N-CSR 1 dncsr.txt ISHARES GOLDMAN/EAFE ANNUAL REPORT ------------------------- OMB APPROVAL ------------------------- OMB Number: 3235-0570 Expires: Nov. 30, 2005 Estimated average burden hours per response: 5.0 ------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-09729 --------------------------------------------- iShares Trust -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 45 Fremont Street, San Francisco, CA 94105 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) CT Corporation 1209 Orange Street, Wilmington, New Castle County, Delaware 19801 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (415) 597-2000 ---------------------------- Date of fiscal year end: 07/31/2003 --------------------------- Date of reporting period: 08/01/2002-07/31/2003 --------------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. Item 1. Reports to Stockholders iSHARES(R) 2003 ANNUAL REPORT TO SHAREHOLDERS JULY 31, 2003 [GRAPHIC APPEARS HERE] INDUSTRIAL STRENGTH INVESTMENT TOOLS iSHARES GOLDMAN SACHS SERIES iSHARES MSCI EAFE INDEX FUND Table of Contents Shareholder Letter ....................................................... 1 Managers' Discussion & Analysis .......................................... 4 Schedules of Investments ................................................. 16 iShares Goldman Sachs Technology Index Fund ............................ 16 iShares Goldman Sachs Networking Index Fund ............................ 20 iShares Goldman Sachs Semiconductor Index Fund ......................... 22 iShares Goldman Sachs Software Index Fund .............................. 24 iShares Goldman Sachs Natural Resources Index Fund ..................... 26 iShares MSCI EAFE Index Fund ........................................... 29 Financial Statements ..................................................... 42 Financial Highlights ..................................................... 46 Notes to the Financial Statements ........................................ 49 Report of Independent Auditors ........................................... 56 Tax Information (Unaudited) .............................................. 57 Supplemental Information (Unaudited) ..................................... 58 Trustees Information (Unaudited) ......................................... 61 iShares Family of Funds .................................................. 66 To Our Shareholders For many investors, the last few years have been difficult and challenging. The collapse of the stock market bubble, a tepid economy, corporate accounting scandals, lackluster company earnings and the geopolitical situation all contributed to a three-year bear market. Stock market gains during the first half of 2003 give some hope that the markets have turned a corner, but there is no guarantee that challenging market conditions will not return. However, iShares have continued to innovate and expand, offering more tools that help investors tailor their portfolios to achieve diversity and address volatility in a complex market environment. For example, in April of this year, iShares launched an emerging markets exchange traded fund based on the MSCI's Emerging Market Free Index. Last year, iShares launched the first fixed income exchange traded funds, which Business Week named one of the best new products of 2002./1/ We are adding a Lehman Aggregate Bond Fund to our fixed income menu, enabling investors to track one of the most dominant U.S. fixed income market indexes. Assets under management were $4.1 billion as of July 31, 2003 for the iShares fixed income funds. With the addition of these iShares, investors can achieve even more diversity in their portfolios - and at lower cost, since iShares fees are, on average, about half those of actively managed funds./2/ With 80 different iShares to choose from, investors have the ability to build a diverse portfolio that covers a wide swath of market segments such as capitalization, sectors, value and growth, international and fixed income indexes. That is important because market segments do not tend to move in tandem, particularly in volatile markets. 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 result in one market segment outperforming another. 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 an indispensable tool for investors in the current market. And that is also why more and more investors have recognized the benefits of iShares. Assets under management for iShares continue to grow, and as of July 31, 2003, had reached $41.5 billion. 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/ Lee T. Kranefuss Lee T. Kranefuss President and Chairman of the Board of Trustees for 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 5/03. 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. This advertising section does not constitute part of the 2003 Annual Report. 2 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS THIS PAGE INTENTIONALLY LEFT BLANK. 3 Managers' Discussion & Analysis iSHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND Performance as of 7/31/03 AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS -------------------------------------------------- ------------------------- Year Ended 7/31/03 Inception to 7/31/03 Inception to 7/31/03 ---------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX 27.18% 27.49% 27.77% (14.97)% (14.98)% (14.61)% (32.09)% (32.11)% (31.32)% "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 of the Fund, and the market return in 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 NAV 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 NAV, 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. [CHART APPEARS HERE] TOP 10 INDEX HOLDINGS Intel Corp. 9.25% Microsoft Corp. 8.69% International Business Machines Corp. 7.97% Cisco Systems Inc. 7.88% Dell Inc. 4.99% Hewlett-Packard Co. 3.72% Oracle Corp. 3.62% eBay Inc. 1.96% Texas Instruments Inc. 1.88% Applied Materials Inc. 1.86% 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 year ending July 31, 2003, the Fund returned 27.18%, and the Index returned 27.77%. Although equity markets endured a rocky year, in general they posted gains for the twelve-month reporting period. Uneven economic news, weak corporate earnings, and the possibility of war in Iraq plagued equity markets, bringing several broad indices to five-year lows by early October. As the probability of war heightened, related factors such as a spike in oil prices and geopolitical tension contributed further to market declines. However, the official conclusion to the war helped trigger a rally in stocks that would continue through the rest of the reporting period. Although issues relating to the war in Iraq faded somewhat and markets lifted, the economic outlook did not change dramatically. Unemployment levels reached a nine-year high, and jobless claims remained elevated. In late June, the Federal Reserve Board dropped short-term interest rates another 0.25% to 1.00%, in an effort to stimulate the sluggish economy. One bright spot on the economic landscape however, was a healthy second quarter GDP number: as defense expenditures surged and business spending climbed, the economy grew at a faster-than-expected 2.4% rate. 4 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Although the rally was broad based, technology-related shares in general were among the better performing stocks during the year. Within the group, networking stocks were by far the best-performing sector. Software stocks also rebounded from previous lows to deliver healthy gains. Global PC sales enjoyed four consecutive quarters of gains, benefiting Index constituents Hewlett-Packard and Dell. Among the Index's ten largest holdings, performance was mostly positive. The strongest gains came from eBay (1.96% of the Index as of July 31, 2003), which returned 87.95%. Hewlett-Packard (3.72% of the Index as of July 31, 2003) gained 49.61%, Cisco Systems (7.88% of the Index as of July 31, 2003) climbed 47.76%, and Dell (4.99% of the Index as of July 31, 2003) rose 35.10%. Intel, the largest holding at 9.25% of the Index, returned 32.46%. The only negative performer among the ten largest holdings was Texas Instruments (1.88% of the Index as of July 31, 2003), which fell 18.49%. iShares Goldman Sachs Technology Index Fund GROWTH OF $10,000 INVESTMENT SINCE INCEPTION [CHART APPEARS HERE] iShares Goldman Sachs Goldman Sachs Technology Index Fund Technology Sector Index --------------------- ----------------------- $ 10,000 $ 10,000 $ 10,776 $ 10,782 $ 10,344 $ 10,353 $ 10,362 $ 10,380 JUL-01 $ 9,624 $ 9,641 $ 8,369 $ 8,386 $ 6,674 $ 6,689 $ 7,741 $ 7,763 $ 9,057 $ 9,086 $ 8,894 $ 8,926 JAN-02 $ 8,879 $ 8,916 $ 7,690 $ 7,725 $ 8,235 $ 8,275 $ 7,219 $ 7,261 $ 6,925 $ 6,965 $ 5,943 $ 5,980 JUL-02 $ 5,339 $ 5,375 $ 5,269 $ 5,306 $ 4,327 $ 4,359 $ 5,269 $ 5,311 $ 6,189 $ 6,240 $ 5,285 $ 5,331 JAN-03 $ 5,234 $ 5,284 $ 5,313 $ 5,365 $ 5,251 $ 5,304 $ 5,798 $ 5,857 $ 6,436 $ 6,511 $ 6,417 $ 6,495 JUL-03 $ 6,791 $ 6,867 Past performance is no guarantee of future results. MANAGERS' DISCUSSION & ANALYSIS 5 Managers' Discussion & Analysis iSHARES GOLDMAN SACHS NETWORKING INDEX FUND Performance as of 7/31/03 AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS -------------------------------------------------- ------------------------- Year Ended 7/31/03 Inception to 7/31/03 Inception to 7/31/03 ---------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX 58.52% 57.37% 59.20% (23.79)% (23.86)% (23.33)% (42.87)% (42.98)% (42.14)% "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. For purposes of calculating the total return of the Index, dividends and distributions made by companies included in the Index generally are assumed to be reinvested in the securities issued by those companies. However, prior to December 31, 2002, the total returns of the Index did not reflect reinvestment of dividends and distributions. The performance of the Index would have been higher for periods prior to that date had dividends and distributions been assumed to be reinvested. 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 of the Fund, and the market return in 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 NAV 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 NAV, respectively. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 INDEX HOLDINGS [CHART APPEARS HERE] QUALCOMM Inc. 9.41% Cisco Systems Inc. 9.24% Motorola Inc. 8.42% Nortel Networks Corp. 7.85% Corning Inc. 7.67% Lucent Technologies Inc. 5.46% Juniper Networks Inc. 4.11% Scientific-Atlanta Inc. 3.40% Marvell Technology Group Ltd. 3.23% UTStarcom Inc. 3.22% 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 year ending July 31, 2003, the Fund returned 58.52%, and the Index returned 59.20%. Equity markets endured a bumpy year against a backdrop of troubling economic and geopolitical conditions. Throughout the twelve-month reporting period, quarterly GDP growth figures were alternately healthy and weak, unable to clearly portray an economy emerging into recovery. Unemployment levels climbed during the year, reaching levels not seen in nine years. For much of the reporting period, however, the central theme was the anticipation and ultimate reality of war in Iraq. As fears of a war mounted, equity markets generally declined. When the war officially ended, though, stock markets staged a rally that lasted for the final four months of the reporting period. For most broad market indices, the gains of the last several months erased losses suffered in previous months and resulted in positive returns for the year. 6 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Despite the broad indices' struggles during much of the year, many technology stocks quietly advanced. Networking shares, in particular, logged large percentage gains as a group during the reporting period. For many of these shares, however, the significant gains were not so much an indication of robust growth as they were a reflection of the steep price declines suffered in the past several years. In general, though, positive signs emerged for the group during the year: both global PC sales and global chip sales climbed during the twelve-month period. Among the Index's ten largest holdings, performance was largely positive. Corning (7.67% of the Index as of July 31, 2003) gained 408.75%, and Nortel Networks (7.85% of the Index as of July 31, 2003) returned 204.12%. UTStarcom (3.22% of the Index as of July 31, 2003) and Scientific-Atlanta (3.40% of the Index as of July 31, 2003) climbed 143.95% and 139.45%, respectively. Marvell Technology Group (3.23% of the Index as of July 31, 2003) returned 84.95%. The only negative performer among the ten largest holdings, Motorola (8.42% of the Index as of July 31, 2003) lost 22.07%. iShares Goldman Sachs Networking Index Fund GROWTH OF $10,000 INVESTMENT SINCE INCEPTION [CHART APPEARS HERE] iShares Goldman Sachs Goldman Sachs Technology Industry Networking Index Fund Multimedia Networking Index --------------------- --------------------------------- JUL-01 $ 10,000 $ 10,000 $ 8,563 $ 8,698 $ 6,575 $ 6,794 $ 7,833 $ 7,911 $ 9,100 $ 9,241 $ 8,428 $ 8,511 JAN-02 $ 8,150 $ 8,238 $ 6,253 $ 6,324 $ 6,792 $ 6,868 $ 5,939 $ 6,002 $ 5,493 $ 5,530 $ 4,086 $ 4,117 JUL-02 $ 3,604 $ 3,635 $ 3,502 $ 3,534 $ 2,651 $ 2,674 $ 3,205 $ 3,235 $ 4,507 $ 4,551 $ 3,709 $ 3,749 JAN-03 $ 4,064 $ 4,109 $ 4,012 $ 4,060 $ 3,970 $ 4,019 $ 4,455 $ 4,510 $ 5,479 $ 5,552 $ 5,407 $ 5,485 JUL-03 $ 5,713 $ 5,786 Past performance is no guarantee of future results. MANAGERS' DISCUSSION & ANALYSIS 7 Managers' Discussion & Analysis iSHARES GOLDMAN SACHS SEMICONDUCTOR INDEX FUND Performance as of 7/31/03 AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS -------------------------------------------------- ------------------------- Year Ended 7/31/03 Inception to 7/31/03 Inception to 7/31/03 ---------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX 16.12% 16.20% 16.53% (13.81)% (13.86)% (13.52)% (26.37)% (26.46)% (25.86)% "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. For purposes of calculating the total return of the Index, dividends and distributions made by companies included in the Index generally are assumed to be reinvested in the securities issued by those companies. However, prior to December 31, 2002, the total returns of the Index did not reflect reinvestment of dividends and distributions. The performance of the Index would have been higher for periods prior to that date had dividends and distributions been assumed to be reinvested. 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 of the Fund, and the market return in 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 NAV 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 NAV, respectively. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 INDEX HOLDINGS [CHART APPEARS HERE] Applied Materials Inc. 9.83% Intel Corp. 8.88% Texas Instruments Inc. 8.06% Motorola Inc. 7.41% STMicroelectronics NV NY Shares 6.77% Analog Devices Inc. 4.90% Maxim Integrated Products Inc. 4.47% Linear Technology Corp. 4.07% KLA-Tencor Corp. 3.48% Micron Technology Inc. 3.15% 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 year ending July 31, 2003, the Fund returned 16.12%, while the Index returned 16.53%. After struggling for much of the reporting period, equity markets generally delivered positive returns for the year. A floundering economy, skepticism about corporate leadership, and geopolitical tension put downward pressure on equities. While the threat of war in Iraq was key to the decline, the official conclusion to the war and accompanying drop in oil prices helped spark a rally that would last through July. A decline in interest rates contributed to market gains, making equities more attractive relative to lower-yielding fixed-income instruments. Economic news, though, still failed to portray a clear picture of recovery: unemployment climbed to levels not seen in nine years and jobless claims remained high. In late June, the Federal Reserve Board cut short-term interest rates to 1.00%, the lowest level since the 8 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Eisenhower administration. On the last day of the reporting period, a surprisingly high second quarter GDP growth rate of 2.4% provided encouragement. For semiconductor stocks, the struggling economy weighed on earnings levels, as corporate investment remained low. During the course of the year, however, global chip sales steadily rose, and by May were 9.9% higher than the previous year. Many semiconductor shares were able to recoup losses suffered early in the reporting period to post gains; others were only able to mitigate their losses. During the reporting period, performance was mixed among the ten largest holdings in the Index. Analog Devices (4.90% of the Index as of July 31, 2003) gained 57.47%, and Linear Technology (4.07% of the Index as of July 31, 2003) climbed 35.71%. Intel (8.88% of the Index as of July 31, 2003) rose 32.46%. On the other side of the performance spectrum, Micron Technology (3.15% of the Index as of July 31, 2003) declined 24.89%, Motorola (7.41% of the Index as of July 31, 2003) fell 22.07%, and Texas Instruments (8.06% of the Index as of July 31, 2003) lost 18.49%. iShares Goldman Sachs Semiconductor Index Fund GROWTH OF $10,000 INVESTMENT SINCE INCEPTION [CHART APPEARS HERE] iShares Goldman Sachs Goldman Sachs Technology Semiconductor Index Fund Industry Semiconductor Index ------------------------ ---------------------------- JUL-01 $ 10,000 $ 10,000 $ 10,544 $ 10,550 $ 7,296 $ 7,300 $ 8,876 $ 8,885 $ 10,349 $ 10,361 $ 10,137 $ 10,145 JAN-02 $ 10,571 $ 10,590 $ 9,412 $ 9,433 $ 10,891 $ 10,916 $ 9,817 $ 9,842 $ 9,097 $ 9,123 $ 7,322 $ 7,345 JUL-02 $ 6,341 $ 6,363 $ 5,770 $ 5,793 $ 4,504 $ 4,522 $ 5,546 $ 5,569 $ 6,923 $ 6,955 $ 5,264 $ 5,289 JAN-03 $ 5,051 $ 5,079 $ 5,455 $ 5,486 $ 5,327 $ 5,360 $ 5,994 $ 6,031 $ 6,923 $ 6,972 $ 6,672 $ 6,723 JUL-03 $ 7,363 $ 7,414 Past performance is no guarantee of future results. MANAGERS' DISCUSSION & ANALYSIS 9 Managers' Discussion & Analysis iSHARES GOLDMAN SACHS SOFTWARE INDEX FUND Performance as of 7/31/03 AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS -------------------------------------------------- ------------------------- Year Ended 7/31/03 Inception to 7/31/03 Inception to 7/31/03 ---------------------- ------------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX 33.67% 34.08% 34.32% (19.32)% (19.34)% (18.92)% (35.75)% (35.77)% (35.08)% "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. For purposes of calculating the total return of the Index, dividends and distributions made by companies included in the Index generally are assumed to be reinvested in the securities issued by those companies. However, prior to December 31, 2002, the total returns of the Index did not reflect reinvestment of dividends and distributions. The performance of the Index would have been higher for periods prior to that date had dividends and distributions been assumed to be reinvested. 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 of the Fund, and the market return in 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 NAV 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 NAV, respectively. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 INDEX HOLDINGS [CHART APPEARS HERE] Microsoft Corp. 9.26% Computer Associates International Inc. 8.77% Oracle Corp. 7.89% Veritas Software Corp. 7.61% Electronic Arts Inc. 7.29% Intuit Inc. 5.28% Adobe Systems Inc. 4.52% Symantec Corp. 4.12% BEA Systems Inc. 3.16% PeopleSoft Inc. 3.13% 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 year ending July 31, 2003, the Fund returned 33.67%, compared with a return of 34.32% for the Index. Markets overcame mixed economic news, weak corporate earnings, and war in Iraq to deliver positive returns for the reporting period. Early in the 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. As the threat of war loomed, markets languished. Finally, as the war came to an official conclusion, markets rallied, retracing their losses and ending the reporting period in positive territory. Despite the strength of equity markets, however, the underlying economic outlook did not change dramatically. Unemployment levels climbed to a nine-year high, and jobless claims remained elevated. In late June, the Federal Reserve Board dropped short-term rates another 0.25% to 1.00% in an effort to stimulate the sluggish economy. 10 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS The software group was among the better performing sectors during the reporting period. The group benefited from a rise in sales of PCs throughout the twelve-month period: global PC sales climbed 7.6% in the second quarter, their fourth consecutive quarter of global growth. Among the Index's ten largest holdings, performance was mostly positive. Computer Associates (8.77% of the Index as of July 31, 2003) returned 172.48%. BEA Systems (3.16% of the Index as of July 31, 2003) gained 137.84%, and Veritas Software (7.61% of the Index as of July 31, 2003) climbed 82.83%. Electronic Arts (7.29% of the Index as of July 31, 2003) rose 39.58%. Symantec (4.12% of the Index as of July 31, 2003) and Adobe Systems (4.52% of the Index as of July 31, 2003) gained 39.45% and 36.60%, respectively. PeopleSoft (3.13% of the Index as of July 31, 2003) and Intuit (5.28% of the Index as of July 31, 2003) declined 7.90% and 1.93%, respectively. iShares Goldman Sachs Software Index Fund GROWTH OF $10,000 INVESTMENT SINCE INCEPTION [CHART APPEARS HERE] iShares Goldman Sachs Goldman Sachs Technology Software Index Fund Industry Software Index --------------------- ------------------------ JUL-01 $ 10,000 $ 10,000 $ 7,993 $ 7,998 $ 6,069 $ 6,077 $ 7,408 $ 7,426 $ 8,795 $ 8,819 $ 9,243 $ 9,269 JAN-02 $ 9,367 $ 9,396 $ 7,856 $ 7,885 $ 8,390 $ 8,424 $ 6,700 $ 6,731 $ 6,112 $ 6,144 $ 5,603 $ 5,633 JUL-02 $ 4,807 $ 4,833 $ 4,760 $ 4,788 $ 4,190 $ 4,216 $ 5,041 $ 5,075 $ 5,922 $ 5,964 $ 5,161 $ 5,196 JAN-03 $ 5,297 $ 5,338 $ 5,212 $ 5,253 $ 5,041 $ 5,084 $ 5,615 $ 5,665 $ 6,307 $ 6,366 $ 6,333 $ 6,401 JUL-03 $ 6,425 $ 6,490 Past performance is no guarantee of future results. MANAGERS' DISCUSSION & ANALYSIS 11 Managers' Discussion & Analysis iSHARES GOLDMAN SACHS NATURAL RESOURCES INDEX FUND Performance as of 7/31/03 AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS --------------------------------------------- ------------------------- Year Ended 7/31/03 Inception to 7/31/03 Inception to 7/31/03 -------------------- ---------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX 6.27% 6.38% 6.86% (3.26)% (3.30)% (2.87)% (5.72)% (5.79)% (5.02)% "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 of the Fund, and the market return in 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 NAV 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 NAV, respectively. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 INDEX HOLDINGS [CHART APPEARS HERE] ChevronTexaco Corp. 7.63% BP PLC ADR 7.46% Exxon Mobil Corp. 7.45% Royal Dutch Petroleum Co. NY Shares 7.10% ConocoPhillips 4.88% Schlumberger Ltd. 3.60% Alcoa Inc. 3.22% International Paper Co. 2.57% EnCana Corp. 2.28% Newmont Mining Corp. 2.01% 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 year ending July 31, 2003, the Fund returned 6.27%, compared to a return of 6.86% for the Index. Markets overcame a backdrop of uncertainty to deliver positive returns for the twelve-month reporting period. Mixed signs for economic recovery, skepticism about corporate leadership, and geopolitical unease heightened during the reporting period. As broad markets dipped to new lows in the first few days of October, bargain hunters moved in, spurring a brief rebound. However, as the increased likelihood of war in Iraq drove the price of crude oil higher and the U.S. dollar lower, broad market indices continued their decline. Finally, when the war officially ended, markets rallied, climbing through the end of July. As war with Iraq became imminent, crude oil prices spiked to nearly $40 a barrel on concerns of a supply crunch during peak winter heating months. Oil company shares responded negatively to signs that oil prices had reached 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. Accordingly, when the war officially ended and oil prices dropped, the oil service and exploration 12 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS companies rebounded the most. Throughout the reporting period, the uncertainty of global economic recovery also had a dampening effect on some industry groups. In particular, the sluggish economy meant decreased demand for raw materials, and share prices for basic materials companies languished as a result. Among the Index's ten largest holdings, performance was mixed during the reporting period. The strongest gains came from Newmont Mining (2.01% of the Index as of July 31, 2003) and EnCana Corporation (2.28% of the Index as of July 31, 2003), which returned 47.95% and 21.96%, respectively. Schlumberger (3.60% of the Index as of July 31, 2003) climbed 5.01%. Alcoa (3.22% of the Index as of July 31, 2003) returned 2.66%. BP (7.46% of the Index as of July 31, 2003) and Royal Dutch Petroleum (7.10% of the Index as of July 31, 2003) fell 10.45% and 4.64%, respectively. ChevronTexaco, the largest holding at 7.63% of the Index, lost 3.85%. Exxon Mobil (7.45% of the Index as of July 31, 2003) fell 3.21%. iShares Goldman Sachs Natural Resources Index Fund GROWTH OF $10,000 INVESTMENT SINCE INCEPTION [CHART APPEARS HERE] iShares Goldman Sachs Goldman Sachs Natural Natural Resources Index Fund Resources Sector Index ---------------------------- ---------------------- $ 10,000 $ 10,000 $ 9,594 $ 9,594 $ 10,045 $ 10,038 JAN-02 $ 9,825 $ 9,822 $ 10,254 $ 10,258 $ 11,002 $ 11,009 $ 10,662 $ 10,673 $ 10,606 $ 10,621 $ 10,202 $ 10,217 JUL-02 $ 8,871 $ 8,888 $ 9,021 $ 9,044 $ 8,147 $ 8,168 $ 8,299 $ 8,325 $ 8,698 $ 8,730 $ 8,739 $ 8,776 JAN-03 $ 8,524 $ 8,564 $ 8,654 $ 8,698 $ 8,577 $ 8,624 $ 8,675 $ 8,727 $ 9,621 $ 9,685 $ 9,632 $ 9,701 JUL-03 $ 9,428 $ 9,498 Past performance is no guarantee of future results. MANAGERS' DISCUSSION & ANALYSIS 13 Managers' Discussion & Analysis iSHARES MSCI EAFE INDEX FUND Performance as of 7/31/03 AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS --------------------------------------------- ------------------------- Year Ended 7/31/03 Inception to 7/31/03 Inception to 7/31/03 -------------------- ---------------------- ------------------------- NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX 6.17% 4.30% 6.30% (6.00)% (6.33)% (6.02)% (11.44)% (12.05)% (11.46)% "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 of the Fund, and the market return in 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 NAV 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 NAV, respectively. An Index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. TOP 10 INDEX HOLDINGS [CHART APPEARS HERE] BP PLC 2.57% HSBC Holdings PLC 2.24% Vodafone Group PLC 2.17% GlaxoSmithKline PLC 1.94% Total SA 1.63% Novartis AG 1.56% Royal Dutch Petroleum Co. 1.55% Nestle SA 1.35% Royal Bank of Scotland Group PLC 1.31% Nokia OYJ 1.23% 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 MSCI EAFE Index (the "Index"). The Index measures the performance of equities in developed European, Australasian, and Far East markets. For the year ending July 31, 2003, the Fund returned 6.17%, and the Index returned 6.30%. The constituent markets of the Index struggled during the twelve-month reporting period, as the dampening effects of continued global economic slowdown were compounded by geopolitical tension. Anxiety about war was perhaps most visible in Europe, where the divisive mood within the continent furthered the strain. In Asia, the SARS virus added a compounding element to an already troubled economy. By mid-March, however, markets reversed course as many of the negative factors diminished. Officially, the war in Iraq came to a conclusion. The economic outlook, while still cloudy, began to offer more cause for optimism. Additionally, the SARS virus was contained, helping Asian markets to recover. Within industry sectors, performance followed a seesaw pattern during the twelve-month period. As global markets struggled early in the period, technology and telecommunications shares were some of the hardest hit. Oil company stocks were adversely affected by the war, which caused the price of oil to spike. (A rise in oil prices can cause oil company prices to decline, because the elevated prices are 14 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS interpreted by many investors as unsustainable.) Similarly, travel, airlines and insurance companies suffered during this period as a result of the war in Iraq. Ultimately, though, some of the stocks that declined the most were the ones to rebound, particularly in the telecommunications sector. Financial stocks in general performed well, benefiting from increased investor activity as markets improved. Within the Index's ten largest holdings, performance was largely negative. Two positive performers, however, were Vodafone (2.17% of the Index as of July 31, 2003) and Nokia (1.23% of the Index as of July 31, 2003), which gained 21.65% and 7.24%, respectively. HSBC Holdings (2.24% of the Index as of July 31, 2003) climbed 4.76%. Oil companies Royal Dutch Petroleum (1.55% of the Index as of July 31, 2003) and BP (2.57% of the Index as of July 31, 2003) logged declines of 16.31% and 14.29%, respectively. Nestle (1.35% of the Index as of July 31, 2003) fell 13.97%, and Novartis (1.56% of the Index as of July 31, 2003) dropped 12.26%. iShares MSCI EAFE Index Fund GROWTH OF $10,000 INVESTMENT SINCE INCEPTION [GRAPHIC APPEARS HERE] iShares MSCI EAFE MSCI EAFE Index Fund Index ----------------- --------- $ 10,000 $ 10,000 $ 8,777 $ 8,767 $ 9,024 $ 9,015 $ 9,301 $ 9,299 $ 9,365 $ 9,361 JAN-02 $ 8,877 $ 8,871 $ 8,941 $ 8,933 $ 9,464 $ 9,456 $ 9,480 $ 9,473 $ 9,632 $ 9,625 $ 9,258 $ 9,242 JUL-02 $ 8,342 $ 8,330 $ 8,326 $ 8,311 $ 7,435 $ 7,418 $ 7,830 $ 7,816 $ 8,181 $ 8,171 $ 7,904 $ 7,897 JAN-03 $ 7,572 $ 7,567 $ 7,402 $ 7,394 $ 7,257 $ 7,249 $ 7,962 $ 7,960 $ 8,439 $ 8,442 $ 8,647 $ 8,646 JUL-03 $ 8,856 $ 8,856 Past performance is no guarantee of future results. MANAGERS' DISCUSSION & ANALYSIS 15 Schedule of Investments iSHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ COMMON STOCKS - 100.02% Intel Corp. 386,436 $ 9,641,578 Microsoft Corp. 342,233 9,034,951 International Business Machines Corp. 101,915 8,280,594 Cisco Systems Inc./1/ 420,495 8,208,062 Dell Inc./1/ 153,855 5,181,836 Hewlett-Packard Co. 182,849 3,870,913 Oracle Corp./1/ 314,127 3,769,524 eBay Inc./1/ 19,036 2,040,659 Texas Instruments Inc. 103,686 1,956,555 Applied Materials Inc./1/ 99,388 1,938,066 QUALCOMM Inc. 47,335 1,773,169 First Data Corp. 44,847 1,693,423 EMC Corp./1/ 130,968 1,393,500 Automatic Data Processing Inc. 35,867 1,329,948 Motorola Inc. 138,881 1,255,484 InterActiveCorp/1/ 29,654 1,200,097 STMicroelectronics NV NY Shares 53,651 1,147,595 Yahoo! Inc./1/ 36,182 1,126,346 Amazon.com Inc./1/ 23,503 980,545 Computer Associates International Inc. 34,686 882,759 Analog Devices Inc./1/ 21,868 829,891 Veritas Software Corp./1/ 24,892 766,674 Maxim Integrated Products Inc. 19,485 761,474 Electronic Arts Inc./1/ 8,739 734,076 Paychex Inc. 22,532 732,966 Sun Microsystems Inc./1/ 193,742 724,595 Linear Technology Corp. 18,732 690,836 Nortel Networks Corp./1/ 230,566 680,170 Electronic Data Systems Corp. 28,630 637,590 Agilent Technologies Inc./1/ 28,195 612,677 Corning Inc./1/ 74,958 610,158 KLA-Tencor Corp./1/ 11,386 588,087 Micron Technology Inc./1/ 36,418 533,160 Xilinx Inc./1/ 20,193 530,672 Intuit Inc./1/ 12,284 528,458 Accenture Ltd./1/ 25,312 491,559 Lexmark International Inc./1/ 7,627 489,425 Apple Computer Inc./1/ 21,865 460,258 Computer Sciences Corp./1/ 11,244 456,169 Adobe Systems Inc. 13,919 454,873 Fiserv Inc./1/ 11,556 451,146 SunGard Data Systems Inc./1/ 17,017 446,526 Altera Corp./1/ 22,907 440,731 Lucent Technologies Inc./1/ 248,406 437,195 Symantec Corp./1/ 8,831 413,026 PeopleSoft Inc./1/ 24,017 400,370 Concord EFS Inc./1/ 29,097 396,010 Affiliated Computer Services Inc. Class A/1/ 7,553 374,251 ASM Lithography Holding NV NY Shares/1/ 28,840 373,190 Flextronics International Ltd./1/ 31,161 342,771 Juniper Networks Inc./1/ 22,597 326,075 Network Appliance Inc./1/ 20,298 324,362 Microchip Technology Inc. 12,191 321,355 Novellus Systems Inc./1/ 8,966 321,072 BEA Systems Inc./1/ 24,135 318,582 Synopsys Inc./1/ 4,431 276,982 Siebel Systems Inc./1/ 29,278 274,628 Jabil Circuit Inc./1/ 11,881 273,857 Scientific-Atlanta Inc. 8,907 269,793 Amdocs Ltd./1/ 12,956 264,043 Check Point Software Technologies Ltd./1/ 14,702 261,549 DST Systems Inc./1/ 7,103 261,106 Marvell Technology Group Ltd./1/ 7,277 255,859 UTStarcom Inc./1/ 5,984 254,739 Solectron Corp./1/ 49,600 253,456 Broadcom Corp. Class A/1/ 12,487 253,111 JDS Uniphase Corp./1/ 81,273 244,632 National Semiconductor Corp./1/ 10,910 243,839 Sanmina-SCI Corp./1/ 30,411 241,463 Unisys Corp./1/ 19,594 240,222 CDW Corp./1/ 5,008 239,783 Expedia Inc./1/ 3,059 239,244 QLogic Corp./1/ 5,612 236,546 SanDisk Corp./1/ 4,144 234,923 Ascential Software Corp./1/ 13,962 227,162 Cadence Design Systems Inc./1/ 16,004 218,775 16 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Avaya Inc./1/ 22,739 $ 218,294 LSI Logic Corp./1/ 22,425 208,777 Mercury Interactive Corp./1/ 5,103 200,854 Intersil Corp. Class A/1/ 8,112 200,042 ChoicePoint Inc./1/ 5,190 197,947 BMC Software Inc./1/ 14,018 197,654 Sabre Holdings Corp. 8,563 197,634 VeriSign Inc./1/ 14,269 190,491 NVIDIA Corp./1/ 9,512 181,869 Teradyne Inc./1/ 11,052 181,805 Citrix Systems Inc./1/ 9,928 180,193 ATI Technologies Inc./1/ 14,333 178,016 Symbol Technologies Inc. 13,830 177,162 Storage Technology Corp./1/ 6,498 173,107 Celestica Inc./1/ 11,173 171,282 Monster Worldwide Inc./1/ 6,393 169,734 Ceridian Corp./1/ 8,930 166,545 Comverse Technology Inc./1/ 11,246 165,879 Tellabs Inc./1/ 24,637 165,807 Lam Research Corp./1/ 7,574 164,810 Fair Isaac Corp. 2,807 151,690 CIENA Corp./1/ 26,072 151,478 Advanced Micro Devices Inc./1/ 20,672 150,906 Convergys Corp./1/ 8,822 148,827 Maxtor Corp./1/ 14,609 146,090 Amkor Technology Inc./1/ 9,913 145,424 Agere Systems Inc. Class B/1/ 54,380 144,107 CheckFree Corp./1/ 5,329 143,403 MEMC Electronics Materials Inc./1/ 12,437 140,289 Amphenol Corp. Class A/1/ 2,542 137,268 Cognos Inc./1/ 5,068 137,140 Foundry Networks Inc./1/ 7,344 132,486 Alliance Data Systems Corp./1/ 4,756 130,314 Agere Systems Inc. Class A/1/ 45,766 128,602 Harris Corp. 3,970 128,509 BearingPoint Inc./1/ 11,442 125,862 Integrated Circuit Systems Inc./1/ 4,154 124,828 Ingram Micro Inc. Class A/1/ 9,038 124,273 PMC-Sierra Inc./1/ 10,086 123,654 BISYS Group Inc. (The)/1/ 7,229 119,640 Western Digital Corp./1/ 11,825 117,777 Compuware Corp./1/ 22,769 117,260 Reynolds & Reynolds Co. (The) Class A 4,009 115,940 Vishay Intertechnology Inc./1/ 8,649 115,032 Cognizant Technology Solutions Corp./1/ 3,731 114,840 AVX Corp. 10,466 114,603 PerkinElmer Inc. 7,529 111,881 Research in Motion Ltd./1/ 4,587 110,501 ADTRAN Inc. 2,259 110,330 National Instruments Corp. 3,072 109,394 Silicon Laboratories Inc./1/ 2,948 108,221 Certegy Inc./1/ 3,965 107,967 Tektronix Inc./1/ 5,069 107,108 3Com Corp./1/ 21,766 106,218 Network Associates Inc./1/ 9,381 106,005 International Rectifier Corp./1/ 3,829 105,680 Cypress Semiconductor Corp./1/ 7,510 104,990 ADC Telecommunications Inc./1/ 47,877 104,372 Applied Micro Circuits Corp./1/ 18,148 103,988 Avnet Inc./1/ 7,221 103,982 Rambus Inc./1/ 5,772 103,665 Arrow Electronics Inc./1/ 6,052 103,187 Gateway Inc./1/ 19,671 100,519 Autodesk Inc. 6,702 100,262 Polycom Inc./1/ 5,992 100,066 Emulex Corp./1/ 4,916 100,041 Henry (Jack) & Associates Inc. 5,238 97,898 West Corp./1/ 3,956 96,210 Sonus Networks Inc./1/ 13,705 95,113 DoubleClick Inc./1/ 8,203 92,038 Atmel Corp./1/ 28,376 91,087 Overture Services Inc./1/ 3,784 89,605 Sybase Inc./1/ 5,676 89,113 Fairchild Semiconductor International Inc. Class A/1/ 6,955 88,676 Advanced Fibre Communications Inc./1/ 5,127 86,492 Brocade Communications Systems Inc./1/ 15,215 84,900 Cymer Inc./1/ 2,072 83,812 SCHEDULES OF INVESTMENTS 17 Schedule of Investments (Continued) iSHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Acxiom Corp./1/ 5,130 $ 81,516 Conexant Systems Inc./1/ 16,293 80,162 Avid Technology Inc./1/ 1,723 80,051 RF Micro Devices Inc./1/ 10,883 79,990 Vitesse Semiconductor Corp./1/ 12,288 79,258 Global Payments Inc. 2,237 78,765 Novell Inc./1/ 22,089 78,416 Macromedia Inc./1/ 3,733 76,601 Imation Corp. 2,125 75,841 Semtech Corp./1/ 4,458 73,557 Titan Corp. (The)/1/ 4,778 73,295 Avocent Corp./1/ 2,735 73,243 Skyworks Solutions Inc./1/ 8,416 71,620 Integrated Device Technology Inc./1/ 6,151 70,798 Perot Systems Corp. Class A/1/ 6,520 70,742 EarthLink Inc./1/ 9,184 70,258 MKS Instruments Inc./1/ 3,107 70,249 Activision Inc./1/ 5,998 69,877 Varian Semiconductor Equipment Associates Inc./1/ 2,080 69,160 TIBCO Software Inc./1/ 12,823 68,860 Electronics For Imaging Inc./1/ 3,274 68,754 CACI International Inc. Class A/1/ 1,747 68,727 Mentor Graphics Corp./1/ 4,018 68,467 Legato Systems Inc./1/ 7,095 66,835 Sycamore Networks Inc./1/ 16,097 66,481 Anteon International Corp./1/ 2,094 66,170 Kronos Inc./1/ 1,193 66,092 Take-Two Interactive Software Inc./1/ 2,479 65,941 Red Hat Inc./1/ 10,318 65,210 Andrew Corp./1/ 5,979 65,111 Entegris Inc./1/ 4,369 62,564 Micrel Inc./1/ 5,460 61,370 Intergraph Corp./1/ 2,768 61,173 Hyperion Solutions Corp./1/ 2,169 59,279 Cree Inc./1/ 4,400 58,784 Keane Inc./1/ 3,917 56,914 KEMET Corp./1/ 5,136 55,726 GlobeSpanVirata Inc./1/ 7,802 53,834 RealNetworks Inc./1/ 9,337 53,688 Tekelec/1/ 3,630 53,252 McDATA Corp. Class A/1/ 4,924 53,228 InterDigital Communications Corp./1/ 3,313 52,610 Lattice Semiconductor Corp./1/ 6,696 52,028 Parametric Technology Corp./1/ 16,068 51,257 Documentum Inc./1/ 2,921 50,095 Quest Software Inc./1/ 5,575 49,333 Black Box Corp. 1,181 47,831 CSG Systems International Inc./1/ 3,152 47,564 Axcelis Technologies Inc./1/ 6,043 44,476 Borland Software Corp./1/ 4,776 44,417 Ariba Inc./1/ 16,119 44,327 Adaptec Inc./1/ 6,519 44,134 Extreme Networks Inc./1/ 7,145 43,727 WebEx Communications Inc./1/ 2,533 41,769 Newport Corp./1/ 2,376 40,891 THQ Inc./1/ 2,316 38,168 Plexus Corp./1/ 2,608 37,633 TriQuint Semiconductor Inc./1/ 8,191 37,105 NetIQ Corp./1/ 3,347 36,382 Informatica Corp./1/ 4,937 36,188 Internet Security Systems Inc./1/ 2,960 34,958 Advent Software Inc./1/ 1,967 31,865 Pinnacle Systems Inc./1/ 3,780 31,147 Quantum Corp./1/ 10,321 30,963 Palm Inc./1/ 1,679 26,948 webMethods Inc./1/ 3,178 24,788 TOTAL COMMON STOCKS (Cost: $109,274,471) 104,003,674 SHORT TERM INVESTMENTS - 6.52% MONEY MARKET FUNDS - 4.48% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares/2/,/3/ 3,165,117 3,165,117 Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares/2/,/3/ 1,137,245 1,137,245 BlackRock Temp Cash Money Market Fund/2/ 41,133 41,133 18 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND July 31, 2003 Shares or Security Principal Value ------------------------------------------------------------------------------ Short Term Investment Co. - Liquid Assets Money Market Portfolio/2/ 113,725 $ 113,725 Short Term Investment Co. - Prime Money Market Portfolio, Institutional Shares/2/ 199,195 199,195 4,656,415 FLOATING RATE NOTES - 1.52% Beta Finance Inc. 1.06%, 05/20/04 /2/ $ 56,854 56,854 1.10%, 08/15/03 /2/ 85,298 85,298 Canadian Imperial Bank of Commerce 1.06%, 10/30/03 /2/ 45,490 45,490 CC USA Inc. 1.06%, 07/15/04 /2/ 50,036 50,036 1.11%, 08/15/03 /2/ 56,883 56,883 1.31%, 04/19/04 /2/ 113,713 113,713 Dorada Finance Inc. 1.06%, 05/20/04 /2/ 113,707 113,707 Five Finance Inc. 1.08%, 04/15/04 /2/ 56,862 56,862 HBOS Treasury Services PLC 1.27%, 06/24/04 /2/ 113,725 113,725 Holmes Financing PLC 1.07%, 04/15/04 /2/ 22,745 22,745 K2 USA LLC 1.07%, 05/17/04 /2/ 56,859 56,859 1.08%, 04/13/04 /2/ 56,859 56,859 Links Finance LLC 1.05%, 07/20/04 /2/ 45,481 45,481 1.06%, 06/28/04 /2/ 56,851 56,851 1.07%, 03/29/04 /2/ 56,862 56,862 1.09%, 05/04/04 /2/ 56,859 56,859 Nationwide Building Society 1.08%, 07/23/04 /2/ 85,293 85,293 Sigma Finance Inc. 1.05%, 07/20/04 /2/ 56,851 56,851 1.06%, 10/15/03 /2/ 113,719 113,719 1.08%, 07/01/04 /2/ 56,848 56,848 Security Principal Value ------------------------------------------------------------------------------ Tango Finance Corp. 1.06%, 07/06/04 /2/ $ 34,114 $ 34,114 White Pine Finance LLC 1.06%, 05/17/04 /2/ 68,235 68,235 1.07%, 04/20/04 /2/ 56,862 56,862 1.08%, 07/06/04 /2/ 68,228 68,228 1,585,234 TIME DEPOSITS - 0.30% Abbey National Treasury Services PLC 1.13%, 08/01/03 /2/ 142,156 142,156 SunTrust Banks Inc. 1.03%, 08/01/03 /2/ 170,587 170,587 312,743 COMMERCIAL PAPER - 0.22% Delaware Funding Corp. 1.03%, 08/04/03 /2/ 88,163 88,163 Liberty Funding Corp. 1.04%, 08/07/03 /2/ 28,493 28,493 UBS Finance (Delaware) Inc. 1.11%, 08/01/03 /2/ 113,721 113,721 230,377 TOTAL SHORT TERM INVESTMENTS (Cost: $6,784,769) 6,784,769 TOTAL INVESTMENTS IN SECURITIES - 106.54% (Cost $116,059,240) 110,788,443 Other Assets, Less Liabilities - (6.54%) (6,804,659) --------------- NET ASSETS - 100.00% $ 103,983,784 =============== /1/ Non-income earning securities. /2/ All or a portion of this security represents investments of securities lending collateral. /3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2. See Notes to Financial Statements. SCHEDULES OF INVESTMENTS 19 Schedule of Investments iSHARES GOLDMAN SACHS NETWORKING INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ COMMON STOCKS - 99.94% QUALCOMM Inc. 202,781 $ 7,596,176 Cisco Systems Inc./1/ 383,068 7,477,487 Motorola Inc. 752,608 6,803,576 Nortel Networks Corp./1/ 2,148,597 6,338,361 Corning Inc./1/ 760,647 6,191,667 Lucent Technologies Inc./1/ 2,520,103 4,435,381 Juniper Networks Inc./1/ 230,248 3,322,479 Scientific-Atlanta Inc. 90,774 2,749,544 Marvell Technology Group Ltd./1/ 74,176 2,608,028 UTStarcom Inc./1/ 61,136 2,602,560 Broadcom Corp. Class A/1/ 127,241 2,579,175 JDS Uniphase Corp./1/ 823,442 2,478,560 Avaya Inc./1/ 232,296 2,230,042 Comverse Technology Inc./1/ 114,651 1,691,102 Tellabs Inc./1/ 251,156 1,690,280 CIENA Corp./1/ 265,054 1,539,964 Agere Systems Inc. Class B/1/ 553,170 1,465,901 Foundry Networks Inc./1/ 75,024 1,353,433 Agere Systems Inc. Class A/1/ 467,851 1,314,661 PMC-Sierra Inc./1/ 102,944 1,262,093 Research in Motion Ltd./1/ 47,023 1,132,784 ADTRAN Inc. 23,065 1,126,495 3Com Corp./1/ 220,736 1,077,192 ADC Telecommunications Inc./1/ 488,569 1,065,080 Applied Micro Circuits Corp./1/ 185,254 1,061,505 Polycom Inc./1/ 60,152 1,004,538 Sonus Networks Inc./1/ 137,064 951,224 Advanced Fibre Communications Inc./1/ 51,773 873,411 Vitesse Semiconductor Corp./1/ 125,129 807,082 Conexant Systems Inc./1/ 163,029 802,103 Skyworks Solutions Inc./1/ 84,398 718,227 Sycamore Networks Inc./1/ 165,525 683,618 GlobeSpanVirata Inc./1/ 79,410 547,929 InterDigital Communications Corp./1/ 33,861 537,713 Extreme Networks Inc./1/ 70,842 433,553 Pinnacle Systems Inc./1/ 38,440 316,746 TOTAL COMMON STOCKS (Cost: $81,399,530) 80,869,670 Shares or Security Principal Value ------------------------------------------------------------------------------ SHORT TERM INVESTMENTS - 20.55% MONEY MARKET FUNDS - 14.08% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares/2/,/3/ 7,726,079 $ 7,726,079 Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares/2/,/3/ 2,795,712 2,795,712 BlackRock Temp Cash Money Market Fund/2/ 101,118 101,118 Short Term Investment Co. - Liquid Assets Money Market Portfolio/2/ 279,571 279,571 Short Term Investment Co. - Prime Money Market Portfolio, Institutional Shares/2/ 489,686 489,686 11,392,166 FLOATING RATE NOTES - 4.82% Beta Finance Inc. 1.06%, 05/20/04 /2/ $ 139,765 139,765 1.10%, 08/15/03 /2/ 209,690 209,690 Canadian Imperial Bank of Commerce 1.06%, 10/30/03 /2/ 111,828 111,828 CC USA Inc. 1.06%, 07/15/04 /2/ 123,005 123,005 1.11%, 08/15/03 /2/ 139,836 139,836 1.31%, 04/19/04 /2/ 279,543 279,543 Dorada Finance Inc. 1.06%, 05/20/04 /2/ 279,529 279,529 Five Finance Inc. 1.08%, 04/15/04 /2/ 139,786 139,786 HBOS Treasury Services PLC 1.27%, 06/24/04 /2/ 279,571 279,571 Holmes Financing PLC 1.07%, 04/15/04 /2/ 55,914 55,914 K2 USA LLC 1.07%, 05/17/04 /2/ 139,779 139,779 1.08%, 04/13/04 /2/ 139,779 139,779 20 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES GOLDMAN SACHS NETWORKING INDEX FUND July 31, 2003 Security Principal Value ----------------------------------------------------------------------------- Links Finance LLC 1.05%, 07/20/04 /2/ $ 111,806 $ 111,806 1.06%, 06/28/04 /2/ 139,758 139,758 1.07%, 03/29/04 /2/ 139,786 139,786 1.09%, 05/04/04 /2/ 139,779 139,779 Nationwide Building Society 1.08%, 07/23/04 /2/ 209,678 209,678 Sigma Finance Inc. 1.05%, 07/20/04 /2/ 139,758 139,758 1.06%, 10/15/03 /2/ 279,557 279,557 1.08%, 07/01/04 /2/ 139,751 139,751 Tango Finance Corp. 1.06%, 07/06/04 /2/ 83,863 83,863 White Pine Finance LLC 1.06%, 05/17/04 /2/ 167,743 167,743 1.07%, 04/20/04 /2/ 139,786 139,786 1.08%, 07/06/04 /2/ 167,727 167,727 3,897,017 TIME DEPOSITS - 0.95% Abbey National Treasury Services PLC 1.13%, 08/01/03 /2/ 349,464 349,464 SunTrust Banks Inc. 1.03%, 08/01/03 /2/ 419,357 419,357 768,821 COMMERCIAL PAPER - 0.70% Delaware Funding Corp. 1.03%, 08/04/03 /2/ 216,732 216,732 Liberty Funding Corp. 1.04%, 08/07/03 /2/ 70,045 70,045 UBS Finance (Delaware) Inc. 1.11%, 08/01/03 /2/ 279,563 279,563 566,340 TOTAL SHORT TERM INVESTMENTS (COST: $16,624,344) 16,624,344 TOTAL INVESTMENTS IN SECURITIES - 120.49% (COST $98,023,874) 97,494,014 OTHER ASSETS, LESS LIABILITIES - (20.49%) (16,577,304) --------------- NET ASSETS - 100.00% $ 80,916,710 =============== /1/ Non-income earning securities. /2/ All or a portion of this security represents investments of securities lending collateral. /3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2. See notes to financial statements. SCHEDULES OF INVESTMENTS 21 Schedule of Investments iSHARES GOLDMAN SACHS SEMICONDUCTOR INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ COMMON STOCKS - 99.96% Applied Materials Inc./1/ 512,311 $ 9,990,065 Intel Corp. 361,672 9,023,716 Texas Instruments Inc. 433,067 8,171,974 Motorola Inc. 830,604 7,508,660 STMicroelectronics NV NY Shares 320,839 6,862,746 Analog Devices Inc./1/ 131,029 4,972,551 Maxim Integrated Products Inc. 116,450 4,550,866 Linear Technology Corp. 112,259 4,140,112 KLA-Tencor Corp./1/ 68,258 3,525,526 Micron Technology Inc./1/ 218,295 3,195,839 Xilinx Inc./1/ 121,016 3,180,300 Altera Corp./1/ 137,385 2,643,287 ASM Lithography Holding NV NY Shares/1/ 173,005 2,238,685 Microchip Technology Inc. 73,124 1,927,549 Novellus Systems Inc./1/ 53,788 1,926,148 Marvell Technology Group Ltd./1/ 43,687 1,536,035 Broadcom Corp. Class A/1/ 74,954 1,519,318 National Semiconductor Corp./1/ 65,464 1,463,120 SanDisk Corp./1/ 24,884 1,410,674 LSI Logic Corp./1/ 134,627 1,253,377 Intersil Corp. Class A/1/ 48,750 1,202,175 Teradyne Inc./1/ 66,353 1,091,507 NVIDIA Corp./1/ 57,072 1,091,217 ATI Technologies Inc./1/ 85,121 1,057,203 Lam Research Corp./1/ 45,498 990,037 Advanced Micro Devices Inc./1/ 124,065 905,675 Amkor Technology Inc./1/ 59,610 874,479 MEMC Electronics Materials Inc./1/ 73,841 832,927 Agere Systems Inc. Class A/1/ 275,503 774,163 Integrated Circuit Systems Inc./1/ 24,967 750,258 PMC-Sierra Inc./1/ 60,616 743,152 Silicon Laboratories Inc./1/ 17,585 645,545 International Rectifier Corp./1/ 23,020 635,352 Cypress Semiconductor Corp./1/ 45,198 631,868 Applied Micro Circuits Corp./1/ 109,091 625,091 Rambus Inc./1/ 34,778 624,613 Atmel Corp./1/ 168,155 539,778 Fairchild Semiconductor International Inc. Class A/1/ 42,055 536,201 Cymer Inc./1/ 12,376 500,609 RF Micro Devices Inc./1/ 65,538 481,704 Vitesse Semiconductor Corp./1/ 73,684 475,262 Conexant Systems Inc./1/ 95,880 471,730 Semtech Corp./1/ 26,300 433,950 Integrated Device Technology Inc./1/ 37,132 427,389 Skyworks Solutions Inc./1/ 49,695 422,904 MKS Instruments Inc./1/ 18,417 416,408 Varian Semiconductor Equipment Associates Inc./1/ 12,256 407,512 Micrel Inc./1/ 33,014 371,077 Entegris Inc./1/ 25,625 366,950 GlobeSpanVirata Inc./1/ 46,761 322,651 Lattice Semiconductor Corp./1/ 40,319 313,279 Axcelis Technologies Inc./1/ 35,394 260,500 TriQuint Semiconductor Inc./1/ 47,919 217,073 TOTAL COMMON STOCKS (COST: $104,918,389) 101,480,787 SHORT TERM INVESTMENTS - 11.39% MONEY MARKET FUNDS - 7.83% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares/2/,/3/ 5,408,908 5,408,908 Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares/2/,/3/ 1,932,687 1,932,687 BlackRock Temp Cash Money Market Fund/2/ 69,903 69,903 Short Term Investment Co. - Liquid Assets Money Market Portfolio/2/ 193,268 193,268 Short Term Investment Co. - Prime Money Market Portfolio, Institutional Shares/2/ 338,521 338,521 7,943,287 22 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES GOLDMAN SACHS SEMICONDUCTOR INDEX FUND July 31, 2003 Security Principal Value ------------------------------------------------------------------------------ FLOATING RATE NOTES - 2.65% Beta Finance Inc. 1.06%, 05/20/04 /2/ $ 96,620 $ 96,620 1.10%, 08/15/03 /2/ 144,959 144,959 Canadian Imperial Bank of Commerce 1.06%, 10/30/03 /2/ 77,307 77,307 CC USA Inc. 1.06%, 07/15/04 /2/ 85,034 85,034 1.11%, 08/15/03 /2/ 96,669 96,669 1.31%, 04/19/04 /2/ 193,249 193,249 Dorada Finance Inc. 1.06%, 05/20/04 /2/ 193,239 193,239 Five Finance Inc. 1.08%, 04/15/04 /2/ 96,634 96,634 HBOS Treasury Services PLC 1.27%, 06/24/04 /2/ 193,268 193,268 Holmes Financing PLC 1.07%, 04/15/04 /2/ 38,654 38,654 K2 USA LLC 1.07%, 05/17/04 /2/ 96,629 96,629 1.08%, 04/13/04 /2/ 96,629 96,629 Links Finance LLC 1.05%, 07/20/04 /2/ 77,292 77,292 1.06%, 06/28/04 /2/ 96,615 96,615 1.07%, 03/29/04 /2/ 96,634 96,634 1.09%, 05/04/04 /2/ 96,629 96,629 Nationwide Building Society 1.08%, 07/23/04 /2/ 144,951 144,951 Sigma Finance Inc. 1.05%, 07/20/04 /2/ 96,615 96,615 1.06%, 10/15/03 /2/ 193,259 193,259 1.08%, 07/01/04 /2/ 96,610 96,610 Tango Finance Corp. 1.06%, 07/06/04 /2/ 57,975 57,975 White Pine Finance LLC 1.06%, 05/17/04 /2/ 115,961 115,961 1.07%, 04/20/04 /2/ 96,634 96,634 1.08%, 07/06/04 /2/ 115,950 115,950 2,694,016 TIME DEPOSITS - 0.52% Abbey National Treasury Services PLC 1.13%, 08/01/03 /2/ 241,585 241,585 SunTrust Banks Inc. 1.03%, 08/01/03 /2/ 289,903 289,903 531,488 COMMERCIAL PAPER - 0.39% Delaware Funding Corp. 1.03%, 08/04/03 /2/ 149,828 149,828 Liberty Funding Corp. 1.04%, 08/07/03 /2/ 48,422 48,422 UBS Finance (Delaware) Inc. 1.11%, 08/01/03 /2/ 193,262 193,262 391,512 TOTAL SHORT TERM INVESTMENTS (COST: $11,560,303) 11,560,303 TOTAL INVESTMENTS IN SECURITIES - 111.35% (COST $116,478,692) 113,041,090 OTHER ASSETS, LESS LIABILITIES - (11.35%) (11,525,211) --------------- NET ASSETS - 100.00% $ 101,515,879 =============== /1/ Non-income earning securities. /2/ All or a portion of this security represents investments of securities lending collateral. /3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2. See notes to financial statements. SCHEDULES OF INVESTMENTS 23 Schedule of Investments iSHARES GOLDMAN SACHS SOFTWARE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ COMMON STOCKS - 100.03% Microsoft Corp. 404,203 $ 10,670,959 Computer Associates International Inc. 397,380 10,113,321 Oracle Corp./1/ 758,637 9,103,644 Veritas Software Corp./1/ 285,132 8,782,066 Electronic Arts Inc./1/ 100,094 8,407,896 Intuit Inc./1/ 141,075 6,069,046 Adobe Systems Inc. 159,378 5,208,473 Symantec Corp./1/ 101,539 4,748,979 PeopleSoft Inc./1/ 284,665 4,745,372 BEA Systems Inc./1/ 276,177 3,645,536 Synopsys Inc./1/ 50,914 3,182,634 Siebel Systems Inc./1/ 336,517 3,156,529 Amdocs Ltd./1/ 148,404 3,024,473 Check Point Software Technologies Ltd./1/ 169,040 3,007,222 Cadence Design Systems Inc./1/ 183,611 2,509,962 Mercury Interactive Corp./1/ 58,683 2,309,763 BMC Software Inc./1/ 160,368 2,261,189 VeriSign Inc./1/ 164,123 2,191,042 Citrix Systems Inc./1/ 113,641 2,062,584 Fair Isaac Corp. 32,419 1,751,923 Cognos Inc./1/ 58,103 1,572,267 Compuware Corp./1/ 259,877 1,338,366 Network Associates Inc./1/ 107,531 1,215,100 Autodesk Inc. 76,781 1,148,644 Sybase Inc./1/ 64,856 1,018,239 Novell Inc./1/ 253,303 899,226 Activision Inc./1/ 68,251 795,124 Mentor Graphics Corp./1/ 46,354 789,872 TIBCO Software Inc./1/ 145,337 780,460 Take-Two Interactive Software Inc./1/ 28,611 761,053 Kronos Inc./1/ 13,618 754,437 Legato Systems Inc./1/ 79,805 751,763 Red Hat Inc./1/ 117,730 744,054 Hyperion Solutions Corp./1/ 25,035 684,207 Parametric Technology Corp./1/ 181,858 580,127 Documentum Inc./1/ 33,621 576,600 Quest Software Inc./1/ 63,094 558,319 Shares or Security Principal Value ------------------------------------------------------------------------------ Borland Software Corp./1/ 55,292 $ 514,216 Ariba Inc./1/ 184,584 507,606 THQ Inc./1/ 26,139 430,771 NetIQ Corp./1/ 38,682 420,473 Informatica Corp./1/ 55,187 404,521 Internet Security Systems Inc./1/ 34,148 403,288 Advent Software Inc./1/ 21,979 356,060 webMethods Inc./1/ 35,502 276,916 TOTAL COMMON STOCKS (COST: $114,387,238) 115,234,322 SHORT TERM INVESTMENTS - 5.33% MONEY MARKET FUNDS - 3.65% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares/2/,/3/ 2,854,319 2,854,319 Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares/2/,/3/ 1,031,757 1,031,757 BlackRock Temp Cash Money Market Fund/2/ 37,317 37,317 Short Term Investment Co. - Liquid Assets Money Market Portfolio/2/ 103,176 103,176 Short Term Investment Co. - Prime Money Market Portfolio, Institutional Shares/2/ 180,718 180,718 4,207,287 FLOATING RATE NOTES - 1.25% Beta Finance Inc. 1.06%, 05/20/04 /2/ $ 51,580 51,580 1.10%, 08/15/03 /2/ 77,386 77,386 Canadian Imperial Bank of Commerce 1.06%, 10/30/03 /2/ 41,270 41,270 CC USA Inc. 1.06%, 07/15/04 /2/ 45,395 45,395 1.11%, 08/15/03 /2/ 51,606 51,606 1.31%, 04/19/04 /2/ 103,165 103,165 Dorada Finance Inc. 1.06%, 05/20/04 /2/ 103,160 103,160 24 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES GOLDMAN SACHS SOFTWARE INDEX FUND July 31, 2003 Security Principal Value ------------------------------------------------------------------------------ Five Finance Inc. 1.08%, 04/15/04 /2/ $ 51,588 $ 51,588 HBOS Treasury Services PLC 1.27%, 06/24/04 /2/ 103,176 103,176 Holmes Financing PLC 1.07%, 04/15/04 /2/ 20,635 20,635 K2 USA LLC 1.07%, 05/17/04 /2/ 51,585 51,585 1.08%, 04/13/04 /2/ 51,585 51,585 Links Finance LLC 1.05%, 07/20/04 /2/ 41,262 41,262 1.06%, 06/28/04 /2/ 51,577 51,577 1.07%, 03/29/04 /2/ 51,588 51,588 1.09%, 05/04/04 /2/ 51,585 51,585 Nationwide Building Society 1.08%, 07/23/04 /2/ 77,382 77,382 Sigma Finance Inc. 1.05%, 07/20/04 /2/ 51,577 51,577 1.06%, 10/15/03 /2/ 103,170 103,170 1.08%, 07/01/04 /2/ 51,575 51,575 Tango Finance Corp. 1.06%, 07/06/04 /2/ 30,950 30,950 White Pine Finance LLC 1.06%, 05/17/04 /2/ 61,905 61,905 1.07%, 04/20/04 /2/ 51,588 51,588 1.08%, 07/06/04 /2/ 61,900 61,900 1,438,190 TIME DEPOSITS - 0.25% Abbey National Treasury Services PLC 1.13%, 08/01/03 /2/ 128,969 128,969 SunTrust Banks Inc. 1.03%, 08/01/03 /2/ 154,763 154,763 283,732 COMMERCIAL PAPER - 0.18% Delaware Funding Corp. 1.03%, 08/04/03 /2/ 79,985 79,985 Liberty Funding Corp. 1.04%, 08/07/03 /2/ 25,850 25,850 UBS Finance (Delaware) Inc. 1.11%, 08/01/03 /2/ 103,172 103,172 209,007 TOTAL SHORT TERM INVESTMENTS (COST: $6,138,216) 6,138,216 TOTAL INVESTMENTS IN SECURITIES - 105.36% (COST $120,525,454) 121,372,538 OTHER ASSETS, LESS LIABILITIES - (5.36%) (6,175,561) --------------- NET ASSETS - 100.00% $ 115,196,977 =============== /1/ Non-income earning securities. /2/ All or a portion of this security represents investments of securities lending collateral. /3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2. See notes to financial statements. SCHEDULES OF INVESTMENTS 25 Schedule of Investments iSHARES GOLDMAN SACHS NATURAL RESOURCES INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ COMMON STOCKS - 99.83% ChevronTexaco Corp. 55,163 $ 3,977,804 BP PLC ADR 93,571 3,887,875 Exxon Mobil Corp. 109,198 3,885,265 Royal Dutch Petroleum Co. NY Shares 84,956 3,702,383 ConocoPhillips 48,568 2,542,049 Schlumberger Ltd. 41,664 1,877,796 Alcoa Inc. 60,479 1,679,502 International Paper Co. 34,268 1,340,564 EnCana Corp. 34,387 1,187,727 Newmont Mining Corp. 29,052 1,048,777 Occidental Petroleum Corp. 27,134 887,010 Weyerhaeuser Co. 15,670 882,064 Alcan Ltd. 23,011 801,013 Devon Energy Corp. 16,512 782,173 Anadarko Petroleum Corp. 17,848 781,742 Baker Hughes Inc. 24,085 756,510 Petro-Canada 18,937 726,613 Apache Corp. 11,552 715,762 Halliburton Co. 31,248 692,768 Burlington Resources Inc. 14,364 663,186 Barrick Gold Corp. 38,734 663,126 TransCanada Corp. 34,345 616,493 Suncor Energy Inc. 32,116 585,475 Marathon Oil Corp. 22,185 571,042 Unocal Corp. 18,473 541,074 Kinder Morgan Inc. 8,740 467,590 Transocean Inc./1/ 22,895 448,055 Enbridge Inc. 12,173 435,793 Talisman Energy Inc. 9,243 396,432 Georgia-Pacific Corp. 17,922 391,596 BJ Services Co./1/ 11,317 387,607 Nabors Industries Ltd./1/ 10,428 373,322 GlobalSantaFe Corp. 16,704 371,664 Canadian Natural Resources Ltd. 9,584 363,042 Placer Dome Inc. 29,162 359,567 Plum Creek Timber Co. Inc. 13,100 355,796 MeadWestvaco Corp. 14,348 347,365 Weatherford International Ltd./1/ 9,349 339,088 Murphy Oil Corp. 6,572 324,525 EOG Resources Inc. 8,204 318,151 Kerr-McGee Corp. 7,222 317,768 Noble Corp./1/ 9,567 314,467 Inco Ltd./1/ 13,140 306,293 Amerada Hess Corp. 6,439 302,440 El Paso Corp. 42,897 301,995 Valero Energy Corp. 8,182 297,825 Freeport-McMoRan Copper & Gold Inc. 10,418 279,098 Phelps Dodge Corp./1/ 6,372 268,835 ENSCO International Inc. 10,702 268,299 Smurfit-Stone Container Corp. 17,573 263,068 Smith International Inc./1/ 7,302 261,704 XTO Energy Inc. 13,137 253,544 Williams Companies Inc. 37,072 235,407 Nexen Inc. 8,829 227,347 Abitibi-Consolidated Inc. 31,519 218,742 Sunoco Inc. 5,490 203,130 Pioneer Natural Resources Co./1/ 8,426 202,224 Questar Corp. 5,920 189,144 Pogo Producing Co. 4,429 187,347 Diamond Offshore Drilling Inc. 9,335 181,659 Temple-Inland Inc. 3,871 179,576 Domtar Inc. 16,337 175,459 Ashland Inc. 4,888 160,278 Patterson-UTI Energy Inc./1/ 5,753 158,783 Goldcorp Inc. 13,083 158,566 Pride International Inc./1/ 9,613 158,422 Noranda Corp. 17,075 154,358 Bowater Inc. 3,961 152,578 Noble Energy Inc. 4,111 150,052 Rowan Companies Inc./1/ 6,708 147,241 Kinross Gold Corp./1/ 22,527 146,200 Chesapeake Energy Corp. 15,241 145,856 Packaging Corporation of America/1/ 7,492 141,599 Precision Drilling Corp./1/ 3,887 141,098 Newfield Exploration Co./1/ 3,736 134,982 Cameco Corp. 4,012 124,773 Varco International Inc./1/ 6,969 120,424 Peabody Energy Corp. 3,761 115,425 Premcor Inc./1/ 5,266 114,851 26 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES GOLDMAN SACHS NATURAL RESOURCES INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Glamis Gold Ltd./1/ 8,969 $ 113,009 National-Oilwell Inc./1/ 5,993 110,271 Tidewater Inc. 4,058 108,349 FMC Technologies Inc./1/ 4,725 106,124 CONSOL Energy Inc. 5,643 105,242 Rayonier Inc. 2,990 104,142 Boise Cascade Corp. 4,177 103,548 Westport Resources Corp./1/ 4,758 98,729 Helmerich & Payne Inc. 3,585 95,899 Aber Diamond Corp./1/ 3,925 93,651 Grant Prideco Inc./1/ 8,699 93,514 Louisiana-Pacific Corp./1/ 7,497 91,089 Meridian Gold Inc./1/ 7,018 88,497 Key Energy Services Inc./1/ 9,278 86,378 Forest Oil Corp./1/ 3,424 78,170 Arch Coal Inc. 3,758 77,227 Patina Oil & Gas Corp. 2,450 73,696 Stone Energy Corp./1/ 1,889 72,934 Petrokazakhstan Inc. Class A/1/ 5,673 72,558 Tom Brown Inc./1/ 2,826 71,639 Houston Exploration Co./1/ 2,220 71,284 Agnico-Eagle Mines Ltd. 5,925 71,159 Evergreen Resources Inc./1/ 1,369 68,080 Ultra Petroleum Corp./1/ 5,237 63,368 Unit Corp./1/ 3,120 61,058 Cimarex Energy Co./1/ 2,936 59,043 St. Mary Land & Exploration Co. 2,226 57,520 Cabot Oil & Gas Corp. 2,296 57,515 Hanover Compressor Co./1/ 5,779 55,421 Potlatch Corp. 2,042 54,624 CAL Dive International Inc./1/ 2,684 53,143 Vintage Petroleum Inc. 4,555 52,246 Spinnaker Exploration Co./1/ 2,381 52,025 SEACOR SMIT Inc./1/ 1,399 50,644 Grey Wolf Inc./1/ 12,997 45,879 Wausau-Mosinee Paper Corp. 3,671 44,419 Global Industries Ltd./1/ 7,235 33,281 TOTAL COMMON STOCKS (Cost: $52,160,451) 52,131,618 Shares or Security Principal Value ------------------------------------------------------------------------------ SHORT TERM INVESTMENTS - 5.15% MONEY MARKET FUNDS - 3.53% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares/2/,/3/ 1,255,375 $ 1,255,375 Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares/2/,/3/ 449,726 449,726 BlackRock Temp Cash Money Market Fund/2/ 16,266 16,266 Short Term Investment Co. - Liquid Assets Money Market Portfolio/2/ 44,972 44,972 Short Term Investment Co. - Prime Money Market Portfolio, Institutional Shares/2/ 78,772 78,772 1,845,111 FLOATING RATE NOTES - 1.20% Beta Finance Inc. 1.06%, 05/20/04 /2/ $ 22,483 22,483 1.10%, 08/15/03 /2/ 33,731 33,731 Canadian Imperial Bank of Commerce 1.06%, 10/30/03 /2/ 17,989 17,989 CC USA Inc. 1.06%, 07/15/04 /2/ 19,787 19,787 1.11%, 08/15/03 /2/ 22,494 22,494 1.31%, 04/19/04 /2/ 44,968 44,968 Dorada Finance Inc. 1.06%, 05/20/04 /2/ 44,966 44,966 Five Finance Inc. 1.08%, 04/15/04 /2/ 22,486 22,486 HBOS Treasury Services PLC 1.27%, 06/24/04 /2/ 44,972 44,972 Holmes Financing PLC 1.07%, 04/15/04 /2/ 8,994 8,994 K2 USA LLC 1.07%, 05/17/04 /2/ 22,485 22,485 1.08%, 04/13/04 /2/ 22,485 22,485 SCHEDULES OF INVESTMENTS 27 Schedule of Investments (Continued) iSHARES GOLDMAN SACHS NATURAL RESOURCES INDEX FUND July 31, 2003 Security Principal Value ------------------------------------------------------------------------------ Links Finance LLC 1.05%, 07/20/04 /2/ $ 17,985 $ 17,985 1.06%, 06/28/04 /2/ 22,482 22,482 1.07%, 03/29/04 /2/ 22,486 22,486 1.09%, 05/04/04 /2/ 22,485 22,485 Nationwide Building Society 1.08%, 07/23/04 /2/ 33,729 33,729 Sigma Finance Inc. 1.05%, 07/20/04 /2/ 22,482 22,482 1.06%, 10/15/03 /2/ 44,970 44,970 1.08%, 07/01/04 /2/ 22,481 22,481 Tango Finance Corp. 1.06%, 07/06/04 /2/ 13,490 13,490 White Pine Finance LLC 1.06%, 05/17/04 /2/ 26,983 26,983 1.07%, 04/20/04 /2/ 22,486 22,486 1.08%, 07/06/04 /2/ 26,981 26,981 626,880 TIME DEPOSITS - 0.24% Abbey National Treasury Services PLC 1.13%, 08/01/03 /2/ 56,216 56,216 SunTrust Banks Inc. 1.03%, 08/01/03 /2/ 67,459 67,459 123,675 COMMERCIAL PAPER - 0.18% Delaware Funding Corp. 1.03%, 08/04/03 /2/ 34,864 34,864 Liberty Funding Corp. 1.04%, 08/07/03 /2/ 11,268 11,268 UBS Finance (Delaware) Inc. 1.11%, 08/01/03 /2/ 44,971 44,971 91,103 TOTAL SHORT TERM INVESTMENTS (COST: $2,686,769) 2,686,769 TOTAL INVESTMENTS IN SECURITIES - 104.98% (Cost $54,847,220) 54,818,387 OTHER ASSETS, LESS LIABILITIES - (4.98%) (2,599,016) --------------- NET ASSETS - 100.00% $ 52,219,371 =============== /1/ Non-income earning securities. /2/ All or a portion of this security represents investments of securities lending collateral. /3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2. See notes to financial statements. 28 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ COMMON STOCKS AND RIGHTS - 99.26% AUSTRALIA - 4.88% Alumina Ltd. 648,992 $ 2,031,555 Amcor Ltd. 344,624 1,871,680 AMP Ltd. 617,032 1,951,504 Ansell Ltd./1/ 209,721 822,317 Aristocrat Leisure Ltd. 186,184 202,719 Australia and New Zealand Banking Group Ltd. 747,592 8,842,387 Australian Gas & Light Co. Ltd. 229,976 1,590,336 Australian Stock Exchange Ltd. 78,064 681,997 BHP Steel 382,989 1,035,057 Boral Ltd. 395,896 1,416,323 Brambles Industries Ltd. 495,448 1,586,233 Broken Hill Proprietary Co. Ltd. 1,923,176 12,214,822 Coca-Cola Amatil Ltd. 262,208 995,831 Cochlear Ltd. 26,656 582,884 Coles Myer Ltd. 597,992 2,844,680 Commonwealth Bank of Australia 662,184 12,810,469 Commonwealth Property Office Fund 734,944 547,765 Computershare Ltd. 338,912 428,315 CSR Ltd. 534,344 692,617 Deutsche Office Trust 900,456 653,616 Foster's Group Ltd. 1,184,288 3,415,540 Futuris Corp. Ltd. 400,248 443,575 General Property Trust 907,256 1,746,338 Harvey Normand Holdings Ltd. 248,472 433,183 Iluka Resources Ltd. 233,376 654,917 Insurance Australia Group Ltd. 763,504 1,855,601 James Hardie Industries NV 230,792 1,094,898 John Fairfax Holdings Ltd. 381,072 713,751 Leighton Holdings Ltd. 105,808 677,513 Lend Lease Corp. Ltd. 221,952 1,247,154 Macquarie Bank Ltd. 84,864 1,683,011 Macquarie Infrastructure Group 899,232 1,946,526 Mayne Nickless Ltd. 494,776 968,406 Mirvac Group 702,576 1,989,834 National Australia Bank Ltd. 799,136 16,910,089 Newcrest Mining Ltd. 289,272 1,651,674 News Corp. Ltd. 701,352 5,259,100 Orica Ltd. 73,984 584,978 Origin Energy Ltd. 620,568 1,657,023 PaperlinX Ltd. 261,120 856,313 Patrick Corp. Ltd. 42,160 360,675 Principal Office Fund 933,640 949,995 QBE Insurance Group Ltd. 279,072 1,730,893 Rinker Group Ltd. 534,344 1,831,971 Rio Tinto Ltd. 185,096 3,814,751 Santos Ltd. 543,864 2,206,514 Southcorp Ltd. 400,792 748,089 Stockland Trust Group 365,432 1,196,024 Suncorp-Metway Ltd. 223,040 1,763,537 TAB Ltd. 409,360 859,592 TABCORP Holdings Ltd. 215,288 1,467,836 Telstra Corp. Ltd. 1,019,320 3,091,708 Transurban Group 255,272 752,760 Wesfarmers Ltd. 167,688 2,898,458 Westfield Holdings Ltd. 222,904 2,172,740 Westfield Trust 923,984 2,137,837 Westpac Banking Corp. Ltd. 1,024,216 11,025,625 WMC Resources Ltd./1/ 553,928 1,335,483 Woodside Petroleum Ltd. 312,800 2,694,224 Woolworths Ltd. 556,784 4,258,050 146,889,293 BELGIUM - 1.10% AGFA Gevaert NV 55,352 1,177,497 Bekaert NV 15,368 730,125 Cofinimmo SA 4,896 581,378 Colruyt NV 12,512 876,659 Compagnie Maritime Belge SA 12,376 511,781 Delhaize-Le Lion SA 32,776 1,053,239 Dexia Group 351,152 4,695,441 Electrabel SA 15,504 3,971,740 Exmar NV/1/ 91 3,175 Fortis Group 509,320 9,361,420 Groupe Bruxelles Lambert SA 43,928 1,970,310 Interbrew SA 83,912 1,871,943 KBC Bankverzekerings Holding NV 47,872 1,911,206 SCHEDULES OF INVESTMENTS 29 Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Mobistar SA/1/ 16,048 $ 671,937 Omega Pharma SA 14,280 425,288 Solvay SA 22,440 1,490,183 UCB SA 37,264 913,508 Umicore Mines SA 16,184 869,081 33,085,911 DENMARK - 0.81% AP Moller - Maersk A/S 658 3,538,411 Carlsberg A/S Class B 13,600 507,820 Coloplast A/S 11,832 924,830 Danisco A/S 40,800 1,452,386 Danske Bank A/S 302,736 5,548,857 GN Store Nord A/S/1/ 203,864 883,203 Group 4 Falck A/S 54,400 992,979 H. Lundbeck A/S 36,312 673,814 ISS A/S 27,200 933,235 NEG Micon A/S/1/ 13,600 136,998 Novo Nordisk A/S Class B 130,968 4,394,333 Novozymes A/S Class B 27,200 733,404 TDC A/S 68,000 1,951,966 Topdanmark A/S/1/ 27,200 1,009,460 Vestas Wind Systems A/S 43,484 619,172 24,300,868 FINLAND - 1.80% Amer Group Ltd. 11,424 357,460 Elisa OYJ Class A/1/ 55,896 513,376 Fortum OYJ 292,264 2,253,361 Instrumentarium Corp. 24,480 978,148 Kone Corp. Class B 38,760 1,672,197 Metso Corp. 42,976 410,191 Nokia OYJ 2,431,816 37,279,717 Outokumpu OYJ 41,752 381,121 Sampo OYJ Class A 156,672 1,146,224 Stora Enso OYJ Class R 336,328 4,232,233 TietoEnator OYJ 59,976 1,140,851 UPM-Kymmene OYJ 238,816 3,902,967 54,267,846 FRANCE - 9.62% Accor SA 103,496 3,894,258 Air France 48,024 717,289 Alcatel SA Class A/1/ 578,952 5,812,624 Alstom/1/ 171,632 598,859 Atos Origin SA/1/ 10,744 448,284 Autoroutes du Sud de la France SA 39,576 1,193,354 Aventis SA 340,408 17,134,299 AXA AG 696,184 11,988,925 BIC SA 22,032 848,096 BNP Paribas SA 412,624 22,441,207 Bouygues SA 91,256 2,415,814 Business Objects SA/1/ 28,968 714,374 Cap Gemini SA/1/ 48,824 1,954,159 Carrefour SA 292,400 13,572,530 Compagnie de Saint-Gobain SA 159,392 6,354,478 Compagnie Generale des Etablissements Michelin Class B 72,624 2,633,725 Credit Agricole SA 150,824 2,874,036 Dassault Systemes SA 19,856 686,112 Essilor International SA 47,600 1,923,385 Etablissements Economiques du Casino Guichard-Perrachon SA 16,048 1,196,662 European Aeronautic Defence and Space Co. 169,592 2,704,830 France Telecom SA/1/ 392,325 10,372,747 Groupe Danone 64,736 8,816,496 Groupe Wanadoo SA/1/ 187,408 1,288,826 Imerys SA 7,208 1,101,741 Lafarge SA 85,170 5,708,647 Lagardere S.C.A 72,080 3,216,790 L'Air Liquide SA 49,917 7,803,969 L'Oreal SA 171,496 11,301,750 LVMH Moet Hennessy Louis Vuitton SA 111,384 6,115,464 Pechiney SA Class A 42,024 2,152,628 Pernod-Ricard SA 31,085 2,702,801 Pinault-Printemps-Redoute SA 32,504 2,632,282 PSA Peugeot Citroen 87,856 3,884,255 Publicis Groupe 42,024 1,107,296 Renault SA 78,744 4,381,882 30 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Sagem SA 11,424 $ 1,038,306 Sanofi-Synthelabo SA 197,064 11,112,450 Schneider Electric SA 101,320 5,444,304 Societe Generale Class A 157,216 11,033,111 Societe Television Francaise 1 68,680 2,179,165 Sodexho Alliance SA 52,768 1,525,213 STMicroelectronics NV 301,512 6,532,811 Suez SA 415,888 6,637,697 Technip-Coflexip SA 18,901 1,613,634 Thales/Ex Thomson CSF 40,392 1,277,971 Thomson SA 87,856 1,384,408 Total SA 326,672 48,460,971 Union du Credit Bail Immobilier 26,928 2,023,113 Valeo SA 38,216 1,394,515 Veolia Environment 97,648 1,857,440 Vinci SA 32,640 2,141,823 Vivendi Universal SA/1/ 466,072 8,199,300 Zodiac SA 38,080 991,374 289,542,480 GERMANY - 6.47% Adidas-Salomon AG 25,160 2,114,568 Allianz AG 135,807 14,521,469 Altana AG 40,800 2,536,756 BASF AG 264,792 12,651,655 Bayer AG 353,600 8,437,483 Bayerische Hypo-Und Vereinsbank AG/1/ 150,552 2,709,566 Beiersdorf AG 13,600 1,641,727 Celesio AG 13,600 555,508 Commerzbank AG 188,632 2,855,633 Continental AG 54,400 1,306,646 DaimlerChrysler AG 442,272 15,974,378 Deutsche Bank AG 279,480 18,197,800 Deutsche Boerse AG 36,584 1,934,913 Deutsche Lufthansa AG 108,800 1,389,919 Deutsche Post AG 176,800 2,660,593 Deutsche Telekom AG/1/ 1,062,024 16,197,143 Douglas Holding AG 35,360 824,247 E.ON AG 302,192 15,652,884 Fresenius Medical Care AG 13,600 705,675 Heidelberger Zement AG/1/ 30,817 925,771 Infineon Technologies AG/1/ 234,872 3,016,350 Karstadtquelle AG 27,200 570,051 Linde AG 54,400 2,316,328 MAN AG 66,789 1,344,118 Merck KGaA 27,200 750,067 Metro AG 68,000 2,510,427 Muenchener Rueckversicherungs- Gesellschaft AG 55,216 6,283,200 RWE AG 195,840 5,554,778 SAP AG 104,312 12,325,531 Schering AG 95,200 3,996,783 Siemens AG 407,456 23,068,189 ThyssenKrupp AG 204,000 2,661,205 TUI AG 81,600 1,212,352 Volkswagen AG 121,720 5,230,734 194,634,447 GREECE - 0.35% Hellenic Telecommunications Organization SA 722,720 4,509,774 National Bank of Greece SA ADR 1,454,249 5,875,166 10,384,940 HONG KONG - 1.60% Bank of East Asia Ltd. 761,600 1,596,584 BOC Hong Kong Holdings Ltd. 1,156,000 1,259,865 Cathay Pacific Airways Ltd. 680,000 954,707 Cheung Kong (Holdings) Ltd. 816,000 5,362,054 Cheung Kong Infrastructure Holdings Ltd. 272,000 563,234 CLP Holdings Ltd. 952,000 4,186,762 Giordano International Ltd. 816,000 287,720 Hang Lung Properties Ltd. 816,000 857,929 Hang Seng Bank Ltd. 421,600 4,540,744 Henderson Land Development Co. Ltd. 272,000 891,060 Hong Kong & China Gas Co. Ltd. 1,632,200 2,082,302 Hong Kong Exchanges & Clearing Ltd. 544,000 896,291 Hongkong Electric Holdings Ltd. 748,000 2,925,153 SCHEDULES OF INVESTMENTS 31 Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Hutchison Whampoa Ltd. 1,088,000 $ 7,114,530 Hysan Development Co. Ltd. 816,000 695,759 Johnson Electric Holdings Ltd. 884,000 1,201,449 Li & Fung Ltd. 816,000 1,156,111 MTR Corp. Ltd. 680,000 806,488 New World Development Co. Ltd. 952,000 415,014 PCCW Ltd./1/ 877,800 467,080 Shangri-La Asia Ltd. 544,000 432,452 Sun Hung Kai Properties Ltd. 680,000 4,036,798 Swire Pacific Ltd. Class A 544,000 2,511,011 Techtronic Industries Co. Ltd. 544,000 1,000,917 Television Broadcasts Ltd. 136,000 491,740 Wharf Holdings Ltd. 680,000 1,329,615 48,063,369 IRELAND - 0.82% Allied Irish Banks PLC 476,136 6,581,035 Bank of Ireland 551,752 6,458,654 CRH PLC 274,992 5,168,938 DCC PLC 67,592 756,978 Elan Corporation PLC/1/ 218,552 1,045,463 Independent News & Media PLC 411,536 755,023 Irish Life & Permanent PLC 171,224 1,888,667 Kerry Group PLC Class A/1/ 63,920 1,005,074 Ryanair Holdings PLC/1/ 88,752 619,348 Waterford Wedgwood PLC 1,319,608 401,027 24,680,207 ITALY - 3.80% Alleanza Assicurazioni SpA 228,208 2,219,266 Arnoldo Mondadori Editore SpA 68,000 513,566 Assicurazioni Generali SpA 515,984 11,952,160 Autogrill SpA/1/ 74,800 853,698 Banca Fideuram SpA 142,800 797,214 Banca Intesa SpA 1,927,763 6,465,985 Banca Monte dei Paschi di Siena SpA 510,680 1,416,872 Banca Nazionale del Lavoro SpA/1/ 884,000 1,471,585 Banca Popolare di Milano SCRL 231,200 1,040,909 Banca Popolare di Verona e Novara SCRL 158,304 2,184,475 Bulgari SpA 81,600 493,207 Capitalia SpA/1/ 775,336 1,527,189 Enel SpA 1,086,776 6,923,429 Eni SpA 1,339,056 19,759,057 Fiat SpA/1/ 188,820 1,251,780 Finmeccanica SpA 3,477,792 2,379,973 Gruppo Editoriale L'Espresso SpA 125,800 521,067 Italcementi SpA 68,000 780,682 Luxottica Group SpA 68,000 1,010,294 Mediaset SpA 312,800 2,806,014 Mediobanca SpA 251,600 2,531,704 Mediolanum SpA 96,152 553,024 Parmalat Finanziaria SpA 238,000 754,085 Pirelli SpA/1/ 374,000 383,070 Riunione Adriatica di Sicurta SpA 204,000 3,184,721 Sanpaolo IMI SpA 448,800 4,516,013 Seat-Pagine Gialle SpA/1/ 2,644,520 1,806,759 Snam Rete Gas SpA 272,000 1,047,032 Telecom Italia Mobile SpA 1,904,000 8,829,354 Telecom Italia SpA 1,026,800 5,431,859 Telecom Italia SpA Class A 1,210,400 10,272,238 Tiscali SpA/1/ 82,960 455,673 Unicredito Italiano SpA 1,764,600 8,282,227 114,416,181 JAPAN - 20.77% Acom Co. Ltd. 36,720 1,386,005 Aderans Co. Ltd. 13,600 241,437 Advantest Corp. 40,800 2,233,855 AEON Co. Ltd. 122,400 3,041,088 AEON Credit Service Co. Ltd. 14,630 449,052 AIFUL Corp. 20,400 1,008,619 Ajinomoto Co. Inc. 272,000 2,603,907 All Nippon Airways Co. Ltd./1/ 272,000 525,746 Alps Electric Co. Ltd. 136,000 2,128,931 Amada Co. Ltd. 136,000 464,822 Asahi Breweries Ltd. 272,000 1,595,288 Asahi Glass Co. Ltd. 408,000 2,775,395 Asahi Kasei Corp. 680,000 2,064,623 Bandai Co. Ltd. 27,200 1,092,107 Bank of Fukuoka Ltd. 408,000 1,441,852 32 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Bank of Yokohama Ltd. 544,000 $ 1,683,288 Bellsystem24 Inc. 2,720 503,181 Benesse Corp. 27,200 453,540 Bridgestone Corp. 408,000 5,567,713 Canon Inc. 408,000 19,630,843 Casio Computer Co. Ltd. 136,000 964,619 Central Japan Railway Co. 544 3,768,219 Chiba Bank Ltd. (The) 408,000 1,333,543 Chubu Electric Power Co. Inc. 299,200 5,373,661 Chugai Pharmaceutical Co. Ltd. 136,000 1,526,467 Citizen Watch Co. Ltd. 136,000 876,619 Coca Cola West Japan Co. Ltd. 27,200 439,776 Credit Saison Co. Ltd. 68,000 1,128,209 CSK Corp. 40,800 1,079,696 Dai Nippon Printing Co. Ltd. 272,000 3,195,089 Daicel Chemical Industries Ltd. 136,000 543,797 Daido Life Insurance Co. Ltd. 544 1,191,389 Daiichi Pharmaceutical Co. Ltd. 136,000 1,835,597 Daikin Industries Ltd. 136,000 2,476,420 Daimaru Inc. (The) 136,000 518,976 Dainippon Ink & Chemical Inc. 408,000 812,311 Dainippon Screen Manufacturing Co. Ltd./1/ 136,000 670,156 Daito Trust Construction Co. Ltd. 54,400 1,279,389 Daiwa House Industry Co. Ltd. 272,000 1,963,084 Daiwa Securities Group Inc. 680,000 3,937,451 Denso Corp. 272,000 4,512,838 Dowa Mining Co. Ltd. 136,000 509,951 East Japan Railway Co. 1,632 7,161,873 Ebara Corporation 136,000 539,284 Eisai Co. Ltd. 122,400 2,406,471 FamilyMart Co. Ltd. 27,200 532,515 Fanuc Ltd. 54,400 3,023,601 Fast Retailing Co. Ltd. 27,200 873,234 Fuji Electric Co. Ltd. 272,000 555,079 Fuji Photo Film Co. Ltd. 272,000 8,100,543 Fuji Television Network Inc. 136 523,489 Fujisawa Pharmaceutical Co. Ltd. 136,000 2,634,369 Fujitsu Ltd. 952,000 3,917,143 Furukawa Electric Co. Ltd. 272,000 943,183 Gunma Bank Ltd. 136,000 557,335 Heavy Industries Co. Ltd. 680,000 806,670 Hino Motors Ltd. 136,000 614,874 Hirose Electric Co. Ltd. 13,600 1,322,261 Hitachi Cable Ltd. 136,000 380,207 Hitachi Ltd. 1,360,000 6,024,638 Hitachi Software Engineering Co. Ltd. 13,600 319,847 Hokuriku Bank Ltd. (The)/1/ 272,000 383,591 Honda Motor Co. Ltd. 408,000 15,738,521 Hoya Corp. 54,400 3,903,604 Isetan Co. Ltd. 122,400 868,157 Ito En Ltd. 13,600 458,053 Itochu Corp. 680,000 1,906,674 Itochu Techno-Science Corp. 13,600 315,899 Ito-Yokado Co. Ltd. 136,000 3,486,167 JAFCO Co. Ltd. 13,600 736,721 Japan Airlines System Corp. 272,000 609,233 Japan Tobacco Inc. 408 2,426,778 JFE Holdings Inc. 258,475 4,288,440 JGC Corp. 136,000 953,337 Joyo Bank Ltd. 408,000 1,089,850 JSR Corp. 136,000 1,845,751 Kajima Corp. 408,000 1,086,466 Kamigumi Co. Ltd. 136,000 673,541 Kanebo Ltd./1/ 272,000 293,334 Kaneka Corp. 136,000 878,875 Kansai Electric Power Co. Inc. 353,600 5,502,954 Kao Corp. 272,000 5,099,506 Kawasaki Heavy Industries Ltd. 680,000 705,131 Kawasaki Kisen Kaisha Ltd. 408,000 951,081 Keihin Electric Express Railway Co. Ltd. 136,000 647,592 Keio Electric Railway Co. Ltd. 272,000 1,243,287 Keyence Corp. 14,610 2,719,718 Kikkoman Corp. 136,000 870,978 Kinden Corp. 136,000 451,284 Kinki Nippon Railway Co. Ltd./1/ 816,000 2,342,163 Kirin Brewery Co. Ltd. 408,000 2,579,087 Komatsu Ltd. 408,000 2,000,315 Konami Company Ltd. 40,800 758,157 Konica Corp. 136,000 1,681,032 SCHEDULES OF INVESTMENTS 33 Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Kubota Corp. 544,000 $ 1,602,057 Kuraray Co. Ltd. 136,000 912,721 Kyocera Corp. 81,600 4,623,402 Kyowa Hakko Kogyo Co. Ltd. 136,000 734,464 Kyushu Electric Power Co. Inc. 190,400 2,824,134 Lawson Inc. 40,800 1,147,389 Mabuchi Motor Co. Ltd. 13,600 1,128,209 Marubeni Corp. 680,000 846,157 Marui Co. Ltd. 136,000 1,307,595 Matsushita Electric Industrial Co. Ltd. 1,088,868 12,871,848 Matsushita Electric Works Ltd. 272,000 1,723,904 Meiji Dairies Corp. 136,000 465,951 Meiji Seika Kaisha Ltd. 136,000 433,232 Meitec Corp. 27,200 891,285 Millea Holdings Inc. 680 6,317,973 Minebea Co. Ltd. 136,000 549,438 Mitsubishi Chemical Corp. 816,000 1,590,775 Mitsubishi Corp. 544,000 3,939,707 Mitsubishi Electric Corp. 816,000 2,883,703 Mitsubishi Estate Co. Ltd. 544,000 3,971,297 Mitsubishi Gas Chemical Co. Inc. 136,000 283,181 Mitsubishi Heavy Industries Ltd. 1,496,000 3,971,297 Mitsubishi Materials Corp./1/ 544,000 685,951 Mitsubishi Rayon Co. 272,000 713,028 Mitsubishi Tokyo Financial Group Inc. 2,040 9,070,803 Mitsui & Co. Ltd. 680,000 3,785,142 Mitsui Chemicals Inc. 272,000 1,220,723 Mitsui Engineering & Shipbuilding Co. Ltd. 408,000 477,233 Mitsui Fudosan Co. Ltd. 408,000 2,694,164 Mitsui Mining & Smelting Co. 408,000 1,232,005 Mitsui O.S.K. Lines Ltd. 408,000 1,181,235 Mitsui Sumitomo Insurance Co. Ltd. 544,160 2,794,268 Mitsui Trust Holdings Inc./1/ 408,000 968,004 Mitsukoshi Ltd. 136,000 337,335 Mizuho Financial Group Inc./1/ 2,992 2,680,626 Murata Manufacturing Co. Ltd. 122,400 5,635,406 Namco Ltd. 27,200 424,207 NEC Corp./1/ 680,000 4,185,657 NGK Insulators Ltd. 136,000 753,644 NGK Spark Plug Co. Ltd. 136,000 1,079,696 Nichirei Corp. 136,000 421,950 Nidec Corp. 13,600 1,015,388 Nikko Cordial Corp. 680,000 2,938,985 Nikon Corp./1/ 136,000 1,180,107 Nintendo Co. Ltd. 54,400 4,377,452 Nippon Express Co. Ltd. 408,000 1,550,160 Nippon Meat Packers Inc. 136,000 1,280,518 Nippon Mining Holdings Inc. 408,000 778,464 Nippon Oil Corp. 680,000 2,775,395 Nippon Sanso Corp. 136,000 468,207 Nippon Sheet Glass Co. Ltd. 136,000 377,950 Nippon Steel Corp. 2,992,000 4,566,992 Nippon Telegraph & Telephone Corp. 2,720 11,259,530 Nippon Unipac Holding 408 1,594,160 Nippon Yusen Kabushiki Kaisha 544,000 1,832,212 Nishimatsu Construction Co. Ltd. 136,000 419,694 Nissan Chemical Industries Ltd. 136,000 838,260 Nissan Motor Co. Ltd. 1,292,000 12,593,637 Nisshin Seifun Group Inc. 136,000 914,978 Nissin Food Products Co. Ltd. 40,800 814,003 Nitto Denko Corp. 68,000 2,476,420 Nomura Holdings Inc. 952,000 12,635,945 NSK Ltd. 272,000 859,696 NTN Corp. 272,000 1,125,953 NTT Data Corp. 680 2,318,470 NTT DoCoMo Inc. 8,840 20,240,076 Obayashi Corp. 408,000 1,357,236 Oji Paper Co. Ltd. 408,000 1,881,853 Oki Electric Industry Co. Ltd./1/ 272,000 839,388 Okumura Corp. 136,000 423,078 Olympus Optical Co. Ltd. 136,000 3,017,960 Omron Corp. 136,000 2,634,369 Oracle Corp. Japan 13,600 575,387 Oriental Land Co. Ltd. 27,200 1,195,902 ORIX Corp. 40,800 2,531,702 Osaka Gas Co. Ltd. 952,000 2,392,932 Pioneer Corp. 68,000 1,602,057 34 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Promise Co. Ltd. 40,800 $ 1,482,467 Resona Holdings Inc./1/ 2,176,000 1,606,570 Ricoh Co. Ltd. 272,000 4,885,147 Rohm Co. Ltd. 54,400 6,399,204 SAIZERIYA Co. Ltd. 13,699 126,143 Sanden Corp. 136,000 681,438 Sankyo Co. Ltd. 163,200 1,977,977 Sanyo Electric Co. Ltd. 816,000 3,052,935 Sapporo Breweries Ltd. 136,000 302,360 Secom Co. Ltd. 68,000 1,951,802 Seino Transportation Co. Ltd. 136,000 761,541 Sekisui Chemical Co. Ltd. 272,000 947,696 Sekisui House Ltd. 272,000 2,130,059 Seven-Eleven Japan Co. Ltd. 272,000 6,949,770 77 Bank Ltd. (The) 272,000 1,132,722 Sharp Corp. 408,000 5,770,791 Shimamura Co. Ltd. 13,600 784,106 Shimano Inc. 54,400 927,388 Shimizu Corp. 272,000 812,311 Shin-Etsu Chemical Co. Ltd. 176,800 6,160,023 Shionogi & Co. Ltd. 136,000 1,782,571 Shiseido Co. Ltd. 136,000 1,359,492 Shizuoka Bank Ltd. 272,000 1,708,109 Showa Denko K.K./1/ 544,000 961,234 Showa Shell Sekiyu K.K 136,000 912,721 Skylark Co. 40,800 475,202 SMC Corp. 27,200 2,549,753 Softbank Corp. 108,800 3,140,935 Sompo Japan Insurance Inc. 408,000 2,342,163 Sony Corp. 448,800 13,887,129 Stanley Electric Co. Ltd. 136,000 2,177,444 Sumitomo Chemical Co. Ltd. 544,000 1,593,032 Sumitomo Corp. 272,000 1,426,057 Sumitomo Electric Industries Ltd. 272,000 1,996,931 Sumitomo Metal Industries Ltd. 1,904,000 1,263,595 Sumitomo Metal Mining Co. Ltd. 272,000 1,019,901 Sumitomo Mitsui Financial Group Inc. 1,904 4,675,300 Sumitomo Osaka Cement Co. Ltd. 272,000 482,874 Sumitomo Realty & Development Co. Ltd. 136,000 645,336 Sumitomo Trust & Banking Co. Ltd. (The) 408,000 1,479,083 Suruga Bank Ltd. (The) 136,000 653,233 Suzuken Co. Ltd. 27,200 616,002 Taiheiyo Cement Corp. 408,000 643,079 Taisei Corp. 408,000 920,619 Taisho Pharmaceutical Co. Ltd. 136,000 1,881,853 Takara Holdings Inc. 136,000 740,105 Takashimaya Co. Ltd. 136,000 675,797 Takeda Chemical Industries Ltd. 408,000 14,553,901 Takefuji Corp. 42,160 2,280,337 TDK Corp. 54,400 2,987,498 Teijin Ltd. 408,000 961,234 Teikoku Oil Co. Ltd. 136,000 462,566 Terumo Corp. 81,600 1,357,236 THK Co. Ltd. 40,800 603,141 TIS Inc. 13,600 345,232 Tobu Railway Co. Ltd. 408,000 1,137,235 Toda Corp. 136,000 298,976 Toho Co. Ltd. 108,800 1,086,691 Tohoku Electric Power Co. Inc. 217,600 3,166,207 Tokyo Electric Power Co. Inc. (The) 584,800 10,988,195 Tokyo Electron Ltd. 68,000 3,988,220 Tokyo Gas Co. Ltd. 1,360,000 3,993,861 Tokyu Corp. 544,000 1,611,083 TonenGeneral Sekiyu K.K 272,000 1,859,289 Toppan Printing Co. Ltd. 272,000 2,075,905 Toray Industries Inc. 544,000 1,277,133 Toshiba Corp. 1,360,000 4,761,044 Tosoh Corporation 272,000 638,566 Tostem Inax Holding Corp. 136,480 1,848,868 Toto Ltd. 136,000 919,491 Toyo Seikan Kaisha Ltd. 136,000 1,301,954 Toyobo Co. Ltd. 272,000 426,463 Toyoda Gosei Co. Ltd. 27,200 596,823 Toyota Industries Corporation 54,400 880,003 Toyota Motor Corp. 1,346,400 34,066,282 Trend Micro Inc./1/ 68,000 1,049,799 Ube Industries Ltd. 408,000 521,233 UFJ Holdings Inc./1/ 1,632 3,235,704 SCHEDULES OF INVESTMENTS 35 Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Uni-Charm Corp. 27,200 $ 1,218,466 West Japan Railway Company 544 1,958,571 World Co. Ltd. 13,600 272,463 Yamada Denki Co. Ltd. 40,800 900,311 Yamaha Corp. 108,800 1,459,452 Yamanouchi Pharmaceutical Co. Ltd. 149,600 3,884,425 Yamato Transport Co. Ltd. 136,000 1,615,596 Yokogawa Electric Corp. 136,000 1,068,414 625,115,622 LUXEMBOURG - 0.07% Arcelor 165,920 2,244,750 2,244,750 NETHERLANDS - 5.38% ABN AMRO Holding NV 728,688 14,000,383 Aegon NV 694,736 9,016,000 Akzo Nobel NV 139,536 4,157,239 ASML Holding NV/1/ 219,232 2,872,247 DSM NV 46,512 2,088,828 Euronext NV 44,200 1,110,902 Heineken NV 103,904 3,770,441 IHC Caland NV 23,256 1,200,160 ING Groep NV 870,536 17,627,174 Koninklijke Ahold NV 330,344 2,684,531 Koninklijke KPN NV/1/ 887,400 6,082,772 Koninklijke Numico NV 95,472 1,478,629 Koninklijke Philips Electronics NV 671,432 14,154,828 Koninklijke Vendex KBB NV 47,464 491,493 Oce NV 68,952 768,328 QIAGEN NV/1/ 73,712 689,452 Reed Elsevier NV 337,960 3,758,262 Royal Dutch Petroleum Co. 1,096,296 48,123,503 TNT Post Group NV 184,280 3,438,963 Unilever NV CVA 289,816 16,440,601 Vedior NV 65,824 741,623 VNU NV 117,640 3,804,131 Wereldhave NV 22,848 1,387,409 Wolters Kluwer NV CVA 147,016 2,126,339 162,014,238 PORTUGAL - 0.41% Banco Comercial Portugues SA Class R 1,460,232 2,416,039 Banco Espirito Santo e Comercial de Lisboa SA 43,928 634,850 Brisa-Auto Estradas de Portugal SA 281,520 1,565,312 Electricidade de Portugal SA 876,928 1,944,442 Portugal Telecom SGPS SA 619,616 4,156,556 PT Multimedia Servicos de Telecomunicacoes e media, SGPS, SA/1/ 48,960 781,967 Sonae SGPS SA/1/ 1,609,424 851,399 12,350,565 SINGAPORE - 0.92% Capitaland Ltd. 1,496,000 1,165,758 City Developments Ltd. 408,000 1,100,006 ComfortDelGro Corp. Ltd./1/ 952,000 430,487 Creative Technology Ltd. 54,400 445,572 DBS Group Holdings Ltd. 544,000 3,527,444 Fraser & Neave Ltd. 136,700 754,218 Haw Par Corp. Ltd. 24,775 60,313 Keppel Corp. Ltd. 272,000 781,298 Neptune Orient Lines Ltd./1/ 680,000 649,792 Oversea-Chinese Banking Corp. Ltd. Ordinary Shares 544,000 3,310,847 SembCorp Industries Ltd. 544,000 430,101 Singapore Airlines Ltd. 408,000 2,506,342 Singapore Press Holdings Ltd. 136,000 1,462,033 Singapore Technologies Engineering Ltd. 1,088,000 1,163,438 Singapore Telecommunications Ltd. 3,264,000 3,026,176 ST Assembly Test Services Ltd./1/ 408,000 485,024 36 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ United Overseas Bank Ltd. 680,000 $ 5,105,512 Venture Corp. Ltd. 136,000 1,384,677 27,789,038 SPAIN - 3.81% Abertis Infraestructuras SA 139,400 1,879,682 Acciona SA 17,000 906,968 Acerinox SA 27,200 1,141,020 Actividades de Construccion y Servicios SA 12,648 542,105 Altadis SA 146,881 3,656,921 Amadeus Global Travel Distribution SA Class A 133,970 897,200 Banco Bilbao Vizcaya Argentaria SA 1,636,354 17,939,115 Banco Popular Espanol SA 63,784 3,058,343 Banco Santander Central Hispano SA 2,290,920 20,628,360 Endesa SA 466,480 7,403,157 Gas Natural SDG SA 96,434 1,823,494 Grupo Dragados SA 71,536 1,459,779 Grupo Ferrovial SA 37,264 1,054,434 Iberdrola SA 395,490 6,770,637 Iberia Lineas Aereas de Espana SA 414,528 863,158 Indra Sistemas SA 124,304 1,459,265 Industria de Diseno Textil SA 114,512 2,928,358 Promotora de Informaciones SA 92,208 939,252 Repsol YPF SA 474,096 7,604,067 Telefonica Publicidad e Informacion SA 150,552 703,233 Telefonica SA 2,455,284 28,713,232 Union Fenosa SA 116,280 1,933,082 Zeltia SA Rights 57,664 401,754 114,706,616 SWEDEN - 2.21% ASSA Abloy AB Class B 163,200 1,708,973 Atlas Copco AB Class A 68,000 1,978,898 Atlas Copco AB Class B 40,800 1,112,820 Electrolux AB Class B 173,128 3,583,710 Eniro AB 61,336 500,388 Hennes & Mauritz AB Class B 251,600 5,361,241 Hoganas AB Class B 27,200 569,658 Holmen AB Class B 31,552 902,841 Modern Times Group AB Class B/1/ 27,200 375,908 Nobel Biocare AB/1/,/2/ 500 34,398 Nordea AB 1,149,200 5,583,226 Sandvik AB 119,952 3,337,416 Securitas AB Class B 161,840 1,891,794 Skandia Forsakrings AB 462,128 1,440,519 Skandinaviska Enskilda Banken AB Class A 272,000 2,947,648 Skanska AB Class B 244,800 1,549,999 SKF AB Class B 40,800 1,227,083 SSAB Svenskt Stal AB Series A 63,104 814,478 Svenska Cellulosa AB Class B 98,872 3,292,663 Svenska Handelsbanken AB Class A 286,144 4,581,705 Swedish Match AB 256,088 1,761,791 Tele2 AB Class B/1/ 60,656 2,175,083 Telefonaktiebolaget LM Ericsson AB Class B/1/ 7,298,168 10,486,065 Telia AB 838,910 3,462,835 Trelleborg AB Class B 99,008 1,217,610 Volvo AB Class A 72,760 1,714,314 Volvo AB Class B 117,368 2,872,516 66,485,580 SWITZERLAND - 7.78% ABB Ltd./1/ 764,048 3,327,755 Adecco SA 61,744 2,968,029 Centerpulse AG - Registered/1/ 5,304 1,452,516 Ciba Specialty Chemicals AG/1/ 35,768 2,418,834 Clariant AG - Registered/1/ 71,400 819,046 Compagnie Financiere Richemont AG 260,712 4,728,135 Credit Suisse Group 609,008 19,139,618 Geberit AG - Registered 1,768 571,091 Givaudan SA - Registered 4,216 1,722,634 Holcim Ltd. 81,600 3,387,618 Kudelski SA - Bearer/1/ 15,640 361,668 SCHEDULES OF INVESTMENTS 37 Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Kuoni Reisen Holding AG 2,584 $ 750,922 Logitech International SA - Registered/1/ 25,976 745,415 Lonza Group AG - Registered 21,760 1,057,095 Nestle SA 200,056 39,923,776 Nobel Biocare Holding AG 13,229 948,766 Novartis AG 1,201,016 46,317,405 Roche Holding AG - Genusschein 351,016 29,272,638 Roche Holding AG Bearer 15,912 2,033,908 Serono SA 3,536 2,292,090 Societe Generale de Surveillance Holding SA 2,720 1,259,956 Sulzer AG - Registered 2,448 386,902 Swatch Group (The) AG - Registered 56,984 1,056,258 Swatch Group (The) AG Class B 20,400 1,872,105 Swiss Re 163,744 10,363,695 Swisscom AG 13,192 3,660,708 Syngenta AG 55,080 3,030,804 Synthes-Stratec Inc. 2,720 1,951,347 UBS AG - Registered 612,544 35,869,292 Unaxis Holding AG Class R 6,392 574,954 Valora Holding AG 5,168 1,038,870 Zurich Financial Services AG/1/ 71,400 8,866,497 234,170,347 UNITED KINGDOM - 26.66% Aegis Group PLC 508,912 736,246 Aggreko PLC 119,408 276,397 AMEC PLC 137,904 591,315 Amersham PLC 328,304 2,601,720 AMVESCAP PLC 332,792 2,499,538 ARM Holdings PLC/1/ 562,904 805,308 Associated British Ports Holdings PLC 155,176 954,723 AstraZeneca PLC 867,544 34,626,269 Aviva PLC 1,125,264 9,333,437 BAA PLC 552,976 4,168,853 BAE Systems PLC 1,593,240 3,950,425 Balfour Beatty PLC 250,512 757,049 Barclays PLC/3/ 3,346,824 25,191,158 Barratt Developments PLC 140,760 1,101,343 BBA Group PLC 214,064 803,467 Berkeley Group (The) PLC 78,472 1,075,342 BG Group PLC 1,862,792 8,114,675 BHP Billiton PLC 1,226,531 7,319,518 BOC Group PLC 246,296 3,385,018 Boots Group PLC 443,768 4,718,710 BP PLC 11,311,120 77,455,575 BPB PLC 274,448 1,385,247 Brambles Industries PLC 378,624 1,113,773 British Airways PLC/1/ 323,000 896,929 British American Tobacco PLC 839,800 8,558,597 British Land Co. PLC 291,312 2,346,030 British Sky Broadcasting Group PLC/1/ 610,776 6,916,724 BT Group PLC 4,261,152 13,408,070 Bunzl PLC 272,544 1,898,072 Cable & Wireless PLC 1,180,480 2,201,173 Cadbury Schweppes PLC 1,036,320 6,280,189 Canary Wharf Finance PLC/1/ 251,736 1,019,726 Capita Group PLC 351,696 1,385,068 Carlton Communications PLC 388,280 1,029,832 Carnival PLC 109,228 3,469,432 Celltech Group PLC/1/ 146,744 809,671 Centrica PLC 2,028,712 5,780,217 Close Brothers Group PLC 70,584 808,404 Compass Group PLC 1,181,840 6,345,161 Daily Mail and General Trust PLC Class A 173,400 1,603,405 De La Rue PLC 104,992 466,647 Diageo PLC 1,608,608 16,432,485 Dixons Group PLC 1,028,160 2,132,003 Electrocomponents PLC 234,872 1,302,530 EMAP PLC 105,944 1,509,707 EMI Group PLC 443,768 1,041,469 Enterprise Inns PLC 139,264 1,973,325 Exel PLC 119,544 1,306,695 FirstGroup PLC 259,760 1,144,090 FKI PLC 318,376 479,788 Friends Provident PLC 1,221,824 2,695,619 George Wimpey PLC 263,840 1,501,348 38 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ GKN PLC 378,624 $ 1,424,169 GlaxoSmithKline PLC 3,014,168 57,753,882 Granada PLC 1,497,360 2,406,931 Great Portland Estates PLC 202,368 769,326 GUS PLC 530,400 6,223,918 Hammerson PLC 151,640 1,296,770 Hanson PLC 407,048 2,394,772 Hays PLC 947,104 1,583,319 HBOS PLC 1,931,608 24,063,465 Hilton Group PLC 836,672 2,639,383 HSBC Holdings PLC 5,421,640 67,105,617 IMI PLC 222,088 1,149,525 Imperial Chemical Industries PLC 557,600 1,534,938 Imperial Tobacco Group PLC 361,488 5,682,903 InterContinental Hotels Group PLC/1/ 391,369 2,931,634 International Power PLC/1/ 460,768 1,027,668 Invensys PLC 1,853,544 804,459 J Sainsbury PLC 731,408 3,112,670 Johnson Matthey PLC 128,520 1,891,327 Kelda Group PLC 197,200 1,398,715 Kesa Electricals PLC/1/ 346,084 1,140,441 Kidde PLC 373,592 537,475 Kingfisher PLC 1,150,021 5,185,327 Land Securities Group PLC 252,436 3,329,411 Legal & General Group PLC 3,090,736 5,005,465 Lloyds TSB Group PLC 2,851,784 22,141,204 LogicaCMG PLC 320,876 861,373 Man Group PLC 143,072 2,847,166 Marks & Spencer Group PLC 1,175,590 5,895,871 Misys PLC 258,944 1,132,172 Mitchells & Butlers PLC/1/ 391,369 1,505,136 National Grid Transco PLC 1,570,742 9,746,072 Next PLC 163,200 2,978,823 Novar PLC 325,312 661,497 Pearson PLC 386,512 3,622,172 Peninsular & Oriental Steam Navigation Co. PLC 434,792 1,607,485 Pilkington PLC 681,496 901,025 Provident Financial PLC 123,352 1,282,886 Prudential Corp. PLC 1,001,096 6,883,403 Rank Group PLC 292,944 1,356,171 Reckitt Benckiser PLC 277,304 5,099,406 Reed International PLC 658,512 5,067,689 Rentokil Initial PLC 992,664 3,059,674 Reuters Group PLC 707,744 2,861,223 Rexam PLC 244,528 1,619,434 Rio Tinto PLC 553,384 11,475,029 RMC Group PLC 155,448 1,358,070 Rolls-Royce Group PLC 852,992 2,090,992 Royal Bank of Scotland Group PLC 1,394,418 39,382,403 Royal Sun Alliance Industries Group PLC 670,752 1,636,169 SABMiller PLC 381,344 2,646,590 Safeway PLC 547,808 2,318,111 Sage Group PLC 688,296 2,038,545 Scottish & Newcastle PLC 371,144 2,204,420 Scottish & Southern Energy PLC 428,128 4,256,482 Scottish Power PLC 928,744 5,419,262 Securicor PLC 297,778 361,391 Serco Group PLC 248,608 617,421 Severn Trent PLC 190,944 2,064,124 Shell Transport & Trading Co. PLC 4,929,184 30,861,709 Signet Group PLC 772,480 1,229,306 Slough Estates PLC 256,904 1,442,264 Smith & Nephew PLC 491,504 2,931,153 Smiths Group PLC 288,320 3,392,527 SSL International PLC 93,432 487,358 Stagecoach Group PLC 681,088 884,063 Tate & Lyle PLC 241,536 1,345,311 Taylor Woodrow PLC 372,368 1,294,392 Tesco PLC 3,548,648 12,278,450 3i Group PLC 332,656 3,367,449 Tomkins PLC 291,176 1,200,550 Unilever PLC 1,399,848 11,487,198 United Business Media PLC 211,344 1,352,105 United Utilities PLC 293,352 2,584,087 Vodafone Group PLC 34,082,688 64,647,736 Whitebread PLC 171,224 2,009,208 SCHEDULES OF INVESTMENTS 39 Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Shares Value ------------------------------------------------------------------------------ Wolseley PLC 311,032 $ 3,371,037 WPP Group PLC 569,160 5,050,227 802,316,043 TOTAL COMMON STOCKS AND RIGHTS (COST: $3,192,635,122) 2,987,458,341 PREFERRED STOCKS - 0.43% AUSTRALIA - 0.22% News Corporation Ltd. (The) 1,036,184 6,581,198 6,581,198 GERMANY - 0.17% Fresenius Medical Care AG 13,600 501,779 Henkel KGaA 22,032 1,387,455 Porsche AG 4,080 1,671,577 Volkswagen AG 54,400 1,635,451 Wella AG 1,430 104,217 5,300,479 ITALY - 0.04% IntesaBci SpA 442,000 1,099,460 1,099,460 TOTAL PREFERRED STOCKS (COST: $13,054,801) 12,981,137 SHORT TERM INVESTMENTS - 18.38% MONEY MARKET FUNDS - 12.59% Barclays Global Investors Funds Institutional Money Market Fund, Institutional Shares/3/,/4/ 256,930,520 256,930,520 Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares/3/,/4/ 93,049,596 93,049,596 BlackRock Temp Cash Money Market Fund/4/ 3,365,504 3,365,504 Short Term Investment Co. - Liquid Assets Money Market Portfolio/4/ 9,304,960 9,304,960 Shares or Security Principal Value ------------------------------------------------------------------------------ Short Term Investment Co. - Prime Money Market Portfolio, Institutional Shares/4/ 16,298,192 $ 16,298,192 378,948,772 FLOATING RATE NOTES - 4.31% Beta Finance Inc. 1.06%, 05/20/04 /4/ $ 4,651,782 4,651,782 1.10%, 08/15/03 /4/ 6,979,111 6,979,111 Canadian Imperial Bank of Commerce 1.06%, 10/30/03 /4/ 3,721,980 3,721,980 CC USA Inc. 1.06%, 07/15/04 /4/ 4,093,978 4,093,978 1.11%, 08/15/03 /4/ 4,654,155 4,654,155 1.31%, 04/19/04 /4/ 9,304,029 9,304,029 Dorada Finance Inc. 1.06%, 05/20/04 /4/ 9,303,564 9,303,564 Five Finance Inc. 1.08%, 04/15/04 /4/ 4,652,480 4,652,480 HBOS Treasury Services PLC 1.27%, 06/24/04 /4/ 9,304,960 9,304,960 Holmes Financing PLC 1.07%, 04/15/04 /4/ 1,860,992 1,860,992 K2 USA LLC 1.07%, 05/17/04 /4/ 4,652,247 4,652,247 1.08%, 04/13/04 /4/ 4,652,247 4,652,247 Links Finance LLC 1.05%, 07/20/04 /4/ 3,721,239 3,721,239 1.06%, 06/28/04 /4/ 4,651,549 4,651,549 1.07%, 03/29/04 /4/ 4,652,480 4,652,480 1.09%, 05/04/04 /4/ 4,652,247 4,652,247 Nationwide Building Society 1.08%, 07/23/04 /4/ 6,978,720 6,978,720 Sigma Finance Inc. 1.05%, 07/20/04 /4/ 4,651,549 4,651,549 1.06%, 10/15/03 /4/ 9,304,494 9,304,494 1.08%, 07/01/04 /4/ 4,651,317 4,651,317 Tango Finance Corp. 1.06%, 07/06/04 /4/ 2,791,209 2,791,209 White Pine Finance LLC 1.06%, 05/17/04 /4/ 5,582,976 5,582,976 40 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Schedule of Investments (Continued) iSHARES MSCI EAFE INDEX FUND July 31, 2003 Security Principal Value ------------------------------------------------------------------------------ 1.07%, 04/20/04 /4/ $ 4,652,480 $ 4,652,480 1.08%, 07/06/04 /4/ 5,582,451 5,582,451 129,704,236 TIME DEPOSITS - 0.85% Abbey National Treasury Services PLC 1.13%, 08/01/03 /4/ 11,631,200 11,631,200 SunTrust Banks Inc. 1.03%, 08/01/03 /4/ 13,957,440 13,957,440 25,588,640 COMMERCIAL PAPER - 0.63% Delaware Funding Corp. 1.03%, 08/04/03 /4/ 7,213,490 7,213,490 Liberty Funding Corp. 1.04%, 08/07/03 /4/ 2,331,289 2,331,289 UBS Finance (Delaware) Inc. 1.11%, 08/01/03 /4/ 9,304,673 9,304,673 18,849,452 TOTAL SHORT TERM INVESTMENTS (COST: $553,091,100) 553,091,100 TOTAL INVESTMENTS IN SECURITIES - 118.07% (COST $3,758,781,023) 3,553,530,578 OTHER ASSETS, LESS LIABILITIES - (18.07%) (543,758,325) --------------- NET ASSETS - 100.00% $ 3,009,772,253 =============== /1/ Non-income earning securities. /2/ Security valued at fair value in accordance with procedures approved by the Board of Trustees. See Note 1. /3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2. /4/ All or a portion of this security represents investments of securities lending collateral. See notes to financial statements. SCHEDULES OF INVESTMENTS 41 Statements of Assets and Liabilities iSHARES TRUST July 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 $ 116,059,240 $ 98,023,874 $ 116,478,692 $ 120,525,454 $ 54,847,220 $ 3,758,781,023 ------------- ------------- ------------- ------------- ----------------- ---------------- Foreign currency, at cost $ - $ - $ - $ - $ - $ 3,592,256 ------------- ------------- ------------- ------------- ----------------- ---------------- Investments in securities, at value (including securities on loan/1/) (Note 1) $ 110,788,443 $ 97,494,014 $ 113,041,090 $ 121,372,538 $ 54,818,387 $ 3,553,530,578 Foreign currency, at value - - - - - 3,536,324 Receivables: Investment securities sold 14,993 - - 29,987 8,428 532,050 Dividends and interest 12,712 50,596 17,078 741 104,696 5,676,208 ------------- ------------- ------------- ------------- ----------------- ---------------- Total Assets 110,816,148 97,544,610 113,058,168 121,403,266 54,931,511 3,563,275,160 ------------- ------------- ------------- ------------- ----------------- ---------------- LIABILITIES Payables: Collateral for securities on loan (Note 5) 6,745,317 16,582,150 11,463,285 6,119,628 2,667,440 551,903,004 Advisory fees (Note 2) 87,047 45,750 79,004 86,661 44,700 1,599,903 ------------- ------------- ------------- ------------- ----------------- ---------------- Total Liabilities 6,832,364 16,627,900 11,542,289 6,206,289 2,712,140 553,502,907 ------------- ------------- ------------- ------------- ----------------- ---------------- NET ASSETS $ 103,983,784 $ 80,916,710 $ 101,515,879 $ 115,196,977 $ 52,219,371 $ 3,009,772,253 ============= ============= ============= ============= ================= ================ NET ASSETS CONSIST OF: Paid-in capital $ 114,543,417 $ 95,988,419 $ 110,439,195 $ 120,466,431 $ 53,158,014 $ 3,256,447,581 Undistributed net investment income - - - - 69,217 39,689,896 Accumulated net realized loss (5,288,836) (14,541,849) (5,485,714) (6,116,538) (979,027) (80,981,324) Net unrealized appreciation (depreciation) (5,270,797) (529,860) (3,437,602) 847,084 (28,833) (205,383,900) ------------- ------------- ------------- ------------- ----------------- ---------------- NET ASSETS $ 103,983,784 $ 80,916,710 $ 101,515,879 $ 115,196,977 $ 52,219,371 $ 3,009,772,253 ============= ============= ============= ============= ================= ================ iShares outstanding 2,700,000 3,900,000 2,100,000 3,650,000 600,000 27,200,000 ============= ============= ============= ============= ================= ================ Net asset value per iShare $ 38.51 $ 20.75 $ 48.34 $ 31.56 $ 87.03 $ 110.65 ============= ============= ============= ============= ================= ================
/1/ Securities on loan with market values of $6,488,435, $15,462,428, $11,089,684, $5,887,711, $2,549,632 and $524,017,596, respectively. See Note 5. See notes to financial statements. 42 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Statements of Operations iSHARES TRUST Year Ended July 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/ $ 169,345 $ 89,253 $ 190,114 $ 28,385 $ 749,196 $ 61,374,781 Interest 202 96 254 82 363 21,288 Securities lending income 3,284 3,146 5,907 1,949 3,029 1,615,711 ------------- ------------- ------------- ------------- ----------------- ---------------- Total investment income 172,831 92,495 196,275 30,416 752,588 63,011,780 ------------- ------------- ------------- ------------- ----------------- ---------------- EXPENSES (Note 2) Advisory fees 271,592 138,163 321,981 232,767 155,365 8,291,473 ------------- ------------- ------------- ------------- ----------------- ---------------- Total expenses 271,592 138,163 321,981 232,767 155,365 8,291,473 ------------- ------------- ------------- ------------- ----------------- ---------------- Net investment income (loss) (98,761) (45,668) (125,706) (202,351) 597,223 54,720,307 ------------- ------------- ------------- ------------- ----------------- ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments (3,093,996) (7,897,302) (4,940,245) (4,336,834) (620,341) (69,041,771) In-kind redemptions 881,568 (9,092,826) (3,141,164) (2,676,412) - (324,654,630) Foreign currency transactions - - - - - 979,488 ------------- ------------- ------------- ------------- ----------------- ---------------- Net realized loss (2,212,428) (16,990,128) (8,081,409) (7,013,246) (620,341) (392,716,913) ------------- ------------- ------------- ------------- ----------------- ---------------- Net change in unrealized appreciation (depreciation) on: Investments 19,307,985 32,671,417 25,211,542 21,140,911 3,257,961 339,673,150 Translation of assets and liabilities in foreign currencies - - - - - (196,666) ------------- ------------- ------------- ------------- ----------------- ---------------- Net change in unrealized appreciation (depreciation) 19,307,985 32,671,417 25,211,542 21,140,911 3,257,961 339,476,484 ------------- ------------- ------------- ------------- ----------------- ---------------- Net realized and unrealized gain (loss) 17,095,557 15,681,289 17,130,133 14,127,665 2,637,620 (53,240,429) ------------- ------------- ------------- ------------- ----------------- ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 16,996,796 $ 15,635,621 $ 17,004,427 $ 13,925,314 $ 3,234,843 $ 1,479,878 ============= ============= ============= ============= ================= ================
/1/ Net of foreign withholding tax of $778, $-, $6,018, $-, $43,589 and $8,904,571, respectively. See notes to financial statements. FINANCIAL STATEMENTS 43 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 For the For the For the For the For the year ended year ended year ended year ended year ended year ended July 31, 2003 July 31, 2002 July 31, 2003 July 31, 2002 July 31, 2003 July 31, 2002 ------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment loss $ (98,761) $ (171,829) $ (45,668) $ (119,866) $ (125,706) $ (109,196) Net realized loss (2,212,428) (10,641,273) (16,990,128) (12,036,263) (8,081,409) (2,119,420) Net change in unrealized appreciation (depreciation) 19,307,985 (10,747,261) 32,671,417 (33,413,568) 25,211,542 (31,018,006) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 16,996,796 (21,560,363) 15,635,621 (45,569,697) 17,004,427 (33,246,622) ------------- ------------- ------------- ------------- ------------- ------------- iSHARES TRANSACTIONS: iShares sold 86,037,387 69,955,543 69,247,876 57,881,642 127,376,284 76,862,673 iShares redeemed (20,244,859) (106,343,169) (28,185,614) (12,809,218) (107,386,390) (12,362,001) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from iShares transactions 65,792,528 (36,387,626) 41,062,262 45,072,424 19,989,894 64,500,672 ------------- ------------- ------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS 82,789,324 (57,947,989) 56,697,883 (497,273) 36,994,321 31,254,050 NET ASSETS: Beginning of year 21,194,460 79,142,449 24,218,827 24,716,100 64,521,558 33,267,508 ------------- ------------- ------------- ------------- ------------- ------------- End of year $ 103,983,784 $ 21,194,460 $ 80,916,710 $ 24,218,827 $ 101,515,879 $ 64,521,558 ============= ============= ============= ============= ============= ============= iSHARES ISSUED AND REDEEMED: iShares sold 2,650,000 1,400,000 3,950,000 2,000,000 3,250,000 1,300,000 iShares redeemed (650,000) (2,150,000) (1,900,000) (800,000) (2,700,000) (200,000) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in iShares outstanding 2,000,000 (750,000) 2,050,000 1,200,000 550,000 1,100,000 ============= ============= ============= ============= ============= =============
See notes to financial statements. 44 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Statements of Changes in Net Assets (Continued) iSHARES TRUST
iShares iShares Goldman Sachs Goldman Sachs iShares Software Natural Resources MSCI EAFE Index Fund Index Fund Index Fund ----------------------------- ---------------------------------- ------------------------------------ For the Period For the Period August 14, 2000/1/ For the For the For the October 22, 2001/1/ For the to year ended year ended year ended to year ended year ended July 31, 2003 July 31, 2002 July 31, 2003 July 31, 2002 July 31, 2003 July 31, 2002 ----------------------------------------------------------------------- --------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income (loss) $ (202,351) $ (110,003) $ 597,223 $ 294,060 $ 54,720,307 $ 25,461,334 Net realized loss (7,013,246) (3,445,159) (620,341) (348,141) (392,716,913) (19,434,534) Net change in unrealized appreciation (depreciation) 21,140,911 (19,166,307) 3,257,961 (3,286,794) 339,476,484 (544,860,384) ------------- ------------- ------------- -------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from operations 13,925,314 (22,721,469) 3,234,843 (3,340,875) 1,479,878 (538,833,584) ------------- ------------- ------------- -------------- ---------------- ---------------- DISTRIBUTIONS TO iSHAREHOLDERS: From net investment income - - (526,412) (284,750) (41,788,985) (1,107,494) ------------- ------------- ------------- -------------- ---------------- ---------------- Total distributions to iShareholders - - (526,412) (284,750) (41,788,985) (1,107,494) ------------- ------------- ------------- -------------- ---------------- ---------------- iSHARES TRANSACTIONS: iShares sold 123,561,162 56,701,205 28,693,690 29,006,526 1,397,031,369 4,388,752,984 iShares redeemed (60,058,684) (22,766,293) - (4,563,651) (2,150,388,129) (45,373,786) ------------- ------------- ------------- -------------- ---------------- ---------------- Net increase (decrease) in net assets from iShares transactions 63,502,478 33,934,912 28,693,690 24,442,875 (753,356,760) 4,343,379,198 ------------- ------------- ------------- -------------- ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS 77,427,792 11,213,443 31,402,121 20,817,250 (793,665,867) 3,803,438,120 NET ASSETS: Beginning of period 37,769,185 26,555,742 20,817,250 - 3,803,438,120 - ------------- ------------- ------------- -------------- ---------------- ---------------- End of period $ 115,196,977 $ 37,769,185 $ 52,219,371 $ 20,817,250 $ 3,009,772,253 $ 3,803,438,120 ============= ============= ============= ============== ================ ================ Undistributed net investment income included in net assets at end of period $ - $ - $ 69,217 $ 5,672 $ 39,689,896 $ 25,519,748 ============= ============= ============= ============== ================ ================ iSHARES ISSUED AND REDEEMED: iShares sold 4,400,000 1,600,000 350,000 300,000 13,400,000 36,200,000 iShares redeemed (2,350,000) (550,000) - (50,000) (22,000,000) (400,000) ------------- ------------- ------------- -------------- ---------------- ---------------- Net increase (decrease) in iShares outstanding 2,050,000 1,050,000 350,000 250,000 (8,600,000) 35,800,000 ============= ============= ============= ============== ================ ================
/1/ Commencement of operations. See notes to financial statements. FINANCIAL STATEMENTS 45 Financial Highlights iSHARES TRUST (For a share outstanding throughout each period)
iShares Goldman Sachs Technology Index Fund -------------------------------------------------- Period from Mar. 13, 2001/1/ Year ended Year ended to Jul. 31, 2003 Jul. 31, 2002 Jul. 31, 2001 ------------------------------------------------------------------------------ Net asset value, beginning of period $ 30.28 $ 54.58 $ 56.71 ------------- ------------- ---------------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss (0.04) (0.25) (0.08) Net realized and unrealized gain (loss) 8.27 (24.05) (2.05) ------------- ------------- ---------------- Total from investment operations 8.23 (24.30) (2.13) ------------- ------------- ---------------- Net asset value, end of period $ 38.51 $ 30.28 $ 54.58 ============= ============= ================ Total return 27.18% (44.52)% (3.76)%/2/ ============= ============= ================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 103,984 $ 21,194 $ 79,142 Ratio of expenses to average net assets/3/ 0.50% 0.50% 0.50% Ratio of net investment loss to average net assets/3/ (0.18)% (0.30)% (0.33)% Portfolio turnover rate/4/ 11% 8% 0%/5/ iShares Goldman Sachs Networking Index Fund -------------------------------------------------- Period from Jul. 10, 2001/1/ Year ended Year ended to Jul. 31, 2003 Jul. 31, 2002 Jul. 31, 2001 ------------------------------------------------------------------------------ Net asset value, beginning of period $ 13.09 $ 38.02 $ 36.32 ------------- ------------- ---------------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss (0.01) (0.06) (0.01) Net realized and unrealized gain (loss) 7.67 (24.87) 1.71 ------------- ------------- ---------------- Total from investment operations 7.66 (24.93) 1.70 ------------- ------------- ---------------- Net asset value, end of period $ 20.75 $ 13.09 $ 38.02 ============= ============= ================ Total return 58.52% (65.57)% 4.68%/2/ ============= ============= ================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 80,917 $ 24,219 $ 24,716 Ratio of expenses to average net assets/3/ 0.50% 0.50% 0.50% Ratio of net investment loss to average net assets/3/ (0.17)% (0.34)% (0.50)% Portfolio turnover rate/4/ 26% 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. 46 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Financial Highlights (Continued) iSHARES TRUST (For a share outstanding throughout each period)
iShares Goldman Sachs Semiconductor Index Fund -------------------------------------------------- Period from Jul. 10, 2001/1/ Year ended Year ended to Jul. 31, 2003 Jul. 31, 2002 Jul. 31, 2001 ------------------------------------------------------------------------------ Net asset value, beginning of period $ 41.63 $ 73.93 $ 65.65 ------------- ------------- ---------------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss (0.06) (0.07) (0.01) Net realized and unrealized gain (loss) 6.77 (32.23) 8.29 ------------- ------------- ---------------- Total from investment operations 6.71 (32.30) 8.28 ------------- ------------- ---------------- Net asset value, end of period $ 48.34 $ 41.63 $ 73.93 ============= ============= ================ Total return 16.12% (43.69)% 12.61%/2/ ============= ============= ================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 101,516 $ 64,522 $ 33,268 Ratio of expenses to average net assets/3/ 0.50% 0.50% 0.50% Ratio of net investment loss to average net assets/3/ (0.20)% (0.29)% (0.38)% Portfolio turnover rate/4/ 11% 8% 0%/5/ iShares Goldman Sachs Software Index Fund -------------------------------------------------- Period from Jul. 10, 2001/1/ Year ended Year ended to Jul. 31, 2003 Jul. 31, 2002 Jul. 31, 2001 ------------------------------------------------------------------------------ Net asset value, beginning of period $ 23.61 $ 48.28 $ 49.12 ------------- ------------- ---------------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss (0.06) (0.07) (0.01) Net realized and unrealized gain (loss) 8.01 (24.60) (0.83) ------------- ------------- ---------------- Total from investment operations 7.95 (24.67) (0.84) ------------- ------------- ---------------- Net asset value, end of period $ 31.56 $ 23.61 $ 48.28 ============= ============= ================ Total return 33.67% (51.10)% (1.71)%/2/ ============= ============= ================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 115,197 $ 37,769 $ 26,556 Ratio of expenses to average net assets/3/ 0.50% 0.50% 0.50% Ratio of net investment loss to average net assets/3/ (0.43)% (0.42)% (0.50)% Portfolio turnover rate/4/ 9% 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. FINANCIAL HIGHLIGHTS 47 Financial Highlights (Continued) iSHARES TRUST (For a share outstanding throughout each period)
iShares Goldman Sachs iShares Natural Resources MSCI EAFE Index Fund Index Fund -------------------------------- -------------------------------- Period from Period from Oct. 22, 2001/1/ Aug. 14, 2001/1/ Year ended to Year ended to Jul. 31, 2003 Jul. 31, 2002 Jul. 31, 2003 Jul. 31, 2002 -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 83.27 $ 94.92 $ 106.24 $ 127.63 ------------- ---------------- ------------- ---------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 1.51 1.10 2.58 0.93 Net realized and unrealized gain (loss) 3.66 (11.69) 3.71 (22.07) ------------- ---------------- ------------- ---------------- Total from investment operations 5.17 (10.59) 6.29 (21.14) ------------- ---------------- ------------- ---------------- LESS DISTRIBUTIONS FROM: Net investment income (1.41) (1.06) (1.88) (0.25) ------------- ---------------- ------------- ---------------- Total distributions (1.41) (1.06) (1.88) (0.25) ------------- ---------------- ------------- ---------------- Net asset value, end of period $ 87.03 $ 83.27 $ 110.65 $ 106.24 ============= ================ ============= ================ Total return 6.27% (11.29)%/2/ 6.17% (16.57)%/2/ ============= ================ ============= ================ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s) $ 52,219 $ 20,817 $ 3,009,772 $ 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/ 1.92% 1.51% 2.31% 1.87% Portfolio turnover rate/4/ 7% 12% 8% 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. 48 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Notes to the Financial Statements iSHARES TRUST 1. SIGNIFICANT ACCOUNTING POLICIES iShares Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Trust was established as a Delaware business trust pursuant to an Agreement and Declaration of Trust dated December 16, 1999. As of July 31, 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. This 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. Under the Funds' organizational documents, their officers and trustees are indemnified against certain liabilities that may arise out of the performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts with service providers that contain general indemnification clauses. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote. 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. Beginning April 14, 2003, securities for which the primary market is the National Association of Securities Dealers Automated Quotations National Market System ("NASDAQ") are valued at the NASDAQ Official Closing Price. 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. Short-term investments 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 NOTES TO THE FINANCIAL STATEMENTS 49 Notes to the Financial Statements (Continued) iSHARES TRUST 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. 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, 2003, 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 $ 87,673 $ - $ 87,673 MSCI EAFE 40,855,008 - 40,855,008 -----------------------------------------------------------------------------------------
For the year ended July 31, 2003, the tax characterization of distributions paid for each Fund was equal to the book characterization of distributions paid. The total distributions and distributions per share are disclosed in the accompanying Statements of Changes in Net Assets and the Financial Highlights for all the Funds. FEDERAL INCOME TAXES Each Fund is treated as a separate entity for federal income tax purposes. It is the policy of each Fund to qualify as a regulated investment company by complying with the provisions applicable to regulated investment companies, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, and to annually distribute substantially all of its net income and any net gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes was required for the year ended July 31, 2003. From November 1, 2002 to July 31, 2003, certain of the Funds incurred net realized capital losses. As permitted by tax regulations, these Funds have elected to defer these losses and treat them as arising in the year ending July, 31, 2004. 50 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Notes to the Financial Statements (Continued) iSHARES TRUST Deferred Net Realized iShares Index Fund Capital Losses ------------------------------------------------------------------ Goldman Sachs Technology $ 2,498,381 Goldman Sachs Networking 3,137,251 Goldman Sachs Semiconductor 624,820 Goldman Sachs Software 1,519,454 Goldman Sachs Natural Resources 423,248 MSCI EAFE 27,542,486 ------------------------------------------------------------------ The Funds had tax basis net capital loss carryforwards at July 31, 2003, the tax year-end of the Funds, as follows:
Expiring Expiring iShares Index Fund 2010 2011 Total ----------------------------------------------------------------------------------- Goldman Sachs Technology $ 638,692 $ 1,579,887 $ 2,218,579 Goldman Sachs Networking 130,370 5,798,354 5,928,724 Goldman Sachs Semiconductor 175,882 472,453 648,335 Goldman Sachs Software 177,253 1,465,904 1,643,157 Goldman Sachs Natural Resources - 371,436 371,436 MSCI EAFE 55,269 37,219,384 37,274,653 -----------------------------------------------------------------------------------
Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year, or until their respective expiration dates, whichever occurs first. For the year ended July 31, 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. These reclassifications have no effect on net assets or net asset values per share. The in-kind gains or losses for the year ended July 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 July 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 NOTES TO THE FINANCIAL STATEMENTS 51 Notes to the Financial Statements (Continued) iSHARES TRUST 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 Trust. 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. Prior to February 24, 2003, Investors Bank served as securities lending agent for the Trust. Effective February 24, 2003, Barclays Global Investors, N.A. ("BGI") began serving as securities lending agent for the Trust. BGI is an affiliate of BGFA, the Funds' investment advisor. The Board of Trustees has approved the selection of BGI as securities lending agent subject to the conditions of the exemptive order that was issued by the Securities and Exchange Commission ("SEC"). As securities lending agent, BGI receives a fee based on a share of the income earned on investment of the cash collateral received for the loan of securities. For the period from February 24, 2003 through July 31, 2003, BGI earned securities lending agent fees as follows: Securities Lending iShares Index Fund Agent Fees ------------------------------------------------------------------ Goldman Sachs Technology $ 1,773 Goldman Sachs Networking 1,750 Goldman Sachs Semiconductor 1,774 Goldman Sachs Software 1,126 Goldman Sachs Natural Resources 938 MSCI EAFE 1,213,817 ------------------------------------------------------------------ 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 year ended July 31, 2003, BGIS did not receive any brokerage commissions from the Funds. 52 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Notes to the Financial Statements (Continued) iSHARES TRUST As defined under the Section 2(a)(3) of the 1940 Act, certain broker-dealers may be deemed to be an "affiliated person" of a Fund by virtue of being a DTC Participant that owned of record 5% or more of the outstanding shares of such Fund. The broker-dealers identified to be an "affiliated person" of a Fund (other than BGIS) did not execute any portfolio transactions with the Funds during the year. Pursuant to an exemptive order issued by the SEC, each Fund may invest in the Institutional Shares of the Institutional Money Market Fund ("IMMF") and Prime Money Market Fund ("PMMF") of Barclays Global Investors Funds. The IMMF and PMMF are feeder funds in a master/feeder fund structure that invests substantially all of its assets in the Money Market Master Portfolio and Prime Money Market Master Portfolio, respectively, which are managed by BGFA, the Funds' investment advisor. The IMMF and PMMF are open-end money market funds available only to institutional investors, including other investment companies managed by BGFA. The IMMF and PMMF seek a high level of income consistent with liquidity and the preservation of capital. While the IMMF and PMMF do not directly charge an advisory fee, the master portfolios in which they invest do charge an advisory fee. Income distributions from the IMMF and PMMF 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 year ended July 31, 2003. Cross trading is the buying or selling of portfolio securities between funds to which BGFA (or an affiliate) serves as investment advisor. The Board has concluded that all transactions executed during the first eight months of the fiscal year were in compliance with the requirements and restrictions set forth by Rule 17a-7, and has not yet reviewed those transactions executed during the last four months of the year. 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 $25,191,158, as of July 31, 2003. Barclays PLC is an affiliate of BGFA, the Funds' investment advisor. As of July 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 year ended July 31, 2003, were as follows: iShares Index Fund Purchases Sales ------------------------------------------------------------------ Goldman Sachs Technology $ 6,191,131 $ 6,277,997 Goldman Sachs Networking 8,038,010 8,096,517 Goldman Sachs Semiconductor 7,605,801 7,662,334 Goldman Sachs Software 4,527,100 4,717,616 Goldman Sachs Natural Resources 2,306,397 2,282,573 MSCI EAFE 197,379,901 181,063,014 ------------------------------------------------------------------ NOTES TO THE FINANCIAL STATEMENTS 53 Notes to the Financial Statements (Continued) iSHARES TRUST In-kind transactions for the year ended July 31, 2003, were as follows: In-kind In-kind iShares Index Fund Purchases Sales ------------------------------------------------------------------ Goldman Sachs Technology $ 86,034,723 $ 20,243,064 Goldman Sachs Networking 69,257,832 28,176,945 Goldman Sachs Semiconductor 127,408,314 107,354,014 Goldman Sachs Software 123,607,445 60,081,456 Goldman Sachs Natural Resources 28,667,083 - MSCI EAFE 1,388,767,638 2,138,105,552 ------------------------------------------------------------------ At July 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 $ 116,631,116 $ 6,693,115 $ (12,535,788) $ (5,842,673) Goldman Sachs Networking 103,499,748 - (6,005,734) (6,005,734) Goldman Sachs Semiconductor 120,691,251 1,009,440 (8,659,601) (7,650,161) Goldman Sachs Software 123,479,381 4,678,787 (6,785,630) (2,106,843) Goldman Sachs Natural Resources 55,050,019 2,447,932 (2,679,564) (231,632) MSCI EAFE 3,776,110,320 78,748,726 (301,328,468) (222,579,742) ----------------------------------------------------------------------------------------------------
4. iSHARES TRANSACTIONS At July 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 54 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Notes to the Financial Statements (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 a Fund of securities lending are that the borrower may not provide additional collateral when required, or return the securities when due. As of July 31, 2003, certain of the Funds had loaned securities which were collateralized by cash. The cash collateral received was invested in securities with remaining maturities of 397 days or less and money market mutual funds. The market value of the securities on loan at July 31, 2003 and the value of the related collateral are disclosed in the Statements of Assets and Liabilities. 6. LEGAL PROCEEDINGS The Trust has reached a settlement in an action in the U.S. District Court for the Northern District of Illinois. In the action, a company named Mopex, Inc. and a company named Realtimemutualfunds.com alleged that the actions of the Trust and others infringed a patent held by Mopex, and that the parties engaged in a "conspiracy" amongst themselves to infringe the patent. The patent itself was found to be invalid in a related action to which the Trust was not a party. In the settlement, the plaintiffs' claims and allegations are dismissed with prejudice, and neither the Trust nor any other defendant will pay any compensation to the plaintiffs. NOTES TO THE FINANCIAL STATEMENTS 55 Report of Independent Auditors To the Shareholders and Board of Trustees of iShares Trust: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the funds comprising the iShares Goldman Sachs Series Funds and the iShares MSCI EAFE Index Fund (the "Funds"), as listed on the table of contents at July 31, 2003, the results of each of their operations for the year then ended, the changes in each of their net assets and their financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at July 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California August 29, 2003 56 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Tax Information (Unaudited) iSHARES TRUST For the year ended July 31, 2003, iShares MSCI EAFE Index Fund earned foreign source income of $70,279,352 and paid foreign taxes of $8,196,360 which it intends to pass through to its shareholders pursuant to Section 853 of the Internal Revenue Code. For corporate shareholders, 74.63% of the income dividends paid by the iShares Goldman Sachs Natural Resources Index Fund during the year ended July 31, 2003 qualified for the dividends-received deduction. The following are estimates of qualified dividend income received by the Funds through July 31, 2003 that qualify for a reduced tax rate pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003. Qualified Dividend iShares Index Fund Income -------------------------------------------------------------- Goldman Sachs Natural Resources $ 320,304 MSCI EAFE 49,095,513 -------------------------------------------------------------- TAX INFORMATION 57 Supplemental Information (Unaudited) iSHARES TRUST The tables that follow present information about the differences between the daily market price on secondary markets for shares of an iShares Fund and that Fund's net asset value. Net asset value, or "NAV", is the price per share at which each Fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing mutual fund shares every day the American Stock Exchange is open. The "Market Price" of each iShares Fund generally is determined using the midpoint between the highest bid and the lowest offer on the Exchange on which the iShares of such Fund is listed for trading, as of the time that the Fund's NAV is calculated. Each Fund's Market Price may be at, above or below its NAV. The NAV of each Fund will fluctuate with changes in the market value of its portfolio holdings. The Market Price of each Fund will fluctuate in accordance with changes in its NAV, as well as market supply and demand. Premiums or discounts are the differences (expressed as a percentage) between the NAV and Market Price of a Fund on a given day, generally at the time NAV is calculated. A premium is the amount that a Fund is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that a Fund is trading below the reported NAV, expressed as a percentage of the NAV. The following information shows the frequency distributions of premiums and discounts for each of the iShares Funds included in this report. The information shown for each Fund is for each full calendar quarter completed after the inception date of such Fund through June 30, 2003, the date of the most recent calendar quarter end. The specific periods covered for each Fund are disclosed in the table for such Fund. Each line in the table shows the number of trading days in which the iShares Fund traded within the premium/discount range indicated. The number of trading days in each premium/discount range is also shown as a percentage of the total number of trading days in the period covered by each table. All data presented here represents past performance, which cannot be used to predict future results. iShares Goldman Sachs Technology Index Fund Period Covered: April 1, 2001 through June 30, 2003 Number of Percentage of Premium/Discount Range Days Total Days ---------------------- --------------- --------------- Greater than 1.0% ........................ 3 0.54% Greater than 0.5% and Less than 1.0% ..... 18 3.22 Between 0.5% and -0.5% ................... 507 90.69 Less than -0.5% and Greater than -1.0% ... 21 3.76 Less than -1.0% and Greater than -1.5% ... 7 1.25 Less than -1.5% .......................... 3 0.54 --------------- --------------- 559 100.00% =============== =============== 58 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Supplemental Information (Unaudited) (Continued) iSHARES TRUST iShares Goldman Sachs Networking Index Fund Period Covered: October 1, 2001 through June 30, 2003 Number Percentage of Premium/Discount Range of Days Total Days ---------------------- --------------- --------------- Greater than 1.0% ........................ 4 0.92% Greater than 0.5% and Less than 1.0% ..... 41 9.40 Between 0.5% and -0.5% ................... 343 78.66 Less than -0.5% and Greater than -1.0% ... 36 8.26 Less than -1.0% and Greater than -1.5% ... 7 1.61 Less than -1.5% and Greater than -4.0% ... 3 0.69 Less than -4.0% .......................... 2 0.46 --------------- --------------- 436 100.00% =============== =============== iShares Goldman Sachs Semiconductor Index Fund Period Covered: October 1, 2001 through June 30, 2003 Number Percentage of Premium/Discount Range of Days Total Days ---------------------- --------------- --------------- Greater than 1.0% ........................ 3 0.69% Greater than 0.5% and Less than 1.0% ..... 18 4.13 Between 0.5% and -0.5% ................... 382 87.61 Less than -0.5% and Greater than -1.0% ... 26 5.96 Less than -1.0% and Greater than -1.5% ... 4 0.92 Less than -1.5% .......................... 3 0.69 --------------- --------------- 436 100.00% =============== =============== iShares Goldman Sachs Software Index Fund Period Covered: October 1, 2001 through June 30, 2003 Number Percentage of Premium/Discount Range of Days Total Days ---------------------- --------------- --------------- Greater than 1.0% ........................ 3 0.69% Greater than 0.5% and Less than 1.0% ..... 16 3.67 Between 0.5% and -0.5% ................... 394 90.36 Less than -0.5% and Greater than -1.0% ... 19 4.36 Less than -1.0% .......................... 4 0.92 --------------- --------------- 436 100.00% =============== =============== SUPPLEMENTAL INFORMATION 59 Supplemental Information (Unaudited) (Continued) iSHARES TRUST iShares Goldman Sachs Natural Resources Index Fund Period Covered: January 1, 2002 through June 30, 2003 Number of Percentage of Premium/Discount Range Days Total Days ---------------------- --------------- --------------- Greater than 0.5% ........................ - -% Between 0.5% and -0.5% ................... 366 98.39 Less than -0.5% and Greater than -1.0% ... 4 1.07 Less than -1.0% .......................... 2 0.54 --------------- --------------- 372 100.00% =============== =============== iShares MSCI EAFE Index Fund Period Covered: October 1, 2001 through June 30, 2003 Number of Percentage of Premium/Discount Range Days Total Days ---------------------- --------------- --------------- Greater than 2.0% ........................ 4 0.92% Greater than 1.5% and Less than 2.0% ..... 8 1.83 Greater than 1.0% and Less than 1.5% ..... 44 10.09 Greater than 0.5% and Less than 1.0% ..... 105 24.08 Between 0.5% and -0.5% ................... 231 52.99 Less than -0.5% and Greater than -1.0% ... 30 6.88 Less than -1.0% and Greater than -1.5% ... 12 2.75 Less than -1.5% .......................... 2 0.46 --------------- --------------- 436 100.00% =============== =============== 60 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Trustees Information (Unaudited) iSHARES TRUST The Board of Trustees has responsibility for the overall management and operations of the Trust, including general supervision of the duties performed by BGFA and other service providers. Each Trustee serves until his or her successor is duly elected and qualified. iShares Trust, iShares, Inc., Barclays Global Investors Funds and Master Investment Portfolio are considered to be members of the same fund complex, as defined in Form N-1A under the 1940 Act. Each Trustee also serves as a Director for iShares, Inc. and oversees 80 portfolios within the fund complex. In addition, Lee T. Kranefuss and Richard K. Lyons each serves as a Trustee for Barclays Global Investors Funds and Master Investment Portfolio and oversees 105 portfolios within the fund complex. Additional information about the Funds' Trustees may be found in the Funds' Statement of Additional Information, which is available without charge upon request by calling toll-free 1-800-474-2737. Interested Trustees+
Position(s), Principal Occupation(s) Name, Age and Address Length of Service During Past 5 Years Other Directorships Held ------------------------------------------------------------------------------------------------------------------------------ *Lee T. Kranefuss (41) Trustee, Chairman, Chief Executive Officer of the Director (since June 18, 2003) of Barclays Global Investors and President Individual Investor Business of iShares, Inc.; Board of Trustees 45 Fremont Street (since June 18, Barclays Global Investors, N.A.; for Barclays Global Investors Funds San Francisco, CA 94105 2003) The Boston Consulting Group (until and Master Investment Portfolio 1997). (since 2001). *Nathan Most (89) Trustee (since Consultant to BGI (1998-2002), Director (since 1996) and President P.O. Box 193 December 16, 1999) American Stock Exchange (1996-2000) (1996-2002) of iShares, Inc. Burlingame, CA 94011 and the Hong Kong Stock Exchange (1998 to present); Consultant to the Amsterdam Stock Exchange (1997-1998); Consultant to the Pacific Stock Exchange (1997-1998).
---------- + Garrett F. Bouton served as Chairman, President and interested trustee of the Board through June 17, 2003. * Lee T. Kranefuss and Nathan Most are deemed to be "interested persons" (as defined in the 1940 Act) of the Trust due to their affiliations with BGFA, the Funds' investment advisor and BGI, the parent company of BGFA. TRUSTEES INFORMATION 61 Trustees Information (Unaudited) (Continued) iSHARES TRUST Independent Trustees
Position(s), Principal Occupation(s) Name, Age and Address Length of Service During Past 5 Years Other Directorships Held ------------------------------------------------------------------------------------------------------------------------------ John B. Carroll (67) Trustee (since Retired Vice President of Director (since 1996) of 520 Main Street January 1, 2002) Investment Management (1984-2000) iShares, Inc.; Trustee and member Ridgefield, CT 06877 of Verizon Corporation; Advisory of the Executive Committee (since Board member of Ibbotson Associates 1991) of The Common Fund (1992-1998); former Vice Chairman Institutional Funds, a non-profit and Executive Committee Member organization; Member of the Board (1994-1998) of the Committee on of Managers of JP Morgan Private Investment of Employee Benefit Equity Funds. Assets of the Financial Executive Institute. Richard K. Lyons (42) Trustee (since Professor, University of Director (since 2001) of Haas School of Business, February 15, 2000) California, Berkeley: Haas School iShares, Inc.; Trustee (since UC Berkeley of Business (since 1993); 2001) of Barclays Global Investors Berkeley, CA 94720 Consultant for IMF World Bank, Funds and Master Investment Federal Reserve Bank, and Citibank Portfolio; Board of Trustees: N.A. (since 2000). Matthews Asian Funds since 1995 (oversees 6 portfolios). George C. Parker (64) Trustee (since Dean Witter Distinguished Professor Director (since 2001) of Graduate School of February 15, 2000) of Finance (since 1994); Associate iShares, Inc.; Bailard, Biehl and Business (Room K301) Dean for Academic Affairs, Director Kaiser, Inc. (since 1985); Stanford University of MBA Program, and Professor, California Casualty Group of 521 Memorial Way Stanford University: Graduate Insurance Companies (since 1978); Stanford, CA 94305 School of Business (1993-2001). Continental Airlines, Inc. (since 1996); Community First Financial Group (since 1995); Dresdner/RCM Mutual Funds (1994-2002); Tyon Ranch Company (since 1999). W. Allen Reed (56) Trustee (since President and Chief Executive Director (since 1996) of General Motors Investment January 1, 2002) Officer (since 1994) of General iShares, Inc.; Director (since Management Corp. Motors Investment Management 1994) of General Motors Investment 767 Fifth Avenue Corporation. Management Corporation; Director New York, NY 10153 (1995-1998) of Taubman Centers, Inc. (a real estate investment trust); Director (since 1992) of FLIR Systems (an imaging technology company); Director (since 1994) of General Motors Acceptance Corporation; Director (since 1994) of GMAC Insurance Holdings, Inc.; Director (since 1995) of Global Emerging Markets Fund; Director (since 2000) of Temple Inland Industries; Chairman (since 1995) of the Investment Advisory Committee of Howard Hughes Medical Institute.
62 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Trustees Information (Unaudited) (Continued) iSHARES TRUST Officers who are not Trustees
Principal Occupation(s) Directorships Held by Name, Age and Address Position During Past 5 Years Officers ------------------------------------------------------------------------------------------------------------------------------ Michael A. Latham (37) Secretary, Treasurer Director of Mutual Fund Delivery in None. Barclays Global Investors and Principal the U.S. Individual Investor 45 Fremont Street Financial Officer Business of BGI (since 2000); Head San Francisco, CA 94105 of Operations, BGI Europe (1997-2000). Jeffrey J. Gaboury (34) Assistant Treasurer Director (formerly Manager), Mutual None. Investors Bank & Trust Co. Fund Administration, Reporting and 200 Clarendon Street Compliance, IBT (since 1996). Boston, MA 02116 Danell Doty (40) Assistant Secretary Head of Mutual Fund Administration, None. Barclays Global Investors BGI (since 1999); Vice President of 45 Fremont Street Operations, Berkeley Capital San Francisco, CA 94105 Management (1994-1999); Vice President and Secretary, The Berkeley Funds (1997-1999). Susan C. Mosher (48) Assistant Secretary Senior Director & Senior Counsel, None. Investors Bank & Trust Co. Mutual Fund Administration, IBT 200 Clarendon Street (since 1995). Boston, MA 02116 Sandra I. Madden (36) Assistant Secretary Senior Associate Counsel, Mutual None. Investors Bank & Trust Co. Fund Administration, IBT (since 200 Clarendon Street 1999); Associate, Scudder Kemper Boston, MA 02116 Investments, Inc. (1996-1999). Theda Haber (49) Chief Legal Officer Attorney/Managing Director, Deputy None. Barclays Global Investors General Counsel and Head of U.S. 45 Fremont Street Legal, BGI (since 1997); Attorney/ San Francisco, CA 94105 Senior Counsel, BGI (1994-2000). Lois Towers (51) Assistant Vice U.S. Compliance Officer, BGI (since None. Barclays Global Investors President - AML 1999). 45 Fremont Street Compliance Officer San Francisco, CA 94105
TRUSTEES INFORMATION 63 Notes: 64 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS Notes: NOTES 65 The iShares Family of Funds The following is a list of iShares Funds being offered, along with their respective exchange trading symbols. Please call iShares at 1-800-iShares (1-800-474-2737) to obtain a prospectus for any iShares fund. The prospectus 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) iShares MSCI Emerging Markets Index Fund (EEM) 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 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)" and "Goldman Sachs(R)" are trademarks of Goldman, Sachs & Co. 66 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS iShares are distributed by SEI Investments Distribution Co. (SEI). Barclays Global Fund Advisors (BGFA) serves as an advisor to iShares. Barclays Global Investors Services (BGIS) assists in the marketing of iShares. BGFA and BGIS are subsidiaries of Barclays Global Investors, N.A., a wholly owned subsidiary of Barclays Bank PLC, 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. iShares Industrial strength investment tools from BARCLAYS GLOBAL INVESTORS 1 800 iShares (1 800 474 2737) www.iShares.com [LOGO OF BARCLAYS] BGI-F-013-07003 Item 2. Code of Ethics. As of July 31, 2003, the Registrant has adopted a code of ethics that applies to the Registrant's President and Principal Financial Officer. For the year ended July 31, 2003, there were no amendments to a provision of its code of ethics, nor were there any waivers granted from a provision of the code of ethics. A copy of its code of ethics is filed with this Form N-CSR under Item 10(a). Item 3. Audit Committee Financial Expert. The Registrant's Board of Trustees has determined that the Registrant has more than one audit committee financial expert serving on its audit committee. The audit committee financial experts serving on the Registrant's audit committee are John B. Carroll, Richard K. Lyons, George C. Parker and W. Allen Reed, all of whom are independent. Item 4. Principal Accountant Fees and Services. Not applicable to this filing. Item 5. Listed Company Audit Committees. Not applicable to this filing. Item 6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable to this registrant. Item 8. [Reserved] Item 9. Controls and Procedures. (a) The President and Principal Financial Officer have concluded that, based on their evaluation as of a date within 90 days of the filing date of this report, the disclosure controls and procedures of iShares Trust are reasonably designed to achieve the purposes described in the attached certification, Section 4 (a). (b) There were no significant changes in the iShares Trust's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Item 10. Exhibits. (a) Code of Ethics is attached. (b) Certification letters are attached. (c) Section 906 Certifications are attached. Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. iShares Trust By: /s/ Lee T. Kranefuss ------------------------------------- Lee T. Kranefuss, President Date: September 29, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Lee T. Kranefuss ------------------------------------- Lee T. Kranefuss, President Date: September 29, 2003 By: /s/ Michael A. Latham ------------------------------------- Michael A. Latham, Principal Financial Officer Date: September 29, 2003