<PAGE>
As filed with the U.S. Securities and Exchange Commission
on June 19, 2000
Securities Act File No. 333-92935
Investment Company Act File No. 811-09729
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Post-Effective Amendment No. 3 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 3 [x]
(Check appropriate box or boxes)
iShares Trust
-------------
(Exact Name of Registrant as Specified in Charter)
c/o Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
---------- -----
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (415) 597-2000
The Corporation Trust Company
1209 Orange Street
Wilmington, DE 19801
--------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to [ ] On (date) pursuant to
paragraph (b) paragraph (b)
[ ] 60 days after filing pursuant to [ ] On (date) pursuant to paragraph
paragraph (a)(1) (a)(1)
[X] 75 days after filing pursuant to [ ] On (date) pursuant to paragraph
paragraph (a)(2) (a)(2) of Rule 485
If appropriate, check the following box:
[ ] The post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
CROSS-REFERENCE SHEET
FORM N-1A
PART A
Form N-1A Item Prospectus Captions
Number
Item 1 Front and Back Cover Pages
Item 2 Description of the Fund
Item 3 Description of the Fund
Item 4 Overview; Description of the Fund
Item 5 Not Applicable
Item 6 Management
Item 7 Shareholder Information
Item 8 Description of the Fund
Item 9 Not Applicable
PART B
Form N-1A Item Statement of Additional Information
Number
Item 10. Cover Page; Table of Contents
Item 11. General Description of the Trust and
the Fund
Item 12. General Description of the Trust and
the Fund; Investment Strategies and
Risks; Investment Limitations
Item 13. Management
Item 14. Not Applicable
Item 15. Management
Item 16. Brokerage Transactions
Item 17. Additional Information Concerning the
Trust
Item 18. Creation and Redemption of Creation
Unit Aggregations; Determination of
NAV; Dividends and Distributions
Item 19. Taxes
Item 20. Not Applicable
Item 21. Performance and Other Information
<PAGE>
Item 22. Not Applicable
PART C Information required to be included
in Part C is set forth under the
appropriate Item, so numbered in Part
C of this Registration Statement.
Signatures Signature Page
<PAGE>
iShares/(SM)/
iShares Trust
The iShares Trust consists of 36 separate investment portfolios called "funds".
Each fund seeks investment results that correspond generally to the price and
yield performance, before fees and expenses, of a particular equity market
index. Barclays Global Fund Advisors is the advisor to each fund. This
prospectus relates to the iShares S&P 100 Index Fund (the "Fund").
The shares of the Fund, called "iShares", are listed for trading on the Chicago
Board Options Exchange (the "CBOE"). iShares will trade on the CBOE at market
prices throughout the trading day. Market prices for iShares may be different
from their net asset value ("NAV"). iShares of the other funds of iShares Trust
are also called iShares and are listed for trading on the American Stock
Exchange. Each fund has its own Cusip number and exchange trading symbol.
The Fund issues and redeems iShares at NAV -- only in large blocks of 50,000
iShares ("Creation Units") or multiples thereof. These Creation Unit
transactions are usually in exchange for a basket of stocks and an amount of
cash. As a practical matter, only institutions or large investors purchase or
redeem Creation Units.
Except when aggregated in Creation Units, iShares are not redeemable securities.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Prospectus
___________, 2000
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Details on Investing in iShares Overview ....................................................... 1
Introduction ................................................... 1
Investment Objective ........................................... 1
Principal Investment Strategies ................................ 1
Replication .................................................... 2
Correlation .................................................... 2
Industry Concentration Policy .................................. 2
Details on the Risks of Investing Principal Risk Factors ......................................... 3
in iShares
Market Risk .................................................... 3
Asset Class Risk ............................................... 3
Passive Investments ............................................ 3
Tracking Error Risk ............................................ 3
Lack of Governmental Insurance or Guarantee .................... 3
Concentration .................................................. 4
Derivatives .................................................... 4
Market Trading Risks ........................................... 4
Absence of Prior Active Market ................................. 4
Lack of Market Liquidity ....................................... 4
iShares May Trade at Prices Other than NAV ..................... 4
Details on the Fund Description of the Fund ........................................ 6
Details on Management Management ..................................................... 9
and Operations
Investment Advisor ............................................. 9
Administrator, Custodian, Transfer Agent and Securities
Lending Agent .................................................. 9
Details on Buying and Selling
iShares Shareholder Information ........................................ 10
Buying and Selling iShares ..................................... 10
Book Entry ..................................................... 10
iShare Prices .................................................. 10
Determining NAV ................................................ 11
Dividends and Distributions .................................... 11
Taxes. ......................................................... 11
Taxes on Distributions ......................................... 11
Taxes when iShares are Sold .................................... 12
Creations and Redemptions ...................................... 12
Fund Transaction Fees .......................................... 12
Distribution ................................................... 13
Index Provider ................................................. 13
</TABLE>
i
<PAGE>
Overview
Introduction
This Prospectus provides the information you need to make an informed decision
about investing in iShares of the Fund. It contains important facts about the
iShares Trust as a whole and the Fund in particular.
An index is a group of stocks that an Index Provider selects as representative
of a market, market segment or specific industry sector. The Index Provider, in
this case Standard & Poor's, determines the relative weightings of the stocks in
the index and publishes information regarding the market value of the index.
The Fund is an "index fund" which seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
S&P 100 Index (the "Underlying Index"). Barclays Global Fund Advisors ("BGFA"),
the advisor to the Fund, is a subsidiary of Barclays Global Investors, N.A.
("BGI"). BGFA and its affiliates are not affiliated with the Index Provider.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., provides
financial, economic and investment information and analytical services to the
financial community.
The Principal Investment Strategies and the Principal Risk Factors sections
discuss the principal strategies and risk applicable to the Fund, while the
Description of the Fund section provides important information about the Fund,
including a brief description of its Underlying Index and principal risks
specific to the Fund.
Investment Objective
The Fund seeks investment results that correspond generally to the price and
yield performance, before fees and expenses, of the Underlying Index.
Principal Investment Strategies
BGFA uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
"beat" the markets it tracks and does not seek temporary defensive positions
when markets decline or appear overvalued. BGFA does not make any judgments
about the investment merit of a particular stock, nor does it attempt to apply
any economic, financial or market analysis.
Indexing may eliminate some of the risks of active management, such as poor
stock selection. Indexing may also help increase after-tax performance by
keeping portfolio turnover low in comparison to actively managed investment
companies.
<PAGE>
The Fund will invest at least 90% of its total assets in the stocks of the
Underlying Index. The Fund may hold up to 10% of its total assets in stocks not
included in the Underlying Index. For example, BGFA may invest in stocks not
included in the Underlying Index in order to reflect various corporate actions
(such as mergers) and other changes in the Underlying Index (such as
reconstitutions, additions and deletions). As long as the Fund invests at least
90% of its total assets in the stocks of the Underlying Index, it may also
invest its other assets in futures contracts, options on futures contracts,
options, and swaps related to the Underlying Index, as well as cash and cash
equivalents.
Replication
The Fund uses a replication strategy to track the Underlying Index. This means
that the Fund invests in substantially all of the stocks in the Underlying Index
in approximately the same proportions as in the Underlying Index.
Correlation
An index is a theoretical financial calculation while the Fund is an actual
investment portfolio. The performance of the Fund and the Underlying Index will
vary somewhat due to transaction costs, market impact, corporate actions (such
as mergers and spin-offs) and timing variances.
BGFA expects that, over time, the correlation between the Fund's performance and
that of the Underlying Index, before fees and expenses, will be 95% or better. A
figure of 100% would indicate perfect correlation. Any correlation of less than
100% is called "tracking error".
Industry Concentration Policy
The Fund will not concentrate its investments (i.e. hold 25% or more of its
total assets in the stocks of a particular industry or group of industries),
except that the Fund will concentrate to approximately the same extent that the
Underlying Index concentrates in the stocks of such particular industry or group
of industries. For purposes of this limitation, securities of the U.S.
Government (including its agencies and instrumentalities), repurchase agreements
collateralized by U.S. Government securities, and securities of state or
municipal governments and their political subdivisions are not considered to be
issued by members of any industry.
2
<PAGE>
Principal Risk Factors
The Fund is subject to the principal risks described below. Additional principal
risks associated with the Fund are discussed under the Description of the Fund
section. Some or all of these risks may adversely affect the Fund's net asset
value ("NAV"), trading price, yield, total return and/or its ability to meet its
objectives.
Market Risk
The Fund's NAV will react to securities markets movements. You could lose money
over short periods due to fluctuation in a Fund's NAV in response to market
movements, and over longer periods during market downturns.
Asset Class Risk
The returns from the types of securities in which the Fund invests may
underperform returns from the various general securities markets or different
asset classes. Different types of securities tend to go through cycles of out-
performance and underperformance in comparison to the general securities
markets.
Passive Investments
The Fund is not actively managed. The Fund may be affected by a general decline
in the market segments relating to the Underlying Index. The Fund invests in the
securities included in the Underlying Index regardless of their investment
merit. BGFA does not attempt to individually select stocks or to take defensive
positions in declining markets.
Tracking Error Risk
Factors such as the fees and expenses of the Fund, imperfect correlation between
the Fund's stocks and those in the Underlying Index, rounding of share prices,
changes to the Underlying Index and regulatory policies may affect BGFA's
ability to achieve close correlation with the Underlying Index. The Fund's
returns may therefore deviate from those of the Underlying Index.
Lack of Governmental Insurance or Guarantee
An investment in the Fund is not a bank deposit nor is it insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
3
<PAGE>
Concentration
If the Underlying Index concentrates in a particular industry or group of
industries, the Fund may be adversely affected by the performance of those
stocks and be subject to price volatility. In addition, if the Fund concentrates
in a single industry or group of industries, it may be more susceptible to any
single economic, market, political or regulatory occurrence.
Derivatives
A derivative is a financial contract the value of which depends on, or is
derived from, the value of an underlying asset such as a security or an index.
The Fund may invest in stock index future contracts and other derivatives.
Compared to conventional securities, derivatives can be more sensitive to
changes in interest rates or to sudden fluctuations in market prices and thus
the Fund's losses may be greater if it invests in derivatives than if it invests
only in conventional securities.
Market Trading Risks
Absence of Prior Active Market
Although the iShares described in this Prospectus are listed for trading on
the CBOE, there can be no assurance that an active trading market will
develop or be maintained.
Lack of Market Liquidity
Trading in iShares on the CBOE may be halted because of market conditions
or for reasons that, in the view of the CBOE, make trading in iShares
inadvisable. In addition, trading in iShares is subject to trading halts
caused by extraordinary market volatility pursuant to CBOE "circuit
breaker" rules. There can be no assurance that the requirements of the CBOE
necessary to maintain the listing of the iShares of the Fund will continue
to be met or will remain unchanged.
iShares May Trade at Prices Other than NAV
iShares may trade below, at, or above their NAV. The NAV of iShares will
fluctuate with changes in the market value of the Fund's holdings. The
trading prices of iShares will fluctuate in accordance with changes in the
Fund's NAV as well as market supply and demand on the CBOE. However, given
that iShares can be created and redeemed only in Creation Units at NAV
(unlike shares of many closed-end funds, which frequently trade at
appreciable discounts from, and sometimes at premiums to, their NAVs), BGFA
4
<PAGE>
believes that large discounts or premiums to the NAVs of iShares should not
be sustained.
Additional principal risks associated with investing in iShares are
discussed in the Description of the Fund section.
5
<PAGE>
Description of the Fund
Cusip: 464287101
CBOE Trading Symbol: IXO
Underlying Index: Standard & Poor's 100 Index/1/
----------------------------------------------
Investment Objective
The iShares S&P 100 Index Fund seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
S&P 100 Index (the "Index").
Principal Investment Strategy
The Index measures the performance of the large capitalization sector of the
U.S. equity market. It is subset of the S&P 500 Index and consists of blue chip
stocks from diverse industries in the S&P 500 Index, representing approximately
40% of the market capitalization of listed U.S. equities. The Fund uses a
Replication strategy to try to track the Index.
As of March 31, 2000, the Index consisted of 100 stocks. Its three largest
stocks were Microsoft Corporation, General Electric Company and Cisco Systems
Inc. (which comprised 9.51%, 8.01% and 5.53%, respectively, of its market
capitalization).
Principal Risks Specific to the Fund
. The stocks in the Index may underperform fixed income investments and stock
market indices that track other markets, segments and sectors.
. The Fund is classified as "non-diversified." A non-diversified fund
generally will hold fewer stocks than a diversified fund. As a result, the
Fund is more susceptible to the risks associated with these particular
companies, or to a single economic, political or regulatory occurrence.
Performance Information
As of the date of this Prospectus, the Fund has been in operation for less than
one full calendar year and therefore does not report its annual total returns in
a bar chart and average annual total returns in a table.
--------------------------
/1/ "Standard & Poor's(R)", "S&P(R)", "Standard & Poor's 100", "S&P 100" and
"S&P 500 Index" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use for certain purposes by BGI. The Fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in iShares of the Fund.
6
<PAGE>
Fees and Expenses
Most investors will buy and sell shares of the Fund through brokers. iShares of
the Fund are traded on the CBOE.
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.*
Shareholder Fees
(fees paid directly from your investment, but see the Creation
Transaction Fees and Redemption Transaction Fees discussion below) None
Annual Fund Operating Expenses
(expenses that are deducted from the Fund's assets)**
Management Fees %
Distribution and Service (12b-1) Fees None
Other Expenses*** None
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses %
--------------------------------------------------------------------------------
* You will incur customary brokerage commissions when buying or selling
shares of the Fund.
** Expressed as a percentage of average net assets.
*** The Trust's Investment Advisory Agreement provides that BGFA will pay
the operating expenses of the Trust, except interest expense and taxes
(expected to be de minimus), any future distribution fees or expenses
and extraordinary expenses.
Example
This Example is intended to help you compare the cost of investing in iShares
with the cost of investing in other funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your iShares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
1 Year 3 Years
$ $
7
<PAGE>
Creation Transaction Fees and Redemption Transaction Fees
The Fund issues and redeems shares at NAV only in large blocks of 50,000 shares
or multiples thereof. As a practical matter, only institutions or large
investors purchase or redeem these Creation Units. A Standard Creation
Transaction Fee of $500 is charged to each purchaser of Creation Units. The fee
is a single charge and will be the same regardless of the number of Creation
Units purchased by an investor on the same day. The approximate value of a
Creation Unit as of March 31, 2000 was $4,075,300. An investor who holds
Creation Units and wishes to redeem them at NAV would also pay a Standard
Redemption Fee of $500 on the date of such redemption(s), regardless of the
number of Creation Units redeemed that day.* Investors who hold Creation Units
will also pay the Annual Fund Operating Expenses described in the table above.
Assuming an investment in a Creation Unit of $4,075,300 and a 5% return each
year, and assuming that the Fund's operating expenses remain the same, the total
costs would be $_______ if the Creation Unit is redeemed after one year, and
$_________ if the Creation Unit is redeemed after three years.
--------------
* See Creations and Redemptions at the end of this Prospectus. If a Creation
Unit is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, a variable fee will be charged of
up to four times the Standard Creation or Redemption Transaction Fee.
8
<PAGE>
Management
Investment Advisor
As investment advisor, BGFA has overall responsibility for the general
management and administration of the Trust. BGFA provides an investment program
for the Fund and manages the investment of its assets. BGFA uses teams of
portfolio managers, investment strategists and other investment specialists.
This team-approach brings together many disciplines and leverages BGFA's
extensive resources. BGFA also arranges for transfer agency, custody, fund
administration and all other non-distribution-related services necessary for the
Fund to operate.
Under the Investment Advisory Agreement, BGFA is responsible for all expenses of
the Trust, including the cost of transfer agency, custody, fund administration,
legal, audit and other services, except interest, taxes, brokerage commissions
and other expenses connected with executions of portfolio transactions (which
are included in NAV), any distribution fees or expenses and extraordinary
expenses.
BGFA will receive a fee from the Fund based on a rate of the Fund's average
daily net assets, as shown in the following table.
<TABLE>
<CAPTION>
iShares Index Fund Management Fee
------------------ --------------
<S> <C>
iShares S&P 100 Index Fund %
</TABLE>
BGFA is located at 45 Fremont Street, San Francisco, CA 94105. It is a wholly-
owned subsidiary of BGI, which in turn is an indirect subsidiary of Barclays
Bank PLC. BGI, together with its affiliates, is the world's largest investment
advisor of institutional investment assets. As of December 31, 1999, BGI and its
affiliates, including BGFA, provided investment advisory services for assets in
excess of $791.9 billion. BGI, BGFA, Barclays Global Investor Services, Barclays
Bank PLC and their affiliates deal, trade and invest for their own accounts in
the types of securities in which the Fund portfolios may also invest.
Administrator, Custodian, Transfer Agent and Securities Lending Agent
Investors Bank & Trust Company ("IBT") is the administrator, custodian, transfer
agent and securities lending agent for the Fund.
Shareholder Information
Additional shareholder information, including how to buy and sell iShares of the
Fund, is available free of charge by calling toll-free: 1-800-iShares.
Buying and Selling iShares
iShares trade on an auction market on the CBOE during the trading day and can be
bought and sold throughout the trading day like other shares of publicly traded
stocks. iShares may trade on
9
<PAGE>
the CBOE until 4:15 p.m. (Eastern time), every day the CBOE is open. There is no
minimum investment, although generally iShares are purchased in "round lots" of
100 iShares. When buying or selling iShares through a broker, you will incur
customary brokerage commissions and charges.
iShares may be acquired or redeemed directly from the Fund only in Creation
Units, as discussed in the Creations and Redemptions section.
iShares trade under the ticker symbol listed under the Description of the Fund
section. iShares prices are reported in dollars and fractions per iShare.
Fractions are quoted in 1/64s.
The CBOE is generally open Monday through Friday and is closed on weekends and
the following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Section 12(d)(1) of the Investment Company Act of 1940 restricts investments by
registered investment companies in the securities of other investment companies,
including iShares.
Book Entry
iShares are held in book-entry form, which means that no stock certificates are
issued. Depository Trust Company ("DTC") or its nominee, is the record owner of
all outstanding iShares of the Fund and is recognized as the owner of all
iShares for all purposes.
Investors owning iShares are beneficial owners as shown on the records of DTC or
its participants. DTC serves as the securities depository for all iShares.
Participants include DTC, securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
iShares, you are not entitled to receive physical delivery of stock certificates
or to have iShares registered in your name, and you are not considered a
registered owner of iShares. Therefore, to exercise any right as an owner of
iShares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other stocks that you hold in
book entry or "street name" form.
iShare Prices
The trading prices of iShares on the CBOE may differ in varying degrees from
their daily NAVs and can be affected by market forces such as supply and demand,
economic conditions and other factors.
The CBOE intends to disseminate the approximate value of iShares every fifteen
seconds. This approximate value should not be viewed as a "real-time" update of
the NAV per iShare, because the approximate value may not be calculated in the
same manner as the Fund's NAV, which is computed once a day. The Fund is not
involved in, or responsible for, the calculation or dissemination of such amount
and makes no warranty as to its accuracy.
10
<PAGE>
Determining NAV
IBT calculates the Fund's NAV in accordance with the standard formula for
valuing mutual fund shares at the close of regular trading (normally 4 p.m.
Eastern time) every day the New York Stock Exchange (the "NYSE") is open. The
NYSE generally is open on the same days as the CBOE. The formula calls for
deducting all of the Fund's liabilities from the total value of its assets and
dividing the result by the number of shares outstanding. IBT values the
securities at their current market prices. If such prices are not readily
available, IBT uses estimates of the securities' fair value in accordance with
guidelines approved by the Trust's Board of Trustees.
Dividends and Distributions
The Fund pays out dividends to investors at least annually and may pay them on a
more frequent basis. The Fund distributes its net capital gains, if any, to
investors annually.
Taxes
As with any investment, you should consider how your investment in iShares 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 iShares is made through a tax-exempt entity or tax-
deferred retirement account, such as an IRA plan, you need to be aware of the
possible tax consequences when:
. The Fund makes distributions, and
. You sell iShares.
Taxes on Distributions
Dividends from net investment income, if any, are declared and paid at least
annually by the Fund. In general, your distributions are subject to federal
income tax for the year when they are paid. Certain dividends paid in January,
however, may be treated as paid in the prior year. A distribution may be taxable
to you as ordinary income or as capital gain.
Dividends paid out of the Fund's net investment income and net short-term
capital 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.
If you are neither a lawful permanent resident nor a citizen of the United
States or if you are a foreign entity, the Fund's ordinary income dividends
(which include distributions of net short-term capital gains) will generally be
subject to a 30% U.S. withholding tax, unless a lower treaty rate applies.
11
<PAGE>
The Fund must withhold 31% of a shareholder's distributions and proceeds if the
shareholder has not provided a correct taxpayer identification number or social
security number in the manner required by law.
Taxes when You Sell iShares
Currently, any capital gain or loss realized upon a sale of iShares is generally
treated as long-term capital gain or loss if iShares have been held for more
than one year and as short-term capital gain or loss if 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 a Fund. It is not a substitute for personal
tax advice. You may also be subject to state and local taxation on Fund
distributions, and sales of iShares. Consult your personal tax adviser about the
potential tax consequences of an investment in iShares under all applicable tax
laws.
Creations and Redemptions
The iShares are "created" at their NAV by market makers, large investors and
institutions only in block-size Creation Units of 50,000 iShares. A "creator"
deposits into the Fund a portfolio of stocks closely approximating the holdings
of the Fund and a specified amount of cash in exchange for 50,000 iShares.
Similarly, iShares can only be redeemed in Creation Units of 50,000 iShares,
principally in-kind for a portfolio of stocks held by the Fund and a specified
amount of cash. Except when aggregated in Creation Units, iShares are not
redeemable. The prices at which creations and redemptions occur are based on the
next calculation of NAV after an order is received in proper form.
Creations and redemptions must be made through a firm that is either a member of
the Continuous Net Settlement System of the National Securities Clearing
Corporation or a DTC Participant. Information about the procedures regarding
creation and redemption of Creation Units is included in the Statement of
Additional Information.
Fund Transaction Fees
The Fund will impose a purchase transaction fee and a redemption transaction fee
to offset transfer and other transaction costs associated with the issuance and
redemption of Creation Units of iShares. Purchasers and redeemers of Creation
Units of iShares for cash are required to pay an additional variable charge to
compensate for brokerage and market impact expenses. The creation and redemption
transaction fees for in-kind creations and redemptions for the Fund are listed
below. The creation and redemption transaction fees for creations and
redemptions (i) made through DTC and (ii) made for cash (when cash creations and
redemptions are available or specified) will also be subject to an additional
variable charge of up to a maximum of four times
12
<PAGE>
the amount shown below. In addition, purchasers of iShares in Creation Units are
responsible for payment of the costs of transferring the Deposit Securities to
the Trust. Redeemers of iShares in Creation Units are responsible for the costs
of transferring the Fund Securities from the Trust to their accounts or on their
order. Investors who use the services of a broker or other such intermediary may
pay fees for such services. The following table also shows, as of March 31,
2000, the approximate cost of one Creation Unit per Fund, including the Creation
Transaction Fee.
<TABLE>
<CAPTION>
Approximate
-----------
Value of a Standard Maximum
---------- -------- -------
Creation Unit Creation/ Creation/
------------- --------- ---------
as of Redemption Redemption
----- ---------- ----------
Name of Fund March 31, 2000 Transaction Fee Transaction Fee
------------ -------------- --------------- ---------------
<S> <C> <C> <C>
iShares S&P 100 Index Fund $4,075,300 $500 $2,000
</TABLE>
Distribution
SEI Investments Distribution Company (the "Distributor") serves as the
distributor of Creation Units for the Fund on an agency basis. The Distributor
does not maintain a secondary market in iShares. The Distributor's principal
address is 1 Freedom Valley Drive, Oaks, PA 19456.
The Distributor has no role in determining the policies of the Fund or the
securities that are purchased or sold by the Fund.
Index Provider
Standard & Poor's (a division of The McGraw-Hill Companies, Inc.) is the Index
Provider for the S&P 100 Index. Standard & Poor's is not affiliated with the
iShares Trust, BGI, BGFA, IBT, the Distributor or the CBOE.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., provides
financial, economic and investment information and analytical services to the
financial community. S&P calculates and maintains the S&P Global 1200 Index,
which includes the S&P Europe 350 for Continental Europe and the U.K., the
S&P/TSE 60 for Canada, the S&P 500 for the U.S., the S&P/TOPIX 150 for Japan,
the S&P Asia Pacific 100 and the S&P Latin America 40. S&P also publishes the
S&P MidCap 400, S&P SmallCap 600, S&P SuperComposite 1500 and S&P REIT Composite
for the U.S. and the S&P/TSE Canadian MidCap and S&P/TSE Canadian SmallCap
Indices. Company additions to and deletions from an S&P equity index do not in
any way reflect an opinion on the investment merits of the company.
BGI has entered into a license agreement with Standard & Poor's to use the S&P
100 Index. BGI is sub-licensing rights in the S&P 100 Index to the iShares Trust
at no charge.
13
<PAGE>
Disclaimers
The iShares Trust is not sponsored, endorsed, sold or promoted by Standard &
Poor's ("S&P"). S&P makes no representation or warranty, express or implied, to
the owners of iShares or any member of the public regarding the advisability of
investing in securities generally or in iShares particularly or the ability of
the S&P Index to track general stock market performance. S&P's only relationship
to BGI or BGFA is the licensing of certain trademarks and trade names of S&P and
of the S&P Index that is determined, composed and calculated by S&P without
regard to BGI, BGFA or the Trust. S&P has no obligation to take the needs of
BGI, BGFA or the owners of iShares into consideration in determining, composing
or calculating the S&P Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of iShares or the
timing of the issuance or sale of iShares or in the determination of any
financial calculations relating thereto. S&P has no obligation or liability in
connection with the administration of the Trust, marketing, or trading of the
iShares. S&P does not guarantee the accuracy and/or the completeness of the S&P
Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by BGI, BGFA or owners of iShares, or any
other person or entity from the use of the S&P Index or any data included
therein. S&P makes no express or implied warranties, and expressly disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the S&P Index or any data included therein. Without limiting any of
the foregoing, in no event shall S&P have any liability for any special,
punitive, indirect, or consequential damages (including lost profits) resulting
from the use of the S&P Index or any data included therein, even if notified of
the possibility of such damages.
iShares are not sponsored, endorsed or promoted by the CBOE. The CBOE makes no
representation or warranty, express or implied, to the owners of the iShares of
any Fund or any member of the public regarding the ability of a fund to track
the total return performance of the Index or the ability of the Index identified
herein to track stock market performance. The Index identified herein is
determined, composed and calculated by Standard & Poor's without regard to the
iShares of any Fund. The CBOE is not responsible for, nor has it participated
in, the determination of the compilation or the calculation of the Index, nor in
the determination of the timing of, prices of, or quantities of the iShares of
the Fund to be issued, nor in the determination or calculation of the equation
by which the iShares are redeemable. The CBOE has no obligation or liability to
owners of the iShares of the Fund in connection with the administration,
marketing or trading of the iShares of the Fund.
The CBOE does not guarantee the accuracy and/or the completeness of any indices
or any data included therein. The CBOE makes no warranty, express or implied, as
to results to be obtained by the iShares Trust on behalf of the Fund as
licensee, licensee's customers and counterparties, owners of the iShares, or any
other person or entity from the use of the subject indices or any data included
therein in connection with the rights licensed as
14
<PAGE>
described herein or for any other use. The CBOE makes no express or implied
warranties, and hereby expressly disclaims all warranties of merchantability or
fitness for a particular purpose with respect to the Index or any data included
therein. Without limiting any of the foregoing, in no event shall the CBOE 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.
BGFA does not guarantee the accuracy and/or the completeness of the Index or any
data included therein and BGFA shall have no liability for any errors,
omissions, or interruptions therein.
BGFA makes no warranty, express or implied, as to results to be obtained by the
Fund, owners of the iShares of the Fund, or any other person or entity from the
use of the Index or any data included therein. BGFA makes no express or implied
warranties, and expressly disclaims all warranties of merchantability or fitness
for a particular purpose or use with respect to the Index or any data included
therein. Without limiting any of the foregoing, in no event shall BGFA have any
liability for any special, punitive, direct, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages.
15
<PAGE>
For more detailed information on the iShares Trust and iShares, you may request
a copy of the Statement of Additional Information ("SAI").
The SAI provides detailed information about the Fund, and is incorporated by
reference into this Prospectus. This means that the SAI, for legal purposes, is
a part of this Prospectus.
If you have questions about the Funds or iShares or you wish to obtain the SAI
free of charge, please:
Call: 1-800-iShares
Monday through Friday
8:00 a.m. to 8:00 p.m. (Eastern time)
Write: iShares Trust
c/o SEI Investments Distribution Company
1 Freedom Valley Drive
Oaks, PA 19456
Visit: www.iShares.com
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.,
and information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-942-8090. Reports and other information about
the Fund are available on the EDGAR Database on the Commission's Internet site
at www.sec.gov, and copies of this information may be obtained, after paying a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102. The iShares Trust's registration number under the
Investment Company Act of 1940 is 811-09729.
No person is authorized to give any information or to make any representations
about the Fund and its iShares not contained in this Prospectus and you should
not rely on any other information. Read and keep the Prospectus for future
reference.
Investment Company Act File No. 811-09729
16
<PAGE>
iShares Trust
Statement of Additional Information
for the iShares S&P 100 Index Fund
Dated ___________, 2000
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Prospectus dated _______, 2000 (the "Prospectus") for
the iShares S&P 100 Index Fund (the "Fund"), as it may be revised from time to
time. Capitalized terms used herein that are not defined have the same meaning
as in the Prospectus, unless otherwise noted. A copy of the Prospectus may be
obtained without charge by writing to the Trust's Distributor, SEI Investments
Distribution Company, at 1 Freedom Valley Drive, Oaks, PA 19456.
<PAGE>
Table of Contents
<TABLE>
<S> <C>
General Description of the Trust and the Fund........................................ 1
Exchange Listing and Trading......................................................... 2
Investment Strategies and Risks...................................................... 2
Non-diversification............................................................ 2
Loans of Portfolio Securities.................................................. 3
Repurchase Agreements.......................................................... 3
Reverse Repurchase Agreements.................................................. 4
Currency Transactions.......................................................... 4
Money Market Instruments....................................................... 4
Foreign Securities............................................................. 5
Investment Companies, REITs.................................................... 5
Illiquid Securities............................................................ 5
Futures and Options............................................................ 5
Options on Futures Contracts................................................... 6
Restrictions on the Use of Futures Contracts and Options on Futures Contracts.. 6
Swap Agreements................................................................ 6
Future Developments............................................................ 7
General Considerations and Risks............................................... 7
Risks of Futures and Options Transactions...................................... 8
Risks of Swap Agreements....................................................... 8
Construction and Maintenance Standards for the Underlying Index...................... 9
Index Dissemination............................................................ 13
The S&P 100 Index Generally.......................................................... 13
Investment Limitations............................................................... 10
Continuous Offering.................................................................. 11
Management........................................................................... 12
Trustees and Officers.......................................................... 12
Remuneration of Trustees and Officers.......................................... 13
Investment Advisor............................................................. 13
Administrator, Custodian, Transfer Agent and Securities Lending Agent.......... 14
Distributor.................................................................... 15
Index Provider................................................................. 15
Brokerage Transactions............................................................... 16
Additional Information Concerning the Trust.......................................... 17
Capital Stock.................................................................. 17
Book Entry Only System......................................................... 17
DTC Acts as Securities Depository for the iShares.............................. 17
Creation and Redemption of Creation Unit Aggregations................................ 19
Creation....................................................................... 19
Fund Deposit................................................................... 19
Procedures for Creation of Creation Unit Aggregations.......................... 20
Placement of Creation Orders for the Fund Using Clearing Process............... 20
Placement of Creation Orders for the Fund Outside Clearing Process............. 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Acceptance of Orders for Creation Unit Aggregations............................ 22
Creation Transaction Fee....................................................... 23
Redemption of iShares in Creation Unit Aggregations............................ 23
Redemption Transaction Fee..................................................... 24
Placement of Redemption Orders for the Fund Using Clearing Process............. 24
Placement of Redemption Orders for the Fund Outside Clearing Process........... 24
Taxes................................................................................ 26
Federal Tax Treatment of Futures and Options Contracts......................... 26
Determination of NAV................................................................. 28
Dividends and Distributions.......................................................... 28
General Policies............................................................... 28
Dividend Reinvestment Service.................................................. 28
Performance and Other Information.................................................... 29
Miscellaneous Information............................................................ 30
Counsel........................................................................ 30
Independent Auditors........................................................... 30
Financial Statements........................................................... 30
</TABLE>
General Description of the Trust and the Fund
The Trust currently consists of 36 investment portfolios (each a "fund" and
collectively the "funds"). The Trust was organized as a Delaware business trust
on December 16, 1999 and is authorized to have multiple series, or portfolios.
Each fund in the Trust is an open-end management investment company, registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). This
Statement of Additional Information relates solely to the iShares S&P 100 Index
Fund (the "Fund"). The shares of the Fund are referred to herein as "iShares".
Shares of other funds of the Trust are also called iShares. Each Fund has its
own Cusip number and exchange trading symbol.
The investment objective of the Fund is to provide investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the S&P 100 Index (the "Underlying Index"). The fund is managed by
Barclays Global Fund Advisors ("BGFA").
The Fund offers and issues iShares at their net asset value ("NAV") only in
aggregations of a specified number of iShares (each a "Creation Unit" or a
"Creation Unit Aggregation"), generally in exchange for a basket of equity
securities included in the Underlying Index (the "Deposit Securities"), together
with the deposit of a specified cash payment (the "Cash Component"). The iShares
described in this Prospectus have been approved for listing and secondary
trading on the Chicago Board Options Exchange (the "CBOE"), subject to notice of
issuance. iShares will trade on the CBOE at market prices that may be below, at,
or above NAV. iShares are redeemable only in Creation Unit aggregations, and,
generally, in exchange for portfolio securities and a specified cash payment.
Creation Units are aggregations of 50,000 iShares. The iShares of the other
funds of the Trust are listed and traded on the American Stock Exchange.
2
<PAGE>
The Trust reserves the right to offer a "cash" option for creations and
redemptions of iShares although it has no current intention of doing so. iShares
may be issued in advance of receipt of Deposit Securities subject to various
conditions including a requirement to maintain on deposit with the Trust cash at
least equal to 125% of the market value of the missing Deposit Securities. See
the Creation and Redemption of Creation Unit Aggregations section. In each
instance of such cash creations or redemptions, transaction fees may be imposed
that will be higher than the transaction fees associated with in-kind creations
or redemptions. In all cases, such fees will be limited in accordance with the
requirements of the Securities and Exchange Commission (the "SEC") applicable to
management investment companies offering redeemable securities.
Exchange Listing and Trading
A discussion of exchange listing and trading matters associated with an
investment in the Fund is contained in the Prospectus in the Overview and the
Shareholder Information sections. The discussion below supplements, and should
be read in conjunction with, such sections of the Prospectus.
There can be no assurance that the requirements of the CBOE necessary to
maintain the listing of iShares of the Fund will continue to be met. The CBOE
may, but is not required to, remove the iShares of the Fund from listing if (i)
following the initial 12-month period beginning upon the commencement of trading
of the Fund, there are fewer than 50 beneficial owners of the iShares of the
Fund for 30 or more consecutive trading days; (ii) the value of the Underlying
Index is no longer calculated or available; or (iii) such other event shall
occur or condition exist that, in the opinion of the CBOE, makes further
dealings on the CBOE inadvisable. The CBOE will remove the iShares of the Fund
from listing and trading upon termination of the Fund.
As in the case of other securities traded on the CBOE, broker's commissions on
transactions will be based on negotiated commission rates at customary levels.
The following table sets forth the ratio of NAV to the Underlying Index's value
as of the date of this Statement of Additional Information.
Ratio of
NAV/Index
iShares Index Fund Value
------------------ ---------
iShares S&P 100 Index Fund 1/10
The Trust reserves the right to adjust the stock prices of iShares in the future
to maintain convenient trading ranges for investors. Any adjustments would be
accomplished through stock splits or reverse stock splits, which would have no
effect on the net assets of the Fund. However, the ratio of the Fund's NAV to
the Underlying Index value would change in such instance.
3
<PAGE>
Investment Strategies and Risks
The Fund seeks to achieve its objective by investing in common stocks included
in the Underlying Index. The Fund operates as an index fund and will not be
actively managed. Adverse performance of a security in the Fund's portfolio will
ordinarily not result in the elimination of the security from the Fund's
portfolio.
The Fund will engage in Replication, by which it holds substantially all of the
securities of the Underlying Index in approximately the same proportions as
reflected in the Underlying Index.
At least 90% of the Fund's total assets will be invested in stocks in the
Underlying Index. The Fund may also invest up to 10% of its total assets in
futures, options and swap contracts (in each case related to the Underlying
Index and its component stocks), cash and cash equivalents, as well as in stocks
not included in the Underlying Index if BGFA determines this to be appropriate
in light of the Fund's investment objective and relevant investment constraints.
The following examples illustrate the circumstances in which the Fund would hold
stocks not included in the Underlying Index. First, in order to reflect various
corporate actions (such as mergers) and other changes in the Underlying Index
(reconstitutions), the Fund may hold stocks that are announced as additions to
the Underlying Index prior to their actual date of inclusion in the Underlying
Index. Second, the Fund may hold stocks that have been recently deleted from the
Underlying Index due to various corporate action and reconstitutions. Third, the
Fund may invest in stocks outside the Underlying Index when necessary to meet
the diversification requirements of a regulated investment company under the
Internal Revenue Code (the "Code"). In such cases, the stocks outside the
Underlying Index will be stocks in the relevant market, market segment, market
sector or group of industries tracked by such Underlying Index.
Non-Diversification. The Fund is classified as "non-diversified". A non-
diversified classification means that a fund is not limited by the 1940 Act with
regard to the percentage of its assets that may be invested in the securities of
a single issuer. The stocks of a particular issuer, or of issuers in particular
industries, may dominate the Underlying Index and, consequently, the Fund's
investment portfolio. This may adversely affect the Fund's performance or
subject iShares to greater price volatility than that experienced by more
diversified investment companies.
The Fund, however, does intend 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 Code, and to relieve the 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 Code may
severely limit the investment flexibility of the Fund and may make it less
likely that the Fund will meet its investment objectives.
Loans of Portfolio Securities. The Fund may lend its investment securities to
approved borrowers. Investors Bank and Trust serves as the lending agent for the
Fund and, as such, shares in any net income earned by the Fund. Any gain or loss
on the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Fund. These loans cannot exceed 30% of
the Fund's total assets.
4
<PAGE>
Approved borrowers are brokers, dealers, domestic and foreign banks, or other
financial institutions that meet credit or other requirements as established by,
and subject to, the review of the Trust's Board of Trustees (the "Board" or the
"Trustees"), so long as the terms, the structure and the aggregate amount of
such loans are not inconsistent with the 1940 Act and the rules and regulations
thereunder or interpretations of the SEC, which require that (i) the borrowers
pledge and maintain with the Fund collateral consisting of cash, an irrevocable
letter of credit issued by a bank, or securities issued or guaranteed by the
U.S. Government having a value at all times of not less than 100% of the value
of the securities loaned (on a "mark-to-market" basis); (ii) the loan be made
subject to termination by the Fund at any time; and (iii) the Fund receives
reasonable interest on the loan. Securities lending procedures approved by the
Board will meet or exceed the requirements stated above and promulgated under
the 1940 Act. From time to time, the Fund may return a part of the interest
earned from the investment of collateral received from securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund and that is
acting as a finder.
Repurchase Agreements. The Fund may enter into repurchase agreements with banks
and securities dealers. Such transactions entail the purchase of securities with
a simultaneous commitment to resell the securities to the bank or the dealer at
an agreed-upon date and price, reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. Should the Fund enter
into a repurchase agreement, the Fund would maintain custody of the underlying
securities prior to their repurchase. Thus, the obligation of the bank or the
dealer to pay the repurchase price on the date agreed would be, in effect,
secured by such securities. If the value of such securities were less than the
repurchase price plus interest, the other party to the agreement would be
required to provide additional collateral so that at all times the collateral is
at least 100% of the repurchase price plus accrued interest. Default by or
bankruptcy of a seller would expose the Fund to possible loss because of adverse
market action, expenses or delays in connection with the disposition of the
underlying obligations. The financial institutions with which the Fund may enter
into repurchase agreements will be banks and non-bank dealers of U.S. Government
Securities on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by BGFA. BGFA will
continue to monitor creditworthiness of the seller under a repurchase agreement,
and will require the seller to maintain the value of the securities subject to
the agreement to equal at least 100% of the repurchase price (including accrued
interest). In addition, BGFA will require that the value of this collateral,
after transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than 100% of the repurchase price
(including accrued premium) provided in the repurchase agreement or the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. BGFA will mark-to-market daily the
value of the securities. Under the 1940 Act, repurchase agreements are
considered loans.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements, which involve the sale of securities with an agreement to repurchase
the securities at an agreed-upon price, date and interest payment and have the
characteristics of borrowing. The securities purchased with the funds obtained
from the agreement and securities collateralizing the agreement will have
maturity dates no later than the repayment date. Generally the effect of such
5
<PAGE>
transactions is that the Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while in many cases the Fund is able to keep some of the interest
income associated with those securities. Such transactions are only advantageous
if the Fund has an opportunity to earn a greater rate of interest on the cash
derived from these transactions than the interest cost of obtaining the same
amount of cash. Opportunities to realize earnings from the use of the proceeds
equal to or greater than the interest required to be paid may not always be
available, and the Fund intends to use the reverse repurchase technique only
when BGFA believes it will be advantageous to the Fund. The use of reverse
repurchase agreements may exaggerate any interim increase or decrease in the
value of the Fund's assets. The custodian bank will maintain a separate account
for the Fund with securities having a value equal to or greater than such
commitments. Under the 1940 Act, reverse repurchase agreements are considered
loans.
Currency Transactions. The Fund does not expect to engage in currency
transactions for the purpose of hedging against declines in the value of the
Fund's currency. The Fund may enter into foreign currency forward and foreign
currency futures contracts to facilitate local securities settlements or to
protect against currency exposure in connection with its distributions to
shareholders, but may not enter into such contracts for speculative purposes.
A forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency futures contract is a contract involving an obligation to
deliver or acquire the specified amount of a specific currency, at a specified
price and at a specified future time. 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 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 gap, interest rate risk, and potential
interference by foreign governments through regulation of local exchange
markets, foreign investment or particular transactions in foreign currency. If
BGFA utilizes foreign exchange transactions at an inappropriate time or judges
market conditions, trends or correlations incorrectly, foreign exchange
transactions may not serve their intended purpose of improving the correlation
of the Fund's return with the performance of the Underlying Index and may lower
the Fund's return. The Fund could experience losses if the value of its currency
forwards, options and futures positions were poorly correlated with its other
investments or if it could not close out its positions because of an illiquid
market. In addition, the Fund could incur transaction costs, including trading
commissions, in connection with certain foreign currency transactions.
Money Market Instruments. The Fund may invest a portion of its assets in high-
quality money market instruments on an ongoing basis to provide liquidity. The
instruments in which the Fund may invest include: (i) short-term obligations
issued by the U.S. Government; (ii) negotiable certificates of deposit ("CDs"),
fixed time deposits and bankers' acceptances of U.S. and foreign banks and
similar institutions; (iii) commercial paper rated at the date of purchase
"Prime-1" by
6
<PAGE>
Moody's or "A-1+" or "A-1" by S&P or, if unrated, of comparable quality is
determined by BGFA; and (iv) repurchase agreements. CDs are short-term
negotiable obligations of commercial banks. Time deposits are non-negotiable
deposits maintained in banking institutions for specified periods of time at
stated interest rates. Banker's acceptances are time drafts drawn on commercial
banks by borrowers, usually in connection with international transactions.
Foreign Securities. The Fund may purchase publicly traded common stocks of
foreign corporations represented in the Underlying Index. The Fund's investment
in common stock of foreign corporations represented in the Underlying Index may
also be in the form of American Depositary Receipts ("ADRs") and Global
Depositary Receipts ("GDRs"). ADRs and GDRs are receipts, typically issued by a
bank or trust company, which evidence ownership of underlying securities issued
by a foreign corporation.
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
include differences in accounting, auditing and financial reporting standards,
the possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in foreign countries, and potential restrictions of the
flow of international capital. Foreign companies may be subject to less
governmental regulation than U.S. companies. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment positions.
Investment Companies, REITs. The Fund may invest in the securities of other
investment companies (including money market funds) and real estate investment
trusts to the extent allowed by law. Under the 1940 Act, the Fund's investment
in investment companies is limited to, subject to certain exceptions, (i) 3% of
the total outstanding voting stock of any one investment company, (ii) 5% of the
Fund's total assets with respect to any one investment company and (iii) 10% of
the Fund's total assets of investment companies in the aggregate.
Illiquid Securities. The Fund may invest up to an aggregate amount of 15% of its
net assets in illiquid securities. Illiquid securities include securities
subject to contractual or other restrictions on resale and other instruments
that lack readily available markets.
Futures and Options. The Fund may enter into U.S. or foreign futures contracts,
options and options on futures contracts. These futures contracts and options
will be used to simulate full investment in the Underlying Index, to facilitate
trading or to reduce transaction costs. The Fund will only enter into futures
contracts and options on futures contracts that are traded on a U.S. or foreign
exchange. The Fund will not use futures or options for speculative purposes.
A call option gives a holder the right to purchase a specific security at a
specified price ("exercise price") within a specified period of time. A put
option gives a holder the right to sell a specific security at a specified price
within a specified period of time. The initial purchaser of a call option pays
the "writer" a premium, which is paid at the time of purchase and is retained by
the writer whether or not such option is exercised. The Fund may purchase put
options to hedge its portfolio against the risk of a decline in the market value
of securities held and may purchase
7
<PAGE>
call options to hedge against an increase in the price of securities it is
committed to purchase. The Fund may write put and call options along with a long
position in options to increase its ability to hedge against a change in the
market value of the securities it holds or is committed to purchase.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific instrument or index at a
specified future time and at a specified price. Stock index contracts are based
on indices that reflect the market value of common stock of the firms included
in the indices. The Fund may enter into futures contracts to purchase security
indices when BGFA anticipates purchasing the underlying securities and believes
prices will rise before the purchase will be made. Assets committed to futures
contracts will be segregated by the custodian to the extent required by law.
Options on Futures Contracts. An option on a futures contract, as contrasted
with the direct investment in such a contract, gives the purchaser the right, in
return for the premium paid, to assume a position in the underlying futures
contract at a specified exercise price at any time prior to the expiration date
of the option. Upon exercise of an option, the delivery of the futures position
by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account that
represents the amount by which the market price of the futures contract exceeds
(in the case of a call) or is less than (in the case of a put) the exercise
price of the option on the futures contract. The potential for loss related to
the purchase of an option on a futures contract is limited to the premium paid
for the option plus transaction costs. Because the value of the option is fixed
at the point of sale, there are no daily cash payments by the purchaser to
reflect changes in the value of the underlying contract; however, the value of
the option changes daily and that change would be reflected in the NAV of the
Fund. The potential for loss related to writing options is unlimited.
The Fund may purchase and write put and call options on futures contracts that
are traded on a U.S. or foreign exchange as a hedge against changes in value of
its portfolio securities, or in anticipation of the purchase of securities, and
may enter into closing transactions with respect to such options to terminate
existing positions. There is no guarantee that such closing transactions can be
effected.
Restrictions on the Use of Futures Contracts and Options on Futures Contracts.
In view of the above considerations, the Fund will comply with the following
restriction when purchasing or selling futures. Aggregate initial margin and
premiums that are required to establish positions other than those considered to
be "bona fide hedging" by the Commodity Futures Trading Commission (the "CFTC")
will not exceed 5% of the Fund's total market value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. In addition, the Fund will not purchase options to the extent that more
than 5% of the value of its total assets would be invested in premiums on open
put option positions.
Upon entering into a futures contract, the Fund will be required to deposit with
the broker an amount of cash or cash equivalents in the range of approximately
5% to 7% of the contract amount (this amount is subject to change by the
exchange on which the contract is traded). This amount, known as "initial
margin", is in the nature of a performance bond or good faith deposit
8
<PAGE>
on the contract and is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent
payments, known as "variation margin", to and from the broker will be made daily
as the price of the index underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to expiration of a
futures contract, the Fund may elect to close the position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.
Swap Agreements. Swap agreements are contracts between parties in which one
party agrees to make periodic payments to the other party based on the change in
market value or level of a specified rate, index or asset. In return, the other
party agrees to make periodic payments to the first party based on the return of
a different specified rate, index or asset. Swap agreements will usually be done
on a net basis, the Fund receiving or paying only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each swap is accrued on a daily basis and an
amount of cash or high liquid securities having an aggregate value at least
equal to the accrued excess is maintained in an account at the Trust's custodian
bank.
The use of interest-rate and index swaps is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio security transactions. These transactions generally do not
involve the delivery of securities or other underlying assets or principal.
Future Developments. The Board may, in the future, authorize the Fund to invest
in securities contracts and investments other than those listed in this
Statement of Additional Information and in the Prospectus, provided they are
consistent with the Fund's investment objective and do not violate any
investment restrictions or policies.
General Considerations and Risks. A discussion of the risks associated with an
investment in the Fund is contained in the Prospectus in the Principal Risk
Factors and the Shareholder Information sections. The discussion below
supplements, and should be read in conjunction with, these sections of the
Prospectus.
An investment in the Fund should be made with an understanding that the value of
the Fund's portfolio securities may fluctuate in accordance with changes in the
financial condition of the issuers of the portfolio securities, the value of
common stocks in general and other factors that affect the market.
An investment in the Fund should also be made with an understanding of the risks
inherent in an investment in equity securities, including the risk that the
financial condition of issuers may become impaired or that the general condition
of the stock market may deteriorate (either of which may cause a decrease in the
value of the portfolio securities and thus in the value of iShares). Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence and perceptions of their
issuers change. These investor perceptions are based on various and
unpredictable factors, including expectations regarding government, economic,
monetary and fiscal policies, inflation and
9
<PAGE>
interest rates, economic expansion or contraction, and global or regional
political, economic or banking crises.
Holders of common stocks incur more risk than holders of preferred stocks and
debt obligations because common stockholders, as owners of the issuer, have
generally inferior rights to receive payments from the issuer in comparison with
the rights of creditors, or holders of debt obligations or preferred stocks.
Further, unlike debt securities which typically have a stated principal amount
payable at maturity (whose value, however, is subject to market fluctuations
prior thereto), or preferred stocks, which typically have a liquidation
preference and which may have stated optional or mandatory redemption
provisions, common stocks have neither a fixed principal amount nor a maturity.
Common stock values are subject to market fluctuations as long as the common
stock remains outstanding.
Although most of the securities in the Underlying Index are listed on a national
securities exchange, the principal trading market for some may be in the over-
the-counter market. The existence of a liquid trading market for certain
securities may depend on whether dealers will make a market in such securities.
There can be no assurance that a market will be made or maintained or that any
such market will be or remain liquid. The price at which securities may be sold
and the value of the Fund's iShares will be adversely affected if trading
markets for the Fund's portfolio securities are limited or absent, or if bid/ask
spreads are wide.
Risks of Futures and Options Transactions. There are several risks accompanying
the utilization of futures contracts and options on futures contracts. First, a
position in futures contracts and options on futures contracts may be closed
only on the exchange on which the contract was made (or a linked exchange).
While the Fund plans to utilize futures contracts only if an active market
exists for such contracts, there is no guarantee that a liquid market will exist
for the contract at a specified time. Furthermore, because, by definition,
futures contracts project price levels in the future and not current levels of
valuation, market circumstances may result in a discrepancy between the price of
the stock index future and the movement in its underlying index. In the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments to maintain its required margin. In such situations, if the Fund
has insufficient cash, it may have to sell portfolio securities to meet daily
margin requirements at a time when it may be disadvantageous to do so. In
addition, the Fund may be required to deliver the instruments underlying future
contracts it has sold.
The risk of loss in trading futures contracts or uncovered call options in some
strategies (e.g., selling uncovered stock index futures contracts) is
potentially unlimited. The Fund does not plan to use futures and options
contracts in this way. The risk of a futures position may still be large as
traditionally measured due to the low margin deposits required. In many cases, a
relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor relative to the size of a required
margin deposit. The Fund, however, intends to utilize futures and options
contracts in a manner designed to limit their risk exposure to levels comparable
to direct investment in stocks.
Utilization of futures and options on futures by the Fund involves the risk of
imperfect or even negative correlation to the Underlying Index if the index
underlying the futures contract differs
10
<PAGE>
from the Underlying Index. There is also the risk of loss by the Fund of margin
deposits in the event of bankruptcy of a broker with whom the Fund has an open
position in the futures contract or option. The purchase of put or call options
will be based upon predictions by BGFA as to anticipated trends, which
predictions could prove to be incorrect.
Because the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations. Certain financial futures
exchanges limit the amount of fluctuation permitted in futures contract prices
during a single trading day. The daily limit establishes the maximum amount by
which the price of a futures contract may vary either up or down from the
previous day's settlement price at the end of a trading session. Once the daily
limit has been reached in a particular type of contract, no trades may be made
on that day at a price beyond that limit. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting the Fund to substantial losses. In the event of adverse price
movements, the Fund would be required to make daily cash payments of variation
margin.
Although the Fund intends to enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time.
Risks of Swap Agreements. The risk of loss with respect to swaps generally is
limited to the net amount of payments that the Fund is contractually obligated
to make. Swap agreements are subject to the risk that the swap counterparty will
default on its obligations. If such a default occurs, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
However, such remedies may be subject to bankruptcy and insolvency laws which
could affect the Fund's rights as a creditor -- e.g. the Fund may not receive
the net amount of payments that it contractually is entitled to receive.
Construction and Maintenance Standards for the Underlying Index
Index Dissemination. The CBOE intends to disseminate every fifteen seconds the
approximate value of the iShares of the Fund. This approximate value should not
be viewed as a "real-time" update of the NAV per iShare of the Fund, because it
may not be calculated in the same manner as the NAV, which is computed once a
day. The Fund is not involved in, or responsible for, the calculation or
dissemination of such amount and makes no warranty as to its accuracy.
A brief description of the Underlying Index on which the Fund is based and the
equity markets in which the Fund is invested is provided below.
The S&P Indices Generally.
Component Selection Criteria. The Standard & Poor's Index Committee is
responsible for the overall management of the S&P Indices. Companies selected
for the indices represent a broad
11
<PAGE>
range of industry segments within the U.S. economy. The starting universe, all
U.S. publicly traded companies, is screened to eliminate ADRs, mutual funds,
limited partnerships, royalty trusts, and REITs. The following criteria are then
analyzed to determine a company's eligibility for inclusion in the indices.
Ownership of a company's outstanding common shares is carefully analyzed in
order to screen out closely held companies. The trading volume of a company's
stock is analyzed to ensure ample liquidity and efficient share pricing. Both
the financial and operating condition of a company are rigorously analyzed.
Issue Changes. A Company will be removed from the S&P Indices as a result of
mergers/acquisitions, bankruptcy, restructuring, or if it is no longer
representative of its industry group. A company is removed from the relevant
index as close as possible to the actual date on which the event occurred. A
company can be removed from an index because it no longer meets current criteria
for inclusion and/or is no longer representative of its industry group. All
replacement companies are selected based on the above component section
criteria.
Index Maintenance. Maintaining the S&P Indices includes monitoring and
completing the adjustments for company additions and deletions, share changes,
stock splits, stock dividends, and stock price adjustments due to restructuring
and spin-offs. Share changes of less than 5% are only updated on a quarterly
basis on the Friday near the end of the calendar quarter. The divisor is
adjusted for changes in company structure to leave the value of the S&P Indices
unaffected. All divisor adjustments are made after the close of trading and
after the calculation of the closing value of the S&P Indices.
Index Availability. The S&P Indices are calculated continuously and widely
disseminated to major data vendors.
S&P 100 Index
Number of Components: 100
Index Description. The S&P 100 Index measures the performance of the large
capitalization sector of the U.S. equity market. It is a subset of the S&P 500
Index. The Index is a capitalization- weighted index representing stocks from a
broad range of industries, chosen for market size, liquidity and industry group
representation. The S&P 100 Index is a widely tracked index for blue-chip
stocks. The S&P 100 serves as the basis for the S&P 100 options contract which
trades on CBOE. The component stocks are weighted according to the total market
value of their outstanding shares. The impact of a component's price change is
proportional to the issue's total market value, which is the share price times
the number of shares outstanding. These are summed for all 100 stocks and
divided by a predetermined base value. The base value of the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The S&P 100 Index represents
approximately 40% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were Microsoft
Corporation, General Electric Company, Cisco Systems Inc., Wal-Mart Stores,
Exxon Mobil Corporation, Intel Corporation, Lucent Technologies, International
Business Machines, Citigroup, Inc. and Oracle Corporation.
12
<PAGE>
Investment Limitations
The Board has adopted as fundamental policies the Fund's investment objectives
and investment restrictions, numbered one through six below. These restrictions
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities. A vote of a majority of the outstanding
voting securities is defined in the 1940 Act as the lesser of (a) 67% or more of
the voting securities present at a fund meeting, if the holders of more than 50%
of the outstanding voting securities are present or represented by proxy, or (b)
more than 50% of outstanding voting securities.
The Fund will not:
1. Concentrate its investments (i.e. hold 25% or more of its total assets in
the stocks of a particular industry or group of industries), except that the
Fund will concentrate to approximately the same extent that the Underlying Index
concentrates in the stocks of such particular industry or group of industries.
For purposes of this limitation, securities of the U.S. Government (including
its agencies and instrumentalities), repurchase agreements collateralized by
U.S. Government securities, and securities of state or municipal governments and
their political subdivisions are not considered to be issued by members of any
industry.
2. Borrow money, except that (i) the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests which might otherwise require the untimely disposition of
securities, and (ii) the Fund may, to the extent consistent with its investment
policies, enter into repurchase agreements, reverse repurchase agreements,
forward roll transactions and similar investment strategies and techniques. To
the extent that it engages in transactions described in (i) and (ii), the Fund
will be limited so that no more than 30% of the value of its total assets
(including the amount borrowed) valued at the time the borrowing is made, is
derived from such transactions.
3. Issue "senior securities" as defined in the 1940 Act and the rules,
regulations and orders thereunder, except as permitted under the 1940 Act and
the rules, regulations and orders thereunder.
4. Make loans. This restriction does not apply to: (i) the purchase of debt
obligations in which the Fund may invest consistent with its investment
objectives and policies; (ii) repurchase agreements and reverse repurchase
agreements; and (iii) loans of its portfolio securities, to the fullest extent
permitted under the 1940 Act.
5. Purchase or sell real estate, real estate mortgages, commodities or
commodity contracts, but this restriction shall not prevent the Fund from
trading in futures contracts and options on futures contracts (including options
on currencies to the extent consistent with the Fund's investment objective and
policies).
13
<PAGE>
6. Engage in the business of underwriting securities issued by other persons,
except to the extent that the Fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as amended (the "Securities Act"),
in disposing of portfolio securities.
In addition to the investment restrictions adopted as fundamental policies, set
forth above, the Fund will not invest in the securities of a company for the
purpose of exercising management or control or purchase or otherwise acquire any
illiquid security, except as permitted under the 1940 Act, which currently
permits up to 15% of the Fund's net assets to be invested in illiquid
securities.
For purposes of the percentage limitation on the Fund's investments in illiquid
securities, foreign equity securities, though not registered under the
Securities Act of 1933, are not deemed illiquid with respect to the Fund if they
are otherwise readily marketable. Such securities ordinarily are considered to
be "readily marketable" if they are traded on an exchange or another organized
market and are not legally restricted from sale by the Fund. BGFA monitors the
liquidity of restricted securities in the Fund's portfolio. In reaching
liquidity decisions, BGFA considers the following factors:
. The frequency of trades and quotes for the security;
. The number of dealers wishing to purchase or sell the security and the
number of other potential purchasers;
. Dealer undertakings to make a market in the security; and
. The nature of the security and the nature of the marketplace in which it
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer).
If any percentage restriction described above is complied with at the time of an
investment, a later increase or decrease in percentage resulting from a change
in values of assets will not constitute a violation of such restriction.
Continuous Offering
The method by which Creation Unit Aggregations of iShares are created and traded
may raise certain issues under applicable securities laws. Because new Creation
Unit Aggregations of iShares are issued and sold by the Fund on an ongoing
basis, at any point a "distribution", as such term is used in the Securities
Act, may occur. Broker-dealers and other persons are cautioned that some
activities on their part may, depending on the circumstances, result in their
being deemed participants in a distribution in a manner which could render them
statutory underwriters and subject them to the prospectus-delivery requirement
and liability provisions of the Securities Act.
14
<PAGE>
For example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with
the Distributor, breaks them down into constituent iShares, and sells such
iShares directly to 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 one is an
underwriter for purposes of the Securities Act must take into account all the
facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be
considered a complete description of all the activities that could lead to a
categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not "underwriters" but
are effecting transactions in 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. Firms that incur a prospectus-delivery obligation with respect to
iShares are reminded that, under the 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 CBOE is satisfied by the fact
that the prospectus is available at the CBOE upon request. The prospectus
delivery mechanism provided in Rule 153 is only available with respect to
transactions on an exchange.
Management
The following information supplements and should be read in conjunction with the
section in the Prospectus entitled Management.
Trustees and Officers. The Board has responsibility for the overall management
and operations of the Fund, including general supervision of the duties
performed by BGFA and other service providers. The Board currently consists of
four (4) Trustees.
<TABLE>
<CAPTION> Principal occupations and
Name (age) Address Position affiliations during the past five years
------------------ -------- ---------------------------------------
<S> <C> <C>
Nathan Most (86)* Trustee, President & Chairman of the Board, iShares, Inc.
PO Box 193 President, (formerly WEBS Index Fund, Inc.) (Since 1996)
Burlingame, CA 94011-0193 Treasurer, Consultant to Barclays Global Investors, American Stock
Principal Exchange and the Hong Kong Stock Exchange
Financial Formerly Senior Vice President American Stock Exchange
Officer (New Product Development) (1976-1996)
Formerly President and Chairman of the Board, Pacific
Commodities Exchange (1973-1976)
Thomas E. Flanigan (51) Trustee President, Thomas E. Flanigan, Inc., a pension and
2155 Promontory Point Lane investment consulting firm (since 1997)
Gold River, CA 95670 Formerly, Chief Investment Officer, California State
Teachers' Retirement System (1985--1997)
Formerly held various positions with New York State
Common Retirement Fund (1964-1985)
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
Richard K. Lyons (39) Trustee Professor, University of California, Berkeley: Haas
350 Barrows Hall School of Business (Since 1993)
Haas School of Business Professor, Columbia University: School of Business &
UC Berkeley School of International Affairs (1987--1993)
Berkeley, CA 94720 Member, Council on Foreign Relations
Consultant: IMF World Bank, Federal Reserve Bank,
European Commission and United Nations
Board of Directors: Matthews International Funds
George G.C. Parker (60) Trustee Associate Dean for Academic Affairs, Director of MBA
Graduate School of Business, Program, Professor, Stanford University: Graduate
Stanford University School of Business (Since 1988)
521 Memorial Way, Room K301 Formerly, Director Executive Education, Stanford
Stanford, CA 94305 Business School (1979-1988)
Board of Directors: Affinity Group, Bailard, Biehl and
Kaiser, Inc., California Casualty Group of Insurance Companies,
Continental Airlines, Inc., Community First Financial Group,
Dresdner/RCM Mutual Funds, H. Warshow & Sons, Inc.
Donna M. McCarthy (33) Assistant Director, (formerly Manager) Mutual Fund Administration,
Investors Bank and Trust Company Treasurer Investors Bank and Trust Company
200 Clarendon Street Formerly, Manager, Business Assurance Group, Coopers &
Boston, MA 02116 Lybrand (1988-1994)
Jeffrey J. Gaboury (31) Assistant Manager, Mutual Fund Administration, Reporting and
Investors Bank and Trust Company Treasurer Compliance, Investors Bank and Trust Company (since 1996)
200 Clarendon Street Formerly, Assistant Manager, Fund Compliance, Scudder,
Boston, MA 02116 Stevens & Clark (1992-1996)
Susan C. Mosher (45) Secretary Director & Senior Counsel, Mutual Fund Administration,
Investors Bank and Trust Company Investors Bank and Trust Company (since 1995)
200 Clarendon Street Formerly, Associate Counsel, 440 Financial Group
Boston, MA 02116 (1992-1995)
Sandra I. Madden (33) Assistant Associate Counsel, Mutual Fund Administration, Investors
Investors Bank and Trust Company Secretary Bank and Trust Company (since 1999)
200 Clarendon Street Formerly, Associate, Scudder Kemper Investments, Inc.
Boston, MA 02116 (1996-1999)
</TABLE>
* Mr. Most is deemed to be an "interested person" (as defined in the 1940 Act)
of the Trust and the Fund. He serves as Director to iShares, Inc., an investment
company with 23 investment portfolios also advised by BGFA, and is a consultant
to BGI.
Remuneration of Trustees and Officers. The Trust pays each Trustee an annual fee
of $50,000 plus a per meeting fee of $500 for meetings of the Board attended by
the Trustee. The Trust also reimburses each Trustee for travel and other out-of-
pocket expenses incurred by him/her in connection with attending such meetings.
Assuming that four (4) regularly scheduled meetings and four (4) special
meetings of the Board are held annually, it is estimated that the compensation
paid to each Trustee during the calendar year ending December 31, 2000 will be:
16
<PAGE>
<TABLE>
<CAPTION>
Pension or Estimated Total Estimated
Aggregate Estimated Retirement Benefits Annual Compensation
Compensation Accrued As Part of Benefits Upon from Fund and
Name of Trustee from the Trust Trust Expenses Retirement Fund Complex *
--------------- ------------------- -------------------- ------------- -----------------
<S> <C> <C> <C> <C>
Nathan Most $54,000 Not Applicable. Not Applicable. $ 121,500
Thomas E. Flanigan $54,000 Not Applicable. Not Applicable. Not Applicable.
Richard K. Lyons $54,000 Not Applicable. Not Applicable. Not Applicable.
George G. C. Parker $54,000 Not Applicable. Not Applicable. Not Applicable.
</TABLE>
* As of May 31, 2000, there were 59 investment companies in the BGFA Fund
Complex.
As of the date of this Prospectus, the Trust has been organized for less than
one full calendar year and therefore does not report the total remuneration for
the preceding fiscal year.
No Trustee or Officer is entitled to any pension or retirement benefits from the
Trust.
Investment Advisor. BGFA serves as investment advisor to the Fund pursuant to an
Investment Advisory Agreement between the Trust and BGFA. BGFA is a California
corporation indirectly owned by Barclays Bank PLC and is registered as an
investment advisor under the Investment Advisers Act of 1940 (the "Advisers
Act"). Under the Investment Advisory Agreement, BGFA, subject to the supervision
of the Board and in conformity with the stated investment policies of the Fund,
manages and administers the Trust and the investment of the Fund's assets. BGFA
is responsible for placing purchase and sale orders and providing continuous
supervision of the investment portfolio of the Fund.
Under the Investment Advisory Agreement, BGFA is responsible for all expenses of
the Trust, including the cost of transfer agency, custody, fund administration,
legal, audit and other services, except interest, taxes, brokerage commissions
and other expenses connected with the execution of portfolio transactions (which
are included in NAV), distribution fees and extraordinary expenses. For its
investment management services to the Fund, BGFA will be paid a management fee
equal to the Fund's allocable portion of the percentage listed below of the
Fund's aggregate net assets.
iShares Index Fund Management Fee
------------------ --------------
iShares S&P 100 Index Fund %
The Investment Advisory Agreement with respect continues in effect for two years
from its effective date, and thereafter is subject to annual approval by (i) the
Board or (ii) vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund, provided that in either event such
continuance also is approved by a majority of the Board who are not interested
persons (as defined in the 1940 Act) of the Fund, by a vote cast in person at a
meeting called for the purpose of voting on such approval.
The Investment Advisory Agreement is terminable without penalty, on 60-days
notice, by the Board or by a vote of the holders of a majority (as defined in
the 1940 Act) of the Fund's outstanding voting securities. The Investment
Advisory Agreement is also terminable upon 60
17
<PAGE>
days notice by BGFA and will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
Current interpretations of federal banking laws and regulations (i) may prohibit
Barclays Bank PLC, Barclays Global Investors, N.A. ("BGI"), and BGFA from
controlling, or underwriting the iShares, but (ii) would not prohibit Barclays
Bank PLC or BGFA generally from acting as an investment adviser, administrator,
transfer agent, or custodian to the Fund or from purchasing iShares as agent for
and upon the order of a customer.
BGFA believes that it may perform advisory and related services for the Trust
without violating applicable banking laws or regulations. However, the legal
requirements and interpretations about the permissible activities of banks and
their affiliates may change in the future. These changes could prevent BGFA from
continuing to perform services for the Trust. If this happens, the Board would
consider selecting other qualified firms. Any new investment advisory agreement
would be subject to shareholder approval.
If current restrictions on bank activities with mutual funds were relaxed, BGFA,
or its affiliates, would consider performing additional services for the Trust.
BGFA cannot predict whether these changes will be enacted, or the terms under
which BGFA, or its affiliates, might offer to provide additional services.
The Trust and BGFA have adopted Codes of Ethics under Rule 17j-1 of the 1940
Act. The Codes permit personnel subject to the Codes to invest in securities,
subject to certain limitations, including securities that may be purchased or
held by the Fund.
Administrator, Custodian, Transfer Agent and Securities Lending Agent. Investors
Bank & Trust Co. ("IBT") serves as Administrator, Custodian, Transfer Agent and
Securities Lending Agent for the Fund. Its principal address is 200 Clarendon
Street, Boston, MA 02111. Under the Administration Agreement with the Trust, IBT
provides necessary administrative and accounting services for the maintenance
and operations of the Trust and the Fund. In addition, IBT makes available the
office space, equipment, personnel and facilities required to provide such
services. Under the Custodian Agreement with the Trust, IBT maintains in
separate accounts cash, securities and other assets of the Trust and the Fund,
keeps all necessary accounts and records, and provides other services. IBT is
required, upon the order of the Trust, to deliver securities held by IBT and to
make payments for securities purchased by the Trust for the Fund. Also, under a
Delegation Agreement, IBT is authorized to appoint certain foreign custodians or
foreign custody managers for Fund investments outside the United States.
Pursuant to a Transfer Agency and Service Agreement with the Trust, IBT acts as
a transfer agent for the Fund's authorized and issued shares of beneficial
interest, and as dividend disbursing agent of the Trust. Under a Securities
Lending Agency Agreement with the Trust, IBT acts as the Trust's agent for the
purpose of lending Trust securities to third parties. As compensation for the
foregoing services, IBT receives certain out-of-pocket costs, transaction fees,
and asset-based fees which are accrued daily and paid monthly.
Distributor. SEI Investments Distribution Company is the Distributor of iShares.
Its principal address is 1 Freedom Valley Drive, Oaks, PA 19456. The Distributor
has entered into a
18
<PAGE>
Distribution Agreement with the Trust pursuant to which it distributes iShares
of the Fund. The Distribution Agreement will continue for two years from its
effective date and is renewable annually thereafter. iShares are continuously
offered for sale by the Fund through the Distributor only in Creation Unit
Aggregations, as described in the Prospectus and below under the heading
Creation and Redemption of Creation Units
Aggregations. iShares in less than Creation Unit Aggregations are not
distributed by the Distributor. The Distributor will deliver the Prospectus and,
upon request, the Statement of Additional Information to persons purchasing
Creation Unit Aggregations 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. ("NASD").
The Distribution Agreement for the Fund provides that it may be terminated at
any time, without the payment of any penalty, on at least 60-days' written
notice to the other party (i) by vote of a majority of the Independent Trustees
or (ii) by vote of a majority of the outstanding voting securities (as defined
in the 1940 Act) of the Fund. The Distribution Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities dealers
("Soliciting Dealers") who will solicit purchases of Creation Unit Aggregations
of iShares. Such Soliciting Dealers may also be Participating Parties (as
defined below), DTC Participants (as defined below) and/or Investor Services
Organizations.
BGFA or BGI may, from time to time and from its own resources, pay, defray or
absorb costs relating to distribution, including payments out of its own
resources to the Distributor or to otherwise promote the sale of iShares.
Index Provider. The Fund will be based upon the S&P 100 Index, which is compiled
and published by Standard & Poor's (a division of the The McGraw-Hill Companies,
Inc.). Standard & Poor's is not affiliated with the Fund or with BGI or its
affiliates. The Fund is entitled to use the Index pursuant to a sub-licensing
agreement with BGI, which in turn has a licensing agreement with Standard &
Poor's. BGI will provide the sub-licenses without charge to the Fund.
Brokerage Transactions
The policy of the Trust regarding purchases and sales of portfolio securities is
that primary consideration will be given to obtaining the most favorable prices
and efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, the Trust's policy is
to pay commissions that are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
In seeking to determine the reasonableness of brokerage commissions paid in any
transaction, BGFA relies upon its experience and knowledge regarding commissions
generally charged by various brokers.
19
<PAGE>
In seeking to implement the Trust's policies, BGFA effects transactions with
those brokers and dealers that BGFA believes provide the most favorable prices
and are capable of providing efficient executions. BGFA and its affiliates do
not participate in soft dollar transactions.
It is expected that the Trust may execute brokerage or other agency transactions
through affiliates that are registered broker-dealers, for commissions, in
conformity with the 1940 Act, the Exchange Act and rules promulgated by the SEC.
Under these provisions, affiliates of BGFA are permitted to receive and retain
compensation for effecting portfolio transactions for the Trust on an exchange
if a written contract is in effect between the affiliate and the Trust expressly
permitting the affiliate of BGFA to receive and retain such compensation. These
rules further require that the commissions paid by the Trust for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Trustees, including
those who are not "interested persons" of the Trust, have adopted procedures for
evaluating the reasonableness of commissions paid and will review these
procedures periodically.
The Trust will not deal with affiliates in principal transactions unless
permitted by the applicable rule or regulation or by exemptive order.
BGFA assumes general supervision over placing orders on behalf of the Fund for
the purchase or sale of portfolio securities. If purchases or sales of portfolio
securities of the Fund and one or more other investment companies or clients
supervised by BGFA 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 BGFA. In some cases, this procedure could
have a detrimental effect on the price or volume of the security as far as the
Fund are 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 Fund. 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 the Fund is expected to be under 50%. The
overall reasonableness of brokerage commissions is evaluated by BGFA based upon
its knowledge of available information as to the general level of commissions
paid by the other institutional investors for comparable services.
Additional Information Concerning the Trust
Capital Stock. The Trust was established as a Delaware business trust on
December 16, 1999. The Trust currently is comprised of 36 funds. Each fund
issues shares of beneficial interest, with no par value. The Board may designate
additional funds.
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<PAGE>
Each iShare issued by the Fund has a pro rata interest in the assets of the
Fund. iShares have no preemptive, exchange, subscription or conversion rights
and are freely transferable. Each iShare is entitled to participate equally in
dividends and distributions declared by the Board with respect to the Fund, and
in the net distributable assets of the Fund on liquidation.
Each iShare has one vote with respect to matters upon which a shareholder vote
is required consistent with the requirements of the 1940 Act and the rules
promulgated thereunder. iShares of all the funds of the Trust vote together as a
single class except that, if the matter being voted on affects only a particular
fund, and, if a matter affects a particular fund differently from other funds,
that fund will vote separately on such matter.
Under Delaware law, the Trust is not required to hold an annual meeting of
shareholders unless required to do so under the 1940 Act. The policy of the
Trust is not to hold an annual meeting of shareholders unless required to do so
under the 1940 Act. All iShares (regardless of the fund) have noncumulative
voting rights for the Board. Under Delaware law, Trustees of the Trust may be
removed by vote of the shareholders.
Following the creation of the initial Creation Unit Aggregation(s) of the Fund's
iShares and immediately prior to the commencement of trading in the Fund's
iShares, a holder of iShares may be a "control person" of the Fund, as defined
in the 1940 Act. The Fund cannot predict the length of time for which one or
more shareholders may remain a control person of the Fund.
The Trust does not have information concerning the beneficial ownership of
iShares held by any Depository Trust Company ("DTC") Participants (as defined
below).
Shareholders may make inquiries by writing to the Trust, c/o the Distributor,
SEI Investments Distribution Company, at 1 Freedom Valley Drive, Oaks, PA 19456.
Absent an applicable exemption or other relief from the SEC or its staff,
officers and Trustees of the Fund and beneficial owners of 10% of the iShares of
the Fund ("Insiders") may be subject to the insider reporting, short-swing
profit and short sale provisions of Section 16 of the Exchange Act and the SEC's
rules promulgated thereunder. Insiders should consult with their own legal
counsel concerning their obligations under Section 16 of the Exchange Act.
Book Entry Only System. The following information supplements and should be read
in conjunction with the section in the Prospectus entitled Shareholder
Information.
DTC Acts as Securities Depository for the iShares. iShares of the Fund are
represented by securities registered in the name of DTC or its nominee and
deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of its
participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities'
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies,
21
<PAGE>
clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC. More specifically, DTC is owned by a number of
its DTC Participants and by the New York Stock Exchange ("NYSE"), the American
Stock Exchange LLC (the "AMEX") and the NASD. 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").
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.
Conveyance of all notices, statements and other communications to Beneficial
Owners is effected as follows. Pursuant to the Depositary Agreement between the
Trust and DTC, DTC is required to make available to the Trust upon request and
for a fee to be charged to the Trust a listing of the iShares of the Fund held
by each DTC Participant. The Trust shall inquire of each such DTC Participant as
to the number of Beneficial Owners holding iShares, directly or indirectly,
through such DTC Participant. The Trust 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 Trust shall pay to each such DTC Participants a fair and reasonable amount
as reimbursement for the expenses attendant to such transmittal, all subject to
applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the
registered holder of all 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 of
the Fund 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 Trust has no responsibility or liability for any aspect of the records
relating to or notices to Beneficial Owners, or payments made on account of
beneficial ownership interests in such 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.
22
<PAGE>
DTC may decide to discontinue providing its service with respect to iShares at
any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action to find a replacement for DTC to
perform its functions at a comparable cost.
Creation and Redemption of Creation Unit Aggregations
Creation. The Trust issues and sells iShares of the Fund only in Creation Unit
Aggregations on a continuous basis through the Distributor, without a sales
load, at their NAVs next determined after receipt, on any Business Day (as
defined below), of an order in proper form.
A "Business Day" with respect to the Fund is any day on which the NYSE is open
for business. As of the date of the Prospectus, the NYSE observes the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday,
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
Fund Deposit. The consideration for purchase of Creation Unit Aggregations of
the Fund generally consists of the in-kind deposit of a designated portfolio of
equity securities -- the "Deposit Securities" -- per each Creation Unit
Aggregation constituting a substantial replication, or a portfolio sampling
representation, of the stocks involved in the Underlying Index ("Fund
Securities") and an amount of cash -- the "Cash Component" -- computed as
described below. Together, the Deposit Securities and the Cash Component
constitute the "Fund Deposit", which represents the minimum initial and
subsequent investment amount for a Creation Unit Aggregation of the Fund.
The Cash Component is sometimes also referred to as the Balancing Amount. The
Cash Component serves the function of compensating for any differences between
the NAV per Creation Unit Aggregation and the Deposit Amount (as defined below).
The Cash Component is an amount equal to the difference between the NAV of the
iShares (per Creation Unit Aggregation) and the "Deposit Amount" -- an amount
equal to the market value of the Deposit Securities. If the Cash Component is a
positive number (i.e., the NAV per Creation Unit Aggregation exceeds the Deposit
Amount), the creator will deliver the Cash Component. If the Cash Component is a
negative number (i.e., the NAV per Creation Unit Aggregation is less than the
Deposit Amount), the creator will receive the Cash Component.
BGFA, through the National Securities Clearing Corporation ("NSCC") (discussed
below), makes available on each Business Day, prior to the opening of business
on the CBOE (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
Fund Deposit (based on information at the end of the previous Business Day) for
the Fund.
Such Fund Deposit is applicable, subject to any adjustments as described below,
in order to effect creations of Creation Unit Aggregations of the Fund until
such time as the next-announced composition of the Deposit Securities is made
available.
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<PAGE>
The identity and number of shares of the Deposit Securities required for the
Fund Deposit for the Fund changes as rebalancing adjustments and corporate
action events are reflected from time to time by BGFA with a view to the Fund's
investment objective. The composition of the Deposit Securities may also change
in response to adjustments to the weighting or composition of the Component
Stocks of the Underlying Index. In addition, the Trust 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 that may not be available in sufficient quantity for delivery or that
may not be eligible for transfer through the systems of DTC or the Clearing
Process (discussed below). The adjustments described above will reflect changes
known to BGFA on the date of announcement to be in effect by the time of
delivery of the Fund Deposit, in the composition of the Underlying Index or
resulting from certain corporate actions.
Procedures for Creation of Creation Unit Aggregations. To be eligible to place
orders with the Distributor and to create a Creation Unit Aggregation of the
Fund, an entity must be (i) a "Participating Party", i.e., a broker-dealer or
other participant in the clearing process through the Continuous Net Settlement
System of the NSCC (the "Clearing Process"), a clearing agency that is
registered with the SEC; or (ii) a DTC Participant (see the Book Entry Only
System section), and, in each case, must have executed an agreement with the
Distributor, with respect to creations and redemptions of Creation Unit
Aggregations ("Participant Agreement") (discussed below). A Participating Party
and DTC Participant are collectively referred to as an "Authorized Participant".
Investors should contact the Distributor for the names of Authorized
Participants that have signed a Participant Agreement. All iShares of the Fund,
however created, will be entered on the records of DTC in the name of Cede & Co.
for the account of a DTC Participant.
All orders to create iShares must be placed for one or more Creation Unit
Aggregations. All orders to create Creation Unit Aggregations, whether through
the Clearing Process (through a Participating Party) or outside the Clearing
Process (through a DTC Participant), must be received by the Distributor no
later than the closing time of the regular trading session on the NYSE ("Closing
Time") (ordinarily 4:00 p.m., Eastern time) in each case on the date such order
is placed in order for creation of Creation Unit Aggregations to be effected
based on the NAV of iShares of the Fund as next determined on such date after
receipt of the order in proper form. The date on which an order to create
Creation Unit Aggregations (or an order to redeem Creation Unit Aggregations, as
discussed below) is placed is referred to as the "Transmittal Date". Orders must
be transmitted by an Authorized Participant by telephone or other transmission
method acceptable to the Distributor pursuant to procedures set forth in the
Participant Agreement, as described below (see the Placement of Creation Orders
for the Fund Using Clearing Process and the Placement of Creation Orders for the
Fund Outside Clearing Process sections). Severe economic or market disruptions
or changes, or telephone or other communication failure may impede the ability
to reach the Distributor or an Authorized Participant.
All orders to create Creation Unit Aggregations shall be placed with an
Authorized Participant, as applicable, in the form required by such Authorized
Participant. In addition, the Authorized Participant may request the investor to
make certain representations or enter into agreements with respect to the order,
e.g., to provide for payments of cash, when required. Investors should be aware
that their particular broker may not have executed a Participant Agreement and
that,
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<PAGE>
therefore, orders to create Creation Unit Aggregations of the Fund have to be
placed by the investor's broker through an Authorized Participant that has
executed a Participant Agreement. In such cases there may be additional charges
to such investor. At any given time, there may be only a limited number of
broker-dealers that have executed a Participant Agreement and only a small
number of such Authorized Participants may have international capabilities.
Those placing orders for Creation Unit Aggregations of the Fund through the
Clearing Process should afford sufficient time to permit proper submission of
the order to the Distributor prior to the Closing Time on the Transmittal Date.
Orders for Creation Unit Aggregations of the Fund that effected outside the
Clearing Process are likely to require transmittal by the DTC Participant
earlier on the Transmittal Date than orders effected using the Clearing Process.
Those persons placing orders outside the Clearing Process should ascertain the
deadlines applicable to DTC and the Federal Reserve Bank wire system by
contacting the operations department of the broker or depository institution
effectuating such transfer of Deposit Securities and Cash Component.
Placement of Creation Orders for the Fund Using Clearing Process. The Clearing
Process is the process of creating or redeeming Creation Unit Aggregations
through the Clearing Process. Fund Deposits made through the Clearing Process
must be delivered through a Participating Party that has executed a Participant
Agreement. The Participant Agreement authorizes the Distributor to transmit
through IBT to NSCC, on behalf of the Participating Party, such trade
instructions as are necessary to effect the Participating Party's creation
order. Pursuant to such trade instructions to NSCC, the Participating Party
agrees to deliver the requisite Deposit Securities and the Cash Component to the
Trust, together with such additional information as may be required by the
Distributor. An order to create Creation Unit Aggregations through the Clearing
Process is deemed received by the Distributor on the Transmittal Date if (i)
such order is received by the Distributor not later than the Closing Time on
such Transmittal Date, and (ii) all other procedures set forth in the
Participant Agreement are properly followed.
Placement of Creation Orders for the Fund Outside Clearing Process. Fund
Deposits made outside the Clearing Process must be delivered through a DTC
Participant that has executed a Participant Agreement preapproved by BGFA and
the Distributor. A DTC Participant who wishes to place an order creating
Creation Unit Aggregations to be effected outside the Clearing Process does not
need to be a Participating Party, but such orders must state that the DTC
Participant is not using the Clearing Process and that the creation of Creation
Unit Aggregations will instead be effected through a transfer of securities and
cash directly through DTC. The Fund Deposit transfer must be ordered by the DTC
Participant on the Transmittal Date in a timely fashion so as to ensure the
delivery of the requisite number of Deposit Securities through DTC to the
account of the Fund by no later than 11:00 a.m., Eastern time, of the second
Business Day immediately following the Transmittal Date.
All questions as to the number of Deposit Securities to be delivered, and the
validity, form and eligibility (including time of receipt) for the deposit of
any tendered securities, will be determined by the Trust, whose determination
shall be final and binding. The amount of cash equal to the Cash Component must
be transferred directly to IBT through the Federal Reserve Bank wire transfer
system in a timely manner so as to be received by IBT no later than 11:00 a.m.,
Eastern time, on the second Business Day immediately following such Transmittal
Date.
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<PAGE>
An order to create Creation Unit Aggregations outside the Clearing Process is
deemed received by the Distributor on the Transmittal Date if (i) such order is
received by the Distributor not later than the Closing Time on such Transmittal
Date; and (ii) all other procedures set forth in the Participant Agreement are
properly followed. However, if IBT does not receive both the required Deposit
Securities and the Cash Component by 11:00 a.m. on the second Business Day
immediately following the Transmittal Date, such order will be canceled. Upon
written notice to the Distributor, such canceled order may be resubmitted the
following Business Day using a Fund Deposit as newly constituted to reflect the
then current NAV of the Fund. The delivery of Creation Unit Aggregations so
created will occur no later than the third (3rd) Business Day following the day
on which the purchase order is deemed received by the Distributor.
An additional charge of up to three (3) times the normal transaction fee (for a
total charge of up to four (4) times the normal transaction fee) may be imposed
with respect to transactions effected outside the Clearing Process (through a
DTC participant) and in the limited circumstances in which any cash can be used
in lieu of Deposit Securities to create Creation Units. This charge is subject
to a limit not to exceed 10/100 of 1% (10 basis points) of the value of one
Creation Unit as the time of creation.
Creation Unit Aggregations of the Fund may be created in advance of receipt by
the Trust of all or a portion of the applicable Deposit Securities as described
below. In these circumstances, the initial deposit will have a value greater
than the NAV of the iShares on the date the order is placed in proper form
since, in addition to available Deposit Securities, cash must be deposited in an
amount equal to the sum of (i) the Cash Component, plus (ii) 125% of the market
value of the undelivered Deposit Securities (the "Additional Cash Deposit"). The
order shall be deemed to be received on the Business Day on which the order is
placed provided that the order is placed in proper form prior to 4:00 p.m.,
Eastern time, on such date and federal funds in the appropriate amount are
deposited with IBT by 11:00 a.m., Eastern time, the following Business Day. If
the order is not placed in proper form by 4:00 p.m. or federal funds in the
appropriate amount are not received by 11:00 a.m. the next Business Day, then
the order may be deemed to be rejected and the Authorized Participant shall be
liable to the Fund for losses, if any, resulting therefrom. An additional amount
of cash shall be required to be deposited with the Trust, pending delivery of
the missing Deposit Securities to the extent necessary to maintain the
Additional Cash Deposit with the Trust in an amount at least equal to 125% of
the daily marked to market value of the missing Deposit Securities. To the
extent that missing Deposit Securities are not received by 11:00 a.m., Eastern
time, on the third Business Day following the day on which the purchase order is
deemed received by the Distributor or in the event a marked-to-market payment is
not made within one Business Day following notification by the Distributor that
such a payment is required, the Trust may use the cash on deposit to purchase
the missing Deposit Securities. Authorized Participants will be liable to the
Trust for the costs incurred by the Trust in connection with any such purchases.
These costs will be deemed to include the amount by which the actual purchase
price of the Deposit Securities exceeds the market value of such Deposit
Securities on the day the purchase order was deemed received by the Distributor
plus the brokerage and related transaction costs associated with such purchases.
The Trust will return any unused portion of the Additional Cash Deposit once all
of the missing Deposit Securities have been properly received by IBT or
purchased by the Trust and deposited into the Trust. In addition, a transaction
fee, as listed below, will be charged in all cases. The delivery of Creation
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<PAGE>
Unit Aggregations so created will occur no later than the third Business Day
following the day on which the purchase order is deemed received by the
Distributor.
Acceptance of Orders for Creation Unit Aggregations. The Trust reserves the
absolute right to reject a creation order transmitted to it by the Distributor
in respect of the Fund if: (i) the order is not in proper form; (ii) the
investor(s), upon obtaining the iShares ordered, would own 80% or more of the
currently outstanding shares of the Fund; (iii) the Deposit Securities delivered
are not as disseminated through the facilities of the CBOE for that date by IBT,
as described above; (iv) acceptance of the Deposit Securities would have certain
adverse tax consequences to the Fund; (v) acceptance of the Fund Deposit would,
in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit
would otherwise, in the discretion of the Trust or BGFA, have an adverse effect
on the Trust or the rights of beneficial owners; or (vii) in the event that
circumstances outside the control of the Trust, IBT, the Distributor or BGFA
make it for all practical purposes impossible to process creation orders.
Examples of such circumstances include acts of God; public service or utility
problems such as fires, floods, extreme weather conditions and power outages
resulting in telephone, telecopy and computer failures; market conditions or
activities causing trading halts; systems failures involving computer or other
information systems affecting the Trust, BGFA, the Distributor, DTC, NSCC, IBT
or sub-custodian or any other participant in the creation process, and similar
extraordinary events. The Distributor shall notify a prospective creator of a
Creation Unit and/or the Authorized Participant acting on behalf of the creator
of a Creation Unit Aggregation of its rejection of the order of such person. The
Trust, IBT, a sub-custodian and the Distributor are under no duty, however, to
give notification of any defects or irregularities in the delivery of Fund
Deposits nor shall any of them incur any liability for the failure to give any
such notification.
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 Trust, and the Trust's
determination shall be final and binding.
Creation Transaction Fee. A purchase transaction fee is imposed for the transfer
and other transaction costs of the Fund associated with the issuance of Creation
Units of iShares. The fee is a single charge and will be the same regardless of
the number of Creation Units purchased by an investor on the same day.
Purchasers of Creation Units of iShares for cash are required to pay an
additional variable charge to compensate for brokerage and market impact
expenses. Where the Trust permits an in-kind purchaser to substitute cash in
lieu of depositing a portion of the Deposit Securities, the purchaser will be
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 Trust. Investors are also responsible
for payment of the costs of transferring the Deposit Securities to the Trust.
Investors who use the services of a broker or other such intermediary may be
charged a fee for such services.
The following table sets forth the creation transaction fee for the Fund.
Maximum Creation
Name of Fund Amount Transaction Fee*
------------- ------ ----------------
iShares S&P 100 Index Fund $500 $2,000
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<PAGE>
* If a Creation Unit is purchased or redeemed outside the usual process through
the National Securities Clearing Corporation or for cash, a variable fee will be
charged of up to four times the Standard Creation or Redemption Transaction Fee.
Redemption of iShares in Creation Units Aggregations. Shares may be redeemed
only in Creation Unit Aggregations at their NAV next determined after receipt of
a redemption request in proper form by the Fund through IBT and only on a
Business Day. The Fund will not redeem iShares in amounts less than Creation
Unit Aggregations. Beneficial Owners must accumulate enough iShares in the
secondary market to constitute a Creation Unit Aggregation in order to have such
iShares redeemed by the Trust. 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 Aggregation. Investors should expect to incur
brokerage and other costs in connection with assembling a sufficient number of
shares to constitute a redeemable Creation Unit Aggregation.
Immediately prior to the opening of business on the CBOE (currently 9:30 a.m.,
Eastern time) on each Business Day BGFA makes available, through the NSCC and
through the Distributor, the identity of the Fund Securities that will be
applicable (subject to possible amendment or correction) to redemption requests
received in proper form (as described below) on that day. Fund Securities
received on redemption may not be identical to Deposit Securities that are
applicable to creations of Creation Unit Aggregations.
Unless cash redemptions are available or specified for the Fund, the redemption
proceeds for a Creation Unit Aggregation generally consist of Fund Securities --
as announced on the Business Day of the request for redemption received in
proper form -- plus cash in an amount equal to the difference between the NAV of
the iShares being redeemed, as next determined after a receipt of a request in
proper form, and the value of the Fund Securities (the "Cash Redemption
Amount"), less a redemption transaction fee as listed below. In the event that
the Fund Securities have a value greater then the NAV of the iShares, a
compensating cash payment equal to the difference is required to be made by or
through an Authorized Participant by the redeeming shareholder.
The right of redemption may be suspended or the date of payment postponed with
respect to the Fund (i) for any period during which the NYSE is closed (other
than customary weekend and holiday closings); (ii) for any period during which
trading on the NYSE is suspended or restricted; (iii) for any period during
which an emergency exists as a result of which disposal of the iShares of the
Fund or determination of its NAV is not reasonably practicable; or (iv) in such
other circumstances as is permitted by the SEC.
Redemption Transaction Fee. A redemption transaction fee is imposed to offset
transfer and other transaction costs that may be incurred by the Fund. The fee
is a single charge and will be the same regardless of the number of Creation
Units redeemed by an investor on the same day. The redemption transaction fees
for redemptions in kind and for cash and the additional variable charge for cash
redemptions (when cash redemptions are available or specified) are listed below.
Investors will also bear the costs of transferring the Fund Securities from the
Trust 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.
The following table sets forth the redemption transaction fee for the Fund.
28
<PAGE>
Maximum
Redemption
Name of Fund Amount Transaction Fee
------------ ------ ---------------
iShares S&P 100 Index Fund $500 $2,000
Placement of Redemption Orders for the Fund Using Clearing Process. Orders to
redeem Creation Unit Aggregations of the Fund through the Clearing Process must
be delivered through a Participating Party that has executed the Participant
Agreement. An order to redeem Creation Unit Aggregations using the Clearing
Process is deemed received by the Trust on the Transmittal Date if (i) such
order is received by IBT not later than 4:00 p.m., Eastern time, on such
Transmittal Date, and (ii) all other procedures set forth in the Participant
Agreement are properly followed; such order will be effected based on the NAV of
the Fund as next determined. An order to redeem Creation Unit Aggregations using
the Clearing Process made in proper form but received by the Trust after 4:00
p.m., Eastern time, will be deemed received on the next Business Day immediately
following the Transmittal Date and will be effected at the NAV next determined
on such Business Day. The requisite Fund Securities and the Cash Redemption
Amount will be transferred by the third NSCC Business Day following the date on
which such request for redemption is deemed received.
Placement of Redemption Orders for the Fund Outside Clearing Process. Orders to
redeem Creation Unit Aggregations of the Fund outside the Clearing Process must
be delivered through a DTC Participant that has executed the Participant
Agreement. A DTC Participant who wishes to place an order for redemption of
Creation Unit Aggregations to be effected outside the Clearing Process does not
need to be a Participating Party, but such orders must state that the DTC
Participant is not using the Clearing Process and that redemption of Creation
Unit Aggregations will instead be effected through transfer of iShares directly
through DTC. An order to redeem Creation Unit Aggregations outside the Clearing
Process is deemed received by the Trust on the Transmittal Date if (i) such
order is received by IBT not later than 4:00 p.m., Eastern time, on such
Transmittal Date; (ii) such order is accompanied or followed by the requisite
number of iShares of the Fund specified in such order, which delivery must be
made through DTC to IBT no later than 11:00 a.m., Eastern time, on the next
Business Day immediately following such Transmittal Date (the "DTC Cut-Off-
Time"); and (iii) all other procedures set forth in the Participant Agreement
are properly followed. After the Trust has deemed an order for redemption
outside the Clearing Process received, the Trust will initiate procedures to
transfer the requisite Fund Securities which are expected to be delivered within
three Business Days and the Cash Redemption Amount to the Authorized Participant
on behalf of the redeeming Beneficial Owner by the third Business Day following
the Transmittal Date on which such redemption order is deemed received by the
Trust.
To the extent contemplated by an Authorized Participant's agreement, in the
event the Authorized Participant has submitted a redemption request in proper
form but is unable to transfer all or part of the Creation Unit Aggregation to
be redeemed to the Distributor, on behalf of the Fund, at or prior to the
closing time of the regular trading session on the CBOE on the date such
redemption request is submitted, 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 (marked to market
29
<PAGE>
daily) at least equal to 125% of the value of the missing iShares. The 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 IBT and marked to market daily, and that
the fees of IBT and any sub-custodians in respect of the delivery, maintenance
and redelivery of the cash collateral shall be payable by the Authorized
Participant. The Authorized Participant's agreement will permit the Trust, on
behalf of the Fund, to purchase the missing iShares or acquire the Deposit
Securities and the Cash Component underlying such shares at any time and will
subject the Authorized Participant to liability for any shortfall between the
cost to the Trust of purchasing such shares, Deposit Securities or Cash
Component and the value of the collateral.
The calculation of the value of the Fund Securities and the Cash Redemption
Amount to be delivered upon redemption will be made by IBT according to the
procedures set forth under Determination of NAV computed on the Business Day on
which a redemption order is deemed received by the Trust. Therefore, if a
redemption order in proper form is submitted to IBT by a DTC Participant not
later than Closing Time on the Transmittal Date, and the requisite number of
iShares of the Fund are delivered to IBT prior to the DTC Cut-Off- Time, then
the value of the Fund Securities and the Cash Redemption Amount to be delivered
will be determined by IBT on such Transmittal Date. If, however, a redemption
order is submitted to IBT by a DTC Participant not later than the Closing Time
on the Transmittal Date but either (i) the requisite number of iShares of the
Fund are not delivered by the DTC Cut-Off-Time, as described above, on such
Transmittal Date, or (ii) the redemption order is not submitted in proper form,
then the redemption order will not be deemed received as of the Transmittal
Date. In such case, the value of the Fund Securities and the Cash Redemption
Amount to be delivered will be computed on the Business Day that such order is
deemed received by the Trust, i.e., the Business Day on which the iShares of the
Fund are delivered through DTC to IBT by the DTC Cut-Off-Time on such Business
Day pursuant to a properly submitted redemption order.
If it is not possible to effect deliveries of the Fund Securities, the Trust may
in its discretion exercise its option to redeem such iShares in cash, and the
redeeming Beneficial Owner will be required to receive its redemption proceeds
in cash. In addition, an investor may request a redemption in cash that the Fund
may, in its sole discretion, permit. In either case, the investor will receive a
cash payment equal to the NAV of its iShares based on the NAV of the Fund next
determined after the redemption request is received in proper form (minus a
redemption transaction fee and additional charge for requested cash redemptions
specified above, to offset the Trust's brokerage and other transaction costs
associated with the disposition of Fund Securities). The Fund may also, in its
sole discretion, upon request of a shareholder, provide such redeemer a
portfolio of securities that differs from the exact composition of the Fund
Securities but does not differ in NAV.
Redemptions of iShares for Fund Securities will be subject to compliance with
applicable federal and state securities laws and the Fund (whether or not it
otherwise permits cash redemptions) reserves the right to redeem Creation Unit
Aggregations for cash to the extent that the Trust could not lawfully deliver
specific Fund Securities upon redemptions or could not do so without first
registering the Fund Securities under such laws. An Authorized Participant or an
investor for which it is acting subject to a legal restriction with respect to a
particular stock included in
30
<PAGE>
the Fund Securities applicable to the redemption of a Creation Unit Aggregation
may be paid an equivalent amount of cash. The Authorized Participant may request
the redeeming Beneficial Owner of the iShares to complete an order form or to
enter into agreements with respect to such matters as compensating cash payment.
Taxes
The following information also supplements and should be read in conjunction
with the section in the Prospectus entitled Taxes.
The Fund intends to qualify for and to elect treatment as a separate Regulated
Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (the
"Code"). To qualify for treatment as a RIC, a company must annually distribute
at least 90% 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: (i) at least 90%
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 (ii) at the close of each quarter of the company's taxable year, (a) at
least 50% 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% 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 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).
The Fund will be subject to a 4% excise tax on certain undistributed income if
it does not distribute to its shareholders in each calendar year at least 98% of
its ordinary income for the calendar year plus 98% of its capital gain net
income for the twelve months ended October 31 of such year. The Fund intends to
declare and distribute dividends and distributions in the amounts and at the
times necessary to avoid the application of this 4% excise tax.
If the Fund holds or comes to hold foreign securities, it may be subject to
foreign income taxes withheld at source. If the Fund is permitted to do so, it
will elect to "pass through" to its investors the amount of foreign income taxes
paid by the Fund provided that the investor held the iShares of the Fund, and
the 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 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 Fund's
foreign income taxes. A foreign tax credit may not exceed the investor's U.S.
federal
31
<PAGE>
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 Fund and (ii)
the portion of any dividend paid by the Fund that represents income derived from
foreign sources; the 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 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 Fund's foreign income taxes.
If the Fund owns shares in certain foreign investment entities, referred to as
"passive foreign investment companies", the Fund will be subject to one of the
following special tax regimes: (i) the 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 Fund
as a dividend to its shareholders; (ii) if the Fund were able and elected to
treat a passive foreign investment company as a "qualified electing fund", the
Fund would be required each year to include in income, and distribute to
shareholders in accordance with the distribution requirements set forth above,
the 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 Fund; or (iii) the Fund may be entitled to mark-to-market
annually the shares of the passive foreign investment company, and, in such
event, would be required to distribute to shareholders any such mark-to-market
gains in accordance with the distribution requirements set forth above.
The Trust on behalf of the 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 the Fund and
if, pursuant to section 351 of the Code, the Fund would have a basis in the
securities different from the market value of such securities on the date of
deposit. The Trust also has the right to require information necessary to
determine beneficial share ownership for purposes of the 80% determination.
The foregoing discussion is a summary only and is not intended as a substitute
for careful tax planning. Purchasers of iShares should consult their own tax
advisors as to the tax consequences of investing in such shares, including under
state, local and foreign tax laws. Finally, the foregoing discussion is based on
applicable provisions of the 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.
Federal Tax Treatment of Futures and Options Contracts. The Fund is required,
for federal income tax purposes, to mark-to-market and recognize as income for
each taxable year its net unrealized gains and losses on certain futures and
options contracts as of the end of the year as well as those actually realized
during the year. Gain or loss from futures and options contracts on broad-based
indices required to be marked-to-market will be 60% long-term and 40% short-
term capital gain or loss. Application of this rule may alter the timing and
character of distributions to shareholders. The Fund may be required to defer
the recognition of losses on futures contracts,
32
<PAGE>
option contracts and swaps to the extent of any unrecognized gains on offsetting
positions held by the Fund.
In order for the Fund to continue to qualify for federal income tax treatment as
a RIC, 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 Fund's business of investing in securities.
It is anticipated that any net gain realized from the closing out of futures or
options contracts will be considered qualifying income for purposes of the 90%
requirement.
The Fund intends to distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes (including unrealized
gains at the end of the Fund's fiscal year) on futures or options transactions.
Such distributions are combined with distributions of capital gains realized on
the Fund's other investments and shareholders are advised on the nature of the
distributions.
The foregoing is only a summary of certain material tax consequences affecting
the Fund and shareholders. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in the Fund.
Determination of NAV
The following information supplements and should be read in conjunction with the
section in the Prospectus entitled Determining NAV.
The NAV per iShare of the Fund is computed by dividing the value of the net
assets of the Fund (i.e., the value of its total assets less total liabilities)
by the total number of iShares of the Fund outstanding, rounded to the nearest
cent. Expenses and fees, including without limitation, the management,
administration and distribution fees, are accrued daily and taken into account
for purposes of determining NAV. The NAV of per iShare for the Fund is
calculated by IBT and determined as of the close of the regular trading session
on the NYSE (ordinarily 4:00 p.m., Eastern time) on each day that such exchange
is open.
In computing the Fund's NAV, the Fund's securities holdings 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 BGFA in accordance with procedures adopted by the
Board.
Dividends and Distributions
The following information supplements and should be read in conjunction with the
section in the Prospectus entitled Shareholder Information.
33
<PAGE>
General Policies. Dividends from net investment income, if any, are declared and
paid at least annually by the Fund. Distributions of net realized securities
gains, if any, generally are declared and paid once a year. The Trust reserves
the right to declare special distributions if, in its reasonable discretion,
such action is necessary or advisable to preserve the status of the Fund as a
RIC or to avoid imposition of income or excise taxes on undistributed income.
Dividends and other distributions on iShares are distributed, as described
below, on a pro rata basis to Beneficial Owners of such iShares. Dividend
payments are made through DTC Participants and Indirect Participants to
Beneficial Owners then of record with proceeds received from the Fund.
Dividend Reinvestment Service. No reinvestment service is provided by the Trust.
Broker-dealers may make available the DTC book-entry Dividend Reinvestment
Service for use by Beneficial Owners of Fund for reinvestment of their dividend
distributions. Beneficial Owners should contact their broker to determine the
availability and costs of the service and the details of participation therein.
Brokers may require Beneficial Owners to adhere to specific procedures and
timetables. If this service is available and used, dividend distributions of
both income and realized gains will be automatically reinvested in additional
whole iShares of the Fund purchased in the secondary market.
Performance and Other Information
The performance of the Fund may be quoted in advertisements, sales literature or
reports to shareholders in terms of average annual total return and cumulative
total return.
Quotations of average annual total return are expressed in terms of the average
annual rate of return of a hypothetical investment in the Fund over periods of
1, 5 and 10 years (or the life of the Fund, if shorter). Such total return
figures will reflect the deduction of a proportional share of the Fund's
expenses on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.
Average annual 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 or fractional portion).
Quotations of a cumulative total return will be calculated for any specified
period by assuming a hypothetical investment in the 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 the Trust does not make a dividend
reinvestment option 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 will
not be expressed in terms of an average rate of return.
34
<PAGE>
Quotations of cumulative total return or average annual total return reflect
only the performance of a hypothetical investment in the Fund during the
particular time period on which the calculations are based. Such quotations for
the Fund will vary based on changes in market conditions and the level of the
Fund's expenses, and no reported performance figure should be considered an
indication of performance that may be expected in the future.
The cumulative and average total returns do not take into account federal or
state income taxes which may be payable; total returns would, of course, be
lower if such charges were taken into account.
Whenever the Trust calculates total return using the market values of iShares as
reported by the CBOE, it will also calculate a similar total return using the
Fund's NAV. The Trust may also provide reported closing price data for iShares
and calculations of any applicable premiums or discounts against NAV on its
website and in the Trust prospectuses and annual reports.
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner.
Because there are different methods for calculating performance, investors
should consider the effects of the methods used to calculate performance when
comparing performance of the Fund with performance quoted with respect to other
investment companies or types of investments.
Because some of the Fund's investments may be denominated in foreign currencies,
the strength or weakness of the U.S. dollar as against these currencies may
account for part of the Fund's investment performance. Historical information on
the value of the dollar versus foreign currencies may be used from time to time
in advertisements. 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 Fund 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 Fund'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 Fund 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 Fund 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
35
<PAGE>
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
. International Finance Corporation's (Global) Composite and (Investable)
Composite Indices
. Morgan Stanley Capital International Indices
. NASDAQ Composite Index
. Wilshire 5000 Stock Index
Miscellaneous Information
Counsel. Morgan, Lewis & Bockius, LLP, Washington, D.C., is counsel to the
Trust.
Independent Auditors. PricewaterhouseCoopers LLP, located at 333 Market Street,
San Francisco, CA 94105, serve as the independent auditors and accountants of
the Trust. They audit the funds' financial statements and perform other related
audit services.
Financial Statements. The Fund is newly organized and has no financial
statements at this time.
36
<PAGE>
Part C
Other Information
Item 23 Exhibits
Exhibit Number Description
(a) Agreement and Declaration of Trust (1)
(b) Amended and Restated By-Laws (1)
(c) Not applicable
(d.1) Investment Advisory Agreement between the Trust and
Barclays Global Fund Advisors (1)
(d.2) Investment Advisory Agreement between the Trust and
Barclays Global Fund Advisors for iShares S&P 100 Index
Fund - to be filed by amendment
(e.1) Distribution Agreement between the Trust and SEI
Investments Distribution Company (1)
(e.2) Form of Authorized Participant Agreement (1)
(f) Not applicable
(g.1) Custodian Agreement between the Trust and Investors Bank
& Trust (1)
(g.2) Custodian Agreement between the Trust and Investors
Bank & Trust for iShares S&P 100 Index Fund - to be
filed by amendment
(g.3) Securities Lending Agency Agreement between Investors
Bank & Trust and the Trust (1)
(g.4) Delegation Agreement between the Trust and Investors
Bank & Trust (1)
(h.1) Administration Agreement between the Trust and Investors
Bank & Trust (1)
(h.2) Administration Agreement between the Trust and Investors
Bank & Trust for iShares S&P 100 Index Fund - to be
filed by amendment
(h.3) Transfer Agency and Service Agreement between the Trust
and Investors Bank & Trust (1)
(h.4) Transfer Agency and Service Agreement between the Trust
and Investors Bank & Trust - to be filed by amendment
(h.5) Sublicence Agreement between Barclays Global Investors,
N.A. and the Trust for S&P Funds (1)
(h.6) Sublicence Agreement between Barclays Global Investors,
N.A. and the Trust for Dow Jones Funds (1)
(h.7) Sublicence Agreement between Barclays Global Investors,
N.A. and the Trust for Russell Funds (1)
(h.8) Sublicence Agreement between Barclays Global Investors,
N.A. and the Trust for S&P Funds for iShares S&P 100
Index Fund - to be filed by amendment
(i) Legal Opinion and Consent of Counsel (1)
<PAGE>
(j.1) Consent of Independent Accountants (1)
(j.2) Power of Attorney (1)
(k) Not Applicable
(l.1) Subscription Agreement between the Trust and SEI
Investments Distribution Company (1)
(1.2) Letter of Representations between the Trust and
Depository Trust Company (1)
(1.3) Letter of Representations between the Trust and
Depository Trust Company for iShares S&P 100 Index
Fund - to be filed by amendment
(m) Not applicable
(n) Not applicable
(o) Not applicable
(p.i) iShares Trust Code of Ethics (1)
(p.ii) Barclays Global Investors, N.A.
Code of Ethics (1)
__________________
(1) Exhibit is incorporated herein by reference to the Post-Effective Amendment
No. 2, filed May 12, 2000, to the Trust's initial registration statement on
Form N-1A.
Item 24 Persons Controlled By or Under Common Control with Registrant
None
Item 25 Indemnification
The Trust is organized as a Delaware business trust and is operated
pursuant to an Agreement and Declaration of Trust, (the "Declaration of Trust"),
that permits the Trust to indemnify its trustees and officers under certain
circumstances. Such indemnification, however, is subject to the limitations
imposed by the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended. The Declaration of Trust provides that officers and
trustees of the Trust shall be indemnified by the Trust against liabilities and
expenses incurred or paid in connection with any claim, action, suit, or
proceedings against them by reason of the fact that they each serve as an
officer or trustee of the Trust or as an officer or trustee of another entity at
the request of the entity. This indemnification is subject to the following
conditions:
<PAGE>
(a) no trustee or officer of the Trust is indemnified against any liability to
the Trust or its security holders that was the result of any willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office;
(b) officers and trustees of the Trust are indemnified only for actions taken in
good faith which the officers and trustees believed were in or not opposed to
the best interests of the Trust; and
The Declaration of Trust provides that if indemnification is not ordered by a
court, indemnification may be authorized upon determination by shareholders, or
by a majority vote of a quorum of the trustees who were not parties to the
proceedings or, if this quorum is not obtainable, if directed by a quorum of
disinterested trustees, or by independent legal counsel in a written opinion,
that the persons to be indemnified have met the applicable standard.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Trust pursuant to foregoing provisions, or otherwise, the Trust
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for Fund expenses incurred or paid by a director, officer or
controlling person of the Fund in the successful defense of any action, suit or
proceeding is asserted by such director, officer or controlling person in
connection with the securities being registered, the Trust will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 26. (a) Business and Other Connections of Investment Adviser
The Trust is advised by Barclays Global Fund Advisors ("BGFA"), a wholly
owned subsidiary of Barclays Global Investors, N.A. ("BGI"), 45 Fremont Street,
San Francisco, CA 94105. BGFA's business is that of a registered investment
adviser to certain open-end, management investment companies and various other
institutional investors.
The directors and officers of BGFA consist primarily of persons who during
the past two years have been active in the investment management business. Each
of the directors and executive officers of BGFA will also have substantial
responsibilities as directors and/or officers of BGI. To the knowledge of the
Registrant, except as set forth below, none of the directors or executive
officers of BGFA is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.
<PAGE>
Name and Position Principal Business(es) During the last Two Fiscal
Years
Patricia Dunn Director of BGFA and Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Garrett F. Bouton Chairman of the Board of Directors of BGFA and Chief
Chairman Operating Officer and Director of BGI
45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Director of BGFA and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI
Chief Financial 45 Fremont Street San Francisco, CA 94105
Officer
Item 27 Principal Underwriters
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or investment
adviser.
The Fund's distributor, SEI Investments Distribution Company (the
"Distributor"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc November 1, 1992
First American Investment Funds, Inc November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds June 1, 1993
The PBHG Funds, Inc July 16, 1993
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
STI Classic Variable Trust August 18, 1995
<PAGE>
ARK Funds November 1, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc April 1, 1997
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc June 29, 1998
CNI Charter Funds April 1, 1999
Armada Advantage Fund May 1, 1999
Amerindo Funds Inc. July 13, 1999
Huntington VA Funds October 15, 1999
Friends Ivory Funds December 16, 1999
SEI Insurance Products Trust March 29, 2000
iShares MSCI Index Fund, Inc. March 27, 2000
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement and consulting services
and automated execution, clearing and settlement of securities transactions.
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business address of
each director or officer is 1 Freedom Valley Drive, Oaks, PA 19456.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Name Position and Office Positions and Office
with Underwriter with Registrant
--------------------------------------------------------------------------------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors None
Richard B. Lieb Director, Executive Vice President None
Carmen V. Romeo Director None
Mark J. Held President & Chief Operating Officer None
Gilbert L. Beebower Executive Vice President None
Dennis J. McGonigle Executive Vice President None
Robert M. Silvestri Chief Financial Officer & Treasurer None
Leo J. Dolan, Jr Senior Vice President None
Carl A. Guarino Senior Vice President None
Jack May Senior Vice President None
Hartland J. McKeown Senior Vice President None
Kevin P. Robins Senior Vice President & General Counsel None
</TABLE>
<PAGE>
Patrick K. Walsh Senior Vice President None
Robert Aller Vice President None
Todd Cipperman Senior Vice President & General Counsel None
S. Courtney E. Collier Vice President & Assistant Secretary None
Robert Crudup Vice President & Managing Director None
Richard A. Deak Vice President & Assistant Secretary None
Barbara Doyne Vice President None
Jeff Drennen Vice President None
James R. Foggo Vice President & Assistant Secretary None
Vic Galef Vice President & Managing Director None
Lydia A. Gavalis Vice President & Assistant Secretary None
Greg Gettinger Vice President & Assistant Secretary None
Kathy Heilig Vice President None
Jeff Jacobs Vice President None
Samuel King Vice President None
Kim Kirk Vice President & Managing Director None
John Krzeminski Vice President & Managing Director None
Carolyn McLaurin Vice President & Managing Director None
Mark Nagle Vice President None
Joanne Nelson Vice President None
Cynthia M. Parrish Vice President & Secretary None
Rob Redican Vice President None
Maria Rinehart Vice President None
Steve Smith Vice President None
Daniel Spaventa Vice President None
Kathryn L. Stanton Vice President None
Lynda J. Striegel Vice President & Assistant Secretary None
Lori L. White Vice President & Assistant Secretary None
Wayne M. Withrow Senior Vice President & Managing Director None
Timothy Barto Vice President & Assistant Secretary None
Christine McCullogh Vice President & Assistant Secretary None
Item 28 Location of Accounts and Records
(a) The Fund maintains accounts, books and other documents required by Section
31(a) of the Investment Company Act of 1940 and the rules thereunder
(collectively, the "Records") at the offices of Investors Bank & Trust, 200
Clarendon Street, Boston, MA 02116.
(b) BGFA maintains all Records relating to its services as advisor at 45
Fremont Street, San Francisco, CA, 94105.
(c) SEI Investments Distributor Company maintains all Records relating to its
services as distributor at 1 Freedom Valley Drive, Oaks, PA 19456.
<PAGE>
(d) IBT maintains all Records relating to its services as transfer agent, fund
accountant and custodian at 200 Clarendon Street, Boston, MA 02116.
Item 29 Management Services.
Not applicable.
Item 30 Undertaking
Not applicable.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act, the Registrant has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of San Francisco and the State of California on the 15th
day of June, 2000.
By: /s/ Nathan Most
-------------------------------------
Nathan Most
President and Treasurer
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacity and on the dates indicated.
Thomas E. Flanigan
-------------------------------------
Thomas E. Flanigan
Trustee
Richard K. Lyons
-------------------------------------
Richard K. Lyons
Trustee
George G. C. Parker
-------------------------------------
George G. C. Parker
Trustee
By: /s/ Danell Doty
-------------------------------------
Danell Doty
Attorney in fact
Date: June 16, 2000
By: /s/ Nathan Most
-------------------------------------
Nathan Most
Trustee, President and Treasurer
Date: June 15, 2000
<PAGE>
Exhibit Index
Exhibit Number Description
(a) Agreement and Declaration of Trust (1)
(b) Amended and Restated By-Laws (1)
(c) Not applicable
(d) Investment Advisory Agreement between the Trust and
Barclays Global Fund Advisors - to be filed by amendment
(e.1) Distribution Agreement between the Trust and SEI
Investments Distribution Company (1)
(e.2) Form of Authorized Participant Agreement (1)
(f) Not applicable
(g.1) Custodian Agreement between the Trust and Investors
Bank & Trust - to be filed by amendment
(g.2) Securities Lending Agency Agreement between
Investors Bank & Trust and the Trust (1)
(g.3) Delegation Agreement between the Trust and
Investors Bank & Trust (1)
(h.1) Administration Agreement between the Trust and
Investors Bank & Trust - to be filed by amendment
(h.2) Transfer Agency and Service Agreement between the Trust
and Investors Bank & Trust - to be filed by amendment
(h.3) Sublicense Agreement between Barclays Global Investors,
N.A. and the Trust for S&P Funds - to be filed by
amendment
(i) Legal Opinion and Consent of Counsel - to be filed by
amendment
(j.1) Consent of Independent Accountants to be filed by
amendment
(j.2) Power of Attorney (1)
(k) Not Applicable
<PAGE>
(l.1) Subscription Agreement between the Trust and SEI
Investments Distribution Company (1)
(1.2) Letter of Representations between the Trust and
Depository Trust Company - to be filed by amendment
(m) Not applicable
(n) Not applicable
(o) Not applicable
(p.i) iShares Trust Code of Ethics (1)
(p.ii) Barclays Global Investors, N.A.
Code of Ethics (1)
__________________
(1) Exhibit is incorporated herein by reference to the Post-Effective Amendment
No. 2, filed May 12, 2000, to the Trust's initial registration statement on
Form N-1A.
