N-30D 1 dn30d.txt SEMI-ANNUAL REPORTS FOR ISHARES DOW JONES iShares(R) 2002 SEMI-ANNUAL REPORT TO SHAREHOLDERS OCTOBER 31, 2002 [PICTURE] INDUSTRIAL STRENGTH INVESTMENT TOOLS iShares DOW JONES U.S. BASIC MATERIALS SECTOR INDEX FUND iShares DOW JONES U.S. CONSUMER CYCLICAL SECTOR INDEX FUND iShares DOW JONES U.S. CONSUMER NON-CYCLICAL SECTOR INDEX FUND iShares DOW JONES U.S. FINANCIAL SECTOR INDEX FUND iShares DOW JONES U.S. INDUSTRIAL SECTOR INDEX FUND iShares DOW JONES U.S. CHEMICALS INDEX FUND iShares DOW JONES U.S. FINANCIAL SERVICES INDEX FUND iShares DOW JONES U.S. INTERNET INDEX FUND iShares DOW JONES U.S. REAL ESTATE INDEX FUND iShares COHEN & STEERS REALTY MAJORS INDEX FUND Table of Contents Shareholder Letter............................................... 1 Market Overview.................................................. 3 Managers' Discussion & Analysis.................................. 6 Schedules of Investments......................................... 25 iShares Dow Jones U.S. Basic Materials Sector Index Fund....... 25 iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund..... 26 iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund......................................................... 30 iShares Dow Jones U.S. Financial Sector Index Fund............. 32 iShares Dow Jones U.S. Industrial Sector Index Fund............ 36 iShares Dow Jones U.S. Chemicals Sector Index Fund............. 40 iShares Dow Jones U.S. Financial Services Index Fund........... 41 iShares Dow Jones U.S. Internet Index Fund..................... 43 iShares Dow Jones U.S. Real Estate Index Fund.................. 44 iShares Cohen & Steers Realty Majors Index Fund................ 46 Financial Statements............................................. 47 Financial Highlights............................................. 55 Notes to the Financial Statements................................ 60 iShares Family of Funds.......................................... 66 To Our Shareholders While the second half of 2001 was a difficult period for us all, 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 over $27.8 billion as of October 31, 2002. In fact, the iShares family of funds was the nation's third fastest growing family of equity funds/2/ during the period November 2001 through October 2002, surpassing many 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(R) corporate bond index -- were greeted with an enthusiastic reception from the investment community. These new funds attracted $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 $50 billion for the first six months of 2002./3/ With almost 80 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. As 2002 comes to a close, iShares continues to innovate, refine and improve its family of funds. In fact, iShares decided to close three funds in response to investor interest in broader exposure to markets represented by other iShares funds. The three funds that are closing are the iShares S&P/TSE 60 Index Fund, the iShares Dow Jones U.S. Internet Index Fund, and the iShares Dow Jones U.S. Chemicals Index Fund. Investors in these funds who would like to achieve the broader exposure offered by other iShares funds should call iShares directly, 1-800-iShares, or speak to their financial advisor. At BGI we consider the iShares family of funds "industrial strength" 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 strive to obtain a fundamental goal of institutional investing: taking less of a bite out of a fund's returns. iShares seek to achieve this by minimizing capital gains distributions 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./4/ iShares, on the other hand, are managed in a way that keeps capital gains distributions to a minimum. For example, during the calendar year 2001 none of the domestic iShares funds distributed any capital gains./5/ Additionally, the fees charged by the iShares Funds are typically about half of other actively managed mutual funds./6/ --------------------- /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/Financial Research Corporation (FRC) database, BGI analysis. /4/Jonathan Clements, Fund Distributions are a Taxing Problem; How the Tax Man Dines on Your Funds, The Wall Street Journal, August 1999. /5/Past performance is no guarantee of future results. There can be no assurance that iShares will not generate capital gains distributions in the future. /6/Source: Morningstar Principia, BGI analysis 6/01. Shareholder Letter 1 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 a portfolio by hand-selecting a wide variety of securities, to do it effectively is complicated and time-consuming. This is a reason why $1.56 trillion in institutional assets/7/ are invested in index funds. Third, iShares embody a key strategy of institutional investors: Modular Asset Allocation. Each iShare fund focuses on a very specific slice of the equity and fixed income markets. With so many different iShares to choose from, investors have tremendous flexibility in structuring their portfolios to meet specific needs. The fourth reason iShares are "industrial strength" is that they are advised by Barclays Global Investors, one of the world's largest institutional asset managers./8/ 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 introduce innovative strategies and structures that we have developed for their clients' portfolios. And we continue to enhance and improve the tools, data and resources on our Web site. If you haven't visited www.iShares.com in a while, we invite you to do so and learn more about iShares. In fact, Forbes Magazine named iShares.com "Best of the Web" among all ETF sites./9/ We think you'll agree everything about iShares really is industrial strength. 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 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., none of which is affiliated with SEI. For complete information, including charges and expenses, request a prospectus by calling 1-800-iSHARES (1-800-474-2737). Read it carefully before you invest. There are risks involved with investing, including possible loss of principal. Diversification may not protect against market risk. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Mutual funds and iShares are obliged to distribute portfolio gains to shareholders by year-end. These gains may be generated due to index rebalancing or to meet diversification requirements. Your own iShares trading, too, will generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well. Past performance does not guarantee future results. iShares are not sponsored or endorsed by Goldman, Sachs & Co. or Lehman Brothers, nor are they sponsored, endorsed, sold or promoted by Cohen & Steers Capital Management, Inc., Dow Jones & Company, Inc., Morgan Stanley Capital International, The Nasdaq Stock Market, Inc., Frank Russell Company, or Standard & Poor's. None of these companies make any representation regarding the advisability of investing in iShares. Neither SEI nor BGI, nor any of their affiliates, are affiliated with Goldman, Sachs & Co. or Lehman Brothers. "GS $ InvesTop(TM)" and "Goldman Sachs(R)" are trademarks of Goldman, Sachs & Co. --------------------- /7/Source: PENSIONS & INVESTMENTS, 5/27/02. /8/Source: PENSIONS & INVESTMENTS, 5/27/02. /9/FORBES Winter 2001. 2 2002 iShares Semi-Annual Report to Shareholders Market Overview U.S. Equity Markets U.S. equities fell heavily in the six months under review. Stocks rallied in August, but renewed selling in September brought the market down again. By early October, the broader market indices were back languishing at six-year lows. Stocks staged another modest rally in late October on the back of some improved profits news, but the mood remained hesitant. The S&P 500 Index has almost halved in value since its peak two years ago, and some sectors, notably telecommunications and technology, have lost considerably more than that. The current bear market is now on par with the 1970s bear market in terms of the scale of decline. However, in terms of duration, this is already the longest bear market in 60 years. With hindsight, many believe equities had become significantly overvalued during the technology bubble. Therefore, some correction was inevitable, but a number of factors have added to the gloom this year. Chief among these were the corporate accounting scandals. Sadly, these were not confined to one errant corporation but spread among many. As a result, investors have not only had to contend with a severe profits recession, but learn how to differentiate real from virtual profits. It is little wonder, given such profound uncertainties, that investors have been applying larger risk premiums to their equity valuations. This year's further collapse in share prices, in turn, has taken a toll on investor confidence and the wider economy. The Federal Reserve Board (the "Fed") has done a remarkable job in keeping the economy moving both before and after the events of September 11. Manufacturing has been in a deep recession, but the broader economy has held up reasonably well so far. This has been due largely to continued resilient consumer spending fueled by low interest rates and a buoyant housing market. However, even with interest rates at 40-year lows, industrial production has fallen since the summer and business investment has been cut. The danger has been that, after showing some improvement earlier this year, the manufacturing sector may relapse, causing the economy to suffer a so-called "double-dip" recession. If these factors were not enough, investors also have had to contend with the prospect of a second Gulf War. Such geopolitical risk adds greatly to market uncertainties, while the higher oil price sparked by war fears could further slow economic recovery. Against this background, forecasts for economic growth have been cut back. With profits statements remaining uniformly downbeat, investors have had little incentive to raise their risk appetite, preferring instead to seek the relative safety of bonds and cash. U.S. Fixed Income Markets For all the reasons equity prices have fallen this year, bond prices have risen. Due to the inverse relationship between bond prices and bond yields, yields have fallen during the period. By late September, yields on the 30-year bond were at the lowest levels recorded since they were first introduced in the 1970s. Yields on 5 and 10-year Treasuries had fallen to their lowest levels since 1958. Yields rose again in October as equities staged a rally, but the ongoing threat of war, the diminishing prospect of sustained economic recovery and the sheer distrust of equities in the present corporate climate have all added to the relative attractions of bonds. The spike in oil prices to 19-month highs may in the past have raised the unwelcome specter of inflation and thus have been harmful to bonds. But in the low inflation environment of the reporting period, producers have had much greater difficulty passing on price increases. Therefore, rising oil prices have been much more likely to bear down on demand as consumers have absorbed higher oil prices by cutting expenditure on other discretionary purchases. There were no changes to the targeted federal funds rate over the period, but the Fed's policy bias seemed to shift toward one of greater ease over the summer as equity prices tumbled and doubts about the strength of the economic recovery accumulated. This perceived shift helped to drag bond yields lower, particularly at the short end of the curve. So far, the prospect of increased bond supply on the back of an escalating federal budget deficit has had only limited impact on investor enthusiasm for U.S. Treasuries. Market Overview 3 International Equity Markets The decline in U.S. equities over the period was echoed to a greater or lesser extent in markets around the world. Though the accounting scandals were confined largely to the U.S., the negative effect on investor confidence was global. The hesitant nature of the U.S. economic recovery also has had ramifications around the globe, while geopolitical risk in the Middle East and rising oil prices have affected all markets. In Europe, economic growth has been particularly sluggish, with the German economy most seriously affected by the downturn in international trade. However, it is not just a squeeze on exports that has dampened growth. Domestic demand has fallen due to lower business investment. Consumers, too, have been reluctant to spend. High unemployment has affected large parts of the eurozone and there have been growing doubts that the operation of a single monetary policy offers sufficient flexibility to tackle the problem. Room for policy maneuver has been further constrained by the Stability and Growth Pact, which was adopted in 1997 when the monetary union was being established and limits the size of budget deficits across the zone. While UK equities have also fallen heavily with concerns over the pensions industry and the solvency of the insurance sector, the economy has fared somewhat more favorably, helped by a more expansive fiscal policy and a strong housing market which, like the U.S., has supported consumer confidence and spending. Japanese equities plumbed new depths over the period with the Nikkei Dow Index recording a 19-year low. Concern has again focused on the stability of the banking system and the mountain of bad debts that continued to undermine the efficient functioning of the economy. Japanese consumer prices have now fallen for three years in a row. Such deflation has raised the real value of debt and reduced the effectiveness of monetary policy. Meanwhile the government has continued to balk at the large-scale injection of public funds deemed necessary to put the banking system back on a sounder footing. /s/ Francis Enderle Francis Enderle Head of Indexed Investing for iShares Barclays Global Fund Advisors 4 2002 iShares Semi-Annual Report to Shareholders THIS PAGE INTENTIONALLY LEFT BLANK. 5 Managers' Discussion & Analysis iSHARES DOW JONES U.S. BASIC MATERIALS SECTOR INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ---------------------------------------------- ------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 ---------------------- ---------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (5.46)% (5.62)% (4.95)% (2.43)% (2.43)% (1.99)% (5.72)% (5.71)% (4.68)% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (06/19/00), 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. 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. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC TOP 10 INDEX HOLDINGS Du Pont (E.I.) de Nemours & Co. 18.40% Dow Chemical Co. (The) 10.63% Alcoa Inc. 8.36% International Paper Co. 6.95% Air Products & Chemicals Inc. 4.51% Weyerhaeuser Co. 4.45% Praxair Inc. 3.93% Newmont Mining Corp. 3.86% PPG Industries Inc. 3.58% Avery Dennison Corp. 2.72% The iShares Dow Jones U.S. Basic Materials Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Basic Materials Sector Index. For the six-month period ended October 31, 2002 (the "reporting period") the Fund declined 17.69%, while the Index declined 17.43%. Equity markets slumped during the reporting period, facing downward pressure on economic, political and corporate fronts. Weak economic indicators continued to cloud the outlook for recovery: despite a robust first quarter GDP growth rate, second quarter growth was reported at a sluggish 1.3%. The labor market remained soft, housing starts declined, and consumer sentiment plunged to a nine-year low. Investor skepticism about corporate leadership continued: earlier investigations of Enron were mirrored in investigations of other companies, including WorldCom and Tyco. Earnings warnings also increased during the reporting period. As Americans marked the one-year anniversary of the tragic events of September 11, 2001, geopolitical tensions continued to weigh heavily on the markets. In addition, the possibility of an invasion of Iraq raised concerns about supply of oil from the area, sending the price of oil to more than $30 per barrel. 6 2002 iShares Semi-Annual Report to Shareholders Basic materials shares struggled during the reporting period. As global economic weakness sapped demand for commodities products such as paper, forest products, and metals, underlying stock prices sank. Those companies that depend on oil and natural gas were also hurt by elevated energy prices. The ten largest holdings in the Index all logged negative returns for the reporting period. For example, Alcoa (8.36% of the Index as of October 31, 2002), was the hardest hit, falling 34.53%. Paper companies Weyerhaeuser (4.45% of the Index as of October 31, 2002) and International Paper (6.95% of the Index as of October 31), fell 22.29% and 14.65%, respectively. Hurt by increased energy costs, Dow Chemical (10.63% of the Index as of October 31) declined 16.46%. Gold mining company Newmont Mining Corporation (3.86% of the Index as of October 31), which had surged in the months after September 11, 2001, gave back some of those gains, losing 13.12%. Natural gas and chemicals producer Air Products & Chemicals Inc. (4.51% of the Index as of October 31) declined 7.16%. Managers' Discussion & Analysis 7 Managers' Discussion & Analysis iSHARES DOW JONES U.S. CONSUMER CYCLICAL SECTOR INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ------------------------------------------------- ------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 ---------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (8.27)% (8.29)% (7.76)% (11.99)% (12.00)% (11.53)% (26.29)% (26.31)% (25.39)% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (06/20/00), 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. 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. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC TOP 10 INDEX HOLDINGS Wal-Mart Stores Inc. 11.74% Home Depot Inc. 5.46% Viacom Inc. "B" 5.46% Aol Time Warner Inc. 5.08% Walgreen Co. 2.78% Walt Disney Co. (The) 2.74% Cardinal Health Inc. 2.51% Lowe's Companies Inc. 2.36% Target Corp. 1.99% Mcdonald's Corp. 1.85% The iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Consumer Cyclical Sector Index. For the six-month period ended October 31, 2002 (the "reporting period"), the Fund declined 20.67%, while the Index fell 20.46%. Market-weary investors found no relief during the reporting period. The same themes that had weighed on equity markets in recent quarters continued, eroding investor confidence and driving down stock prices. Investigations into corporate governance problems at Enron were mirrored by allegations of improprieties at Tyco, WorldCom, and others. Corporations continued to announce layoffs and issue earnings warnings at a steady rate. Meanwhile, economic news continued to portray an economy not yet out of the throes of recession. Second quarter GDP growth was a sluggish 1.3%. Consumer confidence fell during the end of the reporting period after having risen following the September 11, 2001 attacks. By October, the Conference Board's Consumer Confidence Index fell to 79.4, its lowest level in nine years. Consumer confidence is important as it provides indications of consumer spending, which generally accounts for two thirds of GDP. Indeed, consumer spending levels, which had been a bright spot on the economic landscape, appeared to have peaked early in the reporting period. 8 2002 iShares Semi-Annual Report to Shareholders The slowdown in consumer spending levels was widespread. On the retail level, department stores' same-store sales fell 4.8% in August, the worst drop since the 6.8% drop in September 2001. Discount stores, which had outperformed department stores early in the recession, began to feel the cutback in consumer spending. Within the Index, all of the ten largest holdings posted declines during the reporting period. Home Depot (5.46% of the Index as of October 31, 2002) led the decline with a 37.54% loss. McDonald's (1.85% of the Index as of October 31, 2002) fell 36.23%, while Target Corporation (1.99% of the Index as of October 31, 2002) lost 30.78%. The Walt Disney Company (2.74% of the Index as of October 31, 2002) and AOL Time Warner (5.08% of the Index as of October 31, 2002) declined 27.96% and 22.45%, respectively. Managers' Discussion & Analysis 9 Managers' Discussion & Analysis iSHARES DOW JONES U.S. CONSUMER NON-CYCLICAL SECTOR INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns --------------------------------------------- -------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 -------------------- ----------------------- -------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX 1.08% 0.83% 1.66% 2.15% 2.07% 2.90% 5.22% 5.02% 7.07% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (06/16/00), 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. 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. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC TOP 10 INDEX HOLDINGS Procter & Gamble Co. 13.58% Coca-Cola Co. (The) 12.53% Philip Morris Companies Inc. 10.17% Pepsico Inc. 9.23% Anheuser-Busch Companies Inc. 5.41% Colgate-Palmolive Co. 3.52% Gillette Co. (The) 3.39% Kimberly-Clark Corp. 3.14% Sysco Corp. 2.48% Sara Lee Corp. 2.00% The iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Consumer Non-Cyclical Sector Index. For the six-month period ended October 31, 2002 (the "reporting period"), the Fund declined 12.12%, while the Index declined 11.86%. Equity markets struggled during the reporting period. Weak economic indicators continued to cloud the outlook for recovery and weigh on markets. Investor skepticism about corporate leadership continued: earlier investigations of Enron were mirrored by investigations of WorldCom, Tyco and others. Earnings warnings also increased during the reporting period. Finally, geopolitical tensions contributed to negative investor sentiment. As the possibility of a war with Iraq raised concerns about supply of oil from the area, the price of oil surged to more than $30 per barrel. No industry group was left untouched by the slow economic conditions. Consumer non-cyclicals, however, were one of the least affected sectors over the reporting period. Because the companies that comprise the Index produce basic goods and services that are purchased even during difficult economic times, their share prices tend to be less sensitive to economic conditions. 10 2002 iShares Semi-Annual Report to Shareholders Within the Index's ten largest holdings, performance was mixed for the reporting period. Philip Morris Companies (10.17% of the Index as of October 31, 2002) fell 23.12%, and Kimberly-Clark (3.14% of the Index as of October 31, 2002) lost 20.15%. Gillette Company (3.39% of the Index as of October 31, 2002) and PepsiCo (9.23% of the Index as of October 31, 2002) dropped 14.90% and 14.45%, respectively. However, some holdings delivered healthy gains: Sysco Corporation (2.48% of the Index as of October 31) climbed 9.93%, Sara Lee (2.00% of the Index as of October 31) rose 9.44%, and Colgate-Palmolive (3.52% of the Index) returned 4.42%. Managers' Discussion & Analysis 11 Managers' Discussion & Analysis iSHARES DOW JONES U.S. FINANCIAL SECTOR INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ----------------------------------------------- -------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 ---------------------- ----------------------- -------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (3.58)% (3.70)% (3.05)% 0.57% 0.62% 1.18% 1.39% 1.53% 2.91% "Total returns for the period since inception" are calculated from the inception date of the Fund (05/22/00). "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 returns ("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 (05/31/00), 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. 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. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC TOP 10 INDEX HOLDINGS Citigroup Inc. 9.90% American International Group Inc. 7.59% Bank of America Corp. 5.01% Wells Fargo & Company 4.54% Fannie Mae 3.51% Wachovia Corp. 2.53% Bank One Corp. 2.39% Freddie Mac 2.27% American Express Co. 2.27% U.S. Bancorp 2.14% The iShares Dow Jones U.S. Financial Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Financial Sector Index. For the six-month period ended October 31, 2002 (the "reporting period"), the Fund declined 13.70%, while the Index declined 13.44%. Equity markets fell during the reporting period, pulled down largely by poor economic data. Following robust first quarter growth reports, Gross Domestic Product ("GDP") growth was lower than expected for the second quarter, and preliminary reports for the third quarter were weak. Manufacturing activity slowed and fewer jobs than expected were created in the U.S. economy. After having risen following the September 11, 2001 attacks, consumer confidence fell to a nine-year low. Consumer confidence is important as it provides indications of consumer spending, which generally accounts for two thirds of GDP. As the possibility of an invasion of Iraq raised concerns about the supply of oil from the area, the price of oil surged to more than $30 per barrel. In response to economic conditions the Federal Reserve Board left rates unchanged during the reporting period. The federal funds rate stood at 1.75%, its lowest level since the 1960's. 12 2002 iShares Semi-Annual Report to Shareholders Within the financial sector, performance was largely negative over the reporting period. Large credit card issuers suffered the biggest declines as credit concerns grew. Meanwhile, banks experienced relatively muted losses, benefiting from mortgage refinancing activity thanks to historically low interest rates. All of the Index's ten largest holdings posted losses for the reporting period. American International Group (7.59% of the Index as of October 31, 2002) fell 9.38%, while Citigroup (9.90% of the Index as of October 31, 2002) lost 7.55%. Bank of America (5.01% of the Index as of October 31) and Wells Fargo (4.54% of the Index), meanwhile, declined 2.04% and 0.24%, respectively. American Express (2.27% of the Index as of October 31, 2002) dropped 10.89%. Managers' Discussion & Analysis 13 Managers' Discussion & Analysis iSHARES DOW JONES U.S. INDUSTRIAL SECTOR INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 ------------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (16.36)% (16.30)% (17.07)% (17.12)% (17.09)% (18.00)% (36.15)% (36.10)% (37.78)% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (06/20/00), 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. 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. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC TOP 10 INDEX HOLDINGS General Electric Co. 25.08% 3M Co. 4.94% United Technologies Corp. 2.90% Tyco Intternational Ltd. 2.88% United Parcel Service Inc. "B" 2.71% First Data Corp. 2.64% Automatic Data Processing Inc. 2.63% Boeing Co. (The) 2.12% Lockheed Martin Corp. 2.09% Emerson Electric Co. 2.03% The iShares Dow Jones U.S. Industrial Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Industrial Sector Index. For the six-month period ended October 31, 2002 (the "reporting period") the Fund declined 19.96%, while the Index declined 20.15%. Equity markets faced downward pressure on a variety of fronts during the reporting period. Weak economic indicators continued to cloud the outlook for recovery: second quarter GDP growth was reported at a sluggish 1.3%. The labor market remained soft and consumer sentiment, as measured by the Consumer Confidence Index, plunged to a nine-year low. Investor skepticism about corporate leadership continued: earlier investigations of Enron multiplied, as new allegations of irregularities were directed at WorldCom, Tyco and others. Earnings warnings also grew during the reporting period. As Americans marked the one-year anniversary of the tragic events of September 11, 2001, geopolitical tensions continued to weigh heavily on the markets. As the possibility of an invasion in Iraq raised concerns about supply of oil from the area, the price of oil surged to more than $30 per barrel. 14 2002 iShares Semi-Annual Report to Shareholders The sluggish economic conditions in the U.S. were part of a larger global slowdown. Economic slowdown meant little demand for industrial production, and the industrial sector stalled. Although there were a few bright spots, the group generally performed poorly over the reporting period. In terms of individual holdings, aerospace company Boeing (2.12% of the Index as of October 31, 2002) was the worst performer in the Index's top ten over the reporting period, dropping 32.73%. Tyco International (2.88% of the Index as of October 31, 2002) lost 21.48%, as its allegations and investigations continued. General Electric (25.08% of the Index as of October 31, 2002) declined 18.94%, and Automatic Data Processing (2.63% of the Index as of October 31) dropped 15.85%. There were a few positive performers for the period: 3M (4.94% of the Index as of October 31, 2002) gained 1.88%, and United Parcel Service (2.71% of the Index as of October 31) rose 0.56%. Managers' Discussion & Analysis 15 Managers' Discussion & Analysis iSHARES DOW JONES U.S. CHEMICALS INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 ------------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX 2.05% 1.72% 1.02% 0.12% 0.10% (1.23)% 0.29% 0.24% (2.91)% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (06/19/00), 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. 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. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC TOP 10 INDEX HOLDINGS Du Pont (E.I.) De Nemours & CO. 28.96% Dow Chemical Co. (The) 16.73% Air Products & Chemicals Inc. 7.10% Praxair Inc. 6.19% Ppg Industries Inc. 5.63% Avery Dennison Corp. 4.29% Rohm & HAAS CO. "A" 3.97% Ecolab Inc. 3.74% Engelhard Corp. 2.05% Sigma-aldrich Corp. 2.03% The iShares Dow Jones U.S. Chemicals Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Chemicals Index. For the six-month period ended October 31, 2002 (the "reporting period") the Fund declined 11.02%, while the Index declined 11.01%. Equity markets faced challenges from all fronts during the reporting period. Second quarter GDP growth was reported at a mere 1.3%, raising doubts about the strength of economic recovery. Further clouding the economic picture, the labor market remained soft and consumer spending declined. On the corporate front, profit warnings escalated during the reporting period. During the third quarter of 2002, the number of companies issuing earnings warnings rose 28% from the second quarter. The investigations into corporate irregularities continued to expand during the reporting period, rattling investors' confidence in corporate leadership. Compounding the uncertainty, geopolitical tensions continued to mount. As an invasion of Iraq became a clear possibility, the potential disruption in the flow of oil from the Middle East led to a spike in oil prices. By late September, the price of oil jumped to a 19-month high of $30.71 per barrel. Because crude oil and natural gas are the main raw ingredients used in the products of most chemical companies, many companies in the sector were hit hard by the sharp rise in oil prices during the reporting period. Within the Index's ten largest holdings, Engelhard 16 2002 iShares Semi-Annual Report to Shareholders Corporation (2.05% of the Index as of October 31, 2002) logged the largest decline, falling 26.66%. Dow Chemical (16.73% of the Index as of October 31, 2002), lost 16.46%. Rohm & Haas (3.97% of the Index as of October 31, 2002), and PPG Industries (5.63% of the Index as of October 31, 2002), declined 9.39% and 8.75%, respectively. The sole positive performer among the ten largest holdings was Ecolab (3.74% of the Index as of October 31, 2002), which gained 10.55%. One of the reasons for Ecolab's stock price increase was that third quarter earnings level jumped 25% over the same quarter last year. Managers' Discussion & Analysis 17 Managers' Discussion & Analysis iSHARES DOW JONES U.S. FINANCIAL SERVICES INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ---------------------------------------------- ------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 ---------------------- ---------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (1.76)% (1.82)% (1.18)% (1.48)% (1.48)% (0.88)% (3.51)% (3.49)% (2.10)% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (06/19/00), 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. 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. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC TOP 10 INDEX HOLDINGS Citigroup Inc. 13.80% Bank of America Corp. 6.98% Wells Fargo & Company 6.33% Fannie Mae 4.90% Wachovia Corp. 3.52% Bank One Corp. 3.33% Freddie Mac 3.16% American Express Co. 3.16% U.S. Bancorp 2.98% JP Morgan Chase & Co. 2.88% The iShares Dow Jones U.S. Financial Services Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Financial Services Index. For the six-month period ended October 31, 2002 (the "reporting period") the Fund declined 13.09%, while the Index declined 12.84%. U.S. equity markets continued to struggle during the reporting period. Most notably, accounting concerns initially stemming from Enron's problems dominated the news and drove many investors from stock markets. Accounting scandals spread during the six-month reporting period to include Tyco and WorldCom, creating a crisis in confidence in corporate America. Adding to investor concern, investigations into brokerage analysts revealed further scandals. 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. By October, consumer confidence had dipped to a nine-year low. However, as interest rates fell to their lowest levels in 40 years, one bright spot emerged: home refinancing and new home construction surged. 18 2002 iShares Semi-Annual Report to Shareholders Although performance across the financial services group was largely negative over the reporting, there was a bifurcation within the sector. On one hand, investment banks suffered substantial declines as they struggled with a dearth of investor activity and low valuations. On the other hand, many regional banks enjoyed strong mortgage lending activity during the period, resulting in nearly flat performance for that group. Among the Index's ten largest holdings, the worst performer for the reporting period was JP Morgan Chase & Co. (2.88% of the Index as of October 31, 2002), which fell 39.13%. Fannie Mae (4.90% of the Index as of October 31, 2002) lost 14.50%, while American Express (3.16% of the Index as of October 31, 2002) declined 10.89% for the reporting period. Bank of America (6.98% of the Index as of October 31, 2002) and Wells Fargo (6.33% of the Index as of October 31, 2002) fell 2.04% and 0.24%, respectively. Managers' Discussion & Analysis 19 Managers' Discussion & Analysis iSHARES DOW JONES U.S. INTERNET INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 ------------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (24.65)% (24.56)% (24.14)% (56.83)% (56.84)% (56.46)% (87.40)% (87.41)% (87.07)% "Total returns for the period since inception" are calculated from the inception date of the Fund (05/15/00). "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 returns ("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 (5/19/00), 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. 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 INDEX HOLDINGS Yahoo! Inc. 12.79% Amazon.com Inc. 9.36% eBay Inc. 9.32% BEA Systems Inc. 7.99% Check Point Software Technologies Ltd. 6.38% WebMD Corp. 4.90% Verisign Inc. 4.49% E*TRADE Group Inc. 4.30% Overture Services Inc. 3.69% TMP Worldwide Inc. 3.38% The iShares Dow Jones U.S. Internet Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Internet Index. For the six-month period ended October 31, 2002 (the "reporting period") the Fund declined 19.00%, while the Index fell 18.73%. Equity markets faced challenges from all fronts during the reporting period. Second quarter GDP growth was reported at 1.3%, raising doubts about the strength of economic recovery. Further clouding the economic picture, the labor market remained soft, consumer spending declined, and the U.S. dollar continued weakening. On the corporate front, profit warnings escalated during the reporting period. During the third quarter of 2002, the number of companies issuing earnings warnings rose 28% over the second quarter. The investigations into corporate irregularities continued to expand during the reporting period, rattling investors' confidence in corporate leadership. Compounding the uncertainty, geopolitical tensions continued to mount. As an invasion of Iraq became a possibility, the potential disruption in the flow of oil from the Middle East led to a spike in oil prices. 20 2002 iShares Semi-Annual Report to Shareholders The weak U.S. economy has led to diminished corporate investment in Internet-based technologies, hurting revenues for many companies in the sector. In addition, sagging consumer spending levels translated into lowered online sales levels. Adding to Internet companies' woes, many investors continued to avoid technology-related shares since the share prices began to fall in 2001. The Index's ten largest holdings reflected the sector's struggles during the reporting period. TMP Worldwide Inc. (3.38% of the Index as of October 31, 2002) declined 48.69% over the reporting period. Hurt by the slowdown in investor activity, E*TRADE Group (4.30% of the Index as of October 31, 2002) fell 40.32%. BEA Systems (7.99% of the Index as of October 31, 2002) and Check Point Software Technologies (6.38% of the Index as of October 31, 2002) declined 24.54% and 24.02%, respectively, over the reporting period. The picture was brighter for retail Internet leaders eBay (9.32% of the Index as of October 31) and Amazon.com (9.36% of the Index), which gained 19.10% and 16.00%, respectively. Managers' Discussion & Analysis 21 Managers' Discussion & Analysis iSHARES DOW JONES U.S. REAL ESTATE INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns --------------------------------------------- ------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 -------------------- ----------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX 5.93% 6.13% 6.43% 9.20% 9.17% 9.65% 23.40% 23.32% 24.63% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (6/19/00), 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. 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. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC TOP 10 INDEX HOLDINGS Equity Office Properties Trust 8.47% Equity Residential 5.40% Simon Property Group Inc. 4.28% ProLogis 3.62% Plum Creek Timber Co. Inc. 3.47% Archstone-Smith Trust 3.39% Boston Properties Inc. 2.86% Vornado Realty Trust 2.67% Duke Realty Corp. 2.57% Apartment Investment & Management Co. "A" 2.51% The iShares Dow Jones U.s. Real Estate Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Real Estate Index. For the six-month period ended October 31, 2002 (the "reporting period"), the Fund declined 9.97%, while the Index declined 9.80%. Poor economic and stock market conditions were a boon to interest rates during the reporting period. By September, fears of impending war with Iraq, a volatile stock market and the weak economy drove the benchmark 10-year Treasury note yield to levels not seen since 1958. Mortgage rates also fell to new lows, and by September the 30-year mortgage had dipped to 5.99%, the lowest level since Freddie Mac began tracking the rate. In response to the low rates, Americans bought new homes and refinanced existing mortgages. The Mortgage Bankers Association reported a 17% surge in loan applications to a new high. Refinancing jumped 19% and applications for new home purchases rose 12%. Despite these developments, within the Index's ten largest holdings, performance was still mostly negative for the reporting period. Apartment Investment & Management Company (2.51% of the Index as of October 31, 2002) fell 25.80%, and Plum Creek Timber (3.47% of the Index as of October 31, 2002) lost 22.67%. Vornado Realty Trust (2.67% of the Index as of October 31, 2002) declined 14.08%, Equity Residential (5.40% of the Index as of October 31, 2002) fell 13.14%, and Equity Office Properties Trust (8.47% of the Index as of October 31, 2002) lost 12.85%. On the positive side, ProLogis (3.62% of the Index as of October 31) gained 12.32%, and Simon Property Group (4.28% of the Index) climbed 4.47%. 22 2002 iShares Semi-Annual Report to Shareholders Managers' Discussion & Analysis iSHARES COHEN & STEERS REALTY MAJORS INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 ------------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX 5.56% 5.59% 5.88% 4.93% 4.99% 5.22% 8.83% 8.92% 9.31% "Total returns for the period since inception" are calculated from the inception date of the Fund (01/29/01). "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 returns ("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 (2/2/01), 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. 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. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC TOP 10 INDEX HOLDINGS Equity Office Properties Trust 8.14% Equity Residential 7.93% Simon Property Group Inc. 7.89% ProLogis 5.53% Archstone-Smith Trust 5.17% Vornado Realty Trust 5.02% Public Storage Inc. 4.37% Boston Properties Inc. 4.35% Duke Realty Corp. 4.19% Apartment Investment & Management Co. "A" 4.12% The iShares Cohen & Steers Realty Majors Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Cohen & Steers Realty Majors Index. For the six-month period ended October 31, 2002 (the "reporting period"), the Fund declined 9.41%, while the Index declined 9.35%. Equity investors found little relief during the reporting period. The same themes that had weighed on equity markets in recent quarters continued: economic news portrayed an economy not yet out of the throes of recession: second quarter GDP growth was a tepid 1.3%, labor markets were soft, and the U.S. dollar remained weak. Poor economic and stock market conditions were a boon to interest rates. By September, fears of impending war with Iraq, a volatile stock market and the weak economy drove the benchmark 10-year Treasury note yield to levels not seen since 1958. Mortgage rates also fell to new lows, and by September the 30-year mortgage had dipped to 5.99%, the lowest level since Freddie Mac began tracking the rate. In response to the low rates, many Americans bought new homes and refinanced existing mortgages: The Mortgage Bankers Association reported a 17% surge in loan applications to a new high. Refinancing jumped 19% and applications for new home purchases rose 12%. Managers' Discussion & Analysis 23 Although real estate-related shares were hurt during the reporting period, their losses were more modest than other sectors. Within the Index's ten largest holdings, performance was mixed for the reporting period. Apartment Investment & Management Company (4.12% of the Index as of October 31, 2002) declined 25.80%, and Public Storage Inc. (4.37% of the Index as of October 31, 2002) fell 20.44%. On the positive side, ProLogis (5.53% of the Index as of October 31, 2002) gained 12.32%, while Simon Property Group (7.89% of the Index as of October 31, 2002) rose 4.47%. 24 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. BASIC MATERIALS SECTOR INDEX FUND October 31, 2002 Security Shares Value ------------------------------------------------------------------- COMMON STOCKS - 99.88% Du Pont (E.I.) de Nemours & Co. 276,096 $11,388,960 Dow Chemical Co. (The) 253,148 6,579,316 Alcoa Inc. 234,649 5,176,357 International Paper Co. 123,074 4,298,975 Air Products & Chemicals Inc. 63,142 2,790,876 Weyerhaeuser Co. 60,855 2,756,731 Praxair Inc. 44,632 2,432,444 Newmont Mining Corp. 96,725 2,391,042 PPG Industries Inc. 47,061 2,213,279 Avery Dennison Corp. 27,078 1,685,335 Rohm & Haas Co. "A" 46,933 1,561,461 Ecolab Inc. 30,484 1,470,853 MeadWestvaco Corp. 54,682 1,145,588 Nucor Corp. 19,608 826,281 Engelhard Corp. 36,369 805,573 Sigma-Aldrich Corp. 17,481 799,756 Eastman Chemical Co. 21,370 776,586 Phelps Dodge Corp./1/ 24,646 764,519 International Flavors & Fragrances Inc. 22,545 756,385 Georgia-Pacific Corp. 56,179 685,384 Valspar Corp. (The) 12,528 523,295 Bowater Inc. 15,330 519,534 Freeport-McMoRan Copper & Gold Inc./1/ 40,281 491,428 RPM International Inc. 31,797 478,863 Ashland Inc. 17,649 463,286 Meridian Gold Inc./1/ 27,172 443,990 Lyondell Chemical Co. 34,958 436,975 Lubrizol Corp. 14,219 412,351 Cabot Corp. 17,073 404,289 Boise Cascade Corp. 16,127 383,661 United States Steel Corp. 28,347 364,259 Worthington Industries Inc. 19,272 363,084 Rayonier Inc. 7,690 324,364 IMC Global Inc. 28,821 317,031 Cabot Microelectronics Corp./1/ 6,701 304,158 Ferro Corp. 11,147 272,767 Cytec Industries Inc./1/ 11,052 267,569 Hercules Inc./1/ 27,096 260,122 Great Lakes Chemical Corp. 10,686 259,883 Olin Corp. 15,737 255,884 Fuller (H.B.) Co. 7,870 224,059 Crompton Corp. 31,335 207,751 AK Steel Holding Corp./1/ 28,424 205,790 Potlatch Corp. 7,856 205,356 Louisiana-Pacific Corp./1/ 29,008 195,514 Georgia Gulf Corp. 8,804 191,487 Cambrex Corp. 6,727 187,280 Millennium Chemicals Inc. 17,681 163,903 MacDermid Inc. 7,111 142,789 Schulman (A.) Inc. 8,150 142,625 WD-40 Co. 4,577 131,360 Solutia Inc. 28,805 128,182 Wausau-Mosinee Paper Corp. 13,364 127,626 Allegheny Technologies Inc. 18,581 127,280 Stillwater Mining Co./1/ 11,972 95,656 Wellman Inc. 8,831 89,193 Tredegar Corp. 6,621 85,411 Caraustar Industries Inc. 7,760 70,150 Carpenter Technology Corp. 5,549 59,652 Cleveland-Cliffs Inc. 2,799 56,540 RTI International Metals Inc./1/ 5,425 56,149 OM Group Inc. 7,700 49,973 Ryerson Tull Inc. 6,367 44,569 Pope & Talbot Inc. 3,613 42,562 TOTAL COMMON STOCKS (Cost: $76,563,866) 61,883,351 SHORT TERM INSTRUMENTS - 3.08% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 1,654,446 1,654,446 BlackRock Temp Cash Money Market Fund 175,487 175,487 Dreyfus Money Market Fund 77,043 77,043 Goldman Sachs Financial Square Prime Obligation Fund 547 547 TOTAL SHORT TERM INSTRUMENTS (Cost: $1,907,523) 1,907,523 TOTAL INVESTMENTS IN SECURITIES - 102.96% (Cost $78,471,389) 63,790,874 Other Assets, Less Liabilities - (2.96%) (1,831,192) ----------- NET ASSETS - 100.00% $61,959,682 =========== /1/ Non-income earning securities. See notes to financial statements. Schedules of Investments 25 Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. CONSUMER CYCLICAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ----------------------------------------------------------------- COMMON STOCKS - 100.00% Wal-Mart Stores Inc. 387,832 $ 20,768,404 Home Depot Inc. 334,517 9,660,851 Viacom Inc. "B"/1/ 216,497 9,657,931 AOL Time Warner Inc./1/ 609,390 8,988,502 Walgreen Co. 145,465 4,909,444 Walt Disney Co. (The) 289,784 4,839,393 Cardinal Health Inc. 64,154 4,440,098 Lowe's Companies Inc. 100,082 4,176,422 Target Corp. 116,682 3,514,462 McDonald's Corp. 181,065 3,279,087 Comcast Corp. "A"/1/ 130,003 2,991,369 Clear Channel Communications Inc./1/ 79,284 2,937,472 Gannett Co. Inc. 37,892 2,877,140 Liberty Media Corp. "A"/1/ 335,001 2,770,458 Kohls Corp./1/ 42,653 2,493,068 Harley-Davidson Inc. 42,920 2,244,716 Costco Wholesale Corp./1/ 64,547 2,190,080 General Motors Corp. "A" 63,851 2,123,046 Ford Motor Company 248,716 2,104,137 McGraw-Hill Companies Inc. (The) 27,488 1,772,976 CVS Corp. 55,722 1,545,171 TJX Companies Inc. 75,074 1,540,518 Omnicom Group Inc. 26,690 1,538,145 Bed Bath & Beyond Inc./1/ 40,996 1,453,718 Southwest Airlines Co. 99,107 1,446,962 Eastman Kodak Co. 41,387 1,363,702 Tribune Co. 28,369 1,363,130 Carnival Corp. "A" 50,787 1,326,556 Starbucks Corp./1/ 55,094 1,308,483 Electronic Arts Inc./1/ 19,399 1,263,263 AutoZone Inc./1/ 14,367 1,232,258 Sears, Roebuck and Co. 44,839 1,177,472 McKesson Corp. 38,489 1,147,357 Nike Inc. "B" 24,284 1,145,962 Mattel Inc. 61,819 1,134,997 Gap Inc. (The) 90,002 1,059,324 AmerisourceBergen Corp. 14,739 1,048,680 Staples Inc./1/ 65,385 1,013,468 Limited Brands Inc. 63,130 989,247 USA Interactive/1/ 38,488 973,362 May Department Stores Co. (The) 41,606 971,500 Johnson Controls Inc. 12,415 968,370 Yum! Brands Inc./1/ 41,500 934,995 International Game Technology Inc./1/ 12,270 922,827 General Motors Corp. "H"/1/ 92,057 906,761 Federated Department Stores Inc./1/ 28,584 877,529 New York Times Co. "A" 17,834 863,344 Marriott International Inc. "A" 27,430 848,410 TRW Inc. 14,796 788,627 Best Buy Co. Inc./1/ 37,160 765,868 Cox Communications Inc. "A"/1/ 27,488 753,171 Genuine Parts Co. 24,715 730,081 Penney (J.C.) Co. Inc. (Holding Co.) 37,976 723,443 Knight Ridder Inc. 11,938 718,429 Family Dollar Stores Inc. 22,939 706,292 Amazon.com Inc./1/ 35,927 695,547 EchoStar Communications Corp./1/ 34,063 694,545 Harrah's Entertainment Inc./1/ 15,946 669,732 Starwood Hotels & Resorts Worldwide Inc. 28,178 656,547 Hilton Hotels Corp. 53,322 655,861 Interpublic Group of Companies Inc. 54,467 651,970 Office Depot Inc./1/ 43,597 627,361 Jones Apparel Group Inc./1/ 17,076 591,513 Univision Communications Inc. "A"/1/ 22,730 588,934 Leggett & Platt Inc. 27,845 580,568 VF Corp. 15,563 573,030 Delphi Corp. 79,437 552,882 Tiffany & Co. 20,591 539,072 RadioShack Corp./1/ 24,657 515,331 Dollar General Corp. 34,282 478,577 Ross Stores Inc. 11,311 473,365 Whirlpool Corp. 9,635 449,087 Wendy's International Inc. 14,168 448,842 Liz Claiborne Inc. 14,908 443,066 CDW Computer Centers Inc./1/ 8,336 441,975 Lennar Corp. 7,650 422,051 Darden Restaurants Inc. 22,191 421,185 Michaels Stores Inc./1/ 9,290 417,678 Dollar Tree Stores Inc./1/ 15,886 417,643 Mohawk Industries Inc./1/ 7,705 412,603 26 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. CONSUMER CYCLICAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ----------------------------------------------------------------- Westwood One Inc./1/ 11,156 $ 404,963 Brinker International Inc./1/ 13,912 394,962 Centex Corp. 8,611 391,628 Coach Inc./1/ 12,555 373,511 AutoNation Inc./1/ 34,507 366,119 Lamar Advertising Co./1/ 10,730 364,176 D.R. Horton Inc. 18,205 350,810 Scripps (E.W.) Co. "A" 4,461 344,345 Lear Corp./1/ 9,243 337,832 Outback Steakhouse Inc./1/ 9,729 331,272 NVR Inc./1/ 965 327,135 Pulte Homes Inc. 7,076 324,930 PETsMART Inc./1/ 16,651 318,201 Fastenal Co. 9,344 317,229 Gentex Corp./1/ 10,638 313,608 Washington Post Company (The) "B" 430 312,997 Belo (A.H.) Corp. 13,509 312,058 Williams-Sonoma Inc./1/ 13,070 311,066 MGM Grand Inc./1/ 9,612 298,933 Toys R Us Inc./1/ 29,611 295,814 Nordstrom Inc. 14,285 284,557 Circuit City Stores Inc. 27,812 275,617 KB Home 5,705 269,276 Park Place Entertainment Corp./1/ 37,127 269,171 Big Lots Inc./1/ 16,186 268,688 Brunswick Corp. 12,813 263,692 Maytag Corp. 10,211 263,444 Harman International Industries Inc. 4,552 254,912 Royal Caribbean Cruises Ltd. 13,856 254,396 Abercrombie & Fitch Co. "A"/1/ 14,018 249,801 Pier 1 Imports Inc. 13,210 249,009 Entercom Communications Corp./1/ 5,044 248,266 Hasbro Inc. 23,197 237,073 Cablevision Systems Corp./1/ 24,294 232,251 Mandalay Resort Group/1/ 8,051 227,763 CarMax Inc.(1) 13,881 227,510 GTECH Holdings Corp./1/ 8,160 212,160 Scholastic Corp./1/ 4,797 211,788 Cheesecake Factory (The)/1/ 6,213 210,621 Dana Corp. 20,994 209,940 Dow Jones & Co. Inc. 5,938 208,543 BJ's Wholesale Club Inc./1/ 10,297 208,205 Chico's FAS Inc./1/ 10,681 206,143 Polaris Industries Inc. 3,265 205,662 HON Industries Inc. 7,862 200,874 Borders Group Inc./1/ 11,584 199,592 Valassis Communications Inc./1/ 7,633 196,931 Foot Locker Inc./1/ 19,860 194,628 Herman Miller Inc. 10,772 194,435 99 Cents Only Stores/1/ 7,168 193,894 Activision Inc./1/ 9,446 193,643 Meredith Corp. 4,240 193,132 O'Reilly Automotive Inc./1/ 6,982 190,399 La-Z-Boy Inc. 7,904 188,115 Readers Digest Association Inc. (The) "A" 11,501 187,006 Applebee's International Inc. 7,836 186,418 Saks Inc./1/ 17,029 184,765 Reebok International Ltd./1/ 6,533 184,557 ARAMARK Corp. "B"/1/ 8,700 183,570 Delta Air Lines Inc. 17,428 175,674 CBRL Group Inc. 7,466 174,928 McClatchy Co. (The) "A" 2,750 170,858 BorgWarner Inc. 3,739 168,180 Ethan Allen Interiors Inc. 5,236 167,814 Furniture Brands International Inc./1/ 7,364 166,500 Dillards Inc. "A" 10,040 165,560 Goodyear Tire & Rubber Co. 23,171 164,514 Barnes & Noble Inc./1/ 7,784 164,242 Clayton Homes Inc. 14,141 160,076 Payless ShoeSource Inc./1/ 3,164 159,782 Ruby Tuesday Inc. 9,134 159,388 Lee Enterprises Inc. 4,855 158,758 Media General Inc. "A" 2,848 155,786 Fox Entertainment Group Inc. "A"/1/ 6,354 155,101 Wiley (John) & Sons Inc. "A" 7,047 154,893 Ryland Group Inc. 3,719 154,710 Hollywood Entertainment Corp./1/ 7,768 152,719 Claire's Stores Inc. 5,778 148,841 Extended Stay America Inc./1/ 11,886 148,575 Harte-Hanks Inc. 7,741 147,698 Emmis Communications Corp./1/ 6,740 147,067 Schedules of Investments 27 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. CONSUMER CYCLICAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ----------------------------------------------------------------- Linens 'N Things Inc./1/ 6,230 $ 146,467 ArvinMeritor Inc. 9,646 146,137 Toll Brothers Inc./1/ 7,107 145,551 Zale Corp./1/ 4,954 144,656 AnnTaylor Stores Corp./1/ 6,172 144,610 American Axle & Manufacturing Holdings Inc./1/ 6,097 144,499 M.D.C. Holdings Inc. 3,811 143,065 Advance Auto Parts Inc./1/ 2,621 140,355 Cox Radio Inc. "A"/1/ 5,835 138,523 Sonic Corp./1/ 5,767 134,198 Cooper Tire & Rubber Co. 10,284 133,795 Callaway Golf Co. 10,850 132,804 Rite Aid Corp./1/ 73,473 131,517 Pixar Inc./1/ 2,564 130,841 American Greetings Corp. "A" 8,582 129,073 Hispanic Broadcasting Corp./1/ 5,859 125,968 DoubleClick Inc./1/ 17,951 125,657 Bob Evans Farms Inc. 5,042 125,395 Visteon Corp. 18,620 122,706 SkyWest Inc. 8,059 122,263 Superior Industries International Inc. 2,858 121,379 Jack in the Box Inc./1/ 5,586 121,160 Polo Ralph Lauren Corp./1/ 6,350 120,904 International Speedway Corp. "A" 2,905 113,121 P.F. Chang's China Bistro Inc./1/ 3,210 110,745 Gemstar-TV Guide International Inc./1/ 30,608 110,495 Priority Healthcare Corp. "B"/1/ 4,535 110,155 American Eagle Outfitters Inc./1/ 7,539 109,466 CEC Entertainment Inc./1/ 3,919 108,948 Pacific Sunwear of California Inc./1/ 4,640 108,437 AMR Corp./1/ 21,777 102,787 Donnelley (R.H.) Corp./1/ 4,217 102,009 Longs Drug Stores Corp. 4,383 97,960 Wolverine World Wide Inc. 5,863 94,453 Talbots Inc. (The) 3,387 93,888 Timberland Co. "A"/1/ 2,921 92,829 Hearst-Argyle Television Inc./1/ 3,727 92,765 Station Casinos Inc./1/ 5,071 91,227 Tommy Hilfiger Corp./1/ 11,978 90,434 Cost Plus Inc./1/ 3,081 89,044 Pep Boys-Manny, Moe & Jack Inc. 7,588 88,021 ADVO Inc./1/ 2,853 86,560 THQ Inc./1/ 5,611 81,135 Alaska Air Group Inc./1/ 3,747 81,085 Metro-Goldwyn-Mayer Inc./1/ 6,325 80,960 Quiksilver Inc./1/ 3,242 77,840 Atlantic Coast Airlines Holdings Inc./1/ 5,773 76,204 Kellwood Co. 3,243 75,724 Winnebago Industries Inc. 1,634 74,069 Men's Wearhouse Inc. (The)/1/ 5,398 74,061 Charming Shoppes Inc./1/ 16,017 73,678 Hollinger International Inc. 7,387 72,023 Aztar Corp./1/ 5,236 70,738 ValueVision Media Inc. "A"/1/ 5,350 70,727 Interactive Data Corp./1/ 4,852 70,451 Insight Communications Co. Inc./1/ 7,146 69,602 Modine Manufacturing Co. 3,971 69,453 Fossil Inc./1/ 3,536 69,341 IHOP Corp./1/ 2,987 68,372 Northwest Airlines Corp. "A"/1/ 9,595 65,726 Dress Barn Inc./1/ 4,144 65,061 Nautilus Group Inc. (The)/1/ 4,726 64,935 Duane Reade Inc./1/ 3,350 64,454 Ryan's Family Steak Houses Inc./1/ 6,251 64,135 OfficeMax Inc./1/ 13,447 63,604 Prime Hospitality Corp./1/ 7,461 60,285 Lone Star Steakhouse & Saloon Inc. 2,855 59,498 Six Flags Inc./1/ 12,969 59,268 Guitar Center Inc./1/ 3,161 59,111 Continental Airlines Inc. "B"/1/ 8,984 57,048 Sinclair Broadcast Group Inc. "A"/1/ 4,819 57,009 Russell Corp. 3,468 53,893 Papa John's International Inc./1/ 2,021 52,607 ShopKo Stores Inc./1/ 4,132 52,352 Stride Rite Corp. 5,996 51,266 Genesco Inc./1/ 3,160 50,434 Insight Enterprises Inc./1/ 6,482 49,522 WMS Industries Inc./1/ 3,400 48,280 Nautica Enterprises Inc./1/ 4,293 48,082 Charter Communications Inc. "A"/1/ 41,812 47,206 Avid Technology Inc./1/ 3,318 46,751 28 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. CONSUMER CYCLICAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ----------------------------------------------------------------- Tower Automotive Inc./1/ 8,504 $ 45,071 Oakley Inc./1/ 3,810 45,034 Triarc Companies Inc./1/ 1,834 44,016 Jakks Pacific Inc./1/ 3,324 44,010 Phillips-Van Heusen Corp. 3,238 43,778 Unifi Inc./1/ 7,720 42,614 Steelcase Inc. "A" 4,487 40,877 Cato Corp. "A" 2,120 38,902 Airtran Holdings Inc./1/ 9,878 37,536 Kenneth Cole Productions "A"/1/ 1,269 30,456 Bally Total Fitness Holding Corp./1/ 4,359 29,641 UnitedGlobalCom Inc. "A"/1/ 14,914 28,187 Fleetwood Enterprises Inc./1/ 4,947 27,703 Young Broadcasting Inc. "A"/1/ 2,510 25,100 Pinnacle Entertainment Inc./1/ 3,222 24,004 Interface Inc. "A" 6,322 23,410 Stein Mart Inc./1/ 3,725 21,754 Footstar Inc./1/ 2,837 20,597 UAL Corp./1/ 7,930 19,666 Children's Place Retail Stores Inc. (The)/1/ 2,108 18,550 Champion Enterprises Inc./1/ 6,701 15,546 Multex.com Inc./1/ 4,160 14,352 Trans World Entertainment Corp./1/ 4,155 12,507 Vans Inc./1/ 2,587 11,952 Sirius Satellite Radio Inc./1/ 9,628 8,752 TOTAL COMMON STOCKS (Cost: $221,021,506) 176,818,015 SHORT TERM INSTRUMENTS - 4.79% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 7,308,942 7,308,942 BlackRock Temp Cash Money Market Fund 808,443 808,443 Dreyfus Money Market Fund 354,926 354,926 Goldman Sachs Financial Square Prime Obligation Fund 2,520 2,520 TOTAL SHORT TERM INSTRUMENTS (Cost: $8,474,831) 8,474,831 TOTAL INVESTMENTS IN SECURITIES - 104.79% (Cost $229,496,337) 185,292,846 Other Assets, Less Liabilities - (4.79%) (8,469,477) ------------ NET ASSETS - 100.00% $176,823,369 ============ /1/ Non-income earning securities. See Notes to Financial Statements. Schedules of Investments 29 Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. CONSUMER NON-CYCLICAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ------------------------------------------------------------------- COMMON STOCKS - 99.92% Procter & Gamble Co. 209,450 $ 18,525,853 Coca-Cola Co. (The) 349,518 16,245,597 Philip Morris Companies Inc. 323,698 13,190,694 PepsiCo Inc. 271,334 11,965,829 Anheuser-Busch Companies Inc. 115,689 6,103,752 Colgate-Palmolive Co. 83,081 4,567,793 Gillette Co. (The) 147,223 4,399,023 Kimberly-Clark Corp. 79,135 4,075,453 Sysco Corp. 101,578 3,217,991 Sara Lee Corp. 113,537 2,592,050 General Mills Inc. 56,309 2,326,688 ConAgra Foods Inc. 82,270 1,995,048 Cendant Corp./1/ 159,319 1,832,168 Avon Products Inc. 36,133 1,752,089 Heinz (H.J.) Co. 53,736 1,728,150 Kraft Foods Inc. 42,939 1,696,091 Safeway Inc./1/ 71,445 1,650,380 Kroger Co./1/ 110,219 1,635,650 eBay Inc./1/ 25,558 1,616,799 Archer-Daniels-Midland Co. 100,263 1,365,575 Newell Rubbermaid Inc. 40,821 1,323,417 Albertson's Inc. 57,922 1,292,240 Clorox Co. 26,114 1,173,302 Wrigley (William Jr.) Co. 22,172 1,170,016 Kellogg Co. 36,250 1,154,925 Fortune Brands Inc. 22,755 1,139,115 Block (H & R) Inc. 25,600 1,136,128 Hershey Foods Corp. 14,241 926,662 Coca-Cola Enterprises Inc. 35,944 856,905 Campbell Soup Co. 38,950 821,066 UST Inc. 25,866 791,241 Pepsi Bottling Group Inc. 26,872 724,200 Apollo Group Inc. "A"/1/ 17,119 710,438 Estee Lauder Companies Inc. "A" 19,786 576,168 Black & Decker Corp. 12,216 571,220 R.J. Reynolds Tobacco Holdings Inc. 13,710 555,941 Dean Foods Co./1/ 13,804 517,512 ServiceMaster Co. 45,917 470,649 Stanley Works (The) 13,085 423,561 Energizer Holdings Inc./1/ 14,088 420,386 McCormick & Co. Inc. 18,800 418,112 Whole Foods Market Inc./1/ 8,800 410,555 Tyson Foods Inc. "A" 36,161 400,302 Bunge Ltd. 15,250 387,045 SUPERVALU Inc. 20,290 340,872 Brown-Forman Corp. "B" 4,638 335,281 Dial Corp. (The) 14,526 308,823 Coors (Adolf) Company "B" 4,505 308,502 Weight Watchers International Inc./1/ 6,403 303,182 Constellation Brands Inc./1/ 11,730 297,121 Career Education Corp./1/ 6,954 278,925 Hormel Foods Corp. 11,417 276,291 Smucker (J.M.) Co. (The) 7,115 260,480 Performance Food Group Co./1/ 6,910 256,983 Corinthian Colleges Inc./1/ 6,545 248,056 Krispy Kreme Doughnuts Inc./1/ 6,900 236,670 Winn-Dixie Stores Inc. 14,194 213,194 Snap-On Inc. 8,011 208,687 Smithfield Foods Inc./1/ 13,314 206,900 Dreyer's Grand Ice Cream Inc. 2,915 205,886 PepsiAmericas Inc. 13,212 202,804 Lancaster Colony Corp. 4,441 201,843 Church & Dwight Co. Inc. 5,784 200,011 Dole Food Co. 6,516 191,440 Alberto-Culver Co. "B" 3,371 174,011 Regis Corp. 5,949 173,830 Alberto-Culver Co. "A" 3,605 173,581 Interstate Bakeries Corp. 6,743 167,968 Rent-A-Center Inc./1/ 3,749 166,268 ITT Educational Services Inc./1/ 7,088 154,873 Expedia Inc. "A"/1/ 2,256 152,641 Corn Products International Inc. 5,093 150,091 Blyth Inc. 5,280 148,896 Scotts Co. (The) "A"/1/ 3,110 148,036 Education Management Corp./1/ 3,948 144,892 Universal Corp. 4,023 141,690 Service Corp. International/1/ 44,431 139,958 DeVry Inc./1/ 9,301 132,074 Tupperware Corp. 7,885 127,264 30 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. CONSUMER NON-CYCLICAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ------------------------------------------------------------------- NBTY Inc./1/ 8,129 $ 126,406 Tootsie Roll Industries Inc. 3,354 105,785 Ralcorp Holdings Inc./1/ 4,584 103,644 Flowers Foods Inc./1/ 4,292 95,368 American Italian Pasta Co. "A"/1/ 2,726 93,911 Ticketmaster "B"/1/ 3,929 92,724 Sylvan Learning Systems Inc./1/ 5,620 85,817 Casey's General Store Inc. 7,064 82,719 Stewart Enterprises Inc. "A"/1/ 14,830 81,120 Hain Celestial Group Inc./1/ 4,212 60,358 Pre-Paid Legal Services Inc./1/ 2,729 58,837 Chemed Corp. 1,525 53,756 Fleming Companies Inc. 8,320 53,581 International Multifoods Corp./1/ 2,671 51,951 Sotheby's Holdings Inc. "A"/1/ 6,833 51,862 United Rentals Inc./1/ 8,498 51,838 Robert Mondavi Corp. (The) "A"/1/ 1,418 46,794 Wild Oats Markets Inc./1/ 3,452 38,942 Priceline.com Inc./1/ 14,875 32,874 Learning Tree International Inc./1/ 1,685 28,795 Stamps.com Inc./1/ 5,303 22,803 Great Atlantic & Pacific Tea Co./1/ 2,541 14,458 TOTAL COMMON STOCKS (Cost: $143,406,739) 129,666,146 SHORT TERM INSTRUMENTS - 2.58% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 2,883,761 2,883,761 BlackRock Temp Cash Money Market Fund 318,615 318,615 Dreyfus Money Market Fund 139,880 139,880 Goldman Sachs Financial Square Prime Obligation Fund 993 993 TOTAL SHORT TERM INSTRUMENTS (Cost: $3,343,249) 3,343,249 TOTAL INVESTMENTS IN SECURITIES - 102.50% (Cost $146,749,988) 133,009,395 Other Assets, Less Liabilities - (2.50%) (3,246,989) ------------ NET ASSETS - 100.00% $129,762,406 ============ /1/ Non-income earning securities. See Notes to Financial Statements. Schedules of Investments 31 Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. FINANCIAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ------------------------------------------------------------------ COMMON STOCKS - 99.83% Citigroup Inc. 390,349 $ 14,423,396 American International Group Inc. 176,877 11,063,656 Bank of America Corp. 104,554 7,297,869 Wells Fargo & Company 131,013 6,612,226 Fannie Mae 76,570 5,119,470 Wachovia Corp. 105,768 3,679,669 Bank One Corp. 90,317 3,483,527 Freddie Mac 53,650 3,303,767 American Express Co. 90,836 3,303,705 U.S. Bancorp 147,665 3,114,255 JP Morgan Chase & Co. 145,165 3,012,174 Morgan Stanley 77,074 2,999,720 Washington Mutual Inc. 74,607 2,667,946 Fifth Third Bancorp 37,791 2,399,729 Merrill Lynch & Co. Inc. 62,909 2,387,397 Allstate Corp. (The) 51,003 2,028,899 Marsh & McLennan Companies Inc. 41,325 1,930,291 FleetBoston Financial Corp. 80,805 1,890,029 MBNA Corp. 87,111 1,769,224 Bank of New York Co. Inc. (The) 56,022 1,456,572 Goldman Sachs Group Inc. (The) 18,883 1,352,023 BB&T Corp. 36,715 1,330,919 Prudential Financial Inc./1/ 44,746 1,306,583 National City Corp. 47,126 1,278,528 SLM Corp. 11,934 1,226,099 AFLAC Inc. 39,898 1,214,495 SunTrust Banks Inc. 18,950 1,152,918 State Street Corp. 24,987 1,033,712 Lehman Brothers Holdings Inc. 18,785 1,000,677 Mellon Financial Corp. 33,558 949,356 PNC Financial Services Group 21,914 891,023 Household International Inc. 35,069 833,239 Progressive Corp. (The) 14,732 810,260 KeyCorp 32,889 803,478 XL Capital Ltd. "A" 10,470 797,291 Equity Office Properties Trust 32,292 777,591 Hartford Financial Services Group Inc. 19,599 774,161 Chubb Corp. 13,241 746,925 Schwab (Charles) Corp. (The) 80,101 735,327 Golden West Financial Corp. 10,171 702,409 SouthTrust Corp. 26,307 673,985 Hancock (John) Financial Services Inc. 22,391 656,056 Principal Financial Group Inc./1/ 22,861 641,251 ACE Ltd. 20,002 615,062 Comerica Inc. 13,486 588,799 Regions Financial Corp. 17,077 578,398 St. Paul Companies Inc. 17,438 571,966 M&T Bank Corp. 6,807 557,629 Charter One Financial Inc. 18,200 551,096 AmSouth Bancorp 28,108 550,917 MetLife Inc. 22,967 548,452 Northern Trust Corp. 14,987 521,847 Capital One Financial Corp. 17,094 520,854 Ambac Financial Group Inc. 8,114 501,445 MBIA Inc. 11,377 496,606 Equity Residential 20,868 494,989 Countrywide Credit Industries Inc. 9,687 487,353 North Fork Bancorp Inc. 12,470 479,596 Bear Stearns Companies Inc. (The) 7,688 469,352 Travelers Property Casualty Corp. "B"/1/ 34,697 469,103 Jefferson-Pilot Corp. 11,596 465,579 Travelers Property Casualty Corp. "A"/1/ 34,694 463,165 Loews Corp. 10,443 450,511 Lincoln National Corp. 14,473 441,571 Union Planters Corp. 15,446 436,504 Marshall & Ilsley Corp. 15,104 425,329 Synovus Financial Corp. 20,419 418,385 Simon Property Group Inc. 11,511 393,101 Cincinnati Financial Corp. 10,222 388,334 National Commerce Financial Corp. 15,832 387,567 Franklin Resources Inc. 11,284 372,259 First Tennessee National Corp. 9,773 362,383 Huntington Bancshares Inc. 18,565 351,064 SAFECO Corp. 9,844 350,053 UNUMProvident Corp. 16,749 343,690 AON Corp. 18,304 335,512 32 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. FINANCIAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ------------------------------------------------------------------ Torchmark Corp. 9,357 $ 334,981 MGIC Investment Corp. 7,922 332,407 ProLogis 13,708 331,734 Golden State Bancorp Inc. 8,988 330,669 Compass Bancshares Inc. 9,861 318,510 Plum Creek Timber Co. Inc. 14,079 318,326 Archstone-Smith Trust 13,576 311,433 CIT Group Inc./1/ 16,323 290,713 GreenPoint Financial Corp. 6,624 288,608 Zions Bancorp 7,100 285,491 Sovereign Bancorp Inc. 20,169 283,980 Popular Inc. 8,730 282,765 T. Rowe Price Group Inc. 9,477 267,536 Banknorth Group Inc. 11,335 262,632 Boston Properties Inc. 7,347 262,288 Old Republic International Corp. 8,739 260,510 Radian Group Inc. 7,226 254,861 Vornado Realty Trust 6,675 245,306 Hibernia Corp. "A" 12,255 241,546 Commerce Bancorp Inc. 5,194 238,457 Duke Realty Corp. 9,695 235,589 TCF Financial Corp. 5,457 231,595 Apartment Investment & Management Co. "A" 6,554 230,308 Everest Re Group Ltd. 3,960 229,759 Legg Mason Inc. 4,911 228,165 New York Community Bancorp Inc. 7,553 219,490 RenaissanceRe Holdings Ltd. 5,306 217,546 General Growth Properties Inc. 4,404 211,744 Mercantile Bankshares Corp. 5,372 209,186 First Virginia Banks Inc. 5,580 208,859 Kimco Realty Corp. 6,857 207,767 PMI Group Inc. (The) 6,959 207,378 Fidelity National Financial Inc. 6,851 206,900 Edwards (A.G.) Inc. 6,158 202,598 Stilwell Financial Inc. 16,910 198,016 Rouse Co. 6,677 197,973 Valley National Bancorp 7,142 196,762 Federated Investors Inc. "B" 7,322 196,230 Associated Bancorp 5,846 196,192 Health Care Property Investors Inc. 4,499 194,357 AvalonBay Communities Inc. 5,066 190,988 Gallagher (Arthur J.) & Co. 6,850 183,717 Commerce Bancshares Inc. 4,393 182,705 Public Storage Inc. 6,095 179,315 UnionBanCal Corp. 4,084 174,387 AMB Property Corp. 6,494 174,039 Allied Capital Corp. 7,853 165,306 BISYS Group Inc. (The)/1/ 9,160 163,964 SEI Investment Co. 6,105 162,942 Liberty Property Trust 5,418 158,964 Bank of Hawaii Corp. 5,294 156,808 Astoria Financial Corp. 5,863 153,493 Wilmington Trust Corp. 5,035 152,812 Investors Financial Services Corp. 4,928 151,142 FirstMerit Corp. 6,595 150,696 City National Corp. 3,307 149,642 PartnerRe Ltd. 2,806 148,718 Hospitality Properties Trust 4,469 146,226 Host Marriott Corp./1/ 17,817 146,099 Fulton Financial Corp. 7,966 144,822 Protective Life Corp. 4,860 138,899 Weingarten Realty Investors 3,729 138,532 White Mountains Insurance Group Ltd. 430 138,464 Cullen/Frost Bankers Inc. 3,983 137,931 Markel Corp./1/ 646 130,809 Brown & Brown Inc. 4,291 130,446 New Plan Excel Realty Trust 7,493 129,854 Neuberger Berman Inc. 4,406 129,360 Eaton Vance Corp. 4,484 128,736 E*TRADE Group Inc./1/ 28,178 126,801 Mack-Cali Realty Corp. 4,383 126,625 Doral Financial Corp. 4,772 125,313 StanCorp Financial Group Inc. 2,303 124,362 Berkley (W.R.) Corp. 3,315 123,152 Webster Financial Corp. 3,773 122,283 United Dominion Realty Trust Inc. 8,351 120,505 Washington Federal Inc. 4,869 120,070 Investment Technology Group Inc./1/ 3,733 119,083 Unitrin Inc. 3,774 118,881 iStar Financial Inc. 4,161 118,172 Schedules of Investments 33 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. FINANCIAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ------------------------------------------------------------------ Hudson City Bancorp Inc. 6,291 $ 117,264 People's Bank 4,719 116,087 LaBranche & Co. Inc./1/ 4,275 115,468 Crescent Real Estate Equities Co. 7,640 112,690 Annaly Mortgage Management Inc. 6,389 111,999 BancorpSouth Inc. 5,870 111,237 HCC Insurance Holdings Inc. 4,504 110,483 Westamerica Bancorp 2,589 109,981 Sky Financial Group Inc. 5,685 109,266 Waddell & Reed Financial Inc. "A" 6,166 107,905 Catellus Development Corp./1/ 6,055 107,779 Hudson United Bancorp 3,478 105,905 Old National Bancorp 4,443 105,743 American National Insurance Co. 1,355 104,985 First Midwest Bancorp Inc. 3,740 103,935 Erie Indemnity Co. "A" 2,594 103,630 Independence Community Bank Corp. 4,037 103,630 Whitney Holding Corp. 3,041 103,272 Colonial BancGroup Inc. (The) 8,598 102,832 First American Corp. 5,008 102,414 BRE Properties Inc. "A" 3,522 101,081 Roslyn Bancorp Inc. 6,049 100,165 Arden Realty Inc. 4,669 99,917 Transatlantic Holdings Inc. 1,594 99,705 Healthcare Realty Trust Inc. 3,220 99,691 Raymond James Financial Inc. 3,164 99,033 Camden Property Trust 3,124 97,906 Providian Financial Corp./1/ 21,976 97,793 Trustmark Corp. 4,284 96,861 FNB Corp. 3,360 96,600 Leucadia National Corp. 2,561 96,063 CarrAmerica Realty Corp. 4,044 96,005 MONY Group Inc. (The) 3,746 95,785 CenterPoint Properties Corp. 1,754 94,506 Developers Diversified Realty Corp. 4,408 94,331 Ameritrade Holding Corp./1/ 20,757 94,237 Hilb, Rogal & Hamilton Co. 2,278 93,398 United Bancshares Inc. 3,035 91,718 Realty Income Corp. 2,693 90,081 AmerUs Group Co. 3,116 89,429 Affiliated Managers Group Inc./1/ 1,715 89,043 AmeriCredit Corp./1/ 11,639 88,340 IPC Holdings Ltd./1/ 2,815 87,744 Chelsea Property Group Inc. 2,686 87,429 Federal Realty Investment Trust 3,309 87,192 Pan Pacific Retail Properties Inc. 2,594 86,899 Community First Bankshares Inc. 3,102 85,026 Shurgard Storage Centers Inc. "A" 2,769 83,624 Mercury General Corp. 2,006 83,249 IndyMac Bancorp Inc./1/ 4,436 82,687 First Industrial Realty Trust Inc. 3,028 81,877 Highwoods Properties Inc. 4,066 81,320 Commercial Federal Corp. 3,489 81,119 Commerce Group Inc. 2,319 79,426 Health Care REIT Inc. 2,814 79,017 HRPT Properties Trust 9,961 78,393 Staten Island Bancorp Inc. 4,242 78,392 Park National Corp. 874 78,223 CBL & Associates Properties Inc. 2,113 78,097 Prentiss Properties Trust 2,821 76,026 Macerich Co. (The) 2,611 74,283 Citizens Banking Corp. 2,978 71,025 Trizec Properties Inc. 6,962 70,664 Reckson Associates Realty Corp. 3,459 70,252 Jeffries Group Inc. 1,672 69,639 St. Joe Company (The) 2,383 69,536 Southwest Bancorp of Texas Inc./1/ 2,440 68,930 Cousins Properties Inc. 3,063 68,611 LNR Property Corp. 1,922 68,519 Chittenden Corp. 2,471 67,607 South Financial Group Inc. (The) 3,110 67,332 SL Green Realty Corp. 2,301 67,143 Post Properties Inc. 2,824 66,223 Silicon Valley Bancshares/1/ 3,438 64,600 Nationwide Health Properties Inc. 3,778 64,377 UCBH Holdings Inc. 1,506 63,086 Downey Financial Corp. 1,626 62,926 Texas Regional Bancshares Inc. "A" 1,865 61,433 Provident Financial Group Inc. 2,345 60,947 Greater Bay Bancorp 3,974 60,564 34 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. FINANCIAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ------------------------------------------------------------------ CNA Financial Corp./1/ 2,228 $ 58,663 MAF Bancorp Inc. 1,796 58,352 East West Bancorp Inc. 1,691 58,340 Ohio Casualty Corp./1/ 4,283 56,493 Mills Corp. 2,026 56,222 American Financial Group Inc. 2,423 56,165 Colonial Properties Trust 1,591 52,598 La Quinta Corp. 11,807 52,069 Home Properties of New York Inc. 1,639 51,956 Republic Bancorp Inc. 4,193 51,620 Nationwide Financial Services Inc. 1,840 50,968 Brandywine Realty Trust 2,470 49,400 Kilroy Realty Corp. 2,188 47,086 Horace Mann Educators Corp. 3,121 46,846 Selective Insurance Group Inc. 2,084 46,682 Provident Bankshares Corp. 1,970 44,524 Manufactured Home Communities Inc. 1,548 44,195 AMCORE Financial Inc. 1,900 43,947 Capital Automotive 1,773 43,439 Reinsurance Group of America Inc. 1,554 42,719 Sterling Bancshares Inc. 3,390 41,595 Total System Services Inc. 2,969 40,289 Glenborough Realty Trust Inc. 2,154 39,311 Harbor Florida Bancshares Inc. 1,733 38,646 Anchor BanCorp Wisconsin Inc. 1,812 37,545 Net.B@nk Inc./1/ 3,783 37,376 Knight Trading Group Inc./1/ 7,768 36,898 W.P. Stewart & Co. Ltd. 2,014 36,534 Dime Community Bancshares 1,728 36,288 FirstFed Financial Corp./1/ 1,335 36,179 Allmerica Financial Corp. 4,192 35,674 FelCor Lodging Trust Inc. 3,030 33,875 PFF Bancorp Inc. 962 29,639 First Sentinel Bancorp Inc. 2,173 29,249 Pacific Northwest Bancorp 1,179 28,944 JDN Realty Corp. 2,560 27,853 Bay View Capital Corp./1/ 4,656 27,796 RFS Hotel Investors Inc. 2,264 26,308 Meristar Hospitality Corp. 3,432 26,083 Koger Equity Inc. 1,637 25,406 Fremont General Corp. 5,078 25,136 Presidential Life Corp. 1,639 20,160 OceanFirst Financial Corp. 867 18,511 Equity Inns Inc. 3,094 18,069 GBC Bancorp 888 18,026 SWS Group Inc. 1,251 16,200 BSB Bancorp Inc. 754 15,276 Metris Companies Inc. 4,829 13,763 Safeguard Scientifics Inc./1/ 9,083 11,172 Ocwen Financial Corp./1/ 3,029 8,299 Trenwick Group Ltd. 2,820 8,122 TOTAL COMMON STOCKS (Cost: $159,785,568) 145,712,664 SHORT TERM INSTRUMENTS - 1.18% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 1,487,918 1,487,918 BlackRock Temp Cash Money Market Fund 158,242 158,242 Dreyfus Money Market Fund 69,472 69,472 Goldman Sachs Financial Square Prime Obligation Fund 493 493 TOTAL SHORT TERM INSTRUMENTS (Cost: $1,716,125) 1,716,125 TOTAL INVESTMENTS IN SECURITIES - 101.01% (Cost $161,501,693) 147,428,789 Other Assets, Less Liabilities - (1.01%) (1,474,778) ------------ NET ASSETS - 100.00% $145,954,011 ============ /1/ Non-income earning securities. See notes to financial statements. Schedules of Investments 35 Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. INDUSTRIAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ---------------------------------------------------------------- COMMON STOCKS - 99.99% General Electric Co. 536,741 $13,552,710 3M Co. 27,126 3,443,374 United Technologies Corp. 32,029 1,975,228 Tyco International Ltd. 128,780 1,862,159 Automatic Data Processing Inc. 41,586 1,768,653 First Data Corp. 50,355 1,759,404 Boeing Co. (The) 53,277 1,584,991 United Parcel Service Inc. "B" 25,771 1,546,518 Emerson Electric Co. 28,739 1,384,645 Lockheed Martin Corp. 23,165 1,341,254 Honeywell International Inc. 53,347 1,277,127 Illinois Tool Works Inc. 20,548 1,261,647 Caterpillar Inc. 22,839 932,973 FedEx Corp. 17,523 932,048 General Dynamics Corp. 11,732 928,353 Union Pacific Corp. 15,652 924,251 Waste Management Inc. 39,712 914,170 Raytheon Co. 24,993 737,294 Deere & Co. 14,971 694,505 Northrop Grumman Corp. 6,257 645,284 Burlington Northern Santa Fe Corp. 24,880 640,162 Masco Corp. 30,774 632,713 Paychex Inc. 21,225 611,705 Concord EFS Inc./1/ 34,294 489,718 Norfolk Southern Corp. 24,175 488,335 Ingersoll-Rand Co. "A" 10,581 412,659 Danaher Corp. 7,015 405,818 Moody's Corp. 8,265 389,282 Fiserv Inc./1/ 12,014 375,317 CSX Corp. 13,459 371,468 ITT Industries Inc. 5,688 369,606 Cintas Corp. 7,788 368,139 Agilent Technologies Inc./1/ 26,757 367,909 Textron Inc. 8,880 364,080 Dover Corp. 12,850 322,278 Parker Hannifin Corp. 7,367 321,422 Eaton Corp. 4,374 299,138 PACCAR Inc. 6,742 297,457 IMS Health Inc. 18,562 279,172 L-3 Communications Holdings Inc./1/ 5,588 262,636 American Standard Companies Inc./1/ 3,761 250,859 Grainger (W.W.) Inc. 4,751 230,233 Sherwin-Williams Co. 8,207 224,461 SPX Corp./1/ 5,166 217,024 Equifax Inc. 9,135 215,221 Republic Services Inc. "A"/1/ 10,417 214,382 Waters Corp./1/ 8,221 207,005 Expeditors International Washington Inc. 6,528 205,697 Thermo Electron Corp./1/ 10,843 199,403 ChoicePoint Inc./1/ 5,257 199,030 Pactiv Corp./1/ 9,958 197,567 Accenture Ltd./1/ 11,488 193,917 Vulcan Materials Co. 5,717 191,863 Rockwell Automation Inc. 11,459 189,646 Deluxe Corp. 4,012 185,435 Cooper Industries Inc. 5,856 184,405 Robert Half International Inc./1/ 10,990 183,533 Sabre Holdings Corp./1/ 9,091 174,365 Bemis Co. 3,345 174,241 Ball Corp. 3,592 173,961 Manpower Inc. 4,768 162,589 Diebold Inc. 4,511 160,817 Convergys Corp./1/ 10,712 159,395 Dun & Bradstreet Corp./1/ 4,297 157,055 Jabil Circuit Inc./1/ 10,154 156,676 Iron Mountain Inc./1/ 5,214 147,087 CH Robinson Worldwide Inc. 4,928 145,721 Alliant Techsystems Inc./1/ 2,418 145,443 American Power Conversion Corp./1/ 11,141 143,942 Donnelley (R.R.) & Sons Co. 7,083 142,014 Smurfit-Stone Container Corp./1/ 10,822 140,794 Sonoco Products Co. 5,973 140,366 DST Systems Inc./1/ 4,535 139,451 Pall Corp. 7,739 134,426 Temple-Inland Inc. 3,150 129,213 Ceridian Corp./1/ 9,207 126,872 Symbol Technologies Inc. 14,312 123,799 AGCO Corp./1/ 4,713 119,710 Fluor Corp. 5,011 118,510 Solectron Corp./1/ 51,898 116,771 Packaging Corporation of America/1/ 6,606 114,812 Owens-Illinois Inc./1/ 9,203 110,344 36 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. INDUSTRIAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ---------------------------------------------------------------- Viad Corp. 5,555 $ 107,878 Molex Inc. "A" 4,595 106,742 Tech Data Corp./1/ 3,322 106,138 Hubbell Inc. "B" 3,087 104,804 Millipore Corp. 3,047 103,628 Allied Waste Industries Inc./1/ 12,712 103,603 Tektronix Inc./1/ 5,772 101,991 Pentair Inc. 3,073 101,532 Sanmina-SCI Corp./1/ 32,890 101,301 ALLETE Inc. 4,704 100,760 CNF Inc. 3,071 98,856 Vishay Intertechnology Inc./1/ 9,066 93,380 Teleflex Inc. 2,165 91,060 Ingram Micro Inc. "A"/1/ 6,334 90,766 Jacobs Engineering Group Inc./1/ 2,988 90,507 Molex Inc. 3,424 90,428 Goodrich (B.F.) Co. 5,774 87,187 Martin Marietta Materials Inc. 3,067 85,385 Certegy Inc./1/ 4,033 84,693 Navistar International Corp./1/ 3,746 83,985 Ryder System Inc. 3,635 83,423 Arrow Electronics Inc./1/ 6,232 81,826 TMP Worldwide Inc./1/ 5,246 81,208 Sealed Air Corp./1/ 5,259 80,568 Donaldson Co. Inc. 2,513 79,335 Graco Inc. 2,866 78,385 Corporate Executive Board Co. (The)/1/ 2,358 78,262 Fair Isaac and Co. Inc. 1,984 76,324 Getty Images Inc./1/ 2,654 76,064 Stericycle Inc./1/ 2,240 74,592 Roper Industries Inc. 1,927 74,382 Pittston Brink's Group 3,431 72,634 Integrated Circuit Systems Inc./1/ 3,546 72,480 AMETEK Inc. 2,040 71,992 Avnet Inc. 7,489 69,648 Acxiom Corp./1/ 5,461 68,809 CheckFree Corp./1/ 4,192 68,246 Carlisle Companies Inc. 1,747 65,111 Harsco Corp. 2,528 64,843 Catalina Marketing Corp./1/ 3,310 64,049 Titan Corp. (The)/1/ 4,865 62,710 United Stationers Inc./1/ 2,080 61,838 Arbitron Inc./1/ 1,796 61,333 AptarGroup Inc. 2,185 61,027 Crane Co. 3,311 60,823 Thomas & Betts Corp./1/ 3,672 60,808 Timken Co. (The) 3,335 60,764 Swift Transportation Co. Inc./1/ 3,761 60,515 Varian Inc./1/ 2,051 60,320 Precision Castparts Corp. 3,095 60,074 Garmin Ltd./1/ 2,866 59,957 Kennametal Inc. 1,910 59,535 Werner Enterprises Inc. 2,903 59,366 National Instruments Corp./1/ 2,069 59,360 York International Corp. 2,489 58,541 Waste Connections Inc./1/ 1,541 56,370 PerkinElmer Inc. 8,036 55,931 Alexander & Baldwin Inc. 2,403 55,872 Mueller Industries Inc./1/ 2,075 55,506 FMC Corp./1/ 1,764 53,961 Lafarge North America Inc. 1,792 53,133 Kansas City Southern Industries Inc./1/ 3,740 52,360 Cymer Inc./1/ 2,071 52,024 Crown Cork & Seal Co. Inc./1/ 8,001 51,206 Briggs & Stratton Corp. 1,317 50,639 Cummins Inc. 2,096 50,220 Yellow Corp./1/ 1,791 49,593 Copart Inc./1/ 4,580 48,869 KEMET Corp./1/ 5,537 48,560 Landstar System Inc./1/ 985 48,009 Wallace Computer Services Inc. 2,613 47,844 USFreightways Corp. 1,661 46,674 Hughes Supply Inc. 1,360 46,444 Global Payments Inc. 1,643 46,415 Banta Corp. 1,506 46,385 Cognex Corp./1/ 2,438 46,224 EMCOR Group Inc./1/ 907 44,089 Trinity Industries Inc. 2,780 43,646 GATX Corp. 2,166 43,428 Nordson Corp. 1,644 42,596 CSG Systems International Inc./1/ 3,208 41,316 Dionex Corp./1/ 1,324 40,792 Flowserve Corp./1/ 3,479 40,774 Airborne Inc. 3,104 40,011 Schedules of Investments 37 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. INDUSTRIAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ---------------------------------------------------------------- Hunt (J.B.) Transport Services Inc./1/ 1,407 $ 38,960 NDCHealth Corp. 2,153 38,000 G&K Services Inc. "A" 1,183 37,999 Kaydon Corp. 1,846 36,865 Shaw Group Inc. (The)/1/ 2,441 36,517 Macrovision Corp./1/ 2,812 36,275 Manitowoc Co. Inc. (The) 1,506 35,527 PSS World Medical Inc./1/ 4,528 34,594 Technitrol Inc. 2,352 34,410 Albany International Corp. "A" 1,608 34,074 Granite Construction Inc. 2,114 33,866 MPS Group Inc./1/ 6,166 33,235 Dycom Industries Inc./1/ 3,051 33,164 Benchmark Electronics Inc./1/ 1,486 33,078 Terex Corp./1/ 2,825 32,940 Acuity Brands Inc. 2,675 32,073 Electro Scientific Industries Inc./1/ 1,713 31,999 AVX Corp. 3,387 31,906 EGL Inc./1/ 2,353 31,460 Coherent Inc./1/ 1,747 30,870 MSC Industrial Direct Co. Inc. "A"/1/ 2,379 30,832 Texas Industries Inc. 1,263 30,628 Roadway Corp. 760 30,453 Tetra Tech Inc./1/ 3,336 29,624 Plexus Corp./1/ 2,694 28,907 Regal-Beloit Corp. 1,528 26,862 eFunds Corp./1/ 3,013 26,575 Newport Corp./1/ 2,410 26,416 Overseas Shipholding Group Inc. 1,518 26,337 Monaco Coach Corp./1/ 1,626 26,325 Viasys Healthcare Inc./1/ 1,636 26,307 C&D Technologies Inc. 1,645 26,238 Arkansas Best Corp./1/ 872 26,116 Insituform Technologies Inc. "A"/1/ 1,587 25,249 Orbotech Ltd./1/ 1,951 24,778 PRG-Schultz International Inc./1/ 2,547 23,769 Esterline Technologies Corp./1/ 1,284 23,305 Photon Dynamics Inc./1/ 1,066 22,876 Aeroflex Inc./1/ 3,799 21,996 Ionics Inc./1/ 964 21,912 Littelfuse Inc./1/ 1,382 21,616 Power-One Inc./1/ 3,980 21,416 Spherion Corp./1/ 3,388 20,633 NCO Group Inc./1/ 1,465 20,114 Checkpoint Systems Inc./1/ 1,960 19,796 Bowne & Co. Inc. 1,944 19,440 Park Electrochemical Corp. 1,063 19,187 Veeco Instruments Inc./1/ 1,529 18,317 Stewart & Stevenson Services Inc. 1,653 18,100 FreeMarkets Inc./1/ 2,483 17,828 Helix Technology Corp. 1,628 16,654 Methode Electronics Inc. "A" 1,722 15,825 TeleTech Holdings Inc./1/ 2,495 14,870 SureBeam Corporation "A"/1/ 3,398 14,781 Mykrolis Corp./1/ 2,574 14,440 ElkCorp 897 14,137 ProBusiness Services Inc./1/ 1,541 14,023 GrafTech International Ltd./1/ 3,545 13,896 Pioneer-Standard Electronics Inc. 1,965 13,755 FuelCell Energy Inc./1/ 2,343 13,519 Forrester Research Inc./1/ 944 13,027 CTS Corp. 2,073 12,438 MedQuist Inc./1/ 715 12,148 Milacron Inc. 2,096 11,947 U.S. Industries Inc./1/ 4,764 10,957 Quanta Services Inc./1/ 3,286 10,449 Anaren Microwave Inc./1/ 1,075 9,879 Plug Power Inc./1/ 1,475 9,263 Vicor Corp./1/ 1,289 8,572 SCS Transportation Inc./1/ 894 8,135 Navigant Consulting Co./1/ 1,455 7,639 BE Aerospace Inc./1/ 2,071 6,337 Presstek Inc./1/ 1,008 4,969 Wabash National Corp./1/ 981 4,611 MasTec Inc./1/ 1,761 4,561 Artesyn Technologies Inc./1/ 2,441 4,345 AAR Corp. 1,111 4,344 Zygo Corp./1/ 341 1,510 TOTAL COMMON STOCKS (Cost: $84,871,055) 62,007,119 38 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. INDUSTRIAL SECTOR INDEX FUND October 31, 2002 Security Shares Value ---------------------------------------------------------------- SHORT TERM INSTRUMENTS - 3.85% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 2,058,462 $ 2,058,462 BlackRock Temp Cash Money Market Fund 228,776 228,776 Dreyfus Money Market Fund 100,438 100,438 Goldman Sachs Financial Square Prime Obligation Fund 713 713 TOTAL SHORT TERM INSTRUMENTS (Cost: $2,388,389) 2,388,389 TOTAL INVESTMENTS IN SECURITIES - 103.84% (Cost $87,259,444) 64,395,508 Other Assets, Less Liabilities - (3.84%) (2,378,939) ----------- NET ASSETS - 100.00% $62,016,569 =========== /1/ Non-income earning securities. See Notes to financial statements. Schedules of Investments 39 Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. CHEMICALS INDEX FUND October 31, 2002 Security Shares Value ------------------------------------------------------------- COMMON STOCKS - 100.01% Du Pont (E.I.) de Nemours & Co. 80,140 $ 3,305,775 Dow Chemical Co. (The) 90,605 2,354,824 Air Products & Chemicals Inc. 21,736 960,731 Praxair Inc. 12,578 685,501 Avery Dennison Corp. 9,904 616,425 Ecolab Inc. 12,629 609,349 PPG Industries Inc. 12,913 607,298 Rohm & Haas Co. "A" 16,212 539,373 Sigma-Aldrich Corp. 8,294 379,451 International Flavors & Fragrances Inc. 10,892 365,427 Engelhard Corp. 16,380 362,817 Eastman Chemical Co. 9,022 327,859 RPM International Inc. 13,748 207,045 Lubrizol Corp. 6,034 174,986 Valspar Corp. (The) 4,184 174,766 Lyondell Chemical Co. 13,461 168,263 Cabot Corp. 6,959 164,789 Ashland Inc. 5,888 154,560 IMC Global Inc. 12,153 133,683 Fuller (H.B.) Co. 4,256 121,168 Hercules Inc./1/ 11,899 114,230 Crompton Corp. 16,337 108,314 Great Lakes Chemical Corp. 4,347 105,719 Cytec Industries Inc./1/ 4,179 101,174 Ferro Corp. 3,874 94,797 Millennium Chemicals Inc. 9,199 85,275 Cabot Microelectronics Corp./1/ 1,850 83,971 WD-40 Co. 2,556 73,357 Georgia Gulf Corp. 3,310 71,993 Schulman (A.) Inc. 3,079 53,883 MacDermid Inc. 2,575 51,706 Wellman Inc. 3,780 38,178 OM Group Inc. 2,429 15,764 Cambrex Corp. 476 13,252 TOTAL COMMON STOCKS (Cost: $15,348,297) 13,425,703 SHORT TERM INSTRUMENTS - 0.04% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 5,551 5,551 TOTAL SHORT TERM INSTRUMENTS (Cost: $5,551) 5,551 TOTAL INVESTMENTS IN SECURITIES - 100.05% (Cost $15,353,848) 13,431,254 Other Assets, Less Liabilities - (0.05%) (6,194) ----------- NET ASSETS - 100.00% $13,425,060 =========== /1/ Non-income earning securities. See Notes to Financial Statements. 40 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. FINANCIAL SERVICES INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------- COMMON STOCKS - 99.81% Citigroup Inc. 133,397 $ 4,929,019 Bank of America Corp. 35,733 2,494,163 Wells Fargo & Company 44,767 2,259,390 Fannie Mae 26,166 1,749,459 Wachovia Corp. 36,141 1,257,345 Bank One Corp. 30,857 1,190,154 American Express Co. 31,044 1,129,070 Freddie Mac 18,332 1,128,885 U.S. Bancorp 50,462 1,064,244 JP Morgan Chase & Co. 49,597 1,029,138 Morgan Stanley 26,346 1,025,386 Washington Mutual Inc. 25,497 911,773 Fifth Third Bancorp 12,913 819,975 Merrill Lynch & Co. Inc. 21,504 816,077 FleetBoston Financial Corp. 27,605 645,681 MBNA Corp. 29,773 604,690 Bank of New York Co. Inc. (The) 19,135 497,510 Goldman Sachs Group Inc. (The) 6,456 462,250 BB&T Corp. 12,558 455,227 National City Corp. 16,112 437,119 SLM Corp. 4,076 418,768 SunTrust Banks Inc. 6,479 394,182 State Street Corp. 8,542 353,383 Lehman Brothers Holdings Inc. 6,418 341,887 Mellon Financial Corp. 11,470 324,486 PNC Financial Services Group 7,487 304,421 Household International Inc. 11,982 284,692 KeyCorp 11,241 274,618 Schwab (Charles) Corp. (The) 27,369 251,247 Golden West Financial Corp. 3,472 239,776 SouthTrust Corp. 8,984 230,170 Hancock (John) Financial Services Inc. 7,656 224,321 Principal Financial Group Inc./1/ 7,813 219,155 Comerica Inc. 4,601 200,880 Regions Financial Corp. 5,824 197,259 M&T Bank Corp. 2,321 190,136 Charter One Financial Inc. 6,229 188,614 AmSouth Bancorp 9,595 188,062 Northern Trust Corp. 5,119 178,244 Capital One Financial Corp. 5,841 177,975 Countrywide Credit Industries Inc. 3,305 166,275 North Fork Bancorp Inc. 4,262 163,917 Bear Stearns Companies Inc. (The) 2,628 160,439 Union Planters Corp. 5,266 148,817 Marshall & Ilsley Corp. 5,166 145,475 Synovus Financial Corp. 6,971 142,836 National Commerce Financial Corp. 5,418 132,633 Franklin Resources Inc. 3,848 126,946 First Tennessee National Corp. 3,345 124,033 Huntington Bancshares Inc. 6,344 119,965 Golden State Bancorp Inc. 3,014 110,885 Compass Bancshares Inc. 3,381 109,206 CIT Group Inc./1/ 5,580 99,380 GreenPoint Financial Corp. 2,264 98,642 Zions Bancorp 2,432 97,791 Popular Inc. 2,985 96,684 Sovereign Bancorp Inc. 6,860 96,589 T. Rowe Price Group Inc. 3,228 91,126 Banknorth Group Inc. 3,866 89,575 Hibernia Corp. "A" 4,183 82,447 Commerce Bancorp Inc. 1,772 81,353 TCF Financial Corp. 1,862 79,023 Legg Mason Inc. 1,679 78,006 New York Community Bancorp Inc. 2,591 75,294 Mercantile Bankshares Corp. 1,845 71,844 First Virginia Banks Inc. 1,914 71,641 Edwards (A.G.) Inc. 2,109 69,386 Stilwell Financial Inc. 5,776 67,637 Valley National Bancorp 2,442 67,277 Federated Investors Inc. "B" 2,507 67,188 Associated Bancorp 2,002 67,187 Commerce Bancshares Inc. 1,502 62,468 UnionBanCal Corp. 1,392 59,438 Allied Capital Corp. 2,683 56,477 SEI Investment Co. 2,095 55,916 BISYS Group Inc. (The)/1/ 3,095 55,400 Bank of Hawaii Corp. 1,791 53,049 Astoria Financial Corp. 2,012 52,674 Wilmington Trust Corp. 1,723 52,293 Investors Financial Services Corp. 1,698 52,078 FirstMerit Corp. 2,247 51,344 City National Corp. 1,127 50,997 Fulton Financial Corp. 2,729 49,613 Cullen/Frost Bankers Inc. 1,374 47,582 Neuberger Berman Inc. 1,521 44,657 Eaton Vance Corp. 1,532 43,984 E*TRADE Group Inc./1/ 9,631 43,339 Doral Financial Corp. 1,634 42,909 Webster Financial Corp. 1,292 41,874 Schedules of Investments 41 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. FINANCIAL SERVICES INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------- Investment Technology Group Inc./1/ 1,286 $ 41,023 Washington Federal Inc. 1,661 40,960 Hudson City Bancorp Inc. 2,150 40,076 People's Bank 1,624 39,950 LaBranche & Co. Inc./1/ 1,458 39,381 BancorpSouth Inc. 2,007 38,033 Westamerica Bancorp 887 37,680 Sky Financial Group Inc. 1,943 37,344 Waddell & Reed Financial Inc. "A" 2,096 36,680 Hudson United Bancorp 1,202 36,601 Old National Bancorp 1,528 36,366 First Midwest Bancorp Inc. 1,278 35,516 Independence Community Bank Corp. 1,375 35,296 Whitney Holding Corp. 1,035 35,149 Colonial BancGroup Inc. (The) 2,933 35,079 Roslyn Bancorp Inc. 2,072 34,310 Raymond James Financial Inc. 1,096 34,305 Providian Financial Corp./1/ 7,518 33,455 FNB Corp. 1,160 33,350 Trustmark Corp. 1,466 33,146 Ameritrade Holding Corp./1/ 7,095 32,211 United Bancshares Inc. 1,041 31,459 AmeriCredit Corp./1/ 3,977 30,185 Affiliated Managers Group Inc./1/ 580 30,114 Community First Bankshares Inc. 1,055 28,918 IndyMac Bancorp Inc./1/ 1,505 28,053 Commercial Federal Corp. 1,187 27,598 Staten Island Bancorp Inc. 1,450 26,796 Park National Corp. 297 26,581 Citizens Banking Corp. 1,025 24,446 Jeffries Group Inc. 582 24,240 Southwest Bancorp of Texas Inc./1/ 848 23,956 Chittenden Corp. 854 23,365 South Financial Group Inc. (The) 1,060 22,949 Silicon Valley Bancshares/1/ 1,183 22,229 UCBH Holdings Inc. 520 21,783 Downey Financial Corp. 550 21,285 Provident Financial Group Inc. 816 21,208 Texas Regional Bancshares Inc. "A" 633 20,851 Greater Bay Bancorp 1,343 20,467 East West Bancorp Inc. 590 20,355 MAF Bancorp Inc. 608 19,754 Republic Bancorp Inc. 1,407 17,322 AMCORE Financial Inc. 658 15,220 Provident Bankshares Corp. 655 14,804 Sterling Bancshares Inc. 1,153 14,147 Total System Services Inc. 983 13,339 Anchor BanCorp Wisconsin Inc. 626 12,971 Harbor Florida Bancshares Inc. 581 12,956 Net.B@nk Inc./1/ 1,293 12,775 Knight Trading Group Inc./1/ 2,619 12,440 FirstFed Financial Corp./1/ 458 12,412 Dime Community Bancshares 591 12,411 W.P. Stewart & Co. Ltd. 669 12,136 Pacific Northwest Bancorp 414 10,164 First Sentinel Bancorp Inc. 745 10,028 PFF Bancorp Inc. 320 9,859 Bay View Capital Corp./1/ 1,563 9,331 OceanFirst Financial Corp. 290 6,192 GBC Bancorp 298 6,049 SWS Group Inc. 427 5,530 BSB Bancorp Inc. 254 5,146 Metris Companies Inc. 1,632 4,651 Safeguard Scientifics Inc./1/ 3,112 3,828 Ocwen Financial Corp./1/ 1,061 2,907 TOTAL COMMON STOCKS (Cost: $43,630,674) 35,723,541 SHORT TERM INSTRUMENTS - 1.08% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 335,643 335,643 BlackRock Temp Cash Money Market Fund 35,665 35,665 Dreyfus Money Market Fund 15,658 15,658 Goldman Sachs Financial Square Prime Obligation Fund 111 111 TOTAL SHORT TERM INSTRUMENTS (Cost: $387,077) 387,077 TOTAL INVESTMENTS IN SECURITIES - 100.89% (Cost $44,017,751) 36,110,618 Other Assets, Less Liabilities - (0.89%) (319,820) ----------- NET ASSETS - 100.00% $35,790,798 =========== /1/ Non-income earning securities. See Notes to Financial Statements. 42 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. INTERNET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------- COMMON STOCKS - 99.98% Yahoo! Inc./1/ 89,563 $ 1,336,280 Amazon.com Inc./1/ 48,985 948,350 eBay Inc./1/ 14,931 944,535 BEA Systems Inc./1/ 100,051 809,313 Check Point Software Technologies Ltd./1/ 46,913 646,930 VeriSign Inc./1/ 56,486 454,712 WebMD Corp./1/ 71,292 449,852 E*TRADE Group Inc./1/ 96,845 435,802 Overture Services Inc./1/ 13,597 374,325 TMP Worldwide Inc./1/ 22,137 342,681 Ameritrade Holding Corp./1/ 71,390 324,111 CheckFree Corp./1/ 17,563 285,926 Expedia Inc. "A"/1/ 3,910 264,551 DoubleClick Inc./1/ 33,313 233,191 Internet Security Systems Inc./1/ 11,236 207,417 EarthLink Inc./1/ 33,118 202,351 Macromedia Inc./1/ 15,598 174,854 Ticketmaster "B"/1/ 6,824 161,046 Ariba Inc./1/ 64,574 152,395 Websense Inc./1/ 5,637 113,811 TIBCO Software Inc./1/ 21,751 108,755 Hotels.com "A"/1/ 1,598 99,635 RealNetworks Inc./1/ 27,921 98,003 webMethods Inc./1/ 12,579 90,946 Agile Software Corp./1/ 12,661 86,221 United Online Inc./1/ 7,010 83,840 Digital Insight Corp./1/ 7,288 75,941 FreeMarkets Inc./1/ 10,071 72,310 LendingTree Inc./1/ 5,880 72,030 Vignette Corp./1/ 66,344 70,325 CNET Networks Inc./1/ 30,852 61,087 i2 Technologies Inc./1/ 77,992 60,834 Priceline.com Inc./1/ 25,811 57,042 Interwoven Inc./1/ 27,647 54,160 CMGI Inc./1/ 97,257 51,546 InfoSpace Inc./1/ 6,268 50,835 Akamai Technologies Inc./1/ 22,996 22,306 Commerce One Inc./1/ 6,038 18,112 BroadVision Inc./1/ 6,885 15,078 Inktomi Corp./1/ 38,513 15,020 TOTAL COMMON STOCKS (Cost: $22,169,908) 10,126,459 SHORT TERM INSTRUMENTS - 0.22% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 19,680 19,680 BlackRock Temp Cash Money Market Fund 1,933 1,933 Dreyfus Money Market Fund 849 849 Goldman Sachs Financial Square Prime Obligation Fund 6 6 TOTAL SHORT TERM INSTRUMENTS (Cost: $22,468) 22,468 TOTAL INVESTMENTS IN SECURITIES - 100.20% (Cost $22,192,376) 10,148,927 Other Assets, Less Liabilities - (0.20%) (20,220) ----------- NET ASSETS - 100.00% $10,128,707 =========== /1/ Non-income earning securities. See Notes to Financial Statements. Schedules of Investments 43 Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. REAL ESTATE INDEX FUND October 31, 2002 Security Shares Value ----------------------------------------------------------------- COMMON STOCKS - 99.87% Equity Office Properties Trust 473,229 $ 11,395,354 Equity Residential 306,056 7,259,648 Simon Property Group Inc. 168,629 5,758,680 ProLogis 201,121 4,867,128 Plum Creek Timber Co. Inc. 206,423 4,667,224 Archstone-Smith Trust 198,971 4,564,395 Boston Properties Inc. 107,672 3,843,890 Vornado Realty Trust 97,868 3,596,649 Duke Realty Corp. 142,290 3,457,647 Apartment Investment & Management Co. "A" 96,067 3,375,794 General Growth Properties Inc. 64,502 3,101,256 Kimco Realty Corp. 100,298 3,039,029 Rouse Co. 97,929 2,903,595 Health Care Property Investors Inc. 65,851 2,844,763 AvalonBay Communities Inc. 74,224 2,798,245 Public Storage Inc. 89,414 2,630,560 AMB Property Corp. 95,110 2,548,948 Liberty Property Trust 79,519 2,333,087 Hospitality Properties Trust 65,641 2,147,774 Host Marriott Corp./1/ 261,330 2,142,906 Weingarten Realty Investors 54,451 2,022,855 New Plan Excel Realty Trust 109,458 1,896,907 Mack-Cali Realty Corp. 64,328 1,858,436 United Dominion Realty Trust Inc. 121,262 1,749,811 iStar Financial Inc. 61,053 1,733,905 Crescent Real Estate Equities Co. 112,279 1,656,115 Annaly Mortgage Management Inc. 93,722 1,642,947 Catellus Development Corp./1/ 88,882 1,582,100 BRE Properties Inc. "A" 51,586 1,480,518 Arden Realty Inc. 68,605 1,468,147 Healthcare Realty Trust Inc. 47,316 1,464,903 Camden Property Trust 45,829 1,436,281 CarrAmerica Realty Corp. 59,265 1,406,951 CenterPoint Properties Corp. 25,702 1,384,824 Developers Diversified Realty Corp. 64,558 1,381,541 Realty Income Corp. 39,427 1,318,833 Chelsea Property Group Inc. 39,587 1,288,557 Federal Realty Investment Trust 48,553 1,279,372 Pan Pacific Retail Properties Inc. 37,921 1,270,354 Shurgard Storage Centers Inc. "A" 40,265 1,216,003 First Industrial Realty Trust Inc. 44,439 1,201,631 Highwoods Properties Inc. 59,683 1,193,660 HRPT Properties Trust 145,676 1,146,470 CBL & Associates Properties Inc. 30,989 1,145,353 Health Care REIT Inc. 40,533 1,138,167 Prentiss Properties Trust 41,075 1,106,971 Macerich Co. (The) 38,109 1,084,201 Trizec Properties Inc. 101,754 1,032,803 Reckson Associates Realty Corp. 50,465 1,024,944 Cousins Properties Inc. 45,027 1,008,605 St. Joe Company (The) 34,207 998,160 LNR Property Corp. 27,721 988,254 SL Green Realty Corp. 33,749 984,796 Post Properties Inc. 41,594 975,379 Nationwide Health Properties Inc. 55,503 945,771 Mills Corp. 29,919 830,252 Colonial Properties Trust 23,502 776,976 Home Properties of New York Inc. 24,124 764,731 La Quinta Corp. 172,190 759,358 Brandywine Realty Trust 36,185 723,700 Kilroy Realty Corp. 31,563 679,236 Manufactured Home Communities Inc. 22,770 650,084 Capital Automotive 26,015 637,368 Glenborough Realty Trust Inc. 31,182 569,072 FelCor Lodging Trust Inc. 44,635 499,019 JDN Realty Corp. 36,305 394,998 Meristar Hospitality Corp. 50,288 382,189 Koger Equity Inc. 23,989 372,309 RFS Hotel Investors Inc. 31,873 370,364 Equity Inns Inc. 45,724 267,028 TOTAL COMMON STOCKS (Cost: $150,886,937) 134,467,781 44 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. REAL ESTATE INDEX FUND October 31, 2002 Security Shares Value ----------------------------------------------------------------- SHORT TERM INSTRUMENTS - 5.71% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 6,643,114 $ 6,643,114 BlackRock Temp Cash Money Market Fund 719,578 719,578 Dreyfus Money Market Fund 315,913 315,913 Goldman Sachs Financial Square Prime Obligation Fund 2,243 2,243 TOTAL SHORT TERM INSTRUMENTS (Cost: $7,680,848) 7,680,848 TOTAL INVESTMENTS IN SECURITIES - 105.58% (Cost $158,567,785) 142,148,629 Other Assets, Less Liabilities - (5.58%) (7,511,016) ------------ NET ASSETS - 100.00% $134,637,613 ============ /1/ Non-income earning securities. See Notes to Financial Statements. Schedules of Investments 45 Schedule of Investments (Unaudited) iSHARES COHEN & STEERS REALTY MAJORS INDEX FUND October 31, 2002 Security Shares Value ----------------------------------------------------------------- COMMON STOCKS - 99.97% Equity Office Properties Trust 639,534 $ 15,399,979 Equity Residential 632,538 15,003,801 Simon Property Group Inc. 437,080 14,926,282 ProLogis 431,892 10,451,786 Archstone-Smith Trust 426,210 9,777,258 Vornado Realty Trust 258,505 9,500,059 Public Storage Inc. 281,197 8,272,816 Boston Properties Inc. 230,512 8,229,278 Duke Realty Corp. 325,978 7,921,265 Apartment Investment & Management Co. "A" 221,904 7,797,707 Kimco Realty Corp. 253,370 7,677,111 General Growth Properties Inc. 150,827 7,251,762 AvalonBay Communities Inc. 166,339 6,270,980 Rouse Co. 210,267 6,234,417 Health Care Property Investors Inc. 138,864 5,998,925 AMB Property Corp. 203,132 5,443,938 Liberty Property Trust 181,504 5,325,327 Host Marriott Corp./1/ 642,561 5,269,000 Weingarten Realty Investors 126,062 4,683,203 Arden Realty Inc. 156,552 3,350,213 CarrAmerica Realty Corp. 128,610 3,053,201 CenterPoint Properties Corp. 55,865 3,010,006 Cousins Properties Inc. 120,543 2,700,163 Highwoods Properties Inc. 128,463 2,569,260 Reckson Associates Realty Corp. 123,315 2,504,528 Macerich Co. (The) 87,995 2,503,458 SL Green Realty Corp. 72,955 2,128,827 Post Properties Inc. 89,587 2,100,815 Nationwide Health Properties Inc. 119,145 2,030,231 Taubman Centers Inc. 123,927 1,716,389 TOTAL COMMON STOCKS (Cost: $208,553,809) 189,101,985 SHORT TERM INSTRUMENTS - 3.92% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 6,391,087 6,391,087 BlackRock Temp Cash Money Market Fund 712,967 712,967 Dreyfus Money Market Fund 313,010 313,010 Goldman Sachs Financial Square Prime Obligation Fund 2,222 2,222 TOTAL SHORT TERM INSTRUMENTS (Cost: $7,419,286) 7,419,286 TOTAL INVESTMENTS IN SECURITIES - 103.89% (Cost $215,973,095) 196,521,271 Other Assets, Less Liabilities - (3.89%) (7,354,965) ------------ NET ASSETS - 100.00% $189,166,306 ============ /1/ Non-income earning securities. See Notes to Financial Statements. 46 2002 iShares Semi-Annual Report to Shareholders Statements of Assets and Liabilities (Unaudited) iSHARES TRUST October 31, 2002
iShares Dow Jones U.S. -------------------------------------------------------------------------- Basic Cyclical Consumer Materials Consumer Non-Cyclical Financial Industrial Sector Sector Sector Sector Sector Index Fund Index Fund Index Fund Index Fund Index Fund ------------------------------------------------------------------------------------------------------------------------- ASSETS Investments at cost $ 78,471,389 $ 229,496,337 $ 146,749,988 $161,501,693 $ 87,259,444 ------------ ------------- ------------- ------------ ------------ Investments in securities, at value (including securities on loan/1/) (Note 1) $ 63,790,874 $185,292,846 $ 133,009,395 $147,428,789 $ 64,395,508 Receivables: Investment securities sold - - 910,299 - 9,489 Dividends and interest 52,797 84,931 188,129 253,917 35,668 iShares sold - - - 26,566 - ------------ ------------- ------------- ------------ ------------ Total Assets 63,843,671 185,377,777 134,107,823 147,709,272 64,440,665 ------------ ------------- ------------- ------------ ------------ LIABILITIES Payables: Investment securities purchased - - 922,009 - - Collateral for securities on loan (Note 5) 1,815,344 8,363,002 3,295,934 1,636,947 2,366,587 Advisory fees (Note 2) 68,645 191,406 127,474 118,314 57,509 ------------ ------------- ------------- ------------ ------------ Total Liabilities 1,883,989 8,554,408 4,345,417 1,755,261 2,424,096 ------------ ------------- ------------- ------------ ------------ NET ASSETS $ 61,959,682 $ 176,823,369 $ 129,762,406 $145,954,011 $ 62,016,569 ============ ============= ============= ============ ============ Net assets consist of: Paid-in capital $ 77,634,306 $ 226,702,153 $ 143,577,640 $161,696,460 $ 91,870,283 Undistributed net investment income (accumulated net investment loss) 102,911 (34,445) 346,544 370,341 84,387 Accumulated net realized loss (1,097,020) (5,640,848) (421,185) (2,039,886) (7,074,165) Net unrealized depreciation (14,680,515) (44,203,491) (13,740,593) (14,072,904) (22,863,936) ------------ ------------- ------------- ------------ ------------ NET ASSETS $ 61,959,682 $ 176,823,369 $ 129,762,406 $145,954,011 $ 62,016,569 ============ ============= ============= ============ ============ iShares outstanding 1,900,000 4,050,000 3,100,000 2,100,000 1,700,000 ============ ============= ============= ============ ============ Net asset value per iShare $ 32.61 $ 43.66 $ 41.86 $ 69.50 $ 36.48 ============ ============= ============= ============ ============
/1/ Securities on loan with market values of $1,764,468, $7,984,122, $3,204,559, $1,573,292 and $2,292,785, respectively. See Note 5. See notes to financial statements. Financial Statements 47 Statements of Assets and Liabilities (Unaudited) (Continued) iSHARES TRUST October 31, 2002
iShares Dow Jones U.S. iShares Cohen & Steers ------------------------------------------------------- ---------------------- Financial Real Realty Chemicals Services Internet Estate Majors Index Fund Index Fund Index Fund Index Fund Index Fund -------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments at cost $15,353,848 $44,017,751 $ 22,192,376 $158,567,785 $215,973,095 ----------- ----------- ------------ ------------ ------------ Investments in securities, at value (including securities on loan/1)/ (Note 1) $13,431,254 $36,110,618 $ 10,148,927 $142,148,629 $196,521,271 Receivables: Investment securities sold - - 47,211 - - Dividends and interest 8,919 83,449 5 293,356 111,730 ----------- ----------- ------------ ------------ ------------ Total Assets 13,440,173 36,194,067 10,196,143 142,441,985 196,633,001 ----------- ----------- ------------ ------------ ------------ LIABILITIES Payables: Investment securities purchased - - 38,753 221,874 - Collateral for securities on loan (Note 5) - 368,941 20,000 7,443,735 7,375,344 Advisory fees (Note 2) 15,113 34,328 8,683 138,763 91,351 ----------- ----------- ------------ ------------ ------------ Total Liabilities 15,113 403,269 67,436 7,804,372 7,466,695 ----------- ----------- ------------ ------------ ------------ NET ASSETS $13,425,060 $35,790,798 $ 10,128,707 $134,637,613 $189,166,306 =========== =========== ============ ============ ============ Net assets consist of: Paid-in capital $15,745,846 $44,078,059 $ 51,939,336 $153,729,714 $208,385,553 Undistributed net investment income (accumulated net investment loss) 45,500 98,413 (30,303) 237,114 (550,680) Undistributed net realized gain (accumulated net realized loss) (443,692) (478,541) (29,736,877) (2,910,059) 783,257 Net unrealized depreciation (1,922,594) (7,907,133) (12,043,449) (16,419,156) (19,451,824) ----------- ----------- ------------ ------------ ------------ NET ASSETS $13,425,060 $35,790,798 $ 10,128,707 $134,637,613 $189,166,306 =========== =========== ============ ============ ============ iShares outstanding 350,000 450,000 1,250,000 1,800,000 2,400,000 =========== =========== ============ ============ ============ Net asset value per iShare $ 38.36 $ 79.54 $ 8.10 $ 74.80 $ 78.82 =========== =========== ============ ============ ============
/1/ Securities on loan with market values of $--, $353,512, $19,080, $7,101,011 and $7,159,251, respectively. See Note 5. See notes to financial statements. 48 2002 iShares Semi-Annual Report to Shareholders Statements of Operations (Unaudited) iSHARES TRUST For the six months ended October 31, 2002
iShares Dow Jones U.S. ----------------------------------------------------------------------------- Basic Consumer Consumer Materials Cyclical Non-Cyclical Financial Industrial Sector Sector Sector Sector Sector Index Fund Index Fund Index Fund Index Fund Index Fund --------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME Dividends $ 823,787 $ 522,506 $ 1,336,546 $ 1,452,023/1/ $ 524,813 Interest 562 913 1,211 951 598 Securities lending income 2,086 4,366 2,507 3,834 1,851 ------------ ------------ ------------ ------------ ------------ Total investment income 826,435 527,785 1,340,264 1,456,808 527,262 ------------ ------------ ------------ ------------ ------------ EXPENSES (NOTE 2) Advisory fees 201,189 503,101 387,023 350,428 207,928 ------------ ------------ ------------ ------------ ------------ Total expenses 201,189 503,101 387,023 350,428 207,928 ------------ ------------ ------------ ------------ ------------ Net investment income 625,246 24,684 953,241 1,106,380 319,334 ------------ ------------ ------------ ------------ ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments (755,129) (984,038) (651,043) (991,532) (2,674,852) In-kind redemptions (78,233) (3,479,861) 1,212,567 - 582,335 ------------ ------------ ------------ ------------ ------------ Net realized gain (loss) (833,362) (4,463,899) 561,524 (991,532) (2,092,517) ------------ ------------ ------------ ------------ ------------ Net change in unrealized appreciation (depreciation) on investments (13,453,834) (42,183,822) (19,517,940) (17,625,819) (13,046,678) ------------ ------------ ------------ ------------ ------------ Net realized and unrealized loss (14,287,196) (46,647,721) (18,956,416) (18,617,351) (15,139,195) ------------ ------------ ------------ ------------ ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(13,661,950) $(46,623,037) $(18,003,175) $(17,510,971) $(14,819,861) ============ ============ ============ ============ ============
/1/ Net of foreign withholding tax of $357. See notes to financial statements. Financial Statements 49 Statements of Operations (Unaudited) (Continued) iSHARES TRUST For the six months ended October 31, 2002
iShares Dow Jones U.S. iShares Cohen & Steers --------------------------------------------------------- ---------------------- Financial Real Realty Chemicals Services Internet Estate Majors Index Fund Index Fund Index Fund Index Fund Index Fund ------------------------------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME Dividends $ 176,168 $ 585,741/1/ $ - $ 4,226,265 $ 3,838,859 Interest 114 448 3 2,361 2,573 Securities lending income - 1,333 268 3,214 2,768 ----------- ----------- ----------- ------------ ------------ Total investment income 176,282 587,522 271 4,231,840 3,844,200 ----------- ----------- ----------- ------------ ------------ EXPENSES (NOTE 2) Advisory fees 36,930 146,433 30,574 373,039 222,551 ----------- ----------- ----------- ------------ ------------ Total expenses 36,930 146,433 30,574 373,039 222,551 ----------- ----------- ----------- ------------ ------------ Net investment income (loss) 139,352 441,089 (30,303) 3,858,801 3,621,649 ----------- ----------- ----------- ------------ ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments (26,974) (553,011) (2,529,614) (1,279,363) (597,988) In-kind redemptions (82,144) 395,785 (378,134) (666,099) 1,493,244 ----------- ----------- ----------- ------------ ------------ Net realized gain (loss) (109,118) (157,226) (2,907,748) (1,945,462) 895,256 ----------- ----------- ----------- ------------ ------------ Net change in unrealized appreciation (depreciation) on investments (1,960,885) (7,134,837) 405,243 (19,005,296) (18,801,229) ----------- ----------- ----------- ------------ ------------ Net realized and unrealized loss (2,070,003) (7,292,063) (2,502,505) (20,950,758) (17,905,973) ----------- ----------- ----------- ------------ ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,930,651) $(6,850,974) $(2,532,808) $(17,091,957) $(14,284,324 =========== =========== =========== ============ ============
/1/ Net of foreign withholding tax of $196. See notes to financial statements. 50 2002 iShares Semi-Annual Report to Shareholders Statements of Changes in Net Assets iSHARES TRUST
iShares Dow Jones U.S. iShares Dow Jones U.S. Basic Materials Sector Consumer Cyclical Index Fund Sector Index Fund -------------------------------- --------------------------------- For the six For the six months ended For the months ended For the October 31, 2002 year ended October 31, 2002 year ended (Unaudited) April 30, 2002 (Unaudited) April 30, 2002 ------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income (loss) $ 625,246 $ 346,199 $ 24,684 $ (26,261) Net realized gain (loss) (833,362) 1,205,403 (4,463,899) (1,660,770) Net change in unrealized appreciation (depreciation) (13,453,834) (1,894,605) (42,183,822) (2,197,507) ------------ ------------ ------------- ------------ Net increase (decrease) in net assets resulting from operations (13,661,950) (343,003) (46,623,037) (3,884,538) ------------ ------------ ------------- ------------ DISTRIBUTIONS TO iSHAREHOLDERS: From net investment income (582,472) (290,722) (59,129) - Return of capital - - - (34,142) ------------ ------------ ------------- ------------ Total distributions to iShareholders (582,472) (290,722) (59,129) (34,142) ------------ ------------ ------------- ------------ iSHARES TRANSACTIONS: iShares sold 61,053,743 71,382,916 220,339,183 112,522,207 iShares redeemed (42,838,386) (22,571,247) (126,195,345) (9,181,366) ------------ ------------ ------------- ------------ Net increase in net assets from iShares transactions 18,215,357 48,811,669 94,143,838 103,340,841 ------------ ------------ ------------- ------------ INCREASE IN NET ASSETS 3,970,935 48,177,944 47,461,672 99,422,161 NET ASSETS: Beginning of period 57,988,747 9,810,803 129,361,697 29,939,536 ------------ ------------ ------------- ------------ End of period $ 61,959,682 $ 57,988,747 $ 176,823,369 $129,361,697 ============ ============ ============= ============ Undistributed net investment income (accumulated net investment loss) included in net assets at end of period $ 102,911 $ 60,137 $ (34,445) $ - ============ ============ ============= ============ iSHARES ISSUED AND REDEEMED: iShares sold 1,650,000 1,800,000 4,500,000 2,050,000 iShares redeemed (1,200,000) (600,000) (2,800,000) (200,000) ------------ ------------ ------------- ------------ Net increase in iShares outstanding 450,000 1,200,000 1,700,000 1,850,000 ============ ============ ============= ============ iShares Dow Jones U.S. Consumer Non-cyclical Sector Index Fund ---------------------------------- For the six months ended For the October 31, 2002 year ended (Unaudited) April 30, 2002 -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income (loss) $ 953,241 $ 504,214 Net realized gain (loss) 561,524 745,268 Net change in unrealized appreciation (depreciation) (19,517,940) 7,027,878 ------------ ------------ Net increase (decrease) in net assets resulting from operations (18,003,175) 8,277,360 ------------ ------------ DISTRIBUTIONS TO iSHAREHOLDERS: From net investment income (766,143) (384,121) Return of capital - - ------------ ------------ Total distributions to iShareholders (766,143) (384,121) ------------ ------------ iSHARES TRANSACTIONS: iShares sold 52,679,534 107,938,159 iShares redeemed (19,121,579) (15,049,846) ------------ ------------ Net increase in net assets from iShares transactions 33,557,955 92,888,313 ------------ ------------ INCREASE IN NET ASSETS 14,788,637 100,781,552 NET ASSETS: Beginning of period 114,973,769 14,192,217 ------------ ------------ End of period $129,762,406 $114,973,769 ============ ============ Undistributed net investment income (accumulated net investment loss) included in net assets at end of period $ 346,544 $ 159,446 ============ ============ iSHARES ISSUED AND REDEEMED: iShares sold 1,150,000 2,400,000 iShares redeemed (450,000) (350,000) ------------ ------------ Net increase in iShares outstanding 700,000 2,050,000 ============ ============
See notes to financial statements. Financial Statements 51 Statements of Changes in Net Assets (Continued) iSHARES TRUST
iShares Dow Jones U.S. iShares Dow Jones U.S. Financial Sector Industrial Sector Index Fund Index Fund --------------------------------- --------------------------------- For the six For the six months ended For the months ended For the October 31, 2002 year ended October 31, 2002 year ended (Unaudited) April 30, 2002 (Unaudited) April 30, 2002 ----------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income $ 1,106,380 $ 1,215,104 $ 319,334 $ 282,707 Net realized loss (991,532) (1,008,648) (2,092,517) (4,649,321) Net change in unrealized appreciation (depreciation) (17,625,819) 689,174 (13,046,678) (8,322,529) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (17,510,971) 895,630 (14,819,861) (12,689,143) ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (985,565) (1,042,235) (234,947) (298,793) ------------- ------------- ------------- ------------- Total distributions to iShareholders (985,565) (1,042,235) (234,947) (298,793) ------------- ------------- ------------- ------------- iSHARES TRANSACTIONS: iShares sold 42,654,896 80,797,659 13,548,913 62,661,232 iShares redeemed - (16,104,168) (21,111,923) (10,929,414) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from iShares transactions 42,654,896 64,693,491 (7,563,010) 51,731,818 ------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS 24,158,360 64,546,886 (22,617,818) 38,743,882 NET ASSETS: Beginning of period 121,795,651 57,248,765 84,634,387 45,890,505 ------------- ------------- ------------- ------------- End of period $ 145,954,011 $ 121,795,651 $ 62,016,569 $ 84,634,387 ============= ============= ============= ============= Undistributed net investment income included in net assets at end of period $ 370,341 $ 249,526 $ 84,387 $ - ============= ============= ============= ============= SHARES ISSUED AND REDEEMED: iShares sold 600,000 1,000,000 350,000 1,250,000 iShares redeemed -- (200,000) (500,000) (250,000) ------------- ------------- ------------- ------------- Net increase (decrease) in iShares outstanding 600,000 800,000 (150,000) 1,000,000 ============= ============= ============= ============= iShares Dow Jones U.S. Chemicals Index Fund ----------------------------------- For the six months ended For the October 31, 2002 year ended (Unaudited) April 30, 2002 ------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income $ 139,352 $ 229,910 Net realized loss (109,118) (965,434) Net change in unrealized appreciation (depreciation) (1,960,885) (188,723) ------------- ------------ Net increase (decrease) in net assets resulting from operations (1,930,651) (924,247) ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (113,727) (235,918) ------------- ------------ Total distributions to iShareholders (113,727) (235,918) ------------- ------------ iSHARES TRANSACTIONS: iShares sold 10,419,823 18,559,201 iShares redeemed (5,815,022) (25,412,619) ------------- ------------ Net increase (decrease) in net assets from iShares transactions 4,604,801 (6,853,418) ------------- ------------ INCREASE (DECREASE) IN NET ASSETS 2,560,423 (8,013,583) NET ASSETS: Beginning of period 10,864,637 18,878,220 ------------- ------------ End of period $ 13,425,060 $ 10,864,637 ============= ============ Undistributed net investment income included in net assets at end of period $ 45,500 $ 19,875 ============= ============ SHARES ISSUED AND REDEEMED: iShares sold 250,000 450,000 iShares redeemed (150,000) (650,000) ------------- ------------ Net increase (decrease) in iShares outstanding 100,000 (200,000) ============= ============
See notes to financial statements. 52 2002 iShares Semi-Annual Report to Shareholders Statements of Changes in Net Assets (Continued) iSHARES TRUST
iShares Dow Jones U.S. iShares Dow Jones U.S. Financial Services Internet Index Fund Index Fund --------------------------------- -------------------------------- For the six For the six months ended For the months ended For the October 31, 2002 year ended October 31, 2002 year ended (Unaudited) April 30, 2002 (Unaudited) April 30, 2002 --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income (loss) $ 441,089 $ 692,855 $ (30,303) $ (94,834) Net realized gain (loss) (157,226) 2,135,083 (2,907,748) (21,021,941) Net change in unrealized appreciation (depreciation) (7,134,837) (1,226,479) 405,243 7,048,231 ------------ ------------ ----------- ------------ Net increase (decrease) in net assets resulting from operations (6,850,974) 1,601,459 (2,532,808) (14,068,544) ------------ ------------ ----------- ------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (449,748) (635,045) - - ------------ ------------ ----------- ------------ Total distributions to iShareholders (449,748) (635,045) - - ------------ ------------ ----------- ------------ iSHARES TRANSACTIONS: iShares sold - 48,659,380 - 19,707,314 iShares redeemed (17,000,726) (27,000,210) (1,839,974) (9,388,258) ------------ ------------ ----------- ------------ Net increase (decrease) in net assets from iShares transactions (17,000,726) 21,659,170 (1,839,974) 10,319,056 ------------ ------------ ----------- ------------ INCREASE (DECREASE) IN NET ASSETS (24,301,448) 22,625,584 (4,372,782) (3,749,488) NET ASSETS: Beginning of period 60,092,246 37,466,662 14,501,489 18,250,977 ------------ ------------ ----------- ------------ End of period $ 35,790,798 $ 60,092,246 $10,128,707 $ 14,501,489 ============ ============ =========== ============ Undistributed net investment income (accumulated net investment loss) included in net assets at end of period $ 98,413 $ 107,072 $ (30,303) $ - ============ ============ =========== ============ iSHARES ISSUED AND REDEEMED: iShares sold - 550,000 - 1,350,000 iShares redeemed (200,000) (300,000) (200,000) (800,000) ------------ ------------ ----------- ------------ Net increase (decrease) in iShares outstanding (200,000) 250,000 (200,000) 550,000 ============ ============ =========== ============
See notes to financial statements. Financial Statements 53 Statements of Changes in Net Assets (Continued) iSHARES TRUST
iShares Dow Jones U.S. iShares Cohen & Steers Real Estate Realty Majors Index Fund Index Fund -------------------------------- --------------------------------- For the six For the six months ended For the months ended For the October 31, 2002 year ended October 31, 2002 year ended (Unaudited) April 30, 2002 (Unaudited) April 30, 2002 ----------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income $ 3,858,801 $ 4,623,204 $ 3,621,649 $ 2,654,365 Net realized gain (loss) (1,945,462) 8,745,631 895,256 3,444,424 Net change in unrealized appreciation (depreciation) (19,005,296) 1,157,394 (18,801,229) (553,278) ------------ ------------ ----------- ----------- Net increase (decrease) in net assets resulting from operations (17,091,957) 14,526,229 (14,284,324) 5,545,511 ------------ ------------ ----------- ----------- Undistributed net investment income included in the price of capital shares issued or redeemed 406,000 1,500 2,669,500 203,000 ------------ ------------ ----------- ----------- DISTRIBUTIONS TO iSHAREHOLDERS: From net investment income (3,742,792) (4,234,903) (4,202,502) (2,506,725) Return of capital - (539,945) - (226,211) ------------ ------------ ----------- ----------- Total distributions to iShareholders (3,742,792) (4,774,848) (4,202,502) (2,732,936) ------------ ------------ ----------- ----------- iSHARES TRANSACTIONS: iShares sold 180,499,477 236,633,649 133,351,389 109,838,135 iShares redeemed (132,338,094) (193,530,117) (18,051,641) (63,217,081) ------------ ------------ ----------- ----------- Net increase in net assets from iShares transactions 48,161,383 43,103,532 115,299,748 46,621,054 ------------ ------------ ----------- ----------- INCREASE IN NET ASSETS 27,732,634 52,856,413 99,482,422 49,636,629 NET ASSETS: Beginning of period 106,904,979 54,048,566 89,683,884 40,047,255 ------------ ------------ ----------- ----------- End of period $134,637,613 $106,904,979 $189,166,306 $89,683,884 ============ ============ =========== =========== Undistributed net investment income (accumulated net investment loss) included in net assets at end of period $ 237,114 $ 121,105 $ (550,680) $ 30,173 ============ ============ =========== =========== iSHARES ISSUED AND REDEEMED: iShares sold 2,250,000 2,950,000 1,600,000 1,250,000 iShares redeemed (1,700,000) (2,400,000) (200,000) (750,000) ------------ ------------ ----------- ----------- Net increase in iShares outstanding 550,000 550,000 1,400,000 500,000 ============ ============ =========== ===========
See notes to financial statements. 54 2002 iShares Semi-Annual Report to Shareholders Financial Highlights iSHARES TRUST (For a share outstanding throughout each period)
iShares Dow Jones U.S. Basic Materials Sector Index Fund ---------------------------------------------------- Six months Period from ended Jun. 12, 2000/1/ Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 ---------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 39.99 $ 39.24 $ 36.04 -------- -------- -------- Income from investment operations: Net investment income 0.36 0.55 0.55 Net realized and unrealized gain (loss) (7.39) 0.73 3.25 -------- -------- -------- Total from investment operations (7.03) 1.28 3.80 -------- -------- -------- Less distributions from: Net investment income (0.35) (0.53) (0.53) Net realized gain - - (0.07) Return of capital - - - -------- -------- -------- Total distributions (0.35) (0.53) (0.60) -------- -------- -------- Net asset value, end of period $ 32.61 $ 39.99 $ 39.24 ======== ======== ======== Total return (17.69)%/2/ 3.38% 10.80%/2/ ======== ======== ======== Ratios/Supplemental data: Net assets, end of period (000s) $ 61,960 $ 57,989 $ 9,811 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets/3/ 1.86% 1.42% 1.77% Portfolio turnover rate/4/ 3% 9% 16% Ishares Dow Jones U.S. Consumer Cyclical Sector Index Fund ------------------------------------------------------ Six months Period from ended Jun. 12, 2000/1/ Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 55.05 $ 59.88 $ 59.63 --------- --------- -------- Income from investment operations: Net investment income 0.00/5/ 0.02 0.09 Net realized and unrealized gain (loss) (11.38) (4.80) 0.45 --------- --------- -------- Total from investment operations (11.38) (4.78) 0.54 --------- --------- -------- Less distributions from: Net investment income (0.01) - (0.10) Net realized gain - - (0.19) Return of capital - (0.05) - --------- --------- -------- Total distributions (0.01) (0.05) (0.29) --------- --------- -------- Net asset value, end of period $ 43.66 $ 55.05 $ 59.88 ========= ========= ======== Total return (20.67)%/2/ (7.98)% 0.98%/2/ ========= ========= ======== Ratios/Supplemental data: Net assets, end of period (000s) $ 176,823 $ 129,362 $ 29,940 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets/3/ 0.03% (0.05)% 0.16% Portfolio turnover rate/4/ 3% 4% 25%
/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 $0.01. See notes to financial statements. Financial Highlights 55 Financial Highlights (Continued) iSHARES TRUST (For a share outstanding throughout each period)
iShares Dow Jones U.S. Consumer Non-cyclical Sector Index Fund ------------------------------------------------------ Six months Period from ended Jun. 12, 2000/1/ Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 47.91 $ 40.55 $ 40.83 -------- -------- -------- Income from investment operations: Net investment income 0.31 0.49 0.42 Net realized and unrealized gain (loss) (6.10) 7.41 (0.39) -------- -------- -------- Total from investment operations (5.79) 7.90 0.03 -------- -------- -------- Less distributions from: Net investment income (0.26) (0.54) (0.31) Net realized gain - - - -------- -------- -------- Total distributions (0.26) (0.54) (0.31) -------- -------- -------- Net asset value, end of period $ 41.86 $ 47.91 $ 40.55 ======== ======== ======== Total return (12.12)%/2/ 19.65% 0.06%/2/ ======== ======== ======== Ratios/Supplemental data: Net assets, end of period (000s) $129,762 $114,974 $ 14,192 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% Ratio of net investment income to average net assets/3/ 1.48% 1.46% 1.21% Portfolio turnover rate/4/ 6% 8% 38% Ishares Dow Jones U.S. Financial Sector Index Fund ---------------------------------------------------------- Six months Period from ended May 22, 2000/1/ Oct. 31, 2002 Year ended to (Unaudited Apr. 30, 2002 Apr. 30, 2001 ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 81.20 $ 81.78 $ 71.80 -------- -------- -------- Income from investment operations: Net investment income 0.62 1.11 1.77 Net realized and unrealized gain (loss) (11.71) (0.61) 10.17 -------- --------- -------- Total from investment operations (11.09) 0.50 11.94 -------- --------- -------- Less distributions from: Net investment income (0.61) (1.08) (1.57) Net realized gain - - (0.39) -------- --------- -------- Total distributions (0.61) (1.08) (1.96) -------- --------- -------- Net asset value, end of period $ 69.50 $ 81.20 $ 81.78 ======== ========= ======== Total return (13.70)%/2/ 0.66% 16.69%/2/ ======== ========= ======== Ratios/Supplemental data: Net assets, end of period (000s) $145,954 $ 121,796 $ 57,249 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% Ratio of net investment income to average net assets/3/ 1.89% 1.49% 1.46% Portfolio turnover rate/4/ 6% 4% 11%
/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. See notes to financial statements. 56 2002 iShares Semi-Annual Report to Shareholders Financial Highlights (Continued) iSHARES TRUST (For a share outstanding throughout each period)
iShares Dow Jones U.S. Industrial Sector Index Fund ----------------------------------------------------- Six months Period from ended Jun. 12, 2000/1/ Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 45.75 $ 53.99 $ 58.11 ------------ ------------- ------------- Income from investment operations: Net investment income 0.20 0.29 0.22 Net realized and unrealized gain (loss) (9.32) (8.23) (3.98) ------------ ------------- ------------- Total from investment operations (9.12) (7.94) (3.76) ------------ ------------- ------------- Less distributions from: Net investment income (0.15) (0.30) (0.23) Net realized gain - - (0.13) ------------ ------------- ------------- Total distributions (0.15) (0.30) (0.36) ------------ ------------- ------------- Net asset value, end of period $ 36.48 $ 45.75 $ 53.99 ============ ============= ============= Total return (19.96)%/2/ (14.72)% (6.46)%/2/ ============ ============= ============= Ratios/Supplemental data: Net assets, end of period (000s) $ 62,017 $ 84,634 $ 45,891 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% Ratio of net investment income to average net assets/3/ 0.92% 0.56% 0.44% Portfolio turnover rate/4/ 11% 27% 23% iShares Dow Jones U.S. Chemicals Index Fund ----------------------------------------------------- Six months Period from ended Jun. 12, 2000/1/ Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 ---------------------------------------------------------------- ----------------------------------- Net asset value, beginning of period $ 43.46 $ 41.95 $ 40.26 ------------- ------------- ------------- Income from investment operations: Net investment income 0.39 0.86 0.65 Net realized and unrealized gain (loss) (5.15) 1.49 1.88 ------------- ------------- ------------- Total from investment operations (4.76) 2.35 2.53 ------------- ------------- ------------- Less distributions from: Net investment income (0.34) (0.84) (0.59) Net realized gain - - (0.25) ------------- ------------- ------------- Total distributions (0.34) (0.84) (0.84) ------------- ------------- ------------- Net asset value, end of period $ 38.36 $ 43.46 $ 41.95 ============= ============= ============= Total return (11.02)%/2/ 5.80% 6.53%/2/ ============= ============= ============= Ratios/Supplemental data: Net assets, end of period (000s) $ 13,425 $ 10,865 $ 18,878 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% Ratio of net investment income to average net assets/3/ 2.26% 2.07% 1.90% Portfolio turnover rate/4/ 3% 26% 16%
/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. See notes to financial statements. Financial Highlights 57 Financial Highlights (Continued) iSHARES TRUST (For a share outstanding throughout each period)
iShares Dow Jones U.S. Financial Services Index Fund ----------------------------------------------------- Six months Period from ended Jun. 12, 2000/1/ Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 92.45 $ 93.67 $ 85.58 ------------- ------------- ------------- Income from investment operations: Net investment income (loss) 0.88 1.22 1.29 Net realized and unrealized gain (loss) (12.96) (1.26) 8.10 ------------- ------------- ------------- Total from investment operations (12.08) (0.04) 9.39 ------------- ------------- ------------- Less distributions from: Net investment income (0.83) (1.18) (1.17) Net realized gain - - (0.13) ------------- ------------- ------------- Total distributions (0.83) (1.18) (1.30) ------------- ------------- ------------- Net asset value, end of period $ 79.54 $ 92.45 $ 93.67 ============= ============= ============= Total Return (13.09)%/2/ 0.00%/5/ 11.03%/2/ ============= ============= ============= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 35,791 $ 60,092 $ 37,467 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets/3/ 1.81% 1.46% 1.33% Portfolio turnover rate/4/ 5% 3% 5% iShares Dow Jones U.S. Internet Index Fund ----------------------------------------------------- Six months Period from ended May 15, 2000/1/ Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 $ 20.28 $ 67.97 ------------- ------------- ------------ Income from investment operations: Net investment income (loss) (0.02) (0.07) (0.28) Net realized and unrealized gain (loss) (1.88) (10.21) (45.77) ------------- ------------- ------------ Total from investment operations (1.90) (10.28) (46.05) ------------- ------------- ------------ Less distributions from: Net investment income - - - Net realized gain - - (1.64) ------------- ------------- ------------ Total distributions - - (1.64) ------------- ------------- ------------ Net asset value, end of period $ 8.10 $ 10.00 $ 20.28 ============= ============= ============ Total Return (19.00)%/2/ (50.69)% (68.45)%/2/ ============= ============= ============ Ratios/Supplemental data: Net assets, end of period (000s) $ 10,129 $ 14,501 $ 18,251 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets/3/ (0.59)% (0.54)% (0.53)% Portfolio turnover rate/4/ 17% 46% 74%
/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 0.01%. See notes to financial statements. 58 2002 iShares Semi-Annual Report to Shareholders Financial Highlights (Continued) iSHARES TRUST (For a share outstanding throughout each period)
iShares Dow Jones U.S. Real Estate Index Fund --------------------------------------------------------- Six months Period from ended Jun. 12, 2000/1/ Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 ------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 85.52 $ 77.21 $ 68.97 ------------- ------------- ------------- Income from investment operations: Net investment income 2.46 4.56 3.51 Net realized and unrealized gain (loss) (10.75) 8.71 7.51 ------------- ------------- ------------- Total from investment operations (8.29) 13.27 11.02 ------------- ------------- ------------- Less distributions from: Net investment income (2.43) (4.54) (2.64) Net realized gain - - (0.14) Return of capital - (0.42) - ------------- ------------- ------------- Total distributions (2.43) (4.96) (2.78) ------------- ------------- ------------- Net asset value, end of period $ 74.80 $ 85.52 $ 77.21 ============= ============= ============= Total return (9.97)%/2/ 17.83% 16.32%/2/ ============= ============= ============= Ratios/Supplemental data: Net assets, end of period (000s) $ 134,638 $ 106,905 $ 54,049 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% Ratio of net investment income to average net assets/3/ 6.21% 5.97% 6.37% Portfolio turnover rate/4/ 11% 10% 30% iShares Cohen & Steers Realty Majors Index Fund --------------------------------------------------------- Six months Period from ended Jan. 29, 2001/1/ Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 ------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 89.68 $ 80.09 $ 79.86 ------------- ------------- ------------- Income from investment operations: Net investment income 2.42 4.79 1.11 Net realized and unrealized gain (loss) (10.60) 9.98 (0.39) ------------- ------------- ------------- Total from investment operations (8.18) 14.77 0.72 ------------- ------------- ------------- Less distributions from: Net investment income (2.68) (4.77) (0.49) Net realized gain - - - Return of capital - (0.41) - ------------- ------------- ------------- Total distributions (2.68) (5.18) (0.49) ------------- ------------- ------------- Net asset value, end of period $ 78.82 $ 89.68 $ 80.09 ============= ============= ============= Total return (9.41)%/2/ 19.05% 0.91%/2/ ============= ============= ============= Ratios/Supplemental data: Net assets, end of period (000s) $ 189,166 $ 89,684 $ 40,047 Ratio of expenses to average net assets/3/ 0.35% 0.35% 0.35% Ratio of net investment income to average net assets/3/ 5.70% 5.80% 6.01% Portfolio turnover rate/4/ 6% 15% 2%
/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. See notes to financial statements. Financial Highlights 59 Notes to the Financial Statements (Unaudited) 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 October 31, 2002, the Trust offered 59 investment portfolios or funds. These financial statements relate only to the iShares Dow Jones U.S. Basic Materials Sector, iShares Dow Jones U.S. Consumer Cyclical Sector, iShares Dow Jones U.S. Consumer Non-Cyclical Sector, iShares Dow Jones U.S. Financial Sector, iShares Dow Jones U.S. Industrial Sector, iShares Dow Jones U.S. Chemicals, iShares Dow Jones U.S. Financial Services, iShares Dow Jones U.S. Internet, iShares Dow Jones U.S. Real Estate and the iShares Cohen & Steers Realty Majors 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 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 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. EQUALIZATION The iShares Dow Jones U.S. Real Estate Index Fund and the iShares Cohen & Steers Realty Majors Index Fund use the accounting practice of equalization. This accounting method is used to keep the continuing shareholders' per share equity in undistributed net investment income from being affected by the continuous sales and redemptions of capital stock. Equalization is calculated on a per share basis whereby a portion of the proceeds from sales and costs of repurchases of capital stock is applied to undistributed net investment income. The amounts of equalization are disclosed in the Statements of Changes in Net Assets as undistributed net investment income included in the price of capital shares issued or redeemed. 60 2002 iShares Semi-Annual Report to Shareholders Notes to the Financial Statements (Unaudited) (Continued) iSHARES TRUST 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 April 30, 2002, the tax year-end of the Funds, 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 ---------------------------------------------------------------------------------------------------- Dow Jones U.S. Basic Materials Sector $ 60,137 $ - $ 60,137 Dow Jones U.S. Consumer Non-Cyclical Sector 159,446 - 159,446 Dow Jones U.S. Financial Sector 228,354 - 228,354 Dow Jones U.S. Chemicals 19,875 - 19,875 Dow Jones U.S. Financial Services 107,072 - 107,072 ----------------------------------------------------------------------------------------------------
For the year ended April 30, 2002, the tax characterization of distributions paid for each Fund, excluding the iShares Dow Jones U.S. Real Estate Index Fund, was equal to the book characterization of distributions paid. The iShares Dow Jones U.S. Real Estate Index Fund distributed $94,773 from Long-Term Capital Gains, $4,140,130 from Ordinary Income and $539,945 as a Return of Capital on a tax basis for the year ended April 30, 2002. The total distributions and distributions per share are disclosed in the accompanying Statements of Changes in Net Assets and the Financial Highlights for all 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 six months ended October 31, 2002. The following Funds had tax basis net capital loss carryforwards at April 30, 2002, the tax year-end of the Funds:
------------------------------------------------------------------------------------- Expiring Expiring iShares Index Fund 2009 2010 Total ------------------------------------------------------------------------------------- Dow Jones U.S. Basic Materials Sector $ - $ 67,181 $ 67,181 Dow Jones U.S. Consumer Cyclical Sector - 214,348 214,348 Dow Jones U.S. Consumer Non-Cyclical Sector 12,169 410,794 422,963 Dow Jones U.S. Financial Sector - 146,667 146,667 Dow Jones U.S. Industrial Sector - 4,102,570 4,102,570 Dow Jones U.S. Chemicals - 240,662 240,662 Dow Jones U.S. Financial Services - 138,646 138,646 Dow Jones U.S. Internet - 11,854,796 11,854,796 Cohen & Steers Realty Majors - 66,455 66,455 --------------------------------------------------------------------------------------
Notes to the Financial Statements 61 Notes to the Financial Statements (Unaudited) (Continued) iSHARES TRUST 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 six months ended October 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. These reclassifications have no effect on net assets or net asset values per share. The in-kind gains or losses for the six months ended October 31, 2002 are disclosed in the 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 October 31, 2002. 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 ------------------------------------------------------------ Dow Jones U.S. Basic Materials Sector 0.60% Dow Jones U.S. Consumer Cyclical Sector 0.60 Dow Jones U.S. Consumer Non-Cyclical Sector 0.60 Dow Jones U.S. Financial Sector 0.60 Dow Jones U.S. Industrial Sector 0.60 Dow Jones U.S. Chemicals 0.60 Dow Jones U.S. Financial Services 0.60 Dow Jones U.S. Internet 0.60 Dow Jones U.S. Real Estate 0.60 Cohen & Steers Realty Majors 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, 62 2002 iShares Semi-Annual Report to Shareholders Notes to the Financial Statements (Unaudited) (Continued) iSHARES TRUST 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 six months ended October 31, 2002, BGIS did not receive any brokerage commissions from the Funds. 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, 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 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 six months ended October 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 Rule 17a-7. As of October 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 six months ended October 31, 2002, were as follows: ------------------------------------------------------------------- iShares Index Fund Purchases Sales ------------------------------------------------------------------- Dow Jones U.S. Basic Materials Sector $ 2,126,797 $ 2,021,195 Dow Jones U.S. Consumer Cyclical Sector 4,833,907 4,734,566 Dow Jones U.S. Consumer Non-Cyclical Sector 7,443,866 7,263,708 Dow Jones U.S. Financial Sector 6,944,622 6,891,105 Dow Jones U.S. Industrial Sector 7,658,151 7,542,278 Dow Jones U.S. Chemicals 381,515 338,127 Dow Jones U.S. Financial Services 2,292,960 2,296,888 Dow Jones U.S. Internet 1,815,046 1,851,154 Dow Jones U.S. Real Estate 14,110,261 14,011,365 Cohen & Steers Realty Majors 7,432,265 7,669,968 ------------------------------------------------------------------- Notes to the Financial Statements 63 Notes to the Financial Statements (Unaudited) (Continued) iSHARES TRUST In-kind transactions for the six months ended October 31, 2002, were as follows: --------------------------------------------------------------------- In-kind In-kind iShares Index Fund Purchases Sales --------------------------------------------------------------------- Dow Jones U.S. Basic Materials Sector $ 60,880,173 $ 42,744,908 Dow Jones U.S. Consumer Cyclical Sector 220,189,070 126,194,368 Dow Jones U.S. Consumer Non-Cyclical Sector 52,633,943 19,100,093 Dow Jones U.S. Financial Sector 42,595,531 - Dow Jones U.S. Industrial Sector 13,533,925 21,100,687 Dow Jones U.S. Chemicals 10,386,697 5,797,950 Dow Jones U.S. Real Estate 182,495,348 133,943,623 Cohen & Steers Realty Majors 135,736,378 18,179,949 --------------------------------------------------------------------- At October 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 ------------------------------------------------------------------------------------------------------ Dow Jones U.S. Basic Materials Sector $ 78,471,389 $ 115,020 $(14,795,535) $(14,680,515) Dow Jones U.S. Consumer Cyclical Sector 229,496,337 978,211 (45,181,702) (44,203,491) Dow Jones U.S. Consumer Non-Cyclical Sector 146,749,988 2,242,156 (15,982,749) (13,740,593) Dow Jones U.S. Financial Sector 161,501,693 4,981,895 (19,054,799) (14,072,904) Dow Jones U.S. Industrial Sector 87,259,444 664,000 (23,527,936) (22,863,936) Dow Jones U.S. Chemicals 15,353,848 39,797 (1,962,391) (1,922,594) Dow Jones U.S. Financial Services 44,017,751 1,262,759 (9,169,892) (7,907,133) Dow Jones U.S. Internet 22,192,376 509,238 (12,552,687) (12,043,449) Dow Jones U.S. Real Estate 158,567,785 159,586 (16,578,742) (16,419,156) Cohen & Steers Realty Majors 215,973,095 532,890 (19,984,714) (19,451,824) ------------------------------------------------------------------------------------------------------
4. iSHARES TRANSACTIONS At October 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 the 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. 64 2002 iShares Semi-Annual Report to Shareholders Notes to the Financial Statements (Unaudited) (Continued) iSHARES TRUST 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 October 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 October 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, which allegedly covers a mechanism for continuous pricing of exchange traded funds. In addition, the plaintiff alleges that the parties engaged in a "conspiracy" amongst themselves 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 two 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. 7. FUND CLOSURES At the Board of Trustees meeting held on August 20, 2002, the Trustees unanimously voted to close and liquidate the iShares Dow Jones U.S. Chemicals Index Fund and the iShares Dow Jones U.S. Internet Index Fund. Trading of the shares of these two Funds will halt on or about December 5, 2002. New shares of the Funds will not be available for investment as of December 6, 2002. The Funds will complete liquidation on December 13, 2002 and shares of the Funds will be individually redeemed. Notes to the Financial Statements 65 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/Emerging 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 termination and liquidation anticipated on December 13, 2002. This advertising section does not constitute part of the 2002 Semi-Annual Report. iShares are not sponsored or endorsed by Goldman, Sachs & Co. or Lehman Brothers, nor are they sponsored, endorsed, sold or promoted by Cohen & Steers Capital Management, Inc., Dow Jones & Company, Inc., Morgan Stanley Capital International, The Nasdaq Stock Market, Inc., Frank Russell Company, or Standard & Poor's. None of these companies make any representation regarding the advisability of investing in iShares. Neither SEI nor BOI, nor any of their affiliates, are affiliated with Goldman, Sachs & Co. or Lehman Brothers. "GS $ InvesTop(TM)", "GS $ InvesTop(TM) Index", "GS $ Investment Grade Index(TM)" and "Goldman Sachs(R)" are trademarks of Goldman, Sachs & Co. The methodology of the GS $ InvesTop(TM) Index is owned by Goldman, Sachs & Co., may be covered by one or more patents or pending patent applications and is provided under license from Goldman, Sachs & Co. 66 2002 iShares Semi-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. Investors Bank & Trust Company serves as administrator, custodian, securities lending agent and transfer agent. iShares are not sponsored, endorsed, sold, or prompted by Dow Jones & Company, Inc. or Cohen & Steers Capital Management, 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 or 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-012-03001 iShares(R) Industrial strength investment tools from BARCLAYS GLOBAL INVESTORS 1-800-iShares (474-2737) www.iShares.com iShares 2002 SEMI-ANNUAL REPORT TO SHAREHOLDERS OCTOBER 31, 2002 [PICTURE] INDUSTRIAL STRENGTH INVESTMENT TOOLS iShares Dow Jones U.S. Total Market Index Fund iShares Dow Jones U.S. Energy Sector Index Fund iShares Dow Jones U.S. Healthcare Sector Index Fund iShares Dow Jones U.S. Technology Sector Index Fund iShares Dow Jones U.S. Telecommunications Sector Index Fund iShares Dow Jones U.S. Utilities Sector Index Fund
Table of Contents Shareholder Letter ........................................................... 1 Market Overview .............................................................. 3 Managers' Discussion & Analysis .............................................. 6 Schedules of Investments ..................................................... 18 iShares Dow Jones U.S. Total Market Index Fund ............................. 18 iShares Dow Jones U.S. Energy Sector Index Fund ............................ 39 iShares Dow Jones U.S. Healthcare Sector Index Fund ........................ 40 iShares Dow Jones U.S. Technology Sector Index Fund ........................ 43 iShares Dow Jones U.S. Telecommunications Sector Index Fund ................ 47 iShares Dow Jones U.S. Utilities Sector Index Fund ......................... 48 Financial Statements ......................................................... 50 Financial Highlights ......................................................... 54 Notes to the Financial Statements ............................................ 57 iShares Family of Funds ...................................................... 62
To Our Shareholders While the second half of 2001 was a difficult period for us all, 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 over $27.8 billion as of October 31, 2002. In fact, the iShares family of funds was the nation's third fastest growing family of equity funds/2/ during the period November 2001 through October 2002, surpassing many 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(R) corporate bond index -- were greeted with an enthusiastic reception from the investment community. These new funds attracted $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 $50 billion for the first six months of 2002./3/ With almost 80 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. As 2002 comes to a close, iShares continues to innovate, refine and improve its family of funds. In fact, iShares decided to close three funds in response to investor interest in broader exposure to markets represented by other iShares funds. The three funds that are closing are the iShares S&P/TSE 60 Index Fund, the iShares Dow Jones U.S. Internet Index Fund, and the iShares Dow Jones U.S. Chemicals Index Fund. Investors in these funds who would like to achieve the broader exposure offered by other iShares funds should call iShares directly, 1-800-iShares, or speak to their financial advisor. At BGI we consider the iShares family of funds "industrial strength" 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 strive to obtain a fundamental goal of institutional investing: taking less of a bite out of a fund's returns. iShares seek to achieve this by minimizing capital gains distributions 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./4/ iShares, on the other hand, are managed in a way that keeps capital gains distributions to a minimum. For example, during the calendar year 2001 none of the domestic iShares funds distributed any capital gains./5/ Additionally, the fees charged by the iShares Funds are typically about half of other actively managed mutual funds./6/ _____________________ /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/ Financial Research Corporation (FRC) database, BGI analysis. /4/ Jonathan Clements, Fund Distributions are a Taxing Problem; How the Tax Man Dines on Your Funds, The Wall Street Journal, August 1999. /5/ Past performance is no guarantee of future results. There can be no assurance that iShares will not generate capital gains distributions in the future. /6/ Source: Morningstar Principia, BGI analysis 6/01. Shareholder Letter 1 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 a portfolio by hand-selecting a wide variety of securities, to do it effectively is complicated and time-consuming. This is a reason why $1.56 trillion in institutional assets/7/ are invested in index funds. Third, iShares embody a key strategy of institutional investors: modular sset allocation. Each iShare fund focuses on a very specific slice of the equity and fixed income markets. With so many different iShares to choose from, investors have tremendous flexibility in structuring their portfolios to meet specific needs. The fourth reason iShares are "industrial strength" is that they are advised by Barclays Global Investors, one of the world's largest institutional asset managers./8/ 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 introduce innovative strategies and structures that we have developed for their clients' portfolios. And we continue to enhance and improve the tools, data and resources on our Web site. If you haven't visited www.iShares.com in a while, we invite you to do so and learn more about iShares. In fact, Forbes Magazine named iShares.com "Best of the Web" among all ETF sites./9/ We think you'll agree everything about iShares really is industrial strength. 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 of Trustees Vice President of iShares of iShares Trust Trust 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., none of which is affiliated with SEI. For complete information, including charges and expenses, request a prospectus by calling 1-800-iSHARES (1-800-474-2737). Read it carefully before you invest. There are risks involved with investing, including possible loss of principal. Diversification may not protect against market risk. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Mutual funds and iShares are obliged to distribute portfolio gains to shareholders by year-end. These gains may be generated due to index rebalancing or to meet diversification requirements. Your own iShares trading, too, will generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well. Past performance does not guarantee future results. iShares are not sponsored or endorsed by Goldman, Sachs & Co. or Lehman Brothers, nor are they sponsored, endorsed, sold or promoted by Cohen & Steers Capital Management, Inc., Dow Jones & Company, Inc., Morgan Stanley Capital International, The Nasdaq Stock Market, Inc., Frank Russell Company, or Standard & Poor's. None of these companies make any representation regarding the advisability of investing in iShares. Neither SEI nor BGI, nor any of their affiliates, are affiliated with Goldman, Sachs & Co. or Lehman Brothers. "GS $ InvesTop(TM)" and "Goldman Sachs"(R) are trademarks of Goldman, Sachs & Co. _____________________ /7/ Source: Pensions & Investments, 5/27/02. /8/ Source: Pensions & Investments, 5/27/02. /9/ Forbes Winter 2001. 2 2002 iShares Semi-Annual Report to Shareholders Market Overview U.S. Equity Markets U.S. equities fell heavily in the six months under review. Stocks rallied in August, but renewed selling in September brought the market down again. By early October, the broader market indices were back languishing at six-year lows. Stocks staged another modest rally in late October on the back of some improved profits news, but the mood remained hesitant. The S&P 500 Index has almost halved in value since its peak two years ago, and some sectors, notably telecommunications and technology, have lost considerably more than that. The current bear market is now on par with the 1970s bear market in terms of the scale of decline. However, in terms of duration, this is already the longest bear market in 60 years. With hindsight, many believe equities had become significantly overvalued during the technology bubble. Therefore, some correction was inevitable, but a number of factors have added to the gloom this year. Chief among these were the corporate accounting scandals. Sadly, these were not confined to one errant corporation but spread among many. As a result, investors have not only had to contend with a severe profits recession, but learn how to differentiate real from virtual profits. It is little wonder, given such profound uncertainties, that investors have been applying larger risk premiums to their equity valuations. This year's further collapse in share prices, in turn, has taken a toll on investor confidence and the wider economy. The Federal Reserve Board (the "Fed") has done a remarkable job in keeping the economy moving both before and after the events of September 11. Manufacturing has been in a deep recession, but the broader economy has held up reasonably well so far. This has been due largely to continued resilient consumer spending fueled by low interest rates and a buoyant housing market. However, even with interest rates at 40-year lows, industrial production has fallen since the summer and business investment has been cut. The danger has been that, after showing some improvement earlier this year, the manufacturing sector may relapse, causing the economy to suffer a so-called "double-dip" recession. If these factors were not enough, investors also have had to contend with the prospect of a second Gulf War. Such geopolitical risk adds greatly to market uncertainties, while the higher oil price sparked by war fears could further slow economic recovery. Against this background, forecasts for economic growth have been cut back. With profits statements remaining uniformly downbeat, investors have had little incentive to raise their risk appetite, preferring instead to seek the relative safety of bonds and cash. U.S. Fixed Income Markets For all the reasons equity prices have fallen this year, bond prices have risen. Due to the inverse relationship between bond prices and bond yields, yields have fallen during the period. By late September, yields on the 30-year bond were at the lowest levels recorded since they were first introduced in the 1970s. Yields on 5 and 10-year Treasuries had fallen to their lowest levels since 1958. Yields rose again in October as equities staged a rally, but the ongoing threat of war, the diminishing prospect of sustained economic recovery and the sheer distrust of equities in the present corporate climate have all added to the relative attractions of bonds. The spike in oil prices to 19-month highs may in the past have raised the unwelcome specter of inflation and thus have been harmful to bonds. But in the low inflation environment of the reporting period, producers have had much greater difficulty passing on price increases. Therefore, rising oil prices have been much more likely to bear down on demand as consumers have absorbed higher oil prices by cutting expenditure on other discretionary purchases. There were no changes to the targeted federal funds rate over the period, but the Fed's policy bias seemed to shift toward one of greater ease over the summer as equity prices tumbled and doubts about the strength of the economic recovery accumulated. This perceived shift helped to drag bond yields lower, particularly at the short end of the curve. So far, the prospect of increased bond supply on the back of an escalating federal budget deficit has had only limited impact on investor enthusiasm for U.S. Treasuries. Market Overview 3 International Equity Markets The decline in U.S. equities over the period was echoed to a greater or lesser extent in markets around the world. Though the accounting scandals were confined largely to the U.S., the negative effect on investor confidence was global. The hesitant nature of the U.S. economic recovery also has had ramifications around the globe, while geopolitical risk in the Middle East and rising oil prices have affected all markets. In Europe, economic growth has been particularly sluggish, with the German economy most seriously affected by the downturn in international trade. However, it is not just a squeeze on exports that has dampened growth. Domestic demand has fallen due to lower business investment. Consumers, too, have been reluctant to spend. High unemployment has affected large parts of the eurozone and there have been growing doubts that the operation of a single monetary policy offers sufficient flexibility to tackle the problem. Room for policy maneuver has been further constrained by the Stability and Growth Pact, which was adopted in 1997 when the monetary union was being established and limits the size of budget deficits across the zone. While UK equities have also fallen heavily with concerns over the pensions industry and the solvency of the insurance sector, the economy has fared somewhat more favorably, helped by a more expansive fiscal policy and a strong housing market which, like the U.S., has supported consumer confidence and spending. Japanese equities plumbed new depths over the period with the Nikkei Dow Index recording a 19-year low. Concern has again focused on the stability of the banking system and the mountain of bad debts that continued to undermine the efficient functioning of the economy. Japanese consumer prices have now fallen for three years in a row. Such deflation has raised the real value of debt and reduced the effectiveness of monetary policy. Meanwhile the government has continued to balk at the large-scale injection of public funds deemed necessary to put the banking system back on a sounder footing. /s/ Francis Enderle Francis Enderle Head of Indexed Investing for iShares Barclays Global Fund Advisors 4 2002 iShares Semi-Annual Report to Shareholders THIS PAGE INTENTIONALLY LEFT BLANK. 5 Managers' Discussion & Analysis iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 10/31/02 Inception to 10/31/02 Inception to 10/31/02 ------------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (14.96)% (15.20)% (14.84)% (17.71)% (17.79)% (17.55)% (37.22)% (37.37)% (36.95)% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (06/16/00), 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. 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. Sector Breakout DOW JONES U.S. TOTAL MARKET INDEX [PIE CHART] Basic Materials 2.52% Consumer Cyclical 14.06% Consumer Non-Cyclical 9.56% Energy 6.10% Financial 21.34% Healthcare 14.69% Industrial 11.31% Technology 13.48% Telecommunications 4.00% Utilities 2.94% The iShares Dow Jones U.S. Total Market Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Total Market Index. For the six-month period ended October 31, 2002 (the "reporting period") the Fund declined 17.88%, while the Index fell 17.84%. Equity prices continued to fall during the reporting period, driven down by a string of weak economic data and poor investor sentiment. Manufacturing activity slowed, layoffs grew, and fewer jobs than expected were created in the U.S. economy. Consumer confidence, as measured by the Consumer Confidence Index, fell during the end of the reporting period, and by October had dipped to its lowest level in nine years. Consumer confidence is important as it provides indications of consumer spending, which generally accounts for two thirds of GDP. Ongoing geopolitical tension also fueled negative investor sentiment. As the possibility of an invasion of Iraq raised concerns about supply of oil from the area, the price of oil surged to more than $30 per barrel. In response to economic conditions the Federal Reserve Board left interest rates unchanged during the reporting period. 6 2002 iShares Semi-Annual Report to Shareholders Reflecting a market decline that affected every industry group, each sector within the Index posted a negative return for the reporting period. Driven down by weaker demand and the fallout from Enron's woes, the utilities sector (2.94% of the Index as of October 31, 2002) suffered the steepest decline, falling 28.39%. Technology stocks (13.48% of the Index as of October 31, 2002) continued their decline, losing 25.55%. Industrials (11.31% of the Index as of October 31, 2002) and energy shares (6.10% of the Index as of October 31, 2002) fell 20.15% and 20.03%, respectively. Real Estate, a subset of financial services, was the best performing group, thanks to historically low mortgage rates. For the reporting period, the real estate sector fell just 9.80%. Individual stock performance for the reporting period reflected the weak market conditions. The largest holding in the Index, General Electric Co. (2.84% of the Index as of October 31, 2002), declined 18.94% during the reporting period. Exxon Mobil (2.57% of the Index as of October 31, 2002) fell 15.18%, while Pfizer (2.22% of the Index as of October 31, 2002), dropped 11.94%. On the positive side, Microsoft (2.80% of the Index as of October 31) gained 2.32%, and Merck & Co. (1.38% of the Index) returned 1.19%. Managers' Discussion & Analysis 7 Managers' Discussion & Analysis iSHARES DOW JONES U.S. ENERGY SECTOR INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ------------------------------------------------- --------------------------- Year Ended 10/31/02 Inception to 10/31/02 Inception to 10/31/02 ------------------------- ---------------------- --------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (16.29)% (16.29)% (15.15)% (9.95)% (9.93)% (9.13)% (22.14)% (22.11)% (20.46)% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (06/16/00), 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. 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 INDEX HOLDINGS [GRAPH] Exxon Mobil Corp. 42.09% ChevronTexaco Corp. 13.37% ConocoPhillips 5.75% Schlumberger Ltd. 4.29% Anadarko Petroleum Corp. 2.05% Occidental Petroleum Corp. 1.99% Baker Hughes Inc. 1.81% Burlington Resources Inc. 1.53% Apache Corp. 1.44% Halliburton Co. 1.30% The iShares Dow Jones U.S. Energy Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Energy Sector Index. For the six-month period ended October 31, 2002 (the "reporting period"), the Fund declined 20.59%, while the Index fell 20.03%. The economic slowdown continued during the reporting period. A tepid 1.3% GDP growth figure for the second quarter provided little confidence that recovery was on the horizon. Manufacturing activity slowed, and the economy created fewer jobs than had been anticipated. Notably, consumer confidence, as measured by the Conference Board's Consumer Confidence Index, which had risen following the September 11 attacks, appeared to have peaked during the reporting period. News from corporate America provided no relief. Companies missed earnings targets at a steady pace. The corporate scandals that had begun with Enron continued to unravel. Continued geopolitical tension and the threat of war in the Middle East heightened, contributing to stock market jitters. As the possibility of an invasion of Iraq raised concerns about supply of oil from the area, the price of oil surged to more than $30 per barrel. In response to economic conditions, the Federal Reserve Board left interest rates unchanged during the reporting period. 8 2002 iShares Semi-Annual Report to Shareholders These conditions took their toll on energy-related company shares. As oil prices topped $30 per barrel, oil company share prices dropped. Paradoxically, prices of oil company stocks don't always move in line with oil prices. Although higher oil prices generally mean higher profits in the short term, costlier oil typically results in lower demand over the long term, which hurts oil company profits. Missed earnings targets drove down stock prices for many energy-related companies. The power producers were doubly hurt as the demise of Enron led to investigations into related companies and credit downgrades within the sector. In terms of individual holdings, performance of the top ten holdings was largely negative during the reporting period. Diversified oil companies Exxon Mobil Corp. (42.09% of the Index as of October 31, 2002), ChevronTexaco Corp. (13.37% of the Index as of October 31, 2002), and ConocoPhillips (5.75% of the Index as of October 31, 2002), fell 15.18%, 20.68%, and 17.64%, respectively. Oil services and exploration companies Schlumberger Ltd (4.29% of the Index as of October 31, 2002) and Baker Hughes (1.81% of the Index as of October 31, 2002) posted declines of 26.15% and 22.02%, respectively. Occidental Petroleum (1.99% of the Index) was the only holding out of the top ten to finish the period in positive territory, with a 0.93% gain. Managers' Discussion & Analysis 9 Managers' Discussion & Analysis iSHARES DOW JONES U.S. HEALTHCARE SECTOR INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ------------------------------------------------- ---------------------------- Year Ended 10/31/02 Inception to 10/31/02 Inception to 10/31/02 ------------------------- ---------------------- ---------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (18.81)% (18.91)% (18.40)% (7.39)% (7.40)% (6.79)% (16.75)% (16.78)% (15.48)% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (6/16/00), 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. 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 INDEX HOLDINGS [GRAPH] Pfizer Inc. 15.12% Johnson & Johnson 13.44% Merck & Co. Inc. 9.38% Abbott Laboratories 4.72% Pharmacia Corp. 4.26% Amgen Inc. 4.22% Medtronic Inc. 4.18% Eli Lilly & Co. 4.10% Bristol-Myers Squibb Co. 3.66% Wyeth 3.41% The iShares Dow Jones U.S. Healthcare Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Healthcare Sector Index. For the six-month period ended October 31, 2002 (the "reporting period") the Fund declined 13.60%, while the Index declined 13.42%. Equity prices fell during the reporting period, driven down by a string of weak economic data. Second quarter GDP growth was lower than expected, manufacturing activity slowed, and the labor market softened. Consumer confidence also fell during the reporting period after having risen following the September 11, 2001 attacks. Consumer confidence is important as it provides indications of consumer spending, which generally accounts for two thirds of GDP. Ongoing geopolitical tension also fueled negative investor sentiment. In response to economic conditions the Federal Reserve Board left interest rates unchanged during the reporting period. No industry sector was immune to the decline in equity prices. Healthcare issues, particularly pharmaceutical company shares, struggled during the reporting period. Many pharmaceutical companies faced impending expiration of their patents on high-revenue drugs during an environment where new drug development had slowed. Compounding their troubles, the possibility of legislation that could have cut into company profitability also raised investor concerns. 10 2002 iShares Semi-Annual Report to Shareholders Within the Index, performance of the ten largest holdings for the reporting period generally reflected this trend. The biggest declines came from Wyeth (3.41% of the Index as of October 31, 2002), which lost 40.67%. Abbott Labs (4.72% of the Index as of October 31, 2002) fell 21.36%, Eli Lilly & Co. (4.10% of the Index as of October 31, 2002) declined 15.10%, Bristol-Myers Squibb (3.66% of the Index as of October 31, 2002) lost 12.52%, and Pfizer (15.12% of the Index as of October 31, 2002) dropped 11.94%. The sole company in the top ten to post double-digit positive results for the reporting period was Pharmacia (4.26% of the Index as of October 31), which gained 11.14%. Pharmacia's share price shot up on the news that Pfizer had made a bid to acquire the company. Managers' Discussion & Analysis 11 Managers' Discussion & Analysis iSHARES DOW JONES U.S. TECHNOLOGY SECTOR INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 10/31/02 Inception to 10/31/02 Inception to 10/31/02 ------------------------- ------------------------- ------------------------- NAV Market Index NAV Market Index NAV Market Index (30.06)% (30.08)% (29.66)% (40.63)% (40.65)% (40.33)% (72.35)% (72.38)% (71.92)% "Total returns for the period since inception" are calculated from the inception date of the Fund (05/15/00). "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 returns ("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 (5/19/00), 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. 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 INDEX HOLDINGS [GRAPH] Microsoft Corp. 20.78% International Business Machines Corp. 11.20% Intel Corp. 9.66% Cisco Systems Inc. 6.85% Dell Computer Corp. 5.48% Hewlett-Packard Co. 3.64% Oracle Corp. 3.51% Texas Instruments Inc. 2.30% QUALCOMM Inc. 2.25% Applied Materials Inc. 2.07% The iShares Dow Jones U.S. Technology Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Technology Sector Index. For the six-month period ended October 31, 2002 (the "reporting period") the Fund declined 25.76%, while the Index fell 25.55%. A number of factors placed downward pressure on markets during the reporting period. The economic outlook remained cloudy: second quarter GDP growth was 1.3%, creating doubt about the pace and strength of economic recovery. Business investment in technology dropped and consumer confidence levels, as measured by the Consumer Confidence Index, sank. Compounding investors' concerns, the corporate scandals that had begun with Enron continued to unravel during the quarter. As Americans marked the one-year anniversary of the tragic events of September 11, 2001, continued geopolitical tension and the threat of war with Iraq, contributed to stock market jitters. Against this backdrop, equities slumped across the board over the reporting period. While no industry group was immune to market weakness, the technology sector suffered some of the most severe losses. As capital spending continued to contract and as investors continued to abandon growth-oriented stocks, technology share prices continued to fall. 12 2002 iShares Semi-Annual Report to Shareholders Among the Index's top ten holdings, performance was mixed for the reporting period. Texas Instruments (2.30% of the Index as of October 31, 2002) declined 48.60%, and Applied Materials Inc. (2.07% of the Index as of October 31, 2002) fell 38.20%. Technology bellwethers Intel (9.66% of the Index as of October 31, 2002) and Cisco Systems (6.85% as of October 31, 2002) lost 39.41% and 23.69%, respectively. On the positive side, QUALCOMM (2.25% of the Index as of October 31, 2002) gained 14.46%, and Dell Computer (5.48% of the Index as of October 31, 2002) returned 8.62%. Managers' Discussion & Analysis 13 Managers' Discussion & Analysis iSHARES DOW JONES U.S. TELECOMMUNICATIONS SECTOR INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 10/31/02 Inception to 10/31/02 Inception to 10/31/02 ------------------------- ------------------------- ------------------------- NAV Market Index NAV Market Index NAV Market Index (37.88)% (37.51)% (34.36)% (36.02)% (35.85)% (30.44)% (66.46)% (66.24)% (58.75)% "Total returns for the period since inception" are calculated from the inception date of the Fund (05/22/00). "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 returns ("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 (5/26/00), 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. 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 INDEX HOLDINGS [GRAPH] Verizon Communications Inc. 29.07% SBC Communications Inc. 24.08% AT&T Corp. 14.15% Bellsouth Corp. 13.81% Alltel Corp. 4.13% AT&T Wireless Services Inc. 3.87% Sprint Corp. (FON Group) 3.13% Nextel Communications Inc. "A" 2.51% Qwest Communications International Inc. 1.31% Centurytel Inc. 1.06% The iShares Dow Jones U.S. Telecommunications Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Telecommunications Sector Index. For the six-month period ended October 31, 2002 (the "reporting period"), the Fund declined 17.38%, while the Index fell 11.43%. The difference between the return of the Fund and the return of the Index was primarily due to the fact that the Fund underweighted its investment in certain securities in order to comply with IRS regulations. These regulations, which apply to all registered investment companies but do not affect the composition of the Index, limited the amount the Fund could invest in certain Index securities, and contributed to the difference between the Fund's returns and the Index returns. Equity markets slumped during the reporting period, facing downward pressure on numerous fronts. Weak economic indicators continued to cloud the outlook for recovery: second quarter GDP growth was reported at a sluggish 1.3%, the labor market remained soft and the U.S. dollar remained weak. Investor skepticism about corporate leadership continued: earlier investigations of Enron multiplied, with new 14 2002 iShares Semi-Annual Report to Shareholders investigations including WorldCom and others. Although only one company in the telecommunications group faced allegations of irregularities, WorldCom's troubles cast a dark cloud over the group as a whole. In turn, the sector was further affected by an ongoing correction in stock prices that had once reflected highly optimistic growth projections. Performance within the Index's ten largest holdings was mostly negative for the reporting period, and wireless company shares bore the brunt of the declines. Qwest Communications International (1.31% of the Index as of October 31, 2002) dropped 32.60%, AT&T Wireless Services (3.87% of the Index as of October 31, 2002) fell 23.24%, and Sprint Corporation (3.13% of the Index as of October 31, 2002) declined 20.08%. Regional carriers SBC Communications (24.08% of the Index as of October 31, 2002) and BellSouth (13.81% of the Index as of October 31, 2002) declined 15.58% and 12.46%, respectively. Nextel Communications, (2.51% of the Index as of October 31), however, rose from recent lows to gain 104.72%. CenturyTel Inc. (1.06% of the Index as of October 31) and Alltel (4.13% of the Index) also managed to end up in positive territory with returns of 2.66% and 1.91%, respectively. Managers' Discussion & Analysis 15 Managers' Discussion & Analysis iSHARES DOW JONES U.S. UTILITIES SECTOR INDEX FUND Performance as of 10/31/02 Average Annual Total Returns Cumulative Total Returns ---------------------------------------------------- ------------------------- Year Ended 10/31/02 Inception To 10/31/02 Inception To 10/31/02 ------------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (26.13)% (26.08)% (25.75)% (13.49)% (13.47)% (13.11)% (29.26)% (29.23)% (28.53)% "Total returns for the period since inception" are calculated from the inception date of the Fund (06/12/00). "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 returns ("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 (06/19/00), 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. 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 INDEX HOLDINGS [GRAPH] Southern Co. 8.09% Duke Energy Corp. 6.56% Exelon Corp. 6.25% Dominion Resources Inc. 5.13% Fpl Group Inc. 4.13% Entergy Corp. 3.80% FirstEnergy Corp. 3.71% Consolidated Edison Inc. 3.47% Progress Energy Inc. 3.16% American Electric Power Co. Inc 3.03% The iShares Dow Jones U.S. Utilities Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Utilities Sector Index. For the six-month period ended October 31, 2002 (the "reporting period") the Fund declined 28.54%, while the Index declined 28.39%. The economic slowdown continued during the reporting period. A tepid 1.3% GDP growth figure for the second quarter provided little confidence that recovery was imminent. News from corporate America provided no relief. The corporate scandals that had begun with Enron continued to unravel, and additional companies fell under suspicion of misconduct. Continued geopolitical tension and the threat of war in the Middle East heightened, contributing to stock market jitters. As the possibility of an invasion in Iraq raised concerns about supply of oil from the area, the price of oil surged to more than $30 per barrel. In response to economic conditions, the Federal Reserve Board left rates unchanged during the period. The sluggish economy negatively affected the utilities industry, which faced an oversupply of capacity as demand shrank. As a result of investment in new power plants, many utilities companies continued to struggle under high debt levels. The Enron scandal continued to 16 2002 iShares Semi-Annual Report to Shareholders cast a shadow over the group, and companies with trading operations fell under suspicion. Downgrades in credit weighed on the group, particularly those companies with high debt levels or involvement in power trading. Performance was mostly negative within the Index's ten largest holdings over the reporting period. Duke Energy (6.56% of the Index as of October 31, 2002) suffered a 45.60% loss during the reporting period, while American Electric Power (3.03% of the Index as of October 31, 2002) fell 42.21%. Dominion Resources (5.13% of the Index as of October 31, 2002) lost 26.26%. On the bright side, Southern Company (the Index's largest holding at 8.09% of the Index as of October 31), an integrated utility company based in a regulated market, rose 8.57%. Managers' Discussion & Analysis 17 Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- COMMON STOCKS - 99.82% General Electric Co. 138,490 $ 3,496,873 Microsoft Corp./1/ 64,639 3,456,247 Exxon Mobil Corp. 94,087 3,166,968 Pfizer Inc. 86,171 2,737,653 Citigroup Inc. 70,449 2,603,091 Johnson & Johnson 41,419 2,433,366 Wal-Mart Stores Inc. 38,013 2,035,596 American International Group Inc. 31,921 1,996,659 International Business Machines Corp. 23,584 1,861,721 Merck & Co. Inc. 31,313 1,698,417 Intel Corp. 92,842 1,606,167 Procter & Gamble Co. 18,099 1,600,857 Coca-Cola Co. (The) 31,760 1,476,205 Verizon Communications Inc. 37,974 1,433,898 Bank of America Corp. 18,874 1,317,405 Philip Morris Companies Inc. 29,427 1,199,150 Wells Fargo & Company 23,627 1,192,455 SBC Communications Inc. 46,249 1,186,749 Cisco Systems Inc./1/ 101,905 1,139,298 PepsiCo Inc. 24,663 1,087,638 ChevronTexaco Corp. 14,865 1,005,320 Home Depot Inc. 32,787 946,889 Viacom Inc. "B"/1/ 21,221 946,669 Fannie Mae 13,826 924,406 Dell Computer Corp./1/ 31,870 911,801 AOL Time Warner Inc./1/ 59,739 881,150 Abbott Laboratories 20,403 854,274 Pharmacia Corp. 17,975 772,925 Amgen Inc./1/ 16,415 764,282 Medtronic Inc. 16,912 757,658 Lilly (Eli) and Co. 13,359 741,425 AT&T Corp. 53,552 698,318 3M Co. 5,426 688,776 BellSouth Corp. 26,049 681,181 Bristol-Myers Squibb Co. 26,985 664,101 Wachovia Corp. 19,079 663,758 Anheuser-Busch Companies Inc. 12,104 638,607 Bank One Corp. 16,297 628,575 Wyeth 18,437 617,640 Hewlett-Packard Co. 38,333 605,661 American Express Co. 16,379 595,704 Freddie Mac 9,673 595,663 Oracle Corp./1/ 57,226 583,133 Du Pont (E.I.) de Nemours & Co. 13,836 570,735 U.S. Bancorp 26,721 563,546 JP Morgan Chase & Co. 26,176 543,152 Morgan Stanley 13,936 542,389 Walgreen Co. 14,249 480,904 Washington Mutual Inc. 13,443 480,722 Walt Disney Co. (The) 28,395 474,197 Cardinal Health Inc. 6,294 435,608 Schering-Plough Corp. 20,394 435,412 Fifth Third Bancorp 6,832 433,832 ConocoPhillips 8,896 431,456 Merrill Lynch & Co. Inc. 11,322 429,670 Colgate-Palmolive Co. 7,568 416,089 Lowe's Companies Inc. 9,791 408,578 United Technologies Corp. 6,577 405,604 Tyco International Ltd. 27,765 401,482 Gillette Co. (The) 13,365 399,346 UnitedHealth Group Inc. 4,233 384,991 Texas Instruments Inc. 24,130 382,702 United Parcel Service Inc. "B" 6,281 376,923 QUALCOMM Inc./1/ 10,828 373,783 Kimberly-Clark Corp. 7,200 370,800 First Data Corp. 10,556 368,827 Automatic Data Processing Inc. 8,650 367,884 Allstate Corp. (The) 9,195 365,777 Marsh & McLennan Companies Inc. 7,447 347,849 Applied Materials Inc./1/ 22,954 344,999 Target Corp. 11,409 343,639 FleetBoston Financial Corp. 14,576 340,933 Dow Chemical Co. (The) 12,647 328,696 Schlumberger Ltd. 8,049 322,845 McDonald's Corp. 17,779 321,978 MBNA Corp. 15,724 319,354 Boeing Co. (The) 9,924 295,239 Motorola Inc. 31,979 293,247 18 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- Sysco Corp. 9,242 $ 292,787 Comcast Corp. "A"/1/ 12,721 292,710 Southern Co. 9,831 291,981 Lockheed Martin Corp. 5,026 291,005 Clear Channel Communications Inc./1/ 7,743 286,878 Emerson Electric Co. 5,843 281,516 Gannett Co. Inc. 3,706 281,397 HCA Inc. 6,425 279,423 Liberty Media Corp. "A"/1/ 32,914 272,199 Bank of New York Co. Inc. (The) 10,136 263,536 Alcoa Inc. 11,777 259,801 Forest Laboratories Inc. "A"/1/ 2,491 244,093 Kohls Corp./1/ 4,162 243,269 Goldman Sachs Group Inc. (The) 3,397 243,225 Honeywell International Inc. 10,145 242,871 BB&T Corp. 6,657 241,316 Duke Energy Corp. 11,561 236,885 Sara Lee Corp. 10,316 235,514 Prudential Financial Inc./1/ 8,043 234,856 National City Corp. 8,499 230,578 Exelon Corp. 4,502 226,901 Illinois Tool Works Inc. 3,668 225,215 SLM Corp. 2,163 222,227 Harley-Davidson Inc. 4,195 219,398 AFLAC Inc. 7,181 218,590 International Paper Co. 6,193 216,321 Costco Wholesale Corp./1/ 6,312 214,166 General Mills Inc. 5,116 211,393 Baxter International Inc. 8,381 209,693 General Motors Corp. "A" 6,284 208,943 SunTrust Banks Inc. 3,428 208,560 Union Pacific Corp. 3,504 206,911 Ford Motor Company 24,435 206,720 FedEx Corp. 3,854 204,994 General Dynamics Corp. 2,577 203,918 Alltel Corp. 4,079 202,767 Waste Management Inc. 8,528 196,315 Caterpillar Inc. 4,791 195,712 Tenet Healthcare Corp./1/ 6,777 194,839 AT&T Wireless Services Inc./1/ 28,027 192,545 State Street Corp. 4,489 185,710 Dominion Resources Inc. 3,854 184,992 ConAgra Foods Inc. 7,493 181,705 Lehman Brothers Holdings Inc. 3,380 180,053 McGraw-Hill Companies Inc. (The) 2,707 174,602 Mellon Financial Corp. 6,066 171,607 Cendant Corp./1/ 14,517 166,945 Raytheon Co. 5,615 165,643 PNC Financial Services Group 3,960 161,014 Avon Products Inc. 3,306 160,308 EMC Corp./1/ 30,853 157,659 Heinz (H.J.) Co. 4,861 156,330 Anadarko Petroleum Corp. 3,475 154,776 Sprint Corp. (FON Group) 12,435 154,443 Kraft Foods Inc. 3,900 154,050 Deere & Co. 3,300 153,087 TJX Companies Inc. 7,410 152,053 WellPoint Health Networks Inc./1/ 2,020 151,924 Boston Scientific Corp./1/ 4,029 151,611 CVS Corp. 5,461 151,434 Household International Inc. 6,365 151,232 Safeway Inc./1/ 6,524 150,704 Occidental Petroleum Corp. 5,260 150,068 Omnicom Group Inc. 2,602 149,953 FPL Group Inc. 2,519 148,571 Kroger Co./1/ 9,993 148,296 eBay Inc./1/ 2,330 147,396 Progressive Corp. (The) 2,677 147,235 KeyCorp 5,947 145,285 Maxim Integrated Products Inc./1/ 4,505 143,439 Northrop Grumman Corp. 1,387 143,041 XL Capital Ltd. "A" 1,877 142,934 Bed Bath & Beyond Inc./1/ 4,017 142,443 Southwest Airlines Co. 9,736 142,146 Intuit Inc./1/ 2,714 140,911 Equity Office Properties Trust 5,798 139,616 Hartford Financial Services Group Inc. 3,517 138,921 Air Products & Chemicals Inc. 3,140 138,788 Masco Corp. 6,734 138,451 Schedules of Investments 19 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 SECURITY SHARES VALUE -------------------------------------------------------------------- Weyerhaeuser Co. 3,036 $ 137,531 Entergy Corp. 3,098 136,591 Burlington Northern Santa Fe Corp. 5,305 136,498 Baker Hughes Inc. 4,673 135,751 Analog Devices Inc.(1) 5,059 135,581 Tribune Co. 2,810 135,021 FirstEnergy Corp. 4,143 134,440 Chubb Corp. 2,381 134,312 Eastman Kodak Co. 4,061 133,810 Sun Microsystems Inc.(1) 45,181 133,781 Schwab (Charles) Corp. (The) 14,525 133,340 Paychex Inc. 4,623 133,235 Carnival Corp. "A" 4,980 130,078 Golden West Financial Corp. 1,853 127,968 Starbucks Corp.(1) 5,375 127,656 Guidant Corp.(1) 4,278 126,500 Consolidated Edison Inc. 2,946 125,411 Electronic Arts Inc.(1) 1,911 124,444 Archer-Daniels-Midland Co. 9,132 124,378 Anthem Inc.(1) 1,957 123,291 Nextel Communications Inc. "A"(1) 10,929 123,279 Micron Technology Inc.(1) 7,653 122,448 Linear Technology Corp. 4,426 122,335 AutoZone Inc.(1) 1,426 122,308 SouthTrust Corp. 4,757 121,874 Praxair Inc. 2,234 121,753 Newell Rubbermaid Inc. 3,723 120,700 Newmont Mining Corp. 4,862 120,189 Stryker Corp. 1,898 119,764 Hancock (John) Financial Services Inc. 4,023 117,874 Albertson's Inc. 5,234 116,771 Principal Financial Group Inc.(1) 4,154 116,520 Burlington Resources Inc. 2,811 115,813 Progress Energy Inc. 2,771 115,606 Sears, Roebuck and Co. 4,379 114,993 Nike Inc. "B" 2,391 112,831 McKesson Corp. 3,779 112,652 Zimmer Holdings Inc.(1) 2,718 112,036 Mattel Inc. 6,060 111,262 Pitney Bowes Inc. 3,313 111,151 ACE Ltd. 3,611 111,038 American Electric Power Co. Inc. 4,324 110,867 Biomet Inc. 3,737 110,092 PPG Industries Inc. 2,339 110,003 Apache Corp. 2,015 108,931 Norfolk Southern Corp. 5,381 108,696 Clorox Co. 2,389 107,338 Comerica Inc. 2,454 107,142 Wrigley (William Jr.) Co. 2,023 106,754 Lexmark International Group Inc. "A"(1) 1,781 105,827 Becton, Dickinson & Co. 3,551 104,790 Kellogg Co. 3,284 104,628 Fortune Brands Inc. 2,085 104,375 DTE Energy Co. 2,312 104,248 Regions Financial Corp. 3,070 103,981 Gap Inc. (The) 8,781 103,352 Block (H & R) Inc. 2,328 103,317 St. Paul Companies Inc. 3,125 102,500 AmerisourceBergen Corp. 1,434 102,029 Genentech Inc.(1) 2,985 101,759 Concord EFS Inc.(1) 7,118 101,645 Electronic Data Systems Corp. 6,741 101,519 M&T Bank Corp. 1,238 101,417 AmSouth Bancorp 5,101 99,980 Staples Inc.(1) 6,422 99,541 Charter One Financial Inc. 3,280 99,318 Allergan Inc. 1,820 99,099 IDEC Pharmaceuticals Corp.(1) 2,141 98,529 MetLife Inc. 4,124 98,481 Halliburton Co. 6,062 98,083 Limited Brands Inc. 6,235 97,702 Transocean Inc. 4,443 97,657 USA Interactive(1) 3,782 95,647 Gilead Sciences Inc.(1) 2,740 95,188 May Department Stores Co. (The) 4,063 94,871 Northern Trust Corp. 2,721 94,745 Computer Associates International Inc. 6,369 94,643 20 2002 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- KLA-Tencor Corp./1/ 2,653 $ 94,473 Unocal Corp. 3,401 94,004 Johnson Controls Inc. 1,201 93,678 Capital One Financial Corp. 3,063 93,330 Devon Energy Corp. 1,839 92,869 International Game Technology Inc./1/ 1,223 91,982 Yum! Brands Inc./1/ 4,078 91,877 Ingersoll-Rand Co. "A" 2,334 91,026 Xilinx Inc./1/ 4,770 90,582 Marathon Oil Corp. 4,310 90,079 MBIA Inc. 2,051 89,526 Equity Residential 3,774 89,519 Ambac Financial Group Inc. 1,447 89,425 Danaher Corp. 1,539 89,031 General Motors Corp. "H"/1/ 9,019 88,837 North Fork Bancorp Inc. 2,266 87,150 Countrywide Credit Industries Inc. 1,732 87,137 Veritas Software Corp./1/ 5,686 86,712 Federated Department Stores Inc./1/ 2,819 86,543 SunGard Data Systems Inc./1/ 3,899 86,441 St. Jude Medical Inc./1/ 2,400 85,464 Yahoo! Inc./1/ 5,728 85,462 Avery Dennison Corp. 1,368 85,144 Hershey Foods Corp. 1,307 85,046 Moody's Corp. 1,803 84,921 New York Times Co. "A" 1,753 84,863 Travelers Property Casualty Corp. "B"/1/ 6,257 84,595 Jefferson-Pilot Corp. 2,105 84,516 Bear Stearns Companies Inc. (The) 1,379 84,188 Aetna Inc. 2,081 83,864 Travelers Property Casualty Corp. "A"/1/ 6,245 83,371 Marriott International Inc. "A" 2,692 83,264 Public Service Enterprise Group Inc. 2,886 82,684 CSX Corp. 2,987 82,441 Fiserv Inc./1/ 2,637 82,380 Loews Corp. 1,909 82,354 Agilent Technologies Inc./1/ 5,989 82,349 ITT Industries Inc. 1,267 82,330 Genzyme Corp. - General Division/1/ 2,956 82,325 Ameren Corp. 2,033 82,133 Cintas Corp. 1,728 81,683 Textron Inc. 1,954 80,114 Lincoln National Corp. 2,625 80,089 Apple Computer Inc./1/ 4,975 79,948 Affiliated Computer Services Inc. "A"/1/ 1,723 79,344 Symantec Corp./1/ 1,963 78,520 Union Planters Corp. 2,778 78,506 Rohm & Haas Co. "A" 2,359 78,484 Adobe Systems Inc. 3,311 78,272 Coca-Cola Enterprises Inc. 3,282 78,243 MedImmune Inc./1/ 3,026 77,314 Marshall & Ilsley Corp. 2,742 77,215 TRW Inc. 1,438 76,645 Synovus Financial Corp. 3,698 75,772 Biogen Inc./1/ 2,058 75,508 Best Buy Co. Inc./1/ 3,644 75,103 Campbell Soup Co. 3,540 74,623 Ecolab Inc. 1,542 74,401 Cox Communications Inc. "A"/1/ 2,701 74,007 Weatherford International Ltd./1/ 1,828 73,193 Computer Sciences Corp./1/ 2,266 73,169 Cinergy Corp. 2,343 72,891 UST Inc. 2,327 71,183 CIGNA Corp. 1,965 71,015 Penney (J.C.) Co. Inc. (Holding Co.) 3,722 70,904 Genuine Parts Co. 2,400 70,896 Dover Corp. 2,823 70,801 Simon Property Group Inc. 2,070 70,691 PPL Corp. 2,040 70,604 Parker Hannifin Corp. 1,617 70,550 National Commerce Financial Corp. 2,880 70,502 Schedules of Investments 21 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- KeySpan Corp. 1,918 $ 70,065 Cincinnati Financial Corp. 1,841 69,940 Family Dollar Stores Inc. 2,265 69,739 Knight Ridder Inc. 1,153 69,388 Nabors Industries Ltd./1/ 1,978 69,171 EchoStar Communications Corp./1/ 3,380 68,918 Amazon.com Inc./1/ 3,536 68,457 Microchip Technology Inc./1/ 2,764 67,442 Franklin Resources Inc. 2,044 67,432 BJ Services Co./1/ 2,206 66,908 PACCAR Inc. 1,510 66,621 Pepsi Bottling Group Inc. 2,462 66,351 PeopleSoft Inc./1/ 3,665 66,337 First Tennessee National Corp. 1,786 66,225 Xerox Corp./1/ 9,932 65,948 Eaton Corp. 964 65,928 Harrah's Entertainment Inc./1/ 1,548 65,016 Hilton Hotels Corp. 5,269 64,809 Quest Diagnostics Inc./1/ 1,015 64,787 Interpublic Group of Companies Inc. 5,371 64,291 Starwood Hotels & Resorts Worldwide Inc. 2,759 64,285 Qwest Communications International Inc./1/ 18,951 64,244 Apollo Group Inc. "A"/(1)/ 1,542 63,993 SAFECO Corp. 1,796 63,866 Sempra Energy 2,868 63,498 Health Management Associates Inc. "A"/1/ 3,315 63,383 GlobalSantaFe Corp. 2,641 63,120 Huntington Bancshares Inc. 3,328 62,932 El Paso Corp. 8,099 62,767 Novellus Systems Inc./1/ 1,984 62,694 Altera Corp./1/ 5,317 62,315 UNUMProvident Corp. 3,004 61,642 Office Depot Inc./1/ 4,273 61,488 Kerr-McGee Corp. 1,397 60,770 ProLogis 2,500 60,500 AON Corp. 3,299 60,471 Applera Corp. - Applied Biosystems Group 2,979 60,265 Torchmark Corp. 1,678 60,072 IMS Health Inc. 3,994 60,070 Noble Corp./1/ 1,857 60,018 Golden State Bancorp Inc. 1,627 59,857 Chiron Corp./1/ 1,511 59,684 Monsanto Co. 3,604 59,574 MGIC Investment Corp. 1,411 59,206 PG&E Corp./1/ 5,412 58,720 Jones Apparel Group Inc./1/ 1,694 58,680 Lucent Technologies Inc./1/ 47,501 58,426 Constellation Energy Group Inc. 2,284 58,425 Compass Bancshares Inc. 1,798 58,075 Amerada Hess Corp. 1,131 58,020 Rockwell Collins 2,568 57,857 MeadWestvaco Corp. 2,757 57,759 L-3 Communications Holdings Inc./1/ 1,227 57,669 Univision Communications Inc. "A"/1/ 2,216 57,417 Leggett & Platt Inc. 2,753 57,400 Caremark Rx Inc./1/ 3,236 57,277 Plum Creek Timber Co. Inc. 2,529 57,181 VF Corp. 1,546 56,924 ENSCO International Inc. 2,104 56,892 Xcel Energy Inc. 5,460 56,784 Accenture Ltd./1/ 3,329 56,194 Archstone-Smith Trust 2,448 56,157 TXU Corp. 3,893 55,865 American Standard Companies Inc./1/ 836 55,761 Mylan Laboratories Inc. 1,737 54,663 BMC Software Inc.1 3,414 54,419 Delphi Corp. 7,813 54,378 EOG Resources Inc. 1,456 53,916 CIT Group Inc.1 3,000 53,430 Tiffany & Co. 2,036 53,302 Black & Decker Corp. 1,130 52,839 CenturyTel Inc. 1,855 52,552 Valero Energy Corp. 1,490 52,463 22 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- Popular Inc. 1,610 $ 52,148 GreenPoint Financial Corp. 1,196 52,110 Grainger (W.W.) Inc. 1,069 51,804 Estee Lauder Companies Inc. "A" 1,766 51,426 R.J. Reynolds Tobacco Holdings Inc. 1,268 51,417 RadioShack Corp./1/ 2,455 51,310 Zions Bancorp 1,268 50,986 Lincare Holdings Inc./1/ 1,489 50,730 American Water Works Inc. 1,132 50,691 Kinder Morgan Inc. 1,383 50,632 Sovereign Bancorp Inc. 3,593 50,589 Sherwin-Williams Co. 1,805 49,367 Laboratory Corp. of America Holdings/1/ 2,042 49,212 T. Rowe Price Group Inc. 1,728 48,781 Express Scripts Inc. "A"/1/ 887 48,208 King Pharmaceuticals Inc./1/ 3,132 48,076 Republic Services Inc. "A"/1/ 2,335 48,054 Boston Properties Inc. 1,340 47,838 NiSource Inc. 2,881 47,594 Banknorth Group Inc. 2,054 47,591 Ross Stores Inc. 1,127 47,165 Dollar General Corp. 3,375 47,115 Equifax Inc. 1,998 47,073 Radian Group Inc. 1,316 46,415 Pepco Holdings Inc. 2,242 46,409 Old Republic International Corp. 1,552 46,265 Dean Foods Co./1/ 1,234 46,263 SPX Corp./1/ 1,100 46,211 Varian Medical Systems Inc./1/ 952 45,905 Edison International/1/ 4,563 45,858 Murphy Oil Corp. 544 45,604 Ocean Energy Inc. 2,446 45,569 Expeditors International Washington Inc. 1,446 45,563 Waters Corp./1/ 1,805 45,450 ChoicePoint Inc./1/ 1,173 44,410 Siebel Systems Inc./1/ 5,897 44,345 Patterson Dental Co./1/ 858 44,196 QLogic Corp./1/ 1,265 44,035 Pactiv Corp./1/ 2,219 44,025 Whirlpool Corp. 943 43,953 Hibernia Corp. "A" 2,225 43,855 CDW Computer Centers Inc./1/ 825 43,741 Smith International Inc./1/ 1,398 43,701 Vornado Realty Trust 1,184 43,512 Wendy's International Inc. 1,369 43,370 Thermo Electron Corp./1/ 2,346 43,143 ServiceMaster Co. 4,199 43,040 Liz Claiborne Inc. 1,448 43,035 TCF Financial Corp. 1,009 42,822 BEA Systems Inc./1/ 5,290 42,791 Oxford Health Plans Inc./1/ 1,200 42,672 Rockwell Automation Inc. 2,570 42,534 Duke Realty Corp. 1,750 42,525 Energy East Corp. 1,994 42,472 Vulcan Materials Co. 1,265 42,453 Lennar Corp. 766 42,260 Apartment Investment & Management Co. "A" 1,202 42,238 Commerce Bancorp Inc. 918 42,145 SCANA Corp. 1,442 42,078 Alcon Inc./1/ 1,023 41,963 Legg Mason Inc. 897 41,675 Mohawk Industries Inc./1/ 777 41,608 Cooper Industries Inc. 1,315 41,409 Nucor Corp. 982 41,381 Network Appliance Inc./1/ 4,603 41,294 Everest Re Group Ltd. 711 41,252 Sigma-Aldrich Corp. 899 41,129 Dollar Tree Stores Inc./1/ 1,563 41,091 Robert Half International Inc./1/ 2,457 41,032 Watson Pharmaceuticals Inc./1/ 1,487 40,878 Darden Restaurants Inc. 2,151 40,826 Deluxe Corp. 883 40,812 Michaels Stores Inc./1/ 906 40,734 Hillenbrand Industries Inc. 775 40,300 Health Net Inc./1/ 1,722 40,295 Tellabs Inc./1/ 5,205 39,974 Engelhard Corp. 1,804 39,959 Schedules of Investments 23 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- Westwood One Inc./1/ 1,097 $ 39,821 Bard (C.R.) Inc. 711 39,766 Brinker International Inc./1/ 1,384 39,292 Eastman Chemical Co. 1,081 39,284 General Growth Properties Inc. 817 39,281 Synopsys Inc./1/ 1,035 39,175 Sabre Holdings Corp./1/ 2,032 38,974 New York Community Bancorp Inc. 1,340 38,940 Stanley Works (The) 1,201 38,876 XTO Energy Inc. 1,615 38,841 Unisys Corp./1/ 4,426 38,639 RenaissanceRe Holdings Ltd. 938 38,458 Centex Corp. 841 38,249 International Flavors & Fragrances Inc. 1,129 37,878 McCormick & Co. Inc. 1,696 37,719 Fidelity National Financial Inc. 1,246 37,629 Bemis Co. 722 37,609 Ball Corp. 776 37,582 Energizer Holdings Inc./1/ 1,257 37,509 Phelps Dodge Corp./1/ 1,208 37,472 Mercantile Bankshares Corp. 962 37,460 JDS Uniphase Corp./1/ 16,680 37,380 Pioneer Natural Resources Co./1/ 1,503 37,380 Cadence Design Systems Inc./1/ 3,683 37,309 Wisconsin Energy Corp. 1,620 37,228 Cephalon Inc./1/ 740 37,200 Coach Inc./1/ 1,244 37,009 First Virginia Banks Inc. 988 36,981 Telephone & Data Systems Inc. 723 36,801 PMI Group Inc. (The) 1,230 36,654 Kimco Realty Corp. 1,207 36,572 Whole Foods Market Inc./1/ 783 36,530 Manpower Inc. 1,071 36,521 AutoNation Inc./1/ 3,415 36,233 Edwards (A.G.) Inc. 1,095 36,025 Tyson Foods Inc. "A" 3,249 35,966 Rouse Co. 1,212 35,936 Stilwell Financial Inc. 3,062 35,856 Dun & Bradstreet Corp./1/ 976 35,673 DENTSPLY International Inc. 966 35,665 Bunge Ltd. 1,400 35,532 Georgia-Pacific Corp. 2,893 35,295 Lamar Advertising Co./1/ 1,036 35,162 Federated Investors Inc. "B" 1,308 35,054 Scripps (E.W.) Co. "A" 453 34,967 Associated Bancorp 1,040 34,902 Convergys Corp./1/ 2,344 34,879 D.R. Horton Inc. 1,805 34,782 Check Point Software Technologies Ltd./1/ 2,519 34,737 Diebold Inc. 974 34,723 Valley National Bancorp 1,257 34,630 Universal Health Services Inc. "B"/1/ 710 34,421 Jabil Circuit Inc./1/ 2,224 34,316 Health Care Property Investors Inc. 793 34,258 Cooper Cameron Corp./1/ 731 34,079 AvalonBay Communities Inc. 900 33,930 Pinnacle West Capital Corp. 1,190 33,915 Triad Hospitals Inc./1/ 925 33,763 Broadcom Corp. "A"/1/ 2,810 33,664 Commerce Bancshares Inc. 798 33,189 Citizens Communications Co./1/ 3,954 32,897 NVR Inc./1/ 97 32,883 Iron Mountain Inc./1/ 1,158 32,667 First Health Group Corp./1/ 1,257 32,657 National Semiconductor Corp./1/ 2,451 32,549 Lear Corp./1/ 889 32,493 Network Associates Inc./1/ 2,041 32,431 American Power Conversion Corp./1/ 2,501 32,313 Outback Steakhouse Inc./1/ 949 32,313 PETsMART Inc./1/ 1,683 32,162 CH Robinson Worldwide Inc. 1,082 31,995 Gallagher (Arthur J.) & Co. 1,190 31,916 Equitable Resources Inc. 896 31,898 Public Storage Inc. 1,081 31,803 AMB Property Corp. 1,186 31,785 TECO Energy Inc. 2,120 31,376 24 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- Sonoco Products Co. 1,333 $ 31,326 Smurfit-Stone Container Corp./1/ 2,407 31,315 Washington Post Company (The) "B" 43 31,300 Fastenal Co. 920 31,234 SUPERVALU Inc. 1,859 31,231 DST Systems Inc./1/ 1,015 31,211 Alliant Techsystems Inc./1/ 517 31,098 Donnelley (R.R.) & Sons Co. 1,551 31,098 Sunoco Inc. 1,036 31,059 UnionBanCal Corp. 727 31,043 Patterson-UTI Energy Inc./1/ 1,072 31,002 Pulte Homes Inc. 673 30,904 Teradyne Inc./1/ 2,518 30,493 Intersil Corp. "A"/1/ 1,794 30,480 Williams-Sonoma Inc./1/ 1,280 30,464 Sprint Corp. (PCS Group)/1/ 8,706 30,297 Belo (A.H.) Corp. 1,311 30,284 NSTAR 721 30,246 Henry Schein Inc./1/ 601 30,152 Gentex Corp./1/ 1,021 30,099 Allied Capital Corp. 1,428 30,059 Mercury Interactive Corp./1/ 1,139 30,035 LSI Logic Corp./1/ 5,089 30,025 Pall Corp. 1,725 29,963 SEI Investment Co. 1,121 29,919 IVAX Corp./1/ 2,382 29,894 Brown-Forman Corp. "B" 412 29,783 Liberty Property Trust 1,014 29,751 MGM Grand Inc./1/ 956 29,732 NCR Corp./1/ 1,332 29,624 Questar Corp. 1,133 29,231 Advanced Micro Devices Inc./1/ 4,755 29,196 BISYS Group Inc. (The)/1/ 1,631 29,195 Toys R Us Inc./1/ 2,886 28,831 Coors (Adolf) Company "B" 418 28,625 Omnicare Inc. 1,313 28,531 AdvancePCS/1/ 1,132 28,413 Weight Watchers International Inc./1/ 600 28,410 Ceridian Corp./1/ 2,041 28,125 Northeast Utilities 1,865 28,068 Wilmington Trust Corp. 920 27,922 Dial Corp. (The) 1,309 27,829 PartnerRe Ltd. 525 27,825 City National Corp. 613 27,738 Temple-Inland Inc. 675 27,689 Nordstrom Inc. 1,381 27,510 Symbol Technologies Inc. 3,173 27,446 FirstMerit Corp. 1,200 27,420 Astoria Financial Corp. 1,046 27,384 Bank of Hawaii Corp. 923 27,339 Circuit City Stores Inc. 2,751 27,262 Apogent Technologies Inc./1/ 1,491 27,106 Barr Laboratories Inc./1/ 460 27,062 Constellation Brands Inc./1/ 1,068 27,052 Rowan Companies Inc. 1,324 26,996 Hospitality Properties Trust 825 26,994 Humana Inc./1/ 2,216 26,991 Scientific-Atlanta Inc. 2,205 26,923 Millennium Pharmaceuticals Inc./1/ 3,602 26,799 Fluor Corp. 1,126 26,630 Big Lots Inc./1/ 1,604 26,626 Park Place Entertainment Corp./1/ 3,646 26,434 Manor Care Inc./1/ 1,336 26,413 CenterPoint Energy Inc. 3,726 26,380 Bowater Inc. 777 26,333 Investors Financial Services Corp. 858 26,315 KB Home 557 26,290 Noble Energy Inc. 721 26,237 Host Marriott Corp./1/ 3,191 26,166 Fair Isaac and Co. Inc. 675 25,967 AGCO Corp./1/ 1,022 25,959 Valspar Corp. (The) 619 25,856 Weingarten Realty Investors 696 25,856 WebMD Corp./1/ 4,067 25,663 Puget Energy Inc. 1,204 25,633 Solectron Corp./1/ 11,378 25,601 Juniper Networks Inc./1/ 4,384 25,537 Fulton Financial Corp. 1,402 25,488 Schedules of Investments 25 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------------- Storage Technology Corp./1/ 1,441 $ 25,477 Protective Life Corp. 885 25,293 Royal Caribbean Cruises Ltd. 1,374 25,227 Maytag Corp. 973 25,103 Cullen/Frost Bankers Inc. 724 25,072 Brunswick Corp. 1,218 25,066 Hormel Foods Corp. 1,031 24,950 Markel Corp./1/ 123 24,906 MDU Resources Group Inc. 1,008 24,867 Pier 1 Imports Inc. 1,317 24,825 White Mountains Insurance Group Ltd. 77 24,795 DPL Inc. 1,793 24,743 Career Education Corp./1/ 616 24,708 Corning Inc./1/ 13,133 24,559 Abercrombie & Fitch Co. "A"/1/ 1,376 24,520 Pogo Producing Co. 677 24,406 Freeport-McMoRan Copper & Gold Inc./1/ 2,000 24,400 New Plan Excel Realty Trust 1,406 24,366 Mid Atlantic Medical Services Inc./1/ 669 24,352 Tech Data Corp./1/ 761 24,314 Owens-Illinois Inc./1/ 2,027 24,304 Compuware Corp./1/ 5,004 24,274 Viad Corp. 1,247 24,217 Level 3 Communications Inc./1/ 5,066 24,109 Harman International Industries Inc. 430 24,080 Bausch & Lomb Inc. 765 23,791 Entercom Communications Corp./1/ 483 23,773 Hawaiian Electric Industries Inc. 496 23,744 Healthsouth Corp./1/ 5,454 23,725 National-Oilwell Inc./1/ 1,137 23,706 Beckman Coulter Inc. 851 23,700 Celgene Corp./1/ 1,069 23,678 RPM International Inc. 1,572 23,674 VeriSign Inc./1/ 2,923 23,530 Ashland Inc. 893 23,441 Molex Inc. "A" 1,007 23,393 Hasbro Inc. 2,288 23,383 Corinthian Colleges Inc./1/ 615 23,308 Neuberger Berman Inc. 793 23,282 Brown & Brown Inc. 764 23,226 Vectren Corp. 941 23,177 Meridian Gold Inc./1/ 1,417 23,154 Smucker (J.M.) Co. (The) 630 23,064 ALLETE Inc. 1,073 22,984 Performance Food Group Co./1/ 618 22,983 Hubbell Inc. "B" 670 22,746 Eaton Vance Corp. 790 22,681 Mack-Cali Realty Corp. 784 22,650 StanCorp Financial Group Inc. 419 22,626 Tektronix Inc./1/ 1,278 22,582 Cablevision Systems Corp./1/ 2,359 22,552 Allied Waste Industries Inc./1/ 2,760 22,494 Reynolds & Reynolds Co. (The) "A" 948 22,439 Charles River Laboratories International Inc./1/ 610 22,417 E*TRADE Group Inc./1/ 4,981 22,414 Sanmina-SCI Corp./1/ 7,272 22,398 Pride International Inc./1/ 1,610 22,347 Millipore Corp. 657 22,345 CarMax Inc./1/ 1,363 22,340 Brocade Communications Systems Inc./1/ 3,248 22,314 Pentair Inc. 674 22,269 Krispy Kreme Doughnuts Inc./1/ 649 22,261 Steris Corp./1/ 839 22,259 Zebra Technologies Corp. "A"/1/ 360 22,147 Lyondell Chemical Co. 1,770 22,125 Hudson City Bancorp Inc. 1,186 22,107 Mandalay Resort Group/1/ 779 22,038 Harris Corp. 835 22,027 Lam Research Corp./1/ 1,744 21,957 National Fuel Gas Co. 1,082 21,824 Washington Federal Inc. 883 21,775 Investment Technology Group Inc./1/ 679 21,660 Cheesecake Factory (The)/1/ 637 21,594 Doral Financial Corp. 822 21,586 26 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- GTECH Holdings Corp./1/ 828 $ 21,528 CIENA Corp./1/ 5,835 21,473 Webster Financial Corp. 662 21,455 Berkley (W.R.) Corp. 577 21,436 Scholastic Corp./1/ 485 21,413 CNF Inc. 665 21,406 Edwards Lifesciences Corp./1/ 833 21,400 United Dominion Realty Trust Inc. 1,483 21,400 Crescent Real Estate Equities Co. 1,442 21,269 Cabot Corp. 892 21,123 Newfield Exploration Co./1/ 602 21,064 LaBranche & Co. Inc./1/ 779 21,041 Renal Care Group Inc./1/ 663 20,984 Unitrin Inc. 666 20,979 Accredo Health Inc./1/ 452 20,919 Dana Corp. 2,087 20,870 Westamerica Bancorp 488 20,730 Lubrizol Corp. 712 20,648 3Com Corp./1/ 4,865 20,525 People's Bank 834 20,516 iStar Financial Inc. 722 20,505 Certegy Inc./1/ 976 20,496 BancorpSouth Inc. 1,081 20,485 BJ's Wholesale Club Inc./1/ 1,013 20,483 Emulex Corp./1/ 1,141 20,481 Vishay Intertechnology Inc./1/ 1,988 20,476 Dow Jones & Co. Inc. 583 20,475 Imation Corp./1/ 500 20,460 Jacobs Engineering Group Inc./1/ 673 20,385 ICOS Corp./1/ 823 20,336 DaVita Inc./1/ 848 20,327 Alliant Energy Corp. 1,268 20,313 Annaly Mortgage Management Inc. 1,158 20,300 Catellus Development Corp./1/ 1,137 20,239 Teleflex Inc. 481 20,231 Molex Inc. 765 20,204 Tidewater Inc. 717 20,198 Chico's FAS Inc./1/ 1,043 20,130 Hudson United Bancorp 660 20,097 Vertex Pharmaceuticals Inc./1/ 1,022 20,041 Great Plains Energy Inc. 887 20,002 NICOR Inc. 644 19,990 Dreyer's Grand Ice Cream Inc. 282 19,918 American National Insurance Co. 257 19,912 Polaris Industries Inc. 316 19,905 Covance Inc./1/ 893 19,896 Ingram Micro Inc. "A"/1/ 1,386 19,861 Goodrich (B.F.) Co. 1,312 19,811 Smithfield Foods Inc./1/ 1,274 19,798 Sky Financial Group Inc. 1,029 19,777 Waddell & Reed Financial Inc. "A" 1,130 19,775 SanDisk Corp./1/ 999 19,750 Independence Community Bank Corp. 769 19,740 HON Industries Inc. 771 19,699 Old National Bancorp 825 19,635 Valassis Communications Inc./1/ 761 19,634 Varco International Inc./1/ 1,191 19,580 Activision Inc./1/ 954 19,557 Techne Corp./1/ 592 19,536 Citrix Systems Inc./1/ 2,585 19,517 Borders Group Inc./1/ 1,131 19,487 La-Z-Boy Inc. 818 19,468 Overture Services Inc./1/ 705 19,409 Herman Miller Inc. 1,072 19,350 PepsiAmericas Inc. 1,260 19,341 Medicis Pharmaceutical Corp. "A"/1/ 421 19,324 Meredith Corp. 424 19,313 UTStarcom Inc./1/ 1,130 19,300 RF Micro Devices Inc./1/ 2,269 19,262 NVIDIA Corp./1/ 1,618 19,254 O'Reilly Automotive Inc./1/ 704 19,198 Erie Indemnity Co. "A" 480 19,176 Lancaster Colony Corp. 419 19,044 HCC Insurance Holdings Inc. 776 19,035 ARAMARK Corp. "B"/1/ 900 18,990 Winn-Dixie Stores Inc. 1,264 18,985 Neurocrine Biosciences Inc./1/ 422 18,948 Schedules of Investments 27 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- Worthington Industries Inc. 1,004 $ 18,915 Boise Cascade Corp. 795 18,913 Foot Locker Inc./1/ 1,924 18,855 Reebok International Ltd./1/ 666 18,815 Colonial BancGroup Inc. (The) 1,571 18,789 Navistar International Corp.1/ 836 18,743 BRE Properties Inc. "A" 652 18,712 Church & Dwight Co. Inc. 541 18,708 Diamond Offshore Drilling Inc. 893 18,664 Autodesk Inc. 1,595 18,661 Readers Digest Association Inc. (The) "A" 1,147 18,650 Invitrogen Corp./1/ 667 18,556 Marvell Technology Group Ltd./1/ 1,140 18,479 Comverse Technology Inc./1/ 2,564 18,461 Advanced Fibre Communications Inc./1/ 1,140 18,444 Martin Marietta Materials Inc. 661 18,402 First Midwest Bancorp Inc. 662 18,397 Camden Property Trust 585 18,334 99 Cents Only Stores/1/ 677 18,313 Pharmaceutical Product Development Inc./1/ 668 18,303 First American Corp. 894 18,282 Scios Inc./1/ 633 18,268 Getty Images Inc./1/ 635 18,199 Snap-On Inc. 698 18,183 Transatlantic Holdings Inc. 290 18,140 Coventry Health Care Inc./1/ 542 18,135 Applebee's International Inc. 762 18,128 Arrow Electronics Inc./1/ 1,379 18,106 Roslyn Bancorp Inc. 1,092 18,082 Whitney Holding Corp. 532 18,067 Saks Inc./1/ 1,661 18,022 Ryder System Inc. 785 18,016 Rational Software Corp./1/ 2,718 17,993 Trustmark Corp. 790 17,862 Apria Healthcare Group Inc./1/ 732 17,853 Providian Financial Corp./1/ 4,011 17,849 Sybase Inc./1/ 1,393 17,844 Leucadia National Corp. 475 17,817 Sealed Air Corp./1/ 1,158 17,741 TMP Worldwide Inc./1/ 1,146 17,740 United States Steel Corp. 1,380 17,733 Cree Inc./1/ 1,022 17,629 Dole Food Co. 599 17,599 Amdocs Ltd./1/ 2,521 17,597 Peoples Energy Corp. 481 17,484 OGE Energy Corp. 1,095 17,465 Cytyc Corp./1/ 1,668 17,447 Helmerich & Payne Inc. 616 17,439 Delta Air Lines Inc. 1,730 17,438 Healthcare Realty Trust Inc. 559 17,307 ADC Telecommunications Inc./1/ 10,938 17,282 FNB Corp. 600 17,250 CACI International Inc. "A"/1/ 421 17,223 AmerUs Group Co. 597 17,134 MONY Group Inc. (The) 670 17,132 Raymond James Financial Inc. 547 17,121 Arden Realty Inc. 800 17,120 Community Health Systems Inc./1/ 724 17,014 DQE Inc. 1,065 16,976 CenterPoint Properties Corp. 315 16,972 Graco Inc. 620 16,957 Affymetrix Inc./1/ 644 16,808 CBRL Group Inc. 717 16,799 Quintiles Transnational Corp./1/ 1,560 16,770 Ameritrade Holding Corp./1/ 3,690 16,753 Pan Pacific Retail Properties Inc. 500 16,750 Developers Diversified Realty Corp. 782 16,735 Donaldson Co. Inc. 530 16,732 Realty Income Corp. 500 16,725 CarrAmerica Realty Corp. 703 16,689 AGL Resources Inc. 710 16,685 AMETEK Inc. 472 16,657 Dillards Inc. "A" 1,009 16,638 Philadelphia Suburban Corp. 774 16,633 LifePoint Hospitals Inc./1/ 528 16,553 Barnes & Noble Inc./1/ 782 16,500 BorgWarner Inc. 365 16,418 Hilb, Rogal & Hamilton Co. 400 16,400 28 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value ------------------------------------------------------------------------- IDEXX Laboratories Inc./1/ 474 $ 16,353 Applied Micro Circuits Corp./1/ 4,190 16,341 United Bancshares Inc. 538 16,258 Goodyear Tire & Rubber Co. 2,273 16,138 Furniture Brands International Inc./1/ 712 16,098 WPS Resources Corp. 416 16,095 Federal Realty Investment Trust 610 16,073 Roper Industries Inc. 416 16,058 Linens `N Things Inc./1/ 682 16,034 Shurgard Storage Centers Inc. "A" 529 15,976 Media General Inc. "A" 292 15,972 Corporate Executive Board Co. (The)/1/ 480 15,931 IMC Global Inc. 1,448 15,928 SICOR Inc./1/ 1,067 15,888 Western Digital Corp./1/ 2,564 15,871 McClatchy Co. (The) "A" 255 15,843 Integrated Circuit Systems Inc./1/ 775 15,841 IndyMac Bancorp Inc./1/ 845 15,751 Clayton Homes Inc. 1,391 15,746 Alberto-Culver Co. "B" 305 15,744 Ethan Allen Interiors Inc. 491 15,737 Regis Corp. 537 15,691 Acxiom Corp./1/ 1,245 15,687 Ruby Tuesday Inc. 898 15,670 Edwards (J.D.) & Co./1/ 1,317 15,620 IPC Holdings Ltd./1/ 500 15,585 CheckFree Corp./1/ 956 15,564 AmeriCredit Corp./1/ 2,050 15,559 Piedmont Natural Gas Co. 435 15,556 Lee Enterprises Inc. 474 15,500 Pittston Brink's Group 732 15,496 BearingPoint Inc./1/ 1,982 15,460 Commercial Federal Corp. 663 15,415 Payless ShoeSource Inc./1/ 305 15,403 Rayonier Inc. 365 15,396 Affiliated Managers Group Inc./1/ 296 15,368 Carlisle Companies Inc. 412 15,355 Andrx Group/1/ 990 15,295 Chesapeake Energy Corp. 2,191 15,293 Stericycle Inc./1/ 458 15,251 CMS Energy Corp. 1,947 15,245 Avnet Inc. 1,639 15,243 Human Genome Sciences Inc./1/ 1,559 15,231 Harte-Hanks Inc. 796 15,188 WGL Holdings Inc. 656 15,173 Interstate Bakeries Corp. 609 15,170 Fairchild Semiconductor International Corp. "A"/1/ 1,270 15,113 FMC Technologies Inc./1/ 815 15,077 PacifiCare Health Systems Inc. "A"/1/ 510 15,076 Alberto-Culver Co. "A" 313 15,071 Mercury General Corp. 362 15,023 CBL & Associates Properties Inc. 406 15,006 Chelsea Property Group Inc. 460 14,973 Grant Prideco Inc./1/ 1,548 14,954 Hollywood Entertainment Corp./1/ 756 14,863 International Rectifier Corp./1/ 859 14,835 Toll Brothers Inc./1/ 720 14,746 First Industrial Realty Trust Inc. 545 14,737 Ryland Group Inc. 354 14,726 Park National Corp. 164 14,678 IKON Office Solutions Inc. 2,071 14,663 Pediatrix Medical Group Inc./1/ 366 14,640 American Axle & Manufacturing Holdings Inc./1/ 615 14,575 Packaging Corporation of America(1) 838 14,564 Fox Entertainment Group Inc. "A"/1/ 595 14,524 Highwoods Properties Inc. 726 14,520 Rent-A-Center Inc./1/ 327 14,502 Commerce Group Inc. 423 14,488 Titan Corp. (The)/1/ 1,124 14,488 Wiley (John) & Sons Inc. "A" 658 14,463 AnnTaylor Stores Corp./1/ 616 14,433 Extended Stay America Inc./1/ 1,154 14,425 Semtech Corp./1/ 1,020 14,413 Cabot Microelectronics Corp./1/ 317 14,389 Schedules of Investments 29 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- HRPT Properties Trust 1,826 $ 14,371 Integrated Device Technology Inc./1/ 1,455 14,371 Staten Island Bancorp Inc. 777 14,359 Community First Bankshares Inc. 523 14,335 Taro Pharmaceutical Industries Ltd./1/ 412 14,317 Zale Corp./1/ 490 14,308 Catalina Marketing Corp./1/ 735 14,222 Trimeris Inc./1/ 268 14,177 Arbitron Inc./1/ 415 14,172 Emmis Communications Corp./1/ 648 14,139 United Stationers Inc./1/ 474 14,092 Varian Inc./1/ 477 14,029 Harsco Corp. 546 14,005 Crown Cork & Seal Co. Inc./1/ 2,188 14,003 M.D.C. Holdings Inc. 373 14,002 Ferro Corp. 572 13,997 IDACORP Inc. 536 13,941 Cox Radio Inc. "A"/1/ 586 13,912 ArvinMeritor Inc. 918 13,908 ITT Educational Services Inc./1/ 636 13,897 Corn Products International Inc. 470 13,851 Scotts Co. (The) "A"/1/ 290 13,804 National Instruments Corp./1/ 481 13,800 Claire's Stores Inc. 535 13,782 Macerich Co. (The) 484 13,770 Olin Corp. 841 13,675 Education Management Corp./1/ 372 13,652 AptarGroup Inc. 487 13,602 Polycom Inc./1/ 1,379 13,583 Blyth Inc. 481 13,564 Swift Transportation Co. Inc./1/ 843 13,564 Health Care REIT Inc. 483 13,563 Williams Companies Inc. 7,204 13,544 Callaway Golf Co. 1,099 13,452 Respironics Inc./1/ 421 13,447 Cytec Industries Inc./1/ 555 13,437 Key Energy Services Inc./1/ 1,502 13,413 Cooper Tire & Rubber Co. 1,029 13,387 Reckson Associates Realty Corp. 659 13,384 Advance Auto Parts Inc./1/ 248 13,280 Hercules Inc./1/ 1,381 13,258 Trizec Properties Inc. 1,300 13,195 Cerner Corp./1/ 370 13,176 Crane Co. 717 13,171 Electronics For Imaging Inc./1/ 721 13,137 Werner Enterprises Inc. 641 13,108 Skyworks Solutions Inc./1/ 1,845 13,100 Citizens Banking Corp. 549 13,094 Invacare Corp. 412 13,019 Prentiss Properties Trust 483 13,017 LNR Property Corp. 365 13,012 South Financial Group Inc. (The) 601 13,012 Expedia Inc. "A"/1/ 192 12,991 FMC Corp./1/ 424 12,970 Universal Corp. 368 12,961 Thomas & Betts Corp./1/ 781 12,933 Timken Co. (The) 709 12,918 Great Lakes Chemical Corp. 531 12,914 Waste Connections Inc./1/ 353 12,913 Precision Castparts Corp. 665 12,908 Kennametal Inc. 414 12,904 Arch Coal Inc. 738 12,812 Garmin Ltd./1/ 610 12,761 St. Joe Company (The) 437 12,752 Mueller Industries Inc./1/ 476 12,733 Chittenden Corp. 465 12,722 American Greetings Corp. "A" 845 12,709 Service Corp. International/1/ 4,022 12,669 Sonic Corp./1/ 544 12,659 Rite Aid Corp./1/ 7,069 12,654 Alexander & Baldwin Inc. 540 12,556 York International Corp. 531 12,489 DoubleClick Inc./1/ 1,784 12,488 Post Properties Inc. 530 12,429 ResMed Inc./1/ 367 12,394 Hispanic Broadcasting Corp./1/ 576 12,384 Jeffries Group Inc. 297 12,370 ONEOK Inc. 653 12,368 Novell Inc./1/ 5,089 12,366 Silicon Valley Bancshares/1/ 657 12,345 30 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------------- Kansas City Southern Industries Inc./1/ 880 $ 12,320 SkyWest Inc. 810 12,289 Superior Industries International Inc. 288 12,231 Lafarge North America Inc. 412 12,216 Bob Evans Farms Inc. 491 12,211 Cousins Properties Inc. 544 12,186 SL Green Realty Corp. 416 12,139 Cymer Inc./1/ 481 12,083 NBTY Inc./1/ 769 11,958 Internet Security Systems Inc./1/ 647 11,944 Pixar Inc./1/ 234 11,941 DeVry Inc./1/ 840 11,928 Visteon Corp. 1,809 11,921 SEACOR SMIT Inc./1/ 290 11,919 Texas Regional Bancshares Inc. "A" 360 11,858 Avocent Corp./1/ 592 11,840 Southwest Bancorp of Texas Inc./1/ 419 11,837 Mirant Corp./1/ 5,526 11,826 UCBH Holdings Inc. 282 11,813 PNM Resources Inc. 535 11,797 Jack in the Box Inc./1/ 543 11,778 Greater Bay Bancorp 772 11,765 Tupperware Corp. 728 11,750 Energen Corp. 421 11,746 Agere Systems Inc. "B"/1/ 12,559 11,680 PerkinElmer Inc. 1,677 11,672 Forest Oil Corp./1/ 464 11,577 Maxtor Corp./1/ 3,072 11,551 Downey Financial Corp. 298 11,533 Cummins Inc. 481 11,525 Landstar System Inc./1/ 236 11,503 Priority Healthcare Corp. "B"/1/ 473 11,489 Stone Energy Corp./1/ 357 11,481 Hyperion Solutions Corp./1// 425 11,475 Borland Software Corp./1/ 854 11,469 Enzon Inc./1/ 591 11,465 Briggs & Stratton Corp. 298 11,458 Polo Ralph Lauren Corp./1/ 600 11,424 Andrew Corp./1/ 1,327 11,412 Amphenol Corp. "A"/1/ 296 11,396 AES Corp. (The)/1/ 6,428 11,378 Mentor Corp. 298 11,294 Intergraph Corp./1/ 611 11,242 American Financial Group Inc. 483 11,196 Nationwide Health Properties Inc. 657 11,195 PMC-Sierra Inc./1/ 2,291 11,157 Varian Semiconductor Equipment Associates Inc./1/ 468 11,148 Hunt (J.B.) Transport Services Inc./1/ 401 11,104 Pacific Sunwear of California Inc./1/ 475 11,101 International Speedway Corp. "A" 285 11,098 Gemstar-TV Guide International Inc./1/ 3,065 11,065 Provident Financial Group Inc. 424 11,020 Copart Inc./1/ 1,031 11,001 Wallace Computer Services Inc. 596 10,913 Banta Corp. 354 10,903 EarthLink Inc./1/ 1,781 10,882 Northwest Natural Gas Co. 362 10,853 NPS Pharmaceuticals Inc./1/ 417 10,834 Hughes Supply Inc. 316 10,791 Trinity Industries Inc. 687 10,786 Black Box Corp./1/ 255 10,781 EMCOR Group Inc./1/ 221 10,743 Perrigo Co./1/ 851 10,723 Potlatch Corp. 410 10,717 Fuller (H.B.) Co. 376 10,705 Crompton Corp. 1,611 10,681 CNA Financial Corp./1/ 404 10,637 Global Payments Inc. 375 10,594 KEMET Corp./1/ 1,208 10,594 P.F. Chang's China Bistro Inc./1/ 305 10,523 Yellow Corp./1/ 380 10,522 AK Steel Holding Corp./1/ 1,447 10,476 American Eagle Outfitters Inc./1/ 721 10,469 Schedules of Investments 31 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- East West Bancorp Inc. 303 $ 10,453 Nextel Partners Inc. "A"/1/ 1,469 10,448 Syncor International Corp./1/ 291 10,427 Henry (Jack) & Associates Inc. 1,009 10,372 USFreightways Corp. 369 10,369 Longs Drug Stores Corp. 461 10,303 Ohio Casualty Corp./1/ 780 10,288 CEC Entertainment Inc./1/ 370 10,286 NetIQ Corp./1/ 729 10,286 Grey Wolf Inc./1/ 2,567 10,268 Cognex Corp./1/ 539 10,219 MAF Bancorp Inc. 314 10,202 Calpine Corp./1/ 5,094 10,188 Lattice Semiconductor Corp./1/ 1,502 10,169 Donnelley (R.H.) Corp./1/ 420 10,160 Tom Brown Inc./1/ 425 10,158 Perot Systems Corp. "A"/1/ 951 10,119 Atmel Corp./1/ 6,057 10,115 Georgia Gulf Corp. 464 10,092 Colonial Properties Trust 305 10,083 Louisiana-Pacific Corp./1/ 1,494 10,070 Protein Design Labs Inc./1/ 1,206 10,010 Cimarex Energy Co./1/ 627 9,969 Western Gas Resources Inc. 301 9,966 AMR Corp./1/ 2,111 9,964 Allegheny Energy Inc. 1,741 9,924 Home Properties of New York Inc. 313 9,922 Talbots Inc. (The) 357 9,896 Foundry Networks Inc./1/ 1,387 9,806 Avaya Inc./1/ 4,896 9,792 Cambrex Corp. 351 9,772 Wolverine World Wide Inc. 600 9,666 GATX Corp. 481 9,644 Nationwide Financial Services Inc. 348 9,640 Evergreen Resources Inc./1/ 234 9,624 Tootsie Roll Industries Inc. 304 9,588 Mills Corp. 345 9,574 Dionex Corp./1/ 310 9,551 Cypress Semiconductor Corp./1/ 1,692 9,509 ICN Pharmaceuticals Inc. 1,136 9,486 Shaw Group Inc. (The)/1/ 633 9,470 Sepracor Inc./1/ 1,088 9,466 Ralcorp Holdings Inc./1/ 418 9,451 Crown Castle International Corp./1/ 2,693 9,425 InterDigital Communications Corp./1/ 723 9,399 Timberland Co. "A"/1/ 295 9,375 Gateway Inc./1/ 3,123 9,369 US Oncology Inc./1/ 1,167 9,348 Plantronics Inc./1/ 622 9,318 Macromedia Inc./1/ 831 9,316 Black Hills Corp. 353 9,302 Flowers Foods Inc./1/ 417 9,266 Cabot Oil & Gas Corp. "A" 423 9,247 OSI Pharmaceuticals Inc./1/ 532 9,214 G&K Services Inc. "A" 285 9,154 Arkansas Best Corp./1/ 305 9,135 Delta & Pine Land Co. 476 9,125 CSG Systems International Inc./1/ 707 9,105 Nordson Corp. 350 9,069 Cleco Corp. 648 9,040 Agere Systems Inc. "A"/1/ 10,368 9,020 Aquila Inc. 2,437 9,017 La Quinta Corp. 2,044 9,014 Ascential Software Corp./1/ 3,717 8,995 Republic Bancorp Inc. 723 8,901 Mercury Computer Systems Inc./1/ 293 8,834 ADVO Inc./1/ 290 8,799 Airborne Inc. 678 8,739 Station Casinos Inc./1/ 484 8,707 Tommy Hilfiger Corp./1/ 1,150 8,683 Adaptec Inc./1/ 1,455 8,672 Ticketmaster "B"/1/ 367 8,661 Kilroy Realty Corp. 402 8,651 Parametric Technology Corp./1/ 3,716 8,584 Mentor Graphics Corp./1/ 903 8,572 Westar Energy Inc. 790 8,572 Flowserve Corp./1/ 728 8,532 American Italian Pasta Co. "A"/1/ 247 8,509 Sierra Pacific Resources 1,422 8,504 32 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- Capital Automotive 347 $ 8,501 Hearst-Argyle Television Inc./1/ 341 8,487 TriQuint Semiconductor Inc./1/ 1,675 8,459 Oceaneering International Inc./1/ 305 8,449 Kaydon Corp. 420 8,387 Cost Plus Inc./1/ 290 8,381 Brandywine Realty Trust 419 8,380 Province Healthcare Co./1/ 642 8,378 AMCORE Financial Inc. 362 8,373 Manitowoc Co. Inc. (The) 352 8,304 NDCHealth Corp. 470 8,296 Quiksilver Inc./1/ 343 8,235 Reinsurance Group of America Inc. 299 8,220 Pep Boys-Manny, Moe & Jack Inc. 706 8,190 Alkermes Inc./1/ 886 8,169 Winnebago Industries Inc. 180 8,159 IDT Corp. "B"/1/ 517 8,117 IGEN International Inc./1/ 226 8,091 Horace Mann Educators Corp. 539 8,090 Southern Union Co./1/ 655 8,083 Red Hat Inc./1/ 1,778 7,983 Provident Bankshares Corp. 352 7,956 Documentum Inc./1/ 543 7,933 Selective Insurance Group Inc. 354 7,930 El Paso Electric Co./1/ 721 7,881 Sybron Dental Specialties Inc./1/ 544 7,861 Granite Construction Inc. 490 7,850 Micrel Inc./1/ 948 7,830 Massey Energy Co. 1,023 7,826 Schulman (A.) Inc. 447 7,823 UniSource Energy Corp. 472 7,816 Aztar Corp./1/ 578 7,809 Applera Corp. - Celera Genomics Group/1/ 947 7,803 THQ Inc./1/ 539 7,794 Casey's General Store Inc. 664 7,775 Benchmark Electronics Inc./1/ 349 7,769 Millennium Chemicals Inc. 838 7,768 Alaska Air Group Inc./1/ 358 7,747 Duane Reade Inc./1/ 401 7,715 Macrovision Corp./1/ 598 7,714 Ariba Inc./1/ 3,244 7,656 Haemonetics Corp./1/ 360 7,636 ATMI Inc./1/ 415 7,632 Hanover Compressor Co./1/ 727 7,626 ADTRAN Inc./1/ 300 7,617 Inter-Tel Inc. 281 7,595 CV Therapeutics Inc./1/ 316 7,584 McDATA Corp. "A"/1/ 1,143 7,521 Metro-Goldwyn-Mayer Inc./1/ 587 7,514 Sterling Bancshares Inc. 612 7,509 MPS Group Inc./1/ 1,391 7,497 Hollinger International Inc. 764 7,449 Sylvan Learning Systems Inc./1/ 486 7,421 Manufactured Home Communities Inc. 259 7,394 Axcelis Technologies Inc./1/ 1,372 7,381 Brooks-PRI Automation Inc./1/ 482 7,370 Rambus Inc./1/ 1,317 7,349 Coherent Inc./1/ 414 7,315 PSS World Medical Inc./1/ 955 7,296 MacDermid Inc. 363 7,289 Men's Wearhouse Inc. (The)/1/ 531 7,285 Glenborough Realty Trust Inc. 399 7,282 Superior Energy Services Inc./1/ 888 7,273 Fossil Inc./1/ 370 7,256 Albany International Corp. "A" 342 7,247 Regeneron Pharmaceuticals Inc./1/ 478 7,232 Dress Barn Inc./1/ 460 7,222 Total System Services Inc. 532 7,219 Dycom Industries Inc./1/ 664 7,218 Roadway Corp. 180 7,213 Regal-Beloit Corp. 408 7,173 Texas Industries Inc. 295 7,154 ValueVision Media Inc. "A"/1/ 540 7,139 Power Integrations Inc./1/ 404 7,127 Atlantic Coast Airlines Holdings Inc./1/ 538 7,102 American Management Systems Inc./1/ 590 7,092 Schedules of Investments 33 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- Technitrol Inc. 481 $ 7,037 Knight Trading Group Inc./1/ 1,480 7,030 Owens & Minor Inc. 477 7,021 Modine Manufacturing Co. 401 7,013 Interactive Data Corp./1/ 482 6,999 Abgenix Inc./1/ 1,029 6,997 Maverick Tube Corp./1/ 548 6,987 Charming Shoppes Inc./1/ 1,517 6,978 Reliant Resources Inc./1/ 3,706 6,967 AVX Corp. 739 6,961 Kellwood Co. 298 6,958 Insight Communications Co. Inc./1/ 712 6,935 Stewart Enterprises Inc. "A"/1/ 1,265 6,920 Electro Scientific Industries Inc./1/ 370 6,912 Credence Systems Corp./1/ 829 6,906 Offshore Logistics Inc./1/ 321 6,892 Avista Corp. 669 6,891 Terex Corp./1/ 587 6,844 Exar Corp./1/ 543 6,842 Vintage Petroleum Inc. 707 6,787 Silicon Laboratories Inc./1/ 318 6,770 MSC Industrial Direct Co. Inc. "A"/1/ 522 6,765 Extreme Networks Inc./1/ 1,606 6,761 Ryan's Family Steak Houses Inc./1/ 658 6,751 Monaco Coach Corp./1/ 416 6,735 Actuant Corp. "A"/1/ 169 6,726 W.P. Stewart & Co. Ltd. 370 6,712 Pre-Paid Legal Services Inc./1/ 308 6,640 CommScope Inc./1/ 844 6,625 Sycamore Networks Inc./1/ 2,642 6,605 Broadwing Inc./1/ 2,889 6,587 Allegheny Technologies Inc. 959 6,569 Quantum Corp./1/ 2,214 6,553 EGL Inc./1/ 490 6,551 ImClone Systems Inc./1/ 912 6,531 FelCor Lodging Trust Inc. 584 6,529 IHOP Corp./1/ 285 6,524 Sinclair Broadcast Group Inc. "A"/1/ 551 6,518 Nautilus Group Inc. (The)/1/ 474 6,513 Net.B@nk Inc./1/ 657 6,491 Solutia Inc. 1,458 6,488 Acuity Brands Inc. 541 6,487 WD-40 Co. 226 6,486 Northwest Airlines Corp. "A"/1/ 946 6,480 Keane Inc./1/ 782 6,444 SangStat Medical Corp./1/ 344 6,419 DSP Group Inc./1/ 444 6,350 Harbor Florida Bancshares Inc. 284 6,333 Plexus Corp./1/ 589 6,320 VISX Inc./1/ 778 6,310 FirstFed Financial Corp./1/ 231 6,260 Hutchinson Technology Inc./1/ 298 6,195 Anchor BanCorp Wisconsin Inc. 298 6,175 Wausau-Mosinee Paper Corp. 646 6,169 Allmerica Financial Corp. 723 6,153 Echelon Corp./1/ 484 6,123 Papa John's International Inc./1/ 233 6,065 Advanced Digital Information Corp./1/ 855 6,053 Advent Software Inc./1/ 428 6,039 Tetra Tech Inc./1/ 676 6,003 Six Flags Inc./1/ 1,312 5,996 OfficeMax Inc./1/ 1,262 5,969 C&D Technologies Inc. 368 5,870 Newport Corp./1/ 535 5,864 Viasys Healthcare Inc./1/ 363 5,837 Dime Community Bancshares 277 5,817 Hain Celestial Group Inc./1/ 404 5,789 eFunds Corp./1/ 655 5,777 Prime Hospitality Corp./1/ 708 5,721 Insituform Technologies Inc. "A"/1/ 359 5,712 PFF Bancorp Inc. 185 5,700 First Sentinel Bancorp Inc. 423 5,694 WMS Industries Inc./1/ 401 5,694 Tekelec/1/ 656 5,681 Orthodontic Centers of America Inc./1/ 594 5,667 Actel Corp./1/ 348 5,634 Ionics Inc./1/ 246 5,592 34 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- XOMA Ltd./1/ 969 $ 5,591 Iomega Corp./1/ 649 5,581 Pacific Northwest Bancorp 226 5,548 Zoran Corp./1/ 367 5,501 Esterline Technologies Corp./1/ 302 5,481 Guitar Center Inc./1/ 293 5,479 Legato Systems Inc./1/ 1,504 5,475 Myriad Genetics Inc./1/ 299 5,400 Orbotech Ltd./1/ 425 5,398 Russell Corp. 344 5,346 Koger Equity Inc. 344 5,339 IDT Corp./1/ 310 5,332 TIBCO Software Inc./1/ 1,065 5,325 Biosite Inc./1/ 184 5,314 Imagistics International Inc./1/ 285 5,304 RealNetworks Inc./1/ 1,510 5,300 Continental Airlines Inc. "B"/1/ 834 5,296 FileNET Corp./1/ 488 5,295 PolyMedica Corp./1/ 188 5,285 Overseas Shipholding Group Inc. 304 5,274 United States Cellular Corp./1) 191 5,272 Stride Rite Corp. 615 5,258 Lone Star Steakhouse & Saloon Inc. 250 5,210 Quest Software Inc./1/ 475 5,187 Power-One Inc./1/ 961 5,171 MICROS Systems Inc./1/ 249 5,169 Photon Dynamics Inc./1/ 240 5,150 PRG-Schultz International Inc./1/ 546 5,095 Ligand Pharmaceuticals Inc. "B"/1/ 772 5,080 Silicon Storage Technology Inc./1/ 1,137 5,071 Avid Technology Inc./1/ 359 5,058 Cell Genesys Inc./1/ 483 5,057 Informatica Corp./1/ 964 5,013 Sunrise Assisted Living Inc./1/ 239 4,971 Bowne & Co. Inc. 487 4,870 Aeroflex Inc./1/ 839 4,858 United Rentals Inc./1/ 793 4,837 Vitesse Semiconductor Corp./1/ 2,744 4,829 webMethods Inc./1/ 667 4,822 Trimble Navigation Ltd./1/ 367 4,807 Wellman Inc. 474 4,787 Checkpoint Systems Inc./1/ 469 4,737 Transkaryotic Therapies Inc./1/ 407 4,737 JDN Realty Corp. 433 4,711 Fleming Companies Inc. 731 4,708 Lone Star Technologies Inc./1/ 360 4,698 Spherion Corp./1/ 770 4,689 Triarc Companies Inc./1/ 195 4,680 Phillips-Van Heusen Corp. 346 4,678 Datascope Corp. 188 4,666 SERENA Software Inc./1/ 291 4,644 PanAmSat Corp./1/ 238 4,641 Albany Molecular Research Inc./1/ 299 4,617 Methode Electronics Inc. "A" 501 4,604 Charter Communications Inc. "A"/1/ 4,076 4,602 Insight Enterprises Inc./1/ 602 4,599 ShopKo Stores Inc./1/ 363 4,599 Littelfuse Inc./1/ 294 4,598 Meristar Hospitality Corp. 605 4,598 Genesco Inc./1/ 288 4,596 Tredegar Corp. 355 4,580 Inhale Therapeutic Systems Inc./1/ 720 4,579 Bay View Capital Corp./1/ 765 4,567 Nautica Enterprises Inc./1/ 406 4,547 Sotheby's Holdings Inc. "A"/1/ 599 4,546 Enzo Biochem Inc./1/ 312 4,543 Photronics Inc./1/ 370 4,492 Tower Automotive Inc./1/ 840 4,452 Incyte Genomics Inc./1/ 900 4,446 Fremont General Corp. 892 4,415 International Multifoods Corp./1/ 226 4,396 PAREXEL International Corp./1/ 366 4,396 Unifi Inc./1/ 791 4,366 Park Electrochemical Corp. 241 4,350 Conexant Systems Inc./1/ 3,534 4,347 Stillwater Mining Co./1/ 544 4,347 GlobeSpanVirata Inc./1/ 1,562 4,342 Veeco Instruments Inc./1/ 360 4,313 Cato Corp. "A" 234 4,294 Verity Inc./1/ 476 4,294 Schedules of Investments 35 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- RFS Hotel Investors Inc. 369 $ 4,288 Alpharma Inc. "A" 447 4,238 Oakley Inc./1/ 354 4,184 Chemed Corp. 118 4,159 Powerwave Technologies Inc./1/ 896 4,131 Agile Software Corp./1/ 606 4,127 CIBER Inc./1/ 766 4,121 NCO Group Inc./1/ 298 4,092 LTX Corp./1/ 658 4,080 Jakks Pacific Inc./1/ 308 4,078 DuPont Photomasks Inc./1/ 195 4,074 Amkor Technology Inc./1/ 1,156 4,069 E.piphany Inc./1/ 1,017 4,068 Core Laboratories NV/1/ 430 4,055 Systems & Computer Technology Corp./1/ 429 4,041 Noven Pharmaceuticals Inc./1/ 314 4,022 IDX Systems Corp./1/ 257 3,999 Stewart & Stevenson Services Inc. 365 3,997 Advanced Medical Optics Inc./1/ 412 3,996 Silicon Image Inc./1/ 885 3,965 S1 Corp./1/ 893 3,955 Cyberonics Inc./1/ 247 3,952 Atwood Oceanics Inc./1/ 131 3,904 Robert Mondavi Corp. (The) "A"/1/ 118 3,894 OceanFirst Financial Corp. 181 3,864 United Therapeutics Inc./1/ 258 3,857 Immunomedics Inc./1/ 551 3,846 Airtran Holdings Inc./1/ 1,008 3,830 FreeMarkets Inc./1/ 532 3,820 Tularik Inc./1/ 525 3,817 Helix Technology Corp. 373 3,816 Steelcase Inc. "A" 417 3,799 ElkCorp 241 3,798 Caraustar Industries Inc. 420 3,797 Impath Inc./1/ 236 3,788 Medarex Inc./1/ 951 3,775 Cohu Inc. 239 3,771 Veritas DGC Inc./1/ 424 3,731 ArthroCare Corp./1/ 341 3,713 Curtiss-Wright Corp. 61 3,703 Presidential Life Corp. 301 3,702 Vignette Corp./1/ 3,479 3,688 Digital River Inc./1/ 345 3,602 Global Industries Ltd./1/ 900 3,600 Wind River Systems Inc./1/ 974 3,526 Kaman Corp. "A" 310 3,466 Wild Oats Markets Inc./1/ 306 3,452 RSA Security Inc./1/ 762 3,406 Kopin Corp./1/ 912 3,384 American Tower Corp. "A"/1/ 2,397 3,380 Cirrus Logic Inc./1/ 1,022 3,373 CNET Networks Inc./1/ 1,667 3,301 Western Wireless Corp. "A"/1/ 956 3,298 Pioneer-Standard Electronics Inc. 465 3,255 Dendrite International Inc./1/ 527 3,252 Parker Drilling Co./1/ 1,378 3,211 Molecular Devices Corp./1/ 238 3,203 Nabi Biopharmaceuticals/1/ 536 3,189 InFocus Corp./1/ 538 3,153 SWS Group Inc. 243 3,147 Mykrolis Corp./1/ 559 3,136 Equity Inns Inc. 534 3,119 Newpark Resources Inc./1/ 968 3,117 SureBeam Corporation "A"/1/ 716 3,115 Learning Tree International Inc./1/ 182 3,110 Beverly Enterprises Inc./1/ 1,384 3,100 Maxygen Inc./1/ 409 3,084 Forrester Research Inc./1/ 221 3,050 Cable Design Technologies Corp./1/ 618 3,028 McDermott International Inc./1/ 846 3,003 Kenneth Cole Productions "A"/1/ 125 3,000 MedQuist Inc./1/ 176 2,990 Asyst Technologies Inc./1/ 498 2,988 TeleTech Holdings Inc./1/ 497 2,962 Navigant Consulting Co./1/ 557 2,924 ProBusiness Services Inc./1/ 321 2,921 Anaren Microwave Inc./1/ 317 2,913 Bally Total Fitness Holding Corp./1/ 427 2,904 Input/Output Inc./1/ 667 2,901 36 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- Pharmacopeia Inc./1/ 296 $ 2,892 GrafTech International Ltd./1/ 735 2,881 Interwoven Inc./1/ 1,455 2,850 Carpenter Technology Corp. 259 2,784 JDA Software Group Inc./1/ 316 2,765 Gene Logic Inc./1/ 364 2,759 Chesapeake Corp. 180 2,754 FuelCell Energy Inc./1/ 476 2,747 Kadant Inc./1/ 190 2,746 Keynote Systems Inc./1/ 352 2,732 Milacron Inc. 477 2,719 M-Systems Flash Disk Pioneers Ltd./1/ 404 2,707 Stamps.com Inc./1/ 628 2,700 Tesoro Petroleum Corp./1/ 827 2,696 Fleetwood Enterprises Inc./1/ 479 2,682 GBC Bancorp 131 2,659 Priceline.com Inc./1/ 1,199 2,650 Ryerson Tull Inc. 366 2,562 Computer Network Technology Corp./1/ 413 2,519 Cell Therapeutics Inc./1/ 406 2,509 Alexion Pharmaceuticals Inc./1/ 246 2,507 UnitedGlobalCom Inc. "A"/1/ 1,326 2,506 CTS Corp. 415 2,490 Stratex Networks Inc./1/ 1,076 2,475 RTI International Metals Inc./1/ 239 2,474 USG Corp./1/ 553 2,472 Interface Inc. "A" 667 2,470 Cleveland-Cliffs Inc. 121 2,444 Bio-Technology General Corp./1/ 770 2,441 Kulicke & Soffa Industries Inc./1/ 649 2,434 U.S. Industries Inc./1/ 1,057 2,431 New Focus Inc./1/ 726 2,425 Metris Companies Inc. 847 2,414 OM Group Inc. 371 2,408 BSB Bancorp Inc. 118 2,391 Micromuse Inc./1/ 1,027 2,362 Cubist Pharmaceuticals Inc./1/ 365 2,358 Manugistics Group Inc./1/ 797 2,311 Young Broadcasting Inc. "A"/1/ 231 2,310 F5 Networks Inc./1/ 239 2,244 Dynegy Inc. "A" 3,290 2,237 Pinnacle Entertainment Inc./1/ 298 2,220 ESS Technology Inc./1/ 407 2,218 Retek Inc./1/ 678 2,217 Packeteer Inc./1/ 417 2,210 Presstek Inc./1/ 437 2,154 Stein Mart Inc./1/ 367 2,143 NUI Corp. 172 2,140 Footstar Inc./1/ 293 2,127 Praecis Pharmaceuticals Inc./1/ 778 2,116 Ultratech Stepper Inc./1/ 239 2,103 CuraGen Corp./1/ 538 2,039 SonicWALL Inc./1/ 731 2,032 Silicon Graphics Inc./1/ 2,474 2,029 Pope & Talbot Inc. 172 2,026 Vicor Corp./1/ 295 1,962 Quanta Services Inc./1/ 608 1,933 Safeguard Scientifics Inc./1/ 1,567 1,927 Tollgrade Communications Inc./1/ 181 1,913 Zomax Inc./1/ 465 1,907 Audiovox Corp. "A"/1/ 239 1,905 REMEC Inc./1/ 590 1,900 McDATA Corp. "B"/1/ 283 1,882 Theragenics Corp./1/ 434 1,875 UAL Corp./1/ 723 1,793 C-COR.net Corp./1/ 429 1,779 Guilford Pharmaceuticals Inc./1/ 349 1,752 MRO Software Inc./1/ 239 1,735 SCS Transportation Inc./1/ 190 1,729 Casella Waste Systems Inc. "A"/1/ 319 1,710 Wabash National Corp./1/ 361 1,697 Alliance Semiconductor Corp./1/ 404 1,685 Multex.com Inc./1/ 485 1,673 Astec Industries Inc./1/ 180 1,651 Lexicon Genetics Inc./1/ 357 1,646 Viewpoint Corp./1/ 530 1,643 AAR Corp. 417 1,630 PC-Tel Inc./1/ 239 1,625 Three-Five Systems Inc./1/ 285 1,625 Schedules of Investments 37 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TOTAL MARKET INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- Children's Place Retail Stores Inc. (The)/1/ 184 $ 1,619 Triton PCS Holdings Inc. "A"/1/ 651 1,595 MatrixOne Inc./1/ 599 1,575 Plug Power Inc./1/ 250 1,570 Concurrent Computer Corp./1/ 823 1,531 Entrust Inc./1/ 676 1,528 Actuate Corp./1/ 837 1,523 RadiSys Corp./1/ 226 1,512 Ocwen Financial Corp./1/ 546 1,496 Finisar Corp./1/ 1,982 1,486 Harmonic Inc./1/ 829 1,484 Wireless Facilities Inc./1/ 329 1,481 Centillium Communications Inc./1/ 481 1,462 Siliconix Inc./1/ 64 1,427 Champion Enterprises Inc./1/ 610 1,415 Great Atlantic & Pacific Tea Co./1/ 245 1,394 Trenwick Group Ltd. 479 1,380 Trico Marine Services Inc./1/ 552 1,380 WatchGuard Technologies Inc./1/ 308 1,324 Arris Group Inc./1/ 758 1,319 Trans World Entertainment Corp./1/ 436 1,312 Transmeta Corp./1/ 1,433 1,304 MRV Communications Inc./1/ 1,131 1,278 BE Aerospace Inc./1/ 416 1,273 Geron Corp./1/ 308 1,232 Caliper Technologies Corp./1/ 298 1,210 General Cable Corp. 427 1,208 Oak Technology Inc./1/ 717 1,190 Liberate Technologies/1/ 890 1,175 Integrated Silicon Solution Inc./1/ 401 1,131 SuperGen Inc./1/ 416 1,127 MasTec Inc./1/ 434 1,124 Aether Systems Inc./1/ 488 1,113 Vans Inc./1/ 226 1,044 StorageNetworks Inc./1/ 1,040 978 Artesyn Technologies Inc./1/ 545 970 Avanex Corp./1/ 1,212 909 Aspen Technology Inc./1/ 436 868 Zygo Corp./1/ 188 832 EnPro Industries Inc./1/ 257 743 FSI International Inc./1/ 298 712 Sirius Satellite Radio Inc./1/ 731 664 Meridian Resource Corp. (The)/1/ 673 646 AXT Inc./1/ 292 330 TOTAL COMMON STOCKS (COST: $159,136,102) 123,300,252 SHORT TERM INSTRUMENTS - 2.44% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 2,613,748 2,613,748 BlackRock Temp Cash Money Market Fund 281,490 281,490 Dreyfus Money Market Fund 123,581 123,581 Goldman Sachs Financial Square Prime Obligation Fund 878 878 TOTAL SHORT TERM INSTRUMENTS (COST: $3,019,697) 3,019,697 TOTAL INVESTMENTS IN SECURITIES - 102.26% (COST $162,155,799) 126,319,949 OTHER ASSETS, LESS LIABILITIES - (2.26%) (2,791,656) ------------ NET ASSETS -- 100.00% $123,528,293 ============ /1/ Non-income earning securities. See Notes to Financial Statements. 38 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. ENERGY SECTOR INDEX FUND October 31, 2002 Security Shares Value ----------------------------------------------------------------- COMMON STOCKS - 99.93% Exxon Mobil Corp. 653,828 $22,007,850 ChevronTexaco Corp. 308,188 20,842,754 ConocoPhillips 92,710 4,496,435 Schlumberger Ltd. 111,378 4,467,372 Occidental Petroleum Corp. 121,817 3,475,439 Baker Hughes Inc. 84,839 2,464,573 Anadarko Petroleum Corp. 54,755 2,438,788 Burlington Resources Inc. 54,790 2,257,348 Unocal Corp. 72,821 2,012,772 Apache Corp. 33,797 1,827,066 Murphy Oil Corp. 20,181 1,691,773 Devon Energy Corp. 32,789 1,655,845 Marathon Oil Corp. 64,668 1,351,561 Transocean Inc. 60,357 1,326,647 Kerr-McGee Corp. 30,278 1,317,093 Halliburton Co. 76,732 1,241,524 EOG Resources Inc. 29,620 1,096,829 Amerada Hess Corp. 20,897 1,072,016 Nabors Industries Ltd./1/ 30,330 1,060,640 Kinder Morgan Inc. 25,915 948,748 BJ Services Co./1/ 29,643 899,072 Noble Corp./1/ 23,677 765,241 Weatherford International Ltd./1/ 17,208 689,008 GlobalSantaFe Corp. 28,785 687,962 Ocean Energy Inc. 34,821 648,715 Pioneer Natural Resources Co./1/ 21,707 539,853 Noble Energy Inc. 14,625 532,204 Smith International Inc./1/ 16,624 519,666 Valero Energy Corp. 14,648 515,756 ENSCO International Inc. 18,580 502,403 Sunoco Inc. 12,634 378,767 Newfield Exploration Co./1/ 10,668 373,273 XTO Energy Inc. 15,504 372,871 Cooper Cameron Corp./1/ 7,969 371,515 Diamond Offshore Drilling Inc. 17,189 359,250 Helmerich & Payne Inc. 12,091 342,296 National-Oilwell Inc./1/ 11,241 234,375 Williams Companies Inc. 113,216 212,846 Tidewater Inc. 7,480 210,712 Tom Brown Inc./1/ 8,725 208,528 Evergreen Resources Inc./1/ 4,249 174,761 Cabot Oil & Gas Corp. "A" 7,739 169,175 Stone Energy Corp./1/ 4,845 155,815 Grant Prideco Inc./1/ 15,761 152,251 Key Energy Services Inc./1/ 16,292 145,488 Massey Energy Co. 18,187 139,131 Varco International Inc./1/ 8,254 135,696 Hanover Compressor Co./1/ 10,761 112,883 Cimarex Energy Co./1/ 6,427 102,189 Forest Oil Corp./1/ 3,981 99,326 Vintage Petroleum Inc. 8,378 80,429 Chesapeake Energy Corp. 10,480 73,150 Lone Star Technologies Inc./1/ 4,846 63,240 SEACOR SMIT Inc./1/ 1,456 59,842 Veritas DGC Inc./1/ 4,425 38,940 Rowan Companies Inc. 1,237 25,222 Patterson-UTI Energy Inc./1/ 622 17,988 TOTAL COMMON STOCKS (COST: $111,483,964) 90,162,912 SHORT TERM INSTRUMENTS - 3.92% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 3,058,989 3,058,989 BlackRock Temp Cash Money Market Fund 334,701 334,701 Dreyfus Money Market Fund 146,942 146,942 Goldman Sachs Financial Square Prime Obligation Fund 1,043 1,043 TOTAL SHORT TERM INSTRUMENTS (COST: $3,541,675) 3,541,675 TOTAL INVESTMENTS IN SECURITIES - 103.85% (COST $115,025,639) 93,704,587 OTHER ASSETS, LESS LIABILITIES - (3.85%) (3,477,888) ----------- NET ASSETS -- 100.00% $90,226,699 =========== /1/ Non-income earning securities. See notes to financial statements. Schedules of Investments 39 Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. HEALTHCARE SECTOR INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- COMMON STOCKS - 99.92% Pfizer Inc. 1,724,630 $ 54,791,495 Johnson & Johnson 829,035 48,705,806 Merck & Co. Inc. 626,805 33,997,903 Abbott Laboratories 408,538 17,105,486 Pharmacia Corp. 359,512 15,459,016 Amgen Inc./1/ 328,299 15,285,602 Medtronic Inc. 338,516 15,165,517 Lilly (Eli) and Co. 267,493 14,845,862 Bristol-Myers Squibb Co. 539,755 13,283,371 Wyeth 369,246 12,369,741 Schering-Plough Corp. 408,629 8,724,229 UnitedHealth Group Inc. 84,545 7,689,368 HCA Inc. 129,052 5,612,471 Forest Laboratories Inc. "A"/1/ 50,073 4,906,653 Baxter International Inc. 168,014 4,203,710 Tenet Healthcare Corp./1/ 135,997 3,909,914 Boston Scientific Corp./1/ 81,161 3,054,088 WellPoint Health Networks Inc./1/ 40,578 3,051,871 Guidant Corp./1/ 85,220 2,519,955 Anthem Inc./1/ 39,266 2,473,758 Stryker Corp. 38,173 2,408,716 Zimmer Holdings Inc./1/ 54,438 2,243,935 Biomet Inc. 74,694 2,200,485 Becton, Dickinson & Co. 71,469 2,109,050 Genentech Inc./1/ 60,074 2,047,923 Allergan Inc. 35,996 1,959,982 IDEC Pharmaceuticals Corp./1/ 42,472 1,954,561 Gilead Sciences Inc./1/ 54,592 1,896,526 St. Jude Medical Inc./1/ 48,499 1,727,049 Aetna Inc. 41,921 1,689,416 Genzyme Corp. - General Division/1/ 59,171 1,647,912 MedImmune Inc./1/ 60,297 1,540,588 Biogen Inc./1/ 41,410 1,519,333 CIGNA Corp. 39,064 1,411,773 Quest Diagnostics Inc./1/ 20,535 1,310,749 Health Management Associates Inc. "A"/1/ 66,487 1,271,231 Chiron Corp./1/ 30,724 1,213,598 Applera Corp. - Applied Biosystems Group 59,173 1,197,070 Monsanto Co. 71,937 1,189,119 Caremark Rx Inc./1/ 65,252 1,154,960 Mylan Laboratories Inc. 34,798 1,095,093 Lincare Holdings Inc./1/ 29,891 1,018,386 Laboratory Corp. of America Holdings/1/ 41,180 992,438 King Pharmaceuticals Inc./1/ 62,727 962,859 Express Scripts Inc. "A"/1/ 17,437 947,701 Varian Medical Systems Inc./1/ 18,791 906,102 Patterson Dental Co./1/ 17,311 891,690 Oxford Health Plans Inc./1/ 24,420 868,375 Alcon Inc./1/ 20,902 857,400 Health Net Inc./1/ 35,017 819,398 Bard (C.R.) Inc. 14,615 817,417 Watson Pharmaceuticals Inc./1/ 29,707 816,645 Hillenbrand Industries Inc. 15,498 805,896 Cephalon Inc./1/ 15,370 772,650 DENTSPLY International Inc. 19,108 705,467 Triad Hospitals Inc./1/ 18,904 689,996 Universal Health Services Inc. "B"/1/ 14,031 680,223 First Health Group Corp./1/ 25,423 660,490 Henry Schein Inc./1/ 12,233 613,730 IVAX Corp./1/ 46,900 588,595 Omnicare Inc. 25,877 562,307 AdvancePCS/1/ 22,025 552,828 Humana Inc./1/ 44,798 545,640 Manor Care Inc./1/ 27,467 543,023 Millennium Pharmaceuticals Inc./1/ 72,771 541,416 Apogent Technologies Inc./1/ 29,706 540,055 Barr Laboratories Inc./1/ 8,840 520,057 Celgene Corp./1/ 21,922 485,572 Mid Atlantic Medical Services Inc./1/ 13,180 479,752 Healthsouth Corp./1/ 109,078 474,489 Beckman Coulter Inc. 17,019 473,979 Bausch & Lomb Inc. 14,917 463,919 Steris Corp./1/ 17,176 455,679 40 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. HEALTHCARE SECTOR INDEX FUND October 31, 2002 Security Shares Value ---------------------------------------------------------------------- Charles River Laboratories International Inc./(1)/ 12,269 $ 450,886 Renal Care Group Inc./(1)/ 13,646 431,896 DaVita Inc./(1)/ 17,870 428,344 Edwards Lifesciences Corp./(1)/ 16,440 422,344 Vertex Pharmaceuticals Inc./(1)/ 21,203 415,791 Accredo Health Inc./(1)/ 8,741 404,533 ICOS Corp./(1)/ 15,629 386,193 Medicis Pharmaceutical Corp. "A"/(1)/ 8,317 381,750 Techne Corp./(1)/ 11,524 380,292 Neurocrine Biosciences Inc./(1)/ 8,445 379,181 Invitrogen Corp./(1)/ 13,619 378,881 Coventry Health Care Inc./(1)/ 11,295 377,931 Covance Inc./(1)/ 16,761 373,435 Scios Inc./(1)/ 12,938 373,391 Pharmaceutical Product Development Inc./(1)/ 13,508 370,119 Apria Healthcare Group Inc./(1)/ 15,122 368,826 Cytyc Corp./(1)/ 34,038 356,037 Community Health Systems Inc./(1)/ 14,679 344,957 Affymetrix Inc./(1)/ 13,204 344,624 Quintiles Transnational Corp./(1)/ 31,524 338,883 IDEXX Laboratories Inc./(1)/ 9,330 321,885 LifePoint Hospitals Inc./(1)/ 10,217 320,303 SICOR Inc./(1)/ 21,438 319,212 Human Genome Sciences Inc./(1)/ 31,495 307,706 Andrx Group/(1)/ 19,419 300,024 PacifiCare Health Systems Inc. "A"/(1)/ 9,854 291,284 Trimeris Inc./(1)/ 5,492 290,527 Pediatrix Medical Group Inc./(1)/ 7,157 286,280 Taro Pharmaceutical Industries Ltd./(1)/ 7,968 276,888 Respironics Inc./(1)/ 8,425 269,095 ResMed Inc./(1)/ 7,720 260,704 Invacare Corp. 8,167 258,077 Mentor Corp. 6,106 231,417 Enzon Inc./(1)/ 11,864 230,162 NPS Pharmaceuticals Inc./(1)/ 8,401 218,258 Perrigo Co./(1)/ 17,219 216,959 Syncor International Corp./(1)/ 5,721 204,983 Sepracor Inc./(1)/ 23,344 203,093 Protein Design Labs Inc./(1)/ 24,425 202,728 ICN Pharmaceuticals Inc. 23,105 192,927 Delta & Pine Land Co. 9,935 190,454 IGEN International Inc./(1)/ 5,056 181,005 US Oncology Inc./(1)/ 22,223 178,006 OSI Pharmaceuticals Inc./(1)/ 10,053 174,118 CV Therapeutics Inc./(1)/ 6,900 165,600 Province Healthcare Co./(1)/ 12,674 165,396 Alkermes Inc./(1)/ 17,798 164,098 Applera Corp. - Celera Genomics Group/(1)/ 19,078 157,203 Sybron Dental Specialties Inc./(1)/ 10,518 151,985 Abgenix Inc./(1)/ 21,002 142,814 Owens & Minor Inc. 9,434 138,868 Haemonetics Corp./(1)/ 6,485 137,547 SangStat Medical Corp./(1)/ 7,296 136,143 Regeneron Pharmaceuticals Inc./(1)/ 8,300 125,579 ImClone Systems Inc./(1)/ 16,466 117,913 Biosite Inc./(1)/ 4,029 116,358 Sunrise Assisted Living Inc./(1)/ 5,578 116,022 Orthodontic Centers of America Inc./(1)/ 12,103 115,463 XOMA Ltd./(1)/ 19,420 112,053 Myriad Genetics Inc./(1)/ 6,198 111,936 VISX Inc./(1)/ 13,368 108,414 Ligand Pharmaceuticals Inc. "B"/(1)/ 16,274 107,083 Cell Genesys Inc./(1)/ 9,908 103,737 Transkaryotic Therapies Inc./(1)/ 8,610 100,220 Inhale Therapeutic Systems Inc./(1)/ 15,243 96,945 PolyMedica Corp./(1)/ 3,377 94,927 Albany Molecular Research Inc./(1)/ 6,020 92,949 Enzo Biochem Inc./(1)/ 6,372 92,776 Incyte Genomics Inc./(1)/ 17,447 86,188 Datascope Corp. 3,436 85,285 PAREXEL International Corp./(1)/ 6,947 83,440 Tularik Inc./(1)/ 11,185 81,315 Immunomedics Inc./(1)/ 11,582 80,842 Noven Pharmaceuticals Inc./(1)/ 6,231 79,819 Advanced Medical Optics Inc./(1)/ 8,141 78,968 SCHEDULES OF INVESTMENTS 41 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. HEALTHCARE SECTOR INDEX FUND October 31, 2002 Security Shares Value ---------------------------------------------------------------------- Cyberonics Inc./(1)/ 4,900 $ 78,400 Alpharma Inc. "A" 8,170 77,452 Medarex Inc./(1)/ 19,095 75,807 United Therapeutics Inc./(1)/ 4,824 72,119 Impath Inc./(1)/ 4,484 71,973 ArthroCare Corp./(1)/ 6,068 66,081 Beverly Enterprises Inc./(1)/ 28,982 64,920 Pharmacopeia Inc./(1)/ 6,621 64,687 Nabi Biopharmaceuticals/(1)/ 10,762 64,034 Molecular Devices Corp./(1)/ 4,297 57,838 Gene Logic Inc./(1)/ 7,417 56,221 Maxygen Inc./(1)/ 7,141 53,843 Cell Therapeutics Inc./(1)/ 8,709 53,822 Bio-Technology General Corp./(1)/ 16,164 51,240 Alexion Pharmaceuticals Inc./(1)/ 5,017 51,123 Cubist Pharmaceuticals Inc./(1)/ 7,853 50,730 CuraGen Corp./(1)/ 10,992 41,660 Guilford Pharmaceuticals Inc./(1)/ 8,087 40,597 Lexicon Genetics Inc./(1)/ 8,706 40,135 Praecis Pharmaceuticals Inc./(1)/ 14,094 38,336 Theragenics Corp./(1)/ 8,181 35,342 Geron Corp./(1)/ 6,407 25,628 SuperGen Inc./(1)/ 8,620 23,360 TOTAL COMMON STOCKS (COST: $418,044,057) 362,436,682 SHORT TERM INSTRUMENTS - 1.70% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 5,342,766 $ 5,342,766 BlackRock Temp Cash Money Market Fund 570,624 570,624 Dreyfus Money Market Fund 250,518 250,518 Goldman Sachs Financial Square Prime Obligation Fund 1,779 1,779 TOTAL SHORT TERM INSTRUMENTS (COST: $6,165,687) 6,165,687 TOTAL INVESTMENTS IN SECURITIES - 101.62% (COST $424,209,744) 368,602,369 OTHER ASSETS, LESS LIABILITIES - (1.62%) (5,879,248) ------------ NET ASSETS - 100.00% $362,723,121 ============ /(1)/ Non-income earning securities. See notes to financial statements. 42 2002 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. TECHNOLOGY SECTOR INDEX FUND October 31, 2002 Security Shares Value ------------------------------------------------------------------- COMMON STOCKS - 100.02% Microsoft Corp./(1)/ 540,208 $ 28,884,922 International Business Machines Corp. 189,820 14,984,391 Intel Corp. 746,703 12,917,962 Cisco Systems Inc./(1)/ 819,715 9,164,414 Dell Computer Corp./(1)/ 217,662 6,227,310 Hewlett-Packard Co. 308,456 4,873,605 Oracle Corp./(1)/ 460,385 4,691,323 Texas Instruments Inc. 194,255 3,080,884 QUALCOMM Inc./(1)/ 87,080 3,006,002 Applied Materials Inc./(1)/ 184,286 2,769,819 Motorola Inc. 257,604 2,362,229 EMC Corp./(1)/ 246,946 1,261,894 Maxim Integrated Products Inc./(1)/ 36,197 1,152,512 Intuit Inc./(1)/ 21,744 1,128,948 Analog Devices Inc./(1)/ 40,938 1,097,138 Sun Microsystems Inc./(1)/ 363,696 1,076,904 Linear Technology Corp. 35,532 982,104 Micron Technology Inc./(1)/ 61,100 977,600 Pitney Bowes Inc. 26,679 895,080 Lexmark International Group Inc. "A"/(1)/ 14,114 838,654 Electronic Data Systems Corp. 53,796 810,168 Computer Associates International Inc. 51,287 762,125 KLA-Tencor Corp./(1)/ 21,195 754,754 Xilinx Inc./(1)/ 37,848 718,734 Veritas Software Corp./(1)/ 45,995 701,424 SunGard Data Systems Inc./(1)/ 31,228 692,325 Yahoo! Inc./(1)/ 45,867 684,336 Affiliated Computer Services Inc. "A"/(1)/ 14,028 645,989 Apple Computer Inc./(1)/ 40,178 645,660 Symantec Corp./(1)/ 15,932 637,280 Adobe Systems Inc. 26,607 628,989 Computer Sciences Corp./(1)/ 18,120 585,095 Microchip Technology Inc./(1)/ 22,357 545,511 PeopleSoft Inc./(1)/ 29,809 539,543 Xerox Corp./(1)/ 80,362 533,604 Altera Corp./(1)/ 43,020 504,194 Novellus Systems Inc./(1)/ 15,913 502,851 Lucent Technologies Inc./(1)/ 384,443 472,865 Rockwell Collins 20,492 461,685 BMC Software Inc./(1)/ 27,333 435,688 QLogic Corp./(1)/ 10,316 359,100 Siebel Systems Inc./(1)/ 47,536 357,471 BEA Systems Inc./(1)/ 42,299 342,157 Network Appliance Inc./(1)/ 37,078 332,627 Synopsys Inc./(1)/ 8,531 322,898 Tellabs Inc./(1)/ 41,690 320,179 Unisys Corp./(1)/ 35,768 312,255 JDS Uniphase Corp./(1)/ 135,262 303,122 Cadence Design Systems Inc./(1)/ 29,769 301,560 Check Point Software Technologies Ltd./(1)/ 19,815 273,249 Broadcom Corp. "A"/(1)/ 22,492 269,454 National Semiconductor Corp./(1)/ 19,939 264,790 Network Associates Inc./(1)/ 16,441 261,247 Teradyne Inc./(1)/ 20,276 245,542 Intersil Corp. "A"/(1)/ 14,394 244,554 Mercury Interactive Corp./(1)/ 9,212 242,920 LSI Logic Corp./(1)/ 41,088 242,419 NCR Corp./(1)/ 10,840 241,082 Advanced Micro Devices Inc./(1)/ 38,077 233,793 Scientific-Atlanta Inc. 17,485 213,492 WebMD Corp./(1)/ 33,263 209,890 Juniper Networks Inc./(1)/ 35,517 206,887 Storage Technology Corp./(1)/ 11,621 205,459 Corning Inc./(1)/ 105,872 197,981 Level 3 Communications Inc./(1)/ 41,357 196,818 VeriSign Inc./(1)/ 23,822 191,767 Compuware Corp./(1)/ 39,487 191,551 Reynolds & Reynolds Co. (The) "A" 7,875 186,401 Zebra Technologies Corp. "A"/(1)/ 2,997 184,375 Harris Corp. 6,836 180,334 Brocade Communications Systems Inc./(1)/ 26,089 179,231 Lam Research Corp./(1)/ 14,140 178,023 CIENA Corp./(1)/ 47,595 175,150 3Com Corp./(1)/ 39,411 166,275 Emulex Corp./(1)/ 9,126 163,812 SCHEDULES OF INVESTMENTS 43 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TECHNOLOGY SECTOR INDEX FUND October 31, 2002 Security Shares Value ----------------------------------------------------------------- Imation Corp./1/ 3,929 $ 160,775 NVIDIA Corp./1/ 13,311 158,401 RF Micro Devices Inc./1/ 18,639 158,226 Overture Services Inc./1/ 5,723 157,554 Marvell Technology Group Ltd./1/ 9,407 152,487 Advanced Fibre Communications Inc./1/ 9,367 151,549 Autodesk Inc. 12,839 150,216 Comverse Technology Inc./1/ 20,802 149,774 SanDisk Corp./1/ 7,575 149,758 Citrix Systems Inc./1/ 19,683 148,607 UTStarcom Inc./1/ 8,564 146,273 Rational Software Corp./1/ 21,735 143,886 Sybase Inc./1/ 11,047 141,512 Cree Inc./1/ 8,160 140,760 ADC Telecommunications Inc./1/ 88,833 140,356 Amdocs Ltd./1/ 20,088 140,214 Western Digital Corp./1/ 21,237 131,457 Applied Micro Circuits Corp./1/ 33,449 130,451 CACI International Inc. "A"/1/ 3,158 129,194 Edwards (J.D.) & Co./1/ 10,781 127,863 BearingPoint Inc./1/ 15,934 124,285 International Rectifier Corp./1/ 7,082 122,306 IKON Office Solutions Inc. 16,751 118,597 Fairchild Semiconductor International Corp. "A"/1/ 9,850 117,215 Integrated Device Technology Inc./1/ 11,701 115,571 Semtech Corp./1/ 8,137 114,976 Cerner Corp./1/ 3,138 111,744 Polycom Inc./1/ 11,206 110,379 Electronics For Imaging Inc./1/ 5,989 109,120 Skyworks Solutions Inc./1/ 15,345 108,949 Maxtor Corp./1/ 26,582 99,948 Avocent Corp./1/ 4,982 99,640 Hyperion Solutions Corp./1/ 3,664 98,928 Novell Inc./1/ 40,427 98,238 Borland Software Corp./1/ 7,148 95,998 Black Box Corp./1/ 2,246 94,961 Agere Systems Inc. "B"/1/ 101,588 94,477 Andrew Corp./1/ 10,860 93,396 Amphenol Corp. "A"/1/ 2,383 91,745 Varian Semiconductor Equipment Associates Inc./1/ 3,757 89,492 PMC-Sierra Inc./1/ 18,355 89,389 Intergraph Corp./1/ 4,755 87,492 Internet Security Systems Inc./1/ 4,715 87,039 EarthLink Inc./1/ 14,045 85,815 NetIQ Corp./1/ 6,052 85,394 Henry (Jack) & Associates Inc. 8,273 85,038 Perot Systems Corp. "A"/1/ 7,936 84,439 Atmel Corp./1/ 48,391 80,813 Avaya Inc./1/ 40,368 80,736 Crown Castle International Corp./1/ 22,320 78,120 InterDigital Communications Corp./1/ 5,982 77,766 Foundry Networks Inc./1/ 10,961 77,494 Cypress Semiconductor Corp./1/ 13,730 77,163 Gateway Inc./1/ 24,916 74,748 Mercury Computer Systems Inc./1/ 2,477 74,684 Lattice Semiconductor Corp./1/ 10,907 73,840 Macromedia Inc./1/ 6,554 73,470 Agere Systems Inc. "A"/1/ 81,419 70,835 Adaptec Inc./1/ 11,804 70,352 Plantronics Inc./1/ 4,651 69,672 Mentor Graphics Corp./1/ 7,247 68,796 TriQuint Semiconductor Inc./1/ 13,564 68,498 Red Hat Inc./1/ 15,125 67,911 Ascential Software Corp./1/ 28,053 67,888 Parametric Technology Corp./1/ 29,146 67,327 Documentum Inc./1/ 4,422 64,605 Ariba Inc./1/ 27,120 64,003 Micrel Inc./1/ 7,613 62,883 ADTRAN Inc./1/ 2,381 60,454 Rambus Inc./1/ 10,762 60,052 McDATA Corp. "A"/1/ 9,112 59,957 ATMI Inc./1/ 3,233 59,455 Axcelis Technologies Inc./1/ 10,898 58,631 Inter-Tel Inc. 2,132 57,628 Silicon Laboratories Inc./1/ 2,645 56,312 Brooks-PRI Automation Inc./1/ 3,672 56,145 Exar Corp./1/ 4,386 55,264 American Management Systems Inc./1/ 4,595 55,232 Hutchinson Technology Inc./1/ 2,656 55,218 44 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TECHNOLOGY SECTOR INDEX FUND October 31, 2002 Security Shares Value ----------------------------------------------------------------- Keane Inc./1/ 6,674 $ 54,994 Power Integrations Inc./1/ 3,083 54,384 Extreme Networks Inc./1/ 12,838 54,048 Credence Systems Corp./1/ 6,446 53,695 Sycamore Networks Inc./1/ 20,909 52,273 Quantum Corp./1/ 17,497 51,791 Echelon Corp./1/ 3,917 49,550 Advanced Digital Information Corp./1/ 6,945 49,171 Advent Software Inc./1/ 3,410 48,115 Legato Systems Inc./1/ 12,670 46,119 CommScope Inc./1/ 5,846 45,891 Tekelec/1/ 5,290 45,811 TIBCO Software Inc./1/ 9,126 45,630 Zoran Corp./1/ 2,986 44,759 Actel Corp./1/ 2,725 44,118 Informatica Corp./1/ 8,375 43,550 Iomega Corp./1/ 5,059 43,507 DSP Group Inc./1/ 3,041 43,489 FileNET Corp./1/ 3,983 43,216 Quest Software Inc./1/ 3,843 41,966 RealNetworks Inc./1/ 11,939 41,906 Trimble Navigation Ltd./1/ 3,125 40,934 MICROS Systems Inc./1/ 1,964 40,773 Photronics Inc./1/ 3,313 40,220 PanAmSat Corp./1/ 2,062 40,209 Silicon Storage Technology Inc./1/ 8,988 40,086 Vitesse Semiconductor Corp./1/ 22,196 39,065 Imagistics International Inc./1/ 2,097 39,025 webMethods Inc./1/ 5,342 38,623 SERENA Software Inc./1/ 2,324 37,091 Agile Software Corp./1/ 5,324 36,256 Conexant Systems Inc./1/ 29,380 36,137 GlobeSpanVirata Inc./1/ 12,558 34,911 Cohu Inc. 2,152 33,959 CIBER Inc./1/ 6,284 33,808 Verity Inc./1/ 3,714 33,500 Amkor Technology Inc./1/ 9,448 33,257 Powerwave Technologies Inc./1/ 7,214 33,257 Systems & Computer Technology Corp./1/ 3,495 32,923 DuPont Photomasks Inc./1/ 1,559 32,568 LTX Corp./1/ 5,251 32,556 E.piphany Inc./1/ 8,076 32,304 S1 Corp./1/ 7,240 32,066 Silicon Image Inc./1/ 6,810 30,509 Cirrus Logic Inc./1/ 9,197 30,350 Vignette Corp./1/ 27,831 29,501 IDX Systems Corp./1/ 1,883 29,299 American Tower Corp. "A"/1/ 20,618 29,071 Kopin Corp./1/ 7,724 28,656 RSA Security Inc./1/ 6,261 27,987 Wind River Systems Inc./1/ 7,718 27,939 Digital River Inc./1/ 2,557 26,695 InFocus Corp./1/ 4,395 25,755 CNET Networks Inc./1/ 12,768 25,281 Dendrite International Inc./1/ 4,079 25,167 Asyst Technologies Inc./1/ 4,186 25,116 JDA Software Group Inc./1/ 2,789 24,404 Cable Design Technologies Corp./1/ 4,953 24,270 New Focus Inc./1/ 7,081 23,651 Interwoven Inc./1/ 11,767 23,052 Keynote Systems Inc./1/ 2,703 20,975 ESS Technology Inc./1/ 3,841 20,933 Kulicke & Soffa Industries Inc./1/ 5,493 20,599 M-Systems Flash Disk Pioneers Ltd./1/ 3,015 20,200 F5 Networks Inc./1/ 2,103 19,747 Stratex Networks Inc./1/ 8,436 19,403 Manugistics Group Inc./1/ 6,578 19,076 Computer Network Technology Corp./1/ 3,123 19,050 Retek Inc./1/ 5,820 19,031 Ultratech Stepper Inc./1/ 2,150 18,920 Micromuse Inc./1/ 8,221 18,908 Silicon Graphics Inc./1/ 20,570 16,867 C-COR.net Corp./1/ 4,020 16,675 SonicWALL Inc./1/ 5,993 16,661 Packeteer Inc./1/ 3,095 16,404 MRO Software Inc./1/ 2,152 15,624 REMEC Inc./1/ 4,733 15,240 PC-Tel Inc./1/ 2,210 15,028 Siliconix Inc./1/ 667 14,874 McDATA Corp. "B"/1/ 2,230 14,829 Schedules of Investments 45 Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. TECHNOLOGY SECTOR INDEX FUND October 31, 2002 Security Shares Value --------------------------------------------------------------------- MatrixOne Inc./1/ 5,115 $ 13,452 WatchGuard Technologies Inc./1/ 3,075 13,219 Concurrent Computer Corp./1/ 6,781 12,613 Finisar Corp./1/ 16,295 12,221 Entrust Inc./1/ 5,382 12,163 Harmonic Inc./1/ 6,569 11,759 MRV Communications Inc./1/ 10,360 11,707 RadiSys Corp./1/ 1,732 11,587 Viewpoint Corp./1/ 3,732 11,569 Alliance Semiconductor Corp./1/ 2,764 11,526 Actuate Corp./1/ 6,233 11,344 Caliper Technologies Corp./1/ 2,731 11,088 Centillium Communications Inc./1/ 3,479 10,576 Liberate Technologies/1/ 7,932 10,470 Transmeta Corp./1/ 11,455 10,424 Oak Technology Inc./1/ 6,159 10,224 General Cable Corp. 3,595 10,174 Avanex Corp./1/ 13,029 9,772 StorageNetworks Inc./1/ 10,057 9,454 Integrated Silicon Solution Inc./1/ 3,036 8,562 Aspen Technology Inc./1/ 3,868 7,697 FSI International Inc./1/ 2,800 6,692 Arris Group Inc./1/ 3,723 6,478 AXT Inc./1/ 2,333 2,636 TOTAL COMMON STOCKS (Cost: $251,609,231) 133,758,881 SHORT TERM INSTRUMENTS - 2.14% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 2,471,317 2,471,317 BlackRock Temp Cash Money Market Fund 273,662 273,662 Dreyfus Money Market Fund 120,144 120,144 Goldman Sachs Financial Square Prime Obligation Fund 853 853 TOTAL SHORT TERM INSTRUMENTS (Cost: $2,865,976) 2,865,976 TOTAL INVESTMENTS IN SECURITIES - 102.16% (Cost $254,475,207) 136,624,857 Other Assets, Less Liabilities - (2.16%) (2,890,570) ------------ NET ASSETS - 100.00% $133,734,287 ============ /1/ Non-income earning securities. See notes to financial statements. 46 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. TELECOMMUNICATIONS SECTOR INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- COMMON STOCKS - 99.48% Verizon Communications Inc. 451,183 $17,036,670 SBC Communications Inc. 513,665 13,180,644 AT&T Wireless Services Inc./1/ 523,433 3,595,985 AT&T Corp. 270,241 3,523,943 Citizens Communications Co./1/ 418,514 3,482,037 Alltel Corp. 66,337 3,297,612 CenturyTel Inc. 115,017 3,258,432 BellSouth Corp. 123,914 3,240,351 Sprint Corp. (FON Group) 229,701 2,852,886 Telephone & Data Systems Inc. 54,536 2,775,882 BCE Inc. 155,399 2,696,173 Nextel Communications Inc. "A"/1/ 213,397 2,407,118 Vodafone Group PLC ADR 126,820 2,018,974 Broadwing Inc./1/ 545,327 1,243,346 Qwest Communications International Inc./1/ 321,917 1,091,299 United States Cellular Corp./1/ 38,174 1,053,602 Sprint Corp. (PCS Group)/1/ 131,563 457,839 SureWest Communications 8,986 273,174 Nextel Partners Inc. "A"/1/ 38,087 270,875 IDT Corp. "B"/1/ 10,519 165,148 Metro One Telecommunications Inc./1/ 32,107 144,128 IDT Corp.(1) 6,879 118,319 Western Wireless Corp. "A"/1/ 19,711 68,003 Triton PCS Holdings Inc. "A"/1/ 7,511 18,402 Aether Systems Inc./1/ 6,594 15,034 Wireless Facilities Inc./1/ 2,869 12,911 TOTAL COMMON STOCKS (Cost: $85,084,551) 68,298,787 SHORT TERM INSTRUMENTS - 10.12% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 5,997,236 5,997,236 BlackRock Temp Cash Money Market Fund 661,721 661,721 Dreyfus Money Market Fund 290,511 290,511 Goldman Sachs Financial Square Prime Obligation Fund 2,063 2,063 TOTAL SHORT TERM INSTRUMENTS (Cost: $6,951,531) 6,951,531 TOTAL INVESTMENTS IN SECURITIES - 109.60% (Cost $92,036,082) 75,250,318 Other Assets, Less Liabilities - (9.60%) (6,590,931) ----------- NET ASSETS - 100.00% $68,659,387 =========== /1/ Non-income earning securities. See notes to financial statements. Schedules of Investments 47 Schedule of Investments (Unaudited) iSHARES DOW JONES U.S. UTILITIES SECTOR INDEX FUND October 31, 2002 Security Shares Value ---------------------------------------------------------------------- COMMON STOCKS - 99.71% Southern Co. 568,579 $ 16,886,796 Duke Energy Corp. 668,504 13,697,647 Exelon Corp. 259,063 13,056,775 Dominion Resources Inc. 223,158 10,711,584 FPL Group Inc. 146,125 8,618,453 Entergy Corp. 179,761 7,925,662 FirstEnergy Corp. 238,804 7,749,190 Consolidated Edison Inc. 170,097 7,241,029 Progress Energy Inc. 158,171 6,598,894 American Electric Power Co. Inc. 247,095 6,335,516 DTE Energy Co. 134,342 6,057,481 Public Service Enterprise Group Inc. 166,868 4,780,768 Ameren Corp. 116,320 4,699,328 Cinergy Corp. 134,050 4,170,295 KeySpan Corp. 111,624 4,077,625 PPL Corp. 116,642 4,036,980 Sempra Energy 166,238 3,680,509 El Paso Corp. 469,285 3,636,959 PG&E Corp./1/ 310,611 3,370,129 Constellation Energy Group Inc. 131,399 3,361,186 Xcel Energy Inc. 314,466 3,270,446 TXU Corp. 223,385 3,205,575 American Water Works Inc. 66,179 2,963,496 NiSource Inc. 165,602 2,735,745 Pepco Holdings Inc. 130,022 2,691,455 Edison International/1/ 261,436 2,627,432 Energy East Corp. 115,302 2,455,933 SCANA Corp. 84,062 2,452,929 Wisconsin Energy Corp. 93,462 2,147,757 TECO Energy Inc. 136,398 2,018,690 Pinnacle West Capital Corp. 68,002 1,938,057 NSTAR 42,578 1,786,147 Equitable Resources Inc. 49,744 1,770,886 Questar Corp. 65,334 1,685,617 Northeast Utilities 103,956 1,564,538 CenterPoint Energy Inc. 214,948 1,521,832 Puget Energy Inc. 69,554 1,480,805 MDU Resources Group Inc. 56,845 1,402,366 DPL Inc. 101,497 1,400,659 Hawaiian Electric Industries Inc. 28,997 1,388,086 Vectren Corp. 54,311 1,337,680 National Fuel Gas Co. 63,339 1,277,548 Alliant Energy Corp. 72,442 1,160,521 Great Plains Energy Inc. 49,599 1,118,457 NICOR Inc. 35,959 1,116,167 Peoples Energy Corp. 28,415 1,032,885 OGE Energy Corp. 62,459 996,221 WPS Resources Corp. 25,183 974,330 Philadelphia Suburban Corp. 45,067 968,490 AGL Resources Inc. 40,920 961,620 DQE Inc. 59,428 947,282 Piedmont Natural Gas Co. 25,945 927,793 CMS Energy Corp. 115,480 904,208 WGL Holdings Inc. 38,935 900,567 IDACORP Inc. 30,001 780,326 ONEOK Inc. 38,588 730,857 Energen Corp. 24,862 693,650 Mirant Corp./1/ 319,981 684,759 AES Corp. (The)/1/ 371,663 657,844 PNM Resources Inc. 29,091 641,457 Northwest Natural Gas Co. 20,172 604,757 Calpine Corp./1/ 300,055 600,110 Allegheny Energy Inc. 100,080 570,456 Black Hills Corp. 21,142 557,092 Aquila Inc. 144,250 533,725 Cleco Corp. 37,739 526,459 Sierra Pacific Resources 81,955 490,091 Westar Energy Inc. 45,067 488,977 Southern Union Co./1/ 36,610 451,767 UniSource Energy Corp. 26,817 444,090 El Paso Electric Co./1/ 40,421 441,802 Reliant Resources Inc./1/ 216,327 406,695 Avista Corp. 37,873 390,092 NUI Corp. 12,450 154,878 Dynegy Inc. "A" 216,918 147,504 TOTAL COMMON STOCKS (Cost: $256,264,442) 208,822,414 48 2002 iShares Semi-Annual Report to Shareholders Schedule of Investments (Unaudited) (Continued) iSHARES DOW JONES U.S. UTILITIES SECTOR INDEX FUND October 31, 2002 Security Shares Value -------------------------------------------------------------------- SHORT TERM INSTRUMENTS - 4.28% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 7,727,854 $ 7,727,854 BlackRock Temp Cash Money Market Fund 851,733 851,733 Dreyfus Money Market Fund 373,932 373,932 Goldman Sachs Financial Square Prime Obligation Fund 2,655 2,655 TOTAL SHORT TERM INSTRUMENTS (Cost: $8,956,174) 8,956,174 TOTAL INVESTMENTS IN SECURITIES - 103.99% (Cost $265,220,616) $217,778,588 Other Assets, Less Liabilities - (3.99%) (8,350,337) ------------ NET ASSETS - 100.00% $209,428,251 ============ /1/ Non-income earning securities. See Notes to Financial Statements. Schedules of Investments 49 Statements of Assets and Liabilities (Unaudited) iSHARES TRUST October 31, 2002
iShares Dow Jones U.S. --------------------------------------------------------------------------------------- Total Energy Healthcare Technology Telecommunications Utilities Market Sector Sector Sector Sector Sector Index Fund Index Fund Index Fund Index Fund Index Fund Index Fund ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments at cost $162,155,799 $115,025,639 $424,209,744 $254,475,207 $ 92,036,082 $ 265,220,616 ------------ ------------ ----------- ------------ ------------------ -------------- Investments in securities, at value (including securities on loan/1/ (Note 1) $126,319,949 $ 93,704,587 $368,602,369 $136,624,857 $ 75,250,318 $ 217,778,588 Receivables: Investment securities sold - - - 1,102,660 2,155,670 - Dividends and interest 160,357 69,693 340,285 6,750 297,909 618,603 ------------ ------------ ------------ ------------ ------------------ -------------- Total Assets 126,480,306 93,774,280 368,942,654 137,734,267 77,703,897 218,397,191 ------------ ------------ ------------ ------------ ------------------ -------------- LIABILITIES Payables: Investment securities purchased - - - 1,057,021 2,150,489 - Collateral for securities on loan (Note 5) 2,911,898 3,462,339 5,902,870 2,830,914 6,845,225 8,810,824 Advisory fees (Note 2) 40,115 85,242 316,663 112,045 48,796 158,116 ------------ ------------ ------------ ------------ ------------------ -------------- Total Liabilities 2,952,013 3,547,581 6,219,533 3,999,980 9,044,510 8,968,940 ------------ ------------ ------------ ------------ ------------------ -------------- NET ASSETS $123,528,293 $ 90,226,699 $362,723,121 $133,734,287 $ 68,659,387 $ 209,428,251 ============ ============ ============ ============ ================== ============== Net assets consist of: Paid-in capital $165,304,800 $118,190,406 $422,052,098 $277,474,430 $ 115,349,659 $ 265,634,004 Undistributed net investment income (accumulated net investment loss) 246,292 11,053 104,779 (183,882) 261,084 692,408 Accumulated net realized loss (6,186,949) (6,653,708) (3,826,381) (25,705,911) (30,165,592) (9,456,133) Net unrealized depreciation (35,835,850) (21,321,052) (55,607,375) (117,850,350) (16,785,764) (47,442,028) ------------ ------------ ------------ ------------ ------------------ -------------- NET ASSETS $123,528,293 $ 90,226,699 $362,723,121 $133,734,287 $ 68,659,387 $ 209,428,251 ============ ============ ============ ============ ================== ============== iShares outstanding 3,000,000 2,350,000 7,400,000 4,150,000 3,750,000 4,550,000 ============ ============ ============ ============ ================== ============== Net asset value per iShare $ 41.18 $ 38.39 $ 49.02 $ 32.23 $ 18.31 $ 46.03 ============ ============ ============ ============ ================== ==============
/1/ Securities on loan with market values of $2,735,102, $3,343,045, $5,674,597, $2,400,222, $6,261,835 and $8,046,023, respectively. See Note 5. See notes to financial statements. 50 2002 iShares Semi-Annual Report to Shareholders Statements of Operations (Unaudited) iSHARES TRUST For the six months ended October 31, 2002
iShares Dow Jones U.S. ----------------------------------------------------------------------------------------- Total Energy Healthcare Technology Telecommunications Utilities Market Sector Sector Sector Sector Sector Index Fund Index Fund Index Fund Index Fund Index Fund Index Fund -------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME Dividends/1/ $ 994,794 $ 1,020,518 $ 1,742,842 $ 180,160 $ 651,053 $ 3,857,982 Interest 1,003 867 2,197 730 672 2,023 Securities lending income 2,935 1,331 7,311 5,339 3,033 6,003 ------------ ------------ ------------ ------------ ------------------ -------------- Total investment income 998,732 1,022,716 1,752,350 186,229 654,758 3,866,008 ------------ ------------ ------------ ------------ ------------------ -------------- EXPENSES (NOTE 2) Advisory fees 116,682 262,801 788,980 370,111 145,402 464,069 ------------ ------------ ------------ ------------ ------------------ -------------- Total expenses 116,682 262,801 788,980 370,111 145,402 464,069 ------------ ------------ ------------ ------------ ------------------ -------------- Net investment income (loss) 882,050 759,915 963,370 (183,882) 509,356 3,401,939 ------------ ------------ ------------ ------------ ------------------ -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments (2,147,204) (3,696,710) (2,686,453) (9,474,893) (12,555,491) (4,094,827) In-kind redemptions - (303,164) 629,662 (615,327) (621,811) 876,541 ------------ ------------ ------------- ------------ ------------------ -------------- Net realized loss (2,147,204) (3,999,874) (2,056,791) (10,090,220) (13,177,302) (3,218,286) ------------ ------------ ------------ ------------ ------------------ -------------- Net change in unrealized appreciation (depreciation) on investments (20,464,759) (17,016,615) (32,300,834) (27,610,967) 5,461,968 (46,169,678) ------------ ------------ ------------ ------------ ------------------ -------------- Net realized and unrealized loss (22,611,963) (21,016,489) (34,357,625) (37,701,187) (7,715,334) (49,387,964) ------------ ------------ ------------ ------------ ------------------ -------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(21,729,913) $(20,256,574) $(33,394,255) $(37,885,069) $ (7,205,978) $ (45,986,025) ============ ============ ============ ============ ================== ==============
/1/ Net of foreign withholding tax of $74, $--, $--, $--, $4,276 and $--, respectively. See notes to financial statements. Financial Statements 51 Statements of Changes in Net Assets iSHARES TRUST
iShares Dow Jones U.S. iShares Dow Jones U.S. iShares Dow Jones U.S. Total Market Energy Sector Healthcare Sector Index Fund Index Fund Index Fund -------------------------------- -------------------------------- -------------------------------- For the six For the six For the six months ended For the months ended For the months ended For the October 31, 2002 year ended October 31, 2002 year ended October 31, 2002 year ended (Unaudited) April 30, 2002 (Unaudited) April 30, 2002 (Unaudited) April 30, 2002 ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income $ 882,050 $ 1,008,136 $ 759,915 $ 929,420 $ 963,370 $ 820,139 Net realized loss (2,147,204) (3,591,113) (3,999,874) (2,334,242) (2,056,791) (729,521) Net change in unrealized appreciation (depreciation) (20,464,759) (8,864,130) (17,016,615) (7,643,808) (32,300,834) (20,575,403) ------------ ------------ ----------- ------------ ------------ ------------ Net decrease in net assets resulting from operations (21,729,913) (11,447,107) (20,256,574) (9,048,630) (33,394,255) (20,484,785) ------------ ------------ ----------- ------------ ------------ ------------ DISTRIBUTIONS TO iSHAREHOLDERS: From net investment income (771,741) (935,453) (748,862) (943,167) (858,591) (847,090) ------------ ------------ ----------- ------------ ------------ ------------ Total distributions to iShareholders (771,741) (935,453) (748,862) (943,167) (858,591) (847,090) ------------ ------------ ----------- ------------ ------------ ------------ iSHARES TRANSACTIONS: iShares sold 24,890,024 66,897,889 28,243,361 96,976,914 163,208,385 155,320,839 iShares redeemed - - (21,808,012) (36,344,362) (2,464,990) (6,025,821) ------------ ------------ ----------- ------------ ------------ ------------ Net increase in net assets from iShares transactions 24,890,024 66,897,889 6,435,349 60,632,552 160,743,395 149,295,018 ------------ ------------ ----------- ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS 2,388,370 54,515,329 (14,570,087) 50,640,755 126,490,549 127,963,143 NET ASSETS: Beginning of period 121,139,923 66,624,594 104,796,786 54,156,031 236,232,572 108,269,429 ------------ ------------ ----------- ------------ ------------ ------------ End of period $123,528,293 $121,139,923 $90,226,699 $104,796,786 $362,723,121 $236,232,572 ============ ============ =========== ============ ============ ============ Undistributed net investment income included in net assets at end of period $ 246,292 $ 135,983 $ 11,053 $ - $ 104,779 $ - =========== =========== =========== =========== =========== =========== iSHARES ISSUED AND REDEEMED: iShares sold 600,000 1,250,000 700,000 1,950,000 3,300,000 2,500,000 iShares redeemed - - (500,000) (750,000) (50,000) (100,000) ----------- ----------- ----------- ----------- ----------- ----------- Net increase in iShares outstanding 600,000 1,250,000 200,000 1,200,000 3,250,000 2,400,000 =========== =========== =========== =========== =========== ===========
See notes to financial statements. 52 2002 iShares Semi-Annual Report to Shareholders Statements of Changes in Net Assets (Continued) iSHARES TRUST
iShares Dow Jones U.S. iShares Dow Jones U.S. iShares Dow Jones U.S. Technology Sector Telecommunications Utilities Sector Index Fund Sector Index Fund Index Fund -------------------------------- -------------------------------- -------------------------------- For the six For the six For the six months ended For the months ended For the months ended For the October 31, 2002 year ended October 31, 2002 year ended October 31, 2002 year ended (Unaudited) April 30, 2002 (Unaudited) April 30, 2002 (Unaudited) April 30, 2002 ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income (loss) $ (183,882) $ (509,559) $ 509,356 $ 556,912 $ 3,401,939 $ 2,088,161 Net realized loss (10,090,220) (11,047,388) (13,177,302) (13,794,239) (3,218,286) (5,592,374) Net change in unrealized appreciation (depreciation) (27,610,967) (35,941,517) 5,461,968 (15,468,776) (46,169,678) (1,957,867) ------------ ------------ ---------------- ------------- ------------- ------------- Net decrease in net assets resulting from operations (37,885,069) (47,498,464) (7,205,978) (28,706,103) (45,986,025) (5,462,080) ------------ ------------ ---------------- ------------- ------------- ------------- Undistributed net investment income included in the price of capital shares issued or redeemed - - - - 1,733,000 39,000 ------------ ------------ ---------------- ------------- ------------- ------------- DISTRIBUTIONS TO iSHAREHOLDERS: From net investment income - - (436,663) (478,411) (3,099,222) (1,742,945) ------------ ------------ ---------------- ------------- ------------- ------------- Total distributions to iShareholders - - (436,663) (478,411) (3,099,222) (1,742,945) ------------ ------------ ---------------- ------------- ------------- ------------- iSHARES TRANSACTIONS: iShares sold 43,251,346 83,384,237 58,828,047 36,062,400 153,590,083 189,213,377 iShares redeemed (12,704,866) (5,803,186) (33,989,149) (11,017,662) (77,627,451) (44,205,167) ------------ ------------ ---------------- ------------- ------------- ------------- Net increase in net assets from iShares transactions 30,546,480 77,581,051 24,838,898 25,044,738 75,962,632 145,008,210 ------------ ------------ ---------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS (7,338,589) 30,082,587 17,196,257 (4,139,776) 28,610,385 137,842,185 NET ASSETS: Beginning of period 141,072,876 110,990,289 51,463,130 55,602,906 180,817,866 42,975,681 ------------ ------------ ---------------- ------------- ------------- ------------- End of period $133,734,287 $141,072,876 $ 68,659,387 $ 51,463,130 $ 209,428,251 $ 180,817,866 ============ ============ ================ ============= ============= ============= Undistributed net investment income (accumulated net investment loss) included in net assets at end of period $ (183,882) $ - $ 261,084 $ 188,391 $ 692,408 $ 389,691 =========== =========== ================ ============= ============= ============= iSHARES ISSUED AND REDEEMED: iShares sold 1,300,000 1,600,000 3,100,000 1,200,000 3,200,000 2,950,000 iShares redeemed (400,000) (100,000) (1,650,000) (350,000) (1,400,000) (700,000) ----------- ----------- ---------------- ------------- ------------- ------------- Net increase in iShares outstanding 900,000 1,500,000 1,450,000 850,000 1,800,000 2,250,000 =========== =========== ================ ============= ============= =============
See notes to financial statements. Financial Statements 53 Financial Highlights iSHARES TRUST (For a share outstanding throughout each period)
iShares Dow Jones iShares Dow Jones U.S. Total Market U.S. Energy Sector Index Fund Index Fund -------------------------------------------------- ------------------------------------------------ Six months Period from Six months Period from ended Jun. 12, 2000/1/ ended Jun. 12, 2000/1/ Oct. 31, 2002 Year ended to Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 (Unaudited) Apr. 30, 2002 Apr. 30, 2001 ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 50.47 $ 57.93 $ 67.15 $ 48.74 $ 57.01 $ 50.79 ------------- ------------- ------------- ----------- ----------- ------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.32 0.57 0.42 0.35 0.63 0.40 Net realized and unrealized gain (loss) (9.32) (7.46) (9.27) (10.35) (8.26) 6.24 ------------- ------------- ------------- ----------- ----------- ------------- Total from investment operations (9.00) (6.89) (8.85) (10.00) (7.63) 6.64 ------------- ------------- ------------- ----------- ----------- ------------- LESS DISTRIBUTIONS FROM: Net investment income (0.29) (0.57) (0.36) (0.35) (0.64) (0.42) Net realized gain - - (0.01) - - - ------------- ------------- ------------- ----------- ----------- ------------- Total distributions (0.29) (0.57) (0.37) (0.35) (0.64) (0.42) ------------- ------------- ------------- ----------- ----------- ------------- NET ASSET VALUE, END OF PERIOD $ 41.18 $ 50.47 $ 57.93 $ 38.39 $ 48.74 $ 57.01 ============= ============= ============= =========== =========== ============= TOTAL RETURN (17.88)%/2/ (11.93)% (13.20)%/2/ (20.59)%/2/ (13.34)% 13.13%/2/ ============= ============= ============= =========== =========== ============= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 123,528 $ 121,140 $ 66,625 $ 90,227 $ 104,797 $ 54,156 Ratio of expenses to average net assets/3/ 0.20% 0.20% 0.20% 0.60% 0.60% 0.60% Ratio of net investment income to average net assets/3/ 1.51% 1.15% 0.98% 1.73% 1.32% 0.94% Portfolio turnover rate/4/ 2% 5% 5% 9% 18% 20%
/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. See notes to financial statements. 54 2002 iShares Semi-Annual Report to Shareholders Financial Highlights (Continued) iSHARES TRUST (For a share outstanding throughout each period)
iShares Dow Jones iShares Dow Jones U.S. Healthcare Sector U.S. Technology Sector Index Fund Index Fund ---------------------------------------------- --------------------------------------------------- Six months Period from Six months Period from ended Jun. 12, 2000/1/ ended May 15, 2000/1/ Oct. 31, 2002 Year ended to Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 (Unaudited) Apr. 30, 2002 Apr. 30, 2001 ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 56.92 $ 61.87 $ 59.53 $ 43.41 $ 63.42 $ 116.57 ------------- ---------- ------------- ---------- ---------- ------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.17 0.26 0.13 (0.04) (0.16) (0.29) Net realized and unrealized gain (loss) (7.91) (4.94) 2.44 (11.14) (19.85) (52.86) ------------- ---------- ------------- ---------- ---------- ------------- Total from investment operations (7.74) (4.68) 2.57 (11.18) (20.01) (53.15) ------------- ---------- ------------- ---------- ---------- ------------- LESS DISTRIBUTIONS FROM: Net investment income (0.16) (0.27) (0.14) - - - Net realized gain - - (0.09) - - - ------------- ---------- ------------- ---------- ---------- ------------- Total distributions (0.16) (0.27) (0.23) - - - ------------- ---------- ------------- ---------- ---------- ------------- NET ASSET VALUE, END OF PERIOD $ 49.02 $ 56.92 $ 61.87 $ 32.23 $ 43.41 $ 63.42 ============= ========== ============= ========== ========== ============= TOTAL RETURN (13.60)%/2/ (7.60)% 4.29%/2/ (25.76)%/2/ (31.55)% (45.60)%/2/ ============= ========== ============= ========== ========== ============= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 362,723 $ 236,233 $ 108,269 $ 133,734 $ 141,073 $ 110,990 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets/3/ 0.73% 0.45% 0.29% (0.30)% (0.41)% (0.47)% Portfolio turnover rate/4/ 2% 3% 5% 2% 8% 11%
/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. See notes to financial statements. Financial Highlights 55 Financial Highlights (Continued) iSHARES TRUST (For a share outstanding throughout each period)
iShares Dow Jones U.S. Telecommunications iShares Dow Jones Sector U.S. Utilities Sector Index Fund Index Fund --------------------------------------------------- -------------------------------------------------- Six months Period from Six months Period from ended May 22, 2000/1/ ended Jun. 12, 2000/1/ Oct. 31, 2002 Year ended to Oct. 31, 2002 Year ended to (Unaudited) Apr. 30, 2002 Apr. 30, 2001 (Unaudited) Apr. 30, 2002 Apr. 30, 2001 ----------------------------------------------------------- ----------------------------------------------------------------------- Net asset value, beginning of period $ 22.38 $ 38.35 $ 56.81 $ 65.75 $ 85.95 $ 69.81 ------------- ------------ ----------------- ------------ ------------ ------------- Income From Investment Operations: Net investment income 0.17 0.29 0.35 1.12 1.89 1.82 Net realized and unrealized gain (loss) (4.06) (15.98) (17.95) (19.73) (20.25) 16.19 ------------- ------------ ---------------- ------------ ------------ ------------- Total from investment operations (3.89) 15.69 (17.60) (18.61) (18.36) 18.01 ------------- ------------ ---------------- ------------ ------------ ------------- Less Distributions from: Net investment income (0.18) (0.28) (0.27) (1.11) (1.84) (1.73) Net realized gain - - (0.59) - - (0.14) ------------- ------------ ---------------- ------------ ------------ ------------- Total distributions (0.18) (0.28) (0.86) (1.11) (1.84) (1.87) ------------- ------------ ---------------- ------------ ------------ ------------- Net Asset Value, End of Period $ 18.31 $ 22.38 $ 38.35 $ 46.03 $ 65.75 $ 85.95 ============= ============ ================ ============ ============ ============= Total Return (17.38)%/2/ (41.12)% (31.06)%/2/ (28.54)%/2/ (21.38)% 25.90%/2/ ============= ============ -=============== ============ ============ ============ Ratios/Supplemental Data: Net assets, end of period (000s) $ 68,659 $ 51,463 $ 55,603 $ 209,428 $ 180,818 $ 42,976 Ratio of expenses to average net assets/3/ 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income to average net assets/3/ 2.10% 1.05% 0.80% 4.40% 2.89% 2.59% Portfolio turnover rate/4/ 15% 43% 43% 7% 8% 11%
/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. See Notes to Financial Statements. 56 2002 iShares Semi-annual Report to Shareholders Notes to the Financial Statements (Unaudited) 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 October 31, 2002, the Trust offered 59 investment portfolios or funds. These financial statements relate only to the iShares Dow Jones U.S. Total Market, iShares Dow Jones U.S. Energy Sector, iShares Dow Jones U.S. Healthcare Sector, iShares Dow Jones U.S. Technology Sector, iShares Dow Jones U.S. Telecommunications Sector and the iShares Dow Jones U.S. Utilities Sector 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 achieve each Fund's investment objective. Each of the Funds is classified as a non-diversified fund under the 1940 Act, except for the iShares Dow Jones U.S. Total Market Index Fund, which is classified as a diversified fund. 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 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. EQUALIZATION The iShares Dow Jones U.S. Utilities Sector Index Fund uses the accounting practice of equalization. This accounting method is used to keep the continuing shareholders' per share equity in undistributed net investment income from being affected by the continuous sales and redemptions of capital stock. Equalization is calculated on a per share basis whereby a portion of the proceeds from sales and costs of repurchases of capital stock is applied to undistributed net investment income. The amount of equalization is disclosed in the Statements of Changes in Net Assets as undistributed net investment income included in the price of capital shares issued or redeemed. 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. Notes to the Financial Statements 57 Notes to the Financial Statements (Unaudited) (Continued) iSHARES TRUST At April 30, 2002, the tax year-end of the Funds, 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 -------------------------------------------------------------------------------------------------- Dow Jones U.S. Total Market $130,727 $ - $ 130,727 Dow Jones U.S. Telecommunications Sector 188,391 - 188,391 Dow Jones U.S. Utilities Sector 389,691 - 389,691 --------------------------------------------------------------------------------------------------
For the year ended April 30, 2002, the tax characterization of distributions paid was equal to the book characterization of distributions paid for all of the Funds. The total distributions and distributions per share are disclosed in the accompanying Statements of Changes in Net Assets and the Financial Highlights for all 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 six months ended October 31, 2002. The following Funds had tax basis net capital loss carryforwards at April 30, 2002, the tax year-end of the Funds:
--------------------------------------------------------------------------------- Expiring Expiring Expiring iShares Index Fund 2009 2010 Total --------------------------------------------------------------------------------- Dow Jones U.S. Total Market $ - $ 2,220,191 $ 2,220,191 Dow Jones U.S. Energy Sector 369 643,271 643,640 Dow Jones U.S. Healthcare Sector - 154,330 154,330 Dow Jones U.S. Technology Sector - 3,803,426 3,803,426 Dow Jones U.S. Telecommunications Sector - 10,282,380 10,282,380 Dow Jones U.S. Utilities Sector - 173,950 173,950 -------------------------------------------------------------------------
Net capital loss carry forwards may be applied against any net realized taxable gains in each succeeding year, or until their respective expiration dates, whichever occurs first. For the six months ended October 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. These reclassifications have no effect on net assets or net asset values per share. The in-kind gains or losses for the six months ended October 31, 2002 are disclosed in the 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, 58 2002 iShares Semi-Annual Report to Shareholders Notes to the Financial Statements (Unaudited) (Continued) iSHARES TRUST to ensure that their value equals or exceeds the repurchase price plus accrued interest. None of the Funds held repurchase agreements at October 31, 2002. 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 ------------------------------------------------------------- Dow Jones U.S. Total Market 0.20% Dow Jones U.S. Energy Sector 0.60 Dow Jones U.S. Healthcare Sector 0.60 ------------------------------------------------------------- ------------------------------------------------------------- Advisory iShares Index Fund Fee ------------------------------------------------------------- Dow Jones U.S. Technology Sector 0.60% Dow Jones U.S. Telecommunications Sector 0.60 Dow Jones U.S. Utilities Sector 0.60 ------------------------------------------------------------- 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 six months ended October 31, 2002, BGIS did not receive any brokerage commissions from the Funds. 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, 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 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 six months ended October 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 Rule 17a-7. Notes to the Financial Statements 59 Notes to the Financial Statements (Unaudited) (Continued) iSHARES TRUST As of October 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 six months ended October 31, 2002, were as follows: ---------------------------------------------------------------- iShares Index Fund Purchases Sales ---------------------------------------------------------------- Dow Jones U.S. Total Market $2,323,458 $2,286,301 Dow Jones U.S. Energy Sector 7,663,172 7,645,424 Dow Jones U.S. Healthcare Sector 4,388,747 4,418,635 Dow Jones U.S. Technology Sector 2,686,237 2,899,486 Dow Jones U.S. Telecommunications Sector 7,339,009 7,538,529 Dow Jones U.S. Utilities Sector 10,901,539 11,090,876 ---------------------------------------------------------------- In-kind transactions for the six months ended October 31, 2002, were as follows: ----------------------------------------------------------------- In-Kind In-Kind iShares Index Fund Purchases Sales ----------------------------------------------------------------- Dow Jones U.S. Total Market $ 24,858,058 $ - Dow Jones U.S. Energy Sector 28,172,383 21,785,818 Dow Jones U.S. Healthcare Sector 163,467,989 2,874,484 Dow Jones U.S. Technology Sector 43,265,906 12,708,510 Dow Jones U.S. Telecommunications Sector 58,747,998 33,992,684 Dow Jones U.S. Utilities Sector 155,685,723 78,004,106 ----------------------------------------------------------------- At October 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 -------------------------------------------------------------------------------------------------- Dow Jones U.S. Total Market $162,155,799 $ 4,257,693 $ (40,093,543) $(35,835,850) Dow Jones U.S. Energy Sector 115,025,639 243,285 (21,564,337) (21,321,052) Dow Jones U.S. Healthcare Sector 424,209,744 12,122,698 (67,730,073) (55,607,375) Dow Jones U.S. Technology Sector 254,475,207 936,052 (118,786,402) (117,850,350) Dow Jones U.S. Telecommunications Sector 92,036,082 506,984 (17,292,748) (16,785,764) Dow Jones U.S. Utilities Sector 265,220,616 3,297,521 (50,739,549) (47,442,028) --------------------------------------------------------------------------------------------------
60 2002 iShares Semi-annual Report to Shareholders Notes to the Financial Statements (Unaudited) (Continued) iSHARES TRUST 4. iSHARES TRANSACTIONS At October 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 the 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 October 31, 2002, 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 October 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, which allegedly covers a mechanism for continuous pricing of exchange traded funds. In addition, the plaintiff alleges that the parties engaged in a "conspiracy" amongst themselves 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 two 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. Notes to the Financial Statements 61 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/Emerging 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 Termination and liquidation anticipated On December 13, 2002. This advertising section does not constitute part of the 2002 Semi-Annual Report. iShares are not sponsored or endorsed by Goldman, Sachs & Co. or Lehman Brothers, nor are they sponsored, endorsed, sold or promoted by Cohen & Steers Capital Management, Inc., Dow Jones & Company, Inc., Morgan Stanley Capital International, The Nasdaq Stock Market, Inc., Frank Russell Company, or Standard & Poor's. None of these companies make any representation regarding the advisability of investing in iShares. Neither SEI nor BGI, nor any of their affiliates, are affiliated with Goldman, Sachs & Co. or Lehman Brothers. "GS $ InvesTop(TM)", "GS $ InvesTop(TM) Index", "GS $ Investment Grade Index(TM)" and "Goldman Sachs(R)" are trademarks of Goldman, Sachs & Co. The methodology of the GS $ InvesTop(TM) Index is owned by Goldman, Sachs & Co., may be covered by one or more patents or pending patent applications and is provided under license from Goldman, Sachs & Co. 62 2002 iSHARES SEMI-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. Investors Bank & Trust Company serves as administrator, custodian, securities lending agent and transfer agent. iShares are not sponsored, endorsed, sold or promoted by Dow Jones & Company, Inc., nor does this company 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 or 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. [PICTURE] iShares(R) Industrial strength investment tools from BARCLAYS GLOBAL INVESTORS 1-800-iShares (474-2737) www.iShares.com