index Fund will be subject to a 4 percent excise tax on certain
undistributed income if it does not distribute to its shareholders in each
calendar year at least 98 percent of its ordinary income for the calendar year
plus 98 percent of its capital gain net income for the twelve months ended
October 31 of such year. Each Index Fund intends to declare and distribute
dividends and distributions in the amounts and at the times necessary to avoid
the application of this 4 percent excise tax.
An investor in an Index Fund that is a foreign corporation or an individual
who is a nonresident alien for U.S. tax purposes will be subject to significant
adverse U.S. tax consequences. For example, dividends paid out of an Index
Fund's investment company taxable income will generally be subject to U.S.
federal withholding tax at a rate of 30% (or lower treaty rate if the foreign
investor is eligible for the benefits of an income tax treaty). Foreign
investors are urged to consult their own tax advisors regarding the U.S. tax
treatment, in their particular circumstances, of ownership of shares in an Index
Fund.
The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Purchasers of shares of the Company should
consult their own tax advisors as to the tax consequences of investing in such
shares, including under state, local and other 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 hereof. Changes in applicable authority could materially affect the
conclusions discussed above, and such changes often occur.
PERFORMANCE INFORMATION
The performance of the Index Funds may be quoted in advertisements, sales
literature or reports to shareholders in terms of average annual total return,
cumulative total return and yield.
Quotations of average annual total return are expressed in terms of the
average annual rate of return of a hypothetical investment in an Index Fund over
periods of 1, 5 and 10 years (or the life of an Index Fund, if shorter). Such
total return figures will reflect the deduction of a proportional share of such
Index Fund's expenses on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.
Total return is calculated according to the following formula: P(1 + T)/n/
= ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10
year period). The total return for the period from commencement of operations to
August 31, 1996 (not annualized) and for the fiscal years ended August 31, 1997,
1998 and 1999, respectively, for each of the following Index Funds was: iShares
MSCI Australia Index Fund 3.88%, 6.23%, (23.11)% and 32.09%; iShares MSCI
Austria Index Fund (3.39)%, 1.06%, 2.16% and (8.69)%; iShares MSCI Belgium Index
Fund 5.01%, 9.26%, 39.42% and (1.00)%; iShares MSCI Canada Index Fund 4.63%,
28.50%, (21.69)% and 39.71%; iShares MSCI France Index Fund 4.95%, 16.60%,
34.77% and 21.01%; iShares MSCI Germany Index Fund 4.00%, 20.51%, 25.69% and
7.04%; iShares MSCI Hong Kong Index Fund 3.22%, 17.80%, (54.22)% and 90.51%;
iShares MSCI Italy Index Fund 4.11%, 23.37%, 47.66% and 5.14%; iShares MSCI
Japan Index Fund (3.11)%, (11.97)%, (33.38)% and 58.14%; iShares MSCI Malaysia
(Free) Index Fund 4.28%, (40.20)%, (73.57)% and 185.81%; iShares MSCI Mexico
(Free) Index Fund 15.93%, 35.21%, (44.18)% and 66.92%; iShares MSCI Netherlands
Index Fund 11.19%, 28.04%, 17.41% and 8.98%; iShares MSCI Singapore (Free) Index
Fund (6.73)%, (23.48)%, (61.29)% and 144.52%; iShares MSCI Spain Index Fund
8.45%, 39.15%, 32.58% and 13.39%; iShares MSCI Sweden Index Fund 14.13%, 30.10%,
5.48% and 25.09%; iShares MSCI Switzerland Index Fund 2.60%, 16.69%, 21.24% and
1.47%; and iShares MSCI United Kingdom Index Fund 10.41%, 30.48%, 14.98% and
15.33%. The iShares MSCI South Korea Index Fund commenced investment operations
on May 8, 2000, therefore no total return information is available. As of the
date of this SAI, the iShares MSCI Brazil (Free), EMU, South Africa and Taiwan
Index Funds have not commenced investment operations.
Quotations of a cumulative total return will be calculated for any
specified period by assuming a hypothetical investment in an Index Fund on the
date of the commencement of the period and will assume that all dividends and
distributions are reinvested on ex date. However, currently there is no dividend
reinvestment option
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<PAGE>
available to shareholders of iShares and such calculation is provided for
informational purposes only. The net increase or decrease in the value of the
investment over the period will be divided by its beginning value to arrive at
cumulative total return. Total return calculated in this manner will differ from
the calculation of average annual total return in that it is not expressed in
terms of an average rate of return.
The yield of an Index Fund is the net annualized yield based on a specified
30-day (or one month) period assuming a semiannual compounding of income.
Included in net investment income is the amortization of market premium or
accretion of market and original issue discount. Yield is calculated by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula: YIELD = 2[(a-b/cd + 1)/6/-1] (where a = dividends and
interest earned during the period, b = expenses accrued for the period (net of
reimbursements), c = the average daily number of shares outstanding during the
period that were entitled to receive dividends and d = the maximum offering
price per share on the last day of the period).
Quotations of cumulative total return, average annual total return or yield
reflect only the performance of a hypothetical investment in an Index Fund
during the particular time period on which the calculations are based. Such
quotations for an Index Fund will vary based on changes in market conditions and
the level of such Index Fund's expenses, and no reported performance figure
should be considered an indication of performance which may be expected in the
future.
The cumulative and average total returns and yields do not take into
account federal or state income taxes which may be payable; total returns and
yields would, of course, be lower if such charges were taken into account.
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods for calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Company with performance quoted with respect to other
investment companies or types of investments.
Because some or all of the Company's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Company's investment performance.
Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Company. Such
historical information is not indicative of future fluctuations in the value of
the U.S. dollar against these currencies. In addition, marketing materials may
cite country and economic statistics and historical stock market performance
information for any of the countries in which the Company invests, including,
but not limited to, the following: population growth, gross domestic product,
inflation rate, average stock market price-earnings ratios and the total value
of stock markets. Sources for such statistics may include official publications
of various foreign governments and exchanges.
From time to time, in advertising and marketing literature, the Company's
performance may be compared to the performance of broad groups of open-end and
closed-end investment companies with similar investment goals, as tracked by
independent organizations such as Investment Company Data, Inc., Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc.,
Value Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Company will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk.
In addition, in connection with the communication of its performance to
current or prospective shareholders, the Company also may compare those figures
to the performance of certain unmanaged indices which may assume the
reinvestment of dividends or interest but generally do not reflect deductions
for administrative and management costs. Examples of such indices include, but
are not limited to the following:
. Dow Jones Industrial Average
. Consumer Price Index
. Standard & Poor's 500 Composite Stock Price Index (S&P 500)
. NASDAQ OTC Composite Index
. NASDAQ Industrials Index
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. International Finance Corporation's (Global) Composite and
(Investable) Composite Indice s
. Morgan Stanley Capital International Indices
. NASDAQ Composite Index
. Wilshire 5000 Stock Index
In addition, the Company from time to time may compare the results of each
Index Fund to the following national benchmarks:
COUNTRY NATIONAL INDEX
-----------------------------------------
Australia All Ordinaries
Austria Vienna Stock Exchange
Brazil Sao Paulo Bovespa
Belgium Brussels Stock Exchange
Canada Toronto 300
EMU Euro Stoxx 50
France CAC 40
Germany DAX
Hong Kong Hang Seng
Italy BCI
Japan Nikkei 225
Malaysia KLSE
Mexico IPC
Netherlands CBS All Share
Singapore SES All
South Africa Johannesburg All-Share
South Korea Composite
Spain MA Madrid Index
Sweden Aff. General
Switzerland Swiss Market Index
Taiwan TWSE
U.K. FTSE100
From time to time, the Company may use in marketing materials a graph
entitled "The Efficient Frontier," which illustrates the historical risks and
returns of selected unmanaged indices which track the performance of various
combinations of United States and international securities for a certain time
period, such as twenty years. A twenty year graph, for example, shall use twenty
year annualized international returns represented by the MSCI Europe,
Australasia and Far East (EAFE) Index and twenty year annualized United States
returns represented by the S&P 500 Index. Risk is measured by the standard
deviation in overall performance within each index. Data presented in the graph
shall be provided by Ibbotson Associates, Inc. Performance of an index is
historical and does not represent performance of the Company, and is not a
guarantee of future results.
Evaluation of Company performance of the Index Funds or other relevant
statistical information made by independent sources may also be used in
advertisements and sales literature concerning the Company, including reprints
of, or selections from, editorials or articles about the Company. Sources for
Company performance information and articles about the Company include, but are
not limited to, the following:
American Association of Individual Investors' Journal, a monthly
-----------------------------------------------------
publication of the AAII that includes articles on investment analysis
techniques.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
--------
periodically reviews investment company performance data.
Business Week, a national business weekly that periodically reports the
-------------
performance rankings and ratings of a variety of investment companies investing
abroad.
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<PAGE>
CDA Investment Technologies, an organization that provides performance and
---------------------------
ranking information through examining the dollar results of hypothetical mutual
fund investments and comparing these results against appropriate indices.
Forbes, a national business publication that from time to time reports the
------
performance of specific investment companies.
Fortune, a national business publication that periodically rates the
-------
performance of a variety of investment companies.
The Frank Russell Company, a West-Coast investment management firm that
-------------------------
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Ibbotson Associates, Inc., a company specializing in investment research
-------------------------
and data.
Investment Company Data, Inc., an independent organization that provides
-----------------------------
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial,
-------------------------
economic, and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory
-------------------------------------
publication that periodically features the performance of a variety of
securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
-------------------------------------------------------------------
weekly publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific
-----
funds and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
----------------------------
compiles statistical information.
The New York Times, a nationally distributed newspaper that regularly
------------------
covers financial news.
Smart Money, a national personal finance magazine published monthly by Dow
-----------
Jones & Company, Inc. and The Hearst Corporation that focuses on ideas for
investing, spending and saving.
Value Line Mutual Fund Survey, an independent organization that provides
-----------------------------
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper that
-----------------------
regularly covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of
------------------------------------------
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records and price ranges.
Worth, a national publication distributed ten times per year by Capital
-----
Publishing Company, a subsidiary of Fidelity Investments that focuses on
personal financial journalism.
COUNSEL AND INDEPENDENT AUDITORS
Counsel. Sullivan & Cromwell, 125 Broad Street, New York, New York 10004,
-------
are counsel to the Company and have passed upon the validity of the Company's
shares.
Independent Auditors. Ernst & Young LLP, 787 Seventh Avenue, New York, New
--------------------
York 10019, serve as the independent auditors of the Company.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Company's Annual
Report to Shareholders for the fiscal year ended August 31, 1999 (the "1999
Annual Report") are incorporated in this SAI by reference. No other parts of the
1999 Annual Report are incorporated by reference herein. The financial
statements included in the 1999 Annual Report have been audited by the Company's
independent auditors, Ernst & Young LLP, whose report thereon is incorporated
herein by reference. Additional copies of the 1999 Annual Report may be obtained
at no charge by telephoning the Distributor at 1-800-iShares (1-800-474-2737).
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APPENDIX A-1
MSCI AUSTRALIA INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
TELSTRA CORP Diversified Telecommunication Services 35,613.73 15.43%
NEWS CORP Media 28,334.11 12.28%
NEWS CORP PLVO Media 25,292.80 10.96%
NATIONAL AUSTRALIA BANK Banks 19,191.09 8.31%
BROKEN HILL PROP CO Metals & Mining 18,833.14 8.16%
WESTPAC BANKING Banks 11,479.79 4.97%
AMP LTD Insurance 10,287.85 4.46%
LEND LEASE Diversified Financials 6,575.81 2.85%
BRAMBLES INDUSTRIES Industrial Conglomerates 5,800.88 2.51%
COLES MYER Multiline Retail 4,575.12 1.98%
WMC Metals & Mining 4,496.61 1.95%
COLONIAL Diversified Financials 4,344.10 1.88%
FOSTERS BREWING GROUP Beverages 4,300.40 1.86%
RIO TINTO LTD Metals & Mining 4,110.46 1.78%
WOOLWORTHS LTD Food & Drug Retailing 3,575.85 1.55%
WESTFIELD TRUST Real Estate 3,108.21 1.35%
COCA-COLA AMATIL Beverages 2,557.44 1.11%
GENERAL PROPERTY TRUST Real Estate 2,357.93 1.02%
PIONEER INTERNATIONAL Construction Materials 2,246.42 0.97%
CSR Construction Materials 2,177.77 0.94%
AMCOR Containers & Packaging 2,167.67 0.94%
TABCORP HOLDINGS Hotels Restaurants & Leisure 2,079.15 0.90%
WESFARMERS Industrial Conglomerates 1,901.50 0.82%
SOUTHCORP HOLDINGS Industrial Conglomerates 1,807.83 0.78%
QBE INSURANCE GROUP Insurance 1,678.95 0.73%
CSL Pharmaceuticals 1,648.33 0.71%
AUSTRALIAN GAS LIGHT CO Gas Utilities 1,635.24 0.71%
SANTOS Oil & Gas 1,419.20 0.61%
NORTH Metals & Mining 1,327.23 0.57%
MIM HOLDINGS Metals & Mining 1,085.86 0.47%
ORICA Chemicals 1,074.91 0.47%
SMITH (HOWARD) Trading Companies & Distributors 985.94 0.43%
PACIFIC DUNLOP Industrial Conglomerates 982.97 0.43%
SUNCORP-METWAY Banks 945.95 0.41%
GOODMAN FIELDER Food Products 928.09 0.40%
NORMANDY MINING Metals & Mining 918.30 0.40%
HARDIE (JAMES) IND Building Products 908.20 0.39%
STOCKLAND TRUST Real Estate 882.51 0.38%
BRIT. AMER TOBACCO AUST Tobacco 855.08 0.37%
BORAL (NEW) Construction Materials 779.24 0.34%
LEIGHTON HOLDINGS Construction & Engineering 754.38 0.33%
MAYNE NICKLESS Air Freight & Couriers 706.88 0.31%
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
FAULDING (F.H.) & CO Pharmaceuticals 683.35 0.30%
AMP DIVERS. PPTY(SCHRODE Real Estate 585.26 0.25%
FUTURIS CORP Food Products 584.77 0.25%
ILUKA RESOURCES Metals & Mining 486.57 0.21%
NEWCREST MINING Metals & Mining 485.39 0.21%
EMAIL Industrial Conglomerates 371.25 0.16%
SONS OF GWALIA Metals & Mining 335.34 0.15%
JONES (DAVID) Multiline Retail 302.96 0.13%
DELTA GOLD Metals & Mining 230.33 0.10%
RESOLUTE Metals & Mining 25.45 0.01%
</TABLE>
A-2
<PAGE>
APPENDIX A-2
MSCI AUSTRIA INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) ($)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
BANK AUSTRIA Banks 5,675.10 28.55%
VERBUND OESTERR ELEK A Electric Utilities 3,303.07 16.62%
OMV AG Oil & Gas 2,064.84 10.39%
WIENERBERGER BAUSTOFF Building Products 1,428.26 7.18%
GENERALI HOLDING VIENNA Insurance 1,145.74 5.76%
VA TECHNOLOGIE Machinery 947.33 4.77%
AUSTRIA TABAK Tobacco 842.07 4.24%
FLUGHAFEN WIEN Transportation Infrastructure 779.68 3.92%
MAYR-MELNHOF KARTON Containers & Packaging 604.11 3.04%
BWT STAMM Commercial Services & Supplies 596.19 3.00%
RHI Construction Materials 529.19 2.66%
AUSTRIAN AIRLINES Airlines 502.66 2.53%
BOEHLER-UDDEHOLM Metals & Mining 463.14 2.33%
BBAG OESTERR BRAU STAMM Beverages 339.34 1.71%
AUSTRIA MIKRO SYSTEME Semiconductor Equipment & Products 206.69 1.04%
BAU HOLDING STAMM Construction & Engineering 193.77 0.97%
LENZING Chemicals 188.17 0.95%
BAU HOLDING VORZUG Construction & Engineering 69.12 0.35%
</TABLE>
A-3
<PAGE>
APPENDIX A-3
MSCI BELGIUM INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
FORTIS BELGIUM Diversified Financials 18,414.31 26.09%
ELECTRABEL Electric Utilities 14,412.56 20.42%
KBC BANCASSURANCE Banks 10,661.99 15.10%
SOLVAY Chemicals 6,043.28 8.56%
UCB (GROUPE) Pharmaceuticals 5,306.45 7.52%
GROUPE BRUXELLES LAMBERT Diversified Financials 5,201.83 7.37%
DELHAIZE-LE LION Food & Drug Retailing 2,806.86 3.98%
COLRUYT Food & Drug Retailing 1,739.62 2.46%
D'IETEREN Specialty Retail 1,587.57 2.25%
BARCO Electronic Equipment & Instruments 1,586.60 2.25%
BEKAERT Electrical Equipment 1,074.47 1.52%
UNION MINIERE Metals & Mining 887.39 1.26%
GLAVERBEL (GROUPE) Building Products 455.10 0.64%
CMB Marine 411.66 0.58%
</TABLE>
A-4
<PAGE>
APPENDIX A-4
MSCI BRAZIL (FREE) INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
PETROBRAS PN Oil & Gas 12,287.65 10.88%
VALE DO RIO DOCE PNA Metals & Mining 10,631.66 9.41%
TELECOM. SP PN(TELESP PA Diversified Telecommunication Services 9,539.73 8.45%
ELETROBRAS ON Electric Utilities 8,080.57 7.16%
TELESP CELULAR PART. PN Wireless Telecommunication Services 6,168.58 5.46%
TELE NORTE LESTE PART.PN Diversified Telecommunication Services 5,650.00 5.00%
EMBRATEL PART. PN Diversified Telecommunication Services 5,371.73 4.76%
BANCO ITAU PN Banks 4,585.66 4.06%
BANCO BRADESCO PN Banks 4,490.97 3.98%
PAO DE ACUCAR PN Food & Drug Retailing 3,482.07 3.08%
TELE CENTRO SUL PART. PN Diversified Telecommunication Services 3,433.55 3.04%
CERVEJARIA BRAHMA PN Beverages 3,395.15 3.01%
TELECOM. SP ON(TELESP PA Diversified Telecommunication Services 2,907.54 2.57%
CEMIG PN Electric Utilities 2,791.65 2.47%
CSN SIDERURGICA NAC'L ON Metals & Mining 2,545.31 2.25%
TELESP CELULAR PART. ON Wireless Telecommunication Services 2,398.26 2.12%
ARACRUZ CELULOSE PNB Paper & Forest Products 2,278.78 2.02%
EMBRATEL PART. ON Diversified Telecommunication Services 2,199.38 1.95%
TELE NORTE LESTE PART.ON Diversified Telecommunication Services 2,149.95 1.90%
TELE SUD. CELU PART. PN Wireless Telecommunication Services 2,126.92 1.88%
SOUZA CRUZ ON Tobacco 1,787.30 1.58%
ELETROBRAS PNB Electric Utilities 1,640.09 1.45%
VOTORANTIM CELULOSE PN Paper & Forest Products 1,423.86 1.26%
CERVEJARIA BRAHMA ON Beverages 1,367.22 1.21%
TELE CENTRO SUL PART. ON Diversified Telecommunication Services 1,361.18 1.21%
USIMINAS PNA Metals & Mining 1,122.54 0.99%
BANESPA PN Banks 758.07 0.67%
WHITE MARTINS ON Chemicals 748.85 0.66%
IPIRANGA (PETROLEO) PN Oil & Gas 646.94 0.57%
COPENE PNA Chemicals 620.53 0.55%
TELE SUD. CELU PART. ON Wireless Telecommunication Services 616.83 0.55%
SADIA PN Food Products 507.30 0.45%
GERASUL ON Electric Utilities 494.38 0.44%
GERDAU METALURGICA PN Metals & Mining 479.08 0.42%
FOSFERTIL PN Chemicals 417.75 0.37%
COTEMINAS PN Textiles & Apparel 381.11 0.34%
CIMENTO PORTLAND ITAU PN Construction Materials 336.28 0.30%
PERDIGAO PN Food Products 321.52 0.28%
BOMBRIL CIRIO PN Household Products 298.14 0.26%
DURATEX PN Building Products 269.78 0.24%
LOJAS AMERICANAS PN Multiline Retail 224.99 0.20%
MAHLE-MET. LEVE PN(METAL Machinery 144.16 0.13%
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
INEPAR IND E CONSTR. PN Electrical Equipment 142.88 0.13%
MARCOPOLO PN Machinery 111.10 0.10%
GERASUL PNB Electric Utilities 99.38 0.09%
LOJAS AMERICANAS ON Multiline Retail 89.90 0.08%
</TABLE>
A-6
<PAGE>
APPENDIX A-5
MSCI CANADA INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
NORTEL NETWORKS CORP Communications Equipment 179,488.44 35.61%
BCE INC Diversified Telecommunication Services 80,252.84 15.92%
SEAGRAM CO Media 25,716.32 5.10%
THOMSON CORP Media 19,496.12 3.87%
BOMBARDIER B Aerospace & Defense 17,123.78 3.40%
ROYAL BANK OF CANADA Banks 14,384.59 2.85%
CANADIAN IMPERIAL BANK Banks 11,485.37 2.28%
BANK NOVA SCOTIA Banks 9,889.81 1.96%
BANK MONTREAL Banks 9,386.09 1.86%
IMPERIAL OIL Oil & Gas 8,916.01 1.77%
ALCAN ALUMINIUM Metals & Mining 7,300.72 1.45%
CANADIAN PACIFIC Road & Rail 7,281.18 1.44%
BARRICK GOLD CORP Metals & Mining 6,130.41 1.22%
NEWBRIDGE NETWORKS CORP Communications Equipment 5,737.12 1.14%
ROGERS COMMUNICATIONS B Media 5,292.64 1.05%
BCT.TELUS COMMUNI. VTG Diversified Telecommunication Services 5,257.84 1.04%
SUNCOR ENERGY Oil & Gas 4,783.59 0.95%
PETRO-CANADA Oil & Gas 4,514.97 0.90%
WESTON (GEORGE) Food & Drug Retailing 4,448.46 0.88%
ALBERTA ENERGY CO Oil & Gas 4,231.20 0.84%
TALISMAN ENERGY Oil & Gas 3,939.17 0.78%
TRANSCANADA PIPELINES Gas Utilities 3,482.66 0.69%
INCO COMMON Metals & Mining 3,332.43 0.66%
ENBRIDGE Gas Utilities 3,166.61 0.63%
CANADIAN OCCIDENTAL Oil & Gas 3,158.82 0.63%
MAGNA INTERNATIONAL A Auto Components 2,999.91 0.60%
POWER CORP OF CANADA Diversified Financials 2,878.70 0.57%
NATIONAL BANK OF CANADA Banks 2,763.92 0.55%
POTASH CORP SASKATCHEWAN Chemicals 2,691.97 0.53%
CANADIAN NAT RESOURCES Oil & Gas 2,654.42 0.53%
PLACER DOME Metals & Mining 2,590.55 0.51%
NORANDA Metals & Mining 2,526.46 0.50%
EDPERBRASCAN CORP A Diversified Financials 2,156.08 0.43%
DOMTAR Paper & Forest Products 1,902.53 0.38%
WESTCOAST ENERGY Gas Utilities 1,898.95 0.38%
ABITIBI-CONSOLIDATED Paper & Forest Products 1,831.97 0.36%
ANDERSON EXPLORATION Oil & Gas 1,823.85 0.36%
MDS Health Care Providers & Services 1,778.68 0.35%
BCT.TELUS COMMUNI. N-VTG Diversified Telecommunication Services 1,751.93 0.35%
QUEBECOR B Media 1,694.66 0.34%
TRANSALTA CORP Electric Utilities 1,627.30 0.32%
</TABLE>
A-7
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
FAIRFAX FINANCIAL HLDGS Insurance 1,573.79 0.31%
DOFASCO Metals & Mining 1,374.81 0.27%
GULF CANADA RESOURCES Oil & Gas 1,285.99 0.26%
AIR CANADA COMMON Airlines 1,277.49 0.25%
COMINCO Metals & Mining 1,242.56 0.25%
RENAISSANCE ENERGY Oil & Gas 1,087.00 0.22%
CANADIAN TIRE CORP A Multiline Retail 1,017.46 0.20%
CAE Aerospace & Defense 986.04 0.20%
MOLSON A Beverages 947.42 0.19%
AGRIUM Chemicals 889.09 0.18%
HUDSON'S BAY CO Multiline Retail 808.90 0.16%
TECK CORP B Metals & Mining 777.91 0.15%
UNITED DOMINION IND Machinery 698.00 0.14%
RIO ALGOM Metals & Mining 666.06 0.13%
SOBEYS Food & Drug Retailing 639.71 0.13%
COREL CORP Software 601.95 0.12%
CAMECO CORP Metals & Mining 589.85 0.12%
STELCO A Metals & Mining 552.03 0.11%
RANGER OIL Oil & Gas 490.36 0.10%
LAIDLAW Road & Rail 455.04 0.09%
METHANEX CORP Chemicals 349.42 0.07%
MOORE CORP Commercial Services & Supplies 325.97 0.06%
COTT CORP Beverages 317.36 0.06%
AGNICO-EAGLE MINES Metals & Mining 309.04 0.06%
CO-STEEL Metals & Mining 268.63 0.05%
CCL INDUSTRIES B Personal Products 263.79 0.05%
ECHO BAY MINES Metals & Mining 174.33 0.03%
INCO VBN Metals & Mining 127.57 0.03%
EXTENDICARE SV Health Care Providers & Services 89.92 0.02%
SPAR AEROSPACE Aerospace & Defense 73.35 0.01%
CAMBIOR Metals & Mining 53.46 0.01%
</TABLE>
A-8
<PAGE>
APPENDIX A-6
MSCI EMU INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ----------
<S> <C> <C> <C>
NOKIA CORP Communications Equipment 256,967.53 6.8339%
DEUTSCHE TELEKOM Diversified Telecommunication Services 244,046.15 6.4902%
FRANCE TELECOM Diversified Telecommunication Services 176,481.71 4.6934%
ROYAL DUTCH PETROLEUM CO Oil & Gas 125,185.06 3.3292%
TOTAL FINA ELF Oil & Gas 111,206.93 2.9575%
ALLIANZ Insurance 100,188.16 2.6644%
SIEMENS Industrial Conglomerates 85,377.58 2.2706%
TELEFONICA Diversified Telecommunication Services 82,426.05 2.1921%
TIM ORD Wireless Telecommunication Services 81,133.82 2.1577%
VIVENDI Multi-Utilities 68,073.76 1.8104%
DAIMLERCHRYSLER Automobiles 65,201.17 1.7340%
PHILIPS ELECTRS (KON.) Household Durables 56,976.00 1.5152%
TELECOM ITALIA ORD Diversified Telecommunication Services 55,150.00 1.4667%
MUENCHENER RUECKVERSICH. Insurance 55,020.81 1.4632%
KPN (KON.) Diversified Telecommunication Services 54,559.90 1.4510%
AEGON Insurance 53,408.03 1.4203%
STMICROELECTRONICS Semiconductor Equipment & Products 53,039.37 1.4105%
ING GROEP Diversified Financials 52,355.86 1.3924%
AXA Insurance 51,085.57 1.3586%
SONERA Diversified Telecommunication Services 49,259.89 1.3100%
ALCATEL Communications Equipment 45,342.27 1.2058%
CARREFOUR Food & Drug Retailing 44,545.11 1.1846%
LOREAL Personal Products 43,667.37 1.1613%
BSCH BCO SANTANDER CENTR Banks 42,975.95 1.1429%
AVENTIS (RHONE-POULENC) Pharmaceuticals 42,584.99 1.1325%
BBVA (BCO BILBAO VIZCAYA Banks 42,578.05 1.1323%
LVMH Textiles & Apparel 40,981.73 1.0899%
DEUTSCHE BANK NAMEN Banks 40,664.55 1.0814%
ENI Oil & Gas 40,131.58 1.0673%
BNP BANQUE NTLE PARIS Banks 35,535.84 0.9450%
ASSICURAZIONI GENERALI Insurance 34,543.02 0.9186%
SAP STAMM Software 34,205.36 0.9097%
SUEZ LYONNAISE DES EAUX Multi-Utilities 34,101.92 0.9069%
ABN AMRO HOLDING Banks 32,720.20 0.8702%
BAYER Chemicals 32,692.88 0.8694%
ENEL Electric Utilities 32,499.13 0.8643%
SAP VORZUG Software 31,015.04 0.8248%
BASF Chemicals 29,120.35 0.7744%
UNILEVER NV CERT Food Products 28,194.81 0.7498%
SANOFI-SYNTHELABO Pharmaceuticals 27,880.71 0.7415%
CANAL + Media 27,632.65 0.7349%
REPSOL YPF Oil & Gas 26,044.03 0.6926%
BOUYGUES ORD Construction & Engineering 25,713.09 0.6838%
HYPOVEREINSBANK Banks 25,692.39 0.6833%
VEBA Multi-Utilities 25,620.03 0.6813%
</TABLE>
A-9
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ----------
<S> <C> <C> <C>
ENDESA Electric Utilities 24,284.49 0.6458%
MEDIASET Media 22,959.60 0.6106%
PINAULT-PRINT.-REDOUTE Multiline Retail 22,079.00 0.5872%
DRESDNER BANK NAMEN Banks 21,321.55 0.5670%
CAP GEMINI SA IT Consulting & Services 21,142.90 0.5623%
SOCIETE GENERALE Banks 20,734.71 0.5514%
UNICREDITO ITALIANO ORD Banks 19,960.24 0.5308%
SAN PAOLO-IMI ORD Banks 19,341.34 0.5144%
FORTIS BELGIUM Diversified Financials 18,414.31 0.4897%
OLIVETTI ORD Diversified Telecommunication Services 17,538.08 0.4664%
RWE STAMM Electric Utilities 16,882.93 0.4490%
AHOLD (KON.) Food & Drug Retailing 16,820.30 0.4473%
HEINEKEN NV Beverages 16,758.82 0.4457%
DANONE (GROUPE) Food Products 16,758.50 0.4457%
BANCA INTESA ORD Banks 16,032.12 0.4264%
ASM LITHOGRAPHY HOLDING Semiconductor Equipment & Products 15,526.60 0.4129%
ELECTRABEL Electric Utilities 14,412.56 0.3833%
VIAG Electric Utilities 13,945.04 0.3709%
SAGEM Communications Equipment 13,797.97 0.3669%
VOLKSWAGEN STAMM Automobiles 13,684.96 0.3639%
PORTUGAL TELECOM Diversified Telecommunication Services 13,399.47 0.3563%
THYSSEN KRUPP Metals & Mining 12,677.10 0.3371%
AKZO NOBEL Chemicals 12,178.54 0.3239%
IBERDROLA Electric Utilities 11,758.50 0.3127%
AIR LIQUIDE Chemicals 11,506.27 0.3060%
EDP ELECTRICIDADE PORT Electric Utilities 11,224.44 0.2985%
SAINT-GOBAIN Building Products 11,144.97 0.2964%
TNT POST GROEP Air Freight & Couriers 10,725.61 0.2852%
METRO STAMM Multiline Retail 10,668.78 0.2837%
KBC BANCASSURANCE Banks 10,661.99 0.2835%
DASSAULT SYSTEMES Software 10,661.02 0.2835%
SCHNEIDER ELECTRIC Electrical Equipment 10,302.90 0.2740%
LAGARDERE Media 9,960.73 0.2649%
EM TV & MERCHANDISING Media 9,925.07 0.2639%
PEUGEOT SA Automobiles 9,837.86 0.2616%
EIRCOM Diversified Telecommunication Services 9,760.54 0.2596%
FIAT ORD Automobiles 9,692.65 0.2578%
LAFARGE (FRANCE) Construction Materials 8,951.87 0.2381%
SCHERING Pharmaceuticals 8,934.39 0.2376%
LUFTHANSA Airlines 8,763.68 0.2331%
GAS NATURAL SDG Gas Utilities 8,736.65 0.2323%
GETRONICS IT Consulting & Services 8,612.22 0.2290%
ALLIED IRISH BANKS Banks 8,400.93 0.2234%
PREUSSAG Industrial Conglomerates 7,663.34 0.2038%
UPM-KYMMENE Paper & Forest Products 7,537.19 0.2004%
TIM RNC Wireless Telecommunication Services 7,387.19 0.1965%
CASINO ORD Food & Drug Retailing 7,314.62 0.1945%
ACCOR Hotels Restaurants & Leisure 7,310.44 0.1944%
CRH Construction Materials 6,936.91 0.1845%
THOMSON-CSF Aerospace & Defense 6,821.35 0.1814%
</TABLE>
A-10
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ----------
<S> <C> <C> <C>
ELSEVIER Media 6,778.17 0.1803%
FRESENIUS MED. CARE ST Health Care Providers & Services 6,559.25 0.1744%
WOLTERS KLUWER Media 6,379.24 0.1697%
UNION ELECTRICA FENOSA Electric Utilities 6,256.61 0.1664%
TELECOM ITALIA RNC Diversified Telecommunication Services 6,111.53 0.1625%
WCM BETEILIGUNGS & GRUND Real Estate 6,087.40 0.1619%
SOLVAY Chemicals 6,043.28 0.1607%
BEIERSDORF Personal Products 5,907.90 0.1571%
BANCA ROMA Banks 5,897.59 0.1568%
BANK AUSTRIA Banks 5,675.10 0.1509%
RAS ORD Insurance 5,579.95 0.1484%
MERCK KGAA Pharmaceuticals 5,447.82 0.1449%
BCP BANCO COMERCIAL NOM Banks 5,368.21 0.1428%
UCB (GROUPE) Pharmaceuticals 5,306.45 0.1411%
SODEXHO ALLIANCE Hotels Restaurants & Leisure 5,211.86 0.1386%
GROUPE BRUXELLES LAMBERT Diversified Financials 5,201.83 0.1383%
PIRELLI SPA ORD Auto Components 4,904.53 0.1304%
MEDIOBANCA Banks 4,857.55 0.1292%
LINDE Machinery 4,847.32 0.1289%
PUBLICIS Media 4,818.49 0.1281%
ALTADIS (TABACALERA) Tobacco 4,676.59 0.1244%
TIETOENATOR IT Consulting & Services 4,620.71 0.1229%
MICHELIN Auto Components 4,323.63 0.1150%
VALEO Auto Components 4,076.89 0.1084%
PECHINEY ORD A Metals & Mining 4,000.65 0.1064%
MAN STAMM Machinery 3,906.61 0.1039%
USINOR Metals & Mining 3,863.49 0.1027%
BENETTON GROUP Textiles & Apparel 3,735.27 0.0993%
SONAE SGPS Multiline Retail 3,631.10 0.0966%
KARSTADT QUELLE Multiline Retail 3,600.61 0.0958%
HEIDELBERGER ZEMENT STAM Construction Materials 3,525.89 0.0938%
ALITALIA Airlines 3,377.39 0.0898%
MONDADORI ORD Media 3,306.89 0.0879%
VERBUND OESTERR ELEK A Electric Utilities 3,303.07 0.0878%
BULGARI Textiles & Apparel 3,201.59 0.0851%
ITALGAS Gas Utilities 3,167.06 0.0842%
RYANAIR HOLDINGS Airlines 3,030.99 0.0806%
BANCO ESPIRITO SANTO Banks 2,810.89 0.0748%
DELHAIZE-LE LION Food & Drug Retailing 2,806.86 0.0746%
VOLKSWAGEN VORZUG Automobiles 2,718.96 0.0723%
PERNOD RICARD Beverages 2,711.31 0.0721%
ESSILOR INTERNATIONAL Health Care Equipment & Supplies 2,702.81 0.0719%
IRISH LIFE & PERMANENT Diversified Financials 2,635.33 0.0701%
FOMENTO CONST Y CONTR Construction & Engineering 2,562.84 0.0682%
SMURFIT (JEFFERSON) Containers & Packaging 2,537.26 0.0675%
INDEPENDENT NEWS & MEDIA Media 2,532.97 0.0674%
ADIDAS-SALOMON Textiles & Apparel 2,516.89 0.0669%
AUTOPISTAS CESA (ACESA) Transportation Infrastructure 2,494.98 0.0664%
ALBA (CORP FINANCIERA) Real Estate 2,462.97 0.0655%
BUHRMANN Commercial Services & Supplies 2,444.34 0.0650%
</TABLE>
A-11
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ----------
<S> <C> <C> <C>
GEHE Health Care Providers & Services 2,434.56 0.0647%
RWE VORZUG Electric Utilities 2,367.82 0.0630%
AUTOGRILL Hotels Restaurants & Leisure 2,361.32 0.0628%
KAMPS Food Products 2,356.27 0.0627%
SAMPO INSURANCE CO A Insurance 2,318.00 0.0616%
ACERINOX Metals & Mining 2,311.09 0.0615%
CONTINENTAL Auto Components 2,278.87 0.0606%
BIC Commercial Services & Supplies 2,248.79 0.0598%
HAGEMEYER Distributors 2,242.29 0.0596%
KERRY GROUP A Food Products 2,235.74 0.0595%
BRISA AUTO-ESTRADAS PORT Transportation Infrastructure 2,207.66 0.0587%
SIDEL Machinery 2,204.13 0.0586%
AGUAS DE BARCELONA Water Utilities 2,179.00 0.0579%
ERIDANIA BEGHIN-SAY Food Products 2,168.10 0.0577%
SOL MELIA Hotels Restaurants & Leisure 2,150.51 0.0572%
OMV AG Oil & Gas 2,064.84 0.0549%
BPI SGPS NOM Diversified Financials 2,005.69 0.0533%
CIMPOR CIMENTOS DE PORT Construction Materials 1,995.99 0.0531%
COFLEXIP Energy Equipment & Services 1,988.94 0.0529%
HOCHTIEF Construction & Engineering 1,976.00 0.0526%
IMERYS (IMETAL) Construction Materials 1,962.40 0.0522%
TECHNIP Construction & Engineering 1,945.21 0.0517%
GECINA Real Estate 1,944.25 0.0517%
UNIBAIL Real Estate 1,935.01 0.0515%
CLUB MEDITERRANEE Hotels Restaurants & Leisure 1,927.91 0.0513%
TELEPIZZA Hotels Restaurants & Leisure 1,889.74 0.0503%
EURAFRANCE Diversified Financials 1,888.59 0.0502%
BANCA POPOLARE MILANO Banks 1,868.91 0.0497%
METSO CORP Machinery 1,832.49 0.0487%
COLRUYT Food & Drug Retailing 1,739.62 0.0463%
JERONIMO MARTINS SGPS Household Products 1,738.22 0.0462%
PARMALAT FINANZIARIA Food Products 1,705.99 0.0454%
SGL CARBON Metals & Mining 1,625.21 0.0432%
POHJOLA GROUP B Insurance 1,613.06 0.0429%
D'IETEREN Specialty Retail 1,587.57 0.0422%
BARCO Electronic Equipment & Instruments 1,586.60 0.0422%
OUTOKUMPU A Metals & Mining 1,549.11 0.0412%
ACS ACTIV. CONST. Y SVCS Construction & Engineering 1,525.29 0.0406%
FIAT PRIV Automobiles 1,505.34 0.0400%
VOPAK (KON.) Marine 1,501.26 0.0399%
ITALCEMENTI ORD Construction Materials 1,494.55 0.0397%
GRUPO DRAGADOS Construction & Engineering 1,483.79 0.0395%
BANCA INTESA RNC Banks 1,471.49 0.0391%
SIMCO Real Estate 1,448.86 0.0385%
WIENERBERGER BAUSTOFF Building Products 1,428.26 0.0380%
POHJOLA GROUP A Insurance 1,415.05 0.0376%
BAAN CO Software 1,361.34 0.0362%
KESKO B Food & Drug Retailing 1,221.50 0.0325%
RINASCENTE ORD Food & Drug Retailing 1,209.10 0.0322%
ZARDOYA OTIS Machinery 1,201.61 0.0320%
</TABLE>
A-12
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- -----------
<S> <C> <C> <C>
KLM Airlines 1,186.66 0.0316%
IHC CALAND Machinery 1,182.72 0.0315%
KONE B Machinery 1,166.80 0.0310%
OCE Office Electronics 1,147.51 0.0305%
GENERALI HOLDING VIENNA Insurance 1,145.74 0.0305%
GROUPE GTM Construction & Engineering 1,141.16 0.0303%
MAGNETI MARELLI ORD Auto Components 1,129.73 0.0300%
DOUGLAS HOLDING Specialty Retail 1,111.37 0.0296%
BUDERUS Building Products 1,111.11 0.0295%
BEKAERT Electrical Equipment 1,074.47 0.0286%
CASINO ADP Food & Drug Retailing 1,073.10 0.0285%
FIAT RNC Automobiles 1,044.03 0.0278%
MAN VORZUG Machinery 1,033.87 0.0275%
VEDIOR Commercial Services & Supplies 1,008.24 0.0268%
HARTWALL A Beverages 1,008.16 0.0268%
MAPFRE (CORPORACION) Insurance 958.46 0.0255%
VA TECHNOLOGIE Machinery 947.33 0.0252%
DCC Industrial Conglomerates 940.63 0.0250%
CORTEFIEL Specialty Retail 928.52 0.0247%
SAI ORD Insurance 923.21 0.0246%
SEB Household Durables 893.84 0.0238%
ZODIAC Aerospace & Defense 891.69 0.0237%
UNION MINIERE Metals & Mining 887.39 0.0236%
VALLEHERMOSO Real Estate 864.50 0.0230%
AZUCARERA EBRO AGRICOLAS Food Products 862.37 0.0229%
METROVACESA Real Estate 859.36 0.0229%
AUSTRIA TABAK Tobacco 842.07 0.0224%
CARTIERE BURGO ORD Paper & Forest Products 802.25 0.0213%
DYCKERHOFF VORZUG Construction Materials 781.00 0.0208%
FLUGHAFEN WIEN Transportation Infrastructure 779.68 0.0207%
RAUTARUUKKI Metals & Mining 770.82 0.0205%
METRA CORP B Machinery 732.06 0.0195%
PROSEGUR Commercial Services & Supplies 722.84 0.0192%
KEMIRA Chemicals 721.01 0.0192%
AGIV Machinery 703.66 0.0187%
INSTRUMENTARIUM CORP Health Care Equipment & Supplies 703.14 0.0187%
SNIA BPD ORD Chemicals 685.30 0.0182%
WATERFORD WEDGWOOD UNIT Household Durables 671.20 0.0179%
AMER-YHTYMAE A Leisure Equipment & Products 651.80 0.0173%
FYFFES Food & Drug Retailing 625.34 0.0166%
MAYR-MELNHOF KARTON Containers & Packaging 604.11 0.0161%
UPONOR (ASKO) Building Products 603.89 0.0161%
BWT STAMM Commercial Services & Supplies 596.19 0.0159%
SEGUROS TRANQUILIDADE Insurance 590.89 0.0157%
PORTUCEL INDUSTRIAL Paper & Forest Products 582.75 0.0155%
GREENCORE GROUP Food Products 559.55 0.0149%
UNICER UNIAO CERVEJEIRA Beverages 550.46 0.0146%
BILFINGER + BERGER Construction & Engineering 549.20 0.0146%
LANE G.MARZOTTO ORD Textiles & Apparel 542.74 0.0144%
FAG KUGELFISCHER Machinery 541.22 0.0144%
</TABLE>
A-13
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- -----------
<S> <C> <C> <C>
METRO VORZUG Multiline Retail 532.64 0.0142%
RHI Construction Materials 529.19 0.0141%
PULEVA Food Products 529.03 0.0141%
NEDLLOYD (KON.) Marine 523.65 0.0139%
CPR Diversified Financials 517.03 0.0138%
AUSTRIAN AIRLINES Airlines 502.66 0.0134%
SIRTI Construction & Engineering 465.67 0.0124%
BOEHLER-UDDEHOLM Metals & Mining 463.14 0.0123%
PORTLAND VALDERRIVAS Construction Materials 460.38 0.0122%
GLAVERBEL (GROUPE) Building Products 455.10 0.0121%
HOLLANDSCHE BETON GROEP Construction & Engineering 455.07 0.0121%
ASTURIANA DE ZINC Metals & Mining 449.55 0.0120%
EMPRESARIAL ENCE (GRUPO) Paper & Forest Products 425.51 0.0113%
STORK (VER MACHINE.) Machinery 425.07 0.0113%
IMPREGILO ORD Construction & Engineering 424.59 0.0113%
RAISIO GROUP V Food Products 423.52 0.0113%
IWKA Machinery 421.07 0.0112%
CMB Marine 411.66 0.0109%
URBIS (INMOBILIARIA) Real Estate 410.07 0.0109%
URALITA Building Products 409.79 0.0109%
STOCKMANN B Multiline Retail 400.87 0.0107%
JURYS DOYLE HOTEL GROUP Hotels Restaurants & Leisure 394.38 0.0105%
CEMENTIR Construction Materials 393.25 0.0105%
FINNLINES Marine 391.92 0.0104%
STOCKMANN A Multiline Retail 381.94 0.0102%
FAES Pharmaceuticals 380.52 0.0101%
CHARGEURS Textiles & Apparel 376.68 0.0100%
VISCOFAN Food Products 376.65 0.0100%
NORD-EST Containers & Packaging 340.33 0.0091%
BBAG OESTERR BRAU STAMM Beverages 339.34 0.0090%
ITALCEMENTI RNC Construction Materials 328.85 0.0087%
RENO MEDICI A ORD Containers & Packaging 316.81 0.0084%
DEUTZ Machinery 300.57 0.0080%
IRISH CONTINENTAL GROUP Marine 299.82 0.0080%
AGUILA (EL) Beverages 290.95 0.0077%
RHEINMETALL STAMM Industrial Conglomerates 276.45 0.0074%
TULLOW OIL Oil & Gas 275.98 0.0073%
SAI RNC Insurance 267.78 0.0071%
METRA CORP A Machinery 252.02 0.0067%
RINASCENTE RNC Food & Drug Retailing 218.52 0.0058%
AUSTRIA MIKRO SYSTEME Semiconductor Equipment & Products 206.69 0.0055%
SALAMANDER Textiles & Apparel 197.06 0.0052%
BAU HOLDING STAMM Construction & Engineering 193.77 0.0052%
DANIELI & CO ORD Machinery 193.20 0.0051%
PIRELLI SPA RNC Auto Components 189.98 0.0051%
INAPA Paper & Forest Products 189.18 0.0050%
LENZING Chemicals 188.17 0.0050%
HOLSTEN-BRAUEREI Beverages 174.73 0.0046%
RHEINMETALL VORZUG Industrial Conglomerates 167.94 0.0045%
BRAU & BRUNNEN Beverages 158.94 0.0042%
</TABLE>
A-14
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- -----------
<S> <C> <C> <C>
ERCROS Chemicals 147.47 0.0039%
RINASCENTE PRIV Food & Drug Retailing 124.59 0.0033%
CORTICEIRA AMORIM Containers & Packaging 123.84 0.0033%
CIN CORP IND'L DO NORTE Chemicals 119.09 0.0032%
SOARES DA COSTA Construction & Engineering 98.29 0.0026%
DANIELI & CO RNC Machinery 95.54 0.0025%
LANE G.MARZOTTO RISP Textiles & Apparel 92.72 0.0025%
ESCADA STAMM Textiles & Apparel 87.77 0.0023%
EFACEC CAPITAL SGPS Electrical Equipment 81.58 0.0022%
ESCADA VORZUG Textiles & Apparel 72.55 0.0019%
BAU HOLDING VORZUG Construction & Engineering 69.12 0.0018%
SNIA BPD RNC Chemicals 58.19 0.0015%
</TABLE>
A-15
<PAGE>
APPENDIX A-7
MSCI FRANCE INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
FRANCE TELECOM Diversified Telecommunication 176,481.71 16.42%
Services
TOTAL FINA ELF Oil & Gas 111,206.93 10.35%
VIVENDI Multi-Utilities 68,073.76 6.33%
STMICROELECTRONICS Semiconductor Equipment & Products 53,039.37 4.93%
AXA Insurance 51,085.57 4.75%
ALCATEL Communications Equipment 45,342.27 4.22%
CARREFOUR Food & Drug Retailing 44,545.11 4.14%
LOREAL Personal Products 43,667.37 4.06%
AVENTIS (RHONE-POULENC) Pharmaceuticals 42,584.99 3.96%
LVMH Textiles & Apparel 40,981.73 3.81%
BNP BANQUE NTLE PARIS Banks 35,535.84 3.31%
SUEZ LYONNAISE DES EAUX Multi-Utilities 34,101.92 3.17%
SANOFI-SYNTHELABO Pharmaceuticals 27,880.71 2.59%
CANAL + Media 27,632.65 2.57%
BOUYGUES ORD Construction & Engineering 25,713.09 2.39%
PINAULT-PRINT.-REDOUTE Multiline Retail 22,079.00 2.05%
CAP GEMINI SA IT Consulting & Services 21,142.90 1.97%
SOCIETE GENERALE Banks 20,734.71 1.93%
DANONE (GROUPE) Food Products 16,758.50 1.56%
SAGEM Communications Equipment 13,797.97 1.28%
AIR LIQUIDE Chemicals 11,506.27 1.07%
SAINT-GOBAIN Building Products 11,144.97 1.04%
DASSAULT SYSTEMES Software 10,661.02 0.99%
SCHNEIDER ELECTRIC Electrical Equipment 10,302.90 0.96%
LAGARDERE Media 9,960.73 0.93%
PEUGEOT SA Automobiles 9,837.86 0.92%
LAFARGE (FRANCE) Construction Materials 8,951.87 0.83%
CASINO ORD Food & Drug Retailing 7,314.62 0.68%
ACCOR Hotels Restaurants & Leisure 7,310.44 0.68%
THOMSON-CSF Aerospace & Defense 6,821.35 0.63%
SODEXHO ALLIANCE Hotels Restaurants & Leisure 5,211.86 0.48%
PUBLICIS Media 4,818.49 0.45%
MICHELIN Auto Components 4,323.63 0.40%
VALEO Auto Components 4,076.89 0.38%
PECHINEY ORD A Metals & Mining 4,000.65 0.37%
USINOR Metals & Mining 3,863.49 0.36%
PERNOD RICARD Beverages 2,711.31 0.25%
ESSILOR INTERNATIONAL Health Care Equipment & Supplies 2,702.81 0.25%
BIC Commercial Services & Supplies 2,248.79 0.21%
SIDEL Machinery 2,204.13 0.21%
ERIDANIA BEGHIN-SAY Food Products 2,168.10 0.20%
COFLEXIP Energy Equipment & Services 1,988.94 0.19%
IMERYS (IMETAL) Construction Materials 1,962.40 0.18%
TECHNIP Construction & Engineering 1,945.21 0.18%
GECINA Real Estate 1,944.25 0.18%
UNIBAIL Real Estate 1,935.01 0.18%
CLUB MEDITERRANEE Hotels Restaurants & Leisure 1,927.91 0.18%
</TABLE>
A-16
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
EURAFRANCE Diversified Financials 1,888.59 0.18%
SIMCO Real Estate 1,448.86 0.13%
GROUPE GTM Construction & Engineering 1,141.16 0.11%
CASINO ADP Food & Drug Retailing 1,073.10 0.10%
SEB Household Durables 893.84 0.08%
ZODIAC Aerospace & Defense 891.69 0.08%
CPR Diversified Financials 517.03 0.05%
CHARGEURS Textiles & Apparel 376.68 0.04%
NORD-EST Containers & Packaging 340.33 0.03%
</TABLE>
A-17
<PAGE>
APPENDIX A-8
MSCI GERMANY INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
DEUTSCHE TELEKOM Diversified Telecommunication Services 244,046.15 25.43%
ALLIANZ Insurance 100,188.16 10.44%
SIEMENS Industrial Conglomerates 85,377.58 8.90%
DAIMLERCHRYSLER Automobiles 65,201.17 6.79%
MUENCHENER RUECKVERSICH. Insurance 55,020.81 5.73%
DEUTSCHE BANK NAMEN Banks 40,664.55 4.24%
SAP STAMM Software 34,205.36 3.56%
BAYER Chemicals 32,692.88 3.41%
SAP VORZUG Software 31,015.04 3.23%
BASF Chemicals 29,120.35 3.03%
HYPOVEREINSBANK Banks 25,692.39 2.68%
VEBA Multi-Utilities 25,620.03 2.67%
DRESDNER BANK NAMEN Banks 21,321.55 2.22%
RWE STAMM Electric Utilities 16,882.93 1.76%
VIAG Electric Utilities 13,945.04 1.45%
VOLKSWAGEN STAMM Automobiles 13,684.96 1.43%
THYSSEN KRUPP Metals & Mining 12,677.10 1.32%
METRO STAMM Multiline Retail 10,668.78 1.11%
EM TV & MERCHANDISING Media 9,925.07 1.03%
SCHERING Pharmaceuticals 8,934.39 0.93%
LUFTHANSA Airlines 8,763.68 0.91%
PREUSSAG Industrial Conglomerates 7,663.34 0.80%
FRESENIUS MED. CARE ST Health Care Providers & Services 6,559.25 0.68%
WCM BETEILIGUNGS & GRUND Real Estate 6,087.40 0.63%
BEIERSDORF Personal Products 5,907.90 0.62%
MERCK KGAA Pharmaceuticals 5,447.82 0.57%
LINDE Machinery 4,847.32 0.51%
MAN STAMM Machinery 3,906.61 0.41%
KARSTADT QUELLE Multiline Retail 3,600.61 0.38%
HEIDELBERGER ZEMENT STAM Construction Materials 3,525.89 0.37%
VOLKSWAGEN VORZUG Automobiles 2,718.96 0.28%
ADIDAS-SALOMON Textiles & Apparel 2,516.89 0.26%
GEHE Health Care Providers & Services 2,434.56 0.25%
RWE VORZUG Electric Utilities 2,367.82 0.25%
KAMPS Food Products 2,356.27 0.25%
CONTINENTAL Auto Components 2,278.87 0.24%
HOCHTIEF Construction & Engineering 1,976.00 0.21%
SGL CARBON Metals & Mining 1,625.21 0.17%
DOUGLAS HOLDING Specialty Retail 1,111.37 0.12%
BUDERUS Building Products 1,111.11 0.12%
MAN VORZUG Machinery 1,033.87 0.11%
DYCKERHOFF VORZUG Construction Materials 781.00 0.08%
AGIV Machinery 703.66 0.07%
BILFINGER + BERGER Construction & Engineering 549.20 0.06%
FAG KUGELFISCHER Machinery 541.22 0.06%
METRO VORZUG Multiline Retail 532.64 0.06%
IWKA Machinery 421.07 0.04%
DEUTZ Machinery 300.57 0.03%
</TABLE>
A-18
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
RHEINMETALL STAMM Industrial Conglomerates 276.45 0.03%
SALAMANDER Textiles & Apparel 197.06 0.02%
HOLSTEN-BRAUEREI Beverages 174.73 0.02%
RHEINMETALL VORZUG Industrial Conglomerates 167.94 0.02%
BRAU & BRUNNEN Beverages 158.94 0.02%
ESCADA STAMM Textiles & Apparel 87.77 0.01%
ESCADA VORZUG Textiles & Apparel 72.55 0.01%
</TABLE>
A-19
<PAGE>
APPENDIX A-9
MSCI HONG KONG INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ---------------- ---
<S> <C> <C> <C>
HUTCHISON WHAMPOA Diversified Financials 69,934.98 29.54%
CHEUNG KONG HOLDINGS Real Estate 34,375.56 14.52%
CABLE & WIRELESS HKT Diversified Telecommunication Services 31,859.48 13.46%
SUN HUNG KAI PROPERTIES Real Estate 20,813.11 8.79%
HANG SENG BANK Banks 16,696.24 7.05%
CLP HOLDINGS Electric Utilities 9,328.30 3.94%
SWIRE PACIFIC A Diversified Financials 8,012.49 3.38%
JOHNSON ELECTRIC HLDGS Electrical Equipment 6,281.04 2.65%
HONGKONG CHINA GAS Gas Utilities 5,895.79 2.49%
CATHAY PACIFIC AIRWAYS Airlines 5,019.91 2.12%
WHARF HOLDINGS Real Estate 4,680.98 1.98%
TELEVISION BROADCASTS Media 3,895.40 1.65%
BANK EAST ASIA Banks 3,096.95 1.31%
NEW WORLD DEVELOPMENT Real Estate 2,979.24 1.26%
SHANGRI-LA ASIA Hotels Restaurants & Leisure 2,491.04 1.05%
SOUTH CHINA MORNING POST Media 1,667.31 0.70%
SINO LAND Real Estate 1,499.96 0.63%
HYSAN DEVELOPMENT Real Estate 1,125.11 0.48%
HANG LUNG DEVELOPMENT CO Real Estate 1,092.13 0.46%
WING LUNG BANK Banks 861.79 0.36%
GIORDANO INTERNATIONAL Specialty Retail 856.06 0.36%
VARITRONIX INTERNATIONAL Electronic Equipment & Instruments 671.34 0.28%
ORIENTAL PRESS GROUP Media 596.67 0.25%
HONGKONG SHANGHAI HOTEL Hotels Restaurants & Leisure 590.51 0.25%
MIRAMAR HOTEL & INVEST. Diversified Financials 481.86 0.20%
HOPEWELL HOLDINGS Industrial Conglomerates 461.25 0.19%
CHINESE ESTATES HOLDINGS Diversified Financials 325.18 0.14%
HONGKONG AIRCRAFT HAECO Transportation Infrastructure 294.76 0.12%
REGAL HOTELS INT'L Hotels Restaurants & Leisure 262.37 0.11%
SHUN TAK HOLDINGS Marine 229.17 0.10%
ELEC & ELTEK INT'L HLDGS Electronic Equipment & Instruments 144.24 0.06%
TAI CHEUNG HOLDINGS Real Estate 136.41 0.06%
HONGKONG CONST HOLDINGS Real Estate 125.88 0.05%
</TABLE>
A-20
<PAGE>
APPENDIX A-10
MSCI ITALY INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
TIM ORD Wireless Telecommunication Services 81,133.82 19.30%
TELECOM ITALIA ORD Diversified Telecommunication Services 55,150.00 13.12%
ENI Oil & Gas 40,131.58 9.55%
ASSICURAZIONI GENERALI Insurance 34,543.02 8.22%
ENEL Electric Utilities 32,499.13 7.73%
MEDIASET Media 22,959.60 5.46%
UNICREDITO ITALIANO ORD Banks 19,960.24 4.75%
SAN PAOLO-IMI ORD Banks 19,341.34 4.60%
OLIVETTI ORD Diversified Telecommunication Services 17,538.08 4.17%
BANCA INTESA ORD Banks 16,032.12 3.81%
FIAT ORD Automobiles 9,692.65 2.31%
TIM RNC Wireless Telecommunication Services 7,387.19 1.76%
TELECOM ITALIA RNC Diversified Telecommunication Services 6,111.53 1.45%
BANCA ROMA Banks 5,897.59 1.40%
RAS ORD Insurance 5,579.95 1.33%
PIRELLI SPA ORD Auto Components 4,904.53 1.17%
MEDIOBANCA Banks 4,857.55 1.16%
BENETTON GROUP Textiles & Apparel 3,735.27 0.89%
ALITALIA Airlines 3,377.39 0.80%
MONDADORI ORD Media 3,306.89 0.79%
BULGARI Textiles & Apparel 3,201.59 0.76%
ITALGAS Gas Utilities 3,167.06 0.75%
AUTOGRILL Hotels Restaurants & Leisure 2,361.32 0.56%
BANCA POPOLARE MILANO Banks 1,868.91 0.44%
PARMALAT FINANZIARIA Food Products 1,705.99 0.41%
FIAT PRIV Automobiles 1,505.34 0.36%
ITALCEMENTI ORD Construction Materials 1,494.55 0.36%
BANCA INTESA RNC Banks 1,471.49 0.35%
RINASCENTE ORD Food & Drug Retailing 1,209.10 0.29%
MAGNETI MARELLI ORD Auto Components 1,129.73 0.27%
FIAT RNC Automobiles 1,044.03 0.25%
SAI ORD Insurance 923.21 0.22%
CARTIERE BURGO ORD Paper & Forest Products 802.25 0.19%
SNIA BPD ORD Chemicals 685.30 0.16%
LANE G.MARZOTTO ORD Textiles & Apparel 542.74 0.13%
SIRTI Construction & Engineering 465.67 0.11%
IMPREGILO ORD Construction & Engineering 424.59 0.10%
CEMENTIR Construction Materials 393.25 0.09%
ITALCEMENTI RNC Construction Materials 328.85 0.08%
RENO MEDICI A ORD Containers & Packaging 316.81 0.08%
SAI RNC Insurance 267.78 0.06%
</TABLE>
A-21
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ---------------- ---
<S> <C> <C> <C>
RINASCENTE RNC Food & Drug Retailing 218.52 0.05%
DANIELI & CO ORD Machinery 193.20 0.05%
PIRELLI SPA RNC Auto Components 189.98 0.05%
RINASCENTE PRIV Food & Drug Retailing 124.59 0.03%
DANIELI & CO RNC Machinery 95.54 0.02%
LANE G.MARZOTTO RISP Textiles & Apparel 92.72 0.02%
SNIA BPD RNC Chemicals 58.19 0.01%
</TABLE>
A-22
<PAGE>
APPENDIX A-11
MSCI JAPAN INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ---------------- ---
<S> <C> <C> <C>
NTT CORP Diversified Telecommunication Services 202,303.40 7.16%
TOYOTA MOTOR CORP Automobiles 196,896.51 6.97%
SONY CORP Household Durables 125,461.63 4.44%
SOFTBANK CORP Internet Software & Services 98,052.60 3.47%
BANK TOKYO-MITSUBISHI Banks 66,873.62 2.37%
NOMURA SECURITIES CO Diversified Financials 64,115.18 2.27%
TAKEDA CHEMICAL IND Pharmaceuticals 63,293.38 2.24%
MATSUSHITA ELECT IND'L Household Durables 61,730.57 2.18%
FUJITSU Computers & Peripherals 59,854.30 2.12%
MURATA MANUFACTURING CO Semiconductor Equipment & Products 58,346.73 2.07%
NEC CORP Computers & Peripherals 48,065.85 1.70%
SUMITOMO BANK Banks 46,856.38 1.66%
ROHM CO Semiconductor Equipment & Products 40,964.24 1.45%
HONDA MOTOR CO Automobiles 40,281.92 1.43%
HITACHI Electronic Equipment & Instruments 39,671.36 1.40%
CANON INC Office Electronics 37,801.81 1.34%
TOSHIBA CORP Computers & Peripherals 32,828.75 1.16%
FUJI BANK Banks 32,402.44 1.15%
KYOCERA CORP Electronic Equipment & Instruments 31,841.83 1.13%
SAKURA BANK Banks 31,091.67 1.10%
ITO-YOKADO CO Multiline Retail 29,747.31 1.05%
TOKYO ELECTRIC POWER CO Electric Utilities 29,678.26 1.05%
TOKYO ELECTRON Semiconductor Equipment & Products 26,464.78 0.94%
SHIN-ETSU CHEMICAL CO Chemicals 25,315.19 0.90%
FANUC Machinery 25,126.56 0.89%
DAIWA SECURITIES GROUP Diversified Financials 25,059.46 0.89%
NINTENDO CO Leisure Equipment & Products 24,931.75 0.88%
INDUSTRIAL BANK OF JAPAN Banks 24,140.06 0.85%
SHARP CORP Household Durables 24,109.13 0.85%
FUJI PHOTO FILM CO Leisure Equipment & Products 22,679.33 0.80%
DENSO CORP Auto Components 21,794.98 0.77%
ADVANTEST CORP Semiconductor Equipment & Products 21,180.05 0.75%
EAST JAPAN RAILWAY CO Road & Rail 20,747.82 0.73%
MITSUBISHI ELECTRIC CORP Electrical Equipment 20,264.81 0.72%
SECOM CO Commercial Services & Supplies 19,972.69 0.71%
YAMANOUCHI PHARM. Pharmaceuticals 19,587.07 0.69%
BRIDGESTONE CORP Auto Components 19,018.91 0.67%
KAO CORP Household Products 19,017.60 0.67%
NISSAN MOTOR CO Automobiles 16,286.88 0.58%
NIPPON STEEL CORP Metals & Mining 16,260.03 0.58%
TOKIO MARINE & FIRE Insurance 15,940.38 0.56%
ACOM CO Diversified Financials 15,883.19 0.56%
</TABLE>
A-23
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
TAKEFUJI CORP Diversified Financials 15,797.25 0.56%
ASAHI BANK Banks 15,789.30 0.56%
SMC CORP Machinery 14,680.12 0.52%
KANSAI ELECTRIC POWER CO Electric Utilities 14,636.89 0.52%
JAPAN TOBACCO Tobacco 14,332.37 0.51%
MITSUBISHI CORP Trading Companies & Distributors 14,225.51 0.50%
NIKON CORP Semiconductor Equipment & Products 14,210.62 0.50%
MITSUBISHI ESTATE CO Real Estate 14,098.31 0.50%
TOKAI BANK Banks 13,611.26 0.48%
CENTRAL JAPAN RAILWAY CO Road & Rail 13,562.52 0.48%
SUMITOMO CORP Trading Companies & Distributors 12,910.75 0.46%
MITSUI & CO Trading Companies & Distributors 12,815.77 0.45%
YAMATO TRANSPORT CO Air Freight & Couriers 12,751.71 0.45%
KIRIN BREWERY CO Beverages 12,601.34 0.45%
DAI NIPPON PRINTING CO Commercial Services & Supplies 12,336.51 0.44%
MITSUBISHI TRUST Diversified Financials 12,087.86 0.43%
TAISHO PHARMACEUTICAL CO Pharmaceuticals 11,925.04 0.42%
SANKYO CO Pharmaceuticals 11,563.56 0.41%
SANYO ELECTRIC CO Household Durables 11,362.60 0.40%
ORIX CORP Diversified Financials 11,270.74 0.40%
BENESSE CORP Commercial Services & Supplies 11,095.08 0.39%
HOYA CORP Health Care Equipment & Supplies 10,982.33 0.39%
ORIENTAL LAND CO Hotels Restaurants & Leisure 10,952.53 0.39%
FURUKAWA ELECTRIC CO Electrical Equipment 10,924.42 0.39%
MITSUBISHI HEAVY IND Machinery 10,622.24 0.38%
SUMITOMO ELECTRIC IND Electrical Equipment 10,573.07 0.37%
ASAHI GLASS CO Building Products 10,037.65 0.36%
PROMISE CO Diversified Financials 9,224.93 0.33%
ASAHI CHEMICAL IND CO Chemicals 9,212.83 0.33%
SUMITOMO CHEMICAL CO Chemicals 8,870.21 0.31%
MITSUBISHI CHEMICAL CORP Chemicals 8,337.86 0.30%
NIPPON EXPRESS CO Road & Rail 7,991.91 0.28%
AJINOMOTO CO Food Products 7,915.04 0.28%
TOPPAN PRINTING CO Media 7,842.08 0.28%
EISAI CO Pharmaceuticals 7,818.43 0.28%
MITSUI FUDOSAN CO Real Estate 7,763.94 0.27%
TAIYO YUDEN CO Electronic Equipment & Instruments 7,725.49 0.27%
ITOCHU CORP Trading Companies & Distributors 7,601.68 0.27%
OMRON CORP Electronic Equipment & Instruments 7,319.77 0.26%
OJI PAPER CO Containers & Packaging 7,264.35 0.26%
KONAMI CO Software 7,250.00 0.26%
TBS TOKYO BROADCASTING Media 6,905.16 0.24%
TRANS COSMOS Commercial Services & Supplies 6,883.21 0.24%
NIPPON PAPER IND CO Paper & Forest Products 6,816.26 0.24%
SHIZUOKA BANK Banks 6,715.32 0.24%
MARUI CO Multiline Retail 6,674.81 0.24%
</TABLE>
A-24
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
KINKI NIPPON RAILWAY CO Road & Rail 6,620.21 0.23%
SEKISUI HOUSE Household Durables 6,557.44 0.23%
TOHOKU ELECTRIC POWER CO Electric Utilities 6,447.52 0.23%
TERUMO CORP Health Care Equipment & Supplies 6,332.55 0.22%
NITTO DENKO CORP Electrical Equipment 6,328.75 0.22%
SHIONOGI & CO Pharmaceuticals 6,237.70 0.22%
TOKYO GAS CO Gas Utilities 6,054.82 0.21%
OSAKA GAS CO Gas Utilities 6,046.06 0.21%
DAIWA BANK Banks 5,975.02 0.21%
NIDEC CORP Electronic Equipment & Instruments 5,726.44 0.20%
SHISEIDO CO Personal Products 5,677.33 0.20%
MARUBENI CORP Trading Companies & Distributors 5,637.27 0.20%
HIROSE ELECTRIC CO Electronic Equipment & Instruments 5,608.24 0.20%
KAWASAKI STEEL CORP Metals & Mining 5,452.81 0.19%
TORAY INDUSTRIES Chemicals 5,411.07 0.19%
NIPPON MITSUBISHI OIL Oil & Gas 5,372.02 0.19%
MINEBEA CO Machinery 5,293.99 0.19%
NIPPON YUSEN K.K Marine 5,155.35 0.18%
PIONEER CORP Household Durables 5,094.86 0.18%
TOHO CO Media 5,076.19 0.18%
ASAHI BREWERIES Beverages 5,000.84 0.18%
JUSCO CO Multiline Retail 4,891.13 0.17%
DAIKIN INDUSTRIES Machinery 4,887.09 0.17%
TOKYU CORP Road & Rail 4,861.79 0.17%
KUBOTA CORP Machinery 4,851.64 0.17%
KYOWA HAKKO KOGYO CO Pharmaceuticals 4,850.25 0.17%
TAKARA SHUZO CO Beverages 4,827.86 0.17%
UNI-CHARM CORP Household Products 4,821.25 0.17%
JAPAN AIRLINES CO Airlines 4,769.75 0.17%
CHUO TRUST & BANK CO Diversified Financials 4,693.05 0.17%
CHUGAI PHARMACEUTICAL CO Pharmaceuticals 4,621.59 0.16%
BANK YOKOHAMA Banks 4,615.59 0.16%
KOMATSU Machinery 4,610.09 0.16%
NIPPON SHEET GLASS CO Building Products 4,456.12 0.16%
KANEKA CORP Chemicals 4,393.01 0.16%
BANK FUKUOKA Banks 4,356.81 0.15%
DAIICHI PHARMACEUTICAL Pharmaceuticals 4,224.19 0.15%
NSK Machinery 4,206.53 0.15%
OLYMPUS OPTICAL CO Health Care Equipment & Supplies 4,099.94 0.15%
WORLD CO Textiles & Apparel 3,985.08 0.14%
EBARA CORP Machinery 3,906.37 0.14%
SHIMAMURA CO Specialty Retail 3,862.04 0.14%
TEIJIN Chemicals 3,842.50 0.14%
MITSUBISHI MATERIALS Metals & Mining 3,812.80 0.13%
TOYO SEIKAN KAISHA Containers & Packaging 3,794.65 0.13%
FUJI MACHINE MFG CO Machinery 3,638.58 0.13%
</TABLE>
A-25
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
DAIWA HOUSE IND CO Household Durables 3,590.86 0.13%
JOYO BANK Banks 3,579.75 0.13%
MITSUI MARINE & FIRE Insurance 3,545.98 0.13%
TOSTEM CORP Building Products 3,543.98 0.13%
SUMITOMO MARINE & FIRE Insurance 3,422.18 0.12%
KURARAY CO Chemicals 3,328.14 0.12%
DAINIPPON INK Chemicals 3,208.13 0.11%
MITSUI MINING & SMELTING Metals & Mining 3,106.16 0.11%
NGK INSULATORS Machinery 3,074.61 0.11%
SKYLARK CO Hotels Restaurants & Leisure 3,072.55 0.11%
CSK CORP IT Consulting & Services 3,037.57 0.11%
TOYO INFORMATION SYSTEMS IT Consulting & Services 3,023.84 0.11%
TOSOH CORP Chemicals 2,934.07 0.10%
NISSIN FOOD PRODUCTS CO Food Products 2,927.83 0.10%
CASIO COMPUTER CO Household Durables 2,882.58 0.10%
SUMITOMO METAL IND Metals & Mining 2,833.15 0.10%
KADOKAWA SHOTEN PUBLISH. Media 2,830.17 0.10%
GUNMA BANK Banks 2,813.08 0.10%
CREDIT SAISON CO Diversified Financials 2,770.62 0.10%
SEVENTY-SEVEN BANK Banks 2,739.17 0.10%
OBAYASHI CORP Construction & Engineering 2,724.51 0.10%
MEIJI SEIKA KAISHA Food Products 2,718.59 0.10%
KAJIMA CORP Construction & Engineering 2,661.85 0.09%
SHIMANO Leisure Equipment & Products 2,640.00 0.09%
NIPPON MEAT PACKERS Food Products 2,628.24 0.09%
SANRIO CO Household Durables 2,619.06 0.09%
CITIZEN WATCH CO Textiles & Apparel 2,592.47 0.09%
KURITA WATER INDUSTRIES Construction & Engineering 2,576.63 0.09%
DAIEI Multiline Retail 2,553.76 0.09%
NGK SPARK PLUG CO Auto Components 2,538.48 0.09%
TAKASHIMAYA CO Multiline Retail 2,492.34 0.09%
NIPPON COMSYS CORP Construction & Engineering 2,473.81 0.09%
ALPS ELECTRIC CO Electronic Equipment & Instruments 2,470.39 0.09%
TOBU RAILWAY CO Road & Rail 2,452.99 0.09%
SEGA ENTREPRISES Household Durables 2,415.65 0.09%
AMADA CO Machinery 2,346.00 0.08%
DAITO TRUST CONSTRUCTION Construction & Engineering 2,339.58 0.08%
YOKOGAWA ELECTRIC CORP Electronic Equipment & Instruments 2,331.43 0.08%
NAMCO Hotels Restaurants & Leisure 2,250.53 0.08%
ASATSU-DK Media 2,235.32 0.08%
FUJI SOFT ABC Software 2,219.95 0.08%
SHIMIZU CORP Construction & Engineering 2,206.44 0.08%
YAMAZAKI BAKING CO Food Products 2,104.78 0.07%
ONWARD KASHIYAMA CO Textiles & Apparel 2,082.97 0.07%
MITSUKOSHI Multiline Retail 2,082.30 0.07%
NISSHIN FLOUR MILLING CO Food Products 2,035.59 0.07%
</TABLE>
A-26
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
ISETAN CO Multiline Retail 1,964.89 0.07%
KINDEN CORP Electrical Equipment 1,963.72 0.07%
TOTO Building Products 1,913.29 0.07%
UBE INDUSTRIES Industrial Conglomerates 1,895.22 0.07%
KEIHIN ELECTRIC EXPRESS Road & Rail 1,869.81 0.07%
FUJIKURA Electrical Equipment 1,844.53 0.07%
SEKISUI CHEMICAL CO Household Durables 1,824.37 0.06%
MEIJI MILK PRODUCTS CO Food Products 1,813.47 0.06%
DENKI KAGAKU KOGYO K.K Chemicals 1,751.40 0.06%
HOKURIKU BANK Banks 1,739.28 0.06%
KOKUYO CO Commercial Services & Supplies 1,720.88 0.06%
SUMITOMO METAL MINING CO Metals & Mining 1,711.74 0.06%
HOUSE FOODS(HOUSE FD IND Food Products 1,680.25 0.06%
YAMAHA CORP Leisure Equipment & Products 1,675.30 0.06%
KAWASAKI HEAVY IND Machinery 1,667.66 0.06%
UNY CO Multiline Retail 1,659.20 0.06%
KONICA CORP Leisure Equipment & Products 1,631.97 0.06%
MORI SEIKI CO Machinery 1,604.30 0.06%
TAIHEIYO CEMENT CORP Construction Materials 1,602.90 0.06%
MITSUBISHI RAYON CO Chemicals 1,592.36 0.06%
SUMITOMO OSAKA CEMENT CO Construction Materials 1,579.45 0.06%
YAKULT HONSHA CO Food Products 1,564.18 0.06%
TAISEI CORP Construction & Engineering 1,533.30 0.05%
ISHIKAWAJIMA-HARIMA Machinery 1,519.23 0.05%
KIKKOMAN CORP Food Products 1,482.40 0.05%
SHOWA SHELL SEKIYU K.K Oil & Gas 1,477.05 0.05%
KOYO SEIKO CO Machinery 1,472.76 0.05%
ORIENT CORP Diversified Financials 1,462.20 0.05%
MITSUBISHI LOGISTICS Marine 1,461.69 0.05%
SUMITOMO HEAVY IND Machinery 1,423.45 0.05%
MAKITA CORP Electrical Equipment 1,418.08 0.05%
MEITEC CORP IT Consulting & Services 1,406.94 0.05%
NTN CORP Machinery 1,399.58 0.05%
ASHIKAGA BANK Banks 1,388.81 0.05%
SHOWA DENKO K.K Chemicals 1,386.54 0.05%
SNOW BRAND MILK PRODUCTS Food Products 1,374.83 0.05%
SAPPORO BREWERIES Beverages 1,318.14 0.05%
WACOAL CORP Textiles & Apparel 1,302.77 0.05%
DAICEL CHEMICAL IND Chemicals 1,259.98 0.04%
KAMIGUMI CO Marine 1,259.24 0.04%
NICHIEI CO (8577) Diversified Financials 1,252.56 0.04%
TOEI CO Media 1,239.80 0.04%
INAX CORP Building Products 1,233.78 0.04%
DAINIPPON SCREEN MFG CO Electronic Equipment & Instruments 1,223.07 0.04%
MITSUBISHI GAS CHEMICAL Chemicals 1,200.80 0.04%
KOMORI CORP Machinery 1,199.19 0.04%
</TABLE>
A-27
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
TODA CORP Construction & Engineering 1,192.28 0.04%
KATOKICHI CO Food Products 1,165.37 0.04%
MYCAL CORP Multiline Retail 1,160.97 0.04%
NISSHINBO INDUSTRIES Textiles & Apparel 1,159.57 0.04%
AUTOBACS SEVEN CO Specialty Retail 1,158.43 0.04%
SUMITOMO FORESTRY CO Paper & Forest Products 1,131.56 0.04%
AOYAMA TRADING CO Specialty Retail 1,104.53 0.04%
HANKYU DEPARTMENT STORES Multiline Retail 1,072.14 0.04%
TOYOBO CO Textiles & Apparel 1,044.26 0.04%
KAWASAKI KISEN KAISHA Marine 1,027.55 0.04%
NISHIMATSU CONSTRUCTION Construction & Engineering 1,027.27 0.04%
DAIFUKU CO Machinery 1,024.04 0.04%
TOKYO STYLE CO Textiles & Apparel 989.44 0.04%
KANEBO Personal Products 965.02 0.03%
JAPAN ENERGY CORP Oil & Gas 959.92 0.03%
DAIMARU Multiline Retail 916.28 0.03%
MAKINO MILLING MACHINE Machinery 901.18 0.03%
HITACHI ZOSEN CORP Machinery 898.92 0.03%
NIPPON SHOKUBAI CO Chemicals 863.81 0.03%
NICHIREI CORP Food Products 863.77 0.03%
TOKYO DOME CORP Hotels Restaurants & Leisure 862.67 0.03%
TEIKOKU OIL CO Oil & Gas 861.68 0.03%
COSMO OIL CO Oil & Gas 849.95 0.03%
KYOWA EXEO CORP Construction & Engineering 831.42 0.03%
OKUMURA CORP Construction & Engineering 829.20 0.03%
TAKUMA CO Machinery 813.23 0.03%
TSUBAKIMOTO CHAIN CO Machinery 803.28 0.03%
SANDEN CORP Auto Components 793.67 0.03%
SEINO TRANSPORTATION CO Road & Rail 790.20 0.03%
AMANO CORP Commercial Services & Supplies 777.35 0.03%
NIPPON SHINPAN CO Diversified Financials 769.58 0.03%
BROTHER INDUSTRIES Office Electronics 725.19 0.03%
SEIYU Multiline Retail 718.04 0.03%
NORITAKE CO Household Durables 715.48 0.03%
SANWA SHUTTER CORP Building Products 712.29 0.03%
GUNZE Textiles & Apparel 636.05 0.02%
TAKARA STANDARD CO Building Products 619.96 0.02%
JGC CORP Construction & Engineering 618.99 0.02%
SHIMACHU CO Specialty Retail 608.32 0.02%
MITSUI ENGINEERING&SHIP. Machinery 607.65 0.02%
KUREHA CHEMICAL IND CO Chemicals 607.43 0.02%
ISHIHARA SANGYO KAISHA Chemicals 593.66 0.02%
KAKEN PHARMACEUTICAL CO Pharmaceuticals 587.14 0.02%
IWATANI INTERNATIONAL Trading Companies & Distributors 568.58 0.02%
NOF CORP Chemicals 560.66 0.02%
NIPPON LIGHT METAL CO Metals & Mining 556.15 0.02%
</TABLE>
A-28
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
OKUMA CORP Machinery 532.66 0.02%
NIPPON SUISAN KAISHA Food Products 518.70 0.02%
JACCS CO Diversified Financials 510.43 0.02%
PENTA-OCEAN CONSTRUCTION Construction & Engineering 500.36 0.02%
MITSUBISHI PAPER MILLS Paper & Forest Products 499.15 0.02%
MAEDA ROAD CONSTRUCTION Construction & Engineering 463.56 0.02%
KUMAGAI GUMI CO Construction & Engineering 444.68 0.02%
DAIWA KOSHO LEASE CO Real Estate 438.27 0.02%
TOKYO TATEMONO CO Real Estate 429.30 0.02%
SHO-BOND CORP Construction & Engineering 422.78 0.01%
JAPAN STEEL WORKS Machinery 416.50 0.01%
DAIKYO Real Estate 399.30 0.01%
OYO CORP Commercial Services & Supplies 391.00 0.01%
CHIYODA CORP Construction & Engineering 387.43 0.01%
TOKYOTOKEIBA CO Hotels Restaurants & Leisure 387.03 0.01%
RENOWN Textiles & Apparel 386.84 0.01%
UNITIKA Textiles & Apparel 366.61 0.01%
MITSUI-SOKO CO Marine 339.82 0.01%
NITTO BOSEKI CO Building Products 333.25 0.01%
NIPPON SHARYO Machinery 309.05 0.01%
TOA CORP Construction & Engineering 287.73 0.01%
FUJITA CORP Construction & Engineering 269.94 0.01%
ARABIAN OIL CO Oil & Gas 184.44 0.01%
HASEKO CORP Construction & Engineering 184.17 0.01%
</TABLE>
A-29
<PAGE>
APPENDIX A-12
MSCI KOREA INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ------------------------ ---------------- ---
<S> <C> <C> <C>
SAMSUNG ELECTRONICS CO Semiconductor Equipment & Products 52,658.03 35.41%
KEPCO KOREA ELECT. POWER Electric Utilities 18,237.11 12.26%
SK TELECOM CO Wireless Telecommunication Services 13,575.57 9.13%
SAMSUNG ELECTRO-MECH. CO Electronic Equipment & Instruments 5,407.92 3.64%
POSCO POHANG IRON &STEEL Metals & Mining 4,648.35 3.13%
LG ELECTRONICS Household Durables 3,652.43 2.46%
HYUNDAI MOTOR CO Automobiles 3,315.95 2.23%
LG CHEMICAL Chemicals 3,166.06 2.13%
KOOKMIN BANK Banks 2,995.58 2.01%
SK CORP Oil & Gas 2,660.86 1.79%
SHINHAN BANK Banks 2,634.15 1.77%
SAMSUNG CORP Electronic Equipment & Instruments 2,150.87 1.45%
HOUSING & COMMERCIAL BANK Banks 2,121.55 1.43%
SAMSUNG SECURITIES CO Diversified Financials 1,914.97 1.29%
SAMSUNG SDI(SAMSUNG DISP Electronic Equipment & Instruments 1,782.06 1.20%
LG INV & SEC (LG SECURIT Diversified Financials 1,772.40 1.19%
CHEIL JEDANG CORP Food Products 1,620.97 1.09%
SAMSUNG FIRE & MARINE Insurance 1,299.52 0.87%
HYUNDAI SECURITIES CO Diversified Financials 1,228.20 0.83%
ANAM SEMICONDUCTOR Semiconductor Equipment & Products 971.44 0.65%
DAISHIN SECURITIES CO Diversified Financials 854.23 0.57%
KOREA EXCHANGE BANK Banks 844.28 0.57%
HYUNDAI MERCHANT MARINE Marine 785.05 0.53%
DONGWON SECURITIES CO Diversified Financials 784.04 0.53%
DAEWOO SECURITIES CO Diversified Financials 782.80 0.53%
HANWHA CHEMICAL CORP Chemicals 738.54 0.50%
SHINSEGAE DEPT STORE CO Multiline Retail 733.12 0.49%
HYUNDAI ENG. & CONSTR. Construction & Engineering 723.25 0.49%
KOREAN AIR LINES CO Airlines 641.84 0.43%
HANA BANK Banks 634.37 0.43%
SK GLOBAL Trading Companies & Distributors 587.32 0.39%
DOOSAN CORP Beverages 543.36 0.37%
DAE DUCK ELECTRONICS CO Electronic Equipment & Instruments 523.97 0.35%
KEUMKANG Chemicals 493.69 0.33%
LG CABLE & MACHINERY Electrical Equipment 492.42 0.33%
TAE KWANG INDUSTRY CO Chemicals 483.54 0.33%
HONAM PETROCHEMICAL Chemicals 436.71 0.29%
MEDISON CO Health Care Equipment & Supplies 395.93 0.27%
HITE BREWERY CO Beverages 386.37 0.26%
HYOSUNG CORP Chemicals 346.00 0.23%
KOREA ZINC Metals & Mining 342.37 0.23%
CHEIL INDUSTRIAL Chemicals 337.03 0.23%
</TABLE>
A-30
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ------------------------ ---------------- -
<S> <C> <C> <C>
HANWHA CORP Chemicals 326.27 0.22%
DAELIM INDUSTRIAL CO Construction & Engineering 313.17 0.21%
HANKOOK TIRE MFG CO Auto Components 303.78 0.20%
NHONG SHIM Food Products 287.84 0.19%
HANSOL PAPER CO. Paper & Forest Products 279.46 0.19%
SINDO RICOH CO Commercial Services & Supplies 275.88 0.19%
NAMHAE CHEMICAL CO Chemicals 263.27 0.18%
KOREA EXPRESS Road & Rail 259.41 0.17%
KOREA GREEN CROSS CORP Pharmaceuticals 258.20 0.17%
SSANGYONG CEMENT IND'L Construction Materials 254.82 0.17%
KUKDO CHEMICAL CO Chemicals 244.46 0.16%
DAEWOO HEAVY INDUSTRIES Machinery 244.46 0.16%
HOTEL SHILLA CO Hotels Restaurants & Leisure 240.67 0.16%
DAESANG CORP Food Products 233.47 0.16%
SHINYOUNG SECURITIES CO Diversified Financials 230.55 0.16%
KEUM KANG DEVLPT IND CO Multiline Retail 212.01 0.14%
DONGKUK STEEL MILL CO Metals & Mining 205.57 0.14%
TAE YOUNG CORP Construction & Engineering 203.60 0.14%
HANJIN HEAVY INDUSTRIES Machinery 200.37 0.13%
DONG-A PHARMACEUTICAL CO Pharmaceuticals 180.11 0.12%
LG INSURANCE CO Insurance 179.14 0.12%
PACIFIC (CHEMICAL) CORP Personal Products 173.52 0.12%
ORIENTAL CHEMICAL IND CO Chemicals 168.29 0.11%
HANKUK GLASS INDUSTRY CO Building Products 155.37 0.10%
KOLON INDUSTRIES Chemicals 152.32 0.10%
SKC CO Household Durables 150.10 0.10%
SAM YANG Textiles & Apparel 134.61 0.09%
KUMHO INDUSTRIAL CO Auto Components 131.33 0.09%
HANKUK CARBON CO Chemicals 127.34 0.09%
HYUNDAI MARINE &FIRE INS Insurance 121.33 0.08%
SEOUL CITY GAS CO Gas Utilities 108.30 0.07%
ISU CHEMICAL CO Chemicals 106.48 0.07%
ORION ELECTRIC Electronic Equipment & Instruments 103.05 0.07%
KOREAN REINSURANCE CO Insurance 100.11 0.07%
KOREA FINE CHEMICAL CO Chemicals 93.64 0.06%
DAESUNG INDUSTRIAL CO Trading Companies & Distributors 89.15 0.06%
HANIL CEMENT MFG CO Construction Materials 84.80 0.06%
YOUNG POONG MINING&CONST Metals & Mining 82.80 0.06%
HYUNDAI ELEVATOR CO Machinery 80.76 0.05%
DONG AH CONSTR. IND'L CO Construction & Engineering 80.52 0.05%
HANKOOK SYNTHETICS Textiles & Apparel 78.47 0.05%
CHONG KUN DANG CORP Pharmaceuticals 77.64 0.05%
INCHON OIL REFINERY CO Oil & Gas 70.15 0.05%
DONGAH TIRE INDUSTRIAL Auto Components 62.48 0.04%
YOUNGONE CORP Textiles & Apparel 62.26 0.04%
SEONDO ELECTRIC CO Electrical Equipment 58.77 0.04%
</TABLE>
A-31
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ------------------------ ---------------- -
<S> <C> <C> <C>
SAEHAN INDUSTRIES Chemicals 51.59 0.03%
KWANG DONG PHARMA CO Pharmaceuticals 50.24 0.03%
SAMWHAN CORP. Construction & Engineering 40.00 0.03%
</TABLE>
A-32
<PAGE>
APPENDIX A-13
MSCI MALAYSIA INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ---------------- -
<S> <C> <C> <C>
TELEKOM MALAYSIA Diversified Telecommunication Services 12,326.84 13.04%
TENAGA NASIONAL Electric Utilities 10,442.04 11.04%
MALAYAN BANKING Banks 10,069.70 10.65%
RESORTS WORLD Hotels Restaurants & Leisure 3,620.32 3.83%
MALAYSIA INT'L SHIPPING Marine 3,401.68 3.60%
COMMERCE ASSET-HOLDING Banks 3,323.04 3.51%
SIME DARBY Industrial Conglomerates 3,035.88 3.21%
RHB CAPITAL Banks 2,878.99 3.04%
MALAYSIAN PACIFIC IND Semiconductor Equipment & Products 2,809.20 2.97%
YTL CORP Electric Utilities 2,762.60 2.92%
PUBLIC BANK Banks 2,490.86 2.63%
UNITED ENGINEERS (MAL) Construction & Engineering 2,229.48 2.36%
BRIT AMER TOBACCO(ROTHMA Tobacco 2,179.04 2.30%
AMMB HOLDINGS Diversified Financials 1,490.55 1.58%
UNISEM (MALAYSIA) Semiconductor Equipment & Products 1,486.45 1.57%
BERJAYA SPORTS TOTO Hotels Restaurants & Leisure 1,332.95 1.41%
TECHNOLOGY RESOURCES IND Diversified Telecommunication Services 1,191.96 1.26%
TIME ENGINEERING Industrial Conglomerates 1,188.37 1.26%
MAGNUM CORP Hotels Restaurants & Leisure 1,176.84 1.24%
NESTLE (MALAYSIA) Food Products 1,116.96 1.18%
MALAYSIAN RESOURCES CORP Electric Utilities 1,090.41 1.15%
MALAYAN CEMENT Construction Materials 1,066.08 1.13%
PROTON Automobiles 1,006.86 1.06%
GAMUDA Construction & Engineering 959.36 1.01%
NEW STRAITS TIMES PRESS Media 942.80 1.00%
GOLDEN HOPE PLANTATIONS Food Products 940.78 0.99%
KUALA LUMPUR KEPONG Food Products 937.52 0.99%
EDARAN OTOMOBIL NASIONAL Specialty Retail 847.61 0.90%
MALAYSIAN AIRLINE SYSTEM Airlines 818.63 0.87%
ORIENTAL HOLDINGS Automobiles 782.50 0.83%
STAR PUBLICATIONS (MAL) Media 671.18 0.71%
TA ENTERPRISE Diversified Financials 646.75 0.68%
IOI CORP Diversified Financials 613.11 0.65%
RASHID HUSSAIN Banks 597.63 0.63%
UMW HOLDINGS Auto Components 576.67 0.61%
PETRONAS DAGANGAN Oil & Gas 546.40 0.58%
PERLIS PLANTATIONS Food Products 518.06 0.55%
MALAYSIA MINING CORP Metals & Mining 492.88 0.52%
JAYA TIASA HOLDINGS Paper & Forest Products 483.27 0.51%
MALAYSIAN OXYGEN Chemicals 448.02 0.47%
HIGHLANDS & LOWLANDS Food Products 447.88 0.47%
MALAYAN UNITED IND Diversified Financials 434.07 0.46%
WTK HOLDINGS Paper & Forest Products 390.96 0.41%
MULTI-PURPOSE HOLDINGS Diversified Financials 389.79 0.41%
ROAD BUILDER (MAL) HLDGS Construction & Engineering 389.24 0.41%
HUME INDUSTRIES MALAYSIA Construction Materials 368.41 0.39%
IJM CORP Construction & Engineering 362.03 0.38%
JT INT'L (RJ REYNOLDS) Tobacco 344.12 0.36%
</TABLE>
A-33
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ---------------- -
<S> <C> <C> <C>
SP SETIA Real Estate 336.36 0.36%
GUINNESS ANCHOR Beverages 327.54 0.35%
PUNCAK NIAGA HOLDINGS Water Utilities 326.32 0.35%
TAN CHONG MOTOR HOLDINGS Automobiles 318.32 0.34%
HONG LEONG PROPERTIES Real Estate 313.36 0.33%
PAN MALAYSIA CORP Construction Materials 289.96 0.31%
AMSTEEL CORP Industrial Conglomerates 273.41 0.29%
IGB CORP Real Estate 273.00 0.29%
MALAYSIAN MOSAICS Trading Companies & Distributors 270.48 0.29%
FACB RESORTS Real Estate 265.62 0.28%
MULPHA INTERNATIONAL Diversified Financials 261.45 0.28%
SUNWAY HLDGS (SUNGEI WAY Construction & Engineering 242.93 0.26%
SELANGOR PROPERTIES Real Estate 235.11 0.25%
LEADER UNIVERSAL HLDGS Electrical Equipment 228.43 0.24%
LAND & GENERAL Industrial Conglomerates 228.21 0.24%
EKRAN Real Estate 226.24 0.24%
METROPLEX Hotels Restaurants & Leisure 222.32 0.24%
MBF CAPITAL Diversified Financials 205.87 0.22%
KIAN JOO CAN FACTORY Containers & Packaging 199.46 0.21%
LANDMARKS Hotels Restaurants & Leisure 161.53 0.17%
PILECON ENGINEERING Construction & Engineering 149.32 0.16%
ANTAH HOLDINGS Diversified Financials 148.69 0.16%
ACP INDUSTRIES Building Products 137.27 0.15%
MALAYAWATA STEEL Metals & Mining 112.99 0.12%
JOHAN HOLDINGS Building Products 83.41 0.09%
MYCOM Real Estate 62.00 0.07%
</TABLE>
A-34
<PAGE>
APPENDIX A-14
MSCI MEXICO (FREE) INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
TELEFONOS MEXICO L Diversified Telecommunication Services 34,329.96 25.88%
TELEFONOS MEXICO A Diversified Telecommunication Services 16,227.85 12.23%
GRUPO TELEVISA CPO Media 10,629.28 8.01%
WALMART MEXICO V (CIFRA) Multiline Retail 9,431.31 7.11%
GRUPO MODELO C Beverages 6,981.85 5.26%
BANACCI O Banks 6,779.62 5.11%
CEMEX CPO (NEW) Construction Materials 6,720.91 5.07%
FEMSA UNIT Beverages 4,876.45 3.68%
KIMBERLY-CLARK MEXICO A Paper & Forest Products 4,753.07 3.58%
GRUPO FIN BANCOMER O Banks 3,428.12 2.58%
GRUPO CARSO Industrial Conglomerates 3,398.08 2.56%
GRUPO MEXICO B Metals & Mining 3,230.13 2.44%
SAVIA A Biotechnology 2,629.45 1.98%
GRUPO BIMBO A Food Products 2,379.83 1.79%
ALFA Industrial Conglomerates 2,259.42 1.70%
APASCO Construction Materials 1,687.75 1.27%
WALMART MEXICO C (CIFRA) Multiline Retail 1,586.87 1.20%
GRUPO ELEKTRA CPO Specialty Retail 1,556.02 1.17%
CONTROLADORA COM MEX UBC Multiline Retail 1,480.22 1.12%
DESC B Industrial Conglomerates 1,107.91 0.84%
TUBOS ACERO DE MEXICO Machinery 1,039.39 0.78%
INDUSTRIAS PENOLES CP Metals & Mining 980.77 0.74%
GRUPO CONTINENTAL Beverages 931.53 0.70%
BANACCI L Banks 929.96 0.70%
GRUPO FIN BANORTE O Banks 706.11 0.53%
VITRO A Containers & Packaging 576.22 0.43%
GRUPO IND'L MASECA B2 Food Products 525.71 0.40%
GRUPO FIN BBV-PROBURSA B Diversified Financials 433.44 0.33%
EMPAQUES PONDEROSA Containers & Packaging 274.67 0.21%
EMPRESAS ICA Construction & Engineering 253.98 0.19%
CORPORACION GEO B Real Estate 251.62 0.19%
HERDEZ (GRUPO) B Food Products 120.73 0.09%
CYDSA Chemicals 97.20 0.07%
CONSORCIO G GRUPO DINA Machinery 55.73 0.04%
</TABLE>
A-35
<PAGE>
APPENDIX A-15
MSCI NETHERLANDS INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
ROYAL DUTCH PETROLEUM CO Oil & Gas 125,185.06 24.51%
PHILIPS ELECTRS (KON.) Household Durables 56,976.00 11.16%
KPN (KON.) Diversified Telecommunication Services 54,559.90 10.68%
AEGON Insurance 53,408.03 10.46%
ING GROEP Diversified Financials 52,355.86 10.25%
ABN AMRO HOLDING Banks 32,720.20 6.41%
UNILEVER NV CERT Food Products 28,194.81 5.52%
AHOLD (KON.) Food & Drug Retailing 16,820.30 3.29%
HEINEKEN NV Beverages 16,758.82 3.28%
ASM LITHOGRAPHY HOLDING Semiconductor Equipment & Products 15,526.60 3.04%
AKZO NOBEL Chemicals 12,178.54 2.38%
TNT POST GROEP Air Freight & Couriers 10,725.61 2.10%
GETRONICS IT Consulting & Services 8,612.22 1.69%
ELSEVIER Media 6,778.17 1.33%
WOLTERS KLUWER Media 6,379.24 1.25%
BUHRMANN Commercial Services & Supplies 2,444.34 0.48%
HAGEMEYER Distributors 2,242.29 0.44%
VOPAK (KON.) Marine 1,501.26 0.29%
BAAN CO Software 1,361.34 0.27%
KLM Airlines 1,186.66 0.23%
IHC CALAND Machinery 1,182.72 0.23%
OCE Office Electronics 1,147.51 0.22%
VEDIOR Commercial Services & Supplies 1,008.24 0.20%
NEDLLOYD (KON.) Marine 523.65 0.10%
HOLLANDSCHE BETON GROEP Construction & Engineering 455.07 0.09%
STORK (VER MACHINE.) Machinery 425.07 0.08%
</TABLE>
A-36
<PAGE>
APPENDIX A-16
MSCI SINGAPORE INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
DBS GROUP HOLDINGS Banks 18,148.80 21.34%
SINGAPORE AIRLINES Airlines 11,724.85 13.78%
SINGAPORE TELECOM Diversified Telecommunication Services 8,829.26 10.38%
OCBC BANK Banks 7,967.55 9.37%
UNITED OVERSEAS BANK Banks 6,458.70 7.59%
SINGAPORE PRESS HLDG Media 5,850.45 6.88%
CITY DEVELOPMENTS Real Estate 3,629.30 4.27%
SINGAPORE TECH ENGR. Aerospace & Defense 3,403.93 4.00%
VENTURE MANUFACTURING Electronic Equipment & Instruments 3,153.45 3.71%
CREATIVE TECHNOLOGY Computers & Peripherals 3,015.62 3.55%
KEPPEL CORP Diversified Financials 1,824.35 2.14%
DBS LAND Real Estate 1,697.18 2.00%
SEMBCORP INDUSTRIES Construction & Engineering 1,629.44 1.92%
NEPTUNE ORIENT LINES NOL Marine 1,037.11 1.22%
PARKWAY HOLDINGS Health Care Providers & Services 1,017.24 1.20%
FRASER & NEAVE Beverages 850.94 1.00%
NATSTEEL Industrial Conglomerates 836.77 0.98%
CYCLE & CARRIAGE Specialty Retail 629.28 0.74%
UIC UNITED INDUSTRIAL Real Estate 579.82 0.68%
OVERSEAS UNION ENT. Hotels Restaurants & Leisure 459.74 0.54%
UNITED OVERSEAS LAND Hotels Restaurants & Leisure 424.96 0.50%
HOTEL PROPERTIES Hotels Restaurants & Leisure 396.87 0.47%
FIRST CAPITAL CORP Real Estate 314.54 0.37%
HAW PAR CORP Industrial Conglomerates 300.44 0.35%
STRAITS TRADING Real Estate 295.18 0.35%
COMFORT GROUP Road & Rail 240.76 0.28%
ROBINSON AND CO Specialty Retail 200.97 0.24%
INCHCAPE MOTORS Distributors 138.78 0.16%
</TABLE>
A-37
<PAGE>
APPENDIX A-17
MSCI SOUTH AFRICA INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
DE BEERS CONS'D MINES Metals & Mining 9,015.39 8.31%
DIMENSION DATA HOLDINGS IT Consulting & Services 8,382.99 7.73%
FIRSTRAND Banks 6,572.63 6.06%
M-CELL Wireless Telecommunication Services 6,428.32 5.93%
SOUTH AFRICAN BREW. PLC Beverages 5,910.49 5.45%
ANGLO AMERICAN PLATINUM Metals & Mining 5,738.62 5.29%
ANGLOGOLD Metals & Mining 5,105.86 4.71%
NEDCOR Banks 4,809.45 4.43%
REMBRANDT GROUP Diversified Financials 4,625.82 4.26%
SASOL Oil & Gas 3,778.35 3.48%
SANLAM Insurance 3,370.43 3.11%
INVESTEC GROUP Diversified Financials 3,168.36 2.92%
MIH HOLDINGS Internet Software & Services 2,669.07 2.46%
LIBERTY LIFE ASSOCIATION Insurance 2,580.58 2.38%
ABSA GROUP Banks 2,348.11 2.16%
BOE LTD Diversified Financials 2,323.03 2.14%
IMPALA PLATINUM HOLDINGS Metals & Mining 2,240.38 2.07%
BIDVEST GROUP Diversified Financials 2,203.82 2.03%
OMNI MEDIA CORP Media 2,176.56 2.01%
CORONATION HOLDINGS N Diversified Financials 1,905.91 1.76%
SAPPI Paper & Forest Products 1,841.95 1.70%
NASPERS N Media 1,779.68 1.64%
IMPERIAL HOLDINGS Specialty Retail 1,770.70 1.63%
TIGER BRANDS (TIGER OATS Food Products 1,708.69 1.58%
GOLD FIELDS Metals & Mining 1,577.35 1.45%
BARLOW Industrial Conglomerates 1,415.78 1.31%
NAMPAK Containers & Packaging 1,181.47 1.09%
AFRICAN BK INV (THETA) Diversified Financials 1,164.11 1.07%
METRO CASH & CARRY Food & Drug Retailing 1,034.57 0.95%
FEDSURE HOLDINGS Insurance 978.04 0.90%
METROPOLITAN LIFE Insurance 887.70 0.82%
PROFURN Specialty Retail 757.33 0.70%
PEPKOR Food & Drug Retailing 756.18 0.70%
JD GROUP Specialty Retail 740.10 0.68%
PICK'N PAY STORES Food & Drug Retailing 718.24 0.66%
ISCOR Metals & Mining 682.01 0.63%
AFRICAN LIFE ASSURANCE Insurance 659.53 0.61%
COMPAREX HOLDINGS IT Consulting & Services 589.45 0.54%
TONGAAT-HULETT GROUP Food Products 500.01 0.46%
WOOLWORTHS HOLDINGS Multiline Retail 496.65 0.46%
FOSCHINI Specialty Retail 485.22 0.45%
WOOLTRU N Multiline Retail 347.90 0.32%
</TABLE>
A-38
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- --------------- ---
<S> <C> <C> <C>
PRIMEDIA N Media 290.65 0.27%
REUNERT Electronic Equipment & Instruments 269.92 0.25%
WOOLTRU Multiline Retail 263.32 0.24%
SAFMARINE & RENNIES HLDG Marine 236.56 0.22%
</TABLE>
A-39
<PAGE>
APPENDIX A-18
MSCI SWEDEN INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
TELEFONICA Diversified Telecommunication Services 82,426.05 29.54%
BSCH BCO SANTANDER CENTR Banks 42,975.95 15.40%
BBVA (BCO BILBAO VIZCAYA Banks 42,578.05 15.26%
REPSOL YPF Oil & Gas 26,044.03 9.33%
ENDESA Electric Utilities 24,284.49 8.70%
IBERDROLA Electric Utilities 11,758.50 4.21%
GAS NATURAL SDG Gas Utilities 8,736.65 3.13%
UNION ELECTRICA FENOSA Electric Utilities 6,256.61 2.24%
ALTADIS (TABACALERA) Tobacco 4,676.59 1.68%
FOMENTO CONST Y CONTR Construction & Engineering 2,562.84 0.92%
AUTOPISTAS CESA (ACESA) Transportation Infrastructure 2,494.98 0.89%
ALBA (CORP FINANCIERA) Real Estate 2,462.97 0.88%
ACERINOX Metals & Mining 2,311.09 0.83%
AGUAS DE BARCELONA Water Utilities 2,179.00 0.78%
SOL MELIA Hotels Restaurants & Leisure 2,150.51 0.77%
TELEPIZZA Hotels Restaurants & Leisure 1,889.74 0.68%
ACS ACTIV. CONST. Y SVCS Construction & Engineering 1,525.29 0.55%
GRUPO DRAGADOS Construction & Engineering 1,483.79 0.53%
ZARDOYA OTIS Machinery 1,201.61 0.43%
MAPFRE (CORPORACION) Insurance 958.46 0.34%
CORTEFIEL Specialty Retail 928.52 0.33%
VALLEHERMOSO Real Estate 864.50 0.31%
AZUCARERA EBRO AGRICOLAS Food Products 862.37 0.31%
METROVACESA Real Estate 859.36 0.31%
PROSEGUR Commercial Services & Supplies 722.84 0.26%
PULEVA Food Products 529.03 0.19%
PORTLAND VALDERRIVAS Construction Materials 460.38 0.16%
ASTURIANA DE ZINC Metals & Mining 449.55 0.16%
EMPRESARIAL ENCE (GRUPO) Paper & Forest Products 425.51 0.15%
URBIS (INMOBILIARIA) Real Estate 410.07 0.15%
URALITA Building Products 409.79 0.15%
FAES Pharmaceuticals 380.52 0.14%
VISCOFAN Food Products 376.65 0.13%
AGUILA (EL) Beverages 290.95 0.10%
ERCROS Chemicals 147.47 0.05%
</TABLE>
A-40
<PAGE>
APPENDIX A-19
MSCI SWEDEN INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
ERICSSON (LM) B Communications Equipment 171,420.89 53.60%
SKANDIA FORSAKRING Insurance 24,226.21 7.57%
HENNES & MAURITZ B Specialty Retail 22,987.11 7.19%
NETCOM B Diversified Telecommunication Services 8,954.68 2.80%
SECURITAS B Commercial Services & Supplies 8,619.27 2.69%
VOLVO B Machinery 8,168.91 2.55%
SVENSKA HANDELSBK A Banks 8,011.53 2.50%
SKAND.ENSKILDA BANKEN A Banks 7,598.18 2.38%
FOERENINGSSPARBANKEN Banks 7,177.96 2.24%
ELECTROLUX B Household Durables 6,929.25 2.17%
SCA SV CELLULOSA B Paper & Forest Products 5,437.64 1.70%
SANDVIK A Machinery 4,867.82 1.52%
WM-DATA B IT Consulting & Services 4,012.08 1.25%
SKANSKA B Construction & Engineering 3,861.05 1.21%
VOLVO A Machinery 3,601.48 1.13%
OM GRUPPEN Diversified Financials 3,489.31 1.09%
ATLAS COPCO A Machinery 3,402.71 1.06%
ASSIDOMAN Containers & Packaging 1,959.18 0.61%
SANDVIK B Machinery 1,795.26 0.56%
GAMBRO A Health Care Equipment & Supplies 1,638.59 0.51%
ATLAS COPCO B Machinery 1,622.31 0.51%
SKF B Machinery 1,435.14 0.45%
SWEDISH MATCH Tobacco 1,327.97 0.42%
DROTT B Real Estate 1,159.63 0.36%
SKF A Machinery 1,066.08 0.33%
SSAB SVENSKT STAL A Metals & Mining 962.33 0.30%
TRELLEBORG B Industrial Conglomerates 828.45 0.26%
SVENSKA HANDELSBK B Banks 746.22 0.23%
SAPA (GRAENGES) Metals & Mining 680.21 0.21%
DILIGENTIA Real Estate 642.33 0.20%
GAMBRO B Health Care Equipment & Supplies 626.11 0.20%
SSAB SVENSKT STAL B Metals & Mining 356.44 0.11%
ESSELTE A Commercial Services & Supplies 119.58 0.04%
ESSELTE B Commercial Services & Supplies 101.41 0.03%
</TABLE>
A-41
<PAGE>
APPENDIX A-20
MSCI SWITZERLAND INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
NOVARTIS Pharmaceuticals 98,649.12 18.21%
ROCHE HOLDING GENUSS Pharmaceuticals 76,311.32 14.09%
NESTLE Food Products 70,656.59 13.04%
UBS (NEW) Banks 56,445.10 10.42%
CREDIT SUISSE Banks 54,492.77 10.06%
ABB LTD Electrical Equipment 34,462.29 6.36%
SWISSCOM Diversified Telecommunication Services 28,222.11 5.21%
SCHWEIZ RUECKVERS Insurance 24,791.49 4.58%
ZURICH ALLIED Insurance 24,500.08 4.52%
ROCHE HOLDING INHABER Pharmaceuticals 19,726.95 3.64%
ADECCO Commercial Services & Supplies 12,679.71 2.34%
HOLDERBANK INHABER Construction Materials 6,482.46 1.20%
SWATCH GROUP PORT Textiles & Apparel 4,191.23 0.77%
ALUSUISSE-LONZA GROUP Metals & Mining 3,975.49 0.73%
SWATCH GROUP NOM Textiles & Apparel 3,514.96 0.65%
LONZA GROUP Chemicals 3,490.38 0.64%
HOLDERBANK NAMEN Construction Materials 3,354.56 0.62%
SULZER Machinery 2,450.59 0.45%
SGS SURVEILLANCE PORT Commercial Services & Supplies 2,052.50 0.38%
SAIRGROUP Airlines 2,021.60 0.37%
KUONI REISEN NAMEN B Hotels Restaurants & Leisure 1,389.31 0.26%
VALORA HOLDING NAMEN Specialty Retail 1,215.05 0.22%
SCHINDLER NAMEN Machinery 1,116.58 0.21%
FISCHER (GEORG) NAMEN Machinery 1,025.73 0.19%
SGS SURVEILLANCE NOM Commercial Services & Supplies 936.79 0.17%
SCHINDLER PART Machinery 884.82 0.16%
SIKA FINANZ INHABER Chemicals 771.65 0.14%
JELMOLI HOLDING INHABER Multiline Retail 592.96 0.11%
FORBO HOLDING Household Durables 576.89 0.11%
MOEVENPICK INHABER Hotels Restaurants & Leisure 408.04 0.08%
JELMOLI HOLDING NAMEN Multiline Retail 367.20 0.07%
</TABLE>
A-42
<PAGE>
APPENDIX A-21
MSCI TAIWAN INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- -----
<S> <C> <C> <C>
TAIWAN SEMICONDUCTOR MFG Semiconductor Equipment & Products 25,838.50 17.67%
UNITED MICROELECTRONICS Semiconductor Equipment & Products 17,524.82 11.98%
ASUSTEK COMPUTER Computers & Peripherals 7,176.77 4.91%
CATHAY LIFE INSURANCE CO Insurance 6,652.93 4.55%
HON HAI PRECISION IND CO Electronic Equipment & Instruments 6,380.22 4.36%
NAN YA PLASTIC Chemicals 5,334.15 3.65%
QUANTA COMPUTER Computers & Peripherals 5,067.59 3.46%
WINBOND ELECTRONICS CORP Semiconductor Equipment & Products 4,611.46 3.15%
CHINA DEVLPT IND'L BANK Diversified Financials 4,335.85 2.96%
ACER Computers & Peripherals 4,333.74 2.96%
FORMOSA PLASTIC CORP Chemicals 3,978.39 2.72%
ASE Semiconductor Equipment & Products 3,741.37 2.56%
MOSEL VITELIC Semiconductor Equipment & Products 3,352.36 2.29%
CHINA STEEL CORP COMMON Metals & Mining 3,098.57 2.12%
FAR EASTERN TEXTILE Textiles & Apparel 2,847.05 1.95%
FORMOSA CHEMICAL FIBERS Chemicals 2,489.90 1.70%
COMPAL ELECTRONICS Computers & Peripherals 2,445.68 1.67%
TATUNG Computers & Peripherals 2,084.07 1.42%
FIRST COMMERCIAL BANK Banks 2,028.46 1.39%
DELTA ELECTRONICS Electronic Equipment & Instruments 2,015.56 1.38%
HUA NAN COMMERCIAL BANK Banks 1,895.22 1.30%
UNITED WORLD CHIN COM BK Banks 1,828.70 1.25%
PACIFIC ELECTRIC WIRE Electrical Equipment 1,711.55 1.17%
CHINATRUST COMMERCIAL BK Banks 1,659.34 1.13%
CHANG HWA COMMERCIAL BK Banks 1,574.90 1.08%
ICBC INT'L COMM BK CHINA Banks 1,474.23 1.01%
WALSIN LIHWA CORP Electrical Equipment 1,462.69 1.00%
UNI-PRESIDENT ENT. Food Products 1,239.65 0.85%
TAIWAN CEMENT CORP Construction Materials 1,237.92 0.85%
TECO ELECTRIC & MACH. Household Durables 1,179.19 0.81%
POU CHEN CORP Textiles & Apparel 963.93 0.66%
EVERGREEN MARINE CORP Marine 890.01 0.61%
ASIA CEMENT CORP Construction Materials 860.10 0.59%
KINPO ELECTRONICS Office Electronics 742.65 0.51%
AURORA CORP Specialty Retail 647.12 0.44%
YULON MOTOR CO Automobiles 635.79 0.43%
MICROELECTRONICS TECH Communications Equipment 625.37 0.43%
CHINA MOTOR CORP Automobiles 567.28 0.39%
CHUNG HSING BILLS FIN Diversified Financials 520.17 0.36%
LITE-ON ELECTRONICS Electronic Equipment & Instruments 478.33 0.33%
TAIWAN GLASS IND'L CORP Building Products 476.03 0.33%
TAIWAN TEA CORP Food & Drug Retailing 476.00 0.33%
</TABLE>
A-43
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
YANG MING MARINE TRANSP Marine 460.98 0.32%
SAMPO CORP Household Durables 403.64 0.28%
HUALON-TEIJRAN COMMON Chemicals 362.02 0.25%
CONTINENTAL ENGINEERING Construction & Engineering 355.53 0.24%
CATHAY CONSTRUCTION Real Estate 352.32 0.24%
NIEN HSING TEXTILE CORP Textiles & Apparel 349.98 0.24%
CHENG SHIN RUBBER IND Auto Components 343.95 0.24%
TON YI INDUSTRIAL COMMON Metals & Mining 285.44 0.20%
CHUNG HWA PULP CORP Paper & Forest Products 275.57 0.19%
EVER FORTUNE Real Estate 275.28 0.19%
TAIWAN PINEAPPLE Food Products 262.22 0.18%
FAR EAST DEPT STORES Multiline Retail 261.72 0.18%
PACIFIC CONSTRUCTION Construction & Engineering 257.75 0.18%
TUNTEX DISTINCT Textiles & Apparel 250.14 0.17%
SHIHLIN ELECTR. & ENG Electrical Equipment 245.99 0.17%
SHINKONG SYNTH. FIBERS Chemicals 219.73 0.15%
LIEN HWA INDUSTRIAL CORP Food Products 214.07 0.15%
TUNG HO STEEL ENTERPRISE Metals & Mining 206.95 0.14%
GOLDSUN DEVLPT & CONSTR. Construction Materials 203.92 0.14%
SHIHLIN PAPER Paper & Forest Products 197.81 0.14%
CHINA SYNTHETIC RUBBER Chemicals 187.75 0.13%
TAY FENG TIRE Auto Components 184.42 0.13%
BES ENGINEERING CORP Construction & Engineering 183.22 0.13%
ORIENTAL UNION CHEMICAL Chemicals 176.12 0.12%
ADI CORP Computers & Peripherals 158.67 0.11%
HUA ENG WIRE & CABLE Electrical Equipment 150.75 0.10%
LEE CHANG YUNG CHEMICAL Chemicals 135.47 0.09%
YUNG TAI ENGINEERING Machinery 133.65 0.09%
TAIWAN PULP & PAPER CO Paper & Forest Products 131.12 0.09%
WEI CHUAN FOOD Food Products 120.57 0.08%
FORMOSAN RUBBER GROUP Chemicals 119.02 0.08%
CHUNG SHING TEXTILE CO Textiles & Apparel 111.21 0.08%
LEOFOO DEVELOPMENT CORP Hotels Restaurants & Leisure 108.44 0.07%
AMBASSADOR HOTEL Hotels Restaurants & Leisure 82.42 0.06%
</TABLE>
A-44
<PAGE>
APPENDIX A-22
MSCI UNITED KINGDOM INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ----------------
<S> <C> <C> <C>
VODAFONE AIRTOUCH Wireless Telecommunication Services 337,852.64 16.70%
BP AMOCO Oil & Gas 178,391.85 8.82%
BRITISH TELECOM Diversified Telecommunication Services 121,268.17 6.00%
GLAXO WELLCOME Pharmaceuticals 103,511.18 5.12%
HSBC HOLDINGS (GB) Banks 99,961.09 4.94%
SMITHKLINE BEECHAM Pharmaceuticals 74,184.87 3.67%
ASTRAZENECA Pharmaceuticals 72,188.59 3.57%
LLOYDS TSB GROUP Banks 57,821.94 2.86%
BRITISH SKY BROADCASTING Media 45,707.58 2.26%
BARCLAYS Banks 39,373.14 1.95%
ROYAL BANK OF SCOTLAND Banks 38,166.90 1.89%
MARCONI Communications Equipment 31,990.60 1.58%
PRUDENTIAL Insurance 29,448.32 1.46%
REUTERS GROUP Media 28,751.71 1.42%
DIAGEO Beverages 25,699.54 1.27%
HALIFAX GROUP Banks 23,952.66 1.18%
TESCO Food & Drug Retailing 22,591.45 1.12%
PEARSON Media 21,615.05 1.07%
GRANADA GROUP Hotels Restaurants & Leisure 19,819.89 0.98%
BG GROUP Gas Utilities 19,791.53 0.98%
ABBEY NATIONAL Banks 18,714.66 0.93%
UNILEVER PLC Food Products 18,658.63 0.92%
CGU Insurance 18,274.78 0.90%
RIO TINTO PLC REG Metals & Mining 17,516.98 0.87%
ALLIED ZURICH Insurance 17,291.00 0.85%
BRITISH AEROSPACE Aerospace & Defense 16,482.13 0.81%
INVENSYS Machinery 16,198.86 0.80%
CENTRICA Gas Utilities 15,262.36 0.75%
SCOTTISH POWER Electric Utilities 14,779.36 0.73%
SAGE GROUP (THE) Software 14,426.22 0.71%
CADBURY SCHWEPPES Food Products 13,736.10 0.68%
LOGICA IT Consulting & Services 13,627.45 0.67%
NATIONAL GRID GROUP Electric Utilities 13,508.71 0.67%
WPP GROUP Media 13,474.84 0.67%
LEGAL & GENERAL GROUP Insurance 13,288.89 0.66%
THREE I GROUP Diversified Financials 12,519.59 0.62%
BRITISH AMERICAN TOBACCO Tobacco 11,979.31 0.59%
MARKS & SPENCER Multiline Retail 11,471.67 0.57%
ARM HOLDINGS Semiconductor Equipment & Products 11,463.58 0.57%
HAYS Commercial Services & Supplies 11,277.01 0.56%
KINGFISHER Multiline Retail 11,181.82 0.55%
BASS Beverages 11,013.56 0.54%
</TABLE>
A-45
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ----------------
<S> <C> <C> <C>
BOC GROUP Chemicals 9,611.00 0.48%
SEMA GROUP IT Consulting & Services 9,202.55 0.45%
AMVESCAP Diversified Financials 9,112.28 0.45%
GKN Auto Components 8,874.56 0.44%
COMPASS GROUP Hotels Restaurants & Leisure 8,861.95 0.44%
EMI GROUP Media 8,742.15 0.43%
SAINSBURY (J) Food & Drug Retailing 8,666.08 0.43%
REED INTERNATIONAL Media 8,327.75 0.41%
MISYS Software 7,971.68 0.39%
DIXONS GROUP Specialty Retail 7,851.60 0.39%
BOOTS CO Food & Drug Retailing 7,756.53 0.38%
CARLTON COMMUNICATIONS Media 7,493.82 0.37%
RENTOKIL INITIAL Commercial Services & Supplies 7,472.86 0.37%
HILTON GROUP Hotels Restaurants & Leisure 6,980.09 0.35%
PEN & ORIENTAL STEAM Marine 6,680.57 0.33%
LAND SECURITIES Real Estate 6,487.03 0.32%
BAA Transportation Infrastructure 6,475.89 0.32%
SCHRODERS Diversified Financials 6,229.94 0.31%
GREAT UNIVERSAL STORES Internet & Catalog Retail 6,117.18 0.30%
IMPERIAL CHEMICAL ICI Chemicals 6,086.27 0.30%
RAILTRACK GROUP Road & Rail 5,974.96 0.30%
UNITED UTILITIES Multi-Utilities 5,745.86 0.28%
NATIONAL POWER Electric Utilities 5,692.96 0.28%
BRITISH AIRWAYS Airlines 5,641.12 0.28%
CAPITA GROUP Commercial Services & Supplies 5,340.19 0.26%
BLUE CIRCLE INDUSTRIES Construction Materials 5,314.36 0.26%
PSION Computers & Peripherals 5,203.61 0.26%
NYCOMED AMERSHAM Health Care Equipment & Supplies 5,157.24 0.25%
CORUS GROUP Metals & Mining 5,057.71 0.25%
CELLTECH GROUP Biotechnology 4,741.42 0.23%
HANSON Construction Materials 4,652.66 0.23%
ELECTROCOMPONENTS Trading Companies & Distributors 4,370.77 0.22%
BURMAH CASTROL Oil & Gas 4,363.20 0.22%
THAMES WATER Water Utilities 3,964.93 0.20%
CANARY WHARF GROUP Real Estate 3,863.14 0.19%
SMITHS INDUSTRIES Industrial Conglomerates 3,834.38 0.19%
WILLIAMS Commercial Services & Supplies 3,694.08 0.18%
BRITISH LAND CO Real Estate 3,313.62 0.16%
SMITH & NEPHEW Health Care Equipment & Supplies 3,222.45 0.16%
RMC GROUP Construction Materials 3,204.98 0.16%
STAGECOACH HOLDINGS Road & Rail 3,183.19 0.16%
WOLSELEY Specialty Retail 3,135.24 0.16%
LONDON BRIDGE SOFTWARE Software 2,937.48 0.15%
BBA GROUP Machinery 2,803.80 0.14%
OCEAN GROUP Air Freight & Couriers 2,657.24 0.13%
LASMO Oil & Gas 2,589.61 0.13%
</TABLE>
A-46
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- --------------
<S> <C> <C> <C>
AIRTOURS Hotels Restaurants & Leisure 2,567.52 0.13%
JOHNSON MATTHEY Metals & Mining 2,495.35 0.12%
TI GROUP Machinery 2,372.07 0.12%
MEPC Real Estate 2,333.21 0.12%
PROVIDENT FINANCIAL Diversified Financials 2,310.29 0.11%
SLOUGH ESTATES Real Estate 2,282.11 0.11%
ANGLIAN WATER Water Utilities 2,249.63 0.11%
ARJO WIGGINS APPLETON Paper & Forest Products 2,193.68 0.11%
BUNZL Paper & Forest Products 2,161.54 0.11%
FKI Industrial Conglomerates 2,096.19 0.10%
UNITED BISCUITS Food Products 1,986.15 0.10%
RACAL ELECTRONICS Aerospace & Defense 1,955.70 0.10%
RANK GROUP Hotels Restaurants & Leisure 1,851.23 0.09%
HAMMERSON Real Estate 1,850.84 0.09%
SSL INTERNATIONAL Health Care Equipment & Supplies 1,635.02 0.08%
TATE & LYLE Food Products 1,592.49 0.08%
REXAM Containers & Packaging 1,348.64 0.07%
PILKINGTON Building Products 1,280.97 0.06%
IMI Machinery 1,268.19 0.06%
UNIGATE Food Products 1,231.65 0.06%
GREAT PORTLAND ESTATES Real Estate 1,151.15 0.06%
BERKELEY GROUP (THE) Household Durables 1,055.23 0.05%
CARADON Building Products 1,038.24 0.05%
TAYLOR WOODROW Household Durables 893.96 0.04%
BARRATT DEVELOPMENTS Household Durables 884.72 0.04%
DE LA RUE Commercial Services & Supplies 824.89 0.04%
LEX SERVICE Specialty Retail 803.72 0.04%
AMEC Construction & Engineering 653.20 0.03%
EIDOS Software 626.95 0.03%
HEPWORTH Building Products 615.78 0.03%
WIMPEY (GEORGE) Household Durables 586.96 0.03%
JARVIS Construction & Engineering 523.06 0.03%
COATS VIYELLA Textiles & Apparel 477.06 0.02%
BICC Construction & Engineering 473.80 0.02%
</TABLE>
A-47
<PAGE>
APPENDIX A-23
MSCI USA INDEX AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization MSCI Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- --------------
<S> <C> <C> <C>
MICROSOFT CORP Software 548,252.66 5.31%
CISCO SYSTEMS Communications Equipment 515,458.05 5.00%
GENERAL ELECTRIC CO Industrial Conglomerates 508,650.62 4.93%
INTEL CORP Semiconductor Equipment & Products 440,803.19 4.27%
EXXON MOBIL CORP Oil & Gas 269,353.81 2.61%
WAL-MART STORES Multiline Retail 246,904.35 2.39%
ORACLE CORP Software 222,270.79 2.15%
IBM CORP Computers & Peripherals 212,707.27 2.06%
CITIGROUP Diversified Financials 199,981.88 1.94%
LUCENT TECHNOLOGIES Communications Equipment 193,639.29 1.88%
AT & T CORP Diversified Telecommunication Services 179,705.00 1.74%
AMERICAN INT'L GROUP Insurance 169,700.23 1.65%
AMERICA ONLINE Internet Software & Services 153,448.89 1.49%
HOME DEPOT Specialty Retail 148,502.48 1.44%
MERCK & CO Pharmaceuticals 145,212.34 1.41%
SBC COMMUNICATIONS Diversified Telecommunication Services 143,277.92 1.39%
PFIZER Pharmaceuticals 141,542.87 1.37%
DELL COMPUTER CORP Computers & Peripherals 138,358.32 1.34%
HEWLETT-PACKARD CO Computers & Peripherals 132,760.42 1.29%
EMC CORP Computers & Peripherals 128,653.75 1.25%
MCI WORLDCOM Diversified Telecommunication Services 128,612.51 1.25%
TEXAS INSTRUMENTS Semiconductor Equipment & Products 125,706.56 1.22%
TIME WARNER Media 117,239.70 1.14%
COCA-COLA CO Beverages 115,934.69 1.12%
BRISTOL-MYERS SQUIBB CO Pharmaceuticals 114,558.21 1.11%
MOTOROLA Communications Equipment 100,966.37 0.98%
JOHNSON & JOHNSON Pharmaceuticals 97,502.41 0.95%
BELL ATLANTIC CORP Diversified Telecommunication Services 94,914.04 0.92%
QUALCOMM Communications Equipment 92,316.34 0.89%
BANK OF AMERICA CORP Banks 89,520.46 0.87%
BELLSOUTH CORP Diversified Telecommunication Services 88,468.99 0.86%
DISNEY (WALT) COMMON Media 85,643.40 0.83%
YAHOO Internet Software & Services 78,915.45 0.77%
AT&T-LIBERTY MEDIA GRP A Media 76,108.86 0.74%
APPLIED MATERIALS Semiconductor Equipment & Products 75,577.36 0.73%
PROCTER & GAMBLE CO Household Products 74,008.91 0.72%
CHASE MANHATTAN CORP Banks 71,910.24 0.70%
AMERICAN HOME PRODUCTS Pharmaceuticals 69,932.58 0.68%
LILLY (ELI) & CO Pharmaceuticals 68,702.82 0.67%
WELLS FARGO & CO Banks 67,515.93 0.65%
AMERICAN EXPRESS Diversified Financials 65,940.23 0.64%
AMGEN Biotechnology 62,482.70 0.61%
</TABLE>
A-48
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
MEDTRONIC Health Care Equipment & Supplies 61,436.23 0.60%
CHEVRON CORP Oil & Gas 60,663.59 0.59%
FANNIE MAE Diversified Financials 57,899.23 0.56%
DU PONT (E.I) DE NEMOURS Chemicals 55,155.55 0.53%
ABBOTT LABORATORIES Pharmaceuticals 54,094.13 0.52%
ENRON CORP Multi-Utilities 53,581.52 0.52%
CORNING Electrical Equipment 53,508.11 0.52%
GENERAL MOTORS CORP Automobiles 53,017.23 0.51%
FORD MOTOR CO Automobiles 52,232.45 0.51%
MCDONALD'S CORP Hotels Restaurants & Leisure 50,860.34 0.49%
PHILIP MORRIS COS Tobacco 49,984.67 0.48%
SCHWAB (CHARLES) CORP Diversified Financials 46,584.49 0.45%
GAP Specialty Retail 42,385.21 0.41%
CBS CORP Media 42,357.51 0.41%
SCHLUMBERGER Energy Equipment & Services 42,063.07 0.41%
GILLETTE CO Personal Products 40,425.80 0.39%
BANK ONE CORP Banks 39,424.00 0.38%
FIRST UNION CORP Banks 36,793.43 0.36%
VIACOM B Media 36,418.73 0.35%
QWEST COMMUNI. INT'L Diversified Telecommunication Services 36,278.00 0.35%
MERRILL LYNCH & CO Diversified Financials 36,003.35 0.35%
BOEING CO Aerospace & Defense 35,454.11 0.34%
MINNESOTA MINING & MFG Industrial Conglomerates 35,300.04 0.34%
FLEET BOSTON FINL CORP Banks 33,418.09 0.32%
TARGET (DAYTON HUDSON) Multiline Retail 32,753.66 0.32%
MONSANTO CO Chemicals 32,682.31 0.32%
COMPUTER ASSOC INT'L Software 32,078.03 0.31%
MICRON TECHNOLOGY Semiconductor Equipment & Products 32,057.68 0.31%
KIMBERLY-CLARK CORP Household Products 31,087.21 0.30%
BANK NEW YORK CO Banks 30,606.54 0.30%
AUTOMATIC DATA PROCESS Commercial Services & Supplies 30,410.29 0.29%
UNITED TECHNOLOGIES CORP Aerospace & Defense 30,250.45 0.29%
ELECTRONIC DATA SYSTEMS IT Consulting & Services 30,218.32 0.29%
MARSH & MCLENNAN COS Insurance 29,430.82 0.29%
CMGI Internet & Catalog Retail 29,137.18 0.28%
ANHEUSER-BUSCH Beverages 28,964.28 0.28%
COX COMMUNICATIONS A Media 28,809.13 0.28%
ATLANTIC RICHFIELD Oil & Gas 27,432.21 0.27%
ALCOA Metals & Mining 26,124.02 0.25%
WALGREEN CO Food & Drug Retailing 25,839.71 0.25%
DOW CHEMICAL CO Chemicals 24,999.86 0.24%
SOLECTRON Electronic Equipment & Instruments 23,743.52 0.23%
COSTCO WHOLESALE CORP Multiline Retail 23,378.43 0.23%
CLEAR CHANNEL COMMUNI. Media 23,377.66 0.23%
AMAZON.COM Internet & Catalog Retail 22,832.73 0.22%
MORGAN (J.P) & CO Banks 22,811.85 0.22%
</TABLE>
A-49
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
EMERSON ELECTRIC CO Electrical Equipment 22,792.83 0.22%
EBAY Internet & Catalog Retail 22,763.66 0.22%
APPLE COMPUTER Computers & Peripherals 21,887.41 0.21%
MBNA CORP Diversified Financials 20,445.42 0.20%
PE CORP-PE BIOSYSTEMS Electronic Equipment & Instruments 19,893.28 0.19%
GANNETT CO Media 19,618.51 0.19%
DUKE ENERGY CORP Electric Utilities 19,198.36 0.19%
ALLSTATE CORP Insurance 19,178.49 0.19%
WILLIAMS COS Multi-Utilities 19,077.40 0.18%
FIRST DATA CORP Commercial Services & Supplies 18,543.76 0.18%
SUNTRUST BANKS Banks 18,477.98 0.18%
BAXTER INTERNATIONAL Health Care Equipment & Supplies 18,237.74 0.18%
HALLIBURTON CO Energy Equipment & Services 18,111.91 0.18%
INT'L PAPER CO Paper & Forest Products 17,701.88 0.17%
HOUSEHOLD INTERNATIONAL Diversified Financials 17,542.10 0.17%
XEROX CORP Office Electronics 17,239.82 0.17%
EASTMAN KODAK CO Leisure Equipment & Products 17,141.24 0.17%
GENERAL MOTORS H (NEW) Communications Equipment 16,824.68 0.16%
GEMSTAR INT'L GROUP Household Durables 16,797.52 0.16%
ILLINOIS TOOL WORKS Machinery 16,581.19 0.16%
OMNICOM GROUP Media 16,580.11 0.16%
AES CORP Electric Utilities 16,319.75 0.16%
US BANCORP Banks 16,004.21 0.16%
SARA LEE CORP Food Products 15,991.81 0.16%
STATE STREET CORP Diversified Financials 15,497.77 0.15%
CARNIVAL CORP A Hotels Restaurants & Leisure 15,315.64 0.15%
WASHINGTON MUTUAL Banks 15,298.56 0.15%
CVS CORP Food & Drug Retailing 14,720.14 0.14%
KROGER CO Food & Drug Retailing 14,653.04 0.14%
SOUTHERN CO Electric Utilities 14,639.77 0.14%
COLUMBIA/HCA HEALTHCARE Health Care Providers & Services 14,282.27 0.14%
CATERPILLAR Machinery 13,983.28 0.14%
WACHOVIA CORP Banks 13,663.23 0.13%
ADOBE SYSTEMS Software 13,646.24 0.13%
CENDANT CORP Commercial Services & Supplies 13,486.96 0.13%
AMFM Media 13,443.99 0.13%
WEYERHAEUSER CO Paper & Forest Products 13,362.54 0.13%
PNC FINL SERVICES(PNC BK Banks 13,270.91 0.13%
INTERPUBLIC GROUP OF COS Media 13,260.81 0.13%
COMPUTER SCIENCES CORP IT Consulting & Services 13,240.30 0.13%
ALBERTSON'S Food & Drug Retailing 13,135.17 0.13%
CAMPBELL SOUP CO (US) Food Products 13,112.54 0.13%
SEAGATE TECHNOLOGY Computers & Peripherals 13,004.84 0.13%
PAYCHEX Commercial Services & Supplies 12,915.20 0.13%
CARDINAL HEALTH Health Care Providers & Services 12,904.41 0.13%
CIGNA CORP Health Care Providers & Services 12,854.55 0.12%
</TABLE>
A-50
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
NATIONAL CITY CORP Banks 12,520.57 0.12%
HEINZ (H.J) CO Food Products 12,368.91 0.12%
AFLAC Insurance 12,078.04 0.12%
HARLEY-DAVIDSON Automobiles 12,011.03 0.12%
BMC SOFTWARE Software 11,966.08 0.12%
CHUBB CORP Insurance 11,886.68 0.12%
SYSCO CORP Food & Drug Retailing 11,777.16 0.11%
HARTFORD FINANCIAL SVCS Insurance 11,690.46 0.11%
SEARS, ROEBUCK & CO Multiline Retail 11,669.33 0.11%
FEDEX CORP (FDX CORP) Air Freight & Couriers 11,644.07 0.11%
NIKE B Textiles & Apparel 10,936.71 0.11%
GENERAL MILLS Food Products 10,897.07 0.11%
TRANSOCEAN SEDCO FOREX Energy Equipment & Services 10,634.09 0.10%
SOUTHWEST AIRLINES CO Airlines 10,498.57 0.10%
UNITED HEALTHCARE CORP Health Care Providers & Services 10,121.52 0.10%
BURLINGTON NTHN SANTA FE Road & Rail 10,110.00 0.10%
GENERAL DYNAMICS CORP Aerospace & Defense 9,998.41 0.10%
BAKER HUGHES Energy Equipment & Services 9,958.57 0.10%
COASTAL CORP Oil & Gas 9,812.58 0.10%
TANDY CORP Specialty Retail 9,810.74 0.10%
ROHM & HAAS CO Chemicals 9,767.70 0.09%
DOVER CORP Machinery 9,748.79 0.09%
UNION PACIFIC CORP Road & Rail 9,725.22 0.09%
MAY DEPARTMENT STORES CO Multiline Retail 9,429.45 0.09%
DOMINION RESOURCES Electric Utilities 9,376.83 0.09%
NOVELL Software 9,347.04 0.09%
STAPLES Specialty Retail 9,242.78 0.09%
EL PASO ENERGY CORP Gas Utilities 9,218.42 0.09%
PPG INDUSTRIES Chemicals 9,091.70 0.09%
MASCO CORP Building Products 9,088.49 0.09%
LIMITED Specialty Retail 9,054.94 0.09%
TEXTRON Industrial Conglomerates 9,054.61 0.09%
DELPHI AUTOMOTIVE SYS Auto Components 8,992.00 0.09%
MCGRAW-HILL COS Media 8,922.55 0.09%
CONAGRA Food Products 8,921.26 0.09%
DEERE & CO Machinery 8,889.61 0.09%
TRIBUNE CO Media 8,688.42 0.08%
KEYCORP Banks 8,498.81 0.08%
WASTE MANAGEMENT Commercial Services & Supplies 8,475.93 0.08%
RALSTON - RALSTON PURINA Food Products 8,350.52 0.08%
AMERICAN PWR CONVERSION Electrical Equipment 8,293.83 0.08%
AON CORP Insurance 8,270.61 0.08%
FPL GROUP Electric Utilities 8,251.68 0.08%
TEXAS UTILITIES Electric Utilities 8,205.82 0.08%
PG&E CORP Electric Utilities 8,063.58 0.08%
QUAKER OATS CO Food Products 8,055.61 0.08%
</TABLE>
A-51
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
USX-MARATHON GROUP Oil & Gas 8,044.19 0.08%
ROCKWELL INT'L Electrical Equipment 7,942.24 0.08%
UNICOM CORP Electric Utilities 7,933.28 0.08%
AETNA Health Care Providers & Services 7,868.08 0.08%
UNION CARBIDE CORP Chemicals 7,805.13 0.08%
ST PAUL COS Insurance 7,755.08 0.08%
MARRIOTT INT'L A Hotels Restaurants & Leisure 7,721.53 0.07%
CLOROX CO Household Products 7,686.77 0.07%
OCCIDENTAL PETROLEUM Oil & Gas 7,627.24 0.07%
NEW YORK TIMES CO A Media 7,316.81 0.07%
INGERSOLL-RAND CO Machinery 7,238.24 0.07%
UNOCAL CORP Oil & Gas 7,210.95 0.07%
TENET HEALTHCARE CORP Health Care Providers & Services 7,174.46 0.07%
TRW Auto Components 7,113.89 0.07%
NEWELL RUBBERMAID Household Durables 6,998.07 0.07%
RELIANT ENERGY Electric Utilities 6,929.81 0.07%
AVON PRODUCTS Personal Products 6,902.76 0.07%
DELTA AIR LINES Airlines 6,874.36 0.07%
PECO ENERGY CO Electric Utilities 6,850.86 0.07%
GEORGIA-PACIFIC GROUP Paper & Forest Products 6,764.71 0.07%
BECTON, DICKINSON Health Care Equipment & Supplies 6,618.38 0.06%
PRAXAIR Chemicals 6,616.29 0.06%
LINCOLN NATIONAL CORP Insurance 6,548.35 0.06%
AIR PRODUCTS & CHEMICALS Chemicals 6,520.86 0.06%
PUBLIC SV ENTERPRISE CO Electric Utilities 6,475.76 0.06%
DOW JONES & CO Media 6,453.39 0.06%
EQUITY OFFICE PROPERTIES Real Estate 6,335.77 0.06%
CONSOLIDATED EDISON Electric Utilities 6,300.02 0.06%
ARCHER-DANIELS-MIDLAND Food Products 6,299.36 0.06%
PAINE WEBBER GROUP Diversified Financials 6,279.55 0.06%
AVERY DENNISON CORP Commercial Services & Supplies 6,015.07 0.06%
MCKESSON HBOC Health Care Providers & Services 5,916.67 0.06%
AMERICAN ELECTRIC POWER Electric Utilities 5,786.71 0.06%
EDISON INTERNATIONAL Electric Utilities 5,750.62 0.06%
PARAMETRIC TECHNOLOGY Software 5,709.39 0.06%
EATON CORP Machinery 5,683.55 0.06%
IMS HEALTH Commercial Services & Supplies 5,665.55 0.05%
TIMES MIRROR CO A Media 5,575.29 0.05%
NORFOLK SOUTHERN CORP Road & Rail 5,471.53 0.05%
PEOPLESOFT Software 5,201.87 0.05%
MBIA Insurance 5,184.28 0.05%
CAROLINA POWER & LIGHT Electric Utilities 5,176.70 0.05%
CSX CORP Road & Rail 5,130.94 0.05%
CHAMPION INTERNATIONAL Paper & Forest Products 5,122.60 0.05%
EQUITY RESIDENTIAL PPTY Real Estate 5,080.30 0.05%
GRAINGER (WW) Trading Companies & Distributors 5,066.03 0.05%
</TABLE>
A-52
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
STARWOOD HOT.& RES. WORLD Hotels Restaurants & Leisure 4,966.13 0.05%
ENTERGY CORP Electric Utilities 4,870.90 0.05%
COLUMBIA ENERGY GROUP Gas Utilities 4,817.53 0.05%
FIRSTENERGY CORP Electric Utilities 4,806.12 0.05%
CONSTELLATION ENERGY GRP Electric Utilities 4,767.10 0.05%
AMR CORP Airlines 4,736.09 0.05%
PE CORP-CELERA GENOMICS Biotechnology 4,670.42 0.05%
DANA CORP Auto Components 4,637.13 0.04%
PARKER HANNIFIN CORP Machinery 4,626.75 0.04%
JOHNSON CONTROLS Auto Components 4,617.15 0.04%
DUN & BRADSTREET CORP Commercial Services & Supplies 4,603.59 0.04%
VULCAN MATERIALS CO Construction Materials 4,583.49 0.04%
ELECTRONIC ARTS Software 4,562.83 0.04%
SEALED AIR CORP Containers & Packaging 4,536.02 0.04%
WELLPOINT HEALTH NETWKS Health Care Providers & Services 4,446.71 0.04%
GLOBAL MARINE Energy Equipment & Services 4,425.88 0.04%
BLOCK (H&R) Commercial Services & Supplies 4,400.54 0.04%
WHIRLPOOL CORP Household Durables 4,363.34 0.04%
NUCOR CORP Metals & Mining 4,360.65 0.04%
ROBERT HALF INT'L Commercial Services & Supplies 4,255.43 0.04%
GENUINE PARTS CO Trading Companies & Distributors 4,245.21 0.04%
REYNOLDS METALS CO Metals & Mining 4,228.31 0.04%
DTE ENERGY Electric Utilities 4,206.07 0.04%
RAYTHEON CO B Aerospace & Defense 4,170.00 0.04%
SIMON PROPERTY GROUP Real Estate 4,163.52 0.04%
UNUMPROVIDENT CORP Insurance 4,059.45 0.04%
MATTEL Leisure Equipment & Products 3,955.90 0.04%
JONES APPAREL CORP Textiles & Apparel 3,904.85 0.04%
READERS DIGEST ASS'N A Media 3,800.43 0.04%
NEWMONT MINING CORP Metals & Mining 3,760.68 0.04%
PHELPS DODGE CORP Metals & Mining 3,738.25 0.04%
INT'L FLAVORS FRAGRANCES Chemicals 3,685.24 0.04%
MIRAGE RESORTS Hotels Restaurants & Leisure 3,681.13 0.04%
GOODYEAR TIRE & RUBBER Auto Components 3,644.47 0.04%
SHERWIN-WILLIAMS CO Specialty Retail 3,638.90 0.04%
CENTRAL & SOUTH WEST Electric Utilities 3,628.31 0.04%
MEAD CORP Paper & Forest Products 3,586.12 0.03%
EQUIFAX Commercial Services & Supplies 3,571.26 0.03%
TOYS R US Specialty Retail 3,554.23 0.03%
PARK PLACE ENTERTAINMENT Hotels Restaurants & Leisure 3,495.73 0.03%
SERVICEMASTER CO Commercial Services & Supplies 3,493.10 0.03%
SAFECO CORP Insurance 3,453.44 0.03%
SEMPRA ENERGY Gas Utilities 3,422.88 0.03%
GENERAL PUBLIC UTILITIES Electric Utilities 3,378.76 0.03%
COOPER INDUSTRIES Electrical Equipment 3,295.60 0.03%
BLACK & DECKER CORP Household Durables 3,275.15 0.03%
</TABLE>
A-53
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
UAL CORP Airlines 3,170.98 0.03%
COUNTRYWIDE CREDIT IND Diversified Financials 3,088.22 0.03%
PP&L RESOURCES Electric Utilities 3,008.59 0.03%
VF CORP Textiles & Apparel 2,860.65 0.03%
HILTON HOTELS CORP Hotels Restaurants & Leisure 2,858.31 0.03%
MAYTAG CORP Household Durables 2,796.64 0.03%
TEMPLE INLAND Containers & Packaging 2,782.13 0.03%
CERIDIAN CORP IT Consulting & Services 2,775.34 0.03%
AVNET Electronic Equipment & Instruments 2,764.34 0.03%
ITT INDUSTRIES Industrial Conglomerates 2,730.85 0.03%
LIZ CLAIBORNE Textiles & Apparel 2,708.30 0.03%
MANPOWER Commercial Services & Supplies 2,692.89 0.03%
SUPERVALU Food & Drug Retailing 2,643.68 0.03%
DONNELLEY (RR) & SONS Commercial Services & Supplies 2,580.27 0.03%
OWENS-ILLINOIS Containers & Packaging 2,533.36 0.02%
NAVISTAR INTERNATIONAL Machinery 2,494.85 0.02%
HARRAH'S ENTERTAINMENT Hotels Restaurants & Leisure 2,387.01 0.02%
FLUOR CORP Construction & Engineering 2,367.50 0.02%
STANLEY WORKS Household Durables 2,358.58 0.02%
GALILEO INTERNATIONAL Commercial Services & Supplies 2,309.10 0.02%
CRESCENT REAL ESTATE Real Estate 2,238.22 0.02%
USX-US STEEL GROUP Metals & Mining 2,209.05 0.02%
PACIFICARE HEALTH SYS Health Care Providers & Services 2,173.10 0.02%
HEALTHSOUTH CORP Health Care Providers & Services 2,148.55 0.02%
USG CORP Building Products 2,087.94 0.02%
HOST MARRIOTT CORP Real Estate 2,032.48 0.02%
SHAW INDUSTRIES Household Durables 2,031.86 0.02%
US AIRWAYS GROUP Airlines 1,990.96 0.02%
CROWN CORK & SEAL CO Containers & Packaging 1,937.30 0.02%
RAYTHEON CO A Aerospace & Defense 1,904.86 0.02%
BRUNSWICK CORP Leisure Equipment & Products 1,738.97 0.02%
ALLEGHENY TECH(ALLE.TELE Metals & Mining 1,722.51 0.02%
HOMESTAKE MINING CO Metals & Mining 1,561.58 0.02%
SNAP-ON Auto Components 1,532.47 0.01%
LOUISIANA-PACIFIC CORP Paper & Forest Products 1,490.26 0.01%
CUMMINS ENGINE CO Machinery 1,431.13 0.01%
RITE AID CORP Food & Drug Retailing 1,424.10 0.01%
CENTEX CORP Household Durables 1,414.11 0.01%
CLAYTON HOMES Household Durables 1,414.00 0.01%
CNF TRANSPORTATION Air Freight & Couriers 1,342.43 0.01%
ALLIED WASTE INDUSTRIES Commercial Services & Supplies 1,240.38 0.01%
WORTHINGTON INDUSTRIES Metals & Mining 1,102.77 0.01%
COMSAT CORP Wireless Telecommunication Services 1,093.81 0.01%
CALLAWAY GOLF CO Leisure Equipment & Products 1,088.51 0.01%
OWENS CORNING Building Products 1,061.98 0.01%
DISNEY (WALT) GO.COM Internet Software & Services 986.52 0.01%
</TABLE>
A-54
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in MSCI
Capitalization Index
Constituent Name Industry Classification (Millions of US$) (%)
- ---------------- ----------------------- ----------------- ---
<S> <C> <C> <C>
BRIGGS & STRATTON CORP Machinery 945.09 0.01%
PULTE CORP Household Durables 902.84 0.01%
SERVICE CORP INT'L Health Care Providers & Services 816.18 0.01%
BETHLEHEM STEEL CORP Metals & Mining 786.91 0.01%
ARMSTRONG WORLD IND Building Products 718.88 0.01%
</TABLE>
A-55
<PAGE>
APPENDIX B
The Company intends to effect deliveries of Portfolio Securities on a basis of
"T" plus three New York business days (i.e., days on which the New York Stock
Exchange is open) in the relevant foreign market of each Index Fund, except as
discussed below. The ability of the Company to effect in-kind redemptions within
three New York business days of receipt of a redemption request is subject,
among other things, to the condition that, within the time period from the date
of the request to the date of delivery of the securities, there are no days that
are local market holidays but "good" New York business days. For every
occurrence of one or more intervening holidays in the local market that are not
holidays observed in New York, the redemption settlement cycle will be extended
by the number of such intervening local holidays. In addition to holidays, other
unforeseeable closings in a foreign market due to emergencies may also prevent
the Company from delivering securities within three New York business days.
The securities delivery cycles currently practicable for transferring Portfolio
Securities to redeeming investors, coupled with local market holiday schedules,
will require a delivery process longer than seven calendar days for some Index
Fund, in certain circumstances, during the fourth quarter of 1999 and calendar
year 2000. The holidays applicable to each Index 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 Index 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.
THE iSHARES MSCI AUSTRALIA INDEX FUND
Regular Holidays. The regular Australian holidays affecting the relevant
securities markets (and their respective dates in the forth quarter of 1999 and
calendar year 2000) are as follows:
--------------------------------------------------------------
Labour Day/1/ - October 4, 1999
Melbourne Cup Day/2/ - November 2, 1999
Christmas Holiday - December 27, 1999
Boxing Day - December 28, 1999
Market Holiday - December 31, 1999
Public Holiday - January 3, 2000
Australia Day - January 26, 2000
Labour Day/3/ - March 13, 2000
Labour Day/4/ - March 20, 2000
Good Friday - April 21, 2000
Easter Monday - April 24, 2000
Anzac Day - April 25, 2000
Queen's Birthday - June 12, 2000
Bank Holiday/5/ - August 7, 2000
Labour Day/1/ - October 2, 2000
Melbourne Cup Day/2/ - November 7, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
--------------------------------------------------------------
1. New South Wales only.
2. Melbourne only.
3. Victoria only.
4. Australia Capital Territory only.
5. New South Wales and Northern Territory only.
B-1
<PAGE>
Redemption. Redemption request over the following Australian holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the fourth quarter of 1999 and
calendar year 2000):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<C> <S> <C> <C> <C>
12/27/99 Christmas Holiday 12/24/99 1/3/00 R+10
4/21/00 Good Friday 4/18/00 4/26/00 R+8
4/24/00 Easter Monday 4/19/00 4/27/00 R+8
4/25/00 Anzac Day 4/20/00 4/28/00 R+8
----------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999 and calendar year 2000, R+8 calendar days would be
the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI Australia Index Fund.
THE iSHARES MSCI AUSTRIA INDEX FUND
Regular Holidays. The regular Austrian holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
------------------------------------------------------
National Holiday - October 26, 1999
Bank Holiday - November 1, 1999
Immaculate Conception - December 8, 1999
Christmas Eve - December 24, 1999
Christmas Day - December 25, 1999
Exchange Holiday/1/ - December 30, 1999
New Year's Eve - December 31, 1999
Epiphany - January 6, 2000
Good Friday/1/ - April 21, 2000
Easter Monday - April 24, 2000
Labor Day - May 1, 2000
Ascension Day - June 1, 2000
Whit Monday - June 12, 2000
Bank Holiday - June 22, 2000
Bank Holiday - August 15, 2000
National Day - October 26, 2000
All Saints' Day - November 1, 2000
Immaculate Conception - December 8, 2000
Christmas Eve/2/ - December 22, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
Exchange Holiday/1/ - December 29, 2000
New Year's Eve - December 31, 2000
--------------------------------------------------------
1. Stock Exchange holiday only.
2. Bank holiday only.
Redemption. A redemption request over the following Austrian holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the fourth quarter of 1999 and
calendar year 2000):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
----------- ------- ---------------- --------------- -----------------
<C> <S> <C> <C> <C>
12/22/00 Christmas Eve 12/23/99 12/31/99 R+8
12/25/00 Christmas Day 12/20/00 12/28/00 R+8
12/26/00 Boxing Day 12/21/00 12/29/00 R+8
-----------------------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE>
In the fourth quarter of 1999 and calendar year 2000, R+8 calendar days would be
the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI Austria Index Fund.
THE iSHARES MSCI BELGIUM INDEX FUND
Regular Holidays. The regular Belgian holidays affecting the relevant securities
markets (and their respective dates in the fourth quarter of 1999 and calendar
year 2000) are as follows:
-------------------------------------------------
All Saints' Day - November 1, 1999
Armistice Day - November 11, 1999
Christmas Eve/1/ - December 24, 1999
New Years Eve - December 31, 1999
Good Friday - April 21, 2000
Easter Monday - April 24, 2000
Labour Day - May 1, 2000
Ascension Day/2/ - June 1, 2000
Bank Holiday/3/ - June 2, 2000
Whit Monday/2/ - June 12, 2000
National Holiday/2/ - July 21, 2000
Assumption Day/2/ - August 15, 2000
All Saints' Day/2/ - November 1, 2000
Bank Holiday/3/ - November 13, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
-------------------------------------------------
1. Brussels Exchanges close at 2:00 p.m.
2. Stock Exchange holiday only.
3. Target, BXS and Central Depository open.
Redemption. The Company is not aware of a redemption request over any Belgian
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 1999 and calendar year 2000.
THE iSHARES MSCI BRAZIL (FREE) INDEX FUND
Regular Holidays. The regular Brazilian holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 2000 and
calendar year 2000) are as follows:
--------------------------------------------------------------
Religious Holiday - October 12, 1999
All Souls' Day - November 2, 1999
Republic Day - November 15, 1999
Christmas Eve/1/ - December 24, 1999
Holiday - December 31, 1999
New Year's Day - January 1, 2000
Rio de Janeiro's Anniversary/2/ - January 20, 2000
Sao Paulo's Anniversary/3/ - January 25, 2000
Carnival - March 6, 2000
Carnival - March 7, 2000
Good Friday - April 21, 2000
Labor Day - May 1, 2000
Corpus Christi - June 22, 2000
Independence Day - September 7, 2000
Our Lady of Aparecida - October 12, 2000
All Souls' Day - November 2, 2000
Republic Day - November 15, 2000
Christmas Day - December 25, 2000
---------------------------------------------------------------
B-3
<PAGE>
---------------------------------------------------------------
New Year Holiday - December 29, 2000
Bank Holiday - December 31, 2000
---------------------------------------------------------------
1. Banks close at 12:00 p.m. local time; BOVESPA BVRJ and BM&F closed
all day.
2. Rio de Janeiro only.
3. Sao Paulo only.
Redemption. The Company is not aware of a redemption request over any Brazilian
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 2000 and calendar year 2000.
THE iSHARES MSCI CANADA INDEX FUND
Regular Holidays. The regular Canadian holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
--------------------------------------------------------
Thanksgiving Day - October 11, 1999
Remembrance Day/1/ - November 11, 1999
Christmas Eve/2/ - December 24, 1999
Christmas Day (observed) - December 27, 1999
Boxing Day (observed) - December 28, 1999
New Year's Eve/2/ - December 31, 1999
Bank Holiday - January 3, 2000
Traditional Holiday/3/ - January 4, 2000
Good Friday - April 21, 2000
Victoria Day - May 22, 2000
Saint Jean Baptiste/3/ - June 26, 2000
Canada Day - July 3, 2000
Civic Holiday/1/ - August 7, 2000
Labor Day - September 4, 2000
Thanksgiving Day - October 9, 2000
Remembrance Day/1/ - November 13, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
---------------------------------------------------------
1. Except Quebec.
2. Toronto Stock Exchange will close at 1:00 p.m. local time.
3. Quebec only.
Redemption. The Company is not aware of a redemption request over any Canadian
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 1999 and calendar year 2000.
THE ISHARES MSCI EMU INDEX FUND
Regular Holidays. The dates in the fourth quarter of 1999 and the calendar year
2000 on which the regular Austrian, Belgian, Finnish, French, German, Irish,
Italian, Dutch, Portuguese and Spanish holidays affecting the relevant
securities markets fall are as follows:
Austria
--------------------------------------------------------------------
October 26, 1999 January 6, 2000 October 26, 2000
November 1, 1999 April 21, 2000 November 1, 2000
December 8, 1999 April 24, 2000 December 8, 2000
December 24, 1999 May 1, 2000 December 22, 2000
December 25, 1999 June 1, 2000 December 25, 2000
--------------------------------------------------------------------
B-4
<PAGE>
--------------------------------------------------------------------
December 30, 1999 June 12, 2000 December 26, 2000
December 31, 1999 June 22, 2000 December 29, 2000
August 15, 2000 December 31, 2000
--------------------------------------------------------------------
Belgium
--------------------------------------------------------------------
November 1, 1999 May 1, 2000 August 15, 2000
November 11, 1999 June 1, 2000 November 1, 2000
December 24, 1999 June 2, 2000 November 13, 2000
December 31, 2000 June 12, 2000 December 25, 2000
April 21, 2000 July 21, 2000 December 26, 2000
April 24, 2000
--------------------------------------------------------------------
Finland
--------------------------------------------------------------------
December 6, 1999 April 21, 2000 June 24, 2000
December 24, 1999 April 24, 2000 December 6, 2000
December 27, 1999 May 1, 2000 December 24, 2000
December 28, 1999 June 1, 2000 December 25, 2000
January 1, 2000 June 23, 2000 December 26, 2000
January 6, 2000
--------------------------------------------------------------------
France
--------------------------------------------------------------------
November 1, 1999 May 1, 2000 August 15, 2000
November 11, 1999 May 8, 2000 November 1, 2000
December 24, 1999 June 1, 2000 November 11, 2000
December 31, 1999 June 12, 2000 December 25, 2000
April 21, 2000 July 14, 2000 December 26, 2000
April 24, 2000
--------------------------------------------------------------------
Germany
--------------------------------------------------------------------
October 3, 1999 April 21, 2000 October 3, 2000
December 24, 1999 April 24, 2000 December 24, 2000
December 25, 1999 May 1, 2000 December 25, 2000
December 26, 1999 June 1, 2000 December 26, 2000
December 31, 1999 June 12, 2000 December 31, 2000
January 1, 2000 June 22, 2000
--------------------------------------------------------------------
Ireland
--------------------------------------------------------------------
October 25, 1999 March 17, 2000 August 7, 2000
December 27, 1999 April 21, 2000 October 30, 2000
December 28, 1999 April 24, 2000 December 25, 2000
December 29, 1999 May 1, 2000 December 26, 2000
January 3, 2000 June 5, 2000 December 27, 2000
--------------------------------------------------------------------
Italy
--------------------------------------------------------------------
November 1, 1999 April 24, 2000 December 24, 2000
December 24, 1999 May 1, 2000 December 25, 2000
December 31, 1999 August 15, 2000 December 26, 2000
April 21, 2000
--------------------------------------------------------------------
Netherlands
--------------------------------------------------------------------
December 31, 1999 June 1, 2000 December 25, 2000
April 21, 2000 June 12, 2000 December 26, 2000
April 24, 2000
--------------------------------------------------------------------
B-5
<PAGE>
Portugal
--------------------------------------------------------------------
October 5, 1999 March 7, 2000 August 15, 2000
November 1, 1999 April 21, 2000 October 5, 2000
December 1, 1999 April 24, 2000 November 1, 2000
December 8, 1999 April 25, 2000 December 1, 2000
December 24, 1999 May 1, 2000 December 8, 2000
December 25, 1999 June 10, 2000 December 22, 2000
December 31, 1999 June 13, 2000 December 25, 2000
January 1, 2000 June 22, 2000 December 26, 2000
--------------------------------------------------------------------
Spain
--------------------------------------------------------------------
October 12, 1999 December 31, 1999 November 1, 2000
November 1, 1999 January 6, 2000 December 6, 2000
November 8, 1999 April 21, 2000 December 8, 2000
December 6, 1999 April 24, 2000 December 25, 2000
December 8, 1999 May 1, 2000 December 26, 2000
December 24, 1999 October 12, 2000
--------------------------------------------------------------------
Redemption. A redemption request over the following holidays would result in a
settlement period that will exceed 7 calendar days (examples are based on the
days particular holidays fall during the fourth quarter of 1999 and the calendar
year 2000 ). The longest redemption cycle for the iShares MSCI EMU Index Fund is
a function of the longest redemption cycles among the countries whose stocks
comprise this Index Fund. In the fourth quarter of 1999 and the calendar year
2000, the dates of the regular holidays affecting the German securities markets
present the worst-case redemption cycle for the iShares MSCI EMU Index Fund as
follows:
Germany
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<C> <S> <C> <C> <C>
12/22/00 Christmas Eve 12/19/00 12/27/00 R+8
12/25/00 Christmas Day 12/20/00 12/28/00 R+8
12/26/00 St. Stephen's Day 12/21/00 12/29/00 R+8
---------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999 and calendar year 2000, R+11 calendar days would
be the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI EMU Index Fund.
THE iSHARES MSCI FRANCE INDEX FUND
Regular Holidays. The regular French holidays affecting the relevant securities
markets (and their respective dates in the fourth quarter of 1999 and calendar
year 2000) are as follows:
-----------------------------------------------------
All Saints' Day - November 1, 1999
1918 Armistice Day/1/ - November 11 1999
Christmas Eve/2/ - December 24, 1999
Market Systems Closed/3/ - December 31, 1999
Good Friday/4/ - April 21, 2000
Easter Monday - April 24, 2000
Labour Day - May 1, 2000
1945 Armistice Day/1/ - May 8, 2000
Ascension Day/1/ - June 1, 2000
Whit Monday/5/ - June 12, 2000
Bastille Day/5/ - July 14, 2000
Assumption Day/1/ - August 15, 2000
All Saints' Day/1/ - November 1, 2000
Christmas Day - December 25, 2000
Boxing Day/4/ - December 26, 2000
-----------------------------------------------------
B-6
<PAGE>
1. Bank holiday only.
2. Banks close at noon.
3. Clearing and settlement systems closed.
4. Stock exchange holiday only.
5. Banks and equities market closed.
Redemption. The Company is not aware of a redemption request over any French
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 1999 and calendar year 2000.
THE iSHARES MSCI GERMANY INDEX FUND
Regular Holidays. The regular German holidays affecting the relevant securities
markets (and their respective dates in the fourth quarter of 1999 and calendar
year 2000) are as follows:
-----------------------------------------------------
Re-unification Day - October 3, 1999
Christmas Eve/1/ - December 24, 1999
Christmas Day - December 25, 1999
Boxing Day - December 26, 1999
New Year's Eve/1/ - December 31, 1999
New Year's Day - January 1, 2000
Good Friday/2/ - April 21, 2000
Easter Monday/2/ - April 24, 2000
Labor Day - May 1, 2000
Ascension Day/3/ - June 1, 2000
Whit Monday/3/ - June 12, 2000
Corpus Christi/3/ - June 22, 2000
Re-unification Day/3/ - October 3, 2000
Christmas Eve/2/ - December 24, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
New Year's Eve - December 31, 2000
------------------------------------------------------
1. Only cash cleaning will take place.
2. TARGET system remains open.
3. Bank holiday only.
Redemption. The Company is not aware of a redemption request over any German
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 1999 and calendar year 2000.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<C> <S> <C> <C> <C>
12/22/00 Christmas Eve 12/19/00 12/27/00 R+8
12/25/00 Christmas Day 12/20/00 12/28/00 R+8
12/26/00 St. Stephen's Day 12/21/00 12/29/00 R+8
---------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999 and calendar year 2000, R+11 calendar days would
be the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI Germany Index Fund.
THE iSHARES MSCI HONG KONG INDEX FUND
Regular Holidays. The regular Hong Kong holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
B-7
<PAGE>
----------------------------------------------------------
National Day - October 1, 1999
Chung Yeung Festival - October 18, 1999
Christmas Holiday - December 27, 1999
Bank Holiday - December 31, 1999
New Year's Day - January 1, 2000
Lunar New Year's Day - February 4, 2000
Lunar New Year's Day - February 7, 2000
Ching Ming Festival - April 4, 2000
Good Friday - April 21, 2000
Day Following Good Friday - April 22, 2000
Easter Monday - April 24, 2000
Labour Day - May 1, 2000
Buddha's Birthday - May 11, 2000
Tuen Ng Festival - June 6, 2000
SAR Establishment Day - July 1, 2000
Mid-Autumn Festival - September 13, 2000
National Day - October 2, 2000
Chung Yeung Festival - October 6, 2000
Christmas Day - December 25, 2000
Christmas Holiday - December 26, 2000
----------------------------------------------------------
Redemption. The Company is not aware of a redemption request over any Hong Kong
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 1999 and calendar year 2000.
THE iSHARES MSCI ITALY INDEX FUND
Regular Holidays. The regular Italian holidays affecting the relevant securities
markets (and their respective dates in the fourth quarter of 1999 and calendar
year 2000) are as follows:
--------------------------------------------------
All Saints' Day - November 1, 1999
Christmas Eve/1/ - December 24, 1999
New Year's Eve - December 31, 1999
Good Friday - April 21, 2000
Easter Monday - April 24, 2000
Labor Day - May 1, 2000
Assumption Day/1/ - August 15, 2000
Christmas Eve - December 24, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
-------------------------------------------------
1. Stock exchange holiday only.
Redemption. The Company is not aware of a redemption request over any Italian
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 1999 and calendar year 2000.
THE iSHARES MSCI JAPAN INDEX FUND
Regular Holidays. The regular Japanese holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
----------------------------------------------------------
Health-Sports Day - October 11, 1999
Culture Day - November 3, 1999
Labor Thanksgiving Day - November 23, 1999
Emperor's Birthday - December 23, 1999
-----------------------------------------------------------
B-8
<PAGE>
--------------------------------------------------------
New Year's Day (observed) - January 3, 2000
Adult's Day - January 10, 2000
Foundation Day - February 11, 2000
Vernal Equinox Day - March 20, 2000
Constitution Day - May 3, 2000
National Holiday - May 4, 2000
Children's Day - May 5, 2000
Marine Day - July 20, 2000
Respect for the Aged Day - September 15, 2000
Sports Day - October 9, 2000
Culture Day - November 3, 2000
Labor Thanksgiving Day - November 23, 2000
Emperor's Birthday - December 23, 2000
----------------------------------------------------------
Redemption. A redemption request over the following Japanese holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the fourth quarter of 1999 and
calendar year 2000):
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
--------- ------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
5/3/00 Constitution Day 4/28/00 5/8/00 R+10
5/4/00 National Holiday 5/1/00 5/9/00 R+8
5/5/00 Children's Day 5/2/00 5/10/00 R+8
---------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999 and calendar year 2000, R+10 calendar days would
be the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI Japan Index Fund.
THE iSHARES MSCI MALAYSIA (FREE) INDEX FUND
Regular Holidays. The regular Malaysian holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
-------------------------------------------------------------------
Deepavali - November 7, 1999
Public Holiday - November 8, 1999
Christmas Day - December 25, 1999
Non Trading and Non Settlement Day/1/ - December 31, 1999
New Year's Day - January 1, 2000
Hari Raya Puasa - January 8, 2000
Hari Raya Puasa - January 9, 2000
Federal Territory Day - February 1, 2000
Chinese New Year - February 5, 2000
Chinese New Year - February 6, 2000
Hari Raya Haji - March 16, 2000
Awal Muharram - April 6, 2000
Labour Day - May 1, 2000
Wesak Day - May 18, 2000
King's Birthday - June 3, 2000
Prophet Mohammed's Birthday - June 15, 2000
National Day - August 31, 2000
Deepavali - October 26, 2000
Christmas Day - December 25, 2000
Hari Raya Puasa - December 27, 2000
Hari Raya Puasa - December 28, 2000
----------------------------------------------------------------------
B-9
<PAGE>
1. Stock Exchange and Central Depository only.
Redemptions. In light of the Malaysian capital restrictions imposed in
September 1998, the Company is concerned about its ability to honor redemptions
of Creation Units of iShares of the iShares MSCI Malaysia (Free) Index Fund. To
the extent the Company is presented with requests for the redemption of Creation
Units of iShares of the iShares MSCI Malaysia (Free) Index Fund, the Company
will seek to honor such requests consistent with the Malaysian capital
restrictions. Based on the information available to date, the Company believes
that (i) it cannot currently make in-kind redemptions of iShares of the iShares
MSCI Malaysia (Free) Index Fund and (ii) it may only be able to honor redemption
requests through the delivery of Malaysian ringgits in Malaysia, subject to
receipt of Malaysian Central Bank approval on a case by case basis. In the
current circumstances, the Company suggests that requests for the redemption of
Creation Units of Malaysia Series iShares should not be made and urges investors
contemplating such redemptions to consult with Malaysian counsel. See "Special
Factors Regarding the iShares MSCI Malaysia (Free) Index Fund" in the Statement
of Additional Information.
Assuming the Company were able to make in-kind redemptions of iShares of the
iShares MSCI Malaysia (Free) Index Fund in the manner it had done so prior to
September 1999, a redemption request over the following Malaysian holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the fourth quarter 1999 and
calendar year 2000):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Redemption Redemption
----------- ----------
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------ ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
12/25/00 Christmas Day 12/21/00 12/29/00 R+8
12/27/00 Hari Raya Puasa 12/22/00 1/1/01 R+10
-----------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999 and calendar year 2000, R+10 calendar days would
be the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI Malaysia (Free) Index Fund.
THE iSHARES MSCI MEXICO (FREE) INDEX FUND
Regular Holidays. The regular Mexican holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
-----------------------------------------------------------
All Souls' Day - November 2, 1999
Christmas Eve - December 24, 1999
New Year's Eve - December 31, 1999
New Year's Day - January 1, 2000
Benito Juarery Day - March 21, 2000
Holy Wednesday - April 19, 2000
Holy Thursday - April 20, 2000
Good Friday - April 21, 2000
Labor Day - May 1, 2000
Battle of Puebla Day - May 5, 2000
Mother's Day/1/ - May 10, 2000
State of the Union Address - September 1, 2000
Independence Day - September 16, 2000
All Souls' Day - November 2, 2000
Revolution Day - November 20, 2000
Our Lady of Guadalupe Day - December 12, 2000
Christmas Day - December 25, 2000
New Year's Eve - December 31, 2000
-------------------------------------------------------------
1. Banks close at noon.
B-10
<PAGE>
Redemption. The Company is not aware of a redemption request over any Mexican
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 1999 and calendar year 2000.
THE iSHARES MSCI NETHERLANDS INDEX FUND
Regular Holidays. The regular Netherlands holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
-------------------------------------------------
New Year's Eve/1/ - December 31, 1999
Good Friday - April 21, 2000
Easter Monday - April 24, 2000
Ascension Day - June 1, 2000
Whit Monday - June 12, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
--------------------------------------------------
1. TARGET system only closed.
Redemption. The Company is not aware of a redemption request over any Dutch
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 1999 and calendar year 2000.
THE iSHARES MSCI SINGAPORE (FREE) INDEX FUND
Regular Holidays. The regular Singaporean holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
-----------------------------------------------
Deepavali - November 7 1999
Public Holiday - November 8, 1999
Christmas Eve - December 24, 1999
Christmas Day - December 25 1999
Bank Holiday - December 31, 1999
New Year's Day - January 1, 2000
Hari Raya Puasa - January 8, 2000
Chinese New Year - February 5, 2000
Chinese New Year - February 6, 2000
Chinese New Year - February 7, 2000
Hari Raya Haji - March 16, 2000
Good Friday - April 21, 2000
Labour Day - May 1, 2000
Vesak Day Observance - May 18, 2000
National Day - August 9, 2000
Deepavali - October 26, 2000
Christmas Day - December 25, 2000
Hari Raya Puasa - December 27, 2000
------------------------------------------------
Redemption. The Company is not aware of a redemption request over any
Singaporean holiday that would result in a settlement period that will exceed 7
calendar days in the fourth quarter of 1999 and calendar year 2000.
THE iSHARES MSCI SOUTH AFRICA INDEX FUND
Regular Holidays. The regular South African holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
----------------------------------------------
Day of Reconciliation - December 16, 1999
----------------------------------------------
B-11
<PAGE>
----------------------------------------------------
Christmas Day - December 25 1999
Goodwill Day - December 26 1999
Public Holiday - December 27, 1999
Public Holiday/1/ - December 30, 1999
Public Holiday - December 31, 1999
New Year's Day - January 1, 2000
Public Holiday - January 2, 2000
Public Holiday - January 3, 2000
Human Rights Day - March 21, 2000
Good Friday - April 21, 2000
Family Day - April 24, 2000
Freedom Day - April 27, 2000
Workers' Day - May 1, 2000
Youth Day - June 16, 2000
National Women's Day - August 9, 2000
Heritage Day - September 24 2000
Public Holiday - September 25, 2000
Day of Reconciliation - December 16, 2000
Christmas Day - December 25, 2000
Goodwill Day - December 26, 2000
----------------------------------------------------
1. Stock Exchange only.
Redemption. A redemption request over the following South African holiday would
result in a settlement period that will exceed 7 calendar days (examples are
based on the Days particular holidays fall in the fourth quarter of 1999 and
calendar year 2000):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Redemption Redemption
---------- ----------
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
12/27/99 Public Holiday 12/24/99 1/3/00 R+10
4/21/00 Good Friday 4/20/00 4/28/00 R+8
-------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999 and calendar year 2000, R+10 calendar days would
be the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI South Africa Index Fund.
THE iSHARES MSCI SOUTH KOREA INDEX FUND
Regular Holidays. The regular Korean holidays affecting the relevant securities
markets (and their respective dates in the fourth quarter of 1999 and calendar
year 2000) are as follows:
-----------------------------------------------------------------
National Foundation Day - October 3, 1999
Christmas Day - December 25, 1999
Bank Holiday - December 29, 1999
Bank Holiday - December 30, 1999
Bank Holiday - December 31, 1999
Bank Holiday - January 1, 2000
Bank Holiday - January 2, 2000
Y2K Banking and Exchange Holiday - January 3, 2000
Lunar New Year - February 4, 2000
Lunar New Year - February 5, 2000
Independence Day - March 1, 2000
Arbor Day - April 5, 2000
Bank Holiday - May 1, 2000
Children's Day - May 5, 2000
Buddha's Birthday May 11, 2000
----------------------------------------------------------------
B-12
<PAGE>
---------------------------------------------------
Memorial Day - June 6, 2000
Constitution Day - July 17, 2000
Liberation Day - August 15, 2000
Thanksgiving Day - September 11, 2000
Thanksgiving Day - September 12, 19999
Thanksgiving Day - September 13, 2000
National Foundation Day - October 3, 2000
Christmas Day - December 25, 2000
----------------------------------------------------
Redemption. A redemption request over the following Korean holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the fourth quarter of 1999 and
calendar year 2000):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Redemption Redemption
---------- ----------
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
12/29/99 Bank Holiday 12/24/99 1/4/00 R+11
12/30/99 Bank Holiday 12/27/99 1/5/00 R+9
12/31/99 Bank Holiday 12/28/99 1/6/00 R+9
9/11/00 Thanksgiving Day 9/6/00 9/14/00 R+8
9/12/00 Thanksgiving Day 9/7/00 9/15/00 R+8
9/13/00 Thanksgiving Day 9/8/00 9/18/00 R+10
------------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999 and calendar year 2000, R+11 calendar days would
be the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI Korea Index Fund.
THE iSHARES MSCI SPAIN INDEX FUND
Regular Holidays. The regular Spanish holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
-------------------------------------------------------
National Day - October 12, 1999
All Saints' Day - November 1, 1999
Saint Almudena - November 8, 1999
Constitution Day - December 6, 1999
Immaculate Concepcion/1/ - December 8, 1999
Christmas Eve/2/ - December 24, 1999
Christmas Day - December 25, 1999
Holiday - December 31, 1999
Epiphany/3/ - January 6, 2000
Good Friday - April 21, 2000
Easter Monday - April 24, 2000
Labour Day - May 1, 2000
National Day/3/ - October 12, 2000
All Saints' Day/3/ - November 1, 2000
Constitution Day/3/ - December 6, 2000
Immaculate Concepcion/3/ - December 8, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
-------------------------------------------------------
1. Banks closed; only trading and settlement for free
trades and loans will take place.
2. Banks and stock exchanges closed; depository closed.
3. Stock exchange holiday only.
B-13
<PAGE>
Redemption. The Company is not aware of a redemption request over any Spanish
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 1999 and calendar year 2000.
THE iSHARES MSCI SWEDEN INDEX FUND
Regular Holidays. The regular Swedish holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
----------------------------------------------------------
Christmas Eve - December 24, 1999
New Year's Eve - December 31, 1999
Epiphany Eve/1/ - January 5, 2000
Epiphany - January 6, 2000
Maundy Thursday/1/ - April 20, 2000
Good Friday - April 21, 2000
Easter Monday - April 24, 2000
May Day - May 1, 2000
Eve of Ascension Day/1/ - May 31, 2000
Ascension Day - June 1, 2000
Whit Monday - June 12, 2000
Midsummer Eve - June 23, 2000
All Saints' Eve/1/ - November 3, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
----------------------------------------------------------
1. Banks will close at 1:00 p.m. local time.
Redemption. A redemption request over the following Swedish holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the fourth quarter of 1999 and
calendar year 2000):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
4/20/00 Maundy Thursday 4/17/00 4/25/00 R+8
4/21/00 Good Friday 4/18/00 4/26/00 R+8
4/24/00 Easter Monday 4/19/00 4/27/00 R+8
--------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999 and calendar year 2000, R+12 calendar days would
be the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI Sweden Index Fund.
THE iSHARES MSCI SWITZERLAND INDEX FUND
Regular Holidays. The regular Swiss (Zurich) holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
----------------------------------------------------
New Year's Eve - December 31, 1999
New Year Holiday - January 3, 2000
Good Friday - April 21, 2000
Easter Monday - April 24, 2000
Labour Day - May 1, 2000
Ascension Day - June 1, 2000
Whit Monday - June 12, 2000
National Day - August 1, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
--------------------------------------------------
B-14
<PAGE>
Redemption. The Company is not aware of a redemption request over any Swiss
holiday that would result in a settlement period that will exceed 7 calendar
days in the fourth quarter of 1999 and calendar year 2000.
THE iSHARES MSCI TAIWAN INDEX FUND
Regular Holidays. The regular Taiwanese holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
-------------------------------------------------------
National Day - October 10, 1999
Sun Yat-Sen's Birthday - November 12, 1999
Constitution Day - December 25, 1999
Stock Market Closed - December 29, 1999
Stock Market Closed - December 30, 1999
Bank Holiday - December 31, 1999
New Year's Day - January 1, 2000
Bank Holiday - January 3, 2000
Stock Market Closed - January 8, 2000
Stock Market Closed - January 22, 2000
Lunar New Year - February 4, 2000
Lunar New Year - February 5, 2000
Lunar New Year - February 7, 2000
Lunar New Year - February 8, 2000
Youth Day - March 29, 2000
Women and Children's Day - April 4, 2000
Tomb Sweeping Day - April 5, 2000
Dragon Boat Festival - June 6, 2000
Bank Holiday - July 1, 1999
Moon Festival Day - September 12, 2000
Confuscius' Birthday - September 28, 2000
National Day - October 10, 2000
Taiwan Retrocession Day - October 25, 1999
Chiang Kai-Shek's Birthday - October 31, 2000
Sun Yat-Sen's Birthday - November 13, 2000
Constitution Day - December 25, 2000
--------------------------------------------------------
Redemption. A redemption request over the following Taiwanese holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the fourth quarter of 1999 and
calendar year 2000):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Redemption Redemption
------------ ----------
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- ------------- -----------------
<C> <S> <C> <C> <C>
12/29/99 Stock Market Closed 12/24/99 1/3/00 R+11
12/30/99 Stock Market Closed 12/27/99 1/4/00 R+9
12/31/99 Bank Holiday 12/28/99 1/5/99 R+9
2/4/00 Lunar New Year 2/1/00 2/9/00 R+8
2/7/00 Lunar New Year 2/2/00 2/10/00 R+8
2/8/00 Lunar New Year 2/3/00 2/11/00 R+8
----------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999 and calendar year 2000, R+8 calendar days would be
the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI Taiwan Index Fund.
THE iSHARES MSCI UNITED KINGDOM INDEX FUND
B-15
<PAGE>
Regular Holidays. The regular United Kingdom holidays affecting the relevant
securities markets (and their respective dates in the fourth quarter of 1999 and
calendar year 2000) are as follows:
---------------------------------------------------
Christmas Holiday - December 27, 1999
Christmas Holiday - December 28, 1999
New Year's Eve/1/ - December 31, 1999
New Year's Day - January 3, 2000
Good Friday - April 21, 2000
Easter Monday - April 24, 2000
May Day - May 1, 2000
Spring Bank Holiday - May 29, 2000
Summer Holiday - August 28, 2000
Christmas Day - December 25, 2000
Boxing Day - December 26, 2000
----------------------------------------------------
1. Banking holiday.
2. CREST, CGO and CMO open for EURO settlement only.
Redemption. A redemption request over the following United Kingdom holiday would
result in a settlement period that will exceed 7 calendar days (example is based
on the days particular holidays fall in the fourth quarter of 1999 and calendar
year 2000):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Redemption Redemption
--------------- ---------------
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- --------------- --------------- -----------------
<C> <S> <C> <C> <C>
12/27/99 Christmas Day 12/24/99 1/4/00 R+11
------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999 and calendar year 2000, R+11 calendar days would
be the maximum number of calendar days necessary to satisfy a redemption request
made on the iShares MSCI United Kingdom Index Fund.
B-16
