ISHARES INC, 485APOS, 2000-11-03

ISHARES INC
485APOS, 2000-11-03

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<PAGE>

As filed with the Securities and Exchange Commission on November 3, 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. 17 [X]

and

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 19 [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):

[_] immediate upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[X] 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.

iShares, Inc. intends to have the iShares MSCI Greece, Indonesia (Free),
Portugal, South Africa, Thailand (Free), Turkey and USA Index Funds listed on
the AMEX. Dates for the commencement of sales to the public of these iShares
MSCI Index Funds have yet to be determined.

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
<TABLE>
<S> <C>
Introduction................................................................ 1
Investment Objective........................................................ 1
Principal Investment Strategies............................................. 1
Principal Risk Factors...................................................... 2
Fees and Expenses........................................................... 3
Details on each Index The iShares MSCI Index Funds
Fund's market, iShares MSCI Australia Index Fund......................................... 7
benchmark index and iShares MSCI Austria Index Fund........................................... 8
performance 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
Details on the management Investment Policies and Strategies.......................................... 36
and operations of the Additional Information About Principal Risk Factors......................... 38
Index Funds Management
Investment Adviser.......................................................... 41
Details on buying and Shareholder Information
selling iShares Determination of Net Asset Value............................................ 41
Buying and Selling iShares.................................................. 42
Dividends and Capital Gains Distributions................................... 44
Tax Matters................................................................. 44
Details on the Rule 12b-1 Distribution Arrangements................................................... 45
Distribution Plan
Per share financial data for Financial Highlights........................................................ 45
each Index Fund
</TABLE>

--------------------------------------------------------------------------------
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 for "Developed
Markets" (as determined by MSCI) based on the reinvestment of net dividends and
for "Emerging Markets" (as determined by MSCI) based on the reinvestment of
gross dividends. Currently, MSCI has determined that the following countries
are Emerging Markets: Brazil, Greece, Indonesia, Malaysia, Mexico, South
Africa, South Korea, Taiwan, Thailand and Turkey.

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.

Introduction

--------------------------------------------------------------------------------

page 1
<PAGE>

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 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; less publicly available
information about issuers; the imposition of taxes; exchange controls;
higher transaction and custody costs; settlement delays and risk of loss;
difficulties in enforcing contracts; less liquidity and smaller market
capitalizations; lesser regulation of securities markets; different
accounting and disclosure standards; governmental interference; higher
inflation; and social, economic and political uncertainties and the risk of
expropriation of assets.

. Management Risk. Because an Index Fund does not fully replicate its
benchmark index and may hold non-index stocks, it is subject to management
risk. This is the risk that the investment advisor's strategy, the
implementation of which is subject to a number of constraints, may not
produce the intended results.

. Currency Risk. Because each Index Fund's net asset value is determined on
the basis of US dollars, you may lose money if you invest in any Index Fund,
other than the iShares MSCI USA Index Fund, if the local currency of a
foreign market depreciates against the US dollar, even if the local currency
value of an Index Fund's holdings goes up.

. Emerging Market Risk. Some foreign markets in which the Index Funds invest
are considered to be emerging market countries. Investment in these
countries subjects an Index Fund to a greater risk of loss than investments
in a developed country. This is due to, among other things, greater market
volatility, lower trading volume, political and economic instability,
greater risk of market shut down and more governmental limitations on
foreign investment policy than those typically found in a developed market.
The following Index Funds invest in emerging markets: the iShares MSCI
Brazil (Free), 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......................... . % . % . % . %
Distribution (Rule 12b-1) fees.......... 0.25% 0.25% 0.25% 0.25%
Other expenses.......................... . % . % . % . %
----- ----- ----- -----
Total annual Index Fund operating
expenses............................... . % . % . % . %
Expense Reimbursement by investment
adviser................................ . % . % . % . %
----- ----- ----- -----
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......................... . % . % . % . %
Distribution (Rule 12b-1) fees.......... 0.25% 0.25% 0.25% 0.25%
Other expenses.......................... . % . % . % . %
----- ----- ----- -----
Total annual Index Fund operating
expenses............................... . % . % . % . %
Expense Reimbursement by investment
adviser................................ . % . % . % . %
----- ----- ----- -----
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......................... . % . % . % . %
Distribution (Rule 12b-1) fees.......... 0.25% 0.25% 0.25% 0.25%
Other expenses.......................... . % . % . % . %
----- ----- ----- -----
Total annual Index Fund operating
expenses............................... . % . % . % . %
Expense Reimbursement by investment
adviser................................ . % . % . % . %
----- ----- ----- -----
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. 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................ . % . % . % . %
Distribution (Rule 12b-1)
fees.......................... 0.25% 0.25% 0.25% 0.25%
Other expenses................. . % . % . % . %
----- ----- ----- -----
Total annual Index Fund
operating expenses............ . % . % . % . %
Expense Reimbursement by
investment adviser............ . % . % . % . %
----- ----- ----- -----
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................ . % . % . % . %
Distribution (Rule 12b-1)
fees.......................... 0.25% 0.25% 0.25% 0.25%
Other expenses................. . % . % . % . %
----- ----- ----- -----
Total annual Index Fund
operating expenses............ . % . % . % . %
Expense Reimbursement by
investment adviser............ . % . % . % . %
----- ----- ----- -----
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................ . % . % . % . %
Distribution (Rule 12b-1)
fees.......................... 0.25% 0.25% 0.25% 0.25%
Other expenses................. . % . % . % . %
----- ----- ----- -----
Total annual Index Fund
operating expenses............ . % . % . % . %
Expense Reimbursement by
investment adviser............ . % . % . % . %
----- ----- ----- -----
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................ . % . % . % . %
Distribution (Rule 12b-1)
fees.......................... 0.25% 0.25% 0.25% 0.25%
Other expenses................. . % . % . % . %
----- ----- ----- -----
Total annual Index Fund
operating expenses............ . % . % . % . %
Expense Reimbursement by
investment adviser............ . % . % . % . %
----- ----- ----- -----
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................
Austria..................
Belgium..................
Brazil (Free)............
Canada...................
EMU......................
France...................
Germany..................
Greece...................
Hong Kong................
Indonesia (Free).........
Italy....................
Japan....................
Malaysia (Free)..........
Mexico (Free)............
Netherlands..............
Portugal.................
Singapore (Free).........
South Africa.............
South Korea..............
Spain....................
Sweden...................
Switzerland..............
Taiwan...................
Thailand (Free)..........
Turkey...................
United Kingdom...........
USA......................
</TABLE>

The iShares MSCI Index Series

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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.................
Austria...................
Belgium...................
Brazil (Free).............
Canada....................
EMU.......................
France....................
Germany...................
Greece....................
Hong Kong.................
Indonesia (Free)..........
Italy.....................
Japan.....................
Malaysia (Free)...........
Mexico (Free).............
Netherlands...............
Portugal..................
Singapore (Free)..........
South Africa..............
Spain.....................
Sweden....................
Switzerland...............
Taiwan....................
Thailand (Free)...........
Turkey....................
United Kingdom............
USA.......................
</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).

--------------------------------------------------------------------------------
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 52 stocks traded primarily on
the Australian Stock Exchange. As of that date, the Index's three largest
stocks were , and (which comprise . %, % and %,
respectively, of the Index's market capitalization) and its three largest
industries were , and (which comprise %, % and %,
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
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
(10.19%) 2.18% 19.24%
</TABLE>
2000 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 18 stocks traded primarily on
the Vienna Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise . %, % and %, respectively, of
the Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
1.05% (1.83%) (10.36%)
</TABLE>
2000 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.

--------------------------------------------------------------------------------

page 8 iShares

<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 14 stocks traded primarily on
the Brussels Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise . %, % and %, respectively, of
the Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
11.84% 51.69% (14.05%)
</TABLE>
2000 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 46 stocks traded primarily on
the Bolsa de Valores de Sao Paulo. As of that date, the Index's three largest
stocks were , and (which comprise %, % and %, respectively,
of the Index's market capitalization) and its three largest industries were
, and (which comprise %, % and %, 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 14, 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 72 stocks traded primarily on
the Toronto Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99

<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
10.91% (6.47%) 46.13%
</TABLE>
2000 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 307 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 , and (which comprise %, % and %,
respectively, of the Index's market capitalization) and its three largest
industries were , and (which comprise %, % and %,
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 28, 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 , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
11.47% 40.78% 29.97%
</TABLE>
2000 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 , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
22.75% 28.28% 20.87%
</TABLE>
2000 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.

--------------------------------------------------------------------------------
page 14 iShares

<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 34 stocks traded primarily on
the Athens Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, 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 33 stocks traded primarily on
the Stock Exchange of Hong Kong Limited (SEHK). As of that date, the Index's
three largest stocks were , and (which comprise %, % and %,
respectively, of the Index's market capitalization) and its three largest
industries were , and (which comprise %, % and %,
respectively, of the Index's market capitalization).

Fund-Specific Risks

In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that in recent times, Hong Kong's economy has been
adversely affected by the Asian economic crisis, contributing to the current
recession. Issues and uncertainties linger regarding the integration of Hong
Kong's economy with that of China, and the manner in which the Chinese
government will honor and interpret the agreement pursuant to which Hong Kong
was returned to China by the United Kingdom.

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
(26.74%) (9.21%) 54.00%
</TABLE>
2000 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.

--------------------------------------------------------------------------------
page 16 iShares

<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 43 stocks traded primarily on
the Jakarta Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, 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 48 stocks traded primarily on
the Milan Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
35.77% 50.24% 0.53%
</TABLE>
2000 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.

--------------------------------------------------------------------------------
page 18 iShares

<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 296 stocks traded primarily on
the Tokyo Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Fund-Specific Risks

In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that the Japanese economy faces several concerns,
including: a financial system with large levels of nonperforming loans; over-
leveraged corporate balance sheets; a labor market undergoing fundamental
structural changes, as traditional lifetime employment clashes with the need
for increased labor mobility; and a changing corporate governance structure.
Japan's economy is heavily dependent on international trade and has been
adversely affected by trade tariffs and other protectionist measures.

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
(23.63%) 3.53% 57.89%
</TABLE>
2000 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 , and (which comprise %, % and %, respectively,
of the Index's market capitalization) and its three largest industries were
, and (which comprise %, % and %, 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 close to their net asset values. However, there can
be no assurances that this will continue to be the case.

--------------------------------------------------------------------------------
page 20 iShares
<PAGE>

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
(66.93%) (29.31%) 92.98%
</TABLE>
2000 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 34 stocks traded primarily on
the Mexican Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Fund-Specific Risks

In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that the Mexican economy is heavily dependent on
the health of the US economy, as the United States purchases most of Mexico's
exports. Mexico also has suffered from severe currency devaluations in the
past, and has been destabilized by local insurrections in certain regions,
particularly the State of Chiapas.

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
48.53% (35.00%) 76.12%
</TABLE>
2000 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.

--------------------------------------------------------------------------------
page 22 iShares

<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 26 stocks traded primarily on
the Amsterdam Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
20.11% 24.09% 4.54%

</TABLE>
2000 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 20 stocks traded primarily on
the Lisbon Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, 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 28 stocks traded primarily on
the Singapore Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, 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

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
(43.87%) (5.44%) 55.35%
</TABLE>
2000 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 46 stocks traded primarily on
the Johannesburg Stock Exchange. As of that date, the Index's three largest
stocks were , and (which comprise %, % and %, respectively,
of the Index's market capitalization) and its three largest industries were
, and (which comprise %, % and %, respectively, of the
Index's market capitalization).

Fund-Specific Risks

In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that South Africa has in the past experienced
internal racial and political turmoil in connection with the recently-abolished
system of apartheid. While South Africa's international isolation ended with
the enfranchisement of the black majority, the country continues to face
significant social and economic challenges, including managing the expectations
of its people in the post-apartheid era.

Prior Performance

As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.

--------------------------------------------------------------------------------
page 26 iShares
<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 91 stocks traded primarily on
the South Korean Stock Exchange. As of that date, the Index's three largest
stocks were , and (which comprise %, % and %, respectively,
of the Index's market capitalization) and its three largest industries were
, and (which comprise %, % and %, respectively, of the
Index's market capitalization).

Fund-Specific Risks

In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that while South Korea's relations with communist
North Korea have improved somewhat in recent times, each has substantial
military capabilities, and there is a risk of war between North and South Korea
at any time. Any outbreak of hostilities between the two countries could have a
severe adverse effect on the South Korean economy.

Prior Performance

Since the Fund was first offered for sale to the public on May 12, 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 35 stocks traded primarily on
the Madrid Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
23.90% 51.30% (2.12%)
</TABLE>
2000 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.

--------------------------------------------------------------------------------
page 28 iShares

<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 34 stocks traded primarily on
the Stockholm Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
11.00% 11.06% 63.93%
</TABLE>
2000 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 31 stocks traded primarily on
the Zurich Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
35.23% 18.27% (3.25%)
</TABLE>
2000 Total Return as of September 30: %

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.

--------------------------------------------------------------------------------
page 30 iShares
<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 76 stocks traded primarily on
the Taiwan Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Fund-Specific Risks

In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that owing to Taiwan's size and geographic
proximity to the People's Republic of China, and its history of political
contention with China (which regards Taiwan as a renegade province),
developments in Taiwan's ongoing relations with China, including the ongoing
risk of invasion by or war with China and other factors, may materially impact
the Taiwanese economy. The recent election of a new government in Taiwan has
resulted in increased tensions with China, which is concerned that the new
government is in favor of independence for Taiwan.

Prior Performance

Since the Fund was first offered to the public on June 23, 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 40 stocks traded primarily on
the Stock Exchange of Thailand. As of that date, the Index's three largest
stocks were , and (which comprise %, % and %, respectively,
of the Index's market capitalization) and its three largest industries were
, and (which comprise %, % and %, 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.

--------------------------------------------------------------------------------
page 32 iShares
<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 , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, 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.

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 122 stocks traded primarily on
the London Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, respectively, of the Index's
market capitalization).

Prior Performance

Annual Total Returns as of 12/31/99
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ----------
<S> <C> <C>
20.85% 18.42% 12.14%
</TABLE>
2000 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.

--------------------------------------------------------------------------------
page 34 iShares

<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 323 stocks traded primarily on
the New York Stock Exchange. As of that date, the Index's three largest stocks
were , and (which comprise %, % and %, respectively, of the
Index's market capitalization) and its three largest industries were ,
and (which comprise %, % and %, 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

--------------------------------------------------------------------------------
page 36 iShares
<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 investment in the stock of a
single issuer would account for more than 25% of the Index Fund's assets, that
the Index Fund will invest less than 25% of its net assets in such stock and
will reallocate the excess to stock(s) in the same industry or group of
industries, and/or to stock(s) in another industry or group of industries, in
its benchmark MSCI Index. Each Index Fund will evaluate these industry
weightings at least weekly, and at the time of evaluation will adjust its
portfolio composition to the extent necessary to maintain compliance with the
above policy. An Index Fund may not concentrate its investments except as
discussed above. This policy is a fundamental investment policy and may not be
changed without the approval of a majority of an Index Fund's shareholders.

As of September 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>
Index Fund Industry or Industries
---------- ----------------------
<S> <C>

</TABLE>

Borrowing Money. An Index Fund may borrow money from a bank up to a limit of
33% of the market value of its assets, but only for temporary or emergency
purposes. To the extent that an Index Fund borrows money, it may be leveraged;
at such times, the Index Fund's value may appreciate or depreciate more rapidly
than its benchmark MSCI Index. An Index Fund will not make cash purchases of
securities when the amount of money borrowed exceeds 5% of the market value of
its total assets.

Fundamental Policies. The concentration policy of each Index Fund is a
fundamental policy that may be changed only with shareholder approval. Each of
the other investment policies is a non-fundamental policy that may be changed
by the Board of Directors without shareholder approval. Shareholders will be
notified before any material change in these policies is implemented.

Tracking Error. Due to the use of the portfolio sampling technique described
above and other factors discussed in this Prospectus, an Index Fund is not
expected to track its benchmark MSCI Index with the same degree of accuracy as
would an investment vehicle that invested in every component security of its
benchmark index. The investment adviser expects that, over time, an Index
Fund's "expected tracking error" relative to the performance of its benchmark
index will be less than 5% and its tracking error will generally be greater if
its benchmark index has fewer rather than greater numbers of component stocks.
An expected tracking error of 5% means that there is a 68% probability that the
net

--------------------------------------------------------------------------------

Investment Policies and Strategies page 37
<PAGE>

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 are always
fully invested;

. the indices for countries that MSCI identifies as "Emerging Markets" are
calculated based on the reinvestment of gross dividends (that is, dividends
before reduction for taxes withheld at source), whereas the securities held
by the Index Funds for Emerging Markets countries may be subject to
withholding taxes;

. Index Funds receive income on uninvested cash interest and most Index Funds
receive income from securities lending activities, whereas the benchmark MSCI
Indices do not have such sources of income;

. the fact that each MSCI Index "smooths" dividend payments evenly over a year
while each Index Fund records dividends on the ex-dividend date; and

. the fact that an Index Fund may be subject to a different foreign withholding
tax rate than that assumed by its benchmark MSCI Index.

Although the investment adviser regularly monitors the tracking error of each
Index Fund, there can be no assurance that any Index Fund will achieve any
particular level of tracking error relative to the performance of its benchmark
MSCI Index. Semi-annual and annual reports of the Company disclose tracking
error for each Index Fund over the previous six-month period, and in the event
that tracking error exceeds 5%, the Board of Directors will consider whether it
would be appropriate to take action.

Additional Information About Principal Risk Factors

An investment in iShares of an Index Fund involves risks similar to those of
investing in a broad-based portfolio of equity securities traded on exchanges
in the relevant foreign securities market, including market fluctuations caused
by factors such as economic and political developments, changes in interest
rates and perceived trends in stock prices. Investing in iShares MSCI Index
Funds other than the

--------------------------------------------------------------------------------
page 38 iShares
<PAGE>

iShares MSCI USA Index Fund generally involves certain risks and considerations
not typically associated with investing in a fund that invests in the
securities of US issuers. The principal risk factors, which could decrease the
value of your investment, are listed and described below:

. less liquid and less efficient securities markets;

. greater price volatility;

. exchange rate fluctuations and exchange controls;

. 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.......... % MSCI Netherlands........ %
MSCI Austria............ % MSCI Portugal........... %
MSCI Belgium............ % MSCI Singapore (Free)... %
MSCI Brazil (Free)...... % MSCI South Africa....... %
MSCI Canada............. % MSCI South Korea........ %
MSCI France............. % MSCI Spain.............. %
MSCI Germany............ % MSCI Sweden............. %
MSCI Greece............. % MSCI Switzerland........ %
MSCI Hong Kong.......... % MSCI Taiwan............. %
MSCI Indonesia (Free)... % MSCI Thailand (Free).... %
MSCI Italy.............. % MSCI Turkey............. %
MSCI Japan.............. % MSCI United Kingdom..... %
MSCI Malaysia (Free).... % MSCI USA................ %
MSCI Mexico (Free)...... %
</TABLE>

The larger the percentage stated for an MSCI Index, the greater the historical
average annual volatility of that MSCI Index. Among the listed MSCI Indices,
MSCI United Kingdom reflects the lowest historical volatility, and MSCI South
Korea reflects the highest historical volatility. Short-term volatility in
these markets can be significantly greater than average annual volatility.

--------------------------------------------------------------------------------

Additional Information About Principal Risk Factors page 39
<PAGE>

Foreign Currency Fluctuations. Because each Index Fund's assets are generally
invested in non-US securities (except for the iShares MSCI USA Index Fund), and
because a substantial portion of the revenue and income of each Index Fund
(except for the iShares MSCI USA Index Fund) is received in a foreign currency,
the dollar value of an Index Fund's net assets is reduced by declines in the
value of the relevant foreign currency relative to the dollar and are
positively affected by increases in the value of that currency relative to the
dollar. Also, government or monetary authorities may impose or alter exchange
controls in a way that would adversely affect exchange rates.

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

--------------------------------------------------------------------------------
page 40 iShares
<PAGE>

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 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 (the "Advisor") is responsible for the investment
management of each Index Fund. The Advisor is a California corporation
indirectly owned by Barclays Bank PLC and is registered under the Investment
Advisers Act of 1940. Barclays Global Fund Advisors 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 $ billion. The
Advisor's principal business address is 45 Fremont Street, San Francisco,
California 94105.

For the fiscal year ended August 31, 2000, the investment adviser received the
following fees as a percentage of the average daily net assets of each of the
iShares MSCI Index Funds.

<TABLE>
<CAPTION>
Percentage of Percentage of
Average Daily Average Daily
iShares MSCI Index Fund Net Assets iShares MSCI Index Fund Net Assets
----------------------- ------------- ----------------------- -------------
<S> <C> <S> <C>
Australia............... % Malaysia (Free)......... %
Austria................. % Mexico (Free)........... %
Belgium................. % Netherlands............. %
Brazil (Free)........... % Singapore (Free)........ %
Canada.................. % South Korea............. %
EMU..................... % Spain................... %
France.................. % Sweden.................. %
Germany................. % Switzerland............. %
Hong Kong............... % Taiwan.................. %
Italy................... % United Kingdom.......... %
Japan................... %
</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 Malaysia (Free), South Korea and Taiwan Index Funds
are determined as of 8:30 a.m. (Eastern time) and the net asset value of the
iShares MSCI Brazil (Free)

--------------------------------------------------------------------------------

page 41
<PAGE>

Index Fund is determined at 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.

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 any other 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. The maximum transaction fees that may apply
to in-kind Creation Unit purchases and redemptions are listed in the second
column on the table below. To the extent purchases and redemptions for cash are
available, additional variable charges, up to the maximums listed in the third
and fourth columns of the table below, will apply (in addition to the fees
listed in the second column). This table is subject to revision from time to
time. (Investors are also responsible for payment of the costs of transferring
portfolio securities to the Company, in the case of a purchase transaction, or
from the Company to their own account, in the case of a redemption
transaction.)

<TABLE>
<CAPTION>
In-kind and Cash Additional Variable Additional Variable
iShares Purchases and Charge for Cash Charge for Cash
MSCI Index Series Redemptions Purchases* Redemptions*
----------------- ---------------- ------------------- -------------------
<S> <C> <C> <C>
Australia............... $1,750 0.60% 0.60%
Austria................. $1,600 0.67% 0.67%
Belgium................. $1,500 0.30% 0.30%
Brazil (Free)........... $4,725 ** ***
Canada.................. $3,250 0.30% 0.30%
EMU..................... $8,000 1.05% 1.05%
France.................. $3,400 0.25% 0.25%
Germany................. $2,400 0.25% 0.25%
Greece..................
Hong Kong............... $3,800 0.60% 0.60%
Indonesia (Free)........
Italy................... $2,100 0.30% 0.30%
Japan................... $7,600 0.15% 0.40%
Malaysia (Free)......... $4,150 *** ***
Mexico (Free)........... $2,200 0.50% 0.50%
Netherlands............. $1,900 0.25% 0.25%
Portugal................
Singapore (Free)........ $2,500 1.60% 1.30%
South Africa............ $3,200 1.60% 1.60%
South Korea............. $4,400 *** ***
Spain................... $2,300 0.25% 0.45%
</TABLE>

--------------------------------------------------------------------------------
page 42 iShares
<PAGE>

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 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.

--------------------------------------------------------------------------------

Shareholder Information page 43
<PAGE>

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 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.

--------------------------------------------------------------------------------
page 44 iShares
<PAGE>

By law, each Index Fund must withhold 31% of a shareholder's distributions and
proceeds if the shareholder has not provided a taxpayer identification number
or social security number.

Taxes When iShares Are Sold on the AMEX. Currently, any capital gain or loss
realized upon a sale of iShares is generally treated as long-term capital gain
or loss if the iShares have been held for more than one year and as short-term
capital gain or loss if the iShares have been held for one year or less.

The foregoing discussion summarizes some of the consequences under current
federal tax law of an investment in an Index Fund. It is not a substitute for
personal tax advice. Consult your personal tax adviser about the potential tax
consequences of an investment in an Index Series under all applicable tax laws.

Distribution Arrangements

The Company has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 that allows the Company to pay distribution fees for the sale and
distribution of iShares. Because these fees are paid out of an Index Fund's
assets on an ongoing basis, over time the fees will increase the cost of your
investment and may cost you more than paying other types of sales charges. The
fees paid under the Rule 12b-1 Plan are calculated and paid monthly with
respect to each Index Fund at a rate set from time to time by the Board,
provided that the annual rate may not exceed .25% of the average daily net
assets of each Index Fund. These fees are currently being paid at the maximum
rate. The distribution fees payable under the 12b-1 Plan are used to pay
distributions-related expenses, including: compensation to the distributor at a
rate fixed by the Company's Board of Directors from time to time (currently
.02% of the Company's average daily net assets, subject to an annual minimum of
$845,000); compensation to a sales and marketing consultant retained by the
Company at a rate of .035% of the Company's average daily net assets; and
reimbursements of expenses incurred by the distributor and other persons
(principally the Adviser in connection with the distribution of the Company's
shares). In addition, the distributor has entered into sales and investor
services agreements with broker-dealers or other persons that are DTC
Participants to provide distribution assistance, including broker-dealer and
shareholder support and educational and promotional services. Under the terms
of each sales and investor services agreement, the distributor will pay broker-
dealers or other persons, out of 12b-1 fees received from an Index Fund, at the
annual rate of up to .25% of 1% of the average 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 ,
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.

--------------------------------------------------------------------------------

Financial Highlights page 45
<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............ $ $ 7.75 $ 10.35 $ 10.15 $ 9.95(1)
------- ------- ------- ------- -------
Net investment
income/(loss)+.... 0.20 0.23 0.17 0.10
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies........ 2.29 (2.60) 0.47 0.29
------- ------- ------- ------- -------
Net
increase/(decrease)
in net assets
resulting from
operations...... 2.49 (2.37) 0.64 0.39
------- ------- ------- ------- -------
Less Distributions
Dividends from
net investment
income............ (0.19) (0.23) (0.16) (0.08)
Dividends in
excess of net
investment
income............ 0.00** 0.00** (0.04) (0.05)
Distributions
from net realized
gains............. -- -- (0.04) (0.02)
Distributions in
excess of net
realized gains.... -- -- -- --
Return of
capital........... (0.06) -- (0.20) (0.04)
------- ------- ------- ------- -------
Total dividends
and
distributions... (0.25) (0.23) (0.44) (0.19)
------- ------- ------- ------- -------
Net asset value,
end of period..... $ 9.99 $ 7.75 $ 10.35 $ 10.15
======= ======= ======= ======= =======
Total Investment
Return(2)......... 32.09% (23.11)% 6.23% 3.88%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)............ $53,957 $34,099 $41,406 $12,177
Ratios of
expenses to
average net
assets(5)......... 1.00% 1.05 % 1.33% 1.59%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)......... 2.03% 2.38 % 1.57% 2.18%(3)
Portfolio
turnover(6)....... 13.83% 1.49 % 5.30% 8.84%(4)
<CAPTION>
iShares MSCI Austria Index Fund iShares MSCI Belgium Index Fund
------------------------------------------------------ ----------------------------------------------------
For the For the For the For the For the For the For the For the For the For the
year year year year period year year year year period
ended ended ended ended 03/12/96*- ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96 08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
-------- ---------- --------- --------- -------------- -------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period............ $ $ 10.11 $10.51 $10.40 $ 10.91(1) $ $ 18.40 $ 15.64 $ 14.99 $14.92(1)
-------- ---------- --------- --------- -------------- -------- ---------- --------- --------- ------------
Net investment
income/(loss)+.... 0.10 0.06 (0.02) 0.04 0.08 0.24 0.77 0.40
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies........ (0.98) 0.20 0.13 (0.41) (0.30) 6.09 0.62 0.36
-------- ---------- --------- --------- -------------- -------- ---------- --------- --------- ------------
Net
increase/(decrease)
in net assets
resulting from
operations...... (0.88) 0.26 0.11 (0.37) (0.22) 6.33 1.39 0.76
-------- ---------- --------- --------- -------------- -------- ---------- --------- --------- ------------
Less Distributions
Dividends from
net investment
income............ (0.07) (0.04) -- (0.02) -- (0.27) (0.33) (0.54)
Dividends in
excess of net
investment
income............ (0.01) (0.01) -- (0.01) (0.01) (1.21) (0.28) (0.09)
Distributions
from net realized
gains............. -- (0.61) -- (0.03) (1.19) (1.99) (0.12) (0.06)
Distributions in
excess of net
realized gains.... -- 0.00** -- -- -- -- -- --
Return of
capital........... (0.02) 0.00** -- (0.08) (0.91) (0.10) (0.01) --
-------- ---------- --------- --------- -------------- -------- ---------- --------- --------- ------------
Total dividends
and
distributions... (0.10) (0.66) -- (0.14) (2.11) (3.57) (0.74) (0.69)
-------- ---------- --------- --------- -------------- -------- ---------- --------- --------- ------------
Net asset value,
end of period..... $ 9.13 $10.11 $10.51 $ 10.40 $ 16.07 $ 18.40 $ 15.64 $14.99
======== ========== ========= ========= ============== ======== ========== ========= ========= ============
Total Investment
Return(2)......... (8.69)% 2.16% 1.06 % (3.39)%(4) (1.00)% 39.42% 9.26% 5.01%(4)

Ratios/Supplemental
Data
Net assets, end
of period (in
000's)............ $12,776 $8,085 $4,205 $13,520 $13,496 $25,765 $32,528 $1,800
Ratios of
expenses to
average net
assets(5)......... 1.31 % 1.41% 1.68 % 1.56 %(3) 1.24 % 1.04% 1.24% 2.29%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)......... 1.04 % 0.51% (0.22)% 0.87 %(3) 0.45 % 1.28% 4.63% 5.67%(3)
Portfolio
turnover(6)....... 49.95 % 36.14% 28.47 % 9.60 %(4) 62.99 % 50.46% 16.83% 6.25%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/(loss) to average net assets would have been as
follows:
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.33% 1.60%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 1.57% 2.17%(3)
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.69 % 1.57%(3) -- -- 1.24% 2.30%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- (0.22)% 0.86%(3) -- -- 4.63% 5.66%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).

--------------------------------------------------------------------------------
iShares

page 46
<PAGE>

<TABLE>
<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............ $ $ 9.90 $13.43 $ 10.60 $10.17(1)
------- ------ ------ ------- -------
Net investment
income/(loss)+.... 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........ 3.87 (2.89) 2.97 0.43
------- ------ ------ ------- -------
Net
increase/(decrease)
in net assets
resulting from
operations...... 3.94 (2.82) 3.02 0.47
------- ------ ------ ------- -------
Less Distributions
Dividends from
net investment
income............ (0.08) (0.13) (0.05) (0.03)
Dividends in
excess of net
investment
income............ (0.01) (0.00)** (0.00)** (0.01)
Distributions
from net realized
gains............. (0.53) (0.58) (0.14) --
Distributions in
excess of net
realized gains.... -- -- -- 0.00**
Return of
capital........... -- -- -- 0.00**
------- ------ ------ ------- -------
Total dividends
and
distributions... (0.62) (0.71) (0.19) (0.04)
------- ------ ------ ------- -------
Net asset value,
end of period..... $13.22 $ 9.90 $ 13.43 $ 10.60
======= ====== ====== ======= =======
Total Investment
Return(2)......... 39.71% (21.69)% 28.50% 4.63%(4)

Ratios/Supplemental
Data
Net assets, end
of period (in
000's)............ $9,253 $6,932 $24,168 $13,776
Ratios of
expenses to
average net
assets(5)......... 1.23% 1.14 % 1.35% 1.44%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)......... 0.53% 0.46 % 0.39% 0.79%(3)
Portfolio
turnover(6)....... 11.66% 3.70 % 11.02% 0.00%(4)

<CAPTION>
iShares MSCI France Index Fund iShares MSCI Germany Index Fund
---------------------------------------------------- -----------------------------------------------------
For the For the For the For the For the For the For the For the For the For the
year year year year period year year year year period
ended ended ended ended 03/12/96*- ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96 08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
-------- --------- --------- --------- ------------- -------- --------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period............ $ $ 19.13 $ 14.50 $ 12.73 $ 12.42(1) $ $ 20.25 $ 16.31 $ 13.64 $ 13.23(1)
-------- --------- --------- --------- ------------- -------- --------- ---------- --------- -------------
Net investment
income/(loss)+.... 0.14 0.30 0.17 0.17 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........ 3.88 4.76 1.95 0.45 1.31 3.92 2.77 0.47
-------- --------- --------- --------- ------------- -------- --------- ---------- --------- -------------
Net
increase/(decrease)
in net assets
resulting from
operations...... 4.02 5.06 2.12 0.62 1.43 4.21 2.80 0.53
-------- --------- --------- --------- ------------- -------- --------- ---------- --------- -------------
Less Distributions
Dividends from
net investment
income............ (0.10) (0.19) (0.15) (0.09) (0.10) (0.17) (0.03) (0.03)
Dividends in
excess of net
investment
income............ (0.02) (0.03) -- (0.01) (0.01) (0.01) (0.01) (0.01)
Distributions
from net realized
gains............. (0.05) (0.13) (0.20) 0.00** (0.31) (0.01) (0.07) --
Distributions in
excess of net
realized gains.... -- (0.01) -- -- (0.08) 0.00** -- (0.01)
Return of
capital........... (0.08) (0.07) -- (0.21) (0.01) (0.08) (0.02) (0.07)
-------- --------- --------- --------- ------------- -------- --------- ---------- --------- -------------
Total dividends
and
distributions... (0.25) (0.43) (0.35) (0.31) (0.51) (0.27) (0.13) (0.12)
-------- --------- --------- --------- ------------- -------- --------- ---------- --------- -------------
Net asset value,
end of period..... $ 22.90 $ 19.13 $ 14.50 $ 12.73 $ 21.17 $ 20.25 $ 16.31 $ 13.04
======== ========= ========= ========= ============= ======== ========= ========== ========= =============
Total Investment
Return(2)......... 21.01% 34.77% 16.60% 4.95%(4) 7.04% 25.69% 20.51% 4.00%(4)

Ratios/Supplemental
Data
Net assets, end
of period (in
000's)............ $77,885 $45,922 $14,519 $22,930 $101,645 $72,934 $24,486 $28,664
Ratios of
expenses to
average net
assets(5)......... 1.06% 1.18% 1.52% 1.84%(3) 1.00% 1.08% 1.37% 1.68%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)......... 0.67% 1.58% 1.17% 2.72%(3) 0.57% 1.43% 0.23% 1.00%(3)
Portfolio
turnover(6)....... 0.00% 5.65% 7.13% 0.00%(4) 13.67% 0.64% 9.04% 0.00%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed for purposes of this calculation, to be
reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/(loss) to average net assets would have been as
follows:
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.36% 1.45%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 0.39% 0.78%(3)
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.52% 1.85%(3) -- -- 1.37% 1.69%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 1.17% 2.71%(3) -- -- 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 47
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Hong Kong Index Fund iShares MSCI Italy Index Fund
--------------------------------------------------- -------------------------------------------------
For the For the For the For the For the For the For the For the For the For the
year year year year period year year year year period
ended ended ended ended 03/12/96*- ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96 08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period............ $ $ 6.41 $ 14.73 $ 13.05 $12.83(1) $ $ 22.89 $ 16.66 $ 13.79 $ 13.62(1)
------- ------- ------- ------- ------ ------- ------- ------- ------- -------
Net investment
income/(loss)+.... 0.29 0.35 0.26 0.15 0.17 0.18 0.12 0.25
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies........ 5.49 (8.27) 2.12 0.27 1.05 7.94 3.10 0.31
------- ------- ------- ------- ------ ------- ------- ------- ------- -------
Net
increase/(decrease)
in net assets
resulting from
operations...... 5.78 (7.92) 2.38 0.42 1.22 8.12 3.22 0.56
------- ------- ------- ------- ------ ------- ------- ------- ------- -------
Less Distributions
Dividends from
net investment
income............ (0.31) (0.28) (0.21) (0.13) (0.06) (0.18) (0.11) (0.14)
Dividends in
excess of net
investment
income............ (0.05) 0.00** (0.01) (0.02) -- (1.02) (0.24) (0.03)
Distributions
from net realized
gains............. -- -- (0.34) (0.01) (2.24) (0.69) -- (0.14)
Distributions in
excess of net
realized gains.... -- -- 0.00** -- -- -- -- --
Return of
capital........... -- (0.12) (0.14) (0.04) (0.25) -- -- (0.08)
------- ------- ------- ------- ------ ------- ------- ------- ------- -------
Total dividends
and
distributions... (0.36) (0.40) (0.70) (0.20) (2.55) (1.89) (0.35) (0.39)
------- ------- ------- ------- ------ ------- ------- ------- ------- -------
Net asset value,
end of period..... $ 11.83 $ 6.41 $ 14.73 $13.05 $ 21.56 $ 22.89 $ 16.66 $ 13.79
======= ======= ======= ======= ====== ======= ======= ======= ======= =======
Total Investment
Return(2)......... 90.51% (54.22)% 17.80% 3.22%(4) 5.14% 47.66% 23.37% 4.11%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)............ $77,200 $49,973 $25,417 $7,845 $58,224 $58,368 $32,495 $35,170
Ratios of
expenses to
average net
assets(5)......... 1.01% 1.09 % 1.43% 1.52%(3) 1.03% 1.02% 1.33% 1.43%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)......... 2.84% 3.76 % 1.71% 2.37%(3) 0.70% 0.76% 0.76% 3.69%(3)
Portfolio
turnover(6)....... 42.89% 21.50 % 22.90% 0.00%(4) 7.89% 8.16% 13.70% 19.80%(4)
<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............ $ $ 8.39 $ 12.61 $ 14.33 $ 14.79(1)
-------- ---------- ---------- ---------- --------------
Net investment
income/(loss)+.... (0.03) (0.02) (0.06) (0.07)
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies........ 4.91 (4.19) (1.65) (0.39)
-------- ---------- ---------- ---------- --------------
Net
increase/(decrease)
in net assets
resulting from
operations...... 4.88 (4.21) (1.71) (0.46)
-------- ---------- ---------- ---------- --------------
Less Distributions
Dividends from
net investment
income............ -- -- -- --
Dividends in
excess of net
investment
income............ (0.04) -- -- --
Distributions
from net realized
gains............. -- 0.00** -- --
Distributions in
excess of net
realized gains.... -- -- (0.01) --
Return of
capital........... (0.01) (0.01) -- --
-------- ---------- ---------- ---------- --------------
Total dividends
and
distributions... (0.05) (0.01) (0.01) --
-------- ---------- ---------- ---------- --------------
Net asset value,
end of period..... $ 13.22 $ 8.39 $ 12.61 $ 14.33
======== ========== ========== ========== ==============
Total Investment
Return(2)......... 58.14 % (33.38)% (11.97)% (3.11)%(4)
Ratios/Supplemental
Data
Net assets, end
of period (in
000's)............ $713,653 $201,485 $158,957 $103,164
Ratios of
expenses to
average net
assets(5)......... 0.94 % 1.04 % 1.19 % 1.37 %(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)......... (0.27)% (0.21)% (0.48)% (1.01)%(3)
Portfolio
turnover(6)....... 0.00 % 0.00 % 12.90 % 21.54 %(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/(loss) to average net assets would have been as
follows:
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.43% 1.53%(3) -- -- 1.33% 1.44%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 1.71% 2.36%(3) -- -- 0.76% 3.68%(3)
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.19 % 1.38 %(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- (0.48)% (1.02)%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).

--------------------------------------------------------------------------------
iShares

page 48
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Malaysia (Free) Index Fund iShares MSCI Mexico (Free) Index Fund
--------------------------------------------------- -------------------------------------------------
For the For the For the For the For the For the For the For the For the For the
year year year year period year year year year period
ended ended ended ended 03/12/96*- ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96 08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period............ $ $ 2.11 $ 8.23 $ 13.80 $13.24(1) $ $ 8.11 $15.11 $ 11.52 $ 9.95(1)
------- ------- ------- ------- ------ ------- ------- ------ ------- ------
Net investment
income/(loss)+.... 0.01 0.06 0.01 (0.02) 0.06 0.09 0.02 0.00**
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies........ 3.67 (6.10) (5.55) 0.59 5.36 (6.71) 4.07 1.59
------- ------- ------- ------- ------ ------- ------- ------ ------- ------
Net
increase/(decrease)
in net assets
resulting from
operations...... 3.68 (6.04) (5.54) 0.57 5.42 (6.62) 4.09 1.59
------- ------- ------- ------- ------ ------- ------- ------ ------- ------
Less Distributions
Dividends from
net investment
income............ (0.01) (0.05) 0.00** -- (0.06) (0.09) (0.01) --
Dividends in
excess of net
investment
income............ -- -- (0.01) -- (0.01) -- (0.01) (0.01)
Distributions
from net realized
gains............. -- -- -- -- -- (0.29) (0.44) --
Distributions in
excess of net
realized gains.... -- -- -- -- (0.01) -- -- --
Return of
capital........... (0.19) (0.03) (0.02) (0.01) (0.06) -- (0.04) (0.01)
------- ------- ------- ------- ------ ------- ------- ------ ------- ------
Total dividends
and
distributions... (0.02) (0.08) (0.03) (0.01) (0.14) (0.38) (0.50) (0.02)
------- ------- ------- ------- ------ ------- ------- ------ ------- ------
Net asset value,
end of period..... $ 5.59 $ 2.11 $ 8.23 $13.80 $ 13.39 $ 8.11 $ 15.11 $11.52
======= ======= ======= ======= ====== ======= ======= ====== ======= ======
Total Investment
Return(2)......... 185.81% (73.57)% (40.20)% 4.28 %(4) 66.92% (44.18)% 35.21% 15.93%(4)

Ratios/Supplemental
Data
Net assets, end
of period (in
000's)............ $95,251 $35,867 $12,339 $9,318 $21,430 $7,296 $16,627 $5,759
Ratios of
expenses to
average net
assets(5)......... 1.43% 1.09 % 1.46 % 1.58 %(3) 1.26% 1.34 % 1.63% 1.75%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)......... 0.33% 1.40 % 0.04 % (0.35)%(3) 0.52% 0.60 % 0.14% 0.01%(3)
Portfolio
turnover(6)....... 7.24% 2.11 % 0.00 % 0.00 %(4) 18.36% 14.05 % 22.80% 0.00%(4)

<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............ $ $ 23.50 $ 21.42 $17.36 $15.91(1)
-------- --------- --------- -------- ------------
Net investment
income/(loss)+.... 0.53 0.25 0.11 0.24
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies........ 1.60 3.53 4.79 1.54
-------- --------- --------- -------- ------------
Net
increase/(decrease)
in net assets
resulting from
operations...... 2.13 3.78 4.90 1.78
-------- --------- --------- -------- ------------
Less Distributions
Dividends from
net investment
income............ (0.43) (0.16) (0.10) (0.14)
Dividends in
excess of net
investment
income............ (0.01) -- (0.01) (0.01)
Distributions
from net realized
gains............. (1.42) (1.47) (0.71) (0.08)
Distributions in
excess of net
realized gains.... (0.24) -- -- (0.01)
Return of
capital........... (0.08) (0.07) (0.02) (0.09)
-------- --------- --------- -------- ------------
Total dividends
and
distributions... (2.18) (1.70) (0.84) (0.33)
-------- --------- --------- -------- ------------
Net asset value,
end of period..... $ 23.45 $ 23.50 $21.42 $17.36
======== ========= ========= ======== ============
Total Investment
Return(2)......... 8.98% 17.41% 28.04% 11.19%(4)

Ratios/Supplemental
Data
Net assets, end
of period (in
000's)............ $31,685 $22,349 $9,661 $6,962
Ratios of
expenses to
average net
assets(5)......... 1.07% 1.12% 1.46% 1.63%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)......... 2.20% 1.00% 0.54% 2.93%(3)
Portfolio
turnover(6)....... 32.13% 15.81% 12.68% 4.32%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/(loss) to average net assets would have been as
follows:
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.47% 1.59 %(3) -- -- 1.63% 1.76%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 0.04% (0.36)%(3) -- -- 0.13% 0.00%(3)
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.46% 1.64%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 0.53% 2.92%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).

Financial Highlights

--------------------------------------------------------------------------------

page 49
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Singapore (Free) Index Fund iShares MSCI Spain Index Fund
--------------------------------------------------- ------------------------------------------------
For the For the For the For the For the For the For the For the For the For the
year year year year period year year year year period
ended ended ended ended 03/12/96*- ended ended ended ended 03/12/96*-
08/31/00 08/31/99 08/31/98 08/31/97 08/31/96 08/31/00 08/31/99 08/31/98 08/31/97 08/31/96
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share
Operating
Performance
Net asset value,
beginning of
period............ $ $ 3.30 $ 8.66 $ 11.38 $12.24(1) $ $ 23.84 $ 18.49 $14.09 $13.28(1)
------- -------- ------- ------- ------ ------- ------- ------- ------ ------
Net investment
income/(loss)+.... 0.05 0.07 0.00** 0.04 0.09 0.16 0.19 0.14
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies........ 4.70 (5.37) (2.67) (0.86) 3.14 5.94 5.33 0.98
------- -------- ------- ------- ------ ------- ------- ------- ------ ------
Net
increase/(decrease)
in net assets
resulting from
operations...... 4.75 (5.30) (2.67) (0.82) 3.23 6.10 5.52 1.12
------- -------- ------- ------- ------ ------- ------- ------- ------ ------
Less Distributions
Dividends from
net investment
income............ (0.05) (0.04) 0.00** (0.03) (0.07) (0.12) (0.12) (0.18)
Dividends in
excess of net
investment
income............ (0.06) (0.01) (0.01) (0.01) (0.02) (0.02) (0.05) --
Distributions
from net realized
gains............. -- -- (0.02) -- (1.35) (0.55) (0.86) (0.13)
Distributions in
excess of net
realized gains.... -- -- -- -- -- -- -- --
Return of
capital........... (0.01) (0.01) (0.02) -- (0.04) (0.06) (0.09) --
------- -------- ------- ------- ------ ------- ------- ------- ------ ------
Total dividends
and
distributions... (0.12) (0.06) (0.05) (0.04) (1.48) (0.75) (1.12) (0.31)
------- -------- ------- ------- ------ ------- ------- ------- ------ ------
Net asset value,
end of period..... $ 7.93 $ 3.30 $ 8.66 $11.38 $ 25.59 $ 23.84 $18.49 $14.09
======= ======== ======= ======= ====== ======= ======= ======= ====== ======
Total Investment
Return(2)......... 144.52% (61.29)% (23.48)% (6.73)%(4) 13.39% 32.58% 39.15% 8.45%(4)

Ratios/Supplemental
Data
Net assets, end
of period (in
000's)............ $113,438 $47,248 $14,722 $9,107 $36,469 $25,029 $8,321 $4,227
Ratios of
expenses to
average net
assets(5)......... 0.97% 1.08 % 1.43 % 1.56 %(3) 1.04% 1.11% 1.67% 1.76%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)......... 0.76% 1.17 % 0.03 % 0.69 %(3) 0.31% 0.61% 1.04% 2.04%(3)
Portfolio
turnover(6)....... 25.31% 67.17 % 13.40 % 26.29 %(4) 16.58% 9.10% 19.21% 4.73%(4)

<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............ $ $ 18.39 $ 18.32 $14.67 $13.22(1)
-------- --------- --------- --------- ------------
Net investment
income/(loss)+.... 0.10 0.10 (0.03) 0.20
Net realized and
unrealized
gain/(loss) on
investments and
foreign currency
related
transactions and
translation of
other assets and
liabilities
denominated in
foreign
currencies........ 4.52 0.95 4.45 1.67
-------- --------- --------- --------- ------------
Net
increase/(decrease)
in net assets
resulting from
operations...... 4.62 1.05 4.42 1.87
-------- --------- --------- --------- ------------
Less Distributions
Dividends from
net investment
income............ (0.09) (0.08) -- (0.23)
Dividends in
excess of net
investment
income............ (0.01) (0.01) -- (0.07)
Distributions
from net realized
gains............. (0.62) (0.86) (0.77) (0.12)
Distributions in
excess of net
realized gains.... (0.01) (0.01) -- --
Return of
capital........... (0.02) (0.02) -- --
-------- --------- --------- --------- ------------
Total dividends
and
distributions... (0.75) (0.98) (0.77) (0.42)
-------- --------- --------- --------- ------------
Net asset value,
end of period..... $ 22.26 $ 18.39 $18.32 $14.67
======== ========= ========= ========= ============
Total Investment
Return(2)......... 25.09% 5.48% 30.10 % 14.13%(4)

Ratios/Supplemental
Data
Net assets, end
of period (in
000's)............ $20,034 $13,791 $8,243 $4,400
Ratios of
expenses to
average net
assets(5)......... 1.13% 1.17% 1.64 % 1.75%(3)
Ratios of net
investment
income/(loss) to
average net
assets(5)......... 0.49% 0.48% (0.19)% 3.05%(3)
Portfolio
turnover(6)....... 33.44% 10.88% 13.71 % 5.87%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/loss to average net assets would have been as
follows:
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.43% 1.57%(3) -- -- 1.67% 1.77%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- 0.03% 0.68%(3) -- -- 1.04% 2.03%(3)
Ratios of
expenses to
average net
assets before
waivers......... -- -- 1.64 % 1.76%(3)
Ratios of net
investment
income/(loss) to
average net
assets before
waivers......... -- -- (0.19)% 3.04%(3)
</TABLE>
(6) Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Unit(s).

--------------------------------------------------------------------------------
page 50 iShares
<PAGE>

<TABLE>
<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..... $ $ 15.55 $ 13.79 $ 12.29 $12.07(1)
------- ------- ------- ------- ------
Net investment
income/(loss)+.......... 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... 0.19 3.01 2.11 0.24
------- ------- ------- ------- ------
Net
increase/(decrease) in
net assets resulting
from operations....... 0.23 3.01 2.07 0.32
------- ------- ------- ------- ------
Less Distributions
Dividends from net
investment income....... (0.03) -- -- (0.10)
Dividends in excess of
net investment income... (0.04) (0.01) -- --
Distributions from net
realized gains.......... (0.17) (1.21) (0.57) --
Distributions in excess
of net realized gains... (0.14) -- -- --
Return of capital....... (0.01) (0.03) 0.00** --
------- ------- ------- ------- ------
Total dividends and
distributions......... (0.39) (1.25) (0.57) (0.10)
------- ------- ------- ------- ------
Net asset value, end of
period.................. $ 15.39 $ 15.55 $ 13.79 $12.29
======= ======= ======= ======= ======
Total Investment
Return(2)............... 1.47% 21.24 % 16.69 % 2.60%(4)
<CAPTION>
iShares MSCI United Kingdom 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..... $ $ 18.48 $ 16.50 $ 13.15 $ 12.14(1)
-------- --------- --------- --------- -------------
Net investment
income/(loss)+.......... 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... 2.40 2.12 3.62 1.06
-------- --------- --------- --------- -------------
Net
increase/(decrease) in
net assets resulting
from operations....... 2.84 2.49 4.00 1.27
-------- --------- --------- --------- -------------
Less Distributions
Dividends from net
investment income....... (0.36) (0.29) (0.32) (0.20)
Dividends in excess of
net investment income... (0.01) (0.04) (0.06) (0.03)
Distributions from net
realized gains.......... (0.60) (0.11) (0.17) 0.00**
Distributions in excess
of net realized gains... (0.02) -- -- --
Return of capital....... (0.08) (0.07) (0.10) (0.03)
-------- --------- --------- --------- -------------
Total dividends and
distributions......... (1.07) (0.51) (0.65) (0.26)
-------- --------- --------- --------- -------------
Net asset value, end of
period.................. $ 20.25 $ 18.48 $ 16.50 $ 13.15
======== ========= ========= ========= =============
Total Investment
Return(2)............... 15.33% 14.98% 30.48% 10.41%(4)

Ratios/Supplemental Data
Net assets, end of
period (in 000's)....... $38,499 $29,153 $13,805 $6,158
Ratios of expenses to
average net assets(5)... 1.09% 1.15 % 1.52 % 1.82%(3)
Ratios of net
investment
income/(loss) to
average net assets(5)... 0.24% (0.03)% (0.29)% 1.39%(3)
Portfolio turnover(6)... 35.10% 43.09 % 48.05 % 17.06%(4)
Ratios/Supplemental Data
Net assets, end of
period (in 000's)....... $113,402 $62,846 $29,721 $15,790
Ratios of expenses to
average net assets(5)... 0.97% 1.03% 1.38% 1.61%(3)
Ratios of net
investment
income/(loss) to
average net assets(5)... 2.16% 1.90% 2.47% 3.62%(3)
Portfolio turnover(6)... 13.24% 2.83% 1.84% 0.00%(4)
----
* Commencement of operations.
** Less than one cent per share.
+ Based on average shares outstanding throughout the period.
(1) Net asset value per share on March 12, 1996 (commencement of operations).
(2) Total investment return is calculated assuming a purchase of capital stock
at net asset value per share on the first day and a sale at the net asset
value per share on the last day of the period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at the net asset value per share on the ex-dividend date.
(3) Annualized.
(4) Not Annualized.
(5) Includes voluntary waivers through December 31, 1996. If such waivers had
not been made the ratios of expenses to average net assets and ratios of
net investment income/(loss) to average net assets would have been as
follows:
Ratios of expenses to
average net assets
before waivers........ -- -- 1.53 % 1.83%(3)
Ratios of net
investment
income/(loss) to
average net assets
before waivers........ -- -- (0.29)% 1.38%(3)
Ratios of expenses to
average net assets
before waivers........ -- -- 1.38% 1.62%(3)
Ratios of net
investment
income/(loss) to
average net assets
before waivers........ -- -- 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

--------------------------------------------------------------------------------

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<PAGE>

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The iShares MSCI Index Funds

--------------------------------------------------------------------------------

page 53
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

--------------------------------------------------------------------------------
iShares

page 54
<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 ___, 2000

This Statement of Additional Information ("SAI") provides information about the
Company and its iShares MSCI Index Funds ("Index Funds"). This information is in
addition to the information contained in the Company's Prospectus dated January
2, 2000.

This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Company's Annual Report dated August 31, 2000. The financial
statements and notes contained in the Annual Report are incorporated by may be
obtained free of charge by telephoning 1-800-iShares (1-800-474-2737).

iShares, Inc. intend to have the iShares MSCI Greece, Indonesia (Free),
Portugal, South Africa, Thailand (Free), Turkey and USA Index Funds listed on
the AMEX. Dates for the commencement of sales to the public of these iShares
MSCI Index Funds have yet to be determined.
<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," "(Pounds)" 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 ______, ATS ______, BEF ______, BRL ______, CAD ______,
EUR ______, FRF ______, DEM ______, GDR ______, HKD ______, IDR ______, ITL
______, JPY ______, KRW ______, MYR ______, MXN ______, NLG ______, PTE ______,
SGD ______, ZAR ______, ESP ______, SEK ______, CHF ______, TWD ______, THB
______, TRL ______ and GBP ______. 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 14,
2000, July 28, 2000, May 12, 2000 and June 23, 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. 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 possible
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 government
securities or other assets that are pledged as collateral to the Company in
connection with these loans generate income, securities lending enables an Index
Fund to earn additional income that may partially offset the expenses of such
Index Fund, and thereby reduce the effect that expenses have on such Index
Fund's ability to provide investment results that substantially correspond to
the price and yield performance of its respective MSCI Index. These loans may
not exceed 33% of an Index Fund's total assets. The documentation for these
loans provide that the Index Fund will receive collateral equal to at least 105%
of the current market value of the loaned securities, as marked to market each
day on the same basis as the net asset value of the Index Fund is determined,
consisting of government securities or other assets permitted by applicable
regulations and interpretations. An Index Fund pays reasonable administrative
and custodial fees in connection with the loan of securities. The Index Fund
invests collateral in short-term investments. The Chase Manhattan Bank ("Chase")
serves as Lending Agent of the Company and, in such capacity, shares with the
respective Index Fund any net income earned on invested collateral 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. The SEC 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's
Board of Directors (the "Board" or the "Directors") must terminate the loan and
regain the right to vote the securities if a material event adversely affecting
the investment occurs. Although each Index Fund will receive collateral in
connection with all loans of portfolio securities, and such collateral will be
marked to market, the Index Fund will be exposed to the risk of loss should a
borrower default on its obligation to return the borrowed securities (e.g., the
loaned securities may have appreciated

2
<PAGE>

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.

4
<PAGE>

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

5
<PAGE>

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; lesser levels of
regulation of the securities markets; more substantial government involvement in
the economy; higher rates of inflation; greater social, economic, and political
uncertainty; and the risk of nationalization or expropriation of assets and risk
of war.

Concentrations and Lack of Diversification of Certain Index Funds. Each
-----------------------------------------------------------------
Index Fund (except for the Japan, United Kingdom and USA Index Funds) is
classified as "non-diversified" for purposes of the Investment Company Act of
1940, which means that it is not limited by that Act with regard to the portion
of its assets that may be invested in the securities of a single issuer. In
addition, a number of Index Funds concentrate their investments in particular
industries as noted in the descriptions of each Index Fund. Each Index Fund,
however, whether diversified or non-diversified, intends to maintain the
required level of diversification and otherwise conduct its operations so as to
qualify as a "regulated investment company" for purposes of the U.S. Internal
Revenue Code, to relieve the Index Fund of any liability for federal income tax
to the extent that its earnings are distributed to shareholders. Compliance
with the diversification requirements of the U.S. Internal Revenue Code severely
limits the investment flexibility of certain Index Funds and makes it less
likely that such Index Funds will meet their investment objectives.

6
<PAGE>

The stocks of a particular issuers, or of issuers in particular industries,
may dominate the benchmark index of an Index Fund and, consequently, the
investment portfolio of an Index Fund. This may adversely affect the
performance of an Index Fund or subject it to greater price volatility than that
experienced by more diversified investment companies. The iShares of an Index
Fund may be more susceptible to any single economic, political or regulatory
occurrence than the portfolio securities of an investment company that is more
broadly invested in the equity securities of the relevant market.

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 _____
billion or US$ _____ billion.

The Austrian Equity Markets

General Background. Relative to international standards, the Vienna stock
market is small in terms of total capitalization and yearly turnover. The Vienna
Stock Exchange (VSE) is one of the oldest in the world and was founded in 1771
as a state institution to provide a market for state-issued bonds, as well as
for exchange transactions. The Stock Exchange Act of 1875 (the "Act")
established the VSE as an autonomous institution. The Act is still in force,
placing control and administration of the exchange in the hands of the
Borsekammer (Board of Governors), chosen from among the members of the exchange.
The Borsekammer consists of 25 individuals with the title of Borserat (stock
exchange councillor). Some are elected by members and some are designated by
organizations of the securities industry for a period of five years. The
councillors must be members of the exchange and they elect from amongst
themselves a President and three Vice Presidents. Shares account for about 80%
and investment fund certificates for about 20% of total listed securities on the
VSE. Business of the exchange can be transacted only by members. Almost all the
credit institutions in Vienna, some in the Austrian provinces and the joint
stock banks are represented on the stock exchange, as well as the private banks,
savings banks and other credit institutions. Certain securities which do not
have an official listing may be dealt in on the floor of the stock exchange with
permission of the management. This unlisted trading is the main activity of the
free brokers (Frei Makeler).

Reporting, Accounting and Auditing. Austrian reporting, accounting and
auditing standards differ from U.S. standards. In general, Austrian corporations
do not provide all of the disclosure required by U.S. law and accounting
practice, and such disclosure may be less timely and less frequent than that
required of U.S. corporations.

Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Austrian equity markets was approximately EUR ____ billion
or US$ ____ billion.

7
<PAGE>

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 _____ billion
or US$ _____ billion.

The Brazilian Equity Markets

General Background. There are nine stock exchanges in Brazil. The Rio de
Janeiro exchange, or BVRJ (Bolsa de Valores de Rio de Janeiro) is the oldest,
but is overshadowed by the Sao Paulo exchange, called Bovespa (Bolsa de Valores
de Sao Paulo), which is the largest and accounts for about 90% of trading
activity. The over-the-counter market (Mercado de Balcao) trades non-listed
equities. Government securities, corporate bonds, and money market instruments
are traded on the open market. The Bolsa Mercdorias e de Futuros (BM&F), in Sao
Paulo, is Brazil's futures exchange. It is the third largest derivatives
exchange in the world in contract volume. Options on the futures also are
traded, but are less liquid. BM&F is the clearinghouse for all transactions.
The financial market is regulated by three main bodies: the National Monetary
Council, or CMN (Conselho Monetario Nacional); the Central Bank (Banco Central
do Brasil), and the Securities Commission, or CVM (Comissao de Valores
Mobiliarios).

Reporting, Accounting And Auditing. Brazilian reporting, auditing and
accounting standards differ from U.S. standards. In general, Brazilian
corporations do not provide all of the disclosure required by U.S. law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations.

Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Brazilian equity markets was approximately BRL _____
billion or US$ _____ 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.

8
<PAGE>

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 _____ billion or
US$ _____ billion.

The EMU Equity Markets

The EMU equity markets are comprised of the equity markets from the
following eleven 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.

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.

9
<PAGE>

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$ _____ 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 _______
billion or US$ _______ 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 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.

10
<PAGE>

Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Germany equity markets was approximately EUR _______
billion or US$ _______ 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 GRD _______ billion
or US$ _______ 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 _______
billion or US$ _____ billion.

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

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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 _______
billion or US$ _______ 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 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 _____ billion
or US$ _____ 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

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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 _________
billion or US$ _______ billion.

The Malaysian Equity Markets

General Background. The securities industry in Malaysia dates back to the
early 1930's. Kuala Lumpur and Singapore were a single exchange until 1973 when
they separated and the Kuala Lumpur Stock Exchange (KLSE) was formed. The KLSE
operated under a provisional set of rules until 1983 when a new Securities
Industry Act came into force. As of April 30, 1993, 320 companies were listed on
the KLSE main board. A Second Board, established in 1988, allows smaller
companies to tap additional capital. Fifty-seven companies were listed on the
Second Board as of April 30, 1993. Over the years, the KLSE's close links with
the Stock Exchange of Singapore (SES) has rendered it very vulnerable to
developments in Singapore. Consequently, the Government decided, as a matter of
national policy, on a delisting of Malaysian incorporated companies from the
SES. This was effected on January 1, 1990. A similar move was made by Singapore,
resulting in the delisting of all Singapore companies on 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.

Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Malaysian equity markets was approximately MYR _____
billion or US$ _____ 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).

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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 _______
billion or US$ _____ 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 _____ billion
or US$ _____ 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.

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 _______
billion or US$ _______ billion.

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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 _____ billion or
US$ _____ 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 _______
billion or US$ _____ billion.

The South Korean Equity Markets

General Background. After the formation of South Korea in 1948, the
government issued Farmland Compensation Bonds to landowners in exchange for
their farmland, and Kunkuk Bonds to cover their financial debt. The Daehan
Stock Exchange was established in 1956 to enable trading of these bonds. The
South Korea Stock Exchange was established several years later. The government
enacted the Securities and Exchange Law in January 1962 as part of the First
Five Year Economic Plan. The law was intended to help South Korean companies
arrange funds for economic development by using the stock market. Within a year
the market boomed and crashed.

The Securities and Exchange Law was amended in April 1962 to impose
stricter regulatory measures on the operation of the securities market. The
stock exchange became a non-profit, government-owned corporation 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

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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
_______.5 billion or US$ _____ billion.

The Spanish Equity Markets

General Background. The Securities Market Act (LMV) recognizes the
following as official secondary markets:

. stock exchanges;

. the public debt market organized by the Bank of Spain; and

. futures and options markets.

Stock exchanges in Spain (Madrid, Bilbao, Barcelona and Valencia) are the
official secondary markets which trade shares and convertible bonds or those
which grant the right of purchase or subscription. Issuers of shares go to the
stock market as the primary market, where they formalize transactions or capital
increases. Fixed-income securities (both governmental and private sector debt)
are also traded on the stock market.

The organization and functioning of each stock exchange is the
responsibility of each respective governing body (Sociedad Rectora), each of
which is a limited company whose sole shareholders are the dealer-brokers and
brokers and the stock exchanges themselves. The Sociedad de Bolsa, established
by the four stock exchanges, is responsible for the technical management of the
computerized trading system, which operates at a national level. Under the LMV,
the National Securities Market Commission (CNMV) is responsible for supervising
and inspecting the securities markets as well as the activity of all individuals
and companies who deal with the markets. It has the power to punish and other
functions.

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

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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 _____ billion
or US$ _____ billion.

The Swedish Equity Markets

General Background. Organized trading of securities in Sweden can be traced
back to 1776. Although the Stockholm Stock Exchange was founded in 1864, the
real formation of a stock exchange in an international sense took place in 1901.
The statutes of the Stock Exchange were modified in 1906 and, from the beginning
of 1907, commercial banks were admitted as members. During the 1970s, the
Stockholm market had low turnover and dull trading conditions. The market
started to climb in 1980 and for several years Stockholm was one of the best
performing stock markets, in terms of both price and volume growth. This
regeneration of a market for risk capital was reflected in the large number of
companies introduced in the early 1980s. The Stockholm Stock Exchange is
structured on a membership basis, under the supervision of the Bank Inspection
Board. The Board consists of 11 directors and one chief executive. The
directors of the Board are elected by the Swedish government, the Association of
the Swedish Chamber of Commerce, the Federation of Swedish Industries and the
member companies of the Stock Exchange. There are three different markets for
trading shares in Sweden. The dominant market is the A-1 list, for the largest
and most heavily traded companies. The second market is the over-the-counter
market, which is more loosely regulated than the official market and caters to
small- and medium-sized companies. The third market is the unofficial parallel
market, which deals in unlisted shares, both on and off the exchange floor. The
shares most frequently traded on this market are those which have been de-listed
from other markets and those that are only occasionally available for trading.

On July 1, 1999, the Stockholm Stock Exchange and OM Stockholm merged to
create the OM Stockholm Exchange - OM Stockholmsborsen AB. In addition, the
Stockholm Stock Exchange and the Copenhagen Stock Exchange have signed an
agreement covering a common Nordic securities market, NOREX.

There are also two independent markets for options - the Swedish Options
Market (OM) and the Swedish Options and Futures Exchange (SOFE), which offer
calls, puts and forwards on Swedish stocks and stock market indices.

Reporting, Accounting and Auditing. Swedish reporting, accounting and
auditing standards differ substantially from US standards. In general, Swedish
corporations do not provide all of the disclosure required by US law and
accounting practice, and such disclosure may be less timely and less frequent
than that required of US corporations. The basic concepts used are historical
cost, going concern, accrual basis, consistency and prudence.

Size of Equity Markets. As of November 30, 2000, the total market
capitalization of the Swedish equity markets was approximately SEK _______
billion or US$ _____ 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

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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 _____ billion
or US$ _____ billion.

The Taiwanese Equity Markets

General Background. The Taiwan Stock Exchange, in Taipei, is the only
stock exchange in Taiwan. Its roots can be traced to the Land Reform Movement
of 1953. The government bought tracts of land from large landowners and paid
for them with bonds and shares in government-owned companies. The need to trade
those shares and bonds gradually bred the formation of a fledging over-the-
counter market. As the economy prospered, the importance of a securities market
was recognized. The government established the Securities Market Research
Committee to study the feasibility of a formal stock market. Consequently, the
Securities and Exchange Commission (SEC) was established on September 1, 1960,
as a department of the Ministry of Finance. The Taiwan Stock Exchange (TSE) was
founded a year later and officially commenced operation in February 1962.

In the exchange's first year, there were 18 listed companies with an
average trading volume of TWD 1,647,760. By 1963, there were 23 listed
companies; by 1980, there were 100. Listings steadily increased and the market
remained stable for several years. Since then, the number of brokerage firms
has multiplied and limitations on foreign investors have recently been relaxed.

Reporting, Accounting and Auditing. Taiwanese reporting, accounting and
auditing standards differ substantially from US standards. In general,
Taiwanese corporations do not provide all of the disclosure required by US law
and accounting practice, and such disclosure may be less timely and less
frequent than that required of US corporations.

Structure of Equity Markets. As of November 30, 2000, the total market
capitalization of the Taiwanese equity markets was approximately TWD ________
billion or US$ _____ 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.

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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 _______ billion
or US$ _______ 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 _______
billion or US$ _______ 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 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
_______ billion or US$ _______ billion.

Regional and Country-Specific Economic Considerations.
------------------------------------------------------

Europe. In 1986, the member states of the European Union (the "Member
States") signed the "Single European Act," an agreement to establish a free
market. The development of a unified common European market has promoted the
free flow of goods and services; however, since September 1992, Europe's
monetary policy has

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been affected by fluctuating currencies. Additionally, 1993's tight monetary
policies and high inflation caused Europe's economies to ebb into recession.

The Maastricht Treaty on economic and monetary union ("EMU") is intended to
provide its members with a stable monetary framework. The prospect of EMU has
triggered a sharp convergence of interest rates across Europe, with risk premium
over the German interest rates levels having decreased. Adding to the favorable
monetary conditions, the monetary easing experienced by core countries has
triggered a strong depreciation of their currencies. Consequently, European
activity has accelerated again in 1997.

On January 1, 1999, the third and final stage of EMU began with the
establishment of a currency union encompassing 11 of the 15 Member States of the
European Union (EU) - Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Portugal, and Spain. On that date, these
countries locked their exchange rates and adopted the euro as their common
currency, with monetary and exchange rate policy determined by area-wide
institutions. Thus, each country will give up the possibility of independent
monetary and exchange rate policy.

EMU does not change the locus of responsibility for policies other than
monetary and exchange rate policies. Policies affecting external trade and the
integration of internal markets were already a matter of EU competence. Fiscal
and labor market policies will continue to be decided mostly at the national
level, albeit subject to closer surveillance by EU institutions. The Stability
and Growth Pact (SGP), agreed in June 1997, set out the procedures for
surveillance of national fiscal policies, strengthening the framework provided
in the Maastricht Treaty. Also, the Treaty of Amsterdam, signed in October
1997, explicitly recognized labor market policies as a matter of common concern
and set out procedures for their surveillance. Except for monetary and exchange
rate policies, area-wide decision making and surveillance are the responsibility
of institutions of the EU as a whole. It has been agreed that ministers of
euro-area countries can meet (as the Euro-11 Group), to discuss issues related
to the single currency, but that formal surveillance and coordination decisions
will be the prerogative of the full EU Council of Ministers (ECOFIN). The
prospective euro-area rivals the United States in terms of output and trade.
The delineation of monetary, fiscal, and structural policy responsibility
between the euro-area institutions and national governments helps assign
responsibility for these policies, but also complicates their coordination.

Austria. Following three years of acceleration, culminating in 3.3% GDP
growth in 1998, economic activity in Austria decelerated sharply in late 1998
and early 1999. The main culprit for the slowdown was the Russian crisis (which
hit Austria's exports to Central and Eastern Europe) and the generalized slowing
of growth in the euro area. However, there was a turnaround in foreign demand
and a continuation of solid consumer-spending growth in late 1999.

Consumer price inflation troughed at 0.2% year on year in April 1999,
following a deceleration from 1.2% a year earlier, because of falling oil
prices. The recovery in oil prices and the depreciation of the euro since the
start of the year led to a moderate acceleration in price increases, to 0.6% in
August 1999. Meanwhile, short-term interest rates declined from 3.7% in 1997 to
3.2% in 1998 and long-term interest rates fell from 5.5% in 1997 to 3.8% in
1998.

The general government deficit was 2.1% of GDP in 1998 and 1.9% of GDP in
1997. Tax cuts for low- and middle-income households planned for 2000 may mean
that the deficit could come dangerously close to the 3% Maastricht threshold.
Thus, one of the first tasks of the new government will be to prevent the
deficit from surpassing that level.

Belgium. Belgium joined the European Monetary Union on May 1, 1998.

Belgium shows a high degree of economic openness. It is therefore
extremely sensitive to economic developments abroad and, in particular, to those
occurring in the EMU, as activity in Belgium fluctuates almost exactly in line
with that of the euro area. The latest economic developments are no exception
in that respect. Thus, in 1998, along with the rest of the euro area, Belgium
faced a general slowdown of activity. Output growth slowed from a healthy 4%
pace at the beginning of the year to a sluggish 1.6% by the fourth quarter.
During the first two quarters of 1999, activity remained somewhat subdued, as
output grew by 1.6% to1.7%. Since late 1998, general

20
<PAGE>

economic sentiment, as measured by the National Bank of Belgium, has been
improving. Similarly, manufacturers have completely recovered from their recent
sluggishness.

The Belgian unemployment rate typically is lower than the rest of the EMU.
But that gap shrunk significantly in 1997 and 1998 and now amounts to less than
one percent. Total employment growth has remained strong and the unemployment
rate was below 9% in fall 1999.

Belgian consumers' prices rose by 0.9% in August and by 1.3% in September
against an average of 1.2% and 1.3%, respectively, in the euro area.

After some hard times, Belgian public finances have greatly improved. The
public sector borrowing requirement has been curbed from roughly 8% of GDP in
1992 to about 1% in 1998. Similarly, the primary surplus has risen from 3.0% of
GDP to 6.7%. Public debt has fallen from almost 128% of GDP in 1992 to 116% in
1998. The recovery of public finances is such that despite lower GDP growth,
the budget ministry decided, in last spring's budget review, to carry on with
its six-year program to cut permanently employers' social security contributions
and reduce labor costs by some 6%.

General elections were held on June 13, resulting in an historic shift of
power: Jean-Luc Dehaene's Christian Democrats lost the majority in the lower
house to Liberals for the first time in history. Now, Guy Verhofstadt's `blue-
red-green' coalition made of French-and-Dutch speaking Liberals, Socialists and
Greens - the latter in a coalition for the first time - faces the task of
restoring public confidence after a series of political scandals.

France. Following a slowdown last winter, growth re-accelerated in the
second quarter of 1999. Since then, manufacturing companies have become
increasingly optimistic about trends in aggregate demand and their own
production plans. In September, they signaled that output prices should cease
declining for the first time since early 1996. On the demand side, retail sales
jumped sharply during the summer months, led by booming durable goods sales.

Employment growth remained surprisingly robust during the winter slowdown,
due to a buoyant services sector, in which new companies, having benefitted from
the deregulation of former state monopolies (such as telecoms, public utilities
and media) are doing well. On the other hand, French companies have kept wage
rates steady (up 1.5% year on year in the second quarter of 1999) in order to
mitigate the rise in labor costs that might result from the reduction of working
hours next year.

At 0.5% on average for 1999, French inflation is among the lowest in
Europe. On top of very slow wage growth, deregulation is taking its toll on
retail prices every month, largely offsetting cyclical forces.

The budget was slightly expansionary in 1999, as civil servants benefitted
from pay raises based on inflation forecasts that proved to be too high. The
2000 budget signals a return to orthodoxy.

The first two years of the government's five-year term were favorable for
corporate France, despite the rise of the corporate tax rate to 40% in 1997.
Large-scale privatization took place (France Telecom, Air France, Aerospatiale,
Credit Lyonnais, among others) and French companies, which had been hurt by
years of high real interest rates, fully reaped the benefits of EMU and its
generous monetary policy. Despite promises, it is unclear whether the corporate
tax rate will be cut next year. The pending reduction of the working week will
make business more costly and more complicated for medium-sized companies
(smaller companies will be hit only in 2001). Finally, the government is
planning to make restructuring more costly and short-term labor contracts (used
to encourage labor flexibility) more expensive for companies.

Germany. Germany, the third largest economy in the world, has faced
substantial economic and political challenges in the wake of reunification
between West and East Germany. Previously-communist eastern Germany, which had
been largely insulated from international competition, saw most of its capital
stock become obsolete after the reunification. Transforming eastern Germany
into a modern market economy has been more difficult and costly than anticipated
initially.

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<PAGE>

According to new measures of national accounts data, unified Germany's
economic growth in the period 1991-98 was worse than previously thought. For
instance, GDP rose by only 2.2% in 1998, when measured according to the new
standards, as compared to 2.8% under the old measure. Since Germany's 1993
recession, annual GDP growth has averaged only 1.8% according to the new
standards. An export-led, sharp deceleration of growth in the second half of
1998 resulted from the global recession, which meant that the German economy
started 1999 on a weak footing.

The Bundesbank no longer conducts an independent monetary policy, as it
surrendered its monetary policy-making ability to the European Central Bank in
1999. The German government recently introduced a reform package consisting of
reductions in personal and corporate income tax spending cuts. A corporate tax
reform will reduce the overall tax rate on German corporate profits to 35% by
2001, from more than 56% currently.

Greece. Industrial output increased by 4.4% during the first quarter of
1999, but only because of a 49.7% increase in natural gas and electricity
production as the natural gas network finally came on stream. All other
components of the industrial output index declined, including manufacturing,
which was down by 1.1%. In May, year-on-year inflation fell to 2.4%, and in
April wholesale prices were almost unchanged since April 1998. Registered
unemployment has risen sharply, but the harmonized Eurostat rate is estimated to
have edged down to 9.4% in 1998. Stock market prices continue to rise, having
overcome a temporary fall at the start of the war in Yugoslavia.

The current-account deficit fell by 24.8% in 1998 according to the Bank of
Greece, but, according to statistical service figures, merchandise export growth
was weak and well exceeded by import growth. Shipping receipts have fallen.
The drachma continues to trade well above its central parity with the euro, but
has declined against the dollar.

Budget revenue in the first five months was well ahead of target and
expenditures have come under control. The government has hinted at tax reforms
in the 2000 budget which might lower the income tax burden, especially on low-
to-average incomes. Short-term interest rates remain high with Bank of Greece
intervention rates close to 11%, but high borrowing led the central bank to
impose credit restrictions in April. Ionian Bank has been sold to Alpha Credit
Bank, and private banks are expanding. A fourth tranche of shares of the
Hellenic Telecommunications Organisation is to be sold, reducing the state's
holding to 51%.

Italy. Italy's economic strength lies in manufacturing, mainly through
networks of small and medium-sized companies, producing in particular machine
tools and consumer goods. Two key service sectors are tourism and the rapidly
expanding telecom industry. In the early 1990's, industry began to struggle to
compete as a result of wage increases and a restrictive exchange rate policy
designed to put an `external bound' on the inflation rate. But in September
1992, the lira collapsed and was forced to leave the Exchange Rate Mechanism
(ERM). The lira recovered in 1996 and returned to the ERM by the end of that
year.

The Italian economy has been characterized in recent years by the attempt
to reduce the significant public deficit, and reverse the dynamic of the public
debt, which reached a peak in 1995 at 125% of GDP. These efforts were
particularly strong in 1996 and 1997, in the run up to the European Monetary
Union, to comply with the Maastricht rules. The attempt was successful: the
public deficit was lowered to 2.7% of GDP in 1997 from 11%, which allowed Italy
to joint EMU from its inception. Restrictive budget measures were, however,
mainly responsible for the poor performance of the Italian economy in the 1990s
(the economy grew by 1.3% on average in 1990-1998).

The Italian unemployment rate is high (11.8%), although reforms in 1997
eased the rigidity in the labor market. As a consequence, a healthy increase in
employment has taken place since the beginning of 1998 (more than 1% yearly),
driven mostly by the development of part-time and short-term contracts.

In 1992, Italy began a privatisation program by transferring major state
holdings to joint stock companies as an intermediate step to total or, at least
partial, floatation of those holdings on the stock exchange. Since then, Italy
has performed one of the world's largest privatization programs and is still
proceeding.

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<PAGE>

Currently, after having reached the much-desired EMU target and having
consolidated its public finances, the aim of the government is to rekindle with
growth, while pursuing a systematic and continued reduction of the public debt.

The Netherlands. The economic performance of the Netherlands, the fifth
largest economy in the European Union, has grown impressively in the past
decade. Emerging from a deep recession in the 1980s, the Netherlands' economy
has become one of the fastest growing in Europe and the pace at which new jobs
are generated is close to that of the United States.

In the first half of 1999, the Dutch economy expanded by about 3% over the
same period in 1998. GDP grew 0.7% in the first quarter of 1999 and by 0.8% in
the second quarter, which was more than twice the expected rate. The
unemployment rate is at 3.2% of the labor force. Despite a tight labor market,
collective wage agreements entered into this year have provided for relatively
moderate pay rises only.

The Dutch government has announced plans to bring the budget into surplus
in 2001, which would be the first surplus since 1974. Stronger-than-expected
growth created leeway to cut taxes and trim the budget deficit. The Dutch
government has also presented a comprehensive tax reform to be implemented in
2001, which would reduce the top income tax rate from 60% to 52% and the lowest
income tax rate from 36.5% to 20%. At the same time, the VAT will be raised by
1.5 %, to 19%. The tax reform is estimated to result in a net tax relief of NLG
5 billion (0.7% of GDP), with low income earners being the main beneficiaries.
In addition, the Dutch government has announced plans to cut the corporate tax
rate from 35% to 30%.

Spain. Spain's entry into the European Community in 1986 was followed by a
period of rapid economic growth and sharp restructuring. Strong growth did not
continue, however, and the government's restrictive monetary policy and the
overvalued peseta contributed to a downturn in investment, along with a rise in
unemployment, in the early 1990s. Despite the devaluation of the peseta and the
easing of monetary policy in 1993, Spain slipped into its worst recession in 30
years. Economic growth has recovered since then, averaging 3.0% from 1994 to
1998. The center-right government elected in 1996 has displayed a strong
ability to control public spending through structural reforms. In 1997, Spain
was able to fulfill all the Maastricht criteria and was among the eleven
participants in the European Monetary Union, which started at the beginning of
1999.

The Spanish unemployment rate is currently the highest in the European
Union, and unemployment is the main economic problem in Spain. In 1994 and
again in 1997, reforms in the labor market were undertaken, mainly to ease the
rigid regulations that govern permanent job contracts. The recent strong
economic growth and new reforms to improve the flexibility of the labor market
have decreased the rate of unemployment from 25% in 1994 to 16% in 1999.

Currently, the government faces the challenges of addressing the domestic
concerns of controlling inflation, at 2.4% yearly in August 1999, which was more
than one percentage point above the EMU average, and consolidating the
improvements in the labor market.

Portugal. 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's principal exports include automobiles, textiles,
clothing and footwear. As a result of the completion of a $3 billion foreign
investment by Ford-Volkswagen, minivans became Portugal's single most important
export in 1996, accounting for 13% of all foreign sales. Other multinational
companies have taken advantage of low wage costs, one of the strong competitive
advantages of the country, and relatively high labor qualification to set up
operations in Portugal.

Portugal's entry into the European Community in 1986 was followed by a
period of rapid economic growth and sharp restructuring. Strong growth did not
continue, however, and the government's restrictive monetary policy and the
overvalued escudo contributed to a downturn in economic conditions in the early
1990s. Economic growth has recovered since then, averaging 3.3% from 1995 to
1998.

Thanks to its efforts to meet the Maastricht criteria, the Portugese
economy successfully joined the European Monetary Union at inception, in early
1999.

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<PAGE>

In the 1990s, the Portuguese government has progressively reduced its role
in the economy, with government-controlled companies now accounting for less
than 8% of GDP, down from 20% at the beginning of the decade. Although some of
the privatizations planned for 1999 have been postponed, the privatization
program is set to continue.

Sweden. Sweden has a highly developed and successful industrial sector.
The chief industries, most of which are privately owned, include textiles,
furniture, electronics, dairy, metals, ship building, clothing, engineering,
chemicals, food processing, fishing, paper, oil and gas, automobiles and
shipping. Productivity, as measured by GDP per capita, is well above the
European average, although two-thirds of GDP passes through the public sector.

Successive governments have traditionally afforded Swedes generous benefits
for unemployment, sick leave, childcare and general public welfare, along with
state medical care. This extensive social welfare system has become
unsustainable in recent years, notably when the economy slowed down
significantly in the early 1990s, which caused large government deficits.
Almost half of the personal disposable income received by Swedes resulted from
transfer payments, a system for redistributing income. Since then, a massive
turnaround in public finances has occurred thanks to years of fiscal restraint
and an increase in economic growth. The Swedish government has announced that
it plans to cut taxes within the next five years.

The Swedish economy has weathered an export slowdown, due mostly to the
currency depreciation of the third quarter of 1999. Further, the repo rate was
cut 1.45% between October 1998 and March 1999.

The Swedish central bank, the Riksbank, has a two-year forward inflation
target of 1.0% to 3.0%. The upside surprises on growth and the looming tax cuts
were not factored in the last inflation report, when two-years forward inflation
was foreseen to remain at 2.0%. Indeed, the Riksbank has repeatedly warned that
tax cuts boosting consumer spending may lead to an overexpansion of the economy.

Switzerland. Due to its lack of raw materials, Switzerland has based its
economic growth on its highly skilled labor market and technological
manufacturing expertise. Switzerland's strengths lie in chemicals and
pharmaceuticals, watches, precision instruments (machinery equipment),
engineering, food, financial services and tourism. Additionally, its small
domestic market's reliance on exports accounted for 36% of the GDP in 1994. It
therefore suffered significantly from the world trade slowdown of the second
half of 1998.

While the Swiss official unemployment rate fell to 2.5% in July 1999, the
underlying rate was 4.6%, i.e. above official estimates, which range between 2%
and 2.5%.

The VAT hike (from 6.5% to 7.5% on Jan 1st 1999), a tobacco tax increase
and oil prices have all pushed inflation away from deflationary readings since
early 1999, up to 0.9% for the year from August 1998 to August 1999.

The United Kingdom. The UK is a large, open economy with total exports
accounting for approximately 30% of GDP. The service sector's share in total
GDP has been on an upward trend and now stands at about two-thirds of overall
activity, as the UK has particularly strong business and financial services
sector. By contrast, the manufacturing sector's share in GDP has been declining
and is now estimated at just over 20%. The Bank of England was made independent
in May 1997 and conducts interest rate policy consistent with reaching an
inflation target (set by the government) two years hence.

Economic growth was slow throughout most of 1998 and early 1999. Last
year's slowdown in large part reflected a sharp deterioration in the net trade
position, prompted by continued currency strength and a weakening in world trade
and global economic growth. Net trade in 1998 fell by more than 2%.
Manufacturing output slowed accordingly, exhibiting growth of only 0.4% during
1998. The sector was in technical recession in the fourth quarter of 1998, but
contributed positively to output growth for the first time in a year by the
second quarter of 1999. The service sector meanwhile grew by 3.7% in 1998,
supported by robust activity across the range of sub-sectors, particularly
within business and financial services.

Strength in the service sector has to some extent been reflected within the
expenditure components of GDP, where domestic demand remained resilient,
expanding by 4.1% in 1998. Of this, just over 2% was household

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<PAGE>

spending, while total fixed investment contributed a further 1.5%. Household
spending expanded by an annualized rate of 5.5% during the first half of 1999. A
sharp (Pounds)1.8bn de-stocking weighed on total domestic demand during the
second quarter of 1999, but the underlying picture is very robust. Excluding
stocks, total demand expanded by 4.4% in the year from the second quarter of
1998 to the second quarter of 1999.

Household spending growth has been underpinned by a strong labor market.
Manufac turing employment has fallen by some 5% since early 1998, but total
employment has risen by more than 0.5% over the same period. The labor market
has proved tighter than previously assumed. Declines in claimant count
unemployment have continued, while vacancies have remained high. Thus far,
inflation pressures have been subdued. The retail prices index excluding
mortgage interest payments (RPIX) - the government's target measure - stood at
3.2% in the year to May 1998, but fell to just 2.1% by August. This is
explained by goods price inflation, which eased from over 2% in early 1998 to a
series-low of 0.5% in August 1999. This in turn reflects sterling's persistent
strength, which has dragged import prices lower. From a peak of 7.5% in June
1998, the Bank of England started lowering interest rates in October, because of
perceived undershooting of its inflation target. Rates bottomed at 5% in June
1999. But with upside risks to the RPIX target gathering momentum, the Bank has
started a tightening cycle, raising interest rates to 5.25% in September 1999.

Real GDP Annual Rate of Growth (annual % change)

1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ----
Austria 0.5 2.4 1.7 2.0 2.5 3.3
Belgium -1.5 2.6 2.3 1.3 3.0 3.0
France -1.3 2.8 2.1 1.6 2.3 3.2
Germany -1.1 2.4 1.8 0.8 1.8 2.3
Greece -1.6 2.0 2.1 2.4 3.2 3.7
Italy -0.9 2.2 2.9 0.9 1.5 1.3
Netherlands 0.8 3.2 2.3 3.1 3.6 3.8
Portugal -1.4 2.4 2.4 3.6 3.8 3.9
Spain -1.2 2.1 2.9 2.4 3.7 4.0
Sweden -2.2 3.9 3.7 1.3 1.8 2.6
Switzerland -0.5 0.5 0.5 0.3 1.7 2.1
United Kingdom 2.3 4.4 2.8 2.6 3.5 2.2

Source: World Economic Outlook, October 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 may result
from (i) authoritarian governments or military involvement in political and
economic decision-making; (ii) popular unrest associated with demands for
improved political, economic, and social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries; and (v) ethnic,
religious, and racial disaffection.

The economies of most of the Asian countries continue to depend heavily
upon international trade and, accordingly, are affected by protective trade
barriers and the economic conditions of their trading partners, principally the
United States, Japan, China and the European Community. The enactment by the
United States or other principal trading partners of protectionist trade
legislation, along with the reduction of foreign investment in the local
economies and a general decline in the international securities markets, could
have a significant adverse effect upon the economies and securities markets of
the Asian countries.

The success of market reforms and a surge in infrastructure spending have
fueled rapid growth in many developing Asian countries. Rapidly rising household
incomes have fostered large middle classes and new waves of consumer spending.
The increases in infrastructure spending and consumer spending have made
domestic demand the growth engine for these countries. Thus, their growth now
depends less upon exports. While exports may no longer be the sole source of
growth for these developing economies, improved competitiveness in export
markets has contributed to growth in many of these nations. The increased
productivity of many Asian countries has enabled them to achieve, or continue,
their status as top exporters while improving their national living standards.

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<PAGE>

In the fourth quarter 1997, the Southeast Asian currency markets came under
severe selling pressure from abroad, as foreign investors and speculators alike
have heavily sold regional currencies viewed to be overvalued. The Thai Baht
was the first to come under pressure, but Indonesian, Malaysian, Phillipine,
Singaporean, Taiwanese, South Korean and Hong Kong currencies have all been
affected. Equity and fixed income markets have also faced selling pressure as
foreign investors have been concerned with the overall financial prospects of
the region.

Among the countries at the center of the Asian crisis, Korea and Thailand
have made encouraging advances toward restoring confidence and initiating
recovery, although their turnarounds remain at risk, including from the external
environment. The situation in Indonesia, however, remains very difficult.
Malaysia has resorted to external payments controls in an effort to insulate its
economy from the regional crisis. In Japan, despite substantial fiscal stimulus
and new initiatives to deal with banking sector problems, significant downside
risks remain. Growth in China appears to be slowing, and both the renminbi and
the Hong Kong dollar have been under considerable pressure.

Australia. After a period of high growth in 1998 and early 1999, the
Australian economy began to show signs of slowing in the second quarter of 1999.
Private investment growth slowed to just 2.2% (annualized) in the first half of
1999, down from an average rate of approximately 9% in 1998. Consumer demand,
which fueled the economy through 1998, has remained reasonably strong. But
demand for some goods, such as autos and white goods, has been distorted by the
phasing-in of several tax reforms (the addition of a goods and services tax and
abolition of a wholesale sales tax). Meanwhile, inflation has been relatively
low. In the second quarter of 1999, Australia's consumer prices were up just
1.1% from a year earlier. The most recent national budget featured a surplus of
A$5.4 billion, or about 0.9% of GDP.

The Government, headed by John Howard, was reelected in October 1998 with a
mandate to overhaul Australia's tax system. After the implementation of goods
and services and personal income taxes, business tax reform is the next major
item it intends to push through the legislature. The Howard Government holds 80
of 148 seats in the Lower House and 35 out of 76 seats in the Senate. The next
general election is due by December 2001.

Indonesia. The Indonesian economy has reached a natural bottom and
returned to growth in the second quarter of 1999. GDP rose a modest 1.8% in the
second quarter, following the 9.5% decline of the previous quarter. Capital
flight occurred last year when the May riots broke out, resulting in a plunge in
output by close to 20% in the second half of 1998. After 12 months of calm, the
chaos and violence in East Timor are posing a threat to the economy again, as
GDP growth fell from 4.9% in 1997 to -13.7% in 1998. The IMF and the World Bank
have suspended foreign aid to Indonesia. 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.

Having retreated from the 15,000 level during the peak of the crisis in
1998, the rupiah has recently strengthened to the 8,000 level. This sharply
reduces import costs. Consequently, the inflation rate has fallen quickly so
far this year. Growth in the CPI slipped to 5.8% in August, the first single-
digit inflation rate recorded in 20 months. CPI inflation had averaged 58.0% in
1998. Month on month, deflation persisted for six straight months through
August. This is normal as it represents a correction of the high inflation rate
in 1998 and improvement in production and distribution.

Low inflation allows expansionary monetary policy. Interest rates continue
to come down. The yield on the one-month SBI fell below 13% recently; at its
peak in September 1998, it reached 70%.

Fiscal policy became expansionary in the second half of 1998/1999, 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 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.

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<PAGE>

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 year.

Hong Kong. The transfer of sovereignty from Britain to China, which has
created a sense of uncertainty in Hong Kong's economy, has largely been a smooth
transition. Under the principle of "one country, two systems," Hong Kong is now
a special administrative region (SAR) of the People's Republic of China and is
empowered with a high degree of autonomy. It has retained its administrative,
legislative and judicial systems. The SAR government has full control over its
monetary and fiscal policies and it maintains its own customs and immigration
control, separate from the mainland. Except for issues relating to national
security and foreign policy, the SAR is largely run as an independent territory.

The first chief executive of the SAR, Mr. C.H. Tung, a former shipping
tycoon, has vowed to make a difference in the lives of the people of Hong Kong,
by focusing his attention on the areas of housing, education and
infrastructure. In the past, the chronic shortage of housing has been a strong
influence on the property market. Hong Kong property prices today are among the
highest in the world. Worth noting is that there is heavy exposure to the
property market in Hong Kong's banking sector as well as the stock market as a
whole.

The integration of Hong Kong's economy with that of the mainland continues
apace. While the integration process in the 1980's was driven by the relocation
of Hong Kong's labor-intensive manufacturing sector to Southern China, the
integration theme for the 1990's is that of Hong Kong becoming a service center
for China's fast growing economy. A large number of mainland companies have
established offices in Hong Kong as a window for interaction with the global
economy. The Hong Kong financial sector is increasing its role in the
intermediation of foreign funds for investment in China. Close to half of the
FDI into China goes through Hong Kong. Furthermore, Hong Kong is increasingly
playing a role in intermediating China's savings for investment in China. Hong
Kong is well on its way in becoming a bona fide financial center for China.

Hong Kong's economy has been in a recession since the Asian crisis that
began in the second half of 1998. Deflation has been a major problem, as it has
discouraged investment, postponed consumption and delayed a turnaround in the
inventory cycle. Nevertheless, GDP growth seems to be recovering somewhat, as
it has increased to a seasonally adjusted rate of 3.1% from the first quarter of
1999 to the second quarter of the year, as compared to an average 1998 GDP
growth rate of -5.1%.

The downward adjustment in goods and services prices in Hong Kong
continues; this is the natural process of restoring competitiveness against the
territory's devalued neighbors. Further, deflation deepened sharply in July and
August due to cuts in housing costs resulting from concessions on rates (taxes)
granted by the government. The CPI(A) declined 3.2% in the first eight months
of this year.

Despite loose liquidity conditions and the plunging of the loan-to-deposit
ratio to 1991 levels, Hong Kong's banking cartel raised interest rates in
August, following the Fed's latest move. Ongoing deflation has reduced the
demand for and supply of new loans; outstanding domestic credit has declined by
11.7% from the peak in September 1997.

Fiscal support remains key to Hong Kong's economy. The government ran a
HK$30 billion deficit in the first four months of fiscal year 2000 following one
of HK$31.5 billion (2.5% of GDP) in fiscal year 1999. The deficit has been
financed primarily by foreign reserves, which totaled US$89.2 billion at the end
of August. In efforts to maintain the level of foreign reserves, the government
will start selling off its local stock holdings, which could curb liquidity
conditions. Future sources of fiscal revenue include the privatization of water
supply services and the Mass Transit Railway Corp.

27
<PAGE>

The trade deficit shrank in the first half of 1999 due to weak domestic
demand and the curtailing of smuggling into China. However, the deficit started
to expand again in July and August (on a year-on-year basis) as domestic demand
recovered. Domestic demand recovery is key to growth going forward.

The Hang Seng Index has been flat in the past few months. The government's
plan to dispose of its local stock holdings starting in October will increase
the supply of Hong Kong dollar assets.

Japan. Japan's economic growth in the 1990s has been substantially below
the levels of earlier decades. Major fiscal spending programs have brought
positive growth in some years, but Japan's gross national product shrank by 2.8%
in calendar 1998, its worst performance in the postwar period. A further round
of major fiscal spending was implemented in late 1998. Prices are largely
stable at the consumer level, even though deflation is occurring at the
wholesale level, and cash earnings per worker have continued to drop in nominal
terms. The unemployment rate has reached a historical peak of 4.9%.

Despite growth problems, the Japanese economy maintains several strengths.
The manufacturing sector includes some of the world's most innovative companies
in the electronics and precision machinery areas, along with world leaders in
automotive and machinery industries. Educational achievement levels are high in
comparison with other developed nations. Public sector infrastructure is also
extremely well developed.

Nevertheless, the Japanese economy faces significant weaknesses. The
financial system retains large levels of non-performing loans, which have made
intermediaries conservative in lending behavior. Many corporate balance sheets
remain overleveraged, with low returns on assets, compared to both some other
industrial countries and to Japan's own history. The labor market is undergoing
a fundamental structural change, because of the system of lifetime employment
clashes with the need for increased labor mobility to adapt to new technologies
and global competition. Corporate governance is also undergoing major changes,
with the introduction of new accounting rules, new decision making mechanisms,
and changed incentives for managers.

Growth may continue to be hindered in 2000, due to the difficulty of
expanding fiscal policy further and to the adverse effects of industrial and
financial sector restructuring on business investment and wages. Investors have
shown confidence, as the Japanese stock market has grown in the first nine
months of 1999. The macroeconomic performance of the Japanese economy could
suffer, however, as cuts in employment and investment may constrain income.

Interest rates in the overnight market are currently at 0.03% (effectively
zero), in light of the policy of the Bank of Japan to give maximum support to
the economy. Nevertheless, long term bond yields have risen since the end of
1998, because of high government deficits and the hesitant attitude on the part
of some institutions to buy securities with high duration risk, even if
government-issued.

The Japanese yen has fluctuated widely over the last year. At its most
recent trough, the currency was Y147/US$, in September 1998, just prior to the
adoption of financial sector reform bills by the Japanese Diet. After
strengthening early in 1999, then weakening at mid-year, the currency has
restrengthened, to Y104/US$ in mid-September 1999. Most observers view this
level of the yen as strong, and likely to have adverse impacts on the Japanese
economy, although neighboring Asian countries could benefit.

The political environment is stable, with the pending formation of a three-
party coalition government. The next general election (in which all seats of
the Lower House are up for re-election) must occur by November 2000, within one
month of the expiration of the 4 year term of the current Lower House. The next
election for the Upper House is scheduled for July 2001.

Japan has very large and active securities markets. The main stock
exchange is the Tokyo Stock Exchange, where a large majority of equity
transactions occur. This exchange is supported, however, by several regional
exchanges, which list local companies. Fixed income securities are traded
actively, usually off-exchange. Derivative markets in Japanese securities are
well developed. The securities markets are overseen by both private and public
regulatory bodies. The Japan Securities Dealers Association is the main private
regulatory force. In the public sector, a set of agencies under the Financial
Regulatory Commission is responsible for the oversight of trading activities and
inspection of securities companies.

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<PAGE>

Reporting, accounting and auditing standards differ considerably from those
in the United States. Stricter requirements have been introduced over the past
decade, however, and from March 2001, the method of the International Accounting
Standards system will become mandatory, as will mark-to-market valuation for
marketable securities held for trading purposes. In addition, discussions are
currently under way on whether to introduce a requirement that values for land
based on discounted cash flow models be disclosed, along with the current book
value disclosure. Auditing standards are also becoming more stringent.

Japan's heavy dependence on international trade has been adversely affected
by trade tariffs and other protectionist measures, as well as the economic
condition of its trading partners. Japan subsidizes its agricultural industry
since only 19% of its land is suitable for cultivation. It is only 50% self-
sufficient in food production. Accordingly, it is highly dependent on large
imports of wheat, sorghum and soybeans. In addition, industry, its most
important economic sector, depends on imported raw materials and fuels,
including iron ore, copper, oil and many forest products. Japan's high volume of
exports, such as automobiles, machine tools and semiconductors, has caused trade
tensions, particularly with the United States. Some trade agreements have been
implemented to reduce these tensions. The relaxing of official and de facto
barriers to imports, or hardships created by any pressures brought by trading
partners, could adversely affect Japan's economy. A substantial rise in world
oil or commodity prices could also have a negative affect. Since the Japanese
economy is so dependent on exports, any fall off in exports may be seen as a
sign of economic weakness, which may adversely affect the market. Japan's real
GDP for the first six months of 1998 was 2.7% less than the level achieved in
the first half of 1997.

Geologically, Japan is located in a volatile area of the world and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, which
resulted in the death of 5,000 people and billions of dollars of damage, natural
disasters can be significant enough to affect the country's economy.

Malaysia. Over the last two decades, Malaysia has experienced rapid
industrialization, transforming a once commodity driven economy to one dominated
by the manufacturing sector. Although commodities remain important to the
Malaysian economy, where tin, rubber, palm oil, timber, oil and gas have played
a leading role, the electronics sector is now the fastest growing and most
important sector by far. In fact, Malaysia has become the world's third-largest
producer of semiconductor devices (after the U.S. and Japan) and the world's
largest exporter of semiconductor devices.

The high rates of investment that have been required to sustain Malaysia's
rapid growth have been met with high rates of domestic savings and significant
inflows of foreign direct investment. This combination has been instrumental in
maintaining fast growth while simultaneously limiting inflationary pressures.
Although free repatriation of profits is allowed, Malaysia has experienced a
high rate of reinvestment of profits from foreign direct investment.

Until September 1, 1998 Bank Negara Malaysia (the central bank) managed the
exchange value of the ringgit against a basket of foreign currencies. During
the first nine months of 1998, investors sold ringgit together with other East
Asian currencies because of fundamental concerns over the economic conditions
within the region as reflected in the sharp contractions in some economies,
including Malaysia, as well as a general deterioration in sentiment toward
emerging markets, particularly following the Russian debt moratorium.

Malaysian currency volatility and general economic deterioration led to the
imposition of stringent capital controls in September 1998, including a one year
prohibition on repatriation of capital and an indefinite prohibition on free
transfers of securities. The prohibition on repatriation of capital was removed
in February 1999 but the controls have adversely impacted foreign investors,
including the Malaysia (Free) Index Fund, which suspended creations in response
to the controls. This adversely affected the trading market for the Malaysia
(Free) Index Fund.

After contracting for five consecutive quarters, the Malaysian economy
returned to 4.1% growth in the second quarter of 1999. The GDP decline was a
severe 7.5% in 1998. The decline was particularly marked in the second half of
the year, at 10.6%. The expansionary monetary and fiscal policies implemented
since the second half of 1998 set the stage for economic recovery in 1999.
Added to this, the turnaround in global trade, especially

29
<PAGE>

electronics goods, acted as a catalyst for economic recovery. A 38.3% growth in
electronics exports boosted overall export growth by 15.8% in the second quarter
of 1999 and 28.9% in July.

Consumer prices have been quite stable since the beginning of the year.
However, on a year-on-year basis, inflation has declined steadily from 4% in the
first quarter to 2.4% in the July-August period. At this point, inflationary
pressure is still a non-issue. Year-to-date, inflation averaged 3.1%.

Monetary policy has been easing. Since the third quarter of 1998, the
central bank has cut the official three-month intervention rate nine times, for
a total cut of 5.5%. Most of the rate cuts were implemented between August and
November 1998. The statutory reserve requirement was cut by 6% during the third
quarter of 1998. The stringent rate cut effectively pushed down market interest
rates. The three-month interbank rate fell to a record low of 3.2% recently,
down from the peak of 11% in 1998.

After a 1.8% fiscal deficit in 1998, the Malaysian government budgeted for
a deeper deficit of 5.4% in 1999. This was due to a 9.3% increase in government
expenditure in nominal terms. In real terms, government consumption rose 13.9%
in the first half of 1999, against declines of 5.5% in the first half of 1998
and 9.5% in the second half of 1998.

The government pegged the ringgit at an undervalued rate of M$3.8:US$1 on
September 1, 1998. The undervaluation of the currency has supported export
growth. US dollar exports returned to growth starting from October last year,
half a year earlier than the export recovery in other Asian economies. Export
competitiveness has improved over time. Exports measured in US dollars rose
4.5% in the first quarter of 1999 and accelerated to 15.8% in the second quarter
of 1999. In July, exports surged 28.2%, led mainly by 56% growth in electronics
exports. Malaysia produces and packages about one-third of the world's
semiconductors and benefits from the strong demand for electronics worldwide.

Singapore. Singapore has become a high-income, highly industrialized
country though rapid growth in its manufacturing sector due largely to
significant foreign investment. Of particular importance is the electronics
industry in which Singapore is the leading producer of disk drives. The
financial and business services sector has also experienced recent growth, while
the mining and agriculture sectors are of minimal importance. Oil refining and
chemical industries have long been important and recently a significant
pharmaceutical sector has emerged. Since 1987, annual growth has been high,
ultimately reaching 10% in 1993 and 1994 and 9% in 1995. This sustained annual
growth can be attributed to high investment and exports. Personal consumption
growth has been low, which makes Singapore the highest saving country in the
world.

The government has followed an interventionist economic policy with respect
to its individual industries. To instill faith in its interventionist policies,
the government has sought to maintain economic stability. The taxes are
relatively high, but rates are stable. Monetary policy has aimed at keeping
inflation low by using the exchange rate as the main instrument. Labor market
pressure has been controlled by setting limits on the percentage of foreign
labor employed and applying a levy on employers of foreign labor. In addition,
the government, recognizing that land use is a constraint on growth, has sought
to make existing land use more efficient.

The government directly holds stakes in individual companies across the
board, from high-tech defense contractors to low-tech service businesses. The
government also holds indirect stakes in firms through a number of agencies.
Such government ownership interests may discourage the development of private
firms due to fears that the government entities may be given certain advantages
not available to private entities. Some privatization of state-owned businesses
is ongoing, however, such as the telephone business and certain other utilities.

As a small open economy, Singapore is particularly vulnerable to external
shocks. The Asian crisis that crushed its neighbors caused the economy to
shrink for two quarters in 1998. The economy has returned to growth since the
first quarter of 1999, led by the manufacturing sector. In the second quarter
of 1999, GDP growth accelerated to 6.7%. Although the recovery is becoming more
broad-based, not every sector is doing well. Consumer confidence resumed
quickly as the rate of retrenchment slowed substantially. External demand is
recovering gradually but the investment sector is still shrinking. Weak demand
for disk drives and Indonesia's political situation pose two big risks to the
Singaporean economy.

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<PAGE>

The 11-month deflation spiral ended in April. Since then, the CPI has
risen moderately, averaging 0.4% for the three months through July. The import
price index registered four straight months of growth from April to July.

Singapore opts to control its exchange rate. This decision is based on the
economy's openness. By controlling the exchange rate, it is easier to attain
the objective of monetary policy -- price stability. The exchange rate policy
was eased at the height of the crisis to cushion the economy from adverse
shocks. This year, the trade-weighted exchange rate index (TWI) has returned to
the pre-crisis level. The exchange rate band has also narrowed as the crisis
has subsided. By ceding control of monetary aggregates, domestic interest rates
are moving in line with foreign interest rates. The spread between the three-
month interbank rate and the Federal Funds rate widened to about 8% at one
stage; it has since returned to its historical level of around 3%.

The Singapore government has historically been prudent in its fiscal
policy, keeping fiscal expenditure below 20% of GDP. In response to the Asian
crisis, the government announced two stimulus packages in 1998 -- a S$2 billion
off-budget package and a S$10.5 billion cost-cutting package. The cost-cutting
package has an impact on the current budget, raising government expenditure to
20.5% of GDP in fiscal year 1999 from 19.6% in fiscal year 1998.

Singapore's competitive advantage is in producing electronics goods.
Electronics goods account for about half of total manufacturing production and
two-thirds of domestic exports. The external trade account is, therefore,
highly sensitive to the global electronics cycle. Global electronics demand has
revived due to Year 2000 computer adaptability issues. Electronics production
rose 14% in the first quarter of 1999 and 23% in the second quarter of 1999. In
July, it accelerated to 34%. However, strong electronics production failed to
boost electronics exports. Exports of electronics goods rose a mere 1.4% in the
second quarter of 1999. Although they accelerated to 13% in July, exports
slowed again to 6.1% in August. Non-electronics goods, however, have become the
main driver for Singapore's overall export growth. After enjoying 18 months of
trade surplus, the external trade account reverted to a deficit for July and
August.

South Korea. The South Korean economic recovery has gained momentum.
After recording 4.6% GDP growth in the first quarter of 1999, in August the
government announced stronger 9.8% GDP growth for the second quarter of the
year.

Despite rising oil and commodity prices, inflation remained subdued during
the first eight months of 1999, averaging 0.6% for the period. Import prices
have risen faster recently, however.

In response to the Daewoo liquidity crunch and market uncertainty about
possible runs on investment trust companies (ITCs), the government has committed
to keep the official overnight call rate at the current level to help stabilize
long-term interest rates. In case of a liquidity squeeze, the central bank will
supply liquidity to narrow the spread between long-term and short-term interest
rates. The overnight call rate has been quite stable over the last four months
but the corporate bond yield has been under pressure. Since Daewoo's insolvency
was exposed in mid-July, the spread between the 3-year corporate bond yield and
the overnight call rate has increased by 2.25%.

The government has budgeted for a W22 trillion deficit this year,
equivalent to 5% of GDP. As the economy has recovered faster than expected, tax
revenue collected has been higher than the government's original projection.
Government outlays will continue to focus on social safety net and financial
sector restructuring. The government now expects the budget deficit to narrow
to 4% this year and 3.5% for 2000, and seeks a balanced budget in 2003.

Moving to the third quarter of 1999, the external account improved
substantially. Double-digit export growth rates have been recorded since June.
Import growth rates have been even stronger, rising by more than 30%. The
collapse of imports in 1998 forced many firms to deplete their stocks. As
export orders mount, firms have the incentive to increase imports of raw
materials in machinery. South Korea now imports about US$10 billion a month,
still considerably lower than the monthly rate of US$12 billion before the
crisis. Stronger imports have resulted in a shrinking trade surplus, and hence
a narrowing current account surplus.

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<PAGE>

Taiwan. The Central Bank has maintained an eased monetary policy in recent
times. This has not fueled inflation. The New Taiwan dollar has strengthened
against the US dollar. The government has tightened controls on the foreign-
exchange market. The budget deficit has eased.

The government has revised its forecast for economic growth in 1999 to at
least 5.5%. Private consumption indicators have remained weak. New domestic
investment fell by 12.5% year on year in January-June 1999.

The electronics sector has continued to perform strongly in 1999. Housing
construction performance has been mixed. A delay in a national high-speed rail
project has harmed construction companies.

Consumer prices have remained subdued and wholesale prices have continued
to fall through September 30, 1999. Unemployment rose to 2.9% in June 1999,
owing both to weaker domestic demand and technological innovations that reduce
the need for workers.

Non-performing loan ratios have remained high. The government announced in
May that all state banks would be privatized by 2002. Foreign banks have
established themselves in areas such as derivatives. Foreigners were net buyers
of Taiwan stocks, in the amount of NT$140bn (US$4.3bn) in January-June 1999.
The government intervened in July to prop up the stock market after military
threats from China caused a sharp fall in the TAIEX.

Merchandise exports rose by 5.4% year-on-year in US dollar terms in
January-July 1999. Merchandise imports have also started to revive. The
merchandise trade surplus totalled US$6.7bn in the first seven months of 1999,
nearly triple the level recorded in the same period in 1998. The current-
account surplus rose to US$1.7bn in the second quarter of 1999. Merchandise
trade with China has remained strong.

Thailand. Thailand's economic recovery broadened and deepened in the
second quarter of 1999, with private consumption and fixed investment
registering their first year-on-year gains thanks to a Bt130 billion (US$3
billion) fiscal stimulus package implemented since early April. The public
sector should continue to lead domestic demand. However, a high ratio of non-
performing loans in the banking system is slowing the economic recovery. As of
June, banks were holding about 47% of non-performing loans. Banks are being
encouraged to set up their own asset management companies to speed the pace of
debt restructuring and to reduce non-performing loans, thus enabling a revival
of credit.

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 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. The government budgets a fiscal
deficit equivalent to 6% of GDP in the current fiscal year, with the deficit
expected to fall to 5% of GDP in the fiscal year starting in October.

The trade account improved over the course of the second quarter and this
appears set to continue in the third quarter. Exports began to register growth
in April, with export value reaching almost as high as that which prevailed
before the crisis. However, import value is still short of the pre-crisis
level. This allows Thailand to enjoy a trade surplus, which was rarely seen
before the crisis.

Real GDP Annual Rate of Growth (annual % change)

1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ----
Australia 3.8 5.0 4.4 4.0 3.9 5.1

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<PAGE>

Hong Kong 6.1 5.4 3.9 4.5 5.3 -5.1
Indonesia 7.3 7.5 8.2 8.0 4.8 13.7
Japan 0.3 0.6 1.5 5.1 1.4 -2.8
Malaysia 8.4 9.3 9.4 8.6 7.7 -6.7
Singapore 12.8 11.4 8.2 7.5 9.0 0.4
South Korea 5.5 8.3 8.9 6.8 5.0 -5.8
Taiwan 6.3 6.5 6.0 5.7 6.8 4.9
Thailand 8.5 8.6 8.8 5.5 1.3 9.4

Source: World Economic Outlook, October 2000 (International Monetary Fund)

Brazil. Brazil is Latin America's largest economy and the world's tenth
largest. Manufacturing is the dominant industrial sector, generating 24% of
GDP, followed by agriculture at 12%; services represent 55% of GDP. In the
period from 1994 to 1998, annualized economic growth averaged 3.1%. Growth
ended in mid-1998, as fears of contagion from Russia caused a sharp loss of
liquidity through capital flight. The economy contracted 2.1% in the fourth
quarter of 1998, bringing growth for the year to 0.1%. The economy fell 0.7% in
the first half of 1999, following January's currency devaluation.

The real stood at R$1.21/US$ at the end of 1998. Growing concerns over the
sustainability of the real's crawling peg exchange rate resulted in the
devaluation of the currency on January 13. By March 1, the currency had fallen
to R$2.13/US$, but it then rallied to R$1.66/US$ in early May. Concerns about
fiscal progress at home and general global concerns weakened the currency again,
to near R$2/US$ by mid-August.

Inflation tumbled from more than 2500% per annum in 1994 to 1.7% in 1998.
The January 1999 currency devaluation caused inflation to surge to 3.6% in
February, but it receded quickly thereafter.

Despite tight control of monetary aggregates, real rates of interest have
decreased, with lower foreign exchange risk and reduced risk of an inflation
surge. Real rates of interest declined from 40% at the end of the first quarter
of 1999 to roughly 15% by mid-August. Further, after several failed attempts,
Congress passed fiscal adjustment measures in January-February 1999, after years
of delay.

Brazilian Real GDP Annual Rate of Growth (annual % change)

1999
1998 0.1
1997 3.7
1996 2.8
1995 4.2
1994 5.9
1993 4.9

Source: World Economic Outlook, October 2000
(International Monetary Fund)

Canada. The Canadian economy has performed well in recent quarters,
expanding at a 3.75% annualized pace in the first half of 1999. Growth in the
first half of 1999 was evenly balanced between the domestic and net export
sectors. Initial indicators suggest that the economy continued to expand in the
4% to 4.5% range in the second half of 1999, on average.

Underlying inflation pressure remains benign in Canada. The "core" CPI
inflation rate, which excludes food and energy prices, was 1.6% in August, at
roughly the mid-point of the Bank of Canada's 1% to 3% target band for core
inflation.

The Bank of Canada's primary policy objective is to target core inflation,
i.e. keep it to within a range of 1% to 3%. To achieve this goal, the
authorities have traditionally relied on their estimates of potential output
(and the output gap) to determine the inflation outlook. However, as the
economy nears theoretical levels of full

33
<PAGE>

capacity, the Bank has announced that it will put increased emphasis on other
measures of inflation and capacity pressures. Meanwhile, the weak Canadian
dollar has remained below US 69c (CAD 1.45).

Canada's Federal budget was balanced in 1997 and is forecast to remain in
balance for the next two years. Additionally, all ten provinces are expected to
post balanced budgets by 2000. This may speed a decline in Canada's public
sector debt-to-GDP ratio, which was 98% of GDP in 1997.

Separation politics seems to be on hold as Quebeckers seem more concerned
about employment growth and the provision of government services. One issue
that continues to rise to the surface nationally is whether Canada should enter
a currency union with the United States.

Canadian Real GDP Annual Rate of Growth (annual % change)

1999
1998 3.1
1997 4.0
1996 1.7
1995 2.8
1994 4.7
1993 2.3

Source: World Economic Outlook, October 2000
(International Monetary Fund)

Mexico. Mexico's economy is the second largest in Latin America. Post-
NAFTA integration with the U.S. has been the engine for growth in the Mexican
economy since the peso crisis of 1994-95. GDP growth was 7.0% in 1997 and 4.8%
in 1998.

Mexican inflation is sensitive to both monetary and exchange-rate policy.
In 1998, higher-than-expected inflation of 18.6%, up from 15.7% in 1997, was
generated by currency weakness, the decontrol of tortilla prices, and higher
crop prices due to El Nino. Real wages fell sharply in the 1995 recession and
had recovered only slightly by the end of the third quarter of 1999. The
strength of the peso, weak demand, and an ongoing restrictive monetary policy
have helped restrain inflation.

The peso is a floating currency that was priced at M$9.4/US$ at the end of
summer 1999. The peso ended 1998 at M$9.91/US$, down 23.0% for the year in
nominal terms. The peso's history since the late-1994 devaluation is a mixture
of periods of remarkable stability interwoven with episodes of sudden moves to
either weaker or stronger levels. Further, since the 1994 devaluation, Mexico
has assiduously adhered to tight monetary targets.

Timely fiscal cuts and very strong oil prices have helped the government
adhere to its 1.25% of GDP fiscal target for 1999. The cost of a bank support
program boosts actual deficit spending by about 1% of GDP per annum, but the
overall fiscal policy is prudent. The government reportedly is pushing for a 1%
deficit in 2000 and for a real spending hike of 5%.

Mexican Real GDP Annual Rate of Growth (annual % change)

1999
1998 4.6
1997 7.0
1996 5.2
1995 -6.2
1994 4.4
1993 2.0

Source: World Economic Outlook, October 2000 (International Monetary Fund)

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<PAGE>

South Africa. The South African economy is recovering slowly. 1999
second-quarter GDP gained 0.4% from the first quarter of 1999, following a 0.2%
rise in the first quarter of the year. In the first half of 1999, GDP grew
0.4% from the second half of last year, while final sales grew by 1.1%.

Inflation in August declined to 3.2%. The decline, from almost 9% at the
beginning of the year, is due mainly to the effect of a 6% decline in mortgage
rates in 1999. Further, core inflation declined from 8.2% in July to 7.9% in
August.

Last year's state budget constituted 3.3% of GDP, compared with an original
target of 3.5% of GDP. Furthermore, the publication of the first inter-
governmental fiscal review revealed that the country's nine provinces managed to
run a combined surplus of R 1.1 billion in fiscal 1998-1999, a significant
improvement from the deficit of R 5.8 billion in the previous fiscal year,
suggesting that fiscal austerity has extended beyond the central government.

On September 23, 1999, commercial banks cut the prime rate by 1% to 15.5%.
The cut followed an accelerated pace of cuts in the official repo rate. This
accelerated pace is underscored by the economic data and the economy appears to
be recovering.

A rally in the price of gold, beginning with the second gold auction by the
Bank of England, highlighted improved sentiment in the gold market and supported
the rand. Finally, despite sharp interest rate cuts in recent months, bond-
market performance has continued to be disappointing.

South African Real GDP Annual Rate of Growth (annual % change)

1999
1998 0.6
1997 2.5
1996 4.2
1995 3.1
1994 3.2
1993 1.2

Source: World Economic Outlook, October 2000 (International Monetary Fund)

The United States. The United States economy has grown consistently in the
1990s, while inflation has been kept to favorable levels in the last two years.
Recently, GDP has grown in the U.S. at a rate of 3.9% in both 1997 and 1998,
while inflation, measured by the Consumer Price Index, grew by 2.3% in 1997 and
1.5% in 1998.

While corporate profits, after tax, grew substantially in 1997, at a rate
of 7.5%, they slipped somewhat in 1998, to -2.2%, due mainly to the effects of
the world-wide slowdown caused by Russia's default on bond payments in August
1998 and the Asian recession that hindered world markets generally in the second
half of 1998.

Meanwhile, U.S. economic expansion in the 1990s led to the first U.S.
federal government surplus in decades: 0.8% of GDP in 1998. The federal budget
deficit had already begun to show signs of turning in 1997, when it was reduced
to -0.3%. The Federal Reserve's monetary policy continued to be favorable to
economic expansion in recent years, as the Federal Funds Rate was 5.5% in 1997
and 4.75% in 1998. The Federal Reserve increased its lending rate slightly to
5.25% in September 1999 to ameliorate inflationary concerns, but the U.S. equity
markets did not immediately slow as a result.

U.S. bond markets were relatively flat. The 30-year Treasury Bond yield
was 5.95% at the end of 1997 and 5.15% at the close of 1998, and increased
somewhat by September 1999 to approximately 6.0%.

Turkey. The Turkish securities market is relatively less developed,
smaller and less liquid than the securities markets of many other countries. At
December 31, 1998, the total market value of the equity securities listed on the
senior market of the Istanbul Stock Exchange (the "ISE") was TL51,557 trillion
($97.65 billion).

35
<PAGE>

Average daily trading volume for equity securities listed on the senior market
of the ISE for the year ended 1998 was TL 70.4 trillion ($273.5 million). For
the nine months ended September 30, 1999, average daily trading volume was TL
109.6 trillion ($280 million). The public float of the equity securities listed
on the senior market of the ISE is estimated on average to be in the range of
20.6% of total market capitalization. The Turkish securities markets tend to be
susceptible to being influenced by large investors trading significant blocks of
securities or by large dispositions of securities resulting from failure to meet
margin calls when due.

In addition to its small size and illiquidity, the Turkish securities
market is extremely volatile and trading is concentrated. There are no market
making activities for equity securities listed on the ISE (although there is, in
general, a 10% daily limit on price increases and decreases in each equity
security). There is no assurance in light of the historical volatility of the
Turkish securities markets that any particular level will be sustained.
Further, there are only 283 companies listed on the senior market of the ISE and
the top 5 of those companies in terms of trading volume accounted for 20.9% of
the trading volume on the senior market of the ISE for the year ended December
31, 1998 while the top 5 of those companies in terms of market capitalization
accounted for 37% of the total market capitalization on the senior market of the
ISE for such year.

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
senior market of the ISE 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
1998 2.8
1997 7.6
1996 7.0
1995 8.1
1994 -4.7
1993 7.7

Source: World Economic Outlook, October 2000 (International Monetary Fund)

United States Real GDP Annual Rate of Growth (annual % change)

1999
1998 3.9
1997 3.9
1996 3.5
1995 2.3
1994 3.5
1993 2.3

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

36
<PAGE>

rights to the Indices in 1986. In November 1998, Morgan Stanley transferred all
rights to the MSCI Indices to Morgan Stanley Capital International Inc.
("MSCI"), a Delaware corporation of which MSDW is the majority owner. The MSCI
Indices have covered the world's developed markets since 1969, and in 1988, MSCI
commenced coverage of the emerging markets.

Although local stock exchanges have traditionally calculated their own
indices, these are generally not comparable with one another, due to differences
in the representation of the local market, mathematical formulas, base dates and
methods of adjusting for capital changes. MSCI applies the same criteria and
calculation methodology across all markets for all indices, developed and
emerging.

MSCI Indices are notable for the depth and breadth of their coverage. MSCI
generally seeks to have 60% of the capitalization of a country's stock market
reflected in the MSCI Index for such country. Thus, the MSCI Indices balance the
inclusiveness of an "all share" index against the replicability of a "blue chip"
index.

Weighting. All single-country MSCI Indices are market capitalization
---------
weighted, i.e., companies are included in the indices at their full market value
(total number of shares issued and paid up, multiplied by price). MSCI believes
full market capitalization weighting is preferable to other weighting schemes
for both theoretical and practical reasons.

MSCI calculates two indices in some countries in order to address the issue
of restrictions on foreign ownership in such countries. The additional indices
are called "free" indices, and they exclude companies and share classes not
purchasable by foreigners. Free indices are currently calculated for Brazil,
China, Indonesia, Malaysia, Mexico, the Philippines, Singapore and Thailand,
and for those regional and international indices which include such markets.

Indonesia, Malaysia, Singapore and Thailand currently impose foreign
ownership limits on domestic stock, and when the foreign ownership limit is
reached, foreigners may only trade with other foreigners, frequently at a price
that is higher than the price available to domestic investors. The Free Indices
for such countries are designed to reflect the actual investment conditions for
international investors by using the foreign prices for stocks where relevant.
The Free Indices for Indonesia, Malaysia, Singapore and Thailand will use
foreign prices only when a foreign ownership limit is reached on a constituent
stock and a determination is made that there is sufficient long-term liquidity
at the foreign price. To compensate for the distorting inflation of a company's
weight that may occur as a result of using the higher foreign prices for its
shares, a compensating factor called a Free Market Capitalization Factor
("FMCF") may be applied to the total number of shares of a "foreign priced"
constituent stock in the respective Index. A FMCF is the approximate ratio of
domestic price to foreign price and is applied in an effort to align the free
market capitalization weight with the domestic market capitalization weight.

Regional Weights. Market capitalization weighting, combined with a
consistent target of 60% of market capitalization, helps ensure that each
country's weight in regional and international indices approximates its weight
in the total universe of developing and emerging markets. Maintaining consistent
policy among MSCI developed and emerging market indices is also critical to the
calculation of certain combined developed and emerging market indices published
by MSCI.

Selection Criteria
------------------

The Universe of Securities. The constituents of a country index are
selected from the full range of securities available in the market, excluding
issues which are either small or highly illiquid. Non-domiciled companies and
investment trusts are also excluded from consideration. After the index
constituents are chosen, they are reclassified using MSCI's schema of 38
industries and 8 economic sectors in order to facilitate cross-country
comparisons.

The Optimization Process. The process of choosing index constituents from
the universe of available securities is consistent among indices. Determining
the constituents of an index is an optimization process which involves
maximizing float and liquidity, reflecting accurately the market's size and
industry profiles and minimizing cross-ownership. The optimization variables and
their targets are:

37
<PAGE>

Market Coverage Target 60% of market
Industry Representation Mirror the local market
Liquidity Maximize
Float Maximize
Cross-Ownership Avoid/Minimize
Size Sample with size characteristics of universe

Coverage. To reflect accurately country-wide performance as well as the
performance of industry groups, MSCI aims to capture 60% of total market
capitalization at both the country and industry level. To reflect local market
performance, an index should contain a percentage of the market's overall
capitalization sufficient to achieve a high level of tracking. The greater the
coverage, however, the greater the risk of including securities which are
illiquid or have restricted float. MSCI's 60% coverage target reflects a balance
of these considerations.

Industry Representation. Within the overall target of 60% market coverage,
MSCI aims to capture 60% of the capitalization of each industry group, as
defined by local practice. MSCI believes this target assures that the index
reflects the industry characteristics of the overall market and permits the
construction of accurate industry indices.

MSCI may exceed the 60% of market capitalization target in the index for a
particular country because, e.g., one or two large companies dominate an
industry. Similarly, MSCI may underweight an industry in an index if, e.g., the
companies in such industry lack good liquidity and float, or because of
extensive cross-ownership.

Liquidity. Liquidity is measured by trading value, as reported by the
local exchanges. Trading value is monitored over time in order to determine
"normal" levels exclusive of short-term peaks and troughs. A stock's liquidity
is significant not only in absolute terms (i.e., a determination of the market's
most actively traded stocks), but also relative to its market capitalization and
to average liquidity for the country as a whole.

Float. Float, or the percentage of shares freely tradeable, is one measure
of potential short-term supply. Low float raises the risk of insufficient
liquidity. MSCI monitors float for every security in its coverage, and low float
may exclude a stock from consideration. However, float can be difficult to
determine. In some markets good sources are generally not available. In other
markets, information on smaller and less prominent issues can be subject to
error and time lags. Government ownership and cross-ownership positions can
change over time, and are not always made public. Float also tends to be defined
differently depending on the source. MSCI seeks to maximize float. As with
liquidity, float is an important determinant, but not a hard-and-fast screen for
inclusion of a stock in, or exclusion of a stock from, a particular index.

Cross-ownership. Cross-ownership occurs when one company has an ownership
position in another. In situations where cross-ownership is substantial,
including both companies in an index may skew industry weights, distort country-
level valuations and over-represent buyable opportunities. An integral part of
MSCI's country research is identifying cross-ownerships in order to avoid or
minimize them. Cross-ownership cannot always be avoided, especially in markets
where it is prevalent. When MSCI makes exceptions, it strives to select
situations where the constituents operate in different economic sectors, or
where the subsidiary company makes only a minor contribution to the parent
company's results.

Size. MSCI attempts to meet its 60% coverage target by including a
representative sample of large, medium and small capitalization stocks, in order
to capture the sometimes disparate performance of these sectors. In the emerging
markets, the liquidity of smaller issues can be a constraint. At the same time,
properly representing the lower capitalization end of the market risks
overwhelming the index with names. Within these constraints, MSCI strives to
include smaller capitalization stocks, provided they exhibit sufficient
liquidity.

Calculation Methodology. All MSCI Indices are calculated daily using Laspeyres'
-----------------------
concept of a weighted arithmetic average together with the concept of "chain-
linking," a classical method of calculating stock market indices. The Laspeyres
method weights stocks in an index by their beginning-of-period market
capitalization. Share prices are "swept clean" daily and adjusted for any rights
issues, stock dividends or splits. Most MSCI Indices are currently calculated in
local currency and in U.S. dollars, without dividends, with gross dividends
reinvested and with net dividends reinvested. Except for the iShares MSCI Brazil
(Free), Malaysia (Free), Mexico (Free), South

38
<PAGE>

Africa, South Korea and Taiwan Index Funds, where the corresponding MSCI Index
of each is calculated with gross 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 Luxembourg residents and a 10%
rate on the iShares MSCI Germany Index Fund. "Gross dividends" means dividends
before reduction for taxes withheld at source.

Dividend Treatment. In respect of developed markets, MSCI Indices with
------------------
dividends reinvested constitute an estimate of total return arrived at by
reinvesting one twelfth of the year end yield at every month end.

In respect of emerging markets, MSCI has constructed its indices with
dividends reinvested as follows:

. In the period between the ex date and the date of dividend
reinvestment, a dividend receivable is a component of the index
return.

. Dividends are deemed received on the payment date.

. To determine the payment date, a fixed time lag is assumed to exist
between the ex date and the payment date. This time lag varies by
country, and is determined in accordance with general practice within
that market.

. Reinvestment of dividends occurs at the end of the month in which the
payment date falls.

Price and Exchange Rates.
------------------------

Prices. Prices used to calculate the MSCI Indices are the official
exchange closing prices. All prices are taken from the dominant exchange in each
market. In countries where there are foreign ownership limits, MSCI uses the
price quoted on the official exchange, regardless of whether the limit has been
reached.

Exchange Rates. MSCI uses WM/Reuters Closing Spot Rates for all developed
and emerging markets except those in Latin America. The WM/Reuters Closing Spot
Rates were established by a committee of investment managers and data providers,
including MSCI, whose object was to standardize exchange rates used by the
investment community. Exchange rates are taken daily at 4 p.m. London time by
the WM Company and are sourced whenever possible from multi-contributor quotes
on Reuters. Representative rates are selected for each currency based on a
number of "snapshots" of the latest contributed quotations taken from the
Reuters service at short intervals around 4 PM. WM/Reuters provides closing bid
and offer rates. MSCI uses these to calculate the mid-point to 5 decimal places.

MSCI continues to monitor exchange rates independently and may, under
exceptional circumstances, elect to use an alternative exchange rate if the
WM/Reuters rate is believed not to be representative for a given currency on a
particular day. Because of the high volatility of currencies in some Latin
American countries, MSCI continues to use its own timing and sources for these
markets. The exchange rate for the MSCI Mexico (Free) Index is that prevailing
as of 3:00 p.m. Eastern time.

Changes to the Indices. In changing the constituents of the indices, MSCI
----------------------
attempts to balance representativeness versus undue turnover. An index must
represent the current state of an evolving marketplace, yet at the same time
minimize turnover, which is costly as well as inconvenient for managers.

There are two broad categories of changes to the MSCI Indices. The first
consists of market-driven changes such as mergers, acquisitions, bankruptcies,
etc. These are announced and implemented as they occur. The second category
consists of structural changes to reflect the evolution of a market, for example
due to changes in industry composition or regulations. In the emerging markets,
index restructurings generally take place every one year to eighteen months.
Structural changes may occur only on four dates throughout the year: the first
business day of March, June, September and December. They are preannounced at
least two weeks in advance.

39
<PAGE>

Additions. Restructuring an index involves a balancing of additions and
deletions. To maintain continuity and minimize turnover, MSCI is reluctant to
delete index constituents, and its approach to additions is correspondingly
stringent. As markets grow because of privatizations, investor interest, or the
relaxation of regulations, index additions (with or without corresponding
deletions) may be needed to bring industry representations up to the 60% target.
Companies are considered not only based on their broad industry, but also based
on their sub-sector, in order to achieve, if possible, a broader range of
economic activity. Beyond industry representativeness, new constituents are
selected based on the criteria discussed above, i.e. float, liquidity, cross-
ownership, etc.

New Issues. In general, new issues are not eligible for immediate
inclusion in the MSCI Indices because their liquidity remains unproven. Usually,
new issues undergo a "seasoning" period of one year to eighteen months between
index restructurings until a trading pattern and volume are established. After
that time, they are eligible for inclusion, subject to the criteria discussed
above (industry representation, float, cross-ownership, etc.).

In the emerging markets, however, it is not uncommon that a large new
issue, usually a privatization, comes to market and substantially changes the
country's industry profile. In exceptional circumstances, where the issue's
size, visibility and investor interest assure high liquidity, and where
excluding it would distort the characteristics of the market, MSCI may decide to
include it immediately in the indices.

In other cases, MSCI may decide not to include a large new issue even in
the normal process of restructuring, and in spite of its substantial size and
liquidity.

Deletions. MSCI's primary concern when considering deletions is the
continuity of the indices. Of secondary concern are the turnover costs
associated with deletions. The indices must represent the full investment cycle,
including bear as well as bull markets. Out-of-favor stocks may exhibit
declining price, market capitalization or liquidity, and yet continue to be good
representatives of their industry.

Companies may be deleted because they have diversified away from their
industry classification, because the industry has evolved in a different
direction from the company's thrust, or because a better industry representative
exists (either a new issue or an existing company). In addition, in order not to
exceed the 60% target coverage of industries and countries, adding new index
companies may entail corresponding deletions. Usually such deletions take place
within the same industry, but there are occasional exceptions.

Each of the MSCI Indices utilized as the benchmark for an Index Fund is
calculated reflecting dividends reinvested. Except for the iShares MSCI Brazil
(Free), Malaysia (Free), Mexico (Free), South Africa, South Korea and Taiwan
Index Funds, where the corresponding MSCI Index of each is calculated with gross
-----
dividends reinvested, the Company's Index Funds utilize MSCI Indices calculated
with net dividends reinvested. MSCI refers to each of its Indices calculated
---
reflecting net dividends reinvested as the "MSCI [relevant country] Index (with
net dividends reinvested)."

INVESTMENT LIMITATIONS

The Company has adopted the following investment restrictions as
fundamental policies with respect to each Index Fund. These restrictions cannot
be changed with respect to an Index Fund without the approval of the holders of
a majority of such Index Fund's outstanding voting securities. For purposes of
the 1940 Act, a majority of the outstanding voting securities of an Index Fund
means the vote, at an annual or a special meeting of the security holders of the
Company, of the lesser of (1) 67% or more of the voting securities of the Index
Fund present at such meeting, if the holders of more than 50% of the outstanding
voting securities of such Index Fund are present or represented by proxy, or (2)
more than 50% of the outstanding voting securities of the Index Fund. An Index
Fund may not:

1. Change its investment objective;

2. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which
it is permitted to invest (including participation interests in such

40
<PAGE>

securities or obligations) and except that an Index Fund may lend its
portfolio securities in an amount not to exceed 33% of the value of
its total assets;

3. Issue senior securities or borrow money, except borrowings from banks
for temporary or emergency purposes in an amount up to 33% of the
value of the Index Fund's total assets (including the amount
borrowed), valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) valued at the time the borrowing
is made, and the Index Fund will not purchase securities while
borrowings in excess of 5% of the Index Fund's total assets are
outstanding, provided, that for purposes of this restriction, short-
term credits necessary for the clearance of transactions are not
considered borrowings;

4. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings. (The deposit of underlying securities
and other assets in escrow and collateral arrangements with respect to
initial or variation margin for currency transactions and futures
contracts will not be deemed to be pledges of the Index Fund's
assets);

5. Purchase a security (other than obligations of the United States
Government, its agencies or instrumentalities) if as a result 25% or
more of its total assets would be invested in a single issuer;

6. Purchase, hold or deal in real estate, or oil, gas or mineral
interests or leases, but an Index Fund may purchase and sell
securities that are issued by companies that invest or deal in such
assets;

7. Act as an underwriter of securities of other issuers, except to the
extent the Index Fund may be deemed an underwriter in connection with
the sale of securities in its portfolio;

8. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, except that an Index
Fund may make margin deposits in connection with transactions in
currencies, options, futures and options on futures;

9. Sell securities short; or

10. Invest in commodities or commodity contracts, except that an Index
Fund may buy and sell currencies and forward contracts with respect
thereto, and may transact in futures contracts on securities, stock
indices and currencies and options on such futures contracts and make
margin deposits in connection with such contracts.

Industry concentration. With respect to the two most heavily weighted
industries or groups of industries in its benchmark MSCI Index, an Index Fund
will invest in securities (consistent with its investment objective and other
investment policies) so that the weighting of each such industry or group of
industries in the Index Fund does not diverge by more than 10% from the
respective weighting of such industry or group of industries in its benchmark
MSCI Index. An exception to this policy is that if investment in the stock of a
single issuer would account for more than 25% of the Index Fund, the Index Fund
will invest less than 25% of its net assets in such stock and will reallocate
the excess to stock(s) in the same industry or group of industries, and/or to
stock(s) in another industry or group of industries, in its benchmark MSCI
Index. Each Index Fund will evaluate these industry weightings at least weekly,
and at the time of evaluation will adjust its portfolio composition to the
extent necessary to maintain compliance with the above policy. An Index Fund
may not concentrate its investments except as discussed above. This policy is a
fundamental investment policy and may not be changed without the approval of a
majority of an Index Fund's shareholders.

As of September 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:

Index Fund Industry or Industries
------------------------------------------------------------------------

41
<PAGE>

Index Fund Industry or Industries
------------------------------------------------------------------------

In addition to the investment restrictions adopted as fundamental policies
as set forth above, each Index Fund observes the following restrictions, which
may be changed by the Board without a shareholder vote. An Index Fund will not:

1. Invest in the securities of a company for the purpose of exercising
management or control, or in any event purchase and hold more than 10%
of the securities of a single issuer, provided that the Company may
vote the investment securities owned by each Index Fund in accordance
with its views; or

2. Hold illiquid assets in excess of 15% of its net assets. An illiquid
asset is any asset which may not be sold or disposed of in the
ordinary course of business within seven days at approximately the
value at which the Index Fund has valued the investment.

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.

42
<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 Management
520 Main Street (from 1984-2000) of GTE Corporation; Advisory
Ridgefield, CT 06877 Board member of Ibbotson Assoc. (since 1998);
Age 65 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 Managing
Advisory Director Director (from 1985 to 1995) of Morgan Stanley
Morgan Stanley & Co., Incorporated & Co., Incorporated; Chairman (since 1994) and
1221 Avenue of the Americas Trustee (since 1885) of the Board of Trustees
30/th/ Floor of Macalester College; Treasurer and Trustee
New York, NY 10020 (since 1995) of Russell Sage Foundation; Member
Age 50 (since 1994) of Wilmer Eye Institute Advisory
Counsel at John Hopkins University Hospital;
President (since 1992) of the Hultquist
Foundation; Chairman, Council of Board Chairmen
of Independent Colleges.

Lloyd N. Morrisett Director President (retired) of The John and Mary R.
Children's Television Workshop Markle Foundation (from 1969 to 1998); Chairman
One Lincoln Plaza, 4/th/ Floor (since 1970) of the Children's Television
New York, NY 10023 Workshop; Chairman (since 1998) and Director
Age 71 (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>

43
<PAGE>

<TABLE>
<CAPTION>
Principal Occupations
Name and Address Position with the Company During Past Five Years
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
W. Allen Reed Director President and CEO and Director (since 1994) of
President General Motors Investment Management
General Motors Investment Management Corporation; Vice President and Treasurer (from
Corp. 1991 to 1994) of Hughes Electronics; President
767 Fifth Avenue (from 1984 to 1991) of Hughes Investment
New York, NY 10153 Management Company; Director (from 1995 to
Age 53 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 Services
Executive Vice President Ltd. (since 1995); Executive Vice President and
PFPC Inc. Chief Accounting Officer (since 1993) and
400 Bellevue Parkway Senior Vice President and Chief Accounting
Wilmington, DE 19809 Officer (from 1991 to 1993) of PFPC Inc.;
Age 45 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 and officers 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 Paid
And Position Registrant Company Expenses Retirement to Directors
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nathan Most, Director, $______ None None $______
President and Chairman
of the Board
John B. Carroll, $______ None None $______
Director
Timothy A. Hultquist, $______ None None $______
Director
Lloyd N. Morrisett, $______ None None $______
Director
W. Allen Reed, Director $______ None None $______
</TABLE>

44
<PAGE>

No officer is entitled to any compensation, and no officer or Director is
entitled to any pension or retirement benefits, from the Company.

The Company does not have information concerning the beneficial ownership
of the iShares held in the names of such DTC Participants.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Although the Company does not have information concerning the beneficial
ownership of iShares held in the names of DTC Participants, as of November 30,
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:

[TO BE UPDATED]

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
-------------------------------- ---------------------------------- -----------------------------
<S> <C> <C>
Australia The Chase Manhattan Bank ______%
One Chase Manhattan Plaza
New York, NY 10081

The Bank of New York ______%
One Wall Street
New York, NY 10286

Bankers Trust _____%
648 Grassmere Park Road
Nashville, TN 37211

Austria The Bank of New York _____%
One Wall Street
New York, NY 10286

Salomon Smith Barney Inc. _____%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001

Brown Brothers Harriman & Co. _____%
63 Wall Street, 8th Floor
New York, NY 10005

National Financial Services Corporation _____%
1 World Financial Center, Tower A
New York, NY 10281

Belgium The Bank of New York _____%
One Wall Street
New York, NY 10286

Citibank, N.A. _____%
P.O. Box 30576
Tampa, FL 33630

Bear, Stearns Securities Corp. _____%
One Metrotech Center, North
Brooklyn, NY 11201
</TABLE>

45
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- --------------------------------------- ----------------------------
<S> <C> <C>
National Financial Services Corporation _____%
200 Liberty Street
New York, NY 10281

Salomon Smith Barney Inc. _____%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001

Brazil (Free) [TO BE UPDATED] ______%

Canada Charles Schwab & Co., Inc. ______%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310

Prudential Securities Incorporated _____%
1 New York Plaza, 9th Floor
New York, NY 10292

Brown Bros. Harriman & Co. _____%
59 Wall Street
New York, NY 10005

Goldman, Sachs & Co. ____%
1 New York Plaza
New York, NY 10004

RBC Dominion Securities Inc. -- NSCC ____%
200 Bay Street, Royal Bank Plaza
Toronto, Ontario
Canada M5J 2W7

National Investors Services Corp. ____%
55 Water Street
New York, NY 10281

EMU [TO BE UPDATED] _____%

France Morgan Stanley & Co. Incorporated _____%
One Pierrepont Plaza
Brooklyn, NY 11201

State Street Bank & Trust Company ____%
1776 Heritage Drive
Quincy, MA 02171

The Bank of New York ____%
One Wall Street
New York, NY 10286

Brown Bros. Harriman & Co. ____%
59 Wall Street
New York, NY 10005

Wells Fargo Bank, N.A. ____%
464 California Street
San Francisco, CA 94104
</TABLE>

46
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- --------------------------
<S> <C> <C>
Germany Brown Bros. Harriman & Co. _____%
59 Wall Street
New York, NY 10005

State Street Bank & Trust Company _____%
1776 Heritage Drive
Quincy, MA 02171

The Bank of New York ____%
One Wall Street
New York, NY 10286

Morgan Stanley & Co. Incorporated ____%
One Pierrepont Plaza
Brooklyn, NY 11201

Charles Schwab & Co., Inc. ____%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310

Hong Kong Salomon Smith Barney Inc. ____%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001

Morgan Stanley & Co. Incorporated ____%
One Pierrepont Plaza
Brooklyn, NY 11201

Charles Schwab & Co., Inc. ____%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310

Merrill Lynch Pierce Fenner & Smith Safekeepi ____%
101 Hudson Street
Jersey City, NJ 07302

Brown Bros. Harriman & Co. ____%
59 Wall Street
New York, NY 10005

Italy Brown Bros. Harriman & Co. _____%
59 Wall Street
New York, NY 10005

The Bank of New York _____%
One Wall Street
New York, NY 10286

Bear, Stearns Securities Corp. ____%
One Metrotech Center North
Brooklyn, NY 11201-3859

Citibank, N.A. ____%
1410 Westshore Blvd.
Tampa, FL 33607
</TABLE>

47
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -------------------------
<S> <C> <C>
Japan Morgan Stanley & Co. Incorporated ____%
One Pierrepont Plaza
Brooklyn, NY 11201

Citibank, N.A. ____%
1410 Westshore Blvd.
Tampa, FL 33607

Brown Bros. Harriman & Co. ____%
59 Wall Street
New York, NY 10005

State Street Bank & Trust Company ____%
1776 Heritage Drive
Quincy, MA 02171

The Bank of New York ____%
One Wall Street
New York, NY 10286

Malaysia (Free) Brown Bros. Harriman & Co. ____%
59 Wall Street
New York, NY 10005

State Street Bank & Trust Company ____%
1776 Heritage Drive
Quincy, MA 02171

The Bank of New York ____%
One Wall Street
New York, NY 10286

Merrill Lynch Pierce Fenner & Smith Safekeeping ____%
101 Hudson Street
Jersey City, NJ 07302

Salomon Smith Barney Inc. ____%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001

Charles Schwab & Co., Inc. ____%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310

Mexico (Free) Morgan Stanley & Co. Incorporated ____%
One Pierrepont Plaza
Brooklyn, NY 11201

The Bank of New York ____%
One Wall Street
New York, NY 10286

Salomon Smith Barney Inc. ____%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001

</TABLE>

48
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- ---------------------------
<S> <C> <C>
Netherlands Brown Bros. Harriman & Co. _____%
59 Wall Street
New York, NY 10005

Morgan Stanley & Co. Incorporated _____%
One Pierrepont Plaza
Brooklyn, NY 11201

The Bank of New York ____%
One Wall Street
New York, NY 10286

Citibank, N.A. ____%
1410 Westshore Blvd.
Tampa, FL 33607

Prudential Securities Incorporated ____%
1 New York Plaza
9/th/ Floor
New York, NY 10292

Singapore (Free) Charles Schwab & Co., Inc. ____%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310

Morgan Stanley & Co. Incorporated ____%
One Pierrepont Plaza
Brooklyn, NY 11201

Salomon Smith Barney Inc. ____%
333 West 34/th/ Street, 3/rd/ Floor
New York, NY 10001

Merrill Lynch Pierce Fenner & Smith Safekeeping ____%
101 Hudson Street
Jersey City, NJ 07302

National Financial Services Corporation ____%
1 World Financial Center, Tower A
New York, NY 10281

South Korea [TO BE UPDATED] _____%

Spain The Bank of New York _____%
One Wall Street
New York, NY 10286

Brown Bros. Harriman & Co. _____%
59 Wall Street
New York, NY 10005

Morgan Stanley & Co. Incorporated _____%
One Pierrepont Plaza
Brooklyn, NY 11201
</TABLE>

49
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- --------------------------
<S> <C> <C>
Citibank, N.A. ___%
1410 Westshore Blvd.
Tampa, FL 33607

Sweden The Bank of New York ___%
One Wall Street
New York, NY 10286

Brown Bros. Harriman & Co. ___%
59 Wall Street
New York, NY 10005

Citibank, N.A. ___%
1410 Westshore Blvd.
Tampa, FL 33607

Merrill Lynch Pierce Fenner & Smith Safekeeping ___%
101 Hudson Street
Jersey City, NJ 07302

Spear, Leeds & Kellogg ___%
120 Broadway
New York, NY 10271

Switzerland Morgan Stanley & Co. Incorporated ___%
One Pierrepont Plaza
Brooklyn, NY 11201

Brown Bros. Harriman & Co. ___%
59 Wall Street
New York, NY 10005

Wells Fargo Bank, N.A. ___%
464 California Street
San Francisco, CA 94104

Citibank, N.A. ___%
1410 Westshore Blvd.
Tampa, FL 33607

State Street Bank & Trust Company ___%
1776 Heritage Drive
Quincy, MA 02171

The Bank of New York ___%
One Wall Street
New York, NY 10286

Taiwan [TO BE UPDATED] ___%

United Kingdom Brown Bros. Harriman & Co. ___%
59 Wall Street
New York, NY 10005

The Bank of New York ___%
One Wall Street
New York, NY 10286
</TABLE>

50
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>
State Street Bank & Trust Company ____%
1776 Heritage Drive
Quincy, MA 02171

Citibank, N.A. ____%
1410 Westshore Blvd.
Tampa, FL 33607

Morgan Stanley & Co. Incorporated ____%
One Pierrepont Plaza
Brooklyn, NY 11201

Prudential Securities Incorporate ____%
1 New York Plaza, 9/th/ Floor
New York, NY 10292
</TABLE>

INVESTMENT ADVISORY, MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES

Investment Adviser. Barclays Global Fund Advisors (the "Adviser") acts as
------------------
investment adviser to the Company and, subject to the supervision of the Board,
is responsible for the investment management of each Index Fund. The Adviser is
a California corporation indirectly owned by Barclays Bank PLC, and is
registered as an investment adviser under the Investment Advisers Act of 1940.
The Adviser and its parent, Barclays Global Investors, N.A., manage, administer
or advise assets aggregating in excess of $____ 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 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 1940 Act, (iii) litigation expenses, (iv) taxes (including, but not
limited to, income, excise, transfer and withholding taxes), (v) any cost or
expense that a majority of the Directors of the Company who are not "interested
persons" (as defined in the 1940 Act) deems to be an extraordinary expense and
(vi) the advisory fee payable to the Adviser under the Advisory Agreement; and
provided, further, that the Adviser shall reimburse the Company to the extent
that the expenses of any Index Fund (other than the expenses set forth in the
foregoing proviso) exceed the amount set forth above with respect to such Index
Fund. The management fees are accrued daily and paid by the Company as soon as
practical after the last day of each calendar quarter. The Adviser may from
time to time reimburse expenses to one or more Index Funds. The Company's
management fees, like those paid by most index funds, are lower than those paid
by many actively

51
<PAGE>

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 is paid management fees equal to
each Index Funds' allocable portion of: .27% per annum of the aggregate net
assets of the Index Funds of the Company, except those listed below, less than
or equal to $1.7 billion, plus .15% per annum of the aggregate net assets of the
Index Funds of the Company, except those listed below, between $1.7 billion and
$7 billion, plus .12% per annum of the aggregate net assets of the Index Funds
of the Company, except those listed below, between $7 billion and $10 billion,
plus .08% per annum of the aggregate net assets of the Index Funds of the
Company, except those listed below, in excess of $10 billion. For its investment
management services to the Brazil (Free) Index Fund, Greece Index Fund,
Indonesia (Free) Index Fund, Korea Index Fund, Portugal Index Fund, South Africa
Index Fund, Thailand (Free) Index Fund, Taiwan Index Fund and Turkey Index Fund,
the Adviser is paid management fees equal to each such Index Fund's allocable
portion of: 0.50% per annum per such Index Fund on per Fund assets less than or
equal to $100 million, plus 0.28% per annum per Index Fund on per Fund assets
between $100 million and $400 million, plus 0.22% per annum per Index Fund on
per Fund assets between $400 million and $600 million, plus 0.15% per annum per
Index Fund on per Fund assets greater than $600 million. The management fees
are 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 the following fees to the
Adviser:

Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Index Fund August 31, 1998 August 31, 1999 August 31, 2000
-----------------------------------------------------------------------------
Australia $113,929 $ 135,613; $_____
Austria $ 17,769 $ 27,123 $_____
Belgium $ 80,997 $ 44,906 $_____
Brazil (Free) n/a n/a $__(1)
Canada $ 56,716 $ 33,205 $_____
EMU n/a n/a $__(2)
France $ 74,578 $ 137,387 $_____
Germany $118,054 $ 219,901 $_____
Hong Kong $124,506 $ 197,467 $_____
Italy $162,294 $ 186,292 $_____
Japan $433,508 $1,096,060 $_____
Malaysia (Free) $132,902 $ 176,782 $_____
Mexico (Free) $ 38,055 $ 39,012 $_____
Netherlands $ 44,756 $ 68,016 $_____
Singapore (Free) $119,392 $ 255,259 $_____
South Korea n/a n/a $__(3)
Spain $ 53,561 $ 92,868 $_____
Sweden $ 35,809 $ 43,348 $_____
Switzerland $ 64,666 $ 93,758 $_____
Taiwan n/a n/a $__(4)
United Kingdom $137,019 $ 245,947 $_____

_____________________

52
<PAGE>

(1) For the period July 14, 2000 (commencement of operations) to August 31,
2000.
(2) For the period July 28, 2000 (commencement of operations) to August 31,
2000.
(3) For the period May 12, 2000 (commencement of operations) to August 31,
2000.
(4) For the period June 23, 2000 (commencement of operations) to August 31,
2000.

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.

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 the following fees to the
Administrator:

Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Index Fund August 31, 1998 August 31, 1999 August 31, 2000
-----------------------------------------------------------------------------
Australia $ 89,377 $110,319 $_____
Austria $ 14,128 $ 22,059 $_____
Belgium $ 63,121 $ 36,546 $_____
Brazil (Free) n/a n/a $__(1)
Canada $ 44,201 $ 27,026 $_____
EMU n/a n/a $__(2)
France $ 59,529 $111,716 $_____
Germany $ 94,141 $178,860 $_____
Hong Kong $ 98,932 $160,647 $_____
Italy $128,961 $151,590 $_____
Japan $340,915 $890,839 $_____
Malaysia (Free) $106,617 $143,744 $_____
Mexico (Free) $ 29,580 $ 31,717 $_____
Netherlands $ 35,512 $ 55,318 $_____
Singapore (Free) $ 95,590 $207,640 $_____
South Korea n/a n/a $__(3)
Spain $ 42,795 $ 75,553 $_____
Sweden $ 29,928 $ 35,257 $_____
Switzerland $ 51,205 $ 76,274 $_____
Taiwan n/a n/a $__(4)
United Kingdom $108,935 $200,033 $_____

53
<PAGE>

_____________________
(1) For the period July 14, 2000 (commencement of operations) to August 31,
2000.
(2) For the period July 28, 2000 (commencement of operations) to August 31,
2000.
(3) For the period May 12, 2000 (commencement of operations) to August 31,
2000.
(4) For the period June 23, 2000 (commencement of operations) to 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 may from time to time reimburse expenses to one or more Index
Funds. Morgan Stanley & Co. Incorporated, as Sub-Administrator, has no role in
determining the investment policies of the Company or which securities are to be
purchased or sold by the Company. The principal business address of Morgan
Stanley & Co. Incorporated is 1585 Broadway, New York, New York, 10036.

For sub-administrative services, the Administrator paid the following fees
to the Sub-Administrator and its affiliates:

October 29, 1997to Fiscal Year Ended Fiscal Year Ended
Index Fund August 31, 1998 August 31, 1999 August 31, 2000
--------------------------------------------------------------------------------
Australia $17,644 $ 25,114 $_____
Austria $ 2,940 $ 5,023 $_____
Belgium $12,122 $ 8,316 $_____
Brazil (Free) n/a n/a $__(1)
Canada $ 8,491 $ 6,149 $_____
EMU n/a n/a $__(2)
France $12,573 $ 25,442 $_____
Germany $19,811 $ 40,722 $_____
Hong Kong $20,539 $ 36,568 $_____
Italy $26,776 $ 34,499 $_____
Japan $67,965 $202,974 $_____
Malaysia (Free) $22,936 $ 32,737 $_____
Mexico (Free) $ 5,620 $ 7,224 $_____
Netherlands $ 7,332 $ 12,596 $_____
Singapore (Free) $20,417 $ 47,270 $_____
South Korea n/a n/a $__(3)
Spain $ 9,072 $ 17,198 $_____
Sweden $ 5,789 $ 8,027 $_____
Switzerland $10,490 $ 17,363 $_____
Taiwan n/a n/a $__(4)
United Kingdom $22,664 $ 45,546 $_____

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 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.

54
<PAGE>

SEI Investments Distribution Company as Distributor, has no role in determining
the investment policies of the Company or which securities are to be purchased
or sold by the Company.

To compensate the Distributor for the distribution-related services it
provides, and broker-dealers authorized by the Distributor for distribution
services they provide, the Company has adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Company's Plan, for each
Index Fund the Distributor is entitled to receive a distribution fee, accrued
daily and paid monthly, calculated with respect to each Index Fund at a rate set
from time to time by the Board of Directors, provided that the annual rate may
not exceed .25% of the average daily net assets of such Index Fund. From time
to time the Distributor may waive all or a portion of these fees.

The Plan is designed to enable the Distributor to be compensated by the
Company for distribution services provided by it with respect to each Index
Fund. Payments under the Plan are not tied exclusively to the distribution
expenses actually incurred by the Distributor. The Board, including a majority
of the Directors who are not interested persons of the Company and who have no
direct or indirect financial interest in the operation of the Plan ("Independent
Directors"), evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in doing so consider all relevant factors, including
expenses borne by the Distributor in the current year and in prior years and
amounts received under the Plan.

Under its terms, the Plan remains in effect from year to year, provided
such continuance is approved annually by vote of the Board, including a majority
of the Independent Directors. The Plan may not be amended to increase materially
the amount to be spent for the services provided by the Distributor without
approval by the shareholders of the Index Fund to which the Plan applies, and
all material amendments of the Plan also require Board approval. The Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors, or, with respect to any Index Fund, by a vote of a
majority of the outstanding voting securities of such Index Fund (as such vote
is defined in the 1940 Act). If a Plan is terminated (or not renewed) with
respect to any one or more Index Funds, it may continue in effect with respect
to any Index Fund as to which it has not been terminated (or has been renewed).
Pursuant to the Distribution Agreement, the Distributor will provide the Board
periodic reports of any amounts expended under the Plan and the purpose for
which such expenditures were made.

The distribution fees payable under the 12b-1 Plan are used to pay
distribution related expenses, including: compensation to the distributor at a
rate fixed by the Company's Board of Directors from time to time (currently .02%
of the Company's average daily net assets, subject to an annual minimum of
$845,000); compensation to a sales and marketing consultant retained by the
Company at a rate of .035% of the Company's average daily net assets;
reimbursements of expenses incurred by the distributor and other persons
(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:

Fiscal Year Ended
Index Fund August 31, 2000
---------------------------------

55
<PAGE>

Australia $____
Austria $____
Belgium $____
Brazil (Free) $__(1)
Canada $____
EMU $__(2)
France $____
Germany $____
Hong Kong $____
Italy $____
Japan $____
Malaysia (Free) $____
Mexico (Free) $____
Netherlands $____
Singapore (Free) $____
South Korea $__(3)
Spain $____
Sweden $____
Switzerland $____
Taiwan $__(4)
United Kingdom $____

_____________________

In the aggregate, the Distributor received $___ for the period March
29, 2000 to August 31, 2000 from the Index Funds pursuant to the Plan, retaining
$____, 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 28, 2000 to August 31, 2000, the Distributor
paid $____; $____; and $____, 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 28, 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 the following amounts pursuant
to the Plan:

Fiscal Year Ended Fiscal Year Ended September 1, 1999 to
Index Fund August 31, 1998 August 31, 1999 March 28, 2000
--------------------------------------------------------------------------------
Australia $ 87,845 $100,454
Austria $ 13,513 $ 20,091
Belgium $ 62,876 $ 33,264
Canada $ 44,024 $ 24,597
France $ 56,481 $101,768
Germany $ 89,498 $162,890
Hong Kong $ 94,745 $146,272
Italy $123,496 $137,994
Japan $333,432 $811,896
Malaysia (Free) $100,121 $130,950
Mexico (Free) $ 29,617 $ 28,898
Netherlands $ 34,109 $ 50,383

56
<PAGE>

Singapore (Free $ 90,132 $189,081
Spain $ 40,521 $ 68,791
Sweden $ 25,775 $ 32,110
Switzerland $ 49,386 $ 69,451
United Kingdom $104,206 $182,183

In the aggregate, FDI received $1,379,777, $2,291,073 and $____for the
fiscal years ended August 31, 1998 and 1999 and the period September 1, 2000 to
March 28, 2000, respectively, from the Index Funds pursuant to the Plan,
retaining $133,964, $229,107 and $____, 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 $____; $248,720, $347,662 and $____; and $111,647,
$160,375 and $____, 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
_____, 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 (0.09%); 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 (0.35%); 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 (0.15%); Turkey Index Fund (0.35%); United Kingdom
Index Fund (0.11%); 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

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,

57
<PAGE>

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 $_______ 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 $___,
$___ and $___, respectively (or __%, __% and __%, 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.

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

58
<PAGE>

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 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

59
<PAGE>

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 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

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<PAGE>

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 $_______
Austria 100,000 $_______
Belgium 40,000 $_______
Brazil (Free) 50,000 $_______
Canada 100,000 $_______
EMU 50,000 $_______
France 200,000 $_______
Germany 300,000 $_______
Greece* 50,000 $_______
Hong Kong 75,000 $_______
Indonesia (Free)* 50,000 $_______
Italy 150,000 $_______
Japan 600,000 $_______
Malaysia (Free) 75,000 $_______
Mexico (Free) 100,000 $_______
Netherlands 50,000 $_______
Portugal* 50,000 $_______
Singapore (Free) 100,000 $_______
South Africa* 50,000 $_______
South Korea 50,000 $_______
Spain 75,000 $_______
Sweden 75,000 $_______
Switzerland 125,000 $_______
Taiwan 50,000 $_______
Thailand (Free)* 50,000 $_______
Turkey* 50,000 $_______
United Kingdom 200,000 $_______
USA* 500,000 $_______
</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.

A "Business Day" with respect to each Index Fund is any day on which (i)
the New York Stock Exchange ("NYSE") and (ii) the stock exchange(s) and Company
subcustodian(s) relevant to such Index Fund are open for business. As of the
date of the Prospectus, the NYSE observes the following holidays: New Year's
Day, Dr. Martin Luther King, Jr. Day, President's Day (Washington's Birthday),
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The stock exchange and/or subcustodian holidays relevant
to each Index Fund are set forth in Appendix B to this SAI.

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<PAGE>

Portfolio Deposit. The consideration for purchase of a Creation Unit of
iShares of an Index Fund (except for the iShares MSCI South Korea Index Fund
which is currently offered, and the iShares MSCI Brazil (Free) and Taiwan Index
Funds which will be offered, in their iShares Creation Units solely for cash)
generally consists of the in-kind deposit of a designated portfolio of equity
securities (the "Deposit Securities") constituting an optimized representation
of the Index Fund's benchmark foreign securities index and an amount of cash
computed as described below (the "Cash Component"). Together, the Deposit
Securities and the Cash Component constitute the "Portfolio Deposit," which
represents the minimum initial and subsequent investment amount for shares of
any Index Fund of the Company. The Cash Component is an amount equal to the
Dividend Equivalent Payment (as defined below), plus or minus, as the case may
be, a Balancing Amount (as defined below). The "Dividend Equivalent Payment"
enables the Company to make a complete distribution of dividends on the next
dividend payment date, and is an amount equal, on a per Creation Unit basis, to
the dividends on all the Portfolio Securities with ex-dividend dates within the
accumulation period for such distribution (the "Accumulation Period"), net of
expenses and liabilities for such period, as if all of the Portfolio Securities
had been held by the Company for the entire Accumulation Period. The "Balancing
Amount" is an amount equal to the difference between (x) the net asset value
(per Creation Unit) of the Index Fund and (y) the sum of (i) the Dividend
Equivalent Payment and (ii) the market value (per Creation Unit) of the
securities deposited with the Company (the sum of (i) and (ii) is referred to as
the "Deposit Amount"). The Balancing Amount serves the function of compensating
for any differences between the net asset value per Creation Unit and the
Deposit Amount.

The Adviser makes available through the Distributor on each Business Day,
immediately prior to the opening of business on the AMEX (currently 9:30 a.m.,
Eastern time), the list of the names and the required number of shares of each
Deposit Security to be included in the current Portfolio Deposit (based on
information at the end of the previous Business Day) for each Index Fund. Such
Portfolio Deposit is applicable, subject to any adjustments as described below,
in order to effect purchases of Creation Units of iShares of a given Index Fund
until such time as the next-announced Portfolio Deposit composition is made
available.

The identity and number of shares of the Deposit Securities required for a
Portfolio Deposit for each Index Fund changes as rebalancing adjustments and
corporate action events are reflected from time to time by the Adviser with a
view to the investment objective of the Index Fund. The composition of the
Deposit Securities may also change in response to adjustments to the weighting
or composition of the securities constituting the relevant securities index. In
addition, the Company reserves the right to permit or require the substitution
of an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash
Component to replace any Deposit Security which may not be available in
sufficient quantity for delivery or for other similar reasons. The adjustments
described above will reflect changes, known to the Adviser on the date of
announcement to be in effect by the time of delivery of the Portfolio Deposit,
in the composition of the subject index being tracked by the relevant Index
Fund, or resulting from stock splits and other corporate actions.

In addition to the list of names and numbers of securities constituting the
current Deposit Securities of a Portfolio Deposit, the Distributor also makes
available (i) on each Business Day, the Dividend Equivalent Payment effective
through and including the previous Business Day, per outstanding iShares of each
Index Fund, and (ii) on a continuous basis throughout the day, the sum of the
Dividend Equivalent Payment effective through and including the close of the
previous trading session in the relevant foreign market, plus the current value
of the requisite Deposit Securities as in effect on such day.

Role of The Authorized Participant. Creation Units of iShares may be
purchased only by or through a DTC Participant that has entered into an
Authorized Participant Agreement with the Company and the Distributor
("Authorized Participant"). Such Authorized Participant will agree pursuant to
the terms of such Authorized Participant Agreement on behalf of itself or any
investor on whose behalf it will act, as the case may be, to certain conditions,
including that such Authorized Participant will make available in advance of
each purchase of iShares an 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

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<PAGE>

therefore orders to purchase Creation Units of iShares may have to be placed by
the investor's broker through an Authorized Participant. As a result, purchase
orders placed through an Authorized Participant may result in additional charges
to such investor. The Company does not expect to enter into an Authorized
Participant Agreement with more than a small number of DTC Participants that
have international capabilities. A list of the current Authorized Participants
may be obtained from the Distributor.

Purchase Order. To initiate an order for a Creation Unit of iShares, the
Authorized Participant must give notice to the Distributor of its intent to
submit an order to purchase iShares after 9:00 a.m. but not later than 4:00
p.m., Eastern time on the relevant Business Day. The Distributor shall cause the
Adviser and the Custodian to be informed of such advice. The Custodian will then
provide such information to the appropriate subcustodian. For each Index Fund,
the Custodian shall cause the subcustodian of the Index Fund to maintain an
account into which the Authorized Participant shall deliver, on behalf of itself
or the party on whose behalf it is acting, the securities included in the
designated Portfolio Deposit (or the cash value of all or a part of such
securities, in the case of a permitted or required cash purchase or "cash in
lieu" amount), with any appropriate adjustments as advised by the Company.

Deposit Securities must be delivered to an account maintained at the
applicable local subcustodian.

Following the notice of intention, an irrevocable order to purchase
Creation Units, in the form required by the Company, must be received by the
Distributor from an Authorized Participant on its own or another investor's
behalf by the closing time of the regular trading session on the AMEX (currently
4:00 p.m., Eastern time) on the relevant Business Day. (The required form of an
order to purchase is available on request from the Distributor.) Those placing
orders to purchase Creation Units through an Authorized Participant should allow
sufficient time to permit proper submission of the purchase order to the
Distributor by the cut-off time on such Business Day. Orders must be transmitted
by the Authorized Participant to the Distributor by facsimile or electronic
transmission as provided in the Authorized Participant Agreement.

The Authorized Participant must also make available on or before the
contractual settlement date, by means satisfactory to the Company, immediately
available or same day funds estimated by the Company to be sufficient to pay the
Cash Component next determined after acceptance of the purchase order, together
with the applicable purchase transaction fee. Any excess funds will be returned
following settlement of the issue of the Creation Unit of iShares. Those placing
orders should ascertain the applicable deadline for cash transfers by contacting
the operations department of the broker or depositary institution effectuating
the transfer of the Cash Component. This deadline is likely to be significantly
earlier than the closing time of the regular trading session on the AMEX.

Investors should be aware that an Authorized Participant may require orders
for purchases of iShares placed with it to be in the form required by the
individual Authorized Participant, which form will not be the same as the form
of purchase order specified by the Company, which the Authorized Participant
must deliver to the Distributor.

Acceptance of Purchase Order. Subject to the conditions that (i) a properly
completed irrevocable purchase order has been submitted by the Authorized
Participant (either on its own or another investor's behalf) not later than the
closing time of the regular trading session on the AMEX, and (ii) arrangements
satisfactory to the Company are in place for payment of the Cash Component and
any other cash amounts which may be due, the Company will accept the order,
subject to its right (and the right of the Distributor and the Adviser) to
reject any order until acceptance.

Once the Company has accepted an order, upon next determination of the net
asset value of the shares, the Company will confirm the issuance, against
receipt of payment, of a Creation Unit of iShares of the Index Fund at 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

63
<PAGE>

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. 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.

64
<PAGE>

<TABLE>
<CAPTION>
Additional
Variable Charge
In-kind and cash for Cash
Index Fund purchases 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%.
*** This percentage, when aggregated with the basic in-kind transaction
fee, will not exceed 2.00%.

Example. A hypothetical example of the costs of creating a Creation Unit
of iShares of the Japan Index Fund is set forth below for illustrative purposes
only. The exchange rate reflected in the table is Y______ 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 ____ ____ ____
Commissions ____ ____ N/A
Stamp Taxes 0 0 N/A
Risk Premium ____ 0 N/A
Accrued Income ____ ____ ____
Creation Charge ____ ____ N/A
iShares Unit Value ____ ____ ____
Per iShares ____ ____
Shares 600,000
</TABLE>

65
<PAGE>

See "Investment Advisory, Management, Administrative and Distribution
Services" herein, for additional information concerning the distribution
arrangements for iShares.

Redemption of iShares in Creation Units. iShares may be redeemed only in
---------------------------------------
Creation Units at their net asset value next determined after receipt of a
redemption request in proper form by the Distributor and only on a day on which
the AMEX is open for trading. The Company will not redeem iShares in amounts
less than Creation Units. Beneficial Owners also may sell iShares in the
secondary market, but must accumulate enough iShares to constitute a Creation
Unit in order to have such shares redeemed by the Company. There can be no
assurance, however, that there will be sufficient liquidity in the public
trading market at any time to permit assembly of a Creation Unit of iShares.
Investors should expect to incur brokerage and other costs in connection with
assembling a sufficient number of iShares to constitute a redeemable Creation
Unit.

With respect to each Index Fund (other than the 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. 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.

<TABLE>
<CAPTION>
Additional variable
In-kind and cash charge for cash
Index Fund redemptions redemptions*
-------------------------------------------------------------------
<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 0.40%
Malaysia (Free) $4,150 **
Mexico (Free) $2,200 0.50%
Netherlands $1,900 0.25%
Portugal $2,000 1.65%
Singapore (Free) $2,500 1.30%
South Africa $3,200 1.60%
South Korea $4,400 **
</TABLE>

66
<PAGE>

<TABLE>
<CAPTION>
Additional variable
In-kind and cash charge for cash
Index Fund redemptions redemptions*
-------------------------------------------------------------------
<S> <C> <C>
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%
</TABLE>

* As a percentage of the value of amount invested.
** This percentage, when aggregated with the basic in-kind transaction fee,
will not exceed 2.00%.

Redemption requests in respect of Creation Units of any Index Fund must be
submitted to the Distributor by or through an Authorized Participant on a day
that the AMEX is open for business, between the hours of 9:00 a.m. and 4:00
p.m., Eastern time. Investors other than through Authorized Participants are
responsible for making arrangements for a redemption request to be made through
an Authorized Participant. The Distributor will provide a list of current
Authorized Participants upon request.

The Authorized Participant must transmit the request for redemption, in the
form required by the Company, to the Distributor in accordance with procedures
set forth in the Authorized Participant Agreement. Investors should be aware
that their particular broker may not have executed an Authorized Participant
Agreement, and that, therefore, requests to redeem Creation Units may have to be
placed by the investor's broker through an Authorized Participant who has
executed an Authorized Participant Agreement. At any given time there will be
only a limited number of broker-dealers that have executed an Authorized
Participant Agreement. Investors making a redemption request should be aware
that such request be in the form specified by such Authorized Participant.
Investors making a request to redeem Creation Units should allow sufficient time
to permit proper submission of the request by an Authorized Participant and
transfer of the iShares to the Company's Transfer Agent; such investors should
allow for the additional time that may be required to effect redemptions through
their banks, brokers or other financial intermediaries if such intermediaries
are not Authorized Participants.

A redemption request is considered to be in "proper form" if (i) an
Authorized Participant has transferred or caused to be transferred to the
Company's Transfer Agent the Creation Unit of iShares being redeemed through the
book-entry system of DTC so as to be effective by the AMEX closing time on a day
on which the AMEX is open for business and (ii) a duly completed request form is
received by the Distributor from the Authorized Participant on behalf of itself
or another redeeming investor after 9:00 a.m. and not later than 2:00 p.m. on
the next following day (on which the AMEX is open for business). If the Transfer
Agent does not receive the investor's iShares through DTC's facilities by 2:00
p.m. on the AMEX business day following the day that the redemption request is
received, the redemption request shall be rejected and may be resubmitted the
next day that the AMEX is open for business. Investors should be aware that the
deadline for such transfers of shares through the DTC system may be
significantly earlier than the close of business on the AMEX. Those making
redemption requests should ascertain the deadline applicable to transfers of
shares through the DTC system by contacting the operations department of the
broker or depositary institution effecting the transfer of the iShares.

Upon receiving a redemption request, the Distributor shall notify the
Company and the Company's Transfer Agent of such redemption request. The tender
of an investor's iShares for redemption and the distribution of the cash
redemption payment in respect of Creation Units redeemed will be effected
through DTC and the relevant Authorized Participant to the beneficial owner
thereof as recorded on the book-entry system of DTC or the DTC Participant
through which such investor holds iShares, as the case may be, or by such other
means specified by the Authorized Participant submitting the redemption request.
See "Book-Entry System Only."

67
<PAGE>

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
will permit the Company to purchase the missing iShares or acquire the Portfolio
Securities and the Cash Component underlying such iShares at any time and will
subject the Authorized Participant to liability for any shortfall between the
cost to the Company of purchasing such iShares, Portfolio Securities or Cash
Component and the value of the collateral.

Because the Portfolio Securities of an Index Fund may trade on the relevant
exchange(s) on days that the AMEX is closed or are otherwise not Business Days
for such Index Fund, stockholders may not be able to redeem

68
<PAGE>

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 Brazil, Malaysia (Free), South Korea and Taiwan Index Funds,
the net asset value of each Index Fund is determined as of the close of the
regular trading session on the New York Stock Exchange, Inc. ("NYSE")
(ordinarily 4:00 p.m., Eastern time) on each day that the NYSE is open. The net
asset value of each of the iShares MSCI Malaysia (Free), South Korea and Taiwan
Index Funds is determined as of 8:30 a.m. (Eastern time) on each day that the
NYSE is open. The net asset value of the iShares MSCI Brazil Index Fund is
determined as of 5:00 p.m. (Eastern time) on each day that the NYSE is open. The
Company may establish 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 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

69
<PAGE>

participating in a distribution (as contrasted to ordinary secondary market
transaction), and thus dealing with iShares that are part of an "unsold
allotment" within the meaning of section 4(3)(C) of the Securities Act, would be
unable to take advantage of the prospectus delivery exemption provided by
section 4(3) of the Securities Act. Firms that incur a prospectus-delivery
obligation with respect to iShares are reminded that under Securities Act Rule
153 a prospectus delivery obligation under Section 5(b)(2) of the Securities Act
owed to an exchange member in connection with a sale on the exchange is
satisfied by the fact that the Index Fund's prospectus is available at the
exchange (i.e., the AMEX) upon request. The prospectus delivery mechanism
provided in Rule 153 is only available with respect to transactions on an
exchange and not with respect to "upstairs" transactions.

TAXES

The Company on behalf of each Index Fund has the right to reject an order
for a purchase of iShares if the purchaser (or group of purchasers) would, upon
obtaining the iShares so ordered, own 80% or more of the outstanding iShares of
a given Index Fund and if, pursuant to section 351 of the Internal Revenue Code,
the respective Index Fund would have a basis in the securities different from
the market value of such securities on the date of deposit. The Company also has
the right to require information necessary to determine beneficial share
ownership for purposes of the 80% determination. See "Purchase and Issuance of
iShares in Creation Units."

Each Index Fund intends to qualify for and to elect treatment as a separate
RIC under Subchapter M of the Internal Revenue Code. To qualify for treatment as
a RIC, a company must annually distribute at least 90 percent of its net
investment company taxable income (which includes dividends, interest and net
short-term capital gains) and meet several other requirements. Among such other
requirements are the following: (1) at least 90 percent of the company's annual
gross income must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies, or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (2) at the close of each quarter
of the company's taxable year, (a) at least 50 percent of the market value of
the company's total assets must be represented by cash and cash items, U.S.
government securities, securities of other regulated investment companies and
other securities, with such other securities limited for purposes of this
calculation in respect of any one issuer to an amount not greater than 5% of the
value of the company's assets and not greater than 10% of the outstanding voting
securities of such issuer, and (b) not more than 25 percent of the value of its
total assets may be invested in the securities of any one issuer or of two or
more issuers that are controlled by the company (within the meaning of Section
851(b)(3)(B) of the Internal Revenue Code) and that are engaged in the same or
similar trades or businesses or related trades or businesses (other than U.S.
government securities or the securities of other regulated investment
companies).

Each Index Fund may be subject to foreign income taxes withheld at source.
Each Index Fund will elect to "pass through" to its investors the amount of
foreign income taxes paid by the Index Fund provided that the investor held the
Index Fund, and the Index Fund held the security, on the dividend settlement
date and for at least fourteen additional days immediately before and/or
thereafter, with the result that each investor will (i) include in gross income,
even though not actually received, the investor's pro rata share of the Index
Fund's foreign income taxes, and (ii) either deduct (in calculating U.S. taxable
income) or credit (in calculating U.S. federal income tax) the investor's pro
rata share of the Index Fund's foreign income taxes. A foreign tax credit may
not exceed the investor's U.S. federal income tax otherwise payable with respect
to the investor's foreign source income. For this purpose, each shareholder must
treat as foreign source gross income (i) his proportionate share of foreign
taxes paid by the Index Fund and (ii) the portion of any dividend paid by the
Index Fund which represents income derived from foreign sources; the Index
Fund's gain from the sale of securities will generally be treated as U.S. source
income. This foreign tax credit limitation is applied separately to separate
categories of income; dividends from the Index Fund will be treated as "passive"
or "financial services" income for this purpose. The effect of this limitation
may be to prevent investors from claiming as a credit the full amount of their
pro rata share of the Index Fund's foreign income taxes. Taxes other than
foreign income taxes, including any profits levy payable by the iShares Malaysia
(Free) Index Fund, are not passed through to you in this way.

If any Index Fund owns shares in certain foreign investment entities,
referred to as "passive foreign investment companies," the Index Fund will be
subject to one of the following special tax regimes: (i) the Index Fund is
liable for U.S. federal income tax, and an additional charge in the nature of
interest, on a portion of any "excess distribution" from such foreign entity or
any gain from the disposition of such shares, even if the entire

70
<PAGE>

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 significant
adverse U.S. tax consequences. For example, dividends paid out of an Index
Fund's investment company taxable income will generally be subject to U.S.
federal withholding tax at a rate of 30% (or lower treaty rate if the foreign
investor is eligible for the benefits of an income tax treaty). Foreign
investors are urged to consult their own tax advisors regarding the U.S. tax
treatment, in their particular circumstances, of ownership of shares in an Index
Fund.

The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Purchasers of shares of the Company should
consult their own tax advisors as to the tax consequences of investing in such
shares, including under state, local and other tax laws. Finally, the foregoing
discussion is based on applicable provisions of the Internal Revenue Code,
regulations, judicial authority and administrative interpretations in effect on
the date hereof. Changes in applicable authority could materially affect the
conclusions discussed above, and such changes often occur.

PERFORMANCE INFORMATION

The performance of the Index Funds may be quoted in advertisements, sales
literature or reports to shareholders in terms of average annual total return,
cumulative total return and yield.

Quotations of average annual total return are expressed in terms of the
average annual rate of return of a hypothetical investment in an Index Fund over
periods of 1, 5 and 10 years (or the life of an Index Fund, if shorter). Such
total return figures will reflect the deduction of a proportional share of such
Index Fund's expenses on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.

Total return is calculated according to the following formula: P(1 + T)/n/
= ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10
year period). The total 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, 1997, 1998, 1999 and 2000 for each Index
Funds were:

<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year Fiscal Year
March 6, 1996 to Ended Ended Ended Ended
Index Fund August 31, 1996 August 31, 1997 August 31, 1998 August 31, 1999 August 31, 2000
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Australia 3.88% 6.23% (23.11)% 32.09% ____%
Austria (3.39)% 1.06% 2.16% (8.69)% ____%
Belgium 5.01% 9.26% 39.42% (1.00)% ____%
Brazil (Free) n/a n/a n/a n/a ____%(1)
Canada 4.63% 28.50% (21.69)% 39.71% ____%
EMU n/a n/a n/a n/a ____%(2)
France 4.95% 16.60% 34.77% 21.01% ____%
Germany 4.00% 20.51% 25.69% 7.04% ____%
Hong Kong 3.22% 17.80% (54.22)% 90.51% ____%
</TABLE>

71
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Italy 4.11% 23.37% 47.66% 5.14% ____%
Japan (3.11)% (11.97)% (33.38)% 58.14% ____%
Malaysia (Free) 4.28% (40.20)% (73.57)% 185.81% ____%
Mexico (Free) 15.93% 35.21% (44.18)% 66.92% ____%
Netherlands 11.19% 28.04% 17.41% 8.98% ____%
Singapore (Free) (6.73)% (23.48)% (61.29)% 144.52% ____%
South Korea n/a n/a n/a n/a ____%(3)
Spain 8.45% 39.15% 32.58% 13.39% ____%
Sweden 14.13% 30.10% 5.48% 25.09% ____%
Switzerland 2.60% 16.69% 21.24% 1.47% ____%
Taiwan n/a n/a n/a n/a ____%(4)
United Kingdom 10.41% 30.48% 14.98% 15.33% ____%
</TABLE>
_____________________
(1) For the period July 14, 2000 (commencement of operations) to August 31,
2000.
(2) For the period July 28, 2000 (commencement of operations) to August 31,
2000.
(3) For the period May 12, 2000 (commencement of operations) to August 31,
2000.
(4) For the period June 23, 2000 (commencement of operations) to August 31,
2000.

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.

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

72
<PAGE>

Company invests, including, but not limited to, the following: population
growth, gross domestic product, inflation rate, average stock market price-
earnings ratios and the total value of stock markets. Sources for such
statistics may include official publications of various foreign governments and
exchanges.

From time to time, in advertising and marketing literature, the Company's
performance may be compared to the performance of broad groups of open-end and
closed-end investment companies with similar investment goals, as tracked by
independent organizations such as Investment Company Data, Inc., Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc.,
Value Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Company will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk.

In addition, in connection with the communication of its performance to
current or prospective shareholders, the Company also may compare those figures
to the performance of certain unmanaged indices which may assume the
reinvestment of dividends or interest but generally do not reflect deductions
for administrative and management costs. Examples of such indices include, but
are not limited to the following:

. Dow Jones Industrial Average
. Consumer Price Index
. Standard & Poor's 500 Composite Stock Price Index (S&P 500)
. NASDAQ OTC Composite Index
. NASDAQ Industrials Index
. International Finance Corporation's (Global) Composite and (Investable)
Composite Indices
. Morgan Stanley Capital International Indices
. NASDAQ Composite Index
. Wilshire 5000 Stock Index

In addition, the Company from time to time may compare the results of each
Index Fund to the following national benchmarks:

COUNTRY NATIONAL INDEX
------------------------------------------
Australia All Ordinaries
Austria Vienna Stock Exchange
Brazil Sao Paulo Bovespa
Belgium Brussels Stock Exchange
Canada Toronto 300
EMU Euro Stoxx 50
France CAC 40
Germany DAX
Greece FTSE/ASE 20
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

73
<PAGE>

COUNTRY NATIONAL 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.
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.

74
<PAGE>

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,
-------
is counsel to the Company and has passed upon the validity of the Company's
shares.

Independent Auditors. _________________, 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, ___________, 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).

75
<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.3) Form of Authorized Participant Agreement.(10)
(e.4) Authorized Participant Agreement for Merrill Lynch.(3)
(e.5) 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.(10)
(g.6) Form of Securities Lending Agreement between Registrant and The Chase
Manhattan Bank.(10)
(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) Amended and Restated License Agreement between Registrant and Morgan
Stanley Capital International.(8)
(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)
(h.8) License Agreement between Barclays Global Investors and Morgan Stanley
Capital International Inc. (10)
(h.9) Sub-License Agreement between Registrant and Barclays Global Investors.
(10)
(i.1) None.
(j.1) None.
(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").
(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 No.
1 to the Registration Statement, filed on October 30, 1996.

C-1
<PAGE>

(4) Exhibit is incorporated herein by reference to Post-Effective Amendment No.
2 to the Registration Statement, filed on December 27, 1996.
(5) Exhibit is incorporated herein by reference to Post-Effective Amendment No.
8 to the Registration Statement, filed on August 27, 1997.
(6) Exhibit is incorporated herein by reference to Post-Effective Amendment No.
10 to the Registration Statement, filed on October 29, 1997.
(7) Exhibit is incorporated herein by reference to Post-Effective Amendment No.
12 to the Registration Statement, filed on November 25, 1998.
(8) Exhibit is incorporated herein by reference to Post-Effective Amendment No.
16 to the Registration Statement, filed on December 22, 1999.
(9) Filed herewith.
(10) 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.

Name and Position Principal Business(es) During the last Two Fiscal Years
----------------- -------------------------------------------------------

Patricia Dunn Director of BGFA and Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105

Garrett F. Bouton Chairman of the Board of Directors of BGFA and Chief
Chariman Operating Officer and Director of BGI
45 Fremont Street, San Francisco, CA 94105

Lawrence G. Tint Director of BGFA and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105

Geoffrey Fletcher Chief Financial Officer of BGFA and BGI
Chief Financial Officer 45 Fremont Street San Francisco, CA 94105

ITEM 27 PRINCIPAL UNDERWRITERS

(a) The Fund's distributor, SEI Investments Distribution Co. (the
"Distributor"), acts as distributor for:

SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985

C-2
<PAGE>

SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc November 1, 1992
First American Investment Funds, Inc November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds June 1, 1993
The PBHG Funds, Inc July 16, 1993
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc April 1, 1997
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc June 29, 1998
CNI Charter Funds April 1, 1999
Amerindo Funds Inc July 13, 1999
Huntington VA Funds October 15, 1999
Friends Ivory Funds December 16, 1999
SEI Insurance Products Trust March 29, 2000
iShares Trust

The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement and consulting
services and automated execution, clearing and settlement of securities
transactions.

(b) 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 Underwriter Positions and Office with Registrant
---- ------------------------------------ ------------------------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors None
Richard B. Lieb Director, Executive Vice President None
Carmen V. Romeo Director None
Mark J. Held President & Chief Operating Officer None
Dennis J. McGonigle Executive Vice President None
Robert M. Silvestri Chief Financial Officer & Treasurer None
Todd Cipperman Senior Vice President & General Counsel None
Leo J. Dolan, Jr. Senior Vice President None
Carl A. Guarino Senior Vice President None
Jack May Senior Vice President None
Hartland J. McKeown Senior Vice President None
Kevin P. Robins Senior Vice President None
Patrick K. Walsh Senior Vice President None
Wayne M. Withrow Senior Vice President None
Robert Aller Vice President None
</TABLE>

C-3
<PAGE>

<TABLE>
<CAPTION>
Name Position and Office with Underwriter Positions and Office with Registrant
---- ------------------------------------ ------------------------------------
<S> <C> <C>
John D. Anderson Vice President & Managing Director None
Timothy D. Barto Vice President & Assistant Secretary None
S. Courtney E. Collier Vice President & Assistant Secretary None
Robert Crudup Vice President & Managing Director None
Richard A. Deak Vice President & Assistant Secretary None
Scott W. Dellorfano Vice President & Managing Director None
Barbara Doyne Vice President None
Jeff Drennen Vice President None
Scott C. Fanatico Vice President & Managing Director None
James R. Foggo Vice President & Assistant Secretary None
Vic Galef Vice President & Managing Director None
Steven A. Gardner Vice President & Managing Director None
Lydia A. Gavalis Vice President & Assistant Secretary None
Greg Gettinger Vice President & Assistant Secretary None
Kathy Heilig Vice President None
Jeff Jacobs Vice President None
Samuel King Vice President None
John Kirk Vice President & Managing Director None
Kim Kirk Vice President & Managing Director None
John Krzeminski Vice President & Managing Director None
Paul Lonergan Vice President & Managing Director None
Ellen Marquis Vice President None
Christine M. McCullough Vice President & Assistant Secretary None
Carolyn McLaurin Vice President & Managing Director None
Mark Nagle Vice President None
Joanne Nelson Vice President None
Cynthia M. Parrish Vice President & Secretary None
Rob Redican Vice President None
Maria Rinehart Vice President None
Steve Smith Vice President None
Daniel Spaventa Vice President None
Kathryn L. Stanton Vice President None
Lori L. White Vice President & Assistant Secretary None
</TABLE>

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.

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

C-4
<PAGE>

(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 has duly caused this Post-Effective
Amendment No. 17 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 3rd day of November 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. 17 to the Registration Statement has been signed below by the
following persons, in the capacities indicated, on the 3rd day of November 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)

*By: /s/ Gary M. Gardner Attorney-In-Fact
----------------------------------
(Gary M. Gardner)

C-6
<PAGE>

iSHARES, INC.

EXHIBIT INDEX

Exhibit No. Description
----------- -----------

(a.4) Registrant's Articles of Amendment.
(d.1) Investment Management Agreement between Registrant and Barclays
Global Fund Advisors.
(p.1) Code of Ethics of the Registrant.
(p.2) Code of Ethics of Barclays Global Fund Advisors.