iShares, Inc.

iShares, Inc. consists of 22 separate investment portfolios called "Index
Funds." Each Index Fund described herein seeks investment results similar to
the performance of a single stock market or all of the stock markets in a
geographic region compiled by Morgan Stanley Capital International Inc.
("MSCI"). Barclays Global Fund Advisors is the advisor to each Index Fund.

The shares of the iShares MSCI Index Funds, called "iShares(R)," are listed and
traded on the American Stock Exchange LLC ("AMEX"). The iShares of certain
Index Funds trade on other securities exchanges, including foreign exchanges.
Individual iShares are not redeemable at their net asset value ("NAV"), but
trade on the AMEX (or any other securities exchanges on which they trade)
during the day at market prices that may be different from their NAV. 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 NAVs in the future.

Each Index Fund issues and redeems iShares at NAV only in large blocks of
iShares ("Creation Units"). These transactions are usually in exchange for a
basket of securities and an amount of cash. As a practical matter, only
institutions or large investors purchase or redeem Creation Units.

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

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.

Prospectus Dated January 1, 2002
<PAGE>

Table of Contents
Details on each Index Fund's market, benchmark index and performance
Details on the management and operations of the Index Funds

Details on buying and selling iShares
Details on the Rule 12b-1 Distribution Plan
Per share financial data for each Index Fund

<TABLE>
<S> <C>
Introduction................................................................ 1
Investment Objective........................................................ 1
Principal Investment Strategies............................................. 1
Principal Risk Factors...................................................... 2
Fees and Expenses........................................................... 4
The iShares MSCI Index Funds................................................ 8
iShares MSCI Australia Index Fund........................................... 8
iShares MSCI Austria Index Fund............................................. 9
iShares MSCI Belgium Index Fund............................................. 10
iShares MSCI Brazil Index Fund.............................................. 11
iShares MSCI Canada Index Fund.............................................. 12
iShares MSCI EMU Index Fund................................................. 13
iShares MSCI France Index Fund.............................................. 14
iShares MSCI Germany Index Fund............................................. 15
iShares MSCI Hong Kong Index Fund........................................... 16
iShares MSCI Italy Index Fund............................................... 17
iShares MSCI Japan Index Fund............................................... 18
iShares MSCI Malaysia Index Fund............................................ 19
iShares MSCI Mexico Index Fund.............................................. 21
iShares MSCI Netherlands Index Fund......................................... 22
iShares MSCI Pacific ex-Japan Index Fund.................................... 23
iShares MSCI Singapore Index Fund........................................... 24
iShares MSCI South Korea Index Fund......................................... 25
iShares MSCI Spain Index Fund............................................... 26
iShares MSCI Sweden Index Fund.............................................. 27
iShares MSCI Switzerland Index Fund......................................... 28
iShares MSCI Taiwan Index Fund.............................................. 29
iShares MSCI United Kingdom Index Fund...................................... 30
Investment Policies and Strategies.......................................... 31
Additional Information About Principal Risk Factors......................... 34
Management
Investment Advisor.......................................................... 36
Shareholder Information
Determination of Net Asset Value............................................ 37
Buying and Selling iShares.................................................. 38
Dividends and Capital Gains Distributions................................... 39
Tax Matters................................................................. 39
Possible Claim.............................................................. 40
Distribution Arrangements................................................... 41
Financial Highlights........................................................ 41
</TABLE>

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page i iShares
<PAGE>

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. References to MSCI Indices herein are to the
provisional MSCI Indices until May 31, 2002, at which time the provisional and
standard MSCI Indices will converge.

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 iShares MSCI Austria, Brazil, Canada, EMU, France, Germany, Hong
Kong, Italy, Japan, Malaysia, Mexico, Netherlands, Singapore, South Korea,
Spain, Sweden, Switzerland and United Kingdom Index Funds' industry
concentration policies, 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 Australia, Belgium, Pacific ex-Japan and Taiwan Index
Funds' industry concentration policies, each of these Index Funds will not
concentrate its investments (i.e. hold 25% or more of its assets in a
particular industry) except that an Index Fund will concentrate in an industry
or group of industries in approximately the same percentage as its benchmark
MSCI Index. (The concentration policy of each of the other Index Funds is
currently proposed to be changed to this concentration policy.)

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.

--------------------------------------------------------------------------------
Introduction page 1
<PAGE>

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

Each Index Fund issues and redeems iShares on a continuous basis -- at net
asset value -- only in large specified numbers of iShares called "Creation
Units," usually in exchange for a basket of portfolio securities and an amount
of cash. As a practical matter, only large institutions purchase or redeem
Creation Units of iShares. Information about the fees paid when they do this is
included in the Company's Statement of Additional Information. Except when
aggregated in Creation Units, iShares are not redeemable securities.

Principal Risk Factors

You may lose money by investing in an Index Fund. Each Index Fund is also
subject to the following principal risks, more fully described in the
Additional Risk Considerations section in this prospectus. Additional risks
associated with a particular market or region in which an Index Fund invests
are discussed under each Index Fund's profile in the iShares MSCI Index Funds
section 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, Malaysia, Mexico, 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." This
means that these Index Funds ma y invest most of their assets in

securities issued by a small number of companies. As a result, these

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page 2 iShares
<PAGE>

Index Funds may be more susceptible to the risks associated with these
particular companies, or to a single economic, political or regulatory
occurrence. (Each of the iShares MSCI Japan and United Kingdom Index Funds
is proposed to be changed to "non-diversified" status; for the change to
take effect for either of these Index Funds, the shareholders of the Index
Fund would have to approve the change no later than January 24, 2002.)

. 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).

-------------------------------------------------------------------------------
Introduction page 3
<PAGE>

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.

<TABLE>
<CAPTION>
iShares MSCI Index Fund Australia Austria Belgium Brazil Canada
----------------------- --------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
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%
===== ===== ===== ===== =====

<CAPTION>
iShares MSCI Index Fund EMU France Germany Hong Kong Italy
----------------------- --- ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
Management fees............ 0.59% 0.59% 0.59% 0.59% 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% 0.84% 0.84%
===== ===== ===== ===== =====

<CAPTION>
Pacific
iShares MSCI Index Fund Japan Malaysia Mexico Netherlands ex-Japan***
----------------------- ----- -------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Management fees............ 0.59% 0.59% 0.59% 0.59% 0.50%
Distribution (Rule 12b-1)
fees...................... 0.25% 0.25% 0.25% 0.25% NONE
Other expenses**........... NONE NONE NONE NONE NONE
----- ----- ----- ----- -----
Total annual Index Fund
operating expenses........ 0.84% 0.84% 0.84% 0.84% 0.50%
===== ===== ===== ===== =====

<CAPTION>
South
iShares MSCI Index Fund Singapore Korea Spain Sweden Switzerland
----------------------- --------- ----- ----- ------ -----------
<S> <C> <C> <C> <C> <C>
Management fees............ 0.23% 0.74% 0.59% 0.59% 0.59%
Distribution (Rule 12b-1)
fees...................... 0.25% 0.25% 0.25% 0.25% 0.25%
Other expenses**........... 0.36% NONE NONE NONE NONE
----- ----- ----- ----- -----
Total annual Index Fund
operating expenses........ 0.84% 0.99% 0.84% 0.84% 0.84%
----- ===== ===== ===== =====
Expense Reimbursement by
investment advisor........ 0.00% -- -- -- --
-----
Net expenses............... 0.84% -- -- -- --
=====

<CAPTION>
United
iShares MSCI Index Fund Taiwan Kingdom
----------------------- ------ -------
<S> <C> <C> <C> <C> <C>
Management fees............ 0.74% 0.59%
Distribution (Rule 12b-1)
fees...................... 0.25% 0.25%
Other expenses**........... NONE NONE
----- -----
Total annual Index Fund
operating expenses........ 0.99% 0.84%
===== =====
</TABLE>

--------

* Creation Unit Transaction Fees for Institutional Investors. The Company
issues and redeems 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

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page 4 iShares
<PAGE>

(per Creation Unit purchase or redemption transaction) range from maximums
of $1,200 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 Investment Index Advisory Agreement of each Index Fund (other than
iShares MSCI Singapore Index Fund) 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
advisor. Under the advisory agreement in effect for each Index Fund prior
to December 28, 2001, each Index Fund paid its own expenses and the Advisor
received fees equal to the difference between such expenses and the
specified rates (subject to the exceptions noted above) or reimbursed
expenses to the extent necessary to cause the Index Fund's expenses to be
at the specified rates (again, subject to the same exceptions). (This
advisory agreement currently remains in effect for the iShares MSCI
Singapore Index Fund, but the shareholders of that Index Fund may approve
the Investment Advisory Agreement applicable to each other Index Fund, if
that approval occurs no later than January 24, 2002.) The net advisory fees
and total expenses of each Index Fund were not affected by the recent
changes to the Investment Advisory Agreement.

*** 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.

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

Fees and Expenses page 5
<PAGE>

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:

<TABLE>
<CAPTION>
iShares MSCI Index Fund 1 Year ($) 3 Years ($) 5 Years ($) 10 Years ($)
----------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Australia................ 112 294 491 1,060
Austria.................. 115 297 494 1,063
Belgium.................. 149 331 528 1,095
Brazil .................. 598 806 1,030 1,674
Canada................... 147 329 526 1,093
EMU...................... 142 324 521 1,088
France................... 101 283 480 1,049
Germany.................. 97 279 476 1,045
Hong Kong................ 172 353 550 1,117
Italy.................... 102 284 482 1,051
Japan.................... 116 298 495 1,064
Malaysia ................ 583 760 952 1,504
Mexico .................. 104 286 483 1,052
Netherlands.............. 129 310 508 1,076
Pacific ex-Japan......... 80 189 N/A N/A
Singapore ............... 168 349 546 1,113
South Korea.............. 598 806 1,030 1,674
Spain.................... 114 296 494 1,062
Sweden................... 131 313 510 1,078
Switzerland.............. 118 300 497 1,065
Taiwan................... 598 806 1,030 1,674
United Kingdom........... 119 301 498 1,067
</TABLE>

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page 6 iShares
<PAGE>

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

<TABLE>
<CAPTION>
iShares MSCI Index
Series 1 Year ($) 3 Years ($) 5 Years ($) 10 Years ($)
------------------ ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Australia............... 99 281 478 1,047
Austria................. 100 282 479 1,048
Belgium................. 117 299 496 1,063
Brazil ................. 398 606 830 1,474
Canada.................. 116 298 495 1,063
EMU..................... 114 295 492 1,060
France.................. 93 275 473 1,042
Germany................. 91 273 471 1,040
Hong Kong............... 129 310 507 1,074
Italy................... 94 276 473 1,042
Japan................... 101 283 480 1,049
Malaysia ............... 383 560 752 1,304
Mexico ................. 95 277 474 1,043
Netherlands............. 107 289 486 1,054
Pacific ex-Japan........ 65 175 N/A N/A
Singapore .............. 127 308 505 1,072
South Korea............. 398 606 830 1,474
Spain................... 100 282 479 1,048
Sweden.................. 108 290 487 1,055
Switzerland............. 102 284 481 1,049
Taiwan.................. 398 606 830 1,474
United Kingdom.......... 103 284 482 1,050
</TABLE>

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).

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Fees and Expenses page 7
<PAGE>

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

The Index consists of stocks traded primarily on the Australian Stock Exchange.
As of October 31, 2001, the Index's three largest stocks were National
Australia Bank, Commonwealth Bank and BHP Billiton Ltd. (BHP) and its three
largest industries were banks, diversified metals & mining and movies &
entertainment. Fund Fact Sheets listing the Fund's top ten holdings and
industry breakdown as of a recent date are available at the iShares website.

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

Year to Date Total Return as of September 30, 2001: (13.04%)

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

<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
-------- ---------------
<S> <C> <C>
Australia Index Fund (11.52%) 1.76%
MSCI Australia Index (9.95%) 2.51%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

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page 8 iShares
<PAGE>

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

The Index consists of stocks traded primarily on the Vienna Stock Exchange. As
of October 31, 2001, the Index's three largest stocks were Erste Bank Oester.
Spk., OMV Ag and Telekom Austria and its three largest industries were banks,
integrated oil & gas and integrated telecommunication services. Fund Fact
Sheets listing the Fund's top ten holdings and industry breakdown as of a
recent date are available at the iShares website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (4.02%)

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

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
-------- ---------
<S> <C> <C>
Austria Index Fund (10.57%) (5.20%)
MSCI Austria Index (11.96%) (3.68%)
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
The iShares MSCI Index Funds page 9
<PAGE>

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

The Index consists of stocks traded primarily on the Brussels Stock Exchange.
As of October 31, 2001, the Index's three largest stocks were Fortis Belgium,
Dexia and Electrabel and its three largest industries were banks, diversified
financial services and electric utilities. Fund Fact Sheets listing the Fund's
top ten holdings and industry breakdown as of a recent date are available at
the iShares website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (16.43%)

Best Quarter Worst Quarter
------------ -------------

17.78% (22.08%)

(Quarter ended December 31, 1998) (Quarter ended March 31, 2000)

Average Annual Total Returns as of 12/31/00 -- Comparison

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
-------- ---------
<S> <C> <C>
Belgium Index Fund (16.10%) 6.16%
MSCI Belgium Index (16.85%) 9.01%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

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page 10 iShares
<PAGE>

iShares MSCI Brazil Index Fund

CUSIP: 464286400
AMEX Trading Symbol: EWZ
------------------------

Fund Investment Objective

The iShares MSCI Brazil 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 Index (the "Index").

Benchmark Index Information

The Index consists of stocks traded primarily on the Bolsa de Valores de Sao
Paulo. As of October 31, 2001, the Index's three largest stocks were Petrobras
Pn, Petrobras On and Ambev Pn and its three largest industries were integrated
oil & gas, banks and integrated telecommunication services. Fund Fact Sheets
listing the Fund's top ten holdings and industry breakdown as of a recent date
are available at the iShares website.

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.

--------------------------------------------------------------------------------
The iShares MSCI Index Funds page 11
<PAGE>

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

The Index consists of stocks traded primarily on the Toronto Stock Exchange. As
of October 31, 2001, the Index's three largest stocks were Royal Bank of
Canada, Nortel Networks Corp. and Bank Nova Scotia and its three largest
industries were banks, life & health insurance and oil & gas exploration &
production. Fund Fact Sheets listing the Fund's top ten holdings and industry
breakdown as of a recent date are available at the iShares website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (26.03%)

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

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------ ---------
<S> <C> <C>
Canada Index Fund 7.66% 15.22%
MSCI Canada Index 5.34% 16.61%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
page 12 iShares
<PAGE>

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

The Index is consists of stocks from the following eleven countries: Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands,
Portugal and Spain. As of October 31, 2001, the Index's three largest stocks
were Royal Dutch Petroleum Co., Nokia Corp. and Total Fina Elf and its three
largest industries were banks, integrated oil & gas and integrated
telecommunication services. Fund Fact Sheets listing the Fund's top ten
holdings and industry breakdown as of a recent date are available at the
iShares website.

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.

--------------------------------------------------------------------------------
The iShares MSCI Index Funds page 13
<PAGE>

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

The Index consists of stocks traded primarily on the Paris Stock Exchange. As
of October 31, 2001, the Index's three largest stocks were Total Fina Elf,
Aventis and Vivendi Universal and its three largest industries were integrated
oil & gas, pharmaceuticals and banks. Fund Fact Sheets listing the Fund's top
ten holdings and industry breakdown as of a recent date are available at the
iShares website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (31.11%)

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

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------- ---------
<S> <C> <C>
France Index Fund (5.09%) 19.02%
MSCI France Index (4.31%) 19.21%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
page 14 iShares
<PAGE>

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

The Index consists of stocks traded primarily on the Frankfurt Stock Exchange.
As of October 31, 2001, the Index's three largest stocks were Siemens, Allianz
and E. On and its three largest industries were automobile manufacturers,
industrial conglomerates and banks. Fund Fact Sheets listing the Fund's top ten
holdings and industry breakdown as of a recent date are available at the
iShares website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (35.02%)

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

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
-------- ---------
<S> <C> <C>
Germany Index Fund (15.97%) 12.35%
MSCI Germany Index (15.59%) 13.10%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
The iShares MSCI Index Funds page 15
<PAGE>

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

The Index consists of stocks traded primarily on the Stock Exchange of Hong
Kong Limited (SEHK). As of October 31, 2001, the Index's three largest stocks
were Hutchison Whampoa, Cheung Kong Holdings and Sun Hung Kai Properties and
its three largest industries were real estate management & development,
industrial conglomerates and electric utilities. Fund Fact Sheets listing the
Fund's top ten holdings and industry breakdown as of a recent date are
available at the iShares website.

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

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (33.32%)

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

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
-------- ---------
<S> <C> <C>
Hong Kong Index Fund (14.02%) 1.70%
MSCI Hong Kong Index (14.74%) 4.99%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
page 16 iShares
<PAGE>

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

The Index consists of stocks traded primarily on the Milan Stock Exchange. As
of October 31, 2001, the Index's three largest stocks were ENI, Assicurazioni
Generali and Tim Ord and its three largest industries were banks, integrated
oil & gas and multi-line insurance. Fund Fact Sheets listing the Fund's top ten
holdings and industry breakdown as of a recent date are available at the
iShares website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (31.32%)

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

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------- ---------
<S> <C> <C>
Italy Index Fund (1.17%) 18.78%
MSCI Italy Index (1.33%) 18.72%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
The iShares MSCI Index Funds page 17
<PAGE>

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

The Index consists of stocks traded primarily on the Tokyo Stock Exchange. As
of October 31, 2001, the Index's three largest stocks were Toyota Motor Corp.,
NTT Docomo and Takeda Chemical Ind. and its three largest industries were
banks, consumer electronics and pharmaceuticals. Fund Fact Sheets listing the
Fund's top ten holdings and industry breakdown as of a recent date are
available at the iShares website.

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

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (25.51%)

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

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
-------- ---------
<S> <C> <C>
Japan Index Fund (28.57%) (4.79%)
MSCI Japan Index (28.16%) (3.84%)
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
page 18 iShares
<PAGE>

iShares MSCI Malaysia Index Fund

CUSIP: 464286830
AMEX Trading Symbol: EWM
------------------------

Fund Investment Objective

The iShares MSCI Malaysia 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 Index (the "Index").

Benchmark Index Information

The Index consists of stocks traded primarily on the Kuala Lumpur Stock
Exchange. As of October 31, 2001 the Index's three largest stocks were Malayan
Banking, Telekom Malaysia and Tenaga Nasional and its three largest industries
were banks, electric utilities and integrated telecommunication services. Fund
Fact Sheets listing the Fund's top ten holdings and industry breakdown as of a
recent date are available at the iShares website.

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's shares 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. 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 Finance Ministry of Malaysia abolished, effective May 2, 2001, the exit
levy of 10% that had previously applied to profits repatriated by foreign
entities such as the Fund. However, as discussed below, there can be no
assurance that this or some other levy will not be reinstated by Malaysian
authorities in the future, to the possible detriment of the Fund and its
shareholders.

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.

-------------------------------------------------------------------------------
The iShares MSCI Index Funds page 19
<PAGE>

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (7.28%)

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

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
-------- ---------
<S> <C> <C>
Malaysia Index Fund (15.85%) (16.10%)
MSCI Malaysia Index (15.90%) (14.94%)
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
page 20 iShares
<PAGE>

iShares MSCI Mexico Index Fund

CUSIP: 464286822
AMEX Trading Symbol: EWW
------------------------

Fund Investment Objective

The iShares MSCI Mexico 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 Index (the "Index").

Benchmark Index Information

The Index consists of stocks traded primarily on the Mexican Stock Exchange. As
of October 31, 2001 the Index's three largest stocks were Telefonos Mexico L,
America Movil L and Cemex Cpo. and its three largest industries were integrated
telecommunication services, wireless telecommunication services and
construction materials. Fund Fact Sheets listing the Fund's top ten holdings
and industry breakdown as of a recent date are available at the iShares
website.

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

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (5.65%)

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

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
-------- ---------
<S> <C> <C>
Mexico Index Fund (22.78%) 9.05%
MSCI Mexico Index (20.49%) 12.02%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
The iShares MSCI Index Funds page 21
<PAGE>

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

The Index consists of stocks traded primarily on the Amsterdam Stock Exchange.
As of October 31, 2001, the Index's three largest stocks were Royal Dutch
Petroleum Co., ING Groep and Unilever NV Cert. and its three largest industries
were integrated oil & gas, diversified financial services and packaged foods.
Fund Fact Sheets listing the Fund's top ten holdings and industry breakdown as
of a recent date are available at the iShares website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (28.61%)

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

<TABLE>
<CAPTION>
Since
Inception
1 Year (3/12/96)
------- ---------
<S> <C> <C>
Netherlands Index Fund (7.80%) 12.94%
MSCI Netherlands Index (4.09%) 15.03%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
page 22 iShares
<PAGE>

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 Free ex-Japan
Index (the "Index").

Benchmark Index Information

The Index consists of stocks from the following four countries: Australia, Hong
Kong, New Zealand and Singapore. As of October 31, 2001, the Index's three
largest stocks were National Australia Bank, Commonwealth Bank and Hutchison
Whampoa and its three largest industries were banks, real estate management &
development and diversified metals & mining. Fund Fact Sheets listing the
Fund's top ten holdings and industry breakdown as of a recent date are
available at the iShares website.

Fund-Specific Risks

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.

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.

--------------------------------------------------------------------------------
The iShares MSCI Index Funds page 23
<PAGE>

iShares MSCI Singapore Index Fund

CUSIP: 464286673
AMEX Trading Symbol: EWS
------------------------

Fund Investment Objective

The iShares MSCI Singapore 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 Index (the "Index").

Benchmark Index Information

The Index consists of stocks traded primarily on the Singapore Stock Exchange.
As of October 31, 2001 the Index's three largest stocks were United Overseas
Bank, Singapore Telecom and OCBC Bank and its three largest industries were
banks, integrated telecommunication services and publishing & printing. Fund
Fact Sheets listing the Fund's top ten holdings and industry breakdown as of a
recent date are available at the iShares website.

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

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (34.78%)

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

<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
-------- ---------------
<S> <C> <C>
Singapore Index Fund (25.06%) (10.06%)
MSCI Singapore Index (27.72%) (8.96%)
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
page 24 iShares
<PAGE>

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

The Index consists of stocks traded primarily on the South Korean Stock
Exchange. As of October 31, 2001, the Index's three largest stocks were Samsung
Electronics Co., SK Telecom Co. and Posco Pohang Iron & Steel and its three
largest industries were semiconductors, wireless telecommunication services and
banks. Fund Fact Sheets listing the Fund's top ten holdings and industry
breakdown as of a recent date are available at the iShares website.

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.

--------------------------------------------------------------------------------
The iShares MSCI Index Funds page 25
<PAGE>

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

The Index consists of stocks traded primarily on the Madrid Stock Exchange. As
of October 31, 2001, the Index's three largest stocks were Telefonica, BBVA and
BSCH BCO Santander Central and its three largest industries were banks,
integrated telecommunication services and electric utilities. Fund Fact Sheets
listing the Fund's top ten holdings and industry breakdown as of a recent date
are available at the iShares website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (20.56%)

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

<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
-------- ---------------
<S> <C> <C>
Spain Index Fund (13.62%) 17.26%
MSCI Spain Index (15.86%) 18.73%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
page 26 iShares
<PAGE>

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

The Index consists of stocks traded primarily on the Stockholm Stock Exchange.
As of October 31, 2001, the Index's three largest stocks were Ericsson (Lm) B,
Nordea and Hennes & Mauritz B and its three largest industries were
telecommunications equipment, banks and industrial machinery. Fund Fact Sheets
listing the Fund's top ten holdings and industry breakdown as of a recent date
are available at the iShares website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (40.97%)

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

<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
-------- ---------------
<S> <C> <C>
Sweden Index Fund (23.74%) 15.97%
MSCI Sweden Index (21.29%) 19.79%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
The iShares MSCI Index Funds page 27
<PAGE>

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

The Index consists of stocks traded primarily on the Zurich Stock Exchange. As
of October 31, 2001, the Index's three largest stocks were Novartis, Nestle and
UBS Namen and its three largest industries were pharmaceuticals, banks and
packaged foods. Fund Fact Sheets listing the Fund's top ten holdings and
industry breakdown as of a recent date are available at the iShares website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (27.83%)

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

<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
------ ---------------
<S> <C> <C>
Switzerland Index Fund 5.87% 10.69%
MSCI Switzerland Index 5.85% 12.21%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
page 28 iShares

<PAGE>

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

The Index consists of stocks traded primarily on the Taiwan Stock Exchange. As
of October 31, 2001, the Index's three largest stocks were Taiwan Semiconductor
Mfg., United Microelectronics and Asustek Computer and its three largest
industries were semiconductors, computer storage & peripherals and banks. Fund
Fact Sheets listing the Fund's top ten holdings and industry breakdown as of a
recent date are available at the iShares website.

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.

--------------------------------------------------------------------------------
The iShares MSCI Index Funds page 29
<PAGE>

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

The Index consists of stocks traded primarily on the London Stock Exchange. As
of October 31, 2001, the Index's three largest stocks were BP, GlaxoSmithKline
and Vodafone Group and its three largest industries were banks, integrated oil
& gas and pharmaceuticals. Fund Fact Sheets listing the Fund's top ten holdings
and industry breakdown as of a recent date are available at the iShares
website.

Prior Performance

Annual Total Returns as of 12/31/00

Year to Date Total Return as of September 30, 2001: (20.82%)

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

<TABLE>
<CAPTION>
Since Inception
1 Year (3/12/96)
-------- ---------------
<S> <C> <C>
United Kingdom Index Fund (11.67%) 13.23%
MSCI United Kingdom Index (11.53%) 13.84%
</TABLE>

Past performance is not necessarily an indicator of how the Fund will perform
in the future.

--------------------------------------------------------------------------------
page 30 iShares
<PAGE>

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 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, Hong Kong, Italy, Mexico,
Netherlands, Singapore, 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 advisor
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 iShare MSCI
Australia, Austria, Belgium, Brazil, Hong Kong, Italy, Mexico, Netherlands,
Singapore, 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

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

Investment Policies and Strategies page 31

<PAGE>

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 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. Each of the iShares MSCI Austria, Brazil, Canada, EMU,
France, Germany, Hong Kong, Italy, Japan, Malaysia, Mexico, Netherlands,
Singapore, South Korea, Spain, Sweden, Switzerland and United Kingdom Index
Funds has 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 October 31, 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:

<TABLE>
<CAPTION>
iShares MSCI Index Fund Industry or Industries
----------------------- ----------------------
<S> <C>
Brazil Integrated Oil & Gas
Hong Kong Real Estate Management & Development
Mexico Integrated Telecommunication Services
Netherlands Integrated Oil & Gas
Singapore Banks
South Korea Semiconductors
Spain Banks
Sweden Telecommunications Equipment
Switzerland Pharmaceuticals
</TABLE>

Each of the iShares MSCI Australia, Belgium, Pacific ex-Japan and Taiwan Index
Funds will not 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. (The concentration policy of
each of the other Index Funds is proposed to be changed to the concentration
policy described in this paragraph; for the change to take effect for any of
these Index Funds, the shareholders of that Index Fund would have to approve
the change no later than January 24, 2002.)

--------------------------------------------------------------------------------
page 32 iShares

<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Industry or Industries
----------------------- ----------------------
<S> <C>
Australia Banks
Pacific ex-Japan Banks
Taiwan Semiconductors
</TABLE>

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

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

Tracking Error. Due to the use of the portfolio sampling technique described
above and other factors discussed in this Prospectus, an Index Fund is not
expected to track its benchmark MSCI Index with the same degree of accuracy as
would an investment vehicle that invested in every component security of its
benchmark index. The investment advisor expects that, over time, an Index
Fund's "expected tracking error" relative to the performance of its benchmark
index will be less than 5% and its tracking error will generally be greater if
its benchmark index has fewer rather than greater numbers of component stocks.
An expected tracking error of 5% means that there is a 68% probability that the
net asset value of an Index Fund will be within plus or minus 5% of its
benchmark MSCI Index level after one year, without rebalancing the portfolio
composition. Thus, actual tracking error in a period may exceed 5%, perhaps
significantly, even though the expected tracking error is less than 5%. In
addition, it is possible that future developments (e.g., the domination of an
Index Fund's benchmark index by a small number of stocks) may result in an
Index Fund having an unexpected tracking error of greater than 5%. For the
fiscal year ended August 31, 2001, there were no Index Funds with a tracking
error greater than 5%. A tracking error of 0% would indicate perfect tracking,
which would be achieved when the net asset value of an Index Fund increases or
decreases in exact proportion to changes in its benchmark MSCI Index.

The following factors may adversely affect the tracking of an Index Fund to
that of its benchmark MSCI Index:

. the Index Funds must pay various expenses, while the benchmark MSCI Indices
do not reflect any expenses;

. since the investment portfolios of the Index Funds do not generally replicate
the underlying MSCI Indices, their investment performance is likely to differ
from that of the MSCI Indices;

. the portfolio sampling technique used to manage the Index Funds is based on
historical price relationships and changes to those relationships can
adversely affect tracking. In some situations, the requirements of the US
Internal Revenue Code can adversely affect tracking by preventing an Index
Fund from holding optimal positions in particular securities;

page 33

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

Investment Policies and Strategies
<PAGE>

. 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 uninvested assets;
. Index Funds receive interest income on uninvested cash and most Index Funds
receive income from securities lending activities, whereas the benchmark MSCI
Indices do not have such sources of income; and

. the fact that an Index Fund may be subject to a different foreign withholding
tax rate than that assumed by its benchmark MSCI Index.

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

Additional Information About Principal Risk Factors

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

. less liquid and less efficient securities markets;

. greater price volatility;

. exchange rate fluctuations and exchange controls;

. less publicly available information about issuers;

. the imposition of withholding or other taxes;

. the imposition of restrictions on the expatriation of funds or other assets
of an Index Fund;

. higher transaction and custody costs and delays and risks of loss attendant
in settlement procedures;

. difficulties in enforcing contractual obligations;

. lesser levels of regulation of the securities markets;

. different accounting disclosure and reporting requirements;

. more substantial government involvement in the economy;

. higher rates of inflation;

. greater social, economic, and political uncertainty and the risk of
nationalization or expropriation of assets and risk of war.

Index Funds that issue and/or redeem Creation Units for cash (the Brazil,
Malaysia, 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.

--------------------------------------------------------------------------------
page 34 iShares
<PAGE>

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 October 31, 1996 to October 31, 2001.

<TABLE>
<CAPTION>
Standard
Index Deviation Mean
----- --------- ------
<S> <C> <C>
MSCI Australia......... 5.87% 0.13%
MSCI Austria........... 6.00% (0.29%)
MSCI Belgium........... 5.29% 0.38%
MSCI Brazil............ 12.63% 0.43%
MSCI Canada............ 6.92% 0.65%
MSCI France............ 5.75% 0.87%
MSCI Germany........... 6.52% 0.49%
MSCI Hong Kong......... 10.13% 0.01%
MSCI Italy............. 7.07% 0.99%
MSCI Japan............. 6.56% (0.49%)
MSCI Malaysia.......... 43.46% (0.61%)
</TABLE>
<TABLE>
<CAPTION>
Standard
Index Deviation Mean
----- --------- ------
<S> <C> <C>
MSCI Mexico............ 10.27% 1.39%
MSCI Netherlands....... 5.58% 0.56%
MSCI Pacific ex-Japan
(Free)................ 7.68% (0.46%)
MSCI Singapore......... 11.06% (0.66%)
MSCI South Korea....... 17.84% 0.79%
MSCI Spain............. 7.01% 1.08%
MSCI Sweden............ 8.53% 0.59%
MSCI Switzerland....... 5.50% 0.60%
MSCI Taiwan............ 10.46% (0.58%)
MSCI United Kingdom.... 4.12% 0.51%
</TABLE>

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 United Kingdom reflects the lowest historical volatility, and the MSCI
Malaysia 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. (Each of the
iShares MSCI Japan and United Kingdom Index Funds is proposed to be changed to
"non-diversified" status; for the change to take effect for either of these
Index Funds, the shareholders of the Index Fund would have to approve the
change no later than January 24, 2002.) 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

--------------------------------------------------------------------------------
Additional Information About Principal Risk Factors page 35
<PAGE>

susceptible to any single economic, political or regulatory occurrence than the
portfolio securities of an investment company that is more broadly invested in
the equity securities of the relevant market.

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

Fluctuation of Net Asset Value and Trading Prices. The net asset value of
iShares of an Index Fund will fluctuate with changes in the market value of an
Index Fund's security holdings and changes in the exchange rate between the US
dollar and the subject foreign currency. The market prices of iShares will
fluctuate in accordance with changes in net asset value and supply and demand
on the AMEX or another exchange on which iShares are listed. The Company cannot
predict whether iShares will trade below, at or above their net asset value.
Price differences may be due, in large part, to the fact that supply and demand
forces in the secondary trading market for iShares will be closely related, but
not identical, to the same forces influencing the prices of the stocks of the
MSCI Index trading individually or in the aggregate at any point in time.
Given, however, that iShares must be created and redeemed in Creation Unit
aggregations (unlike shares of many closed-end funds, which frequently trade at
appreciable discounts from, and sometimes at premiums to, their net asset
value), the investment advisor believes that ordinarily large discounts or
premiums to the net asset value of iShares should not be sustained. In the
event that the Company must suspend or discourage creations and/or redemptions
of Creation Unit aggregations of iShares of an Index Fund, we expect larger
discounts or premiums. This occurred in the case of the Malaysia 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 September 30, 2001, the investment
advisor and its affiliates managed, administered or advised assets aggregating
in excess of $703 billion. Barclays Global Fund Advisors' principal business
address is 45 Fremont Street, San Francisco, California 94105.

Under its Investment Advisory Agreement with the Company, Barclays Global Fund
Advisors is responsible for paying all expenses incurred by each Index Fund
(other than the iShares MSCI Singapore Index Fund), except portfolio
transaction expenses, Rule 12b-1 distribution expenses, litigation expenses,
taxes, extraordinary expenses and the investment advisory fee itself. Under the
advisory agreement in effect for each Index Fund prior to December 28, 2001,
each Index Fund paid its own expenses and Barclays Global Fund Advisors
received fees equal to the difference between such

--------------------------------------------------------------------------------
page 36 iShares

<PAGE>

expenses and specified rates (subject to the exceptions noted above) or
reimbursed expenses to the extent necessary to cause the Index Fund's expenses
to be at such specified rates (again, subject to the same exceptions). (This
advisory agreement currently remains in effect for the iShares MSCI Singapore
Index Fund, but the shareholders of that Index Fund may approve the Investment
Advisory Agreement applicable to each other Index Fund, if that approval occurs
no later than January 24, 2002.) The net advisory fees and total expenses of
each Index Fund were not affected by the recent changes to the Investment
Advisory Agreement. For the fiscal year ended August 31, 2001, the investment
advisor accrued, received or reimbursed the following fees as a percentage of
the average daily net assets of each of the iShares MSCI Index Funds.

<TABLE>
<CAPTION>
Percentage of Percentage of
Average Daily Average Daily
iShares MSCI Index Fund Net Assets iShares MSCI Index Fund Net Assets
----------------------- ------------- ----------------------- -------------
<C> <C> <S> <C> <C>
Australia............... 0.59% Malaysia................ 0.59%
Austria................. 0.59% Mexico.................. 0.59%
Belgium................. 0.59% Netherlands............. 0.59%
Brazil.................. 0.74% Pacific ex-Japan........ 0.50%*
Canada.................. 0.59% Singapore............... 0.23%
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%
</TABLE>

--------

*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 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 Malaysia, 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 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 or may
publish intra-day estimated NAVs for certain Index Funds. 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,
Malaysia, 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). 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.

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

Shareholder Information page 37

<PAGE>

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.)

<TABLE>
<CAPTION>
Maximum Additional Maximum Additional
In-kind and Cash Variable Charge Variable Charge Number of
iShares Purchases and for Cash for Cash Shares Per
MSCI Index Series Redemptions Purchases* Redemptions* Creation Unit
----------------- ---------------- ------------------- ------------------ -------------
<S> <C> <C> <C> <C>
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.................. $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
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................ $5,500 ** *** 75,000
Mexico.................. $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............... $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
</TABLE>

--------
* 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

--------------------------------------------------------------------------------
page 38 iShares
<PAGE>

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 the iShares of
the iShares MSCI Malaysia 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.

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.

--------------------------------------------------------------------------------
Shareholder Information page 39
<PAGE>

Unless your investment in an Index Fund is through a tax-exempt entity or
taxed-deferred retirement account, such as an IRA plan, you need to be aware of
the possible tax consequences when:

. An Index Fund makes distributions, and

. You sell iShares on the AMEX.

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

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

Dividends and interest received by each Index Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Since more
than 50% of each Index Fund's total assets at the end of its taxable year will
consist of foreign stocks or securities, each Index Fund will "pass through" to
you any foreign income taxes (including withholding taxes) paid by an Index
Fund, if you held the Index Fund, and the Index Fund held the security, on the
dividend entitlement date and for at least fifteen additional days immediately
before and/or after. Subject to certain limitations, the foreign income taxes
passed through may qualify as a deduction in calculating US taxable income or
as a credit in calculating US federal income tax. You will be notified of your
portion of the foreign income taxes paid to each country and the portion of
dividends that represents income derived from sources within each country.
Taxes other than foreign income taxes, including any profits levy payable by
the iShares MSCI Malaysia 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.

If you are a lawful permanent resident or a citizen of the United States, by
law, back-up withholding will apply to your distributions and proceeds if you
have 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

--------------------------------------------------------------------------------
page 40 iShares
<PAGE>

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, which does not pay Rule 12b-1 fees) at a rate set from time to time by
the Board, provided that the annual rate may not exceed 0.25% 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 0.02% 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 0.035% 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 marketing and
the distribution of the Company's shares). In addition, the distributor has
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 0.25 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.

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,
Canada, EMU, France, Germany, Hong Kong, Italy, Japan, Malaysia, Mexico,
Netherlands, Singapore, 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 has been audited by
PricewaterhouseCoopers LLP, 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 ended August 31, 1997,
1998, 1999 and 2000 was audited by Ernst & Young LLP, the former auditor.

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

Distribution Arrangements page 41

<PAGE>

<TABLE>
<CAPTION>
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
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period....................... $ 9.93 $ 9.99 $ 7.75 $ 10.35 $ 10.15
------- ------- ------- ------- -------
Net investment
income/(loss)+............... 0.24 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........... (0.71) (0.04) 2.29 (2.60) 0.47
------- ------- ------- ------- -------
Net increase/(decrease) in
net assets resulting from
operations................. (0.47) 0.19 2.49 (2.37) 0.64
------- ------- ------- ------- -------

Less Distributions
Dividends from net investment
income....................... (0.20) (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) (0.02) (0.06) -- (0.20)
------- ------- ------- ------- -------
Total dividends and
distributions.............. (0.22) (0.25) (0.25) (0.23) (0.44)
------- ------- ------- ------- -------
Net asset value, end of
period....................... $ 9.24 $ 9.93 $ 9.99 $ 7.75 $ 10.35
======= ======= ======= ======= =======
Total Investment Return(1)..... (4.77)% 1.84% 32.09% (23.11)% 6.23%

Ratios/Supplemental Data
Net assets, end of period (in
000's)....................... $57,312 $61,574 $53,957 $34,099 $41,406
Ratios of expenses to average
net assets(2)................ 0.84% 0.95% 1.00% 1.05 % 1.33%
Ratios of net investment
income/(loss) to average net
assets(2).................... 2.54% 2.22% 2.03% 2.38 % 1.57%
Portfolio turnover(3)......... 23.23% 36.20% 13.83% 1.49 % 5.30%
--------
* 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
of the listing fee through
December 31, 1996 and
reimbursements from the
Advisor 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%
Ratios of net investment
income/(loss) to average
net assets before
waivers/reimbursements .... -- -- -- -- 1.57%
(3) Excludes portfolio
securities received or
delivered as a result of
processing capital share
transactions in Creation
Unit(s).
</TABLE>

-------------------------------------------------------------------------------
page 42 iShares

<PAGE>

<TABLE>
<CAPTION>
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
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 7.67 $ 9.13 $ 10.11 $10.51 $10.40
------- ------- ------- ------ ------
0.13 0.04 0.10 0.06 (0.02)
0.52 (1.46) (0.98) 0.20 0.13
------- ------- ------- ------ ------
0.65 (1.42) (0.88) 0.26 0.11
------- ------- ------- ------ ------

(0.13) (0.04) (0.07) (0.04) --
(0.01) (0.00)* (0.01) (0.01) --
-- -- -- (0.61) --
-- -- -- 0.00* --
(0.00)* -- (0.02) 0.00* --
------- ------- ------- ------ ------
(0.14) (0.04) (0.10) (0.66) --
------- ------- ------- ------ ------
$ 8.18 $ 7.67 $ 9.13 $10.11 $10.51
======= ======= ======= ====== ======
8.41% (15.51)% (8.69)% 2.16% 1.06 %

$11,447 $10,741 $12,776 $8,085 $4,205
0.84% 1.16% 1.31 % 1.41% 1.68 %
1.69% 0.51% 1.04 % 0.51% (0.22)%
65.98% 33.65% 49.95 % 36.14% 28.47 %

0.97% 1.20% -- -- 1.69 %
1.55% 0.47% -- -- (0.22)%
</TABLE>

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

Financial Highlights page 43
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Belgium 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
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period...................... $13.23 $ 16.07 $ 18.40 $ 15.64 $ 14.99
------ ------- ------- ------- -------
Net investment
income/(loss)+.............. 0.19 0.19 0.08 0.24 0.77
Net realized and unrealized
gain/(loss) on investments
and foreign currency related
transactions and translation
of other assets and
liabilities denominated in
foreign currencies.......... (1.34) (2.67) (0.30) 6.09 0.62
------ ------- ------- ------- -------
Net increase/(decrease) in
net assets resulting from
operations................. (1.15) (2.48) (0.22) 6.33 1.39
------ ------- ------- ------- -------
Less Distributions
Dividends from net investment
income...................... (0.20) (0.17) -- (0.27) (0.33)
Dividends in excess of net
investment income........... (0.07) (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.......... -- -- -- -- --
Return of capital............ -- -- (0.91) (0.10) (0.01)
------ ------- ------- ------- -------
Total dividends and
distributions.............. (0.27) (0.36) (2.11) (3.57) (0.74)
------ ------- ------- ------- -------
Net asset value, end of $11.81
period...................... $ 13.23 $ 16.07 $ 18.40 $ 15.64
====== ======= ======= ======= =======
Total Investment Return(2).... (8.72)% (15.50)% (1.00)% 39.42% 9.26%
Ratios/Supplemental Data
Net assets, end of period (in
000's)...................... $9.918 $13,230 $13,496 $25,765 $32,528
Ratios of expenses to average
net assets(5)............... 0.84% 1.13% 1.24% 1.04% 1.24%
Ratios of net investment
income/(loss) to average net
assets(5)................... 1.60% 1.36% 0.45% 1.28% 4.63%
Portfolio turnover(6)........ 36.15% 53.27% 62.99% 50.46% 16.83%
--------
* 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 of the
listing fee through December 31,
1996 and reimbursements from the
Advisor 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 .... 0.87% -- -- -- 1.24%
Ratios of net investment
income/(loss) to average
net assets before
waivers/reimbursements .... 1.57% -- -- -- 4.63%
</TABLE>

(6) Excludes portfolio securities
received or delivered as a result of
processing capital share
transactions in Creation Unit(s).

--------------------------------------------------------------------------------
page 44 iShares

<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Brazil
Index Fund iShares MSCI Canada Index Fund
--------------------- -------------------------------------------------
For the For the For the For the For the For the For the
year period year year year year year
ended 07/11/00*- 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
-------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 19.25 $ 20.22(1) $ 16.94 $ 13.22 $ 9.90 $13.43 $ 10.60
------- ------- ------- ------- ------ ------ -------
0.68 0.02 0.05 0.70 0.07 0.07 0.05
(8.09) (0.63) (5.92) 8.08 3.87 (2.89) 2.97
------- ------- ------- ------- ------ ------ -------
(7.41) (0.61) (5.87) 8.78 3.94 (2.82) 3.02
------- ------- ------- ------- ------ ------ -------
(0.56) (0.02) (0.02) (0.52) (0.08) (0.13) (0.05)
-- -- -- (0.03) (0.01) (0.00)** (0.00)**
-- -- -- (4.08) (0.53) (0.58) (0.14)
-- (0.34) (0.31) (0.31) -- -- --
(0.08) -- (0.04) (0.12) -- -- --
------- ------- ------- ------- ------ ------ -------
(0.64) (0.36) (0.37) (5.06) (0.62) (0.71) (0.19)
------- ------- ------- ------- ------ ------ -------
$ 11.20 $ 19.25 $ 10.70 $ 16.94 $13.22 $ 9.90 $ 13.43
======= ======= ======= ======= ====== ====== =======
(38.52)% (2.97)%(4) (34.95)% 67.21% 39.71% (21.69)% 28.50%
$14,004 $18,283 $28,889 $22,028 $9,253 $6,932 $24,168
0.99% 0.99%(3) 0.84% 1.17% 1.23% 1.14% 1.35%
4.44% 0.77%(3) 0.44% 4.07% 0.53% 0.46% 0.39%
43.20% 63.61%(4) 63.49% 64.03% 11.66% 3.70% 11.02%
-- 1.40%(3) -- 1.19% -- -- 1.36%
-- 0.37%(3) -- 4.05% -- -- 0.39%
</TABLE>

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

Financial Highlights page 45

<PAGE>

<TABLE>
<CAPTION>
iShares MSCI EMU
Index Fund
---------------------
For the For the
year period
ended 07/26/00*-
08/31/01 08/31/00
-------- ----------
<S> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period................. $ 76.02 $ 80.72(1)
------- -------
Net investment income/(loss)+........................ 0.72 (0.00)**
Net realized and unrealized gain/(loss) on
investments and foreign currency related
transactions and translation of other assets and
liabilities denominated in foreign currencies....... (19.32) (4.70)
------- -------
Net increase/(decrease) in net assets resulting from
operations......................................... (18.60) (4.70)
------- -------

Less Distributions
Dividends from net investment income................. (0.41) --
Dividends in excess of net investment income......... (0.01) --
Distributions from net realized gains................ -- --
Distributions in excess of net realized gains........ -- --
Return of capital.................................... (0.26) --
------- -------
Total dividends and distributions................... (0.68) --
------- -------
Net asset value, end of period....................... $ 56.74 $ 76.02
======= =======
Total Investment Return(2)............................ (24.51)% (5.82)%(4)

Ratios/Supplemental Data
Net assets, end of period (in 000's)................. $90,779 $41,811
Ratios of expenses to average net assets(5).......... 0.84% 0.84%(3)
Ratios of net investment income/(loss) to average net
assets(5)........................................... 1.13% 0.03%(3)
Portfolio turnover(6)................................ 23.64% 0.00%(4)
--------
* 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 of the
listing fee through December 31,
1996 and reimbursements from the
Advisor 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)
Ratios of net investment income/(loss) to average
net assets before waivers/reimbursements........... -- (0.70)%(3)
</TABLE>

(6) Excludes portfolio securities
received or delivered as a result of
processing capital share
transactions in Creation Unit(s).

--------------------------------------------------------------------------------
page 46 iShares

<PAGE>

<TABLE>
<CAPTION>
iShares MSCI France Index Fund iShares MSCI Germany Index Fund
---------------------------------------------------- ---------------------------------------------------
For the For the For the For the For the For the For the For the For the For the
year year year year year year year year year year
ended ended ended ended ended ended ended ended ended ended
08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 08/31/01 08/31/00 08/31/99 08/31/98 08/31/97
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 26.41 $ 22.90 $ 19.13 $ 14.50 $ 12.73 $ 20.46 $ 21.17 $ 20.25 $ 16.31 $ 13.64
------- ------- ------- ------- ------- -------- -------- -------- ------- -------
0.06 0.10 0.14 0.30 0.17 0.18 0.18 0.12 0.29 0.03
(6.89) 5.21 3.88 4.76 1.95 (5.26) 1.64 1.31 3.92 2.77
------- ------- ------- ------- ------- -------- -------- -------- ------- -------
(6.83) 5.31 4.02 5.06 2.12 (5.08) 1.82 1.43 4.21 2.80
------- ------- ------- ------- ------- -------- -------- -------- ------- -------

(0.04) (0.09) (0.10) (0.19) (0.15) (0.19) (0.16) (0.10) (0.17) (0.03)
-- (0.02) (0.02) (0.03) -- (0.00)** (0.01) (0.01) (0.01) (0.01)
-- (1.64) (0.05) (0.13) (0.20) -- (2.00) (0.31) (0.01) (0.07)
(0.00)** (0.03) -- (0.01) -- -- (0.32) (0.08) 0.00** --
(0.01) (0.02) (0.08) (0.07) -- (0.00)** (0.04) (0.01) (0.08) (0.02)
------- ------- ------- ------- ------- -------- -------- -------- ------- -------
(0.05) (1.80) (0.25) (0.43) (0.35) (0.19) (2.53) (0.51) (0.27) (0.13)
------- ------- ------- ------- ------- -------- -------- -------- ------- -------
$ 19.53 $ 26.41 $ 22.90 $ 19.13 $ 14.50 $ 15.19 $ 20.46 $ 21.17 $ 20.25 $ 16.31
======= ======= ======= ======= ======= ======== ======== ======== ======= =======
(25.86)% 23.45% 21.01% 34.77% 16.60% (24.87)% 8.44% 7.04% 25.69% 20.51%

$58,602 $95,116 $77,885 $45,922 $14,519 $118,525 $153,487 $101,645 $72,934 $24,486
0.84% 0.96% 1.06% 1.18% 1.52% 0.84% 0.94% 1.00% 1.08% 1.37%
0.28% 0.36% 0.67% 1.58% 1.17% 0.99% 0.73% 0.57% 1.43% 0.23%
13.70% 17.43% 0.00% 5.65% 7.13% 20.11% 56.38% 13.67% 0.64% 9.04%
-- -- -- -- 1.52% -- -- -- -- 1.37%
-- -- -- -- 1.17% -- -- -- -- 0.22%
</TABLE>

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

Financial Highlights page 47

<PAGE>

<TABLE>
<CAPTION>
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
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period....................... $ 13.24 $ 11.83 $ 6.41 $ 14.73 $ 13.05
------- ------- ------- ------- -------
Net investment
income/(loss)+............... 0.23 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........... (4.30) 1.42 5.49 (8.27) 2.12
------- ------- ------- ------- -------
Net increase/(decrease) in
net assets resulting from
operations.................. (4.07) 1.75 5.78 (7.92) 2.38
------- ------- ------- ------- -------

Less Distributions
Dividends from net investment
income....................... (0.23) (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............. (0.01) (0.02) -- (0.12) (0.14)
------- ------- ------- ------- -------
Total dividends and
distributions............... (0.24) (0.34) (0.36) (0.40) (0.70)
------- ------- ------- ------- -------
Net asset value, end of
period....................... $ 8.93 $ 13.24 $ 11.83 $ 6.41 $ 14.73
======= ======= ======= ======= =======
Total Investment Return(1)..... (30.88)% 14.73% 90.51% (54.22)% 17.80%

Ratios/Supplemental Data
Net assets, end of period (in
000's)....................... $52,946 $79,479 $77,200 $49,973 $25,417
Ratios of expenses to average
net assets(2)................ 0.84% 0.94% 1.01% 1.09% 1.43%
Ratios of net investment
income/(loss) to average net
assets(2).................... 2.11% 2.57% 2.84% 3.76% 1.71%
Portfolio turnover(3)......... 43.45% 21.30% 42.89% 21.50% 22.90%
--------
* 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 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 rate.
(2) Includes voluntary waivers of
the listing fee through
December 31, 1996 and
reimbursements from the Advisor
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%
Ratios of net investment
income/(loss) to average net
assets before
waivers/reimbursements...... -- -- -- -- 1.71%
</TABLE>

(3) Excludes portfolio securities
received or delivered as a
result of processing capital
share transactions in Creation
Unit(s).

--------------------------------------------------------------------------------
page 48 iShares

<PAGE>

<TABLE>
<CAPTION>
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
-------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <S> <C> <C> <C> <C>
$ 22.23 $ 21.56 $ 22.89 $ 16.66 $ 13.79
------- ------- ------- ------- -------
0.24 0.39 0.17 0.18 0.12
(4.37) 2.51 1.05 7.94 3.10
------- ------- ------- ------- -------
(4.13) 2.90 1.22 8.12 3.22
------- ------- ------- ------- -------

(0.24) (0.12) (0.06) (0.18) (0.11)
-- -- -- (1.02) (0.24)
-- (1.69) (2.24) (0.69) --
(0.07) (0.11) -- -- --
(0.00)* (0.31) (0.25) -- --
------- ------- ------- ------- -------
(0.31) (2.23) (2.55) (1.89) (0.35)
------- ------- ------- ------- -------
$ 17.79 $ 22.23 $ 21.56 $ 22.89 $ 16.66
======= ======= ======= ======= =======
(18.61)% $ 13.35% 5.14% 47.66% 23.37%

$34,682 $50,008 $58,224 $58,368 $32,495
0.84% 0.99% 1.03% 1.02% 1.33%
1.16% 1.61% 0.70% 0.76% 0.76%
20.10% 39.85% 7.89% 8.16% 13.70%
-- -- -- -- 1.33%
-- -- -- -- 0.76%
</TABLE>

page 49

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

Financial Highlights
<PAGE>

<TABLE>
<CAPTION>
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
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period..... $ 13.82 $ 13.22 $ 8.39 $ 12.61 $ 14.33
-------- -------- -------- -------- --------
Net investment
income/(loss)+.......... (0.01) (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.............. (4.74) 1.21 4.91 (4.19) (1.65)
-------- -------- -------- -------- --------
Net increase/(decrease)
in net assets resulting
from operations........ (4.75) 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.................. $ 9.07 $ 13.82 $ 13.22 $ 8.39 $ 12.61
======== ======== ======== ======== ========
Total Investment
Return(1)................ (34.37)% 8.75% 58.14 % (33.38)% (11.97)%

Ratios/Supplemental Data
Net assets, end of period
(in 000's).............. $527,899 $787,790 $713,653 $201,485 $158,957
Ratios of expenses to
average net assets(2)... 0.84% 0.88% 0.94 % 1.04 % 1.19 %
Ratios of net investment
income/(loss) to average
net assets(2)........... (0.11)% (0.32)% (0.27)% (0.21)% (0.48)%
Portfolio turnover(3).... 21.17% 21.93% 0.00 % 0.00 % 12.90 %
--------
* 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 of
the listing fee through December
31, 1996 and reimbursements from
the Advisor 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%
Ratios of net investment
income/(loss) to
average net assets
before
waivers/reimbursements.. -- -- -- -- (0.48)%
</TABLE>

(3) Excludes portfolio securities
received or delivered as a
result of processing capital
share transactions in Creation
Unit(s).

--------------------------------------------------------------------------------
page 50 iShares

<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Malaysia 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
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 5.96 $ 5.59 $ 2.11 $ 8.23 $ 13.80
------- ------- ------- ------- -------
0.06 0.05 0.01 0.06 0.01
(0.85) 0.37 3.67 (6.10) (5.55)
------- ------- ------- ------- -------
(0.79) 0.42 3.68 (6.04) (5.54)
------- ------- ------- ------- -------

(0.06) (0.05) (0.01) (0.05) 0.00*
(0.00)* (0.00)* -- -- (0.01)
-- -- -- -- --
-- -- -- -- --
(0.00)* (0.00)* (0.19) (0.03) (0.02)
------- ------- ------- ------- -------
(0.06) (0.05) (0.20) (0.08) (0.03)
------- ------- ------- ------- -------
$ 5.11 $ 5.96 $ 5.59 $ 2.11 $ 8.23
======= ======= ======= ======= =======
(13.22)% 7.57% 185.81% (73.57)% (40.20)%

$80,877 $99,206 $95,251 $35,867 $12,339
0.84% 0.96% 1.43% 1.09 % 1.46 %
1.19% 0.81% 0.33% 1.40 % 0.04 %
37.34% 17.56% 7.24% 2.11 % 0.00 %
-- -- -- -- 1.47%
-- -- -- -- 0.04%
</TABLE>

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

Financial Highlights page 51

<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Mexico 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
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period................. $ 16.72 $ 13.39 $ 8.11 $15.11 $ 11.52
------- ------- ------- ------ -------
Net investment
income/(loss)+............ 0.17 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................ (1.36) 3.69 5.36 (6.71) 4.07
------- ------- ------- ------ -------
Net increase/(decrease)
in net assets resulting
from operations......... (1.19) 3.75 5.42 (6.62) 4.09
------- ------- ------- ------ -------
Less Distributions
Dividends from net
investment income......... (0.15) -- (0.06) (0.09) (0.01)
Dividends in excess of net
investment income......... -- -- (0.01) -- (0.01)
Distributions from net
realized gains............ (0.03) (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........... (0.18) (0.42) (0.14) (0.38) (0.50)
------- ------- ------- ------ -------
Net asset value, end of
period.................... $ 15.35 $ 16.72 $ 13.39 $ 8.11 $ 15.11
======= ======= ======= ====== =======
Total Investment Return(1).. (7.02)% 28.20% 66.92% (44.18)% 35.21%

Ratios/Supplemental Data
Net assets, end of period
(in 000's)................ $46.056 $40,127 $21,430 $7,296 $16,627
Ratios of expenses to
average net assets(2)..... 0.84% 1.04% 1.26% 1.34 % 1.63%
Ratios of net investment
income/(loss) to average
net assets(2)............. 1.12% 0.35% 0.52% 0.60 % 0.14%
Portfolio turnover(3)...... 33.96% 23.97% 18.36% 14.05 % 22.80%
--------
* 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 of the listing
fee through December 31,
1996 and reimbursements
from the Advisor
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%
Ratios of net investment
income/(loss) to average
net assets before
waivers/reimbursements.. -- 0.35% -- -- 0.13%
(3) Excludes portfolio
securities received or
delivered as a result of
processing capital share
transactions in Creation
Unit(s).
</TABLE>

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

page 52 iShares

<PAGE>

<TABLE>
<CAPTION>
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
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 23.53 $ 23.45 $ 23.50 $ 21.42 $17.36
------- ------- ------- ------- ------
0.28 0.13 0.53 0.25 0.11
(4.94) 0.18 1.60 3.53 4.79
------- ------- ------- ------- ------
(4.66) 0.31 2.13 3.78 4.90
------- ------- ------- ------- ------

(0.28) (0.08) (0.43) (0.16) (0.10)

-- -- (0.01) -- (0.01)
-- (0.11) (1.42) (1.47) (0.71)
-- -- (0.24) -- --
-- (0.04) (0.08) (0.07) (0.02)
------- ------- ------- ------- ------
(0.28) (0.23) (2.18) (1.70) (0.84)
------- ------- ------- ------- ------
$ 18.59 $ 23.53 $ 23.45 $ 23.50 $21.42
======= ======= ======= ======= ======
(19.83)% 1.28% 8.98% 17.41% 28.04%

$24,184 $30,613 $31,685 $22,349 $9,661
0.84% 1.03% 1.07% 1.12% 1.46%

1.34% 0.53% 2.20% 1.00% 0.54%
34.70% 21.64% 32.13% 15.81% 12.68%
-- -- -- -- 1.46%
-- -- -- -- 0.53%
</TABLE>

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

Financial Highlights page 53
<PAGE>

iShares MSCI Singapore 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
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period.................. $ 7.58 $ 7.93 $ 3.30 $ 8.66 $ 11.38
------- ------- -------- ------- -------
Net investment
income/(loss)+............ 0.07 0.13 0.05 0.07 0.00**
Net realized and unrealized
gain/(loss) on investments
and foreign currency
related transactions and
translation of other
assets and liabilities
denominated in foreign
currencies................ (2.16) (0.21) 4.70 (5.37) (2.67)
------- ------- -------- ------- -------
Net increase/(decrease) in
net assets resulting from
operations............... (2.09) (0.08) 4.75 (5.30) (2.67)
------- ------- -------- ------- -------
Less Distributions
Dividends from net
investment income......... (0.07) (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........ (0.06) -- -- -- --
Return of capital.......... (0.02) (0.02) (0.01) (0.01) (0.02)
------- ------- -------- ------- -------
Total dividends and
distributions............ (0.15) (0.27) (0.12) (0.06) (0.05)
------- ------- -------- ------- -------
Net asset value, end of
period.................... $ 5.34 $ 7.58 $ 7.93 $ 3.30 $ 8.66
======= ======= ======== ======= =======
Total Investment Return(2).. (27.89)% (1.29)% 144.52% (61.29)% (23.48)%

Ratios/Supplemental Data
Net assets, end of period
(in 000's)................ $73,704 $88,719 $113,438 $47,248 $14,722
Ratios of expenses to
average net assets(5)..... 0.84% 0.94% 0.97% 1.08 % 1.43 %
Ratios of net investment
income/(loss) to average
net assets(5)............. 1.15% 1.60% 0.76% 1.17 % 0.03 %
Portfolio turnover(6)...... 32.10% 52.06% 25.31% 67.17 % 13.40 %
--------
* 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 of
the listing fee through December
31, 1996 and reimbursements from
the Advisor 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%
Ratios of net investment
income/(loss) to average
net assets before
waivers/reimbursements... -- -- -- -- 0.03%
</TABLE>

(6) Excludes portfolio securities
received or delivered as a
result of processing capital
share transactions in Creation
Unit(s).

(7) Excludes foreign taxes paid on
stock dividends.

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

page 54
iShares

<PAGE>

<TABLE>
<CAPTION>
iShares MSCI
South Korea Index
Fund iShares MSCI Spain Index Fund
------------------------ ---------------------------------------------------
For the For the For the For the For the For the For the
year period year year year year year
ended 05/10/00*- 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
-------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 18.16 $ 20.36(1) $ 24.19 $ 25.59 $ 23.84 $ 18.49 $14.09
------- ------- ------- ------- ------- ------- ------
0.09 (0.04) 0.19 0.15 0.09 0.16 0.19
(4.90) (2.16) (2.89) (0.60) 3.14 5.94 5.33
------- ------- ------- ------- ------- ------- ------
(4.81) (2.20) (2.70) (0.45) 3.23 6.10 5.52
------- ------- ------- ------- ------- ------- ------

(0.03) -- (0.16) (0.14) (0.07) (0.12) (0.12)
-- -- -- -- (0.02) (0.02) (0.05)
-- -- -- (0.48) (1.35) (0.55) (0.86)
-- -- -- (0.32) -- -- --
(0.07) -- (0.00)** (0.01) (0.04) (0.06) (0.09)
------- ------- ------- ------- ------- ------- ------
(0.10) -- (0.16) (0.95) (1.48) (0.75) (1.12)
------- ------- ------- ------- ------- ------- ------
$ 13.25 $ 18.16 $ 21.33 $ 24.19 $ 25.59 $ 23.84 $18.49
======= ======= ======= ======= ======= ======= ======
(26.49)% (10.81)%(4) (11.17)% (1.81)% 13.39% 32.58% 39.15%

$37,767 $13,622 $27,198 $39,913 $36,469 $25,029 $8,321
0.99%(7) 0.99 %(3) 0.84% 0.99% 1.04% 1.11% 1.67%
0.64% (0.63)%(3) 0.82% 0.57% 0.31% 0.61% 1.04%
39.46% 55.13 %(4) 25.64% 39.42% 16.58% 9.10% 19.21%
-- 1.38 %(3) -- -- -- -- 1.67%
-- (1.02)%(3) -- -- -- -- 1.04%
</TABLE>

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

Financial Highlights page 55
<PAGE>

<TABLE>
<CAPTION>
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
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period....................... $ 24.38 $ 22.26 $ 18.39 $ 18.32 $14.67
------- ------- ------- ------- ------
Net investment
income/(loss)+............... 0.07 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........... (11.52) 8.38 4.52 0.95 4.45
------- ------- ------- ------- ------
Net increase/(decrease) in
net assets resulting from
operations.................. (11.45) 8.52 4.62 1.05 4.42
------- ------- ------- ------- ------

Less Distributions
Dividends from net investment
income....................... (0.05) (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............. (0.00)** (0.04) (0.02) (0.02) --
------- ------- ------- ------- ------
Total dividends and
distributions............... (0.05) (6.40) (0.75) (0.98) (0.77)
------- ------- ------- ------- ------
Net asset value, end of
period....................... $ 12.88 $ 24.38 $ 22.26 $ 18.39 $18.32
======= ======= ======= ======= ======
Total Investment Return(2)..... (46.99)% 39.15% 25.09% 5.48% 30.10 %

Ratios/Supplemental Data
Net assets, end of period (in
000's)....................... $10,630 $23,774 $20,034 $13,791 $8,243
Ratios of expenses to average
net assets(5)................ 0.84% 1.03% 1.13% 1.17% 1.64 %
Ratios of net investment
income/(loss) to average net
assets(5).................... 0.40% 0.46% 0.49% 0.48% (0.19)%
Portfolio turnover(6)......... 42.82% 90.13% 33.44% 10.88% 13.71 %
--------
* 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 of
the listing fee through
December 31, 1996 and
reimbursements from the Advisor
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%
Ratios of net investment
income/(loss) to average net
assets before
waivers/reimbursements...... -- -- -- -- (0.19)%
</TABLE>

(6) Excludes portfolio securities
received or delivered as a
result of processing capital
share transactions in Creation
Unit(s).

(7) Excludes foreign taxes paid on
stock dividends.

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

page 56 iShares
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI
iShares MSCI Switzerland Index Fund Taiwan 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 06/21/00*
08/31/01 08/31/00 08/31/99 08/31/98 08/31/97 08/31/01 08/31/00
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 15.54 $ 15.39 $ 15.55 $ 13.79 $ 12.29 $ 16.41 $ 19.59(1)
------- ------- ------- ------- ------- -------- -------
0.04 0.04 0.04 (0.00)%** (0.04) (0.03)
(2.54) 0.27 0.19 3.01 2.11 (7.37) (2.79)
------- ------- ------- ------- ------- -------- -------
(2.50) 0.31 0.23 3.01 2.07 (7.40) (2.32)
------- ------- ------- ------- ------- -------- -------

(0.04) (0.03) (0.03) -- -- -- (0.32)
(0.01) (0.01) (0.04) (0.01) -- -- --
-- (0.11) (0.17) (1.21) (0.57) -- 0.00**
(.04) -- (0.14) -- -- -- (0.10)
-- (0.01) (0.01) (0.03) 0.00** -- (0.44)
------- ------- ------- ------- ------- -------- -------
(0.09) (0.16) (0.39) (1.25) (0.57) -- (0.86)
------- ------- ------- ------- ------- -------- -------
$ 12.95 $ 15.54 $ 15.39 $ 15.55 $ 13.79 $ 9.01 $ 16.41
======= ======= ======= ======= ======= ======== =======
(16.08)% 1.96% 1.47% 21.24% 16.69% (45.09)% (12.10)%(4)

$32,384 $44,685 $38,499 $29,163 $13,805 $110,786 $42,667
0.84% 1.01% 1.09% 1.15 % 1.52% 0.99%(7) 0.99%(3)
0.29% 0.23% 0.24% (0.03)% (0.29)% (0.23)% 13.31%(3)
33.68% 34.87% 35.10% 43.09 % 48.05% 29.84% 51.68%(4)
-- -- -- -- 1.53% -- 1.60%(3)
-- -- -- -- (0.29)% -- (0.89)%(3)
</TABLE>

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

Financial Highlights page 57
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI United Kingdom 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
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period................ $ 18.35 $ 20.25 $ 18.48 $ 16.50 $ 13.15
-------- -------- -------- ------- -------
Net investment
income/(loss)+........... 0.26 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............... (3.23) (0.85) 2.40 2.12 3.62
-------- -------- -------- ------- -------
Net increase/(decrease)
in net assets resulting
from operations......... (2.97) (0.58) 2.84 2.49 4.00
-------- -------- -------- ------- -------
Less Distributions
Dividends from net
investment income........ (0.25) (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........... -- (0.60) (0.11) (0.17)
Distributions in excess of
net realized gains....... (0.02) (0.19) (0.02) -- --
Return of capital......... -- (0.04) (0.08) (0.07) (0.10)
-------- -------- -------- ------- -------
Total dividends and
distributions........... (0.27) (1.32) (1.07) (0.51) (0.65)
-------- -------- -------- ------- -------
Net asset value, end of
period................... $ 15.11 $ 18.35 $ 20.25 $ 18.48 $ 16.50
======== ======== ======== ======= =======
Total Investment
Return(1)................. (16.20)% (3.00)% 15.33% 14.98% 30.48%

Ratios/Supplemental Data
Net assets, end of period
(in 000's)............... $117,883 $146,803 $113,402 $62,846 $29,721
Ratios of expenses to
average net assets(2).... 0.84% 0.94% 0.97% 1.03% 1.38%
Ratios of net investment
income/(loss) to average
net assets(2)............ 1.57% 1.39% 2.16% 1.90% 2.47%
Portfolio turnover(3)..... 30.08% 32.83% 13.24% 2.83% 1.84%
--------
+ 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 of
the listing fee through
December 31, 1996 and
reimbursements from the Advisor
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.. -- -- -- -- 1.38%
Ratios of net investment
income/(loss) to average
net assets before
waivers/
reimbursements.......... -- -- -- -- 2.47%
</TABLE>

(3) Excludes portfolio securities
received or delivered as a
result of processing capital
share transactions in Creation
Unit(s).

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

page 58
iShares

<PAGE>

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
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.

Information contained in or otherwise accessible through the websites mentioned
in this Prospectus do not constitute a part of this Prospectus. All references
in this Prospectus to websites are inactive textual references and are for your
informational reference only.

FOR MORE INFORMATION ON iSHARES MSCI INDEX FUNDS, PLEASE CALL:
1-800-iSHARES
(1-800-474-2737)

Investment Company Act File No. 811-09102.
<PAGE>

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

Investment Company Act File No. 811-09102

iShares, Inc.
(The "Company")

iShares MSCI Index Funds

Statement of Additional Information

January 1, 2002

This Statement of Additional Information ("SAI") provides information about the
Company and its iShares MSCI Index Funds ("Index Funds"). This information is
in addition to the information contained in the Company's Prospectus dated
January 1, 2002.

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 iShares.com.

--------------------------------------------------------------------------------
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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............................ 18
MSCI INDICES....................................................................... 35
INVESTMENT LIMITATIONS............................................................. 38
MANAGEMENT OF THE COMPANY.......................................................... 41
Directors and Officers of the Company............................................ 41
Directors' Compensation.......................................................... 43
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES................................ 43
INVESTMENT ADVISORY MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES........... 51
Investment Advisor............................................................... 51
Administrator.................................................................... 54
Sub-Administrator................................................................ 55
Distributor...................................................................... 55
Custodian and Lending Agent...................................................... 58
Transfer Agent................................................................... 58
BROKERAGE ALLOCATION............................................................... 59
ADDITIONAL INFORMATION CONCERNING iSHARES.......................................... 59
Capital Stock.................................................................... 59
Book Entry Only System........................................................... 60
PURCHASE AND REDEMPTION OF iSHARES................................................. 62
Creation Units................................................................... 62
Purchase and Issuance of iShares in Creation Units............................... 62
Redemption of iShares in Creation Units.......................................... 66
Determining Net Asset Value...................................................... 69
Continuous Offering.............................................................. 70
TAXES.............................................................................. 71
PERFORMANCE INFORMATION............................................................ 72
COUNSEL AND INDEPENDENT AUDITORS................................................... 75
Counsel.......................................................................... 75
Independent Auditors............................................................. 75
FINANCIAL STATEMENTS............................................................... 76
APPENDIX A......................................................................... A-1
APPENDIX B......................................................................... B-1
</TABLE>

ii
<PAGE>

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 any 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. Neither
MSCI nor any of its affiliates nor any other party involved in making or
compiling the MSCI Index is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the iShares of any
Index Fund to be issued or in the determination or calculation of the equation
by which the iShares of any Index Fund are redeemable. Neither MSCI nor any of
its affiliates nor any other party involved in making or compiling any MSCI
Index has any obligation or liability to owners of the iShares of any Index Fund
in connection with the administration, marketing or trading of the iShares of
any Index Fund.

Although MSCI shall obtain information for inclusion in or for use in the
calculation of the MSCI Indexes from sources which MSCI considers reliable,
neither MSCI nor any other party involved in making or compiling any 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 any 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 compiling any MSCI Index makes any express or
implied warranties, and MSCI hereby expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the Indices
or any data included therein. Without limiting any of the foregoing, in no
event shall MSCI any affiliates or any other party involved in making or
compiling any 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 "HKD" or "HK$" are to Hong Kong Dollars, 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 "SGD" are to Singapore
Dollars, 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 and all references to "GBP,"
"(Pounds)" or "L" are to British Pounds Sterling. On October 31, 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

iii
<PAGE>

follows for each US$1.00: AUD 1.98, ATS 15.28, BEF 44.79, BRL 2.82, CAD 1.59,
EUR 1.11, FRF 9.28, DEM 2.17, HKD 7.80, ITL 2,149.74, JPY 122.41, KRW 1,298.40,
MYR 3.80, MXN 9.28, NLG 2.44, NZD 2.42, SGD 1.82, ESP 184.73, SEK 10.63, CHF
1.63, TWD 34.53 and GBP 0.69 Some numbers in this SAI have been rounded. All
U.S. 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
<PAGE>

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
22 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 Index Fund, the iShares MSCI Mexico Index Fund, the iShares MSCI
Netherlands Index Fund, the iShares MSCI Singapore 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 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, June 21, 2000, respectively. Each of
the iShares MSCI Japan and United Kingdom Index Funds is classified as a
"diversified" investment company under the Investment Company Act of 1940. (Each
of the iShares MSCI Japan and United Kingdom Index Funds is proposed to be
changed to "non-diversified" status; for the change to take effect for either of
these Index Funds, the shareholders of the Index Fund would have to approve the
change no later than January 24, 2002.) Each of the other Index Funds offered
hereby is classified as a "non-diversified" investment company under the
Investment Company Act of 1940. The Board of Directors of the Company may
authorize additional Index Funds in the future.

INVESTMENT STRATEGIES AND RISKS

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

Exchange Listing and Trading. The 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
iShares MSCI Australia Index Fund, iShares MSCI Japan Index Fund, iShares MSCI
Malaysia Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI South Korea
Index Fund, and the iShares MSCI Taiwan Index Fund are traded on certain foreign
exchanges.

As in the case of other stocks traded on the AMEX, the brokers' commission on
transactions will be based on negotiated commission rates at customary levels
for retail customers and rates which range between $0.015 to $0.12 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.

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

1
<PAGE>

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's 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, Japan,
Malaysia, Pacific ex-Japan, Singapore, South Korea and Taiwan 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, and such collateral will
be periodically marked to market in accordance with procedures approved by the
Board, as marked to market each day, the collateral may consist 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 re-invests cash collateral in short-
term investments. JPMorgan Chase Bank 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., JPMorgan Chase Bank 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 exposed to the risk of loss should a borrower default on its
obligation to return the borrowed securities (e.g., the

2
<PAGE>

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. The Advisor 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. The Index Funds will use their cash to
enter into repurchase agreements only with registered securities dealers and
Federal Reserve Member banks with minimum assets of at least $50 million and
have met additional quantitative and qualitative standards set by Barclays
Global Investors' Group Credit and Market Risk Group.

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

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

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

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

3
<PAGE>

it could not close out its positions because of an illiquid market. In addition,
each Index Fund will incur transaction costs, including trading commissions, in
connection with certain of its foreign currency transactions.

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

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

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

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

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

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

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

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disadvantageous to do so. In addition, an Index Fund may be required to make
delivery of the instruments underlying futures contracts it holds.

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

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

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

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

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

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

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<PAGE>

dividends, interest, income derived from loans of securities, gains from the
sale of securities or of foreign currencies or other income derived with respect
to the Index Fund's business of investing in securities. It is anticipated that
any net gain realized from the closing out of futures contracts will be
considered gain from the sale of securities and therefore will be qualifying
income for purposes of the 90% requirement.

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

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

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

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

Concentrations and Lack of Diversification of Certain Index Funds. Each Index
Fund (except for the 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. (Each of the iShares MSCI
Japan and United Kingdom Index Funds is proposed to be changed to
"non-diversified" status; for the change to take effect for either of these
Index Funds, the shareholders of the Index Fund would have to approve the change
no later than January 24, 2002.) 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
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requirements of the U.S. Internal Revenue Code severely limits the investment
flexibility of certain Index Funds and makes it less likely that such Index
Funds will meet their investment objectives.

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

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

The Australian Equity Markets

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

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

Size of Equity Markets. As of October 31, 2001, the total market capitalization
of the Australian equity markets was approximately US$ 345 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.

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Size of Equity Markets. As of October 31, 2001, the total market capitalization
of the Austrian equity markets was approximately US$ 19.3 billion.

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 October 31, 2001, the total market capitalization
of the Belgian equity markets was approximately US$ 139.8 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 October 31, 2001, the total market capitalization
of the Brazilian equity markets was approximately US$ 148.6 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.

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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 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 October 31, 2001, the total market capitalization
of the Canadian markets was approximately US$ 564.5 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.

Greece. 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.

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.

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Portugal. 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 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.

Size of Equity Markets

As of October 31, 2001, the total market capitalization of the combined equity
markets of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,
the Netherlands, Portugal and Spain was approximately US$ 3.95 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 October 31, 2001, the total market capitalization
of the French equity markets was approximately US$ 1,089 billion.

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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.

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 October 31, 2001, the total market capitalization
of the Germany equity markets was approximately US$ 907 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 October 31, 2001, the total market capitalization
of the Hong Kong equity markets was approximately US$ 234 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.

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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
U.S. law and accounting practice, and such disclosure may be less timely, less
frequent and less consistent than that required of U.S. corporations. Italy is,
however, moving toward more transparency: from 2000, for example, the law will
require quarterly disclosure.

Size of Equity Markets. As of October 31, 2001, the total market capitalization
of the Italian equity markets was approximately US$ 498 billion.

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 October 31, 2001, the total market capitalization
of the Japanese equity markets was approximately US$ 2,681 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

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(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 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 October 31, 2001, the total market capitalization
of the Malaysian equity markets was approximately US$ 94 billion.

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 October 31, 2001, the total market capitalization
of the Mexican equity markets was approximately US$ 126 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.

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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 October 31, 2001, the total market capitalization
of the Dutch equity markets was approximately US$ 524 billion.

The Pacific Ex-Japan Equity Markets

The Pacific ex-Japan equity markets are comprised of the equity markets from
Australia, Hong Kong, New Zealand and Singapore.

General Background. Following is a general background description of the New
Zealand equity market for which there is no iShares MSCI Index Fund.

New Zealand. 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. Reporting, accounting and auditing
standards in the nations that make up the Pacific ex Japan equity markets differ
substantially from U.S. standards. In general, these countries' 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 October 31, 2001, the total market capitalization
of the combined equity markets of Australia, Hong Kong, New Zealand and
Singapore was approximately US$ 698 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 October 31, 2001, the total market capitalization
of the Singaporean markets was approximately US$ 102 billion.

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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.

Size of Equity Markets. As of October 31, 2001, the total market capitalization
of the South Korean equity markets was approximately US$ 156 billion.

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

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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 U.S. standards. In general, Spanish
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 October 31, 2001, the total market capitalization
of the Spanish equity markets was approximately US$ 342 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.

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 U.S. standards. In general, Swedish
corporations do not provide all of the disclosure required by U.S. law and

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accounting practice, and such disclosure may be less timely and less frequent
than that required of U.S. corporations. The basic concepts used are historical
cost, going concern, accrual basis, consistency and prudence.

Size of Equity Markets. As of October 31, 2001, the total market capitalization
of the Swedish equity markets was approximately US$ 208 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 U.S. standards. In general, Swiss
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 October 31, 2001, the total market capitalization
of the Swiss equity markets was approximately US$ 571 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
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 U.S. standards. In general,
Taiwanese 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 October 31, 2001, the total market capitalization
of the Taiwanese equity markets was approximately US$ 208 billion.

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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.

Reporting, Accounting and Auditing. Despite having a great deal of common
purpose and common concepts, the accounting principles in the UK and the U.S.
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 U.S.
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 authoritative source as to what is and is not a true and fair view, but do
not define it unequivocally. Ad hoc adaptations to specific circumstances may
be required. In the U.S., financial statements are more conformed because they
must be prepared in accordance with GAAP.

Size of Equity Markets. As of October 31, 2001, the total market capitalization
of the United Kingdom equity markets was approximately US$ 2,152 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 one quarter of total GDP. The GNP per
capita is about average among EU countries and increased 0.9% since the second
quarter last year. Austria's natural resources include iron ore, oil, timber,
magnetite, lead, coal, lignite, copper, and hydropower and they contribute to a
highly developed and

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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.

The depreciation of the euro and the recovery in Austria's export market
contributed to the overall favorable outlook. The labor market continued to
experience rapid increases in employment, mainly taking place in public job
programs and in the service sector. Unemployment fell to approximately 3.9% in
the third quarter of 2001.

Consumer price inflation increased to 2.7% from last year for the second quarter
ended 2001. Exports of goods and services remained strong and is expected to
grow with the move toward less regulatory control and more privatization. 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.

Once regarded as its Achilles' heel, the "old economy" orientation of the
Austrian market proved to be a distinct advantage during the year ended August
31, 2001.

Dominated by companies in comparatively slow-growing sectors such as utilities,
energy, beverages and tobacco, the Austrian market was largely left behind in
the late 1990s as markets with larger technology, media and telecommunications
components rose to new heights. As investors made a decisive shift away from
more-speculative stocks in 2000, however, Austria's equity market began to
outperform. Slowing growth in the United States and many European economies
helped drive investors toward stocks regarded as having defensive qualities,
such as Austria Tabakwerke. Given the Austrian equity market's limited
liquidity, even modest inflows of capital translated into significant gains. (As
of May 2001, Austria's market capitalization was just $30 billion--making it the
smallest developed European market.)

It was not just investors who expressed new found interest in Austrian
companies; a number of foreign corporations were also looking to buy. In June
2001, U.K. tobacco company Gallaher announced that it was seeking to acquire the
recently privatized Austria Tabakwerke. The deal helped drive up shares of
Austria Tabakwerke as well as other potential acquisition targets.

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. Because Belgium is limited
in their natural resources, it 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. GDP is expected to be about 1.4% for
2001. Traditionally, Belgium's natural resources have been concentrated in
coal, steel and textiles, however these have declined in recent years. Three
quarters of its trading activity is conducted with countries in the European
Union.

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

19
<PAGE>

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.
Belgium's consumer price inflation fell to 2.5% in August, reflecting increases
pricing pressures and euro weakness.

Like other European markets, Belgium was pressured by the global economic
slowdown during the year ended August 31, 2001. Belgium's export-oriented
companies, as well as those with significant operations in the United States,
faced an especially challenging environment. In May, for example, insurance
company Fortis reported lower results after having posted record profits in the
first quarter of 2000. Fortis--Belgium's largest company by market
capitalization--said that significantly lower revenues from its primary
insurance business as well as its venture-capital investments were to blame for
the decline.

Although the global economic slowdown weighed on many other Belgian companies,
the market was largely spared from the other major trend affecting international
markets over the reporting period: a sharp correction in technology, media and
telecommunications (TMT) stocks. Unlike telecom-heavy European markets such as
Sweden and Finland, Belgium did not bear the brunt of investors' pessimism
toward TMT stocks. To the contrary, Belgium's large percentage of "old economy"
companies in sectors such as banking, insurance, and utilities attracted
investors looking for defensive investments. Stocks in these sectors were also
boosted by declining interest rates in both the United States and Europe over
the reporting period.

France. France is a modern capitalist society considered one of the major
economic powers of the world, ranking along with such countries as the United
States, Japan and Germany. 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 3.0% growth in 2001, the French economy was growing at 0.7% in the first
half of 2001, driven chiefly by weak demand from its major exporting partners
which include Germany, Belgium, Italy, United Kingdom and the United States.
France exports a majority of its products to the United States, Japan and
Germany, which have shown signs of weakening demand. Additionally, private
consumption, which normally accounts for half of GDP was only up 1.5% for the
year.

The accumulated impact of three years of growth in France has been to push job
creation to a 30-year high. 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 9.1%, (or 2.43 million) at the end of
the third quarter of 2001.

France's equity market was generally weak over the reporting period, as French
corporations grappled with decelerating growth both at home and abroad. Slower
economic growth in the United States, Europe and Asia cast doubts on the near-
term prospects of French exporters such as L'OREAL and luxury-goods maker LMVH,
leading to weakness in their share prices over spring and summer 2001.

French telecommunications stocks were weaker still. Shares of France Telecom,
one of the market's largest stocks, were depressed by investors' concerns about
the debt the company had accumulated to acquire next-generation

20
<PAGE>

wireless licenses. These concerns were offset in part by strong revenues from
France Telecom's newly acquired Orange wireless division, but the positive
results were not enough to alleviate all investor worries. Likewise, shares of
telecom equipment manufacturer Alcatel posted a succession of declines as demand
for its products waned.

A cyclical downturn also weighed on the shares of French technology firms,
including information-technology consultant Cap Gemini Ernst & Young, software
maker Dassault Systemes and chipmaker STMicroelectronics. These stocks were
among the most volatile on the French market over the reporting period.

Given the economic uncertainty, stocks regarded as defensive investments,
including banks and consumer-staples companies, tended to outperform in France.
Shares of French banks were also boosted by the decision of both the U.S.
Federal Reserve Board and the European Central Bank to cut interest rates in
2001. Nonetheless, several of France's leading banks, including BNP Paribas and
Societe Generale, reported lower profits as a result of the economic downturn in
the United States, Europe and Asia. French companies in a number of other
sectors announced similar disappointments as the reporting period drew to a
close.

Germany. Germany is a prosperous capitalistic society largely based on services
and manufacturing. Germany, Europe's largest economy is 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 was flat for the second quarter
of 2001. 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.

Real GDP increased to 2.0% in the second quarter of 2001. Exports declined due
to the global recession and the United States softened demand. Unemployment grew
to 9.0% for the third quarter of 2001. Although reform in the labor markets is
needed to prevent further rise in unemployment figures, the change is not likely
to occur as there will be opposition from the employed who will face more
competition and the unemployed who are comfortable with welfare packages.

Slower economic conditions over the year ended August 31, 2001 presented a
challenging environment for many German companies and for their investors.
Decelerating growth in the United States, and the accompanying decline in
consumer spending there, fell heavily on many German exporters. Companies such
as automaker DaimlerChrysler and chemicals manufacturer BASF, for example, cited
weak sales in the United States when announcing uninspiring early 2001 results.
That explanation was by no means universal, however. Carmaker Volkswagen, for
one, announced that its profits rose 57% in early 2001 as strong international
sales offset declining growth in its home market.

Volkswagen's strength contrasted sharply with that of many German
telecommunications and technology companies. Shares of electronics maker Siemens
and chip maker Infineon were especially hard hit as their industries went
through a major cyclical downturn.

Nonetheless, Germany's sizeable share of "old economy" companies meant that it
was less affected by this downturn than some of its European neighbors. While
the Finnish and Swedish stock markets sank along with their previously high-
performers Nokia and Ericsson, the German market was supported by its banks,
utilities and insurance companies. Many investors rotated to these sectors from
more growth-oriented areas as economic activity in Europe and the United States
slowed. Eventually, however, even German stocks regarded as having defensive
qualities felt the impact of decelerating global growth. HypoVereinsbank
(Germany's second-largest bank) reported disappointing second quarter 2001
profits, as did several other German corporations.

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

21
<PAGE>

full employment in the former and unemployment levels well over 20% in the
latter. The country's GDP grew by a modest 1.5% in 2001 due to weak domestic
demand. Capital investment was negative in the second quarter of 2001 due to
delayed government incentives. Private consumption was up by 2.0% in 2001 due to
strong employment figures.

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.

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. Real GDP was at 2.1% in the second quarter of 2001(annual rate). Over
the year ended August 31, 2001, Italy's equity market continued to be weighed
down by many of the same factors that had depressed it in the prior six months.

A prolonged downturn in the telecommunications sector was one of the main
factors pressuring the market. Stocks such as Telecom Italia and Telecom Italia
Mobile, two of Italy's largest stocks, were weakened by investors' doubts about
the near-term prospects for the telecommunications sector. The transition to
next-generation wireless technology has proceeded at a slower pace than many
investors expected, resulting in lower growth forecasts for companies such as
Telecom Italia Mobile.

Growth-oriented stocks in general remained out of favor with investors in
Italy's market over the reporting period. With economic growth slowing in Europe
as well as the United States, Asia and other regions, investors sought out the
perceived safety of banking, insurance and energy stocks. Financial service
firms also benefited from declining interest rates over the summer.

By August 2001, there were indications that some investors believed that the
growth stock correction had run its course. They argued that technology and
telecommunications shares in particular had fallen so low that they were due for
a rebound. The renewed interest drew some capital away from Italy's other
sectors and boosted shares of its more growth-oriented stocks as the reporting
period ended.

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 tourism, overseas financial services,
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 United States and France. GDP up 3.8% in 2000. The country has few natural
resources and is dependent on its import partners such as the United States,
Venezuela, Mexico and Guatemala. Consumer prices were up 5% in 2000.

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.

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<PAGE>

In concert with many equity markets around the world, the Netherlands posted a
weak performance over the year ended August 31, 2001. Slowing economic growth in
the United States as well as Europe, Asia and virtually every other region put
pressure on corporate profits and equity performance.

Leading Dutch multinationals, such as Philips Electronics, were especially
sensitive to investors' worries that United States consumer spending would
decline significantly. Given the uncertainties, investors tended to favor the
Netherlands' more defensive shares, such as those in the food and household
products sector as well as insurers and financial services companies. The latter
were also boosted by declining interest rates in Europe and the United States.

In addition, energy giant Royal Dutch/Shell Group (the Index's largest stock)
attracted investors as the price of crude oil rose in late 2000. Some of the
increase dissipated in 2001, but higher natural-gas prices helped to pick up the
slack for Royal Dutch/Shell. In May, the company said that its first-quarter
profits rose by 23%, driving up the share price. On a relative basis,
therefore, the Dutch equity market performed significantly better than its more
growth-oriented European neighbors. With only modest telecommunications and
technology sectors, the Netherlands was less affected by the cyclical downturns
in those areas than such markets as Finland and Sweden.

Spain. Spain's mixed capitalist economy supports a GDP that on a per capita
basis is 80% 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. 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, uranium, zinc, lead, tungsten,
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 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 to 8.8% as of the second quarter of 2001 The unemployment rate
has also been impacted by Tourism which is up 3.2% over last year. The
government also faces the challenges of addressing the domestic concerns of
controlling inflation, which rose during the summer. In May 2001, consumer price
inflation was 4.0%, which is twice the rate expected by government, currently,
1.1% above the average Eurozone prices.

Its main export partners are France, Germany, Italy, Portugal and the United
Kingdom. Their main exports include machinery, motor vehicles, and other
consumer goods.

Spain's equity market felt the negative repercussions of a worldwide decline in
economic activity over the year ended August 31, 2001. During this time, many
investors became increasingly concerned about just how extensive and protracted
the downturn would be. These worries affected the performance of Spanish
equities.

Relative to other European stock markets, however, Spain was fairly healthy. It
was buoyed by the performance of several Spanish firms, which continued to post
solid profits despite the more challenging economic environment.

In many cases, this resilience owed much to successful expansion into Latin
America. That region presented many Spanish companies with growth opportunities
even as Spain's domestic economy and Europe as a whole became less robust. Good
results in Latin America helped to shore up profits for Spain's two largest
banks, BBVA and BSCH, for example. Their aggressive expansion into Latin America
proved rewarding in late 2000, as demand for financial services continued to
expand in the region. Investors' expectations that European and United States
interest rates would decline also helped to support Spanish banking stocks as
well as shares of utilities and other companies that are sensitive to interest
rates.

23
<PAGE>

The extensive Latin American exposure of many Spanish companies became more of a
liability in 2001, however. A debt crisis in Argentina depressed equity markets
in Latin America and cast a shadow over many foreign companies with ties to the
region. These concerns weighed on shares of BBVA, BSCH and other Spanish
companies over the spring and summer of 2001. As the reporting period ended, it
was still unclear just how Argentina's crisis would be definitively resolved and
whether its impact would be as far-reaching as some investors feared. The
outlook for Spain's domestic economy and that of Europe also remained hazy.

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 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.
Although Sweden is showing less dissent to join the EMU, as of the third quarter
of 2001, it has not changed its currency from the krona.

The Swedish economy continued to expand. GDP increased 1.1% from the first
quarter of 2001. Unemployment is at 4.0% for the third quarter of 2001. Export
growth weakened in 2001 due to the slowing United States and European economies.
Inflation grew to 4.0% due to a devalued krona currently at its six year low
which fell 11.0% against the euro. Consumer prices increased 3.5% from the
third quarter of 2000.

Ericcson which dominates the equity market in Sweden led the market in its rise
last year also led the market in its decline in 2001. This has led to less
private and public consumption. Employment has continued to rise but is
expected to slow down.

Swedish equities were very weak over the year ended August 31, 2001. Two main
factors were responsible: a major decline in market sentiment toward the
telecommunications sector and the overall slowdown in the global economy. The
weakness of the Swedish krona further reduced returns for U.S. dollar-based
investors.

Besides the general pessimism toward telecom companies, shares of Ericsson--the
largest stock in both the MSCI Sweden Index and the Fund's portfolio--were also
depressed by company-specific disappointments. In October 2000, Ericsson's stock
fell sharply when the company cut its profit forecast for the fourth quarter of
2000. It said that the revision was due largely to continued weakness in its
wireless handset business. Just how weak that unit was only became apparent
later: Ericsson's wireless handset division eventually posted a loss of more
than $1 billion for the fourth quarter. Ericsson's shares again fell sharply in
March of 2001 when the company said it would post a loss for the first quarter
after having previously expected to break even. Investors responded positively
to Ericsson's efforts to stem the losses, which included a decision to outsource
production of its mobile phones. As the reporting period ended, however,
sentiment toward Ericsson was again generally poor, casting a shadow over other
Swedish stocks.

The uncertain economic environment posed another challenge for Swedish
corporations, investors and policy makers. The slowdown in global economic
activity weighed on industrial activity in Sweden at the same time as domestic
inflation was accelerating. In early July of 2001, the Swedish Central Bank
attempted to remedy the latter problem by raising interest rates a quarter of a
percentage point. The bank said it was concerned that Swedish inflation would
exceed its target rate of 2.0% in 2002 and 2003. Whether the move succeeded in
quelling inflation remained to be seen as the reporting period ended.

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<PAGE>

Switzerland. Switzerland is a prosperous and stable modern market economy with a
strong industrial sector. Switzerland's per capita GDP of 20.0% ranks it above
that of most Western European economies. Its education, living conditions
standards, and healthcare are above its European counterparts. 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
international trade and banking. Switzerland utilizes its natural resources by
converting them into high-quality, value-added finished products for export. Its
export partners include Germany, France, Italy, the United States, the United
Kingdom, and Japan. Export products include motors, generators, turbines, and
diverse high-tech products. Foreign workers currently make up about 20.0% of
Switzerland's labor force. Only 10.0% of its land can be used for farming and
agriculture which is used for its cattle and production of dairy goods.

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 1.6% in the second quarter of
2001, the underlying inflation rate remained low at 1.0%. GDP grew by 2.0% in
the first half of 2001, due in part to exports and investments. Monetary
conditions have tightened leading to restrained private consumption.

The defensive qualities of Switzerland's equity market served it well over the
year ended August 31, 2001 as the Swiss stock market's decline was less severe
than in many other countries. As it became more apparent that economic growth in
many countries around the world was declining, investors rotated into defensive
areas such as insurance, banking, consumer staples, health and personal care
stocks. These sectors, which account for a large part of the Swiss stock market,
were among the better-performing areas in Europe during the reporting period.

A number of large Swiss companies also reported better-than-expected earnings,
which helped to drive up their stocks. Shares of pharmaceutical maker Novartis,
for example, rose over the spring after it outperformed analysts' forecasts. The
company--Switzerland's largest--said that strong demand for its osteoporosis,
asthma and hypertension drugs boosted its first-half 2001 profits by 10%.
Switzerland's other large multinational, Nestle, also beat expectations over the
first half of 2001, citing strong sales in the emerging markets.

Despite evidence that these and other Swiss companies have been faring
comparatively well, Switzerland was not immune to downturns in other sectors and
markets. In August 2001, for example, United Bank of Switzerland (UBS) reported
that its profits had dropped 26% from those in the second quarter. The company,
Switzerland's biggest bank, said that losses in its private equity business were
largely responsible for the disappointing results. Thus, while the defensive
characteristics of many Swiss companies helped to support their equities over
the reporting period, those with indirect exposure to declining global capital
and consumer markets did not perform as well.

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 10.0% of GDP, one of the highest
shares of any industrial nation. The GNP is at pace to outgrow the United
States. As of the second quarter of 2001, the GDP grew 2.3% from a year ago.
Imports and exports had slightly dampened GDP. Although imports fell by 2.1%
exports fell more by 2.4%. Private consumption increased 1.3% in the second
quarter, which was twice the rate in the first quarter of 2001. Capital
investment increased 2.5% while government investment increased by 10.0% in the
second quarter. Agriculture accounts for less than 2.0% of the GNP, yet farming
is highly mechanized, and efficient by European standards, producing about 60.0%
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

25
<PAGE>

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.

For the third quarter of 2001, the unemployment rate fell to 3.1%. The downward
trend in the unemployment rate is not likely to continue as new construction
projects are falling and companies such as British Telecom, and Reuters have
announced that layoffs are imminent.

A number of factors combined to drive the U.K. equity market lower over the year
ended August 31, 2001. Chief among these was the global economic slowdown.
Concerns that United States consumer spending in particular would slow led
investors to tread cautiously. As it turned out, consumer spending in both the
United States and the U.K. remained surprisingly robust, though investors
continued to worry that a serious decline was just around the corner.

So, apparently, did the Bank of England. Initially more restrained than the U.S.
Federal Reserve Board in lowering interest rates earlier in 2001, the Bank
eventually ended up cutting rates four times through late August. The move came
despite a mixed economic picture as the U.K. manufacturing sector tipped into
recession over the summer of 2001. In addition, many companies announced job
cuts even as the country's unemployment rate fell to a 26-year low in July.
Perhaps for that reason, U.K. consumers continued to spend, and investors saw
some cause for optimism in that news.

Overall, however, caution was the watchword. Given the lack of certainty
regarding the economy and corporate profits, investors tended to favor U.K.
stocks in sectors that are traditionally regarded as defensive, such as banks.
These stocks also rose as interest rates declined. At the other end of the
spectrum were technology- and telecommunications-related companies, which
continued to grapple with a cyclical downturn. The U.K.'s technology sector was
hit particularly hard after telecom-equipment maker Marconi issued a profit
warning in early July. The company then took the unusual--and, to many
investors, alarming--step of suspending trading in its shares. When it resumed,
Marconi's shares dropped as much as 54% and sent ripples that drove down
numerous other U.K. stocks. The technology sector regained some ground in
August, as investors bought up depressed shares. Overall, however, an air of
pessimism continued to cloud the market.

Real GDP Annual Rate of Growth (annual % change)

<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Austria 2.0 1.3 3.4 2.8 3.3
Belgium 1.2 3.4 2.4 2.7 4.0
France 1.1 1.9 3.5 3.0 3.4
Germany 0.8 1.4 2.0 1.8 3.0
Italy 1.1 2.0 1.8 1.6 2.9
Netherlands 3.0 3.8 4.3 3.7 3.5
Portugal 3.7 3.8 4.7 3.4 3.4
Spain 2.4 3.9 4.3 4.0 4.1
Sweden 1.1 2.1 3.6 4.1 3.6
Switzerland 0.3 1.7 2.3 1.5 3.5
United Kingdom 2.6 3.5 2.6 2.3 3.1
</TABLE>

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)

26
<PAGE>

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, Philipine, 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. 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 is the fourteenth largest economy in the world and the
fourth largest economy in Asia. Australia's economy employs a market-free-
enterprise structure, and its largest components are manufacturing, services,
and trade. Major exports are iron ores and alumina, wheat, coal, gold, meat,
and wool, principally to Japan and the European Union. Major imports are
machinerytransport equipment, and crude petroleum, computers, telecommunication
equipments primarily from the European Union, United States, and Japan.
Commodities account for over 50% the value of its total exports. The GNP is
increasing more rapidly than the population, and the GNP per capita is similar
to other Western countries. Its chief industries are mining, industrial and
transportation equipment, food processing, chemicals, and steel. Australia's
natural resources include bauxite, coal, iron ore, copper, tin, silver, uranium,
nickel, tungsten, mineral sands, lead, zinc, diamonds, natural gas, and
petroleum.

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

Real GDP grew at an annual rate of nearly 1.4% in the first half of 2001 year
over year. Unemployment fell to 6.7% in the third quarter of 2001. Inflation
rose 2.0%, however the underlying inflation remained constant. Consumer price
inflation rose 2.0% largely due to the slow down of the United States and slow
recovery of close Asian economies.

Australia's equity market was weak in absolute terms during the year ended
August 31, 2001, although it performed fairly well relative to other
international markets. Two main factors weighed on Australian equities over this
period: the lengthy correction in media and telecommunications stocks and the
slowdown in economies around the world, particularly the United States.

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<PAGE>

General pessimism toward media and telecommunications sectors depressed shares
of Australia's two largest companies, News Corporation Limited and Telstra
Corporation Limited, over much of the reporting period. News Corp. also reported
disappointing results in late 2001, citing a drop-off in advertising sales in
the United States, among other factors.

The slowdown in the United States and other economies had negative consequences
for a wide range of other Australian companies. Real estate company Lend-Lease,
for example, issued several profit warnings over the reporting period, leading
to significant declines in its share price. The company said that losses on its
property investments in the United States played a large role in its shortfalls.
Shares of Australian exporters also declined as it became apparent that the
United States and other major world economies were decelerating.

Australia's domestic-oriented companies fared better. Westpac Banking
Corporation and National Australia Bank both posted record profits in late 2000,
reflecting strong demand for financial services at home. Eventually, however,
they too faced a more difficult environment. The country's GDP contracted by
0.6% in the fourth quarter of 2000, prompting the Australian Federal Reserve
Board to lower interest rates in an effort to forestall recession. The rate cuts
helped Australian equities to recover somewhat in 2001. They were also buoyed by
continued cost-cutting efforts on the part of many companies and merger-and-
acquisition activity in mining and other industries.

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 recover from a recession that began with the
Asian crisis in the second half of 1998. The Consumer Price Index has fallen
3.8% in 2000 and Real GDP grew 0.5% from a year ago second quarter. This was
due to a weakening demand in the European sector and a contracting United States
economy. Private consumption is up 4.0% from a year ago based on the second
quarter which was due to moderate gains in income combined with deflation.
Although local consumption is up from last year and remains strong, it will only
supply limited impact to GDP. Major exports are clothing, textiles, footwear,
electrical appliances, watches, and toys. Exports fell 1.9% from a year ago
during the second quarter. Its main export partners include China, United
States and Japan.

The absolute performance of Hong Kong's stock market was, like that of many
other international markets, weak over the year ended August 31, 2001.

Hong Kong's companies did profit somewhat from healthy demand in China, whose
economy remained robust even as the United States, European and Japanese
economies decelerated. The interest-rate cuts that the U.S. Federal Reserve
Board implemented to jump-start the United States economy also helped to support
Hong Kong's large contingent of real-estate stocks. (Hong Kong's interest rates
are pegged to those of the United States.)

The strength of these stocks was offset in part by continued declines for
technology- and telecommunications-related companies such as Pacific Century
Cyberworks Limited. A cyclical downturn in these areas led to severe declines in
many stocks.

As the reporting period progressed, the impact of slowing global growth made
itself felt on the Hong Kong market. The uncertain environment led many
investors to decrease their positions in export-oriented companies in favor
of

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<PAGE>

more defensive shares such as banks. Still others shifted their capital out of
Hong Kong altogether and into more developed markets.

Japan. Japan maintains a market economy based on services, industry and
agriculture. Japan is viewed as the second most technologically powerful
economy in the world after the United States and the third largest economy in
the world after the United States and China. 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.

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 contracted by 0.8% from last year during the second quarter.
Private sector consumption was down 0.2% from the previous year. Consumers are
moving from retail to discount and wholesale shopping. Deflation is strong in
Japan. Prices have fallen for the thirteenth consecutive quarter. In the past,
Japan heavily relied on imports to manufacture locally and export goods
internationally. Japan has shifted towards manufacturing abroad. Exports
contracted by 4.9% during the second quarter while imports fell by 2.9%
reflecting weak domestic demand.

The unemployment rate climbed to 5.3% for the third quarter of 2001. The crisis
in Japan is growing as the tradition of lifetime employment is no longer
guaranteed. Three of the largest semiconductor producers have engaged in
layoffs. Auto manufacturers are expected to also publicly announce downsizing.
It is also inevitable that more layoffs are underway as inventory to sales
ratios are at record high levels.

Japan's equity market was depressed by a host of cyclical and structural
economic problems over the year ended August 31, 2001.

Like stock markets around the world, Japan's fell as investors became
increasingly alarmed about the extent of a global economic slowdown. A fall-off
in the United States economy, particularly in consumer demand, had widespread
implications for many Japanese companies. European consumer markets were also
generally weak, creating a more difficult environment for export-oriented
companies such as Sony Corporation.

These external pressures only added to the concerns investors already had about
Japan's domestic economy. Successive attempts to revive consumer demand have
failed, and many investors feel that policy makers are still reluctant to
address the nation's deep-rooted structural problems. The lack of clarity
regarding nonperforming loans at Japan's banks is an especially thorny issue.
Some investors have seen cause for optimism in the new government of Prime
Minister Junichiro Koizumi, who has pledged to institute reforms. Yet Koizumi
clearly faces opposition from Japan's more traditional political factions,
casting some doubt on whether he will be able to push through reforms and revive
the economy.

Despite the rather pessimistic investment climate, small capitalization Japanese
companies managed to stage a rally during part of the reporting period. The
surge was apparently driven by investors attracted to the depressed valuations
of these stocks. Sentiment toward Japan's larger companies, however, remained
decidedly poor.

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. Its chief industries are
agriculture, industry, and services. Malaysia's natural resources include tin,
petroleum, timber, copper, iron ore, natural gas, and bauxite. Malaysia's
exports include electronic equipment, petroleum and liquefied natural gas,

29
<PAGE>

chemicals, palm oil, wood and wood products, rubber, textiles. Exports have
contracted due to the weakening economies of its main export partners which
include the United States, Singapore and Japan.

GDP grew 3.2% in the first quarter of 2001 but is expected to level off to near
zero by the end of the year. The Malaysian currency remains in a tenuous
situation with the ringitt pegged to 3.80 to the United States dollar since
September 1998, the probable expectation is that a devaluation is likely to
occur.

Unemployment rates are expected to rise as layoffs become imminent with
restructuring. Despite the expectations of the future, inflation is running at
a mere 2% and unemployment at 3.1% for the first quarter of 2001.

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.

Malaysia's equity market was generally quite weak over the reporting period,
mirroring the performance of most other emerging and developed markets around
the world. The general decline in global economic activity took its toll on the
profits of Malaysian exporters in particular.

For a time, however, the Malaysian market enjoyed a somewhat better footing than
many other Asian markets. Malaysia's status as a net exporter of crude oil
served it well as oil prices rose in late 2000. With a relatively small
technology component, Malaysia's equity market was also slightly less vulnerable
to the correction in that sector over the reporting period. The downturn had an
indirect, but no less profound, impact on Malaysia's manufacturing sector,
however. Companies involved in producing technology-related goods were
especially hard hit.

Over time, Malaysia's modest advantages were eroded by economic and political
concerns. In the spring of 2001, the country's domestic political situation
deteriorated, leading to declines in its stock market. The uncertainty drove
some foreign capital out of the country, although the market subsequently
stabilized. Investors who remained tended to favor stocks regarded as defensive
investments, such as British American Tobacco (Malaysia) ("BAT") and Malaysia
International Shipping. BAT shares rose still further in July 2001, when the
company reported that its first-half 2001 profits had risen by 39%.

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 countries. 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 United States. 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. For the
second quarter of 2001, the annual growth rate for GDP was also 3.5%. Strong
performing sectors, construction, wholesale trade, transportation and
communication contributed to the growth in GDP. Capital investment increased
during the year which indicates continued growth. Private consumption remains
healthy with six consecutive quarters of growth. Residential building consents
have increased 14.2% in August 2001.

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

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 channels, New Zealand has evolved to be one of the
most deregulated countries.

Since 1995, New Zealand's current account deficits has been over 5.0% 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.

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<PAGE>

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 and in the past has
benefited from its open trading relations. 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. Manufacturing which is one of its biggest drivers of
economic growth in past year fell dramatically due to low demand from developed
countries. Its main export partners include United States, Malaysia, Hong Kong
and Japan. Exports fell by 5.1% in the second quarter for the first time in
over two years. The consumer price index fell my 0.1% in from the first quarter
to the second quarter. GDP fell 0.9% for the second quarter ended 2001.
Unemployment climbed to 2.6% for the second quarter of 2001.

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.

Singapore's export-oriented economy proved to be a liability for its equity
market during the year ended August 31, 2001.

A major cyclical downturn in demand for technology and telecommunications led
investors to sell off stocks such as Chartered Semiconductor Manufacturing. Not
only did personal computer sales fall into a slump, but demand for third
generation wireless phones was weaker than many investors had expected. These
trends created a very difficult environment for companies that manufacture chips
for these applications.

As a result, investors withdrew more money from these stocks and instead favored
companies that they believed would be better able to withstand a prolonged
economic slowdown. Singapore's banks and real-estate companies were among the
beneficiaries of this trend. They also had the advantage of declining interest
rates.

Lower interest rates were not enough, however, to keep Singapore from falling
into a recession in 2001. Unsurprisingly, this only served to worsen sentiment
toward the equity market.

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. Real
GDP grew by 3.7% and industrial production grew by 6.2% compared with the first
quarter of last year. However, investment in manufacturing shrank 5.7% from the
first quarter of last year. Exports also fell by 3.0% from the first quarter of
last year. Growth in exports was dampened from the lower demand in computer and
semiconductor products. The well being of the South Korean economy is
correlated with the health of the United States and Japanese economies.

Its chief industries are electronics, automobile production, chemicals,
shipbuilding, steel, textiles, clothing, footwear, and food processing. Its
main export partners include the United States, Japan, China, Hong Kong and
Taiwan. South Korean's natural resources include coal, tungsten, graphite,
molybdenum, lead, and hydropower potential. Consumer prices are up 5.3% from the
second quarter of 2000 and unemployment is at 3.5% for the second quarter of
2001.

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.

South Korea was among the world's most volatile markets during the year ended
August 31, 2001. With technology stocks composing a large percentage of its
total market capitalization, the country was acutely affected by the

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<PAGE>

cyclical downturn in demand for technology products, particularly
semiconductors. Investors responded by selling off shares of companies such as
market heavyweight Samsung Electronics in late 2000. Telecommunications stocks
such as SK Telecom were also weighed down by general pessimism toward that
sector.

With the start of the new calendar year, however, sentiment improved
significantly. In January alone, the MSCI South Korea Index rose 26.6% in local-
currency terms. Investors apparently were heartened by the U.S. Federal Reserve
Board's decision to lower interest rates, a move that many thought would
jumpstart the United States economy and stimulate technology spending on a
global basis. But the recovery was short-lived. As the reporting period ended,
the South Korean equity market posted further declines.

Taiwan. Taiwan has a prosperous capitalist economy with gradually decreasing
government intervention. Government authorities are privatizing banks and
foreign trade. 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 GDP fell by 2.4% in the second quarter of 2001.
Taiwan is dependent on the export business with the United States and other
developed countries which was down by 13.0% for the third quarter year ended
2001. The fall in the export business impacted unemployment figures which
climbed to 4.9% for the second quarter of 2001. Additionally, competitive
pressures has moved its capital resources and talent from Taiwan to China.

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.

Taiwan's equity market was among the weakest in the world over the year ended
August 31, 2001. The cyclical downturn in demand for electronic components and
instruments, especially semiconductors, was largely to blame; stocks in this
sector comprise a large proportion of the MSCI Taiwan Index.

To the detriment of firms such as United Microelectronics Company and Taiwan
Semiconductor Manufacturing Company, demand for semiconductors declined sharply
on two important fronts: The market for personal computers declined at the same
time as demand for next-generation wireless telephones proved to be much weaker
than expected. Companies that produce chips for these applications were thus
deeply out of favor with most investors.

The impact of the semiconductor slump was felt far and wide in Taiwan's economy
and its equity market, but there were a few pockets of better performance.
Taiwan's financial sector, for example, gained some momentum from declining
interest rates both at home and abroad. The U.S. Federal Reserve Board moved
aggressively to cut interest rates in 2001. Taiwan's central bank also loosened
its monetary policy, a move that helped to bolster financial shares.

In addition, sentiment toward Taiwan's semiconductor industry improved, albeit
sporadically, over the second and third quarters of 2001. Some investors and
economists reasoned that much of the bad news was already priced into Taiwan's
semiconductor stocks, and argued that these issues were now undervalued ahead of
an anticipated recovery. As the reporting period ended, however, it remained
unclear just when such a recovery might materialize.

Real GDP Annual Rate of Growth (annual % change)

<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Australia 3.7 3.8 5.6 4.7 3.8
Hong Kong 4.5 5.0 -5.3 3.0 10.5
Japan 3.3 1.9 -1.1 0.8 1.5
Malaysia 10.0 7.3 -7.4 6.1 8.3
New Zealand 3.6 2.2 -0.1 3.8 3.7
Singapore 7.7 8.5 0.1 5.9 9.9
South Korea 6.8 5.0 -6.7 10.9 8.8
Taiwan 6.1 6.7 4.6 5.4 6.0
</TABLE>

Source: World Economic Outlook, October 2001 (International Monetary Fund)

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<PAGE>

Brazil. Brazil, South America's largest economy is characterized by large
agricultural, mining, manufacturing and services sectors. GDP grew at 0.8% in
the second quarter of 2001. Brazil is highly dependent on hydroelectric power
and faced a water shortage throughout the entire country. Presently, 90.0% of
the countries energy supply comes from hydroelectric power. Along with
increased energy prices, interest rates from banks increased which made local
investment less attractive. The unemployment rate stayed flat at 6.2%. Since
the beginning of the year, the real has been devalued by 20.0% in part due to
people's expectation of Argentina's possible default, lower growth expectations
for Brazil and a weakening domestic demand. Inflation has increased to 19.0%
for the first quarter of 2001 and the current debt to GDP ratio is over
50.0%.

Some of its 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 main trading partners are the United States,
Argentina, and Germany.

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.

Brazil's equity market suffered a severe decline over the year ended August 31,
2001. Economic trends outside its borders played a major role in the downturn.
As one of the world's most liquid emerging markets, Brazil often bore the brunt
of investors' pessimism as the global economic outlook deteriorated. Much of the
selling was concentrated on Brazil's large percentage of liquid
telecommunications stocks, which were also depressed by a global correction in
that sector. When sentiment improved, however, stocks such as Telemar tended to
lead the market rebound.

In addition to slowing growth in the United States and other developed
countries, a major debt crisis in Argentina also cast a long shadow over the
Brazilian equity market during the reporting period. Investors' concern that the
crisis would spill over into Brazil drove down the value of Brazil's currency,
the real.

The currency's weakness helped to kindle inflation in Brazil, leading the
nation's policy makers to increase interest rates even as other central banks
around the world lowered them. The real's weakness also weighed on the results
of many leading Brazilian companies. Long-distance operator Embratel, for
example, said the currency's decline was a major reason why its first quarter
2001 results did not meet analysts' expectations.

Brazilian Real GDP Annual Rate of Growth (annual % change)

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 United States 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.

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<PAGE>

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. The hardest hit industry
was manufacturing which fell 4.6%. Other industries such as
telecommunications, transportation and electronic also weakened while home
building, wholesale trade and oil patch strengthened. Canada is also a major
exporter of motor vehicles and parts, pulp and paper, timber, wheat, base
metals, coal and fish. Its main trading partners are the United States, Japan,
Germany, South Korea and China.

GDP fell 0.4% from last year and GDP has been flat for the last four months for
the period ended August 2001. The drop is in part due to the weakening economy
of the United States and dampened local demand. Unemployment rose to 7.2% in
the middle of the year. The consumer price index fell to 2.8% while inflation
decreased to 1.0% to 3.0%.

Canada's equity market posted a sharp decline over the year ended August 31,
2001. The severe correction in one stock, Nortel Networks, played a major role
in the overall market's weak performance.

Like many telecommunications stocks worldwide, Nortel's shares spent most of the
reporting period falling sharply. As a bellwether of the optical-networking
industry, the company's stock reflected investors' growing doubts about the
near- to medium-term prospects for the sector. Those doubts were realized when,
in October 2000, the company announced that its revenues would not meet
analysts' expectations. The news led to a major sell-off in its shares. Nortel
again disappointed investors when it warned that its first-quarter results would
also be weak. By June 2001, the company's stock price had fallen nearly 90% from
the highs it had reached in mid-2000. Although Nortel's decline was especially
severe, Canada's other telecommunications- and technology-related companies
faced sharp declines in their share prices as well.

The sell-off in telecommunications- and technology-related shares contrasted
vividly with the comparatively good performance of many old-economy firms.
Shares of Canada's leading banks, for example, posted gains after they reported
good earnings and after interest rates in Canada, the United States and Europe
fell. Companies in the energy and mining industries--particularly gold
producers--also benefited from rising commodity prices and investors' general
concerns about the slowing global economy. (These areas are traditionally
regarded as bulwarks against recession.) The weakness of the Canadian dollar
relative to the U.S. dollar was another advantage for Canadian metals producers,
as it made their goods more competitive on the global market. Both trends helped
to boost shares in these sectors, though the Canadian dollar's weakness
ultimately reduced returns for U.S.-dollar based investors.

Canadian Real GDP Annual Rate of Growth (annual % change)

Source: World Economic Outlook, October 2001 (International Monetary Fund)

Mexico. Mexico is Latin America's second biggest economy. 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. Mexico's exports about 85.0% of its products to the United
States. With the slowing of the United States economy, Mexico's exports are
expected to shrink. From August of last year, the number of employed in the
export sector fell by 11.3%. GDP fell 0.4% in the third quarter. 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

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<PAGE>

than 200 in 1998. In September, the underlying inflation fell to 6.1%. The
unemployment rate is at 2.5% as of the third quarter of 2001. In 2000, American
visitors made up 92.0% of the total travelers in Mexico.

Since NAFTA was implemented, Mexico's trade with the United States and Canada
has nearly doubled. The United States accounts for about 85.0% of Mexico's total
trade. Mexico is also pursuing additional trade agreements with Latin
America.

Mexico was one of the better-performing emerging markets over the year ended
August 31, 2001, despite investors' widespread concerns about the global
economy.

Although the market's performance was fairly weak in absolute terms, its
relative returns benefited from several factors. Rising oil prices in late 2000
helped to bolster sentiment toward Mexico, a net exporter of oil. Investors
reasoned that the trend would help strengthen Mexico's financial position. The
country's banks also benefited from lower interest rates in the United States
and at home, which led investors to increase their shares. Merger-and-
acquisition activity was yet another factor fueling Mexican banking stocks. In
May, United States financial giant Citicorp announced plans to acquire Banacci,
Mexico's second-largest bank at a significant premium. That news resulted in
strong performance for the market in Mexico for May and also led investors to
seek out other potential acquisition targets in the country's market.

Toward the latter half of the reporting period, however, the combined weight of
the United States economic slowdown and a debt crisis in Argentina put pressure
on Mexico's equity market. Given the extent to which Mexico relies on exports to
the United States, decelerating economic growth there left investors pessimistic
about the near-term prospects for many Mexican companies. The debt crisis in
Argentina also weighed on Mexican equities, as investors worried that the crisis
would, among other things, saddle Mexican banks with nonperforming loans in
Argentina.

Mexican Real GDP Annual Rate of Growth (annual % change)

Source: World Economic Outlook, October 2001(International Monetary Fund)

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. In the
first phase, effective as of the close of November 30, 2001, MSCI implemented
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

35
<PAGE>

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 is expected to 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, multiplied 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 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 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. 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

36
<PAGE>

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 float 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/Reuters 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.

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.

37
<PAGE>

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 a 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 securities or
obligations) and except that an Index Fund may lend its portfolio securities
in an amount not to exceed 331/3% 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 Australia, Belgium, Pacific ex-Japan and
Taiwan Index Funds. Also, this restriction is proposed to be deleted in
respect of each of the other Index Funds; for this restriction to be deleted
for any of these Index Funds, the shareholders of that Index Fund would have
to approve the change no later than January 24, 2002.);

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;

38
<PAGE>

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. Each of the iShares MSCI Austria, Brazil, Canada, EMU,
France, Germany, Hong Kong, Italy, Japan, Malaysia, Mexico, Netherlands,
Singapore, South Korea, Spain, Sweden, Switzerland and United Kingdom Index
Funds has 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.

<TABLE>
<CAPTION>
iShares MSCI Index Fund Industry or Industries
----------------------------------------------------------------
<S> <C>
Brazil Integrated Oil and Gas
Hong Kong Real Estate Management & Development
Mexico Integrated Telecommunication Services
Netherlands Integrated Oil and Gas
Singapore Banks
South Korea Semiconductors
Spain Banks
Sweden Telecommunications Equipment
Switzerland Pharmaceuticals
</TABLE>

39
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Industry or Industries
----------------------------------------------------------------
<S> <C>
Australia Banks
Pacific ex-Japan Banks
Taiwan Semiconductors
</TABLE>

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, among other
things, 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).

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.

40
<PAGE>

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 six Directors.

<TABLE>
<CAPTION>
Principal Occupations
Position with the Company and During the Past Five Years and Other
Name, Address and Age Length of Time Served Directorships
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nathan Most * Chairman Emeritus, Director and Trustee, iShares Trust (since 2000); Consultant
P.O. Box 193 President since 1996 to various companies including the Advisor;
Burlingame, CA 94011-0193 Senior Vice President (retired) (from 1992 to
Age 87 1996) of the American Stock Exchange, Inc.;
President and CEO (retired) (from 1982 to 1996)
of AMEX Commodities Corporation.

John B. Carroll Director since 1996 Trustee, iShares Trust (effective Jan. 1,
520 Main Street 2002); Director of Common Fund Institutional
Ridgefield, CT 06877 Funds and J.P. Morgan Private Equity Fund;
Age 66 Retired Vice President of 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 Trustee, iShares Trust (effective Jan. 1,
President 2002); President, CEO and Director (since 1994)
General Motors Investment of General Motors Asset Management Corporation;
Management Corp. Chairman and CEO of the GM Trust Co.; Corporate
767 Fifth Avenue Vice President of General Motors Corporation;
New York, NY 10153 Director (from 1995 to 1998) of Taubman
Age 54 Centers, Inc. (a real estate investment trust);
Director (since 1992) of FLIR Systems (an
imaging technology company); Director (since
1994) of General Motors Acceptance Corporation;
Director (since 1994) of GMAC Insurance
Holdings Inc.; Director (since 1995) of Global
Emerging Markets Fund; Director 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)
</TABLE>

41
<PAGE>

Richard K. Lyons Director since 2001 Trustee, iShares Trust (since 2000); Professor,
350 Barrows Hall University of California, Berkeley: Haas
Haas School of Business School of Business (since 1993); Member,
UC Berkeley Council on Foreign Relations; Consultant: IMF
Berkeley, CA 94720 World Bank, Federal Reserve Bank, European
Age 39 Commission and United Nations; Board of
Directors: Matthews International Funds.

George G.C. Parker Director since 2001 Trustee, iShares Trust (since 2000); Associate
Graduate School of Business Dean for Academic Affairs, Director of MBA
Stanford University Program, Professor, Stanford University:
521 Memorial Way Graduate School of Business (since 1988);
Room K301 formerly, Director of Executive Education,
Stanford, CA 94305 Stanford Business School (1979-1988); Board of
Age 60 Directors: Affinity Group, 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 Trustee, iShares Trust (effective Jan. 1,
Barclays Global Investors 2002); Managing Director and Chief Executive
45 Fremont Street Officer for the Global Individual Investor
San Francisco, CA 94105 Business of Barclays Global Investors, N.A.
Age 56 ("BGI") (since 2000); Chairman of the Board of
Directors of the Advisor (since 1998); Director
of BGI (since 1998); Director of various
Barclays subsidiaries (since 1997); Global H.R.
Director for BGI (since 1996).

Stephen M. Wynne Treasurer since 1996 Executive Vice President with PFPC Inc. (since
Executive Vice President 1993); Director of each of PFPC Worldwide Inc.
PFPC Inc. (since 2000), PFPC Inc. (since 1999), PFPC
400 Bellevue Parkway Trust Company (since 1998), PFPC Corporation
Wilmington, DE 19809 (since 1999), PFPC International Ltd. (Dublin)
Age 46 (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.
</TABLE>

42
<PAGE>

<TABLE>
<CAPTION>
Principal Occupations
Position with the Company and During the Past Five Years and Other
Name, Address and Age Length of Time Served Directorships
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
R. Sheldon Johnson Secretary since 1996 Managing Director, Global Equity Derivatives,
Managing Director Morgan Stanley & Co. Incorporated (since 1988).
Morgan Stanley & Co.,
Incorporated
1585 Broadway
New York, NY 10036
Age 53
</TABLE>

* 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.

<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement from Company
Aggregate Benefits Accrued Estimated Annual and Fund
Name of Person Compensation as Part of Fund Benefits Upon Complex Paid to
And Position from Company Expenses Retirement Directors
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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. Morrisett, $45,000 None None $ 45,000
Director
</TABLE>

** Mr. Most received $54,000 as Trustee of iShares Trust.

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 December 14,
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:

43
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>

Australia JPMorgan Chase Bank 54.44%
One Chase Manhattan Plaza
New York, NY 10081

Deutsche Bank 6.41%
130 Liberty Street
New York, NY 10005

Bank of New York 5.05%
One Wall Street
New York, NY 10286

Austria Citibank, N.A. 21.68%
1410 Westshore Blvd.
Tampa, FL 33607

Morgan Stanley & Co. 12.18%
One Pierrepont Plaza
Brooklyn, NY 11201

Salomon Smith Barney Inc. 12.18%
333 West 34th Street, 3rd Floor
New York, NY 10001

Merrill Lynch Pierce Fenner & Smith Inc. 7.75%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302

Citibank/Private Banking 6.67%
One Court Square, 22nd Floor
Long Island City, NY 11120

Wilmington Trust Co. 5.09%
Rodney Square North
Wilmington, DE 19890

JPMorgan Chase Bank 5.02%
One Chase Manhattan Plaza
New York, NY 10081

Belgium Citibank, N.A. 18.57%
1410 Westshore Blvd.
Tampa, FL 33607

Spear, Leeds & Kellogg 13.65%
120 Broadway, 5th Floor
New York, NY 10006

Merrill Lynch Pierce Fenner & Smith Inc. 10.20%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302
</TABLE>

44
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>

Citibank/Private Banking 6.89%
One Court Square, 22nd Floor
Long Island City, NY 11120

Salomon Smith Barney Inc. 6.31%
333 West 34th Street, 3rd Floor
New York, NY 10001

Bank of New York 5.02%
One Wall Street
New York, NY 10286

Brazil Boston Safe Deposit & Trust Co. 50.06%
One Cabot Road
Medford, MA 02155

Brown Bros. Harriman & Co. 17.14%
59 Wall Street
New York, NY 10005

Salomon Smith Barney, Inc. 9.03%
333 West 34th Street, 3rd Floor
New York, NY 10001

Merrill Lynch Pierce Fenner & Smith Inc. 5.24%
Safekeeping
101 Hudson Street
Jersey City, NJ 07302

Canada Citibank, N.A. 21.57%
1410 Westshore Blvd.
Tampa, FL 33607

Salomon Smith Barney Inc. 13.06%
333 West 34th Street, 3rd Floor
New York, NY 10001

Charles Schwab & Co., Inc. 8.87%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310

Morgan Stanley & Co. 5.17%
One Pierrepont Plaza
Brooklyn, NY 11201

EMU Citibank, N.A. 19.62%
1410 Westshore Blvd.
Tampa, FL 33607

Brown Bros. Harriman & Co. 11.14%
59 Wall Street
New York, NY 10005
</TABLE>

45
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>

Bank of New York 10.69%
One Wall Street
New York, NY 10286

Charles Schwab & Co., Inc. 7.27%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310

State Street Bank & Trust Company 6.91%
1776 Heritage Drive
Quincy, MA 02171

Salomon Smith Barney Inc. 6.35%
333 West 34th Street, 3rd Floor
New York, NY 10001

France State Street Bank & Trust Company 17.04%
1776 Heritage Drive
Quincy, MA 02171

Citibank, N.A. 16.75%
1410 Westshore Blvd.
Tampa, FL 33607

Bank of New York 9.01%
One Wall Street
New York, NY 10286

Brown Bros. Harriman & Co. 6.84%
59 Wall Street
New York, NY 10005

Germany Citibank, N.A. 12.53%
1410 Westshore Blvd.
Tampa, FL 33607

State Street Bank & Trust Company 9.45%
1776 Heritage Drive
Quincy, MA 02171

Bank of New York 6.33%
One Wall Street
New York, NY 10286

Brown Bros. Harriman & Co. 6.14%
59 Wall Street
New York, NY 10005

Schwab (Charles) & Co., Inc. 6.12%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310
</TABLE>

46
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>

Hong Kong Morgan Stanley & Co. 10.10%
One Pierrepont Plaza
Brooklyn, NY 11201

Salomon Smith Barney Inc. 8.43%
333 West 34th Street, 3rd Floor
New York, NY 10001

Bank of New York 8.04%
One Wall Street
New York, NY 10286

Charles Schwab & Co., Inc. 7.10%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310

Merrill Lynch Pierce Fenner & Smith Safekeeping 6.27%
101 Hudson Street
Jersey City, NJ 07302

UBS PaineWebber, Inc. 5.37%
1285 Avenue of the Americas
New York, NY 10019

Morgan Stanley Dean Witter, Inc. 5.29%
New York, NY 10048

Italy Brown Bros. Harriman & Co. 19.01%
59 Wall Street
New York, NY 10005

Citibank, N.A. 18.33%
1410 Westshore Blvd.
Tampa, FL 33607

Morgan Stanley & Co. 10.73%
One Pierrepont Plaza
Brooklyn, NY 11201

State Street Bank & Trust Company 7.78%
1776 Heritage Drive
Quincy, MA 02171

Bank of New York 5.53%
One Wall Street
New York, NY 10286

Japan Morgan Stanley & Co. 8.76%
One Pierrepont Plaza
Brooklyn, NY 11201

Northern Trust 8.66%
801 S. Canal Street
Chicago, IL 60607
</TABLE>

47
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>

Brown Bros. Harriman & Co. 7.63%
59 Wall Street
New York, NY 10005

Swiss American Securities, Inc. 7.52%
12 E. 49th Street
New York, NY 10017

Bank of New York 6.49%
One Wall Street
New York, NY 10286

State Street Bank & Trust Company 5.98%
1776 Heritage Drive
Quincy, MA 02171

Malaysia State Street Bank & Trust Company 32.09%
1776 Heritage Drive
Quincy, MA 02171

Bank of New York 9.29%
One Wall Street
New York, NY 10286

Salomon Smith Barney Inc. 7.79%
333 West 34th Street, 3rd Floor
New York, NY 10001

Citibank, N.A. 6.07%
1410 Westshore Blvd.
Tampa, FL 33607

Mexico State Street Bank & Trust Company 13.43%
1776 Heritage Drive
Quincy, MA 02171

Salomon Smith Barney Inc. 8.36%
333 West 34th Street, 3rd Floor
New York, NY 10001

Morgan Stanley & Co. 8.28%
One Pierrepont Plaza
Brooklyn, NY 11201

Brown Bros. Harriman & Co. 6.45%
59 Wall Street
New York, NY 10005

Schwab (Charles) & Co., Inc. 5.28%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310

Bank of New York 5.20%
One Wall Street
New York, NY 10286
</TABLE>

48
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>

Netherlands Citibank, N.A. 23.09%
1410 Westshore Blvd.
Tampa, FL 33607

State Street Bank & Trust Company 13.51%
1776 Heritage Drive
Quincy, MA 02171

Bank of New York 10.96%
One Wall Street
New York, NY 10286

Brown Bros. Harriman & Co. 7.26%
59 Wall Street
New York, NY 10005

Pacific ex-Japan Spear, Leeds & Kellogg 63.88%
120 Broadway, 5th Floor
New York, NY 10006

Morgan Stanley & Co. 23.32%
One Pierrepont Plaza
Brooklyn, NY 11201

JPMorgan Chase Bank 6.52%
One Chase Manhattan Plaza
New York, NY 10081

Singapore Morgan Stanley & Co. 28.11%
One Pierrepont Plaza
Brooklyn, NY 11201

JPMorgan Chase Bank 9.10%
One Chase Manhattan Plaza
New York, NY 10081

Charles Schwab & Co., Inc. 5.17%
Newport Financial Center
111 Pavonia Avenue East, 3rd Floor
Jersey City, NJ 07310

South Korea Boston Safe Deposit & Trust Co. 36.24%
One Cabot Road
Medford, MA 02155

Bank of New York 21.36%
One Wall Street
New York, NY 10286

Brown Bros. Harriman & Co. 8.46%
59 Wall Street
New York, NY 10005

Citibank, N.A. 6.01%
1410 Westshore Blvd.
Tampa, FL 33607
</TABLE>

49
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>

Spain Citibank, N.A. 26.71%
1410 Westshore Blvd.
Tampa, FL 33607

Spear, Leeds & Kellogg 14.98%
120 Broadway, 5th Floor
New York, NY 10006

Brown Bros. Harriman & Co. 10.94%
59 Wall Street
New York, NY 10005

Bank of New York 5.62%
One Wall Street
New York, NY 10286

Sweden Citibank, N.A. 20.27%
1410 Westshore Blvd.
Tampa, FL 33607

Bank of New York 10.47%
One Wall Street
New York, NY 10286

Spear, Leeds & Kellogg 9.33%
120 Broadway, 5th Floor
New York, NY 10006

Brown Bros. Harriman & Co. 5.14%
59 Wall Street
New York, NY 10005

Switzerland Citibank, N.A. 16.30%
1410 Westshore Blvd.
Tampa, FL 33607

Bank of New York 14.03%
One Wall Street
New York, NY 10286

State Street Bank & Trust Company 9.41%
1776 Heritage Drive
Quincy, MA 02171

Brown Bros. Harriman & Co. 9.08%
59 Wall Street
New York, NY 10005

Morgan Stanley & Co. 7.27%
One Pierrepont Plaza
Brooklyn, NY 11201

Swiss American Securities, Inc. 6.45%
12 E. 49th Street
New York, NY 10017
</TABLE>

50
<PAGE>

<TABLE>
<CAPTION>
iShares MSCI Index Fund Name and Address Percentage of Ownership
----------------------- ---------------- -----------------------
<S> <C> <C>

Taiwan Northern Trust 31.62%
801 S. Canal Street
Chicago, IL 60607

Bank of New York 15.65%
One Wall Street
New York, NY 10286

Citibank, N.A. 9.82%
1410 Westshore Blvd.
Tampa, FL 33607

Salomon Smith Barney Inc. 9.28%
333 West 34th Street, 3rd Floor
New York, NY 10001

State Street Bank & Trust 6.20%
1776 Heritage Drive
Quincy, MA 02171

JPMorgan Chase Bank 5.96%
One Chase Manhattan Plaza
New York, NY 10081

Brown Bros. Harriman & Co. 5.76%
59 Wall Street
New York, NY 10005

United Kingdom Citibank, N.A. 16.30%
1410 Westshore Blvd.
Tampa, FL 33607

Bank of New York 11.24%
One Wall Street
New York, NY 10286

State Street Bank & Trust Company 9.90%
1776 Heritage Drive
Quincy, MA 02171

Brown Bros. Harriman & Co. 9.64%
59 Wall Street
New York, NY 10005
</TABLE>

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 $703 billion as of September 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 December 28, 2001 (except that the Advisory Agreement applicable
to the iShares MSCI Singapore Index Fund (the "Singapore Index Fund") is dated
May 8, 2000). 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

51
<PAGE>

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 four (4) 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, South Korea and Taiwan 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, with the exception of the Singapore Index
Fund, the Advisor is responsible for the payment of all of 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. (The Singapore Index Fund, by contrast, pays its own expenses and the
Advisor receives fees equal to the difference between such expenses and the rate
specified above for the Singapore Index Fund (subject to the exceptions noted in
the previous sentence) or reimburses expenses to the extent necessary to cause
the Singapore Index Fund's expenses to be at the specified rate (again, subject
to the same exceptions). The shareholders of the Singapore Index Fund may vote
to approve the advisory fee arrangement applicable to each other Index Fund, if
that approval occurs no later than January 24, 2002.) 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:

52
<PAGE>

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Index Fund August 31, 1999 August 31, 2000 August 31, 2001
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mexico $ 39,012 $ 45,446 $ 32,399
Netherlands $ 68,016 $ 61,274 $ 60,956
Pacific ex-Japan(3) N/A N/A N/A
Singapore $ 255,259 $ 268,788 $ 153,096
South Korea N/A $ 8,252(4) $ 22,313
Spain $ 92,868 $ 94,886 $ 63,808
Sweden $ 43,348 $ 52,196 $ 7,760
Switzerland $ 93,758 $ 88,433 $ 72,584
Taiwan N/A $ 16,530(5) $ 181,157
United Kingdom $ 245,947 $ 349,463 $ 432,898
</TABLE>
_____________________
(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.

Under the advisory agreement in effect for each Index Fund prior to December 28,
2001, each Index Fund paid its own expenses and Barclays Global Fund Advisors
received fees equal to the difference between such expenses and specified rates
(subject to the exceptions noted above) or reimbursed expenses to the extent
necessary to cause the Index Fund's expenses to be at such specified rates
(again, subject to the same exceptions). (As discussed above, this agreement
currently remains in effect for the iShares MSCI Singapore Index Fund.) The net
advisory fees and total expenses of each Index Fund were not affected by the
recent changes to the Advisory Agreement. Pursuant to the prior advisory
agreement, the following reimbursement was paid and accrued to the Company by
the Advisor:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
Index Fund August 31, 2000 August 31, 2001
-------------------------------------------------------------------------
<S> <C> <C>
Australia $ 0 $ 0
Austria $ 4,019 $14,481
Belgium $ 0 $ 3,325
Brazil $13,265(1) $ 0
Canada $ 3,428 $ 0
EMU $29,111(2) $ 0
France $ 0 $ 0
Germany $ 0 $ 0
Hong Kong $ 0 $ 0
Italy $ 0 $ 0
Japan $ 0 $ 0
Malaysia $ 0 $ 0
Mexico $ 463 $ 0
Netherlands $ 0 $ 0
Pacific ex-Japan(3) N/A N/A
Singapore $ 0 $ 0
South Korea $21,736(4) $ 0
Spain $ 0 $ 0
Sweden $ 0 $ 0
Switzerland $ 0 $ 0
Taiwan $37,794(5) $ 0
United Kingdom $ 0 $ 0
</TABLE>
_____________________
(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

53
<PAGE>

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 JPMorgan Chase Bank in
its capacity as Custodian, or by PFPC Inc. in its capacity as Transfer Agent.
The Administrator has no role in determining the investment policies of the
Company or which securities are to be purchased or sold by the Company. The
principal business address of the Administrator is 400 Bellevue Parkway,
Wilmington, DE 19809.

For the administrative and fund accounting services the Administrator provides
to the Company, PFPC is paid aggregate fees equal to each Index Fund's allocable
portion of: 0.15% per annum of the average aggregate daily net assets of the
Company up to $3 billion; plus 0.10% per annum of the average aggregate daily
net assets of the Company between $3 billion and $4.5 billion, plus 0.095% 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
0.05% 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:

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Index Fund August 31, 1999 August 31, 2000 August 31, 2001
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia $110,319 $ 106,930 $ 82,034
Austria $ 22,059 $ 19,678 $ 16,537
Belgium $ 36,546 $ 22,408 $ 16,152
Brazil N/A $ 4,908(1) $ 24,693
Canada $ 27,026 $ 23,780 $ 31,647
EMU N/A $ 6,012(2) $ 86,065
France $111,716 $ 152,143 $115,968
Germany $178,860 $ 272,489 $220,636
Hong Kong $160,647 $ 141,347 $ 98,077
Italy $151,590 $ 107,296 $ 65,865
Japan $890,839 $1,506,281 $942,137
Malaysia $143,744 $ 185,310 $127,986
Mexico $ 31,717 $ 45,292 $ 58,484
Netherlands $ 55,318 $ 47,334 $ 48,662
Pacific ex-Japan(3) N/A N/A N/A
Singapore $207,640 $ 188,421 $ 98,430
South Korea N/A $ 8,322(4) $ 29,066
Spain $ 75,553 $ 71,035 $ 51,020
Sweden $ 35,257 $ 42,428 $ 24,633
Switzerland $ 76,274 $ 69,813 $ 61,178
Taiwan N/A $ 9,318(5) $131,529
United Kingdom $200,033 $ 226,121 $210,427
</TABLE>
_____________________
(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.

54
<PAGE>

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 0.05% 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:

<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Index Fund August 31, 1999 August 31, 2000 August 31, 2001
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia $ 25,114 $ 30,652 $ 27,308
Austria $ 5,023 $ 5,555 $ 5,505
Belgium $ 8,316 $ 6,385 $ 5,379
Brazil N/A $ 1,636(1) $ 8,220
Canada $ 6,149 $ 7,050 $ 10,535
EMU N/A $ 2,004(2) $ 28,644
France $ 25,442 $ 44,197 $ 38,617
Germany $ 40,722 $ 80,143 $ 73,466
Hong Kong $ 36,568 $ 40,420 $ 32,659
Italy $ 34,499 $ 31,093 $ 21,931
Japan $202,974 $432,336 $313,575
Malaysia $ 32,737 $ 53,762 $ 42,608
Mexico $ 7,224 $ 13,186 $ 19,461
Netherlands $ 12,596 $ 13,362 $ 16,203
Pacific ex-Japan(3) N/A N/A N/A
Singapore $ 47,270 $ 52,989 $ 32,781
South Korea N/A $ 2,774(4) $ 9,676
Spain $ 17,198 $ 20,513 $ 16,990
Sweden $ 8,027 $ 12,361 $ 8,205
Switzerland $ 17,363 $ 20,057 $ 20,372
Taiwan N/A $ 3,106(5) $ 43,778
United Kingdom $ 45,546 $ 65,478 $ 70,067
</TABLE>
_____________________
(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 Co. became
the principal underwriter and distributor of iShares. The Distributor's
principal offices are located at One Freedom Valley Drive, Oaks, PA 19456.
Investor information can be obtained by calling 1-800-iShares (1-800-474-2737).
The Distributor has entered into an agreement with the Company which will
continue for two years 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 Co. as Distributor, has no role in determining the investment
policies of the Company or which securities are to be purchased or sold by the
Company.

55
<PAGE>

To compensate the Distributor for the distribution-related services it provides,
and broker-dealers authorized by the Distributor for distribution services, they
provide, including for example, advertising, sales and marketing expenses, 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 0.25% 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 it applies, it may
continue in effect with respect to any Index Fund as to which it has not been
terminated (or has been renewed). Pursuant to the Distribution Agreement, the
Distributor will provide the Board periodic reports of any amounts expended
under the Plan and the purpose for which such expenditures were made.

The distribution fees payable under the 12b-1 Plan are used to pay distribution
related expenses, including: compensation to the distributor at a rate fixed by
the Company's Board of Directors from time to time (currently 0.02% 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 0.035% of the Company's average daily net assets attributed to the
Company's original 17 Index Funds; 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 0.25 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:

56
<PAGE>

<TABLE>
<CAPTION>
March 28, 2000
through Fiscal Year Ended
Index Fund August 31, 2000 August 31, 2001
-------------------------------------------------------------------------
<S> <C> <C>
Australia $ 66,338 $ 136,549
Austria $ 11,546 $ 27,523
Belgium $ 14,060 $ 26,887
Brazil $ 8,179(1) $ 41,100
Canada $ 18,702 $ 52,667
EMU $ 10,021(2) $ 143,207
France $101,660 $ 193,060
Germany $192,778 $ 367,265
Hong Kong $ 83,315 $ 163,260
Italy $ 72,173 $ 109,650
Japan $929,584 $1,568,286
Malaysia $118,841 $ 213,047
Mexico $ 30,779 $ 97,341
Netherlands $ 27,343 $ 81,006
Pacific ex-Japan(3) N/A N/A
Singapore $100,657 $ 163,869
South Korea $ 13,870(4) $ 48,377
Spain $ 46,035 $ 84,938
Sweden $ 28,601 $ 41,017
Switzerland $ 44,744 $ 101,847
Taiwan $ 15,531(5) $ 218,895
United Kingdom $156,078 $ 350,308
</TABLE>
_____________________
(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 Index 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 $4,230,099,
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 $338,392, 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 $768,927; $411,034 and $2,351,571; $824,050 and $242,760; and
$286,052 and $528,449, respectively, for (1) postage and other expenses of
distributing prospectuses, statements of additional information and other
marketing materials, (2) advertising-related expenses, (3) compensation to
broker-dealers for distribution assistance, and (4) fees paid to the Company's
marketing and sales consultant, 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:

<TABLE>
<CAPTION>
September 1, 1999
Fiscal Year Ended to
Index Fund August 31, 1999 March 28, 2000
---------------------------------------------------------------------------
<S> <C> <C>
Australia $100,454 69,538
Austria $ 20,091 12,982
Belgium $ 33,264 14,290
Canada $ 24,597 13,240
</TABLE>

57
<PAGE>

<TABLE>
<S> <C> <C>
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 $130,950 119,977
Mexico $ 28,898 28,127
Netherlands $ 50,383 31,576
Singapore $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
</TABLE>

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. JPMorgan Chase Bank ("JPMorgan Chase") serves as
the Custodian for the cash and portfolio securities of each Index Fund pursuant
to a Custodian Agreement between JPMorgan Chase and the Company and as Lending
Agent for each Index Fund. As Lending Agent, JPMorgan 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. JPMorgan Chase may from time to time
reimburse expenses to one or more Index Funds. JPMorgan 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 JPMorgan Chase is One Pierrepont Plaza, Brooklyn, New York,
11201.

For its custody services to each Index Fund, JPMorgan 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 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%), Ireland (0.06%) and
Portugal (0.20%)); France Index Fund (0.05%); Germany Index Fund (0.04%); Hong
Kong Index Fund (0.04%); Italy Index Fund (0.05%); Japan Index Fund (.026%);
Malaysia Index Fund (0.07%); Mexico Index Fund (0.15%); Netherlands Index Fund
(0.04%); Pacific ex-Japan Index Fund (a fee based on the aggregate net assets of
each of the Pacific ex-Japan Index Fund's investments in Australia, Hong Kong,
New Zealand and Singapore at the fees applicable to the Index Funds
corresponding to these countries, plus New Zealand (0.04%)); Singapore Index
Fund (0.05%); 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%);
and United Kingdom Index Fund (0.01%). As remuneration for its services in
connection with lending portfolio securities of the Index Funds, JPMorgan 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

58
<PAGE>

Company. The principal business address of the Transfer Agent is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19110.

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, 2001, the Company paid $1,411,523 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
$201,691, $229,929 and $40,364, respectively (or 14.3%, 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 22 series of shares of
-------------
common stock, par value $0.001 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 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 Hong Kong
Index Fund, the iShares MSCI Italy Index Fund, the iShares MSCI Japan Index
Fund, the iShares MSCI Malaysia Index Fund, the iShares MSCI Mexico Index Fund,
the iShares MSCI Netherlands Index Fund, the iShares MSCI Pacific ex-Japan Index
Fund, the iShares MSCI Singapore 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, and the
iShares MSCI United Kingdom Index Fund. Each Index Fund has been issued as a
separate class of capital stock. In addition to the 22 Index Funds listed
above, the Company has authorized for issuance, but is not currently offering
for sale to the public, seven additional series of shares of common 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

59
<PAGE>

option of the Company, in whole or any part, on such terms as the Board of
Directors may by resolution approve, without the consent of the holders
thereof.

Each iShares issued by the Company has a pro rata interest in the assets of the
corresponding Index Fund. The Company is currently authorized to issue 10.9
billion shares of common stock. The following number of shares is currently
authorized for each Index Fund: the iShares MSCI Australia Index Fund, 127.8
million shares; the iShares MSCI Austria Index Fund, 19.8 million shares; the
iShares MSCI Belgium Index Fund, 136.2 million shares; the iShares MSCI Brazil
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 Hong Kong Index Fund, 191.4 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 Index Fund,
127.8 million shares; the iShares MSCI Mexico 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 Singapore
Index Fund, 191.4 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; and the iShares MSCI United Kingdom Index Fund, 943.2
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 iShares 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 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,

60
<PAGE>

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
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

61
<PAGE>

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 October 31,
2001:

<TABLE>
<CAPTION>
Value Per
iShares Per Creation
Index Fund Creation Unit Unit ($U.S.)
---------------------------------------------------------------
<S> <C> <C>
Australia 200,000 $1,763,470
Austria 100,000 $ 683,296
Belgium 40,000 $ 421,629
Brazil 50,000 $ 486,647
Canada 100,000 $ 980,998
EMU 50,000 $2,584,580
France 200,000 $3,556,990
Germany 300,000 $3,966,323
Hong Kong 75,000 $ 598,047
Italy 150,000 $2,351,985
Japan 600,000 $5,031,557
Malaysia 75,000 $ 340,156
Mexico 100,000 $1,327,601
Netherlands 50,000 $ 806,883
Pacific ex-Japan 100,000 $4,948,475
Singapore 100,000 $ 438,306
South Korea 50,000 $ 643,493
Spain 75,000 $1,463,828
Sweden 75,000 $ 873,700
Switzerland 125,000 $1,521,015
Taiwan 50,000 $ 383,569
United Kingdom 200,000 $2,856,658
</TABLE>

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

Purchase and Issuance of iShares in Creation Units.

General. The Company issues and sells iShares only in Creation Units on a
continuous basis through the Distributor, without a 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 A 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, Malaysia, South Korea and
Taiwan Index Funds, which are currently offered, in their iShares

62
<PAGE>

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 National Securities Clearing Corporation
("NSCC") 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, on each Business Day, the
Cash Component effective through and including the previous Business Day, per
outstanding iShares of each Index Fund, will be made available.

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 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.

63
<PAGE>

Purchase Order. To initiate an order for a Creation Unit of iShares, the
Authorized Participant must submit to the Distributor an irrevocable order to
purchase iShares after 9:00 a.m. but not later than 4:00 p.m., Eastern time
(except for the Malaysia, 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. 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.

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 particular form required by the
individual Authorized Participant.

Timing of Submission of Creation Unit Purchase Orders and Redemption Requests.
Although an Authorized Participant ordinarily must submit to the Distributor a
purchase order or a redemption request in respect of Creation Units of any Index
Fund on a day that the AMEX is open for business, between the hours of 9:00 a.m.
and 4:00 p.m. Eastern time, the Distributor in its discretion may permit the
submission of such orders and requests by or through an Authorized Participant
at any time (including on days on which the AMEX is not open for business) via
communication through the facilities of the Distributor's proprietary website
maintained for this purpose. However, the ability of an Authorized Participant
to submit a purchase order or redemption request at any time via this website
does not assure the Authorized Participant that such order or request will be
accepted or processed at the net asset value determined on the date of such
submission. The purchase order or redemption request, if 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) an 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 of a Creation Unit of
iShares of the Index Fund, against receipt of payment, 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

64
<PAGE>

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 or
subcustodians, the Distributor and the Advisor shall be notified of such
delivery, 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
Distributor, 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 having a value at least equal to 125% of
the value of the missing Deposit Securities in accordance with the Company's
then-effective procedures. The only collateral that is acceptable to the
Company is cash in U.S. dollars or an irrevocable letter of credit in form, and
drawn on a bank, that is satisfactory to the Company. 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 cash collateral or the
amount that may be drawn under any letter of credit.

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

Cash Purchase Method. Although the Company does not ordinarily permit cash
purchases of Creation Units, when cash purchases of Creation Units of iShares
are available or specified for an Index Fund (Creation Units of the Brazil,
Malaysia, 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.

65
<PAGE>

<TABLE>
<CAPTION>
Maximum Additional
In-kind and cash Variable Charge for
Index Fund purchases Cash Purchases*
--------------------------------------------------------------
<S> <C> <C>
Australia $2,400 0.60%
Austria $1,200 0.67%
Belgium $1,500 0.30%
Brazil $4,100 **
Canada $3,300 0.30%
EMU $8,000 1.05%
France $2,900 0.25%
Germany $2,500 0.25%
Hong Kong $2,900 0.60%
Italy $2,200 0.30%
Japan $8,300 0.15%
Malaysia $5,500 **
Mexico $1,400 0.50%
Netherlands $2,000 0.25%
Pacific ex-Japan $7,200 1.80%
Singapore $2,200 1.60%
South Korea $4,200 **
Spain $2,300 0.25%
Sweden $2,200 0.30%
Switzerland $2,600 0.40%
Taiwan $6,200 **
United Kingdom $5,100 0.25%
</TABLE>

* 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 122.405 per US$1.

<TABLE>
<CAPTION>
Unit Creation Calculation in Unit Creation Calculation in Daily NAV Calculation in
Japanese Yen United States Dollars United States Dollars
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Execution 612,808,147 5,006,398 5,006,398
Commissions 306,380 2,503 N/A
Stamp Taxes 0 0 N/A
Risk Premium 0 0 N/A
Accrued Income 3,079,587 25,159 25,159
Creation Charge 1,015,962 8,300 N/A
iShares Unit Value 617,210,076 5,042,360 5,031,557
Per iShares 8.40 8.39
Shares 600,000
</TABLE>

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

66
<PAGE>

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, Malaysia, South Korea
and Taiwan Index Funds, which currently redeem Creation Units of iShares solely
for cash) the Advisor makes available through the NSCC 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
Advisor through the NSCC on the Business Day of the request for redemption, plus
cash in an amount equal to the difference between the net asset value of the
shares being redeemed, as next determined after a receipt of a request in proper
form, and the value of the Deposit Securities, less the redemption transaction
fee described below. The redemption transaction fee described below is deducted
from such redemption proceeds. In the case of a resident Australian or New
Zealand holder, notwithstanding the foregoing, such holder is only entitled to
receive cash upon its redemption of Creation Units of iShares.

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

<TABLE>
<CAPTION>
Additional variable
In-kind and cash charge for cash
Index Fund Redemptions redemptions*
----------------------------------------------------------------
<S> <C> <C>
Australia $2,400 0.60%
Austria $1,200 0.67%
Belgium $1,500 0.30%
Brazil $4,100 **
Canada $3,300 0.30%
EMU $8,000 1.05%
France $2,900 0.25%
Germany $2,500 0.25%
Hong Kong $2,900 0.60%
Italy $2,200 0.30%
Japan $8,300 0.40%
Malaysia $5,500 **
Mexico $1,400 0.50%
Netherlands $2,000 0.25%
Pacific ex-Japan $7,200 1.50%
Singapore $2,200 1.30%
South Korea $4,200 **
Spain $2,300 0.45%
Sweden $2,200 0.30%
Switzerland $2,600 0.40%
Taiwan $6,200 **
United Kingdom $5,100 0.75%
</TABLE>

* 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%.

67
<PAGE>

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, 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 must be in the form specified by such Authorized Participant.
Investors making a request to redeem Creation Units should allow sufficient time
to permit proper submission of the request by an Authorized Participant and
transfer of the iShares to the Company's Transfer Agent; such investors should
allow for the additional time that may be required to effect redemptions through
their banks, brokers or other financial intermediaries if such intermediaries
are not Authorized Participants.

A redemption request is considered to be in "proper form" if (i) an Authorized
Participant has transferred or caused to be transferred to the Company's
Transfer Agent the Creation Unit of iShares being redeemed through the book-
entry system of DTC so as to be effective by the AMEX closing time on a day on
which the AMEX is open for business and (ii) a request in form satisfactory to
the Company is received by the Distributor from the Authorized Participant on
behalf of itself or another redeeming investor within the time periods specified
above. 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 next following the day
that the redemption request is received, the redemption request shall be
rejected. 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 A 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 A 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

68
<PAGE>

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, Malaysia,
South Korea and Taiwan Index Funds may be redeemed only for cash, and resident
Australian and New Zealand holders may redeem solely for cash), in the event
that cash redemptions are permitted or required by the Company, proceeds will be
paid to the Authorized Participant redeeming shares on behalf of the redeeming
investor as soon as practicable after the date of redemption (within seven
calendar days thereafter, except for the instances listed in Appendix A hereto
where more than seven calendar days would be needed).

To the extent contemplated by an Authorized Participant's agreement with the
Distributor, 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 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
in accordance with the Company's then-effective procedures. The only collateral
that is acceptable to the Company is cash in U.S. dollars or an irrevocable
letter of credit in form, and drawn on a bank, that is satisfactory to the
Company. 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 cash collateral or the amount
that may be drawn under any letter of credit.

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

69
<PAGE>

case of the iShares MSCI Brazil, Malaysia, South Korea and Taiwan 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 Malaysia, South Korea and Taiwan 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 U.S. dollars using the same exchange rates utilized by Morgan
Stanley Capital International in the calculation of the relevant MSCI Indices
(currently, exchange rates as of 4:00 p.m. London time. However, the Company may
use a different rate from the rate used by MSCI in the event the Advisor
concludes that such rate is more appropriate 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 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
United States law, except that in the case of a conflict with specifically
applicable foreign law, the foreign law generally would be considered
controlling.

70
<PAGE>

TAXES

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

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

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

71
<PAGE>

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

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

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

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), for
the fiscal year ended August 31, 2001 and for the five year period ended August
31, 2001 for each Index Fund were:

<TABLE>
<CAPTION>
One Year Ended Five Years Ended Inception* through
Index Fund August 31, 2001 August 31, 2001 August 31, 2001
------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia (4.77)% 0.91% 1.54%
Austria 8.41% (2.89)% (3.26)%
Belgium (8.72)% 3.07% 3.72%
Brazil (38.52)% N/A (36.31)%(1)
Canada (34.95)% 8.87% 8.96%
EMU (24.51)% N/A (26.58)%(2)
France (25.86)% 11.72% 11.63%
Germany (24.87)% 5.72% 5.97%
Hong Kong (30.88)% (4.02)% (3.11)%
Italy (18.61)% 12.06% 11.77%
Japan (34.37)% (7.92)% (7.79)%
Malaysia (13.22)% (15.86)% (13.93)%
Mexico (7.02)% 8.47% 10.65%
Netherlands (19.83)% 5.87% 7.41%
Pacific ex-Japan N/A(3) N/A(3) N/A(3)
Singapore (27.89)% (12.41)% (12.51)%
South Korea (26.49)% N/A (27.45)%(4)
Spain (11.17)% 12.78% 13.27%
Sweden (46.99)% 4.83% 6.95%
</TABLE>

72
<PAGE>

<S> <C> <C> <C>
Switzerland (16.08)% 4.20% 4.31%
Taiwan (45.09)% N/A (45.51)%(5)
United Kingdom (16.20)% 7.06% 8.36%
</TABLE>
_________________________
* 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.

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

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

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

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

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

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

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

73
<PAGE>

appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk.

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

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

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

<TABLE>
<CAPTION>
COUNTRY NATIONAL INDEX
-----------------------------------------
<S> <C>
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
Hong Kong Hang Seng
Italy BCI
Japan Nikkei 225
Malaysia KLSE
Mexico IPC
Netherlands CBS All Share
New Zealand NZSE 40
Singapore SES All
South Korea Composite
Spain MA Madrid Index
Sweden Aff. General
Switzerland Swiss Market Index
Taiwan TWSE
U.K. FTSE 100
</TABLE>

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.

74
<PAGE>

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

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

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

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

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 independence requirements. PriceWaterhouseCoopers LLP, 333 Market
Street, San Francisco, California, 94105, currently serve as the independent
auditors of the Company.

75
<PAGE>

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).

76
<PAGE>

APPENDIX A

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 2002. 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 2002)
are as follows:

New Year's Day January 1, 2002
Australia Day January 28, 2002
Good Friday March 29, 2002
Easter Monday April 1, 2002
Anzac Day April 25, 2002
Queen's Birthday June 10, 2002
Labour Day October 7, 2002
Christmas Day December 25, 2002
Boxing Day December 26, 2002

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 2002.

iSHARES MSCI AUSTRIA INDEX FUND

Regular Holidays. The regular Austrian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002)
are as follows:

New Year's Day January 1, 2002
Easter Monday April 1, 2002
Labour Day May 1, 2002
Ascension Day May 9, 2002
Whit Monday May 20, 2002
Corpus Christi May 30, 2002
Assumption Day August 15, 2002
National Holiday October 26, 2002
All Saints Day November 1, 2002
Christmas Eve December 24, 2002
Christmas Day December 25, 2002
St. Stephen's Day December 26, 2002

A-1
<PAGE>

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 2002):

<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<C> <S> <C> <C> <C>
12/24/02 Christmas Eve 12/19/02 12/27/02 R+8
12/25/02 Christmas Day 12/20/02 12/30/02 R+10
12/26/02 St. Stephen's Day 12/23/02 12/31/02 R+8
</TABLE>

In the calendar year 2002, R+10 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 2002) are as
follows:

New Year's Day January 1, 2002
Easter Monday April 1, 2002
Labour Day May 1, 2002
Ascension Day May 9, 2002
Whit Monday May 20, 2002
Assumption Day August 15, 2002
All Saints Day November 1, 2002
Christmas Day December 25, 2002
Boxing Day December 26, 2002

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 2002.

iSHARES MSCI BRAZIL INDEX FUND

Regular Holidays. The regular Brazilian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Carnival Monday February 11, 2002
Carnival Tuesday February 12, 2002
Good Friday March 29, 2002
Labour Day May 1, 2002
Corpus Christi May 30, 2002
Independence Day September 7, 2002
Day of Our Lady Aparecida October 12, 2002
All Souls Day November 2, 2002
Proclamation of the Republic November 15, 2002
Christmas Eve December 24, 2002
Christmas Day December 25, 2002

Redemption. The Company is not aware of a redemption request over any Brazilian
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2002:

iSHARES MSCI CANADA INDEX FUND

Regular Holidays. The regular Canadian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

A-2
<PAGE>

New Year's Day January 1, 2002
Good Friday March 29, 2002
Victoria Day May 20, 2002
Canada Day Observed July 1, 2002
Civic Holiday August 5, 2002
Labour Day September 2, 2002
Thanksgiving Day October 14, 2002
Remembrance Day Observed November 11, 2002
Christmas Day December 25, 2002
Boxing Day December 26, 2002

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 2002.

iSHARES MSCI EMU INDEX FUND

Regular Holidays. The dates in the calendar year 2002 on which the regular
Austrian, Belgian, Finnish, French, German, Greek, Irish, Italian, Dutch,
Portuguese and Spanish holidays affecting the relevant securities markets fall
are as follows:

<TABLE>
<S> <C> <C>
Austria
January 1, 2002 May 30, 2002 December 25, 2002
April 1, 2002 August 15, 2002 December 26, 2002
May 1, 2002 October 26, 2002 December 31, 2002
May 9, 2002 November 1, 2002
May 20, 2002 December 24, 2002

Belgium
January 1, 2002 May 20, 2002 December 26, 2002
April 1, 2002 August 15, 2002 December 31, 2002
May 1, 2002 November 1, 2002
May 9, 2002 December 25, 2002

Finland
January 1, 2002 May 9, 2002 December 25, 2002
March 29, 2002 June 22, 2002 December 26, 2002
April 1, 2002 December 6, 2002
May 1, 2002 December 24, 2002

France
January 1, 2002 May 9, 2002 November 11, 2002
April 1, 2002 May 20, 2002 December 25, 2002
May 1, 2002 August 15, 2002
May 8, 2002 November 1, 2002

Germany
January 1, 2002 May 20, 2002 December 25, 2002
March 29, 2002 May 30, 2002 December 26, 2002
April 1, 2002 October 3, 2002 December 31, 2002
May 1, 2002 November 1, 2002
May 9, 2002 December 24, 2002

Greece
January 1, 2002 May 3, 2002 October 28, 2002
March 18, 2002 May 6, 2002 December 25, 2002
March 25, 2002 June 24, 2002 December 26, 2002
May 1, 2002 August 15, 2002
</TABLE>

A-3
<PAGE>

<TABLE>
<S> <C> <C>
Ireland
January 1, 2002 May 6, 2002 October 28, 2002
March 29, 2002 June 3, 2002 December 25, 2002
April 1, 2002 August 5, 2002 December 26, 2002

Italy
January 1, 2002 April 25, 2002 December 25, 2002
April 1, 2002 May 1, 2002 December 26, 2002

Netherlands
January 1, 2002 April 30, 2002 December 25, 2002
March 29, 2002 May 9, 2002 December 26, 2002
April 1, 2002 May 20, 2002

Portugal
January 1, 2002 May 1, 2002 December 24, 2002
February 12, 2002 May 30, 2002 December 25, 2002
March 29, 2002 June 10, 2002 December 26, 2002
April 1, 2002 August 15, 2002
April 25, 2002 November 1, 2002

Spain
January 1, 2002 May 1, 2002 December 25, 2002
March 29, 2002 October 12, 2002 December 26, 2002
April 1, 2002 November 1, 2002
</TABLE>

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 2002). 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 2002, 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:

In the calendar year 2002, R+10 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 2002) are as
follows:

New Year's Day January 1, 2002
Easter Monday April 1, 2002
Labour Day May 1, 2002
Victory Day May 8, 2002
Ascension Day May 9, 2002
Whit Monday May 20, 2002
All Saints Day November 1, 2002
Armistice Day November 11, 2002
Christmas Day December 25, 2002

A-4
<PAGE>

Boxing Day December 26, 2002

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 2002.

iSHARES MSCI GERMANY INDEX FUND

Regular Holidays. The regular German holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Good Friday March 29, 2002
Easter Monday April 1, 2002
Labour Day May 1, 2002
Ascension Day May 9, 2002
Pentecost Monday May 20, 2002
Corpus Christi Day May 30, 2002
Day of German Unity October 3, 2002
All Saint's Day November 1, 2002
Christmas Eve December 24, 2002
Christmas Day December 25, 2002
St. Stephen's Day December 26, 2002
New Year's Eve December 31, 2002

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 2002):

In the calendar year 2002, R+10 calendar days would be the maximum number of
calendar days necessary to satisfy a redemption request made on the iShares MSCI
Germany Index Fund.

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 2002) are as
follows:

New Year's Day January 1, 2002
Lunar New Year February 12, 2002
Lunar New Year February 13, 2002
Lunar New Year February 14, 2002
Good Friday March 29, 2002
Easter Monday April 1, 2002
Ching Ming Festival April 5, 2002
Labour Day May 1, 2002
Buddha's Birthday May 20, 2002
Tuen Ng Festival June 15, 2002
SAR Establishment Day Observed July 1, 2002
Day following Mid-Autumn Festival September 21, 2002
Chinese National Day October 1, 2002
Chung Yeung Festival October 14, 2002
Christmas Day December 25, 2002
Christmas Holiday December 26, 2002

A-5
<PAGE>

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 2002):

<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<C> <S> <C> <C> <C>
2/12/02 Lunar New Year 2/7/02 2/15/02 R+8
2/13/02 Lunar New Year 2/8/02 2/18/02 R+10
2/14/02 Lunar New Year 2/11/02 2/19/02 R+8
</TABLE>

In the calendar year 2002, R+10 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 ITALY INDEX FUND

Regular Holidays. The regular Italian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Easter Monday April 1, 2002
Liberation Day April 25, 2002
Labour Day May 1, 2002
Christmas Day December 25, 2002
St. Stephen's Day December 26, 2002

Redemption. The Company is not aware of a redemption request over any Italian
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2002.

iSHARES MSCI JAPAN INDEX FUND

Regular Holidays. The regular Japanese holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Bank Holiday January 2, 2002
Bank Holiday January 3, 2002
Coming of Age Day January 14, 2002
National Foundation Day Observed February 11, 2002
Vernal Equinox Day March 21, 2002
Greenery Day Observed April 29, 2002
Constitution Memorial Day May 3, 2002
National Holiday May 4, 2002
Children's Day May 6, 2002
Respect for the Aged Day September 16, 2002
Autumnal Equinox Day Observed September 23, 2002
Health-Sports Day October 14, 2002
National Culture Day November 4, 2002
Labour Thanksgiving Day November 23, 2002
Emperor's Birthday Observed December 23, 2002
Exchange Holiday December 31, 2002

Redemption. The Company is not aware of a redemption request over any Japanese
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2002.

A-6
<PAGE>

iSHARES MSCI MALAYSIA INDEX FUND

Regular Holidays. The regular Malaysian holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Federal Territory Day February 1, 2002
Chinese New Year February 12, 2002
Chinese New Year February 13, 2002
Hari Raya Haji February 23, 2002
Awal Muharram March 15, 2002
Labour Day May 1, 2002
Nabi Muhammad May 25, 2002
Wesak Day May 26, 2002
Deepavali November 4, 2002
Hari Raya Puasa December 6&7, 2002
Christmas Day December 25, 2002

Redemptions. 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 2002.

iSHARES MSCI MEXICO INDEX FUND

Regular Holidays. The regular Mexican holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Constitution Day February 5, 2002
Juarez's Birthday March 21, 2002
Holy Thursday March 28, 2002
Good Friday March 29, 2002
Labour Day May 1, 2002
Independence Day September 16, 2002
Revolution Day November 20, 2002
Our Lady of Guadalupe Day December 12, 2002
Christmas Day December 25, 2002

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 2002.

iSHARES MSCI NETHERLANDS INDEX FUND

Regular Holidays. The regular Netherlands holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Good Friday March 29, 2002
Easter Monday April 1, 2002
Queen's Birthday April 30, 2002
Ascension Day May 9, 2002
Whit Monday May 20, 2002
Christmas Day December 25, 2002
Boxing Day December 26, 2002

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 2002.

A-7
<PAGE>

iSHARES MSCI PACIFIC EX JAPAN INDEX FUND

Regular Holidays. The dates in the calendar year 2002 on which the regular
Australian, Hong Kong, New Zealand and Singaporean holidays affecting the
relevant securities markets fall are as follows:

<TABLE>
<S> <C> <C>
Australia
January 1, 2002 April 1, 2002 October 7, 2002
January 28, 2002 April 25, 2002 December 25, 2002
March 29, 2002 June 10, 2002 December 26, 2002

Hong Kong
January 1, 2002 April 5, 2002 October 1, 2002
February 12, 2002 May 1, 2002 October 14, 2002
February 13, 2002 May 20, 2002 December 25, 2002
February 14, 2002 June 15, 2002 December 26, 2002
March 29, 2002 July 1, 2002
April 1, 2002 September 21, 2002

New Zealand
January 1, 2002 March 29, 2002 October 28, 2002
January 2, 2002 April 1, 2002 December 25, 2002
January 28, 2002 April 25, 2002 December 26, 2002
February 6, 2002 June 3, 2002

Singapore
January 1, 2002 May 1, 2002 December 6, 2002
February 12, 2002 May 27, 2002 December 25, 2002
February 13, 2002 August 9, 2002
March 29, 2002 November 4, 2002
</TABLE>

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 2002). 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 2002, 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:

<TABLE>
<CAPTION>
Redemption Redemption
Date Holiday Request Date (R) Settlement Date Settlement Period
---- ------- ---------------- --------------- -----------------
<C> <S> <C> <C> <C>
2/12/02 Lunar New Year 2/7/02 2/15/02 R+8
2/13/02 Lunar New Year 2/8/02 2/18/02 R+10
2/14/02 Lunar New Year 2/11/02 2/19/02 R+8
12/25/02 Christmas Day 12/20/02 12/30/02 R+10
12/26/02 Christmas Holiday 12/23/02 12/31/02 R+8
</TABLE>

In the calendar year 2002, R+10 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.

A-8
<PAGE>

iSHARES MSCI SINGAPORE INDEX FUND

Regular Holidays. The regular Singaporean holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Chinese New Year February 12, 2002
Second Day of Chinese New Year February 13, 2002
Good Friday March 29, 2002
Labour Day May 1, 2002
Vesak Day May 27, 2002
National Day August 9, 2002
Deepavali November 4, 2002
Hari Raya Puasa Observed December 6, 2002
Christmas Day December 25, 2002

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 2002.

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 2002) are as
follows:

New Year's Day January 1, 2002
Lunar New Year's Eve February 11, 2002
Lunar New Year's Day February 12, 2002
Second Day of Lunar New Year February 13, 2002
Independence Movement Day March 1, 2002
Arbor Day April 5, 2002
Labour Day May 1, 2002
Children's Day May 5, 2002
Buddha's Birthday May 19, 2002
Memorial Day June 6, 2002
Constitution Day July 17, 2002
Liberation Day August 15, 2002
Chusok September 20, 2002
Chusok September 21, 2002
National Foundation Day October 3, 2002
Christmas Day December 25, 2002

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 2002):

<TABLE>
<CAPTION>
Redemption Redemption Settlement
Date Holiday Request Date (R) Settlement Date Period
---- ------- ---------------- --------------- ------
<C> <S> <C> <C> <C>
2/11/02 Lunar New Year's Eve 2/6/02 2/14/02 R+8
2/12/02 Lunar New Year's Day 2/7/02 2/15/02 R+8
2/13/02 Second Day of Lunar New Year 2/8/02 2/18/02 R+10
</TABLE>

In the calendar year 2002, R+10 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.

A-9
<PAGE>

iSHARES MSCI SPAIN INDEX FUND

Regular Holidays. The regular Spanish holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Good Friday March 29, 2002
Easter Monday April 1, 2002
Labour Day May 1, 2002
All Saints Day November 1, 2002
Constitution Day December 6, 2002
Immaculate Conception December 8, 2002
Christmas Day December 25, 2002
St. Stephen Day December 26, 2002

Redemption. The Company is not aware of a redemption request over any Spanish
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2002.

iSHARES MSCI SWEDEN INDEX FUND

Regular Holidays. The regular Swedish holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Good Friday March 29, 2002
Easter Monday April 1, 2002
Labour Day May 1, 2002
Ascension Day May 9, 2002
Whit Monday May 20, 2002
National Day June 6, 2002
Midsummer's Eve June 22, 2002
Christmas Day December 25, 2002
Boxing Day December 26, 2002

Redemption. The Company is not aware of a redemption request over any Swedish
holiday that would result in a settlement period that will exceed 7 calendar
days during the calendar year 2002.

iSHARES MSCI SWITZERLAND INDEX FUND

Regular Holidays. The regular Swiss holidays affecting the relevant securities
markets (and their respective dates in the calendar year 2002 are as follows:

New Year's Day January 1, 2002
Berchtoldstag January 2, 2002
Good Friday March 29, 2002
Easter Monday April 1, 2002
Labour Day May 1, 2002
Ascension Day May 9 2002
Whit Monday May 20, 2002
National Holiday August 1, 2002
Christmas Eve December 24, 2002
Christmas Day December 25, 2002
St. Stephen's Day December 26, 2002

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 2002:

A-10
<PAGE>

In the calendar year 2002, R+10 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 2002 are as
follows:

New Year's Day January 1, 2002
Lunar New Year's Eve February 12, 2002
Lunar New Year's Day February 13, 2002
Second Day of Lunar New Year February 14, 2002
Third Day of Lunar New Year February 15, 2002
Tomb Sweeping Day April 5, 2002
Labor Day May 1, 2002
Mid-Autumn Festival Day September 20, 2002
National Day October 10, 2002

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 2002):

<TABLE>
<CAPTION>
Redemption Redemption Settlement
Date Holiday Request Date (R) Settlement Date Period
---- ------- ---------------- --------------- ------
<C> <S> <C> <C> <C>
2/12/02 Lunar New Year's Eve 2/7/02 2/18/02 R+11
2/13/02 Lunar New Year's Day 2/8/02 2/19/02 R+11
2/14/02 Second Day of Lunar New Year 2/11/02 2/20/02 R+9
</TABLE>

In the calendar year 2002, R+11 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 UNITED KINGDOM INDEX FUND

Regular Holidays. The regular United Kingdom holidays affecting the relevant
securities markets (and their respective dates in the calendar year 2002) are as
follows:

New Year's Day January 1, 2002
Good Friday March 29, 2002
Easter Monday April 1, 2002
May Day May 6, 2002
Holiday June 3, 2002
Her Majesty's 50th Jubilee June 4, 2002
Summer Bank Holiday August 26, 2002
Christmas Day December 25, 2002
Boxing Day December 26, 2002

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 2002).

A-11
<PAGE>

APPENDIX B

Supplemental Information

The charts below present information about the differences between the daily
closing price on secondary markets for shares of each Fund and that Fund's net
asset value over the one-year period specified. Net asset value, or "NAV", is
the price per share at which each Fund issues and redeems shares. NAV is
calculated at the times and in the manner specified in the Prospectus under
"Shareholder Information--Determination of the Net Asset Value." The "Closing
Price" of each Fund is the price of the last reported trade on any national
securities exchange, such as AMEX, or any regional U.S. Exchange, or National
Association of Securities Dealers Automated Quotation System (NASDAQ). Each
Fund's Closing Price may be below, at, or above its NAV. The NAV of each Fund
will fluctuate with changes in the value of its portfolio holdings. The
trading price of each Fund will fluctuate in accordance with changes in its
NAV, as well as market supply and demand and other factors.

Premiums or discounts are the differences (generally expressed as a
percentage) between the NAV and Closing Price of a Fund on a given day. A
premium is the amount that a Fund is trading above the reported NAV, expressed
as a percentage of the NAV. A discount is the amount that a Fund is trading
below the reported NAV, expressed as a percentage of the NAV. One reason for
differences is that timing discrepancies can exist between the determination
of NAV and Closing Price of a Fund. Trading activity varies and it is
important to note that the date/time of the last trade (which is recorded as
the Closing Price) may not take place at the time when the Funds normally
calculate NAV. Each Fund normally trades on its respective stock exchange
until 4:00 p.m. (Eastern time). Price discovery, the constant flow of
information among investors, corporations and financial institutions, causes
market prices to change and evolve throughout the trading day, even after non-
U.S. markets are closed. Price discovery between the time that each Fund
calculates its NAV and the date/time of the last trade may contribute to any
difference between the NAV and Closing Price of each Fund.

The following information is provided to show the frequency distributions of
premiums and discounts for each of the Funds included in this prospectus
(except for the iShares MSCI Pacific ex-Japan Index Fund which commenced
operations on October 26, 2001). The information shown for each Fund (except
for the iShares MSCI Brazil and iShares MSCI EMU Index Funds) is for the four
most recently completed calendar quarters as of August 31, 2001. The
information shown for the iShares MSCI Brazil and iShares MSCI EMU Index Funds
is for each full calendar quarter completed after the inception dates of these
Funds as of August 31, 2001.

The vertical column of each chart shows the premium or discount expressed as a
percentage of NAV. The horizontal column indicates the number of trading days
in the period covered by each chart. Each bar in the chart shows the number of
trading days in which the Fund traded within the premium/discount range
indicated. All data presented here represents past performance, which cannot
be used to predict future results.

B-1
<PAGE>

iShares MSCI Australia Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 0
3.5% 1
3.0% 0
2.5% 7
2.0% 4
1.5% 14
1.0% 29
0.5% 54
-0.5% 93
-1.0% 34
-1.5% 13
-2.0% 1
-2.5% 1
-3.0% 0
-3.5% 1
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

iShares MSCI Austria Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 0
3.5% 0
3.0% 0
2.5% 0
2.0% 0
1.5% 9
1.0% 25
0.5% 21
-0.5% 97
-1.0% 47
-1.5% 29
-2.0% 17
-2.5% 4
-3.0% 1
-3.5% 1
-4.0% 1
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

B-2
<PAGE>

iShares MSCI Belgium Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 1
3.5% 2
3.0% 0
2.5% 2
2.0% 12
1.5% 12
1.0% 31
0.5% 68
-0.5% 43
-1.0% 33
-1.5% 28
-2.0% 15
-2.5% 5
-3.0% 0
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

iShares MSCI Brazil Index Fund
Period covered: October 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 2
5.5% 1
5.0% 2
4.5% 2
4.0% 0
3.5% 4
3.0% 8
2.5% 5
2.0% 9
1.5% 19
1.0% 33
0.5% 55
-0.5% 16
-1.0% 17
-1.5% 6
-2.0% 4
-2.5% 1
-3.0% 1
-3.5% 0
-4.0% 0
-4.5% 2
-5.0% 0
-5.5% 1
-6.0% 0
</TABLE>

B-3
<PAGE>

iShares MSCI Canada Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 0
3.5% 0
3.0% 0
2.5% 5
2.0% 13
1.5% 24
1.0% 53
0.5% 115
-0.5% 24
-1.0% 15
-1.5% 2
-2.0% 1
-2.5% 0
-3.0% 0
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

iShares MSCI EMU Index Fund
Period covered: October 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 1
5.5% 1
5.0% 0
4.5% 0
4.0% 0
3.5% 0
3.0% 2
2.5% 1
2.0% 8
1.5% 35
1.0% 61
0.5% 72
-0.5% 3
-1.0% 5
-1.5% 0
-2.0% 0
-2.5% 0
-3.0% 0
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

B-4
<PAGE>

iShares MSCI France Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 0
3.5% 1
3.0% 0
2.5% 1
2.0% 1
1.5% 10
1.0% 35
0.5% 160
-0.5% 34
-1.0% 10
-1.5% 0
-2.0% 0
-2.5% 0
-3.0% 0
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

iShares MSCI Germany Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 1
4.0% 0
3.5% 0
3.0% 0
2.5% 1
2.0% 6
1.5% 11
1.0% 45
0.5% 143
-0.5% 30
-1.0% 12
-1.5% 3
-2.0% 0
-2.5% 0
-3.0% 0
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

B-5
<PAGE>

iShares MSCI Hong Kong Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 1
5.0% 1
4.5% 1
4.0% 0
3.5% 2
3.0% 2
2.5% 5
2.0% 14
1.5% 27
1.0% 30
0.5% 78
-0.5% 25
-1.0% 23
-1.5% 16
-2.0% 16
-2.5% 3
-3.0% 2
-3.5% 2
-4.0% 1
-4.5% 1
-5.0% 0
-5.5% 1
-6.0% 0
</TABLE>

iShares MSCI Italy Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 1
3.5% 0
3.0% 3
2.5% 4
2.0% 6
1.5% 12
1.0% 29
0.5% 128
-0.5% 48
-1.0% 7
-1.5% 7
-2.0% 4
-2.5% 3
-3.0% 0
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

B-6
<PAGE>

iShares MSCI Japan Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 1
3.5% 2
3.0% 3
2.5% 7
2.0% 2
1.5% 13
1.0% 39
0.5% 113
-0.5% 39
-1.0% 22
-1.5% 3
-2.0% 6
-2.5% 1
-3.0% 0
-3.5% 0
-4.0% 1
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

iShares MSCI Malaysia Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 1
4.0% 2
3.5% 0
3.0% 3
2.5% 6
2.0% 6
1.5% 5
1.0% 22
0.5% 57
-0.5% 24
-1.0% 14
-1.5% 10
-2.0% 27
-2.5% 17
-3.0% 18
-3.5% 13
-4.0% 13
-4.5% 8
-5.0% 5
-5.5% 1
-6.0% 0
</TABLE>

B-7
<PAGE>

iShares MSCI Mexico Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 0
3.5% 1
3.0% 2
2.5% 11
2.0% 17
1.5% 20
1.0% 50
0.5% 83
-0.5% 34
-1.0% 21
-1.5% 10
-2.0% 3
-2.5% 0
-3.0% 0
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

iShares MSCI Netherlands Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 0
3.5% 1
3.0% 3
2.5% 0
2.0% 2
1.5% 12
1.0% 48
0.5% 119
-0.5% 38
-1.0% 16
-1.5% 9
-2.0% 3
-2.5% 1
-3.0% 1
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

B-8
<PAGE>

iShares MSCI Singapore Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 1
4.5% 0
4.0% 0
3.5% 1
3.0% 0
2.5% 2
2.0% 1
1.5% 7
1.0% 12
0.5% 63
-0.5% 34
-1.0% 32
-1.5% 34
-2.0% 23
-2.5% 12
-3.0% 17
-3.5% 9
-4.0% 1
-4.5% 1
-5.0% 2
-5.5% 0
-6.0% 0
</TABLE>

iShares MSCI South Korea Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 3
4.5% 5
4.0% 5
3.5% 7
3.0% 12
2.5% 16
2.0% 20
1.5% 23
1.0% 25
0.5% 64
-0.5% 26
-1.0% 12
-1.5% 11
-2.0% 3
-2.5% 7
-3.0% 5
-3.5% 2
-4.0% 1
-4.5% 0
-5.0% 1
-5.5% 0
-6.0% 0
</TABLE>

B-9
<PAGE>

iShares MSCI Spain Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 1
3.5% 1
3.0% 0
2.5% 0
2.0% 3
1.5% 3
1.0% 40
0.5% 127
-0.5% 49
-1.0% 21
-1.5% 5
-2.0% 2
-2.5% 0
-3.0% 0
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

iShares MSCI Sweden Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 1
5.0% 0
4.5% 1
4.0% 2
3.5% 1
3.0% 1
2.5% 2
2.0% 4
1.5% 15
1.0% 41
0.5% 94
-0.5% 45
-1.0% 22
-1.5% 10
-2.0% 4
-2.5% 6
-3.0% 1
-3.5% 0
-4.0% 1
-4.5% 1
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

B-10
<PAGE>

iShares MSCI Switzerland Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 1
4.0% 1
3.5% 0
3.0% 1
2.5% 1
2.0% 10
1.5% 28
1.0% 50
0.5% 103
-0.5% 29
-1.0% 16
-1.5% 8
-2.0% 1
-2.5% 0
-3.0% 3
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

iShares MSCI Taiwan Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 2
5.5% 2
5.0% 2
4.5% 0
4.0% 7
3.5% 10
3.0% 17
2.5% 26
2.0% 24
1.5% 20
1.0% 25
0.5% 59
-0.5% 14
-1.0% 14
-1.5% 13
-2.0% 2
-2.5% 5
-3.0% 0
-3.5% 2
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 1
-6.0% 0
</TABLE>

B-11
<PAGE>

iShares MSCI United Kingdom Index Fund
Period covered: July 1, 2000 through June 30, 2001
<TABLE>
<CAPTION>
Premiums/Discounts Number of Days
<S> <C>
6.0% 0
5.5% 0
5.0% 0
4.5% 0
4.0% 1
3.5% 2
3.0% 2
2.5% 6
2.0% 20
1.5% 42
1.0% 40
0.5% 107
-0.5% 23
-1.0% 5
-1.5% 1
-2.0% 1
-2.5% 2
-3.0% 0
-3.5% 0
-4.0% 0
-4.5% 0
-5.0% 0
-5.5% 0
-6.0% 0
</TABLE>

B-12

</TEXT>
</DOCUMENT>