0001021408-01-509209.txt : 20011106 0001021408-01-509209.hdr.sgml : 20011106 ACCESSION NUMBER: 0001021408-01-509209 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20011101 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ISHARES INC CENTRAL INDEX KEY: 0000930667 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 510396525 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-09102 FILM NUMBER: 1773234 BUSINESS ADDRESS: STREET 1: 400 BELLEVUE PKWAY CITY: WILMINGTON STATE: DE ZIP: 19809 BUSINESS PHONE: 800-810-93 FORMER COMPANY: FORMER CONFORMED NAME: FOREIGN FUND INC DATE OF NAME CHANGE: 19950524 FORMER COMPANY: FORMER CONFORMED NAME: WEBS INDEX FUND INC DATE OF NAME CHANGE: 19970211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ISHARES INC CENTRAL INDEX KEY: 0000930667 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 510396525 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-97598 FILM NUMBER: 1773235 BUSINESS ADDRESS: STREET 1: 400 BELLEVUE PKWAY CITY: WILMINGTON STATE: DE ZIP: 19809 BUSINESS PHONE: 800-810-93 FORMER COMPANY: FORMER CONFORMED NAME: FOREIGN FUND INC DATE OF NAME CHANGE: 19950524 FORMER COMPANY: FORMER CONFORMED NAME: WEBS INDEX FUND INC DATE OF NAME CHANGE: 19970211 485APOS 1 d485apos.txt ISHARES, INC. PROSPECTUS As filed with the Securities and Exchange Commission on November 1, 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. 22 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 24 [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: [_] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. iShares MSCI Series The information provided in the wrapper is not part of the prospectus. The way you invest now. [LOGO OF iSHARES] Only better. 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 Australia Index Fund .iShares MSCI Austria Index Fund .iShares MSCI Belgium Index Fund .iShares MSCI Brazil (Free) Index Fund .iShares MSCI Canada Index Fund .iShares MSCI EMU Index Fund .iShares MSCI France Index Fund .iShares MSCI Germany Index Fund .iShares MSCI Hong Kong Index Fund .iShares MSCI Italy Index Fund .iShares MSCI Japan Index Fund .iShares MSCI Malaysia (Free) Index Fund -------------------------------------------------------------------------------- .iShares MSCI Mexico (Free) Index Fund .iShares MSCI Netherlands Index Fund .iShares MSCI Pacific ex-Japan Index Fund .iShares MSCI Singapore (Free) Index Fund .iShares MSCI South Korea Index Fund .iShares MSCI Spain Index Fund .iShares MSCI Sweden Index Fund .iShares MSCI Switzerland Index Fund .iShares MSCI Taiwan Index Fund .iShares MSCI United Kingdom 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 Table of Contents Details on each Index Fund's market, benchmark index and performance Introduction................................................................ 1 Investment Objective........................................................ 1 Principal Investment Strategies............................................. 1 Principal Risk Factors...................................................... 2 Fees and Expenses........................................................... 3 The iShares MSCI Index Funds................................................ 7 iShares MSCI Australia Index Fund........................................... 7 iShares MSCI Austria Index Fund............................................. 8 iShares MSCI Belgium Index Fund............................................. 9 iShares MSCI Brazil (Free) Index Fund....................................... 10 iShares MSCI Canada Index Fund.............................................. 11 iShares MSCI EMU Index Fund................................................. 12 iShares MSCI France Index Fund.............................................. 13 iShares MSCI Germany Index Fund............................................. 14 iShares MSCI Hong Kong Index Fund........................................... 15 iShares MSCI Italy Index Fund............................................... 16 iShares MSCI Japan Index Fund............................................... 17 iShares MSCI Malaysia (Free) Index Fund..................................... 18 iShares MSCI Mexico (Free) Index Fund....................................... 20 iShares MSCI Netherlands Index Fund......................................... 21 iShares MSCI Pacific ex-Japan Index Fund.................................... 22 iShares MSCI Singapore (Free) Index Fund.................................... 23 iShares MSCI South Korea Index Fund......................................... 24 iShares MSCI Spain Index Fund............................................... 25 iShares MSCI Sweden Index Fund.............................................. 26 iShares MSCI Switzerland Index Fund......................................... 27 iShares MSCI Taiwan Index Fund.............................................. 28 iShares MSCI United Kingdom Index Fund...................................... 29 Investment Policies and Strategies.......................................... 31 Additional Information About Principal Risk Factors......................... 34 Details on the management and operations of the Index Funds Management Investment Advisor.......................................................... 36 Details on buying and selling iShares Shareholder Information Determination of Net Asset Value............................................ 36 Buying and Selling iShares.................................................. 37 Dividends and Capital Gains Distributions................................... 39 Tax Matters................................................................. 39 Possible Claim.............................................................. 40 Details on the Rule 12b-1 Distribution Plan Distribution Arrangements................................................... 40 Per share financial data for each Index Fund Financial Highlights........................................................ 41
-------------------------------------------------------------------------------- page i iShares 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 the [insert applicable Funds] 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%. [Under the iShares MSCI_____ Index Funds industry concentration policy, each of these Funds will concentrate its investments (i.e hold more than 25% or more of its assets in a particular industry) in approximately the same percentage as its benchmark MSCI Index.] 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 -------------------------------------------------------------------------------- Introduction page 1 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 below. 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. The 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; imposition of restrictions on the expatriation of funds or other assets; less publicly available information about issuers; 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. . Management Risk. Because an Index Fund does not fully replicate its benchmark index and may hold non-index stocks, it is subject to management risk. This is the risk that the investment advisor's strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. . 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. . Emerging Market Risk. Some foreign markets in which the Index Funds invest are considered to be emerging market countries. Investment in these countries subjects an Index Fund to a greater risk of loss than investments in a developed country. This is due to, among other things, greater market volatility, lower trading volume, political and economic instability, greater risk of market shut down and more governmental limitations on foreign investment policy than those typically found in a developed market. The following Index Funds invest in emerging markets: the iShares MSCI Brazil (Free), Malaysia (Free), Mexico (Free), South Korea and Taiwan Index Funds. . Non-Diversification Risk. Each Index Fund (except for the iShares MSCI Japan and United Kingdom Index Funds) is classified as "non-diversified." (The shareholders of each of the iShares MSCI Japan and United Kingdom Index Funds are being asked to approve a change of these Index Funds from diversified to non-diversified status at a special meeting scheduled to be held on December 19, 2001.) This means that these Index Funds may invest most of their assets in securities issued by a small number of companies. As a result, these Index Funds are 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). -------------------------------------------------------------------------------- page 2 iShares 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). For the Index Funds that have commenced investment operations (except the iShares MSCI Pacific Ex Japan Index Fund, which commenced sales of its iShares to the public in 2001), total annual Index Fund operating expenses are based on actual expenses accrued by those Index Funds for the fiscal year ended August 31, 2001.
Brazil iShares MSCI Index Fund Australia Austria Belgium (Free) ----------------------- --------- ------- ------- ------ Management fees.......................... 0.59% 0.59% 0.59% 0.74% Distribution (Rule 12b-1) fees........... 0.25% 0.25% 0.25% 0.25% Other expenses**......................... None None None None ------ ------ ------ ------ Total annual Index Fund operating expenses................................ 0.84% 0.84% 0.84% 0.99% iShares MSCI Index Fund Canada EMU France Germany ----------------------- ------ --- ------ ------- Management fees.......................... 0.59% 0.59% 0.59% 0.59% Distribution (Rule 12b-1) fees........... 0.25% 0.25% 0.25% 0.25% Other expenses**......................... None None None None ------ ------ ------ ------ Total annual Index Fund operating expenses................................ 0.84% 0.84% 0.84% 0.84% Malaysia iShares MSCI Index Fund Hong Kong Italy Japan (Free) ----------------------- --------- ----- ----- -------- Management fees.......................... 0.59% 0.59% 0.59% 0.59% Distribution (Rule 12b-1) fees........... 0.25% 0.25% 0.25% 0.25% Other expenses**......................... None None None None ------ ------ ------ ------ Total annual Index Fund operating expenses................................ 0.84% 0.84% 0.84% 0.84%
-------- * 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. 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 $1,500 to $8,000, 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. ** The Company's Investment Advisory Agreement provides that the Advisor will pay the operating expenses of each Index Fund, except portfolio transaction expenses, Rule 12b-1 distribution expenses, litigation expenses, taxes, extraordinary expenses and the advisory fee payable to the investment adviser. -------------------------------------------------------------------------------- Fees and Expenses page 3
Mexico Pacific Singapore South iShares MSCI Index Fund (Free) Netherlands ex-Japan*** (Free) Korea ----------------------- ------ ----------- ----------- --------- ----- Management fees.............. 0.59% 0.59% 0.50% 0.59% 0.74% Distribution (Rule 12b-1) fees........................ 0.25% 0.25% NONE 0.25% 0.25% Other expenses**............. NONE NONE NONE NONE NONE ----- ----- ------ ------ ------ Total annual Index Fund operating expenses.......... 0.84% 0.84% 0.50% 0.84% 0.99% United iShares MSCI Index Fund Spain Sweden Switzerland Taiwan Kingdom ----------------------- ----- ------ ----------- ------ ------- Management fees.............. 0.59% 0.59% 0.59% 0.74% 0.59% Distribution (Rule 12b-1) fees........................ 0.25% 0.25% 0.25% 0.25% 0.25% Other expenses**............. NONE NONE NONE NONE NONE ----- ----- ------ ------ ------ Total annual Index Fund operating expenses.......... 0.84% 0.84% 0.84% 0.99% 0.84%
-------- *** This Index Fund started investment operations on October 26, 2001. These expenses are based on estimated expenses the Index Fund expects to incur for the current fiscal year based on assumed average daily net assets of $50 million. ------------------------------------------------------------------------------- page 4 iShares 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 ($) ----------------------- ---------- ----------- ----------- ------------ Australia............... ____ ____ ____ ____ Austria................. ____ ____ ____ ____ Belgium................. ____ ____ ____ ____ Brazil (Free)........... ____ ____ ____ ____ Canada.................. ____ ____ ____ ____ EMU..................... ____ ____ ____ ____ France.................. ____ ____ ____ ____ Germany................. ____ ____ ____ ____ Hong Kong............... ____ ____ ____ ____ Italy................... ____ ____ ____ ____ Japan................... ____ ____ ____ ____ Malaysia (Free)......... ____ ____ ____ ____ Mexico (Free)........... ____ ____ ____ ____ Netherlands............. ____ ____ ____ ____ Pacific ex-Japan........ ____ ____ N/A N/A Singapore (Free)........ ____ ____ ____ ____ South Korea............. ____ ____ ____ ____ Spain................... ____ ____ ____ ____ Sweden.................. ____ ____ ____ ____ Switzerland............. ____ ____ ____ ____ Taiwan.................. ____ ____ ____ ____ United Kingdom.......... ____ ____ ____ ____
-------------------------------------------------------------------------------- The iShares MSCI Index Series page 5 You would pay the following expenses if you did not redeem your shares:
iShares MSCI Index Series 1 Year ($) 3 Years ($) 5 Years ($) 10 Years ($) ------------------ ---------- ----------- ----------- ------------ Australia............... ____ ____ ____ ____ Austria................. ____ ____ ____ ____ Belgium................. ____ ____ ____ ____ Brazil (Free)........... ____ ____ ____ ____ Canada.................. ____ ____ ____ ____ EMU..................... ____ ____ ____ ____ France.................. ____ ____ ____ ____ Germany................. ____ ____ ____ ____ Hong Kong............... ____ ____ ____ ____ Italy................... ____ ____ ____ ____ Japan................... ____ ____ ____ ____ Malaysia (Free)......... ____ ____ ____ ____ Mexico (Free)........... ____ ____ ____ ____ Netherlands............. ____ ____ ____ ____ Pacific ex-Japan........ ____ ____ N/A N/A Singapore (Free)........ ____ ____ ____ ____ South Korea............. ____ ____ ____ ____ Spain................... ____ ____ ____ ____ Sweden.................. ____ ____ ____ ____ Switzerland............. ____ ____ ____ ____ Taiwan.................. ____ ____ ____ ____ United Kingdom.......... ____ ____ ____ ____
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). -------------------------------------------------------------------------------- page 6 iShares The iShares MSCI Index Funds iShares MSCI Australia Index Fund CUSIP: 464286103 AMEX Trading Symbol: EWA ------------------------ Fund Investment Objective The iShares MSCI Australia 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 Australian market, as measured by the MSCI Australia Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Australian Stock Exchange. As of that date, the Index's three largest stocks were Telstra Corp., National Australia Bank and Commonwealth Bank (which comprised _____%, _____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were banks, media and metal & mining (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- ---------- (10.19)% 2.18% 19.24% ______%
2001 Year to Date Total Return as of September 30: ______% Best Quarter Worst Quarter ------------ ------------- 13.59% (12.94%) (Quarter ended December 31, 1998) (Quarter ended December 31, 1997) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------------- Australia Index Fund _____% ____% MSCI Australia Index _____% ____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 7 iShares MSCI Austria Index Fund CUSIP: 464286202 AMEX Trading Symbol: EWO ------------------------ Fund Investment Objective The iShares MSCI Austria 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 Austrian market, as represented by the MSCI Austria Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Vienna Stock Exchange. As of that date, the Index's three largest stocks were Bank Austria, Verbund Oesterreich Elektrik A and OMV Ag (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization) and its three largest industries were banks, electric utilities and oil & gas (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- -------- 1.05% (1.83%) (10.36%) _____%
2001 Year to Date Total Return as of September 30: _____% Best Quarter Worst Quarter ------------ ------------- 12.76% (23.45%) (Quarter ended March 31, 1998) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------- --------- Austria Index Fund _____% _____% MSCI Austria Index _____% _____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- page 8 iShares iShares MSCI Belgium Index Fund CUSIP: 464286301 AMEX Trading Symbol: EWK ------------------------ Fund Investment Objective The iShares MSCI Belgium 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 Belgian market, as measured by the MSCI Belgium Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Brussels Stock Exchange. As of that date, the Index's three largest stocks were Fortis Belgium, KBC Bancassurance and Electrabel (which comprised ____%, _____% and _____%, respectively, of the Index's market capitalization) and its three largest industries were diversified financials, banks and electric utilities (which comprised ____%, ____% and ____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- ---------- 11.84% 51.69% (14.05%) __%
2001 Year to Date Total Return as of September 30: (____%) Best Quarter Worst Quarter ------------ ------------- 17.78% (14.06%) (Quarter ended December 31, 1998) (Quarter ended March 31, 1999) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) -------- --------- Belgium Index Fund ____% ____% MSCI Belgium Index ____% ____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 9 s iShares MSCI Brazil (Free) Index Fund CUSIP: 464286400 AMEX Trading Symbol: EWZ ------------------------ Fund Investment Objective The iShares MSCI Brazil (Free) 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 Brazilian market, as measured by the MSCI Brazil (Free) Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Bolsa de Valores de Sao Paulo. As of that date, the Index's three largest stocks were Petrobras Pn, Petrobras On and Vale Do Rio Doce Pna (which comprised _____%, _____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were oil & gas, diversified telecommunication services and electric utilities (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Fund-Specific Risks In addition to the principal risk factors referred to elsewhere in this prospectus, you should know that Brazil has in recent history experienced substantial economic instability resulting from, among other things, periods of very high inflation and significant devaluations of the Brazilian currency. Brazil also has suffered from chronic structural public sector deficits. Such challenges have contributed to high price volatility in the Brazilian equity markets. Prior Performance Since the Fund was first offered to the public on July 11, 2000, and has not been in existence for a full calendar year, prior performance information is not presented. -------------------------------------------------------------------------------- page 10 iShares iShares MSCI Canada Index Fund CUSIP: 464286509 AMEX Trading Symbol: EWC ------------------------ Fund Investment Objective The iShares MSCI Canada 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 Canadian market, as measured by the MSCI Canada Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Toronto Stock Exchange. As of that date, the Index's three largest stocks were Nortel Networks Corp., Thomson Corp. and BCE Inc. (which comprised _____%, ____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were communications equipment, banks and media (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- --------- 10.91% (6.47%) 46.13% ____%
2001 Year to Date Total Return as of September 30: _____% Best Quarter Worst Quarter ------------ ------------- 21.44% (24.40%) (Quarter ended December 31, 1999) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------- Canada Index Fund _____% _____% MSCI Canada Index _____% _____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 11 iShares MSCI EMU Index Fund CUSIP: 464286608 AMEX Trading Symbol: EZU ------------------------ Fund Investment Objective The iShares MSCI EMU 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 European Monetary Union ("EMU") markets, as measured by the MSCI EMU Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index is comprised of ___ stocks from the following ten countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal and Spain. As of that date, the Index's three largest stocks were Nokia Corp., Royal Dutch Petroleum and Total Fina Elf (which comprised ___%, ___% and ___%, respectively, of the Index's market capitalization) and its three largest industries were banks, diversified telecommunication services and insurance (which comprised ___%, ___% and ___%, respectively, of the Index's market capitalization). Fund-Specific Risks In addition to the principal risk factors referred to elsewhere in this prospectus, you should know that EMU was implemented only recently (January 1, 1999) and it is anticipated that additional countries will join the system over time. Also, it is possible that countries may withdraw from EMU or that EMU may be abandoned at some future time. Any change to EMU may adversely affect the investment performance of the Fund. If EMU were to be abandoned the Board of Directors would propose a change in the investment objective of the Series or cause its liquidation. Prior Performance Since the Fund was first offered to the public on July 26, 2000, and has not been in existence for a full calendar year, prior performance information is not presented. -------------------------------------------------------------------------------- page 12 iShares iShares MSCI France Index Fund CUSIP: 464286707 AMEX Trading Symbol: EWQ ------------------------ Fund Investment Objective The iShares MSCI France 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 French market, as measured by the MSCI France Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Paris Stock Exchange. As of that date, the Index's three largest stocks were Total Fina Elf, France Telecom and Aventis (which comprised _____%, ____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were oil & gas, pharmaceuticals and diversified telecommunication services (which comprised _____%, _____% and ____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- --------- 11.47% 40.78% 29.97% __%
2001 Year to Date Total Return as of September 30: (__%) Best Quarter Worst Quarter ------------ ------------- 23.51% (16.16%) (Quarter ended March 31, 1998) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------- France Index Fund __% __% MSCI France Index __% __%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 13 iShares MSCI Germany Index Fund CUSIP: 464286806 AMEX Trading Symbol: EWG ------------------------ Fund Investment Objective The iShares MSCI Germany 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 German market, as measured by the MSCI Germany Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of ___ stocks traded primarily on the Frankfurt Stock Exchange. As of that date, the Index's three largest stocks were Deutsche Telekom, Allianz and Siemens (which comprised ___%, ___% and ___%, respectively, of the Index's market capitalization) and its three largest industries were insurance, diversified telecommunication services and banks (which comprised ___%, ___% and ___%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- ---------- 22.75% 28.28% 20.87% ____%
2001 Year to Date Total Return as of September 30: ____% Best Quarter Worst Quarter ------------ ------------- 27.11% (15.76%) (Quarter ended December 31, 1999) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------- Germany Index Fund ____% ____% MSCI Germany Index ____% ____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- page 14 iShares iShares MSCI Hong Kong Index Fund CUSIP: 464286871 AMEX Trading Symbol: EWH ------------------------ Fund Investment Objective The iShares MSCI Hong Kong 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 Hong Kong market, as measured by the MSCI Hong Kong Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of ___ stocks traded primarily on the Stock Exchange of Hong Kong Limited (SEHK). As of that date, the Index's three largest stocks were Hutchison Whampoa, Hang Seng Bank and Sun Hung Kai Properties (which comprised ___%, ___% and ___%, respectively, of the Index's market capitalization) and its three largest industries were diversified financials, real estate and banks (which comprised ___%, ___% and ___%, respectively, of the Index's market capitalization). 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. Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- ---------- (26.74%) (9.21%) 54.00% ____%
2001 Year to Date Total Return as of September 30: ___% Best Quarter Worst Quarter ------------ ------------- 26.95% (30.12%) (Quarter ended December 31, 1998) (Quarter ended December 31, 1997) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------- Hong Kong Index Fund ___% ___% MSCI Hong Kong Index ___% ___%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 15 iShares MSCI Italy Index Fund CUSIP: 464286855 AMEX Trading Symbol: EWI ------------------------ Fund Investment Objective The iShares MSCI Italy 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 Italian market, as measured by the MSCI Italy Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Milan Stock Exchange. As of that date, the Index's three largest stocks were Tim Ord, ENI and Assicurazioni Generali (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization) and its three largest industries were banks, diversified telecommunication services and wireless telecommunication services (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- ---------- 35.77% 50.24% 0.53% ____%
2001 Year to Date Total Return as of September 30: ____% Best Quarter Worst Quarter ------------ ------------- 34.44% (10.61%) (Quarter ended March 31, 1998) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------- Italy Index Fund ____% _____% MSCI Italy Index ____% _____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- page 16 iShares iShares MSCI Japan Index Fund CUSIP: 464286848 AMEX Trading Symbol: EWJ ------------------------ Fund Investment Objective The iShares MSCI 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 Japanese market, as measured by the MSCI Japan Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of ___ stocks traded primarily on the Tokyo Stock Exchange. As of that date, the Index's three largest stocks were Toyota Motor Corp., NTT Corp. and Sony Corp. (which comprised ____%, ____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were banks, automobiles and household durables (which comprised ____%, ____% and ____%, respectively, of the Index's market capitalization). Fund-Specific Risks In addition to the principal risk factors referred to elsewhere in this prospectus, you should know that the Japanese economy faces several concerns, including: a financial system with large levels of nonperforming loans; over- leveraged corporate balance sheets; an aging workforce; a labor market undergoing fundamental structural changes, as traditional lifetime employment clashes with the need for increased labor mobility; extensive cross-ownership by major corporations; a changing corporate governance structure; and large government deficits. Japan's economy is heavily dependent on international trade and has been adversely affected by trade tariffs and other protectionist measures. Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- ---------- (23.63%) 3.53% 57.89% _%
2001 Year to Date Total Return as of September 30: _____% Best Quarter Worst Quarter ------------ ------------- 26.25% (19.80%) (Quarter ended December 31, 1998) (Quarter ended December 31, 1997) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------- Japan Index Fund _____% ____% MSCI Japan Index _____% ____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 17 iShares MSCI Malaysia (Free) Index Fund CUSIP: 464286830 AMEX Trading Symbol: EWM ------------------------ Fund Investment Objective The iShares MSCI Malaysia (Free) 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 Malaysian market, as measured by the MSCI Malaysia (Free) Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Kuala Lumpur Stock Exchange. As of that date, the Index's three largest stocks were Tenaga Nasional, Telekom Malaysia and Malayan Banking (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization) and its three largest industries were banks, electric utilities and diversified telecommunication services (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Fund-Specific Risks In addition to the principal risk factors referred to elsewhere in this prospectus, you should know that Malaysian currency volatility and general economic deterioration led to the imposition of stringent capital controls in September 1998, including a one-year prohibition on repatriation of capital and an indefinite prohibition on free transfers of securities. The capital controls were subsequently amended in a number of respects. The Company suspended creations of the Fund when the capital controls were implemented, and advised investors that it would, to the extent possible under the applicable Malaysian regulations, deliver Malaysian ringgits in satisfaction of redemption requests received. The disruption of the creation/redemption mechanism for the Fund adversely affected the trading market for iShares of the Fund, resulting in their trading at prices that differed materially from their net asset value on many days. In May 2000, the Company commenced offers and redemptions of Creation Units of the Fund for U.S. dollars. In connection with the decision to redeem Creation Units of the Fund for U.S. dollars, the Company combined its accounts in Malaysia effective May 12, 2000, and Malaysian securities acquired by the Fund before September 1, 1998 acquired a basis for purposes of the Malaysian profits levy equal to their fair market value at the time of the combination. Previously, the proceeds of such securities could be repatriated without payment of the profits levy. Under the current Malaysian capital controls, the Fund will pay a profits levy at a rate of 10% (with any profits computed based on the cost basis for purposes of the Malaysian capital controls) when it sells Malaysian securities and repatriates the proceeds (e.g., in connection with redemptions). Since the levy is not a foreign income tax it will not be "passed through" to shareholders of the Fund for possible use as a foreign tax credit. The Company received regulatory relief from the Malaysian authorities and is currently investigating the possibility of re-instituting sales and redemptions of Creation Units of the Fund's iShares on an "in-kind" basis, but there can be no assurance that the Company will be able to offer and redeem such Creation Units on an in-kind basis at any time in the future. The Company understands, based on publicly available information, that the Finance Ministry of Malaysia has abolished, effective May 2, 2001, the exit levy of 10% that had applied to profits repatriated by foreign entities. Accordingly, the Fund no longer will be required under the Malaysian capital controls to pay a profits levy when it sells Malaysian securities in its portfolio and repatriates the proceeds (e.g., in connection with redemptions). -------------------------------------------------------------------------------- page 18 iShares The Malaysian capital controls have been changed in significant ways since they were first adopted without warning on September 1, 1998. There can be no assurance that the Malaysian capital controls will not be changed in the future in ways that adversely affect the Fund and its shareholders. Since the capital controls were imposed, the iShares of the Fund have often traded at discounts or premiums to their net asset value. Since the Company's decision to permit offers and redemptions of Creation Units of the Fund's iShares for U.S. dollars, they have traded at prices that have generally been close to their net asset values. However, there can be no assurances that this will continue to be the case. Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- ---------- (66.93%) (29.31%) 92.98% _____%
2001 Year to Date Total Return as of September 30: _____% Best Quarter Worst Quarter ------------ ------------- 122.01% (46.01%) (Quarter ended June 30, 1999) (Quarter ended June 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------- Malaysia (Free) Index Fund _____% _____% MSCI Malaysia (Free) Index _____% _____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 19 iShares MSCI Mexico (Free) Index Fund CUSIP: 464286822 AMEX Trading Symbol: EWW ------------------------ Fund Investment Objective The iShares MSCI Mexico (Free) 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 Mexican market, as measured by the MSCI Mexico (Free) Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Mexican Stock Exchange. As of that date, the Index's three largest stocks were Telefonos Mexico L, Walmart Mexico V and Grupo Modelo C (which comprised _____%, ____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were diversified telecommunication services, beverages and banks (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Fund-Specific Risks In addition to the principal risk factors referred to elsewhere in this prospectus, you should know that the Mexican economy is heavily dependent on the health of the US economy, as the United States purchases most of Mexico's exports. Mexico also has suffered from severe currency devaluations in the past, and has been destabilized by local insurrections in certain regions, particularly the State of Chiapas. In addition, there is a risk of disruption following the recent election of a president who is not a member of the political party that has dominated Mexico for many decades. Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- ---------- 48.53% (35.00%) 76.12% _____%
2001 Year to Date Total Return as of September 30: _____% Best Quarter Worst Quarter ------------ ------------- 35.92% (24.30%) (Quarter ended December 31, 1999) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------- Mexico (Free) Index Fund _____% _____% MSCI Mexico (Free) Index _____% _____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- page 20 iShares iShares MSCI Netherlands Index Fund CUSIP: 464286814 AMEX Trading Symbol: EWN ------------------------ Fund Investment Objective The iShares MSCI Netherlands 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 Dutch market, as measured by the MSCI Netherlands Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Amsterdam Stock Exchange. As of that date, the Index's three largest stocks were Royal Dutch Petroleum Co., ING Groep and Aegon (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization) and its three largest industries were oil & gas, diversified financials and insurance (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- --------- 20.11% 24.09% 4.54% _____%
2001 Year to Date Total Return as of September 30: (____%) Best Quarter Worst Quarter ------------ ------------- 17.76% (15.33%) (Quarter ended December 31, 1998) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------- Netherlands Index Fund ____% _____% MSCI Netherlands Index ____% _____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 21 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 November 30, 2001, the Index consisted of ___ stocks from the following four countries: Australia, Hong Kong, New Zealand and Singapore. As of November 30, 2001, the Index's three largest stocks were ____, ____ and ____ (which comprise __%, __% and __%, respectively, of the Index's market capitalization) and its three largest industries were ____, ____ and ____ (which comprise __%, __% and __%, respectively, of the Index's market capitalization. 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 a predominantly agricultural based country. However, since 1984, its government has been moving the country to become more industrialized. Its growth, however, remains dependent on the economic well-being of Asia, Europe and the U.S. 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 Since the Fund was first offered to the public on October 26, 2001, and has not been in existence for a full calendar year, prior performance information is not presented. -------------------------------------------------------------------------------- page 22 iShares iShares MSCI Singapore (Free) Index Fund CUSIP: 464286673 AMEX Trading Symbol: EWS ------------------------ Fund Investment Objective The iShares MSCI Singapore (Free) 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 Singaporean market, as measured by the MSCI Singapore (Free) Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Singapore Stock Exchange. As of that date, the Index's three largest stocks were DBS Group Holdings, Singapore Airlines and Singapore Telecom (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization) and its three largest industries were banks, airlines and diversified telecommunication services (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Fund-Specific Risks In addition to the principal risk factors referred to elsewhere in this prospectus, you should know that 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 electronics 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. Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- -------- (43.87%) (5.44%) 55.35% ____%
2001 Year to Date Total Return as of September 30: ______% Best Quarter Worst Quarter ------------ ------------- 55.99% (36.28%) (Quarter ended December 31, 1998) (Quarter ended June 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------------- Singapore (Free) Index Fund _____% _____% MSCI Singapore (Free) Index _____% _____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 23 iShares MSCI South Korea Index Fund CUSIP: 464286772 AMEX Trading Symbol: EWY ------------------------ Fund Investment Objective The iShares MSCI South Korea 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 South Korean market, as measured by the MSCI Korea Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the South Korean Stock Exchange. As of that date, the Index's three largest stocks were Samsung Electronics Co., SK Telecom Co. and Kepco Korea Electric Power (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization) and its three largest industries were semiconductor equipment & products, wireless telecommunication services and electric utilities (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Fund-Specific Risks In addition to the principal risk factors referred to elsewhere in this prospectus, you should know that while South Korea's relations with communist North Korea have improved somewhat in recent times, each has substantial military capabilities, and there is a risk of war between North and South Korea at any time. Any outbreak of hostilities between the two countries could have a severe adverse effect on the South Korean economy and securities markets. Prior Performance Since the Fund was first offered for sale to the public on May 10, 2000, and has not been in existence for a full calendar year, prior performance information is not presented. -------------------------------------------------------------------------------- page 24 iShares iShares MSCI Spain Index Fund CUSIP: 464286764 AMEX Trading Symbol: EWP ------------------------ Fund Investment Objective The iShares MSCI Spain 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 Spanish market, as measured by the MSCI Spain Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Madrid Stock Exchange. As of that date, the Index's three largest stocks were Telefonica, BBVA and BSCH BCO Santander Central (which comprised ____%, ____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were banks, diversified telecommunication services and electric utilities (which comprised ____%, ____% and ____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ----------- -------- 23.90% 51.30% (2.12%) ____%
2001 Year to Date Total Return as of September 30: ____% Best Quarter Worst Quarter ------------ ------------- 38.58% (16.56%) (Quarter ended March 31, 1998) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------------- Spain Index Fund ____% ____% MSCI Spain Index ____% ____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 25 iShares MSCI Sweden Index Fund CUSIP: 464286756 AMEX Trading Symbol: EWD ------------------------ Fund Investment Objective The iShares MSCI Sweden 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 Swedish market, as measured by the MSCI Sweden Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Stockholm Stock Exchange. As of that date, the Index's three largest stocks were Ericsson (Lm) B, Nordic Baltic Holdings and Skandia Forsakring (which comprised ____%, ____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were communications equipment, banks and machinery (which comprised ____%, ____% and ____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ----------- --------- 11.00% 11.06% 63.93% ____%
2001 Year to Date Total Return as of September 30: ____% Best Quarter Worst Quarter ------------ ------------- 36.63% (24.05%) (Quarter ended December 31, 1999) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------------- Sweden Index Fund ____% ____% MSCI Sweden Index ____% ____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- page 26 iShares iShares MSCI Switzerland Index Fund CUSIP: 464286749 AMEX Trading Symbol: EWL ------------------------ Fund Investment Objective The iShares MSCI Switzerland 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 Swiss market, as measured by the MSCI Switzerland Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Zurich Stock Exchange. As of that date, the Index's three largest stocks were Novartis, Nestle and Roche Holding Genuss (which comprised ____%, ____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were pharmaceuticals, banks and food products (which comprised ____%, ____% and ____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- ---------- 35.23% 18.27% (3.25%) ____%
2001 Year to Date Total Return as of September 30: ____% Best Quarter Worst Quarter ------------ ------------- 24.63% (22.09%) (Quarter ended December 31, 1998) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------------- Switzerland Index Fund ____% ____% MSCI Switzerland Index ____% ____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 27 iShares MSCI Taiwan Index Fund CUSIP: 464286731 AMEX Trading Symbol: EWT ------------------------ Fund Investment Objective The iShares MSCI Taiwan 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 Taiwanese market, as measured by the MSCI Taiwan Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of __ stocks traded primarily on the Taiwan Stock Exchange. As of that date, the Index's three largest stocks were Taiwan Semiconductor Mfg., United Microelectronics and Cathay Life Insurance Co. (which comprised _____%, _____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were semiconductor equipment & products, banks and computers & peripherals (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Fund-Specific Risks In addition to the principal risk factors referred to elsewhere in this prospectus, you should know that owing to Taiwan's size and geographic proximity to the People's Republic of China, and its history of political contention with China (which regards Taiwan as a renegade province), developments in Taiwan's ongoing relations with China, including the ongoing risk of invasion by or war with China and other factors, may materially impact the Taiwanese economy and securities markets. The recent election of a new government in Taiwan has resulted in increased tensions with China, which is concerned that the new government is in favor of independence for Taiwan. Prior Performance Since the Fund was first offered to the public on June 21, 2000, and has not been in existence for a full calendar year, prior performance information is not presented. -------------------------------------------------------------------------------- page 28 iShares iShares MSCI United Kingdom Index Fund CUSIP: 464286699 AMEX Trading Symbol: EWU ------------------------ Fund Investment Objective The iShares MSCI United Kingdom 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 British market, as measured by the MSCI United Kingdom Index (the "Index"). Benchmark Index Information As of November 30, 2001, the Index consisted of ___ stocks traded primarily on the London Stock Exchange. As of that date, the Index's three largest stocks were Vodafone Group, BP Amoco and HSBC Holdings (GB) (which comprised _____%, ____% and ____%, respectively, of the Index's market capitalization) and its three largest industries were banks, pharmaceuticals and wireless tecommunication services (which comprised _____%, _____% and _____%, respectively, of the Index's market capitalization). Prior Performance The chart and table below give you a picture of the Fund's long-term performance. The information shows how the Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. Annual Total Returns as of 12/31/00
1997 1998 1999 2000 ---------- --------- ---------- ---------- 20.85% 18.42% 12.14% _____%
2001 Year to Date Total Return as of September 30: _____% Best Quarter Worst Quarter ------------ ------------- 18.43% (10.56%) (Quarter ended March 31, 1998) (Quarter ended September 30, 1998) Average Annual Total Returns as of 12/31/00 -- Comparison
Since Inception 1 Year (3/12/96) ------ --------------- United Kingdom Index Fund _____% _____% MSCI United Kingdom Index _____% _____%
Past performance is not necessarily an indicator of how the Fund will perform in the future. -------------------------------------------------------------------------------- The iShares MSCI Index Funds page 29 [THIS PAGE INTENTIONALLY LEFT BLANK] -------------------------------------------------------------------------------- page 30 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 Australia, Austria, Belgium, Brazil (Free), Hong Kong, Italy, Mexico (Free), Netherlands, Pacific ex-Japan, Singapore (Free), South Korea, Spain, Sweden, Switzerland and Taiwan 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, and will at all times invest at least 90% of its total assets in such stocks, except that in order to permit the investment adviser additional flexibility to comply with the requirements of the US Internal Revenue Code and other regulatory requirements and to manage future corporate actions and index changes in the smaller markets, each of the iShares MSCI Australia, Austria, Belgium, Brazil (Free), Hong Kong, Italy, Mexico (Free), Netherlands, Singapore (Free), South Korea, Spain, Sweden, Switzerland and Taiwan Index Funds 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. (This policy will not be changed without first providing 60 days' prior written notice of the change to shareholders.) 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 MSCI Index. An Index Fund will not use these instruments to leverage, or borrow against, their page 31 -------------------------------------------------------------------------------- Investment Policies and Strategies 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. The iShares MSCI _____ Index Funds have the following industry concentration policy: 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 November 30, 2001, as a result of this policy with respect to industry concentration, the following Index Funds were concentrated (that is, invested 25% or more of the value of their assets) in the specified industries:
iShares MSCI Index Fund Industry or Industries ----------------------- ---------------------- [TO BE UPDATED]
Each of the iShares MSCI ________________ Index Funds [ADD ADDITIONAL FUNDS THAT APPROVE THIS PROPOSAL] 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. As of November 30, 2001, as a result of this policy with respect to industry concentration, the following Index Funds were concentrated (that is, invested 25% or more of the value of their assets) in the specified industries:
iShares MSCI Index Fund Industry or Industries ----------------------- ---------------------- [TO BE UPDATED]
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 page 32 iShares -------------------------------------------------------------------------------- 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%. For the fiscal year ended August 31, 2001, the following Index Funds had a tracking error greater than 5%: [TO BE UPDATED]. 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. page 33 -------------------------------------------------------------------------------- Additional Information About Principal Risk Factors 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 (the Brazil (Free), Malaysia (Free), South Korea and Taiwan Index Funds) 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 each MSCI Index, based on monthly total returns of the MSCI Indices from November 30, 1996 to November 30, 2001. MSCI Australia.......... _____% MSCI Mexico (Free)...... _____% MSCI Austria............ _____% MSCI Netherlands........ _____% MSCI Belgium............ _____% MSCI Pacific ex-Japan... _____% MSCI Brazil (Free)...... _____% MSCI Singapore (Free)... _____% MSCI Canada............. _____% MSCI South Korea........ _____% MSCI France............. _____% MSCI Spain.............. _____% MSCI Germany............ _____% MSCI Sweden............. _____% MSCI Hong Kong.......... _____% MSCI Switzerland........ _____% MSCI Italy.............. _____% MSCI Taiwan............. _____% MSCI Japan.............. _____% MSCI United Kingdom..... _____% MSCI Malaysia (Free).... _____%
-------- iShares page 34 -------------------------------------------------------------------------------- The larger the percentage stated for an MSCI Index, the greater the historical average annual volatility of that MSCI Index. Among the listed MSCI Indices, the MSCI _________ reflects the lowest historical volatility, and the MSCI ________________ reflects the highest historical volatility. 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. Each Index Fund [(except for the iShares MSCI Japan and United Kingdom Funds)] 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 page 35 -------------------------------------------------------------------------------- Additional Information About Principal Risk Factors 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. This occurred in the case of the Malaysia (Free) Index Fund ("Malaysia Fund") iShares, which frequently traded at prices that materially differed from their net asset values between the dates creations and "in kind" redemptions of the Malaysia Fund iShares were suspended in response to capital controls imposed by Malaysia from September 1998 and May 2000, when the Company commenced sales and redemptions of Malaysia Fund iShares for cash in U.S. dollars. The Company recently received regulatory relief from the Malaysian authorities and is currently investigating the possibility of re-instituting sales and redemptions of Creation Units of the Malaysia Fund's iShares on an "in-kind" basis, but there can be no assurance that the Company will be able to offer and redeem such Creation Units in-kind at any time in the future. 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 November 30, 2001, the investment adviser and its affiliates managed, administered or advised assets aggregating in excess of $_____ billion. Barclays Global Fund Advisors' principal business address is 45 Fremont Street, San Francisco, California 94105. Under its investment advisory agreement with the Company, the investment advisor is responsible for placing purchase and sale orders, providing continuous supervision of the investment portfolio of each Index Fund, the general management of the Company's affairs and paying the expenses for Company operations and activities, except portfolio transaction expenses, Rule 12b-1 distribution expenses, litigation expenses, taxes, extraordinary expenses and the investment advisory fee itself. For the fiscal year ended August 31, 2001, the investment adviser accrued, received or reimbursed the following fees as a percentage of the average daily net assets of each of the iShares MSCI Index Funds.
Percentage of Percentage of Average Daily Average Daily iShares MSCI Index Fund Net Assets iShares MSCI Index Fund Net Assets ----------------------- ------------- ----------------------- ------------- Australia............... 0.59% Malaysia (Free)......... 0.59% Austria................. 0.59% Mexico (Free)........... 0.59% Belgium................. 0.59% Netherlands............. 0.59% Brazil (Free)........... 0.74% Pacific ex-Japan........ 0.50%* Canada.................. 0.59% Singapore (Free)........ 0.59% EMU..................... 0.59% South Korea............. 0.74% France.................. 0.59% Spain................... 0.59% Germany................. 0.59% Sweden.................. 0.59% Hong Kong............... 0.59% Switzerland............. 0.59% Italy................... 0.59% Taiwan.................. 0.74% Japan................... 0.59% United Kingdom.......... 0.59%
-------- *Since the fund commenced operations on October 26, 2001, the fee shown is the contractual rate. 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 page 36 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. Except for the Index Funds named below, the net asset value of each Index Fund is determined as of the close of the regular trading session on the New York Stock Exchange, Inc. ("NYSE") (ordinarily 4:00 p.m., Eastern time) on each day that the NYSE is open. The net asset values of the iShares MSCI Australia, Hong Kong, Japan, Malaysia (Free), Pacific ex-Japan, Singapore (Free), South Korea and Taiwan Index Funds are determined as of 8:30 a.m. (Eastern time) and the net asset value of the iShares MSCI Brazil (Free) Index Fund is determined as of 5:00 p.m. (Eastern time), on each day that the NYSE 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 (i.e., the iShares MSCI Brazil (Free), Malaysia (Free), South Korea and Taiwan Index Funds), 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, except that the exchange rate for the MSCI Mexico (Free) Index is as of 3:00 p.m. Eastern 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.)
Maximum Additional Maximum Additional Number of In-kind and Cash Variable Charge Variable Charge Shares per iShares Purchases and for Cash for Cash Creation MSCI Index Series Redemptions Purchases* Redemptions* unit ----------------- ---------------- ------------------- ------------------ ---------- Australia............... $2,400 0.60% 0.60% 200,000 Austria................. $1,200 0.67% 0.67% 100,000 Belgium................. $1,500 0.30% 0.30% 40,000 Brazil (Free)........... $4,100 ** *** 50,000 Canada.................. $3,300 0.30% 0.30% 100,000 EMU..................... $8,000 1.05% 1.05% 50,000 France.................. $2,900 0.25% 0.25% 200,000
page 37 -------------------------------------------------------------------------------- Shareholder Information
Maximum Maximum In-kind and Cash Additional Variable Additional Variable Number of iShares Purchases and Charge for Cash Charge for Cash Shares Per MSCI Index Series Redemptions Purchases* Redemptions* Creation Unit ----------------- ---------------- ------------------- ------------------- ------------- Germany................. $2,500 0.25% 0.25% 300,000 Hong Kong............... $2,900 0.60% 0.60% 75,000 Italy................... $2,200 0.30% 0.30% 150,000 Japan................... $8,300 0.15% 0.40% 600,000 Malaysia (Free)......... $5,500 ** *** 75,000 Mexico (Free)........... $1,400 0.50% 0.50% 100,000 Netherlands............. $2,000 0.25% 0.25% 50,000 Pacific ex-Japan........ $7,200 1.80% 1.50% 100,000 Singapore (Free)........ $2,200 1.60% 1.30% 100,000 South Korea............. $4,200 ** *** 50,000 Spain................... $2,300 0.25% 0.45% 75,000 Sweden.................. $2,200 0.30% 0.30% 75,000 Switzerland............. $2,600 0.40% 0.40% 125,000 Taiwan.................. $6,200 ** *** 50,000 United Kingdom.......... $5,100 0.25% 0.75% 200,000
-------- * As a percentage of amount invested. ** This percentage, when aggregated with the basic in-kind transaction fee, will not exceed 3.00%. ***This percentage, when aggregated with the basic in-kind transaction fee, will not exceed 2.00%. 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. This occurred in the case of iShares of the iShares MSCI Malaysia (Free) Index Fund after the Company suspended creations and "in kind" redemptions of these iShares in September 1998 as a result of capital controls imposed in Malaysia. The AMEX disseminates during its trading day 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. page 38 iShares -------------------------------------------------------------------------------- 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 page 39 -------------------------------------------------------------------------------- Shareholder Information 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, including any profits levy payable by the iShares MSCI Malaysia (Free) Index Fund, 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 Company has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940 that allows the Company to pay distribution fees for the sale and distribution of iShares. Because these fees are paid out of an Index Fund's assets on an ongoing basis, over time the fees will increase the cost of your investment and may cost you more than paying other types of sales charges. The fees paid under the Rule 12b-1 Plan are calculated and paid monthly with respect to each Index Fund (other than the iShares MSCI Pacific ex-Japan Index Fund) at a rate set from time to time by the Board, provided that the annual rate may not exceed .25% of the average daily net assets of such Index Fund. These fees are currently being paid at the maximum rate. The distribution fees payable under the 12b-1 Plan are used to pay distributions-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 investment advisor in connection with the distribution of the Company's shares). In addition, the distributor has iShares page 40 -------------------------------------------------------------------------------- entered into sales and investor services agreements with broker-dealers or other persons that are DTC Participants 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 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 them. The distributor has no role in determining the investment policies of any Index Fund or which securities are to be purchased or sold by any Index Fund. (The iShares MSCI Pacific ex-Japan Index Fund does not pay Rule 12b-1 fees) Financial Highlights The financial highlights table is intended to help you understand the financial performance since inception of the following Index Funds that have commenced investment operations: the iShares MSCI Australia, Austria, Belgium, Brazil (Free), Canada, EMU, France, Germany, Hong Kong, Italy, Japan, Malaysia (Free), Mexico (Free), Netherlands, Singapore (Free), South Korea, Spain, Sweden, Switzerland, Taiwan and United Kingdom Index Funds. (The iShares MSCI Pacific ex-Japan Index Fund's financial highlights are not included as this Index Fund commenced operations on October 26, 2001.) Certain information reflects financial results for a single iShare of an Index Fund. The total returns in the table represent the rate that a shareholder would have earned (or lost) on an investment in an Index Fund (assuming reinvestment of all dividends and distributions). Information for the fiscal year ended August 31, 2001 was audited by Pricewaterhouse Coopers LLC, whose report, along with the financial statements of those Index Funds that have commenced operations, is included in the Annual Report, which is incorporated by reference in the SAI and available without charge upon request. Information for the fiscal years and August 31, 1997, 1998, 1999 and 2000 was audited by Ernst & Young LLP, the former auditor. -------------------------------------------------------------------------------- Financial Highlights page 41
iShares MSCI Australia Index Fund --------------------------------------------------- For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- -------- -------- -------- -------- Per Share Operating Performance Net asset value, beginning of period..... $ 9.99 $ 7.75 $ 10.35 $ 10.15 ------- ------- ------- ------- Net investment income/(loss)+.......... 0.23 0.20 0.23 0.17 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies.............. (0.04) 2.29 (2.60) 0.47 ------- ------- ------- ------- Net increase/(decrease) in net assets resulting from operations........ 0.19 2.49 (2.37) 0.64 ------- ------- ------- ------- Less Distributions Dividends from net investment income....... (0.22) (0.19) (0.23) (0.16) Dividends in excess of net investment income... (0.01) 0.00* 0.00* (0.04) Distributions from net realized gains.......... -- -- -- (0.04) Distributions in excess of net realized gains... -- -- -- -- Return of capital....... (0.02) (0.06) -- (0.20) ------- ------- ------- ------- Total dividends and distributions.......... (0.25) (0.25) (0.23) (0.44) ------- ------- ------- ------- Net asset value, end of period.................. $ 9.93 $ 9.99 $ 7.75 $ 10.35 ======= ======= ======= ======= Total Investment Return(1)................ 1.84% 32.09% (23.11)% 6.23% Ratios/Supplemental Data Net assets, end of period (in 000's)....... $61,574 $53,957 $34,099 $41,406 Ratios of expenses to average net assets(2)... 0.95% 1.00% 1.05 % 1.33% Ratios of net investment income/(loss) to average net assets(2)........... 2.22% 2.03% 2.38 % 1.57% Portfolio turnover(3)... 36.20% 13.83% 1.49 % 5.30% iShares MSCI Austria Index Fund ------------------------------------------ For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- ----------- ---------- --------- --------- Per Share Operating Performance Net asset value, beginning of period..... $ 9.13 $ 10.11 $10.51 $10.40 ----------- ---------- --------- --------- Net investment income/(loss)+.......... 0.04 0.10 0.06 (0.02) Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies.............. (1.46) (0.98) 0.20 0.13 ----------- ---------- --------- --------- Net increase/(decrease) in net assets resulting from operations........ (1.42) (0.88) 0.26 0.11 ----------- ---------- --------- --------- Less Distributions Dividends from net investment income....... (0.04) (0.07) (0.04) -- Dividends in excess of net investment income... (0.00)* (0.01) (0.01) -- Distributions from net realized gains.......... -- -- (0.61) -- Distributions in excess of net realized gains... -- -- 0.00* -- Return of capital....... -- (0.02) 0.00* -- ----------- ---------- --------- --------- Total dividends and distributions.......... (0.04) (0.10) (0.66) -- ----------- ---------- --------- --------- Net asset value, end of period.................. $ 7.67 $ 9.13 $10.11 $10.51 =========== ========== ========= ========= Total Investment Return(1)................ (15.51)% (8.69)% 2.16% 1.06 % Ratios/Supplemental Data Net assets, end of period (in 000's)....... $10,741 $12,776 $8,085 $4,205 Ratios of expenses to average net assets(2)... 1.16% 1.31 % 1.41% 1.68 % Ratios of net investment income/(loss) to average net assets(2)........... 0.51% 1.04 % 0.51% (0.22)% Portfolio turnover(3)... 33.65% 49.95 % 36.14% 28.47 % ---- * Less than one cent per share. + Based on average shares outstanding throughout the period. (1) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (2) Includes voluntary waivers through December 31, 1996 and reimbursements from the Adviser commencing with the year ended August 31, 2000. If such waivers/reimbursements had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers/reimbursements ....................... -- -- -- 1.33% 1.20% -- -- 1.69 % Ratios of net investment income/(loss) to average net assets before waivers/reimbursements ....................... -- -- -- 1.57% 0.47% -- -- (0.22)%
(3) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s). -------------------------------------------------------------------------------- page 42 iShares
Brazil (Free) iShares MSCI Belgium Index Fund Index Fund ---------------------------------------------------- ------------- For the For the For the For the For the For the For the year year year year year year period ended ended ended ended ended ended 07/11/00*- 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 08/31/01 08/31/00 -------- -------- -------- -------- -------- -------- ------------ Per Share Operating Performance Net asset value, beginning of period........... $ 16.07 $ 18.40 $ 15.64 $ 14.99 $ 20.22(1) ------- ------- ------- ------- ------- Net investment income/(loss)+... 0.19 0.08 0.24 0.77 0.02 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies....... (2.67) (0.30) 6.09 0.62 (0.63) ------- ------- ------- ------- ------- Net increase/(decrease) in net assets resulting from operations...... (2.48) (0.22) 6.33 1.39 (0.61) ------- ------- ------- ------- ------- Less Distributions Dividends from net investment income........... (0.17) -- (0.27) (0.33) (0.02) Dividends in excess of net investment income........... (0.19) (0.01) (1.21) (0.28) -- Distributions from net realized gains............ -- (1.19) (1.99) (0.12) -- Distributions in excess of net realized gains... -- -- -- -- (0.34) Return of capital.......... -- (0.91) (0.10) (0.01) -- ------- ------- ------- ------- ------- Total dividends and distributions... (0.36) (2.11) (3.57) (0.74) (0.36) ------- ------- ------- ------- ------- Net asset value, end of period.... $ 13.23 $ 16.07 $ 18.40 $ 15.64 $ 19.25 ======= ======= ======= ======= ======= Total Investment Return(2)......... (15.50)% (1.00)% 39.42% 9.26% (2.97)%(4) Ratios/Supplemental Data Net assets, end of period (in 000's)........... $13,230 $13,496 $25,765 $32,528 $18,283 Ratios of expenses to average net assets(5)........ 1.13% 1.24 % 1.04% 1.24% 0.99%(3) Ratios of net investment income/(loss) to average net assets(5)........ 1.36% 0.45 % 1.28% 4.63% 0.77%(3) Portfolio turnover(6)...... 53.27% 62.99 % 50.46% 16.83% 63.61%(4) iShares MSCI Canada Index Fund ------------------------------------------ For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/00 08/31/00 08/31/99 08/31/98 08/31/97 -------- --------- -------- ---------- ----------- Per Share Operating Performance Net asset value, beginning of period........... $ 13.22 $ 9.90 $13.43 $ 10.60 --------- -------- ---------- ----------- Net investment income/(loss)+... 0.70 0.07 0.07 0.05 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies....... 8.08 3.87 (2.89) 2.97 --------- -------- ---------- ----------- Net increase/(decrease) in net assets resulting from operations...... 8.78 3.94 (2.82) 3.02 --------- -------- ---------- ----------- Less Distributions Dividends from net investment income........... (0.52) (0.08) (0.13) (0.05) Dividends in excess of net investment income........... (0.03) (0.01) (0.00)** (0.00)** Distributions from net realized gains............ (4.08) (0.53) (0.58) (0.14) Distributions in excess of net realized gains... (0.31) -- -- -- Return of capital.......... (0.12) -- -- -- --------- -------- ---------- ----------- Total dividends and distributions... (5.06) (0.62) (0.71) (0.19) --------- -------- ---------- ----------- Net asset value, end of period.... $ 16.94 $13.22 $ 9.90 $ 13.43 ========= ======== ========== =========== Total Investment Return(2)......... 67.21% 39.71% (21.69)% 28.50% Ratios/Supplemental Data Net assets, end of period (in 000's)........... $22,028 $9,253 $6,932 $24,168 Ratios of expenses to average net assets(5)........ 1.17% 1.23% 1.14 % 1.35% Ratios of net investment income/(loss) to average net assets(5)........ 4.07% 0.53% 0.46 % 0.39% Portfolio turnover(6)...... 64.03% 11.66% 3.70 % 11.02% ---- * Commencement of operations. ** Less than one cent per share. + Based on average shares outstanding throughout the period. (1) Net asset value per share on commencement of operations. (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized. (4) Not Annualized. (5) Includes voluntary waivers through December 31, 1996 and reimbursements from the Adviser commencing with the year ended August 31, 2000. If such waivers/reimbursements had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers/reimbursements..... -- -- -- 1.24% 1.40%(3) 1.19% -- -- 1.36% Ratios of net investment income/(loss) to average net assets before waivers/reimbursements..... -- -- -- 4.63% 0.37%(3) 4.05% -- -- 0.39% (6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
-------------------------------------------------------------------------------- Financial Highlights page 43
iShares MSCI EMU Index Fund iShares MSCI France Index Fund ---------- ---------------------------------------- For the For the For the For the For the For the For the year period year year year year year ended 07/26/00*- ended ended ended ended ended 08/31/01 08/31/00 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- ---------- -------- -------- -------- -------- -------- Per Share Operating Performance Net asset value, beginning of period........... $ 80.72(1) $ 22.90 $ 19.13 $ 14.50 $ 12.73 ------- ------- ------- ------- ------- Net investment income/(loss)+... (0.00)** 0.10 0.14 0.30 0.17 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies....... (4.70) 5.21 3.88 4.76 1.95 ------- ------- ------- ------- ------- Net increase/(decrease) in net assets resulting from operations...... (4.70) 5.31 4.02 5.06 2.12 ------- ------- ------- ------- ------- Less Distributions Dividends from net investment income........... -- (0.09) (0.10) (0.19) (0.15) Dividends in excess of net investment income........... -- (0.02) (0.02) (0.03) -- Distributions from net realized gains............ -- (1.64) (0.05) (0.13) (0.20) Distributions in excess of net realized gains... -- (0.03) -- (0.01) -- Return of capital.......... -- (0.02) (0.08) (0.07) -- ------- ------- ------- ------- ------- Total dividends and distributions... -- (1.80) (0.25) (0.43) (0.35) ------- ------- ------- ------- ------- Net asset value, end of period.... $ 76.02 $ 26.41 $ 22.90 $ 19.13 $ 14.50 ======= ======= ======= ======= ======= Total Investment Return(2)......... (5.82)%(4) 23.45% 21.01% 34.77% 16.60% Ratios/Supplemental Data Net assets, end of period (in 000's)........... $41,811 $95,116 $77,885 $45,922 $14,519 Ratios of expenses to average net assets(5)........ 0.84%(3) 0.96% 1.06% 1.18% 1.52% Ratios of net investment income/(loss) to average net assets(5)........ 0.03%(3) 0.36% 0.67% 1.58% 1.17% Portfolio turnover(6)...... 0.00%(4) 17.43% 0.00% 5.65% 7.13% iShares MSCI Germany Index Fund ------------------------------------------- For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- --------- --------- ---------- --------- Per Share Operating Performance Net asset value, beginning of period........... $ 21.17 $ 20.25 $ 16.31 $ 13.64 --------- --------- ---------- --------- Net investment income/(loss)+... 0.18 0.12 0.29 0.03 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies....... 1.64 1.31 3.92 2.77 --------- --------- ---------- --------- Net increase/(decrease) in net assets resulting from operations...... 1.82 1.43 4.21 2.80 --------- --------- ---------- --------- Less Distributions Dividends from net investment income........... (0.16) (0.10) (0.17) (0.03) Dividends in excess of net investment income........... (0.01) (0.01) (0.01) (0.01) Distributions from net realized gains............ (2.00) (0.31) (0.01) (0.07) Distributions in excess of net realized gains... (0.32) (0.08) 0.00** -- Return of capital.......... (0.04) (0.01) (0.08) (0.02) --------- --------- ---------- --------- Total dividends and distributions... (2.53) (0.51) (0.27) (0.13) --------- --------- ---------- --------- Net asset value, end of period.... $ 20.46 $ 21.17 $ 20.25 $ 16.31 ========= ========= ========== ========= Total Investment Return(2)......... 8.44% 7.04% 25.69% 20.51% Ratios/Supplemental Data Net assets, end of period (in 000's)........... $153,487 $101,645 $72,934 $24,486 Ratios of expenses to average net assets(5)........ 0.94% 1.00% 1.08% 1.37% Ratios of net investment income/(loss) to average net assets(5)........ 0.73% 0.57% 1.43% 0.23% Portfolio turnover(6)...... 56.38% 13.67% 0.64% 9.04% ---- * Commencement of operations. ** Less than one cent per share. + Based on average shares outstanding throughout the period. (1) Net asset value per share on commencement of operations. (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized. (4) Not Annualized. (5) Includes voluntary waivers through December 31, 1996 and reimbursements from the Adviser commencing with the year ended August 31, 2000. If such waivers/reimbursements had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers/reimbursements.. 1.57%(3) -- -- -- 1.52% -- -- -- 1.37% Ratios of net investment income/(loss) to average net assets before waivers/reimbursements.. (0.70)%(3) -- -- -- 1.17% -- -- -- 0.22%
(6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s). -------------------------------------------------------------------------------- page 44 iShares
iShares MSCI Hong Kong Index Fund ----------------------------------------- For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- -------- -------- -------- -------- Per Share Operating Performance Net asset value, beginning of period..... $ 11.83 $ 6.41 $ 14.73 $ 13.05 ------- ------- ------- ------- Net investment income/(loss)+.......... 0.33 0.29 0.35 0.26 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies.............. 1.42 5.49 (8.27) 2.12 ------- ------- ------- ------- Net increase/(decrease) in net assets resulting from operations........ 1.75 5.78 (7.92) 2.38 ------- ------- ------- ------- Less Distributions Dividends from net investment income....... (0.32) (0.31) (0.28) (0.21) Dividends in excess of net investment income... -- (0.05) 0.00* (0.01) Distributions from net realized gains.......... -- -- -- (0.34) Distributions in excess of net realized gains... -- -- -- 0.00* Return of capital....... (0.02) -- (0.12) (0.14) ------- ------- ------- ------- Total dividends and distributions.......... (0.34) (0.36) (0.40) (0.70) ------- ------- ------- ------- Net asset value, end of period.................. $ 13.24 $ 11.83 $ 6.41 $ 14.73 ======= ======= ======= ======= Total Investment Return(1)................ 14.73% 90.51% (54.22)% 17.80% Ratios/Supplemental Data Net assets, end of period (in 000's)....... $79,479 $77,200 $49,973 $25,417 Ratios of expenses to average net assets(2)... 0.94% 1.01% 1.09 % 1.43% Ratios of net investment income/(loss) to average net assets(2)........... 2.57% 2.84% 3.76 % 1.71% Portfolio turnover(3)... 21.30% 42.89% 21.50 % 22.90% iShares MSCI Italy Index Fund --------------------------------------- For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- --------- --------- --------- --------- Per Share Operating Performance Net asset value, beginning of period..... $ 21.56 $ 22.89 $ 16.66 $ 13.79 --------- --------- --------- --------- Net investment income/(loss)+.......... 0.39 0.17 0.18 0.12 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies.............. 2.51 1.05 7.94 3.10 --------- --------- --------- --------- Net increase/(decrease) in net assets resulting from operations........ 2.90 1.22 8.12 3.22 --------- --------- --------- --------- Less Distributions Dividends from net investment income....... (0.12) (0.06) (0.18) (0.11) Dividends in excess of net investment income... -- -- (1.02) (0.24) Distributions from net realized gains.......... (1.69) (2.24) (0.69) -- Distributions in excess of net realized gains... (0.11) -- -- -- Return of capital....... (0.31) (0.25) -- -- --------- --------- --------- --------- Total dividends and distributions.......... (2.23) (2.55) (1.89) (0.35) --------- --------- --------- --------- Net asset value, end of period.................. $ 22.23 $ 21.56 $ 22.89 $ 16.66 ========= ========= ========= ========= Total Investment Return(1)................ $ 13.35% 5.14% 47.66% 23.37% Ratios/Supplemental Data Net assets, end of period (in 000's)....... $50,008 $58,224 $58,368 $32,495 Ratios of expenses to average net assets(2)... 0.99% 1.03% 1.02% 1.33% Ratios of net investment income/(loss) to average net assets(2)........... 1.61% 0.70% 0.76% 0.76% Portfolio turnover(3)... 39.85% 7.89% 8.16% 13.70% ---- * Less than one cent per share. + Based on average shares outstanding throughout the period. (1) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (2) Includes voluntary waivers through December 31, 1996 and reimbursements from the Adviser commencing with the year ended August 31, 2000. If such waivers/reimbursements had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers/reimbursements.. -- -- -- 1.43% -- -- -- 1.33% Ratios of net investment income/(loss) to average net assets before waivers/reimbursements.. -- -- -- 1.71% -- -- -- 0.76% (3) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
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iShares MSCI Japan Index Fund ------------------------------------------ For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- -------- -------- -------- -------- Per Share Operating Performance Net asset value, beginning of period.... $ 13.22 $ 8.39 $ 12.61 $ 14.33 -------- -------- -------- -------- Net investment income/(loss)+......... (0.05) (0.03) (0.02) (0.06) Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies.. 1.21 4.91 (4.19) (1.65) -------- -------- -------- -------- Net increase/(decrease) in net assets resulting from operations....... 1.16 4.88 (4.21) (1.71) -------- -------- -------- -------- Less Distributions Dividends from net investment income...... -- -- -- -- Dividends in excess of net investment income.. (0.00)* (0.04) -- -- Distributions from net realized gains......... (0.53) -- 0.00* -- Distributions in excess of net realized gains.. -- -- -- (0.01) Return of capital...... (0.03) (0.01) (0.01) -- -------- -------- -------- -------- Total dividends and distributions......... (0.56) (0.05) (0.01) (0.01) -------- -------- -------- -------- Net asset value, end of period................. $ 13.82 $ 13.22 $ 8.39 $ 12.61 ======== ======== ======== ======== Total Investment Return(1)............... 8.75% 58.14 % (33.38)% (11.97)% Ratios/Supplemental Data Net assets, end of period (in 000's)...... $787,790 $713,653 $201,485 $158,957 Ratios of expenses to average net assets(2).. 0.88% 0.94 % 1.04 % 1.19 % Ratios of net investment income/(loss) to average net assets(2).. (0.32)% (0.27)% (0.21)% (0.48)% Portfolio turnover(3).. 21.93% 0.00 % 0.00 % 12.90 % iShares MSCI Malaysia (Free) Index Fund -------------------------------------------- For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- ----------- --------- ---------- ---------- Per Share Operating Performance Net asset value, beginning of period.... $ 5.59 $ 2.11 $ 8.23 $ 13.80 ----------- --------- ---------- ---------- Net investment income/(loss)+......... 0.05 0.01 0.06 0.01 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies.. 0.37 3.67 (6.10) (5.55) ----------- --------- ---------- ---------- Net increase/(decrease) in net assets resulting from operations....... 0.42 3.68 (6.04) (5.54) ----------- --------- ---------- ---------- Less Distributions Dividends from net investment income...... (0.05) (0.01) (0.05) 0.00* Dividends in excess of net investment income.. (0.00)* -- -- (0.01) Distributions from net realized gains......... -- -- -- -- Distributions in excess of net realized gains.. -- -- -- -- Return of capital...... (0.00)* (0.19) (0.03) (0.02) ----------- --------- ---------- ---------- Total dividends and distributions......... (0.05) (0.20) (0.08) (0.03) ----------- --------- ---------- ---------- Net asset value, end of period................. $ 5.96 $ 5.59 $ 2.11 $ 8.23 =========== ========= ========== ========== Total Investment Return(1)............... 7.57% 185.81% (73.57)% (40.20)% Ratios/Supplemental Data Net assets, end of period (in 000's)...... $99,206 $95,251 $35,867 $12,339 Ratios of expenses to average net assets(2).. 0.96% 1.43% 1.09 % 1.46 % Ratios of net investment income/(loss) to average net assets(2).. 0.81% 0.33% 1.40 % 0.04 % Portfolio turnover(3).. 17.56% 7.24% 2.11 % 0.00 % ---- * Less than one cent per share. + Based on average shares outstanding throughout the period. (1) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (2) Includes voluntary waivers through December 31, 1996 and reimbursements from the Adviser commencing with the year ended August 31, 2000. If such waivers/reimbursements had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers/reimbursements.. -- -- -- 1.19 % -- -- -- 1.47% Ratios of net investment income/(loss) to average net assets before waivers/reimbursements.. -- -- -- (0.48)% -- -- -- 0.04%
(3) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s). -------------------------------------------------------------------------------- page 46 iShares
iShares MSCI Mexico (Free) Index Fund -------------------------------------------------- For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- -------- -------- -------- -------- Per Share Operating Performance Net asset value, beginning of period..... $ 13.39 $ 8.11 $15.11 $ 11.52 ------- ------- ------ ------- Net investment income/(loss)+.......... 0.06 0.06 0.09 0.02 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies.............. 3.69 5.36 (6.71) 4.07 ------- ------- ------ ------- Net increase/(decrease) in net assets resulting from operations........ 3.75 5.42 (6.62) 4.09 ------- ------- ------ ------- Less Distributions Dividends from net investment income....... -- (0.06) (0.09) (0.01) Dividends in excess of net investment income... -- (0.01) -- (0.01) Distributions from net realized gains.......... (0.42) -- (0.29) (0.44) Distributions in excess of net realized gains... -- (0.01) -- -- Return of capital....... -- (0.06) -- (0.04) ------- ------- ------ ------- Total dividends and distributions.......... (0.42) (0.14) (0.38) (0.50) ------- ------- ------ ------- Net asset value, end of period.................. $ 16.72 $ 13.39 $ 8.11 $ 15.11 ======= ======= ====== ======= Total Investment Return(1)................ 28.20% 66.92% (44.18)% 35.21% Ratios/Supplemental Data Net assets, end of period (in 000's)....... $40,127 $21,430 $7,296 $16,627 Ratios of expenses to average net assets(2)... 1.04% 1.26% 1.34 % 1.63% Ratios of net investment income/(loss) to average net assets(2)........... 0.35% 0.52% 0.60 % 0.14% Portfolio turnover(3)... 23.97% 18.36% 14.05 % 22.80% iShares MSCI Netherlands Index Fund ------------------------------------------------ For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- -------- -------- -------- -------- Per Share Operating Performance Net asset value, beginning of period..... $ 23.45 $ 23.50 $ 21.42 $17.36 -------- -------- -------- -------- Net investment income/(loss)+.......... 0.13 0.53 0.25 0.11 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies.............. 0.18 1.60 3.53 4.79 -------- -------- -------- -------- Net increase/(decrease) in net assets resulting from operations........ 0.31 2.13 3.78 4.90 -------- -------- -------- -------- Less Distributions Dividends from net investment income....... (0.08) (0.43) (0.16) (0.10) Dividends in excess of net investment income... -- (0.01) -- (0.01) Distributions from net realized gains.......... (0.11) (1.42) (1.47) (0.71) Distributions in excess of net realized gains... -- (0.24) -- -- Return of capital....... (0.04) (0.08) (0.07) (0.02) -------- -------- -------- -------- Total dividends and distributions.......... (0.23) (2.18) (1.70) (0.84) -------- -------- -------- -------- Net asset value, end of period.................. $ 23.53 $ 23.45 $ 23.50 $21.42 ======== ======== ======== ======== Total Investment Return(1)................ 1.28% 8.98% 17.41% 28.04% Ratios/Supplemental Data Net assets, end of period (in 000's)....... $30,613 $31,685 $22,349 $9,661 Ratios of expenses to average net assets(2)... 1.03% 1.07% 1.12% 1.46% Ratios of net investment income/(loss) to average net assets(2)........... 0.53% 2.20% 1.00% 0.54% Portfolio turnover(3)... 21.64% 32.13% 15.81% 12.68% ---- + Based on average shares outstanding throughout the period. (1) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (2) Includes voluntary waivers through December 31, 1996 and reimbursements from the Adviser commencing with the year ended August 31, 2000. If such waivers/reimbursements had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers/reimbursements. 1.04% -- -- 1.63% -- -- -- -- 1.46% Ratios of net investment income/(loss) to average net assets before waivers/reimbursements.. 0.35% -- -- 0.13% -- -- -- -- 0.53% (3) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
-------------------------------------------------------------------------------- Financial Highlights page 47
iShares MSCI South Korea iShares MSCI Singapore (Free) Index Fund Index Fund -------------------------------------------------------------- ----------- For the For the For the For the For the For the For the year year year year year year period ended ended ended ended ended ended 05/10/00*- 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 08/31/01 08/31/00 -------- -------- -------- -------- -------- --------- ----------- Per Share Operating Performance Net asset value, beginning of period........... $ 7.93 $ 3.30 $ 8.66 $ 11.38 $ 20.36(1) ------- -------- ------- ------- ------- Net investment income/(loss)+... 0.13 0.05 0.07 0.00** (0.04) Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies....... (0.21) 4.70 (5.37) (2.67) (2.16) ------- -------- ------- ------- ------- Net increase/(decrease) in net assets resulting from operations...... (0.08) 4.75 (5.30) (2.67) (2.20) ------- -------- ------- ------- ------- Less Distributions Dividends from net investment income........... (0.11) (0.05) (0.04) 0.00** -- Dividends in excess of net investment income........... -- (0.06) (0.01) (0.01) -- Distributions from net realized gains............ (0.14) -- -- (0.02) -- Distributions in excess of net realized gains... -- -- -- -- -- Return of capital.......... (0.02) (0.01) (0.01) (0.02) -- ------- -------- ------- ------- ------- Total dividends and distributions... (0.27) (0.12) (0.06) (0.05) -- ------- -------- ------- ------- ------- Net asset value, end of period.... $ 7.58 $ 7.93 $ 3.30 $ 8.66 $ 18.16 ======= ======== ======= ======= ======= Total Investment Return(2)......... (1.29)% 144.52% (61.29)% (23.48)% (10.81)%(4) Ratios/Supplemental Data Net assets, end of period (in 000's)........... $88,719 $113,438 $47,248 $14,722 $13,622 Ratios of expenses to average net assets(5)........ 0.94% 0.97% 1.08 % 1.43 % 0.99%(3) Ratios of net investment income/(loss) to average net assets(5)........ 1.60% 0.76% 1.17 % 0.03 % (0.63)%(3) Portfolio turnover(6)...... 52.06% 25.31% 67.17 % 13.40 % 55.13%(4) iShares MSCI Spain Index Fund -------------------------------------- For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 2001 --------- ---------- --------- --------- -------- ------ Per Share Operating Performance Net asset value, beginning of period........... $ 25.59 $ 23.84 $ 18.49 $14.09 ---------- --------- --------- -------- Net investment income/(loss)+... 0.15 0.09 0.16 0.19 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies....... (0.60) 3.14 5.94 5.33 ---------- --------- --------- -------- Net increase/(decrease) in net assets resulting from operations...... (0.45) 3.23 6.10 5.52 ---------- --------- --------- -------- Less Distributions Dividends from net investment income........... (0.14) (0.07) (0.12) (0.12) Dividends in excess of net investment income........... -- (0.02) (0.02) (0.05) Distributions from net realized gains............ (0.48) (1.35) (0.55) (0.86) Distributions in excess of net realized gains... (0.32) -- -- -- Return of capital.......... (0.01) (0.04) (0.06) (0.09) ---------- --------- --------- -------- Total dividends and distributions... (0.95) (1.48) (0.75) (1.12) ---------- --------- --------- -------- Net asset value, end of period.... $ 24.19 $ 25.59 $ 23.84 $18.49 ========== ========= ========= ======== Total Investment Return(2)......... (1.81)% 13.39% 32.58% 39.15% Ratios/Supplemental Data Net assets, end of period (in 000's)........... $39,913 $36,469 $25,029 $8,321 Ratios of expenses to average net assets(5)........ 0.99% 1.04% 1.11% 1.67% Ratios of net investment income/(loss) to average net assets(5)........ 0.57% 0.31% 0.61% 1.04% Portfolio turnover(6)...... 39.42% 16.58% 9.10% 19.21% ---- * Commencement of operations. ** Less than one cent per share. + Based on average shares outstanding throughout the period. (1) Net asset value per share on commencement of operations. (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized. (4) Not Annualized. (5) Includes voluntary waivers through December 31, 1996 and reimbursements from the Adviser commencing with the year ended August 31, 2000. If such waivers/reimbursements had not been made the ratios of expenses to average net assets and ratios of net investment income/loss to average net assets would have been as follows: Ratios of expenses to average net assets before waivers/reimbursements.. -- -- -- -- 1.43% 1.38%(3) -- -- -- -- 1.67% Ratios of net investment income/(loss) to average net assets before waivers/reimbursements.. -- -- -- -- 0.03% (1.02)%(3) -- -- -- -- 1.04%
(6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s). -------------------------------------------------------------------------------- page 48 iShares
iShares MSCI Sweden Index Fund ------------------------------------------------- For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- -------- -------- -------- -------- Per Share Operating Performance Net asset value, beginning of period.... $ 22.26 $ 18.39 $ 18.32 $14.67 ------- ------- ------- ------ Net investment income/(loss)+......... 0.14 0.10 0.10 (0.03) Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies.. 8.38 4.52 0.95 4.45 ------- ------- ------- ------ Net increase/(decrease) in net assets resulting from operations....... 8.52 4.62 1.05 4.42 ------- ------- ------- ------ Less Distributions Dividends from net investment income...... (0.12) (0.09) (0.08) -- Dividends in excess of net investment income.. (0.02) (0.01) (0.01) -- Distributions from net realized gains......... (6.09) (0.62) (0.86) (0.77) Distributions in excess of net realized gains.. (0.13) (0.01) (0.01) -- Return of capital...... (0.04) (0.02) (0.02) -- ------- ------- ------- ------ Total dividends and distributions......... (6.40) (0.75) (0.98) (0.77) ------- ------- ------- ------ Net asset value, end of period................. $ 24.38 $ 22.26 $ 18.39 $18.32 ======= ======= ======= ====== Total Investment Return(1)............... 39.15% 25.09% 5.48% 30.10 % Ratios/Supplemental Data Net assets, end of period (in 000's)...... $23,774 $20,034 $13,791 $8,243 Ratios of expenses to average net assets(2).. 1.03% 1.13% 1.17% 1.64 % Ratios of net investment income/(loss) to average net assets(2).. 0.46% 0.49% 0.48% (0.19)% Portfolio turnover(3).. 90.13% 33.44% 10.88% 13.71 % iShares MSCI Switzerland Index Fund ----------------------------------------------------- For the For the For the For the For the year year year year year ended ended ended ended ended 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 -------- --------- --------- ------------ ---------- Per Share Operating Performance Net asset value, beginning of period.... $ 15.39 $ 15.55 $ 13.79 $ 12.29 --------- --------- ------------ ---------- Net investment income/(loss)+......... 0.04 0.04 (0.00)%** (0.04) Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies.. 0.27 0.19 3.01 2.11 --------- --------- ------------ ---------- Net increase/(decrease) in net assets resulting from operations....... 0.31 0.23 3.01 2.07 --------- --------- ------------ ---------- Less Distributions Dividends from net investment income...... (0.03) (0.03) -- -- Dividends in excess of net investment income.. (0.01) (0.04) (0.01) -- Distributions from net realized gains......... (0.11) (0.17) (1.21) (0.57) Distributions in excess of net realized gains.. -- (0.14) -- -- Return of capital...... (0.01) (0.01) (0.03) 0.00* --------- --------- ------------ ---------- Total dividends and distributions......... (0.16) (0.39) (1.25) (0.57) --------- --------- ------------ ---------- Net asset value, end of period................. $ 15.54 $ 15.39 $ 15.55 $ 13.79 ========= ========= ============ ========== Total Investment Return(1)............... 1.96% 1.47% 21.24 % 16.69 % Ratios/Supplemental Data Net assets, end of period (in 000's)...... $44,685 $38,499 $29,163 $13,805 Ratios of expenses to average net assets(2).. 1.01% 1.09% 1.15 % 1.52 % Ratios of net investment income/(loss) to average net assets(2).. 0.23% 0.24% (0.03)% (0.29)% Portfolio turnover(3).. 34.87% 35.10% 43.09 % 48.05 % ---- * Less than one cent per share. + Based on average shares outstanding throughout the period. (1) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (2) Includes voluntary waivers through December 31, 1996 and reimbursements from the Adviser commencing with the year ended August 31, 2000. If such waivers/reimbursements had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers/reimbursements.. -- -- -- 1.64 % -- -- -- 1.53% Ratios of net investment income/(loss) to average net assets before waivers/reimbursements.. -- -- -- (0.19)% -- -- -- (0.29)% waivers/reimbursements.. (3) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s).
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iShares MSCI Taiwan Index Fund iShares MSCI United Kingdom Index Fund ---------- ---------------------------------------- For the For the For the For the For the For the year period year year year year ended 06/21/00*- ended ended ended ended 08/31/01 08/31/00 2001 08/31/00 08/31/99 08/31/98 08/31/97 -------- ---------- ----- -------- -------- -------- -------- Per Share Operating Performance Net asset value, beginning of period...... $ 19.59(1) $ 20.25 $ 18.48 $ 16.50 $ 13.15 ------- -------- -------- ------- ------- Net investment income/(loss)+........... 0.47 0.27 0.44 0.37 0.38 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions and translation of other assets and liabilities denominated in foreign currencies............... (2.79) (0.85) 2.40 2.12 3.62 ------- -------- -------- ------- ------- Net increase/(decrease) in net assets resulting from operations......... (2.32) (0.58) 2.84 2.49 4.00 ------- -------- -------- ------- ------- Less Distributions Dividends from net investment income........ (0.32) (0.23) (0.36) (0.29) (0.32) Dividends in excess of net investment income.... -- (0.02) (0.01) (0.04) (0.06) Distributions from net realized gains........... -- (0.84) (0.60) (0.11) (0.17) Distributions in excess of net realized gains.... (0.10) (0.19) (0.02) -- -- Return of capital........ (0.44) (0.04) (0.08) (0.07) (0.10) ------- -------- -------- ------- ------- Total dividends and distributions........... (0.86) (1.32) (1.07) (0.51) (0.65) ------- -------- -------- ------- ------- Net asset value, end of period................... $ 16.41 $ 18.35 $ 20.25 $ 18.48 $ 16.50 ======= ======== ======== ======= ======= Total Investment Return(2)................. (12.10)%(4) (3.00)% 15.33% 14.98% 30.48% Ratios/Supplemental Data Net assets, end of period (in 000's)............... $42,667 $146,803 $113,402 $62,846 $29,721 Ratios of expenses to average net assets(5).... 0.99%(3) 0.94% 0.97% 1.03% 1.38% Ratios of net investment income/(loss) to average net assets(5)............ 13.31%(3) 1.39% 2.16% 1.90% 2.47% Portfolio turnover(6).... 51.68%(4) 32.83% 13.24% 2.83% 1.84% ---- * Commencement of operations. + Based on average shares outstanding throughout the period. (1) Net asset value per share on commencement of operations. (2) Total investment return is calculated assuming a purchase of capital stock at net asset value per share on the first day and a sale at the net asset value per share on the last day of the period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at the net asset value per share on the ex-dividend date. (3) Annualized. (4) Not Annualized. (5) Includes voluntary waivers through December 31, 1996 and reimbursements from the Adviser commencing with the year ended August 31, 2000. If such waivers/reimbursements had not been made the ratios of expenses to average net assets and ratios of net investment income/(loss) to average net assets would have been as follows: Ratios of expenses to average net assets before waivers/reimbursements.. 1.60%(3) -- -- -- 1.38 Ratios of net investment income/(loss) to average net assets before waivers/reimbursements.. 12.70%(3) -- -- -- 2.47
(6) Excludes portfolio securities received or delivered as a result of processing capital share transactions in Creation Unit(s). -------------------------------------------------------------------------------- page 50 iShares [THIS PAGE INTENTIONALLY LEFT BLANK] -------------------------------------------------------------------------------- page 51 For More Information FOR INVESTORS WHO WANT MORE INFORMATION ON THE iSHARES MSCI INDEX FUNDS, THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE UPON REQUEST: Annual/Semi-Annual Reports: Contain a discussion of market conditions and investment strategies, performance data and information on portfolio holdings for the Company's most recently completed fiscal year or half year, a statement from management and, on an annual basis, the auditor's report. Statement of Additional Information (SAI): Contains more detailed information about the Company's policies, investment restrictions, risks and business structure. This Prospectus incorporates the SAI by reference. Copies of these documents and answers to questions about Index Funds may be obtained without charge by contacting: iSHARES, INC. 400 Bellevue Parkway Wilmington, Delaware 19809 1-800-474-2737 www.iShares.com Information about Index Funds (including the SAI) can be viewed and copied at the Public Reference Room of the SEC in Washington, D.C. Copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at publicinfo@sec.gov or by writing the Public Reference Room of the SEC, Washington, D.C., 20549-6009. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Reports and other information about Index Funds may be viewed on-screen or downloaded from the SEC's Internet site at www.sec.gov. FOR MORE INFORMATION ON iSHARES MSCI INDEX FUNDS, PLEASE CALL: 1-800-iSHARES (1-800-474-2737) Investment Company Act File No. 811-09102. 45 Fremont Street www.ishares.com 1-800-iSHARES [LOGO OF iSHARES] San Francisco, CA 1-800-474-2737 94105 BGI-F-002-05000 (12/01) iShares are distributed by SEI iShares are not sponsored, (c)2001 Barclays Global Investors. Investments Distribution Co. endorsed, sold or promoted All rights reserved. iShares is Barclays Global Fund Advisors by MSCI. Nor does this a servicemark of Barclays Global serves as an adviser to iShares company make any Investors, N.A. All other and is a subsidiary of Barclays representation regarding the trademarks, servicemarks or Not FDIC Insured Global Investors, N.A., neither advisability of investing in registered trademarks are the Have no bank guarantee of which is affiliated with SEI. iShares. property of their respective owners. May lose value
-------------------------------------------------------------------------------- Investment Company Act File No. 811-09102 iShares, Inc. (The "Company") iShares MSCI Index Funds Statement of Additional Information _______ _, 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 _______ _, 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. The iShares MSCI Greece, Indonesia (Free), Portugal, South Africa, Thailand (Free), Turkey and USA Index Funds are not currently offered to the public. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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............................................................... 4 Futures Transactions..................................................................... 4 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........................... 6 Investments in Subject Equity Markets....................................................... 7 Regional and Country-Specific Economic Considerations....................................... 20 MSCI INDICES.................................................................................. 40 INVESTMENT LIMITATIONS........................................................................ 42 MANAGEMENT OF THE COMPANY..................................................................... 45 Directors and Officers of the Company....................................................... 45 Directors' Compensation..................................................................... 47 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........................................... 47 INVESTMENT ADVISORY MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES...................... 55 Investment Advisor.......................................................................... 55 Administrator............................................................................... 57 Sub-Administrator........................................................................... 59 Distributor................................................................................. 59 Custodian and Lending Agent................................................................. 62 Transfer Agent.............................................................................. 62 BROKERAGE ALLOCATION.......................................................................... 63 ADDITIONAL INFORMATION CONCERNING iSHARES..................................................... 63 Capital Stock............................................................................... 63 Book Entry Only System...................................................................... 64 PURCHASE AND REDEMPTION OF iSHARES............................................................ 66 Creation Units.............................................................................. 66 Purchase and Issuance of iShares in Creation Units.......................................... 67 Redemption of iShares in Creation Units..................................................... 71 Determining Net Asset Value................................................................. 74 Continuous Offering......................................................................... 75 TAXES......................................................................................... 75 PERFORMANCE INFORMATION....................................................................... 77 COUNSEL AND INDEPENDENT AUDITORS.............................................................. 80 Counsel..................................................................................... 80 Independent Auditors........................................................................ 80 FINANCIAL STATEMENTS.......................................................................... 80 APPENDIX A.................................................................................... A-1 APPENDIX B.................................................................................... B-1
ii 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 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 affiliates of MSCI. Neither MSCI or 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 nor 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 of its affilitates nor any other party involved in making or compiling the MSCI Index has any 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 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 or any of its affiliates nor any other party involved in making or compling the MSCI Index Capital 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 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 "ATS" are to Austrian Schillings, all references to "BEF" are to Belgian Francs, all references to "BRL" are to Brazilian Reals, all references to "CAD" or "CA$" are to Canadian Dollars, all references to "EUR" are to Euros, all references to "FRF" or "FF" are to French Francs, all references to "DEM" or "DM" are to the German Deutsche Mark, all references to "GRD" are to Greek Drachmas, all references to "HKD" or "HK$" are to Hong Kong Dollars, all references to "IDR" are to Indonesian Rupiahs, all references to "ITL" or "LL" are to Italian Lira, all references to "JPY" or "Y" are to Japanese Yen, all references to "KRW" are to Korean Wons, all references to "MYR" are to Malaysian Ringgits, all references to "MXN" are to Mexican Pesos, all references to "NLG" are to Netherlands Guilders, all references to "PTE" are to Portuguese Escudos, all references to "SGD" are to Singapore Dollars, all references to "ZAR" are to South African Rands, all references to "ESP" are to Spanish Pesetas, all references to "SEK" are to Swedish Krona, all references to "CHF" are to Swiss Francs, all references to "TWD" are to New Taiwan Dollars, all references to "THB" are to Thai Bahts, all references to "TRL" are to Turkish Lira and all references to "GBP," "(Pounds)" or "L" are to British Pounds Sterling. On November iii 30, 2001, 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 ____, ATS ____, BEF ____, BRL ____, CAD ____, EUR ____, FRF ____, DEM ____, GDR ____, HKD ____, IDR ____, ITL ____, JPY ____, KRW ____, MYR ____, MXN ____, NLG ____, NZD ____, PTE ____, SGD ____, ZAR ____, ESP ____, SEK ____, CHF ____, TWD ____, THB ____, TRL ____, and GBP ____. 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. iv 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 Pacific Ex Japan 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, October 26, 2001, May 10, 2000 and June 21, 2000, respectively. 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. Except for the Greece, Indonesia (Free), Portugal, South Africa, Thailand (Free), Turkey and USA Index Funds, for which application will be made prior to the date that these Index Funds commence operations, the iShares 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 Series 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 iSharesMSCI 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 Fundare 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 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. 1 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 Australia, Hong Kong, Indonesia (Free), Japan, Malaysia (Free) Pacific ex-Japan, Singapore (Free), South Korea, Taiwan and Thailand (Free) Index Funds, 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 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 2 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 (except for the iShares MSCI USA 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 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. 3 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. 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. 4 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, 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 5 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. Concentrations and Lack of Diversification of Certain Index Funds. Each Index Fund (except for the Japan, United Kingdom and USA Index Funds) 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 large 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. 6 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, 2001, the total market capitalization of the Australian equity markets was approximately AUD ___ billion or US$ ___ billion. The Austrian Equity Markets General Background. Relative to international standards, the Vienna stock market is small in terms of total capitalization and yearly turnover. The Vienna Stock Exchange (VSE) is one of the oldest in the world and was founded in 1771 as a state institution to provide a market for state-issued bonds, as well as for exchange transactions. The Stock Exchange Act of 1875 (the "Act") established the VSE as an autonomous institution. The Act is still in force, placing control and administration of the exchange in the hands of the Borsekammer (Board of Governors), chosen from among the members of the exchange. The Borsekammer consists of 25 individuals with the title of Borserat (stock exchange councillor). Some are elected by members and some are designated by organizations of the securities industry for a period of five years. The councillors must be members of the exchange and they elect from amongst themselves a President and three Vice Presidents. Shares account for about 80% and investment fund certificates for about 20% of total listed securities on the VSE. Business of the exchange can be transacted only by members. Almost all the credit institutions in Vienna, some in the Austrian provinces and the joint stock banks are represented on the stock exchange, as well as the private banks, savings banks and other credit institutions. Certain securities which do not have an official listing may be dealt in on the floor of the stock exchange with permission of the management. This unlisted trading is the main activity of the free brokers (Frei Makeler). Reporting, Accounting and Auditing. Austrian reporting, accounting and auditing standards differ from U.S. standards. In general, Austrian 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, 2001, the total market capitalization of the Austrian equity markets was approximately EUR __ billion or US$ __ billion. 7 The Belgian Equity Markets General Background. The Brussels Stock Exchange (BSE) was founded by Napoleonic decree in 1801. Since January 1, 1991 the BSE has been officially organized as the "Societe de la Bourse de Valeurs Mobileres de Bruxelles" (SBVM) the shareholders of which are Belgian securities houses. The law of December 4, 1990 on financial operations and markets terminated the monopoly of the individual brokers. Now only securities houses are allowed to carry out stock exchange orders. Brokers, banks, brokerage firms and insurance companies can participate in the capital of a securities house. Its management is composed of a majority of qualified people bearing the title of stockbroker. The Banking and Finance Commission was granted the power to approve securities houses by this law. The Board of Directors of the SBVM, the Stock Exchange Committee organizes and supervises the different markets and ensures market transparency. The Stock Exchange Committee also admits or dismisses brokerage firms and ensures compliance with all regulations. The Stock Exchange Committee is also in charge of the admission to listing and suspension of listing. On the Brussels Stock Exchange equities are traded on three different markets: the Official Market, which includes a Cash and a Forward Market, the Second Market and an "Over the Counter Market." Reporting, Accounting and Auditing. Belgian reporting, accounting and auditing standards differ substantially from U.S. standards. In general Belgian 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, 2001, the total market capitalization of the Belgian equity markets was approximately EUR ___ billion or US$ ___ billion. The Brazilian Equity Markets General Background. There are nine stock exchanges in Brazil. The Rio de Janeiro exchange, or BVRJ (Bolsa de Valores de Rio de Janeiro) is the oldest, but is overshadowed by the Sao Paulo exchange, called Bovespa (Bolsa de Valores de Sao Paulo), which is the largest and accounts for about 90% of trading activity. The over-the-counter market (Mercado de Balcao) trades non-listed equities. Government securities, corporate bonds, and money market instruments are traded on the open market. The Bolsa Mercdorias e de Futuros (BM&F), in Sao Paulo, is Brazil's futures exchange. It is the third largest derivatives exchange in the world in contract volume. Options on the futures also are traded, but are less liquid. BM&F is the clearinghouse for all transactions. The financial market is regulated by three main bodies: the National Monetary Council, or CMN (Conselho Monetario Nacional); the Central Bank (Banco Central do Brasil), and the Securities Commission, or CVM (Comissao de Valores Mobiliarios). Reporting, Accounting And Auditing. Brazilian reporting, auditing and accounting standards differ from U.S. standards. In general, Brazilian 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, 2001, the total market capitalization of the Brazilian equity markets was approximately BRL ___ billion or US$ ___ billion. The Canadian Equity Markets General Background. The first Canadian stock exchange appeared in the 1870s. Today, Canada is the world's fourth largest public equity market by trading volume and the fifth largest by market capitalization. There are five stock exchanges across Canada, located in Toronto, Montreal, Vancouver, Calgary and Winnipeg. Of these, the Toronto Stock Exchange is the largest, accounting for almost 80% of Canadian trading volumes. Measured by the value of shares traded, the Toronto Stock Exchange is the second largest organized securities exchange in North America and among the ten largest in the world. Reporting, Accounting and Auditing. According to the SEC in one of the proposing releases relating to the Multijurisdictional Disclosure System, Canadian reporting, accounting and auditing practices are closer to U.S. standards than those of any other foreign jurisdiction. Every issuer that qualifies an offering of securities for 8 distribution in Canada becomes subject to periodic disclosure requirements. Authoritative accounting and auditing standards, which are uniform across Canada, are developed by a national body, the Canadian Institute of Chartered Accountants ("CICA"). Although promulgated auditing standards in Canada differ from U.S. standards in some respects, generally accepted practices in Canada routinely encompass all significant auditing procedures required by U.S. standards. Further, CICA periodically evaluates new auditing standards adopted by the American Institute of Certified Public Accountants, CICA's U.S. counterpart, to determine whether similar guidelines may be appropriate for Canadian auditors. Canadian GAAP are similar to their U.S. counterparts, although there are some differences in measurement and disclosure. Size of Equity Markets. As of November 30, 2001, the total market capitalization of the Canadian markets was approximately CAD _____ billion or US$ ___ billion. The EMU Equity Markets The EMU equity markets are comprised of the equity markets from the following twelve countries, which are participating in the European Economic and Monetary Union, or "EMU": Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The MSCI EMU Index is currently comprised of companies from ten of these EMU countries (i.e., all of the EMU countries except Luxembourg). General Background Following is a general background description of the equities market of each country included in the MSCI EMU Index for which there is no iShares MSCI Index Fund. Finland. Organized securities trading has existed in Finland since the 1860s, but it was 1912 before a formal exchange, the Helsinki Arvopaperiporssi, was founded. Since then there have been few changes in the rules governing trading in Finland. In October 1984, the management of the stock exchange in Helsinki was vested in a newly formed co-operative. That form of corporation was chosen because Finnish legislation covering cooperatives does not limit the number of members or the amount of capital. As a result, alone among the world's stock exchanges, the Arvopaperiporssi accepts as members all companies listed on its trading board and business organizations in addition to the bankers and brokers. Decision-making and administration with the organization are vested in the annual general meeting of the co-operative, which elects the board of administration and the board of directors to manage the daily running of the exchange. The OTC List established in 1984 acquired an organized form in September 1985, when the Association of Securities Brokers approved the listing and regulations for the information requirements of listed companies. The brokers and brokerage firms have undertaken to act as market makers. Mainly medium-sized companies are traded on the OTC List. The OTC Market is based on an agreement between a company seeking access to the share market and a brokerage firm; both are subject to certain obligations. Ireland. The Irish Stock Exchange, founded in the 18th century, is the second oldest in the world. Previously it operated as part of the International Stock Exchange of the United Kingdom and Republic of Ireland. On December 8, 1995, it split from the U.K. Stock Exchange to form the Irish Stock Exchange (ISE). The new exchange is committed to maintaining standards equivalent to those of the London Stock Exchange (LSE), subject to adjustments dictated by Irish Law. The ISE will sign a listing protocol with the LSE, under which the ISE will maintain equivalence with the LSE rules. Companies that were listed on both the Dublin and London exchanges may apply for dual primary listing, under which they will be regulated to the same standard by both exchanges. A set of procedures has been agreed with the LSE that will streamline companies' dealing with the two exchanges. 9 Reporting, Accounting and Auditing Reporting, accounting and auditing standards in the nations of the EMU differ from U.S. standards. In general, corporations in the EMU 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. Structure of Equity Markets As of November 30, 2001, the total market capitalization of the combined equity markets of Austria, Belgium, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal and Spain was approximately US$ ____ trillion. The French Equity Markets General Background. Trading of securities in France is subject to the monopoly of the Societe de Bourse, which replaced the individual agents de change in 1991 in order to increase the cohesion of the French equity market. All purchases or sales of equity securities in listed companies on any one of the French exchanges must be executed through the Societe de Bourse. There are three different markets on which French securities may be listed: (1) the official list (La Cote Officielle), comprised of equity securities of large French and foreign companies and most bond issues; (2) the second market (Le Second Marche), designed for the trading of equity securities of smaller companies; and (3) the "Hors-Cote" Market. Securities may only be traded on the official list and the second market after they have been admitted for the listing by the Conseil des Bourses de Valeurs (the "CBV"). By contrast, the Hors-Cote Market has no prerequisites to listing, and shares of otherwise unlisted companies may be freely traded there, once they have been introduced on the market by the Societe de Bourse. Although the Hors-Cote Market is frequently referred to as an over-the-counter market, this term is inaccurate in that, like the official list and the second market, it is supervised by Societes des Bourses Francaises and regulated by the CBV. Although there are seven stock exchanges in France (located in Paris, Bordeaux, Lille, Lyon, Marseille, Nancy and Nantes), the Paris Stock Exchange handles more than 95% of transactions in the country. All bonds and shares, whether listed or unlisted, must be traded on one of the seven exchanges. Trading in most of the Paris exchange-listed stocks takes place through the computer order-driven trading system CAC, launched in 1988. French market capitalization constitutes approximately 30% of the French Gross Domestic Product. Exchange securities are denominated in the Euro. Unless otherwise provided by a double tax treaty, dividends on French shares are subject to a withholding tax of 25%. Reporting, Accounting and Auditing. Although French reporting, accounting and auditing standards are considered rather rigorous by European standards, they differ from U.S. standards in certain material respects. In general, French 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, 2001, the total market capitalization of the French equity markets was approximately EUR _____ billion or US$ _____ billion. The German Equity Markets General Background. The history of Frankfurt as a financial center can be traced back to the early Middle Ages. Frankfurt had the right to issue coins as early as 1180; the first exchange office was opened in 1402. Germany has been without a central stock exchange, the position formerly held by the Berlin exchange, since 1945. Today there are eight independent stock exchanges, of which Dusseldorf and Frankfurt account for over three-quarters of the total volume. Frankfurt is the main exchange in Germany. Exchange securities are denominated in the Euro. Equities may be traded in Germany in one of three markets: (i) the official market, comprised of trading in shares which have been formally admitted to official listing by the admissions committee of the relevant stock exchange, based on disclosure in the listing application; (ii) the "semi-official" unlisted market, comprised of trading in shares not in the official listing; and (iii) the unofficial, over-the-counter market, which is governed by the provisions of the Civil Code and the Merchant Code and not by the provisions of any stock exchange. There is no stamp duty in Germany, but a nonresident capital gains tax may apply in certain circumstances. 10 Reporting, Accounting and Auditing. German reporting, accounting and auditing standards differ substantially from U.S. standards. In general, German 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, 2001, the total market capitalization of the Germany equity markets was approximately EUR _____ billion or US$ _____ billion. The Greek Equity Markets General Background. The Athens Stock Exchange (ASE) is a self-managed public institution, regulated by law. It is financed chiefly by annual listing fees paid by both equity and fixed-income issuers. Until 1987, the ASE had a relatively low activity market with occasional peaks. Activity exploded that year, with foreign purchases contributing to a 1,224% rise in traded share value. Reporting, Accounting And Auditing. Greek reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Greek 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. Structure Of Equity Markets. As of November 30, 2001, the total market capitalization of the Greek equity markets was approximately EUR ___ billion or US$ __ 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 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, 2001, the total market capitalization of the Hong Kong equity markets was approximately HKD _____ billion or US$ ___ billion. The Indonesian Equity Markets General Background. A stock exchange has existed in Jakarta, Indonesia, since 1912, when the country was still a colony known as the Dutch East Indies. In 1925, additional exchanges were opened in Surabaya, in east Java, and in Semarang, in central Java. Before World War II, there was active trading in locally issued securities and those issued in the Netherlands. The exchanges were closed during the war and did not reopen until June 1952. Once reopened, the Jakarta Stock Exchange (JSX) primarily facilitated the issuance of government bonds to stimulate the economy. However, the exchange proved less than successful and was later closed. In 1976, the management of the JSX changed by presidential decree and the exchange was formally reopened. The JSX is the most important of the exchanges operating in Indonesia. The Surabaya Stock Exchange and the Bursa Parallel (Parallel Exchange) are much smaller. The Bursa Parallel was formed to accommodate over-the-counter trading. 11 Throughout most of its history, the JSX has been operated and controlled through the state Capital Market Supervisory Agency (locally known as BAPEPAM, for Badan Pengawas Pasar Modal). BAPEPAM was both executive of the exchange and supervisory body for the market, a duality that delayed decisions and left issues unresolved. To rectify this, BAPEPAM was streamlined into a solely supervisory role. A private stock exchange company, PT Bursa Efek Jakarta (BEJ), took over the day-to-day operations of the JSX in December 1991. The JSX became officially privatized on April 16, 1992. A series of new rules has been issued by BAPEPAM and BEJ to regulate and develop the capital market. Reporting, Accounting And Auditing. Indonesian reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Indonesian 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. Structure Of Equity Markets. As of November 30, 2001, the total market capitalization of the Indonesian equity markets was approximately IDR ______ billion or US$ _ billion. The Italian Equity Markets General Background. The regulatory structure of the Italian Stock Exchange changed radically in February 1997, when the Italian Stock Exchange Council set up a new private company, "Borsa Italiana Spa", which is now responsible for the regulation, promotion and management of the Stock Exchange, the unlisted securities market and the Italian Derivatives Market (IDEM). In 1991, the Parliament passed legislation creating Societa de intermediazone mobiliare (SIMs). SIMS were created to regulate brokerage activities in the securities market and are allowed to trade on their own and for customers' accounts. In November 1994, the Italian Derivatives Market (IDEM) started trading its first exchange-listed derivatives product, the Mib 30 index futures contract (Fib 30). In November 1995, the MIB30 Index option (MIBO30) began trading on the IDEM. In February 1996, options were introduced on single stocks, together with the transfer of all shares to a rolling settlement basis. In March 1998, the MIDEX Index contract, the futures contract on the 25 Mid-Cap Stock Index, was launched. Access to the Italian trading system can be obtained directly through the terminals provided to users or indirectly through users' own front office systems (using Application Programming Interfaces). The latter allows the use of information, analytical and trading functions developed by the users. Italy has one of the world's largest government securities markets. At the end of 1998, issues of treasury bills, notes and bonds outstanding totaled US $1,300 billion. Reporting, Accounting and Auditing. Italian reporting, accounting and auditing practices are regulated by Italy's National Control Commission (Consob). These practices bear some similarities to United States standards. However, in general, Italian corporations do not provide all of the disclosure required by US law and accounting practice, and such disclosure may be less timely, less frequent and less consistent than that required of US corporations. Italy is, however, moving toward more transparency: from 2000, for example, the law will require quarterly disclosure. Size of Equity Markets. As of November 30, 2001, the total market capitalization of the Italian equity markets was approximately EUR ___ billion or US$ ___ billion. 12 The Japanese Equity Markets General Background. The Japanese stock market has a history of over 100 years beginning with the establishment of the Tokyo Stock Exchange Company Ltd. in 1878. Stock exchanges are located in eight cities in Japan (Tokyo, Osaka, Nagoya, Kyoto, Hiroshima, Fukuoka, Niigata and Sapporo). There is also an over- the-counter market. There are three distinct sections on the main Japanese stock exchanges. The First Section trades in over 1,100 of the largest and most active stocks, which account for over 95% of total market capitalization. The Second Section consists of over 400 issues with lower turnover than the First Section, which are newly quoted on the exchange or which are not listed and would otherwise be traded over-the-counter. The Third Section consists of foreign stocks which are traded over-the-counter. The main activity of the regular exchange members is the buying and selling of securities on the floor of an exchange, both for their customers and for their own account. Japan is second only to the United States in aggregate stock market capitalization. Securities are denominated in the official unit of currency, the Japanese Yen. Takeover activity is negligible in Tokyo, and although foreign investors play a significant role, the trend of the market is set by the domestic investor. The statutory at-source withholding tax is 20% on dividends. There also is a transaction tax on share trades and a small stamp duty. Reporting, Accounting and Auditing. Although some Japanese reporting, accounting and auditing practices are based substantially on U.S. principles, they are not identical to U.S. standards in some important respects, particularly with regard to unconsolidated subsidiaries and related structures. In general, Japanese 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, 2001, the total market capitalization of the Japanese equity markets was approximately JPY _______ billion or US$ _____ billion. The Malaysian Equity Markets General Background. The securities industry in Malaysia dates back to the early 1930's. Kuala Lumpur and Singapore were a single exchange until 1973 when they separated and the Kuala Lumpur Stock Exchange (KLSE) was formed. The KLSE operated under a provisional set of rules until 1983 when a new Securities Industry Act came into force. As of June 30, 1999, 458 companies were listed on the KLSE main board. A Second Board, established in 1988, allows smaller companies to tap additional capital. There were 287 companies listed on the Second Board as of June 30, 1999. Over the years, the KLSE's close links with the Stock Exchange of Singapore (SES) has rendered it very vulnerable to developments in Singapore. Consequently, the Government decided, as a matter of national policy, on a delisting of Malaysian incorporated companies from the SES. This was effected on January 1, 1990. A similar move was made by Singapore, resulting in the delisting of all Singapore companies on the KLSE on January 1, 1990. There are two main stock indices in Malaysia. The wider ranging KLSE Composite represents 80 companies. The New Straits Times Industrial Index is an average of 30 industrial stocks. Malaysian currency volatility and general economic deterioration led to the imposition of stringent capital controls in September 1998, including a one year prohibition on repatriation of capital and an indefinite prohibition on free transfers of securities. The prohibition on repatriation of capital was removed in February 1999 but the controls have adversely impacted foreign investors, including the Index Fund, which suspended creations in response to the controls. This adversely affected the trading market for Malaysia (Free) Index Fund iShares. Reporting, Accounting and Auditing. Malaysian reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Malaysian 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, 2001, the total market capitalization of the Malaysian equity markets was approximately MYR ___ billion or US$ ___ billion. 13 The Mexican Equity Markets General Background. There is only one stock exchange in Mexico, the Bolsa Mexicana de Valores (BMV), which was established in 1894 and is located in Mexico City. The stock exchange is a private corporation whose shares are owned solely by its authorized members and operates under the stock market laws passed by the government. The National Banking and Securities Commission (CNV) supervises the stock exchange. The Mexican exchange operates primarily via the open outcry method. However, firm orders in writing can supersede this system, provided there is a perfect match of the details of a buy and sell order. Executions on the exchange can be done by members only. Membership of the stock exchange is restricted to Casas de Bolsa brokerage houses and Especialistas Bursatiles (stock exchange specialists). Reporting, Accounting and Auditing. Mexican reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Mexican 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, 2001, the total market capitalization of the Mexican equity markets was approximately MXN _____ billion or US$ ___ billion. The Netherlands Equity Markets General Background. Trading securities on the AEX Stock Exchange (AEX) (formerly the Amsterdam Stock Exchange) started at the beginning of the seventeenth century. The United East India Company was the first company in the world financed by an issue of shares, and such issue was effected through the exchange. The Netherlands claims the honor of having the oldest established stock exchange in existence. In 1611 a stock market began trading in the coffee houses along the Dam Square. A more formal establishment, the Amsterdam Stock Exchange Association, began trading industrial stocks in 1876, and until World War II, Amsterdam ranked after New York and London as the third most important stock market in the world. After the war, the AEX Stock Exchange only gradually began to resume its activities, as members felt threatened by what they saw as an impending socialist order which would leave little of the stock market intact. Since the end of the war, the Dutch market has remained relatively neglected, as local companies have found it more favorable to use bank financing to meet their capital requirements. Trading in shares on the AEX may take place on the official market or on the parallel market, which is available to medium- sized and smaller companies that cannot yet meet the requirements demanded for the official market. Reporting, Accounting and Auditing. Dutch reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Dutch 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, 2001, the total market capitalization of the Dutch equity markets was approximately EUR ___ billion or US$ ___ 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. 14 Size of Equity Markets. As of November 30, 2001, the total market capitalization of the New Zealand markets was approximately NZD _______ or US _________. The Portuguese Equity Markets General Background. EU membership marked the start of a period that has seen dramatic growth in the scope and activity of the Portuguese stock market. The Lisbon Stock Exchange ("LSE") is divided into three markets, each with specific requirements regarding admission to listing and trading: (1) the official market, which was created on July 23, 1991; (2) the second market, created in January 1992, which is intended for trading securities that do not meet all the requirements for admission to the official market. The main purpose of this market is to allow access to the stock exchange for small and medium-sized companies; and (3) the unofficial market, created on October 22, 1991, is intended for trading securities that do not meet the requirements for the other two markets. Securities can be admitted to this market for a limited period of time. In 1992, the LSE was privatized. It is now under the management of the Lisbon Stock Exchange Association. Further, the Oporto Derivatives Exchange was established in June 1996, where five futures contracts are traded. Reporting, Accounting and Auditing. Portuguese reporting, accounting and auditing standards differ substantially from U.S. standards. In general, Portuguese 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. Structure of Equity Markets. As of November 30, 2001, the total market capitalization of the Portuguese equity markets was approximately EUR __ billion or US$ __ billion. 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. Size of Equity Markets. As of November 30, 2001, the total market capitalization of the Singaporean markets was approximately SGD ___ billion or US$ 155 billion. The South African Equity Markets General Background. The Johannesburg Stock Exchange (JSE), established in 1887, is the only stock exchange in South Africa. Its major traded shares have been mining and gold stocks, such as De Beers and the Anglo American Corporation of South Africa. The minerals-related sectors still account for 14% of the market's capitalization, although there are now many other important sectors including banking, insurance, industrials and leisure. The 15 market capitalization of the JSE has grown enormously from ZAR 13.3 billion in 1970 to approximately ZAR 1022.0 billion in 1995. Reporting, Accounting and Auditing. South African reporting, accounting and auditing standards differ substantially from U.S. standards. In general, South African 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. Structure of Equity Markets. As of November 30, 2001, the total market capitalization of the South African equity markets was approximately ZAR ___ billion or US$ ___ billion. The South Korean Equity Markets General Background. After the formation of South Korea in 1948, the government issued Farmland Compensation Bonds to landowners in exchange for their farmland, and Kunkuk Bonds to cover their financial debt. The Daehan Stock Exchange was established in 1956 to enable trading of these bonds. The South Korea Stock Exchange was established several years later. The government enacted the Securities and Exchange Law in January 1962 as part of the First Five Year Economic Plan. The law was intended to help South Korean companies arrange funds for economic development by using the stock market. Within a year the market boomed and crashed. The Securities and Exchange Law was amended in April 1962 to impose stricter regulatory measures on the operation of the securities market. The stock exchange became a non-profit, government-owned corporation called the South Korea Stock Exchange. However, the securities market was unable to overcome the aftermath of the crash and entered a period of inactivity. In 1967, as part of the Second Five Year Economic Plan, the government encouraged the public to invest in the stock market by increasing the number of listed companies and the acceptability of equity shares. Tax advantages were given to companies that went public. Further legislation was passed in 1972 to encourage share flotation in the belief that corporations would reduce their high financing costs by converting bank loans into share capital. As a result of these market measures, the number of listed companies started to increase. The Securities and Exchange Commission and its executive body, the Securities Supervisory Board, were established to strengthen investor protection. The South Korea Securities Settlement Corporation, since renamed the South Korea Depository Corporation (KSD), was set up in 1974 to act as the clearing agent for the stock exchange and as the central depository. In 1977, the South Korea Securities Computer Corporation was established as an electronic data processing center for the securities industry to enable members to transmit orders directly to the trading floor. In 1981, the government announced its long-term plans for opening the South Korean securities market to foreigners. International investment trusts were established and the South Korea Fund and the South Korea Europe Fund were incorporated overseas. In 1985, the government began to allow some domestic corporations to issue convertible bonds, bonds with warrants and depository receipts overseas. The government also eased controls to allow domestic institutional investors to invest in foreign securities. In December 1988, a new, detailed plan was put forward for the internationalization of the capital market from 1989 to 1992. A more open capital market was proposed to improve the financial structure of domestic firms and to strengthen their international competitiveness. The firms would be given access to an expanded and revitalized domestic capital market and cheaper sources of financing in the international markets. The stock market began to be opened to foreign investors in January 1992. Reporting, Accounting and Auditing. South Korean reporting, accounting and auditing standards differ substantially from U.S. standards. In general, South Korean 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. Structure of Equity Markets. As of November 30, 2001, the total market capitalization of the South Korean equity markets was approximately KRW _______ billion or US$ ___ billion. 16 The Spanish Equity Markets General Background. The Securities Market Act (LMV) recognizes the following as official secondary markets: . stock exchanges; . the public debt market organized by the Bank of Spain; and . futures and options markets. Stock exchanges in Spain (Madrid, Bilbao, Barcelona and Valencia) are the official secondary markets which trade shares and convertible bonds or those which grant the right of purchase or subscription. Issuers of shares go to the stock market as the primary market, where they formalize transactions or capital increases. Fixed-income securities (both governmental and private sector debt) are also traded on the stock market. The organization and functioning of each stock exchange is the responsibility of each respective governing body (Sociedad Rectora), each of which is a limited company whose sole shareholders are the dealer-brokers and brokers and the stock exchanges themselves. The Sociedad de Bolsa, established by the four stock exchanges, is responsible for the technical management of the computerized trading system, which operates at a national level. Under the LMV, the National Securities Market Commission (CNMV) is responsible for supervising and inspecting the securities markets as well as the activity of all individuals and companies who deal with the markets. It has the power to punish and other functions. These Spanish futures and options markets are organized by the holding company MEFF (Mercado Espanol de Futuros Financieros) Sociedad Holding and two subsidiaries: MEFF Renta Variable (equities), based in Madrid, and MEFF Renta Fija (fixed-income securities), based in Barcelona. MEFF Renta Variable manages the trading of options and futures on the Ibex-35 stock index, and individual options on certain shares. MEFF Renta Fija manages the trading of futures and options on interest rates and bonds. Bonds, Treasury bills and debt issued by other public administrations and organizations are traded in the public debt market. These securities are also traded at the same time on the stock market, which has a specific trading system for them. The Bank of Spain's Book-Entry Office is responsible for supervising the public debt market. Reporting, Accounting and Auditing. Spanish reporting, accounting and auditing standards differ substantially from US standards. In general, Spanish corporations do not provide all of the disclosure required by US law and accounting practice, and such disclosure may be less timely and less frequent than that required of US corporations. Size of Equity Markets. As of November 30, 2001, the total market capitalization of the Spanish equity markets was approximately EUR ___ billion or US$ ___ billion. The Swedish Equity Markets General Background. Organized trading of securities in Sweden can be traced back to 1776. Although the Stockholm Stock Exchange was founded in 1864, the real formation of a stock exchange in an international sense took place in 1901. The statutes of the Stock Exchange were modified in 1906 and, from the beginning of 1907, commercial banks were admitted as members. During the 1970s, the Stockholm market had low turnover and dull trading conditions. The market started to climb in 1980 and for several years Stockholm was one of the best performing stock markets, in terms of both price and volume growth. This regeneration of a market for risk capital was reflected in the large number of companies introduced in the early 1980s. The Stockholm Stock Exchange is structured on a membership basis, under the supervision of the Bank Inspection Board. The Board consists of 11 directors and one chief executive. The directors of the Board are elected by the Swedish government, the Association of the Swedish Chamber of Commerce, the Federation of Swedish Industries and the member companies of the Stock Exchange. There are three different markets for trading shares in Sweden. The dominant market is the A-1 list, for the largest and most heavily traded companies. The second market is the over-the-counter market, which is more loosely regulated than the official market and caters to small- and medium-sized companies. The third market is the unofficial parallel market, which deals in unlisted shares, both on and off the exchange floor. The shares most frequently traded on this market are those which have been de-listed from other markets and those that are only occasionally available for trading. 17 On July 1, 1999, the Stockholm Stock Exchange and OM Stockholm merged to create the OM Stockholm Exchange - OM Stockholmsborsen AB. In addition, the Stockholm Stock Exchange and the Copenhagen Stock Exchange have signed an agreement covering a common Nordic securities market, NOREX. There are also two independent markets for options - the Swedish Options Market (OM) and the Swedish Options and Futures Exchange (SOFE), which offer calls, puts and forwards on Swedish stocks and stock market indices. Reporting, Accounting and Auditing. Swedish reporting, accounting and auditing standards differ substantially from US standards. In general, Swedish corporations do not provide all of the disclosure required by US law and accounting practice, and such disclosure may be less timely and less frequent than that required of US corporations. The basic concepts used are historical cost, going concern, accrual basis, consistency and prudence. Size of Equity Markets. As of November 30, 2001, the total market capitalization of the Swedish equity markets was approximately SEK ____ billion or US$ ______ billion. The Swiss Equity Markets General Background. There are three principal stock exchanges in Switzerland, the largest of which is Zurich, followed by Geneva and Basle. The Geneva exchange is the oldest and was formally organized in 1850. The Basle and the Zurich exchanges were founded in 1876 and 1877, respectively. The Geneva Exchange is a corporation under public law and in Zurich and Basle the exchanges are institutions under public law. There are three different market segments for the trading of equities in Switzerland. The first is the official market, the second is the semi-official market, and the third is the unofficial market. On the official market, trading takes place among members of the exchange on the official trading floors. Trading in the semi-official market also takes place on the floors of the exchanges, but this market has traditionally been reserved for smaller companies not yet officially accepted on the exchange. Unofficial market trading is conducted by members and non-members alike. Typical trading on this market involves shares with small turnover. Both listed and unlisted securities can, however, be traded on this market. Since July 1998, SWX has provided facilities for electronic trading in Eurobonds. Repo SWX, the first electronic market for repos with integrated clearing and settlement, was inaugurated in June 1999. In addition, SWX launched a new market segment for emerging-growth companies in July 1999, under the name SWX New Market. Eurex, the first trans-national derivatives market, is a co- operative venture between the SWX Swiss Exchange and Deutsche Borse Ag, each of which holds a 50% stake. Eurex is the largest derivative exchange in the world. Reporting, Accounting and Auditing. Swiss reporting, accounting and auditing standards differ substantially from US standards. In general, Swiss corporations do not provide all of the disclosure required by US law and accounting practice, and such disclosure may be less timely and less frequent than that required of US corporations. Size of Equity Markets. As of November 30, 2001, the total market capitalization of the Swiss equity markets was approximately CHF ____ billion or US$ ___ billion. The Taiwanese Equity Markets General Background. The Taiwan Stock Exchange, in Taipei, is the only stock exchange in Taiwan. Its roots can be traced to the Land Reform Movement of 1953. The government bought tracts of land from large landowners and paid for them with bonds and shares in government-owned companies. The need to trade those shares and bonds gradually bred the formation of a fledging over-the-counter market. As the economy prospered, the importance of a securities market was recognized. The government established the Securities Market Research Committee to study the feasibility of a formal stock market. Consequently, the Securities and Exchange Commission (SEC) was established on September 1, 1960, as a department of the Ministry of Finance. The Taiwan Stock Exchange (TSE) was founded a year later and officially commenced operation in February 1962. In the exchange's first year, there were 18 listed companies with an average trading volume of TWD 1,647,760. By 1963, there were 23 listed companies; by 1980, there were 100; and by 2000 there were 531. As listings steadily 18 increased, the market remained stable for several years. Since then, the number of brokerage firms has multiplied and limitations on foreign investors have recently been relaxed. Reporting, Accounting and Auditing. Taiwanese reporting, accounting and auditing standards differ substantially from US standards. In general, Taiwanese corporations do not provide all of the disclosure required by US law and accounting practice, and such disclosure may be less timely and less frequent than that required of US corporations. Structure of Equity Markets. As of November 30, 2000, the total market capitalization of the Taiwanese equity markets was approximately TWD 8,918 billion or US$ 270 billion. The Thai Equity Markets General Background. The Bangkok Stock Exchange Co. Ltd. (BSE) was established in 1962 as a partnership; it was the first organized stock exchange in Thailand. There was little trading on the exchange, and the BSE acted as an indicator of current share prices rather than as a center for trading. In 1974, the Securities Exchange of Thailand Act established a new exchange called the Stock Exchange of Thailand (SET). The SET started trading on April 30, 1975. Reporting, Accounting and Auditing. Thai reporting, auditing and accounting standards differ substantially from U.S. standards. In general, Thai 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. Structure of Equity Markets. As of November 30, 2000, the total market capitalization of the Thai equity markets was approximately THB ____ billion or US$ __ billion. The Turkish Equity Markets General Background. The Istanbul Stock Exchange (ISE), which was formed in 1866 and closed in 1938 because of domestic and international economic conditions, was reactivated following the enactment of the Capital Market Law in July 1983 and Decree No. 91, which was issued in October 1983. Trading at the ISE was reinitiated in January 1986 in Istanbul and moved in May 1995 to new, fully automated headquarters at Istinye. Development banks, commercial banks and brokerage houses are eligible for membership in the ISE. The Turkish equities market consists of the national market on which 198 stocks are traded, a regional market on which 13 stocks are traded and a new companies market, which is not yet fully operational. The new companies market will feature newly established, yet promising, companies that are not eligible to trade on the national market. The bonds and bills market features markets in government bonds and treasury bills, corporate bonds, revenue sharing certificates and repurchase agreements. Reporting, Accounting and Auditing. Turkish reporting, auditing and accounting standards differ substantially from U.S. standards. In general, Turkish 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. Structure of Equity Markets. As of November 30, 2001, the total market capitalization of the Turkish equity markets was approximately TRL _________ billion or US$ ____ billion. The United Kingdom Equity Markets General Background. The UK is Europe's largest equity market in terms of aggregate market capitalization. Trading is fully computerized under the SETS System for FTSE- 100 (and 83 other) stocks and the Stock Exchange Automated Quotation System (SEAQ) operates for international equities. The London Stock Exchange exists alongside Tradepoint, while there is also a network of regional offices. The London Stock Exchange has the largest volume of trading in international equities in the world. 19 Reporting, Accounting and Auditing. Despite having a great deal of common purpose and common concepts, the accounting principles in the UK and the US can lead to markedly different financial statements. In the global market for capital, investors may want to know about a company's results and financial position under their own principles. This is particularly so in the US capital markets. The overriding requirement for a UK company's financial statements is that they give a "true and fair" view. Accounting standards are an authoritive source as to what is and is not a fair view, but do not define it unequivocally. Ad hoc adaptations to specific circumstances may be required. In the US, financial statements are more conformed because they must be prepared in accordance with GAAP. Size of Equity Markets. As of November 30, 2001. the total market capitalization of the United Kingdom equity markets was approximately GBP _____ billion or US$ _____ billion. Regional and Country-Specific Economic Considerations. ------------------------------------------------------ Europe. In 1986, the member states (the "Member States") of the European Union (the "EU") signed the "Single European Act," an agreement to establish a free market. The development of a unified common European market has promoted the free flow of goods and services. The Maastricht Treaty on economic and monetary union ("EMU") was intended to provide its members with a stable monetary framework. On January 1, 1999, the third and final stage of EMU began with the establishment of a currency union encompassing 11 of the 15 Member States of the European Union ("EU") - Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. On that date, these countries locked their exchange rates and adopted the euro as their common currency, with monetary and exchange rate policy determined by area-wide institutions. Thus, each of these countries gave up the possibility of independent monetary and exchange rate policy. Greece adopted the euro on January 1, 2001. EMU does not change the locus of responsibility for policies other than monetary and exchange rate policies. Policies affecting external trade and the integration of internal markets were already a matter of EU competence. Fiscal and labor market policies continue to be created mostly at the national level, albeit subject to closer surveillance by EU institutions. The Stability and Growth Pact (SGP), concluded in June 1997, set out the procedures for surveillance of national fiscal policies, strengthening the framework provided in the Maastricht Treaty. Also, the Treaty of Amsterdam, signed in October 1997, explicitly recognized labor market policies as a matter of common concern and set out procedures for their surveillance. Except for monetary and exchange rate policies, area-wide decision making and surveillance are the responsibility of institutions of the EU as a whole. It has been agreed that ministers of euro- area countries can meet (as the Euro-12 Group), to discuss issues related to the single currency, but that formal surveillance and coordination decisions will be the prerogative of the full EU Council of Ministers ("ECOFIN"). The euro-area rivals the United States in terms of output and trade. The delineation of monetary, fiscal, and structural policy responsibility between the euro-area institutions and national governments helps assign responsibility for these policies, but also complicates their coordination. Austria. Austria has a well-developed market economy based on commerce and manufacturing. The gross national product ("GNP") has grown moderately and the gross domestic product ("GDP") is primarily generated by manufacturing, finance, commerce, administration and defense. The strongest sector of the economy is manufacturing, which accounts for about 26% of the GDP. The GNP per capita is about average among EU countries. Austria's natural resources include iron ore, oil, timber, magnetite, lead, coal, lignite, copper, and hydropower and they contribute to a highly developed and successful industrial economy. The chief industries are construction, machinery, vehicles, food, chemicals, wood processing, paper, communications equipment, and tourism. Austria, a federal republic, generally has a high standard of living, which is closely tied to other EU economies, especially Germany's. Business confidence has remained buoyant given the competitive position of Austria's industry, strong foreign investment and good export opportunities. Austrian exports have grown strongly, which has been helped by growth within the EU and a continued weakening of the euro. Export growth is particularly pronounced in food, machinery and transport equipment. Imports are strong in raw material, machinery and transport equipment. The principal importer of Austrian products is Germany, followed by Italy and Switzerland. 20 Economic growth has accelerated in Austria, culminating in 3.5% GDP growth in the first half of 2000. The depreciation of the euro and the recovery in Austria's export market contributed to the overall favorable outlook. Private consumption increased and remained at a strong 3% and export growth accelerated to 9% in response to the recovery in Austria's main export market. The labor market continued to experience rapid increases in employment, mainly taking place in public job programs and in the service sector. Part-time employment experienced greater growth than full-time employment. Unemployment fell to approximately 4.5% in the second half of 2000, although it is expected to increase due to recent labor reforms. Consumer price inflation increased to 3% in the first of half of 2000, driven by higher oil prices, following a deceleration to 0.2% a year earlier. Exports of goods and services remained strong at 8.8% and import growth should remain constant in response to the high level of domestic demand. The government's ongoing fiscal consolidation effort centered on reducing pension expenditures and government employment. While the deficit has been decreasing recently, there is concern interest rates will rise. Over the Fund's fiscal year ended August 31, 2000, the Austrian equity market performed weakly. Unlike many other European markets, Austria continued to be dominated by so- called "old economy" banking and utilities companies. The MSCI Austria Index's largest stock as of August 31, 2000, was Bank Austria, which accounted for more than 32% of the index. Its second-largest stock as of that date was Verbund Oesterreich Elektrik, an electric-utilities company that, unlike other European utilities firms, has not ventured extensively into higher-growth areas such as telecommunications and the Internet. Political issues also weighed on the Austrian market at various times. The controversy surrounding Georg Haider put the country at odds with the European Union in early 2000, as did Austria's slow progress in deregulating its domestic telecommunications market. Toward the end of the fiscal year ended August 31, 2000, however, the Austrian market was buoyed by positive sentiment. Investors viewed the news that Bank Austria had agreed to be acquired by Germany's HypoVereinsbank as a potential spark for further consolidation in Austria. The deal, if successfully completed, would be the largest takeover in Austria's history. In addition, the Austrian economy continued to show signs of health over the past year. Belgium. Belgium is a modern private enterprise economy largely based on a diversified industrial and commercial base. The chief industries include engineering and metal products, motor vehicle assembly, processed food and beverages, chemicals, basic metals, textiles, glass, petroleum, and coal. Industry is mainly concentrated in Northern Belgium. Belgium imports high quantities of raw materials used in the manufacturing of its goods. The GNP per capita is about average among EU countries. The GDP is only slightly above the EU average and is mainly attributable to the agricultural sector. Traditionally, Belgium's natural resources have been concentrated in coal, steel and textiles, however these have declined in recent years. Belgium, a federal parliamentary democracy, has attempted to simplify its fiscal system by reducing the burden of income tax on companies and workers. Tax reforms are directed towards employees and companies, as Belgian employees carry a much higher tax burden than workers in neighboring countries. The government has increased expenditures for new jobs, unemployment benefits, and social services, forcing the government to borrow from abroad. The most recent election resulted in a historic shift of power to Guy Verhofstadt's `blue-red- green' coalition (made up of French-and-Dutch speaking Liberals, Socialists and Greens). The coalition has attempted to restore public confidence after a series of political scandals. Belgium shows a high degree of economic openness. It is therefore extremely sensitive to economic developments abroad and, in particular, to those occurring in the EMU. Activity in Belgium fluctuates almost exactly in line with that of the euro area. The latest economic developments are no exception in that respect. The depreciation of the euro has boosted the international competitiveness of Belgian firms, which will also benefit from a period of broad wage moderation and further cuts in employer's social security contributions. The Belgian employment rate typically is lower than the rest of the EMU. The unemployment rate fell to 8.6% in 2000 shrinking from the previous years. Employment has continued to grow at a rapid pace with wage and compensation per employee expected to accelerate. Belgium's consumer price inflation reached 3.3% in September, 21 reflecting increases in oil prices and euro weakness. Real GDP growth appeared around 3.75% in early 2000, compared with 2.75% in 1999, despite a slow-down in the last months. Over the Fund's fiscal year ended August 31, 2000, the performance of the Belgian equity market was weak. In large part this was because it continues to be dominated by so-called "old economy" companies in the financial services and electric-utilities industries. As of August 31, 2000, the market's three largest stocks were financial services firm Fortis Belgium, electric-utilities company Electrabel, and banking firm Kredietbank. These firms had weightings in the MSCI Belgium Index of 30.0%, 15.5%, and 18.0%, respectively. Stocks such as these generally under performed "new economy" stocks in the technology, media and telecommunications industries in the one-year period. Belgium's banking and utilities stocks were also negatively affected by rising interest rates. In March and again in May, however, Fortis reported stronger-than-expected earnings and its shares rose, helping the Belgian market recover some of its losses for the period. Now Europe's largest combined banking and insurance company, Fortis has also benefited from its 1999 purchase of American Banking Insurance Group. The Belgian market was also supported by relatively good economic conditions over the past year. Although not as robust as other European economies, Belgium has benefited somewhat from a better fiscal environment, lower unemployment and accelerating global growth. In March 2000, the Brussels Stock Exchange announced that it planned to merge with the Amsterdam and Paris stock exchanges. Such an exchange would be second in size only to London among European markets. In addition, the Belgian firm Interbrew launched an initial public offering in November 2000. Interbrew is now the world's second-largest brewer. France. France is a modern capitalist society considered to be one of the major economic powers of the world, ranking along with such countries as the United States, Japan and Germany. French GNP is about average among EU members, but it is growing rapidly as the nationalization of industry takes place. The chief industries include steel, machinery, chemicals, automobiles, metallurgy, aircraft, electronics, mining, textiles, food processing, and tourism. France is also a major exporter of dairy products, wine, wheat and tinned fruit and vegetables. The government of France is a multiparty democracy dominated by a strong executive. The government retains considerable influence over key segments of each sector, with majority ownership of railway, electric, aircraft, and telecommunication firms, although the government is relaxing control over these areas. Large-scale privatization has taken place with such companies as France Telecom, Air France, Aerospatiale, and Credit Lyonnais, which had been hurt by years of high interest rates. The government plans to make restructuring more costly and short-term labor contracts (used to encourage labor flexibility) more expensive for companies. France employs a generous and comprehensive system of social welfare benefits providing generous benefits for unemployment, sick leave, childcare and maternity benefits. After 3.2% growth in 1999, the French economy was growing at an annualized 3.6% in the first half of 2000, driven chiefly by strong domestic demand. A pick-up in exports on the back of the recently weak euro, "new economy" activity and the recovery in emerging markets also had a positive effect on the French economy. The accumulated impact of three years of growth in France has been to push job creation to a 30-year high. At mid-year, employment growth was running at an annualized 3.2%, or the equivalent of about 439,000 new jobs a year. The strongest growth was in the services sector and construction, with industrial employment growing at about half the annualized average. The introduction in February 2000 of the wage-moderating 35-hour week - the government's flagship policy - also appeared to have a positive impact, though many new jobs were generated as part of youth schemes and in temporary and part-time work. From a post-war peak of 12.5% in June 1997, or 3,200,000, (3.2 million) unemployment had dropped to 9.8%, or 2,371,300, at the end of the first quarter of 2000. Other key indicators point to the health of the French economy. Household consumption is up, as are housing starts, construction permit issues and new car registrations. At the same time, inflation has dropped to around (an annualized) 0.5% due to low raw material prices, increased competition and productivity gains from new technology and Internet-related activity. However, the poor external performance of the euro - chiefly against the U.S. dollar - was beginning, in September 2000, to fuel concerns about inflation. 22 But France's biggest economic problem remains its high budget deficit. At present the government is committed to lowering the deficit to 1.5% of GDP and to reduce it to 0.3% of GDP by 2002. The past year was an exceptional period for the French equity market, driven by stocks in a variety of sectors. During the period, the French market was one of Europe's top performers. Telecommunications and media-related stocks led the French market over much of the reporting period. Shares of the largest stock in the MSCI France Index, France Telecom, rose as investors favored TMT (technology, telecommunications and media) issues. Weak areas during the fiscal year ended included a number of "old economy" stocks in areas such as food, household products and financial services. The latter were hurt by rising interest rates. Nonetheless, stocks such as TotalFinaElf -- the second-largest stock in the MSCI France Index -- have continued to provide some support for the French market. TotalFinaElf shares rose along with the price of crude oil. Toward the end of 2000, growth-oriented stocks were once again leading the Paris Stock Exchange. Germany. Germany is a prosperous capitalistic society largely based on services and manufacturing. Manufacturing represents 35% of the GDP, and has made Germany the third largest economy in the world. Germany's industries are among the world's largest and technologically advanced producers of iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages; shipbuilding; and textiles. The GNP per capita is very high among the EU countries. Germany's natural resources contribute to a strong economy and include iron ore, oil, timber, magnetite, lead, coal, lignite, copper, and hydropower. Germany, with a federal republic type of government, is intent on promoting growth with the reformation of the tax system, reducing labor costs, and by introducing a fiscal consolidation program. However, Germany's generous social benefits have pressured Germany's free-market economy. High unemployment and welfare costs remain a long-term problem. Additionally, transforming Eastern Germany into a modern market economy has been more difficult and costly than anticipated initially. According to new measures of national account data, economic activity accelerated further in the first half of 2000 when real GDP increased at an annual rate of some 3 1/2%. Exports continued to grow at double-digit rates, although the net contribution of the external sector to GDP growth was slightly lower than in the previous half year. Employment growth also picked up in the first half of 2000, to an annual rate of 1.8%. Part-time employment of new entrants into the labor market contributed to the increase. Accelerating oil prices and the depreciation of the euro also shaped the development of inflation rates. Although Germany has faced substantial problems in the wake of reunification between West and East Germany, a number of factors converged to make the MSCI Germany Index one of Europe's best performers for the Fund's fiscal year ended August 31, 2000. Corporate restructuring and growing pro-business sentiment on the part of the government attracted new investors and capital to the German market last year. One of the most positive developments, in the eyes of investors, was the government's plan to significantly reduce corporate and personal income taxes. The German government also announced that it would abolish the 50% capital gains tax previously levied on corporations when they sold shares in other companies. Investors greeted this last reform with enthusiasm, as it will allow German corporations to unwind the extensive network of cross shareholdings and permit restructuring. The tax reforms added fuel to the rally already underway. The German equity market had been on the upswing throughout late 1999 and early 2000, thanks to strength in its telecommunications and technology-related stocks. Deutsche Telekom ("DT"), by far the largest stock in the MSCI Germany Index, appreciated steadily through March. The positive sentiment toward DT diminished during the spring, however. Like other telecommunications providers, DT has faced some uncertainty because the cost of building third generation wireless networks appears to be much higher than previously expected. 23 Greece. Greece is a free enterprise economy, with the public sector accounting for about half of the GDP. The public sector accounts for about 27% of the economy. The chief industries include tourism; food processing, textiles, chemicals, metal products, mining, and petroleum. Tourism is a key industry, providing a large portion of the GDP and foreign exchange earnings. Greece is a major beneficiary of EU subsidies and is considered to be the least developed country within the European Union. Greece is a constitutional republic and multi-party parliamentary democracy, and its government is intent on diminishing the degree of state control in the economy and reducing unemployment. Although the Socialist Government of the 1980s had a reputation for profligacy and financial irresponsibility, the current government has proved to be a more prudent manager of the economy. It has kept many of the former conservative government's stabilization measures and negotiated a tripartite social contract between the government, employers and workers. This has enabled the unions to have some input into the economic policy but has allowed the government to maintain primary control over wage levels. The government has tightened the economy with the goal of qualifying Greece to join the EU's single currency (the euro) in 2001. As a result, the economy has improved steadily over the last few years. In particular, Greece has cut its budget deficit to below 2% of GDP and tightened monetary policy, causing inflation to fall below 4% by the end of 1998, the lowest rate in 26 years. Still, restructuring of the economy and the reduction of unemployment remain major challenges. Retail sales weakened in early 2000, due to the waning effect of reductions in the car sales tax and the stock market slump. However, lower interest rates and the 1999 tax/benefit package are expected to reinvigorate household spending. Headline inflation has picked up to 3% in September 2000, reflecting higher oil prices, the depreciation of the drachma and the waning effects of indirect tax cuts. Core inflation has, however, remained low even though it increased to 2% in September 2000. Italy. Italy is a developed industrial economy with a mixed private and publicly-owned economy. The chief industries include construction, machinery, vehicles, food, chemicals, lumber, paper, communications equipment, and tourism. Italy's economy remains divided between its prosperous north and poorer south, reflected in almost full employment in the former and unemployment levels well over 20% in the latter. The country's GDP grew by a modest 1.3% in 1998 and an even more modest 1.2% in 1999, around half the average for other EU economies. However, the continued recovery in construction investment and increased exports provided some encouraging signs of economic growth. Italy has a republican form of government and is working to stimulate employment, promote wage flexibility, encourage growth in pensions, and tackle the informal economy. It is also working to support a rapidly aging population and a social security system skewed in favor of pensions. The dire prospect is that by 2020 all of Italy's earned income will be needed to pay the pension bill. The need for reform is urgent, but firmly resisted by Italy's powerful trade unions, whose membership is largely made up of retirees or others on the verge of retirement. In current circumstances, Italy's finely-balanced center- left coalition Government is unlikely to take bold action to reduce pensions. Italy's economic strength lies in manufacturing, mainly through networks of small and medium-sized companies, producing, in particular, machine tools and consumer goods. Two key service sectors are tourism and the rapidly expanding telecom industry. Since mid-1990, industrial production has recovered substantially and the level of capacity utilization is the highest since early 1990. The upswing in industrial production has to a large extent been driven by the solid performance of real merchandise exports, which rose by 9% in the first half of 2000. The weakness of the euro and expanding foreign markets have increased export demand. As a result, the rate of consumer price inflation hit 2 1/2% in the third quarter of 2000, the highest level since early 1997. Currently, after having reached the much-desired EMU target and having consolidated its public finances, the aim of the government is to rekindle growth, while pursuing a systematic and continued reduction of the public debt. The Italian economy has been characterized in recent years by the attempt to reduce the significant public deficit, and to reverse the dynamic of the public debt. At 2.6% in the second quarter (annual rate), real GDP was below expectations and represented a deceleration compared with the 3% registered in the previous quarter. 24 As with other European markets, the fortunes of Italy's stock exchange were tied closely to those of its telecommunications stock. As of August 31, 2000, Telecom Italia Mobile SpA and Telecom Italia made up a collective 28.5% of the MSCI Italy Index. From August 31, 1999 through mid-March 2000, shares of Telecom Italia Mobile and Telecom Italia rose sharply. Investors were excited about not only the outlook for continued strong growth in Europe's telecommunications market, but also those companies' expansion into new businesses such as the Internet. In March 2000, however, these stocks fell along with other TMT stocks. Exacerbating the decline in telecom stocks was the growing realization that the cost of building third generation wireless networks would be much higher than previously expected. Offsetting the performance of these stocks was the financial services sector of the MSCI Italy Index. Banks such as ENI, the third largest stock in the MSCI Italy Index as of March 31, 2000, were hurt by concerns that inflation was rising sharply and interest rates would soon follow suit. The Netherlands. The Netherlands is a highly industrialized nation maintaining a prosperous and well-developed economy. Emerging from a deep recession in the 1980s, the Dutch economy has become one of the fastest growing in Europe. The pace at which new jobs are generated is close to that of the United States. Industrial activity is predominantly in food processing, chemicals, petroleum refining, and electrical machinery. A highly mechanized agricultural sector employs no more than 4% of the labor force but provides large surpluses for the food-processing industry and for exports. The Netherlands rank third worldwide in value of agricultural exports, behind the US and France. Strong 3.8% GDP growth in 1998 was followed by an only slightly lower 3.4% expansion in 1999. Natural resources include natural gas, petroleum, and arable land. The Dutch government - a constitutional monarchy - attempts to keep the economy in private hands. Postwar industrial development has been consciously stimulated by government policy, and state subsidies have been granted to attract companies interested in developing the northern provinces. Despite these subsidies, the western provinces remain the center of new industry, especially in the services sector. In the first half of 2000, the Dutch economy expanded by about 4.5% compared with 3.9% in 1999 as a result of export led growth. The unemployment rate has decreased to 2.4% in the second quarter of 2000. Despite a tight labor market, collective wage agreements entered into this year have provided for relatively moderate pay rises only. Consumer price inflation increased to 2.5% in August 2000, but underlying inflation remained at around 1.5%. The export-driven Dutch equity market benefited from accelerating global growth and other favorable trends over the past year. Not only did demand increase generally worldwide, but the price of crude oil also rose substantially. That trend benefited Royal Dutch/Shell Petroleum, which made up more than one fourth of the MSCI Netherlands Index as of August 31, 2000. Higher global demand also helped to lift the second-largest stock in the MSCI Netherlands Index, Philips Electronics. Its third-largest stock, telecommunications firm KPN, enjoyed very positive investor sentiment toward telecom stocks. Yet this last trend did not boost the Dutch market as much as other European markets, given the Netherlands' relative shortage of technology stocks. Its financial services stocks, another big component of the MSCI Index, were pressured by rising interest rates during the reporting period. Spain. Spain's mixed capitalist economy supports a GDP that on a per capita basis is 75% of the four leading West European economies. The past five years, in particular, have witnessed a sustained period of economic reform and adjustment, with strong rates of GDP growth. Spain's economy now ranks as the 5th largest in the EU, and is valued at some USD 596 billion. The chief industries include textiles, food and beverages, metals and metal manufactures, chemicals, shipbuilding, automobiles, machine tools, and tourism. Spain's natural resources include coal, lignite, iron ore, copper, kaolin, potash, hydropower, and arable land. Spain's parliamentary monarchy has attempted to introduce tax reforms and has continued to advocate privatization, liberalization and deregulation of the economy. Spain was one of the first countries to launch the European single currency in 1999. However, following Spain's entry into the EMU, there has been concern that Spain's high inflation rate will fuel new wage pressures, endangering Spanish competitiveness. Nevertheless, the Spanish 25 economy is now into its fourth successive year of strong growth. All of Spain's macroeconomic variables, with the major exception of unemployment, are positive. In recent years, the labor market has continued to improve, with national account employment growing at more than 3% per year. In 1994 and again in 1997, reforms in the labor market were undertaken, mainly to ease the rigid regulations that govern permanent job contracts. The recent strong economic growth and new reforms to improve the flexibility of the labor market have decreased the rate of unemployment by 1.75 percentage points to 13.7% in the year up to the third quarter of 2000 compared to 16% in 1999. The government also faces the challenges of addressing the domestic concerns of controlling inflation, which rose during the summer to 2.8%. In October 2000, consumer price inflation was 4.0%, pushed up by the oil price hike and the depreciation of the euro. Like those of several of its European neighbors, Spain's equity market was lifted by a number of positive trends in late 1999 and early 2000. Along with other markets, its performance weakened somewhat in the spring and summer of 2000. TMT stocks led the market in the fall of 1999 and winter of 2000. Shares of Telefonica surged on positive sentiment toward telecom in general and Telefonica's rapid growth in particular. The company, which made up just over 30% of the MSCI Spain Index as of August 31, 2000, is Spain's largest by market capitalization. Although Telefonica has faced increased competition in its home market, investors have responded positively to its rapid expansion into new sectors (such as Internet access) and markets outside Spain. Some of this goodwill dissipated in the spring of 2000, however, amid a global sell-off in telecommunications stocks. The same was true of Spain's banking shares, another key component of its equity market. BSCH Banco Santander Central and BBVA Group, which together made up almost 35% of the MSCI Spain Index as of August 31, 2000, were beset by real and expected interest rate hikes. But they, too, were supported by investors' positive view of their expansion plans. Like Telefonica, BSCH and BBVA are no longer considered "value stocks," due to their rapid growth in Latin America and elsewhere in Europe. Overall growth in Spain's economy remained robust during the first half of 2000. In fact, the economy's strength has prompted concern that it is overheating. In July 2000, inflation hit a four year high in both Spain and France, prompting speculation that the European Central Bank would hike interest rates. Portugal. Portugal has a developing capitalist economy with mixed private and public ownership of businesses. Portugal's per capita GDP is two-thirds that of the largest West European economies. Portugal is one of the smallest countries in Europe and is the poorest member of the EU, with a per capita GDP of approximately 60% of the European average. Portugal continues to run an overall trade deficit with the rest of the world. However, recent economic growth has produced a significant decline in inflation, interest rates and public debt, and improved employment generation. Real gross domestic product (GDP) rose by 3.1% in 1999. The chief industries include textiles and footwear, wood pulp, paper, and cork, metalworking, oil refining, chemicals, fish canning, wine and tourism. Portugal's natural resources include fish, forests (cork), tungsten, iron ore, uranium ore, marble, arable land, and hydro power. Portugal's government, a parliamentary democracy, is working to modernize Portuguese industry and infrastructure to increase the country's competitiveness in the increasingly integrated world markets. Portugal's economy has witnessed significant growth and modernization since the mid-1990s. Portugal's infrastructure has improved from being part of the EU membership. There remain, however, a number of challenges for future economic development. Modernization of industry has been slow. Labor costs in Portugal are lower in comparison to most countries of the European Union and this has slowed the process of industrial restructuring. Recent economic growth has produced a significant decline in inflation, interest rates and public debt and improved employment generation. Employment has continued to grow strongly, leading to a further fall in unemployment to around 4%. In spite of the slowdown in consumption, inflation continued to rise to 3.4% in the third quarter. Sweden. Sweden has a highly developed and successful industrial sector. The chief industries, most of which are privately owned, include textiles, furniture, electronics, telecommunications, dairy, metals, ship building, clothing, engineering, chemicals, food processing, fishing, paper, oil and gas, automobiles and shipping. Productivity, as measured by GDP per capita, is well above the European average, although two-thirds of GDP passes through the 26 public sector. Privately owned firms account for about 90% of industrial output, of which the engineering sector accounts for 50% of output and exports. Agriculture accounts for only 2% of GDP and 2% of the total employment. Sweden's natural resources include zinc, iron ore, lead, copper, silver, timber, uranium, and hydropower. Successive governments have traditionally afforded Swedes generous benefits for unemployment, sick leave, childcare and general public welfare, along with state medical care. This extensive social welfare system has become unsustainable in recent years, notably when the economy slowed down significantly in the early 1990s, which caused large government deficits, inflation, and high unemployment. Almost half of the personal disposable income received by Swedes resulted from transfer payments, a system for redistributing income. Since then, a massive turnaround in public finances has occurred thanks to years of fiscal restraint and an increase in economic growth. The Swedish government has announced that it plans to cut taxes within the next five years. Sweden has harmonized its economic policies with those of the EU, which it joined at the start of 1995. Sweden decided not to join the euro system at its outset in January 1999 but plans to hold a referendum in the upcoming months on whether to join. The Swedish economy continued to expand at an annual rate close to 4% in the first half of 2000. Employment growth also increased at an annualized rate of 2%. Unemployment has fallen quite rapidly to near 4%, and labor shortages have spread. With its large telecommunications component, the Swedish equity market reflected changing sentiment toward TMT stocks over the past year. In the last four months of 1999 and first few months of 2000, investors seemingly could not get enough of TMT stocks in many markets around the world. That created a huge updraft for telecommunications bellwether Ericsson, which made up more than half the MSCI Sweden Index as of March 31, 2000. Driven largely by that one stock, the Swedish equity market rose swiftly to outperform most others in Europe. Yet it was that same stock that drove the Swedish market in the opposite direction over the spring and summer of 2000. Along with other TMT stocks worldwide, shares of Ericsson faltered in March when interest rates rose. Later that spring, the telecom sector took another hit as it became clearer that the cost of building third generation wireless networks would be higher than most in the industry had expected. Overall, however, the Swedish market has continued to benefit from strong consumer confidence levels and liquidity. Switzerland. Switzerland is a prosperous and stable modern market economy with a strong industrial sector. Switzerland's per capita GDP of 20% ranks it above that of most Western European economies. Swiss economic development has been affected by specific physical and cultural geographic factors. Due to its lack of raw materials, Switzerland has based its economic growth on its highly skilled labor market and technological manufacturing expertise. Switzerland relies heavily on its chief industries, including machinery, chemicals, watches, textiles, and precision instruments. Switzerland utilizes its natural resources by converting them into high-quality, value-added finished products for export. The Swiss government, a federal republic, tends to follow a conservative approach to foreign policy, and any treaty or decision to join an international organization tends to be challenged. The Swiss are not pursuing EU membership in the near future; however, Switzerland has followed the practices of the EU. As a result, the country has realized the economic benefits of a closer alliance with the EU and enhanced its international competitiveness in the global market. Switzerland relies heavily on foreign trade and has attempted to lower tariffs and duties on incoming goods. These will end when Switzerland and the other countries of the European Free Trade Association (EFTA) become part of the European Economic Area. While the Swiss official unemployment rate fell to 1.75% in early autumn, the underlying inflation rate remained low at 0.5%. GDP grew by 3.75% in the first half of 2000 with respect to the second half of 1999, due in part to strong exports and investments. However, activity slowed significantly between the first and second quarter to an annual rate of around 2.25%. Monetary conditions have tightened leading to restrained private consumption. 27 With its large contingent of so-called "old economy" firms, Switzerland's equity market diverged from more growth-oriented markets over the past year. During the fall of 1999 and the early months of 2000, investors overwhelmingly favored TMT stocks over the market's pharmaceutical, food and banking stocks -- sectors which collectively made up nearly 70% of the MSCI Switzerland Index as of August 31, 2000. Swiss banks and other financial services companies were hurt by rising interest rates during the fiscal year. The market's defensive characteristics became an advantage in the spring of 2000, however. When growth stocks fell into a sharp correction in mid-March, investors sought out the relative safety of such companies as pharmaceutical maker Novartis and food manufacturer Nestle. Although growth stocks later rebounded, investors' uncertainty about the direction of the global economy continued to support Switzerland's defensive shares. The general health of the Swiss economy also helped to sustain the country's equity market. The United Kingdom. The United Kingdom has developed a modern economy based on private- and public-enterprise. The UK maintains one of the top economies of Western Europe based on services, international trade, and manufacturing. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP. The UK's large coal, natural gas, and oil reserves and energy production also account for 10% of GDP, one of the highest shares of any industrial nation. The GNP has been growing faster than the population. Agriculture accounts for less than 2% of the GNP, yet farming is highly mechanized, and efficient by European standards, producing about 60% of the country's food needs. The chief industries are production machinery, including machine tools, electric power equipment, automation equipment, railroad equipment, shipbuilding, aircraft, motor vehicles and parts, electronics and communications equipment. The country's natural resources include metals, chemicals, coal, petroleum, paper and paper products, food processing, textiles, clothing, and other consumer goods. Over the past two decades, the government of the U.K., a constitutional monarchy, has greatly reduced public ownership and contained the growth of social welfare programs. The government is still undecided as to whether the UK will be part of the euro system. Over the past year and a half, economic activity grew 3% due to household consumption. Household savings declined to only 3% of disposable income in the second quarter, the lowest level since the 1980s and well below what is observed in most other European countries. Unemployment continued to decline, down to 5.3%. During the first half of 2000, the U.K. market faced issues of "new economy" versus "old economy," on the one hand, and rising growth versus rising interest rates on the other. From the autumn of 1999 into the winter of 2000, the market rallied along with many others in Europe. Although the U.K. market does not contain as large a percentage of "new economy" stocks as some other European markets, the TMT stocks it does have contributed disproportionately large gains. At the start of the New Year, however, the Bank of England raised interest rates. That, coupled with the pound's strength versus the euro, created a more subdued market environment in early 2000. And, as investors continued to flock to TMT stocks, markets with a greater concentration in those areas outperformed the U.K. The U.K.'s relatively light share of TMT companies worked to its advantage over the spring and into summer, however, as investors retreated from those issues in favor of more defensive "old economy" stocks. This trend benefited the U.K.'s pharmaceutical issues, which made up just over 14% of the MSCI United Kingdom Index as of August 31, 2000. U.K. market sentiment remained in flux in late 2000, with some expecting the U.K. economy's current rate of growth to prompt further interest rate increases. Real GDP Annual Rate of Growth (annual % change) 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- Austria 2.0 1.2 2.9 2.2 - Belgium 1.0 3.5 2.7 2.5 - France 1.1 2.0 3.2 2.9 - 28 Germany 0.8 1.4 2.1 1.6 - Greece 2.4 3.4 3.5 3.5 - Italy 1.1 1.8 1.5 1.4 - Netherlands 3.0 3.8 3.7 3.6 - Portugal 3.4 3.7 4.2 3.0 - Spain 2.4 3.8 4.0 3.7 - Sweden 1.1 2.0 3.0 3.8 - Switzerland 0.3 1.7 2.1 1.7 - United Kingdom 2.6 3.5 2.6 2.1 - Source: World Economic Outlook, October 2001 (International Monetary Fund) Japan, the Pacific Basin, 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. 29 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. 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 30 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. 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. Indonesia. Indonesia has played a modest role in a world economy that is largely based on services and light agriculture. The country is a major exporter of petroleum, natural gas, and tin. The chief industries include petroleum and natural gas, textiles, apparel and footwear, mining, cement, chemical fertilizers, plywood, rubber, food, and tourism. The natural resources include petroleum, tin, natural gas, nickel, timber, bauxite, copper, fertile soils, coal, gold, and silver. Indonesia's government employs a fiscal policy which became expansionary in the second half of 1998 and into 1999, with higher expenditure budgeted to strengthen the social safety net. However, actual realized spending fell short of the target, partly due to delays in implementing the private bank recapitalization program. Costs of a much-needed bank restructuring are currently at about 3% of GDP. Government bonds are to be issued to finance the cost of bank recapitalization. Government debt is high, at an estimated 100% of GDP in the current fiscal year. The government hopes to bring this down to 60% in five years. By following a tight monetary policy, the government reduced inflation from over 70% in 1998 to 2% in 1999. Although interest rates spiked as high as 70% in 199_ in response to the monetary contraction, they fell rapidly to the 10% to 15% range in 199_. If foreign capital ceases to flow in, Indonesia would have difficulties servicing its external debt, which is estimated to be around US$150 billion. Without foreign capital, Indonesia's economic recovery is in jeopardy. Indonesia produces 2% of the world's total oil output. Revenues derived from oil and gas production have been a major source of income for the country. However, the trade balance of oil and gas slipped to a deficit in July, for the first time since October 1983 when the data first became available. Indonesia is a net oil exporter. If rising oil prices fail to generate a surplus on the external account, the chances of the country sustaining its economic recovery will be reduced. Non-oil and gas exports have been disappointing. Lack of funding and concerns over political and social stability have constrained growth. In contrast, the volume of non-oil/gas imports has improved since the beginning of the 2000. Japan. Japan maintains a market economy based on manufacturing and services. Japan is viewed as the second most technologically powerful economy in the world after the US and the third largest economy in the world after the US and China. Japan's GNP per capita is among the highest in the world. Its chief industries are among the world's largest and it is one of the most technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles and processed foods. Japan's natural resources include negligible mineral resources and fish. Japan's government, a constitutional monarchy, employs a loose monetary policy. The Bank of Japan is expected to maintain its zero interest rate policy until signs of self-sustaining recovery emerge. The government is attempting to maintain the momentum for reform, which will be important for longer term growth. One notable characteristic of the economy is the working together of manufacturers, suppliers, and distributors in closely-knit groups called keiretsu. A second basic feature has been the guarantee of lifetime employment for a substantial portion of the urban labor force. Japan's heavy dependence on international trade has been adversely affected by trade tariffs and other protectionist measures, as well as the economic condition of its trading partners. Japan subsidizes its agricultural industry since only 19% of its land is suitable for cultivation. It is only 50% self- sufficient in food production. Accordingly, it is highly dependent on large imports of wheat, sorghum and soybeans. In addition, industry, its most important 31 economic sector, depends on imported raw materials and fuels, including iron ore, copper, oil and many forest products. Japan's high volume of exports, such as automobiles, machine tools and semiconductors, has caused trade tensions, particularly with the United States. Some trade agreements have been implemented to reduce these tensions. The relaxing of official and de facto barriers to imports, or hardships created by any pressures brought by trading partners, could adversely affect Japan's economy. A substantial rise in world oil or commodity prices could also have a negative effect. Since the Japanese economy is so dependent on exports, any fall off in exports may be seen as a sign of economic weakness, which may adversely affect the market. Despite growth problems, the Japanese economy maintains several strengths. The manufacturing sector includes some of the world's most innovative companies in the electronics and precision machinery areas, along with world leaders in automotive and machinery industries. Educational achievement levels are high in comparison with other developed nations. Public sector infrastructure is also extremely well developed. The economy grew 4.5% in the first half of 2000, which was stronger than expected, led by business investment and surprisingly robust private consumption. Export growth was also strong but has been erratic. The Japanese market did benefit for a time from the strength of "new economy" stocks. Companies such as NTT and Sony attracted investors during late 1999 and early 2000. Those stocks subsequently lost ground during the spring's tech and telecom downturn. Malaysia. Malaysia has a medium-sized, export-oriented economy that has developed rapidly from an agriculture-based economy to one dominated by intermediate manufacturing over the past twenty years. The GNP is growing more rapidly than the population; the GNP per capita is the third highest in Southeast Asia. Its chief industries are rubber and oil palm processing and manufacturing, light manufacturing industry, electronics, tin mining and smelting, logging and processing timber, logging, petroleum production, agriculture processing, petroleum production and refining. Malaysia's natural resources include tin, petroleum, timber, copper, iron ore, natural gas, and bauxite. Malaysia's government, a constitutional monarchy, enjoyed strong economic performance in the 1980s and most of the 1990s. The government retains a high degree of involvement in the economy, although during the past few years it has employed less intervention. In order to counter the impact of the Asian financial crises, the government imposed stringent capital controls in September 1998. These have been relaxed over time. Unlike other Asian markets, the MSCI Malaysia (Free) Index posted a flat performance in the late months of 1999. The market's large share of "Old Economy" firms, such as banks and electric utilities, meant that it was on the losing end of a global rally in "New Economy" stocks. That changed dramatically in the first half of 2000. Attracted by strength at both the corporate and economic levels, as well as seemingly greater political stability, investors drove up the Malaysian market sharply. Malaysia's reinstatement in the MSCI Emerging Markets Indices as of May 2000 encouraged foreign investors to revisit the market, after having pulled out en masse after the government relaxed capital controls in 1999. Rising interest rates later took some of the wind out of the rally, but investors continued to be encouraged by Malaysia's economic strength. The country's GDP grew at a rate of 8.2% in the third quarter of 1999 and 10.6% in the fourth quarter. 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. 32 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 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. South Korea. South Korea's economy has recorded a tremendous amount of economic prosperity in recent decades. South Korea has transformed itself from a poor, agrarian society to one of the world's most highly industrialized nations. Today its GDP per capita is seven times India's, 13 times North Korea's, and comparable to the lesser economies of the European Union. Its chief industries are electronics, automobile production, chemicals, shipbuilding, steel, textiles, clothing, footwear, and food processing. South Korean's natural resources include coal, tungsten, graphite, molybdenum, lead, and hydropower potential. 33 South Korea's republican form of government achieved the economic comeback by exercising strong controls on industrial development, giving most support to the large-scale projects of the emerging giant corporate conglomerates. The government promoted the import of raw materials and technology at the expense of consumer goods and encouraged savings and investment over consumption. The South Korean equity market was volatile during the period from May 12, 2000 (the inception date for the iShares MSCI Korea Index Fund) through August 31, 2000. Market sentiment was relatively poor as the reporting period began, due largely to a liquidity crisis at Hyundai, South Korea's largest conglomerate. The company's apparent reluctance to unwind its web of cross shareholdings and reduce its debt led investors to sell off shares of Hyundai as well as other industrial groups on and off until mid-August, when Hyundai finally announced a restructuring plan. Shares of Samsung Electronics were also intermittently depressed by weakening sentiment toward technology and telecommunications-related stocks early in the summer of 2000. That trend also weighed on SK Telecom, the nation's biggest telephone company and third-largest stock in the MSCI South Korea Index as of March 31. Sentiment toward the telecom and tech sector improved in August, however, helping to lift both stocks. In contrast to the somewhat uncertain economic environment, South Korea's political situation showed progress over the summer. The summit between South Korean President Kim Dae-jung and North Korean leader Kim Jong-il in mid-June helped buoy the equity market. Although the two countries' relationship remains tenuous, investors have been encouraged by the rapprochement and its potential to lessen the political risk long associated with the South Korean government. Taiwan. Taiwan has a prosperous capitalist economy with gradually decreasing government intervention. Government authorities are privatizing banks and foreign trade. The gross national product has increased rapidly in the last couple of years. Per capita product and personal income is growing more rapidly than the population. Taiwan's chief industries are electronics, petroleum refining, chemicals, textiles, iron and steel, machinery, cement, and food processing. Their natural resources include small deposits of coal, natural gas, limestone, marble, and asbestos. Taiwan's government, a multiparty democratic regime headed by a popularly elected president retains considerable control over key segments of the economy, but is beginning to relax control over these areas. The Central Bank has maintained an eased monetary policy in recent times and this has not fueled inflation. The New Taiwan dollar has strengthened against the US dollar. The government has tightened controls on the foreign-exchange market to ease the budget deficit. To a large extent, the performance of Taiwan's equity market over the reporting period reflected shifting sentiment toward the Electronic Components sector: Instruments, which includes the semi conductor industry. This sector comprised 52.8% of the MSCI Taiwan Index as of August 31, 2000. The segment was under a cloud for much of the summer. One issue was slower-than-expected sales of cellular-telephone handsets, which had been a voracious source of demand for chips. The election of Chen Shui-bian to Taiwan's presidency also weighed on the market in early summer. China warned that any moves by Taiwan to declare independence could spark hostilities between the two nations. But the president's conciliatory gestures helped to defuse tension and create a more positive backdrop for the equity market. The market remained volatile in July, but began to recover in August, when sentiment toward the semiconductor industry improved and helped to lift the overall market. Shares of Taiwan Semiconductor, the largest stock in the MSCI Taiwan Index were also bolstered by news that the company's first-half profits had surged 133% on a year-over-year basis. The market also became more settled as tensions between China and Taiwan cooled. Thailand. Thailand is a market economy primarily based on services and agriculture. The GNP has been increasing rapidly in the last couple of years. Manufacturing accounts for one fourth of the GDP but employ only one-tenth of the work force. Thailand's chief industries are tourism, textiles and garments, agricultural processing, beverages, tobacco, cement, light manufacturing, such as jewelry, electric appliances and components, computers and parts, 34 integrated circuits, furniture, plastics and Thailand is the world's second- largest producer of tungsten and tin producer. The country's natural resources include tin, rubber, natural gas, tungsten, tantalum, timber, lead, fish, gypsum, lignite, fluorite, and arable land. Since the government introduced a fiscal package that includes cuts to the value-added tax and energy prices, year-on-year inflation began to turn into deflation. From growth of 2.7% in the first quarter of 1999, the CPI slipped to 0.4% in the second quarter and to -1.1% in the first two months of the third quarter. Month-on-month price changes have showed two months of increase, indicating that inflation has begun to gain momentum. While world interest rates are heading higher, the Thai government continues to keep rates low to stimulate demand. The official discount rate fell from 12.5% at the beginning of 1999 to 4% in fall 1999. Banks' lending and deposit rates are at a decade low. The government is taking the lead to revive the Thai economy. Fiscal measures that began in the second quarter of 1999 resulted in 41.3% year-on-year growth in public spending that quarter. Compared with a mere 6.2% growth in the first quarter of 1999, the increase is significant. Real GDP Annual Rate of Growth (annual % change) 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- Australia 4.0 3.9 5.2 4.4 - Hong Kong 4.5 5.0 -5.1 2.9 - Indonesia 8.0 4.5 -13.0 0.3 - Japan 5.0 1.6 -2.5 0.2 - Malaysia 10.0 7.3 -7.4 5.6 - New Zealand 4.1 3.0 1.9 0.4 - Singapore 7.5 8.4 0.4 5.4 - South Korea 6.8 5.0 -6.7 10.7 - Taiwan 5.7 6.8 4.7 5.7 - Thailand 5.9 -1.7 -10.2 4.2 - Source: World Economic Outlook, October 2001 (International Monetary Fund) Brazil. Brazil is the world's ninth largest economy, characterized by large agricultural, mining, manufacturing and services sectors. Manufacturing is the dominant industrial sector, generating 24% of GDP, followed by agriculture at 12%; and services at 55% of GDP. Industrial capacity is concentrated in the southeast. Brazil is the only South American country where elaborately transformed manufactured goods lead the export mix. The country's main export in 1999 was transport equipment and parts (including both vehicle and aircraft). Other major exports are soy products, metallurgic and chemical products, iron ore and coffee. Its chief industries include textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, other machinery and equipment. Some of its natural resources are bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, tin, uranium, petroleum, hydropower, and timber. Brazil's government, a federal republic, implements free-enterprise policies, although petroleum and natural gas exploration, production, and refining are under the government monopoly, Petroleo Brasileiro, S.A. (Petrobras). The government also has a majority interest in companies in certain other industries, such as the automobile, shipbuilding, aircraft, and microelectronics industries. Economic development has been focused on developing industries, yet this has led to budgetary deficits. The Brazilian market was fairly volatile from July 11 (the inception of the iShares MSCI Brazil Index Fund) through August 31, 2000. In July and early August, the market was affected by a number of factors, including low trading volumes and weakness in the US market. The market's performance improved later in August, however. One of the strongest performers in the MSCI Brazil (Free) Index was Petrobras, currently the largest and most liquid stock in Brazil. Petrobras has benefited from several trends, especially higher prices for crude oil (which has resulted in record profits for the company), optimism over the company's global share offering, and general euphoria about the strength of Brazil's economy. As a 35 testament to Petrobras' success, the company had a successful $4.1 billion equity offering of ordinary shares in mid-August, the largest in Latin American history. That same optimism helped to lift other liquid stocks in the country's banking and telecommunications sectors. Investors also raised their exposure to Petrobras prior to a reconstitution of Brazil's stock indexes, which gave even greater prominence to the company. One of the stocks on the losing end of that trend was Eletrobras, the Brazilian market's third-largest stock in the MSCI Index at the end of August. The MSCI index reshuffling reduced Eletrobras' representation, while putting more emphasis on such companies as cable- television provider Globo Cabo and aerospace company Embraer. A select group of Brazilian stocks also benefited from good news on the privatization front over July and August. Investors boosted shares of banking company Banespa, for example, after a court decision cleared the way for its postponed privatization to get back on track. Like the market's other financial services companies, Banespa also benefited from the central bank's decision to lower the key Selic interest rate to its lowest level in six years. Brazilian Real GDP Annual Rate of Growth (annual % change) 2000 - 1999 1.0 1998 -0.1 1997 3.6 1996 2.7 Source: World Economic Outlook, October 2001 (International Monetary Fund) Canada. Canada is an affluent, free-market based economy reliant on its high- tech industrial sectors. Canada closely resembles the US in its market-oriented economic system, pattern of production, and high living standards. Canada demonstrated impressive growth in the manufacturing, mining, and service sectors that transformed the nation from a largely rural economy into one that is primarily industrial and urban. Its chief industries are processed and unprocessed minerals, food products, wood and paper products, transportation equipment, telecommunications, chemicals, fish products, petroleum and natural gas. The country's natural resources are iron ore, nickel, zinc, copper, gold, lead, molybdenum, potash, silver, fish, timber, wildlife, coal, petroleum, natural gas, and hydropower. Canada's government, a confederation with a parliamentary democracy is oriented towards the private sector, with only a few enterprises such as the postal services and electric utilities being publicly owned. Canada is one of the world's largest trading nations with exports of goods and services comprising over 40% of GDP. Canada is also a major exporter of motor vehicles and parts, pulp and paper, timber, wheat, base metals, coal and fish. The Canadian economy performed well in the first half of 2000, with real GDP expanding at an annual rate of 5%. Growth was evenly balanced between the exports and business fixed investment. Unemployment rose from its low of just over 6.5% reached in the middle of the year. Combined with rising labor-force participation, slower employment growth has caused the unemployment rate to edge up from its low of just over 6.5% reached in the middle of the year. Over the Fund's fiscal year ended August 31, 2000, the Canadian equity market reflected in large part the performance of one stock, Nortel Networks. As of August 31, 2000, Nortel made up almost 41% of the MSCI Canada Index. Moreover, Nortel's influence continued to rise with the price of its shares. Like other telecommunications companies, Nortel benefited from the rally of "new economy" stocks. Nortel has been aggressively expanding into the Internet-access and optical-networking businesses with a string of recent acquisitions. During the spring, however, Nortel gave back some of its gains, along with other telecommunications and technology-related stocks. It quickly recovered, and ended the reporting period with a gain of close to 300%. It has since fallen sharply. Like Nortel, the media conglomerate Seagram also benefited from investors' enthusiasm for TMT stocks. Although it, too, weakened over the spring, Seagram's shares later rebounded. In June, it agreed to merge with the French firm Vivendi to form the world's second-largest media company. 36 Other sectors of the Canadian equity market were also strong in 2000. Shares of energy companies rose on higher crude oil prices and, like commodity producers in general, continued to benefit from accelerating global growth and a stabilization of the Canadian dollar. Canadian Real GDP Annual Rate of Growth (annual % change) 2000 - 1999 4.5 1998 3.3 1997 4.4 1996 1.5 Source: World Economic Outlook, October 2001 (International Monetary Fund) Mexico. Mexico has a free market economy with a combination of private, state and mixture-capital enterprises. The GNP per capita increased more than one and a half times between 1960 and 1980. Given very rapid population growth during the same period, the nation's economic growth has been impressive, with an average annual rate of nearly 7%. Services account for almost 50% of the total gross domestic product, manufacturing about 25%, and agriculture about 10%. Its chief industries are food and beverages, tobacco, chemicals, iron and steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables, and tourism. Natural resources include petroleum, silver, copper, gold, lead, zinc, natural gas, and timber. One of the most significant recent changes in Mexican economic policy has been in the area of privatization. In the last twenty years, the number of state- owned enterprises in Mexico has fallen from more than 1,000 in 1982 to fewer than 200 in 1998. Real growth output reached 8.5 % in the first half of 2000, due to an increase in exports with the United States and a strong domestic economy. In September, the consumer price index fell to 8.8%, while underlying inflation moved below that rate. Short-term interest rates declined in late 1999 and early 2000, partly as a result of central bank action. Since NAFTA was implemented, Mexico's trade with the US and Canada has nearly doubled. The United States accounts for about 80% of Mexico's total trade. Mexico is also pursuing additional trade agreements with Latin America. The Mexican equity market was driven by a number of favorable trends over the Fund's fiscal year ended August 31, 2000. The global rush for telecommunications stocks extended to Telefonos de Mexico ("Telmex"), which, at 34.2% of the MSCI Mexico (Free) Index on August 31, 2000, is Mexico's most important stock. That rally lasted until the end of 1999. In January, however, Mexican equities weakened as U.S. interest rates rose. Then in March Telmex shares came under pressure from higher U.S. interest rates, like telecommunications stocks everywhere. That decline was offset by news that Moody's Investors Service had upgraded Mexico's sovereign debt to investment-grade status. The Mexican market also benefited from higher prices for crude oil, a key export. Over the spring of 2000, however, the market continued to drop. Telmex shares in the MSCI Index, declined when the company reported lower-than-expected earnings and got involved in diplomatic wrangling with U.S. trade representatives over deregulation of Mexico's domestic telecom market. Overall, however, the Mexican market was supported by very favorable macroeconomic and political developments over the summer. Investors reacted very positively to the election of opposition candidate Vicente Fox in early July. His election brought an end to more than 70 years of uninterrupted rule by the Institutional Revolutionary Party. The following month brought news that Mexico had prepaid its $3.2 billion debt to the IMF. Many investors viewed this development as a very positive sign of Mexico's economic health. 37 Mexican Real GDP Annual Rate of Growth (annual % change) 2000 - 1999 3.5 1998 4.9 1997 6.8 1996 5.2 Source: World Economic Outlook, October 2001 (International Monetary Fund) South Africa. South Africa is a developing country with an abundant supply of resources. The economy is a combination of private, state, and mixed-capital enterprises. Its chief industries are mining (it is the world's largest producer of platinum, gold and chromium), automobile assembly, metalworking, machinery, textile, iron and steel, chemicals, fertilizer, and foodstuffs. Economically, it accounts for less than 1% of world GDP and less than 2% of global exports, and is seen as driven by political instability and conflict. It is also one of the most heavily indebted regions of the world. South Africa's natural resources include gold, chromium, antimony, coal, iron ore, manganese, nickel, phosphates, tin, uranium, gem diamonds, platinum, copper, vanadium, salt, and natural gas. South African's republican form of government has been attempting to shift towards private sector development strategies. As a result, the potential for private sector activities has improved enormously. The region now attracts more than 20% of foreign investment linked to privatization activities rather than the 5% of some six years ago. The government industry programs are starting to respond to market conditions: price controls have been abolished; trade has been liberalized along with foreign exchange and interest rates; inflation and interest rates have dropped dramatically; and GDP is up 60%. South African Real GDP Annual Rate of Growth (annual % change) 2000 - 1999 1.2 1998 0.6 1997 2.5 1996 4.2 1995 3.1 Source: World Economic Outlook, October 2000 (International Monetary Fund) Turkey. Turkey's economy is a combination of state and private enterprise. The economy has moved from primarily agricultural to predominately industrial in recent years. Turkey's chief industries are textiles, food processing, autos, mining (coal, chromate, copper, boron), steel, petroleum, construction, lumber, and paper. Turkey's natural resources include antimony, coal, chromium, mercury, copper, borate, sulfur, iron ore, arable land, and hydropower. Turkey, a republican parliamentary democracy, is moving away from government intervention. The Turkish government is attempting to privatize companies and businesses. They have expanded competition in seaports, railroads, telecommunications, natural gas distribution and airports. Its most important industry - and largest exporter - is textiles and clothing, which is almost entirely in private hands. Erratic economic growth and serious imbalances have marked the economic situation in recent years. Real GDP grew by nearly 6% in the first half of 2000, reflecting a strong recovery of both investment and consumption. A fall in interest rates contributed to this recovery as well the announcement in late 1999 of a three- year stabilization program. The program is aimed to improve the budget, privatize state-owned enterprise and liberalize the markets. Turkish accounting, financial and other reporting standards are extremely limited compared to United States standards. Under Turkish practice, material disclosures generally are not made by, and little information is available about, Turkish companies. Turkish companies do not have continuous disclosure obligations other than the recent requirement that companies listed on the Turkish exchange publish annual audited financial statements (which are 38 not prepared in accordance with generally accepted accounting principles and are not adjusted to reflect the impact of inflation). Also, there is a low level of regulation of the markets for Turkish securities and the activities of investors in such markets, and enforcement of regulatory provisions, which exist, has been extremely limited. There are no prohibitions against broker-dealers trading for their own account ahead of their customers or other conflict of interest practices with respect to securities transactions and currently no prohibitions against insider trading. Turkish Real GDP Annual Rate of Growth (annual % change) 2000 - 1999 -5.0 1998 3.1 1997 7.6 1996 6.9 Source: World Economic Outlook, October 2001 (International Monetary Fund) The United States. The US is the world's largest economy, leading trading nation, leading military power, and primary source of technological innovation. In this market-oriented economy, private individuals and business firms make most of the decisions, and government buys needed goods and services predominantly in the private marketplace. US business firms enjoy considerably greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, lay off surplus workers, and develop new products. Its chief industries are technology, petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, and mining. The United States also has natural resources including coal, copper, lead, molybdenum, phosphates, uranium, bauxite, gold, iron, mercury, nickel, potash, silver, tungsten, zinc, petroleum, natural gas, and timber. The United States employing a republican form of government promotes a capitalist form of economy. Recently, GDP has grown in the US at a rate of 3.9% in both 1997 and 1998, while inflation, measured by the Consumer Price Index, grew by 2.3% in 1997 and 1.5% in 1998. Meanwhile, U.S. economic expansion in the 1990s led to the first US federal government surplus in decades: 0.8% of GDP in 1998. The federal budget deficit had already begun to show signs of turning in 1997, when it was reduced to -0.3%. The Federal Reserve's monetary policy continued to be favorable to economic expansion in recent years, as the Federal Funds Rate was 5.5% in 1997 and 4.75% in 1998. At the same time, US businesses face higher barriers to entry in their rivals' home markets than the barriers to entry of foreign firms in US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment, although their advantage has narrowed since the end of World War II. The United States economy has grown consistently in the 1990s, while inflation has been kept to favorable levels in the last two years. United States Real GDP Annual Rate of Growth (annual % change) 2000 - 1999 4.2 1998 4.4 1997 4.4 1996 3.6 1995 2.7 Source: World Economic Outlook, October 2001 (International Monetary Fund) 39 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, include 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 capitalization, 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 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 40 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 of each 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-adjustment 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 including 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-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. 41 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. 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. Except as otherwise noted below, 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 42 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. (This restriction does not apply to each of the iShares MSCI Index Funds); 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. The iShares MSCI__Index Funds have the following concentration policy: 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 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 November 30, 2001, as a result of this policy with respect to industry concentration, the following Index Funds were concentrated (that is, invested 25% or more of the value of their assets) in the specified industries: 43
iShares MSCI Index Fund Industry or Industries -------------------------------------------------- [TO BE UPDATED]
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: Each of the iShares MSCI Index Funds 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. As of November 30, 2001, as a result of this policy with respect to industry concentration, the following Index Funds were concentrated (that is, invested 25% or more of the value of their assets) in the specified industries:
iShares MSCI Index Fund Industry or Industries -------------------------------------------------- [TO BE UPDATED]
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 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). 44 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.
Name, Address and Age Position with the Principal Occupations Company and Length of During the Past Five Years and Time Served Other Directorships ------------------------------------------------------------------------------------------ Nathan Most * Director, President and Consultant to various companies P.O. Box 193 Chairman of the Board including the Advisor; Senior Vice Burlingame, CA 94011- since 1996 President (retired) (from 1992 to 1996) 0193 of the American Stock Exchange, Inc.; Age 87 President and CEO (retired) (from 1982 to 1996) of AMEX Commodities Corporation. John B. Carroll Director since 1996 Director of Common Fund Institutional 520 Main Street Funds and J.P. Morgan Private Equity Ridgefield, CT 06877 Fund; Retired Vice President of Age 66 Investment Management (from 1984- 2000) of GTE (Verizon) Corporation; former President of GTE (Verizon) Investment Management Corporation (1984 to 1997); Advisory Board member of Ibbotson Assoc. (since 1998); 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. W. Allen Reed Director since 1996 President, CEO and Director (since President 1994) of General Motors Asset General Motors Management Corporation; Chairman Investment and CEO of the GM Trust Co.; Management Corp. Corporate Vice President of General 767 Fifth Avenue Motors Corporation; Director (from New York, NY 10153 1995 to 1998) of Taubman Centers, Inc. Age 54 (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. Richard K. Lyons Director since 2001 Professor, University of California, 350 Barrows Hall Berkeley: Haas School of Business Haas School of Business (since 1993); Member, Council on UC Berkeley Foreign Relations; Consultant: IMF Berkeley, CA 94720 World Bank, Federal Reserve Bank, Age 39 European Commission and United Nations; Board of Directors: Matthews International Funds. George G.C. Parker Director since 2001 Associate Dean for Academic Affairs, Graduate School of Director of MBA Program, Professor, Business Stanford University: Graduate School Stanford University of Business (since 1988); formerly, 521 Memorial Way Director of Executive Education, Room K301 Stanford Business School (1979-1988); Stanford, CA 94305 Board of Directors: Affinity Group, Age 60 Bailard, Biehl and Kaiser, Inc., California Casualty Group of Insurance Companies, Continental Airlines, Inc., Community First Financial Group, Dresdner/RCM Mutual Funds, H. Warshow & Sons, Inc. Garrett F. Bouton * Director since 2001 Global Chief Executive of Barclays Barclays Global Investors Global Investors, N.A. for the 45 Fremont Street Individual Investor Markets and San Francisco, CA 94105 Regional Chief Executive Officer - Age 56 Canada, Australia & Southeast Asia; member of Barclays Global Investors, N.A.'s Global Management Committee; Chairman of the Advisor; Director of Barclays Global Investors, N.A. and several affiliates; Chief Executive Officer of ARBI Assets prior to 1996. Stephen M. Wynne Treasurer since 1996 Executive Vice President with PFPC Executive Vice President Inc. (since 1993); Director of each of PFPC Inc. PFPC Worldwide Inc. (since 2000), 400 Bellevue Parkway PFPC Inc. (since 1999), PFPC Trust Wilmington, DE 19809 Company (since 1998), PFPC Age 46 Corporation (since 1999), PFPC International Ltd. (Dublin)(since 2000) and PFPC International (Cayman) Ltd. (since 1996); Member of Professional and Academic Advisory Boards of Widener University's School of Business Administration and Accounting and Taxation Department. R. Sheldon Johnson Secretary since 1996 Managing Director, Global Equity Managing Director Derivatives, Morgan Stanley & Co. Morgan Stanley & Co., Incorporated (since 1988). Incorporated 1585 Broadway New York, NY 10036 Age 53
* Mr. Most is an "interested" Director, as defined in the 1940 Act, by reason of his position as President of the Company. Mr. Bouton is an "interested" Director by reason of his affiliation with the Advisor. Directors Compensation. The table below sets forth the compensation earned by the Directors of the Company for the fiscal year ended August 31, 2001. No officer of the Company is entitled to any compensation, and no officer or Director is entitled to any pension or retirement benefits, from the Company. As of August 31, 2001, the Fund Complex consisted of the Company and iShares Trust. Pension or Total Retirement Compensation Benefits from Company Aggregate Accrued Estimated and Fund Name of Person Compensation as Part of Annual Benefits Complex Paid And Position from Company Fund Expenses Upon Retirement to Directors -------------------------------------------------------------------------------- Nathan Most, * $67,500 None None $121,500** Director, President and Chairman of the Board John B. Carroll, $45,000 None None $ 45,000 Director W. Allen Reed, $45,000 None None $ 45,000 Director Timothy A. $45,000 None None $ 45,000 Hultquist, Director Lloyd N. $45,000 None None $ 45,000 Morrisett, Director * Mr. Most is an "interested" Director, as defined in the 1940 Act, by reason of his position as President of the Company. ** Mr. Most received $54,000 as Trustee of iShares Trust. 45 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES Although the Company does not have information concerning the beneficial ownership of iShares held in the names of DTC Participants, as of November 30, 2001, the name, address and percentage ownership of each DTC Participant that owned of record 5% or more of the outstanding shares of an Index Fund were as follows:
iShares MSCI Index Fund Name and Address Percentage of Ownership ----------------------- ---------------- ----------------------- [TO BE UPDATED]
47 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 $___ billion as of November 30, 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 __, 2001. Under the Advisory Agreement, the Advisor, subject to the supervision of the Company's Board and in conformity with the stated investment policies of each Index Fund, manages the investment of each Index Fund's assets. The Advisor may enter into subadvisory agreements with additional investment advisors to act as subadvisors with respect to 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 each Index Fund, and (iii) the general management of the Company's affairs. For its investment management services to each Index Fund, except the ten (10) Index Funds listed below, the Advisor is paid a fee equal to each of those Index Fund's allocable portion of: .59% per annum of the aggregate net assets of those Index Funds less than or equal to $7 billion, plus .54% per annum of the aggregate net assets of those Index Funds between $7 billion and $11 billion, plus .49% per annum of the aggregate net assets of those Index Funds in excess of $11 billion; for its investment management services to the iShares MSCI Brazil (Free), Greece, Indonesia (Free), Portugal, South Africa, South Korea, Taiwan, Thailand (Free) and Turkey Index Funds, the Advisor is paid management fees equal to each of those Index Fund's allocable portion of: 0.74% per annum of the aggregate net assets of those Index Funds less than or equal to $2 billion, plus 0.69% per annum of the aggregate net assets of those Index Funds between $2 billion and $4 billion, plus 0.64% per annum of the aggregate net assets of those Index Funds greater than $4 billion; for its investment management services to the iShares MSCI Pacific ex-Japan Index Fund, the Advisor is paid management fees equal to 0.50% per annum of the net assets of that Index Fund. Pursuant to the Advisory Agreement, the Advisor is responsible for the payment of all the expenses of each Index Fund, other than (i) expenses of the Index Funds incurred in connection with the execution of portfolio securities transactions on behalf of such Index Funds, (ii) expenses incurred in connection with any distribution plan adopted by the Company in compliance with Rule 12b-1 under the Investment Company Act of 1940, (iii) litigation expenses, (iv) 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. 55 The management fees are accrued daily and paid by the Company as soon as practical after the last day of each calendar quarter. 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 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). For its advisory services, the Company paid and accrued the following fees to the Advisor: Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended Index Fund August 31, 1999 August 31, 2000 August 31, 2001 -------------------------------------------------------------------------- Australia $ 135,613 $ 148,628 - Austria $ 27,123 $ 19,889 - Belgium $ 44,906 $ 25,952 - Brazil (Free) n/a $ 410(1) - Canada $ 33,205 $ 23,119 - EMU n/a $ 7,196(2) - France $ 137,387 $ 208,698 - Germany $ 219,901 $ 415,826 - Hong Kong $ 197,467 $ 203,154 - Italy $ 186,292 $ 154,493 - Japan $1,096,060 $2,363,952 - Malaysia (Free) $ 176,782 $ 264,088 - Mexico (Free) $ 39,012 $ 45,446 - Netherlands $ 68,016 $ 61,274 - Pacific ex-Japan n/a n/a(3) - Singapore (Free) $ 255,259 $ 268,788 - South Korea n/a $ 8,252(4) - Spain $ 92,868 $ 94,886 - 56 Sweden $ 43,348 $ 52,196 $_____ Switzerland $ 93,758 $ 88,433 _____ Taiwan n/a $ 16,530(5) _____ United Kingdom $245,947 $349,463 _____ _____________________ (1) For the period July 11, 2000 (commencement of operations) through August 31, 2000. (2) For the period July 26, 2000 (commencement of operations) through August 31, 2000. (3) The fund commenced operations on October 26, 2001. (4) For the period May 10, 2000 (commencement of operations) through August 31, 2000. (5) For the period June 21, 2000 (commencement of operations) through August 31, 2000. Pursuant to the Advisory Agreement, the following reimbursement was paid and accrued to the Company by the Advisor: Fiscal Year Ended Fiscal Year Ended Index Fund August 31, 2000 August 31, 2001 --------------------------------------------------------------- Australia $ 0 ----- Austria $ 4,019 ----- Belgium $ 0 ----- Brazil (Free) $13,265(1) ----- Canada $ 3,428 ----- EMU $29,111(2) ----- France $ 0 ----- Germany $ 0 ----- Hong Kong $ 0 ----- Italy $ 0 ----- Japan $ 0 ----- Malaysia (Free) $ 0 ----- Mexico (Free) $ 463 ----- Netherlands $ 0 ----- Pacific ex-Japan n/a(3) ----- Singapore (Free) $ 0 ----- South Korea $21,736(4) ----- Spain $ 0 ----- Sweden $ 0 ----- Switzerland $ 0 ----- Taiwan $37,794(5) ----- United Kingdom $ 0 ----- _____________________ (1) For the period July 11, 2000 (commencement of operations) through August 31, 2000. (2) For the period July 26, 2000 (commencement of operations) through August 31, 2000. (3) The fund commenced operations on October 26, 2001. (4) For the period May 10, 2000 (commencement of operations) through August 31, 2000. (5) For the period June 21, 2000 (commencement of operations) through August 31, 2000. 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. 57 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. 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. For its administrative services, the Company paid and accrued the following fees to the Administrator: Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended Index Fund August 31, 1999 August 31, 2000 August 31, 2001 ---------------------------------------------------------------------------- Australia $110,319 $ 106,930 Austria $ 22,059 $ 19,678 Belgium $ 36,546 $ 22,408 Brazil (Free) n/a $ 4,908(1) Canada $ 27,026 $ 23,780 EMU n/a $ 6,012(2) France $111,716 $ 152,143 Germany $178,860 $ 272,489 Hong Kong $160,647 $ 141,347 Italy $151,590 $ 107,296 Japan $890,839 $1,506,281 Malaysia (Free) $143,744 $ 185,310 Mexico (Free) $ 31,717 $ 45,292 Netherlands $ 55,318 $ 47,334 Pacific ex-Japan n/a n/a(3) Singapore (Free) $207,640 $ 188,421 South Korea n/a $ 8,322(4) Spain $ 75,553 $ 71,035 Sweden $ 35,257 $ 42,428 Switzerland $ 76,274 $ 69,813 Taiwan n/a $ 9,318(5) United Kingdom $200,033 $ 226,121 _____________________ (1) For the period July 11, 2000 (commencement of operations) through August 31, 2000. (2) For the period July 26, 2000 (commencement of operations) through August 31, 2000. (3) The fund commenced operations on October 26, 2001 (4) For the period May 10, 2000 (commencement of operations) through August 31, 2000. (5) For the period June 21, 2000 (commencement of operations) through August 31, 2000. 58 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. For sub-administrative services, the Administrator paid or accrued the following fees to the Sub-Administrator and its affiliates: Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended Index Fund August 31, 1999 August 31, 2000 August 31, 2001 ---------------------------------------------------------------------------- Australia $ 25,114 $ 30,652 Austria $ 5,023 $ 5,555 Belgium $ 8,316 $ 6,385 Brazil (Free) n/a $ 1,636(1) Canada $ 6,149 $ 7,050 EMU n/a $ 2,004(2) France $ 25,442 $ 44,197 Germany $ 40,722 $ 80,143 Hong Kong $ 36,568 $ 40,420 Italy $ 34,499 $ 31,093 Japan $202,974 $432,336 Malaysia (Free) $ 32,737 $ 53,762 Mexico (Free) $ 7,224 $ 13,186 Netherlands $ 12,596 $ 13,362 Pacific ex-Japan n/a n/a(3) Singapore (Free) $ 47,270 $ 52,989 South Korea n/a $ 2,774(4) Spain $ 17,198 $ 20,513 Sweden $ 8,027 $ 12,361 Switzerland $ 17,363 $ 20,057 Taiwan n/a $ 3,106(5) United Kingdom $ 45,546 $ 65,478 _____________________ (1) For the period July 11, 2000 (commencement of operations) through August 31, 2000. (2) For the period July 26, 2000 (commencement of operations) through August 31, 2000. (3) The fund commenced operations on October 26, 2001. (4) For the period May 10, 2000 (commencement of operations) through August 31, 2000. (5) For the period June 21, 2000 (commencement of operations) through August 31, 2000. Distributor. Effective March 28, 2000, SEI Investments Distribution Company 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 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 Company 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. 59 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 each 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 to 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 one or more Index Fund to which is 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 Advisor) 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 days' notice by the Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act). As principal underwriter and distributor of iShares, SEI received the following amounts pursuant to the Plan: March 28, 2000 through Fiscal Year Ended Index Fund August 31, 2000 August 31, 2001 ------------------------------------------------------------- Australia $ 66,338 ----- Austria $ 11,546 ----- 60 March 28, 2000 through August 31, 2000 Fiscal Year Index Fund Ended August 31, 2001 -------------------------------------------------------------------------- Belgium $ 14,060 Brazil (Free) $ 8,179(1) Canada $ 18,702 EMU $ 10,021(2) France $101,660 Germany $192,778 Hong Kong $ 83,315 Italy $ 72,173 Japan $929,584 Malaysia (Free) $118,841 Mexico (Free) $ 30,779 Netherlands $ 27,343 Pacific ex-Japan n/a(3) Singapore (Free) $100,657 South Korea $ 13,870(4) Spain $ 46,035 Sweden $ 28,601 Switzerland $ 44,744 Taiwan $ 15,531(5) United Kingdom $156,078 _____________________ (1) For the period July 11, 2000 (commencement of operations) through August 31, 2000. (2) For the period July 26, 2000 (commencement of operations) through August 31, 2000. (3) The fund does not pay Rule 12b-1 fees . (4) For the period May 10, 2000 (commencement of operations) through August 31, 2000. (5) For the period June 21, 2000 (commencement of operations) through August 31, 2000. In the aggregate, the Distributor received $2,090,825 and $____, respectively, for the period March 29, 2000 to August 31, 2000 and the fiscal year ended August 31, 2001 from the Index Funds pursuant to the Plan, retaining $167,266 and $____, respectively, and paying out the remainder to unaffiliated third parties. The retained amounts represent .02%, respectively, of the average daily net assets of the Index Funds, which the Distributor received for monitoring the purchase and redemption of Creation Units, as described below under the "Purchase and Issuance of iShares in Creation Units" and "Redemption of iShares in Creation Units." During the period March 26, 2000 to August 31, 2000 and the fiscal year ended August 31, 2001, the Distributor paid $402,423 and $____; $697,086 and $____; and $824,050 and $____, respectively, 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. Prior to March 29, 2000, Funds Distributor, Inc. ("FDI"), located at 60 State Street, Suite 1300, Boston, MA 02109 served as the principle underwriter distributor of iShares. FDI received or accrued the following amounts pursuant to the Plan: Fiscal Year Ended September 1, 1999 to Index Fund August 31, 1999 March 28, 2000 --------------------------------------------------------------- Australia $100,454 69,538 Austria $ 20,091 12,982 Belgium $ 33,264 14,290 Canada $ 24,597 13,240 France $101,768 95,459 Germany $162,890 166,348 Hong Kong $146,272 95,027 Italy $137,994 66,635 Japan $811,896 985,679 Malaysia (Free) $130,950 119,977 61 Mexico (Free) $ 28,898 28,127 Netherlands $ 50,383 31,576 Singapore (Free) $189,081 131,430 Spain $ 68,791 45,226 Sweden $ 32,110 26,562 Switzerland $ 69,451 44,434 United Kingdom $182,183 137,048 In the aggregate, FDI received $2,291,073 and $2,083,576 for the fiscal years ended August 31, 1999 and the period September 1, 1999 to March 28, 2000, respectively, from the Index Funds pursuant to the Plan, retaining $229,107 and $2,084, respectively, and paying out the remainder to unaffiliated third parties. The retained amounts represent .02%, respectively, of the average daily net assets of the Index Funds, which FDI received for monitoring the purchase and redemption of Creation Units, as described below under the "Purchase and Issuance of iShares in Creation Units" and "Redemption of iShares in Creation Units." During the fiscal years ended August 31, 1999 and the period September 1, 1999 to March 28, 2000, FDI paid $1,553,929 and $1,526,358; $347,662 and $381,537; and $160,375 and $173,388, respectively, 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 each 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 each Index Fund, Chase has been paid since February 1, 2000 per annum fees based on the aggregate net assets of the Index Funds as follows: Australia Index Fund (0.05%); Austria Index Fund (0.06%); Belgium Index Fund (0.05%); Brazil (Free) Index Fund (0.20%); Canada Index Fund (0.02%); EMU Index Fund (a fee based on the aggregate net assets of each of the EMU Index Fund's investments in Austria, Belgium, France, Germany, Italy, Netherlands, Portugal and Spain at the fees applicable to the Index Funds corresponding to these countries, plus Finland (0.06%) and Ireland (0.06%)); France Index Fund (0.05%); Germany Index Fund (0.04%); Hong Kong Index Fund (0.04%); Indonesia (Free) Index Fund (0.35%); Italy Index Fund (0.05%); Japan Index Fund (.026%); Malaysia (Free) Index Fund (0.07%); Mexico (Free) Index Fund (0.15%); Netherlands Index Fund (0.04%); Pacific ex-Japan Index Fund (0.05%); Portugal Index Fund (0.20%); Singapore (Free) Index Fund (0.05%); South Africa Index Fund (0.12%); South Korea Index Fund (0.15%); Spain Index Fund (0.05%); Sweden Index Fund (0.05%); Switzerland Index Fund (0.05%); Taiwan Index Fund (0.20%); Thailand (Free) Index Fund (0.12%); Turkey Index Fund (0.25%); United Kingdom Index Fund (0.01%); and USA Index Fund (0.01%). 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. 62 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, 200_, the Company paid $_______ 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, 2001, 2000 and 1999, the Company paid brokerage commissions to MS&Co. in amounts of $_____, $229,929 and $40,364, respectively (or _____%, 12.9% and 5.7%, respectively, of the aggregate brokerage commissions paid in those years). 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 Pacific ex-Japan 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 and the iShares MSCI USA Index Fund. 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. 63 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, iShares MSCI Pacific ex-Japan Index Fund, 500 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; and the iShares MSCI USA Index Fund, 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 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 64 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 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 65 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). 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 an Index Fund that constitute a Creation Unit for such Index Fund and the value of such Creation Unit at November 30, 2001: Value Per iShares Per Creation Index Fund Creation Unit Unit ($U.S.) ------------------------------------------------------------ Australia 200,000 ______ Austria 100,000 ______ Belgium 40,000 ______ Brazil (Free) 50,000 ______ Canada 100,000 ______ EMU 50,000 ______ France 200,000 ______ Germany 300,000 ______ Greece* 50,000 ______ Hong Kong 75,000 ______ Indonesia (Free)* 50,000 ______ Italy 150,000 ______ Japan 600,000 ______ Malaysia (Free) 75,000 ______ Mexico (Free) 100,000 ______ Netherlands 50,000 ______ Pacific ex-Japan 100,000 ______ Portugal* 50,000 ______ Singapore (Free) 100,000 ______ South Africa* 50,000 ______ South Korea 50,000 ______ Spain 75,000 ______ Sweden 75,000 ______ Switzerland 125,000 ______ Taiwan 50,000 ______ Thailand (Free)* 50,000 ______ Turkey* 50,000 ______ United Kingdom 200,000 ______ USA* 500,000 ______ * 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. 66 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 (except for the iShares MSCI Brazil (Free), Malaysia (Free), South Korea and Taiwan Index Funds, which are currently offered, in their iShares Creation Units solely for cash) 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. 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. 67 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 (except for the Malaysia (Free), South Korea and Taiwan Index Funds for which orders must be submitted by 11:59 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 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 (except for the Malaysia (Free), South Korea and Taiwan Index Funds for which orders must be submitted by 11:59 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 68 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. 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. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. 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. 69 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 portfolios 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-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 In-kind and cash Variable Charge for Index Fund purchases Cash Purchases* ---------------------------------------------------------------- Australia $2,400 0.60% Austria $1,200 0.67% Belgium $1,500 0.30% Brazil (Free) $4,100 ** Canada $3,300 0.30% EMU $8,000 1.05% France $2,900 0.25% Germany $2,500 0.25% Greece $3,500 1.50% Hong Kong $2,900 0.60% Indonesia (Free) $4,700 1.18% Italy $2,200 0.30% Japan $8,300 0.15% Malaysia (Free) $5,500 ** Mexico (Free) $1,400 0.50% Netherlands $2,000 0.25% Pacific ex-Japan $7,200 1.80% Portugal $2,000 1.65% Singapore (Free) $2,200 1.60% South Africa $2,900 1.60% South Korea $4,200 ** Spain $2,300 0.25% Sweden $2,200 0.30% Switzerland $2,600 0.40% Taiwan $6,200 ** Thailand (Free) $3,300 1.41% Turkey $3,900 1.46% 70 Maximum Additional In-kind and cash Variable Charge for Index Fund purchases Cash Purchases* ---------------------------------------------------------------- United Kingdom $5,100 0.25% USA $2,900 0.50% * As a percentage of the value of amount invested. ** This percentage, when aggregated with the basic in-kind transaction fee, will not exceed 3.00%. Example. A hypothetical example of the costs of creating a Creation Unit of iShares of the Japan Index Fund is set forth below for illustrative purposes only. The exchange rate reflected in the table is Y_____ per US$1.
Unit Creation Calculation in Unit Creation Calculation in Daily NAV Calculation in Japanese Yen United States Dollars United States Dollars ----------------------------------------------------------------------------------------------- Execution ____ ____ ____ Commissions ____ ____ N/A Stamp Taxes 0 0 N/A Risk Premium 0 0 N/A Accrued Income ____ ____ ____ Creation Charge ____ ____ N/A iShares Unit Value ____ ____ ____ Per iShares 11.89 11.87 Shares 600,000
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 (other than the Brazil (Free), Malaysia (Free), South Korea and Taiwan Index Funds, which currently redeem Creation Units of iShares solely for cash) 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 71 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. Maximum Additional In-kind and cash Variable Charge for Index Fund purchases Cash Purchases* ---------------------------------------------------------------- Australia $2,400 0.60% Austria $1,200 0.67% Belgium $1,500 0.30% Brazil (Free) $4,100 ** Canada $3,300 0.30% EMU $8,000 1.05% France $2,900 0.25% Germany $2,500 0.25% Greece $3,500 1.50% Hong Kong $2,900 0.60% Indonesia (Free) $4,700 1.18% Italy $2,200 0.30% Japan $8,300 0.40% Malaysia (Free) $5,500 ** Mexico (Free) $1,400 0.50% Netherlands $2,000 0.25% Pacific ex-Japan $7,200 1.50% Portugal $2,000 1.65% Singapore (Free) $2,200 1.30% South Africa $2,900 1.60% South Korea $4,200 ** Spain $2,300 0.45% Sweden $2,200 0.30% Switzerland $2,600 0.40% Taiwan $6,200 ** Thailand (Free) $3,300 1.41% Turkey $3,900 1.46% United Kingdom $5,100 0.75% USA $2,900 0.50% * As a percentage of the value of amount invested. ** This percentage, when aggregated with the basic in-kind transaction fee, will not exceed 2.00%. 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 (except for the Malaysia (Free), South Korea and Taiwan Index Funds for which orders must be submitted by 11:59 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. 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 72 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 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 73 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 cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that 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. Except in the case of the iShares MSCI Australia, Brazil, Hong Kong, Indonesia (Free), Japan, Malaysia (Free), Pacific ex-Japan, Singapore (Free), South Korea, Taiwan and Thailand (Free) Index Funds, the net asset value of each Index Fund is determined as of the close of the regular trading session on the New York Stock Exchange, Inc. ("NYSE") (ordinarily 4:00 p.m., Eastern time) on each day that the NYSE is open. The net asset value of each of the iShares MSCI Australia, Brazil, Hong Kong, Indonesia (Free), Japan, Malaysia (Free), Pacific ex-Japan, Singapore (Free), South Korea, Taiwan and Thailand (Free) Index Funds 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 NYSE 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. 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 74 4:00 p.m. London time, except that the exchange rate for the MSCI Mexico (Free) Index is that as of 3:00 p.m. Eastern 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 and, as of the date of this SAI, is using a different rate than the MSCI in computing the net asset value of the iShares MSCI Malaysia (Free) Index Fund. 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. 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 75 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, including any profits levy payable by the iShares Malaysia (Free) Index Fund, 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 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 76 on the date hereof. Changes in applicable authority could materially affect the conclusions discussed above, and such changes often occur. 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). The total returns for the period March 6, 1996 (commencement of operations for the initial Index Funds) to August 31, 1996 (not annualized) and for the fiscal year ended August 31, 2001 for each Index Fund were:
Inception* through Index Fund One Year Ended August 31, 2001 August 31, 2001 ----------------------------------------------------------------------------------------- Australia -- -- Austria -- -- Belgium -- -- Brazil (Free) -- -- Canada -- -- EMU -- -- France -- -- Germany -- -- Hong Kong -- -- Italy -- -- Japan -- -- Malaysia (Free) -- -- Mexico (Free) -- -- Netherlands -- -- Pacific ex-Japan -- -- Singapore (Free) -- -- South Korea -- -- Spain -- -- Sweden -- -- Switzerland -- -- Taiwan -- -- United Kingdom -- --
_________________________ *Unless otherwise noted, each Index Fund commenced operations on March 6, 1996. (1) For the period July 11, 2000 (commencement of operations) through August 31, 2000. (2) For the period July 26, 2000 (commencement of operations) through August 31, 2000. (3) The Fund commenced operations on October 26, 2001. (4) For the period May 10, 2000 (commencement of operations) through August 31, 2000. (5) For the period June 21, 2000 (commencement of operations) through August 31, 2000. As of the date of this SAI, the Greece, Indonesia (Free), Portugal, South Africa, Thailand (Free), Turkey and USA Index Funds have not commenced investment operations. 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 77 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. 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 78 . 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 Austria Vienna Stock Exchange Brazil Sao Paulo Bovespa Belgium Brussels Stock Exchange Canada Toronto 300 EMU Euro Stoxx 50 France CAC 40 Germany DAX Greece FTSE/ASE 20 Hong Kong Hang Seng Indonesia Composite Italy BCI Japan Nikkei 225 Malaysia KLSE Mexico IPC Netherlands CBS All Share New Zealand NZSE 40 Portugal Lisbon BVL General Singapore SES All South Africa Johannesburg All-Share South Korea Composite Spain MA Madrid Index Sweden Aff. General Switzerland Swiss Market Index Taiwan TWSE Thailand (Free) SET Turkey ISE National 100 U.K. FTSE 100 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. 79 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. 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. COUNSEL AND INDEPENDENT AUDITORS Counsel. Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, are ------- counsel to the Company and has passed upon the validity of the Company's shares. Independent Auditors. Ernst & Young LLP, 787 Seventh Avenue, New York, New York -------------------- 10019, resigned on April 10, 2001 as independent auditors of the Company due to the new SEC independece requirements. PriceWaterhouseCoopers LLP, 333 Market Street, San Francisco, California, 94105, currently serve as the independent auditors of the Company. FINANCIAL STATEMENTS The audited financial statements and notes thereto in the Company's Annual Report to Shareholders for the fiscal year ended August 31, 2001 (the "2001 Annual Report") are incorporated in this SAI by reference. No other parts of the 2001 Annual Report are incorporated by reference herein. The financial statements included in the 2001 Annual Report have been audited by the Company's independent auditors, PricewaterhouseCoopers LLP, whose report thereon is incorporated herein by reference. Additional copies of the 2001 Annual Report may be obtained at no charge by telephoning the Distributor at 1-800-iShares (1- 800-474-2737). 80 APPENDIX A [TO BE UPDATED] APPENDIX A-1 MSCI AUSTRALIA INDEX AS OF NOVEMBER 30, 2001
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- TELSTRA CORP Diversified Telecommunication Services 25,245.54 10.89% NATIONAL AUSTRALIA BANK Banks 23,747.35 10.24% COMMONWEALTH BANK Banks 21,122.37 9.11% BHP (BROKEN HILL PROP) Metals & Mining 18,241.29 7.87% NEWS CORP Media 18,160.66 7.83% NEWS CORP PLVO Media 16,537.60 7.13% WESTPAC BANKING Banks 13,041.53 5.63% AMP LTD Insurance 10,801.81 4.66% BRAMBLES INDUSTRIES Industrial Conglomerates 5,449.33 2.35% LEND LEASE Real Estate 4,723.43 2.04% FOSTERS BREWING GROUP Beverages 4,624.93 1.99% COLES MYER Multiline Retail 4,576.34 1.97% WOOLWORTHS LTD Food & Drug Retailing 4,343.38 1.87% RIO TINTO LTD Metals & Mining 4,291.80 1.85% WMC Metals & Mining 4,226.41 1.82% WESTFIELD TRUST Real Estate 3,003.62 1.30% CSL Pharmaceuticals 2,827.52 1.22% COMPUTERSHARE Comercial Services & Supplies 2,579.79 1.11% GENERAL PROPERTY TRUST Real Estate 2,414.01 1.04% COCA-COLA AMATIL Beverages 2,366.72 1.02% WESFARMERS Industrial Conglomerates 2,293.23 0.99% CSR Construction Materials 2,289.54 0.99% TABCORP HOLDINGS Hotels Restaurants & Leisure 2,192.90 0.95% AUSTRALIAN GAS LIGHT CO Gas Utilities 2,076.71 0.90% QBE INSURANCE GROUP Insurance 2,062.76 0.89% SANTOS Oil & Gas 1,970.93 0.85% SUNCORP-METWAY Banks 1,783.51 0.77% SOUTHCORP HOLDINGS Industrial Conglomerates 1,738.99 0.75% AMCOR Containers & Packaging 1,662.54 0.72% STOCKLAND TRUST Real Estate 1,448.36 0.62% ARISTOCRAT LEISURE Hotels Restaurants & Leisure 1,281.69 0.55% TRANSURBAN GROUP Transportation Infrastructure 1,166.38 0.50% BRIT. AMER TOBACCO AUST Tobacco 1,113.99 0.48% MIRVAC GROUP Real Estate 1,081.46 0.47% MAYNE NICKLESS Air Freight & Couriers 1,005.88 0.43% MIM HOLDINGS Metals & Mining 993.41 0.43% ERG Electronic Equipment & Instruments 942.58 0.41% LEIGHTON HOLDINGS Construction & Engineering 915.76 0.40% SMITH (HOWARD) Trading Companies & Distributors 898.36 0.39% FAULDING (F.H.) & CO Pharmaceuticals 894.89 0.39% GOODMAN FIELDER Food Products 852.23 0.37% NORMANDY MINING Metals & Mining 825.76 0.36% COCHLEAR Health Care Equipment & Supplies 808.17 0.35% ORICA Chemicals 798.85 0.34% HARDIE (JAMES) IND Building Products 785.35 0.34% GANDEL RETAIL TRUST Real Estate 744.27 0.32%
A-1
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- PACIFIC DUNLOP Industrial Conglomerates 731.34 0.32% BORAL (NEW) Construction Materials 573.41 0.25% FUTURIS CORP Food Products 563.24 0.24% AMP DIVERS. PPTY TRUST Real Estate 544.48 0.23% NEWCREST MINING Metals & Mining 483.70 0.21% ILUKA RESOURCES Metals & Mining 469.44 0.20% PAPERLINX Paper & Forest Products 459.10 0.20% SONS OF GWALIA Metals & Mining 376.19 0.16% JONES (DAVID) Multiline Retail 304.28 0.13% ONESTEEL Metals & Mining 213.38 0.09% DELTA GOLD Metals & Mining 156.99 0.07%
A-2 APPENDIX A-2 MSCI AUSTRIA INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- BANK AUSTRIA Banks 5,631.96 32.28% VERBUND OESTERR ELEK A Electric Utilities 2,680.20 15.36% OMV AG Oil & Gas 1,845.02 10.57% WIENERBERGER BAUSTOFF Building Products 1,169.31 6.70% GENERALI HOLDING VIENNA Insurance 1,112.67 6.38% AUSTRIA TABAK Tobacco 1,082.03 6.20% FLUGHAFEN WIEN Transportation Infrastructure 733.60 4.20% MAYR-MELNHOF KARTON Containers & Packaging 472.79 2.71% VA TECHNOLOGIE Machinery 467.46 2.68% BWT STAMM Comercial Services & Supplies 459.62 2.63% RHI Construction Materials 391.03 2.24% AUSTRIAN AIRLINES Airlines 358.72 2.06% BOEHLER-UDDEHOLM Metals & Mining 340.22 1.95% BBAG OESTERR BRAU STAMM Beverages 315.89 1.81% LENZING Chemicals 235.29 1.35% BAU HOLDING STRABAG Construction & Engineering 152.34 0.87%
A-3 APPENDIX A-3 MSCI BELGIUM INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- FORTIS BELGIUM Diversified Financials 21,641.87 31.61% KBC BANCASSURANCE Banks 11,711.72 17.11% ELECTRABEL Electric Utilities 11,320.30 16.53% GROUPE BRUXELLES LAMBERT Diversified Financials 5,627.53 8.22% UCB (GROUPE) Pharmaceuticals 5,053.44 7.38% SOLVAY Chemicals 4,022.09 5.87% DELHAIZE-LE LION Food & Drug Retailing 2,287.04 3.34% COLRUYT Food & Drug Retailing 1,550.04 2.26% D'IETEREN Specialty Retail 1,188.60 1.74% BARCO (NEW) Electronic Equipment & Instruments 931.79 1.36% BEKAERT Electrical Equipment 918.81 1.34% UNION MINIERE Metals & Mining 902.04 1.32% CMB Marine 564.08 0.82% GLAVERBEL (GROUPE) Building Products 493.47 0.72% BARCONET Communications Equipment 254.96 0.37%
A-4 APPENDIX A-4 MSCI BRAZIL (FREE) INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- PETROBRAS PN Oil & Gas 10,982.30 11.69% PETROBRAS ON Oil & Gas 9,925.76 10.57% VALE DO RIO DOCE PNA Metals & Mining 7,763.28 8.27% ELETROBRAS ON Electric Utilities 7,478.98 7.96% AMBEV PN Beverages 4,782.89 5.09% TELE NORTE LESTE PART.PN Diversified Telecommunication Services 4,473.27 4.76% BANCO BRADESCO PN Banks 3,936.83 4.19% TELESP CELULAR PART. PN Wireless Telecommunication Services 3,882.26 4.13% BANCO ITAU PN Banks 3,791.33 4.04% PAO DE ACUCAR PN Food & Drug Retailing 3,528.05 3.76% AMBEV ON Beverages 3,159.53 3.36% EMBRATEL PART. PN Diversified Telecommunication Services 2,555.15 2.72% EMBRAER PN Aerospace & Defense 2,111.00 2.25% CEMIG PN Electric Utilities 2,036.14 2.17% UNIBANCO UNITS Banks 1,931.38 2.06% CSN SIDERURGICA NAC'L ON Metals & Mining 1,878.02 2.00% BRASIL T. PART.PN(TELECE Diversified Telecommunication Services 1,825.88 1.94% TELE NORTE LESTE PART.ON Diversified Telecommunication Services 1,675.29 1.78% ELETROBRAS PNB Electric Utilities 1,429.76 1.52% ARACRUZ CELULOSE PNB Paper & Forest Products 1,232.12 1.31% SOUZA CRUZ ON Tobacco 1,229.29 1.31% EMBRATEL PART. ON Diversified Telecommunication Services 1,200.70 1.28% TELE CENTRO OESTE CEL PN Wireless Telecommunication Services 1,102.09 1.17% VOTORANTIM CELULOSE PN Paper & Forest Products 1,002.98 1.07% USIMINAS PNA Metals & Mining 874.81 0.93% BRASIL T. PART.ON(TELECE Diversified Telecommunication Services 828.92 0.88% GERASUL ON Electric Utilities 672.37 0.72% GLOBO CABO PN Media 656.44 0.70% BANESPA PN Banks 642.40 0.68% COPENE PNA Chemicals 548.64 0.58% TELE NORD CELU PART. PN Wireless Telecommunication Services 535.52 0.57% IPIRANGA (PETROLEO) PN Oil & Gas 444.38 0.47% TELE CELULAR SUL PART.PN Wireless Telecommunication Services 419.63 0.45% CIMENTO PORTLAND ITAU PN Construction Materials 388.98 0.41% BOMBRIL CIRIO PN Household Products 341.66 0.36% DURATEX PN Building Products 321.97 0.34% COTEMINAS PN Textiles & Apparel 319.63 0.34% SADIA PN Food Products 315.84 0.34% GERDAU METALURGICA PN Metals & Mining 311.72 0.33% PERDIGAO PN Food Products 276.06 0.29% FOSFERTIL PN Chemicals 266.89 0.28% EMBRAER ON Aerospace & Defense 250.81 0.27% TELE CELULAR SUL PART.ON Wireless Telecommunication Services 206.75 0.22% GERASUL PNB Electric Utilities 203.12 0.22% INEPAR IND E CONSTR. PN Electrical Equipment 72.77 0.08% LOJAS AMERICANAS PN Multiline Retail 72.02 0.08% LOJAS AMERICANAS ON Multiline Retail 39.25 0.04%
A-5 APPENDIX A-5 MSCI CANADA INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- NORTEL NETWORKS CORP Communications Equipment 116,086.26 25.22% THOMSON CORP Media 22,926.85 4.98% BCE INC Diversified Telecommunication Services 22,503.81 4.89% SEAGRAM CO Media 20,703.08 4.50% BOMBARDIER B Aerospace & Defense 19,792.39 4.30% ROYAL BANK OF CANADA Banks 17,869.12 3.88% MANULIFE FINANCIAL CORP Insurance 12,497.83 2.72% BANK NOVA SCOTIA Banks 12,464.07 2.71% BANK MONTREAL Banks 12,202.69 2.65% CANADIAN IMPERIAL BANK Banks 11,401.07 2.48% CELESTICA Electronic Equipment & Instruments 10,681.19 2.32% IMPERIAL OIL Oil & Gas 10,610.09 2.31% ALCAN ALUMINIUM Metals & Mining 9,834.70 2.14% SUN LIFE FINANCIAL SVCS Insurance 8,986.56 1.95% CANADIAN PACIFIC Road & Rail 8,437.59 1.83% WESTON (GEORGE) Food & Drug Retailing 7,356.80 1.60% PETRO-CANADA Oil & Gas 6,170.20 1.34% BALLARD POWER SYSTEMS Electrical Equipment 6,047.32 1.31% BARRICK GOLD CORP Metals & Mining 5,949.37 1.29% ALBERTA ENERGY CO Oil & Gas 5,691.20 1.24% SUNCOR ENERGY Oil & Gas 4,950.21 1.08% TRANSCANADA PIPELINES Gas Utilities 4,739.52 1.03% POWER CORP OF CANADA Diversified Financials 4,390.10 0.95% ENBRIDGE Gas Utilities 4,258.54 0.93% TALISMAN ENERGY Oil & Gas 4,141.90 0.90% BIOVAIL CORP Pharmaceuticals 4,055.44 0.88% ABITIBI-CONSOLIDATED Paper & Forest Products 3,808.01 0.83% POTASH CORP SASKATCHEWAN Chemicals 3,478.74 0.76% MAGNA INTERNATIONAL A Auto Components 3,362.77 0.73% CANADIAN NAT RESOURCES Oil & Gas 3,329.95 0.72% ROGERS COMMUNICATIONS B Media 3,309.61 0.72% PLACER DOME Metals & Mining 2,991.21 0.65% QLT Biotechnology 2,926.88 0.64% NATIONAL BANK OF CANADA Banks 2,897.16 0.63% COGNOS Software 2,878.73 0.63% NEXEN (CANADIAN OCCIDENT Oil & Gas 2,790.82 0.61% INCO COMMON Metals & Mining 2,595.07 0.56% WESTCOAST ENERGY Gas Utilities 2,428.41 0.53% BIOCHEM PHARMA Biotechnology 2,426.72 0.53% BRASCAN CORP A Diversified Financials 2,424.19 0.53% ANDERSON EXPLORATION Oil & Gas 2,409.06 0.52% NORANDA Metals & Mining 2,378.92 0.52% TRIZEC HAHN CORP SV Real Estate 2,351.68 0.51% MDS Health Care Providers & Services 2,336.61 0.51% GULF CANADA RESOURCES Oil & Gas 2,270.49 0.49% TRANSALTA CORP Electric Utilities 2,265.61 0.49% MACKENZIE FINANCIAL CORP Diversified Financials 2,208.71 0.48% FOUR SEASONS HOTELS LV Hotels Restaurants & Leisure 2,129.34 0.46%
A-6
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- ATI TECHNOLOGIES Computers & Peripherals 1,801.37 0.39% CI FUND MANAGEMENT Diversified Financials 1,667.94 0.36% MOLSON A Beverages 1,617.79 0.35% DOMTAR Paper & Forest Products 1,520.09 0.33% CAE Aerospace & Defense 1,502.84 0.33% FAIRFAX FINANCIAL HLDGS Insurance 1,478.01 0.32% PRECISION DRILLING CORP Energy Equipment & Services 1,351.56 0.29% AGRIUM Chemicals 1,341.76 0.29% CGI GROUP A IT Consulting & Services 1,264.23 0.27% QUEBECOR B Media 1,198.37 0.26% DOFASCO Metals & Mining 1,170.41 0.25% SOBEYS Food & Drug Retailing 1,161.92 0.25% AIR CANADA COMMON Airlines 1,152.25 0.25% COMINCO Metals & Mining 1,063.01 0.23% DESCARTES SYSTEMS GROUP Software 1,049.62 0.23% CAMECO CORP Metals & Mining 907.88 0.20% CANADIAN TIRE CORP A Multiline Retail 874.49 0.19% TECK CORP B Metals & Mining 789.36 0.17% UNITED DOMINION IND Machinery 755.18 0.16% HUDSON'S BAY CO Multiline Retail 653.70 0.14% CERTICOM CORP Software 441.60 0.10% STELCO A Metals & Mining 263.31 0.06% COREL CORP Software 195.98 0.04% INCO VBN Metals & Mining 172.75 0.04% GEAC COMPUTER CORP Software 139.10 0.03%
A-7 APPENDIX A-6 MSCI EMU INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- NOKIA CORP Communications Equipment 196,544.77 6.17% ROYAL DUTCH PETROLEUM CO Oil & Gas 128,609.44 4.04% TOTAL FINA ELF Oil & Gas 106,208.00 3.34% DEUTSCHE TELEKOM Diversified Telecommunications 95,438.21 3.00% Services FRANCE TELECOM Diversified Telecommunications 86,068.67 2.70% Services ALLIANZ Insurance 84,554.19 2.66% ING GROEP Diversified Financials 70,436.83 2.21% TELEFONICA Diversified Telecommunications 68,151.57 2.14% Services SIEMENS Industrial Conglomerates 67,677.65 2.13% AVENTIS Pharmaceuticals 61,197.59 1.92% ALCATEL Communications Equipment 60,107.65 1.89% MUENCHENER RUECKVERSICH. Insurance 57,553.20 1.81% AEGON Insurance 55,609.66 1.75% AXA Insurance 55,396.45 1.74% LOREAL Personal Products 54,084.27 1.70% TIM ORD Wireless Telecommunication Services 52,775.59 1.66% ENI Oil & Gas 48,844.56 1.53% ASSICURAZIONI GENERALI Insurance 45,930.84 1.44% SANOFI-SYNTHELABO Pharmaceuticals 44,559.50 1.40% DEUTSCHE BANK NAMEN Banks 44,316.62 1.39% TELECOM ITALIA ORD Diversified Telecommunications 42,934.54 1.35% Services E. ON (VEBA) Electric Utilities 42,545.02 1.34% PHILIPS ELECTRS (KON.) Household Durables 42,478.31 1.33% BBVA Banks 42,154.26 1.32% CARREFOUR Food & Drug Retailing 42,062.72 1.32% BSCH BCO SANTANDER CENTR Banks 40,054.16 1.26% DAIMLERCHRYSLER Automobiles 38,437.13 1.21% VIVENDI Multi-Utilities 37,442.46 1.18% STMICROELECTRONICS Semiconductor Equipment & Products 37,391.74 1.17% UNILEVER NV CERT Food Products 35,276.78 1.11% BNP PARIBAS Banks 34,635.58 1.09% SUEZ LYONNAISE DES EAUX Multi-Utilities 33,755.17 1.06% LVMH Textiles & Apparel 32,407.55 1.02% BAYER Chemicals 31,947.07 1.00% ABN AMRO HOLDING Banks 31,506.17 0.99% ENEL Electric Utilities 27,392.34 0.86% UNICREDITO ITALIANO ORD Banks 25,026.32 0.79% AHOLD (KON.) Food & Drug Retailing 24,947.46 0.78% BASF Chemicals 23,433.59 0.74% SOCIETE GENERALE Banks 22,829.70 0.72% BANCA INTESA ORD Banks 22,137.26 0.70% SAN PAOLO-IMI ORD Banks 21,656.97 0.68% FORTIS BELGIUM Diversified Financials 21,641.87 0.68% PINAULT-PRINT.-REDOUTE Multiline Retail 21,507.88 0.68%
A-8
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- HYPOVEREINSBANK Banks 20,895.29 0.66% RWE STAMM Multi-Utilities 20,517.85 0.64% REPSOL YPF Oil & Gas 19,952.86 0.63% DANONE (GROUPE) Food Products 19,812.41 0.62% SAP STAMM Software 19,275.48 0.61% DRESDNER BANK NAMEN Banks 19,247.41 0.60% CAP GEMINI SA IT Consulting & Services 17,152.89 0.54% ENDESA Electric Utilities 17,133.36 0.54% SAP VORZUG Software 16,973.53 0.53% HEINEKEN NV Beverages 16,938.08 0.53% KPN (KON.) Diversified Telecommunications 16,218.18 0.51% Services CANAL + Media 15,956.78 0.50% VOLKSWAGEN STAMM Automobiles 15,447.05 0.49% MEDIASET Media 15,342.65 0.48% BOUYGUES ORD Wireless Telecommunication Services 14,619.40 0.46% SONERA Diversified Telecommunications 14,232.96 0.45% Services METRO STAMM Multiline Retail 14,027.14 0.44% OLIVETTI ING & CO ORD Diversified Telecommunications 13,996.19 0.44% Services AKZO NOBEL Chemicals 13,576.46 0.43% AIR LIQUIDE Chemicals 11,960.17 0.38% SAINT-GOBAIN Building Products 11,843.72 0.37% KBC BANCASSURANCE Banks 11,711.72 0.37% TNT POST GROEP Air Freight & Couriers 11,453.55 0.36% ELECTRABEL Electric Utilities 11,320.30 0.36% SCHERING Pharmaceuticals 10,915.43 0.34% IBERDROLA Electric Utilities 10,790.98 0.34% BCP BANCO COMERCIAL NOM Banks 10,208.06 0.32% SCHNEIDER ELECTRIC Electrical Equipment 9,607.43 0.30% RAS ORD Insurance 9,584.96 0.30% ALLIED IRISH BANKS Banks 9,507.06 0.30% PEUGEOT SA Automobiles 9,400.87 0.30% BEIERSDORF Personal Products 9,359.62 0.29% EDP ELECTRICIDADE PORT Electric Utilities 9,132.29 0.29% FIAT ORD Automobiles 8,983.79 0.28% ASM LITHOGRAPHY HOLDING Semiconductor Equipment & Products 8,781.49 0.28% PORTUGAL TELECOM Diversified Telecommunications 8,550.92 0.27% Services ELSEVIER Media 8,459.24 0.27% CASINO ORD Food & Drug Retailing 8,213.19 0.26% LAFARGE (FRANCE) Construction Materials 8,151.35 0.26% LUFTHANSA Airlines 8,118.55 0.25% DASSAULT SYSTEMES Software 8,065.96 0.25% FRESENIUS MED. CARE ST Health Care Providers & Services 7,776.82 0.24% UPM-KYMMENE Paper & Forest Products 7,468.12 0.23% GAS NATURAL SDG Gas Utilities 7,448.87 0.23% ACCOR Hotels Restaurants & Leisure 7,417.12 0.23% THOMSON-CSF Aerospace & Defense 7,300.51 0.23% LAGARDERE Media 7,188.60 0.23% TIM RNC Wireless Telecommunication Services 7,038.97 0.22% WOLTERS KLUWER Media 6,867.43 0.22%
A-9
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- MEDIOBANCA Banks 6,867.38 0.22% THYSSEN KRUPP Metals & Mining 6,588.06 0.21% MERCK KGAA Pharmaceuticals 6,438.22 0.20% PIRELLI SPA ORD Auto Components 6,016.16 0.19% SODEXHO ALLIANCE Hotels Restaurants & Leisure 6,006.78 0.19% CRH Construction Materials 6,005.18 0.19% BANCA ROMA Banks 5,811.66 0.18% PREUSSAG Industrial Conglomerates 5,704.67 0.18% BANK AUSTRIA Banks 5,631.96 0.18% GROUPE BRUXELLES LAMBERT Diversified Financials 5,627.53 0.18% UNION ELECTRICA FENOSA Electric Utilities 5,458.30 0.17% LINDE Machinery 5,450.43 0.17% UCB (GROUPE) Pharmaceuticals 5,053.44 0.16% EIRCOM Diversified Telecommunications 4,958.54 0.16% Services TELECOM ITALIA RNC Diversified Telecommunications 4,885.29 0.15% Services ALTADIS Tobacco 4,501.42 0.14% VINCI Construction & Engineering 4,195.08 0.13% SAGEM Communications Equipment 4,192.23 0.13% PUBLICIS GROUPE Media 4,084.65 0.13% SOLVAY Chemicals 4,022.09 0.13% MICHELIN Auto Components 3,869.92 0.12% VALEO Auto Components 3,821.42 0.12% KARSTADT QUELLE Multiline Retail 3,581.47 0.11% BULGARI Textiles & Apparel 3,542.40 0.11% BENETTON GROUP Textiles & Apparel 3,464.39 0.11% RYANAIR HOLDINGS Airlines 3,234.72 0.10% PECHINEY ORD A Metals & Mining 3,185.18 0.10% PERNOD RICARD Beverages 3,156.14 0.10% IRISH LIFE & PERMANENT Insurance 3,137.92 0.10% ITALGAS Gas Utilities 3,117.80 0.10% BANCO ESPIRITO SANTO Banks 3,109.43 0.10% CIMPOR CIMENTOS DE PORT Construction Materials 3,100.37 0.10% ESSILOR INTERNATIONAL Health Care Equipment & Supplies 3,088.27 0.10% AUTOGRILL Hotels Restaurants & Leisure 3,001.60 0.09% VOLKSWAGEN VORZUG Automobiles 2,977.31 0.09% MAN STAMM Machinery 2,968.28 0.09% SAMPO INSURANCE CO A Insurance 2,914.06 0.09% HEIDELBERGER ZEMENT STAM Construction Materials 2,848.11 0.09% ALITALIA Airlines 2,771.33 0.09% WCM BETEILIGUNGS & GRUND Diversified Financials 2,737.42 0.09% VERBUND OESTERR ELEK A Electric Utilities 2,680.20 0.08% SONAE SGPS Industrial Conglomerates 2,675.32 0.08% EURAFRANCE Diversified Financials 2,604.23 0.08% GEHE Health Care Providers & Services 2,601.84 0.08% ERIDANIA BEGHIN-SAY Food Products 2,601.14 0.08% RWE VORZUG Multi-Utilities 2,600.31 0.08% MONDADORI ORD Media 2,599.63 0.08% USINOR Metals & Mining 2,580.94 0.08% ADIDAS-SALOMON Textiles & Apparel 2,575.84 0.08% BUHRMANN Commercial Services & Supplies 2,539.58 0.08% BRISA AUTO-ESTRADAS PORT Transportation Infrastructure 2,512.26 0.08%
A-10
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- PARMALAT FINANZIARIA Food Products 2,442.40 0.08% EM TV & MERCHANDISING Media 2,400.75 0.08% UNIBAIL Real Estate 2,356.90 0.07% HAGEMEYER Distributors 2,339.74 0.07% DELHAIZE-LE LION Food & Drug Retailing 2,287.04 0.07% COFLEXIP Energy Equipment & Services 2,217.54 0.07% FOMENTO CONST Y CONTR Construction & Engineering 2,143.25 0.07% AUTOPISTAS CESA (ACESA) Transportation Infrastructure 2,133.73 0.07% BANCA INTESA RNC Banks 2,093.74 0.07% BPI SGPS NOM Diversified Financials 2,034.50 0.06% KERRY GROUP A Food Products 1,991.90 0.06% BIC Commercial Services & Supplies 1,978.36 0.06% TECHNIP Construction & Engineering 1,845.71 0.06% OMV AG Oil & Gas 1,845.02 0.06% CONTINENTAL Auto Components 1,826.06 0.06% ALBA (CORP FINANCIERA) Real Estate 1,767.78 0.06% GETRONICS IT Consulting & Services 1,764.99 0.06% AGUAS DE BARCELONA Water Utilities 1,764.64 0.06% BANCA POPOLARE MILANO Banks 1,739.32 0.05% SMURFIT (JEFFERSON) Containers & Packaging 1,733.82 0.05% RINASCENTE ORD Food & Drug Retailing 1,730.75 0.05% GRUPO DRAGADOS Construction & Engineering 1,709.77 0.05% SIMCO Real Estate 1,697.02 0.05% SIDEL Machinery 1,681.40 0.05% GECINA Real Estate 1,628.08 0.05% IMERYS Construction Materials 1,625.93 0.05% FIAT PRIV Automobiles 1,609.50 0.05% TIETOENATOR IT Consulting & Services 1,596.66 0.05% COLRUYT Food & Drug Retailing 1,550.04 0.05% CLUB MEDITERRANEE Hotels Restaurants & Leisure 1,544.34 0.05% ACERINOX Metals & Mining 1,522.09 0.05% ACS ACTIV. CONST. Y SVCS Construction & Engineering 1,483.37 0.05% ITALCEMENTI ORD Construction Materials 1,395.34 0.04% INDEPENDENT NEWS & MEDIA Media 1,373.45 0.04% SOL MELIA Hotels Restaurants & Leisure 1,372.42 0.04% OCE Office Electronics 1,331.08 0.04% HOCHTIEF Construction & Engineering 1,316.20 0.04% IHC CALAND Machinery 1,288.10 0.04% METSO CORP Machinery 1,279.38 0.04% BUDERUS Building Products 1,272.10 0.04% KONE B Machinery 1,236.01 0.04% ZARDOYA OTIS Machinery 1,212.87 0.04% POHJOLA GROUP B Insurance 1,198.83 0.04% HARTWALL A Beverages 1,194.13 0.04% D'IETEREN Specialty Retail 1,188.60 0.04% ZODIAC Aerospace & Defense 1,186.96 0.04% WIENERBERGER BAUSTOFF Building Products 1,169.31 0.04% DOUGLAS HOLDING Specialty Retail 1,167.74 0.04% VEDIOR Commercial Services & Supplies 1,166.16 0.04% SAI ORD Insurance 1,133.26 0.04% SNIA BPD ORD Chemicals 1,122.28 0.04% FIAT RNC Automobiles 1,112.89 0.03% GENERALI HOLDING VIENNA Insurance 1,112.67 0.03%
A-11
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- MAPFRE (CORPORACION) Insurance 1,106.36 0.03% AUSTRIA TABAK Tobacco 1,082.03 0.03% VOPAK (KON.) Marine 1,069.02 0.03% JERONIMO MARTINS SGPS Food & Drug Retailing 1,063.92 0.03% CASINO ADP Food & Drug Retailing 1,060.86 0.03% SGL CARBON Metals & Mining 1,026.65 0.03% KAMPS Food Products 1,003.49 0.03% OUTOKUMPU A Metals & Mining 937.69 0.03% BARCO (NEW) Electronic Equipment & instruments 931.79 0.03% BEKAERT Electrical Equipment 918.81 0.03% UNION MINIERE Metals & Mining 902.04 0.03% MAN VORZUG Machinery 890.81 0.03% KLM Airlines 886.27 0.03% KESKO B Food & Drug Retailing 847.35 0.03% ALCATEL OPTRONICS Communications Equipment 831.63 0.03% SEB Household Durables 792.98 0.02% DCC Industrial Conglomerates 787.95 0.02% WATERFORD WEDGWOOD UNIT Household Durables 786.53 0.02% METROVACESA Real Estate 771.21 0.02% AZUCARERA EBRO AGRICOLAS Food Products 755.64 0.02% FLUGHAFEN WIEN Transportation Infrastructure 733.60 0.02% LANE G.MARZOTTO ORD Textiles & Apparel 715.41 0.02% VALLEHERMOSO Real Estate 708.92 0.02% DYCKERHOFF VORZUG Construction Materials 707.66 0.02% CORTEFIEL Specialty Retail 682.88 0.02% WARTSILA B (METRA) Machinery 669.47 0.02% PROSEGUR Commercial Services & Supplies 619.97 0.02% UPONOR Building Products 613.40 0.02% KEMIRA Chemicals 603.21 0.02% AMER-YHTYMAE A Leisure Equipment & Products 583.41 0.02% CMB Marine 564.08 0.02% TELEPIZZA Hotels Restaurants & Leisure 541.89 0.02% PORTUCEL INDUSTRIAL Paper & Forest Products 530.13 0.02% GLAVERBEL (GROUPE) Building Products 493.47 0.02% INSTRUMENTARIUM CORP Health Care Equipment & Supplies 481.79 0.02% MAYR-MELNHOF KARTON Containers & Packaging 472.79 0.01% VA TECHNOLOGIE Machinery 467.46 0.01% NEDLLOYD (KON.) Marine 467.43 0.01% BWT STAMM Commercial Services & Supplies 459.62 0.01% JURYS DOYLE HOTEL GROUP Hotels Restaurants & Leisure 440.09 0.01% RAUTARUUKKI Metals & Mining 440.08 0.01% PULEVA Food Products 422.77 0.01% CEMENTIR Construction Materials 418.47 0.01% FAG KUGELFISCHER Machinery 413.83 0.01% GREENCORE GROUP Food Products 411.21 0.01% PORTLAND VALDERRIVAS Construction Materials 397.96 0.01% FAES Pharmaceuticals 393.75 0.01% RHI Construction Materials 391.03 0.01% ITALCEMENTI RNC Construction Materials 383.27 0.01% AGIV Machinery 382.41 0.01% RINASCENTE RNC Food & Drug Retailing 382.32 0.01% SIRTI Construction & Engineering 381.10 0.01% BILFINGER + BERGER Construction & Engineering 377.06 0.01%
A-12
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- URBIS (INMOBILIARIA) Real Estate 376.73 0.01% CHARGEURS Textiles & Apparel 373.41 0.01% IMPREGILO ORD Construction & Engineering 372.14 0.01% EMPRESARIAL ENCE (GRUPO) Paper & Forest Products 360.08 0.01% AUSTRIAN AIRLINES Airlines 358.72 0.01% STORK (VER MACHINE.) Machinery 353.10 0.01% POHJOLA GROUP A Insurance 351.60 0.01% FINNLINES Marine 346.09 0.01% BOEHLER-UDDEHOLM Metals & Mining 340.22 0.01% HOLLANDSCHE BETON GROEP Construction & Engineering 315.96 0.01% BBAG OESTERR BRAU STAMM Beverages 315.89 0.01% ASTURIANA DE ZINC Metals & Mining 315.23 0.01% NORD-EST Containers & Packaging 312.90 0.01% SAI RNC Insurance 302.99 0.01% STOCKMANN A Multiline Retail 284.24 0.01% STOCKMANN B Multiline Retail 281.58 0.01% HOLSTEN-BRAUEREI Beverages 267.52 0.01% URALITA Building Products 263.56 0.01% IWKA Machinery 262.81 0.01% RAISIO GROUP V Food Products 255.90 0.01% BARCONET Communications Equipment 254.96 0.01% RENO MEDICI A ORD Containers & Packaging 254.80 0.01% PIRELLI SPA RNC Auto Components 252.20 0.01% TULLOW OIL Oil & Gas 239.18 0.01% LENZING Chemicals 235.29 0.01% WARTSILA A (METRA) Machinery 230.48 0.01% VISCOFAN Food Products 229.56 0.01% DANIELI & CO ORD Machinery 177.53 0.01% FYFFES Food & Drug Retailing 173.77 0.01% DEUTZ Machinery 153.03 0.00% BAU HOLDING STRABAG Construction & Engineering 152.34 0.00% CORTICEIRA AMORIM Containers & Packaging 135.46 0.00% INAPA Paper & Forest Products 132.66 0.00% RHEINMETALL STAMM Industrial Conglomerates 120.65 0.00% IRISH CONTINENTAL GROUP Marine 117.28 0.00% LANE G.MARZOTTO RISP Textiles & Apparel 117.26 0.00% RHEINMETALL VORZUG Industrial Conglomerates 104.98 0.00% DANIELI & CO RNC Machinery 91.25 0.00% ESCADA STAMM Textiles & Apparel 85.91 0.00% ERCROS Chemicals 85.52 0.00% EFACEC CAPITAL SGPS Electrical Equipment 75.73 0.00% CIN CORP IND'L DO NORTE Chemicals 71.82 0.00% ESCADA VORZUG Textiles & Apparel 67.23 0.00% BRAU & BRUNNEN Beverages 65.65 0.00% SOARES DA COSTA Construction & Engineering 58.50 0.00%
A-13 APPENDIX A-7 MSCI FRANCE INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- TOTAL FINA ELF Oil & Gas 106,208.00 11.17% FRANCE TELECOM Diversified Telecommunication Services 86,068.67 9.05% AVENTIS Pharmaceuticals 61,197.59 6.44% ALCATEL Communications Equipment 60,107.65 6.32% AXA Insurance 55,396.45 5.83% LOREAL Personal Products 54,084.27 5.69% SANOFI-SYNTHELABO Pharmaceuticals 44,559.50 4.69% CARREFOUR Food & Drug Retailing 42,062.72 4.42% VIVENDI Multi-Utilities 37,442.46 3.94% STMICROELECTRONICS Semiconductor Equipment & Products 37,391.74 3.93% BNP PARIBAS Banks 34,635.58 3.64% SUEZ LYONNAISE DES EAUX Multi-Utilities 33,755.17 3.55% LVMH Textiles & Apparel 32,407.55 3.41% SOCIETE GENERALE Banks 22,829.70 2.40% PINAULT-PRINT.-REDOUTE Multiline Retail 21,507.88 2.26% DANONE (GROUPE) Food Products 19,812.41 2.08% CAP GEMINI SA IT Consulting & Services 17,152.89 1.80% CANAL + Media 15,956.78 1.68% BOUYGUES ORD Wireless Telecommunication Services 14,619.40 1.54% AIR LIQUIDE Chemicals 11,960.17 1.26% SAINT-GOBAIN Building Products 11,843.72 1.25% SCHNEIDER ELECTRIC Electrical Equipment 9,607.43 1.01% PEUGEOT SA Automobiles 9,400.87 0.99% CASINO ORD Food & Drug Retailing 8,213.19 0.86% LAFARGE (FRANCE) Construction Materials 8,151.35 0.86% DASSAULT SYSTEMES Software 8,065.96 0.85% ACCOR Hotels Restaurants & Leisure 7,417.12 0.78% THOMSON-CSF Aerospace & Defense 7,300.51 0.77% LAGARDERE Media 7,188.60 0.76% SODEXHO ALLIANCE Hotels Restaurants & Leisure 6,006.78 0.63% VINCI Construction & Engineering 4,195.08 0.44% SAGEM Communications Equipment 4,192.23 0.44% PUBLICIS GROUPE Media 4,084.65 0.43% MICHELIN Auto Components 3,869.92 0.41% VALEO Auto Components 3,821.42 0.40% PECHINEY ORD A Metals & Mining 3,185.18 0.33% PERNOD RICARD Beverages 3,156.14 0.33% ESSILOR INTERNATIONAL Health Care Equipment & Supplies 3,088.27 0.32% EURAFRANCE Diversified Financials 2,604.23 0.27% ERIDANIA BEGHIN-SAY Food Products 2,601.14 0.27% USINOR Metals & Mining 2,580.94 0.27% UNIBAIL Real Estate 2,356.90 0.25% COFLEXIP Energy Equipment & Services 2,217.54 0.23% BIC Comercial Services & Supplies 1,978.36 0.21% TECHNIP Construction & Engineering 1,845.71 0.19% SIMCO Real Estate 1,697.02 0.18% SIDEL Machinery 1,681.40 0.18% GECINA Real Estate 1,628.08 0.17% IMERYS Construction Materials 1,625.93 0.17%
A-14
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- CLUB MEDITERRANEE Hotels Restaurants & Leisure 1,544.34 0.16% ZODIAC Aerospace & Defense 1,186.96 0.12% CASINO ADP Food & Drug Retailing 1,060.86 0.11% ALCATEL OPTRONICS Communications Equipment 831.63 0.09% SEB Household Durables 792.98 0.08% CHARGEURS Textiles & Apparel 373.41 0.04% NORD-EST Containers & Packaging 312.90 0.03%
A-15 APPENDIX A-8 MSCI GERMANY INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- DEUTSCHE TELEKOM Diversified Telecommunication Services 95,438.21 13.45% ALLIANZ Insurance 84,554.19 11.92% SIEMENS Industrial Conglomerates 67,677.65 9.54% MUENCHENER RUECKVERSICH. Insurance 57,553.20 8.11% DEUTSCHE BANK NAMEN Banks 44,316.62 6.25% E. ON (VEBA) Electric Utilities 42,545.02 6.00% DAIMLERCHRYSLER Automobiles 38,437.13 5.42% BAYER Chemicals 31,947.07 4.50% BASF Chemicals 23,433.59 3.30% HYPOVEREINSBANK Banks 20,895.29 2.95% RWE STAMM Multi-Utilities 20,517.85 2.89% SAP STAMM Software 19,275.48 2.72% DRESDNER BANK NAMEN Banks 19,247.41 2.71% SAP VORZUG Software 16,973.53 2.39% VOLKSWAGEN STAMM Automobiles 15,447.05 2.18% METRO STAMM Multiline Retail 14,027.14 1.98% SCHERING Pharmaceuticals 10,915.43 1.54% BEIERSDORF Personal Products 9,359.62 1.32% LUFTHANSA Airlines 8,118.55 1.14% FRESENIUS MED. CARE ST Health Care Providers & Services 7,776.82 1.10% THYSSEN KRUPP Metals & Mining 6,588.06 0.93% MERCK KGAA Pharmaceuticals 6,438.22 0.91% PREUSSAG Industrial Conglomerates 5,704.67 0.80% LINDE Machinery 5,450.43 0.77% KARSTADT QUELLE Multiline Retail 3,581.47 0.50% VOLKSWAGEN VORZUG Automobiles 2,977.31 0.42% MAN STAMM Machinery 2,968.28 0.42% HEIDELBERGER ZEMENT STAM Construction Materials 2,848.11 0.40% WCM BETEILIGUNGS & GRUND Diversified Financials 2,737.42 0.39% GEHE Health Care Providers & Services 2,601.84 0.37% RWE VORZUG Multi-Utilities 2,600.31 0.37% ADIDAS-SALOMON Textiles & Apparel 2,575.84 0.36% EM TV & MERCHANDISING Media 2,400.75 0.34% CONTINENTAL Auto Components 1,826.06 0.26% HOCHTIEF Construction & Engineering 1,316.20 0.19% BUDERUS Building Products 1,272.10 0.18% DOUGLAS HOLDING Specialty Retail 1,167.74 0.16% SGL CARBON Metals & Mining 1,026.65 0.14% KAMPS Food Products 1,003.49 0.14% MAN VORZUG Machinery 890.81 0.13% DYCKERHOFF VORZUG Construction Materials 707.66 0.10% FAG KUGELFISCHER Machinery 413.83 0.06% AGIV Machinery 382.41 0.05% BILFINGER + BERGER Construction & Engineering 377.06 0.05% HOLSTEN-BRAUEREI Beverages 267.52 0.04% IWKA Machinery 262.81 0.04% DEUTZ Machinery 153.03 0.02% RHEINMETALL STAMM Industrial Conglomerates 120.65 0.02%
A-16
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- RHEINMETALL VORZUG Industrial Conglomerates 104.98 0.01% ESCADA STAMM Textiles & Apparel 85.91 0.01% ESCADA VORZUG Textiles & Apparel 67.23 0.01% BRAU & BRUNNEN Beverages 65.65 0.01%
A-17 APPENDIX A-9 MSCI GREECE INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- OTE HELLENIC TELECOM. Diversified Telecommunication Services 7,219.73 14.42% NATIONAL BANK OF GREECE Banks 7,163.21 14.31% EFG EUROBANK ERGASIAS Banks 5,030.39 10.05% ALPHA BANK Banks 4,937.29 9.86% COMMERCIAL BANK GREECE Banks 3,656.57 7.30% COCA-COLA HBC(HELLEN.BOT Beverages 3,229.61 6.45% INTRACOM COMMON Communications Equipment 2,309.35 4.61% TITAN CEMENT CO COMMON Construction Materials 1,658.19 3.31% HELLENIC PETROLEUM Oil & Gas 1,461.62 2.92% VIOHALCO COPPER CO B Metals & Mining 1,052.73 2.10% ALUMINIUM OF GREECE Metals & Mining 814.72 1.63% ATTICA ENTERPRISES Marine 765.36 1.53% MAILLIS MICHAEL J. B Containers & Packaging 682.10 1.36% FOLLI-FOLLIE Textiles & Apparel 619.25 1.24% DUTY FREE SHOPS Multiline Retail 592.28 1.18% LAMBRAKIS PRESS ORG. Media 576.12 1.15% EYDAP ATHENS WASUPP. Water Utilities 566.08 1.13% INTERAMERICAN Insurance 550.41 1.10% ATHENS MEDICAL Health Care Providers & Services 535.19 1.07% HELLENIC TECHNODOMIKI Construction & Engineering 429.32 0.86% HYATT REGENCY HOTEL Hotels Restaurants & Leisure 406.35 0.81% SILVER & BARYTE ORES Metals & Mining 403.03 0.81% TECHNICAL OLYMPIC Construction & Engineering 359.36 0.72% MICHANIKI COMMON Construction & Engineering 348.72 0.70% INFORM P. LYKOS Comercial Services & Supplies 325.26 0.65% PAPASTRATOS CIGARETTE CB Tobacco 318.99 0.64% MYTILINEOS HOLDINGS Metals & Mining 318.93 0.64% HELLENIC SUGAR IND B Food Products 312.67 0.62% SINGULAR Software 309.11 0.62% MINOAN LINES Marine 306.31 0.61% FOURLIS HOLDING COMMON Household Durables 303.70 0.61% DELTA DAIRY COMMON Food Products 302.25 0.60% ASPIS PRONIA COMMON Insurance 280.77 0.56% AEGEK COMMON Construction & Engineering 272.78 0.54% GOODY'S B Hotels Restaurants & Leisure 261.48 0.52% DELTA INFORMATICS Software 237.73 0.47% SANYO HELLAS HOLDINGS Distributors 166.62 0.33% PETZETAKIS CB Building Products 163.82 0.33% ATTI-KAT Construction & Engineering 147.91 0.30% KLONATEX GROUP COMMON Textiles & Apparel 143.22 0.29% THEMELIODOMI Construction & Engineering 129.58 0.26% ALTE TECHNICAL CO Construction & Engineering 124.06 0.25% DELTA DAIRY PREF Food Products 106.84 0.21% SELECTED TEXTILE Textiles & Apparel 103.31 0.21% KLONATEX GROUP PREF Textiles & Apparel 61.41 0.12%
A-18 APPENDIX A-10 MSCI HONG KONG INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- HUTCHISON WHAMPOA Diversified Financials 50,970.78 29.16% HANG SENG BANK Banks 22,305.55 12.76% SUN HUNG KAI PROPERTIES Real Estate 18,546.06 10.61% SWIRE PACIFIC A Diversified Financials 9,948.86 5.69% CLP HOLDINGS Electric Utilities 9,712.70 5.56% PACIFIC CENTURY CYBERWKS Diversified Telecommunication Services 9,046.23 5.18% JOHNSON ELECTRIC HLDGS Electrical Equipment 6,923.90 3.96% HONGKONG CHINA GAS Gas Utilities 6,455.12 3.69% CATHAY PACIFIC AIRWAYS Airlines 5,983.40 3.42% LI & FUNG Textiles & Apparel 5,743.95 3.29% HENDERSON LAND DEV. Real Estate 5,316.73 3.04% WHARF HOLDINGS Real Estate 4,970.97 2.84% BANK EAST ASIA Banks 3,070.78 1.76% TELEVISION BROADCASTS Media 2,381.00 1.36% SHANGRI-LA ASIA Hotels Restaurants & Leisure 2,230.14 1.28% NEW WORLD DEVELOPMENT Real Estate 2,208.53 1.26% SINO LAND Real Estate 1,489.24 0.85% HYSAN DEVELOPMENT Real Estate 1,245.55 0.71% SOUTH CHINA MORNING POST Media 1,144.23 0.65% HANG LUNG DEVELOPMENT CO Real Estate 991.88 0.57% ESPRIT HOLDINGS Specialty Retail 933.62 0.53% GIORDANO INTERNATIONAL Specialty Retail 689.29 0.39% HONGKONG SHANGHAI HOTEL Hotels Restaurants & Leisure 638.00 0.37% ASM PACIFIC TECHNOLOGY Semiconductor Equipment & Products 627.60 0.36% HOPEWELL HOLDINGS Industrial Conglomerates 342.54 0.20% VARITRONIX INTERNATIONAL Electronic Equipment & Instruments 316.51 0.18% QPL INTERNATIONAL HLDGS Electronic Equipment & Instruments 276.71 0.16% ORIENTAL PRESS GROUP Media 270.54 0.15%
A-19 APPENDIX A-11 MSCI INDONESIA (FREE) INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- --------- ----------------- --- TELEKOMUNIKASI INDONESIA Diversified Telecommunication Services 2,590.04 28.43% GUDANG GARAM Tobacco 1,065.46 11.69% INDOFOOD SUKSES MAKMUR Food Products 792.21 8.69% ASTRA INTERNATIONAL Automobiles 594.24 6.52% INDAH KIAT PULP & PAPER Paper & Forest Products 487.52 5.35% MAKINDO Diversified Financials 388.18 4.26% SEMEN GRESIK Construction Materials 367.03 4.03% RAMAYANA LESTARI SENTOSA Multiline Retail 361.56 3.97% MEDCO ENERGI INT'L Oil & Gas 349.50 3.84% MATAHARI PUTRA PRIMA Multiline Retail 170.28 1.87% BANK PAN INDONESIA Banks 156.15 1.71% KALBE FARMA Pharmaceuticals 153.32 1.68% TEMPO SCAN PACIFIC Pharmaceuticals 152.20 1.67% ANEKA TAMBANG Metals & Mining 129.08 1.42% GAJAH TUNGGAL Auto Components 127.92 1.40% POLYSINDO EKA PERKASA Chemicals 103.68 1.14% CITRA MARGA NUSAPHALA Transportation Infrastructure 100.68 1.11% BHAKTI INVESTAMA Diversified Financials 98.75 1.08% BIMANTARA CITRA Diversified Financials 98.66 1.08% TJIWI KIMIA Paper & Forest Products 94.55 1.04% DUTA PERTIWI Real Estate 80.03 0.88% TIMAH Metals & Mining 79.18 0.87% CHAROEN POKPHAND INDON. Food Products 76.03 0.83% SMART CORP Food Products 71.36 0.78% INDO-RAMA SYNTHETICS Textiles & Apparel 54.90 0.60% MULIA INDUSTRINDO Building Products 52.73 0.58% JAKARTA INT'L HOTELS DEV Real Estate 51.11 0.56% MAYORA INDAH Food Products 48.24 0.53% BUDI ACID JAYA Chemicals 47.35 0.52% LONDON SUMATRA INDONESIA Food Products 31.83 0.35% MODERN PHOTO FILM CO Leisure Equipment & Products 30.08 0.33% ASAHIMAS FLAT GLASS Building Products 29.59 0.32% HERO SUPERMARKET Food & Drug Retailing 27.76 0.30% BARITO PACIFIC TIMBER Paper & Forest Products 25.69 0.28% CIPUTRA DEVELOPMENT Real Estate 24.52 0.27%
A-20 APPENDIX A-12 MSCI ITALY INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- TIM ORD Wireless Telecommunication Services 52,775.59 13.13% ENI Oil & Gas 48,844.56 12.15% ASSICURAZIONI GENERALI Insurance 45,930.84 11.43% TELECOM ITALIA ORD Diversified Telecommunication Services 42,934.54 10.68% ENEL Electric Utilities 27,392.34 6.81% UNICREDITO ITALIANO ORD Banks 25,026.32 6.23% BANCA INTESA ORD Banks 22,137.26 5.51% SAN PAOLO-IMI ORD Banks 21,656.97 5.39% MEDIASET Media 15,342.65 3.82% OLIVETTI ING & CO ORD Diversified Telecommunication Services 13,996.19 3.48% RAS ORD Insurance 9,584.96 2.38% FIAT ORD Automobiles 8,983.79 2.24% TIM RNC Wireless Telecommunication Services 7,038.97 1.75% MEDIOBANCA Banks 6,867.38 1.71% PIRELLI SPA ORD Auto Components 6,016.16 1.50% BANCA ROMA Banks 5,811.66 1.45% TELECOM ITALIA RNC Diversified Telecommunication Services 4,885.29 1.22% BULGARI Textiles & Apparel 3,542.40 0.88% BENETTON GROUP Textiles & Apparel 3,464.39 0.86% ITALGAS Gas Utilities 3,117.80 0.78% AUTOGRILL Hotels Restaurants & Leisure 3,001.60 0.75% ALITALIA Airlines 2,771.33 0.69% MONDADORI ORD Media 2,599.63 0.65% PARMALAT FINANZIARIA Food Products 2,442.40 0.61% BANCA INTESA RNC Banks 2,093.74 0.52% BANCA POPOLARE MILANO Banks 1,739.32 0.43% RINASCENTE ORD Food & Drug Retailing 1,730.75 0.43% FIAT PRIV Automobiles 1,609.50 0.40% ITALCEMENTI ORD Construction Materials 1,395.34 0.35% SAI ORD Insurance 1,133.26 0.28% SNIA BPD ORD Chemicals 1,122.28 0.28% FIAT RNC Automobiles 1,112.89 0.28% LANE G.MARZOTTO ORD Textiles & Apparel 715.41 0.18% CEMENTIR Construction Materials 418.47 0.10% ITALCEMENTI RNC Construction Materials 383.27 0.10% RINASCENTE RNC Food & Drug Retailing 382.32 0.10% SIRTI Construction & Engineering 381.10 0.09% IMPREGILO ORD Construction & Engineering 372.14 0.09% SAI RNC Insurance 302.99 0.08% RENO MEDICI A ORD Containers & Packaging 254.80 0.06% PIRELLI SPA RNC Auto Components 252.20 0.06% DANIELI & CO ORD Machinery 177.53 0.04% LANE G.MARZOTTO RISP Textiles & Apparel 117.26 0.03% DANIELI & CO RNC Machinery 91.25 0.02%
A-21 APPENDIX A-13 MSCI JAPAN INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- TOYOTA MOTOR CORP Automobiles 133,481.83 6.18% NTT CORP Diversified Telecommunication Services 111,278.06 5.15% SONY CORP Household Durables 68,836.74 3.18% MIZUHO HOLDINGS Banks 59,585.63 2.76% TAKEDA CHEMICAL IND Pharmaceuticals 55,070.24 2.55% MATSUSHITA ELECT IND'L Household Durables 52,188.49 2.41% BANK TOKYO-MITSUBISHI Banks 50,563.71 2.34% NOMURA SECURITIES CO Diversified Financials 41,288.53 1.91% CANON INC Office Electronics 34,381.91 1.59% HONDA MOTOR CO Automobiles 34,129.78 1.58% MURATA MANUFACTURING CO Semiconductor Equipment & Products 32,289.45 1.49% TOKYO ELECTRIC POWER CO Electric Utilities 31,997.40 1.48% HITACHI Electronic Equipment & Instruments 31,850.07 1.47% FUJITSU Computers & Peripherals 31,375.40 1.45% SUMITOMO BANK Banks 31,332.64 1.45% NEC CORP Computers & Peripherals 30,715.86 1.42% ROHM CO Semiconductor Equipment & Products 28,588.95 1.32% KYOCERA CORP Electronic Equipment & Instruments 24,911.86 1.15% NISSAN MOTOR CO Automobiles 24,307.18 1.12% SAKURA BANK Banks 23,787.59 1.10% EAST JAPAN RAILWAY CO Road & Rail 23,037.69 1.07% TOSHIBA CORP Computers & Peripherals 22,811.28 1.06% NINTENDO CO Leisure Equipment & Products 21,216.78 0.98% ITO-YOKADO CO Multiline Retail 20,827.67 0.96% FUJI PHOTO FILM CO Leisure Equipment & Products 20,719.72 0.96% DENSO CORP Auto Components 20,427.27 0.95% FANUC Machinery 19,307.66 0.89% KAO CORP Household Products 19,031.93 0.88% SHIN-ETSU CHEMICAL CO Chemicals 18,809.09 0.87% YAMANOUCHI PHARM. Pharmaceuticals 17,555.56 0.81% TOKIO MARINE & FIRE Insurance 17,472.94 0.81% SOFTBANK CORP Internet Software & Services 17,273.36 0.80% KANSAI ELECTRIC POWER CO Electric Utilities 16,467.46 0.76% SECOM CO Comercial Services & Supplies 16,327.49 0.76% FURUKAWA ELECTRIC CO Electrical Equipment 15,633.81 0.72% MITSUBISHI HEAVY IND Machinery 14,737.46 0.68% MITSUBISHI ESTATE CO Real Estate 14,601.54 0.68% SANYO ELECTRIC CO Household Durables 14,586.49 0.67% CENTRAL JAPAN RAILWAY CO Road & Rail 14,559.24 0.67% DAIWA SECURITIES GROUP Diversified Financials 14,005.60 0.65% MITSUBISHI ELECTRIC CORP Electrical Equipment 13,936.69 0.64% SHARP CORP Household Durables 13,424.49 0.62% SUMITOMO ELECTRIC IND Electrical Equipment 12,820.43 0.59% JAPAN TOBACCO Tobacco 12,764.61 0.59% TOKYO ELECTRON Semiconductor Equipment & Products 12,528.96 0.58% NIPPON STEEL CORP Metals & Mining 12,043.95 0.56% MITSUBISHI CORP Trading Companies & Distributors 11,996.97 0.56% ADVANTEST CORP Semiconductor Equipment & Products 11,721.58 0.54%
A-22
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- ASAHI GLASS CO Building Products 11,542.89 0.53% DAI NIPPON PRINTING CO Comercial Services & Supplies 11,065.68 0.51% ACOM CO Diversified Financials 10,986.50 0.51% BRIDGESTONE CORP Auto Components 10,713.57 0.50% SMC CORP Machinery 10,352.06 0.48% TOKAI BANK Banks 10,246.09 0.47% EISAI CO Pharmaceuticals 10,169.39 0.47% MITSUI & CO Trading Companies & Distributors 9,835.86 0.46% SANKYO CO Pharmaceuticals 9,833.50 0.45% HOYA CORP Health Care Equipment & Supplies 9,644.24 0.45% ASAHI BANK Banks 9,568.38 0.44% MITSUBISHI TRUST Diversified Financials 9,522.59 0.44% MITSUI FUDOSAN CO Real Estate 9,425.77 0.44% KIRIN BREWERY CO Beverages 9,420.30 0.44% PROMISE CO Diversified Financials 9,123.73 0.42% ASAHI CHEMICAL IND CO Chemicals 9,024.90 0.42% YAMATO TRANSPORT CO Air Freight & Couriers 8,944.84 0.41% TAISHO PHARMACEUTICAL CO Pharmaceuticals 8,880.02 0.41% TAKEFUJI CORP Diversified Financials 8,749.28 0.40% SUMITOMO CORP Trading Companies & Distributors 8,427.30 0.39% NIPPON MITSUBISHI OIL Oil & Gas 8,077.68 0.37% TOKYO GAS CO Gas Utilities 7,914.45 0.37% AJINOMOTO CO Food Products 7,856.07 0.36% ORIX CORP Diversified Financials 7,801.57 0.36% JAPAN AIRLINES CO Airlines 7,659.79 0.35% KONAMI CO Software 7,649.20 0.35% DAIICHI PHARMACEUTICAL Pharmaceuticals 7,443.36 0.34% JUSCO CO Multiline Retail 7,311.85 0.34% SUMITOMO CHEMICAL CO Chemicals 7,188.63 0.33% SHIZUOKA BANK Banks 7,181.26 0.33% SHIONOGI & CO Pharmaceuticals 7,068.68 0.33% ORIENTAL LAND CO Hotels Restaurants & Leisure 6,950.47 0.32% SEKISUI HOUSE Household Durables 6,929.68 0.32% KINKI NIPPON RAILWAY CO Road & Rail 6,865.90 0.32% OSAKA GAS CO Gas Utilities 6,733.87 0.31% NIPPON EXPRESS CO Road & Rail 6,730.43 0.31% ITOCHU CORP Trading Companies & Distributors 6,626.72 0.31% TOHOKU ELECTRIC POWER CO Electric Utilities 6,473.57 0.30% NIPPON SHEET GLASS CO Building Products 6,171.84 0.29% MITSUBISHI CHEMICAL CORP Chemicals 6,094.15 0.28% TOPPAN PRINTING CO Media 6,086.50 0.28% TOKYU CORP Road & Rail 5,879.67 0.27% OMRON CORP Electronic Equipment & Instruments 5,814.11 0.27% PIONEER CORP Household Durables 5,748.53 0.27% DAIKIN INDUSTRIES Machinery 5,715.65 0.26% OJI PAPER CO Containers & Packaging 5,699.81 0.26% TORAY INDUSTRIES Chemicals 5,604.66 0.26% NITTO DENKO CORP Electrical Equipment 5,549.52 0.26% SHISEIDO CO Personal Products 5,504.17 0.25% NIPPON PAPER IND CO Paper & Forest Products 5,343.75 0.25% NIKON CORP Semiconductor Equipment & Products 5,313.06 0.25% ASAHI BREWERIES Beverages 5,295.73 0.24% NIPPON YUSEN K.K Marine 5,224.20 0.24%
A-23
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- BANK YOKOHAMA Banks 5,077.68 0.23% KUBOTA CORP Machinery 5,027.07 0.23% HIROSE ELECTRIC CO Electronic Equipment & Instruments 4,838.55 0.22% KOMATSU Machinery 4,795.69 0.22% MARUI CO Multiline Retail 4,752.39 0.22% TAIYO YUDEN CO Electronic Equipment & Instruments 4,743.69 0.22% MITSUI MINING & SMELTING Metals & Mining 4,730.97 0.22% SUMITOMO MARINE & FIRE Insurance 4,527.41 0.21% TAKARA SHUZO CO Beverages 4,499.27 0.21% CHUGAI PHARMACEUTICAL CO Pharmaceuticals 4,458.75 0.21% MITSUI MARINE & FIRE Insurance 4,449.99 0.21% NGK INSULATORS Machinery 4,411.36 0.20% TEIJIN Chemicals 4,212.01 0.19% TERUMO CORP Health Care Equipment & Supplies 4,178.50 0.19% MINEBEA CO Machinery 4,086.26 0.19% NSK Machinery 3,950.69 0.18% ALPS ELECTRIC CO Electronic Equipment & Instruments 3,931.86 0.18% OLYMPUS OPTICAL CO Health Care Equipment & Supplies 3,891.58 0.18% KAWASAKI STEEL CORP Metals & Mining 3,874.57 0.18% TOYO SEIKAN KAISHA Containers & Packaging 3,825.90 0.18% EBARA CORP Machinery 3,797.71 0.18% FUJI TELEVISION NETWORK Media 3,796.69 0.18% DAIWA BANK Banks 3,780.50 0.17% NIDEC CORP Electronic Equipment & Instruments 3,752.73 0.17% NGK SPARK PLUG CO Auto Components 3,736.72 0.17% MARUBENI CORP Trading Companies & Distributors 3,560.56 0.16% CREDIT SAISON CO Diversified Financials 3,503.33 0.16% KYOWA HAKKO KOGYO CO Pharmaceuticals 3,481.00 0.16% TOSTEM CORP Building Products 3,406.24 0.16% OBAYASHI CORP Construction & Engineering 3,403.36 0.16% BENESSE CORP Comercial Services & Supplies 3,350.68 0.16% NISSIN FOOD PRODUCTS CO Food Products 3,331.13 0.15% DAIWA HOUSE IND CO Household Durables 3,320.00 0.15% UNI-CHARM CORP Household Products 3,205.04 0.15% FUJIKURA Electrical Equipment 3,197.66 0.15% KURARAY CO Chemicals 3,190.09 0.15% MITSUBISHI MATERIALS Metals & Mining 3,167.11 0.15% NIPPON MEAT PACKERS Food Products 3,134.61 0.15% SKYLARK CO Hotels Restaurants & Leisure 3,062.91 0.14% ISHIKAWAJIMA-HARIMA Machinery 3,047.70 0.14% KONICA CORP Leisure Equipment & Products 3,018.80 0.14% KANEKA CORP Chemicals 2,986.10 0.14% JOYO BANK Banks 2,923.75 0.14% SUMITOMO METAL MINING CO Metals & Mining 2,860.01 0.13% NIPPON COMSYS CORP Construction & Engineering 2,835.57 0.13% KAJIMA CORP Construction & Engineering 2,776.98 0.13% AMADA CO Machinery 2,765.46 0.13% BANK FUKUOKA Banks 2,750.43 0.13% DAINIPPON INK Chemicals 2,676.90 0.12% SHIMAMURA CO Specialty Retail 2,665.89 0.12% TOTO Building Products 2,663.95 0.12% GUNMA BANK Banks 2,660.21 0.12% SHIMANO Leisure Equipment & Products 2,620.03 0.12%
A-24
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- TBS TOKYO BROADCASTING Media 2,589.50 0.12% CHUO MITSUI TRUST & BANK Diversified Financials 2,583.25 0.12% TOHO CO Media 2,531.68 0.12% SEVENTY-SEVEN BANK Banks 2,515.40 0.12% CITIZEN WATCH CO Textiles & Apparel 2,508.74 0.12% UNY CO Multiline Retail 2,505.14 0.12% TOBU RAILWAY CO Road & Rail 2,495.98 0.12% CASIO COMPUTER CO Household Durables 2,476.13 0.11% TOYO INFORMATION SYSTEMS IT Consulting & Services 2,456.27 0.11% SHIMIZU CORP Construction & Engineering 2,420.18 0.11% JAPAN ENERGY CORP Oil & Gas 2,399.68 0.11% SUMITOMO METAL IND Metals & Mining 2,328.06 0.11% MEIJI SEIKA KAISHA Food Products 2,299.15 0.11% NISSHIN FLOUR MILLING CO Food Products 2,247.72 0.10% DAITO TRUST CONSTRUCTION Construction & Engineering 2,243.85 0.10% TAKASHIMAYA CO Multiline Retail 2,200.23 0.10% FUJI SOFT ABC Software 2,114.14 0.10% MITSUBISHI RAYON CO Chemicals 2,103.92 0.10% YAMAHA CORP Leisure Equipment & Products 2,097.39 0.10% KEIHIN ELECTRIC EXPRESS Road & Rail 2,083.04 0.10% ISETAN CO Multiline Retail 2,051.94 0.09% YOKOGAWA ELECTRIC CORP Electronic Equipment & Instruments 2,051.53 0.09% KURITA WATER INDUSTRIES Construction & Engineering 2,014.03 0.09% YAKULT HONSHA CO Food Products 2,011.99 0.09% MITSUKOSHI Multiline Retail 1,936.66 0.09% UBE INDUSTRIES Industrial Conglomerates 1,913.59 0.09% SHOWA SHELL SEKIYU K.K Oil & Gas 1,871.07 0.09% KOKUYO CO Comercial Services & Supplies 1,861.07 0.09% TOSOH CORP Chemicals 1,845.13 0.09% KAWASAKI HEAVY IND Machinery 1,795.13 0.08% SUMITOMO OSAKA CEMENT CO Construction Materials 1,786.51 0.08% MITSUBISHI GAS CHEMICAL Chemicals 1,780.72 0.08% SEKISUI CHEMICAL CO Household Durables 1,730.39 0.08% DENKI KAGAKU KOGYO K.K Chemicals 1,721.14 0.08% SEGA CORP Household Durables 1,719.82 0.08% WORLD CO Textiles & Apparel 1,710.51 0.08% TODA CORP Construction & Engineering 1,657.33 0.08% JGC CORP Construction & Engineering 1,624.35 0.08% TRANS COSMOS Comercial Services & Supplies 1,604.25 0.07% KINDEN CORP Electrical Equipment 1,602.03 0.07% TAIHEIYO CEMENT CORP Construction Materials 1,578.47 0.07% YAMAZAKI BAKING CO Food Products 1,576.92 0.07% MITSUBISHI LOGISTICS Marine 1,575.37 0.07% KIKKOMAN CORP Food Products 1,570.14 0.07% TAISEI CORP Construction & Engineering 1,559.01 0.07% NICHIREI CORP Food Products 1,523.74 0.07% HOUSE FOODS(HOUSE FD IND Food Products 1,506.49 0.07% MEITEC CORP IT Consulting & Services 1,468.38 0.07% TEIKOKU OIL CO Oil & Gas 1,459.14 0.07% TOYOBO CO Textiles & Apparel 1,447.19 0.07% COSMO OIL CO Oil & Gas 1,442.76 0.07% HOKURIKU BANK Banks 1,436.95 0.07% DAIEI Multiline Retail 1,417.41 0.07%
A-25
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- --------------- -------- KATOKICHI CO Food Products 1,412.87 0.07% KOYO SEIKO CO Machinery 1,404.35 0.06% KANEBO Personal Products 1,402.74 0.06% NTN CORP Machinery 1,383.63 0.06% NAMCO Hotels Restaurants & Leisure 1,381.98 0.06% WACOAL CORP Textiles & Apparel 1,372.60 0.06% CSK CORP IT Consulting & Services 1,355.42 0.06% MEIJI MILK PRODUCTS CO Food Products 1,322.90 0.06% ASATSU-DK Media 1,310.32 0.06% KAMIGUMI CO Marine 1,302.35 0.06% MAKITA CORP Electrical Equipment 1,254.35 0.06% FUJI MACHINE MFG CO Machinery 1,238.50 0.06% SHOWA DENKO K.K Chemicals 1,237.20 0.06% KYOWA EXEO CORP Construction & Engineering 1,224.15 0.06% KOMORI CORP Machinery 1,220.82 0.06% ONWARD KASHIYAMA CO Textiles & Apparel 1,191.38 0.06% DAICEL CHEMICAL IND Chemicals 1,166.59 0.05% ASHIKAGA BANK Banks 1,145.50 0.05% SANRIO CO Household Durables 1,134.48 0.05% SUMITOMO HEAVY IND Machinery 1,116.01 0.05% SNOW BRAND MILK PRODUCTS Food Products 1,106.14 0.05% SUMITOMO FORESTRY CO Paper & Forest Products 1,090.69 0.05% INAX CORP Building Products 1,081.64 0.05% NISSHINBO INDUSTRIES Textiles & Apparel 1,079.98 0.05% MORI SEIKI CO Machinery 1,060.63 0.05% SAPPORO BREWERIES Beverages 1,039.98 0.05% KAWASAKI KISEN KAISHA Marine 991.67 0.05% SEIYU Multiline Retail 966.87 0.04% NISHIMATSU CONSTRUCTION Construction & Engineering 966.04 0.04% DAINIPPON SCREEN MFG CO Electronic Equipment & Instruments 965.52 0.04% TOKYO STYLE CO Textiles & Apparel 930.91 0.04% GUNZE Textiles & Apparel 929.86 0.04% HITACHI ZOSEN CORP Machinery 922.77 0.04% MITSUI ENGINEERING&SHIP. Machinery 922.69 0.04% AUTOBACS SEVEN CO Specialty Retail 913.55 0.04% NORITAKE CO Household Durables 901.01 0.04% NIPPON SHOKUBAI CO Chemicals 844.44 0.04% AMANO CORP Comercial Services & Supplies 802.53 0.04% OKUMURA CORP Construction & Engineering 783.41 0.04% DAIFUKU CO Machinery 760.37 0.04% HANKYU DEPARTMENT STORES Multiline Retail 752.89 0.03% DAIMARU Multiline Retail 735.90 0.03% MYCAL CORP Multiline Retail 725.22 0.03% SEINO TRANSPORTATION CO Road & Rail 698.51 0.03% SANDEN CORP Auto Components 692.55 0.03% SHIMACHU CO Specialty Retail 691.68 0.03% TAKUMA CO Machinery 674.49 0.03% MITSUBISHI PAPER MILLS Paper & Forest Products 641.72 0.03% TOKYO DOME CORP Hotels Restaurants & Leisure 631.66 0.03% TOEI CO Media 627.95 0.03% TSUBAKIMOTO CHAIN CO Machinery 606.49 0.03% KADOKAWA SHOTEN PUBLISH. Media 591.94 0.03% ISHIHARA SANGYO KAISHA Chemicals 587.47 0.03%
A-26
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- --------------- --------- MAKINO MILLING MACHINE Machinery 565.62 0.03% SANWA SHUTTER CORP Building Products 540.22 0.02% ORIENT CORP Diversified Financials 518.23 0.02% NOF CORP Chemicals 517.14 0.02% KUREHA CHEMICAL IND CO Chemicals 507.16 0.02% AOYAMA TRADING CO Specialty Retail 495.46 0.02% OKUMA CORP Machinery 484.68 0.02% KAKEN PHARMACEUTICAL CO Pharmaceuticals 482.30 0.02% NIPPON LIGHT METAL CO Metals & Mining 461.07 0.02% PENTA-OCEAN CONSTRUCTION Construction & Engineering 453.49 0.02% NIPPON SUISAN KAISHA Food Products 450.91 0.02% MAEDA ROAD CONSTRUCTION Construction & Engineering 428.57 0.02% DAIWA KOSHO LEASE CO Real Estate 424.72 0.02% HASEKO CORP Construction & Engineering 418.69 0.02% NIPPON SHINPAN CO Diversified Financials 416.01 0.02% SHO-BOND CORP Construction & Engineering 377.00 0.02% JAPAN STEEL WORKS Machinery 372.22 0.02% NICHIEI CO (8577) Diversified Financials 357.76 0.02% OYO CORP Comercial Services & Supplies 355.07 0.02% DAIKYO Real Estate 294.43 0.01%
A-27 APPENDIX A-14 MSCI MALAYSIA (FREE) INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- ---------- TENAGA NASIONAL Electric Utilities 10,381.30 14.89% TELEKOM MALAYSIA Diversified Telecommunication 10,071.72 14.44% Services MALAYAN BANKING Banks 8,627.12 12.37% MALAYSIA INT'L SHIP FGN Marine 3,279.32 4.70% BRITISH AMER TOBACCO MY Tobacco 2,874.08 4.12% SIME DARBY Industrial Conglomerates 2,864.60 4.11% COMMERCE ASSET-HOLDING Banks 2,329.15 3.34% YTL CORP Electric Utilities 1,799.58 2.58% RESORTS WORLD Hotels Restaurants & Leisure 1,666.50 2.39% PUBLIC BANK FGN Banks 1,651.44 2.37% RHB CAPITAL Banks 1,449.18 2.08% NESTLE (MALAYSIA) Food Products 1,197.18 1.72% MALAYSIAN PACIFIC IND Semiconductor Equipment & Products 1,176.41 1.69% GOLDEN HOPE PLANTATIONS Food Products 928.74 1.33% MALAYAN CEMENT Construction Materials 913.79 1.31% AMMB HOLDINGS Diversified Financials 881.26 1.26% KUALA LUMPUR KEPONG Food Products 862.52 1.24% UNITED ENGINEERS (MAL) Construction & Engineering 833.90 1.20% MALAYSIAN AIRLINE SYSTEM Airlines 774.05 1.11% GAMUDA Construction & Engineering 735.21 1.05% BERJAYA SPORTS TOTO Hotels Restaurants & Leisure 675.76 0.97% MAGNUM CORP Hotels Restaurants & Leisure 636.38 0.91% PROTON Automobiles 631.26 0.91% ORIENTAL HOLDINGS Automobiles 582.45 0.84% IOI CORP Food Products 580.78 0.83% TIME ENGINEERING Industrial Conglomerates 571.59 0.82% TECHNOLOGY RESOURCES IND Diversified Telecommunication 554.26 0.79% Services MALAYSIAN RESOURCES CORP Industrial Conglomerates 474.70 0.68% MALAYSIA MINING CORP Metals & Mining 473.08 0.68% UNISEM (MALAYSIA) Semiconductor Equipment & Products 444.05 0.64% EDARAN OTOMOBIL NASIONAL Specialty Retail 429.85 0.62% STAR PUBLICATIONS (MAL) Media 419.49 0.60% PETRONAS DAGANGAN Oil & Gas 392.15 0.56% PPB GROUP (PERLIS PLANTA Food Products 377.65 0.54% HIGHLANDS & LOWLANDS Food Products 373.73 0.54% UMW HOLDINGS Auto Components 360.11 0.52% MALAYSIAN OXYGEN Chemicals 358.78 0.51% ROAD BUILDER (MAL) HLDGS Construction & Engineering 337.36 0.48% TA ENTERPRISE Diversified Financials 314.64 0.45% IJM CORP Construction & Engineering 314.35 0.45% PUNCAK NIAGA HOLDINGS Water Utilities 268.26 0.38% JAYA TIASA HOLDINGS Paper & Forest Products 267.66 0.38% NEW STRAITS TIMES PRESS Media 267.06 0.38% GUINNESS ANCHOR Beverages 260.76 0.37% WTK HOLDINGS Paper & Forest Products 258.71 0.37% JT INTERNATIONAL Tobacco 256.03 0.37% SP SETIA Real Estate 250.40 0.36%
A-28
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- ---------- HUME INDUSTRIES MALAYSIA Building Products 232.19 0.33% TAN CHONG MOTOR HOLDINGS Automobiles 221.05 0.32% RASHID HUSSAIN Banks 219.54 0.31% MALAYAN UNITED IND Diversified Financials 214.48 0.31% MULTI-PURPOSE HOLDINGS Diversified Financials 168.65 0.24% SELANGOR PROPERTIES Real Estate 168.19 0.24% IGB CORP Real Estate 162.56 0.23% HONG LEONG PROPERTIES Real Estate 158.52 0.23% MALAYSIAN MOSAICS Trading Companies & Distributors 148.31 0.21% MULPHA INTERNATIONAL Diversified Financials 146.78 0.21% PAN MALAYSIA CORP Construction Materials 144.01 0.21% FACB RESORTS Real Estate 134.83 0.19% EKRAN Real Estate 121.80 0.17% KIAN JOO CAN FACTORY Containers & Packaging 105.98 0.15% SUNWAY HOLDINGS Construction & Engineering 103.91 0.15% ACP INDUSTRIES Building Products 100.11 0.14% AMSTEEL CORP Industrial Conglomerates 99.44 0.14% METROPLEX Hotels Restaurants & Leisure 92.30 0.13% LAND & GENERAL Industrial Conglomerates 91.54 0.13% LEADER UNIVERSAL HLDGS Electrical Equipment 79.25 0.11% PILECON ENGINEERING Construction & Engineering 73.62 0.11% LANDMARKS Hotels Restaurants & Leisure 69.57 0.10% ANTAH HOLDINGS Industrial Conglomerates 63.38 0.09% MALAYAWATA STEEL Metals & Mining 58.35 0.08% JOHAN HOLDINGS Trading Companies & Distributors 53.33 0.08% MBF CAPITAL Diversified Financials 48.38 0.07% MYCOM Real Estate 21.70 0.03%
A-29 APPENDIX A-15 MSCI MEXICO (FREE) INDEX AS OF NOVEMBER 30, 2000
Constituent Name Industry Index Market Weight in ---------------- -------- Capitalization MSCI Index (Millions of US$) (%) --------------- ---------- TELEFONOS MEXICO L Diversified Telecommunication 34,957.48 35.30% Services WALMART MEXICO V Multiline Retail 8,474.17 8.56% GRUPO MODELO C Beverages 7,774.78 7.85% GRUPO TELEVISA CPO Media 7,158.14 7.23% BANACCI O Banks 6,518.92 6.58% CEMEX CPO (NEW) Construction Materials 6,099.76 6.16% GRUPO F. BBVA BANCOMER O Banks 5,271.66 5.32% FEMSA UNIT Beverages 3,678.01 3.71% KIMBERLY-CLARK MEXICO A Paper & Forest Products 3,196.73 3.23% GRUPO CARSO Industrial Conglomerates 2,439.79 2.46% SAVIA A Biotechnology 2,162.81 2.18% GRUPO BIMBO A Food Products 2,034.80 2.05% GRUPO MEXICO B (NEW) Metals & Mining 1,741.23 1.76% GRUPO ELEKTRA CPO Specialty Retail 1,218.97 1.23% WALMART MEXICO C Multiline Retail 1,136.60 1.15% CONTROLADORA COM MEX UBC Multiline Retail 1,031.98 1.04% ALFA Industrial Conglomerates 924.43 0.93% TUBOS ACERO DE MEXICO Energy Equipment & Services 911.04 0.92% GRUPO CONTINENTAL Beverages 840.90 0.85% DESC B Industrial Conglomerates 581.37 0.59% INDUSTRIAS PENOLES CP Metals & Mining 358.33 0.36% VITRO A Containers & Packaging 277.69 0.28% GRUPO IND'L MASECA B2 Food Products 234.16 0.24%
A-30 APPENDIX A-16 MSCI NETHERLANDS INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ---------------- ---------- ROYAL DUTCH PETROLEUM CO Oil & Gas 128,609.44 26.53% ING GROEP Diversified Financials 70,436.83 14.53% AEGON Insurance 55,609.66 11.47% PHILIPS ELECTRS (KON.) Household Durables 42,478.31 8.76% UNILEVER NV CERT Food Products 35,276.78 7.28% ABN AMRO HOLDING Banks 31,506.17 6.50% AHOLD (KON.) Food & Drug Retailing 24,947.46 5.15% HEINEKEN NV Beverages 16,938.08 3.49% KPN (KON.) Diversified Telecommunication 16,218.18 3.35% Services AKZO NOBEL Chemicals 13,576.46 2.80% TNT POST GROEP Air Freight & Couriers 11,453.55 2.36% ASM LITHOGRAPHY HOLDING Semiconductor Equipment & Products 8,781.49 1.81% ELSEVIER Media 8,459.24 1.75% WOLTERS KLUWER Media 6,867.43 1.42% BUHRMANN Comercial Services & Supplies 2,539.58 0.52% HAGEMEYER Distributors 2,339.74 0.48% GETRONICS IT Consulting & Services 1,764.99 0.36% OCE Office Electronics 1,331.08 0.27% IHC CALAND Machinery 1,288.10 0.27% VEDIOR Comercial Services & Supplies 1,166.16 0.24% VOPAK (KON.) Marine 1,069.02 0.22% KLM Airlines 886.27 0.18% NEDLLOYD (KON.) Marine 467.43 0.10% STORK (VER MACHINE.) Machinery 353.10 0.07% HOLLANDSCHE BETON GROEP Construction & Engineering 315.96 0.07%
A-31 APPENDIX A-17 MSCI PACIFIC EX-JAPAN INDEX AS OF SEPTEMBER 30, 2001
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US $) (%) ---------------- -------- ------------------ --- 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%
A-32
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US $) (%) ---------------- -------- ---------------- --- HENDERSON LAND DEV. Real Estate Management & Development 1,974.52 0.574% 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%
A-33
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US $) (%) ---------------- -------- ------------------ --- 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% 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%
A-34
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US $) (%) ---------------- -------- ------------------ --- INDEPENDENT NEWS LTD Publishing & Printing 162.43 0.047% ST ASSEMBLY TEST SVCS Semiconductors 161.07 0.047% FLETCHER FORESTS PREF Forest Products 151.25 0.044% HOTEL PROPERTIES Hotels 132.72 0.039% WING TAI HOLDINGS Real Estate Management & Development 132.04 0.038% NATSTEEL Industrial Conglomerates 114.79 0.033% FLETCHER FORESTS COMN Forest Products 93.40 0.027% GES INTERNATIONAL Computer Hardware 89.77 0.026% FIRST CAPITAL CORP Real Estate Management & Development 86.89 0.025% AIR NEW ZEALAND B Airlines 30.17 0.009%
A-35 APPENDIX A-18 MSCI PORTUGAL INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- BCP BANCO COMERCIAL NOM Banks 10,208.06 23.53% EDP ELECTRICIDADE PORT Electric Utilities 9,132.29 21.05% PORTUGAL TELECOM Diversified Telecommunication Services 8,550.92 19.71% BANCO ESPIRITO SANTO Banks 3,109.43 7.17% CIMPOR CIMENTOS DE PORT Construction Materials 3,100.37 7.15% SONAE SGPS Industrial Conglomerates 2,675.32 6.17% BRISA AUTO-ESTRADAS PORT Transportation Infrastructure 2,512.26 5.79% BPI SGPS NOM Diversified Financials 2,034.50 4.69% JERONIMO MARTINS SGPS Food & Drug Retailing 1,063.92 2.45% PORTUCEL INDUSTRIAL Paper & Forest Products 530.13 1.22% CORTICEIRA AMORIM Containers & Packaging 135.46 0.31% INAPA Paper & Forest Products 132.66 0.31% EFACEC CAPITAL SGPS Electrical Equipment 75.73 0.17% CIN CORP IND'L DO NORTE Chemicals 71.82 0.17% SOARES DA COSTA Construction & Engineering 58.50 0.13%
A-36 APPENDIX A-19 MSCI SINGAPORE (FREE) INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- -------------------- ----------------- DBS GROUP HOLDINGS Banks 14,823.91 16.61% SINGAPORE AIRLINES Airlines 11,802.47 13.22% SINGAPORE TELECOM Diversified Telecommunication Services 10,270.86 11.51% OCBC BANK Banks 8,647.95 9.69% UNITED OVERSEAS BANK Banks 7,560.19 8.47% SINGAPORE PRESS HLDG Media 5,710.13 6.40% SINGAPORE TECH ENGR. Aerospace & Defense 4,261.66 4.78% CHARTERED SEMICONDUCTOR Semiconductor Equipment & Products 3,677.53 4.12% CITY DEVELOPMENTS Real Estate 3,653.46 4.09% CAPITALAND Real Estate 3,214.86 3.60% NATSTEEL ELECTRONICS Computers & Peripherals 1,943.58 2.18% VENTURE MANUFACTURING Electronic Equipment & Instruments 1,879.88 2.11% SEMBCORP INDUSTRIES Industrial Conglomerates 1,482.13 1.66% KEPPEL CORP Diversified Financials 1,465.12 1.64% FRASER & NEAVE Beverages 1,088.30 1.22% CREATIVE TECHNOLOGY Computers & Peripherals 984.88 1.10% NEPTUNE ORIENT LINES NOL Marine 925.09 1.04% PARKWAY HOLDINGS Health Care Providers & Services 718.32 0.80% OVERSEAS UNION ENT. Hotels Restaurants & Leisure 643.36 0.72% UIC UNITED INDUSTRIAL Real Estate 632.20 0.71% OMNI INDUSTRIES Electronic Equipment & Instruments 604.88 0.68% UNITED OVERSEAS LAND Hotels Restaurants & Leisure 491.91 0.55% CYCLE & CARRIAGE Specialty Retail 461.59 0.52% WING TAI HOLDINGS Real Estate 452.85 0.51% HOTEL PROPERTIES Hotels Restaurants & Leisure 392.37 0.44% HAW PAR CORP Industrial Conglomerates 362.27 0.41% STRAITS TRADING Real Estate 345.43 0.39% FIRST CAPITAL CORP Real Estate 285.78 0.32% COMFORT GROUP Road & Rail 260.71 0.29% SINGAPORE COMPUTER SYS IT Consulting & Services 200.82 0.23%
A-37 APPENDIX A-20 MSCI SOUTH AFRICA INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- -------------------- ----------------- DE BEERS CONS'D MINES Metals & Mining 10,809.85 12.34% ANGLO AMERICAN PLATINUM Metals & Mining 8,698.44 9.93% DIMENSION DATA HOLDINGS IT Consulting & Services 7,928.70 9.05% FIRSTRAND Banks 4,923.10 5.62% NEDCOR Banks 4,860.20 5.55% SOUTH AFRICAN BREW. PLC Beverages 4,610.09 5.26% SASOL Oil & Gas 4,287.30 4.90% M-CELL Wireless Telecommunication Services 4,172.12 4.76% IMPALA PLATINUM HOLDINGS Metals & Mining 3,107.68 3.55% REMGRO (REMBRANDT GROUP) Industrial Conglomerates 2,973.23 3.40% SANLAM Insurance 2,770.29 3.16% ANGLOGOLD Metals & Mining 2,616.31 2.99% INVESTEC GROUP Diversified Financials 2,420.75 2.76% LIBERTY GROUP Insurance 2,076.76 2.37% ABSA GROUP Banks 2,018.16 2.30% BIDVEST GROUP Industrial Conglomerates 1,559.95 1.78% SAPPI Paper & Forest Products 1,528.46 1.75% IMPERIAL HOLDINGS Specialty Retail 1,486.99 1.70% GOLD FIELDS Metals & Mining 1,277.02 1.46% TIGER BRANDS Food Products 1,176.57 1.34% BARLOWORLD Industrial Conglomerates 1,149.82 1.31% CORONATION HOLDINGS N Diversified Financials 1,116.62 1.28% BOE LTD Diversified Financials 1,086.24 1.24% PICK'N PAY STORES Food & Drug Retailing 715.41 0.82% METROPOLITAN LIFE Insurance 695.66 0.79% NAMPAK Containers & Packaging 690.76 0.79% FEDSURE HOLDINGS Insurance 661.42 0.76% MIH HOLDINGS Internet Software & Services 652.95 0.75% NASPERS N Media 612.66 0.70% JD GROUP Specialty Retail 491.02 0.56% SHOPRITE HOLDINGS Food & Drug Retailing 477.32 0.55% TONGAAT-HULETT GROUP Food Products 449.13 0.51% AFRICAN BANK INVESTMENTS Diversified Financials 417.85 0.48% PROFURN Specialty Retail 401.47 0.46% WOOLWORTHS HOLDINGS Multiline Retail 353.40 0.40% ISCOR Metals & Mining 338.32 0.39% COMPAREX HOLDINGS IT Consulting & Services 335.75 0.38% REUNERT Electronic Equipment & Instruments 316.18 0.36% METRO CASH & CARRY Food & Drug Retailing 283.38 0.32% FOSCHINI Specialty Retail 223.10 0.25% WOOLTRU N Multiline Retail 208.05 0.24% AFRICAN LIFE ASSURANCE Insurance 173.26 0.20% PRIMEDIA N Media 153.27 0.18% WOOLTRU Multiline Retail 150.22 0.17% PEPKOR Specialty Retail 113.51 0.13%
A-38 APPENDIX A-21 MSCI SOUTH KOREA INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- -------------------- ----------------- SAMSUNG ELECTRONICS CO Semiconductor Equipment & Products 23,340.43 24.55% SK TELECOM CO Wireless Telecommunication Services 17,896.55 18.82% KEPCO KOREA ELECT. POWER Electric Utilities 12,111.55 12.74% KOOKMIN BANK Banks 3,339.99 3.51% HYUNDAI MOTOR CO Automobiles 3,158.19 3.32% KOREA TELECOM CORP Diversified Telecommunication Services 3,082.19 3.24% POSCO POHANG IRON &STEEL Metals & Mining 2,889.26 3.04% HOUSING & COMMERCIAL BANK Banks 2,332.89 2.45% SHINHAN BANK Banks 2,299.97 2.42% SAMSUNG ELECTRO-MECH. CO Electronic Equipment & Instruments 1,985.50 2.09% SAMSUNG SDI CO Electronic Equipment & Instruments 1,798.28 1.89% SAMSUNG SECURITIES CO Diversified Financials 1,320.74 1.39% SAMSUNG FIRE & MARINE Insurance 1,286.30 1.35% LG ELECTRONICS Household Durables 1,237.71 1.30% LG CHEMICAL Chemicals 983.92 1.03% SAMSUNG HEAVY INDUSTRIES Machinery 847.53 0.89% SAMSUNG CORP Trading Companies & Distributors 770.46 0.81% LG INVESTMENTS & SEC Diversified Financials 743.78 0.78% SHINSEGAE DEPT STORE CO Multiline Retail 727.62 0.77% CHEIL JEDANG CORP Food Products 709.99 0.75% DAEWOO SECURITIES CO Diversified Financials 699.91 0.74% HANA BANK Banks 639.47 0.67% HITE BREWERY CO Beverages 613.89 0.65% KOREA EXCHANGE BANK Banks 555.67 0.58% HYUNDAI SECURITIES CO Diversified Financials 511.93 0.54% ANAM SEMICONDUCTOR Semiconductor Equipment & Products 416.92 0.44% DAE DUCK ELECTRONICS CO Electronic Equipment & Instruments 409.60 0.43% DAISHIN SECURITIES CO Diversified Financials 407.93 0.43% KUMKANG KOREA CHEMICAL Building Products 385.04 0.40% HYUNDAI ENG. & CONSTR. Construction & Engineering 373.41 0.39% SK GLOBAL Trading Companies & Distributors 359.77 0.38% S1 CORP Comercial Services & Supplies 354.83 0.37% KOREAN AIR LINES CO Airlines 322.38 0.34% DOOSAN CORP Beverages 318.72 0.34% DONGWON SECURITIES CO Diversified Financials 308.27 0.32% LG CABLE & MACHINERY Electrical Equipment 302.00 0.32% CHEIL COMMUNICATIONS Media 255.16 0.27% DAUM COMMUNICATIONS CORP Internet Software & Services 253.34 0.27% HYUNDAI MERCHANT MARINE Marine 247.61 0.26% HANKOOK TIRE MFG CO Auto Components 245.27 0.26% SEROME TECHNOLOGY Internet Software & Services 242.57 0.26% KOREA INFO & COMMUNI. CO Comercial Services & Supplies 239.20 0.25% DAELIM INDUSTRIAL CO Construction & Engineering 234.91 0.25% TRI GEM COMPUTER Computers & Peripherals 218.63 0.23% CHEIL INDUSTRIAL Chemicals 213.08 0.22% SAMSUNG FINE CHEMICAL Chemicals 201.65 0.21% KTB NETWORK Diversified Financials 200.96 0.21% HANDYSOFT CORP Software 195.48 0.21%
A-39
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- -------------------- ----------------- HANWHA CHEMICAL CORP Chemicals 181.95 0.19% HYOSUNG CORP Chemicals 180.35 0.19% KOREA ZINC Metals & Mining 170.77 0.18% HYUNDAI DEPT STORE(KEUMK Multiline Retail 145.15 0.15% HOTEL SHILLA CO Hotels Restaurants & Leisure 144.14 0.15% HONAM PETROCHEMICAL Chemicals 142.85 0.15% DAOU TECHNOLOGY Internet Software & Services 142.33 0.15% SSANGYONG CEMENT IND'L Construction Materials 142.06 0.15% HANJIN HEAVY INDUSTRIES Machinery 140.82 0.15% HAANSOFT Software 138.56 0.15% HANSOL PAPER CO. Paper & Forest Products 130.30 0.14% KOREA GREEN CROSS CORP Pharmaceuticals 129.05 0.14% DONG-A PHARMACEUTICAL CO Pharmaceuticals 109.70 0.12% NAMHAE CHEMICAL CO Chemicals 97.51 0.10% MEDISON CO Health Care Equipment & Supplies 85.62 0.09% DAESANG CORP Food Products 81.29 0.09% SAM YANG Textiles & Apparel 80.60 0.08% LG INSURANCE CO Insurance 75.03 0.08% KUKDO CHEMICAL CO Chemicals 74.10 0.08% ISU CHEMICAL CO Chemicals 46.05 0.05% KOREA EXPRESS Road & Rail 45.85 0.05%
A-40 APPENDIX A-22 MSCI SPAIN INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- -------------------- ----------------- TELEFONICA Diversified Telecommunication Services 68,151.57 28.54% BBVA Banks 42,154.26 17.65% BSCH BCO SANTANDER CENTR Banks 40,054.16 16.77% REPSOL YPF Oil & Gas 19,952.86 8.36% ENDESA Electric Utilities 17,133.36 7.18% IBERDROLA Electric Utilities 10,790.98 4.52% GAS NATURAL SDG Gas Utilities 7,448.87 3.12% UNION ELECTRICA FENOSA Electric Utilities 5,458.30 2.29% ALTADIS Tobacco 4,501.42 1.89% FOMENTO CONST Y CONTR Construction & Engineering 2,143.25 0.90% AUTOPISTAS CESA (ACESA) Transportation Infrastructure 2,133.73 0.89% ALBA (CORP FINANCIERA) Real Estate 1,767.78 0.74% AGUAS DE BARCELONA Water Utilities 1,764.64 0.74% GRUPO DRAGADOS Construction & Engineering 1,709.77 0.72% ACERINOX Metals & Mining 1,522.09 0.64% ACS ACTIV. CONST. Y SVCS Construction & Engineering 1,483.37 0.62% SOL MELIA Hotels Restaurants & Leisure 1,372.42 0.57% ZARDOYA OTIS Machinery 1,212.87 0.51% MAPFRE (CORPORACION) Insurance 1,106.36 0.46% METROVACESA Real Estate 771.21 0.32% AZUCARERA EBRO AGRICOLAS Food Products 755.64 0.32% VALLEHERMOSO Real Estate 708.92 0.30% CORTEFIEL Specialty Retail 682.88 0.29% PROSEGUR Comercial Services & Supplies 619.97 0.26% TELEPIZZA Hotels Restaurants & Leisure 541.89 0.23% PULEVA Food Products 422.77 0.18% PORTLAND VALDERRIVAS Construction Materials 397.96 0.17% FAES Pharmaceuticals 393.75 0.16% URBIS (INMOBILIARIA) Real Estate 376.73 0.16% EMPRESARIAL ENCE (GRUPO) Paper & Forest Products 360.08 0.15% ASTURIANA DE ZINC Metals & Mining 315.23 0.13% URALITA Building Products 263.56 0.11% VISCOFAN Food Products 229.56 0.10% ERCROS Chemicals 85.52 0.04%
A-41 APPENDIX A-23 MSCI SWEDEN INDEX AS OF NOVEMBER 30, 2000
Weight in Index Market MSCI Index Capitalization ---------- Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- ERICSSON (LM) B Communications Equipment 97,369.81 40.39% NORDIC BALTIC HOLDING Banks 21,176.91 8.78% SKANDIA FORSAKRING Insurance 16,132.89 6.69% HENNES & MAURITZ B Specialty Retail 13,810.74 5.73% SVENSKA HANDELSBK A Banks 10,679.61 4.43% TELIA Diversified Telecommunication Services 8,270.54 3.43% SKAND.ENSKILDA BANKEN A Banks 7,490.18 3.11% ASSA ABLOY B Building Products 6,263.96 2.60% SECURITAS B Comercial Services & Supplies 5,891.53 2.44% SANDVIK Machinery 5,889.75 2.44% ELECTROLUX B Household Durables 5,205.67 2.16% NETCOM B Diversified Telecommunication Services 4,960.48 2.06% SKANSKA B Construction & Engineering 4,808.96 1.99% SCA SV CELLULOSA B Paper & Forest Products 4,628.44 1.92% VOLVO B Machinery 4,602.87 1.91% ATLAS COPCO A Machinery 3,091.41 1.28% OM GRUPPEN Diversified Financials 2,140.79 0.89% VOLVO A Machinery 2,056.16 0.85% MTG MODERN TIMES GROUP B Media 1,935.12 0.80% GAMBRO A Health Care Providers & Services 1,781.15 0.74% ASSIDOMAN Containers & Packaging 1,775.53 0.74% ATLAS COPCO B Machinery 1,472.05 0.61% SWEDISH MATCH Tobacco 1,407.68 0.58% DROTT B Real Estate 1,356.62 0.56% WM-DATA B IT Consulting & Services 1,322.06 0.55% SVENSKA HANDELSBK B Banks 1,041.35 0.43% SKF B Machinery 934.76 0.39% TRELLEBORG B Trading Companies & Distributors 788.76 0.33% SSAB SVENSKT STAL A Metals & Mining 704.65 0.29% GAMBRO B Health Care Providers & Services 659.05 0.27% SKF A Machinery 649.51 0.27% SAPA Metals & Mining 514.91 0.21% SSAB SVENSKT STAL B Metals & Mining 250.38 0.10%
A-42 APPENDIX A-24 MSCI SWITZERLAND INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- NOVARTIS Pharmaceuticals 117,017.17 20.27% NESTLE Food Products 85,623.31 14.83% ROCHE HOLDING GENUSS Pharmaceuticals 69,616.77 12.06% UBS (NEW) Banks 61,296.68 10.62% CREDIT SUISSE Banks 52,205.60 9.04% ZURICH FINL(ZURICH ALLIE Insurance 45,201.84 7.83% SCHWEIZ RUECKVERS Insurance 31,841.84 5.52% ABB LTD Electrical Equipment 27,307.51 4.73% ROCHE HOLDING INHABER Pharmaceuticals 18,435.30 3.19% SWISSCOM Diversified Telecommunication Services 17,584.54 3.05% ADECCO Comercial Services & Supplies 10,980.52 1.90% HOLDERBANK INHABER Construction Materials 5,682.60 0.98% SYNGENTA Chemicals 5,058.21 0.88% SWATCH GROUP PORT Textiles & Apparel 3,947.98 0.68% LONZA GROUP Chemicals 3,432.35 0.59% SWATCH GROUP NOM Textiles & Apparel 3,325.96 0.58% HOLDERBANK NAMEN Construction Materials 2,947.03 0.51% SULZER Machinery 2,311.76 0.40% GIVAUDAN Chemicals 2,151.69 0.37% SAIRGROUP Airlines 1,882.75 0.33% SGS SURVEILLANCE PORT Comercial Services & Supplies 1,278.99 0.22% KUONI REISEN NAMEN B Hotels Restaurants & Leisure 1,201.18 0.21% SCHINDLER NAMEN Machinery 1,136.38 0.20% FISCHER (GEORG) NAMEN Machinery 885.00 0.15% VALORA HOLDING NAMEN Specialty Retail 876.48 0.15% SCHINDLER PART Machinery 861.85 0.15% SGS SURVEILLANCE NOM Comercial Services & Supplies 673.00 0.12% SIKA FINANZ INHABER Chemicals 637.27 0.11% FORBO HOLDING Household Durables 609.47 0.11% JELMOLI HOLDING INHABER Multiline Retail 572.96 0.10% MOEVENPICK INHABER Hotels Restaurants & Leisure 367.21 0.06% JELMOLI HOLDING NAMEN Multiline Retail 362.84 0.06%
A-43 APPENDIX A-25 MSCI TAIWAN INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- TAIWAN SEMICONDUCTOR MFG Semiconductor Equipment & Products 31,637.78 19.98% UNITED MICROELECTRONICS Semiconductor Equipment & Products 18,012.92 11.38% CATHAY LIFE INSURANCE CO Insurance 9,632.25 6.08% HON HAI PRECISION IND CO Electronic Equipment & Instruments 8,260.11 5.22% ASUSTEK COMPUTER Computers & Peripherals 6,610.95 4.18% NAN YA PLASTIC Chemicals 6,408.33 4.05% FORMOSA PLASTIC CORP Chemicals 5,604.18 3.54% QUANTA COMPUTER Computers & Peripherals 4,965.53 3.14% CHINA DEVLPT IND'L BANK Banks 4,922.53 3.11% CHINA STEEL CORP COMMON Metals & Mining 4,635.12 2.93% WINBOND ELECTRONICS CORP Semiconductor Equipment & Products 3,595.47 2.27% DELTA ELECTRONICS Electrical Equipment 3,256.59 2.06% ASE Semiconductor Equipment & Products 2,760.67 1.74% FORMOSA CHEMICAL FIBERS Textiles & Apparel 2,606.20 1.65% FAR EASTERN TEXTILE Textiles & Apparel 2,440.61 1.54% COMPAL ELECTRONICS Computers & Peripherals 2,424.51 1.53% ACER Computers & Peripherals 2,404.90 1.52% FIRST COMMERCIAL BANK Banks 2,370.13 1.50% HUA NAN COMMERCIAL BANK Banks 2,309.78 1.46% UNITED WORLD CHIN COM BK Banks 2,284.06 1.44% CHINATRUST COMMERCIAL BK Banks 2,135.08 1.35% ICBC INT'L COMM BK CHINA Banks 2,095.63 1.32% MOSEL VITELIC Semiconductor Equipment & Products 2,006.72 1.27% UNI-PRESIDENT ENT. Food Products 2,005.61 1.27% TATUNG Industrial Conglomerates 1,584.61 1.00% CHANG HWA COMMERCIAL BK Banks 1,525.25 0.96% EVERGREEN MARINE CORP Marine 1,381.33 0.87% WALSIN LIHWA CORP Electrical Equipment 1,257.13 0.79% TAIWAN CEMENT CORP Construction Materials 1,169.32 0.74% PACIFIC ELECTRIC WIRE Electrical Equipment 1,134.85 0.72% CHINA MOTOR CORP Automobiles 1,048.45 0.66% TECO ELECTRIC & MACH. Electrical Equipment 1,037.00 0.65% ASIA CEMENT CORP Construction Materials 1,035.26 0.65% YULON MOTOR CO Automobiles 999.60 0.63% TAIWAN GLASS IND'L CORP Building Products 973.45 0.61% POU CHEN CORP Textiles & Apparel 906.98 0.57% YANG MING MARINE TRANSP Marine 716.22 0.45% MICROELECTRONICS TECH Communications Equipment 640.19 0.40% CHUNG HSING BILLS FIN Diversified Financials 578.14 0.37% CHENG SHIN RUBBER IND Auto Components 500.88 0.32% NIEN HSING TEXTILE CORP Textiles & Apparel 496.11 0.31% KINPO ELECTRONICS Office Electronics 492.96 0.31% AURORA CORP Specialty Retail 485.24 0.31% SAMPO CORP Household Durables 427.91 0.27% CATHAY CONSTRUCTION Real Estate 397.66 0.25% LITE-ON ELECTRONICS Electronic Equipment & Instruments 310.84 0.20% FAR EAST DEPT STORES Multiline Retail 288.75 0.18% CONTINENTAL ENGINEERING Construction & Engineering 284.67 0.18% SHIHLIN ELECTR. & ENG Electrical Equipment 263.44 0.17%
A-44
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- SHIHLIN PAPER Paper & Forest Products 240.28 0.15% TUNG HO STEEL ENTERPRISE Metals & Mining 222.55 0.14% TON YI INDUSTRIAL COMMON Metals & Mining 194.74 0.12% CHUNG HWA PULP CORP Paper & Forest Products 175.19 0.11% LIEN HWA INDUSTRIAL CORP Food Products 153.91 0.10% PACIFIC CONSTRUCTION Construction & Engineering 150.93 0.10% CHINA SYNTHETIC RUBBER Chemicals 142.69 0.09% TAIWAN TEA CORP Food & Drug Retailing 139.18 0.09% GOLDSUN DEVLPT & CONSTR. Construction Materials 136.92 0.09% LEE CHANG YUNG CHEMICAL Chemicals 136.00 0.09% YUNG TAI ENGINEERING Machinery 134.79 0.09% HUALON-TEIJRAN COMMON Chemicals 133.99 0.08% WEI CHUAN FOOD Food Products 117.07 0.07% SHINKONG SYNTH. FIBERS Chemicals 105.43 0.07% ORIENTAL UNION CHEMICAL Chemicals 102.01 0.06% BES ENGINEERING CORP Construction & Engineering 92.62 0.06% EVER FORTUNE Real Estate 82.19 0.05% AMBASSADOR HOTEL Hotels Restaurants & Leisure 75.31 0.05% FORMOSAN RUBBER GROUP Textiles & Apparel 73.25 0.05% TAIWAN PULP & PAPER CO Paper & Forest Products 72.82 0.05% LEOFOO DEVELOPMENT CORP Hotels Restaurants & Leisure 62.11 0.04% TAY FENG TIRE Auto Components 59.42 0.04% HUA ENG WIRE & CABLE Electrical Equipment 59.22 0.04% TUNTEX DISTINCT Textiles & Apparel 58.47 0.04% ADI CORP Computers & Peripherals 45.58 0.03% CHUNG SHING TEXTILE CO Textiles & Apparel 33.79 0.02%
A-45 APPENDIX A-26 MSCI THAILAND (FREE) INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- ADVANCED INFO SERV. FGN Wireless Telecommunication Services 2,293.95 15.03% PTT EXPLORATION&PROD FGN Oil & Gas 1,666.45 10.92% TELECOMASIA CORP FGN Diversified Telecommunication Services 1,385.07 9.07% SIAM COMM BANK PREF FGN Banks 1,096.78 7.18% BEC WORLD Media 1,004.11 6.58% THAI FARMERS BANK FGN Banks 1,003.94 6.58% BANGKOK BANK FGN Banks 778.09 5.10% SIAM CEMENT FGN Construction Materials 739.39 4.84% SIAM CITY CEMENT FGN Construction Materials 633.27 4.15% DELTA ELECTRONICS THAI Electronic Equipment & Instruments 612.03 4.01% HANA MICROELECTRONICS Electronic Equipment & Instruments 386.73 2.53% CHAROEN POKPHAND FOODS Food Products 355.27 2.33% ELECTRICITY GENERAT. FGN Electric Utilities 351.83 2.30% SIAM COMMERCIAL BANK FGN Banks 333.90 2.19% UNITED COMMUNICATION FGN Communications Equipment 295.10 1.93% BANK OF AYUDHYA FGN Banks 223.76 1.47% UNITED BROADCASTING CORP Media 211.31 1.38% NATIONAL PETROCHEMICAL Chemicals 201.62 1.32% NATIONAL FINANCE FGN Diversified Financials 179.49 1.18% SIAM MAKRO Multiline Retail 170.88 1.12% THAI PETROCHEMICAL IND Chemicals 164.65 1.08% THAI UNION FROZEN PROD Food Products 164.11 1.08% LAND AND HOUSE FGN Household Durables 159.39 1.04% INDUSTRIAL FINANCE FGN Diversified Financials 151.10 0.99% BANGKOK EXPRESSWAY Transportation Infrastructure 100.16 0.66% KGI SECURITIES ONE FGN Diversified Financials 92.00 0.60% BANPU FGN Metals & Mining 89.67 0.59% SAHA-UNION Textiles & Apparel 73.60 0.48% ITALIAN THAI DEVELOPMENT Construction & Engineering 64.18 0.42% ABN AMRO ASIA SECURITIES Diversified Financials 57.11 0.37% BANGKOK INSURANCE Insurance 52.94 0.35% AYUDHYA INSURANCE Insurance 52.77 0.35% NATION MULTIMEDIA GROUP Media 50.72 0.33% REGIONAL CONTAINER LINES Marine 41.04 0.27% TIPCO ASPHALT Construction Materials 28.70 0.19%
A-46 APPENDIX A-27 MSCI TURKEY INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- TURKIYE IS BANKASI C100% Banks 7,038.41 26.90% YAPI VE KREDI BANKASI Banks 2,644.29 10.11% TURKIYE GARANTI BANKASI Banks 1,599.20 6.11% TUPRAS TURKIYE PETROL Oil & Gas 1,559.98 5.96% ANADOLU EFES BIRACILIK Beverages 1,267.34 4.84% TURKCELL ILETISIM HIZMET Wireless Telecommunication Services 1,265.30 4.84% FORD OTOMOTIVE SANAYII Automobiles 1,241.92 4.75% ARCELIK Household Durables 1,153.71 4.41% EREGLI DEMIR CELIK FAB. Metals & Mining 860.62 3.29% MIGROS TURK TICARET Food & Drug Retailing 846.96 3.24% VESTEL ELEKTRONIK Household Durables 615.78 2.35% AYGAZ Gas Utilities 607.76 2.32% NETAS NORTH ELEC TELEKOM Communications Equipment 569.96 2.18% TOFAS TURK OTOMOBIL FAB. Automobiles 558.00 2.13% AKCANSA CIMENTO SANAYI Construction Materials 440.23 1.68% AKSIGORTA Insurance 420.12 1.61% ALARKO HOLDING Diversified Financials 417.01 1.59% TRAKYA CAM SANAYII Building Products 411.66 1.57% KORDSA KORD BEZI SANAYI Auto Components 317.43 1.21% BRISA BRIDGESTONE Auto Components 299.71 1.15% AKSA AKRILIK KIMYA Textiles & Apparel 260.89 1.00% CIMSA CIMENTO SANAYI Construction Materials 209.72 0.80% SABAH YAYINCILIK Media 183.64 0.70% GOODYEAR LASTIKLERI Auto Components 167.55 0.64% ECZACIBASI ILAC SANAYI Pharmaceuticals 160.57 0.61% CIMENTAS Construction Materials 146.08 0.56% ADANA CIMENTO SANAYII A Construction Materials 121.37 0.46% IHLAS GAZETECILIK HLDG Diversified Financials 116.86 0.45% EFES SINAI YATIRIM HLDG Beverages 94.75 0.36% KARTONSAN KARTON SANAYI Containers & Packaging 84.52 0.32% TURK DEMIR DOKUM FABRIK. Building Products 79.08 0.30% SARKUYSAN ELEKTROLITIK Electrical Equipment 60.04 0.23% USAS UCAK SERVISI Hotels Restaurants & Leisure 60.04 0.23% TAT KONSERVE SANAYII Food Products 57.41 0.22% DOKTAS DOKUMCULUK Auto Components 49.21 0.19% TURKIYE IS BANKASI B Banks 48.77 0.19% BAGFAS Chemicals 46.86 0.18% KAV ORMAN SANAYII Paper & Forest Products 42.41 0.16% RAKS ELEKTRONIK Household Durables 20.73 0.08% ADANA CIMENTO SANAYII C Construction Materials 18.77 0.07%
A-47 APPENDIX A-28 MSCI UNITED KINGDOM INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- VODAFONE GROUP Wireless Telecommunication Services 210,449.73 11.83% BP AMOCO Oil & Gas 175,804.09 9.88% HSBC HOLDINGS (GB) Banks 121,541.42 6.83% GLAXO WELLCOME Pharmaceuticals 106,373.99 5.98% ASTRAZENECA Pharmaceuticals 90,124.13 5.07% SMITHKLINE BEECHAM Pharmaceuticals 73,549.40 4.13% BRITISH TELECOM Diversified Telecommunication Services 56,588.80 3.18% ROYAL BANK OF SCOTLAND Banks 54,866.73 3.08% LLOYDS TSB GROUP Banks 52,462.69 2.95% BARCLAYS Banks 46,443.61 2.61% DIAGEO Beverages 35,614.25 2.00% CGNU Insurance 33,944.80 1.91% PRUDENTIAL Insurance 30,306.39 1.70% TESCO Food & Drug Retailing 27,520.01 1.55% MARCONI Communications Equipment 26,232.49 1.47% BRITISH SKY BROADCASTING Media 25,772.43 1.45% UNILEVER PLC Food Products 24,102.50 1.35% ABBEY NATIONAL Banks 22,281.84 1.25% GRANADA COMPASS Hotels Restaurants & Leisure 21,330.37 1.20% REUTERS GROUP Media 21,007.94 1.18% HALIFAX GROUP Banks 20,958.00 1.18% PEARSON Media 17,799.53 1.00% RIO TINTO PLC REG Metals & Mining 15,902.10 0.89% BRITISH AMERICAN TOBACCO Tobacco 15,466.42 0.87% BAE SYSTEMS Aerospace & Defense 15,407.18 0.87% BG GROUP Gas Utilities 14,222.30 0.80% CADBURY SCHWEPPES Food Products 14,163.15 0.80% SCOTTISH POWER Electric Utilities 13,824.79 0.78% CENTRICA Gas Utilities 13,652.34 0.77% LEGAL & GENERAL GROUP Insurance 13,091.80 0.74% NATIONAL GRID GROUP Electric Utilities 13,047.96 0.73% WPP GROUP Media 11,792.27 0.66% SAINSBURY (J) Food & Drug Retailing 11,318.29 0.64% THREE I GROUP Diversified Financials 10,762.35 0.60% AMVESCAP Diversified Financials 10,760.62 0.60% REED INTERNATIONAL Media 10,270.41 0.58% BASS Hotels Restaurants & Leisure 9,247.23 0.52% KINGFISHER Multiline Retail 9,037.69 0.51% BAA Transportation Infrastructure 8,910.23 0.50% LOGICA IT Consulting & Services 8,796.92 0.49% HAYS Comercial Services & Supplies 8,577.43 0.48% INVENSYS Machinery 8,505.91 0.48% MARKS & SPENCER Multiline Retail 7,966.40 0.45% GKN Auto Components 7,855.51 0.44% BOOTS CO Food & Drug Retailing 7,738.18 0.43% GREAT UNIVERSAL STORES Internet & Catalog Retail 7,528.74 0.42% LATTICE GROUP Gas Utilities 7,403.05 0.42% SAGE GROUP (THE) Software 6,974.04 0.39% RAILTRACK GROUP Road & Rail 6,898.40 0.39%
A-48
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- BOC GROUP Chemicals 6,896.72 0.39% DIXONS GROUP Specialty Retail 6,704.44 0.38% EMI GROUP Media 6,203.45 0.35% ARM HOLDINGS Semiconductor Equipment & Products 6,169.41 0.35% LAND SECURITIES Real Estate 6,142.11 0.35% BRITISH AIRWAYS Airlines 6,135.30 0.34% RENTOKIL INITIAL Comercial Services & Supplies 5,868.16 0.33% UNITED UTILITIES Multi-Utilities 5,593.36 0.31% SCHRODERS Diversified Financials 5,322.24 0.30% CANARY WHARF GROUP Real Estate 5,242.88 0.29% NYCOMED AMERSHAM Health Care Equipment & Supplies 5,009.70 0.28% IMPERIAL CHEMICAL ICI Chemicals 4,973.76 0.28% BLUE CIRCLE INDUSTRIES Construction Materials 4,697.27 0.26% EXEL (OCEAN GROUP) Air Freight & Couriers 4,634.07 0.26% CARLTON COMMUNICATIONS Media 4,478.64 0.25% CELLTECH GROUP Biotechnology 4,454.96 0.25% ELECTROCOMPONENTS Trading Companies & Distributors 4,209.57 0.24% SMITH & NEPHEW Health Care Equipment & Supplies 4,131.87 0.23% INT'L POWER(NAT'L POWER Electric Utilities 4,069.05 0.23% MISYS Software 4,054.18 0.23% HILTON GROUP Hotels Restaurants & Leisure 3,994.86 0.22% HANSON Construction Materials 3,985.56 0.22% CAPITA GROUP Comercial Services & Supplies 3,968.33 0.22% SMITHS INDUSTRIES Industrial Conglomerates 3,630.02 0.20% PROVIDENT FINANCIAL Diversified Financials 3,483.96 0.20% BRITISH LAND CO Real Estate 3,378.54 0.19% JOHNSON MATTHEY Metals & Mining 3,363.68 0.19% LASMO Oil & Gas 3,339.66 0.19% WOLSELEY Specialty Retail 3,153.31 0.18% PEN & ORIENTAL STEAM Marine 3,074.51 0.17% TI GROUP Machinery 2,810.91 0.16% BUNZL Paper & Forest Products 2,787.66 0.16% CORUS GROUP Metals & Mining 2,532.86 0.14% SEMA GROUP IT Consulting & Services 2,463.16 0.14% P&O PRINCESS CRUISES Hotels Restaurants & Leisure 2,455.75 0.14% BBA GROUP Machinery 2,451.76 0.14% AWG (ANGLIAN WATER) Water Utilities 2,378.85 0.13% CHUBB Comercial Services & Supplies 2,301.36 0.13% SLOUGH ESTATES Real Estate 2,286.07 0.13% RMC GROUP Construction Materials 2,113.58 0.12% HAMMERSON Real Estate 1,782.73 0.10% PILKINGTON Building Products 1,776.48 0.10% FKI Industrial Conglomerates 1,745.87 0.10% TATE & LYLE Food Products 1,693.36 0.10% RANK GROUP Hotels Restaurants & Leisure 1,505.97 0.08% AIRTOURS Hotels Restaurants & Leisure 1,413.58 0.08% SSL INTERNATIONAL Health Care Equipment & Supplies 1,388.35 0.08% PSION Computers & Peripherals 1,368.85 0.08% CARADON Building Products 1,302.98 0.07% REXAM Containers & Packaging 1,268.65 0.07% BERKELEY GROUP (THE) Household Durables 1,262.95 0.07% STAGECOACH HOLDINGS Road & Rail 1,099.47 0.06% IMI Machinery 1,060.92 0.06%
A-49
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- DE LA RUE Comercial Services & Supplies 1,046.76 0.06% BARRATT DEVELOPMENTS Household Durables 1,046.08 0.06% AMEC Construction & Engineering 1,010.32 0.06% TAYLOR WOODROW Household Durables 958.46 0.05% LONDON BRIDGE SOFTWARE Software 871.90 0.05% HEPWORTH Building Products 868.94 0.05% GREAT PORTLAND ESTATES Real Estate 814.71 0.05% WIMPEY (GEORGE) Household Durables 800.98 0.05% BALFOUR BEATTY Construction & Engineering 732.15 0.04% UNIQ (UNIGATE) Food Products 731.93 0.04% KIDDE Comercial Services & Supplies 596.07 0.03% LEX SERVICE Specialty Retail 583.94 0.03% COATS VIYELLA Textiles & Apparel 403.96 0.02% JARVIS Construction & Engineering 366.07 0.02% EIDOS Software 295.79 0.02%
A-50 APPENDIX A-29 MSCI USA INDEX AS OF NOVEMBER 30, 2000
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- GENERAL ELECTRIC CO Industrial Conglomerates 491,105.00 5.10% CISCO SYSTEMS Communications Equipment 337,135.37 3.50% EXXON MOBIL CORP Oil & Gas 306,339.18 3.18% MICROSOFT CORP Software 305,942.89 3.18% PFIZER Pharmaceuticals 279,776.98 2.91% INTEL CORP Semiconductor Equipment & Products 256,160.63 2.66% WAL-MART STORES Multiline Retail 233,010.75 2.42% AMERICAN INT'L GROUP Insurance 224,297.26 2.33% CITIGROUP Diversified Financials 223,784.11 2.32% MERCK & CO Pharmaceuticals 213,749.90 2.22% SBC COMMUNICATIONS Diversified Telecommunication Services 186,214.08 1.93% IBM CORP Computers & Peripherals 164,034.49 1.70% EMC CORP Computers & Peripherals 162,165.54 1.68% COCA-COLA CO Beverages 155,296.85 1.61% VERIZON COMMUNI.(BELL AT Diversified Telecommunication Services 152,717.40 1.59% ORACLE CORP Software 149,547.45 1.55% JOHNSON & JOHNSON Pharmaceuticals 139,002.90 1.44% BRISTOL-MYERS SQUIBB CO Pharmaceuticals 136,221.07 1.41% LILLY (ELI) & CO Pharmaceuticals 105,611.52 1.10% PROCTER & GAMBLE CO Household Products 97,620.54 1.01% AMERICA ONLINE Internet Software & Services 94,382.20 0.98% HOME DEPOT Specialty Retail 90,754.57 0.94% PHILIP MORRIS COS Tobacco 86,000.74 0.89% ABBOTT LABORATORIES Pharmaceuticals 85,315.11 0.89% WELLS FARGO & CO Banks 81,418.51 0.85% FANNIE MAE Diversified Financials 80,532.60 0.84% PHARMACIA CORP Pharmaceuticals 78,668.61 0.82% AMERICAN HOME PRODUCTS Pharmaceuticals 78,414.89 0.81% BELLSOUTH CORP Diversified Telecommunication Services 78,108.86 0.81% VIACOM B Media 77,537.31 0.81% TIME WARNER Media 74,500.38 0.77% AT & T CORP Diversified Telecommunication Services 73,641.79 0.76% AMERICAN EXPRESS Diversified Financials 73,065.58 0.76% AMGEN Biotechnology 65,423.50 0.68% BANK OF AMERICA CORP Banks 64,999.76 0.68% TEXAS INSTRUMENTS Semiconductor Equipment & Products 63,928.79 0.66% MEDTRONIC Health Care Equipment & Supplies 63,877.75 0.66% QWEST COMMUNI. INT'L Diversified Telecommunication Services 62,695.88 0.65% HEWLETT-PACKARD CO Computers & Peripherals 62,547.93 0.65% DISNEY (WALT) COMMON Media 60,323.32 0.63% BOEING CO Aerospace & Defense 59,967.13 0.62% QUALCOMM Communications Equipment 59,468.12 0.62% CHEVRON CORP Oil & Gas 52,548.75 0.55% LUCENT TECHNOLOGIES Communications Equipment 52,388.23 0.54%
A-51
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- CORNING Communications Equipment 51,546.02 0.54% DELL COMPUTER CORP Computers & Peripherals 50,372.79 0.52% ENRON CORP Multi-Utilities 48,339.17 0.50% JDS UNIPHASE CORP Communications Equipment 48,136.97 0.50% MERRILL LYNCH & CO Diversified Financials 46,491.18 0.48% CHASE MANHATTAN CORP Banks 45,823.55 0.48% WALGREEN CO Food & Drug Retailing 45,007.44 0.47% DU PONT (E.I) DE NEMOURS Chemicals 44,114.08 0.46% MOTOROLA Communications Equipment 43,179.36 0.45% FORD MOTOR CO Automobiles 43,139.36 0.45% WORLDCOM Diversified Telecommunication Services 42,913.79 0.45% ANHEUSER-BUSCH Beverages 42,860.73 0.45% MCDONALD'S CORP Hotels Restaurants & Leisure 42,592.49 0.44% AUTOMATIC DATA PROCESS Comercial Services & Supplies 41,395.76 0.43% BANK ONE CORP Banks 41,266.35 0.43% BANK NEW YORK CO Banks 40,702.07 0.42% MINNESOTA MINING & MFG Industrial Conglomerates 39,664.46 0.41% SCHWAB (CHARLES) CORP Diversified Financials 37,704.34 0.39% KIMBERLY-CLARK CORP Household Products 37,637.31 0.39% GILLETTE CO Personal Products 35,663.68 0.37% SCHLUMBERGER Energy Equipment & Services 35,281.66 0.37% AT&T-LIBERTY MEDIA GRP A Media 34,929.41 0.36% FLEET BOSTON FINL CORP Banks 33,794.55 0.35% UNITED TECHNOLOGIES CORP Aerospace & Defense 33,152.36 0.34% DUKE ENERGY CORP Electric Utilities 33,102.91 0.34% APPLIED MATERIALS Semiconductor Equipment & Products 32,655.51 0.34% EMERSON ELECTRIC CO Electrical Equipment 31,096.93 0.32% MARSH & MCLENNAN COS Insurance 31,035.05 0.32% SIEBEL SYSTEMS Software 29,560.16 0.31% CLEAR CHANNEL COMMUNI. Media 29,533.10 0.31% MBNA CORP Diversified Financials 28,613.57 0.30% ALLSTATE CORP Insurance 28,084.13 0.29% CARDINAL HEALTH Health Care Providers & Services 27,894.41 0.29% TARGET CORP Multiline Retail 27,356.75 0.28% GENERAL MOTORS CORP Automobiles 26,577.17 0.28% BAXTER INTERNATIONAL Health Care Equipment & Supplies 25,498.72 0.26% WASHINGTON MUTUAL Banks 24,888.85 0.26% ELECTRONIC DATA SYSTEMS IT Consulting & Services 24,755.19 0.26% FIRST UNION CORP Banks 24,612.64 0.26% ALCOA Metals & Mining 24,381.09 0.25% COX COMMUNICATIONS A Media 23,944.96 0.25% AES CORP Electric Utilities 23,695.17 0.25% AGILENT TECHNOLOGIES Electronic Equipment & Instruments 23,641.72 0.25% NEXTEL COMMUNICATIONS A Wireless Telecommunication Services 23,602.23 0.25% HOUSEHOLD INTERNATIONAL Diversified Financials 23,558.67 0.24% HCA HEALTHCARE CO Health Care Providers & Services 23,124.78 0.24% BROADCOM CORP A Semiconductor Equipment & Products 22,932.29 0.24% CVS CORP Food & Drug Retailing 22,191.63 0.23% BEA SYSTEMS Software 21,943.43 0.23% YAHOO Internet Software & Services 21,895.33 0.23% KROGER CO Food & Drug Retailing 21,810.59 0.23% PAYCHEX Comercial Services & Supplies 21,637.33 0.22%
A-52
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- MORGAN (J.P) & CO Diversified Financials 21,440.48 0.22% GAP Specialty Retail 21,198.98 0.22% EXELON CORP Electric Utilities 21,001.25 0.22% SARA LEE CORP Food Products 20,869.61 0.22% CIGNA CORP Health Care Providers & Services 20,762.63 0.22% STATE STREET CORP Diversified Financials 20,754.29 0.22% DOW CHEMICAL CO Chemicals 20,728.01 0.22% SOUTHERN CO Electric Utilities 20,472.20 0.21% PALM Computers & Peripherals 20,444.60 0.21% FIRST DATA CORP Comercial Services & Supplies 20,220.65 0.21% PNC FINL SERVICES GROUP Banks 19,454.44 0.20% UNITEDHEALTH GROUP Health Care Providers & Services 19,052.61 0.20% GENERAL MOTORS H (NEW) Media 18,988.41 0.20% AFLAC Insurance 18,680.45 0.19% SYSCO CORP Food & Drug Retailing 18,409.58 0.19% US BANCORP Banks 18,184.96 0.19% SOLECTRON Electronic Equipment & Instruments 17,822.39 0.19% MICRON TECHNOLOGY Semiconductor Equipment & Products 17,476.20 0.18% APPLERA-APPL BIO(PE CORP Health Care Equipment & Supplies 17,211.83 0.18% ILLINOIS TOOL WORKS Machinery 16,997.11 0.18% VERISIGN Internet Software & Services 16,856.82 0.18% GEMSTAR-TV GUIDE INT'L Media 16,648.59 0.17% INT'L PAPER CO Paper & Forest Products 16,376.85 0.17% HARTFORD FINANCIAL SVCS Insurance 15,869.72 0.16% HEINZ (H.J) CO Food Products 15,824.09 0.16% SOUTHWEST AIRLINES CO Airlines 15,662.23 0.16% COASTAL CORP Oil & Gas 15,644.88 0.16% WILLIAMS COS Multi-Utilities 15,627.58 0.16% COMPUTER ASSOC INT'L Software 15,488.55 0.16% ADOBE SYSTEMS Software 15,232.69 0.16% SUNTRUST BANKS Banks 15,147.32 0.16% GENERAL DYNAMICS CORP Aerospace & Defense 15,131.36 0.16% NATIONAL CITY CORP Banks 15,057.84 0.16% ARIBA Internet Software & Services 14,978.26 0.16% HALLIBURTON CO Energy Equipment & Services 14,869.60 0.15% WASTE MANAGEMENT Comercial Services & Supplies 14,867.29 0.15% AMERICAN ELECTRIC POWER Electric Utilities 14,811.70 0.15% COSTCO WHOLESALE CORP Multiline Retail 14,582.82 0.15% DOMINION RESOURCES Electric Utilities 14,266.12 0.15% CHUBB CORP Insurance 14,258.99 0.15% GANNETT CO Media 14,137.36 0.15% CAMPBELL SOUP CO (US) Food Products 14,037.36 0.15% OMNICOM GROUP Media 13,967.32 0.15% EL PASO ENERGY CORP Gas Utilities 13,948.97 0.14% HARLEY-DAVIDSON Automobiles 13,747.68 0.14% CATERPILLAR Machinery 13,703.91 0.14% FEDEX CORPORATION Air Freight & Couriers 13,659.02 0.14% CONAGRA FOODS Food Products 13,553.94 0.14% TENET HEALTHCARE CORP Health Care Providers & Services 13,311.80 0.14% CARNIVAL CORP A Hotels Restaurants & Leisure 13,260.15 0.14% EASTMAN KODAK CO Leisure Equipment & Products 12,607.11 0.13% INTERPUBLIC GROUP OF COS Media 12,022.21 0.12% FPL GROUP Electric Utilities 11,718.68 0.12%
A-53
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- GENERAL MILLS Food Products 11,622.02 0.12% SANMINA CORP Electronic Equipment & Instruments 11,543.64 0.12% UNION PACIFIC CORP Road & Rail 11,524.65 0.12% NIKE B Textiles & Apparel 11,512.90 0.12% TRIBUNE CO Media 11,467.45 0.12% COMPUTER SCIENCES CORP IT Consulting & Services 11,456.93 0.12% QUAKER OATS CO Food Products 11,381.08 0.12% RELIANT ENERGY Electric Utilities 11,189.02 0.12% SEARS, ROEBUCK & CO Multiline Retail 11,122.20 0.12% BAKER HUGHES Energy Equipment & Services 10,977.51 0.11% ST PAUL COS Insurance 10,844.31 0.11% ALBERTSON'S Food & Drug Retailing 10,762.78 0.11% KEYCORP Banks 10,736.00 0.11% PG&E CORP Electric Utilities 10,584.24 0.11% TXU CORP Electric Utilities 10,531.56 0.11% CLOROX CO Household Products 10,488.84 0.11% MCGRAW-HILL COS Media 10,343.44 0.11% BURLINGTON NTHN SANTA FE Road & Rail 10,232.44 0.11% WACHOVIA CORP Banks 10,176.05 0.11% MARRIOTT INT'L A Hotels Restaurants & Leisure 9,947.90 0.10% AVON PRODUCTS Personal Products 9,882.70 0.10% LEVEL 3 COMMUNICATIONS Diversified Telecommunication Services 9,852.23 0.10% DEERE & CO Machinery 9,544.96 0.10% AETNA Health Care Providers & Services 9,486.57 0.10% WEYERHAEUSER CO Paper & Forest Products 9,435.08 0.10% EXODUS COMMUNICATIONS Internet Software & Services 9,381.17 0.10% MCKESSON HBOC Health Care Providers & Services 9,342.58 0.10% PEOPLESOFT Software 9,298.80 0.10% INTUIT Software 9,269.25 0.10% EBAY Internet & Catalog Retail 9,209.97 0.10% PUBLIC SV ENTERPRISE CO Electric Utilities 9,165.88 0.10% EQUITY OFFICE PROPERTIES Real Estate 9,098.72 0.09% ENTERGY CORP Electric Utilities 9,030.90 0.09% AMAZON.COM Internet & Catalog Retail 8,785.39 0.09% RADIOSHACK CORP Specialty Retail 8,705.57 0.09% MASCO CORP Building Products 8,664.55 0.09% LINCOLN NATIONAL CORP Insurance 8,619.65 0.09% BECTON, DICKINSON Health Care Equipment & Supplies 8,609.58 0.09% TRANSOCEAN SEDCO FOREX Energy Equipment & Services 8,394.33 0.09% RAYTHEON CO B Aerospace & Defense 8,387.20 0.09% IMS HEALTH Comercial Services & Supplies 8,353.52 0.09% MAY DEPARTMENT STORES CO Multiline Retail 8,348.79 0.09% DOVER CORP Machinery 8,310.33 0.09% UNOCAL CORP Oil & Gas 8,287.56 0.09% LIMITED Specialty Retail 8,272.10 0.09% USX-MARATHON GROUP Oil & Gas 8,223.01 0.09% RALSTON - RALSTON PURINA Food Products 8,077.11 0.08% ARCHER-DANIELS-MIDLAND Food Products 8,061.44 0.08% OCCIDENTAL PETROLEUM Oil & Gas 7,977.03 0.08% AON CORP Insurance 7,947.71 0.08% CONSOLIDATED EDISON Electric Utilities 7,895.75 0.08% DELPHI AUTOMOTIVE SYS Auto Components 7,734.36 0.08%
A-54
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- EDISON INTERNATIONAL Electric Utilities 7,473.29 0.08% ROCKWELL INT'L Electrical Equipment 7,450.56 0.08% AIR PRODUCTS & CHEMICALS Chemicals 7,345.92 0.08% TEXTRON Industrial Conglomerates 7,300.02 0.08% PPG INDUSTRIES Chemicals 7,260.80 0.08% CP&L ENERGY (CAROLINA PO Electric Utilities 6,894.28 0.07% MBIA Insurance 6,776.20 0.07% EQUITY RESIDENTIAL PPTY Real Estate 6,712.87 0.07% WELLPOINT HEALTH NETWKS Health Care Providers & Services 6,692.89 0.07% CENDANT CORP Comercial Services & Supplies 6,671.93 0.07% FIRSTENERGY CORP Electric Utilities 6,651.36 0.07% UNUMPROVIDENT CORP Insurance 6,493.28 0.07% INGERSOLL-RAND CO Machinery 6,484.55 0.07% AT & T WIRELESS GROUP Wireless Telecommunication Services 6,480.00 0.07% ROHM & HAAS CO Chemicals 6,443.22 0.07% METROMEDIA FIBER NETWK A Diversified Telecommunication Services 6,438.27 0.07% CONSTELLATION ENERGY GRP Electric Utilities 6,086.97 0.06% STARWOOD HOT.&RES. WORLD Hotels Restaurants & Leisure 6,068.61 0.06% BROADVISION Internet Software & Services 6,044.28 0.06% PPL CORP Electric Utilities 6,038.46 0.06% NEW YORK TIMES CO A Media 5,971.17 0.06% RATIONAL SOFTWARE CORP Software 5,878.91 0.06% DELTA AIR LINES Airlines 5,817.60 0.06% UNION CARBIDE CORP Chemicals 5,816.75 0.06% PRAXAIR Chemicals 5,680.28 0.06% GEORGIA-PACIFIC GROUP Paper & Forest Products 5,666.42 0.06% CSX CORP Road & Rail 5,628.30 0.06% NORFOLK SOUTHERN CORP Road & Rail 5,512.80 0.06% STAPLES Specialty Retail 5,484.14 0.06% AVERY DENNISON CORP Comercial Services & Supplies 5,428.73 0.06% DTE ENERGY Electric Utilities 5,412.09 0.06% HEALTHSOUTH CORP Health Care Providers & Services 5,375.04 0.06% MATTEL Leisure Equipment & Products 5,374.20 0.06% APPLE COMPUTER Computers & Peripherals 5,361.99 0.06% ROBERT HALF INT'L Comercial Services & Supplies 5,339.78 0.06% NEWELL RUBBERMAID Household Durables 5,180.70 0.05% AMR CORP Airlines 5,038.66 0.05% SEMPRA ENERGY Gas Utilities 4,991.99 0.05% NISOURCE (NEW) Gas Utilities 4,979.14 0.05% DOW JONES & CO Media 4,942.97 0.05% EATON CORP Machinery 4,908.75 0.05% JOHNSON CONTROLS Auto Components 4,733.60 0.05% ELECTRONIC ARTS Software 4,717.92 0.05% EQUIFAX Comercial Services & Supplies 4,693.37 0.05% PARKER HANNIFIN CORP Machinery 4,647.31 0.05% XEROX CORP Office Electronics 4,622.22 0.05% VULCAN MATERIALS CO Construction Materials 4,319.27 0.04% FOUNDRY NETWORKS Communications Equipment 4,310.15 0.04% BMC SOFTWARE Software 4,271.06 0.04% GENERAL PUBLIC UTILITIES Electric Utilities 4,267.73 0.04% COUNTRYWIDE CREDIT IND Diversified Financials 4,212.31 0.04% MOODYS CORP (DUN&BRADSTR Diversified Financials 4,204.45 0.04%
A-55
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- TRW Auto Components 4,077.90 0.04% PARK PLACE ENTERTAINMENT Hotels Restaurants & Leisure 4,034.30 0.04% READERS DIGEST ASS'N A Media 3,918.64 0.04% SIMON PROPERTY GROUP Real Estate 3,909.74 0.04% JONES APPAREL CORP Textiles & Apparel 3,880.67 0.04% PHELPS DODGE CORP Metals & Mining 3,867.11 0.04% TOYS R US Specialty Retail 3,863.95 0.04% GLOBAL MARINE Energy Equipment & Services 3,848.70 0.04% COOPER INDUSTRIES Electrical Equipment 3,802.83 0.04% VIGNETTE CORP Internet Software & Services 3,595.47 0.04% SHERWIN-WILLIAMS CO Specialty Retail 3,571.86 0.04% INFOSPACE Internet Software & Services 3,456.73 0.04% HILTON HOTELS CORP Hotels Restaurants & Leisure 3,454.77 0.04% GRAINGER (WW) Trading Companies & Distributors 3,435.66 0.04% SAFECO CORP Insurance 3,421.76 0.04% GENUINE PARTS CO Trading Companies & Distributors 3,393.45 0.04% CERIDIAN CORP IT Consulting & Services 3,341.08 0.03% INKTOMI CORP Software 3,284.53 0.03% HARRAH'S ENTERTAINMENT Hotels Restaurants & Leisure 3,266.83 0.03% RAYTHEON CO A Aerospace & Defense 3,263.56 0.03% AVAYA INC. Communications Equipment 3,252.55 0.03% BLOCK (H&R) Comercial Services & Supplies 3,220.53 0.03% AKAMAI TECHNOLOGIES Internet Software & Services 3,103.88 0.03% VF CORP Textiles & Apparel 3,075.91 0.03% PARAMETRIC TECHNOLOGY Software 3,029.09 0.03% SERVICEMASTER CO Comercial Services & Supplies 3,016.74 0.03% BLACK & DECKER CORP Household Durables 3,014.14 0.03% CMGI Internet Software & Services 2,970.79 0.03% ITT INDUSTRIES Industrial Conglomerates 2,928.65 0.03% NUCOR CORP Metals & Mining 2,819.50 0.03% WHIRLPOOL CORP Household Durables 2,790.69 0.03% FLUOR CORP Construction & Engineering 2,762.10 0.03% DONNELLEY (RR) & SONS Comercial Services & Supplies 2,727.66 0.03% MEAD CORP Paper & Forest Products 2,717.54 0.03% SEALED AIR CORP Containers & Packaging 2,660.80 0.03% GOODYEAR TIRE & RUBBER Auto Components 2,651.06 0.03% NEWMONT MINING CORP Metals & Mining 2,626.23 0.03% HOST MARRIOTT CORP Real Estate 2,618.29 0.03% US AIRWAYS GROUP Airlines 2,586.04 0.03% DANA CORP Auto Components 2,500.51 0.03% MANPOWER Comercial Services & Supplies 2,462.95 0.03% ALLIED WASTE INDUSTRIES Comercial Services & Supplies 2,422.88 0.03% SHAW INDUSTRIES Household Durables 2,422.35 0.03% CRESCENT REAL ESTATE Real Estate 2,403.33 0.02% SUPERVALU Food & Drug Retailing 2,398.32 0.02% STANLEY WORKS Household Durables 2,360.61 0.02% TEMPLE INLAND Containers & Packaging 2,345.42 0.02% APPLERA-CELERA GE(PE COR Biotechnology 2,339.45 0.02% AMERICAN PWR CONVERSION Electrical Equipment 2,285.89 0.02% MAYTAG CORP Household Durables 2,243.80 0.02% LIZ CLAIBORNE Textiles & Apparel 2,090.42 0.02% SAPIENT CORP IT Consulting & Services 2,081.11 0.02% CENTEX CORP Household Durables 2,080.60 0.02%
A-56
Index Market Weight in Capitalization MSCI Index Constituent Name Industry (Millions of US$) (%) ---------------- -------- ----------------- --- VISTEON CORP Auto Components 1,948.63 0.02% NAVISTAR INTERNATIONAL Machinery 1,924.72 0.02% INT'L FLAVORS FRAGRANCES Chemicals 1,866.72 0.02% UAL CORP Airlines 1,803.26 0.02% NOVELL Software 1,743.60 0.02% GALILEO INTERNATIONAL Comercial Services & Supplies 1,724.23 0.02% ALLEGHENY TECHNOLOGIES Metals & Mining 1,597.33 0.02% PULTE CORP Household Durables 1,590.31 0.02% SNAP-ON Auto Components 1,519.13 0.02% BRUNSWICK CORP Leisure Equipment & Products 1,510.40 0.02% CLAYTON HOMES Household Durables 1,388.41 0.01% CALLAWAY GOLF CO Leisure Equipment & Products 1,359.47 0.01% CUMMINS ENGINE CO Machinery 1,345.41 0.01% HOMESTAKE MINING CO Metals & Mining 1,299.04 0.01% CNF TRANSPORTATION Air Freight & Couriers 1,261.68 0.01% USX-US STEEL GROUP Metals & Mining 1,259.67 0.01% PORTAL SOFTWARE Software 1,085.04 0.01% USG CORP Building Products 857.54 0.01% RITE AID CORP Food & Drug Retailing 830.02 0.01% BRIGGS & STRATTON CORP Machinery 801.62 0.01% WORTHINGTON INDUSTRIES Metals & Mining 791.96 0.01% LOUISIANA-PACIFIC CORP Paper & Forest Products 735.77 0.01% CROWN CORK & SEAL CO Containers & Packaging 510.34 0.01% SERVICE CORP INT'L Health Care Providers & Services 510.19 0.01% PACIFICARE HEALTH SYS Health Care Providers & Services 440.66 0.00% OWENS-ILLINOIS Containers & Packaging 419.84 0.00% BETHLEHEM STEEL CORP Metals & Mining 296.65 0.00% DISNEY (WALT) INT.(GO.CO Internet Software & Services 209.24 0.00% ARMSTRONG HOLDINGS Building Products 38.31 0.00%
A-57 APPENDIX B [TO BE UPDATED] 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 AUSTRALIA INDEX FUND Regular Holidays. The regular Australian holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Australia Day January 26, 2001 Labour Day March 12, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Anzac Day April 25, 2001 Queen's Birthday June 11, 2001 Bank Holiday August 6, 2001 Labour Day October 1, 2001 Melbourne Cup Day November 6, 2001 Christmas Day December 25, 2001 Boxing Day December 26, 2001 Redemption. The Company is not aware of a redemption request over any Australian holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. ISHARES MSCI AUSTRIA INDEX FUND Regular Holidays. The regular Austrian holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Labour Day May 1, 2001 Ascension Day May 24, 2001 Whit Monday June 4, 2001 Corpus Christi June 14, 2001 Assumption Day August 15, 2001 National Holiday October 26, 2001 B-1 All Saints Day November 1, 2001 Christmas Eve December 24, 2001 Christmas Day December 25, 2001 St. Stephen's Day December 26, 2001 Last Weekday of the Year December 31, 2001 Redemption. A redemption request over the following Austrian 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):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 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 St. Stephen's Day 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 Austria Index Fund. ISHARES MSCI BELGIUM INDEX FUND Regular Holidays. The regular Belgian holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Labour Day May 1, 2001 Ascension Day May 24, 2001 Whit Monday June 4, 2001 Assumption Day August 15, 2001 All Saints Day November 1, 2001 Christmas Day December 25, 2001 Boxing Day December 26, 2001 Last Weekday of the Year December 31, 2001 Redemption. The Company is not aware of a redemption request over any Belgian holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. ISHARES MSCI BRAZIL (FREE) INDEX FUND Regular Holidays. The regular Brazilian holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Rio de Janerio City Anniversary January 20, 2001 Foundation Day for Sao Paulo January 25, 2001 Carnival Monday February 26, 2001 Carnival Tuesday February 27, 2001 Carnival February 28, 2001 Good Friday April 13, 2001 Labour Day May 1, 2001 Corpus Christi June 14, 2001 State Holiday July 9, 2001 Independence Day September 7, 2001 Day of Our Lady Aparecida October 12, 2001 All Souls Day November 2, 2001 Proclamation of the Republic November 15, 2001 B-2 Christmas Eve December 24, 2001 Christmas Day December 25, 2001 Last Weekday of the Year December 31, 2001 Redemption. A redemption request over the following Brazilian holidays that result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the calendar year 2001):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Supplement Period ---- ------- ---------------- --------------- ----------------- 2/26/01 Carnival 2/21/01 3/1/01 R +8 2/27/01 Carnival 2/22/01 3/2/01 R +8 2/28/01 Carnival 2/23/01 3/3/01 R +10
In the calendar year 2001, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the iShares MSCI Brazil (Free) Index Fund. ISHARES MSCI CANADA INDEX FUND Regular Holidays. The regular Canadian holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Good Friday April 13, 2001 Victoria Day May 21, 2001 Canada Day Observed July 2, 2001 Civic Holiday August 6, 2001 Labour Day September 3, 2001 Thanksgiving Day October 8, 2001 Remembrance Day Observed November 12, 2001 Christmas Day December 25, 2001 Boxing Day December 26, 2001 Redemption. The Company is not aware of a redemption request over any Canadian holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. ISHARES MSCI EMU INDEX FUND Regular Holidays. The dates in the calendar year 2001 on which the regular Austrian, Belgian, Finnish, French, German, Irish, Italian, Dutch, Portuguese and Spanish holidays affecting the relevant securities markets fall are as follows: Austria January 1, 2001 June 4, 2001 December 24, 2001 April 13, 2001 June 14, 2001 December 25, 2001 April 16, 2001 August 15, 2001 December 26, 2001 May 1, 2001 October 26, 2001 December 31, 2001 May 24, 2001 November 1, 2001 Belgium January 1, 2001 May 24, 2001 December 25, 2001 April 13, 2001 June 4, 2001 December 26, 2001 April 16, 2001 August 15, 2001 December 31, 2001 May 1, 2001 November 1, 2001 B-3 Finland January 1, 2001 May 24, 2001 December 24, 2001 April 13, 2001 June 22, 2001 December 25, 2001 April 16, 2001 December 6, 2001 December 26, 2001 May 1, 2001 France January 1, 2001 May 1, 2001 December 25, 2001 April 13, 2001 June 4, 2001 December 26, 2001 April 16, 2001 November 1, 2001 Germany January 1, 2001 May 1, 2001 December 26, 2001 April 13, 2001 December 24, 2001 December 31, 2001 April 16, 2001 December 25, 2001 Ireland January 1, 2001 May 7, 2001 December 25, 2001 March 19, 2001 June 4, 2001 December 26, 2001 April 13, 2001 August 6, 2001 December 27, 2001 April 16, 2001 October 29, 2001 Italy January 1, 2001 May 1, 2001 December 25, 2001 April 13, 2001 August 15, 2001 December 26, 2001 April 16, 2001 December 24, 2001 Netherlands January 1, 2001 April 30, 2001 December 26, 2001 April 13, 2001 May 24, 2001 April 16, 2001 December 25, 2001 Portugal January 1, 2001 May 1, 2001 November 1, 2001 February 27, 2001 June 13, 2001 December 24, 2001 April 13, 2001 June 14, 2001 December 25, 2001 April 16, 2001 August 15, 2001 December 26, 2001 April 25, 2001 October 5, 2001 Spain January 1, 2001 May 15, 2001 October 12, 2001 January 22, 2001 June 4, 2001 November 1, 2001 March 19, 2001 July 25, 2001 November 9, 2001 April 12, 2001 July 31, 2001 December 6, 2001 April 13, 2001 August 15, 2001 December 24, 2001 April 16, 2001 August 24, 2001 December 25, 2001 May 1, 2001 September 11, 2001 December 26, 2001 May 2, 2001 September 24, 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 EMU 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 German securities markets present the worst-case redemption cycle for the iShares MSCI EMU Index Fund as follows: B-4
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 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 St. Stephen's Day 12/21/01 1/02/02 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 EMU Index Fund. ISHARES MSCI FRANCE INDEX FUND Regular Holidays. The regular French holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Labour Day May 1, 2001 Whit Monday June 4, 2001 All Saints Day November 1, 2001 Christmas Day December 25, 2001 Boxing Day December 26, 2001 Redemption. The Company is not aware of a redemption request over any French holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. ISHARES MSCI GERMANY INDEX FUND Regular Holidays. The regular German holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Labour Day May 1, 2001 Christmas Eve December 24, 2001 Christmas Day December 25, 2001 St.Stephen's Day December 26, 2001 New Year's Eve December 31, 2001 Redemption. A redemption request over the following German holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holiday fall in the calendar year 2001):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 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 St. Stephen's Day 12/21/01 1/02/02 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 Germany Index Fund. B-5 ISHARES MSCI GREECE INDEX FUND Regular Holidays. The regular Greek holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Monday in Lent February 26, 2001 Orthodox Good Friday April 13, 2001 Orthodox Easter Monday April 16, 2001 Labour Day May 1, 2001 Whit Monday June 4, 2001 Assumption Day August 15, 2001 Christmas Day December 25, 2001 Christmas Holiday December 26, 2001 Redemption. The Company is not aware of a redemption request over any Greek holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. ISHARES MSCI HONG KONG INDEX FUND Regular Holidays. The regular Hong Kong holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: First Weekday in January January 1, 2001 Lunar New Year's Eve January 23, 2001 Lunar New Year's Day January 24, 2001 Second Day of Lunar New Year January 25, 2001 Third Day of Lunar New Year January 26, 2001 Ching Ming Festival April 5, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Buddha's Birthday April 30, 2001 Labour Day May 1, 2001 Tuen Ng Festival June 25, 2001 SAR Establishment Day Observed July 2, 2001 Chinese National Day October 1, 2001 Day following Mid-Autumn Festival October 2, 2001 Chung Yeung Festival October 25, 2001 Christmas Eve December 24, 2001 Christmas Day December 25, 2001 Christmas Holiday December 26, 2001 New Year's Eve December 31, 2001 Redemption. A redemption request over the following Hong Kong holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the calendar year 2001):
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
B-6 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 Hong Kong Index Fund. ISHARES MSCI INDONESIA (FREE) INDEX FUND Regular Holidays. The regular Indonesian holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Idul Adha March 6, 2001 First Day of Muharram March 26, 2001 Good Friday April 13, 2001 Waisak Day May 7, 2001 Ascension Day May 24, 2001 Prophet Muhammad's Birthday June 4, 2001 Independence Day August 17, 2001 Ascension of Muhammad October 15, 2001 Bridging Day December 14, 2001 Idul Fitri December 17, 2001 Exchange Holiday December 24, 2001 Christmas Day December 25, 2001 Exchange Holiday December 31, 2001 Redemption. The Company is not aware of a redemption request over any Indonesian holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. ISHARES MSCI ITALY INDEX FUND Regular Holidays. The regular Italian holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Labour Day May 1, 2001 Assumption Day August 15, 2001 Christmas Eve December 24, 2001 Christmas Day December 25, 2001 St. Stephen's Day December 26, 2001 Redemption. A redemption request over the following Italian holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the calendar year 2001):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- --------------- --------------- ----------------- 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 St. Stephen's Day 12/21/01 12/31/01 R +10
In the calendar year 2001, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the iShares MSCI Italy Index Fund. B-7 ISHARES MSCI JAPAN INDEX FUND Regular Holidays. The regular Japanese holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Bank Holiday January 2, 2001 Bank Holiday January 3, 2001 Adults Day January 8, 2001 National Foundation Day Observed February 12, 2001 Vernal Equinox Day March 20, 2001 Greenery Day Observed April 30, 2001 Constitution Memorial Day May 3, 2001 National Holiday May 4, 2001 Children's Day May 5, 2001 Ocean Day July 20, 2001 Respect for the Aged Day September 15, 2001 Autumnal Equinox Day Observed September 24, 2001 Sports Day October 8, 2001 National Culture Day November 3, 2001 Labour Thanksgiving Day November 23, 2001 Emperor's Birthday Observed December 24, 2001 Exchange Holiday December 31, 2001 Redemption. A redemption request over the following Japanese holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the calendar year 2001):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 1/1/01 New Year's Day 12/27/00 1/04/01 R +8 1/2/01 Bank Holiday 12/28/00 1/05/01 R +8 1/3/01 Bank Holiday 12/29/00 1/08/01 R +10 4/30/01 Greenery Day 4/27/01 5/7/01 R +10 12/24/01 Emperor's Birthday Observed 12/19/01 12/27/01 R +8
In the calendar year 2001, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the iShares MSCI Japan Index Fund. ISHARES MSCI MALAYSIA (FREE) INDEX FUND Regular Holidays. The regular Malaysian holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Chinese New Year January 24, 2001 Second Day of Chinese New Year January 25, 2001 Federal Territory Day February 1, 2001 Hari Raya Qurban March 6, 2001 First Day of Muharram March 26, 2001 Labour Day May 1, 2001 Wesak Day May 7, 2001 Birthday of His Majesty Yang Di Pertuan Agong June 2, 2001 Prophet Muhammad's Birthday June 4, 2001 National Day August 31, 2001 Deepavali November 14, 2001 Hari Raya Puasa December 17, 2001 Christmas Day December 25, 2001 B-8 Redemptions. In light of the Malaysian capital restrictions imposed in September 1998, the Company is concerned about its ability to honor redemptions of Creation Units of iShares of the iShares MSCI Malaysia (Free) Index Fund. To the extent the Company is presented with requests for the redemption of Creation Units of iShares of the iShares MSCI Malaysia (Free) Index Fund, the Company will seek to honor such requests consistent with the Malaysian capital restrictions. Based on the information available to date, the Company believes that (i) it cannot currently make in-kind redemptions of iShares of the iShares MSCI Malaysia (Free) Index Fund and (ii) it may only be able to honor redemption requests through the delivery of Malaysian ringgits in Malaysia, subject to receipt of Malaysian Central Bank approval on a case by case basis. In the current circumstances, the Company suggests that requests for the redemption of Creation Units of Malaysia Series iShares should not be made and urges investors contemplating such redemptions to consult with Malaysian counsel. See "Special Factors Regarding the iShares MSCI Malaysia (Free) Index Fund" in the Statement of Additional Information. Assuming the Company were able to make in-kind redemptions of iShares of the iShares MSCI Malaysia (Free) Index Fund in the manner it had done so prior to September 1999, the Company is not aware of a redemption request over any Malaysian holidays that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001). ISHARES MSCI MEXICO (FREE) INDEX FUND Regular Holidays. The regular Mexican holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Constitution Day February 5, 2001 Juarez's Birthday March 21, 2001 Holy Thursday April 12, 2001 Good Friday April 13, 2001 Labour Day May 1, 2001 Independence Day September 16, 2001 All Souls Day November 2, 2001 Revolution Day November 20, 2001 Our Lady of Guadalupe Day December 12, 2001 Christmas Day December 25, 2001 New Year's Eve December 31, 2001 Redemption. The Company is not aware of a redemption request over any Mexican holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. ISHARES MSCI NETHERLANDS INDEX FUND Regular Holidays. The regular Netherlands holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Queen's Birthday April 30, 2001 Ascension Day May 24, 2001 Whit Monday June 4, 2001 Christmas Day December 25, 2001 Boxing Day December 26, 2001 Redemption. The Company is not aware of a redemption request over any Dutch holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. B-9 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 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. B-10 ISHARES MSCI PORTUGAL INDEX FUND Regular Holidays. The regular Portuguese holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Carnival Tuesday February 27, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Liberty Day April 25, 2001 Labour Day May 1, 2001 Lisbon Day June 13, 2001 Corpus Christi June 14, 2001 Assumption Day August 15, 2001 Republic Day October 5, 2001 All Saints Day November 1, 2001 Christmas Eve December 24, 2001 Christmas Day December 25, 2001 Exchange Holiday December 26, 2001 Redemption. A redemption request over the following Portuguese holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the calendar year 2001):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 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 Exchange Holiday 12/21/01 12/31/01 R +10
In the calendar year 2001, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the iShares MSCI Portugual Index Fund. ISHARES MSCI SINGAPORE (FREE) INDEX FUND Regular Holidays. The regular Singaporean holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Chinese New Year January 24, 2001 Second Day of Chinese New Year January 25, 2001 Hari Raya Haji March 6, 2001 Good Friday April 13, 2001 Labour Day May 1, 2001 Vesak Day May 7, 2001 National Day August 9, 2001 Deepavali November 14, 2001 Hari Raya Puasa Observed December 17, 2001 Christmas Day December 25, 2001 Redemption. The Company is not aware of a redemption request over any Singaporean holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. B-11 ISHARES MSCI SOUTH AFRICA INDEX FUND Regular Holidays. The regular South African holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Human Rights Day March 21, 2001 Good Friday April 13, 2001 Family Day April 16, 2001 Freedom Day April 27, 2001 Worker's Day May 1, 2001 National Women's Day August 9, 2001 Heritage Day September 24, 2001 Day of Reconciliation Observed December 17, 2001 Christmas Day December 25, 2001 Day of Goodwill December 26, 2001 Redemption. The Company is not aware of a redemption request over the any South African holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. ISHARES MSCI SOUTH KOREA INDEX FUND Regular Holidays. The regular South Korean holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Lunar New Year's Eve January 23, 2001 Lunar New Year's Day January 24, 2001 Second Day of Lunar New Year January 25, 2001 Independence Movement Day March 1, 2001 Arbor Day April 5, 2001 Buddha's Birthday April 30, 2001 Labour Day May 1, 2001 Memorial Day June 6, 2001 Constitution Day July 17, 2001 Liberation Day August 15, 2001 Chusok October 1, 2001 Chusok October 2, 2001 National Foundation Day October 3, 2001 Christmas Day December 25, 2001 Floor Service Day December 27, 2001 Floor Service Day December 28, 2001 Floor Service Day December 31, 2001 Redemption. A redemption request over the following South Korean holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the calendar year 2001):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 1/23/01 Lunar New Year's Eve 1/18/01 1/26/01 R +8 1/24/01 Lunar New Year 1/19/01 1/29/01 R +10 1/25/01 Lunar New Year's Day 1/22/01 1/30/01 R +8 10/1/01 Chusok 9/26/01 10/4/01 R +8 10/2/01 Chusok 9/27/01 10/5/01 R +8 10/3/01 National Foundation Day 9/28/01 10/8/01 R +10 12/25/01 Christmas Day 12/21/01 1/2/02 R +12 12/27/01 Floor Service Day 12/24/01 1/3/02 R +10
B-12
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 12/28/01 Floor Service Day 12/26/01 1/4/02 R +9
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 South Korea Index Fund. ISHARES MSCI SPAIN INDEX FUND Regular Holidays. The regular Spanish holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 St. Vincent's Day January 22, 2001 St. Joseph's Day March 19, 2001 Holy Thursday April 12, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Labour Day May 1, 2001 Madrid Day May 2, 2001 San Isidro May 15, 2001 Whit Monday June 4, 2001 St. James' Day July 25, 2001 St. Ignatius' Day July 31, 2001 Assumption Day August 15, 2001 Bilbao Day August 24, 2001 Catalonia Day September 11, 2001 Our Lady of Mercy September 24, 2001 National Holiday October 12, 2001 All Saints Day November 1, 2001 Our Lady of Almudena November 9, 2001 Constitution Day December 6, 2001 Christmas Eve December 24, 2001 Christmas Day December 25, 2001 Boxing Day December 26, 2001 Redemption. A redemption request over the following Spanish holidays would result in a settlement period that will exceed 7 calendar days (examples are based on days particular holidays fall in the calendar year 2001):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 4/12/01 Holy Thursday 4/9/01 4/17/01 R +8 4/13/01 Good Friday 4/10/01 4/18/01 R +8 4/16/01 Easter Monday 4/11/01 4/19/01 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 +10 12/26/01 Boxing Day 12/21/01 12/31/01 R +10
In the calendar year 2001, R+10 calendar days would be the maximum number of calendar days necessary to satisfy a redemption request made on the iShares MSCI Spain Index Fund. B-13 ISHARES MSCI SWEDEN INDEX FUND Regular Holidays. The regular Swedish holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 New Year January 2, 2001 Thursday Before Good Friday April 12, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Labour Day May 1, 2001 Wed. Before Ascension May 23, 2001 Ascension Day May 24, 2001 Whit Monday June 4, 2001 Midsummer's Eve June 22, 2001 Christmas Eve December 24, 2001 Christmas Day December 25, 2001 Boxing Day December 26, 2001 New Year's Eve December 31, 2001
Redemption. A redemption request over the following Swedish holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the calendar year 2001):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 4/12/01 Thursday before Good Friday 4/9/01 4/17/01 R +8 4/13/01 Good Friday 4/10/01 4/18/01 R +8 4/16/01 Easter Monday 4/11/01 4/19/01 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 Boxing Day 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 Sweden Index Fund. ISHARES MSCI SWITZERLAND INDEX FUND Regular Holidays. The regular Swiss holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Berchtoldstag January 2, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 Labour Day May 1, 2001 Ascension Day May 24, 2001 Whit Monday June 4, 2001 National Holiday August 1, 2001 Christmas Eve December 24, 2001 Christmas Day December 25, 2001 St. Stephen's Day December 26, 2001 New Year's Eve December 31, 2001
Redemption. A redemption request over the following Swiss holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the day particular holidays fall in the calendar year 2001): B-14
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 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 St. Stephen's Day 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 Switzerland Fund. ISHARES MSCI TAIWAN INDEX FUND Regular Holidays. The regular Taiwanese holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Bank Holiday January 2, 2001 Second Day Before Lunar New Year January 22, 2001 Lunar New Year's Eve January 23, 2001 Lunar New Year's Day January 24, 2001 Second Day of Lunar New Year January 25, 2001 Third Day of Lunar New Year January 26, 2001 Memorial Day February 28, 2001 Tomb Sweeping Day April 5, 2001 May Day May 1, 2001 Dragon Boat Festival June 25, 2001 Moon Festival Day October 1, 2001 National Day October 10, 2001 Sun Yat-Sen's Birthday November 12, 2001 Constitution Day December 25, 2001
Redemption. A redemption request over the following Taiwanese holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the calendar year 2001):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 1/22/01 Second Day Before Lunar New Year 1/17/01 1/29/01 R +12 1/23/01 Lunar New Year's Eve 1/18/01 1/30/01 R +12 1/24/01 Lunar New Year's Day 1/19/01 1/31/01 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 Taiwan Index Fund. ISHARES MSCI THAILAND (FREE) INDEX FUND Regular Holidays. The regular Thai holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 New Year's Holiday January 2, 2001 Makha Bucha Day February 8, 2001 Chakri Day April 6, 2001 Songkran Festival Day April 13, 2001 Songkran Festival Day April 16, 2001 Labour Day May 1, 2001 Visakha Bucha Day May 7, 2001 Coronation Day Observed May 8, 2001
B-15 Buddhist Lent July 6, 2001 Queen's Birthday Observed August 13, 2001 King Chulalongkorn Memorial Day October 23, 2001 King's Birthday December 5, 2001 Constitution Day December 10, 2001 New Year's Eve December 31, 2001
Redemption. The Company is not aware of a redemption request over any Thai holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001. ISHARES MSCI TURKEY INDEX FUND Regular Holidays. The regular Turk holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Sacrifice Feast Day March 5, 2001 Second Day of Sacrifice Feast March 6, 2001 Third Day of Sacrifice Feast March 7, 2001 Fourth Day of Sacrifice Feast March 8, 2001 Exchange Holiday March 9, 2001 National Sovereignty and Children's Day April 23, 2001 Victory Day August 30, 2001 Republic Day October 29, 2001 Second Day of Ramadan Feast December 17, 2001 Third Day of Ramadan Feast December 18, 2001
Redemption. A redemption request over the following Turk holidays would result in a settlement period that will exceed 7 calendar days (examples are based on the days particular holidays fall in the calendar year 2001):
Redemption Redemption Date Holiday Request Date (R) Settlement Date Settlement Period ---- ------- ---------------- --------------- ----------------- 3/5/01 Sacrifice Feast Day 2/28/01 3/12/01 R+12 3/6/01 Second Day of Sacrifice Feast 3/1/01 3/13/01 R+12 3/7/01 Third Day of Sacrifice Feast 3/2/01 3/14/01 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 Turkey Index Fund. ISHARES MSCI UNITED KINGDOM INDEX FUND Regular Holidays. The regular United Kingdom holidays affecting the relevant securities markets (and their respective dates in the calendar year 2001) are as follows: New Year's Day January 1, 2001 Good Friday April 13, 2001 Easter Monday April 16, 2001 May Day May 7, 2001 Spring Bank Holiday May 28, 2001 August Bank Holiday August 27, 2001 Christmas Day December 25, 2001 Boxing Day December 26, 2001
Redemption. The Company is not aware of a redemption request over any United Kingdom holiday that would result in a settlement period that will exceed 7 calendar days during the calendar year 2001). B-16 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.(14) (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) Consent of independent auditors.(14) (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) Exhibit is incorporated herein by reference to PEA 21 to the Registration Statement, filed on October 22, 2001. (13) Filed herewith. (14) To be filed by amendment. 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. 22 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 1st day of November, 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. 22 to the Registration Statement has been signed below by the following persons, in the capacities indicated, on the 1st day of November, 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) * By: /s/ Nathan Most ------------------------------ (Nathan Most) Attorney-in-Fact