<PAGE>
iShares Trust
Statement of Additional Information
Dated May 12, 2000
(as revised December 15, 2000)
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Prospectus dated May 12, 2000 as revised on October 26,
2000 (the "Prospectus") for the iShares Trust (the "Trust"), 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 or calling 1-800-iShares.
<PAGE>
Table of Contents
<TABLE>
<S> <C>
General Description of the Trust and its Funds........................................... 1
Exchange Listing and Trading............................................................. 3
Investment Strategies and Risks.......................................................... 5
Lack of Diversification of Certain Funds................................................. 6
Loans of Portfolio Securities............................................................ 7
Repurchase Agreements.................................................................... 7
Reverse Repurchase Agreements............................................................ 8
Currency Transactions.................................................................... 8
Money Market Instruments................................................................. 9
Foreign Securities....................................................................... 9
Investment Companies, REITs.............................................................. 9
Illiquid Securities...................................................................... 10
Futures and Options...................................................................... 10
Options on Futures Contracts............................................................. 10
Restrictions on the Use of Futures Contracts and Options on Futures Contracts............ 10
Swap Agreements.......................................................................... 11
Future Developments...................................................................... 11
General Considerations and Risks......................................................... 11
Risks of Futures and Options Transactions................................................ 12
Risks of Swap Agreements................................................................. 13
Construction and Maintenance Standards for the Underlying Indices........................ 14
Index Dissemination...................................................................... 14
The S&P Indices Generally................................................................ 14
S&P 500 Index............................................................................ 14
S&P 500/BARRA Growth Index............................................................... 15
S&P 500/BARRA Value Index................................................................ 15
S&P MidCap 400 Index..................................................................... 16
S&P MidCap 400/BARRA Growth Index........................................................ 16
S&P MidCap 400/BARRA Value Index......................................................... 16
S&P SmallCap 600 Index................................................................... 17
S&P SmallCap 600/BARRA Growth Index...................................................... 17
S&P SmallCap 600/BARRA Value Index....................................................... 17
S&P 100 Index............................................................................ 18
S&P Global 100 Index Fund................................................................ 18
S&P Europe 350 Index..................................................................... 19
S&P/TSE 60 Index......................................................................... 19
The Dow Jones Indices Generally.......................................................... 19
Dow Jones U.S. Total Market Index........................................................ 20
Dow Jones U.S. Basic Materials Sector Index.............................................. 20
Dow Jones U.S. Consumer Cyclical Sector Index............................................ 21
Dow Jones U.S. Consumer Non-Cyclical Sector Index........................................ 21
Dow Jones U.S. Energy Sector Index....................................................... 21
Dow Jones U.S. Financial Sector Index.................................................... 22
Dow Jones U.S. Healthcare Sector Index................................................... 22
Dow Jones U.S. Industrial Sector Index................................................... 22
Dow Jones U.S. Technology Sector Index................................................... 23
Dow Jones U.S. Telecommunications Sector Index........................................... 23
Dow Jones U.S. Utilities Sector Index.................................................... 24
Dow Jones U.S. Chemicals Index........................................................... 24
Dow Jones U.S. Financial Services Index.................................................. 24
Dow Jones U.S. Internet Index............................................................ 25
Dow Jones U.S. Real Estate Index......................................................... 25
The Russell Indices Generally............................................................ 25
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Russell 3000 Index....................................................................... 26
Russell 3000 Growth Index................................................................ 26
Russell 3000 Value Index................................................................. 27
Russell 2000 Index....................................................................... 27
Russell 2000 Growth Index................................................................ 28
Russell 2000 Value Index................................................................. 28
Russell 1000 Index....................................................................... 28
Russell 1000 Growth Index................................................................ 29
Russell 1000 Value Index................................................................. 29
Investment Limitations................................................................... 30
Continuous Offering...................................................................... 32
Management............................................................................... 33
Trustees and Officers.................................................................... 33
Remuneration of Trustees and Officers.................................................... 34
Investment Advisor....................................................................... 34
Administrator, Custodian, Transfer Agent and Securities Lending Agent.................... 36
Distributor.............................................................................. 37
Index Providers.......................................................................... 37
Brokerage Transactions................................................................... 38
Additional Information Concerning the Trust.............................................. 39
Capital Stock............................................................................ 39
Book Entry Only System................................................................... 39
DTC Acts as Securities Depository for the iShares........................................ 39
Creation and Redemption of Creation Unit Aggregations.................................... 41
Creation................................................................................. 41
Fund Deposit............................................................................. 41
Procedures for Creation of Creation Unit Aggregations.................................... 42
Placement of Creation Orders for Domestic Funds Using Clearing Process................... 43
Placement of Creation Orders for Domestic Funds Outside Clearing Process................. 43
Placement of Creation Orders for Foreign Funds........................................... 44
Acceptance of Orders for Creation Unit Aggregations...................................... 45
Creation Transaction Fee................................................................. 46
Redemption of iShares in Creation Unit Aggregations...................................... 47
Redemption Transaction Fee............................................................... 47
Placement of Redemption Orders for Domestic Funds Using Clearing Process................. 49
Placement of Redemption Orders for Domestic Funds Outside Clearing Process............... 49
Placement of Redemption Orders for Foreign Funds......................................... 49
Foreign Market Hours..................................................................... 51
Regular Holidays......................................................................... 53
Settlement Periods Greater than Seven Days in 2000....................................... 57
Taxes.................................................................................... 58
Federal Tax Treatment of Futures and Options Contracts................................... 59
Determination of NAV..................................................................... 60
Dividends and Distributions.............................................................. 61
General Policies......................................................................... 61
Dividend Reinvestment Service............................................................ 61
Performance and Other Information........................................................ 62
Miscellaneous Information................................................................ 64
Counsel.................................................................................. 64
Independent Auditors..................................................................... 64
Financial Statements..................................................................... 65
Report of Independent Accountants........................................................ 65
</TABLE>
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<PAGE>
General Description of the Trust and its Funds
The Trust currently consists of 37 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"). The
shares of each Fund are referred to herein as "iShares". The Funds offered by
the Trust are:
. iShares S&P 500 Index Fund
. iShares S&P 500/BARRA Growth Index Fund
. iShares S&P 500/BARRA Value Index Fund
. iShares S&P MidCap 400 Index Fund
. iShares S&P MidCap400/BARRA Growth Index Fund
. iShares S&P MidCap400/BARRA Value Index Fund
. iShares S&P SmallCap 600 Index Fund
. iShares S&P SmallCap 600/BARRA Growth Index Fund
. iShares S&P SmallCap 600/BARRA Value Index Fund
. iShares S&P 100 Index Fund
. iShares S&P Global 100 Index Fund
. iShares S&P Europe 350 Index Fund
. iShares S&P/TSE 60 Index Fund
. iShares Dow Jones U.S. Total Market Index Fund
. iShares Dow Jones U.S. Basic Materials Sector Index Fund
. iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund
. iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund
. iShares Dow Jones U.S. Energy Sector Index Fund
. iShares Dow Jones U.S. Financial Sector Index Fund
. iShares Dow Jones U.S. Healthcare Sector Index Fund
. iShares Dow Jones U.S. Industrial Sector Index Fund
. iShares Dow Jones U.S. Technology Sector Index Fund
. iShares Dow Jones U.S. Telecommunications Sector Index Fund
. iShares Dow Jones U.S. Utilities Sector Index Fund
. iShares Dow Jones U.S. Chemicals Index Fund
. iShares Dow Jones U.S. Financial Services Index Fund
. iShares Dow Jones U.S. Internet Index Fund
. iShares Dow Jones U.S. Real Estate Index Fund
. iShares Russell 3000 Index Fund
. iShares Russell 3000 Growth Index Fund
. iShares Russell 3000 Value Index Fund
. iShares Russell 2000 Index Fund
. iShares Russell 2000 Growth Index Fund
. iShares Russell 2000 Value Index Fund
. iShares Russell 1000 Index Fund
. iShares Russell 1000 Growth Index Fund
. iShares Russell 1000 Value Index Fund
The investment objective of each Fund is to provide investment results that
correspond generally to the price and yield performance, before fees and
expenses, of a specified benchmark index (each an "Underlying Index")
representing publicly traded equity securities of companies in a particular
broad market, market segment, market sector or group of industries. Each Fund is
managed by Barclays Global Fund Advisors ("BGFA").
Each 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 its Underlying Index (the "Deposit Securities"), together
with the deposit of a specified cash payment (the "Cash Component"). The iShares
described in this Prospectus are listed and traded on the American Stock
Exchange LLC ("AMEX"), except that the S&P 100 Fund is listed on the Chicago
Board Options Exchange ("CBOE") and the S&P Global 100 Index Fund is listed on
the New York Stock Exchange, Inc. ("NYSE"). The AMEX, CBOE and the NYSE each are
referred to herein as a Listing Exchange. iShares will trade on a Listing
Exchange 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.
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General Description of the Trust and its Funds page 1
<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.
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<PAGE>
Exchange Listing and Trading
A discussion of exchange listing and trading matters associated with an
investment in each 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 listing Exchange
necessary to maintain the listing of iShares of any Fund will continue to be
met. Exchange may, but is not required to, remove the iShares of a Fund from
listing if (i) following the initial 12-month period beginning upon the
commencement of trading of a Fund, there are fewer than 50 beneficial owners of
the iShares of a Fund for 30 or more consecutive trading days; (ii) the value of
the Underlying Index on which such Fund is based is no longer calculated or
available; or (iii) such other event shall occur or condition exist that, in the
opinion of the listing Exchange, makes further dealings on the Exchange
inadvisable. The Exchange will remove the iShares of a Fund from listing and
trading upon termination of such Fund.
As in the case of other publicly-traded stocks traded, 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
by Fund as of the date of this Statement of Additional Information.
Ratio of
NAV/Index
Value by
iShares Index Fund Fund
------------------ ----
iShares S&P 500 Index Fund 1/10
iShares S&P 500/BARRA Growth Index Fund 1/10
iShares S&P 500/BARRA Value Index Fund 1/10
iShares S&P MidCap 400 Index Fund 1/5
iShares S&P MidCap 400/BARRA Growth Index Fund 1/2
iShares S&P MidCap 400/BARRA Value Index Fund 1/2
iShares S&P SmallCap 600 Index Fund 1/2
iShares S&P SmallCap 600/BARRA Growth Index Fund 1/2
iShares S&P SmallCap 600/BARRA Value Index Fund 1/2
iShares S&P 100 Index Fund 1/10
iShares S&P Global 100 Index Fund 1/20
iShares S&P Europe 350 Index Fund 1/20
iShares S&P/TSE 60 Index Fund 1/10
iShares Dow Jones U.S. Total Market Index Fund 1/5
iShares Dow Jones U.S. Basic Materials Sector Index Fund 1/4
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund 1/5
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund 1/5
iShares Dow Jones U.S. Energy Sector Index Fund 1/5
iShares Dow Jones U.S. Financial Sector Index Fund 1/5
iShares Dow Jones U.S. Healthcare Sector Index Fund 1/5
iShares Dow Jones U.S. Industrial Sector Index Fund 1/5
iShares Dow Jones U.S. Technology Sector Index Fund 1/10
iShares Dow Jones U.S. Telecommunications Sector Index Fund 1/5
iShares Dow Jones U.S. Utilities Sector Index Fund 1/2
iShares Dow Jones U.S. Chemicals Index Fund 1/4
iShares Dow Jones U.S. Financial Services Index Fund 1/5
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Exchange Listing and Trading page 3
<PAGE>
Ratio of
NAV/Index
Value by
iShares Index Fund Fund
------------------ ----
iShares Dow Jones U.S. Internet Index Fund 1/4
iShares Dow Jones U.S. Real Estate Index Fund 1/2
iShares Russell 3000 Index Fund 1/10
iShares Russell 3000 Growth Index Fund 1/10
iShares Russell 3000 Value Index Fund 1/10
iShares Russell 2000 Index Fund 1/5
iShares Russell 2000 Growth Index Fund 1/5
iShares Russell 2000 Value Index Fund 1/5
iShares Russell 1000 Index Fund 1/10
iShares Russell 1000 Growth Index Fund 1/10
iShares Russell 1000 Value 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 applicable Fund. However, the ratio of a Fund's
NAV to its Underlying Index would change in such instance.
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<PAGE>
Investment Strategies and Risks
Each Fund seeks to achieve its objective by investing in common stocks that
comprise the relevant Underlying Index. Each Fund operates as an index fund and
will not be actively managed. Adverse performance of a security in a Fund's
portfolio will ordinarily not result in the elimination of the security from a
Fund's portfolio.
Some Funds will engage in Replication, by which they hold substantially all of
the securities of the Underlying Index in approximately the same proportions as
reflected in the Underlying Index. Other Funds will engage in Representative
Sampling, which is investing in a representative sample of stocks in the
Underlying Index, selected by BGFA to have a similar investment profile as the
Underlying Index. Stocks selected have aggregate investment characteristics
(based on market capitalization and industry weightings), fundamental
characteristics (such as return variability, earnings valuation and yield) and
liquidity measures similar to those of the relevant Underlying Index. Funds that
use Representative Sampling generally do not hold all of the stocks that are
included in the relevant Underlying Index.
<TABLE>
<CAPTION>
Funds that Use Replication Funds that Use Representative Sampling
-------------------------- --------------------------------------
<S> <C>
iShares S&P 500 Index Fund iShares S&P MidCap 400 Index Fund
iShares S&P 500/BARRA Growth iShares S&P Global 100 Index Fund
Index Fund iShares S&P Europe 350 Index Fund
iShares S&P 500/BARRA Value iShares S&P/TSE 60 Index Fund
Index Fund iShares Dow Jones U.S. Basic Materials
iShares S&P MidCap 400/BARRA Sector Index Fund
Growth Index Fund iShares Dow Jones U.S. Consumer Cyclical
iShares S&P MidCap 400/BARRA Value Sector Index Fund
Index Fund iShares Dow Jones U.S. Consumer Non-
iShares S&P SmallCap 600 Index Fund Cyclical Sector Index Fund
iShares S&P SmallCap 600/BARRA iShares Dow Jones U.S. Energy Sector
Growth Index Fund Index Fund
iShares S&P SmallCap 600/BARRA iShares Dow Jones U.S. Financial Sector
Value Index Fund Index Fund
iShares S&P 100 Index Fund iShares Dow Jones U.S. Healthcare Sector
iShares Dow Jones U.S. Total Market Index Fund
Index Fund iShares Dow Jones U.S. Industrial Sector
iShares Russell 3000 Index Fund Index Fund
iShares Russell 3000 Growth iShares Dow Jones U.S. Technology Sector
Index Fund Index Fund
iShares Russell 3000 Value Index Fund iShares Dow Jones U.S.
iShares Russell 2000 Growth Telecommunications Sector Index Fund
Index Fund iShares Dow Jones U.S. Utilities Sector
iShares Russell 2000 Value Index Fund Index Fund
iShares Russell 1000 Index Fund iShares Dow Jones U.S. Chemicals
iShares Russell 1000 Growth Index Fund
Index Fund iShares Dow Jones U.S. Financial Services
iShares Russell 1000 Value Index Fund Index Fund
iShares Dow Jones U.S. Internet
Index Fund
iShares Dow Jones U.S. Real Estate
Index Fund
iShares Russell 2000 Index Fund
</TABLE>
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Exchange Listing and Trading page 5
<PAGE>
At least 90% of each Fund's total assets will be invested in stocks in its
Underlying Index. A 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 its 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 a Fund would hold
stocks not included in its Underlying Index. First, in order to reflect various
corporate actions (such as mergers) and other changes in the Fund's Underlying
Index (reconstitutions), a Fund may hold stocks that are announced as additions
to the Underlying Index prior to their actual date of inclusion in such index.
Second, a Fund may hold stocks that have been recently deleted from its
Underlying Index due to various corporate action and reconstitutions. Third, a
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 Index.
Representative Sampling is used for those Funds where BGFA believes that
Replication is not the most effective means to track the Underlying Index. The
number of securities, liquidity of underlying securities, restrictions on the
ownership of securities, high transaction expenses and other trading costs, and
tax and other regulatory restrictions are among the factors which BGFA
considers. Although Representative Sampling has been an effective means of
approximating index performance in the past, it will not usually enable a Fund
to track the Underlying Index's performance with the accuracy achieved by
Replication. Each Fund will be reviewed regularly and adjusted, when necessary,
to correlate with the relevant Underlying Index.
Lack of Diversification of Certain Funds. The following table sets forth the
diversification status of each Fund.
<TABLE>
<CAPTION>
Diversified Funds Non-Diversified Funds
----------------- ---------------------
<S> <C>
iShares S&P 500 Index Fund iShares S&P 500/BARRA Growth Index Fund
iShares S&P 500/BARRA Value iShares S&P 100 Index Fund
Index Fund iShares S&P Global 100 Index Fund
iShares S&P MidCap 400 iShares S&P/TSE 60 Index Fund
Index Fund iShares Dow Jones U.S. Basic Materials Sector
iShares S&P MidCap 400/BARRA Index Fund
Growth Index Fund iShares Dow Jones U.S. Consumer Cyclical Sector
iShares S&P MidCap 400/BARRA Index Fund
Value Index Fund iShares Dow Jones U.S. Consumer Non-Cyclical
iShares S&P SmallCap 600 Sector Index Fund
Index Fund iShares Dow Jones U.S. Energy Sector Index
iShares S&P SmallCap 600/BARRA Fund
Growth Index Fund iShares Dow Jones U.S. Financial Sector Index Fund
iShares S&P SmallCap 600/BARRA iShares Dow Jones U.S. Healthcare Sector
Value Index Fund Index Fund
iShares S&P Europe 350 Index iShares Dow Jones U.S. Industrial Sector Index Fund
Fund iShares Dow Jones U.S. Technology Sector
iShares Dow Jones U.S. Total Index Fund
Market Index Fund iShares Dow Jones U.S. Telecommunications Sector
iShares Russell 3000 Index Fund Index Fund
iShares Russell 3000 Growth iShares Dow Jones U.S. Utilities Sector Index Fund
Index Fund iShares Dow Jones U.S. Chemicals Index Fund
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Diversified Funds Non-Diversified Funds
----------------- ---------------------
<S> <C>
iShares Russell 3000 Value Index iShares Dow Jones U.S. Financial Services Index
Fund Fund
iShares Russell 2000 Index Fund iShares Dow Jones U.S. Internet Index Fund
iShares Russell 2000 Growth Index iShares Dow Jones U.S. Real Estate Index Fund
Fund iShares Russell 1000 Growth Index Fund
iShares Russell 2000 Value Index
Fund
iShares Russell 1000 Index Fund
iShares Russell 1000 Value Index
Fund
</TABLE>
A "non-diversified" classification means that the Funds are not limited by the
1940 Act with regard to the percentage of their assets that may be invested in
the securities of a single issuer. A nondiversified Fund may also concentrate
its investments in a particular industry or group of industries, as noted in the
descriptions of each such Fund. The stocks of a particular issuer, or of issuers
in particular industries, may dominate the Underlying Index of such Funds and,
consequently, their investment portfolio. This may adversely affect their
performance or subject their iShares to greater price volatility than that
experienced by more diversified investment companies.
Each Fund, however (whether diversified or non-diversified), intends to maintain
the required level of diversification and otherwise conduct its operations so as
to qualify as a "regulated investment company" for purposes of the 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 severely limits the investment flexibility of certain
Funds and makes it less likely that such Funds will meet their investment
objectives.
Loans of Portfolio Securities. Each Fund may lend its investment securities to
approved borrowers. Investors Bank and Trust serves as the lending agent for the
Funds and as such, shares in any net income earned by a 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 relevant Fund. These loans cannot
exceed 30% of a Fund's total assets.
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 a Fund at any time; and (iii) a 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, each 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. Each 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 a Fund enter
into a repurchase agreement, each such 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
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Investment Strategies and Risks page 7
<PAGE>
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 each 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 each 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. Each 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
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 each 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 each Fund's assets. The custodian bank will maintain a separate account
for each 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. No Fund expects to engage in currency transactions for
the purpose of hedging against declines in the value of the Fund's currency. A
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 a 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
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page 8 i|Shares
<PAGE>
futures positions were poorly correlated with its other investments or if it
could not close out its positions because of an illiquid market. In addition,
each Fund could incur transaction costs, including trading commissions, in
connection with certain foreign currency transactions.
Money Market Instruments. Each 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 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. Each Fund may purchase publicly traded common stocks of
foreign corporations represented in the Underlying Indices. Each Fund's
investment in common stock of foreign corporations represented in the Underlying
Indices 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. Each 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, each 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. Each 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. Each 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 respective Underlying Index, to
facilitate trading or to reduce transaction costs. Each Fund will only enter
into futures contracts and options on futures contracts that are traded on a
U.S. or foreign exchange. No Fund will 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. Each Fund may purchase put
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Investment Strategies and Risks page 9
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options to hedge its portfolio against the risk of a decline in the market value
of securities held and may purchase call options to hedge against an increase in
the price of securities it is committed to purchase. Each Fund may write put and
call options along with a long position in options to increase its ability to
hedge against a change in the market value of the securities it holds or is
committed to purchase.
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. Each 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 each
Fund. The potential for loss related to writing options is unlimited.
Each 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, each 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 each Fund's total market value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. In addition, each Fund will not purchase options to the extent that more
than 5% of the value of such Fund's total assets would be invested in premiums
on open put option positions.
Upon entering into a futures contract, a 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 on the
contract and is returned to each Fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. Subsequent payments,
known as "variation margin", to and from the broker will be made daily as the
price of the index underlying the futures contract fluctuates, making the long
and short positions in the futures contract more or less valuable, a process
known as "marking-to-market." At any time prior to expiration of a futures
contract, each Fund may elect to close the position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.
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,
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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 a 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 each 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 each 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 a Fund is contained in the Prospectus in the Principal Risk
Factors Common to All Funds and the Shareholder Information sections. The
discussion below supplements, and should be read in conjunction with, these
sections of the Prospectus.
An investment in a Fund should be made with an understanding that the value of a
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 a 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 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 Indices 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 a Fund's iShares will be adversely affected if
trading markets for a 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
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Investment Strategies and Risks page 11
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be closed only on the exchange on which the contract was made (or a linked
exchange). While each Fund plans to utilize futures contracts only if an active
market exists for such contracts, there is no guarantee that a liquid market
will exist for the contract at a specified time. Furthermore, because, by
definition, futures contracts project price levels in the future and not current
levels of valuation, market circumstances may result in a discrepancy between
the price of the stock index future and the movement in the underlying Index. In
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations, if
a Fund has insufficient cash, it may have to sell portfolio securities to meet
daily margin requirements at a time when it may be disadvantageous to do so. In
addition, a Fund may be required to deliver the instruments underlying future
contracts it has sold.
The risk of loss in trading futures contracts or uncovered call options in some
strategies (e.g., selling uncovered stock index futures contracts) is
potentially unlimited. The Funds do not plan to use futures and options
contracts in this way. The risk of a futures position may still be large as
traditionally measured due to the low margin deposits required. In many cases, a
relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor relative to the size of a required
margin deposit. The Funds, however, intend to utilize futures and options
contracts in a manner designed to limit their risk exposure to levels comparable
to direct investment in stocks.
Utilization of futures and options on futures by a Fund involves the risk of
imperfect or even negative correlation to the Underlying Index if the index
underlying the futures contract differs from the Underlying Index. There is also
the risk of loss by a Fund of margin deposits in the event of bankruptcy of a
broker with whom a Fund has an open position in the futures contract or option.
The purchase of put or call options will be based upon predictions by 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 each Fund to substantial losses. In the event of adverse price
movements, each Fund would be required to make daily cash payments of variation
margin.
Although each 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 a Fund is contractually obligated to
make. Swap agreements are subject to the risk that the swap counterparty will
default on its obligations. If such a default occurs, a Fund will have
contractual remedies pursuant to the agreements related to the transaction.
However, such remedies may be subject to bankruptcy and insolvency laws which
could affect such Fund's rights as a creditor -- e.g. a Fund may not receive the
net amount of payments that it contractually is entitled to receive.
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Construction and Maintenance Standards for the Underlying Indices
Index Dissemination. The AMEX intends to disseminate every fifteen seconds the
approximate value of the iShares of every Fund except of the iShares S&P Europe
350 Index Fund, the iShares S&P/TSE 60 Index Fund and the iShares S&P Global 100
Index Fund. Bloomberg will provide approximate values for those Funds on a
similar basis. This approximate value should not be viewed as a "real-time"
update of the NAV per iShare of any Fund, because it may not be calculated in
the same manner as the NAV, which is computed once a day. The Funds are not
involved in, or responsible for, the calculation or dissemination of such amount
and make no warranty as to its accuracy.
Brief descriptions of the Underlying Indices on which the Funds are based and
the equity markets in which the Funds are invested are 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 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 500 Index
Number of Components: 500
Index Description. The Standard & Poor's 500 Index measures the performance of
the large-capitalization sector of the U.S. equity market. It serves as the
underlying index for the S&P 500/BARRA Growth and Value Index series. It is a
capitalization-weighted index from a broad range of industries chosen for market
size, liquidity, and industry group representation. 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
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Construction and Maintenance Standards for the Underlying Indices page 13
<PAGE>
price multiplied by the number of shares outstanding. These are summed for all
500 stocks and divided by a predetermined base value. The base value for the
Index is adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. The S&P 500
Index represents approximately 77% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
Microsoft Corporation, Cisco Systems Inc., General Electric Company, Intel
Corporation, Exxon Mobil Corporation, Wal-Mart Stores, Inc., Oracle Corporation,
International Business Machines Corporation, Citigroup, Inc., and Lucent
Technologies Inc.
S&P 500/BARRA Growth Index
Number of Components: approximately 110
Index Description. The S&P 500/BARRA Growth Index measures the performance of
the large-capitalization growth sector of the U.S. equity market. It is a subset
of the S&P 500 Index and consists of those companies with the highest
price-to-book ratios within the S&P 500 Index representing approximately 50% of
the market capitalization of that index. It is a capitalization-weighted index
representing stocks from a broad range of industries. 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 multiplied by the number of shares outstanding.
The base value for the S&P 500/BARRA Growth Index is adjusted to reflect changes
in capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events. The S&P 500/BARRA Growth Index
represents approximately 38% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
Microsoft Corporation, Cisco Systems Inc., General Electric Company, Intel
Corporation, Wal-Mart Stores, Inc., Oracle Corporation, International Business
Machines Corporation, Lucent Technologies Inc., Nortel Networks Corporation and
America Online, Inc.
S&P 500/BARRA Value Index
Number of Components: approximately 390
Index Description. The S&P 500/BARRA Value Index measures the
large-capitalization value sector of the U.S. equity market. It is a subset of
the S&P 500 Index and consists of those companies with the lowest price-to-book
ratios within the S&P 500 Index representing approximately 50% of the market
capitalization of that index. It is a capitalization-weighted index representing
stocks from a broad range of industries. 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 multiplied by the number of shares outstanding. The
base value for the S&P 500/BARRA Value Index is adjusted to reflect changes in
capitalization resulting from mergers, acquisitions, stock rights, substitutions
and other capital events. The S&P 500/BARRA Value Index represents approximately
38% of the market capitalization of listed U.S. equities. As of March 31, 2000,
the ten largest companies in the Index were Exxon Mobil Corporation, Citigroup,
Inc., AT&T Corporation, American International Group, Inc., Hewlett Packard Co.,
MCI Worldcom, Inc., Royal Dutch Petroleum Co., Motorola Inc., Bell Atlantic
Corporation and Morgan Stanley Dean Witter Discover & Company.
S&P MidCap 400 Index
Number of Components: 400
Index Description. The S&P 400 MidCap Index measures the performance of the
mid-capitalization sector of the U.S. equity market. It serves as the underlying
index for the S&P 400/BARRA Growth and Value Index series. 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 multiplied by the
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number of shares outstanding. These are summed for all stocks and divided by a
predetermined base value. The base value for the Index is adjusted to reflect
changes in capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events. The Index is a benchmark for performance
measurement of the mid-capitalization segment of the U.S. equity market. The S&P
MidCap 400 Index represents approximately 6% of the market capitalization of
listed U.S. equities. As of March 31, 2000, the ten largest companies in the
Index were Veritas Software Corporation, Siebel Systems, Inc., Maxim Integrated
Products, Inc., Altera Corporation, Linear Technology Corporation, Vitesse
Semiconductor Corporation, Medimmune Inc., Univision Communications, Inc., Atmel
Corporation and Intuit.
S&P MidCap 400/BARRA Growth Index
Number of Components: approximately 126
Index Description. The S&P MidCap 400/BARRA Growth Index measures the
performance of the mid-capitalization growth sector of the U.S. equity market.
It is a subset of the S&P 400 Index and consists of those companies with the
highest price-to-book ratios within the S&P 400 Index representing approximately
50% of the market capitalization of that index. It is a capitalization-weighted
index representing stocks from a broad range of industries. 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 multiplied by the number of shares
outstanding. The base value for the S&P MidCap 400/BARRA Growth Index is
adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. The S&P
MidCap 400/BARRA Growth Index represents approximately 3.25% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Veritas Software Corporation, Siebel Systems Inc.,
Maxim Integrated Products, Inc., Altera Corporation, Linear Technology
Corporation, Vitesse Semiconductor Corporation, Medimmune Inc., Univision
Communications, Inc., Atmel Corporation and Intuit.
S&P MidCap 400/BARRA Value Index
Number of Components: approximately 274
Index Description. The S&P MidCap 400/BARRA Value Index measures the performance
of the mid-capitalization value sector of the U.S. equity market. It is a subset
of the S&P 400 Index and consists of those companies with the lowest
price-to-book ratios within the S&P 400 Index representing approximately 50% of
the market capitalization of that index. It is a capitalization-weighted index
representing stocks from a broad range of industries. 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 multiplied by the number of shares outstanding.
The base value for the S&P MidCap 400/BARRA Value Index is adjusted to reflect
changes in capitalization resulting from mergers, acquisitions, stock rights,
substitutions and other capital events. The S&P MidCap 400/BARRA Value Index
represents approximately 3.25% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
Dynegy Inc., Montana Power Company, Telephone and Data Systems Inc., Weatherford
International Inc., Marshall & Ilsley Corporation, BJ Services Company, Noble
Drilling Corporation, Washington Post Company, Ensco International Inc. and
Sungard Data Systems Inc.
S&P SmallCap 600 Index
Number of Components: 600
Index Description. The S&P SmallCap 600 Index measures the performance of the
small-capitalization sector of the U.S. equity market. It serves as the
underlying index for the S&P 600/BARRA Growth and Value Index series. It is a
capitalization-weighted index from a broad range of industries chosen for market
size, liquidity, and industry
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Construction and Maintenance Standards for the Underlying Indices page 15
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group representation. 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 multiplied by the number of shares outstanding. These are summed for all
stocks and divided by a predetermined base value. The base value for the Index
is adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. The S&P 600
Index represents approximately 2.5% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
Mercury Interactive Corporation, MarchFirst Inc., IDEC Pharmaceuticals
Corporation, Micrel Inc., U.S. TR Corporation, Lattice Semiconductor
Corporation, Burr Brown Corporation, C-Cube Microsystems, Inc., Kemet
Corporation and Gentex Corporation.
S&P SmallCap 600/BARRA Growth Index
Number of Components: approximately 197
Index Description. The S&P SmallCap 600/BARRA Growth Index measures the
performance of the small-capitalization growth sector of the U.S. equity market.
It is a subset of the S&P 600 Index and consists of those companies with the
highest price-to-book ratios within the S&P 600 Index representing approximately
50% of the market capitalization of that index. It is a capitalization-weighted
index representing stocks from a broad range of industries. 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 multiplied by the number of shares
outstanding. The base value for the S&P SmallCap 600/BARRA Growth Index is
adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. The S&P
SmallCap 600/BARRA Growth Index represents approximately 1.5% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Mercury Interactive Corporation, MarchFirst
Corporation IDEC Pharmaceuticals Corporation, Micrel Inc., U.S. TR Corporation,
Lattice Semiconductor Corporation, Burr Brown Corporation., C-Cube Microsystems,
Inc., Kemet Corporation and Gentex Corporation.
S&P SmallCap 600/BARRA Value Index
Number of Components: approximately 403
Index Description. The S&P SmallCap 600/BARRA Value Index measures the
performance of the small-capitalization value sector of the U.S. equity market.
It is a subset of the S&P 600 Index and consists of those companies with the
lowest price-to-book ratios within the S&P 600 Index representing approximately
50% of the market capitalization of that index. It is a capitalization-weighted
index representing stocks from a broad range of industries. 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 multiplied by the number of shares
outstanding. The base value for the S&P MidCap 600/BARRA Value Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The S&P MidCap 600/BARRA Value
Index represents approximately 1.5% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
International Rectifier Corporation, Centura Banks Inc., Radian Group, Inc.
(formerly CMAC Investment Corporation), Zale Corporation, Snyder Communications,
Inc., Silicon VY Bancshares, S3 Inc., Stillwater Management Company, Universal
Health Services Inc. and Newfield Expl. Company.
S&P 100 Index
Number of Components: 100
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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 the 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 June 30, 2000, the ten largest companies in the Index were
General Electric Company, Intel Corporation, Cisco Systems Inc., Microsoft
Corporation, Exxon Mobil Corporation, Wal Mart Stores Inc., Oracle Corporation,
CitiGroup Inc., Nortel Networks Corporation and International Business Machines
Corporation.
S&P Global 100 Index
Number of Components: 100
Index Description. The Standard & Poor's Global 100 Index is designed to measure
the performance of 100 large transnational companies that are of major
importance in the global markets. A global company is defined as a corporation
that has production facilities and/or other fixed assets in at least one foreign
country, and makes its major management decisions in a global context. The
degree to which sales are executed outside the home country is a factor in
determining a company's global reach. The market capitalization of index
constituent companies is adjusted to reflect only those shares that are
available to foreign investors. The composition of the S&P Global 100 Index is
derived from the S&P Global 1200 Index and only includes transnational
corporations under the above definition which had a minimum adjusted market
capitalization of US$ 5 billion. The base value for the Underlying Index is
adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. As of June
30, 2000, the ten largest companies in the Index were General Electric, Intel
Corp., Microsoft Corp., Pfizer, Inc., Exxon Mobil Corp., Vodafone AirTouch,
Nokia "A", BP Amoco, Nortel Networks Corp. Also, as of June 30, 2000, the Index
was comprised of stocks of companies in the following countries: Australia,
Belgium, Canada, Finland, France, Germany, Great Britain, Italy, Japan, Korea,
Mexico, Netherlands, Spain, Sweden, Switzerland and the United States.
S&P Europe 350 Index
Number of Components: 350
Index Description. The Standard & Poor's Europe 350 Index measures the
performance of equities in the continental European region, made up of fifteen
markets: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy,
the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United
Kingdom. The index is a capitalization-weighted index of 350 stocks providing
geographic and economic diversity over S&P's ten market sectors, each chosen for
market size, liquidity, and industry group representation. The market
capitalization of index constituent companies is adjusted to reflect only those
shares, which are available to foreign investors. The base value for the Index
is adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. As of March
31, 2000, the ten largest companies in the Index were Vodafone AirTouch, Nokia
AB Oyj, BP Amoco, Ericsson B, British Telecommunications, Royal Dutch Petroleum
Company, Total Fina S.A., Glaxo Wellcome, HSBC Holdings and Novartis.
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S&P/TSE 60 Index
Number of Components: 60
Index Description. The S&P/TSE 60 Index measures the performance of equities in
the Canadian marketplace. It is a capitalization-weighted index from a broad
range of industries chosen for market size, liquidity, and industry group
representation. The market capitalization of index's constituent companies is
adjusted to reflect only those shares available for investment by the general
public. The impact of a component's price change is proportional to the issue's
total market value, which is the share price multiplied by the number of shares
outstanding. These are summed for all stocks and divided by a predetermined base
value. The base value for the index is adjusted to reflect changes in
capitalization resulting from mergers, acquisitions, stock rights, substitutions
and other capital events. As of March 31, 2000, the ten largest companies in the
Index were Nortel Networks Corporation, BCE, Inc., The Seagram Company Ltd.,
Toronto-Dominion Bank, Royal Bank of Canada, Bombardier Inc., Canadian Imperial
Bank of Commerce, Bank of Nova Scotia, Bank of Montreal and Celestica.
The Dow Jones Indices Generally.
Component Selection Criteria. The Dow Jones Indices are reconstituted quarterly
to reflect changes in the marketplace. All companies listed on a U.S. exchange
or the NASDAQ are considered for inclusion in the indices with the following
rules and exceptions. Stocks must have a minimum trade history of 6 months on
the re-balancing date to be eligible for inclusion. All foreign issues including
ADRs and GDRs are eliminated from the universe, as well as all non-common equity
issues such as preferred stocks, convertible notes, warrants, rights, closed-end
funds, trust receipts, limited liabilities companies, royalty trusts, units,
limited partnerships, over-the-counter bulletin boards, and pink sheet stocks.
Also deleted from the universe are all companies that are at least 75% owned by
another company and stocks with more than 10 non-trading days in a quarter.
After component selection, stocks are weighted by their available market
capitalization, which is calculated by multiplying the primary market closing
price by the adjusted shares. The remaining universe is ranked by decreasing
total market capitalization with cumulative percentages and broken into three
groups. The Large Cap Index represents the top 70% of the cumulative market
value of the U.S. equity universe, the Mid Cap Index represents the next 20% of
the universe, and the Small Cap Index represents half of the remaining 10% of
the equity universe. Combined, the Total Market Index represents 95% of the U.S.
equity universe.
Issue Changes. Changes to the indices are reflective of changes made to each of
the sub-indices that it represents. Each index is reviewed and rebalanced
quarterly to maintain accurate representation of each segment. Securities that
leave the index between reconstitution dates are not replaced. Thus, the number
of securities in the indices over the quarter will fluctuate according to
corporate activity. When a stock is acquired, delisted, or moves to the pink
sheets or OTC bulletin boards, the stock is deleted from the index. The only
additions between quarterly re-balancing are as a result of spin-offs.
Index Maintenance. Maintaining the Dow Jones Indices includes monitoring and
completing the adjustments for the company additions and deletions, share
changes, stock splits, stock dividends, and stock price adjustments due to
restructuring and spin-offs. The divisor is adjusted for all changes in company
market value to leave the value of the relevant index unaffected. All divisor
adjustments are made after the close of trading and after the calculation of the
closing value of the applicable index. Each component is limited to a maximum
market capitalization of 25% of the index weight, and sum of the weights of all
issues greater than 5% of the index is limited to 50% of the index total. If
components fail either rule, their market capitalization will be reduced to meet
the set guidelines.
Index Availability. The Dow Jones Indices are calculated continuously and are
available from major data vendors.
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Dow Jones U.S. Total Market Index
Number of Components: approximately 2,024
Index Description. The Dow Jones Total Market Index measures the performance
of the U.S. equity broad markets. It serves as the underlying index in the Dow
Jones U.S. Large Cap Index, Dow Jones U.S. Mid-Cap Index, Dow Jones U.S. Small-
Cap Index and the Dow Jones U.S. sector indices. The Dow Jones U.S. Total Market
Index is a capitalization-weighted index, so 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 component
stocks and divided by a predetermined base value. The base value for the Index
is adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. The Dow
Jones U.S. Total Market Index represents 95% of the market capitalization of
listed U.S. equities. As of March 31, 2000, the ten largest companies in the
Index were Microsoft Corporation, Cisco Systems Inc., General Electric Company,
Intel Corporation, Exxon Mobil Corporation, Wal-Mart Stores, Inc., Oracle
Corporation, International Business Machines Corporation, Citigroup, Inc. and
Lucent Technologies Inc.
Dow Jones U.S. Basic Materials Sector Index
Number of Components: approximately 87
Index Description. The Dow Jones U.S. Basic Materials Sector Index measures
the performance of the basic materials economic sector of the U.S. equity
market. The index is a subset of the Dow Jones U.S. Total Market Index. The Dow
Jones U.S. Basic Materials Sector Index is capitalization-weighted and includes
only companies in the Basic Materials sector of the Dow Jones U.S. Total Market
Index. 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
multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Dow Jones U.S. Basic Materials Sector Index represents approximately 2.5% of the
market capitalization of listed U.S. equities. As of March 31, 2000, the ten
largest companies in the Index were E. I. DuPont de Nemours and Company, Alcoa,
Inc., The Dow Chemical Company, International Paper Co., Weyerhaeuser Company,
Rohm & Haas Company, Union Carbide Corporation, Avery Dennison Corporation,
Georgia Pacific Corporation and Praxair Inc.
Dow Jones U.S. Consumer Cyclical Sector Index
Number of Components: approximately 343
Index Description. The Dow Jones U.S. Consumer Cyclical Sector Index measures
the performance of the consumer cyclical economic sector of the U.S. equity
market. The index is a subset of the Dow Jones U.S. Total Market Index. The Dow
Jones U.S. Consumer Cyclical Sector Index is capitalization-weighted and
includes only companies in the Consumer Cyclical sector of the Dow Jones U.S.
Total Market Index. 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 multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Dow Jones U.S. Consumer Cyclical Sector Index represents approximately 13% of
the market capitalization of listed U.S. equities. As of March 31, 2000, the ten
largest companies in the Index were Wal-Mart Stores, Inc., The Home Depot, Inc.,
Time Warner, Inc., The Walt Disney Company, General Motors Corporation, Ford
Motor Company, McDonald's Corporation, MediaOne Group, Inc., CBS Corporation and
Gap Inc.
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Dow Jones U.S. Consumer Non-Cyclical Sector Index
Number of Components: approximately 148
Index Description. The Dow Jones U.S. Non-Cyclical Sector Index measures the
performance of the non-cyclical economic sector of the U.S. equity market. The
index is a subset of the Dow Jones U.S. Total Market Index. The Dow Jones U.S.
Non-Cyclical Sector Index is capitalization-weighted and includes only companies
in the Non-Cyclical sector of the Dow Jones U.S. Total Market Index. 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 multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Dow Jones U.S. Non-Cyclical
Sector Index represents approximately 9% of the market capitalization of listed
U.S. equities. As of March 31, 2000, the ten largest companies in the Index were
America Online, Inc., The Coca-Cola Company, Yahoo! Inc., The Procter & Gamble
Company, Pepsico Inc., Philip Morris Companies, Inc., The Gillette Company,
Colgate-Palmolive Company, Kimberly-Clark Corporation and Anheuser-Busch
Companies, Inc.
Dow Jones U.S. Energy Sector Index
Number of Components: approximately 88
Index Description. The Dow Jones U.S. Energy Sector Index measures the
performance of the energy economic sector of the U.S. equity market. The Dow
Jones U.S. Energy Sector Index is a subset of the Dow Jones U.S. Total Market
Index. 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
multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Dow Jones U.S. Energy Sector Index represents approximately 5% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Exxon Mobil Corporation, Chevron Corporation,
Schlumberger Limited, Texaco, Inc., Atlantic Richfield Co., Williams Companies
Inc., Halliburton Company, Phillips Petroleum Co., Conoco Inc. and Transocean
Sedco Forex Inc.
Dow Jones U.S. Financial Sector Index
Number of Components: approximately 344
Index Description. The Dow Jones U.S. Financial Sector Index measures the
performance of the financial economic sector of the U.S. equity market. The
index is a subset of the Dow Jones U.S. Total Market Index. The Dow Jones U.S.
Financial Sector Index is capitalization-weighted and includes only companies in
the financial sector of the Dow Jones U.S. Total Market Index. The impact of a
component's price change is proportional to the issue's total market value,
which is the share price multiplied by the number of shares outstanding. These
are summed for all component stocks and divided by a predetermined base value.
The base value for the Index is adjusted to reflect changes in capitalization
resulting from mergers, acquisitions, stock rights, substitutions and other
capital events. The Dow Jones U.S. Financial Sector Index represents
approximately 16% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were Citigroup, Inc.,
American International Group (AIG), Morgan Stanley Dean Witter Discover & Co.,
Bank of America Corporation, The Chase Manhattan Corporation, Wells Fargo & Co.,
American Express Co., Federal National Mtg. Association, Schwab Charles
Corporation and Bank One Corporation.
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Dow Jones U.S. Healthcare Sector Index
Number of Components: approximately 171
Index Description. The Dow Jones U.S. Healthcare Sector Index measures the
performance of the Healthcare economic sector of the U.S. equity market. This
Dow Jones U.S. Healthcare Sector Index is a subset of the Dow Jones U.S. Total
Market Index. The Dow Jones U.S. Healthcare Sector Index is capitalization-
weighted and includes only companies in the Healthcare Sector of the Dow Jones
U.S. Total Market Index. 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 multiplied by the number of shares outstanding. These are summed for
all component stocks and divided by a predetermined base value. The base value
for the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Dow Jones U.S. Healthcare Sector Index represents approximately 10% of the
market capitalization of listed U.S. equities. As of March 31, 2000, the ten
largest companies in the Index were Merck & Co., Inc., Pfizer Inc., Bristol-
Myers Squibb Co., Johnson & Johnson, Warner-Lambert Company, American Home
Products Corporation, Lilly Eli & Co., Amgen, Inc., Medtronic Inc. and Abbott
Labs.
Dow Jones U.S. Industrial Sector Index
Number of Components: approximately 382
Index Description. The Dow Jones U.S. Industrial Sector Index measures the
performance of the Industrial economic sector of the U.S. equity market. The Dow
Jones U.S. Industrial Index is a subset of the Dow Jones U.S. Total Market
Index. The Dow Jones U.S. Industrial Sector Index is capitalization-weighted and
includes only companies in the Industrial sector of the Dow Jones U.S. Total
Market Index. The component stocks are weighted according to the total 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
multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Dow Jones U.S. Industrial Sector Index represents approximately 11% of the
market capitalization of listed U.S. equities. As of March 31, 2000, the ten
largest companies in the Index were General Electric Company, Tyco International
Ltd., JDS Uniphase Corporation, Corning Inc., Honeywell International Inc.,
Boeing Co., Minnesota Mining & Manufacturing Company, Automatic Data Processing,
Electronic Data Systems and United Technologies Corporation.
Dow Jones U.S. Technology Sector Index
Number of Components: approximately 319
Index Description. The Dow Jones U.S. Technology Sector Index measures the
performance of the Technology economic sector of the U.S. equity market. The Dow
Jones U.S. Technology Sector Index is a subset of the Dow Jones U.S. Total
Market Index. The Dow Jones U.S. Technology Index is capitalization-weighted and
includes only companies in the Technology sector of the Dow Jones U.S. Total
Market Index. 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
multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Dow Jones U.S. Technology Sector Index represents approximately 19% of the
market capitalization of listed U.S. equities. As of March 31, 2000, the ten
largest companies in the Index were Microsoft Corporation, Cisco Systems Inc.,
Intel Corporation, Oracle Corporation, International Business
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Machines Corporation, Lucent Technologies Inc., Sun Microsystems, Inc., Dell
Computer Corporation, Hewlett-Packard Company and Texas Instruments Inc.
Dow Jones U.S. Telecommunications Sector Index
Number of Components: approximately 54
Index Description. The Dow Jones U.S. Telecommunications Sector Index measures
the performance of the Telecommunications economic sector of the U.S. equity
market. The Dow Jones U.S. Telecommunications Sector Index is a subset of the
Dow Jones U.S. Total Market Index. The Dow Jones U.S. Telecommunications Sector
Index is capitalization-weighted and includes only companies in the
Telecommunications sector of the Dow Jones U.S. Total Market Index. 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 multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Dow Jones U.S.
Telecommunications Sector Index represents approximately 7% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were AT&T Corporation, SBC Communications, MCI Worldcom,
Inc., Bell Atlantic Corporation, BellSouth Corporation, GTE Corporation, Sprint
Corporation , Sprint Corporation (PCSA), Nextel Communications Inc., Sprint
Corporation (UT) and US West Inc.
Dow Jones U.S. Utilities Sector Index
Number of Components: approximately 88
Index Description. The Dow Jones U.S. Utilities Sector Index measures the
performance of the utilities economic sector of the U.S. equity market. The Dow
Jones U.S. Utilities Sector Index is a subset of the Dow Jones U.S. Total Market
Index. The Dow Jones U.S. Utilities Sector Index is capitalization-weighted and
includes only companies in the Utilities sector of the Dow Jones U.S. Total
Market Index. 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
multiplied
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by the number of shares outstanding. These are summed for all component stocks
and divided by a predetermined base value. The base value for the Index is
adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. The Dow
Jones U.S. Utilities Sector Index represents approximately 2.5% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Enron Corporation, Duke Energy Corporation, AES
Corporation, Southern Company, Dominion Res. Inc., Dynegy Inc., FPL Group Inc.,
Texas Utilities Company, PG&E Corporation and Unicom Corporation.
Dow Jones U.S. Chemicals Index
Number of Components: approximately 43
Index Description. The Dow Jones U.S. Chemicals Index measures the performance
of the chemicals industry of the U.S. equity market. The index is a subset of
the Dow Jones U.S. Basic Materials Sector Index. The Dow Jones U.S. Chemical
Index is capitalization-weighted and includes only companies in the chemicals
industry of the Dow Jones U.S. Total Market Index. 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 multiplied by the number of shares outstanding.
These are summed for all component stocks and divided by a predetermined base
value. The base value for the Index is adjusted to reflect changes in
capitalization resulting from mergers, acquisitions, stock rights, substitutions
and other capital events. The Dow Jones U.S. Chemicals Index represents
approximately 1.5% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were E. I. DuPont de
Nemours and Company, The Dow Chemical Company, Rohm & Haas Company, Union
Carbide Corporation, Avery Dennison Corporation, Praxair Inc., Air Products and
Chemicals, Inc., Ecolab, Inc., Eastman Chemical Company and Sigma-Aldrich
Corporation.
Dow Jones U.S. Financial Services Index
Number of Components: approximately 204
Index Description. The Dow Jones U.S. Financial Services Index measures the
performance of the financial services industry segment of the U.S. equity
market. The index is a subset of the Dow Jones U.S. Financial Index. The Dow
Jones U.S. Financial Services Index is capitalization-weighted and includes only
companies in the Banks, Savings & Loans, Securities Brokerage and Financial
Services sectors of the Dow Jones U.S. Financial Index. 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 multiplied by the number of shares outstanding.
These are summed for all component stocks and divided by a predetermined base
value. The base value for the Index is adjusted to reflect changes in
capitalization resulting from mergers, acquisitions, stock rights, substitutions
and other capital events. The Dow Jones U.S. Financial Services Index represents
approximately 12% of the market capitalization of listed U.S. equities. As of
March 31, 2000, the ten largest companies in the Index were Citigroup, Inc.,
Morgan Stanley Dean Witter Discover & Co., Bank of America Corporation, Chase
Manhattan Corporation, Wells Fargo & Co., American Express Company, Federal
National Mtg. Assn., Schwab Charles Corporation, Bank One Corporation and
Merrill Lynch & Co. Inc.
Dow Jones U.S. Internet Index
Number of Components: approximately 40
Index Description. The Dow Jones U.S. Internet Index measures the performance
of the Internet industry of the U.S. equity market. It includes only companies
that generate the majority of their revenues from the
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Internet and it is comprised of two sub-groups, Internet Commerce and Internet
Services. The Index is modified capitalization-weighted, restricting a stock's
weighting to 10% of its respective sub-group. The impact of a component's price
change is proportional to the issue's total market value in the index, which is
the share price times the number of shares. These are summed for all component
stocks and divided by a predetermined base value. The base value for the Index
is adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights, substitutions and other capital events. The Index
represents approximately 1% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
America Online, Inc., CMGI Inc., Exodus Communications, Inc., Internet Capital
Group Inc., Inktomi Corporation, Ariba Inc., 12 Technologies Inc., Verisign
Inc., Akamai Technologies Inc. and InfospaceCom Inc.
Dow Jones U.S. Real Estate Index
Number of Components: approximately 78
Index Description. The Dow Jones U.S. Real Estate Index measures the
performance of the Real Estate industry of the U.S. equity market. The Dow Jones
U.S. Real Estate Index is a subset of the Dow Jones U.S. Financial Index. The
Dow Jones U.S. Real Estate Index is capitalization-weighted and includes only
companies in the Real Estate industry of the Dow Jones U.S. Financial Index. 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 multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Dow Jones U.S. Real Estate
Index represents approximately 1% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
Equity Office Properties Trust, Equity Residential Properties Trust, Starwood
Hotels & Resorts Worldwide, Inc., Simon Property Group Inc., Homestore Com Inc.,
Prologis Trust, Spieker Properties, Inc., Vornado Realty Trust, Archstone
Communications Trust and Public Storage, Inc.
The Russell Indices Generally.
Component Selection Criteria. The Russell Indices are reconstituted annually on
March 31, to reflect changes in the marketplace. The starting universe for the
Russell 3000 Index, all U.S. exchange and OTC listed companies, is ranked by
decreasing total market capitalization. The Russell 2000 Index and the Russell
1000 Index are subsets of the Russell 3000 Index. All companies listed on a U.S.
exchange or the OTC are considered for inclusion in the indices with the
following rules and exceptions. Stocks must trade at or above $1.00 on May 31 to
be eligible for inclusion. Only one class of security is allowed into the
indices, however, special cases may exist if it is determined that each class
acts independent of the other. Stocks domiciled in other countries are excluded.
Also excluded are preferred and convertible preferred stock, participating
preferred stock, redeemable shares, warrants and rights, trust receipts, royalty
trusts, limited liability companies, OTC bulletin boards and pink sheet stocks,
mutual funds, limited partnerships, and foreign stocks. After component
selection, stocks are weighted by their available market capitalization, which
is calculated by multiplying the composite closing price by the adjusted shares.
The purpose of this adjustment is to exclude the capitalization that is not
available for purchase and is not part of the investing opportunity set.
Issue Changes. Securities that leave the Russell Indices between reconstitution
dates are not replaced. Thus, the number of securities in the indices over the
year will fluctuate according to corporate activity. When a stock is acquired,
delisted, or moves to the pink sheets or OTC bulletin boards, the stock is
deleted from the relevant indices. When acquisitions or mergers take place, the
stock's capitalization moves to the acquiring stock, hence, mergers have no
effect on index total capitalization if the acquiring stock is part of the
index. The only additions between reconstitution dates are as a result of
spin-offs.
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Index Maintenance. Maintaining the Russell 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. In addition, significant float adjustments due to corporate
actions are made month-end. The divisor is adjusted for all changes in company
market value to leave the value of the indices unaffected. All divisor
adjustments are made after the close of trading and after the calculation of the
closing value of the Russell Indices.
Russell 3000 Index
Number of Components: approximately 2,769
Index Description. The Russell 3000 Index measures the performance of the U.S.
equity broad market. It serves as the underlying index for Russell 3000 Growth
and Value series and the Russell 1000 and Russell 2000 Indices, as well as each
respective Growth and Value series. It is a capitalization-weighted index of the
3000 largest companies domiciled in the U.S. and its territories. Component
companies are adjusted for available float, weighted according to the market
value of their available outstanding shares. The impact of a component's price
change is proportional to the issue's total market value, which is the share
price multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Russell 3000 Index represents approximately 86% of the market capitalization of
listed U.S. equities. As of March 31, 2000, the ten largest companies in the
Index were Cisco Systems Inc., General Electric Company, Intel Corporation,
Microsoft Corporation, Exxon Mobil Corporation, International Business Machines
Corporation, Citigroup, Inc., Lucent Technologies Inc., AT&T Corporation and
Oracle Corporation.
Russell 3000 Growth Index
Number of Components: approximately 1,728
Index Description. The Russell 3000 Growth Index measures the growth sector of
the U.S. equity broad market. It is a subset of the Russell 3000 Index. It is
capitalization-weighted index and consisting of those Russell 3000 companies
with higher price-to-book ratios and higher forecasted growth and represents
approximately 50% of the total market capitalization of the Russell 3000 Index.
Component companies are adjusted for available float, weighted according to the
market value of their available outstanding shares. The impact of a component's
price change is proportional to the issue's total market value, which is the
share price multiplied by the number of shares outstanding. These are summed for
all component stocks and divided by a predetermined base value. The base value
for the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Russell 3000 Growth Index represents approximately 43% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were Cisco Systems Inc., General Electric Company, Intel
Corporation, Microsoft Corporation, Lucent Technologies Inc., International
Business Machines Corporation, Oracle Corporation, Wal-Mart Stores, Inc.,
America Online, Inc., and The Home Depot, Inc.
Russell 3000 Value Index
Number of Components: approximately 1,899
Index Description. The Russell 3000 Value Index measures the value sector of the
broad U.S. equity market. It is a subset of the Russell 3000 Index. It is a
capitalization-weighted index consisting of those Russell 3000 companies with
lower price-to-book ratios and lower forecasted growth and represents
approximately 50% of the total market capitalization of the Russell 3000 Index.
Component companies are adjusted for available float, weighted according to the
market value of their available outstanding shares. The impact of a component's
price change is proportional to the issue's total market value, which is the
share price multiplied by the number of shares outstanding. These are
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summed for all component stocks and divided by a predetermined base value. The
base value for the Index is adjusted to reflect changes in capitalization
resulting from mergers, acquisitions, stock rights, substitutions and other
capital events. The Russell 3000 Value Index represents approximately 43% of the
market capitalization of listed U.S. equities. As of March 31, 2000, the ten
largest companies in the Index were Exxon Mobil Corporation, Citigroup, Inc.,
AT&T Corp., American International Group, Inc., SBC Communications, Bell
Atlantic Corporation, Morgan Stanley Dean Witter Discover & Co., Bank of America
Corporation, Bell South Corporation and Walt Disney Co.
Russell 2000 Index
Number of Components: approximately 1,803
Index Description. The Russell 2000 Index measures the small-capitalization
sector of the U.S. equity market. It is a subset of the Russell 3000 Index and
serves as the underlying index for the Russell 2000 Growth and Value index
series. It is a capitalization-weighted index consisting of the 2000 smallest
companies in the Russell 3000 Index. Component companies are adjusted for
available float, weighted according to the market value of their available
outstanding shares. The impact of a component's price change is proportional to
the issue's total market value, which is the share price multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Russell 2000 Index
represents approximately 6% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
BroadVision, Inc., Microstrategy Incorporated, Mercury Interactive Corporation,
Sandisk Corporation, Lam Research Corporation, Cypress Semiconductor
Corporation, VerticalNet Inc., Millenium Pharmaceuticals Inc., Amkor Technology
Inc. and PE Corporation--Celera Genomics Group.
Russell 2000 Growth Index
Number of Components: approximately 1,209
Index Description. The Russell 2000 Growth Index measures the
small-capitalization growth sector of the U.S. equity market. It is a subset of
the Russell 2000 Index. It is a capitalization-weighted index consisting of
those Russell 2000 companies with higher price-to-book ratios and higher
forecasted growth and represents approximately 50% of the total market
capitalization of the Russell 2000 Index. Component companies are adjusted for
available float, weighted according to the market value of their available
outstanding shares. The impact of a component's price change is proportional to
the issue's total market value, which is the share price multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Russell 2000 Growth Index
represents approximately 3% of the market capitalization of listed U.S.
equities. As of March 31, 2000, the ten largest companies in the Index were
BroadVision, Inc., Microstrategy Incorporated, Mercury Interactive Corporation,
Sandisk Corporation, VerticalNet Inc., Millennium Pharmaceuticals Inc., Informix
Corporation, Advanced Fibre Communication, Amkor Technology Inc. and DII Group.
Russell 2000 Value Index
Number of Components: approximately 1,182
Index Description. The Russell 2000 Value Index measures the small-
capitalization value sector of the U.S. equity market. It is a subset of the
Russell 2000 Index. It is a capitalization-weighted index consisting of those
Russell 2000 companies with lower price-to-book rations and lower forecasted
growth and represents approximately 50% of the
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page 26 i|Shares
<PAGE>
total market capitalization of the Russell 2000 Index. Component companies are
adjusted for available float, weighted according to the market value of their
available outstanding shares. The impact of a component's price change is
proportional to the issue's total market value, which is the share price
multiplied by the number of shares outstanding. These are summed for all
component stocks and divided by a predetermined base value. The base value for
the Index is adjusted to reflect changes in capitalization resulting from
mergers, acquisitions, stock rights, substitutions and other capital events. The
Russell 2000 Value Index represents approximately 3% of the market
capitalization of listed U.S. equities. As of March 31, 2000, the ten largest
companies in the Index were PE Corporation-Celera Genomics Group, Integrated
Device Technology, Inc., Tektronix, Inc., MRV Communications Inc., Cypress
Semiconductor Corporation, Kemet Corporation, Perkinelmer Inc., Quest
Diagnostics Inc., Radian Group Inc. and Marine Drilling Cos. Inc.
Russell 1000 Index
Number of Components: approximately 962
Index Description. The Russell 1000 Index measures the performance of the
large-capitalization sector of the U.S. equity market. It is a subset of the
Russell 3000 Index and serves as the underlying index for the Russell 1000
Growth and Value Indices, and the Russell Top 200 and MidCap series. It is a
capitalization-weighted index consisting of the 1000 largest 1000 companies in
the Russell 3000. Component companies are adjusted for available float, weighted
according to the market value of their available outstanding shares. The impact
of a component's price change is proportional to the issue's total market value,
which is the share price multiplied by the number of shares outstanding. These
are summed for all component stocks and divided by a predetermined base value.
The base value for the Index is adjusted to reflect changes in capitalization
resulting from mergers, acquisitions, stock rights, substitutions and other
capital events. The Russell 1000 Index represents approximately 80% of the
market capitalization of listed U.S. equities. As of March 31, 2000, the ten
largest companies in the Index were Cisco Systems Inc., General Electric
Company, Intel Corporation, Microsoft Corporation, Exxon Mobil Corporation,
International Business Machines Corporation, Citigroup, Inc., Lucent
Technologies Inc., AT&T Corporation and Oracle Corporation.
Russell 1000 Growth Index
Number of Components: approximately 519
Index Description. The Russell 1000 Growth Index measures the
large-capitalization growth sector of the U.S. equity market. It is a subset of
the Russell 1000 Index. It is a capitalization-weighted index consisting of
those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth and represents approximately 50% of the total market
capitalization of the Russell 1000 Index. Component companies are adjusted for
available float, weighted according to the market value of their available
outstanding shares. The impact of a component's price change is proportional to
the issue's total market value, which is the share price multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Russell 1000 Growth 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
Cisco Systems Inc., General Electric Company, Intel Corporation, Microsoft
Corporation, Lucent Technologies Inc., International Business Machines
Corporation, Oracle Corporation, Wal-Mart Stores, Inc., America Online, Inc. and
The Home Depot, Inc.
--------------------------------------------------------------------------------
Construction and Maintenance Standards for the Underlying Indices page 27
<PAGE>
Russell 1000 Value Index
Number of Components: approximately 717
Index Description. The Russell 1000 Value Index measures the
large-capitalization value sector of the U.S. equity market. It is a subset of
the Russell 1000 Index. It is a capitalization-weighted index consisting of
those Russell 1000 companies with lower price-to-book ratios and lower
forecasted growth and represents approximately 50% of the total market
capitalization of the Russell 1000 Index. Component companies are adjusted for
available float, weighted according to the market value of their available
outstanding shares. The impact of a component's price change is proportional to
the issue's total market value, which is the share price multiplied by the
number of shares outstanding. These are summed for all component stocks and
divided by a predetermined base value. The base value for the Index is adjusted
to reflect changes in capitalization resulting from mergers, acquisitions, stock
rights, substitutions and other capital events. The Russell 1000 Value 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
Exxon Mobil Corporation, Citigroup, Inc., AT&T Corporation, American
International Group, Inc. (AIG), SBC Communications Inc., Bell Atlantic
Corporation, Morgan Stanley Dean Witter Discover & Co., Bank of America
Corporation, Bell South Corporation and The Walt Disney Co.
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page 28 i|Shares
<PAGE>
Investment Limitations
The Board has adopted as fundamental policies each Fund's investment objectives
and investment restrictions, numbered one through six below. These restrictions
cannot be changed with respect to a Fund without the approval of the holders of
a majority of such 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.
No Fund will:
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 a Fund will
concentrate to approximately the same extent that its 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) each Fund may borrow from banks for temporary
or emergency (not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of securities,
and (ii) each Fund may, to the extent consistent with its investment policies,
enter into repurchase agreements, reverse repurchase agreements, forward roll
transactions and similar investment strategies and techniques. To the extent
that it engages in transactions described in (i) and (ii), each Fund will be
limited so that no more than 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 each 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 each Fund from trading in
futures contracts and options on futures contracts (including options on
currencies to the extent consistent with each Fund's investment objective and
policies).
6. Engage in the business of underwriting securities issued by other persons,
except to the extent that each Fund may technically be deemed to be an
underwriter under the 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, each 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 each Fund's net assets to be invested in illiquid
securities.
--------------------------------------------------------------------------------
Construction and Maintenance Standards for the Underlying Indices page 29
<PAGE>
For purposes of the percentage limitation on each 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 each Fund if
they are otherwise readily marketable. Such securities ordinarily are considered
to be "readily marketable" if they are traded on an exchange or another
organized market and are not legally restricted from sale by the Fund. BGFA
monitors the liquidity of restricted securities in each 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.
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page 30 i|Shares
<PAGE>
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 Funds 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.
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 Listing Exchange is
satisfied by the fact that the prospectus is available at the Listing Exchange
upon request. The prospectus delivery mechanism provided in Rule 153 is only
available with respect to transactions on an exchange.
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Investment Limitations Page 31
<PAGE>
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. The Trustee denoted with an asterisk (*) is deemed to be an
"interested person" (as defined in the 1940 Act) of the Trust and the Funds.
<TABLE>
<CAPTION>
Principal occupations and affiliations
Name (age) Address Position during the past five years
------------------ --------- --------------------------
<S> <C> <C>
*Nathan Most (86) Trustee, President, Chairman of the Board, iShares, Inc.
PO Box 193 President, President, (formerly known as "WEBS Index Fund, Inc.")
Burlingame, CA 94011-0193 Treasurer, (since 1996)
Principal Consultant to Barclays Global Investors, American
Financial Officer Stock Exchange and the Hong Kong Stock Exchange
Formerly Senior Vice President,,American Stock
Exchange (New Product Development)
(1976-1996)
Formerly President and Chairman of the Board,
Pacific Commodities Exchange (1973-1976)
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
Berkeley, CA 94720 (1987-1993)
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
Graduate School of Business, MBA Program, Professor, Stanford University:
Stanford University Graduate School of Business (Since 1988)
521 Memorial Way, Formerly, Director Executive Education, Stanford
Room K301 Business School (1979-1988)
Stanford, CA 94305 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.
</TABLE>
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Page 32 i|Shares
<PAGE>
<TABLE>
<CAPTION>
Principal occupations and affiliations
Name (age) Address Position during the past five years
------------------ -------- --------------------------
<S> <C> <C>
Donna M. McCarthy (33) Assistant Director, (formerly Manager) Mutual Fund
Investors Bank and Trust Company Treasurer Administration, Investors Bank and Trust Company
200 Clarendon Street Formerly, Manager, Business Assurance Group,
Boston, MA 02116 Coopers & 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
200 Clarendon Street 1996)
Boston, MA 02116 Formerly, Assistant Manager, Fund Compliance,
Scudder, Stevens & Clark (1992-1996)
Susan C. Mosher (45) Secretary Director & Senior Counsel, Mutual Fund
Investors Bank and Trust Company Administration, Investors Bank and Trust Company
200 Clarendon Street (since 1995)
Boston, MA 02116 Formerly, Associate Counsel, 440 Financial Group
(1992-1995)
Sandra I. Madden (33) Assistant Associate Counsel, Mutual Fund Administration,
Investors Bank and Trust Company Secretary Investors Bank and Trust Company (since 1999)
200 Clarendon Street Formerly, Associate, Scudder Kemper Investments,
Boston, MA 02116 Inc. (1996-1999)
</TABLE>
* Mr. Most is deemed to be an "interested person" (as defined in the 1940
Act) of the Trust and the Funds. 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:
<TABLE>
<CAPTION>
Aggregate Pension or
Estimated Retirement Total Estimated
Compensation Benefits Accrued Estimated Annual Compensation
from the As Part of Trust Benefits Upon from the Fund
Name of Trustee Trust Expenses Retirement and Fund Complex*
--------------- ----- -------- ---------- -----------------
<S> <C> <C> <C> <C>
Nathan Most $54,000 Not Applicable. Not Applicable. $123,500
Thomas E. Flanigan** $54,000 Not Applicable. Not Applicable. $54,000
Richard K. Lyons $54,000 Not Applicable. Not Applicable. $54,000
George G. C. Parker $54,000 Not Applicable. Not Applicable. $54,000
</TABLE>
* As of May 31, 2000, there were 59 investment companies in the BGFA Fund
Complex.
** Thomas E. Flanigan resigned from the Board of Trustees on November 17, 2000.
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 each 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 each Fund, manages and administers the Trust and the investment of each
Fund's assets. BGFA is responsible for placing purchase and sale orders and
providing continuous supervision of the investment portfolio of each Fund.
--------------------------------------------------------------------------------
Management page 33
<PAGE>
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 each Fund, BGFA will be paid a management fee
equal to each Fund's allocable portion of the percentage listed below of such
Fund's aggregate net assets.
Management
iShares Index Fund Fee
------------------ ---
iShares S&P 500 Index Fund 0.09%
iShares S&P 500/BARRA Growth Index Fund 0.18%
iShares S&P 500/BARRA Value Index Fund 0.18%
iShares S&P MidCap 400 Index Fund 0.20%
iShares S&P MidCap 400/BARRA Growth Index Fund 0.25%
iShares S&P MidCap 400/BARRA Value Index Fund 0.25%
iShares S&P SmallCap 600 Index Fund 0.20%
iShares S&P SmallCap 600/BARRA Growth Index Fund 0.25%
iShares S&P SmallCap 600/BARRA Value Index Fund 0.25%
iShares S&P 100 Index Fund 0.20%
iShares S&P Global 100 Index Fund 0.40%
iShares S&P Europe 350 Index Fund 0.60%
iShares S&P/TSE 60 Index Fund 0.50%
iShares Dow Jones U.S. Total Market Index Fund 0.20%
iShares Dow Jones U.S. Basic Materials Sector Index Fund 0.60%
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund 0.60%
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund 0.60%
iShares Dow Jones U.S. Energy Sector Index Fund 0.60%
iShares Dow Jones U.S. Financial Sector Index Fund 0.60%
iShares Dow Jones U.S. Healthcare Sector Index Fund 0.60%
iShares Dow Jones U.S. Industrial Sector Index Fund 0.60%
iShares Dow Jones U.S. Technology Sector Index Fund 0.60%
iShares Dow Jones U.S. Telecommunications Sector Index Fund 0.60%
iShares Dow Jones U.S. Utilities Sector Index Fund 0.60%
iShares Dow Jones U.S. Chemicals Index Fund 0.60%
iShares Dow Jones U.S. Financial Services Composite Index Fund 0.60%
iShares Dow Jones U.S. Internet Index Fund 0.60%
iShares Dow Jones U.S. Real Estate Index Fund 0.60%
iShares Russell 3000 Index Fund 0.20%
iShares Russell 3000 Growth Index Fund 0.25%
iShares Russell 3000 Value Index Fund 0.25%
iShares Russell 2000 Index Fund 0.20%
iShares Russell 2000 Growth Index Fund 0.25%
iShares Russell 2000 Value Index Fund 0.25%
iShares Russell 1000 Index Fund 0.15%
iShares Russell 1000 Growth Index Fund 0.20%
iShares Russell 1000 Value Index Fund 0.20%
The Investment Advisory Agreement with respect to each Fund continues in effect
for two years from its effective date, and thereafter is subject to annual
approval by (i) the Board or (ii) 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.
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page 34 i|Shares
<PAGE>
The Investment Advisory Agreement with respect to each Fund is terminable
without penalty, on 60-days notice, by the Board or by a vote of the holders of
a majority (as defined in the 1940 Act) of the applicable Fund's outstanding
voting securities. The Investment Advisory Agreement is also terminable upon 60
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 Funds 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 Funds.
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 Funds. 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 each 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 each 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 each 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 each 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 Distribution Agreement with the Trust pursuant to which it
distributes iShares of each 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 Funds 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
--------------------------------------------------------------------------------
Management page 35
<PAGE>
Exchange Act of 1934 (the "Exchange Act") and a member of the National
Association of Securities Dealers, Inc. ("NASD").
The Distribution Agreement for each Fund will provide 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 relevant Fund. The Distribution Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities dealers
("Soliciting Dealers") who will solicit purchases of Creation 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 Providers. Each Fund will be based upon a particular equity market index
compiled by one of three index providers: Standard & Poor's (a division of the
McGraw-Hill Companies), Frank Russell Company and Dow Jones & Company, Inc.,
none of which is affiliated with a Fund or with BGI or its affiliates. Each Fund
will be entitled to use the Underlying Index pursuant to a sub-licensing
agreement with BGI, which in turn has a licensing agreement with the relevant
index provider. BGI will provide the sub-licenses without charge to any Fund.
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page 36 i|Shares
<PAGE>
Brokerage Transactions
The policy of the Trust regarding purchases and sales of 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.
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 Funds for
the purchase or sale of portfolio securities. If purchases or sales of portfolio
securities of the Funds 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
Funds 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 Funds. The primary consideration is prompt execution
of orders at the most favorable net price.
Portfolio turnover may vary from year to year, as well as within a year. High
turnover rates are likely to result in comparatively greater brokerage expenses.
The portfolio turnover rate for each 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.
--------------------------------------------------------------------------------
Creation and Redemption of Creation Units Aggregations page 37
<PAGE>
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 37 Funds. Each Fund
issues shares of beneficial interest, with no par value. The Board may designate
additional Funds.
Each iShare issued by a Fund has a pro rata interest in the assets of the
corresponding 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 relevant Fund, and in the net distributable assets of such 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 Funds 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 iShares of
a Fund and immediately prior to the commencement of trading in such Fund's
iShares, a holder of iShares may be a "control person" of the Fund, as defined
in the 1940 Act. A Fund cannot predict the length of time for which one or more
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
a 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 s ection in the Prospectus entitled Shareholder
Information.
DTC Acts as Securities Depository for the iShares. iShares of each Fund are
represented by securities registered in the name of DTC or its nominee and
deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of its
participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC
--------------------------------------------------------------------------------
page 38 i|Shares
<PAGE>
Participants in such securities through electronic book-entry changes in
accounts of the DTC Participants, thereby eliminating the need for physical
movement of securities' certificates. DTC Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations, some of whom (and/or their representatives) own DTC. More
specifically, DTC is owned by a number of its DTC Participants and by the New
York Stock Exchange ("NYSE"), the 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 each 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
each 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.
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.
--------------------------------------------------------------------------------
Additional Information Concerning the Trust page 39
<PAGE>
Creation and Redemption of Creation
Unit Aggregations
Creation. The Trust issues and sells iShares of each 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 each 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 a
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 relevant Fund's 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 any 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 NYSE (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
each such Fund.
Such Fund Deposit is applicable, subject to any adjustments as described below,
in order to effect creations of Creation Unit Aggregations of a given Fund until
such time as the next-announced composition of the Deposit Securities is made
available.
The identity and number of shares of the Deposit Securities required for a Fund
Deposit for each Fund changes as rebalancing adjustments and corporate action
events are reflected from time to time by BGFA with a view to the investment
objective of the relevant Fund. The composition of the Deposit Securities may
also change in response to adjustments to the weighting or composition of the
Component Stocks of the relevant 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
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page 40 i|Shares
<PAGE>
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 being
tracked by the relevant Fund 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 a 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 a 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. Each Fund, except the iShares S&P 350 Europe Index Fund, the
iShares S&P/TSE 60 Index Fund and the iShares S&P Global 100 Index Fund is
hereinafter referred to as a "Domestic Fund" and each of the iShares S&P Europe
350 Index Fund, the iShares S&P/TSE 60 Index Fund and the iShares S&P Global 100
Index Fund are hereinafter referred to as a "Foreign Fund" or collectively as
the "Foreign Funds". Orders to create Creation Unit Aggregations of the Foreign
Funds cannot be placed through the Clearing Process. 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 each 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 Domestic Funds
Using Clearing Process, the Placement of Creation Orders for Domestic Funds
Outside Clearing Process and the Placement of Creation Orders for Foreign Funds
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, therefore, orders to create Creation Unit Aggregations of a 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 Domestic Funds 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 Domestic Funds that are effected
outside the
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Additional Information Concerning the Trust page 41
<PAGE>
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.
Those placing orders for Creation Unit Aggregations of Foreign Funds should
ascertain the applicable deadline for cash transfers by contacting the
operations department of the broker or depositary institution making the
transfer of the Cash Component. This deadline is likely to be significantly
earlier than the closing time of the regular trading session on the NYSE.
Investors should be aware that the Authorized Participant may require orders for
Creation Units placed with it to be in the form required by the individual
Authorized Participant, which form may not be the same as the form of purchase
order specified by the Trust that the Authorized Participant must deliver to the
Distributor.
Placement of Creation Orders for Domestic Funds 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 Domestic Funds 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. 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
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page 42 i|Shares
<PAGE>
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 Domestic Funds 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 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.
Placement of Creation Orders for Foreign Funds. Fund Deposits in connection with
the Foreign Funds will not be made either through the Clearing Process or
through DTC. Instead, to initiate an order for a Creation Unit Aggregation of a
particular Fund, the Authorized Participant must give notice to the Distributor
of its intent to submit such an order to purchase not later than 4:00 p.m.,
Eastern time on the relevant Business Day. The Distributor shall cause BGFA and
IBT to be informed of such advice. IBT will then provide such information to the
appropriate sub-custodian(s). For each Fund, IBT shall cause the sub-custodian
of the Funds to maintain an account into which the Authorized Participant shall
deliver, on behalf of itself or the party on whose behalf it is acting, the
securities included in the designated Fund Deposit (or the cash value of all or
part of such securities, in the case of a permitted or required cash purchase or
"cash in lieu" amount), with any appropriate adjustments as advised by the
Trust. Deposit Securities must be delivered to an account
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Additional Information Concerning the Trust page 43
<PAGE>
maintained at the applicable local sub-custodian(s). Following the notice of
intention, an irrevocable order to purchase Creation Unit Aggregations, in the
form required by the Trust, must be received by the Distributor from an
Authorized Participant on its own or another investor's behalf by the closing
time of the regular trading session on the NYSE (currently 4:00 p.m., Eastern
time) on the relevant Business Day. However when a relevant local market is
closed due to local market holidays, the local market settlement process will
not commence until the end of the local holiday period. Settlement must occur by
2:00 p.m., Eastern time, on the contractual settlement date.
The Authorized Participant must also make available no later than 2:00 p.m.,
Eastern time, on the contractual settlement date, by means satisfactory to the
Trust, immediately-available or same-day funds estimated by the Trust to be
sufficient to pay the Cash Component next determined after acceptance of the
purchase order, together with the applicable purchase Transaction Fee. Any
excess funds will be returned following settlement of the issue of the Creation
Unit Aggregation.
To the extent contemplated by the applicable Participant Agreement, Creation
Unit Aggregations of Foreign Funds will be issued to such Authorized Participant
notwithstanding the fact that the corresponding Fund Deposits have not been
received in part or in whole, in reliance on the undertaking of the Authorized
Participant to deliver the missing Deposit Securities as soon as possible, which
undertaking shall be secured by such Authorized Participant's delivery and
maintenance of collateral consisting of cash in the form of U.S. dollars in
immediately available funds having a value (marked to market daily) at least
equal to 125% of the value of the missing Deposit Securities. Such cash
collateral must be delivered no later than 2:00 p.m., Eastern time, on the
contractual settlement date. The Participant Agreement will permit the Fund to
buy the missing Deposit Securities at any time and will subject the Authorized
Participant to liability for any shortfall between the cost to the Trust of
purchasing such securities and the value of the collateral.
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 any 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 any Fund; (iii) the Deposit Securities delivered
are not as disseminated through the facilities of the Listing Exchange 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
and 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.
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page 44 i|Shares
<PAGE>
Creation Transaction Fee. A purchase transaction fee is imposed for the transfer
and other transaction costs of a 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 each of the
Funds.
<TABLE>
<CAPTION>
Maximum
Creation
Transaction
Name of Fund Amount Fee*
------------ ------ ----
<S> <C> <C>
iShares S&P 500 Index Fund $ 2,000 $ 8,000
iShares S&P 500/BARRA Growth Index Fund $ 500 $ 2,000
iShares S&P 500/BARRA Value Index Fund $ 1,500 $ 6,000
iShares S&P MidCap 400 Index Fund $ 1,500 $ 6,000
iShares S&P MidCap 400/BARRA Growth Index Fund $ 500 $ 2,000
iShares S&P MidCap 400/BARRA Value Index Fund $ 1,250 $ 5,000
iShares S&P SmallCap 600 Index Fund $ 2,500 $ 10,000
iShares S&P SmallCap 600/BARRA Growth Index Fund $ 750 $ 3,000
iShares S&P SmallCap 600/BARRA Value Index Fund $ 1,750 $ 7,000
iShares S&P 100 Index Fund $ 500 $ 2,000
iShares S&P Global 100 Index Fund $ 2,000 $ 8,000
iShares S&P Europe 350 Index Fund $12,000 $ 48,000
iShares S&P/TSE 60 Index Fund $ 1,250 $ 5,000
iShares Dow Jones U.S. Total Market Index Fund $ 8,000 $ 32,000
iShares Dow Jones U.S. Basic Materials Sector Index Fund $ 500 $ 2,000
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund $ 1,500 $ 6,000
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund $ 500 $ 2,000
iShares Dow Jones U.S. Energy Sector Index Fund $ 500 $ 2,000
iShares Dow Jones U.S. Financial Sector Index Fund $ 1,500 $ 6,000
iShares Dow Jones U.S. Healthcare Sector Index Fund $ 750 $ 3,000
iShares Dow Jones U.S. Industrial Sector Index Fund $ 1,500 $ 6,000
iShares Dow Jones U.S. Technology Sector Index Fund $ 1,250 $ 5,000
iShares Dow Jones U.S. Telecommunications Sector Index Fund $ 250 $ 1,000
iShares Dow Jones U.S. Utilities Sector Index Fund $ 500 $ 2,000
iShares Dow Jones U.S. Chemicals Index Fund $ 250 $ 1,000
iShares Dow Jones U.S. Financial Services Index Fund $ 1,000 $ 4,000
iShares Dow Jones U.S. Internet Index Fund $ 250 $ 1,000
iShares Dow Jones U.S. Real Estate Index Fund $ 500 $ 2,000
iShares Russell 3000 Index Fund $11,500 $ 46,000
iShares Russell 3000 Growth Index Fund $ 7,000 $ 28,000
iShares Russell 3000 Value Index Fund $ 8,000 $ 32,000
iShares Russell 2000 Index Fund $ 7,500 $ 30,000
iShares Russell 2000 Growth Index Fund $ 5,000 $ 20,000
</TABLE>
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Additional Information Concerning the Trust page 45
<PAGE>
Maximum
Creation
Transaction
Name of Fund Amount Fee*
------------ ------ ----
iShares Russell 2000 Value Index Fund $5,000 $ 20,000
iShares Russell 1000 Index Fund $4,000 $ 16,000
iShares Russell 1000 Growth Index Fund $2,000 $ 8,000
iShares Russell 1000 Value Index Fund $3,000 $ 12,000
* 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. A 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.
With respect to each Fund, BGFA, (i) through the NSCC for Domestic Funds, and
(ii) through the Distributor, makes available immediately prior to the opening
of business on the AMEX (currently 9:30 a.m., Eastern time) on each Business
Day, 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 a 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 any 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 a Fund
or determination of such Fund's 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 relevant 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.
--------------------------------------------------------------------------------
page 46 i|Shares
<PAGE>
The following table sets forth the redemption transaction fee for each of the
Funds.
<TABLE>
<CAPTION>
Maximum
Redemption
Transaction
Name of Fund Amount Fee*
------------ ------ ----
<S> <C> <C>
iShares S&P 500 Index Fund $ 2,000 $ 8,000
iShares S&P 500/BARRA Growth Index Fund $ 500 $ 2,000
iShares S&P 500/BARRA Value Index Fund $ 1,500 $ 6,000
iShares S&P MidCap 400 Index Fund $ 1,500 $ 6,000
iShares S&P MidCap 400/BARRA Growth Index Fund $ 500 $ 2,000
iShares S&P MidCap 400/BARRA Value Index Fund $ 1,250 $ 5,000
iShares S&P SmallCap 600 Index Fund $ 2,500 $ 10,000
iShares S&P SmallCap 600/BARRA Growth Index Fund $ 750 $ 3,000
iShares S&P SmallCap 600/BARRA Value Index Fund $ 1,750 $ 7,000
iShares S&P 100 Index Fund $ 500 $ 2,000
iShares S&P Global 100 Index Fund $ 2,000 $ 8,000
iShares S&P Europe 350 Index Fund $ 12,000 $ 48,000
iShares S&P/TSE 60 Index Fund $ 1,250 $ 5,000
iShares Dow Jones U.S. Total Market Index Fund $ 8,000 $ 32,000
iShares Dow Jones U.S. Basic Materials Sector Index Fund $ 500 $ 2,000
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund $ 1,500 $ 6,000
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund $ 500 $ 2,000
iShares Dow Jones U.S. Energy Sector Index Fund $ 500 $ 2,000
iShares Dow Jones U.S. Financial Sector Index Fund $ 1,500 $ 6,000
iShares Dow Jones U.S. Healthcare Sector Index Fund $ 750 $ 3,000
iShares Dow Jones U.S. Industrial Sector Index Fund $ 1,500 $ 6,000
iShares Dow Jones U.S. Technology Sector Index Fund $ 1,250 $ 5,000
iShares Dow Jones U.S. Telecommunications Sector Index Fund $ 250 $ 1,000
iShares Dow Jones U.S. Utilities Sector Index Fund $ 500 $ 2,000
iShares Dow Jones U.S. Chemicals Index Fund $ 250 $ 1,000
iShares Dow Jones U.S. Financial Services Index Fund $ 1,000 $ 4,000
iShares Dow Jones U.S. Internet Index Fund $ 250 $ 1,000
iShares Dow Jones U.S. Real Estate Index Fund $ 500 $ 2,000
iShares Russell 3000 Index Fund $ 11,500 $ 46,000
iShares Russell 3000 Growth Index Fund $ 7,000 $ 28,000
iShares Russell 3000 Value Index Fund $ 8,000 $ 32,000
iShares Russell 2000 Index Fund $ 7,500 $ 30,000
iShares Russell 2000 Growth Index Fund $ 5,000 $ 20,000
iShares Russell 2000 Value Index Fund $ 5,000 $ 20,000
iShares Russell 1000 Index Fund $ 4,000 $ 16,000
iShares Russell 1000 Growth Index Fund $ 2,000 $ 8,000
iShares Russell 1000 Value Index Fund $ 3,000 $ 12,000
</TABLE>
* 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.
Placement of Redemption Orders for Domestic Funds Using Clearing Process. Orders
to redeem Creation Unit Aggregations of Domestic Funds 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
--------------------------------------------------------------------------------
Additional Information Concerning the Trust page 47
<PAGE>
redeem Creation Unit Aggregations using the Clearing Process made in proper from
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 Domestic Funds Outside Clearing Process.
Orders to redeem Creation Unit Aggregations of Domestic Funds 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.
Placement of Redemption Orders for Foreign Funds. Orders to redeem Creation Unit
Aggregations of Foreign Funds must be delivered through an Authorized
Participant that has executed a Participant Agreement. Investors other than
Authorized Participants are responsible for making arrangements for a redemption
request to be made through an Authorized Participant. An order to redeem
Creation Unit Aggregations of Foreign Funds 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 the DTC Cut-Off
time; and (iii) all other procedures set forth in the Participant Agreement are
properly followed. Deliveries of Fund Securities to redeeming investors
generally will be made within three Business Days. Due to the schedule of
holidays in certain countries, however, the delivery of in-kind redemption
proceeds for Foreign Funds may take longer than three Business Days after the
day on which the redemption request is received in proper form. In such cases,
the local market settlement procedures will not commence until the end of the
local holiday periods. See below for a list of the local holidays in the foreign
countries relevant to the Foreign Funds.
In connection with taking delivery of shares of Fund Securities upon redemption
of iShares of Foreign Funds, a redeeming Beneficial Owner or Authorized
Participant action on behalf of such Beneficial Owner must maintain appropriate
security arrangements with a qualified broker-dealer, bank or other custody
providers in each jurisdiction in which any of the Fund Securities are
customarily traded, to which account such Fund Securities will be delivered.
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
--------------------------------------------------------------------------------
page 48 i|Shares
<PAGE>
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 NYSE 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
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 affected 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 relevant 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 relevant 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 relevant 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 iShares of the
relevant 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). A 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 each 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 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.
--------------------------------------------------------------------------------
Additional Information Concerning the Trust page 49
<PAGE>
Because the Portfolio Securities of a Foreign Fund may trade on the relevant
exchange(s) on days that the NYSE is closed or are otherwise not Business Days
for such Foreign Fund, stockholders may not be able to redeem their shares of
such Foreign Fund, or to purchase and sell iShares of such Foreign Fund on the
AMEX or the CBOE, on days when the NAV of such Foreign Fund could be
significantly affected by events in the relevant foreign markets.
<TABLE>
<CAPTION>
Foreign Market Hours
<S> <C>
Australia
Primary Exchange Trading Hours: Monday through Friday,10:00a.m.to 4:00 p.m.
Closing Single Price Auction: 4:00 p.m. to 4:05 p.m.
Late trading daily: 4:05 p.m. to 7:00 p.m.
Austria
Primary Exchange Trading Hours: Monday through Friday, 9:16 a.m. to 3:00 p.m.
Electronic Quote Delivery Service (EQOS): 9:30 a.m. to 3:00 p.m. (Other trading)
Belgium
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 4:45 p.m.
Brazil
Primary Exchange Trading Hours: Monday through Friday, 11:30 a.m. to 1:00 p.m.; 2:30 p.m. to 6:00 p.m.
Canada
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 4:00 p.m.
Chile
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 5:30 p.m.
Denmark
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 5:00 p.m.
Finland
Primary Exchange Trading Hours: Monday through Friday 10:30 a.m. to 5:30 p.m.
Continuous trading (Preceded by a 10 min pre-matching period)
France
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 10:00 a.m. (Pre-market)
10:00 a.m. to 5:05 p.m.
Germany
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 5:00 p.m.
Greece
Primary Exchange Trading Hours: Monday through Friday, 10:45 a.m. to 1:30 p.m.
(Pre-trading 10:15 a.m. to 10:45 a.m.)
Hong Kong
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 12:30 p.m./2:30 p.m. to 4:00
p.m.
Indonesia
Primary Exchange Trading Hours: Monday through Thursday, 9:30 a.m. to 12:00 p.m.; 1:30 p.m. to 4:00
p.m. Friday; 9:30 a.m. to 11:30 a.m. and 2:00 p.m. to 4:00 p.m.
Ireland
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 5:30 p.m.
Italy
Primary Exchange Trading Hours: Monday through Friday, 8:00 a.m. to 9:30 a.m. (Pre-open)/ 9:30-5:45
(Trading)
</TABLE>
--------------------------------------------------------------------------------
page 50 i|Shares
<PAGE>
<TABLE>
<S> <C>
Japan
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 11:00a.m./12:30 p.m. to 3:00
p.m. (Osaka has a 10 min pre & post session)
Mexico
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 3:00 p.m.
Netherlands
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 4:30 p.m.
New Zealand
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 9:30 a.m. (Pre-market)
9:30 a.m. to 3:30 p.m.
Norway
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 4:00 p.m. (with 1/2 hour,
pre-market matching session).
Philippines
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 12:00 p.m.
There is a 10 minute extension at the close.
Portugal
Primary Exchange Trading Hours: Monday through Friday, 8:30 a.m. to 4:30 p.m.
Singapore
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 12:30 p.m./2:00 p.m. to 5:00 p.m.
South Africa
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 1:00 p.m./2:00 p.m. to 4:30 p.m.
South Korea
Primary Exchange Trading Hours: Monday through Friday, 9:30 a.m. to 12:00 p.m./1:00 p.m. to 3:00
p.m. After-hours session 3:10 p.m. to 3:40 p.m.
Spain
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 10:00 a.m. (Pre-opening)
10:00 a.m. to 5:00 p.m. (Trading)
Sweden
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 5:00 p.m.
Switzerland
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 5:00 p.m.
Taiwan
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 12:00 p.m. Saturday, 9:00 a.m.
to 11:00 a.m. (Closed 2nd & 4th Saturday of each month)
Thailand
Primary Exchange Trading Hours: Monday through Friday, 10:00 a.m. to 12:30 p.m./
2:30 p.m. to 4:30 p.m.
United Kingdom
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 4:30 p.m.
United States
Primary Exchange Trading Hours: Monday through Friday, 9:00 a.m. to 4:00 p.m. (NASDAQ)
9:30 a.m. to 4:00 p.m. (NYSE)
Venezuela
Primary Exchange Trading Hours: Monday through Friday, 9:45 a.m. to 2:00 p.m.
</TABLE>
Regular Holidays. The dates in calendar year 2000 in which the regular holidays
affecting the relevant securities markets of the below listed countries are as
follows:
--------------------------------------------------------------------------------
Additional Information Concerning the Trust page 51
<PAGE>
<TABLE>
<S> <C> <C>
Australia
January 3 April 24 August 7
January 26 April 25 December 25
April 21 June 12 December 26
Austria
January 6 June 12 December 8
April 21 June 22 December 24
April 24 August 15 December 25
May 1 October 26 December 29
June 1 November 1
Belgium
April 24 June 12 November 1
May 1 July 21 December 25
June 1 August 15 December 26
Brazil
March 6 May 1 October 12
March 7 June 22 November 2
April 21 September 7 November 15
December 25
Canada
January 3 July 3 October 9
April 21 August 7 December 25
May 22 September 4 December 26
Chile
April 21 August 15 October 12
May 1 September 4 November 1
June 22 September 18 December 8
June 28 September 19 December 25
Denmark
April 20 May 19 June 10
April 21 June 1 December 24
April 24 June 5 December 25
December 26
Finland
January 6 April 24 June 23
April 20 (early close) May 1 December 6
April 21 June 1 December 25
December 26
France
April 21 June 1 November 1
April 24 June 12 December 25
May 1 July 14 December 26
May 8 August 15
Germany
April 21 June 1 October 3
April 24 June 12 December 25
May 1 June 22 December 26
Greece
</TABLE>
--------------------------------------------------------------------------------
page 52 i|Shares
<PAGE>
January 6 May 1 December 25
March 13 June 19 December 26
April 28 August 15
Hong Kong
February 4 April 24 September 13
February 7 May 1 October 2
April 4 May 11 October 6
April 21 June 6 December 25
Indonesia
March 16 May 18 October 25
April 4 June 1 December 25
April 6 June 15 December 27
April 21 August 17 December 28
Ireland
January 3 April 24 August 7
March 17 May 1 October 30
April 21 June 5 December 25
December 26
Italy
April 24 August 15 December 8
May 1 November 1 December 25
December 26
Japan
January 3 May 3 September 15
January 10 May 4 October 9
February 11 May 5 November 3
March 20 July 20 November 23
Korea
January 3 May 1 August 15
February 4 May 5 September 11
March 1 May 11 September 12
April 5 June 6 September 13
April 13 July 17 October 3
December 25
Mexico
March 21 May 1 December 12
April 20 May 5 December 25
April 21 December 1
Netherlands
April 21 May 5 June 12
April 24 June 1 December 25
December 26
New Zealand
January 3 April 21 June 5
January 4 April 24 October 23
January 24 April 25 December 25
December 26
--------------------------------------------------------------------------------
Additional Information Concerning the Trust page 53
<PAGE>
Norway
April 20 April 21 April 24
May 1 June 1 December 25
May 17 June 12 December 26
Philippines
February 25 May 1 November 2
April 20 June 12 November 30
April 21 November 1 December 25
Portugal
March 7 May 1 November 1
April 21 June 22 December 1
April 24 August 15 December 8
April 25 October 5 December 25
Singapore
February 7 May 1 October 26
March 16 May 18 December 25
April 21 August 9 December 27
South Africa
January 3 April 27 August 9
March 21 May 1 September 25
April 21 June 16 December 25
December 26
Spain
January 6 May 1 December 6
April 21 October 12 December 8
April 24 November 1 December 25
December 26
Sweden
January 6 May 1 June 23
April 21 June 1 December 25
April 24 June 12 December 26
Switzerland
January 3 May 1 August 1
April 21 June 1 December 25
April 24 June 12 December 26
--------------------------------------------------------------------------------
page 54 i|Shares
<PAGE>
Taiwan (includes Saturday Trading)
January 1 April 3 September 9
January 3 April 4 September 12
January 8 April 8 September 23
January 22 April 22 October 10
February 2 May 1 October 14
February 3 May 13 October 28
February 4 May 27 November 11
February 5 June 6 November 25
February 7 June 10 December 9
February 12 June 24 December 23
February 26 July 8 December 25
February 28 July 22
March 11 August 12
March 25 August 26
Thailand
January 3 May 1 October 23
February 21 May 5 December 5
April 6 May 17 December 11
April 13 July 17
April 14 August 14
United Kingdom
January 3 May 1 December 25
April 21 May 29 December 26
April 24 August 28
United States
January 17 May 29 October 9
February 21 July 4 November 10
April 21 September 4 November 23
December 25
Venezuela
January 3 June 5 November 6
March 6 June 26 December 11
March 7 July 3 December 25
April 19 July 5
--------------------------------------------------------------------------------
Additional Information Concerning the Trust page 55
<PAGE>
Settlement Periods Greater than Seven Days for Year 2000
# of
Settlement Trade Calendar
Country Period Date Settlement Days
------- ------ ---- ---------- ----
Belgium Forward Market 12/11/00 12/27 16
Stocks:
End of a two
week period
Denmark T+3 4/17/00 4/25/00 8
France Last day 8/1/00 8/31/00 30
of acct
trading
month
Germany T+5 12/18/00 12/27/00 9
United Kingdom T+5 12/18/00 12/27/00 9
Italy T+5 12/18/00 12/27/00 9
Norway T+3 4/17/00 4/25/00 8
--------------------------------------------------------------------------------
page 56 i|Shares
<PAGE>
Taxes
The following information also supplements and should be read in conjunction
with the section in the Prospectus entitled Taxes.
Each 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).
A Fund will be subject to a 4% excise tax on certain undistributed income if it
does not distribute to its shareholders in each calendar year at least 98% of
its ordinary income for the calendar year plus 98% of its capital gain net
income for the twelve months ended October 31 of such year. Each Fund intends to
declare and distribute dividends and distributions in the amounts and at the
times necessary to avoid the application of this 4% excise tax.
Each Fund, but in particular the iShares Europe 350 Index Fund and the iShares
S&P/TSE 60 Index Fund, may be subject to foreign income taxes withheld at
source. Each Fund that is permitted to do so 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 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 any 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.
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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 each Fund has the right to reject an order for a purchase
of iShares if the purchaser (or group of purchasers) would, upon obtaining the
iShares so ordered, own 80% or more of the outstanding iShares of a given Fund
and if, pursuant to section 351 of the Code, that 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. Each 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. A Fund may be required to defer the
recognition of losses on futures contracts, option contracts and swaps to the
extent of any unrecognized gains on offsetting positions held by the Fund.
In order for a 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.
Each 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
each 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 each Fund.
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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 each Fund is computed by dividing the value of the net
assets of such Fund (i.e., the value of its total assets less total liabilities)
by the total number of iShares of such 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 each 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 a 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.
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Dividends and Distributions
The following information supplements and should be read in conjunction with the
section in the Prospectus entitled Shareholder Information.
General Policies. Dividends from net investment income, if any, are declared and
paid at least annually by each Fund. Distributions of net realized securities
gains, if any, generally are declared and paid once a year, but the Trust may
make distributions on a more frequent basis for certain Funds. 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 each
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 Funds.
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 Funds 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 same Fund purchased in the secondary market.
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<PAGE>
Performance and Other Information
The performance of the Funds 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 a Fund over periods of 1,
5 and 10 years (or the life of a Fund, if shorter). Such total return figures
will reflect the deduction of a proportional share of such 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 a 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.
Quotations of cumulative total return or average annual total return reflect
only the performance of a hypothetical investment in a Fund during the
particular time period on which the calculations are based. Such quotations for
a Fund will vary based on changes in market conditions and the level of such
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 Listing Exchange, it will also calculate a similar total return
using the relevant 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 a Fund with performance quoted with respect to other
investment companies or types of investments.
Because some or all of certain Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of such a 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
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statistics and historical stock market performance information for any of the
countries in which a 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, a 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, a 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, a 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 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
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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.
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Performance and Other Information page 63
<PAGE>
Financial Statements
Report of Independent Accountants
To the Shareholder and Board of Trustees
of iShares Russell 3000 Value Index Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the iShares Russell
3000 Value Index Fund at April 24, 2000, in conformity with accounting
principles generally accepted in the United States. This financial statement is
the responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Dated: April 24, 2000
/s/ PricewaterhouseCoopers LLP
------------------------------------
PricewaterhouseCoopers LLP
ASSETS:
Cash........................................................... $100,000
Total Assets................................................... 100,000
-------
LIABILITIES:
Total Liabilities................................
0
--------
NET ASSETS..................................................... $100,000
========
Net assets consist of:
Paid-in Capital................................................ $100,000
--------
NET ASSETS..................................................... $100,000
========
Shares outstanding............................................. 10,000
========
NET ASSET VALUE................................................ $ 10.00
========
See Notes to Statement of Assets and Liabilities
NOTE 1: Organization
iShares Trust (the "Trust") is organized as a Delaware business trust pursuant
to a Declaration of Trust dated December 16, 1999, and has had no operations as
of the date hereof other than matters relating to its organization and
registration as an investment company under the Investment Company Act of 1940
and the Securities Act of 1933 and the sale and issuance of 10,000 shares of
beneficial interest of the iShares Russell 3000 Value Index Fund (the Fund), a
series of the Trust, to SEI Investments Distribution Co. (the "Distributor").
The Trust currently offers thirty five funds; the iShares S&P 500 Index Fund,
iShares S&P 500/BARRA Growth Index Fund, iShares S&P 500/BARRA Value Index Fund,
iShares S&P MidCap 400 Index Fund, iShares S&P MidCap 400/BARRA Growth Index
Fund, iShares S&P MidCap 400/BARRA Value Index Fund, iShares S&P SmallCap 600
Index Fund, iShares S&P SmallCap 600/BARRA Growth Index Fund, iShares S&P
SmallCap
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<PAGE>
600/BARRA Value Index Fund, iShares S&P Europe 350 Index Fund, iShares S&P/TSE
60 Index Fund, iShares Dow Jones U.S. Total Market Index Fund, iShares Dow Jones
U.S. Basic Materials Sector Index Fund, iShares Dow Jones U.S. Consumer Cyclical
Sector Index Fund, iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index
Fund, iShares Dow Jones U.S. Energy Sector Index Fund, iShares Dow Jones U.S.
Financial Sector Index Fund, iShares Dow Jones U.S. Healthcare Sector Index
Fund, iShares Dow Jones U.S. Industrial Sector Index Fund, iShares Dow Jones
U.S. Technology Sector Index Fund, iShares Dow Jones U.S. Telecommunications
Sector Index Fund, iShares Dow Jones U.S. Utilities Sector Index Fund, iShares
Dow Jones U.S. Chemicals Index Fund, iShares Dow Jones U.S. Financial Services
Index Fund, iShares Dow Jones U.S. Internet Index Fund, iShares Dow Jones U.S.
Real Estate Index Fund, iShares Russell 3000 Index Fund, iShares Russell 3000
Growth Index Fund, iShares Russell 3000 Value Index Fund, iShares Russell 2000
Index Fund, iShares Russell 2000 Growth Index Fund, iShares Russell 2000 Value
Index Fund, iShares Russell 1000 Index Fund, iShares Russell 1000 Growth Index
Fund and iShares Russell 1000 Value Index Fund (collectively the "Funds").
NOTE 2: Significant Accounting Policies
Use of Estimates--The preparation of this financial statement in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of this financial statement. Actual results could differ from those
estimates.
Federal Income Taxes--The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. If so qualified, the
Fund will not be subject to federal income tax to the extent it distributes
substantially all of its net investment income and capital gains to
shareholders.
NOTE 3: Investment Advisory and Other Agreements
Barclays Global Fund Advisors ("BGFA") serves as investment advisor and provides
investment guidance and policy direction to the Fund. For its services to the
iShares Russell 3000 Value Index Fund, BGFA will receive an annual Management
Fee based on .25% of the Fund's average daily net assets. The Management Fee
covers all expenses of the Fund, 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.
Investors Bank & Trust Company ("IBT") serves as Administrator, Custodian and
Transfer Agent for the Fund. As compensation for its services, IBT receives a
fee that is accrued daily and paid monthly, based on the Fund's average daily
net assets. This fee is included in the Management fee as defined above.
SEI Investments Distribution Co. serves as the Fund's underwriter and
Distributor of the shares of the Fund, pursuant to a Distribution Agreement. The
Distribution Agreement will continue for two years from its effective date and
is renewable thereafter. The Distributor will deliver the Prospectus and
Statement of Additional Information, if so requested, 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 and a member
of the National Association of Securities Dealers, Inc. The Distributor has no
role in determining the investment policies of the Funds or determining which
securities are to be purchased or sold by the Fund.
Expenses related to the organization and initial registration of the Trust will
be borne by the BGFA.
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Financial Statements page 65
