N-30D 1 dn30d.txt GOLDMAN SACHS / EAFE ANNUAL REPORT iShares(R) 2002 ANNUAL REPORT TO SHAREHOLDERS JULY 31, 2002 [PICTURE] INDUSTRIAL STRENGTH INVESTMENT TOOLS iShares GOLDMAN SACHS SERIES iShares MSCI EAFE INDEX FUND Table of Contents Shareholder Letter............................................... 1 Market Overview.................................................. 3 Managers' Discussion & Analysis.................................. 4 Schedules of Investments......................................... 16 iShares Goldman Sachs Technology Index Fund.................... 16 iShares Goldman Sachs Networking Index Fund.................... 19 iShares Goldman Sachs Semiconductor Index Fund................. 20 iShares Goldman Sachs Software Index Fund...................... 21 iShares Goldman Sachs Natural Resources Index Fund............. 22 iShares MSCI EAFE Index Fund................................... 24 Financial Statements............................................. 36 Financial Highlights............................................. 40 Notes to the Financial Statements................................ 42 Report of Independent Accountants................................ 49 Tax Information (Unaudited)...................................... 50 Shareholder Meeting Results (Unaudited).......................... 50 Supplemental Information (Unaudited)............................. 51 Trustees Information (Unaudited)................................. 55 iShares Family of Funds.......................................... 58
To Our Shareholders While the second half of 2001 was a difficult period for us all, the first half of 2002 has also been a time of tumultuous market events. As a whole, the past year has seen scores of layoffs, company closings, and corporate accounting scandals in the wake of the emotional shock of September 11. The past year has been truly remarkable for iShares considering the market environment. By the close of our second fiscal year, most traditional mutual funds had shrunk in size, hundreds had shut down entirely,/1/ and plans for dozens of new ones were quietly put on hold. However, iShares has followed a very different course. Instead of shrinking in size, iShares' assets under management grew to just under $27 billion as of July 31, 2002. In fact, the iShares family of funds became the nation's third fastest growing family of equity funds/2/ during the period June 2001 through June 2002, surpassing some of the most established and best-known mutual fund groups. In July, iShares celebrated another milestone: the launch of the first-ever fixed income exchange traded funds. These four fixed income iShares funds -- three bond funds based on Lehman U.S. Treasury indexes, and one based on a Goldman Sachs corporate bond index -- were greeted with an enthusiastic reception from the investment community. These new funds attracted U.S.$3 billion in assets in their first week of trading. That is an impressive beginning considering that total inflows for all U.S. bond mutual funds combined was U.S.$50 billion for the first six months of 2002. With a total of 81 different funds, iShares now gives its investors nearly four times more ways to structure their portfolios than any other provider of exchange traded funds (ETFs). Total assets under management for all iShares funds have grown tenfold since they were first launched in May 2000. We believe this is a result of investors and their advisors recognizing that iShares are not merely an investment choice, but an important investment tool. At BGI we consider the iShares family of funds "industrial strength" investment tools for four simple reasons. We think you should keep these reasons in mind when you and your advisor meet to discuss your investment objectives, and then evaluate, and perhaps rebalance your portfolio. First, iShares embody a key goal of institutional investors: generating additional returns without taking on additional risk. iShares seek to do this by simply taking less of a bite out of a fund's returns through lower capital gains and management fees. These are not insignificant savings. It's estimated that between 1994 and 1999, investors in diversified U.S. stock funds lost, on average, 15% of their annual gains to taxes./3/ iShares, on the other hand, are managed in a way that keeps capital gains to a minimum. For example, during the calendar year 2001 none of the domestic iShares funds distributed any capital gains. Additionally, the fees charged by the iShares Funds are typically about half of other actively managed mutual funds./4/ Second, iShares embody a key tactic of institutional investors: uncomplicated diversification. The benefits of diversification, as compared to picking individual stocks are well documented. Although it's possible to diversify by hand-selecting a wide variety of stocks, to do it accurately is complicated and time-consuming. This is a reason why $1.56 trillion in institutional assets are invested in index funds such as iShares./5/ _____________________ /1/John Hechinger, Hey, Where Did My Mutual Fund Go?, The Wall Street Journal, April 17, 2002. /2/Financial Research Corporation (FRC) database, BGI analysis. /3/Jonathan Clements, Fund Distributions are a Taxing Problem; How the Tax Man Dines on Your Funds, The Wall Street Journal, August 1999. /4/Source: Morningstar Principia, BGI analysis 6/01. /5/Source: Pensions & Investments, 5/27/02. Shareholder Letter 1 Third, iShares embody a key strategy of institutional investors: modular asset allocation. With so many different iShares to choose from, each focusing on a very specific slice of the equity market, investors have tremendous flexibility in structuring their portfolios to meet specific needs. The fourth reason iShares are "industrial strength" is that they come from Barclays Global Investors,/6/ one of the world's largest institutional asset managers./7/ BGI manages money for over two thousand institutional clients around the world. Also, BGI has a longer index-based investing track record than any other fund manager. In fact, over thirty years ago it was BGI that created the world's first index strategy. Throughout the coming year we will be working closely with the financial advisor community to develop innovative strategies for structuring their clients' portfolios. And we continue to improve online tools and resources available to iShares investors and advisors. If you haven't visited www.iShares.com in a while, we invite you to do so and discover powerful tools and resources. Forbes Magazine named iShares.com "Best of the Web" among all ETF sites./8/ On behalf of the iShares family of funds and our colleagues at BGI, we thank you for making iShares a part of your portfolio, and look forward to meeting your needs in the year ahead. /s/ Garrett F. Bouton /s/ Lee T. Kranefuss Garrett F. Bouton Lee T. Kranefuss President and Chairman of the Board Vice President of iShares Trust of Trustees of iShares Trust _____________________ /6/iShares distributed by SEI Investments Distribution Co. (SEI). Barclays Global Fund Advisors (BGFA) advises iShares. Barclays Global Investors Services (BGIS) assists in the marketing of iShares. BGFA and BGIS are subsidiaries of Barclays Global Investors, N.A., none of which is affiliated with SEI. /7/Source: Pensions & Investments, 5/27/02. /8/Forbes, Winter 2001. 2 2002 iShares Annual Report to Shareholders Market Overview U.S. Equity Markets Stock markets entered the one-year period ending July 31, 2002 amid the same familiar themes of corporate earnings warnings, layoffs, and weak economic indicators. In response to the bleak economic signs and weak markets, the Federal Reserve Board (the "Fed") continued its campaign in an attempt to stimulate the sagging economy. Following five rate cuts by January 31, 2002, the federal funds rate stood at 1.75%, its lowest level in 40 years. Despite these actions, discouraging economic signs and poor earnings growth continued to weigh on the markets. The terrorist attacks on U.S. soil on September 11 accelerated the broad market sell off. After remaining closed for four days following the attack, U.S. equity markets reopened on September 17. Despite the combined effects of monetary stimulus from the Fed and fiscal stimulus from the federal government, equity markets declined sharply through the remainder of the month. The losses resulted in the largest quarterly declines for both the S&P 500 and the Dow Jones Industrial Average since the quarter that included the stock market crash of 1987. Certain market segments began to rally in the fourth quarter as third quarter economic figures were released, and several revealed positive news: inventories declined, factory orders climbed, housing starts increased, and consumer confidence rose. Although job losses remained high and third quarter Gross Domestic Product ("GDP") shrank, many investors found cause to be optimistic about a potential economic recovery in the New Year. In the first few months of 2002, additional positive news helped to boost consumer confidence and buoy markets. By the end of January, the jobless rate declined to 5.6%, ending eight straight months of increases. Fourth quarter 2001 GDP, originally predicted to be a 1.1% decline, was revised several times, ultimately reflecting a surprising 1.7% growth rate. Not all news was positive, however. Most notably, accounting concerns resulting from Enron's and Arthur Andersen's problems dominated the news and drove many investors from stock markets. Accounting scandals spread during the coming months to include Tyco and WorldCom, creating a crisis in confidence in corporate America. Adding to investor skittishness, investigations into brokerage analysts revealed further scandals. Additional economic news released in May and June suggested that the economy might not yet be out of the woods, and Wall Street began to worry about the possibility of a double-dip recession. Consumer spending, which had largely driven the economic recovery, appeared to peak, and capital spending slowed. Apart from economic signs, each new round of corporate accounting irregularities and insider-trading scandals hurt investor confidence, which was already sapped by ongoing threats of terrorist attacks and global tensions. International Equity Markets The global slowdown that affected the United States also took its toll in Europe and Asia during the period. Most major economies around the world slowed significantly through the second half of 2001, despite loosening monetary policy enacted by central banks. By calendar year-end, Germany appeared to be approaching recession, with France and Italy close behind. Japan, which in effect has been in a prolonged recession for most of the past decade, found its equity markets nearing a seventeen year low. During the first few months of 2002, international markets seemed to respond to the interest rate cuts enacted by central banks throughout 2001. Although technology and telecommunications stocks continued to be part of the global sell-off, more traditional areas, such as automobile and financial stocks, showed renewed signs of life. By April, however, continued global political tension, uneasiness about accounting scandals, and poor corporate earnings reports hampered global economic recovery and weighed on market performance. While the strength of many currencies relative to the U.S. dollar buoyed returns for many U.S. dollar-based investors, those gains were largely offset by a sharp decline in technology and telecommunications stocks as well as financial stocks. Japan finally enjoyed robust market gains during the first half of 2002, led by a strong yen relative to the U.S. dollar, improving economic conditions, and increased exports. In June, however, Japanese technology stocks, which had rebounded due to increased regional trade, fell victim to the global downturn in technology and dragged down overall market returns in Japan. Market Overview 3 Managers' Discussion & Analysis iShares Goldman Sachs Technology Index Fund Performance as of 7/31/02
Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 7/31/02 Inception to 7/31/02 Inception to 7/31/02 ------------------------- ------------------------- ------------------------- iShares Index Fund NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX Goldman Sachs Technology (44.52)% (44.49)% (44.25)% (36.40)% (36.52)% (36.23)% (46.60)% (46.75)% (46.25)%
"Total returns for the period since inception" are calculated from the inception date of the Fund (3/13/01). "Average annual total return" represents the average annual change in value of an investment over the periods indicated. "Cumulative total return" represents the total change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (03/19/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. Further discussion of Market Price and NAV can be found under the heading "Supplemental Information", located elsewhere in this report. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 FUND HOLDINGS (% of Net Assets) [BAR CHART] Intel Corp. 8.99% Microsoft Corp. 8.94% International Business Machines Corp. 8.66% Cisco Systems Inc. 6.93% Dell Computer Corp. 4.65% Oracle Corp. 3.95% AOL Time Warner Inc. 3.54% Hewlett-packard Co. 3.07% Texas Instruments Inc. 2.89% First Data Corp. 1.92% The iShares Goldman Sachs Technology Index Fund seeks investment results that correspond to the performance, before fees and expenses, of the Goldman Sachs Technology Sector Index. For the one-year period ending July 31, 2002, the Fund's fiscal year-end (the "reporting period"), the Fund declined 44.52%, and the Goldman Sachs Technology Sector Index declined 44.25%. During the reporting period, the U.S. economy showed continued signs of weakness. Poor economic indicators and job cuts continued through the second half of 2001, dragging down equity markets. Against this backdrop, the terrorist attacks on September 11 dealt the economic outlook and the markets a further blow. As the new year opened, economic recovery appeared to be on the horizon: factory orders grew as inventories declined, housing starts climbed, and consumer confidence rose. Markets responded to the positive news by rallying in the first quarter. However, the optimism was to be short-lived. Economic indicators released during the first quarter revealed that economic recovery was moderating. Perhaps more important to investors, the corporate accounting concerns that had begun with Enron expanded almost daily. Scandals in the brokerage community contributed to shaky investor confidence and dragged down equity 4 2002 iShares Annual Report to Shareholders markets over the coming months. By mid-July, the Nasdaq Composite Index and the S&P 500 Index had sunk below their post September 11 levels and had hit their lowest levels in five years. The technology sector was among the hardest hit industry sectors during the reporting period. Although the group responded well to the signs of possible economic recovery during the first quarter, share prices slumped as capital spending contracted and investors returned to the relative safety of value stocks. Within the Index's ten largest holdings, AOL Time Warner (3.54% of the Index as of July 31, 2002) was the worst performing holding over the reporting period, declining 74.70%. Oracle (3.95% of the Index as of July 31, 2002) declined 44.64%. Intel Corporation (8.98% of the Index as of July 31, 2002) fell 36.79%, while IBM (8.66% of the Index as of July 31, 2002) and Cisco Systems (6.93% of the index as of July 31, 2002) fell 32.69% and 31.37%, respectively. Hewlett Packard (3.07% of the Index as of July 31) was the best-performing stock among the ten largest holdings, delivering a 7.44% return, while First Data Corporation (1.92% of the Index) gained 0.97% for the period. iShares Goldman Sachs Technology Index Fund GROWTH OF $10,000 INVESTMENT [GRAPH] iShares Goldman Goldman Sachs Sachs Technology Technology Sector Index Fund Index $10,000 $10,000 Mar-01 $9,053 $9,054 Apr-01 $10,776 $10,782 May-01 $10,344 $10,353 Jun-01 $10,361 $10,380 Jul-01 $9,624 $9,641 Aug-01 $8,368 $8,386 Sep-01 $6,674 $6,689 Oct-01 $7,741 $7,763 Nov-01 $9,056 $9,086 Dec-01 $8,894 $8,926 Jan-02 $8,878 $8,916 Feb-02 $7,690 $7,725 Mar-02 $8,235 $8,275 Apr-02 $7,219 $7,261 May-02 $6,924 $6,965 Jun-02 $5,942 $5,980 Jul-02 $5,339 $5,375 Past performance is no guarantee of future results. Managers' Discussion & Analysis 5 Managers' Discussion & Analysis iShares Goldman Sachs Networking Index Fund Performance as of 7/31/02
Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 7/31/02 Inception to 7/31/02 Inception to 7/31/02 ------------------------- ------------------------- ------------------------- iShares index fund NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX Goldman Sachs Networking (65.57)% (65.19)% (65.27)% (61.81)% (61.61)% (61.51)% (63.96)% (63.77)% (63.66)%
"Total returns for the period since inception" are calculated from the inception date of the Fund (7/10/01). "Average annual total return" represents the average annual change in value of an investment over the periods indicated. "Cumulative total return" represents the total change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (07/13/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. Further discussion of Market Price and NAV can be found under the heading "Supplemental Information", located elsewhere in this report. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 FUND HOLDINGS (% of Net Assets) [BAR CHART] Cisco Systems Inc. 10.05% QUALCOMM Inc. 9.62% Agilent Technologies Inc. 8.92% Motorola Inc. 8.29% Lucent Technologies Inc. 7.09% Nortel Networks Corp. 5.06% Broadcom Corp. "A" 4.72% JDS Uniphase Corp. 4.15% Juniper Networks Inc. 3.60% Tellabs Inc. 3.20% The iShares Goldman Sachs Networking Index Fund seeks investment results that correspond to the performance, before fees and expenses, of the Goldman Sachs Technology Industry Multimedia Networking Index. For the one-year period ending July 31, 2002, the Fund's fiscal year-end (the "reporting period"), the Fund declined 65.57%, while the Goldman Sachs Technology Industry Multimedia Networking Index declined 65.27%. During the reporting period, the Federal Reserve Board (the "Fed") continued its campaign to bolster the sagging U.S. economy. Despite the Fed's efforts, however, earnings disappointments, weak economic indicators and job cuts continued through the third quarter of 2001, dragging down equity markets. Against this backdrop, the terrorist attacks on September 11 dealt the economic outlook and the markets a further blow. Toward the end of 2001, markets seemed to respond to the Fed's efforts. Many economic indicators revealed encouraging news, further contributing to more positive investor sentiment. Factory orders grew as inventories declined, housing starts climbed, and consumer confidence rose. First quarter 2002 Gross Domestic Product ("GDP") growth figures added further evidence of a recovering economy. However, the encouraging outlook faded as the coming months brought news of ongoing economic weakness. Compounding the 6 2002 iShares Annual Report to Shareholders economic outlook, the crisis in confidence with corporate America that had begun with Enron spread through the remainder of the reporting period, and investors' apprehension grew. By the end of the reporting period, both the Nasdaq Composite Index and the S&P 500 Index had fallen to their lowest levels in five years. The technology sector bore the brunt of the market downturn, with networking stocks suffering the biggest declines. During the period, a drop-off in corporate investment spending hurt sales levels throughout the technology sector. As economic conditions languished, U.S. firms continued to report spare capacity, suggesting that investment spending on technology would remain flat. All of the Index's ten largest holdings posted sizable losses over the reporting period. Nortel Networks (5.06% of the Index as of July 31, 2002) declined 87.88%, while JDS Uniphase (4.15% of the Index as of July 31, 2002) fell 72.62%. Juniper Networks (3.60% of the Index as of July 31, 2002) lost 68.86%. Lucent Technologies (7.09% of the Index as of July 31, 2002) and Tellabs (3.20% of the Index as of July 31) declined 67.87% and 65.20%, respectively. The Index's largest holding, Cisco Systems (10.04% of the Index), had the best performance of the top ten holdings with a loss of 31.37% for the period. iShares Goldman Sachs Networking Index Fund GROWTH OF $10,000 INVESTMENT [GRAPH] Goldman Sachs iShares Goldman Technology Industry Sachs Networking Multimedia Networking Index Fund Index $10,000 $10,000 Jul-01 $10,468 $10,464 Aug-01 $8,563 $8,698 Sep-01 $6,575 $6,794 Oct-01 $7,833 $7,911 Nov-01 $9,100 $9,241 Dec-01 $8,428 $8,511 Jan-02 $8,150 $8,238 Feb-02 $6,253 $6,324 Mar-02 $6,792 $6,868 Apr-02 $5,939 $6,002 May-02 $5,493 $5,530 Jun-02 $4,086 $4,117 Jul-02 $3,604 $3,635 Past performance is no guarantee of future results. Managers' Discussion & Analysis 7 Managers' Discussion & Analysis iShares Goldman Sachs Semiconductor Index Fund Performance as of 7/31/02
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS ----------------------------------------------------- ------------------------ YEAR ENDED 7/31/02 INCEPTION TO 7/31/02 INCEPTION TO 7/31/02 ------------------------- ------------------------ ------------------------ iSHARES INDEX FUND NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX Goldman Sachs Semiconductor (43.69)% (43.62)% (43.51)% (34.93)% (35.04)% (34.72)% (36.59)% (36.71)% (36.37)%
"Total returns for the period since inception" are calculated from the inception date of the Fund (7/10/01). "Average annual total return" represents the average annual change in value of an investment over the periods indicated. "Cumulative total return" represents the total change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (07/13/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. Further discussion of Market Price and NAV can be found under the heading "Supplemental Information", located elsewhere in this report. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 FUND HOLDINGS (% of Net Assets) [BAR CHART] Texas Instruments Inc. 9.79% Intel Corp. 9.61% Stmicroelectronics Nv - Ny Shares 8.32% Motorola Inc. 7.90% Applied Materials Inc. 7.88% Micron Technology Inc. 5.12% Maxim Integrated Products Inc. 4.69% Analog Devices Inc. 3.85% Linear Technology Corp. 3.75% Kla-tencor Corp. 3.26% The Ishares Goldman Sachs Semiconductor Index Fund seeks investment results that correspond to the performance, before fees and expenses, of the Goldman Sachs Technology Industry Semiconductor Index. For the one-year period ending July 31, 2002, the Fund's fiscal year-end (the "reporting period"), the Fund declined 43.69%, compared with a decline of 43.51% for the Goldman Sachs Technology Industry Semiconductor Index. During the reporting period, the economy continued to flounder. Despite the Federal Reserve Board's (the "Fed") rate cuts during the first half of the period, markets slumped as corporate America delivered additional warnings of missed earnings targets and layoffs. The terrorist attacks on September 11 dealt a further blow to the markets. A brief rally came around the beginning of 2002, as the economy appeared to be responding to the Fed's aggressive monetary policy and the government's fiscal policy. Strong Gross Domestic Product ("GDP") figures for the first quarter of 2002 supported the belief that the economy was back on track. However, the optimism soon faded. Scandals, both from corporate accounting and brokerage analysts, shook investor confidence in the markets and dragged down share prices. Evidence of a prolonged economic slowdown contributed to the decline, as did ongoing global political tension. By mid-July, both the S&P 500 Index and the Nasdaq Composite Index had sunk to their lowest levels in five years. 8 2002 iShares Annual Report to Shareholders For the semiconductor group, the economy continued to weigh heavily on earnings levels. Even as economic indicators began to turn positive, figures for the technology sector remained weak. Semiconductor chip sales slowed dramatically throughout the year as corporations cut back on capital spending. Within the Index, all of the ten-largest stocks delivered double-digit losses during the reporting period. Micron Technology (5.12% of the Index as of July 31, 2002) was the hardest hit, falling 53.60%. Analog Devices (3.85% of the Index as of July 31, 2002) declined 47.60%. Linear Technology Corporation (3.75% of the Index as of July 31, 2002) lost 37.48%, while Motorola (7.90% of the Index as of July 31, 2002) fell 37.26%. Intel (9.61% of the Index as of July 31, 2002) and STMicroelectronics (8.32% of the Index as of July 31, 2002) declined 36.79% and 33.05%, respectively. Top holding Texas Instruments (9.79% of the Index) was the best performer, falling 11.67%. iShares Goldman Sachs Semiconductor Index Fund GROWTH OF $10,000 INVESTMENT [GRAPH]
Ishares Goldman Sachs Semiconductor Index Fund Goldman Sachs Technology Industry Semiconductor Index Jul-01 $10,000 $10,000 Aug-01 $11,261 $11,263 Sep-01 $10,544 $10,550 Oct-01 $ 7,296 $ 7,300 Nov-01 $ 8,876 $ 8,885 Dec-01 $10,349 $10,361 Jan-02 $10,137 $10,145 Feb-02 $10,571 $10,590 Mar-02 $ 9,412 $ 9,433 Apr-02 $10,891 $10,916 May-02 $ 9,817 $ 9,842 Jun-02 $ 9,097 $ 9,123 Jul-02 $ 7,322 $ 7,345 $ 6,341 $ 6,363
Past performance is no guarantee of future results. Managers' Discussion & Analysis 9 Managers' Discussion & Analysis iSHARES Goldman Sachs Software Index Fund Performance as of 7/31/02
Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 7/31/02 Inception to 7/31/02 Inception to 7/31/02 ------------------------- ------------------------- ------------------------- iSHARES INDEX FUND NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX Goldman Sachs Software (51.10)% (51.18)% (50.84)% (49.89)% (50.05)% (49.64)% (51.94)% (52.10)% (51.67)%
"Total returns for the period since inception" are calculated from the inception date of the Fund (7/10/01). "Average annual total return" represents the average annual change in value of an investment over the periods indicated. "Cumulative total return" represents the total change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (07/13/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. Further discussion of Market Price and NAV can be found under the heading "Supplemental Information", located elsewhere in this report. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 FUND HOLDINGS (% of Net Assets) [BAR CHART] Oracle Corp. 12.41% Microsoft Corp. 9.06% Intuit Inc. 7.83% Electronic Arts Inc. 6.98% Veritas Software Corp. 5.79% Adobe Systems Inc. 4.80% Peoplesoft Inc. 4.70% Computer Associates International Inc. 4.54% Symantec Corp. 4.01% Siebel Systems Inc. 3.74% The IShares Goldman Sachs Software Index Fund seeks investment results that correspond to the performance, before fees and expenses, of the Goldman Sachs Technology Industry Software Index. For the one-year period ending July 31, 2002 (the "reporting period"), the Fund declined 51.10%, compared with a decline of 50.84% for the Goldman Sachs Technology Industry Software Index. The U.S. economy languished during the reporting period. Although the Federal Reserve Board (the "Fed") continued its campaign to cut short-term interest rates during the first half of the reporting period, markets slumped as corporate America delivered additional warnings of missed earnings targets and layoffs. The terrorist attacks on September 11 dealt a further blow to the markets, which sank throughout the remainder of 2001. By the new year, the economy appeared to be responding to the Fed's aggressive monetary policy and the government's fiscal policy. Robust Gross Domestic Product ("GDP") figures for the first quarter of 2002 supported the belief that the economy was back on track. Markets responded positively, rallying briefly. However, the optimism was short lived. On the heels of Enron's accounting scandals, newly-revealed corporate accounting and brokerage analyst scandals shook investor confidence and dragged down markets. Weaker economic figures and suggestions of a double-dip recession contributed to the decline. By mid-July, both the S&P 500 Index and the Nasdaq Composite Index had sunk to their lowest levels in five years. 10 2002 iShares Annual Report to Shareholders The technology sector was one of the poorest performers during the one-year period, and software stocks performed particularly poorly. Although consumer spending remained relatively strong through the entire period, corporate spending dropped sharply. Among the Index's top ten holdings, the worst performance over the reporting period came from Computer Associates International (4.54% of the Index as of July 31, 2002), which declined 72.91%, closely followed by Siebel Systems (3.74% of the Index as of July 31, 2002), which fell 72.72%. Veritas Software (5.79% of the Index as of July 31, 2002) and PeopleSoft (4.70% of the Index as of July 31, 2002) declined 60.32% and 58.83%, respectively. Symantec Corporation (4.01% as of July 31, 2002), on the other hand, posted a strong 39.14% gain, while Intuit (7.83% of the Index as of July 31) returned 27.92%. Electronic Arts (6.98% of the Index) was also a positive performer, gaining 5.73% for the period. IShares Goldman Sachs Software Index Fund GROWTH OF $10,000 INVESTMENT [GRAPH] IShares Goldman Sachs Software Goldman Sachs Technology Index Fund Industry Software Index $10,000 $10,000 Jul-01 $9,829 $9,832 Aug-01 $7,993 $7,998 Sep-01 $6,069 $6,077 Oct-01 $7,409 $7,426 Nov-01 $8,795 $8,819 Dec-01 $9,243 $9,269 Jan-02 $9,367 $9,396 Feb-02 $7,657 $7,885 Mar-02 $8,390 $8,424 Apr-02 $6,700 $6,731 May-02 $6,112 $6,144 Jun-02 $5,603 $5,633 Jul-02 $4,807 $4,833 Past performance is no guarantee of future results. Managers' Discussion & Analysis 11 Managers' Discussion & Analysis iShares Goldman Sachs Natural Resources Index Fund Performance as of 7/31/02 Total Returns -------------------------- INCEPTION to 7/31/02 -------------------------- iShares Index Fund NAV MARKET INDEX Goldman Sachs Natural Resources (11.29)% (11.44)% (11.35)% "Total returns for the period since inception" are calculated from the inception date of the Fund (10/22/01). "Total return" represents the change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (10/26/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. Further discussion of Market Price and NAV can be found under the heading "Supplemental Information", located elsewhere in this report. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 FUND HOLDINGS (% of Net Assets) [BAR CHART] BP PLC ADR 8.25% Exxon Mobil Corp 7.94% Royal Dutch Petroleum Co. - NY Shares 7.46% ChevronTexaco Corp 7.34% Schlumberger Ltd 3.77% Alcoa Inc 3.48% Phillips Petroleum Co 3.01% International Paper Co 2.92% Conoco Inc 2.30% Encana Corp 2.05% The iSHARES GOLDMAN SACHS NATURAL RESOURCES INDEX FUND seeks investment results that correspond to the performance, before fees and expenses, of the Goldman Sachs Natural Resources Sector Index. For the period since the Fund's inception on October 22, 2001 through July 31, 2002, the Fund's fiscal year-end (the "reporting period"), the Fund declined 11.29%, compared to a decline of 11.35% for the Goldman Sachs Natural Resources Sector Index. The Fund was launched at a time when market and economic conditions finally appeared to be improving, following four quarters of market downturns. Low interest rates, rising stock prices, and falling energy prices helped trigger a rebound in consumer confidence, which in turn appeared to move the economy closer to recovery. Other hints of economic recovery included low inflation, fewer jobless claims, declining inventories, and stabilizing manufacturing conditions. Markets responded to the positive news by rallying early in the first quarter of 2002. However, the optimism was to be short lived. Economic indicators released late in the first quarter of 2002 revealed that economic recovery was moderating. Perhaps more important to investors, the corporate scandals that had begun with Enron expanded almost daily. Scandals in the brokerage community contributed to shaky investor confidence and dragged down equity markets over the 12 2002 iShares Annual Report to Shareholders coming months. By mid-July, the Nasdaq Composite Index and the S&P 500 Index had sunk below their post September 11 levels and had hit their lowest levels in five years. Natural Resources stocks felt the impact of weak oil prices due to economic slowdown, as well as the Enron scandal. In November 2001, crude oil prices reached a low of $17.50 per barrel, from a high of $32 per barrel earlier in the year. In an effort to stabilize oil prices, OPEC cut production. Oil company stocks responded to signs that oil prices had hit bottom, and stock prices rebounded sharply by January. Indeed, the price of oil rose to around $29 per barrel before settling in around $26 per barrel by the end of the reporting period. Overall, shares of natural gas companies, oil exploration and service companies, and large diversified oil companies were some of the hardest hit stocks during the reporting period. On the other hand, paper and forest products companies performed relatively well, largely benefiting from cuts in production over the last several years. Within the Index's top ten holdings, Alcoa (3.49% of the Index as of July 31, 2002) fell 16.02% over the reporting period, while diversified oil companies Conoco (2.30% of the Index as of July 31, 2002) and Royal Dutch Petroleum (7.48% of the Index as of July 31, 2002) fell 3.05% and 8.29%, respectively. Oil service and exploration company Schlumberger Ltd. (3.78% of the Index as of July 31, 2002) dropped 10.00%. Not all of the Index's top holdings had negative returns, however. International Paper (2.93% of the Index as of July 31) gained 10.35% and natural gas producer EnCana (2.05% of the Index as of July 31, 2002) rose 8.75%. iShares Goldman Sachs Natural Resources Index Fund Growth of $10,000 Investment [GRAPH] iShares Goldman Goldman Sachs Sachs Natural Natural Resources Resources Index Fund Sector Index $10,000 $10,000 Oct-01 $ 9,898 $ 9,899 Nov-01 $ 9,594 $ 9,594 Dec-01 $10,045 $10,038 Jan-02 $ 9,825 $ 9,822 Feb-02 $10,254 $10,250 Mar-02 $11,002 $11,001 Apr-02 $10,662 $10,665 May-02 $10,605 $10,594 Jun-02 $10,200 $10,191 Jul-02 $ 8,870 $ 8,865 Past performance is no guarantee of future results. Managers' Discussion & Analysis 13 Managers' Discussion & Analysis iShares MSCI EAFE Index Fund Performance as of 7/31/02 Total Returns ------------------------- INCEPTION to 7/31/02 ------------------------- iShares Index Fund NAV MARKET INDEX MSCI EAFE (16.57)% (15.68)% (16.70)% "Total returns for the period since inception" are calculated from the inception date of the Fund (8/14/01). "Total return" represents the change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (08/17/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. Further discussion of Market Price and NAV can be found under the heading "Supplemental Information", located elsewhere in this report. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 FUND HOLDINGS (% of Net Assets) [BAR CHART] BP PLC 3.11% GlaxoSmithKline PLC 2.18% Novartis AG 1.99% HSBC Holdings PLC 1.91% Vodafone Group PLC 1.87% Royal Dutch Petroleum Co. 1.79% TotalFinaElf SA 1.65% Nestle SA 1.49% Royal Bank of Scotland Group PLC 1.29% Shell Transport & Trading Co. PLC 1.20% The iShares MSCI EAFE Index Fund seeks investment results that correspond to the performance, before fees and expenses, of the Morgan Stanley Capital International Europe, Australasia and Far East ("MSCI EAFE") Index. The MSCI EAFE Index measures the performance of equities in European, Australasian and Far East markets. From the Fund's inception date on August 14, 2001, through the Fund's fiscal year-end on July 31, 2002 (the "reporting period"), the Fund declined 16.57%, compared to a decline of 16.70% for the MSCI EAFE Index. The MSCI EAFE Index was pressured by a number of significant factors over the reporting period. The events of September 11, 2001 in particular created considerable volatility for the Index early on. Many stocks, especially those of airlines, insurance providers and tourism-related companies, fell sharply in the aftermath of the terrorist attacks on the United States. In addition, the repercussions of September 11 further slowed economic activity around the world, which had already been in decline for some time. In October and November 2001, investors did become more optimistic about a global economic recovery, and that sentiment buoyed many stocks in the Index for a time. The optimism faded, however, as it became more apparent that the United States was not 14 2002 iShares Annual Report to Shareholders emerging from its economic downturn as quickly as many investors had thought it would. With demand from the U.S. at an ebb, major European economies such as Germany also remained sluggish during the reporting period. Meanwhile, Japan and a number of other Asian countries showed signs of better economic health, which led many investors to direct assets to those markets. The renewed interest helped to make Asian stocks some of the best-performing components of the MSCI EAFE Index over part of the reporting period. Amid the general economic uncertainty, defensive sectors such as consumer staples tended to outperform more growth-oriented areas of the market. Such was generally not the case with pharmaceuticals, however, even though they have performed well in past economic downturns. Over much of the reporting period, several pharmaceutical companies in the MSCI EAFE Index were pressured by legal challenges to patents on some of their top-selling prescription drugs and the resulting threat of competition from generics. The MSCI EAFE Index's contingent of telecommunications and information- technology stocks were even weaker. Many telecommunications companies continued to face negative investor sentiment about the level of debt they had taken on in order to develop third-generation wireless technology. The fallout of accounting scandals and high-profile bankruptcies in the United States also created a difficult environment for telecom companies and for many companies in the MSCI EAFE Index, in general, over much of the reporting period. iShares MSCI EAFE Index Fund GROWTH OF $10,000 INVESTMENT [GRAPH] Index Fund Index $10,000 $10,000 Aug-01 $9,719 $9,769 Sep-01 $8,777 $8,820 Oct-01 $9,025 $9,069 Nov-01 $9,301 $9,354 Dec-01 $9,365 $9,417 Jan-02 $8,877 $8,924 Feb-02 $8,941 $8,986 Mar-02 $9,464 $9,513 Apr-02 $9,480 $9,529 May-02 $9,633 $9,683 Jun-02 $9,258 $9,297 Jul-02 $8,343 $8,380 Past performance is no guarantee of future results. Managers' Discussion & Analysis 15 Schedule of Investments iShares Goldman Sachs Technology Index Fund July 31, 2002 Security Shares Value --------------------------------------------------------------- COMMON STOCKS - 100.04% Intel Corp. 101,375 $ 1,904,836 Microsoft Corp./1/ 39,471 1,893,819 International Business Machines Corp. 26,067 1,835,117 Cisco Systems Inc./1/ 111,406 1,469,445 Dell Computer Corp./1/ 39,522 985,283 Oracle Corp./1/ 83,613 836,883 AOL Time Warner Inc./1/ 65,189 749,673 Hewlett-Packard Co. 45,969 650,461 Texas Instruments Inc. 26,413 611,461 First Data Corp. 11,639 406,783 Motorola Inc. 34,582 401,151 Applied Materials Inc./1/ 25,052 372,523 Automatic Data Processing Inc. 9,442 352,092 QUALCOMM Inc./1/ 11,718 322,011 STMicroelectronics NV - NY Shares 13,617 289,906 Electronic Data Systems Corp. 7,289 268,017 EMC Corp./1/ 33,874 254,055 eBay Inc./1/ 4,262 243,318 Sun Microsystems Inc./1/ 49,439 193,801 Micron Technology Inc./1/ 9,164 178,606 Maxim Integrated Products Inc./1/ 4,913 172,839 Concord EFS Inc./1/ 7,767 151,456 Paychex Inc. 5,710 150,230 Intuit Inc./1/ 3,225 141,835 Analog Devices Inc./1/ 5,565 134,116 Agilent Technologies Inc./1/ 7,066 133,406 Linear Technology Corp. 4,827 130,715 Electronic Arts Inc./1/ 2,100 126,378 Yahoo! Inc./1/ 9,105 119,913 KLA-Tencor Corp./1/ 2,877 113,325 Accenture Ltd./1/ 6,382 105,303 Veritas Software Corp./1/ 6,222 104,716 SunGard Data Systems Inc./1/ 4,297 100,765 Fiserv Inc./1/ 2,916 100,340 Xilinx Inc./1/ 5,116 98,176 Lexmark International Group Inc. "A"/1/ 1,980 96,782 Computer Sciences Corp./1/ 2,597 96,089 Lucent Technologies Inc./1/ 52,241 91,422 Affiliated Computer Services Inc. "A"/1/ 1,910 89,732 ASM Lithography Holding NV "R"/1/ 7,332 86,884 Adobe Systems Inc. 3,619 86,711 PeopleSoft Inc./1/ 4,731 85,063 Amazon.com Inc./1/ 5,715 82,633 Apple Computer Inc./1/ 5,411 82,572 Computer Associates International Inc. 8,819 82,369 Symantec Corp./1/ 2,171 72,815 Altera Corp./1/ 5,856 69,276 Siebel Systems Inc./1/ 7,204 67,718 Microchip Technology Inc./1/ 3,067 67,535 Brocade Communications Systems Inc./1/ 3,548 66,525 CDW Computer Centers Inc./1/ 1,309 62,570 Check Point Software Technologies Ltd./1/ 3,710 62,254 Flextronics International Ltd./1/ 7,802 61,792 DST Systems Inc./1/ 1,821 61,368 Celestica Inc./1/ 2,858 61,304 Novellus Systems Inc./1/ 2,208 59,594 Sabre Holdings Corp./1/ 2,201 58,370 QLogic Corp./1/ 1,421 57,906 Nortel Networks Corp./1/ 58,402 56,650 L-3 Communications Holdings Inc./1/ 1,211 55,972 Broadcom Corp. "A"/1/ 2,963 55,586 ChoicePoint Inc./1/ 1,297 54,331 Jabil Circuit Inc./1/ 3,015 53,637 Solectron Corp./1/ 12,523 50,092 BMC Software Inc./1/ 3,708 49,873 National Semiconductor Corp./1/ 2,733 49,495 Synopsys Inc./1/ 1,140 48,758 Cadence Design Systems Inc./1/ 3,816 47,509 JDS Uniphase Corp./1/ 18,376 46,491 LSI Logic Corp./1/ 5,623 43,859 Network Appliance Inc./1/ 5,084 43,011 BISYS Group Inc. (The)/1/ 1,814 41,903 Teradyne Inc./1/ 2,783 41,745 Advanced Micro Devices Inc./1/ 5,190 41,676 Intersil Corp. "A"/1/ 1,883 41,031 Juniper Networks Inc./1/ 5,037 40,296 Convergys Corp./1/ 2,630 39,766 Ceridian Corp./1/ 2,245 38,861 Vishay Intertechnology Inc./1/ 2,205 37,595 16 2002 iShares Annual Report to Shareholders Schedule of Investments (Continued) iShares Goldman Sachs Technology Index Fund July 31, 2002 Security Shares Value --------------------------------------------------------------- Unisys Corp./1/ 4,896 $ 36,818 Tellabs Inc./1/ 6,279 35,979 AVX Corp. 2,667 34,991 Marvell Technology Group Ltd./1/ 1,819 34,834 Certegy Inc./1/ 1,054 34,487 BEA Systems Inc./1/ 6,167 34,227 Pixar Inc./1/ 760 33,432 American Power Conversion Corp./1/ 2,991 32,751 Mercury Interactive Corp./1/ 1,278 32,742 Harris Corp. 1,012 32,495 Sanmina-SCI Corp./1/ 7,971 32,442 Symbol Technologies Inc. 3,510 32,081 Fairchild Semiconductor International Corp. "A"/1/ 1,737 30,971 Avnet Inc. 1,821 30,411 Scientific-Atlanta Inc. 2,387 30,196 UTStarcom Inc./1/ 1,688 29,456 Emulex Corp./1/ 1,248 28,904 Network Associates Inc./1/ 2,231 27,107 Activision Inc./1/ 935 26,853 Reynolds & Reynolds Co. (The) "A" 1,071 26,668 CIENA Corp./1/ 6,534 26,332 Arrow Electronics Inc./1/ 1,531 26,134 Tektronix Inc./1/ 1,388 25,872 NVIDIA Corp./1/ 2,315 25,627 KPMG Consulting Inc./1/ 2,407 25,370 Ingram Micro Inc. "A"/1/ 2,282 25,102 Amdocs Ltd./1/ 3,395 24,953 Cognos Inc./1/ 1,341 24,822 Ticketmaster "B"/1/ 1,517 24,515 Amphenol Corp. "A"/1/ 651 24,510 3Com Corp./1/ 5,411 24,404 PMC-Sierra Inc./1/ 2,529 24,152 Lam Research Corp./1/ 1,933 23,776 Cerner Corp./1/ 543 23,566 Corning Inc./1/ 14,498 23,197 VeriSign Inc./1/ 3,592 22,989 Storage Technology Corp./1/ 1,613 22,905 Comverse Technology Inc./1/ 2,862 22,782 Autodesk Inc. 1,742 22,454 Atmel Corp./1/ 7,143 22,429 International Rectifier Corp./1/ 970 22,368 Semtech Corp./1/ 1,115 21,921 ADC Telecommunications Inc./1/ 12,144 21,859 Advanced Fibre Communications Inc./1/ 1,264 21,779 ATI Technologies Inc./1/ 3,500 21,665 National Instruments Corp./1/ 789 21,406 Cypress Semiconductor Corp./1/ 1,863 21,387 Agere Systems Inc./1/ 11,172 21,227 Acxiom Corp./1/ 1,336 21,189 Compuware Corp./1/ 5,703 21,158 Applied Micro Circuits Corp./1/ 4,580 21,114 Silicon Laboratories Inc./1/ 749 20,605 Integrated Device Technology Inc./1/ 1,591 20,365 Overture Services Inc./1/ 886 20,245 Edwards (J.D.) & Co./1/ 1,798 19,994 Rational Software Corp./1/ 2,974 19,985 Henry (Jack) & Associates Inc. 1,377 19,650 Fair Isaac and Co. Inc. 524 18,681 Sybase Inc./1/ 1,514 18,395 Extreme Networks Inc./1/ 1,755 18,252 West Corp./1/ 997 17,946 Integrated Circuit Systems Inc./1/ 1,014 17,816 Polycom Inc./1/ 1,517 17,370 KEMET Corp./1/ 1,336 17,274 Perot Systems Corp. "A"/1/ 1,611 17,222 TIBCO Software Inc./1/ 3,157 17,111 RF Micro Devices Inc./1/ 2,568 17,103 Cree Inc./1/ 1,114 16,844 Gateway Inc./1/ 4,950 16,830 Andrew Corp./1/ 1,486 16,717 NetIQ Corp./1/ 833 16,502 Imation Corp./1/ 538 16,377 Micrel Inc./1/ 1,420 16,287 Expedia Inc. "A"/1/ 324 15,753 Citrix Systems Inc./1/ 2,798 15,417 SanDisk Corp./1/ 1,044 15,034 THQ Inc./1/ 596 14,828 CACI International Inc. "A"/1/ 431 14,775 Global Payments Inc. 560 14,560 PerkinElmer Inc. 1,909 14,547 Cymer Inc./1/ 512 14,331 Schedules of Investments 17 Schedule of Investments (Continued) iShares Goldman Sachs Technology Index Fund July 31, 2002 Security Shares Value --------------------------------------------------------------- Research in Motion Ltd./1/ 1,187 $ 13,935 Maxtor Corp./1/ 3,688 13,830 Foundry Networks Inc./1/ 1,826 13,788 Titan Corp. (The)/1/ 1,176 13,348 CheckFree Corp./1/ 1,337 13,316 McDATA Corp. "A"/1/ 1,240 13,293 TriQuint Semiconductor Inc./1/ 1,996 13,214 Quest Software Inc./1/ 1,363 13,194 Varian Semiconductor Equipment Associates Inc./1/ 501 13,166 MKS Instruments Inc./1/ 770 13,090 Electronics For Imaging Inc./1/ 818 12,704 Parametric Technology Corp./1/ 4,025 12,558 Novell Inc./1/ 5,563 12,405 Internet Security Systems Inc./1/ 736 12,144 Red Hat Inc./1/ 2,626 12,106 Intergraph Corp./1/ 759 12,068 Axcelis Technologies Inc./1/ 1,485 11,880 Sycamore Networks Inc./1/ 4,191 11,735 Lattice Semiconductor Corp./1/ 1,678 10,909 EarthLink Inc./1/ 2,274 10,415 Black Box Corp./1/ 302 10,211 Cognex Corp./1/ 663 10,190 Advent Software Inc./1/ 526 10,104 RealNetworks Inc./1/ 2,455 10,065 DoubleClick Inc./1/ 2,062 9,815 Amkor Technology Inc./1/ 2,475 9,751 ASE Test Ltd./1/ 1,459 9,746 Ascential Software Corp./1/ 3,953 9,685 Adaptec Inc./1/ 1,627 9,599 Palm Inc./1/ 8,782 9,572 Ariba Inc./1/ 3,990 9,536 Brooks-PRI Automation Inc./1/ 501 9,529 Keane Inc./1/ 1,155 9,529 CSG Systems International Inc./1/ 805 9,314 Newport Corp./1/ 578 9,306 Plexus Corp./1/ 651 9,049 Macrovision Corp./1/ 792 8,680 Informatica Corp./1/ 1,207 8,401 Avaya Inc./1/ 5,479 8,164 Rambus Inc./1/ 1,545 7,972 Cirrus Logic Inc./1/ 1,281 7,609 GlobeSpanVirata Inc./1/ 2,128 7,533 Vitesse Semiconductor Corp./1/ 3,070 7,429 Mentor Graphics Corp./1/ 1,000 7,220 Macromedia Inc./1/ 889 7,068 webMethods Inc./1/ 758 6,663 Priceline.com Inc./1/ 3,477 6,432 Tekelec/1/ 932 6,282 Powerwave Technologies Inc./1/ 1,000 6,140 Wind River Systems Inc./1/ 1,188 5,524 i2 Technologies Inc./1/ 6,447 5,480 Retek Inc./1/ 792 5,124 Quantum DLT & Storage Group/1/ 2,385 4,961 Exult Inc./1/ 1,581 4,585 Micromuse Inc./1/ 1,125 3,476 Openwave Systems Inc./1/ 2,682 2,682 TOTAL COMMON STOCKS (COST: $45,782,106) 21,203,324 SHORT TERM INSTRUMENTS - 6.07% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 354,917 354,917 Dreyfus Money Market Fund 167,720 167,720 Goldman Sachs Financial Square Prime Obligation Fund 656,327 656,327 Providian Temp Cash Money Market Fund 106,931 106,931 TOTAL SHORT TERM INSTRUMENTS (COST: $1,285,895) 1,285,895 TOTAL INVESTMENTS IN SECURITIES - 106.11% (COST $47,068,001) 22,489,219 OTHER ASSETS, LESS LIABILITIES - (6.11%) (1,294,759) ----------- NET ASSETS - 100.00% $21,194,460 =========== /1/ Non-income earning securities. See notes to financial statements. 18 2002 iShares Annual Report to Shareholders Schedule of Investments iShares Goldman Sachs Networking Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------- COMMON STOCKS - 99.78% Cisco Systems Inc./1/ 184,464 $ 2,433,080 QUALCOMM Inc./1/ 84,794 2,330,139 Agilent Technologies Inc./1/ 114,438 2,160,589 Motorola Inc. 173,161 2,008,668 Lucent Technologies Inc./1/ 980,923 1,716,615 Nortel Networks Corp./1/ 1,262,616 1,224,737 Broadcom Corp. "A"/1/ 60,973 1,143,853 JDS Uniphase Corp./1/ 397,372 1,005,351 Juniper Networks Inc./1/ 109,064 872,512 Tellabs Inc./1/ 135,160 774,467 Marvell Technology Group Ltd./1/ 39,252 751,676 Scientific-Atlanta Inc. 51,512 651,627 CIENA Corp./1/ 141,655 570,870 Amdocs Ltd./1/ 73,195 537,983 3Com Corp./1/ 117,294 528,996 PMC-Sierra Inc./1/ 54,709 522,471 Corning Inc./1/ 312,575 500,120 Comverse Technology Inc./1/ 61,539 489,850 ADC Telecommunications Inc./1/ 261,247 470,245 Advanced Fibre Communications Inc./1/ 27,148 467,760 Applied Micro Circuits Corp./1/ 98,965 456,229 Agere Systems Inc./1/ 239,298 454,666 Extreme Networks Inc./1/ 37,793 393,047 Polycom Inc./1/ 32,908 376,797 Research in Motion Ltd./1/ 25,846 303,432 Foundry Networks Inc./1/ 39,470 298,038 Sycamore Networks Inc./1/ 90,037 252,104 Avaya Inc./1/ 118,805 177,019 Vitesse Semiconductor Corp./1/ 66,060 159,865 Micromuse Inc./1/ 24,584 75,965 Openwave Systems Inc./1/ 57,230 57,230 TOTAL COMMON STOCKS (COST: $57,367,278) 24,166,001 SHORT TERM INSTRUMENTS - 10.58% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 1,901,046 1,901,046 Dreyfus Money Market Fund 334,846 334,846 Goldman Sachs Financial Square Prime Obligation Fund 112,456 112,456 Providian Temp Cash Money Market Fund 213,482 213,482 TOTAL SHORT TERM INSTRUMENTS (COST: $2,561,830) 2,561,830 TOTAL INVESTMENTS IN SECURITIES - 110.36% (COST $59,929,108) 26,727,831 OTHER ASSETS, LESS LIABILITIES - (10.36%) (2,509,004) ----------- NET ASSETS - 100.00% $24,218,827 =========== /1/ Non-income earning securities. See notes to financial statements. Schedules of Investments 19 Schedule of Investments iShares Goldman Sachs Semiconductor Index Fund July 31, 2002 Security Shares Value --------------------------------------------------------------------- COMMON STOCKS - 99.74% Texas Instruments Inc. 272,771 $ 6,314,649 Intel Corp. 330,127 6,203,086 STMicroelectronics NV - NY Shares 252,162 5,368,529 Motorola Inc. 439,432 5,097,411 Applied Materials Inc./1/ 341,956 5,084,886 Micron Technology Inc./1/ 169,593 3,305,368 Maxim Integrated Products Inc./1/ 86,024 3,026,324 Analog Devices Inc./1/ 103,067 2,483,915 Linear Technology Corp. 89,458 2,422,523 KLA-Tencor Corp./1/ 53,319 2,100,235 Xilinx Inc./1/ 94,587 1,815,125 ASM Lithography Holding NV "R"/1/ 135,871 1,610,071 Altera Corp./1/ 108,338 1,281,639 Microchip Technology Inc./1/ 56,699 1,248,512 Novellus Systems Inc./1/ 40,925 1,104,566 QLogic Corp./1/ 26,196 1,067,487 Broadcom Corp. "A"/1/ 54,954 1,030,937 National Semiconductor Corp./1/ 50,528 915,062 LSI Logic Corp./1/ 104,258 813,212 Teradyne Inc./1/ 51,581 773,715 Advanced Micro Devices Inc./1/ 96,247 772,863 Intersil Corp. "A"/1/ 34,836 759,076 Marvell Technology Group Ltd./1/ 33,642 644,244 Fairchild Semiconductor International Corp. "A"/1/ 32,297 575,856 NVIDIA Corp./1/ 42,817 473,984 PMC-Sierra Inc./1/ 46,865 447,561 Lam Research Corp./1/ 35,920 441,816 Atmel Corp./1/ 131,803 413,861 International Rectifier Corp./1/ 17,925 413,350 Semtech Corp./1/ 20,562 404,249 ATI Technologies Inc./1/ 64,473 399,088 Cypress Semiconductor Corp./1/ 34,603 397,242 Applied Micro Circuits Corp./1/ 84,762 390,753 Agere Systems Inc./1/ 205,010 389,519 Silicon Laboratories Inc./1/ 13,708 377,107 Integrated Device Technology Inc./1/ 29,395 376,256 Integrated Circuit Systems Inc./1/ 18,819 330,650 RF Micro Devices Inc./1/ 47,148 314,006 Micrel Inc./1/ 26,221 300,755 SanDisk Corp./1/ 19,352 278,669 Cymer Inc./1/ 9,517 266,381 Varian Semiconductor Equipment Associates Inc./1/ 9,336 245,350 TriQuint Semiconductor Inc./1/ 37,043 245,225 MKS Instruments Inc./1/ 14,405 244,885 Axcelis Technologies Inc./1/ 27,611 220,888 Lattice Semiconductor Corp./1/ 30,904 200,907 ASE Test Ltd./1/ 27,151 181,369 Brooks-PRI Automation Inc./1/ 9,398 178,750 Adaptec Inc./1/ 29,880 176,292 Rambus Inc./1/ 28,112 145,058 Cirrus Logic Inc./1/ 23,997 142,542 Vitesse Semiconductor Corp./1/ 56,646 137,083 TOTAL COMMON STOCKS (Cost: $93,002,031) 64,352,887 SHORT TERM INSTRUMENTS - 10.22% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 4,889,882 4,889,882 Dreyfus Money Market Fund 865,681 865,681 Goldman Sachs Financial Square Prime Obligation Fund 290,732 290,732 Providian Temp Cash Money Market Fund 551,918 551,918 TOTAL SHORT TERM INSTRUMENTS (Cost: $6,598,213) 6,598,213 TOTAL INVESTMENTS IN SECURITIES - 109.96% (Cost $99,600,244) 70,951,100 Other Assets, Less Liabilities - (9.96%) (6,429,542) ----------- NET ASSETS - 100.00% $64,521,558 =========== /1/ Non-income earning securities. See Notes to Financial Statements. 20 2002 iShares Annual Report to Shareholders Schedule of Investments iShares Goldman Sachs Software Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- COMMON STOCKS - 100.01% Oracle Corp./1/ 468,131 $ 4,685,523 Microsoft Corp./1/ 71,326 3,422,221 Intuit Inc./1/ 67,227 2,956,643 Electronic Arts Inc./1/ 43,820 2,637,088 Veritas Software Corp./1/ 130,001 2,187,917 Adobe Systems Inc. 75,595 1,811,256 PeopleSoft Inc./1/ 98,651 1,773,745 Computer Associates International Inc. 183,790 1,716,599 Symantec Corp./1/ 45,173 1,515,102 Siebel Systems Inc./1/ 150,430 1,414,042 Check Point Software Technologies Ltd./1/ 77,134 1,294,308 BMC Software Inc./1/ 77,126 1,037,345 Synopsys Inc./1/ 23,689 1,013,179 Cadence Design Systems Inc./1/ 79,604 991,070 BEA Systems Inc./1/ 128,944 715,639 Network Associates Inc./1/ 46,639 566,664 Activision Inc./1/ 19,621 563,515 Amdocs Ltd./1/ 70,702 519,660 Cognos Inc./1/ 27,937 517,114 Autodesk Inc. 36,419 469,441 Compuware Corp./1/ 118,619 440,076 Edwards (J.D.) & Co./1/ 37,532 417,356 Rational Software Corp./1/ 61,765 415,061 Fair Isaac and Co. Inc. 11,020 392,863 Sybase Inc./1/ 31,501 382,737 TIBCO Software Inc./1/ 66,194 358,771 NetIQ Corp./1/ 17,176 340,257 Citrix Systems Inc./1/ 57,866 318,842 THQ Inc./1/ 12,493 310,826 Quest Software Inc./1/ 28,681 277,632 Parametric Technology Corp./1/ 82,849 258,489 Novell Inc./1/ 115,181 256,854 Internet Security Systems Inc./1/ 15,340 253,110 Red Hat Inc./1/ 53,972 248,811 Advent Software Inc./1/ 11,054 212,347 Ariba Inc./1/ 83,906 200,535 Informatica Corp./1/ 25,190 175,322 Mentor Graphics Corp./1/ 20,780 150,032 webMethods Inc./1/ 16,013 140,754 Wind River Systems Inc./1/ 25,074 116,594 i2 Technologies Inc./1/ 135,399 115,089 Retek Inc./1/ 16,597 107,383 Micromuse Inc./1/ 23,745 73,372 TOTAL COMMON STOCKS (Cost: $58,065,011) 37,771,184 SHORT TERM INSTRUMENTS - 8.43% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 2,364,904 2,364,904 Dreyfus Money Market Fund 416,042 416,042 Goldman Sachs Financial Square Prime Obligation Fund 139,725 139,725 Providian Temp Cash Money Market Fund 265,249 265,249 TOTAL SHORT TERM INSTRUMENTS (Cost: $3,185,920) 3,185,920 TOTAL INVESTMENTS IN SECURITIES - 108.44% (Cost $61,250,931) 40,957,104 Other Assets, Less Liabilities - (8.44%) (3,187,919) ----------- NET ASSETS - 100.00% $37,769,185 =========== /1/ Non-income earning securities. See Notes to Financial Statements. Schedules of Investments 21 Schedule of Investments iShares Goldman Sachs Natural Resources Index Fund July 31, 2002 Security Shares Value ----------------------------------------------------------------- COMMON STOCKS - 99.93% BP PLC ADR 37,012 $ 1,717,357 Exxon Mobil Corp. 44,954 1,652,509 Royal Dutch Petroleum Co. - NY Shares 33,977 1,552,749 ChevronTexaco Corp. 20,364 1,527,300 Schlumberger Ltd. 18,267 784,020 Alcoa Inc. 26,795 724,805 Phillips Petroleum Co. 12,120 627,210 International Paper Co. 15,285 608,649 Conoco Inc. 19,829 478,275 EnCana Corp. 15,045 426,074 Weyerhaeuser Co. 6,913 406,139 Anadarko Petroleum Corp. 7,863 342,040 Occidental Petroleum Corp. 11,871 321,585 Baker Hughes Inc. 10,674 286,063 Alcan Aluminum Ltd. 10,164 282,559 Newmont Mining Corp. 10,774 262,886 Barrick Gold Corp. 16,969 259,965 Transocean Sedco Forex Inc. 10,096 257,448 Unocal Corp. 7,748 253,050 El Paso Corp. 16,858 243,598 Marathon Oil Corp. 9,811 237,819 Suncor Energy Inc. 14,139 234,142 Burlington Resources Inc. 6,365 232,641 Petro-Canada 8,302 232,290 Apache Corp. 4,350 224,025 TransCanada PipeLines Ltd. 15,118 215,734 Devon Energy Corp. 4,946 206,149 Amerada Hess Corp. 2,818 192,751 Halliburton Co. 13,777 181,856 Talisman Energy Inc. 4,237 172,404 MeadWestvaco Corp. 6,326 168,208 GlobalSantaFe Corp. 7,434 167,562 Plum Creek Timber Co. Inc. 5,850 166,725 Kinder Morgan Inc. 3,863 160,739 Georgia-Pacific Corp. 7,292 159,695 BJ Services Co./1/ 4,955 158,015 Weatherford International Ltd. 3,814 154,696 Enbridge Inc. 5,159 148,992 Kerr-McGee Corp. 3,171 148,308 Nabors Industries Ltd. 4,558 139,110 Noble Drilling Corp. 4,253 137,797 EOG Resources Inc. 3,672 125,913 Canadian Natural Resources Ltd. 3,834 124,145 Murphy Oil Corp. 1,448 120,401 Valero Energy Corp. 3,347 113,999 Smurfit-Stone Container Corp./1/ 7,736 111,553 ENSCO International Inc. 4,287 110,819 Ocean Energy Inc. 5,536 110,166 Abitibi-Consolidated Inc. 13,946 104,874 Smith International Inc./1/ 3,202 101,215 Inco Ltd./1/ 5,764 98,161 Diamond Offshore Drilling Inc. 4,171 97,601 Phelps Dodge Corp. 2,807 95,943 Pioneer Natural Resources Co./1/ 3,636 88,028 Nexen Inc. 3,842 87,790 Placer Dome Inc. 10,430 87,299 Sunoco Inc. 2,408 85,580 Temple-Inland Inc. 1,568 84,202 Bowater Inc. 1,747 79,646 Noranda Corp. 7,555 79,479 Ashland Inc. 2,192 78,189 Domtar Inc. 7,175 72,467 XTO Energy Inc. 3,921 70,382 Freeport-McMoRan Copper & Gold Inc./1/ 4,570 69,784 Packaging Corporation of America/1/ 3,340 63,460 Patterson-UTI Energy Inc./1/ 2,501 59,799 Questar Corp. 2,588 58,489 Rowan Companies Inc./1/ 2,975 58,221 Pride International Inc./1/ 4,213 56,665 Noble Energy Inc. 1,810 56,273 Pennzoil-Quaker State Co. 2,542 54,958 Boise Cascade Corp. 1,841 53,371 Pogo Producing Co. 1,715 53,165 Helmerich & Payne Inc. 1,582 52,475 Tidewater Inc. 1,913 51,498 Precision Drilling Corp./1/ 1,691 50,223 Williams Companies Inc. 16,344 48,215 Varco International Inc./1/ 3,055 46,467 National-Oilwell Inc./1/ 2,571 44,427 22 2002 iShares Annual Report to Shareholders Schedule of Investments (Continued) iShares Goldman Sachs Natural Resources Index Fund July 31, 2002 Security Shares Value ----------------------------------------------------------------- Goldcorp Inc. 5,236 $ 44,401 Newfield Exploration Co./1/ 1,406 44,345 Rayonier Inc. 874 43,350 Premcor Inc. 1,770 38,586 FMC Technologies Inc./1/ 2,070 38,295 Peabody Energy Corp. 1,645 36,848 Gulf Indonesia Resources Ltd. 2,775 36,769 Grant Prideco Inc./1/ 3,511 35,075 CONSOL Energy Inc. 2,486 34,804 Forest Oil Corp./1/ 1,488 34,001 Meridian Gold Inc./1/ 2,400 33,912 Cameco Corp. 1,767 33,396 Spinnaker Exploration Co./1/ 1,046 29,434 Potlatch Corp. 903 28,779 Tom Brown Inc./1/ 1,246 28,658 Stone Energy Corp./1/ 837 28,441 Chesapeake Energy Corp./1/ 5,249 28,082 Key Energy Services Inc./1/ 3,462 27,834 Houston Exploration Co./1/ 958 27,590 Arch Coal Inc. 1,657 27,374 Aber Diamond Corp. 1,725 26,359 Louisiana-Pacific Corp. 3,307 26,191 Fording Inc. 1,655 26,166 SEACOR SMIT Inc./1/ 634 25,182 Agnico-Eagle Mines Ltd. 2,115 24,407 Hanover Compressor Co./1/ 2,513 22,140 Hurricane Hydrocarbons Ltd. "A" 2,550 21,037 Dynegy Inc. "A" 8,535 20,484 Vintage Petroleum Inc. 2,002 17,578 Wausau-Mosinee Paper Corp. 1,634 16,879 Global Industries Ltd./1/ 3,193 15,358 Stillwater Mining Co./1/ 1,365 12,967 Cable Design Technologies Corp./1/ 1,409 9,088 TOTAL COMMON STOCKS (Cost: $24,089,885) 20,803,091 SHORT TERM INSTRUMENTS - 9.47% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 1,462,960 1,462,960 Dreyfus Money Market Fund 257,409 257,409 Goldman Sachs Financial Square Prime Obligation Fund 86,448 86,448 Providian Temp Cash Money Market Fund 164,112 164,112 TOTAL SHORT TERM INSTRUMENTS (Cost: $1,970,929) 1,970,929 TOTAL INVESTMENTS IN SECURITIES - 109.40% (Cost $26,060,814) 22,774,020 Other Assets, Less Liabilities - (9.40%) (1,956,770) ----------- NET ASSETS - 100.00% $20,817,250 =========== /1/ Non-income earning securities. See notes to financial statements. Schedules of Investments 23 Schedule of Investments iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- COMMON STOCKS AND RIGHTS - 99.18% AUSTRALIA - 4.25% Amcor Ltd. 453,586 $ 2,054,109 AMP Ltd. 812,123 6,259,276 Aristocrat Leisure Ltd. 245,051 724,273 Australia and New Zealand Banking Group Ltd. 983,963 9,608,202 Australian Gas & Light Co. Ltd. 302,689 1,586,575 Australian Stock Exchange Ltd. 102,746 711,362 BHP Steel/1/ 532,162 793,666 Boral Ltd. 521,069 1,103,259 Brambles Industries Ltd. 652,097 2,860,815 BRL Hardy Ltd. 127,806 610,082 Broken Hill Proprietary Co. Ltd. 2,737,268 14,198,757 BT Office Trust 1,228,835 956,402 Coca-Cola Amatil Ltd. 345,112 1,183,424 Cochlear Ltd. 35,084 715,728 Coles Myer Ltd. 787,063 2,656,102 Commonwealth Bank of Australia 890,883 15,114,632 Computershare Ltd. 1,690,655 1,610,349 CSL Ltd. 112,412 1,743,802 CSR Ltd. 703,291 2,442,248 Deutsche Office Trust 833,961 544,743 ERG Ltd. 2,560,595 397,148 Foster's Brewing Group Ltd. 1,558,732 3,826,375 Futuris Corp. Ltd. 526,797 318,291 General Property Trust 1,194,109 1,813,374 Goodman Fielder Ltd. 1,184,443 1,057,352 Harvey Normand Holdings Ltd. 327,033 542,907 Iluka Resources Ltd. 307,164 762,381 James Hardie Industries NV/1/ 303,763 975,505 John Fairfax Holdings Ltd. 1,049,656 1,868,283 Leighton Holdings Ltd. 139,262 824,710 Lend Lease Corp. Ltd. 292,128 1,617,075 M.I.M. Holdings Ltd. 1,791,074 1,199,124 Macquarie Bank Ltd. 111,696 1,471,874 Macquarie Infrastructure Group 763,793 1,164,021 Mayne Nickless Ltd. 651,210 1,385,905 Mirvac Group 924,714 2,058,598 National Australia Bank Ltd. 1,075,432 19,562,646 Newcrest Mining Ltd. 161,279 544,268 NRMA Insurance Group Ltd. 1,004,906 1,591,671 Origin Energy Ltd. 883,365 1,605,958 Pacific Dunlop Ltd./1/ 358,009 1,295,849 PaperlinX Ltd. 343,680 925,977 Rio Tinto Ltd. 243,619 4,386,482 Santos Ltd. 715,821 2,388,408 Sons of Gwalia Ltd. 340,279 948,289 Southcorp Ltd. 527,513 1,458,573 Stockland Trust Group 480,973 1,104,747 Suncorp-Metway Ltd. 293,560 1,994,124 TAB Ltd. 538,790 929,628 TABCORP Holdings Ltd. 154,119 1,005,811 Telstra Corp. Ltd. 1,460,819 3,824,570 Transurban Group/1/ 335,983 694,914 Wesfarmers Ltd. 220,707 3,387,698 Westfield Holdings Ltd. 293,381 2,315,480 Westfield Trust 1,216,126 2,217,484 Westpac Banking Corp. Ltd. 1,108,547 9,201,605 WMC Ltd. 854,188 3,891,510 Woodside Petroleum Ltd. 411,700 2,975,891 Woolworths Ltd. 732,826 4,838,410 161,850,722 BELGIUM - 0.96% AGFA Gevaert NV 72,853 1,187,074 Bekaert NV 20,227 954,239 Colruyt NV 16,468 742,674 Compagnie Maritime Belge SA 23,628 1,228,888 Delhaize-Le Lion SA 56,027 2,131,222 Electrabel SA 20,406 4,707,385 Fortis Group 697,205 11,633,772 Groupe Bruxelles Lambert SA 64,082 2,594,693 Interbrew SA 110,443 3,106,486 KBC Bankverzekerings Holding NV 63,008 2,328,826 Omega Pharma SA 18,795 810,766 Solvay SA 29,535 2,041,388 24 2002 iShares Annual Report to Shareholders Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- UCB SA 49,046 $ 1,693,048 Umicore Mines SA 35,084 1,389,600 36,550,061 DENMARK - 0.81% A/S Dampskibsselskabet Svendborg "B" 179 1,611,059 Carlsberg A/S "B" 17,900 838,601 Coloplast A/S 17,900 1,256,721 D/S 1912 "B" 179 1,204,751 Danisco A/S 53,700 1,839,016 Danske Bank A/S 447,500 8,090,710 GN Store Nord A/S/1/ 379,838 1,293,272 Group 4 Falck A/S 71,600 2,088,235 H. Lundbeck A/S 53,700 1,346,485 ISS A/S/1/ 35,800 1,544,917 NEG Micon A/S/1/ 17,900 450,010 Novo Nordisk A/S "B" 161,100 3,794,968 Novozymes A/S "B" 35,800 715,764 Tele Danmark A/S 89,500 2,196,903 Topdanmark A/S/1/ 35,800 1,029,945 Vestas Wind Systems A/S 71,600 1,681,927 30,983,284 FINLAND - 1.59% Fortum OYJ 196,542 1,134,932 Metso Corp. 56,564 643,274 Nokia OYJ 3,495,333 43,520,391 Sampo OYJ "A" 206,208 1,372,706 Sonera Group OYJ/1/ 539,327 2,231,358 Stora Enso OYJ "R" 442,667 5,164,463 TietoEnator OYJ 78,939 1,327,257 UPM-Kymmene OYJ 157,162 5,130,884 60,525,265 FRANCE - 9.07% Accor SA 136,219 4,493,892 Air France 63,724 928,994 Alcatel SA "A" 853,293 4,483,969 Atos Origin SA/1/ 14,141 586,436 Autoroutes du Sud de la France SA/1/ 60,681 1,534,871 Aventis SA 463,789 30,464,583 AXA AG 981,815 12,542,196 BIC SA 28,998 1,000,715 BNP Paribas SA 543,086 24,960,667 Bouygues SA 120,109 2,761,330 Carrefour Supermarche SA 344,575 14,999,143 Castorama Dubois Investissement SA 50,120 3,238,143 Club Mediterranee SA/1/ 10,203 299,088 Compagnie de Saint-Gobain SA 209,788 6,268,969 Compagnie Generale des Etablissements Michelin "B" 95,586 3,790,644 Dassault Systemes SA 26,134 890,093 Essilor International SA 62,650 2,334,020 Etablissements Economiques du Casino Guichard- Perrachon SA 27,924 2,095,668 European Aeronautic Defence and Space Co. 223,929 3,523,590 Groupe Danone 89,321 10,455,809 Imerys SA 9,487 1,175,644 Lafarge SA 93,796 8,257,725 Lagardere S.C.A. 98,629 4,086,338 L'Air Liquide SA 71,392 10,022,880 L'Oreal SA 229,657 16,098,496 LVMH SA 146,601 6,482,066 Pechiney SA "A" 55,311 2,274,803 Pernod Ricard 40,633 3,497,624 Pinault-Printemps-Redoute SA 42,781 3,732,852 PSA Peugeot Citroen 129,059 6,245,449 Publicis Groupe 55,311 1,263,475 Renault SA 103,641 4,755,298 Sanofi-Synthelabo SA 259,371 15,307,973 Schneider SA 133,355 6,415,416 Societe Generale "A" 210,146 11,743,463 Societe Television Francaise 1 100,777 2,465,086 Sodexho Alliance SA 69,452 2,020,234 STMicroelectronics NV 405,793 8,557,444 Suez SA 567,967 12,361,631 Technip SA 17,728 1,265,292 Thales/Ex Thomson CSF 53,163 2,037,913 Schedules of Investments 25 Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- Thomson Multimedia SA/1/ 106,505 $ 2,498,693 TotalFinaElf SA 433,359 62,667,092 Union du Credit Bail Immobilier 20,048 1,257,914 Valeo SA 50,299 2,002,589 Vinci SA 42,960 2,505,999 Vivendi Universal SA 695,415 11,085,750 Zodiac SA 50,120 1,093,303 344,831,262 GERMANY - 6.34% Adidas AG 35,800 2,737,647 Aixtron AG 67,662 494,196 Allianz AG 126,195 17,976,604 Altana AG 53,700 2,711,324 BASF AG 375,900 14,372,649 Bayer AG 465,400 11,498,126 Bayerische Hypo-und Vereinsbank AG 268,500 5,356,843 Beiersdorf AG 17,900 1,842,647 Buderus AG 71,600 1,477,631 Continental AG/1/ 71,600 1,235,451 DaimlerChrysler AG 590,700 25,400,100 Deutsche Bank AG 374,110 21,316,937 Deutsche Boerse AG 17,900 661,598 Deutsche Lufthansa AG/1/ 143,200 1,712,787 Deutsche Post AG 232,700 2,304,195 Deutsche Telekom AG 1,452,048 16,542,021 E.ON AG 429,600 21,037,770 Fresenius Medical Care AG 17,900 606,142 Gehe AG 17,900 715,123 Heidelberger Zement AG 35,800 1,474,119 Karstadtquelle AG 35,800 821,295 Linde AG 71,600 3,332,908 MAN AG 53,700 1,052,939 Marschollek, Lautenschlaeger und Partner AG 57,817 1,065,648 Merck KGaA 35,800 698,451 Metro AG 89,500 2,298,924 Muenchener Rueckversicherungs- Gesellschaft AG 65,693 12,571,834 Preussag AG 107,400 2,284,881 RWE AG 202,628 6,726,459 SAP AG 143,200 10,529,410 Schering AG 125,300 6,659,332 SGL Carbon AG/1/ 17,900 292,191 Siemens AG 590,700 29,245,439 Software AG 17,900 222,522 Thyssen Krupp AG 268,500 3,477,343 Volkswagen AG 179,000 8,274,364 241,027,850 GREECE - 0.33% Hellenic Telecommunications Organization SA 842,732 5,755,860 National Bank of Greece SA ADR 1,875,533 6,845,695 12,601,555 HONG KONG - 1.73% Bank of East Asia Ltd. 1,002,400 1,934,131 Cathay Pacific Airways Ltd. 895,000 1,388,413 Cheung Kong (Holdings) Ltd. 1,074,000 8,502,536 Cheung Kong Infrastructure Holdings Ltd. 358,000 587,478 CLP Holdings Ltd. 1,342,500 5,266,762 Giordano International Ltd. 1,074,000 540,437 Hang Lung Properties Ltd. 895,000 963,825 Hang Seng Bank Ltd. 554,900 6,135,918 Henderson Land Development Co. Ltd. 358,000 1,418,217 Hong Kong & China Gas Co. Ltd. 2,702,200 3,499,079 Hong Kong Exchanges & Clearing Ltd. 716,000 1,037,269 Hongkong Electric Holdings Ltd. 984,500 3,691,875 Hutchison Whampoa Ltd. 1,611,000 11,772,705 Hysan Development Co. Ltd. 537,000 495,705 26 2002 iShares Annual Report to Shareholders Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- Johnson Electric Holdings Ltd. 1,163,500 $ 1,230,634 Li & Fung Ltd. 1,074,000 1,287,404 MTR Corp. Ltd. 895,000 1,118,750 New World Development Co. Ltd. 895,000 648,338 Pacific Century CyberWorks Ltd./1/ 5,907,000 1,242,242 Shangri-La Asia Ltd. 716,000 509,434 Sun Hung Kai Properties Ltd. 895,000 6,712,500 Swire Pacific Ltd. "A" 716,000 3,231,165 Television Broadcasts Ltd. 179,000 596,661 Wharf Holdings Ltd. 895,000 1,887,555 65,699,033 IRELAND - 0.87% Allied Irish Banks PLC/1/ 724,592 8,702,205 Bank of Ireland/1/ 726,203 8,258,744 CRH PLC/1/ 386,998 5,786,007 DCC PLC/1/ 88,963 844,277 Elan Corporation PLC/1/ 297,498 583,334 Green Property PLC/1/ 105,789 1,000,849 Independent News & Media PLC/1/ 541,654 876,180 Irish Life & Permanent PLC/1/ 225,361 2,750,734 Kerry Group PLC "A"/1/ 84,130 1,138,228 Ryanair Holdings PLC/1/ 88,752 530,772 Smurfit (Jefferson) Group PLC/1/ 852,040 2,447,485 Waterford Wedgwood PLC/1/ 585,151 298,310 33,217,125 ITALY - 3.59% Alitalia SpA/1/ 716,000 259,049 Alitalia SpA - Rights/1/ 664,000 996 Alleanza Assicurazioni SpA 232,700 1,758,933 Arnoldo Mondadori Editore SpA 89,500 544,894 Assicurazioni Generali SpA 707,050 13,773,617 Autogrill SpA/1/ 98,450 960,370 Autostrade SpA 608,600 4,940,371 Banca Fideuram SpA 187,950 869,739 Banca Monte dei Paschi di Siena SpA 760,750 2,140,522 Banca Nazionale del Lavoro SpA/1/ 1,163,500 1,602,721 Banca Popolare di Milano SCRL/1/ 304,300 1,226,146 Bulgari SpA 107,400 505,414 e.Biscom SpA/1/ 22,196 475,691 Enel SpA 1,698,352 8,075,494 ENI SpA 2,022,700 30,558,547 Fiat SpA 161,100 1,650,486 Gruppo Editoriale L'Espresso 165,575 611,982 IntesaBci SpA 2,461,250 5,561,933 Italcementi SpA 89,500 831,822 Italgas SpA 152,150 1,445,425 Luxottica Group SpA 89,500 1,361,805 Mediaset SpA 411,700 3,059,507 Mediobanca Banca SpA 331,150 2,694,667 Parmalat Finanziaria SpA 313,250 813,823 Pirelli SpA 492,250 489,346 Riunione Adriatica di Sicurta SpA 268,500 3,003,522 Sanpaolo IMI SpA 590,700 4,522,931 Seat-Pagine Gialle SpA/1/ 3,132,500 2,116,004 Snia SpA/1/ 358,000 719,508 Telecom Italia Mobile SpA 2,506,000 11,227,882 Telecom Italia SpA 1,351,450 7,154,711 Telecom Italia SpA "A" 1,593,100 12,588,676 Tiscali SpA/1/ 109,190 635,868 Unicredito Italiano SpA 2,148,000 8,318,130 136,500,532 JAPAN - 22.54% Acom Co. Ltd. 42,960 2,589,938 Aderans Co. Ltd. 17,900 419,998 Advantest Corp. 53,700 2,744,188 AEON Co. Ltd. 179,000 4,947,309 AEON Credit Service Co. Ltd. 17,900 1,014,871 AIFUL Corp. 26,850 1,708,393 Ajinomoto Co. Inc. 358,000 3,646,946 All Nippon Airways Co. Ltd./1/ 358,000 923,712 Schedules of Investments 27 Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- Alps Electric Co. Ltd. 179,000 $ 2,237,500 Amada Co. Ltd. 179,000 851,950 Anritsu Corp. 179,000 1,134,448 Asahi Breweries Ltd. 358,000 2,974,371 Asahi Glass Co. Ltd. 537,000 3,273,283 Asahi Kasei Corp. 895,000 2,690,370 Avex Inc. 17,900 396,084 Bank of Fukuoka Ltd. 358,000 1,494,650 Bank of Yokohama Ltd. 716,000 3,001,257 Bellsystem24 Inc. 3,580 911,740 Benesse Corp. 35,800 630,746 Bridgestone Corp. 537,000 7,577,929 Canon Inc. 537,000 18,204,891 Capcom Co. Ltd. 17,900 472,311 Central Japan Railway Co. 716 4,310,588 Chiba Bank Ltd. (The) 537,000 1,784,612 Chubu Electric Power Co. Inc. 393,800 7,102,616 Chugai Pharmaceutical Co. Ltd. 179,000 1,717,362 Citizen Watch Co. Ltd. 179,000 1,195,720 Coca Cola West Japan Co. Ltd. 35,800 648,682 Credit Saison Co. Ltd. 89,500 2,099,992 CSK Corp. 53,700 1,668,035 Dai Nippon Printing Co. Ltd. 358,000 4,059,469 Daicel Chemical Industries Ltd. 179,000 527,620 Daiei Inc. (The)/1/ 179,000 331,812 Daiichi Pharmaceutical Co. Ltd. 179,000 2,975,857 Daikin Industries Ltd. 179,000 3,497,499 Daimaru Inc. (The) 179,000 747,325 Dainippon Ink & Chemical Inc./1/ 537,000 1,026,851 Dainippon Screen Manufacturing Co. Ltd./1/ 179,000 892,315 Daito Trust Construction Co. Ltd. 71,600 1,428,893 Daiwa Bank Holdings Inc./1/ 2,864,000 2,176,354 Daiwa House Industry Co. Ltd. 358,000 2,185,196 Daiwa Securities Group Inc. 895,000 4,805,344 Denso Corp. 358,000 5,598,977 Dowa Mining Co. Ltd. 179,000 775,732 East Japan Railway Co. 1,969 9,207,081 Ebara Corporation 179,000 804,122 Eisai Co. Ltd. 179,000 4,312,074 FamilyMart Co. Ltd. 35,800 801,136 Fanuc Ltd. 71,600 3,138,779 Fast Retailing Co. Ltd. 53,700 1,412,450 Fuji Electric Co. Ltd. 358,000 866,897 Fuji Machine Mfg. Co. Ltd. 35,800 490,249 Fuji Photo Film Co. Ltd. 358,000 11,090,339 Fuji Soft ABC Inc. 17,900 650,175 Fuji Television Network Inc. 179 1,026,829 Fujikura Ltd. 179,000 590,396 Fujisawa Pharmaceutical Co. Ltd. 179,000 3,766,536 Fujitsu Ltd. 1,253,000 7,292,460 Gunma Bank Ltd. 179,000 772,743 Heavy Industries Co. Ltd. 895,000 1,255,506 Hino Motors Ltd. 179,000 467,834 Hirose Electric Co. Ltd. 17,900 1,358,642 Hitachi Cable Ltd. 179,000 681,560 Hitachi Ltd. 1,611,000 9,281,776 Hitachi Software Engineering Co. Ltd. 17,900 593,378 Hitachi Zosen Corp./1/ 716,000 370,673 Hokuriku Bank Ltd. (The)/1/ 358,000 442,416 Honda Motor Co. Ltd. 411,700 17,119,803 Hoya Corp. 71,600 4,543,757 Isetan Co. Ltd. 179,000 1,588,822 Ito En Ltd. 17,900 666,616 Itochu Corp. 895,000 2,727,781 Itochu Techno-Science Corp. 35,800 1,410,957 Ito-Yokado Co. Ltd. 179,000 8,235,557 Japan Airlines Co. Ltd./1/ 358,000 956,576 Japan Energy Corp. 716,000 998,462 Japan Tobacco Inc. 537 3,501,979 JGC Corp. 179,000 1,165,827 Joyo Bank Ltd. 537,000 1,421,439 JSR Corp. 179,000 1,345,185 Kajima Corp. 537,000 1,596,286 Kamigumi Co. Ltd. 179,000 733,882 Kanebo Ltd./1/ 358,000 603,839 Kaneka Corp. 179,000 1,125,480 Kansai Electric Power Co. Inc. 465,400 7,138,771 28 2002 iShares Annual Report to Shareholders Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- Kao Corp. 358,000 $ 8,071,146 Kawasaki Heavy Industries Ltd./1/ 895,000 1,016,362 Kawasaki Kisen Kaisha Ltd. 537,000 712,975 Kawasaki Steel Corp./1/ 1,790,000 2,167,332 Keihin Electric Express Railway Co. Ltd. 179,000 817,582 Keio Electric Railway Co. Ltd. 358,000 1,793,580 Keyence Corp. 17,900 3,358,493 Kikkoman Corp. 179,000 1,143,416 Kinden Corp. 179,000 799,647 Kinki Nippon Railway Co. Ltd./1/ 1,074,000 3,228,444 Kirin Brewery Co. Ltd. 537,000 3,542,320 Komatsu Ltd. 537,000 1,784,612 Konami Company Ltd. 53,700 1,085,121 Konica Corp. 179,000 1,082,127 Kubota Corp. 716,000 2,170,268 Kuraray Co. Ltd. 179,000 1,201,699 Kyocera Corp. 107,400 7,246,095 Kyowa Hakko Kogyo Co. Ltd. 179,000 922,208 Kyushu Electric Power Co. Inc. 250,600 3,640,992 Lawson Inc. 53,700 1,502,129 Mabuchi Motor Co. Ltd. 17,900 1,666,542 Marubeni Corp./1/ 895,000 949,147 Marui Co. Ltd. 179,000 2,061,131 Matsushita Communication Industrial Co. Ltd. 53,700 1,914,652 Matsushita Electric Industrial Co. Ltd. 1,253,000 15,557,874 Matsushita Electric Works Ltd. 358,000 2,209,111 Meiji Dairies Corp. 179,000 479,792 Meiji Seika Inc. 179,000 590,396 Meitec Corp. 35,800 1,070,173 Millea Holdings Inc./1/ 1,074 8,429,860 Minebea Co. Ltd. 179,000 959,565 Mitsubishi Chemical Corp./1/ 1,074,000 2,116,424 Mitsubishi Corp. 716,000 4,430,178 Mitsubishi Electric Corp./1/ 1,074,000 4,107,298 Mitsubishi Estate Co. Ltd. 537,000 4,282,199 Mitsubishi Gas Chemical Co. Inc. 179,000 301,919 Mitsubishi Heavy Industries Ltd. 1,969,000 5,277,708 Mitsubishi Materials Corp./1/ 716,000 1,201,734 Mitsubishi Rayon Co. 358,000 1,061,219 Mitsubishi Tokyo Financial Group Inc. 2,506 16,991,249 Mitsui & Co. Ltd. 895,000 4,842,666 Mitsui Chemicals Inc. 366,000 1,717,528 Mitsui Engineering & Shipbuilding Co. Ltd./1/ 537,000 605,360 Mitsui Fudosan Co. Ltd. 537,000 4,201,488 Mitsui Mining & Smelting Co. 537,000 1,596,286 Mitsui O.S.K. Lines Ltd. 537,000 1,098,595 Mitsui Sumitomo Insurance Co. Ltd. 726,160 3,480,412 Mitsui Trust Holdings Inc. 537,000 1,277,953 Mitsukoshi Ltd. 179,000 517,149 Mizuho Holdings Inc. 4,296 10,187,575 Murata Manufacturing Co. Ltd. 161,100 8,407,438 Namco Ltd. 35,800 592,483 NEC Corp. 1,074,000 6,412,102 Net One Systems Co. Ltd. 179 995,441 NGK Insulators Ltd. 179,000 1,315,292 Nichirei Corp. 179,000 554,524 Nidec Corp. 17,900 1,046,259 Nikko Cordial Corp. 895,000 3,781,464 Nikon Corp. 179,000 1,657,576 Nintendo Co. Ltd. 71,600 8,967,936 Nippon Express Co. Ltd. 537,000 2,690,370 Nippon Meat Packers Inc. 179,000 2,167,242 Nippon Mitsubishi Oil Corp. 895,000 3,998,233 Nippon Sanso Corp. 179,000 581,428 Nippon Sheet Glass Co. Ltd. 179,000 526,117 Nippon Steel Corp. 3,938,000 5,688,835 Nippon System Development Co. Ltd. 17,900 570,958 Nippon Telegraph & Telephone Corp. 3,580 14,647,629 Nippon Unipac Holding 537 2,829,384 Nippon Yusen Kabushiki Kaisha 716,000 2,301,797 Schedules of Investments 29 Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- Nishimatsu Construction Co. Ltd. 179,000 $ 538,074 Nissan Chemical Industries Ltd. 179,000 899,779 Nissan Motor Co. Ltd. 1,611,000 11,272,650 Nisshin Seifun Group Inc. 179,000 1,330,238 Nissin Food Products Co. Ltd. 53,700 1,067,185 Nitto Denko Corp. 89,500 2,555,860 NKK Corp./1/ 2,327,000 2,118,035 Nomura Holdings Inc. 1,253,000 16,750,605 NSK Ltd. 358,000 1,276,449 NTT Data Corp. 895 3,542,335 NTT DoCoMo Inc. 11,824 26,361,122 Obayashi Corp. 537,000 1,457,311 Oji Paper Co. Ltd. 537,000 2,614,170 Oki Electric Industry Co. Ltd./1/ 358,000 675,582 Okumura Corp. 179,000 573,946 Olympus Optical Co. Ltd. 179,000 2,366,040 Omron Corp. 179,000 2,579,784 Oriental Land Co. Ltd. 35,800 2,505,044 ORIX Corp. 53,700 3,708,243 Osaka Gas Co. Ltd. 1,432,000 3,360,045 Pioneer Corp. 90,500 1,549,143 Promise Co. Ltd. 53,700 2,466,183 Ricoh Co. Ltd. 537,000 8,788,596 Rohm Co. Ltd. 71,600 9,374,481 SAIZERIYA Co. Ltd. 18,230 517,552 Sankyo Co. Ltd. 179,000 2,301,779 Sanyo Electric Co. Ltd. 1,074,000 4,510,907 Sapporo Breweries Ltd. 179,000 448,395 Secom Co. Ltd. 89,500 4,274,717 Sega Enterprises Ltd./1/ 53,700 1,174,800 Seino Transportation Co. Ltd. 179,000 1,095,587 Seiyu Ltd. (The)/1/ 179,000 539,578 Sekisui Chemical Co. Ltd. 358,000 1,156,877 Sekisui House Ltd. 358,000 2,735,227 Seven-Eleven Japan Co. Ltd. 358,000 13,451,922 Seventy Seven Bank Ltd. 179,000 642,699 Sharp Corp. 537,000 6,573,471 Shimamura Co. Ltd. 17,900 1,309,319 Shimano Inc. 53,700 771,245 Shimizu Corp. 358,000 1,204,706 Shin-Etsu Chemical Co. Ltd. 232,700 8,083,090 Shionogi & Co. Ltd. 179,000 1,802,548 Shiseido Co. Ltd. 179,000 2,322,704 Shizuoka Bank Ltd. 537,000 3,407,802 Showa Denko K.K./1/ 716,000 1,076,148 Showa Shell Sekiyu K.K. 179,000 973,026 SMC Corp. 35,800 3,664,896 Softbank Corp. 143,200 1,614,222 Sony Corp. 572,800 25,875,495 Stanley Electric Co. Ltd. 179,000 1,875,795 Sumitomo Chemical Co. Ltd. 716,000 2,863,785 Sumitomo Corp. 358,000 1,928,116 Sumitomo Electric Industries Ltd. 358,000 2,259,911 Sumitomo Forestry Co. Ltd. 179,000 1,126,966 Sumitomo Metal Industries Ltd./1/ 2,506,000 1,088,105 Sumitomo Metal Mining Co. Ltd. 358,000 1,542,479 Sumitomo Mitsui Banking Corp. 2,685,000 14,214,121 Sumitomo Osaka Cement Co. Ltd. 358,000 511,188 Sumitomo Realty & Development Co. Ltd. 179,000 1,112,020 Sumitomo Trust & Banking Co. Ltd. (The) 537,000 2,537,916 Suruga Bank Ltd. (The) 179,000 874,379 Suzuken Co. Ltd. 35,800 777,222 Taiheiyo Cement Corp. 537,000 1,013,373 Taisei Corp. 537,000 1,120,988 Taisho Pharmaceutical Co. Ltd. 179,000 2,735,227 Taiyo Yuden Co. Ltd. 179,000 2,609,677 Takara Shuzo Co. Ltd. 179,000 1,125,480 Takashimaya Co. Ltd. 179,000 993,951 Takeda Chemical Industries Ltd. 537,000 22,330,178 Takefuji Corp. 71,600 4,770,944 TDK Corp. 71,600 3,228,458 Teijin Ltd. 537,000 1,842,930 30 2002 iShares Annual Report to Shareholders Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- Teikoku Oil Co. Ltd. 179,000 $ 663,625 Terumo Corp. 107,400 1,340,706 THK Co. Ltd. 53,700 914,731 Tobu Railway Co. Ltd. 537,000 1,439,375 Toda Corp. 179,000 325,834 Toho Co. Ltd. 179,000 1,992,377 Tohoku Electric Power Co. Inc. 286,400 3,969,819 Tokyo Electric Power Co. Inc. (The) 805,500 16,377,668 Tokyo Electron Ltd. 125,300 6,413,568 Tokyo Gas Co. Ltd. 1,790,000 4,633,415 Tokyu Corp. 716,000 2,726,242 TonenGeneral Sekiyu K.K. 358,000 2,101,496 Toppan Printing Co. Ltd. 358,000 3,141,772 Toray Industries Inc. 716,000 1,817,494 Toshiba Corp./1/ 1,790,000 6,725,925 Tosoh Corporation 358,000 1,100,062 Tostem Corp. 179,480 2,818,985 Toto Ltd. 179,000 787,690 Toyo Information Systems 17,900 423,734 Toyo Seikan Kaisha Ltd. 179,000 2,055,153 Toyobo Co. Ltd. 358,000 561,988 Toyoda Gosei Co. Ltd. 35,800 415,813 Toyota Industries Corporation 71,600 1,082,134 Toyota Motor Corp. 1,557,300 37,254,976 Trans Cosmos Inc. 35,800 747,329 Trend Micro Inc./1/ 89,500 2,241,984 Ube Industries Ltd./1/ 537,000 762,272 Ushio Inc. 179,000 1,887,752 West Japan Railway Company 537 2,053,657 World Co. Ltd. 17,900 484,268 Yakult Honsha Co. Ltd. 179,000 1,926,613 Yamada Denki Co. Ltd. 17,900 1,240,565 Yamaha Corp. 179,000 1,650,094 Yamanouchi Pharmaceutical Co. Ltd. 179,000 4,483,968 Yamato Transport Co. Ltd. 179,000 3,153,729 Yasuda Fire & Marine Insurance Co. Ltd. (The) 537,000 3,206,051 Yokogawa Electric Corp. 179,000 1,307,828 857,134,558 LUXEMBOURG - 0.07% Arcelor/1/ 218,380 2,761,874 2,761,874 NETHERLANDS - 5.55% ABN AMRO Holding NV 907,888 12,906,263 Aegon NV 636,703 8,851,445 Akzo Nobel NV 183,654 6,516,117 ASM Lithography Holding NV/1/ 291,233 3,569,031 Burhmann NV 89,500 640,543 Elsevier NV 450,185 5,539,031 Getronics NV/1/ 378,943 534,992 Hagemeyer NV 78,044 793,450 Heineken NV 156,983 6,425,534 IHC Caland NV 30,609 1,605,473 ING Groep NV 1,169,228 25,333,312 Koninklijke Ahold NV 388,967 6,505,668 Koninklijke Numico NV 105,252 1,955,414 Koninklijke (Royal) KPN NV/1/ 1,241,365 5,817,409 Koninklijke Vendex KBB NV 62,471 597,148 Oce NV 90,753 1,010,743 Philips Electronics NV 883,723 20,013,763 Royal Dutch Petroleum Co. 1,489,459 68,047,871 TNT Post Group NV 242,545 4,489,459 Unilever NV - CVA 399,170 22,580,488 Vedior NV 86,636 992,918 VNU NV 154,835 3,508,081 Wolters Kluwer NV - CVA 196,721 3,006,743 211,240,896 PORTUGAL - 0.37% Banco Comercial Portugues SA "R" 1,528,839 4,436,691 Electricidade de Portugal SA 1,154,192 2,025,492 Portugal Telecom SA 815,524 4,957,081 PT Multimedia Servicos de Telecomunicacoes e media, SGPS, SA/1/ 211,578 1,478,973 Sonae SGPS SA/1/ 2,482,730 1,265,696 14,163,933 Schedules of Investments 31 Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- SINGAPORE - 0.88% Capitaland Ltd. 537,000 $ 466,223 Chartered Semiconductor Manufacturing Ltd./1/ 716,000 1,186,412 City Developments Ltd. 179,000 594,226 Creative Technology Ltd. 98,450 949,747 Datacraft Asia Ltd. 537,000 644,400 DBS Group Holdings Ltd. 716,000 4,875,745 Fraser & Neave Ltd. 38,700 171,298 Keppel Corp. Ltd. 358,000 906,062 Neptune Orient Lines Ltd./1/ 895,000 429,153 Oversea-Chinese Banking Corp Ltd. - Ordinary Shares 716,000 4,631,947 SembCorp Industries Ltd. 716,000 568,862 Singapore Airlines Ltd. 358,000 2,539,437 Singapore Press Holdings Ltd. 179,000 1,879,178 Singapore Technologies Engineering Ltd. 1,074,000 1,157,987 Singapore Telecommunications Ltd. 4,296,000 3,364,198 United Overseas Bank Ltd. 1,074,000 7,862,110 Venture Manufacturing Ltd. 179,000 1,198,620 33,425,605 SPAIN - 2.94% Acciona SA 22,375 877,451 Acerinox SA 23,986 981,781 Altadis SA 193,321 3,828,510 Amadeus Global Travel Distribution SA "A" 176,325 959,420 Banco Bilbao Vizcaya SA 2,153,730 20,376,009 Banco Santander Central Hispano SA 3,015,255 18,564,623 Endesa SA 643,147 7,162,921 Gas Natural SDG SA 151,981 2,585,166 Grupo Dragados SA 94,154 1,527,696 Iberdrola SA 520,534 6,205,598 Inditex 150,718 2,955,248 Promotora de Informaciones SA 121,362 1,142,235 Repsol YPF SA 826,085 10,050,728 Telefonica Publicidad e Informacion SA 404,898 1,444,919 Telefonica SA/1/ 3,232,211 28,519,414 Terra Networks SA/1/ 301,794 1,801,891 Union Electrica Fenosa SA 153,045 2,004,583 Zeltia SA - Rights 116,171 782,447 111,770,640 SWEDEN - 1.95% ASSA Abloy AB "B" 214,800 2,484,892 Atlas Copco AB "A" 89,500 1,891,896 Atlas Copco AB "B" 53,700 1,115,376 Drott AB "B" 125,300 1,337,502 Electrolux AB "B" 250,600 4,625,274 Gambro AB "A" 143,200 749,981 Gambro AB "B" 107,400 570,391 Hennes & Mauritz AB "B" 331,150 6,077,132 Hoganas AB "B" 35,800 677,694 Holmen AB "B" 55,669 1,170,908 Modern Times Group AB "B"/1/ 35,800 338,847 Nobel Biocare AB2 500 29,710 Nordea AB 1,512,550 6,680,933 Sandvik AB 179,000 4,103,826 Sapa AB 71,600 1,302,683 Securitas AB "B" 214,800 3,761,212 Skandia Forsakrings AB 430,674 1,186,679 Skandinaviska Enskilda Banken AB "A" 358,000 3,200,234 Skanska AB "B" 322,200 1,914,480 SKF AB "B" 53,700 1,406,215 SSAB Svenskt Stal AB "A" 107,400 1,214,200 SSAB Svenskt Stal AB "B" 107,400 1,140,792 Svenska Cellulosa AB "B" 161,100 5,387,683 Svenska Handelsbanken AB "A" 429,600 5,783,017 Svenska Handelsbanken AB "B" 71,600 929,948 Swedish Match AB 376,079 2,847,670 Telefonaktiebolaget LM Ericsson AB "B"/1/ 4,654,000 4,698,678 Telia AB 324,706 904,923 32 2002 iShares Annual Report to Shareholders Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- Trelleborg AB "B" 143,200 $ 1,332,805 Volvo AB "A" 107,400 1,874,957 Volvo AB "B" 179,000 3,284,936 74,025,474 SWITZERLAND - 7.98% ABB Ltd./1/ 808,006 4,318,388 Adecco SA 74,643 3,394,928 Ciba Specialty Chemicals AG 47,077 3,256,222 Clariant AG - Registered 93,975 1,794,650 Compagnie Financiere Richemont AG 343,143 6,321,483 Credit Suisse Group/1/ 715,284 17,135,129 Forbo Holding AG 3,580 1,087,118 Gebruder Sulzer AG/1/ 3,222 615,309 Georg Fischer AG 3,580 603,954 Givaudan SA - Registered 5,549 2,227,988 Holcim Ltd. "B" 21,480 4,131,049 Kuoni Reisen Holding AG/1/ 3,401 750,474 Logitech International SA/1/ 24,523 1,009,450 Lonza AG 28,640 1,845,685 Nestle SA 263,309 56,592,161 Nobel Biocare Holding AG/1/ 17,400 935,081 Novartis AG 1,862,495 75,849,550 PubliGroupe SA/1/ 1,790 334,591 Roche Holding AG - Bearer 35,979 3,981,749 Roche Holding AG - Genusschein 489,028 34,815,077 Serono SA 4,654 2,433,936 SGS Societe Generale de Surveillance Holding SA 5,191 1,464,227 Sulzer Medica AG/1/ 5,728 711,217 Swatch Group (The) AG "B" 26,850 2,269,359 Swatch Group (The) AG - Registered 93,080 1,633,089 Swiss Re 189,740 15,876,760 Swisscom AG 17,363 5,055,762 Syngenta AG 72,495 3,698,376 Synthes-Stratec Inc. 3,580 1,920,575 Tecan AG 10,740 318,888 UBS AG - Registered/1/ 881,933 38,862,466 Unaxis Holding AG "R" 8,413 834,544 Valora Holding AG 3,580 688,508 Zurich Financial Services AG 60,502 6,614,024 303,381,767 UNITED KINGDOM - 27.35% Aegis Group PLC 669,818 839,751 Aggreko PLC 157,162 385,471 Airtours PLC 397,380 906,344 AMEC PLC 181,506 878,997 Amey PLC 220,528 400,280 Arm Holdings PLC/1/ 792,433 1,826,003 Associated British Ports Holdings PLC 204,239 1,260,298 AstraZeneca PLC 1,193,751 42,705,845 Aviva PLC 1,568,756 10,415,599 AWG PLC/1/ 190,456 1,438,571 BAA PLC 727,814 5,679,278 BAE Systems PLC 1,926,040 8,966,487 Balfour Beatty PLC 329,718 983,813 Barclays PLC 4,519,034 34,521,805 Barratt Developments PLC 185,265 1,030,351 Bass PLC 607,884 5,821,280 BBA Group PLC 281,746 1,043,136 Berkeley Group (The) PLC 103,283 958,415 BG Group PLC 2,451,763 10,159,616 BHP Billiton PLC 1,543,247 7,304,958 BOC Group PLC 324,169 4,542,580 Boots Co. PLC 601,798 5,274,158 BP PLC 15,248,294 118,390,804 BPB Industries PLC 361,222 1,608,269 Brambles Industries PLC 498,336 1,969,623 British Airways PLC/1/ 560,449 1,400,842 British American Tobacco PLC 1,162,068 13,052,696 British Land Co. PLC 383,418 3,282,403 British Sky Broadcasting Group PLC/1/ 802,099 7,505,722 BT Group PLC 5,897,692 18,564,755 BTG PLC/1/ 179,179 660,597 Bunzl PLC 358,716 2,521,738 Schedules of Investments 33 Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- Cable & Wireless PLC 1,906,529 $ 5,167,456 Cadbury Schweppes PLC 1,407,477 9,751,564 Canary Wharf Finance PLC/1/ 438,908 2,883,231 Capita Group PLC 462,894 2,118,805 Carlton Communications PLC 550,962 1,549,305 Celltech Group PLC/1/ 194,752 1,216,966 Centrica PLC 2,812,448 7,139,681 Chubb PLC 580,855 1,197,781 Close Brothers Group PLC 92,901 667,605 CMG PLC 710,451 826,823 Compass Group PLC 1,555,510 7,666,798 Corus Group PLC/1/ 2,436,369 2,283,609 Daily Mail and General Trust PLC "A" 228,225 1,960,932 De La Rue PLC 138,188 647,632 Diageo PLC 2,341,499 28,385,290 Dixons Group PLC 1,353,240 3,451,168 Electrocomponents PLC 309,133 1,516,390 EMI Group PLC 741,597 2,557,471 Exel PLC 157,341 1,850,865 FirstGroup PLC 341,890 1,271,181 FKI PLC 419,039 720,077 George Wimpey PLC 357,284 1,381,439 GKN PLC 498,336 2,100,038 GlaxoSmithKline PLC 4,270,045 82,916,588 Granada Compass PLC 2,179,146 3,242,569 Great Portland Estates PLC 146,601 531,326 Great Universal Stores PLC 698,100 5,305,630 Hammerson PLC 199,585 1,728,207 Hanson PLC 535,747 3,280,861 Hays PLC 1,251,926 2,513,116 HBOS PLC 2,569,903 28,906,012 Hilton Group PLC 1,101,208 3,388,968 HSBC Holdings PLC 6,331,409 72,698,504 IMI PLC 292,307 1,292,289 Imperial Chemical Industries PLC 733,900 3,445,220 Imperial Tobacco Group PLC 379,122 5,804,206 International Power PLC/1/ 798,877 1,475,765 Invensys PLC 2,439,591 2,563,034 J Sainsbury PLC 882,649 4,398,593 Johnson Matthey PLC 169,155 2,333,375 Kelda Group PLC 284,610 1,702,907 Kidde PLC 491,713 522,347 Kingfisher PLC 861,712 2,604,869 Kingfisher PLC - Rights/1/ 861,712 494,709 Land Securities PLC 379,659 4,863,470 Lattice Group PLC 2,446,930 6,288,121 Legal & General Group PLC 3,620,633 6,603,673 Lloyds TSB Group PLC 3,780,659 37,769,918 Logica PLC 426,557 1,359,395 Man Group PLC 188,308 3,121,205 Marks & Spencer Group PLC 1,587,557 8,432,309 Misys PLC 511,403 1,885,441 National Grid Group PLC 1,026,386 7,083,090 Next PLC 235,743 3,180,102 Novar PLC 428,168 862,844 Nycomed Amersham PLC "A" 432,106 3,651,944 P&O Princess Cruises PLC 493,503 3,376,794 Peninsular & Oriental Steam Navigation Co. PLC 572,263 1,913,132 Pilkington PLC 896,969 1,092,957 Provident Financial PLC 162,353 1,476,113 Prudential Corp. PLC 1,392,262 10,690,066 Rank Group PLC 385,566 1,421,505 Reckitt Benckiser PLC 379,122 6,455,727 Reed International PLC 885,334 7,606,878 Rentokil Initial PLC 1,306,521 4,740,319 Rexam PLC 321,842 2,071,472 Rio Tinto PLC 704,544 12,107,095 RMC Group PLC 204,597 1,700,385 Rolls Royce PLC 853,114 1,949,110 Royal Bank of Scotland Group PLC 1,871,813 49,125,919 Safeway PLC 721,012 2,683,607 Sage Group PLC 905,919 1,889,294 Scottish & Southern Energy PLC 617,550 6,222,557 Scottish Newcastle Breweries PLC 488,491 4,410,878 Scottish Power PLC 1,309,385 7,159,324 Securicor PLC 461,104 633,880 34 2002 iShares Annual Report to Shareholders Schedule of Investments (Continued) iShares MSCI EAFE Index Fund July 31, 2002 Security Shares Value ---------------------------------------------------------------------- Serco Group PLC 407,404 $ 1,050,125 Severn Trent PLC 251,316 2,442,012 Shell Transport & Trading Co. PLC 6,719,660 45,768,948 Signet Group PLC 1,016,720 1,290,523 Slough Estates PLC 288,011 1,475,048 Smith & Nephew PLC 646,906 3,395,610 Smiths Group PLC 379,480 4,594,402 Spirent PLC 834,856 978,201 SSL International PLC 122,973 566,721 Stagecoach Holdings PLC 896,432 493,665 Tate & Lyle PLC 319,694 1,573,214 Taylor Woodrow PLC 490,102 1,179,087 Tesco PLC 4,780,374 16,335,972 3i Group PLC 462,357 4,229,041 Unilever PLC 2,036,304 17,893,818 United Business Media PLC 334,551 1,609,726 United Utilities PLC 386,103 3,480,294 Vodafone Group PLC 46,863,990 71,013,004 Whitebread PLC 225,361 1,830,720 Wolseley PLC 409,373 3,664,461 WPP Group PLC 749,115 5,675,820 1,040,130,623 UNITED STATES - 0.01% Gen-Probe Inc./1,2/ 15,394 346,673 346,673 TOTAL COMMON STOCKS AND RIGHTS (Cost: $4,312,928,823) 3,772,168,732 PREFERRED STOCKS - 0.40% AUSTRALIA - 0.17% News Corp. Ltd. 1,510,581 6,429,637 6,429,637 GERMANY - 0.19% Fresenius Medical Care AG 17,900 451,712 MAN AG 34,202 556,621 Porsche AG 5,370 2,346,269 Prosieben Satellite Media AG 89,679 764,908 Volkswagen AG 71,600 2,359,993 Wella AG 17,900 759,171 7,238,674 ITALY - 0.04% Fiat SpA 62,650 394,939 Fiat SpA - RNC 44,750 288,682 IntesaBci SpA - RNC 581,750 963,902 1,647,523 TOTAL PREFERRED STOCKS (Cost: $19,479,338) 15,315,834 SHORT TERM INSTRUMENTS - 3.08% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 101,379,986 101,379,986 Dreyfus Money Market Fund 14,868,044 14,868,044 Goldman Sachs Financial Square Prime Obligation Fund 64,069 64,069 Providian Temp Cash Money Market Fund 670,432 670,432 TOTAL SHORT TERM INSTRUMENTS (Cost: $116,982,531) 116,982,531 TOTAL INVESTMENTS IN SECURITIES - 102.66% (Cost $4,449,390,692) 3,904,467,097 Other Assets, Less Liabilities - (2.66%) (101,028,977) -------------- NET ASSETS - 100.00% $3,803,438,120 ============== /1/ Non-income earning securities. /2/ Security valued at fair value in accordance with procedures approved by the Board of Trustees (Note 1). See notes to financial statements. Schedules of Investments 35 Statements of Assets and Liabilities iShares Trust July 31, 2002
iShares Goldman Sachs iShares MSCI ----------------------------------------------------------------------- ---------------- Technology Networking Semiconductor Software Natural Resources EAFE Index Fund Index Fund Index Fund Index Fund Index Fund Index Fund -------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments at cost $47,068,001 $59,929,108 $99,600,244 $61,250,931 $ 26,060,814 $ 4,449,390,692 ----------- ----------- ----------- ----------- ----------------- ---------------- Foreign currency, at cost $ - $ - $ - $ - $ - $ 10,918,001 ----------- ----------- ----------- ----------- ----------------- ---------------- Investments in securities, at value (including securities on loan/1/) (Note 1) $22,489,219 $26,727,831 $70,951,100 $40,957,104 $ 22,774,020 $ 3,904,467,097 Foreign currency, at value - - - - - 10,861,347 Receivables: Investment securities sold - 60,030 175,895 - - - Dividends and interest 2,017 947 11,729 1,094 14,386 5,423,844 ----------- ----------- ----------- ----------- ----------------- ---------------- Total Assets 22,491,236 26,788,808 71,138,724 40,958,198 22,788,406 3,920,752,288 ----------- ----------- ----------- ----------- ----------------- ---------------- LIABILITIES Payables: Collateral for securities on loan (Note 5) 1,271,968 2,539,429 6,565,208 3,155,209 1,952,152 115,032,377 Advisory fees (Note 2) 24,808 30,552 51,958 33,804 19,004 2,281,791 ----------- ----------- ----------- ----------- ----------------- ---------------- Total Liabilities 1,296,776 2,569,981 6,617,166 3,189,013 1,971,156 117,314,168 ----------- ----------- ----------- ----------- ----------------- ---------------- NET ASSETS $21,194,460 $24,218,827 $64,521,558 $37,769,185 $ 20,817,250 $ 3,803,438,120 =========== =========== =========== =========== ================= ================ Net assets consist of: Paid-in capital $47,995,789 $65,687,628 $94,793,857 $60,159,767 $ 24,464,242 $ 4,348,991,970 Undistributed net investment income - - - - 5,672 25,519,748 Undistributed net realized loss) (2,222,547) (8,267,524) (1,623,155) (2,096,755) (365,870) (26,213,214 Net unrealized depreciation) (24,578,782) (33,201,277) (28,649,144) (20,293,827) (3,286,794) (544,860,384 ----------- ----------- ----------- ----------- ----------------- ---------------- NET ASSETS $21,194,460 $24,218,827 $64,521,558 $37,769,185 $ 20,817,250 $ 3,803,438,120 =========== =========== =========== =========== ================= ================ iShares outstanding 700,000 1,850,000 1,550,000 1,600,000 250,000 35,800,000 =========== =========== =========== =========== ================= ================ Net asset value per iShare $ 30.28 $ 13.09 $ 41.63 $ 23.61 $ 83.27 $ 106.24 =========== =========== =========== =========== ================= ================
/1/ Securities on loan with market values of $1,192,217, $2,313,702, $6,202,001, $3,042,594, $1,884,798 and $106,611,776, respectively. See Note 5. See notes to finanical statements. 36 2002 iShares Annual Report to Shareholders Statements of Operations iShares Trust Year Ended July 31, 2002
iShares Goldman Sachs iShares MSCI -------------------------------------------------------------------------------------------- Technology Networking Semiconductor Software Natural Resources EAFE Index Fund Index Fund Index Fund Index Fund Index Fund/2/ Index Fund/3/ ---------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME Dividends/1/ $ 103,741 $ 49,675 $ 70,407 $ 15,470 $ 388,185 $ 29,308,064 Interest 1,583 339 830 320 415 25,652 Securities lending income 8,409 5,217 5,049 3,917 2,674 894,191 ------------ ------------ ------------ ------------ ----------------- ----------------- Total investment income 113,733 55,231 76,286 19,707 391,274 30,227,907 ------------ ------------ ------------ ------------ ----------------- ----------------- EXPENSES (NOTE 2) Advisory fees 285,562 175,097 185,482 129,710 97,214 4,766,573 ------------ ------------ ------------ ------------ ----------------- ----------------- Total expenses 285,562 175,097 185,482 129,710 97,214 4,766,573 ------------ ------------ ------------ ------------ ----------------- ----------------- Net investment income (loss) (171,829) (119,866) (109,196) (110,003) 294,060 25,461,334 ------------ ------------ ------------ ------------ ----------------- ----------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments (2,699,992) (8,451,345) (1,645,602) (2,267,223) (381,256) (26,278,489) In-kind redemptions (7,941,281) (3,584,918) (473,818) (1,177,936) 33,115 5,678,047 Foreign currency transactions - - - - - 1,165,908 ------------ ------------ ------------ ------------ ----------------- ----------------- Net realized loss (10,641,273) (12,036,263) (2,119,420) (3,445,159) (348,141) (19,434,534) ------------ ------------ ------------ ------------ ----------------- ----------------- Net change in unrealized appreciation (depreciation) on: Investments (10,747,261) (33,413,568) (31,018,006) (19,166,307) (3,286,794) (544,923,595) Translation of assets and liabilities in foreign currencies - - - - - 63,211 ------------ ------------ ------------ ------------ ----------------- ----------------- Net change in unrealized appreciation (depreciation) (10,747,261) (33,413,568) (31,018,006) (19,166,307) (3,286,794) (544,860,384) ------------ ------------ ------------ ------------ ----------------- ----------------- Net realized and unrealized loss (21,388,534) (45,449,831) (33,137,426) (22,611,466) (3,634,935) (564,294,918) ------------ ------------ ------------ ------------ ----------------- ----------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(21,560,363) $(45,569,697) $(33,246,622) $(22,721,469) $ (3,340,875) $ (538,833,584) ============ ============ ============ ============ ================= =================
/1/ Net of foreign withholding tax of $105, $--, $951, $--, $15,017 and $4,281,404, respectively. /2/ For the period from October 22, 2001 (commencement of operations) to July 31, 2002. /3/ For the period from August 14, 2001 (commencement of operations) to July 31, 2002. See notes to financial statements. Financial Statements 37 Statements of Changes in Net Assets iShares Trust
iShares iShares iShares Goldman Sachs Goldman Sachs Goldman Sachs Technology Networking Semiconductor Index Fund Index Fund Index Fund -------------------------------- ------------------------------- --------------------------------- For the period For the period For the period For the March 13, 2001/1/ For the July 10, 2001/1/ For the July 10, 2001/1/ year ended to year ended to year ended to July 31, 2002 July 31, 2001 July 31, 2002 July 31, 2001 July 31, 2002 July 31, 2001 ----------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment loss $ (171,829) $ (120,312) $ (119,866) $ (5,292) $ (109,196) $ (5,545) Net realized gain (loss) (10,641,273) 1,437,130 (12,036,263) (20,359) (2,119,420) - Net change in unrealized appreciation (depreciation) (10,747,261) (13,831,521) (33,413,568) 212,291 (31,018,006) 2,368,862 ------------ -------------- ------------- ------------ ----------- -------------- Net increase (decrease) in net assets resulting from operations (21,560,363) (12,514,703) (45,569,697) 186,640 (33,246,622) 2,363,317 ------------ -------------- ------------- ------------ ----------- -------------- iSHARES TRANSACTIONS: iShares sold 69,955,543 135,257,842 57,881,642 24,529,460 76,862,673 30,904,191 iShares redeemed (106,343,169) (43,600,690) (12,809,218) - (12,362,001) - ------------ -------------- ------------- ------------ ----------- -------------- Net increase (decrease) in net assets from iShares transactions (36,387,626) 91,657,152 45,072,424 24,529,460 64,500,672 30,904,191 ------------ -------------- ------------- ------------ ----------- -------------- INCREASE (DECREASE) IN NET ASSETS (57,947,989) 79,142,449 (497,273) 24,716,100 31,254,050 33,267,508 NET ASSETS: Beginning of period 79,142,449 - 24,716,100 - 33,267,508 - ------------ -------------- ------------- ------------ ----------- -------------- End of period $ 21,194,460 $ 79,142,449 $ 24,218,827 $ 24,716,100 $64,521,558 $ 33,267,508 ============ ============== ============= ============ =========== ============== iSHARES ISSUED AND REDEEMED: iShares sold 1,400,000 2,250,000 2,000,000 650,000 1,300,000 450,000 iShares redeemed (2,150,000) (800,000) (800,000) - (200,000) - ------------ -------------- ------------- ------------ ----------- -------------- Net increase (decrease) in iShares outstanding (750,000) 1,450,000 1,200,000 650,000 1,100,000 450,000 ============ ============== ============= ============ =========== ==============
/1/ Commencement of operations. See notes to financial statements. 38 2002 iShares Annual Report to Shareholders Statements of Changes in Net Assets (Continued) iShares Trust
iShares iShares Goldman Sachs Goldman Sachs iShares Software Natural Resources MSCI EAFE Index Fund Index Fund Index Fund ------------------------------- ------------------- ------------------- For the period For the period For the period For the July 10, 2001/1/ October 22, 2001/1/ August 14, 2001/1/ year ended to to to July 31, 2002 July 31, 2001 July 31, 2002 July 31, 2002 ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income (loss) $ (110,003) $ (5,889) $ 294,060 $ 25,461,334 Net realized loss (3,445,159) - (348,141) (19,434,534) Net change in unrealized appreciation (depreciation) (19,166,307) (1,127,520) (3,286,794) (544,860,384) ----------- -------------- ---------------- ---------------- Net decrease in net assets resulting from operations (22,721,469) (1,133,409) (3,340,875) (538,833,584) ----------- -------------- ---------------- ---------------- DISTRIBUTIONS TO iSHAREHOLDERS: From net investment income - - (284,750) (1,107,494) ----------- -------------- ---------------- ---------------- Total distributions to iShareholders - - (284,750) (1,107,494) ----------- -------------- ---------------- ---------------- iSHARES TRANSACTIONS: iShares sold 56,701,205 27,689,151 29,006,526 4,388,752,984 iShares redeemed (22,766,293) - (4,563,651) (45,373,786) ----------- -------------- ---------------- ---------------- Net increase in net assets from iShares transactions 33,934,912 27,689,151 24,442,875 4,343,379,198 ----------- -------------- ---------------- ---------------- INCREASE IN NET ASSETS 11,213,443 26,555,742 20,817,250 3,803,438,120 NET ASSETS: Beginning of period 26,555,742 - - - ----------- -------------- ---------------- ---------------- End of period $37,769,185 $ 26,555,742 $ 20,817,250 $ 3,803,438,120 =========== ============== ================ ================ Undistributed net investment income included in net assets at end of period $ - $ - $ 5,672 $ 25,519,748 =========== ============== ================ ================ iSHARES ISSUED AND REDEEMED: iShares sold 1,600,000 550,000 300,000 36,200,000 iShares redeemed (550,000) - (50,000) (400,000) ----------- -------------- ---------------- ---------------- Net increase in iShares outstanding 1,050,000 550,000 250,000 35,800,000 =========== ============== ================ ================
/1/ Commencement of operations. See notes to financial statements. Financial Statements 39 Financial Highlights iShares Trust (For a share outstanding throughout each period)
iShares iShares Goldman Sachs Goldman Sachs Technology Networking Index Fund Index Fund ---------------------------------- ---------------------------------- Period from Period from Mar. 13, 2001/1/ Jul. 10, 2001/1/ Year ended to Year ended to Jul. 31, 2002 Jul. 31, 2001 Jul. 31, 2002 Jul. 31, 2001 ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 54.58 $ 56.71 $ 38.02 $ 36.32 ------------- ---------------- ------------- --------------- Income from investment operations: Net investment loss (0.25) (0.08) (0.06) (0.01) Net realized and unrealized gain (loss) (24.05) (2.05) (24.87) 1.71 ------------- ---------------- ------------- --------------- Total from investment operations (24.30) (2.13) (24.93) 1.70 ------------- ---------------- ------------- --------------- Net asset value, end of period $ 30.28 $ 54.58 $ 13.09 $ 38.02 ============= ================ ============= =============== Total return (44.52)% (3.76)%/2/ (65.57)% 4.68%/2/ ============= ================ ============= =============== Ratios/Supplemental data: Net assets, end of period (000s) $ 21,194 $ 79,142 $ 24,219 $ 24,716 Ratio of expenses to average net assets/3/ 0.50% 0.50% 0.50% 0.50% Ratio of net investment loss to average net assets/3/ (0.30)% (0.33)% (0.34)% (0.50)% Portfolio turnover rate/4/ 8% 0%/5/ 46% 9% iShares Goldman Sachs Semiconductor Index Fund -------------------------------------- Period from Jul. 10, 2001/1/ Year ended to Jul. 31, 2002 Jul. 31, 2001 ---------------------------------------------------------------------------------- Net asset value, beginning of period $ 73.93 $ 65.65 ------------- --------------- Income from investment operations: Net investment loss (0.07) (0.01) Net realized and unrealized gain (loss) (32.23) 8.29 ------------- --------------- Total from investment operations (32.30) 8.28 ------------- --------------- Net asset value, end of period $ 41.63 $ 73.93 ============= =============== Total return (43.69)% 12.61%/2/ ============= =============== Ratios/Supplemental data: Net assets, end of period (000s) $ 64,522 33,268 Ratio of expenses to average net assets/3/ 0.50% 0.50% Ratio of net investment loss to average net assets/3/ (0.29)% $ (0.38)% Portfolio turnover rate/4/ 8% 0%/5/
/1/ Commencement of operations. /2/ Not annualized. /3/ Annualized for periods of less than one year. /4/ Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. /5/ Rounds to less than 1%. See notes to financial statements. 40 2002 iShares Annual Report to Shareholders Financial Highlights (Continued) iShares Trust (For a share outstanding throughout each period)
iShares iShares Goldman Sachs Goldman Sachs iShares Software Natural Resources MSCI EAFE Index Fund Index Fund Index Fund --------------------------------- ------------------ ------------ Period from Period from Period from Jul. 10, 2001/1/ Oct. 22, 2001/1/ Aug. 14, 2001/1/ Year ended to to to Jul. 31, 2002 Jul. 31, 2001 Jul. 31, 2002 Jul. 31, 2002 ----------------------------------------------------------------------------------------------------------- --------------- Net Asset Value, Beginning of Period $ 48.28 $ 49.12 $ 94.92 $ 127.63 ------------- ------------------ ------------------ ----------- Income From Investment Operations: Net investment income (loss) (0.07) (0.01) 1.10 0.93 Net realized and unrealized loss (24.60) (0.83) (11.69) (22.07) ------------- ------------------ ------------------ ----------- Total from investment operations (24.67) (0.84) (10.59) (21.14) ------------- ------------------ ------------------ ----------- Less distributions From: Net investment income -- -- (1.06) (0.25) ------------- ------------------ ------------------ ----------- Total distributions -- -- (1.06) (0.25) ------------- ------------------ ------------------ ----------- Net asset value, end of period $ 23.61 $ 48.28 $ 83.27 $ 106.24 ============= ================== ================== =========== Total return (51.10)% (1.71)%/2/ (11.29)%/2/ (16.57)%/2/ ============= ================== ================== =========== Ratios/Supplemental data: Net assets, end of period (000s) $ 37,769 $ 26,556 $ 20,817 $ 3,803,438 Ratio of expenses to average net assets/3/ 0.50% 0.50% 0.50% 0.35% Ratio of net investment income (loss) to average net assets/3/ (0.42)% 0.50% 1.51% 1.87% Portfolio turnover rate/4/ 14% 0%/5/ 12% 8%
/1/ Commencement of operations. /2/ Not annualized. /3/ Annualized for periods of less than one year. /4/ Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. /5/ Rounds to less than 1%. See Notes to Financial Statements. Financial Highlights 41 Notes to the Financial Statements iShares Trust 1. SIGNIFICANT ACCOUNTING POLICIES iShares Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Trust was established as a Delaware business trust pursuant to an Agreement and Declaration of Trust dated December 16, 1999. As of July 31, 2002, the Trust offered 59 investment portfolios or funds. These financial statements relate only to the iShares Goldman Sachs Technology, iShares Goldman Sachs Networking, iShares Goldman Sachs Semiconductor, iShares Goldman Sachs Software, iShares Goldman Sachs Natural Resources and the iShares MSCI EAFE Index Funds (each a "Fund", collectively the "Funds"). The investment objective of each Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of its underlying index, as indicated in the name of each Fund. The investment advisor uses a "passive" or index approach to try to achieve each Fund's investment objective. Each of the Funds is classified as a non-diversified fund under the 1940 Act. Non-diversified funds generally hold stocks of fewer companies than diversified funds and may be more susceptible to the risks associated with these particular companies, or to a single economic, political or regulatory occurrence. The iShares MSCI EAFE Index Fund invests in the securities of non-U.S. issuers, that may trade in non-U.S. markets, which may involve certain considerations and risks not typically associated with securities of U.S. issuers. Such risks include, but are not limited to: generally less liquid and less efficient securities markets; generally greater price volatility; exchange rate fluctuations and exchange controls; imposition of restrictions on the expatriation of funds or other assets of the Fund; less publicly available information about issuers; the imposition of withholding or other taxes; higher transaction and custody costs; settlement delays and risk of loss attendant in settlement procedures; difficulties in enforcing contractual obligations; lesser regulation of securities markets; different accounting, disclosure and reporting requirements; more substantial governmental involvement in the economy; higher inflation rates; greater social, economic and political uncertainties; the risk of nationalization or expropriation of assets; and the risk of war. The following significant accounting policies are consistently followed by the Trust in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") for investment companies. The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. Actual results could differ from those estimates. SECURITY VALUATION Equity securities are valued at the last sales price on the primary securities exchange or national securities market on which such securities are traded. Securities not listed on an exchange or national securities market, or securities for which there were no sales prices, are valued at the latest quoted bid prices. U.S. Government obligations are valued at the latest quoted bid price. Debt securities maturing in 60 days or less are valued at amortized cost, which approximates market value. Mutual fund shares are valued at net asset value. Any securities, including restricted securities or other assets for which market quotations are not readily available, or for which a significant event has occurred since the time of the most recent market quotation, are valued in accordance with fair value pricing policies approved by the Board of Trustees of the Trust. SECURITY TRANSACTIONS AND INCOME RECOGNITION Security transactions are accounted for on trade date. Dividend income is recognized on the ex-dividend date, and interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method. 42 2002 iShares Annual Report to Shareholders Notes to the Financial Statements (Continued) iShares Trust FOREIGN CURRENCY TRANSLATION The accounting records of the Funds are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the prevailing rates of exchange on the valuation date. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of such transactions. Each Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of securities. Such fluctuations are reflected by the Funds as a component of realized and unrealized gains and losses from investments for financial reporting purposes. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders from net investment income, if any, are declared and distributed at least annually by each Fund. Distributions of net realized capital gains, if any, generally are declared and distributed once a year. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. At July 31, 2002, the components of distributable earnings on a tax basis were as follows:
--------------------------------------------------------------------------------------------- Undistributed Undistributed Total Distributable iShares Index Fund Ordinary Income Long-term Gain Earnings --------------------------------------------------------------------------------------------- Goldman Sachs Natural Resources $ 4,624 $ -- $ 4,624 MSCI EAFE 25,768,928 -- 25,768,928 ---------------------------------------------------------------------------------------------
For the year ended July 31, 2002, the tax characterization of distributions paid for each Fund was equal to the book characterization of distributions paid. The total distributions and distributions per share are disclosed in the accompanying Statements of Changes in Net Assets and the Financial Highlights for all the Funds. FEDERAL INCOME TAXES Each Fund is treated as a separate entity for federal income tax purposes. It is the policy of each Fund to qualify as a regulated investment company by complying with the provisions applicable to regulated investment companies, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, and to annually distribute substantially all of its net income and any net gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes was required for the year ended July 31, 2002. Notes to the Financial Statements 43 Notes to the Financial Statements (Continued) iShares Trust From November 1, 2001 to July 31, 2002, certain of the Funds incurred net realized capital losses. As permitted by tax regulations, the Funds have elected to defer these losses and treat them as arising in the year ending July 31, 2003. ---------------------------------------------------------- Deferred Net Realized iShares Index Fund Capital Losses ---------------------------------------------------------- Goldman Sachs Technology $ 1,576,624 Goldman Sachs Networking 5,672,626 Goldman Sachs Semiconductor 471,797 Goldman Sachs Software 1,465,820 Goldman Sachs Natural Resources 349,068 MSCI EAFE 25,617,035 ---------------------------------------------------------- The following Funds had tax basis net capital loss carryforwards at July 31, 2002, the tax year end of the Funds: ---------------------------------------------------------- Expiring iShares Index Fund 2010 Total ---------------------------------------------------------- Goldman Sachs Technology $638,692 $638,692 Goldman Sachs Networking 130,370 130,370 Goldman Sachs Semiconductor 175,882 175,882 Goldman Sachs Software 177,253 177,253 MSCI EAFE 55,269 55,269 ---------------------------------------------------------- Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year, or until their respective expiration dates, whichever occurs first. For the year ended July 31, 2002, certain Funds realized net capital gains or losses resulting from in-kind redemptions of large blocks of 50,000 iShares ("Creation Units"). Because such gains or losses are not taxable to the Funds, and are not distributed to existing Fund shareholders, the gains or losses are reclassified from accumulated net realized gains or losses to paid-in-capital at the end of the Funds' tax year end. The in-kind gains or losses for the year ended July 31, 2002 are disclosed in the Funds' Statements of Operations. REPURCHASE AGREEMENTS Each Fund may enter into repurchase agreements with banks and securities dealers. These transactions involve the purchase of securities with a simultaneous commitment to resell the securities to the bank or the dealer at an agreed-upon date and price. A repurchase agreement is accounted for as a loan by the Fund to the seller, collateralized by securities, which are delivered to the Funds' custodian or to an agent bank under a tri-party agreement. The securities are marked-to-market daily and additional securities are acquired as needed, to ensure that their value equals or exceeds the repurchase price plus accrued interest. None of the Funds held repurchase agreements at July 31, 2002. 44 2002 iShares Annual Report to Shareholders Notes to the Financial Statements (Continued) iShares Trust 2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES Pursuant to an Investment Advisory Agreement with the Trust, Barclays Global Fund Advisors ("BGFA") manages the investment of each Fund's assets. BGFA is a California corporation indirectly owned by Barclays Bank PLC. Under the Investment Advisory Agreement, BGFA is responsible for all expenses ("Covered Expenses") of the Trust, including the cost of transfer agency, custody, fund administration, legal, audit and other services, except interest, taxes, brokerage commissions and other expenses connected with the executions of portfolio transactions, distribution fees and extraordinary expenses. Expenses related to the organization and initial registration of the Trust were borne by BGFA. For its investment management services to each Fund, BGFA is entitled to an annual advisory fee based on the average daily net assets of each Fund as follows: ----------------------------------------------- Advisory iShares Index Fund Fee ----------------------------------------------- Goldman Sachs Technology 0.50% Goldman Sachs Networking 0.50 Goldman Sachs Semiconductor 0.50 Goldman Sachs Software 0.50 Goldman Sachs Natural Resources 0.50 MSCI EAFE 0.35 ----------------------------------------------- Investors Bank & Trust Company ("Investors Bank") serves as administrator, custodian, transfer agent and securities lending agent for the Funds. As compensation for its services, Investors Bank receives certain out-of-pocket costs, transaction fees, and asset-based fees, which are accrued daily and paid monthly. These fees are Covered Expenses as defined above. SEI Investments Distribution Company serves as each Fund's underwriter and distributor of the shares of each Fund, pursuant to a Distribution Agreement with the Trust. The distributor will deliver the Prospectus and Statement of Additional Information, if so requested, to persons purchasing Creation Units and will maintain records of both orders placed with it and confirmations of acceptance furnished by it. Barclays Global Investors Services ("BGIS"), a subsidiary of Barclays Global Investors, N.A., may serve as a broker-dealer for the Funds. For the year ended July 31, 2002, BGIS did not receive any brokerage commissions from the Funds. As defined under the Section 2(a)(3) of the 1940 Act, certain broker-dealers may be deemed as "affiliates" of a Fund by virtue of being a DTC Participant that owned of record 5% or more of the outstanding shares of such Fund. For the year ended July 31, 2002, certain of these broker-dealers executed investment transactions with the Funds, and the dollar amounts of any brokerage commissions paid to such broker-dealers were immaterial. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, each Fund may invest in the institutional shares of the Institutional Money Market Fund ("IMMF") of Barclays Global Investors Funds. The IMMF is a feeder fund in a master/feeder fund structure that invests substantially all of its assets in the Money Market Master Portfolio of Master Investment Portfolio, which is managed by BGFA, the Funds' investment advisor. The IMMF is an open-end money market fund available only to institutional investors, including investment companies managed by BGFA. The IMMF seeks a high level of income consistent with liquidity and the preservation of capital. While the IMMF does not directly charge an advisory fee, the master portfolio in which it invests does charge an advisory fee. Income distributions from the IMMF are declared daily and paid monthly from net investment income. Income distributions earned by the Funds Notes to the Financial Statements 45 Notes to the Financial Statements (Continued) iShares Trust from temporary cash investments or from investment of securities lending collateral are recorded as either interest income or securities lending income, respectively, in the accompanying Statements of Operations. Pursuant to Rule 17a-7 of the 1940 Act, certain Funds executed cross trades for the fiscal year ended July 31, 2002. Cross trading is the buying or selling of portfolio securities between funds to which BGFA serves as investment advisor. In management's opinion, all transactions were in compliance with the requirements and restrictions set forth by the Rule 17a-7. As a result of using an index approach to investing, the iShares MSCI EAFE Index Fund held shares of Barclays PLC, with current market value of $34,521,805, as of July 31, 2002. Barclays PLC is an affiliate of BGFA, the Funds' investment advisor. As of July 31, 2002, certain trustees and officers of the Trust are also employees of BGFA and its affiliates or employees of Investors Bank. 3. INVESTMENT PORTFOLIO TRANSACTIONS Purchases and sales of investments (excluding in-kind transactions and short- term securities) for the fiscal year ended July 31, 2002, were as follows: ------------------------------------------------------------------ iShares Index Fund Purchases Sales ------------------------------------------------------------------ Goldman Sachs Technology $ 4,530,021 $ 4,707,830 Goldman Sachs Networking 15,791,500 15,981,630 Goldman Sachs Semiconductor 3,065,055 3,379,824 Goldman Sachs Software 3,576,610 3,693,735 Goldman Sachs Natural Resources 2,785,718 2,784,648 MSCI EAFE 144,604,084 108,521,935 ------------------------------------------------------------------ In-kind transactions for the year ended July 31, 2002, were as follows: ------------------------------------------------------------------ In-kind In-kind iShares Index Fund Purchases Sales ------------------------------------------------------------------ Goldman Sachs Technology $ 69,949,097 $106,345,632 Goldman Sachs Networking 57,893,737 12,809,075 Goldman Sachs Semiconductor 77,370,905 12,830,033 Goldman Sachs Software 56,716,042 22,770,551 Goldman Sachs Natural Resources 28,998,460 4,561,504 MSCI EAFE 4,363,428,373 45,118,591 ------------------------------------------------------------------ 46 2002 iShares Annual Report to Shareholders Notes to the Financial Statements (Continued) iShares Trust At July 31, 2002, the aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
--------------------------------------------------------------------------------------------- Net Tax Unrealized Unrealized Unrealized iShares Index Fund Cost Appreciation Depreciation Depreciation --------------------------------------------------------------------------------------------- Goldman Sachs Technology $ 47,075,232 $ 17,147 $(24,603,160) $(24,586,013) Goldman Sachs Networking 62,393,636 -- (35,665,805) (35,665,805) Goldman Sachs Semiconductor 100,575,720 -- (29,624,620) (29,624,620) Goldman Sachs Software 61,704,613 -- (20,747,509) (20,747,509) Goldman Sachs Natural Resources 26,078,664 531,777 (3,836,421) (3,304,644) MSCI EAFE 4,450,180,782 16,322,200 (562,035,885) (545,713,685) ---------------------------------------------------------------------------------------------
4. iSHARES TRANSACTIONS At July 31, 2002, there were an unlimited number of no par value shares of beneficial interest ("iShares") authorized. iShares are issued and redeemed by each Fund only in Creation Units or multiples thereof. Except when aggregated in Creation Units, iShares are not redeemable. Transactions in iShares for each Fund are disclosed in detail in the Statements of Changes in Net Assets. The consideration for purchase of Creation Units of a Fund generally consists of the in-kind contribution of a designated portfolio of equity securities constituting a substantial replication, or a portfolio sampling representation, of the stocks involved in the relevant Fund's underlying index and an amount of cash. A purchase transaction fee and a redemption transaction fee are charged to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units of iShares. 5. LOANS OF PORTFOLIO SECURITIES Each Fund may lend its investment securities to approved borrowers such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received is required to have a value of at least 102% of the market value of the loaned securities for securities denominated in U.S. dollars and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan. The risks to the Funds of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. As of July 31, 2002, certain of the Funds had loaned securities which were collateralized by cash. The cash collateral received was invested in money market mutual funds. The market value of the securities on loan at July 31, 2002 and the value of the related collateral are disclosed in the Statements of Assets and Liabilities. 6. LEGAL PROCEEDINGS In April 2002, the judge overseeing an ongoing action in the U.S. District Court for the Northern District of Illinois granted leave for a United States patentholder named MOPEX, Inc. to amend its complaint to add the Trust, along with seven other parties, as a defendant. There are now a total of twenty defendants, including the Trust's investment advisor, other exchange traded funds, various fund service providers and market makers, and the Chicago Stock Exchange, Inc. In the action, the plaintiff alleges that the actions of the parties, now including the Trust, infringed their patent. In addition, the plaintiff alleges that the parties engaged in a "conspiracy" amongst themselves Notes to the Financial Statements 47 Notes to the Financial Statements (Continued) iShares Trust to infringe the patent. Although this is the only case to which the Trust has been named as a party, this action is one of three involving related issues. The Trust believes that it has valid defenses to all claims raised by the patentholder. However, a resolution of this case may impose increased costs on the Trust and thus raise the expense ratios of the Funds, adversely affecting performance. 48 2002 iShares Annual Report to Shareholders Report of Independent Accountants To the Shareholders and Board of Trustees of iShares Trust: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the funds comprising the iShares Goldman Sachs Series Funds and the iShares MSCI EAFE Index Fund (the "Funds"), as listed on the table of contents at July 31, 2002, the results of each of their operations for the periods then ended, and the changes in their net assets and their financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at July 31, 2002 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California August 30, 2002 Report of Independent Accountants 49 Tax Information (Unaudited) iShares Trust For the year ended July 31, 2002, iShares MSCI EAFE Index Fund earned foreign source income of $33,589,468 and paid foreign taxes of $4,214,360 which it intends to pass through to its shareholders pursuant to Section 853 of the Internal Revenue Code. For corporate shareholders, 100% of the income dividends paid by the iShares Goldman Sachs Natural Resources Index Fund during the year ended July 31, 2002 qualified for the dividends-received deduction. Shareholder Meeting Results (Unaudited) iSHARES TRUST A special meeting of shareholders of the iShares Trust was held on November 15, 2001. At the meeting, the following matter was voted upon and approved by the shareholders. The matter voted upon was a Trust-wide proposal and the voting results are presented below. Proposal: To elect the six nominees specified below as Trustees, to hold office until their successors are duly elected and qualified. ------------------------------------------------------------------ Trustee Votes for Votes Withheld ------------------------------------------------------------------ Nathan Most 99,539,634 163,697 Richard K. Lyons 99,539,634 163,697 George G.C. Parker 99,539,634 163,697 John B. Carroll 99,539,634 163,697 W. Allen Reed 99,539,634 163,697 Garrett F. Bouton 99,539,634 163,697 ------------------------------------------------------------------ Messrs. Most, Lyons, and Parker previously served as Trustees of the Trust and were reelected. Messrs. Carroll, Reed and Bouton were newly elected. 50 2002 iShares Annual Report to Shareholders Supplemental Information (Unaudited) iShares Trust The charts that follow present information about the differences between the daily market price on secondary markets for shares of an iShares Fund and that Fund's net asset value. Net asset value, or "NAV", is the price per share at which each Fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing mutual fund shares every day the American Stock Exchange is open. The "Market Price" of each iShares Fund generally is determined using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of such Fund is listed for trading, as of the time that the Fund's NAV is calculated. Each Fund's Market Price may be at, above or below its NAV. The NAV of each Fund will fluctuate with changes in the market value of its portfolio holdings. The trading price of each Fund will fluctuate in accordance with changes in its NAV, as well as market supply and demand. Premiums or discounts are the differences (expressed as a percentage) between the NAV and Market Price of a Fund on a given day, generally at the time NAV is calculated. A premium is the amount that a Fund is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that a Fund is trading below the reported NAV, expressed as a percentage of the NAV. The following information shows the frequency distributions of premiums and discounts for each of the iShares Funds included in this report. The information shown for each Fund is for each full calendar quarter completed after the inception date of such Fund through June 30, 2002, the date of the most recent quarter-end. The specific periods covered for each Fund are disclosed in the chart for such Fund. The Vertical Column of the Chart shows the premium or discount expressed as a percentage of NAV. The Horizontal column indicates the number of trading days in the period covered by the chart. Each bar in the chart shows the number of trading days in which the iShares Fund traded within the premium/discount range indicated. All data presented here represents past performance, which cannot be used to predict future results. Supplemental Information 51 Supplemental Information (Unaudited) (Continued) iShares Trust iShares Goldman Sachs Technology Index Fund PERIOD COVERED: APRIL 1, 2001 THROUGH JUNE 30, 2002 [BAR CHART] PERCENT PREMIUMS/DISCOUNTS NUMBER OF DAYS GT 6.00% 0 GT 5.50%_LT 6.00% 0 GT 5.00%_LT 5.50% 0 GT 4.50%_LT5.00% 0 GT 4 00%_LT 4.50% 0 GT 3.50%_LT 4.00% 0 GT 3.00%_LT 3.50% 0 GT 2.50%_LT 3.00% 1 GT 2.00%_LT 2.50% 0 GT 1.50%_LT 2.00% 0 GT 1.00%_LT 1.50% 4 GT 0.50%_LT 1.00% 17 LT 0.50%_GT (0.50)% 264 LT (0.50)%_GT (1.00)% 18 LT (1.00)%_GT (1.50)% 5 LT (1.50)%_GT (2.00)% 0 LT (2.00)%_GT (2.50)% 1 LT (2.50)%_GT (3.00)% 0 LT (3.00)%_GT (3.50)% 0 LT (3.50)%_GT (4.00)% 1 LT (4.00)%_GT (4.50)% 0 LT (4.50)%_GT (5.00)% 0 LT (5.00)%_GT (5.50)% 0 LT (5.50)%_GT (6.00)% 0 LT (6.00)% 0 iShares Goldman Sachs Networking Index Fund PERIOD COVERED: OCTOBER 1, 2001 THROUGH JUNE 30, 2002 [BAR CHART] PERCENT PREMIUMS/DISCOUNTS NUMBER OF DAYS GT 6.00% 0 GT 5.50%_LT 6.00% 0 GT 5.00%_LT 5.50% 0 GT 4.50%_LT5.00% 0 GT 4 00%_LT 4.50% 0 GT 3.50%_LT 4.00% 0 GT 3.00%_LT 3.50% 0 GT 2.50%_LT 3.00% 0 GT 2.00%_LT 2.50% 0 GT 1.50%_LT 2.00% 2 GT 1.00%_LT 1.50% 1 GT 0.50%_LT 1.00% 20 LT 0.50%_GT (0.50)% 140 LT (0.50)%_GT (1.00)% 20 LT (1.00)%_GT (1.50)% 2 LT (1.50)%_GT (2.00)% 2 LT (2.00)%_GT (2.50)% 0 LT (2.50)%_GT (3.00)% 0 LT (3.00)%_GT (3.50)% 0 LT (3.50)%_GT (4.00)% 0 LT (4.00)%_GT (4.50)% 0 LT (4.50)%_GT (5.00)% 0 LT (5.00)%_GT (5.50)% 0 LT (5.50)%_GT (6.00)% 0 LT (6.00)% 1 52 2002 iShares Annual Report to Shareholders Supplemental Information (Unaudited) (Continued) iSHARES TRUST iShares Goldman Sachs Semiconductor Index Fund PERIOD COVERED: OCTOBER 1, 2001 THROUGH JUNE 30, 2002 [BAR CHART] PERCENT PREMIUMS/DISCOUNTS NUMBER OF DAYS GT 6.00% 1 GT 5.50%_LT 6.00% 0 GT 5.00%_LT 5.50% 0 GT 4.50%_LT5.00% 0 GT 4 00%_LT 4.50% 0 GT 3.50%_LT 4.00% 0 GT 3.00%_LT 3.50% 0 GT 2.50%_LT 3.00% 0 GT 2.00%_LT 2.50% 0 GT 1.50%_LT 2.00% 0 GT 1.00%_LT 1.50% 3 GT 0.50%_LT 1.00% 17 LT 0.50%_GT (0.50)% 143 LT (0.50)%_GT (1.00)% 21 LT (1.00)%_GT (1.50)% 2 LT (1.50)%_GT (2.00)% 1 LT (2.00)%_GT (2.50)% 0 LT (2.50)%_GT (3.00)% 0 LT (3.00)%_GT (3.50)% 0 LT (3.50)%_GT (4.00)% 0 LT (4.00)%_GT (4.50)% 0 LT (4.50)%_GT (5.00)% 0 LT (5.00)%_GT (5.50)% 0 LT (5.50)%_GT (6.00)% 0 LT (6.00)% 0 iShares Goldman Sachs Software Index Fund PERIOD COVERED: OCTOBER 1, 2001 THROUGH JUNE 30, 2002 [BAR CHART] PERCENT PREMIUMS/DISCOUNTS NUMBER OF DAYS GT 6.00% 0 GT 5.50%_LT 6.00% 0 GT 5.00%_LT 5.50% 0 GT 4.50%_LT5.00% 0 GT 4 00%_LT 4.50% 0 GT 3.50%_LT 4.00% 0 GT 3.00%_LT 3.50% 0 GT 2.50%_LT 3.00% 0 GT 2.00%_LT 2.50% 0 GT 1.50%_LT 2.00% 0 GT 1.00%_LT 1.50% 1 GT 0.50%_LT 1.00% 15 LT 0.50%_GT (0.50)% 156 LT (0.50)%_GT (1.00)% 14 LT (1.00)%_GT (1.50)% 1 LT (1.50)%_GT (2.00)% 0 LT (2.00)%_GT (2.50)% 0 LT (2.50)%_GT (3.00)% 0 LT (3.00)%_GT (3.50)% 0 LT (3.50)%_GT (4.00)% 0 LT (4.00)%_GT (4.50)% 0 LT (4.50)%_GT (5.00)% 0 LT (5.00)%_GT (5.50)% 0 LT (5.50)%_GT (6.00)% 0 LT (6.00)% 1 Supplemental Information 53 Supplemental Information (Unaudited) (Continued) iShares Trust iShares Goldman Sachs Natural Resources Index Fund PERIOD COVERED: JANUARY 1, 2002 THROUGH JUNE 30, 2002 [BAR CHART] PERCENT PREMIUMS/DISCOUNTS NUMBER OF DAYS GT 6.00% 0 GT 5.50%_LT 6.00% 0 GT 5.00%_LT 5.50% 0 GT 4.50%_LT5.00% 0 GT 4 00%_LT 4.50% 0 GT 3.50%_LT 4.00% 0 GT 3.00%_LT 3.50% 0 GT 2.50%_LT 3.00% 0 GT 2.00%_LT 2.50% 0 GT 1.50%_LT 2.00% 0 GT 1.00%_LT 1.50% 0 GT 0.50%_LT 1.00% 0 LT 0.50%_GT (0.50)% 121 LT (0.50)%_GT (1.00)% 2 LT (1.00)%_GT (1.50)% 1 LT (1.50)%_GT (2.00)% 0 LT (2.00)%_GT (2.50)% 0 LT (2.50)%_GT (3.00)% 0 LT (3.00)%_GT (3.50)% 0 LT (3.50)%_GT (4.00)% 0 LT (4.00)%_GT (4.50)% 0 LT (4.50)%_GT (5.00)% 0 LT (5.00)%_GT (5.50)% 0 LT (5.50)%_GT (6.00)% 0 LT (6.00)% 0 iShares MSCI Eafe Index Fund PERIOD COVERED: OCTOBER 1, 2001 THROUGH JUNE 30, 2002 [BAR CHART] PERCENT PREMIUMS/DISCOUNTS NUMBER OF DAYS GT 6.00% 0 GT 5.50%_LT 6.00% 0 GT 5.00%_LT 5.50% 0 GT 4.50%_LT5.00% 0 GT 4 00%_LT 4.50% 0 GT 3.50%_LT 4.00% 0 GT 3.00%_LT 3.50% 0 GT 2.50%_LT 3.00% 0 GT 2.00%_LT 2.50% 0 GT 1.50%_LT 2.00% 2 GT 1.00%_LT 1.50% 17 GT 0.50%_LT 1.00% 49 LT 0.50%_GT (0.50)% 105 LT (0.50)%_GT (1.00)% 11 LT (1.00)%_GT (1.50)% 3 LT (1.50)%_GT (2.00)% 1 LT (2.00)%_GT (2.50)% 0 LT (2.50)%_GT (3.00)% 0 LT (3.00)%_GT (3.50)% 0 LT (3.50)%_GT (4.00)% 0 LT (4.00)%_GT (4.50)% 0 LT (4.50)%_GT (5.00)% 0 LT (5.00)%_GT (5.50)% 0 LT (5.50)%_GT (6.00)% 0 LT (6.00)% 0 54 2002 iShares Annual Report to Shareholders Trustees Information (Unaudited) iShares Trust The Board of Trustees has responsibility for the overall management and operations of the Trust, including general supervision of the duties performed by BGFA and other service providers. Each Trustee serves until his or her successor is duly elected and qualified. iShares Trust, iShares, Inc., Barclays Global Investors Funds and Master Investment Portfolio are considered to be members of the same fund complex, as defined in Form N-1A under the 1940 Act. Each Trustee also serves as a Director for iShares, Inc. and oversees 81 portfolios within the fund complex. In addition, Richard K. Lyons serves as a Trustee for Barclays Global Investors Funds and Master Investment Portfolio and oversees 104 portfolios within the fund complex. Additional information about the Funds' Trustees may be found in the Funds' Statement of Additional Information, which is available without charge upon request by calling toll-free 1-800-474-2737. Interested Trustees
Position(s), Principal Occupation(s) Name, Age and Address Length of Service During Past 5 Years Other Directorships Held ---------------------------------------------------------------------------------------------------------------------- *Garrett F. Bouton (56) Trustee (since Managing Director and Chief Chairman of the Board of Directors Barclays Global January 1, 2002), Executive Officer (since 1999) for (since 1998) of BGFA; Director Investors Chairman (since Barclays Global Investors, N.A. (since 1998) of BGI; Director of 45 Fremont Street February 28, 2002) ("BGI") Global Individual Investor various Barclays subsidiaries San Francisco, CA 94105 and President. Business; Global H.R. Director (since 1997). (from 1996-1999) for BGI. *Nathan Most (88) Trustee (since Consultant to BGI (1998-present), None. P.O. Box 193 December 16, 1999) American Stock Exchange (1996-2000) Burlingame, CA 94011 and the Hong Kong Stock Exchange (1998 to present); Consultant to the Amsterdam Stock Exchange (1997-1998); Consultant to the Pacific Stock Exchange (1997-1998); Formerly Senior Vice President American Stock Exchange (New Product Development) (1976-1996).
_________________ * Garrett F. Bouton and Nathan Most are deemed to be "interested persons" (as defined in the 1940 Act) of the Trust due to their affiliations with BGFA, the Funds' investment advisor and BGI, the parent company of BGFA. Trustees Information 55 Trustees Information (Unaudited) (Continued) iShares Trust Independent Trustees
Position(s), Principal Occupation(s) Name, Age and Address Length of Service During Past 5 Years Other Directorships Held ----------------------------------------------------------------------------------------------------------------------- John B. Carroll (65) Trustee (since Retired Vice President of Trustee and member of the Executive 520 Main Street January 1, 2002) Investment Management (1984-2000) Committee (since 1991) of The Ridgefield, CT 06877 of Verizon Corporation; Advisory Common Fund Institutional Funds, a Board member of Ibbotson Associates non-profit organization; Member of (1992-1998); former Vice Chairman the Board of Managers of JP Morgan and Executive Committee Member Private Equity Funds. (1994-1998) of the Committee on Investment of Employee Benefit Assets of the Financial Executive Institute. Richard K. Lyons (41) Trustee (since Professor, University of Board of Trustees: Matthews Asian Haas School of Business, February 15, 2000) California, Berkeley: Haas School Funds since 1995 (oversees 6 UC Berkeley of Business (since 1993); portfolios). Berkeley, CA 94720 Consultant for IMF World Bank, Federal Reserve Bank, and Citibank N.A. (since 2000). George G. C. Parker (61) Trustee (since Dean Witter Distinguished Professor Board of Directors: Affinity Group Graduate School of February 15, 2000) of Finance (since 1994); Associate (since 1998); Bailard, Biehl and Business (Room K301) Dean for Academic Affairs, Director Kaiser, Inc. (since 1985); Stanford University of MBA Program, and Professor, California Casualty Group of 521 Memorial Way Stanford University: Graduate Insurance Companies (since 1978); Stanford, CA 94305 School of Business (1993-2001). Continental Airlines, Inc. (since 1996); Community First Financial Group (since 1995); Dresdner/RCM Mutual Funds (oversees 10 portfolios) (1994-2002); Tyon Ranch Company (since 1999). W. Allen Reed (54) Trustee (since President and Chief Executive Director (since 1994) of General General Motors Investment January 1, 2002) Officer (since 1994) of General Motors Investment Management Management Corp. Motors Investment Management Corporation; Director (1995-1998) 767 Fifth Avenue Corporation. of Taubman Centers, Inc. (a real New York, NY 10153 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 GMAC Insurance Holdings, Inc.; Director (since 1995) of Global Emerging Markets Fund; Director (since 2000) of Temple Inland Industries; Chairman (since 1995) of the Investment Advisory Committee of Howard Hughes Medical Institute.
56 2002 iShares Annual Report to Shareholders Trustees Information (Unaudited) (Continued) iShares Trust Officers Who are Not Trustees
Principal Occupation(s) Directorships Held By Name, Age and Address Position During Past 5 Years Officers ---------------------------------------------------------------------------------------------------------------------------------- Lee T. Kranefuss (39) Vice President Chief Executive Officer of the Board of Trustees for Barclays Barclays Global Investors Individual Investor Business of Global Investors Funds and Master 45 Fremont Street BGI; The Boston Consulting Group Investment Portfolio (since 2001). San Francisco, CA 94105 (until 1997). Michael Latham (35) Secretary, Treasurer Director of Mutual Fund Delivery in None. Barclays Global Investors and Principal the U.S. Individual Investor 45 Fremont Street Financial Officer Business of BGI (since 2000); Head San Francisco, CA 94105 of Operations, BGI Europe (1997-2000). Donna M. Rogers (35) Assistant Treasurer Senior Director (formerly None. Investors Bank & Trust Co. Director), Mutual Fund 200 Clarendon Street Administration at Investors Bank & Boston, MA 02116 Trust Company ("IBT")(since 1994). Jeffrey J. Gaboury (33) Assistant Treasurer Director (formerly Manager), Mutual None. Investors Bank & Trust Co. Fund Administration, Reporting and 200 Clarendon Street Compliance, IBT (since 1996). Boston, MA 02116 Susan C. Mosher (47) Assistant Secretary Senior Director & Senior Counsel, None. Investors Bank & Trust Co. Mutual Fund Administration, IBT 200 Clarendon Street (since 1995). Boston, MA 02116 Sandra I. Madden (35) Assistant Secretary Associate Counsel, Mutual Fund None. Investors Bank & Trust Co. Administration, IBT (since 1999); 200 Clarendon Street Associate, Scudder Kemper Boston, MA 02116 Investments, Inc. (1996-1999).
Trustees Information 57 The iShares Family of Funds The following is a list of iShares Funds being offered, along with their respective exchange trading symbols. Please call iShares at 1-800-iShares (1-800-474-2737) to obtain a prospectus for any iShares fund. It contains more complete information, including charges and expenses. Broad Market iShares Dow Jones U.S. Total Market Index Fund (IYY) iShares Russell 3000 Index Fund (IWV) iShares Russell 3000 Growth Index Fund (IWZ) iShares Russell 3000 Value Index Fund (IWW) Large Cap iShares Russell 1000 Index Fund (IWB) iShares Russell 1000 Growth Index Fund (IWF) iShares Russell 1000 Value Index Fund (IWD) iShares S&P 100 Index Fund (OEF) iShares S&P 500 Index Fund (IVV) iShares S&P 500/BARRA Growth Index Fund (IVW) iShares S&P 500/BARRA Value Index Fund (IVE) Mid Cap iShares Russell Midcap Index Fund (IWR) iShares Russell Midcap Growth Index Fund (IWP) iShares Russell Midcap Value Index Fund (IWS) iShares S&P MidCap 400 Index Fund (IJH) iShares S&P MidCap 400/BARRA Growth Index Fund (IJK) iShares S&P MidCap 400/BARRA Value Index Fund (IJJ) Small Cap iShares Russell 2000 Index Fund (IWM) iShares Russell 2000 Growth Index Fund (IWO) iShares Russell 2000 Value Index Fund (IWN) iShares S&P SmallCap 600 Index Fund (IJR) iShares S&P SmallCap 600/BARRA Growth Index Fund (IJT) iShares S&P SmallCap 600/BARRA Value Index Fund (IJS) Sector & Industry iShares Cohen & Steers Realty Majors Index Fund (ICF) iShares Dow Jones U.S. Basic Materials Sector Index Fund (IYM) iShares Dow Jones U.S. Chemicals Index Fund (IYD) * iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund (IYC) iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund (IYK) iShares Dow Jones U.S. Energy Sector Index Fund (IYE) iShares Dow Jones U.S. Financial Sector Index Fund (IYF) iShares Dow Jones U.S. Financial Services Index Fund (IYG) iShares Dow Jones U.S. Healthcare Sector Index Fund (IYH) iShares Dow Jones U.S. Industrial Sector Index Fund (IYJ) iShares Dow Jones U.S. Internet Index Fund (IYV) * iShares Dow Jones U.S. Real Estate Index Fund (IYR) iShares Dow Jones U.S. Technology Sector Index Fund (IYW) iShares Dow Jones U.S. Telecommunications Sector Index Fund (IYZ) iShares Dow Jones U.S. Utilities Sector Index Fund (IDU) iShares Goldman Sachs Natural Resources Index Fund (IGE) iShares Goldman Sachs Networking Index Fund (IGN) iShares Goldman Sachs Semiconductor Index Fund (IGW) iShares Goldman Sachs Software Index Fund (IGV) iShares Goldman Sachs Technology Index Fund (IGM) iShares Nasdaq Biotechnology Index Fund (IBB) Fixed Income iShares Lehman 1-3 Year Treasury Bond Fund (SHY) iShares Lehman 7-10 Year Treasury Bond Fund (IEF) iShares Lehman 20+ Year Treasury Bond Fund (TLT) iShares GS $ InvesTop-TM- Corporate Bond Fund (LQD) Global Sector iShares S&P Global Energy Sector Index Fund (IXC) iShares S&P Global Financials Sector Index Fund (IXG) iShares S&P Global Healthcare Sector Index Fund (IXJ) iShares S&P Global Technology Sector Index Fund (IXN) iShares S&P Global Telecommunications Sector Index Fund (IXP) International/Broad Market iShares MSCI EAFE Index Fund (EFA) International/Regional iShares MSCI EMU Index Fund (EZU) iShares MSCI Pacific ex-Japan Index Fund (EPP) iShares S&P Europe 350 Index Fund (IEV) International/Developed Country iShares MSCI Australia Index Fund (EWA) iShares MSCI Austria Index Fund (EWO) iShares MSCI Belgium Index Fund (EWK) iShares MSCI Canada Index Fund (EWC) iShares MSCI France Index Fund (EWQ) iShares MSCI Germany Index Fund (EWG) iShares MSCI Hong Kong Index Fund (EWH) iShares MSCI Italy Index Fund (EWI) iShares MSCI Japan Index Fund (EWJ) iShares MSCI Netherlands Index Fund (EWN) iShares MSCI Singapore Index Fund (EWS) iShares MSCI Spain Index Fund (EWP) iShares MSCI Sweden Index Fund (EWD) iShares MSCI Switzerland Index Fund (EWL) iShares MSCI United Kingdom Index Fund (EWU) iShares S&P TOPIX 150 Index Fund (ITF) iShares S&P/TSE 60 Index Fund (IKC) * International/Merging Country iShares MSCI Brazil Index Fund (EWZ) iShares MSCI Malaysia Index Fund (EWM) iShares MSCI Mexico Index Fund (EWW) iShares MSCI South Korea Index Fund (EWY) iShares MSCI Taiwan Index Fund (EWT) iShares S&P Latin America 40 Index Fund (ILF) Global/Broad Market iShares S&P Global 100 Index Fund (IOO) * Fund Closing Anticipated by 12/31/02. 58 2002 iShares Annual Report to Shareholders iShares are distributed by SEI Investments Distribution Co. (SEI). Barclays Global Fund Advisors (BGFA) serves as an advisor to iShares. Barclays Global Investors Services (BGIS) assists in the marketing of iShares. BGFA and BGIS are subsidiaries of Barclays Global Investors, N.A., neither of which is affiliated with SEI. IBT serves as administrator, custodian, securities lending agent and transfer agent. iShares are not sponsored or endorsed by Goldman, Sachs & Co., nor are they sponsored, endorsed, sold, or promoted by Morgan Stanley Capital International Inc., nor do these companies make any representation regarding the advisability of investing in iShares. Investing involves risk, including possible loss of principal. (c) 2002 Barclays Global Investors. All rights reserved. iShares is a registered trademark of Barclays Global Investors, N.A. All other trademarks, servicemarks of registered trademarks are the property of their respective owners. This report is intended for the Funds' shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the current prospectus. BGI-F-013-02000 iShares(R) Industrial strength investment tools for BARCLAYS GLOBAL INVESTORS 1-800-iShares (474-2737) www.iShares.com