UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSRS

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)

c/o: State Street Bank and Trust Company

200 Clarendon Street, Boston, MA 02116

(Address of principal executive offices) (Zip code)

CT Corporation System

1209 Orange Street, Wilmington, DE 19801

(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-800-474-2737

Date of fiscal year end: February 28, 2009

Date of reporting period: August 31, 2008

Item 1. Reports to Stockholders.

2008 SEMI-ANNUAL REPORT TO SHAREHOLDERS

iSHARES® BOND FUNDS

AUGUST 31, 2008

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iShares Lehman Short Treasury Bond Fund

iShares Lehman 1-3 Year Treasury Bond Fund

iShares Lehman 3-7 Year Treasury Bond Fund

iShares Lehman 7-10 Year Treasury Bond Fund

iShares Lehman 10-20 Year Treasury Bond Fund

iShares Lehman 20+ Year Treasury Bond Fund

iShares Lehman TIPS Bond Fund

iShares S&P California Municipal Bond Fund

iShares S&P National Municipal Bond Fund

iShares S&P New York Municipal Bond Fund

iShares®

iShares®

Dear iShares Shareholder:

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Table of Contents

Fund Performance Overviews	1
Shareholder Expenses	10
Schedules of Investments	12
iShares Lehman Short Treasury Bond Fund	12
iShares Lehman 1-3 Year Treasury Bond Fund	13
iShares Lehman 3-7 Year Treasury Bond Fund	14
iShares Lehman 7-10 Year Treasury Bond Fund	15
iShares Lehman 10-20 Year Treasury Bond Fund	16
iShares Lehman 20+ Year Treasury Bond Fund	17
iShares Lehman TIPS Bond Fund	18
iShares S&P California Municipal Bond Fund	19
iShares S&P National Municipal Bond Fund	23
iShares S&P New York Municipal Bond Fund	30
Financial Statements	32
Financial Highlights	43
Notes to Financial Statements	53
Board Review and Approval of Investment Advisory Contract	60
iShares Family of Funds	65

Fund Performance Overview

iSHARES^® LEHMAN TREASURY BOND FUNDS

Performance as of August 31, 2008

	Average Annual Total Returns
	Year Ended 8/31/08			Five Years Ended 8/31/08			Inception to 8/31/08
iSHARES BOND FUND	NAV	MARKET	INDEX	NAV	MARKET	INDEX	NAV	MARKET	INDEX
Lehman Short Treasury	3.42%	3.44%	3.49%	–	–	–	4.17%	4.23%	4.25%
Lehman 1-3 Year Treasury	6.20%	6.15%	6.20%	3.48%	3.49%	3.56%	3.33%	3.34%	3.43%
Lehman 3-7 Year Treasury	9.41%	9.23%	9.33%	–	–	–	8.44%	8.47%	8.44%
Lehman 7-10 Year Treasury	10.84%	10.72%	10.78%	5.59%	5.65%	5.58%	5.51%	5.53%	5.47%
Lehman 10-20 Year Treasury	10.04%	10.04%	10.05%	–	–	–	7.96%	7.99%	7.98%
Lehman 20+ Year Treasury	10.60%	10.53%	10.61%	7.19%	7.22%	7.24%	6.99%	6.98%	7.05%
Lehman TIPS	11.74%	11.98%	11.90%	–	–	–	5.94%	6.00%	6.13%
	Cumulative Total Returns
	Year Ended 8/31/08			Five Years Ended 8/31/08			Inception to 8/31/08
iSHARES BOND FUND	NAV	MARKET	INDEX	NAV	MARKET	INDEX	NAV	MARKET	INDEX
Lehman Short Treasury	3.42%	3.44%	3.49%	–	–	–	7.00%	7.09%	7.13%
Lehman 1-3 Year Treasury	6.20%	6.15%	6.20%	18.66%	18.74%	19.10%	22.15%	22.25%	22.92%
Lehman 3-7 Year Treasury	9.41%	9.23%	9.33%	–	–	–	14.34%	14.41%	14.32%
Lehman 7-10 Year Treasury	10.84%	10.72%	10.78%	31.27%	31.65%	31.16%	38.76%	38.96%	38.45%
Lehman 10-20 Year Treasury	10.04%	10.04%	10.05%	–	–	–	13.51%	13.56%	13.52%
Lehman 20+ Year Treasury	10.60%	10.53%	10.61%	41.48%	41.73%	41.86%	51.09%	51.04%	51.69%
Lehman TIPS	11.74%	11.98%	11.90%	–	–	–	31.48%	31.85%	32.60%

Total returns for the periods since inception are calculated from the inception date of each Fund (7/22/02 for the iShares Lehman 1-3 Year Treasury, iShares Lehman 7-10 Year Treasury, and iShares Lehman 20+ Year Treasury Bond Funds; 1/5/07 for the iShares Lehman Short Treasury, iShares Lehman 3-7 Year Treasury, and iShares Lehman 10-20 Year Treasury Bond Funds; and 12/4/03 for the iShares Lehman TIPS Bond Fund). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

Each Fund’s per share net asset value or ”NAV” is the value of one share of such Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of each Fund and the market return is based on the market price per share of each 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 primary stock exchange on which the shares of the Funds are listed for trading, as of the time that each Fund’s NAV is calculated. Since shares of each Fund did not trade in the secondary market until after each Fund’s inception, for the period from inception to the first day of secondary market trading in shares of each Fund (7/26/02 for the iShares Lehman 1-3 Year Treasury, iShares Lehman 7-10 Year Treasury and iShares Lehman 20+ Year Treasury Bond Funds; 1/11/07 for the iShares Lehman Short Treasury, iShares Lehman 3-7 Year Treasury and iShares Lehman 10-20 Year Treasury Bond Funds; and 12/5/03 for the iShares Lehman TIPS Bond Fund), the NAV of each Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in each Fund at Market Price and NAV, respectively.

An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each 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(s) 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 each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund’s past performance is no guarantee of future results.

FUND PERFORMANCE OVERVIEWS 1

Fund Performance Overview (Continued)

iSHARES^® LEHMAN TREASURY BOND FUNDS

The iShares Lehman Short Treasury Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the short-term sector of the U.S. Treasury market as defined by the Lehman Brothers Short U.S. Treasury Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was 0.89%, while the total return for the Index was 0.92%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
U.S. Government Obligations	98.96	%
Short-Term and Other Net Assets	1.04
TOTAL	100.00	%

FIVE LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
U.S. Treasury Notes, 4.75%, 11/15/08	16.04	%
U.S. Treasury Notes, 3.38%, 12/15/08	13.52
U.S. Treasury Notes, 4.63%, 11/30/08	12.40
U.S. Treasury Notes, 3.13%, 10/15/08	11.23
U.S. Treasury Notes, 3.25%, 01/15/09	10.04
TOTAL	63.23	%

The iShares Lehman 1-3 Year Treasury Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the short-term sector of the U.S. Treasury market as defined by the Lehman Brothers 1-3 Year U.S. Treasury Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was 0.19%, while the total return for the Index was 0.20%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
U.S. Government Obligations	98.84	%
Short-Term and Other Net Assets	1.16
TOTAL	100.00	%

FIVE LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
U.S. Treasury Notes, 4.50%, 05/15/10	6.74	%
U.S. Treasury Notes, 4.75%, 02/15/10	4.99
U.S. Treasury Notes, 3.88%, 07/15/10	4.80
U.S. Treasury Notes, 2.00%, 02/28/10	4.45
U.S. Treasury Notes, 3.50%, 11/15/09	4.28
TOTAL	25.26	%

2 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Fund Performance Overview (Continued)

iSHARES^® LEHMAN TREASURY BOND FUNDS

The iShares Lehman 3-7 Year Treasury Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the intermediate-term sector of the U.S. Treasury market as defined by the Lehman Brothers 3-7 Year U.S. Treasury Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was (0.37)%, while the total return for the Index was (0.33)%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
U.S. Government Obligations	98.39	%
Short-Term and Other Net Assets	1.61
TOTAL	100.00	%

FIVE LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
U.S. Treasury Notes, 4.88%, 02/15/12	22.01	%
U.S. Treasury Notes, 4.63%, 10/31/11	16.15
U.S. Treasury Notes, 4.25%, 09/30/12	13.54
U.S. Treasury Notes, 4.00%, 02/15/15	13.08
U.S. Treasury Notes, 4.25%, 08/15/14	12.27
TOTAL	77.05	%

The iShares Lehman 7-10 Year Treasury Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the intermediate-term sector of the U.S. Treasury market as defined by the Lehman Brothers 7-10 Year U.S. Treasury Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was 0.37%, while the total return for the Index was 0.37%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
U.S. Government Obligations	98.83	%
Short-Term and Other Net Assets	1.17
TOTAL	100.00	%

FIVE LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
U.S. Treasury Notes, 4.75%, 08/15/17	10.90	%
U.S. Treasury Notes, 4.88%, 08/15/16	10.77
U.S. Treasury Notes, 4.50%, 05/15/17	10.46
U.S. Treasury Notes, 4.63%, 02/15/17	9.79
U.S. Treasury Notes, 4.63%, 11/15/16	7.83
TOTAL	49.75	%

FUND PERFORMANCE OVERVIEWS 3

Fund Performance Overview (Continued)

iSHARES^® LEHMAN TREASURY BOND FUNDS

The iShares Lehman 10-20 Year Treasury Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the long-term sector of the U.S. Treasury market as defined by the Lehman Brothers 10-20 Year U.S. Treasury Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was 0.67%, while the total return for the Index was 0.66%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
U.S. Government Obligations	98.98	%
Short-Term and Other Net Assets	1.02
TOTAL	100.00	%

FIVE LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
U.S. Treasury Bonds, 8.88%, 02/15/19	20.92	%
U.S. Treasury Bonds, 7.88%, 02/15/21	18.11
U.S. Treasury Bonds, 8.00%, 11/15/21	11.01
U.S. Treasury Bonds, 6.50%, 11/15/26	10.72
U.S. Treasury Bonds, 5.50%, 08/15/28	9.58
TOTAL	70.34	%

The iShares Lehman 20+ Year Treasury Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the long-term sector of the U.S. Treasury market as defined by the Lehman Brothers 20+ Year U.S. Treasury Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was 1.73%, while the total return for the Index was 1.74%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
U.S. Government Obligations	98.94	%
Short-Term and Other Net Assets	1.06
TOTAL	100.00	%

FIVE LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
U.S. Treasury Bonds, 4.50%, 02/15/36	15.86	%
U.S. Treasury Bonds, 4.75%, 02/15/37	12.59
U.S. Treasury Bonds, 6.25%, 05/15/30	12.59
U.S. Treasury Bonds, 5.38%, 02/15/31	11.60
U.S. Treasury Bonds, 5.00%, 05/15/37	10.98
TOTAL	63.62	%

4 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Fund Performance Overview (Continued)

iSHARES^® LEHMAN TREASURY BOND FUNDS

The iShares Lehman TIPS Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the inflation-protected sector of the U.S. Treasury market as defined by the Lehman Brothers U.S. Treasury TIPS Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was (0.17)%, while the total return for the Index was (0.04)%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
U.S. Government Obligations	98.74	%
Short-Term and Other Net Assets	1.26
TOTAL	100.00	%

FIVE LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
U.S. Treasury Inflation-Indexed Bonds, 2.38%, 01/15/25	6.57	%
U.S. Treasury Inflation-Indexed Bonds, 0.88%, 04/15/10	6.40
U.S. Treasury Inflation-Indexed Bonds, 3.88%, 04/15/29	6.35
U.S. Treasury Inflation-Indexed Bonds, 3.00%, 07/15/12	6.34
U.S. Treasury Inflation-Indexed Bonds, 2.00%, 01/15/14	6.22
TOTAL	31.88	%

FUND PERFORMANCE OVERVIEWS 5

Fund Performance Overview

iSHARES^® S&P MUNICIPAL BOND FUNDS

Performance as of August 31, 2008

	Cumulative Total Returns
	Inception to 8/31/08
iSHARES BOND FUND	NAV	MARKET	INDEX
S&P California Municipal	2.74%	3.22%	1.94%
S&P National Municipal	3.34%	3.75%	2.43%
S&P New York Municipal	3.01%	3.39%	2.55%

“Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated and are calculated from an inception date of 9/7/07 for the iShares S&P National Municipal Bond Fund and 10/4/07 for the iShares S&P California Municipal and iShares S&P New York Municipal Bond Funds.

Each Fund’s per share net asset value or ”NAV” is the value of one share of such Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of each Fund and the market return is based on the market price per share of each 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 primary stock exchange on which the shares of the Funds are listed for trading, as of the time that each Fund’s NAV is calculated. Since shares of each Fund did not trade in the secondary market until after each Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Funds (9/10/07 fort he iShares S&P National Municipal Bond Fund; 10/5/07 for the iShares S&P California Municipal and iShares S&P New York Municipal Bond Funds), the NAV of each Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in each Fund at Market Price and NAV, respectively.

An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each 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(s) 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 each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund’s past performance is no guarantee of future results.

6 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Fund Performance Overview (Continued)

iSHARES^® S&P MUNICIPAL BOND FUNDS

The iShares S&P California Municipal Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the California municipal bond sector of the U.S. municipal bond market as defined by the S&P California Municipal Bond Index (the “Index”). The Fund invests in a representative sample of the securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was 5.67%, while the total return for the Index was 5.98%.

BOND CREDIT QUALITY As of 8/31/08
S&P Credit Rating	Percentage of Total Investments*
AAA	28.07	%
AA+	5.32
AA	39.12
AA-	2.35
A+	6.86
A	13.46
Not Rated	4.82
TOTAL	100.00	%

* Excludes short-term investments.

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
California State Department of Water Resources Supply Revenue, Series A, Prerefunded 05/01/12 (AMBAC Insured), 5.38%, 05/01/18	4.89	%
California State Department of Water Resources Supply Revenue, Series A, Prerefunded 05/01/12, 5.38%, 05/01/17	4.89
San Diego Unified School District, General Obligations Unlimited, Series F-1 (FSA Insured), 4.50%, 07/01/29	4.42
University of California Revenue, Series J (FSA Insured), 4.50%, 05/15/35	3.93
Los Angeles Community College District, Election of 2001, General Obligations Unlimited, Series A (FGIC Insured), 5.00%, 08/01/32	3.84
Bakersfield Wastewater Revenue, Series A (FSA Insured), 5.00%, 09/15/32	3.12
Bay Area Governments Association Infrastructure Finance Authority (FGIC Insured), 5.00%, 08/01/17	2.74
University of California Regents Medical Center Pooled Revenue, Series A (MBIA Insured), 4.50%, 05/15/37	2.43
University of California, Series O, Prerefunded 09/01/10 (FGIC Insured), 5.13%, 09/01/31	2.39
California State Department of Water Resources Supply Revenue, Series A, Prerefunded 05/01/12, 5.88%, 05/01/16	2.38
TOTAL	35.03	%

FUND PERFORMANCE OVERVIEWS 7

Fund Performance Overview (Continued)

iSHARES^® S&P MUNICIPAL BOND FUNDS

The iShares S&P National Municipal Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the municipal bond sector of the U.S. as defined by the S&P National Municipal Bond Index (the “Index”). The Fund invests in a representative sample of the securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was 5.85%, while the total return for the Index was 5.81%.

BOND CREDIT QUALITY As of 8/31/08
S&P Credit Rating	Percentage of Total Investments*
AAA	37.74	%
AA+	7.49
AA	34.18
AA-	8.29
A+	6.93
A	4.41
BBB+	0.14
BBB	0.28
Not Rated	0.54
TOTAL	100.00	%

* Excludes short-term investments.

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
Oregon State Department of Administrative Services (FSA Insured), 5.00%, 09/01/11 (Oregon)	2.51	%
North Carolina State, General Obligations Unlimited, 5.00%, 03/01/12 (North Carolina)	2.46
Massachusetts School Building Authority Sales Tax Revenue, Series A (AMBAC Insured), 4.50%, 08/15/35 (Massachusetts)	2.40
Illinois State, General Obligations Unlimited, Series B, 5.00%, 03/01/13 (Illinois)	2.23
Oregon State, General Obligations Unlimited, Series A, 4.50%, 08/01/32 (Oregon)	2.23
Regional Transportation District Sales Tax Revenue, Series A (FSA Insured), 4.50%, 11/01/34 (Colorado)	2.06
Greenville County School District Installment Purchase Revenue, Prerefunded 12/01/12, 5.50%, 12/01/28 (South Carolina)	2.04
North Carolina State, General Obligations Unlimited, Series B, 5.00%, 04/01/13 (North Carolina)	1.93
New York Liberty Development Corp. (Goldman Sachs Group Inc. Obligor), 5.25%, 10/01/35 (New York)	1.80
North Texas Tollway Authority Revenue, Series A (MBIA Insured), 5.13%, 01/01/28 (Texas)	1.63
TOTAL	21.29	%

8 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Fund Performance Overview (Continued)

iSHARES^® S&P MUNICIPAL BOND FUNDS

The iShares S&P New York Municipal Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the New York municipal bond sector of the U.S. municipal bond market as defined by the S&P New York Municipal Bond Index (the “Index”). The Fund invests in a representative sample of the securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was 5.35%, while the total return for the Index was 5.92%.

BOND CREDIT QUALITY As of 08/31/08
S&P Credit Rating	Percentage of Total Investments*
AAA	40.34	%
AA+	2.85
AA	27.66
AA-	21.18
A+	3.93
A-	3.00
BBB-	1.04
TOTAL	100.00	%

* Excludes short-term investments.

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
New York City Municipal Water Finance Authority Water & Sewer System Revenue, Series A, 5.00%, 06/15/39	8.26	%
New York State, General Obligations Unlimited, Series J, Prerefunded 06/01/13, 5.25%, 06/01/28	6.08
New York State Dormitory Authority Revenue, Series A (FSA/FHA Insured), 5.25%, 08/15/15	5.83
Long Island Power Authority, Series A, Prerefunded 09/01/11, 5.38%, 09/01/25	5.36
New York State Urban Development Corp., Correctional Facilities Revenue, Series D, Prerefunded 01/01/11 (FSA Insured), 5.25%, 01/01/30	5.27
Metropolitan Transportation Authority, Series B (AMBAC Insured), 5.00%, 11/15/30	5.26
New York State Urban Development Corp., Correctional & Youth Facilities Revenue, Series A, 5.25%, 01/01/21	4.56
New York State, General Obligations Unlimited, Series A-1, 5.00%, 08/01/17	3.56
Long Island Power Authority Revenue, Series L, Prerefunded 05/01/11, 5.38%, 05/01/33	3.55
New York City Transitional Finance Authority Revenue, Subseries A-1, 5.00%, 08/01/20	3.49
TOTAL	51.22	%

FUND PERFORMANCE OVERVIEWS 9

Shareholder Expenses (Unaudited)

iSHARES^® TRUST

As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of fund shares and (2) ongoing costs, including management fees and other fund expenses. The following Example is intended to help you understand your ongoing costs (in dollars and cents) of investing in a Fund and to compare these costs with the ongoing costs of investing in other funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2008 to August 31, 2008.

ACTUAL EXPENSES

The first line under each Fund in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for your Fund under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The second line under each Fund in the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of fund shares. Therefore, the second line under each Fund in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

iShares Bond Fund	Beginning Account Value (3/1/08)	Ending Account Value (8/31/08)	Annualized Expense Ratio		Expenses Paid During Perioda (3/1/08 to 8/31/08)
Lehman Short Treasury
Actual	$1,000.00	$1,008.90	0.15	%	$0.76
Hypothetical (5% return before expenses)	1,000.00	1,024.40	0.15		0.77
Lehman 1-3 Year Treasury
Actual	1,000.00	1,001.90	0.15		0.76
Hypothetical (5% return before expenses)	1,000.00	1,024.40	0.15		0.77
Lehman 3-7 Year Treasury
Actual	1,000.00	996.30	0.15		0.75
Hypothetical (5% return before expenses)	1,000.00	1,024.40	0.15		0.77
Lehman 7-10 Year Treasury
Actual	1,000.00	1,003.70	0.15		0.76
Hypothetical (5% return before expenses)	1,000.00	1,024.40	0.15		0.77

10 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Shareholder Expenses (Unaudited) (Continued)

iSHARES^® TRUST

iShares Bond Fund	Beginning Account Value (3/1/08)	Ending Account Value (8/31/08)	Annualized Expense Ratio		Expenses Paid During Perioda (3/1/08 to 8/31/08)
Lehman 10-20 Year Treasury
Actual	$1,000.00	$1,006.70	0.15	%	$0.76
Hypothetical (5% return before expenses)	1,000.00	1,024.40	0.15		0.77
Lehman 20+ Year Treasury
Actual	1,000.00	1,017.30	0.15		0.76
Hypothetical (5% return before expenses)	1,000.00	1,024.40	0.15		0.77
Lehman TIPS
Actual	1,000.00	998.30	0.20		1.01
Hypothetical (5% return before expenses)	1,000.00	1,024.20	0.20		1.02
S&P California Municipal
Actual	1,000.00	1,056.70	0.25		1.30
Hypothetical (5% return before expenses)	1,000.00	1,023.90	0.25		1.28
S&P National Municipal
Actual	1,000.00	1,058.50	0.25	b	1.30
Hypothetical (5% return before expenses)	1,000.00	1,023.90	0.25		1.28
S&P New York Municipal
Actual	1,000.00	1,053.50	0.25		1.29
Hypothetical (5% return before expenses)	1,000.00	1,023.90	0.25		1.28

^a Expenses are calculated using each Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days).

^b This ratio includes a 0.05% contractual investment advisory fee waiver in effect from 3/1/08 through 6/30/08.

SHAREHOLDER EXPENSES 11

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN SHORT TREASURY BOND FUND

August 31, 2008

Security	Shares or Principal		Value
U.S. GOVERNMENT OBLIGATIONS – 98.96%
U.S. Treasury Notes
3.13%, 10/15/08a	$	167,824,000	$	168,099,222
3.25%, 01/15/09a		149,464,000		150,223,271
3.38%, 12/15/08a		201,416,000		202,282,089
4.50%, 02/15/09		136,000,000		137,508,240
4.63%, 11/30/08a		184,280,000		185,597,595
4.75%, 11/15/08a		238,680,000		240,088,186
4.75%, 02/28/09		135,456,000		137,254,860
4.88%, 05/15/09		122,400,000		124,719,476
4.88%, 06/30/09		51,000,000		52,113,839
6.00%, 08/15/09		80,240,000		83,082,902
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $1,480,944,952)				1,480,969,680
SHORT-TERM INVESTMENTS – 23.28%
MONEY MARKET FUNDS – 23.28%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares 2.57%b,c		3,137,580		3,137,580
BGI Cash Premier Fund LLC 2.63%b,c,d		345,285,600		345,285,600
				348,423,180
TOTAL SHORT-TERM INVESTMENTS
(Cost: $348,423,180)				348,423,180
TOTAL INVESTMENTS IN SECURITIES – 122.24% (Cost: $1,829,368,132)				1,829,392,860
Other Assets, Less Liabilities – (22.24)%				(332,873,562	)
NET ASSETS – 100.00%			$	1,496,519,298

^a All or a portion of this security represents a security on loan. See Note 5.

^b Affiliated issuer. See Note 2.

^c The rate quoted is the annualized seven-day yield of the fund at period end.

^d This security represents an investment of securities lending collateral. See

Note 5.

See notes to financial statements.

12 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN 1-3 YEAR TREASURY BOND FUND

August 31, 2008

Security	Principal		Value
U.S. GOVERNMENT OBLIGATIONS – 98.84%
U.S. Treasury Notes
1.75%, 03/31/10a	$	18,734,000	$	18,598,553
2.00%, 02/28/10a		408,842,000		407,578,686
2.13%, 01/31/10a		236,930,000		236,697,809
2.13%, 04/30/10a		281,010,000		280,669,972
2.63%, 05/31/10		110,200,000		110,875,525
2.88%, 06/30/10a		165,300,000		167,047,233
3.13%, 11/30/09a		222,604,000		225,126,110
3.25%, 12/31/09a		225,910,000		228,989,169
3.38%, 09/15/09a		290,928,000		294,439,524
3.38%, 10/15/09a		107,996,000		109,424,785
3.50%, 08/15/09a		277,704,000		281,089,218
3.50%, 11/15/09a		385,700,000		392,102,635
3.50%, 12/15/09a		110,200,000		112,146,131
3.50%, 02/15/10a		332,804,000		339,330,257
3.63%, 10/31/09a		320,682,000		325,867,441
3.63%, 01/15/10a		203,870,000		208,026,911
3.88%, 05/15/10a		223,706,000		230,086,088
3.88%, 07/15/10a		426,474,000		439,353,532
3.88%, 09/15/10a		103,588,000		106,906,962
4.00%, 09/30/09		137,750,000		140,316,292
4.00%, 03/15/10a		198,360,000		203,961,680
4.00%, 04/15/10a		177,422,000		182,446,579
4.13%, 08/15/10a		103,588,000		107,221,878
4.25%, 10/15/10a		132,240,000		137,638,038
4.25%, 01/15/11a		220,400,000		229,934,495
4.38%, 12/15/10a		220,400,000		230,033,688
4.50%, 05/15/10a		593,978,000		616,858,016
4.50%, 11/15/10a		176,320,000		184,367,236
4.50%, 02/28/11a		152,076,000		159,453,204
4.63%, 11/15/09a		330,600,000		340,309,709
4.75%, 02/15/10a		440,800,000		457,021,440
4.75%, 03/31/11a		156,484,000		165,258,050
4.88%, 04/30/11a		330,600,000		350,707,095
4.88%, 05/31/11a		153,178,000		162,636,746
5.00%, 02/15/11a		242,440,000		257,080,954
5.00%, 08/15/11		19,836,000		21,212,021
5.13%, 06/30/11		230,318,000		246,389,583
5.75%, 08/15/10		104,690,000		111,576,511
6.50%, 02/15/10a		219,298,000		232,944,915
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $8,945,034,213)				9,051,724,671

Security	Shares	Value
SHORT-TERM INVESTMENTS – 46.50%
MONEY MARKET FUNDS – 46.50%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares
2.57%b,c	44,893,023	$	44,893,023
BGI Cash Premier Fund LLC 2.63%b,c,d	4,212,935,132		4,212,935,132
			4,257,828,155
TOTAL SHORT-TERM INVESTMENTS
(Cost: $4,257,828,155)			4,257,828,155
TOTAL INVESTMENTS IN SECURITIES – 145.34% (Cost: $13,202,862,368)			13,309,552,826
Other Assets, Less Liabilities – (45.34)%			(4,152,075,107	)
NET ASSETS – 100.00%		$	9,157,477,719

^a All or a portion of this security represents a security on loan. See Note 5.

^b Affiliated issuer. See Note 2.

^c The rate quoted is the annualized seven-day yield of the fund at period end.

^d This security represents an investment of securities lending collateral. See

Note 5.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 13

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN 3-7 YEAR TREASURY BOND FUND

August 31, 2008

Security	Shares or Principal		Value
U.S. GOVERNMENT OBLIGATIONS – 98.39%
U.S. Treasury Notes
4.00%, 02/15/15a	$	99,974,000	$	104,433,839
4.25%, 09/30/12a		102,786,000		108,147,321
4.25%, 08/15/14a		92,722,000		97,972,849
4.25%, 11/15/14a		40,182,000		42,504,920
4.25%, 08/15/15		34,188,000		36,148,340
4.63%, 10/31/11a		121,878,000		129,023,706
4.63%, 07/31/12a		37,592,000		40,025,333
4.75%, 05/15/14a		47,804,000		51,829,100
4.88%, 02/15/12a		164,428,000		175,758,732
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $782,316,466)				785,844,140
SHORT-TERM INVESTMENTS – 46.25%
MONEY MARKET FUNDS – 46.25%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares 2.57%b,c		19,254,871		19,254,871
BGI Cash Premier Fund LLC 2.63%b,c,d		350,111,385		350,111,385
				369,366,256
TOTAL SHORT-TERM INVESTMENTS
(Cost: $369,366,256)				369,366,256
TOTAL INVESTMENTS IN SECURITIES – 144.64% (Cost: $1,151,682,722)				1,155,210,396
Other Assets, Less Liabilities – (44.64)%				(356,555,081	)
NET ASSETS – 100.00%			$	798,655,315

^a All or a portion of this security represents a security on loan. See Note 5.

^b Affiliated issuer. See Note 2.

^c The rate quoted is the annualized seven-day yield of the fund at period end.

^d This security represents an investment of securities lending collateral. See

Note 5.

See notes to financial statements.

14 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN 7-10 YEAR TREASURY BOND FUND

August 31, 2008

Security	Shares or Principal		Value
U.S. GOVERNMENT OBLIGATIONS – 98.83%
U.S. Treasury Bonds
7.25%, 05/15/16a	$	76,323,000	$	94,761,877
7.50%, 11/15/16a		69,216,000		87,460,646
9.25%, 02/15/16a		123,600,000		169,852,362
9.88%, 11/15/15a		77,250,000		108,559,424
U.S. Treasury Notes
3.50%, 02/15/18a		119,892,000		117,516,936
3.88%, 05/15/18a		148,629,000		149,551,979
4.00%, 08/15/18		76,941,000		78,107,425
4.25%, 11/15/17a		114,639,000		119,206,219
4.50%, 11/15/15a		133,488,000		143,061,755
4.50%, 02/15/16a		126,690,000		135,399,938
4.50%, 05/15/17a		272,229,000		288,388,527
4.63%, 11/15/16a		201,468,000		215,860,868
4.63%, 02/15/17a		252,453,000		269,973,263
4.75%, 08/15/17a		279,027,000		300,648,805
4.88%, 08/15/16a		272,847,000		296,928,465
5.13%, 05/15/16a		135,342,000		149,954,872
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $2,638,375,484)				2,725,233,361
SHORT-TERM INVESTMENTS – 47.20%
MONEY MARKET FUNDS – 47.20%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares
2.57%b,c		31,266,006		31,266,006
BGI Cash Premier Fund LLC 2.63%b,c,d		1,270,345,039		1,270,345,039
				1,301,611,045
TOTAL SHORT-TERM INVESTMENTS
(Cost: $1,301,611,045)				1,301,611,045
TOTAL INVESTMENTS IN SECURITIES – 146.03% (Cost: $3,939,986,529)				4,026,844,406
Other Assets, Less Liabilities – (46.03)%				(1,269,236,347	)
NET ASSETS – 100.00%			$	2,757,608,059

^a All or a portion of this security represents a security on loan. See Note 5.

^b Affiliated issuer. See Note 2.

^c The rate quoted is the annualized seven-day yield of the fund at period end.

^d This security represents an investment of securities lending collateral. See

Note 5.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 15

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN 10-20 YEAR TREASURY BOND FUND

August 31, 2008

Security	Shares or Principal		Value
U.S. GOVERNMENT OBLIGATIONS – 98.98%
U.S. Treasury Bonds
5.50%, 08/15/28	$	9,900,000	$	11,238,778
6.13%, 11/15/27a		5,995,000		7,287,582
6.25%, 08/15/23a		7,535,000		9,092,786
6.50%, 11/15/26a		9,999,000		12,568,743
7.50%, 11/15/24a		5,500,000		7,513,000
7.63%, 02/15/25a		7,007,000		9,690,751
7.88%, 02/15/21		15,730,000		21,240,063
8.00%, 11/15/21		9,405,000		12,914,757
8.88%, 02/15/19a		17,402,000		24,532,471
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $116,137,050)				116,078,931
SHORT-TERM INVESTMENTS – 40.22%
MONEY MARKET FUNDS – 40.22%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares 2.57%b,c		2,182,524		2,182,524
BGI Cash Premier Fund LLC 2.63%b,c,d		44,978,096		44,978,096
				47,160,620
TOTAL SHORT-TERM INVESTMENTS
(Cost: $47,160,620)				47,160,620
TOTAL INVESTMENTS IN SECURITIES – 139.20% (Cost: $163,297,670)				163,239,551
Other Assets, Less Liabilities – (39.20)%				(45,968,712	)
NET ASSETS – 100.00%			$	117,270,839

^a All or a portion of this security represents a security on loan. See Note 5.

^b Affiliated issuer. See Note 2.

^c The rate quoted is the annualized seven-day yield of the fund at period end.

^d This security represents an investment of securities lending collateral. See Note 5.

See notes to financial statements.

16 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN 20+ YEAR TREASURY BOND FUND

August 31, 2008

Security	Shares or Principal		Value
U.S. GOVERNMENT OBLIGATIONS – 98.94%
U.S. Treasury Bonds
4.38%, 02/15/38a	$	126,990,000	$	126,342,349
4.50%, 02/15/36a		244,186,000		247,069,817
4.50%, 05/15/38		102,920,000		104,431,897
4.75%, 02/15/37a		186,252,000		196,128,945
5.00%, 05/15/37a		156,206,000		171,040,887
5.25%, 11/15/28a		80,676,000		89,036,447
5.25%, 02/15/29		100,762,000		111,157,617
5.38%, 02/15/31a		160,024,000		180,716,703
6.13%, 08/15/29a		97,442,000		119,350,860
6.25%, 05/15/30a		157,036,000		196,084,567
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $1,558,096,576)				1,541,360,089
SHORT-TERM INVESTMENTS – 42.48%
MONEY MARKET FUNDS – 42.48%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares
2.57%b,c		25,939,244		25,939,244
BGI Cash Premier Fund LLC 2.63%b,c,d		635,821,683		635,821,683
				661,760,927
TOTAL SHORT-TERM INVESTMENTS
(Cost: $661,760,927)				661,760,927
TOTAL INVESTMENTS IN SECURITIES – 141.42% (Cost: $2,219,857,503)				2,203,121,016
Other Assets, Less Liabilities – (41.42)%				(645,218,552	)
NET ASSETS – 100.00%			$	1,557,902,464

^a All or a portion of this security represents a security on loan. See Note 5.

^b Affiliated issuer. See Note 2.

^c The rate quoted is the annualized seven-day yield of the fund at period end.

^d This security represents an investment of securities lending collateral. See Note 5.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 17

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN TIPS BOND FUND

August 31, 2008

Security	Principal		Value
U.S. GOVERNMENT OBLIGATIONS – 98.74%
U.S. Treasury Inflation-Indexed Bonds
0.63%, 04/15/13a	$	31,895,962	$	31,048,805
0.88%, 04/15/10a		523,127,324		523,399,350
1.38%, 07/15/18a		27,355,774		26,625,922
1.63%, 01/15/15		439,574,316		445,016,247
1.63%, 01/15/18a		168,948,228		168,402,525
1.75%, 01/15/28a		198,715,296		185,745,149
1.88%, 07/15/13a		462,504,334		477,174,972
1.88%, 07/15/15a		349,201,019		358,419,926
2.00%, 04/15/12a		124,587,432		128,485,773
2.00%, 01/15/14a		490,743,366		508,120,588
2.00%, 07/15/14a		421,141,881		436,631,479
2.00%, 01/15/16a		343,068,478		353,971,194
2.00%, 01/15/26a		352,409,451		344,060,871
2.38%, 04/15/11a		358,337,439		370,803,998
2.38%, 01/15/17a		276,637,884		293,153,166
2.38%, 01/15/25a		521,286,022		537,294,716
2.38%, 01/15/27a		198,911,832		205,080,088
2.50%, 07/15/16		325,484,897		347,816,416
2.63%, 07/15/17a		143,125,356		155,135,005
3.00%, 07/15/12a		483,696,966		518,644,071
3.38%, 01/15/12a		164,210,479		176,954,854
3.38%, 04/15/32		101,600,830		125,422,161
3.50%, 01/15/11a		228,540,375		242,881,284
3.63%, 04/15/28a		388,688,555		415,052,447
3.88%, 04/15/29a		405,997,004		518,973,790
4.25%, 01/15/10a		169,300,097		177,822,663
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $7,988,175,770)				8,072,137,460

Security	Shares	Value
SHORT-TERM INVESTMENTS – 44.38%
MONEY MARKET FUNDS – 44.38%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares
2.57%b,c	4,577,897	$	4,577,897
BGI Cash Premier Fund LLC
2.63%b,c,d	3,623,074,301		3,623,074,301
			3,627,652,198
TOTAL SHORT-TERM INVESTMENTS
(Cost: $3,627,652,198)			3,627,652,198
TOTAL INVESTMENTS IN SECURITIES – 143.12% (Cost: $11,615,827,968)			11,699,789,658
Other Assets, Less Liabilities – (43.12)%			(3,525,234,521	)
NET ASSETS – 100.00%		$	8,174,555,137

^a All or a portion of this security represents a security on loan. See Note 5.

^b Affiliated issuer. See Note 2.

^c The rate quoted is the annualized seven-day yield of the fund at period end.

^d This security represents an investment of securities lending collateral. See Note 5.

See notes to financial statements.

18 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited)

iSHARES^® S&P CALIFORNIA MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
MUNICIPAL BONDS & NOTES – 96.12%
CALIFORNIA – 96.12%
Bakersfield Wastewater Revenue, Series A (FSA Insured) 5.00%, 09/15/32	$	3,500,000	$	3,545,675
Bay Area Governments Association Infrastructure Finance Authority (FGIC Insured) 5.00%, 08/01/17		2,990,000		3,115,909
Bay Area Toll Authority Bridge Revenue, Series F 5.00%, 04/01/31		2,050,000		2,075,604
Bay Area Toll Authority Bridge San Francisco Bay Area Revenue, Series F 5.00%, 04/01/31		2,500,000		2,528,200
Bay Area Toll Authority Bridge San Francisco Bay Area Revenue, Series F-1 5.50%, 04/01/43		1,000,000		1,043,710
California Educational Facilities Authority, Pepperdine University, Series A (AMBAC Insured) 5.00%, 12/01/35		1,735,000		1,717,025
California Educational Facilities Authority, Stanford University, Series T-1 5.00%, 03/15/39		300,000		318,453
California Infrastructure & Economic Development Bank Revenue, Prerefunded 01/01/28 (AMBAC Insured) 5.00%, 07/01/36		500,000		541,495
California State Department of Water Resources Supply Revenue (MBIA Insured) 5.00%, 12/01/23		1,000,000		1,034,640
California State Department of Water Resources Supply Revenue, Series A (AMBAC Insured) 5.50%, 05/01/14		2,385,000		2,595,882
5.50%, 05/01/15		1,000,000		1,081,540

Security	Principal		Value
California State Department of Water Resources Supply Revenue, Series A (FSA Insured) 5.25%, 05/01/11	$	500,000	$	534,600
California State Department of Water Resources Supply Revenue, Series A, Prerefunded 05/01/12 5.13%, 05/01/19		1,500,000		1,654,875
5.38%, 05/01/17		5,000,000		5,559,900
5.38%, 05/01/21		1,050,000		1,167,579
5.88%, 05/01/16		2,400,000		2,710,656
California State Department of Water Resources Supply Revenue, Series A, Prerefunded 05/01/12 (AMBAC Insured) 5.38%, 05/01/18		5,000,000		5,559,900
5.50%, 05/01/16		1,400,000		1,562,890
California State Department of Water Resources Supply Revenue, Series H (FSA Insured) 5.00%, 05/01/21		1,900,000		2,013,487
5.00%, 05/01/22		500,000		525,005
California State Economic Recovery, General Obligations Unlimited, Series A 5.00%, 07/01/10		1,125,000		1,185,187
5.00%, 01/01/11		2,100,000		2,229,801
California State Economic Recovery, General Obligations Unlimited, Series A (FGIC Insured) 5.25%, 07/01/14		2,150,000		2,393,853
California State Public Works Board Lease Revenue 5.13%, 06/01/29		500,000		500,825
California State Public Works Board Lease Revenue, Series A, Prerefunded 11/01/09 (MBIA Insured) 5.75%, 11/01/24		810,000		855,336
California State University Revenue, Series A (AMBAC Insured) 5.00%, 11/01/30		535,000		537,675

SCHEDULES OF INVESTMENTS 19

Schedule of Investments (Unaudited) (Continued)

iSHARES^® S&P CALIFORNIA MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
California State University Revenue, Series A (FSA Insured) 5.00%, 11/01/33	$	1,385,000	$	1,400,789
California State, General Obligations Unlimited 5.00%, 03/01/16		900,000		977,292
5.00%, 03/01/17		900,000		957,411
5.00%, 08/01/19		1,000,000		1,054,630
5.00%, 09/01/35		1,750,000		1,714,440
5.00%, 06/01/37		1,000,000		976,080
5.00%, 11/01/37		1,000,000		975,940
5.00%, 12/01/37		550,000		536,745
5.25%, 03/01/38		310,000		309,076
California State, General Obligations Unlimited, Prerefunded 02/01/14 5.00%, 02/01/33		2,395,000		2,652,079
Desert Community College District, General Obligations Unlimited, Series C (FSA Insured) 5.00%, 08/01/37		2,550,000		2,568,156
Eastern Municipal Water District, California Water & Sewer Certificates of Participation, Series H 5.00%, 07/01/24		500,000		515,255
Foothill-De Anza Community College District, General Obligations Unlimited, Series A (AMBAC Insured) 4.50%, 08/01/31		1,500,000		1,406,085
Hayward, California Unified School District, General Obligations Unlimited 5.00%, 08/01/24		1,000,000		1,034,320
Los Altos, California School District, General Obligations Unlimited, Series B, Prerefunded 08/01/11 5.00%, 08/01/17		2,400,000		2,587,512

Security	Principal		Value
Los Angeles, California Municipal Improvement Corp. Lease Revenue, Series A 5.00%, 09/01/23	$	1,500,000	$	1,539,210
Los Angeles Community College District, Election of 2001, General Obligations Unlimited, Series A (FGIC Insured) 5.00%, 08/01/32		4,350,000		4,368,487
Los Angeles County Metropolitan Transportation Authority Sales Tax Revenue, Series B (MBIA Insured) 4.50%, 07/01/21		1,000,000		1,006,860
Los Angeles County Sanitation Districts Financing Authority, Subseries A (AMBAC Insured) 4.50%, 10/01/38		600,000		537,276
Los Angeles Department of Water & Power Revenue, Subseries A-1 (AMBAC Insured) 5.00%, 07/01/37		2,200,000		2,186,536
5.00%, 07/01/39		650,000		643,897
Los Angeles Unified School District, General Obligations Unlimited, Series A, Prerefunded 07/01/13 (FSA Insured) 5.25%, 07/01/19		610,000		679,217
5.25%, 07/01/20		1,000,000		1,113,470
Los Angeles Unified School District, General Obligations Unlimited, Series A, Prerefunded 07/01/13 (MBIA Insured) 5.00%, 01/01/28		1,000,000		1,102,210
Los Angeles Unified School District, General Obligations Unlimited, Series A-1 (FSA Insured) 4.50%, 07/01/22		500,000		502,875

20 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® S&P CALIFORNIA MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
Los Angeles Unified School District, General Obligations Unlimited, Series A-1 (MBIA Insured) 4.50%, 07/01/25	$	1,200,000	$	1,170,180
4.50%, 01/01/28		1,450,000		1,390,217
Los Angeles Unified School District, General Obligations Unlimited, Series B (FSA Insured) 4.75%, 07/01/19		2,000,000		2,102,040
Los Angeles Unified School District, General Obligations Unlimited, Series C, Prerefunded 07/01/09 (MBIA Insured) 5.25%, 07/01/24		670,000		697,122
Poway, California Unified School District, Public Financing Authority Lease Revenue Capital Appreciation (FSA Insured) 0.00%, 12/01/42		500,000		397,260
Sacramento County Sanitation District Financing Authority, Series A, Prerefunded 12/01/14 (AMBAC Insured) 5.00%, 12/01/35		600,000		670,746
Sacramento Municipal Utility District Electric Revenue, Series R (MBIA Insured) 5.00%, 08/15/33		1,000,000		974,920
San Diego Unified School District, General Obligations Unlimited, Series F-1 (FSA Insured) 4.50%, 07/01/29		5,200,000		5,028,920
San Francisco City & County Public Utilities Commission Revenue, Series A (FSA Insured) 4.50%, 11/01/31		1,000,000		930,480
4.75%, 11/01/36		2,100,000		2,002,686
San Jose, California Redevelopment Agency Tax Allocation, Series D (AMBAC Insured) 5.00%, 08/01/21		500,000		510,190

Security	Principal		Value
San Mateo County, California Transportation District Sales Tax Revenue, Series A (MBIA Insured) 4.75%, 06/01/34	$	495,000	$	471,641
University of California Regents Medical Center Pooled Revenue, Series A (MBIA Insured) 4.50%, 05/15/37		3,000,000		2,763,900
University of California Revenue, Series J (FSA Insured) 4.50%, 05/15/35		4,800,000		4,468,080
University of California, Series O, Prerefunded 09/01/10 (FGIC Insured) 5.13%, 09/01/31		2,535,000		2,715,162
Vacaville Unified School District, Election of 2001, General Obligations Unlimited (AMBAC Insured) 5.00%, 08/01/25		500,000		506,085
Yuba Community College District, Election of 2006, General Obligations Unlimited, Series A (AMBAC Insured) 5.00%, 08/01/22		530,000		546,918
				109,282,097
TOTAL MUNICIPAL BONDS & NOTES
(Cost: $109,987,164)				109,282,097

SCHEDULES OF INVESTMENTS 21

Schedule of Investments (Unaudited) (Continued)

iSHARES^® S&P CALIFORNIA MUNICIPAL BOND FUND

August 31, 2008

Security	Shares	Value
SHORT-TERM INVESTMENTS – 1.78%
MONEY MARKET FUNDS – 1.78%
Fidelity California AMTTax-Free Money Market Fund, Institutional Shares 1.56%a	2,026,765	$	2,026,765
			2,026,765
TOTAL SHORT-TERM INVESTMENTS
(Cost: $2,026,765)			2,026,765
TOTAL INVESTMENTS IN SECURITIES – 97.90% (Cost: $112,013,929)			111,308,862
Other Assets, Less Liabilities – 2.10%			2,391,547
NET ASSETS – 100.00%		$	113,700,409

AMBAC – American Municipal Bond Assurance Corp. Financial Group Inc.

FGIC – Financial Guaranty Insurance Co.

FSA – Financial Security Assurance Inc.

MBIA – Municipal Bond Insurance Association

^a The rate quoted is the annualized seven-day yield of the fund at period end.

See notes to financial statements.

22 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited)

iSHARES^® S&P NATIONAL MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
MUNICIPAL BONDS & NOTES – 98.18%
ARIZONA – 1.13%
Arizona School Facilities Board Certificates of Participation, Series A , Prerefunded 03/01/13 (MBIA Insured) 5.25%, 09/01/17	$	2,500,000	$	2,757,576
Salt River Project Agricultural Improvement & Power District Electric System Revenue, Series A 5.00%, 01/01/38		4,850,000		4,929,297
				7,686,873
CALIFORNIA – 19.48%
Bakersfield Wastewater Revenue, Series A (FSA Insured) 5.00%, 09/15/32		3,550,000		3,596,327
Bay Area Governments Association Infrastructure Finance Authority (FGIC Insured) 5.00%, 08/01/17		4,000,000		4,168,440
Bay Area Toll Authority Toll Bridge Revenue, Series F 5.00%, 04/01/26		1,200,000		1,235,832
California Educational Facilities Authority, Stanford University, Series T-1 5.00%, 03/15/39		4,600,000		4,882,946
California Infrastructure & Economic Development Bank Revenue, Prerefunded 01/01/28 (AMBAC Insured) 5.00%, 07/01/36		500,000		541,495
California State Department of Veterans Affairs Home Purchase Revenue, Series A 4.60%, 12/01/28		800,000		753,552

Security	Principal		Value
California State Department of Water Resources Supply Revenue, Series A (AMBAC Insured) 5.50%, 05/01/14	$	2,000,000	$	2,176,840
5.50%, 05/01/15		3,000,000		3,244,620
California State Department of Water Resources Supply Revenue, Series A, Prerefunded 05/01/12 5.38%, 05/01/17		6,500,000		7,227,870
5.75%, 05/01/17		7,975,000		8,972,513
California State Department of Water Resources Supply Revenue, Series A, Prerefunded 05/01/12 (AMBAC Insured) 5.38%, 05/01/18		2,500,000		2,779,950
California State Department of Water Resources Supply Revenue, Series H 5.00%, 05/01/22		5,000,000		5,217,950
California State Economic Recovery, General Obligations Unlimited, Series A 5.00%, 07/01/09		1,000,000		1,028,030
5.00%, 01/01/11		5,525,000		5,866,500
5.25%, 01/01/10		700,000		730,835
5.25%, 07/01/12		1,185,000		1,296,260
California State Economic Recovery, General Obligations Unlimited, Series A (MBIA Insured) 5.25%, 07/01/13		4,000,000		4,421,360
California State Public Works Board Lease Revenue, Series C 5.25%, 06/01/28		2,500,000		2,522,625

SCHEDULES OF INVESTMENTS 23

Schedule of Investments (Unaudited) (Continued)

iSHARES^® S&P NATIONAL MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
California State, General Obligations Unlimited 5.00%, 02/01/11	$	2,000,000	$	2,119,240
5.00%, 03/01/16		1,800,000		1,954,584
5.00%, 04/01/16		600,000		651,798
5.00%, 03/01/17		7,100,000		7,552,909
5.00%, 03/01/17		1,100,000		1,188,440
5.00%, 06/01/17		7,250,000		7,719,655
5.00%, 04/01/18		1,800,000		1,934,406
5.00%, 03/01/19		6,125,000		6,396,766
5.00%, 06/01/37		4,250,000		4,148,340
5.00%, 11/01/37		6,600,000		6,441,204
5.00%, 12/01/37		3,400,000		3,318,060
5.25%, 03/01/38		1,000,000		997,020
Los Angeles Unified School District, General Obligations Unlimited, Series A, Prerefunded 07/01/13 (MBIA Insured) 5.00%, 01/01/28		1,345,000		1,482,472
Los Angeles Unified School District, General Obligations Unlimited, Series A-1 (FSA Insured) 4.50%, 07/01/22		2,700,000		2,715,525
Los Angeles Unified School District, General Obligations Unlimited, Series A-1 (MBIA Insured) 4.50%, 07/01/25		2,900,000		2,827,935
Los Angeles Unified School District, General Obligations Unlimited, Series E (FSA Insured) 4.75%, 07/01/32		7,800,000		7,625,280
Los Angeles Wastewater System Revenue, Series A (MBIA Insured) 5.00%, 06/01/34		4,000,000		4,001,520
San Francisco Bay Area Rapid Transit District, General Obligations Unlimited, Series B 5.00%, 08/01/32		1,400,000		1,430,268

Security	Principal		Value
San Francisco City & County Public Utilities Commission Revenue, Series A (FSA Insured) 4.75%, 11/01/36	$	2,000,000	$	1,907,320
Southern California Public Power Authority Revenue, Series A, Prerefunded 07/01/13 (AMBAC Insured) 5.00%, 07/01/33		2,000,000		2,208,240
University of California Revenue, Series M, Prerefunded 09/01/09 (FGIC Insured) 5.13%, 09/01/30		3,600,000		3,758,976
				133,043,903
COLORADO – 3.30%
Colorado Department of Transportation Revenue, Series B (FGIC Insured) 5.00%, 12/15/15		7,670,000		8,432,091
Regional Transportation District Sales Tax Revenue, Series A (FSA Insured) 4.50%, 11/01/34		15,175,000		14,094,085
				22,526,176
DISTRICT OF COLUMBIA – 0.27%
District of Columbia Ballpark Revenue, Series B-1 (FGIC Insured) 5.00%, 02/01/31		2,000,000		1,864,640
				1,864,640
FLORIDA – 4.69%
Citizens Property Insurance Corp., Series A (MBIA Insured) 5.00%, 03/01/17		10,000,000		10,459,400
Florida Hurricane Catastrophe Fund Finance Corp. Revenue, Series A 5.00%, 07/01/12		6,000,000		6,253,560
Florida Hurricane Catastrophe Fund Finance Corp. Revenue, Series A (MBIA-IBC Insured) 5.00%, 07/01/12		5,900,000		6,140,779

24 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® S&P NATIONAL MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
Miami-Dade County Educational Facilities Authority Revenue, Series A, Prerefunded 04/01/10 (AMBAC Insured) 5.75%, 04/01/29	$	3,000,000	$	3,203,580
Seminole County Water & Sewer Revenue 5.00%, 10/01/36		5,950,000		6,008,845
				32,066,164
GEORGIA – 1.54%
Georgia State, General Obligations Unlimited, Series C 5.50%, 07/01/16		5,000,000		5,599,350
Gwinnett County School District, General Obligations Unlimited 5.00%, 02/01/13		2,625,000		2,869,414
Metropolitan Atlanta Rapid Transit Authority Revenue, Series B (FSA Insured) 5.00%, 07/01/37		2,000,000		2,032,740
				10,501,504
HAWAII – 0.77%
Hawaii State, General Obligations Unlimited, Series DG (AMBAC Insured) 5.00%, 07/01/15		2,200,000		2,425,786
Honolulu, Hawaii City & County Wastewater System Revenue, Series A (MBIA Insured) 5.00%, 07/01/36		2,800,000		2,805,208
				5,230,994
ILLINOIS – 7.52%
Chicago Board of Education, General Obligations Unlimited, Series C (FSA Insured) 5.00%, 12/01/27		5,600,000		5,785,752
Chicago Skyway Toll Bridge, Prerefunded 01/01/11 (AMBAC Insured) 5.50%, 01/01/31		5,500,000		5,953,090

Security	Principal		Value
Chicago, General Obligations Unlimited, Series A, Prerefunded 01/01/11 (MBIA Insured) 5.50%, 01/01/38	$	8,255,000	$	8,925,223
Illinois State Toll Highway Authority Revenue, Series A (FSA Insured) 5.00%, 01/01/23		1,225,000		1,274,539
Illinois State Toll Highway Authority, Series A-2 (FSA Insured) 5.00%, 01/01/31		5,000,000		5,557,150
Illinois State, General Obligations Unlimited, Series A 5.00%, 03/01/34		8,595,000		8,627,747
Illinois State, General Obligations Unlimited, Series B 5.00%, 03/01/13		14,000,000		15,239,560
				51,363,061
INDIANA – 0.78%
Indiana Finance Authority Highway Revenue, Series A (FGIC Insured) 4.50%, 12/01/23		1,000,000		979,400
4.50%, 12/01/24		4,450,000		4,334,522
				5,313,922
MARYLAND – 3.00%
Maryland State, General Obligations Unlimited 5.00%, 02/01/11		5,500,000		5,855,740
5.00%, 02/01/12		2,000,000		2,161,280
Maryland State, General Obligations Unlimited, Series 2 5.00%, 08/01/15 5.00%, 07/15/23		2,500,000 900,000		2,784,750 990,306
Maryland State, General Obligations Unlimited, Series B 5.25%, 02/15/12		8,000,000		8,716,160
				20,508,236

SCHEDULES OF INVESTMENTS 25

Schedule of Investments (Unaudited) (Continued)

iSHARES^® S&P NATIONAL MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
MASSACHUSETTS – 6.36%
Massachusetts School Building Authority Sales Tax Revenue, Series A (AMBAC Insured) 4.50%, 08/15/35	$	17,400,000	$	16,364,352
Massachusetts State, General Obligations Limited, Series C (FSA Insured) 5.50%, 11/01/10		5,000,000		5,347,200
5.50%, 11/01/11		4,500,000		4,899,465
Massachusetts State, General Obligations Unlimited, Series A (MBIA Insured) 5.50%, 02/01/10		4,000,000		4,192,920
5.50%, 02/01/11		5,390,000		5,778,403
Massachusetts State, General Obligations Unlimited, Series A, Prerefunded 03/01/15 (FSA Insured) 5.00%, 03/01/23		4,000,000		4,429,000
Massachusetts State, General Obligations Unlimited, Series D 5.50%, 10/01/16		1,100,000		1,258,785
Massachusetts State, General Obligations Unlimited, Series E (AMBAC Insured) 5.00%, 11/01/25		1,115,000		1,196,362
				43,466,487
MICHIGAN – 0.88%
Detroit City School District, General Obligations Unlimited, Series A (FSA Q-SBLF Insured) 5.25%, 05/01/30		2,500,000		2,699,725
Detroit, Michigan Sewer Disposal System Revenue, Series A, Prerefunded 07/01/13 (FSA Insured) 5.00%, 07/01/32		3,000,000		3,290,940
				5,990,665

Security	Principal		Value
MISSOURI – 0.26%
Missouri Joint Municipal Electric Utility Commission Power Project Revenue (MBIA Insured) 5.00%, 01/01/34	$	2,000,000	$	1,798,540
				1,798,540
NEVADA – 0.90%
Clark County School District, General Obligations Limited, Series A 5.00%, 06/15/27		6,000,000		6,177,600
				6,177,600
NEW JERSEY – 2.55%
New Jersey State Transit Corp. Certificates of Participation, Series B (AMBAC Insured) 5.50%, 09/15/09		1,005,000		1,036,276
New Jersey Transportation Trust Fund Authority Revenue, Series A 5.25%, 12/15/20		3,080,000		3,332,437
New Jersey Transportation Trust Fund Authority, Series A (FSA Insured) 4.25%, 12/15/22		8,500,000		8,356,435
New Jersey Transportation Trust Fund Authority, Series B (FGIC Insured) 5.25%, 12/15/12		4,300,000		4,686,570
				17,411,718
NEWYORK – 15.77%
Hudson Yards Infrastructure Corp. Revenue, Series A 5.00%, 02/15/47		1,520,000		1,465,462
Hudson Yards Infrastructure Corp. Revenue, Series A (MBIA Insured) 4.50%, 02/15/47		1,600,000		1,384,448

26 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® S&P NATIONAL MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
New York City Municipal Water Finance Authority Water & Sewer System Revenue, Series A 4.75%, 06/15/30	$	4,850,000	$	4,860,039
5.00%, 06/15/38		6,250,000		6,316,000
5.00%, 06/15/39		3,000,000		3,018,960
New York City Municipal Water Finance Authority Water & Sewer System Revenue, Series AA 5.00%, 06/15/21		1,000,000		1,061,570
New York City Municipal Water Finance Authority Water & Sewer System Revenue, Series C 5.00%, 06/15/35		700,000		705,201
New York City Municipal Water Finance Authority Water & Sewer System Revenue, Series CC 5.00%, 06/15/34		2,900,000		2,937,903
New York City Municipal Water Finance Authority Water & Sewer System Revenue, Series D 5.00%, 06/15/38		7,200,000		7,253,064
New York City Transitional Finance Authority Revenue, Series A- 1 5.00%, 11/01/13		4,570,000		5,025,400
5.00%, 11/01/14		4,500,000		4,974,885
New York Liberty Development Corp. (Goldman Sachs Group Inc. Obligor) 5.25%, 10/01/35		12,180,000		12,285,113
New York State Dormitory Authority (City University of New York), State Supported Debt Revenue 5.00%, 07/01/22		4,000,000		4,147,680
New York State Dormitory Authority State Personal Income Tax Revenue, Series B (AMBAC Insured) 5.50%, 03/15/26		3,885,000		4,347,742

Security	Principal		Value
New York State Dormitory Authority State Personal Income Tax Revenue, Series C 5.00%, 12/15/31	$	3,500,000	$	3,573,605
New York State Dormitory Authority State Personal Income Tax Revenue, Series D 5.00%, 03/15/36		4,200,000		4,255,398
New York State Thruway Authority Revenue, Series B (AMBAC Insured) 5.00%, 04/01/21		840,000		880,824
New York State Thruway Authority Revenue, Series B (FSA Insured) 5.00%, 04/01/14		7,605,000		8,353,332
New York State Thruway Authority Revenue, Series H (FGIC Insured) 5.00%, 01/01/22		1,280,000		1,348,250
New York State Thruway Authority Revenue, Series H (MBIA Insured) 5.00%, 01/01/20		3,400,000		3,640,720
5.00%, 01/01/21		3,400,000		3,608,148
New York State Thruway Authority, Personal Income Tax Revenue, Series A 5.00%, 03/15/26		1,700,000		1,770,839
New York State Urban Development Corp., Correctional & Youth Facilities Revenue, Series A 5.00%, 01/01/27		710,000		717,086
5.25%, 01/01/21		1,250,000		1,263,513
New York State Urban Development Corp., Correctional Facilities Revenue, Series D, Prerefunded 01/01/11 (FSA Insured) 5.25%, 01/01/30		6,250,000		6,688,000
New York State, General Obligations Unlimited, Series A-1 5.25%, 08/15/23		5,000,000		5,277,750

SCHEDULES OF INVESTMENTS 27

Schedule of Investments (Unaudited) (Continued)

iSHARES^® S&P NATIONAL MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
Triborough Bridge & Tunnel Authority Revenue 5.00%, 11/15/37	$	1,500,000	$	1,518,315
Triborough Bridge & Tunnel Authority Revenue, Series A 5.00%, 11/15/35		3,000,000		3,034,020
Triborough Bridge & Tunnel Authority Revenue, Subseries D 5.00%, 11/15/31		2,000,000		2,027,000
				107,740,267
NORTH CAROLINA – 5.60%
North Carolina State, General Obligations Unlimited 5.00%, 03/01/12		15,545,000		16,819,845
North Carolina State, General Obligations Unlimited, Series B 5.00%, 04/01/13		12,000,000		13,153,560
University of North Carolina Revenue 5.00%, 12/01/36		8,100,000		8,243,532
				38,216,937
OHIO – 1.98%
Cincinnati City School District, General Obligations Unlimited (FGIC Insured) 5.25%, 12/01/25		4,820,000		5,195,960
Columbus Sewer Revenue, Series A 5.00%, 06/01/31		8,150,000		8,343,481
				13,539,441
OREGON – 5.56%
Oregon State Department of Administrative Services (FSA Insured) 5.00%, 09/01/11		16,000,000		17,119,040
Oregon State Department of  Transportation Highway User Tax Revenue, Series A 4.50%, 11/15/32		3,725,000		3,596,823
Oregon State, General Obligations Unlimited, Series A 4.50%, 08/01/32		15,815,000		15,230,952

Security	Principal		Value
Tri-County Metropolitan Transportation District (MBIA Insured) 4.00%, 05/01/14	$	2,000,000	$	2,008,200
				37,955,015
PENNSYLVANIA – 1.13%
Pennsylvania State Public School Building Authority, Series A (FSA Insured) 5.00%, 06/01/31		1,800,000		1,818,054
Pennsylvania State, General Obligations Unlimited 5.25%, 02/01/09		3,000,000		3,045,570
Pennsylvania State, General Obligations Unlimited, Series 3 (FSA Insured) 5.00%, 09/01/14		1,250,000		1,379,950
Pennsylvania Turnpike Commission Registration Fee Revenue, Prerefunded 07/15/11 (AMBAC Insured) 5.00%, 07/15/41		1,375,000		1,487,998
				7,731,572
PUERTO RICO – 1.58%
Puerto Rico Highway & Transportation Authority Highway Revenue, Series CC (FSA Insured) 5.25%, 07/01/36		3,175,000		3,278,823
Puerto Rico Infrastructure Financing Authority Special Tax Revenue, Series C (AMBAC Insured) 5.50%, 07/01/25		7,275,000		7,517,330
				10,796,153
SOUTH CAROLINA – 2.04%
Greenville County School District Installment Purchase Revenue, Prerefunded 12/01/12 5.50%, 12/01/28		12,425,000		13,945,323
				13,945,323

28 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® S&P NATIONAL MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
TENNESSEE – 1.18%
Tennessee Energy Acquisition Corp. Gas Revenue, Series C 5.00%, 02/01/19	$	5,275,000	$	5,074,128
Tennessee State, General Obligations Unlimited, Series C 5.00%, 09/01/10		2,815,000		2,976,159
				8,050,287
TEXAS – 8.10%
Cypress-Fairbanks Independent School District, General Obligations Unlimited (PSF-GTD Insured) 5.00%, 02/15/30		4,000,000		4,060,560
North Texas Tollway Authority Revenue, Series A (MBIA Insured) 5.13%, 01/01/28		11,290,000		11,159,601
North Texas Tollway Authority Revenue, Series F 5.75%, 01/01/38		1,000,000		964,260
San Antonio, Texas Electric & Gas Revenue 5.00%, 02/01/25		2,750,000		2,825,845
5.00%, 02/01/32		5,335,000		5,378,587
Texas State Transportation Commission Revenue 5.00%, 04/01/24		6,250,000		6,515,563
5.00%, 04/01/27		8,950,000		9,220,469
Texas State, General Obligations Unlimited 4.50%, 04/01/33		5,000,000		4,722,600
Texas State, General Obligations Unlimited, Series A 4.75%, 04/01/35		5,600,000		5,451,320
5.00%, 04/01/33		5,000,000		5,058,950
				55,357,755
UTAH – 0.87%
Utah State, General Obligations Unlimited, Series B 5.38%, 07/01/10		5,635,000		5,975,467
				5,975,467

Security	Shares or Principal		Value
WASHINGTON – 0.47%
Central Puget Sound Washington Regional Transportation Authority Sales & Use Tax Revenue, Series A 5.00%, 11/01/36	$	3,150,000	$	3,189,092
				3,189,092
WISCONSIN – 0.47%
Wisconsin State, General Obligation Unlimited, Series 1 5.00%, 05/01/18		3,000,000		3,192,060
				3,192,060
TOTAL MUNICIPAL BONDS & NOTES
(Cost: $672,044,506)				670,639,852
SHORT-TERM INVESTMENTS – 0.80%
MONEY MARKET FUNDS – 0.80%
Morgan Stanley Institutional Liquidity Funds – Tax-Exempt Portfolio, Institutional Shares 1.75%a		5,451,915		5,451,915
				5,451,915
TOTAL SHORT-TERM INVESTMENTS
(Cost: $5,451,915)				5,451,915
TOTAL INVESTMENTS IN SECURITIES – 98.98% (Cost: $677,496,421)				676,091,767
Other Assets, Less Liabilities – 1.02%				6,966,686
NET ASSETS – 100.00%			$	683,058,453

AMBAC – American Municipal Bond Assurance Corp. Financial Group Inc.

FGIC – Financial Guaranty Insurance Co.

FSA – Financial Security Assurance Inc.

GTD – Guaranteed Bond

IBC – Insured Bond Certificates

MBIA – Municipal Bond Insurance Association

PSF – Permanent School Fund

Q-SBLF – Qualified Student Bond Loan Fund

^a The rate quoted is the annualized seven-day yield of the fund at period end.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 29

Schedule of Investments (Unaudited)

iSHARES^® S&P NEW YORK MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
MUNICIPAL BONDS & NOTES – 98.75%
NEW YORK – 98.75%
Hudson Yards Infrastructure Corp. Revenue, Series A (MBIA Insured) 4.50%, 02/15/47	$	750,000	$	648,960
Long Island Power Authority Revenue, Series C 5.00%, 09/01/35		500,000		493,430
Long Island Power Authority Revenue, Series E (FGIC Insured) 5.00%, 12/01/21		400,000		408,708
Long Island Power Authority Revenue, Series L, Prerefunded 05/01/11 5.38%, 05/01/33		1,000,000		1,081,030
Long Island Power Authority, Series A (AMBAC Insured) 5.50%, 12/01/11		300,000		323,082
Long Island Power Authority, Series A, Prerefunded 09/01/11 5.38%, 09/01/25		1,500,000		1,633,800
Metropolitan Transportation Authority, Series A, Prerefunded 11/15/11 (FGIC Insured) 5.00%, 11/15/31		650,000		703,267
Metropolitan Transportation Authority, Series B (AMBAC Insured) 5.00%, 11/15/30		1,600,000		1,601,792
New York City Industrial Development Agency Revenue, Yankee Stadium (FGIC Insured) 4.50%, 03/01/39		360,000		313,160
New York City Municipal Water Finance Authority Revenue, Series C (MBIA Insured) 5.00%, 06/15/25		600,000		619,836

Security	Principal		Value
New York City Municipal Water Finance Authority Water & Sewer System Revenue, Series A 5.00%, 06/15/39	$	2,500,000	$	2,515,800
New York City Municipal Water Finance Authority Water & Sewer System Revenue, Series DD 4.75%, 06/15/36		250,000		243,583
New York City Transitional Finance Authority Revenue, Series B 5.00%, 11/01/21		250,000		264,995
New York City Transitional Finance Authority Revenue, Series S-1 5.00%, 01/15/26		470,000		483,804
New York City Transitional Finance Authority Revenue, Subseries A-1 5.00%, 08/01/20		1,000,000		1,064,080
New York Convention Center Development Corp. Revenue (AMBAC Insured) 5.00%, 11/15/30		375,000		373,478
5.00%, 11/15/35		500,000		491,925
New York Liberty Development Corp. (Goldman Sachs Group Inc. Obligor) 5.25%, 10/01/35		800,000		806,904
New York State Dormitory Authority (City University of New York), State Supported Debt Revenue 5.00%, 07/01/22		1,000,000		1,036,920
New York State Dormitory Authority Revenue, Series A 5.25%, 05/15/15		450,000		489,582
New York State Dormitory Authority Revenue, Series A (FSA/FHA Insured) 5.25%, 08/15/15		1,635,000		1,777,637

30 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® S&P NEW YORK MUNICIPAL BOND FUND

August 31, 2008

Security	Principal		Value
New York State Dormitory Authority Revenue, Series D (MBIA Insured) 5.25%, 10/01/23	$	600,000	$	630,786
New York State Environmental Facilities Corp., Clean Water & Drinking Water Revenue, Series B 4.50%, 06/15/36		650,000		614,484
New York State Environmental Facilities Corp., Clean Water & Drinking Water, Series A 4.75%, 06/15/31		1,000,000		999,930
New York State Thruway Authority, Personal Income Tax Revenue, Series A 5.00%, 03/15/26		300,000		312,501
New York State Urban Development Corp., Correctional & Youth Facilities Revenue, Series A 5.25%, 01/01/21		1,375,000		1,389,864
New York State Urban Development Corp., Correctional Facilities Revenue, Series D, Prerefunded 01/01/11 (FSA Insured) 5.25%, 01/01/30		1,500,000		1,605,120
New York State, General Obligations Unlimited, Series A 5.00%, 08/01/25		400,000		408,644
New York State, General Obligations Unlimited, Series A-1 5.00%, 08/01/17		1,000,000		1,085,410
New York State, General Obligations Unlimited, Series J, Prerefunded 06/01/13 5.25%, 06/01/28		1,660,000		1,853,158
New York State, General Obligations Unlimited, Series M (FGIC Insured) 5.00%, 04/01/25		200,000		202,566

Security	Shares or Principal		Value
New York State, General Obligations Unlimited, Subseries C-1 (FSA Insured) 5.00%, 10/01/24	$	250,000	$	261,510
Port Authority of New York & New Jersey 5.00%, 12/01/29		925,000		950,012
Port Authority of New York & New Jersey Revenue 5.00%, 09/01/38		700,000		708,659
Triborough Bridge & Tunnel Authority Revenue, Series A 5.00%, 01/01/27		500,000		507,175
Triborough Bridge & Tunnel Authority Revenue, Subseries D 5.00%, 11/15/23		500,000		523,590
5.00%, 11/15/31		650,000		658,775
				30,087,957
TOTAL MUNICIPAL BONDS & NOTES
(Cost: $30,214,240)				30,087,957
SHORT-TERM INVESTMENTS – 1.17%
MONEY MARKET FUNDS – 1.17%
Fidelity New York AMTTax-Free Money Market Fund, Institutional Shares 1.60%a		354,776		354,776
				354,776
TOTAL SHORT-TERM INVESTMENTS
(Cost: $354,776)				354,776
TOTAL INVESTMENTS IN SECURITIES – 99.92% (Cost: $30,569,016)				30,442,733
Other Assets, Less Liabilities – 0.08%				25,082
NET ASSETS – 100.00%			$	30,467,815

AMBAC – American Municipal Bond Assurance Corp. Financial Group Inc.

FGIC – Financial Guaranty Insurance Co.

FHA – Federal Housing Administration

FSA – Financial Security Assurance Inc.

MBIA – Municipal Bond Insurance Association

^a The rate quoted is the annualized seven-day yield of the fund at period end.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 31

Statements of Assets and Liabilities (Unaudited)

iSHARES^® TRUST

August 31, 2008

	iShares Lehman
	Short Treasury Bond Fund		1-3 Year Treasury Bond Fund		3-7 Year Treasury Bond Fund		7-10 Year Treasury Bond Fund
ASSETS
Investments, at cost:
Unaffiliated issuers	$	1,480,944,952	$	8,945,034,213	$	782,316,466	$	2,638,375,484
Affiliated issuers (Note 2)		348,423,180		4,257,828,155		369,366,256		1,301,611,045
Total cost of investments	$	1,829,368,132	$	13,202,862,368	$	1,151,682,722	$	3,939,986,529
Investments in securities, at fair value (including securities on loana) (Note 1): Unaffiliated issuers	$	1,480,969,680	$	9,051,724,671	$	785,844,140	$	2,725,233,361
Affiliated issuers (Note 2)		348,423,180		4,257,828,155		369,366,256		1,301,611,045
Total fair value of investments		1,829,392,860		13,309,552,826		1,155,210,396		4,026,844,406
Receivables:
Investment securities sold		220,802,649		–		23,401,750		57,620,866
Interest		15,155,913		83,309,024		5,986,876		22,095,324
Capital shares sold		541,778		–		1,860,185		–
Total Assets		2,065,893,200		13,392,861,850		1,186,459,207		4,106,560,596
LIABILITIES
Payables:
Investment securities purchased		223,934,468		21,236,581		37,597,501		78,262,686
Collateral for securities on loan (Note 5)		345,285,600		4,212,935,132		350,111,385		1,270,345,039
Capital shares redeemed		–		46,753		–		–
Investment advisory fees (Note 2)		153,834		1,165,665		95,006		344,812
Total Liabilities		569,373,902		4,235,384,131		387,803,892		1,348,952,537
NET ASSETS	$	1,496,519,298	$	9,157,477,719	$	798,655,315	$	2,757,608,059
Net assets consist of:
Paid-in capital	$	1,493,415,894	$	8,925,157,013	$	787,125,251	$	2,634,741,794
Undistributed net investment income		2,321,550		65,367,450		1,925,238		12,380,273
Undistributed net realized gain		757,126		60,262,798		6,077,152		23,628,115
Net unrealized appreciation		24,728		106,690,458		3,527,674		86,857,877
NET ASSETS	$	1,496,519,298	$	9,157,477,719	$	798,655,315	$	2,757,608,059
Shares outstandingb		13,600,000		110,200,000		7,400,000		30,900,000
Net asset value per share	$	110.04	$	83.10	$	107.93	$	89.24

^a Securities on loan with market values of $338,335,192, $4,118,189,398, $342,296,555 and $1,243,090,511, respectively. See Note 5.

^b No par value, unlimited number of shares authorized.

See notes to financial statements.

32 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Assets and Liabilities (Unaudited) (Continued)

iSHARES^® TRUST

August 31, 2008

	iShares Lehman									iShares S&P
	10-20 Year Treasury Bond Fund			20+ Year Treasury Bond Fund			TIPS Bond Fund			California Municipal Bond Fund
ASSETS
Investments, at cost:
Unaffiliated issuers	$	116,137,050		$	1,558,096,576		$	7,988,175,770		$	112,013,929
Affiliated issuers (Note 2)		47,160,620			661,760,927			3,627,652,198			–
Total cost of investments	$	163,297,670		$	2,219,857,503		$	11,615,827,968		$	112,013,929
Investments in securities, at fair value (including securities on loana) (Note 1):
Unaffiliated issuers	$	116,078,931		$	1,541,360,089		$	8,072,137,460		$	111,308,862
Affiliated issuers (Note 2)		47,160,620			661,760,927			3,627,652,198			–
Total fair value of investments		163,239,551			2,203,121,016			11,699,789,658			111,308,862
Receivables:
Due from bank		–			–			–			11,175
Investment securities sold		12,957,354			114,365,165			146,263,194			1,569,215
Interest		861,966			10,149,750			36,542,977			1,343,398
Total Assets		177,058,871			2,327,635,931			11,882,595,829			114,232,650
LIABILITIES
Payables:
Investment securities purchased		14,795,785			133,705,496			83,618,189			508,228
Collateral for securities on loan (Note 5)		44,978,096			635,821,683			3,623,074,301			–
Investment advisory fees (Note 2)		14,151			206,288			1,348,202			24,013
Total Liabilities		59,788,032			769,733,467			3,708,040,692			532,241
NET ASSETS	$	117,270,839		$	1,557,902,464		$	8,174,555,137		$	113,700,409
Net assets consist of:
Paid-in capital	$	116,040,463		$	1,579,780,671		$	8,031,480,446		$	114,162,007
Undistributed net investment income		255,098			6,139,257			104,483,567			373,494
Undistributed net realized gain (accumulated net realized loss)		1,033,397			(11,280,977	)		(45,370,566	)		(130,025	)
Net unrealized appreciation (depreciation)		(58,119	)		(16,736,487	)		83,961,690			(705,067	)
NET ASSETS	$	117,270,839		$	1,557,902,464		$	8,174,555,137		$	113,700,409
Shares outstandingb		1,100,000			16,600,000			77,100,000			1,100,000
Net asset value per share	$	106.61		$	93.85		$	106.03		$	103.36

^a Securities on loan with market values of $43,930,688, $625,422,435, $3,565,199,620 and $–, respectively. See Note 5.

^b No par value, unlimited number of shares authorized.

See notes to financial statements.

FINANCIAL STATEMENTS 33

Statements of Assets and Liabilities (Unaudited) (Continued)

iSHARES^® TRUST

August 31, 2008

	iShares S&P
	National Municipal Bond Fund			New York Municipal Bond Fund
ASSETS
Investments, at cost:
Unaffiliated issuers	$	677,496,421		$	30,569,016
Total cost of investments	$	677,496,421		$	30,569,016
Investments in securities, at fair value (Note 1):
Unaffiliated issuers	$	676,091,767		$	30,442,733
Total fair value of investments		676,091,767			30,442,733
Receivables:
Interest		8,870,550			342,772
Total Assets		684,962,317			30,785,505
LIABILITIES
Payables:
Investment securities purchased		1,763,733			311,247
Investment advisory fees (Note 2)		140,131			6,443
Total Liabilities		1,903,864			317,690
NET ASSETS	$	683,058,453		$	30,467,815
Net assets consist of:
Paid-in capital	$	682,890,685		$	30,458,254
Undistributed net investment income		2,409,978			151,394
Accumulated net realized loss		(837,556	)		(15,550	)
Net unrealized depreciation		(1,404,654	)		(126,283	)
NET ASSETS	$	683,058,453		$	30,467,815
Shares outstandinga		6,800,000			300,000
Net asset value per share	$	100.45		$	101.56

^a No par value, unlimited number of shares authorized.

See notes to financial statements.

34 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Operations (Unaudited)

iSHARES^® TRUST

Six months ended August 31, 2008

	iShares Lehman
	Short Treasury Bond Fund			1-3 Year Treasury Bond Fund			3-7 Year Treasury Bond Fund			7-10 Year Treasury Bond Fund
NET INVESTMENT INCOME
Interest from unaffiliated issuers	$	9,645,792		$	151,711,286		$	8,224,792		$	53,358,853
Interest from affiliated issuers (Note 2)		26,834			377,211			24,729			121,028
Securities lending income from affiliated issuers (Note 2)		763,983			10,432,238			626,614			2,846,343
Total investment income		10,436,609			162,520,735			8,876,135			56,326,224
EXPENSES
Investment advisory fees (Note 2)		682,450			6,989,940			407,063			2,015,802
Total expenses		682,450			6,989,940			407,063			2,015,802
Net investment income		9,754,159			155,530,795			8,469,072			54,310,422
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments in unaffiliated issuers		41,691			18,210,810			(821,551	)		9,614,963
In-kind redemptions		696,612			71,282,644			6,948,010			31,649,397
Net realized gain		738,303			89,493,454			6,126,459			41,264,360
Net change in unrealized appreciation (depreciation)		(2,665,690	)		(225,449,873	)		(14,542,262	)		(83,342,982	)
Net realized and unrealized loss		(1,927,387	)		(135,956,419	)		(8,415,803	)		(42,078,622	)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	7,826,772		$	19,574,376		$	53,269		$	12,231,800

See notes to financial statements.

FINANCIAL STATEMENTS 35

Statements of Operations (Unaudited) (Continued)

iSHARES^® TRUST

Six months ended August 31, 2008

	iShares Lehman									iShares S&P
	10-20 Year Treasury Bond Fund			20+ Year Treasury Bond Fund			TIPS Bond Fund			California Municipal Bond Fund
NET INVESTMENT INCOME
Interest from unaffiliated issuers	$	2,331,937		$	36,334,438		$	336,703,013	a	$	1,743,853
Interest from affiliated issuers (Note 2)		5,836			81,526			274,700			–
Securities lending income from affiliated issuers (Note 2)		98,922			1,437,259			6,706,972			–
Total investment income		2,436,695			37,853,223			343,684,685			1,743,853
EXPENSES
Investment advisory fees (Note 2)		82,509			1,231,641			7,191,351			114,914
Total expenses		82,509			1,231,641			7,191,351			114,914
Net investment income		2,354,186			36,621,582			336,493,334			1,628,939
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments in unaffiliated issuers		(138,805	)		(6,212,460	)		(10,942,118	)		(100,600	)
In-kind redemptions		1,203,530			7,882,809			6,422,179			–
Net realized gain (loss)		1,064,725			1,670,349			(4,519,939	)		(100,600	)
Net change in unrealized appreciation (depreciation)		(2,611,005	)		(1,064,529	)		(330,963,562	)		2,032,298
Net realized and unrealized gain (loss)		(1,546,280	)		605,820			(335,483,501	)		1,931,698
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	807,906		$	37,227,402		$	1,009,833		$	3,560,637

^a Includes monthly inflationary and deflationary adjustments to income. See Note 1.

See notes to financial statements.

36 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Operations (Unaudited) (Continued)

iSHARES^® TRUST

Six months ended August 31, 2008

	iShares S&P
	National Municipal Bond Fund			New York Municipal Bond Fund
NET INVESTMENT INCOME
Interest from unaffiliated issuers	$	11,154,936		$	546,943
Total investment income		11,154,936			546,943
EXPENSES
Investment advisory fees (Note 2)		799,980			33,999
Total expenses		799,980			33,999
Less investment advisory fees waived (Note 2)		(87,369	)		–
Net expenses		712,611			33,999
Net investment income		10,442,325			512,944
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments in unaffiliated issuers		(645,043	)		(100,576	)
In-kind redemptions		–			85,444
Net realized loss		(645,043	)		(15,132	)
Net change in unrealized appreciation (depreciation)		14,616,580			625,302
Net realized and unrealized gain		13,971,537			610,170
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	24,413,862		$	1,123,114

See notes to financial statements.

FINANCIAL STATEMENTS 37

Statements of Changes in Net Assets

iSHARES^® TRUST

	iShares Lehman Short Treasury Bond Fund						iShares Lehman 1-3 Year Treasury Bond Fund
	Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008			Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income	$	9,754,159		$	16,590,693		$	155,530,795		$	339,387,424
Net realized gain		738,303			643,876			89,493,454			63,624,822
Net change in unrealized appreciation (depreciation)		(2,665,690	)		2,679,841			(225,449,873	)		334,840,842
Net increase in net assets resulting from operations		7,826,772			19,914,410			19,574,376			737,853,088
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income		(9,390,361	)		(14,757,266	)		(134,109,325	)		(313,622,291	)
From net realized gain		–			(120,395	)		–			–
Total distributions to shareholders		(9,390,361	)		(14,877,661	)		(134,109,325	)		(313,622,291	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold		1,530,327,162			1,305,145,369			2,906,794,865			5,128,600,909
Cost of shares redeemed		(781,971,449	)		(625,871,464	)		(3,536,514,714	)		(1,189,489,820	)
Net increase (decrease) in net assets from capital share transactions		748,355,713			679,273,905			(629,719,849	)		3,939,111,089
INCREASE (DECREASE) IN NET ASSETS		746,792,124			684,310,654			(744,254,798	)		4,363,341,886
NET ASSETS
Beginning of period		749,727,174			65,416,520			9,901,732,517			5,538,390,631
End of period	$	1,496,519,298		$	749,727,174		$	9,157,477,719		$	9,901,732,517
Undistributed net investment income included in net assets at end of period	$	2,321,550		$	1,957,752		$	65,367,450		$	43,945,980
SHARES ISSUED AND REDEEMED
Shares sold		13,900,000			11,900,000			35,100,000			63,300,000
Shares redeemed		(7,100,000	)		(5,700,000	)		(42,600,000	)		(14,500,000	)
Net increase (decrease) in shares outstanding		6,800,000			6,200,000			(7,500,000	)		48,800,000

See notes to financial statements.

38 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Changes in Net Assets (Continued)

iSHARES^® TRUST

	iShares Lehman 3-7 Year Treasury Bond Fund						iShares Lehman 7-10 Year Treasury Bond Fund
	Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008			Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income	$	8,469,072		$	6,429,227		$	54,310,422		$	105,451,271
Net realized gain		6,126,459			3,197,341			41,264,360			46,079,982
Net change in unrealized appreciation (depreciation)		(14,542,262	)		17,967,947			(83,342,982	)		161,187,967
Net increase in net assets resulting from operations		53,269			27,594,515			12,231,800			312,719,220
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income		(7,444,522	)		(5,626,266	)		(52,880,401	)		(101,090,770	)
Total distributions to shareholders		(7,444,522	)		(5,626,266	)		(52,880,401	)		(101,090,770	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold		667,862,833			533,251,087			534,278,546			1,285,190,592
Cost of shares redeemed		(312,403,837	)		(124,837,430	)		(464,913,590	)		(679,777,656	)
Net increase in net assets from capital share transactions		355,458,996			408,413,657			69,364,956			605,412,936
INCREASE IN NET ASSETS		348,067,743			430,381,906			28,716,355			817,041,386
NET ASSETS
Beginning of period		450,587,572			20,205,666			2,728,891,704			1,911,850,318
End of period	$	798,655,315		$	450,587,572		$	2,757,608,059		$	2,728,891,704
Undistributed net investment income included in net assets at end of period	$	1,925,238		$	900,688		$	12,380,273		$	10,950,252
SHARES ISSUED AND REDEEMED
Shares sold		6,200,000			5,100,000			6,000,000			15,200,000
Shares redeemed		(2,900,000	)		(1,200,000	)		(5,200,000	)		(8,000,000	)
Net increase in shares outstanding		3,300,000			3,900,000			800,000			7,200,000

See notes to financial statements.

FINANCIAL STATEMENTS 39

Statements of Changes in Net Assets (Continued)

iSHARES^® TRUST

	iShares Lehman 10-20 Year Treasury Bond Fund						iShares Lehman 20+ Year Treasury Bond Fund
	Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008			Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income	$	2,354,186		$	2,325,702		$	36,621,582		$	77,701,155
Net realized gain		1,064,725			1,068,019			1,670,349			64,759,030
Net change in unrealized appreciation (depreciation)		(2,611,005	)		2,264,785			(1,064,529	)		9,798,164
Net increase in net assets resulting from operations		807,906			5,658,506			37,227,402			152,258,349
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income		(2,341,739	)		(2,218,271	)		(35,888,745	)		(75,743,684	)
Total distributions to shareholders		(2,341,739	)		(2,218,271	)		(35,888,745	)		(75,743,684	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold		42,388,663			126,565,862			4,856,867,198			7,081,832,183
Cost of shares redeemed		(42,586,616	)		(41,579,299	)		(5,007,666,929	)		(6,840,303,671	)
Net increase (decrease) in net assets from capital share transactions		(197,953	)		84,986,563			(150,799,731	)		241,528,512
INCREASE (DECREASE) IN NET ASSETS		(1,731,786	)		88,426,798			(149,461,074	)		318,043,177
NET ASSETS
Beginning of period		119,002,625			30,575,827			1,707,363,538			1,389,320,361
End of period	$	117,270,839		$	119,002,625		$	1,557,902,464		$	1,707,363,538
Undistributed net investment income included in net assets at end of period	$	255,098		$	242,651		$	6,139,257		$	5,406,420
SHARES ISSUED AND REDEEMED
Shares sold		400,000			1,200,000			52,500,000			79,400,000
Shares redeemed		(400,000	)		(400,000	)		(54,000,000	)		(76,700,000	)
Net increase (decrease) in shares outstanding		–			800,000			(1,500,000	)		2,700,000

See notes to financial statements.

40 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Changes in Net Assets (Continued)

iSHARES^® TRUST

	iShares Lehman TIPS Bond Fund						iShares S&P California Municipal Bond Fund
	Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008			Six months ended August 31, 2008 (Unaudited)			Period from October 4, 2007a to February 29, 2008
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income	$	336,493,334		$	268,528,953		$	1,628,939		$	545,381
Net realized loss		(4,519,939	)		(770,340	)		(100,600	)		(29,428	)
Net change in unrealized appreciation (depreciation)		(330,963,562	)		442,265,237			2,032,298			(2,737,365	)
Net increase (decrease) in net assets resulting from operations		1,009,833			710,023,850			3,560,637			(2,221,412	)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income		(269,370,427	)		(231,168,294	)		(1,386,124	)		(414,702	)
Total distributions to shareholders		(269,370,427	)		(231,168,294	)		(1,386,124	)		(414,702	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold		2,100,340,710			1,932,367,561			51,888,041			62,273,969
Cost of shares redeemed		(65,813,814	)		(131,914,459	)		–			–
Net increase in net assets from capital share transactions		2,034,526,896			1,800,453,102			51,888,041			62,273,969
INCREASE IN NET ASSETS		1,766,166,302			2,279,308,658			54,062,554			59,637,855
NET ASSETS
Beginning of period		6,408,388,835			4,129,080,177			59,637,855			–
End of period	$	8,174,555,137		$	6,408,388,835		$	113,700,409		$	59,637,855
Undistributed net investment income included in net assets at end of period	$	104,483,567		$	37,360,660		$	373,494		$	130,679
SHARES ISSUED AND REDEEMED
Shares sold		19,600,000			18,500,000			500,000			600,000
Shares redeemed		(600,000	)		(1,300,000	)		–			–
Net increase in shares outstanding		19,000,000			17,200,000			500,000			600,000

^a Commencement of operations.

See notes to financial statements.

FINANCIAL STATEMENTS 41

Statements of Changes in Net Assets (Continued)

iSHARES^® TRUST

	iShares S&P National Municipal Bond Fund						iShares S&P New York Municipal Bond Fund
	Six months ended August 31, 2008 (Unaudited)			Period from September 7, 2007a to February 29, 2008			Six months ended August 31, 2008 (Unaudited)			Period from October 4, 2007a to February 29, 2008
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income	$	10,442,325		$	5,307,617		$	512,944		$	311,179
Net realized loss		(645,043	)		(482,817	)		(15,132	)		(418	)
Net change in unrealized appreciation (depreciation)		14,616,580			(16,021,234	)		625,302			(751,585	)
Net increase (decrease) in net assets resulting from operations		24,413,862			(11,196,434	)		1,123,114			(440,824	)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income		(9,047,066	)		(4,291,937	)		(429,893	)		(242,833	)
Total distributions to shareholders		(9,047,066	)		(4,291,937	)		(429,893	)		(242,833	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold		310,708,788			472,872,205			20,346,204			20,302,177
Cost of shares redeemed		–			(100,400,965	)		(10,190,130	)		–
Net increase in net assets from capital share transactions		310,708,788			372,471,240			10,156,074			20,302,177
INCREASE IN NET ASSETS		326,075,584			356,982,869			10,849,295			19,618,520
NET ASSETS
Beginning of period		356,982,869			–			19,618,520			–
End of period	$	683,058,453		$	356,982,869		$	30,467,815		$	19,618,520
Undistributed net investment income included in net assets at end of period	$	2,409,978		$	1,014,719		$	151,394		$	68,343
SHARES ISSUED AND REDEEMED
Shares sold		3,100,000			4,700,000			200,000			200,000
Shares redeemed		–			(1,000,000	)		(100,000	)		–
Net increase in shares outstanding		3,100,000			3,700,000			100,000			200,000

^a Commencement of operations.

See notes to financial statements.

42 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Financial Highlights

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman Short Treasury Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Period from Jan. 5, 2007a to Feb. 28, 2007
Net asset value, beginning of period	$	110.25		$	109.03		$	108.57
Income from investment operations:
Net investment incomeb		1.19			4.67			0.74
Net realized and unrealized gain (loss)c		(0.19	)		0.96			0.03
Total from investment operations		1.00			5.63			0.77
Less distributions from:
Net investment income		(1.21	)		(4.39	)		(0.31	)
Net realized gain		–			(0.02	)d		–
Total distributions		(1.21	)		(4.41	)		(0.31	)
Net asset value, end of period	$	110.04		$	110.25		$	109.03
Total return		0.89	%e		5.29	%		0.72	%e
Ratios/Supplemental data:
Net assets, end of period (000s)	$	1,496,519		$	749,727		$	65,417
Ratio of expenses to average net assetsf		0.15	%		0.15	%		0.15	%
Ratio of net investment income to average net assetsf		2.14	%		4.26	%		4.60	%
Portfolio turnover rateg		67	%		176	%		30	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Represents all short-term capital gain distributions. Short-term capital gain distributions are treated as ordinary income dividends for tax purposes.

^e Not annualized.

^f Annualized for periods of less than one year.

^g Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

FINANCIAL HIGHLIGHTS 43

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman 1-3 Year Treasury Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Year ended Feb. 28, 2007			Year ended Feb. 28, 2006			Year ended Feb. 28, 2005			Year ended Feb. 29, 2004
Net asset value, beginning of period	$	84.13		$	80.38		$	80.08		$	80.99		$	82.80		$	82.40
Income from investment operations:
Net investment income		1.40	a		3.60	a		3.42	a		2.66			1.66			1.31
Net realized and unrealized gain (loss)b		(1.22	)		3.58			0.24			(1.05	)		(1.84	)		0.40
Total from investment operations		0.18			7.18			3.66			1.61			(0.18	)		1.71
Less distributions from:
Net investment income		(1.21	)		(3.43	)		(3.36	)		(2.52	)		(1.63	)		(1.31	)
Total distributions		(1.21	)		(3.43	)		(3.36	)		(2.52	)		(1.63	)		(1.31	)
Net asset value, end of period	$	83.10		$	84.13		$	80.38		$	80.08		$	80.99		$	82.80
Total return		0.19	%c		9.20	%		4.69	%		2.01	%		(0.21	)%		2.11	%
Ratios/Supplemental data:
Net assets, end of period (000s)	$	9,157,478		$	9,901,733		$	5,538,391		$	3,771,679		$	2,729,361		$	1,548,436
Ratio of expenses to average net assetsd		0.15	%		0.15	%		0.15	%		0.15	%		0.15	%		0.15	%
Ratio of net investment income to average net assetsd		3.34	%		4.43	%		4.28	%		3.36	%		2.11	%		1.63	%
Portfolio turnover ratee		16	%		76	%		64	%		83	%		106	%		21	%

^a Based on average shares outstanding throughout the period.

^b The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^c Not annualized.

^d Annualized for periods of less than one year.

^e Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

44 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman 3-7 Year Treasury Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Period from Jan. 5, 2007a to Feb. 28, 2007
Net asset value, beginning of period	$	109.90		$	101.03		$	100.11
Income from investment operations:
Net investment incomeb		1.69			4.21			0.62
Net realized and unrealized gain (loss)c		(2.07	)		8.95			0.55
Total from investment operations		(0.38	)		13.16			1.17
Less distributions from:
Net investment income		(1.59	)		(4.29	)		(0.25	)
Total distributions		(1.59	)		(4.29	)		(0.25	)
Net asset value, end of period	$	107.93		$	109.90		$	101.03
Total return		(0.37	)%d		13.46	%		1.17	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	798,655		$	450,588		$	20,206
Ratio of expenses to average net assetse		0.15	%		0.15	%		0.15	%
Ratio of net investment income to average net assetse		3.12	%		4.04	%		4.19	%
Portfolio turnover ratef		36	%		41	%		2	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

FINANCIAL HIGHLIGHTS 45

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman 7-10 Year Treasury Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Year ended Feb. 28, 2007			Year ended Feb. 28, 2006			Year ended Feb. 28, 2005			Year ended Feb. 29, 2004
Net asset value, beginning of period	$	90.66		$	83.49		$	82.91		$	84.30		$	86.65		$	87.10
Income from investment operations:
Net investment income		1.81	a		3.82	a		3.69	a		3.29			2.88			3.43
Net realized and unrealized gain (loss)b		(1.46	)		7.06			0.43			(1.43	)		(2.05	)		(0.68	)
Total from investment operations		0.35			10.88			4.12			1.86			0.83			2.75
Less distributions from:
Net investment income		(1.77	)		(3.71	)		(3.54	)		(3.25	)		(3.18	)		(3.20	)
Total distributions		(1.77	)		(3.71	)		(3.54	)		(3.25	)		(3.18	)		(3.20	)
Net asset value, end of period	$	89.24		$	90.66		$	83.49		$	82.91		$	84.30		$	86.65
Total return		0.37	%c		13.51	%		5.14	%		2.21	%		1.06	%		3.26	%
Ratios/Supplemental data:
Net assets, end of period (000s)	$	2,757,608		$	2,728,892		$	1,911,850		$	1,177,379		$	767,100		$	199,285
Ratio of expenses to average net assetsd		0.15	%		0.15	%		0.15	%		0.15	%		0.15	%		0.15	%
Ratio of net investment income to average net assetsd		4.04	%		4.53	%		4.50	%		4.02	%		3.75	%		3.59	%
Portfolio turnover ratee		24	%		40	%		45	%		94	%		121	%		74	%

^a Based on average shares outstanding throughout the period.

^b The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^c Not annualized.

^d Annualized for periods of less than one year.

^e Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

46 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman 10-20 Year Treasury Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Period from Jan. 5, 2007a to Feb. 28, 2007
Net asset value, beginning of period	$	108.18		$	101.92		$	100.77
Income from investment operations:
Net investment incomeb		2.28			4.68			0.63
Net realized and unrealized gain (loss)c		(1.58	)		6.29			0.78
Total from investment operations		0.70			10.97			1.41
Less distributions from:
Net investment income		(2.27	)		(4.71	)		(0.26	)
Total distributions		(2.27	)		(4.71	)		(0.26	)
Net asset value, end of period	$	106.61		$	108.18		$	101.92
Total return		0.67	%d		11.19	%		1.41	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	117,271		$	119,003		$	30,576
Ratio of expenses to average net assetse		0.15	%		0.15	%		0.15	%
Ratio of net investment income to average net assetse		4.28	%		4.53	%		4.29	%
Portfolio turnover ratef		14	%		22	%		0	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

FINANCIAL HIGHLIGHTS 47

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman 20+ Year Treasury Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Year ended Feb. 28, 2007			Year ended Feb. 28, 2006			Year ended Feb. 28, 2005			Year ended Feb. 29, 2004
Net asset value, beginning of period	$	94.33		$	90.22		$	91.41		$	90.12		$	88.57		$	90.52
Income from investment operations:
Net investment income		2.08	a		4.17	a		4.10	a		4.12			4.00			4.35
Net realized and unrealized gain (loss)b		(0.48	)		4.10			(1.26	)		1.32			1.68			(1.72	)
Total from investment operations		1.60			8.27			2.84			5.44			5.68			2.63
Less distributions from:
Net investment income		(2.08	)		(4.16	)		(4.03	)		(4.15	)		(4.13	)		(4.58	)
Total distributions		(2.08	)		(4.16	)		(4.03	)		(4.15	)		(4.13	)		(4.58	)
Net asset value, end of period	$	93.85		$	94.33		$	90.22		$	91.41		$	90.12		$	88.57
Total return		1.73	%c		9.54	%		3.37	%		6.12	%		6.72	%		3.11	%
Ratios/Supplemental data:
Net assets, end of period (000s)	$	1,557,902		$	1,707,364		$	1,389,320		$	868,402		$	748,022		$	265,696
Ratio of expenses to average net assetsd		0.15	%		0.15	%		0.15	%		0.15	%		0.15	%		0.15	%
Ratio of net investment income to average net assetsd		4.46	%		4.69	%		4.70	%		4.42	%		4.71	%		4.84	%
Portfolio turnover ratee		12	%		26	%		25	%		25	%		18	%		31	%

^a Based on average shares outstanding throughout the period.

^b The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^c Not annualized.

^d Annualized for periods of less than one year.

^e Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

48 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman TIPS Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Year ended Feb. 28, 2007			Year ended Feb. 28, 2006			Year ended Feb. 28, 2005			Period from Dec. 4, 2003a to Feb. 29, 2004
Net asset value, beginning of period	$	110.30		$	100.96		$	102.75		$	105.03		$	105.12		$	100.92
Income from investment operations:
Net investment income (loss)		5.06	b		5.86	b		4.08	b		4.29			3.74			(0.06	)
Net realized and unrealized gain (loss)c		(5.25	)		8.53			(1.60	)		(1.15	)		0.48			4.38
Total from investment operations		(0.19	)		14.39			2.48			3.14			4.22			4.32
Less distributions from:
Net investment income		(4.08	)		(5.05	)		(4.11	)		(5.37	)		(3.95	)		(0.02	)
Return of capital		–			–			(0.16	)		(0.05	)		(0.36	)		(0.10	)
Total distributions		(4.08	)		(5.05	)		(4.27	)		(5.42	)		(4.31	)		(0.12	)
Net asset value, end of period	$	106.03		$	110.30		$	100.96		$	102.75		$	105.03		$	105.12
Total return		(0.17	)%d		14.78	%		2.56	%		3.04	%		4.16	%		4.29	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	8,174,555		$	6,408,389		$	4,129,080		$	3,616,667		$	2,006,087		$	588,671
Ratio of expenses to average net assetse		0.20	%		0.20	%		0.20	%		0.20	%		0.20	%		0.20	%
Ratio of net investment income (loss) to average net assetse		9.36	%		5.71	%		4.09	%		4.12	%		3.60	%		(0.25	)%
Portfolio turnover ratef		3	%		10	%		17	%		13	%		32	%		2	%

^a Commencement of operations.

^b Based on average shares outstanding throughout the period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

FINANCIAL HIGHLIGHTS 49

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares S&P California Municipal Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Period from Oct. 4, 2007a to Feb. 29, 2008
Net asset value, beginning of period	$	99.40		$	103.40
Income from investment operations:
Net investment incomeb		1.84			1.53
Net realized and unrealized gain (loss)c		3.79			(4.36	)
Total from investment operations		5.63			(2.83	)
Less distributions from:
Net investment income		(1.67	)		(1.17	)
Total distributions		(1.67	)		(1.17	)
Net asset value, end of period	$	103.36		$	99.40
Total return		5.67	%d		(2.78	)%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	113,700		$	59,638
Ratio of expenses to average net assetse		0.25	%		0.25	%
Ratio of net investment income to average net assetse		3.54	%		3.63	%
Portfolio turnover ratef		14	%		19	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

50 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares S&P National Municipal Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Period from Sep. 7, 2007a to Feb. 29, 2008
Net asset value, beginning of period	$	96.48		$	100.30
Income from investment operations:
Net investment incomeb		1.85			1.74
Net realized and unrealized gain (loss)c		3.79			(4.08	)
Total from investment operations		5.64			(2.34	)
Less distributions from:
Net investment income		(1.67	)		(1.48	)
Total distributions		(1.67	)		(1.48	)
Net asset value, end of period	$	100.45		$	96.48
Total return		5.85	%d		(2.36	)%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	683,058		$	356,983
Ratio of expenses to average net assetse		0.25	%		0.25	%
Ratio of expenses to average net assets prior to waived feese		0.28	%		0.30	%
Ratio of net investment income to average net assetse		3.66	%		3.62	%
Portfolio turnover ratef		8	%		8	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

FINANCIAL HIGHLIGHTS 51

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares S&P New York Municipal Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Period from Oct. 4, 2007a to Feb. 29, 2008
Net asset value, beginning of period	$	98.09		$	101.51
Income from investment operations:
Net investment incomeb		1.93			1.56
Net realized and unrealized gain (loss)c		3.29			(3.77	)
Total from investment operations		5.22			(2.21	)
Less distributions from:
Net investment income		(1.75	)		(1.21	)
Total distributions		(1.75	)		(1.21	)
Net asset value, end of period	$	101.56		$	98.09
Total return		5.35	%d		(2.20	)%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	30,468		$	19,619
Ratio of expenses to average net assetse		0.25	%		0.25	%
Ratio of net investment income to average net assetse		3.77	%		3.77	%
Portfolio turnover ratef		27	%		17	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

52 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Notes to Financial Statements (Unaudited)

iSHARES^® TRUST

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 statutory trust pursuant to an Agreement and Declaration of Trust dated December 16, 1999.

These financial statements relate only to the iShares Lehman Short Treasury Bond Fund, iShares Lehman 1-3 Year Treasury Bond Fund, iShares Lehman 3-7 Year Treasury Bond Fund, iShares Lehman 7-10 Year Treasury Bond Fund, iShares Lehman 10-20 Year Treasury Bond Fund, iShares Lehman 20+ Year Treasury Bond Fund, iShares Lehman TIPS Bond Fund, iShares S&P California Municipal Bond Fund, iShares S&P National Municipal Bond Fund and iShares S&P New York Municipal Bond Fund (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. The investment adviser uses a “passive” or index approach to achieve each Fund’s investment objective. Each of the Funds is classified as a diversified fund under the 1940 Act, except for the iShares Lehman Short Treasury Bond Fund, iShares Lehman 3-7 Year Treasury Bond Fund, iShares Lehman 10-20 Year Treasury Bond Fund, iShares S&P California Municipal Bond Fund, iShares S&P National Municipal Bond Fund and iShares S&P New York Municipal Bond Fund, which are classified as non-diversified funds. Non-diversified funds generally hold securities 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 affecting these companies.

Pursuant to the Trust’s organizational documents, the Funds’ 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.

1. SIGNIFICANT ACCOUNTING POLICIES

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”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

SECURITY VALUATION

The securities and other assets of each Fund are generally valued using market valuations. A market valuation generally means a valuation (i) obtained from an exchange, a pricing service or a major market maker (or dealer), (ii) based on a price quotation or other equivalent indication of value supplied by an exchange, a pricing service or a major market maker (or dealer) or (iii) based on amortized cost. In the case of shares of funds that are not traded on an exchange, a market valuation means such fund’s published net asset value per share. The investment adviser may use various pricing services or discontinue the use of any pricing service. A price obtained from a pricing service based on such pricing service’s valuation matrix may be considered a market valuation. In the event that current market valuations are not readily available or such valuations do not reflect current market values, the affected investments will be valued pursuant to the pricing policy and procedures approved by the Board of Trustees of the Trust (the “Board”).

Effective March 1, 2008, the Funds adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. Various inputs are used in determining the value of the Funds’ investments. These inputs are summarized in the three broad levels listed below.

NOTES TO FINANCIAL STATEMENTS 53

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

• Level 1 – quoted prices in active markets for identical investments

• Level 2 – other significant observable inputs (including, but not limited to, quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments)

Investments that use Level 2 or Level 3 inputs may include, but are not limited to: (i) an unlisted security related to corporate actions; (ii) a restricted security (e.g., one that may not be publicly sold without registration under the Securities Act of 1933, as amended); (iii) a security whose trading has been suspended or which has been de-listed from its primary trading exchange; (iv) a security that is thinly traded; (v) a security in default or bankruptcy proceedings for which there is no current market quotation; (vi) a security affected by currency controls or restrictions; and (vii) a security affected by a significant event (e.g., an event that occurs after the close of the markets on which the security is traded but before the time as of which a Fund’s net asset value is computed and that may materially affect the value of the Fund’s investments). Examples of events that may be “significant events” are government actions, natural disasters, armed conflict, acts of terrorism, and significant market fluctuations.

The inputs or methodology used for valuation are not necessarily an indication of the risk associated with investing in those investments.

Fair value pricing could result in a difference between the prices used to calculate a Fund’s net asset value and the prices used by the Fund’s benchmark index, which, in turn, could result in a difference between the Fund’s performance and the performance of the Fund’s benchmark index.

The following is a summary of the inputs used in valuing the Funds’ investments as of August 31, 2008:

Investments in Securities
iShares Bond Fund	Level 1 – Quoted Prices	Level 2 – Other Significant Observable Inputs	Level 3 – Significant Unobservable Inputs	Total Fair Value
Lehman Short Treasury	$  1,829,392,860	$                     –	$                     –	$  1,829,392,860
Lehman 1-3 Year Treasury	13,309,552,826	–	–	13,309,552,826
Lehman 3-7 Year Treasury	1,155,210,396	–	–	1,155,210,396
Lehman 7-10 Year Treasury	4,026,844,406	–	–	4,026,844,406
Lehman 10-20 Year Treasury	163,239,551	–	–	163,239,551
Lehman 20+ Year Treasury	2,203,121,016	–	–	2,203,121,016
Lehman TIPS	3,627,652,198	8,072,137,460	–	11,699,789,658
S&P California Municipal	2,026,765	109,282,097	–	111,308,862
S&P National Municipal	5,451,915	670,639,852	–	676,091,767
S&P New York Municipal	354,776	30,087,957	–	30,442,733

SECURITY TRANSACTIONS AND INCOME RECOGNITION

Security transactions are accounted for on trade date. Interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method. The Funds amortize premiums and accrete discounts on debt securities purchased, using a constant yield to maturity method.

54 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

The inflation-protected public obligations held by the iShares Lehman TIPS Bond Fund are income-generating instruments whose interest and principal payments are adjusted for inflation (or deflation). The inflation (deflation) adjustment is applied to the principal of each bond on a monthly basis and is accounted for as interest income in the Fund’s Statement of Operations.

DISTRIBUTIONS TO SHAREHOLDERS

Distributions to shareholders from net investment income, if any, are declared and distributed at least monthly 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. Dividends and distributions cannot be automatically reinvested in additional shares of the Funds.

The tax character of current year distributions will be determined at the end of the current fiscal year.

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 ordinary income and any net capital gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes was required for the six months ended August 31, 2008.

The Funds had tax basis net capital loss carryforwards as of February 29, 2008, the tax year-end of the Funds, as follows:

iShares Bond Fund

Expiring 2012

Expiring 2013

Expiring 2014

Expiring 2015

Expiring 2016

Total

Lehman 1-3 Year Treasury

$

–

$

–

$

–

$

29,230,442

$

–

$

29,230,442

Lehman 3-7 Year Treasury

–

–

–

–

49,307

49,307

Lehman 7-10 Year Treasury

–

–

–

16,443,695

–

16,443,695

Lehman 10-20 Year Treasury

–

–

–

–

2,336

2,336

Lehman 20+ Year Treasury

2,218,753

–

1,105,659

4,724,131

3,444,435

11,492,978

Lehman TIPS

–

2,389,570

512,591

13,253,242

5,636,312

21,791,715

S&P California Municipal

–

–

–

–

13,877

13,877

S&P National Municipal

–

–

–

–

6,225

6,225

S&P New York Municipal

–

–

–

–

60

60

Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first.

For the six months ended August 31, 2008, certain Funds realized net capital gains or losses resulting from in-kind redemptions of large blocks of shares 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 net realized in-kind gains or losses for the six months ended August 31, 2008 are disclosed in the Funds’ Statements of Operations.

NOTES TO FINANCIAL STATEMENTS 55

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

As of August 31, 2008, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

iShares Bond Fund	Tax Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation			Net Unrealized Appreciation (Depreciation)
Lehman Short Treasury	$	1,829,072,509	$	725,498	$	(405,147	)	$	320,351
Lehman 1-3 Year Treasury		13,197,100,189		124,819,496		(12,366,859	)		112,452,637
Lehman 3-7 Year Treasury		1,151,946,169		3,387,604		(123,377	)		3,264,227
Lehman 7-10 Year Treasury		3,938,286,184		88,558,222		–			88,558,222
Lehman 10-20 Year Treasury		163,294,777		70,457		(125,683	)		(55,226	)
Lehman 20+ Year Treasury		2,220,056,651		75,619		(17,011,254	)		(16,935,635	)
Lehman TIPS		11,643,095,580		76,291,690		(19,597,612	)		56,694,078
S&P California Municipal		112,013,308		711,129		(1,415,575	)		(704,446	)
S&P National Municipal		677,540,400		5,535,699		(6,984,332	)		(1,448,633	)
S&P New York Municipal		30,569,016		167,349		(293,632	)		(126,283	)

The Funds adopted FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in a tax position taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosures of tax positions, along with accounting for the related interest and penalties. Management has reviewed the tax positions as of August 31, 2008, inclusive of the prior three open tax return years, and has determined that the implementation of FIN 48 did not have a material impact on the Funds’ financial statements.

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 execution of portfolio transactions, distribution fees and extraordinary expenses.

For its investment advisory services to the following Funds, BGFA is entitled to an annual investment advisory fee based on the average daily net assets of each Fund as follows:

iShares Bond Fund	Investment Advisory Fee
Lehman Short Treasury	0.15	%
Lehman 1-3 Year Treasury	0.15
Lehman 3-7 Year Treasury	0.15
Lehman 7-10 Year Treasury	0.15
Lehman 10-20 Year Treasury	0.15

iShares Bond Fund	Investment Advisory Fee
Lehman 20+ Year Treasury	0.15	%
Lehman TIPS	0.20
S&P California Municipal	0.25
S&P New York Municipal	0.25

56 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

Effective July 1, 2008, BGFA is entitled to an annual investment advisory fee of 0.25% of the average daily net assets of the iShares S&P National Municipal Bond Fund for its investment advisory services.

Prior to July 1, 2008, BGFA was entitled to receive an annual investment advisory fee of 0.30% of the average daily net assets of the iShares S&P National Municipal Bond Fund for its investment advisory services. BGFA contractually agreed to waive 0.05% of its fees for these services through June 30, 2008.

State Street Bank and Trust Company (“State Street”) serves as administrator, custodian and transfer agent for the Trust. As compensation for its services, State Street receives certain out-of-pocket costs, transaction fees and asset-based fees which are accrued daily and paid monthly. These fees and expenses are Covered Expenses as defined above.

SEI Investments Distribution Co. (“SEI”) serves as each Fund’s underwriter and distributor of the shares of each Fund, pursuant to a Distribution Agreement with the Trust. SEI does not receive a fee from the Funds for its distribution services.

Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC”), the Funds are permitted to lend portfolio securities to Barclays Capital Inc. (“BarCap”). Pursuant to the same exemptive order, Barclays Global Investors, N.A. (“BGI”) serves as securities lending agent for the Funds. BarCap and BGI are affiliates of BGFA, the Funds’ investment adviser. As securities lending agent, BGI receives, as fees, a share of the income earned on investment of the cash collateral received for the loan of securities. For the six months ended August 31, 2008, BGI earned securities lending agent fees as follows:

iShares Bond Fund	Securities Lending Agent Fees
Lehman Short Treasury	$      763,983
Lehman 1-3 Year Treasury	10,432,238
Lehman 3-7 Year Treasury	626,614
Lehman 7-10 Year Treasury	2,846,343
Lehman 10-20 Year Treasury	98,922
Lehman 20+ Year Treasury	1,437,259
Lehman TIPS	6,706,972

Each Fund may invest in the Institutional Shares of certain money market funds managed by BGFA, the Funds’ investment adviser, including the Government Money Market Fund (“GMMF”), Institutional Money Market Fund (“IMMF”), Prime Money Market Fund (“PMMF”) and Treasury Money Market Fund (“TMMF”) of Barclays Global Investors Funds. The GMMF, IMMF, PMMF and TMMF are feeder funds in a master/feeder fund structure that invest substantially all of their assets in the Government Money Market Master Portfolio, Money Market Master Portfolio, Prime Money Market Master Portfolio and Treasury Money Market Master Portfolio (collectively, the “Money Market Master Portfolios”), respectively, which are also managed by BGFA. While the GMMF, IMMF, PMMF and TMMF do not directly charge an investment advisory fee, the Money Market Master Portfolios in which they invest do charge an investment advisory fee. Income distributions from the GMMF, IMMF, PMMF and TMMF are declared daily and paid monthly from net investment income. Income distributions earned by the Funds from temporary cash investments are recorded as interest from affiliated issuers in the accompanying Statements of Operations. Income distributions earned by the Funds from the investment of securities lending collateral, if any, are included in securities lending income in the accompanying Statements of Operations.

Each Fund may invest its securities lending cash collateral, if any, in the BGI Cash Premier Fund LLC (“Premier Fund”), an affiliated private money market fund managed by BGFA. Although the Premier Fund is not registered as an investment company under the 1940 Act, it

NOTES TO FINANCIAL STATEMENTS 57

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

intends to operate as a money market fund in compliance with Rule 2a-7 under the 1940 Act. See Note 5 for additional information regarding the Premier Fund.

Certain trustees and officers of the Trust are also officers of BGI and/or BGFA.

3. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the six months ended August 31, 2008 were as follows:

		U.S. Government Obligations				Other Securities
iShares Bond Fund	Purchases		Sales		Purchases		Sales
Lehman Short Treasury	$	627,864,638	$	620,894,318	$	–	$	–
Lehman 1-3 Year Treasury		1,471,565,141		1,462,888,291		–		–
Lehman 3-7 Year Treasury		204,969,878		192,757,884		–		–
Lehman 7-10 Year Treasury		626,777,514		620,162,718		–		–
Lehman 10-20 Year Treasury		16,731,919		15,833,147		–		–
Lehman 20+ Year Treasury		186,903,307		186,296,591		–		–
Lehman TIPS		209,922,987		426,153,858		–		–
S&P California Municipal		–		–		12,180,246		13,493,327
S&P National Municipal		–		–		52,311,656		43,797,550
S&P New York Municipal		–		–		7,736,413		7,313,723

In-kind transactions (See Note 4) for the six months ended August 31, 2008 were as follows:

iShares Bond Fund	In-kind Purchases		In-kind Sales
Lehman Short Treasury	$	1,491,152,179	$	744,889,381
Lehman 1-3 Year Treasury		2,886,972,623		3,469,518,806
Lehman 3-7 Year Treasury		639,376,270		301,058,260
Lehman 7-10 Year Treasury		527,319,210		458,733,556
Lehman 10-20 Year Treasury		41,597,786		41,897,833
Lehman 20+ Year Treasury		4,789,006,465		4,938,572,176
Lehman TIPS		2,085,205,015		65,369,318
S&P California Municipal		50,792,535		–
S&P National Municipal		299,919,634		–
S&P New York Municipal		19,999,264		9,974,884

4. CAPITAL SHARE TRANSACTIONS

Capital shares are issued and redeemed by each Fund only in Creation Units or multiples thereof. Except when aggregated in Creation Units, shares of each Fund are not redeemable. Transactions in capital shares for each Fund are disclosed in detail in the Statements of Changes in Net Assets.

58 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

The consideration for the purchase of Creation Units of a Fund generally consists of the in-kind deposit of a designated portfolio of securities, which constitutes a substantial replication, or a portfolio sampling representation, of the securities involved in the relevant Fund’s underlying index and an amount of cash. Investors purchasing and redeeming Creation Units in the iShares Lehman Short Treasury Bond Fund, iShares Lehman 3-7 Year Treasury Bond Fund, iShares Lehman 10-20 Year Treasury Bond Fund, iShares S&P California Municipal Bond Fund, iShares S&P National Municipal Bond Fund and iShares S&P New York Municipal Bond Fund pay a purchase transaction fee and a redemption transaction fee directly to State Street, the administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units.

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 by each Fund is required to have a value of at least 102% of the market value of the loaned securities plus the interest accrued on such securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan plus accrued interest, if any. The risks to the Funds of securities lending are that the borrower may not provide additional collateral when required or may not return the securities when due.

As of August 31, 2008, certain Funds had loaned securities which were collateralized by cash. The cash collateral received was invested in the Premier Fund. The Premier Fund seeks to achieve its investment objective by investing in a portfolio of high-quality, short-term fixed-income instruments, including money market funds (which may be managed by BGFA or its affiliate) and other instruments that, at the time of investment, have remaining maturities of 397 calendar days or less from the date of acquisition.

The market value of the securities on loan as of August 31, 2008 and the value of the related collateral are disclosed in the Statements of Assets and Liabilities. Securities lending income, as disclosed in the Funds’ Statements of Operations, represents the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to BGI as securities lending agent.

6. SUBSEQUENT EVENT

On September 22, 2008, BarCap, an affiliate of BGFA, completed its acquisition of Lehman Brothers North American investment banking and capital markets businesses. As part of the transaction, Lehman indexes, including the operations responsible for these indexes, have become part of BarCap. As a result, the Lehman indexes are now maintained by BarCap, which is a separate legal entity from BGFA. BGFA will have no role in maintaining the Lehman indexes.

NOTES TO FINANCIAL STATEMENTS 59

Board Review and Approval of Investment Advisory Contract (Unaudited)

iSHARES^® TRUST

Under Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), the Trust’s Board of Trustees (the “Board”), including a majority of Trustees who are not “interested persons” of the Trust (as that term is defined in the 1940 Act) (the “Independent Trustees”), is required annually to consider the Investment Advisory Contract between the Trust and BGFA (the “Advisory Contract”) on behalf of the Funds. As required by Section 15(c), the Board requested and BGFA provided such information as the Board deemed reasonably necessary to evaluate the terms of the Advisory Contract. At a meeting held on June 18-19, 2008, the Board approved the selection of BGFA and the continuance of the Advisory Contract, based on its review of qualitative and quantitative information provided by BGFA. At the same meeting, the Board considered and approved a proposal by BGFA to contractually reduce the advisory fee rate for the iShares S&P National Municipal Bond Fund (the “National Muni Fund”) under the Advisory Contract. The Board’s approval of the proposed amended Advisory Contract was based on, among other things, its review of information provided by BGFA. In selecting BGFA and approving the Advisory Contract for the Funds, the Board, including the Independent Trustees, advised by their independent counsel, considered the following factors, no one of which was controlling, and made the following conclusions:

NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY BGFA

The Board anticipated that there would be no diminution in the scope of services required of BGFA under the Advisory Contract for the coming year as compared to the scope of services provided by BGFA over the past year. In reviewing the scope of these services, the Board considered BGFA’s investment philosophy and experience, noting that BGFA and its affiliates have committed significant resources over time, including over the past year, including investment in technology and increasing the number of their employees supporting the Funds. The Board also considered BGFA’s compliance program and its compliance record with respect to the Funds. In that regard, the Board noted that BGFA reports to the Board about portfolio management and compliance matters on a periodic basis in connection with regularly scheduled meetings of the Board, and has made appropriate officers available as needed to provide further assistance with these matters. The Board also reviewed the background and experience of the persons responsible for the day-to-day management of the Funds. In addition to the above considerations, the Board considered BGFA’s investment processes and strategies, and matters related to BGFA’s portfolio transaction policies and procedures. The Board further noted that BGFA does not serve as investment adviser for any other series of registered investment companies with substantially similar investment objectives and strategies as any of the Funds; therefore, comparative performance information was generally not available for those particular Funds. The Board also noted that the Funds had met their investment objectives consistently since their respective inception dates. Based on review of this information, the Board concluded that the nature, extent and quality of services to be provided by BGFA to the Funds under the Advisory Contract were appropriate and mitigated in favor of the Board’s approval of the Advisory Contract for the coming year.

In considering the proposed fee reduction for the National Muni Fund, the Board drew on the considerations and conclusions resulting from that review. The Board discussed with representatives of BGFA certain information regarding the proposed fee reduction and considered representations from BGFA that, following the fee reduction, BGFA remained fully committed to providing the National Muni Fund with the same level and quality of services as had been provided to the Funds in the past. Based on this review, the Board concluded that the nature, extent and quality of services to be provided by BGFA under the revised Advisory Contract were appropriate.

FUNDS’ EXPENSES AND PERFORMANCE OF THE FUNDS

The Board reviewed statistical information prepared by Lipper Inc. (“Lipper”), an independent provider of investment company data, regarding the expense ratio components, including advisory fees, waivers/reimbursements, and gross and net total expenses of each Fund in comparison with the same information for other registered investment companies objectively selected by Lipper as comprising such Fund’s applicable peer group pursuant to Lipper’s proprietary methodology and any registered investment companies that would otherwise have been excluded from Lipper’s comparison group due to certain differentiating factors, but were nonetheless included at the request of BGFA (the “Lipper Group”). Because there are few, if any, exchange traded funds or index funds that track indexes similar to those tracked

60 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Board Review and Approval of Investment Advisory Contract (Unaudited) (Continued)

iSHARES^® TRUST

by the Funds, the Lipper Groups included in part mutual funds, closed-end funds, exchange traded funds, or funds with differing investment objective classifications, investment focuses and other characteristics (e.g., actively managed funds and funds sponsored by “at cost” service providers). In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the applicable Lipper Groups and to prepare this information. The Board further noted that due to the limitations in providing comparable funds in the various Lipper Groups, the statistical information may or may not provide meaningful direct comparisons to the Funds. In addition, the Board reviewed statistical information prepared by Lipper regarding the performance of each Fund for the one-, three- and five-year periods, as applicable, and the “last quarter” period ended March 31, 2008, and a comparison of each Fund’s performance to its performance benchmark index for the same periods. To the extent that any of the comparison funds included in the Lipper Groups track the same index as any particular Fund, Lipper also provided, and the Board reviewed, a comparison of such Fund’s performance to that of such relevant comparison funds for the same periods. The Board noted that the Funds generally performed in line with their respective performance benchmark indexes over the relevant periods. In considering this information, the Board noted that the Lipper Groups include funds that may have different investment objectives and/or benchmarks from the Funds. In addition, the Board noted that each Fund seeks to track its benchmark index and that during the prior year the Board received periodic reports on the Funds’ performance in comparison with their relevant benchmark indexes. Such comparative performance information was also considered by the Board.

The Board also noted that the investment advisory fees and overall expenses for the Funds were generally lower than the median or average investment advisory fee rates and overall expense components of the funds in their respective Lipper Groups. The Board also discussed with representatives of BGFA the rationale for the proposed reduction in the level of fees for the National Muni Fund, including BGFA’s desire to promote consistency of fees among similar products. In considering the proposed fee rate reduction for the National Muni Fund, the Board also considered its review of the materials prepared by Lipper and other data reviewed in connection with its approval of the continuance of the Advisory Contract. Based on this review, the Board concluded that the investment advisory fees and expense levels and the historical performance of each Fund, as managed by BGFA, as compared to the investment advisory fees and expense levels and performance of the funds in the relevant Lipper Group, were satisfactory for the purposes of approving the Advisory Contract for the coming year and the purposes of approving the proposed fee reduction for the Advisory Contract for the National Muni Fund.

COSTS OF SERVICES PROVIDED TO FUNDS AND PROFITS REALIZED BY BGFA AND AFFILIATES

The Board reviewed information about the profitability to BGFA of the Funds based on the fees payable to BGFA and its affiliates (including fees under the Advisory Contract), and all other sources of revenue and expense to BGFA and its affiliates from the Funds’ operations for the last calendar year. The Board discussed the sources of direct and ancillary revenue with management, including the revenues to BGI from securities lending by the Trust (including any securities lending by the Funds). The Board also discussed BGFA’s profit margin as reflected in the Funds’ profitability analysis and reviewed information regarding economies of scale (as discussed below). Based on this review, the Board concluded that the profits realized by BGFA and its affiliates under the Advisory Contract and from other relationships between the Funds and BGFA and/or its affiliates, if any, were within the range the Board considered reasonable and appropriate.

The Board considered the proposed fee reduction for the National Muni Fund in the context of the conclusions it reached regarding the costs to, and profits realized by, BGFA in operating the Funds, including the National Muni Fund. The Board considered, in particular, information provided by BGFA regarding the potential savings to shareholders if the proposed fee reduction was approved. On the basis of this review, the Board concluded that the profits to be realized by BGFA and/or its affiliates, if any, were within the range the Board considered reasonable and appropriate.

BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT 61

Board Review and Approval of Investment Advisory Contract (Unaudited) (Continued)

iSHARES^® TRUST

ECONOMIES OF SCALE

In connection with its review of the Funds’ profitability analysis, the Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Funds’ assets. The Board noted that the Advisory Contract did not provide for any breakpoints in the Funds’ investment advisory fee rates as the assets of the Funds increase. However, the Board further noted that possible future economies of scale for the Funds had been taken into consideration by fixing the investment advisory fees at rates at the lower end of the marketplace, effectively giving Fund shareholders, from inception, the benefits of the lower average fee shareholders would have received from a fee structure with declining breakpoints where the initial fee was higher. The Board also reviewed BGFA’s historic profitability as investment adviser to the iShares fund complex and noted that BGFA had continued to make significant investments in the iShares funds, that expenses had grown at a pace similar to the growth in revenue, and that BGFA had incurred operating losses during earlier years when the iShares funds, including the Funds, had not yet reached scale. The Board also reviewed the materials provided by BGFA regarding the fee reduction proposed for the National Muni Fund. The Board considered the potential for BGFA to achieve economies of scale and BGFA’s desire to share such economies of scale with the National Muni Fund by means of implementing the proposed fee reduction. In light of the foregoing, the Board determined that the proposed reduction in the fee rate for the National Muni Fund is an appropriate means to share potential economies of scale with shareholders, but that addition of breakpoints for the National Muni Fund, or reductions in fee rates or additions of breakpoints for the other Funds, were not warranted at this juncture. Based on this review, as well as the discussions described above in connection with the Lipper Group and performance benchmark comparisons, the Board, recognizing its responsibility to consider this issue at least annually, concluded that the structure of the investment advisory fees, with the proposed fee rate reduction for the National Muni Fund, reflects appropriate sharing of economies of scale with the Funds’ shareholders.

FEES AND SERVICES PROVIDED FOR OTHER COMPARABLE FUNDS/ACCOUNTS MANAGED BY BGFA AND ITS AFFILIATES

The Board received and considered certain information regarding the Funds’ annual investment advisory fee rates under the Advisory Contract in comparison to the investment advisory/management fee rates for other funds/accounts for which BGFA or BGI, an affiliate of BGFA, provides investment advisory/management services, including other funds registered under the 1940 Act, collective funds and separate accounts (together, the “Other Accounts”). The Board noted that comparative investment advisory/management fee information was available for the iShares Lehman 1-3 Year Treasury Bond, iShares Lehman 7-10 Year Treasury Bond, the iShares Lehman 20+ Year Treasury Bond and iShares Lehman TIPS Bond Funds, but not the other Funds, as BGFA and its affiliates do not manage any Other Accounts with substantially similar investment objectives and strategies as such Funds. The Board also noted that BGFA provided the Board with general information regarding how the level of services provided to the Other Accounts differed from the level of services provided to the Funds. In reviewing the comparative investment advisory/management fee information for the Funds for which such information was available, the Board considered the general structure of investment advisory/management fees in relation to the nature and extent of services provided to the Funds in comparison with the nature and extent of services provided to the Other Accounts, including, among other things, the level of complexity in managing the Funds and the Other Accounts under differing regulatory requirements and client guidelines. The Board noted that the investment advisory fee rates under the Advisory Contract for the Funds were generally higher than the investment advisory/management fee rates for the Other Accounts for which BGFA or BGI provides investment advisory/management services, but that the differences appeared to be attributable to, among other things, the type and level of services provided and/or the asset levels of the Other Accounts. Based on this review, the Board determined that the investment advisory fee rates under the Advisory Contract do not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining, and concluded that the investment advisory fee rates under the Advisory Contract are fair and reasonable.

62 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Board Review and Approval of Investment Advisory Contract (Unaudited) (Continued)

iSHARES^® TRUST

OTHER BENEFITS TO BGFA AND/OR ITS AFFILIATES

The Board reviewed any ancillary revenue received by BGFA and/or its affiliates in connection with the services provided to the Funds by BGFA, such as any payment of revenue to BGI, the Trust’s securities lending agent, for loaning any portfolio securities, and the payment of advisory fees and/or administration fees to BGFA and BGI in connection with any investment by the Funds in other funds for which BGFA provides investment advisory services and/or BGI provides administration services. The Board noted that BGFA does not use soft dollars or consider the value of research or other services that may be provided to BGFA (including its affiliates) in selecting brokers for portfolio transactions for the Funds. The Board further noted that any portfolio transactions on behalf of the Funds placed through a BGFA affiliate or purchased from an underwriting syndicate in which a BGFA affiliate participates, are reported to the Board pursuant to Rule 17e-1 or Rule 10f-3, as applicable, under the 1940 Act. The Board concluded that any such ancillary benefits would not be disadvantageous to the Funds’ shareholders.

Based on this analysis, the Board determined that the Advisory Contract, including the investment advisory fee rates thereunder, revised as proposed with respect to the National Muni Fund, is fair and reasonable in light of all relevant circumstances, and concluded that it is in the best interest of the Funds and their shareholders to approve the Advisory Contract for the coming year.

BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT 63

Notes:

64 NOTES 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

The iShares^® Family of Funds

The following is a list of iShares Funds being offered, along with their respective exchange trading symbols. Please call 1-800-iShares (1-800-474-2737) to obtain a prospectus for any iShares Fund. The prospectus contains more complete information, including charges, expenses, investment objectives and risk factors that should be carefully considered to determine if the Fund(s) are an appropriate investment for you. Read the prospectus(es) carefully before investing. Investing involves risk, including possible loss of principal.

iShares S&P Domestic Index Funds

iShares S&P 1500 (ISI)

iShares S&P 100 (OEF)

iShares S&P 500 (IVV)

iShares S&P 500 Growth (IVW)

iShares S&P 500 Value (IVE)

iShares S&P MidCap 400 (IJH)

iShares S&P MidCap 400 Growth (IJK)

iShares S&P MidCap 400 Value (IJJ)

iShares S&P SmallCap 600 (IJR)

iShares S&P SmallCap 600 Growth (IJT)

iShares S&P SmallCap 600 Value (IJS)

iShares S&P North American Natural Resources Sector (IGE)

iShares S&P North American Technology-Multimedia Networking (IGN)

iShares S&P North American Technology- Semiconductors (IGW)

iShares S&P North American Technology- Software (IGV)

iShares S&P North American Technology Sector (IGM)

iShares Domestic Sector Index Funds

iShares Cohen & Steers Realty Majors (ICF)

iShares Dow Jones U.S. Basic Materials Sector (IYM)

iShares Dow Jones U.S. Consumer Services Sector (IYC)

iShares Dow Jones U.S. Consumer Goods Sector (IYK)

iShares Dow Jones U.S. Energy Sector (IYE)

iShares Dow Jones U.S. Financial Sector (IYF)

iShares Dow Jones U.S. Financial Services (IYG)

iShares Dow Jones U.S. Healthcare Sector (IYH)

iShares Dow Jones U.S. Industrial Sector (IYJ)

iShares Dow Jones U.S. Real Estate (IYR)

iShares Dow Jones U.S. Technology Sector (IYW)

iShares Dow Jones U.S. Telecommunications Sector (IYZ)

iShares Dow Jones Transportation Average (IYT)

iShares Dow Jones U.S. Utilities Sector (IDU)

iShares Dow Jones U.S. (IYY)

iShares Nasdaq Biotechnology (IBB)

iShares Domestic Subsector Index Funds

iShares Dow Jones U.S. Aerospace & Defense (ITA)

iShares Dow Jones U.S. Broker-Dealers (IAI)

iShares Dow Jones U.S. Healthcare Providers (IHF)

iShares Dow Jones U.S. Home Construction (ITB)

iShares Dow Jones U.S. Insurance (IAK)

iShares Dow Jones U.S. Medical Devices (IHI)

iShares Dow Jones U.S. Oil & Gas Exploration & Production (IEO)

iShares Dow Jones U.S. Oil Equipment &

Services (IEZ)

iShares Dow Jones U.S. Pharmaceuticals (IHE)

iShares Dow Jones U.S. Regional Banks (IAT)

iShares FTSE NAREIT Industrial/Office (FIO)

iShares FTSE NAREIT Mortgage REITs (REM)

iShares FTSE NAREIT Real Estate 50 (FTY)

iShares FTSE NAREIT Residential (REZ)

iShares FTSE NAREIT Retail (RTL)

iShares Global Index Funds

iShares S&P Global 100 (IOO)

iShares S&P Global Clean Energy (ICLN)

iShares S&P Global Consumer Discretionary Sector (RXI)

iShares S&P Global Consumer Staples Sector (KXI)

iShares S&P Global Energy Sector (IXC)

iShares S&P Global Financials Sector (IXG)

iShares S&P Global Healthcare Sector (IXJ)

iShares S&P Global Industrials Sector (EXI)

iShares S&P Global Infrastructure (IGF)

iShares S&P Global Materials Sector (MXI)

iShares S&P Global Nuclear Energy (NUCL)

iShares S&P Global Technology Sector (IXN)

iShares S&P Global Telecommunications Sector (IXP)

iShares S&P Global Timber & Forestry (WOOD)

iShares S&P Global Utilities Sector (JXI)

iShares Russell Index Funds

iShares Russell 3000 (IWV)

iShares Russell 3000 Growth (IWZ)

iShares Russell 3000 Value (IWW)

iShares Russell 1000 (IWB)

iShares Russell 1000 Growth (IWF)

iShares Russell 1000 Value (IWD)

iShares Russell Midcap (IWR)

iShares Russell Midcap Growth (IWP)

iShares Russell Midcap Value (IWS)

iShares Russell 2000 (IWM)

iShares Russell 2000 Growth (IWO)

iShares Russell 2000 Value (IWN)

iShares Russell Microcap (IWC)

iShares International Country Index Funds

iShares FTSE China (HK Listed) (FCHI)

iShares FTSE/Xinhua China 25 (FXI)

iShares MSCI Australia (EWA)

iShares MSCI Austria Investable Market (EWO)

iShares MSCI Belgium Investable Market (EWK)

iShares MSCI Brazil (EWZ)

iShares MSCI Canada (EWC)

iShares MSCI Chile Investable Market (ECH)

iShares MSCI France (EWQ)

iShares MSCI Germany (EWG)

iShares MSCI Hong Kong (EWH)

iShares MSCI Israel Capped Investable Market (EIS)

iShares MSCI Italy (EWI)

iShares MSCI Japan (EWJ)

iShares MSCI Japan Small Cap (SCJ)

iShares MSCI Malaysia (EWM)

iShares MSCI Mexico Investable Market (EWW)

iShares MSCI Netherlands Investable Market (EWN)

iShares MSCI Singapore (EWS)

iShares MSCI South Africa (EZA)

iShares MSCI South Korea (EWY)

iShares MSCI Spain (EWP)

iShares MSCI Sweden (EWD)

iShares MSCI Switzerland (EWL)

iShares MSCI Taiwan (EWT)

iShares MSCI Thailand Investable Market (THD)

iShares MSCI Turkey Investable Market (TUR)

iShares MSCI United Kingdom (EWU)

iShares S&P/TOPIX 150 (ITF)

iShares Bond Funds

iShares Lehman Aggregate (AGG)

iShares Lehman MBS (MBB)

iShares Lehman Short Treasury (SHV)

iShares Lehman 1-3 Year Treasury (SHY)

iShares Lehman 3-7 Year Treasury (IEI)

iShares Lehman 7-10 Year Treasury (IEF)

iShares Lehman 10-20 YearTreasury (TLH)

iShares Lehman 20+ Year Treasury (TLT)

iShares Lehman TIPS (TIP)

iShares Lehman Credit (CFT)

iShares Lehman 1-3 Year Credit (CSJ)

iShares Lehman Intermediate Credit (CIU)

iShares iBoxx $ Investment Grade Corporate (LQD)

iShares iBoxx $ High Yield Corporate (HYG)

iShares Lehman Government/Credit (GBF)

iShares Lehman Intermediate Government /Credit (GVI)

iShares S&P National Municipal (MUB)

iShares S&P California Municipal (CMF)

iShares S&P New York Municipal (NYF)

iShares JPMorgan USD Emerging Markets (EMB)

iShares Specialty Index Funds

iShares KLD 400 Social (DSI)

iShares KLD Select Social^SM (KLD)

iShares Dow Jones Select Dividend (DVY)

iShares Dow Jones EPAC Select Dividend (IDV)

iShares S&P U.S. Preferred Stock (PFF)

iShares International Index Funds

iShares FTSE Developed Small Cap ex-North America (IFSM)

iShares FTSE EPRA/NAREIT Global Real Estate ex-U.S. (IFGL)

iShares FTSE EPRA/NAREIT North America (IFNA)

iShares FTSE EPRA/NAREIT Europe (IFEU)

iShares FTSE EPRA/NAREIT Asia (IFAS)

iShares MSCI ACWI (ACWI)

iShares MSCI ACWI ex US (ACWX)

iShares MSCI All Country Asia ex Japan (AAXJ)

iShares MSCI BRIC (BKF)

iShares MSCI EAFE (EFA)

iShares MSCI EAFE Growth (EFG)

iShares MSCI EAFE Value (EFV)

iShares MSCI EAFE Small Cap (SCZ)

iShares MSCI Emerging Markets (EEM)

iShares MSCI EMU (EZU)

iShares MSCI Kokusai (TOK)

iShares MSCI Pacific ex-Japan (EPP)

iShares S&P Asia 50 (AIA)

iShares S&P Europe 350 (IEV)

iShares S&P Latin America 40 (ILF)

iShares S&P World ex-U.S. Property (WPS)

iSHARES FAMILY OF FUNDS 65

The iShares^® Family of Funds (Continued)

iShares Morningstar Index Funds

iShares Morningstar Large Core (JKD)

iShares Morningstar Large Growth (JKE)

iShares Morningstar Large Value (JKF)

iShares Morningstar Mid Core (JKG)

iShares Morningstar Mid Growth (JKH)

iShares Morningstar Mid Value (JKI)

iShares Morningstar Small Core (JKJ)

iShares Morningstar Small Growth (JKK)

iShares Morningstar Small Value (JKL)

iShares NYSE Index Funds

iShares NYSE Composite (NYC)

iShares NYSE 100 (NY)

iShares^® is a registered trademark of Barclays Global Investors, N.A. The iShares Funds are not sponsored, endorsed or issued by Lehman Brothers, nor are they sponsored, endorsed, issued, sold or promoted by Cohen & Steers Capital Management, Inc., Dow Jones & Company, Inc., European Public Real Estate Association (“EPRA^®”), FTSE International Limited (“FTSE”), FTSE/Xinhua Index Limited (“FXI”), iBoxx^®, J.P. Morgan Securities Inc., KLD Research & Analytics, Inc., MSCI Inc., Morningstar Inc., The NASDAQ Stock Market, Inc., National Association of Real Estate Investment Trusts (“NAREIT”), New York Stock Exchange, Inc., Frank Russell Company, or Standard & Poor’s. None of these companies make any representation regarding the advisability of investing in the iShares Funds. Neither SEI nor BGI, nor any of their affiliates, are affiliated with the companies listed above. FXI does not make any warranty regarding the FTSE/Xinhua Index. All rights in the FTSE/Xinhua Index vest in FXI. Neither FTSE nor NAREIT makes any warranty regarding the FTSE NAREIT Real Estate 50/Residential/Retail/Mortgage REITs or Industrial/Office Index; all rights vest in NAREIT. Neither FTSE nor NAREIT makes any warranty regarding the FTSE EPRA/NAREIT Global Real Estate ex-US/North America/Europe/Asia Index; all rights vest in FTSE, NAREIT, and EPRA. All rights in the FTSE Developed Small Cap ex-North America Index vest in FTSE. “FTSE” is a trade- and servicemark of London Stock Exchange and The Financial Times Limited; “Xinhua” is a trade- and servicemark of Xinhua Financial Network Limited. “NAREIT^®” is a trademark of NAREIT; “EPRA^®” is a trademark of EPRA.

An investment in the Fund(s) is not a deposit of a bank and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This advertising section does not constitute part of the 2008 Semi-Annual Report.

7821-iS-0908

66 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

For more information:

WWW.iSHARES.COM

1-800-iShares (1-800-474-2737)

The iShares Funds are distributed by SEI Investments Distribution Co. (SEI). Barclays Global Fund Advisors (BGFA) serves as an adviser to the iShares Funds. BGFA is a subsidiary of Barclays Global Investors, N.A., neither of which is affiliated with SEI.

The iShares Funds are not sponsored, endorsed or issued by Lehman Brothers, nor are they sponsored, endorsed, issued, sold or promoted by Barclays Capital, Inc. or Standard & Poor’s. None of these companies make any representation regarding the advisability of investing in the iShares Funds. Neither SEI or any of its affiliates are affiliated with the companies listed above.

©2008 Barclays Global Investors. All rights reserved. iShares® is a registered trademark of Barclays Global Investors, N.A. All other trade- marks, servicemarks or registered trademarks are the property of their respective owners.

Investing involves risk, including possible loss of principal.

A description of the policies that the Funds use to determine how to vote proxies relating to portfolio securities and information about how the Funds voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge, upon request, by calling toll-free 1-800-474-2737; on the Funds’ website at www.iShares.com; and on the U.S. Securities and Exchange Commission (SEC) website at www.sec.gov.

The Funds file their complete schedules of portfolio holdings with the SEC for the first and third quarter of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s website or may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Funds also disclose their complete schedules of portfolio holdings on a daily and monthly basis on the Funds’ website.

This report is intended for the Fund’s shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the current prospectus.

BGI-F-051-10008

iShares® LET’S BUILD A BETTER INVESTMENT WORLDSM. BARCLAYS GLOBAL INVESTORS

2008 SEMI-ANNUAL REPORT TO SHAREHOLDERS

iSHARES® BOND FUNDS

AUGUST 31, 2008

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iShares Lehman 1-3 Year Credit Bond Fund iShares Lehman Intermediate Credit Bond Fund

iShares Lehman Credit Bond Fund

iShares Lehman Intermediate Government/Credit Bond Fund iShares Lehman Government/Credit Bond Fund

iShares Lehman MBS Bond Fund

iShares Lehman Aggregate Bond Fund

iShares iBoxx $ High Yield Corporate Bond Fund

iShares iBoxx $ Investment Grade Corporate Bond Fund

iShares JPMorgan USD Emerging Markets Bond Fund

iShares®

iShares®

Dear iShares Shareholder:

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Table of Contents

Fund Performance Overviews	1
Shareholder Expenses	11
Schedules of Investments	13
iShares Lehman 1-3 Year Credit Bond Fund	13
iShares Lehman Intermediate Credit Bond Fund	18
iShares Lehman Credit Bond Fund	24
iShares Lehman Intermediate Government/Credit Bond Fund	30
iShares Lehman Government/Credit Bond Fund	36
iShares Lehman MBS Bond Fund	42
iShares Lehman Aggregate Bond Fund	43
iShares iBoxx $ High Yield Corporate Bond Fund	49
iShares iBoxx $ Investment Grade Corporate Bond Fund	52
iShares JPMorgan USD Emerging Markets Bond Fund	55
Financial Statements	57
Financial Highlights	68
Notes to Financial Statements	78
Board Review and Approval of Investment Advisory Contract	86
iShares Family of Funds	89

Fund Performance Overview

iSHARES^® LEHMAN CREDIT BOND FUNDS

Performance as of August 31, 2008

	Average Annual Total Returns						Cumulative Total Returns
	Year Ended 8/31/08			Inception to 8/31/08			Inception to 8/31/08
iSHARES BOND FUND	NAV	MARKET	INDEX	NAV	MARKET	INDEX	NAV	MARKET	INDEX
Lehman 1-3 Year Credit	4.86%	5.66%	5.24%	4.73%	5.41%	5.08%	7.95%	9.11%	8.52%
Lehman Intermediate Credit	4.07%	4.26%	3.51%	3.63%	4.14%	3.53%	6.07%	6.94%	5.89%
Lehman Credit	3.13%	3.19%	2.71%	2.63%	3.12%	2.59%	4.39%	5.22%	4.32%

Total returns for the period since inception are calculated from the inception date of each Fund (1/5/07). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

Each Fund’s per share net asset value or “NAV” is the value of one share of such Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of each Fund and the market return is based on the market price per share of each 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 primary stock exchange on which the shares of the Funds are listed for trading, as of the time that each Fund’s NAV is calculated. Since shares of each Fund did not trade in the secondary market until several days after the Funds’ inception, for the period from inception to the first day of secondary market trading in shares of the Funds (1/11/07), the NAV of each Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in each Fund at Market Price and NAV, respectively.

An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each 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(s) 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 each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund’s past performance is no guarantee of future results.

The iShares Lehman 1-3 Year Credit Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the U.S. investment grade credit sector of the bond market as defined by the Lehman Brothers 1-3 Year U.S. Credit Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was (0.28)%, while the total return for the Index was (0.01)%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
Financial	50.67	%
Communications	12.49
Multi-National	7.41
Energy	5.88
Consumer Non-Cyclical	5.53
Foreign Government Obligations	5.06
Consumer Cyclical	3.63
Utilities	3.02
Technology	1.69
Industrial	1.40
Basic Materials	1.32
Short-Term and Other Net Assets	1.90
TOTAL	100.00	%

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
European Investment Bank, 4.00%, 03/03/10	3.39	%
KfW Series G, 5.00%, 06/01/10	3.12
KfW, 3.25%, 02/15/11	2.73
European Investment Bank, 2.63%, 05/16/11	2.69
Svensk Exportkredit AB, 4.50%, 09/27/10	2.24
General Electric Capital Corp., 4.88%, 10/21/10	2.13
Bank of America Corp., 4.50%, 08/01/10	2.10
Wells Fargo & Co., 4.20%, 01/15/10	1.89
International Lease Finance Corp., 5.45%, 03/24/11	1.72
HSBC Finance Corp., 5.25%, 01/14/11	1.68
TOTAL	23.69	%

FUND PERFORMANCE OVERVIEWS 1

Fund Performance Overview (Continued)

iSHARES^® LEHMAN CREDIT BOND FUNDS

The iShares Lehman Intermediate Credit Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the U.S. investment grade credit sector of the bond market as defined by the Lehman Brothers Intermediate U.S. Credit Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was (1.43)%, while the total return for the Index was (1.67)%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
Financial	45.42	%
Communications	11.66
Consumer Non-Cyclical	10.26
Foreign Government Obligations	5.80
Utilities	5.35
Multi-National	4.25
Energy	3.46
Industrial	3.39
Consumer Cyclical	3.18
Basic Materials	2.56
Technology	1.81
Diversified	0.07
Short-Term and Other Net Assets	2.79
TOTAL	100.00	%

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
European Investment Bank, 4.63%, 05/15/14	3.17	%
KfW, 4.25%, 06/15/10	3.12
General Electric Capital Corp., 4.13%, 09/01/09	3.08
Italy (Republic of), 4.50%, 01/21/15	2.43
Wells Fargo & Co., 4.88%, 01/12/11	2.22
JPMorgan Chase & Co., 5.75%, 01/02/13	2.02
Bank of America Corp., 4.88%, 01/15/13	1.73
HSBC Finance Corp., 5.50%, 01/19/16	1.48
General Electric Capital Corp., 5.00%, 01/08/16	1.48
Goldman Sachs Group Inc. (The), 6.15%, 04/01/18	1.27
TOTAL	22.00	%

2 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Fund Performance Overview (Continued)

iSHARES^® LEHMAN CREDIT BOND FUNDS

The iShares Lehman Credit Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the U.S. investment grade credit sector of the bond market as defined by the Lehman Brothers U.S. Credit Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was (1.57)%, while the total return for the Index was (1.66)%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
Financial	39.06	%
Communications	13.90
Consumer Non-Cyclical	8.30
Utilities	7.01
Foreign Government Obligations	6.42
Energy	5.97
Consumer Cyclical	4.44
Industrial	3.90
Multi-National	2.47
Basic Materials	2.44
Technology	1.75
Municipal Debt Obligations	0.97
Diversified	0.06
Short-Term and Other Net Assets	3.31
TOTAL	100.00	%

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
Wells Fargo & Co., 4.88%, 01/12/11	2.10	%
European Investment Bank, 5.13%, 05/30/17	1.65
KfW, 5.13%, 03/14/16	1.64
General Electric Capital Corp., 5.00%, 01/08/16	1.50
JPMorgan Chase & Co., 5.75%, 01/02/13	1.39
Italy (Republic of), 6.00%, 02/22/11	1.38
HSBC Finance Corp., 5.50%, 01/19/16	1.26
ConocoPhillips Holding Co., 6.95%, 04/15/29	1.14
AT&T Wireless Services Inc., 7.88%, 03/01/11	1.10
Hydro-Quebec, 8.05%, 07/07/24	1.10
TOTAL	14.26	%

FUND PERFORMANCE OVERVIEWS 3

Fund Performance Overview

iSHARES^® LEHMAN GOVERNMENT/CREDIT BOND FUNDS

Performance as of August 31, 2008

	Average Annual Total Returns						Cumulative Total Returns
	Year Ended 8/31/08			Inception to 8/31/08			Inception to 8/31/08
iSHARES BOND FUND	NAV	MARKET	INDEX	NAV	MARKET	INDEX	NAV	MARKET	INDEX
Lehman Intermediate Government/Credit	6.41%	6.43%	6.05%	5.83%	5.99%	5.70%	9.83%	10.11%	9.60%
Lehman Government/Credit	6.28%	6.72%	5.81%	5.40%	6.06%	5.27%	9.10%	10.22%	8.85%

Total returns for the period since inception are calculated from the inception date of each Fund (1/5/07). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

Each Fund’s per share net asset value or “NAV” is the value of one share of such Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of each Fund and the market return is based on the market price per share of each 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 primary stock exchange on which the shares of the Funds are listed for trading, as of the time that each Fund’s NAV is calculated. Since shares of each Fund did not trade in the secondary market until several days after the Funds’ inception, for the period from inception to the first day of secondary market trading in shares of the Funds (1/11/07), the NAV of each Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in each Fund at Market Price and NAV, respectively.

An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each 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(s) 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 each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund’s past performance is no guarantee of future results.

The iShares Lehman Intermediate Government/Credit Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the U.S. government and investment grade corporate sectors of the bond market as defined by the Lehman Brothers Intermediate U.S. Government/Credit Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was (0.41)%, while the total return for the Index was (0.65)%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
U.S. Government Obligations	32.44	%
U.S. Government Agency Obligations	26.60
Financial	18.52
Consumer Non-Cyclical	4.74
Communications	4.06
Foreign Government Obligations	2.54
Utilities	2.34
Consumer Cyclical	1.60
Multi-National	1.51
Energy	1.43
Industrial	1.21
Basic Materials	0.80
Technology	0.67
Diversified	0.03
Short-Term and Other Net Assets	1.51
TOTAL	100.00	%

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
Federal National Mortgage Association, 7.25%, 01/15/10	9.88	%
U.S. Treasury Notes, 4.75%, 05/15/14	8.66
U.S. Treasury Notes, 4.88%, 08/15/16	8.31
U.S. Treasury Notes, 4.88%, 07/31/11	8.10
Federal Home Loan Mortgage Corp., 7.00%, 03/15/10	7.89
U.S. Treasury Notes, 2.75%, 07/30/10	7.37
Federal Home Loan Mortgage Corp., 4.50%, 01/15/13	3.39
Federal National Mortgage Association, 5.00%, 04/15/15	2.02
Federal Home Loan Bank, 5.00%, 11/17/17	1.36
Federal Home Loan Mortgage Corp., 3.25%, 02/25/11	1.34
TOTAL	58.32	%

4 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Fund Performance Overview(Continued)

iSHARES^® LEHMAN GOVERNMENT/CREDIT BOND FUNDS

The iShares Lehman Government/Credit Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the U.S. government and investment grade corporate sectors of the bond market as defined by the Lehman Brothers U.S. Government/Credit Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was (0.39)%, while the total return for the Index was (0.62)%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
U.S. Government Obligations	36.58	%
U.S. Government Agency Obligations	18.87
Financial	16.04
Communications	5.30
Consumer Non-Cyclical	4.31
Utilities	3.41
Multi-National	2.87
Foreign Government Obligations	2.42
Consumer Cyclical	2.30
Energy	1.91
Basic Materials	1.83
Industrial	1.65
Technology	0.60
Municipal Debt Obligations	0.37
Short-Term and Other Net Assets	1.54
TOTAL	100.00	%

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
Federal National Mortgage Association, 7.25%, 01/15/10	12.90	%
U.S. Treasury Notes, 4.63%, 11/15/09	10.45
U.S. Treasury Bonds, 7.63%, 02/15/25	9.53
U.S. Treasury Notes, 4.63%, 11/15/16	7.10
U.S. Treasury Notes, 4.75%, 05/15/14	3.81
U.S. Treasury Notes, 4.63%, 12/31/11	3.30
Federal National Mortgage Association, 5.00%, 04/15/15	2.44
U.S. Treasury Bonds, 8.13%, 08/15/19	2.00
European Investment Bank, 2.63%, 05/16/11	1.94
Federal Home Loan Mortgage Corp., 6.25%, 07/15/32	1.28
TOTAL	54.75	%

FUND PERFORMANCE OVERVIEWS 5

Fund Performance Overview

iSHARES^® LEHMAN MBS BOND FUND

Performance as of August 31, 2008

Average Annual Total Returns						Cumulative Total Returns
Year Ended 8/31/08			Inception to 8/31/08			Inception to 8/31/08
NAV	MARKET	INDEX	NAV	MARKET	INDEX	NAV	MARKET	INDEX
6.18%	6.10%	7.03%	4.86%	4.90%	5.59%	7.23%	7.29%	8.32%

Total returns for the period since inception are calculated from the inception date of the Fund (3/13/07). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or “NAV” is the value of one share of the 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 is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (3/16/07), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain 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, an 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(s) 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.

The iShares Lehman MBS Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the investment grade agency mortgage-backed securities sector of the U.S. as defined by the Lehman Brothers U.S. MBS Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was 0.76%, while the total return for the Index was 1.18%.

PORTFOLIO ALLOCATION As of 8/31/08
Issuer	Percentage of Net Assets
Federal Home Loan Mortgage Corp.	46.13	%
Federal National Mortgage Association	40.29
Government National Mortgage Association	8.67
Short-Term and Other Net Assets	4.91
TOTAL	100.00	%

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
Federal National Mortgage Association, 5.50%, 09/01/38	13.83	%
Federal Home Loan Mortgage Corp., 5.00%, 09/01/38	13.61
Federal Home Loan Mortgage Corp., 5.50%, 09/01/38	10.43
Federal National Mortgage Association, 6.50%, 09/01/38	8.83
Federal Home Loan Mortgage Corp., 6.00%, 09/01/38	7.46
Federal National Mortgage Association, 6.00%, 09/01/38	6.32
Federal Home Loan Mortgage Corp., 5.50%, 09/01/23	5.07
Federal Home Loan Mortgage Corp., 4.50%, 09/01/23	5.01
Federal National Mortgage Association, 5.00%, 09/01/23	4.69
Federal Home Loan Mortgage Corp., 5.00%, 09/01/23	4.25
TOTAL	79.50	%

6 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Fund Performance Overview

iSHARES^® LEHMAN AGGREGATE BOND FUND

Performance as of August 31, 2008

Average Annual Total Returns						Cumulative Total Returns
Year Ended 8/31/08			Inception to 8/31/08			Inception to 8/31/08
NAV	MARKET	INDEX	NAV	MARKET	INDEX	NAV	MARKET	INDEX
5.97%	5.89%	5.86%	4.16%	4.24%	4.39%	22.35%	22.81%	23.64%

Total returns for the period since inception are calculated from the inception date of the Fund (9/22/03). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or “NAV” is the value of one share of the 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 is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (9/26/03), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain 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, an 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(s) 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.

The iShares Lehman Aggregate Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the total U.S. investment grade bond market as defined by the Lehman Brothers U.S. Aggregate Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was (0.04)%, while the total return for the Index was 0.18%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector/Investment Type	Percentage of Net Assets
Mortgage-Backed Securities	36.90	%
U.S. Government Obligations	26.09
Financial	12.51
U.S. Government Agency Obligations	10.00
Communications	2.58
Consumer Non-Cyclical	1.97
Foreign Government Obligations	1.70
Utilities	1.52
Energy	1.26
Consumer Cyclical	1.23
Industrial	0.99
Multi-National	0.62
Basic Materials	0.59
Technology	0.50
Municipal Debt Obligations	0.23
Diversified	0.03
Short-Term and Other Net Assets	1.28
TOTAL	100.00	%

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
Federal Home Loan Mortgage Corp., 5.00%, 09/01/38	5.42	%
Federal National Mortgage Association, 5.50%, 09/01/38	5.28
U.S. Treasury Notes, 3.63%, 10/31/09	4.76
Federal Home Loan Mortgage Corp., 5.50%, 09/01/38	3.74
Federal National Mortgage Association, 6.50%, 09/01/38	3.49
U.S. Treasury Notes, 3.50%, 02/15/10	3.16
Federal National Mortgage Association, 7.25%, 01/15/10	3.02
U.S. Treasury Notes, 4.50%, 05/15/10	2.87
Federal National Mortgage Association, 6.00%, 09/01/38	2.82
U.S. Treasury Notes, 4.00%, 09/30/09	2.75
TOTAL	37.31	%

FUND PERFORMANCE OVERVIEWS 7

Fund Performance Overview

iSHARES^® iBOXX $ HIGH YIELD CORPORATE BOND FUND

Performance as of August 31, 2008

Average Annual Total Returns						Cumulative Total Returns
Year Ended 8/31/08			Inception to 8/31/08			Inception to 8/31/08
NAV	MARKET	INDEX	NAV	MARKET	INDEX	NAV	MARKET	INDEX
(0.36)%	(0.89)%	(0.58)%	(1.36)%	(0.86)%	(1.82)%	(1.91)%	(1.21)%	(2.55)%

Total returns for the period since inception are calculated from the inception date of the Fund (4/4/07). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or “NAV” is the value of one share of the 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 is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (4/11/07), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain 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, an 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(s) 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.

The iShares iBoxx $ High Yield Corporate Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the U.S. dollar high yield corporate bond market as defined by the iBoxx^® $ Liquid High Yield Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was (0.03)%, while the total return for the Index was 0.18%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector	Percentage of Net Assets
Consumer Non-Cyclical	17.00	%
Communications	16.84
Industrial	16.07
Energy	14.23
Consumer Cyclical	11.78
Utilities	10.65
Technology	5.85
Financial	2.61
Basic Materials	2.02
Short-Term and Other Net Assets	2.95
TOTAL	100.00	%

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
Intelsat (Bermuda) Ltd., 11.25%, 06/15/16	2.28	%
HCA Inc., 9.25%, 11/15/16	2.24
Peabody Energy Corp., 7.38%, 11/01/16	2.24
Crown Americas LLC, 7.75%, 11/15/15	2.23
Terex Corp., 8.00%, 11/15/17	2.22
SunGard Data Systems Inc., 9.13%, 08/15/13	2.21
ARAMARK Corp., 8.50%, 02/01/15	2.20
Tenet Healthcare Corp., 9.88%, 07/01/14	2.19
Texas Competitive Electric Holdings Co. LLC, 10.25%, 11/01/15	2.17
Mirant North America LLC, 7.38%, 12/31/13	2.17
TOTAL	22.15	%

8 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Fund Performance Overview

iSHARES^® iBOXX $ INVESTMENT GRADE CORPORATE BOND FUND

Performance as of August 31, 2008

Average Annual Total Returns
Year Ended 8/31/08			Five Years Ended 8/31/08			Inception to 8/31/08
NAV	MARKET	INDEX	NAV	MARKET	INDEX	NAV	MARKET	INDEX
2.31%	1.52%	2.82%	3.70%	3.73%	3.77%	4.71%	4.74%	4.81%

Cumulative Total Returns
Year Ended 8/31/08			Five Years Ended 8/31/08			Inception to 8/31/08
NAV	MARKET	INDEX	NAV	MARKET	INDEX	NAV	MARKET	INDEX
2.31%	1.52%	2.82%	19.89%	20.12%	20.35%	32.48%	32.75%	33.29%

Total returns for the period since inception are calculated from the inception date of the Fund (7/22/02). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or “NAV” is the value of one share of the 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 is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (7/26/02), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain 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, an 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(s) 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.

The iShares iBoxx $ Investment Grade Corporate Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of a segment of the U.S. investment grade corporate bond market as defined by the iBoxx^® $ Liquid Investment Grade Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return for the Fund was (1.81)%, while the total return for the Index was (1.53)%.

PORTFOLIO ALLOCATION As of 8/31/08
Sector	Percentage of Net Assets
Financial	45.74	%
Consumer Non-Cyclical	22.14
Communications	13.81
Consumer Cyclical	7.87
Technology	4.15
Basic Materials	1.24
Industrial	1.00
Utilities	1.00
Energy	0.94
Short-Term and Other Net Assets	2.11
TOTAL	100.00	%

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
American Express Bank FSB, 5.55%, 10/17/12	1.14	%
Johnson & Johnson, 5.55%, 08/15/17	1.10
Johnson & Johnson, 5.15%, 08/15/12	1.09
Berkshire Hathaway Inc., 5.13%, 09/15/12	1.09
AstraZeneca PLC, 5.40%, 09/15/12	1.07
IBM International Group Capital LLC, 5.05%, 10/22/12	1.07
International Business Machines Corp., 5.70%, 09/14/17	1.07
Abbott Laboratories, 5.60%, 11/30/17	1.06
Allstate Life Global Funding Trusts, 5.38%, 04/30/13	1.05
GlaxoSmithKline Capital Inc., 6.38%, 05/15/38	1.05
TOTAL	10.79	%

FUND PERFORMANCE OVERVIEWS 9

Fund Performance Overview

iSHARES^® JPMORGAN USD EMERGING MARKETS BOND FUND

Performance as of August 31, 2008

Cumulative Total Returns
Inception to 8/31/08
NAV	MARKET	INDEX
1.61%	2.61%	2.10%

“Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated and are calculated from an inception date of 12/17/07.

The Fund’s per share net asset value or “NAV” is the value of one share of the 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 is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund is listed for trading, as of the time that the Fund’s NAVis calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (12/19/07), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain 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, an 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(s) 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.

The iShares JPMorgan USD Emerging Markets Bond Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the JPMorgan EMBI Global Core Index (the “Index”). The Index is a broad, diverse U.S. dollar denominated emerging markets debt benchmark which tracks the total return of actively traded external debt instruments in emerging market countries. The Fund invests in a representative sample of the securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the six-month period ended August 31, 2008, the total return of the Fund was 0.50%, while the total return of the Index was 0.90%.

BOND CREDIT QUALITY As of 8/31/08
Moody’s Credit Rating	Percentage of Total Investments*
A1	5.80	%
A2	1.42
A3	2.82
Baa1	26.26
Baa3	2.26
Ba1	22.85
Ba3	13.53
B1	10.96
B2	6.89
B3	4.24
Not Rated	2.97
TOTAL	100.00	%

* Excludes short-term investments.

TEN LARGEST FUND HOLDINGS As of 8/31/08
Security	Percentage of Net Assets
Russian Federation, 7.50%, 03/31/30	11.28	%
Colombia (Republic of), 7.38%, 01/27/17	4.79
Peru (Republic of), 8.38%, 05/03/16	4.64
Turkey (Republic of), 7.25%, 03/15/15	4.34
South Africa (Republic of), 7.38%, 04/25/12	4.19
Turkey (Republic of), 6.88%, 03/17/36	4.09
Brazil (Federative Republic of), 8.00%, 01/15/18	3.96
Philippines (Republic of), 6.38%, 01/15/32	3.91
Brazil (Federative Republic of), 7.13%, 01/20/37	3.50
Venezuela (Republic of), 9.25%, 09/15/27	3.49
TOTAL	48.19	%

2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

10

Shareholder Expenses (Unaudited)

iSHARES^® TRUST

As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of fund shares and (2) ongoing costs, including management fees and other fund expenses. The following Example is intended to help you understand your ongoing costs (in dollars and cents) of investing in a Fund and to compare these costs with the ongoing costs of investing in other funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2008 to August 31, 2008.

ACTUAL EXPENSES

The first line under each Fund in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for your Fund under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The second line under each Fund in the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of fund shares. Therefore, the second line under each Fund in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

iShares Bond Fund	Beginning Account Value (3/1/08)	Ending Account Value (8/31/08)	Annualized Expense Ratio		Expenses Paid During Perioda (3/1/08 to 8/31/08)
Lehman 1-3 Year Credit
Actual	$1,000.00	$   997.20	0.20	%	$1.01
Hypothetical (5% return before expenses)	1,000.00	1,024.20	0.20		1.02
Lehman Intermediate Credit
Actual	1,000.00	985.70	0.20		1.00
Hypothetical (5% return before expenses)	1,000.00	1,024.20	0.20		1.02
Lehman Credit
Actual	1,000.00	984.30	0.20		1.00
Hypothetical (5% return before expenses)	1,000.00	1,024.20	0.20		1.02
Lehman Intermediate Government/Credit
Actual	1,000.00	995.90	0.20		1.01
Hypothetical (5% return before expenses)	1,000.00	1,024.20	0.20		1.02

SHAREHOLDER EXPENSES 11

Shareholder Expenses (Unaudited) (Continued)

iSHARES^® TRUST

iShares Bond Fund	Beginning Account Value (3/1/08)	Ending Account Value (8/31/08)	Annualized Expense Ratio		Expenses Paid During Perioda (3/1/08 to 8/31/08)
Lehman Government/Credit
Actual	$1,000.00	$   996.10	0.20	%	$1.01
Hypothetical (5% return before expenses)	1,000.00	1,024.20	0.20		1.02
Lehman MBS
Actual	1,000.00	1,007.60	0.25		1.27
Hypothetical (5% return before expenses)	1,000.00	1,023.90	0.25		1.28
Lehman Aggregate
Actual	1,000.00	999.60	0.20		1.01
Hypothetical (5% return before expenses)	1,000.00	1,024.20	0.20		1.02
iBoxx $ High Yield Corporate
Actual	1,000.00	999.70	0.50		2.52
Hypothetical (5% return before expenses)	1,000.00	1,022.70	0.50		2.55
iBoxx $ Investment Grade Corporate
Actual	1,000.00	981.90	0.15		0.75
Hypothetical (5% return before expenses)	1,000.00	1024.40	0.15		0.77
JPMorgan USD Emerging Markets
Actual	1,000.00	1,005.00	0.60		3.03
Hypothetical (5% return before expenses)	1,000.00	1,022.20	0.60		3.06

^a Expenses are calculated using each Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days).

12 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN 1-3 YEAR CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
CORPORATE BONDS & NOTES – 93.04%
AEROSPACE & DEFENSE – 0.57%
Northrop Grumman Corp.
7.13%, 02/15/11	$	3,135,000	$	3,300,312
				3,300,312
AUTO MANUFACTURERS – 1.49%
Daimler Finance
North America LLC
5.88%, 03/15/11		8,550,000		8,560,548
				8,560,548
BANKS – 21.22%
Asia Development Bank
4.38%, 09/17/10		5,700,000		5,841,189
Bank of America Corp.
4.50%, 08/01/10		11,970,000		12,053,927
5.38%, 08/15/11		2,850,000		2,889,046
Bank of Tokyo-Mitsubishi UFJ Ltd. (The)
8.40%, 04/15/10		7,125,000		7,512,797
Bank One Corp.
7.88%, 08/01/10		5,700,000		6,026,164
Deutsche Bank AG London
5.00%, 10/12/10		4,845,000		4,891,724
KfW
3.25%, 02/15/11		15,675,000		15,691,301
KfW Series G
5.00%, 06/01/10		17,385,000		17,964,441
Landwirtschaftliche Rentenbank
5.25%, 07/15/11		5,130,000		5,401,377
Oesterreichische Kontrollbank AG
4.25%, 10/06/10		3,990,000		4,096,653
Royal Bank of Canada
4.13%, 01/26/10		5,700,000		5,704,503
State Street Capital Trust III
8.25%, 03/15/11		1,425,000		1,410,750
UBS Preferred Funding Trust I
8.62%, 10/01/10		2,850,000		2,735,732
US Bank N.A.
6.38%, 08/01/11		5,700,000		5,985,523
USB Capital IX
6.19%, 04/15/11		1,425,000		954,750

Security	Principal		Value
Wachovia Bank N.A.
7.80%, 08/18/10	$	3,990,000	$	4,042,797
Wachovia Capital Trust III
5.80%, 03/15/11		3,135,000		1,677,225
Wells Fargo & Co.
4.20%, 01/15/10		10,830,000		10,884,956
Wells Fargo Bank N.A.
6.45%, 02/01/11		5,985,000		6,246,257
				122,011,112
BEVERAGES – 0.55%
Diageo Capital PLC
4.38%, 05/03/10		3,135,000		3,158,020
				3,158,020
BIOTECHNOLOGY – 0.25%
Amgen Inc.
4.00%, 11/18/09		1,425,000		1,431,411
				1,431,411
CHEMICALS – 1.07%
Dow Chemical Co. (The)
6.13%, 02/01/11		3,135,000		3,223,475
E.I. du Pont de Nemours and Co.
6.88%, 10/15/09		2,850,000		2,949,556
				6,173,031
COMMERCIAL SERVICES – 0.34%
R.R. Donnelley & Sons Co.
4.95%, 05/15/10		1,995,000		1,970,390
				1,970,390
COMPUTERS – 0.50%
International Business
Machines Corp.
4.25%, 09/15/09		2,850,000		2,890,117
				2,890,117
COSMETICS & PERSONAL CARE – 0.77%
Procter & Gamble Co. (The)
6.88%, 09/15/09		4,275,000		4,427,784
				4,427,784
DIVERSIFIED FINANCIAL SERVICES – 25.53%
American Express Credit Corp.
5.00%, 12/02/10		4,275,000		4,180,144
Bear Stearns Companies Inc. (The)
4.50%, 10/28/10		5,415,000		5,352,954

SCHEDULES OF INVESTMENTS 13

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN 1-3 YEAR CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Boeing Capital Corp.
7.38%, 09/27/10	$	4,275,000	$	4,588,634
Capital One Bank
5.75%, 09/15/10		1,425,000		1,409,799
Caterpillar Financial Services Corp.
4.30%, 06/01/10		3,990,000		4,035,817
CIT Group Inc.
5.60%, 04/27/11		5,415,000		4,440,300
Citigroup Inc.
4.63%, 08/03/10		2,850,000		2,840,115
6.50%, 01/18/11		9,120,000		9,326,162
Countrywide Home Loans Inc.
4.13%, 09/15/09		5,130,000		4,899,150
Credit Suisse First Boston USA Inc.
4.88%, 08/15/10		7,410,000		7,438,722
General Electric Capital Corp.
4.88%, 10/21/10		11,970,000		12,265,060
5.25%, 10/27/09		8,550,000		8,750,432
HSBC Finance Corp.
4.13%, 11/16/09a		3,705,000		3,675,154
5.25%, 01/14/11		9,690,000		9,648,773
International Lease Finance Corp.
5.45%, 03/24/11		10,830,000		9,903,871
JPMorgan Chase & Co.
6.75%, 02/01/11		5,130,000		5,323,339
Lehman Brothers Holdings Inc.
5.00%, 01/14/11		7,410,000		7,018,407
Merrill Lynch & Co. Inc.
5.77%, 07/25/11		4,275,000		4,093,509
Morgan Stanley
4.00%, 01/15/10		4,560,000		4,437,580
5.05%, 01/21/11		3,990,000		3,857,567
6.75%, 04/15/11		4,845,000		4,865,124
SLM Corp.
5.45%, 04/25/11		2,565,000		2,321,325
Svensk Exportkredit AB
4.50%, 09/27/10		12,540,000		12,867,169
Textron Financial Corp.
6.00%, 11/20/09		5,700,000		5,771,892

Security	Principal		Value
Toyota Motor Credit Corp.
4.25%, 03/15/10	$	3,420,000	$	3,452,225
				146,763,224
ELECTRIC – 2.08%
DTE Energy Co.
7.05%, 06/01/11		1,425,000		1,472,398
Exelon Generation Co. LLC
6.95%, 06/15/11		3,135,000		3,228,615
Pacific Gas and Electric Co.
4.20%, 03/01/11		3,420,000		3,396,734
PSEG Power LLC
7.75%, 04/15/11		1,710,000		1,801,722
Wisconsin Energy Corp.
6.50%, 04/01/11		1,995,000		2,073,886
				11,973,355
FOOD – 2.24%
Kraft Foods Inc.
4.13%, 11/12/09		5,700,000		5,683,966
Safeway Inc.
7.50%, 09/15/09		2,850,000		2,932,419
Unilever Capital Corp.
7.13%, 11/01/10		3,990,000		4,274,839
				12,891,224
GAS – 0.94%
KeySpan Corp.
7.63%, 11/15/10		2,850,000		3,020,336
Sempra Energy
7.95%, 03/01/10		2,280,000		2,395,780
				5,416,116
HAND & MACHINE TOOLS – 0.15%
Stanley Works Capital Trust I (The)
5.90%, 12/01/10		1,140,000		889,200
				889,200
HEALTH CARE - SERVICES – 0.49%
WellPoint Inc.
5.00%, 01/15/11		2,850,000		2,823,461
				2,823,461
INSURANCE – 2.36%
Allstate Corp. (The)
7.20%, 12/01/09		2,850,000		2,952,304

14 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN 1-3 YEAR CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Berkshire Hathaway Finance Corp.
4.13%, 01/15/10a	$	8,550,000	$	8,641,989
ING Capital Funding Trust III
8.44%, 12/31/10		1,995,000		1,979,134
				13,573,427
MANUFACTURING – 0.42%
Honeywell International Inc.
7.50%, 03/01/10		2,280,000		2,413,382
				2,413,382
MEDIA – 3.21%
Comcast Cable
Communications Inc.
6.75%, 01/30/11		4,845,000		5,016,269
Cox Communications Inc.
4.63%, 01/15/10		4,275,000		4,255,768
Time Warner Inc.
6.75%, 04/15/11		1,710,000		1,745,900
Viacom Inc.
5.75%, 04/30/11		4,560,000		4,513,089
7.70%, 07/30/10		2,850,000		2,935,425
				18,466,451
MINING – 0.25%
Alcoa Inc.
6.50%, 06/01/11		1,425,000		1,445,499
				1,445,499
MULTI-NATIONAL – 7.41%
European Investment Bank
2.63%, 05/16/11		15,675,000		15,493,641
4.00%, 03/03/10		19,095,000		19,474,036
4.63%, 09/15/10		1,710,000		1,768,875
Nordic Investment Bank
4.50%, 09/13/10		5,700,000		5,883,597
				42,620,149
OFFICE & BUSINESS EQUIPMENT – 0.53%
Xerox Corp.
6.88%, 08/15/11		2,850,000		3,017,979
				3,017,979
OIL & GAS – 4.23%
Anadarko Finance Co.
6.75%, 05/01/11		2,850,000		2,914,245

Security	Principal		Value
BP Capital Markets PLC
4.88%, 03/15/10a	$	2,850,000	$	2,909,714
ConocoPhillips
8.75%, 05/25/10		5,700,000		6,180,025
Enterprise Products Operating LP Series B
4.63%, 10/15/09		4,275,000		4,263,747
Hess Corp.
6.65%, 08/15/11		3,420,000		3,580,737
Shell International Finance BV
5.63%, 06/27/11		4,275,000		4,490,945
				24,339,413
OIL & GAS SERVICES – 0.67%
Halliburton Co.
5.50%, 10/15/10		3,705,000		3,823,368
				3,823,368
PHARMACEUTICALS – 0.89%
Abbott Laboratories
5.60%, 05/15/11		2,565,000		2,681,094
Wyeth
6.95%, 03/15/11		2,280,000		2,415,320
				5,096,414
PIPELINES – 0.98%
CenterPoint Energy Resources Corp.
7.75%, 02/15/11		1,995,000		2,094,818
Duke Capital LLC
7.50%, 10/01/09		1,710,000		1,757,815
Kinder Morgan Energy Partners LP
6.75%, 03/15/11		1,710,000		1,753,017
				5,605,650
REAL ESTATE INVESTMENT TRUSTS – 1.17%
iStar Financial Inc.
5.80%, 03/15/11		1,425,000		1,125,750
ProLogis
5.25%, 11/15/10		2,850,000		2,799,627
Simon Property Group LP
5.38%, 06/01/11		2,850,000		2,821,424
				6,746,801

SCHEDULES OF INVESTMENTS 15

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN 1-3 YEAR CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
RETAIL – 2.14%
CVS Caremark Corp.
5.75%, 08/15/11	$	2,850,000	$	2,914,199
Home Depot Inc.
3.75%, 09/15/09		2,280,000		2,255,663
5.20%, 03/01/11		1,710,000		1,691,481
Target Corp.
6.35%, 01/15/11		2,850,000		2,962,592
Tricon Global Restaurants Inc.
8.88%, 04/15/11		2,280,000		2,458,326
				12,282,261
SAVINGS & LOANS – 0.39%
Washington Mutual Bank
6.88%, 06/15/11		1,425,000		983,250
Washington Mutual Inc.
4.20%, 01/15/10		1,710,000		1,231,200
				2,214,450
SOFTWARE – 0.66%
Oracle Corp.
5.00%, 01/15/11		3,705,000		3,803,030
				3,803,030
TELECOMMUNICATIONS – 9.28%
AT&T Wireless Services Inc.
7.88%, 03/01/11		7,410,000		7,901,154
Cisco Systems Inc.
5.25%, 02/22/11		3,990,000		4,123,418
Deutsche Telekom
International Finance AG
8.50%, 06/15/10		6,555,000		6,957,835
France Telecom SA
7.75%, 03/01/11		4,275,000		4,561,458
GTE California Inc.
6.70%, 09/01/09		2,850,000		2,907,453
Rogers Wireless Inc.
9.63%, 05/01/11		1,425,000		1,567,500
Telecom Italia Capital SA
6.20%, 07/18/11		4,275,000		4,294,638
Telefonica Emisones SAU
5.98%, 06/20/11		4,275,000		4,336,434
Telefonos de Mexico SAB de CV
4.75%, 01/27/10		2,850,000		2,862,025

Security	Shares or Principal	Value
TELUS Corp.
8.00%, 06/01/11	$  2,850,000	$	3,035,103
Verizon Global Funding Corp.
7.25%, 12/01/10	4,560,000		4,828,648
Vodafone Group PLC
7.75%, 02/15/10	5,700,000		5,960,946
			53,336,612
TRANSPORTATION – 0.26%
Union Pacific Corp.
6.65%, 01/15/11	1,425,000		1,474,597
			1,474,597
TOTAL CORPORATE BONDS & NOTES (Cost: $537,890,270)			534,938,788
FOREIGN GOVERNMENT BONDS & NOTESb – 5.06%
Brazil (Federative Republic of)
9.25%, 10/22/10	5,700,000		6,327,000
Hydro-Quebec
6.30%, 05/11/11	4,275,000		4,572,679
Ontario (Province of)
2.75%, 02/22/11	6,270,000		6,193,921
Quebec (Province of)
6.13%, 01/22/11	3,705,000		3,920,518
United Mexican States
8.38%, 01/14/11	7,410,000		8,097,771
TOTAL FOREIGN GOVERNMENT BONDS & NOTES (Cost: $29,196,635)			29,111,889
SHORT-TERM INVESTMENTS – 2.64%
MONEY MARKET FUNDS – 2.64%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares 2.57%c,d	2,692,786		2,692,786
BGI Cash Premier Fund LLC 2.63%c,d,e	12,472,310		12,472,310
			15,165,096
TOTAL SHORT-TERM INVESTMENTS (Cost: $15,165,096)			15,165,096

16 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN 1-3 YEAR CREDIT BOND FUND

August 31, 2008

	Value
TOTAL INVESTMENTS IN SECURITIES – 100.74% (Cost: $582,252,001)	$	579,215,773
Other Assets, Less Liabilities – (0.74)%		(4,268,641	)
NET ASSETS – 100.00%	$	574,947,132

^a All or a portion of this security represents a security on loan. See Note 5.

^b Investments are denominated in U.S. dollars.

^c Affiliated issuer. See Note 2.

^d The rate quoted is the annualized seven-day yield of the fund at period end.

^e This security represents an investment of securities lending collateral. See Note 5.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 17

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN INTERMEDIATE CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
CORPORATE BONDS & NOTES – 91.41%
AGRICULTURE – 0.70%
Philip Morris International Inc.
5.65%, 05/16/18	$	1,500,000	$	1,468,608
Reynolds American Inc.
6.75%, 06/15/17		600,000		589,602
				2,058,210
AUTO MANUFACTURERS – 0.51%
DaimlerChrysler North America Holding Corp.
6.50%, 11/15/13		1,500,000		1,495,195
				1,495,195
BANKS – 15.90%
American Express Bank FSB
5.55%, 10/17/12		2,250,000		2,156,208
Bank of America Corp.
4.50%, 08/01/10		3,570,000		3,595,031
4.88%, 01/15/13		5,250,000		5,099,750
Bank of New York Mellon Corp. (The)
4.95%, 11/01/12		1,500,000		1,501,536
Capital One Financial Corp.
5.70%, 09/15/11		1,500,000		1,405,771
Deutsche Bank AG London
6.00%, 09/01/17		2,250,000		2,255,373
JPMorgan Chase Bank N.A.
6.00%, 10/01/17		750,000		728,757
KfW
4.25%, 06/15/10		9,000,000		9,207,901
Landwirtschaftliche
Rentenbank Series G
5.00%, 11/08/16		2,700,000		2,845,530
National City Corp.
4.90%, 01/15/15		600,000		399,000
Oesterreichische Kontrollbank AG
4.75%, 10/16/12		1,500,000		1,561,290
Royal Bank of Scotland Group PLC
5.00%, 10/01/14		1,500,000		1,401,529
UBS AG Stamford
5.88%, 12/20/17		1,500,000		1,443,710
US Bank N.A.
4.80%, 04/15/15		3,000,000		2,834,360

Security	Principal		Value
Wachovia Bank N.A.
4.88%, 02/01/15	$	3,000,000	$	2,540,995
Wachovia Corp.
5.30%, 10/15/11		1,500,000		1,406,705
Wells Fargo & Co.
4.88%, 01/12/11		6,450,000		6,543,678
				46,927,124
BEVERAGES – 1.60%
Anheuser-Busch Companies Inc.
5.50%, 01/15/18		1,200,000		1,119,420
Bottling Group LLC
5.50%, 04/01/16		600,000		606,812
Diageo Finance BV
5.30%, 10/28/15		1,500,000		1,467,997
PepsiCo Inc.
4.65%, 02/15/13		1,500,000		1,525,877
				4,720,106
BIOTECHNOLOGY – 0.51%
Amgen Inc.
4.00%, 11/18/09		1,500,000		1,506,749
				1,506,749
BUILDING MATERIALS – 0.46%
CRH America Inc.
5.30%, 10/15/13		750,000		693,688
Masco Corp.
6.13%, 10/03/16		750,000		654,583
				1,348,271
CHEMICALS – 0.98%
Dow Chemical Co. (The)
6.00%, 10/01/12		600,000		615,856
E.I. du Pont de Nemours and Co.
4.13%, 04/30/10		750,000		755,500
5.00%, 01/15/13		750,000		756,672
Praxair Inc.
5.25%, 11/15/14		750,000		749,336
				2,877,364
COMMERCIAL SERVICES – 0.68%
McKesson Corp.
5.70%, 03/01/17		750,000		727,178
R.R. Donnelley & Sons Co.
6.13%, 01/15/17		750,000		682,081

18 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN INTERMEDIATE CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Western Union Co.
5.40%, 11/17/11	$	600,000	$	600,460
				2,009,719
COMPUTERS – 0.52%
International Business Machines Corp.
4.75%, 11/29/12		1,500,000		1,536,323
				1,536,323
DIVERSIFIED FINANCIAL SERVICES – 23.67%
American Express Co.
4.88%, 07/15/13		750,000		685,940
6.80%, 09/01/16		600,000		528,490
Bear Stearns Companies Inc. (The)
4.55%, 06/23/10		750,000		743,357
5.70%, 11/15/14		1,500,000		1,434,538
7.25%, 02/01/18		750,000		774,952
Boeing Capital Corp.
6.10%, 03/01/11		1,050,000		1,100,164
CIT Group Inc.
5.85%, 09/15/16		1,650,000		1,188,000
Citigroup Inc.
6.13%, 11/21/17		2,700,000		2,529,717
Countrywide Financial Corp.
5.80%, 06/07/12		900,000		819,000
Credit Suisse (USA) Inc.
5.38%, 03/02/16		2,250,000		2,125,099
Credit Suisse Guernsey Ltd.
5.86%, 05/15/17		750,000		609,210
General Electric Capital Corp.
4.13%, 09/01/09		9,000,000		9,084,473
5.00%, 01/08/16		4,500,000		4,361,055
Goldman Sachs Group Inc. (The)
5.00%, 10/01/14		3,000,000		2,824,714
6.15%, 04/01/18		3,900,000		3,732,491
Household Finance Corp.
6.38%, 11/27/12		1,500,000		1,536,314
HSBC Finance Corp.
5.50%, 01/19/16		4,500,000		4,376,085
John Deere Capital Corp.
7.00%, 03/15/12		600,000		648,131
JPMorgan Chase & Co.
5.75%, 01/02/13		6,000,000		5,960,773

Security	Principal		Value
Lehman Brothers Holdings Inc.
5.50%, 04/04/16	$	1,800,000	$	1,569,242
5.75%, 07/18/11		3,000,000		2,864,396
Merrill Lynch & Co. Inc.
5.45%, 07/15/14		3,000,000		2,683,589
6.88%, 04/25/18		1,950,000		1,796,114
Morgan Stanley
4.75%, 04/01/14		2,400,000		2,106,691
5.75%, 10/18/16		1,500,000		1,345,115
6.63%, 04/01/18		1,500,000		1,385,737
6.75%, 04/15/11		2,100,000		2,108,723
National Rural Utilities Cooperative Finance Corp.
7.25%, 03/01/12		1,500,000		1,596,230
Rio Tinto Finance USA Ltd.
6.50%, 07/15/18		2,400,000		2,410,797
SLM Corp.
5.00%, 10/01/13		1,350,000		1,093,500
Svensk Exportkredit AB
4.50%, 09/27/10		2,250,000		2,308,703
Toyota Motor Credit Corp.
4.25%, 03/15/10		1,500,000		1,514,134
				69,845,474
ELECTRIC – 5.35%
Constellation Energy Group Inc.
4.55%, 06/15/15		1,500,000		1,295,484
Dominion Resources Inc.
5.15%, 07/15/15		1,500,000		1,439,917
Duke Capital LLC
6.25%, 02/15/13		1,500,000		1,527,840
Duke Energy Corp.
6.25%, 01/15/12		600,000		626,357
Exelon Corp.
4.90%, 06/15/15		1,500,000		1,395,863
Exelon Generation Co. LLC
5.35%, 01/15/14		1,500,000		1,441,362
Florida Power Corp.
5.65%, 06/15/18		1,500,000		1,537,806
MidAmerican Energy Holdings Co.
5.75%, 04/01/18		1,500,000		1,487,364
National Grid PLC
6.30%, 08/01/16		1,500,000		1,503,107

SCHEDULES OF INVESTMENTS 19

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN INTERMEDIATE CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Pacific Gas and Electric Co.
4.80%, 03/01/14	$	3,000,000	$	2,927,103
TXU Electric Delivery Co.
6.38%, 01/15/15		600,000		601,798
				15,784,001
ELECTRONICS – 0.35%
Koninklijke Philips Electronics NV
5.75%, 03/11/18		1,050,000		1,037,470
				1,037,470
FOOD – 2.56%
General Mills Inc.
6.00%, 02/15/12		600,000		617,453
Kraft Foods Inc.
6.00%, 02/11/13		2,100,000		2,139,108
Kroger Co. (The)
6.80%, 04/01/11		750,000		778,236
Safeway Inc.
7.50%, 09/15/09		3,000,000		3,086,756
Sara Lee Corp.
6.25%, 09/15/11		450,000		460,314
Unilever Capital Corp.
7.13%, 11/01/10		450,000		482,125
				7,563,992
FOREST PRODUCTS & PAPER – 0.26%
Weyerhaeuser Co.
6.75%, 03/15/12		750,000		771,977
				771,977
HEALTH CARE - PRODUCTS – 0.37%
Johnson & Johnson
5.15%, 08/15/12		1,050,000		1,104,710
				1,104,710
HEALTH CARE - SERVICES – 0.69%
UnitedHealth Group Inc.
4.88%, 03/15/15		600,000		551,251
WellPoint Inc.
5.00%, 01/15/11		1,500,000		1,486,032
				2,037,283
HOLDING COMPANIES - DIVERSIFIED – 0.07%
Capmark Financial Group Inc.
6.30%, 05/10/17		360,000		217,800
				217,800

Security	Principal		Value
HOUSEHOLD PRODUCTS & WARES – 0.50%
Fortune Brands Inc.
5.13%, 01/15/11	$	1,500,000	$	1,473,835
				1,473,835
INSURANCE – 3.76%
Allstate Corp. (The)
5.00%, 08/15/14		750,000		719,566
American International Group Inc.
5.60%, 10/18/16		2,550,000		2,166,525
Berkshire Hathaway Finance Corp.
4.85%, 01/15/15		1,200,000		1,195,688
Genworth Financial Inc.
6.15%, 11/15/16		1,500,000		1,060,849
ING Capital Funding Trust III
8.44%, 12/31/10		1,050,000		1,041,649
Lincoln National Corp.
7.00%, 05/17/16		750,000		648,403
Marsh & McLennan Companies Inc.
5.15%, 09/15/10		1,500,000		1,488,144
MetLife Inc.
5.00%, 06/15/15		1,500,000		1,412,010
Prudential Financial Inc.
5.10%, 12/14/11		900,000		883,399
XL Capital Ltd. Series E
6.50%, 04/15/17		750,000		487,500
				11,103,733
LODGING – 0.14%
Marriott International Inc. Series J
5.63%, 02/15/13		450,000		420,601
				420,601
MACHINERY – 0.78%
Caterpillar Inc.
5.70%, 08/15/16		2,250,000		2,305,492
				2,305,492
MANUFACTURING – 1.03%
General Electric Co.
5.00%, 02/01/13		3,000,000		3,038,895
				3,038,895
MEDIA – 3.98%
AOL Time Warner Inc.
6.88%, 05/01/12		1,500,000		1,538,960

20 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN INTERMEDIATE CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Comcast Cable Communications Holdings Inc.
8.38%, 03/15/13	$	3,000,000	$	3,320,566
Cox Communications Inc.
4.63%, 01/15/10		1,500,000		1,493,252
News America Inc.
5.30%, 12/15/14		1,500,000		1,471,209
Time Warner Cable Inc.
5.40%, 07/02/12		600,000		594,420
5.85%, 05/01/17		600,000		570,391
Viacom Inc.
6.25%, 04/30/16		750,000		714,196
6.63%, 05/15/11		450,000		450,538
Walt Disney Co. (The)
6.38%, 03/01/12		1,500,000		1,601,612
				11,755,144
MINING – 1.32%
Alcoa Inc.
5.55%, 02/01/17		360,000		331,163
BHP Billiton Finance (USA) Ltd.
4.80%, 04/15/13		3,000,000		2,966,739
Vale Overseas Ltd.
6.25%, 01/23/17		600,000		598,199
				3,896,101
MULTI-NATIONAL – 4.25%
European Investment Bank
4.63%, 05/15/14a		9,000,000		9,345,330
Inter-American Development Bank
5.13%, 09/13/16		3,000,000		3,193,170
				12,538,500
OFFICE & BUSINESS EQUIPMENT – 0.54%
Xerox Corp.
6.88%, 08/15/11		1,500,000		1,588,410
				1,588,410
OIL & GAS – 2.99%
Anadarko Petroleum Corp.
5.95%, 09/15/16		1,500,000		1,461,219
Apache Corp.
5.25%, 04/15/13		600,000		611,769
Conoco Funding Co.
6.35%, 10/15/11		3,000,000		3,175,854

Security	Principal		Value
Devon Financing Corp. ULC
6.88%, 09/30/11	$	750,000	$	794,680
Enterprise Products Operating LP
5.60%, 10/15/14		1,800,000		1,739,730
Valero Energy Corp.
6.13%, 06/15/17		300,000		285,486
XTO Energy Inc.
6.25%, 04/15/13		750,000		767,389
				8,836,127
OIL & GAS SERVICES – 0.21%
Weatherford International Inc.
6.35%, 06/15/17		600,000		605,338
				605,338
PHARMACEUTICALS – 2.65%
Abbott Laboratories
5.60%, 11/30/17		750,000		763,725
AmerisourceBergen Corp.
5.88%, 09/15/15		360,000		351,091
AstraZeneca PLC
5.40%, 09/15/12		1,500,000		1,548,162
Cardinal Health Inc.
5.80%, 10/15/16		600,000		579,799
GlaxoSmithKline Capital Inc.
5.65%, 05/15/18		1,500,000		1,507,046
Wyeth
5.50%, 02/01/14		3,000,000		3,055,275
				7,805,098
PIPELINES – 0.26%
Kinder Morgan Energy Partners LP
6.75%, 03/15/11		750,000		768,867
				768,867
REAL ESTATE – 0.41%
ERP Operating LP
5.13%, 03/15/16		750,000		664,027
5.75%, 06/15/17		600,000		543,468
				1,207,495
REAL ESTATE INVESTMENT TRUSTS – 1.43%
Boston Properties LP
6.25%, 01/15/13		1,050,000		1,057,041
iStar Financial Inc.
5.88%, 03/15/16		480,000		336,000

SCHEDULES OF INVESTMENTS 21

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN INTERMEDIATE CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
ProLogis
5.63%, 11/15/16	$	900,000	$	792,053
Simon Property Group LP
5.25%, 12/01/16		600,000		541,405
5.60%, 09/01/11		1,500,000		1,493,037
				4,219,536
RETAIL – 2.18%
Costco Wholesale Corp.
5.30%, 03/15/12		450,000		460,602
CVS Caremark Corp.
6.30%, 06/01/12		750,000		636,563
Federated Retail Holdings Inc.
5.90%, 12/01/16		1,050,000		900,585
Home Depot Inc.
5.40%, 03/01/16		1,500,000		1,356,482
Target Corp.
5.88%, 03/01/12		1,500,000		1,550,377
Wal-Mart Stores Inc.
4.55%, 05/01/13		1,500,000		1,520,645
				6,425,254
SAVINGS & LOANS – 0.25%
Washington Mutual Inc.
5.25%, 09/15/17		1,200,000		726,000
				726,000
SOFTWARE – 0.75%
Oracle Corp.
5.25%, 01/15/16		2,250,000		2,227,485
				2,227,485
TELECOMMUNICATIONS – 7.68%
AT&T Inc.
5.50%, 02/01/18		1,200,000		1,172,792
AT&T Wireless Services Inc.
7.88%, 03/01/11		1,500,000		1,599,424
Cisco Systems Inc.
5.50%, 02/22/16		3,000,000		3,033,760
Deutsche Telekom International Finance AG
8.50%, 06/15/10		1,500,000		1,592,182
Embarq Corp.
7.08%, 06/01/16		1,500,000		1,399,620
France Telecom SA
7.75%, 03/01/11		1,500,000		1,600,512

Security	Principal		Value
Qwest Corp.
8.88%, 03/15/12	$	900,000	$	904,653
Rogers Wireless Inc.
6.38%, 03/01/14		750,000		760,027
SBC Communications Inc.
5.88%, 02/01/12		3,000,000		3,074,674
Telecom Italia Capital SA
4.00%, 01/15/10		1,500,000		1,476,108
Telefonica Europe BV
7.75%, 09/15/10		1,500,000		1,587,498
Verizon Communications Inc.
6.10%, 04/15/18a		3,000,000		2,989,934
Vodafone Group PLC
5.75%, 03/15/16		1,500,000		1,469,015
				22,660,199
TEXTILES – 0.35%
Mohawk Industries Inc.
6.13%, 01/15/16		1,140,000		1,033,420
				1,033,420
TRANSPORTATION – 0.77%
Burlington Northern Santa Fe Corp.
5.75%, 03/15/18		750,000		743,726
CSX Corp.
6.75%, 03/15/11		1,500,000		1,528,874
				2,272,600
TOTAL CORPORATE BONDS & NOTES
(Cost: $274,810,644)				269,749,898
FOREIGN GOVERNMENT BONDS & NOTESb – 5.80%
Italy (Republic of)
4.50%, 01/21/15		7,050,000		7,176,477
Brazil (Federative Republic of)
8.00%, 01/15/18		3,300,000		3,684,450
Quebec (Province of)
5.00%, 03/01/16		3,000,000		3,097,421
United Mexican States
6.38%, 01/16/13		3,000,000		3,167,230
TOTAL FOREIGN GOVERNMENT BONDS & NOTES
(Cost: $17,094,703)				17,125,578

22 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN INTERMEDIATE CREDIT BOND FUND

August 31, 2008

Security	Shares	Value
SHORT-TERM INVESTMENTS – 3.57%
MONEY MARKET FUNDS – 3.57%
Barclays Global Investors Funds
Prime Money Market
Fund, Institutional Shares
2.57%c,d	3,650,417	$	3,650,417
BGI Cash Premier Fund LLC
2.63%c,d,e	6,871,800		6,871,800
			10,522,217
TOTAL SHORT-TERM INVESTMENTS
(Cost: $10,522,217)			10,522,217
TOTAL INVESTMENTS IN SECURITIES – 100.78% (Cost: $302,427,564)			297,397,693
Other Assets, Less Liabilities – (0.78)%			(2,289,420	)
NET ASSETS – 100.00%		$	295,108,273

^a All or a portion of this security represents a security on loan. See Note 5.

^b Investments are denominated in U.S. dollars.

^c Affiliated issuer. See Note 2.

^d The rate quoted is the annualized seven-day yield of the fund at period end.

^e This security represents an investment of securities lending collateral. See

Note 5.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 23

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
CORPORATE BONDS & NOTES – 89.30%
AEROSPACE & DEFENSE – 0.46%
Lockheed Martin Corp.
6.15%, 09/01/36	$	180,000	$	174,038
United Technologies Corp.
6.05%, 06/01/36		225,000		223,301
				397,339
AGRICULTURE – 0.23%
Archer-Daniels-Midland Co.
5.38%, 09/15/35		135,000		112,704
Reynolds American Inc.
7.25%, 06/15/37		90,000		86,772
				199,476
AUTO MANUFACTURERS – 1.03%
DaimlerChrysler North America Holding Corp.
6.50%, 11/15/13		900,000		897,117
				897,117
BANKS – 13.27%
BAC Capital Trust XI
6.63%, 05/23/36		450,000		403,962
Bank of America Corp.
4.50%, 08/01/10		765,000		770,364
4.88%, 01/15/13		450,000		437,121
5.75%, 12/01/17		450,000		421,845
BB&T Capital Trust II
6.75%, 06/07/36		180,000		129,743
Capital One Financial Corp.
5.70%, 09/15/11		450,000		421,731
Deutsche Bank AG London
5.38%, 10/12/12		450,000		450,864
HSBC Bank USA Inc.
3.88%, 09/15/09		900,000		896,014
HSBC Holdings PLC
6.50%, 09/15/37		315,000		289,860
KfW
4.25%, 06/15/10		225,000		230,197
5.13%, 03/14/16		1,350,000		1,428,772
Landwirtschaftliche
Rentenbank Series G
5.00%, 11/08/16		450,000		474,255

Security	Principal		Value
National City Corp.
4.90%, 01/15/15	$	180,000	$	119,700
Royal Bank of Scotland Group PLC
5.00%, 10/01/14		900,000		840,917
US Bank N.A.
4.80%, 04/15/15		900,000		850,308
Wachovia Bank N.A.
4.88%, 02/01/15		450,000		381,149
Wachovia Capital Trust III
5.80%, 03/15/11		180,000		96,300
Wachovia Corp.
5.30%, 10/15/11		675,000		633,017
Wells Fargo & Co.
4.20%, 01/15/10		450,000		452,283
4.88%, 01/12/11		1,800,000		1,826,143
				11,554,545
BEVERAGES – 0.85%
Anheuser-Busch Companies Inc.
6.45%, 09/01/37		180,000		164,554
Coca-Cola Enterprises Inc.
8.50%, 02/01/22		135,000		163,604
Diageo Capital PLC
5.88%, 09/30/36		180,000		166,511
Pepsi Bottling Group Inc.
7.00%, 03/01/29		225,000		249,751
				744,420
BIOTECHNOLOGY – 0.38%
Amgen Inc.
4.00%, 11/18/09		234,000		235,053
Genentech Inc.
5.25%, 07/15/35		108,000		94,195
				329,248
BUILDING MATERIALS – 0.48%
CRH America Inc.
5.30%, 10/15/13		450,000		416,213
				416,213
CHEMICALS – 0.78%
Dow Chemical Co. (The)
6.00%, 10/01/12		495,000		508,081
E.I. du Pont de Nemours and Co.
5.25%, 12/15/16		180,000		175,673
				683,754

24 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
COMMERCIAL SERVICES – 0.41%
McKesson Corp.
5.70%, 03/01/17	$	135,000	$	130,892
Western Union Co.
5.40%, 11/17/11		225,000		225,172
				356,064
COMPUTERS – 0.69%
International Business
Machines Corp.
4.75%, 11/29/12		585,000		599,166
				599,166
COSMETICS & PERSONAL CARE – 0.12%
Procter & Gamble Co. (The)
5.55%, 03/05/37		108,000		104,607
				104,607
DIVERSIFIED FINANCIAL SERVICES – 20.29%
American Express Co.
6.80%, 09/01/16		180,000		158,547
American Express Credit Corp.
5.00%, 12/02/10		630,000		616,021
American General Finance Corp.
5.38%, 10/01/12		900,000		761,230
Associates Corp. of North America
6.95%, 11/01/18		675,000		688,941
Bear Stearns Companies Inc. (The)
4.55%, 06/23/10		180,000		178,406
5.70%, 11/15/14		450,000		430,361
Boeing Capital Corp.
6.10%, 03/01/11		315,000		330,049
CIT Group Inc.
5.85%, 09/15/16		540,000		388,800
Citigroup Inc.
4.13%, 02/22/10		675,000		670,337
6.00%, 10/31/33		675,000		550,960
Countrywide Financial Corp.
5.80%, 06/07/12		270,000		245,700
Credit Suisse (USA) Inc.
5.38%, 03/02/16		495,000		467,522
General Electric Capital Corp.
5.00%, 01/08/16		1,350,000		1,308,316
6.75%, 03/15/32		630,000		636,970

Security	Principal		Value
Goldman Sachs Group Inc. (The)
5.00%, 10/01/14	$	684,000	$	644,035
6.35%, 02/15/34		450,000		377,748
6.75%, 10/01/37		675,000		604,049
HSBC Finance Corp.
5.50%, 01/19/16		1,125,000		1,094,021
International Lease Finance Corp.
5.63%, 09/20/13		405,000		343,993
John Deere Capital Corp.
7.00%, 03/15/12		315,000		340,269
JPMorgan Chase & Co.
5.75%, 01/02/13		1,215,000		1,207,057
JPMorgan Chase Capital XV
5.88%, 03/15/35		720,000		565,205
Lehman Brothers Holdings Inc.
4.50%, 07/26/10a		720,000		681,528
6.88%, 07/17/37		360,000		295,517
Merrill Lynch & Co. Inc.
5.45%, 07/15/14		585,000		523,300
6.40%, 08/28/17		810,000		732,083
Morgan Stanley
4.00%, 01/15/10		450,000		437,919
5.75%, 10/18/16		900,000		807,069
National Rural Utilities Cooperative Finance Corp.
7.25%, 03/01/12		684,000		727,881
SLM Corp.
5.38%, 05/15/14		360,000		293,400
Svensk Exportkredit AB
4.50%, 09/27/10		540,000		554,089
				17,661,323
ELECTRIC – 7.01%
American Electric Power Co. Inc. Series C
5.38%, 03/15/10		225,000		227,344
Consolidated Edison Co. of New York Inc.
6.30%, 08/15/37		430,000		421,245
Constellation Energy Group Inc.
4.55%, 06/15/15		342,000		295,370
Dominion Resources Inc.
5.15%, 07/15/15		684,000		656,602

SCHEDULES OF INVESTMENTS 25

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Duke Capital LLC
6.25%, 02/15/13	$	342,000	$	348,348
Duke Energy Corp.
6.25%, 01/15/12		225,000		234,884
Exelon Corp.
4.90%, 06/15/15		360,000		335,007
Exelon Generation Co. LLC
5.35%, 01/15/14		342,000		328,631
FirstEnergy Corp.
7.38%, 11/15/31		450,000		482,343
FPL Group Capital Inc.
5.63%, 09/01/11		225,000		232,535
MidAmerican Energy Holdings Co.
6.13%, 04/01/36		450,000		433,700
Pacific Gas and Electric Co.
4.80%, 03/01/14		819,000		799,099
Progress Energy Inc.
7.10%, 03/01/11		684,000		718,665
Southern California Edison Co.
6.00%, 01/15/34		360,000		359,692
TXU Electric Delivery Co.
7.00%, 09/01/22		225,000		224,882
				6,098,347
ENVIRONMENTAL CONTROL – 0.10%
Waste Management Inc.
7.00%, 07/15/28		90,000		83,579
				83,579
FOOD – 1.44%
Kellogg Co. Series B
7.45%, 04/01/31		270,000		305,141
Kraft Foods Inc.
6.00%, 02/11/13		450,000		458,380
Kroger Co. (The)
5.50%, 02/01/13		225,000		226,558
Unilever Capital Corp.
5.90%, 11/15/32		270,000		261,332
				1,251,411
FOREST PRODUCTS & PAPER – 0.25%
Weyerhaeuser Co.
7.38%, 03/15/32		225,000		214,615
				214,615

Security	Principal		Value
HEALTH CARE - PRODUCTS – 0.54%
Johnson & Johnson
5.15%, 08/15/12	$	450,000	$	473,447
				473,447
HEALTH CARE - SERVICES – 1.02%
UnitedHealth Group Inc.
5.80%, 03/15/36		216,000		173,352
WellPoint Inc.
5.00%, 01/15/11		720,000		713,295
				886,647
HOLDING COMPANIES - DIVERSIFIED – 0.06%
Capmark Financial Group Inc.
6.30%, 05/10/17		90,000		54,450
				54,450
HOUSEHOLD PRODUCTS & WARES – 0.26%
Fortune Brands Inc.
5.13%, 01/15/11		234,000		229,918
				229,918
INSURANCE – 4.39%
Allstate Corp. (The)
5.55%, 05/09/35		450,000		380,826
American International Group Inc.
4.70%, 10/01/10		450,000		427,618
8.18%, 05/15/38b		360,000		273,613
Berkshire Hathaway Finance Corp.
4.13%, 01/15/10		765,000		773,231
Genworth Financial Inc.
6.15%, 11/15/16		225,000		159,127
ING Capital Funding Trust III
8.44%, 12/31/10		135,000		133,926
Lincoln National Corp.
7.00%, 05/17/16		225,000		194,521
Marsh & McLennan Companies Inc.
5.15%, 09/15/10		450,000		446,443
MetLife Inc.
5.00%, 06/15/15		900,000		847,206
Prudential Financial Inc.
5.70%, 12/14/36		225,000		187,816
				3,824,327
MACHINERY – 1.06%
Caterpillar Inc.
5.70%, 08/15/16		900,000		922,197
				922,197

26 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
MANUFACTURING – 0.80%
General Electric Co.
5.25%, 12/06/17	$	720,000	$	693,589
				693,589
MEDIA – 5.18%
AOL Time Warner Inc.
6.88%, 05/01/12		360,000		369,350
Comcast Cable Communications Holdings Inc.
8.38%, 03/15/13		684,000		757,089
Comcast Corp.
6.45%, 03/15/37		450,000		416,677
Cox Communications Inc.
4.63%, 01/15/10		360,000		358,380
News America Inc.
5.30%, 12/15/14		684,000		670,871
Time Warner Cable Inc.
6.55%, 05/01/37		135,000		124,461
Time Warner Inc.
7.70%, 05/01/32		450,000		452,079
Viacom Inc.
6.25%, 04/30/16		225,000		214,259
7.88%, 07/30/30		450,000		417,757
Walt Disney Co. (The)
6.38%, 03/01/12		684,000		730,335
				4,511,258
MINING – 1.41%
Alcoa Inc.
5.55%, 02/01/17		135,000		124,186
5.95%, 02/01/37		135,000		115,325
BHP Billiton Finance (USA) Ltd.
4.80%, 04/15/13		684,000		676,416
Vale Overseas Ltd.
6.25%, 01/23/17		315,000		314,055
				1,229,982
MULTI-NATIONAL – 2.47%
European Investment Bank
5.13%, 05/30/17		1,350,000		1,432,755
Inter-American Development Bank
5.13%, 09/13/16		675,000		718,463
				2,151,218

Security	Principal		Value
OFFICE & BUSINESS EQUIPMENT – 0.55%
Xerox Corp.
6.88%, 08/15/11	$	450,000	$	476,523
				476,523
OIL & GAS – 4.60%
Amerada Hess Corp.
7.13%, 03/15/33		108,000		114,759
Anadarko Petroleum Corp.
5.95%, 09/15/16		450,000		438,366
Apache Corp.
5.25%, 04/15/13		225,000		229,413
Canadian Natural Resources Ltd.
6.25%, 03/15/38		135,000		121,563
ConocoPhillips Holding Co.
6.95%, 04/15/29		900,000		988,332
Devon Energy Corp.
7.95%, 04/15/32		450,000		515,851
EnCana Corp.
6.50%, 02/01/38		270,000		254,649
Enterprise Products Operating LP
5.60%, 10/15/14		495,000		478,426
Nexen Inc.
6.40%, 05/15/37		135,000		121,114
Pemex Project Funding Master Trust
6.63%, 06/15/35		450,000		445,988
Valero Energy Corp.
7.50%, 04/15/32		225,000		215,267
XTO Energy Inc.
6.10%, 04/01/36		90,000		79,601
				4,003,329
OIL & GAS SERVICES – 0.16%
Weatherford International Inc.
6.35%, 06/15/17		135,000		136,201
				136,201
PHARMACEUTICALS – 3.05%
Abbott Laboratories
5.88%, 05/15/16		225,000		232,857
AmerisourceBergen Corp.
5.88%, 09/15/15		225,000		219,432
AstraZeneca PLC
5.90%, 09/15/17		360,000		373,634

SCHEDULES OF INVESTMENTS 27

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Bristol-Myers Squibb Co.
5.88%, 11/15/36	$	225,000	$	212,833
Eli Lilly and Co.
5.55%, 03/15/37		180,000		170,024
GlaxoSmithKline Capital Inc.
6.38%, 05/15/38		540,000		544,910
Teva Pharmaceutical Finance LLC
6.15%, 02/01/36		225,000		204,183
Wyeth
5.50%, 02/01/14		684,000		696,603
				2,654,476
PIPELINES – 1.21%
Kinder Morgan Energy Partners LP
6.50%, 02/01/37		315,000		291,807
6.75%, 03/15/11		135,000		138,396
ONEOK Partners LP
6.65%, 10/01/36		135,000		125,238
Southern Natural Gas Co.
5.90%, 04/01/17b		180,000		173,938
TransCanada PipeLines Ltd.
6.20%, 10/15/37		360,000		322,089
				1,051,468
REAL ESTATE – 0.37%
ERP Operating LP
5.75%, 06/15/17		360,000		326,081
				326,081
REAL ESTATE INVESTMENT TRUSTS – 0.58%
iStar Financial Inc.
5.88%, 03/15/16		144,000		100,800
ProLogis
5.63%, 11/15/16		225,000		198,013
Simon Property Group LP
5.10%, 06/15/15		225,000		207,729
				506,542
RETAIL – 2.94%
Costco Wholesale Corp.
5.50%, 03/15/17		180,000		180,417
CVS Caremark Corp.
6.13%, 08/15/16		135,000		134,239
Federated Retail Holdings Inc.
5.90%, 12/01/16		450,000		385,965

Security	Principal		Value
Home Depot Inc.
5.40%, 03/01/16	$	450,000	$	406,945
Target Corp.
6.35%, 11/01/32		360,000		338,600
Wal-Mart Stores Inc.
4.55%, 05/01/13		900,000		912,387
5.25%, 09/01/35		225,000		196,997
				2,555,550
SAVINGS & LOANS – 0.16%
Washington Mutual Inc.
5.25%, 09/15/17		225,000		136,125
				136,125
SOFTWARE – 0.51%
Oracle Corp.
5.25%, 01/15/16		450,000		445,497
				445,497
TELECOMMUNICATIONS – 8.72%
AT&T Inc.
6.30%, 01/15/38		135,000		127,170
AT&T Wireless Services Inc.
7.88%, 03/01/11		900,000		959,654
BellSouth Corp.
6.00%, 11/15/34		450,000		406,894
British Telecom PLC
9.13%, 12/15/30		180,000		215,727
Cisco Systems Inc.
5.50%, 02/22/16		234,000		236,633
Deutsche Telekom International Finance AG
8.50%, 06/15/10		585,000		620,951
8.75%, 06/15/30		135,000		149,742
Embarq Corp.
7.08%, 06/01/16		450,000		419,886
France Telecom SA
8.50%, 03/01/31		450,000		540,116
Qwest Corp.
6.88%, 09/15/33		45,000		32,968
8.88%, 03/15/12		180,000		180,931
Rogers Wireless Inc.
6.38%, 03/01/14		135,000		136,805
SBC Communications Inc.
5.88%, 02/01/12		900,000		922,402

28 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Telecom Italia Capital SA
4.00%, 01/15/10	$	630,000	$	619,965
Telefonica Europe BV
8.25%, 09/15/30		450,000		516,260
Verizon Communications Inc.
5.55%, 02/15/16		450,000		440,189
Verizon Global Funding Corp.
7.25%, 12/01/10		675,000		714,767
Vodafone Group PLC
5.75%, 03/15/16		360,000		352,564
				7,593,624
TEXTILES – 0.47%
Mohawk Industries Inc.
6.13%, 01/15/16		450,000		407,929
				407,929
TRANSPORTATION – 1.00%
Burlington Northern Santa Fe Corp.
6.15%, 05/01/37		315,000		296,597
CSX Corp.
6.75%, 03/15/11		450,000		458,662
Norfolk Southern Corp.
7.05%, 05/01/37		108,000		113,401
				868,660
TOTAL CORPORATE BONDS & NOTES
(Cost: $79,852,076)				77,730,262
FOREIGN GOVERNMENT BONDS & NOTESC – 6.42%
Brazil (Federative Republic of)
8.00%, 01/15/18		360,000		401,940
11.00%, 08/17/15		562,000		741,840
Hydro-Quebec
8.05%, 07/07/24		738,000		957,846
Italy (Republic of)
6.00%, 02/22/11		1,125,000		1,195,976
Quebec (Province of)
5.00%, 03/01/16		450,000		464,613
7.50%, 09/15/29		450,000		581,025

Security	Shares or Principal		Value
United Mexican States
6.38%, 01/16/13	$	684,000	$	722,128
7.50%, 04/08/33		450,000		524,830
TOTAL FOREIGN GOVERNMENT BONDS & NOTES (Cost: $5,528,732)				5,590,198
MUNICIPAL DEBT OBLIGATIONS – 0.97%
ILLINOIS – 0.97%
Illinois State
5.10%, 06/01/33		900,000		847,476
				847,476
TOTAL MUNICIPAL DEBT OBLIGATIONS
(Cost: $845,757)				847,476
SHORT-TERM INVESTMENTS – 2.32%
MONEY MARKET FUNDS – 2.32%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares 2.57%d,e		1,458,747		1,458,747
BGI Cash Premier Fund LLC 2.63%d,e,f		558,720		558,720
				2,017,467
TOTAL SHORT-TERM INVESTMENTS (Cost: $2,017,467)				2,017,467
TOTAL INVESTMENTS IN SECURITIES – 99.01% (Cost: $88,244,032)				86,185,403
Other Assets, Less Liabilities – 0.99%				863,866
NET ASSETS – 100.00%			$	87,049,269

^a All or a portion of this security represents a security on loan. See Note 5.

^b This security may be resold to qualified institutional buyers under Rule 144A of the Securities Act of 1933.

^c Investments are denominated in U.S. dollars.

^d Affiliated issuer. See Note 2.

^e The rate quoted is the annualized seven-day yield of the fund at period end.

^f This security represents an investment of securities lending collateral. See

Note 5.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 29

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN INTERMEDIATE GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
CORPORATE BONDS & NOTES – 36.91%
AEROSPACE & DEFENSE – 0.20%
United Technologies Corp.
5.38%, 12/15/17	$	420,000	$	420,258
				420,258
AGRICULTURE – 0.57%
Philip Morris International Inc.
5.65%, 05/16/18		1,050,000		1,028,026
Reynolds American Inc.
6.75%, 06/15/17		210,000		206,361
				1,234,387
AUTO MANUFACTURERS – 0.18%
DaimlerChrysler North America Holding Corp.
6.50%, 11/15/13		399,000		397,722
				397,722
BANKS – 6.05%
Bank of America Corp.
4.50%, 08/01/10		903,000		909,331
4.88%, 01/15/13		1,575,000		1,529,925
5.65%, 05/01/18		630,000		580,666
Bank of New York Mellon Corp. (The)
4.95%, 11/01/12		630,000		630,645
Capital One Financial Corp.
5.70%, 09/15/11		399,000		373,935
Deutsche Bank AG London
6.00%, 09/01/17		420,000		421,003
KfW
4.25%, 06/15/10		1,806,000		1,847,719
4.88%, 01/17/17		525,000		545,575
KfW Series G
4.38%, 03/15/18a		840,000		841,336
Landwirtschaftliche
Rentenbank Series G
5.00%, 11/08/16		525,000		553,297
Royal Bank of Scotland
Group PLC
5.00%, 10/01/14		420,000		392,428

Security	Principal		Value
UBS AG Stamford
5.88%, 12/20/17	$	630,000	$	606,358
US Bank N.A.
4.80%, 04/15/15		777,000		734,099
Wachovia Corp.
5.30%, 10/15/11		420,000		393,877
5.75%, 06/15/17		630,000		539,324
Wells Fargo & Co.
4.88%, 01/12/11		2,100,000		2,130,500
				13,030,018
BEVERAGES – 0.44%
Coca-Cola Co. (The)
5.35%, 11/15/17		525,000		530,088
Diageo Finance BV
5.30%, 10/28/15		420,000		411,039
				941,127
BIOTECHNOLOGY – 0.19%
Amgen Inc.
4.00%, 11/18/09		399,000		400,795
				400,795
BUILDING MATERIALS – 0.17%
CRH America Inc.
5.30%, 10/15/13		231,000		213,656
Masco Corp.
6.13%, 10/03/16		168,000		146,627
				360,283
CHEMICALS – 0.18%
Dow Chemical Co. (The)
6.00%, 10/01/12		168,000		172,440
E.I. du Pont de Nemours and Co.
4.13%, 04/30/10		210,000		211,540
				383,980
COMMERCIAL SERVICES – 0.22%
McKesson Corp.
5.70%, 03/01/17		210,000		203,610
R.R. Donnelley & Sons Co.
6.13%, 01/15/17		168,000		152,786
Western Union Co.
5.40%, 11/17/11		126,000		126,097
				482,493

30 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN INTERMEDIATE GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
COMPUTERS – 0.20%
International Business
Machines Corp.
4.75%, 11/29/12	$	420,000	$	430,170
				430,170
DIVERSIFIED FINANCIAL SERVICES – 10.35%
American Express Co.
4.88%, 07/15/13		252,000		230,476
6.80%, 09/01/16		168,000		147,977
7.00%, 03/19/18		525,000		513,735
American General Finance Corp.
5.38%, 10/01/12		1,050,000		888,101
Bear Stearns Companies Inc. (The)
5.70%, 11/15/14		777,000		743,091
Boeing Capital Corp.
6.10%, 03/01/11		294,000		308,046
CIT Group Inc.
5.40%, 02/13/12		630,000		481,950
Citigroup Inc.
6.00%, 02/21/12		2,331,000		2,307,959
6.13%, 05/15/18		630,000		588,806
Countrywide Financial Corp.
5.80%, 06/07/12		105,000		95,550
Credit Suisse (USA) Inc.
5.38%, 03/02/16		1,050,000		991,713
General Electric Capital Corp.
4.13%, 09/01/09		2,331,000		2,352,878
5.00%, 01/08/16		399,000		386,680
5.88%, 02/15/12		1,050,000		1,084,822
Goldman Sachs Group Inc. (The)
6.15%, 04/01/18		1,050,000		1,004,901
HSBC Finance Corp.
5.50%, 01/19/16		1,575,000		1,531,630
John Deere Capital Corp.
7.00%, 03/15/12		336,000		362,953
JPMorgan Chase & Co.
5.75%, 01/02/13		1,575,000		1,564,703
Lehman Brothers Holdings Inc.
5.50%, 04/04/16		378,000		329,541
5.75%, 07/18/11		777,000		741,879

Security	Principal		Value
Merrill Lynch & Co. Inc.
5.45%, 07/15/14	$	1,050,000	$	939,256
Morgan Stanley
5.75%, 10/18/16		420,000		376,632
6.00%, 04/28/15		210,000		195,619
6.63%, 04/01/18		630,000		582,009
6.75%, 04/15/11		1,323,000		1,328,495
National Rural Utilities Cooperative Finance Corp.
7.25%, 03/01/12		399,000		424,597
SLM Corp.
5.38%, 05/15/14		357,000		290,955
Svensk Exportkredit AB
4.50%, 09/27/10		1,050,000		1,077,394
Toyota Motor Credit Corp.
4.25%, 03/15/10		399,000		402,760
				22,275,108
ELECTRIC – 2.34%
Consolidated Edison Co. of New York Inc.
5.85%, 04/01/18		1,260,000		1,267,702
Constellation Energy Group Inc.
4.55%, 06/15/15		378,000		326,462
Dominion Resources Inc.
5.15%, 07/15/15		399,000		383,018
Duke Capital LLC
6.25%, 02/15/13		399,000		406,405
Duke Energy Corp.
6.25%, 01/15/12		147,000		153,457
Exelon Corp.
4.90%, 06/15/15		399,000		371,300
Exelon Generation Co. LLC
5.35%, 01/15/14		399,000		383,402
Pacific Gas and Electric Co.
4.80%, 03/01/14		777,000		758,120
Progress Energy Inc.
7.10%, 03/01/11		777,000		816,379
TXU Electric Delivery Co.
6.38%, 01/15/15		168,000		168,504
				5,034,749

SCHEDULES OF INVESTMENTS 31

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN INTERMEDIATE GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
FOOD – 1.04%
General Mills Inc.
6.00%, 02/15/12	$	168,000	$	172,887
Kraft Foods Inc.
6.13%, 02/01/18		315,000		309,678
6.25%, 06/01/12		420,000		430,204
Kroger Co. (The)
6.80%, 04/01/11		210,000		217,906
Safeway Inc.
7.50%, 09/15/09		777,000		799,470
Sara Lee Corp.
6.25%, 09/15/11		126,000		128,888
Unilever Capital Corp.
7.13%, 11/01/10		168,000		179,993
				2,239,026
FOREST PRODUCTS & PAPER – 0.12%
Weyerhaeuser Co.
6.75%, 03/15/12		252,000		259,384
				259,384
HEALTH CARE - SERVICES – 0.26%
UnitedHealth Group Inc.
4.88%, 03/15/15		168,000		154,350
WellPoint Inc.
5.00%, 01/15/11		420,000		416,089
				570,439
HOLDING COMPANIES - DIVERSIFIED – 0.03%
Capmark Financial Group Inc.
6.30%, 05/10/17		105,000		63,525
				63,525
HOUSEHOLD PRODUCTS & WARES – 0.18%
Fortune Brands Inc.
5.13%, 01/15/11		399,000		392,040
				392,040
INSURANCE – 1.36%
Allstate Corp. (The)
5.00%, 08/15/14		210,000		201,478
American International Group Inc.
5.60%, 10/18/16		420,000		356,839
Berkshire Hathaway Finance Corp.
4.85%, 01/15/15		735,000		732,359

Security	Principal		Value
Genworth Financial Inc.
6.15%, 11/15/16	$	399,000	$	282,186
Lincoln National Corp.
7.00%, 05/17/16		231,000		199,708
Marsh & McLennan Companies Inc.
5.15%, 09/15/10		399,000		395,846
MetLife Inc.
5.00%, 06/15/15		399,000		375,595
Prudential Financial Inc.
5.10%, 09/20/14		420,000		391,633
				2,935,644
MACHINERY – 0.28%
Caterpillar Inc.
5.70%, 08/15/16		588,000		602,502
				602,502
MANUFACTURING – 0.37%
General Electric Co.
5.00%, 02/01/13		777,000		787,074
				787,074
MEDIA – 1.42%
AOLTime Warner Inc.
6.88%, 05/01/12		399,000		409,363
Comcast Cable Communications Holdings Inc.
8.38%, 03/15/13		777,000		860,026
Cox Communications Inc.
4.63%, 01/15/10		399,000		397,205
News America Inc.
5.30%, 12/15/14		378,000		370,745
Time Warner Cable Inc.
5.85%, 05/01/17		210,000		199,637
Viacom Inc.
6.25%, 04/30/16		210,000		199,975
6.63%, 05/15/11		168,000		168,201
Walt Disney Co. (The)
6.38%, 03/01/12		420,000		448,451
				3,053,603
MINING – 0.50%
Alcoa Inc.
5.55%, 02/01/17		105,000		96,589

32 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN INTERMEDIATE GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
BHP Billiton Finance (USA) Ltd.
4.80%, 04/15/13	$	777,000	$	768,385
Vale Overseas Ltd.
6.25%, 01/11/16		210,000		210,651
				1,075,625
MULTI-NATIONAL – 1.51%
European Investment Bank
4.63%, 05/15/14a		2,331,000		2,420,441
Inter-American Development Bank
5.13%, 09/13/16		777,000		827,031
				3,247,472
OFFICE & BUSINESS EQUIPMENT – 0.20%
Xerox Corp.
6.88%, 08/15/11		399,000		422,517
				422,517
OIL & GAS – 1.25%
Anadarko Petroleum Corp.
5.95%, 09/15/16		378,000		368,227
Apache Corp.
5.25%, 04/15/13		210,000		214,119
Conoco Funding Co.
6.35%, 10/15/11		777,000		822,546
Devon Financing Corp. ULC
6.88%, 09/30/11		210,000		222,510
Enterprise Products Operating LP
5.60%, 10/15/14		441,000		426,234
Transocean Inc.
6.00%, 03/15/18		420,000		416,524
XTO Energy Inc.
6.25%, 04/15/13		210,000		214,869
				2,685,029
OIL & GAS SERVICES – 0.08%
Weatherford International Inc.
6.35%, 06/15/17		168,000		169,495
				169,495
PHARMACEUTICALS – 1.84%
Abbott Laboratories
5.15%, 11/30/12		420,000		432,205
AmerisourceBergen Corp.
5.88%, 09/15/15		84,000		81,921

Security	Principal		Value
AstraZeneca PLC
5.40%, 09/15/12	$	630,000	$	650,228
GlaxoSmithKline Capital Inc.
5.65%, 05/15/18		1,470,000		1,476,905
Medco Health Solutions Inc.
7.13%, 03/15/18		525,000		539,950
Wyeth
5.50%, 02/01/14		777,000		791,316
				3,972,525
PIPELINES – 0.10%
Kinder Morgan Energy Partners LP
6.75%, 03/15/11		210,000		215,283
				215,283
REAL ESTATE – 0.09%
ERP Operating LP
5.13%, 03/15/16		210,000		185,928
				185,928
REAL ESTATE INVESTMENT TRUSTS – 0.61%
Boston Properties LP
6.25%, 01/15/13		210,000		211,408
iStar Financial Inc.
5.88%, 03/15/16		168,000		117,600
ProLogis
5.63%, 11/15/16		168,000		147,850
Simon Property Group LP
5.60%, 09/01/11		840,000		836,101
				1,312,959
RETAIL – 1.30%
Costco Wholesale Corp.
5.30%, 03/15/12		126,000		128,969
CVS Caremark Corp.
6.30%, 06/01/12		336,000		285,180
Federated Retail Holdings Inc.
5.90%, 12/01/16		294,000		252,164
Home Depot Inc.
5.40%, 03/01/16		399,000		360,824
McDonald’s Corp.
5.35%, 03/01/18		420,000		411,881
Target Corp.
6.00%, 01/15/18		420,000		422,496

SCHEDULES OF INVESTMENTS 33

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN INTERMEDIATE GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Wal-Mart Stores Inc.
4.55%, 05/01/13	$	630,000	$	638,671
Yum! Brands Inc.
6.25%, 03/15/18		315,000		301,584
				2,801,769
SAVINGS & LOANS – 0.06%
Washington Mutual Inc.
5.25%, 09/15/17		231,000		139,755
				139,755
SOFTWARE – 0.27%
Oracle Corp.
5.25%, 01/15/16		588,000		582,116
				582,116
TELECOMMUNICATIONS – 2.64%
AT&T Wireless Services Inc.
7.88%, 03/01/11		399,000		425,447
Cisco Systems Inc.
5.50%, 02/22/16		777,000		785,744
Deutsche Telekom International Finance AG
8.50%, 06/15/10		399,000		423,520
Embarq Corp.
7.08%, 06/01/16		294,000		274,326
France Telecom SA
7.75%, 03/01/11		399,000		425,736
Rogers Wireless Inc.
6.38%, 03/01/14		210,000		212,808
SBC Communications Inc.
5.88%, 02/01/12		777,000		796,341
Telecom Italia Capital SA
4.00%, 01/15/10		777,000		764,624
Telefonica Europe BV
7.75%, 09/15/10		399,000		422,275
Verizon Communications Inc.
5.55%, 02/15/16		777,000		760,060
Vodafone Group PLC
5.75%, 03/15/16		399,000		390,758
				5,681,639

Security	Principal		Value
TEXTILES – 0.12%
Mohawk Industries Inc.
6.13%, 01/15/16	$	294,000	$	266,514
				266,514
TRANSPORTATION – 0.19%
CSX Corp.
6.75%, 03/15/11		399,000		406,681
				406,681
TOTAL CORPORATE BONDS & NOTES
(Cost: $80,850,108)				79,459,634
FOREIGN GOVERNMENT BONDS & NOTESb – 2.54%
Brazil (Federative Republic of)
8.00%, 01/15/18		630,000		703,395
Italy (Republic of)
6.00%, 02/22/11		2,331,000		2,478,063
Quebec (Province of)
5.00%, 03/01/16		777,000		802,232
United Mexican States
6.38%, 01/16/13		1,407,000		1,485,430
TOTAL FOREIGN GOVERNMENT BONDS & NOTES
(Cost: $5,406,440)				5,469,120
U.S. GOVERNMENT & AGENCY OBLIGATIONS – 59.04%
U.S. GOVERNMENT AGENCY OBLIGATIONS – 26.60%
Federal Home Loan Bank
5.00%, 11/17/17		2,835,000		2,918,011
Federal Home Loan
Mortgage Corp.
3.25%, 02/25/11		2,898,000		2,887,128
4.50%, 01/15/13a		7,140,000		7,297,515
7.00%, 03/15/10		16,065,000		16,995,356
Federal National
Mortgage Association
5.00%, 04/15/15a		4,200,000		4,353,076
5.38%, 06/12/17a		1,470,000		1,553,003
7.25%, 01/15/10a		20,160,000		21,267,008
				57,271,097

34 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN INTERMEDIATE GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Shares or Principal		Value
U.S. GOVERNMENT OBLIGATIONS – 32.44%
U.S. Treasury Notes
2.75%, 07/30/10	$	15,750,000	$	15,877,576
4.75%, 05/15/14a		17,199,000		18,647,157
4.88%, 07/31/11a		16,380,000		17,437,002
4.88%, 08/15/16a		16,443,000		17,894,258
				69,855,993
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost: $124,709,337)				127,127,090
SHORT-TERM INVESTMENTS – 46.39%
MONEY MARKET FUNDS – 46.39%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares 2.57%c,d		2,267,115		2,267,115
BGI Cash Premier Fund LLC 2.63%c,d,e		97,609,476		97,609,476
				99,876,591
TOTAL SHORT-TERM INVESTMENTS
(Cost: $99,876,591)				99,876,591
TOTAL INVESTMENTS IN SECURITIES – 144.88% (Cost: $310,842,476)				311,932,435
Other Assets, Less Liabilities – (44.88)%				(96,627,591	)
NET ASSETS – 100.00%			$	215,304,844

^a All or a portion of this security represents a security on loan. See Note 5.

^b Investments are denominated in U.S. dollars.

^c Affiliated issuer. See Note 2.

^d The rate quoted is the annualized seven-day yield of the fund at period end.

^e This security represents an investment of securities lending collateral. See

Note 5.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 35

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
CORPORATE BONDS & NOTES – 40.22%
AEROSPACE & DEFENSE – 0.19%
Lockheed Martin Corp.
6.15%, 09/01/36	$	90,000	$	87,019
United Technologies Corp.
6.05%, 06/01/36		90,000		89,320
				176,339
AGRICULTURE – 0.10%
Archer-Daniels-Midland Co.
5.38%, 09/15/35		54,000		45,082
Reynolds American Inc.
7.25%, 06/15/37		45,000		43,386
				88,468
AUTO MANUFACTURERS – 0.39%
DaimlerChrysler North America Holding Corp.
6.50%, 11/15/13		360,000		358,847
				358,847
BANKS – 4.87%
BAC Capital Trust XI
6.63%, 05/23/36		180,000		161,585
Bank of America Corp.
4.50%, 08/01/10		711,000		715,985
4.88%, 01/15/13		180,000		174,849
Capital One Financial Corp.
5.70%, 09/15/11		180,000		168,693
Deutsche Bank AG London
6.00%, 09/01/17		180,000		180,430
HSBC Holdings PLC
6.50%, 05/02/36		180,000		166,851
KfW
4.25%, 06/15/10		90,000		92,079
5.13%, 03/14/16		540,000		571,509
Landwirtschaftliche Rentenbank Series G
5.00%, 11/08/16		180,000		189,702
Royal Bank of Scotland Group PLC
5.00%, 10/01/14		360,000		336,367
US Bank N.A.
4.80%, 04/15/15		360,000		340,123

Security	Principal		Value
Wachovia Corp.
5.30%, 10/15/11	$	270,000	$	253,207
5.75%, 06/15/17		450,000		385,231
Wells Fargo & Co.
4.88%, 01/12/11		711,000		721,326
				4,457,937
BEVERAGES – 0.50%
Coca-Cola Co. (The)
5.35%, 11/15/17		225,000		227,180
Coca-Cola Enterprises Inc.
8.50%, 02/01/22		54,000		65,442
Diageo Capital PLC
5.88%, 09/30/36		72,000		66,604
Pepsi Bottling Group Inc.
7.00%, 03/01/29		90,000		99,900
				459,126
BIOTECHNOLOGY – 0.10%
Amgen Inc.
4.00%, 11/18/09		90,000		90,405
				90,405
BUILDING MATERIALS – 0.18%
CRH America Inc.
5.30%, 10/15/13		180,000		166,485
				166,485
CHEMICALS – 0.48%
Dow Chemical Co. (The)
6.00%, 10/01/12		360,000		369,514
E.I. du Pont de Nemours and Co.
5.25%, 12/15/16		72,000		70,269
				439,783
COMMERCIAL SERVICES – 0.15%
McKesson Corp.
5.70%, 03/01/17		54,000		52,357
Western Union Co.
5.40%, 11/17/11		90,000		90,069
				142,426
COMPUTERS – 0.20%
International Business Machines Corp.
4.75%, 11/29/12		180,000		184,359
				184,359

36 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
COSMETICS & PERSONAL CARE – 0.05%
Procter & Gamble Co. (The)
5.55%, 03/05/37	$	45,000	$	43,586
				43,586
DIVERSIFIED FINANCIAL SERVICES – 9.25%
American Express Co.
6.80%, 09/01/16		72,000		63,419
8.15%, 03/19/38		270,000		273,439
American General Finance Corp.
5.38%, 10/01/12		540,000		456,738
Associates Corp. of North America
6.95%, 11/01/18		270,000		275,576
Bear Stearns Companies Inc. (The) 5.70%, 11/15/14		180,000		172,145
CIT Group Inc.
5.40%, 02/13/12		270,000		206,550
Citigroup Inc.
4.13%, 02/22/10		360,000		357,513
6.00%, 10/31/33		180,000		146,923
Countrywide Financial Corp.
5.80%, 06/07/12		90,000		81,900
Credit Suisse (USA) Inc.
5.38%, 03/02/16		198,000		187,009
General Electric Capital Corp.
4.13%, 09/01/09		540,000		545,068
5.63%, 09/15/17		270,000		262,726
5.88%, 01/14/38		180,000		161,951
6.75%, 03/15/32		252,000		254,788
Goldman Sachs Group Inc. (The)
5.00%, 10/01/14		261,000		245,750
6.35%, 02/15/34		180,000		151,099
6.75%, 10/01/37		540,000		483,239
6.88%, 01/15/11		540,000		556,610
HSBC Finance Corp.
5.50%, 01/19/16		450,000		437,608
International Lease Finance Corp.
5.63%, 09/20/13		153,000		129,953
John Deere Capital Corp.
7.00%, 03/15/12		135,000		145,830
JPMorgan Chase & Co.
5.38%, 10/01/12		270,000		270,028
5.75%, 01/02/13		270,000		268,235

Security	Principal		Value
JPMorgan Chase Capital XV
5.88%, 03/15/35	$	405,000	$	317,928
Lehman Brothers Holdings Inc. 4.50%, 07/26/10a		207,000		195,939
5.50%, 04/04/16		261,000		227,540
Merrill Lynch & Co. Inc.
6.05%, 08/15/12		180,000		171,666
6.40%, 08/28/17		270,000		244,028
Morgan Stanley
5.05%, 01/21/11		180,000		174,026
5.75%, 10/18/16		360,000		322,828
National Rural Utilities Cooperative Finance Corp.
7.25%, 03/01/12		261,000		277,744
SLM Corp.
5.38%, 05/15/14		180,000		146,700
Toyota Motor Credit Corp.
4.25%, 03/15/10		261,000		263,459
				8,475,955
ELECTRIC – 3.36%
Consolidated Edison Co. of New York Inc.
5.85%, 04/01/18		1,035,000		1,041,327
Constellation Energy Group Inc. 4.55%, 06/15/15		135,000		116,594
Dominion Resources Inc.
5.15%, 07/15/15		261,000		250,546
Duke Capital LLC
6.25%, 02/15/13		135,000		137,506
Duke Energy Corp.
6.25%, 01/15/12		90,000		93,953
Exelon Corp.
4.90%, 06/15/15		144,000		134,003
Exelon Generation Co. LLC
5.35%, 01/15/14		135,000		129,723
FirstEnergy Corp.
7.38%, 11/15/31		180,000		192,937
FPL Group Capital Inc.
5.63%, 09/01/11		90,000		93,014
MidAmerican Energy Holdings Co.
6.13%, 04/01/36		180,000		173,480

SCHEDULES OF INVESTMENTS 37

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Pacific Gas and Electric Co.
4.80%, 03/01/14	$	162,000	$	158,064
Progress Energy Inc.
7.10%, 03/01/11		261,000		274,228
PSEG Power LLC
8.63%, 04/15/31		54,000		63,844
Southern California Edison Co.
6.00%, 01/15/34		126,000		125,892
TXU Electric Delivery Co.
7.00%, 09/01/22		90,000		89,953
				3,075,064
ENVIRONMENTAL CONTROL – 0.04%
Waste Management Inc.
7.00%, 07/15/28		36,000		33,431
				33,431
FOOD – 0.67%
Kraft Foods Inc.
6.25%, 06/01/12		180,000		184,373
Kroger Co. (The)
5.50%, 02/01/13		90,000		90,623
Safeway Inc.
7.50%, 09/15/09		162,000		166,685
Unilever Capital Corp.
5.90%, 11/15/32		180,000		174,221
				615,902
FOREST PRODUCTS & PAPER – 0.19%
Weyerhaeuser Co.
7.38%, 03/15/32		180,000		171,692
				171,692
GAS – 0.05%
ONEOK Inc.
6.00%, 06/15/35		54,000		45,752
				45,752
HEALTH CARE - SERVICES – 0.35%
UnitedHealth Group Inc.
5.80%, 03/15/36		45,000		36,115
WellPoint Inc.
5.00%, 01/15/11		288,000		285,318
				321,433

Security	Principal		Value
HOUSEHOLD PRODUCTS & WARES – 0.35%
Fortune Brands Inc.
5.13%, 01/15/11	$	90,000	$	88,430
Kimberly-Clark Corp.
6.13%, 08/01/17		225,000		233,424
				321,854
INSURANCE – 1.23%
Allstate Corp. (The)
5.55%, 05/09/35		180,000		152,330
Berkshire Hathaway Finance Corp.
4.85%, 01/15/15		180,000		179,353
Genworth Financial Inc.
6.15%, 11/15/16		180,000		127,302
Lincoln National Corp.
7.00%, 05/17/16		90,000		77,808
Marsh & McLennan Companies Inc.
5.15%, 09/15/10		180,000		178,577
MetLife Inc.
5.00%, 06/15/15		360,000		338,882
Prudential Financial Inc.
5.70%, 12/14/36		90,000		75,126
				1,129,378
MACHINERY – 0.40%
Caterpillar Inc.
5.70%, 08/15/16		360,000		368,879
				368,879
MANUFACTURING – 0.40%
General Electric Co.
5.00%, 02/01/13		360,000		364,667
				364,667
MEDIA – 1.94%
AOL Time Warner Inc.
6.88%, 05/01/12		144,000		147,740
Comcast Cable Communications Holdings Inc.
8.38%, 03/15/13		261,000		288,889
Comcast Corp.
6.45%, 03/15/37		180,000		166,671

38 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
Cox Communications Inc.
4.63%, 01/15/10	$	144,000	$	143,352
News America Inc.
5.30%, 12/15/14		261,000		255,990
Time Warner Cable Inc.
6.55%, 05/01/37		72,000		66,379
Time Warner Inc.
7.70%, 05/01/32		180,000		180,832
Viacom Inc.
6.25%, 04/30/16		90,000		85,703
7.88%, 07/30/30		180,000		167,103
Walt Disney Co. (The)
6.38%, 03/01/12		261,000		278,680
				1,781,339
MINING – 1.16%
Alcoa Inc.
5.55%, 02/01/17		54,000		49,674
5.95%, 02/01/37		54,000		46,130
BHP Billiton Finance (USA) Ltd. 4.80%, 04/15/13		261,000		258,106
Freeport-McMoRan Copper & Gold Inc.
8.38%, 04/01/17		540,000		572,400
Vale Overseas Ltd.
6.25%, 01/23/17		135,000		134,595
				1,060,905
MULTI-NATIONAL – 2.87%
European Investment Bank
2.63%, 05/16/11		1,800,000		1,779,174
4.63%, 05/15/14a		540,000		560,720
Inter-American Development Bank
5.13%, 09/13/16		270,000		287,385
				2,627,279
OFFICE & BUSINESS EQUIPMENT – 0.21%
Xerox Corp.
6.88%, 08/15/11		180,000		190,609
				190,609
OIL & GAS – 1.73%
Amerada Hess Corp.
7.13%, 03/15/33		45,000		47,816
Anadarko Petroleum Corp.
5.95%, 09/15/16		180,000		175,346

Security	Principal		Value
Apache Corp.
5.25%, 04/15/13	$	90,000	$	91,765
Canadian Natural Resources Ltd.
6.25%, 03/15/38		54,000		48,625
ConocoPhillips Holding Co.
6.95%, 04/15/29		360,000		395,333
Devon Energy Corp.
7.95%, 04/15/32		180,000		206,340
Enterprise Products Operating LP
5.60%, 10/15/14		198,000		191,370
Pemex Project Funding Master Trust
6.63%, 06/15/35		180,000		178,395
Valero Energy Corp.
7.50%, 04/15/32		90,000		86,107
XTO Energy Inc.
6.38%, 06/15/38		180,000		164,806
				1,585,903
PHARMACEUTICALS – 2.04%
Abbott Laboratories
5.60%, 05/15/11		225,000		235,184
5.88%, 05/15/16		90,000		93,143
AmerisourceBergen Corp.
5.88%, 09/15/15		90,000		87,773
AstraZeneca PLC
5.40%, 09/15/12		180,000		185,779
Bristol-Myers Squibb Co.
5.88%, 11/15/36		90,000		85,133
Eli Lilly and Co.
5.55%, 03/15/37		72,000		68,010
GlaxoSmithKline Capital Inc.
5.65%, 05/15/18		765,000		768,594
Teva Pharmaceutical Finance LLC
6.15%, 02/01/36		90,000		81,673
Wyeth
5.50%, 02/01/14		261,000		265,809
				1,871,098
PIPELINES – 0.18%
Kinder Morgan Energy Partners LP
6.50%, 02/01/37		126,000		116,723
6.75%, 03/15/11		45,000		46,132
				162,855

SCHEDULES OF INVESTMENTS 39

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
REAL ESTATE INVESTMENT TRUSTS – 0.66%
iStar Financial Inc.
5.88%, 03/15/16	$	108,000	$	75,600
ProLogis
5.63%, 11/15/16		90,000		79,205
Simon Property Group LP
5.60%, 09/01/11		450,000		447,911
				602,716
RETAIL – 1.73%
Costco Wholesale Corp.
5.50%, 03/15/17		72,000		72,167
CVS Caremark Corp.
6.13%, 08/15/16		54,000		53,695
Federated Retail Holdings Inc.
5.90%, 12/01/16		180,000		154,386
Home Depot Inc.
5.40%, 03/01/16		180,000		162,778
5.88%, 12/16/36		225,000		175,689
Target Corp.
7.00%, 01/15/38		270,000		278,338
Wal-Mart Stores Inc.
4.55%, 05/01/13		675,000		684,290
				1,581,343
SAVINGS & LOANS – 0.03%
Washington Mutual Inc.
5.25%, 09/15/17		45,000		27,225
				27,225
SOFTWARE – 0.19%
Oracle Corp.
5.25%, 01/15/16		180,000		178,199
				178,199
TELECOMMUNICATIONS – 3.36%
AT&T Wireless Services Inc.
7.88%, 03/01/11		360,000		383,862
BellSouth Corp.
6.00%, 11/15/34		180,000		162,758
British Telecom PLC
9.13%, 12/15/30		72,000		86,291
Cisco Systems Inc.
5.50%, 02/22/16		90,000		91,013

Security	Principal		Value
Deutsche Telekom International Finance AG 8.50%, 06/15/10	$	225,000	$	238,827
8.75%, 06/15/30		54,000		59,897
Embarq Corp.
7.08%, 06/01/16		180,000		167,954
France Telecom SA
8.50%, 03/01/31		180,000		216,046
Qwest Corp.
6.88%, 09/15/33		27,000		19,781
8.88%, 03/15/12		72,000		72,372
Rogers Wireless Inc.
6.38%, 03/01/14		54,000		54,722
SBC Communications Inc.
5.88%, 02/01/12		360,000		368,961
Telecom Italia Capital SA
4.00%, 01/15/10		360,000		354,266
Telefonica Europe BV
8.25%, 09/15/30		180,000		206,504
Verizon Communications Inc.
5.55%, 02/15/16		180,000		176,076
Verizon Global Funding Corp.
7.25%, 12/01/10		261,000		276,377
Vodafone Group PLC
5.75%, 03/15/16		144,000		141,025
				3,076,732
TEXTILES – 0.18%
Mohawk Industries Inc. 6.13%, 01/15/16		180,000		163,172
				163,172
TRANSPORTATION – 0.44%
Burlington Northern Santa Fe Corp. 6.15%, 05/01/37		180,000		169,484
CSX Corp. 6.75%, 03/15/11		180,000		183,465
Norfolk Southern Corp. 7.05%, 05/01/37		45,000		47,251
				400,200
TOTAL CORPORATE BONDS & NOTES
(Cost: $37,569,794)				36,841,343

40 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN GOVERNMENT/CREDIT BOND FUND

August 31, 2008

Security	Principal		Value
FOREIGN GOVERNMENT BONDS & NOTESb – 2.42%
Italy (Republic of)
6.00%, 02/22/11	$	900,000	$	956,781
Brazil (Federative Republic of)
8.00%, 01/15/18		315,000		351,697
Quebec (Province of)
5.00%, 03/01/16		180,000		185,845
7.50%, 09/15/29		180,000		232,410
United Mexican States
6.38%, 01/16/13		261,000		275,549
7.50%, 04/08/33		180,000		209,932
TOTAL FOREIGN GOVERNMENT BONDS & NOTES
(Cost: $2,198,069)				2,212,214
MUNICIPAL DEBT OBLIGATIONS – 0.37%
ILLINOIS – 0.37%
Illinois State
5.10%, 06/01/33		360,000		338,990
				338,990
TOTAL MUNICIPAL DEBT OBLIGATIONS
(Cost: $340,157)				338,990
U.S. GOVERNMENT & AGENCY OBLIGATIONS – 55.45%
U.S. GOVERNMENT AGENCY OBLIGATIONS – 18.87%
Federal Home Loan
Mortgage Corp.
4.50%, 01/15/13a		900,000		919,855
4.50%, 01/15/15		1,125,000		1,137,723
6.25%, 07/15/32a		1,002,000		1,170,638
Federal National
Mortgage Association
5.00%, 04/15/15a		2,160,000		2,238,725
7.25%, 01/15/10a		11,196,000		11,810,785
				17,277,726
U.S. GOVERNMENT OBLIGATIONS – 36.58%
U.S. Treasury Bonds
4.38%, 02/15/38		360,000		358,164
7.63%, 02/15/25a		6,309,000		8,725,410
8.13%, 08/15/19a		1,350,000		1,827,886

Security	Shares or Principal		Value
U.S. Treasury Notes
4.63%, 11/15/09	$	9,300,000	$	9,573,141
4.63%, 12/31/11		2,856,000		3,026,789
4.63%, 11/15/16a		6,066,000		6,499,355
4.75%, 05/15/14a		3,222,000		3,493,292
				33,504,037
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost: $49,896,756)				50,781,763
SHORT-TERM INVESTMENTS – 39.69%
MONEY MARKET FUNDS – 39.69%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares 2.57%c,d		703,543		703,543
BGI Cash Premier Fund LLC 2.63%c,d,e		35,651,382		35,651,382
				36,354,925
TOTAL SHORT-TERM INVESTMENTS
(Cost: $36,354,925)				36,354,925
TOTAL INVESTMENTS IN SECURITIES – 138.15%
(Cost: $126,359,701)				126,529,235
Other Assets, Less Liabilities – (38.15)%				(34,939,911	)
NET ASSETS – 100.00%			$	91,589,324

^a All or a portion of this security represents a security on loan. See Note 5.

^b Investments are denominated in U.S. dollars.

^c Affiliated issuer. See Note 2.

^d The rate quoted is the annualized seven-day yield of the fund at period end.

^e This security represents an investment of securities lending collateral. See

Note 5.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 41

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN MBS BOND FUND

August 31, 2008

Security	Shares or Principal		Value
U.S. GOVERNMENT AGENCY OBLIGATIONS – 95.09%
MORTGAGE-BACKED SECURITIES – 95.09%
Federal Home Loan
Mortgage Corp.
2.77%, 06/15/33	$	324,874	$	319,586
4.50%, 09/01/23a		39,900,000		38,628,187
4.99%, 12/01/33		2,118,508		2,094,954
5.00%, 09/01/23a		33,060,000		32,739,731
5.00%, 09/01/38a		109,136,000		104,838,770
5.50%, 09/01/23a		38,760,000		39,044,644
5.50%, 09/01/38a		81,548,000		80,388,489
6.00%, 09/01/38a		57,000,000		57,445,313
Federal National
Mortgage Association
4.50%, 09/01/23a		28,500,000		27,618,281
5.00%, 09/01/23a		36,480,000		36,160,800
5.50%, 09/01/23a		23,180,000		23,375,581
5.50%, 09/01/38a		107,920,000		106,571,000
6.00%, 09/01/38a		48,260,000		48,719,978
6.50%, 09/01/38a		66,120,000		68,000,288
Government National
Mortgage Association
2.77%, 05/16/29		1,595,015		1,571,054
5.00%, 09/01/38a		31,540,000		30,781,069
5.50%, 09/01/38a		17,100,000		17,078,625
6.00%, 09/01/38a		17,100,000		17,351,156
				732,727,506
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost: $721,603,505)				732,727,506
SHORT-TERM INVESTMENTS – 97.85%
MONEY MARKET FUNDS – 97.85%
Barclays Global Investors Funds
Prime Money Market
Fund, Institutional Shares
2.57%b,c		753,928,727		753,928,727
				753,928,727
TOTAL SHORT-TERM INVESTMENTS
(Cost: $753,928,727)				753,928,727

	Value
TOTAL INVESTMENTS IN SECURITIES – 192.94% (Cost: $1,475,532,232)	$	1,486,656,233
Other Assets, Less Liabilities  – (92.94)%		(716,119,671	)
NET ASSETS – 100.00%	$	770,536,562

^a To-be-announced (TBA). See Note 1.

^b Affiliated issuer. See Note 2.

^c The rate quoted is the annualized seven-day yield of the fund at period end.

See notes to financial statements.

42 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited)

iSHARES^® LEHMAN AGGREGATE BOND FUND

August 31, 2008

Security	Principal		Value
CORPORATE BONDS & NOTES – 23.80%
AEROSPACE & DEFENSE – 0.25%
United Technologies Corp.
4.38%, 05/01/10	$	23,950,000	$	24,357,758
				24,357,758
AGRICULTURE – 0.10%
Reynolds American Inc.
6.75%, 06/15/17		9,580,000		9,413,975
				9,413,975
AUTO MANUFACTURERS – 0.26%
DaimlerChrysler North America Holding Corp.
7.30%, 01/15/12		23,950,000		24,613,325
				24,613,325
BANKS – 3.72%
Bank of America Corp.
4.50%, 08/01/10		47,900,000		48,235,846
4.88%, 01/15/13		23,950,000		23,264,573
6.00%, 09/01/17		19,160,000		18,307,531
Capital One Financial Corp.
6.15%, 09/01/16		23,950,000		20,037,355
Deutsche Bank AG London
6.00%, 09/01/17		14,370,000		14,404,313
HSBC Holdings PLC
6.50%, 09/15/37		9,580,000		8,815,437
JPMorgan Chase Bank N.A.
5.88%, 06/13/16		23,950,000		23,306,667
KfW
4.25%, 06/15/10		47,900,000		49,006,492
Landwirtschaftliche
Rentenbank Series G
5.00%, 11/08/16		19,160,000		20,192,724
Royal Bank of Scotland
Group PLC
5.00%, 10/01/14		23,950,000		22,377,748
US Bank N.A.
4.95%, 10/30/14		23,950,000		23,067,218
Wachovia Corp.
5.25%, 08/01/14		47,900,000		40,151,940

Security	Principal		Value
Wells Fargo & Co.
4.88%, 01/12/11	$	23,950,000	$	24,297,844
5.00%, 11/15/14		23,950,000		22,409,287
				357,874,975
BEVERAGES – 0.34%
Coca-Cola Enterprises Inc.
8.50%, 02/01/22		9,580,000		11,609,831
Diageo Finance BV
5.30%, 10/28/15		14,370,000		14,063,411
Pepsi Bottling Group Inc.
7.00%, 03/01/29		6,706,000		7,443,687
				33,116,929
BUILDING MATERIALS – 0.09%
CRH America Inc.
6.00%, 09/30/16		9,580,000		8,525,341
				8,525,341
CHEMICALS – 0.10%
E.I. du Pont de Nemours and Co.
5.25%, 12/15/16		9,580,000		9,349,724
				9,349,724
COMPUTERS – 0.35%
International Business Machines Corp.
4.25%, 09/15/09		23,950,000		24,287,120
5.70%, 09/14/17		9,580,000		9,738,399
				34,025,519
COSMETICS & PERSONAL CARE – 0.10%
Procter & Gamble Co. (The) 5.55%, 03/05/37		9,580,000		9,279,054
				9,279,054
DIVERSIFIED FINANCIAL SERVICES – 7.27%
American Express Co.
4.88%, 07/15/13		23,950,000		21,904,356
6.80%, 09/01/16		10,538,000		9,282,046
American General Finance Corp. 5.38%, 10/01/12		47,900,000		40,514,333
Ameriprise Financial Inc.
5.35%, 11/15/10		23,950,000		23,842,815

SCHEDULES OF INVESTMENTS 43

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN AGGREGATE BOND FUND

August 31, 2008

Security	Principal		Value
Bear Stearns Companies Inc. (The)
6.95%, 08/10/12	$	8,622,000	$	8,960,138
7.25%, 02/01/18		7,664,000		7,918,977
Boeing Capital Corp.
5.80%, 01/15/13		23,950,000		25,103,403
Caterpillar Financial Services Corp. 4.30%, 06/01/10		4,790,000		4,845,003
CIT Group Funding Co. of Canada
4.65%, 07/01/10		14,370,000		12,358,200
Citigroup Capital XXI
8.30%, 12/21/37		4,790,000		4,351,274
Citigroup Inc.
6.00%, 02/21/12		81,430,000		80,625,094
Countrywide Home Loans Inc.
4.00%, 03/22/11		14,370,000		12,933,000
Credit Suisse First Boston USA Inc.
7.13%, 07/15/32		23,950,000		24,699,112
General Electric Capital Corp.
5.88%, 02/15/12		23,950,000		24,744,279
6.75%, 03/15/32		23,950,000		24,214,981
7.38%, 01/19/10a		23,950,000		25,120,239
Goldman Sachs Group Inc. (The)
5.00%, 10/01/14		47,900,000		45,101,264
6.75%, 10/01/37		9,580,000		8,573,018
Household Finance Corp.
6.38%, 11/27/12		47,900,000		49,059,636
HSBC Finance Corp.
5.50%, 01/19/16		23,950,000		23,290,496
International Lease Finance Corp.
5.75%, 06/15/11		23,950,000		21,914,936
John Deere Capital Corp.
7.00%, 03/15/12		23,950,000		25,871,242
JPMorgan Chase & Co.
5.75%, 01/02/13		23,950,000		23,793,421

Security	Principal		Value
Lehman Brothers Holdings Inc.
4.50%, 07/26/10a	$	14,370,000	$	13,602,155
5.50%, 04/04/16		14,370,000		12,527,785
Merrill Lynch & Co. Inc.
5.00%, 01/15/15		25,866,000		22,321,173
6.88%, 04/25/18		9,580,000		8,823,985
Morgan Stanley
5.05%, 01/21/11		23,950,000		23,155,071
5.30%, 03/01/13		47,900,000		45,206,067
National Rural Utilities Cooperative Finance Corp.
7.25%, 03/01/12		14,370,000		15,291,889
SLM Corp.
5.38%, 05/15/14		10,538,000		8,588,470
				698,537,858
ELECTRIC – 1.52%
Constellation Energy Group Inc.
4.55%, 06/15/15		14,370,000		12,410,739
Dominion Resources Inc.
5.15%, 07/15/15		23,950,000		22,990,675
Duke Capital LLC
6.25%, 02/15/13		23,950,000		24,394,512
Exelon Generation Co. LLC
5.35%, 01/15/14		9,580,000		9,205,498
FirstEnergy Corp.
7.38%, 11/15/31		9,580,000		10,268,547
MidAmerican Energy Holdings Co.
6.13%, 04/01/36		14,370,000		13,849,483
Pacific Gas and Electric Co.
6.05%, 03/01/34		19,160,000		18,541,973
Progress Energy Inc.
7.10%, 03/01/11		23,950,000		25,163,799
TXU Electric Delivery Co.
7.00%, 09/01/22		9,580,000		9,574,960
				146,400,186
FOOD – 0.56%
Kraft Foods Inc.
6.50%, 08/11/17		31,614,000		32,006,787

44 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN AGGREGATE BOND FUND

August 31, 2008

Security	Principal		Value
Kroger Co. (The)
5.50%, 02/01/13	$	9,580,000	$	9,646,338
Unilever Capital Corp.
5.90%, 11/15/32		12,454,000		12,054,172
				53,707,297
FOREST PRODUCTS & PAPER – 0.14%
Weyerhaeuser Co.
7.38%, 03/15/32		14,370,000		13,706,732
				13,706,732
HEALTH CARE - SERVICES – 0.23%
UnitedHealth Group Inc.
4.88%, 03/15/15		14,370,000		13,202,472
WellPoint Inc.
5.25%, 01/15/16		9,580,000		8,931,561
				22,134,033
HOLDING COMPANIES - DIVERSIFIED – 0.03%
Capmark Financial Group Inc.
6.30%, 05/10/17		4,790,000		2,897,950
				2,897,950
INSURANCE – 1.09%
Allstate Corp. (The)
5.55%, 05/09/35		9,580,000		8,107,363
American International Group Inc.
6.25%, 03/15/37		9,580,000		6,113,057
Genworth Financial Inc.
5.75%, 06/15/14		23,950,000		21,938,892
Lincoln National Corp.
7.00%, 05/17/16		14,370,000		12,423,398
Marsh & McLennan Companies Inc.
5.75%, 09/15/15		23,950,000		23,454,814
MetLife Inc.
5.00%, 06/15/15		23,950,000		22,545,099
Prudential Financial Inc.
5.10%, 09/20/14		4,790,000		4,466,484
Travelers Companies Inc. (The)
6.25%, 03/15/37		6,706,000		5,617,464
				104,666,571

Security	Principal		Value
MANUFACTURING – 0.48%
General Electric Co.
5.25%, 12/06/17	$	47,900,000	$	46,142,904
				46,142,904
MEDIA – 0.96%
Comcast Cable Communications Holdings Inc.
8.38%, 03/15/13		23,950,000		26,509,183
Comcast Corp.
6.45%, 03/15/37		9,580,000		8,870,601
News America Inc.
6.20%, 12/15/34		14,370,000		13,145,713
Time Warner Cable Inc.
6.55%, 05/01/37		9,580,000		8,832,128
Time Warner Inc.
7.70%, 05/01/32		14,370,000		14,436,377
Viacom Inc.
6.25%, 04/30/16		12,454,000		11,859,461
7.88%, 07/30/30		9,580,000		8,893,579
				92,547,042
MINING – 0.35%
Alcoa Inc.
6.00%, 01/15/12		14,370,000		14,534,191
BHP Billiton Finance (USA) Ltd.
4.80%, 04/15/13		9,580,000		9,473,785
Vale Overseas Ltd.
6.88%, 11/21/36		9,580,000		9,367,609
				33,375,585
MULTI-NATIONAL – 0.62%
European Investment Bank
4.63%, 05/15/14a		47,900,000		49,737,923
Inter-American Development Bank
4.38%, 09/20/12		9,580,000		9,847,666
				59,585,589
OIL & GAS – 1.06%
Anadarko Petroleum Corp.
5.95%, 09/15/16		23,950,000		23,330,798

SCHEDULES OF INVESTMENTS 45

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN AGGREGATE BOND FUND

August 31, 2008

Security	Principal		Value
Apache Corp.
5.25%, 04/15/13	$	6,706,000	$	6,837,536
Canadian Natural Resources Ltd.
5.70%, 05/15/17		9,580,000		9,219,784
ConocoPhillips
5.90%, 10/15/32		23,950,000		23,777,684
Enterprise Products Operating LP
5.60%, 10/15/14		14,370,000		13,888,843
Hess Corp.
6.65%, 08/15/11		23,950,000		25,075,629
				102,130,274
PHARMACEUTICALS – 0.64%
Abbott Laboratories
5.88%, 05/15/16		9,580,000		9,914,513
AmerisourceBergen Corp.
5.88%, 09/15/15		14,370,000		14,014,394
AstraZeneca PLC
6.45%, 09/15/37		9,580,000		9,958,580
Bristol-Myers Squibb Co.
5.88%, 11/15/36		9,580,000		9,061,937
Eli Lilly and Co.
5.55%, 03/15/37		9,580,000		9,049,060
Wyeth
5.50%, 02/01/14		9,580,000		9,756,511
				61,754,995
PIPELINES – 0.20%
Kinder Morgan Energy Partners LP
6.75%, 03/15/11		9,580,000		9,820,995
6.95%, 01/15/38		9,580,000		9,395,681
				19,216,676
REAL ESTATE INVESTMENT TRUSTS – 0.41%
Boston Properties LP
6.25%, 01/15/13		23,950,000		24,110,611
iStar Financial Inc.
5.88%, 03/15/16		8,622,000		6,035,400
Simon Property Group LP
5.10%, 06/15/15		9,580,000		8,844,621
				38,990,632

Security	Principal		Value
RETAIL – 0.97%
CVS Caremark Corp.
6.30%, 06/01/12	$	9,580,000	$	8,131,025
Federated Department Stores Inc.
6.63%, 04/01/11		9,580,000		9,424,877
Home Depot Inc.
5.40%, 03/01/16		23,950,000		21,658,493
Target Corp.
7.00%, 01/15/38		19,160,000		19,751,681
Wal-Mart Stores Inc.
4.55%, 05/01/13		23,950,000		24,279,631
6.50%, 08/15/37		9,580,000		9,825,558
				93,071,265
SAVINGS & LOANS – 0.02%
Washington Mutual Inc.
5.25%, 09/15/17		3,832,000		2,318,360
				2,318,360
SOFTWARE – 0.15%
Oracle Corp.
5.25%, 01/15/16		14,370,000		14,226,204
				14,226,204
TELECOMMUNICATIONS – 1.62%
AT&T Wireless Services Inc.
7.88%, 03/01/11		11,496,000		12,257,985
BellSouth Corp.
6.00%, 11/15/34a		23,950,000		21,655,789
Cisco Systems Inc.
5.25%, 02/22/11		9,580,000		9,900,337
Deutsche Telekom International Finance AG
8.75%, 06/15/30		9,580,000		10,626,121
Embarq Corp.
7.08%, 06/01/16		14,370,000		13,408,362
Qwest Corp.
8.88%, 03/15/12		9,580,000		9,629,528
SBC Communications Inc.
5.88%, 02/01/12		23,950,000		24,546,148
Telecom Italia Capital SA
4.00%, 01/15/10		14,370,000		14,141,115

46 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN AGGREGATE BOND FUND

August 31, 2008

Security	Principal		Value
Verizon Global Funding Corp.
7.75%, 12/01/30	$	23,950,000	$	25,657,585
Vodafone Group PLC
5.63%, 02/27/17		14,370,000		13,835,098
				155,658,068
TRANSPORTATION – 0.17%
Burlington Northern Santa Fe Corp.
6.15%, 05/01/37		4,790,000		4,510,159
CSX Corp.
6.00%, 10/01/36		14,370,000		11,568,147
				16,078,306
TOTAL CORPORATE BONDS & NOTES
(Cost: $2,374,389,399)				2,287,703,127
FOREIGN GOVERNMENT BONDS & NOTESb – 1.70%
Italy (Republic of)
5.25%, 09/20/16		23,950,000		25,274,915
6.00%, 02/22/11		23,950,000		25,461,005
Brazil (Federative Republic of)
7.13%, 01/20/37		14,370,000		16,022,550
8.00%, 01/15/18		14,370,000		16,044,105
Quebec (Province of)
7.50%, 09/15/29		23,950,000		30,923,428
United Mexican States
5.63%, 01/15/17a		23,950,000		24,218,504
6.38%, 01/16/13		14,370,000		15,171,031
6.75%, 09/27/34		9,580,000		10,313,584
TOTAL FOREIGN GOVERNMENT BONDS & NOTES
(Cost: $160,900,475)				163,429,122
MUNICIPAL DEBT OBLIGATIONS – 0.23%
ILLINOIS – 0.23%
Illinois State
5.10%, 06/01/33a		23,950,000		22,552,278
				22,552,278
TOTAL MUNICIPAL DEBT OBLIGATIONS
(Cost: $22,903,460)				22,552,278

Security	Principal		Value
U.S. GOVERNMENT & AGENCY OBLIGATIONS – 72.99%
MORTGAGE-BACKED SECURITIES – 36.90%
Federal Home Loan
Mortgage Corp.
4.50%, 09/01/23c	$	165,734,000	$	160,451,229
5.00%, 09/01/23c		146,574,000		145,154,064
5.00%, 09/01/38c		542,228,000		520,877,772
5.50%, 09/01/23c		191,600,000		193,007,062
5.50%, 09/01/38c		364,998,000		359,808,185
6.00%, 09/01/38c		251,954,000		253,922,391
Federal National Mortgage Association
4.50%, 09/01/23c		154,238,000		149,466,262
5.00%, 09/01/23c		182,020,000		180,427,325
5.50%, 09/01/23c		101,548,000		102,404,811
5.50%, 09/01/38c		513,488,000		507,069,400
5.51%, 02/01/36		30,070,905		30,611,337
6.00%, 09/01/38c		268,240,000		270,796,663
6.50%, 09/01/38c		325,720,000		334,982,663
Government National
Mortgage Association
5.00%, 09/01/38c		138,910,000		135,567,478
5.50%, 09/01/38c		125,498,000		125,341,128
6.00%, 09/01/38c		74,724,000		75,821,509
				3,545,709,279
U.S. GOVERNMENT AGENCY OBLIGATIONS – 10.00%
Federal Home Loan
Mortgage Corp.
3.25%, 02/25/11a		100,590,000		100,212,627
4.50%, 01/15/13a		196,390,000		200,722,540
4.88%, 11/18/11		81,430,000		84,325,512
6.25%, 07/15/32a		110,170,000		128,711,754
Federal National
Mortgage Association
5.00%, 04/15/15a		62,270,000		64,539,542
5.00%, 05/11/17a		90,052,000		92,795,930
7.25%, 01/15/10a		274,946,000		290,043,587
				961,351,492
U.S. GOVERNMENT OBLIGATIONS – 26.09%
U.S. Treasury Bonds
4.38%, 02/15/38a		101,548,000		101,030,103
5.00%, 05/15/37a		74,724,000		81,820,540

SCHEDULES OF INVESTMENTS 47

Schedule of Investments (Unaudited) (Continued)

iSHARES^® LEHMAN AGGREGATE BOND FUND

August 31, 2008

Security	Shares or Principal		Value
6.25%, 05/15/30a	$	73,766,000	$	92,108,651
7.50%, 11/15/16a		74,724,000		94,420,500
7.63%, 02/15/25a		131,246,000		181,514,524
8.13%, 08/15/19a		153,280,000		207,539,590
U.S. Treasury Notes
3.38%, 07/31/13		191,600,000		194,236,414
3.50%, 02/15/10a		297,938,000		303,780,537
3.63%, 10/31/09a		450,260,000		457,540,722
4.00%, 09/30/09a		259,618,000		264,454,702
4.50%, 05/15/10a		265,366,000		275,587,890
4.75%, 05/15/14a		185,852,000		201,500,749
5.00%, 08/15/11		47,900,000		51,222,818
				2,506,757,740
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost: $6,897,511,901)				7,013,818,511
SHORT-TERM INVESTMENTS – 71.30%
MONEY MARKET FUNDS – 71.30%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares 2.57%d,e		3,501,586,572		3,501,586,572
BGI Cash Premier Fund LLC
2.63%d,e,f		3,349,907,864		3,349,907,864
				6,851,494,436
TOTAL SHORT-TERM INVESTMENTS
(Cost: $6,851,494,436)				6,851,494,436
TOTAL INVESTMENTS IN SECURITIES – 170.02% (Cost: $16,307,199,671)				16,338,997,474
Other Assets, Less Liabilities – (70.02)%				(6,729,221,412	)
NET ASSETS – 100.00%			$	9,609,776,062

^a All or a portion of this security represents a security on loan. See Note 5.

^b Investments are denominated in U.S. dollars.

^c To-be-announced (TBA). See Note 1.

^d Affiliated issuer. See Note 2.

^e The rate quoted is the annualized seven-day yield of the fund at period end.

^f This security represents an investment of securities lending collateral. See  Note  5.

See notes to financial statements.

48 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited)

iSHARES^® iBOXX $ HIGH YIELD CORPORATE BOND FUND

August 31, 2008

Security	Principal		Value
CORPORATE BONDS & NOTES – 97.05%
AEROSPACE & DEFENSE – 2.08%
L-3 Communications Corp.
6.38%, 10/15/15	$	20,600,000	$	19,647,250
				19,647,250
AUTO PARTS & EQUIPMENT – 1.65%
Lear Corp.
8.75%, 12/01/16		20,600,000		15,518,639
				15,518,639
BEVERAGES – 2.13%
Constellation Brands Inc.
7.25%, 05/15/17		20,600,000		20,086,806
				20,086,806
BUILDING MATERIALS – 2.02%
Nortek Holdings Inc.
10.00%, 12/01/13a		20,600,000		19,080,750
				19,080,750
COAL – 4.31%
Massey Energy Co.
6.88%, 12/15/13		20,085,000		19,544,647
Peabody Energy Corp.
7.38%, 11/01/16		20,600,000		21,097,833
				40,642,480
COMMERCIAL SERVICES – 4.20%
ARAMARK Corp.
8.50%, 02/01/15		20,600,000		20,729,279
Hertz Corp. (The)
8.88%, 01/01/14		20,600,000		18,900,500
				39,629,779
COMPUTERS – 2.21%
SunGard Data Systems Inc.
9.13%, 08/15/13		20,600,000		20,819,385
				20,819,385
DIVERSIFIED FINANCIAL SERVICES – 2.61%
Ford Motor Credit Co. LLC
7.80%, 06/01/12		21,115,000		15,565,415
Idearc Inc.
8.00%, 11/15/16		20,600,000		9,064,000
				24,629,415

Security	Principal		Value
ELECTRIC – 10.65%
AES Corp. (The)
8.00%, 10/15/17	$	20,600,000	$	20,222,333
Edison Mission Energy
7.00%, 05/15/17b		20,085,000		19,181,175
Mirant North America LLC
7.38%, 12/31/13		20,600,000		20,497,000
NRG Energy Inc.
7.38%, 02/01/16		20,600,000		20,052,431
Texas Competitive Electric
Holdings Co. LLC
10.25%, 11/01/15a		20,600,000		20,497,000
				100,449,939
ELECTRONICS – 1.83%
NXP BV/NXP Funding LLC 7.88%, 10/15/14		21,115,000		17,261,512
				17,261,512
ENVIRONMENTAL CONTROL – 2.15%
Allied Waste North America Inc.
6.88%, 06/01/17		20,600,000		20,220,939
				20,220,939
FOREST PRODUCTS & PAPER – 2.02%
Georgia-Pacific Corp.
7.13%, 01/15/17a		20,600,000		19,071,054
				19,071,054
HEALTH CARE - PRODUCTS – 1.95%
Biomet Inc.
11.63%, 10/15/17		17,510,000		18,363,613
				18,363,613
HEALTH CARE - SERVICES – 8.72%
Community Health Systems Inc.
8.88%, 07/15/15		20,085,000		20,235,638
DaVita Inc.
7.25%, 03/15/15		20,600,000		20,200,875
HCA Inc.
9.25%, 11/15/16		20,600,000		21,140,750
Tenet Healthcare Corp.
9.88%, 07/01/14b		20,600,000		20,685,833
				82,263,096

SCHEDULES OF INVESTMENTS 49

Schedule of Investments (Unaudited) (Continued)

iSHARES^® iBOXX $ HIGH YIELD CORPORATE BOND FUND

August 31, 2008

Security	Principal		Value
HOME BUILDERS – 1.72%
Hovnanian Enterprises Inc.
11.50%, 05/01/13a	$	15,965,000	$	16,244,388
				16,244,388
LODGING – 3.25%
Harrah’s Operating Co. Inc.
10.75%, 02/01/16a		20,600,000		13,879,250
MGM MIRAGE
7.50%, 06/01/16		20,600,000		16,737,500
				30,616,750
MACHINERY – 2.22%
Terex Corp.
8.00%, 11/15/17		21,115,000		20,883,354
				20,883,354
MANUFACTURING – 1.80%
RBS Global Inc./Rexnord LLC
9.50%, 08/01/14		17,510,000		16,984,700
				16,984,700
MEDIA – 8.50%
CCH I LLC
11.00%, 10/01/15b		20,600,000		15,556,024
DIRECTV Holdings LLC/ DIRECTV Financing Co. Inc. 7.63%, 05/15/16a		20,600,000		20,479,833
EchoStar DBS Corp.
7.13%, 02/01/16		20,600,000		18,883,333
R.H. Donnelley Corp.
8.88%, 10/15/17		20,600,000		10,454,500
Umbrella Acquisition Inc.
9.75%, 03/15/15a,b		20,600,000		14,780,500
				80,154,190
OIL & GAS – 5.76%
Chesapeake Energy Corp.
7.25%, 12/15/18		20,600,000		19,956,250
OPTI Canada Inc.
8.25%, 12/15/14		16,480,000		16,397,600
Sabine Pass LNG LP
7.50%, 11/30/16		20,600,000		17,947,750
				54,301,600

Security	Principal		Value
PACKAGING & CONTAINERS – 3.97%
Crown Americas LLC
7.75%, 11/15/15b	$	20,600,000	$	21,056,905
Smurfit-Stone Container
Enterprises Inc.
8.00%, 03/15/17b		20,600,000		16,359,833
				37,416,738
PIPELINES – 4.16%
Dynegy Holdings Inc.
7.75%, 06/01/19		20,600,000		18,947,749
El Paso Corp.
7.00%, 06/15/17		20,600,000		20,233,238
				39,180,987
RETAIL – 5.16%
Dollar General Corp.
10.63%, 07/15/15b		20,085,000		20,085,000
Michaels Stores Inc.
10.00%, 11/01/14b		20,600,000		15,347,000
Rite Aid Corp.
9.50%, 06/15/17		20,600,000		13,235,500
				48,667,500
SEMICONDUCTORS – 1.77%
Freescale Semiconductor Inc.
8.88%, 12/15/14		20,600,000		16,646,366
				16,646,366
SOFTWARE – 1.87%
First Data Corp.
9.88%, 09/24/15a		20,600,000		17,665,606
				17,665,606
TELECOMMUNICATIONS – 8.34%
Intelsat (Bermuda) Ltd.
11.25%, 06/15/16		20,600,000		21,521,717
Level 3 Financing Inc.
9.25%, 11/01/14		20,600,000		18,758,903
West Corp.
9.50%, 10/15/14		21,115,000		18,053,325
Windstream Corp.
8.63%, 08/01/16		20,600,000		20,301,966
				78,635,911
TOTAL CORPORATE BONDS & NOTES
(Cost: $964,313,487)				915,082,747

50 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® iBOXX $ HIGH YIELD CORPORATE BOND FUND

August 31, 2008

Security	Shares	Value
SHORT-TERM INVESTMENTS – 8.65%
MONEY MARKET FUNDS – 8.65%
Barclays Global Investors Funds Prime Money Market Fund, Institutional Shares 2.57%c,d	1,513,755	$	1,513,755
BGI Cash Premier Fund LLC
2.63%c,d,e	80,105,310		80,105,310
			81,619,065
TOTAL SHORT-TERM INVESTMENTS
(Cost: $81,619,065)			81,619,065
TOTAL INVESTMENTS IN
SECURITIES – 105.70%
(Cost: $1,045,932,552)			996,701,812
Other Assets, Less Liabilities – (5.70)%			(53,774,088	)
NET ASSETS – 100.00%		$	942,927,724

^a This security may be resold to qualified institutinal buyers under Rule 144A of the Securities Act of 1933.

^b All or a portion of this security represents a security on loan. See Note 5.

^c Affiliated issuer. See Note 2.

^d The rate quoted is the annualized seven-day yield of the fund at period end.

^e This security represents an investment of securities lending collateral. See Note 5.

See notes to financial statements.

SCHEDULES OF INVESTMENTS 51

Schedule of Investments (Unaudited)

iSHARES^® iBOXX $ INVESTMENT GRADE CORPORATE BOND FUND

August 31, 2008

Security	Principal		Value
CORPORATE BONDS & NOTES – 97.89%
AGRICULTURE – 1.96%
Philip Morris International Inc.
4.88%, 05/16/13	$	39,800,000	$	39,411,735
5.65%, 05/16/18		39,800,000		39,075,020
				78,486,755
AUTO MANUFACTURERS – 1.00%
DaimlerChrysler
North America Holding Corp.
5.75%, 09/08/11		39,800,000		40,021,881
				40,021,881
BANKS – 16.72%
American Express Bank FSB
5.55%, 10/17/12		45,770,000		45,530,490
Bank of America Corp.
5.38%, 09/11/12a		37,810,000		37,877,300
5.75%, 12/01/17		39,800,000		37,258,140
Bank of New York
Mellon Corp. (The)
4.95%, 11/01/12		41,790,000		41,868,294
Barclays Bank PLC
5.45%, 09/12/12b		39,800,000		40,322,644
Capital One Financial Corp.
6.75%, 09/15/17		41,790,000		41,350,612
Credit Suisse New York
5.00%, 05/15/13		41,790,000		40,558,523
6.00%, 02/15/18		41,790,000		40,344,889
Deutsche Bank AG London
5.38%, 10/12/12		39,800,000		40,157,318
6.00%, 09/01/17		41,790,000		42,080,246
HSBC Holdings PLC
6.50%, 09/15/37		41,790,000		38,866,237
UBS AG Stamford Branch
5.75%, 04/25/18		39,800,000		38,442,422
Wachovia Bank N.A.
6.60%, 01/15/38		40,994,000		34,889,379
Wachovia Corp.
5.50%, 05/01/13		41,790,000		38,472,503
5.75%, 06/15/17a		39,800,000		34,171,843

Security	Principal		Value
Wells Fargo & Co.
5.25%, 10/23/12	$	41,790,000	$	41,605,503
5.63%, 12/11/17		37,810,000		36,457,512
				670,253,855
COMMERCIAL SERVICES – 2.07%
R.R. Donnelley & Sons Co.
5.63%, 01/15/12		41,790,000		41,016,196
Western Union Co.
5.40%, 11/17/11		41,790,000		41,805,671
				82,821,867
COMPUTERS – 2.14%
IBM International
Group Capital LLC
5.05%, 10/22/12		41,790,000		42,978,075
International Business
Machines Corp.
5.70%, 09/14/17		41,790,000		42,845,873
				85,823,948
DIVERSIFIED FINANCIAL SERVICES – 26.52%
Allstate Life Global
Funding Trusts
5.38%, 04/30/13		41,790,000		42,232,130
American Express Co.
6.15%, 08/28/17		41,790,000		39,294,184
American General Finance Corp.
6.90%, 12/15/17		41,790,000		33,535,423
CIT Group Inc.
7.63%, 11/30/12		39,800,000		34,101,229
Citigroup Inc.
5.30%, 10/17/12		39,800,000		38,464,927
6.13%, 11/21/17		39,800,000		37,349,514
6.88%, 03/05/38		41,790,000		40,756,128
Countrywide Financial Corp.
5.80%, 06/07/12		39,800,000		36,028,191
General Electric Capital Corp.
5.25%, 10/19/12		39,800,000		40,439,431
5.63%, 09/15/17		41,790,000		40,745,409
5.88%, 01/14/38		41,790,000		38,021,589
Goldman Sachs Group Inc. (The)
5.45%, 11/01/12		39,800,000		40,041,567
6.25%, 09/01/17		39,800,000		38,703,718
6.75%, 10/01/37		41,790,000		36,797,640

52 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited) (Continued)

iSHARES^® iBOXX $ INVESTMENT GRADE CORPORATE BOND FUND

August 31, 2008

Security	Principal		Value
HSBC Finance Corp.
5.90%, 06/19/12a	$	39,800,000	$	39,989,902
International Lease
Finance Corp.
5.30%, 05/01/12		39,800,000		34,899,138
JPMorgan Chase & Co.
5.38%, 10/01/12		41,790,000		41,891,233
6.00%, 01/15/18		39,800,000		38,779,266
JPMorgan Chase Capital XXV
6.80%, 10/01/37		41,790,000		36,067,224
Lehman Brothers Holdings Inc.
6.20%, 09/26/14		39,800,000		37,561,754
6.50%, 07/19/17a		41,790,000		37,660,521
6.88%, 07/17/37		41,790,000		34,373,852
Merrill Lynch & Co. Inc.
6.05%, 08/15/12a		39,800,000		38,035,523
6.40%, 08/28/17		41,790,000		37,774,034
Morgan Stanley
5.95%, 12/28/17		39,800,000		35,689,401
6.00%, 04/28/15		41,790,000		39,290,624
Rio Tinto Finance USA Ltd.
5.88%, 07/15/13		39,800,000		40,213,124
6.50%, 07/15/18		33,830,000		34,261,840
				1,062,998,516
ELECTRIC – 1.00%
MidAmerican Energy
Holdings Co.
6.13%, 04/01/36		41,790,000		40,029,397
				40,029,397
FOREST PRODUCTS & PAPER – 1.24%
International Paper Co.
7.40%, 06/15/14		39,004,000		39,855,658
7.95%, 06/15/18		9,950,000		10,038,128
				49,893,786
HEALTH CARE - PRODUCTS – 3.23%
Johnson & Johnson
5.15%, 08/15/12		41,790,000		43,777,741
5.55%, 08/15/17		41,790,000		44,206,920
5.95%, 08/15/37		39,800,000		41,599,159
				129,583,820

Security	Principal		Value
HEALTH CARE - SERVICES – 4.47%
UnitedHealth Group Inc.
4.88%, 02/15/13	$	39,800,000	$	38,455,556
6.00%, 02/15/18		41,790,000		40,069,555
6.88%, 02/15/38		39,800,000		36,804,465
WellPoint Inc.
5.88%, 06/15/17		28,800,000		27,918,934
6.38%, 06/15/37		39,800,000		36,037,893
				179,286,403
INSURANCE – 1.09%
Berkshire Hathaway Inc.
5.13%, 09/15/12a		41,790,000		43,545,180
				43,545,180
MEDIA – 6.92%
Comcast Corp.
6.30%, 11/15/17		39,800,000		39,761,880
6.95%, 08/15/37		41,790,000		41,995,822
Time Warner Cable Inc.
5.40%, 07/02/12		39,800,000		39,573,737
5.85%, 05/01/17		39,800,000		38,005,020
6.55%, 05/01/37		41,790,000		38,758,136
Time Warner Inc.
5.50%, 11/15/11		41,790,000		41,629,067
Viacom Inc.
6.88%, 04/30/36		41,790,000		37,679,118
				277,402,780
OIL & GAS – 0.94%
Valero Energy Corp.
6.63%, 06/15/37		41,790,000		37,628,011
				37,628,011
PHARMACEUTICALS – 10.41%
Abbott Laboratories
5.15%, 11/30/12		39,800,000		41,203,799
5.60%, 11/30/17		41,790,000		42,693,499
6.15%, 11/30/37		39,800,000		40,375,943
AstraZeneca PLC
5.40%, 09/15/12		41,790,000		42,996,186
5.90%, 09/15/17		39,800,000		41,153,627
6.45%, 09/15/37a		39,800,000		41,496,305

SCHEDULES OF INVESTMENTS 53

Schedule of Investments (Unaudited) (Continued)

iSHARES^® iBOXX $ INVESTMENT GRADE CORPORATE BOND FUND

August 31, 2008

Security	Principal		Value
GlaxoSmithKline Capital Inc.
4.85%, 05/15/13	$	41,790,000	$	42,014,767
5.65%, 05/15/18		41,790,000		42,152,212
6.38%, 05/15/38		41,790,000		42,230,147
Wyeth
5.95%, 04/01/37		41,790,000		40,780,562
				417,097,047
REAL ESTATE INVESTMENT TRUSTS – 1.41%
iStar Financial Inc.
5.95%, 10/15/13a		39,800,000		28,006,397
Simon Property Group LP
5.30%, 05/30/13		29,850,000		28,661,373
				56,667,770
RETAIL – 6.87%
CVS Caremark Corp.
5.75%, 06/01/17		41,790,000		41,282,021
Federated Retail Holdings Inc.
5.35%, 03/15/12		41,790,000		39,120,448
Home Depot Inc.
5.25%, 12/16/13		39,800,000		38,117,640
5.88%, 12/16/36		41,790,000		33,517,650
Wal-Mart Stores Inc.
4.25%, 04/15/13		17,910,000		17,900,508
5.00%, 04/05/12		21,890,000		22,622,749
5.38%, 04/05/17		39,800,000		41,163,507
6.50%, 08/15/37		39,800,000		41,602,455
				275,326,978
SOFTWARE – 2.01%
Fiserv Inc.
6.13%, 11/20/12		39,800,000		39,999,000
Oracle Corp.
4.95%, 04/15/13		39,800,000		40,454,710
				80,453,710
TELECOMMUNICATIONS – 6.89%
AT&T Inc.
4.95%, 01/15/13		39,800,000		39,988,194
5.50%, 02/01/18		41,790,000		41,109,659
6.80%, 05/15/36		39,800,000		39,765,123
Telecom Italia Capital SA
4.95%, 09/30/14		39,800,000		36,251,715
7.72%, 06/04/38		41,790,000		40,669,065

Security	Shares or Principal		Value
Verizon Communications Inc.
4.35%, 02/15/13	$	41,790,000	$	40,837,177
6.40%, 02/15/38		39,800,000		37,375,119
				275,996,052
TRANSPORTATION – 1.00%
United Parcel Service Inc.
4.50%, 01/15/13		39,800,000		40,207,077
				40,207,077
TOTAL CORPORATE BONDS & NOTES
(Cost: $4,066,666,890)				3,923,524,833
SHORT-TERM INVESTMENTS – 0.96%
MONEY MARKET FUNDS – 0.96%
Barclays Global Investors Funds
Prime Money Market
Fund, Institutional Shares
2.57%b,c		22,991,481		22,991,481
BGI Cash Premier Fund LLC
2.63%b,c,d		15,195,520		15,195,520
				38,187,001
TOTAL SHORT-TERM INVESTMENTS
(Cost: $38,187,001)				38,187,001
TOTAL INVESTMENTS IN SECURITIES – 98.85% (Cost: $4,104,853,891)				3,961,711,834
Other Assets, Less Liabilities – 1.15%				46,284,424
NET ASSETS – 100.00%			$	4,007,996,258

^a All or a portion of this security represents a security on loan. See Note 5.

^b Affiliated issuer. See Note 2.

^c The rate quoted is the annualized seven-day yield of the fund at period end.

^d This security represents an investment of securities lending collateral. See

Note 5.

See notes to financial statements.

54 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Schedule of Investments (Unaudited)

iSHARES^® JPMORGAN USD EMERGING MARKETS BOND FUND

August 31, 2008

Security	Principal		Value
SOVEREIGN BONDS & NOTESa – 86.55%
ARGENTINA – 2.62%
Argentina (Republic of)
1.33%, 12/31/38b	$	3,000,000	$	960,000
8.28%, 12/31/33c		2,180,767		1,624,671
				2,584,671
BRAZIL – 10.67%
Brazil (Federative Republic of)
7.13%, 01/20/37		3,100,000		3,451,850
8.00%, 01/15/18		3,500,000		3,906,000
10.13%, 05/15/27		1,400,000		1,984,500
11.00%, 08/17/40		900,000		1,189,350
				10,531,700
BULGARIA – 1.37%
Bulgaria (Republic of)
8.25%, 01/15/15		1,200,000		1,354,500
				1,354,500
CHILE – 1.39%
Chile (Republic of)
5.50%, 01/15/13		1,300,000		1,373,079
				1,373,079
COLOMBIA – 4.79%
Colombia (Republic of)
7.38%, 01/27/17		4,300,000		4,730,000
				4,730,000
ECUADOR – 1.52%
Ecuador (Republic of)
10.00%, 08/15/30d		1,700,000		1,504,500
				1,504,500
EL SALVADOR – 0.84%
El Salvador (Republic of)
7.65%, 06/15/35d		800,000		826,000
				826,000
GABON – 1.04%
Gabon (Republic of)
8.20%, 12/12/17d		1,000,000		1,025,000
				1,025,000

Security	Principal		Value
INDONESIA – 4.79%
Indonesia (Republic of)
6.63%, 02/17/37	$	3,100,000	$	2,720,250
6.88%, 03/19/17		2,000,000		2,005,000
				4,725,250
IRAQ – 1.86%
Iraq (Republic of)
5.80%, 01/15/28d		2,500,000		1,837,500
				1,837,500
MALAYSIA – 2.75%
Malaysia Government
7.50%, 07/15/11		2,500,000		2,715,291
				2,715,291
MEXICO – 6.22%
United Mexican States
5.63%, 01/15/17		3,100,000		3,131,000
6.05%, 01/11/40		1,100,000		1,068,100
6.75%, 09/27/34		1,800,000		1,939,500
				6,138,600
PANAMA – 2.22%
Panama (Republic of)
6.70%, 01/26/36		1,300,000		1,326,000
7.25%, 03/15/15		800,000		868,800
				2,194,800
PERU – 4.64%
Peru (Republic of)
8.38%, 05/03/16		3,900,000		4,578,600
				4,578,600
PHILIPPINES – 6.59%
Philippines (Republic of)
6.38%, 01/15/32		4,000,000		3,860,000
8.00%, 01/15/16		2,400,000		2,649,120
				6,509,120
RUSSIA – 11.28%
Russian Federation
7.50%, 03/31/30d		9,997,750		11,134,994
				11,134,994
SOUTH AFRICA – 4.19%
South Africa (Republic of)
7.38%, 04/25/12		3,900,000		4,134,000
				4,134,000

SCHEDULES OF INVESTMENTS 55

Schedule of Investments (Unaudited) (Continued)

iSHARES^® JPMORGAN USD EMERGING MARKETS BOND FUND

August 31, 2008

Security	Principal		Value
TURKEY – 8.43%
Turkey (Republic of)
6.88%, 03/17/36	$	4,300,000	$	4,042,000
7.25%, 03/15/15		4,100,000		4,279,375
				8,321,375
UKRAINE – 1.74%
Ukraine Government
7.65%, 06/11/13		1,800,000		1,716,750
				1,716,750
URUGUAY – 2.37%
Uruguay (Republic of)
7.63%, 03/21/36		2,300,000		2,340,250
				2,340,250
VENEZUELA – 5.23%
Venezuela (Republic of)
5.75%, 02/26/16		2,200,000		1,716,000
9.25%, 09/15/27		3,700,000		3,441,000
				5,157,000
TOTAL SOVEREIGN BONDS & NOTES
(Cost: $86,400,969)				85,432,980
QUASI-SOVEREIGN BONDS & NOTESa – 11.14%
CHINA – 2.83%
China Development Bank
5.00%, 10/15/15		2,900,000		2,794,951
				2,794,951
MALAYSIA – 2.84%
Petronas Capital Ltd.
7.00%, 05/22/12d		2,600,000		2,798,813
				2,798,813
MEXICO – 1.80%
Pemex Project Funding Master Trust
5.75%, 03/01/18d		500,000		488,750
6.63%, 06/15/35		1,300,000		1,287,000
				1,775,750
NETHERLANDS – 2.17%
KazMunaiGaz Finance Sub
8.38%, 07/02/13d		1,100,000		1,119,250
9.13%, 07/02/18d		1,000,000		1,022,500
				2,141,750

Security	Shares or Principal		Value
VENEZUELA – 1.50%
Petroleos de Venezuela SA
5.38%, 04/12/27	$	2,600,000	$	1,482,000
				1,482,000
TOTAL QUASI-SOVEREIGN BONDS & NOTES
(Cost: $11,129,544)				10,993,264
SHORT-TERM INVESTMENTS – 0.44%
MONEY MARKET FUNDS – 0.44%
Barclays Global Investors Funds
Prime Money Market
Fund, Institutional Shares
2.57%e,f		436,384		436,384
				436,384
TOTAL SHORT-TERM INVESTMENTS
(Cost: $436,384)				436,384
TOTAL INVESTMENTS IN SECURITIES – 98.13% (Cost: $97,966,897)				96,862,628
Other Assets, Less Liabilities – 1.87%				1,847,396
NET ASSETS – 100.00%			$	98,710,024

^a Investments are denominated in U.S. dollars.

^b Step coupon security. Coupon rate increases in increments until maturity. Interest rate shown reflects the rate currently in effect. Maturity date shown reflects final maturity date.

^c Payment-in-kind (PIK) security. Income may be paid in cash or additional securities at the issuer’s discretion.

^d This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

^e Affiliated issuer. See Note 2.

^f The rate quoted is the annualized seven-day yield of the fund at period end.

See notes to financial statements.

56 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Assets and Liabilities (Unaudited)

iSHARES^® TRUST

August 31, 2008

	iShares Lehman
	1-3 Year Credit Bond Fund			Intermediate Credit Bond Fund			Credit Bond Fund			Intermediate Government/ Credit Bond Fund
ASSETS
Investments, at cost:
Unaffiliated issuers	$	567,086,905		$	291,905,347		$	86,226,565		$	210,965,885
Affiliated issuers (Note 2)		15,165,096			10,522,217			2,017,467			99,876,591
Total cost of investments	$	582,252,001		$	302,427,564		$	88,244,032		$	310,842,476
Investments in securities, at fair value (including securities on loana) (Note 1):
Unaffiliated issuers	$	564,050,677		$	286,875,476		$	84,167,936		$	212,055,844
Affiliated issuers (Note 2)		15,165,096			10,522,217			2,017,467			99,876,591
Total fair value of investments		579,215,773			297,397,693			86,185,403			311,932,435
Receivables:
Investment securities sold		–			–			–			33,965,468
Due from custodian (Note 4)		393,800			–			–			–
Interest		8,233,790			4,629,924			1,436,698			2,649,517
Capital shares sold		63,065			–			–			–
Total Assets		587,906,428			302,027,617			87,622,101			348,547,420
LIABILITIES
Payables:
Investment securities purchased		393,800			–			–			35,598,025
Collateral for securities on loan (Note 5)		12,472,310			6,871,800			558,720			97,609,476
Investment advisory fees (Note 2)		93,186			47,544			14,112			35,075
Total Liabilities		12,959,296			6,919,344			572,832			133,242,576
NET ASSETS	$	574,947,132		$	295,108,273		$	87,049,269		$	215,304,844
Net assets consist of:
Paid-in capital	$	576,518,757		$	299,996,721		$	89,072,621		$	213,010,846
Undistributed net investment income		1,719,343			1,003,299			338,371			981,750
Undistributed net realized gain (accumulated net realized loss)		(254,740	)		(861,876	)		(303,094	)		222,289
Net unrealized appreciation (depreciation)		(3,036,228	)		(5,029,871	)		(2,058,629	)		1,089,959
NET ASSETS	$	574,947,132		$	295,108,273		$	87,049,269		$	215,304,844
Shares outstandingb		5,700,000			3,000,000			900,000			2,100,000
Net asset value per share	$	100.87		$	98.37		$	96.72		$	102.53

^a Securities on loan with market values of $12,253,815, $6,752,377, $552,222 and $94,844,469, respectively. See Note 5.

^b No par value, unlimited number of shares authorized.

See notes to financial statements.

FINANCIAL STATEMENTS 57

Statements of Assets and Liabilities (Unaudited) (Continued)

iSHARES^® TRUST

August 31, 2008

	iShares Lehman								iShares iBoxx
	Government/ Credit Bond Fund		MBS Bond Fund			Aggregate Bond Fund			$ High Yield Corporate Bond Fund
ASSETS
Investments, at cost:
Unaffiliated issuers	$	90,004,776	$	721,603,505		$	9,455,705,235		$	964,313,487
Affiliated issuers (Note 2)		36,354,925		753,928,727			6,851,494,436			81,619,065
Total cost of investments	$	126,359,701	$	1,475,532,232		$	16,307,199,671		$	1,045,932,552
Investments in securities, at fair value (including securities on loana) (Note 1):
Unaffiliated issuers	$	90,174,310	$	732,727,506		$	9,487,503,038		$	915,082,747
Affiliated issuers (Note 2)		36,354,925		753,928,727			6,851,494,436			81,619,065
Total fair value of investments		126,529,235		1,486,656,233			16,338,997,474			996,701,812
Receivables:
Investment securities sold		11,205,347		38,466			286,165,422			4,135,783
Due from custodian (Note 4)		395,750		–			–			–
Interest		1,161,335		2,977,415			85,764,313			22,582,959
Capital shares sold		–		–			11,299,514			–
Total Assets		139,291,667		1,489,672,114			16,722,226,723			1,023,420,554
LIABILITIES
Payables:
Investment securities purchased		12,036,682		718,978,942			3,760,942,502			–
Collateral for securities on loan (Note 5)		35,651,382		–			3,349,907,864			80,105,310
Investment advisory fees (Note 2)		14,279		156,610			1,600,295			387,520
Total Liabilities		47,702,343		719,135,552			7,112,450,661			80,492,830
NET ASSETS	$	91,589,324	$	770,536,562		$	9,609,776,062		$	942,927,724
Net assets consist of:
Paid-in capital	$	91,110,380	$	769,435,943		$	9,613,608,679		$	994,247,478
Undistributed (distributions in excess of) net investment income		302,381		(4,967,891	)		357,977			6,261,954
Undistributed net realized gain (accumulated net realized loss)		7,029		(5,055,491	)		(35,988,397	)		(8,350,968	)
Net unrealized appreciation (depreciation)		169,534		11,124,001			31,797,803			(49,230,740	)
NET ASSETS	$	91,589,324	$	770,536,562		$	9,609,776,062		$	942,927,724
Shares outstandingb		900,000		7,600,000			95,800,000			10,300,000
Net asset value per share	$	101.77	$	101.39		$	100.31		$	91.55

^a Securities on loan with market values of $34,652,955, $–, $3,273,225,663 and $78,279,984, respectively. See Note 5.

^b No par value, unlimited number of shares authorized.

See notes to financial statements.

58 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Assets and Liabilities (Unaudited) (Continued)

iSHARES^® TRUST

August 31, 2008

	iShares iBoxx			iShares JPMorgan
	$ Investment Grade Corporate Bond Fund			USD Emerging Markets Bond Fund
ASSETS
Investments, at cost:
Unaffiliated issuers	$	4,025,218,012		$	97,530,513
Affiliated issuers (Note 2)		79,635,879			436,384
Total cost of investments	$	4,104,853,891		$	97,966,897
Investments in securities, at fair value (including securities on loana) (Note 1):
Unaffiliated issuers	$	3,883,202,189		$	96,426,244
Affiliated issuers (Note 2)		78,509,645			436,384
Total fair value of investments		3,961,711,834			96,862,628
Receivables:
Investment securities sold		109,098,555			986,178
Due from custodian (Note 4)		–			1,181,947
Interest		64,990,084			1,809,196
Capital shares sold		190,344			–
Total Assets		4,135,990,817			100,839,949
LIABILITIES
Payables:
Investment securities purchased		112,300,112			2,082,014
Collateral for securities on loan (Note 5)		15,195,520			–
Investment advisory fees (Note 2)		498,927			47,911
Total Liabilities		127,994,559			2,129,925
NET ASSETS	$	4,007,996,258		$	98,710,024
Net assets consist of:
Paid-in capital	$	4,279,393,800		$	99,619,479
Undistributed net investment income		18,094,992			361,121
Accumulated net realized loss		(146,350,477	)		(166,307	)
Net unrealized depreciation		(143,142,057	)		(1,104,269	)
NET ASSETS	$	4,007,996,258		$	98,710,024
Shares outstandingb		39,800,000			1,000,000
Net asset value per share	$	100.70		$	98.71

^a Securities on loan with market values of $14,952,577 and $–, respectively. See Note 5.

^b No par value, unlimited number of shares authorized.

See notes to financial statements.

FINANCIAL STATEMENTS 59

Statements of Operations (Unaudited)

iSHARES^® TRUST

Six months ended August 31, 2008

	iShares Lehman
	1-3 Year Credit Bond Fund			Intermediate Credit Bond Fund			Credit Bond Fund			Intermediate Government/ Credit Bond Fund
NET INVESTMENT INCOME
Interest from unaffiliated issuers	$	9,324,368		$	5,932,128		$	2,045,660		$	3,953,619
Interest from affiliated issuers (Note 2)		19,176			18,172			4,881			15,879
Securities lending income from affiliated issuers (Note 2)		9,459			8,647			346			169,084
Total investment income		9,353,003			5,958,947			2,050,887			4,138,582
EXPENSES
Investment advisory fees (Note 2)		427,892			234,166			74,533			182,042
Total expenses		427,892			234,166			74,533			182,042
Net investment income		8,925,111			5,724,781			1,976,354			3,956,540
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments in unaffiliated issuers		(193,311	)		(685,670	)		(175,958	)		315,997
Net realized gain (loss)		(193,311	)		(685,670	)		(175,958	)		315,997
Net change in unrealized appreciation (depreciation)		(8,170,824	)		(7,645,160	)		(2,883,544	)		(4,649,062	)
Net realized and unrealized loss		(8,364,135	)		(8,330,830	)		(3,059,502	)		(4,333,065	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	560,976		$	(2,606,049	)	$	(1,083,148	)	$	(376,525	)

See notes to financial statements.

60 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Operations (Unaudited) (Continued)

iSHARES^® TRUST

Six months ended August 31, 2008

	iShares Lehman									iShares iBoxx
	Government/ Credit Bond Fund			MBS Bond Fund			Aggregate Bond Fund			$ High Yield Corporate Bond Fund
NET INVESTMENT INCOME
Interest from unaffiliated issuers	$	1,373,683		$	84,422		$	124,332,580		$	32,782,943
Interest from affiliated issuers (Note 2)		3,732			8,482,653			46,534,840			76,053
Securities lending income from affiliated issuers (Note 2)		50,222			–			6,464,176			162,005
Total investment income		1,427,637			8,567,075			177,331,596			33,021,001
EXPENSES
Investment advisory fees (Note 2)		60,342			780,192			9,046,000			1,796,698
Total expenses		60,342			780,192			9,046,000			1,796,698
Net investment income		1,367,295			7,786,883			168,285,596			31,224,303
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments in unaffiliated issuers		55,353			(9,315,681	)		(54,739,068	)		(8,014,566	)
In-kind redemptions		–			–			–			521,625
Net realized gain (loss)		55,353			(9,315,681	)		(54,739,068	)		(7,492,941	)
Net change in unrealized appreciation (depreciation)		(1,269,141	)		9,825,306			(108,182,819	)		(30,509,720	)
Net realized and unrealized gain (loss)		(1,213,788	)		509,625			(162,921,887	)		(38,002,661	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	153,507		$	8,296,508		$	5,363,709		$	(6,778,358	)

See notes to financial statements.

FINANCIAL STATEMENTS 61

Statements of Operations (Unaudited) (Continued)

iSHARES^® TRUST

Six months ended August 31, 2008

	iShares iBoxx			iShares JPMorgan
	$ Investment Grade Corporate Bond Fund			USD Emerging Markets Bond Fund
NET INVESTMENT INCOME
Interest from unaffiliated issuers	$	105,321,603		$	2,062,211
Interest from affiliated issuers (Note 2)		1,000,355			4,832
Securities lending income from affiliated issuers (Note 2)		42,866			–
Total investment income		106,364,824			2,067,043
EXPENSES
Investment advisory fees (Note 2)		2,799,811			196,694
Total expenses		2,799,811			196,694
Net investment income		103,565,013			1,870,349
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments in unaffiliated issuers		(17,482,291	)		(156,117	)
Net realized loss		(17,482,291	)		(156,117	)
Net change in unrealized appreciation (depreciation)		(145,696,204	)		(1,208,380	)
Net realized and unrealized loss		(163,178,495	)		(1,364,497	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	(59,613,482	)	$	505,852

See notes to financial statements.

62 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Changes in Net Assets

iSHARES^® TRUST

	iShares Lehman 1-3 Year Credit Bond Fund						iShares Lehman Intermediate Credit Bond Fund
	Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008			Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income	$	8,925,111		$	5,792,406		$	5,724,781		$	2,976,703
Net realized gain (loss)		(193,311	)		268,232			(685,670	)		(162,863	)
Net change in unrealized appreciation (depreciation)		(8,170,824	)		5,090,219			(7,645,160	)		2,517,545
Net increase (decrease) in net assets resulting from operations		560,976			11,150,857			(2,606,049	)		5,331,385
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income		(7,964,927	)		(5,140,705	)		(5,115,277	)		(2,703,359	)
Total distributions to shareholders		(7,964,927	)		(5,140,705	)		(5,115,277	)		(2,703,359	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold		283,390,883			283,084,279			129,265,308			150,703,162
Cost of shares redeemed		–			(10,286,121	)		–			–
Net increase in net assets from capital share transactions		283,390,883			272,798,158			129,265,308			150,703,162
INCREASE IN NET ASSETS		275,986,932			278,808,310			121,543,982			153,331,188
NET ASSETS
Beginning of period		298,960,200			20,151,890			173,564,291			20,233,103
End of period	$	574,947,132		$	298,960,200		$	295,108,273		$	173,564,291
Undistributed net investment income included in net assets at end of period	$	1,719,343		$	759,159		$	1,003,299		$	393,795
SHARES ISSUED AND REDEEMED
Shares sold		2,800,000			2,800,000			1,300,000			1,500,000
Shares redeemed		–			(100,000	)		–			–
Net increase in shares outstanding		2,800,000			2,700,000			1,300,000			1,500,000

See notes to financial statements.

FINANCIAL STATEMENTS 63

Statements of Changes in Net Assets (Continued)

iSHARES^® TRUST

	iShares Lehman Credit Bond Fund						iShares Lehman Intermediate Government/Credit Bond Fund
	Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008			Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income	$	1,976,354		$	2,052,929		$	3,956,540		$	3,912,008
Net realized gain (loss)		(175,958	)		(107,920	)		315,997			(89,870	)
Net change in unrealized appreciation (depreciation)		(2,883,544	)		693,624			(4,649,062	)		5,667,476
Net increase (decrease) in net assets resulting from operations		(1,083,148	)		2,638,633			(376,525	)		9,489,614
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income		(1,820,133	)		(1,993,944	)		(3,515,693	)		(3,477,600	)
Total distributions to shareholders		(1,820,133	)		(1,993,944	)		(3,515,693	)		(3,477,600	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold		29,459,120			39,498,768			61,697,392			131,326,320
Net increase in net assets from capital share transactions		29,459,120			39,498,768			61,697,392			131,326,320
INCREASE IN NET ASSETS		26,555,839			40,143,457			57,805,174			137,338,334
NET ASSETS
Beginning of period		60,493,430			20,349,973			157,499,670			20,161,336
End of period	$	87,049,269		$	60,493,430		$	215,304,844		$	157,499,670
Undistributed net investment income included in net assets at end of period	$	338,371		$	182,150		$	981,750		$	540,903
SHARES ISSUED AND REDEEMED
Shares sold		300,000			400,000			600,000			1,300,000
Net increase in shares outstanding		300,000			400,000			600,000			1,300,000

See notes to financial statements.

64 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Changes in Net Assets (Continued)

iSHARES^® TRUST

	iShares Lehman Government/Credit Bond Fund						iShares Lehman MBS Bond Fund
	Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008			Six months ended August 31, 2008 (Unaudited)			Period from March 13, 2007a to February 29, 2008
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income	$	1,367,295		$	1,902,901		$	7,786,883		$	4,333,423
Net realized gain (loss)		55,353			(188,836	)		(9,315,681	)		4,731,320
Net change in unrealized appreciation (depreciation)		(1,269,141	)		1,332,294			9,825,306			1,298,695
Net increase in net assets resulting from operations		153,507			3,046,359			8,296,508			10,363,438
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income		(1,222,118	)		(1,872,787	)		(13,488,440	)		(4,070,887	)
Total distributions to shareholders		(1,222,118	)		(1,872,787	)		(13,488,440	)		(4,070,887	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold		40,506,127			99,876,594			374,469,581			405,034,290
Cost of shares redeemed		–			(69,131,557	)		–			(10,067,928	)
Net increase in net assets from capital share transactions		40,506,127			30,745,037			374,469,581			394,966,362
INCREASE IN NET ASSETS		39,437,516			31,918,609			369,277,649			401,258,913
NET ASSETS
Beginning of period		52,151,808			20,233,199			401,258,913			–
End of period	$	91,589,324		$	52,151,808		$	770,536,562		$	401,258,913
Undistributed (distributions in excess of) net investment income included in net assets at end of period	$	302,381		$	157,204		$	(4,967,891	)	$	733,666
SHARES ISSUED AND REDEEMED
Shares sold		400,000			1,000,000			3,700,000			4,000,000
Shares redeemed		–			(700,000	)		–			(100,000	)
Net increase in shares outstanding		400,000			300,000			3,700,000			3,900,000

^a Commencement of operations.

See notes to financial statements.

FINANCIAL STATEMENTS 65

Statements of Changes in Net Assets (Continued)

iSHARES^® TRUST

	iShares Lehman Aggregate Bond Fund						iShares iBoxx $ High Yield Corporate Bond Fund
	Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008			Six months ended August 31, 2008 (Unaudited)			Period from April 4, 2007a to February 29, 2008
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income	$	168,285,596		$	329,502,627		$	31,224,303		$	11,157,175
Net realized gain (loss)		(54,739,068	)		69,541,208			(7,492,941	)		(1,232,468	)
Net change in unrealized appreciation (depreciation)		(108,182,819	)		124,613,164			(30,509,720	)		(18,721,020	)
Net increase (decrease) in net assets resulting from operations		5,363,709			523,656,999			(6,778,358	)		(8,796,313	)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income		(203,379,471	)		(329,728,248	)		(26,409,113	)		(9,707,907	)
Total distributions to shareholders		(203,379,471	)		(329,728,248	)		(26,409,113	)		(9,707,907	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold		1,286,183,219			2,950,889,922			633,232,125			420,099,795
Cost of shares redeemed		–			(20,033,703	)		(9,752,911	)		(48,959,594	)
Net increase in net assets from capital share transactions		1,286,183,219			2,930,856,219			623,479,214			371,140,201
INCREASE IN NET ASSETS		1,088,167,457			3,124,784,970			590,291,743			352,635,981
NET ASSETS
Beginning of period		8,521,608,605			5,396,823,635			352,635,981			–
End of period	$	9,609,776,062		$	8,521,608,605		$	942,927,724		$	352,635,981
Undistributed net investment income included in net assets at end of period	$	357,977		$	35,451,852		$	6,261,954		$	1,446,764
SHARES ISSUED AND REDEEMED
Shares sold		12,800,000			29,500,000			6,700,000			4,200,000
Shares redeemed		–			(200,000	)		(100,000	)		(500,000	)
Net increase in shares outstanding		12,800,000			29,300,000			6,600,000			3,700,000

^a Commencement of operations.

See notes to financial statements.

66 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Statements of Changes in Net Assets (Continued)

iSHARES^® TRUST

	iShares iBoxx $ Investment Grade Corporate Bond Fund						iShares JPMorgan USD Emerging Markets Bond Fund
	Six months ended August 31, 2008 (Unaudited)			Year ended February 29, 2008			Six months ended August 31, 2008 (Unaudited)			Period from December 17, 2007a  to February 29, 2008
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income	$	103,565,013		$	167,982,619		$	1,870,349		$	138,618
Net realized loss		(17,482,291	)		(44,359,988	)		(156,117	)		(10,191	)
Net change in unrealized appreciation (depreciation)		(145,696,204	)		(34,312,656	)		(1,208,380	)		104,111
Net increase (decrease) in net assets resulting from operations		(59,613,482	)		89,309,975			505,852			232,538
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income		(99,624,554	)		(165,986,913	)		(1,584,133	)		(63,713	)
Total distributions to shareholders		(99,624,554	)		(165,986,913	)		(1,584,133	)		(63,713	)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold		810,914,538			663,689,093			59,469,609			40,149,871
Cost of shares redeemed		–			(103,598,250	)		–			–
Net increase in net assets from capital share transactions		810,914,538			560,090,843			59,469,609			40,149,871
INCREASE IN NET ASSETS		651,676,502			483,413,905			58,391,328			40,318,696
NET ASSETS
Beginning of period		3,356,319,756			2,872,905,851			40,318,696			–
End of period	$	4,007,996,258		$	3,356,319,756		$	98,710,024		$	40,318,696
Undistributed net investment income included in net assets at end of period	$	18,094,992		$	14,154,533		$	361,121		$	74,905
SHARES ISSUED AND REDEEMED
Shares sold		7,900,000			6,300,000			600,000			400,000
Shares redeemed		–			(1,000,000	)		–			–
Net increase in shares outstanding		7,900,000			5,300,000			600,000			400,000

^a Commencement of operations.

See notes to financial statements.

FINANCIAL STATEMENTS 67

Financial Highlights

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman 1-3 Year Credit Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Period from Jan. 5, 2007a  to Feb. 28, 2007
Net asset value, beginning of period	$	103.09		$	100.76		$	100.08
Income from investment operations:
Net investment incomeb		2.13			4.77			0.69
Net realized and unrealized gain (loss)c		(2.41	)		2.27			0.28
Total from investment operations		(0.28	)		7.04			0.97
Less distributions from:
Net investment income		(1.94	)		(4.71	)		(0.29	)
Total distributions		(1.94	)		(4.71	)		(0.29	)
Net asset value, end of period	$	100.87		$	103.09		$	100.76
Total return		(0.28	)%d		7.21	%		0.97	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	574,947		$	298,960		$	20,152
Ratio of expenses to average net assetse		0.20	%		0.20	%		0.20	%
Ratio of net investment income to average net assetse		4.17	%		4.72	%		4.67	%
Portfolio turnover ratef		47	%		64	%		13	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

68 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman Intermediate Credit Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Period from Jan. 5, 2007a  to Feb. 28, 2007
Net asset value, beginning of period	$	102.10		$	101.17		$	100.19
Income from investment operations:
Net investment incomeb		2.45			5.03			0.76
Net realized and unrealized gain (loss)c		(3.89	)		1.04			0.51
Total from investment operations		(1.44	)		6.07			1.27
Less distributions from:
Net investment income		(2.29	)		(5.14	)		(0.29	)
Total distributions		(2.29	)		(5.14	)		(0.29	)
Net asset value, end of period	$	98.37		$	102.10		$	101.17
Total return		(1.43	)%d		6.27	%		1.27	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	295,108		$	173,564		$	20,233
Ratio of expenses to average net assetse		0.20	%		0.20	%		0.20	%
Ratio of net investment income to average net assetse		4.89	%		5.01	%		5.16	%
Portfolio turnover ratef		14	%		28	%		4	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

FINANCIAL HIGHLIGHTS 69

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman Credit Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Period from Jan. 5, 2007a  to Feb. 28, 2007
Net asset value, beginning of period	$	100.82		$	101.75		$	100.57
Income from investment operations:
Net investment incomeb		2.62			5.36			0.83
Net realized and unrealized gain (loss)c		(4.18	)		(0.97	)		0.65
Total from investment operations		(1.56	)		4.39			1.48
Less distributions from:
Net investment income		(2.54	)		(5.32	)		(0.30	)
Total distributions		(2.54	)		(5.32	)		(0.30	)
Net asset value, end of period	$	96.72		$	100.82		$	101.75
Total return		(1.57	)%d		4.53	%		1.48	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	87,049		$	60,493		$	20,350
Ratio of expenses to average net assetse		0.20	%		0.20	%		0.20	%
Ratio of net investment income to average net assetse		5.30	%		5.38	%		5.58	%
Portfolio turnover ratef		8	%		34	%		4	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

70 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman Intermediate Government/Credit Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Period from Jan. 5, 2007a to Feb. 28, 2007
Net asset value, beginning of period	$	105.00		$	100.81		$	100.00
Income from investment operations:
Net investment incomeb		2.26			4.82			0.69
Net realized and unrealized gain (loss)c		(2.67	)		4.02			0.40
Total from investment operations		(0.41	)		8.84			1.09
Less distributions from:
Net investment income		(2.06	)		(4.65	)		(0.28	)
Total distributions		(2.06	)		(4.65	)		(0.28	)
Net asset value, end of period	$	102.53		$	105.00		$	100.81
Total return		(0.41	)%d		9.07	%		1.09	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	215,305		$	157,500		$	20,161
Ratio of expenses to average net assetse		0.20	%		0.20	%		0.20	%
Ratio of net investment income to average net assetse		4.35	%		4.75	%		4.65	%
Portfolio turnover ratef		27	%		30	%		2	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

FINANCIAL HIGHLIGHTS 71

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman Government/Credit Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Period from Jan. 5, 2007a to Feb. 28, 2007
Net asset value, beginning of period	$	104.30		$	101.17		$	100.23
Income from investment operations:
Net investment incomeb		2.33			4.95			0.72
Net realized and unrealized gain (loss)c		(2.71	)		3.06			0.47
Total from investment operations		(0.38	)		8.01			1.19
Less distributions from:
Net investment income		(2.15	)		(4.88	)		(0.25	)
Total distributions		(2.15	)		(4.88	)		(0.25	)
Net asset value, end of period	$	101.77		$	104.30		$	101.17
Total return		(0.39	)%d		8.22	%		1.20	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	91,589		$	52,152		$	20,233
Ratio of expenses to average net assetse		0.20	%		0.20	%		0.20	%
Ratio of net investment income to average net assetse		4.53	%		4.93	%		4.84	%
Portfolio turnover ratef		24	%		36	%		10	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

72 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman MBS Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Period from Mar. 13, 2007a to Feb. 29, 2008
Net asset value, beginning of period	$	102.89		$	100.96
Income from investment operations:
Net investment incomeb		1.28			4.28
Net realized and unrealized gain (loss)c		(0.48	)		1.99
Total from investment operations		0.80			6.27
Less distributions from:
Net investment income		(2.30	)		(4.34	)
Total distributions		(2.30	)		(4.34	)
Net asset value, end of period	$	101.39		$	102.89
Total return		0.76	%d		6.41	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	770,537		$	401,259
Ratio of expenses to average net assetse		0.25	%		0.25	%
Ratio of net investment income to average net assetse		2.50	%		4.39	%
Portfolio turnover ratef,g		599	%		1,038	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

^g Portfolio turnover rates include to-be-announced (TBA) transactions. See Note 1.

See notes to financial statements.

FINANCIAL HIGHLIGHTS 73

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares Lehman Aggregate Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Year ended Feb. 28, 2007			Year ended Feb. 28, 2006			Year ended Feb. 28, 2005			Period from Sep. 22, 2003a to Feb. 29, 2004
Net asset value, beginning of period	$	102.67		$	100.50		$	100.08		$	101.72		$	103.18		$	100.92
Income from investment operations:
Net investment income		1.89	b		4.86	b		4.71	b		3.83			3.73			1.12
Net realized and unrealized gain (loss)c		(1.95	)		2.25			0.41			(1.32	)		(1.62	)		2.34
Total from investment operations		(0.06	)		7.11			5.12			2.51			2.11			3.46
Less distributions from:
Net investment income		(2.30	)		(4.94	)		(4.70	)		(4.15	)		(3.57	)		(1.20	)
Total distributions		(2.30	)		(4.94	)		(4.70	)		(4.15	)		(3.57	)		(1.20	)
Net asset value, end of period	$	100.31		$	102.67		$	100.50		$	100.08		$	101.72		$	103.18
Total return		(0.04	)%d		7.32	%		5.31	%		2.53	%		2.11	%		3.46	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	9,609,776		$	8,521,609		$	5,396,824		$	3,142,544		$	1,291,817		$	350,800
Ratio of expenses to average net assetse		0.20	%		0.20	%		0.20	%		0.20	%		0.20	%		0.20	%
Ratio of net investment income to average net assetse		3.72	%		4.86	%		4.76	%		3.89	%		2.90	%		2.47	%
Portfolio turnover ratef,g		236	%		458	%		483	%		456	%		457	%		165	%

^a Commencement of operations.

^b Based on average shares outstanding throughout the period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

^g Portfolio turnover rates include to-be-announced (TBA) transactions. See Note 1.

See notes to financial statements.

74 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares iBoxx $ High Yield Corporate Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Period from Apr. 4, 2007a to Feb. 29, 2008
Net asset value, beginning of period	$	95.31		$	103.03
Income from investment operations:
Net investment incomeb		4.13			7.02
Net realized and unrealized lossc		(4.12	)		(8.81	)
Total from investment operations		0.01			(1.79	)
Less distributions from:
Net investment income		(3.77	)		(5.93	)
Total distributions		(3.77	)		(5.93	)
Net asset value, end of period	$	91.55		$	95.31
Total return		(0.03	)%d		(1.89	)%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	942,928		$	352,636
Ratio of expenses to average net assetse		0.50	%		0.50	%
Ratio of net investment income to average net assetse		8.69	%		7.87	%
Portfolio turnover ratef		18	%		55	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

FINANCIAL HIGHLIGHTS 75

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares iBoxx $ Investment Grade Corporate Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Year ended Feb. 29, 2008			Year ended Feb. 28, 2007			Year ended Feb. 28, 2006			Year ended Feb. 28, 2005			Year ended Feb. 29, 2004
Net asset value, beginning of period	$	105.21		$	108.00		$	107.20		$	111.08		$	112.78		$	110.46
Income from investment operations:
Net investment income		2.86	a		5.79	a		5.54	a		5.15			5.18			5.35
Net realized and unrealized gain (loss)b		(4.57	)		(2.83	)		0.68			(3.92	)		(1.70	)		2.44
Total from investment operations		(1.71	)		2.96			6.22			1.23			3.48			7.79
Less distributions from:
Net investment income		(2.80	)		(5.75	)		(5.42	)		(5.11	)		(5.18	)		(5.38	)
Net realized gain		–			–			–			–			–			(0.09	)c
Total distributions		(2.80	)		(5.75	)		(5.42	)		(5.11	)		(5.18	)		(5.47	)
Net asset value, end of period	$	100.70		$	105.21		$	108.00		$	107.20		$	111.08		$	112.78
Total return		(1.81	)%d		3.04	%		6.03	%		1.12	%		3.24	%		7.29	%
Ratios/Supplemental data:
Net assets, end of period (000s)	$	4,007,996		$	3,356,320		$	2,872,906		$	2,401,378		$	2,554,918		$	2,492,441
Ratio of expenses to average net assetse		0.15	%		0.15	%		0.15	%		0.15	%		0.15	%		0.15	%
Ratio of net investment income to average net assetse		5.55	%		5.51	%		5.26	%		4.75	%		4.71	%		4.83	%
Portfolio turnover ratef		26	%		95	%		89	%		71	%		32	%		0	%

^a Based on average shares outstanding throughout the period.

^b The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^c Represents all short-term capital gain distributions. Short-term capital gain distributions are treated as ordinary income dividends for tax purposes.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

76 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Financial Highlights (Continued)

iSHARES^® TRUST

(For a share outstanding throughout each period)

	iShares JPMorgan USD Emerging Markets Bond Fund
	Six months ended Aug. 31, 2008 (Unaudited)			Period from Dec. 17, 2007a to Feb. 29, 2008
Net asset value, beginning of period	$	100.80		$	100.32
Income from investment operations:
Net investment incomeb		2.85			1.09
Net realized and unrealized gain (loss)c		(2.35	)		0.03
Total from investment operations		0.50			1.12
Less distributions from:
Net investment income		(2.59	)		(0.64	)
Total distributions		(2.59	)		(0.64	)
Net asset value, end of period	$	98.71		$	100.80
Total return		0.50	%d		1.10	%d
Ratios/Supplemental data:
Net assets, end of period (000s)	$	98,710		$	40,319
Ratio of expenses to average net assetse		0.60	%		0.60	%
Ratio of net investment income to average net assetse		5.71	%		5.36	%
Portfolio turnover ratef		10	%		10	%

^a Commencement of operations.

^b Based on average shares outstanding throughout each period.

^c The amounts reported may not accord with the change in aggregate gains and losses in securities due to the timing of capital share transactions.

^d Not annualized.

^e Annualized for periods of less than one year.

^f Portfolio turnover rates exclude portfolio securities received or delivered as a result of processing capital share transactions in Creation Units.

See notes to financial statements.

FINANCIAL HIGHLIGHTS 77

Notes to Financial Statements (Unaudited)

iSHARES^® TRUST

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 statutory trust pursuant to an Agreement and Declaration of Trust dated December 16, 1999.

These financial statements relate only to the iShares Lehman 1-3 Year Credit Bond Fund, iShares Lehman Intermediate Credit Bond Fund, iShares Lehman Credit Bond Fund, iShares Lehman Intermediate Government/Credit Bond Fund, iShares Lehman Government/Credit Bond Fund, iShares Lehman MBS Bond Fund, iShares Lehman Aggregate Bond Fund, iShares iBoxx $ High Yield Corporate Bond Fund, iShares iBoxx $ Investment Grade Corporate Bond Fund and iShares JPMorgan USD Emerging Markets Bond Fund (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. The investment adviser uses a “passive” or index approach to achieve each Fund’s investment objective. Each of the Funds is classified as a non-diversified fund under the 1940 Act, except for the iShares Lehman Aggregate Bond Fund, which is classified as a diversified fund. Non-diversified funds generally hold securities 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 affecting these companies.

Pursuant to the Trust’s organizational documents, the Funds’ 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.

1. SIGNIFICANT ACCOUNTING POLICIES

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”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

SECURITY VALUATION

The securities and other assets of each Fund are generally valued using market valuations. A market valuation generally means a valuation (i) obtained from an exchange, a pricing service or a major market maker (or dealer), (ii) based on a price quotation or other equivalent indication of value supplied by an exchange, a pricing service or a major market maker (or dealer) or (iii) based on amortized cost. In the case of shares of funds that are not traded on an exchange, a market valuation means such fund’s published net asset value per share. The investment adviser may use various pricing services or discontinue the use of any pricing service. A price obtained from a pricing service based on such pricing service’s valuation matrix may be considered a market valuation. In the event that current market valuations are not readily available or such valuations do not reflect current market values, the affected investments will be valued pursuant to the pricing policy and procedures approved by the Board of Trustees of the Trust (the “Board”).

Effective March 1, 2008, the Funds adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. Various inputs are used in determining the value of the Funds’ investments. These inputs are summarized in the three broad levels listed below.

• Level 1 – quoted prices in active markets for identical investments

78 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

• Level 2 – other significant observable inputs (including, but not limited to, quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments)

Investments that use Level 2 or Level 3 inputs may include, but are not limited to: (i) an unlisted security related to corporate actions; (ii) a restricted security (e.g., one that may not be publicly sold without registration under the Securities Act of 1933, as amended); (iii) a security whose trading has been suspended or which has been de-listed from its primary trading exchange; (iv) a security that is thinly traded; (v) a security in default or bankruptcy proceedings for which there is no current market quotation; (vi) a security affected by currency controls or restrictions; and (vii) a security affected by a significant event (e.g., an event that occurs after the close of the markets on which the security is traded but before the time as of which a Fund’s net asset value is computed and that may materially affect the value of the Fund’s investments). Examples of events that may be “significant events” are government actions, natural disasters, armed conflict, acts of terrorism, and significant market fluctuations.

The inputs or methodology used for valuation are not necessarily an indication of the risk associated with investing in those investments.

Fair value pricing could result in a difference between the prices used to calculate a Fund’s net asset value and the prices used by the Fund’s benchmark index, which, in turn, could result in a difference between the Fund’s performance and the performance of the Fund’s benchmark index.

The following table summarizes the inputs used in valuing the Funds’ investments, as of August 31, 2008:

Investments in Securities
iShares Bond Fund	Level 1 – Quoted Prices	Level 2 – Other Significant Observable Inputs	Level 3 – Significant Unobservable Inputs	Total Fair Value
Lehman 1-3 Year Credit	$     15,165,096	$   564,050,677	$                  –	$     579,215,773
Lehman Intermediate Credit	10,522,217	286,875,476	–	297,397,693
Lehman Credit	2,017,467	84,167,936	–	86,185,403
Lehman Intermediate Government/Credit	169,732,584	142,199,851	–	311,932,435
Lehman Government/Credit	69,858,962	56,670,273	–	126,529,235
Lehman MBS	753,928,727	732,727,506	–	1,486,656,233
Lehman Aggregate	9,358,252,176	6,980,745,298	–	16,338,997,474
iBoxx $ High Yield Corporate	81,619,065	915,082,747	–	996,701,812
iBoxx $ Investment Grade Corporate	38,187,001	3,923,524,833	–	3,961,711,834
JPMorgan USD Emerging Markets	436,384	96,426,244	–	96,862,628

SECURITY TRANSACTIONS AND INCOME RECOGNITION

Security transactions are accounted for on trade date. Interest income is accrued daily. Realized gains and losses on investment transactions are determined using the specific identification method. The Funds amortize premiums and accrete discounts on debt securities purchased, using a constant yield to maturity method.

NOTES TO FINANCIAL STATEMENTS 79

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

DISTRIBUTIONS TO SHAREHOLDERS

Distributions to shareholders from net investment income, if any, are declared and distributed at least monthly 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. Dividends and distributions cannot be automatically reinvested in additional shares of the Funds.

The tax character of current year distributions will be determined at the end of the current fiscal year.

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 ordinary income and any net capital gains (taking into account any capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income and excise taxes. Accordingly, no provision for federal income taxes was required for the six months ended August 31, 2008.

Certain Funds had tax basis net capital loss carryforwards as of February 29, 2008, the tax year-end of the Funds, as follows:

iShares Bond Fund	Expiring 2013		Expiring 2014		Expiring 2015		Expiring 2016		Total
Lehman 1-3 Year Credit	$	–	$	–	$	–	$	47,437	$	47,437
Lehman Intermediate Credit		–		–		–		61,218		61,218
Lehman Credit		–		–		–		63,716		63,716
Lehman Intermediate Government/Credit		–		–		–		34,704		34,704
Lehman Government/Credit		–		–		–		35,114		35,114
Lehman MBS		–		–		–		19,741		19,741
Lehman Aggregate		1,089,293		4,420,413		16,516,253		14,768,306		36,794,265
iBoxx $ High Yield Corporate		–		–		–		664,085		664,085
iBoxx $ Investment Grade Corporate		4,185,823		7,993,294		68,185,543		39,603,772		119,968,432

Net capital loss carryforwards may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first.

For the six months ended August 31, 2008, certain Funds realized net capital gains or losses resulting from in-kind redemptions of large blocks of shares 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 net realized in-kind gains or losses for the six months ended August 31, 2008 are disclosed in the Funds’ Statements of Operations.

80 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

As of August 31, 2008, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

iShares Bond Fund	Tax Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation			Net Unrealized Appreciation (Depreciation)
Lehman 1-3 Year Credit	$	582,270,829	$	1,677,872	$	(4,732,928	)	$	(3,055,056	)
Lehman Intermediate Credit		302,484,445		805,212		(5,891,964	)		(5,086,752	)
Lehman Credit		88,275,011		330,285		(2,419,893	)		(2,089,608	)
Lehman Intermediate Government/Credit		310,821,432		3,001,557		(1,890,554	)		1,111,003
Lehman Government/Credit		126,361,251		1,033,607		(865,623	)		167,984
Lehman MBS		1,471,226,632		15,466,041		(36,440	)		15,429,601
Lehman Aggregate		16,318,087,081		126,035,940		(105,125,547	)		20,910,393
iBoxx $ High Yield Corporate		1,046,090,430		2,104,823		(51,493,441	)		(49,388,618	)
iBoxx $ Investment Grade Corporate		4,105,142,635		8,930,776		(152,361,577	)		(143,430,801	)
JPMorgan USD Emerging Markets		98,262,192		–		(1,399,564	)		(1,399,564	)

The Funds adopted FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in a tax position taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosures of tax positions, along with accounting for the related interest and penalties. Management has reviewed the tax positions as of August 31, 2008, inclusive of the prior three open tax return years, and has determined that the implementation of FIN 48 did not have a material impact on the Funds’ financial statements.

WHEN-ISSUED/TBA TRANSACTIONS

Certain Funds may purchase mortgage pass-through securities on a when-issued or to-be-announced (“TBA”) basis, with payment and delivery scheduled for a future date. Each Fund may enter into a TBA agreement, sell the obligation to purchase the pools stipulated in the TBA agreement prior to the stipulated settlement date and enter into a new TBA agreement for future delivery of pools of mortgage pass-through securities (a “TBA roll”). A TBA roll is treated by the Fund as a purchase transaction and a sale transaction in which the Fund realizes a gain or loss. The Fund’s use of TBA rolls may cause the Fund to experience higher portfolio turnover and higher transaction costs. The Fund could be exposed to possible risk if there is adverse market action, expenses or delays in connection with the TBA transactions, or if the counterparty fails to complete the transaction.

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 execution of portfolio transactions, distribution fees and extraordinary expenses.

NOTES TO FINANCIAL STATEMENTS 81

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

For its investment advisory services to each Fund, BGFA is entitled to an annual investment advisory fee based on the average daily net assets of each Fund as follows:

iShares Bond Fund	Investment Advisory Fee
Lehman 1-3 Year Credit	0.20	%
Lehman Intermediate Credit	0.20
Lehman Credit	0.20
Lehman Intermediate Government/Credit	0.20
Lehman Government/Credit	0.20

iShares Bond Fund	Investment Advisory Fee
Lehman MBS	0.25	%
Lehman Aggregate	0.20
iBoxx $ High Yield Corporate	0.50
iBoxx $ Investment Grade Corporate	0.15
JPMorgan USD Emerging Markets	0.60

State Street Bank and Trust Company (“State Street”) serves as administrator, custodian and transfer agent for the Trust. As compensation for its services, State Street receives certain out-of-pocket costs, transaction fees and asset-based fees which are accrued daily and paid monthly. These fees and expenses are Covered Expenses as defined above.

SEI Investments Distribution Co. (“SEI”) serves as each Fund’s underwriter and distributor of the shares of each Fund, pursuant to a Distribution Agreement with the Trust. SEI does not receive a fee from the Funds for its distribution services.

Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC”), the Funds are permitted to lend portfolio securities to Barclays Capital Inc. (“BarCap”). Pursuant to the same exemptive order, Barclays Global Investors, N.A. (“BGI”) serves as securities lending agent for the Funds. BarCap and BGI are affiliates of BGFA, the Funds’ investment adviser. As securities lending agent, BGI receives, as fees, a share of the income earned on investment of the cash collateral received for the loan of securities. For the six months ended August 31, 2008, BGI earned securities lending agent fees as follows:

iShares Bond Fund	Securities Lending Agent Fees
Lehman 1-3 Year Credit	$    9,459
Lehman Intermediate Credit	8,647
Lehman Credit	346
Lehman Intermediate Government/Credit	169,084

iShares Bond Fund	Securities Lending Agent Fees
Lehman Government/Credit	$      50,222
Lehman Aggregate	6,464,176
iBoxx $ High Yield Corporate	162,005
iBoxx $ Investment Grade Corporate	42,866

Each Fund may invest in the Institutional Shares of certain money market funds managed by BGFA, the Funds’ investment adviser, including the Government Money Market Fund (“GMMF”), Institutional Money Market Fund (“IMMF”), Prime Money Market Fund (“PMMF”) and Treasury Money Market Fund (“TMMF”) of Barclays Global Investors Funds. The GMMF, IMMF, PMMF and TMMF are feeder funds in a master/feeder fund structure that invest substantially all of their assets in the Government Money Market Master Portfolio, Money Market Master Portfolio, Prime Money Market Master Portfolio and Treasury Money Market Master Portfolio (collectively, the “Money Market Master Portfolios”), respectively, which are also managed by BGFA. While the GMMF, IMMF, PMMF and TMMF do not directly charge an investment advisory fee, the Money Market Master Portfolios in which they invest do charge an investment advisory fee. Income distributions from the GMMF, IMMF, PMMF and TMMF are declared daily and paid monthly from net investment income. Income distributions earned by the Funds from temporary cash investments are recorded as interest from affiliated issuers in the accompanying Statements of Operations. Income distributions earned by the Funds from the investment of securities lending collateral, if any, are included in securities lending income in the accompanying Statements of Operations.

82 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

Each Fund may invest its securities lending cash collateral, if any, in the BGI Cash Premier Fund LLC (“Premier Fund”), an affiliated private money market fund managed by BGFA. Although the Premier Fund is not registered as an investment company under the 1940 Act, it intends to operate as a money market fund in compliance with Rule 2a-7 under the 1940 Act. See Note 5 for additional information regarding the Premier Fund.

For the six months ended August 31, 2008, the iShares iBoxx $ Investment Grade Corporate Bond Fund had direct investments (exclusive of short-term investments) in issuers of which BGFA is an affiliate as follows:

Name of Affiliated Issuer	Principal Amount Held Beginning of Period (in 000s)	Gross Additions (in 000s)	Gross Reductions (in 000s)	Principal Amount Held End of Period (in 000s)	Value at End of Period	Interest Income
Barclays Bank PLC	$31,900	$7,900	$          –	$39,800	$40,322,644	$809,088

Certain trustees and officers of the Trust are also officers of BGI and/or BGFA.

3. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments (excluding in-kind transactions and short-term investments) for the six months ended August 31, 2008 were as follows:

	U.S. Government Obligations				Other Securities
iShares Bond Fund	Purchases		Sales		Purchases		Sales
Lehman 1-3 Year Credit	$	–	$	–	$	201,073,636	$	200,191,210
Lehman Intermediate Credit		–		–		32,311,787		34,463,957
Lehman Credit		–		–		5,653,052		6,779,775
Lehman Intermediate Government/Credit		42,217,502		44,749,066		9,809,292		3,807,265
Lehman Government/Credit		10,609,940		13,086,755		4,368,853		1,458,097
Lehman MBS		3,837,128,260		3,490,508,733		–		–
Lehman Aggregate		21,019,802,195		21,051,296,674		145,853,817		96,975,230
iBoxx $ High Yield Corporate		–		–		138,571,162		124,667,116
iBoxx $ Investment Grade Corporate		–		–		953,664,476		947,186,397
JPMorgan USD Emerging Markets		–		–		7,413,914		6,694,525

NOTES TO FINANCIAL STATEMENTS 83

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

In-kind transactions (See Note 4) for the six months ended August 31, 2008 were as follows:

iShares Bond Fund	In-kind Purchases		In-kind Sales
Lehman 1-3 Year Credit	$	278,710,136	$	–
Lehman Intermediate Credit		127,052,518		–
Lehman Credit		28,959,352		–
Lehman Intermediate Government/Credit		57,902,417		–
Lehman Government/Credit		39,742,233		–
Lehman Aggregate		796,136,068		–
iBoxx $ High Yield Corporate		611,021,011		9,459,512
iBoxx $ Investment Grade Corporate		796,135,941		–
JPMorgan USD Emerging Markets		57,856,268		–

4. CAPITAL SHARE TRANSACTIONS

Capital shares are issued and redeemed by each Fund only in Creation Units or multiples thereof. Except when aggregated in Creation Units, shares of each Fund are not redeemable. Transactions in capital shares 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 deposit of a designated portfolio of securities, which constitutes a substantial replication, or a portfolio sampling representation, of the securities involved in the relevant Fund’s underlying index and an amount of cash. In the case of the iShares Lehman Aggregate and iShares Lehman MBS Bond Funds, a portion of the designated portfolio of securities are purchased through TBA transactions, in which case these Funds generally require the substitution of an amount of cash equivalent to the price of the securities involved in such TBA transactions. Investors purchasing and redeeming Creation Units in the Funds pay a purchase transaction fee and a redemption transaction fee directly to State Street, the administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units.

From time to time, settlement of securities related to in-kind contributions or in-kind redemptions may be delayed. In such cases, securities related to in-kind contributions are reflected as “Due from custodian” and securities related to in-kind redemptions are reflected as “Securities related to in-kind transactions” in the Statement of Assets and Liabilities.

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 by each Fund is required to have a value of at least 102% of the market value of the loaned securities plus the interest accrued on such securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan plus accrued interest, if any. The risks to the Funds of securities lending are that the borrower may not provide additional collateral when required or may not return the securities when due.

As of August 31, 2008, certain Funds had loaned securities which were collateralized by cash. The cash collateral received was invested in the Premier Fund. The Premier Fund seeks to achieve its investment objective by investing in a portfolio of high-quality, short-term fixed-income

84 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Notes to Financial Statements (Unaudited) (Continued)

iSHARES^® TRUST

instruments, including money market funds (which may be managed by BGFA or its affiliate) and other instruments that, at the time of investment, have remaining maturities of 397 calendar days or less from the date of acquisition.

The market value of the securities on loan as of August 31, 2008 and the value of the related collateral are disclosed in the Statements of Assets and Liabilities. Securities lending income, as disclosed in the Funds’ Statements of Operations, represents the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to BGI as securities lending agent.

6. SUBSEQUENT EVENT

On September 22, 2008, BarCap, an affiliate of BGFA, completed its acquisition of Lehman Brothers North American investment banking and capital markets businesses. As part of the transaction, Lehman indexes, including the operations responsible for these indexes, have become part of BarCap. As a result, the Lehman indexes are now maintained by BarCap, which is a separate legal entity from BGFA. BGFA will have no role in maintaining the Lehman indexes.

NOTES TO FINANCIAL STATEMENTS 85

Board Review and Approval of Investment Advisory Contract (Unaudited)

iSHARES^® TRUST

Under Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), the Trust’s Board of Trustees (the “Board”), including a majority of Trustees who are not “interested persons” of the Trust (as that term is defined in the 1940 Act) (the “Independent Trustees”), is required annually to consider the Investment Advisory Contract between the Trust and BGFA (the “Advisory Contract”) on behalf of the Funds. As required by Section 15(c), the Board requested and BGFA provided such information as the Board deemed reasonably necessary to evaluate the terms of the Advisory Contract. At a meeting held on June 18-19, 2008, the Board approved the selection of BGFA and the continuance of the Advisory Contract, based on its review of qualitative and quantitative information provided by BGFA. In selecting BGFA and approving the Advisory Contract for the Funds, the Board, including the Independent Trustees, advised by their independent counsel, considered the following factors, no one of which was controlling, and made the following conclusions:

NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY BGFA

The Board anticipated that there would be no diminution in the scope of services required of BGFA under the Advisory Contract for the coming year as compared to the scope of services provided by BGFA over the past year. In reviewing the scope of these services, the Board considered BGFA’s investment philosophy and experience, noting that BGFA and its affiliates have committed significant resources over time, including over the past year, including investment in technology and increasing the number of their employees supporting the Funds. The Board also considered BGFA’s compliance program and its compliance record with respect to the Funds. In that regard, the Board noted that BGFA reports to the Board about portfolio management and compliance matters on a periodic basis in connection with regularly scheduled meetings of the Board, and has made appropriate officers available as needed to provide further assistance with these matters. The Board also reviewed the background and experience of the persons responsible for the day-to-day management of the Funds. In addition to the above considerations, the Board considered BGFA’s investment processes and strategies, and matters related to BGFA’s portfolio transaction policies and procedures. The Board also reviewed the performance of other series of registered investment companies with substantially similar investment objectives and strategies as the iShares Lehman Aggregate Bond Fund for which BGFA provides investment advisory services, noting that such other series generally performed in line with relevant benchmarks over relevant periods. The Board further noted that BGFA does not serve as investment adviser for any other series of registered investment companies with substantially similar investment objectives and strategies as any of the iShares Lehman 1-3 Year Credit Bond, iShares Lehman Intermediate Credit Bond, iShares Lehman Credit Bond, iShares Lehman MBS Bond, iShares iBoxx $ High Yield Corporate Bond, iShares iBoxx $ Investment Grade Corporate Bond, or the iShares JPMorgan USD Emerging Markets Bond Funds; therefore, no comparative performance information was available for those particular Funds. The Board also noted that the Funds had met their investment objectives consistently since their respective inception dates. Based on this review, the Board concluded that the nature, extent and quality of services to be provided by BGFA to the Funds under the Advisory Contract were appropriate and mitigated in favor of the Board’s approval of the Advisory Contract for the coming year.

FUNDS’ EXPENSES AND PERFORMANCE OF THE FUNDS

The Board reviewed statistical information prepared by Lipper Inc. (“Lipper”), an independent provider of investment company data, regarding the expense ratio components, including advisory fees, waivers/reimbursements, and gross and net total expenses of each Fund in comparison with the same information for other registered funds objectively selected solely by Lipper as comprising such Fund’s applicable peer group (the “Lipper Group”). Because there are few, if any, exchange traded funds or index funds that track indexes similar to those tracked by the Funds, the Lipper Groups included in part mutual funds, closed-end funds, exchange traded funds, or funds with differing investment objective classifications, investment focuses and other characteristics (e.g., actively managed funds and funds sponsored by “at cost” service providers). In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the applicable Lipper Groups and to prepare this information. The Board further noted that due to the limitations in providing comparable funds in the various Lipper Groups, the statistical information may or may not provide meaningful direct comparisons to the Funds. In addition, the Board reviewed statistical information prepared by Lipper regarding

86 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

Board Review and Approval of Investment Advisory Contract

(Unaudited) (Continued)

iSHARES^® TRUST

the performance of each Fund for the one-, three- and five-year periods, as applicable, and the “last quarter” period ended March 31, 2008, and a comparison of each Fund’s performance to its performance benchmark index for the same periods. To the extent that any of the comparison funds included in the Lipper Group track the same index as any particular Fund, Lipper also provided, and the Board reviewed, a comparison of such Fund’s performance to that of such relevant comparison funds. The Board noted that the Funds generally performed in line with their respective performance benchmark indexes over the relevant periods. In considering this information, the Board noted that the Lipper Groups include funds that may have different investment objectives and/or benchmarks from the Funds. In addition, the Board noted that each Fund seeks to track its benchmark index and that during the prior year the Board received periodic reports on the Funds’ performance in comparison with their relevant benchmark indexes. Such comparative performance information was also considered by the Board.

The Board also noted that the investment advisory fees and overall expenses for the Funds were generally lower than the median or average investment advisory fee rates and overall expenses of the funds in their respective Lipper Groups. Based on this review, the Board concluded that the investment advisory fees and expense levels and the historical performance of each Fund, as managed by BGFA, as compared to the investment advisory fees and expense levels and performance of the funds in the relevant Lipper Group, were satisfactory for the purposes of approving the Advisory Contract for the coming year.

COSTS OF SERVICES PROVIDED TO FUNDS AND PROFITS REALIZED BY BGFA AND AFFILIATES

The Board reviewed information about the profitability to BGFA of the Funds based on the fees payable to BGFA and its affiliates (including fees under the Advisory Contract), and all other sources of revenue and expense to BGFA and its affiliates from the Funds’ operations for the last calendar year. The Board discussed the sources of direct and ancillary revenue with management, including the revenues to BGI from securities lending by the Trust (including any securities lending by the Funds). The Board also discussed BGFA’s profit margin as reflected in the Funds’ profitability analysis and reviewed information regarding economies of scale (as discussed below). Based on this review, the Board concluded that the profits realized by BGFA and its affiliates under the Advisory Contract and from other relationships between the Funds and BGFA and/or its affiliates, if any, were within the range the Board considered reasonable and appropriate.

ECONOMIES OF SCALE

In connection with its review of the Funds’ profitability analysis, the Board reviewed information regarding economies of scale or other efficiencies that may result from increases in the Funds’ assets. The Board noted that the Advisory Contract did not provide for any breakpoints in the Funds’ investment advisory fee rates as the assets of the Funds increase. However, the Board further noted that possible future economies of scale for the Funds had been taken into consideration by fixing the investment advisory fees at rates at the lower end of the marketplace, effectively giving Fund shareholders, from inception, the benefits of the lower average fee shareholders would have received from a fee structure with declining breakpoints where the initial fee was higher. The Board also reviewed BGFA’s historic profitability as investment adviser to the iShares fund complex and noted that BGFA had continued to make significant investments in the iShares funds, that expenses had grown at a pace similar to the growth in revenue, and that BGFA had incurred operating losses during earlier years when the iShares funds, including the Funds, had not yet reached scale. In light of this history, the Board determined that reductions in fee rates or additions of breakpoints were not warranted at this juncture for the Funds. Based on this review, as well as the discussions described above in connection with the Lipper Group and performance benchmark comparisons, the Board, recognizing its responsibility to consider this issue at least annually, concluded that the structure of the investment advisory fees reflects appropriate sharing of economies of scale with the Funds’ shareholders.

BOARD REVIEW AND APPROVAL OF INVESTMENT ADVISORY CONTRACT 87

Board Review and Approval of Investment Advisory Contract

(Unaudited) (Continued)

iSHARES^® TRUST

FEES AND SERVICES PROVIDED FOR OTHER COMPARABLE FUNDS/ACCOUNTS MANAGED BY BGFA AND ITS AFFILIATES

The Board received and considered certain information regarding the Funds’ annual investment advisory fee rates under the Advisory Contract in comparison to the investment advisory/management fee rates for other funds/accounts for which BGFA or BGI, an affiliate of BGFA, provides investment advisory/management services, including other funds registered under the 1940 Act, collective funds and separate accounts (together, the “Other Accounts”). The Board noted that comparative investment advisory/management fee information was available for the iShares Lehman Aggregate Bond, iShares Lehman Intermediate Credit Bond and iShares Lehman MBS Bond Funds, but not the other Funds, as BGFA and its affiliates do not manage any Other Accounts with substantially similar investment objectives and strategies as such Funds. The Board also noted that BGFA provided the Board with general information regarding how the level of services provided to the Other Accounts differed from the level of services provided to the Funds. In reviewing the comparative investment advisory/management fee information for the Funds for which such information was available, the Board considered the general structure of investment advisory/management fees in relation to the nature and extent of services provided to the Funds in comparison with the nature and extent of services provided to the Other Accounts, including, among other things, the level of complexity in managing the Funds and the Other Accounts under differing regulatory requirements and client guidelines. The Board noted that the investment advisory fee rates under the Advisory Contract for the Funds were generally higher than the investment advisory/management fee rates for the Other Accounts for which BGFA or BGI provides investment advisory/management services, but that the differences appeared to be attributable to, among other things, the type and level of services provided and/or the asset levels of the Other Accounts. Based on this review, the Board determined that the investment advisory fee rates under the Advisory Contract do not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining, and concluded that the investment advisory fee rates under the Advisory Contract are fair and reasonable.

OTHER BENEFITS TO BGFA AND/OR ITS AFFILIATES

The Board reviewed any ancillary revenue received by BGFA and/or its affiliates in connection with the services provided to the Funds by BGFA, such as any payment of revenue to BGI, the Trust’s securities lending agent, for loaning any portfolio securities, and the payment of advisory fees and/or administration fees to BGFA and BGI in connection with any investment by the Funds in other funds for which BGFA provides investment advisory services and/or BGI provides administration services. The Board noted that BGFA does not use soft dollars or consider the value of research or other services that may be provided to BGFA (including its affiliates) in selecting brokers for portfolio transactions for the Funds. The Board further noted that any portfolio transactions on behalf of the Funds placed through a BGFA affiliate or purchased from an underwriting syndicate in which a BGFA affiliate participates, are reported to the Board pursuant to Rule 17e-1 or Rule 10f-3, as applicable, under the 1940 Act. The Board concluded that any such ancillary benefits would not be disadvantageous to the Funds’ shareholders.

Based on this analysis, the Board determined that the Advisory Contract, including the investment advisory fee rates thereunder, are fair and reasonable in light of all relevant circumstances, and concluded that it is in the best interest of the Funds and their shareholders to approve the Advisory Contract for the coming year.

88 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

The iShares^® Family of Funds

The following is a list of iShares Funds being offered, along with their respective exchange trading symbols. Please call 1-800-iShares (1-800-474-2737) to obtain a prospectus for any iShares Fund. The prospectus contains more complete information, including charges, expenses, investment objectives and risk factors that should be carefully considered to determine if the Fund(s) are an appropriate investment for you. Read the prospectus(es) carefully before investing. Investing involves risk, including possible loss of principal.

iShares S&P Domestic Index Funds

iShares S&P 1500 (ISI)

iShares S&P 100 (OEF)

iShares S&P 500 (IVV)

iShares S&P 500 Growth (IVW)

iShares S&P 500 Value (IVE)

iShares S&P MidCap 400 (IJH)

iShares S&P MidCap 400 Growth (IJK)

iShares S&P MidCap 400 Value (IJJ)

iShares S&P SmallCap 600 (IJR)

iShares S&P SmallCap 600 Growth (IJT)

iShares S&P SmallCap 600 Value (IJS)

iShares S&P North American Natural Resources Sector (IGE)

iShares S&P North American Technology-

  Multimedia Networking (IGN)

iShares S&P North American Technology-

  Semiconductors (IGW)

iShares S&P North American Technology-

  Software (IGV)

iShares S&P North American Technology

  Sector (IGM)

iShares Domestic Sector Index Funds

iShares Cohen & Steers Realty Majors (ICF)

iShares Dow Jones U.S. Basic Materials Sector (IYM)

iShares Dow Jones U.S. Consumer Services

  Sector (IYC)

iShares Dow Jones U.S. Consumer Goods Sector (IYK)

iShares Dow Jones U.S. Energy Sector (IYE)

iShares Dow Jones U.S. Financial Sector (IYF)

iShares Dow Jones U.S. Financial Services (IYG)

iShares Dow Jones U.S. Healthcare Sector (IYH)

iShares Dow Jones U.S. Industrial Sector (IYJ)

iShares Dow Jones U.S. Real Estate (IYR)

iShares Dow Jones U.S. Technology Sector (IYW)

iShares Dow Jones U.S. Telecommunications

  Sector (IYZ)

iShares Dow Jones Transportation Average (IYT)

iShares Dow Jones U.S. Utilities Sector (IDU)

iShares Dow Jones U.S. (IYY)

iShares Nasdaq Biotechnology (IBB)

iShares Domestic Subsector Index Funds

iShares Dow Jones U.S. Aerospace & Defense (ITA)

iShares Dow Jones U.S. Broker-Dealers (IAI)

iShares Dow Jones U.S. Healthcare Providers (IHF)

iShares Dow Jones U.S. Home Construction (ITB)

iShares Dow Jones U.S. Insurance (IAK)

iShares Dow Jones U.S. Medical Devices (IHI)

iShares Dow Jones U.S. Oil & Gas Exploration & Production (IEO)

iShares Dow Jones U.S. Oil Equipment & Services (IEZ)

iShares Dow Jones U.S. Pharmaceuticals (IHE)

iShares Dow Jones U.S. Regional Banks (IAT)

iShares FTSE NAREIT Industrial/Office (FIO)

iShares FTSE NAREIT Mortgage REITs (REM)

iShares FTSE NAREIT Real Estate 50 (FTY)

iShares FTSE NAREIT Residential (REZ)

iShares FTSE NAREIT Retail (RTL)

iShares Global Index Funds

iShares S&P Global 100 (IOO)

iShares S&P Global Clean Energy (ICLN)

iShares S&P Global Consumer Discretionary Sector (RXI)

iShares S&P Global Consumer Staples Sector (KXI)

iShares S&P Global Energy Sector (IXC)

iShares S&P Global Financials Sector (IXG)

iShares S&P Global Healthcare Sector (IXJ)

iShares S&P Global Industrials Sector (EXI)

iShares S&P Global Infrastructure (IGF)

iShares S&P Global Materials Sector (MXI)

iShares S&P Global Nuclear Energy (NUCL)

iShares S&P Global Technology Sector (IXN)

iShares S&P Global Telecommunications Sector (IXP)

iShares S&P Global Timber & Forestry (WOOD)

iShares S&P Global Utilities Sector (JXI)

iShares Russell Index Funds

iShares Russell 3000 (IWV)

iShares Russell 3000 Growth (IWZ)

iShares Russell 3000 Value (IWW)

iShares Russell 1000 (IWB)

iShares Russell 1000 Growth (IWF)

iShares Russell 1000 Value (IWD)

iShares Russell Midcap (IWR)

iShares Russell Midcap Growth (IWP)

iShares Russell Midcap Value (IWS)

iShares Russell 2000 (IWM)

iShares Russell 2000 Growth (IWO)

iShares Russell 2000 Value (IWN)

iShares Russell Microcap (IWC)

iShares International Country Index Funds

iShares FTSE China (HK Listed) (FCHI)

iShares FTSE/Xinhua China 25 (FXI)

iShares MSCI Australia (EWA)

iShares MSCI Austria Investable

Market (EWO)

iShares MSCI Belgium Investable

Market (EWK)

iShares MSCI Brazil (EWZ)

iShares MSCI Canada (EWC)

iShares MSCI Chile Investable Market (ECH)

iShares MSCI France (EWQ)

iShares MSCI Germany (EWG)

iShares MSCI Hong Kong (EWH)

iShares MSCI Israel Capped Investable

Market (EIS)

iShares MSCI Italy (EWI)

iShares MSCI Japan (EWJ)

iShares MSCI Japan Small Cap (SCJ)

iShares MSCI Malaysia (EWM)

iShares MSCI Mexico Investable Market (EWW)

iShares MSCI Netherlands Investable

Market (EWN)

iShares MSCI Singapore (EWS)

iShares MSCI South Africa (EZA)

iShares MSCI South Korea (EWY)

iShares MSCI Spain (EWP)

iShares MSCI Sweden (EWD)

iShares MSCI Switzerland (EWL)

iShares MSCI Taiwan (EWT)

iShares MSCI Thailand Investable

Market (THD)

iShares MSCI Turkey Investable

Market (TUR)

iShares MSCI United Kingdom (EWU)

iShares S&P/TOPIX 150 (ITF)

iShares Bond Funds

iShares Lehman Aggregate (AGG)

iShares Lehman MBS (MBB)

iShares Lehman Short Treasury (SHV)

iShares Lehman 1-3 Year Treasury (SHY)

iShares Lehman 3-7 Year Treasury (IEI)

iShares Lehman 7-10 Year Treasury (IEF)

iShares Lehman 10-20 Year Treasury (TLH)

iShares Lehman 20+ Year Treasury (TLT)

iShares Lehman TIPS (TIP)

iShares Lehman Credit (CFT)

iShares Lehman 1-3 Year Credit (CSJ)

iShares Lehman Intermediate Credit (CIU)

iShares iBoxx $ Investment Grade

Corporate (LQD)

iShares iBoxx $ High Yield

Corporate (HYG)

iShares Lehman Government/Credit (GBF)

iShares Lehman Intermediate

Government/Credit (GVI)

iShares S&P National Municipal (MUB)

iShares S&P California Municipal (CMF)

iShares S&P New York Municipal (NYF)

iShares JPMorgan USD Emerging

Markets (EMB)

iShares Specialty Index Funds

iShares KLD 400 Social (DSI)

iShares KLD Select Social^SM (KLD)

iShares Dow Jones Select Dividend (DVY)

iShares Dow Jones EPAC Select

Dividend (IDV)

iShares S&P U.S. Preferred Stock (PFF)

iShares International Index Funds

iShares FTSE Developed Small Cap

ex-North America (IFSM)

iShares FTSE EPRA/NAREIT Global

Real Estate ex-U.S. (IFGL)

iShares FTSE EPRA/NAREIT North

America (IFNA)

iShares FTSE EPRA/NAREIT Europe (IFEU)

iShares FTSE EPRA/NAREIT Asia (IFAS)

iShares MSCI ACWI (ACWI)

iShares MSCI ACWI ex US (ACWX)

iShares MSCI All Country Asia ex Japan (AAXJ)

iShares MSCI BRIC (BKF)

iShares MSCI EAFE (EFA)

iShares MSCI EAFE Growth (EFG)

iShares MSCI EAFE Value (EFV)

iShares MSCI EAFE Small Cap (SCZ)

iShares MSCI Emerging Markets (EEM)

iShares MSCI EMU (EZU)

iShares MSCI Kokusai (TOK)

iShares MSCI Pacific ex-Japan (EPP)

iShares S&P Asia 50 (AIA)

iShares S&P Europe 350 (IEV)

iShares S&P Latin America 40 (ILF)

iShares S&P World ex-U.S. Property (WPS)

iSHARES FAMILY OF FUNDS 89

The iShares^® Family of Funds (Continued)

iShares Morningstar Index Funds

iShares Morningstar Large Core (JKD)

iShares Morningstar Large Growth (JKE)

iShares Morningstar Large Value (JKF)

iShares Morningstar Mid Core (JKG)

iShares Morningstar Mid Growth (JKH)

iShares Morningstar Mid Value (JKI)

iShares Morningstar Small Core (JKJ)

iShares Morningstar Small Growth (JKK)

iShares Morningstar Small Value (JKL)

iShares NYSE Index Funds

iShares NYSE Composite (NYC)

iShares NYSE 100 (NY)

iShares^® is a registered trademark of Barclays Global Investors, N.A. The iShares Funds are not sponsored, endorsed or issued by Lehman Brothers, nor are they sponsored, endorsed, issued, sold or promoted by Cohen & Steers Capital Management, Inc., Dow Jones & Company, Inc., European Public Real Estate Association (“EPRA^®”), FTSE International Limited (“FTSE”), FTSE/Xinhua Index Limited (“FXI”), iBoxx^®, J.P. Morgan Securities Inc., KLD Research & Analytics, Inc., MSCI Inc., Morningstar Inc., The NASDAQ Stock Market, Inc., National Association of Real Estate Investment Trusts (“NAREIT”), New York Stock Exchange, Inc., Frank Russell Company, or Standard & Poor’s. None of these companies make any representation regarding the advisability of investing in the iShares Funds. Neither SEI nor BGI, nor any of their affiliates, are affiliated with the companies listed above. FXI does not make any warranty regarding the FTSE/Xinhua Index. All rights in the FTSE/Xinhua Index vest in FXI. Neither FTSE nor NAREIT makes any warranty regarding the FTSE NAREIT Real Estate 50/Residential/Retail/Mortgage REITs or Industrial/Office Index; all rights vest in NAREIT. Neither FTSE nor NAREIT makes any warranty regarding the FTSE EPRA/NAREIT Global Real Estate ex-US/North America/Europe/Asia Index; all rights vest in FTSE, NAREIT, and EPRA. All rights in the FTSE Developed Small Cap ex-North America Index vest in FTSE. “FTSE” is a trade- and servicemark of London Stock Exchange and The Financial Times Limited; “Xinhua” is a trade- and servicemark of Xinhua Financial Network Limited. “NAREIT^®” is a trademark of NAREIT; “EPRA^®” is a trademark of EPRA.

An investment in the Fund(s) is not a deposit of a bank and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This advertising section does not constitute part of the 2008 Semi-Annual Report.

7821-iS-0908

90 2008 iSHARES SEMI-ANNUAL REPORT TO SHAREHOLDERS

For more information:

WWW.iSHARES.COM

1-800-iShares (1-800-474-2737)

The iShares Funds are distributed by SEI Investments Distribution Co. (SEI). Barclays Global Fund Advisors (BGFA) serves as an adviser to the iShares Funds. BGFA is a subsidiary of Barclays Global Investors, N.A., neither of which is affiliated with SEI.

The iShares Funds are not sponsored, endorsed or issued by Lehman Brothers, nor are they sponsored, endorsed, issued, sold or promoted by Barclays Capital, Inc., iBoxx® nor J.P. Morgan Securities Inc. None of these companies make any representation regarding the advisability of investing in the iShares Funds. Neither SEI or any of its affiliates, are affiliated with the companies listed above.

©2008 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.

Investing involves risk, including possible loss of principal.

A description of the policies that the Funds use to determine how to vote proxies relating to portfolio securities and information about how the Funds voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge, upon request by calling toll-free 1-800-474-2737; on the Funds’ website at www.iShares.com; and on the U.S. Securities and Exchange Commission (SEC) website at www.sec.gov.

The Funds file their complete schedules of portfolio holdings with the SEC for the first and third quarter of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s website or may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Funds also disclose their complete schedules of portfolio holdings on a daily and monthly basis on the Funds’ website.

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®

BARCLAYS

LET’S BUILD A BETTER INVESTMENT WORLD.SM GLOBAL INVESTORS

BGI-F-053-10008

Item 2. Code of Ethics.

Not applicable to this semi-annual filing.

Item 3. Audit Committee Financial Expert.

Not applicable to this semi-annual filing.

Item 4. Principal Accountant Fees and Services.

Not applicable to this semi-annual filing.

Item 5. Audit Committee of Listed Registrants.

Not applicable to this semi-annual filing.

Item 6. Schedule of Investments.

The full schedules of investments are included as part of the report to shareholders filed under Item 1 of this form.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable to the Registrant.

Item 8: Portfolio Managers of Closed-End Management Investment Companies.

Not applicable to the Registrant.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable to the Registrant.

Item 10. Submission of Matters to a Vote of Security Holders.

There were no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees.

Item 11. Controls and Procedures.

(a) The President (the Registrant’s Principal Executive Officer) and Chief Financial Officer (the Registrant’s 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 the Registrant (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are reasonably designed to achieve the purposes described in Section 4(a) of the attached certification.

(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 12. Exhibits.

(a) (1) Not applicable to this semi-annual filing.

(a) (2) Section 302 Certifications are attached.

(a) (3) Not applicable to the Registrant.

(b) Section 906 Certifications are attached.

SIGNATURES

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/ Michael A. Latham
	Michael A. Latham, President (Principal Executive Officer)
	Date: October 28, 2008

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/ Michael A. Latham
	Michael A. Latham, President (Principal Executive Officer)
	Date: October 28, 2008

By:	/s/ Geoffrey D. Flynn
	Geoffrey D. Flynn, Treasurer and Chief Financial Officer     (Principal Financial Officer)
	Date: October 28, 2008