-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F8cgMJ0hTrgorkA9yzwVVHbQzsINZefoY3l5ggKEO816zyz03v1sBK0erK/6UeUj sDYij7BfF9CqdN9sPGtjmA== 0001021408-03-005173.txt : 20030327 0001021408-03-005173.hdr.sgml : 20030327 20030327170103 ACCESSION NUMBER: 0001021408-03-005173 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030131 FILED AS OF DATE: 20030327 EFFECTIVENESS DATE: 20030327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ISHARES TRUST CENTRAL INDEX KEY: 0001100663 IRS NUMBER: 943351276 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-09729 FILM NUMBER: 03621620 BUSINESS ADDRESS: STREET 1: 45 FREMONT STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94105 N-30D 1 dn30d.txt SEMI-ANNUAL REPORT FOR ISHARES GOLDMAN SACHS SERIES/ MSCI EAFE INDEX FUND iShares 2003 SEMI-ANNUAL REPORT TO SHAREHOLDERS JANUARY 31, 2003 [GRAPHIC APPEARS HERE] INDUSTRIAL STRENGTH INVESTMENT TOOLS iSHARES GOLDMAN SACHS SERIES iSHARES MSCI EAFE INDEX FUND TABLE OF CONTENTS Shareholder Letter............................................... 1 Market Overview.................................................. 3 Managers' Discussion & Analysis.................................. 6 Schedules of Investments......................................... 18 iShares Goldman Sachs Technology Index Fund.................... 18 iShares Goldman Sachs Networking Index Fund.................... 22 iShares Goldman Sachs Semiconductor Index Fund................. 23 iShares Goldman Sachs Software Index Fund...................... 24 iShares Goldman Sachs Natural Resources Index Fund............. 25 iShares MSCI EAFE Index Fund................................... 27 Financial Statements............................................. 39 Financial Highlights............................................. 43 Notes to the Financial Statements................................ 46 iShares Family of Funds.......................................... 54 TO OUR SHAREHOLDERS For many investors, the last six months was another difficult and challenging period. A tepid economy, corporate accounting scandals and lackluster company earnings all contributed to the major equity indexes declining for the third straight year, a bear market performance not seen in decades. Global geopolitical uncertainties create the possibility that challenging market conditions may continue. However, iShares continued to innovate and expand, offering more tools that help investors tailor their portfolios to address volatility in this complex market environment. For example, iShares launched the first fixed income exchange-traded funds. Based on investor demand for less volatile asset classes, we introduced three bond funds based on Lehman U.S. Treasury indexes. In addition, to provide credit market exposure we introduced a fund based on the GS $ InvesTop(TM) Index. By the end of 2002, the fixed income iShares funds held $3.8 billion in assets and Business Week named them one of the best new products of the year./1/ With the addition of the fixed income iShares, investors can achieve more diversity in their portfolios -- and at lower cost, since iShares fees are, on average, about half those of actively managed funds./2/ With almost 80 different iShares to choose from, investors have the ability to build a diverse portfolio that covers market capitalization, sectors, value and growth, international and now fixed income indexes. It is important for investors to remember that market segments do not tend to move in tandem, particularly during volatile market conditions. Economic conditions such as inflation, interest rate levels, currency valuations or the price of oil, as well as the normal pace of the economic cycle, all may cause investors to favor one market segment over another. The wide range of performance returns for the various iShares funds this year demonstrates that phenomenon clearly. We encourage you to talk with your financial advisor about what blend of investments or asset allocation can best help you meet your financial goals. Throughout the coming year we will continue to work closely with the financial advisor community to introduce innovative strategies and structures for their client's portfolios. To learn more about iShares, we encourage you to visit our web site, www.iShares.com. At times like these, the importance of sound, disciplined investing is greater than ever. Such investing should be grounded in two key concepts: keeping the costs associated with investing as low as possible, and maintaining a diversified portfolio. That is why we believe iShares are proving to be an indispensable tool for investors in the current market. And that is also why more and more investors are recognizing the benefits of iShares. In fact, despite the year's difficult markets, assets under management for iShares actually grew in 2002, reaching $31 billion as of December 31. On behalf of the iShares family of funds and our colleagues at Barclays Global Investors, we thank you for making iShares a part of your portfolio. We look forward to meeting your investment needs in the year ahead. /s/ Garrett F. Bouton /s/ Lee Kranefuss Garrett F. Bouton Lee 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. - ---------- /1/Business Week, 12/16/02. /2/Morningstar Principia, BGI analysis 6/02. SHAREHOLDER LETTER 1 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. The annual management fees of iShares may be substantially less than those of most mutual funds. iShares transactions will result in brokerage commissions, but the savings from lower annual fees can help offset these costs. Past performance does not guarantee future results. iShares are not sponsored, endorsed, or issued by Goldman Sachs & Co. or Lehman Brothers, nor are they sponsored, endorsed, issued, 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. "$ InvesTop(TM)", "$ InvesTop(TM) Index", "GS $ InvesTop(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. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 2 MARKET OVERVIEW U.S. EQUITY MARKETS January 2003 failed to bring any respite to the grinding three-year bear market. After a better performance in the final quarter of 2002 and a bright start to the New Year, the looming threat of war in Iraq continued to trouble investors and impact the economy. By the end of January, many U.S. equity securities were heading back towards the lows of last October. As a result, the S&P 500 Index finished down for the six-month period covered by this report (the "reporting period"), giving rise to the worrying prospect of a successive fourth year of decline in equity markets. A significant war discount has now been factored into equity prices and, since the tragic events of September 11th, geopolitical risk has certainly played a part in setting market valuations. However, the current bear market has at its roots very different economic and corporate causes, many of which are still to play out. Not unreasonably, analogies are often drawn between the present market decline and the depressed equity market of the 1930s. Both bear markets followed periods of economic and corporate excess that took many years to work out of the system. The severity of the present downturn appears to have been moderated by today's generally more conservative economic management. Yet there remains a fear of global deflation and prolonged recession as policy makers struggle to find the right blend of monetary and fiscal policies in an environment where global productive capacity continues to run well ahead of demand. Interlaced with these concerns have been the corporate accounting scandals. Investor confidence, understandably, has been badly shaken by these events. In certain respects, industry too has become more inward looking. It appears that many businesses are less inclined to undertake new investments as plans for business growth are modified to reflect uncertain economic prospects. Resilient consumer spending, fueled by 40-year low interest rates and a buoyant housing market, have so far prevented the economy from sliding into a deeper recession. The 0.5% cut in interest rates in November was designed to shore up confidence. Hopefully, these measures will help the economy through its current "soft spot" but there remain real concerns that the malaise in manufacturing could spread to the broader economy inducing a so-called "double-dip" recession. With war fears now overlaying this troublesome economic background, investors have naturally sought the relative safety of bonds and cash. U.S. FIXED INCOME MARKETS As equities hit their low-point in early October, bonds rose to new highs. Yields on the 30-year bond recorded their lowest levels since they were first introduced in the 1970s. Yields on 5- and 10-year Treasuries fell to their lowest levels since the late 1950s. Bond values fell again through to the end of October as equities staged a rally. Yields since then have moved sideways in a saw-tooth fashion but, despite the ongoing threat of war and the diminishing prospect of sustained economic recovery, bonds failed to recapture their best levels for the year. Even the aggressive half-point cut in the federal funds rate to 1.25% in November and a simultaneous cut in the discount rate to a post-war low of 0.75% failed to inspire a lasting rally in bonds. This was the first and only cut in U.S. interest rates in 2002 after as many as 11 such cuts in 2001. Short-term interest rates, after allowing for inflation, have been substantially negative. This would normally be of some concern to bond investors, particularly against the backdrop of rising oil and gold prices and a weaker dollar on the foreign exchange markets. Yet the perception by many has been that inflation is not, and should not, become a problem in an environment where cost-cutting remains the norm and where producers still have had difficulty passing on cost increases in final product prices. The other traditional concern for bond investors is the state of government finances. So far the prospect of increased bond supply on the back of an escalating federal budget deficit has done little to dampen the enthusiasm for U.S. Treasuries. MARKET OVERVIEW 3 INTERNATIONAL EQUITY MARKETS The downturn in U.S. equities over the reporting period was repeated in markets around the world. The corporate accounting scandals, the hesitant nature of economic recovery globally, and heightened geopolitical risk in the Middle East all troubled investors deeply. Economic growth in Europe in particular proved disappointing. Germany was the most seriously affected by the downturn in international trade. On December 5th, the European Central Bank ("ECB") belatedly followed the Federal Reserve with a half-point cut in interest rates to 2.75%. The ECB cited more sluggish growth and an abatement of inflationary pressures as the key factors behind its decision. Yet, as in the U.S., investors remained unimpressed and equities continued to drift lower. Over the reporting period as a whole, European equity markets showed losses generally well in excess of those incurred in the U.S. The UK economy fared more favorably over the reporting period, helped by a relatively expansive fiscal policy and a strong housing market, which has supported consumer confidence and spending. Partly because of the strength of the housing market, the Bank of England kept the UK base rate at 4% throughout the reporting period, despite exhortations from business to cut rates in support of the weak manufacturing sector. As elsewhere, UK equities fell with concerns over the pensions industry. The solvency of the insurance sector also added to investor woes. Any hopes that Japanese equities would buck the weaker global trend evaporated as the market spiraled down once again; the Nikkei Dow hit a new 19-year low in November. After more than a decade, Japan remains in the grip of deflation. Consumer prices have fallen for three years in a row, thus raising the real value of debt and, in turn, putting further pressure on the Japanese banking system. /s/ Francis Enderle Francis Enderle Head of Indexed Investing for iShares Barclays Global Fund Advisors 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 4 THIS PAGE INTENTIONALLY LEFT BLANK. 5 MANAGERS' DISCUSSION & ANALYSIS iSHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND Performance as of 1/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS - ------------------------------------------------------------- ---------------------------- YEAR ENDED 1/31/03 INCEPTION TO 1/31/03 INCEPTION TO 1/31/03 - ---------------------------- ---------------------------- ---------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (41.05)% (41.06)% (40.74)% (29.00)% (29.08)% (28.65)% (47.66)% (47.77)% (47.16)%
"Total returns for the period since inception" are calculated from the inception date of the Fund (3/13/01). "Average annual total return" represents the average annual change in value of an investment over the periods indicated. "Cumulative total return" represents the total change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (3/19/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. 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 INTERNATIONAL BUSINESS MACHINES CORP. 8.94% MICROSOFT CORP. 8.03% INTEL CORP. 7.62% CISCO SYSTEMS INC. 7.07% ORACLE CORP. 4.72% DELL COMPUTER CORP. 4.53% HEWLETT-PACKARD CO. 3.89% AOL TIME WARNER INC. 3.67% QUALCOMM INC. 2.17% TEXAS INSTRUMENTS INC. 2.02% The iShares Goldman Sachs Technology Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Goldman Sachs Technology Sector Index (the "Index"). For the six months ending January 31, 2003 (the "reporting period"), the Fund declined 1.98%, while the Index declined 1.69%. Uneven economic news, weak corporate earnings, and the possibility of war in Iraq weighed on equity markets during the reporting period. Markets generally drifted lower during the first few months of the reporting period, as corporations warned of missed earnings and economic figures failed to portray an improving economy. By early October, several broad indices had dipped to their lowest levels in five years. Then, the combination of bargain hunters picking up stocks at newly-depressed levels and an encouraging 4% GDP growth rate for the third quarter spurred a rally that helped to mitigate some of the earlier losses. The rally proved to be unsustainable, however. In January, equities slumped as the threat of war grew, sending the price of crude oil above $33 per barrel and driving the U.S. dollar to a three-year low against the euro by the end of January. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 6 The technology sector was one of the least adversely affected sectors during the reporting period. Figures released during the fourth quarter revealed that global chip sales rose 14% in August, their first double-digit increase since 2001. August sales levels, which were accompanied by a 15% increase in the average selling price, were followed by further spikes in sales in September and October. Because the technology sector had borne the brunt of market declines over the course of the past several years, the lows reached in early October also attracted bargain hunters to the sector. Among the Index's ten largest holdings, performance was mixed over the reporting period. The strongest gains came from QUALCOMM Inc. (2.17% of the Index as of January 31, 2003), which climbed 37.05%. Hewlett-Packard Co. (3.89% of the Index as of January 31, 2003) rose 24.28%, and Oracle Corp. (4.72% of the Index as of January 31, 2003) returned 20.19%. International Business Machines Corp., the largest holding in the ten largest positions at 8.94% of the Index as of January 31, 2003, logged an 11.53% gain. On the negative side, Texas Instruments Inc. (2.02% of the Index as of January 31, 2003) fell 31.13%, and Intel Corp. (7.62% as of January 31, 2003) dropped 16.25% for the reporting period. MANAGERS' DISCUSSION & ANALYSIS 7 MANAGERS' DISCUSSION & ANALYSIS iSHARES GOLDMAN SACHS NETWORKING INDEX FUND Performance as of 1/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS - ------------------------------------------------------------- ---------------------------- YEAR ENDED 1/31/03 INCEPTION TO 1/31/03 INCEPTION TO 1/31/03 - ----------------------------- --------------------------- ---------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (50.14)% (50.12)% (50.13)% (43.76)% (43.86)% (43.46)% (59.36)% (59.47)% (58.92)%
"Total returns for the period since inception" are calculated from the inception date of the Fund (7/10/01). "Average annual total return" represents the average annual change in value of an investment over the periods indicated. "Cumulative total return" represents the total change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (7/13/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. 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 NORTEL NETWORKS CORP. 11.19% QUALCOMM INC. 8.24% LUCENT TECHNOLOGIES INC. 8.12% CISCO SYSTEMS INC. 7.98% MOTOROLA INC. 7.05% CORNING INC. 5.67% JDS UNIPHASE CORP. 4.12% JUNIPER NETWORKS INC. 3.95% TELLABS INC. 3.88% BROADCOM CORP. A 3.34% The iShares Goldman Sachs Networking Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Goldman Sachs Technology Industry Multimedia Networking Index (the "Index"). For the six-month period ending January 31, 2003 (the "reporting period"), the Fund returned 12.76%, while the Index rose 13.03%. Equity markets experienced volatile performance during the reporting period, against the backdrop of uncertain economic and geopolitical conditions. After dipping to five-year lows, equities rebounded sharply during the last few months of 2002. Positive news helped to boost markets. Third quarter GDP growth, originally reported at 3.1%, was revised to a healthy 4.0% during the fourth quarter. Low mortgage rates drove new-home construction to its highest level in sixteen years, and global chip sales enjoyed double-digit increases in sales levels for the first time since 2001. Equity markets retreated again in December and January amid a drop in consumer confidence levels, disappointing holiday retail sales, and an increasing likelihood of war in Iraq. Networking stocks in general bucked the performance trend of the broader markets during the reporting period. After enduring the bulk of the market declines in previous reporting periods, the sector benefited from bargain hunters seeking depressed share prices late in 2002. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 8 Among the Index's ten largest holdings, performance was largely positive over the reporting period. Nortel Networks Corp., the Index's largest holding at 11.19% of the Index as of January 31, 2003, gained 144.33%. The second largest holding, QUALCOMM Inc. (8.24% of the Index as of January 31, 2003) climbed 37.05%, and Tellabs Inc. (3.88% of the Index as of January 31, 2003) returned 35.95%. Juniper Networks Inc. (3.95% of the Index as of January 31, 2003) gained 9.62%, JDS Uniphase Corp. (4.12% of the Index as of January 31, 2003) rose 6.72%, and Lucent Technologies Inc. (8.12% of the Index as of January 31, 2003) climbed 6.29%. On the negative side, Motorola Inc. (7.05% of the Index as of January 31, 2003) declined 30.69%, and the Class A shares of Broadcom Corp. (3.34% of the Index as of January 31, 2003) fell 27.83% over the reporting period. MANAGERS' DISCUSSION & ANALYSIS 9 MANAGERS' DISCUSSION & ANALYSIS iSHARES GOLDMAN SACHS SEMICONDUCTOR INDEX FUND Performance as of 1/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS - ------------------------------------------------------------- ---------------------------- YEAR ENDED 1/31/03 INCEPTION TO 1/31/03 INCEPTION TO 1/31/03 - ---------------------------- ---------------------------- ---------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (52.22)% (52.16)% (52.04)% (35.38)% (35.48)% (35.23)% (49.49)% (49.61)% (49.21)%
"Total returns for the period since inception" are calculated from the inception date of the Fund (7/10/01). "Average annual total return" represents the average annual change in value of an investment over the periods indicated. "Cumulative total return" represents the total change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (7/13/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. 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 TEXAS INSTRUMENTS INC. 9.11% INTEL CORP. 8.62% MOTOROLA INC. 8.37% APPLIED MATERIALS INC. 8.32% STMICROELECTRONICS NV - NY SHARES 8.23% MAXIM INTEGRATED PRODUCTS INC. 5.49% ANALOG DEVICES INC. 4.81% LINEAR TECHNOLOGY CORP. 4.48% XILINX INC. 3.67% KLA-TENCOR CORP. 3.38% The iShares Goldman Sachs Semiconductor Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Goldman Sachs Technology Industry Semiconductor Index (the "Index"). For the six-month period ending January 31, 2003 (the "reporting period"), the Fund declined 20.35%, while the Index declined 20.18%. Equity markets struggled during the reporting period with signs of a floundering economy, skepticism about corporate leadership, and geopolitical tension. The reporting period opened amid a new wave of earnings warnings and heightened concerns about potential war in Iraq. As broad markets dipped to new lows in the first few days of October, bargain hunters moved in, spurring a brief rebound. Positive economic news also helped boost equities during October and November. GDP growth for the third quarter was revised to a healthy 4%, corporate earnings rose 2.1%, and new-home construction reached its highest level in sixteen years, thanks to low mortgage rates. In December, however, stocks slumped on the news of disappointing holiday spending levels. As the increased likelihood of war in Iraq drove the price of crude oil above $33 per barrel in January, broad market indexes continued their downward slide. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 10 For semiconductor stocks, the struggling economy continued to weigh on earnings levels, as corporate investment declined. Despite this trend, however, hopeful signs emerged during the reporting period. Figures released in late 2002 revealed that global chip sales rose 14% in August, their first double-digit increase since 2001. August sales levels, which were accompanied by a 15% increase in the average selling price, were followed by further spikes in sales in September and October. Nine of the Index's ten largest holdings delivered negative returns during the reporting period. Texas Instruments Inc., the largest holding at 9.11% of the Index as of January 31, 2003, fell 31.13%, and Motorola Inc. (8.37% of the Index as of January 31, 2003) declined 30.69%. Applied Materials Inc. (8.32% of the Index as of January 31, 2003) dropped 19.50%, KLA-Tencor Corp. (3.38% of the Index as of January 31, 2003) fell 17.14%, and Intel Corp. (8.62% of the Index as of January 31, 2003) lost 16.25%. The sole positive performer among the ten largest holdings over the reporting period was Xilinx Inc. (3.67% of the Index as of January 31, 2003), which gained 3.13%. MANAGERS' DISCUSSION & ANALYSIS 11 MANAGERS' DISCUSSION & ANALYSIS iSHARES GOLDMAN SACHS SOFTWARE INDEX FUND Performance as of 1/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS - ------------------------------------------------------------- ---------------------------- YEAR ENDED 1/31/03 INCEPTION TO 1/31/03 INCEPTION TO 1/31/03 - ---------------------------- ---------------------------- ---------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (43.45)% (43.22)% (43.19)% (33.38)% (33.28)% (33.12)% (47.03)% (46.91)% (46.61)%
"Total returns for the period since inception" are calculated from the inception date of the Fund (7/10/01). "Average annual total return" represents the average annual change in value of an investment over the periods indicated. "Cumulative total return" represents the total change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (7/13/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. 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 ORACLE CORP. 9.15% MICROSOFT CORP. 7.59% INTUIT INC. 6.70% COMPUTER ASSOCIATES INTERNATIONAL INC. 5.67% VERITAS SOFTWARE CORP. 5.56% ELECTRONIC ARTS INC. 5.42% SYMANTEC CORP. 5.00% ADOBE SYSTEMS INC. 4.62% PEOPLESOFT INC. 4.49% BEA SYSTEMS INC. 3.48% The iShares Goldman Sachs Software Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Goldman Sachs Technology Industry Software Index (the "Index"). For the six-month period ending January 31, 2003 (the "reporting period"), the Fund returned 10.21%, compared with a return of 10.46% for the Index. Mixed economic news, weak corporate earnings, and the possibility of war in Iraq weighed on equity markets during the reporting period, creating an uneven performance pattern in the markets. Early in the reporting period, as corporations warned of missed earnings targets and economic figures failed to portray an improving economy, stock prices sank. By early October, several broad indices had dipped to their lowest levels in five years. Then, the combination of bargain hunters picking up stocks at newly depressed levels and an encouraging 4% GDP growth rate for the third quarter spurred a strong, but brief, rally. Equities slumped again in December amid disappointing holiday shopping levels. In January, the decline continued as the threat of war grew, sending the price of crude oil above $33 per barrel. The software sector was one of the few to deliver positive returns during the reporting period. Figures released during the reporting period revealed that global chip sales rose 14% in August, their first double-digit increase since 2001. Because the technology sector had borne the 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 12 brunt of market declines over the course of the past several years, the lows reached in early October also attracted bargain hunters to the sector. Within the Index's top ten holdings, performance was mostly positive over the reporting period. BEA Systems Inc. (3.48% of the Index as of January 31, 2003) gained 106.49%. Computer Associates International Inc. (5.67% of the Index as of January 31, 2003) returned 43.58%, and Symantec Corp. (5.00% of the Index as of January 31, 2003) climbed 39.18%. The largest holding at 9.15% of the Index as of January 31, 2003, Oracle Corp. gained 20.19%. The only two negative performers over the reporting period among the ten largest holdings were Electronic Arts Inc. (5.42% of the Index as of January 31, 2003) and Microsoft Corp. (7.59% of the Index as of January 31, 2003), which declined 13.97% and 1.08%, respectively. MANAGERS' DISCUSSION & ANALYSIS 13 MANAGERS' DISCUSSION & ANALYSIS iSHARES GOLDMAN SACHS NATURAL RESOURCES INDEX FUND Performance as of 1/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS - ------------------------------------------------------------- ---------------------------- YEAR ENDED 1/31/03 INCEPTION TO 1/31/03 INCEPTION TO 1/31/03 - ---------------------------- ---------------------------- ---------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (13.23)% (13.22)% (12.82)% (11.73)% (11.74)% (11.41)% (14.76)% (14.77)% (14.37)%
"Total returns for the period since inception" are calculated from the inception date of the Fund (10/22/01). "Average annual total return" represents the average annual change in value of an investment over the periods indicated. "Cumulative total return" represents the total change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (10/26/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. 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 EXXON MOBIL CORP. 7.61% ROYAL DUTCH PETROLEUM CO. - NY SHARES 7.40% BP PLC ADR 7.39% CHEVRONTEXACO CORP. 7.38% CONOCOPHILLIPS 5.03% SCHLUMBERGER LTD. 3.38% INTERNATIONAL PAPER CO. 2.64% ALCOA INC. 2.57% ENCANA CORP. 2.28% ANADARKO PETROLEUM CORP. 1.77% The iShares Goldman Sachs Natural Resources Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Goldman Sachs Natural Resources Sector Index (the "Index"). For the six-month period ending January 31, 2003 (the "reporting period"), the Fund declined 3.91%, compared to a decline of 3.65% for the Index. Equity markets struggled against a backdrop of uncertainty during the reporting period. Mixed signs for economic recovery, skepticism about corporate leadership, and geopolitical unease heightened during the reporting period. The reporting period opened amid a new wave of earnings warnings and concerns about potential war in Iraq. As broad markets dipped to new lows in the first few days of October, bargain hunters moved in, spurring a brief rebound. Positive economic news also helped boost equities during October and November. GDP growth for the third quarter was revised to a healthy 4% and corporate earnings rose 2.1%. In December, however, stocks slumped on the news of disappointing holiday spending levels. As the increased likelihood of war in Iraq drove the price of crude oil higher and the U.S. dollar lower, broad market indexes continued to decline, reaching a three-month low by the end of January. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 14 In January, fears of war with Iraq drove crude oil prices above $33 a barrel, on concerns of a supply crunch during peak winter heating months. Oil company shares responded negatively to signs that oil prices may have spiked to unsustainable levels. Within the sector, the oil service and exploration companies tended to falter the most, because they tend to be more sensitive to the price of oil than are the large, diversified oil companies. The uncertainty of global economic recovery meant decreased demand for raw materials, and share prices for basic materials companies declined in January as a result. Among the Index's ten largest holdings, performance was largely negative over the reporting period. The five largest holdings in the Index represented shares of diversified oil companies, and all five delivered negative results. BP PLC (7.39% of the Index as of January 31, 2003) fell 14.34% and ChevronTexaco Corp. (7.38% of the Index as of January 31, 2003) declined 12.46%, while Royal Dutch Petroleum Co. (7.40% of the Index as of January 31, 2003), Exxon Mobil Corp. (7.61% of the Index as of January 31, 2003), and ConocoPhillips (5.03% of the Index as of January 31, 2003) lost 6.92%, 5.88%, and 5.42%, respectively. Oil service and exploration company Schlumberger Ltd. (3.38% of the Index as of January 31, 2003) declined 11.41%. Among basic materials companies, Alcoa Inc. (2.57% of the Index as of January 31, 2003) lost 26.45%, and International Paper Co. (2.64% of the Index as of January 31, 2003) fell 9.12%. MANAGERS' DISCUSSION & ANALYSIS 15 MANAGERS' DISCUSSION & ANALYSIS iSHARES MSCI EAFE INDEX FUND Performance as of 1/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS - ------------------------------------------------------------- --------------------------- YEAR ENDED 1/31/03 INCEPTION TO 1/31/03 INCEPTION TO 1/31/03 - ---------------------------- ---------------------------- --------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX (14.69)% (13.99)% (14.69)% (17.25)% (17.07)% (17.27)% (24.27)% (24.03)% (24.33)%
"Total returns for the period since inception" are calculated from the inception date of the Fund (8/14/01). "Average annual total return" represents the average annual change in value of an investment over the periods indicated. "Cumulative total return" represents the total change in value of an investment over the periods indicated. A Fund's per share net asset value or "NAV" is the value of one share of a Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV per share of the Fund, and the market return is based on the market price per share of the Fund. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since Fund shares typically do not trade in the secondary market until several days after Fund inception, for the period from inception to the first day of secondary market trading in Fund shares (8/17/01), the net asset value of the Fund is used as a proxy for secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gains distributions have been reinvested in the Fund at market price and net asset value, respectively. 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 BP PLC 2.79% VODAFONE GROUP PLC 2.42% GLAXOSMITHKLINE PLC 2.25% NOVARTIS AG 1.98% HSBC HOLDINGS PLC 1.94% ROYAL DUTCH PETROLEUM CO. 1.74% TOTALFINAELF SA 1.70% NESTLE SA 1.63% NOKIA OYJ 1.32% ROYAL BANK OF SCOTLAND GROUP PLC 1.20% The iShares MSCI EAFE INDEX FUND (the "Fund") seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Morgan Stanley Capital International Europe, Australasia and Far East Index (the "Index"). The Index measures the performance of equities in developed European, Australasian and Far East ("EAFE") markets. Over the period from August 1, 2002, through January 31, 2003 (the "reporting period"), the Fund declined 9.22%, compared to a decline of 9.15% for the Index. The constituent markets of the Index were volatile over the reporting period, reflecting investors' changing perceptions about the global economic climate and the political situation in the Middle East and elsewhere. As the reporting period began, EAFE markets were generally weak. Although the U.S. economy posted fairly strong growth in the third quarter of 2002, many investors nonetheless were concerned in August and September 2002 that the U.S. economy and corporate profits were headed for a significant slowdown. The threat of a war between the United States and Iraq also undermined the confidence of many investors. These fears contributed to the Index's lackluster performance (-0.47% in U.S. dollars) over the month of August. That decline 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 16 would prove to be mild, however, in comparison to the Index's 11.04% plunge (in U.S. dollars) the following month. The cautious mood among investors in September 2002 led many of them to favor defensive areas of the Index, such as health care and consumer staples. Investor sentiment improved in October 2002, however, helping to drive up the Index by 5.30% in U.S. dollars. The momentum continued in November 2002, when the Index gained another 4.42% in U.S. dollars. Over these months the more growth-oriented sectors of the Index, particularly the telecommunication services and information technology sectors, outperformed traditionally slower-growing, defensive sectors such as utilities and consumer staples. These defensive sectors again came to the forefront in the final two months of the reporting period, when investors once again became more risk averse. In December 2002, the Index posted a 3.42% loss in U.S. dollars; in January 2003, it declined another 4.23% in U.S. dollars. Renewed concerns about the possibility of a war between the U.S. and Iraq on the one hand, and newly heightened tensions between the U.S. and North Korea on the other hand, led many investors to take a more cautious stance and favor sectors such as the utilities sector. Although the Index posted a significant decline over the reporting period, the strength of the euro and other currencies did help to buoy the Index's returns when translated into U.S. dollars. MANAGERS' DISCUSSION & ANALYSIS 17 SCHEDULE OF INVESTMENTS (Unaudited) iSHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------- COMMON STOCKS - 100.03% International Business Machines Corp. 56,026 $ 4,382,914 Microsoft Corp./1/ 82,916 3,935,193 Intel Corp. 237,733 3,722,899 Cisco Systems Inc./1/ 259,260 3,466,306 Oracle Corp./1/ 192,169 2,311,793 Dell Computer Corp./1/ 92,957 2,217,954 Hewlett-Packard Co. 109,488 1,906,186 AOL Time Warner Inc./1/ 154,249 1,798,543 QUALCOMM Inc./1/ 28,184 1,061,409 Texas Instruments Inc. 62,110 987,549 First Data Corp. 26,983 928,215 eBay Inc./1/ 11,084 833,073 Automatic Data Processing Inc. 21,481 744,746 Applied Materials Inc./1/ 59,108 707,523 Motorola Inc. 82,603 659,172 EMC Corp./1/ 78,905 607,568 STMicroelectronics NV - NY Shares 32,104 589,429 Yahoo! Inc./1/ 21,184 385,549 USA Interactive/1/ 17,204 378,660 Maxim Integrated Products Inc. 11,486 357,789 Sun Microsystems Inc./1/ 111,628 344,931 Paychex Inc. 13,484 339,527 Nortel Networks Corp./1/ 137,670 326,278 Intuit Inc./1/ 7,358 324,488 Analog Devices Inc./1/ 13,127 314,129 Amazon.com Inc./1/ 13,701 299,367 Linear Technology Corp. 11,183 292,212 Electronic Data Systems Corp. 17,072 289,370 Agilent Technologies Inc./1/ 16,733 275,760 Computer Associates International Inc. 20,546 274,700 Lexmark International Inc. "A"/1/ 4,527 274,065 Veritas Software Corp./1/ 14,755 269,308 Concord EFS Inc./1/ 18,227 267,208 Electronic Arts Inc./1/ 5,074 262,884 Accenture Ltd./1/ 15,775 261,076 Affiliated Computer Services Inc. "A"/1/ 4,518 244,966 Symantec Corp./1/ 5,185 242,036 Lucent Technologies Inc./1/ 129,501 240,872 Xilinx Inc./1/ 12,122 239,894 Adobe Systems Inc. 8,460 223,513 KLA-Tencor Corp./1/ 6,762 220,712 PeopleSoft Inc./1/ 11,260 218,331 Fiserv Inc./1/ 6,868 214,082 SunGard Data Systems Inc./1/ 10,189 198,074 Computer Sciences Corp./1/ 6,175 188,955 Apple Computer Inc./1/ 12,924 185,589 Micron Technology Inc./1/ 21,772 178,748 BEA Systems Inc./1/ 14,748 169,012 Corning Inc./1/ 41,214 168,153 Microchip Technology Inc. 7,313 161,544 Novellus Systems Inc./1/ 5,352 157,616 L-3 Communications Holdings Inc./1/ 3,393 151,905 Altera Corp./1/ 13,691 150,327 Flextronics International Ltd./1/ 18,640 150,238 BMC Software Inc./1/ 8,422 148,480 Siebel Systems Inc./1/ 17,461 145,974 DST Systems Inc./1/ 4,291 141,260 ASM Lithography Holding NV "R"/1/ 17,288 138,477 CDW Computer Centers Inc./1/ 3,002 132,358 Network Appliance Inc./1/ 12,144 131,277 Check Point Software Technologies Ltd./1/ 8,712 124,843 JDS Uniphase Corp./1/ 45,300 122,763 Juniper Networks Inc./1/ 13,359 117,158 Tellabs Inc./1/ 14,721 114,677 QLogic Corp./1/ 3,369 112,120 ChoicePoint Inc./1/ 3,096 111,456 Jabil Circuit Inc./1/ 7,136 111,393 American Power Conversion Corp./1/ 7,024 109,293 Unisys Corp./1/ 11,693 108,979 Mercury Interactive Corp./1/ 3,046 108,285 Solectron Corp./1/ 29,528 106,006 Synopsys Inc./1/ 2,729 105,530 Amdocs Ltd./1/ 7,979 103,647 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 18 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------- Pixar Inc./1/ 1,853 $ 101,896 Broadcom Corp. "A"/1/ 7,322 99,140 Cadence Design Systems Inc./1/ 9,656 95,788 Sabre Holdings Corp./1/ 5,091 91,333 CIENA Corp./1/ 15,639 90,706 Fair Isaac and Co. Inc. 1,820 90,545 National Semiconductor Corp./1/ 6,528 86,170 Network Associates Inc./1/ 5,615 85,741 Citrix Systems Inc./1/ 6,139 84,718 Storage Technology Corp./1/ 3,798 83,936 Convergys Corp./1/ 6,202 79,075 Marvell Technology Group Ltd./1/ 4,289 78,360 Celestica Inc./1/ 6,734 77,980 Ceridian Corp./1/ 5,366 76,948 Harris Corp. 2,380 74,256 UTStarcom Inc./1/ 3,795 73,130 Rational Software Corp./1/ 6,969 72,478 Symbol Technologies Inc. 8,341 70,315 VeriSign Inc./1/ 8,475 69,919 Sanmina-SCI Corp./1/ 19,098 69,899 BISYS Group Inc. (The)/1/ 4,350 68,730 Cognos Inc./1/ 3,010 68,598 Teradyne Inc./1/ 6,564 68,200 Intersil Corp. "A"/1/ 4,673 67,759 ADC Telecommunications Inc./1/ 28,551 65,667 Advanced Micro Devices Inc./1/ 12,408 65,018 Comverse Technology Inc./1/ 6,705 63,832 Reynolds & Reynolds Co.(The) "A" 2,501 62,225 Amphenol Corp. "A"/1/ 1,523 62,062 Ingram Micro Inc. "A"/1/ 5,379 61,859 Emulex Corp./1/ 2,939 61,513 Autodesk Inc. 4,098 61,224 Scientific-Atlanta Inc. 5,501 61,061 CheckFree Corp./1/ 3,161 60,786 Certegy Inc./1/ 2,366 60,522 LSI Logic Corp./1/ 13,436 59,253 NVIDIA Corp./1/ 5,701 58,834 National Instruments Corp./1/ 1,815 58,570 Agere Systems Inc. "B"/1/ 32,598 56,721 3Com Corp./1/ 13,303 56,272 Western Digital Corp./1/ 6,951 55,260 AVX Corp. 6,263 55,114 Edwards (J.D.) & Co./1/ 4,330 54,255 BearingPoint Inc./1/ 6,803 53,676 Vishay Intertechnology Inc./1/ 5,174 53,447 Rambus Inc./1/ 3,429 53,150 Lam Research Corp./1/ 4,455 52,079 Integrated Circuit Systems Inc./1/ 2,463 51,723 Advanced Fibre Communications Inc./1/ 3,045 51,430 Tektronix Inc./1/ 3,095 51,068 Maxtor Corp./1/ 8,609 51,051 Expedia Inc. "A"/1/ 837 50,220 Overture Services Inc./1/ 2,083 48,388 Sybase Inc./1/ 3,360 48,317 Acxiom Corp./1/ 3,236 48,055 Compuware Corp./1/ 13,665 47,827 Cerner Corp./1/ 1,284 47,340 Cree Inc./1/ 2,601 46,714 Fairchild Semiconductor International Corp. "A"/1/ 4,246 46,451 Agere Systems Inc. "A"/1/ 26,163 46,309 International Rectifier Corp./1/ 2,281 45,278 ADTRAN Inc./1/ 1,340 45,091 Imation Corp./1/ 1,260 45,032 Avnet Inc./1/ 4,291 44,583 Silicon Laboratories Inc./1/ 1,742 42,923 Arrow Electronics Inc./1/ 3,602 42,756 TIBCO Software Inc./1/ 7,614 42,715 Novell Inc./1/ 13,040 42,250 TMP Worldwide Inc./1/ 3,822 42,233 Avocent Corp./1/ 1,618 40,612 Polycom Inc./1/ 3,569 40,258 Applied Micro Circuits Corp./1/ 10,793 39,071 Perot Systems Corp. "A"/1/ 3,796 38,719 Henry (Jack) & Associates Inc. 3,105 38,378 West Corp./1/ 2,346 38,357 CACI International Inc. "A"/1/ 1,020 38,332 ATI Technologies Inc./1/ 8,605 38,292 Global Payments Inc. 1,320 37,660 SanDisk Corp./1/ 2,469 37,657 SCHEDULES OF INVESTMENTS 19 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------- Cymer Inc./1/ 1,215 $ 37,556 Brocade Communications Systems Inc./1/ 8,355 37,347 Research in Motion Ltd./1/ 2,802 35,754 Foundry Networks Inc./1/ 4,296 35,657 Activision Inc./1/ 2,445 35,575 Semtech Corp./1/ 2,635 35,098 PerkinElmer Inc. 4,493 35,045 RF Micro Devices Inc./1/ 6,137 34,490 Atmel Corp./1/ 16,800 34,440 Skyworks Solutions Inc./1/ 4,939 34,375 Hyperion Solutions Corp./1/ 1,223 33,911 Quest Software Inc./1/ 3,306 33,523 Electronics For Imaging Inc./1/ 1,920 33,408 Cognex Corp./1/ 1,556 33,096 PMC-Sierra Inc./1/ 5,968 32,824 Avaya Inc./1/ 12,908 32,528 Macromedia Inc./1/ 2,212 32,406 Andrew Corp./1/ 3,500 32,340 Varian Semiconductor Equipment Associates Inc./1/ 1,230 31,906 Red Hat Inc./1/ 6,109 31,400 Lattice Semiconductor Corp./1/ 4,092 30,895 Titan Corp. (The)/1/ 2,772 30,686 DoubleClick Inc./1/ 4,855 30,635 Gateway Inc./1/ 11,643 30,505 Sycamore Networks Inc./1/ 9,839 30,403 Take-Two Interactive Software Inc./1/ 1,420 30,090 EarthLink Inc./1/ 5,614 29,810 PEC Solutions Inc./1/ 957 29,476 Amkor Technology Inc./1/ 5,838 28,548 Pinnacle Systems Inc./1/ 2,172 28,410 Black Box Corp. 688 28,249 Intergraph Corp./1/ 1,626 28,097 Integrated Device Technology Inc./1/ 3,757 27,990 Micrel Inc./1/ 3,339 27,814 Anteon International Corp./1/ 1,230 27,798 Hotels.com "A"/1/ 672 27,001 Borland Software Corp./1/ 2,562 26,645 Ariba Inc./1/ 9,405 26,437 Ascential Software Corp./1/ 8,455 26,126 Kronos Inc./1/ 700 26,082 Documentum Inc./1/ 1,715 25,331 MKS Instruments Inc./1/ 1,815 24,575 KEMET Corp./1/ 3,141 23,872 Internet Security Systems Inc./1/ 1,805 23,447 NetIQ Corp./1/ 1,951 23,314 InterDigital Communications Corp./1/ 1,916 23,222 Axcelis Technologies Inc./1/ 3,499 23,195 Cypress Semiconductor Corp./1/ 4,390 23,047 McDATA Corp. "A"/1/ 2,898 22,865 Parametric Technology Corp./1/ 9,375 22,500 Adaptec Inc./1/ 3,798 22,484 Quantum Corp./1/ 6,310 21,896 Mentor Graphics Corp./1/ 2,349 21,658 Macrovision Corp./1/ 1,707 20,706 GlobeSpanVirata Inc./1/ 4,582 20,344 RealNetworks Inc./1/ 5,704 20,306 Keane Inc./1/ 2,506 20,274 webMethods Inc./1/ 1,784 19,874 Informatica Corp./1/ 2,841 19,830 Tekelec/1/ 2,223 18,984 CSG Systems International Inc./1/ 1,818 18,907 THQ Inc./1/ 1,413 18,044 Extreme Networks Inc./1/ 4,130 16,892 Palm Inc./1/ 1,028 15,944 Newport Corp./1/ 1,357 15,782 Advent Software Inc./1/ 1,133 15,760 TriQuint Semiconductor Inc./1/ 4,713 15,364 i2 Technologies Inc./1/ 15,206 15,206 Vitesse Semiconductor Corp./1/ 7,231 14,968 WebEx Communications Inc./1/ 1,461 14,785 Plexus Corp./1/ 1,487 13,057 Brooks-PRI Automation Inc./1/ 1,185 12,442 ASE Test Ltd./1/ 3,435 9,889 Openwave Systems Inc./1/ 6,330 7,786 TOTAL COMMON STOCKS (Cost: $75,372,041) 48,990,352 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 20 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------- SHORT TERM INSTRUMENTS - 3.12% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 1,450,480 $ 1,450,480 BlackRock Temp Cash Money Market Fund 71,858 71,858 Dreyfus Money Market Fund 5,749 5,749 Goldman Sachs Financial Square Prime Obligation Fund 1,809 1,809 TOTAL SHORT TERM INSTRUMENTS (cost: $1,529,896) 1,529,896 TOTAL INVESTMENTS IN SECURITIES - 103.15% (cost $76,901,937) 50,520,248 OTHER ASSETS, LESS LIABILITIES - (3.15%) (1,544,466) ------------ NET ASSETS - 100.00% $ 48,975,782 ============ /1/ Non-income earning securities. See notes to financial statements. SCHEDULES OF INVESTMENTS 21 SCHEDULE OF INVESTMENTS (Unaudited) iSHARES GOLDMAN SACHS NETWORKING INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------- COMMON STOCKS - 100.03% Nortel Networks Corp./1/ 926,948 $ 2,196,867 QUALCOMM Inc./1/ 43,651 1,643,897 Lucent Technologies Inc./1/ 870,857 1,619,794 Cisco Systems Inc./1/ 119,129 1,592,755 Motorola Inc. 176,383 1,407,536 Corning Inc./1/ 277,123 1,130,662 JDS Uniphase Corp./1/ 304,419 824,975 Juniper Networks Inc./1/ 89,819 787,713 Tellabs Inc./1/ 99,454 774,747 Broadcom Corp. "A"/1/ 49,222 666,466 CIENA Corp./1/ 104,525 606,245 Marvell Technology Group Ltd./1/ 28,998 529,793 UTStarcom Inc./1/ 25,721 495,644 ADC Telecommunications Inc./1/ 192,451 442,637 Comverse Technology Inc./1/ 45,337 431,608 Scientific-Atlanta Inc. 37,284 413,852 Agere Systems Inc. "B"/1/ 219,397 381,751 3Com Corp./1/ 88,802 375,632 Advanced Fibre Communications Inc./1/ 20,306 342,968 Agere Systems Inc. "A"/1/ 176,726 312,805 ADTRAN Inc./1/ 8,995 302,682 Polycom Inc./1/ 23,983 270,528 Applied Micro Circuits Corp./1/ 73,003 264,271 Foundry Networks Inc./1/ 29,100 241,530 Research in Motion Ltd./1/ 18,851 240,539 Skyworks Solutions Inc./1/ 33,228 231,267 PMC-Sierra Inc./1/ 40,365 222,008 Avaya Inc./1/ 87,794 221,241 Sycamore Networks Inc./1/ 65,693 202,991 Pinnacle Systems Inc./1/ 14,578 190,680 InterDigital Communications Corp./1/ 12,869 155,972 GlobeSpanVirata Inc./1/ 31,474 139,745 Extreme Networks Inc./1/ 27,828 113,817 Vitesse Semiconductor Corp./1/ 48,535 100,467 Openwave Systems Inc./1/ 43,245 53,191 TOTAL COMMON STOCKS (Cost: $36,764,369) 19,929,276 SHORT TERM INSTRUMENTS - 5.64% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 1,064,599 1,064,599 BlackRock Temp Cash Money Market Fund 52,927 52,927 Dreyfus Money Market Fund 4,234 4,234 Goldman Sachs Financial Square Prime Obligation Fund 1,333 1,333 TOTAL SHORT TERM INSTRUMENTS (Cost: $1,123,093) 1,123,093 TOTAL INVESTMENTS IN SECURITIES - 105.67% (Cost $37,887,462) 21,052,369 Other Assets, Less Liabilities - (5.67%) (1,130,248) ----------- Net Assets - 100.00% $19,922,121 =========== /1/ Non-income earning securities. See notes to financial statements. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 22 SCHEDULE OF INVESTMENTS (Unaudited) iSHARES GOLDMAN SACHS SEMICONDUCTOR INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------- COMMON STOCKS - 100.00% Texas Instruments Inc. 370,166 $ 5,885,639 Intel Corp. 354,902 5,557,765 Motorola Inc. 677,404 5,405,684 ST Microelectronics NV - NY Shares 293,439 5,387,540 Applied Materials Inc./1/ 449,279 5,377,870 Maxim Integrated Products Inc. 113,730 3,542,690 Analog Devices Inc./1/ 129,832 3,106,880 Linear Technology Corp. 110,762 2,894,211 Xilinx Inc./1/ 119,661 2,368,091 KLA-Tencor Corp./1/ 66,996 2,186,749 Micron Technology Inc./1/ 214,760 1,763,180 Microchip Technology Inc. 72,082 1,592,291 Novellus Systems Inc./1/ 52,763 1,553,870 Altera Corp./1/ 135,793 1,491,007 ASM Lithography Holding NV "R"/1/ 171,175 1,371,112 Broadcom Corp. "A"/1/ 72,428 980,675 National Semiconductor Corp./1/ 64,269 848,351 Marvell Technology Group Ltd./1/ 42,630 778,850 Teradyne Inc./1/ 65,047 675,838 Intersil Corp. "A"/1/ 45,827 664,492 Advanced Micro Devices Inc./1/ 121,990 639,228 LSI Logic Corp./1/ 132,089 582,513 NVIDIA Corp./1/ 55,970 577,610 Rambus Inc./1/ 34,557 535,634 Lam Research Corp./1/ 44,478 519,948 Integrated Circuit Systems Inc./1/ 24,066 505,386 Agere Systems Inc. "A"/1/ 259,657 459,593 Fairchild Semiconductor International Corp. "A"/1/ 41,531 454,349 International Rectifier Corp./1/ 22,692 450,436 Silicon Laboratories Inc./1/ 17,321 426,789 Applied Micro Circuits Corp./1/ 107,283 388,364 ATI Technologies Inc./1/ 84,089 374,197 Cymer Inc./1/ 12,094 373,826 SanDisk Corp./1/ 24,486 373,460 Semtech Corp./1/ 25,976 346,000 Skyworks Solutions Inc./1/ 48,825 339,822 Atmel Corp./1/ 165,559 339,396 RF Micro Devices Inc./1/ 60,092 337,717 PMC-Sierra Inc./1/ 59,437 326,904 Varian Semiconductor Equipment Associates Inc./1/ 11,979 310,735 Lattice Semiconductor Corp./1/ 39,891 301,177 Amkor Technology Inc./1/ 58,618 286,642 Integrated Device Technology Inc./1/ 36,580 272,521 Micrel Inc./1/ 32,500 270,725 MKS Instruments Inc./1/ 18,214 246,618 Axcelis Technologies Inc./1/ 34,867 231,133 Cypress Semiconductor Corp./1/ 43,915 230,554 GlobeSpanVirata Inc./1/ 46,328 205,696 TriQuint Semiconductor Inc./1/ 47,028 153,311 Vitesse Semiconductor Corp./1/ 71,196 147,376 Brooks-PRI Automation Inc./1/ 12,046 126,483 ASE Test Ltd./1/ 34,508 99,349 TOTAL COMMON STOCKS (Cost: $93,380,973) 64,666,277 SHORT TERM INSTRUMENTS - 9.46% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 5,795,078 5,795,078 BlackRock Temp Cash Money Market Fund 289,302 289,302 Dreyfus Money Market Fund 23,144 23,144 Goldman Sachs Financial Square Prime Obligation Fund 7,284 7,284 TOTAL SHORT TERM INSTRUMENTS (Cost: $6,114,808) 6,114,808 TOTAL INVESTMENTS IN SECURITIES - 109.46% (Cost $99,495,781) 70,781,085 Other Assets, Less Liabilities - (9.46%) (6,115,494) ----------- NET ASSETS - 100.00% $64,665,591 =========== /1/ Non-income earning securities. See notes to financial statements. SCHEDULES OF INVESTMENTS 23 SCHEDULE OF INVESTMENTS (Unaudited) iSHARES GOLDMAN SACHS SOFTWARE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ------------------------------------------------------------------ COMMON STOCKS - 100.01% Oracle Corp./1/ 178,048 $ 2,141,917 Microsoft Corp./1/ 37,453 1,777,519 Intuit Inc./1/ 35,584 1,569,254 Computer Associates International Inc. 99,390 1,328,844 Veritas Software Corp./1/ 71,361 1,302,481 Electronic Arts Inc./1/ 24,496 1,269,138 Symantec Corp./1/ 25,079 1,170,688 Adobe Systems Inc. 40,962 1,082,216 PeopleSoft Inc./1/ 54,262 1,052,140 BEA Systems Inc./1/ 71,003 813,694 BMC Software Inc./1/ 40,817 719,604 Siebel Systems Inc./1/ 83,999 702,232 Check Point Software Technologies Ltd./1/ 42,124 603,637 Mercury Interactive Corp./1/ 14,651 520,843 Synopsys Inc./1/ 13,123 507,466 Amdocs Ltd./1/ 38,723 503,012 Cadence Design Systems Inc./1/ 46,651 462,778 Fair Isaac and Co. Inc. 8,792 437,402 Network Associates Inc./1/ 27,139 414,413 Citrix Systems Inc./1/ 29,664 409,363 Rational Software Corp./1/ 33,854 352,082 VeriSign Inc./1/ 41,151 339,496 Cognos Inc./1/ 14,657 334,033 Autodesk Inc. 19,669 293,855 Edwards (J.D.) & Co./1/ 20,702 259,396 Sybase Inc./1/ 16,405 235,904 Compuware Corp./1/ 65,539 229,387 Novell Inc./1/ 63,177 204,693 TIBCO Software Inc./1/ 36,427 204,355 Activision Inc./1/ 11,647 169,464 Hyperion Solutions Corp./1/ 5,920 164,150 Quest Software Inc./1/ 15,740 159,604 Red Hat Inc./1/ 29,477 151,512 Take-Two Interactive Software Inc./1/ 6,874 145,660 Ariba Inc./1/ 46,020 129,362 Borland Software Corp./1/ 12,381 128,762 Kronos Inc./1/ 3,397 126,572 Documentum Inc./1/ 8,295 122,517 NetIQ Corp./1/ 9,600 114,720 Internet Security Systems Inc./1/ 8,599 111,701 Parametric Technology Corp./1/ 45,204 108,490 Mentor Graphics Corp./1/ 11,551 106,500 webMethods Inc./1/ 8,857 98,667 Informatica Corp./1/ 14,055 98,104 THQ Inc./1/ 6,867 87,692 Advent Software Inc./1/ 5,655 78,661 i2 Technologies Inc./1/ 75,056 75,056 TOTAL COMMON STOCKS (Cost: $35,245,292) 23,419,036 SHORT TERM INSTRUMENTS--1.49% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 330,121 330,121 BlackRock Temp Cash Money Market Fund 16,375 16,375 Dreyfus Money Market Fund 1,310 1,310 Goldman Sachs Financial Square Prime Obligation Fund 412 412 TOTAL SHORT TERM INSTRUMENTS (Cost: $348,218) 348,218 TOTAL INVESTMENTS IN SECURITIES - 101.50% (Cost $35,593,510) 23,767,254 Other Assets, Less Liabilities - (1.50%) (351,926) ----------- NET ASSETS - 100.00% $23,415,328 =========== /1/ Non-income earning securities. See notes to financial statements. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 24 SCHEDULE OF INVESTMENTS (Unaudited) iSHARES GOLDMAN SACHS NATURAL RESOURCES INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ----------------------------------------------------------------- COMMON STOCKS - 100.00% BP PLC ADR 54,355 $ 2,120,389 Royal Dutch Petroleum Co. - NY Shares 50,269 2,105,768 Exxon Mobil Corp. 61,539 2,101,557 ChevronTexaco Corp. 31,626 2,036,714 ConocoPhillips 28,820 1,388,836 Schlumberger Ltd. 24,716 931,793 International Paper Co. 20,420 728,994 Alcoa Inc. 35,966 711,048 EnCana Corp. 20,299 637,592 Anadarko Petroleum Corp. 10,586 488,120 Occidental Petroleum Corp. 16,050 468,820 Weyerhaeuser Co. 9,320 447,826 Newmont Mining Corp. 15,002 434,308 Baker Hughes Inc. 14,286 432,294 Apache Corp. 6,477 404,230 Alcan Ltd. 13,672 386,918 Barrick Gold Corp. 23,071 379,518 Burlington Resources Inc. 8,570 377,937 Petro-Canada 11,207 376,331 Halliburton Co. 18,576 348,486 Suncor Energy Inc. 19,131 326,184 Transocean Inc. 13,609 309,877 TransCanada PipeLines Ltd. 20,393 305,895 Unocal Corp. 10,977 305,709 Devon Energy Corp. 6,679 302,559 Marathon Oil Corp. 13,209 276,068 Kinder Morgan Inc. 5,173 233,354 Nabors Industries Ltd./1/ 6,155 226,812 El Paso Corp. 25,517 215,363 GlobalSantaFe Corp. 9,900 215,127 Talisman Energy Inc. 5,682 214,893 BJ Services Co./1/ 6,698 204,758 MeadWestvaco Corp. 8,500 204,425 Enbridge Inc. 7,219 200,255 Noble Corp./1/ 5,616 192,516 Placer Dome Inc. 16,897 190,598 EOG Resources Inc. 4,913 190,428 Weatherford International Ltd./1/ 5,122 190,334 Amerada Hess Corp. 3,793 179,030 Kerr-McGee Corp. 4,265 178,149 Canadian Natural Resources Ltd. 5,682 177,165 Inco Ltd./1/ 7,778 174,072 Plum Creek Timber Co. Inc. 7,854 171,374 ENSCO International Inc. 6,347 170,988 Murphy Oil Corp. 3,896 164,411 Georgia-Pacific Corp. 10,653 163,843 Valero Energy Corp. 4,541 156,165 Smurfit-Stone Container Corp./1/ 10,387 146,664 Abitibi-Consolidated Inc. 18,745 140,587 Ocean Energy Inc. 7,496 140,400 Smith International Inc./1/ 4,311 137,262 XTO Energy Inc. 5,384 131,047 Phelps Dodge Corp./1/ 3,780 130,599 Pioneer Natural Resources Co./1/ 4,984 121,012 Diamond Offshore Drilling Inc. 5,540 118,113 Freeport-McMoRan Copper & Gold Inc./1/ 6,166 115,736 Nexen Inc. 5,218 113,439 Patterson-UTI Energy Inc./1/ 3,387 103,337 Sunoco Inc. 3,264 102,228 Domtar Inc. 9,681 101,844 Temple-Inland Inc. 2,287 98,844 Bowater Inc. 2,365 96,137 Questar Corp. 3,479 95,673 Goldcorp Inc. 7,754 94,599 Noranda Corp. 10,142 93,611 Pogo Producing Co. 2,596 92,158 Noble Energy Inc. 2,451 87,501 Rowan Companies Inc. 4,003 82,582 Ashland Inc. 2,920 81,001 Pride International Inc./1/ 5,754 80,556 Precision Drilling Corp./1/ 2,295 78,214 Packaging Corporation of America/1/ 4,472 74,995 Newfield Exploration Co./1/ 2,196 72,622 Williams Companies Inc. 21,925 71,037 National-Oilwell Inc./1/ 3,467 70,831 Tidewater Inc. 2,420 70,422 Varco International Inc./1/ 4,118 69,635 Glamis Gold Ltd./1/ 5,207 63,265 Premcor Inc./1/ 2,961 62,033 SCHEDULES OF INVESTMENTS 25 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES GOLDMAN SACHS NATURAL RESOURCES INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ------------------------------------------------------------------- Boise Cascade Corp. 2,498 $ 59,727 Cameco Corp. 2,400 58,080 Peabody Energy Corp. 2,241 57,258 Chesapeake Energy Corp. 7,057 57,162 Grant Prideco Inc./1/ 5,122 54,549 FMC Technologies Inc./1/ 2,802 54,387 Helmerich & Payne Inc. 2,143 53,554 Meridian Gold Inc./1/ 3,260 53,301 CONSOL Energy Inc. 3,344 51,765 Key Energy Services Inc./1/ 5,444 50,411 Rayonier Inc. 1,189 50,390 Forest Oil Corp./1/ 2,014 48,336 Fording Inc. 2,149 47,751 Aber Diamond Corp./1/ 2,316 44,375 Westport Resources Corp./1/ 2,212 44,328 Agnico-Eagle Mines Ltd. 2,989 43,550 Tom Brown Inc./1/ 1,685 42,091 Kinross Gold Corp./1/ 17,410 41,436 Houston Exploration Co./1/ 1,310 38,841 Arch Coal Inc. 2,247 38,783 Stone Energy Corp./1/ 1,129 38,397 Patina Oil & Gas Corp. 1,177 37,958 Hurricane Hydrocarbons Ltd. "A"/1/ 3,458 37,001 Evergreen Resources Inc./1/ 805 34,832 SEACOR SMIT Inc./1/ 856 34,009 CAL Dive International Inc./1/ 1,581 33,691 Unit Corp./1/ 1,834 32,755 Louisiana-Pacific Corp./1/ 4,482 32,719 Hanover Compressor Co./1/ 3,404 31,759 Cabot Oil & Gas Corp. "A" 1,345 31,621 Grey Wolf Inc./1/ 7,652 29,460 Vintage Petroleum Inc. 2,687 29,100 Spinnaker Exploration Co./1/ 1,419 28,196 Potlatch Corp. 1,206 24,687 Wausau-Mosinee Paper Corp. 2,175 21,533 Global Industries Ltd./1/ 4,216 15,599 TOTAL COMMON STOCKS (Cost: $31,914,453) 27,769,207 SHORT TERM INSTRUMENTS - 3.37% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 888,239 888,239 BlackRock Temp Cash Money Market Fund 44,383 44,383 Dreyfus Money Market Fund 3,551 3,551 Goldman Sachs Financial Square Prime Obligation Fund 1,117 1,117 TOTAL SHORT TERM INSTRUMENTS (Cost: $937,290) 937,290 TOTAL INVESTMENTS IN SECURITIES - 103.37% (Cost $32,851,743) 28,706,497 Other Assets, Less Liabilities - (3.37%) (936,763) ------------- NET ASSETS - 100.00% $ 27,769,734 ============= /1/ Non-income earning securities. see notes to financial statements. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 26 SCHEDULE OF INVESTMENTS (Unaudited) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- COMMON STOCKS AND RIGHTS - 99.25% AUSTRALIA - 4.95% Alumina Ltd. 491,516 $ 1,354,195 Amcor Ltd. 261,002 1,266,835 AMP Ltd. 467,311 2,512,009 Ansell Ltd./1/ 158,835 695,525 Aristocrat Leisure Ltd. 141,007 373,616 Australia and New Zealand Banking Group Ltd. 566,191 5,721,976 Australian Gas & Light Co. Ltd. 174,173 1,084,304 Australian Stock Exchange Ltd. 59,122 406,530 BHP Steel/1/ 290,061 596,818 Boral Ltd. 299,833 755,777 Brambles Industries Ltd. 375,229 1,007,413 BRL Hardy Ltd. 73,542 446,192 Broken Hill Proprietary Co. Ltd. 1,456,523 7,616,019 Coca-Cola Amatil Ltd. 198,584 667,029 Cochlear Ltd. 20,188 437,866 Coles Myer Ltd. 452,891 1,667,244 Commonwealth Bank of Australia 512,631 7,786,066 Commonwealth Property Office Fund 443,312 317,041 Computershare Ltd. 256,676 300,927 CSL Ltd. 64,684 673,419 CSR Ltd. 404,687 1,470,811 Deutsche Office Trust 479,877 329,126 Foster's Group Ltd. 896,924 2,271,356 Futuris Corp. Ltd. 303,129 239,887 General Property Trust 687,113 1,172,106 Goodman Fielder Ltd. 681,551 699,169 Harvey Normand Holdings Ltd. 188,181 265,851 Iluka Resources Ltd. 176,748 461,063 Insurance Australia Group Ltd. 578,242 915,207 James Hardie Industries NV 174,791 676,252 John Fairfax Holdings Ltd. 288,606 532,920 Leighton Holdings Ltd. 80,134 482,898 Lend Lease Corp. Ltd. 168,096 892,753 M.I.M. Holdings Ltd. 1,030,618 930,388 Macquarie Bank Ltd. 64,272 981,466 Macquarie Infrastructure Group 681,036 1,273,522 Mayne Nickless Ltd. 374,722 705,115 Mirvac Group 532,098 1,300,689 National Australia Bank Ltd. 618,824 11,499,322 Newcrest Mining Ltd. 134,724 520,447 News Corp. Ltd. 531,171 3,518,509 Origin Energy Ltd. 254,101 579,431 PaperlinX Ltd. 197,760 598,183 Principal Office Fund 707,095 601,024 QBE Insurance Group Ltd. 211,356 958,962 Rio Tinto Ltd. 140,183 2,623,035 Santos Ltd. 411,897 1,434,237 Sons of Gwalia Ltd. 232,677 324,621 Southcorp Ltd. 303,541 779,359 Stockland Trust Group 276,761 804,697 Suncorp-Metway Ltd. 168,920 1,066,455 TAB Ltd. 310,030 567,028 TABCORP Holdings Ltd. 163,049 960,572 Telstra Corp. Ltd. 840,583 2,212,446 Transurban Group 193,331 466,922 Wesfarmers Ltd. 126,999 2,099,400 Westfield Holdings Ltd. 168,817 1,374,562 Westfield Trust 699,782 1,419,334 Westpac Banking Corp. Ltd. 637,879 5,291,034 WMC Resources Ltd./1/ 419,519 978,770 Woodside Petroleum Ltd. 236,900 1,620,622 Woolworths Ltd. 421,682 2,951,448 96,537,800 BELGIUM - 1.09% AGFA Gevaert NV 41,921 987,798 Bekaert NV 11,639 505,276 Colruyt NV 9,476 537,107 Compagnie Maritime Belge SA 9,373 522,213 Delhaize-Le Lion SA 32,239 573,810 Dexia Group 219,184 2,517,646 Electrabel SA 11,742 2,997,478 Fortis Group 385,735 6,062,227 Groupe Bruxelles Lambert SA 33,269 1,332,499 Interbrew SA 63,551 1,266,883 SCHEDULES OF INVESTMENTS 27 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- KBC Bankverzekerings Holding NV 36,256 $ 1,115,081 Omega Pharma SA 10,815 311,610 Solvay SA 16,995 1,117,453 UCB SA 28,222 837,087 Umicore Mines SA 12,257 496,710 21,180,878 DENMARK - 0.80% A/S Dampskibsselskabet Svendborg "B" 103 1,018,360 Carlsberg A/S "B" 10,300 411,804 Coloplast A/S 8,961 618,241 D/S 1912 "B" 103 689,809 Danisco A/S 30,900 1,021,333 Danske Bank A/S 229,278 3,722,959 GN Store Nord A/S/1/ 164,491 455,844 Group 4 Falck A/S 41,200 817,661 H. Lundbeck A/S 27,501 674,793 ISS A/S/1/ 20,600 719,542 NEG Micon A/S/1/ 10,300 101,836 Novo Nordisk A/S "B" 99,189 2,712,977 Novozymes A/S "B" 20,600 382,071 TDC A/S 51,500 1,330,557 Topdanmark A/S/1/ 20,600 594,662 Vestas Wind Systems A/S 41,200 333,011 15,605,460 FINLAND - 1.90% Amer Group Ltd. 8,652 318,576 Fortum OYJ 229,484 1,478,106 Instrumentarium Corp. 15,450 621,296 Kone Corp. "B" 9,167 299,652 Metso Corp. 32,548 330,186 Nokia OYJ 1,935,061 27,170,927 Outokumpu OYJ 31,621 282,763 Sampo OYJ "A" 118,656 859,796 Stora Enso OYJ "R" 254,719 2,400,811 TietoEnator OYJ 45,423 637,802 UPM-Kymmene OYJ 90,434 2,538,666 36,938,581 FRANCE - 9.30% Accor SA 78,383 $ 2,408,206 Air France 36,668 341,672 Alcatel SA "A" 438,471 3,172,509 Alstom/1/ 79,825 382,187 Atos Origin SA/1/ 8,137 226,413 Autoroutes du Sud de la France SA/1/ 29,973 762,893 Aventis SA 257,809 13,085,116 AXA AG 527,257 6,463,839 BIC SA 16,686 528,416 BNP Paribas SA 312,502 12,335,265 Bouygues SA 69,113 1,756,144 Business Objects SA/1/ 21,939 351,624 Cap Gemini SA 36,977 997,531 Carrefour SA 221,450 8,795,883 Club Mediterranee SA/1/ 5,871 152,080 Compagnie de Saint-Gobain SA 120,716 3,519,627 Compagnie Generale des Etablissements Michelin "B" 55,002 1,753,626 Dassault Systemes SA 15,038 333,359 Essilor International SA 36,050 1,334,365 Etablissements Economiques du Casino Guichard-Perrachon SA 12,154 753,483 European Aeronautic Defence and Space Co. 128,441 1,337,450 France Telecom SA 157,590 4,060,149 Groupe Danone 49,028 6,168,419 Imerys SA 5,459 634,078 Lafarge SA 52,221 3,259,845 Lagardere S.C.A. 54,590 2,221,030 L'Air Liquide SA 37,806 4,736,239 L'Oreal SA 129,883 8,965,310 LVMH Moet Hennessy Louis Vuitton SA 84,357 3,566,144 Pechiney SA "A" 31,827 895,157 Pernod Ricard 18,849 1,829,190 Pinault-Printemps-Redoute SA 24,617 1,852,487 PSA Peugeot Citroen 66,538 2,779,999 Publicis Groupe 31,827 656,334 Renault SA 59,637 2,838,661 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 28 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- Sanofi-Synthelabo SA 149,247 $ 7,794,540 Schneider Electric SA 76,735 3,349,368 Societe Generale "A" 116,081 6,778,945 Societe Television Francaise 1 52,015 1,279,251 Sodexho Alliance SA 39,964 997,456 STMicroelectronics NV 228,351 4,110,911 Suez SA 314,974 6,167,393 Technip-Coflexip SA 10,204 638,618 Thales/Ex Thomson CSF 30,591 855,139 Thomson Multimedia SA/1/ 66,538 1,078,571 TotalFinaElf SA 247,406 33,358,147 Union du Credit Bail Immobilier 11,536 780,185 Valeo SA 28,943 831,131 Vinci SA 24,720 1,548,429 Vivendi Universal SA 352,981 5,926,389 Zodiac SA 28,840 600,619 181,349,822 GERMANY - 5.68% Adidas-Salomon AG 19,055 1,536,416 Aixtron AG 38,934 168,436 Allianz AG 70,143 5,563,807 Altana AG 30,900 1,287,704 BASF AG 200,541 7,431,492 Bayer AG 267,800 4,711,851 Bayerische Hypo-Und Vereinsbank AG 134,415 1,803,681 Beiersdorf AG 10,300 1,107,032 Buderus AG 28,737 752,720 Continental AG/1/ 41,200 641,309 DaimlerChrysler AG 334,956 10,240,704 Deutsche Bank AG 215,270 9,123,526 Deutsche Boerse AG 16,686 621,024 Deutsche Lufthansa AG/1/ 82,400 766,917 Deutsche Post AG 133,900 1,448,916 Deutsche Telekom AG 804,327 10,136,845 E.ON AG 228,866 10,380,303 Fresenius Medical Care AG 10,300 471,141 Gehe AG 10,300 419,615 Heidelberger Zement AG 15,450 472,191 Infineon Technologies AG/1/ 132,355 923,540 Karstadtquelle AG 20,600 314,020 Linde AG 41,200 1,338,788 MAN AG 50,586 752,111 Marschollek, Lautenschlaeger und Partner AG 33,269 332,857 Merck KGaA 20,600 616,983 Metro AG 51,500 1,053,184 Muenchener Rueckversicherungs- Gesellschaft AG 38,934 3,719,813 RWE AG 123,085 3,386,537 SAP AG 79,001 7,344,336 Schering AG 72,100 2,877,708 Siemens AG 308,588 12,637,921 ThyssenKrupp AG 154,500 1,708,314 TUI AG 61,800 812,030 Volkswagen AG 92,185 3,817,900 110,721,672 GREECE - 0.32% Hellenic Telecommunications Organization SA 553,126 3,329,819 National Bank of Greece SA ADR 1,044,516 2,872,419 6,202,238 HONG KONG - 1.73% Bank of East Asia Ltd. 576,800 1,068,573 BOC Hong Kong Holdings Ltd./1/ 875,500 903,572 Cathay Pacific Airways Ltd. 515,000 769,209 Cheung Kong (Holdings) Ltd. 618,000 4,040,821 Cheung Kong Infrastructure Holdings Ltd. 206,000 356,543 CLP Holdings Ltd. 721,000 2,902,524 Giordano International Ltd. 618,000 219,868 Hang Lung Properties Ltd. 515,000 485,295 Hang Seng Bank Ltd. 319,300 3,397,723 Henderson Land Development Co. Ltd. 206,000 591,597 SCHEDULES OF INVESTMENTS 29 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- Hong Kong & China Gas Co. Ltd. 1,545,200 $ 1,941,430 Hong Kong Exchanges & Clearing Ltd. 412,000 491,237 Hongkong Electric Holdings Ltd. 566,500 2,138,928 Hutchison Whampoa Ltd. 824,000 5,176,477 Hysan Development Co. Ltd. 309,000 229,772 Johnson Electric Holdings Ltd. 669,500 768,218 Li & Fung Ltd. 618,000 594,238 MTR Corp. Ltd. 515,000 551,321 New World Development Co. Ltd. 515,000 244,298 PCCW Ltd./1/ 679,800 544,719 Shangri-La Asia Ltd. 412,000 274,670 Sun Hung Kai Properties Ltd. 515,000 2,964,589 Swire Pacific Ltd. "A" 412,000 1,711,407 Television Broadcasts Ltd. 103,000 313,626 Wharf Holdings Ltd. 515,000 1,039,917 33,720,572 IRELAND - 0.85% Allied Irish Banks PLC 360,603 4,954,974 Bank of Ireland 417,871 4,239,124 CRH PLC 222,686 2,808,878 DCC PLC/1/ 51,191 555,031 Elan Corporation PLC/1/ 171,186 771,826 Independent News & Media PLC/1/ 311,678 505,225 Irish Life & Permanent PLC/1/ 129,677 1,419,924 Kerry Group PLC "A"/1/ 48,410 623,098 Ryanair Holdings PLC/1/ 88,752 637,392 Waterford Wedgwood PLC 336,707 140,967 16,656,439 ITALY - 3.95% Alleanza Assicurazioni SpA 172,834 1,306,183 Arnoldo Mondadori Editore SpA 51,500 311,256 Assicurazioni Generali SpA 390,782 8,255,848 Autogrill SpA/1/ 56,650 454,887 Autostrade SpA 350,200 3,496,239 Banca Fideuram SpA 108,150 487,616 Banca Intesa SpA 1,416,250 2,934,265 Banca Monte dei Paschi di Siena SpA 386,765 873,980 Banca Nazionale del Lavoro SpA/1/ 669,500 811,422 Banca Popolare di Milano SCRL/1/ 175,100 624,060 Bulgari SpA 61,800 268,686 Capitalia SpA 587,203 769,673 Enel SpA 876,839 4,979,406 Eni SpA 1,131,352 17,112,395 Fiat SpA 92,700 788,147 Gruppo Editoriale L'Espresso SpA 95,275 278,707 Italcementi SpA 51,500 493,697 Luxottica Group SpA 51,500 624,171 Mediaset SpA 236,900 1,622,512 Mediobanca SpA 190,550 1,724,402 Parmalat Finanziaria SpA 180,250 425,696 Pirelli SpA 283,250 252,985 Riunione Adriatica di Sicurta SpA 154,500 1,726,558 Sanpaolo IMI SpA 339,900 2,269,570 Seat-Pagine Gialle SpA/1/ 2,002,835 1,328,727 Snam Rete Gas SpA 206,000 703,228 Telecom Italia Mobile SpA 1,442,000 6,486,066 Telecom Italia SpA 777,650 3,806,721 Telecom Italia SpA "A" 916,700 6,937,746 Tiscali SpA/1/ 62,830 295,422 Unicredito Italiano SpA 1,236,000 4,444,934 76,895,205 JAPAN - 21.18% Acom Co. Ltd. 27,810 850,948 Aderans Co. Ltd. 10,300 209,109 Advantest Corp. 30,900 1,360,280 AEON Co. Ltd. 92,700 2,121,573 AEON Credit Service Co. Ltd. 10,300 295,414 AIFUL Corp. 15,450 620,885 Ajinomoto Co. Inc. 206,000 2,114,274 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 30 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- All Nippon Airways Co. Ltd./1/ 206,000 $ 403,618 Alps Electric Co. Ltd. 103,000 1,188,528 Amada Co. Ltd. 103,000 287,686 Asahi Breweries Ltd. 206,000 1,334,517 Asahi Glass Co. Ltd. 309,000 1,803,402 Asahi Kasei Corp. 515,000 1,356,845 Avex Inc. 10,300 108,633 Bank of Fukuoka Ltd. 206,000 771,169 Bank of Yokohama Ltd. 412,000 1,439,286 Bellsystem24 Inc. 2,060 316,025 Benesse Corp. 20,600 245,950 Bridgestone Corp. 206,000 2,286,026 Canon Inc. 309,000 10,794,647 Central Japan Railway Co. 412 2,473,237 Chiba Bank Ltd. (The) 309,000 906,853 Chubu Electric Power Co. Inc. 226,600 3,967,484 Chugai Pharmaceutical Co. Ltd. 103,000 952,368 Citizen Watch Co. Ltd. 103,000 468,884 Coca Cola West Japan Co. Ltd. 20,600 295,586 Credit Saison Co. Ltd. 51,500 858,333 CSK Corp. 30,900 552,614 Dai Nippon Printing Co. Ltd. 206,000 2,155,494 Daicel Chemical Industries Ltd. 103,000 304,861 Daiei Inc. (The)/1/ 103,000 103,052 Daiichi Pharmaceutical Co. Ltd. 103,000 1,385,184 Daikin Industries Ltd. 103,000 1,455,603 Daimaru Inc. (The) 103,000 360,680 Dainippon Ink & Chemical Inc./1/ 309,000 510,105 Dainippon Screen Manufacturing Co. Ltd./1/ 103,000 407,054 Daito Trust Construction Co. Ltd. 41,200 790,062 Daiwa House Industry Co. Ltd. 206,000 1,149,025 Daiwa Securities Group Inc. 515,000 2,438,886 Denso Corp. 206,000 3,175,705 Dowa Mining Co. Ltd. 103,000 397,607 East Japan Railway Co. 1,236 5,678,139 Ebara Corporation 103,000 285,968 Eisai Co. Ltd. 92,700 1,847,199 FamilyMart Co. Ltd. 20,600 353,810 Fanuc Ltd. 41,200 1,741,571 Fast Retailing Co. Ltd. 20,600 565,066 Fuji Electric Co. Ltd. 206,000 346,940 Fuji Machine Manufacturing Co. Ltd. 20,600 156,295 Fuji Photo Film Co. Ltd. 206,000 6,200,267 Fuji Soft ABC Inc. 10,300 171,581 Fuji Television Network Inc. 103 378,714 Fujisawa Pharmaceutical Co. Ltd. 103,000 2,155,494 Fujitsu Ltd. 721,000 1,983,742 Furukawa Electric Co. Ltd. 206,000 516,975 Gunma Bank Ltd. 103,000 430,240 Heavy Industries Co. Ltd. 515,000 536,727 Hino Motors Ltd. 103,000 363,257 Hirose Electric Co. Ltd. 10,300 746,265 Hitachi Cable Ltd. 103,000 270,510 Hitachi Ltd. 1,030,000 4,293,814 Hitachi Software Engineering Co. Ltd. 10,300 225,425 Hitachi Zosen Corp./1/ 412,000 89,311 Hokuriku Bank Ltd. (The)/1/ 206,000 281,674 Honda Motor Co. Ltd. 247,200 8,223,512 Hoya Corp. 41,200 2,600,334 Isetan Co. Ltd. 92,700 598,214 Ito En Ltd. 10,300 315,166 Itochu Corp. 515,000 1,253,794 Itochu Techno-Science Corp. 10,300 192,363 Ito-Yokado Co. Ltd. 103,000 2,756,628 Japan Airlines System Corp./1/ 206,000 419,076 Japan Tobacco Inc. 309 1,950,250 JFE Holdings Inc./1/ 195,775 2,502,277 JGC Corp. 103,000 620,027 Joyo Bank Ltd. 309,000 821,836 JSR Corp. 103,000 962,673 Kajima Corp. 309,000 638,919 Kamigumi Co. Ltd. 103,000 455,144 Kanebo Ltd./1/ 206,000 218,126 Kaneka Corp. 103,000 559,913 Kansai Electric Power Co. Inc. 267,800 3,893,974 Kao Corp. 206,000 4,199,350 SCHEDULES OF INVESTMENTS 31 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- Kawasaki Heavy Industries Ltd./1/ 515,000 $ 429,381 Kawasaki Kisen Kaisha Ltd. 309,000 556,478 Keihin Electric Express Railway Co. Ltd. 103,000 458,579 Keio Electric Railway Co. Ltd. 206,000 980,707 Keyence Corp. 10,300 1,693,480 Kikkoman Corp. 103,000 681,858 Kinden Corp. 103,000 358,104 Kinki Nippon Railway Co. Ltd./1/ 618,000 1,246,923 Kirin Brewery Co. Ltd. 309,000 2,207,879 Komatsu Ltd. 309,000 1,033,092 Konami Company Ltd. 30,900 649,225 Konica Corp. 103,000 724,796 Kubota Corp. 412,000 1,116,392 Kuraray Co. Ltd. 103,000 570,218 Kyocera Corp. 61,800 3,426,463 Kyowa Hakko Kogyo Co. Ltd. 103,000 427,664 Kyushu Electric Power Co. Inc. 144,200 2,073,912 Lawson Inc. 30,900 808,955 Mabuchi Motor Co. Ltd. 10,300 841,587 Marubeni Corp./1/ 515,000 510,964 Marui Co. Ltd. 103,000 900,842 Matsushita Electric Industrial Co. Ltd. 824,868 7,874,553 Matsushita Electric Works Ltd. 206,000 1,195,398 Meiji Dairies Corp. 103,000 315,166 Meiji Seika Kaisha Ltd. 103,000 290,262 Meitec Corp. 20,600 411,347 Millea Holdings Inc./1/ 515 3,662,623 Minebea Co. Ltd. 103,000 374,421 Mitsubishi Chemical Corp./1/ 618,000 1,200,550 Mitsubishi Corp. 412,000 2,644,989 Mitsubishi Electric Corp./1/ 618,000 1,633,367 Mitsubishi Estate Co. Ltd. 309,000 2,194,998 Mitsubishi Gas Chemical Co. Inc. 103,000 145,131 Mitsubishi Heavy Industries Ltd. 1,133,000 2,720,560 Mitsubishi Materials Corp./1/ 412,000 446,557 Mitsubishi Rayon Co. 206,000 492,930 Mitsubishi Tokyo Financial Group Inc. 1,339 6,988,611 Mitsui & Co. Ltd. 515,000 2,533,350 Mitsui Chemicals Inc. 206,000 903,418 Mitsui Engineering & Shipbuilding Co. Ltd./1/ 309,000 237,019 Mitsui Fudosan Co. Ltd. 309,000 1,986,318 Mitsui Mining & Smelting Co. 309,000 711,056 Mitsui O.S.K. Lines Ltd. 309,000 626,038 Mitsui Sumitomo Insurance Co. Ltd. 412,160 1,958,739 Mitsui Trust Holdings Inc. 206,000 357,245 Mitsukoshi Ltd. 103,000 253,335 Mizuho Holdings Inc. 2,266 2,172,670 Murata Manufacturing Co. Ltd. 92,700 3,586,193 Namco Ltd. 20,600 323,582 NEC Corp. 515,000 1,846,340 Net One Systems Co. Ltd. 103 432,816 NGK Insulators Ltd. 103,000 558,196 Nichirei Corp. 103,000 297,132 Nidec Corp. 10,300 589,111 Nikko Cordial Corp. 515,000 1,854,927 Nikon Corp./1/ 103,000 770,310 Nintendo Co. Ltd. 41,200 3,242,688 Nippon Express Co. Ltd. 309,000 1,102,651 Nippon Meat Packers Inc. 103,000 991,871 Nippon Mining Holdings Inc./1/ 309,000 401,901 Nippon Oil Corp. 515,000 2,026,680 Nippon Sanso Corp. 103,000 291,979 Nippon Sheet Glass Co. Ltd. 103,000 188,069 Nippon Steel Corp. 2,266,000 2,663,882 Nippon System Development Co. Ltd. 10,300 130,532 Nippon Telegraph & Telephone Corp. 2,060 6,904,452 Nippon Unipac Holding 309 1,308,754 Nippon Yusen Kabushiki Kaisha 412,000 1,356,845 Nishimatsu Construction Co. Ltd. 103,000 278,239 Nissan Chemical Industries Ltd. 103,000 395,031 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 32 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- Nissan Motor Co. Ltd. 885,800 $ 6,742,833 Nisshin Seifun Group Inc. 103,000 662,106 Nissin Food Products Co. Ltd. 30,900 602,851 Nitto Denko Corp. 51,500 1,348,257 Nomura Holdings Inc. 721,000 8,662,339 NSK Ltd. 206,000 570,218 NTN Corp. 103,000 370,127 NTT Data Corp. 515 1,412,665 NTT DoCoMo Inc. 6,798 13,092,696 Obayashi Corp. 309,000 680,140 Oji Paper Co. Ltd. 309,000 1,401,501 Oki Electric Industry Co. Ltd./1/ 206,000 348,658 Okumura Corp. 103,000 327,189 Olympus Optical Co. Ltd. 103,000 1,566,383 Omron Corp. 103,000 1,478,789 Oracle Corp. Japan 10,300 285,968 Oriental Land Co. Ltd. 20,600 1,143,872 ORIX Corp. 30,900 1,842,046 Osaka Gas Co. Ltd. 721,000 1,707,220 Pioneer Corp. 51,500 985,430 Promise Co. Ltd. 30,900 971,261 Resona Holdings Inc./1/ 1,648,000 824,412 Ricoh Co. Ltd. 206,000 3,127,614 Rohm Co. Ltd. 41,200 4,695,715 SAIZERIYA Co. Ltd. 10,399 108,811 Sankyo Co. Ltd. 123,600 1,686,953 Sanyo Electric Co. Ltd. 618,000 1,751,876 Sapporo Breweries Ltd. 103,000 188,069 Secom Co. Ltd. 51,500 1,498,541 Sega Corp./1/ 41,200 281,331 Seino Transportation Co. Ltd. 103,000 596,840 Seiyu Ltd. (The)/1/ 103,000 288,544 Sekisui Chemical Co. Ltd. 206,000 504,952 Sekisui House Ltd. 206,000 1,475,354 Seven-Eleven Japan Co. Ltd. 103,000 2,636,402 77 Bank Ltd. (The) 103,000 383,008 Sharp Corp. 309,000 3,014,257 Shimamura Co. Ltd. 10,300 577,089 Shimano Inc. 30,900 446,986 Shimizu Corp. 206,000 503,235 Shin-Etsu Chemical Co. Ltd. 133,900 4,376,255 Shionogi & Co. Ltd. 103,000 1,282,133 Shiseido Co. Ltd. 103,000 1,228,031 Shizuoka Bank Ltd. 206,000 1,229,748 Showa Denko K.K./1/ 412,000 535,868 Showa Shell Sekiyu K.K. 103,000 669,835 Skylark Co. 30,900 357,846 SMC Corp. 20,600 1,623,062 Softbank Corp. 82,400 1,060,057 Sompo Japan Insurance Inc. 309,000 1,666,858 Sony Corp. 339,900 13,347,749 Stanley Electric Co. Ltd. 103,000 1,215,149 Sumitomo Chemical Co. Ltd. 412,000 1,569,818 Sumitomo Corp. 206,000 965,249 Sumitomo Electric Industries Ltd. 206,000 1,399,783 Sumitomo Forestry Co. Ltd. 103,000 485,201 Sumitomo Metal Industries Ltd./1/ 1,442,000 565,066 Sumitomo Metal Mining Co. Ltd. 206,000 781,474 Sumitomo Mitsui Financial Group Inc./1/ 1,442 4,424,346 Sumitomo Osaka Cement Co. Ltd. 206,000 288,544 Sumitomo Realty & Development Co. Ltd. 103,000 412,206 Sumitomo Trust & Banking Co. Ltd. (The) 309,000 1,167,059 Suruga Bank Ltd. (The) 103,000 433,675 Suzuken Co. Ltd. 20,600 493,789 Taiheiyo Cement Corp. 309,000 427,664 Taisei Corp. 309,000 553,902 Taisho Pharmaceutical Co. Ltd. 103,000 1,527,739 Takara Holdings Inc. 103,000 472,320 Takashimaya Co. Ltd. 103,000 438,828 Takeda Chemical Industries Ltd. 309,000 11,747,874 Takefuji Corp. 31,930 1,629,245 TDK Corp. 41,200 1,693,480 Teijin Ltd. 309,000 816,683 Teikoku Oil Co. Ltd. 103,000 369,268 SCHEDULES OF INVESTMENTS 33 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- Terumo Corp. 61,800 $ 857,904 THK Co. Ltd. 30,900 332,599 TIS Inc. 10,300 151,486 Tobu Railway Co. Ltd./1/ 309,000 793,497 Toda Corp. 103,000 170,035 Toho Co. Ltd. 82,400 730,292 Tohoku Electric Power Co. Inc. 164,800 2,385,299 Tokyo Electric Power Co. Inc. (The) 442,900 8,271,602 Tokyo Electron Ltd. 61,800 2,782,391 Tokyo Gas Co. Ltd. 1,030,000 3,031,432 Tokyu Corp. 412,000 1,377,455 TonenGeneral Sekiyu K.K. 206,000 1,236,618 Toppan Printing Co. Ltd. 206,000 1,401,501 Toray Industries Inc. 412,000 875,938 Toshiba Corp./1/ 1,030,000 3,108,721 Tosoh Corporation 206,000 501,517 Tostem Inax Holding Corp. 103,480 1,408,895 Toto Ltd. 103,000 418,217 Toyo Seikan Kaisha Ltd. 103,000 1,141,296 Toyobo Co. Ltd. 206,000 295,414 Toyoda Gosei Co. Ltd. 20,600 358,963 Toyota Industries Corporation 41,200 600,790 Toyota Motor Corp. 906,400 21,575,554 Trend Micro Inc./1/ 51,500 855,328 Ube Industries Ltd./1/ 309,000 334,917 UFJ Holdings Inc. 1,236 1,411,806 Uny Co. Ltd. 103,000 869,068 West Japan Railway Company 412 1,329,365 World Co. Ltd. 10,300 163,165 Yamada Denki Co. Ltd. 30,900 633,767 Yamaha Corp. 82,400 898,609 Yamanouchi Pharmaceutical Co. Ltd. 113,300 2,947,274 Yamato Transport Co. Ltd. 103,000 1,420,394 Yokogawa Electric Corp. 103,000 712,773 412,820,607 LUXEMBOURG - 0.07% Arcelor/1/ 125,660 1,353,007 1,353,007 NETHERLANDS - 5.46% ABN AMRO Holding NV 522,416 8,131,797 Aegon NV 505,936 6,327,375 Akzo Nobel NV 105,678 2,773,738 ASML Holding NV/1/ 172,834 1,345,145 Burhmann NV 51,500 190,734 Getronics NV/1/ 218,051 53,838 Hagemeyer NV 44,908 298,412 Heineken NV 78,692 2,834,165 IHC Caland NV 17,613 849,895 ING Groep NV 659,303 10,000,674 Koninklijke Ahold NV 223,819 2,789,531 Koninklijke Numico NV 60,564 696,315 Koninklijke Philips Electronics NV 508,511 8,625,008 Koninklijke (Royal) KPN NV/1/ 672,075 4,711,216 Koninklijke Vendex KBB NV 35,947 344,215 Oce NV 52,221 519,669 Reed Elsevier NV 255,955 2,808,126 Royal Dutch Petroleum Co. 830,283 34,377,780 TNT Post Group NV 139,565 2,114,003 Unilever NV - CVA 219,493 12,323,226 Vedior NV 49,852 268,651 VNU NV 89,095 2,321,267 Wolters Kluwer NV - CVA 111,343 1,655,445 106,360,225 PORTUGAL - 0.45% Banco Comercial Portugues SA "R" 879,723 1,888,765 Banco Espirito Santo e Comercial de Lisboa SA 33,269 442,857 Brisa-Auto Estradas de Portugal SA 213,210 1,144,405 Electricidade de Portugal SA 664,144 1,076,567 Portugal Telecom SGPS SA 469,268 3,284,510 PT Multimedia Servicos de Telecomunicacoes e media, SGPS, SA/1/ 37,080 439,849 Sonae SGPS SA/1/ 1,218,902 536,481 8,813,434 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 34 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- SINGAPORE - 0.85% Capitaland Ltd. 309,000 $ 179,445 Chartered Semiconductor Manufacturing Ltd./1/ 515,000 210,240 City Developments Ltd. 206,000 459,568 Creative Technology Ltd. 41,200 274,793 DBS Group Holdings Ltd. 412,000 2,416,283 Fraser & Neave Ltd. 103,700 482,963 Haw Par Corp. Ltd. 24,775 48,718 Keppel Corp. Ltd. 206,000 435,879 Neptune Orient Lines Ltd./1/ 515,000 259,099 Oversea-Chinese Banking Corp. Ltd. - Ordinary Shares 412,000 2,155,704 SembCorp Industries Ltd. 412,000 200,172 Singapore Airlines Ltd. 309,000 1,714,495 Singapore Press Holdings Ltd. 103,000 1,083,774 Singapore Technologies Engineering Ltd. 824,000 819,641 Singapore Telecommunications Ltd. 2,472,000 1,861,960 United Overseas Bank Ltd. 515,000 3,109,188 Venture Corp. Ltd. 103,000 769,894 16,481,816 SPAIN - 3.42% Acciona SA 12,875 559,763 Acerinox SA 20,600 757,408 Actividades de Construccion y Servicios SA 9,579 304,893 Altadis SA 111,241 2,540,004 Amadeus Global Travel Distribution SA "A" 101,465 408,460 Banco Bilbao Vizcaya Argentaria SA 1,239,298 10,736,218 Banco Santander Central Hispano SA 1,735,035 10,709,720 Endesa SA 370,079 4,437,615 Gas Natural SDG SA 87,457 1,729,363 Grupo Dragados SA 54,178 971,273 Grupo Ferrovial SA 28,222 739,230 Iberdrola SA 299,526 4,395,468 Iberia Lineas Aereas de Espana SA 313,944 441,495 Industria de Diseno Textil SA 86,726 2,064,966 Promotora de Informaciones SA 69,834 487,284 Repsol YPF SA 359,058 5,149,595 Telefonica Publicidad e Informacion SA 114,021 367,205 Telefonica SA/1/ 1,790,148 17,257,080 Telefonica SA Rights 1,790,148 345,910 Terra Networks SA/1/ 173,658 805,342 Union Fenosa SA 88,065 1,147,689 Zeltia SA Rights 66,847 395,399 66,751,380 SWEDEN - 2.00% ASSA Abloy AB "B" 123,600 1,270,040 Atlas Copco AB "A" 51,500 956,716 Atlas Copco AB "B" 30,900 532,771 Electrolux AB "B" 131,119 1,910,579 Eniro AB 46,453 280,461 Hennes & Mauritz AB "B" 190,550 3,960,205 Hoganas AB "B" 20,600 339,634 Holmen AB "B" 23,896 520,214 Modern Times Group AB "B"/1/ 20,600 171,013 Nobel Biocare AB 500 32,800 Nordea AB 870,350 3,728,859 Sandvik AB 99,910 2,064,831 Securitas AB "B" 122,570 1,366,190 Skandia Forsakrings AB 247,818 555,323 Skandinaviska Enskilda Banken AB "A" 206,000 1,674,252 Skanska AB "B" 185,400 1,011,727 SKF AB "B" 30,900 758,795 SSAB Svenskt Stal AB "A" 47,792 549,346 Svenska Cellulosa AB "B" 74,881 2,351,768 Svenska Handelsbanken AB "A" 216,712 2,730,036 Swedish Match AB 207,545 1,494,031 Tele2 AB "B"/1/ 25,441 677,911 Telefonaktiebolaget LM Ericsson AB "B"/1/ 5,474,450 4,608,230 SCHEDULES OF INVESTMENTS 35 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- Telia AB 635,366 $ 2,249,984 Trelleborg AB "B" 74,984 583,309 Volvo AB "A" 57,268 917,586 Volvo AB "B" 100,013 1,666,341 38,962,952 SWITZERLAND - 8.32% ABB Ltd./1/ 394,696 1,154,419 Adecco SA 46,762 1,480,546 Centerpulse AG - Registered/1/ 4,017 635,917 Ciba Specialty Chemicals AG 27,089 1,703,462 Clariant AG - Registered 54,075 751,261 Compagnie Financiere Richemont AG 197,451 3,284,594 Credit Suisse Group/1/ 468,753 10,059,886 Georg Fischer AG 2,060 189,792 Givaudan SA - Registered 3,193 1,333,141 Holcim Ltd. "B" 12,360 2,080,937 Kudelski SA - Bearer/1/ 11,845 147,240 Kuoni Reisen Holding AG/1/ 1,957 373,484 Logitech International SA - Registered/1/ 19,673 657,397 Lonza Group AG - Registered 16,480 957,999 Nestle SA 151,513 31,463,653 Nobel Biocare Holding AG/1/ 10,028 604,279 Novartis AG 1,058,222 38,689,017 PubliGroupe SA/1/ 1,030 155,148 Roche Holding AG - Bearer 20,394 2,303,943 Roche Holding AG - Genusschein 272,641 18,709,680 Serono SA 2,678 1,311,977 Societe Generale de Surveillance Holding SA 2,575 835,990 Sulzer AG - Registered/1/ 1,854 244,019 Swatch Group (The) AG - Registered 43,157 725,805 Swatch Group (The) AG "B" 15,450 1,285,052 Swiss Re 124,012 7,494,583 Swisscom AG 9,991 3,068,309 Syngenta AG 41,715 2,516,443 Synthes-Stratec Inc. 2,060 1,128,210 Tecan AG 6,180 168,328 UBS AG - Registered/1/ 485,542 20,964,650 Unaxis Holding AG "R" 4,841 297,341 Valora Holding AG 2,060 363,015 Zurich Financial Services AG 51,500 4,998,995 162,138,512 UNITED KINGDOM - 26.93% Aegis Group PLC 385,426 433,964 Aggreko PLC 90,434 205,875 AMEC PLC 104,442 291,841 Amersham PLC 248,642 1,920,856 AMVESCAP PLC 252,041 1,383,695 Arm Holdings PLC/1/ 426,317 320,587 Associated British Ports Holdings PLC 117,523 732,124 AstraZeneca PLC 661,981 22,360,417 Aviva PLC 852,222 5,501,631 AWG PLC/1/ 68,495 482,709 AWG PLC - Redeemable/1/ 10,038,840 16,501 BAA PLC 418,798 3,090,818 BAE Systems PLC 1,225,082 2,290,547 Balfour Beatty PLC 189,726 505,201 Barclays PLC/2/ 2,534,727 14,592,574 Barratt Developments PLC 106,605 648,339 BBA Group PLC 162,122 406,382 Berkeley Group (The) PLC 59,431 548,511 BG Group PLC 1,410,791 5,443,658 BHP Billiton PLC 928,937 4,336,378 BOC Group PLC 186,533 2,414,509 Boots Group PLC 336,089 2,883,682 BP PLC 8,668,789 54,430,754 BPB PLC 207,854 826,792 Brambles Industries PLC 286,752 699,931 British Airways PLC/1/ 261,620 491,303 British American Tobacco PLC 636,025 6,011,247 British Land Co. PLC 220,626 1,475,050 British Sky Broadcasting Group PLC/1/ 462,573 4,504,963 BT Group PLC 3,292,189 9,388,729 Bunzl PLC 206,412 1,170,514 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 36 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- Cable & Wireless PLC 894,040 $ 815,591 Cadbury Schweppes PLC 784,860 4,270,146 Canary Wharf Finance PLC/1/ 200,541 741,666 Capita Group PLC 266,358 896,421 Carlton Communications PLC 294,065 540,149 Celltech Group PLC/1/ 111,137 585,933 Centrica PLC 1,603,607 4,078,976 Chubb PLC 334,235 444,999 Close Brothers Group PLC 53,457 415,173 Compass Group PLC 895,070 4,270,235 Corus Group PLC/1/ 1,401,933 610,655 Daily Mail and General Trust PLC "A" 131,325 1,080,374 De La Rue PLC 79,516 361,387 Diageo PLC 1,237,133 12,627,883 Dixons Group PLC 778,680 1,321,514 Electrocomponents PLC 177,881 766,774 EMI Group PLC 336,089 751,304 Exel PLC 90,537 877,268 FirstGroup PLC 196,730 683,917 FKI PLC 241,123 288,333 George Wimpey PLC 199,820 811,257 GKN PLC 286,752 881,395 GlaxoSmithKline PLC 2,312,144 43,477,389 Granada PLC 1,134,030 1,197,623 Great Portland Estates PLC 84,357 296,034 GUS PLC 401,700 3,261,755 Hammerson PLC 114,845 857,963 Hanson PLC 308,279 1,327,602 Hays PLC 717,292 910,787 HBOS PLC 1,446,326 13,099,067 Hilton Group PLC 633,656 1,614,388 HSBC Holdings PLC 3,600,159 37,339,938 IMI PLC 168,199 669,054 Imperial Chemical Industries PLC 422,300 1,384,798 Imperial Tobacco Group PLC 273,774 4,180,522 International Power PLC/1/ 452,170 652,186 Invensys PLC 1,403,787 1,107,554 J Sainsbury PLC 553,934 2,141,954 Johnson Matthey PLC 97,335 1,203,121 Kelda Group PLC 149,350 986,856 Kidde PLC 282,941 299,970 Kingfisher PLC 995,398 3,149,561 Land Securities Group PLC 191,188 2,276,783 Legal & General Group PLC 2,340,778 2,895,271 Lloyds TSB Group PLC 2,116,650 13,185,932 LogicaCMG PLC 330,991 659,661 Man Group PLC 108,356 1,513,890 Marks & Spencer Group PLC 890,338 4,353,760 Misys PLC 253,586 737,770 National Grid Transco PLC 1,089,509 7,109,579 Next PLC 126,175 1,576,193 Novar PLC 246,376 443,440 P&O Princess Cruises PLC 283,971 1,834,379 Pearson PLC 292,726 2,615,071 Peninsular & Oriental Steam Navigation Co. PLC 329,291 876,834 Pilkington PLC 516,133 579,011 Provident Financial PLC 93,421 783,136 Prudential Corp. PLC 758,183 4,745,003 Rank Group PLC 221,862 871,572 Reckitt Benckiser PLC 210,017 3,641,912 Reed International PLC 498,726 3,869,248 Rentokil Initial PLC 751,797 2,431,296 Reuters Group PLC 550,844 1,575,435 Rexam PLC 185,194 1,097,374 Rio Tinto PLC 419,107 7,660,414 RMC Group PLC 117,729 736,310 Rolls Royce PLC 646,016 1,037,965 Royal Bank of Scotland Group PLC 1,052,361 23,161,564 Royal Sun Alliance Industries Group PLC 598,018 948,559 SABMiller PLC 288,812 1,860,904 Safeway PLC 414,884 2,168,585 Sage Group PLC 521,283 1,011,063 Scottish & Newcastle PLC 281,087 1,898,913 Scottish & Southern Energy PLC 324,244 3,235,066 Scottish Power PLC 703,387 3,881,798 Securicor PLC 265,328 351,076 SCHEDULES OF INVESTMENTS 37 SCHEDULE OF INVESTMENTS (Unaudited) (Continued) iSHARES MSCI EAFE INDEX FUND January 31, 2003 SECURITY SHARES VALUE - ---------------------------------------------------------------------- Serco Group PLC 188,284 $ 437,918 Severn Trent PLC 144,612 1,635,367 Shell Transport & Trading Co. PLC 3,763,414 22,826,058 Signet Group PLC 585,040 721,223 Six Continents PLC 349,788 2,969,599 Slough Estates PLC 165,727 803,596 Smith & Nephew PLC 372,242 2,117,015 Smiths Group PLC 218,360 2,293,488 SSL International PLC 70,761 262,860 Stagecoach Group PLC 515,824 292,512 Tate & Lyle PLC 182,928 850,921 Taylor Woodrow PLC 282,014 762,534 Tesco PLC 2,687,579 7,311,084 3i Group PLC 251,938 2,037,424 Unilever PLC 1,060,179 9,218,440 United Business Media PLC 160,062 650,500 United Utilities PLC 222,171 2,097,973 Vodafone Group PLC 26,124,611 46,805,715 Whitebread PLC 129,677 1,057,224 Wolseley PLC 235,561 1,866,264 WPP Group PLC 431,055 3,018,317 524,750,353 TOTAL COMMON STOCKS AND RIGHTS (Cost: $2,485,843,832) 1,934,240,953 PREFERRED STOCKS - 0.49% AUSTRALIA - 0.22% News Corporation Ltd. (The) 784,757 4,365,633 4,365,633 GERMANY - 0.23% Fresenius Medical Care AG 10,300 350,509 Henkel KGaA 16,686 1,010,977 Porsche AG 3,090 1,243,918 Volkswagen AG 41,200 1,260,504 Wella AG 10,300 578,173 4,444,081 ITALY - 0.04% Fiat SpA 36,050 187,306 Fiat SpA - RNC 25,750 135,172 IntesaBci SpA 334,750 502,018 824,496 TOTAL PREFERRED STOCKS (Cost: $11,220,383) 9,634,210 SHORT TERM INSTRUMENTS - 2.68% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares 49,582,840 49,582,840 BlackRock Temp Cash Money Market Fund 2,387,124 2,387,124 Dreyfus Money Market Fund 190,970 190,970 Goldman Sachs Financial Square Prime Obligation Fund 60,102 60,102 TOTAL SHORT TERM INSTRUMENTS (Cost: $52,221,036) 52,221,036 TOTAL INVESTMENTS IN SECURITIES - 102.42% (Cost $2,549,285,251) 1,996,096,199 Other Assets, Less Liabilities - (2.42%) (47,180,557) ---------------- NET ASSETS - 100.00% $ 1,948,915,642 ================ /1/ Non-income earning securities. /2/ Issuer is an affiliate of the Fund's investment advisor. See Note 2. See notes to financial statements. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 38 STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) iSHARES TRUST January 31, 2003
iSHARES GOLDMAN SACHS iSHARES MSCI -------------------------------------------------------------------------- ---------------- TECHNOLOGY NETWORKING SEMICONDUCTOR SOFTWARE NATURAL RESOURCES EAFE INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND - ----------------------------------------------------------------------------------------------------------------------- ASSETS Investments at cost $ 76,901,937 $ 37,887,462 $ 99,495,781 $ 35,593,510 $ 32,851,743 $ 2,549,285,251 ------------ ------------ ------------- ------------ ----------------- ---------------- Foreign currency, at cost $ - $ - $ - $ - $ - $ 1,720,151 ------------ ------------ ------------- ------------ ----------------- ---------------- Investments in securities, at value (including securities on loan/1/) (Note 1) $ 50,520,248 $ 21,052,369 $ 70,781,085 $ 23,767,254 $ 28,706,497 $ 1,996,096,199 Foreign currency, at value - - - - - 1,737,643 Receivables: Investment securities sold 5,451 1,762 18,924 15,275 8,801 - Dividends and interest 4,268 417 13,500 390 11,176 2,710,345 ------------ ------------ ------------- ------------ ----------------- ---------------- Total Assets 50,529,967 21,054,548 70,813,509 23,782,919 28,726,474 2,000,544,187 ------------ ------------ ------------- ------------ ----------------- ---------------- LIABILITIES Payables: Collateral for securities on loan (Note 5) 1,516,581 1,117,034 6,105,780 345,598 936,717 50,380,684 Advisory fees (Note 2) 37,604 15,393 42,138 21,993 20,023 1,247,861 ------------ ------------ ------------- ------------ ----------------- ---------------- Total Liabilities 1,554,185 1,132,427 6,147,918 367,591 956,740 51,628,545 ------------ ------------ ------------- ------------ ----------------- ---------------- NET ASSETS $ 48,975,782 $ 19,922,121 $ 64,665,591 $ 23,415,328 $ 27,769,734 $ 1,948,915,642 ============ ============ ============= ============ ================= ================ NET ASSETS CONSIST OF: Paid-in capital $ 80,366,738 $ 60,515,028 $ 109,948,123 $ 42,817,856 $ 32,776,532 $ 2,889,263,178 Undistributed (distributions in excess of) net investment income (accumulated net investment loss) (34,736) (28,547) (52,545) (64,445) (1,736) 148,768 Accumulated net realized loss (4,974,531) (23,729,267) (16,515,291) (7,511,827) (859,816) (387,454,301) Net unrealized depreciation (26,381,689) (16,835,093) (28,714,696) (11,826,256) (4,145,246) (553,042,003) ------------ ------------ ------------- ------------ ----------------- ---------------- NET ASSETS $ 48,975,782 $ 19,922,121 $ 64,665,591 $ 23,415,328 $ 27,769,734 $ 1,948,915,642 ============ ============ ============= ============ ================= ================ iShares outstanding 1,650,000 1,350,000 1,950,000 900,000 350,000 20,600,000 ============ ============ ============= ============ ================= ================ Net asset value per iShare $ 29.68 $ 14.76 $ 33.16 $ 26.02 $ 79.34 $ 94.61 ============ ============ ============= ============ ================= ================
/1/ Securities on loan with market values of $1,431,185, $998,207, $5,778,655, $330,917, $896,304 and $46,734,067, respectively. See Note 5. See notes to financial statements. FINANCIAL STATEMENTS 39 STATEMENTS OF OPERATIONS (Unaudited) iSHARES TRUST For the six months ended January 31, 2003
iSHARES GOLDMAN SACHS iSHARES MSCI -------------------------------------------------------------------------- --------------- TECHNOLOGY NETWORKING SEMICONDUCTOR SOFTWARE NATURAL RESOURCES EAFE INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND - ---------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME Dividends/1/ $ 44,867 $ 8,909 $ 68,627 $ 4,573 $ 219,189 $ 20,370,368 Interest - - - - 233 - Securities lending income 1,238 1,281 3,557 799 1,585 417,816 ------------ ------------ ------------- ------------ ----------------- --------------- Total investment income 46,105 10,190 72,184 5,372 221,007 20,788,184 ------------ ------------ ------------- ------------ ----------------- --------------- EXPENSES (NOTE 2) Advisory fees 80,841 38,737 124,729 69,817 53,450 4,370,179 ------------ ------------ ------------- ------------ ----------------- --------------- Total expenses 80,841 38,737 124,729 69,817 53,450 4,370,179 ------------ ------------ ------------- ------------ ----------------- --------------- Net investment income (loss) (34,736) (28,547) (52,545) (64,445) 167,557 16,418,005 ------------ ------------ ------------- ------------ ----------------- --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments (742,550) (2,792,171) (1,634,294) (1,248,617) (493,946) (39,058,916) In-kind redemptions (2,009,434) (12,669,572) (13,257,842) (4,166,455) - (322,554,082) Foreign currency transactions - - - - - 371,911 ------------ ------------ ------------- ------------ ----------------- --------------- Net realized loss (2,751,984) (15,461,743) (14,892,136) (5,415,072) (493,946) (361,241,087) ------------ ------------ ------------- ------------ ----------------- --------------- Net change in unrealized appreciation (depreciation) on: Investments (1,802,907) 16,366,184 (65,552) 8,467,571 (858,452) (8,265,457) Translation of assets and liabilities in foreign currencies - - - - - 83,838 ------------ ------------ ------------- ------------ ----------------- --------------- Net change in unrealized appreciation (depreciation) (1,802,907) 16,366,184 (65,552) 8,467,571 (858,452) (8,181,619) ------------ ------------ ------------- ------------ ----------------- --------------- Net realized and unrealized gain (loss) (4,554,891) 904,441 (14,957,688) 3,052,499 (1,352,398) (369,422,706) ------------ ------------ ------------- ------------ ----------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (4,589,627) $ 875,894 $ (15,010,233) $ 2,988,054 $ (1,184,841) $ (353,004,701) ============ ============ ============= ============ ================= ===============
/1/ Net of foreign withholding tax of $-, $-, $-, $-, $9,981 and $2,474,136, respectively. See notes to financial statements. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 40 STATEMENTS OF CHANGES IN NET ASSETS iSHARES TRUST
iSHARES iSHARES iSHARES GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS TECHNOLOGY NETWORKING SEMICONDUCTOR INDEX FUND INDEX FUND INDEX FUND ---------------------------------- -------------------------------- -------------------------------- FOR THE SIX FOR THE SIX FOR THE SIX MONTHS ENDED FOR THE MONTHS ENDED FOR THE MONTHS ENDED FOR THE JANUARY 31, 2003 YEAR ENDED JANUARY 31, 2003 YEAR ENDED JANUARY 31, 2003 YEAR ENDED (UNAUDITED) JULY 31, 2002 (UNAUDITED) JULY 31, 2002 (UNAUDITED) JULY 31, 2002 - --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment loss $ (34,736) $ (171,829) $ (28,547) $ (119,866) $ (52,545) $ (109,196) Net realized loss (2,751,984) (10,641,273) (15,461,743) (12,036,263) (14,892,136) (2,119,420) Net change in unrealized appreciation (depreciation) (1,802,907) (10,747,261) 16,366,184 (33,413,568) (65,552) (31,018,006) ---------------- ---------------- ---------------- -------------- ---------------- -------------- Net increase (decrease) in net assets resulting from operations (4,589,627) (21,560,363) 875,894 (45,569,697) (15,010,233) (33,246,622) ---------------- ---------------- ---------------- -------------- ---------------- -------------- iSHARES TRANSACTIONS: iShares sold 41,446,201 69,955,543 9,594,735 57,881,642 77,782,114 76,862,673 iShares redeemed (9,075,252) (106,343,169) (14,767,335) (12,809,218) (62,627,848) (12,362,001) ---------------- ---------------- ---------------- -------------- ---------------- -------------- Net increase (decrease) in net assets from iShares transactions 32,370,949 (36,387,626) (5,172,600) 45,072,424 15,154,266 64,500,672 ---------------- ---------------- ---------------- -------------- ---------------- -------------- INCREASE (DECREASE) IN NET ASSETS 27,781,322 (57,947,989) (4,296,706) (497,273) 144,033 31,254,050 NET ASSETS: Beginning of period 21,194,460 79,142,449 24,218,827 24,716,100 64,521,558 33,267,508 ---------------- ---------------- ---------------- -------------- ---------------- -------------- End of period $ 48,975,782 $ 21,194,460 $ 19,922,121 $ 24,218,827 $ 64,665,591 $ 64,521,558 ================ ================ ================ ============== ================ ============== Accumulated net investment loss included in net assets at end of period $ (34,736) $ - $ (28,547) $ - $ (52,545) $ - ================ ================ ================ ============== ================ ============== iSHARES ISSUED AND REDEEMED: iShares sold 1,300,000 1,400,000 700,000 2,000,000 2,100,000 1,300,000 iShares redeemed (350,000) (2,150,000) (1,200,000) (800,000) (1,700,000) (200,000) ---------------- ---------------- ---------------- -------------- ---------------- -------------- Net increase (decrease) in iShares outstanding 950,000 (750,000) (500,000) 1,200,000 400,000 1,100,000 ================ ================ ================ ============== ================ ==============
See notes to financial statements. FINANCIAL STATEMENTS 41 STATEMENTS OF CHANGES IN NET ASSETS (Continued) iSHARES TRUST
iSHARES iSHARES GOLDMAN SACHS GOLDMAN SACHS iSHARES MSCI SOFTWARE NATURAL RESOURCES EAFE INDEX FUND INDEX FUND INDEX FUND ------------------------------- ------------------------------------- ------------------- FOR THE SIX FOR THE SIX FOR THE PERIOD FOR THE SIX MONTHS ENDED FOR THE MONTHS ENDED OCTOBER 22, 2001/1/ MONTHS ENDED JANUARY 31, 2003 YEAR ENDED JANUARY 31, 2003 TO JANUARY 31, 2003 (UNAUDITED) JULY 31, 2002 (UNAUDITED) JULY 31, 2002 (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income (loss) $ (64,445) $ (110,003) $ 167,557 $ 294,060 $ 16,418,005 Net realized loss (5,415,072) (3,445,159) (493,946) (348,141) (361,241,087) Net change in unrealized appreciation (depreciation) 8,467,571 (19,166,307) (858,452) (3,286,794) (8,181,619) ---------------- ------------- ---------------- ------------------- ------------------- Net increase (decrease) in net assets resulting from operations 2,988,054 (22,721,469) (1,184,841) (3,340,875) (353,004,701) ---------------- ------------- ---------------- ------------------- ------------------- DISTRIBUTIONS TO iSHAREHOLDERS: From net investment income - - (174,965) (284,750) (41,788,985) ---------------- ------------- ---------------- ------------------- ------------------- Total distributions to iShareholders - - (174,965) (284,750) (41,788,985) ---------------- ------------- ---------------- ------------------- ------------------- iSHARES TRANSACTIONS: iShares sold 36,384,760 56,701,205 8,312,290 29,006,526 654,056,812 iShares redeemed (53,726,671) (22,766,293) - (4,563,651) (2,113,785,604) ---------------- ------------- ---------------- ------------------- ------------------- Net increase (decrease) in net assets from iShares transactions (17,341,911) 33,934,912 8,312,290 24,442,875 (1,459,728,792) ---------------- ------------- ---------------- ------------------- ------------------- INCREASE (DECREASE) IN NET ASSETS (14,353,857) 11,213,443 6,952,484 20,817,250 (1,854,522,478) NET ASSETS: Beginning of period 37,769,185 26,555,742 20,817,250 - 3,803,438,120 ---------------- ------------- ---------------- ------------------- ------------------- End of period $ 23,415,328 $ 37,769,185 $ 27,769,734 $ 20,817,250 $ 1,948,915,642 ================ ============= ================ =================== =================== Undistributed (distributions in excess of) net investment income (accumulated net investment loss) included in net assets at end of period $ (64,445) $ - $ (1,736) $ 5,672 $ 148,768 ================ ============= ================ =================== =================== iSHARES ISSUED AND REDEEMED: iShares sold 1,450,000 1,600,000 100,000 300,000 6,400,000 iShares redeemed (2,150,000) (550,000) - (50,000) (21,600,000) ---------------- ------------- ---------------- ------------------- ------------------- Net increase (decrease) in iShares outstanding (700,000) 1,050,000 100,000 250,000 (15,200,000) ================ ============= ================ =================== =================== iSHARES MSCI EAFE INDEX FUND ------------------ FOR THE PERIOD AUGUST 14, 2001/1/ TO JULY 31, 2002 - --------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income (loss) $ 25,461,334 Net realized loss (19,434,534) Net change in unrealized appreciation (depreciation) (544,860,384) ------------------ Net increase (decrease) in net assets resulting from operations (538,833,584) ------------------ DISTRIBUTIONS TO iSHAREHOLDERS: From net investment income (1,107,494) ------------------ Total distributions to iShareholders (1,107,494) ------------------ iSHARES TRANSACTIONS: iShares sold 4,388,752,984 iShares redeemed (45,373,786) ------------------ Net increase (decrease) in net assets from iShares transactions 4,343,379,198 ------------------ INCREASE (DECREASE) IN NET ASSETS 3,803,438,120 NET ASSETS: Beginning of period - ------------------ End of period $ 3,803,438,120 ================== Undistributed (distributions in excess of) net investment income (accumulated net investment loss) included in net assets at end of period $ 25,519,748 ================== iSHARES ISSUED AND REDEEMED: iShares sold 36,200,000 iShares redeemed (400,000) ------------------ Net increase (decrease) in iShares outstanding 35,800,000 ==================
/1/ Commencement of operations. See notes to financial statements. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 42 FINANCIAL HIGHLIGHTS iSHARES TRUST (For a share outstanding throughout each period)
iSHARES iSHARES GOLDMAN SACHS GOLDMAN SACHS TECHNOLOGY NETWORKING INDEX FUND INDEX FUND ------------------------------------------------- ------------------------------------------------ SIX MONTHS PERIOD FROM SIX MONTHS PERIOD FROM ENDED MAR. 13, 2001/1/ ENDED JUL. 10, 2001/1/ JAN. 31, 2003 YEAR ENDED TO JAN. 31, 2003 YEAR ENDED TO (UNAUDITED) JUL. 31, 2002 JUL. 31, 2001 (UNAUDITED) JUL. 31, 2002 JUL. 31, 2001 - -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 30.28 $ 54.58 $ 56.71 $ 13.09 $ 38.02 $ 36.32 ------------- ------------- ---------------- ------------- ------------- ---------------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss (0.02) (0.25) (0.08) (0.02) (0.06) (0.01) Net realized and unrealized gain (loss) (0.58) (24.05) (2.05) 1.69 (24.87) 1.71 ------------- ------------- ---------------- ------------- ------------- ---------------- Total from investment operations (0.60) (24.30) (2.13) 1.67 (24.93) 1.70 ------------- ------------- ---------------- ------------- ------------- ---------------- Net Asset Value, End of Period $ 29.68 $ 30.28 $ 54.58 $ 14.76 $ 13.09 $ 38.02 ============= ============= ================ ============= ============= ================ Total Return (1.98)%/2/ (44.52)% (3.76)%/2/ 12.76%/2/ (65.57)% 4.68%/2/ ============= ============= ================ ============= ============= ================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 48,976 $ 21,194 $ 79,142 $ 19,922 $ 24,219 $ 24,716 Ratio of expenses to average net assets/3/ 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment loss to average net assets/3/ (0.21)% (0.30)% (0.33)% (0.37)% (0.34)% (0.50)% Portfolio turnover rate/4/ 3% 8% 0%/5/ 16% 46% 9%
/1/ Commencement of operations. /2/ Not annualized. /3/ Annualized for periods of less than one year. /4/ Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. /5/ Rounds to less than 1%. See notes to financial statements. FINANCIAL HIGHLIGHTS 43 FINANCIAL HIGHLIGHTS (Continued) iSHARES TRUST (For a share outstanding throughout each period)
iSHARES iSHARES GOLDMAN SACHS GOLDMAN SACHS SEMICONDUCTOR SOFTWARE INDEX FUND INDEX FUND ------------------------------------------------- ------------- SIX MONTHS PERIOD FROM SIX MONTHS ENDED JUL. 10, 2001/1/ ENDED JAN. 31, 2003 YEAR ENDED TO JAN. 31, 2003 (UNAUDITED) JUL. 31, 2002 JUL. 31, 2001 (UNAUDITED) - --------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 41.63 $ 73.93 $ 65.65 $ 23.61 ------------- ------------- ---------------- ------------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss (0.03) (0.07) (0.01) (0.07) Net realized and unrealized gain (loss) (8.44) (32.23) 8.29 2.48 ------------- ------------- ---------------- ------------- Total from investment operations (8.47) (32.30) 8.28 2.41 ------------- ------------- ---------------- ------------- Net Asset Value, End of Period $ 33.16 $ 41.63 $ 73.93 $ 26.02 ============= ============= ================ ============= Total Return (20.35)%/2/ (43.69)% 12.61%/2/ 10.21%/2/ ============= ============= ================ ============= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 64,666 $ 64,522 $ 33,268 $ 23,415 Ratio of expenses to average net assets/3/ 0.50% 0.50% 0.50% 0.50% Ratio of net investment loss to average net assets/3/ (0.21)% (0.29)% (0.38)% (0.46)% Portfolio turnover rate/4/ 5% 8% 0%5 4% iSHARES GOLDMAN SACHS SOFTWARE INDEX FUND ------------------------------- PERIOD FROM JUL. 10, 2001/1/ YEAR ENDED TO JUL. 31, 2002 JUL. 31, 2001 - --------------------------------------------------------- Net Asset Value, Beginning of Period $ 48.28 $ 49.12 ------------- ---------------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss (0.07) (0.01) Net realized and unrealized gain (loss) (24.60) (0.83) ------------- ---------------- Total from investment operations (24.67) (0.84) ------------- ---------------- Net Asset Value, End of Period $ 23.61 $ 48.28 ============= ================ Total Return (51.10)% (1.71)%/2/ ============= ================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 37,769 $ 26,556 Ratio of expenses to average net assets/3/ 0.50% 0.50% Ratio of net investment loss to average net assets/3/ (0.42)% (0.50)% Portfolio turnover rate/4/ 14% 0%/5/
/1/ Commencement of operations. /2/ Not annualized. /3/ Annualized for periods of less than one year. /4/ Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. /5/ Rounds to less than 1%. See notes to financial statements. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 44 FINANCIAL HIGHLIGHTS (Continued) iSHARES TRUST (For a share outstanding throughout each period)
iSHARES GOLDMAN SACHS iSHARES NATURAL RESOURCES MSCI EAFE INDEX FUND INDEX FUND -------------------------------------- -------------------------------------- SIX MONTHS PERIOD FROM SIX MONTHS PERIOD FROM ENDED OCT. 22, 2001/1/ ENDED AUG. 14, 2001/1/ JAN. 31, 2003 TO JAN. 31, 2003 TO (UNAUDITED) JUL. 31, 2002 (UNAUDITED) JUL. 31, 2002 - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 83.27 $ 94.92 $ 106.24 $ 127.63 --------------- --------------------- ---------------- -------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.67 1.10 1.17 0.93 Net realized and unrealized loss (3.90) (11.69) (10.92) (22.07) --------------- --------------------- ---------------- -------------------- Total from investment operations (3.23) (10.59) (9.75) (21.14) --------------- --------------------- ---------------- -------------------- LESS DISTRIBUTIONS FROM: Net investment income (0.70) (1.06) (1.88) (0.25) --------------- --------------------- ---------------- -------------------- Total distributions (0.70) (1.06) (1.88) (0.25) --------------- --------------------- ---------------- -------------------- Net Asset Value, End of Period $ 79.34 $ 83.27 $ 94.61 $ 106.24 =============== ===================== ================ ==================== Total Return/2/ (3.91)% (11.29)% (9.22)% (16.57)% =============== ===================== ================ ==================== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 27,770 $ 20,817 $ 1,948,916 $ 3,803,438 Ratio of expenses to average net assets/3/ 0.50% 0.50% 0.35% 0.35% Ratio of net investment income to average net assets/3/ 1.57% 1.51% 1.31% 1.87% Portfolio turnover rate/4/ 6% 12% 4% 8%
/1/ Commencement of operations. /2/ Not annualized. /3/ Annualized for periods of less than one year. /4/ Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Units. See notes to financial statements. FINANCIAL HIGHLIGHTS 45 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 January 31, 2003, the Trust offered 56 investment portfolios or funds. These financial statements relate only to the iShares Goldman Sachs Technology, iShares Goldman Sachs Networking, iShares Goldman Sachs Semiconductor, iShares Goldman Sachs Software, iShares Goldman Sachs Natural Resources and the iShares MSCI EAFE Index Funds (each a "Fund", collectively the "Funds"). The investment objective of each Fund is to seek investment results that correspond generally to the price and yield performance, before fees and expenses, of its underlying index, as indicated in the name of each Fund. The investment advisor uses a "passive" or index approach to achieve each Fund's investment objective. Each of the Funds is classified as a non-diversified fund under the 1940 Act. Non-diversified funds generally hold stocks of fewer companies than diversified funds and may be more susceptible to the risks associated with these particular companies, or to a single economic, political or regulatory occurrence. The iShares MSCI EAFE Index Fund invests in the securities of non-U.S. issuers, that may trade in non-U.S. markets, which may involve certain considerations and risks not typically associated with securities of U.S. issuers. Such risks include, but are not limited to: generally less liquid and less efficient securities markets; generally greater price volatility; exchange rate fluctuations and exchange controls; imposition of restrictions on the expatriation of funds or other assets of the Fund; less publicly available information about issuers; the imposition of withholding or other taxes; higher transaction and custody costs; settlement delays and risk of loss attendant in settlement procedures; difficulties in enforcing contractual obligations; lesser regulation of securities markets; different accounting, disclosure and reporting requirements; more substantial governmental involvement in the economy; higher inflation rates; greater social, economic and political uncertainties; the risk of nationalization or expropriation of assets; and the risk of war. The following significant accounting policies are consistently followed by the Trust in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") for investment companies. The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. Actual results could differ from those estimates. SECURITY VALUATION Equity securities are valued at the last sales price on the primary securities exchange or national securities market on which such securities are traded. Securities not listed on an exchange or national securities market, or securities for which there were no sales prices, are valued at the latest quoted bid prices. U.S. Government obligations are valued at the latest quoted bid price. Debt securities maturing in 60 days or less are valued at amortized cost, which approximates market value. Mutual fund shares are valued at net asset value. Any securities, including restricted securities or other assets for which market quotations are not readily available, or for which a significant event has occurred since the time of the most recent market quotation, are valued in accordance with fair value pricing policies approved by the Board of Trustees of the Trust. SECURITY TRANSACTIONS AND INCOME RECOGNITION Security transactions are accounted for on trade date. Dividend income is recognized on the ex-dividend date, and interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 46 NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued) iSHARES TRUST FOREIGN CURRENCY TRANSLATION The accounting records of the Funds are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the prevailing rates of exchange on the valuation date. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of such transactions. Each Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of securities. Such fluctuations are reflected by the Funds as a component of realized and unrealized gains and losses from investments for financial reporting purposes. DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders from net investment income, if any, are declared and distributed at least annually by each Fund. Distributions of net realized capital gains, if any, generally are declared and distributed once a year. Distributions are determined on a tax basis and may differ from net investment income and net realized capital gains for financial reporting purposes. At July 31, 2002, the 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 ----------------------------------------------------------------------------------------- Goldman Sachs Natural Resources $ 4,624 $ - $ 4,624 MSCI EAFE 25,768,928 - 25,768,928 -----------------------------------------------------------------------------------------
For the year ended July 31, 2002, the tax characterization of distributions paid for each Fund was equal to the book characterization of distributions paid. The total distributions and distributions per share are disclosed in the accompanying Statements of Changes in Net Assets and the Financial Highlights for all the Funds. FEDERAL INCOME TAXES Each Fund is treated as a separate entity for federal income tax purposes. It is the policy of each Fund to qualify as a regulated investment company by complying with the provisions applicable to regulated investment companies, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, and to annually distribute substantially all of its net income and any net gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes was required for the six months ended January 31, 2003. The following Funds had tax basis net capital loss carryforwards at July 31, 2002, the tax year-end of the Funds: EXPIRING iSHARES INDEX FUND 2010 TOTAL ------------------------------------------------------------- Goldman Sachs Technology $ 638,692 $ 638,692 Goldman Sachs Networking 130,370 130,370 Goldman Sachs Semiconductor 175,882 175,882 Goldman Sachs Software 177,253 177,253 MSCI EAFE 55,269 55,269 ------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 47 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 January 31, 2003, certain Funds realized net capital gains or losses resulting from in-kind redemptions of large blocks of 50,000 or more iShares or multiples thereof ("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 January 31, 2003 are disclosed in the Funds' Statements of Operations. REPURCHASE AGREEMENTS Each Fund may enter into repurchase agreements with banks and securities dealers. These transactions involve the purchase of securities with a simultaneous commitment to resell the securities to the bank or the dealer at an agreed-upon date and price. A repurchase agreement is accounted for as a loan by the Fund to the seller, collateralized by securities, which are delivered to the Funds' custodian or to an agent bank under a tri-party agreement. The securities are marked-to-market daily and additional securities are acquired as needed, to ensure that their value equals or exceeds the repurchase price plus accrued interest. None of the Funds held repurchase agreements at January 31, 2003. 2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES Pursuant to an Investment Advisory Agreement with the Trust, Barclays Global Fund Advisors ("BGFA") manages the investment of each Fund's assets. BGFA is a California corporation indirectly owned by Barclays Bank PLC. Under the Investment Advisory Agreement, BGFA is responsible for all expenses ("Covered Expenses") of the Trust, including the cost of transfer agency, custody, fund administration, legal, audit and other services, except interest, taxes, brokerage commissions and other expenses connected with the executions of portfolio transactions, distribution fees and extraordinary expenses. Expenses related to the organization and initial registration of the Trust were borne by BGFA. For its investment management services to each Fund, BGFA is entitled to an annual advisory fee based on the average daily net assets of each Fund as follows: ADVISORY iSHARES INDEX FUND FEE ------------------------------------------------------------ Goldman Sachs Technology 0.50% Goldman Sachs Networking 0.50 Goldman Sachs Semiconductor 0.50 Goldman Sachs Software 0.50% Goldman Sachs Natural Resources 0.50 MSCI EAFE 0.35 ------------------------------------------------------------ Investors Bank & Trust Company ("Investors Bank") serves as administrator, custodian and transfer 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. As of January 31, 2003, Investors Bank also served as securities lending agent for the Funds. Barclays Global Investors, N.A. ("BGI") will begin serving as securities lending agent for the Trust in February 2003. The Board of Trustees has approved the selection of BGI as securities lending agent subject to the conditions of the exemptive order that was granted by the Securities and Exchange Commission ("SEC"). 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 48 NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued) iSHARES TRUST 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. Barclays Global Investors Services ("BGIS"), a subsidiary of BGI, may serve as a broker-dealer for the Funds. For the six months ended January 31, 2003, BGIS did not receive any brokerage commissions from the Funds. Pursuant to an exemptive order issued by the SEC, 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 January 31, 2003. Cross trading is the buying or selling of portfolio securities between funds to which BGFA serves as investment advisor. The Board has concluded that all such transactions were done in compliance with the requirements and restrictions set forth by Rule 17a-7. As a result of using an index approach to investing, the iShares MSCI EAFE Index Fund held shares of Barclays PLC, with a current market value of $14,592,574, as of January 31, 2003. Barclays PLC is an affiliate of BGFA, the Funds' investment advisor. As of January 31, 2003, 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 January 31, 2003, were as follows: iSHARES INDEX FUND PURCHASES SALES -------------------------------------------------------------------- Goldman Sachs Technology $ 1,033,995 $ 1,072,304 Goldman Sachs Networking 2,736,843 2,721,152 Goldman Sachs Semiconductor 2,505,225 2,452,302 Goldman Sachs Software 1,026,428 1,087,547 Goldman Sachs Natural Resources 1,336,119 1,324,084 MSCI EAFE 92,673,745 115,566,749 -------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 49 NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued) iSHARES TRUST In-kind transactions for the six months ended January 31, 2003, were as follows: IN-KIND IN-KIND iSHARES INDEX FUND PURCHASES SALES ------------------------------------------------------------------------ Goldman Sachs Technology $ 41,453,044 $ 9,072,816 Goldman Sachs Networking 9,596,549 14,753,406 Goldman Sachs Semiconductor 77,802,046 62,583,891 Goldman Sachs Software 36,403,084 53,746,612 Goldman Sachs Natural Resources 8,306,479 - MSCI EAFE 650,857,714 2,101,695,658 ------------------------------------------------------------------------ At January 31, 2003, the aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
NET TAX UNREALIZED UNREALIZED UNREALIZED iSHARES INDEX FUND COST APPRECIATION DEPRECIATION DEPRECIATION --------------------------------------------------------------------------------------------------- Goldman Sachs Technology $ 76,901,937 $ 268,560 $ (26,650,249) $ (26,381,689) Goldman Sachs Networking 37,887,462 88,365 (16,923,458) (16,835,093) Goldman Sachs Semiconductor 99,495,781 256,677 (28,971,373) (28,714,696) Goldman Sachs Software 35,593,510 178,149 (12,004,405) (11,826,256) Goldman Sachs Natural Resources 32,851,743 835,850 (4,981,096) (4,145,246) MSCI EAFE 2,549,285,251 12,131,855 (565,320,907) (553,189,052) ---------------------------------------------------------------------------------------------------
4. iSHARES TRANSACTIONS At January 31, 2003, 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 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 50 NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued) iSHARES TRUST 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 January 31, 2003, 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 January 31, 2003 and the value of the related collateral are disclosed in the Statements of Assets and Liabilities. 6. LEGAL PROCEEDINGS The Trust is currently a defendant in an action in the U.S. District Court for the Northern District of Illinois. There are numerous other defendants, including the Trust's investment advisor, other exchange traded funds, various fund service providers and market makers, and the Chicago Stock Exchange, Inc. A company named MOPEX, Inc. is the plaintiff in this action. MOPEX claims that the actions of the parties, including the Trust, infringe a patent held by MOPEX, and that the parties engaged in a "conspiracy" amongst themselves to infringe the patent. MOPEX's patent, however, was recently found to be invalid by the judge in a related case in the U.S. District Court for the Southern District of New York. Although the Trust is not a party to the action in New York, the Trust believes that the recent ruling will permit the action in Illinois to be dismissed or resolved quickly. NOTES TO THE FINANCIAL STATEMENTS 51 Notes: 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 52 Notes: NOTES 53 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. 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. 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) INTERNATIONAL/EMERGING COUNTRY iShares MSCI Brazil Index Fund (EWZ) iShares MSCI Malaysia Index Fund (EWM) iShares MSCI Mexico Index Fund (EWW) iShares MSCI South Africa Index Fund (EZA) 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) This advertising section does not constitute part of the 2003 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. 2003 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS 54 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. iShares are not sponsored or endorsed by Goldman, Sachs & Co., nor are they sponsored, endorsed, sold or promoted by Morgan Stanley Capital International, Inc., nor do these companies make any representation regarding the advisability of investing in iShares. Investing involves risk, including possible loss of principal. (C) 2003 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. [GRAPHIC APPEARS HERE] iShares Industrial strength investment tools from BARCLAYS GLOBAL INVESTORS I 800 iSHARES (I 800 474 2737) www.iShares.com -----END PRIVACY-ENHANCED MESSAGE-----