485APOS

        As filed with the Securities and Exchange Commission on October 22, 2001
                                                       Registration No. 33-97598
                                                                        811-9102
================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549


                                   FORM N-1A

                       REGISTRATION STATEMENT UNDER THE
                            SECURITIES ACT OF 1933              [X]
                        Post-Effective Amendment No. 21         [X]

                                      and

                         REGISTRATION STATEMENT UNDER
                      THE INVESTMENT COMPANY ACT OF 1940        [X]
                             Amendment No. 23                   [X]
                       (Check appropriate box or boxes)

                                 iSHARES, INC.
              (Exact name of registrant as specified in charter)


              c/o PFPC Inc.                             19809
           400 Bellevue Parkway                       (Zip Code)
           Wilmington, Delaware
  (Address of Principal Executive Offices)

      Registrant's Telephone Number, including Area Code: (302) 791-3239

                                  Nathan Most
                                   President
                                 iShares, Inc.
                                 c/o PFPC Inc.
                             400 Bellevue Parkway
                          Wilmington, Delaware 19809
                    (Name and Address of Agent for Service)

                                  Copies to:
                           Donald R. Crawshaw, Esq.
                              Sullivan & Cromwell
                               125 Broad Street
                           New York, New York 10004

It is proposed that this filing will become effective (check appropriate box):

[_]  immediately upon filing pursuant to paragraph (b)
[_]  on (date) pursuant to paragraph (b)
[X]  60 days after filing pursuant to paragraph (a)(1)
[_]  on (date) pursuant to paragraph (a)(1)
[_]  75 days after filing pursuant to paragraph (a)(2)
[_]  on (date) pursuant to paragraph (a)(ii) of rule 485.

If appropriate, check the following box:

[X]  this post-effective amendment designates a new effective date for a
     previously filed post-effective amendment.


iShares, Inc.

iShares, Inc. is an index fund consisting of separate series, each of which
seeks investment results similar to the performance of a single stock market or
all of the stock markets in a geographic region.

 .    iShares MSCI Pacific ex-Japan Index Fund


The iShares MSCI Index Fund Shares, known as "iShares(R)", are listed for
trading on the American Stock Exchange LLC, ("AMEX").  Certain iShares trade on
certain other securities exchanges, including certain foreign exchanges.
Individual iShares are not redeemable at their net asset value, but trade on the
AMEX (or any other securities exchanges on which they trade) during the day at
prices that are normally close to, but not the same as, their net asset value.
There is no assurance that an active trading market will be maintained for
iShares or that market prices of iShares of any iShares MSCI Index Fund will be
close to their net asset values in the future. Each iShares MSCI Index Fund
issues and redeems iShares on a continuous basis -- at net asset value -- only
in large specified numbers of iShares called "Creation Units", usually in
exchange for a basket of portfolio securities and an amount of cash.

Except when aggregated in Creation Units, iShares are not redeemable securities.


These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the SEC determined whether the information in this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.

                         Prospectus Dated ______, 2001


Introduction

This Prospectus provides you with information you need to make an informed
decision about whether to invest in an iShares MSCI Index Fund (each an "Index
Fund" and collectively, the "Index Funds") of iShares, Inc. (the "Company"). It
is organized to provide you with important facts about the Company as a whole
and each particular Index Fund. The Investment Objective, Principal Investment
Strategies and Principal Risk Factors sections discuss the general strategies
and risks applicable to all Index Funds, while the iShares MSCI Index Funds
section provides important information about each particular Index Fund,
including a brief description of its benchmark index, specific risks associated
with a particular market or region and prior performance.

Investment Objective

Each Index Fund seeks investment results similar to the performance of a single
stock market or all of the stock markets in a geographic region. The performance
of these markets is measured by stock indices compiled by Morgan Stanley Capital
International Inc. ("MSCI") and calculated based on the reinvestment of net
dividends.

Principal Investment Strategies

Unlike many investment companies, an Index Fund does not attempt to "beat" the
market or its benchmark index. Instead, it uses a "passive," or indexing,
investment approach to try to produce investment results that come as close as
possible to matching the performance of its benchmark index. The Index Fund does
this by investing in a representative sample of index stocks that the investment
advisor selects using a "portfolio sampling" technique. However, most Index
Funds do not usually invest in all of the stocks of a benchmark index. Some
Index Funds may even invest in stocks that are not in their benchmark indices.

The use of an indexing approach may eliminate some of the risks of active
management such as poor stock selection. An indexing approach may also help
increase after-tax performance by keeping portfolio turnover low in comparison
to actively managed investment companies.

One negative feature of indexing is that the Company's investment advisor cannot
change a strategy even if it would be beneficial to do so. For example, an Index
Fund would not ordinarily sell a stock because its issuer was in financial
trouble. It would normally only sell a stock if the stock was removed from an
Index Fund's benchmark index by MSCI or if the investment advisor believes that
selling the stock would make an Index Fund's performance more like that of its
benchmark index.

Under each Index Fund's industry concentration policy, the industry weightings
in an Index Fund must be within 10% of the weightings of the two most heavily
weighted industries in its benchmark index, except when a single stock would
cause a weighting to exceed 25%.

iShares are designed for investors who want a relatively inexpensive passive
approach to investing in a portfolio of stocks from a single country or region.
International diversification is a generally recognized way to reduce investment
portfolio risk. Also, many of the foreign stocks in an Index Fund are difficult
to purchase or hold, or are, as a practical matter, not available to retail
investors.

The Index Funds offer investors a convenient way to obtain index-based exposure
to the stock markets of a specific country or region. The prices of iShares may
be volatile. Therefore, if you purchase iShares, you should be able to tolerate
sudden, or even drastic, changes in the value of your investment. We cannot
assure that any Index Fund will achieve its investment objective, and you should
understand that your investment  will be exposed to the risks of international
equity investing.

Each Index Fund issues and redeems iShares on a continuous basis -- at net asset
value -- only in large specified numbers of iShares called "Creation Units",
usually in exchange for a basket of portfolio securities and an amount of cash.
As a practical matter, only large institutions purchase or redeem Creation Units
of iShares. Information about


the fees paid when they do this is included in the Company's Statement of
Additional Information. Except when aggregated in Creation Units, iShares are
not redeemable securities.

Principal Risk Factors

You may lose money by investing in an Index Fund. Each Index Fund is also
subject to the following principal risks, more fully described in the Additional
Risk Considerations section in this prospectus. Additional risks associated with
a particular market or region in which an Index Fund invests are discussed under
each Index Fund's profile in The iShares MSCI Index Funds section. Some or all
of these risks may adversely affect an Index Fund's net asset value, yield,
total return and/or its ability to achieve its objective:

Market Risk.  Each Fund's net asset value of an Index Fund will change with
changes in the market value of the stocks it holds.

Foreign Security Risk.  Each Index Fund invests entirely within the equity
markets of a single country or region.  These markets are subject to special
risks associated with foreign investment including, but not limited to:
generally less liquid and less efficient securities markets; generally greater
price volatility; exchange rate fluctuations and exchange controls; the
imposition of taxes; higher transaction and custody costs; settlement delays and
risk of loss; difficulties in enforcing contracts; less liquidity and smaller
market capitalizations; lesser regulation of securities markets; different
accounting and disclosure standards; governmental interference; higher
inflation; social, economic and political uncertainties; the risk of
expropriation of assets; and the risk of war.

Currency Risk.  Because each Index Fund's net asset value is determined on the
basis of US dollars, you may lose money if you invest in any Index Fund if the
local currency of a foreign market depreciates against the US dollar, even if
the local currency value of an Index Fund's holdings goes up.

Non-Diversification Risk. The iShares MSCI Pacific ex-Japan Index Fund is
classified as "non-diversified." This means that this Index Fund may invest most
of its assets in securities issued by a small number of companies. As a result,
this Index Funds is more susceptible to the risks associated with these
particular companies, or to a single economic, political or regulatory
occurrence.

Trading Risk. While the creation/redemption feature of iShares is designed to
make it likely that iShares will trade close to their net asset value,
disruptions to creations and redemptions (as has occurred because of Malaysia's
capital controls) may result in trading prices that differ significantly from
net asset value. Also, there can be no assurance that an active trading market
will exist for iShares of each Index Fund on the AMEX(or any other securities
exchange on which iShares may trade).


Fees and Expenses

If you invest in an Index Fund, you will pay various expenses, either directly
or indirectly. The following tables and examples describe the fees and expenses
that you may pay if you buy and hold iShares of an Index Fund.

Shareholder Transaction Fees (fees paid directly from your investment). When
buying or selling iShares of an Index Fund through a broker, you will incur
customary brokerage commissions and charges.*

Annual Index Fund Operating Expenses (expenses that are deducted from the Index
Fund's assets).   This table describes the fees and expenses that you may pay if
you buy and hold shares of the iShares MSCI Pacific ex-Japan Index Fund.

-------------------------------------------------------------------------------
iShares MSCI Index Fund                                     Pacific ex-Japan**
-----------------------                                     ------------------
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Management fees.......................................      0.50%
                                                            -----
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Distribution (Rule 12b-1) fees........................      None
                                                            ----
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Other expenses........................................      0.50%
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Total annual Index Fund operating expenses............      1.00%
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Expense Reimbursement by investment advisor...........     (0.50%)
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Net Expenses..........................................      0.50%
-------------------------------------------------------------------------------

*Creation Unit Transaction Fees for Institutional Investors. The Company issues
and redeems shares of iShares only in "Creation Units", which are large blocks
of from 50,000 to 600,000 shares, depending on the Index Fund. One Creation Unit
of the iShares MSCI Pacific ex-Japan Index Fund consists of 100,000 shares of
that Index Fund.  As a practical matter, only institutions are capable of
purchasing or redeeming these Creation Units. In connection with the purchase or
the redemption of a Creation Unit of an Index Fund, an investor must pay to the
Company a purchase or redemption transaction fee, which is intended to offset
the issuance/redemption transaction costs incurred by that Index Fund, including
market impact expenses relating to investing in or disposing of portfolio
securities. The basic transaction fees (per Creation Unit purchase or redemption
transaction) range from maximums of $1,500to $1,800, depending on the Index
Fund. In addition to the basic transaction fee, Creation Unit purchase or
redemption transactions for cash (only if available) require an additional
maximum variable charge based on the value of the Creation Unit being purchased
or redeemed, depending on the Index Fund. See "Shareholder Information -- Buying
and Selling iShares" in this Prospectus for a list of the Creation Unit maximum
transaction fees for each Index Fund.

** As of the date of this prospectus, this Index Fund has not started investment
operations. These expenses are based on estimated expenses the Index Fund
expects to incur for the current fiscal year. Fees paid to the administrator are
included in "other expenses" and are estimated based on assumed average daily
net assets of $50 million for the iShares MSCI Pacific ex-Japan Index Fund.


Example of Expenses

These examples are intended to help you compare the cost of investing in an
Index Fund with the cost of investing in other mutual funds. We are assuming an
initial investment of $10,000, a 5% total return each year with no changes in
operating expenses and redemption at the end of each period. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:

iShares MSCI Index Fund   1 Year ($)  3 Years ($)  5 Years ($)  10 Years ($)
-----------------------   ----------  -----------  -----------  ------------

Pacific ex-Japan          $80         $189         $308         $655

You would pay the following expenses if you did not redeem your shares:

iShares MSCI Index Fund   1 Year ($)  3 Years ($)  5 Years ($)  10 Years ($)
-----------------------   ----------  -----------  -----------  ------------

Pacific ex-Japan          $65         $174         $293         $641

The above examples are for illustration purposes only and are not a
representation of the Index Funds' actual expenses and returns, either past or
future (e.g., the above examples include the maximum transaction fees chargeable
by an Index Fund).


The iShares MSCI Index Fund


iShares MSCI Pacific ex-Japan Index Fund
CUSIP: 464286665
AMEX Trading Symbol: EPP


Fund Investment Objective

The iShares MSCI Pacific ex-Japan Index Fund (the "Fund") seeks to provide
investment results that correspond generally to the price and yield performance
of publicly traded securities in the aggregate in the Australia, Hong Kong, New
Zealand and Singapore market, as measured by the MSCI Pacific ex-Japan Index
(the "Index").

Benchmark Index Information

As of September 30,, 2001, the Index consisted of  149 stocks from the following
four countries Australia, Hong Kong, New Zealand, and Singapore.

Fund-Specific Risks

In addition to the principal risk factors referred to elsewhere in this
prospectus, you should know that in recent times, Hong Kong's economy has been
adversely affected by the Asian economic crisis, contributing to the current
recession.  Issues and uncertainties linger regarding the integration of Hong
Kong's economy with that of China, and the manner in which the Chinese
government will honor and interpret the agreement pursuant to which Hong Kong
was returned to China by the United Kingdom in 1998.

As a small open economy, Singapore is particularly vulnerable to external
economic influences, including in recent times the Asian economic crisis.  While
Singapore has been a leading manufacturer of electronic goods, the extent to
which other countries can successfully compete with Singapore in this and
related industries, and adverse Asian economic influences generally, may
adversely impact Singapore's economy.

New Zealand has been predominantly agricultural based country.  However, since
1984, the government has been moving its country to become more industrialized.
It's growth however, remains dependent on the economic well being of Asia,
Europe, and the US.  In 1998, the economy fell into recession due to the Asian
economic "crisis" and summer drought. New Zealand's primary exports include
forestry and mining. Over the past 15 years, in an effort to grow its economy
and create open channels, New Zealand has evolved to be one of the most
deregulated countries

Prior Performance

As of the date of this prospectus, the Fund has not started investment
operations, and therefore no prior performance information is available.


Investment Policies and Strategies

Indexing Investment Approach. Index Funds are not managed according to
traditional methods of "active" investment management, which involve the buying
and selling of securities based on economic, financial and market analysis and
investment judgment. Instead, each Index Fund, using a "passive" or indexing
investment approach, attempts to approximate the investment performance of its
benchmark MSCI Index by investing in a portfolio of stocks selected by using
quantitative analytical procedures. Stocks are selected for inclusion in an
Index Fund in order to have investment characteristics (based on market
capitalization and industry weightings), fundamental characteristics (such as
return variability, earnings valuation and yield) and liquidity measures that,
taken together, are similar to those of the benchmark MSCI Index taken in its
entirety.

Portfolio Sampling. Generally, an Index Fund does not hold all of the issues
that comprise its benchmark MSCI Index, due in part to the costs involved and,
in certain instances, the potential illiquidity of certain securities. Instead,
an Index Fund will attempt to hold a representative sample of the securities in
its benchmark MSCI Index, which will be selected by the investment advisor using
quantitative analytical models in a technique known as "portfolio sampling".
Under this technique, each stock is considered for inclusion in an Index Fund
based on its contribution to certain capitalization, industry and fundamental
investment characteristics. The investment advisor seeks to construct the
portfolio of an Index Fund so that, in the aggregate, its capitalization,
industry and fundamental investment characteristics perform like those of its
benchmark MSCI Index. Over time, the portfolio composition of an Index Fund may
be altered (or "rebalanced") to reflect changes in the characteristics of its
benchmark MSCI Index or to bring the performance and characteristics of an Index
Fund more in line with that of its benchmark MSCI Index. Rebalancing may also be
required for tax purposes. These rebalancings will require an Index Fund to
incur transaction costs and other expenses.

An Index Fund reserves the right to invest in all of the securities in its
benchmark MSCI Index, and an Index Fund with a benchmark index comprised of
relatively few stocks may do so on a regular basis. In addition, the iShares
MSCI Index Funds may hold stocks that are not in their benchmark MSCI Index if
the investment advisor determines this to be appropriate in light of the Index
Fund's investment objective and relevant investment constraints.

Investment Assets. Each Index Fund has a policy to remain as fully invested as
practicable in a pool of equity securities. Each Index Fund will normally invest
at least 95% of its total assets in stocks that are represented in its benchmark
MSCI Index except, in limited circumstances, to help meet shareholder
redemptions of Creation Units. To comply with the US Internal Revenue Code, and
manage corporate actions and index changes in the smaller markets, the iShares
MSCI Pacific ex-Japan Index Fund will at all times invest at least 80% of its
total assets in such stocks and at least half of the remaining 20% of its total
assets in such stocks or in stocks included in the relevant market, but not in
its benchmark MSCI Index.

Each Index Fund may invest its remaining assets in money market instruments or
funds that invest exclusively in money market instruments (subject to applicable
limitations under the Investment Company Act of 1940), in repurchase agreements,
in stocks that are in the relevant market but not its benchmark MSCI Index (as
indicated above), and/or in combinations of stock index futures contracts,
options on futures contracts, stock index options, stock index swaps, cash,
local currency and forward currency exchange contracts that are intended to
provide an Index Fund with exposure to a stock. The investment advisor may
attempt to reduce tracking error by using futures contracts whose behavior is
expected to represent the market performance of the Index Fund's underlying
securities, although there can be no assurance that these futures will correlate
with the performance of its benchmark.  An Index Fund will not use these
instruments to leverage, or borrow against, their securities holdings or for
speculative purposes. In some cases the use of these special investment
techniques can adversely affect the performance of an Index Fund.

Lending of Securities. Each Index Fund may lend its portfolio securities. In
connection with these loans, the Company receives liquid collateral equal to at
least 105% of the value of the portfolio securities being lent. This collateral
is marked to market on a frequent basis. Notwithstanding such collateral, the
Index Fund would lose value to the extent that a borrower defaults on its
obligation to return borrowed portfolio securities and the value of the
collateral is less than the value of the borrowed securities.


Industry Concentration. With respect to the two most heavily weighted industries
or groups of industries in its benchmark MSCI Index, an Index Fund will invest
in securities (consistent with its investment objective and other investment
policies) so that the weighting of each such industry or group of industries in
the Index Fund does not diverge by more than 10% from the respective weighting
of such industry or group of industries in its benchmark MSCI Index. An
exception to this policy is that if an investment in the stock of a single
issuer would account for more than 25% of the Index Fund's assets, that Index
Fund will invest less than 25% of its net assets in such stock and will
reallocate the excess to stock(s) in the same industry or group of industries,
and/or to stock(s) in another industry or group of industries, in its benchmark
MSCI Index. Each Index Fund will evaluate these industry weightings at least
weekly, and at the time of evaluation will adjust its portfolio composition to
the extent necessary to maintain compliance with the above policy. An Index Fund
may not concentrate its investments except as discussed above. This policy is a
fundamental investment policy and may not be changed without the approval of a
majority of an Index Fund's shareholders.

As of September 30, 2001, as a result of this policy with respect to industry
concentration, the following iShares MSCI Pacific ex-Japan Index Fund was
concentrated (that is, invested 25% or more of the value of their assets) in the
specified industries:

     iShares MSCI Index Fund        Industry or Industries
     -----------------------        ----------------------
     Pacific ex-Japan               Banks


Prior to the commencement of sales of shares of the iShares MSCI Pacific ex-
Japan Index Fund to the public, the initial shareholder of that Index Fund voted
to approve a change in the above industry concentration policy contingent upon
that change in the concentration policy being approved by the shareholders of at
least one of the other Index Funds of the Company at a special meeting scheduled
to be held on December 19, 2001.  As changed, the concentration policy will be
as follows:

The iShares MSCI Pacific ex-Japan Index Fund will concentrate its investments
(i.e., hold 25% or more of its total assets in the stocks of a particular
industry or group of industries), except that, to the extent practicable, the
Index Fund will concentrate to approximately the same extent that its benchmark
MSCI Index concentrates in the stocks of such particular industry or group of
industries, provided that the Index Fund will comply with the diversification
requirements applicable to regulated investment companies of the Internal
Revenue Code, any underlying Treasury regulations or any successor provision.



Borrowing Money. An Index Fund may borrow money from a bank up to a limit of 33%
of the market value of its assets, but only for temporary or emergency purposes.
To the extent that an Index Fund borrows money, it may be leveraged; at such
times, the Index Fund's value may appreciate or depreciate more rapidly than its
benchmark MSCI Index. An Index Fund will not make cash purchases of securities
when the amount of money borrowed exceeds 5% of the market value of its total
assets.

Fundamental Policies. The concentration policy of each Index Fund is a
fundamental policy that may be changed only with shareholder approval. Each of
the other investment policies described in this Prospectus is a non-fundamental
policy that may be changed by the Board of Directors without shareholder
approval. Shareholders will be notified before any material change in these
policies is implemented. Certain other fundamental policies of the Company are
set forth in the Statement of Additional Information under "Investment
Limitations."

Tracking Error. Due to the use of the portfolio sampling technique described
above and other factors discussed in this Prospectus, an Index Fund is not
expected to track its benchmark MSCI Index with the same degree of accuracy as
would an investment vehicle that invested in every component security of its
benchmark index. The investment advisor expects that, over time, an Index Fund's
"expected tracking error" relative to the performance of its benchmark index
will be less than 5% and its tracking error will generally be greater if its
benchmark index has fewer rather than greater numbers of component stocks. An
expected tracking error of 5% means that there is a 68% probability that the net
asset value of an Index Fund will be within plus or minus 5% of its benchmark
MSCI Index level after one year, without rebalancing the portfolio composition.
Thus, actual tracking error in a period may exceed 5%, perhaps significantly,
even though the expected tracking error is less than 5%. In addition, it is
possible


that future developments (e.g., the domination of an Index Fund's benchmark
index by a small number of stocks) may result in an Index Fund having an
unexpected tracking error of greater than 5%. A tracking error of 0% would
indicate perfect tracking, which would be achieved when the net asset value of
an Index Fund increases or decreases in exact proportion to changes in its
benchmark MSCI Index.

The following factors may adversely affect the tracking of an Index Fund to that
of its benchmark MSCI Index:
 .    the Index Funds must pay various expenses, while the benchmark MSCI Indices
     do not reflect any expenses;
 .    since the investment portfolios of the Index Funds do not generally
     replicate the underlying MSCI Indices, their investment performance is
     likely to differ from that of the MSCI Indices;
 .    the portfolio sampling technique used to manage the Index Funds is based on
     historical price relationships and changes to those relationships can
     adversely affect tracking. In some situations, the requirements of the US
     Internal Revenue Code can adversely affect tracking by preventing an Index
     Fund from holding optimal positions in particular securities;
 .    an Index Fund must comply with regulatory constraints that do not affect
     the calculation of its corresponding MSCI Index;
 .    the existence of uninvested assets in the portfolios (principally cash and
     deferred organizational expenses) while the benchmark MSCI Indices do not
     have univested assets;
 .    Index Funds receive interest income on uninvested cash and most Index Funds
     receive income from securities lending activities, whereas the benchmark
     MSCI Indices do not have such sources of income; and
 .    the fact that an Index Fund may be subject to a different foreign
     withholding tax rate than that assumed by its benchmark MSCI Index.


Although the investment advisor regularly monitors the tracking error of each
Index Fund, there can be no assurance that any Index Fund will achieve any
particular level of tracking error relative to the performance of its benchmark
MSCI Index. Semi-annual and annual reports of the Company disclose tracking
error for each Index Fund over the previous six-month period, and in the event
that tracking error exceeds 5%, the Board of Directors will consider whether it
would be appropriate to take action.

Additional Information About Principal Risk Factors

An investment in iShares of an Index Fund involves risks similar to those of
investing in a broad-based portfolio of equity securities traded on exchanges in
the relevant foreign securities market, including market fluctuations caused by
factors such as economic and political developments, changes in interest rates
and perceived trends in stock prices. Investing in iShares MSCI Index Funds
generally involves certain risks and considerations not typically associated
with investing in a fund that invests in the securities of US issuers. The
principal risk factors, which could decrease the value of your investment, are
listed and described below:

 .    less liquid and less efficient securities markets;
 .    greater price volatility;
 .    exchange rate fluctuations and exchange controls;
 .    less publicly available information about issuers;
 .    the imposition of withholding or other taxes;
 .    the imposition of restrictions on the expatriation of funds or other assets
     of an Index Fund;
 .    higher transaction and custody costs and delays and risks of loss attendant
     in settlement procedures;
 .    difficulties in enforcing contractual obligations;
 .    lesser levels of regulation of the securities markets;
 .    different accounting, disclosure and reporting requirements;
 .    more substantial government involvement in the economy;
 .    higher rates of inflation;
 .    greater social, economic, and political uncertainty and the risk of
     nationalization or expropriation of assets and risk of war.


Index Funds that issue and/or redeem Creation Units for cash may have greater
tracking error than other Index Funds since they are at risk that the prices
they pay or receive for portfolio securities will be different than the prices
in effect when they determine the value of the Creation Units being issued or
redeemed.


Volatility of Foreign Equity Markets. The US dollar performance of foreign
equity markets, particularly emerging markets, has generally been substantially
more volatile than that of US markets. Greater volatility connotes greater
uncertainty as to a portfolio's liquidation value at a future point in time. The
volatility information below is a measurement of the standard deviation of five
years of monthly total returns of the MSCI Index. The percentages reflect the
historical average annual volatility for the MSCI Pacific ex-Japan Index, based
on monthly total returns of the MSCI Indices from September 30, 1996 to
September 30, 2001.


     MSCI Pacific ex-Japan  7.60%

The larger the percentage stated for an MSCI Index, the greater the historical
average annual volatility of that MSCI Index.. Short-term volatility in these
markets can be significantly greater than average annual volatility.

Foreign Currency Fluctuations. Because each Index Fund's assets are generally
invested in non-US securities and because a substantial portion of the revenue
and income of each Index Fund is received in a foreign currency, the dollar
value of an Index Fund's net assets is reduced by declines in the value of the
relevant foreign currency relative to the dollar and are positively affected by
increases in the value of that currency relative to the dollar. Also, government
or monetary authorities may impose or alter exchange controls in a way that
would adversely affect exchange rates.

Any currency fluctuations will affect the net asset value of an Index Fund
regardless of the performance of its underlying portfolio. Other than to
facilitate settlements in local markets or to protect against currency exposure
in connection with its distributions to shareholders or borrowings, no Index
Fund expects to engage in currency transactions for the purpose of hedging
against a decline in value of any foreign currencies.

Concentration and Lack of Diversification of Certain Index Funds. The iShares
MSCI Pacific ex-Japan Index Fund is classified as "non-diversified" for purposes
of the Investment Company Act of 1940, which means that it is not limited by
that Act with regard to the portion of its assets that may be invested in the
securities of a single issuer. In addition, a number of Index Funds concentrate
their investments in particular industries as noted in the descriptions of each
non-diversified Index Fund. Each Index Fund, however, whether diversified or
non-diversified, intends to maintain the required level of diversification and
otherwise conduct its operations so as to qualify as a "regulated investment
company" for purposes of the US Internal Revenue Code, to relieve the Index Fund
of any liability for federal income tax to the extent that its earnings are
distributed to shareholders. Compliance with the diversification requirements of
the US Internal Revenue Code severely limits the investment flexibility of
certain Index Funds and makes it less likely that such Index Funds will meet
their investment objectives.

The stocks of particular issuers, or of issuers in particular industries, may
dominate the benchmark index of an Index Fund and, consequently, the investment
portfolio of an Index Fund. This may adversely affect the performance of an
Index Fund or subject it to greater price volatility than that experienced by
more diversified investment companies. The iShares of an Index Fund may be more
susceptible to any single economic, political or regulatory occurrence than the
portfolio securities of an investment company that is more broadly invested in
the equity securities of the relevant market.

Trading Issues. Trading in iShares on the AMEX (or any other securities exchange
on which iShares may be listed or traded) may be halted due to market conditions
or for reasons that, in the AMEX's view (or that of any such other exchange's),
make trading in iShares inadvisable. In addition, trading in iShares on the AMEX
is subject to trading halts caused by extraordinary market volatility pursuant
to AMEX "circuit breaker" rules. If trading on the AMEX or another exchange on
which iShares are listed is halted, you may not be able to sell your iShares
until trading resumes. There can be no assurance that the requirements of the
AMEX (or any other exchange) that are necessary to maintain the listing of any
Index Fund will continue to be met or will remain unchanged.

Fluctuation of Net Asset Value and Trading Prices. The net asset value of
iShares of an Index Fund will fluctuate with changes in the market value of an
Index Fund's security holdings and changes in the exchange rate between the US
dollar and the subject foreign currency. The market prices of iShares will
fluctuate in accordance with changes in net asset value and supply and demand on
the AMEX or another exchange on which iShares are listed. The Company cannot
predict whether iShares will trade below, at or above their net asset value.
Price differences may be


due, in large part, to the fact that supply and demand forces in the secondary
trading market for iShares will be closely related, but not identical, to the
same forces influencing the prices of the stocks of the MSCI Index trading
individually or in the aggregate at any point in time. Given, however, that
iShares must be created and redeemed in Creation Unit aggregations (unlike
shares of many closed-end funds, which frequently trade at appreciable discounts
from, and sometimes at premiums to, their net asset value), the investment
advisor believes that ordinarily large discounts or premiums to the net asset
value of iShares should not be sustained. In the event that the Company must
suspend or discourage creations and/or redemptions of Creation Unit aggregations
of iShares of an Index Fund, we expect larger discounts or premiums.


Management
Investment Advisor

Barclays Global Fund Advisors is responsible for the investment management of
each Index Fund. It is a California corporation indirectly owned by Barclays
Bank PLC and is registered under the Investment Advisers Act of 1940. Barclays
Global Fund Advisors has managed equity portfolios, including index funds and
mutual funds, for over 25 years. As of May 31, 2001, the investment advisor and
its affiliates managed, administered or advised assets aggregating in excess of
$785 billion. Barclays Global Fund Advisors' principal business address is 45
Fremont Street, San Francisco, California 94105.


Shareholder Information
Determination of Net Asset Value

The net asset value per iShares for each Index Fund is computed by dividing the
value of the net assets of an Index Fund (i.e., the value of its total assets
less total liabilities) by the total number of iShares outstanding, rounded to
the nearest cent. Expenses and fees, including the management, administration
and distribution fees, are accrued daily and taken into account for purposes of
determining net asset value. The net asset values of the iShares MSCI Pacific
ex-Japan Index Fund is determined as of 8:30 a.m. (Eastern time)), on each day
that the New York Stock Exchange, Inc. is open. The Company may commence
determining the net asset value of certain Index Funds more frequently than once
a day in connection with the possible future trading of the iShares of such
Index Funds on foreign exchanges. The price at which a purchase or redemption of
Creation Units of iShares is made is based on the next calculation of net asset
value. In the case of Index Funds that effect creations and/or redemptions only
for cash , it is possible that portfolio securities transactions by the Company
in the relevant local markets of those Index Funds could affect the prices of
those portfolio securities at the time those Index Funds' net asset values are
calculated. Currency values are generally converted into U.S. dollars using the
same exchange rates used by MSCI in the calculation of the relevant MSCI Indices
(currently exchange rates as of 4:00 p.m. London time. However, the Company may
use a different rate from the rate used by MSCI if the investment advisor
concludes that a different rate is more appropriate. Any use of a different rate
from MSCI may adversely affect an Index Fund's ability to track its benchmark
MSCI Index.


Buying and Selling iShares

There are two ways for you to buy and sell iShares. Most investors buy and sell
iShares through a broker in transactions on the AMEX or another exchange on
which iShares of the relevant Index Fund may be traded. iShares are also issued
and redeemed directly by the Company, but only in transactions involving
aggregations of very large numbers of iShares, referred to as Creation Units.
These transactions occur on an "in-kind" basis for most Index Funds. Persons
capable of purchasing or redeeming Creation Units of iShares should refer to the
Company's Statement of Additional Information for further details.

In connection with the purchase or the redemption of a Creation Unit of an Index
Fund, an investor must pay to the Company a purchase or redemption transaction
fee, which is intended to offset the transfer and other transaction costs
incurred by that Index Fund, including market impact expenses relating to
investing in or disposing of portfolio securities. The maximum transaction fees
that may apply to in-kind Creation Unit purchases and redemptions are listed in
the second column in the table below. To the extent purchases and redemptions
for cash are available, additional variable charges, up to the maximums listed
in the third and fourth columns of the table below, will apply (in addition to
the fees listed in the second column). This table is subject to revision from
time to time.


(Investors are also responsible for payment of the costs of transferring
portfolio securities to the Company, in the case of a purchase transaction, or
from the Company to their own account, in the case of a redemption transaction.)

--------------------------------------------------------------------------------
 iShares MSCI      In-kind and Cash    Maximum Additional    Maximum Additional
 Index Series        Purchases and    Variable Charge for   Variable Charge for
 ------------         Redemptions       Cash Purchases*      Cash Redemptions*
                      -----------       ---------------      -----------------
--------------------------------------------------------------------------------
Pacific ex-Japan   $7,200             1.80%                 1.50%
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

*As a percentage of amount invested.


iShares may trade on the AMEX (or any other securities exchange on which iShares
may trade) at prices that differ to some degree from their net asset value. If
you buy or sell iShares in the secondary market, you will incur customary
brokerage commissions and charges and may pay some or all of the difference
between the bid price and the offered price in the secondary market on each leg
of a round trip (purchase and sale) transaction. Given that iShares may be
created or redeemed in Creation Units, however, the Advisor believes that
ordinarily large discounts or premiums to the net asset value of iShares should
not be sustained for long periods. If creations or redemptions of iShares in
Creation Units are suspended or difficult to effect, the iShares may trade at
sustained discounts or premiums from net asset value.

The AMEX disseminates during its trading day (and certain other securities
exchanges on which iShares may trade may disseminate during their trading days)
an indicative optimized portfolio value, or IOPV, for each Index Fund. This
should not be viewed as a real time update of the net asset value per iShares of
an Index Fund, which is calculated only once a day, because it may not be
computed in a manner consistent with such net asset value.

The Depository Trust Company ("DTC") serves as securities depository for
iShares. iShares may be held only in book-entry form; stock certificates will
not be issued. DTC, or its nominee, is the record or registered owner of all
outstanding iShares of each Index Fund. Beneficial ownership of iShares will be
shown on the records of DTC or its participants (described below). Beneficial
owners of iShares are not entitled to have iShares registered in their names,
will not receive or be entitled to receive physical delivery of certificates in
definitive form and are not considered the registered holder of iShares.
Accordingly, to exercise any rights of a holder of iShares, a beneficial owner
must rely on the procedures of (i) DTC; (ii) "DTC Participants", i.e.,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives) own
DTC; and (iii) "Indirect Participants", i.e., brokers, dealers, banks and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly, through which the beneficial owner
holds its interests.

As described above, the Company recognizes DTC or its nominee as the owner of
all iShares for all purposes.

The Company will send its shareholders, through DTC and Central Depository
Participants, unaudited semi-annual reports, audited annual reports and other
information as may be required by applicable laws, rules and regulations.
Beneficial owners also receive an annual notification as to the tax status of
the Company's distributions.

For purposes of the Investment Company Act of 1940, iShares are issued by the
Index Funds, and the acquisition of iShares by investment companies is subject
to the restrictions of section 12(d)(1) of the Investment Company Act.

Dividends and Capital Gains Distributions

Dividends from net investment income, including any net foreign currency gains,
are declared and paid at least annually and any net realized securities gains
are distributed at least annually. In order to improve tracking error or comply
with the distribution requirements of the Internal Revenue Code of 1986,
dividends may be declared and paid more frequently than annually for certain
Index Funds. In addition, the Company intends to distribute, at least annually,
amounts representing the full dividend yield on the underlying portfolio
securities of each Index Fund, net of expenses, as if the Index Fund owned the
underlying portfolio securities for the entire dividend period. As a


result, some portion of each distribution may result in a return of capital. See
"Tax Matters" below. Dividends and securities gains distributions are
distributed in US dollars and cannot be automatically reinvested in additional
iShares. The Company will inform shareholders within 60 days after the close of
an Index Fund's taxable year of the amount and nature of all distributions made
to them.

Tax Matters

As with any investment, you should consider how the iShares of an Index Fund
will be taxed. The tax information in this prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in iShares.

Unless your investment in an Index Fund is through a tax-exempt entity or taxed-
deferred retirement account, such as an IRA plan, you need to be aware of the
possible tax consequences when:
 .    An Index Fund makes distributions, and
 .    You sell iShares on the AMEX.


Taxes on Distributions. Each Index Fund will distribute annually any net
investment income, and any net realized long-term or short-term capital gains.
Each Index Fund may also pay a special distribution at the end of the calendar
year to comply with federal tax requirements. In general, your distributions are
subject to federal income tax when they are paid. Dividends paid out of an Index
Fund's income and net short-term gains, if any, are taxable as ordinary income.
Distributions of net long-term capital gains, if any, in excess of net short-
term capital losses are taxable as long-term capital gains, regardless of how
long you have held the iShares.

Distributions in excess of an Index Fund's current and accumulated earnings and
profits are treated as a tax-free return of capital to the extent of your basis
in iShares, and as capital gain thereafter. A distribution may be taxable to you
as ordinary income or capital gain even though, from an investment standpoint,
it may constitute a return of capital.

Dividends and interest received by each Index Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Since more
than 50% of each Index Fund's total assets at the end of its taxable year will
consist of foreign stocks or securities, each Index Fund will "pass through" to
you any foreign income taxes (including withholding taxes) paid by an Index
Fund, if you held the Index Fund, and the Index Fund held the security, on the
dividend entitlement date and for at least fifteen additional days immediately
before and/or after. Subject to certain limitations, the foreign income taxes
passed through may qualify as a deduction in calculating US taxable income or as
a credit in calculating US federal income tax. You will be notified of your
portion of the foreign income taxes paid to each country and the portion of
dividends that represents income derived from sources within each country.
Taxes other than foreign income taxes are not passed through to you in this way.

If you are neither a lawful permanent resident nor a citizen of the United
States or if you are a foreign entity, each Index Fund's ordinary income
dividends (which include distributions of net short-term capital gains) will
generally be subject to a 30% US withholding tax, unless a lower treaty rate
applies. In addition iShares may be subject to U.S. estate tax. You should
consult your personal tax advisor as to this matter.

By law, each Index Fund must withhold 31% of a shareholder's distributions and
proceeds if the shareholder has not provided a taxpayer identification number or
social security number.

Taxes When iShares Are Sold on the AMEX. Currently, any capital gain or loss
realized upon a sale of iShares is generally treated as long-term capital gain
or loss if the iShares have been held for more than one year and as short-term
capital gain or loss if the iShares have been held for one year or less. The
foregoing discussion summarizes some of the consequences under current federal
tax law of an investment in an Index Fund. It is not a substitute for personal
tax advice. Consult your personal tax adviser about the potential tax
consequences of an investment in an Index Series under all applicable tax laws.

Possible Claim


A United States patentholder has notified the Company that it believes that the
manner of the Company's operation results in the Company, possibly in
conjunction with others, engaging in acts of infringement of such patent and has
suggested that the Company, or one or more of its service providers, enter into
a license agreement with it and pay it substantial fees. Payment of such fees by
the Company could materially adversely affect the expense ratios of the Index
Funds.  In August 2000 the AMEX commenced an action seeking a declaratory
judgement that its activities with respect to exchange traded funds, including
the Company, do not infringe the patentholder's patents. The patentholder has
counterclaimed alleging that such activities infringe its patent. The Company is
not a party to this action. The Company believes that it has valid defenses to
any potential patent infringement claim by the patentholder.

Distribution Arrangements

The iShares MSCI Pacific ex-Japan Fund does not pay Rule 12b-1 fees.


-------------------------------------------------------------------------------

Investment Company Act File No. 811-09102.


iShares, Inc.
(the "Company")


iShares MSCI Pacific ex-Japan Index Fund
Statement of Additional Information

January 2, 2001
(as revised October __, 2001)


This Statement of Additional Information ("SAI") provides information about the
Company and its iShares MSCI Index Funds ("Index Funds"). This information is in
addition to the information contained in the Company's Prospectus dated January
2, 2001, as revised October __, 2001.

This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Company's Annual Report for the fiscal year ended August 31,
2001. The financial statements and notes contained in the Annual Report are
incorporated by reference into this SAI. Copies of the Company's Prospectus and
Annual Report may be obtained free of charge by telephoning 1-800-iShares (1-
800-474-2737) or visiting our website at www.iShares.com.

-------------------------------------------------------------------------------


Table of Contents



                                                                                                            Page
                                                                                                        
GENERAL INFORMATION......................................................................................       1
INVESTMENT STRATEGIES AND RISKS..........................................................................       1
   Exchange Listing and Trading..........................................................................       1
   Lending Portfolio Securities..........................................................................       2
   Repurchase Agreements.................................................................................       3
   Currency Transactions.................................................................................       3
   Futures Contracts and Options.........................................................................       5
       Futures Transactions..............................................................................       5
       Restrictions on the Use of Futures Contracts and Options on Future Contracts......................       5
       Federal Tax Treatment of Futures Contracts........................................................       5
       Future Developments...............................................................................       6
   Swap Agreements.......................................................................................       6
   Non-U.S. Equity Portfolios............................................................................       6
   Concentrations and Lack of Diversification of Certain Index Funds.....................................       7
   Investments in Subject Equity Markets.................................................................       7
   Regional and Country-Specific Economic Considerations.................................................       9
MSCI INDICES.............................................................................................      13
INVESTMENT LIMITATIONS...................................................................................      16
MANAGEMENT OF THE COMPANY................................................................................      18
   Directors and Officers of the Company.................................................................      18
   Directors' Compensation...............................................................................      20
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......................................................      21
INVESTMENT ADVISORY MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES.................................      21
   Investment Advisor....................................................................................      21
   Administrator.........................................................................................      22
   Sub-Administrator.....................................................................................      22
   Distributor...........................................................................................      23
   Custodian and Lending Agent...........................................................................      24
   Transfer Agent........................................................................................      24
BROKERAGE ALLOCATION.....................................................................................      25
ADDITIONAL INFORMATION CONCERNING iSHARES................................................................      26
   Capital Stock.........................................................................................      26
   Book Entry Only System................................................................................      27
PURCHASE AND REDEMPTION OF iSHARES.......................................................................      29
   Creation Units........................................................................................      29
   Purchase and Issuance of iShares in Creation Units....................................................      29
   Redemption of iShares in Creation Units...............................................................      33
   Determining Net Asset Value...........................................................................      36
   Continuous Offering...................................................................................      36
TAXES....................................................................................................      38
PERFORMANCE INFORMATION..................................................................................      40
COUNSEL AND INDEPENDENT AUDITORS.........................................................................      43
   Counsel...............................................................................................      43
   Independent Auditors..................................................................................      43
Appendix A...............................................................................................      44
Appendix B...............................................................................................      47


The information contained herein regarding Morgan Stanley Capital International
Inc. ("MSCI"), the MSCI Indices, local securities markets and The Depository
Trust Company ("DTC") was obtained from publicly available sources.

MSCI is a company jointly owned by Morgan Stanley Dean Witter & Co. ("MSDW"), an
international investment banking, asset management and brokerage firm and The
Capital Group Companies, Inc. ("Capital"), an international

--------------------------------------------------------------------------------
Investment Strategies and Risks                                           page i


investment management company that is not affiliated with MSDW. MSCI is the
owner of the MSCI Indices and has full responsibility for the design,
maintenance, production and distribution of the Indices, including additions and
deletions of constituents within the Indices.

iShares are not sponsored, endorsed, or promoted by MSCI or any  affiliate of
MSCI. Neither MSCI, any of its affiliates nor any other party involved in making
or compiling the MSCI Index makes any representation or warranty, express or
implied, to the owners of the iShares of any Index Fund or any member of the
public regarding the advisability of investing in securities generally, or in
the iShares of any Index Fund particularly, or the ability of the indices
identified herein to track general stock market performance. MSCI has no
obligation to take the needs of the issuer of the iShares of any Index Fund or
the owners of the iShares of any Index Fund into consideration in determining,
composing, calculating or disseminating the respective MSCI Indices. MSCI is not
responsible for and has not participated in the determination of the timing of,
prices at, or quantities of the iShares of any Index Fund to be issued or in the
determination or calculation of the equation by which the iShares of any Index
Fund are redeemable. Neither MSCI nor any of its affiliates nor any other party
involved in making or compiling the MSCI Index has any obligation or liability
to owners of the iShares of any Index Fund in connection with the
administration, marketing or trading of the iShares of any Index Fund.

Although MSCI shall obtain information for inclusion in or for use in the
calculation of the MSCI Indices from sources which MSCI considers reliable,
neither MSCI, any of its affiliates nor any other party involved in making or
compiling the MSCI Index guarantees the accuracy and/or the completeness of the
Indexes or any  data obtained included therein in connection with the rights
licensed hereunder or for any other use. Neither MSCI, any of its affiliates nor
any other party involved in making or compiling the MSCI Index shall have any
liability for any errors, omissions or interruptions of or in connection with
the indexes or any data included therein. Neither MSCI, any of its affiliates
nor any other party involved in making or compiling the MSCI Index Neither
MSCI,any of its affiliates nor any other party involved in making or compiling
the MSCI Index makes any express or implied warranties, and MSCI hereby
expressly disclaims all warranties of merchantability or fitness for a
particular purpose with respect to the Indices or any data included therein.
Without limiting any of the foregoing, in no event shall MSCI, any of its
affiliates or any other party involved in making or compiling the MSCI Index
have any liability for any direct, indirect, special, punitive, consequential or
any other damages (including lost profits) even if notified of the possibility
of such damages.

No purchaser, seller or holder of this security, or any other person or entity,
should use or refer to any MSCI trade name, trademark or service mark to
sponsor, endorse, market or promote this security without first contacting MSCI
to determine whether MSCI's permission is required.  Under no circumstances may
any person or entity claim any affiliation with MSCI without the prior written
permission of MSCI.

Unless otherwise specified, all references in this SAI to "dollars," "USD,"
"US$" or "$" are to United States Dollars, all references to "AUD," or "A$" are
to Australian Dollars, , all references to "HKD" or "HK$" are to Hong Kong
Dollars, all references to "NZD" are to New Zealand dollars, and all references
to "SGD" are to Singapore Dollars. On November 30, 2000, the 4:00 p.m. buying
rates in New York City for cable transfers payable in the applicable currency,
as certified for customs purposes by the Federal Reserve Bank of New York, were
as follows for each US $1.00: AUD 1.90, HKD 7.80, NZD 2.46*, and SGD 1.75.
Some numbers in this SAI have been rounded. All US Dollar equivalents provided
in this SAI are calculated at the exchange rate prevailing on the date to which
the corresponding foreign currency amount refers.
* exchange rate as of October 1l, 2001

-------------------------------------------------------------------------------
page ii                                                                i|Shares


General Information

iShares, Inc. (the "Company") was organized as a Maryland corporation on August
31, 1994, and is an open-end management investment company currently operating
or proposing to operate 29 separate investment portfolios or "Index Funds". The
following seventeen Index Funds commenced operations on March 6, 1996: the
iShares MSCI Australia Index Fund, the iShares MSCI Austria Index Fund, the
iShares MSCI Belgium Index Fund, the iShares MSCI Canada Index Fund, the iShares
MSCI France Index Fund, the iShares MSCI Germany Index Fund, the iShares MSCI
Hong Kong Index Fund, the iShares MSCI Italy Index Fund, the iShares MSCI Japan
Index Fund, the iShares MSCI Malaysia (Free) Index Fund, the iShares MSCI Mexico
(Free) Index Fund, the iShares MSCI Netherlands Index Fund, the iShares MSCI
Singapore (Free) Index Fund, the iShares MSCI Spain Index Fund, the iShares MSCI
Sweden Index Fund, the iShares MSCI Switzerland Index Fund and the iShares MSCI
United Kingdom Index Fund. The iShares MSCI Brazil (Free) Index Fund, the
iShares MSCI EMU Index Fund, the iShares MSCI South Korea Index Fund and the
iShares MSCI Taiwan Index Fund commenced operations on July 11, 2000, July 26,
2000, May 10, 2000 and June 21, 2000, respectively. The iShares MSCI Pacific ex-
Japan Index Fund commenced operations on October 26, 2001.  The following Index
Funds had not commenced operations as of the date of this SAI: the iShares MSCI
Greece, Indonesia (Free), Portugal, South Africa, Thailand (Free), Turkey and
USA Index Funds. Each of the iShares MSCI Japan, United Kingdom and USA Index
Funds is classified as a "diversified" investment company under the Investment
Company Act of 1940. Each of the other Index Funds offered hereby is classified
as a "non-diversified" investment company under the Investment Company Act of
1940. The Board of Directors of the Company may authorize additional Index Funds
in the future.

Investment Strategies and Risks

The following supplements the information contained in the Prospectus concerning
the investment objectives and policies of the Index Funds.

Exchange Listing and Trading. The shares of each Index Fund are listed for
trading on the AMEX.  Certain Index Funds also trade on certain other national
securities exchanges and foreign exchanges (each a "Listing Exchange"). The AMEX
has approved modifications to its Rules to permit the listing of iShares of the
Index Funds that have commenced operations. iShares, which are non-redeemable,
trade on the AMEX at prices that may differ to some degree from their net asset
value. See "Special Considerations and Risks" and "Determining Net Asset Value".
There can be no assurance that the requirements of the AMEX necessary to
maintain the listing of iShares of any Index Fund will continue to be met. The
AMEX may remove the iShares of an Index Fund from listing if (1) following the
initial twelve-month period beginning upon the commencement of trading of an
Index Fund, there are fewer than 50 beneficial holders of the iShares for 30 or
more consecutive trading days, (2) the value of the underlying index or
portfolio of securities on which that Index Fund is based is no longer
calculated or available or (3) any other event shall occur or condition exist
that, in the opinion of the AMEX, makes further dealings on the AMEX
inadvisable. In addition, the AMEX will remove the shares from listing and
trading upon termination of the Company.

iShares of certain of the Company's Index Funds may be traded on U.S. national
securities exchanges other than the AMEX from time to time. In addition, the
iShares MSCI Australia Index Fund, iShares MSCI Japan Index Fund, iShares MSCI
Malaysia (Free) Index Fund, iShares MSCI Singapore (Free) Index Fund, iShares
MSCI South Korea Index Fund and the iShares MSCI Taiwan Index Fund are traded on
certain foreign exchanges.

As in the case of other stocks traded on the AMEX, the brokers' commission on
transactions will be based on negotiated commission rates at customary levels
for retail customers and rates which range between $.015 to $.12 per share for
institutions and high net worth individuals.

In order to provide current iShares pricing information, the AMEX disseminates
through the facilities of the Consolidated Tape Association an updated
"indicative optimized portfolio value" ("IOPV") for each Index Fund as
calculated by Bloomberg, L.P ("Bloomberg"). The Company is not involved in or
responsible for any aspect of the calculation or dissemination of the IOPVs, and
makes no warranty as to the accuracy of the IOPVs. IOPVs are

--------------------------------------------------------------------------------
Investment Strategies and Risks                                           page 1


disseminated on a per Index Fund basis every 15 seconds during regular AMEX
trading hours of 9:30 a.m. to 4:00 p.m. Eastern time.

The IOPV has an equity securities value component and a cash component. The
equity securities values included in the IOPV are the values of the Deposit
Securities for each Index Fund. While the IOPV reflects the current market value
of the Deposit Securities required to be deposited in connection with the
purchase of a Creation Unit of iShares, it does not necessarily reflect the
precise composition of the current portfolio of securities held by the Company
for each Index Fund at a particular point in time, because the current portfolio
of an Index Fund may include securities that are not a part of the current
Deposit Securities. Therefore, the IOPV on a per Index Fund basis disseminated
during AMEX trading hours should not be viewed as a real time update of the net
asset value per share of the Company, which is calculated only once a day. It is
possible that the value of the portfolio of securities held by the Company for a
particular Index Fund may diverge from the applicable IOPV during any trading
day. In such a case, the IOPV would not precisely reflect the value of an Index
Fund' portfolio. In addition, the foreign exchange rate used by the Company in
computing net asset value of an Index Fund may differ materially from that used
by Bloomberg. See "Determining Net Asset Value" below.

The equity securities included in the IOPV reflect the same market
capitalization weighting as the Deposit Securities of the particular Index Fund.
In addition to the equity component described in the preceding paragraph, the
IOPV for each Index Fund includes a cash component consisting of estimated
accrued dividend and other income, less expenses. Each IOPV also reflects
changes in currency exchange rates between the U.S. dollar and the applicable
home foreign currency. For the iShares MSCI Pacific ex-Japan Index Fund, there
is no overlap in trading hours between the foreign market and the AMEX.
Therefore, for each of these Index Funds, Bloomberg utilizes closing prices (in
applicable foreign currency prices) in the foreign market for securities in the
Index Fund's portfolio, and converts the price to U.S. dollars. This value is
updated every 15 seconds during AMEX trading hours to reflect changes in
currency exchange rates between the U.S. dollar and the applicable foreign
currency. For Index Funds which have trading hours overlapping regular AMEX
trading hours, Bloomberg updates the applicable IOPV every 15 seconds to reflect
price changes in the principal foreign market, and converts those prices into
U.S. dollars based on the current currency exchange rate. When the foreign
market is closed but the AMEX is open, the IOPV is updated every 15 seconds to
reflect changes in currency exchange rates after the foreign market closes.

Lending Portfolio Securities.  The Company may lend portfolio securities to
brokers, dealers and other financial institutions needing to borrow securities
to complete transactions and for other purposes. Because the cash government
securities or other assets that are pledged as collateral to the Company in
connection with these loans generate income, securities lending enables an Index
Fund to earn additional income that may partially offset the expenses of such
Index Fund, and thereby reduce the effect that expenses have on such Index
Fund's ability to provide investment results that substantially correspond to
the price and yield performance of its respective MSCI Index. These loans may
not exceed 33% of an Index Fund's total assets. The documentation for these
loans provide that the Index Fund will receive collateral equal to at least 105%
of the current market value of the loaned securities, as marked to market each
day on the same basis as the net asset value of the Index Fund is determined,
consisting of cash government securities or other assets permitted by applicable
regulations and interpretations. An Index Fund pays reasonable administrative
and custodial fees in connection with the loan of securities. The Index Fund
invests cash collateral in short-term investments. The Chase Manhattan Bank
("Chase") serves as Lending Agent of the Company and, in such capacity, shares
with the respective Index Fund any net income earned on stock loans on a 40/60
basis (i.e., Chase receives 40% of such net income and the Index Fund receives
60%). An Index Fund's share of income from the loan collateral is included in
the Index Fund's gross investment income.

The Company will comply with the conditions for lending established by the SEC
staff. The SEC staff currently requires that the following conditions be met
whenever portfolio securities are loaned: (1) the Index Fund must receive at
least 100% collateral from the borrower; (2) the borrower must increase such
collateral whenever the market value of the securities lent rises above the
level of the collateral; (3) the Index Fund must be able to terminate the loan
at any time; (4) the Index Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned securities,
and any increase in market value; (5) the Index Fund may pay only reasonable
custodian fees in connection with the loan and will pay no finder's fees; and
(6) while voting rights on the loaned securities may pass to the borrower, the
Company, acting under the supervision of its Board of

--------------------------------------------------------------------------------
page 2                                                                  i|Shares


Directors (the "Board" or the "Directors") must terminate the loan and regain
the right to vote the securities if a material event adversely affecting the
investment occurs. Although each Index Fund will receive collateral in
connection with all loans of portfolio securities, and such collateral will be
marked to market, the Index Fund will be exposed to the risk of loss should a
borrower default on its obligation to return the borrowed securities (e.g., the
loaned securities may have appreciated beyond the value of the collateral held
by the Company). In addition, each Index Fund bears the risk of loss of any cash
collateral that it invests in short-term investments.

Repurchase Agreements.  Each Index Fund may invest in repurchase agreements with
commercial banks, brokers or dealers to generate income from its excess cash
balances and to invest securities lending cash collateral. A repurchase
agreement is an agreement under which an Index Fund acquires a money market
instrument (generally a security issued by the U.S. Government or an agency
thereof, a banker's acceptance or a certificate of deposit) from a seller,
subject to resale to the seller at an agreed upon price and date (normally, the
next business day). A repurchase agreement may be considered a loan
collateralized by securities. The resale price reflects an agreed upon interest
rate effective for the period the instrument is held by an Index Fund and is
unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by an Index Fund (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by the Company's custodian bank until
repurchased. In addition, the Company's Board of Directors monitors the
Company's repurchase agreement transactions generally and has established
guidelines and standards for review of the creditworthiness of any bank, broker
or dealer counterparty to a repurchase agreement with an Index Fund. No more
than an aggregate of 15% of the Index Fund's net assets will be invested in
repurchase agreements having maturities longer than seven days and securities
subject to legal or contractual restrictions on resale, or for which there are
no readily available market quotations. An Index Fund will enter into repurchase
agreements only with Federal Reserve member banks with minimum assets of at
least $2 billion or registered securities dealers.

The use of repurchase agreements involves certain risks. For example, if the
other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Company may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by an Index Fund not within the
control of the Index Fund and therefore the Index Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Company's
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.

Currency Transactions.  The investment policy of each Index Fund is to remain as
fully invested as practicable in the equity securities of the relevant market.
Hence, no Index Fund expects to engage in currency transactions for the purpose
of hedging against declines in the value of the Index Fund's currency. An Index
Fund  may enter into foreign currency forward and foreign currency futures
contracts to facilitate local securities settlement or to protect against
currency exposure in connection with its distributions to shareholders, but may
not enter into such contracts for speculative purposes or as a way of protecting
against anticipated adverse changes in exchange rates between foreign currencies
and the U.S. dollar.

A forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency futures contract is a contract involving an obligation to
deliver or acquire the specified amount of currency at a specified price at a
specified future time. Futures contracts may be settled on a net cash payment
basis rather than by the sale and delivery of the underlying currency.

Foreign exchange transactions involve a significant degree of risk and the
markets in which foreign exchange transactions are effected are highly volatile,
highly specialized and highly technical. Significant changes, including changes
in liquidity and prices, can occur in such markets within very short periods of
time, often within minutes. Foreign exchange trading risks include, but are not
limited to, exchange rate risk, maturity gaps, interest rate risk and potential
interference by foreign governments through regulation of local exchange
markets, foreign investment, or particular transactions in foreign currency. If
the Advisor utilizes foreign exchange transactions at an inappropriate time or
judges market conditions, trends or correlations incorrectly, foreign exchange
transactions may not serve

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Investment Strategies and Risks                                           page 3


their intended purpose of improving the correlation of an Index Fund's return
with the performance of the corresponding MSCI Index and may lower the Index
Fund's return. The Index Fund could experience losses if the values of its
currency forwards, options and futures positions were poorly correlated with its
other investments or if it could not close out its positions because of an
illiquid market. In addition, each Index Fund will incur transaction costs,
including trading commissions, in connection with certain of its foreign
currency transactions.

Futures Contracts and Options.  Each Index Fund may utilize futures contracts
and options to the extent described in the Prospectus. Futures contracts
generally provide for the future sale by one party and purchase by another party
of a specified commodity at a specified future time and at a specified price.
Stock index futures contracts are settled by the payment by one party to the
other of a cash amount based on the difference between the level of the stock
index specified in the contract and at maturity of the contract. Futures
contracts are standardized as to maturity date and underlying commodity and are
traded on futures exchanges. At the present time, there are no liquid futures
contracts traded on most of the benchmark indices of the Index Funds. In such
circumstances an Index Fund may use futures contracts, and options on futures
contracts, based on other local market indices or may utilize futures contracts,
and options on such contracts, on other indices or combinations of indices that
the Advisor believes to be representative of the relevant benchmark index.

Although futures contracts (other than cash settled futures contracts including
most stock index futures contracts) by their terms call for actual delivery or
acceptance of the underlying commodity, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract position is opened or closed.

Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying commodity
or payment of the cash settlement amount) if it is not terminated prior to the
specified delivery date. Relatively low initial margin requirements are
established by the futures exchanges and may be changed. Brokers may establish
deposit requirements which are higher than the exchange minimums. Futures
contracts are customarily purchased and sold on margin deposits which may range
upward from less than 5% of the value of the contract being traded.

After a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, payment of additional
"variation" margin will be required. Conversely, change in the contract value
may reduce the required margin, resulting in a repayment of excess margin to the
contract holder. Variation margin payments are made to and from the futures
broker for as long as the contract remains open. The Company expects to earn
interest income on its margin deposits.

Each Index Fund may use futures contracts and options thereon, together with
positions in cash and Short-Term Investments, to simulate full investment in the
underlying index. As noted above, liquid futures contracts are not currently
available for the benchmark indices of many Index Funds. In addition, the
Company is not permitted to utilize certain stock index futures under applicable
law. Under such circumstances, the Advisor may seek to utilize other instruments
that it believes to be correlated to the underlying index.

Since there are very few futures traded on the MSCI Indices, an Index Fund may
need to utilize other futures contracts or combinations thereof to simulate the
performance of its benchmark MSCI Index. This process may magnify the "tracking
error" of an Index Fund's performance compared to that of its benchmark MSCI
Index, due to the lower correlation of the selected futures with its benchmark
MSCI Index. The investment advisor will attempt to reduce this tracking error by
using futures contracts whose behavior is expected to represent the market
performance of the Index Fund's underlying securities, although there can be no
assurance that these selected futures will in fact correlate with the
performance of its benchmark MSCI Index.

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Futures Transactions.  Positions in futures contracts and options thereon may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract or option at any specific time. Thus,
it may not be possible to close a futures or options position. In the event of
adverse price movements, an Index Fund would continue to be required to make
daily cash payments to maintain its required margin. In such situations, if an
Index Fund has insufficient cash, it may have to sell portfolio securities to
meet daily margin requirements at a time when it may be disadvantageous to do
so. In addition, an Index Fund may be required to make delivery of the
instruments underlying futures contracts it holds.

An Index Fund will minimize the risk that it will be unable to close out a
futures or options contract by only entering into futures and options for which
there appears to be a liquid secondary market.

The risk of loss in trading futures contracts in some strategies is potentially
unlimited, due both to the low margin deposits required, and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (or gain) to the investor. For example, if at the time of purchase, 10% of
the value of a futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus,
entering into long or short futures positions may result in losses well in
excess of the amount initially paid. However, given the limited purposes for
which futures contracts are used, and the fact that steps will be taken to
eliminate the leverage of any futures positions, an Index Fund would presumably
have sustained comparable losses if, instead of the futures contracts, it had
invested in the underlying financial instrument and sold it after the decline.

Utilization of futures transactions by an Index Fund involves the risk of
imperfect or no correlation to the benchmark index where the index underlying
the futures contracts being used differs from the benchmark index. There is also
the risk of loss by the Company of margin deposits in the event of bankruptcy of
a broker with whom an Index Fund has an open position in the futures contract or
related option.

Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.

Restrictions on the Use of Futures Contracts and Options on Futures Contracts.
An Index Fund will not enter into futures contract transactions for purposes
other than hedging to the extent that, immediately thereafter, the sum of its
initial margin deposits on open contracts exceeds 5% of the market value of an
Index Fund's total assets. Assets committed to initial margin deposits for
futures and options on futures are held in a segregated account at the Company's
custodian bank. Each Index Fund will take steps to prevent its futures positions
from "leveraging" its portfolio. When it has a long futures position, it will
maintain in a segregated account with its custodian bank, cash or high quality
debt securities having a value equal to the purchase price of the contract (less
any margin deposited in connection with the position). When it has a short
futures position, it will maintain in a segregated account with its custodian
bank assets substantially identical to those underlying the contract or cash and
high quality debt securities (or a combination of the foregoing) having a value
equal to its obligations under the contract (less the value of any margin
deposits in connection with the position).

Federal Tax Treatment of Futures Contracts.   Each Index Fund is required for
federal income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts as of the end of the
year as well as those actually realized during the year. In most cases, any gain
or loss recognized with respect to the futures contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss,

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Investment Strategies and Risks                                           page 5


without regard to the holding period of the contract. Furthermore, sales of
futures contracts which hedge against a change in the value of securities held
by an Index Fund may affect the holding period of such securities and,
consequently, the nature of the gain or loss on such securities upon
disposition. An Index Fund may be required to defer the recognition of losses on
futures contracts to the extent of any unrecognized gains on related positions
held by the Index Fund.

In order for an Index Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities or of foreign currencies or other income derived with respect to the
Index Fund's business of investing in securities. It is anticipated that any net
gain realized from the closing out of futures contracts will be considered gain
from the sale of securities and therefore will be qualifying income for purposes
of the 90% requirement.

Each Index Fund distributes to shareholders annually any net capital gains which
have been recognized for federal income tax purposes (including unrealized gains
at the end of the Index Fund's fiscal year) on futures transactions. Such
distributions are combined with distributions of capital gains realized on the
Index Fund's other investments and shareholders are advised on the nature of the
distributions.

Future Developments.   Each Index Fund may take advantage of opportunities in
the area of options, and futures contracts, options on futures contracts,
warrants, swaps and any other investments which are not presently contemplated
for use by such Index Fund or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with an Index
Fund's investment objective and legally permissible for the Index Fund. Before
entering into such transactions or making any such investment, the Index Fund
will provide appropriate disclosure.

Swap Agreements.   Each Index Fund may utilize swap agreements to the extent
described in the Prospectus. Swap agreements are contracts between parties in
which one party agrees to make payments to the other party based on the change
in market value or level of a specified index or asset. In return, the other
party agrees to make payments to the first party based on the return of a
different specified index or asset. Although swap agreements entail the risk
that a party will default on its payment obligations thereunder, each Index Fund
seeks to reduce this risk by entering into agreements that involve payments no
less frequently than quarterly. The net amount of the excess, if any, of an
Index Fund's obligations over its entitlements with respect to each swap is
accrued on a daily basis and an amount of cash or high quality debt securities
having an aggregate value at least equal to the accrued excess is maintained in
a segregated account at the Company's custodian bank.

Non-U.S. Equity Portfolios.   An investment in iShares involves risks similar to
those of investing in a broad-based portfolio of equity securities traded on
exchanges in the respective countries covered by the individual Index Fund.
These risks include market fluctuations caused by such factors as economic and
political developments, changes in interest rates and perceived trends in stock
prices. Investing in securities issued by companies domiciled in countries other
than the domicile of the investor and denominated in currencies other than an
investor's local currency entails certain considerations and risks not typically
encountered by the investor in making investments in its home country and in
that country's currency. These considerations include favorable or unfavorable
changes in interest rates, currency exchange rates, exchange control regulations
and the costs that may be incurred in connection with conversions between
various currencies. Investing in an Index Fund whose portfolio contains non-U.S.
issuers involves certain risks and considerations not typically associated with
investing in the securities of U.S. issuers. These risks include generally less
liquid and less efficient securities markets; generally greater price
volatility; less publicly available information about issuers; the imposition of
withholding or other taxes; the imposition of restrictions on the expatriation
of funds or other assets of an Index Fund; higher transaction and custody costs;
delays and risks attendant in settlement procedures; difficulties in enforcing
contractual obligations; lesser liquidity and significantly smaller market
capitalization of most non-U.S. securities markets; different accounting and
disclosure standards; lesser levels of regulation of the securities markets;
more substantial government interference with the economy; higher rates of
inflation; greater social, economic, and political uncertainty; and the risk of
nationalization or expropriation of assets and risk of war.

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page 6                                                                  i|Shares


Concentrations and Lack of Diversification of Certain Index Funds.  The iShares
MSCI Pacific ex-Japan Index Fund is classified as "non-diversified" for purposes
of the Investment Company Act of 1940, which means that it is not limited by
that Act with regard to the portion of its assets that may be invested in the
securities of a single issuer. Information about larege holdings in single
issuers is included in the description of each index fund. In addition, a number
of Index Funds concentrate their investments in particular industries as noted
in the descriptions of each Index Fund. Each Index Fund, however, whether
diversified or non-diversified, intends to maintain the required level of
diversification and otherwise conduct its operations so as to qualify as a
"regulated investment company" for purposes of the U.S. Internal Revenue Code,
to relieve the Index Fund of any liability for federal income tax to the extent
that its earnings are distributed to shareholders. Compliance with the
diversification requirements of the U.S. Internal Revenue Code severely limits
the investment flexibility of certain Index Funds and makes it less likely that
such Index Funds will meet their investment objectives.

The stocks of one or more particular issuers, or of issuers in particular
industries, may dominate the benchmark index of an Index Fund and, consequently,
the investment portfolio of an Index Fund. This may adversely affect the
performance of an Index Fund or subject it to greater price volatility than that
experienced by more diversified investment companies. The iShares of an Index
Fund may be more susceptible to any single economic, political or regulatory
occurrence than the portfolio securities of an investment company that is more
broadly invested in the equity securities of the relevant market.

Investments in Subject Equity Markets.  Brief descriptions of the equity markets
in which the respective Index Fund are invested are provided below.

The Australian Equity Markets

General Background.  Trading shares has taken place in Australia since 1828, but
did not become significant until the latter half of the nineteenth century when
there was strong demand for equity capital to support the growth of mining
activities. A stock market was first formed in Melbourne in 1865. In 1885, the
Melbourne market became The Stock Exchange of Melbourne, in which form it has
remained until recently. Other stock exchanges were also established in Sydney
(1871), Brisbane (1884), Adelaide (1887), Hobart (1891) and Perth (1891). In
1937, the six capital city stock exchanges established the Australian Associated
Stock Exchanges (AASE) to represent them at a national level. In 1987, the
regional exchanges merged to create the single entity -- The Australian Stock
Exchange (ASX). Trading is done via a computer link-up called "SEATS." SEATS
enables all exchanges to quote uniform prices. All the exchanges are members of
the ASX and are subject to the Securities Industry Act, which regulates the
major aspects of stock exchange operations. Although there are stock exchanges
in all six states, the Melbourne and Sydney Stock Exchanges are the major
centers, covering 90% of all trades.

Reporting, Accounting and Auditing.  Australian reporting, accounting and
auditing standards differ substantially from U.S. standards. In general
Australian corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.

Size of Equity Markets.  As of November 30, 2000, the total market
capitalization of the Australian equity markets was approximately AUD 684
billion or US$ 359 billion.


The Hong Kong Equity Markets

General Background.  Trading in equity securities in Hong Kong began in 1891
with the formation of the Association of Stockbrokers, which was changed in 1914
to the Hong Kong Stock Exchange. In 1921, a second stock exchange, The Hong Kong
Stockbrokers' Association, was established. In 1947, these two exchanges were
merged under the name The Hong Kong Stock Exchange Limited. Three additional
exchanges, the Far East Exchange Limited (1969), The Kam Ngan Stock Exchange
Limited (1971) and The Kowloon Stock Exchange (1972) also commenced trading
activities. These four exchanges were unified in 1986 to form The Stock Exchange

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Investment Strategies and Risks                                           page 7


of Hong Kong Limited (the "SEHK"). The value of the SEHK constitutes more than
100% of Hong Kong's Gross Domestic Product. Trading on the SEHK is conducted in
the post trading method, matching buyers and sellers through public outcry.
Securities are denominated in the official unit of currency, the Hong Kong
Dollar. Foreign investment in Hong Kong is generally unrestricted. All investors
are subject to a small stamp duty and a stock exchange levy, but capital gains
are tax-exempt.

Reporting, Accounting and Auditing.  Hong Kong has significantly upgraded the
required presentation of financial information in the past decade. Nevertheless,
reporting, accounting and auditing practices remain significantly less rigorous
than U.S. standards. In general, Hong Kong corporations are not required to
provide all of the disclosure required by U.S. law and accounting practice, and
such disclosure may be less timely and less frequent than that required of U.S.
corporations.

Size of Equity Markets.  As of November 30, 2000, the total market
capitalization of the Hong Kong equity markets was approximately HKD 2,292
billion or US$ 294 billion.

The New Zealand Equity Markets

General Background.  The New Zealand Stock Exchange (NZSE) was originated in the
1870's in four regions: Auckland, Thames, Dunedin and Reefton. In 1915, the
Stock Exchange Association of New Zealand was formed. The Sharebrokers Act
Amendment 1981governs the operations of the NZSE.  During 1989, the Exchange
changed from four separate entities to one.  Additionally, a Board of Directors
was appointed to replace the traditional council.  The NZSE also appointed an
independent Market Surveillance Panel and adopted revised Listing Rules.  On
June 24, 1991, they  also eliminated the open outcry market and on August 1,
1992, introduced its FASTER system of electronic transfer and moved to fully
automated clearing and settlement of trades.

Reporting, Accounting and Auditing.  New Zealand reporting, accounting and
auditing standards differ substantially from U.S. standards. In general, New
Zealand corporations do not provide all of the disclosure required by U.S. law
and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.

Size of Equity Markets.  As of November 30, 2000, the total market
capitalization of the New Zealand markets was approximately NZD
$25,558.52million or US $10,314.99.

The Singaporean Equity Markets

General Background.  The Stock Exchange of Singapore (SES) was formed in 1973
with the separation of the joint stock exchange with Malaysia, which had been in
existence since 1938. The linkage between the SES and the Kuala Lumpur Stock
Exchange (KLSE) remained strong as many companies in Singapore and Malaysia
jointly listed on both exchanges, until January 1, 1990 when the dual listing
was terminated. SES has a tiered market, with the formation of the second
securities market, SESDAQ (Stock Exchange of Singapore Dealing and Automated
Quotation System) in 1987. SESDAQ was designed to provide an avenue for small
and medium-sized companies to raise funds for expansion. In 1990, SES introduced
an over-the-counter (OTC) market known as CLOB International, to allow investors
access to international securities listed on foreign exchanges. SES also has a
direct link with the National Association of Securities Dealers Automated
Quotation (NASDAQ) system, which was set up in March 1988 to allow traders in
the Asian time zone access to selected securities on the U.S. OTC markets. This
is made possible through a daily exchange of trading prices and volumes of the
stocks quoted on NASDAQ. The Singapore Stock Exchange is one of the most
developed in Asia and has a strong international orientation.

Reporting, Accounting and Auditing.  Singaporean reporting, accounting and
auditing standards differ substantially from U.S. standards. In general,
Singaporean corporations do not provide all of the disclosure required by U.S.
law and accounting practice, and such disclosure may be less timely and less
frequent than that required of U.S. corporations.

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page 8                                                                  i|Shares


Size of Equity Markets.  As of November 30, 2000, the total market
capitalization of the Singaporean markets was approximately SGD 272 billion or
US$ 155 billion.

Regional and Country-Specific Economic Considerations.

Pacific Region and Southeast Asia. Many Asian countries may be subject to a
greater degree of social, political and economic instability than is the case in
the United States and Western European countries. Such instability may result
from (i) authoritarian governments or military involvement in political and
economic decision-making; (ii) popular unrest associated with demands for
improved political, economic, and social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries; and (v) ethnic,
religious, and racial disaffection.

The economies of most Asian countries continue to depend heavily upon
international trade and, accordingly, are affected by protective trade barriers
and the economic conditions of their trading partners, principally the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
along with the reduction of foreign investment in the local economies and a
general decline in the international securities markets, could have a
significant adverse effect upon the economies and securities markets of the
Asian countries.

The success of market reforms and a surge in infrastructure spending have fueled
rapid growth in many developing Asian countries. Rapidly rising household
incomes have fostered large middle classes and new waves of consumer spending.
The increases in infrastructure spending and consumer spending have made
domestic demand the growth engine for these countries. Thus, their growth now
depends less upon exports. While exports may no longer be the sole source of
growth for these developing economies, improved competitiveness in export
markets has contributed to growth in many of these nations. The increased
productivity of many Asian countries has enabled them to achieve, or continue,
their status as top exporters while improving their national living standards.

In the fourth quarter of 1997, the Southeast Asian currency markets came under
severe selling pressure from abroad, as foreign investors and speculators alike
heavily sold regional currencies viewed to be overvalued. The Thai Baht was the
first to come under pressure, but Indonesian, Malaysian, Phillipine,
Singaporean, Taiwanese, South Korean and Hong Kong currencies were all affected.
Equity and fixed income markets also faced selling pressure as foreign investors
have been concerned with the overall financial prospects of the region.

Among the countries at the center of the Asian crisis, Korea and Thailand have
made encouraging advances toward restoring confidence and initiating recovery,
although their turnarounds remain at risk, including from the external
environment. The situation in Indonesia, however, remains very difficult.
Malaysia resorted to external payments controls in an effort to insulate its
economy from the regional crisis. In Japan, despite substantial fiscal stimulus
and new initiatives to deal with banking sector problems, significant downside
risks remain. Growth in China appears to be slowing, and both the renminbi and
the Hong Kong dollar have been under considerable pressure.

Australia.  Australia's economy employs a market-free-enterprise structure, and
its largest components are finance, manufacturing, services, and trade. Major
exports are metal ores and scrap, wheat, coal, meat, and wool, principally to
Japan and the United States. Major imports are machinery, miscellaneous
manufactured products (textiles, paper, and nonferrous metals), transport
equipment, and crude petroleum, primarily from the United States, Japan, the
United Kingdom, and Germany. The GNP is increasing more rapidly than the
population, and the GNP per capita is similar to other Western countries. Its
chief industries are mining, industrial and transportation equipment, food
processing, chemicals, and steel. Australia's natural resources include bauxite,
coal, iron ore, copper, tin, silver, uranium, nickel, tungsten, mineral sands,
lead, zinc, diamonds, natural gas, and petroleum.

Australia is a democratic, federal-state system, which recognizes the British
monarch as sovereign. Australia suffered from deficits throughout the 1970s,
however Government spending cuts achieved a balanced budget in 1981. Surplus
budgets were achieved in the late 1980s. The principal revenue sources are
excise, sales taxes, income taxes, corporate taxes, and nontax revenue. The
principal expenditures are for social security and welfare, state-government
transfers, health, interest on the public debt and defense.

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Investment Strategies and Risks                                           page 9


After a period of high growth in 1998 and 1999, the Australian economy continued
to perform strongly in the first half of 2000. Real GDP grew at an annual rate
of nearly 5% in the first half of 2000, averaging 4.4% growth over the last
eight years. Unemployment fell to 6.25% in the third quarter of 2000 coinciding
with the employment growth. Inflation rose 2 to 3%, however the underlying
inflation remained constant. Consumer price inflation rose 2 to 3% largely due
to higher oil prices.

Over the Fund's fiscal year ended August 31, 2000, the Australian equity market
continued its transformation from a market driven by commodities to one
increasingly influenced by media and telecommunications stocks. As of August 31,
2000, global media giant News Corp. accounted for approximately 20% of the MSCI
Australia Index while telecommunications firm Telstra made up another 12%. Both
of these stocks benefited from investors' enthusiasm for "TMT" (technology,
media and telecommunications) stocks in late 1999 and early 2000. Interest in
those sectors cooled in the spring of 2000. News Corp. then recovered some
ground in May, having reported higher-than-expected earnings and new expansion
plans, including a bid to purchase U.S. television station operator Chris-Craft.
Telstra did not perform as well, due to concerns about greater competition in
Australia's domestic telecommunications market.

Although the mining sector does not dominate the Australian market to quite the
extent that it once did, it still had a powerful influence over the past year.
Asia's economic recovery, coupled with weakness in the Australian dollar, has
also improved the outlook for mining companies and other exporters.

Hong Kong.   Hong Kong enjoys a well-developed free market economy highly
dependent on international trade. With its limited natural resources, Hong Kong
depends on the importation of food and raw materials for virtually all of its
needs. Its chief industries are textiles, clothing, tourism, electronics,
plastics, toys, watches, and clocks. Natural resources include a deepwater
harbor and feldspar.

The transfer of sovereignty from Britain to China in 1998 which created a sense
of uncertainty in Hong Kong's economy, has largely been a smooth transition.
Under the principle of "one country, two systems," Hong Kong is now a special
administrative region (SAR) of the People's Republic of China and is empowered
with a high degree of autonomy. It has retained its administrative, legislative
and judicial systems. The SAR government has full control over its monetary and
fiscal policies and it maintains its own customs and immigration control,
separate from the mainland. Except for issues relating to national security and
foreign policy, the SAR is largely run as an independent territory.

Hong Kong's economy continues to emerge from a recession that began with the
Asian crisis in the second half of 1998. Deflation has been a major problem, as
it has discouraged investment, postponed consumption and delayed a turnaround in
the inventory cycle. Nevertheless, GDP growth seems to be recovering somewhat.
Per capita GDP compares with the level in the four big countries of Western
Europe. GDP growth averaged a strong 5% in 1989-97.

The Hong Kong market ran on two tracks during the Fund's fiscal year ended
August 31, 2000. On one track were Hong Kong's "Old Economy" firms. Rising
interest rates--a perennial thorn in the side of the Hong Kong market--weighed
on financial services companies such as Hang Seng Bank, which made up nearly 10%
of the MSCI Hong Kong Index as of August 31.

The performance of old economy stocks contrasted sharply with that of Hong
Kong's growth oriented companies, especially in the technology, media and
telecommunications sectors. Stocks such as Cable & Wireless HKT (acquired by
Pacific Century Cyberworks in 2000) were lifted by positive sentiment in late
1999 and early 2000. Investors were excited by the possibility that China would
liberalize its telecom and Internet-related markets, opening the way for Cable &
Wireless HKT and newly public company China Telecom to build dominant positions
in what is potentially the world's largest consumer market. Although, those
stocks declined along with many other telecom stocks worldwide in the spring and
summer of 2000, their gains over the previous months served only to reinforce
telecom's growing influence on the Hong Kong market.

--------------------------------------------------------------------------------
page 10                                                                 i|Shares


That shift has been most evident in the transformation of Hutchison Whampoa -
which had a 28% weighting in the MSCI Index as of August 31. The company's
property business has gradually been overshadowed by its expansion into the
telecom field.

With a concentration in telecom rapidly replacing its former concentration in
real estate, Hong Kong's new diversification has not led to a significant
decline in volatility. The market enjoyed a good economic backdrop during the
first half of 2000, with strong trade flows, very robust GDP growth and lower
unemployment.

New Zealand.  New Zealand has been predominantly agricultural based country.
However, since 1984, the government has been moving its country to become more
industrialized. This transition has brought about increased incomes and
technological advances.  Inflation continues to be one of the lowest among
developed countires. New Zealand's GDP per capita is stated to be comparable to
other larger West European countries.  It's growth however, remains dependent on
the economic well being of Asia, Europe, and the US.  In 1998, the economy fell
into recession due to the Asian economic "crisis" and summer drought.  Since
then, however, the economy has recovered and started growing 3.5% for the year
ended December 1999.  The economy continues to experience increased growth and
the prospect for continued growth remains strong.

It's constitution is not a single formal document but contains various acts from
UK and New Zealand Parliaments.  Its legal system is based on English law.
Government is parlimentary domocratic.

New Zealand's primary exports include forestry and mining. Commodity exports and
manufacturing continues to grow.  Over the past 15 years, in an effort to grow
its economy and create open chanels, New Zealand has evolved to be one of the
most deregulated countries.

Since 1995, New Zealand's current account deficits has been over 5% of GDP.  The
primary payments have been to non-residents who have accumulated direct
investment in New Zealand.  The trade balance has been running a surplus.

In November 1999, the Labour-Alliance Coalition Government was elected to help
New Zealand become an economy  with a foundation in high skills, employment and
value-added production.

Singapore.  Singapore has a highly developed economy with strong service and
manufacturing sectors. Singapore benefits from being located at the crossroads
of international trade routes. Singapore enjoys one of the highest gross
national products (GNP) in the Southeast region. It has generally maintained
strong GDP growth. Its chief industries are electronics, financial services, oil
drilling equipment, petroleum refining, rubber processing and rubber products,
processed food and beverages, ship repair, trade, and biotechnology. Singapore's
natural resources include fish and deepwater ports.

Singapore's government, a parliamentary republic, has followed an
interventionist economic policy with respect to its individual industries. To
instill faith in its interventionist policies, the government has sought to
maintain economic stability. The taxes are relatively high but rates are stable.
Monetary policy has aimed at keeping inflation low by using the exchange rate as
the main instrument. Labor market pressure has been controlled by setting limits
on the percentage of foreign labor employed and applying a levy on employers of
foreign labor. In addition, the government, recognizing that land use is a
constraint on growth, has sought to make existing land use more efficient.

Due to globalization, the country is looking to become the region's financial
and high-tech hub. Singapore has become a high-income, highly industrialized
country though rapid growth in its manufacturing sector due largely to
significant foreign investment. Of particular importance is the electronics
industry where Singapore is the leading producer of disk drives. The financial
and business services sector has also experienced recent growth, while the
mining and agriculture sectors are of minimal importance.

Singapore's equity market experienced periods of steep rises and sharp declines
during the Fund's fiscal year ended August 31, 2000. Growing demand in Asia and
around the world helped lift Singapore's export driven economy at the end of
1999. The country's electronics and chemical manufacturing sectors were
especially strong. Investors

--------------------------------------------------------------------------------
Investment Strategies and Risks                                          page 11


were also encouraged by the policies the Singapore government had put in place
to steer the economy through Asia's economic crisis and encourage the growth of
a "homegrown" technology sector.

However, Singapore's equity market deflated considerably during the period.
Rising interest rates pressured banks (which made up 33.5% of the MSCI Singapore
Index as of August 31, 2000), other financial services and property-related
stocks. In addition, the news that Nokia and several high profile
telecommunications companies were expecting their growth to slow weighed on
Singapore's large contingent of contract manufacturers over the summer of 2000.
Profit-taking and rotation into other markets in the region also drew capital
from the market over the second half of the Fund's fiscal year.

               Real GDP Annual Rate of Growth (annual % change)

                             1995   1996    1997    1998    1999
                             ----   ----    ----    ----    ----
     Australia..........     4.4     4.0     3.9     5.2     4.4
     Hong Kong..........     3.9     4.5     5.0    -5.1     2.9
     New Zealand........     5.3     4.1     3.0     1.9     0.4
     Singapore..........     8.0     7.5     8.4     0.4     5.4

     Source: World Economic Outlook, October 2000 (International Monetary Fund)

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page 12                                                                 i|Shares



The MSCI Indices

In General.  The Indices were founded in 1969 by Capital International S.A. as
the first international performance benchmarks constructed to facilitate
accurate comparison of world markets. Morgan Stanley acquired rights to the
Indices in 1986. In November 1998, Morgan Stanley transferred all rights to the
MSCI Indices to Morgan Stanley Capital International Inc. ("MSCI"), a Delaware
corporation of which MSDW is the majority owner. The MSCI Indices have covered
the world's developed markets since 1969, and in 1988, MSCI commenced coverage
of the emerging markets.

Although local stock exchanges have traditionally calculated their own indices,
these are generally not comparable with one another, due to differences in the
representation of the local market, mathematical formulas, base dates and
methods of adjusting for capital changes. MSCI applies the same criteria and
calculation methodology across all markets for all indices, developed and
emerging.

MSCI Indices are notable for the depth and breadth of their coverage. MSCI
generally seeks to have 85% of the free float-adjusted market capitalization of
a country's stock market reflected in the MSCI Index for such country. . On May
19, 2001, MSCI published index constituents and their Inclusion Factors based on
the enhanced methodology.  They will begin calculating a provisional index
series on May 31, 2001.  In the first phase, effective as of the close of
November 30, 2001, MSCI will implement approximately half of the change
resulting from the free float adjustment for all existing index constituents
and, simultaneously, inlcude all the new constituents resulting from the
increase in coverage to 85% at approximately half of their free float-adjusted
market capitalization.  The remaining adjustments to fully implement the
enhanced methodology will take place in the second phase, effective as of the
close of May 31, 2002. Given trends such as increased market concentration, the
increase in coverage will provide greater diversification and representation of
market opportunities.  The MSCI Indices seek to balance the inclusiveness of an
"all share" index against the replicability of a "blue chip" index.

Weighting. Effective November 30, 2001, all single-country MSCI Indices will be
free-float weighted, i.e., companies will be included in the indices at the
value of their free public float (free float, multipled by price). MSCI defines
"free float" as total shares excluding shares held by strategic investors such
as governments, corporations, controlling shareholders and management, and
shares subject to foreign ownership restrictions.

MSCI calculates two indices in some countries in order to address the issue of
restrictions on foreign ownership in such countries. The additional indices are
called "free" indices, and they exclude companies and share classes not
purchasable by foreigners. Free indices are currently calculated for regional
and international indices which include such markets.

Regional Weights.  Market capitalization weighting, combined with a consistent
target of 85% of free float-adjusted market capitzliaation, helps ensure that
each country's weight in regional and international indices approximates its
weight in the total universe of developing and emerging markets. Maintaining
consistent policy among MSCI developed and emerging market indices is also
critical to the calculation of certain combined developed and emerging market
indices published by MSCI.

Selection Criteria

To construct relevant and accurate equity indices for the global institutional
investor under the Enhanced Methodology, MSCI undertakes an index construction
process, which involves: (i) Defining the equity universe, (ii)  Adjusting the
total market capitalization of all securities in the universe for free float
available to foreign investors. (iii) Classifying the universe of securities
under the Global Industry Classification Standard (GICS).and (iv)  Selecting
securities for inclusion according to MSCI's index construction rules and
guidelines.

Defining the Universe.The index construction process starts at the country
level, with the identification of the universe of investment opportunities.
Currently, MSCI creates equity indices for 51 country markets globally. MSCI
classifies each company and its securities in one and only one country. This
allows securities to be sorted distinctly

--------------------------------------------------------------------------------
The MSCI Indices                                                         page 13


by their respective countries. In general, companies and their respective
securities are classified as belonging to the country in which they are
incorporated. All listed equity securities, or listed securities that exhibit
characteristics of equity securities, except investment trusts, mutual funds and
equity derivatives, are eligible for inclusion in the universe. Shares of non-
domiciled companies generally are not eligible for inclusion in the universe.
About 99% of the world's total equity market capitalization is included in the
MSCI universe.

Adjusting the Total Market Capitalization of Securities in the Universe for Free
Float.  After identifying the universe of securities, MSCI calculates the free
float-adjusted market capitalization ofeach security in that universe. The
process of free float adjusting market capitalization involves (i) Defining and
estimating the free float available to foreign investors for each security,
using MSCI's definition of free float (ii) Assigning a free float-adjustment
factor to each security.and (iii) Calculating the free float-adjusted market
capitalization of each security.

Classifying Securities Under the Global Industry Classification Standard (GICS).
In addition to the free float-adjustment of market capitalization, all
securities in the universe are assigned to the industry that best describes
their business activities. To this end, MSCI has designed, in conjunction with
Standard & Poor's, the Global Industry Classification Standard (GICS). This
comprehensive classification scheme provides a universal approach to industries
worldwide and forms the basis for achieving MSCI's objective of reflecting broad
and fair industry representation in its indices.

Selecting Securities for Index Inclusion.  In order to ensure a broad and fair
representation in the indices of the diversity of business activities in the
universe, MSCI follows a "bottom-up" approach to index construction, building
indices from the industry group level up. The bottom-up approach to index
construction requires a thorough analysis and understanding of the
characteristics of the universe. This analysis drives the individual security
selection decisions, which aim to reflect the overall features of the universe
in the country index. MSCI targets an 85% free float-adjusted market
representation level within each industry group, within each country. The
security selection process within each industry group is based on the careful
analysis of: (i) Each company's business activities and the diversification that
its securities would bring to the index. (ii) The size (based on free float-
adjusted market capitalization) and liquidity of securities. All else being
equal, MSCI targets for inclusion the most sizable and liquid securities in an
industry group. In addition, securities that do not meet the minimum size
guidelines discussed below and/or securities with inadequate liquidity are not
considered for inclusion. (iii) The estimated free float for the company and its
individual share classes. Only securities of companies with estimated free float
greater than 15% are, in general, considered for inclusion.

Free Float. MSCI defines the free float of a security as the proportion of
shares outstanding that are deemed to be available for purchase in the public
equity markets by international investors.  In practice, limitations on free
float available to international investors include: (i) Strategic and other
shareholdings not considered part of available free float. (ii) Limits on share
ownership for foreigners.

Under MSCI's free float-adjsutement methodology, a constituent's Inclusion
Factor is equal to its estimated free flat rounded-up to the closest 5% for
constituents with free float equal to or exceeding 15%.  For example, a
constituent security with a free float of 23.2% will be included in the index at
25% of its market capitalization.  Securities of companies with an overall free
float of less than 15% across all share classes are generally not eligible for
inclusion.  Exceptions to this general rule are made only in significant cases,
where not inlcuding a security of a large company would compromise the index's
ability to fully and fairly represent the characteristics of the underlying
market.

Price and Exchange Rates.

Prices.  Prices used to calculate the MSCI Indices are the official exchange
closing prices. All prices are taken from the dominant exchange in each market.
In countries where there are foreign ownership limits, MSCI uses the price
quoted on the official exchange, regardless of whether the limit has been
reached.

Exchange Rates.  MSCI uses WM/Reuters Closing Spot Rates for all developed and
emerging markets. The WM/Reuters Closing Spot Rates were established by a
committee of investment managers and data providers, including MSCI, whose
object was to standardize exchange rates used by the investment community.
Exchange rates are taken daily at 4 p.m. London time by the WM Company and are
sourced whenever possible from multi-

--------------------------------------------------------------------------------
page 14                                                                 i|Shares


contributor quotes on Reuters. Representative rates are selected for each
currency based on a number of "snapshots" of the latest contributed quotations
taken from the Reuters service at short intervals around 4 PM. WM/Reuters
provides closing bid and offer rates. MSCI uses these to calculate the mid-point
to 5 decimal places.

MSCI continues to monitor exchange rates independently and may, under
exceptional circumstances, elect to use an alternative exchange rate if the
WM/Reuters rate is believed not to be representative for a given currency on a
particular day.

Changes to the Indices.   Under the Enhanced Methodology, the MSCI Equity
Indices are maintained with the objective of reflecting, on a timely basis, the
evolution of the underlying equity markets. In maintaining the indices, emphasis
is also placed on their continuity and on minimizing turnover in the indices.

MSCI classifies index maintenance in two broad categories: (i) Index rebalancing
and (ii) Market driven changes and corporate events.

The index rebalancing process is designed to ensure that the indices continue to
be an accurate reflection of an evolving marketplace. The evolution may be due,
for example, to a change in the composition or structure of an industry or other
developments, including regular updates in shareholder information used in the
estimation of free float. During the examination of a country index at a
quarterly index rebalancing, the free float-adjusted market capitalization and
representation of each industry group in the index is measured against the
underlying market. A complete or partial index rebalancing, which will result in
additions and deletions, for a country may be necessary if one or more industry
groups have become significantly over- or under-represented.

Index rebalancing for each MSCI Country Index generally takes place every 12 to
18 months. Individual country index rebalancing for MSCI Country Indices usually
occurs on only four dates throughout the year: as of the close of the last
business day of February, May, August and November. MSCI Index additions and
deletions due to quarterly index rebalancings are announced at least two weeks
in advance.

New Issues.   In general, newly listed equity securities available to foreign
investors would be considered for inclusion in the MSCI Indices, according to
MSCI's Enhanced Methodology index rules and guidelines, at the time of the
quarterly index rebalancing for the country. However, for new issues that are
significant in size and meet all the MSCI inclusion criteria, an early
inclusion, outside of the quarterly index rebalancing, may be considered.

MSCI may decide not to include a large new issue even in the normal process of
restructuring, and in spite of its substantial size and liquidity.

Index Rebalancing Deletions  During an index rebalancing, securities may be
deleted from a country index for a variety of reasons, including significant
decreases in free float-adjusted market capitalization, significant
deterioration in liquidity, changes in industry classification, decreases in
free float, more restrictive Foreign Ownership Limits (FOLs), and availability
of a better industry representative. In assessing deletions, it is important to
emphasize that indices must represent the full-investment cycle, including bull
as well as bear markets. Out-of-favor industries and their securities may
exhibit declining prices, declining market capitalizations, and/or declining
liquidity, and yet not be deleted because they continue to be good
representatives of their industry group.

--------------------------------------------------------------------------------
The MSCI Indices                                                         page 15


Investment Limitations

The Company has adopted the following investment restrictions as fundamental
policies with respect to each Index Fund. These restrictions cannot be changed
with respect to an Index Fund without the approval of the holders of a majority
of such Index Fund's outstanding voting securities. For purposes of the 1940
Act, a majority of the outstanding voting securities of an Index Fund means the
vote, at an annual or a special meeting of the security holders of the Company,
of the lesser of (1) 67% or more of the voting securities of the Index Fund
present at such meeting, if the holders of more than 50% of the outstanding
voting securities of such Index Fund are present or represented by proxy, or (2)
more than 50% of the outstanding voting securities of the Index Fund. An Index
Fund may not:


1.    Change its investment objective;

2.    Lend any funds or other assets except through the purchase of all or a
      portion of an issue of securities or obligations of the type in which it
      is permitted to invest (including participation interests in such
      securities or obligations) and except that an Index Fund may lend its
      portfolio securities in an amount not to exceed 33% of the value of its
      total assets;

3.    Issue senior securities or borrow money, except borrowings from banks for
      temporary or emergency purposes in an amount up to 33% of the value of the
      Index Fund's total assets (including the amount borrowed), valued at the
      lesser of cost or market, less liabilities (not including the amount
      borrowed) valued at the time the borrowing is made, and the Index Fund
      will not purchase securities while borrowings in excess of 5% of the Index
      Fund's total assets are outstanding, provided, that for purposes of this
      restriction, short-term credits necessary for the clearance of
      transactions are not considered borrowings;

4.    Pledge, hypothecate, mortgage or otherwise encumber its assets, except to
      secure permitted borrowings. (The deposit of underlying securities and
      other assets in escrow and collateral arrangements with respect to initial
      or variation margin for currency transactions and futures contracts will
      not be deemed to be pledges of the Index Fund's assets);

5.    Purchase a security (other than obligations of the United States
      Government, its agencies or instrumentalities) if as a result 25% or more
      of its total assets would be invested in a single issuer (Prior to the
      commencement of sales of shares of the iShares MSCI Pacific ex-Japan Index
      Fund to the public, the initial shareholder of that Index Fund voted to
      delete this restriction contingent upon that deletion being approved by
      the shareholders of at least one of the other Index Funds of the Company
      at a special meeting scheduled to be held on December 19, 2001);

6.    Purchase, hold or deal in real estate, or oil, gas or mineral interests or
      leases, but an Index Fund may purchase and sell securities that are issued
      by companies that invest or deal in such assets;

7.    Act as an underwriter of securities of other issuers, except to the extent
      the Index Fund may be deemed an underwriter in connection with the sale of
      securities in its portfolio;

8.    Purchase securities on margin, except for such short-term credits as are
      necessary for the clearance of transactions, except that an Index Fund may
      make margin deposits in connection with transactions in currencies,
      options, futures and options on futures;

9.    Sell securities short; or

10.   Invest in commodities or commodity contracts, except that an Index Fund
      may buy and sell currencies and forward contracts with respect thereto,
      and may transact in futures contracts on securities, stock indices and
      currencies and options on such futures contracts and make margin deposits
      in connection with such contracts.

Industry Concentration.  With respect to the two most heavily weighted
industries or groups of industries in its benchmark MSCI Index, an Index Fund
will invest in securities (consistent with its investment objective and other
investment policies) so that the weighting of each such industry or group of
industries in the Index Fund does not

--------------------------------------------------------------------------------
page 16                                                               i|Shares


diverge by more than 10% from the respective weighting of such industry or group
of industries in its benchmark MSCI Index. An exception to this policy is that
if investment in the stock of a single issuer would account for more than 25% of
the Index Fund, the Index Fund will invest less than 25% of its net assets in
such stock and will reallocate the excess to stock(s) in the same industry or
group of industries, and/or to stock(s) in another industry or group of
industries, in its benchmark MSCI Index. Each Index Fund will evaluate these
industry weightings at least weekly, and at the time of evaluation will adjust
its portfolio composition to the extent necessary to maintain compliance with
the above policy. An Index Fund may not concentrate its investments except as
discussed above. This policy is a fundamental investment policy and may not be
changed without the approval of a majority (as defined in the Investment Company
Act of 1940) of an Index Fund's shareholders.

As of September 30, 2001, as a result of this policy with respect to industry
concentration, the iShares MSCI Pacific ex-Japan Index Fund was concentrated
(that is, invested 25% or more of the value of their assets) in the specified
industries:


     iShares MSCI Index Fund                    Industry or Industries
     -----------------------                    ----------------------
     Pacific ex-Japan                           Banks

Prior to the commencement of sales of shares of the iShares MSCI Pacific ex-
Japan Index Fund to the public, the initial shareholder of that Index Fund voted
to approve a change in the above industry concentration policy contingent upon
that change in the concentration policy being approved by the shareholders of at
least one of the other Index Funds of the Company at a special meeting scheduled
to be held on December 19, 2001.  As changed, the concentration policy will be
as follows:

The iShares MSCI Pacific ex-Japan Index Fund will concentrate its investments
(i.e., hold 25% or more of its total assets in the stocks of a particular
industry or group of industries), except that, to the extent practicable, the
Index Fund will concentrate to approximately the same extent that its benchmark
MSCI Index concentrates in the stocks of such particular industry or group of
industries, provided that the Index Fund will comply with the diversification
requirements applicable to regulated investment companies of the Internal
Revenue Code, any underlying Treasury regulations or any successor provision.

In addition to the investment restrictions adopted as fundamental policies as
set forth above, each Index Fund observes the following restrictions, which may
be changed by the Board without a shareholder vote. An Index Fund will not:

     1.    Invest in the securities of a company for the purpose of exercising
           management or control, or in any event purchase and hold more than
           10% of the securities of a single issuer, provided that the Company
           may vote the investment securities owned by each Index Fund in
           accordance with its views; or

     2.    Hold illiquid assets in excess of 15% of its net assets. An illiquid
           asset is any asset which may not be sold or disposed of in the
           ordinary course of business within seven days at approximately the
           value at which the Index Fund has valued the investment.

For purposes of the percentage limitation on each Index Fund's investments in
illiquid securities, with respect to each Index Fund, foreign equity securities,
though not registered under the Securities Act of 1933 (the "Securities Act"),
are not deemed illiquid if they are otherwise readily marketable. Such
securities ordinarily are considered to be "readily marketable" if they are
traded on an exchange or other organized market and are not legally restricted
from sale by the Index Fund. The Advisor monitors the liquidity of restricted
securities in each Index Fund's portfolio under the supervision of the Company's
Board. In reaching liquidity decisions, the Advisor considers, inter alia, the
following factors:

     1.    The frequency of trades and quotes for the security;

     2.    The number of dealers wishing to purchase or sell the security and
           the number of other potential purchasers;

     3.    Dealer undertakings to make a market in the security; and

--------------------------------------------------------------------------------
Investment Limitations                                               page 17


     4.    The nature of the security and the nature of the marketplace in which
           it trades (e.g., the time needed to dispose of the security, the
           method of soliciting offers and the mechanics of transfer).

If a percentage limitation is adhered to at the time of investment or contract,
a later increase or decrease in percentage resulting from any change in value or
total or net assets will not result in a violation of such restriction, except
that the percentage limitations with respect to the borrowing of money and
illiquid securities will be observed continuously.

Management of the Company

Directors and Officers of the Company.  The Board has responsibility for the
overall management and operations of the Company, including general supervision
of the duties performed by the Advisor and other service providers. The Board
currently consists of five Directors. Nathan Most is an "interested" director,
as defined in the 1940 Act, by reason of his position as President of the
Company.





                                            Position with
Name and Address                            the Company               Principal Occupations During Past Five Years
------------------------------------------  -----------               ---------------------------------------------------
                                                                
Nathan Most                                 Director, President and   Consultant to Barclays Global Investors, American
P.O. Box 193                                Chairman of the Board     Stock Exchange and the Hong Kong Stock Exchange;
Burlingame, CA 94011-0193                                             Senior Vice President (retired) (from 1992 to
Age 86                                                                1996) and Vice President (from 1980 to 1992) of
                                                                      the American Stock  Exchange, Inc.;  President and
                                                                      CEO  (retired)  (from 1982 to 1996) of AMEX
                                                                      Commodities Corporation.

John B. Carroll                             Director                  Retired Vice President of Investment Management
520 Main Street                                                       (from 1984-2000) of GTE Corporation; Advisory
Ridgefield, CT  06877                                                 Board member of Ibbotson Assoc. (since 1998);
Age 65                                                                former Trustee and Member of the Executive
                                                                      Committee (since 1991) of The Common Fund, a
                                                                      non-profit organization; Member of the Investment
                                                                      Committee (since 1988) of the TWA Pilots Annuity
                                                                      Trust Fund; former Vice Chairman and Executive
                                                                      Committee Member (since 1992) of the Committee on
                                                                      Investment of Employee Benefit Assets of the
                                                                      Financial Executive Institute; and Member (since
                                                                      1986) of the Pension Advisory Committee of the New
                                                                      York Stock Exchange.

Timothy A. Hultquist                        Director                  Advisory Director (since 1995) and Managing
Advisory Director                                                     Director (from 1985 to 1995) of Morgan Stanley &
Morgan Stanley & Co., Incorporated                                    Co. Incorporated; Chairman (since 1994) and
1221 Avenue of the Americas                                           Trustee (since 1885) of the Board of Trustees of
30th Floor                                                            Macalester College; Treasurer and Trustee (since
New York, NY 10020                                                    1995) of Russell Sage Foundation; Member (since
Age 50                                                                1994) of Wilmer Eye Institute Advisory Counsel at
                                                                      Johns Hopkins University Hospital; President
                                                                      (since 1992) of the Hultquist Foundation;
                                                                      Chairman, Council of Board Chairmen of Independent
                                                                      Colleges.

----------------------------------------------------------------------------------------------------------------------------------

page 18                                                                i|Shares




                                               Position with
Name and Address                               the Company            Principal Occupations During Past Five Years
------------------------------------------     ------------------     ---------------------------------------------------
                                                                
Lloyd N. Morrisett                              Director              President (retired) of The John and Mary R. Markle
Children's Television Workshop                                        Foundation (from 1969 to 1998); Chairman (since
One Lincoln Plaza, 4/th/ Floor                                        1970) of the Children's Television Workshop;
New York, NY 10023                                                    Chairman (since 1998) and Director (since 1994) of
Age 71                                                                Infonautics Corporation; Trustee (from 1973 to
                                                                      1983, from 1985 to 1995, and since 1996) of RAND;
                                                                      Director (since 1976) of Haskins Laboratories,
                                                                      Inc.; Director (1990-January, 1997) of the
                                                                      Multimedia Corporation; Director (since 1992) of
                                                                      Classroom, Inc.; Director (since 1995) of Smith
                                                                      College Center for the Study of Social and
                                                                      Political Change; Director (since 1998) of Public
                                                                      Agenda Foundation; Member of Board of Overseers
                                                                      (from 1995 to 1998) of Dartmouth School of
                                                                      Medicine; Member (since 1968) of the Council on
                                                                      Foreign Relations; and Member (since 1970) of the
                                                                      American Association for the Advancement of
                                                                      Science.

W. Allen Reed                                   Director              President, CEO and Director (since 1994) of
President                                                             General Motors Investment Management Corporation;
General Motors Investment                                             Vice President and Treasurer (from 1991 to 1994)
Management Corp.                                                      of Hughes Electronics; President (from 1984 to
767 Fifth Avenue                                                      1991) of Hughes Investment Management Company;
New York, NY 10153                                                    Director (from 1995 to 1998) of Taubman Centers,
Age 53                                                                Inc. (a real estate investment trust); Director
                                                                      (since 1992) of FLIR Systems (an imaging
                                                                      technology company); Director (since 1994) of
                                                                      General Motors Acceptance Corporation; Director
                                                                      (since 1994) of GMAC Insurance Holdings Inc.;
                                                                      Director (since 1995) of Global Emerging Markets
                                                                      Fund; Director of Temple Inland Industries (since
                                                                      2000); Member (since 2001) of the Pension Managers
                                                                      Advisory Committee of the New York Stock Exchange;
                                                                      Member (since 1995) of the New York State
                                                                      Retirement System Advisory Board; Chairman (since
                                                                      1995) of the Investment Advisory Committee of
                                                                      Howard Hughes Medical Institute.

Stephen M. Wynne                                Treasurer             Chairman of PFPC Trustee & Custodial Services Ltd.
Executive Vice President                                              (since 1995); Executive Vice President and Chief
PFPC Inc.                                                             Accounting Officer (since 1993) and Senior Vice
400 Bellevue Parkway                                                  President and Chief Accounting Officer (from 1991
Wilmington, DE 19809                                                  to 1993) of PFPC Inc.; Executive Vice President
Age 45                                                                (from 1993 to 1995) of PFPC International.

R. Sheldon Johnson                              Secretary             Managing Director, Global Equity Derivatives,
Managing Director                                                     Morgan Stanley & Co. Incorporated (since 1988).
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Age 54

-----------------------------------------------------------------------------------------------------------------------------------

Investment Limitations                                                  page 19


Shareholders of the Company are expected to elect a new Board of Directors at a
special meeting of shareholders scheduled to be held on December 19, 2001.
Messrs. Carroll, Most and Reed have been nominated for re-election.  The other
nominees are Garrett F. Bouton, Richard K. Lyons and George G.C. Parker.

Directors' Compensation.  The table below sets forth the compensation paid to
Directors of the Company for the fiscal year ended August 31, 2000.




                                                       Pension or                              Total Compensation
                                     Aggregate      Retirement Benefits        Estimated       from Registrant and
                                   Compensation     Accrued as Part of     Annual Benefits       Company Complex
Name of Person and Position       from Registrant    Company Expenses      Upon Retirement     Paid to Directors
---------------------------       ---------------    ----------------      ---------------     -----------------
                                                                                   
Nathan Most, Director,                      $82,500          None                 None              $142,500
 President and Chairman of the
 Board
John B. Carroll, Director                   $55,000          None                 None              $ 55,000
Timothy A. Hultquist, Director              $55,000          None                 None              $ 55,000
Lloyd N. Morrisett, Director                $55,000          None                 None              $ 55,000
W. Allen Reed, Director                     $55,000          None                 None              $ 55,000


No officer is entitled to any compensation, and no officer or Director is
entitled to any pension or retirement benefits, from the Company.

--------------------------------------------------------------------------------
page 20                                                                 i|Shares


Control Persons and
Principal Holders of Securities

The Company expects that, immediately prior to the commencement of trading of
the shares of the iShares MSCI Pacific ex-Japan Index Fund, that Index Fund will
have one stockholder, who will hold more than 5% of its outstanding shares.  The
Company cannot predict the length of time that such person will remain a control
person of that Index Fund

Investment Advisory, Management, Administrative and Distribution Services

Investment Advisor.   Barclays Global Fund Advisors (the "Advisor") acts as
investment advisor to the Company and, subject to the supervision of the Board,
is responsible for the investment management of each Index Fund. The Advisor is
a California corporation indirectly owned by Barclays Bank PLC, and is
registered as an investment advisor under the Investment Advisers Act of 1940.
The Advisor and its parent, Barclays Global Investors, N.A., manage, administer
or advise assets aggregating in excess of $785 billion as of May 31, 2001.

The Advisor serves as investment advisor to each Index Fund pursuant to an
Advisory Agreement (the "Advisory Agreement") between the Company and the
Advisor dated May 8, 2001 (as amended October 22, 2001 in respect of the iShares
MSCI Pacific ex-Japan Index Fund). Under the Advisory Agreement, the Advisor,
subject to the supervision of the Company's Board and in conformity with the
stated investment policies of the iShares MSCI Pacific ex-Japan Index Fund,
manages the investment of the Index Fund's assets. The Advisor may enter into
subadvisory agreements with additional investment advisors to act as subadvisors
with respect to the particular Index Fund. The Advisor will pay subadvisors, if
any, out of the fees received by the Advisor. The Advisor is responsible for (i)
placing purchase and sale orders, (ii) providing continuous supervision of the
investment portfolio of the iShares MSCI Pacific ex-Japan Index Fund, (iii) the
general management of the Company's affairs, and (iv) paying all expenses for
Company operations and activities. For its investment management services to the
Index Fund, the Advisor is paid a fee equal to each of those Index Fund's
allocable portion of: 0.50% per annum of the aggregate net assets of the Index;
provided, however, that the fee paid to the Advisor with respect to the Index
Fund shall be reduced by the aggregate of such Index Fund's fees and expenses,
other than (i) expenses of the Index Fund incurred in connection with the
execution of portfolio securities transactions on behalf of such Index Fund,
(ii) (ii) litigation expenses, (iii) taxes (including, but not limited to,
income, excise, transfer and withholding taxes), (v) any cost or expense that a
majority of the Directors of the Company who are not "interested persons" (as
defined in the Investment Company Act of 1940) deems to be an extraordinary
expense and (vi) the advisory fee payable to the Advisor under the Advisory
Agreement; and provided, further, that the Advisor shall reimburse the Company
to the extent that the expenses of the Index Fund (other than the expenses set
forth in the foregoing proviso) exceed the amount set forth above with respect
to such Index Fund. The management fees are accrued daily and paid by the
Company as soon as practical after the last day of each calendar quarter. The
Advisor may from time to time reimburse expenses to the Index Fund. Prior to the
commencement of sales of shares of the iShares Pacific ex-Japan Index Fund to
the public, the initial shareholder of that Index Fund voted to approve
amendments to the Advisory Agreement that would essentially result in the
Advisor receiving the gross fee provided for under the current Advisory
Agreement and becoming responsible for the payment of all of the iShares Pacific
ex--Japan Index Fund's expenses (other than the expenses enumerated in (i) to
(v) above), contingent upon the shareholders of at least one of the other Index
Funds of the Company approving a similar change to the Advisory Agreement in
respect of such Index Fund at a special meeting of shareholders scheduled to be
held on December 19, 2001.The Company's management fees, like those paid by most
index funds, are lower than those paid by many actively managed funds. One
reason for the difference in fee levels is that passive management requires
fewer investment, research and trading decisions, thereby justifying lower fees.
Pursuant to the Advisory Agreement, the Advisor is not liable for
--------------------------------------------------------------------------------
Investment Limitations                                                 page 21


any error of judgment or mistake of law or for any loss suffered by the Company,
unless caused by the Advisor's willful malfeasance, bad faith or gross
negligence in the performance of its duties or reckless disregard of its duties
and obligations under the Advisory Agreement. The Advisory Agreement, with
respect to all Index Funds, is subject to annual approval by (1) the Company's
Board or (2) vote of a majority of the outstanding voting securities (as defined
in the 1940 Act) of the Company, provided that in either event the continuance
also is approved by a majority of the Company's Board who are not interested
persons (as defined in the 1940 Act) of the Company by vote cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement is terminable without penalty, on 60 days' notice, by the Company's
Board or by vote of the holders of a majority (as defined in the 1940 Act) of
the Company's outstanding voting securities. The Advisory Agreement is also
terminable upon 60 days' notice by the Advisor and will terminate automatically
in the event of its assignment (as defined in the 1940 Act).

Code of Ethics.  Each of the Company, the Advisor and the Company's Distributor,
SEI Investments Distribution Co. (the "Distributor"), have adopted a Code of
Ethics designed to prevent affiliated persons of the Company, the Advisor and
the Distributor from engaging in deceptive, manipulative or fraudulent
activities in connection with securities held or to be acquired by the Index
Funds.

Administrator.  PFPC Inc. (the "Administrator"), an indirect wholly owned
subsidiary of PNC Bank Corp., acts as administration and accounting agent of the
Company pursuant to an Administration and Accounting Services Agreement with the
Company and is responsible for certain clerical, recordkeeping and bookkeeping
services, except those to be performed by the Advisor, by Chase in its capacity
as Custodian, or by PNC Bank, N.A. ("PNC") in its capacity as Transfer Agent.
The Administrator has no role in determining the investment policies of the
Company or which securities are to be purchased or sold by the Company. The
principal business address of the Administrator is 400 Bellevue Parkway,
Wilmington, DE 19809.

For the administrative and fund accounting services the Administrator provides
to the Company, PFPC is paid aggregate fees equal to each Index Fund's allocable
portion of: .15% per annum of the average aggregate daily net assets of the
Company up to $3 billion; plus .10% per annum of the average aggregate daily net
assets of the Company between $3 billion and $4.5 billion, plus .095% per annum
of the average aggregate daily net assets of the Company in excess of $4.5
billion. The Administrator pays Morgan Stanley & Co. Incorporated a fee of .05%
of the average daily net assets of the Company for sub-administration services
as described under "The Sub-Administrator" below.

The Administrator paid Morgan Stanley & Co. Incorporated a fee of .05% of the
average daily net assets of the Company for sub-administration services as
described under "The Sub-Administrator" below.

Pursuant to the Administration and Accounting Services Agreement, the
Administrator is liable for damages arising of its failure to perform its duties
due to willful misfeasance, bad faith, gross negligence or reckless disregard of
such duties. The Company will indemnify the Administrator for certain
liabilities, including certain liabilities arising under federal securities
laws, except for liabilities arising out of the Administrator's willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties.

Sub-Administrator.   Morgan Stanley & Co. Incorporated provides certain sub-
administrative services relating to the Company pursuant to a Sub-Administration
Agreement and receives a fee from the Administrator equal to .05% of the
Company's average daily net assets for providing such services. Morgan Stanley &
Co. Incorporated, as Sub-Administrator, has no role in determining the
investment policies of the Company or which securities are to be purchased or
sold by the Company. The principal business address of Morgan Stanley & Co.
Incorporated is 1585 Broadway, New York, New York, 10036.

Distributor.   Effective March 28, 2000, SEI Investments Distribution Co. became
the principal underwriter and distributor of iShares. The Distributor's
principal offices are located at One Freedom Valley Drive, Oaks, PA 19456.
Investor information can be obtained by calling 1-800-iShares (1-800-474-2737).
The Distributor has entered into an agreement with the Company which will
continue for one year from its effective date, and which is renewable annually
thereafter (the "Distribution Agreement"), pursuant to which it distributes
Company shares. iShares will be
--------------------------------------------------------------------------------
page 22                                                                i|Shares


continuously offered for sale by the Company through the Distributor only in
Creation Units, as described below under "Purchase and Issuance of iShares in
Creation Units." iShares in less than Creation Units are not distributed by the
Distributor. The Distributor also acts as agent for the Company. The Distributor
will deliver a prospectus to persons purchasing iShares in Creation Units and
will maintain records of both orders placed with it and confirmations of
acceptance furnished by it. The Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the
National Association of Securities Dealers, Inc. SEI Investments Distribution
Co. as Distributor, has no role in determining the investment policies of the
Company or which securities are to be purchased or sold by the Company.

To compensate the Distributor for the distribution-related services it provides,
and broker-dealers authorized by the Distributor for distribution services they
provide, the Company has adopted a distribution plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Company's Plan, for each Index Fund
other than the iShares MSCI Pacific ex-Japan Index Fund, the Distributor is
entitled to receive a distribution fee, accrued daily and paid monthly,
calculated with respect to the Index Fund at a rate set from time to time by the
Board of Directors, provided that the annual rate may not exceed .25% of the
average daily net assets of such Index Fund. From time to time the Distributor
may waive all or a portion of these fees.

The Plan is designed to enable the Distributor to be compensated by the Company
for distribution services provided by it with respect to each Index Fund other
than the iShares MSCI Pacific ex-Japan Index Fund. Payments under the Plan are
not tied exclusively to the distribution expenses actually incurred by the
Distributor. The Board, including a majority of the Directors who are not
interested persons of the Company and who have no direct or indirect financial
interest in the operation of the Plan ("Independent Directors"), evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
doing so consider all relevant factors, including expenses borne by the
Distributor in the current year and in prior years and amounts received under
the Plan.

Under its terms, the Plan remains in effect from year to year, provided such
continuance is approved annually by vote of the Board, including a majority of
the Independent Directors. The Plan may not be amended to increase materially
the amount to be spent for the services provided by the Distributor without
approval by the shareholders of the Index Fund to which the Plan applies, and
all material amendments of the Plan also require Board approval. The Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors, or, with respect the Index Fund to which it applies, by a
vote of a majority of the outstanding voting securities of such Index Fund (as
such vote is defined in the 1940 Act). If a Plan is terminated (or not renewed)
with respect to any   Index Fund to which it applies, it may continue in effect
with respect to any Index Fund as to which it has not been terminated (or has
been renewed). Pursuant to the Distribution Agreement, the Distributor will
provide the Board periodic reports of any amounts expended under the Plan and
the purpose for which such expenditures were made.

The distribution fees payable under the 12b-1 Plan are used to pay distribution
related expenses, including: compensation to the distributor at a rate fixed by
the Company's Board of Directors from time to time (currently .02% of the
Company's average daily net assets, subject to an annual minimum of $845,000);
compensation to a sales and marketing consultant retained by the Company at a
rate of .035% of the Company's average daily net assets; and reimbursements of
expenses incurred by the distributor and other persons (principally the ) in
connection with the distribution of the Company's shares. In addition, the
Distributor also has entered into sales and investor services agreements with
broker-dealers or other persons that are DTC Participants (as defined below) to
provide distribution assistance, including broker-dealer and shareholder support
and educational and promotional services. Under the terms of each sales and
investor services agreement, the Distributor will pay such broker-dealers or
other persons, out of Rule 12b-1 fees received from the Index Fund to which such
fees apply, at the annual rate of up to .25 of 1% of the average daily net
asset value of iShares held through DTC for the account of such DTC Participant.
The amounts of the fees paid to the distributor and the sales and marketing
consultant are not dependent on the amount of distribution expenses actually
incurred by such persons.

The Distribution Agreement provides that it may be terminated at any time,
without the payment of any penalty, (i) by vote of a majority of the Directors
who are not interested persons of the Company (as defined under the 1940 Act) or
(ii) by vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the relevant Index Fund, on at least 60 days' written
notice to the Distributor. The Distribution Agreement is also terminable upon 60
--------------------------------------------------------------------------------
Investment Limitations                                                   page 23


days' notice by the Distributor and will terminate automatically in the event of
its assignment (as defined in the 1940 Act).

The Distributor pays for (1) postage and other expenses of distributing
prospectuses, statements of additional information and other marketing
materials, (2) advertising-related expenses and (3) compensation to broker-
dealers for distribution assistance, respectively, which amounts were allocated
to payments made under the Plan by each Index Fund based on its average daily
net assets for the period.

Custodian and Lending Agent.  Chase serves as the Custodian for the cash and
portfolio securities of each Index Fund pursuant to a Custodian Agreement
between Chase and the Company and as Lending Agent for the Index Fund. As
Lending Agent, Chase causes the delivery of loaned securities from the Company
to borrowers, arranges for the return of loaned securities to the Company at the
termination of the loans, requests deposit of collateral, monitors daily the
value of the loaned securities and collateral, requests that borrowers add to
the collateral when required by the loan agreements, and provides recordkeeping
and accounting services necessary for the operation of the program. Chase may
from time to time reimburse expenses to one or more Index Funds. Chase, as
Custodian and Lending Agent, has no role in determining the investment policies
of the Company or which securities are to be purchased or sold by the Company.
The principal business address of Chase is One Pierrepont Plaza, Brooklyn, New
York 11201.

For its custody services to the Index Fund, Chase is paid per annum fees based
on the aggregate net assets of the Index Fund of a rate of 0.047%.  As
remuneration for its services in connection with lending portfolio securities of
the Index Funds, Chase is paid by the Company, in respect of each Index Fund,
40% of the net investment income earned on the collateral for securities loaned.

Transfer Agent.   PFPC Inc. (the "Transfer Agent"), an indirect wholly owned
subsidiary of PNC Bank Corp., provides transfer agency services pursuant to an
agreement with the Company. The Transfer Agent has no role in determining the
investment policies of the Company or which securities are to be purchased or
sold by the Company. The principal business address of the Transfer Agent is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19110.

-------------------------------------------------------------------------------
page 24                                                               i|Shares


Brokerage Allocation

When selecting brokers and dealers to handle the purchase and sale of portfolio
securities, the Advisor looks for prompt execution of the order at a favorable
price. Generally, the Advisor works with recognized dealers in these securities,
except when a better price and execution of the order can be obtained elsewhere.
The Company will not deal with affiliates in principal transactions unless
permitted by exemptive order or applicable rule or regulation. Since the
investment objective of each Index Fund is investment performance that
corresponds to that of an index, the Advisor does not intend to select brokers
and dealers for the purpose of receiving research services in addition to a
favorable price and prompt execution either from that broker or an unaffiliated
third party.

Subject to allocating brokerage to receive a favorable price and prompt
execution, the Advisor may select brokers who are willing to provide payments to
third party service suppliers to an Index Fund, to reduce expenses of the Index
Fund.

The Advisor assumes general supervision over placing orders on behalf of the
Company for the purchase or sale of portfolio securities. If purchases or sales
of portfolio securities of the Company and one or more other investment
companies or clients supervised by the Advisor are considered at or about the
same time, transactions in such securities are allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Advisor, taking into account the sizes of such other investment companies and
clients and the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as the Company is concerned. However, in other cases it is possible that
the ability to participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to the Company. The primary
consideration is prompt execution of orders at the most favorable net price.
Portfolio turnover may vary from year to year, as well as within a year. High
turnover rates are likely to result in comparatively greater brokerage expenses.
The portfolio turnover rate for each Index Fund is expected to be under 50%. See
"Implementation of Policies" in the Prospectus. The overall reasonableness of
brokerage commissions is evaluated by the Advisor based upon its knowledge of
available information as to the general level of commissions paid by other
institutional investors for comparable services.

For the fiscal year ended August 31, 2000, the Company paid $1,776,128 in
aggregate brokerage commissions. During that fiscal year, certain portfolio
transactions were executed through Morgan Stanley & Co. Incorporated ("MS&Co."),
an affiliated broker of the Company due to the Company Secretary's position as a
Managing Director of MS&Co. During the fiscal years ended August 31, 2000, 1999
and 1998, the Company paid brokerage commissions to MS&Co. in amounts of
$229,929, $40,364 and $2,406, respectively (or 12.9%, 5.7% and 0.6%,
respectively, of the aggregate brokerage commissions paid in those years).

-------------------------------------------------------------------------------
Investment Limitations                                                page 25


Additional Information Concerning iShares

Capital Stock.   The Company currently is comprised of twenty-nine series of
shares of common stock, par value $.001 per share, referred to herein as
iShares: the iShares MSCI Australia Index Fund, the iShares MSCI Austria Index
Fund, the iShares MSCI Belgium Index Fund, the iShares MSCI Brazil (Free) Index
Fund, the iShares MSCI Canada Index Fund, the iShares MSCI EMU Index Fund, the
iShares MSCI France Index Fund, the iShares MSCI Germany Index Fund, the iShares
MSCI Greece Index Fund, the iShares MSCI Hong Kong Index Fund, the iShares MSCI
Indonesia (Free) Index Fund,the iShares MSCI Italy Index Fund, the iShares MSCI
Japan Index Fund, the iShares MSCI Malaysia (Free) Index Fund, the iShares MSCI
Mexico (Free) Index Fund, the iShares MSCI Netherlands Index Fund, the iShares
MSCI Portugal Index Fund, the iShares MSCI Singapore (Free) Index Fund, the
iShares MSCI South Africa Index Fund, the iShares MSCI South Korea Index Fund,
the iShares MSCI Spain Index Fund, the iShares MSCI Sweden Index Fund, the
iShares MSCI Switzerland Index Fund, the iShares MSCI Taiwan Index Fund, the
iShares MSCI Thailand (Free) Index Fund, the iShares MSCI Turkey Index Fund, the
iShares MSCI United Kingdom Index Fund, the iShares MSCI USA Index Fund, and the
iShares MSCI Pacific ex-Japan. Each Index Fund has been issued a separate class
of capital stock. The Board may designate additional series of common stock and
classify shares of a particular series into one or more classes of that series.
The Articles of Incorporation provide that the shares of each series of common
stock of the Company are redeemable, at net asset value, at the option of the
Company, in whole or any part, on such terms as the Board of Directors may by
resolution approve, without the consent of the holders thereof.

Each iShares issued by the Company has a pro rata interest in the assets of the
corresponding Index Fund. The Company is currently authorized to issue 10.9
billion shares of common stock. The following number of shares is currently
authorized for each Index Fund: the iShares MSCI Australia Index Fund, 127.8
million shares; the iShares MSCI Austria Index Fund, 19.8 million shares; the
iShares MSCI Belgium Index Fund, 136.2 million shares; the iShares MSCI Brazil
(Free) Index Fund, 500 million shares; the iShares MSCI Canada Index Fund, 340.2
million shares; the iShares MSCI EMU Index Fund, 500 million shares; the iShares
MSCI France Index Fund, 340.2 million shares; the iShares MSCI Germany Index
Fund, 382.2 million shares; the iShares MSCI Greece Index Fund, 200 million
shares; the iShares MSCI Hong Kong Index Fund, 191.4 million shares; the iShares
MSCI Indonesia (Free) Index Fund, 200 million shares, the iShares MSCI Italy
Index Fund, 63.6 million shares; the iShares MSCI Japan Index Fund, 2,124.6
million shares; the iShares MSCI Malaysia (Free) Index Fund, 127.8 million
shares; the iShares MSCI Mexico (Free) Index Fund, 255 million shares; the
iShares MSCI Netherlands Index Fund, 255 million shares, the iShares MSCI
Portugal Index Fund, 200 million shares; the iShares MSCI Singapore (Free) Index
Fund, 191.4 million shares; the iShares MSCI South Africa Index Fund, 200
million shares; the iShares MSCI South Korea Index Fund, 200 million shares; the
iShares MSCI Spain Index Fund, 127.8 million shares; the iShares MSCI Sweden
Index Fund, 63.6 million shares; the iShares MSCI Switzerland Index Fund,
318.625 million shares; the iShares MSCI Taiwan Index Fund, 200 million shares;
the iShares MSCI Thailand (Free) Index Fund, 200 million shares; the iShares
MSCI Turkey Index Fund, 200 million shares; the iShares MSCI United Kingdom
Index Fund, 943.2 million shares; the iShares MSCI USA Index Fund, 500 million
shares; the iShares MSCI Pacific ex-Japan ,500 million shares.   Fractional
shares will not be issued. Shares have no preemptive, exchange, subscription or
conversion rights and are freely transferable. Each share is entitled to
participate equally in dividends and distributions declared by the Board with
respect to the relevant Index Fund, and in the net distributable assets of such
Index Fund on liquidation. Shareholders are entitled to require the Company to
redeem Creation Units of their shares. The Articles of Incorporation confers
upon the Board of Directors the power, by resolution, to alter the number of
shares constituting a Creation Unit or to specify that shares of common stock of
the Company may be individually redeemable.

Each iShare has one vote with respect to matters upon which a stockholder vote
is required consistent with the requirements of the 1940 Act and the rules
promulgated thereunder and the Maryland General Corporation Law; stockholders
have no cumulative voting rights with respect to their shares. Shares of all
series vote together as a single class except that if the matter being voted on
affects only a particular Index Fund it will be voted on only by that Index Fund
and if a matter affects a particular Index Fund differently from other Index
Funds, that Index Fund will vote separately on such matter. Under Maryland law,
the Company is not required to hold an annual meeting of
--------------------------------------------------------------------------------
page 26                                                               i|Shares


stockholders unless required to do so under the 1940 Act. The policy of the
Company is not to hold an annual meeting of stockholders unless required to do
so under the 1940 Act. All shares of the Company (regardless of Index Fund) have
noncumulative voting rights for the election of Directors. Under Maryland law,
Directors of the Company may be removed by vote of the stockholders.

The Company issues through the Authorized Participants to its stockholders semi-
annual reports containing unaudited financial statements and annual reports
containing financial statements audited by independent auditors approved by the
Company's Directors and by the stockholders when meetings are held and such
other information as may be required by applicable laws, rules and regulations.
Beneficial Owners also receive annually notification as to the tax status of the
Company's distributions.

Stockholder inquiries may be made by writing to the Company, c/o PFPC Inc., 400
Bellevue Parkway, Wilmington, DE 19809.

Book Entry Only System.   DTC acts as securities depositary for iShares. iShares
of each Index Fund are represented by global securities registered in the name
of DTC or its nominee and deposited with, or on behalf of, DTC. Except as
provided below, certificates will not be issued for iShares.

DTC has advised the Company as follows: it is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of its participants (the "DTC Participants") and to facilitate the
clearance and settlement of securities transactions among the DTC Participants
in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
a number of its DTC Participants and by the New York Stock Exchange, Inc., the
AMEX and the National Association of Securities Dealers, Inc. Access to the DTC
system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly (the "Indirect Participants"). DTC
agrees with and represents to its Participants that it will administer its book-
entry system in accordance with its rules and by-laws and requirements of law.

Beneficial ownership of iShares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in iShares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase of iShares. The
laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability of certain investors to acquire beneficial interests in
iShares.

Beneficial Owners of iShares are not entitled to have iShares registered in
their names, will not receive or be entitled to receive physical delivery of
certificates in definitive form and are not considered the registered holder
thereof. Accordingly, each Beneficial Owner must rely on the procedures of DTC,
the DTC Participant and any Indirect Participant through which such Beneficial
Owner holds its interests, to exercise any rights of a holder of iShares. The
Company understands that under existing industry practice, in the event the
Company requests any action of holders of iShares, or a Beneficial Owner desires
to take any action that DTC, as the record owner of all outstanding iShares, is
entitled to take, DTC would authorize the DTC Participants to take such action
and that the DTC Participants would authorize the Indirect Participants and
Beneficial Owners acting through such DTC Participants to take such action and
would otherwise act upon the instructions of Beneficial Owners owning through
them. As described above, the Company recognizes DTC or its nominee as the owner
of all iShares for all purposes. Conveyance of all notices, statements and other
communications to Beneficial Owners is effected as follows. Pursuant to the
Depositary
--------------------------------------------------------------------------------
Additional Information Concerning iShares                               page 27


Agreement between the Company and DTC, DTC is required to make available to the
Company upon request and for a fee to be charged to the Company a listing of the
iShares holdings of each DTC Participant. The Company shall inquire of each such
DTC Participant as to the number of Beneficial Owners holding iShares, directly
or indirectly, through such DTC Participant. The Company shall provide each such
DTC Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Company shall pay to each such DTC Participant a fair
and reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.

iShares distributions shall be made to DTC or its nominee, Cede & Co., as the
registered holder of all iShares. DTC or its nominee, upon receipt of any such
distributions, shall credit immediately DTC Participants' accounts with payments
in amounts proportionate to their respective beneficial interests in iShares as
shown on the records of DTC or its nominee. Payments by DTC Participants to
Indirect Participants and Beneficial Owners of iShares held through such DTC
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in a "street name," and will be the responsibility of such
DTC Participants. The Company has no responsibility or liability for any aspects
of the records relating to or notices to Beneficial Owners, or payments made on
account of beneficial ownership interests in such iShares, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC Participants.

DTC may determine to discontinue providing its service with respect to iShares
at any time by giving reasonable notice to the Company and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Company shall take action either to find a replacement for
DTC to perform its functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing ownership of
iShares, unless the Company makes other arrangements with respect thereto
satisfactory to the AMEX (or such other exchange on which iShares may be
listed).

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page 28                                                                i|Shares


Purchase and Redemption of iShares

Creation Units.   The Company issues and redeems iShares of each Index Fund only
in aggregations of iShares specified for each Index Fund. The following table
sets forth the number of iShares of the iShares MSCI Pacific ex-Japan Index Fund
that constitute a Creation Unit for such Index Fund and the estimated value of
such Creation Unit at October 15, 2001:


                               iShares Per         Value Per
Index Fund                     Creation Unit       Creation Unit ($U.S.)
----------                     -------------       ---------------------
Pacific ex-Japan                  100,000                $5,000,000*

________________
* Estimated.

See "Purchase and Issuance of iShares in Creation Units" and "Redemption of
iShares in Creation Units" below. The Board of Directors of the Company reserves
the right to declare a split or a consolidation in the number of iShares
outstanding of any Index Fund of the Company, and to make a corresponding change
in the number of iShares constituting a Creation Unit, in the event that the per
iShares price in the secondary market rises (or declines) to an amount that
falls outside the range deemed desirable by the Board.

Purchase and Issuance of iShares in Creation Units

General.  The Company issues and sells iShares only in Creation Units on a
continuous basis through the Distributor, without an initial sales load, at
their net asset value next determined after receipt, on any Business Day (as
defined herein), of an order in proper form.

A "Business Day" with respect to each Index Fund is any day on which (i) the New
York Stock Exchange ("NYSE") and (ii) the stock exchange(s) and Company
subcustodian(s) relevant to such Index Fund are open for business. As of the
date of this SAI, the NYSE observes the following holidays: New Year's Day, Dr.
Martin Luther King, Jr. Day, President's Day (Washington's Birthday), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The stock exchange and/or subcustodian holidays relevant to
each Index Fund are set forth in Appendix B to this SAI.

Portfolio Deposit.   The consideration for purchase of a Creation Unit of
iShares of an Index Fund generally consists of the in-kind deposit of a
designated portfolio of equity securities (the "Deposit Securities")
constituting an optimized representation of the Index Fund's benchmark foreign
securities index and an amount of cash computed as described below (the "Cash
Component"). Together, the Deposit Securities and the Cash Component constitute
the "Portfolio Deposit," which represents the minimum initial and subsequent
investment amount for shares of any Index Fund of the Company. The Cash
Component is an amount equal to the Dividend Equivalent Payment (as defined
below), plus or minus, as the case may be, a Balancing Amount (as defined
below). The "Dividend Equivalent Payment" enables the Company to make a complete
distribution of dividends on the next dividend payment date, and is an amount
equal, on a per Creation Unit basis, to the dividends on all the Portfolio
Securities with ex-dividend dates within the accumulation period for such
distribution (the "Accumulation Period"), net of expenses and liabilities for
such period, as if all of the Portfolio Securities had been held by the Company
for the entire Accumulation Period. The "Balancing Amount" is an amount equal to
the difference between (x) the net asset value (per Creation Unit) of the Index
Fund and (y) the sum of (i) the Dividend Equivalent Payment and (ii) the market
value (per Creation Unit) of the securities deposited with the Company (the sum
of (i) and (ii) is referred to as the "Deposit Amount"). The Balancing Amount
serves the function of compensating for any differences between the net asset
value per Creation Unit and the Deposit Amount.

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Purchase and Redemption of iShares                                    page 29


The Advisor makes available through the Distributor on each Business Day,
immediately prior to the opening of business on the AMEX (currently 9:30 a.m.,
Eastern time), the list of the names and the required number of shares of each
Deposit Security to be included in the current Portfolio Deposit (based on
information at the end of the previous Business Day) for each Index Fund. Such
Portfolio Deposit is applicable, subject to any adjustments as described below,
in order to effect purchases of Creation Units of iShares of a given Index Fund
until such time as the next-announced Portfolio Deposit composition is made
available.

The identity and number of shares of the Deposit Securities required for a
Portfolio Deposit for each Index Fund changes as rebalancing adjustments and
corporate action events are reflected from time to time by the Advisor with a
view to the investment objective of the Index Fund. The composition of the
Deposit Securities may also change in response to adjustments to the weighting
or composition of the securities constituting the relevant securities index. In
addition, the Company reserves the right to permit or require the substitution
of an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash
Component to replace any Deposit Security which may not be available in
sufficient quantity for delivery or for other similar reasons. The adjustments
described above will reflect changes, known to the Advisor on the date of
announcement to be in effect by the time of delivery of the Portfolio Deposit,
in the composition of the subject index being tracked by the relevant Index
Fund, or resulting from stock splits and other corporate actions.

In addition to the list of names and numbers of securities constituting the
current Deposit Securities of a Portfolio Deposit, the Distributor also makes
available (i) on each Business Day, the Dividend Equivalent Payment effective
through and including the previous Business Day, per outstanding iShares of each
Index Fund, and (ii) on a continuous basis throughout the day, the sum of the
Dividend Equivalent Payment effective through and including the close of the
previous trading session in the relevant foreign market, plus the current value
of the requisite Deposit Securities as in effect on such day.

Although the Advisor makes available on each Business Day the list of names and
the required number of shares of each Deposit Security to be included in the
current Portfolio Deposit for each Index Fund, the Company reserves the right to
permit the substitution of securities that differ from certain of such Deposit
Securities in such numbers of shares as the Advisor determines appropriate,
together with a corresponding adjustment to the required cash Balancing Amount
necessary to compensate for any differences between the net asset value per
Creation Unit and the Deposit Amount.

Role of The Authorized Participant.  Creation Units of iShares may be purchased
only by or through a DTC Participant that has entered into an Authorized
Participant Agreement with the Company and the Distributor ("Authorized
Participant"). Such Authorized Participant will agree pursuant to the terms of
such Authorized Participant Agreement on behalf of itself or any investor on
whose behalf it will act, as the case may be, to certain conditions, including
that such Authorized Participant will make available in advance of each purchase
of iShares an amount of cash sufficient to pay the Cash Component, once the net
asset value of a Creation Unit is next determined after receipt of the purchase
order in proper form, together with the transaction fee described below. The
Authorized Participant may require the investor to enter into an agreement with
such Authorized Participant with respect to certain matters, including payment
of the Cash Component. Investors who are not Authorized Participants must make
appropriate arrangements with an Authorized Participant. Investors should be
aware that their particular broker may not be a DTC Participant or may not have
executed an Authorized Participant Agreement, and that therefore orders to
purchase Creation Units of iShares may have to be placed by the investor's
broker through an Authorized Participant. As a result, purchase orders placed
through an Authorized Participant may result in additional charges to such
investor. The Company does not expect to enter into an Authorized Participant
Agreement with more than a small number of DTC Participants that have
international capabilities. A list of the current Authorized Participants may be
obtained from the Distributor.

Purchase Order.  To initiate an order for a Creation Unit of iShares, the
Authorized Participant must give notice to the Distributor of its intent to
submit an order to purchase iShares after 9:00 a.m. but not later than 4:00
p.m., Eastern time on the relevant Business Day. The Distributor shall cause the
Advisor and the Custodian to be informed of such advice. The Custodian will then
provide such information to the appropriate subcustodian. For each Index Fund,
the Custodian shall cause the subcustodian of the Index Fund to maintain an
account into which the Authorized Participant shall deliver, on behalf of itself
or the party on whose behalf it is acting, the securities
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page 30                                                               i|Shares


included in the designated Portfolio Deposit (or the cash value of all or a part
of such securities, in the case of a permitted or required cash purchase or
"cash in lieu" amount), with any appropriate adjustments as advised by the
Company.

Deposit Securities must be delivered to an account maintained at the applicable
local subcustodian.

Following the notice of intention, an irrevocable order to purchase Creation
Units, in the form required by the Company, must be received by the Distributor
from an Authorized Participant on its own or another investor's behalf by the
closing time of the regular trading session on the AMEX (currently 4:00 p.m.,
Eastern time) on the relevant Business Day. (The required form of an order to
purchase is available on request from the Distributor.) Those placing orders to
purchase Creation Units through an Authorized Participant should allow
sufficient time to permit proper submission of the purchase order to the
Distributor by the cut-off time on such Business Day. Orders must be transmitted
by the Authorized Participant to the Distributor by facsimile or electronic
transmission as provided in the Authorized Participant Agreement.

The Authorized Participant must also make available on or before the contractual
settlement date, by means satisfactory to the Company, immediately available or
same day funds estimated by the Company to be sufficient to pay the Cash
Component next determined after acceptance of the purchase order, together with
the applicable purchase transaction fee. Any excess funds will be returned
following settlement of the issue of the Creation Unit of iShares. Those placing
orders should ascertain the applicable deadline for cash transfers by contacting
the operations department of the broker or depositary institution effectuating
the transfer of the Cash Component. This deadline is likely to be significantly
earlier than the closing time of the regular trading session on the AMEX.

Investors should be aware that an Authorized Participant may require orders for
purchases of iShares placed with it to be in the form required by the individual
Authorized Participant, which form will not be the same as the form of purchase
order specified by the Company, which the Authorized Participant must deliver to
the Distributor.

Timing of Submission of Creation Unit Purchase Orders and Redemption Requests.
Although an Authorized Participant ordinarily must submit to the Distributor a
purchase order or a redemption request in respect of Creation Units of any Index
Fund on a day that the AMEX is open for business, between the hours of 9:00 a.m.
and 4:00 p.m. Eastern time, the Distributor in its discretion may permit the
submission of such orders and requests by or through an Authorized Participant
at any time (including on days on which the AMEX is not open for business) via
communication through the facilities of the Distributor's proprietary website
maintained for this purpose.  However, the ability of an Authorized Participant
to submit a purchase order or redemption request at any time via this website
does not assure the Authorized Participant that such order or request will be
processed at the net asset value determined on the date of such submission.  The
purchase order or redemption request, once accepted by the Company, will be
processed based on the net asset value determined after such acceptance, either
on the date of submission or on the next day that net asset value is determined,
as the case may be, in accordance with the Company's standard cut-off times as
provided in the Authorized Participant Agreement and disclosed in this Statement
of Additional Information.

Acceptance of Purchase Order.  Subject to the conditions that (i) a properly
completed irrevocable purchase order has been submitted by the Authorized
Participant (either on its own or another investor's behalf) not later than the
closing time of the regular trading session on the AMEX, and (ii) arrangements
satisfactory to the Company are in place for payment of the Cash Component and
any other cash amounts which may be due, the Company will accept the order,
subject to its right (and the right of the Distributor and the Advisor) to
reject any order until acceptance.

Once the Company has accepted an order, upon next determination of the net asset
value of the shares, the Company will confirm the issuance, against receipt of
payment, of a Creation Unit of iShares of the Index Fund at such net asset
value. The Distributor will then transmit a confirmation of acceptance to the
Authorized Participant that placed the order.

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Purchase and Redemption of iShares                                     page 31


The Company reserves the absolute right to reject a purchase order transmitted
to it by the Distributor in respect of any Index Fund if (a) the purchaser or
group of purchasers, upon obtaining the shares ordered, would own 80% or more of
the currently outstanding shares of any Index Fund; (b) the Deposit Securities
delivered are not as specified by the Advisor, as described above; (c)
acceptance of the Deposit Securities would have certain adverse tax consequences
to the Index Fund; (d) the acceptance of the Portfolio Deposit would, in the
opinion of counsel, be unlawful; (e) the acceptance of the Portfolio Deposit
would otherwise, in the discretion of the Company or the Advisor, have an
adverse effect on the Company or the rights of beneficial owners; or (f) in the
event that circumstances outside the control of the Company, the Distributor and
the Advisor make it for all practical purposes impossible to process purchase
orders. The Company shall notify a prospective purchaser of its rejection of the
order of such person. The Company and the Distributor are under no duty,
however, to give notification of any defects or irregularities in the delivery
of Portfolio Deposits nor shall either of them incur any liability for the
failure to give any such notification.

Issuance of a Creation Unit. Except as provided herein, a Creation Unit of
iShares of an Index Fund will not be issued until the transfer of good title to
the Company of the Deposit Securities and the payment of the Cash Component have
been completed. When the subcustodian has confirmed to the Custodian that the
required securities included in the Portfolio Deposit (or the cash value
thereof) have been delivered to the account of the relevant subcustodian, the
Custodian shall notify the Distributor and the Advisor, and the Company will
issue and cause the delivery of the Creation Unit of iShares.

To the extent contemplated by an Authorized Participant's agreement with the
Company, the Company will issue Creation Units of iShares to such Authorized
Participant notwithstanding the fact that the corresponding Portfolio Deposits
have not been received in part or in whole, in reliance on the undertaking of
the Authorized Participant to deliver the missing Deposit Securities as soon as
possible, which undertaking shall be secured by such Authorized Participant's
delivery and maintenance of collateral consisting of cash or Short-Term
Investments having a value at least equal to such amount as required by the
Company in accordance with its then-effective procedures, provided that such
amount shall be no less than 125% of the value of the missing Deposit
Securities. Information concerning the Company's current procedures for
collateralization of missing Deposit Securities is available from the
Distributor. The Authorized Participant Agreement will permit the Company to buy
the missing Deposit Securities at any time and will subject the Authorized
Participant to liability for any shortfall between the cost to the Company of
purchasing such securities and the value of the collateral.

All questions as to the number of shares of each security in the Deposit
Securities and the validity, form, eligibility and acceptance for deposit of any
securities to be delivered shall be determined by the Company, and the Company's
determination shall be final and binding.

Cash Purchase Method.  Although the Company does not ordinarily permit cash
purchases of Creation Units, when cash purchases of Creation Units of iShares
are available or specified for an Index Fund (Creation Units of the Brazil
(Free), Malaysia (Free), South Korea and Taiwan Index Funds are currently
offered only for cash), they will be effected in essentially the same manner as
in-kind purchases thereof. In the case of a cash purchase, the investor must pay
the cash equivalent of the Deposit Securities it would otherwise be required to
provide through an in-kind purchase, plus the same Cash Component required to be
paid by an in-kind purchaser. In addition, to offset the Company's brokerage and
other transaction costs associated with using the cash to purchase the requisite
Deposit Securities, the investor will be required to pay a fixed purchase
transaction fee, plus an additional variable charge for cash purchases, which is
expressed as a percentage of the value of the Deposit Securities. The
transaction fees for in-kind and cash purchases of Creation Units of iShares are
described below.

Purchase Transaction Fee.  A purchase transaction fee payable to the Company is
imposed to compensate the Company for the transfer and other transaction costs
of an Index Fund associated with the issuance of Creation Units of iShares.
Purchasers of Creation Units of iShares for cash are required to pay an
additional variable charge to compensate the relevant Index Fund for brokerage
and market impact expenses relating to investing in portfolio securities. Where
the Company permits an in-kind purchaser to substitute cash in lieu of
depositing a portion of the Deposit Securities, the purchaser will be assessed
the additional variable charge for cash purchases on the "cash in lieu" portion
of its investment. Purchasers of iShares in Creation Units are responsible for
the costs of transferring the securities constituting the Deposit Securities to
the account of the Company. The purchase transaction fees for in-

--------------------------------------------------------------------------------
page 32                                                                 i|Shares


kind purchases and cash purchases (when available) are listed in the table
below. This table is subject to revision from time to time. Investors are also
responsible for payment of the costs of transferring the Deposit Securities to
the Company.


                             Maximum Additional            Variable Charge for
Index Fund               In-kind and Cash Purchases          Cash Purchases*
----------               --------------------------          --------------
Pacific ex-Japan                   $7,200                         1.80%

_____________
* As a percentage of the value of amount invested.


See "Investment Advisory, Management, Administrative and Distribution Services"
herein, for additional information concerning the distribution arrangements for
iShares.

Redemption of iShares in Creation Units.  iShares may be redeemed only in
Creation Units at their net asset value next determined after receipt of a
redemption request in proper form by the Distributor and only on a day on which
the AMEX is open for trading. The Company will not redeem iShares in amounts
less than Creation Units. Beneficial Owners also may sell iShares in the
secondary market, but must accumulate enough iShares to constitute a Creation
Unit in order to have such shares redeemed by the Company. There can be no
assurance, however, that there will be sufficient liquidity in the public
trading market at any time to permit assembly of a Creation Unit of iShares.
Investors should expect to incur brokerage and other costs in connection with
assembling a sufficient number of iShares to constitute a redeemable Creation
Unit.

With respect to each Index Fund the Advisor makes available through the
Distributor immediately prior to the opening of business on the AMEX (currently
9:30 a.m., Eastern time) on each day that the AMEX is open for business the
Portfolio Securities that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form (as defined below) on
that day. Unless cash redemptions are available or specified for an Index Fund,
the redemption proceeds for a Creation Unit generally consist of Deposit
Securities as announced by the Distributor on the Business Day of the request
for redemption, plus cash in an amount equal to the difference between the net
asset value of the shares being redeemed, as next determined after a receipt of
a request in proper form, and the value of the Deposit Securities, less the
redemption transaction fee described below. The redemption transaction fee
described below is deducted from such redemption proceeds. In the case of a
resident Australian or New Zealand holder, notwithstanding the foregoing, such
holder is only entitled to receive cash upon its redemption of Creation Units of
iShares.

A redemption transaction fee payable to the Company is imposed to offset
transfer and other transaction costs that may be incurred by the relevant Index
Fund, including market impact expenses relating to disposing of portfolio
securities. The redemption transaction fee for redemptions in kind and for cash
and the additional variable charge for cash redemptions (when cash redemptions
are available or specified) are listed in the table below. Investors will also
bear the costs of transferring the Portfolio Deposit from the Company to their
account or on their order. Investors who use the services of a broker or other
such intermediary may be charged a fee for such services.

                           In-kind and           Additional Variable Charge
Index Fund               Cash Redemptions           for Cash Purchases*
----------               ----------------           ------------------
Pacific ex-Japan              $7,200                        1.50%

______________
* As a percentage of the value of amount invested.

Redemption requests in respect of Creation Units of any Index Fund must be
submitted to the Distributor by or through an Authorized Participant on a day
that the AMEX is open for business, between the hours of 9:00 a.m. and 4:00
p.m., Eastern time. Investors other than through Authorized Participants are
responsible for making arrangements for a redemption request to be made through
an Authorized Participant. The Distributor will provide a list of current
Authorized Participants upon request.

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Purchase and Redemption of iShares                                       page 33


The Authorized Participant must transmit the request for redemption, in the form
required by the Company, to the Distributor in accordance with procedures set
forth in the Authorized Participant Agreement. Investors should be aware that
their particular broker may not have executed an Authorized Participant
Agreement, and that, therefore, requests to redeem Creation Units may have to be
placed by the investor's broker through an Authorized Participant who has
executed an Authorized Participant Agreement. At any given time there will be
only a limited number of broker-dealers that have executed an Authorized
Participant Agreement. Investors making a redemption request should be aware
that such request be in the form specified by such Authorized Participant.
Investors making a request to redeem Creation Units should allow sufficient time
to permit proper submission of the request by an Authorized Participant and
transfer of the iShares to the Company's Transfer Agent; such investors should
allow for the additional time that may be required to effect redemptions through
their banks, brokers or other financial intermediaries if such intermediaries
are not Authorized Participants.

A redemption request is considered to be in "proper form" if (i) an Authorized
Participant has transferred or caused to be transferred to the Company's
Transfer Agent the Creation Unit of iShares being redeemed through the book-
entry system of DTC so as to be effective by the AMEX closing time on a day on
which the AMEX is open for business and (ii) a duly completed request form is
received by the Distributor from the Authorized Participant on behalf of itself
or another redeeming investor after 9:00 a.m. and not later than 2:00 p.m. on
the next following day (on which the AMEX is open for business). If the Transfer
Agent does not receive the investor's iShares through DTC's facilities by 2:00
p.m. on the AMEX business day following the day that the redemption request is
received, the redemption request shall be rejected and may be resubmitted the
next day that the AMEX is open for business. Investors should be aware that the
deadline for such transfers of shares through the DTC system may be
significantly earlier than the close of business on the AMEX. Those making
redemption requests should ascertain the deadline applicable to transfers of
shares through the DTC system by contacting the operations department of the
broker or depositary institution effecting the transfer of the iShares.

Upon receiving a redemption request, the Distributor shall notify the Company
and the Company's Transfer Agent of such redemption request. The tender of an
investor's iShares for redemption and the distribution of the cash redemption
payment in respect of Creation Units redeemed will be effected through DTC and
the relevant Authorized Participant to the beneficial owner thereof as recorded
on the book-entry system of DTC or the DTC Participant through which such
investor holds iShares, as the case may be, or by such other means specified by
the Authorized Participant submitting the redemption request. See "Book-Entry
System Only."

In connection with taking delivery of shares of Deposit Securities upon
redemption of iShares, a redeeming Beneficial Owner or Authorized Participant
acting on behalf of such Beneficial Owner must maintain appropriate security
arrangements with a qualified broker-dealer, bank or other custody providers in
each jurisdiction in which any of the Portfolio Securities are customarily
traded, to which account such Portfolio Securities will be delivered.

Deliveries of redemption proceeds by the Index Funds relating to those countries
generally will be made within three business days. Due to the schedule of
holidays in certain countries, however, the delivery of in-kind redemption
proceeds may take longer than three business days after the day on which the
redemption request is received in proper form. For each country relating to an
Index Fund, Appendix B hereto identifies the instances where more than seven
days would be needed to deliver redemption proceeds. Pursuant to an order of the
SEC, in respect of each Index Fund, the Company will make delivery of in-kind
redemption proceeds within the number of days stated in Appendix B to be the
maximum number of days necessary to deliver redemption proceeds.

If neither the redeeming Beneficial Owner nor the Authorized Participant acting
on behalf of such redeeming Beneficial Owner has appropriate arrangements to
take delivery of the Portfolio Securities in the applicable foreign jurisdiction
and it is not possible to make other such arrangements, or if it is not possible
to effect deliveries of the Portfolio Securities in such jurisdiction, the
Company may in its discretion exercise its option to redeem such shares in cash,
and the redeeming Beneficial Owner will be required to receive its redemption
proceeds in cash. In such case, the investor will receive a cash payment equal
to the net asset value of its shares based on the net asset value of iShares of
the relevant Index Fund next determined after the redemption request is received
in proper form (minus a redemption transaction fee and additional variable
charge for cash redemptions specified above, to offset the Company's brokerage
and other transaction costs associated with the disposition of Portfolio
Securities of the Index Fund). Redemptions of iShares for Deposit Securities
will be subject to compliance with applicable United States

--------------------------------------------------------------------------------
page 34                                                                 i|Shares


federal and state securities laws and each Index Fund (whether or not it
otherwise permits cash redemptions) reserves the right to redeem Creation Units
for cash to the extent that the Index Fund could not lawfully deliver specific
Deposit Securities upon redemptions or could not do so without first registering
the Deposit Securities under such laws.

Although the Company does not ordinarily permit cash redemptions of Creation
Units (except that, as noted above, Creation Units of the Brazil (Free),
Malaysia (Free), South Korea and Taiwan Index Funds may be redeemed only for
cash, and resident Australian and New Zealand holders may redeem solely for
cash), in the event that cash redemptions are permitted or required by the
Company, proceeds will be paid to the Authorized Participant redeeming shares on
behalf of the redeeming investor as soon as practicable after the date of
redemption (within seven calendar days thereafter, except for the instances
listed in Appendix B hereto where more than seven calendar days would be
needed).

To the extent contemplated by an Authorized Participant's agreement with the
Company, in the event the Authorized Participant that has submitted a redemption
request in proper form is unable to transfer all or part of the Creation Units
of iShares to be redeemed to the Distributor, on behalf of the Company, at or
prior to 2:00 p.m. on the AMEX business day after the date of submission of such
redemption request, the Distributor will nonetheless accept the redemption
request in reliance on the undertaking by the Authorized Participant to deliver
the missing iShares as soon as possible, which undertaking shall be secured by
the Authorized Participant's delivery and maintenance of collateral consisting
of cash having a value at least equal to 125% of the value of the missing
iShares. The collateral is marked to market daily in accordance with the
Company's procedures. The Company's current procedures for collateralization of
missing iShares require, among other things, that any cash collateral shall be
in the form of U.S. dollars in immediately available funds and shall be held by
the Company's custodian and marked to market daily, and that the fees of the
custodian and any subcustodians in respect of the delivery, maintenance and
redelivery of the cash collateral shall be payable by the Authorized
Participant. The Authorized Participant Agreement permits the Company to
purchase the missing iShares or acquire the Portfolio Securities and the Cash
Component underlying such iShares at any time and subjects the Authorized
Participant to liability for any shortfall between the cost to the Company of
purchasing such iShares, Portfolio Securities or Cash Component and the value of
the collateral.

Because the Portfolio Securities of an Index Fund may trade on the relevant
exchange(s) on days that the AMEX is closed or are otherwise not Business Days
for such Index Fund, stockholders may not be able to redeem their shares of such
Index Fund, or to purchase or sell iShares on the AMEX, on days when the net
asset value of such Index Fund could be significantly affected by events in the
relevant foreign markets.

The right of redemption may be suspended or the date of payment postponed with
respect to any Index Fund (1) for any period during which the New York Stock
Exchange is closed (other than customary weekend and holiday closings); (2) for
any period during which trading on the New York Stock Exchange is suspended or
restricted; (3) for any period during which an emergency exists as a result of
which disposal of the shares of the Index Fund's portfolio securities or
determination of its net asset value is not reasonably practicable; or (4) in
such other circumstance as is permitted by the SEC.

Determining Net Asset Value.  Net asset value per share for each Index Fund is
computed by dividing the value of the net assets of such Index Fund (i.e., the
value of its total assets less total liabilities) by the total number of iShares
outstanding, rounded to the nearest cent. Expenses and fees, including the
management, administration and distribution fees, are accrued daily and taken
into account for purposes of determining net asset value. The net asset value of
the iShares MSCI Pacific ex-Japan Index Fund is determined as of 8:30 a.m.
(Eastern time) on each day that the NYSE is open. The net asset value of the
iShares MSCI Brazil Index Fund is determined as of 5:00 p.m. (Eastern time) on
each day that the New York Stock Exchange, Inc. is open. The Company may
establish additional times for the computation of net asset value of one or more
Index Funds in the future in connection with the possible future trading of
iShares of such Index Funds on one or more foreign exchanges.

Portfolio securities for which market prices are readily available are valued
using the official closing prices of the primary exchange on which they are
traded.  The methodology used to determine such closing prices varies among
markets.  Such prices are generally the same as those used by MSCI in
calculating the benchmark indices used by the Index Funds.  Other portfolio
securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith in accordance with procedures
adopted by the Company's Board of Directors.

--------------------------------------------------------------------------------
Purchase and Redemption of iShares                                       page 35


Currency values generally are converted into US dollars using the same exchange
rates utilized by Morgan Stanley Capital International in the calculation of the
relevant MSCI Indices (currently, exchange rates as of 4:00 p.m. London time).
However, the Company may use a different rate from the rate used by MSCI in the
event the Advisor concludes that such rate is more appropriate. Any such use of
a different rate than MSCI may adversely affect an Index Fund's ability to track
its benchmark MSCI Index.

Continuous Offering.  The method by which Creation Units of iShares are created
and traded may raise certain issues under applicable securities laws. Because
new Creation Units of iShares are issued and sold by the Company on an ongoing
basis, at any point a "distribution", as such term is used in the Securities
Act, may occur. Broker-dealers and other persons are cautioned that some
activities on their part may, depending on the circumstances, result in their
being deemed participants in a distribution in a manner which could render them
statutory underwriters and subject them to the prospectus delivery and liability
provisions of the Securities Act. For example, a broker-dealer firm or its
client may be deemed a statutory underwriter if it takes Creation Units after
placing an order with the Distributor, breaks them down into constituent
iShares, and sells some or all of the iShares comprising such Creation Units
directly to its customers; or if it chooses to couple the creation of a supply
of new iShares with an active selling effort involving solicitation of secondary
market demand for iShares. A determination of whether a person is an underwriter
for the purposes of the Securities Act depends upon all the facts and
circumstances pertaining to that person's activities. Thus, the examples
mentioned above should not be considered a complete description of all the
activities that could lead to a categorization as an underwriter. Broker-dealer
firms should also note that dealers who are effecting transactions in iShares,
whether or not participating in the distribution of iShares, are generally
required to deliver a prospectus. This is because the prospectus delivery
exemption in Section 4(3) of the Securities Act is not available in respect of
such transactions as a result of Section 24(d) of the 1940 Act. The Company has,
however, applied to the Securities and Exchange Commission for an exemption from
this prospectus delivery obligation in ordinary iShares secondary market
transactions under certain circumstances, on the condition that iShares
purchasers are provided with a iShares product description. If the SEC granted
the Company this relief, broker-dealer firms should note that dealers who are
not "underwriters" but are participating in a distribution (as contrasted to
ordinary secondary market transaction), and thus dealing with iShares that are
part of an "unsold allotment" within the meaning of section 4(3)(C) of the
Securities Act, would be unable to take advantage of the prospectus delivery
exemption provided by section 4(3) of the Securities Act. Firms that incur a
prospectus-delivery obligation with respect to iShares are reminded that under
Securities Act Rule 153 a prospectus delivery obligation under Section 5(b)(2)
of the Securities Act owed to a national exchange member in connection with a
sale on the national exchange is satisfied by the fact that the Index Fund's
prospectus is available at the national exchange (i.e., the AMEX) upon request.
The prospectus delivery mechanism provided in Rule 153 is only available with
respect to transactions on a national exchange and not with respect to
"upstairs" transactions. Foreign brokers are advised that it has been the SEC's
policy for many years that sales of open-end investment companies that register
with the SEC (such as the Fund) be sold in accordance with the requirements of
U.S. law, except that in the case of a conflict with specifically applicable
foreign law, the foreign law generally would be considered controlling.

--------------------------------------------------------------------------------
page 36                                                                 i|Shares


Taxes

The Company on behalf of each Index Fund has the right to reject an order for a
purchase of iShares if the purchaser (or group of purchasers) would, upon
obtaining the iShares so ordered, own 80% or more of the outstanding iShares of
a given Index Fund and if, pursuant to section 351 of the Internal Revenue Code,
the respective Index Fund would have a basis in the securities different from
the market value of such securities on the date of deposit. The Company also has
the right to require information necessary to determine beneficial share
ownership for purposes of the 80% determination. See "Purchase and Issuance of
iShares in Creation Units."

Each Index Fund intends to qualify for and to elect treatment as a separate RIC
under Subchapter M of the Internal Revenue Code. To qualify for treatment as a
RIC, a company must annually distribute at least 90 percent of its net
investment company taxable income (which includes dividends, interest and net
short-term capital gains) and meet several other requirements. Among such other
requirements are the following: (1) at least 90 percent of the company's annual
gross income must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies, or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (2) at the close of each quarter of
the company's taxable year, (a) at least 50 percent of the market value of the
company's total assets must be represented by cash and cash items, U.S.
government securities, securities of other regulated investment companies and
other securities, with such other securities limited for purposes of this
calculation in respect of any one issuer to an amount not greater than 5% of the
value of the company's assets and not greater than 10% of the outstanding voting
securities of such issuer, and (b) not more than 25 percent of the value of its
total assets may be invested in the securities of any one issuer or of two or
more issuers that are controlled by the company (within the meaning of Section
851(b)(3)(B) of the Internal Revenue Code) and that are engaged in the same or
similar trades or businesses or related trades or businesses (other than U.S.
government securities or the securities of other regulated investment
companies).

Each Index Fund may be subject to foreign income taxes withheld at source. Each
Index Fund will elect to "pass through" to its investors the amount of foreign
income taxes paid by the Index Fund provided that the investor held the Index
Fund, and the Index Fund held the security, on the dividend settlement date and
for at least fourteen additional days immediately before and/or thereafter, with
the result that each investor will (i) include in gross income, even though not
actually received, the investor's pro rata share of the Index Fund's foreign
income taxes, and (ii) either deduct (in calculating U.S. taxable income) or
credit (in calculating U.S. federal income tax) the investor's pro rata share of
the Index Fund's foreign income taxes. A foreign tax credit may not exceed the
investor's U.S. federal income tax otherwise payable with respect to the
investor's foreign source income. For this purpose, each shareholder must treat
as foreign source gross income (i) his proportionate share of foreign taxes paid
by the Index Fund and (ii) the portion of any dividend paid by the Index Fund
which represents income derived from foreign sources; the Index Fund's gain from
the sale of securities will generally be treated as U.S. source income. This
foreign tax credit limitation is applied separately to separate categories of
income; dividends from the Index Fund will be treated as "passive" or "financial
services" income for this purpose. The effect of this limitation may be to
prevent investors from claiming as a credit the full amount of their pro rata
share of the Index Fund's foreign income taxes. Taxes other than foreign income
taxes are not passed through to you in this way.

If any Index Fund owns shares in certain foreign investment entities, referred
to as "passive foreign investment companies," the Index Fund will be subject to
one of the following special tax regimes: (i) the Index Fund is liable for U.S.
federal income tax, and an additional charge in the nature of interest, on a
portion of any "excess distribution" from such foreign entity or any gain from
the disposition of such shares, even if the entire distribution or gain is paid
out by the Index Fund as a dividend to its shareholders; (ii) if the Index Fund
were able and elected to treat a passive foreign investment company as a
"qualified electing fund," the Index Fund would be required each year to include
in income, and distribute to shareholders in accordance with the distribution
requirements set forth above, the Index Fund's pro rata share of the ordinary
earnings and net capital gains of the passive foreign investment company,
whether or not such earnings or gains are distributed to the Index Fund or (iii)
the Index Fund is entitled to mark-to-market annually the shares of the passive
foreign investment company, and is required to

--------------------------------------------------------------------------------
Taxes                                                                    page 37


distribute to shareholders any such mark-to-market gains in accordance with the
distribution requirements set forth above.

An Index Fund will be subject to a 4 percent excise tax on certain undistributed
income if it does not distribute to its shareholders in each calendar year at
least 98 percent of its ordinary income for the calendar year plus 98 percent of
its capital gain net income for the twelve months ended October 31 of such year.
Each Index Fund intends to declare and distribute dividends and distributions in
the amounts and at the times necessary to avoid the application of this 4
percent excise tax.

An investor in an Index Fund that is a foreign corporation or an individual who
is a nonresident alien for U.S. tax purposes will be subject to adverse U.S. tax
consequences. For example, dividends paid out of an Index Fund's investment
company taxable income will generally be subject to U.S. federal withholding tax
at a rate of 30% (or lower treaty rate if the foreign investor is eligible for
the benefits of an income tax treaty). Foreign investors are urged to consult
their own tax advisors regarding the U.S. tax treatment, in their particular
circumstances, of ownership of shares in an Index Fund.

The foregoing discussion is a summary only and is not intended as a substitute
for careful tax planning. Purchasers of shares of the Company should consult
their own tax advisors as to the tax consequences of investing in such shares,
including under state, local and other tax laws. Finally, the foregoing
discussion is based on applicable provisions of the Internal Revenue Code,
regulations, judicial authority and administrative interpretations in effect on
the date hereof. Changes in applicable authority could materially affect the
conclusions discussed above, and such changes often occur.

--------------------------------------------------------------------------------
page 38                                                                 i|Shares


Performance Information

The performance of the Index Funds may be quoted in advertisements, sales
literature or reports to shareholders in terms of average annual total return,
cumulative total return and yield.

Quotations of average annual total return are expressed in terms of the average
annual rate of return of a hypothetical investment in an Index Fund over periods
of 1, 5 and 10 years (or the life of an Index Fund, if shorter). Such total
return figures will reflect the deduction of a proportional share of such Index
Fund's expenses on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.

Total return is calculated according to the following formula: P(1 + T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years and ERV = the ending  redeemable value of
a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10 year
period).

Quotations of a cumulative total return will be calculated for any specified
period by assuming a hypothetical investment in an Index Fund on the date of the
commencement of the period and will assume that all dividends and distributions
are reinvested on ex date. However, currently there is no dividend reinvestment
option available to shareholders of iShares and such calculation is provided for
informational purposes only. The net increase or decrease in the value of the
investment over the period will be divided by its beginning value to arrive at
cumulative total return. Total return calculated in this manner will differ from
the calculation of average annual total return in that it is not expressed in
terms of an average rate of return.

The yield of an Index Fund is the net annualized yield based on a specified 30-
day (or one month) period assuming a semiannual compounding of income. Included
in net investment income is the amortization of market premium or accretion of
market and original issue discount. Yield is calculated by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula: YIELD = 2[(a-b/cd + 1)6-1] (where a = dividends and interest earned
during the period, b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends and d = the maximum offering price per share on
the last day of the period).

Quotations of cumulative total return, average annual total return or yield
reflect only the performance of a hypothetical investment in an Index Fund
during the particular time period on which the calculations are based. Such
quotations for an Index Fund will vary based on changes in market conditions and
the level of such Index Fund's expenses, and no reported performance figure
should be considered an indication of performance which may be expected in the
future.

The cumulative and average total returns and yields do not take into account
federal or state income taxes which may be payable; total returns and yields
would, of course, be lower if such charges were taken into account.

A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods for calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Company with performance quoted with respect to other
investment companies or types of investments.

Because some or all of the Company's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Company's investment performance.
Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Company. Such
historical information is not indicative of future fluctuations in the value of
the U.S. dollar against these currencies. In addition, marketing materials may
cite country and economic statistics and historical stock market performance
information for any of the countries in which the Company invests, including,
but not limited to, the following: population growth, gross domestic product,
inflation rate, average stock market price-earnings ratios and the total value
of stock markets. Sources for such statistics may include official publications
of various foreign governments and exchanges.

--------------------------------------------------------------------------------
Performance Information                                                  page 39


From time to time, in advertising and marketing literature, the Company's
performance may be compared to the performance of broad groups of open-end and
closed-end investment companies with similar investment goals, as tracked by
independent organizations such as Investment Company Data, Inc., Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc.,
Value Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Company will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk.

In addition, in connection with the communication of its performance to current
or prospective shareholders, the Company also may compare those figures to the
performance of certain unmanaged indices which may assume the reinvestment of
dividends or interest but generally do not reflect deductions for administrative
and management costs. Examples of such indices include, but are not limited to
the following:

     .  Dow Jones Industrial Average
     .  Consumer Price Index
     .  Standard & Poor's 500 Composite Stock Price Index (S&P 500)
     .  NASDAQ OTC Composite Index
     .  NASDAQ Industrials Index
     .  International Finance Corporation's (Global) Composite and (Investable)
        Composite Indices
     .  Morgan Stanley Capital International Indices
     .  NASDAQ Composite Index
     .  Wilshire 5000 Stock Index

In addition, the Company from time to time may compare the results of each Index
Fund to the following national benchmarks:


                    Country                  National Index
                    -------                  --------------

                    Australia                All Ordinaries
                    Hong Kong                Hang Seng
                    New Zealand              NZSE 40
                    Singapore                SES All


From time to time, the Company may use in marketing materials a graph entitled
"The Efficient Frontier," which illustrates the historical risks and returns of
selected unmanaged indices which track the performance of various combinations
of United States and international securities for a certain time period, such as
twenty years. A twenty year graph, for example, shall use twenty year annualized
international returns represented by the MSCI Europe, Australasia and Far East
(EAFE) Index and twenty year annualized United States returns represented by the
S&P 500 Index. Risk is measured by the standard deviation in overall performance
within each index. Data presented in the graph shall be provided by Ibbotson
Associates, Inc. Performance of an index is historical and does not represent
performance of the Company, and is not a guarantee of future results.

Evaluation of Company performance of the Index Funds or other relevant
statistical information made by independent sources may also be used in
advertisements and sales literature concerning the Company, including reprints
of, or selections from, editorials or articles about the Company. Sources for
Company performance information and articles about the Company include, but are
not limited to, the following:

American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews investment company performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of investment companies investing
abroad.

--------------------------------------------------------------------------------
page 40                                                                 i|Shares


CDA Investment Technologies, an organization that provides performance and
ranking information through examining the dollar results of hypothetical mutual
fund investments and comparing these results against appropriate indices.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies.

Fortune, a national business publication that periodically rates the performance
of a variety of investment companies.

The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.

Ibbotson Associates, Inc., a company specializing in investment research and
data.

Investment Company Data, Inc., an independent  organization that provides
performance ranking information for broad classes of mutual funds.

Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.

Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.

The New York Times, a nationally distributed newspaper that regularly covers
financial news.

Smart Money, a national personal finance magazine published monthly by Dow Jones
& Company, Inc. and The Hearst Corporation that focuses on ideas for investing,
spending and saving.

Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.

The Wall Street Journal, a Dow Jones and Company, Inc. newspaper that regularly
covers financial news.

Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.

Worth, a national publication distributed ten times per year by Capital
Publishing Company, a subsidiary of Fidelity Investments that focuses on
personal financial journalism.

--------------------------------------------------------------------------------
Performance Information                                                  page 41


Counsel and Independent Auditors

Counsel.  Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, are
counsel to the Company and have passed upon the validity of the Company's
shares.

Independent Auditors.  Ernst & Young LLP resigned on April 10, 2001 due to the
new SEC independence requirements.  PriceWaterhouseCoopers LLP, 333 Market
Street, San Francisco, California, 94105, currently serve as the independent
auditors of the Company.

--------------------------------------------------------------------------------
page 42                                                                 i|Shares


                                                                    APPENDIX A-1

MSCI PACIFIC EX-JAPAN INDEX AS OF SEPTEMBER 30, 2001



                                                                                 Index           Weight in
                                                                               Market Cap.         MSCI
Constituent Name                   Industry                                      ($Mil)           Index %
                                                                                        
NATIONAL AUSTRALIA BANK            Banks                                        19,618.34         5.701%
COMMONWEALTH BANK                  Banks                                        16,023.36         4.656%
HUTCHISON WHAMPOA                  Industrial Conglomerates                     15,852.01         4.607%
BHP BILLITON LTD (BHP)             Diversified Metals & Mining                  15,674.75         4.555%
CHEUNG KONG HOLDINGS               Real Estate Management & Development         11,726.33         3.408%
WESTPAC BANKING                    Banks                                        11,457.51         3.330%
ANZ BANKING GROUP                  Banks                                        11,148.43         3.240%
AMP LTD                            Multi-line Insurance                          9,995.51         2.905%
NEWS CORP PLVO                     Movies & Entertainment                        9,477.00         2.754%
NEWS CORP                          Movies & Entertainment                        8,960.40         2.604%
SUN HUNG KAI PROPERTIES            Real Estate Management & Development          8,414.49         2.445%
HANG SENG BANK                     Banks                                         7,917.50         2.301%
CLP HOLDINGS                       Electric Utilities                            7,204.71         2.094%
UNITED OVERSEAS BANK               Banks                                         6,401.29         1.860%
SINGAPORE TELECOM                  Integrated Telecommunication Services         6,399.80         1.860%
WOOLWORTHS LTD                     Food Retail                                   6,055.58         1.760%
TELSTRA CORP                       Integrated Telecommunication Services         5,656.28         1.644%
HONGKONG ELECTRIC HLDGS            Electric Utilities                            5,336.00         1.551%
WESFARMERS                         Industrial Conglomerates                      5,280.84         1.535%
OCBC BANK                          Banks                                         5,158.00         1.499%
FOSTERS GROUP                      Brewers                                       4,909.09         1.427%
BRAMBLES INDUSTRIES LTD            Diversified Commercial Services               4,844.95         1.408%
RIO TINTO LTD                      Diversified Metals & Mining                   4,795.12         1.393%
DBS GROUP HOLDINGS                 Banks                                         4,639.98         1.348%
WMC                                Diversified Metals & Mining                   4,306.92         1.252%
HONGKONG CHINA GAS                 Gas Utilities                                 4,295.85         1.248%
SWIRE PACIFIC A                    Multi-Sector Holdings                         3,537.70         1.028%
CSL                                Pharmaceuticals                               3,506.13         1.019%
WESTFIELD HOLDINGS                 Real Estate Management & Development          3,413.05         0.992%
MACQUARIE BANK                     Diversified Financial Services                3,378.28         0.982%
WOODSIDE PETROLEUM                 Oil & Gas Exploration & Production            3,180.44         0.924%
WESTFIELD TRUST                    Real Estate Investment Trusts                 3,124.39         0.908%
SINGAPORE PRESS HLDG               Publishing & Printing                         3,109.05         0.903%
COLES MYER                         Food Retail                                   3,018.06         0.877%
CSR                                Construction Materials                        2,946.88         0.856%
BANK EAST ASIA                     Banks                                         2,709.22         0.787%
TELECOM CORP NEW ZEALAND           Integrated Telecommunication Services         2,659.77         0.773%
GENERAL PROPERTY TRUST             Real Estate Investment Trusts                 2,519.76         0.732%
SINGAPORE AIRLINES                 Airlines                                      2,482.70         0.721%
LEND LEASE                         Real Estate Management & Development          2,344.90         0.681%
SUNCORP-METWAY                     Diversified Financial Services                2,313.91         0.672%
SOUTHCORP HOLDINGS                 Distillers & Vintners                         2,288.70         0.665%
MACQUARIE INFRASTRUCTURE           Highways & Railtracks                         2,198.17         0.639%
PACIFIC CENTURY CYBERWKS           Integrated Telecommunication Services         2,186.51         0.635%
NRMA INSURANCE GROUP               Property & Casualty Insurance                 2,057.91         0.598%
WHARF HOLDINGS                     Multi-Sector Holdings                         2,030.88         0.590%
HENDERSON LAND DEV.                Real Estate Management & Development          1,974.52         0.574%


________________________________________________________________________________
Appendix B                                                               page 43




                                                                                               Index          Weight in
                                                                                             Market Cap.         MSCI
Constituent Name                             Industry                                          ($Mil)           Index %
                                                                                                       
AMCOR                                        Paper Packaging                                   1,946.75         0.566%
SANTOS                                       Oil & Gas Exploration & Production                1,804.64         0.524%
MTR CORP                                     Railroads                                         1,688.98         0.491%
STOCKLAND TRUST                              Real Estate Investment Trusts                     1,633.99         0.475%
SINGAPORE TECH ENGR.                         Aerospace & Defense                               1,596.58         0.464%
AUSTRALIAN GAS LIGHT CO                      Gas Utilities                                     1,509.10         0.439%
JOHNSON ELECTRIC HLDGS                       Electrical Components & Equipment                 1,504.94         0.437%
LI & FUNG                                    Distributors                                      1,497.96         0.435%
MAYNE NICKLESS                               Health Care Facilities                            1,390.59         0.404%
FAULDING (F.H.) & CO                         Pharmaceuticals                                   1,264.51         0.367%
HONG KONG EXCH. & CLEARING                   Diversified Financial Services                    1,254.22         0.364%
COCHLEAR                                     Health Care Equipment                             1,196.24         0.348%
NORMANDY MINING                              Gold                                              1,188.46         0.345%
COCA-COLA AMATIL                             Soft Drinks                                       1,185.69         0.345%
QBE INSURANCE GROUP                          Property & Casualty Insurance                     1,172.17         0.341%
MIRVAC GROUP                                 Real Estate Investment Trusts                     1,148.82         0.334%
AMOY PROPERTIES                              Real Estate Management & Development              1,119.45         0.325%
HARVEY NORMAN HOLDINGS                       General Merchandise Stores                        1,084.33         0.315%
CITY DEVELOPMENTS                            Real Estate Management & Development              1,042.57         0.303%
CHARTERED SEMICONDUCTOR                      Semiconductors                                      970.54         0.282%
TRANSURBAN GROUP                             Highways & Railtracks                               956.28         0.278%
NEW WORLD DEVELOPMENT                        Real Estate Management & Development                933.68         0.271%
ORIGIN ENERGY                                Integrated Oil & Gas                                922.95         0.268%
HARDIE (JAMES) IND                           Construction Materials                              910.96         0.265%
KEPPEL CORP                                  Multi-Sector Holdings                               867.72         0.252%
VENTURE MANUFACTURING                        Electronic Equipment & Instruments                  858.20         0.249%
CATHAY PACIFIC AIRWAYS                       Airlines                                            858.11         0.249%
FRASER & NEAVE                               Brewers                                             851.28         0.247%
ARISTOCRAT LEISURE                           Casinos & Gaming                                    843.29         0.245%
COMPUTERSHARE                                Data Processing Services                            842.21         0.245%
BORAL                                        Construction Materials                              824.18         0.240%
FAIRFAX (JOHN) HOLDINGS                      Publishing & Printing                               797.42         0.232%
BRL HARDY                                    Distillers & Vintners                               767.27         0.223%
CAPITALAND                                   Real Estate Management & Development                758.19         0.220%
DATACRAFT ASIA (USD)                         Networking Equipment                                755.78         0.220%
DEUTSCHE OFFICE TRUST                        Real Estate Investment Trusts                       753.53         0.219%
CHEUNG KONG INFRASTRUCT.                     Construction Materials                              739.89         0.215%
MIM HOLDINGS                                 Diversified Metals & Mining                         720.36         0.209%
BT OFFICE TRUST                              Real Estate Investment Trusts                       708.75         0.206%
LEIGHTON HOLDINGS                            Construction & Engineering                          683.78         0.199%
TABCORP HOLDINGS                             Casinos & Gaming                                    683.45         0.199%
GIORDANO INTERNATIONAL                       Apparel Retail                                      649.02         0.189%
PAPERLINX                                    Paper Products                                      640.65         0.186%
GOODMAN FIELDER                              Packaged Foods                                      640.38         0.186%
TAB                                          Casinos & Gaming                                    631.81         0.184%
SONIC HEALTHCARE                             Health Care Distributors & Services                 627.97         0.182%
ORICA                                        Diversified Chemicals                               590.62         0.172%
TELEVISION BROADCASTS                        Broadcasting & Cable TV                             581.99         0.169%
SEMBCORP INDUSTRIES                          Industrial Conglomerates                            581.06         0.169%
FISHER & PAYKEL IND                          Household Appliances                                568.28         0.165%
PUBLISHING BROADCASTING                      Broadcasting & Cable TV                             559.04         0.162%
GANDEL RETAIL TRUST                          Real Estate Investment Trusts                       545.99         0.159%


--------------------------------------------------------------------------------
page 44                                                                 i Shares





                                                                                                 Index        Weight in
                                                                                               Market Cap.      MSCI
Constituent Name                             Industry                                            ($Mil)         Index %
                                                                                                     
SHANGRI-LA ASIA                              Hotels                                              543.89         0.158%
SOUTH CHINA MORNING POST                     Publishing & Printing                               542.03         0.158%
HYSAN DEVELOPMENT                            Real Estate Management & Development                531.01         0.154%
CARTER HOLT HARVEY                           Forest Products                                     523.51         0.152%
WAREHOUSE GROUP                              General Merchandise Stores                          519.93         0.151%
AUSTRALIAN STOCK EXCH.                       Diversified Financial Services                      517.48         0.150%
NEWCREST MINING                              Gold                                                488.78         0.142%
ESPRIT HOLDINGS                              Apparel Retail                                      487.79         0.142%
CONTACT ENERGY                               Electric Utilities                                  478.53         0.139%
SKY CITY                                     Leisure Facilities                                  448.67         0.130%
AMP DIVERS. PPTY TRUST                       Real Estate Investment Trusts                       436.69         0.127%
FUTURIS CORP                                 Agricultural Products                               435.13         0.126%
COLONIAL FIRST STATE PRO                     Real Estate Investment Trusts                       434.75         0.126%
SINGAPORE EXCHANGE                           Diversified Financial Services                      400.26         0.116%
SINO LAND                                    Real Estate Management & Development                376.80         0.109%
NEPTUNE ORIENT LINES NOL                     Marine                                              372.86         0.108%
FLETCHER BUILDING                            Construction Materials                              364.41         0.106%
AUCKLAND INT'L AIRPORT                       Airport Services                                    343.42         0.100%
SONS OF GWALIA                               Gold                                                309.92         0.090%
ILUKA RESOURCES                              Diversified Metals & Mining                         305.37         0.089%
SEMBCORP LOGISTICS                           Marine Ports & Services                             303.45         0.088%
UNITED OVERSEAS LAND                         Hotels                                              277.52         0.081%
KEPPEL LAND                                  Real Estate Management & Development                270.77         0.079%
ENERGY DEVELOPMENTS                          Electric Utilities                                  269.35         0.078%
SMRT CORP                                    Railroads                                           266.65         0.077%
SINGAPORE LAND                               Real Estate Management & Development                266.48         0.077%
PACIFIC DUNLOP                               Industrial Conglomerates                            264.37         0.077%
CREATIVE TECHNOLOGY                          Computer Storage & Peripherals                      247.85         0.072%
BAYCORP HOLDINGS                             Data Processing Services                            244.92         0.071%
OVERSEAS UNION ENT.                          Hotels                                              240.32         0.070%
PARKWAY HOLDINGS                             Health Care Distributors & Services                 237.22         0.069%
JONES (DAVID)                                Department Stores                                   223.44         0.065%
ALLGREEN PROPERTIES                          Real Estate Management & Development                223.36         0.065%
SEMBCORP MARINE                              Construction & Farm Machinery                       222.80         0.065%
CYCLE & CARRIAGE                             Distributors                                        209.84         0.061%
ONESTEEL                                     Steel                                               206.85         0.060%
ASM PACIFIC TECHNOLOGY                       Semiconductor Equipment                             198.30         0.058%
TOWER                                        Multi-line Insurance                                182.37         0.053%
ERG                                          Electronic Equipment & Instruments                  179.71         0.052%
HAW PAR CORP                                 Industrial Conglomerates                            178.53         0.052%
INDEPENDENT NEWS LTD                         Publishing & Printing                               162.43         0.047%
ST ASSEMBLY TEST SVCS                        Semiconductors                                      161.07         0.047%
FLETCHER FORESTS PREF                        Forest Products                                     151.25         0.044%
HOTEL PROPERTIES                             Hotels                                              132.72         0.039%
WING TAI HOLDINGS                            Real Estate Management & Development                132.04         0.038%
NATSTEEL                                     Industrial Conglomerates                            114.79         0.033%
FLETCHER FORESTS COMN                        Forest Products                                      93.40         0.027%
GES INTERNATIONAL                            Computer Hardware                                    89.77         0.026%
FIRST CAPITAL CORP                           Real Estate Management & Development                 86.89         0.025%
AIR NEW ZEALAND B                            Airlines                                             30.17         0.009%


________________________________________________________________________________
Appendix B                                                               page 45


                                                                    APPENDEX B-1

The Company intends to effect deliveries of Portfolio Securities on a basis of
"T" plus three New York business days (i.e., days on which the New York Stock
Exchange is open) in the relevant foreign market of each Index Fund, except as
discussed below.  The ability of the Company to effect in-kind redemptions
within three New York business days of receipt of a redemption request is
subject, among other things, to the condition that, within the time period from
the date of the request to the date of delivery of the securities, there are no
days that are local market holidays but "good" New York business days.  For
every occurrence of one or more intervening holidays in the local market that
are not holidays observed in New York, the redemption settlement cycle will be
extended by the number of such intervening local holidays.  In addition to
holidays, other unforeseeable closings in a foreign market due to emergencies
may also prevent the Company from delivering securities within three New York
business days.

The securities delivery cycles currently practicable for transferring Portfolio
Securities to redeeming investors, coupled with local market holiday schedules,
will require a delivery process longer than seven calendar days for some Index
Fund, in certain circumstances, during the calendar year 2001.  The holidays
applicable to each Index Fund during such periods are listed below, as are
instances where more than seven days will be needed to deliver redemption
proceeds. Although certain holidays may occur on different dates in subsequent
years, the number of days required to deliver redemption proceeds in any given
year is not expected to exceed the maximum number of days listed below for each
Index Fund.  The proclamation of new holidays, the treatment by market
participants of certain days as "informal holidays" (e.g., days on which no or
limited securities transactions occur, as a result of substantially shortened
trading hours), the elimination of existing holidays, or changes in local
securities delivery practices, could affect the information set forth herein at
some time in the future.


iShares MSCI PACIFIC EX JAPAN Index Fund


Regular Holidays.  The dates in the calendar year 2001 on which the regular
Australian, Hong Kong, New Zealand and Singaporean holidays affecting the
relevant securities markets fall are as follows:

Australia
January 1, 2001               April 16, 2001           October 1, 2001
January 26, 2001              April 25, 2001           November 6, 2001
March 12, 2001                June 11, 2001            December 25, 2001
April 13, 2001                August 6, 2001           December 26, 2001

Hong Kong
January 1, 2001               April 16, 2001           October 2, 2001
January 23, 2001              April 30, 2001           October 25, 2001
January 24, 2001              May 1, 2001              December 24, 2001
January 25, 2001              June 25, 2001            December 25, 2001
January 26, 2001              July 2, 2001             December 26, 2001
April 5, 2001                 October 1, 2001          December 31, 2001
April 13, 2001

New Zealand
January 1, 2001               March 18, 2001           October 7, 2001
January 2, 2001               April 13, 2001           October 22, 2001
January 22, 2001              April 16, 2001           December 25, 2001
January 29, 2001              April 25, 2001           December 26, 2001
February 6, 2001              June 4, 2001

Singapore
January 1, 2001               April 13, 2001           November 14, 2001

--------------------------------------------------------------------------------
page 46                                                                 i|Shares



January 24, 2001              May 1, 2001              December 17, 2001
January 25, 2001              May 7, 2001              December 25, 2001
March 6, 2001                 August 9, 2001

Redemption.  A redemption request over the following holidays would result in a
settlement period that will exceed 7 calendar days (examples are based on the
days particular holidays fall during the calendar year 2001).  The longest
redemption cycle for the iShares MSCI Pacific Ex Japan Index Fund is a function
of the longest redemption cycles among the countries whose stocks comprise this
Index Fund.  In the calendar year 2001, the dates of the regular holidays
affecting the Hong Kong securities markets present the worst-case redemption
cycle for the iShares MSCI Pacific Ex Japan Index Fund as follows:



                                                 Redemption          Redemption
   Date                  Holiday              Request Date (R)     Settlement Date     Settlement Period
   ----                  -------              ----------------     ---------------     -----------------
                                                                           
   1/23/01         Lunar New Year's Eve            1/18/01             1/29/01               R + 11
   1/24/01         Lunar New Year's Day            1/19/01             1/30/01               R + 11
   1/25/01     Second Day of Lunar New Year        1/22/01             1/31/01               R + 8
   12/24/01           Christmas Eve                12/19/01            12/27/01              R + 8
   12/25/01           Christmas Day                12/20/01            12/28/01              R + 8
   12/26/01         Christmas Holiday              12/21/01            1/2/02                R + 12


In the calendar year 2001, R+12 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Pacific Ex Japan Index Fund.

--------------------------------------------------------------------------------
Appendix B                                                               page 47



                                 iSHARES, INC.

                                    PART C
                               OTHER INFORMATION

ITEM 23.  EXHIBITS

Exhibit
Number           Description
------           -----------

(a.1)  Registrant's Amended and Restated Articles of Incorporation.(1)
(a.2)  Registrant's Articles of Amendment.(4)
(a.3)  Registrant's Articles Supplementary.(8)
(a.4)  Registrant's Articles of Amendment.(9)
(a.5)  Registrant's Articles Supplementary. (11)
(b.1)  Registrant's Amended By-Laws.(1)
(b.2)  Registrant's Amendment No. 1 to Amended By-Laws.(5)
(c.)   None.
(d.1)  Investment Management Agreement between Registrant and Barclays Global
       Fund Advisors.(9)
(d.2)  Form of amended Schedule A to Investment Management Agreement. (11)
(e.1)  Distribution Agreement between Registrant and SEI Investments
       Distribution Co.(10)
(e.2)  Amended Exhibit A to Distribution Agreement. (11)
(e.32) Form of Authorized Participant Agreement.(11)
(e.4)  Authorized Participant Agreement for Merrill Lynch.(3)
(e.5)  Form of Sales and Investor Services Agreement.(10)
(f.)   None.
(g.1)  Custody Agreement between Registrant and The Chase Manhattan Bank.(11)
(g.2)  Amended Appendix 2 to Custody Agreement.(11)
(h.1)  Amended Administration and Accounting Services Agreement between
       Registrant and PFPC Inc.(6)
(h.2)  Amended Exhibit A to Amended Administration and Accounting Services
       Agreement. (11)
(h.3)  Transfer Agency Services Agreement between Registrant and PNC Bank,
       National Association.(3)
(h.4)  Amendment to Transfer Agency Services Agreement.(5)
(h.5)  Amended Exhibit A to Transfer Agency Services Agreement. (11)
(h.6)  Sub-License Agreement between Registrant and Barclays Global Investors
       with respect to the use of the MSCI Indices. (10)
(h.7)  Sub-Administration Agreement between Registrant and Morgan Stanley Trust
       Company.(6)
(h.8)  Assignment Letter among Morgan Stanley Trust Company, Morgan Stanley &
       Co. Incorporated and PFPC Inc.(7)
(h.9)  Amended Exhibit A to Sub-Administration Agreement.(11)
(h.10) Securities Lending Agreement between Registrant and The Chase Manhattan
       Bank. (11)
(h.11) Amended Schedule A to Securities Lending Agreement. (11)
(i.1)  Opinion of Counsel. (12)
(j.1)  None.
(k.)   None.
(l.1)  Subscription Agreement between the Registrant and Funds Distributor,
       Inc.(2)
(l.2)  Letter of Representations among the Registrant, Depository Trust Company
       ("DTC") and Morgan Stanley Trust Company. (1)
(l.3)  Letter of Representations between the Registrant and DTC. (10)
(l.4)  Letter of Representations between the Registrant and DTC. (12)
(m.)   Form of 12b-1 Plan.  (1)
(n)    None.
(o.)   Not applicable, as Registrant is an open-end fund.
(p.1)  Code of Ethics of the Registrant.(9)
(p.2)  Code of Ethics of Barclays Global Fund Advisors.(9)

____________________________

                                      C-1


(1)  Exhibit is incorporated herein by reference to Pre-Effective Amendment No.
     2, filed March 1, 1996, to the Company's initial registration statement on
     Form N-1A filed on September 29, 1995 (the "Registration Statement").

(2)  Exhibit is incorporated herein by reference to Pre-Effective Amendment No.
     3 to the Registration Statement, filed on March 6, 1999.
(3)  Exhibit is incorporated herein by reference to Post-Effective Amendment
     ("PEA") No. 1 to the Registration Statement, filed on October 30, 1996.
(4)  Exhibit is incorporated herein by reference to PEA No. 2 to the
     Registration Statement, filed on December 27, 1996.
(5)  Exhibit is incorporated herein by reference to PEA No. 8 to the
     Registration Statement, filed on August 27, 1997.
(6)  Exhibit is incorporated herein by reference to PEA No. 10 to the
     Registration Statement, filed on October 29, 1997.
(7)  Exhibit is incorporated herein by reference to PEA No. 12 to the
     Registration Statement, filed on November 25, 1998.
(8)  Exhibit is incorporated herein by reference to PEA No. 16 to the
     Registration Statement, filed on December 22, 1999.
(9)  Exhibit is incorporated herein by reference to PEA No. 17 to the
     Registration Statement, filed on November 3, 2000.
(10) Exhibit is incorporated herein by reference to PEA No. 18 to the
     Registration Statement, filed on December 30, 2000.
(11) Exhibit is incorporated herein by reference to PEA No. 19 to the
     Registration Statement, filed on July 16, 2001.
(12) Filed herewith.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

     None.

ITEM 25. INDEMNIFICATION.

Incorporated herein by reference to Post-Effective Amendment No. 7 to the
Registration Statement, filed on January 15, 1997.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

     The Fund is advised by Barclays Global Fund Advisors ("BGFA"), a wholly
owned subsidiary of Barclays Global Investors, N.A. ("BGI"), 45 Fremont Street,
San Francisco, CA 94105.  BGFA's business is that of a registered investment
adviser to certain open-end, management investment companies and various other
institutional investors.

The directors and officers of BGFA consist primarily of persons who during the
past two years have been active in the investment management business.  Each of
the directors and executive officers of BGFA will also have substantial
responsibilities as directors and/or officers of BGI.  Information as to the
executive officers and directors of BGFA is included in its Form ADV initially
filed on November 15, 1984 and updated on May 30, 2001 with the SEC (File No.
801-22609) and is incorporated herein by reference.

ITEM 27  PRINCIPAL UNDERWRITERS

(a)  The Fund's distributor, SEI Investments Distribution Co. (the
     "Distributor") acts as distributor for SEI Daily Income Trust, SEI Liquid
     Asset Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional
     Managed Trust, SEI Institutional International Trust, The Advisors' Inner
     Circle Fund, The Pillar Funds,  STI Classic Funds, First American Funds,
     Inc., First American Investment Funds, Inc., The Arbor Fund,  Bishop Street
     Funds, STI Classic Variable Trust, ARK Funds, Huntington Funds, SEI Asset
     Allocation Trust, TIP Funds, SEI Institutional Investments Trust, First
     American Strategy Funds, Inc., HighMark Funds, Armada Funds,  Expedition
     Funds, Alpha Select Funds, Oak Associates Funds, The Nevis Funds,

                                      C-2


     Inc., CNI Charter Funds, The Armada Advantage Funds, Amerindo Funds Inc.,
     Huntington VA Funds, Friends Ivory Funds, iShares Inc., SEI Insurance
     Products Trust, iShares Trust, Pitcairn Funds, First Omaha Funds, Inc.;
     JohnsonFamily Funds, Inc.; and The MDL Funds pursuant to distribution
     agreements dated July 15, 1982, November 29, 1982, December 3, 1982, July
     10, 1985, January 22, 1987, August 30, 1988, November 14, 1991, February
     28, 1992, May 29, 1992, November 1, 1992, November 1, 1992, January 28,
     1993, January 27, 1995, August 18, 1995, November 1, 1995, January 11,
     1996, April 1, 1996, April 28, 1996, June 14, 1996, October 1, 1996,
     February 15, 1997, March 8, 1997, June 9, 1997, January 1, 1998, February
     27, 1998, June 29, 1998, April 1, 1999, May 1, 1999, July 13, 1999, October
     15, 1999, December 16, 1999, January 28, 2000, March 29, 2000, April 25,
     2000, August 1, 2000; October 1, 2000; November 1, 2000 and January 24,
     2001, respectively.

     The Distributor provides numerous financial services to investment
     managers, pension plan sponsors, and bank trust departments. These services
     include portfolio evaluation, performance measurement, and consulting
     services ("Funds Evaluation") and automated execution, clearing and
     settlement of securities transactions ("MarketLink").

(b)  Following is information with respect to each director, officer or partner
     of the Distributor.  The business address of each director or officer is 1
     Freedom Valley Drive, Oaks, PA 19456.

Name                          Position and Office with the Distributor
----                          ----------------------------------------
Alfred P. West, Jr.           Director, Chairman of the Board of Directors
Richard B. Lieb               Director, Executive Vice President
Carmen V. Romeo               Director
Mark J. Held                  President & Chief Operating Officer
Dennis J. McGonigle           Executive Vice President
Robert M. Silvestri           Chief Financial Officer & Treasurer
Todd Cipperman                Senior Vice President & General Counsel
Leo J. Dolan, Jr.             Senior Vice President
Carl A. Guarino               Senior Vice President
Jack May                      Senior Vice President
Hartland J. McKeown           Senior Vice President
Kevin P. Robins               Senior Vice President
Patrick K. Walsh              Senior Vice President
Wayne M. Withrow              Senior Vice President
Robert Aller                  Vice President
John D. Anderson              Vice President & Managing Director
Timothy D. Barto              Vice President & Assistant Secretary
Robert Crudup                 Vice President & Managing Director
Richard A. Deak               Vice President & Assistant Secretary
Scott W. Dellorfano           Vice President & Managing Director
Barbara Doyne                 Vice President
Jeff Drennen                  Vice President
Scott C. Fanatico             Vice President & Managing Director
Vic Galef                     Vice President & Managing Director
Steven A. Gardner             Vice President & Managing Director
Lydia A. Gavalis              Vice President & Assistant Secretary
Greg Gettinger                Vice President & Assistant Secretary
Kathy Heilig                  Vice President
Jeff Jacobs                   Vice President
Samuel King                   Vice President
John Kirk                     Vice President & Managing Director
Kim Kirk                      Vice President & Managing Director
John Krzeminski               Vice President & Managing Director
Alan H. Lauder                Vice President
Paul Lonergan                 Vice President & Managing Director

                                      C-3


Ellen Marquis                 Vice President
Christine M. McCullough       Vice President & Assistant Secretary
Carolyn McLaurin              Vice President & Managing Director
Mark Nagle                    Vice President
Joanne Nelson                 Vice President
Rob Redican                   Vice President
Maria Rinehart                Vice President
Steve Smith                   Vice President
Daniel Spaventa               Vice President
Kathryn L. Stanton            Vice President
Lori L. White                 Vice President & Assistant Secretary
William E. Zitelli, Jr.       Vice President & Assistant Secretary

(c)  Not applicable

ITEM 28.  LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the rules thereunder are maintained at the offices of
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.

ITEM 29.  MANAGEMENT SERVICES.

Not applicable.

ITEM 30.  UNDERTAKINGS.

(a)  The Company hereby undertakes to call a meeting of the shareholders for the
     purpose of voting upon the question of removal of any Director when
     requested in writing to do so by the holders of at least 10% of the
     Company's outstanding shares of common stock and, in connection with such
     meeting to comply with the provisions of Section 16(c) of the 1940 Act
     relating to shareholder communications.

(b)  Insofar as indemnification for liabilities arising under the Securities Act
     of 1933 (the "Act") may be permitted to directors, officers and controlling
     persons of the Company pursuant to the foregoing provisions, or otherwise,
     the Company has been advised that in the opinion of the SEC such
     indemnification is against public policy as expressed in the Act and is,
     therefore, unenforceable. In the event that a claim for indemnification
     against such liabilities (other than the payment by the Company of expenses
     incurred or paid by a director, officer or controlling person of the
     Company in the successful defense of any action, suit or proceeding) is
     asserted by such director, officer or controlling person in connection with
     the securities being registered, the Company will, unless in the opinion of
     its counsel the matter has been settled by controlling precedent, submit to
     a court of appropriate jurisdiction the question whether such
     indemnification by it is against public policy as expressed in the Act and
     will be governed by the final adjudication of such issue.

                                      C-4


                                  SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 21 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the San Francisco, and State of
California, on the 22nd day of October, 2001.

                                                   iSHARES, INC.

                                                   By: /s/ Nathan Most
                                                   -------------------------
                                                   Nathan Most, President

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 21 to the Registration Statement has been signed below by the
following persons, in the capacities indicated, on the 22nd day of October,
2001.


               Signature                                   Title
               ---------                                   -----


/s/ Nathan Most                                    President and Director
------------------------------------
(Nathan Most)


/s/ John B. Carroll                                      Director
------------------------------------
(John B. Carroll)


/s/ Timothy A. Hultquist                                 Director
------------------------------------
(Timothy A. Hultquist)


/s/ Lloyd N. Morrisett                                   Director
------------------------------------
(Lloyd N. Morrisett)


/s/ W. Allen Reed                                        Director
------------------------------------
(W. Allen Reed)


/s/ Stephen M. Wynne                         Treasurer (principal financial and
------------------------------------                accounting officer)
(Stephen M. Wynne)


                                 iSHARES, INC.

                                 EXHIBIT INDEX

Exhibit No.    Description
-----------    -----------

(i.1)     Opinion of Counsel.
(l.4)     Letter of Representations.

EX-99.(I) (1)

                                                                   EXHIBIT (i.1)

                              SULLIVAN & CROMWELL
                               125 BROAD STREET
                           NEW YORK, NEW YORK 10004

                                             October 22, 2001

iShares, Inc.,
c/o PFPC Worldwide,
400 Bellevue Parkway,
Wilmington, Delaware  19809.

Dear Sirs:

          In connection with Post-Effective Amendment No. 21 to the Registration
Statement (the "Registration Statement") on Form N-1A (File No. 33-97598) of
iShares, Inc., a Maryland corporation (the "Company"), which you expect to file
on October 22, 2001 under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to an indefinite number of shares of Common
Stock, par value $0.001 per share (the "Shares"), of the iShares MSCI Pacific Ex
Japan Index Fund (the "New Series"), we, as your counsel, have examined such
corporate records, certificates and other documents, and such questions of law,
as we have considered necessary or appropriate for the purposes of this opinion.

          Upon the basis of such examination, we advise you that, in our
opinion, the Shares have been duly authorized to the extent of an aggregate of
12,900,000,000 Shares and, when the Registration Statement has become effective
under the Securities Act and the Shares of the New Series have been issued and
sold (a) for at least the par value thereof, (b) so as not to exceed the then-
authorized number of Shares of the New Series, (c) as contemplated by the
Registration Statement and (d) in accordance with the Company's Articles of
Incorporation, as amended and supplemented, and as authorized by the Board of
Directors of the Company, the Shares of the New Series will be validly issued,
fully paid and nonassessable.

          The foregoing opinion is limited to the Federal laws of the United
States and the General Corporation Law of the State of Maryland, and we are
expressing no opinion as to the effect of the laws of any other jurisdiction.

          Also, we have relied as to certain matters on information obtained
from public officials, officers of the Company and other sources believed by us
to be responsible.


          We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.  In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.

                                    Very truly yours,


                                    SULLIVAN & CROMWELL

EX-99.(L) (4)

                                                                  EXHIBIT L.4

                 [BOOK-ENTRY-ONLY CORPORATE EQUITY SECURITIES]

                           Letter of Representations
                     [To be Completed by Issuer and Agent]

                                 iSHARES, INC.
                               [Name of Issuer]

                                   PFPC INC.
                                [Name of Agent]

                                                                      10/15/2001

Attention: General Counsel's Office
The Depository Trust Company
55 Water Street 49th Floor New York, NY 10041-0099

Re:  iSHARES ("iSHARES") OF iSHARES MSCI PACIFIC EX JAPAN INDEX FUND OF iSHARES,
     INC. CUSIP #464286665

Ladies and Gentlemen:

     This letter sets forth our understanding with respect to certain matters
relating to the Securities. Issuance of the Securities has been authorized
pursuant to an offering document or other such agreement dated on or about
10/17/2001 (the "Document"). Issuer is selling the Securities to EACH APPLICABLE
INITIAL PURCHASER (the "Initial Purchaser") pursuant to the Document. Initial
Purchaser shall take delivery of the Securities through The Depository Trust
Company ("DTC"). Agent is acting as transfer agent, paying agent, and registrar
with respect to the Securities. To induce DTC to accept the Securities as
eligible for deposit at DTC, and to act in accordance with its Rules with
respect to the Securities, Issuer and Agent make the following representations
to DTC:

     1. Prior to closing on the Securities on AND AFTER OCTOBER 22, 2001 there
shall be deposited with DTC one or more Security certificates registered in the
name of DTC's nominee, Cede & Co., for each of the Securities with the offering
value(s) set forth on Schedule A hereto, the total of which represents 100% of
the offering value of such Securities. If, however, the aggregate offering value
of the Securities exceeds $400 million, one certificate shall be issued with
respect to each $400 million of offering value and an additional certificate
shall be issued with respect to any remaining offering value. Each Security
certificate shall bear the following legend:

          Unless this certificate is presented by an authorized representative
          of The Depository Trust Company, a New York corporation ("DTC"), to
          Issuer or its agent for registration of transfer, exchange, or
          payment, and any certificate issued is registered in the name of Cede
          & Co. or in such other name as is requested by an authorized
          representative of DTC (and any payment is made to Cede & Co. or to
          such other entity as is requested by an authorized representative of
          DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
          BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
          hereof, Cede & Co., has an interest herein.

Issuer represents: [Note: Issuer must represent one of the following, and shall
cross out the other.]

     The Security certificate(s) shall remain in Agent's custody as a "Balance
Certificate" subject to the provisions of the Balance Certificate Agreement
between Agent and DTC currently in effect. On each day on which Agent is open
for business and on which it receives an instruction originated by a DTC
participant ("Participant") through DTC's Deposit/Withdrawal at Custodian
("DWAC") system to increase the Participant's account by a specified number of
Securities (a "Deposit Instruction"), Agent shall, no later than 6:30 p.m.
(Eastern Time) that day, either approve or cancel the Deposit Instruction
through the DWAC system.


     On each day on which Agent is open for business and on which it receives an
instruction originated by a Participant through the DWAC system to decrease the
Participant's account by a specified number of Securities (a "Withdrawal
Instruction"), Agent shall, no later than 6:30 p.m. (Eastern Time) that day,
either approve or cancel the Withdrawal Instruction through the DWAC system.

     Agent agrees that its approval of a Deposit or Withdrawal Instruction shall
be deemed to be the receipt by DTC of a new reissued or reregistered
certificated Security on registration of transfer to the name of Cede & Co. for
the quantity of Securities evidenced by the Balance Certificate after the
Deposit or Withdrawal Instruction is effected.

     2. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the. Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.

     3. In the event of any solicitation of consents from or voting by holders
of the Securities, Issuer or Agent shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall send notice of such record date to DTC no fewer than 15
calendar days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be directed to DTC's Reorganization Department at
(212) 855- 5181 or (212) 855- 5182. If the party sending the notice does not
receive a telecopy receipt from DTC confirming that the notice has been
received, such party shall telephone (212) 855-5202. Notices to DTC pursuant to
this Paragraph, by mail or by any other means, shall be sent to:

     Manager, Reorganization Department
     Reorganization Window
     The Depository Trust Company
     55 Water Street 50th floor
     New York, NY 10041-0099

     4. In the event of a stock split, recapitalization, conversion, or any
similar transaction resulting in the cancellation of all or any part of the
Securities represented thereby, Agent shall send DTC a notice of such event as
soon as practicable, but in no event less than five business days prior to the
effective date of such transaction. Notices pursuant to this Paragraph regarding
stock splits shall be directed to DTC's Dividend Department as indicated in
Paragraph 6. All other notices pursuant to this Paragraph shall be directed to
DTC's Reorganization Department as also indicated in Paragraph 6.

     5. In the event of a full or partial redemption, Issuer or Agent shall send
a notice to DTC specifying: (a) the amount of the redemption or refunding; (b)
in the case of a refunding, the maturity date(s) established under the
refunding; and (c) the date such notice is to be distributed to Security holders
(the "Publication Date"). Such notice shall be sent to DTC by a secure means
(e.g., legible telecopy, registered or certified mail, overnight delivery) in a
timely manner designed to assure that such notice is in DTC's possession no
later than the close of business on the business day before or, if possible, two
business days before the Publication Date. Issuer or Agent shall forward such
notice either in a separate secure transmission for each CUSIP number or in a
secure transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The party
sending such notice shall have a method to verify subsequently the use of such
means and the timeliness of such notice.) The Publication Date shall be no fewer
than 30 days nor more than 60 days prior to the redemption date or, in the case
of an advance refunding, the date that the proceeds are deposited in escrow.
Notices to DTC pursuant to this Paragraph by telecopy shall be directed to DTC's
Call Notification Department at (516) 227-4164 or (516) 227-4190. If the party
sending the notice does not receive a telecopy receipt from DTC confirming that
the notice has been received, such party shall telephone (516) 227-4070. Notices
to DTC pursuant to this Paragraph, by mail or by any other means, shall be sent
to:

     Manager, Call Notification Department
     The Depository Trust Company
     711 Stewart Avenue


     Garden City, NY 11530-4719

     6. In the event of an offering or issuance of rights with respect to the
Securities outstanding, Agent shall send DTC's Dividend and Reorganization
Departments a notice specifying: (a) the amount of and conditions, if any,
applicable to such rights offering or issuance; (b) any applicable expiration or
deadline date, or any date by which any action on the part of holders of such
Securities is required; and (c) the Publication Date of such notice. The
Publication Date will be as soon as practicable after the announcement by the
Company of any such offering or issuance of rights with respect to the
Securities outstanding. DTC requires that the Publication Date be no fewer than
30 days nor more than 60 days prior to the related payment date, distribution
date, or issuance date, respectively. Notices to DTC pursuant to this Paragraph
by telecopy shall be sent to DTC's Dividend Department at (212) 855-4545, and
receipt of such notices shall be confirmed by telephoning (212) 855-4530.
Notices to DTC pursuant to this Paragraph, by mail or any other means, shall be
sent to:

     Supervisor, Stock Dividends
     Dividend Department
     The Depository Trust Company
     55 Water Street 25th Floor
     New York, NY 10041-0099

     Notices to DTC pursuant to the above Paragraph by telecopy shall be sent to
DTC's Reorganization Department at (212) 855-5259, and receipt of such telecopy
shall be confirmed by telephoning (212) 855-5260. Such notices to DTC pursuant
to the above Paragraph, by mail or any other means, shall be sent to:

     Supervisor, Rights Offerings
     Reorganization Department
     The Depository Trust Company
     55 Water Street 50th Floor
     New York, NY 10041-0099

     7. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Agent to
Security holders specifying the terms of the tender and the Publication Date of
such notice shall be sent to DTC by a secure means (e.g., legible telecopy,
registered or certified mail, overnight delivery) in a timely manner designed to
assure that such notice is in DTC's possession no later than the close of
business on the business day before or, if possible, two business days before
the Publication Date. Issuer or Agent shall forward such notice either in a
separate secure transmission for each CUSIP number or in a secure transmission
for multiple CUSIP numbers (if applicable) which includes a manifest or list of
each CUSIP number submitted in that transmission. (The party sending such notice
shall have a method to verify subsequently the use and timeliness of such
notice). Notices to DTC pursuant to this Paragraph and notices of other
corporate actions by telecopy shall be sent to DTC's Reorganization Department
at (212) 855-5488, and receipt of such notices shall be confirmed by telephoning
(212) 855-5290. Notices to DTC pursuant to this Paragraph, by mail or by any
other means, shall. be sent to the address indicated in Paragraph 3.

     8. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities and an accompanying description of such Securities.

     9. Issuer or Agent shall provide written notice of dividend payment
information to DTC as soon as the information is available. Issuer or Agent
shall provide such notice directly to DTC electronically, as previously arranged
by Issuer or Agent and DTC. If electronic transmission has not been arranged,
absent any other arrangements between Issuer or Agent and DTC, such information
shall be sent by telecopy to DTC's Dividend Department at (212) 855- 4555 or
(212) 855-4556. If the party sending the notice does not receive a telecopy
receipt from DTC confirming that the notice has been received, such party shall
telephone (212) 855-4550. Notices to DTC pursuant to this Paragraph, by mail or
by any other means, shall be sent to:

     Manager, Announcements
     Dividend Department
     The Depository Trust Company


     55 Water Street 25th Floor
     New York, NY 10041-0099

     10. Issuer or Agent shall notify DTC's Dividend Department of any dividend
payment date with regard to the Securities no later than the close of business
preferably five, but no fewer than two, business days prior to such payment
date. Agent shall include any available payment information at that time.
Notices pursuant to this Paragraph shall be directed to DTC's Dividend
Department as indicated in Paragraph 9.

     11. Dividend payments and cash distributions shall be received by Cede &
Co. as nominee of DTC, or its registered assigns, in same-day funds no later
than 2:30 p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00
p.m. (Eastern Time) on the payment date all such dividend and distribution
payments due Agent, or at such earlier time as may be required by Agent to
guarantee that DTC shall receive payment in same-day funds no later than 2:30
p.m. (Eastern Time) on the payment date. Absent any other arrangements between
Issuer or Agent and DTC, such funds shall be wired to the Dividend Deposit
Account number that will be stamped on the signature page hereof at the time DTC
executes this Letter of Representations.

     12. Issuer or Agent shall provide DTC, no later than 12:00 noon (Eastern
Time) on the payment date, automated notification of CUSIP-level detail. If the
circumstances prevent the funds paid to DTC from equaling the dollar amount
associated with the detail payments by 12:00 noon (Eastern Time), Issuer or
Agent must provide CUSIP-level reconciliation to DTC no later than 2:30 p.m.
(Eastern Time). Reconciliation must be provided by either automated means or
written format. Such reconciliation notice, if sent by telecopy to DTC's
Dividend Department, shall be directed to (212) 855-4633, and receipt of such
reconciliation notice shall be confirmed by telephoning (212) 855-4430.

     13. Redemption payments shall be received by Cede & Co., as nominee of DTC,
or its registered assigns, in same-day funds no later than 2:30 p.m. (Eastern
Time) on the payment date. Issuer shall remit by 1:00 p.m. (Eastern Time) on the
payment date all such redemption payments due Agent, or at such earlier time as
required by Agent to guarantee that DTC shall receive payment. in same-day funds
no later than 2:30 p.m. (Eastern Time) on the payment date. Absent any other
arrangements between Agent and DTC, such funds shall be wired to the Redemption
Deposit Account number that will be stamped on the signature page hereof at the
time DTC executes this Letter of Representations.

     14. Reorganization payments resulting from corporate actions (such as
tender offers or mergers) shall be received by Cede & Co., as nominee of DTC, or
its registered assigns, in same-day funds no later than 2:30 p.m. (Eastern Time)
on the payment date. Issuer shall remit by 1:00 p.m. (Eastern Time) on the
payment date all such reorganization payments due Agent, or at such earlier time
as required by Agent to guarantee that DTC shall receive payment in same- day
funds no later than 2:30 p.m. (Eastern Time) on the payment date. Absent any
other arrangements between Agent and DTC, such funds shall be wired to the
Reorganization Deposit Account number that will be stamped on the signature page
hereof at the time DTC executes this Letter of Representations.

     15. DTC may direct Issuer or Agent to use any other number or address as
the number or address to which notices or payments may be sent.

     16. In the event of a redemption, acceleration, or any other similar
transaction (e.g., tender made and accepted in response to Issuer's or Agent's
invitation) necessitating a reduction in the aggregate principal amount of
Securities outstanding or an advance refunding of part of the Securities
outstanding, DTC, in its discretion: (a) may request Issuer or Agent to issue
and authenticate a new Security certificate; or (b) may make an appropriate
notation on the Security certificate indicating the date and amount of such
reduction in the number of Securities outstanding, except in the case of final
redemption, in which case the certificate will be presented to Issuer or Agent
prior to payment, if required.

     17. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Agent
shall notify DTC of the availability of certificates. In such event, Issuer or
Agent shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.


     18. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Agent (at which time DTC will confirm with Issuer or Agent the aggregate
principal amount of Securities outstanding). Under such circumstances, at DTC's
request, Issuer and Agent shall cooperate fully with DTC by taking appropriate
action to make available one or more separate certificates evidencing Securities
to any Participant having Securities credited to its DTC accounts.

     19. Nothing herein shall be deemed to require Agent to advance funds on
behalf of Issuer.

     20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together shall constitute but one and the same
instrument.

     21. This Letter of Representations shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
principles of conflicts of law.

     22. The sender of each notice delivered to DTC pursuant to this Letter of
Representations is responsible for confirming that such notice was properly
received by DTC.

     23. Issuer recognizes that DTC does not in any way undertake to, and shall
not have any responsibility to, monitor or ascertain the compliance of any
transactions in the Securities with the following, as amended from time to time:
(a) any exemptions from registration under the Securities Act of 1933; (b) the
Investment Company Act of 1940; (c) the Employee Retirement Income Security Act
of 1974; (d) the Internal Revenue Code of 1986; (e) any rules of any self-
regulatory organizations (as defined under the Securities Exchange Act of 1934);
or (f) any other local, state, or federal laws or regulations thereunder.

     24. Issuer hereby authorizes DTC to provide to Agent listings of DTC
Participants' holdings, known as Security Position Listings ("SPLs"), with
respect to the Securities from time to time at the request of the Agent. DTC
charges a fee for such SPLs. This authorization, unless revoked by Issuer, shall
continue with respect to the Securities while any Securities are on deposit at
DTC, until and unless Agent shall no longer be acting. In such event, Issuer
shall provide DTC with similar evidence, satisfactory to DTC, of the
authorization of any successor thereto so to act. Requests for SPLs shall be
sent by telecopy to the Proxy Unit of DTC's Reorganization Department at (212)
855-5181 or (212) 855-5182. Receipt of such requests shall be confirmed by
telephoning (212) 855-5202. Requests for SPLs, sent by mail or by any other
means, shall be directed to:

     Supervisor, Proxy Unit
     Reorganization Department
     The Depository Trust Company
     55 Water Street 50th Floor
     New York, NY 10041-0099

     25. Issuer and Agent shall comply with the applicable requirements stated
in DTC's Operational Arrangements, as they may be amended from time to time.
DTC's Operational Arrangements are posted on DTC's website at "www.DTC.org."

     26. The following rider(s), attached hereto, are hereby incorporated into
this Letter of Representations:. N/A

Notes:

A. If there is an Agent (as defined in this Letter of Representations), Agent as
well as Issuer must sign this Letter. If there is no Agent, in signing this
Letter Issuer itself undertakes to perform all of the obligations set forth
herein.

B. Schedule B contains statements that DTC believes accurately describe DTC, the
method of effecting book-entry transfers of securities distributed through DTC,
and certain related matters.

                                                               Very truly yours,


                                                           iSHARES, INC.
                                            [Issuer]
                                            By: /S/ JOHN P. FALCO, Asst. Sec.
                                               [Authorized Officer's Signature]
                                            PFPC INC.
                                            [Agent]
                                            By:  Robert Diaczuk, Vice President
                                               [Authorized Officer's Signature]

Received and Accepted
THE DEPOSITORY TRUST COMPANY

cc:  Underwriter
     Underwriter's Counsel.


                                                                     SCHEDULE A

      iSHARES OF iSHARES MSCI PACIFIC EX JAPAN INDEX FUND OF iSHARES, INC.
                                [Describe Issue]



      CUSIP Number                                    Share Total                                 Offering ($) Value
                                                                                            
        464286665           such number of shares as shown from time to time on the records               N/A
                            of the agent, which shall be all of the outstanding shares of the
                            Series.




                                                                     SCHEDULE B

                       SAMPLE OFFERING DOCUMENT LANGUAGE

                      DESCRIBING BOOK-ENTRY-ONLY ISSUANCE

 (Prepared by DTC--bracketed material may be applicable only to certain issues)

     1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co.
(DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. One fully-registered Security certificate will
be issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $400 million, one certificate
will be issued with respect to each $400 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]

     2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Direct Participants")
deposit with DTC. DTC also facilitates the settlement among Direct Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Direct
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks, and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The Rules
applicable to DTC and its Direct and Indirect Participants are on file with the
Securities and Exchange Commission.

     3. Purchases of Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Direct and Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Securities, except in the event that use of the book-entry system
for the Securities is discontinued..

     4. To facilitate subsequent transfers, all Securities deposited by Direct
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of Securities with DTC and their registration
in the name of Cede & Co. or such other nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Securities are credited, which may or may
not be the Beneficial Owners. The Direct and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.


     [5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. [Beneficial Owners of Securities may wish to
take certain steps to augment transmission to them of notices of significant
events with respect to the Securities, such as redemptions, tenders, defaults,
and proposed amendments to the security documents. Beneficial Owners of
Securities may wish to ascertain that the nominee holding the Securities for
their benefit has agreed to obtain and transmit notices to Beneficial Owners, or
in the alternative, Beneficial Owners may wish to provide their names and
addresses to the registrar and request that copies of the notices be provided
directly to them.]

     [6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]

     7.  Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or
vote with respect to the Securities. Under its usual procedures, DTC mails an
Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).

     8.  Redemption proceeds, distributions, and dividend payments on the
Securities will be made to Cede & Co., or such other nominee as may be requested
by an authorized representative of DTC. DTC's practice is to credit Direct
Participants' accounts, upon DTC's receipt of funds and corresponding detail
information from Issuer or Agent on payable date in accordance with their
respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participant and not of DTC, Agent, or Issuer, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
redemption proceeds, distributions, and dividends to Cede & Co. (or such other
nominee as may be requested by an authorized representative of DTC) is the
responsibility of Issuer or Agent, disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.

     [9. A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to [Tender/Remarketing] Agent,
and shall effect delivery of such Securities by causing the Direct Participant
to transfer the Participant's interest in the Securities, on DTC's records, to
[Tender/Remarketing] Agent. The requirement for physical delivery of Securities
in connection with an optional tender or a mandatory purchase will be deemed
satisfied when the ownership rights in the Securities are transferred by Direct
Participants on DTC's records and followed by a book-entry credit of tendered
Securities to [Tender/Remarketing] Agent's DTC account.]

     10. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Agent. Under such circumstances, in the event that a successor securities
depository is not obtained, Security certificates are required to be printed and
delivered.

     11. Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.

     12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.