<PAGE>
As filed with the Securities and Exchange Commission on December 29, 2000
Registration Nos. 33-97598
811-9102
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 18 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 20 [X]
(Check appropriate box or boxes)
iSHARES, INC.
(Exact name of registrant as specified in charter)
c/o PFPC Inc. 19809
400 Bellevue Parkway (Zip Code)
Wilmington, Delaware
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (302) 791-2000
Nathan Most
President
WEBS Index Fund, Inc.
c/o PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(Name and Address of Agent for Service)
Copies to:
Donald R. Crawshaw, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b)
[X] on January 2, 2001 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
iShares, Inc.
iShares, Inc. is an index fund consisting of separate series, each of which
seeks investment results similar to the performance of a single stock market or
all of the stock markets in a geographic region.
.iShares MSCI Australia Index Fund
.iShares MSCI Austria Index Fund
.iShares MSCI Belgium Index Fund
.iShares MSCI Brazil (Free) Index Fund
.iShares MSCI Canada Index Fund
.iShares MSCI EMU Index Fund
.iShares MSCI France Index Fund
.iShares MSCI Germany Index Fund
.iShares MSCI Greece Index Fund
.iShares MSCI Hong Kong Index Fund
.iShares MSCI Indonesia (Free) Index Fund
.iShares MSCI Italy Index Fund
.iShares MSCI Japan Index Fund
.iShares MSCI Malaysia (Free) Index Fund
--------------------------------------------------------------------------------
.iShares MSCI Mexico (Free) Index Fund
.iShares MSCI Netherlands Index Fund
.iShares MSCI Portugal Index Fund
.iShares MSCI Singapore (Free) Index Fund
.iShares MSCI South Africa Index Fund
.iShares MSCI South Korea Index Fund
.iShares MSCI Spain Index Fund
.iShares MSCI Sweden Index Fund
.iShares MSCI Switzerland Index Fund
.iShares MSCI Taiwan Index Fund
.iShares MSCI Thailand (Free) Index Fund
.iShares MSCI Turkey Index Fund
.iShares MSCI United Kingdom Index Fund
.iShares MSCI USA Index Fund
--------------------------------------------------------------------------------
The iShares MSCI Index Fund Shares, known as "iSharesSM", are listed for
trading on the American Stock Exchange LLC, or AMEX. Individual iShares are not
redeemable at their net asset value, but trade on the AMEX during the day at
prices that are normally close to, but not the same as, their net asset value.
There is no assurance that an active trading market will be maintained for
iShares or that market prices of iShares of any iShares MSCI Index Fund will be
close to their net asset values in the future. Each iShares MSCI Index Fund
issues and redeems iShares on a continuous basis -- at net asset value -- only
in large specified numbers of iShares called "Creation Units", usually in
exchange for a basket of portfolio securities and an amount of cash.
Except when aggregated in Creation Units, iShares are not redeemable
securities.
The iShares MSCI Greece, Indonesia (Free), Portugal, South Africa, Thailand
(Free), Turkey and USA Index Funds are not currently offered to the public.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the SEC determined whether the information in this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
Prospectus Dated January 2, 2001
<PAGE>
Table of Contents
Details on each Index Fund's market, benchmark index and performance
Details on the management and operations of the Index Funds
Details on buying and selling iShares
Details on the Rule 12b-1 Distribution Plan
Per share financial data for each Index Fund
<TABLE>
<S> <C>
Introduction................................................................ 1
Investment Objective........................................................ 1
Principal Investment Strategies............................................. 1
Principal Risk Factors...................................................... 2
Fees and Expenses........................................................... 3
The iShares MSCI Index Funds
iShares MSCI Australia Index Fund........................................... 7
iShares MSCI Austria Index Fund............................................. 8
iShares MSCI Belgium Index Fund............................................. 9
iShares MSCI Brazil (Free) Index Fund....................................... 10
iShares MSCI Canada Index Fund.............................................. 11
iShares MSCI EMU Index Fund................................................. 12
iShares MSCI France Index Fund.............................................. 13
iShares MSCI Germany Index Fund............................................. 14
iShares MSCI Greece Index Fund.............................................. 15
iShares MSCI Hong Kong Index Fund........................................... 16
iShares MSCI Indonesia (Free) Index Fund.................................... 17
iShares MSCI Italy Index Fund............................................... 18
iShares MSCI Japan Index Fund............................................... 19
iShares MSCI Malaysia (Free) Index Fund..................................... 20
iShares MSCI Mexico (Free) Index Fund....................................... 22
iShares MSCI Netherlands Index Fund......................................... 23
iShares MSCI Portugal Index Fund............................................ 24
iShares MSCI Singapore (Free) Index Fund.................................... 25
iShares MSCI South Africa Index Fund........................................ 26
iShares MSCI South Korea Index Fund......................................... 27
iShares MSCI Spain Index Fund............................................... 28
iShares MSCI Sweden Index Fund.............................................. 29
iShares MSCI Switzerland Index Fund......................................... 30
iShares MSCI Taiwan Index Fund.............................................. 31
iShares MSCI Thailand (Free) Index Fund..................................... 32
iShares MSCI Turkey Index Fund.............................................. 33
iShares MSCI United Kingdom Index Fund...................................... 34
iShares MSCI USA Index Fund................................................. 35
Investment Policies and Strategies.......................................... 36
Additional Information About Principal Risk Factors......................... 38
Management
Investment Adviser.......................................................... 41
Shareholder Information
Determination of Net Asset Value............................................ 41
Buying and Selling iShares.................................................. 42
Dividends and Capital Gains Distributions................................... 44
Tax Matters................................................................. 44
Possible Claim.............................................................. 45
Distribution Arrangements................................................... 45
Financial Highlights........................................................ 46
</TABLE>
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iShares
page i
<PAGE>
Introduction
This Prospectus provides you with information you need to make an informed
decision about whether to invest in an iShares MSCI Index Fund (each an "Index
Fund" and collectively, the "Index Funds") of iShares, Inc. (the "Company"). It
is organized to provide you with important facts about the Company as a whole
and each particular Index Fund. The Investment Objective, Principal Investment
Strategies and Principal Risk Factors sections discuss the general strategies
and risks applicable to all Index Funds, while the iShares MSCI Index Funds
section provides important information about each particular Index Fund,
including a brief description of its benchmark index, specific risks associated
with a particular market or region and prior performance.
Investment Objective
Each Index Fund seeks investment results similar to the performance of a single
stock market or all of the stock markets in a geographic region. The
performance of these markets is measured by stock indices compiled by Morgan
Stanley Capital International Inc. ("MSCI") and calculated based on the
reinvestment of net dividends.
Principal Investment Strategies
Unlike many investment companies, an Index Fund does not attempt to "beat" the
market or its benchmark index. Instead, it uses a "passive," or indexing,
investment approach to try to produce investment results that come as close as
possible to matching the performance of its benchmark index. The Index Fund
does this by investing in a representative sample of index stocks that the
investment adviser selects using a "portfolio sampling" technique. However,
most Index Funds do not usually invest in all of the stocks of a benchmark
index. Some Index Funds may even invest in stocks that are not in their
benchmark indices.
The use of an indexing approach may eliminate some of the risks of active
management such as poor stock selection. An indexing approach may also help
increase after-tax performance by keeping portfolio turnover low in comparison
to actively managed investment companies.
One negative feature of indexing is that the Company's investment adviser
cannot change a strategy even if it would be beneficial to do so. For example,
an Index Fund would not ordinarily sell a stock because its issuer was in
financial trouble. It would normally only sell a stock if the stock was removed
from an Index Fund's benchmark index by MSCI or if the investment adviser
believes that selling the stock would make an Index Fund's performance more
like that of its benchmark index.
Under each Index Fund's industry concentration policy, the industry weightings
in an Index Fund must be within 10% of the weightings of the two most heavily
weighted industries in its benchmark index, except when a single stock would
cause a weighting to exceed 25%.
iShares are designed for investors who want a relatively inexpensive passive
approach to investing in a portfolio of stocks from a single country or region.
International diversification is a generally recognized way to reduce
investment portfolio risk. Also, many of the foreign stocks in an Index Fund
(other than the iShares MSCI USA Index Fund) are difficult to purchase or hold,
or are, as a practical matter, not available to retail investors.
The Index Funds offer investors a convenient way to obtain index-based exposure
to the stock markets of a specific country or region. The prices of iShares may
be volatile. Therefore, if you purchase iShares, you should be able to tolerate
sudden, or even drastic, changes in the value of your investment. We cannot
assure that any Index Fund will achieve its investment objective, and you
should understand that your investment (other than an investment in the iShares
MSCI USA Index Fund) will be exposed to the risks of international equity
investing.
Each Index Fund issues and redeems iShares on a continuous basis -- at net
asset value -- only in large specified numbers of iShares called "Creation
Units", usually in exchange for a basket of portfolio
--------------------------------------------------------------------------------
Introduction
page 1
<PAGE>
securities and an amount of cash. As a practical matter, only large
institutions purchase or redeem Creation Units of iShares. Information about
the fees paid when they do this is included in the Company's Statement of
Additional Information. Except when aggregated in Creation Units, iShares are
not redeemable securities.
Principal Risk Factors
You may lose money by investing in an Index Fund. Each Index Fund is also
subject to the following principal risks, more fully described in the
Additional Risk Considerations section in this prospectus. Additional risks
associated with a particular market or region in which an Index Fund invests
are discussed under each Index Fund's profile in the iShares MSCI Index Funds
section below. Some or all of these risks may adversely affect an Index Fund's
net asset value, yield, total return and/or its ability to achieve its
objective:
. Market Risk. The net asset value of an Index Fund will change with changes
in the market value of the stocks it holds.
. Foreign Security Risk. Each Index Fund invests entirely within the equity
markets of a single country or region. These markets (other than for the
iShares MSCI USA Index Fund) are subject to special risks associated with
foreign investment including, but not limited to: generally less liquid and
less efficient securities markets; generally greater price volatility;
exchange rate fluctuations and exchange controls; imposition of restrictions
on the expatriation of funds or other assets; less publicly available
information about issuers; the imposition of taxes; higher transaction and
custody costs; settlement delays and risk of loss; difficulties in enforcing
contracts; less liquidity and smaller market capitalizations; lesser
regulation of securities markets; different accounting and disclosure
standards; governmental interference; higher inflation; social, economic and
political uncertainties; the risk of expropriation of assets; and the risk
of war.
. Management Risk. Because an Index Fund does not fully replicate its
benchmark index and may hold non-index stocks, it is subject to management
risk. This is the risk that the investment advisor's strategy, the
implementation of which is subject to a number of constraints, may not
produce the intended results.
. Currency Risk. Because each Index Fund's net asset value is determined on
the basis of US dollars, you may lose money if you invest in any Index Fund,
other than the iShares MSCI USA Index Fund, if the local currency of a
foreign market depreciates against the US dollar, even if the local currency
value of an Index Fund's holdings goes up.
. Emerging Market Risk. Some foreign markets in which the Index Funds invest
are considered to be emerging market countries. Investment in these
countries subjects an Index Fund to a greater risk of loss than investments
in a developed country. This is due to, among other things, greater market
volatility, lower trading volume, political and economic instability,
greater risk of market shut down and more governmental limitations on
foreign investment policy than those typically found in a developed market.
The following Index Funds invest in emerging markets: the iShares MSCI
Brazil (Free), Greece, Indonesia (Free), Malaysia (Free), Mexico (Free),
South Africa, South Korea, Taiwan, Thailand (Free) and Turkey Index Funds.
. Non-Diversification Risk. Each Index Fund (except for the iShares Japan,
United Kingdom and USA Index Funds) is classified as "non-diversified." This
means that these Index Funds may invest most of their assets in securities
issued by a small number of companies. As a result, these Index Funds are
more susceptible to the risks associated with these particular companies, or
to a single economic, political or regulatory occurrence.
. Trading Risk. While the creation/redemption feature of iShares is designed
to make it likely that iShares will trade close to their net asset value,
disruptions to creations and redemptions (as has occurred because of
Malaysia's capital controls) may result in trading prices that differ
significantly from net asset value. Also, there can be no assurance that an
active trading market will exist for iShares of each Index Fund on the AMEX
(or any other securities exchange on which iShares may trade).
--------------------------------------------------------------------------------
iShares
page 2
<PAGE>
Fees and Expenses
If you invest in an Index Fund, you will pay various expenses, either directly
or indirectly. The following tables and examples describe the fees and expenses
that you may pay if you buy and hold iShares of an Index Fund.
Shareholder Transaction Fees (fees paid directly from your investment). When
buying or selling iShares of an Index Fund through a broker, you will incur
customary brokerage commissions and charges.*
Annual Index Fund Operating Expenses (expenses that are deducted from the Index
Fund's assets). For the Index Funds that have commenced investment operations
(except the iShares MSCI Brazil (Free), EMU, South Korea and Taiwan Index
Funds, which commenced sales of iShares to the public in 2000), total annual
Index Fund operating expenses are based on actual expenses accrued by those
Index Funds for the fiscal year ended August 31, 2000, but actual fees and
expenses from September 1, 1999 to May 7, 2000 have been restated to reflect
the changes in the fee arrangements for the management fees and other expenses
of these Index Funds that became effective on May 8, 2000.
<TABLE>
<CAPTION>
Brazil
iShares MSCI Index Fund Australia Austria Belgium (Free)
----------------------- --------- ------- ------- ------
<S> <C> <C> <C> <C>
Management fees......................... 0.19% 0.00% 0.00% 0.00%
Distribution (Rule 12b-1) fees.......... 0.25% 0.25% 0.25% 0.25%
Other expenses.......................... 0.40% 0.64% 0.61% 0.96%
------ ------ ------ ------
Total annual Index Fund operating
expenses............................... 0.84% 0.89% 0.86% 1.21%
Expense Reimbursement by investment
adviser................................ 0.00% (0.05%) (0.02%) (0.22%)
------ ------ ------ ------
Net Expenses............................ 0.84% 0.84% 0.84% 0.99%
====== ====== ====== ======
<CAPTION>
iShares MSCI Index Fund Canada EMU France Germany
----------------------- ------ --- ------ -------
<S> <C> <C> <C> <C>
Management fees......................... 0.00% 0.00% 0.19% 0.21%
Distribution (Rule 12b-1) fees.......... 0.25% 0.25% 0.25% 0.25%
Other expenses.......................... 0.69% 0.98% 0.40% 0.38%
------ ------ ------ ------
Total annual Index Fund operating
expenses............................... 0.94% 1.23% 0.84% 0.84%
Expense Reimbursement by investment
adviser................................ (0.10%) (0.39%) 0.00% 0.00%
------ ------ ------ ------
Net Expenses............................ 0.84% 0.84% 0.84% 0.84%
====== ====== ====== ======
<CAPTION>
Hong Indonesia
iShares MSCI Index Fund Greece** Kong (Free)** Italy
----------------------- ------ ---- --------- -----
<S> <C> <C> <C> <C>
Management fees......................... 0.00% 0.21% 0.00% 0.16%
Distribution (Rule 12b-1) fees.......... 0.25% 0.25% 0.25% 0.25%
Other expenses.......................... 0.80% 0.38% 0.77% 0.43%
------ ------ ------ ------
Total annual Index Fund operating
expenses............................... 1.05% 0.84% 1.02% 0.84%
Expense Reimbursement by investment
adviser................................ (0.06%) 0.00% (0.03%) 0.00%
------ ------ ------ ------
Net Expenses............................ 0.99% 0.84% 0.99% 0.84%
====== ====== ====== ======
</TABLE>
--------
* Creation Unit Transaction Fees for Institutional Investors. The Company
issues and redeems shares of iShares only in "Creation Units", which are
large blocks of from 50,000 to 600,000 shares, depending on the Index Fund.
As a practical matter, only institutions are capable of purchasing or
redeeming these Creation Units. In connection with the purchase or the
redemption of a Creation Unit of an Index Fund, an investor must pay to the
Company a purchase or redemption transaction fee, which is intended to
offset the issuance/redemption transaction costs incurred by that Index
Fund, including market impact expenses relating to investing in or disposing
of portfolio securities. The basic transaction fees (per Creation Unit
purchase or redemption transaction) range from maximums of $1,500 to $8,000,
depending on the Index Fund. In addition to the basic transaction fee,
Creation Unit purchase or redemption transactions for cash (only if
available) require an additional maximum variable charge based on the value
of the Creation Unit being purchased or redeemed, depending on the Index
Fund. See "Shareholder Information -- Buying and Selling iShares" in this
Prospectus for a list of the Creation Unit maximum transaction fees for each
Index Fund.
** As of the date of this prospectus, this Index Fund has not started
investment operations. These expenses are based on estimated expenses the
Index Fund expects to incur for the current fiscal year. Fees paid to the
administrator are included in "other expenses" and are estimated based on
assumed average daily net assets of $50 million for each of the iShares MSCI
Greece, Indonesia (Free), Portugal, South Africa, Thailand (Free), Turkey
and USA Index Funds.
--------------------------------------------------------------------------------
Fees and Expenses
page 3
<PAGE>
<TABLE>
<CAPTION>
Malaysia Mexico
iShares MSCI Index Fund Japan (Free) (Free) Netherlands
----------------------- ----- -------- ------ -----------
<S> <C> <C> <C> <C>
Management fees.................. 0.28% 0.16% 0.01% 0.12%
Distribution (Rule 12b-1) fees... 0.25% 0.25% 0.25% 0.25%
Other expenses................... 0.31% 0.43% 0.58% 0.47%
----- ----- ----- ------
Total annual Index Fund operating
expenses........................ 0.84% 0.84% 0.84% 0.84%
Expense Reimbursement by
investment adviser.............. 0.00% 0.00% 0.00% 0.00%
----- ----- ----- ------
Net Expenses..................... 0.84% 0.84% 0.84% 0.84%
===== ===== ===== ======
<CAPTION>
Singapore South South
iShares MSCI Index Fund Portugal* (Free) Africa* Korea
----------------------- --------- --------- ------- -----
<S> <C> <C> <C> <C>
Management fees.................. 0.16% 0.20% 0.31% 0.00%
Distribution (Rule 12b-1) fees... 0.25% 0.25% 0.25% 0.25%
Other expenses................... 0.58% 0.39% 0.43% 0.87%
----- ----- ----- ------
Total annual Index Fund operating
expenses........................ 0.99% 0.84% 0.99% 1.12%
Expense Reimbursement by
investment adviser.............. 0.00% 0.00% 0.00% (0.13%)
----- ----- ----- ------
Net Expenses..................... 0.99% 0.84% 0.99% 0.99%
===== ===== ===== ======
<CAPTION>
iShares MSCI Index Fund Spain Sweden Switzerland Taiwan
----------------------- ----- ------ ----------- ------
<S> <C> <C> <C> <C>
Management fees.................. 0.14% 0.09% 0.13% 0.00%
Distribution (Rule 12b-1) fees... 0.25% 0.25% 0.25% 0.25%
Other expenses................... 0.45% 0.50% 0.46% 0.98%
----- ----- ----- ------
Total annual Index Fund operating
expenses........................ 0.84% 0.84% 0.84% 1.23%
Expense Reimbursement by
investment adviser.............. 0.00% 0.00% 0.00% (0.24%)
----- ----- ----- ------
Net Expenses..................... 0.84% 0.84% 0.84% 0.99%
===== ===== ===== ======
<CAPTION>
Thailand United
iShares MSCI Index Fund (Free)*+ Turkey* Kingdom USA*
----------------------- --------- ------ ------- ---
<S> <C> <C> <C> <C>
Management fees.................. 0.21% 0.08% 0.22% 0.25%
Distribution (Rule 12b-1) fees... 0.25% 0.25% 0.25% 0.25%
Other expenses................... 0.53% 0.66% 0.37% 0.34%
----- ----- ----- ------
Total annual Index Fund operating
expenses........................ 0.99% 0.99% 0.84% 0.84%
Expense Reimbursement by
investment adviser.............. 0.00% 0.00% 0.00% 0.00%
----- ----- ----- ------
Net Expenses..................... 0.99% 0.99% 0.84% 0.84%
===== ===== ===== ======
</TABLE>
--------
* As of the date of this prospectus, this Index Fund has not started
investment operations. These expenses are based on estimated expenses the
Index Fund expects to incur for the current fiscal year. Fees paid to the
administrator are included in "other expenses" and are estimated based on
assumed average daily net assets of $50 million for each of the iShares MSCI
Greece, Indonesia (Free), Portugal, South Africa, Thailand (Free), Turkey
and USA Index Funds.
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iShares
page 4
<PAGE>
Example of Expenses
These examples are intended to help you compare the cost of investing in an
Index Fund with the cost of investing in other mutual funds. We are assuming an
initial investment of $10,000, a 5% total return each year with no changes in
operating expenses and redemption at the end of each period. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
<TABLE>
<CAPTION>
iShares MSCI Index Fund 1 Year ($) 3 Years ($) 5 Years ($) 10 Years ($)
----------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Australia................ 110 292 490 1,058
Austria.................. 117 299 496 1,065
Belgium.................. 142 324 521 1,089
Brazil (Free)............ 598 806 N/A N/A
Canada................... 125 306 504 1,072
EMU...................... 132 314 N/A N/A
France................... 97 279 476 1,045
Germany.................. 94 276 473 1,043
Greece................... 171 384 N/A N/A
Hong Kong................ 144 326 523 1,090
Indonesia (Free)......... 167 380 N/A N/A
Italy.................... 99 281 478 1,047
Japan.................... 106 288 485 1,054
Malaysia (Free).......... 583 760 856 1,414
Mexico (Free)............ 102 284 482 1,051
Netherlands.............. 120 302 499 1,067
Portugal................. 141 354 N/A N/A
Singapore (Free)......... 144 325 522 1,090
South Africa............. 159 372 N/A N/A
South Korea.............. 598 806 N/A N/A
Spain.................... 111 293 490 1,059
Sweden................... 110 292 489 1,058
Switzerland.............. 112 294 492 1,060
Taiwan................... 598 806 N/A N/A
Thailand (Free).......... 195 408 N/A N/A
Turkey................... 179 392 N/A N/A
United Kingdom........... 113 295 493 1,061
USA...................... 97 279 N/A N/A
</TABLE>
--------------------------------------------------------------------------------
The iShares MSCI Index Series
page 5
<PAGE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
WEBS Index Series 1 Year ($) 3 Years ($) 5 Years ($) 10 Years ($)
----------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Australia................. 98 280 477 1,046
Austria................... 101 283 480 1,049
Belgium................... 114 296 493 1,060
Brazil (Free)............. 398 606 N/A N/A
Canada.................... 105 287 484 1,052
EMU....................... 109 291 N/A N/A
France.................... 91 273 471 1,040
Germany................... 90 272 469 1,039
Greece.................... 136 349 N/A N/A
Hong Kong................. 115 296 493 1,061
Indonesia (Free).......... 134 347 N/A N/A
Italy..................... 92 274 472 1,041
Japan..................... 96 278 475 1,044
Malaysia (Free)........... 383 560 752 1,304
Mexico (Free)............. 94 276 473 1,042
Netherlands............... 103 285 482 1,050
Portugal.................. 121 334 N/A N/A
Singapore (Free).......... 115 296 493 1,061
South Africa.............. 130 343 N/A N/A
South Korea............... 398 606 N/A N/A
Spain..................... 98 280 478 1,046
Sweden.................... 98 280 477 1,046
Switzerland............... 99 281 478 1,047
Taiwan.................... 398 606 N/A N/A
Thailand (Free)........... 148 361 N/A N/A
Turkey.................... 140 353 N/A N/A
United Kingdom............ 100 281 479 1,047
USA....................... 92 274 N/A N/A
</TABLE>
The above examples are for illustration purposes only and are not a
representation of the Index Funds' actual expenses and returns, either past or
future (e.g., the above examples include the maximum transaction fees
chargeable by an Index Fund).
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iShares
page 6
<PAGE>
The iShares MSCI Index Funds
iShares MSCI Australia Index Fund
CUSIP: 464286103
AMEX Trading Symbol: EWA
------------------------
Fund Investment Objective
The iShares MSCI Australia Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Australian market, as
measured by the MSCI Australia Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 57 stocks traded primarily on
the Australian Stock Exchange. As of that date, the Index's three largest
stocks were Telstra Corp., National Australia Bank and Commonwealth Bank (which
comprised 10.89%, 10.24% and 9.11%, respectively, of the Index's market
capitalization) and its three largest industries were banks, media and metal &
mining (which comprised 25.75%, 14.97% and 13.06%, respectively, of the Index's
market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
(10.19%) 2.18% 19.24%
2000 Year to Date Total Return as of September 30: (11.07%)
Best Quarter Worst Quarter
------------ -------------
13.59% (12.94%)
(Quarter ended December 31, 1998) (Quarter ended December 31, 1997)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
------ ---------------
<S> <C> <C>
Australia Index Fund 19.24% 5.57%
MSCI Australia Index 17.62% 6.06%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 7
<PAGE>
iShares MSCI Austria Index Fund
CUSIP: 464286202
AMEX Trading Symbol: EWO
------------------------
Fund Investment Objective
The iShares MSCI Austria Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Austrian market, as
represented by the MSCI Austria Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 16 stocks traded primarily on
the Vienna Stock Exchange. As of that date, the Index's three largest stocks
were Bank Austria, Verbund Oesterreich Elektrik A and OMV Ag (which comprised
32.28%, 15.36% and 10.57%, respectively, of the Index's market capitalization)
and its three largest industries were banks, electric utilities and oil & gas
(which comprised 32.28%, 15.36% and 10.57%, respectively, of the Index's
market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
1.05% (1.83%) (10.36%)
2000 Year to Date Total Return as of September 30: (10.92%)
Best Quarter Worst Quarter
------------ -------------
12.76% (23.45%)
(Quarter ended March 31, 1998) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------- ---------
<S> <C> <C>
Austria Index Fund (10.36%) (3.74%)
MSCI Austria Index (9.11%) (1.39%)
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
iShares
page 8
<PAGE>
iShares MSCI Belgium Index Fund
CUSIP: 464286301
AMEX Trading Symbol: EWK
------------------------
Fund Investment Objective
The iShares MSCI Belgium Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Belgian market, as measured
by the MSCI Belgium Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 16 stocks traded primarily on
the Brussels Stock Exchange. As of that date, the Index's three largest stocks
were Fortis Belgium, KBC Bancassurance and Electrabel (which comprised 31.61%,
17.11% and 16.53%, respectively, of the Index's market capitalization) and its
three largest industries were diversified financials, banks and electric
utilities (which comprised 39.83%, 17.11% and 16.53%, respectively, of the
Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
11.84% 51.69% (14.05%)
2000 Year to Date Total Return as of September 30: (18.82%)
Best Quarter Worst Quarter
------------ -------------
17.78% (14.06%)
(Quarter ended December 31, 1998) (Quarter ended March 31, 1999)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
-------- ---------
<S> <C> <C>
Belgium Index Fund (14.05%) 12.92%
MSCI Belgium Index (14.26%) 17.05%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 9
<PAGE>
iShares MSCI Brazil (Free) Index Fund
CUSIP: 464286400
AMEX Trading Symbol: EWZ
------------------------
Fund Investment Objective
The iShares MSCI Brazil (Free) Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Brazilian market, as
measured by the MSCI Brazil (Free) Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 47 stocks traded primarily on
the Bolsa de Valores de Sao Paulo. As of that date, the Index's three largest
stocks were Petrobras Pn, Petrobras On and Vale Do Rio Doce Pna (which
comprised 11.69%, 10.57% and 8.27%, respectively, of the Index's market
capitalization) and its three largest industries were oil & gas, diversified
telecommunication services and electric utilities (which comprised 22.73%,
13.37% and 12.58%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that Brazil has in recent history experienced
substantial economic instability resulting from, among other things, periods of
very high inflation and significant devaluations of the Brazilian currency.
Brazil also has suffered from chronic structural public sector deficits. Such
challenges have contributed to high price volatility in the Brazilian equity
markets.
Prior Performance
Since the Fund was first offered to the public on July 11, 2000, and has been
in existence for less than one year, prior performance information is not
presented.
--------------------------------------------------------------------------------
iShares
page 10
<PAGE>
iShares MSCI Canada Index Fund
CUSIP: 464286509
AMEX Trading Symbol: EWC
------------------------
Fund Investment Objective
The iShares MSCI Canada Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Canadian market, as measured
by the MSCI Canada Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 73 stocks traded primarily on
the Toronto Stock Exchange. As of that date, the Index's three largest stocks
were Nortel Networks Corp., Thomson Corp. and BCE Inc. (which comprised 25.22%,
4.98% and 4.89%, respectively, of the Index's market capitalization) and its
three largest industries were communications equipment, banks and media (which
comprised 25.22%, 12.35% and 10.46%, respectively, of the Index's
market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
10.91% (6.47%) 46.13%
2000 Year to Date Total Return as of September 30: 26.99%
Best Quarter Worst Quarter
------------ -------------
21.44% (24.40%)
(Quarter ended December 31, 1999) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
Canada Index Fund 46.13% 17.30%
MSCI Canada Index 53.74% 19.78%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 11
<PAGE>
iShares MSCI EMU Index Fund
CUSIP: 464286608
AMEX Trading Symbol: EZU
------------------------
Fund Investment Objective
The iShares MSCI EMU Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the European Monetary Union
("EMU") markets, as measured by the MSCI EMU Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index is comprised of 295 stocks from the
following ten countries: Austria, Belgium, Finland, France, Germany, Ireland,
Italy, the Netherlands, Portugal and Spain. As of that date, the Index's three
largest stocks were Nokia Corp., Royal Dutch Petroleum and Total Fina Elf
(which comprised 6.17%, 4.04% and 3.34%, respectively, of the Index's market
capitalization) and its three largest industries were banks, diversified
telecommunication services and insurance (which comprised 11.97%, 11.16% and
10.05%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that EMU was implemented only recently (January 1,
1999) and it is anticipated that additional countries will join the system over
time. Also, it is possible that countries may withdraw from EMU or that EMU may
be abandoned at some future time. Any change to EMU may adversely affect the
investment performance of the Fund. If EMU were to be abandoned the Board of
Directors would propose a change in the investment objective of the Series or
cause its liquidation.
Prior Performance
Since the Fund was first offered to the public on July 26, 2000, and has been
in existence for less than one year, prior performance information is not
presented.
--------------------------------------------------------------------------------
iShares
page 12
<PAGE>
iShares MSCI France Index Fund
CUSIP: 464286707
AMEX Trading Symbol: EWQ
------------------------
Fund Investment Objective
The iShares MSCI France Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the French market, as measured
by the MSCI France Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 56 stocks traded primarily on
the Paris Stock Exchange. As of that date, the Index's three largest stocks
were Total Fina Elf, France Telecom and Aventis (which comprised 11.17%, 9.05%
and 6.44%, respectively, of the Index's market capitalization) and its three
largest industries were oil & gas, pharmaceuticals and diversified
telecommunication services (which comprised 11.17%, 11.12% and 9.05%,
respectively, of the Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
11.47% 40.78% 29.97%
2000 Year to Date Total Return as of September 30: (5.29%)
Best Quarter Worst Quarter
------------ -------------
23.51% (16.16%)
(Quarter ended March 31, 1998) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
France Index Fund 29.97% 26.32%
MSCI France Index 29.27% 26.31%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 13
<PAGE>
iShares MSCI Germany Index Fund
CUSIP: 464286806
AMEX Trading Symbol: EWG
------------------------
Fund Investment Objective
The iShares MSCI Germany Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the German market, as measured
by the MSCI Germany Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 55 stocks traded primarily on
the Frankfurt Stock Exchange. As of that date, the Index's three largest stocks
were Deutsche Telekom, Allianz and Siemens (which comprised 13.45%, 11.92% and
9.54%, respectively, of the Index's market capitalization) and its three
largest industries were insurance, diversified telecommunication services and
banks (which comprised 20.03%, 13.45% and 11.91%, respectively, of the Index's
market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
22.75% 28.28% 20.87%
2000 Year to Date Total Return as of September 30: (17.69%)
Best Quarter Worst Quarter
------------ -------------
27.11% (15.76%)
(Quarter ended December 31, 1999) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
Germany Index Fund 20.87% 21.26%
MSCI Germany Index 20.04% 22.15%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
iShares
page 14
<PAGE>
iShares MSCI Greece Index Fund
CUSIP: 464286889
AMEX Trading Symbol: EWE
Fund Investment Objective
The iShares MSCI Greece Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Greek market, as measured by
the MSCI Greece Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 45 stocks traded primarily on
the Athens Stock Exchange. As of that date, the Index's three largest stocks
were OTE Hellenic Telecom, National Bank of Greece and EFG Eurobank Ergasias
(which comprised 14.42%, 14.31% and 10.05%, respectively, of the Index's market
capitalization) and its three largest industries were banks, diversified
telecommunication services and beverages (which comprised 41.52%, 14.42% and
6.45%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that for many years, Greece has had poor relations
with its neighbor Turkey as a result of, among other things, their dispute
over, and joint occupation of, the island Cyprus. This situation has resulted
in threats of war by each side. Also, certain regions of Greece are prone to
natural disasters, including severe earthquakes.
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 15
<PAGE>
iShares MSCI Hong Kong Index Fund
CUSIP: 464286871
AMEX Trading Symbol: EWH
------------------------
Fund Investment Objective
The iShares MSCI Hong Kong Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Hong Kong market, as
measured by the MSCI Hong Kong Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 28 stocks traded primarily on
the Stock Exchange of Hong Kong Limited (SEHK). As of that date, the Index's
three largest stocks were Hutchison Whampoa, Hang Seng Bank and Sun Hung Kai
Properties (which comprised 29.16%, 12.76% and 10.61%, respectively, of the
Index's market capitalization) and its three largest industries were
diversified financials, real estate and banks (which comprised 34.85%, 19.89%
and 14.52%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that in recent times, Hong Kong's economy has been
adversely affected by the Asian economic crisis, contributing to the current
recession. Issues and uncertainties linger regarding the integration of Hong
Kong's economy with that of China, and the manner in which the Chinese
government will honor and interpret the agreement pursuant to which Hong Kong
was returned to China by the United Kingdom in 1998.
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
(26.74%) (9.21%) 54.00%
2000 Year to Date Total Return as of September 30: (12.07%)
Best Quarter Worst Quarter
------------ -------------
26.95% (30.12%)
(Quarter ended December 31, 1998) (Quarter ended December 31, 1997)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
Hong Kong Index Fund 54.00% 6.29%
MSCI Hong Kong Index 59.50% 10.89%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
iShares
page 16
<PAGE>
iShares MSCI Indonesia (Free) Index Fund
CUSIP: 464286863
AMEX Trading Symbol: EWX
Fund Investment Objective
The iShares MSCI Indonesia (Free) Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Indonesian market, as
measured by the MSCI Indonesia (Free) Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 35 stocks traded primarily on
the Jakarta Stock Exchange. As of that date, the Index's three largest stocks
were Telekomunikasi Indonesia, Gudang Guram and Indofood Sukses Makmur (which
comprised 28.43%, 11.69% and 8.69%, respectively, of the Index's market
capitalization) and its three largest industries were diversified
telecommunication services, tobacco and food products (which comprised 28.43%,
11.69% and 11.19%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that the Indonesian economy has been severely
affected by the Asian economic crisis, and the local currency is worth
substantially less, in U.S. dollar terms, than it was in early 1998. The
Indonesian economy has also been affected by social and political instability,
including independence movements in several areas and disruptions caused by a
recent change from one-party rule. This instability has resulted in a net
outflow of foreign capital in recent times.
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 17
<PAGE>
iShares MSCI Italy Index Fund
CUSIP: 464286855
AMEX Trading Symbol: EWI
------------------------
Fund Investment Objective
The iShares MSCI Italy Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Italian market, as measured
by the MSCI Italy Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 44 stocks traded primarily on
the Milan Stock Exchange. As of that date, the Index's three largest stocks
were Tim Ord, ENI and Assicurazioni Generali (which comprised 13.13%, 12.15%
and 11.43%, respectively, of the Index's market capitalization) and its three
largest industries were banks, diversified telecommunication services and
wireless telecommunication services (which comprised 21.23%, 15.38% and 14.88%,
respectively, of the Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
35.77% 50.24% 0.53%
2000 Year to Date Total Return as of September 30: (6.79%)
Best Quarter Worst Quarter
------------ -------------
34.44% (10.61%)
(Quarter ended March 31, 1998) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------ ---------
<S> <C> <C>
Italy Index Fund 0.53% 24.67%
MSCI Italy Index (0.26%) 24.65%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
iShares
page 18
<PAGE>
iShares MSCI Japan Index Fund
CUSIP: 464286848
AMEX Trading Symbol: EWJ
------------------------
Fund Investment Objective
The iShares MSCI Japan Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Japanese market, as measured
by the MSCI Japan Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 280 stocks traded primarily on
the Tokyo Stock Exchange. As of that date, the Index's three largest stocks
were Toyota Motor Corp., NTT Corp. and Sony Corp. (which comprised 6.18%, 5.15%
and 3.18%, respectively, of the Index's market capitalization) and its three
largest industries were banks, automobiles and household durables (which
comprised 9.93%, 8.88% and 8.00%, respectively, of the Index's
market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that the Japanese economy faces several concerns,
including: a financial system with large levels of nonperforming loans; over-
leveraged corporate balance sheets; an aging workforce; a labor market
undergoing fundamental structural changes, as traditional lifetime employment
clashes with the need for increased labor mobility; extensive cross-ownership
by major corporations; a changing corporate governance structure; and large
government deficits. Japan's economy is heavily dependent on international
trade and has been adversely affected by trade tariffs and other protectionist
measures.
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
(23.63%) 3.53% 57.89%
2000 Year to Date Total Return as of September 30: (15.78%)
Best Quarter Worst Quarter
------------ -------------
26.25% (19.80%)
(Quarter ended December 31, 1998) (Quarter ended December 31, 1997)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
Japan Index Fund 57.89% 2.67%
MSCI Japan Index 61.53% 3.80%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 19
<PAGE>
iShares MSCI Malaysia (Free) Index Fund
CUSIP: 464286830
AMEX Trading Symbol: EWM
------------------------
Fund Investment Objective
The iShares MSCI Malaysia (Free) Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Malaysian market, as
measured by the MSCI Malaysia (Free) Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 74 stocks traded primarily on
the Kuala Lumpur Stock Exchange. As of that date, the Index's three largest
stocks were Tenaga Nasional, Telekom Malaysia and Malayan Banking (which
comprised 14.89%, 14.44% and 12.37%, respectively, of the Index's market
capitalization) and its three largest industries were banks, electric utilities
and diversified telecommunication services (which comprised 20.47%, 17.47% and
15.24%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that Malaysian currency volatility and general
economic deterioration led to the imposition of stringent capital controls in
September 1998, including a one-year prohibition on repatriation of capital and
an indefinite prohibition on free transfers of securities. The capital controls
were subsequently amended in a number of respects. The Company suspended
creations of the Fund when the capital controls were implemented, and advised
investors that it would, to the extent possible under the applicable Malaysian
regulations, deliver Malaysian ringgits in satisfaction of redemption requests
received. The disruption of the creation/redemption mechanism for the Fund
adversely affected the trading market for iShares of the Fund, resulting in
their trading at prices that differed materially from their net asset value on
many days.
In May 2000, the Company commenced offers and redemptions of Creation Units of
the Fund for U.S. dollars. In connection with the decision to redeem Creation
Units of the Fund for U.S. dollars, the Company combined its accounts in
Malaysia effective May 12, 2000, and Malaysian securities acquired by the Fund
before September 1, 1998 acquired a basis for purposes of the Malaysian profits
levy equal to their fair market value at the time of the combination.
Previously, the proceeds of such securities could be repatriated without
payment of the profits levy. Under the current Malaysian capital controls, the
Fund will pay a profits levy at a rate of 10% (with any profits computed based
on the cost basis for purposes of the Malaysian capital controls) when it sells
Malaysian securities and repatriates the proceeds (e.g., in connection with
redemptions). Since the levy is not a foreign income tax it will not be "passed
through" to shareholders of the Fund for possible use as a foreign tax credit.
The Company recently received regulatory relief from the Malaysian authorities
and is currently investigating the possibility of re-instituting sales and
redemptions of Creation Units of the Fund's iShares on an "in-kind" basis, but
there can be no assurance that the Company will be able to offer and redeem
such Creation Units on an in-kind basis at any time in the future.
The Malaysian capital controls have been changed in significant ways since they
were first adopted without warning on September 1, 1998. There can be no
assurance that the Malaysian capital controls will not be changed in the future
in ways that adversely affect the Fund and its shareholders. Since the capital
controls were imposed, the iShares of the Fund have often traded at discounts
or premiums to their net asset value. Since the Company's decision to permit
offers and redemptions of Creation Units of the Fund's iShares for U.S.
dollars, they have traded at prices that have generally been close to their net
asset values. However, there can be no assurances that this will continue to be
the case.
--------------------------------------------------------------------------------
iShares
page 20
<PAGE>
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
(66.93%) (29.31%) 92.98%
2000 Year to Date Total Return as of September 30: (12.26%)
Best Quarter Worst Quarter
------------ -------------
122.01% (46.01%)
(Quarter ended June 30, 1999) (Quarter ended June 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------ ---------
<S> <C> <C>
Malaysia (Free) Index Fund 92.98% (16.18%)
MSCI Malaysia (Free) Index 114.61% (14.70%)
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 21
<PAGE>
iShares MSCI Mexico (Free) Index Fund
CUSIP: 464286822
AMEX Trading Symbol: EWW
------------------------
Fund Investment Objective
The iShares MSCI Mexico (Free) Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Mexican market, as
measured by the MSCI Mexico (Free) Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 23 stocks traded primarily on
the Mexican Stock Exchange. As of that date, the Index's three largest stocks
were Telefonos Mexico L, Walmart Mexico V and Grupo Modelo C (which comprised
35.30%, 8.56% and 7.56%, respectively, of the Index's market capitalization)
and its three largest industries were diversified telecommunication services,
beverages and banks (which comprised 35.30%, 12.41% and 11.91%, respectively,
of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that the Mexican economy is heavily dependent on
the health of the US economy, as the United States purchases most of Mexico's
exports. Mexico also has suffered from severe currency devaluations in the
past, and has been destabilized by local insurrections in certain regions,
particularly the State of Chiapas. In addition, there is a risk of disruption
following the recent election of a president who is not a member of the
political party that has dominated Mexico for many decades.
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
48.53% (35.00%) 76.12%
2000 Year to Date Total Return as of September 30: (12.89%)
Best Quarter Worst Quarter
------------ -------------
35.92% (24.30%)
(Quarter ended December 31, 1999) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
1 Inception
Year (3/12/96)
----- ---------
<S> <C> <C>
Mexico (Free) Index Fund 76.12% 19.40%
MSCI Mexico (Free) Index 80.07% 22.57%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
iShares
page 22
<PAGE>
iShares MSCI Netherlands Index Fund
CUSIP: 464286814
AMEX Trading Symbol: EWN
------------------------
Fund Investment Objective
The iShares MSCI Netherlands Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Dutch market, as measured
by the MSCI Netherlands Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 25 stocks traded primarily on
the Amsterdam Stock Exchange. As of that date, the Index's three largest stocks
were Royal Dutch Petroleum Co., ING Groep and Aegon (which comprised 26.53%,
14.53% and 11.47%, respectively, of the Index's market capitalization) and its
three largest industries were oil & gas, diversified financials and insurance
(which comprised 26.53%, 14.53% and 11.47%, respectively, of the Index's market
capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
20.11% 24.09% 4.54%
2000 Year to Date Total Return as of September 30: (9.25%)
Best Quarter Worst Quarter
------------ -------------
17.76% (15.33%)
(Quarter ended December 31, 1998) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------ ---------
<S> <C> <C>
Netherlands Index Fund 4.54% 19.13%
MSCI Netherlands Index 6.88% 20.66%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 23
<PAGE>
iShares MSCI Portugal Index Fund
CUSIP: 464286673
AMEX Trading Symbol: EZP
Fund Investment Objective
The iShares MSCI Portugal Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Portuguese market, as
measured by the MSCI Portugal Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 15 stocks traded primarily on
the Lisbon Stock Exchange. As of that date, the Index's three largest stocks
were BCP Banco Comercial Nom, EDP Electridade Portugal and Portugal Telecom
(which comprised 23.53%, 21.05% and 19.71%, respectively, of the Index's market
capitalization) and its three largest industries were banks, electric utilities
and diversified telecommunication services (which comprised 30.69%, 21.05% and
19.71%, respectively, of the Index's market capitalization).
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
--------------------------------------------------------------------------------
iShares
page 24
<PAGE>
iShares MSCI Singapore (Free) Index Fund
CUSIP: 464286673
AMEX Trading Symbol: EWS
------------------------
Fund Investment Objective
The iShares MSCI Singapore (Free) Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Singaporean market, as
measured by the MSCI Singapore (Free) Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 30 stocks traded primarily on
the Singapore Stock Exchange. As of that date, the Index's three largest stocks
were DBS Group Holdings, Singapore Airlines and Singapore Telecom (which
comprised 16.61%, 13.22% and 11.51%, respectively, of the Index's market
capitalization) and its three largest industries were banks, airlines and
diversified telecommunication services (which comprised 34.77%, 13.22% and
11.51%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that as a small open economy, Singapore is
particularly vulnerable to external economic influences, including in recent
times the Asian economic crisis. While Singapore has been a leading
manufacturer of electronics goods, the extent to which other countries can
successfully compete with Singapore in this and related industries, and adverse
Asian economic influences generally, may adversely impact Singapore's economy.
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
(43.87%) (5.44%) 55.35%
2000 Year to Date Total Return as of September 30: (24.15%)
Best Quarter Worst Quarter
------------ -------------
55.99% (36.28%)
(Quarter ended December 31, 1998) (Quarter ended June 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
1 Since Inception
Year (3/12/96)
----- ---------------
<S> <C> <C>
Singapore (Free) Index Fund 55.35% (5.65%)
MSCI Singapore (Free) Index 60.17% (3.27%)
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 25
<PAGE>
iShares MSCI South Africa Index Fund
CUSIP: 464286780
AMEX Trading Symbol: EWR
------------------------
Fund Investment Objective
The iShares MSCI South Africa Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the South African market, as
measured by the MSCI South Africa Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 45 stocks traded primarily on
the Johannesburg Stock Exchange. As of that date, the Index's three largest
stocks were DeBeers Consolidated Mines, Anglo American Platinum and Dimension
Data Holdings (which comprised 12.34%, 9.93% and 9.05%, respectively, of the
Index's market capitalization) and its three largest industries were metals &
mining, banks and IT consulting services (which comprised 30.66%, 13.48% and
9.44%, respectively, of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that South Africa has in the past experienced
internal racial and political turmoil in connection with the recently-abolished
system of apartheid. While South Africa's international isolation ended with
the enfranchisement of the black majority, the country continues to face
significant social and economic challenges, including managing the expectations
of its people in the post-apartheid era, the challenge of a major AIDS crisis,
and the risk of disruptions from crises in neighboring countries such as
Zimbabwe.
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
--------------------------------------------------------------------------------
iShares
page 26
<PAGE>
iShares MSCI South Korea Index Fund
CUSIP: 464286772
AMEX Trading Symbol: EWY
------------------------
Fund Investment Objective
The iShares MSCI South Korea Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the South Korean market, as
measured by the MSCI Korea Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 69 stocks traded primarily on
the South Korean Stock Exchange. As of that date, the Index's three largest
stocks were Samsung Electronics Co., SK Telecom Co. and Kepco Korea Electric
Power (which comprised 24.55%, 18.82% and 12.74%, respectively, of the Index's
market capitalization) and its three largest industries were semiconductor
equipment & products, wireless telecommunication services and electric
utilities (which comprised 24.99%, 18.82% and 12.74%, respectively, of the
Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that while South Korea's relations with communist
North Korea have improved somewhat in recent times, each has substantial
military capabilities, and there is a risk of war between North and South Korea
at any time. Any outbreak of hostilities between the two countries could have a
severe adverse effect on the South Korean economy and securities markets.
Prior Performance
Since the Fund was first offered for sale to the public on May 10, 2000, and
has been in existence for less than one year, prior performance information is
not presented.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 27
<PAGE>
iShares MSCI Spain Index Fund
CUSIP: 464286764
AMEX Trading Symbol: EWP
------------------------
Fund Investment Objective
The iShares MSCI Spain Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Spanish market, as measured
by the MSCI Spain Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 34 stocks traded primarily on
the Madrid Stock Exchange. As of that date, the Index's three largest stocks
were Telefonica, BBVA and BSCH BCO Santander Central (which comprised 28.54%,
17.65% and 16.77%, respectively, of the Index's market capitalization) and its
three largest industries were banks, diversified telecommunication services and
electric utilities (which comprised 34.43%, 28.54% and 13.98%, respectively, of
the Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
23.90% 51.30% (2.12%)
2000 Year to Date Total Return as of September 30: (10.26%)
Best Quarter Worst Quarter
------------ -------------
38.58% (16.56%)
(Quarter ended March 31, 1998) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
------ ---------------
<S> <C> <C>
Spain Index Fund (2.12%) 27.07%
MSCI Spain Index 4.83% 29.99%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
iShares
page 28
<PAGE>
iShares MSCI Sweden Index Fund
CUSIP: 464286756
AMEX Trading Symbol: EWD
------------------------
Fund Investment Objective
The iShares MSCI Sweden Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Swedish market, as measured
by the MSCI Sweden Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 33 stocks traded primarily on
the Stockholm Stock Exchange. As of that date, the Index's three largest stocks
were Ericsson (Lm) B, Nordic Baltic Holdings and Skandia Forsakring (which
comprised 40.39%, 8.78% and 6.69%, respectively, of the Index's market
capitalization) and its three largest industries were communications equipment,
banks and machinery (which comprised 40.39%, 16.75% and 7.76%, respectively, of
the Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
11.00% 11.06% 63.93%
2000 Year to Date Total Return as of September 30: (8.35%)
Best Quarter Worst Quarter
------------ -------------
36.63% (24.05%)
(Quarter ended December 31, 1999) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
------ ---------------
<S> <C> <C>
Sweden Index Fund 63.93% 29.47%
MSCI Sweden Index 79.74% 33.78%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 29
<PAGE>
iShares MSCI Switzerland Index Fund
CUSIP: 464286749
AMEX Trading Symbol: EWL
------------------------
Fund Investment Objective
The iShares MSCI Switzerland Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Swiss market, as measured
by the MSCI Switzerland Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 32 stocks traded primarily on
the Zurich Stock Exchange. As of that date, the Index's three largest stocks
were Novartis, Nestle and Roche Holding Genuss (which comprised 20.27%, 14.83%
and 12.06%, respectively, of the Index's market capitalization) and its three
largest industries were pharmaceuticals, banks and food products (which
comprised 35.52%, 19.66% and 14.83%, respectively, of the Index's
market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
35.23% 18.27% (3.25%)
2000 Year to Date Total Return as of September 30: (6.87%)
Best Quarter Worst Quarter
------------ -------------
24.63% (22.09%)
(Quarter ended December 31, 1998) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
------ ---------------
<S> <C> <C>
Switzerland Index Fund (3.25%) 12.00%
MSCI Switzerland Index (7.02%) 13.95%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
iShares
page 30
<PAGE>
iShares MSCI Taiwan Index Fund
CUSIP: 464286731
AMEX Trading Symbol: EWT
------------------------
Fund Investment Objective
The iShares MSCI Taiwan Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Taiwanese market, as
measured by the MSCI Taiwan Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 75 stocks traded primarily on
the Taiwan Stock Exchange. As of that date, the Index's three largest stocks
were Taiwan Semiconductor Mfg., United Microelectronics and Cathay Life
Insurance Co. (which comprised 19.98%, 11.38% and 6.08%, respectively, of the
Index's market capitalization) and its three largest industries were
semiconductor equipment & products, banks and computers & peripherals (which
comprised 36.64%, 11.14% and 10.39%, respectively, of the Index's market
capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that owing to Taiwan's size and geographic
proximity to the People's Republic of China, and its history of political
contention with China (which regards Taiwan as a renegade province),
developments in Taiwan's ongoing relations with China, including the ongoing
risk of invasion by or war with China and other factors, may materially impact
the Taiwanese economy and securities markets. The recent election of a new
government in Taiwan has resulted in increased tensions with China, which is
concerned that the new government is in favor of independence for Taiwan.
Prior Performance
Since the Fund was first offered to the public on June 21, 2000, and has been
in existence for less than one year, prior performance information is not
presented.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 31
<PAGE>
iShares MSCI Thailand (Free) Index Fund
CUSIP: 464286723
AMEX Trading Symbol: EWV
------------------------
Fund Investment Objective
The iShares MSCI Thailand (Free) Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Thai market, as measured
by the MSCI Thailand (Free) Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 35 stocks traded primarily on
the Stock Exchange of Thailand. As of that date, the Index's three largest
stocks were Advanced Information Services Fgn., PTT Exploration & Prod. Fgn.
and Telecomasia Corp. Fgn. (which comprised 15.03%, 10.92% and 9.07%,
respectively, of the Index's market capitalization) and its three largest
industries were banks, wireless telecommunication services and oil & gas (which
comprised 22.51%, 15.03% and 10.92%, respectively, of the Index's market
capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that Thailand has experienced considerable economic
turmoil in the recent past, including severe devaluation of the Thai currency
and the failure of numerous financial institutions.
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
--------------------------------------------------------------------------------
iShares
page 32
<PAGE>
iShares MSCI Turkey Index Fund
CUSIP: 464286715
AMEX Trading Symbol: EZT
------------------------
Fund Investment Objective
The iShares MSCI Turkey Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the Turkish market, as measured
by the MSCI Turkey Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 40 stocks traded primarily on
the Istanbul Stock Exchange. As of that date, the Index's three largest stocks
were Turkiye Is Bankasi C100%, Yapi Ve Kredi Bankasi and Turkiye Garanti
Bankasi (which comprised 26.90%, 10.11% and 6.11%, respectively, of the Index's
market capitalization) and its three largest industries were banks, automobiles
and household durables (which comprised 43.31%, 6.88% and 6.84%, respectively,
of the Index's market capitalization).
Fund-Specific Risks
In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that recently, certain regions in Turkey have been
severely adversely impacted by earthquakes. In addition, Turkey has had poor
relations with Greece for many years due in large part to their dispute over,
and joint occupation of, the island of Cyprus. This situation has resulted in
threats of war by each side. The Turkish economy has been hampered by high
rates of inflation and ongoing currency devaluations for many years. In
addition, Turkey has experienced disruptions related to Kurdish separatists and
disputes concerning the proper role of religion in the government.
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 33
<PAGE>
iShares MSCI United Kingdom Index Fund
CUSIP: 464286699
AMEX Trading Symbol: EWU
------------------------
Fund Investment Objective
The iShares MSCI United Kingdom Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the British market, as
measured by the MSCI United Kingdom Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 117 stocks traded primarily on
the London Stock Exchange. As of that date, the Index's three largest stocks
were Vodafone Group, BP Amoco and HSBC Holdings (GB) (which comprised 11.83%,
9.88% and 6.83%, respectively, of the Index's market capitalization) and its
three largest industries were banks, pharmaceuticals and wireless
tecommunication services (which comprised 17.91%, 15.18% and 11.83%,
respectively, of the Index's market capitalization).
Prior Performance
The chart and table below give you a picture of the Fund's long-term
performance. The information shows how the Fund's performance has varied year
by year and provides some indication of the risks of investing in the Fund.
Annual Total Returns as of 12/31/99
1997 1998 1999
---------- --------- ----------
20.85% 18.42% 12.14%
2000 Year to Date Total Return as of September 30: (12.63%)
Best Quarter Worst Quarter
------------ -------------
18.43% (10.56%)
(Quarter ended March 31, 1998) (Quarter ended September 30, 1998)
Average Annual Total Returns as of 12/31/99 -- Comparison
<TABLE>
<CAPTION>
1 Since Inception
Year (3/12/96)
----- ---------------
<S> <C> <C>
United Kingdom Index Fund 12.14% 20.87%
MSCI United Kingdom Index 12.45% 21.64%
</TABLE>
Past performance is not necessarily an indicator of how the Fund will perform
in the future.
--------------------------------------------------------------------------------
iShares
page 34
<PAGE>
iShares MSCI USA Index Fund
CUSIP: 464286681
AMEX Trading Symbol: EZA
------------------------
Fund Investment Objective
The iShares MSCI USA Index Fund (the "Fund") seeks to provide investment
results that correspond generally to the price and yield performance of
publicly traded securities in the aggregate in the U.S. market, as measured by
the MSCI USA Index (the "Index").
Benchmark Index Information
As of November 30, 2000, the Index consisted of 335 stocks traded primarily on
the New York Stock Exchange. As of that date, the Index's three largest stocks
were General Electric Co., Cisco Systems and Exxon Mobil Corp. (which comprised
5.10%, 3.50% and 3.18%, respectively, of the Index's market capitalization) and
its three largest industries were pharmaceuticals, diversified
telecommunication services and communications equipment (which comprised
11.60%, 6.36% and 6.23%, respectively, of the Index's market capitalization).
Prior Performance
As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.
--------------------------------------------------------------------------------
The iShares MSCI Index Funds
page 35
<PAGE>
Investment Policies and Strategies
Indexing Investment Approach. Index Funds are not managed according to
traditional methods of "active" investment management, which involve the buying
and selling of securities based on economic, financial and market analysis and
investment judgment. Instead, each Index Fund, using a "passive" or indexing
investment approach, attempts to approximate the investment performance of its
benchmark MSCI Index by investing in a portfolio of stocks selected by using
quantitative analytical procedures. Stocks are selected for inclusion in an
Index Fund in order to have investment characteristics (based on market
capitalization and industry weightings), fundamental characteristics (such as
return variability, earnings valuation and yield) and liquidity measures that,
taken together, are similar to those of the benchmark MSCI Index taken in its
entirety.
Portfolio Sampling. Generally, an Index Fund does not hold all of the issues
that comprise its benchmark MSCI Index, due in part to the costs involved and,
in certain instances, the potential illiquidity of certain securities. Instead,
an Index Fund will attempt to hold a representative sample of the securities in
its benchmark MSCI Index, which will be selected by the investment adviser
using quantitative analytical models in a technique known as "portfolio
sampling". Under this technique, each stock is considered for inclusion in an
Index Fund based on its contribution to certain capitalization, industry and
fundamental investment characteristics. The investment adviser seeks to
construct the portfolio of an Index Fund so that, in the aggregate, its
capitalization, industry and fundamental investment characteristics perform
like those of its benchmark MSCI Index. Over time, the portfolio composition of
an Index Fund may be altered (or "rebalanced") to reflect changes in the
characteristics of its benchmark MSCI Index or to bring the performance and
characteristics of an Index Fund more in line with that of its benchmark MSCI
Index. Rebalancing may also be required for tax purposes. These rebalancings
will require an Index Fund to incur transaction costs and other expenses.
An Index Fund reserves the right to invest in all of the securities in its
benchmark MSCI Index, and an Index Fund with a benchmark index comprised of
relatively few stocks may do so on a regular basis. In addition, the iShares
MSCI Australia, Austria, Belgium, Brazil (Free), Greece, Hong Kong, Indonesia
(Free), Italy, Mexico (Free), Netherlands, Portugal, Singapore (Free), South
Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand (Free) and
Turkey Index Funds may hold stocks that are not in their benchmark MSCI Index
if the investment adviser determines this to be appropriate in light of the
Index Fund's investment objective and relevant investment constraints.
Investment Assets. Each Index Fund has a policy to remain as fully invested as
practicable in a pool of equity securities. Each Index Fund will normally
invest at least 95% of its total assets in stocks that are represented in its
benchmark MSCI Index except, in limited circumstances, to help meet shareholder
redemptions of Creation Units. To comply with the US Internal Revenue Code, and
manage corporate actions and index changes in the smaller markets, each of the
iShares MSCI Australia, Austria, Belgium, Brazil (Free), Greece, Hong Kong,
Indonesia (Free), Italy, Mexico (Free), Netherlands, Portugal, Singapore
(Free), South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand
(Free) and Turkey Index Funds will at all times invest at least 80% of its
total assets in such stocks and at least half of the remaining 20% of its total
assets in such stocks or in stocks included in the relevant market, but not in
its benchmark MSCI Index.
Each Index Fund may invest its remaining assets in money market instruments or
funds that invest exclusively in money market instruments (subject to
applicable limitations under the Investment Company Act of 1940), in repurchase
agreements, in stocks that are in the relevant market but not its benchmark
MSCI Index (as indicated above), and/or in combinations of stock index futures
contracts, options on futures contracts, stock index options, stock index
swaps, cash, local currency and forward currency exchange contracts that are
intended to provide an Index Fund with exposure to a stock. The investment
adviser may attempt to reduce tracking error by using futures contracts whose
behavior is expected to represent the market performance of the Index Fund's
underlying securities, although there can be no assurance that these futures
will correlate with the performance of its benchmark
--------------------------------------------------------------------------------
iShares
page 36
<PAGE>
MSCI Index. An Index Fund will not use these instruments to leverage, or borrow
against, their securities holdings or for speculative purposes. In some cases
the use of these special investment techniques can adversely affect the
performance of an Index Fund.
Lending of Securities. Each Index Fund may lend its portfolio securities. In
connection with these loans, the Company receives liquid collateral equal to at
least 102% of the value of the portfolio securities being lent. This collateral
is marked to market on a frequent basis. Notwithstanding such collateral, the
Index Fund would lose value to the extent that a borrower defaults on its
obligation to return borrowed portfolio securities and the value of the
collateral is less than the value of the borrowed securities.
Industry Concentration. With respect to the two most heavily weighted
industries or groups of industries in its benchmark MSCI Index, an Index Fund
will invest in securities (consistent with its investment objective and other
investment policies) so that the weighting of each such industry or group of
industries in the Index Fund does not diverge by more than 10% from the
respective weighting of such industry or group of industries in its benchmark
MSCI Index. An exception to this policy is that if an investment in the stock
of a single issuer would account for more than 25% of the Index Fund's assets,
that Index Fund will invest less than 25% of its net assets in such stock and
will reallocate the excess to stock(s) in the same industry or group of
industries, and/or to stock(s) in another industry or group of industries, in
its benchmark MSCI Index. Each Index Fund will evaluate these industry
weightings at least weekly, and at the time of evaluation will adjust its
portfolio composition to the extent necessary to maintain compliance with the
above policy. An Index Fund may not concentrate its investments except as
discussed above. This policy is a fundamental investment policy and may not be
changed without the approval of a majority of an Index Fund's shareholders.
As of November 30, 2000, as a result of this policy with respect to industry
concentration, the following Index Funds were concentrated (that is, invested
25% or more of the value of their assets) in the specified industries:
<TABLE>
<CAPTION>
iShares MSCI Index Fund Industry or Industries
----------------------- ----------------------
<S> <C>
Austria Banks
Canada Communications Equipment
Hong Kong Diversified Financials
Italy Telecommunication Services
Singapore Banks
Sweden Communications Equipment
Switzerland Pharmaceuticals
Taiwan Semiconductors Equipment & Products
</TABLE>
Borrowing Money. An Index Fund may borrow money from a bank up to a limit of
33% of the market value of its assets, but only for temporary or emergency
purposes. To the extent that an Index Fund borrows money, it may be leveraged;
at such times, the Index Fund's value may appreciate or depreciate more rapidly
than its benchmark MSCI Index. An Index Fund will not make cash purchases of
securities when the amount of money borrowed exceeds 5% of the market value of
its total assets.
Fundamental Policies. The concentration policy of each Index Fund is a
fundamental policy that may be changed only with shareholder approval. Each of
the other investment policies described in this Prospectus is a non-fundamental
policy that may be changed by the Board of Directors without shareholder
approval. Shareholders will be notified before any material change in these
policies is implemented. Certain other fundamental policies of the Company are
set forth in the Statement of Additional Information under "Investment
Limitations."
Tracking Error. Due to the use of the portfolio sampling technique described
above and other factors discussed in this Prospectus, an Index Fund is not
expected to track its benchmark MSCI Index with the same degree of accuracy as
would an investment vehicle that invested in every component security of its
benchmark index. The investment adviser expects that, over time, an Index
Fund's "expected tracking error" relative to the performance of its benchmark
index will be less than 5% and its tracking
Investment Policies and Strategies
--------------------------------------------------------------------------------
page 37
<PAGE>
error will generally be greater if its benchmark index has fewer rather than
greater numbers of component stocks. An expected tracking error of 5% means
that there is a 68% probability that the net asset value of an Index Fund will
be within plus or minus 5% of its benchmark MSCI Index level after one year,
without rebalancing the portfolio composition. Thus, actual tracking error in a
period may exceed 5%, perhaps significantly, even though the expected tracking
error is less than 5%. In addition, it is possible that future developments
(e.g., the domination of an Index Fund's benchmark index by a small number of
stocks) may result in an Index Fund having an unexpected tracking error of
greater than 5%. For the fiscal year ended August 31, 2000, the following Index
Funds had a tracking error greater than 5%: Canada (-13.34%); and Sweden (-
12.50%). A tracking error of 0% would indicate perfect tracking, which would be
achieved when the net asset value of an Index Fund increases or decreases in
exact proportion to changes in its benchmark MSCI Index.
The following factors may adversely affect the tracking of an Index Fund to
that of its benchmark MSCI Index:
. the Index Funds must pay various expenses, while the benchmark MSCI Indices
do not reflect any expenses;
. since the investment portfolios of the Index Funds do not generally replicate
the underlying MSCI Indices, their investment performance is likely to differ
from that of the MSCI Indices;
. the portfolio sampling technique used to manage the Index Funds is based on
historical price relationships and changes to those relationships can
adversely affect tracking. In some situations, the requirements of the US
Internal Revenue Code can adversely affect tracking by preventing an Index
Fund from holding optimal positions in particular securities;
. an Index Fund must comply with regulatory constraints that do not affect the
calculation of its corresponding MSCI Index;
. the existence of uninvested assets in the portfolios (principally cash and
deferred organizational expenses) while the benchmark MSCI Indices do not
have univested assets;
. Index Funds receive interest income on uninvested cash and most Index Funds
receive income from securities lending activities, whereas the benchmark MSCI
Indices do not have such sources of income; and
. the fact that an Index Fund may be subject to a different foreign withholding
tax rate than that assumed by its benchmark MSCI Index.
Although the investment adviser regularly monitors the tracking error of each
Index Fund, there can be no assurance that any Index Fund will achieve any
particular level of tracking error relative to the performance of its benchmark
MSCI Index. Semi-annual and annual reports of the Company disclose tracking
error for each Index Fund over the previous six-month period, and in the event
that tracking error exceeds 5%, the Board of Directors will consider whether it
would be appropriate to take action.
Additional Information About Principal Risk Factors
An investment in iShares of an Index Fund involves risks similar to those of
investing in a broad-based portfolio of equity securities traded on exchanges
in the relevant foreign securities market, including market fluctuations caused
by factors such as economic and political developments, changes in interest
rates and perceived trends in stock prices. Investing in iShares MSCI Index
Funds other than the iShares MSCI USA Index Fund generally involves certain
risks and considerations not typically associated with investing in a fund that
invests in the securities of US issuers. The principal risk factors, which
could decrease the value of your investment, are listed and described below:
. less liquid and less efficient securities markets;
. greater price volatility;
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iShares
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<PAGE>
. exchange rate fluctuations and exchange controls;
. less publicly available information about issuers;
. the imposition of withholding or other taxes;
. the imposition of restrictions on the expatriation of funds or other assets
of an Index Fund;
. higher transaction and custody costs and delays and risks of loss attendant
in settlement procedures;
. difficulties in enforcing contractual obligations;
. lesser levels of regulation of the securities markets;
. different accounting, disclosure and reporting requirements;
. more substantial government involvement in the economy;
. higher rates of inflation;
. greater social, economic, and political uncertainty and the risk of
nationalization or expropriation of assets and risk of war.
Index Funds that issue and/or redeem Creation Units for cash (the Brazil
(Free), Malaysia (Free), South Korea and Taiwan Index Funds) may have greater
tracking error than other Index Funds since they are at risk that the prices
they pay or receive for portfolio securities will be different than the prices
in effect when they determine the value of the Creation Units being issued
or redeemed.
Volatility of Foreign Equity Markets. The US dollar performance of foreign
equity markets, particularly emerging markets, has generally been substantially
more volatile than that of US markets. Greater volatility connotes greater
uncertainty as to a portfolio's liquidation value at a future point in time.
The volatility information below is a measurement of the standard deviation of
five years of monthly total returns of the MSCI Index. The percentages reflect
the historical average annual volatility for each MSCI Index, based on monthly
total returns of the MSCI Indices from November 30, 1995 to November 30, 2000.
<TABLE>
<S> <C> <C> <C>
MSCI Australia.......... 4.51% MSCI Netherlands........ 8.46%
MSCI Austria............ 7.22% MSCI Portugal........... 8.90%
MSCI Belgium............ 7.34% MSCI Singapore (Free)... 9.75%
MSCI Brazil (Free)...... 15.22% MSCI South Africa....... 9.27%
MSCI Canada............. 8.53% MSCI South Korea........ 16.65%
MSCI France............. 7.38% MSCI Spain.............. 9.46%
MSCI Germany............ 9.10% MSCI Sweden............. 10.65%
MSCI Greece............. 10.85% MSCI Switzerland........ 7.39%
MSCI Hong Kong.......... 11.15% MSCI Taiwan............. 10.13%
MSCI Indonesia (Free)... 21.45% MSCI Thailand (Free).... 17.08%
MSCI Italy.............. 8.20% MSCI Turkey............. 17.44%
MSCI Japan.............. 6.85% MSCI United Kingdom..... 6.14%
MSCI Malaysia (Free).... 21.53% MSCI USA................ 6.44%
MSCI Mexico (Free)...... 12.20%
</TABLE>
The larger the percentage stated for an MSCI Index, the greater the historical
average annual volatility of that MSCI Index. Among the listed MSCI Indices,
the MSCI Australia reflects the lowest historical volatility, and the MSCI
Malaysia (Free) reflects the highest historical volatility. Short-term
volatility in these markets can be significantly greater than average annual
volatility.
Foreign Currency Fluctuations. Because each Index Fund's assets are generally
invested in non-US securities (except for the iShares MSCI USA Index Fund), and
because a substantial portion of the revenue and income of each Index Fund
(except for the iShares MSCI USA Index Fund) is received in a foreign currency,
the dollar value of an Index Fund's net assets is reduced by declines in the
value of
--------------------------------------------------------------------------------
Additional Information About Principal Risk Factors
page 39
<PAGE>
the relevant foreign currency relative to the dollar and are positively
affected by increases in the value of that currency relative to the dollar.
Also, government or monetary authorities may impose or alter exchange controls
in a way that would adversely affect exchange rates.
Any currency fluctuations will affect the net asset value of an Index Fund
regardless of the performance of its underlying portfolio. Other than to
facilitate settlements in local markets or to protect against currency exposure
in connection with its distributions to shareholders or borrowings, no Index
Fund expects to engage in currency transactions for the purpose of hedging
against a decline in value of any foreign currencies.
Concentration and Lack of Diversification of Certain Index Funds. Each Index
Fund (except for the iShares MSCI Japan, United Kingdom and USA Index Funds) is
classified as "non-diversified" for purposes of the Investment Company Act of
1940, which means that it is not limited by that Act with regard to the portion
of its assets that may be invested in the securities of a single issuer. In
addition, a number of Index Funds concentrate their investments in particular
industries as noted in the descriptions of each non-diversified Index Fund.
Each Index Fund, however, whether diversified or non-diversified, intends to
maintain the required level of diversification and otherwise conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the US Internal Revenue Code, to relieve the Index Fund of any liability for
federal income tax to the extent that its earnings are distributed to
shareholders. Compliance with the diversification requirements of the
US Internal Revenue Code severely limits the investment flexibility of certain
Index Funds and makes it less likely that such Index Funds will meet their
investment objectives.
The stocks of particular issuers, or of issuers in particular industries, may
dominate the benchmark index of an Index Fund and, consequently, the investment
portfolio of an Index Fund. This may adversely affect the performance of an
Index Fund or subject it to greater price volatility than that experienced by
more diversified investment companies. The iShares of an Index Fund may be more
susceptible to any single economic, political or regulatory occurrence than the
portfolio securities of an investment company that is more broadly invested in
the equity securities of the relevant market.
Trading Issues. Trading in iShares on the AMEX (or any other securities
exchange on which iShares may be listed or traded) may be halted due to market
conditions or for reasons that, in the AMEX's view (or that of any such other
exchange's), make trading in iShares inadvisable. In addition, trading in
iShares on the AMEX is subject to trading halts caused by extraordinary market
volatility pursuant to AMEX "circuit breaker" rules. If trading on the AMEX or
another exchange on which iShares are listed is halted, you may not be able to
sell your iShares until trading resumes. There can be no assurance that the
requirements of the AMEX (or any other exchange) that are necessary to maintain
the listing of any Index Fund will continue to be met or will remain unchanged.
Fluctuation of Net Asset Value and Trading Prices. The net asset value of
iShares of an Index Fund will fluctuate with changes in the market value of an
Index Fund's security holdings and changes in the exchange rate between the US
dollar and the subject foreign currency. The market prices of iShares will
fluctuate in accordance with changes in net asset value and supply and demand
on the AMEX or another exchange on which iShares are listed. The Company cannot
predict whether iShares will trade below, at or above their net asset value.
Price differences may be due, in large part, to the fact that supply and demand
forces in the secondary trading market for iShares will be closely related, but
not identical, to the same forces influencing the prices of the stocks of the
MSCI Index trading individually or in the aggregate at any point in time.
Given, however, that iShares must be created and redeemed in Creation Unit
aggregations (unlike shares of many closed-end funds, which frequently trade at
appreciable discounts from, and sometimes at premiums to, their net asset
value), the investment adviser believes that ordinarily large discounts or
premiums to the net asset value of iShares should not be sustained. In the
event that the Company must suspend or discourage creations and/or redemptions
of Creation Unit aggregations of iShares of an Index Fund, we expect larger
discounts or premiums. This occurred in the case of the Malaysia (Free) Index
Fund ("Malaysia Fund") iShares, which frequently traded at prices that
materially differed from their net asset values between
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iShares
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<PAGE>
the dates creations and "in kind" redemptions of the Malaysia Fund iShares were
suspended in response to capital controls imposed by Malaysia from
September 1998 and May 2000, when the Company commenced sales and redemptions
of Malaysia Fund iShares for cash in U.S. dollars. The Company recently
received regulatory relief from the Malaysian authorities and is currently
investigating the possibility of re-instituting sales and redemptions of
Creation Units of the Malaysia Fund's iShares on an "in-kind" basis, but there
can be no assurance that the Company will be able to offer and redeem such
Creation Units in-kind at any time in the future.
Management
Investment Adviser
Barclays Global Fund Advisors is responsible for the investment management of
each Index Fund. It is a California corporation indirectly owned by Barclays
Bank PLC and is registered under the Investment Advisers Act of 1940. Barclays
Global Fund Advisors has managed equity portfolios, including index funds and
mutual funds, for over 25 years. As of November 30, 2000, the investment
adviser and its affiliates managed, administered or advised assets aggregating
in excess of $831 billion. Barclays Global Fund Advisors' principal business
address is 45 Fremont Street, San Francisco, California 94105.
For the fiscal year ended August 31, 2000, the investment adviser accrued,
received or reimbursed the following fees as a percentage of the average daily
net assets of each of the iShares MSCI Index Funds. The iShares MSCI Brazil
(Free), EMU, South Korea and Taiwan Index Funds operated for only a portion of
such fiscal year.
<TABLE>
<CAPTION>
Percentage of Percentage of
Average Daily Average Daily
iShares MSCI Index Fund Net Assets iShares MSCI Index Fund Net Assets
----------------------- ------------- ----------------------- -------------
<S> <C> <C> <C>
Australia............... 0.24% Malaysia (Free)......... 0.25%
Austria................. 0.14% Mexico (Free)........... 0.17%
Belgium................. 0.20% Netherlands............. 0.23%
Brazil (Free)........... (0.39%) Singapore (Free)........ 0.25%
Canada.................. 0.14% South Korea............. (0.24%)
EMU..................... (0.55%) Spain................... 0.23%
France.................. 0.24% Sweden.................. 0.21%
Germany................. 0.26% Switzerland............. 0.22%
Hong Kong............... 0.25% Taiwan.................. (0.34%)
Italy................... 0.25% United Kingdom.......... 0.27%
Japan................... 0.27%
</TABLE>
Shareholder Information
Determination of Net Asset Value
The net asset value per iShares for each Index Fund is computed by dividing the
value of the net assets of an Index Fund (i.e., the value of its total assets
less total liabilities) by the total number of iShares outstanding, rounded to
the nearest cent. Expenses and fees, including the management, administration
and distribution fees, are accrued daily and taken into account for purposes of
determining net asset value. Except for the Index Funds named below, the net
asset value of each Index Fund is determined as of the close of the regular
trading session on the New York Stock Exchange, Inc. ("NYSE") (ordinarily
4:00 p.m., Eastern time) on each day that the NYSE is open. The net asset
values of the iShares MSCI Australia, Hong Kong, Indonesia (Free), Japan,
Malaysia (Free), Singapore (Free), South Korea, Taiwan and Thailand (Free)
Index Funds are determined as of 8:30 a.m. (Eastern time) and the net asset
value of the iShares MSCI Brazil (Free) Index Fund is determined as of
--------------------------------------------------------------------------------
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<PAGE>
5:00 p.m. (Eastern time), on each day that the NYSE is open. The Company may
commence determining the net asset value of certain Index Funds more frequently
than once a day in connection with the possible future trading of the iShares
of such Index Funds on foreign exchanges. The price at which a purchase or
redemption of Creation Units of iShares is made is based on the next
calculation of net asset value. In the case of Index Funds that effect
creations and/or redemptions only for cash (i.e., the iShares MSCI Brazil
(Free), Malaysia (Free), South Korea and Taiwan Index Funds), it is possible
that portfolio securities transactions by the Company in the relevant local
markets of those Index Funds could affect the prices of those portfolio
securities at the time those Index Funds' net asset values are calculated.
Currency values are generally converted into U.S. dollars using the same
exchange rates used by MSCI in the calculation of the relevant MSCI Indices
(currently exchange rates as of 4:00 p.m. London time, except that the exchange
rate for the MSCI Mexico (Free) Index is as of 3:00 p.m. Eastern time).
However, the Company may use a different rate from the rate used by MSCI if the
investment adviser concludes that a different rate is more appropriate. Any use
of a different rate from MSCI may adversely affect an Index Fund's ability to
track its benchmark MSCI Index.
Buying and Selling iShares
There are two ways for you to buy and sell iShares. Most investors buy and sell
iShares through a broker in transactions on the AMEX or another exchange on
which iShares of the relevant Index Fund may be traded. iShares are also issued
and redeemed directly by the Company, but only in transactions involving
aggregations of very large numbers of iShares, referred to as Creation Units.
These transactions occur on an "in-kind" basis for most Index Funds. Persons
capable of purchasing or redeeming Creation Units of iShares should refer to
the Company's Statement of Additional Information for further details.
In connection with the purchase or the redemption of a Creation Unit of an
Index Fund, an investor must pay to the Company a purchase or redemption
transaction fee, which is intended to offset the transfer and other transaction
costs incurred by that Index Fund, including market impact expenses relating to
investing in or disposing of portfolio securities. The maximum transaction fees
that may apply to in-kind Creation Unit purchases and redemptions are listed in
the second column in the table below. To the extent purchases and redemptions
for cash are available, additional variable charges, up to the maximums listed
in the third and fourth columns of the table below, will apply (in addition to
the fees listed in the second column). This table is subject to revision from
time to time. (Investors are also responsible for payment of the costs of
transferring portfolio securities to the Company, in the case of a purchase
transaction, or from the Company to their own account, in the case of a
redemption transaction.)
<TABLE>
<CAPTION>
Maximum Additional Maximum Additional
In-kind and Cash Variable Charge Variable Charge
iShares Purchases and for Cash for Cash
MSCI Index Series Redemptions Purchases* Redemptions*
----------------- ---------------- ------------------- ------------------
<S> <C> <C> <C>
Australia............... $2,400 0.60% 0.60%
Austria................. $1,200 0.67% 0.67%
Belgium................. $1,500 0.30% 0.30%
Brazil (Free)........... $4,100 ** ***
Canada.................. $3,300 0.30% 0.30%
EMU..................... $8,000 1.05% 1.05%
France.................. $2,900 0.25% 0.25%
Germany................. $2,500 0.25% 0.25%
Greece.................. $3,500 1.50% 1.50%
Hong Kong............... $2,900 0.60% 0.60%
Indonesia (Free)........ $4,700 1.18% 1.18%
Italy................... $2,200 0.30% 0.30%
Japan................... $8,300 0.15% 0.40%
Malaysia (Free)......... $5,500 ** ***
Mexico (Free)........... $1,400 0.50% 0.50%
Netherlands............. $2,000 0.25% 0.25%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Maximum Maximum
In-kind and Cash Additional Variable Additional Variable
iShares Purchases and Charge for Cash Charge for Cash
MSCI Index Series Redemptions Purchases* Redemptions*
----------------- ---------------- ------------------- -------------------
<S> <C> <C> <C>
Portugal................ $2,000 1.65% 1.65%
Singapore (Free)........ $2,200 1.60% 1.30%
South Africa............ $2,900 1.60% 1.60%
South Korea............. $4,200 ** ***
Spain................... $2,300 0.25% 0.45%
Sweden.................. $2,200 0.30% 0.30%
Switzerland............. $2,600 0.40% 0.40%
Taiwan.................. $6,200 ** ***
Thailand (Free)......... $3,300 1.41% 1.41%
Turkey.................. $3,900 1.46% 1.46%
United Kingdom.......... $5,100 0.25% 0.75%
USA..................... $2,900 0.50% 0.50%
</TABLE>
--------
* As a percentage of amount invested.
** This percentage, when aggregated with the basic in-kind transaction
fee, will not exceed 3.00%.
*** This percentage, when aggregated with the basic in-kind transaction
fee, will not exceed 2.00%.
iShares may trade on the AMEX (or any other securities exchange on which
iShares may trade) at prices that differ to some degree from their net asset
value. If you buy or sell iShares in the secondary market, you will incur
customary brokerage commissions and charges and may pay some or all of the
difference between the bid price and the offered price in the secondary market
on each leg of a round trip (purchase and sale) transaction. Given that iShares
may be created or redeemed in Creation Units, however, the Advisor believes
that ordinarily large discounts or premiums to the net asset value of iShares
should not be sustained for long periods. If creations or redemptions of
iShares in Creation Units are suspended or difficult to effect, the iShares may
trade at sustained discounts or premiums from net asset value. This occurred in
the case of iShares of the iShares MSCI Malaysia (Free) Index Fund after the
Company suspended creations and "in kind" redemptions of these iShares in
September 1998 as a result of capital controls imposed in Malaysia.
The AMEX disseminates during its trading day an indicative optimized portfolio
value, or IOPV, for each Index Fund. This should not be viewed as a real time
update of the net asset value per iShares of an Index Fund, which is calculated
only once a day, because it may not be computed in a manner consistent with
such net asset value.
The Depository Trust Company ("DTC") serves as securities depository for
iShares. iShares may be held only in book-entry form; stock certificates will
not be issued. DTC, or its nominee, is the record or registered owner of all
outstanding iShares of each Index Fund. Beneficial ownership of iShares will be
shown on the records of DTC or its participants (described below). Beneficial
owners of iShares are not entitled to have iShares registered in their names,
will not receive or be entitled to receive physical delivery of certificates in
definitive form and are not considered the registered holder of iShares.
Accordingly, to exercise any rights of a holder of iShares, a beneficial owner
must rely on the procedures of (i) DTC; (ii) "DTC Participants", i.e.,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives)
own DTC; and (iii) "Indirect Participants", i.e., brokers, dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly, through which the beneficial
owner holds its interests.
As described above, the Company recognizes DTC or its nominee as the owner of
all iShares for all purposes.
The Company will send its shareholders, through DTC Participants, unaudited
semi-annual reports, audited annual reports and other information as may be
required by applicable laws, rules and
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Shareholder Information
page 43
<PAGE>
regulations. Beneficial owners also receive an annual notification as to the
tax status of the Company's distributions.
For purposes of the Investment Company Act of 1940, iShares are issued by the
Index Funds, and the acquisition of iShares by investment companies is subject
to the restrictions of section 12(d)(1) of the Investment Company Act.
Dividends and Capital Gains Distributions
Dividends from net investment income, including any net foreign currency gains,
are declared and paid at least annually and any net realized securities gains
are distributed at least annually. In order to improve tracking error or comply
with the distribution requirements of the Internal Revenue Code of 1986,
dividends may be declared and paid more frequently than annually for certain
Index Funds. In addition, the Company intends to distribute, at least annually,
amounts representing the full dividend yield on the underlying portfolio
securities of each Index Fund, net of expenses, as if the Index Fund owned the
underlying portfolio securities for the entire dividend period. As a result,
some portion of each distribution may result in a return of capital. See "Tax
Matters" below. Dividends and securities gains distributions are distributed in
US dollars and cannot be automatically reinvested in additional iShares. The
Company will inform shareholders within 60 days after the close of an Index
Fund's taxable year of the amount and nature of all distributions made to them.
Tax Matters
As with any investment, you should consider how the iShares of an Index Fund
will be taxed. The tax information in this prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in iShares.
Unless your investment in an Index Fund is through a tax-exempt entity or
taxed-deferred retirement account, such as an IRA plan, you need to be aware of
the possible tax consequences when:
. An Index Fund makes distributions, and
. You sell iShares on the AMEX.
Taxes on Distributions. Each Index Fund will distribute annually any net
investment income, and any net realized long-term or short-term capital gains.
Each Index Fund may also pay a special distribution at the end of the calendar
year to comply with federal tax requirements. In general, your distributions
are subject to federal income tax when they are paid. Dividends paid out of an
Index Fund's income and net short-term gains, if any, are taxable as ordinary
income. Distributions of net long-term capital gains, if any, in excess of net
short-term capital losses are taxable as long-term capital gains, regardless of
how long you have held the iShares.
Distributions in excess of an Index Fund's current and accumulated earnings and
profits are treated as a tax-free return of capital to the extent of your basis
in iShares, and as capital gain thereafter. A distribution may be taxable to
you as ordinary income or capital gain even though, from an investment
standpoint, it may constitute a return of capital.
Dividends and interest received by each Index Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Since more
than 50% of each Index Fund's total assets at the end of its taxable year will
consist of foreign stocks or securities, each Index Fund will "pass through" to
you any foreign income taxes (including withholding taxes) paid by an Index
Fund, if you held the Index Fund, and the Index Fund held the security, on the
dividend entitlement date and for at least fifteen additional days immediately
before and/or after. Subject to certain limitations, the foreign income taxes
passed through may qualify as a deduction in calculating US taxable income or
as a credit in calculating US federal income tax. You will be notified of your
portion of the foreign income
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iShares
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<PAGE>
taxes paid to each country and the portion of dividends that represents income
derived from sources within each country. Taxes other than foreign income
taxes, including any profits levy payable by the iShares MSCI Malaysia (Free)
Index Fund, are not passed through to you in this way.
If you are neither a lawful permanent resident nor a citizen of the United
States or if you are a foreign entity, each Index Fund's ordinary income
dividends (which include distributions of net short-term capital gains) will
generally be subject to a 30% US withholding tax, unless a lower treaty rate
applies. In addition iShares may be subject to U.S. estate tax. You should
consult your personal tax advisor as to this matter.
By law, each Index Fund must withhold 31% of a shareholder's distributions and
proceeds if the shareholder has not provided a taxpayer identification number
or social security number.
Taxes When iShares Are Sold on the AMEX. Currently, any capital gain or loss
realized upon a sale of iShares is generally treated as long-term capital gain
or loss if the iShares have been held for more than one year and as short-term
capital gain or loss if the iShares have been held for one year or less.
The foregoing discussion summarizes some of the consequences under current
federal tax law of an investment in an Index Fund. It is not a substitute for
personal tax advice. Consult your personal tax adviser about the potential tax
consequences of an investment in an Index Series under all applicable tax laws.
Possible Claim
A United States patentholder has notified the Company that it believes that the
manner of the Company's operation results in the Company, possibly in
conjunction with others, engaging in acts of infringement of such patent and
has suggested that the Company, or one or more of its service providers, enter
into a license agreement with it and pay it substantial fees. Payment of such
fees by the Company could materially adversely affect the expense ratios of the
Index Funds. In August 2000 the AMEX commenced an action seeking a declaratory
judgement that its activities with respect to exchange traded funds, including
the Company, do not infringe the patentholder's patents. The patentholder has
counterclaimed alleging that such activities infringe its patent. The Company
is not a party to this action. The Company believes that it has valid defenses
to any potential patent infringement claim by the patentholder.
Distribution Arrangements
The Company has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 that allows the Company to pay distribution fees for the sale and
distribution of iShares. Because these fees are paid out of an Index Fund's
assets on an ongoing basis, over time the fees will increase the cost of your
investment and may cost you more than paying other types of sales charges. The
fees paid under the Rule 12b-1 Plan are calculated and paid monthly with
respect to each Index Fund at a rate set from time to time by the Board,
provided that the annual rate may not exceed .25% of the average daily net
assets of each Index Fund. These fees are currently being paid at the maximum
rate. The distribution fees payable under the 12b-1 Plan are used to pay
distributions-related expenses, including: compensation to the distributor at a
rate fixed by the Company's Board of Directors from time to time (currently
.02% of the Company's average daily net assets, subject to an annual minimum of
$845,000); compensation to a sales and marketing consultant retained by the
Company at a rate of .035% of the Company's average daily net assets; and
reimbursements of expenses incurred by the distributor and other persons
(principally the investment adviser in connection with the distribution of the
Company's shares). In addition, the distributor has entered into sales and
investor services agreements with broker-dealers or other persons that are DTC
Participants to provide distribution assistance, including broker-dealer and
shareholder support and educational and promotional services. Under the terms
of
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<PAGE>
each sales and investor services agreement, the distributor will pay broker-
dealers or other persons, out of 12b-1 fees received from an Index Fund, at the
annual rate of up to .25% of 1% of the average daily net asset value of iShares
held through DTC for the account of such DTC Participant. The amounts of the
fees paid to the distributor and the sales and marketing consultant are not
dependent on the amount of distribution expenses actually incurred by them. The
distributor has no role in determining the investment policies of any Index
Fund or which securities are to be purchased or sold by any Index Fund.
Financial Highlights
The financial highlights table is intended to help you understand the financial
performance since inception of the following Index Funds that have commenced
investment operations: the iShares MSCI Australia, Austria, Belgium, Brazil
(Free), Canada, EMU, France, Germany, Hong Kong, Italy, Japan, Malaysia (Free),
Mexico (Free), Netherlands, Singapore (Free), South Korea, Spain, Sweden,
Switzerland, Taiwan and United Kingdom Index Funds. Certain information
reflects financial results for a single iShare of an Index Fund. The total
returns in the table represent the rate that a shareholder would have earned
(or lost) on an investment in an Index Fund (assuming reinvestment of all
dividends and distributions). This information has been audited by Ernst &
Young LLP, whose report, along with the financial statements of those
Index Funds that have commenced operations, is included in the Annual Report,
which is incorporated by reference in the SAI and available without charge
upon request.
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<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Australia Index Fund
----------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period..... $ 9.99 $ 7.75 $ 10.35 $ 10.15 $ 9.95(1)
------- ------- ------- ------- -------
Net investment
income/(loss)+.......... 0.23 0.20 0.23 0.17 0.10
Net realized and
unrealized gain/(loss)
on investments and
foreign currency related
transactions and
translation of other
assets and liabilities
denominated in foreign
currencies.............. (0.04) 2.29 (2.60) 0.47 0.29
------- ------- ------- ------- -------
Net increase/(decrease)
in net assets resulting
from operations........ 0.19 2.49 (2.37) 0.64 0.39
------- ------- ------- ------- -------
<CAPTION>
iShares MSCI Austria Index Fund
---------------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
----------- ---------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period..... $ 9.13 $ 10.11 $10.51 $10.40 $ 10.91(1)
----------- ---------- --------- --------- --------------
Net investment
income/(loss)+.......... 0.04 0.10 0.06 (0.02) 0.04
Net realized and
unrealized gain/(loss)
on investments and
foreign currency related
transactions and
translation of other
assets and liabilities
denominated in foreign
currencies.............. (1.46) (0.98) 0.20 0.13 (0.41)
----------- ---------- --------- --------- --------------
Net increase/(decrease)
in net assets resulting
from operations........ (1.42) (0.88) 0.26 0.11 (0.37)
----------- ---------- --------- --------- --------------
Less Distributions
Dividends from net
investment income....... (0.22) (0.19) (0.23) (0.16) (0.08)
Dividends in excess of
net investment income... (0.01) 0.00** 0.00** (0.04) (0.05)
Distributions from net
realized gains.......... -- -- -- (0.04) (0.02)
Distributions in excess
of net realized gains... -- -- -- -- --
Return of capital....... (0.02) (0.06) -- (0.20) (0.04)
------- ------- ------- ------- -------
Total dividends and
distributions.......... (0.25) (0.25) (0.23) (0.44) (0.19)
------- ------- ------- ------- -------
Net asset value, end of
period.................. $ 9.93 $ 9.99 $ 7.75 $ 10.35 $ 10.15
======= ======= ======= ======= =======
Total Investment
Return(2)................ 1.84% 32.09% (23.11)% 6.23% 3.88%(4)
Less Distributions
Dividends from net
investment income....... (0.04) (0.07) (0.04) -- (0.02)
Dividends in excess of
net investment income... (0.00)** (0.01) (0.01) -- (0.01)
Distributions from net
realized gains.......... -- -- (0.61) -- (0.03)
Distributions in excess
of net realized gains... -- -- 0.00** -- --
Return of capital....... -- (0.02) 0.00** -- (0.08)
----------- ---------- --------- --------- --------------
Total dividends and
distributions.......... (0.04) (0.10) (0.66) -- (0.14)
----------- ---------- --------- --------- --------------
Net asset value, end of
period.................. $ 7.67 $ 9.13 $10.11 $10.51 $ 10.40
=========== ========== ========= ========= ==============
Total Investment
Return(2)................ (15.51)% (8.69)% 2.16% 1.06 % (3.39)%(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)....... $61,574 $53,957 $34,099 $41,406 $12,177
Ratios of expenses to
average net assets(5)... 0.95% 1.00% 1.05 % 1.33% 1.59%(3)
Ratios of net investment
income/(loss) to average
net assets(5)........... 2.22% 2.03% 2.38 % 1.57% 2.18%(3)
Portfolio turnover(6)... 36.20% 13.83% 1.49 % 5.30% 8.84%(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)....... $10,741 $12,776 $8,085 $4,205 $13,520
Ratios of expenses to
average net assets(5)... 1.16% 1.31 % 1.41% 1.68 % 1.56 %(3)
Ratios of net investment
income/(loss) to average
net assets(5)........... 0.51% 1.04 % 0.51% (0.22)% 0.87 %(3)
Portfolio turnover(6)... 33.65% 49.95 % 36.14% 28.47 % 9.60 %(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on commencement of operations.
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996 and reimbursements
from the Adviser commencing with the year ended August 31, 2000. If such
waivers/reimbursements had not been made the ratios of expenses to average
net assets and ratios of net investment income/(loss) to average net
assets would have been as follows:
Ratios of expenses to
average net assets
before
waivers/reimbursements
....................... -- -- -- 1.33% 1.60%(3)
Ratios of net
investment
income/(loss) to
average net assets
before
waivers/reimbursements
....................... -- -- -- 1.57% 2.17%(3)
Ratios of expenses to
average net assets
before
waivers/reimbursements
....................... 1.20% -- -- 1.69 % 1.57%(3)
Ratios of net
investment
income/(loss) to
average net assets
before
waivers/reimbursements
....................... 0.47% -- -- (0.22)% 0.86%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
--------------------------------------------------------------------------------
Financial Highlights
page 47
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI
Brazil (Free)
iShares MSCI Belgium Index Fund Index Fund
---------------------------------------------------- -------------
For the For the For the For the For the For the
year year year year period period
ended ended ended ended 03/12/96*- 07/11/00*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96 08/31/00
-------- -------- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 16.07 $ 18.40 $ 15.64 $ 14.99 $14.92(1) $ 20.22(1)
------- ------- ------- ------- ------ -------
Net investment
income/(loss)+... 0.19 0.08 0.24 0.77 0.40 0.02
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... (2.67) (0.30) 6.09 0.62 0.36 (0.63)
------- ------- ------- ------- ------ -------
Net
increase/(decrease)
in net assets
resulting from
operations...... (2.48) (0.22) 6.33 1.39 0.76 (0.61)
------- ------- ------- ------- ------ -------
<CAPTION>
iShares MSCI Canada Index Fund
-------------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
--------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 13.22 $ 9.90 $13.43 $ 10.60 $10.17(1)
--------- -------- ---------- ----------- -------------
Net investment
income/(loss)+... 0.70 0.07 0.07 0.05 0.04
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... 8.08 3.87 (2.89) 2.97 0.43
--------- -------- ---------- ----------- -------------
Net
increase/(decrease)
in net assets
resulting from
operations...... 8.78 3.94 (2.82) 3.02 0.47
--------- -------- ---------- ----------- -------------
Less Distributions
Dividends from
net investment
income........... (0.17) -- (0.27) (0.33) (0.54) (0.02)
Dividends in
excess of net
investment
income........... (0.19) (0.01) (1.21) (0.28) (0.09) --
Distributions
from net realized
gains............ -- (1.19) (1.99) (0.12) (0.06) --
Distributions in
excess of net
realized gains... -- -- -- -- -- (0.34)
Return of
capital.......... -- (0.91) (0.10) (0.01) -- --
------- ------- ------- ------- ------ -------
Total dividends
and
distributions... (0.36) (2.11) (3.57) (0.74) (0.69) (0.36)
------- ------- ------- ------- ------ -------
Net asset value,
end of period.... $ 13.23 $ 16.07 $ 18.40 $ 15.64 $14.99 $ 19.25
======= ======= ======= ======= ====== =======
Total Investment
Return(2)......... (15.50)% (1.00)% 39.42% 9.26% 5.01%(4) (2.97)%(4)
Less Distributions
Dividends from
net investment
income........... (0.52) (0.08) (0.13) (0.05) (0.03)
Dividends in
excess of net
investment
income........... (0.03) (0.01) (0.00)** (0.00)** (0.01)
Distributions
from net realized
gains............ (4.08) (0.53) (0.58) (0.14) --
Distributions in
excess of net
realized gains... (0.31) -- -- -- 0.00**
Return of
capital.......... (0.12) -- -- -- 0.00**
--------- -------- ---------- ----------- -------------
Total dividends
and
distributions... (5.06) (0.62) (0.71) (0.19) (0.04)
--------- -------- ---------- ----------- -------------
Net asset value,
end of period.... $ 16.94 $13.22 $ 9.90 $ 13.43 $ 10.60
========= ======== ========== =========== =============
Total Investment
Return(2)......... 67.21% 39.71% (21.69)% 28.50% 4.63%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $13,230 $13,496 $25,765 $32,528 $1,800 $18,283
Ratios of
expenses to
average net
assets(5)........ 1.13% 1.24 % 1.04% 1.24% 2.29%(3) 0.99%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 1.36% 0.45 % 1.28% 4.63% 5.67%(3) 0.77%(3)
Portfolio
turnover(6)...... 53.27% 62.99 % 50.46% 16.83% 6.25%(4) 63.61%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $22,028 $9,253 $6,932 $24,168 $13,776
Ratios of
expenses to
average net
assets(5)........ 1.17% 1.23% 1.14 % 1.35% 1.44%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 4.07% 0.53% 0.46 % 0.39% 0.79%(3)
Portfolio
turnover(6)...... 64.03% 11.66% 3.70 % 11.02% 0.00%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on commencement of operations.
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996 and reimbursements
from the Adviser commencing with the year ended August 31, 2000. If such
waivers/reimbursements had not been made the ratios of expenses to average
net assets and ratios of net investment income/(loss) to average net
assets would have been as follows:
Ratios of
expenses to
average net
assets before
waivers/reimbursements
................ -- -- -- 1.24% 2.30%(3) 1.40%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers/reimbursements
................ -- -- -- 4.63% 5.66%(3) 0.37%(3)
Ratios of
expenses to
average net
assets before
waivers/reimbursements
................ 1.19% -- -- 1.36% 1.45%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers/reimbursements
................ 4.05% -- -- 0.39% 0.78%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
--------------------------------------------------------------------------------
iShares
page 48
<PAGE>
<TABLE>
<CAPTION>
iShares
MSCI EMU
Index Fund iShares MSCI France Index Fund
---------- --------------------------------------------------
For the For the For the For the For the For the
period year year year year period
07/26/00*- ended ended ended ended 03/12/96*-
08/31/00 08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
---------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 80.72(1) $ 22.90 $ 19.13 $ 14.50 $ 12.73 $ 12.42(1)
------- ------- ------- ------- ------- -------
Net investment
income/(loss)+... (0.00)** 0.10 0.14 0.30 0.17 0.17
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... (4.70) 5.21 3.88 4.76 1.95 0.45
------- ------- ------- ------- ------- -------
Net
increase/(decrease)
in net assets
resulting from
operations...... (4.70) 5.31 4.02 5.06 2.12 0.62
------- ------- ------- ------- ------- -------
<CAPTION>
iShares MSCI Germany Index Fund
------------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
--------- --------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 21.17 $ 20.25 $ 16.31 $ 13.64 $ 13.23(1)
--------- --------- ---------- --------- -------------
Net investment
income/(loss)+... 0.18 0.12 0.29 0.03 0.06
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... 1.64 1.31 3.92 2.77 0.47
--------- --------- ---------- --------- -------------
Net
increase/(decrease)
in net assets
resulting from
operations...... 1.82 1.43 4.21 2.80 0.53
--------- --------- ---------- --------- -------------
Less Distributions
Dividends from
net investment
income........... -- (0.09) (0.10) (0.19) (0.15) (0.09)
Dividends in
excess of net
investment
income........... -- (0.02) (0.02) (0.03) -- (0.01)
Distributions
from net realized
gains............ -- (1.64) (0.05) (0.13) (0.20) 0.00**
Distributions in
excess of net
realized gains... -- (0.03) -- (0.01) -- --
Return of
capital.......... -- (0.02) (0.08) (0.07) -- (0.21)
------- ------- ------- ------- ------- -------
Total dividends
and
distributions... -- (1.80) (0.25) (0.43) (0.35) (0.31)
------- ------- ------- ------- ------- -------
Net asset value,
end of period.... $ 76.02 $ 26.41 $ 22.90 $ 19.13 $ 14.50 $ 12.73
======= ======= ======= ======= ======= =======
Total Investment
Return(2)......... (5.82)%(4) 23.45% 21.01% 34.77% 16.60% 4.95%(4)
Less Distributions
Dividends from
net investment
income........... (0.16) (0.10) (0.17) (0.03) (0.03)
Dividends in
excess of net
investment
income........... (0.01) (0.01) (0.01) (0.01) (0.01)
Distributions
from net realized
gains............ (2.00) (0.31) (0.01) (0.07) --
Distributions in
excess of net
realized gains... (0.32) (0.08) 0.00** -- (0.01)
Return of
capital.......... (0.04) (0.01) (0.08) (0.02) (0.07)
--------- --------- ---------- --------- -------------
Total dividends
and
distributions... (2.53) (0.51) (0.27) (0.13) (0.12)
--------- --------- ---------- --------- -------------
Net asset value,
end of period.... $ 20.46 $ 21.17 $ 20.25 $ 16.31 $ 13.04
========= ========= ========== ========= =============
Total Investment
Return(2)......... 8.44% 7.04% 25.69% 20.51% 4.00%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $41,811 $95,116 $77,885 $45,922 $14,519 $22,930
Ratios of
expenses to
average net
assets(5)........ 0.84%(3) 0.96% 1.06% 1.18% 1.52% 1.84%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 0.03%(3) 0.36% 0.67% 1.58% 1.17% 2.72%(3)
Portfolio
turnover(6)...... 0.00%(4) 17.43% 0.00% 5.65% 7.13% 0.00%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $153,487 $101,645 $72,934 $24,486 $28,664
Ratios of
expenses to
average net
assets(5)........ 0.94% 1.00% 1.08% 1.37% 1.68%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 0.73% 0.57% 1.43% 0.23% 1.00%(3)
Portfolio
turnover(6)...... 56.38% 13.67% 0.64% 9.04% 0.00%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on commencement of operations.
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed for purposes of this calculation, to be
reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996 and reimbursements
from the Adviser commencing with the year ended August 31, 2000. If such
waivers/reimbursements had not been made the ratios of expenses to average
net assets and ratios of net investment income/(loss) to average net
assets would have been as follows:
Ratios of
expenses to
average net
assets before
waivers/reimbursements.. 1.57%(3) -- -- -- 1.52% 1.85%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers/reimbursements.. (0.70)%(3) -- -- -- 1.17% 2.71%(3)
Ratios of
expenses to
average net
assets before
waivers/reimbursements.. -- -- -- 1.37% 1.69%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers/reimbursements.. -- -- -- 0.22% 0.99%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
--------------------------------------------------------------------------------
Financial Highlights
page 49
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Hong Kong Index Fund
----------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period..... $ 11.83 $ 6.41 $ 14.73 $ 13.05 $12.83(1)
------- ------- ------- ------- ------
Net investment
income/(loss)+.......... 0.33 0.29 0.35 0.26 0.15
Net realized and
unrealized gain/(loss)
on investments and
foreign currency related
transactions and
translation of other
assets and liabilities
denominated in foreign
currencies.............. 1.42 5.49 (8.27) 2.12 0.27
------- ------- ------- ------- ------
Net increase/(decrease)
in net assets resulting
from operations........ 1.75 5.78 (7.92) 2.38 0.42
------- ------- ------- ------- ------
<CAPTION>
iShares MSCI Italy Index Fund
-----------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period..... $ 21.56 $ 22.89 $ 16.66 $ 13.79 $ 13.62(1)
--------- --------- --------- --------- -------------
Net investment
income/(loss)+.......... 0.39 0.17 0.18 0.12 0.25
Net realized and
unrealized gain/(loss)
on investments and
foreign currency related
transactions and
translation of other
assets and liabilities
denominated in foreign
currencies.............. 2.51 1.05 7.94 3.10 0.31
--------- --------- --------- --------- -------------
Net increase/(decrease)
in net assets resulting
from operations........ 2.90 1.22 8.12 3.22 0.56
--------- --------- --------- --------- -------------
Less Distributions
Dividends from net
investment income....... (0.32) (0.31) (0.28) (0.21) (0.13)
Dividends in excess of
net investment income... -- (0.05) 0.00** (0.01) (0.02)
Distributions from net
realized gains.......... -- -- -- (0.34) (0.01)
Distributions in excess
of net realized gains... -- -- -- 0.00** --
Return of capital....... (0.02) -- (0.12) (0.14) (0.04)
------- ------- ------- ------- ------
Total dividends and
distributions.......... (0.34) (0.36) (0.40) (0.70) (0.20)
------- ------- ------- ------- ------
Net asset value, end of
period.................. $ 13.24 $ 11.83 $ 6.41 $ 14.73 $13.05
======= ======= ======= ======= ======
Total Investment
Return(2)................ 14.73% 90.51% (54.22)% 17.80% 3.22%(4)
Less Distributions
Dividends from net
investment income....... (0.12) (0.06) (0.18) (0.11) (0.14)
Dividends in excess of
net investment income... -- -- (1.02) (0.24) (0.03)
Distributions from net
realized gains.......... (1.69) (2.24) (0.69) -- (0.14)
Distributions in excess
of net realized gains... (0.11) -- -- -- --
Return of capital....... (0.31) (0.25) -- -- (0.08)
--------- --------- --------- --------- -------------
Total dividends and
distributions.......... (2.23) (2.55) (1.89) (0.35) (0.39)
--------- --------- --------- --------- -------------
Net asset value, end of
period.................. $ 22.23 $ 21.56 $ 22.89 $ 16.66 $ 13.79
========= ========= ========= ========= =============
Total Investment
Return(2)................ $ 13.35% 5.14% 47.66% 23.37% 4.11%(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)....... $79,479 $77,200 $49,973 $25,417 $7,845
Ratios of expenses to
average net assets(5)... 0.94% 1.01% 1.09 % 1.43% 1.52%(3)
Ratios of net investment
income/(loss) to average
net assets(5)........... 2.57% 2.84% 3.76 % 1.71% 2.37%(3)
Portfolio turnover(6)... 21.30% 42.89% 21.50 % 22.90% 0.00%(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)....... $50,008 $58,224 $58,368 $32,495 $35,170
Ratios of expenses to
average net assets(5)... 0.99% 1.03% 1.02% 1.33% 1.43%(3)
Ratios of net investment
income/(loss) to average
net assets(5)........... 1.61% 0.70% 0.76% 0.76% 3.69%(3)
Portfolio turnover(6)... 39.85% 7.89% 8.16% 13.70% 19.80%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on commencement of operations.
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996 and reimbursements
from the Adviser commencing with the year ended August 31, 2000. If such
waivers/reimbursements had not been made the ratios of expenses to average
net assets and ratios of net investment income/(loss) to average net
assets would have been as follows:
Ratios of expenses to
average net assets
before
waivers/reimbursements.. -- -- -- 1.43% 1.53%(3)
Ratios of net
investment
income/(loss) to
average net assets
before
waivers/reimbursements.. -- -- -- 1.71% 2.36%(3)
Ratios of expenses to
average net assets
before
waivers/reimbursements.. -- -- -- 1.33% 1.44%(3)
Ratios of net
investment
income/(loss) to
average net assets
before
waivers/reimbursements.. -- -- -- 0.76% 3.68%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
--------------------------------------------------------------------------------
iShares
page 50
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Japan Index Fund
-------------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period.... $ 13.22 $ 8.39 $ 12.61 $ 14.33 $ 14.79(1)
-------- -------- -------- -------- --------
Net investment
income/(loss)+......... (0.05) (0.03) (0.02) (0.06) (0.07)
Net realized and
unrealized gain/(loss)
on investments and
foreign currency
related transactions
and translation of
other assets and
liabilities denominated
in foreign currencies.. 1.21 4.91 (4.19) (1.65) (0.39)
-------- -------- -------- -------- --------
Net
increase/(decrease) in
net assets resulting
from operations....... 1.16 4.88 (4.21) (1.71) (0.46)
-------- -------- -------- -------- --------
<CAPTION>
iShares MSCI Malaysia (Free) Index Fund
---------------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
----------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period.... $ 5.59 $ 2.11 $ 8.23 $ 13.80 $13.24(1)
----------- --------- ---------- ---------- -------------
Net investment
income/(loss)+......... 0.05 0.01 0.06 0.01 (0.02)
Net realized and
unrealized gain/(loss)
on investments and
foreign currency
related transactions
and translation of
other assets and
liabilities denominated
in foreign currencies.. 0.37 3.67 (6.10) (5.55) 0.59
----------- --------- ---------- ---------- -------------
Net
increase/(decrease) in
net assets resulting
from operations....... 0.42 3.68 (6.04) (5.54) 0.57
----------- --------- ---------- ---------- -------------
Less Distributions
Dividends from net
investment income...... -- -- -- -- --
Dividends in excess of
net investment income.. (0.00)** (0.04) -- -- --
Distributions from net
realized gains......... (0.53) -- 0.00** -- --
Distributions in excess
of net realized gains.. -- -- -- (0.01) --
Return of capital...... (0.03) (0.01) (0.01) -- --
-------- -------- -------- -------- --------
Total dividends and
distributions......... (0.56) (0.05) (0.01) (0.01) --
-------- -------- -------- -------- --------
Net asset value, end of
period................. $ 13.82 $ 13.22 $ 8.39 $ 12.61 $ 14.33
======== ======== ======== ======== ========
Total Investment
Return(2)............... 8.75% 58.14 % (33.38)% (11.97)% (3.11)%(4)
Less Distributions
Dividends from net
investment income...... (0.05) (0.01) (0.05) 0.00** --
Dividends in excess of
net investment income.. (0.00)** -- -- (0.01) --
Distributions from net
realized gains......... -- -- -- -- --
Distributions in excess
of net realized gains.. -- -- -- -- --
Return of capital...... (0.00)** (0.19) (0.03) (0.02) (0.01)
----------- --------- ---------- ---------- -------------
Total dividends and
distributions......... (0.05) (0.20) (0.08) (0.03) (0.01)
----------- --------- ---------- ---------- -------------
Net asset value, end of
period................. $ 5.96 $ 5.59 $ 2.11 $ 8.23 $13.80
=========== ========= ========== ========== =============
Total Investment
Return(2)............... 7.57% 185.81% (73.57)% (40.20)% 4.28 %(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)...... $787,790 $713,653 $201,485 $158,957 $103,164
Ratios of expenses to
average net assets(5).. 0.88% 0.94 % 1.04 % 1.19 % 1.37 %(3)
Ratios of net
investment
income/(loss) to
average net assets(5).. (0.32)% (0.27)% (0.21)% (0.48)% (1.01)%(3)
Portfolio turnover(6).. 21.93% 0.00 % 0.00 % 12.90 % 21.54 %(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)...... $99,206 $95,251 $35,867 $12,339 $9,318
Ratios of expenses to
average net assets(5).. 0.96% 1.43% 1.09 % 1.46 % 1.58 %(3)
Ratios of net
investment
income/(loss) to
average net assets(5).. 0.81% 0.33% 1.40 % 0.04 % (0.35)%(3)
Portfolio turnover(6).. 17.56% 7.24% 2.11 % 0.00 % 0.00 %(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on commencement of operations.
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996 and reimbursements
from the Adviser commencing with the year ended August 31, 2000. If such
waivers/reimbursements had not been made the ratios of expenses to average
net assets and ratios of net investment income/(loss) to average net
assets would have been as follows:
Ratios of expenses to
average net assets
before
waivers/reimbursements.. -- -- -- 1.19 % 1.38 %(3)
Ratios of net
investment
income/(loss) to
average net assets
before
waivers/reimbursements.. -- -- -- (0.48)% (1.02)%(3)
Ratios of expenses to
average net assets
before
waivers/reimbursements.. -- -- -- 1.47% 1.59 %(3)
Ratios of net
investment
income/(loss) to
average net assets
before
waivers/reimbursements.. -- -- -- 0.04% (0.36)%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
--------------------------------------------------------------------------------
Financial Highlights
page 51
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Mexico (Free) Index Fund
--------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period..... $ 13.39 $ 8.11 $15.11 $ 11.52 $ 9.95(1)
------- ------- ------ ------- ------
Net investment
income/(loss)+.......... 0.06 0.06 0.09 0.02 0.00**
Net realized and
unrealized gain/(loss)
on investments and
foreign currency related
transactions and
translation of other
assets and liabilities
denominated in foreign
currencies.............. 3.69 5.36 (6.71) 4.07 1.59
------- ------- ------ ------- ------
Net increase/(decrease)
in net assets resulting
from operations........ 3.75 5.42 (6.62) 4.09 1.59
------- ------- ------ ------- ------
<CAPTION>
iShares MSCI Netherlands Index Fund
---------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period..... $ 23.45 $ 23.50 $ 21.42 $17.36 $15.91(1)
--------- --------- --------- -------- ------------
Net investment
income/(loss)+.......... 0.13 0.53 0.25 0.11 0.24
Net realized and
unrealized gain/(loss)
on investments and
foreign currency related
transactions and
translation of other
assets and liabilities
denominated in foreign
currencies.............. 0.18 1.60 3.53 4.79 1.54
--------- --------- --------- -------- ------------
Net increase/(decrease)
in net assets resulting
from operations........ 0.31 2.13 3.78 4.90 1.78
--------- --------- --------- -------- ------------
Less Distributions
Dividends from net
investment income....... -- (0.06) (0.09) (0.01) --
Dividends in excess of
net investment income... -- (0.01) -- (0.01) (0.01)
Distributions from net
realized gains.......... (0.42) -- (0.29) (0.44) --
Distributions in excess
of net realized gains... -- (0.01) -- -- --
Return of capital....... -- (0.06) -- (0.04) (0.01)
------- ------- ------ ------- ------
Total dividends and
distributions.......... (0.42) (0.14) (0.38) (0.50) (0.02)
------- ------- ------ ------- ------
Net asset value, end of
period.................. $ 16.72 $ 13.39 $ 8.11 $ 15.11 $11.52
======= ======= ====== ======= ======
Total Investment
Return(2)................ 28.20% 66.92% (44.18)% 35.21% 15.93%(4)
Less Distributions
Dividends from net
investment income....... (0.08) (0.43) (0.16) (0.10) (0.14)
Dividends in excess of
net investment income... -- (0.01) -- (0.01) (0.01)
Distributions from net
realized gains.......... (0.11) (1.42) (1.47) (0.71) (0.08)
Distributions in excess
of net realized gains... -- (0.24) -- -- (0.01)
Return of capital....... (0.04) (0.08) (0.07) (0.02) (0.09)
--------- --------- --------- -------- ------------
Total dividends and
distributions.......... (0.23) (2.18) (1.70) (0.84) (0.33)
--------- --------- --------- -------- ------------
Net asset value, end of
period.................. $ 23.53 $ 23.45 $ 23.50 $21.42 $17.36
========= ========= ========= ======== ============
Total Investment
Return(2)................ 1.28% 8.98% 17.41% 28.04% 11.19%(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)....... $40,127 $21,430 $7,296 $16,627 $5,759
Ratios of expenses to
average net assets(5)... 1.04% 1.26% 1.34 % 1.63% 1.75%(3)
Ratios of net investment
income/(loss) to average
net assets(5)........... 0.35% 0.52% 0.60 % 0.14% 0.01%(3)
Portfolio turnover(6)... 23.97% 18.36% 14.05 % 22.80% 0.00%(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)....... $30,613 $31,685 $22,349 $9,661 $6,962
Ratios of expenses to
average net assets(5)... 1.03% 1.07% 1.12% 1.46% 1.63%(3)
Ratios of net investment
income/(loss) to average
net assets(5)........... 0.53% 2.20% 1.00% 0.54% 2.93%(3)
Portfolio turnover(6)... 21.64% 32.13% 15.81% 12.68% 4.32%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on commencement of operations.
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996 and reimbursements
from the Adviser commencing with the year ended August 31, 2000. If such
waivers/reimbursements had not been made the ratios of expenses to average
net assets and ratios of net investment income/(loss) to average net
assets would have been as follows:
Ratios of expenses to
average net assets
before
waivers/reimbursements.. 1.04% -- -- 1.63% 1.76%(3)
Ratios of net
investment
income/(loss) to
average net assets
before
waivers/reimbursements.. 0.35% -- -- 0.13% 0.00%(3)
Ratios of expenses to
average net assets
before
waivers/reimbursements.. -- -- -- 1.46% 1.64%(3)
Ratios of net
investment
income/(loss) to
average net assets
before
waivers/reimbursements.. -- -- -- 0.53% 2.92%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
--------------------------------------------------------------------------------
iShares
page 52
<PAGE>
<TABLE>
<CAPTION>
iShares
MSCI
South Korea
iShares MSCI Singapore (Free) Index Fund Index Fund
----------------------------------------------------- -----------
For the For the For the For the For the For the
year year year year period period
ended ended ended ended 03/12/96*- 05/10/00*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96 08/31/00
-------- -------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 7.93 $ 3.30 $ 8.66 $ 11.38 $12.24(1) $ 20.36(1)
------- -------- ------- ------- ------ -------
Net investment
income/(loss)+... 0.13 0.05 0.07 0.00** 0.04 (0.04)
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... (0.21) 4.70 (5.37) (2.67) (0.86) (2.16)
------- -------- ------- ------- ------ -------
Net
increase/(decrease)
in net assets
resulting from
operations...... (0.08) 4.75 (5.30) (2.67) (0.82) (2.20)
------- -------- ------- ------- ------ -------
<CAPTION>
iShares MSCI Spain Index Fund
----------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
---------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period........... $ 25.59 $ 23.84 $ 18.49 $14.09 $13.28(1)
---------- --------- --------- -------- ------------
Net investment
income/(loss)+... 0.15 0.09 0.16 0.19 0.14
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies....... (0.60) 3.14 5.94 5.33 0.98
---------- --------- --------- -------- ------------
Net
increase/(decrease)
in net assets
resulting from
operations...... (0.45) 3.23 6.10 5.52 1.12
---------- --------- --------- -------- ------------
Less Distributions
Dividends from
net investment
income........... (0.11) (0.05) (0.04) 0.00** (0.03) --
Dividends in
excess of net
investment
income........... -- (0.06) (0.01) (0.01) (0.01) --
Distributions
from net realized
gains............ (0.14) -- -- (0.02) -- --
Distributions in
excess of net
realized gains... -- -- -- -- -- --
Return of
capital.......... (0.02) (0.01) (0.01) (0.02) -- --
------- -------- ------- ------- ------ -------
Total dividends
and
distributions... (0.27) (0.12) (0.06) (0.05) (0.04) --
------- -------- ------- ------- ------ -------
Net asset value,
end of period.... $ 7.58 $ 7.93 $ 3.30 $ 8.66 $11.38 $ 18.16
======= ======== ======= ======= ====== =======
Total Investment
Return(2)......... (1.29)% 144.52% (61.29)% (23.48)% (6.73)%(4) (10.81)%(4)
Less Distributions
Dividends from
net investment
income........... (0.14) (0.07) (0.12) (0.12) (0.18)
Dividends in
excess of net
investment
income........... -- (0.02) (0.02) (0.05) --
Distributions
from net realized
gains............ (0.48) (1.35) (0.55) (0.86) (0.13)
Distributions in
excess of net
realized gains... (0.32) -- -- -- --
Return of
capital.......... (0.01) (0.04) (0.06) (0.09) --
---------- --------- --------- -------- ------------
Total dividends
and
distributions... (0.95) (1.48) (0.75) (1.12) (0.31)
---------- --------- --------- -------- ------------
Net asset value,
end of period.... $ 24.19 $ 25.59 $ 23.84 $18.49 $14.09
========== ========= ========= ======== ============
Total Investment
Return(2)......... (1.81)% 13.39% 32.58% 39.15% 8.45%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $88,719 $113,438 $47,248 $14,722 $9,107 $13,622
Ratios of
expenses to
average net
assets(5)........ 0.94% 0.97% 1.08 % 1.43 % 1.56 %(3) 0.99%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 1.60% 0.76% 1.17 % 0.03 % 0.69 %(3) (0.63)%(3)
Portfolio
turnover(6)...... 52.06% 25.31% 67.17 % 13.40 % 26.29 %(4) 55.13%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)........... $39,913 $36,469 $25,029 $8,321 $4,227
Ratios of
expenses to
average net
assets(5)........ 0.99% 1.04% 1.11% 1.67% 1.76%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)........ 0.57% 0.31% 0.61% 1.04% 2.04%(3)
Portfolio
turnover(6)...... 39.42% 16.58% 9.10% 19.21% 4.73%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on commencement of operations.
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996 and reimbursements
from the Adviser commencing with the year ended August 31, 2000. If such
waivers/reimbursements had not been made the ratios of expenses to average
net assets and ratios of net investment income/loss to average net assets
would have been as follows:
Ratios of
expenses to
average net
assets before
waivers/reimbursements.. -- -- -- 1.43% 1.57%(3) 1.38%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers/reimbursements.. -- -- -- 0.03% 0.68%(3) (1.02)%(3)
Ratios of
expenses to
average net
assets before
waivers/reimbursements.. -- -- -- 1.67% 1.77%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers/reimbursements.. -- -- -- 1.04% 2.03%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
--------------------------------------------------------------------------------
Financial Highlights
page 53
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Sweden Index Fund
--------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period.... $ 22.26 $ 18.39 $ 18.32 $14.67 $13.22(1)
------- ------- ------- ------ ------
Net investment
income/(loss)+......... 0.14 0.10 0.10 (0.03) 0.20
Net realized and
unrealized gain/(loss)
on investments and
foreign currency
related transactions
and translation of
other assets and
liabilities denominated
in foreign currencies.. 8.38 4.52 0.95 4.45 1.67
------- ------- ------- ------ ------
Net
increase/(decrease) in
net assets resulting
from operations....... 8.52 4.62 1.05 4.42 1.87
------- ------- ------- ------ ------
<CAPTION>
iShares MSCI Switzerland Index Fund
--------------------------------------------------------
For the For the For the For the For the
year year year year period
ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
--------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period.... $ 15.39 $ 15.55 $ 13.79 $ 12.29 $12.07(1)
--------- --------- ------------ ---------- ------------
Net investment
income/(loss)+......... 0.04 0.04 (0.00)%** (0.04) 0.08
Net realized and
unrealized gain/(loss)
on investments and
foreign currency
related transactions
and translation of
other assets and
liabilities denominated
in foreign currencies.. 0.27 0.19 3.01 2.11 0.24
--------- --------- ------------ ---------- ------------
Net
increase/(decrease) in
net assets resulting
from operations....... 0.31 0.23 3.01 2.07 0.32
--------- --------- ------------ ---------- ------------
Less Distributions
Dividends from net
investment income...... (0.12) (0.09) (0.08) -- (0.23)
Dividends in excess of
net investment income.. (0.02) (0.01) (0.01) -- (0.07)
Distributions from net
realized gains......... (6.09) (0.62) (0.86) (0.77) (0.12)
Distributions in excess
of net realized gains.. (0.13) (0.01) (0.01) -- --
Return of capital...... (0.04) (0.02) (0.02) -- --
------- ------- ------- ------ ------
Total dividends and
distributions......... (6.40) (0.75) (0.98) (0.77) (0.42)
------- ------- ------- ------ ------
Net asset value, end of
period................. $ 24.38 $ 22.26 $ 18.39 $18.32 $14.67
======= ======= ======= ====== ======
Total Investment
Return(2)............... 39.15% 25.09% 5.48% 30.10 % 14.13%(4)
Less Distributions
Dividends from net
investment income...... (0.03) (0.03) -- -- (0.10)
Dividends in excess of
net investment income.. (0.01) (0.04) (0.01) -- --
Distributions from net
realized gains......... (0.11) (0.17) (1.21) (0.57) --
Distributions in excess
of net realized gains.. -- (0.14) -- -- --
Return of capital...... (0.01) (0.01) (0.03) 0.00** --
--------- --------- ------------ ---------- ------------
Total dividends and
distributions......... (0.16) (0.39) (1.25) (0.57) (0.10)
--------- --------- ------------ ---------- ------------
Net asset value, end of
period................. $ 15.54 $ 15.39 $ 15.55 $ 13.79 $12.29
========= ========= ============ ========== ============
Total Investment
Return(2)............... 1.96% 1.47% 21.24 % 16.69 % 2.60%(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)...... $23,774 $20,034 $13,791 $8,243 $4,400
Ratios of expenses to
average net assets(5).. 1.03% 1.13% 1.17% 1.64 % 1.75%(3)
Ratios of net
investment
income/(loss) to
average net assets(5).. 0.46% 0.49% 0.48% (0.19)% 3.05%(3)
Portfolio turnover(6).. 90.13% 33.44% 10.88% 13.71 % 5.87%(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)...... $44,685 $38,499 $29,163 $13,805 $6,158
Ratios of expenses to
average net assets(5).. 1.01% 1.09% 1.15 % 1.52 % 1.82%(3)
Ratios of net
investment
income/(loss) to
average net assets(5).. 0.23% 0.24% (0.03)% (0.29)% 1.39%(3)
Portfolio turnover(6).. 34.87% 35.10% 43.09 % 48.05 % 17.06%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on commencement of operations.
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996 and reimbursements
from the Adviser commencing with the year ended August 31, 2000. If such
waivers/reimbursements had not been made the ratios of expenses to average
net assets and ratios of net investment income/(loss) to average net
assets would have been as follows:
Ratios of expenses to
average net assets
before
waivers/reimbursements.. -- -- -- 1.64 % 1.76%(3)
Ratios of net
investment
income/(loss) to
average net assets
before
waivers/reimbursements.. -- -- -- (0.19)% 3.04%(3)
Ratios of expenses to
average net assets
before
waivers/reimbursements.. -- -- -- 1.53 % 1.83%(3)
Ratios of net
investment
income/(loss) to
average net assets
before
waivers/reimbursements.. -- -- -- (0.29)% 1.38%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
--------------------------------------------------------------------------------
iShares
page 54
<PAGE>
<TABLE>
<CAPTION>
iShares
MSCI
Taiwan
Index Fund iShares MSCI United Kingdom Index Fund
---------- ---------------------------------------------------
For the For the For the For the For the For the
period year year year year period
06/21/00*- ended ended ended ended 03/12/96*-
08/31/00 08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
---------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period...... $ 19.59(1) $ 20.25 $ 18.48 $ 16.50 $ 13.15 $ 12.14(1)
------- -------- -------- ------- ------- -------
Net investment
income/(loss)+........... 0.47 0.27 0.44 0.37 0.38 0.21
Net realized and
unrealized gain/(loss) on
investments and foreign
currency related
transactions and
translation of other
assets and liabilities
denominated in foreign
currencies............... (2.79) (0.85) 2.40 2.12 3.62 1.06
------- -------- -------- ------- ------- -------
Net increase/(decrease)
in net assets resulting
from operations......... (2.32) (0.58) 2.84 2.49 4.00 1.27
------- -------- -------- ------- ------- -------
Less Distributions
Dividends from net
investment income........ (0.32) (0.23) (0.36) (0.29) (0.32) (0.20)
Dividends in excess of
net investment income.... -- (0.02) (0.01) (0.04) (0.06) (0.03)
Distributions from net
realized gains........... -- (0.84) (0.60) (0.11) (0.17) 0.00**
Distributions in excess
of net realized gains.... (0.10) (0.19) (0.02) -- -- --
Return of capital........ (0.44) (0.04) (0.08) (0.07) (0.10) (0.03)
------- -------- -------- ------- ------- -------
Total dividends and
distributions........... (0.86) (1.32) (1.07) (0.51) (0.65) (0.26)
------- -------- -------- ------- ------- -------
Net asset value, end of
period................... $ 16.41 $ 18.35 $ 20.25 $ 18.48 $ 16.50 $ 13.15
======= ======== ======== ======= ======= =======
Total Investment
Return(2)................. (12.10)%(4) (3.00)% 15.33% 14.98% 30.48% 10.41%(4)
Ratios/Supplemental Data
Net assets, end of period
(in 000's)............... $42,667 $146,803 $113,402 $62,846 $29,721 $15,790
Ratios of expenses to
average net assets(5).... 0.99%(3) 0.94% 0.97% 1.03% 1.38% 1.61%(3)
Ratios of net investment
income/(loss) to average
net assets(5)............ 13.31%(3) 1.39% 2.16% 1.90% 2.47% 3.62%(3)
Portfolio turnover(6).... 51.68%(4) 32.83% 13.24% 2.83% 1.84% 0.00%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on commencement of operations.
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996 and reimbursements
from the Adviser commencing with the year ended August 31, 2000. If such
waivers/reimbursements had not been made the ratios of expenses to average
net assets and ratios of net investment income/(loss) to average net
assets would have been as follows:
Ratios of expenses to
average net assets
before
waivers/reimbursements.. 1.60%(3) -- -- -- 1.38% 1.62%(3)
Ratios of net investment
income/(loss) to average
net assets before
waivers/reimbursements.. 12.70%(3) -- -- -- 2.47% 3.61%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).
--------------------------------------------------------------------------------
Financial Highlights
page 55
<PAGE>
For More Information
FOR INVESTORS WHO WANT MORE INFORMATION ON
THE iSHARES MSCI INDEX FUNDS,
THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE UPON REQUEST:
Annual/Semi-Annual Reports: Contain a discussion of market conditions and
investment strategies, performance data and information on portfolio holdings
for the Company's most recently completed fiscal year or half year, a statement
from management and, on an annual basis, the auditor's report.
Statement of Additional Information (SAI): Contains more detailed information
about the Company's policies, investment restrictions, risks and business
structure. This Prospectus incorporates the SAI by reference.
Copies of these documents and answers to questions about Index Funds may be
obtained without charge by contacting:
iSHARES, INC.
400 Bellevue Parkway
Wilmington, Delaware 19809
1-800-474-2737
www.iShares.com
Information about Index Funds (including the SAI) can be viewed and copied at
the Public Reference Room of the SEC in Washington, D.C. Copies of this
information may be obtained, upon payment of a duplicating fee, by electronic
request at [email protected] or by writing the Public Reference Room of the
SEC, Washington, D.C., 20549-6009. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Reports
and other information about Index Funds may be viewed on-screen or downloaded
from the SEC's Internet site at www.sec.gov.
--------------------------------------------------------------------------------
FOR MORE INFORMATION ON iSHARES MSCI INDEX FUNDS, PLEASE CALL:
1-800-iSHARES
(1-800-474-2737)
--------------------------------------------------------------------------------
Investment Company Act File No. 811-09102.
<PAGE>
iSHARES, INC.
(THE "COMPANY")
iSHARES MSCI INDEX FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 2, 2001
This Statement of Additional Information ("SAI") provides information about the
Company and its iShares MSCI Index Funds ("Index Funds"). This information is in
addition to the information contained in the Company's Prospectus dated January
2, 2001.
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Company's Annual Report for the fiscal year ended August 31,
2000. The financial statements and notes contained in the Annual Report are
incorporated by reference into this SAI. Copies of the Company's Prospectus and
Annual Report may be obtained free of charge by telephoning 1-800-iShares
(1-800-474-2737).
The iShares MSCI Greece, Indonesia (Free), Portugal, South Africa, Thailand
(Free), Turkey and USA Index Funds are not currently offered to the public.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION......................................................................................1
INVESTMENT STRATEGIES AND RISKS .........................................................................1
Exchange Listing and Trading........................................................................1
Lending Portfolio Securities........................................................................2
Repurchase Agreements...............................................................................3
Currency Transactions...............................................................................3
Futures Contracts and Options.......................................................................4
Futures Transactions............................................................................4
Restrictions on the Use of Futures Contracts and Options on Future Contracts....................5
Federal Tax Treatment of Futures Contracts......................................................5
Future Developments.............................................................................6
Swap Agreements ....................................................................................6
Non-U.S. Equity Portfolios..........................................................................6
Concentrations and Lack of Diversification of Certain Index Funds...................................6
Investments in Subject Equity Markets...............................................................7
Regional and Country-Specific Economic Considerations..............................................19
MSCI INDICES............................................................................................36
INVESTMENT LIMITATIONS..................................................................................40
MANAGEMENT OF THE COMPANY...............................................................................42
Directors and Officers of the Company..............................................................42
Directors' Compensation............................................................................44
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.....................................................45
INVESTMENT ADVISORY MANAGEMENT, ADMINISTRATIVE
AND DISTRIBUTION SERVICES..........................................................................51
Investment Adviser.................................................................................51
Administrator......................................................................................52
Sub-Administrator..................................................................................53
Distributor........................................................................................54
Custodian and Lending Agent........................................................................57
Transfer Agent.....................................................................................57
BROKERAGE ALLOCATION....................................................................................57
ADDITIONAL INFORMATION CONCERNING iSHARES...............................................................58
Capital Stock......................................................................................58
Book Entry Only System.............................................................................59
PURCHASE AND REDEMPTION OF iSHARES......................................................................60
Creation Units.....................................................................................60
Purchase and Issuance of iShares in Creation Units.................................................61
Redemption of iShares in Creation Units............................................................65
Determining Net Asset Value........................................................................68
Continuous Offering................................................................................69
TAXES ...............................................................................................69
PERFORMANCE INFORMATION.................................................................................71
COUNSEL AND INDEPENDENT AUDITORS........................................................................74
Counsel............................................................................................74
Independent Auditors...............................................................................74
FINANCIAL STATEMENTS....................................................................................75
APPENDIX A.............................................................................................A-1
APPENDIX B.............................................................................................B-1
</TABLE>
The information contained herein regarding Morgan Stanley Capital International
Inc. ("MSCI"), the MSCI Indices, local securities markets and The Depository
Trust Company ("DTC") was obtained from publicly available sources.
ii
<PAGE>
MSCI is a company jointly owned by Morgan Stanley Dean Witter & Co.
("MSDW"), an international investment banking, asset management and brokerage
firm and The Capital Group Companies, Inc. ("Capital"), an international
investment management company that is not affiliated with MSDW. MSCI is the
owner of the MSCI Indices and has full responsibility for the design,
maintenance, production and distribution of the Indices, including additions and
deletions of constituents within the Indices.
iShares are not sponsored, endorsed, or promoted by MSDW or any of its
affiliates. Neither MSDW nor any of its affiliates make any representation or
warranty, express or implied, to the owners of the iShares of any Index Fund or
any member of the public regarding the advisability of investing in securities
generally, or in the iShares of any Index Fund particularly, or the ability of
the indices identified herein to track general stock market performance. The
MSCI Indices identified herein are determined, composed and calculated without
regard to the iShares of any Index Fund or the issuer thereof. Neither MSCI nor
either of its owners has any obligation to take the needs of the issuer of the
iShares of any Index Fund or the owners of the iShares of any Index Fund into
consideration in determining, composing, calculating or disseminating the
respective MSCI Indices. Neither MSCI nor either of its owners is responsible
for, nor have they participated in the determination of the timing of, prices
of, or quantities of the iShares of any Index Fund to be issued or in the
determination or calculation of the equation by which the iShares of any Index
Fund are redeemable. Neither MSCI nor either of its owners has any obligation or
liability to owners of the iShares of any Index Fund in connection with the
administration, marketing or trading of the iShares of any Index Fund.
Although MSCI and Capital, which are primarily responsible for
formulating the MSCI Indices, shall obtain information for inclusion in or for
use in the calculation of the MSCI Indices from sources which they consider
reliable, neither MSCI nor Capital guarantees the accuracy and/or the
completeness of the component data of any MSCI Index obtained from independent
sources. Neither MSCI nor Capital makes any warranty, express or implied, as to
results to be obtained by licensee, owners of the products, or any other person
or entity from the use of the MSCI Indices or any data included therein in
connection with the rights licensed under any license agreement or for any other
use. Neither MSCI nor Capital makes any express or implied warranties, and each
hereby expressly disclaims all warranties of merchantability or fitness for a
particular purpose with respect to the MSCI Indices or any data included
therein. Without limiting any of the foregoing, in no event shall MSCI or
Capital have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of
the possibility of such damages.
Unless otherwise specified, all references in this SAI to "dollars,"
"USD," "US$" or "$" are to United States Dollars, all references to "AUD," or
"A$" are to Australian Dollars, all references to "ATS" are to Austrian
Schillings, all references to "BEF" are to Belgian Francs, all references to
"BRL" are to Brazilian Reals, all references to "CAD" or "CA$" are to Canadian
Dollars, all references to "EUR" are to Euros, all references to "FRF" or "FF"
are to French Francs, all references to "DEM" or "DM" are to the German Deutsche
Mark, all references to "GRD" are to Greek Drachmas, all references to "HKD" or
"HK$" are to Hong Kong Dollars, all references to "IDR" are to Indonesian
Rupiahs, all references to "ITL" or "LL" are to Italian Lira, all references to
"JPY" or "Y" are to Japanese Yen, all references to "KRW" are to Korean Wons,
all references to "MYR" are to Malaysian Ringgits, all references to "MXN" are
to Mexican Pesos, all references to "NLG" are to Netherlands Guilders, all
references to "PTE" are to Portuguese Escudos, all references to "SGD" are to
Singapore Dollars, all references to "ZAR" are to South African Rands, all
references to "ESP" are to Spanish Pesetas, all references to "SEK" are to
Swedish Krona, all references to "CHF" are to Swiss Francs, all references to
"TWD" are to New Taiwan Dollars, all references to "THB" are to Thai Bahts, all
references to "TRL" are to Turkish Lira and all references to "GBP," "(pound)"
or "L" are to British Pounds Sterling. On November 30, 2000, the 4:00 p.m.
buying rates in New York City for cable transfers payable in the applicable
currency, as certified for customs purposes by the Federal Reserve Bank of New
York, were as follows for each US $1.00: AUD 1.90, ATS 15.81, BEF 46.34, BRL
1.97, CAD 1.54, EUR 1.15, FRF 7.54, DEM 2.25, GDR 391.32, HKD 7.80, IDR
9,535.00, ITL 2,224.32, JPY 110.78, KRW 1,215.50, MYR 3.80, MXN 9.41, NLG 2.53,
PTE 230.31, SGD 1.75, ZAR 7.74, ESP 191.14, SEK 10.03, CHF 1.74, TWD 33.07, THB
43.82, TRL 682,840.00 and GBP 0.71. Some numbers in this SAI have been rounded.
All US Dollar equivalents provided in this SAI are calculated at the exchange
rate prevailing on the date to which the corresponding foreign currency amount
refers.
iii
<PAGE>
GENERAL INFORMATION
iShares, Inc. (the "Company") was organized as a Maryland corporation
on August 31, 1994, and is an open-end management investment company currently
operating or proposing to operate 28 separate investment portfolios or "Index
Funds". The following seventeen Index Funds commenced operations on March 6,
1996: the iShares MSCI Australia Index Fund, the iShares MSCI Austria Index
Fund, the iShares MSCI Belgium Index Fund, the iShares MSCI Canada Index Fund,
the iShares MSCI France Index Fund, the iShares MSCI Germany Index Fund, the
iShares MSCI Hong Kong Index Fund, the iShares MSCI Italy Index Fund, the
iShares MSCI Japan Index Fund, the iShares MSCI Malaysia (Free) Index Fund, the
iShares MSCI Mexico (Free) Index Fund, the iShares MSCI Netherlands Index Fund,
the iShares MSCI Singapore (Free) Index Fund, the iShares MSCI Spain Index Fund,
the iShares MSCI Sweden Index Fund, the iShares MSCI Switzerland Index Fund and
the iShares MSCI United Kingdom Index Fund. The iShares MSCI Brazil (Free) Index
Fund, the iShares MSCI EMU Index Fund, the iShares MSCI South Korea Index Fund
and the iShares MSCI Taiwan Index Fund commenced operations on July 11, 2000,
July 26, 2000, May 10, 2000 and June 21, 2000, respectively. The following Index
Funds had not commenced operations as of the date of this SAI: the iShares MSCI
Greece, Indonesia (Free), Portugal, South Africa, Thailand (Free), Turkey and
USA Index Funds. Each of the iShares MSCI Japan, United Kingdom and USA Index
Funds is classified as a "diversified" investment company under the Investment
Company Act of 1940. Each of the other Index Funds offered hereby is classified
as a "non-diversified" investment company under the Investment Company Act of
1940. The Board of Directors of the Company may authorize additional Index Funds
in the future.
INVESTMENT STRATEGIES AND RISKS
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Index Funds.
Exchange Listing and Trading. Except for the Greece, Indonesia (Free),
----------------------------
Portugal, South Africa, Thailand (Free), Turkey and USA Index Funds, for which
application will be made prior to the date that these Index Funds commence
operations, the iShares of each Index Fund have been listed for trading on the
AMEX. The AMEX has approved modifications to its Rules to permit the listing of
iShares of the Index Series that have commenced operations. iShares, which are
non-redeemable, trade on the AMEX at prices that may differ to some degree from
their net asset value. See "Special Considerations and Risks" and "Determining
Net Asset Value". There can be no assurance that the requirements of the AMEX
necessary to maintain the listing of iShares of any Index Fund will continue to
be met. The AMEX may remove the iShares of an Index Fund from listing if (1)
following the initial twelve-month period beginning upon the commencement of
trading of an Index Fund, there are fewer than 50 beneficial holders of the
iShares for 30 or more consecutive trading days, (2) the value of the underlying
index or portfolio of securities on which that Index Fund is based is no longer
calculated or available or (3) any other event shall occur or condition exist
that, in the opinion of the AMEX, makes further dealings on the AMEX
inadvisable. In addition, the AMEX will remove the shares from listing and
trading upon termination of the Company.
iShares of certain of the Company's Index Funds may be traded on U.S.
exchanges other than the AMEX from time to time. In addition, it is expected
that, in the future, iShares of some of the Company's Index Funds may be traded
on one or more foreign exchanges.
As in the case of other stocks traded on the AMEX, the brokers'
commission on transactions will be based on negotiated commission rates at
customary levels for retail customers and rates which range between $.015 to
$.12 per share for institutions and high net worth individuals.
In order to provide current iShares pricing information, the AMEX
disseminates through the facilities of the Consolidated Tape Association an
updated "indicative optimized portfolio value" ("IOPV") for each Index Fund as
calculated by Bloomberg, L.P ("Bloomberg"). The Company is not involved in or
responsible for any aspect of the calculation or dissemination of the IOPVs, and
makes no warranty as to the accuracy of the IOPVs. IOPVs are disseminated on a
per Index Fund basis every 15 seconds during regular AMEX trading hours of 9:30
a.m. to 4:00 p.m. Eastern time.
1
<PAGE>
The IOPV has an equity securities value component and a cash component.
The equity securities values included in the IOPV are the values of the Deposit
Securities for each Index Fund. While the IOPV reflects the current market value
of the Deposit Securities required to be deposited in connection with the
purchase of a Creation Unit of iShares, it does not necessarily reflect the
precise composition of the current portfolio of securities held by the Company
for each Index Fund at a particular point in time, because the current portfolio
of an Index Fund may include securities that are not a part of the current
Deposit Securities. Therefore, the IOPV on a per Index Fund basis disseminated
during AMEX trading hours should not be viewed as a real time update of the net
asset value per share of the Company, which is calculated only once a day. It is
possible that the value of the portfolio of securities held by the Company for a
particular Index Fund may diverge from the applicable IOPV during any trading
day. In such a case, the IOPV would not precisely reflect the value of an Index
Fund' portfolio. In addition, the foreign exchange rate used by the Company in
computing net asset value of an Index Fund may differ materially from that used
by Bloomberg. See "Determining Net Asset Value" below.
The equity securities included in the IOPV reflect the same market
capitalization weighting as the Deposit Securities of the particular Index Fund.
In addition to the equity component described in the preceding paragraph, the
IOPV for each Index Fund includes a cash component consisting of estimated
accrued dividend and other income, less expenses. Each IOPV also reflects
changes in currency exchange rates between the U.S. dollar and the applicable
home foreign currency. For the iShares MSCI Australia, Hong Kong, Indonesia
(Free), Japan, Malaysia (Free), Singapore (Free), South Korea, Taiwan and
Thailand (Free) Index Funds, there is no overlap in trading hours between the
foreign market and the AMEX. Therefore, for each of these Index Funds, Bloomberg
utilizes closing prices (in applicable foreign currency prices) in the foreign
market for securities in the Index Fund's portfolio, and converts the price to
U.S. dollars. This value is updated every 15 seconds during AMEX trading hours
to reflect changes in currency exchange rates between the U.S. dollar and the
applicable foreign currency. For Index Funds which have trading hours
overlapping regular AMEX trading hours, Bloomberg updates the applicable IOPV
every 15 seconds to reflect price changes in the principal foreign market, and
converts those prices into U.S. dollars based on the current currency exchange
rate. When the foreign market is closed but the AMEX is open, the IOPV is
updated every 15 seconds to reflect changes in currency exchange rates after the
foreign market closes.
Lending Portfolio Securities. The Company may lend portfolio securities
----------------------------
to brokers, dealers and other financial institutions needing to borrow
securities to complete transactions and for other purposes. Because the cash
government securities or other assets that are pledged as collateral to the
Company in connection with these loans generate income, securities lending
enables an Index Fund to earn additional income that may partially offset the
expenses of such Index Fund, and thereby reduce the effect that expenses have on
such Index Fund's ability to provide investment results that substantially
correspond to the price and yield performance of its respective MSCI Index.
These loans may not exceed 33% of an Index Fund's total assets. The
documentation for these loans provide that the Index Fund will receive
collateral equal to at least 105% of the current market value of the loaned
securities, as marked to market each day on the same basis as the net asset
value of the Index Fund is determined, consisting of cash government securities
or other assets permitted by applicable regulations and interpretations. An
Index Fund pays reasonable administrative and custodial fees in connection with
the loan of securities. The Index Fund invests cash collateral in short-term
investments. The Chase Manhattan Bank ("Chase") serves as Lending Agent of the
Company and, in such capacity, shares with the respective Index Fund any net
income earned on stock loans on a 40/60 basis (i.e., Chase receives 40% of such
net income and the Index Fund receives 60%). An Index Fund's share of income
from the loan collateral is included in the Index Fund's gross investment
income.
The Company will comply with the conditions for lending established by
the SEC staff. The SEC staff currently requires that the following conditions be
met whenever portfolio securities are loaned: (1) the Index Fund must receive at
least 100% collateral from the borrower; (2) the borrower must increase such
collateral whenever the market value of the securities lent rises above the
level of the collateral; (3) the Index Fund must be able to terminate the loan
at any time; (4) the Index Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned securities,
and any increase in market value; (5) the Index Fund may pay only reasonable
custodian fees in connection with the loan and will pay no finder's fees; and
(6) while voting rights on the loaned securities may pass to the borrower, the
Company, acting under the supervision of its Board of Directors (the "Board" or
the "Directors") must terminate the loan and regain the right to vote the
securities if a material event adversely affecting the investment occurs.
Although each Index Fund will receive collateral in connection with all loans of
portfolio securities, and such collateral will be marked to market, the Index
Fund will be exposed to the risk of loss should a borrower default on its
obligation to return the borrowed securities (e.g., the
2
<PAGE>
loaned securities may have appreciated beyond the value of the collateral held
by the Company). In addition, each Index Fund bears the risk of loss of any cash
collateral that it invests in short-term investments.
Repurchase Agreements. Each Index Fund may invest in repurchase
---------------------
agreements with commercial banks, brokers or dealers to generate income from its
excess cash balances and to invest securities lending cash collateral. A
repurchase agreement is an agreement under which an Index Fund acquires a money
market instrument (generally a security issued by the U.S. Government or an
agency thereof, a banker's acceptance or a certificate of deposit) from a
seller, subject to resale to the seller at an agreed upon price and date
(normally, the next business day). A repurchase agreement may be considered a
loan collateralized by securities. The resale price reflects an agreed upon
interest rate effective for the period the instrument is held by an Index Fund
and is unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by an Index Fund (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by the Company's custodian bank until
repurchased. In addition, the Company's Board of Directors monitors the
Company's repurchase agreement transactions generally and has established
guidelines and standards for review of the creditworthiness of any bank, broker
or dealer counterparty to a repurchase agreement with an Index Fund. No more
than an aggregate of 15% of the Index Fund's net assets will be invested in
repurchase agreements having maturities longer than seven days and securities
subject to legal or contractual restrictions on resale, or for which there are
no readily available market quotations. An Index Fund will enter into repurchase
agreements only with Federal Reserve member banks with minimum assets of at
least $2 billion or registered securities dealers.
The use of repurchase agreements involves certain risks. For example,
if the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Company may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by an Index Fund not within the
control of the Index Fund and therefore the Index Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Company's
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
Currency Transactions. The investment policy of each Index Fund is to
---------------------
remain as fully invested as practicable in the equity securities of the relevant
market. Hence, no Index Fund expects to engage in currency transactions for the
purpose of hedging against declines in the value of the Index Fund's currency.
An Index Fund (except for the iShares MSCI USA Index Fund) may enter into
foreign currency forward and foreign currency futures contracts to facilitate
local securities settlement or to protect against currency exposure in
connection with its distributions to shareholders, but may not enter into such
contracts for speculative purposes or as a way of protecting against anticipated
adverse changes in exchange rates between foreign currencies and the U.S.
dollar.
A forward currency contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. A currency futures contract is a contract involving an
obligation to deliver or acquire the specified amount of currency at a specified
price at a specified future time. Futures contracts may be settled on a net cash
payment basis rather than by the sale and delivery of the underlying currency.
Foreign exchange transactions involve a significant degree of risk and
the markets in which foreign exchange transactions are effected are highly
volatile, highly specialized and highly technical. Significant changes,
including changes in liquidity and prices, can occur in such markets within very
short periods of time, often within minutes. Foreign exchange trading risks
include, but are not limited to, exchange rate risk, maturity gaps, interest
rate risk and potential interference by foreign governments through regulation
of local exchange markets, foreign investment, or particular transactions in
foreign currency. If the Adviser utilizes foreign exchange transactions at an
inappropriate time or judges market conditions, trends or correlations
incorrectly, foreign exchange transactions may not serve their intended purpose
of improving the correlation of an Index Fund's return with the performance of
the corresponding MSCI Index and may lower the Index Fund's return. The Index
Fund could experience losses if the values of its currency forwards, options and
futures positions were poorly correlated with its other investments or if it
could not close out its positions because of an illiquid market. In addition,
each Index Fund will incur transaction costs, including trading commissions, in
connection with certain of its foreign currency transactions.
3
<PAGE>
Futures Contracts and Options. Each Index Fund may utilize futures
-----------------------------
contracts and options to the extent described in the Prospectus. Futures
contracts generally provide for the future sale by one party and purchase by
another party of a specified commodity at a specified future time and at a
specified price. Stock index futures contracts are settled by the payment by one
party to the other of a cash amount based on the difference between the level of
the stock index specified in the contract and at maturity of the contract.
Futures contracts are standardized as to maturity date and underlying commodity
and are traded on futures exchanges. At the present time, there are no liquid
futures contracts traded on most of the benchmark indices of the Index Funds. In
such circumstances an Index Fund may use futures contracts, and options on
futures contracts, based on other local market indices or may utilize futures
contracts, and options on such contracts, on other indices or combinations of
indices that the Adviser believes to be representative of the relevant benchmark
index.
Although futures contracts (other than cash settled futures contracts
including most stock index futures contracts) by their terms call for actual
delivery or acceptance of the underlying commodity, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold," or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract position is
opened or closed.
Futures traders are required to make a good faith margin deposit in
cash or government securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended to
assure completion of the contract (delivery or acceptance of the underlying
commodity or payment of the cash settlement amount) if it is not terminated
prior to the specified delivery date. Relatively low initial margin requirements
are established by the futures exchanges and may be changed. Brokers may
establish deposit requirements which are higher than the exchange minimums.
Futures contracts are customarily purchased and sold on margin deposits which
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract
is marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Company
expects to earn interest income on its margin deposits.
Each Index Fund may use futures contracts and options thereon, together
with positions in cash and Short-Term Investments, to simulate full investment
in the underlying index. As noted above, liquid futures contracts are not
currently available for the benchmark indices of many Index Funds. In addition,
the Company is not permitted to utilize certain stock index futures under
applicable law. Under such circumstances, the Adviser may seek to utilize other
instruments that it believes to be correlated to the underlying index.
Since there are very few futures traded on the MSCI Indices, an Index
Fund may need to utilize other futures contracts or combinations thereof to
simulate the performance of its benchmark MSCI Index. This process may magnify
the "tracking error" of an Index Fund's performance compared to that of its
benchmark MSCI Index, due to the lower correlation of the selected futures with
its benchmark MSCI Index. The investment adviser will attempt to reduce this
tracking error by using futures contracts whose behavior is expected to
represent the market performance of the Index Fund's underlying securities,
although there can be no assurance that these selected futures will in fact
correlate with the performance of its benchmark MSCI Index.
Futures Transactions. Positions in futures contracts and options
thereon may be closed out only on an exchange which provides a secondary market
for such futures. However, there can be no assurance that a liquid secondary
market will exist for any particular futures contract or option at any specific
time. Thus, it may not be possible to close a futures or options position. In
the event of adverse price movements, an Index Fund would continue to be
required to make daily cash payments to maintain its required margin. In such
situations, if an Index Fund has insufficient cash, it may have to sell
portfolio securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, an Index Fund may be required to make
delivery of the instruments underlying futures contracts it holds.
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An Index Fund will minimize the risk that it will be unable to close
out a futures or options contract by only entering into futures and options for
which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies is
potentially unlimited, due both to the low margin deposits required, and the
extremely high degree of leverage involved in futures pricing. As a result, a
relatively small price movement in a futures contract may result in immediate
and substantial loss (or gain) to the investor. For example, if at the time of
purchase, 10% of the value of a futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, entering into long or short futures positions may result in losses
well in excess of the amount initially paid. However, given the limited purposes
for which futures contracts are used, and the fact that steps will be taken to
eliminate the leverage of any futures positions, an Index Fund would presumably
have sustained comparable losses if, instead of the futures contracts, it had
invested in the underlying financial instrument and sold it after the decline.
Utilization of futures transactions by an Index Fund involves the risk
of imperfect or no correlation to the benchmark index where the index underlying
the futures contracts being used differs from the benchmark index. There is also
the risk of loss by the Company of margin deposits in the event of bankruptcy of
a broker with whom an Index Fund has an open position in the futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of future positions and subjecting some
futures traders to substantial losses.
Restrictions on the Use of Futures Contracts and Options on Futures
Contracts. An Index Fund will not enter into futures contract transactions for
purposes other than hedging to the extent that, immediately thereafter, the sum
of its initial margin deposits on open contracts exceeds 5% of the market value
of an Index Fund's total assets. Assets committed to initial margin deposits for
futures and options on futures are held in a segregated account at the Company's
custodian bank. Each Index Fund will take steps to prevent its futures positions
from "leveraging" its portfolio. When it has a long futures position, it will
maintain in a segregated account with its custodian bank, cash or high quality
debt securities having a value equal to the purchase price of the contract (less
any margin deposited in connection with the position). When it has a short
futures position, it will maintain in a segregated account with its custodian
bank assets substantially identical to those underlying the contract or cash and
high quality debt securities (or a combination of the foregoing) having a value
equal to its obligations under the contract (less the value of any margin
deposits in connection with the position).
Federal Tax Treatment of Futures Contracts. Each Index Fund is required
for federal income tax purposes to recognize as income for each taxable year its
net unrealized gains and losses on certain futures contracts as of the end of
the year as well as those actually realized during the year. In most cases, any
gain or loss recognized with respect to the futures contract is considered to be
60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the contract. Furthermore, sales of
futures contracts which hedge against a change in the value of securities held
by an Index Fund may affect the holding period of such securities and,
consequently, the nature of the gain or loss on such securities upon
disposition. An Index Fund may be required to defer the recognition of losses on
futures contracts to the extent of any unrecognized gains on related positions
held by the Index Fund.
In order for an Index Fund to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income; i.e.,
dividends, interest, income derived from loans of securities, gains from the
sale of securities or of foreign currencies or other income derived with respect
to the Index Fund's business of investing in securities. It is anticipated that
any
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net gain realized from the closing out of futures contracts will be considered
gain from the sale of securities and therefore will be qualifying income for
purposes of the 90% requirement.
Each Index Fund distributes to shareholders annually any net capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the Index Fund's fiscal year) on futures
transactions. Such distributions are combined with distributions of capital
gains realized on the Index Fund's other investments and shareholders are
advised on the nature of the distributions.
Future Developments. Each Index Fund may take advantage of
opportunities in the area of options, and futures contracts, options on futures
contracts, warrants, swaps and any other investments which are not presently
contemplated for use by such Index Fund or which are not currently available but
which may be developed, to the extent such opportunities are both consistent
with an Index Fund's investment objective and legally permissible for the Index
Fund. Before entering into such transactions or making any such investment, the
Index Fund will provide appropriate disclosure.
Swap Agreements. Each Index Fund may utilize swap agreements to the
---------------
extent described in the Prospectus. Swap agreements are contracts between
parties in which one party agrees to make payments to the other party based on
the change in market value or level of a specified index or asset. In return,
the other party agrees to make payments to the first party based on the return
of a different specified index or asset. Although swap agreements entail the
risk that a party will default on its payment obligations thereunder, each Index
Fund seeks to reduce this risk by entering into agreements that involve payments
no less frequently than quarterly. The net amount of the excess, if any, of an
Index Fund's obligations over its entitlements with respect to each swap is
accrued on a daily basis and an amount of cash or high quality debt securities
having an aggregate value at least equal to the accrued excess is maintained in
a segregated account at the Company's custodian bank.
Non-U.S. Equity Portfolios. An investment in iShares involves risks
--------------------------
similar to those of investing in a broad-based portfolio of equity securities
traded on exchanges in the respective countries covered by the individual Index
Fund. These risks include market fluctuations caused by such factors as economic
and political developments, changes in interest rates and perceived trends in
stock prices. Investing in securities issued by companies domiciled in countries
other than the domicile of the investor and denominated in currencies other than
an investor's local currency entails certain considerations and risks not
typically encountered by the investor in making investments in its home country
and in that country's currency. These considerations include favorable or
unfavorable changes in interest rates, currency exchange rates, exchange control
regulations and the costs that may be incurred in connection with conversions
between various currencies. Investing in an Index Fund whose portfolio contains
non-U.S. issuers involves certain risks and considerations not typically
associated with investing in the securities of U.S. issuers. These risks include
generally less liquid and less efficient securities markets; generally greater
price volatility; less publicly available information about issuers; the
imposition of withholding or other taxes; the imposition of restrictions on the
expatriation of funds or other assets of an Index Fund; higher transaction and
custody costs; delays and risks attendant in settlement procedures; difficulties
in enforcing contractual obligations; lesser liquidity and significantly smaller
market capitalization of most non-U.S. securities markets; different accounting
and disclosure standards; lesser levels of regulation of the securities markets;
more substantial government interference with the economy; higher rates of
inflation; greater social, economic, and political uncertainty; and the risk of
nationalization or expropriation of assets and risk of war.
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Concentrations and Lack of Diversification of Certain Index Funds. Each
-----------------------------------------------------------------
Index Fund (except for the Japan, United Kingdom and USA Index Funds) is
classified as "non-diversified" for purposes of the Investment Company Act of
1940, which means that it is not limited by that Act with regard to the portion
of its assets that may be invested in the securities of a single issuer.
Information about larege holdings in single issuers is included in the
description of each index fund. In addition, a number of Index Funds concentrate
their investments in particular industries as noted in the descriptions of each
Index Fund. Each Index Fund, however, whether diversified or non-diversified,
intends to maintain the required level of diversification and otherwise conduct
its operations so as to qualify as a "regulated investment company" for purposes
of the U.S. Internal Revenue Code, to relieve the Index Fund of any liability
for federal income tax to the extent that its earnings are distributed to
shareholders. Compliance with the diversification requirements of the U.S.
Internal Revenue Code severely limits the investment flexibility of certain
Index Funds and makes it less likely that such Index Funds will meet their
investment objectives.
The stocks of one or more particular issuers, or of issuers in
particular industries, may dominate the benchmark index of an Index Fund and,
consequently, the investment portfolio of an Index Fund. This may adversely
affect the performance of an Index Fund or subject it to greater price
volatility than that experienced by more diversified investment companies. The
iShares of an Index Fund may be more susceptible to any single economic,
political or regulatory occurrence than the portfolio securities of an
investment company that is more broadly invested in the equity securities of the
relevant market.
Investments in Subject Equity Markets. Brief descriptions of the equity markets
-------------------------------------
in which the respective Index Fund are invested are provided below.
The Australian Equity Markets
General Background. Trading shares has taken place in Australia since
1828, but did not become significant until the latter half of the nineteenth
century when there was strong demand for equity capital to support the growth of
mining activities. A stock market was first formed in Melbourne in 1865. In
1885, the Melbourne market became The Stock Exchange of Melbourne, in which form
it has remained until recently. Other stock exchanges were also established in
Sydney (1871), Brisbane (1884), Adelaide (1887), Hobart (1891) and Perth (1891).
In 1937, the six capital city stock exchanges established the Australian
Associated Stock Exchanges (AASE) to represent them at a national level. In
1987, the regional exchanges merged to create the single entity -- The
Australian Stock Exchange (ASX). Trading is done via a computer link-up called
"SEATS." SEATS enables all exchanges to quote uniform prices. All the exchanges
are members of the ASX and are subject to the Securities Industry Act, which
regulates the major aspects of stock exchange operations. Although there are
stock exchanges in all six states, the Melbourne and Sydney Stock Exchanges are
the major centers, covering 90% of all trades.
Reporting, Accounting and Auditing. Australian reporting, accounting
and auditing standards differ substantially from U.S. standards. In general
Australian corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Australian equity markets was approximately AUD 684
billion or US$ 359 billion.
The Austrian Equity Markets
General Background. Relative to international standards, the Vienna
stock market is small in terms of total capitalization and yearly turnover. The
Vienna Stock Exchange (VSE) is one of the oldest in the world and was founded in
1771 as a state institution to provide a market for state-issued bonds, as well
as for exchange transactions. The Stock Exchange Act of 1875 (the "Act")
established the VSE as an autonomous institution. The Act is still in force,
placing control and administration of the exchange in the hands of the
Borsekammer (Board of Governors), chosen from among the members of the exchange.
The Borsekammer consists of 25 individuals with the title of Borserat (stock
exchange councillor). Some are elected by members and some are designated by
organizations of the securities industry for a period of five years. The
councillors must be members of the exchange and they elect from amongst
themselves a President and three Vice Presidents. Shares account for about 80%
and
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investment fund certificates for about 20% of total listed securities on the
VSE. Business of the exchange can be transacted only by members. Almost all the
credit institutions in Vienna, some in the Austrian provinces and the joint
stock banks are represented on the stock exchange, as well as the private banks,
savings banks and other credit institutions. Certain securities which do not
have an official listing may be dealt in on the floor of the stock exchange with
permission of the management. This unlisted trading is the main activity of the
free brokers (Frei Makeler).
Reporting, Accounting and Auditing. Austrian reporting, accounting and
auditing standards differ from U.S. standards. In general, Austrian corporations
do not provide all of the disclosure required by U.S. law and accounting
practice, and such disclosure may be less timely and less frequent than that
required of U.S. corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Austrian equity markets was approximately EUR 25 billion
or US$ 22 billion.
The Belgian Equity Markets
General Background. The Brussels Stock Exchange (BSE) was founded by
Napoleonic decree in 1801. Since January 1, 1991 the BSE has been officially
organized as the "Societe de la Bourse de Valeurs Mobileres de Bruxelles" (SBVM)
the shareholders of which are Belgian securities houses. The law of December 4,
1990 on financial operations and markets terminated the monopoly of the
individual brokers. Now only securities houses are allowed to carry out stock
exchange orders. Brokers, banks, brokerage firms and insurance companies can
participate in the capital of a securities house. Its management is composed of
a majority of qualified people bearing the title of stockbroker. The Banking and
Finance Commission was granted the power to approve securities houses by this
law. The Board of Directors of the SBVM, the Stock Exchange Committee organizes
and supervises the different markets and ensures market transparency. The Stock
Exchange Committee also admits or dismisses brokerage firms and ensures
compliance with all regulations. The Stock Exchange Committee is also in charge
of the admission to listing and suspension of listing. On the Brussels Stock
Exchange equities are traded on three different markets: the Official Market,
which includes a Cash and a Forward Market, the Second Market and an "Over the
Counter Market."
Reporting, Accounting and Auditing. Belgian reporting, accounting and
auditing standards differ substantially from U.S. standards. In general Belgian
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Belgian equity markets was approximately EUR 178 billion
or US$ 155 billion.
The Brazilian Equity Markets
General Background. There are nine stock exchanges in Brazil. The Rio
de Janeiro exchange, or BVRJ (Bolsa de Valores de Rio de Janeiro) is the oldest,
but is overshadowed by the Sao Paulo exchange, called BOVESPA (Bolsa de Valores
de Sao Paulo), which is the largest and accounts for about 90% of trading
activity. The over-the-counter market (Mercado de Balcao) trades non-listed
equities. Government securities, corporate bonds, and money market instruments
are traded on the open market. The Bolsa Mercdorias e de Futuros (BM&F), in Sao
Paulo, is Brazil's futures exchange. It is the third largest derivatives
exchange in the world in contract volume. Options on the futures also are
traded, but are less liquid. BM&F is the clearinghouse for all transactions. The
financial market is regulated by three main bodies: the National Monetary
Council, or CMN (Conselho Monetario Nacional); the Central Bank (Banco Central
do Brasil), and the Securities Commission, or CVM (Comissao de Valores
Mobiliarios).
Reporting, Accounting And Auditing. Brazilian reporting, auditing and
accounting standards differ from U.S. standards. In general, Brazilian
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
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Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Brazilian equity markets was approximately BRL 390 billion
or US$ 199 billion.
The Canadian Equity Markets
General Background. The first Canadian stock exchange appeared in the
1870s. Today, Canada is the world's fourth largest public equity market by
trading volume and the fifth largest by market capitalization. There are five
stock exchanges across Canada, located in Toronto, Montreal, Vancouver, Calgary
and Winnipeg. Of these, the Toronto Stock Exchange is the largest, accounting
for almost 80% of Canadian trading volumes. Measured by the value of shares
traded, the Toronto Stock Exchange is the second largest organized securities
exchange in North America and among the ten largest in the world.
Reporting, Accounting and Auditing. According to the SEC in one of the
proposing releases relating to the Multijurisdictional Disclosure System,
Canadian reporting, accounting and auditing practices are closer to U.S.
standards than those of any other foreign jurisdiction. Every issuer that
qualifies an offering of securities for distribution in Canada becomes subject
to periodic disclosure requirements. Authoritative accounting and auditing
standards, which are uniform across Canada, are developed by a national body,
the Canadian Institute of Chartered Accountants ("CICA"). Although promulgated
auditing standards in Canada differ from U.S. standards in some respects,
generally accepted practices in Canada routinely encompass all significant
auditing procedures required by U.S. standards. Further, CICA periodically
evaluates new auditing standards adopted by the American Institute of Certified
Public Accountants, CICA's U.S. counterpart, to determine whether similar
guidelines may be appropriate for Canadian auditors. Canadian GAAP are similar
to their U.S. counterparts, although there are some differences in measurement
and disclosure.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Canadian markets was approximately CAD 1,150 billion or
US$ 748 billion.
The EMU Equity Markets
The EMU equity markets are comprised of the equity markets from the
following twelve countries, which are participating in the European Economic and
Monetary Union, or "EMU": Austria, Belgium, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The MSCI EMU
Index is currently comprised of companies from ten of these EMU countries (i.e.,
all of the EMU countries except Luxembourg).
General Background
-------------------
Following is a general background description of the equities market of
each country included in the MSCI EMU Index for which there is no iShares MSCI
Index Fund.
Finland. Organized securities trading has existed in Finland since the
1860s, but it was 1912 before a formal exchange, the Helsinki Arvopaperiporssi,
was founded. Since then there have been few changes in the rules governing
trading in Finland. In October 1984, the management of the stock exchange in
Helsinki was vested in a newly formed co-operative. That form of corporation was
chosen because Finnish legislation covering cooperatives does not limit the
number of members or the amount of capital. As a result, alone among the world's
stock exchanges, the Arvopaperiporssi accepts as members all companies listed on
its trading board and business organizations in addition to the bankers and
brokers. Decision-making and administration with the organization are vested in
the annual general meeting of the co-operative, which elects the board of
administration and the board of directors to manage the daily running of the
exchange.
The OTC List established in 1984 acquired an organized form in
September 1985, when the Association of Securities Brokers approved the listing
and regulations for the information requirements of listed companies. The
brokers and brokerage firms have undertaken to act as market makers. Mainly
medium-sized companies are traded on the OTC List. The OTC Market is based on an
agreement between a company seeking access to the share market and a brokerage
firm; both are subject to certain obligations.
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Ireland. The Irish Stock Exchange, founded in the 18th century, is the
second oldest in the world. Previously it operated as part of the International
Stock Exchange of the United Kingdom and Republic of Ireland. On December 8,
1995, it split from the U.K. Stock Exchange to form the Irish Stock Exchange
(ISE). The new exchange is committed to maintaining standards equivalent to
those of the London Stock Exchange (LSE), subject to adjustments dictated by
Irish Law. The ISE will sign a listing protocol with the LSE, under which the
ISE will maintain equivalence with the LSE rules. Companies that were listed on
both the Dublin and London exchanges may apply for dual primary listing, under
which they will be regulated to the same standard by both exchanges. A set of
procedures has been agreed with the LSE that will streamline companies' dealing
with the two exchanges.
Reporting, Accounting and Auditing
----------------------------------
Reporting, accounting and auditing standards in the nations of the EMU
differ from U.S. standards. In general, corporations in the EMU do not provide
all of the disclosure required by U.S. law and accounting practice, and such
disclosure may be less timely and less frequent than that required of U.S.
corporations.
Structure of Equity Markets
---------------------------
As of November 30, 2000, the total market capitalization of the
combined equity markets of Austria, Belgium, Finland, France, Germany, Ireland,
Italy, the Netherlands, Portugal and Spain was approximately US$ 4.82 trillion.
The French Equity Markets
General Background. Trading of securities in France is subject to the
monopoly of the Societe de Bourse, which replaced the individual agents de
change in 1991 in order to increase the cohesion of the French equity market.
All purchases or sales of equity securities in listed companies on any one of
the French exchanges must be executed through the Societe de Bourse. There are
three different markets on which French securities may be listed: (1) the
official list (La Cote Officielle), comprised of equity securities of large
French and foreign companies and most bond issues; (2) the second market (Le
Second Marche), designed for the trading of equity securities of smaller
companies; and (3) the "Hors-Cote" Market. Securities may only be traded on the
official list and the second market after they have been admitted for the
listing by the Conseil des Bourses de Valeurs (the "CBV"). By contrast, the
Hors-Cote Market has no prerequisites to listing, and shares of otherwise
unlisted companies may be freely traded there, once they have been introduced on
the market by the Societe de Bourse. Although the Hors-Cote Market is frequently
referred to as an over-the-counter market, this term is inaccurate in that, like
the official list and the second market, it is supervised by Societes des
Bourses Francaises and regulated by the CBV.
Although there are seven stock exchanges in France (located in Paris,
Bordeaux, Lille, Lyon, Marseille, Nancy and Nantes), the Paris Stock Exchange
handles more than 95% of transactions in the country. All bonds and shares,
whether listed or unlisted, must be traded on one of the seven exchanges.
Trading in most of the Paris exchange-listed stocks takes place through the
computer order-driven trading system CAC, launched in 1988. French market
capitalization constitutes approximately 30% of the French Gross Domestic
Product. Exchange securities are denominated in the Euro. Unless otherwise
provided by a double tax treaty, dividends on French shares are subject to a
withholding tax of 25%.
Reporting, Accounting and Auditing. Although French reporting,
accounting and auditing standards are considered rather rigorous by European
standards, they differ from U.S. standards in certain material respects. In
general, French corporations are not required to provide all of the disclosure
required by U.S. law and accounting practice, and such disclosure may be less
timely and less frequent than that required of U.S. corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the French equity markets was approximately EUR 1,486 billion
or US$ 1,294 billion.
The German Equity Markets
General Background. The history of Frankfurt as a financial center can
be traced back to the early Middle Ages. Frankfurt had the right to issue coins
as early as 1180; the first exchange office was opened in 1402. Germany
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has been without a central stock exchange, the position formerly held by the
Berlin exchange, since 1945. Today there are eight independent stock exchanges,
of which Dusseldorf and Frankfurt account for over three-quarters of the total
volume. Frankfurt is the main exchange in Germany. Exchange securities are
denominated in the Euro. Equities may be traded in Germany in one of three
markets: (i) the official market, comprised of trading in shares which have been
formally admitted to official listing by the admissions committee of the
relevant stock exchange, based on disclosure in the listing application; (ii)
the "semi-official" unlisted market, comprised of trading in shares not in the
official listing; and (iii) the unofficial, over-the-counter market, which is
governed by the provisions of the Civil Code and the Merchant Code and not by
the provisions of any stock exchange. There is no stamp duty in Germany, but a
nonresident capital gains tax may apply in certain circumstances.
Reporting, Accounting and Auditing. German reporting, accounting and
auditing standards differ substantially from U.S. standards. In general, German
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Germany equity markets was approximately EUR 1,327 billion
or US$ 1,155 billion.
The Greek Equity Markets
General Background. The Athens Stock Exchange (ASE) is a self-managed
public institution, regulated by law. It is financed chiefly by annual listing
fees paid by both equity and fixed-income issuers. Until 1987, the ASE had a
relatively low activity market with occasional peaks. Activity exploded that
year, with foreign purchases contributing to a 1,224% rise in traded share
value.
Reporting, Accounting And Auditing. Greek reporting, accounting and
auditing standards differ substantially from U.S. standards. In general, Greek
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
Structure Of Equity Markets. As of November 30, 2000, the total market
capitalization of the Greek equity markets was approximately EUR 107 billion or
US$ 93 billion.
The Hong Kong Equity Markets
General Background. Trading in equity securities in Hong Kong began in
1891 with the formation of the Association of Stockbrokers, which was changed in
1914 to the Hong Kong Stock Exchange. In 1921, a second stock exchange, The Hong
Kong Stockbrokers' Association, was established. In 1947, these two exchanges
were merged under the name The Hong Kong Stock Exchange Limited. Three
additional exchanges, the Far East Exchange Limited (1969), The Kam Ngan Stock
Exchange Limited (1971) and The Kowloon Stock Exchange (1972) also commenced
trading activities. These four exchanges were unified in 1986 to form The Stock
Exchange of Hong Kong Limited (the "SEHK"). The value of the SEHK constitutes
more than 100% of Hong Kong's Gross Domestic Product. Trading on the SEHK is
conducted in the post trading method, matching buyers and sellers through public
outcry. Securities are denominated in the official unit of currency, the Hong
Kong Dollar. Foreign investment in Hong Kong is generally unrestricted. All
investors are subject to a small stamp duty and a stock exchange levy, but
capital gains are tax-exempt.
Reporting, Accounting and Auditing. Hong Kong has significantly
upgraded the required presentation of financial information in the past decade.
Nevertheless, reporting, accounting and auditing practices remain significantly
less rigorous than U.S. standards. In general, Hong Kong corporations are not
required to provide all of the disclosure required by U.S. law and accounting
practice, and such disclosure may be less timely and less frequent than that
required of U.S. corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Hong Kong equity markets was approximately HKD 2,292
billion or US$ 294 billion.
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The Indonesian Equity Markets
General Background. A stock exchange has existed in Jakarta, Indonesia,
since 1912, when the country was still a colony known as the Dutch East Indies.
In 1925, additional exchanges were opened in Surabaya, in east Java, and in
Semarang, in central Java. Before World War II, there was active trading in
locally issued securities and those issued in the Netherlands. The exchanges
were closed during the war and did not reopen until June 1952. Once reopened,
the Jakarta Stock Exchange (JSX) primarily facilitated the issuance of
government bonds to stimulate the economy. However, the exchange proved less
than successful and was later closed. In 1976, the management of the JSX changed
by presidential decree and the exchange was formally reopened. The JSX is the
most important of the exchanges operating in Indonesia. The Surabaya Stock
Exchange and the Bursa Parallel (Parallel Exchange) are much smaller. The Bursa
Parallel was formed to accommodate over-the-counter trading.
Throughout most of its history, the JSX has been operated and
controlled through the state Capital Market Supervisory Agency (locally known as
BAPEPAM, for Badan Pengawas Pasar Modal). BAPEPAM was both executive of the
exchange and supervisory body for the market, a duality that delayed decisions
and left issues unresolved. To rectify this, BAPEPAM was streamlined into a
solely supervisory role. A private stock exchange company, PT Bursa Efek Jakarta
(BEJ), took over the day-to-day operations of the JSX in December 1991. The JSX
became officially privatized on April 16, 1992. A series of new rules has been
issued by BAPEPAM and BEJ to regulate and develop the capital market.
Reporting, Accounting And Auditing. Indonesian reporting, accounting
and auditing standards differ substantially from U.S. standards. In general,
Indonesian corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Structure Of Equity Markets. As of November 30, 2000, the total market
capitalization of the Indonesian equity markets was approximately IDR 90,916
billion or US$ 9 billion.
The Italian Equity Markets
General Background. The regulatory structure of the Italian Stock
Exchange changed radically in February 1997, when the Italian Stock Exchange
Council set up a new private company, "Borsa Italiana Spa", which is now
responsible for the regulation, promotion and management of the Stock Exchange,
the unlisted securities market and the Italian Derivatives Market (IDEM).
In 1991, the Parliament passed legislation creating Societa de
intermediazone mobiliare (SIMs). SIMS were created to regulate brokerage
activities in the securities market and are allowed to trade on their own and
for customers' accounts.
In November 1994, the Italian Derivatives Market (IDEM) started trading
its first exchange-listed derivatives product, the Mib 30 index futures contract
(Fib 30). In November 1995, the MIB30 Index option (MIBO30) began trading on the
IDEM. In February 1996, options were introduced on single stocks, together with
the transfer of all shares to a rolling settlement basis. In March 1998, the
MIDEX Index contract, the futures contract on the 25 Mid-Cap Stock Index, was
launched.
Access to the Italian trading system can be obtained directly through
the terminals provided to users or indirectly through users' own front office
systems (using Application Programming Interfaces). The latter allows the use of
information, analytical and trading functions developed by the users.
Italy has one of the world's largest government securities markets. At
the end of 1998, issues of treasury bills, notes and bonds outstanding totaled
US $1,300 billion.
Reporting, Accounting and Auditing. Italian reporting, accounting and
auditing practices are regulated by Italy's National Control Commission
(Consob). These practices bear some similarities to United States standards.
However, in general, Italian corporations do not provide all of the disclosure
required by US law and accounting practice, and such disclosure may be less
timely, less frequent and less consistent than that required of US
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corporations. Italy is, however, moving toward more transparency: from 2000, for
example, the law will require quarterly disclosure.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Italian equity markets was approximately EUR 841 billion
or US$ 732 billion.
The Japanese Equity Markets
General Background. The Japanese stock market has a history of over 100
years beginning with the establishment of the Tokyo Stock Exchange Company Ltd.
in 1878. Stock exchanges are located in eight cities in Japan (Tokyo, Osaka,
Nagoya, Kyoto, Hiroshima, Fukuoka, Niigata and Sapporo). There is also an
over-the-counter market. There are three distinct sections on the main Japanese
stock exchanges. The First Section trades in over 1,100 of the largest and most
active stocks, which account for over 95% of total market capitalization. The
Second Section consists of over 400 issues with lower turnover than the First
Section, which are newly quoted on the exchange or which are not listed and
would otherwise be traded over-the-counter. The Third Section consists of
foreign stocks which are traded over-the-counter. The main activity of the
regular exchange members is the buying and selling of securities on the floor of
an exchange, both for their customers and for their own account. Japan is second
only to the United States in aggregate stock market capitalization. Securities
are denominated in the official unit of currency, the Japanese Yen. Takeover
activity is negligible in Tokyo, and although foreign investors play a
significant role, the trend of the market is set by the domestic investor. The
statutory at-source withholding tax is 20% on dividends. There also is a
transaction tax on share trades and a small stamp duty.
Reporting, Accounting and Auditing. Although some Japanese reporting,
accounting and auditing practices are based substantially on U.S. principles,
they are not identical to U.S. standards in some important respects,
particularly with regard to unconsolidated subsidiaries and related structures.
In general, Japanese corporations are not required to provide all of the
disclosure required by U.S. law and accounting practice, and such disclosure may
be less timely and less frequent than that required of U.S. corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Japanese equity markets was approximately JPY 410,693
billion or US$ 3,707 billion.
The Malaysian Equity Markets
General Background. The securities industry in Malaysia dates back to
the early 1930's. Kuala Lumpur and Singapore were a single exchange until 1973
when they separated and the Kuala Lumpur Stock Exchange (KLSE) was formed. The
KLSE operated under a provisional set of rules until 1983 when a new Securities
Industry Act came into force. As of June 30, 1999, 458 companies were listed on
the KLSE main board. A Second Board, established in 1988, allows smaller
companies to tap additional capital. There were 287 companies listed on the
Second Board as of June 30, 1999. Over the years, the KLSE's close links with
the Stock Exchange of Singapore (SES) has rendered it very vulnerable to
developments in Singapore. Consequently, the Government decided, as a matter of
national policy, on a delisting of Malaysian incorporated companies from the
SES. This was effected on January 1, 1990. A similar move was made by Singapore,
resulting in the delisting of all Singapore companies on the KLSE on January 1,
1990. There are two main stock indices in Malaysia. The wider ranging KLSE
Composite represents 80 companies. The New Straits Times Industrial Index is an
average of 30 industrial stocks.
Malaysian currency volatility and general economic deterioration led to
the imposition of stringent capital controls in September 1998, including a one
year prohibition on repatriation of capital and an indefinite prohibition on
free transfers of securities. The prohibition on repatriation of capital was
removed in February 1999 but the controls have adversely impacted foreign
investors, including the Index Fund, which suspended creations in response to
the controls. This adversely affected the trading market for Malaysia (Free)
Index Fund iShares.
Reporting, Accounting and Auditing. Malaysian reporting, accounting and
auditing standards differ substantially from U.S. standards. In general,
Malaysian corporations do not provide all of the disclosure required by U.S. law
and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
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Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Malaysian equity markets was approximately MYR 475 billion
or US$ 125 billion.
The Mexican Equity Markets
General Background. There is only one stock exchange in Mexico, the
Bolsa Mexicana de Valores (BMV), which was established in 1894 and is located in
Mexico City. The stock exchange is a private corporation whose shares are owned
solely by its authorized members and operates under the stock market laws passed
by the government. The National Banking and Securities Commission (CNV)
supervises the stock exchange. The Mexican exchange operates primarily via the
open outcry method. However, firm orders in writing can supersede this system,
provided there is a perfect match of the details of a buy and sell order.
Executions on the exchange can be done by members only. Membership of the stock
exchange is restricted to Casas de Bolsa brokerage houses and Especialistas
Bursatiles (stock exchange specialists).
Reporting, Accounting and Auditing. Mexican reporting, accounting and
auditing standards differ substantially from U.S. standards. In general, Mexican
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Mexican equity markets was approximately MXN 1,283 billion
or US$ 136 billion.
The Netherlands Equity Markets
General Background. Trading securities on the AEX Stock Exchange (AEX)
(formerly the Amsterdam Stock Exchange) started at the beginning of the
seventeenth century. The United East India Company was the first company in the
world financed by an issue of shares, and such issue was effected through the
exchange. The Netherlands claims the honor of having the oldest established
stock exchange in existence. In 1611 a stock market began trading in the coffee
houses along the Dam Square. A more formal establishment, the Amsterdam Stock
Exchange Association, began trading industrial stocks in 1876, and until World
War II, Amsterdam ranked after New York and London as the third most important
stock market in the world. After the war, the AEX Stock Exchange only gradually
began to resume its activities, as members felt threatened by what they saw as
an impending socialist order which would leave little of the stock market
intact. Since the end of the war, the Dutch market has remained relatively
neglected, as local companies have found it more favorable to use bank financing
to meet their capital requirements. Trading in shares on the AEX may take place
on the official market or on the parallel market, which is available to
medium-sized and smaller companies that cannot yet meet the requirements
demanded for the official market.
Reporting, Accounting and Auditing. Dutch reporting, accounting and
auditing standards differ substantially from U.S. standards. In general, Dutch
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Dutch equity markets was approximately EUR 841 billion or
US$ 732 billion.
The Portuguese Equity Markets
General Background. EU membership marked the start of a period that has
seen dramatic growth in the scope and activity of the Portuguese stock market.
The Lisbon Stock Exchange ("LSE") is divided into three markets, each with
specific requirements regarding admission to listing and trading: (1) the
official market, which was created on July 23, 1991; (2) the second market,
created in January 1992, which is intended for trading securities that do not
meet all the requirements for admission to the official market. The main purpose
of this market is to allow access to the stock exchange for small and
medium-sized companies; and (3) the unofficial market, created on October 22,
1991, is intended for trading securities that do not meet the requirements for
the other two markets. Securities can be admitted to this market for a limited
period of time.
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In 1992, the LSE was privatized. It is now under the management of the
Lisbon Stock Exchange Association. Further, the Oporto Derivatives Exchange was
established in June 1996, where five futures contracts are traded.
Reporting, Accounting and Auditing. Portuguese reporting, accounting
and auditing standards differ substantially from U.S. standards. In general,
Portuguese corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Structure of Equity Markets. As of November 30, 2000, the total market
capitalization of the Portuguese equity markets was approximately EUR 72 billion
or US$ 63 billion.
The Singaporean Equity Markets
General Background. The Stock Exchange of Singapore (SES) was formed in
1973 with the separation of the joint stock exchange with Malaysia, which had
been in existence since 1938. The linkage between the SES and the Kuala Lumpur
Stock Exchange (KLSE) remained strong as many companies in Singapore and
Malaysia jointly listed on both exchanges, until January 1, 1990 when the dual
listing was terminated. SES has a tiered market, with the formation of the
second securities market, SESDAQ (Stock Exchange of Singapore Dealing and
Automated Quotation System) in 1987. SESDAQ was designed to provide an avenue
for small and medium-sized companies to raise funds for expansion. In 1990, SES
introduced an over-the-counter (OTC) market known as CLOB International, to
allow investors access to international securities listed on foreign exchanges.
SES also has a direct link with the National Association of Securities Dealers
Automated Quotation (NASDAQ) system, which was set up in March 1988 to allow
traders in the Asian time zone access to selected securities on the U.S. OTC
markets. This is made possible through a daily exchange of trading prices and
volumes of the stocks quoted on NASDAQ. The Singapore Stock Exchange is one of
the most developed in Asia and has a strong international orientation.
Reporting, Accounting and Auditing. Singaporean reporting, accounting
and auditing standards differ substantially from U.S. standards. In general,
Singaporean corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Singaporean markets was approximately SGD 272 billion or
US$ 155 billion.
The South African Equity Markets
General Background. The Johannesburg Stock Exchange (JSE), established
in 1887, is the only stock exchange in South Africa. Its major traded shares
have been mining and gold stocks, such as De Beers and the Anglo American
Corporation of South Africa. The minerals-related sectors still account for 14%
of the market's capitalization, although there are now many other important
sectors including banking, insurance, industrials and leisure. The market
capitalization of the JSE has grown enormously from ZAR 13.3 billion in 1970 to
approximately ZAR 1022.0 billion in 1995.
Reporting, Accounting and Auditing. South African reporting, accounting
and auditing standards differ substantially from U.S. standards. In general,
South African corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Structure of Equity Markets. As of November 30, 2000, the total market
capitalization of the South African equity markets was approximately ZAR 1,428
billion or US$ 184 billion.
The South Korean Equity Markets
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General Background. After the formation of South Korea in 1948, the
government issued Farmland Compensation Bonds to landowners in exchange for
their farmland, and Kunkuk Bonds to cover their financial debt. The Daehan Stock
Exchange was established in 1956 to enable trading of these bonds. The South
Korea Stock Exchange was established several years later. The government enacted
the Securities and Exchange Law in January 1962 as part of the First Five Year
Economic Plan. The law was intended to help South Korean companies arrange funds
for economic development by using the stock market. Within a year the market
boomed and crashed.
The Securities and Exchange Law was amended in April 1962 to impose
stricter regulatory measures on the operation of the securities market. The
stock exchange became a non-profit, government-owned corporation called the
South Korea Stock Exchange. However, the securities market was unable to
overcome the aftermath of the crash and entered a period of inactivity.
In 1967, as part of the Second Five Year Economic Plan, the government
encouraged the public to invest in the stock market by increasing the number of
listed companies and the acceptability of equity shares. Tax advantages were
given to companies that went public. Further legislation was passed in 1972 to
encourage share flotation in the belief that corporations would reduce their
high financing costs by converting bank loans into share capital.
As a result of these market measures, the number of listed companies
started to increase. The Securities and Exchange Commission and its executive
body, the Securities Supervisory Board, were established to strengthen investor
protection.
The South Korea Securities Settlement Corporation, since renamed the
South Korea Depository Corporation (KSD), was set up in 1974 to act as the
clearing agent for the stock exchange and as the central depository. In 1977,
the South Korea Securities Computer Corporation was established as an electronic
data processing center for the securities industry to enable members to transmit
orders directly to the trading floor.
In 1981, the government announced its long-term plans for opening the
South Korean securities market to foreigners. International investment trusts
were established and the South Korea Fund and the South Korea Europe Fund were
incorporated overseas. In 1985, the government began to allow some domestic
corporations to issue convertible bonds, bonds with warrants and depository
receipts overseas. The government also eased controls to allow domestic
institutional investors to invest in foreign securities. In December 1988, a
new, detailed plan was put forward for the internationalization of the capital
market from 1989 to 1992. A more open capital market was proposed to improve the
financial structure of domestic firms and to strengthen their international
competitiveness. The firms would be given access to an expanded and revitalized
domestic capital market and cheaper sources of financing in the international
markets. The stock market began to be opened to foreign investors in January
1992.
Reporting, Accounting and Auditing. South Korean reporting, accounting
and auditing standards differ substantially from U.S. standards. In general,
South Korean corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Structure of Equity Markets. As of November 30, 2000, the total market
capitalization of the South Korean equity markets was approximately KRW 192,535
billion or US$ 158 billion.
The Spanish Equity Markets
General Background. The Securities Market Act (LMV) recognizes the
following as official secondary markets:
o stock exchanges;
o the public debt market organized by the Bank of Spain; and
o futures and options markets.
Stock exchanges in Spain (Madrid, Bilbao, Barcelona and Valencia) are
the official secondary markets which trade shares and convertible bonds or those
which grant the right of purchase or subscription. Issuers of
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shares go to the stock market as the primary market, where they formalize
transactions or capital increases. Fixed-income securities (both governmental
and private sector debt) are also traded on the stock market.
The organization and functioning of each stock exchange is the
responsibility of each respective governing body (Sociedad Rectora), each of
which is a limited company whose sole shareholders are the dealer-brokers and
brokers and the stock exchanges themselves. The Sociedad de Bolsa, established
by the four stock exchanges, is responsible for the technical management of the
computerized trading system, which operates at a national level. Under the LMV,
the National Securities Market Commission (CNMV) is responsible for supervising
and inspecting the securities markets as well as the activity of all individuals
and companies who deal with the markets. It has the power to punish and other
functions.
These Spanish futures and options markets are organized by the holding
company MEFF (Mercado Espanol de Futuros Financieros) Sociedad Holding and two
subsidiaries: MEFF Renta Variable (equities), based in Madrid, and MEFF Renta
Fija (fixed-income securities), based in Barcelona. MEFF Renta Variable manages
the trading of options and futures on the Ibex-35 stock index, and individual
options on certain shares. MEFF Renta Fija manages the trading of futures and
options on interest rates and bonds.
Bonds, Treasury bills and debt issued by other public administrations
and organizations are traded in the public debt market. These securities are
also traded at the same time on the stock market, which has a specific trading
system for them. The Bank of Spain's Book-Entry Office is responsible for
supervising the public debt market.
Reporting, Accounting and Auditing. Spanish reporting, accounting and
auditing standards differ substantially from US standards. In general, Spanish
corporations do not provide all of the disclosure required by US law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of US corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Spanish equity markets was approximately EUR 372 billion
or US$ 324 billion.
The Swedish Equity Markets
General Background. Organized trading of securities in Sweden can be
traced back to 1776. Although the Stockholm Stock Exchange was founded in 1864,
the real formation of a stock exchange in an international sense took place in
1901. The statutes of the Stock Exchange were modified in 1906 and, from the
beginning of 1907, commercial banks were admitted as members. During the 1970s,
the Stockholm market had low turnover and dull trading conditions. The market
started to climb in 1980 and for several years Stockholm was one of the best
performing stock markets, in terms of both price and volume growth. This
regeneration of a market for risk capital was reflected in the large number of
companies introduced in the early 1980s. The Stockholm Stock Exchange is
structured on a membership basis, under the supervision of the Bank Inspection
Board. The Board consists of 11 directors and one chief executive. The directors
of the Board are elected by the Swedish government, the Association of the
Swedish Chamber of Commerce, the Federation of Swedish Industries and the member
companies of the Stock Exchange. There are three different markets for trading
shares in Sweden. The dominant market is the A-1 list, for the largest and most
heavily traded companies. The second market is the over-the-counter market,
which is more loosely regulated than the official market and caters to small-
and medium-sized companies. The third market is the unofficial parallel market,
which deals in unlisted shares, both on and off the exchange floor. The shares
most frequently traded on this market are those which have been de-listed from
other markets and those that are only occasionally available for trading.
On July 1, 1999, the Stockholm Stock Exchange and OM Stockholm merged
to create the OM Stockholm Exchange - OM Stockholmsborsen AB. In addition, the
Stockholm Stock Exchange and the Copenhagen Stock Exchange have signed an
agreement covering a common Nordic securities market, NOREX.
There are also two independent markets for options - the Swedish
Options Market (OM) and the Swedish Options and Futures Exchange (SOFE), which
offer calls, puts and forwards on Swedish stocks and stock market indices.
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Reporting, Accounting and Auditing. Swedish reporting, accounting and
auditing standards differ substantially from US standards. In general, Swedish
corporations do not provide all of the disclosure required by US law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of US corporations. The basic concepts used are historical
cost, going concern, accrual basis, consistency and prudence.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Swedish equity markets was approximately SEK 3,110 billion
or US$ 310 billion.
The Swiss Equity Markets
General Background. There are three principal stock exchanges in
Switzerland, the largest of which is Zurich, followed by Geneva and Basle. The
Geneva exchange is the oldest and was formally organized in 1850. The Basle and
the Zurich exchanges were founded in 1876 and 1877, respectively. The Geneva
Exchange is a corporation under public law and in Zurich and Basle the exchanges
are institutions under public law. There are three different market segments for
the trading of equities in Switzerland. The first is the official market, the
second is the semi-official market, and the third is the unofficial market. On
the official market, trading takes place among members of the exchange on the
official trading floors. Trading in the semi-official market also takes place on
the floors of the exchanges, but this market has traditionally been reserved for
smaller companies not yet officially accepted on the exchange. Unofficial market
trading is conducted by members and non-members alike. Typical trading on this
market involves shares with small turnover. Both listed and unlisted securities
can, however, be traded on this market.
Since July 1998, SWX has provided facilities for electronic trading in
Eurobonds. Repo SWX, the first electronic market for repos with integrated
clearing and settlement, was inaugurated in June 1999. In addition, SWX launched
a new market segment for emerging-growth companies in July 1999, under the name
SWX New Market. Eurex, the first trans-national derivatives market, is a
co-operative venture between the SWX Swiss Exchange and Deutsche Borse Ag, each
of which holds a 50% stake. Eurex is the largest derivative exchange in the
world.
Reporting, Accounting and Auditing. Swiss reporting, accounting and
auditing standards differ substantially from US standards. In general, Swiss
corporations do not provide all of the disclosure required by US law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of US corporations.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Swiss equity markets was approximately CHF 1,240 billion
or US$ 714 billion.
The Taiwanese Equity Markets
General Background. The Taiwan Stock Exchange, in Taipei, is the only
stock exchange in Taiwan. Its roots can be traced to the Land Reform Movement of
1953. The government bought tracts of land from large landowners and paid for
them with bonds and shares in government-owned companies. The need to trade
those shares and bonds gradually bred the formation of a fledging
over-the-counter market. As the economy prospered, the importance of a
securities market was recognized. The government established the Securities
Market Research Committee to study the feasibility of a formal stock market.
Consequently, the Securities and Exchange Commission (SEC) was established on
September 1, 1960, as a department of the Ministry of Finance. The Taiwan Stock
Exchange (TSE) was founded a year later and officially commenced operation in
February 1962.
In the exchange's first year, there were 18 listed companies with an
average trading volume of TWD 1,647,760. By 1963, there were 23 listed
companies; by 1980, there were 100; and by 2000 there were 531. As listings
steadily increased, the market remained stable for several years. Since then,
the number of brokerage firms has multiplied and limitations on foreign
investors have recently been relaxed.
Reporting, Accounting and Auditing. Taiwanese reporting, accounting and
auditing standards differ substantially from US standards. In general, Taiwanese
corporations do not provide all of the disclosure required by
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US law and accounting practice, and such disclosure may be less timely and less
frequent than that required of US corporations.
Structure of Equity Markets. As of November 30, 2000, the total market
capitalization of the Taiwanese equity markets was approximately TWD 8,918
billion or US$ 270 billion.
The Thai Equity Markets
General Background. The Bangkok Stock Exchange Co. Ltd. (BSE) was
established in 1962 as a partnership; it was the first organized stock exchange
in Thailand. There was little trading on the exchange, and the BSE acted as an
indicator of current share prices rather than as a center for trading. In 1974,
the Securities Exchange of Thailand Act established a new exchange called the
Stock Exchange of Thailand (SET). The SET started trading on April 30, 1975.
Reporting, Accounting and Auditing. Thai reporting, auditing and
accounting standards differ substantially from U.S. standards. In general, Thai
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.
Structure of Equity Markets. As of November 30, 2000, the total market
capitalization of the Thai equity markets was approximately THB 1,192 billion or
US$ 27 billion.
The Turkish Equity Markets
General Background. The Istanbul Stock Exchange (ISE), which was formed
in 1866 and closed in 1938 because of domestic and international economic
conditions, was reactivated following the enactment of the Capital Market Law in
July 1983 and Decree No. 91, which was issued in October 1983. Trading at the
ISE was reinitiated in January 1986 in Istanbul and moved in May 1995 to new,
fully automated headquarters at Istinye. Development banks, commercial banks and
brokerage houses are eligible for membership in the ISE.
The Turkish equities market consists of the national market on which
198 stocks are traded, a regional market on which 13 stocks are traded and a new
companies market, which is not yet fully operational. The new companies market
will feature newly established, yet promising, companies that are not eligible
to trade on the national market.
The bonds and bills market features markets in government bonds and
treasury bills, corporate bonds, revenue sharing certificates and repurchase
agreements.
Reporting, Accounting and Auditing. Turkish reporting, auditing and
accounting standards differ substantially from U.S. standards. In general,
Turkish corporations do not provide all of the disclosure required by U.S. law
and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.
Structure of Equity Markets. As of November 30, 2000, the total market
capitalization of the Turkish equity markets was approximately TRL 47,457,380
billion or US$ 0.70 billion.
The United Kingdom Equity Markets
General Background. The UK is Europe's largest equity market in terms
of aggregate market capitalization. Trading is fully computerized under the SETS
System for FTSE- 100 (and 83 other) stocks and the Stock Exchange Automated
Quotation System (SEAQ) operates for international equities. The London Stock
Exchange exists alongside Tradepoint, while there is also a network of regional
offices. The London Stock Exchange has the largest volume of trading in
international equities in the world.
Reporting, Accounting and Auditing. Despite having a great deal of
common purpose and common concepts, the accounting principles in the UK and the
US can lead to markedly different financial statements. In the global market for
capital, investors may want to know about a company's results and financial
position under their
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own principles. This is particularly so in the US capital markets. The
overriding requirement for a UK company's financial statements is that they give
a `true and fair' view. Accounting standards are an authoritative source as to
what is and is not a true and fair view, but do not define it unequivocally. Ad
hoc adaptations to specific circumstances may be required. In the US, financial
statements are more conformed because they must be prepared in accordance with
GAAP.
Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the United Kingdom equity markets was approximately GBP 1,773
billion or US$ 2,514 billion.
Regional and Country-Specific Economic Considerations.
------------------------------------------------------
Europe. In 1986, the member states (the "Member States") of the
European Union (the "EU") signed the "Single European Act," an agreement to
establish a free market. The development of a unified common European market has
promoted the free flow of goods and services.
The Maastricht Treaty on economic and monetary union ("EMU") was
intended to provide its members with a stable monetary framework. On January 1,
1999, the third and final stage of EMU began with the establishment of a
currency union encompassing 11 of the 15 Member States of the European Union
("EU") - Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, and Spain. On that date, these countries locked their
exchange rates and adopted the euro as their common currency, with monetary and
exchange rate policy determined by area-wide institutions. Thus, each of these
countries gave up the possibility of independent monetary and exchange rate
policy. Greece adopted the euro on January 1, 2001.
EMU does not change the locus of responsibility for policies other than
monetary and exchange rate policies. Policies affecting external trade and the
integration of internal markets were already a matter of EU competence. Fiscal
and labor market policies continue to be created mostly at the national level,
albeit subject to closer surveillance by EU institutions. The Stability and
Growth Pact (SGP), concluded in June 1997, set out the procedures for
surveillance of national fiscal policies, strengthening the framework provided
in the Maastricht Treaty. Also, the Treaty of Amsterdam, signed in October 1997,
explicitly recognized labor market policies as a matter of common concern and
set out procedures for their surveillance. Except for monetary and exchange rate
policies, area-wide decision making and surveillance are the responsibility of
institutions of the EU as a whole. It has been agreed that ministers of
euro-area countries can meet (as the Euro-12 Group), to discuss issues related
to the single currency, but that formal surveillance and coordination decisions
will be the prerogative of the full EU Council of Ministers ("ECOFIN"). The
euro-area rivals the United States in terms of output and trade. The delineation
of monetary, fiscal, and structural policy responsibility between the euro-area
institutions and national governments helps assign responsibility for these
policies, but also complicates their coordination.
Austria. Austria has a well-developed market economy based on commerce
and manufacturing. The gross national product ("GNP") has grown moderately and
the gross domestic product ("GDP") is primarily generated by manufacturing,
finance, commerce, administration and defense. The strongest sector of the
economy is manufacturing, which accounts for about 26% of the GDP. The GNP per
capita is about average among EU countries. Austria's natural resources include
iron ore, oil, timber, magnetite, lead, coal, lignite, copper, and hydropower
and they contribute to a highly developed and successful industrial economy. The
chief industries are construction, machinery, vehicles, food, chemicals, wood
processing, paper, communications equipment, and tourism.
Austria, a federal republic, generally has a high standard of living,
which is closely tied to other EU economies, especially Germany's. Business
confidence has remained buoyant given the competitive position of Austria's
industry, strong foreign investment and good export opportunities. Austrian
exports have grown strongly, which has been helped by growth within the EU and a
continued weakening of the euro. Export growth is particularly pronounced in
food, machinery and transport equipment. Imports are strong in raw material,
machinery and transport equipment. The principal importer of Austrian products
is Germany, followed by Italy and Switzerland.
Economic growth has accelerated in Austria, culminating in 3.5% GDP
growth in the first half of 2000. The depreciation of the euro and the recovery
in Austria's export market contributed to the overall favorable
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outlook. Private consumption increased and remained at a strong 3% and export
growth accelerated to 9% in response to the recovery in Austria's main export
market. The labor market continued to experience rapid increases in employment,
mainly taking place in public job programs and in the service sector. Part-time
employment experienced greater growth than full-time employment. Unemployment
fell to approximately 4.5% in the second half of 2000, although it is expected
to increase due to recent labor reforms.
Consumer price inflation increased to 3% in the first of half of 2000,
driven by higher oil prices, following a deceleration to 0.2% a year earlier.
Exports of goods and services remained strong at 8.8% and import growth should
remain constant in response to the high level of domestic demand. The
government's ongoing fiscal consolidation effort centered on reducing pension
expenditures and government employment. While the deficit has been decreasing
recently, there is concern interest rates will rise.
Over the Fund's fiscal year ended August 31, 2000, the Austrian equity
market performed weakly.
Unlike many other European markets, Austria continued to be dominated
by so-called "old economy" banking and utilities companies. The MSCI Austria
Index's largest stock as of August 31, 2000, was Bank Austria, which accounted
for more than 32% of the index. Its second-largest stock as of that date was
Verbund Oesterreich Elektrik, an electric-utilities company that, unlike other
European utilities firms, has not ventured extensively into higher-growth areas
such as telecommunications and the Internet. Political issues also weighed on
the Austrian market at various times. The controversy surrounding Georg Haider
put the country at odds with the European Union in early 2000, as did Austria's
slow progress in deregulating its domestic telecommunications market.
Toward the end of the fiscal year ended August 31, 2000, however, the
Austrian market was buoyed by positive sentiment. Investors viewed the news that
Bank Austria had agreed to be acquired by Germany's HypoVereinsbank as a
potential spark for further consolidation in Austria. The deal, if successfully
completed, would be the largest takeover in Austria's history. In addition, the
Austrian economy continued to show signs of health over the past year.
Belgium. Belgium is a modern private enterprise economy largely based
on a diversified industrial and commercial base. The chief industries include
engineering and metal products, motor vehicle assembly, processed food and
beverages, chemicals, basic metals, textiles, glass, petroleum, and coal.
Industry is mainly concentrated in Northern Belgium. Belgium imports high
quantities of raw materials used in the manufacturing of its goods. The GNP per
capita is about average among EU countries. The GDP is only slightly above the
EU average and is mainly attributable to the agricultural sector. Traditionally,
Belgium's natural resources have been concentrated in coal, steel and textiles,
however these have declined in recent years.
Belgium, a federal parliamentary democracy, has attempted to simplify
its fiscal system by reducing the burden of income tax on companies and workers.
Tax reforms are directed towards employees and companies, as Belgian employees
carry a much higher tax burden than workers in neighboring countries. The
government has increased expenditures for new jobs, unemployment benefits, and
social services, forcing the government to borrow from abroad. The most recent
election resulted in a historic shift of power to Guy Verhofstadt's
`blue-red-green' coalition (made up of French-and-Dutch speaking Liberals,
Socialists and Greens). The coalition has attempted to restore public confidence
after a series of political scandals.
Belgium shows a high degree of economic openness. It is therefore
extremely sensitive to economic developments abroad and, in particular, to those
occurring in the EMU. Activity in Belgium fluctuates almost exactly in line with
that of the euro area. The latest economic developments are no exception in that
respect. The depreciation of the euro has boosted the international
competitiveness of Belgian firms, which will also benefit from a period of broad
wage moderation and further cuts in employer's social security contributions.
The Belgian employment rate typically is lower than the rest of the
EMU. The unemployment rate fell to 8.6% in 2000 shrinking from the previous
years. Employment has continued to grow at a rapid pace with wage and
compensation per employee expected to accelerate. Belgium's consumer price
inflation reached 3.3% in September, reflecting increases in oil prices and euro
weakness. Real GDP growth appeared around 3.75% in early 2000, compared with
2.75% in 1999, despite a slow-down in the last months.
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Over the Fund's fiscal year ended August 31, 2000, the performance of
the Belgian equity market was weak. In large part this was because it continues
to be dominated by so-called "old economy" companies in the financial services
and electric-utilities industries. As of August 31, 2000, the market's three
largest stocks were financial services firm Fortis Belgium, electric-utilities
company Electrabel, and banking firm Kredietbank. These firms had weightings in
the MSCI Belgium Index of 30.0%, 15.5%, and 18.0%, respectively. Stocks such as
these generally under performed "new economy" stocks in the technology, media
and telecommunications industries in the one-year period. Belgium's banking and
utilities stocks were also negatively affected by rising interest rates.
In March and again in May, however, Fortis reported
stronger-than-expected earnings and its shares rose, helping the Belgian market
recover some of its losses for the period. Now Europe's largest combined banking
and insurance company, Fortis has also benefited from its 1999 purchase of
American Banking Insurance Group.
The Belgian market was also supported by relatively good economic
conditions over the past year. Although not as robust as other European
economies, Belgium has benefited somewhat from a better fiscal environment,
lower unemployment and accelerating global growth.
In March 2000, the Brussels Stock Exchange announced that it planned to
merge with the Amsterdam and Paris stock exchanges. Such an exchange would be
second in size only to London among European markets. In addition, the Belgian
firm Interbrew launched an initial public offering in November 2000. Interbrew
is now the world's second-largest brewer.
France. France is a modern capitalist society considered to be one of
the major economic powers of the world, ranking along with such countries as the
United States, Japan and Germany. French GNP is about average among EU members,
but it is growing rapidly as the nationalization of industry takes place. The
chief industries include steel, machinery, chemicals, automobiles, metallurgy,
aircraft, electronics, mining, textiles, food processing, and tourism. France is
also a major exporter of dairy products, wine, wheat and tinned fruit and
vegetables.
The government of France is a multiparty democracy dominated by a
strong executive. The government retains considerable influence over key
segments of each sector, with majority ownership of railway, electric, aircraft,
and telecommunication firms, although the government is relaxing control over
these areas. Large-scale privatization has taken place with such companies as
France Telecom, Air France, Aerospatiale, and Credit Lyonnais, which had been
hurt by years of high interest rates. The government plans to make restructuring
more costly and short-term labor contracts (used to encourage labor flexibility)
more expensive for companies. France employs a generous and comprehensive system
of social welfare benefits providing generous benefits for unemployment, sick
leave, childcare and maternity benefits.
After 3.2% growth in 1999, the French economy was growing at an
annualized 3.6% in the first half of 2000, driven chiefly by strong domestic
demand. A pick-up in exports on the back of the recently weak euro, "new
economy" activity and the recovery in emerging markets also had a positive
effect on the French economy.
The accumulated impact of three years of growth in France has been to
push job creation to a 30-year high. At mid-year, employment growth was running
at an annualized 3.2%, or the equivalent of about 439,000 new jobs a year. The
strongest growth was in the services sector and construction, with industrial
employment growing at about half the annualized average. The introduction in
February 2000 of the wage-moderating 35-hour week - the government's flagship
policy - also appeared to have a positive impact, though many new jobs were
generated as part of youth schemes and in temporary and part-time work. From a
post-war peak of 12.5% in June 1997, or 3,200,000, (3.2 million) unemployment
had dropped to 9.8%, or 2,371,300, at the end of the first quarter of 2000.
Other key indicators point to the health of the French economy.
Household consumption is up, as are housing starts, construction permit issues
and new car registrations. At the same time, inflation has dropped to around (an
annualized) 0.5% due to low raw material prices, increased competition and
productivity gains from new technology and Internet-related activity. However,
the poor external performance of the euro - chiefly against the U.S. dollar -
was beginning, in September 2000, to fuel concerns about inflation.
But France's biggest economic problem remains its high budget deficit.
At present the government is committed to lowering the deficit to 1.5% of GDP
and to reduce it to 0.3% of GDP by 2002.
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The past year was an exceptional period for the French equity market,
driven by stocks in a variety of sectors. During the period, the French market
was one of Europe's top performers.
Telecommunications and media-related stocks led the French market over
much of the reporting period. Shares of the largest stock in the MSCI France
Index, France Telecom, rose as investors favored TMT (technology,
telecommunications and media) issues. Weak areas during the fiscal year ended
included a number of "old economy" stocks in areas such as food, household
products and financial services. The latter were hurt by rising interest rates.
Nonetheless, stocks such as TotalFinaElf -- the second-largest stock in the MSCI
France Index -- have continued to provide some support for the French market.
TotalFinaElf shares rose along with the price of crude oil.
Toward the end of 2000, growth-oriented stocks were once again leading
the Paris Stock Exchange.
Germany. Germany is a prosperous capitalistic society largely based on
services and manufacturing. Manufacturing represents 35% of the GDP, and has
made Germany the third largest economy in the world. Germany's industries are
among the world's largest and technologically advanced producers of iron, steel,
coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food
and beverages; shipbuilding; and textiles. The GNP per capita is very high among
the EU countries. Germany's natural resources contribute to a strong economy and
include iron ore, oil, timber, magnetite, lead, coal, lignite, copper, and
hydropower.
Germany, with a federal republic type of government, is intent on
promoting growth with the reformation of the tax system, reducing labor costs,
and by introducing a fiscal consolidation program. However, Germany's generous
social benefits have pressured Germany's free-market economy. High unemployment
and welfare costs remain a long-term problem. Additionally, transforming Eastern
Germany into a modern market economy has been more difficult and costly than
anticipated initially.
According to new measures of national account data, economic activity
accelerated further in the first half of 2000 when real GDP increased at an
annual rate of some 3 1/2%. Exports continued to grow at double-digit rates,
although the net contribution of the external sector to GDP growth was slightly
lower than in the previous half year. Employment growth also picked up in the
first half of 2000, to an annual rate of 1.8%. Part-time employment of new
entrants into the labor market contributed to the increase. Accelerating oil
prices and the depreciation of the euro also shaped the development of inflation
rates.
Although Germany has faced substantial problems in the wake of
reunification between West and East Germany, a number of factors converged to
make the MSCI Germany Index one of Europe's best performers for the Fund's
fiscal year ended August 31, 2000.
Corporate restructuring and growing pro-business sentiment on the part
of the government attracted new investors and capital to the German market last
year. One of the most positive developments, in the eyes of investors, was the
government's plan to significantly reduce corporate and personal income taxes.
The German government also announced that it would abolish the 50% capital gains
tax previously levied on corporations when they sold shares in other companies.
Investors greeted this last reform with enthusiasm, as it will allow German
corporations to unwind the extensive network of cross shareholdings and permit
restructuring.
The tax reforms added fuel to the rally already underway. The German
equity market had been on the upswing throughout late 1999 and early 2000,
thanks to strength in its telecommunications and technology-related stocks.
Deutsche Telekom ("DT"), by far the largest stock in the MSCI Germany Index,
appreciated steadily through March. The positive sentiment toward DT diminished
during the spring, however. Like other telecommunications providers, DT has
faced some uncertainty because the cost of building third generation wireless
networks appears to be much higher than previously expected.
Greece. Greece is a free enterprise economy, with the public sector
accounting for about half of the GDP. The public sector accounts for about 27%
of the economy. The chief industries include tourism; food processing, textiles,
chemicals, metal products, mining, and petroleum. Tourism is a key industry,
providing a large portion of
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the GDP and foreign exchange earnings. Greece is a major beneficiary of EU
subsidies and is considered to be the least developed country within the
European Union.
Greece is a constitutional republic and multi-party parliamentary
democracy, and its government is intent on diminishing the degree of state
control in the economy and reducing unemployment. Although the Socialist
Government of the 1980s had a reputation for profligacy and financial
irresponsibility, the current government has proved to be a more prudent manager
of the economy. It has kept many of the former conservative government's
stabilization measures and negotiated a tripartite social contract between the
government, employers and workers. This has enabled the unions to have some
input into the economic policy but has allowed the government to maintain
primary control over wage levels.
The government has tightened the economy with the goal of qualifying
Greece to join the EU's single currency (the euro) in 2001. As a result, the
economy has improved steadily over the last few years. In particular, Greece has
cut its budget deficit to below 2% of GDP and tightened monetary policy, causing
inflation to fall below 4% by the end of 1998, the lowest rate in 26 years.
Still, restructuring of the economy and the reduction of unemployment remain
major challenges.
Retail sales weakened in early 2000, due to the waning effect of
reductions in the car sales tax and the stock market slump. However, lower
interest rates and the 1999 tax/benefit package are expected to reinvigorate
household spending. Headline inflation has picked up to 3% in September 2000,
reflecting higher oil prices, the depreciation of the drachma and the waning
effects of indirect tax cuts. Core inflation has, however, remained low even
though it increased to 2% in September 2000.
Italy. Italy is a developed industrial economy with a mixed private and
publicly-owned economy. The chief industries include construction, machinery,
vehicles, food, chemicals, lumber, paper, communications equipment, and tourism.
Italy's economy remains divided between its prosperous north and poorer south,
reflected in almost full employment in the former and unemployment levels well
over 20% in the latter. The country's GDP grew by a modest 1.3% in 1998 and an
even more modest 1.2% in 1999, around half the average for other EU economies.
However, the continued recovery in construction investment and increased exports
provided some encouraging signs of economic growth.
Italy has a republican form of government and is working to stimulate
employment, promote wage flexibility, encourage growth in pensions, and tackle
the informal economy. It is also working to support a rapidly aging population
and a social security system skewed in favor of pensions. The dire prospect is
that by 2020 all of Italy's earned income will be needed to pay the pension
bill. The need for reform is urgent, but firmly resisted by Italy's powerful
trade unions, whose membership is largely made up of retirees or others on the
verge of retirement. In current circumstances, Italy's finely-balanced
center-left coalition Government is unlikely to take bold action to reduce
pensions.
Italy's economic strength lies in manufacturing, mainly through
networks of small and medium-sized companies, producing, in particular, machine
tools and consumer goods. Two key service sectors are tourism and the rapidly
expanding telecom industry. Since mid-1990, industrial production has recovered
substantially and the level of capacity utilization is the highest since early
1990. The upswing in industrial production has to a large extent been driven by
the solid performance of real merchandise exports, which rose by 9% in the first
half of 2000. The weakness of the euro and expanding foreign markets have
increased export demand. As a result, the rate of consumer price inflation hit 2
1/2% in the third quarter of 2000, the highest level since early 1997.
Currently, after having reached the much-desired EMU target and having
consolidated its public finances, the aim of the government is to rekindle
growth, while pursuing a systematic and continued reduction of the public debt.
The Italian economy has been characterized in recent years by the attempt to
reduce the significant public deficit, and to reverse the dynamic of the public
debt. At 2.6% in the second quarter (annual rate), real GDP was below
expectations and represented a deceleration compared with the 3% registered in
the previous quarter.
As with other European markets, the fortunes of Italy's stock exchange
were tied closely to those of its telecommunications stock. As of August 31,
2000, Telecom Italia Mobile SpA and Telecom Italia made up a collective 28.5% of
the MSCI Italy Index.
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From August 31, 1999 through mid-March 2000, shares of Telecom Italia
Mobile and Telecom Italia rose sharply. Investors were excited about not only
the outlook for continued strong growth in Europe's telecommunications market,
but also those companies' expansion into new businesses such as the Internet. In
March 2000, however, these stocks fell along with other TMT stocks. Exacerbating
the decline in telecom stocks was the growing realization that the cost of
building third generation wireless networks would be much higher than previously
expected.
Offsetting the performance of these stocks was the financial services
sector of the MSCI Italy Index. Banks such as ENI, the third largest stock in
the MSCI Italy Index as of March 31, 2000, were hurt by concerns that inflation
was rising sharply and interest rates would soon follow suit.
The Netherlands. The Netherlands is a highly industrialized nation
maintaining a prosperous and well-developed economy. Emerging from a deep
recession in the 1980s, the Dutch economy has become one of the fastest growing
in Europe. The pace at which new jobs are generated is close to that of the
United States. Industrial activity is predominantly in food processing,
chemicals, petroleum refining, and electrical machinery. A highly mechanized
agricultural sector employs no more than 4% of the labor force but provides
large surpluses for the food-processing industry and for exports. The
Netherlands rank third worldwide in value of agricultural exports, behind the US
and France. Strong 3.8% GDP growth in 1998 was followed by an only slightly
lower 3.4% expansion in 1999. Natural resources include natural gas, petroleum,
and arable land.
The Dutch government - a constitutional monarchy - attempts to keep the
economy in private hands. Postwar industrial development has been consciously
stimulated by government policy, and state subsidies have been granted to
attract companies interested in developing the northern provinces. Despite these
subsidies, the western provinces remain the center of new industry, especially
in the services sector.
In the first half of 2000, the Dutch economy expanded by about 4.5%
compared with 3.9% in 1999 as a result of export led growth. The unemployment
rate has decreased to 2.4% in the second quarter of 2000. Despite a tight labor
market, collective wage agreements entered into this year have provided for
relatively moderate pay rises only. Consumer price inflation increased to 2.5%
in August 2000, but underlying inflation remained at around 1.5%.
The export-driven Dutch equity market benefited from accelerating
global growth and other favorable trends over the past year. Not only did demand
increase generally worldwide, but the price of crude oil also rose
substantially. That trend benefited Royal Dutch/Shell Petroleum, which made up
more than one fourth of the MSCI Netherlands Index as of August 31, 2000. Higher
global demand also helped to lift the second-largest stock in the MSCI
Netherlands Index, Philips Electronics. Its third-largest stock,
telecommunications firm KPN, enjoyed very positive investor sentiment toward
telecom stocks.
Yet this last trend did not boost the Dutch market as much as other
European markets, given the Netherlands' relative shortage of technology stocks.
Its financial services stocks, another big component of the MSCI Index, were
pressured by rising interest rates during the reporting period.
Spain. Spain's mixed capitalist economy supports a GDP that on a per
capita basis is 75% of the four leading West European economies. The past five
years, in particular, have witnessed a sustained period of economic reform and
adjustment, with strong rates of GDP growth. Spain's economy now ranks as the
5th largest in the EU, and is valued at some USD 596 billion. The chief
industries include textiles, food and beverages, metals and metal manufactures,
chemicals, shipbuilding, automobiles, machine tools, and tourism. Spain's
natural resources include coal, lignite, iron ore, copper, kaolin, potash,
hydropower, and arable land.
Spain's parliamentary monarchy has attempted to introduce tax reforms
and has continued to advocate privatization, liberalization and deregulation of
the economy. Spain was one of the first countries to launch the European single
currency in 1999. However, following Spain's entry into the EMU, there has been
concern that Spain's high inflation rate will fuel new wage pressures,
endangering Spanish competitiveness. Nevertheless, the Spanish economy is now
into its fourth successive year of strong growth. All of Spain's macroeconomic
variables, with the major exception of unemployment, are positive. In recent
years, the labor market has continued to improve, with national account
employment growing at more than 3% per year. In 1994 and again in 1997, reforms
in the
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labor market were undertaken, mainly to ease the rigid regulations that govern
permanent job contracts. The recent strong economic growth and new reforms to
improve the flexibility of the labor market have decreased the rate of
unemployment by 1.75 percentage points to 13.7% in the year up to the third
quarter of 2000 compared to 16% in 1999. The government also faces the
challenges of addressing the domestic concerns of controlling inflation, which
rose during the summer to 2.8%. In October 2000, consumer price inflation was
4.0%, pushed up by the oil price hike and the depreciation of the euro.
Like those of several of its European neighbors, Spain's equity market
was lifted by a number of positive trends in late 1999 and early 2000. Along
with other markets, its performance weakened somewhat in the spring and summer
of 2000.
TMT stocks led the market in the fall of 1999 and winter of 2000.
Shares of Telefonica surged on positive sentiment toward telecom in general and
Telefonica's rapid growth in particular. The company, which made up just over
30% of the MSCI Spain Index as of August 31, 2000, is Spain's largest by market
capitalization. Although Telefonica has faced increased competition in its home
market, investors have responded positively to its rapid expansion into new
sectors (such as Internet access) and markets outside Spain. Some of this
goodwill dissipated in the spring of 2000, however, amid a global sell-off in
telecommunications stocks.
The same was true of Spain's banking shares, another key component of
its equity market. BSCH Banco Santander Central and BBVA Group, which together
made up almost 35% of the MSCI Spain Index as of August 31, 2000, were beset by
real and expected interest rate hikes. But they, too, were supported by
investors' positive view of their expansion plans. Like Telefonica, BSCH and
BBVA are no longer considered "value stocks," due to their rapid growth in Latin
America and elsewhere in Europe.
Overall growth in Spain's economy remained robust during the first half
of 2000. In fact, the economy's strength has prompted concern that it is
overheating. In July 2000, inflation hit a four year high in both Spain and
France, prompting speculation that the European Central Bank would hike interest
rates.
Portugal. Portugal has a developing capitalist economy with mixed
private and public ownership of businesses. Portugal's per capita GDP is
two-thirds that of the largest West European economies. Portugal is one of the
smallest countries in Europe and is the poorest member of the EU, with a per
capita GDP of approximately 60% of the European average. Portugal continues to
run an overall trade deficit with the rest of the world. However, recent
economic growth has produced a significant decline in inflation, interest rates
and public debt, and improved employment generation. Real gross domestic product
(GDP) rose by 3.1% in 1999. The chief industries include textiles and footwear,
wood pulp, paper, and cork, metalworking, oil refining, chemicals, fish canning,
wine and tourism. Portugal's natural resources include fish, forests (cork),
tungsten, iron ore, uranium ore, marble, arable land, and hydro power.
Portugal's government, a parliamentary democracy, is working to
modernize Portuguese industry and infrastructure to increase the country's
competitiveness in the increasingly integrated world markets. Portugal's economy
has witnessed significant growth and modernization since the mid-1990s.
Portugal's infrastructure has improved from being part of the EU membership.
There remain, however, a number of challenges for future economic development.
Modernization of industry has been slow. Labor costs in Portugal are lower in
comparison to most countries of the European Union and this has slowed the
process of industrial restructuring.
Recent economic growth has produced a significant decline in inflation,
interest rates and public debt and improved employment generation. Employment
has continued to grow strongly, leading to a further fall in unemployment to
around 4%. In spite of the slowdown in consumption, inflation continued to rise
to 3.4% in the third quarter.
Sweden. Sweden has a highly developed and successful industrial sector.
The chief industries, most of which are privately owned, include textiles,
furniture, electronics, telecommunications, dairy, metals, ship building,
clothing, engineering, chemicals, food processing, fishing, paper, oil and gas,
automobiles and shipping. Productivity, as measured by GDP per capita, is well
above the European average, although two-thirds of GDP passes through the public
sector. Privately owned firms account for about 90% of industrial output, of
which the engineering sector accounts for 50% of output and exports. Agriculture
accounts for only 2% of GDP and 2% of the
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total employment. Sweden's natural resources include zinc, iron ore, lead,
copper, silver, timber, uranium, and hydropower.
Successive governments have traditionally afforded Swedes generous
benefits for unemployment, sick leave, childcare and general public welfare,
along with state medical care. This extensive social welfare system has become
unsustainable in recent years, notably when the economy slowed down
significantly in the early 1990s, which caused large government deficits,
inflation, and high unemployment. Almost half of the personal disposable income
received by Swedes resulted from transfer payments, a system for redistributing
income. Since then, a massive turnaround in public finances has occurred thanks
to years of fiscal restraint and an increase in economic growth. The Swedish
government has announced that it plans to cut taxes within the next five years.
Sweden has harmonized its economic policies with those of the EU, which it
joined at the start of 1995. Sweden decided not to join the euro system at its
outset in January 1999 but plans to hold a referendum in the upcoming months on
whether to join.
.
The Swedish economy continued to expand at an annual rate close to 4%
in the first half of 2000. Employment growth also increased at an annualized
rate of 2%. Unemployment has fallen quite rapidly to near 4%, and labor
shortages have spread.
With its large telecommunications component, the Swedish equity market
reflected changing sentiment toward TMT stocks over the past year.
In the last four months of 1999 and first few months of 2000, investors
seemingly could not get enough of TMT stocks in many markets around the world.
That created a huge updraft for telecommunications bellwether Ericsson, which
made up more than half the MSCI Sweden Index as of March 31, 2000. Driven
largely by that one stock, the Swedish equity market rose swiftly to outperform
most others in Europe.
Yet it was that same stock that drove the Swedish market in the
opposite direction over the spring and summer of 2000. Along with other TMT
stocks worldwide, shares of Ericsson faltered in March when interest rates rose.
Later that spring, the telecom sector took another hit as it became clearer that
the cost of building third generation wireless networks would be higher than
most in the industry had expected.
Overall, however, the Swedish market has continued to benefit from
strong consumer confidence levels and liquidity.
Switzerland. Switzerland is a prosperous and stable modern market
economy with a strong industrial sector. Switzerland's per capita GDP of 20%
ranks it above that of most Western European economies. Swiss economic
development has been affected by specific physical and cultural geographic
factors. Due to its lack of raw materials, Switzerland has based its economic
growth on its highly skilled labor market and technological manufacturing
expertise. Switzerland relies heavily on its chief industries, including
machinery, chemicals, watches, textiles, and precision instruments. Switzerland
utilizes its natural resources by converting them into high-quality, value-added
finished products for export.
The Swiss government, a federal republic, tends to follow a
conservative approach to foreign policy, and any treaty or decision to join an
international organization tends to be challenged. The Swiss are not pursuing EU
membership in the near future; however, Switzerland has followed the practices
of the EU. As a result, the country has realized the economic benefits of a
closer alliance with the EU and enhanced its international competitiveness in
the global market. Switzerland relies heavily on foreign trade and has attempted
to lower tariffs and duties on incoming goods. These will end when Switzerland
and the other countries of the European Free Trade Association (EFTA) become
part of the European Economic Area.
While the Swiss official unemployment rate fell to 1.75% in early
autumn, the underlying inflation rate remained low at 0.5%. GDP grew by 3.75% in
the first half of 2000 with respect to the second half of 1999, due in part to
strong exports and investments. However, activity slowed significantly between
the first and second quarter to an annual rate of around 2.25%. Monetary
conditions have tightened leading to restrained private consumption.
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With its large contingent of so-called "old economy" firms,
Switzerland's equity market diverged from more growth-oriented markets over the
past year. During the fall of 1999 and the early months of 2000, investors
overwhelmingly favored TMT stocks over the market's pharmaceutical, food and
banking stocks -- sectors which collectively made up nearly 70% of the MSCI
Switzerland Index as of August 31, 2000. Swiss banks and other financial
services companies were hurt by rising interest rates during the fiscal year.
The market's defensive characteristics became an advantage in the
spring of 2000, however. When growth stocks fell into a sharp correction in
mid-March, investors sought out the relative safety of such companies as
pharmaceutical maker Novartis and food manufacturer Nestle. Although growth
stocks later rebounded, investors' uncertainty about the direction of the global
economy continued to support Switzerland's defensive shares. The general health
of the Swiss economy also helped to sustain the country's equity market.
The United Kingdom. The United Kingdom has developed a modern economy
based on private- and public-enterprise. The UK maintains one of the top
economies of Western Europe based on services, international trade, and
manufacturing. Services, particularly banking, insurance, and business services,
account by far for the largest proportion of GDP. The UK's large coal, natural
gas, and oil reserves and energy production also account for 10% of GDP, one of
the highest shares of any industrial nation. The GNP has been growing faster
than the population. Agriculture accounts for less than 2% of the GNP, yet
farming is highly mechanized, and efficient by European standards, producing
about 60% of the country's food needs. The chief industries are production
machinery, including machine tools, electric power equipment, automation
equipment, railroad equipment, shipbuilding, aircraft, motor vehicles and parts,
electronics and communications equipment. The country's natural resources
include metals, chemicals, coal, petroleum, paper and paper products, food
processing, textiles, clothing, and other consumer goods.
Over the past two decades, the government of the U.K., a constitutional
monarchy, has greatly reduced public ownership and contained the growth of
social welfare programs. The government is still undecided as to whether the UK
will be part of the euro system.
Over the past year and a half, economic activity grew 3% due to
household consumption. Household savings declined to only 3% of disposable
income in the second quarter, the lowest level since the 1980s and well below
what is observed in most other European countries. Unemployment continued to
decline, down to 5.3%.
During the first half of 2000, the U.K. market faced issues of "new
economy" versus "old economy," on the one hand, and rising growth versus rising
interest rates on the other. From the autumn of 1999 into the winter of 2000,
the market rallied along with many others in Europe. Although the U.K. market
does not contain as large a percentage of "new economy" stocks as some other
European markets, the TMT stocks it does have contributed disproportionately
large gains.
At the start of the New Year, however, the Bank of England raised
interest rates. That, coupled with the pound's strength versus the euro, created
a more subdued market environment in early 2000. And, as investors continued to
flock to TMT stocks, markets with a greater concentration in those areas
outperformed the U.K.
The U.K.'s relatively light share of TMT companies worked to its
advantage over the spring and into summer, however, as investors retreated from
those issues in favor of more defensive "old economy" stocks. This trend
benefited the U.K.'s pharmaceutical issues, which made up just over 14% of the
MSCI United Kingdom Index as of August 31, 2000.
U.K. market sentiment remained in flux in late 2000, with some
expecting the U.K. economy's current rate of growth to prompt further interest
rate increases.
Real GDP Annual Rate of Growth (annual % change)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Austria 1.7 2.0 1.2 2.9 2.2
Belgium 2.5 1.0 3.5 2.7 2.5
France 1.8 1.1 2.0 3.2 2.9
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Germany 1.7 0.8 1.4 2.1 1.6
Greece 2.1 2.4 3.4 3.5 3.5
Italy 2.9 1.1 1.8 1.5 1.4
Netherlands 2.3 3.0 3.8 3.7 3.6
Portugal 2.9 3.4 3.7 4.2 3.0
Spain 2.7 2.4 3.8 4.0 3.7
Sweden 3.7 1.1 2.0 3.0 3.8
Switzerland 0.5 0.3 1.7 2.1 1.7
United Kingdom 2.8 2.6 3.5 2.6 2.1
Source: World Economic Outlook, October 2000 (International Monetary Fund)
Japan, the Pacific Basin, and Southeast Asia. Many Asian countries may
be subject to a greater degree of social, political and economic instability
than is the case in the United States and Western European countries. Such
instability may result from (i) authoritarian governments or military
involvement in political and economic decision-making; (ii) popular unrest
associated with demands for improved political, economic, and social conditions;
(iii) internal insurgencies; (iv) hostile relations with neighboring countries;
and (v) ethnic, religious, and racial disaffection.
The economies of most Asian countries continue to depend heavily upon
international trade and, accordingly, are affected by protective trade barriers
and the economic conditions of their trading partners, principally the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
along with the reduction of foreign investment in the local economies and a
general decline in the international securities markets, could have a
significant adverse effect upon the economies and securities markets of the
Asian countries.
The success of market reforms and a surge in infrastructure spending
have fueled rapid growth in many developing Asian countries. Rapidly rising
household incomes have fostered large middle classes and new waves of consumer
spending. The increases in infrastructure spending and consumer spending have
made domestic demand the growth engine for these countries. Thus, their growth
now depends less upon exports. While exports may no longer be the sole source of
growth for these developing economies, improved competitiveness in export
markets has contributed to growth in many of these nations. The increased
productivity of many Asian countries has enabled them to achieve, or continue,
their status as top exporters while improving their national living standards.
In the fourth quarter of 1997, the Southeast Asian currency markets
came under severe selling pressure from abroad, as foreign investors and
speculators alike heavily sold regional currencies viewed to be overvalued. The
Thai Baht was the first to come under pressure, but Indonesian, Malaysian,
Phillipine, Singaporean, Taiwanese, South Korean and Hong Kong currencies were
all affected. Equity and fixed income markets also faced selling pressure as
foreign investors have been concerned with the overall financial prospects of
the region.
Among the countries at the center of the Asian crisis, Korea and
Thailand have made encouraging advances toward restoring confidence and
initiating recovery, although their turnarounds remain at risk, including from
the external environment. The situation in Indonesia, however, remains very
difficult. Malaysia resorted to external payments controls in an effort to
insulate its economy from the regional crisis. In Japan, despite substantial
fiscal stimulus and new initiatives to deal with banking sector problems,
significant downside risks remain. Growth in China appears to be slowing, and
both the renminbi and the Hong Kong dollar have been under considerable
pressure.
Australia. Australia's economy employs a market-free-enterprise
structure, and its largest components are finance, manufacturing, services, and
trade. Major exports are metal ores and scrap, wheat, coal, meat, and wool,
principally to Japan and the United States. Major imports are machinery,
miscellaneous manufactured products (textiles, paper, and nonferrous metals),
transport equipment, and crude petroleum, primarily from the United States,
Japan, the United Kingdom, and Germany. The GNP is increasing more rapidly than
the population, and the GNP per capita is similar to other Western countries.
Its chief industries are mining, industrial and transportation equipment, food
processing, chemicals, and steel. Australia's natural resources include bauxite,
coal, iron ore, copper, tin, silver, uranium, nickel, tungsten, mineral sands,
lead, zinc, diamonds, natural gas, and petroleum.
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Australia is a democratic, federal-state system, which recognizes the
British monarch as sovereign. Australia suffered from deficits throughout the
1970s, however Government spending cuts achieved a balanced budget in 1981.
Surplus budgets were achieved in the late 1980s. The principal revenue sources
are excise, sales taxes, income taxes, corporate taxes, and nontax revenue. The
principal expenditures are for social security and welfare, state-government
transfers, health, interest on the public debt and defense.
After a period of high growth in 1998 and 1999, the Australian economy
continued to perform strongly in the first half of 2000. Real GDP grew at an
annual rate of nearly 5% in the first half of 2000, averaging 4.4% growth over
the last eight years. Unemployment fell to 6.25% in the third quarter of 2000
coinciding with the employment growth. Inflation rose 2 to 3%, however the
underlying inflation remained constant. Consumer price inflation rose 2 to 3%
largely due to higher oil prices.
Over the Fund's fiscal year ended August 31, 2000, the Australian
equity market continued its transformation from a market driven by commodities
to one increasingly influenced by media and telecommunications stocks. As of
August 31, 2000, global media giant News Corp. accounted for approximately 20%
of the MSCI Australia Index while telecommunications firm Telstra made up
another 12%. Both of these stocks benefited from investors' enthusiasm for "TMT"
(technology, media and telecommunications) stocks in late 1999 and early 2000.
Interest in those sectors cooled in the spring of 2000. News Corp. then
recovered some ground in May, having reported higher-than-expected earnings and
new expansion plans, including a bid to purchase U.S. television station
operator Chris-Craft. Telstra did not perform as well, due to concerns about
greater competition in Australia's domestic telecommunications market.
Although the mining sector does not dominate the Australian market to
quite the extent that it once did, it still had a powerful influence over the
past year. Asia's economic recovery, coupled with weakness in the Australian
dollar, has also improved the outlook for mining companies and other exporters.
Hong Kong. Hong Kong enjoys a well-developed free market economy highly
dependent on international trade. With its limited natural resources, Hong Kong
depends on the importation of food and raw materials for virtually all of its
needs. Its chief industries are textiles, clothing, tourism, electronics,
plastics, toys, watches, and clocks. Natural resources include a deepwater
harbor and feldspar.
The transfer of sovereignty from Britain to China in 1998 which created
a sense of uncertainty in Hong Kong's economy, has largely been a smooth
transition. Under the principle of "one country, two systems," Hong Kong is now
a special administrative region (SAR) of the People's Republic of China and is
empowered with a high degree of autonomy. It has retained its administrative,
legislative and judicial systems. The SAR government has full control over its
monetary and fiscal policies and it maintains its own customs and immigration
control, separate from the mainland. Except for issues relating to national
security and foreign policy, the SAR is largely run as an independent territory.
Hong Kong's economy continues to emerge from a recession that began
with the Asian crisis in the second half of 1998. Deflation has been a major
problem, as it has discouraged investment, postponed consumption and delayed a
turnaround in the inventory cycle. Nevertheless, GDP growth seems to be
recovering somewhat. Per capita GDP compares with the level in the four big
countries of Western Europe. GDP growth averaged a strong 5% in 1989-97.
The Hong Kong market ran on two tracks during the Fund's fiscal year
ended August 31, 2000. On one track were Hong Kong's "Old Economy" firms. Rising
interest rates--a perennial thorn in the side of the Hong Kong market--weighed
on financial services companies such as Hang Seng Bank, which made up nearly 10%
of the MSCI Hong Kong Index as of August 31.
The performance of old economy stocks contrasted sharply with that of
Hong Kong's growth oriented companies, especially in the technology, media and
telecommunications sectors. Stocks such as Cable & Wireless HKT (acquired by
Pacific Century Cyberworks in 2000) were lifted by positive sentiment in late
1999 and early 2000. Investors were excited by the possibility that China would
liberalize its telecom and Internet-related markets, opening the way for Cable &
Wireless HKT and newly public company China Telecom to build dominant positions
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in what is potentially the world's largest consumer market. Although, those
stocks declined along with many other telecom stocks worldwide in the spring and
summer of 2000, their gains over the previous months served only to reinforce
telecom's growing influence on the Hong Kong market.
That shift has been most evident in the transformation of Hutchison
Whampoa--which had a 28% weighting in the MSCI Index as of August 31. The
company's property business has gradually been overshadowed by its expansion
into the telecom field.
With a concentration in telecom rapidly replacing its former
concentration in real estate, Hong Kong's new diversification has not led to a
significant decline in volatility. The market enjoyed a good economic backdrop
during the first half of 2000, with strong trade flows, very robust GDP growth
and lower unemployment.
Indonesia. Indonesia has played a modest role in a world economy that
is largely based on services and light agriculture. The country is a major
exporter of petroleum, natural gas, and tin. The chief industries include
petroleum and natural gas, textiles, apparel and footwear, mining, cement,
chemical fertilizers, plywood, rubber, food, and tourism. The natural resources
include petroleum, tin, natural gas, nickel, timber, bauxite, copper, fertile
soils, coal, gold, and silver.
Indonesia's government employs a fiscal policy which became
expansionary in the second half of 1998 and into 1999, with higher expenditure
budgeted to strengthen the social safety net. However, actual realized spending
fell short of the target, partly due to delays in implementing the private bank
recapitalization program. Costs of a much-needed bank restructuring are
currently at about 3% of GDP. Government bonds are to be issued to finance the
cost of bank recapitalization. Government debt is high, at an estimated 100% of
GDP in the current fiscal year. The government hopes to bring this down to 60%
in five years.
By following a tight monetary policy, the government reduced inflation
from over 70% in 1998 to 2% in 1999. Although interest rates spiked as high as
70% in 199_ in response to the monetary contraction, they fell rapidly to the
10% to 15% range in 199_. If foreign capital ceases to flow in, Indonesia would
have difficulties servicing its external debt, which is estimated to be around
US$150 billion. Without foreign capital, Indonesia's economic recovery is in
jeopardy.
Indonesia produces 2% of the world's total oil output. Revenues derived
from oil and gas production have been a major source of income for the country.
However, the trade balance of oil and gas slipped to a deficit in July, for the
first time since October 1983 when the data first became available. Indonesia is
a net oil exporter. If rising oil prices fail to generate a surplus on the
external account, the chances of the country sustaining its economic recovery
will be reduced. Non-oil and gas exports have been disappointing. Lack of
funding and concerns over political and social stability have constrained
growth. In contrast, the volume of non-oil/gas imports has improved since the
beginning of the 2000.
Japan. Japan maintains a market economy based on manufacturing and
services. Japan is viewed as the second most technologically powerful economy in
the world after the US and the third largest economy in the world after the US
and China. Japan's GNP per capita is among the highest in the world. Its chief
industries are among the world's largest and it is one of the most
technologically advanced producers of motor vehicles, electronic equipment,
machine tools, steel and nonferrous metals, ships, chemicals, textiles and
processed foods. Japan's natural resources include negligible mineral resources
and fish.
Japan's government, a constitutional monarchy, employs a loose monetary
policy. The Bank of Japan is expected to maintain its zero interest rate policy
until signs of self-sustaining recovery emerge. The government is attempting to
maintain the momentum for reform, which will be important for longer term
growth. One notable characteristic of the economy is the working together of
manufacturers, suppliers, and distributors in closely-knit groups called
keiretsu. A second basic feature has been the guarantee of lifetime employment
for a substantial portion of the urban labor force.
Japan's heavy dependence on international trade has been adversely
affected by trade tariffs and other protectionist measures, as well as the
economic condition of its trading partners. Japan subsidizes its agricultural
industry since only 19% of its land is suitable for cultivation. It is only 50%
self-sufficient in food production.
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Accordingly, it is highly dependent on large imports of wheat, sorghum and
soybeans. In addition, industry, its most important economic sector, depends on
imported raw materials and fuels, including iron ore, copper, oil and many
forest products. Japan's high volume of exports, such as automobiles, machine
tools and semiconductors, has caused trade tensions, particularly with the
United States. Some trade agreements have been implemented to reduce these
tensions. The relaxing of official and de facto barriers to imports, or
hardships created by any pressures brought by trading partners, could adversely
affect Japan's economy. A substantial rise in world oil or commodity prices
could also have a negative effect. Since the Japanese economy is so dependent on
exports, any fall off in exports may be seen as a sign of economic weakness,
which may adversely affect the market.
Despite growth problems, the Japanese economy maintains several
strengths. The manufacturing sector includes some of the world's most innovative
companies in the electronics and precision machinery areas, along with world
leaders in automotive and machinery industries. Educational achievement levels
are high in comparison with other developed nations. Public sector
infrastructure is also extremely well developed.
The economy grew 4.5% in the first half of 2000, which was stronger
than expected, led by business investment and surprisingly robust private
consumption. Export growth was also strong but has been erratic.
The Japanese market did benefit for a time from the strength of "new
economy" stocks. Companies such as NTT and Sony attracted investors during late
1999 and early 2000. Those stocks subsequently lost ground during the spring's
tech and telecom downturn.
Malaysia. Malaysia has a medium-sized, export-oriented economy that has
developed rapidly from an agriculture-based economy to one dominated by
intermediate manufacturing over the past twenty years. The GNP is growing more
rapidly than the population; the GNP per capita is the third highest in
Southeast Asia. Its chief industries are rubber and oil palm processing and
manufacturing, light manufacturing industry, electronics, tin mining and
smelting, logging and processing timber, logging, petroleum production,
agriculture processing, petroleum production and refining. Malaysia's natural
resources include tin, petroleum, timber, copper, iron ore, natural gas, and
bauxite.
Malaysia's government, a constitutional monarchy, enjoyed strong
economic performance in the 1980s and most of the 1990s. The government retains
a high degree of involvement in the economy, although during the past few years
it has employed less intervention. In order to counter the impact of the Asian
financial crises, the government imposed stringent capital controls in September
1998. These have been relaxed over time.
Unlike other Asian markets, the MSCI Malaysia (Free) Index posted a
flat performance in the late months of 1999. The market's large share of "Old
Economy" firms, such as banks and electric utilities, meant that it was on the
losing end of a global rally in "New Economy" stocks.
That changed dramatically in the first half of 2000. Attracted by
strength at both the corporate and economic levels, as well as seemingly greater
political stability, investors drove up the Malaysian market sharply. Malaysia's
reinstatement in the MSCI Emerging Markets Indices as of May 2000 encouraged
foreign investors to revisit the market, after having pulled out en masse after
the government relaxed capital controls in 1999.
Rising interest rates later took some of the wind out of the rally, but
investors continued to be encouraged by Malaysia's economic strength. The
country's GDP grew at a rate of 8.2% in the third quarter of 1999 and 10.6% in
the fourth quarter.
Singapore. Singapore has a highly developed economy with strong service
and manufacturing sectors. Singapore benefits from being located at the
crossroads of international trade routes. Singapore enjoys one of the highest
gross national products (GNP) in the Southeast region. It has generally
maintained strong GDP growth. Its chief industries are electronics, financial
services, oil drilling equipment, petroleum refining, rubber processing and
rubber products, processed food and beverages, ship repair, trade, and
biotechnology. Singapore's natural resources include fish and deepwater ports.
Singapore's government, a parliamentary republic, has followed an
interventionist economic policy with respect to its individual industries. To
instill faith in its interventionist policies, the government has sought to
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maintain economic stability. The taxes are relatively high but rates are stable.
Monetary policy has aimed at keeping inflation low by using the exchange rate as
the main instrument. Labor market pressure has been controlled by setting limits
on the percentage of foreign labor employed and applying a levy on employers of
foreign labor. In addition, the government, recognizing that land use is a
constraint on growth, has sought to make existing land use more efficient.
Due to globalization, the country is looking to become the region's
financial and high-tech hub. Singapore has become a high-income, highly
industrialized country though rapid growth in its manufacturing sector due
largely to significant foreign investment. Of particular importance is the
electronics industry where Singapore is the leading producer of disk drives. The
financial and business services sector has also experienced recent growth, while
the mining and agriculture sectors are of minimal importance.
Singapore's equity market experienced periods of steep rises and sharp
declines during the Fund's fiscal year ended August 31, 2000. Growing demand in
Asia and around the world helped lift Singapore's export driven economy at the
end of 1999. The country's electronics and chemical manufacturing sectors were
especially strong. Investors were also encouraged by the policies the Singapore
government had put in place to steer the economy through Asia's economic crisis
and encourage the growth of a "homegrown" technology sector.
However, Singapore's equity market deflated considerably during the
period. Rising interest rates pressured banks (which made up 33.5% of the MSCI
Singapore Index as of August 31, 2000), other financial services and
property-related stocks. In addition, the news that Nokia and several high
profile telecommunications companies were expecting their growth to slow weighed
on Singapore's large contingent of contract manufacturers over the summer of
2000. Profit-taking and rotation into other markets in the region also drew
capital from the market over the second half of the Fund's fiscal year.
South Korea. South Korea's economy has recorded a tremendous amount of
economic prosperity in recent decades. South Korea has transformed itself from a
poor, agrarian society to one of the world's most highly industrialized nations.
Today its GDP per capita is seven times India's, 13 times North Korea's, and
comparable to the lesser economies of the European Union. Its chief industries
are electronics, automobile production, chemicals, shipbuilding, steel,
textiles, clothing, footwear, and food processing. South Korean's natural
resources include coal, tungsten, graphite, molybdenum, lead, and hydropower
potential.
South Korea's republican form of government achieved the economic
comeback by exercising strong controls on industrial development, giving most
support to the large-scale projects of the emerging giant corporate
conglomerates. The government promoted the import of raw materials and
technology at the expense of consumer goods and encouraged savings and
investment over consumption.
The South Korean equity market was volatile during the period from May
12, 2000 (the inception date for the iShares MSCI Korea Index Fund) through
August 31, 2000. Market sentiment was relatively poor as the reporting period
began, due largely to a liquidity crisis at Hyundai, South Korea's largest
conglomerate. The company's apparent reluctance to unwind its web of cross
shareholdings and reduce its debt led investors to sell off shares of Hyundai as
well as other industrial groups on and off until mid-August, when Hyundai
finally announced a restructuring plan.
Shares of Samsung Electronics were also intermittently depressed by
weakening sentiment toward technology and telecommunications-related stocks
early in the summer of 2000. That trend also weighed on SK Telecom, the nation's
biggest telephone company and third-largest stock in the MSCI South Korea Index
as of March 31. Sentiment toward the telecom and tech sector improved in August,
however, helping to lift both stocks.
In contrast to the somewhat uncertain economic environment, South
Korea's political situation showed progress over the summer. The summit between
South Korean President Kim Dae-jung and North Korean leader Kim Jong-il in
mid-June helped buoy the equity market. Although the two countries' relationship
remains tenuous, investors have been encouraged by the rapprochement and its
potential to lessen the political risk long associated with the South Korean
government.
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Taiwan. Taiwan has a prosperous capitalist economy with gradually decreasing
government intervention. Government authorities are privatizing banks and
foreign trade. The gross national product has increased rapidly in the last
couple of years. Per capita product and personal income is growing more rapidly
than the population. Taiwan's chief industries are electronics, petroleum
refining, chemicals, textiles, iron and steel, machinery, cement, and food
processing. Their natural resources include small deposits of coal, natural gas,
limestone, marble, and asbestos.
Taiwan's government, a multiparty democratic regime headed by a
popularly elected president retains considerable control over key segments of
the economy, but is beginning to relax control over these areas. The Central
Bank has maintained an eased monetary policy in recent times and this has not
fueled inflation. The New Taiwan dollar has strengthened against the US dollar.
The government has tightened controls on the foreign-exchange market to ease the
budget deficit.
To a large extent, the performance of Taiwan's equity market over the
reporting period reflected shifting sentiment toward the Electronic Components
sector: Instruments, which includes the semi conductor industry. This sector
comprised 52.8% of the MSCI Taiwan Index as of August 31, 2000. The segment was
under a cloud for much of the summer. One issue was slower-than-expected sales
of cellular-telephone handsets, which had been a voracious source of demand for
chips.
The election of Chen Shui-bian to Taiwan's presidency also weighed on
the market in early summer. China warned that any moves by Taiwan to declare
independence could spark hostilities between the two nations. But the
president's conciliatory gestures helped to defuse tension and create a more
positive backdrop for the equity market.
The market remained volatile in July, but began to recover in August,
when sentiment toward the semiconductor industry improved and helped to lift the
overall market. Shares of Taiwan Semiconductor, the largest stock in the MSCI
Taiwan Index were also bolstered by news that the company's first-half profits
had surged 133% on a year-over-year basis. The market also became more settled
as tensions between China and Taiwan cooled.
Thailand. Thailand is a market economy primarily based on services and
agriculture. The GNP has been increasing rapidly in the last couple of years.
Manufacturing accounts for one fourth of the GDP but employ only one-tenth of
the work force. Thailand's chief industries are tourism, textiles and garments,
agricultural processing, beverages, tobacco, cement, light manufacturing, such
as jewelry, electric appliances and components, computers and parts, integrated
circuits, furniture, plastics and Thailand is the world's second-largest
producer of tungsten and tin producer. The country's natural resources include
tin, rubber, natural gas, tungsten, tantalum, timber, lead, fish, gypsum,
lignite, fluorite, and arable land.
Since the government introduced a fiscal package that includes cuts to
the value-added tax and energy prices, year-on-year inflation began to turn into
deflation. From growth of 2.7% in the first quarter of 1999, the CPI slipped to
0.4% in the second quarter and to -1.1% in the first two months of the third
quarter. Month-on-month price changes have showed two months of increase,
indicating that inflation has begun to gain momentum. While world interest rates
are heading higher, the Thai government continues to keep rates low to stimulate
demand. The official discount rate fell from 12.5% at the beginning of 1999 to
4% in fall 1999. Banks' lending and deposit rates are at a decade low.
The government is taking the lead to revive the Thai economy. Fiscal
measures that began in the second quarter of 1999 resulted in 41.3% year-on-year
growth in public spending that quarter. Compared with a mere 6.2% growth in the
first quarter of 1999, the increase is significant.
Real GDP Annual Rate of Growth (annual % change)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Australia 4.4 4.0 3.9 5.2 4.4
Hong Kong 3.9 4.5 5.0 -5.1 2.9
Indonesia 8.2 8.0 4.5 -13.0 0.3
Japan 1.5 5.0 1.6 -2.5 0.2
Malaysia 9.8 10.0 7.3 -7.4 5.6
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Singapore 8.0 7.5 8.4 0.4 5.4
South Korea 8.9 6.8 5.0 -6.7 10.7
Taiwan 6.0 5.7 6.8 4.7 5.7
Thailand 8.9 5.9 -1.7 -10.2 4.2
Source: World Economic Outlook, October 2000 (International Monetary Fund)
Brazil. Brazil is the world's ninth largest economy, characterized by
large agricultural, mining, manufacturing and services sectors. Manufacturing is
the dominant industrial sector, generating 24% of GDP, followed by agriculture
at 12%; and services at 55% of GDP. Industrial capacity is concentrated in the
southeast. Brazil is the only South American country where elaborately
transformed manufactured goods lead the export mix. The country's main export in
1999 was transport equipment and parts (including both vehicle and aircraft).
Other major exports are soy products, metallurgic and chemical products, iron
ore and coffee. Its chief industries include textiles, shoes, chemicals, cement,
lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, other
machinery and equipment. Some of its natural resources are bauxite, gold, iron
ore, manganese, nickel, phosphates, platinum, tin, uranium, petroleum,
hydropower, and timber.
Brazil's government, a federal republic, implements free-enterprise
policies, although petroleum and natural gas exploration, production, and
refining are under the government monopoly, Petroleo Brasileiro, S.A.
(Petrobras). The government also has a majority interest in companies in certain
other industries, such as the automobile, shipbuilding, aircraft, and
microelectronics industries. Economic development has been focused on developing
industries, yet this has led to budgetary deficits.
The Brazilian market was fairly volatile from July 11 (the inception of
the iShares MSCI Brazil Index Fund) through August 31, 2000. In July and early
August, the market was affected by a number of factors, including low trading
volumes and weakness in the US market.
The market's performance improved later in August, however. One of the
strongest performers in the MSCI Brazil (Free) Index was Petrobras, currently
the largest and most liquid stock in Brazil. Petrobras has benefited from
several trends, especially higher prices for crude oil (which has resulted in
record profits for the company), optimism over the company's global share
offering, and general euphoria about the strength of Brazil's economy. As a
testament to Petrobras' success, the company had a successful $4.1 billion
equity offering of ordinary shares in mid-August, the largest in Latin American
history. That same optimism helped to lift other liquid stocks in the country's
banking and telecommunications sectors. Investors also raised their exposure to
Petrobras prior to a reconstitution of Brazil's stock indexes, which gave even
greater prominence to the company. One of the stocks on the losing end of that
trend was Eletrobras, the Brazilian market's third-largest stock in the MSCI
Index at the end of August. The MSCI index reshuffling reduced Eletrobras'
representation, while putting more emphasis on such companies as
cable-television provider Globo Cabo and aerospace company Embraer.
A select group of Brazilian stocks also benefited from good news on the
privatization front over July and August. Investors boosted shares of banking
company Banespa, for example, after a court decision cleared the way for its
postponed privatization to get back on track. Like the market's other financial
services companies, Banespa also benefited from the central bank's decision to
lower the key Selic interest rate to its lowest level in six years.
Brazilian Real GDP Annual Rate of Growth (annual % change)
1999 1.0
1998 -0.1
1997 3.6
1996 2.7
1995 4.2
Source: World Economic Outlook, October 2000 (International Monetary Fund)
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Canada. Canada is an affluent, free-market based economy reliant on its
high-tech industrial sectors. Canada closely resembles the US in its
market-oriented economic system, pattern of production, and high living
standards. Canada demonstrated impressive growth in the manufacturing, mining,
and service sectors that transformed the nation from a largely rural economy
into one that is primarily industrial and urban. Its chief industries are
processed and unprocessed minerals, food products, wood and paper products,
transportation equipment, telecommunications, chemicals, fish products,
petroleum and natural gas. The country's natural resources are iron ore, nickel,
zinc, copper, gold, lead, molybdenum, potash, silver, fish, timber, wildlife,
coal, petroleum, natural gas, and hydropower.
Canada's government, a confederation with a parliamentary democracy is
oriented towards the private sector, with only a few enterprises such as the
postal services and electric utilities being publicly owned. Canada is one of
the world's largest trading nations with exports of goods and services
comprising over 40% of GDP. Canada is also a major exporter of motor vehicles
and parts, pulp and paper, timber, wheat, base metals, coal and fish.
The Canadian economy performed well in the first half of 2000, with
real GDP expanding at an annual rate of 5%. Growth was evenly balanced between
the exports and business fixed investment. Unemployment rose from its low of
just over 6.5% reached in the middle of the year. Combined with rising
labor-force participation, slower employment growth has caused the unemployment
rate to edge up from its low of just over 6.5% reached in the middle of the
year.
Over the Fund's fiscal year ended August 31, 2000, the Canadian equity
market reflected in large part the performance of one stock, Nortel Networks. As
of August 31, 2000, Nortel made up almost 41% of the MSCI Canada Index.
Moreover, Nortel's influence continued to rise with the price of its shares.
Like other telecommunications companies, Nortel benefited from the rally of "new
economy" stocks. Nortel has been aggressively expanding into the Internet-access
and optical-networking businesses with a string of recent acquisitions. During
the spring, however, Nortel gave back some of its gains, along with other
telecommunications and technology-related stocks. It quickly recovered, and
ended the reporting period with a gain of close to 300%. It has since fallen
sharply.
Like Nortel, the media conglomerate Seagram also benefited from
investors' enthusiasm for TMT stocks. Although it, too, weakened over the
spring, Seagram's shares later rebounded. In June, it agreed to merge with the
French firm Vivendi to form the world's second-largest media company.
Other sectors of the Canadian equity market were also strong in 2000.
Shares of energy companies rose on higher crude oil prices and, like commodity
producers in general, continued to benefit from accelerating global growth and a
stabilization of the Canadian dollar.
Canadian Real GDP Annual Rate of Growth (annual % change)
1999 4.5
1998 3.3
1997 4.4
1996 1.5
1995 2.8
Source: World Economic Outlook, October 2000 (International Monetary Fund)
Mexico. Mexico has a free market economy with a combination of private,
state and mixture-capital enterprises. The GNP per capita increased more than
one and a half times between 1960 and 1980. Given very rapid population growth
during the same period, the nation's economic growth has been impressive, with
an average annual rate of nearly 7%. Services account for almost 50% of the
total gross domestic product, manufacturing about 25%, and agriculture about
10%. Its chief industries are food and beverages, tobacco, chemicals, iron and
steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables,
and tourism. Natural resources include petroleum, silver, copper, gold, lead,
zinc, natural gas, and timber.
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One of the most significant recent changes in Mexican economic policy
has been in the area of privatization. In the last twenty years, the number of
state-owned enterprises in Mexico has fallen from more than 1,000 in 1982 to
fewer than 200 in 1998. Real growth output reached 8.5 % in the first half of
2000, due to an increase in exports with the United States and a strong domestic
economy. In September, the consumer price index fell to 8.8%, while underlying
inflation moved below that rate. Short-term interest rates declined in late 1999
and early 2000, partly as a result of central bank action.
Since NAFTA was implemented, Mexico's trade with the US and Canada has nearly
doubled. The United States accounts for about 80% of Mexico's total trade.
Mexico is also pursuing additional trade agreements with Latin America.
The Mexican equity market was driven by a number of favorable trends
over the Fund's fiscal year ended August 31, 2000.
The global rush for telecommunications stocks extended to Telefonos de
Mexico ("Telmex"), which, at 34.2% of the MSCI Mexico (Free) Index on August 31,
2000, is Mexico's most important stock. That rally lasted until the end of 1999.
In January, however, Mexican equities weakened as U.S. interest rates rose. Then
in March Telmex shares came under pressure from higher U.S. interest rates, like
telecommunications stocks everywhere.
That decline was offset by news that Moody's Investors Service had
upgraded Mexico's sovereign debt to investment-grade status. The Mexican market
also benefited from higher prices for crude oil, a key export. Over the spring
of 2000, however, the market continued to drop. Telmex shares in the MSCI Index,
declined when the company reported lower-than-expected earnings and got involved
in diplomatic wrangling with U.S. trade representatives over deregulation of
Mexico's domestic telecom market.
Overall, however, the Mexican market was supported by very favorable
macroeconomic and political developments over the summer. Investors reacted very
positively to the election of opposition candidate Vicente Fox in early July.
His election brought an end to more than 70 years of uninterrupted rule by the
Institutional Revolutionary Party. The following month brought news that Mexico
had prepaid its $3.2 billion debt to the IMF. Many investors viewed this
development as a very positive sign of Mexico's economic health.
Mexican Real GDP Annual Rate of Growth (annual % change)
1999 3.5
1998 4.9
1997 6.8
1996 5.2
1995 -6.2
Source: World Economic Outlook, October 2000 (International Monetary Fund)
South Africa. South Africa is a developing country with an abundant
supply of resources. The economy is a combination of private, state, and
mixed-capital enterprises. Its chief industries are mining (it is the world's
largest producer of platinum, gold and chromium), automobile assembly,
metalworking, machinery, textile, iron and steel, chemicals, fertilizer, and
foodstuffs. Economically, it accounts for less than 1% of world GDP and less
than 2% of global exports, and is seen as driven by political instability and
conflict. It is also one of the most heavily indebted regions of the world.
South Africa's natural resources include gold, chromium, antimony, coal, iron
ore, manganese, nickel, phosphates, tin, uranium, gem diamonds, platinum,
copper, vanadium, salt, and natural gas.
South African's republican form of government has been attempting to
shift towards private sector development strategies. As a result, the potential
for private sector activities has improved enormously. The region now attracts
more than 20% of foreign investment linked to privatization activities rather
than the 5% of some six years ago. The government industry programs are starting
to respond to market conditions: price controls have been abolished; trade has
been liberalized along with foreign exchange and interest rates; inflation and
interest rates have dropped dramatically; and GDP is up 60%.
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South African Real GDP Annual Rate of Growth (annual % change)
1999 1.2
1998 0.6
1997 2.5
1996 4.2
1995 3.1
Source: World Economic Outlook, October 2000 (International Monetary Fund)
Turkey. Turkey's economy is a combination of state and private
enterprise. The economy has moved from primarily agricultural to predominately
industrial in recent years. Turkey's chief industries are textiles, food
processing, autos, mining (coal, chromate, copper, boron), steel, petroleum,
construction, lumber, and paper. Turkey's natural resources include antimony,
coal, chromium, mercury, copper, borate, sulfur, iron ore, arable land, and
hydropower.
Turkey, a republican parliamentary democracy, is moving away from
government intervention. The Turkish government is attempting to privatize
companies and businesses. They have expanded competition in seaports, railroads,
telecommunications, natural gas distribution and airports. Its most important
industry - and largest exporter - is textiles and clothing, which is almost
entirely in private hands. Erratic economic growth and serious imbalances have
marked the economic situation in recent years.
Real GDP grew by nearly 6% in the first half of 2000, reflecting a
strong recovery of both investment and consumption. A fall in interest rates
contributed to this recovery as well the announcement in late 1999 of a
three-year stabilization program. The program is aimed to improve the budget,
privatize state-owned enterprise and liberalize the markets.
Turkish accounting, financial and other reporting standards are
extremely limited compared to United States standards. Under Turkish practice,
material disclosures generally are not made by, and little information is
available about, Turkish companies. Turkish companies do not have continuous
disclosure obligations other than the recent requirement that companies listed
on the Turkish exchange publish annual audited financial statements (which are
not prepared in accordance with generally accepted accounting principles and are
not adjusted to reflect the impact of inflation). Also, there is a low level of
regulation of the markets for Turkish securities and the activities of investors
in such markets, and enforcement of regulatory provisions, which exist, has been
extremely limited. There are no prohibitions against broker-dealers trading for
their own account ahead of their customers or other conflict of interest
practices with respect to securities transactions and currently no prohibitions
against insider trading.
Turkish Real GDP Annual Rate of Growth (annual % change)
1999 -5.0
1998 3.1
1997 7.6
1996 6.9
1995 8.1
Source: World Economic Outlook, October 2000 (International Monetary Fund)
The United States. The US is the world's largest economy, leading
trading nation, leading military power, and primary source of technological
innovation. In this market-oriented economy, private individuals and business
firms make most of the decisions, and government buys needed goods and services
predominantly in the private marketplace. US business firms enjoy considerably
greater flexibility than their counterparts in Western Europe and Japan in
decisions to expand capital plant, lay off surplus workers, and develop new
products. Its chief industries are technology, petroleum, steel, motor vehicles,
aerospace, telecommunications, chemicals, electronics, food
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processing, consumer goods, lumber, and mining. The United States also has
natural resources including coal, copper, lead, molybdenum, phosphates, uranium,
bauxite, gold, iron, mercury, nickel, potash, silver, tungsten, zinc, petroleum,
natural gas, and timber.
The United States employing a republican form of government promotes a
capitalist form of economy. Recently, GDP has grown in the US at a rate of 3.9%
in both 1997 and 1998, while inflation, measured by the Consumer Price Index,
grew by 2.3% in 1997 and 1.5% in 1998. Meanwhile, U.S. economic expansion in the
1990s led to the first US federal government surplus in decades: 0.8% of GDP in
1998. The federal budget deficit had already begun to show signs of turning in
1997, when it was reduced to -0.3%. The Federal Reserve's monetary policy
continued to be favorable to economic expansion in recent years, as the Federal
Funds Rate was 5.5% in 1997 and 4.75% in 1998.
At the same time, US businesses face higher barriers to entry in their
rivals' home markets than the barriers to entry of foreign firms in US markets.
US firms are at or near the forefront in technological advances, especially in
computers and in medical, aerospace, and military equipment, although their
advantage has narrowed since the end of World War II.
The United States economy has grown consistently in the 1990s, while
inflation has been kept to favorable levels in the last two years.
United States Real GDP Annual Rate of Growth (annual % change)
1999 4.2
1998 4.4
1997 4.4
1996 3.6
1995 2.7
Source: World Economic Outlook, October 2000 (International Monetary Fund)
THE MSCI INDICES
In General. The Indices were founded in 1969 by Capital International
----------
S.A. as the first international performance benchmarks constructed to facilitate
accurate comparison of world markets. Morgan Stanley acquired rights to the
Indices in 1986. In November 1998, Morgan Stanley transferred all rights to the
MSCI Indices to Morgan Stanley Capital International Inc. ("MSCI"), a Delaware
corporation of which MSDW is the majority owner. The MSCI Indices have covered
the world's developed markets since 1969, and in 1988, MSCI commenced coverage
of the emerging markets.
Although local stock exchanges have traditionally calculated their own
indices, these are generally not comparable with one another, due to differences
in the representation of the local market, mathematical formulas, base dates and
methods of adjusting for capital changes. MSCI applies the same criteria and
calculation methodology across all markets for all indices, developed and
emerging.
MSCI Indices are notable for the depth and breadth of their coverage.
MSCI generally seeks to have 60% of the capitalization of a country's stock
market reflected in the MSCI Index for such country. MSCI has announced,
however, that, effective as of the close of markets May 31, 2002, the target
market representation will increase to 85% of the free float-adjusted market
capitalization of a country's stock market. The MSCI Indices seek to balance the
inclusiveness of an "all share" index against the replicability of a "blue chip"
index.
Weighting. All single-country MSCI Indices are currently market
---------
capitalization weighted, i.e., companies are included in the indices at their
full market value (total number of shares issued and paid up, multiplied by
price). MSCI has announced a change in its calculation methodology, however,
effective November 30, 2001, so that all
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single-country MSCI Indices will be free-float weighted, i.e., companies will be
included in the indices at the value of their free public float (free float,
multipled by price). MSCI defines "free float" as total shares excluding shares
held by strategic investors such as governments, corporations, controlling
shareholders and management, and shares subject to foreign ownership
restrictions.
MSCI calculates two indices in some countries in order to address the
issue of restrictions on foreign ownership in such countries. The additional
indices are called "free" indices, and they exclude companies and share classes
not purchasable by foreigners. Free indices are currently calculated for Brazil,
China, Indonesia, Malaysia, Mexico, the Philippines, Singapore and Thailand, and
for those regional and international indices which include such markets.
Indonesia, Malaysia, Singapore and Thailand currently impose foreign
ownership limits on domestic stock, and when the foreign ownership limit is
reached, foreigners may only trade with other foreigners, frequently at a price
that is higher than the price available to domestic investors. The Free Indices
for such countries are designed to reflect the actual investment conditions for
international investors by using the foreign prices for stocks where relevant.
The Free Indices for Indonesia, Malaysia, Singapore and Thailand will use
foreign prices only when a foreign ownership limit is reached on a constituent
stock and a determination is made that there is sufficient long-term liquidity
at the foreign price. To compensate for the distorting inflation of a company's
weight that may occur as a result of using the higher foreign prices for its
shares, a compensating factor called a Free Market Capitalization Factor
("FMCF") may be applied to the total number of shares of a "foreign priced"
constituent stock in the respective Index. A FMCF is the approximate ratio of
domestic price to foreign price and is applied in an effort to align the free
market capitalization weight with the domestic market capitalization weight.
Regional Weights. Market capitalization weighting, combined with a
consistent target of 60% of market capitalization (85% of free float-adjusted
market capitzliaation after May 31, 2002), helps ensure that each country's
weight in regional and international indices approximates its weight in the
total universe of developing and emerging markets. Maintaining consistent policy
among MSCI developed and emerging market indices is also critical to the
calculation of certain combined developed and emerging market indices published
by MSCI.
Selection Criteria
------------------
The Universe of Securities. The constituents of a country index are
selected from the full range of securities available in the market, excluding
issues which are either small or highly illiquid. Non-domiciled companies and
investment trusts are also excluded from consideration. After the index
constituents are chosen, they are reclassified using MSCI's schema of 38
industries and 8 economic sectors in order to facilitate cross-country
comparisons.
The Optimization Process. The process of choosing index constituents
from the universe of available securities is consistent among indices.
Determining the constituents of an index is an optimization process which
involves maximizing float and liquidity, reflecting accurately the market's size
and industry profiles and minimizing cross-ownership. The optimization variables
and their targets are:
Market Coverage Target 60% of market capitalization (85% of free
float-adjusted market capitalization after May
31, 2002)
Industry Representation Mirror the local market
Liquidity Maximize
Float Maximize
Cross-Ownership Avoid/Minimize
Size Sample with size characteristics of universe
Coverage. To reflect accurately country-wide performance as well as the
performance of industry groups, MSCI aims to capture 60% of total market
capitalization at both the country and industry level (85% of free
float-adjusted market capitalization after May 31, 2002). To reflect local
market performance, an index should contain a percentage of the market's overall
capitalization sufficient to achieve a high level of tracking. The greater the
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coverage, however, the greater the risk of including securities which are
illiquid or have restricted float. MSCI's 60% (85% after May 31, 2001) coverage
target reflects a balance of these considerations.
Industry Representation. Within the overall target of 60% of market
capitalization (85% of free float-adjusted market capitalization after May 31,
2002) market coverage, MSCI aims to capture 60% of market capitalization (85% of
free float-adjusted market capitalization after May 31, 2002) of each industry
group, as defined by local practice. MSCI believes this target assures that the
index reflects the industry characteristics of the overall market and permits
the construction of accurate industry indices.
MSCI may exceed the 60% of market capitalization (85% of free float-adjusted
market capitalization after May 31, 2002) target in the index for a particular
country because, e.g., one or two large companies dominate an industry.
Similarly, MSCI may underweight an industry in an index if, e.g., the companies
in such industry lack good liquidity and float, or because of extensive
cross-ownership.
Liquidity. Liquidity is measured by trading value, as reported by the
local exchanges. Trading value is monitored over time in order to determine
"normal" levels exclusive of short-term peaks and troughs. A stock's liquidity
is significant not only in absolute terms (i.e., a determination of the market's
most actively traded stocks), but also relative to its market capitalization and
to average liquidity for the country as a whole.
Float. Float, or the percentage of shares freely tradeable, is one
measure of potential short-term supply. Low float raises the risk of
insufficient liquidity. MSCI monitors float for every security in its coverage,
and low float may exclude a stock from consideration. However, float can be
difficult to determine. In some markets good sources are generally not
available. In other markets, information on smaller and less prominent issues
can be subject to error and time lags. Government ownership and cross-ownership
positions can change over time, and are not always made public. Float also tends
to be defined differently depending on the source. MSCI seeks to maximize float.
As with liquidity, float is an important determinant, but not a hard-and-fast
screen for inclusion of a stock in, or exclusion of a stock from, a particular
index.
Cross-ownership. Cross-ownership occurs when one company has an
ownership position in another. In situations where cross-ownership is
substantial, including both companies in an index may skew industry weights,
distort country-level valuations and over-represent buyable opportunities. An
integral part of MSCI's country research is identifying cross-ownerships in
order to avoid or minimize them. Cross-ownership cannot always be avoided,
especially in markets where it is prevalent. When MSCI makes exceptions, it
strives to select situations where the constituents operate in different
economic sectors, or where the subsidiary company makes only a minor
contribution to the parent company's results.
Size. MSCI attempts to meet its 60% of market capitalization (85% of free
float-adjusted market capitalization after May 31, 2002) coverage target by
including a representative sample of large, medium and small capitalization
stocks, in order to capture the sometimes disparate performance of these
sectors. In the emerging markets, the liquidity of smaller issues can be a
constraint. At the same time, properly representing the lower capitalization end
of the market risks overwhelming the index with names. Within these constraints,
MSCI strives to include smaller capitalization stocks, provided they exhibit
sufficient liquidity.
Calculation Methodology. All MSCI Indices are calculated daily using Laspeyres'
-----------------------
concept of a weighted arithmetic average together with the concept of
"chain-linking," a classical method of calculating stock market indices. The
Laspeyres method weights stocks in an index by their beginning-of-period market
capitalization. Share prices are "swept clean" daily and adjusted for any rights
issues, stock dividends or splits. Most MSCI Indices are currently calculated in
local currency and in U.S. dollars, without dividends, with gross dividends
reinvested and with net dividends reinvested. The Company's Index Funds utilize
MSCI Indices calculated with net dividends reinvested. "Net dividends" means
dividends after reduction for taxes withheld at source at the rate applicable to
holders of the underlying stock that are resident in Luxembourg. With respect to
the iShares MSCI Australia, Austria and Germany Index Funds, such withholding
rate currently differs from that applicable to United States residents.
So-called "un-franked" dividends from Australian companies are withheld at a 30%
rate to Luxembourg residents and a 15% rate to the iShares MSCI Australia Index
Fund (there is no difference in the treatment of "franked" dividends). Austrian
companies impose a 15% dividend withholding on Luxembourg residents and an 11%
rate on the iShares MSCI Austria Index Fund. German companies impose a 15%
dividend withholding on
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Luxembourg residents and a 10% rate on the iShares MSCI Germany Index Fund.
Prior to January 1, 2001, emerging market indices were calculated on the basis
of reinvestment of gross dividends. "Gross dividends" means dividends before
reduction for taxes withheld at source.
Dividend Treatment. The amount of an announced dividend is
-------------------
reinvested on the day the security is quoted ex-dividend. The actual
reinvestment takes place at the close of the ex-dividend date.
Prior to January 1, 2001, MSCI treated dividends in the following
manner:
In respect of developed markets, MSCI Indices with dividends
reinvested constitute an estimate of total return arrived at by
reinvesting one twelfth of the year end yield at every month end.
In respect of emerging markets, MSCI has constructed its indices with
dividends reinvested as follows:
o In the period between the ex date and the date of dividend
reinvestment, a dividend receivable is a component of the
index return.
o Dividends are deemed received on the payment date.
o To determine the payment date, a fixed time lag is assumed to
exist between the ex date and the payment date. This time lag
varies by country, and is determined in accordance with
general practice within that market.
o Reinvestment of dividends occurs at the end of the month in
which the payment date falls.
Price and Exchange Rates.
------------------------
Prices. Prices used to calculate the MSCI Indices are the official
exchange closing prices. All prices are taken from the dominant exchange in each
market. In countries where there are foreign ownership limits, MSCI uses the
price quoted on the official exchange, regardless of whether the limit has been
reached.
Exchange Rates. MSCI uses WM/Reuters Closing Spot Rates for all
developed and emerging markets. The WM/Reuters Closing Spot Rates were
established by a committee of investment managers and data providers, including
MSCI, whose object was to standardize exchange rates used by the investment
community. Exchange rates are taken daily at 4 p.m. London time by the WM
Company and are sourced whenever possible from multi-contributor quotes on
Reuters. Representative rates are selected for each currency based on a number
of "snapshots" of the latest contributed quotations taken from the Reuters
service at short intervals around 4 PM. WM/Reuters provides closing bid and
offer rates. MSCI uses these to calculate the mid-point to 5 decimal places.
MSCI continues to monitor exchange rates independently and may, under
exceptional circumstances, elect to use an alternative exchange rate if the
WM/Reuters rate is believed not to be representative for a given currency on a
particular day.
Changes to the Indices. In changing the constituents of the indices,
----------------------
MSCI attempts to balance representativeness versus undue turnover. An index must
represent the current state of an evolving marketplace, yet at the same time
minimize turnover, which is costly as well as inconvenient for managers.
There are two broad categories of changes to the MSCI Indices. The
first consists of market-driven changes such as mergers, acquisitions,
bankruptcies, etc. These are announced and implemented as they occur. The second
category consists of structural changes to reflect the evolution of a market,
for example due to changes in industry composition or regulations. In the
emerging markets, index restructurings generally take place every one year to
eighteen months. Structural changes may occur only on four dates throughout the
year: the first business day of March, June, September and December. They are
preannounced at least two weeks in advance.
Additions. Restructuring an index involves a balancing of additions and
deletions. To maintain continuity and minimize turnover, MSCI is reluctant to
delete index constituents, and its approach to additions is correspondingly
stringent. As markets grow because of privatizations, investor interest, or the
relaxation of regulations, index additions (with or without corresponding
deletions) may be needed to bring industry representations up to the 60% of
market capitalization (85% of free float-adjusted market capitalization after
May 31, 2002)
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target. Companies are considered not only based on their broad
industry, but also based on their sub-sector, in order to achieve, if possible,
a broader range of economic activity. Beyond industry representativeness, new
constituents are selected based on the criteria discussed above, i.e. float,
liquidity, cross-ownership, etc.
New Issues. In general, new issues are not eligible for immediate
inclusion in the MSCI Indices because their liquidity remains unproven. Usually,
new issues undergo a "seasoning" period of one year to eighteen months between
index restructurings until a trading pattern and volume are established. After
that time, they are eligible for inclusion, subject to the criteria discussed
above (industry representation, float, cross-ownership, etc.).
In the emerging markets, however, it is not uncommon that a large new
issue, usually a privatization, comes to market and substantially changes the
country's industry profile. In exceptional circumstances, where the issue's
size, visibility and investor interest assure high liquidity, and where
excluding it would distort the characteristics of the market, MSCI may decide to
include it immediately in the indices.
In other cases, MSCI may decide not to include a large new issue even
in the normal process of restructuring, and in spite of its substantial size and
liquidity.
Deletions. MSCI's primary concern when considering deletions is the
continuity of the indices. Of secondary concern are the turnover costs
associated with deletions. The indices must represent the full investment cycle,
including bear as well as bull markets. Out-of-favor stocks may exhibit
declining price, market capitalization or liquidity, and yet continue to be good
representatives of their industry.
Companies may be deleted because they have diversified away from their
industry classification, because the industry has evolved in a different
direction from the company's thrust, or because a better industry representative
exists (either a new issue or an existing company). In addition, in order not to
exceed the 60% (85% after May 31, 2001) target coverage of industries and
countries, adding new index companies may entail corresponding deletions.
Usually such deletions take place within the same industry, but there are
occasional exceptions.
INVESTMENT LIMITATIONS
The Company has adopted the following investment restrictions as
fundamental policies with respect to each Index Fund. These restrictions cannot
be changed with respect to an Index Fund without the approval of the holders of
a majority of such Index Fund's outstanding voting securities. For purposes of
the 1940 Act, a majority of the outstanding voting securities of an Index Fund
means the vote, at an annual or a special meeting of the security holders of the
Company, of the lesser of (1) 67% or more of the voting securities of the Index
Fund present at such meeting, if the holders of more than 50% of the outstanding
voting securities of such Index Fund are present or represented by proxy, or (2)
more than 50% of the outstanding voting securities of the Index Fund. An Index
Fund may not:
1. Change its investment objective;
2. Lend any funds or other assets except through the purchase of
all or a portion of an issue of securities or obligations of
the type in which it is permitted to invest (including
participation interests in such securities or obligations) and
except that an Index Fund may lend its portfolio securities in
an amount not to exceed 33% of the value of its total assets;
3. Issue senior securities or borrow money, except borrowings
from banks for temporary or emergency purposes in an amount up
to 33% of the value of the Index Fund's total assets
(including the amount borrowed), valued at the lesser of cost
or market, less liabilities (not including the amount
borrowed) valued at the time the borrowing is made, and the
Index Fund will not purchase securities while borrowings in
excess of 5% of the Index Fund's total assets are outstanding,
provided, that for purposes of this restriction, short-term
credits necessary for the clearance of transactions are not
considered borrowings;
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4. Pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings. (The deposit of
underlying securities and other assets in escrow and
collateral arrangements with respect to initial or variation
margin for currency transactions and futures contracts will
not be deemed to be pledges of the Index Fund's assets);
5. Purchase a security (other than obligations of the United
States Government, its agencies or instrumentalities) if as a
result 25% or more of its total assets would be invested in a
single issuer;
6. Purchase, hold or deal in real estate, or oil, gas or mineral
interests or leases, but an Index Fund may purchase and sell
securities that are issued by companies that invest or deal in
such assets;
7. Act as an underwriter of securities of other issuers, except
to the extent the Index Fund may be deemed an underwriter in
connection with the sale of securities in its portfolio;
8. Purchase securities on margin, except for such short-term
credits as are necessary for the clearance of transactions,
except that an Index Fund may make margin deposits in
connection with transactions in currencies, options, futures
and options on futures;
9. Sell securities short; or
10. Invest in commodities or commodity contracts, except that an
Index Fund may buy and sell currencies and forward contracts
with respect thereto, and may transact in futures contracts on
securities, stock indices and currencies and options on such
futures contracts and make margin deposits in connection with
such contracts.
Industry concentration. With respect to the two most heavily weighted
industries or groups of industries in its benchmark MSCI Index, an Index Fund
will invest in securities (consistent with its investment objective and other
investment policies) so that the weighting of each such industry or group of
industries in the Index Fund does not diverge by more than 10% from the
respective weighting of such industry or group of industries in its benchmark
MSCI Index. An exception to this policy is that if investment in the stock of a
single issuer would account for more than 25% of the Index Fund, the Index Fund
will invest less than 25% of its net assets in such stock and will reallocate
the excess to stock(s) in the same industry or group of industries, and/or to
stock(s) in another industry or group of industries, in its benchmark MSCI
Index. Each Index Fund will evaluate these industry weightings at least weekly,
and at the time of evaluation will adjust its portfolio composition to the
extent necessary to maintain compliance with the above policy. An Index Fund may
not concentrate its investments except as discussed above. This policy is a
fundamental investment policy and may not be changed without the approval of a
majority (as defined in the Investment Company Act of 1940) of an Index Fund's
shareholders.
As of November 30, 2000, as a result of this policy with respect to
industry concentration, the following Index Funds were concentrated (that is,
invested 25% or more of the value of their assets) in the specified industries:
iShares MSCI Index Fund Industry or Industries
-------------------------------------------------------------------------------
Austria Banks
Canada Communications Equipment
Hong Kong Diversified Financials
Italy Telecommunication Services
Singapore Banks
Sweden Communications Equipment
Switzerland Pharmaceuticals
Taiwan Semiconductor Equipment & Products
In addition to the investment restrictions adopted as fundamental
policies as set forth above, each Index Fund observes the following
restrictions, which may be changed by the Board without a shareholder vote. An
Index Fund will not:
44
<PAGE>
1. Invest in the securities of a company for the purpose of
exercising management or control, or in any event purchase and
hold more than 10% of the securities of a single issuer,
provided that the Company may vote the investment securities
owned by each Index Fund in accordance with its views; or
2. Hold illiquid assets in excess of 15% of its net assets. An
illiquid asset is any asset which may not be sold or disposed
of in the ordinary course of business within seven days at
approximately the value at which the Index Fund has valued the
investment.
For purposes of the percentage limitation on each Index Fund's
investments in illiquid securities, with respect to each Index Fund, foreign
equity securities, though not registered under the Securities Act of 1933 (the
"Securities Act"), are not deemed illiquid if they are otherwise readily
marketable. Such securities ordinarily are considered to be "readily marketable"
if they are traded on an exchange or other organized market and are not legally
restricted from sale by the Index Fund. The Adviser monitors the liquidity of
restricted securities in each Index Fund's portfolio under the supervision of
the Company's Board. In reaching liquidity decisions, the Adviser considers,
inter alia, the following factors:
1. The frequency of trades and quotes for the security;
2. The number of dealers wishing to purchase or sell the security
and the number of other potential purchasers;
3. Dealer undertakings to make a market in the security; and
4. The nature of the security and the nature of the marketplace
in which it trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of
transfer).
If a percentage limitation is adhered to at the time of investment or
contract, a later increase or decrease in percentage resulting from any change
in value or total or net assets will not result in a violation of such
restriction, except that the percentage limitations with respect to the
borrowing of money and illiquid securities will be observed continuously.
MANAGEMENT OF THE COMPANY
Directors and Officers of the Company. The Board has responsibility for
-------------------------------------
the overall management and operations of the Company, including general
supervision of the duties performed by the Adviser and other service providers.
The Board currently consists of five Directors. Nathan Most is an "interested"
director, as defined in the 1940 Act, by reason of his position as President of
the Company.
<TABLE>
<CAPTION>
Principal Occupations
Name and Address Position with the Company During Past Five Years
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nathan Most Director, President and Consultant to various companies including
P.O. Box 193 Chairman of the Board the Adviser; Senior Vice President
Burlingame, CA 94011-0193 (retired) (from 1992 to 1996) and Vice
Age 86 President (from 1980 to 1992) of the
American Stock Exchange, Inc.; President
and CEO (retired) (from 1982 to 1996) of
AMEX Commodities Corporation.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name and Address Position with the Company During Past Five Years
-------------------------------------- ---------------------------- -- -------------------------------------------
<S> <C> <C>
John B. Carroll Director Retired Vice President of Investment
520 Main Street Management (from 1984-2000) of GTE
Ridgefield, CT 06877 Corporation; Advisory Board member of
Age 65 Ibbotson Assoc. (since 1998); former
Trustee and Member of the Executive
Committee (since 1991) of The Common Fund, a
non-profit organization; Member of the
Investment Committee (since 1988) of the TWA
Pilots Annuity Trust Fund; former Vice
Chairman and Executive Committee Member
(since 1992) of the Committee on Investment
of Employee Benefit Assets of the Financial
Executive Institute; and Member (since 1986)
of the Pension Advisory Committee of the New
York Stock Exchange.
Timothy A. Hultquist Director Advisory Director (since 1995 and
Advisory Director Managing Director (from 1985 to 1995) of
Morgan Stanley & Co., Incorporated Morgan Stanley & Co. Incorporated;
1221 Avenue of the Americas Chairman (since 1994) and Trustee (since
30th Floor 1885) of the Board of Trustees of
New York, NY 10020 Macalester College; Treasurer and Trustee
Age 50 (since 1995) of Russell Sage Foundation;
Member (since 1994) of Wilmer Eye Institute
Advisory Counsel at Johns Hopkins University
Hospital; President (since 1992) of the
Hultquist Foundation; Chairman, Council of
Board Chairmen of Independent Colleges.
Lloyd N. Morrisett Director President (retired) of The John and Mary
Children's Television Workshop R. Markle Foundation (from 1969 to 1998);
One Lincoln Plaza, 4th Floor Chairman (since 1970) of the Children's
New York, NY 10023 Television Workshop; Chairman (since
Age 71 1998) and Director (since 1994) of
Infonautics Corporation; Trustee (from 1973
to 1983, from 1985 to 1995, and since 1996)
of RAND; Director (since 1976) of Haskins
Laboratories, Inc.; Director (1990-January,
1997) of the Multimedia Corporation;
Director (since 1992) of Classroom, Inc.;
Director (since 1995) of Smith College
Center for the Study of Social and Political
Change; Director (since 1998) of Public
Agenda Foundation; Member of Board of
Overseers (from 1995 to 1998) of Dartmouth
School of Medicine; Member (since 1968) of
the Council on Foreign Relations; and Member
(since 1970) of the American Association for
the Advancement of Science.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name and Address Position with the Company During Past Five Years
-------------------------------------- ---------------------------- -- -------------------------------------------
<S> <C> <C>
W. Allen Reed Director President, CEO and Director (since 1994)
President of General Motors Investment Management
General Motors Investment Corporation; Vice President and Treasurer
Management Corp. (from 1991 to 1994) of Hughes
767 Fifth Avenue Electronics; President (from 1984 to
New York, NY 10153 1991) of Hughes Investment Management
Age 53 Company; Director (from 1995 to 1998) of
Taubman Centers, Inc. (a real estate
investment trust); Director (since 1992) of
FLIR Systems (an imaging technology
company); Director (since 1994) of General
Motors Acceptance Corporation; Director
(since 1994) of General Motors Insurance
Corporation; Director (since 1995) of Equity
Fund of Latin America; Director (since 1995)
of the Commonwealth Equity Fund; Member
(from 1994 to 1998) of the Pension Managers
Advisory Committee of the New York Stock
Exchange; Member (since 1995) of the New
York State Retirement System Advisory Board;
Chairman (since 1995) of the Investment
Advisory Committee of Howard Hughes Medical
Institute.
Stephen M. Wynne Treasurer Chairman of PFPC Trustee & Custodial
Executive Vice President Services Ltd. (since 1995); Executive
PFPC Inc. Vice President and Chief Accounting
400 Bellevue Parkway Officer (since 1993) and Senior Vice
Wilmington, DE 19809 President and Chief Accounting Officer
Age 45 (from 1991 to 1993) of PFPC Inc.;
Executive Vice President (from 1993 to 1995)
of PFPC International.
R. Sheldon Johnson Secretary Managing Director, Global Equity
Managing Director Derivatives, Morgan Stanley & Co.
Morgan Stanley & Co. Incorporated Incorporated (since 1988).
1585 Broadway
New York, NY 10036
Age 54
</TABLE>
Directors' Compensation. The table below sets forth the compensation
-----------------------
paid to Directors of the Company for the fiscal year ended August 31, 2000.
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from Registrant and
Name of Person Compensation from Accrued as Part of Benefits Upon Company Complex
And Position Registrant Company Expenses Retirement Paid to Directors
---------------------------- --------------------- ---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Nathan Most, Director, $82,500 None None $82,500
President and Chairman of
the Board
John B. Carroll, Director $55,000 None None $55,000
Timothy A. Hultquist, $55,000 None None $55,000
Director
Lloyd N. Morrisett, $55,000 None None $55,000
Director
W. Allen Reed, Director $55,000 None None $55,000
</TABLE>
47
<PAGE>
No officer is entitled to any compensation, and no officer or Director
is entitled to any pension or retirement benefits, from the Company.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Although the Company does not have information concerning the
beneficial ownership of iShares held in the names of DTC Participants, as of
December 15, 2000, the name, address and percentage ownership of each DTC
Participant that owned of record 5% or more of the outstanding shares of an
Index Fund were as follows:
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>
Australia Chase Manhattan Bank 48.87%
One Chase Manhattan Plaza
New York, NY 10081
Morgan Stanley & Co., Incorporated 12.72%
One Pierrepont Plaza
Brooklyn, NY 11201
Austria Merrill Lynch Pierce Fenner & Smith Inc. 19.43%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302
Salomon Smith Barney Inc. 13.51%
333 West 34th Street, 3rd Floor
New York, NY 10001
Citibank/Private Banking 6.56%
One Court Square, 22nd Floor
Long Island City, NY 11120
Brown Bros. Harriman & Co. 6.42%
59 Wall Street
New York, NY 10005
Morgan Stanley & Co., Incorporated 5.93%
One Pierrepont Plaza
Brooklyn, NY 11201
Swiss American Securities, Inc. 5.67%
100 Wall Street
New York, NY 10005
Chase Manhattan Bank 5.13%
One Chase Manhattan Plaza
New York, NY 10081
Wilmington Trust Co. 5.09%
Rodney Square North
Wilmington, DE 19890
Belgium Merrill Lynch Pierce Fenner & Smith Inc. 12.24%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>
Morgan Stanley & Co., Incorporated 11.66%
One Pierrepont Plaza
Brooklyn, NY 11201
Prudential Securities Incorporated 8.14%
1 New York Plaza, 9th Floor
New York, NY 10292
The Bank of New York 6.18%
One Wall Street
New York, NY 10286
Citibank/Private Banking 5.70%
One Court Square, 22nd Floor
Long Island City, NY 11120
Salomon Smith Barney Inc. 5.26%
333 West 34th Street, 3rd Floor
New York, NY 10001
Brazil (Free) Morgan Stanley & Co., Incorporated 60.88%
One Pierrepont Plaza
Brooklyn, NY 11201
Merrill Lynch Pierce Fenner & Smith Inc. 26.59%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302
Chase Manhattan Bank 5.54%
One Chase Manhattan Plaza
New York, NY 10081
Canada Charles Schwab & Co., Inc. 15.24%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
Morgan Stanley & Co., Incorporated 10.48%
One Pierrepont Plaza
Brooklyn, NY 11201
Merrill Lynch Pierce Fenner & Smith Inc. 6.83%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302
Brown Bros. Harriman & Co. 6.54%
59 Wall Street
New York, NY 10005
Swiss American Securities, Inc. 6.02%
100 Wall Street
New York, NY 10005
National Financial Services Corporation 5.29%
1 World Financial Center, Tower A
New York, NY 10281
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>
EMU SEI Trust Company 41.84%
680 East Swedesford Road
Wayne, PA 19087
Brown Bros. Harriman & Co. 10.53%
59 Wall Street
New York, NY 10005
Charles Schwab & Co., Inc. 7.89%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
Salomon Smith Barney Inc. 7.57%
333 West 34th Street, 3rd Floor
New York, NY 10001
Morgan Stanley & Co. Incorporated 5.28%
One Pierrepont Plaza
Brooklyn, NY 11201
France State Street Bank & Trust Company 13.02%
1776 Heritage Drive
Quincy, MA 02171
Morgan Stanley & Co. Incorporated 11.85%
One Pierrepont Plaza
Brooklyn, NY 11201
The Bank of New York 10.83%
One Wall Street
New York, NY 10286
Brown Bros. Harriman & Co. 8.28%
59 Wall Street
New York, NY 10005
Swiss American Securities, Inc. 5.06%
100 Wall Street
New York, NY 10005
Germany State Street Bank & Trust Company 8.47%
1776 Heritage Drive
Quincy, MA 02171
Northern Trust 7.60%
801 S. Canal Street
Chicago, IL 60607
The Canadian Depository for Securities Ltd. 6.59%
85 Richmond Street West
Toronto, Ontario
Canada M5H2C9
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>
The Bank of New York 6.43%
One Wall Street
New York, NY 10286
Brown Bros. Harriman & Co. 5.55%
59 Wall Street
New York, NY 10005
Hong Kong Morgan Stanley & Co. Incorporated 8.72%
One Pierrepont Plaza
Brooklyn, NY 11201
Salomon Smith Barney Inc. 8.72%
333 West 34th Street, 3rd Floor
New York, NY 10001
Merrill Lynch Pierce Fenner & Smith 6.68%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302
Brown Bros. Harriman & Co. 5.84%
59 Wall Street
New York, NY 10005
Charles Schwab & Co., Inc. 5.66%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
Italy Brown Bros. Harriman & Co. 18.16%
59 Wall Street
New York, NY 10005
The Bank of New York 15.16%
One Wall Street
New York, NY 10286
Morgan Stanley & Co. Incorporated 11.54%
One Pierrepont Plaza
Brooklyn, NY 11201
State Street Bank & Trust Company 7.18%
1776 Heritage Drive
Quincy, MA 02171
Swiss American Securities, Inc. 7.02%
100 Wall Street
New York, NY 10005
Japan Morgan Stanley & Co. Incorporated 11.69%
One Pierrepont Plaza
Brooklyn, NY 11201
Northern Trust 10.47%
801 S. Canal Street
Chicago, IL 60607
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>
Brown Bros. Harriman & Co. 7.08%
59 Wall Street
New York, NY 10005
State Street Bank & Trust Company 6.66%
1776 Heritage Drive
Quincy, MA 02171
The Bank of New York 6.09%
One Wall Street
New York, NY 10286
Malaysia (Free) State Street Bank & Trust Company 28.32%
1776 Heritage Drive
Quincy, MA 02171
The Bank of New York 8.93%
One Wall Street
New York, NY 10286
Boston Safe Deposit & Trust Co. 7.52%
One Cabot Road
Medford, MA 02155
Salomon Smith Barney Inc. 6.39%
333 West 34th Street, 3rd Floor
New York, NY 10001
Mexico (Free) Brown Bros. Harriman & Co. 14.10%
59 Wall Street
New York, NY 10005
State Street Bank & Trust Company 10.82%
1776 Heritage Drive
Quincy, MA 02171
Salomon Smith Barney Inc. 9.91%
333 West 34th Street, 3rd Floor
New York, NY 10001
The Bank of New York 8.30%
One Wall Street
New York, NY 10286
Morgan Stanley & Co. Incorporated 8.23%
One Pierrepont Plaza
Brooklyn, NY 11201
Netherlands Citibank, N.A. 23.76%
1410 Westshore Blvd.
Tampa, FL 33607
State Street Bank & Trust Company 9.63%
1776 Heritage Drive
Quincy, MA 02171
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>
The Bank of New York 9.01%
One Wall Street
New York, NY 10286
Brown Bros. Harriman & Co. 7.92%
59 Wall Street
New York, NY 10005
Merrill Lynch Pierce Fenner & Smith 7.33%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302
Morgan Stanley & Co. Incorporated 7.19%
One Pierrepont Plaza
Brooklyn, NY 11201
Singapore (Free) Merrill Lynch Pierce Fenner & Smith 8.31%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302
Salomon Smith Barney Inc. 7.94%
333 West 34th Street, 3rd Floor
New York, NY 10001
Charles Schwab & Co., Inc. 6.94%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
National Financial Services Corporation 6.16%
1 World Financial Center, Tower A
New York, NY 10281
A.G. Edwards & Sons, Inc. 5.52%
77 Water Street
New York, NY 10005
South Korea Morgan Stanley & Co. Incorporated 45.63%
One Pierrepont Plaza
Brooklyn, NY 11201
Boston Safe Deposit & Trust Co. 9.43%
One Cabot Road
Medford, MA 02155
Brown Bros. Harriman & Co. 7.85%
59 Wall Street
New York, NY 10005
Spain Morgan Stanley & Co. Incorporated 15.05%
One Pierrepont Plaza
Brooklyn, NY 11201
The Bank of New York 13.48%
One Wall Street
New York, NY 10286
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>
Brown Bros. Harriman & Co. 12.04%
59 Wall Street
New York, NY 10005
Swiss American Securities, Inc. 6.90%
100 Wall Street
New York, NY 10005
Citibank, N.A. 5.18%
1410 Westshore Blvd.
Tampa, FL 33607
Sweden The Bank of New York 22.56%
One Wall Street
New York, NY 10286
Citibank, N.A. 10.91%
1410 Westshore Blvd.
Tampa, FL 33607
Brown Bros. Harriman & Co. 6.51%
59 Wall Street
New York, NY 10005
Morgan Stanley & Co. Incorporated 6.43%
One Pierrepont Plaza
Brooklyn, NY 11201
Charles Schwab & Co., Inc. 5.02%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
Switzerland Citibank, N.A. 15.16%
1410 Westshore Blvd.
Tampa, FL 33607
Morgan Stanley & Co. Incorporated 13.30%
One Pierrepont Plaza
Brooklyn, NY 11201
Brown Bros. Harriman & Co. 10.75%
59 Wall Street
New York, NY 10005
The Bank of New York 9.11%
One Wall Street
New York, NY 10286
Merrill Lynch Pierce Fenner & Smith 8.18%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302
State Street Bank & Trust Company 5.84%
1776 Heritage Drive
Quincy, MA 02171
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>
Taiwan Northern Trust 64.00%
801 S. Canal Street
Chicago, IL 60607
Chase Manhattan Bank 13.44%
One Chase Manhattan Plaza
New York, NY 10081
Morgan Stanley & Co. Incorporated 7.44%
One Pierrepont Plaza
Brooklyn, NY 11201
Boston Safe Deposit & Trust Co. 5.70%
One Cabot Road
Medford, MA 02155
United Kingdom Morgan Stanley & Co. Incorporated 13.84%
One Pierrepont Plaza
Brooklyn, NY 11201
State Street Bank & Trust Company 11.89%
1776 Heritage Drive
Quincy, MA 02171
The Bank of New York 9.17%
One Wall Street
New York, NY 10286
Northern Trust 8.17%
801 S. Canal Street
Chicago, IL 60607
Citibank, N.A. 6.92%
1410 Westshore Blvd.
Tampa, FL 33607
Brown Bros. Harriman & Co. 6.71%
59 Wall Street
New York, NY 10005
</TABLE>
INVESTMENT ADVISORY, MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES
Investment Adviser. Barclays Global Fund Advisors (the "Adviser") acts
------------------
as investment adviser to the Company and, subject to the supervision of the
Board, is responsible for the investment management of each Index Fund. The
Adviser is a California corporation indirectly owned by Barclays Bank PLC, and
is registered as an investment adviser under the Investment Advisers Act of
1940. The Adviser and its parent, Barclays Global Investors, N.A., manage,
administer or advise assets aggregating in excess of $831 billion as of November
30, 2000.
The Adviser serves as investment adviser to each Index Fund pursuant to
an Advisory Agreement (the "Advisory Agreement") between the Company and the
Adviser that was amended effective May 8, 2000. Under the Advisory Agreement,
the Adviser, subject to the supervision of the Company's Board and in conformity
with the stated investment policies of each Index Fund, manages the investment
of each Index Fund's assets. The Adviser may enter into subadvisory agreements
with additional investment advisers to act as subadvisers with respect to
particular Index Fund. The Adviser will pay subadvisers, if any, out of the fees
received by the Adviser. The Adviser is responsible for (i) placing purchase and
sale orders, (ii) providing continuous supervision of the investment portfolio
of each Index Fund, (iii) the general management of the Company's affairs, and
(iv) paying all expenses
55
<PAGE>
for Company operations and activities. For its investment management services to
each Index Fund, except the nine (9) Index Funds listed below, the Adviser is
paid a fee equal to each of those Index Fund's allocable portion of: .59% per
annum of the aggregate net assets of those Index Funds less than or equal to $7
billion, plus .54% per annum of the aggregate net assets of those Index Funds
between $7 billion and $11 billion, plus .49% per annum of the aggregate net
assets of those Index Funds in excess of $11 billion; for its investment
management services to the iShares MSCI Brazil (Free), Greece, Indonesia (Free),
Portugal, South Africa, South Korea, Taiwan, Thailand (Free) and Turkey Index
Funds, the Adviser is paid management fees equal to each of those Index Fund's
allocable portion of: 0.74% per annum of the aggregate net assets of those Index
Funds less than or equal to $2 billion, plus 0.69% per annum of the aggregate
net assets of those Index Funds between $2 billion and $4 billion, plus 0.64%
per annum of the aggregate net assets of those Index Funds greater than $4
billion; provided, however, that the fee paid to the Adviser with respect to
each Index Fund shall be reduced by the aggregate of such Index Funds' fees and
expenses, other than (i) expenses of the Index Funds incurred in connection with
the execution of portfolio securities transactions on behalf of such Index
Funds, (ii) expenses incurred in connection with any distribution plan adopted
by the Company in compliance with Rule 12b-1 under the Investment Company Act of
1940, (iii) litigation expenses, (iv) taxes (including, but not limited to,
income, excise, transfer and withholding taxes), (v) any cost or expense that a
majority of the Directors of the Company who are not "interested persons" (as
defined in the Investment Company Act of 1940) deems to be an extraordinary
expense and (vi) the advisory fee payable to the Adviser under the Advisory
Agreement; and provided, further, that the Adviser shall reimburse the Company
to the extent that the expenses of any Index Fund (other than the expenses set
forth in the foregoing proviso) exceed the amount set forth above with respect
to such Index Fund. The management fees are accrued daily and paid by the
Company as soon as practical after the last day of each calendar quarter. The
Adviser may from time to time reimburse expenses to one or more Index Funds. The
Company's management fees, like those paid by most index funds, are lower than
those paid by many actively managed funds. One reason for the difference in fee
levels is that passive management requires fewer investment, research and
trading decisions, thereby justifying lower fees. Pursuant to the Advisory
Agreement, the Adviser is not liable for any error of judgment or mistake of law
or for any loss suffered by the Company, unless caused by the Adviser's willful
malfeasance, bad faith or gross negligence in the performance of its duties or
reckless disregard of its duties and obligations under the Advisory Agreement.
The Advisory Agreement, with respect to all Index Funds, is subject to annual
approval by (1) the Company's Board or (2) vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Company, provided that in
either event the continuance also is approved by a majority of the Company's
Board who are not interested persons (as defined in the 1940 Act) of the Company
by vote cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement is terminable without penalty, on 60 days'
notice, by the Company's Board or by vote of the holders of a majority (as
defined in the 1940 Act) of the Company's outstanding voting securities. The
Advisory Agreement is also terminable upon 60 days' notice by the Adviser and
will terminate automatically in the event of its assignment (as defined in the
1940 Act).
Prior to May 8, 2000, for its investment management services to each
Index Fund, except those listed below, the Adviser was paid management fees
equal to each Index Funds' allocable portion of: .27% per annum of the aggregate
net assets of such Index Funds less than or equal to $1.7 billion, plus .15% per
annum of the aggregate net assets of the Index Funds between $1.7 billion and $7
billion, plus .12% per annum of the aggregate net assets of the Index Funds
between $7 billion and $10 billion, plus .08% per annum of the aggregate net
assets of the Index Funds in excess of $10 billion. The management fees were
accrued daily and paid by the Company as soon as practical after the last day of
each calendar quarter.
For its advisory services, the Company paid and accrued the following
fees to the Adviser:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Index Fund August 31, 1998 August 31, 1999 August 31, 2000
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia $113,929 $135,613 $148,628
Austria $17,769 $27,123 $19,889
Belgium $80,997 $44,906 $25,952
Brazil (Free) n/a n/a $410(1)
Canada $56,716 $33,205 $23,119
EMU n/a n/a $7,196(2)
France $74,578 $137,387 $208,698
Germany $118,054 $219,901 $415,826
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C> <C>
Hong Kong $124,506 $197,467 $203,154
Italy $162,294 $186,292 $154,493
Japan $433,508 $1,096,060 $2,363,952
Malaysia (Free) $132,902 $176,782 $264,088
Mexico (Free) $38,055 $39,012 $45,446
Netherlands $44,756 $68,016 $61,274
Singapore (Free) $119,392 $255,259 $268,788
South Korea n/a n/a $8,252(3)
Spain $53,561 $92,868 $94,886
Sweden $35,809 $43,348 $52,196
Switzerland $64,666 $93,758 $88,433
Taiwan n/a n/a $16,530(4)
United Kingdom $137,019 $245,947 $349,463
</TABLE>
---------------------
(1) For the period July 11, 2000 (commencement of operations) through
August 31, 2000.
(2) For the period July 26, 2000 (commencement of operations) through
August 31, 2000.
(3) For the period May 10, 2000 (commencement of operations) through
August 31, 2000.
(4) For the period June 21, 2000 (commencement of operations) through
August 31, 2000.
Pursuant to the Advisory Agreement, the following reimbursement was
paid and accrued to the Company by the Adviser:
Fiscal Year Ended
Index Fund August 31, 2000
---------------------------------------------
Australia $0
Austria $4,019
Belgium $0
Brazil (Free) $13,265(1)
Canada $3,428
EMU $29,111(2)
France $0
Germany $0
Hong Kong $0
Italy $0
Japan $0
Malaysia (Free) $0
Mexico (Free) $463
Netherlands $0
Singapore (Free) $0
South Korea $21,736(3)
Spain $0
Sweden $0
Switzerland $0
Taiwan $37,794(4)
United Kingdom $0
(1) For the period July 11, 2000 (commencement of operations) through
August 31, 2000.
(2) For the period July 26, 2000 (commencement of operations) through
August 31, 2000.
(3) For the period May 10, 2000 (commencement of operations) through
August 31, 2000.
(4) For the period June 21, 2000 (commencement of operations) through
August 31, 2000.
Code of Ethics. Each of the Company, the Advisor and the Company's
--------------
Distributor, SEI Investments Distribution Co. (the "Distributor"), have adopted
a Code of Ethics designed to prevent affiliated persons of the Company, the
Advisor and the Distributor from engaging in deceptive, manipulative or
fraudulent activities in connection with securities held or to be acquired by
the Index Funds.
57
<PAGE>
Administrator. PFPC Inc. (the "Administrator"), an indirect wholly
-------------
owned subsidiary of PNC Bank Corp., acts as administration and accounting agent
of the Company pursuant to an Administration and Accounting Services Agreement
with the Company and is responsible for certain clerical, recordkeeping and
bookkeeping services, except those to be performed by the Adviser, by Chase in
its capacity as Custodian, or by PNC Bank, N.A. ("PNC") in its capacity as
Transfer Agent. The Administrator has no role in determining the investment
policies of the Company or which securities are to be purchased or sold by the
Company. The principal business address of the Administrator is 400 Bellevue
Parkway, Wilmington, DE 19809.
For the administrative and fund accounting services the Administrator
provides to the Company, PFPC is paid aggregate fees equal to each Index Fund's
allocable portion of: .15% per annum of the average aggregate daily net assets
of the Company up to $3 billion; plus .10% per annum of the average aggregate
daily net assets of the Company between $3 billion and $4.5 billion, plus .095%
per annum of the average aggregate daily net assets of the Company in excess of
$4.5 billion. The Administrator pays Morgan Stanley & Co. Incorporated a fee of
.05% of the average daily net assets of the Company for sub-administration
services as described under "The Sub-Administrator" below.
Prior to February 1, 2000, for the administrative and fund accounting
services the Administrator provided to the Company, PFPC was paid aggregate fees
equal to each Index Fund's allocable portion of: .22% per annum of the aggregate
average daily net assets of the Company up to $1.5 billion; plus .15% per annum
of the aggregate average daily net assets of the Company between $1.5 billion
and $3 billion, plus .14% per annum of the aggregate average daily net assets of
the Company between $3 billion and $5 billion, plus .13% per annum of the
aggregate average daily net assets of the Company between $5 billion and $7.5
billion, plus .115% per annum of the aggregate average daily net assets of the
Company between $7.5 billion and $10 billion, plus .10% per annum of the
aggregate average daily net assets of the Company in excess of $10 billion. The
Administrator paid Morgan Stanley & Co. Incorporated a fee of .05% of the
average daily net assets of the Company for sub-administration services as
described under "The Sub-Administrator" below.
Pursuant to the Administration and Accounting Services Agreement, the
Administrator is liable for damages arising of its failure to perform its duties
due to willful misfeasance, bad faith, gross negligence or reckless disregard of
such duties. The Company will indemnify the Administrator for certain
liabilities, including certain liabilities arising under federal securities
laws, except for liabilities arising out of the Administrator's willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties.
For its administrative services, the Company paid and accrued the
following fees to the Administrator:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Index Fund August 31, 1998 August 31, 1999 August 31, 2000
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia $89,377 $110,319 $106,930
Austria $14,128 $22,059 $19,678
Belgium $63,121 $36,546 $22,408
Brazil (Free) n/a n/a $4,908(1)
Canada $44,201 $27,026 $23,780
EMU n/a n/a $6,012(2)
France $59,529 $111,716 $152,143
Germany $94,141 $178,860 $272,489
Hong Kong $98,932 $160,647 $141,347
Italy $128,961 $151,590 $107,296
Japan $340,915 $890,839 $1,506,281
Malaysia (Free) $106,617 $143,744 $185,310
Mexico (Free) $29,580 $31,717 $45,292
Netherlands $35,512 $55,318 $47,334
Singapore (Free) $95,590 $207,640 $188,421
South Korea n/a n/a $8,322(3)
Spain $42,795 $75,553 $71,035
Sweden $29,928 $35,257 $42,428
Switzerland $51,205 $76,274 $69,813
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C> <C>
Taiwan n/a n/a $9,318(4)
United Kingdom $108,935 $200,033 $226,121
</TABLE>
---------------------
(1) For the period July 11, 2000 (commencement of operations) through
August 31, 2000.
(2) For the period July 26, 2000 (commencement of operations) through
August 31, 2000.
(3) For the period May 10, 2000 (commencement of operations) through
August 31, 2000.
(4) For the period June 21, 2000 (commencement of operations) through
August 31, 2000.
Sub-Administrator. Morgan Stanley & Co. Incorporated provides certain
-----------------
sub-administrative services relating to the Company pursuant to a
Sub-Administration Agreement and receives a fee from the Administrator equal to
.05% of the Company's average daily net assets for providing such services.
Morgan Stanley & Co. Incorporated, as Sub-Administrator, has no role in
determining the investment policies of the Company or which securities are to be
purchased or sold by the Company. The principal business address of Morgan
Stanley & Co. Incorporated is 1585 Broadway, New York, New York, 10036.
For sub-administrative services, the Administrator paid or accrued the
following fees to the Sub-Administrator and its affiliates:
<TABLE>
<CAPTION>
October 29, 1997to Fiscal Year Ended Fiscal Year Ended
Index Fund August 31, 1998 August 31, 1999 August 31, 2000
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia $17,644 $25,114 $30,652
Austria $2,940 $5,023 $5,555
Belgium $12,122 $8,316 $6,385
Brazil (Free) n/a n/a $1,636(1)
Canada $8,491 $6,149 $7,050
EMU n/a n/a $2,004(2)
France $12,573 $25,442 $44,197
Germany $19,811 $40,722 $80,143
Hong Kong $20,539 $36,568 $40,420
Italy $26,776 $34,499 $31,093
Japan $67,965 $202,974 $432,336
Malaysia (Free) $22,936 $32,737 $53,762
Mexico (Free) $5,620 $7,224 $13,186
Netherlands $7,332 $12,596 $13,362
Singapore (Free) $20,417 $47,270 $52,989
South Korea n/a n/a $2,774(3)
Spain $9,072 $17,198 $20,513
Sweden $5,789 $8,027 $12,361
Switzerland $10,490 $17,363 $20,057
Taiwan n/a n/a $3,106(4)
United Kingdom $22,664 $45,546 $65,478
</TABLE>
---------------------
(1) For the period July 11, 2000 (commencement of operations) through
August 31, 2000.
(2) For the period July 26, 2000 (commencement of operations) through
August 31, 2000.
(3) For the period May 10, 2000 (commencement of operations) through
August 31, 2000.
(4) For the period June 21, 2000 (commencement of operations) through
August 31, 2000.
Distributor. Effective March 28, 2000, SEI Investments Distribution
-----------
Company became the principal underwriter and distributor of iShares. The
Distributor's principal offices are located at One Freedom Valley Drive, Oaks,
PA 19456. Investor information can be obtained by calling 1-800-iShares
(1-800-474-2737). The Distributor has entered into an agreement with the Company
which will continue for one year from its effective date, and which is renewable
annually thereafter (the "Distribution Agreement"), pursuant to which it
distributes Company shares. iShares will be continuously offered for sale by the
Company through the Distributor only in Creation Units, as described below under
"Purchase and Issuance of iShares in Creation Units." iShares in less than
Creation Units are not distributed by the Distributor. The Distributor also acts
as agent for the Company. The Distributor will deliver a prospectus to persons
purchasing iShares in Creation Units and will maintain records of both orders
placed with it
59
<PAGE>
and confirmations of acceptance furnished by it. The Distributor is a
broker-dealer registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of the National Association of Securities Dealers,
Inc. SEI Investments Distribution Company as Distributor, has no role in
determining the investment policies of the Company or which securities are to be
purchased or sold by the Company.
To compensate the Distributor for the distribution-related services it
provides, and broker-dealers authorized by the Distributor for distribution
services they provide, the Company has adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Company's Plan, for each
Index Fund the Distributor is entitled to receive a distribution fee, accrued
daily and paid monthly, calculated with respect to each Index Fund at a rate set
from time to time by the Board of Directors, provided that the annual rate may
not exceed .25% of the average daily net assets of such Index Fund. From time to
time the Distributor may waive all or a portion of these fees.
The Plan is designed to enable the Distributor to be compensated by the
Company for distribution services provided by it with respect to each Index
Fund. Payments under the Plan are not tied exclusively to the distribution
expenses actually incurred by the Distributor. The Board, including a majority
of the Directors who are not interested persons of the Company and who have no
direct or indirect financial interest in the operation of the Plan ("Independent
Directors"), evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in doing so consider all relevant factors, including
expenses borne by the Distributor in the current year and in prior years and
amounts received under the Plan.
Under its terms, the Plan remains in effect from year to year, provided
such continuance is approved annually by vote of the Board, including a majority
of the Independent Directors. The Plan may not be amended to increase materially
the amount to be spent for the services provided by the Distributor without
approval by the shareholders of the Index Fund to which the Plan applies, and
all material amendments of the Plan also require Board approval. The Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors, or, with respect to any Index Fund, by a vote of a
majority of the outstanding voting securities of such Index Fund (as such vote
is defined in the 1940 Act). If a Plan is terminated (or not renewed) with
respect to any one or more Index Funds, it may continue in effect with respect
to any Index Fund as to which it has not been terminated (or has been renewed).
Pursuant to the Distribution Agreement, the Distributor will provide the Board
periodic reports of any amounts expended under the Plan and the purpose for
which such expenditures were made.
The distribution fees payable under the 12b-1 Plan are used to pay
distribution related expenses, including: compensation to the distributor at a
rate fixed by the Company's Board of Directors from time to time (currently .02%
of the Company's average daily net assets, subject to an annual minimum of
$845,000); compensation to a sales and marketing consultant retained by the
Company at a rate of .035% of the Company's average daily net assets; and
reimbursements of expenses incurred by the distributor and other persons
(principally the Adviser) in connection with the distribution of the Company's
shares. In addition, the Distributor also has entered into sales and investor
services agreements with broker-dealers or other persons that are DTC
Participants (as defined below) to provide distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
Under the terms of each sales and investor services agreement, the Distributor
will pay such broker-dealers or other persons, out of Rule 12b-1 fees received
from the Index Fund, at the annual rate of up to .25 of 1% of the average daily
net asset value of iShares held through DTC for the account of such DTC
Participant. The amounts of the fees paid to the distributor and the sales and
marketing consultant are not dependent on the amount of distribution expenses
actually incurred by such persons.
The Distribution Agreement provides that it may be terminated at any
time, without the payment of any penalty, (i) by vote of a majority of the
Directors who are not interested persons of the Company (as defined under the
1940 Act) or (ii) by vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the relevant Index Fund, on at least 60 days'
written notice to the Distributor. The Distribution Agreement is also terminable
upon 60 days' notice by the Distributor and will terminate automatically in the
event of its assignment (as defined in the 1940 Act).
As principal underwriter and distributor of iShares, SEI received the
following amounts pursuant to the Plan:
60
<PAGE>
<TABLE>
<CAPTION>
March 28, 2000
through
Index Fund August 31, 2000
---------------------------------------------
<S> <C>
Australia $66,338
Austria $11,546
Belgium $14,060
Brazil (Free) $8,179(1)
Canada $18,702
EMU $10,021(2)
France $101,660
Germany $192,778
Hong Kong $83,315
Italy $72,173
Japan $929,584
Malaysia (Free) $118,841
Mexico (Free) $30,779
Netherlands $27,343
Singapore (Free) $100,657
South Korea $13,870(3)
Spain $46,035
Sweden $28,601
Switzerland $44,744
Taiwan $15,531(4)
United Kingdom $156,078
</TABLE>
---------------------
(1) For the period July 11, 2000 (commencement of operations) through
August 31, 2000.
(2) For the period July 26, 2000 (commencement of operations) through
August 31, 2000.
(3) For the period May 10, 2000 (commencement of operations) through
August 31, 2000.
(4) For the period June 21, 2000 (commencement of operations) through
August 31, 2000.
In the aggregate, the Distributor received $2,090,825 for the period
March 29, 2000 to August 31, 2000 from the Index Funds pursuant to the Plan,
retaining $167,266, and paying out the remainder to unaffiliated third parties.
The retained amounts represent .02%, respectively, of the average daily net
assets of the Index Funds, which the Distributor received for monitoring the
purchase and redemption of Creation Units, as described below under the
"Purchase and Issuance of iShares in Creation Units" and "Redemption of iShares
in Creation Units." During the period March 26, 2000 to August 31, 2000, the
Distributor paid $402,423; $697,086; and $824,050, respectively, for (1) postage
and other expenses of distributing prospectuses, statements of additional
information and other marketing materials, (2) advertising-related expenses and
(3) compensation to broker-dealers for distribution assistance, respectively,
which amounts were allocated to payments made under the Plan by each Index Fund
based on its average daily net assets for the period.
Prior to March 29, 2000, Funds Distributor, Inc. ("FDI"), located at 60
State Street, Suite 1300, Boston, MA 02109 served as the principle underwriter
distributor of iShares. FDI received or accrued the following amounts pursuant
to the Plan:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended September 1, 1999 to
Index Fund August 31, 1998 August 31, 1999 March 28, 2000
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia $87,845 $100,454 69,538
Austria $13,513 $20,091 12,982
Belgium $62,876 $33,264 14,290
Canada $44,024 $24,597 13,240
France $56,481 $101,768 95,459
Germany $89,498 $162,890 166,348
Hong Kong $94,745 $146,272 95,027
Italy $123,496 $137,994 66,635
</TABLE>
61
<PAGE>
<TABLE>
<S> <C> <C> <C>
Japan $333,432 $811,896 985,679
Malaysia (Free) $100,121 $130,950 119,977
Mexico (Free) $29,617 $28,898 28,127
Netherlands $34,109 $50,383 31,576
Singapore (Free) $90,132 $189,081 131,430
Spain $40,521 $68,791 45,226
Sweden $25,775 $32,110 26,562
Switzerland $49,386 $69,451 44,434
United Kingdom $104,206 $182,183 137,048
</TABLE>
In the aggregate, FDI received $1,379,777, $2,291,073 and $2,083,576
for the fiscal years ended August 31, 1998 and 1999 and the period September 1,
1999 to March 28, 2000, respectively, from the Index Funds pursuant to the Plan,
retaining $133,964, $229,107 and $2,084, respectively, and paying out the
remainder to unaffiliated third parties. The retained amounts represent .02%,
respectively, of the average daily net assets of the Index Funds, which FDI
received for monitoring the purchase and redemption of Creation Units, as
described below under the "Purchase and Issuance of iShares in Creation Units"
and "Redemption of iShares in Creation Units." During the fiscal years ended
August 31, 1998 and 1999 and the period September 1, 1999 to March 28, 2000, FDI
paid $885,446, $1,553,929 and $1,526,358; $248,720, $347,662 and $381,537; and
$111,647, $160,375 and $173,388, respectively, for (1) postage and other
expenses of distributing prospectuses, statements of additional information and
other marketing materials, (2) advertising-related expenses and (3) compensation
to broker-dealers for distribution assistance, respectively, which amounts were
allocated to payments made under the Plan by each Index Fund based on its
average daily net assets for the period.
Custodian and Lending Agent. Chase serves as the Custodian for the cash
---------------------------
and portfolio securities of each Index Fund pursuant to a Custodian Agreement
between Chase and the Company and as Lending Agent for each Index Fund. As
Lending Agent, Chase causes the delivery of loaned securities from the Company
to borrowers, arranges for the return of loaned securities to the Company at the
termination of the loans, requests deposit of collateral, monitors daily the
value of the loaned securities and collateral, requests that borrowers add to
the collateral when required by the loan agreements, and provides recordkeeping
and accounting services necessary for the operation of the program. Chase may
from time to time reimburse expenses to one or more Index Funds. Chase, as
Custodian and Lending Agent, has no role in determining the investment policies
of the Company or which securities are to be purchased or sold by the Company.
The principal business address of Chase is One Pierrepont Plaza, Brooklyn, New
York, 11201.
For its custody services to each Index Fund, Chase has been paid since
February 1, 2000 per annum fees based on the aggregate net assets of the Index
Funds as follows: Australia Index Fund (0.05%); Austria Index Fund (0.06%);
Belgium Index Fund (0.05%); Brazil (Free) Index Fund (0.20%); Canada Index Fund
(0.02%); EMU Index Fund (a fee based on the aggregate net assets of each of the
EMU Index Fund's investments in Austria, Belgium, France, Germany, Italy,
Netherlands, Portugal and Spain at the fees applicable to the Index Funds
corresponding to these countries, plus Finland (0.06%) and Ireland (0.06%));
France Index Fund (0.05%); Germany Index Fund (0.04%); Hong Kong Index Fund
(0.04%); Indonesia (Free) Index Fund (0.35%); Italy Index Fund (0.05%); Japan
Index Fund (.026%); Malaysia (Free) Index Fund (0.07%); Mexico (Free) Index Fund
(0.15%); Netherlands Index Fund (0.04%); Portugal Index Fund (0.20%); Singapore
(Free) Index Fund (0.05%); South Africa Index Fund (0.12%); South Korea Index
Fund (0.15%); Spain Index Fund (0.05%); Sweden Index Fund (0.05%); Switzerland
Index Fund (0.05%); Taiwan Index Fund (0.20%); Thailand (Free) Index Fund
(0.12%); Turkey Index Fund (0.25%); United Kingdom Index Fund (0.01%); and USA
Index Fund (0.01%). As remuneration for its services in connection with lending
portfolio securities of the Index Funds, Chase is paid by the Company, in
respect of each Index Fund, 40% of the net investment income earned on the
collateral for securities loaned.
Transfer Agent. PFPC Inc. (the "Transfer Agent"), an indirect wholly
--------------
owned subsidiary of PNC Bank Corp., provides transfer agency services pursuant
to an agreement with the Company. The Transfer Agent has no role in determining
the investment policies of the Company or which securities are to be purchased
or sold by the Company. The principal business address of the Transfer Agent is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19110.
BROKERAGE ALLOCATION
62
<PAGE>
When selecting brokers and dealers to handle the purchase and sale of
portfolio securities, the Adviser looks for prompt execution of the order at a
favorable price. Generally, the Adviser works with recognized dealers in these
securities, except when a better price and execution of the order can be
obtained elsewhere. The Company will not deal with affiliates in principal
transactions unless permitted by exemptive order or applicable rule or
regulation. Since the investment objective of each Index Fund is investment
performance that corresponds to that of an index, the Adviser does not intend to
select brokers and dealers for the purpose of receiving research services in
addition to a favorable price and prompt execution either from that broker or an
unaffiliated third party.
Subject to allocating brokerage to receive a favorable price and prompt
execution, the Adviser may select brokers who are willing to provide payments to
third party service suppliers to an Index Fund, to reduce expenses of the Index
Fund.
The Adviser assumes general supervision over placing orders on behalf
of the Company for the purchase or sale of portfolio securities. If purchases or
sales of portfolio securities of the Company and one or more other investment
companies or clients supervised by the Adviser are considered at or about the
same time, transactions in such securities are allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Adviser, taking into account the sizes of such other investment companies and
clients and the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as the Company is concerned. However, in other cases it is possible that
the ability to participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to the Company. The primary
consideration is prompt execution of orders at the most favorable net price.
Portfolio turnover may vary from year to year, as well as within a year. High
turnover rates are likely to result in comparatively greater brokerage expenses.
The portfolio turnover rate for each Index Fund is expected to be under 50%. See
"Implementation of Policies" in the Prospectus. The overall reasonableness of
brokerage commissions is evaluated by the Adviser based upon its knowledge of
available information as to the general level of commissions paid by other
institutional investors for comparable services.
For the fiscal year ended August 31, 2000, the Company paid $1,776,128
in aggregate brokerage commissions. During that fiscal year, certain portfolio
transactions were executed through Morgan Stanley & Co. Incorporated ("MS&Co."),
an affiliated broker of the Company due to the Company Secretary's position as a
Managing Director of MS&Co. During the fiscal years ended August 31, 2000, 1999
and 1998, the Company paid brokerage commissions to MS&Co. in amounts of
$229,929, $40,364 and $2,406, respectively (or 12.9%, 5.7% and 0.6%,
respectively, of the aggregate brokerage commissions paid in those years).
ADDITIONAL INFORMATION CONCERNING ISHARES
Capital Stock. The Company currently is comprised of twenty-eight
-------------
series of shares of common stock, par value $.001 per share, referred to herein
as iShares: the iShares MSCI Australia Index Fund, the iShares MSCI Austria
Index Fund, the iShares MSCI Belgium Index Fund, the iShares MSCI Brazil (Free)
Index Fund, the iShares MSCI Canada Index Fund, the iShares MSCI EMU Index Fund,
the iShares MSCI France Index Fund, the iShares MSCI Germany Index Fund, the
iShares MSCI Greece Index Fund, the iShares MSCI Hong Kong Index Fund, the
iShares MSCI Indonesia (Free) Index Fund, the iShares MSCI Italy Index Fund, the
iShares MSCI Japan Index Fund, the iShares MSCI Malaysia (Free) Index Fund, the
iShares MSCI Mexico (Free) Index Fund, the iShares MSCI Netherlands Index Fund,
the iShares MSCI Portugal Index Fund, the iShares MSCI Singapore (Free) Index
Fund, the iShares MSCI South Africa Index Fund, the iShares MSCI South Korea
Index Fund, the iShares MSCI Spain Index Fund, the iShares MSCI Sweden Index
Fund, the iShares MSCI Switzerland Index Fund, the iShares MSCI Taiwan Index
Fund, the iShares MSCI Thailand (Free) Index Fund, the iShares MSCI Turkey Index
Fund, the iShares MSCI United Kingdom Index Fund and the iShares MSCI USA Index
Fund. Each Index Fund has been issued a separate class of capital stock. The
Board may designate additional series of common stock and classify shares of a
particular series into one or more classes of that series. The Articles of
Incorporation provide that the shares of each series of common stock of the
Company are redeemable, at net asset value, at the option of the Company, in
whole or any part, on such terms as the Board of Directors may by resolution
approve, without the consent of the holders thereof.
63
<PAGE>
Each iShares issued by the Company has a pro rata interest in the
assets of the corresponding Index Fund. The Company is currently authorized to
issue 10.9 billion shares of common stock. The following number of shares is
currently authorized for each Index Fund: the iShares MSCI Australia Index Fund,
127.8 million shares; the iShares MSCI Austria Index Fund, 19.8 million shares;
the iShares MSCI Belgium Index Fund, 136.2 million shares; the iShares MSCI
Brazil (Free) Index Fund, 500 million shares; the iShares MSCI Canada Index
Fund, 340.2 million shares; the iShares MSCI EMU Index Fund, 500 million shares;
the iShares MSCI France Index Fund, 340.2 million shares; the iShares MSCI
Germany Index Fund, 382.2 million shares; the iShares MSCI Greece Index Fund,
200 million shares; the iShares MSCI Hong Kong Index Fund, 191.4 million shares;
the iShares MSCI Indonesia (Free) Index Fund, 200 million shares; the iShares
MSCI Italy Index Fund, 63.6 million shares; the iShares MSCI Japan Index Fund,
2,124.6 million shares; the iShares MSCI Malaysia (Free) Index Fund, 127.8
million shares; the iShares MSCI Mexico (Free) Index Fund, 255 million shares;
the iShares MSCI Netherlands Index Fund, 255 million shares, the iShares MSCI
Portugal Index Fund, 200 million shares; the iShares MSCI Singapore (Free) Index
Fund, 191.4 million shares; the iShares MSCI South Africa Index Fund, 200
million shares; the iShares MSCI South Korea Index Fund, 200 million shares; the
iShares MSCI Spain Index Fund, 127.8 million shares; the iShares MSCI Sweden
Index Fund, 63.6 million shares; the iShares MSCI Switzerland Index Fund,
318.625 million shares; the iShares MSCI Taiwan Index Fund, 200 million shares;
the iShares MSCI Thailand (Free) Index Fund, 200 million shares; the iShares
MSCI Turkey Index Fund, 200 million shares; the iShares MSCI United Kingdom
Index Fund, 943.2 million shares; and the iShares MSCI USA Index Fund, 500
million shares. Fractional shares will not be issued. Shares have no preemptive,
exchange, subscription or conversion rights and are freely transferable. Each
share is entitled to participate equally in dividends and distributions declared
by the Board with respect to the relevant Index Fund, and in the net
distributable assets of such Index Fund on liquidation. Shareholders are
entitled to require the Company to redeem Creation Units of their shares. The
Articles of Incorporation confers upon the Board of Directors the power, by
resolution, to alter the number of shares constituting a Creation Unit or to
specify that shares of common stock of the Company may be individually
redeemable.
Each iShare has one vote with respect to matters upon which a
stockholder vote is required consistent with the requirements of the 1940 Act
and the rules promulgated thereunder and the Maryland General Corporation Law;
stockholders have no cumulative voting rights with respect to their shares.
Shares of all series vote together as a single class except that if the matter
being voted on affects only a particular Index Fund it will be voted on only by
that Index Fund and if a matter affects a particular Index Fund differently from
other Index Funds, that Index Fund will vote separately on such matter. Under
Maryland law, the Company is not required to hold an annual meeting of
stockholders unless required to do so under the 1940 Act. The policy of the
Company is not to hold an annual meeting of stockholders unless required to do
so under the 1940 Act. All shares of the Company (regardless of Index Fund) have
noncumulative voting rights for the election of Directors. Under Maryland law,
Directors of the Company may be removed by vote of the stockholders.
The Company issues through the Authorized Participants to its
stockholders semi-annual reports containing unaudited financial statements and
annual reports containing financial statements audited by independent auditors
approved by the Company's Directors and by the stockholders when meetings are
held and such other information as may be required by applicable laws, rules and
regulations. Beneficial Owners also receive annually notification as to the tax
status of the Company's distributions.
Stockholder inquiries may be made by writing to the Company, c/o PFPC
Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
Book Entry Only System. DTC acts as securities depositary for iShares.
----------------------
iShares of each Index Fund are represented by global securities registered in
the name of DTC or its nominee and deposited with, or on behalf of, DTC. Except
as provided below, certificates will not be issued for iShares.
DTC has advised the Company as follows: it is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of its participants (the "DTC Participants") and to facilitate the
clearance and settlement of securities transactions among the DTC Participants
in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust
64
<PAGE>
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. More specifically, DTC is owned by a
number of its DTC Participants and by the New York Stock Exchange, Inc., the
AMEX and the National Association of Securities Dealers, Inc. Access to the DTC
system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly (the "Indirect Participants"). DTC
agrees with and represents to its Participants that it will administer its
book-entry system in accordance with its rules and by-laws and requirements of
law.
Beneficial ownership of iShares is limited to DTC Participants,
Indirect Participants and persons holding interests through DTC Participants and
Indirect Participants. Ownership of beneficial interests in iShares (owners of
such beneficial interests are referred to herein as "Beneficial Owners") is
shown on, and the transfer of ownership is effected only through, records
maintained by DTC (with respect to DTC Participants) and on the records of DTC
Participants (with respect to Indirect Participants and Beneficial Owners that
are not DTC Participants). Beneficial Owners will receive from or through the
DTC Participant a written confirmation relating to their purchase of iShares.
The laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability of certain investors to acquire beneficial interests in
iShares.
Beneficial Owners of iShares are not entitled to have iShares
registered in their names, will not receive or be entitled to receive physical
delivery of certificates in definitive form and are not considered the
registered holder thereof. Accordingly, each Beneficial Owner must rely on the
procedures of DTC, the DTC Participant and any Indirect Participant through
which such Beneficial Owner holds its interests, to exercise any rights of a
holder of iShares. The Company understands that under existing industry
practice, in the event the Company requests any action of holders of iShares, or
a Beneficial Owner desires to take any action that DTC, as the record owner of
all outstanding iShares, is entitled to take, DTC would authorize the DTC
Participants to take such action and that the DTC Participants would authorize
the Indirect Participants and Beneficial Owners acting through such DTC
Participants to take such action and would otherwise act upon the instructions
of Beneficial Owners owning through them. As described above, the Company
recognizes DTC or its nominee as the owner of all iShares for all purposes.
Conveyance of all notices, statements and other communications to Beneficial
Owners is effected as follows. Pursuant to the Depositary Agreement between the
Company and DTC, DTC is required to make available to the Company upon request
and for a fee to be charged to the Company a listing of the iShares holdings of
each DTC Participant. The Company shall inquire of each such DTC Participant as
to the number of Beneficial Owners holding iShares, directly or indirectly,
through such DTC Participant. The Company shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Company shall pay to each such DTC Participant a fair
and reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
iShares distributions shall be made to DTC or its nominee, Cede & Co.,
as the registered holder of all iShares. DTC or its nominee, upon receipt of any
such distributions, shall credit immediately DTC Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
iShares as shown on the records of DTC or its nominee. Payments by DTC
Participants to Indirect Participants and Beneficial Owners of iShares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants. The Company has no responsibility or
liability for any aspects of the records relating to or notices to Beneficial
Owners, or payments made on account of beneficial ownership interests in such
iShares, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests or for any other aspect of the relationship
between DTC and the DTC Participants or the relationship between such DTC
Participants and the Indirect Participants and Beneficial Owners owning through
such DTC Participants.
DTC may determine to discontinue providing its service with respect to
iShares at any time by giving reasonable notice to the Company and discharging
its responsibilities with respect thereto under applicable law. Under such
circumstances, the Company shall take action either to find a replacement for
DTC to perform its functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates
65
<PAGE>
representing ownership of iShares, unless the Company makes other arrangements
with respect thereto satisfactory to the AMEX (or such other exchange on which
iShares may be listed).
PURCHASE AND REDEMPTION OF ISHARES
Creation Units. The Company issues and redeems iShares of each Index
Fund only in aggregations of iShares specified for each Index Fund. The
following table sets forth the number of iShares of an Index Fund that
constitute a Creation Unit for such Index Fund and the value of such Creation
Unit at November 30, 2000:
<TABLE>
<CAPTION>
Value Per
iShares Per Creation
Index Fund Creation Unit Unit ($U.S.)
------------------------------------------------------------
<S> <C> <C>
Australia 200,000 $1,827,698
Austria 100,000 $699,337
Belgium 40,000 $484,222
Brazil (Free) 50,000 $722,071
Canada 100,000 $1,335,058
EMU 50,000 $3,429,190
France 200,000 $4,594,100
Germany 300,000 $5,455,879
Greece* 50,000 $1,000,000
Hong Kong 75,000 $803,797
Indonesia (Free)* 50,000 $1,000,000
Italy 150,000 $3,310,612
Japan 600,000 $7,124,714
Malaysia (Free) 75,000 $408,696
Mexico (Free) 100,000 $1,396,208
Netherlands 50,000 $1,093,805
Portugal* 50,000 $1,000,000
Singapore (Free) 100,000 $672,891
South Africa* 50,000 $1,000,000
South Korea 50,000 $620,618
Spain 75,000 $1,618,558
Sweden 75,000 $1,310,379
Switzerland 125,000 $1,935,537
Taiwan 50,000 $555,654
Thailand (Free)* 50,000 $1,000,000
Turkey* 50,000 $1,000,000
United Kingdom 200,000 $3,378,665
USA* 500,000 $5,000,000
</TABLE>
* Estimated.
See "Purchase and Issuance of iShares in Creation Units" and
"Redemption of iShares in Creation Units" below. The Board of Directors of the
Company reserves the right to declare a split or a consolidation in the number
of iShares outstanding of any Index Fund of the Company, and to make a
corresponding change in the number of iShares constituting a Creation Unit, in
the event that the per iShares price in the secondary market rises (or declines)
to an amount that falls outside the range deemed desirable by the Board.
Purchase and Issuance of iShares in Creation Units.
---------------------------------------------------
General. The Company issues and sells iShares only in Creation Units on
a continuous basis through the Distributor, without an initial sales load, at
their net asset value next determined after receipt, on any Business Day (as
defined herein), of an order in proper form.
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<PAGE>
A "Business Day" with respect to each Index Fund is any day on which
(i) the New York Stock Exchange ("NYSE") and (ii) the stock exchange(s) and
Company subcustodian(s) relevant to such Index Fund are open for business. As of
the date of this SAI, the NYSE observes the following holidays: New Year's Day,
Dr. Martin Luther King, Jr. Day, President's Day (Washington's Birthday), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The stock exchange and/or subcustodian holidays relevant to
each Index Fund are set forth in Appendix B to this SAI.
Portfolio Deposit. The consideration for purchase of a Creation Unit of
iShares of an Index Fund (except for the iShares MSCI Brazil (Free), Malaysia
(Free), South Korea and Taiwan Index Funds, which are currently offered, in
their iShares Creation Units solely for cash) generally consists of the in-kind
deposit of a designated portfolio of equity securities (the "Deposit
Securities") constituting an optimized representation of the Index Fund's
benchmark foreign securities index and an amount of cash computed as described
below (the "Cash Component"). Together, the Deposit Securities and the Cash
Component constitute the "Portfolio Deposit," which represents the minimum
initial and subsequent investment amount for shares of any Index Fund of the
Company. The Cash Component is an amount equal to the Dividend Equivalent
Payment (as defined below), plus or minus, as the case may be, a Balancing
Amount (as defined below). The "Dividend Equivalent Payment" enables the Company
to make a complete distribution of dividends on the next dividend payment date,
and is an amount equal, on a per Creation Unit basis, to the dividends on all
the Portfolio Securities with ex-dividend dates within the accumulation period
for such distribution (the "Accumulation Period"), net of expenses and
liabilities for such period, as if all of the Portfolio Securities had been held
by the Company for the entire Accumulation Period. The "Balancing Amount" is an
amount equal to the difference between (x) the net asset value (per Creation
Unit) of the Index Fund and (y) the sum of (i) the Dividend Equivalent Payment
and (ii) the market value (per Creation Unit) of the securities deposited with
the Company (the sum of (i) and (ii) is referred to as the "Deposit Amount").
The Balancing Amount serves the function of compensating for any differences
between the net asset value per Creation Unit and the Deposit Amount.
The Adviser makes available through the Distributor on each Business
Day, immediately prior to the opening of business on the AMEX (currently 9:30
a.m., Eastern time), the list of the names and the required number of shares of
each Deposit Security to be included in the current Portfolio Deposit (based on
information at the end of the previous Business Day) for each Index Fund. Such
Portfolio Deposit is applicable, subject to any adjustments as described below,
in order to effect purchases of Creation Units of iShares of a given Index Fund
until such time as the next-announced Portfolio Deposit composition is made
available.
The identity and number of shares of the Deposit Securities required
for a Portfolio Deposit for each Index Fund changes as rebalancing adjustments
and corporate action events are reflected from time to time by the Adviser with
a view to the investment objective of the Index Fund. The composition of the
Deposit Securities may also change in response to adjustments to the weighting
or composition of the securities constituting the relevant securities index. In
addition, the Company reserves the right to permit or require the substitution
of an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash
Component to replace any Deposit Security which may not be available in
sufficient quantity for delivery or for other similar reasons. The adjustments
described above will reflect changes, known to the Adviser on the date of
announcement to be in effect by the time of delivery of the Portfolio Deposit,
in the composition of the subject index being tracked by the relevant Index
Fund, or resulting from stock splits and other corporate actions.
In addition to the list of names and numbers of securities constituting
the current Deposit Securities of a Portfolio Deposit, the Distributor also
makes available (i) on each Business Day, the Dividend Equivalent Payment
effective through and including the previous Business Day, per outstanding
iShares of each Index Fund, and (ii) on a continuous basis throughout the day,
the sum of the Dividend Equivalent Payment effective through and including the
close of the previous trading session in the relevant foreign market, plus the
current value of the requisite Deposit Securities as in effect on such day.
Role of The Authorized Participant. Creation Units of iShares may be
purchased only by or through a DTC Participant that has entered into an
Authorized Participant Agreement with the Company and the Distributor
("Authorized Participant"). Such Authorized Participant will agree pursuant to
the terms of such Authorized Participant Agreement on behalf of itself or any
investor on whose behalf it will act, as the case may be, to certain conditions,
including that such Authorized Participant will make available in advance of
each purchase of iShares an
67
<PAGE>
amount of cash sufficient to pay the Cash Component, once the net asset value of
a Creation Unit is next determined after receipt of the purchase order in proper
form, together with the transaction fee described below. The Authorized
Participant may require the investor to enter into an agreement with such
Authorized Participant with respect to certain matters, including payment of the
Cash Component. Investors who are not Authorized Participants must make
appropriate arrangements with an Authorized Participant. Investors should be
aware that their particular broker may not be a DTC Participant or may not have
executed an Authorized Participant Agreement, and that therefore orders to
purchase Creation Units of iShares may have to be placed by the investor's
broker through an Authorized Participant. As a result, purchase orders placed
through an Authorized Participant may result in additional charges to such
investor. The Company does not expect to enter into an Authorized Participant
Agreement with more than a small number of DTC Participants that have
international capabilities. A list of the current Authorized Participants may be
obtained from the Distributor.
Purchase Order. To initiate an order for a Creation Unit of iShares,
the Authorized Participant must give notice to the Distributor of its intent to
submit an order to purchase iShares after 9:00 a.m. but not later than 4:00
p.m., Eastern time (except for the Malaysia (Free), South Korea and Taiwan Index
Funds for which orders must be submitted by 11:59 p.m. Eastern time)on the
relevant Business Day. The Distributor shall cause the Adviser and the Custodian
to be informed of such advice. The Custodian will then provide such information
to the appropriate subcustodian. For each Index Fund, the Custodian shall cause
the subcustodian of the Index Fund to maintain an account into which the
Authorized Participant shall deliver, on behalf of itself or the party on whose
behalf it is acting, the securities included in the designated Portfolio Deposit
(or the cash value of all or a part of such securities, in the case of a
permitted or required cash purchase or "cash in lieu" amount), with any
appropriate adjustments as advised by the Company.
Deposit Securities must be delivered to an account maintained at the
applicable local subcustodian.
Following the notice of intention, an irrevocable order to purchase
Creation Units, in the form required by the Company, must be received by the
Distributor from an Authorized Participant on its own or another investor's
behalf by the closing time of the regular trading session on the AMEX (currently
4:00 p.m., Eastern time (except for those cash creation countries in the Far
East, the Malaysia (Free), South Korea and Taiwan Index Funds for which orders
must be submitted by 11:59 p.m. Eastern time)) on the relevant Business Day.
(The required form of an order to purchase is available on request from the
Distributor.) Those placing orders to purchase Creation Units through an
Authorized Participant should allow sufficient time to permit proper submission
of the purchase order to the Distributor by the cut-off time on such Business
Day. Orders must be transmitted by the Authorized Participant to the Distributor
by facsimile or electronic transmission as provided in the Authorized
Participant Agreement.
The Authorized Participant must also make available on or before the
contractual settlement date, by means satisfactory to the Company, immediately
available or same day funds estimated by the Company to be sufficient to pay the
Cash Component next determined after acceptance of the purchase order, together
with the applicable purchase transaction fee. Any excess funds will be returned
following settlement of the issue of the Creation Unit of iShares. Those placing
orders should ascertain the applicable deadline for cash transfers by contacting
the operations department of the broker or depositary institution effectuating
the transfer of the Cash Component. This deadline is likely to be significantly
earlier than the closing time of the regular trading session on the AMEX.
Investors should be aware that an Authorized Participant may require
orders for purchases of iShares placed with it to be in the form required by the
individual Authorized Participant, which form will not be the same as the form
of purchase order specified by the Company, which the Authorized Participant
must deliver to the Distributor.
Acceptance of Purchase Order. Subject to the conditions that (i) a
properly completed irrevocable purchase order has been submitted by the
Authorized Participant (either on its own or another investor's behalf) not
later than the closing time of the regular trading session on the AMEX, and (ii)
arrangements satisfactory to the Company are in place for payment of the Cash
Component and any other cash amounts which may be due, the Company will accept
the order, subject to its right (and the right of the Distributor and the
Adviser) to reject any order until acceptance.
68
<PAGE>
Once the Company has accepted an order, upon next determination of the
net asset value of the shares, the Company will confirm the issuance, against
receipt of payment, of a Creation Unit of iShares of the Index Fund at such net
asset value. The Distributor will then transmit a confirmation of acceptance to
the Authorized Participant that placed the order.
The Company reserves the absolute right to reject a purchase order
transmitted to it by the Distributor in respect of any Index Fund if (a) the
purchaser or group of purchasers, upon obtaining the shares ordered, would own
80% or more of the currently outstanding shares of any Index Fund; (b) the
Deposit Securities delivered are not as specified by the Adviser, as described
above; (c) acceptance of the Deposit Securities would have certain adverse tax
consequences to the Index Fund; (d) the acceptance of the Portfolio Deposit
would, in the opinion of counsel, be unlawful; (e) the acceptance of the
Portfolio Deposit would otherwise, in the discretion of the Company or the
Adviser, have an adverse effect on the Company or the rights of beneficial
owners; or (f) in the event that circumstances outside the control of the
Company, the Distributor and the Adviser make it for all practical purposes
impossible to process purchase orders. The Company shall notify a prospective
purchaser of its rejection of the order of such person. The Company and the
Distributor are under no duty, however, to give notification of any defects or
irregularities in the delivery of Portfolio Deposits nor shall either of them
incur any liability for the failure to give any such notification.
Issuance of a Creation Unit. Except as provided herein, a Creation Unit
of iShares of an Index Fund will not be issued until the transfer of good title
to the Company of the Deposit Securities and the payment of the Cash Component
have been completed. When the subcustodian has confirmed to the Custodian that
the required securities included in the Portfolio Deposit (or the cash value
thereof) have been delivered to the account of the relevant subcustodian, the
Custodian shall notify the Distributor and the Adviser, and the Company will
issue and cause the delivery of the Creation Unit of iShares.
To the extent contemplated by an Authorized Participant's agreement
with the Company, the Company will issue Creation Units of iShares to such
Authorized Participant notwithstanding the fact that the corresponding Portfolio
Deposits have not been received in part or in whole, in reliance on the
undertaking of the Authorized Participant to deliver the missing Deposit
Securities as soon as possible, which undertaking shall be secured by such
Authorized Participant's delivery and maintenance of collateral consisting of
cash or Short-Term Investments having a value at least equal to such amount as
required by the Company in accordance with its then-effective procedures,
provided that such amount shall be no less than 125% of the value of the missing
Deposit Securities. Information concerning the Company's current procedures for
collateralization of missing Deposit Securities is available from the
Distributor. The Authorized Participant Agreement will permit the Company to buy
the missing Deposit Securities at any time and will subject the Authorized
Participant to liability for any shortfall between the cost to the Company of
purchasing such securities and the value of the collateral.
All questions as to the number of shares of each security in the
Deposit Securities and the validity, form, eligibility and acceptance for
deposit of any securities to be delivered shall be determined by the Company,
and the Company's determination shall be final and binding.
Cash Purchase Method. Although the Company does not ordinarily permit
cash purchases of Creation Units, when cash purchases of Creation Units of
iShares are available or specified for an Index Fund (Creation Units of the
Brazil (Free), Malaysia (Free), South Korea and Taiwan Index Funds are currently
offered only for cash), they will be effected in essentially the same manner as
in-kind purchases thereof. In the case of a cash purchase, the investor must pay
the cash equivalent of the Deposit Securities it would otherwise be required to
provide through an in-kind purchase, plus the same Cash Component required to be
paid by an in-kind purchaser. In addition, to offset the Company's brokerage and
other transaction costs associated with using the cash to purchase the requisite
Deposit Securities, the investor will be required to pay a fixed purchase
transaction fee, plus an additional variable charge for cash purchases, which is
expressed as a percentage of the value of the Deposit Securities. The
transaction fees for in-kind and cash purchases of Creation Units of iShares are
described below.
Purchase Transaction Fee. A purchase transaction fee payable to the
Company is imposed to compensate the Company for the transfer and other
transaction costs of an Index Fund associated with the issuance of Creation
Units of iShares. Purchasers of Creation Units of iShares for cash are required
to pay an additional variable charge to compensate the relevant Index Fund for
brokerage and market impact expenses relating to investing in portfolio
69
<PAGE>
securities. Where the Company permits an in-kind purchaser to substitute cash in
lieu of depositing a portion of the Deposit Securities, the purchaser will be
assessed the additional variable charge for cash purchases on the "cash in lieu"
portion of its investment. Purchasers of iShares in Creation Units are
responsible for the costs of transferring the securities constituting the
Deposit Securities to the account of the Company. The purchase transaction fees
for in-kind purchases and cash purchases (when available) are listed in the
table below. This table is subject to revision from time to time. Investors are
also responsible for payment of the costs of transferring the Deposit Securities
to the Company.
<TABLE>
<CAPTION>
Maximum Additional
In-kind and cash Variable Charge for
Index Fund purchases Cash Purchases*
-----------------------------------------------------------------------
<S> <C> <C>
Australia $1,750 0.60%
Austria $1,600 0.67%
Belgium $1,500 0.30%
Brazil (Free) $4,725 **
Canada $3,250 0.30%
EMU $8,000 1.05%
France $3,400 0.25%
Germany $2,400 0.25%
Greece $3,500 1.50%
Hong Kong $3,800 0.60%
Indonesia (Free) $4,700 1.18%
Italy $2,100 0.30%
Japan $7,600 0.15%
Malaysia (Free) $4,150 **
Mexico (Free) $2,200 0.50%
Netherlands $1,900 0.25%
Portugal $2,000 1.65%
Singapore (Free) $2,500 1.60%
South Africa $3,200 1.60%
South Korea $4,400 **
Spain $2,300 0.25%
Sweden $2,700 0.30%
Switzerland $2,200 0.40%
Taiwan $7,200 **
Thailand (Free) $3,300 1.41%
Turkey $3,900 1.46%
United Kingdom $4,750 0.25%
USA $1,900 0.50%
</TABLE>
* As a percentage of the value of amount invested.
** This percentage, when aggregated with the basic in-kind transaction fee,
will not exceed 3.00%.
Example. A hypothetical example of the costs of creating a Creation
Unit of iShares of the Japan Index Fund is set forth below for illustrative
purposes only. The exchange rate reflected in the table is Y110.75 per US$1.
<TABLE>
<CAPTION>
Unit Creation Calculation in Unit Creation Calculation in Daily NAV Calculation in
Japanese Yen United States Dollars United States Dollars
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Execution 787,236,717 7,106,628 7,106,628
Commissions 393,618 3,553 N/A
Stamp Taxes 0 0 N/A
Risk Premium 0 0 N/A
</TABLE>
70
<PAGE>
<TABLE>
<S> <C> <C> <C>
Accrued Income 2,003,477 18,086 18,086
Creation Charge 919,933 8,300 N/A
iShares Unit Value 790,553,245 7,136,567 7,124,714
Per iShares 11.89 11.87
Shares 600,000
</TABLE>
See "Investment Advisory, Management, Administrative and Distribution
Services" herein, for additional information concerning the distribution
arrangements for iShares.
Redemption of iShares in Creation Units. iShares may be redeemed only
---------------------------------------
in Creation Units at their net asset value next determined after receipt of a
redemption request in proper form by the Distributor and only on a day on which
the AMEX is open for trading. The Company will not redeem iShares in amounts
less than Creation Units. Beneficial Owners also may sell iShares in the
secondary market, but must accumulate enough iShares to constitute a Creation
Unit in order to have such shares redeemed by the Company. There can be no
assurance, however, that there will be sufficient liquidity in the public
trading market at any time to permit assembly of a Creation Unit of iShares.
Investors should expect to incur brokerage and other costs in connection with
assembling a sufficient number of iShares to constitute a redeemable Creation
Unit.
With respect to each Index Fund (other than the Brazil (Free), Malaysia
(Free), South Korea and Taiwan Index Funds, which currently redeem Creation
Units of iShares solely for cash) the Adviser makes available through the
Distributor immediately prior to the opening of business on the AMEX (currently
9:30 a.m., Eastern time) on each day that the AMEX is open for business the
Portfolio Securities that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form (as defined below) on
that day. Unless cash redemptions are available or specified for an Index Fund,
the redemption proceeds for a Creation Unit generally consist of Deposit
Securities as announced by the Distributor on the Business Day of the request
for redemption, plus cash in an amount equal to the difference between the net
asset value of the shares being redeemed, as next determined after a receipt of
a request in proper form, and the value of the Deposit Securities, less the
redemption transaction fee described below. The redemption transaction fee
described below is deducted from such redemption proceeds. In the case of a
resident Australian or New Zealand holder, notwithstanding the foregoing, such
holder is only entitled to receive cash upon its redemption of Creation Units of
iShares.
A redemption transaction fee payable to the Company is imposed to
offset transfer and other transaction costs that may be incurred by the relevant
Index Fund, including market impact expenses relating to disposing of portfolio
securities. The redemption transaction fee for redemptions in kind and for cash
and the additional variable charge for cash redemptions (when cash redemptions
are available or specified) are listed in the table below. Investors will also
bear the costs of transferring the Portfolio Deposit from the Company to their
account or on their order. Investors who use the services of a broker or other
such intermediary may be charged a fee for such services.
Additional variable
In-kind and cash charge for cash
Index Fund redemptions redemptions*
----------------------------------------------------------------------
Australia $1,750 0.60%
Austria $1,600 0.67%
Belgium $1,500 0.30%
Brazil (Free) $4,725 **
Canada $3,250 0.30%
EMU $8,000 1.05%
France $3,400 0.25%
Germany $2,400 0.25%
Greece $3,500 1.50%
Hong Kong $3,800 0.60%
Indonesia (Free) $4,700 1.18%
Italy $2,100 0.30%
Japan $7,600 0.40%
Malaysia (Free) $4,150 **
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<PAGE>
Additional variable
In-kind and cash charge for cash
Index Fund redemptions redemptions*
----------------------------------------------------------------------
Mexico (Free) $2,200 0.50%
Netherlands $1,900 0.25%
Portugal $2,000 1.65%
Singapore (Free) $2,500 1.30%
South Africa $3,200 1.60%
South Korea $4,400 **
Spain $2,300 0.45%
Sweden $2,700 0.30%
Switzerland $2,200 0.40%
Taiwan $7,200 **
Thailand (Free) $3,300 1.41%
Turkey $3,900 1.46%
United Kingdom $4,750 0.75%
USA $1,900 0.50%
* As a percentage of the value of amount invested.
** This percentage, when aggregated with the basic in-kind transaction fee,
will not exceed 2.00%.
Redemption requests in respect of Creation Units of any Index Fund must
be submitted to the Distributor by or through an Authorized Participant on a day
that the AMEX is open for business, between the hours of 9:00 a.m. and 4:00
p.m., Eastern time (except for the Malaysia (Free), South Korea and Taiwan Index
Funds for which orders must be submitted by 11:59 p.m. Eastern time). Investors
other than through Authorized Participants are responsible for making
arrangements for a redemption request to be made through an Authorized
Participant. The Distributor will provide a list of current Authorized
Participants upon request.
The Authorized Participant must transmit the request for redemption, in
the form required by the Company, to the Distributor in accordance with
procedures set forth in the Authorized Participant Agreement. Investors should
be aware that their particular broker may not have executed an Authorized
Participant Agreement, and that, therefore, requests to redeem Creation Units
may have to be placed by the investor's broker through an Authorized Participant
who has executed an Authorized Participant Agreement. At any given time there
will be only a limited number of broker-dealers that have executed an Authorized
Participant Agreement. Investors making a redemption request should be aware
that such request be in the form specified by such Authorized Participant.
Investors making a request to redeem Creation Units should allow sufficient time
to permit proper submission of the request by an Authorized Participant and
transfer of the iShares to the Company's Transfer Agent; such investors should
allow for the additional time that may be required to effect redemptions through
their banks, brokers or other financial intermediaries if such intermediaries
are not Authorized Participants.
A redemption request is considered to be in "proper form" if (i) an
Authorized Participant has transferred or caused to be transferred to the
Company's Transfer Agent the Creation Unit of iShares being redeemed through the
book-entry system of DTC so as to be effective by the AMEX closing time on a day
on which the AMEX is open for business and (ii) a duly completed request form is
received by the Distributor from the Authorized Participant on behalf of itself
or another redeeming investor after 9:00 a.m. and not later than 2:00 p.m. on
the next following day (on which the AMEX is open for business). If the Transfer
Agent does not receive the investor's iShares through DTC's facilities by 2:00
p.m. on the AMEX business day following the day that the redemption request is
received, the redemption request shall be rejected and may be resubmitted the
next day that the AMEX is open for business. Investors should be aware that the
deadline for such transfers of shares through the DTC system may be
significantly earlier than the close of business on the AMEX. Those making
redemption requests should ascertain the deadline applicable to transfers of
shares through the DTC system by contacting the operations department of the
broker or depositary institution effecting the transfer of the iShares.
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<PAGE>
Upon receiving a redemption request, the Distributor shall notify the
Company and the Company's Transfer Agent of such redemption request. The tender
of an investor's iShares for redemption and the distribution of the cash
redemption payment in respect of Creation Units redeemed will be effected
through DTC and the relevant Authorized Participant to the beneficial owner
thereof as recorded on the book-entry system of DTC or the DTC Participant
through which such investor holds iShares, as the case may be, or by such other
means specified by the Authorized Participant submitting the redemption request.
See "Book-Entry System Only."
In connection with taking delivery of shares of Deposit Securities upon
redemption of iShares, a redeeming Beneficial Owner or Authorized Participant
acting on behalf of such Beneficial Owner must maintain appropriate security
arrangements with a qualified broker-dealer, bank or other custody providers in
each jurisdiction in which any of the Portfolio Securities are customarily
traded, to which account such Portfolio Securities will be delivered.
Deliveries of redemption proceeds by the Index Funds relating to those
countries generally will be made within three business days. Due to the schedule
of holidays in certain countries, however, the delivery of in-kind redemption
proceeds may take longer than three business days after the day on which the
redemption request is received in proper form. For each country relating to an
Index Fund, Appendix B hereto identifies the instances where more than seven
days would be needed to deliver redemption proceeds. Pursuant to an order of the
SEC, in respect of each Index Fund, the Company will make delivery of in-kind
redemption proceeds within the number of days stated in Appendix B to be the
maximum number of days necessary to deliver redemption proceeds.
If neither the redeeming Beneficial Owner nor the Authorized
Participant acting on behalf of such redeeming Beneficial Owner has appropriate
arrangements to take delivery of the Portfolio Securities in the applicable
foreign jurisdiction and it is not possible to make other such arrangements, or
if it is not possible to effect deliveries of the Portfolio Securities in such
jurisdiction, the Company may in its discretion exercise its option to redeem
such shares in cash, and the redeeming Beneficial Owner will be required to
receive its redemption proceeds in cash. In such case, the investor will receive
a cash payment equal to the net asset value of its shares based on the net asset
value of iShares of the relevant Index Fund next determined after the redemption
request is received in proper form (minus a redemption transaction fee and
additional variable charge for cash redemptions specified above, to offset the
Company's brokerage and other transaction costs associated with the disposition
of Portfolio Securities of the Index Fund). Redemptions of iShares for Deposit
Securities will be subject to compliance with applicable United States federal
and state securities laws and each Index Fund (whether or not it otherwise
permits cash redemptions) reserves the right to redeem Creation Units for cash
to the extent that the Index Fund could not lawfully deliver specific Deposit
Securities upon redemptions or could not do so without first registering the
Deposit Securities under such laws.
Although the Company does not ordinarily permit cash redemptions of
Creation Units (except that, as noted above, Creation Units of the Brazil
(Free), Malaysia (Free), South Korea and Taiwan Index Funds may be redeemed only
for cash, and resident Australian and New Zealand holders may redeem solely for
cash), in the event that cash redemptions are permitted or required by the
Company, proceeds will be paid to the Authorized Participant redeeming shares on
behalf of the redeeming investor as soon as practicable after the date of
redemption (within seven calendar days thereafter, except for the instances
listed in Appendix B hereto where more than seven calendar days would be
needed).
To the extent contemplated by an Authorized Participant's agreement
with the Company, in the event the Authorized Participant that has submitted a
redemption request in proper form is unable to transfer all or part of the
Creation Units of iShares to be redeemed to the Distributor, on behalf of the
Company, at or prior to 2:00 p.m. on the AMEX business day after the date of
submission of such redemption request, the Distributor will nonetheless accept
the redemption request in reliance on the undertaking by the Authorized
Participant to deliver the missing iShares as soon as possible, which
undertaking shall be secured by the Authorized Participant's delivery and
maintenance of collateral consisting of cash having a value at least equal to
125% of the value of the missing iShares. The collateral is marked to market
daily in accordance with the Company's procedures. The Company's current
procedures for collateralization of missing iShares require, among other things,
that any cash collateral shall be in the form of U.S. dollars in immediately
available funds and shall be held by the Company's custodian and marked to
market daily, and that the fees of the custodian and any subcustodians in
respect of the delivery, maintenance and redelivery of the cash collateral shall
be payable by the Authorized Participant. The Authorized Participant Agreement
permits the Company to purchase the missing iShares or acquire the Portfolio
Securities and
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<PAGE>
the Cash Component underlying such iShares at any time and subjects the
Authorized Participant to liability for any shortfall between the cost to the
Company of purchasing such iShares, Portfolio Securities or Cash Component and
the value of the collateral.
Because the Portfolio Securities of an Index Fund may trade on the
relevant exchange(s) on days that the AMEX is closed or are otherwise not
Business Days for such Index Fund, stockholders may not be able to redeem their
shares of such Index Fund, or to purchase or sell iShares on the AMEX, on days
when the net asset value of such Index Fund could be significantly affected by
events in the relevant foreign markets.
The right of redemption may be suspended or the date of payment
postponed with respect to any Index Fund (1) for any period during which the New
York Stock Exchange is closed (other than customary weekend and holiday
closings); (2) for any period during which trading on the New York Stock
Exchange is suspended or restricted; (3) for any period during which an
emergency exists as a result of which disposal of the shares of the Index Fund's
portfolio securities or determination of its net asset value is not reasonably
practicable; or (4) in such other circumstance as is permitted by the SEC.
Determining Net Asset Value. Net asset value per share for each Index Fund is
---------------------------
computed by dividing the value of the net assets of such Index Fund (i.e., the
value of its total assets less total liabilities) by the total number of iShares
outstanding, rounded to the nearest cent. Expenses and fees, including the
management, administration and distribution fees, are accrued daily and taken
into account for purposes of determining net asset value. Except in the case of
the iShares MSCI Australia, Brazil, Hong Kong, Indonesia (Free), Japan, Malaysia
(Free), Singapore (Free), South Korea, Taiwan and Thailand (Free) Index Funds,
the net asset value of each Index Fund is determined as of the close of the
regular trading session on the New York Stock Exchange, Inc. ("NYSE")
(ordinarily 4:00 p.m., Eastern time) on each day that the NYSE is open. The net
asset value of each of the iShares MSCI Australia, Brazil, Hong Kong, Indonesia
(Free), Japan, Malaysia (Free), Singapore (Free), South Korea, Taiwan and
Thailand (Free) Index Funds is determined as of 8:30 a.m. (Eastern time) on each
day that the NYSE is open. The net asset value of the iShares MSCI Brazil Index
Fund is determined as of 5:00 p.m. (Eastern time) on each day that the NYSE is
open. The Company may establish additional times for the computation of net
asset value of one or more Index Funds in the future in connection with the
possible future trading of iShares of such Index Funds on one or more foreign
exchanges.
In computing an Index Fund's net asset value, the Index Fund's
portfolio securities are valued based on their last quoted current price. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Securities regularly traded in an over-the-counter market
are valued at the latest quoted bid price in such market. Other portfolio
securities and assets for which market quotations are not readily available are
valued based on fair value as determined in good faith by the Adviser in
accordance with procedures adopted by the Board. Currency values generally are
converted into US dollars using the same exchange rates utilized by Morgan
Stanley Capital International in the calculation of the relevant MSCI Indices
(currently, exchange rates as of 4:00 p.m. London time, except that the exchange
rate for the MSCI Mexico (Free) Index is that as of 3:00 p.m. Eastern time).
However, the Company may use a different rate from the rate used by MSCI in the
event the Adviser concludes that such rate is more appropriate and, as of the
date of this SAI, is using a different rate than the MSCI in computing the net
asset value of the iShares MSCI Malaysia (Free) Index Fund. Any such use of a
different rate than MSCI may adversely affect an Index Fund's ability to track
its benchmark MSCI Index.
Continuous Offering. The method by which Creation Units of iShares are
-------------------
created and traded may raise certain issues under applicable securities laws.
Because new Creation Units of iShares are issued and sold by the Company on an
ongoing basis, at any point a "distribution", as such term is used in the
Securities Act, may occur. Broker-dealers and other persons are cautioned that
some activities on their part may, depending on the circumstances, result in
their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery and
liability provisions of the Securities Act. For example, a broker-dealer firm or
its client may be deemed a statutory underwriter if it takes Creation Units
after placing an order with the Distributor, breaks them down into constituent
iShares, and sells some or all of the iShares comprising such Creation Units
directly to its customers; or if it chooses to couple the creation of a supply
of new iShares with an active selling effort involving solicitation of secondary
market demand for iShares. A determination of whether a person is an underwriter
for the purposes of the Securities Act depends upon all the facts and
circumstances pertaining to that person's activities. Thus, the examples
mentioned above should not be considered a
74
<PAGE>
complete description of all the activities that could lead to a categorization
as an underwriter. Broker-dealer firms should also note that dealers who are
effecting transactions in iShares, whether or not participating in the
distribution of iShares, are generally required to deliver a prospectus. This is
because the prospectus delivery exemption in Section 4(3) of the Securities Act
is not available in respect of such transactions as a result of Section 24(d) of
the 1940 Act. The Company has, however, applied to the Securities and Exchange
Commission for an exemption from this prospectus delivery obligation in ordinary
iShares secondary market transactions under certain circumstances, on the
condition that iShares purchasers are provided with a iShares product
description. If the SEC granted the Company this relief, broker-dealer firms
should note that dealers who are not "underwriters" but are participating in a
distribution (as contrasted to ordinary secondary market transaction), and thus
dealing with iShares that are part of an "unsold allotment" within the meaning
of section 4(3)(C) of the Securities Act, would be unable to take advantage of
the prospectus delivery exemption provided by section 4(3) of the Securities
Act. Firms that incur a prospectus-delivery obligation with respect to iShares
are reminded that under Securities Act Rule 153 a prospectus delivery obligation
under Section 5(b)(2) of the Securities Act owed to a national exchange member
in connection with a sale on the national exchange is satisfied by the fact that
the Index Fund's prospectus is available at the national exchange (i.e., the
AMEX) upon request. The prospectus delivery mechanism provided in Rule 153 is
only available with respect to transactions on a national exchange and not with
respect to "upstairs" transactions. Foreign brokers are advised that it has been
the SEC's policy for many years that sales of open-end investment companies that
register with the SEC (such as the Fund) be sold in accordance with the
requirements of U.S. law, except that in the case of a conflict with
specifically applicable foreign law, the foreign law generally would be
considered controlling.
TAXES
The Company on behalf of each Index Fund has the right to reject an
order for a purchase of iShares if the purchaser (or group of purchasers) would,
upon obtaining the iShares so ordered, own 80% or more of the outstanding
iShares of a given Index Fund and if, pursuant to section 351 of the Internal
Revenue Code, the respective Index Fund would have a basis in the securities
different from the market value of such securities on the date of deposit. The
Company also has the right to require information necessary to determine
beneficial share ownership for purposes of the 80% determination. See "Purchase
and Issuance of iShares in Creation Units."
Each Index Fund intends to qualify for and to elect treatment as a
separate RIC under Subchapter M of the Internal Revenue Code. To qualify for
treatment as a RIC, a company must annually distribute at least 90 percent of
its net investment company taxable income (which includes dividends, interest
and net short-term capital gains) and meet several other requirements. Among
such other requirements are the following: (1) at least 90 percent of the
company's annual gross income must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock or securities or foreign currencies, or other income (including gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (2) at the close of each
quarter of the company's taxable year, (a) at least 50 percent of the market
value of the company's total assets must be represented by cash and cash items,
U.S. government securities, securities of other regulated investment companies
and other securities, with such other securities limited for purposes of this
calculation in respect of any one issuer to an amount not greater than 5% of the
value of the company's assets and not greater than 10% of the outstanding voting
securities of such issuer, and (b) not more than 25 percent of the value of its
total assets may be invested in the securities of any one issuer or of two or
more issuers that are controlled by the company (within the meaning of Section
851(b)(3)(B) of the Internal Revenue Code) and that are engaged in the same or
similar trades or businesses or related trades or businesses (other than U.S.
government securities or the securities of other regulated investment
companies).
Each Index Fund may be subject to foreign income taxes withheld at
source. Each Index Fund will elect to "pass through" to its investors the amount
of foreign income taxes paid by the Index Fund provided that the investor held
the Index Fund, and the Index Fund held the security, on the dividend settlement
date and for at least fourteen additional days immediately before and/or
thereafter, with the result that each investor will (i) include in gross income,
even though not actually received, the investor's pro rata share of the Index
Fund's foreign income taxes, and (ii) either deduct (in calculating U.S. taxable
income) or credit (in calculating U.S. federal income tax) the
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<PAGE>
investor's pro rata share of the Index Fund's foreign income taxes. A foreign
tax credit may not exceed the investor's U.S. federal income tax otherwise
payable with respect to the investor's foreign source income. For this purpose,
each shareholder must treat as foreign source gross income (i) his proportionate
share of foreign taxes paid by the Index Fund and (ii) the portion of any
dividend paid by the Index Fund which represents income derived from foreign
sources; the Index Fund's gain from the sale of securities will generally be
treated as U.S. source income. This foreign tax credit limitation is applied
separately to separate categories of income; dividends from the Index Fund will
be treated as "passive" or "financial services" income for this purpose. The
effect of this limitation may be to prevent investors from claiming as a credit
the full amount of their pro rata share of the Index Fund's foreign income
taxes. Taxes other than foreign income taxes, including any profits levy payable
by the iShares Malaysia (Free) Index Fund, are not passed through to you in this
way.
If any Index Fund owns shares in certain foreign investment entities,
referred to as "passive foreign investment companies," the Index Fund will be
subject to one of the following special tax regimes: (i) the Index Fund is
liable for U.S. federal income tax, and an additional charge in the nature of
interest, on a portion of any "excess distribution" from such foreign entity or
any gain from the disposition of such shares, even if the entire distribution or
gain is paid out by the Index Fund as a dividend to its shareholders; (ii) if
the Index Fund were able and elected to treat a passive foreign investment
company as a "qualified electing fund," the Index Fund would be required each
year to include in income, and distribute to shareholders in accordance with the
distribution requirements set forth above, the Index Fund's pro rata share of
the ordinary earnings and net capital gains of the passive foreign investment
company, whether or not such earnings or gains are distributed to the Index Fund
or (iii) the Index Fund is entitled to mark-to-market annually the shares of the
passive foreign investment company, and is required to distribute to
shareholders any such mark-to-market gains in accordance with the distribution
requirements set forth above.
An Index Fund will be subject to a 4 percent excise tax on certain
undistributed income if it does not distribute to its shareholders in each
calendar year at least 98 percent of its ordinary income for the calendar year
plus 98 percent of its capital gain net income for the twelve months ended
October 31 of such year. Each Index Fund intends to declare and distribute
dividends and distributions in the amounts and at the times necessary to avoid
the application of this 4 percent excise tax.
An investor in an Index Fund that is a foreign corporation or an
individual who is a nonresident alien for U.S. tax purposes will be subject to
adverse U.S. tax consequences. For example, dividends paid out of an Index
Fund's investment company taxable income will generally be subject to U.S.
federal withholding tax at a rate of 30% (or lower treaty rate if the foreign
investor is eligible for the benefits of an income tax treaty). Foreign
investors are urged to consult their own tax advisors regarding the U.S. tax
treatment, in their particular circumstances, of ownership of shares in an Index
Fund.
The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Purchasers of shares of the Company should
consult their own tax advisors as to the tax consequences of investing in such
shares, including under state, local and other tax laws. Finally, the foregoing
discussion is based on applicable provisions of the Internal Revenue Code,
regulations, judicial authority and administrative interpretations in effect on
the date hereof. Changes in applicable authority could materially affect the
conclusions discussed above, and such changes often occur.
PERFORMANCE INFORMATION
The performance of the Index Funds may be quoted in advertisements,
sales literature or reports to shareholders in terms of average annual total
return, cumulative total return and yield.
Quotations of average annual total return are expressed in terms of the
average annual rate of return of a hypothetical investment in an Index Fund over
periods of 1, 5 and 10 years (or the life of an Index Fund, if shorter). Such
total return figures will reflect the deduction of a proportional share of such
Index Fund's expenses on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.
Total return is calculated according to the following formula: P(1 +
T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years and ERV = the ending
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<PAGE>
redeemable value of a hypothetical $1,000 payment made at the beginning of the
1, 5 or 10 year period). The total returns for the period March 6, 1996
(commencement of operations for the initial Index Funds) to August 31, 1996 (not
annualized) and for the fiscal years ended August 31, 2000 for each Index Fund
were:
<TABLE>
<CAPTION>
Index Fund One Year Ended August 31, 2000 Inception* through August 31, 2000
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia 1.84% 3.00%
Austria -15.51% -5.69%
Belgium -15.50% 6.72%
Brazil (Free) N/A -2.97%(1)
Canada 67.21% 22.27%
EMU N/A -5.82%(2)
France 23.45% 22.31%
Germany 8.44% 14.43%
Hong Kong 14.73% 4.48%
Italy 13.35% 19.98%
Japan 8.75% -0.51%
Malaysia (Free) 7.57% -14.09%
Mexico (Free) 28.20% 15.04%
Netherlands 1.28% 14.66%
Singapore (Free) -1.29% -8.65%
South Korea N/A -10.81%(3)
Spain -1.81% 19.59%
Sweden 39.15% 25.11%
Switzerland 1.96% 9.51%
Taiwan N/A -12.10%(4)
United Kingdom -3.00% 14.77%
---------------------------------------------------------------------------------------------------------
*Unless otherwise noted, each Index Fund commenced operations on March 6, 1996.
(1) For the period July 11, 2000 (commencement of operations) through August 31, 2000.
(2) For the period July 26, 2000 (commencement of operations) through August 31, 2000.
(3) For the period May 10, 2000 (commencement of operations) through August 31, 2000.
(4) For the period June 21, 2000 (commencement of operations) through August 31, 2000.
</TABLE>
As of the date of this SAI, the Greece, Indonesia (Free), Portugal, South
Africa, Thailand (Free), Turkey and USA Index Funds have not commenced
investment operations.
Quotations of a cumulative total return will be calculated for any
specified period by assuming a hypothetical investment in an Index Fund on the
date of the commencement of the period and will assume that all dividends and
distributions are reinvested on ex date. However, currently there is no dividend
reinvestment option available to shareholders of iShares and such calculation is
provided for informational purposes only. The net increase or decrease in the
value of the investment over the period will be divided by its beginning value
to arrive at cumulative total return. Total return calculated in this manner
will differ from the calculation of average annual total return in that it is
not expressed in terms of an average rate of return.
The yield of an Index Fund is the net annualized yield based on a
specified 30-day (or one month) period assuming a semiannual compounding of
income. Included in net investment income is the amortization of market premium
or accretion of market and original issue discount. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula: YIELD = 2[(a-b/cd + 1)6-1] (where a = dividends and interest
earned during the period, b = expenses accrued for the period (net of
reimbursements), c = the average daily number of shares outstanding during the
period that were entitled to receive dividends and d = the maximum offering
price per share on the last day of the period).
Quotations of cumulative total return, average annual total return or
yield reflect only the performance of a hypothetical investment in an Index Fund
during the particular time period on which the calculations are based. Such
quotations for an Index Fund will vary based on changes in market conditions and
the level of such Index Fund's expenses, and no reported performance figure
should be considered an indication of performance which may be expected in the
future.
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The cumulative and average total returns and yields do not take into
account federal or state income taxes which may be payable; total returns and
yields would, of course, be lower if such charges were taken into account.
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods for calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Company with performance quoted with respect to other
investment companies or types of investments.
Because some or all of the Company's investments are denominated in
foreign currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Company's investment performance.
Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Company. Such
historical information is not indicative of future fluctuations in the value of
the U.S. dollar against these currencies. In addition, marketing materials may
cite country and economic statistics and historical stock market performance
information for any of the countries in which the Company invests, including,
but not limited to, the following: population growth, gross domestic product,
inflation rate, average stock market price-earnings ratios and the total value
of stock markets. Sources for such statistics may include official publications
of various foreign governments and exchanges.
From time to time, in advertising and marketing literature, the
Company's performance may be compared to the performance of broad groups of
open-end and closed-end investment companies with similar investment goals, as
tracked by independent organizations such as Investment Company Data, Inc.,
Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc., Value Line Mutual Fund Survey and other independent
organizations. When these organizations' tracking results are used, the Company
will be compared to the appropriate fund category, that is, by fund objective
and portfolio holdings, or to the appropriate volatility grouping, where
volatility is a measure of a fund's risk.
In addition, in connection with the communication of its performance to
current or prospective shareholders, the Company also may compare those figures
to the performance of certain unmanaged indices which may assume the
reinvestment of dividends or interest but generally do not reflect deductions
for administrative and management costs. Examples of such indices include, but
are not limited to the following:
o Dow Jones Industrial Average
o Consumer Price Index
o Standard & Poor's 500 Composite Stock Price Index (S&P 500)
o NASDAQ OTC Composite Index
o NASDAQ Industrials Index
o International Finance Corporation's (Global) Composite and
(Investable) Composite Indices
o Morgan Stanley Capital International Indices
o NASDAQ Composite Index
o Wilshire 5000 Stock Index
In addition, the Company from time to time may compare the results of
each Index Fund to the following national benchmarks:
COUNTRY NATIONAL INDEX
-----------------------------------------------
Australia All Ordinaries
Austria Vienna Stock Exchange
Brazil Sao Paulo Bovespa
Belgium Brussels Stock Exchange
Canada Toronto 300
EMU Euro Stoxx 50
France CAC 40
Germany DAX
Greece FTSE/ASE 20
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<PAGE>
COUNTRY NATIONAL INDEX
-----------------------------------------------
Hong Kong Hang Seng
Indonesia Composite
Italy BCI
Japan Nikkei 225
Malaysia KLSE
Mexico IPC
Netherlands CBS All Share
Portugal Lisbon BVL General
Singapore SES All
South Africa Johannesburg All-Share
South Korea Composite
Spain MA Madrid Index
Sweden Aff. General
Switzerland Swiss Market Index
Taiwan TWSE
Thailand (Free) SET
Turkey ISE National 100
U.K. FTSE 100
From time to time, the Company may use in marketing materials a graph
entitled "The Efficient Frontier," which illustrates the historical risks and
returns of selected unmanaged indices which track the performance of various
combinations of United States and international securities for a certain time
period, such as twenty years. A twenty year graph, for example, shall use twenty
year annualized international returns represented by the MSCI Europe,
Australasia and Far East (EAFE) Index and twenty year annualized United States
returns represented by the S&P 500 Index. Risk is measured by the standard
deviation in overall performance within each index. Data presented in the graph
shall be provided by Ibbotson Associates, Inc. Performance of an index is
historical and does not represent performance of the Company, and is not a
guarantee of future results.
Evaluation of Company performance of the Index Funds or other relevant
statistical information made by independent sources may also be used in
advertisements and sales literature concerning the Company, including reprints
of, or selections from, editorials or articles about the Company. Sources for
Company performance information and articles about the Company include, but are
not limited to, the following:
American Association of Individual Investors' Journal, a monthly
-----------------------------------------------------
publication of the AAII that includes articles on investment analysis
techniques.
Barron's, a Dow Jones and Company, Inc. business and financial weekly
--------
that periodically reviews investment company performance data.
Business Week, a national business weekly that periodically reports the
-------------
performance rankings and ratings of a variety of investment companies investing
abroad.
CDA Investment Technologies, an organization that provides performance
---------------------------
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate indices.
Forbes, a national business publication that from time to time reports
------
the performance of specific investment companies.
Fortune, a national business publication that periodically rates the
-------
performance of a variety of investment companies.
The Frank Russell Company, a West-Coast investment management firm that
-------------------------
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Ibbotson Associates, Inc., a company specializing in investment
-------------------------
research and data.
Investment Company Data, Inc., an independent organization that
-----------------------------
provides performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial,
-------------------------
economic, and business news.
79
<PAGE>
Kiplinger's Personal Finance Magazine, a monthly investment advisory
-------------------------------------
publication that periodically features the performance of a variety of
securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
--------------------------------
weekly publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific
-----
funds and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm
----------------------------
that compiles statistical information.
The New York Times, a nationally distributed newspaper that regularly
------------------
covers financial news.
Smart Money, a national personal finance magazine published monthly by
-----------
Dow Jones & Company, Inc. and The Hearst Corporation that focuses on ideas for
investing, spending and saving.
Value Line Mutual Fund Survey, an independent organization that
-----------------------------
provides biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper that
-----------------------
regularly covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of
------------------------------------------
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records and price ranges.
Worth, a national publication distributed ten times per year by Capital
-----
Publishing Company, a subsidiary of Fidelity Investments that focuses on
personal financial journalism.
COUNSEL AND INDEPENDENT AUDITORS
Counsel. Sullivan & Cromwell, 125 Broad Street, New York, New York
-------
10004, are counsel to the Company and has passed upon the validity of the
Company's shares.
Independent Auditors. Ernst & Young LLP, 787 Seventh Avenue,
---------------------
New York, New York 10019, serve as the independent auditors of the Company.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Company's
Annual Report to Shareholders for the fiscal year ended August 31, 2000 (the
"2000 Annual Report") are incorporated in this SAI by reference. No other parts
of the 2000 Annual Report are incorporated by reference herein. The financial
statements included in the 2000 Annual Report have been audited by the Company's
independent auditors, Ernst & Young LLP, whose report thereon is incorporated
herein by reference. Additional copies of the 2000 Annual Report may be obtained
at no charge by telephoning the Distributor at 1-800-iShares (1-800-474-2737).
80
<PAGE>
APPENDIX A
APPENDIX A-1
MSCI AUSTRALIA INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
TELSTRA CORP Diversified Telecommunication Services 25,245.54 10.89%
NATIONAL AUSTRALIA BANK Banks 23,747.35 10.24%
COMMONWEALTH BANK Banks 21,122.37 9.11%
BHP (BROKEN HILL PROP) Metals & Mining 18,241.29 7.87%
NEWS CORP Media 18,160.66 7.83%
NEWS CORP PLVO Media 16,537.60 7.13%
WESTPAC BANKING Banks 13,041.53 5.63%
AMP LTD Insurance 10,801.81 4.66%
BRAMBLES INDUSTRIES Industrial Conglomerates 5,449.33 2.35%
LEND LEASE Real Estate 4,723.43 2.04%
FOSTERS BREWING GROUP Beverages 4,624.93 1.99%
COLES MYER Multiline Retail 4,576.34 1.97%
WOOLWORTHS LTD Food & Drug Retailing 4,343.38 1.87%
RIO TINTO LTD Metals & Mining 4,291.80 1.85%
WMC Metals & Mining 4,226.41 1.82%
WESTFIELD TRUST Real Estate 3,003.62 1.30%
CSL Pharmaceuticals 2,827.52 1.22%
COMPUTERSHARE Comercial Services & Supplies 2,579.79 1.11%
GENERAL PROPERTY TRUST Real Estate 2,414.01 1.04%
COCA-COLA AMATIL Beverages 2,366.72 1.02%
WESFARMERS Industrial Conglomerates 2,293.23 0.99%
CSR Construction Materials 2,289.54 0.99%
TABCORP HOLDINGS Hotels Restaurants & Leisure 2,192.90 0.95%
AUSTRALIAN GAS LIGHT CO Gas Utilities 2,076.71 0.90%
QBE INSURANCE GROUP Insurance 2,062.76 0.89%
SANTOS Oil & Gas 1,970.93 0.85%
SUNCORP-METWAY Banks 1,783.51 0.77%
SOUTHCORP HOLDINGS Industrial Conglomerates 1,738.99 0.75%
AMCOR Containers & Packaging 1,662.54 0.72%
STOCKLAND TRUST Real Estate 1,448.36 0.62%
ARISTOCRAT LEISURE Hotels Restaurants & Leisure 1,281.69 0.55%
TRANSURBAN GROUP Transportation Infrastructure 1,166.38 0.50%
BRIT. AMER TOBACCO AUST Tobacco 1,113.99 0.48%
MIRVAC GROUP Real Estate 1,081.46 0.47%
MAYNE NICKLESS Air Freight & Couriers 1,005.88 0.43%
MIM HOLDINGS Metals & Mining 993.41 0.43%
ERG Electronic Equipment & Instruments 942.58 0.41%
LEIGHTON HOLDINGS Construction & Engineering 915.76 0.40%
SMITH (HOWARD) Trading Companies & Distributors 898.36 0.39%
FAULDING (F.H.) & CO Pharmaceuticals 894.89 0.39%
GOODMAN FIELDER Food Products 852.23 0.37%
NORMANDY MINING Metals & Mining 825.76 0.36%
COCHLEAR Health Care Equipment & Supplies 808.17 0.35%
ORICA Chemicals 798.85 0.34%
HARDIE (JAMES) IND Building Products 785.35 0.34%
GANDEL RETAIL TRUST Real Estate 744.27 0.32%
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
PACIFIC DUNLOP Industrial Conglomerates 731.34 0.32%
BORAL (NEW) Construction Materials 573.41 0.25%
FUTURIS CORP Food Products 563.24 0.24%
AMP DIVERS. PPTY TRUST Real Estate 544.48 0.23%
NEWCREST MINING Metals & Mining 483.70 0.21%
ILUKA RESOURCES Metals & Mining 469.44 0.20%
PAPERLINX Paper & Forest Products 459.10 0.20%
SONS OF GWALIA Metals & Mining 376.19 0.16%
JONES (DAVID) Multiline Retail 304.28 0.13%
ONESTEEL Metals & Mining 213.38 0.09%
DELTA GOLD Metals & Mining 156.99 0.07%
</TABLE>
A-2
<PAGE>
APPENDIX A-2
MSCI AUSTRIA INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
BANK AUSTRIA Banks 5,631.96 32.28%
VERBUND OESTERR ELEK A Electric Utilities 2,680.20 15.36%
OMV AG Oil & Gas 1,845.02 10.57%
WIENERBERGER BAUSTOFF Building Products 1,169.31 6.70%
GENERALI HOLDING VIENNA Insurance 1,112.67 6.38%
AUSTRIA TABAK Tobacco 1,082.03 6.20%
FLUGHAFEN WIEN Transportation Infrastructure 733.60 4.20%
MAYR-MELNHOF KARTON Containers & Packaging 472.79 2.71%
VA TECHNOLOGIE Machinery 467.46 2.68%
BWT STAMM Comercial Services & Supplies 459.62 2.63%
RHI Construction Materials 391.03 2.24%
AUSTRIAN AIRLINES Airlines 358.72 2.06%
BOEHLER-UDDEHOLM Metals & Mining 340.22 1.95%
BBAG OESTERR BRAU STAMM Beverages 315.89 1.81%
LENZING Chemicals 235.29 1.35%
BAU HOLDING STRABAG Construction & Engineering 152.34 0.87%
</TABLE>
A-3
<PAGE>
APPENDIX A-3
MSCI BELGIUM INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
FORTIS BELGIUM Diversified Financials 21,641.87 31.61%
KBC BANCASSURANCE Banks 11,711.72 17.11%
ELECTRABEL Electric Utilities 11,320.30 16.53%
GROUPE BRUXELLES LAMBERT Diversified Financials 5,627.53 8.22%
UCB (GROUPE) Pharmaceuticals 5,053.44 7.38%
SOLVAY Chemicals 4,022.09 5.87%
DELHAIZE-LE LION Food & Drug Retailing 2,287.04 3.34%
COLRUYT Food & Drug Retailing 1,550.04 2.26%
D'IETEREN Specialty Retail 1,188.60 1.74%
BARCO (NEW) Electronic Equipment & Instruments 931.79 1.36%
BEKAERT Electrical Equipment 918.81 1.34%
UNION MINIERE Metals & Mining 902.04 1.32%
CMB Marine 564.08 0.82%
GLAVERBEL (GROUPE) Building Products 493.47 0.72%
BARCONET Communications Equipment 254.96 0.37%
</TABLE>
A-4
<PAGE>
APPENDIX A-4
MSCI BRAZIL (FREE) INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
PETROBRAS PN Oil & Gas 10,982.30 11.69%
PETROBRAS ON Oil & Gas 9,925.76 10.57%
VALE DO RIO DOCE PNA Metals & Mining 7,763.28 8.27%
ELETROBRAS ON Electric Utilities 7,478.98 7.96%
AMBEV PN Beverages 4,782.89 5.09%
TELE NORTE LESTE PART.PN Diversified Telecommunication Services 4,473.27 4.76%
BANCO BRADESCO PN Banks 3,936.83 4.19%
TELESP CELULAR PART. PN Wireless Telecommunication Services 3,882.26 4.13%
BANCO ITAU PN Banks 3,791.33 4.04%
PAO DE ACUCAR PN Food & Drug Retailing 3,528.05 3.76%
AMBEV ON Beverages 3,159.53 3.36%
EMBRATEL PART. PN Diversified Telecommunication Services 2,555.15 2.72%
EMBRAER PN Aerospace & Defense 2,111.00 2.25%
CEMIG PN Electric Utilities 2,036.14 2.17%
UNIBANCO UNITS Banks 1,931.38 2.06%
CSN SIDERURGICA NAC'L ON Metals & Mining 1,878.02 2.00%
BRASIL T. PART.PN(TELECE Diversified Telecommunication Services 1,825.88 1.94%
TELE NORTE LESTE PART.ON Diversified Telecommunication Services 1,675.29 1.78%
ELETROBRAS PNB Electric Utilities 1,429.76 1.52%
ARACRUZ CELULOSE PNB Paper & Forest Products 1,232.12 1.31%
SOUZA CRUZ ON Tobacco 1,229.29 1.31%
EMBRATEL PART. ON Diversified Telecommunication Services 1,200.70 1.28%
TELE CENTRO OESTE CEL PN Wireless Telecommunication Services 1,102.09 1.17%
VOTORANTIM CELULOSE PN Paper & Forest Products 1,002.98 1.07%
USIMINAS PNA Metals & Mining 874.81 0.93%
BRASIL T. PART.ON(TELECE Diversified Telecommunication Services 828.92 0.88%
GERASUL ON Electric Utilities 672.37 0.72%
GLOBO CABO PN Media 656.44 0.70%
BANESPA PN Banks 642.40 0.68%
COPENE PNA Chemicals 548.64 0.58%
TELE NORD CELU PART. PN Wireless Telecommunication Services 535.52 0.57%
IPIRANGA (PETROLEO) PN Oil & Gas 444.38 0.47%
TELE CELULAR SUL PART.PN Wireless Telecommunication Services 419.63 0.45%
CIMENTO PORTLAND ITAU PN Construction Materials 388.98 0.41%
BOMBRIL CIRIO PN Household Products 341.66 0.36%
DURATEX PN Building Products 321.97 0.34%
COTEMINAS PN Textiles & Apparel 319.63 0.34%
SADIA PN Food Products 315.84 0.34%
GERDAU METALURGICA PN Metals & Mining 311.72 0.33%
PERDIGAO PN Food Products 276.06 0.29%
FOSFERTIL PN Chemicals 266.89 0.28%
EMBRAER ON Aerospace & Defense 250.81 0.27%
TELE CELULAR SUL PART.ON Wireless Telecommunication Services 206.75 0.22%
GERASUL PNB Electric Utilities 203.12 0.22%
INEPAR IND E CONSTR. PN Electrical Equipment 72.77 0.08%
LOJAS AMERICANAS PN Multiline Retail 72.02 0.08%
LOJAS AMERICANAS ON Multiline Retail 39.25 0.04%
</TABLE>
A-5
<PAGE>
APPENDIX A-5
MSCI CANADA INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
NORTEL NETWORKS CORP Communications Equipment 116,086.26 25.22%
THOMSON CORP Media 22,926.85 4.98%
BCE INC Diversified Telecommunication Services 22,503.81 4.89%
SEAGRAM CO Media 20,703.08 4.50%
BOMBARDIER B Aerospace & Defense 19,792.39 4.30%
ROYAL BANK OF CANADA Banks 17,869.12 3.88%
MANULIFE FINANCIAL CORP Insurance 12,497.83 2.72%
BANK NOVA SCOTIA Banks 12,464.07 2.71%
BANK MONTREAL Banks 12,202.69 2.65%
CANADIAN IMPERIAL BANK Banks 11,401.07 2.48%
CELESTICA Electronic Equipment & Instruments 10,681.19 2.32%
IMPERIAL OIL Oil & Gas 10,610.09 2.31%
ALCAN ALUMINIUM Metals & Mining 9,834.70 2.14%
SUN LIFE FINANCIAL SVCS Insurance 8,986.56 1.95%
CANADIAN PACIFIC Road & Rail 8,437.59 1.83%
WESTON (GEORGE) Food & Drug Retailing 7,356.80 1.60%
PETRO-CANADA Oil & Gas 6,170.20 1.34%
BALLARD POWER SYSTEMS Electrical Equipment 6,047.32 1.31%
BARRICK GOLD CORP Metals & Mining 5,949.37 1.29%
ALBERTA ENERGY CO Oil & Gas 5,691.20 1.24%
SUNCOR ENERGY Oil & Gas 4,950.21 1.08%
TRANSCANADA PIPELINES Gas Utilities 4,739.52 1.03%
POWER CORP OF CANADA Diversified Financials 4,390.10 0.95%
ENBRIDGE Gas Utilities 4,258.54 0.93%
TALISMAN ENERGY Oil & Gas 4,141.90 0.90%
BIOVAIL CORP Pharmaceuticals 4,055.44 0.88%
ABITIBI-CONSOLIDATED Paper & Forest Products 3,808.01 0.83%
POTASH CORP SASKATCHEWAN Chemicals 3,478.74 0.76%
MAGNA INTERNATIONAL A Auto Components 3,362.77 0.73%
CANADIAN NAT RESOURCES Oil & Gas 3,329.95 0.72%
ROGERS COMMUNICATIONS B Media 3,309.61 0.72%
PLACER DOME Metals & Mining 2,991.21 0.65%
QLT Biotechnology 2,926.88 0.64%
NATIONAL BANK OF CANADA Banks 2,897.16 0.63%
COGNOS Software 2,878.73 0.63%
NEXEN (CANADIAN OCCIDENT Oil & Gas 2,790.82 0.61%
INCO COMMON Metals & Mining 2,595.07 0.56%
WESTCOAST ENERGY Gas Utilities 2,428.41 0.53%
BIOCHEM PHARMA Biotechnology 2,426.72 0.53%
BRASCAN CORP A Diversified Financials 2,424.19 0.53%
ANDERSON EXPLORATION Oil & Gas 2,409.06 0.52%
NORANDA Metals & Mining 2,378.92 0.52%
TRIZEC HAHN CORP SV Real Estate 2,351.68 0.51%
MDS Health Care Providers & Services 2,336.61 0.51%
GULF CANADA RESOURCES Oil & Gas 2,270.49 0.49%
TRANSALTA CORP Electric Utilities 2,265.61 0.49%
MACKENZIE FINANCIAL CORP Diversified Financials 2,208.71 0.48%
FOUR SEASONS HOTELS LV Hotels Restaurants & Leisure 2,129.34 0.46%
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
ATI TECHNOLOGIES Computers & Peripherals 1,801.37 0.39%
CI FUND MANAGEMENT Diversified Financials 1,667.94 0.36%
MOLSON A Beverages 1,617.79 0.35%
DOMTAR Paper & Forest Products 1,520.09 0.33%
CAE Aerospace & Defense 1,502.84 0.33%
FAIRFAX FINANCIAL HLDGS Insurance 1,478.01 0.32%
PRECISION DRILLING CORP Energy Equipment & Services 1,351.56 0.29%
AGRIUM Chemicals 1,341.76 0.29%
CGI GROUP A IT Consulting & Services 1,264.23 0.27%
QUEBECOR B Media 1,198.37 0.26%
DOFASCO Metals & Mining 1,170.41 0.25%
SOBEYS Food & Drug Retailing 1,161.92 0.25%
AIR CANADA COMMON Airlines 1,152.25 0.25%
COMINCO Metals & Mining 1,063.01 0.23%
DESCARTES SYSTEMS GROUP Software 1,049.62 0.23%
CAMECO CORP Metals & Mining 907.88 0.20%
CANADIAN TIRE CORP A Multiline Retail 874.49 0.19%
TECK CORP B Metals & Mining 789.36 0.17%
UNITED DOMINION IND Machinery 755.18 0.16%
HUDSON'S BAY CO Multiline Retail 653.70 0.14%
CERTICOM CORP Software 441.60 0.10%
STELCO A Metals & Mining 263.31 0.06%
COREL CORP Software 195.98 0.04%
INCO VBN Metals & Mining 172.75 0.04%
GEAC COMPUTER CORP Software 139.10 0.03%
</TABLE>
A-7
<PAGE>
APPENDIX A-6
MSCI EMU INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
NOKIA CORP Communications Equipment 196,544.77 6.17%
ROYAL DUTCH PETROLEUM CO Oil & Gas 128,609.44 4.04%
TOTAL FINA ELF Oil & Gas 106,208.00 3.34%
DEUTSCHE TELEKOM Diversified Telecommunications Services 95,438.21 3.00%
FRANCE TELECOM Diversified Telecommunications Services 86,068.67 2.70%
ALLIANZ Insurance 84,554.19 2.66%
ING GROEP Diversified Financials 70,436.83 2.21%
TELEFONICA Diversified Telecommunications Services 68,151.57 2.14%
SIEMENS Industrial Conglomerates 67,677.65 2.13%
AVENTIS Pharmaceuticals 61,197.59 1.92%
ALCATEL Communications Equipment 60,107.65 1.89%
MUENCHENER RUECKVERSICH. Insurance 57,553.20 1.81%
AEGON Insurance 55,609.66 1.75%
AXA Insurance 55,396.45 1.74%
LOREAL Personal Products 54,084.27 1.70%
TIM ORD Wireless Telecommunication Services 52,775.59 1.66%
ENI Oil & Gas 48,844.56 1.53%
ASSICURAZIONI GENERALI Insurance 45,930.84 1.44%
SANOFI-SYNTHELABO Pharmaceuticals 44,559.50 1.40%
DEUTSCHE BANK NAMEN Banks 44,316.62 1.39%
TELECOM ITALIA ORD Diversified Telecommunications Services 42,934.54 1.35%
E. ON (VEBA) Electric Utilities 42,545.02 1.34%
PHILIPS ELECTRS (KON.) Household Durables 42,478.31 1.33%
BBVA Banks 42,154.26 1.32%
CARREFOUR Food & Drug Retailing 42,062.72 1.32%
BSCH BCO SANTANDER CENTR Banks 40,054.16 1.26%
DAIMLERCHRYSLER Automobiles 38,437.13 1.21%
VIVENDI Multi-Utilities 37,442.46 1.18%
STMICROELECTRONICS Semiconductor Equipment & Products 37,391.74 1.17%
UNILEVER NV CERT Food Products 35,276.78 1.11%
BNP PARIBAS Banks 34,635.58 1.09%
SUEZ LYONNAISE DES EAUX Multi-Utilities 33,755.17 1.06%
LVMH Textiles & Apparel 32,407.55 1.02%
BAYER Chemicals 31,947.07 1.00%
ABN AMRO HOLDING Banks 31,506.17 0.99%
ENEL Electric Utilities 27,392.34 0.86%
UNICREDITO ITALIANO ORD Banks 25,026.32 0.79%
AHOLD (KON.) Food & Drug Retailing 24,947.46 0.78%
BASF Chemicals 23,433.59 0.74%
SOCIETE GENERALE Banks 22,829.70 0.72%
BANCA INTESA ORD Banks 22,137.26 0.70%
SAN PAOLO-IMI ORD Banks 21,656.97 0.68%
FORTIS BELGIUM Diversified Financials 21,641.87 0.68%
PINAULT-PRINT.-REDOUTE Multiline Retail 21,507.88 0.68%
</TABLE>
A-8
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
HYPOVEREINSBANK Banks 20,895.29 0.66%
RWE STAMM Multi-Utilities 20,517.85 0.64%
REPSOL YPF Oil & Gas 19,952.86 0.63%
DANONE (GROUPE) Food Products 19,812.41 0.62%
SAP STAMM Software 19,275.48 0.61%
DRESDNER BANK NAMEN Banks 19,247.41 0.60%
CAP GEMINI SA IT Consulting & Services 17,152.89 0.54%
ENDESA Electric Utilities 17,133.36 0.54%
SAP VORZUG Software 16,973.53 0.53%
HEINEKEN NV Beverages 16,938.08 0.53%
KPN (KON.) Diversified Telecommunications Services 16,218.18 0.51%
CANAL + Media 15,956.78 0.50%
VOLKSWAGEN STAMM Automobiles 15,447.05 0.49%
MEDIASET Media 15,342.65 0.48%
BOUYGUES ORD Wireless Telecommunication Services 14,619.40 0.46%
SONERA Diversified Telecommunications Services 14,232.96 0.45%
METRO STAMM Multiline Retail 14,027.14 0.44%
OLIVETTI ING & CO ORD Diversified Telecommunications Services 13,996.19 0.44%
AKZO NOBEL Chemicals 13,576.46 0.43%
AIR LIQUIDE Chemicals 11,960.17 0.38%
SAINT-GOBAIN Building Products 11,843.72 0.37%
KBC BANCASSURANCE Banks 11,711.72 0.37%
TNT POST GROEP Air Freight & Couriers 11,453.55 0.36%
ELECTRABEL Electric Utilities 11,320.30 0.36%
SCHERING Pharmaceuticals 10,915.43 0.34%
IBERDROLA Electric Utilities 10,790.98 0.34%
BCP BANCO COMERCIAL NOM Banks 10,208.06 0.32%
SCHNEIDER ELECTRIC Electrical Equipment 9,607.43 0.30%
RAS ORD Insurance 9,584.96 0.30%
ALLIED IRISH BANKS Banks 9,507.06 0.30%
PEUGEOT SA Automobiles 9,400.87 0.30%
BEIERSDORF Personal Products 9,359.62 0.29%
EDP ELECTRICIDADE PORT Electric Utilities 9,132.29 0.29%
FIAT ORD Automobiles 8,983.79 0.28%
ASM LITHOGRAPHY HOLDING Semiconductor Equipment & Products 8,781.49 0.28%
PORTUGAL TELECOM Diversified Telecommunications Services 8,550.92 0.27%
ELSEVIER Media 8,459.24 0.27%
CASINO ORD Food & Drug Retailing 8,213.19 0.26%
LAFARGE (FRANCE) Construction Materials 8,151.35 0.26%
LUFTHANSA Airlines 8,118.55 0.25%
DASSAULT SYSTEMES Software 8,065.96 0.25%
FRESENIUS MED. CARE ST Health Care Providers & Services 7,776.82 0.24%
UPM-KYMMENE Paper & Forest Products 7,468.12 0.23%
GAS NATURAL SDG Gas Utilities 7,448.87 0.23%
ACCOR Hotels Restaurants & Leisure 7,417.12 0.23%
THOMSON-CSF Aerospace & Defense 7,300.51 0.23%
LAGARDERE Media 7,188.60 0.23%
TIM RNC Wireless Telecommunication Services 7,038.97 0.22%
WOLTERS KLUWER Media 6,867.43 0.22%
</TABLE>
A-9
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
MEDIOBANCA Banks 6,867.38 0.22%
THYSSEN KRUPP Metals & Mining 6,588.06 0.21%
MERCK KGAA Pharmaceuticals 6,438.22 0.20%
PIRELLI SPA ORD Auto Components 6,016.16 0.19%
SODEXHO ALLIANCE Hotels Restaurants & Leisure 6,006.78 0.19%
CRH Construction Materials 6,005.18 0.19%
BANCA ROMA Banks 5,811.66 0.18%
PREUSSAG Industrial Conglomerates 5,704.67 0.18%
BANK AUSTRIA Banks 5,631.96 0.18%
GROUPE BRUXELLES LAMBERT Diversified Financials 5,627.53 0.18%
UNION ELECTRICA FENOSA Electric Utilities 5,458.30 0.17%
LINDE Machinery 5,450.43 0.17%
UCB (GROUPE) Pharmaceuticals 5,053.44 0.16%
EIRCOM Diversified Telecommunications Services 4,958.54 0.16%
TELECOM ITALIA RNC Diversified Telecommunications Services 4,885.29 0.15%
ALTADIS Tobacco 4,501.42 0.14%
VINCI Construction & Engineering 4,195.08 0.13%
SAGEM Communications Equipment 4,192.23 0.13%
PUBLICIS GROUPE Media 4,084.65 0.13%
SOLVAY Chemicals 4,022.09 0.13%
MICHELIN Auto Components 3,869.92 0.12%
VALEO Auto Components 3,821.42 0.12%
KARSTADT QUELLE Multiline Retail 3,581.47 0.11%
BULGARI Textiles & Apparel 3,542.40 0.11%
BENETTON GROUP Textiles & Apparel 3,464.39 0.11%
RYANAIR HOLDINGS Airlines 3,234.72 0.10%
PECHINEY ORD A Metals & Mining 3,185.18 0.10%
PERNOD RICARD Beverages 3,156.14 0.10%
IRISH LIFE & PERMANENT Insurance 3,137.92 0.10%
ITALGAS Gas Utilities 3,117.80 0.10%
BANCO ESPIRITO SANTO Banks 3,109.43 0.10%
CIMPOR CIMENTOS DE PORT Construction Materials 3,100.37 0.10%
ESSILOR INTERNATIONAL Health Care Equipment & Supplies 3,088.27 0.10%
AUTOGRILL Hotels Restaurants & Leisure 3,001.60 0.09%
VOLKSWAGEN VORZUG Automobiles 2,977.31 0.09%
MAN STAMM Machinery 2,968.28 0.09%
SAMPO INSURANCE CO A Insurance 2,914.06 0.09%
HEIDELBERGER ZEMENT STAM Construction Materials 2,848.11 0.09%
ALITALIA Airlines 2,771.33 0.09%
WCM BETEILIGUNGS & GRUND Diversified Financials 2,737.42 0.09%
VERBUND OESTERR ELEK A Electric Utilities 2,680.20 0.08%
SONAE SGPS Industrial Conglomerates 2,675.32 0.08%
EURAFRANCE Diversified Financials 2,604.23 0.08%
GEHE Health Care Providers & Services 2,601.84 0.08%
ERIDANIA BEGHIN-SAY Food Products 2,601.14 0.08%
RWE VORZUG Multi-Utilities 2,600.31 0.08%
MONDADORI ORD Media 2,599.63 0.08%
USINOR Metals & Mining 2,580.94 0.08%
ADIDAS-SALOMON Textiles & Apparel 2,575.84 0.08%
BUHRMANN Commercial Services & Supplies 2,539.58 0.08%
BRISA AUTO-ESTRADAS PORT Transportation Infrastructure 2,512.26 0.08%
</TABLE>
A-10
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
PARMALAT FINANZIARIA Food Products 2,442.40 0.08%
EM TV & MERCHANDISING Media 2,400.75 0.08%
UNIBAIL Real Estate 2,356.90 0.07%
HAGEMEYER Distributors 2,339.74 0.07%
DELHAIZE-LE LION Food & Drug Retailing 2,287.04 0.07%
COFLEXIP Energy Equipment & Services 2,217.54 0.07%
FOMENTO CONST Y CONTR Construction & Engineering 2,143.25 0.07%
AUTOPISTAS CESA (ACESA) Transportation Infrastructure 2,133.73 0.07%
BANCA INTESA RNC Banks 2,093.74 0.07%
BPI SGPS NOM Diversified Financials 2,034.50 0.06%
KERRY GROUP A Food Products 1,991.90 0.06%
BIC Commercial Services & Supplies 1,978.36 0.06%
TECHNIP Construction & Engineering 1,845.71 0.06%
OMV AG Oil & Gas 1,845.02 0.06%
CONTINENTAL Auto Components 1,826.06 0.06%
ALBA (CORP FINANCIERA) Real Estate 1,767.78 0.06%
GETRONICS IT Consulting & Services 1,764.99 0.06%
AGUAS DE BARCELONA Water Utilities 1,764.64 0.06%
BANCA POPOLARE MILANO Banks 1,739.32 0.05%
SMURFIT (JEFFERSON) Containers & Packaging 1,733.82 0.05%
RINASCENTE ORD Food & Drug Retailing 1,730.75 0.05%
GRUPO DRAGADOS Construction & Engineering 1,709.77 0.05%
SIMCO Real Estate 1,697.02 0.05%
SIDEL Machinery 1,681.40 0.05%
GECINA Real Estate 1,628.08 0.05%
IMERYS Construction Materials 1,625.93 0.05%
FIAT PRIV Automobiles 1,609.50 0.05%
TIETOENATOR IT Consulting & Services 1,596.66 0.05%
COLRUYT Food & Drug Retailing 1,550.04 0.05%
CLUB MEDITERRANEE Hotels Restaurants & Leisure 1,544.34 0.05%
ACERINOX Metals & Mining 1,522.09 0.05%
ACS ACTIV. CONST. Y SVCS Construction & Engineering 1,483.37 0.05%
ITALCEMENTI ORD Construction Materials 1,395.34 0.04%
INDEPENDENT NEWS & MEDIA Media 1,373.45 0.04%
SOL MELIA Hotels Restaurants & Leisure 1,372.42 0.04%
OCE Office Electronics 1,331.08 0.04%
HOCHTIEF Construction & Engineering 1,316.20 0.04%
IHC CALAND Machinery 1,288.10 0.04%
METSO CORP Machinery 1,279.38 0.04%
BUDERUS Building Products 1,272.10 0.04%
KONE B Machinery 1,236.01 0.04%
ZARDOYA OTIS Machinery 1,212.87 0.04%
POHJOLA GROUP B Insurance 1,198.83 0.04%
HARTWALL A Beverages 1,194.13 0.04%
D'IETEREN Specialty Retail 1,188.60 0.04%
ZODIAC Aerospace & Defense 1,186.96 0.04%
WIENERBERGER BAUSTOFF Building Products 1,169.31 0.04%
DOUGLAS HOLDING Specialty Retail 1,167.74 0.04%
VEDIOR Commercial Services & Supplies 1,166.16 0.04%
SAI ORD Insurance 1,133.26 0.04%
SNIA BPD ORD Chemicals 1,122.28 0.04%
FIAT RNC Automobiles 1,112.89 0.03%
GENERALI HOLDING VIENNA Insurance 1,112.67 0.03%
</TABLE>
A-11
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
MAPFRE (CORPORACION) Insurance 1,106.36 0.03%
AUSTRIA TABAK Tobacco 1,082.03 0.03%
VOPAK (KON.) Marine 1,069.02 0.03%
JERONIMO MARTINS SGPS Food & Drug Retailing 1,063.92 0.03%
CASINO ADP Food & Drug Retailing 1,060.86 0.03%
SGL CARBON Metals & Mining 1,026.65 0.03%
KAMPS Food Products 1,003.49 0.03%
OUTOKUMPU A Metals & Mining 937.69 0.03%
BARCO (NEW) Electronic Equipment & instruments 931.79 0.03%
BEKAERT Electrical Equipment 918.81 0.03%
UNION MINIERE Metals & Mining 902.04 0.03%
MAN VORZUG Machinery 890.81 0.03%
KLM Airlines 886.27 0.03%
KESKO B Food & Drug Retailing 847.35 0.03%
ALCATEL OPTRONICS Communications Equipment 831.63 0.03%
SEB Household Durables 792.98 0.02%
DCC Industrial Conglomerates 787.95 0.02%
WATERFORD WEDGWOOD UNIT Household Durables 786.53 0.02%
METROVACESA Real Estate 771.21 0.02%
AZUCARERA EBRO AGRICOLAS Food Products 755.64 0.02%
FLUGHAFEN WIEN Transportation Infrastructure 733.60 0.02%
LANE G.MARZOTTO ORD Textiles & Apparel 715.41 0.02%
VALLEHERMOSO Real Estate 708.92 0.02%
DYCKERHOFF VORZUG Construction Materials 707.66 0.02%
CORTEFIEL Specialty Retail 682.88 0.02%
WARTSILA B (METRA) Machinery 669.47 0.02%
PROSEGUR Commercial Services & Supplies 619.97 0.02%
UPONOR Building Products 613.40 0.02%
KEMIRA Chemicals 603.21 0.02%
AMER-YHTYMAE A Leisure Equipment & Products 583.41 0.02%
CMB Marine 564.08 0.02%
TELEPIZZA Hotels Restaurants & Leisure 541.89 0.02%
PORTUCEL INDUSTRIAL Paper & Forest Products 530.13 0.02%
GLAVERBEL (GROUPE) Building Products 493.47 0.02%
INSTRUMENTARIUM CORP Health Care Equipment & Supplies 481.79 0.02%
MAYR-MELNHOF KARTON Containers & Packaging 472.79 0.01%
VA TECHNOLOGIE Machinery 467.46 0.01%
NEDLLOYD (KON.) Marine 467.43 0.01%
BWT STAMM Commercial Services & Supplies 459.62 0.01%
JURYS DOYLE HOTEL GROUP Hotels Restaurants & Leisure 440.09 0.01%
RAUTARUUKKI Metals & Mining 440.08 0.01%
PULEVA Food Products 422.77 0.01%
CEMENTIR Construction Materials 418.47 0.01%
FAG KUGELFISCHER Machinery 413.83 0.01%
GREENCORE GROUP Food Products 411.21 0.01%
PORTLAND VALDERRIVAS Construction Materials 397.96 0.01%
FAES Pharmaceuticals 393.75 0.01%
RHI Construction Materials 391.03 0.01%
ITALCEMENTI RNC Construction Materials 383.27 0.01%
AGIV Machinery 382.41 0.01%
RINASCENTE RNC Food & Drug Retailing 382.32 0.01%
SIRTI Construction & Engineering 381.10 0.01%
BILFINGER + BERGER Construction & Engineering 377.06 0.01%
</TABLE>
A-12
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
URBIS (INMOBILIARIA) Real Estate 376.73 0.01%
CHARGEURS Textiles & Apparel 373.41 0.01%
IMPREGILO ORD Construction & Engineering 372.14 0.01%
EMPRESARIAL ENCE (GRUPO) Paper & Forest Products 360.08 0.01%
AUSTRIAN AIRLINES Airlines 358.72 0.01%
STORK (VER MACHINE.) Machinery 353.10 0.01%
POHJOLA GROUP A Insurance 351.60 0.01%
FINNLINES Marine 346.09 0.01%
BOEHLER-UDDEHOLM Metals & Mining 340.22 0.01%
HOLLANDSCHE BETON GROEP Construction & Engineering 315.96 0.01%
BBAG OESTERR BRAU STAMM Beverages 315.89 0.01%
ASTURIANA DE ZINC Metals & Mining 315.23 0.01%
NORD-EST Containers & Packaging 312.90 0.01%
SAI RNC Insurance 302.99 0.01%
STOCKMANN A Multiline Retail 284.24 0.01%
STOCKMANN B Multiline Retail 281.58 0.01%
HOLSTEN-BRAUEREI Beverages 267.52 0.01%
URALITA Building Products 263.56 0.01%
IWKA Machinery 262.81 0.01%
RAISIO GROUP V Food Products 255.90 0.01%
BARCONET Communications Equipment 254.96 0.01%
RENO MEDICI A ORD Containers & Packaging 254.80 0.01%
PIRELLI SPA RNC Auto Components 252.20 0.01%
TULLOW OIL Oil & Gas 239.18 0.01%
LENZING Chemicals 235.29 0.01%
WARTSILA A (METRA) Machinery 230.48 0.01%
VISCOFAN Food Products 229.56 0.01%
DANIELI & CO ORD Machinery 177.53 0.01%
FYFFES Food & Drug Retailing 173.77 0.01%
DEUTZ Machinery 153.03 0.00%
BAU HOLDING STRABAG Construction & Engineering 152.34 0.00%
CORTICEIRA AMORIM Containers & Packaging 135.46 0.00%
INAPA Paper & Forest Products 132.66 0.00%
RHEINMETALL STAMM Industrial Conglomerates 120.65 0.00%
IRISH CONTINENTAL GROUP Marine 117.28 0.00%
LANE G.MARZOTTO RISP Textiles & Apparel 117.26 0.00%
RHEINMETALL VORZUG Industrial Conglomerates 104.98 0.00%
DANIELI & CO RNC Machinery 91.25 0.00%
ESCADA STAMM Textiles & Apparel 85.91 0.00%
ERCROS Chemicals 85.52 0.00%
EFACEC CAPITAL SGPS Electrical Equipment 75.73 0.00%
CIN CORP IND'L DO NORTE Chemicals 71.82 0.00%
ESCADA VORZUG Textiles & Apparel 67.23 0.00%
BRAU & BRUNNEN Beverages 65.65 0.00%
SOARES DA COSTA Construction & Engineering 58.50 0.00%
</TABLE>
A-13
<PAGE>
APPENDIX A-7
MSCI FRANCE INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TOTAL FINA ELF Oil & Gas 106,208.00 11.17%
FRANCE TELECOM Diversified Telecommunication Services 86,068.67 9.05%
AVENTIS Pharmaceuticals 61,197.59 6.44%
ALCATEL Communications Equipment 60,107.65 6.32%
AXA Insurance 55,396.45 5.83%
LOREAL Personal Products 54,084.27 5.69%
SANOFI-SYNTHELABO Pharmaceuticals 44,559.50 4.69%
CARREFOUR Food & Drug Retailing 42,062.72 4.42%
VIVENDI Multi-Utilities 37,442.46 3.94%
STMICROELECTRONICS Semiconductor Equipment & Products 37,391.74 3.93%
BNP PARIBAS Banks 34,635.58 3.64%
SUEZ LYONNAISE DES EAUX Multi-Utilities 33,755.17 3.55%
LVMH Textiles & Apparel 32,407.55 3.41%
SOCIETE GENERALE Banks 22,829.70 2.40%
PINAULT-PRINT.-REDOUTE Multiline Retail 21,507.88 2.26%
DANONE (GROUPE) Food Products 19,812.41 2.08%
CAP GEMINI SA IT Consulting & Services 17,152.89 1.80%
CANAL + Media 15,956.78 1.68%
BOUYGUES ORD Wireless Telecommunication Services 14,619.40 1.54%
AIR LIQUIDE Chemicals 11,960.17 1.26%
SAINT-GOBAIN Building Products 11,843.72 1.25%
SCHNEIDER ELECTRIC Electrical Equipment 9,607.43 1.01%
PEUGEOT SA Automobiles 9,400.87 0.99%
CASINO ORD Food & Drug Retailing 8,213.19 0.86%
LAFARGE (FRANCE) Construction Materials 8,151.35 0.86%
DASSAULT SYSTEMES Software 8,065.96 0.85%
ACCOR Hotels Restaurants & Leisure 7,417.12 0.78%
THOMSON-CSF Aerospace & Defense 7,300.51 0.77%
LAGARDERE Media 7,188.60 0.76%
SODEXHO ALLIANCE Hotels Restaurants & Leisure 6,006.78 0.63%
VINCI Construction & Engineering 4,195.08 0.44%
SAGEM Communications Equipment 4,192.23 0.44%
PUBLICIS GROUPE Media 4,084.65 0.43%
MICHELIN Auto Components 3,869.92 0.41%
VALEO Auto Components 3,821.42 0.40%
PECHINEY ORD A Metals & Mining 3,185.18 0.33%
PERNOD RICARD Beverages 3,156.14 0.33%
ESSILOR INTERNATIONAL Health Care Equipment & Supplies 3,088.27 0.32%
EURAFRANCE Diversified Financials 2,604.23 0.27%
ERIDANIA BEGHIN-SAY Food Products 2,601.14 0.27%
USINOR Metals & Mining 2,580.94 0.27%
UNIBAIL Real Estate 2,356.90 0.25%
COFLEXIP Energy Equipment & Services 2,217.54 0.23%
BIC Comercial Services & Supplies 1,978.36 0.21%
TECHNIP Construction & Engineering 1,845.71 0.19%
SIMCO Real Estate 1,697.02 0.18%
SIDEL Machinery 1,681.40 0.18%
GECINA Real Estate 1,628.08 0.17%
IMERYS Construction Materials 1,625.93 0.17%
</TABLE>
A-14
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ---------------- ---
<S> <C> <C> <C>
CLUB MEDITERRANEE Hotels Restaurants & Leisure 1,544.34 0.16%
ZODIAC Aerospace & Defense 1,186.96 0.12%
CASINO ADP Food & Drug Retailing 1,060.86 0.11%
ALCATEL OPTRONICS Communications Equipment 831.63 0.09%
SEB Household Durables 792.98 0.08%
CHARGEURS Textiles & Apparel 373.41 0.04%
NORD-EST Containers & Packaging 312.90 0.03%
</TABLE>
A-15
<PAGE>
APPENDIX A-8
MSCI GERMANY INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
DEUTSCHE TELEKOM Diversified Telecommunication Services 95,438.21 13.45%
ALLIANZ Insurance 84,554.19 11.92%
SIEMENS Industrial Conglomerates 67,677.65 9.54%
MUENCHENER RUECKVERSICH. Insurance 57,553.20 8.11%
DEUTSCHE BANK NAMEN Banks 44,316.62 6.25%
E. ON (VEBA) Electric Utilities 42,545.02 6.00%
DAIMLERCHRYSLER Automobiles 38,437.13 5.42%
BAYER Chemicals 31,947.07 4.50%
BASF Chemicals 23,433.59 3.30%
HYPOVEREINSBANK Banks 20,895.29 2.95%
RWE STAMM Multi-Utilities 20,517.85 2.89%
SAP STAMM Software 19,275.48 2.72%
DRESDNER BANK NAMEN Banks 19,247.41 2.71%
SAP VORZUG Software 16,973.53 2.39%
VOLKSWAGEN STAMM Automobiles 15,447.05 2.18%
METRO STAMM Multiline Retail 14,027.14 1.98%
SCHERING Pharmaceuticals 10,915.43 1.54%
BEIERSDORF Personal Products 9,359.62 1.32%
LUFTHANSA Airlines 8,118.55 1.14%
FRESENIUS MED. CARE ST Health Care Providers & Services 7,776.82 1.10%
THYSSEN KRUPP Metals & Mining 6,588.06 0.93%
MERCK KGAA Pharmaceuticals 6,438.22 0.91%
PREUSSAG Industrial Conglomerates 5,704.67 0.80%
LINDE Machinery 5,450.43 0.77%
KARSTADT QUELLE Multiline Retail 3,581.47 0.50%
VOLKSWAGEN VORZUG Automobiles 2,977.31 0.42%
MAN STAMM Machinery 2,968.28 0.42%
HEIDELBERGER ZEMENT STAM Construction Materials 2,848.11 0.40%
WCM BETEILIGUNGS & GRUND Diversified Financials 2,737.42 0.39%
GEHE Health Care Providers & Services 2,601.84 0.37%
RWE VORZUG Multi-Utilities 2,600.31 0.37%
ADIDAS-SALOMON Textiles & Apparel 2,575.84 0.36%
EM TV & MERCHANDISING Media 2,400.75 0.34%
CONTINENTAL Auto Components 1,826.06 0.26%
HOCHTIEF Construction & Engineering 1,316.20 0.19%
BUDERUS Building Products 1,272.10 0.18%
DOUGLAS HOLDING Specialty Retail 1,167.74 0.16%
SGL CARBON Metals & Mining 1,026.65 0.14%
KAMPS Food Products 1,003.49 0.14%
MAN VORZUG Machinery 890.81 0.13%
DYCKERHOFF VORZUG Construction Materials 707.66 0.10%
FAG KUGELFISCHER Machinery 413.83 0.06%
AGIV Machinery 382.41 0.05%
BILFINGER + BERGER Construction & Engineering 377.06 0.05%
HOLSTEN-BRAUEREI Beverages 267.52 0.04%
IWKA Machinery 262.81 0.04%
DEUTZ Machinery 153.03 0.02%
RHEINMETALL STAMM Industrial Conglomerates 120.65 0.02%
</TABLE>
A-16
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
RHEINMETALL VORZUG Industrial Conglomerates 104.98 0.01%
ESCADA STAMM Textiles & Apparel 85.91 0.01%
ESCADA VORZUG Textiles & Apparel 67.23 0.01%
BRAU & BRUNNEN Beverages 65.65 0.01%
</TABLE>
A-17
<PAGE>
APPENDIX A-9
MSCI GREECE INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
OTE HELLENIC TELECOM. Diversified Telecommunication Services 7,219.73 14.42%
NATIONAL BANK OF GREECE Banks 7,163.21 14.31%
EFG EUROBANK ERGASIAS Banks 5,030.39 10.05%
ALPHA BANK Banks 4,937.29 9.86%
COMMERCIAL BANK GREECE Banks 3,656.57 7.30%
COCA-COLA HBC(HELLEN.BOT Beverages 3,229.61 6.45%
INTRACOM COMMON Communications Equipment 2,309.35 4.61%
TITAN CEMENT CO COMMON Construction Materials 1,658.19 3.31%
HELLENIC PETROLEUM Oil & Gas 1,461.62 2.92%
VIOHALCO COPPER CO B Metals & Mining 1,052.73 2.10%
ALUMINIUM OF GREECE Metals & Mining 814.72 1.63%
ATTICA ENTERPRISES Marine 765.36 1.53%
MAILLIS MICHAEL J. B Containers & Packaging 682.10 1.36%
FOLLI-FOLLIE Textiles & Apparel 619.25 1.24%
DUTY FREE SHOPS Multiline Retail 592.28 1.18%
LAMBRAKIS PRESS ORG. Media 576.12 1.15%
EYDAP ATHENS WASUPP. Water Utilities 566.08 1.13%
INTERAMERICAN Insurance 550.41 1.10%
ATHENS MEDICAL Health Care Providers & Services 535.19 1.07%
HELLENIC TECHNODOMIKI Construction & Engineering 429.32 0.86%
HYATT REGENCY HOTEL Hotels Restaurants & Leisure 406.35 0.81%
SILVER & BARYTE ORES Metals & Mining 403.03 0.81%
TECHNICAL OLYMPIC Construction & Engineering 359.36 0.72%
MICHANIKI COMMON Construction & Engineering 348.72 0.70%
INFORM P. LYKOS Comercial Services & Supplies 325.26 0.65%
PAPASTRATOS CIGARETTE CB Tobacco 318.99 0.64%
MYTILINEOS HOLDINGS Metals & Mining 318.93 0.64%
HELLENIC SUGAR IND B Food Products 312.67 0.62%
SINGULAR Software 309.11 0.62%
MINOAN LINES Marine 306.31 0.61%
FOURLIS HOLDING COMMON Household Durables 303.70 0.61%
DELTA DAIRY COMMON Food Products 302.25 0.60%
ASPIS PRONIA COMMON Insurance 280.77 0.56%
AEGEK COMMON Construction & Engineering 272.78 0.54%
GOODY'S B Hotels Restaurants & Leisure 261.48 0.52%
DELTA INFORMATICS Software 237.73 0.47%
SANYO HELLAS HOLDINGS Distributors 166.62 0.33%
PETZETAKIS CB Building Products 163.82 0.33%
ATTI-KAT Construction & Engineering 147.91 0.30%
KLONATEX GROUP COMMON Textiles & Apparel 143.22 0.29%
THEMELIODOMI Construction & Engineering 129.58 0.26%
ALTE TECHNICAL CO Construction & Engineering 124.06 0.25%
DELTA DAIRY PREF Food Products 106.84 0.21%
SELECTED TEXTILE Textiles & Apparel 103.31 0.21%
KLONATEX GROUP PREF Textiles & Apparel 61.41 0.12%
</TABLE>
A-18
<PAGE>
APPENDIX A-10
MSCI HONG KONG INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
HUTCHISON WHAMPOA Diversified Financials 50,970.78 29.16%
HANG SENG BANK Banks 22,305.55 12.76%
SUN HUNG KAI PROPERTIES Real Estate 18,546.06 10.61%
SWIRE PACIFIC A Diversified Financials 9,948.86 5.69%
CLP HOLDINGS Electric Utilities 9,712.70 5.56%
PACIFIC CENTURY CYBERWKS Diversified Telecommunication Services 9,046.23 5.18%
JOHNSON ELECTRIC HLDGS Electrical Equipment 6,923.90 3.96%
HONGKONG CHINA GAS Gas Utilities 6,455.12 3.69%
CATHAY PACIFIC AIRWAYS Airlines 5,983.40 3.42%
LI & FUNG Textiles & Apparel 5,743.95 3.29%
HENDERSON LAND DEV. Real Estate 5,316.73 3.04%
WHARF HOLDINGS Real Estate 4,970.97 2.84%
BANK EAST ASIA Banks 3,070.78 1.76%
TELEVISION BROADCASTS Media 2,381.00 1.36%
SHANGRI-LA ASIA Hotels Restaurants & Leisure 2,230.14 1.28%
NEW WORLD DEVELOPMENT Real Estate 2,208.53 1.26%
SINO LAND Real Estate 1,489.24 0.85%
HYSAN DEVELOPMENT Real Estate 1,245.55 0.71%
SOUTH CHINA MORNING POST Media 1,144.23 0.65%
HANG LUNG DEVELOPMENT CO Real Estate 991.88 0.57%
ESPRIT HOLDINGS Specialty Retail 933.62 0.53%
GIORDANO INTERNATIONAL Specialty Retail 689.29 0.39%
HONGKONG SHANGHAI HOTEL Hotels Restaurants & Leisure 638.00 0.37%
ASM PACIFIC TECHNOLOGY Semiconductor Equipment & Products 627.60 0.36%
HOPEWELL HOLDINGS Industrial Conglomerates 342.54 0.20%
VARITRONIX INTERNATIONAL Electronic Equipment & Instruments 316.51 0.18%
QPL INTERNATIONAL HLDGS Electronic Equipment & Instruments 276.71 0.16%
ORIENTAL PRESS GROUP Media 270.54 0.15%
</TABLE>
A-19
<PAGE>
APPENDIX A-11
MSCI INDONESIA (FREE) INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TELEKOMUNIKASI INDONESIA Diversified Telecommunication Services 2,590.04 28.43%
GUDANG GARAM Tobacco 1,065.46 11.69%
INDOFOOD SUKSES MAKMUR Food Products 792.21 8.69%
ASTRA INTERNATIONAL Automobiles 594.24 6.52%
INDAH KIAT PULP & PAPER Paper & Forest Products 487.52 5.35%
MAKINDO Diversified Financials 388.18 4.26%
SEMEN GRESIK Construction Materials 367.03 4.03%
RAMAYANA LESTARI SENTOSA Multiline Retail 361.56 3.97%
MEDCO ENERGI INT'L Oil & Gas 349.50 3.84%
MATAHARI PUTRA PRIMA Multiline Retail 170.28 1.87%
BANK PAN INDONESIA Banks 156.15 1.71%
KALBE FARMA Pharmaceuticals 153.32 1.68%
TEMPO SCAN PACIFIC Pharmaceuticals 152.20 1.67%
ANEKA TAMBANG Metals & Mining 129.08 1.42%
GAJAH TUNGGAL Auto Components 127.92 1.40%
POLYSINDO EKA PERKASA Chemicals 103.68 1.14%
CITRA MARGA NUSAPHALA Transportation Infrastructure 100.68 1.11%
BHAKTI INVESTAMA Diversified Financials 98.75 1.08%
BIMANTARA CITRA Diversified Financials 98.66 1.08%
TJIWI KIMIA Paper & Forest Products 94.55 1.04%
DUTA PERTIWI Real Estate 80.03 0.88%
TIMAH Metals & Mining 79.18 0.87%
CHAROEN POKPHAND INDON. Food Products 76.03 0.83%
SMART CORP Food Products 71.36 0.78%
INDO-RAMA SYNTHETICS Textiles & Apparel 54.90 0.60%
MULIA INDUSTRINDO Building Products 52.73 0.58%
JAKARTA INT'L HOTELS DEV Real Estate 51.11 0.56%
MAYORA INDAH Food Products 48.24 0.53%
BUDI ACID JAYA Chemicals 47.35 0.52%
LONDON SUMATRA INDONESIA Food Products 31.83 0.35%
MODERN PHOTO FILM CO Leisure Equipment & Products 30.08 0.33%
ASAHIMAS FLAT GLASS Building Products 29.59 0.32%
HERO SUPERMARKET Food & Drug Retailing 27.76 0.30%
BARITO PACIFIC TIMBER Paper & Forest Products 25.69 0.28%
CIPUTRA DEVELOPMENT Real Estate 24.52 0.27%
</TABLE>
A-20
<PAGE>
APPENDIX A-12
MSCI ITALY INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TIM ORD Wireless Telecommunication Services 52,775.59 13.13%
ENI Oil & Gas 48,844.56 12.15%
ASSICURAZIONI GENERALI Insurance 45,930.84 11.43%
TELECOM ITALIA ORD Diversified Telecommunication Services 42,934.54 10.68%
ENEL Electric Utilities 27,392.34 6.81%
UNICREDITO ITALIANO ORD Banks 25,026.32 6.23%
BANCA INTESA ORD Banks 22,137.26 5.51%
SAN PAOLO-IMI ORD Banks 21,656.97 5.39%
MEDIASET Media 15,342.65 3.82%
OLIVETTI ING & CO ORD Diversified Telecommunication Services 13,996.19 3.48%
RAS ORD Insurance 9,584.96 2.38%
FIAT ORD Automobiles 8,983.79 2.24%
TIM RNC Wireless Telecommunication Services 7,038.97 1.75%
MEDIOBANCA Banks 6,867.38 1.71%
PIRELLI SPA ORD Auto Components 6,016.16 1.50%
BANCA ROMA Banks 5,811.66 1.45%
TELECOM ITALIA RNC Diversified Telecommunication Services 4,885.29 1.22%
BULGARI Textiles & Apparel 3,542.40 0.88%
BENETTON GROUP Textiles & Apparel 3,464.39 0.86%
ITALGAS Gas Utilities 3,117.80 0.78%
AUTOGRILL Hotels Restaurants & Leisure 3,001.60 0.75%
ALITALIA Airlines 2,771.33 0.69%
MONDADORI ORD Media 2,599.63 0.65%
PARMALAT FINANZIARIA Food Products 2,442.40 0.61%
BANCA INTESA RNC Banks 2,093.74 0.52%
BANCA POPOLARE MILANO Banks 1,739.32 0.43%
RINASCENTE ORD Food & Drug Retailing 1,730.75 0.43%
FIAT PRIV Automobiles 1,609.50 0.40%
ITALCEMENTI ORD Construction Materials 1,395.34 0.35%
SAI ORD Insurance 1,133.26 0.28%
SNIA BPD ORD Chemicals 1,122.28 0.28%
FIAT RNC Automobiles 1,112.89 0.28%
LANE G.MARZOTTO ORD Textiles & Apparel 715.41 0.18%
CEMENTIR Construction Materials 418.47 0.10%
ITALCEMENTI RNC Construction Materials 383.27 0.10%
RINASCENTE RNC Food & Drug Retailing 382.32 0.10%
SIRTI Construction & Engineering 381.10 0.09%
IMPREGILO ORD Construction & Engineering 372.14 0.09%
SAI RNC Insurance 302.99 0.08%
RENO MEDICI A ORD Containers & Packaging 254.80 0.06%
PIRELLI SPA RNC Auto Components 252.20 0.06%
DANIELI & CO ORD Machinery 177.53 0.04%
LANE G.MARZOTTO RISP Textiles & Apparel 117.26 0.03%
DANIELI & CO RNC Machinery 91.25 0.02%
</TABLE>
A-21
<PAGE>
APPENDIX A-13
MSCI JAPAN INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TOYOTA MOTOR CORP Automobiles 133,481.83 6.18%
NTT CORP Diversified Telecommunication Services 111,278.06 5.15%
SONY CORP Household Durables 68,836.74 3.18%
MIZUHO HOLDINGS Banks 59,585.63 2.76%
TAKEDA CHEMICAL IND Pharmaceuticals 55,070.24 2.55%
MATSUSHITA ELECT IND'L Household Durables 52,188.49 2.41%
BANK TOKYO-MITSUBISHI Banks 50,563.71 2.34%
NOMURA SECURITIES CO Diversified Financials 41,288.53 1.91%
CANON INC Office Electronics 34,381.91 1.59%
HONDA MOTOR CO Automobiles 34,129.78 1.58%
MURATA MANUFACTURING CO Semiconductor Equipment & Products 32,289.45 1.49%
TOKYO ELECTRIC POWER CO Electric Utilities 31,997.40 1.48%
HITACHI Electronic Equipment & Instruments 31,850.07 1.47%
FUJITSU Computers & Peripherals 31,375.40 1.45%
SUMITOMO BANK Banks 31,332.64 1.45%
NEC CORP Computers & Peripherals 30,715.86 1.42%
ROHM CO Semiconductor Equipment & Products 28,588.95 1.32%
KYOCERA CORP Electronic Equipment & Instruments 24,911.86 1.15%
NISSAN MOTOR CO Automobiles 24,307.18 1.12%
SAKURA BANK Banks 23,787.59 1.10%
EAST JAPAN RAILWAY CO Road & Rail 23,037.69 1.07%
TOSHIBA CORP Computers & Peripherals 22,811.28 1.06%
NINTENDO CO Leisure Equipment & Products 21,216.78 0.98%
ITO-YOKADO CO Multiline Retail 20,827.67 0.96%
FUJI PHOTO FILM CO Leisure Equipment & Products 20,719.72 0.96%
DENSO CORP Auto Components 20,427.27 0.95%
FANUC Machinery 19,307.66 0.89%
KAO CORP Household Products 19,031.93 0.88%
SHIN-ETSU CHEMICAL CO Chemicals 18,809.09 0.87%
YAMANOUCHI PHARM. Pharmaceuticals 17,555.56 0.81%
TOKIO MARINE & FIRE Insurance 17,472.94 0.81%
SOFTBANK CORP Internet Software & Services 17,273.36 0.80%
KANSAI ELECTRIC POWER CO Electric Utilities 16,467.46 0.76%
SECOM CO Comercial Services & Supplies 16,327.49 0.76%
FURUKAWA ELECTRIC CO Electrical Equipment 15,633.81 0.72%
MITSUBISHI HEAVY IND Machinery 14,737.46 0.68%
MITSUBISHI ESTATE CO Real Estate 14,601.54 0.68%
SANYO ELECTRIC CO Household Durables 14,586.49 0.67%
CENTRAL JAPAN RAILWAY CO Road & Rail 14,559.24 0.67%
DAIWA SECURITIES GROUP Diversified Financials 14,005.60 0.65%
MITSUBISHI ELECTRIC CORP Electrical Equipment 13,936.69 0.64%
SHARP CORP Household Durables 13,424.49 0.62%
SUMITOMO ELECTRIC IND Electrical Equipment 12,820.43 0.59%
JAPAN TOBACCO Tobacco 12,764.61 0.59%
TOKYO ELECTRON Semiconductor Equipment & Products 12,528.96 0.58%
NIPPON STEEL CORP Metals & Mining 12,043.95 0.56%
MITSUBISHI CORP Trading Companies & Distributors 11,996.97 0.56%
ADVANTEST CORP Semiconductor Equipment & Products 11,721.58 0.54%
</TABLE>
A-22
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
ASAHI GLASS CO Building Products 11,542.89 0.53%
DAI NIPPON PRINTING CO Comercial Services & Supplies 11,065.68 0.51%
ACOM CO Diversified Financials 10,986.50 0.51%
BRIDGESTONE CORP Auto Components 10,713.57 0.50%
SMC CORP Machinery 10,352.06 0.48%
TOKAI BANK Banks 10,246.09 0.47%
EISAI CO Pharmaceuticals 10,169.39 0.47%
MITSUI & CO Trading Companies & Distributors 9,835.86 0.46%
SANKYO CO Pharmaceuticals 9,833.50 0.45%
HOYA CORP Health Care Equipment & Supplies 9,644.24 0.45%
ASAHI BANK Banks 9,568.38 0.44%
MITSUBISHI TRUST Diversified Financials 9,522.59 0.44%
MITSUI FUDOSAN CO Real Estate 9,425.77 0.44%
KIRIN BREWERY CO Beverages 9,420.30 0.44%
PROMISE CO Diversified Financials 9,123.73 0.42%
ASAHI CHEMICAL IND CO Chemicals 9,024.90 0.42%
YAMATO TRANSPORT CO Air Freight & Couriers 8,944.84 0.41%
TAISHO PHARMACEUTICAL CO Pharmaceuticals 8,880.02 0.41%
TAKEFUJI CORP Diversified Financials 8,749.28 0.40%
SUMITOMO CORP Trading Companies & Distributors 8,427.30 0.39%
NIPPON MITSUBISHI OIL Oil & Gas 8,077.68 0.37%
TOKYO GAS CO Gas Utilities 7,914.45 0.37%
AJINOMOTO CO Food Products 7,856.07 0.36%
ORIX CORP Diversified Financials 7,801.57 0.36%
JAPAN AIRLINES CO Airlines 7,659.79 0.35%
KONAMI CO Software 7,649.20 0.35%
DAIICHI PHARMACEUTICAL Pharmaceuticals 7,443.36 0.34%
JUSCO CO Multiline Retail 7,311.85 0.34%
SUMITOMO CHEMICAL CO Chemicals 7,188.63 0.33%
SHIZUOKA BANK Banks 7,181.26 0.33%
SHIONOGI & CO Pharmaceuticals 7,068.68 0.33%
ORIENTAL LAND CO Hotels Restaurants & Leisure 6,950.47 0.32%
SEKISUI HOUSE Household Durables 6,929.68 0.32%
KINKI NIPPON RAILWAY CO Road & Rail 6,865.90 0.32%
OSAKA GAS CO Gas Utilities 6,733.87 0.31%
NIPPON EXPRESS CO Road & Rail 6,730.43 0.31%
ITOCHU CORP Trading Companies & Distributors 6,626.72 0.31%
TOHOKU ELECTRIC POWER CO Electric Utilities 6,473.57 0.30%
NIPPON SHEET GLASS CO Building Products 6,171.84 0.29%
MITSUBISHI CHEMICAL CORP Chemicals 6,094.15 0.28%
TOPPAN PRINTING CO Media 6,086.50 0.28%
TOKYU CORP Road & Rail 5,879.67 0.27%
OMRON CORP Electronic Equipment & Instruments 5,814.11 0.27%
PIONEER CORP Household Durables 5,748.53 0.27%
DAIKIN INDUSTRIES Machinery 5,715.65 0.26%
OJI PAPER CO Containers & Packaging 5,699.81 0.26%
TORAY INDUSTRIES Chemicals 5,604.66 0.26%
NITTO DENKO CORP Electrical Equipment 5,549.52 0.26%
SHISEIDO CO Personal Products 5,504.17 0.25%
NIPPON PAPER IND CO Paper & Forest Products 5,343.75 0.25%
NIKON CORP Semiconductor Equipment & Products 5,313.06 0.25%
ASAHI BREWERIES Beverages 5,295.73 0.24%
NIPPON YUSEN K.K Marine 5,224.20 0.24%
</TABLE>
A-23
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
BANK YOKOHAMA Banks 5,077.68 0.23%
KUBOTA CORP Machinery 5,027.07 0.23%
HIROSE ELECTRIC CO Electronic Equipment & Instruments 4,838.55 0.22%
KOMATSU Machinery 4,795.69 0.22%
MARUI CO Multiline Retail 4,752.39 0.22%
TAIYO YUDEN CO Electronic Equipment & Instruments 4,743.69 0.22%
MITSUI MINING & SMELTING Metals & Mining 4,730.97 0.22%
SUMITOMO MARINE & FIRE Insurance 4,527.41 0.21%
TAKARA SHUZO CO Beverages 4,499.27 0.21%
CHUGAI PHARMACEUTICAL CO Pharmaceuticals 4,458.75 0.21%
MITSUI MARINE & FIRE Insurance 4,449.99 0.21%
NGK INSULATORS Machinery 4,411.36 0.20%
TEIJIN Chemicals 4,212.01 0.19%
TERUMO CORP Health Care Equipment & Supplies 4,178.50 0.19%
MINEBEA CO Machinery 4,086.26 0.19%
NSK Machinery 3,950.69 0.18%
ALPS ELECTRIC CO Electronic Equipment & Instruments 3,931.86 0.18%
OLYMPUS OPTICAL CO Health Care Equipment & Supplies 3,891.58 0.18%
KAWASAKI STEEL CORP Metals & Mining 3,874.57 0.18%
TOYO SEIKAN KAISHA Containers & Packaging 3,825.90 0.18%
EBARA CORP Machinery 3,797.71 0.18%
FUJI TELEVISION NETWORK Media 3,796.69 0.18%
DAIWA BANK Banks 3,780.50 0.17%
NIDEC CORP Electronic Equipment & Instruments 3,752.73 0.17%
NGK SPARK PLUG CO Auto Components 3,736.72 0.17%
MARUBENI CORP Trading Companies & Distributors 3,560.56 0.16%
CREDIT SAISON CO Diversified Financials 3,503.33 0.16%
KYOWA HAKKO KOGYO CO Pharmaceuticals 3,481.00 0.16%
TOSTEM CORP Building Products 3,406.24 0.16%
OBAYASHI CORP Construction & Engineering 3,403.36 0.16%
BENESSE CORP Comercial Services & Supplies 3,350.68 0.16%
NISSIN FOOD PRODUCTS CO Food Products 3,331.13 0.15%
DAIWA HOUSE IND CO Household Durables 3,320.00 0.15%
UNI-CHARM CORP Household Products 3,205.04 0.15%
FUJIKURA Electrical Equipment 3,197.66 0.15%
KURARAY CO Chemicals 3,190.09 0.15%
MITSUBISHI MATERIALS Metals & Mining 3,167.11 0.15%
NIPPON MEAT PACKERS Food Products 3,134.61 0.15%
SKYLARK CO Hotels Restaurants & Leisure 3,062.91 0.14%
ISHIKAWAJIMA-HARIMA Machinery 3,047.70 0.14%
KONICA CORP Leisure Equipment & Products 3,018.80 0.14%
KANEKA CORP Chemicals 2,986.10 0.14%
JOYO BANK Banks 2,923.75 0.14%
SUMITOMO METAL MINING CO Metals & Mining 2,860.01 0.13%
NIPPON COMSYS CORP Construction & Engineering 2,835.57 0.13%
KAJIMA CORP Construction & Engineering 2,776.98 0.13%
AMADA CO Machinery 2,765.46 0.13%
BANK FUKUOKA Banks 2,750.43 0.13%
DAINIPPON INK Chemicals 2,676.90 0.12%
SHIMAMURA CO Specialty Retail 2,665.89 0.12%
TOTO Building Products 2,663.95 0.12%
GUNMA BANK Banks 2,660.21 0.12%
SHIMANO Leisure Equipment & Products 2,620.03 0.12%
</TABLE>
A-24
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TBS TOKYO BROADCASTING Media 2,589.50 0.12%
CHUO MITSUI TRUST & BANK Diversified Financials 2,583.25 0.12%
TOHO CO Media 2,531.68 0.12%
SEVENTY-SEVEN BANK Banks 2,515.40 0.12%
CITIZEN WATCH CO Textiles & Apparel 2,508.74 0.12%
UNY CO Multiline Retail 2,505.14 0.12%
TOBU RAILWAY CO Road & Rail 2,495.98 0.12%
CASIO COMPUTER CO Household Durables 2,476.13 0.11%
TOYO INFORMATION SYSTEMS IT Consulting & Services 2,456.27 0.11%
SHIMIZU CORP Construction & Engineering 2,420.18 0.11%
JAPAN ENERGY CORP Oil & Gas 2,399.68 0.11%
SUMITOMO METAL IND Metals & Mining 2,328.06 0.11%
MEIJI SEIKA KAISHA Food Products 2,299.15 0.11%
NISSHIN FLOUR MILLING CO Food Products 2,247.72 0.10%
DAITO TRUST CONSTRUCTION Construction & Engineering 2,243.85 0.10%
TAKASHIMAYA CO Multiline Retail 2,200.23 0.10%
FUJI SOFT ABC Software 2,114.14 0.10%
MITSUBISHI RAYON CO Chemicals 2,103.92 0.10%
YAMAHA CORP Leisure Equipment & Products 2,097.39 0.10%
KEIHIN ELECTRIC EXPRESS Road & Rail 2,083.04 0.10%
ISETAN CO Multiline Retail 2,051.94 0.09%
YOKOGAWA ELECTRIC CORP Electronic Equipment & Instruments 2,051.53 0.09%
KURITA WATER INDUSTRIES Construction & Engineering 2,014.03 0.09%
YAKULT HONSHA CO Food Products 2,011.99 0.09%
MITSUKOSHI Multiline Retail 1,936.66 0.09%
UBE INDUSTRIES Industrial Conglomerates 1,913.59 0.09%
SHOWA SHELL SEKIYU K.K Oil & Gas 1,871.07 0.09%
KOKUYO CO Comercial Services & Supplies 1,861.07 0.09%
TOSOH CORP Chemicals 1,845.13 0.09%
KAWASAKI HEAVY IND Machinery 1,795.13 0.08%
SUMITOMO OSAKA CEMENT CO Construction Materials 1,786.51 0.08%
MITSUBISHI GAS CHEMICAL Chemicals 1,780.72 0.08%
SEKISUI CHEMICAL CO Household Durables 1,730.39 0.08%
DENKI KAGAKU KOGYO K.K Chemicals 1,721.14 0.08%
SEGA CORP Household Durables 1,719.82 0.08%
WORLD CO Textiles & Apparel 1,710.51 0.08%
TODA CORP Construction & Engineering 1,657.33 0.08%
JGC CORP Construction & Engineering 1,624.35 0.08%
TRANS COSMOS Comercial Services & Supplies 1,604.25 0.07%
KINDEN CORP Electrical Equipment 1,602.03 0.07%
TAIHEIYO CEMENT CORP Construction Materials 1,578.47 0.07%
YAMAZAKI BAKING CO Food Products 1,576.92 0.07%
MITSUBISHI LOGISTICS Marine 1,575.37 0.07%
KIKKOMAN CORP Food Products 1,570.14 0.07%
TAISEI CORP Construction & Engineering 1,559.01 0.07%
NICHIREI CORP Food Products 1,523.74 0.07%
HOUSE FOODS(HOUSE FD IND Food Products 1,506.49 0.07%
MEITEC CORP IT Consulting & Services 1,468.38 0.07%
TEIKOKU OIL CO Oil & Gas 1,459.14 0.07%
TOYOBO CO Textiles & Apparel 1,447.19 0.07%
COSMO OIL CO Oil & Gas 1,442.76 0.07%
HOKURIKU BANK Banks 1,436.95 0.07%
DAIEI Multiline Retail 1,417.41 0.07%
</TABLE>
A-25
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
KATOKICHI CO Food Products 1,412.87 0.07%
KOYO SEIKO CO Machinery 1,404.35 0.06%
KANEBO Personal Products 1,402.74 0.06%
NTN CORP Machinery 1,383.63 0.06%
NAMCO Hotels Restaurants & Leisure 1,381.98 0.06%
WACOAL CORP Textiles & Apparel 1,372.60 0.06%
CSK CORP IT Consulting & Services 1,355.42 0.06%
MEIJI MILK PRODUCTS CO Food Products 1,322.90 0.06%
ASATSU-DK Media 1,310.32 0.06%
KAMIGUMI CO Marine 1,302.35 0.06%
MAKITA CORP Electrical Equipment 1,254.35 0.06%
FUJI MACHINE MFG CO Machinery 1,238.50 0.06%
SHOWA DENKO K.K Chemicals 1,237.20 0.06%
KYOWA EXEO CORP Construction & Engineering 1,224.15 0.06%
KOMORI CORP Machinery 1,220.82 0.06%
ONWARD KASHIYAMA CO Textiles & Apparel 1,191.38 0.06%
DAICEL CHEMICAL IND Chemicals 1,166.59 0.05%
ASHIKAGA BANK Banks 1,145.50 0.05%
SANRIO CO Household Durables 1,134.48 0.05%
SUMITOMO HEAVY IND Machinery 1,116.01 0.05%
SNOW BRAND MILK PRODUCTS Food Products 1,106.14 0.05%
SUMITOMO FORESTRY CO Paper & Forest Products 1,090.69 0.05%
INAX CORP Building Products 1,081.64 0.05%
NISSHINBO INDUSTRIES Textiles & Apparel 1,079.98 0.05%
MORI SEIKI CO Machinery 1,060.63 0.05%
SAPPORO BREWERIES Beverages 1,039.98 0.05%
KAWASAKI KISEN KAISHA Marine 991.67 0.05%
SEIYU Multiline Retail 966.87 0.04%
NISHIMATSU CONSTRUCTION Construction & Engineering 966.04 0.04%
DAINIPPON SCREEN MFG CO Electronic Equipment & Instruments 965.52 0.04%
TOKYO STYLE CO Textiles & Apparel 930.91 0.04%
GUNZE Textiles & Apparel 929.86 0.04%
HITACHI ZOSEN CORP Machinery 922.77 0.04%
MITSUI ENGINEERING&SHIP. Machinery 922.69 0.04%
AUTOBACS SEVEN CO Specialty Retail 913.55 0.04%
NORITAKE CO Household Durables 901.01 0.04%
NIPPON SHOKUBAI CO Chemicals 844.44 0.04%
AMANO CORP Comercial Services & Supplies 802.53 0.04%
OKUMURA CORP Construction & Engineering 783.41 0.04%
DAIFUKU CO Machinery 760.37 0.04%
HANKYU DEPARTMENT STORES Multiline Retail 752.89 0.03%
DAIMARU Multiline Retail 735.90 0.03%
MYCAL CORP Multiline Retail 725.22 0.03%
SEINO TRANSPORTATION CO Road & Rail 698.51 0.03%
SANDEN CORP Auto Components 692.55 0.03%
SHIMACHU CO Specialty Retail 691.68 0.03%
TAKUMA CO Machinery 674.49 0.03%
MITSUBISHI PAPER MILLS Paper & Forest Products 641.72 0.03%
TOKYO DOME CORP Hotels Restaurants & Leisure 631.66 0.03%
TOEI CO Media 627.95 0.03%
TSUBAKIMOTO CHAIN CO Machinery 606.49 0.03%
KADOKAWA SHOTEN PUBLISH. Media 591.94 0.03%
ISHIHARA SANGYO KAISHA Chemicals 587.47 0.03%
</TABLE>
A-26
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
MAKINO MILLING MACHINE Machinery 565.62 0.03%
SANWA SHUTTER CORP Building Products 540.22 0.02%
ORIENT CORP Diversified Financials 518.23 0.02%
NOF CORP Chemicals 517.14 0.02%
KUREHA CHEMICAL IND CO Chemicals 507.16 0.02%
AOYAMA TRADING CO Specialty Retail 495.46 0.02%
OKUMA CORP Machinery 484.68 0.02%
KAKEN PHARMACEUTICAL CO Pharmaceuticals 482.30 0.02%
NIPPON LIGHT METAL CO Metals & Mining 461.07 0.02%
PENTA-OCEAN CONSTRUCTION Construction & Engineering 453.49 0.02%
NIPPON SUISAN KAISHA Food Products 450.91 0.02%
MAEDA ROAD CONSTRUCTION Construction & Engineering 428.57 0.02%
DAIWA KOSHO LEASE CO Real Estate 424.72 0.02%
HASEKO CORP Construction & Engineering 418.69 0.02%
NIPPON SHINPAN CO Diversified Financials 416.01 0.02%
SHO-BOND CORP Construction & Engineering 377.00 0.02%
JAPAN STEEL WORKS Machinery 372.22 0.02%
NICHIEI CO (8577) Diversified Financials 357.76 0.02%
OYO CORP Comercial Services & Supplies 355.07 0.02%
DAIKYO Real Estate 294.43 0.01%
</TABLE>
A-27
<PAGE>
APPENDIX A-14
MSCI MALAYSIA (FREE) INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TENAGA NASIONAL Electric Utilities 10,381.30 14.89%
TELEKOM MALAYSIA Diversified Telecommunication Services 10,071.72 14.44%
MALAYAN BANKING Banks 8,627.12 12.37%
MALAYSIA INT'L SHIP FGN Marine 3,279.32 4.70%
BRITISH AMER TOBACCO MY Tobacco 2,874.08 4.12%
SIME DARBY Industrial Conglomerates 2,864.60 4.11%
COMMERCE ASSET-HOLDING Banks 2,329.15 3.34%
YTL CORP Electric Utilities 1,799.58 2.58%
RESORTS WORLD Hotels Restaurants & Leisure 1,666.50 2.39%
PUBLIC BANK FGN Banks 1,651.44 2.37%
RHB CAPITAL Banks 1,449.18 2.08%
NESTLE (MALAYSIA) Food Products 1,197.18 1.72%
MALAYSIAN PACIFIC IND Semiconductor Equipment & Products 1,176.41 1.69%
GOLDEN HOPE PLANTATIONS Food Products 928.74 1.33%
MALAYAN CEMENT Construction Materials 913.79 1.31%
AMMB HOLDINGS Diversified Financials 881.26 1.26%
KUALA LUMPUR KEPONG Food Products 862.52 1.24%
UNITED ENGINEERS (MAL) Construction & Engineering 833.90 1.20%
MALAYSIAN AIRLINE SYSTEM Airlines 774.05 1.11%
GAMUDA Construction & Engineering 735.21 1.05%
BERJAYA SPORTS TOTO Hotels Restaurants & Leisure 675.76 0.97%
MAGNUM CORP Hotels Restaurants & Leisure 636.38 0.91%
PROTON Automobiles 631.26 0.91%
ORIENTAL HOLDINGS Automobiles 582.45 0.84%
IOI CORP Food Products 580.78 0.83%
TIME ENGINEERING Industrial Conglomerates 571.59 0.82%
TECHNOLOGY RESOURCES IND Diversified Telecommunication Services 554.26 0.79%
MALAYSIAN RESOURCES CORP Industrial Conglomerates 474.70 0.68%
MALAYSIA MINING CORP Metals & Mining 473.08 0.68%
UNISEM (MALAYSIA) Semiconductor Equipment & Products 444.05 0.64%
EDARAN OTOMOBIL NASIONAL Specialty Retail 429.85 0.62%
STAR PUBLICATIONS (MAL) Media 419.49 0.60%
PETRONAS DAGANGAN Oil & Gas 392.15 0.56%
PPB GROUP (PERLIS PLANTA Food Products 377.65 0.54%
HIGHLANDS & LOWLANDS Food Products 373.73 0.54%
UMW HOLDINGS Auto Components 360.11 0.52%
MALAYSIAN OXYGEN Chemicals 358.78 0.51%
ROAD BUILDER (MAL) HLDGS Construction & Engineering 337.36 0.48%
TA ENTERPRISE Diversified Financials 314.64 0.45%
IJM CORP Construction & Engineering 314.35 0.45%
PUNCAK NIAGA HOLDINGS Water Utilities 268.26 0.38%
JAYA TIASA HOLDINGS Paper & Forest Products 267.66 0.38%
NEW STRAITS TIMES PRESS Media 267.06 0.38%
GUINNESS ANCHOR Beverages 260.76 0.37%
WTK HOLDINGS Paper & Forest Products 258.71 0.37%
JT INTERNATIONAL Tobacco 256.03 0.37%
SP SETIA Real Estate 250.40 0.36%
</TABLE>
A-28
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
HUME INDUSTRIES MALAYSIA Building Products 232.19 0.33%
TAN CHONG MOTOR HOLDINGS Automobiles 221.05 0.32%
RASHID HUSSAIN Banks 219.54 0.31%
MALAYAN UNITED IND Diversified Financials 214.48 0.31%
MULTI-PURPOSE HOLDINGS Diversified Financials 168.65 0.24%
SELANGOR PROPERTIES Real Estate 168.19 0.24%
IGB CORP Real Estate 162.56 0.23%
HONG LEONG PROPERTIES Real Estate 158.52 0.23%
MALAYSIAN MOSAICS Trading Companies & Distributors 148.31 0.21%
MULPHA INTERNATIONAL Diversified Financials 146.78 0.21%
PAN MALAYSIA CORP Construction Materials 144.01 0.21%
FACB RESORTS Real Estate 134.83 0.19%
EKRAN Real Estate 121.80 0.17%
KIAN JOO CAN FACTORY Containers & Packaging 105.98 0.15%
SUNWAY HOLDINGS Construction & Engineering 103.91 0.15%
ACP INDUSTRIES Building Products 100.11 0.14%
AMSTEEL CORP Industrial Conglomerates 99.44 0.14%
METROPLEX Hotels Restaurants & Leisure 92.30 0.13%
LAND & GENERAL Industrial Conglomerates 91.54 0.13%
LEADER UNIVERSAL HLDGS Electrical Equipment 79.25 0.11%
PILECON ENGINEERING Construction & Engineering 73.62 0.11%
LANDMARKS Hotels Restaurants & Leisure 69.57 0.10%
ANTAH HOLDINGS Industrial Conglomerates 63.38 0.09%
MALAYAWATA STEEL Metals & Mining 58.35 0.08%
JOHAN HOLDINGS Trading Companies & Distributors 53.33 0.08%
MBF CAPITAL Diversified Financials 48.38 0.07%
MYCOM Real Estate 21.70 0.03%
</TABLE>
A-29
<PAGE>
APPENDIX A-15
MSCI MEXICO (FREE) INDEX AS OF NOVEMBER 30, 2000
<TABLE>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TELEFONOS MEXICO L Diversified Telecommunication Services 34,957.48 35.30%
WALMART MEXICO V Multiline Retail 8,474.17 8.56%
GRUPO MODELO C Beverages 7,774.78 7.85%
GRUPO TELEVISA CPO Media 7,158.14 7.23%
BANACCI O Banks 6,518.92 6.58%
CEMEX CPO (NEW) Construction Materials 6,099.76 6.16%
GRUPO F. BBVA BANCOMER O Banks 5,271.66 5.32%
FEMSA UNIT Beverages 3,678.01 3.71%
KIMBERLY-CLARK MEXICO A Paper & Forest Products 3,196.73 3.23%
GRUPO CARSO Industrial Conglomerates 2,439.79 2.46%
SAVIA A Biotechnology 2,162.81 2.18%
GRUPO BIMBO A Food Products 2,034.80 2.05%
GRUPO MEXICO B (NEW) Metals & Mining 1,741.23 1.76%
GRUPO ELEKTRA CPO Specialty Retail 1,218.97 1.23%
WALMART MEXICO C Multiline Retail 1,136.60 1.15%
CONTROLADORA COM MEX UBC Multiline Retail 1,031.98 1.04%
ALFA Industrial Conglomerates 924.43 0.93%
TUBOS ACERO DE MEXICO Energy Equipment & Services 911.04 0.92%
GRUPO CONTINENTAL Beverages 840.90 0.85%
DESC B Industrial Conglomerates 581.37 0.59%
INDUSTRIAS PENOLES CP Metals & Mining 358.33 0.36%
VITRO A Containers & Packaging 277.69 0.28%
GRUPO IND'L MASECA B2 Food Products 234.16 0.24%
</TABLE>
A-30
<PAGE>
APPENDIX A-16
MSCI NETHERLANDS INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
ROYAL DUTCH PETROLEUM CO Oil & Gas 128,609.44 26.53%
ING GROEP Diversified Financials 70,436.83 14.53%
AEGON Insurance 55,609.66 11.47%
PHILIPS ELECTRS (KON.) Household Durables 42,478.31 8.76%
UNILEVER NV CERT Food Products 35,276.78 7.28%
ABN AMRO HOLDING Banks 31,506.17 6.50%
AHOLD (KON.) Food & Drug Retailing 24,947.46 5.15%
HEINEKEN NV Beverages 16,938.08 3.49%
KPN (KON.) Diversified Telecommunication Services 16,218.18 3.35%
AKZO NOBEL Chemicals 13,576.46 2.80%
TNT POST GROEP Air Freight & Couriers 11,453.55 2.36%
ASM LITHOGRAPHY HOLDING Semiconductor Equipment & Products 8,781.49 1.81%
ELSEVIER Media 8,459.24 1.75%
WOLTERS KLUWER Media 6,867.43 1.42%
BUHRMANN Comercial Services & Supplies 2,539.58 0.52%
HAGEMEYER Distributors 2,339.74 0.48%
GETRONICS IT Consulting & Services 1,764.99 0.36%
OCE Office Electronics 1,331.08 0.27%
IHC CALAND Machinery 1,288.10 0.27%
VEDIOR Comercial Services & Supplies 1,166.16 0.24%
VOPAK (KON.) Marine 1,069.02 0.22%
KLM Airlines 886.27 0.18%
NEDLLOYD (KON.) Marine 467.43 0.10%
STORK (VER MACHINE.) Machinery 353.10 0.07%
HOLLANDSCHE BETON GROEP Construction & Engineering 315.96 0.07%
</TABLE>
A-31
<PAGE>
APPENDIX A-17
MSCI PORTUGAL INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
BCP BANCO COMERCIAL NOM Banks 10,208.06 23.53%
EDP ELECTRICIDADE PORT Electric Utilities 9,132.29 21.05%
PORTUGAL TELECOM Diversified Telecommunication Services 8,550.92 19.71%
BANCO ESPIRITO SANTO Banks 3,109.43 7.17%
CIMPOR CIMENTOS DE PORT Construction Materials 3,100.37 7.15%
SONAE SGPS Industrial Conglomerates 2,675.32 6.17%
BRISA AUTO-ESTRADAS PORT Transportation Infrastructure 2,512.26 5.79%
BPI SGPS NOM Diversified Financials 2,034.50 4.69%
JERONIMO MARTINS SGPS Food & Drug Retailing 1,063.92 2.45%
PORTUCEL INDUSTRIAL Paper & Forest Products 530.13 1.22%
CORTICEIRA AMORIM Containers & Packaging 135.46 0.31%
INAPA Paper & Forest Products 132.66 0.31%
EFACEC CAPITAL SGPS Electrical Equipment 75.73 0.17%
CIN CORP IND'L DO NORTE Chemicals 71.82 0.17%
SOARES DA COSTA Construction & Engineering 58.50 0.13%
</TABLE>
A-32
<PAGE>
APPENDIX A-18
MSCI SINGAPORE (FREE) INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
DBS GROUP HOLDINGS Banks 14,823.91 16.61%
SINGAPORE AIRLINES Airlines 11,802.47 13.22%
SINGAPORE TELECOM Diversified Telecommunication Services 10,270.86 11.51%
OCBC BANK Banks 8,647.95 9.69%
UNITED OVERSEAS BANK Banks 7,560.19 8.47%
SINGAPORE PRESS HLDG Media 5,710.13 6.40%
SINGAPORE TECH ENGR. Aerospace & Defense 4,261.66 4.78%
CHARTERED SEMICONDUCTOR Semiconductor Equipment & Products 3,677.53 4.12%
CITY DEVELOPMENTS Real Estate 3,653.46 4.09%
CAPITALAND Real Estate 3,214.86 3.60%
NATSTEEL ELECTRONICS Computers & Peripherals 1,943.58 2.18%
VENTURE MANUFACTURING Electronic Equipment & Instruments 1,879.88 2.11%
SEMBCORP INDUSTRIES Industrial Conglomerates 1,482.13 1.66%
KEPPEL CORP Diversified Financials 1,465.12 1.64%
FRASER & NEAVE Beverages 1,088.30 1.22%
CREATIVE TECHNOLOGY Computers & Peripherals 984.88 1.10%
NEPTUNE ORIENT LINES NOL Marine 925.09 1.04%
PARKWAY HOLDINGS Health Care Providers & Services 718.32 0.80%
OVERSEAS UNION ENT. Hotels Restaurants & Leisure 643.36 0.72%
UIC UNITED INDUSTRIAL Real Estate 632.20 0.71%
OMNI INDUSTRIES Electronic Equipment & Instruments 604.88 0.68%
UNITED OVERSEAS LAND Hotels Restaurants & Leisure 491.91 0.55%
CYCLE & CARRIAGE Specialty Retail 461.59 0.52%
WING TAI HOLDINGS Real Estate 452.85 0.51%
HOTEL PROPERTIES Hotels Restaurants & Leisure 392.37 0.44%
HAW PAR CORP Industrial Conglomerates 362.27 0.41%
STRAITS TRADING Real Estate 345.43 0.39%
FIRST CAPITAL CORP Real Estate 285.78 0.32%
COMFORT GROUP Road & Rail 260.71 0.29%
SINGAPORE COMPUTER SYS IT Consulting & Services 200.82 0.23%
</TABLE>
A-33
<PAGE>
APPENDIX A-19
MSCI SOUTH AFRICA INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
DE BEERS CONS'D MINES Metals & Mining 10,809.85 12.34%
ANGLO AMERICAN PLATINUM Metals & Mining 8,698.44 9.93%
DIMENSION DATA HOLDINGS IT Consulting & Services 7,928.70 9.05%
FIRSTRAND Banks 4,923.10 5.62%
NEDCOR Banks 4,860.20 5.55%
SOUTH AFRICAN BREW. PLC Beverages 4,610.09 5.26%
SASOL Oil & Gas 4,287.30 4.90%
M-CELL Wireless Telecommunication Services 4,172.12 4.76%
IMPALA PLATINUM HOLDINGS Metals & Mining 3,107.68 3.55%
REMGRO (REMBRANDT GROUP) Industrial Conglomerates 2,973.23 3.40%
SANLAM Insurance 2,770.29 3.16%
ANGLOGOLD Metals & Mining 2,616.31 2.99%
INVESTEC GROUP Diversified Financials 2,420.75 2.76%
LIBERTY GROUP Insurance 2,076.76 2.37%
ABSA GROUP Banks 2,018.16 2.30%
BIDVEST GROUP Industrial Conglomerates 1,559.95 1.78%
SAPPI Paper & Forest Products 1,528.46 1.75%
IMPERIAL HOLDINGS Specialty Retail 1,486.99 1.70%
GOLD FIELDS Metals & Mining 1,277.02 1.46%
TIGER BRANDS Food Products 1,176.57 1.34%
BARLOWORLD Industrial Conglomerates 1,149.82 1.31%
CORONATION HOLDINGS N Diversified Financials 1,116.62 1.28%
BOE LTD Diversified Financials 1,086.24 1.24%
PICK'N PAY STORES Food & Drug Retailing 715.41 0.82%
METROPOLITAN LIFE Insurance 695.66 0.79%
NAMPAK Containers & Packaging 690.76 0.79%
FEDSURE HOLDINGS Insurance 661.42 0.76%
MIH HOLDINGS Internet Software & Services 652.95 0.75%
NASPERS N Media 612.66 0.70%
JD GROUP Specialty Retail 491.02 0.56%
SHOPRITE HOLDINGS Food & Drug Retailing 477.32 0.55%
TONGAAT-HULETT GROUP Food Products 449.13 0.51%
AFRICAN BANK INVESTMENTS Diversified Financials 417.85 0.48%
PROFURN Specialty Retail 401.47 0.46%
WOOLWORTHS HOLDINGS Multiline Retail 353.40 0.40%
ISCOR Metals & Mining 338.32 0.39%
COMPAREX HOLDINGS IT Consulting & Services 335.75 0.38%
REUNERT Electronic Equipment & Instruments 316.18 0.36%
METRO CASH & CARRY Food & Drug Retailing 283.38 0.32%
FOSCHINI Specialty Retail 223.10 0.25%
WOOLTRU N Multiline Retail 208.05 0.24%
AFRICAN LIFE ASSURANCE Insurance 173.26 0.20%
PRIMEDIA N Media 153.27 0.18%
WOOLTRU Multiline Retail 150.22 0.17%
PEPKOR Specialty Retail 113.51 0.13%
</TABLE>
A-34
<PAGE>
APPENDIX A-20
MSCI SOUTH KOREA INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
SAMSUNG ELECTRONICS CO Semiconductor Equipment & Products 23,340.43 24.55%
SK TELECOM CO Wireless Telecommunication Services 17,896.55 18.82%
KEPCO KOREA ELECT. POWER Electric Utilities 12,111.55 12.74%
KOOKMIN BANK Banks 3,339.99 3.51%
HYUNDAI MOTOR CO Automobiles 3,158.19 3.32%
KOREA TELECOM CORP Diversified Telecommunication Services 3,082.19 3.24%
POSCO POHANG IRON &STEEL Metals & Mining 2,889.26 3.04%
HOUSING &COMMERCIAL BANK Banks 2,332.89 2.45%
SHINHAN BANK Banks 2,299.97 2.42%
SAMSUNG ELECTRO-MECH. CO Electronic Equipment & Instruments 1,985.50 2.09%
SAMSUNG SDI CO Electronic Equipment & Instruments 1,798.28 1.89%
SAMSUNG SECURITIES CO Diversified Financials 1,320.74 1.39%
SAMSUNG FIRE & MARINE Insurance 1,286.30 1.35%
LG ELECTRONICS Household Durables 1,237.71 1.30%
LG CHEMICAL Chemicals 983.92 1.03%
SAMSUNG HEAVY INDUSTRIES Machinery 847.53 0.89%
SAMSUNG CORP Trading Companies & Distributors 770.46 0.81%
LG INVESTMENTS & SEC Diversified Financials 743.78 0.78%
SHINSEGAE DEPT STORE CO Multiline Retail 727.62 0.77%
CHEIL JEDANG CORP Food Products 709.99 0.75%
DAEWOO SECURITIES CO Diversified Financials 699.91 0.74%
HANA BANK Banks 639.47 0.67%
HITE BREWERY CO Beverages 613.89 0.65%
KOREA EXCHANGE BANK Banks 555.67 0.58%
HYUNDAI SECURITIES CO Diversified Financials 511.93 0.54%
ANAM SEMICONDUCTOR Semiconductor Equipment & Products 416.92 0.44%
DAE DUCK ELECTRONICS CO Electronic Equipment & Instruments 409.60 0.43%
DAISHIN SECURITIES CO Diversified Financials 407.93 0.43%
KUMKANG KOREA CHEMICAL Building Products 385.04 0.40%
HYUNDAI ENG. & CONSTR. Construction & Engineering 373.41 0.39%
SK GLOBAL Trading Companies & Distributors 359.77 0.38%
S1 CORP Comercial Services & Supplies 354.83 0.37%
KOREAN AIR LINES CO Airlines 322.38 0.34%
DOOSAN CORP Beverages 318.72 0.34%
DONGWON SECURITIES CO Diversified Financials 308.27 0.32%
LG CABLE & MACHINERY Electrical Equipment 302.00 0.32%
CHEIL COMMUNICATIONS Media 255.16 0.27%
DAUM COMMUNICATIONS CORP Internet Software & Services 253.34 0.27%
HYUNDAI MERCHANT MARINE Marine 247.61 0.26%
HANKOOK TIRE MFG CO Auto Components 245.27 0.26%
SEROME TECHNOLOGY Internet Software & Services 242.57 0.26%
KOREA INFO & COMMUNI. CO Comercial Services & Supplies 239.20 0.25%
DAELIM INDUSTRIAL CO Construction & Engineering 234.91 0.25%
TRI GEM COMPUTER Computers & Peripherals 218.63 0.23%
CHEIL INDUSTRIAL Chemicals 213.08 0.22%
SAMSUNG FINE CHEMICAL Chemicals 201.65 0.21%
KTB NETWORK Diversified Financials 200.96 0.21%
HANDYSOFT CORP Software 195.48 0.21%
</TABLE>
A-35
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
HANWHA CHEMICAL CORP Chemicals 181.95 0.19%
HYOSUNG CORP Chemicals 180.35 0.19%
KOREA ZINC Metals & Mining 170.77 0.18%
HYUNDAI DEPT STORE(KEUMK Multiline Retail 145.15 0.15%
HOTEL SHILLA CO Hotels Restaurants & Leisure 144.14 0.15%
HONAM PETROCHEMICAL Chemicals 142.85 0.15%
DAOU TECHNOLOGY Internet Software & Services 142.33 0.15%
SSANGYONG CEMENT IND'L Construction Materials 142.06 0.15%
HANJIN HEAVY INDUSTRIES Machinery 140.82 0.15%
HAANSOFT Software 138.56 0.15%
HANSOL PAPER CO. Paper & Forest Products 130.30 0.14%
KOREA GREEN CROSS CORP Pharmaceuticals 129.05 0.14%
DONG-A PHARMACEUTICAL CO Pharmaceuticals 109.70 0.12%
NAMHAE CHEMICAL CO Chemicals 97.51 0.10%
MEDISON CO Health Care Equipment & Supplies 85.62 0.09%
DAESANG CORP Food Products 81.29 0.09%
SAM YANG Textiles & Apparel 80.60 0.08%
LG INSURANCE CO Insurance 75.03 0.08%
KUKDO CHEMICAL CO Chemicals 74.10 0.08%
ISU CHEMICAL CO Chemicals 46.05 0.05%
KOREA EXPRESS Road & Rail 45.85 0.05%
</TABLE>
A-36
<PAGE>
APPENDIX A-21
MSCI SPAIN INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TELEFONICA Diversified Telecommunication Services 68,151.57 28.54%
BBVA Banks 42,154.26 17.65%
BSCH BCO SANTANDER CENTR Banks 40,054.16 16.77%
REPSOL YPF Oil & Gas 19,952.86 8.36%
ENDESA Electric Utilities 17,133.36 7.18%
IBERDROLA Electric Utilities 10,790.98 4.52%
GAS NATURAL SDG Gas Utilities 7,448.87 3.12%
UNION ELECTRICA FENOSA Electric Utilities 5,458.30 2.29%
ALTADIS Tobacco 4,501.42 1.89%
FOMENTO CONST Y CONTR Construction & Engineering 2,143.25 0.90%
AUTOPISTAS CESA (ACESA) Transportation Infrastructure 2,133.73 0.89%
ALBA (CORP FINANCIERA) Real Estate 1,767.78 0.74%
AGUAS DE BARCELONA Water Utilities 1,764.64 0.74%
GRUPO DRAGADOS Construction & Engineering 1,709.77 0.72%
ACERINOX Metals & Mining 1,522.09 0.64%
ACS ACTIV. CONST. Y SVCS Construction & Engineering 1,483.37 0.62%
SOL MELIA Hotels Restaurants & Leisure 1,372.42 0.57%
ZARDOYA OTIS Machinery 1,212.87 0.51%
MAPFRE (CORPORACION) Insurance 1,106.36 0.46%
METROVACESA Real Estate 771.21 0.32%
AZUCARERA EBRO AGRICOLAS Food Products 755.64 0.32%
VALLEHERMOSO Real Estate 708.92 0.30%
CORTEFIEL Specialty Retail 682.88 0.29%
PROSEGUR Comercial Services & Supplies 619.97 0.26%
TELEPIZZA Hotels Restaurants & Leisure 541.89 0.23%
PULEVA Food Products 422.77 0.18%
PORTLAND VALDERRIVAS Construction Materials 397.96 0.17%
FAES Pharmaceuticals 393.75 0.16%
URBIS (INMOBILIARIA) Real Estate 376.73 0.16%
EMPRESARIAL ENCE (GRUPO) Paper & Forest Products 360.08 0.15%
ASTURIANA DE ZINC Metals & Mining 315.23 0.13%
URALITA Building Products 263.56 0.11%
VISCOFAN Food Products 229.56 0.10%
ERCROS Chemicals 85.52 0.04%
</TABLE>
A-37
<PAGE>
APPENDIX A-22
MSCI SWEDEN INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
ERICSSON (LM) B Communications Equipment 97,369.81 40.39%
NORDIC BALTIC HOLDING Banks 21,176.91 8.78%
SKANDIA FORSAKRING Insurance 16,132.89 6.69%
HENNES & MAURITZ B Specialty Retail 13,810.74 5.73%
SVENSKA HANDELSBK A Banks 10,679.61 4.43%
TELIA Diversified Telecommunication Services 8,270.54 3.43%
SKAND.ENSKILDA BANKEN A Banks 7,490.18 3.11%
ASSA ABLOY B Building Products 6,263.96 2.60%
SECURITAS B Comercial Services & Supplies 5,891.53 2.44%
SANDVIK Machinery 5,889.75 2.44%
ELECTROLUX B Household Durables 5,205.67 2.16%
NETCOM B Diversified Telecommunication Services 4,960.48 2.06%
SKANSKA B Construction & Engineering 4,808.96 1.99%
SCA SV CELLULOSA B Paper & Forest Products 4,628.44 1.92%
VOLVO B Machinery 4,602.87 1.91%
ATLAS COPCO A Machinery 3,091.41 1.28%
OM GRUPPEN Diversified Financials 2,140.79 0.89%
VOLVO A Machinery 2,056.16 0.85%
MTG MODERN TIMES GROUP B Media 1,935.12 0.80%
GAMBRO A Health Care Providers & Services 1,781.15 0.74%
ASSIDOMAN Containers & Packaging 1,775.53 0.74%
ATLAS COPCO B Machinery 1,472.05 0.61%
SWEDISH MATCH Tobacco 1,407.68 0.58%
DROTT B Real Estate 1,356.62 0.56%
WM-DATA B IT Consulting & Services 1,322.06 0.55%
SVENSKA HANDELSBK B Banks 1,041.35 0.43%
SKF B Machinery 934.76 0.39%
TRELLEBORG B Trading Companies & Distributors 788.76 0.33%
SSAB SVENSKT STAL A Metals & Mining 704.65 0.29%
GAMBRO B Health Care Providers & Services 659.05 0.27%
SKF A Machinery 649.51 0.27%
SAPA Metals & Mining 514.91 0.21%
SSAB SVENSKT STAL B Metals & Mining 250.38 0.10%
</TABLE>
A-38
<PAGE>
APPENDIX A-23
MSCI SWITZERLAND INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
NOVARTIS Pharmaceuticals 117,017.17 20.27%
NESTLE Food Products 85,623.31 14.83%
ROCHE HOLDING GENUSS Pharmaceuticals 69,616.77 12.06%
UBS (NEW) Banks 61,296.68 10.62%
CREDIT SUISSE Banks 52,205.60 9.04%
ZURICH FINL(ZURICH ALLIE Insurance 45,201.84 7.83%
SCHWEIZ RUECKVERS Insurance 31,841.84 5.52%
ABB LTD Electrical Equipment 27,307.51 4.73%
ROCHE HOLDING INHABER Pharmaceuticals 18,435.30 3.19%
SWISSCOM Diversified Telecommunication Services 17,584.54 3.05%
ADECCO Comercial Services & Supplies 10,980.52 1.90%
HOLDERBANK INHABER Construction Materials 5,682.60 0.98%
SYNGENTA Chemicals 5,058.21 0.88%
SWATCH GROUP PORT Textiles & Apparel 3,947.98 0.68%
LONZA GROUP Chemicals 3,432.35 0.59%
SWATCH GROUP NOM Textiles & Apparel 3,325.96 0.58%
HOLDERBANK NAMEN Construction Materials 2,947.03 0.51%
SULZER Machinery 2,311.76 0.40%
GIVAUDAN Chemicals 2,151.69 0.37%
SAIRGROUP Airlines 1,882.75 0.33%
SGS SURVEILLANCE PORT Comercial Services & Supplies 1,278.99 0.22%
KUONI REISEN NAMEN B Hotels Restaurants & Leisure 1,201.18 0.21%
SCHINDLER NAMEN Machinery 1,136.38 0.20%
FISCHER (GEORG) NAMEN Machinery 885.00 0.15%
VALORA HOLDING NAMEN Specialty Retail 876.48 0.15%
SCHINDLER PART Machinery 861.85 0.15%
SGS SURVEILLANCE NOM Comercial Services & Supplies 673.00 0.12%
SIKA FINANZ INHABER Chemicals 637.27 0.11%
FORBO HOLDING Household Durables 609.47 0.11%
JELMOLI HOLDING INHABER Multiline Retail 572.96 0.10%
MOEVENPICK INHABER Hotels Restaurants & Leisure 367.21 0.06%
JELMOLI HOLDING NAMEN Multiline Retail 362.84 0.06%
</TABLE>
A-39
<PAGE>
APPENDIX A-24
MSCI TAIWAN INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TAIWAN SEMICONDUCTOR MFG Semiconductor Equipment & Products 31,637.78 19.98%
UNITED MICROELECTRONICS Semiconductor Equipment & Products 18,012.92 11.38%
CATHAY LIFE INSURANCE CO Insurance 9,632.25 6.08%
HON HAI PRECISION IND CO Electronic Equipment & Instruments 8,260.11 5.22%
ASUSTEK COMPUTER Computers & Peripherals 6,610.95 4.18%
NAN YA PLASTIC Chemicals 6,408.33 4.05%
FORMOSA PLASTIC CORP Chemicals 5,604.18 3.54%
QUANTA COMPUTER Computers & Peripherals 4,965.53 3.14%
CHINA DEVLPT IND'L BANK Banks 4,922.53 3.11%
CHINA STEEL CORP COMMON Metals & Mining 4,635.12 2.93%
WINBOND ELECTRONICS CORP Semiconductor Equipment & Products 3,595.47 2.27%
DELTA ELECTRONICS Electrical Equipment 3,256.59 2.06%
ASE Semiconductor Equipment & Products 2,760.67 1.74%
FORMOSA CHEMICAL FIBERS Textiles & Apparel 2,606.20 1.65%
FAR EASTERN TEXTILE Textiles & Apparel 2,440.61 1.54%
COMPAL ELECTRONICS Computers & Peripherals 2,424.51 1.53%
ACER Computers & Peripherals 2,404.90 1.52%
FIRST COMMERCIAL BANK Banks 2,370.13 1.50%
HUA NAN COMMERCIAL BANK Banks 2,309.78 1.46%
UNITED WORLD CHIN COM BK Banks 2,284.06 1.44%
CHINATRUST COMMERCIAL BK Banks 2,135.08 1.35%
ICBC INT'L COMM BK CHINA Banks 2,095.63 1.32%
MOSEL VITELIC Semiconductor Equipment & Products 2,006.72 1.27%
UNI-PRESIDENT ENT. Food Products 2,005.61 1.27%
TATUNG Industrial Conglomerates 1,584.61 1.00%
CHANG HWA COMMERCIAL BK Banks 1,525.25 0.96%
EVERGREEN MARINE CORP Marine 1,381.33 0.87%
WALSIN LIHWA CORP Electrical Equipment 1,257.13 0.79%
TAIWAN CEMENT CORP Construction Materials 1,169.32 0.74%
PACIFIC ELECTRIC WIRE Electrical Equipment 1,134.85 0.72%
CHINA MOTOR CORP Automobiles 1,048.45 0.66%
TECO ELECTRIC & MACH. Electrical Equipment 1,037.00 0.65%
ASIA CEMENT CORP Construction Materials 1,035.26 0.65%
YULON MOTOR CO Automobiles 999.60 0.63%
TAIWAN GLASS IND'L CORP Building Products 973.45 0.61%
POU CHEN CORP Textiles & Apparel 906.98 0.57%
YANG MING MARINE TRANSP Marine 716.22 0.45%
MICROELECTRONICS TECH Communications Equipment 640.19 0.40%
CHUNG HSING BILLS FIN Diversified Financials 578.14 0.37%
CHENG SHIN RUBBER IND Auto Components 500.88 0.32%
NIEN HSING TEXTILE CORP Textiles & Apparel 496.11 0.31%
KINPO ELECTRONICS Office Electronics 492.96 0.31%
AURORA CORP Specialty Retail 485.24 0.31%
SAMPO CORP Household Durables 427.91 0.27%
CATHAY CONSTRUCTION Real Estate 397.66 0.25%
LITE-ON ELECTRONICS Electronic Equipment & Instruments 310.84 0.20%
FAR EAST DEPT STORES Multiline Retail 288.75 0.18%
CONTINENTAL ENGINEERING Construction & Engineering 284.67 0.18%
SHIHLIN ELECTR. & ENG Electrical Equipment 263.44 0.17%
</TABLE>
A-40
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
SHIHLIN PAPER Paper & Forest Products 240.28 0.15%
TUNG HO STEEL ENTERPRISE Metals & Mining 222.55 0.14%
TON YI INDUSTRIAL COMMON Metals & Mining 194.74 0.12%
CHUNG HWA PULP CORP Paper & Forest Products 175.19 0.11%
LIEN HWA INDUSTRIAL CORP Food Products 153.91 0.10%
PACIFIC CONSTRUCTION Construction & Engineering 150.93 0.10%
CHINA SYNTHETIC RUBBER Chemicals 142.69 0.09%
TAIWAN TEA CORP Food & Drug Retailing 139.18 0.09%
GOLDSUN DEVLPT & CONSTR. Construction Materials 136.92 0.09%
LEE CHANG YUNG CHEMICAL Chemicals 136.00 0.09%
YUNG TAI ENGINEERING Machinery 134.79 0.09%
HUALON-TEIJRAN COMMON Chemicals 133.99 0.08%
WEI CHUAN FOOD Food Products 117.07 0.07%
SHINKONG SYNTH. FIBERS Chemicals 105.43 0.07%
ORIENTAL UNION CHEMICAL Chemicals 102.01 0.06%
BES ENGINEERING CORP Construction & Engineering 92.62 0.06%
EVER FORTUNE Real Estate 82.19 0.05%
AMBASSADOR HOTEL Hotels Restaurants & Leisure 75.31 0.05%
FORMOSAN RUBBER GROUP Textiles & Apparel 73.25 0.05%
TAIWAN PULP & PAPER CO Paper & Forest Products 72.82 0.05%
LEOFOO DEVELOPMENT CORP Hotels Restaurants & Leisure 62.11 0.04%
TAY FENG TIRE Auto Components 59.42 0.04%
HUA ENG WIRE & CABLE Electrical Equipment 59.22 0.04%
TUNTEX DISTINCT Textiles & Apparel 58.47 0.04%
ADI CORP Computers & Peripherals 45.58 0.03%
CHUNG SHING TEXTILE CO Textiles & Apparel 33.79 0.02%
</TABLE>
A-41
<PAGE>
APPENDIX A-25
MSCI THAILAND (FREE) INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
ADVANCED INFO SERV. FGN Wireless Telecommunication Services 2,293.95 15.03%
PTT EXPLORATION&PROD FGN Oil & Gas 1,666.45 10.92%
TELECOMASIA CORP FGN Diversified Telecommunication Services 1,385.07 9.07%
SIAM COMM BANK PREF FGN Banks 1,096.78 7.18%
BEC WORLD Media 1,004.11 6.58%
THAI FARMERS BANK FGN Banks 1,003.94 6.58%
BANGKOK BANK FGN Banks 778.09 5.10%
SIAM CEMENT FGN Construction Materials 739.39 4.84%
SIAM CITY CEMENT FGN Construction Materials 633.27 4.15%
DELTA ELECTRONICS THAI Electronic Equipment & Instruments 612.03 4.01%
HANA MICROELECTRONICS Electronic Equipment & Instruments 386.73 2.53%
CHAROEN POKPHAND FOODS Food Products 355.27 2.33%
ELECTRICITY GENERAT. FGN Electric Utilities 351.83 2.30%
SIAM COMMERCIAL BANK FGN Banks 333.90 2.19%
UNITED COMMUNICATION FGN Communications Equipment 295.10 1.93%
BANK OF AYUDHYA FGN Banks 223.76 1.47%
UNITED BROADCASTING CORP Media 211.31 1.38%
NATIONAL PETROCHEMICAL Chemicals 201.62 1.32%
NATIONAL FINANCE FGN Diversified Financials 179.49 1.18%
SIAM MAKRO Multiline Retail 170.88 1.12%
THAI PETROCHEMICAL IND Chemicals 164.65 1.08%
THAI UNION FROZEN PROD Food Products 164.11 1.08%
LAND AND HOUSE FGN Household Durables 159.39 1.04%
INDUSTRIAL FINANCE FGN Diversified Financials 151.10 0.99%
BANGKOK EXPRESSWAY Transportation Infrastructure 100.16 0.66%
KGI SECURITIES ONE FGN Diversified Financials 92.00 0.60%
BANPU FGN Metals & Mining 89.67 0.59%
SAHA-UNION Textiles & Apparel 73.60 0.48%
ITALIAN THAI DEVELOPMENT Construction & Engineering 64.18 0.42%
ABN AMRO ASIA SECURITIES Diversified Financials 57.11 0.37%
BANGKOK INSURANCE Insurance 52.94 0.35%
AYUDHYA INSURANCE Insurance 52.77 0.35%
NATION MULTIMEDIA GROUP Media 50.72 0.33%
REGIONAL CONTAINER LINES Marine 41.04 0.27%
TIPCO ASPHALT Construction Materials 28.70 0.19%
</TABLE>
A-42
<PAGE>
APPENDIX A-26
MSCI TURKEY INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TURKIYE IS BANKASI C100% Banks 7,038.41 26.90%
YAPI VE KREDI BANKASI Banks 2,644.29 10.11%
TURKIYE GARANTI BANKASI Banks 1,599.20 6.11%
TUPRAS TURKIYE PETROL Oil & Gas 1,559.98 5.96%
ANADOLU EFES BIRACILIK Beverages 1,267.34 4.84%
TURKCELL ILETISIM HIZMET Wireless Telecommunication Services 1,265.30 4.84%
FORD OTOMOTIVE SANAYII Automobiles 1,241.92 4.75%
ARCELIK Household Durables 1,153.71 4.41%
EREGLI DEMIR CELIK FAB. Metals & Mining 860.62 3.29%
MIGROS TURK TICARET Food & Drug Retailing 846.96 3.24%
VESTEL ELEKTRONIK Household Durables 615.78 2.35%
AYGAZ Gas Utilities 607.76 2.32%
NETAS NORTH ELEC TELEKOM Communications Equipment 569.96 2.18%
TOFAS TURK OTOMOBIL FAB. Automobiles 558.00 2.13%
AKCANSA CIMENTO SANAYI Construction Materials 440.23 1.68%
AKSIGORTA Insurance 420.12 1.61%
ALARKO HOLDING Diversified Financials 417.01 1.59%
TRAKYA CAM SANAYII Building Products 411.66 1.57%
KORDSA KORD BEZI SANAYI Auto Components 317.43 1.21%
BRISA BRIDGESTONE Auto Components 299.71 1.15%
AKSA AKRILIK KIMYA Textiles & Apparel 260.89 1.00%
CIMSA CIMENTO SANAYI Construction Materials 209.72 0.80%
SABAH YAYINCILIK Media 183.64 0.70%
GOODYEAR LASTIKLERI Auto Components 167.55 0.64%
ECZACIBASI ILAC SANAYI Pharmaceuticals 160.57 0.61%
CIMENTAS Construction Materials 146.08 0.56%
ADANA CIMENTO SANAYII A Construction Materials 121.37 0.46%
IHLAS GAZETECILIK HLDG Diversified Financials 116.86 0.45%
EFES SINAI YATIRIM HLDG Beverages 94.75 0.36%
KARTONSAN KARTON SANAYI Containers & Packaging 84.52 0.32%
TURK DEMIR DOKUM FABRIK. Building Products 79.08 0.30%
SARKUYSAN ELEKTROLITIK Electrical Equipment 60.04 0.23%
USAS UCAK SERVISI Hotels Restaurants & Leisure 60.04 0.23%
TAT KONSERVE SANAYII Food Products 57.41 0.22%
DOKTAS DOKUMCULUK Auto Components 49.21 0.19%
TURKIYE IS BANKASI B Banks 48.77 0.19%
BAGFAS Chemicals 46.86 0.18%
KAV ORMAN SANAYII Paper & Forest Products 42.41 0.16%
RAKS ELEKTRONIK Household Durables 20.73 0.08%
ADANA CIMENTO SANAYII C Construction Materials 18.77 0.07%
</TABLE>
A-43
<PAGE>
APPENDIX A-27
MSCI UNITED KINGDOM INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
VODAFONE GROUP Wireless Telecommunication Services 210,449.73 11.83%
BP AMOCO Oil & Gas 175,804.09 9.88%
HSBC HOLDINGS (GB) Banks 121,541.42 6.83%
GLAXO WELLCOME Pharmaceuticals 106,373.99 5.98%
ASTRAZENECA Pharmaceuticals 90,124.13 5.07%
SMITHKLINE BEECHAM Pharmaceuticals 73,549.40 4.13%
BRITISH TELECOM Diversified Telecommunication Services 56,588.80 3.18%
ROYAL BANK OF SCOTLAND Banks 54,866.73 3.08%
LLOYDS TSB GROUP Banks 52,462.69 2.95%
BARCLAYS Banks 46,443.61 2.61%
DIAGEO Beverages 35,614.25 2.00%
CGNU Insurance 33,944.80 1.91%
PRUDENTIAL Insurance 30,306.39 1.70%
TESCO Food & Drug Retailing 27,520.01 1.55%
MARCONI Communications Equipment 26,232.49 1.47%
BRITISH SKY BROADCASTING Media 25,772.43 1.45%
UNILEVER PLC Food Products 24,102.50 1.35%
ABBEY NATIONAL Banks 22,281.84 1.25%
GRANADA COMPASS Hotels Restaurants & Leisure 21,330.37 1.20%
REUTERS GROUP Media 21,007.94 1.18%
HALIFAX GROUP Banks 20,958.00 1.18%
PEARSON Media 17,799.53 1.00%
RIO TINTO PLC REG Metals & Mining 15,902.10 0.89%
BRITISH AMERICAN TOBACCO Tobacco 15,466.42 0.87%
BAE SYSTEMS Aerospace & Defense 15,407.18 0.87%
BG GROUP Gas Utilities 14,222.30 0.80%
CADBURY SCHWEPPES Food Products 14,163.15 0.80%
SCOTTISH POWER Electric Utilities 13,824.79 0.78%
CENTRICA Gas Utilities 13,652.34 0.77%
LEGAL & GENERAL GROUP Insurance 13,091.80 0.74%
NATIONAL GRID GROUP Electric Utilities 13,047.96 0.73%
WPP GROUP Media 11,792.27 0.66%
SAINSBURY (J) Food & Drug Retailing 11,318.29 0.64%
THREE I GROUP Diversified Financials 10,762.35 0.60%
AMVESCAP Diversified Financials 10,760.62 0.60%
REED INTERNATIONAL Media 10,270.41 0.58%
BASS Hotels Restaurants & Leisure 9,247.23 0.52%
KINGFISHER Multiline Retail 9,037.69 0.51%
BAA Transportation Infrastructure 8,910.23 0.50%
LOGICA IT Consulting & Services 8,796.92 0.49%
HAYS Comercial Services & Supplies 8,577.43 0.48%
INVENSYS Machinery 8,505.91 0.48%
MARKS & SPENCER Multiline Retail 7,966.40 0.45%
GKN Auto Components 7,855.51 0.44%
BOOTS CO Food & Drug Retailing 7,738.18 0.43%
GREAT UNIVERSAL STORES Internet & Catalog Retail 7,528.74 0.42%
LATTICE GROUP Gas Utilities 7,403.05 0.42%
SAGE GROUP (THE) Software 6,974.04 0.39%
RAILTRACK GROUP Road & Rail 6,898.40 0.39%
</TABLE>
A-44
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
BOC GROUP Chemicals 6,896.72 0.39%
DIXONS GROUP Specialty Retail 6,704.44 0.38%
EMI GROUP Media 6,203.45 0.35%
ARM HOLDINGS Semiconductor Equipment & Products 6,169.41 0.35%
LAND SECURITIES Real Estate 6,142.11 0.35%
BRITISH AIRWAYS Airlines 6,135.30 0.34%
RENTOKIL INITIAL Comercial Services & Supplies 5,868.16 0.33%
UNITED UTILITIES Multi-Utilities 5,593.36 0.31%
SCHRODERS Diversified Financials 5,322.24 0.30%
CANARY WHARF GROUP Real Estate 5,242.88 0.29%
NYCOMED AMERSHAM Health Care Equipment & Supplies 5,009.70 0.28%
IMPERIAL CHEMICAL ICI Chemicals 4,973.76 0.28%
BLUE CIRCLE INDUSTRIES Construction Materials 4,697.27 0.26%
EXEL (OCEAN GROUP) Air Freight & Couriers 4,634.07 0.26%
CARLTON COMMUNICATIONS Media 4,478.64 0.25%
CELLTECH GROUP Biotechnology 4,454.96 0.25%
ELECTROCOMPONENTS Trading Companies & Distributors 4,209.57 0.24%
SMITH & NEPHEW Health Care Equipment & Supplies 4,131.87 0.23%
INT'L POWER(NAT'L POWER Electric Utilities 4,069.05 0.23%
MISYS Software 4,054.18 0.23%
HILTON GROUP Hotels Restaurants & Leisure 3,994.86 0.22%
HANSON Construction Materials 3,985.56 0.22%
CAPITA GROUP Comercial Services & Supplies 3,968.33 0.22%
SMITHS INDUSTRIES Industrial Conglomerates 3,630.02 0.20%
PROVIDENT FINANCIAL Diversified Financials 3,483.96 0.20%
BRITISH LAND CO Real Estate 3,378.54 0.19%
JOHNSON MATTHEY Metals & Mining 3,363.68 0.19%
LASMO Oil & Gas 3,339.66 0.19%
WOLSELEY Specialty Retail 3,153.31 0.18%
PEN & ORIENTAL STEAM Marine 3,074.51 0.17%
TI GROUP Machinery 2,810.91 0.16%
BUNZL Paper & Forest Products 2,787.66 0.16%
CORUS GROUP Metals & Mining 2,532.86 0.14%
SEMA GROUP IT Consulting & Services 2,463.16 0.14%
P&O PRINCESS CRUISES Hotels Restaurants & Leisure 2,455.75 0.14%
BBA GROUP Machinery 2,451.76 0.14%
AWG (ANGLIAN WATER) Water Utilities 2,378.85 0.13%
CHUBB Comercial Services & Supplies 2,301.36 0.13%
SLOUGH ESTATES Real Estate 2,286.07 0.13%
RMC GROUP Construction Materials 2,113.58 0.12%
HAMMERSON Real Estate 1,782.73 0.10%
PILKINGTON Building Products 1,776.48 0.10%
FKI Industrial Conglomerates 1,745.87 0.10%
TATE & LYLE Food Products 1,693.36 0.10%
RANK GROUP Hotels Restaurants & Leisure 1,505.97 0.08%
AIRTOURS Hotels Restaurants & Leisure 1,413.58 0.08%
SSL INTERNATIONAL Health Care Equipment & Supplies 1,388.35 0.08%
PSION Computers & Peripherals 1,368.85 0.08%
CARADON Building Products 1,302.98 0.07%
REXAM Containers & Packaging 1,268.65 0.07%
BERKELEY GROUP (THE) Household Durables 1,262.95 0.07%
STAGECOACH HOLDINGS Road & Rail 1,099.47 0.06%
IMI Machinery 1,060.92 0.06%
</TABLE>
A-45
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
DE LA RUE Comercial Services & Supplies 1,046.76 0.06%
BARRATT DEVELOPMENTS Household Durables 1,046.08 0.06%
AMEC Construction & Engineering 1,010.32 0.06%
TAYLOR WOODROW Household Durables 958.46 0.05%
LONDON BRIDGE SOFTWARE Software 871.90 0.05%
HEPWORTH Building Products 868.94 0.05%
GREAT PORTLAND ESTATES Real Estate 814.71 0.05%
WIMPEY (GEORGE) Household Durables 800.98 0.05%
BALFOUR BEATTY Construction & Engineering 732.15 0.04%
UNIQ (UNIGATE) Food Products 731.93 0.04%
KIDDE Comercial Services & Supplies 596.07 0.03%
LEX SERVICE Specialty Retail 583.94 0.03%
COATS VIYELLA Textiles & Apparel 403.96 0.02%
JARVIS Construction & Engineering 366.07 0.02%
EIDOS Software 295.79 0.02%
</TABLE>
A-46
<PAGE>
APPENDIX A-28
MSCI USA INDEX AS OF NOVEMBER 30, 2000
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
GENERAL ELECTRIC CO Industrial Conglomerates 491,105.00 5.10%
CISCO SYSTEMS Communications Equipment 337,135.37 3.50%
EXXON MOBIL CORP Oil & Gas 306,339.18 3.18%
MICROSOFT CORP Software 305,942.89 3.18%
PFIZER Pharmaceuticals 279,776.98 2.91%
INTEL CORP Semiconductor Equipment & Products 256,160.63 2.66%
WAL-MART STORES Multiline Retail 233,010.75 2.42%
AMERICAN INT'L GROUP Insurance 224,297.26 2.33%
CITIGROUP Diversified Financials 223,784.11 2.32%
MERCK & CO Pharmaceuticals 213,749.90 2.22%
SBC COMMUNICATIONS Diversified Telecommunication Services 186,214.08 1.93%
IBM CORP Computers & Peripherals 164,034.49 1.70%
EMC CORP Computers & Peripherals 162,165.54 1.68%
COCA-COLA CO Beverages 155,296.85 1.61%
VERIZON COMMUNI.(BELL AT Diversified Telecommunication Services 152,717.40 1.59%
ORACLE CORP Software 149,547.45 1.55%
JOHNSON & JOHNSON Pharmaceuticals 139,002.90 1.44%
BRISTOL-MYERS SQUIBB CO Pharmaceuticals 136,221.07 1.41%
LILLY (ELI) & CO Pharmaceuticals 105,611.52 1.10%
PROCTER & GAMBLE CO Household Products 97,620.54 1.01%
AMERICA ONLINE Internet Software & Services 94,382.20 0.98%
HOME DEPOT Specialty Retail 90,754.57 0.94%
PHILIP MORRIS COS Tobacco 86,000.74 0.89%
ABBOTT LABORATORIES Pharmaceuticals 85,315.11 0.89%
WELLS FARGO & CO Banks 81,418.51 0.85%
FANNIE MAE Diversified Financials 80,532.60 0.84%
PHARMACIA CORP Pharmaceuticals 78,668.61 0.82%
AMERICAN HOME PRODUCTS Pharmaceuticals 78,414.89 0.81%
BELLSOUTH CORP Diversified Telecommunication Services 78,108.86 0.81%
VIACOM B Media 77,537.31 0.81%
TIME WARNER Media 74,500.38 0.77%
AT & T CORP Diversified Telecommunication Services 73,641.79 0.76%
AMERICAN EXPRESS Diversified Financials 73,065.58 0.76%
AMGEN Biotechnology 65,423.50 0.68%
BANK OF AMERICA CORP Banks 64,999.76 0.68%
TEXAS INSTRUMENTS Semiconductor Equipment & Products 63,928.79 0.66%
MEDTRONIC Health Care Equipment & Supplies 63,877.75 0.66%
QWEST COMMUNI. INT'L Diversified Telecommunication Services 62,695.88 0.65%
HEWLETT-PACKARD CO Computers & Peripherals 62,547.93 0.65%
DISNEY (WALT) COMMON Media 60,323.32 0.63%
BOEING CO Aerospace & Defense 59,967.13 0.62%
QUALCOMM Communications Equipment 59,468.12 0.62%
CHEVRON CORP Oil & Gas 52,548.75 0.55%
LUCENT TECHNOLOGIES Communications Equipment 52,388.23 0.54%
</TABLE>
A-47
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
CORNING Communications Equipment 51,546.02 0.54%
DELL COMPUTER CORP Computers & Peripherals 50,372.79 0.52%
ENRON CORP Multi-Utilities 48,339.17 0.50%
JDS UNIPHASE CORP Communications Equipment 48,136.97 0.50%
MERRILL LYNCH & CO Diversified Financials 46,491.18 0.48%
CHASE MANHATTAN CORP Banks 45,823.55 0.48%
WALGREEN CO Food & Drug Retailing 45,007.44 0.47%
DU PONT (E.I) DE NEMOURS Chemicals 44,114.08 0.46%
MOTOROLA Communications Equipment 43,179.36 0.45%
FORD MOTOR CO Automobiles 43,139.36 0.45%
WORLDCOM Diversified Telecommunication Services 42,913.79 0.45%
ANHEUSER-BUSCH Beverages 42,860.73 0.45%
MCDONALD'S CORP Hotels Restaurants & Leisure 42,592.49 0.44%
AUTOMATIC DATA PROCESS Comercial Services & Supplies 41,395.76 0.43%
BANK ONE CORP Banks 41,266.35 0.43%
BANK NEW YORK CO Banks 40,702.07 0.42%
MINNESOTA MINING & MFG Industrial Conglomerates 39,664.46 0.41%
SCHWAB (CHARLES) CORP Diversified Financials 37,704.34 0.39%
KIMBERLY-CLARK CORP Household Products 37,637.31 0.39%
GILLETTE CO Personal Products 35,663.68 0.37%
SCHLUMBERGER Energy Equipment & Services 35,281.66 0.37%
AT&T-LIBERTY MEDIA GRP A Media 34,929.41 0.36%
FLEET BOSTON FINL CORP Banks 33,794.55 0.35%
UNITED TECHNOLOGIES CORP Aerospace & Defense 33,152.36 0.34%
DUKE ENERGY CORP Electric Utilities 33,102.91 0.34%
APPLIED MATERIALS Semiconductor Equipment & Products 32,655.51 0.34%
EMERSON ELECTRIC CO Electrical Equipment 31,096.93 0.32%
MARSH & MCLENNAN COS Insurance 31,035.05 0.32%
SIEBEL SYSTEMS Software 29,560.16 0.31%
CLEAR CHANNEL COMMUNI. Media 29,533.10 0.31%
MBNA CORP Diversified Financials 28,613.57 0.30%
ALLSTATE CORP Insurance 28,084.13 0.29%
CARDINAL HEALTH Health Care Providers & Services 27,894.41 0.29%
TARGET CORP Multiline Retail 27,356.75 0.28%
GENERAL MOTORS CORP Automobiles 26,577.17 0.28%
BAXTER INTERNATIONAL Health Care Equipment & Supplies 25,498.72 0.26%
WASHINGTON MUTUAL Banks 24,888.85 0.26%
ELECTRONIC DATA SYSTEMS IT Consulting & Services 24,755.19 0.26%
FIRST UNION CORP Banks 24,612.64 0.26%
ALCOA Metals & Mining 24,381.09 0.25%
COX COMMUNICATIONS A Media 23,944.96 0.25%
AES CORP Electric Utilities 23,695.17 0.25%
AGILENT TECHNOLOGIES Electronic Equipment & Instruments 23,641.72 0.25%
NEXTEL COMMUNICATIONS A Wireless Telecommunication Services 23,602.23 0.25%
HOUSEHOLD INTERNATIONAL Diversified Financials 23,558.67 0.24%
HCA HEALTHCARE CO Health Care Providers & Services 23,124.78 0.24%
BROADCOM CORP A Semiconductor Equipment & Products 22,932.29 0.24%
CVS CORP Food & Drug Retailing 22,191.63 0.23%
BEA SYSTEMS Software 21,943.43 0.23%
YAHOO Internet Software & Services 21,895.33 0.23%
KROGER CO Food & Drug Retailing 21,810.59 0.23%
PAYCHEX Comercial Services & Supplies 21,637.33 0.22%
</TABLE>
A-48
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
MORGAN (J.P) & CO Diversified Financials 21,440.48 0.22%
GAP Specialty Retail 21,198.98 0.22%
EXELON CORP Electric Utilities 21,001.25 0.22%
SARA LEE CORP Food Products 20,869.61 0.22%
CIGNA CORP Health Care Providers & Services 20,762.63 0.22%
STATE STREET CORP Diversified Financials 20,754.29 0.22%
DOW CHEMICAL CO Chemicals 20,728.01 0.22%
SOUTHERN CO Electric Utilities 20,472.20 0.21%
PALM Computers & Peripherals 20,444.60 0.21%
FIRST DATA CORP Comercial Services & Supplies 20,220.65 0.21%
PNC FINL SERVICES GROUP Banks 19,454.44 0.20%
UNITEDHEALTH GROUP Health Care Providers & Services 19,052.61 0.20%
GENERAL MOTORS H (NEW) Media 18,988.41 0.20%
AFLAC Insurance 18,680.45 0.19%
SYSCO CORP Food & Drug Retailing 18,409.58 0.19%
US BANCORP Banks 18,184.96 0.19%
SOLECTRON Electronic Equipment & Instruments 17,822.39 0.19%
MICRON TECHNOLOGY Semiconductor Equipment & Products 17,476.20 0.18%
APPLERA-APPL BIO(PE CORP Health Care Equipment & Supplies 17,211.83 0.18%
ILLINOIS TOOL WORKS Machinery 16,997.11 0.18%
VERISIGN Internet Software & Services 16,856.82 0.18%
GEMSTAR-TV GUIDE INT'L Media 16,648.59 0.17%
INT'L PAPER CO Paper & Forest Products 16,376.85 0.17%
HARTFORD FINANCIAL SVCS Insurance 15,869.72 0.16%
HEINZ (H.J) CO Food Products 15,824.09 0.16%
SOUTHWEST AIRLINES CO Airlines 15,662.23 0.16%
COASTAL CORP Oil & Gas 15,644.88 0.16%
WILLIAMS COS Multi-Utilities 15,627.58 0.16%
COMPUTER ASSOC INT'L Software 15,488.55 0.16%
ADOBE SYSTEMS Software 15,232.69 0.16%
SUNTRUST BANKS Banks 15,147.32 0.16%
GENERAL DYNAMICS CORP Aerospace & Defense 15,131.36 0.16%
NATIONAL CITY CORP Banks 15,057.84 0.16%
ARIBA Internet Software & Services 14,978.26 0.16%
HALLIBURTON CO Energy Equipment & Services 14,869.60 0.15%
WASTE MANAGEMENT Comercial Services & Supplies 14,867.29 0.15%
AMERICAN ELECTRIC POWER Electric Utilities 14,811.70 0.15%
COSTCO WHOLESALE CORP Multiline Retail 14,582.82 0.15%
DOMINION RESOURCES Electric Utilities 14,266.12 0.15%
CHUBB CORP Insurance 14,258.99 0.15%
GANNETT CO Media 14,137.36 0.15%
CAMPBELL SOUP CO (US) Food Products 14,037.36 0.15%
OMNICOM GROUP Media 13,967.32 0.15%
EL PASO ENERGY CORP Gas Utilities 13,948.97 0.14%
HARLEY-DAVIDSON Automobiles 13,747.68 0.14%
CATERPILLAR Machinery 13,703.91 0.14%
FEDEX CORPORATION Air Freight & Couriers 13,659.02 0.14%
CONAGRA FOODS Food Products 13,553.94 0.14%
TENET HEALTHCARE CORP Health Care Providers & Services 13,311.80 0.14%
CARNIVAL CORP A Hotels Restaurants & Leisure 13,260.15 0.14%
EASTMAN KODAK CO Leisure Equipment & Products 12,607.11 0.13%
INTERPUBLIC GROUP OF COS Media 12,022.21 0.12%
FPL GROUP Electric Utilities 11,718.68 0.12%
</TABLE>
A-49
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
GENERAL MILLS Food Products 11,622.02 0.12%
SANMINA CORP Electronic Equipment & Instruments 11,543.64 0.12%
UNION PACIFIC CORP Road & Rail 11,524.65 0.12%
NIKE B Textiles & Apparel 11,512.90 0.12%
TRIBUNE CO Media 11,467.45 0.12%
COMPUTER SCIENCES CORP IT Consulting & Services 11,456.93 0.12%
QUAKER OATS CO Food Products 11,381.08 0.12%
RELIANT ENERGY Electric Utilities 11,189.02 0.12%
SEARS, ROEBUCK & CO Multiline Retail 11,122.20 0.12%
BAKER HUGHES Energy Equipment & Services 10,977.51 0.11%
ST PAUL COS Insurance 10,844.31 0.11%
ALBERTSON'S Food & Drug Retailing 10,762.78 0.11%
KEYCORP Banks 10,736.00 0.11%
PG&E CORP Electric Utilities 10,584.24 0.11%
TXU CORP Electric Utilities 10,531.56 0.11%
CLOROX CO Household Products 10,488.84 0.11%
MCGRAW-HILL COS Media 10,343.44 0.11%
BURLINGTON NTHN SANTA FE Road & Rail 10,232.44 0.11%
WACHOVIA CORP Banks 10,176.05 0.11%
MARRIOTT INT'L A Hotels Restaurants & Leisure 9,947.90 0.10%
AVON PRODUCTS Personal Products 9,882.70 0.10%
LEVEL 3 COMMUNICATIONS Diversified Telecommunication Services 9,852.23 0.10%
DEERE & CO Machinery 9,544.96 0.10%
AETNA Health Care Providers & Services 9,486.57 0.10%
WEYERHAEUSER CO Paper & Forest Products 9,435.08 0.10%
EXODUS COMMUNICATIONS Internet Software & Services 9,381.17 0.10%
MCKESSON HBOC Health Care Providers & Services 9,342.58 0.10%
PEOPLESOFT Software 9,298.80 0.10%
INTUIT Software 9,269.25 0.10%
EBAY Internet & Catalog Retail 9,209.97 0.10%
PUBLIC SV ENTERPRISE CO Electric Utilities 9,165.88 0.10%
EQUITY OFFICE PROPERTIES Real Estate 9,098.72 0.09%
ENTERGY CORP Electric Utilities 9,030.90 0.09%
AMAZON.COM Internet & Catalog Retail 8,785.39 0.09%
RADIOSHACK CORP Specialty Retail 8,705.57 0.09%
MASCO CORP Building Products 8,664.55 0.09%
LINCOLN NATIONAL CORP Insurance 8,619.65 0.09%
BECTON, DICKINSON Health Care Equipment & Supplies 8,609.58 0.09%
TRANSOCEAN SEDCO FOREX Energy Equipment & Services 8,394.33 0.09%
RAYTHEON CO B Aerospace & Defense 8,387.20 0.09%
IMS HEALTH Comercial Services & Supplies 8,353.52 0.09%
MAY DEPARTMENT STORES CO Multiline Retail 8,348.79 0.09%
DOVER CORP Machinery 8,310.33 0.09%
UNOCAL CORP Oil & Gas 8,287.56 0.09%
LIMITED Specialty Retail 8,272.10 0.09%
USX-MARATHON GROUP Oil & Gas 8,223.01 0.09%
RALSTON - RALSTON PURINA Food Products 8,077.11 0.08%
ARCHER-DANIELS-MIDLAND Food Products 8,061.44 0.08%
OCCIDENTAL PETROLEUM Oil & Gas 7,977.03 0.08%
AON CORP Insurance 7,947.71 0.08%
CONSOLIDATED EDISON Electric Utilities 7,895.75 0.08%
DELPHI AUTOMOTIVE SYS Auto Components 7,734.36 0.08%
</TABLE>
A-50
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
EDISON INTERNATIONAL Electric Utilities 7,473.29 0.08%
ROCKWELL INT'L Electrical Equipment 7,450.56 0.08%
AIR PRODUCTS & CHEMICALS Chemicals 7,345.92 0.08%
TEXTRON Industrial Conglomerates 7,300.02 0.08%
PPG INDUSTRIES Chemicals 7,260.80 0.08%
CP&L ENERGY (CAROLINA PO Electric Utilities 6,894.28 0.07%
MBIA Insurance 6,776.20 0.07%
EQUITY RESIDENTIAL PPTY Real Estate 6,712.87 0.07%
WELLPOINT HEALTH NETWKS Health Care Providers & Services 6,692.89 0.07%
CENDANT CORP Comercial Services & Supplies 6,671.93 0.07%
FIRSTENERGY CORP Electric Utilities 6,651.36 0.07%
UNUMPROVIDENT CORP Insurance 6,493.28 0.07%
INGERSOLL-RAND CO Machinery 6,484.55 0.07%
AT & T WIRELESS GROUP Wireless Telecommunication Services 6,480.00 0.07%
ROHM & HAAS CO Chemicals 6,443.22 0.07%
METROMEDIA FIBER NETWK A Diversified Telecommunication Services 6,438.27 0.07%
CONSTELLATION ENERGY GRP Electric Utilities 6,086.97 0.06%
STARWOOD HOT.&RES. WORLD Hotels Restaurants & Leisure 6,068.61 0.06%
BROADVISION Internet Software & Services 6,044.28 0.06%
PPL CORP Electric Utilities 6,038.46 0.06%
NEW YORK TIMES CO A Media 5,971.17 0.06%
RATIONAL SOFTWARE CORP Software 5,878.91 0.06%
DELTA AIR LINES Airlines 5,817.60 0.06%
UNION CARBIDE CORP Chemicals 5,816.75 0.06%
PRAXAIR Chemicals 5,680.28 0.06%
GEORGIA-PACIFIC GROUP Paper & Forest Products 5,666.42 0.06%
CSX CORP Road & Rail 5,628.30 0.06%
NORFOLK SOUTHERN CORP Road & Rail 5,512.80 0.06%
STAPLES Specialty Retail 5,484.14 0.06%
AVERY DENNISON CORP Comercial Services & Supplies 5,428.73 0.06%
DTE ENERGY Electric Utilities 5,412.09 0.06%
HEALTHSOUTH CORP Health Care Providers & Services 5,375.04 0.06%
MATTEL Leisure Equipment & Products 5,374.20 0.06%
APPLE COMPUTER Computers & Peripherals 5,361.99 0.06%
ROBERT HALF INT'L Comercial Services & Supplies 5,339.78 0.06%
NEWELL RUBBERMAID Household Durables 5,180.70 0.05%
AMR CORP Airlines 5,038.66 0.05%
SEMPRA ENERGY Gas Utilities 4,991.99 0.05%
NISOURCE (NEW) Gas Utilities 4,979.14 0.05%
DOW JONES & CO Media 4,942.97 0.05%
EATON CORP Machinery 4,908.75 0.05%
JOHNSON CONTROLS Auto Components 4,733.60 0.05%
ELECTRONIC ARTS Software 4,717.92 0.05%
EQUIFAX Comercial Services & Supplies 4,693.37 0.05%
PARKER HANNIFIN CORP Machinery 4,647.31 0.05%
XEROX CORP Office Electronics 4,622.22 0.05%
VULCAN MATERIALS CO Construction Materials 4,319.27 0.04%
FOUNDRY NETWORKS Communications Equipment 4,310.15 0.04%
BMC SOFTWARE Software 4,271.06 0.04%
GENERAL PUBLIC UTILITIES Electric Utilities 4,267.73 0.04%
COUNTRYWIDE CREDIT IND Diversified Financials 4,212.31 0.04%
MOODYS CORP (DUN&BRADSTR Diversified Financials 4,204.45 0.04%
</TABLE>
A-51
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
TRW Auto Components 4,077.90 0.04%
PARK PLACE ENTERTAINMENT Hotels Restaurants & Leisure 4,034.30 0.04%
READERS DIGEST ASS'N A Media 3,918.64 0.04%
SIMON PROPERTY GROUP Real Estate 3,909.74 0.04%
JONES APPAREL CORP Textiles & Apparel 3,880.67 0.04%
PHELPS DODGE CORP Metals & Mining 3,867.11 0.04%
TOYS R US Specialty Retail 3,863.95 0.04%
GLOBAL MARINE Energy Equipment & Services 3,848.70 0.04%
COOPER INDUSTRIES Electrical Equipment 3,802.83 0.04%
VIGNETTE CORP Internet Software & Services 3,595.47 0.04%
SHERWIN-WILLIAMS CO Specialty Retail 3,571.86 0.04%
INFOSPACE Internet Software & Services 3,456.73 0.04%
HILTON HOTELS CORP Hotels Restaurants & Leisure 3,454.77 0.04%
GRAINGER (WW) Trading Companies & Distributors 3,435.66 0.04%
SAFECO CORP Insurance 3,421.76 0.04%
GENUINE PARTS CO Trading Companies & Distributors 3,393.45 0.04%
CERIDIAN CORP IT Consulting & Services 3,341.08 0.03%
INKTOMI CORP Software 3,284.53 0.03%
HARRAH'S ENTERTAINMENT Hotels Restaurants & Leisure 3,266.83 0.03%
RAYTHEON CO A Aerospace & Defense 3,263.56 0.03%
AVAYA INC. Communications Equipment 3,252.55 0.03%
BLOCK (H&R) Comercial Services & Supplies 3,220.53 0.03%
AKAMAI TECHNOLOGIES Internet Software & Services 3,103.88 0.03%
VF CORP Textiles & Apparel 3,075.91 0.03%
PARAMETRIC TECHNOLOGY Software 3,029.09 0.03%
SERVICEMASTER CO Comercial Services & Supplies 3,016.74 0.03%
BLACK & DECKER CORP Household Durables 3,014.14 0.03%
CMGI Internet Software & Services 2,970.79 0.03%
ITT INDUSTRIES Industrial Conglomerates 2,928.65 0.03%
NUCOR CORP Metals & Mining 2,819.50 0.03%
WHIRLPOOL CORP Household Durables 2,790.69 0.03%
FLUOR CORP Construction & Engineering 2,762.10 0.03%
DONNELLEY (RR) & SONS Comercial Services & Supplies 2,727.66 0.03%
MEAD CORP Paper & Forest Products 2,717.54 0.03%
SEALED AIR CORP Containers & Packaging 2,660.80 0.03%
GOODYEAR TIRE & RUBBER Auto Components 2,651.06 0.03%
NEWMONT MINING CORP Metals & Mining 2,626.23 0.03%
HOST MARRIOTT CORP Real Estate 2,618.29 0.03%
US AIRWAYS GROUP Airlines 2,586.04 0.03%
DANA CORP Auto Components 2,500.51 0.03%
MANPOWER Comercial Services & Supplies 2,462.95 0.03%
ALLIED WASTE INDUSTRIES Comercial Services & Supplies 2,422.88 0.03%
SHAW INDUSTRIES Household Durables 2,422.35 0.03%
CRESCENT REAL ESTATE Real Estate 2,403.33 0.02%
SUPERVALU Food & Drug Retailing 2,398.32 0.02%
STANLEY WORKS Household Durables 2,360.61 0.02%
TEMPLE INLAND Containers & Packaging 2,345.42 0.02%
APPLERA-CELERA GE(PE COR Biotechnology 2,339.45 0.02%
AMERICAN PWR CONVERSION Electrical Equipment 2,285.89 0.02%
MAYTAG CORP Household Durables 2,243.80 0.02%
LIZ CLAIBORNE Textiles & Apparel 2,090.42 0.02%
SAPIENT CORP IT Consulting & Services 2,081.11 0.02%
CENTEX CORP Household Durables 2,080.60 0.02%
</TABLE>
A-52
<PAGE>
<TABLE>
<CAPTION>
Index Market Weight in
Capitalization MSCI Index
Constituent Name Industry (Millions of US$) (%)
---------------- -------- ----------------- ---
<S> <C> <C> <C>
VISTEON CORP Auto Components 1,948.63 0.02%
NAVISTAR INTERNATIONAL Machinery 1,924.72 0.02%
INT'L FLAVORS FRAGRANCES Chemicals 1,866.72 0.02%
UAL CORP Airlines 1,803.26 0.02%
NOVELL Software 1,743.60 0.02%
GALILEO INTERNATIONAL Comercial Services & Supplies 1,724.23 0.02%
ALLEGHENY TECHNOLOGIES Metals & Mining 1,597.33 0.02%
PULTE CORP Household Durables 1,590.31 0.02%
SNAP-ON Auto Components 1,519.13 0.02%
BRUNSWICK CORP Leisure Equipment & Products 1,510.40 0.02%
CLAYTON HOMES Household Durables 1,388.41 0.01%
CALLAWAY GOLF CO Leisure Equipment & Products 1,359.47 0.01%
CUMMINS ENGINE CO Machinery 1,345.41 0.01%
HOMESTAKE MINING CO Metals & Mining 1,299.04 0.01%
CNF TRANSPORTATION Air Freight & Couriers 1,261.68 0.01%
USX-US STEEL GROUP Metals & Mining 1,259.67 0.01%
PORTAL SOFTWARE Software 1,085.04 0.01%
USG CORP Building Products 857.54 0.01%
RITE AID CORP Food & Drug Retailing 830.02 0.01%
BRIGGS & STRATTON CORP Machinery 801.62 0.01%
WORTHINGTON INDUSTRIES Metals & Mining 791.96 0.01%
LOUISIANA-PACIFIC CORP Paper & Forest Products 735.77 0.01%
CROWN CORK & SEAL CO Containers & Packaging 510.34 0.01%
SERVICE CORP INT'L Health Care Providers & Services 510.19 0.01%
PACIFICARE HEALTH SYS Health Care Providers & Services 440.66 0.00%
OWENS-ILLINOIS Containers & Packaging 419.84 0.00%
BETHLEHEM STEEL CORP Metals & Mining 296.65 0.00%
DISNEY (WALT) INT.(GO.CO Internet Software & Services 209.24 0.00%
ARMSTRONG HOLDINGS Building Products 38.31 0.00%
</TABLE>
A-53
<PAGE>
APPENDIX B
The Company intends to effect deliveries of Portfolio Securities on a basis of
"T" plus three New York business days (i.e., days on which the New York Stock
Exchange is open) in the relevant foreign market of each Index Fund, except as
discussed below. The ability of the Company to effect in-kind redemptions within
three New York business days of receipt of a redemption request is subject,
among other things, to the condition that, within the time period from the date
of the request to the date of delivery of the securities, there are no days that
are local market holidays but "good" New York business days. For every
occurrence of one or more intervening holidays in the local market that are not
holidays observed in New York, the redemption settlement cycle will be extended
by the number of such intervening local holidays. In addition to holidays, other
unforeseeable closings in a foreign market due to emergencies may also prevent
the Company from delivering securities within three New York business days.
The securities delivery cycles currently practicable for transferring Portfolio
Securities to redeeming investors, coupled with local market holiday schedules,
will require a delivery process longer than seven calendar days for some Index
Fund, in certain circumstances, during the calendar year 2001. The holidays
applicable to each Index Fund during such periods are listed below, as are
instances where more than seven days will be needed to deliver redemption
proceeds. Although certain holidays may occur on different dates in subsequent
years, the number of days required to deliver redemption proceeds in any given
year is not expected to exceed the maximum number of days listed below for each
Index Fund. The proclamation of new holidays, the treatment by market
participants of certain days as "informal holidays" (e.g., days on which no or
limited securities transactions occur, as a result of substantially shortened
trading hours), the elimination of existing holidays, or changes in local
securities delivery practices, could affect the information set forth herein at
some time in the future.
iShares MSCI Australia Index Fund
Regular Holidays. The regular Australian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Australia Day January 26, 2001
Labour Day March 12, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Anzac Day April 25, 2001
Queen's Birthday June 11, 2001
Bank Holiday August 6, 2001
Labour Day October 1, 2001
Melbourne Cup Day November 6, 2001
Christmas Day December 25, 2001
Boxing Day December 26, 2001
Redemption. The Company is not aware of a redemption request over any Australian
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2001.
B-1
<PAGE>
iShares MSCI Austria Index Fund
Regular Holidays. The regular Austrian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Labour Day May 1, 2001
Ascension Day May 24, 2001
Whit Monday June 4, 2001
Corpus Christi June 14, 2001
Assumption Day August 15, 2001
National Holiday October 26, 2001
All Saints Day November 1, 2001
Christmas Eve December 24, 2001
Christmas Day December 25, 2001
St. Stephen's Day December 26, 2001
Last Weekday of the Year December 31, 2001
Redemption. A redemption request over the following Austrian holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall during the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
12/24/01 Christmas Eve 12/19/01 12/27/01 R +8
12/25/01 Christmas Day 12/20/01 12/28/01 R +8
12/26/01 St. Stephen's Day 12/21/01 1/2/02 R +12
</TABLE>
In the calendar year 2001, R+12 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Austria Index Fund.
iShares MSCI Belgium Index Fund
Regular Holidays. The regular Belgian holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Labour Day May 1, 2001
Ascension Day May 24, 2001
Whit Monday June 4, 2001
Assumption Day August 15, 2001
All Saints Day November 1, 2001
Christmas Day December 25, 2001
Boxing Day December 26, 2001
Last Weekday of the Year December 31, 2001
Redemption. The Company is not aware of a redemption request over any Belgian
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2001.
B-2
<PAGE>
iShares MSCI Brazil (Free) Index Fund
Regular Holidays. The regular Brazilian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Rio de Janerio City Anniversary January 20, 2001
Foundation Day for Sao Paulo January 25, 2001
Carnival Monday February 26, 2001
Carnival Tuesday February 27, 2001
Carnival February 28, 2001
Good Friday April 13, 2001
Labour Day May 1, 2001
Corpus Christi June 14, 2001
State Holiday July 9, 2001
Independence Day September 7, 2001
Day of Our Lady Aparecida October 12, 2001
All Souls Day November 2, 2001
Proclamation of the Republic November 15, 2001
Christmas Eve December 24, 2001
Christmas Day December 25, 2001
Last Weekday of the Year December 31, 2001
Redemption. A redemption request over the following Brazilian holidays that
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
2/26/01 Carnival 2/21/01 3/1/01 R +8
2/27/01 Carnival 2/22/01 3/2/01 R +8
2/28/01 Carnival 2/23/01 3/3/01 R +10
</TABLE>
In the calendar year 2001, R+10 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Brazil (Free) Index Fund.
iShares MSCI Canada Index Fund
Regular Holidays. The regular Canadian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Good Friday April 13, 2001
Victoria Day May 21, 2001
Canada Day Observed July 2, 2001
Civic Holiday August 6, 2001
Labour Day September 3, 2001
Thanksgiving Day October 8, 2001
Remembrance Day Observed November 12, 2001
Christmas Day December 25, 2001
Boxing Day December 26, 2001
Redemption. The Company is not aware of a redemption request over any Canadian
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2001.
B-3
<PAGE>
iShares MSCI EMU Index Fund
Regular Holidays. The dates in the calendar year 2001 on which the regular
Austrian, Belgian, Finnish, French, German, Irish, Italian, Dutch, Portuguese
and Spanish holidays affecting the relevant securities markets fall are as
follows:
<TABLE>
<S> <C> <C>
Austria
January 1, 2001 June 4, 2001 December 24, 2001
April 13, 2001 June 14, 2001 December 25, 2001
April 16, 2001 August 15, 2001 December 26, 2001
May 1, 2001 October 26, 2001 December 31, 2001
May 24, 2001 November 1, 2001
Belgium
January 1, 2001 May 24, 2001 December 25, 2001
April 13, 2001 June 4, 2001 December 26, 2001
April 16, 2001 August 15, 2001 December 31, 2001
May 1, 2001 November 1, 2001
Finland
January 1, 2001 May 24, 2001 December 24, 2001
April 13, 2001 June 22, 2001 December 25, 2001
April 16, 2001 December 6, 2001 December 26, 2001
May 1, 2001
France
January 1, 2001 May 1, 2001 December 25, 2001
April 13, 2001 June 4, 2001 December 26, 2001
April 16, 2001 November 1, 2001
Germany
January 1, 2001 May 1, 2001 December 26, 2001
April 13, 2001 December 24, 2001 December 31, 2001
April 16, 2001 December 25, 2001
Ireland
January 1, 2001 May 7, 2001 December 25, 2001
March 19, 2001 June 4, 2001 December 26, 2001
April 13, 2001 August 6, 2001 December 27, 2001
April 16, 2001 October 29, 2001
Italy
January 1, 2001 May 1, 2001 December 25, 2001
April 13, 2001 August 15, 2001 December 26, 2001
April 16, 2001 December 24, 2001
Netherlands
January 1, 2001 April 30, 2001 December 26, 2001
April 13, 2001 May 24, 2001
April 16, 2001 December 25, 2001
Portugal
January 1, 2001 May 1, 2001 November 1, 2001
February 27, 2001 June 13, 2001 December 24, 2001
April 13, 2001 June 14, 2001 December 25, 2001
April 16, 2001 August 15, 2001 December 26, 2001
April 25, 2001 October 5, 2001
</TABLE>
B-4
<PAGE>
<TABLE>
Spain
<S> <C> <C>
January 1, 2001 May 15, 2001 October 12, 2001
January 22, 2001 June 4, 2001 November 1, 2001
March 19, 2001 July 25, 2001 November 9, 2001
April 12, 2001 July 31, 2001 December 6, 2001
April 13, 2001 August 15, 2001 December 24, 2001
April 16, 2001 August 24, 2001 December 25, 2001
May 1, 2001 September 11, 2001 December 26, 2001
May 2, 2001 September 24, 2001
</TABLE>
Redemption. A redemption request over the following holidays would result in a
settlement period that will exceed 7 calendar days (examples are based on the
days particular holidays fall during the calendar year 2001). The longest
redemption cycle for the iShares MSCI EMU Index Fund is a function of the
longest redemption cycles among the countries whose stocks comprise this Index
Fund. In the calendar year 2001, the dates of the regular holidays affecting the
German securities markets present the worst-case redemption cycle for the
iShares MSCI EMU Index Fund as follows:
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
12/24/01 Christmas Eve 12/19/01 12/27/01 R +8
12/25/01 Christmas Day 12/20/01 12/28/01 R +8
12/26/01 St. Stephen's Day 12/21/01 1/02/02 R +12
</TABLE>
In the calendar year 2001, R+12 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
EMU Index Fund.
iShares MSCI France Index Fund
Regular Holidays. The regular French holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Labour Day May 1, 2001
Whit Monday June 4, 2001
All Saints Day November 1, 2001
Christmas Day December 25, 2001
Boxing Day December 26, 2001
Redemption. The Company is not aware of a redemption request over any French
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2001.
iShares MSCI Germany Index Fund
Regular Holidays. The regular German holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Labour Day May 1, 2001
Christmas Eve December 24, 2001
Christmas Day December 25, 2001
St. Stephen's Day December 26, 2001
New Year's Eve December 31, 2001
B-5
<PAGE>
Redemption. A redemption request over the following German holidays would result
in a settlement period that will exceed 7 calendar days (examples are based on
the days particular holiday fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
12/24/01 Christmas Eve 12/19/01 12/27/01 R +8
12/25/01 Christmas Day 12/20/01 12/28/01 R +8
12/26/01 St. Stephen's Day 12/21/01 1/2/02 R + 12
</TABLE>
In the calendar year 2001, R+12 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Germany Index Fund.
iShares MSCI Greece Index Fund
Regular Holidays. The regular Greek holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
Monday in Lent February 26, 2001
Orthodox Good Friday April 13, 2001
Orthodox Easter Monday April 16, 2001
Labour Day May 1, 2001
Whit Monday June 4, 2001
Assumption Day August 15, 2001
Christmas Day December 25, 2001
Christmas Holiday December 26, 2001
Redemption. The Company is not aware of a redemption request over any Greek
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2001.
iShares MSCI Hong Kong Index Fund
Regular Holidays. The regular Hong Kong holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
First Weekday in January January 1, 2001
Lunar New Year's Eve January 23, 2001
Lunar New Year's Day January 24, 2001
Second Day of Lunar New Year January 25, 2001
Third Day of Lunar New Year January 26, 2001
Ching Ming Festival April 5, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Buddha's Birthday April 30, 2001
Labour Day May 1, 2001
Tuen Ng Festival June 25, 2001
SAR Establishment Day Observed July 2, 2001
Chinese National Day October 1, 2001
Day following Mid-Autumn Festival October 2, 2001
Chung Yeung Festival October 25, 2001
Christmas Eve December 24, 2001
Christmas Day December 25, 2001
Christmas Holiday December 26, 2001
New Year's Eve December 31, 2001
B-6
<PAGE>
Redemption. A redemption request over the following Hong Kong holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
1/23/01 Lunar New Year's Eve 1/18/01 1/29/01 R +11
1/24/01 Lunar New Year's Day 1/19/01 1/30/01 R +11
1/25/01 Second Day of Lunar New Year 1/22/01 1/31/01 R +8
12/24/01 Christmas Eve 12/19/01 12/27/01 R +8
12/25/01 Christmas Day 12/20/01 12/28/01 R +8
12/26/01 Christmas Holiday 12/21/01 1/2/02 R +12
</TABLE>
In the calendar year 2001, R+12 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Hong Kong Index Fund.
iShares MSCI Indonesia (Free) Index Fund
Regular Holidays. The regular Indonesian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Idul Adha March 6, 2001
First Day of Muharram March 26, 2001
Good Friday April 13, 2001
Waisak Day May 7, 2001
Ascension Day May 24, 2001
Prophet Muhammad's Birthday June 4, 2001
Independence Day August 17, 2001
Ascension of Muhammad October 15, 2001
Bridging Day December 14, 2001
Idul Fitri December 17, 2001
Exchange Holiday December 24, 2001
Christmas Day December 25, 2001
Exchange Holiday December 31, 2001
Redemption. The Company is not aware of a redemption request over any Indonesian
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2001.
iShares MSCI Italy Index Fund
Regular Holidays. The regular Italian holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Labour Day May 1, 2001
Assumption Day August 15, 2001
Christmas Eve December 24, 2001
Christmas Day December 25, 2001
St. Stephen's Day December 26, 2001
B-7
<PAGE>
Redemption. A redemption request over the following Italian holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
12/24/01 Christmas Eve 12/19/01 12/27/01 R +8
12/25/01 Christmas Day 12/20/01 12/28/01 R +8
12/26/01 St. Stephen's Day 12/21/01 12/31/01 R +10
</TABLE>
In the calendar year 2001, R+10 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Italy Index Fund.
iShares MSCI Japan Index Fund
Regular Holidays. The regular Japanese holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Bank Holiday January 2, 2001
Bank Holiday January 3, 2001
Adults Day January 8, 2001
National Foundation Day Observed February 12, 2001
Vernal Equinox Day March 20, 2001
Greenery Day Observed April 30, 2001
Constitution Memorial Day May 3, 2001
National Holiday May 4, 2001
Children's Day May 5, 2001
Ocean Day July 20, 2001
Respect for the Aged Day September 15, 2001
Autumnal Equinox Day Observed September 24, 2001
Sports Day October 8, 2001
National Culture Day November 3, 2001
Labour Thanksgiving Day November 23, 2001
Emperor's Birthday Observed December 24, 2001
Exchange Holiday December 31, 2001
Redemption. A redemption request over the following Japanese holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
1/1/01 New Year's Day 12/27/00 1/04/01 R +8
1/2/01 Bank Holiday 12/28/00 1/05/01 R +8
1/3/01 Bank Holiday 12/29/00 1/08/01 R +10
4/30/01 Greenery Day 4/27/01 5/7/01 R +10
12/24/01 Emperor's Birthday Observed 12/19/01 12/27/01 R +8
</TABLE>
In the calendar year 2001, R+10 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Japan Index Fund.
B-8
<PAGE>
iShares MSCI Malaysia (Free) Index Fund
Regular Holidays. The regular Malaysian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Chinese New Year January 24, 2001
Second Day of Chinese New Year January 25, 2001
Federal Territory Day February 1, 2001
Hari Raya Qurban March 6, 2001
First Day of Muharram March 26, 2001
Labour Day May 1, 2001
Wesak Day May 7, 2001
Birthday of His Majesty Yang Di Pertuan Agong June 2, 2001
Prophet Muhammad's Birthday June 4, 2001
National Day August 31, 2001
Deepavali November 14, 2001
Hari Raya Puasa December 17, 2001
Christmas Day December 25, 2001
Redemptions. In light of the Malaysian capital restrictions imposed in September
1998, the Company is concerned about its ability to honor redemptions of
Creation Units of iShares of the iShares MSCI Malaysia (Free) Index Fund. To the
extent the Company is presented with requests for the redemption of Creation
Units of iShares of the iShares MSCI Malaysia (Free) Index Fund, the Company
will seek to honor such requests consistent with the Malaysian capital
restrictions. Based on the information available to date, the Company believes
that (i) it cannot currently make in-kind redemptions of iShares of the iShares
MSCI Malaysia (Free) Index Fund and (ii) it may only be able to honor redemption
requests through the delivery of Malaysian ringgits in Malaysia, subject to
receipt of Malaysian Central Bank approval on a case by case basis. In the
current circumstances, the Company suggests that requests for the redemption of
Creation Units of Malaysia Series iShares should not be made and urges investors
contemplating such redemptions to consult with Malaysian counsel. See "Special
Factors Regarding the iShares MSCI Malaysia (Free) Index Fund" in the Statement
of Additional Information.
Assuming the Company were able to make in-kind redemptions of iShares of the
iShares MSCI Malaysia (Free) Index Fund in the manner it had done so prior to
September 1999, the Company is not aware of a redemption request over any
Malaysian holidays that would result in a settlement period that will exceed 7
calendar days during the calendar year 2001).
iShares MSCI Mexico (Free) Index Fund
Regular Holidays. The regular Mexican holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
Constitution Day February 5, 2001
Juarez's Birthday March 21, 2001
Holy Thursday April 12, 2001
Good Friday April 13, 2001
Labour Day May 1, 2001
Independence Day September 16, 2001
All Souls Day November 2, 2001
Revolution Day November 20, 2001
Our Lady of Guadalupe Day December 12, 2001
Christmas Day December 25, 2001
New Year's Eve December 31, 2001
Redemption. The Company is not aware of a redemption request over any Mexican
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2001.
B-9
<PAGE>
iShares MSCI Netherlands Index Fund
Regular Holidays. The regular Netherlands holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Queen's Birthday April 30, 2001
Ascension Day May 24, 2001
Whit Monday June 4, 2001
Christmas Day December 25, 2001
Boxing Day December 26, 2001
Redemption. The Company is not aware of a redemption request over any Dutch
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2001.
iShares MSCI Portugal Index Fund
Regular Holidays. The regular Portuguese holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Carnival Tuesday February 27, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Liberty Day April 25, 2001
Labour Day May 1, 2001
Lisbon Day June 13, 2001
Corpus Christi June 14, 2001
Assumption Day August 15, 2001
Republic Day October 5, 2001
All Saints Day November 1, 2001
Christmas Eve December 24, 2001
Christmas Day December 25, 2001
Exchange Holiday December 26, 2001
Redemption. A redemption request over the following Portuguese holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
12/24/01 Christmas Eve 12/19/01 12/27/01 R +8
12/25/01 Christmas Day 12/20/01 12/28/01 R +8
12/26/01 Exchange Holiday 12/21/01 12/31/01 R +10
</TABLE>
In the calendar year 2001, R+10 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Portugual Index Fund.
B-10
<PAGE>
iShares MSCI Singapore (Free) Index Fund
Regular Holidays. The regular Singaporean holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Chinese New Year January 24, 2001
Second Day of Chinese New Year January 25, 2001
Hari Raya Haji March 6, 2001
Good Friday April 13, 2001
Labour Day May 1, 2001
Vesak Day May 7, 2001
National Day August 9, 2001
Deepavali November 14, 2001
Hari Raya Puasa Observed December 17, 2001
Christmas Day December 25, 2001
Redemption. The Company is not aware of a redemption request over any
Singaporean holiday that would result in a settlement period that will exceed 7
calendar days during the calendar year 2001.
iShares MSCI South Africa Index Fund
Regular Holidays. The regular South African holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Human Rights Day March 21, 2001
Good Friday April 13, 2001
Family Day April 16, 2001
Freedom Day April 27, 2001
Worker's Day May 1, 2001
National Women's Day August 9, 2001
Heritage Day September 24, 2001
Day of Reconciliation Observed December 17, 2001
Christmas Day December 25, 2001
Day of Goodwill December 26, 2001
Redemption. The Company is not aware of a redemption request over the any South
African holiday that would result in a settlement period that will exceed 7
calendar days during the calendar year 2001.
iShares MSCI South Korea Index Fund
Regular Holidays. The regular South Korean holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Lunar New Year's Eve January 23, 2001
Lunar New Year's Day January 24, 2001
Second Day of Lunar New Year January 25, 2001
Independence Movement Day March 1, 2001
Arbor Day April 5, 2001
Buddha's Birthday April 30, 2001
Labour Day May 1, 2001
Memorial Day June 6, 2001
Constitution Day July 17, 2001
Liberation Day August 15, 2001
Chusok October 1, 2001
Chusok October 2, 2001
B-11
<PAGE>
National Foundation Day October 3, 2001
Christmas Day December 25, 2001
Floor Service Day December 27, 2001
Floor Service Day December 28, 2001
Floor Service Day December 31, 2001
Redemption. A redemption request over the following South Korean holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
1/23/01 Lunar New Year's Eve 1/18/01 1/26/01 R +8
1/24/01 Lunar New Year 1/19/01 1/29/01 R +10
1/25/01 Lunar New Year's Day 1/22/01 1/30/01 R +8
10/1/01 Chusok 9/26/01 10/4/01 R +8
10/2/01 Chusok 9/27/01 10/5/01 R +8
10/3/01 National Foundation Day 9/28/01 10/8/01 R +10
12/25/01 Christmas Day 12/21/01 1/2/02 R +12
12/27/01 Floor Service Day 12/24/01 1/3/02 R +10
12/28/01 Floor Service Day 12/26/01 1/4/02 R +9
</TABLE>
In the calendar year 2001, R+12 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
South Korea Index Fund.
iShares MSCI Spain Index Fund
Regular Holidays. The regular Spanish holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
St. Vincent's Day January 22, 2001
St. Joseph's Day March 19, 2001
Holy Thursday April 12, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Labour Day May 1, 2001
Madrid Day May 2, 2001
San Isidro May 15, 2001
Whit Monday June 4, 2001
St. James' Day July 25, 2001
St. Ignatius' Day July 31, 2001
Assumption Day August 15, 2001
Bilbao Day August 24, 2001
Catalonia Day September 11, 2001
Our Lady of Mercy September 24, 2001
National Holiday October 12, 2001
All Saints Day November 1, 2001
Our Lady of Almudena November 9, 2001
Constitution Day December 6, 2001
Christmas Eve December 24, 2001
Christmas Day December 25, 2001
Boxing Day December 26, 2001
Redemption. A redemption request over the following Spanish holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on days particular holidays fall in the calendar year 2001):
B-12
<PAGE>
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
4/12/01 Holy Thursday 4/9/01 4/17/01 R +8
4/13/01 Good Friday 4/10/01 4/18/01 R +8
4/16/01 Easter Monday 4/11/01 4/19/01 R +8
12/24/01 Christmas Eve 12/19/01 12/27/01 R +8
12/25/01 Christmas Day 12/20/01 12/28/01 R +10
12/26/01 Boxing Day 12/21/01 12/31/01 R +10
</TABLE>
In the calendar year 2001, R+10 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Spain Index Fund.
iShares MSCI Sweden Index Fund
Regular Holidays. The regular Swedish holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
New Year January 2, 2001
Thursday Before Good Friday April 12, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Labour Day May 1, 2001
Wed. Before Ascension May 23, 2001
Ascension Day May 24, 2001
Whit Monday June 4, 2001
Midsummer's Eve June 22, 2001
Christmas Eve December 24, 2001
Christmas Day December 25, 2001
Boxing Day December 26, 2001
New Year's Eve December 31, 2001
Redemption. A redemption request over the following Swedish holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
4/12/01 Thursday before Good Friday 4/9/01 4/17/01 R +8
4/13/01 Good Friday 4/10/01 4/18/01 R +8
4/16/01 Easter Monday 4/11/01 4/19/01 R +8
12/24/01 Christmas Eve 12/19/01 12/27/01 R +8
12/25/01 Christmas Day 12/20/01 12/28/01 R +8
12/26/01 Boxing Day 12/21/01 1/2/02 R +12
</TABLE>
In the calendar year 2001, R+12 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Sweden Index Fund.
iShares MSCI Switzerland Index Fund
Regular Holidays. The regular Swiss holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
Berchtoldstag January 2, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
Labour Day May 1, 2001
Ascension Day May 24, 2001
B-13
<PAGE>
Whit Monday June 4, 2001
National Holiday August 1, 2001
Christmas Eve December 24, 2001
Christmas Day December 25, 2001
St. Stephen's Day December 26, 2001
New Year's Eve December 31, 2001
Redemption. A redemption request over the following Swiss holidays would result
in a settlement period that will exceed 7 calendar days (examples are based on
the day particular holidays fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
12/24/01 Christmas Eve 12/19/01 12/27/01 R +8
12/25/01 Christmas Day 12/20/01 12/28/01 R +8
12/26/01 St. Stephen's Day 12/21/01 1/2/02 R +12
</TABLE>
In the calendar year 2001, R+12 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Switzerland Fund.
iShares MSCI Taiwan Index Fund
Regular Holidays. The regular Taiwanese holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Bank Holiday January 2, 2001
Second Day Before Lunar New Year January 22, 2001
Lunar New Year's Eve January 23, 2001
Lunar New Year's Day January 24, 2001
Second Day of Lunar New Year January 25, 2001
Third Day of Lunar New Year January 26, 2001
Memorial Day February 28, 2001
Tomb Sweeping Day April 5, 2001
May Day May 1, 2001
Dragon Boat Festival June 25, 2001
Moon Festival Day October 1, 2001
National Day October 10, 2001
Sun Yat-Sen's Birthday November 12, 2001
Constitution Day December 25, 2001
Redemption. A redemption request over the following Taiwanese holidays would
result in a settlement period that will exceed 7 calendar days (examples are
based on the days particular holidays fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
1/22/01 Second Day Before Lunar New Year 1/17/01 1/29/01 R +12
1/23/01 Lunar New Year's Eve 1/18/01 1/30/01 R +12
1/24/01 Lunar New Year's Day 1/19/01 1/31/01 R +12
</TABLE>
In the calendar year 2001, R+12 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Taiwan Index Fund.
B-14
<PAGE>
iShares MSCI Thailand (Free) Index Fund
Regular Holidays. The regular Thai holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
New Year's Holiday January 2, 2001
Makha Bucha Day February 8, 2001
Chakri Day April 6, 2001
Songkran Festival Day April 13, 2001
Songkran Festival Day April 16, 2001
Labour Day May 1, 2001
Visakha Bucha Day May 7, 2001
Coronation Day Observed May 8, 2001
Buddhist Lent July 6, 2001
Queen's Birthday Observed August 13, 2001
King Chulalongkorn Memorial Day October 23, 2001
King's Birthday December 5, 2001
Constitution Day December 10, 2001
New Year's Eve December 31, 2001
Redemption. The Company is not aware of a redemption request over any Thai
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2001.
iShares MSCI Turkey Index Fund
Regular Holidays. The regular Turk holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2001) are as follows:
New Year's Day January 1, 2001
Sacrifice Feast Day March 5, 2001
Second Day of Sacrifice Feast March 6, 2001
Third Day of Sacrifice Feast March 7, 2001
Fourth Day of Sacrifice Feast March 8, 2001
Exchange Holiday March 9, 2001
National Sovereignty and Children's Day April 23, 2001
Victory Day August 30, 2001
Republic Day October 29, 2001
Second Day of Ramadan Feast December 17, 2001
Third Day of Ramadan Feast December 18, 2001
Redemption. A redemption request over the following Turk holidays would result
in a settlement period that will exceed 7 calendar days (examples are based on
the days particular holidays fall in the calendar year 2001):
<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
3/5/01 Sacrifice Feast Day 2/28/01 3/12/01 R+12
3/6/01 Second Day of Sacrifice Feast 3/1/01 3/13/01 R+12
3/7/01 Third Day of Sacrifice Feast 3/2/01 3/14/01 R+12
</TABLE>
In the calendar year 2001, R+12 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Turkey Index Fund.
B-15
<PAGE>
iShares MSCI United Kingdom Index Fund
Regular Holidays. The regular United Kingdom holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2001) are as
follows:
New Year's Day January 1, 2001
Good Friday April 13, 2001
Easter Monday April 16, 2001
May Day May 7, 2001
Spring Bank Holiday May 28, 2001
August Bank Holiday August 27, 2001
Christmas Day December 25, 2001
Boxing Day December 26, 2001
Redemption. The Company is not aware of a redemption request over any United
Kingdom holiday that would result in a settlement period that will exceed 7
calendar days during the calendar year 2001).
B-16
<PAGE>
iSHARES, INC.
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
Exhibit
Number Description
------ -----------
(a.1) Registrant's Amended and Restated Articles of Incorporation.(1)
(a.2) Registrant's Articles of Amendment.(4)
(a.3) Registrant's Articles Supplementary.(8)
(a.4) Registrant's Articles of Amendment.(9)
(b.1) Registrant's Amended By-Laws.(1)
(b.2) Registrant's Amendment No. 1 to Amended By-Laws.(5)
(c.) None.
(d.1) Investment Management Agreement between Registrant and Barclays Global
Fund Advisors.(9)
(e.1) Distribution Agreement between Registrant and SEI Investments
Distribution Co.(10)
(e.2) Form of Authorized Participant Agreement.(11)
(e.3) Authorized Participant Agreement for Merrill Lynch.(3)
(e.4) Form of Sales and Investor Services Agreement.(10)
(f.) None.
(g.1) Custodian Agreement between Registrant and Morgan Stanley Trust
Company.(3)
(g.2) Amendment to Custodian Agreement.(5)
(g.3) Lending Agreement between Registrant and Morgan Stanley Trust Company.(3)
(g.4) Amended Appendix 2 to Custody Agreement.(8)
(g.5) Form of Custody Agreement between Registrant and The Chase Manhattan
Bank.(11)
(g.6) Form of Securities Lending Agreement between Registrant and The Chase
Manhattan Bank.(11)
(h.1) Amended Administration and Accounting Services Agreement between
Registrant and PFPC Inc.(6)
(h.2) Transfer Agency Services Agreement between Registrant and PNC Bank,
National Association.(3)
(h.3) Amendment to Transfer Agency Services Agreement.(5)
(h.4) Sub-License Agreement between Registrant and Barclays Global Investors
with respect to the use of the MSCI Indices. (10)
(h.5) Sub-Administration Agreement between Registrant and Morgan Stanley Trust
Company.(6)
(h.6) Assignment Letter among Morgan Stanley Trust Company, Morgan Stanley &
Co. Incorporated and PFPC Inc.(7)
(h.7) Amended Exhibit A to Sub-Administration Agreement.(8)
(i.1) None.
(j.1) Consent of Ernst & Young, LLP.
(k.) None.
(l.1) Subscription Agreement between the Registrant and Funds Distributor,
Inc.(2)
(l.2) Letter of Representations among the Registrant, Depository Trust Company
and Morgan Stanley Trust Company. (1)
(l.3) Letter of Representations between the Registrant and Depository Trust
Company. (10)
(m.) Form of 12b-1 Plan. (1)
(n.) None.
(o.) Not applicable, as Registrant is an open-end fund.
(p.1) Code of Ethics of the Registrant.(9)
(p.2) Code of Ethics of Barclays Global Fund Advisors.(9)
----------------------------
(1) Exhibit is incorporated herein by reference to Pre-Effective Amendment No.
2, filed March 1, 1996, to the Company's initial registration statement on
Form N-1A filed on September 29, 1995 (the "Registration Statement").
C-1
<PAGE>
(2) Exhibit is incorporated herein by reference to Pre-Effective Amendment No.
3 to the Registration Statement, filed on March 6, 1999.
(3) Exhibit is incorporated herein by reference to Post-Effective Amendment
("PEA") No. 1 to the Registration Statement, filed on October 30, 1996.
(4) Exhibit is incorporated herein by reference to PEA No. 2 to the
Registration Statement, filed on December 27, 1996.
(5) Exhibit is incorporated herein by reference to PEA No. 8 to the
Registration Statement, filed on August 27, 1997.
(6) Exhibit is incorporated herein by reference to PEA No. 10 to the
Registration Statement, filed on October 29, 1997.
(7) Exhibit is incorporated herein by reference to PEA No. 12 to the
Registration Statement, filed on November 25, 1998.
(8) Exhibit is incorporated herein by reference to PEA No. 16 to the
Registration Statement, filed on December 22, 1999.
(9) Exhibit is incorporated herein by reference to PEA No. 17 to the
Registration Statement, filed on November 3, 2000.
(10) Filed herewith.
(11) To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
Incorporated herein by reference to Post-Effective Amendment No. 7 to the
Registration Statement, filed on January 15, 1997.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Fund is advised by Barclays Global Fund Advisors ("BGFA"), a wholly
owned subsidiary of Barclays Global Investors, N.A. ("BGI"), 45 Fremont Street,
San Francisco, CA 94105. BGFA's business is that of a registered investment
adviser to certain open-end, management investment companies and various other
institutional investors.
The directors and officers of BGFA consist primarily of persons who during
the past two years have been active in the investment management business. Each
of the directors and executive officers of BGFA will also have substantial
responsibilities as directors and/or officers of BGI. To the knowledge of the
Registrant, except as set forth below, none of the directors or executive
officers of BGFA is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) During the last Two Fiscal Years
----------------------------------- --------------------------------------------------------------------
<S> <C>
Patricia Dunn Director of BGFA and Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Garrett F. Bouton Chairman of the Board of Directors of BGFA and Chief Operating
Chairman Officer and Director of BGI
45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Director of BGFA and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI
Chief Financial Officer 45 Fremont Street San Francisco, CA 94105
</TABLE>
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<PAGE>
ITEM 27 PRINCIPAL UNDERWRITERS
(a) The Fund's distributor, SEI Investments Distribution Co. (the
"Distributor") acts as distributor for SEI Daily Income Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional
Managed Trust, SEI Institutional International Trust, The Advisors' Inner
Circle Fund, The Pillar Funds, CUFUND, STI Classic Funds, First American
Funds, Inc., First American Investment Funds, Inc., The Arbor Fund, The
PBHG Funds, Inc., The Achievement Funds Trust, Bishop Street Funds, STI
Classic Variable Trust, ARK Funds, Huntington Funds, SEI Asset Allocation
Trust, TIP Funds, SEI Institutional Investments Trust, First American
Strategy Funds, Inc., HighMark Funds, Armada Funds, PBHG Insurance Series
Fund, Inc., Expedition Funds, Alpha Select Funds, Oak Associates Funds, The
Nevis Funds, Inc., CNI Charter Funds, The Armada Advantage Funds, Amerindo
Funds Inc., Huntington VA Funds, Friends Ivory Funds, iShares Inc., SEI
Insurance Products Trust, iShares Trust, Pitcairn Funds, and First Omaha
Funds, Inc. pursuant to distribution agreements dated July 15, 1982,
November 29, 1982, December 3, 1982, July 10, 1985, January 22, 1987,
August 30, 1988, November 14, 1991, February 28, 1992, May 1, 1992, May 29,
1992, November 1, 1992, November 1, 1992, January 28, 1993, July 16, 1993,
December 27, 1994, January 27, 1995, August 18, 1995, November 1, 1995,
January 11, 1996, April 1, 1996, April 28, 1996, June 14, 1996, October 1,
1996, February 15, 1997, March 8, 1997, April 1, 1997, June 9, 1997,
January 1, 1998, February 27, 1998, June 29, 1998, April 1, 1999, May 1,
1999, July 13, 1999, October 15, 1999, December 16, 1999, January 28, 2000,
March 29, 2000, April 25, 2000, August 1, 2000 and October 1, 2000,
respectively.
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement, and consulting
services ("Funds Evaluation") and automated execution, clearing and
settlement of securities transactions ("MarketLink").
(b) Following is information with respect to each director, officer or partner
of the Distributor. The business address of each director or officer is 1
Freedom Valley Drive, Oaks, PA 19456.
<TABLE>
<CAPTION>
Name Position and Office with the Distributor
-------------------------------------------- ----------------------------------------------
<S> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors
Richard B. Lieb Director, Executive Vice President
Carmen V. Romeo Director
Mark J. Held President & Chief Operating Officer
Dennis J. McGonigle Executive Vice President
Robert M. Silvestri Chief Financial Officer & Treasurer
Todd Cipperman Senior Vice President & General Counsel
Leo J. Dolan, Jr. Senior Vice President
Carl A. Guarino Senior Vice President
Jack May Senior Vice President
Hartland J. McKeown Senior Vice President
Kevin P. Robins Senior Vice President
Patrick K. Walsh Senior Vice President
Wayne M. Withrow Senior Vice President
Robert Aller Vice President
John D. Anderson Vice President & Managing Director
Timothy D. Barto Vice President & Assistant Secretary
Robert Crudup Vice President & Managing Director
Richard A. Deak Vice President & Assistant Secretary
Scott W. Dellorfano Vice President & Managing Director
Barbara Doyne Vice President
Jeff Drennen Vice President
Scott C. Fanatico Vice President & Managing Director
Vic Galef Vice President & Managing Director
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C>
Steven A. Gardner Vice President & Managing Director
Lydia A. Gavalis Vice President & Assistant Secretary
Greg Gettinger Vice President & Assistant Secretary
Kathy Heilig Vice President
Jeff Jacobs Vice President
Samuel King Vice President
John Kirk Vice President & Managing Director
Kim Kirk Vice President & Managing Director
John Krzeminski Vice President & Managing Director
Alan H. Lauder Vice President
Paul Lonergan Vice President & Managing Director
Ellen Marquis Vice President
Christine M. McCullough Vice President & Assistant Secretary
Carolyn McLaurin Vice President & Managing Director
Mark Nagle Vice President
Joanne Nelson Vice President
Cynthia M. Parrish Vice President & Secretary
Rob Redican Vice President
Maria Rinehart Vice President
Steve Smith Vice President
Daniel Spaventa Vice President
Kathryn L. Stanton Vice President
Lori L. White Vice President & Assistant Secretary
William E. Zitelli, Jr. Vice President & Assistant Secretary
</TABLE>
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the rules thereunder are maintained at the offices of
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
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<PAGE>
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
(a) The Company hereby undertakes to call a meeting of the shareholders for the
purpose of voting upon the question of removal of any Director when
requested in writing to do so by the holders of at least 10% of the
Company's outstanding shares of common stock and, in connection with such
meeting to comply with the provisions of Section 16(c) of the 1940 Act
relating to shareholder communications.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement under Rule 485 (b) under the Securities Act and has duly
caused this Post-Effective Amendment No. 18 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wilmington, and State of Delaware, on the 29th day of December 2000.
iSHARES, INC.
By: /s/ Nathan Most*
--------------------------------
Nathan Most, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 18 to the Registration Statement has been signed below by the
following persons, in the capacities indicated, on the 29th day of December
2000.
Signature Title
--------- -----
/s/ Nathan Most* President and Director
-----------------------------------
(Nathan Most)
/s/ John B. Carroll* Director
-----------------------------------
(John B. Carroll)
/s/ Timothy A. Hultquist* Director
-----------------------------------
(Timothy A. Hultquist)
/s/ Lloyd N. Morrisett* Director
-----------------------------------
(Lloyd N. Morrisett)
/s/ W. Allen Reed* Director
-----------------------------------
(W. Allen Reed)
Treasurer (principal financial
/s/ Stephen M. Wynne and accounting officer)
-----------------------------------
(Stephen M. Wynne)
/s/ Gary M. Gardner Attorney-In-Fact
-----------------------------------
(Gary M. Gardner)
C-6
<PAGE>
iSHARES, INC.
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
(e.1) Distribution Agreement between Registrant and SEI Investments Co.
(e.4) Form of Sales and Investors Services Agreement.
(h.4) Sub-License Agreement between Registrant and Barclays Global
Investors.
(j.1) Consent of Ernst & Young, LLP.
(l.3) Letter of Representations between the Registrant and Depository
Trust Company.
C-7
