--------------------------
UNITED STATES OMB APPROVAL
SECURITIES AND EXCHANGE COMMISSION --------------------------
Washington, D.C. 20549 OMB Number: 3235-0570
Expires: Nov. 30, 2005
Estimated average burden
hours per response: 5.0
--------------------------
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-09102
---------------------------------------------
iShares, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
45 Fremont Street, San Francisco, CA 94105
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
CT Corporation
300 East Lombard Street, Baltimore, Maryland 21202
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (415) 597-2000
--------------------------
Date of fiscal year end: 08/31/2003
---------------------------
Date of reporting period: 09/01/2002-08/31/2003
---------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is
not required to respond to the collection of information contained in Form
N-CSR unless the Form displays a currently valid Office of Management and
Budget ("OMB") control number. Please direct comments concerning the accuracy
of the information collection burden estimate and any suggestions for reducing
the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
iShares(R)
Item 1. Reports to Stockholders
2003 ANNUAL REPORT TO SHAREHOLDERS
AUGUST 31, 2003
[GRAPHIC APPEARS HERE]
INDUSTRIAL STRENGTH
INVESTMENT TOOLS
iSHARES MSCI AUSTRALIA INDEX FUND iSHARES MSCI MEXICO INDEX FUND
iSHARES MSCI BRAZIL INDEX FUND iSHARES MSCI PACIFIC EX-JAPAN INDEX
FUND
iSHARES MSCI CANADA INDEX FUND iSHARES MSCI SINGAPORE INDEX FUND
iSHARES MSCI EMERGING MARKETS INDEX FUND iSHARES MSCI SOUTH AFRICA INDEX FUND
iSHARES MSCI HONG KONG INDEX FUND iSHARES MSCI SOUTH KOREA INDEX FUND
iSHARES MSCI MALAYSIA INDEX FUND iSHARES MSCI TAIWAN INDEX FUND
Table of Contents
Shareholder Letter ........................................................ 1
Introduction .............................................................. 3
Managers' Discussion & Analysis ........................................... 6
Schedules of Investments .................................................. 30
iShares MSCI Australia Index Fund ....................................... 30
iShares MSCI Brazil Index Fund .......................................... 33
iShares MSCI Canada Index Fund .......................................... 34
iShares MSCI Emerging Markets Index Fund ................................ 36
iShares MSCI Hong Kong Index Fund ....................................... 41
iShares MSCI Malaysia Index Fund ........................................ 43
iShares MSCI Mexico Index Fund .......................................... 44
iShares MSCI Pacific ex-Japan Index Fund ................................ 45
iShares MSCI Singapore Index Fund ....................................... 49
iShares MSCI South Africa Index Fund .................................... 51
iShares MSCI South Korea Index Fund ..................................... 52
iShares MSCI Taiwan Index Fund .......................................... 54
Financial Statements ...................................................... 56
Financial Highlights ...................................................... 64
Notes to the Financial Statements ......................................... 76
Report of Independent Auditors ............................................ 85
Tax Information (Unaudited) ............................................... 86
Supplemental Information (Unaudited) ...................................... 87
Directors Information (Unaudited) ......................................... 95
iShares Family of Funds ................................................... 98
To Our Shareholders
For many investors, the last few years have been difficult and challenging. The
collapse of the stock market bubble, a tepid economy, corporate accounting
scandals, lackluster company earnings and the geopolitical situation all
contributed to a three-year bear market. Stock market gains during the first
half of 2003 give some hope that the markets have turned a corner, but there is
no guarantee that challenging market conditions will not return.
iShares have continued to innovate and expand, offering more tools that help
investors tailor their portfolios to achieve diversity and address volatility in
a complex market environment. For example, in April of this year, iShares
launched an emerging markets exchange traded fund based on the MSCI's Emerging
Market Free Index. Last year, iShares launched the first fixed income exchange
traded funds, which BUSINESS WEEK named one of the best new products of 2002./1/
We have added a Lehman Aggregate Bond Fund to our fixed income menu, enabling
investors to track one of the most well-known U.S. fixed income market indexes.
Assets under management for the fixed income iShares funds were $4.3 billion as
of August 31, 2003.
With the addition of these iShares, investors can achieve even more diversity in
their portfolios -- and at lower cost, since iShares fees are, on average, about
half those of actively managed funds./2/ With over 80 different iShares to
choose from, investors have the ability to build a diverse portfolio that covers
a wide swath of market segments such as capitalization, sectors, value and
growth, international and fixed income. That is important because market
segments do not tend to move in tandem, particularly in volatile markets.
Economic conditions such as inflation, interest rate levels, currency valuations
or the price of oil, as well as the normal pace of the economic cycle, all may
result in one market segment outperforming another.
We encourage you to talk with your financial advisor about what blend of
investments or asset allocation can best help you meet your financial goals.
Throughout the coming year we will continue to work closely with the financial
advisor community to introduce innovative strategies and structures for their
client's portfolios. To learn more about iShares, we encourage you to visit our
web site, www.iShares.com.
At times like these, the importance of sound, disciplined investing is greater
than ever. Such investing should be grounded in two key concepts: keeping the
costs associated with investing as low as possible, and maintaining a
diversified portfolio. That is why we believe iShares are an indispensable tool
for investors in the current market. And that is also why more and more
investors have recognized the benefits of iShares. Assets under management for
iShares continue to grow, and as of August 31, 2003, had reached $43.0 billion.
On behalf of the iShares family of funds and our colleagues at Barclays Global
Investors, we thank you for making iShares a part of your portfolio. We look
forward to meeting your investment needs in the year ahead.
/s/ Lee T. Kranefuss
Lee T. Kranefuss
PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS FOR iSHARES, INC.
iShares are distributed by SEI Investments Distribution Co. (SEI). Barclays
Global Fund Advisors (BGFA) serves as an advisor to iShares. Barclays Global
Investors Services (BGIS) assists in the marketing of iShares. BGFA and BGIS are
subsidiaries of Barclays Global Investors, N.A., none of which is affiliated
with SEI.
- ----------
/1/ BUSINESS WEEK, 12/16/02.
/2/ Morningstar Principia, BGI analysis 5/03.
SHAREHOLDER LETTER 1
For complete information, including charges and expenses, request a prospectus
by calling 1 800 iSHARES (1 800 474 2737). Read it carefully before you invest.
There are risks involved with investing, including possible loss of principal.
Diversification may not protect against market risk. An investment in the fund
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The annual management fees of iShares may be
substantially less than those of most mutual funds. iShares transactions will
result in brokerage commissions, but the savings from lower annual fees can help
offset these costs. Past performance does not guarantee future results.
iShares are not sponsored, endorsed, or issued by Lehman Brothers, nor are they
sponsored, endorsed, issued, sold or promoted by Morgan Stanley Capital
International. None of these companies make any representation regarding the
advisability of investing in iShares. Neither SEI nor BGI, nor any of their
affiliates, are affiliated with the companies listed above.
This advertising section does not constitute part of the 2003 Annual Report.
2 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Introduction
In this section, Barclays Global Fund Advisors (the "Investment Advisor")
discusses the performance of the iShares MSCI Index Funds (each, a "Fund", and
collectively, the "Funds"). The introduction provides an overview of how each
Fund seeks to track its respective index. In addition, the introduction
identifies some of the key factors that contribute to a Funds' performance
against its benchmark index.
Each Fund invests in a representative sample of the component securities in its
underlying MSCI Index (using the analytic technique known as "portfolio
sampling"), as opposed to a full replication of the component securities of the
MSCI Index. Certain Funds may also invest to a limited extent in stocks that are
not included in the relevant MSCI Index to permit them additional flexibility.
There are several important factors that should be kept in mind when reviewing
the performance of each Fund.
PORTFOLIO SAMPLING: Portfolio sampling is a disciplined approach to capturing
index returns which involves maximizing float and liquidity, reflecting
accurately the market's size and industry profiles and minimizing
cross-ownership. Because of portfolio sampling, the composition of each Fund
will vary from that of its underlying MSCI Index. This may cause performance to
vary positively or negatively from that of its underlying MSCI Index during any
period.
FUND EXPENSES: The MSCI Indexes are only statistical composites that track
changes in the financial markets of a particular country or region. Since an
index does not actually hold a portfolio of securities, it does not bear
management, administration, distribution, transaction or other expenses, while a
Fund does incur such expenses, thereby negatively impacting the performance of a
Fund.
CONSTRAINTS ON PORTFOLIO MANAGEMENT: The Investment Advisor is subject to a
number of constraints when managing the iShares MSCI Index Funds' portfolios.
The "Single Issuer Rule" and the "5/50 Rule" are two constraints in the Internal
Revenue Code that affect the performance of a number of the Funds.
The "Single Issuer Rule" generally prohibits a Fund from investing more than 25%
of the value of a Fund's total assets in the securities of a single issuer. This
constraint applies to all share classes of an issuer. As an example, Samsung
Electronics ordinary and preferred shares made up 35.71% of the MSCI South Korea
Index as of August 31, 2003. Because of the "Single Issuer Rule", however, the
iShares MSCI South Korea Index Fund could not invest more than 25% of its assets
in Samsung Electronics. This contributed to the difference between the
performance of the iShares MSCI South Korea Index Fund and its benchmark index.
The "5/50 Rule" generally precludes the sum of all of the securities weighted
over 5% in a Fund's portfolio from exceeding 50% of a Fund's total assets. If a
security has more than one share class, then all of the share classes must be
considered as one security for 5/50 Rule purposes. Many of the benchmark MSCI
Indexes have a greater than 50% weighting of securities that account for more
than 5% of the respective index. For example, the sum of all the stocks with
weightings of 5% or greater in the MSCI Mexico Index was 75.77% as of August 31,
2003. Therefore, the iShares MSCI Mexico Index Fund had to underweight some of
these stocks relative to the benchmark, and therefore overweight its investment
in other stocks. This contributed to the difference between the performance of
the iShares MSCI Mexico Index Fund and its benchmark index.
REVENUE DIFFERENTIAL: A fourth factor that causes performance of a Fund to
differ from that of its underlying MSCI Index is "revenue differential", or
differences between a Fund and the underlying MSCI Index in dividend
accruals/reinvestments. The Funds record dividend revenues on the "ex-dividend"
dates of the underlying stocks. Prior to January 1, 2001, for developed markets,
MSCI used smoothed dividends as opposed to actual dividends by allocating annual
dividend revenues evenly over a twelve-month period. Separately, the Funds might
have different dividend rates versus the Indexes due to portfolio sampling or
different withholding taxes. Finally, while the sole source of revenues for the
MSCI Indexes is dividends, the Funds receive interest on uninvested cash and, in
the case of most Funds, revenues from the lending of portfolio securities.
INTRODUCTION 3
EFFECT OF UNINVESTED ASSETS: Another factor that causes performance of a Fund to
differ from that of its underlying MSCI Index is the "effect of uninvested
assets". Uninvested assets held by a Fund affect performance relative to its
underlying benchmark index. In contrast, the MSCI Indexes are always fully
comprised of the underlying stocks and thus do not reflect any "unequitized"
assets. The "effect of uninvested assets" refers to the impact on performance of
the portion of a Fund that is not invested in stocks. Cash is the principal
"unequitized" asset of a Fund. The effect of uninvested assets will tend to
cause each Fund to outperform its underlying index in falling markets and
underperform the underlying index in rising markets. However, even within a
period that has a down market return there can be a short period of rising
market where the uninvested assets in a Fund have a negative impact on return.
In these circumstances, the effect of uninvested assets could worsen a loss for
the period.
SECURITIES LENDING: Finally, securities lending is when a Fund loans securities
in its portfolio to another party for a given time period and in return receives
cash collateral for the loan. Securities lending income is the income earned on
lending the securities, which is split between the Fund and the Fund's
securities lending agent. While securities lending is intended to improve the
performance of the Fund, it may also contribute to differences between the
performance of a Fund and its benchmark index.
4 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
THIS PAGE INTENTIONALLY LEFT BLANK.
5
Managers' Discussion & Analysis
iSHARES MSCI AUSTRALIA INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ------------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
23.33% 24.49% 23.07% 9.96% 10.34% 9.97% 4.24% 4.36% 4.62%
CUMULATIVE TOTAL RETURNS
- -------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ------------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
23.33% 24.49% 23.07% 60.73% 63.59% 60.83% 36.39% 37.59% 40.12%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI AUSTRALIA INDEX
Consumer Discretionary 11.48%
Consumer Staples 7.63%
Energy 2.62%
Financials 45.93%
Health Care 2.07%
Industrials 6.11%
Information Technology 0.25%
Materials 20.58%
Telecommunications Services 2.33%
Utilities 1.00%
PERFORMANCE REVIEW
The total return of the iShares MSCI Australia Index Fund (the "Fund") was
23.33% during the twelve-month period ended August 31, 2003 (the "reporting
period"). The total return of the corresponding MSCI Australia Index (the
"Index") over the reporting period was 23.07%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund outperformed its benchmark by 0.26 percentage points during the
reporting period. This was due to the positive impact of revenue differential,
portfolio sampling, and, securities lending, which contributed 1.16, 0.02, and
0.01 percentage points, respectively, to
6 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
the Fund's return. Those factors were partially offset by the impact of expenses
and uninvested assets, which subtracted 0.84 and 0.09 percentage points,
respectively, from the Fund's return.
KEY MARKET CONDITIONS
During a period when most economies in the world were struggling, Australia
continued to flourish. Now in its twelfth year of uninterrupted economic
expansion, Australia seemed to sidestep the global downturn that began in 2001.
During the past decade it has averaged an annual growth rate of nearly 4%, the
fastest pace of any large, industrialized country.
Part of Australia's success is due to its predominantly "old economy" revenue
base. With relatively smaller technology and telecommunications sectors, the
country did not participate in the bursting of the bubble that initiated the
downturn for other major markets.
Another factor contributing to the Australian market's performance during the
past twelve months, from the perspective of a U.S. investor, is a strengthening
Australian dollar. As the currency gained against the U.S. dollar during the
reporting period, returns for U.S. investors were buoyed.
Strong performers during the reporting period were The News Corp. Ltd. and The
News Corp. Ltd. PLVO (respectively 4.10% and 4.89% of the Index as of August 31,
2003). Despite slowing export growth due to the strengthening currency, BHP
Billiton Ltd. (8.65% of the Index as of August 31, 2003) also logged gains,
benefiting from demand for its products in China.
[CHART APPEARS HERE]
iSHARES MSCI AUSTRALIA INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI Australia Index Fund MSCI Australia Index
--------------------------------- --------------------
Mar-1996 $ 10,000 $ 10,000
Aug-1996 $ 10,388 $ 10,368
$ 11,048 $ 11,039
Aug-1997 $ 11,035 $ 10,974
$ 10,799 $ 10,864
Aug-1998 $ 8,485 $ 8,711
$ 10,606 $ 10,978
Aug-1999 $ 11,208 $ 11,455
$ 11,372 $ 11,762
Aug-2000 $ 11,415 $ 11,885
$ 10,773 $ 11,172
Aug-2001 $ 10,870 $ 11,209
$ 11,272 $ 11,623
Aug-2002 $ 11,059 $ 11,385
$ 11,135 $ 11,448
Aug-2003 $ 13,639 $ 14,012
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 7
Managers' Discussion & Analysis
iSHARES MSCI BRAZIL INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
- ------------------------------------------------- -------------------------
YEAR ENDED 8/31/03 INCEPTION TO 8/31/03 INCEPTION TO 8/31/03
- ---------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
48.85% 52.20% 51.33% (12.46)% (12.43)% (9.86)% (34.20)% (34.14)% (27.82)%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (7/10/00). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (7/14/00), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI BRAZIL INDEX
Consumer Discretionary 0.38%
Consumer Staples 11.80%
Energy 26.02%
Financials 14.47%
Industrials 3.09%
Materials 24.18%
Telecommunications Services 14.45%
Utilities 5.61%
PERFORMANCE REVIEW
The total return of the iShares MSCI Brazil Index Fund (the "Fund") was 48.85%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Brazil Index (the "Index") over the
reporting period was 51.33%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 2.48 percentage points during the
reporting period. This was due to the negative impact of expenses, uninvested
assets, portfolio sampling, and revenue differential, which subtracted 0.99,
0.92, 0.41, and 0.16 percentage points, respectively, from the Fund's return.
KEY MARKET CONDITIONS
During the course of the reporting period, Brazil emerged from the negative
impact of political uncertainty, a declining currency, and a volatile stock
market to produce one of the strongest stock market and currency performances
worldwide.
8 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
As the reporting period opened, much of the uncertainty revolved around the
then-upcoming presidential elections. Investors worried that, should leftist
candidate Luis Inacio Lula da Silva win the election, he might seek to unwind
market-oriented reforms that had been put in place earlier in 2002. This concern
led to an exodus of foreign investment, which in turn sparked a decline in the
Brazilian currency, the real. The currency devaluation pushed up Brazil's
external debt levels, sparking fears of a potential default and leading to
further stock market declines.
Luiz Inacio Lula da Silva was, indeed, elected in October 2002. Upon his
election, he assuaged concerns by pledging to honor the terms of the
International Monetary Fund bailout package that Brazil had agreed to earlier in
the year, and to maintain fiscal austerity.
Since his election, President Luiz Inacio Lula da Silva has successfully reduced
government spending in Brazil by 5%, strengthening investors' confidence in the
country. In addition, the Brazilian real has appreciated sharply, gaining
roughly 20% against the U.S. dollar so far in 2003.
The strengthening real helped many Brazilian companies, which have debt
denominated in U.S. dollars. Because of the country's 12% inflation rate, the
communication ministry indicated that the government might allow phone companies
to raise rates in line with inflation. This gave a boost to the share price of
Tele Norte Leste Participacoes SA (5.79% of the Index as of August 31, 2003),
Brazil's largest phone company.
After leaving rates at sky-high levels in an effort to tame inflation, Brazil's
central bank in June lowered rates for the first time in a year. The 0.50% rate
cut brought rates down to 26.00%. Then, on August 20th, the central bank made an
additional cut of 2.50%. This cut, which was more than expected, brought rates
down to 22.00% and drove Brazil's main stock index to its highest level in more
than two years.
[CHART APPEARS HERE]
iSHARES MSCI BRAZIL INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI Brazil Index Fund MSCI Brazil Index
------------------------------ -----------------
Jul-2000 $ 10,000 $ 10,000
Aug-2000 $ 9,703 $ 9,697
$ 7,278 $ 7,432
Feb-2001 $ 8,359 $ 8,619
$ 7,381 $ 7,617
Aug-2001 $ 5,965 $ 6,245
$ 5,853 $ 6,096
Feb-2002 $ 7,014 $ 7,363
$ 6,338 $ 6,701
Aug-2002 $ 4,421 $ 4,769
$ 3,968 $ 4,325
Feb-2003 $ 4,022 $ 4,398
$ 5,657 $ 6,202
Aug-2003 $ 6,580 $ 7,218
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 9
Managers' Discussion & Analysis
iSHARES MSCI CANADA INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ------------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
29.47% 28.37% 30.43% 11.80% 11.74% 12.12% 8.49% 8.55% 9.23%
CUMULATIVE TOTAL RETURNS
- -------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ------------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
29.47% 28.37% 30.43% 74.67% 74.21% 77.18% 83.91% 84.58% 93.36%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI CANADA INDEX
Consumer Discretionary 6.63%
Consumer Staples 3.47%
Energy 15.97%
Financials 35.74%
Health Care 2.13%
Industrials 7.13%
Information Technology 6.27%
Materials 15.77%
Telecommunications Services 2.50%
Utilities 4.39%
PERFORMANCE REVIEW
The total return of the iShares MSCI Canada Index Fund (the "Fund") was 29.47%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Canada Index (the "Index") over the
reporting period was 30.43%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 0.96 percentage points during the
reporting period. This was due to the negative impact of expenses, portfolio
sampling, and uninvested assets, which subtracted 0.84, 0.38 and 0.08 percentage
points, respectively, from the Fund's
10 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
return. Those factors were partially offset by the impact of revenue
differential and securities lending, which contributed 0.32 and 0.02 percentage
points, respectively, to the Fund's return.
KEY MARKET CONDITIONS
The Canadian stock market was one of the few to post solid gains throughout the
twelve-month reporting period.
Part of the reason for Canada's strong performance during the reporting period
was the appreciating Canadian dollar. Its gains relative to the U.S. dollar
boosted returns for U.S. dollar-based investors in the Canadian market.
Another is the strength of Canada's economy. In general, Canada weathered the
world economic slowdown better than most developed economies. The Organization
for Economic Cooperation and Development forecasts GDP growth of 2.7% for 2003,
and corporate sectors remain healthy. However, unemployment levels are high, and
the economy did come under some pressure from the effects of the SARS virus and
reduced demand from the U.S. during the reporting period.
More than 35% of the Canadian market is comprised of financial stocks, and this
sector performed well during the period. Bank of Nova Scotia, Bank of Montreal,
and Canadian Imperial Bank of Commerce (respectively 5.72%, 4.25%, and 3.81% of
the Index as of August 31, 2003) contributed significantly to performance. And,
as the telecommunications industry rebounded during the reporting period, so did
Nortel Networks Corp. (3.20% of the Index as of August 31, 2003), logging
triple-digit gains.
[CHART APPEARS HERE]
iSHARES MSCI CANADA INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI Canada Index Fund MSCI Canada Index
------------------------------ -----------------
Mar-1996 $ 10,000 $ 10,000
Aug-1996 $ 10,463 $ 10,511
$ 12,569 $ 12,701
Aug-1997 $ 13,445 $ 13,733
$ 14,322 $ 14,665
Aug-1998 $ 10,529 $ 10,911
$ 12,717 $ 13,193
Aug-1999 $ 14,710 $ 15,189
$ 18,943 $ 21,113
Aug-2000 $ 24,598 $ 27,422
$ 17,780 $ 18,446
Aug-2001 $ 16,001 $ 16,588
$ 15,971 $ 16,622
Aug-2002 $ 14,205 $ 14,824
$ 14,983 $ 15,675
Aug-2003 $ 18,391 $ 19,336
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 11
Managers' Discussion & Analysis
iSHARES MSCI EMERGING MARKETS INDEX FUND
Performance as of 8/31/03
TOTAL RETURNS
----------------------
INCEPTION TO 8/31/03
----------------------
NAV MARKET INDEX
33.72% 35.21% 32.23%
"Total returns" represent the total change in value of an investment over the
period indicated and is calculated from the inception date of the Fund (4/7/03).
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (4/11/03), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI EMERGING MARKETS FREE INDEX
Consumer Discretionary 7.17%
Consumer Staples 6.21%
Energy 10.94%
Financials 16.19%
Health Care 2.88%
Industrials 6.07%
Information Technology 18.44%
Materials 16.38%
Telecommunications Services 11.69%
Utilities 4.03%
PERFORMANCE REVIEW
The total return of the iShares MSCI Emerging Markets Index Fund (the "Fund")
was 33.72% from its inception on April 7, 2003 through August 31, 2003 (the
"reporting period"). The total return of the corresponding MSCI Emerging Markets
Free Index (the "Index") over the reporting period was 32.23%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund outperformed its benchmark by 1.49 percentage points during the
reporting period. This was due to the positive impact of portfolio sampling
(explained in more detail below), which contributed 1.99 percentage points to
the Fund's return. That factor was partially offset by the impact of expenses,
uninvested assets, and revenue differential, which subtracted 0.29, 0.12 and
0.09 percentage points, respectively, from the Fund's return.
As discussed in the Introduction, the Fund invests in a representative sample of
the component securities of the Index. Rather than hold local shares of some of
the securities in the Index, the Fund holds American Depositary Receipt ("ADR")
shares. During the reporting
12 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
period, a number of these ADRs outperformed their local counterparts, including
Samsung Electronics Co. Ltd., AU Optronics Corp., Taiwan Semiconductor
Manufacturing Co. Ltd. and United Microelectronics Corp. In this case, portfolio
sampling had a positive impact on Fund performance.
KEY MARKET CONDITIONS
At the time the Fund was launched, markets were beginning to emerge from the
double blows of a global economic slowdown and a war in Iraq. And, for many
Asian markets, the economic ramifications of the SARS virus were still being
felt.
As many emerging markets depend on exports to the U.S. and to neighboring
countries for their economic livelihood, the slowdown faced by the U.S. and
others had a dampening effect. By April, however, the U.S. was beginning to show
signs of improved economic health, and this had a positive effect on emerging
markets' valuations.
A major exporter of electronics, South Korea benefited from signs of recovery in
the U.S., although a strong Korean currency relative to the U.S. dollar hindered
export demand. Regardless, Samsung Electronics (the Index's largest constituent
at 6.58% of the Index as of August 31, 2003) performed well. Steel producer
POSCO (1.24% of the Index as of August 31, 2003) actually benefited from the
strength of the currency as it converted U.S. dollar earnings back into its home
currency.
Similarly, with 60.78% of its economy based in the information technology
sector, the Taiwanese market (as measured by the Index) was highly vulnerable to
the technology bubble that drove down markets in the U.S. and elsewhere. An
improving U.S. economic outlook drove up export orders, benefiting Taiwan
Semiconductor (2.31% of the Index as of August 31, 2003).
In general, valuations in the telecommunications sector improved during the
reporting period. Mexican constituents Telefonos de Mexico SA de CV Series L and
America Movil SA de CV Series L (respectively 1.63% and 1.26% of the Index as of
August 31, 2003) both delivered positive returns.
[CHART APPEARS HERE]
iSHARES MSCI EMERGING MARKETS INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI Emerging MSCI Emerging Markets
Markets Index Fund Free Index
--------------------- ---------------------
Apr-2003 $ 10,000 $ 10,000
Apr-2003 $ 10,388 $ 10,305
May-2003 $ 11,238 $ 11,042
Jun-2003 $ 11,785 $ 11,668
Jul-2003 $ 12,483 $ 12,394
Aug-2003 $ 13,371 $ 13,223
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 13
Managers' Discussion & Analysis
iSHARES MSCI HONG KONG INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ---------------------- ------------------------ ---------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
15.14% 17.01% 16.87% 9.39% 12.50% 11.09% (1.81)% (1.76)% 0.42%
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ---------------------- ------------------------- -----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
15.14% 17.01% 16.87% 56.67% 80.21% 69.19% (12.79)% (12.42)% 3.16%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI HONG KONG INDEX
Consumer Discretionary 9.37%
Financials 49.13%
Industrials 20.69%
Information Technology 0.54%
Materials 0.88%
Telecommunications Services 2.10%
Utilities 17.29%
PERFORMANCE REVIEW
The total return of the iShares MSCI Hong Kong Index Fund (the "Fund") was
15.14% during the twelve-month period ended August 31, 2003 (the "reporting
period"). The total return of the corresponding MSCI Hong Kong Index (the
"Index") over the reporting period was 16.87%.
14 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 1.73 percentage points during the
reporting period. This was due to the negative impact of expenses, portfolio
sampling, revenue differential and uninvested assets, which subtracted 0.84,
0.60, 0.23 and 0.10 percentage points, respectively, from the Fund's return.
Those factors were partially offset by the impact of securities lending, which
contributed 0.04 percentage points to the Fund's return.
KEY MARKET CONDITIONS
The Hong Kong market overcame the effects of a global economic slowdown, war in
Iraq, and the outbreak of the SARS virus to deliver double-digit gains during
the reporting period.
Internally, Hong Kong faced economic slowdown. Unemployment reached a record
8.3%, in part due to Hong Kong's lack of competitiveness compared with mainland
business centers. The government faced a record budget deficit: in March, it
raised taxes for the first time in 20 years. The impact of the SARS virus was
brief, but severe. By May, for example, occupancy rates of hotels in Hong Kong
stood at 15%, compared with a normal 87% average rate.
A key force propelling the Hong Kong market was exports. Because the Hong Kong
dollar is pegged to the U.S. dollar, its products became more attractive to
foreigners as the U.S. dollar weakened. Although the SARS virus dealt a blow to
Hong Kong's export market, the setback was temporary.
Another area of strength was the real estate market. The sector boomed on news
that the government proposed new measures to reverse deflation in Hong Kong's
property market. Hutchison Whampoa Ltd., Cheung Kong Holdings Ltd., and Sun Hung
Kai Properties Ltd. (respectively 14.74%, 10.96%, and 8.93% of the Index as of
August 31, 2003) all performed well during the reporting period.
[CHART APPEARS HERE]
iSHARES MSCI HONG KONG INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI Hong Kong Index Fund MSCI Hong Kong Index
--------------------------------- --------------------
Mar-1996 $ 10,000 $ 10,000
Aug-1996 $ 10,322 $ 10,398
$ 11,869 $ 12,171
Aug-1997 $ 12,160 $ 12,625
$ 9,197 $ 9,855
Aug-1998 $ 5,566 $ 6,098
$ 7,629 $ 8,747
Aug-1999 $ 10,604 $ 11,913
$ 12,117 $ 14,481
Aug-2000 $ 12,167 $ 13,868
$ 11,068 $ 12,691
Aug-2001 $ 8,409 $ 9,727
$ 8,218 $ 9,505
Aug-2002 $ 7,574 $ 8,827
$ 7,069 $ 8,294
Aug-2003 $ 8,721 $ 10,316
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 15
Managers' Discussion & Analysis
iSHARES MSCI MALAYSIA INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- -------------------- -------------------------- ----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
7.39% 9.07% 8.67% 26.22% 28.05% 28.51% (8.19)% (8.16)% (7.01)%
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- -------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
7.39% 9.07% 8.67% 220.38% 244.21% 250.50% (47.20)% (47.08)% (41.87)%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
In the case of the Malaysia Fund, the NAV of which is determined PRIOR to the
opening of the regular trading day on the American Stock Exchange (the "AMEX"),
the market return is calculated using the midpoint of the bid/ask spread as of
the OPENING of regular trading on the AMEX. Since Fund shares typically do not
trade in the secondary market until several days after Fund inception, for the
period from inception to the first day of secondary market trading in Fund
shares (3/18/96), the NAV of the Fund is used as a proxy for secondary market
trading price to calculate market returns. Market and NAV returns assume that
dividends and capital gain distributions have been reinvested in the Fund at
Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI MALAYSIA INDEX
Consumer Discretionary 18.23%
Consumer Staples 10.98%
Energy 0.64%
Financials 26.23%
Industrials 20.24%
Information Technology 1.36%
Materials 1.64%
Telecommunications Services 9.26%
Utilities 11.42%
PERFORMANCE REVIEW
The total return of the iShares MSCI Malaysia Index Fund (the "Fund") was 7.39%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Malaysia Index (the "Index") over the
reporting period was 8.67%.
16 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 1.28 percentage points during the
reporting period. This was due to the negative impact of expenses, portfolio
sampling, and uninvested assets, which subtracted 0.84, 0.37, and 0.16
percentage points, respectively, from the Fund's return. Those factors were
partially offset by the impact of revenue differential, which contributed 0.09
percentage points to the Fund's return.
KEY MARKET CONDITIONS
While the Malaysian market joined others around the world in grappling with a
global economic slowdown during the reporting period, it also had another set of
difficulties to overcome. Japan's slowdown led to reduced trade in the region,
dampening economic activity. Additionally, both the terrorist bombing in Bali
and the SARS virus dealt blows to the economies of Malaysia and some of its
Asian neighbors, although the SARS virus was the more severe of the two.
The resulting decline in tourism hurt Malaysia perhaps more than some of its
Asian neighbors: after placing great emphasis on fostering the country's export
business in the past, the government had switched gears in late 2002, working to
bolster the country's tourism industry. Companies such as Resorts World Bhd
(3.87% of the Index as of August 31, 2003) and its holding Genting Bhd (4.20% of
the Index as of August 31, 2003) were expected to be prime beneficiaries of this
new effort. For the reporting period, Resorts World posted a loss, although
Genting Bhd managed to post gains.
While trade with the U.S. was weak, Malaysia did benefit from trade with China
during the period. Additionally, the government's measures to stimulate private
domestic investment, introduced in the 2003 budget, helped to spur investment.
Companies that contributed positively to the market's performance included
Malayan Banking Bhd, Public Bank Bhd, and British American Tobacco (Malaysia)
Bhd (respectively 10.06%, 3.82%, and 3.58% of the Index as of August 31, 2003).
[CHART APPEARS HERE]
iSHARES MSCI MALAYSIA INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI Malaysia Index Fund MSCI Malaysia Index
-------------------------------- -------------------
Mar-1996 $ 10,000 $ 10,000
Aug-1996 $ 10,428 $ 10,503
$ 11,834 $ 12,152
Aug-1997 $ 6,229 $ 6,378
$ 4,877 $ 4,887
Aug-1998 $ 1,648 $ 1,658
$ 2,428 $ 2,839
Aug-1999 $ 4,711 $ 5,020
$ 6,303 $ 6,711
Aug-2000 $ 5,067 $ 5,359
$ 4,536 $ 4,823
Aug-2001 $ 4,397 $ 4,739
$ 4,709 $ 5,078
Aug-2002 $ 4,917 $ 5,349
$ 4,567 $ 4,996
Aug-2003 $ 5,281 $ 5,813
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 17
Managers' Discussion & Analysis
iSHARES MSCI MEXICO INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ---------------------- ------------------------- -----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
14.60% 14.07% 13.02% 15.29% 15.76% 17.93% 8.04% 8.03% 10.37%
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ---------------------- ------------------------- -----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
14.60% 14.07% 13.02% 103.70% 107.90% 128.10% 78.22% 78.13% 109.00%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI MEXICO INDEX
Consumer Discretionary 11.91%
Consumer Staples 22.86%
Financials 6.76%
Industrials 3.43%
Materials 13.42%
Telecommunications Services 41.62%
PERFORMANCE REVIEW
The total return of the iShares MSCI Mexico Index Fund (the "Fund") was 14.60%
over the twelve-month period ended August 31, 2003 (the "reporting period"). The
total return of the corresponding MSCI Mexico Index (the "Index") over the
reporting period was 13.02%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund outperformed its benchmark by 1.58 percentage points over the reporting
period. This was due to the positive impact of portfolio sampling (explained in
more detail below), which contributed 2.52 percentage points to the Fund's
return. That factor was partially offset by the impact of expenses, uninvested
assets, and revenue differential, which subtracted 0.84, 0.09 and 0.01
percentage points, respectively, from the Fund's return.
18 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
As discussed in the Introduction, portfolio management constraints can restrict
the Investment Advisor's ability to hold a given Index component at its
benchmark weight, resulting in differences between the Fund's holdings and the
securities in its benchmark index. As of August 31, 2003, 75.77% of the Index
was represented by securities each having a weighting of 5% or more of the
Index. To comply with the 5/50 Rule, the Fund was obligated to underweight some
of these stocks relative to the benchmark, and overweight its investment in
other stocks. The Fund also held small positions in non-index names to mitigate
some of the weighting differences caused by the diversification requirements. As
a result, portfolio sampling had a positive impact on the Fund's performance
relative to its benchmark.
KEY MARKET CONDITIONS
The Mexican economy limped along during much of the reporting period, adversely
affected by weakness in the U.S. and stagnant domestic demand. Through the first
few months of 2003, the manufacturing sector remained flat, and, by March, the
Mexican peso had hit a record low.
In April, though, the market rebounded somewhat, largely due to the improved
economic outlook in the U.S. Cemex SA de CV Series CPO (12.18% of the Index as
of August 31, 2003) gained ground thanks to the improved economic outlook,
effective cost cutting and plans for significant debt reduction.
Over the final months of the reporting period, Mexico's economic progress moved
in fits and starts. First quarter GDP figures, released in May, revealed growth
of 2.3%. Although this was the highest growth rate since July 2002, it was below
market consensus. A sluggish manufacturing sector and declining oil prices
widened the country's trade deficit. At the end of July, the central bank
lowered annual economic growth estimates from 2.40% to 2.00%, due to a slumping
manufacturing sector and unemployment levels at five-year highs. This news from
the central bank sent an already shaky peso tumbling further.
The peso's continued depreciation against the U.S. dollar negatively impacted
companies with large amounts of U.S. dollar-denominated debt. Telmex, the
largest stock in the Index with a weighting of 23.47% as of August 31, 2003, is
one such company. Its debt levels, however, are not as high as other leading
telecommunications companies', a fact that helped support Telmex's share price
during the reporting period.
[CHART APPEARS HERE]
iSHARES MSCI MEXICO INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI Mexico Index Fund MSCI Mexico Index
------------------------------ -----------------
Mar-1996 $ 10,000 $ 10,000
Aug-1996 $ 11,593 $ 11,740
$ 12,820 $ 13,258
Aug-1997 $ 15,675 $ 16,326
$ 15,311 $ 16,141
Aug-1998 $ 8,749 $ 9,162
$ 12,107 $ 13,075
Aug-1999 $ 14,604 $ 16,060
$ 19,632 $ 22,178
Aug-2000 $ 18,723 $ 20,892
$ 16,024 $ 18,513
Aug-2001 $ 17,408 $ 20,273
$ 18,125 $ 21,515
Aug-2002 $ 15,551 $ 18,493
$ 13,781 $ 16,335
Aug-2003 $ 17,822 $ 20,900
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 19
Managers' Discussion & Analysis
iSHARES MSCI PACIFIC EX-JAPAN INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
- ---------------------------------------------- -------------------------
YEAR ENDED 8/31/03 INCEPTION TO 8/31/03 INCEPTION TO 8/31/03
- ---------------------- ---------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
20.15% 20.08% 20.23% 13.66% 14.51% 13.89% 26.77% 28.52% 27.04%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (10/25/01). "Average annual total returns" represent the
average annual change in value of an investment over the periods indicated.
"Cumulative total returns" represent the total change in value of an investment
over the periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (10/26/01), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI PACIFIC EX-JAPAN INDEX
Consumer Discretionary 10.91%
Consumer Staples 5.12%
Energy 1.67%
Financials 45.97%
Health Care 1.49%
Industrials 10.79%
Information Technology 1.14%
Materials 13.82%
Telecommunications Services 4.37%
Utilities 4.72%
PERFORMANCE REVIEW
The total return of the iShares MSCI Pacific ex-Japan Index Fund (the "Fund")
was 20.15% during the twelve-month period ended August 31, 2003 (the "reporting
period"). The total return of the corresponding MSCI Pacific ex-Japan Index (the
"Index") over the reporting period was 20.23%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 0.08 percentage points during the
reporting period. This was due to the negative impact of expenses, portfolio
sampling, and uninvested assets, which subtracted 0.50, 0.39, and 0.12
percentage points, respectively, from the Fund's return. Those factors were
partially offset by the impact of revenue differential and securities lending,
which contributed 0.92, and 0.01 percentage points, respectively, to the Fund's
return.
20 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
KEY MARKET CONDITIONS
Although the markets of Hong Kong and Singapore staged a turnaround during the
course of the reporting period, it was largely the strength of the Australian
market that accounted for the strong returns of the Index.
In addition to delivering some positive company returns, Australia also
contributed to the Index returns through its currency, which gained strength
throughout the period.
Although Australia saw its banking sector falter during the course of the year,
significant gains came from The News Corp. Ltd. and The News Corp. Ltd. PLVO
(respectively 2.62% and 3.13% of the Index as of August 31, 2003). BHP Billiton
Ltd., the Index's second largest constituent at 5.53% of the Index, also posted
gains. Banks National Australia Bank Ltd., Commonwealth Bank of Australia, and
ANZ Banking Group (respectively 6.50%, 4.76%, and 3.59% of the Index as of
August 31, 2003) all posted losses for the reporting period.
While Hong Kong struggled with a sluggish economy during the reporting period,
one bright spot for the economy was the real estate market. The sector boomed
when the government proposed new measures to reverse deflation in Hong Kong's
property market. Cheung Kong Holdings Ltd., and Sun Hung Kai Properties Ltd.
(respectively 2.44% and 1.99% of the Index as of August 31, 2003) both performed
well during the reporting period.
[CHART APPEARS HERE]
iSHARES MSCI PACIFIC EX-JAPAN INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI Pacific ex-Japan Index Fund MSCI Pacific ex-Japan Index
---------------------------------------- ---------------------------
Oct-2001 $ 10,000 $ 10,000
Nov-2001 $ 10,630 $ 10,623
Feb-2002 $ 10,944 $ 10,969
May-2002 $ 11,800 $ 11,831
Aug-2002 $ 10,551 $ 10,567
Nov-2002 $ 10,657 $ 10,666
Feb-2003 $ 10,283 $ 10,296
May-2003 $ 11,511 $ 11,525
Aug-2003 $ 12,676 $ 12,704
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 21
Managers' Discussion & Analysis
iSHARES MSCI SINGAPORE INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ---------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
9.30% 9.28% 8.86% 12.46% 13.79% 11.04% (8.93)% (8.85)% (8.28)%
CUMULATIVE TOTAL RETURNS
- ----------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ---------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
9.30% 9.28% 8.86% 79.91% 90.79% 68.81% (50.29)% (49.99)% (47.56)%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI SINGAPORE INDEX
Consumer Discretionary 8.46%
Consumer Staples 2.12%
Financials 50.66%
Health Care 0.51%
Industrials 18.91%
Information Technology 7.82%
Telecommunications Services 11.52%
PERFORMANCE REVIEW
The total return of the iShares MSCI Singapore Index Fund (the "Fund") was 9.30%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Singapore Index (the "Index") over
the reporting period was 8.86%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund outperformed its benchmark by 0.44 percentage points during the
reporting period. This was due to the positive impact of revenue differential,
portfolio sampling, and securities lending, which contributed 0.92, 0.58, and
0.02 percentage points, respectively, to
22 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
the Fund's return. Those factors were partially offset by the impact of expenses
and uninvested assets, which subtracted 0.84 and 0.24 percentage points,
respectively, from the Fund's return.
KEY MARKET CONDITIONS
The Singapore market struggled with worldwide economic sluggishness, the U.S.
invasion of Iraq, and the economic fallout of the SARS virus during the
twelve-month reporting period. After declining for most of the period, however,
the market came back in the final months to post positive results.
Because the economy relies heavily on electronics exports to the U.S., Singapore
was negatively impacted by the slowdown in the U.S. Domestic economic weakness
also took its toll on non-exporting companies. Singapore Press Holdings Ltd.
(7.44% of the Index as of August 31, 2003) and City Developments Ltd. (2.44% of
the Index as of August 31, 2003) struggled during the reporting period.
Singapore Airlines Ltd. (6.67% of the Index as of August 31, 2003) also logged
negative returns, suffering from the economic impact of the SARS virus.
In the final months of the reporting period, though, renewed strength in the
U.S. translated into an increase in export orders, and some Singaporean
companies rebounded. Venture Corp. Ltd. (4.51% of the Index as of August 31,
2003) was an example of the turnaround, turning a loss into a gain of more than
56%.
As part of its semi-annual macroeconomic review, in July the Monetary Authority
of Singapore announced that it would maintain the bandwidth in which the
Singapore dollar trades, and continue to promote a stable Singapore dollar.
However, in an effort to boost exports, the central target exchange rate around
which the band is set was realigned downward.
[CHART APPEARS HERE]
iSHARES MSCI SINGAPORE INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI Singapore Index Fund MSCI Singapore Index
--------------------------------- --------------------
Mar-1996 $ 10,000 $ 10,000
Aug-1996 $ 9,327 $ 9,191
$ 9,720 $ 9,665
Aug-1997 $ 7,137 $ 6,958
$ 5,687 $ 5,975
Aug-1998 $ 2,763 $ 3,106
$ 4,914 $ 5,244
Aug-1999 $ 6,756 $ 7,270
$ 6,361 $ 6,948
Aug-2000 $ 6,669 $ 7,047
$ 5,863 $ 6,235
Aug-2001 $ 4,808 $ 5,067
$ 4,938 $ 5,210
Aug-2002 $ 4,548 $ 4,818
$ 3,862 $ 4,100
Aug-2003 $ 4,971 $ 5,244
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 23
Managers' Discussion & Analysis
iSHARES MSCI SOUTH AFRICA INDEX FUND
Performance as of 8/31/03
TOTAL RETURNS
-------------------------
INCEPTION TO 8/31/03
-------------------------
NAV MARKET INDEX
20.89% 20.25% 23.15%
"Total returns" represent the total change in value of an investment over the
period indicated and is calculated from the inception date of the Fund (2/3/03).
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (2/7/03), the NAV of the Fund is used as
a proxy for secondary market trading price to calculate market returns. Market
and NAV returns assume that dividends and capital gain distributions have been
reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI SOUTH AFRICA INDEX
Consumer Discretionary 3.54%
Consumer Staples 4.20%
Energy 7.07%
Financials 21.07%
Health Care 0.67%
Industrials 5.06%
Information Technology 0.58%
Materials 53.97%
Telecommunications Services 3.84%
PERFORMANCE REVIEW
The total return of the iShares MSCI South Africa Index Fund (the "Fund") was
20.89% from February 3, 2003 (its inception date) through August 31, 2003 (the
"reporting period"). The total return of the corresponding MSCI South Africa
Index (the "Index") over the reporting period was 23.15%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 2.26 percentage points during the
reporting period. This was due to the negative impact of portfolio sampling
(explained in more detail below), expenses, revenue differential, and uninvested
assets, which subtracted 1.42, 0.57, 0.20, and 0.07 percentage points,
respectively, from the Fund's return.
As discussed in the Introduction, portfolio management constraints can restrict
the Investment Advisor's ability to hold a given Index component at its
benchmark weight, resulting in differences between the Fund's holdings and the
securities in its benchmark index. To
24 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
comply with the Single Issuer Rule, for example, the Fund was obligated to
underweight the Index's largest constituent, Anglo American PLC, which had
outperformed the benchmark during the reporting period. In this case, portfolio
sampling had a negative impact on the Fund's performance relative to the
Index's.
KEY MARKET CONDITIONS
The launch of the Fund coincided with a time when the world was gearing up for
the likelihood of war in Iraq, while grappling with a global economic slowdown.
As is usually the case in times of economic and political uncertainty, investors
flocked to gold.
South African gold mining shares benefited from this phenomenon, although not to
the same degree. In general, the companies that hedge their exposure to
fluctuations in the price of gold, such as AngloGold Ltd. (4.63% of the Index as
of August 31, 2003) generally benefited less in the short term, when gold prices
spiked, as compared to unhedged gold mining companies, such as Gold Fields Ltd.
(5.50% of the Index as of August 31, 2003). By the end of the reporting period,
though, when the environment looked less uncertain and the price of gold drifted
back down, AngloGold strongly outperformed its unhedged competitor.
In April, the South African market began a rally that would extend through the
reporting period. Several factors contributed to the rally, including the UN
Economic Commission for Africa announcing that the African economy is set for a
rebound in 2003 and listing South Africa as its second best performer in the
region.
Other positive news included mining companies' mitigation of strikes by offering
their employees pay raises ranging from 8.50% to 10%. With an inflation rate of
7.8%, the new offers are expected to help negotiations on pensions, job grading,
and holidays. Additionally, Anglo American Platinum Corp. Ltd. signed a deal
with Khumama to develop an area in the north east of the country, which is in
line with the country's efforts to actively pursue policies promoting
black-owned investments as means to redress the legacy of apartheid rule.
[CHART APPEARS HERE]
iSHARES MSCI SOUTH AFRICA INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI South Africa Index Fund MSCI South Africa Index
------------------------------------ -----------------------
Feb-2003 $ 10,000 $ 10,000
Feb-2003 $ 9,990 $ 10,031
Mar-2003 $ 9,434 $ 9,539
Apr-2003 $ 9,997 $ 10,098
May-2003 $ 10,297 $ 10,416
Jun-2003 $ 10,715 $ 10,836
Jul-2003 $ 11,408 $ 11,563
Aug-2003 $ 12,089 $ 12,315
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 25
Managers' Discussion & Analysis
iSHARES MSCI SOUTH KOREA INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
- --------------------------------------------- -------------------------
YEAR ENDED 8/31/03 INCEPTION TO 8/31/03 INCEPTION TO 8/31/03
- --------------------- ---------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
8.93% 11.69% 12.00% 4.06% 4.27% 3.83% 14.12% 14.86% 13.26%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (5/9/00). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
In the case of the South Korea Fund, the NAV of which is determined PRIOR to the
opening of the regular trading day on the American Stock Exchange (the "AMEX"),
the market return is calculated using the midpoint of the bid/ask spread as of
the OPENING of regular trading on the AMEX. Since Fund shares typically do not
trade in the secondary market until several days after Fund inception, for the
period from inception to the first day of secondary market trading in Fund
shares (5/12/00), the NAV of the Fund is used as a proxy for secondary market
trading price to calculate market returns. Market and NAV returns assume that
dividends and capital gain distributions have been reinvested in the Fund at
Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI SOUTH KOREA INDEX
Consumer Discretionary 13.44%
Consumer Staples 2.84%
Energy 0.64%
Financials 15.85%
Health Care 0.24%
Industrials 5.21%
Information Technology 40.84%
Materials 8.87%
Telecommunications Services 9.05%
Utilities 3.02%
PERFORMANCE REVIEW
The total return of the iShares MSCI South Korea Index Fund (the "Fund") was
8.93% during the twelve-month period ended August 31, 2003 (the "reporting
period"). The total return of the corresponding MSCI South Korea Index (the
"Index") over the reporting period was 12.00%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 3.07 percentage points during the
reporting period. This was due to the negative impact of portfolio sampling
(explained in more detail below) and expenses, which subtracted 2.68 and 0.99
percentage points, respectively, from the Fund's return. Those factors were
partially offset by the impact of revenue differential and uninvested assets,
which contributed 0.41 and 0.19 percentage points, respectively, to the Fund's
return.
As discussed in the Introduction, portfolio management constraints can restrict
the Investment Advisor's ability to hold a given Index component at its
benchmark weight, resulting in differences between the Fund's holdings and the
securities in its benchmark index. To
26 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
comply with the Single Issuer Rule, for example, the Fund was obligated to
underweight the Index's largest constituent, Samsung Electronics Co. Ltd., which
outperformed the benchmark during the reporting period. By holding less of
Samsung Electronics, the positive performance of the security had a lesser
impact on the Fund's performance relative to the Index's.
KEY MARKET CONDITIONS
In addition to global economic slowdown during the reporting period, the South
Korean market struggled with the fallout from the SARS virus and tension between
its neighbor North Korea and the United States.
A major exporter of electronics, South Korea also suffered from a strengthening
currency. As its currency, the won, appreciated against the U.S. dollar, Korean
products became less competitive. In an effort to slow the won's rise, the
central bank bought U.S. dollars during the reporting period. Despite the
abatement of the SARS virus and the efforts of the central bank, exports were
further hindered in June, as striking rail workers halted freight services.
While Korean officials looked to exports to lead the recovery, the economy
shrank for the first two quarters of 2003. Following a clampdown on consumer
credit, consumer spending slowed. In July, the government attempted to reverse
the trend by cutting sales taxes on electronics items, contributing to a decline
in consumer prices for a fourth consecutive month.
The strength of the currency did help in some regards. Steel producer POSCO
(6.18% of the Index as of August 31, 2003) benefited from the strength of the
currency as it converted U.S. dollar earnings back into its home currency.
Others, such as Samsung Electronics (32.75% of the Index as of August 31, 2003)
performed well despite the adverse conditions. For U.S. investors, the strong
won relative to the U.S. dollar enhanced returns from the South Korean market.
[CHART APPEARS HERE]
iSHARES MSCI SOUTH KOREA INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI South Korea Index Fund MSCI South Korea Index
----------------------------------- ----------------------
May-2000 $ 10,000 $ 10,000
$ 9,455 $ 9,437
Aug-2000 $ 8,919 $ 8,748
$ 6,095 $ 5,804
Feb-2001 $ 6,930 $ 6,608
$ 7,348 $ 6,984
Aug-2001 $ 6,557 $ 6,255
$ 8,042 $ 7,658
Feb-2002 $ 10,318 $ 9,888
$ 11,214 $ 10,747
Aug-2002 $ 10,476 $ 10,113
$ 10,501 $ 10,273
Feb-2003 $ 8,388 $ 8,161
$ 9,071 $ 8,949
Aug-2003 $ 11,412 $ 11,326
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 27
Managers' Discussion & Analysis
iSHARES MSCI TAIWAN INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
- ------------------------------------------------- -------------------------
YEAR ENDED 8/31/03 INCEPTION TO 8/31/03 INCEPTION TO 8/31/03
- ---------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
22.45% 34.91% 23.78% (15.72)% (14.94)% (14.86)% (42.15)% (40.41)% (40.15)%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (6/20/00). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
In the case of the Taiwan Fund, the NAV of which is determined PRIOR to the
opening of the regular trading day on the American Stock Exchange (the "AMEX"),
the market return is calculated using the midpoint of the bid/ask spread as of
the OPENING of regular trading on the AMEX. Since Fund shares typically do not
trade in the secondary market until several days after Fund inception, for the
period from inception to the first day of secondary market trading in Fund
shares (6/23/00), the NAV of the Fund is used as a proxy for secondary market
trading price to calculate market returns. Market and NAV returns assume that
dividends and capital gain distributions have been reinvested in the Fund at
Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
[CHART APPEARS HERE]
SECTOR BREAKOUT
MSCI TAIWAN INDEX
Consumer Discretionary 4.25%
Consumer Staples 1.06%
Financials 16.13%
Industrials 4.55%
Information Technology 60.78%
Materials 12.33%
Telecommunications Services 0.90%
PERFORMANCE REVIEW
The total return of the iShares MSCI Taiwan Index Fund (the "Fund") was 22.45%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Taiwan Index (the "Index") over the
reporting period was 23.78%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 1.33 percentage points during the
reporting period. This was due to the negative impact of expenses, revenue
differential and uninvested assets, which subtracted 0.99, 0.28, and 0.17
percentage points, respectively, from the Fund's return. Those factors were
partially offset by the impact of portfolio sampling, which contributed 0.11
percentage points to the Fund's return.
28 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
KEY MARKET CONDITIONS
After being dragged down at the hands of a global economic slowdown, a war in
Iraq, and the SARS virus, the Taiwan market rebounded to finish the reporting
period with a healthy gain.
With 60.78% of its economy based in the information technology sector, the
Taiwanese market was highly vulnerable to the technology bubble that drove down
markets in the U.S. and elsewhere. Additionally, the economy is heavily
dependent on exports to both the U.S. and China. The difficulties that it faced
as the U.S. economy stalled, the U.S. invaded Iraq, and China dealt with the
SARS virus, therefore, were not surprising.
Following months of decline, the Taiwanese stock market rebounded in May,
beginning a broad-based rally that would be sustained through the remainder of
the reporting period. Sparking the rebound, the island's economy got a boost
from strong export orders from post-war U.S. Following the U.S. Federal Reserve
rate cut in June, Taiwan's central bank cut its benchmark interest rate by 0.25%
to a record 1.375%. By July, export levels grew at their fastest pace in five
months, as China joined the U.S. in export orders. Figures exceeded expectations
as the economic recovery from the SARS epidemic turned out to be smoother than
originally anticipated.
Taiwan Semiconductor Manufacturing Co. Ltd., the Index's largest constituent at
17.06% of the Index, gained during the reporting period. Two other significant
performers were AU Optronics Corp. and China Steel Corp. (respectively 2.75% and
2.42% of the Index as of August 31, 2003).
[CHART APPEARS HERE]
iSHARES MSCI TAIWAN INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
iShares MSCI Taiwan Index Fund MSCI Taiwan Index
------------------------------ -----------------
Jun-2000 $ 10,000 $ 10,000
Aug-2000 $ 8,790 $ 8,785
$ 5,951 $ 5,922
Feb-2001 $ 6,540 $ 6,522
$ 5,555 $ 5,557
Aug-2001 $ 4,826 $ 4,880
$ 4,714 $ 4,779
Feb-2002 $ 5,742 $ 5,838
$ 5,828 $ 5,925
Aug-2002 $ 4,724 $ 4,835
$ 4,542 $ 4,653
Feb-2003 $ 4,205 $ 4,313
$ 4,435 $ 4,563
Aug-2003 $ 5,785 $ 5,985
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 29
Schedule of Investments
iSHARES MSCI AUSTRALIA INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 94.64%
National Australia Bank Ltd. 430,599 $ 8,664,945
BHP Billiton Ltd. 1,066,299 7,543,471
Commonwealth Bank of Australia 357,201 6,485,114
Westpac Banking Corp. Ltd. 504,270 5,107,984
Australia and New Zealand Banking Group Ltd. 430,872 4,886,011
News Corp. Ltd. (The) 417,612 3,567,952
Woolworths Ltd. 290,082 2,208,006
Telstra Corp. Ltd. 624,585 2,029,398
Wesfarmers Ltd. 108,693 1,983,210
Rio Tinto Ltd. 88,530 1,965,999
AMP Ltd. 403,377 1,741,442
Foster's Group Ltd. 589,875 1,733,357
Coles Myer Ltd. 309,387 1,471,843
Amcor Ltd. 240,318 1,404,579
Westfield Trust 615,849 1,315,407
Insurance Australia Group Ltd. 476,697 1,227,998
Macquarie Bank Ltd. 58,344 1,195,581
Suncorp-Metway Ltd. 150,852 1,191,195
Westfield Holdings Ltd. 120,900 1,165,963
Woodside Petroleum Ltd. 133,341 1,152,171
Macquarie Infrastructure Group 541,398 1,128,352
QBE Insurance Group Ltd. 177,489 1,126,970
Alumina Ltd. 321,750 1,051,676
Stockland Trust Group 321,530 1,017,659
Rinker Group Ltd. 269,178 1,012,250
General Property Trust 553,644 999,786
Brambles Industries Ltd. 275,769 917,446
Australian Gas Light Co. Ltd. 127,296 886,541
WMC Resources Ltd./1/ 321,672 849,465
TABCORP Holdings Ltd. 104,325 777,205
Lend Lease Corp. Ltd. 113,217 776,765
BHP Steel Ltd. 226,498 678,762
Santos Ltd. 166,296 628,589
James Hardie Industries NV 130,065 622,966
Orica Ltd. 78,858 587,480
Boral Ltd. 163,059 562,528
Newcrest Mining Ltd. 93,171 554,805
Mirvac Group 192,309 550,166
Origin Energy Ltd. 186,849 504,312
CSL Ltd. 44,928 491,446
John Fairfax Holdings Ltd. 242,229 490,730
Mayne Group Ltd. 224,484 478,028
Coca-Cola Amatil Ltd. 128,115 469,341
Centro Properties Group 174,447 451,643
Macquarie Goodman Industrial Trust 392,223 396,031
Patrick Corporation Ltd. 46,449 389,330
PaperlinX Ltd. 117,819 385,867
Transurban Group 131,079 371,603
Southcorp Ltd. 178,152 356,304
CSR Ltd. 264,264 345,511
Cochlear Ltd. 15,249 321,759
Investa Property Group 250,146 315,719
Gandel Retail Trust 361,491 308,847
Toll Holdings Ltd. 61,425 286,253
Lion Nathan Ltd. 83,811 285,880
Sonic Healthcare Ltd. 66,651 285,586
Principal Office Fund 270,080 277,947
Commonwealth Property Office Fund 373,230 277,809
TAB Ltd. 127,413 272,145
Publishing & Broadcasting Ltd. 37,713 269,728
Australian Stock Exchange Ltd. 29,445 264,910
Harvey Norman Holdings Ltd. 149,877 259,981
Leighton Holdings Ltd. 38,844 247,646
Deutsche Office Trust 326,313 232,327
Computershare Ltd. 126,867 222,531
Ansell Ltd./1/ 47,360 206,913
OneSteel Ltd. 157,716 201,101
Iluka Resources Ltd. 65,481 174,616
Futuris Corp. Ltd. 157,092 153,533
Aristocrat Leisure Ltd. 80,262 86,756
TOTAL COMMON STOCKS
(COST: $71,691,338) 82,853,170
PREFERRED STOCKS - 4.87%
News Corp. Ltd. (The) 596,427 4,265,713
TOTAL PREFERRED STOCKS
(COST: $4,375,598) 4,265,713
30 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI AUSTRALIA INDEX FUND
August 31, 2003
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 17.72%
MONEY MARKET FUNDS - 11.49%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 6,569,851 $ 6,569,851
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/2/,/3/ 2,536,537 2,536,537
BlackRock Temp Cash Money
Market Fund/2/ 133,468 133,468
Short Term Investment Co. -
Liquid Assets Money Market
Portfolio/2/ 230,594 230,594
Short Term Investment Co. -
Prime Money Market
Portfolio, Institutional Shares/2/ 586,420 586,420
10,056,870
FLOATING RATE NOTES - 4.32%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 115,297 115,285
1.16%, 08/23/04/2/ 115,297 115,393
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 92,238 92,238
1.37%, 08/26/04/2/ 230,594 230,594
CC USA Inc.
1.06%, 05/24/04/2/ 230,594 230,578
1.07%, 04/19/04/2/ 101,461 101,459
1.11%, 07/15/04/2/ 115,297 115,333
Dorada Finance Inc.
1.07%, 05/20/04/2/ 230,594 230,570
1.24%, 08/09/04/2/ 57,649 57,641
Five Finance Inc.
1.08%, 04/15/04/2/ 115,297 115,297
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ 230,594 230,594
Holmes Financing PLC
1.07%, 04/15/04/2/ 46,119 46,119
K2 USA LLC
1.07%, 08/16/04/2/ 57,649 57,640
1.08%, 04/13/04/2/ 115,297 115,294
1.08%, 05/17/04/2/ 115,297 115,293
Links Finance LLC
1.05%, 07/20/04/2/ 92,238 92,221
1.07%, 05/04/04/2/ 115,297 115,293
1.07%, 06/28/04/2/ 115,297 115,278
1.08%, 03/29/04/2/ 115,297 115,297
Nationwide Building Society
1.08%, 07/23/04/2/ 172,946 172,946
Sigma Finance Inc.
1.05%, 07/20/04/2/ 115,297 115,277
1.06%, 10/15/03/2/ 230,594 230,592
1.06%, 07/01/04/2/ 115,297 115,273
1.24%, 08/06/04/2/ 57,649 57,644
Tango Finance Corp.
1.05%, 07/15/04/2/ 69,178 69,159
1.06%, 07/06/04/2/ 69,178 69,173
Toronto Dominion
1.33%, 08/23/04/2/ 149,886 149,813
White Pine Finance LLC
1.06%, 07/06/04/2/ 138,357 138,345
1.07%, 05/17/04/2/ 138,357 138,357
1.08%, 04/20/04/2/ 115,297 115,297
3,779,293
COMMERCIAL PAPER - 1.65%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 69,178 69,133
CRC Funding LLC
1.05%, 09/25/03/2/ 115,297 115,220
1.06%, 09/16/03/2/ 46,119 46,100
Edison Asset Securitization
1.06%, 09/05/03/2/ 115,297 115,287
1.06%, 09/15/03/2/ 69,178 69,152
1.07%, 10/23/03/2/ 216,759 216,430
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 115,297 115,243
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 57,649 57,649
SCHEDULES OF INVESTMENTS 31
Schedule of Investments (Continued)
iSHARES MSCI AUSTRALIA INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ $ 57,649 $ 57,625
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 57,649 57,638
Quincy Capital Corp.
1.06%, 09/17/03/2/ 238,914 238,809
Receivables Capital Corp.
1.06%, 09/17/03/2/ 168,334 168,260
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 115,297 115,297
1,441,843
TIME DEPOSITS - 0.26%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 230,594 230,594
230,594
TOTAL SHORT TERM INVESTMENTS
(COST: $15,508,600) 15,508,600
TOTAL INVESTMENTS IN SECURITIES - 117.23%
(COST $91,575,536) 102,627,483
OTHER ASSETS, LESS LIABILITIES - (17.23%) (15,086,718)
-------------
NET ASSETS - 100.00% $ 87,540,765
=============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
32 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments
iSHARES MSCI BRAZIL INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 27.87%
Petroleo Brasileiro SA 490,100 $ 10,874,559
Companhia Vale do Rio Doce ADR 163,930 6,139,179
Unibanco Holdings SA 84,955,000 3,283,721
Centrais Eletricas Brasileiras SA 274,332,000 2,038,265
Companhia Siderurgica Nacional 60,333,000 2,027,401
Souza Cruz SA 253,500 2,016,185
Brasil Telecom Participacoes SA 143,988,000 819,385
Companhia de Saneamento Basico do Estado de Sao
Paulo 18,590,000 813,038
Companhia Siderurgica de Tubarao 28,730,000 576,347
Tele Norte Leste Participacoes SA 13,520,000 129,629
TOTAL COMMON STOCKS
(COST: $24,555,213) 28,717,709
PREFERRED STOCKS - 71.53%
Petroleo Brasileiro SA 692,900 14,227,734
Companhia de Bebidas das Americas 42,588,000 9,420,851
Companhia Vale do Rio Doce Class A 270,400 9,269,031
Banco Itau Holding Financeira SA 62,023,000 4,702,521
Banco Bradesco SA 1,085,994,000 4,628,583
Tele Norte Leste Participacoes SA 353,439,000 4,606,286
Brasil Telecom Participacoes SA 495,508,000 3,763,586
Embraer-Empresa Brasileira de Aeronautica SA 574,643 2,940,169
Gerdau SA 160,589 2,406,394
Aracruz Celulose SA Class B 845,000 2,311,550
Companhia Energetica de Minas Gerais 201,955,467 2,209,165
Companhia Brasileira de Distribuicao 69,966,000 1,382,307
Telesp Celular Participacoes SA/1/ 851,864,000 1,372,302
Usinas Siderurgicas de Minas Gerais SA Class A 236,600 1,358,392
Sadia SA 1,690,000 1,312,732
Centrais Eletricas Brasileiras SA Class B 143,143,000 1,189,232
Votorantim Celulose e Papel SA 22,477,000 1,176,608
Tele Centro Oeste Celular Participacoes 522,622,000 1,062,543
Embratel Participacoes SA/1/ 468,017,000 961,007
Duratex SA 36,335,000 773,085
Companhia Paranaense de Energia Class B/1/ 246,779,000 691,749
Companhia de Tecidos Norte de Minas 7,436,400 560,053
Telemig Celular Participacoes SA 487,319,000 551,338
Tele Nordeste Celular Participacoes SA 487,762,000 413,471
Tele Celular Sul Participacoes 472,543,000 406,954
TOTAL PREFERRED STOCKS
(COST: $62,634,114) 73,697,643
SHORT TERM INVESTMENTS - 0.36%
MONEY MARKET FUNDS - 0.36%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/ 370,023 370,023
370,023
TOTAL SHORT TERM INVESTMENTS
(COST: $370,023) 370,023
TOTAL INVESTMENTS IN SECURITIES - 99.76%
(COST $87,559,350) 102,785,375
OTHER ASSETS, LESS LIABILITIES - 0.24% 249,236
-------------
NET ASSETS - 100.00% $ 103,034,611
=============
/1/ Non-income earning securities.
/2/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 33
Schedule of Investments
iSHARES MSCI CANADA INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.78%
Royal Bank of Canada 855,742 $ 36,761,465
Bank of Nova Scotia 647,325 28,718,149
EnCana Corp. 609,924 22,837,799
Bank of Montreal 634,584 21,272,505
Canadian Imperial Bank of Commerce 469,773 19,218,987
Manulife Financial Corp. 595,262 18,023,288
Sun Life Financial Inc. 792,408 17,365,969
Nortel Networks Corp./1/ 4,965,702 16,109,043
Alcan Inc. 399,081 14,451,097
Barrick Gold Corp. 697,467 14,209,291
Canadian National Railway Co. 253,998 13,582,937
Petro-Canada 285,645 11,247,471
TransCanada Corp. 614,856 11,076,849
Suncor Energy Inc. 576,633 10,808,102
Thomson Corp. 302,085 9,094,236
Magna International Inc. Class A 119,601 8,759,158
BCE Inc. 387,573 8,390,453
Talisman Energy Inc. 166,455 7,883,858
Enbridge Inc. 207,966 7,653,581
Placer Dome Inc. 525,669 7,169,850
Biovail Corp./1/ 171,798 7,061,905
Bombardier Inc. Class B 1,817,853 6,958,728
Loblaw Companies Ltd. 144,672 6,450,610
Canadian Natural Resources Ltd. 163,994 6,352,159
Imperial Oil Ltd. 173,853 6,252,767
Power Corp. of Canada 205,911 6,078,690
Inco Ltd./1/ 237,969 6,004,336
National Bank of Canada 236,325 5,971,374
Brascan Corp. Class A 208,377 5,407,903
George Weston Ltd. 70,281 5,370,570
Great-West Lifeco Inc. 170,569 5,053,805
Canadian Pacific Railway Ltd. 204,678 5,002,043
Power Financial Corp. 159,468 4,885,838
Potash Corp. of Saskatchewan Inc. 68,637 4,865,921
ATI Technologies Inc./1/ 311,553 4,694,127
Celestica Inc./1/ 248,655 4,366,677
Nexen Inc. 163,173 4,297,091
Abitibi-Consolidated Inc. 484,158 3,657,842
Shell Canada Ltd. 92,064 3,471,108
TransAlta Corp. 245,367 3,362,597
Domtar Inc. 281,946 3,260,220
Shaw Communications Inc. Class B 263,451 3,255,272
Molson Inc. Class A 132,345 3,196,163
Goldcorp Inc. 232,626 3,018,612
Fairfax Financial Holdings Ltd. 18,084 3,014,760
Cognos Inc./1/ 96,996 2,992,776
Investors Group Inc. 140,562 2,847,415
Rogers Communications Inc. Class B 198,102 2,829,111
Fairmont Hotels & Resorts Inc. 106,056 2,806,701
Precision Drilling Corp. Class A/1/ 69,876 2,790,708
Brookfield Properties Corp. 118,374 2,780,251
Shoppers Drug Mart Corp./1/ 146,316 2,769,894
TELUS Corp. 161,757 2,763,682
Kinross Gold Corp./1/ 357,159 2,711,231
Cameco Corp. 73,575 2,545,940
Canadian Tire Corp. Class A 100,710 2,541,073
MDS Inc. 175,908 2,453,822
NOVA Chemicals Corp. 115,080 2,442,386
Husky Energy Inc. 166,457 2,381,986
CP Ships Ltd. 111,381 2,332,565
Dofasco Inc. 103,161 2,331,469
Teck Cominco Ltd. Class B 240,024 2,327,306
Glamis Gold Ltd./1/ 159,057 2,258,893
Noranda Inc. 217,419 2,210,005
Penn West Petroleum Ltd./1/ 67,413 2,194,209
Finning International Inc. 91,242 2,110,113
Agrium Inc. 166,044 1,994,228
SNC-Lavalin Group Inc. 60,006 1,849,300
CGI Group Inc./1/ 331,275 1,815,009
Four Seasons Hotels Inc. 35,763 1,722,729
Meridian Gold Inc./1/ 128,643 1,681,359
C.I. Fund Management Inc. 172,209 1,666,038
Falconbridge Ltd. 109,326 1,599,912
Masonite International Corp./1/ 68,226 1,431,263
Agnico-Eagle Mines Ltd. 97,818 1,415,281
Aliant Inc. 62,472 1,391,619
Onex Corp. 124,536 1,382,586
CAE Inc. 284,823 1,242,244
MI Developments Inc. Class A/1/ 59,801 1,189,845
34 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI CANADA INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
QLT Corp./1/ 85,488 $ 1,167,244
Hudson's Bay Co. 110,970 711,187
Intrawest Corp. 52,608 680,379
TOTAL COMMON STOCKS
(COST: $415,923,087) 502,306,965
SHORT TERM INVESTMENTS - 0.06%
MONEY MARKET FUNDS - 0.06%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/ 308,015 308,015
308,015
TOTAL SHORT TERM INVESTMENTS
(COST: $308,015) 308,015
TOTAL INVESTMENTS IN SECURITIES - 99.84%
(COST $416,231,102) 502,614,980
OTHER ASSETS, LESS LIABILITIES - 0.16% 791,834
-------------
NET ASSETS - 100.00% $ 503,406,814
=============
/1/ Non-income earning securities.
/2/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 35
Schedule of Investments
iSHARES MSCI EMERGING MARKETS INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 95.43%
ARGENTINA - 0.43%
BBVA Banco Frances SA ADR 147,972 $ 744,299
Petrobras Energia Participaciones SA ADR 71,676 537,570
1,281,869
BERMUDA - 0.14%
Brilliance China Automotive Holdings Ltd. 1,320,000 418,881
418,881
BRAZIL - 6.40%
Aracruz Celulose SA ADR 10,604 289,807
Banco Bradesco SA ADR 77,308 1,659,803
Banco Itau Holding Financiera SA ADR 62,040 2,349,455
Brasil Telecom Participacoes SA ADR 35,024 1,327,410
Companhia Brasileira de Distribuicao Pao de
Acucar ADR 42,636 838,224
Companhia de Bebidas das Americas ADR 128,700 2,855,853
Companhia Vale do Rio Doce ADR 53,636 2,008,668
Companhia Vale do Rio Doce Sponsored ADR 62,304 2,126,435
Empresa Brasiliera de Aeronautica SA ADR 37,840 771,558
Petroleo Brasileiro SA ADR 104,456 2,308,478
Tele Norte Leste Participacoes SA ADR 145,552 1,893,632
Telesp Celular Partcipacoes SA ADR 95,128 385,268
Votorantim Celulose e Papel ADR 9,240 243,012
19,057,603
CHILE - 2.23%
Banco Santander Chile SA ADR 86,768 1,817,790
Compania de Telecomunicaciones de Chile SA ADR 150,964 1,967,061
Enersis SA ADR 221,936 1,187,358
Sociedad Quimica y Minera de Chile SA ADR 47,300 1,679,150
6,651,359
CHINA - 3.66%
Beijing Capital International Airport Co. Ltd.
Class H 176,000 49,645
Beijing Datang Power Generation Co. Ltd.
Class H 352,000 190,683
China Petroleum and Chemical Corp. Class H 7,216,000 2,197,363
China Shipping Development Co. Ltd. 792,000 396,033
China Southern Airlines Co. Ltd./1/ 264,000 87,161
China Telecom Corp. Ltd. Class H 3,784,000 1,043,113
Guangshen Railway Co. Ltd. Class H 2,816,000 707,669
Huaneng Power International Inc. Class H 528,000 724,368
Jiangsu Expressway Co. Ltd. Class H 264,000 105,778
Jiangxi Copper Co. Ltd. 792,000 187,862
PetroChina Co. Ltd. Class H 9,328,000 3,259,092
Qingling Motors Co. Ltd. 616,000 101,096
Shandong International Power Development Co. Ltd. 1,496,000 436,370
Sinopec Shanghai Petrochemical Co. Ltd. 1,056,000 255,898
Travelsky Technology Ltd. Class H 88,000 75,596
Tsingtao Brewery Co. Ltd. Class H 176,000 147,807
Yanzhou Coal Mining Co. Ltd. Class H 616,000 367,261
Yizheng Chemical Fibre Co. Ltd. 352,000 56,415
Zhejiang Expressway Co. Ltd. 1,056,000 514,504
10,903,714
CZECH REPUBLIC - 2.15%
CEZ AS 439,000 1,999,438
Komercni Banka AS 13,118 1,053,564
36 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI EMERGING MARKETS INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
Philip Morris CR AS 5,632 $ 2,621,461
Unipetrol AS/1/ 338,800 739,242
6,413,705
HONG KONG - 4.39%
Beijing Enterprises Holdings Ltd. 176,000 174,886
China Merchants Holdings International Co. Ltd. 176,000 196,324
China Mobile Ltd. 2,068,000 5,316,264
China Overseas Land & Investment Ltd. 440,000 52,466
China Pharmaceutical Group Ltd. 1,232,000 446,242
China Resources Enterprises Ltd. 616,000 596,306
China Resources Land Ltd. 1,408,000 167,891
China Travel International Investment
Hong Kong Ltd. 3,080,000 588,408
Citic Pacific Ltd. 484,000 992,903
CNOOC Ltd. 1,254,000 2,347,426
COFCO International Ltd. 264,000 111,702
Cosco Pacific Ltd. 264,000 294,486
Denway Motors Ltd. 968,000 546,097
Legend Group Ltd. 1,496,000 642,566
Shanghai Industrial Holdings Ltd. 176,000 293,358
Shenzhen Investment Ltd. 440,000 63,749
TCL International Holdings Ltd. 880,000 256,688
13,087,762
HUNGARY - 1.46%
Gedeon Richter Rt. 23,188 1,973,951
MATAV Rt. 195,096 738,232
OTP Bank Rt./1/ 143,924 1,638,702
4,350,885
INDIA - 4.46%
Dr. Reddy's Laboratories Ltd. ADR 69,608 1,764,563
HDFC Bank Ltd. ADR 104,544 2,297,877
ICICI Bank Ltd. ADR 146,331 1,417,947
Infosys Technologies Ltd. ADR 42,592 2,412,837
Mahanagar Telephone Nigam Ltd. ADR 280,896 1,530,883
Satyam Computer Services Ltd. ADR 121,924 1,452,115
Videsh Sanchar Nigam Ltd. ADR 279,796 1,505,302
Wipro Ltd. ADR 34,452 897,475
13,278,999
INDONESIA - 2.14%
PT Aneka Tambang Tbk 3,300,000 330,583
PT Astra International Inc. Tbk/1/ 1,210,000 541,897
PT Bank Central Asia Tbk 1,100,000 379,199
PT Bank Mandiri/1/ 2,310,000 231,408
PT Bank Pan Indonesia Tbk 8,272,000 272,971
PT Bhakti Investama Tbk/1/ 4,730,000 197,896
PT Bimantara Citra Tbk 396,000 184,349
PT Gudang Garam Tbk 440,000 477,077
PT Hanjaya Mandala Sampoerna Tbk 1,188,000 567,048
PT Kable Farma Tbk 6,666,000 471,373
PT Matahari Putra Prima Tbk 3,850,000 215,527
PT Ramayana Lestari Sentosa Tbk 880,000 305,952
PT Semen Gresik (Persero) Tbk 37,500 35,136
PT Telekomunikasi Indonesia Tbk 4,026,000 2,170,766
6,381,182
ISRAEL - 3.49%
AudioCodes Ltd. 37,576 226,997
Bank Hapoalim Ltd./1/ 508,684 992,415
Bank Leumi Le-Israel/1/ 665,984 932,138
Blue Square-Israel Ltd. 24,552 236,736
Elbit Systems Ltd. 25,608 441,398
Israel Chemicals Ltd. 387,200 468,752
Israel Discount Bank Class A/1/ 542,696 407,999
Makhteshim-Agan Industries Ltd. 154,000 410,644
NICE Systems Ltd./1/ 4,400 65,347
Teva Pharmaceutical Industries Ltd. 96,228 5,671,043
United Mizrahi Bank Ltd./1/ 197,516 548,458
10,401,927
LUXEMBOURG - 0.37%
Tenaris SA ADR 43,252 1,091,248
1,091,248
MEXICO - 7.61%
Alfa SA de CV Class A 184,800 434,656
SCHEDULES OF INVESTMENTS 37
Schedule of Investments (Continued)
iSHARES MSCI EMERGING MARKETS INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
America Movil SA de CV Series L/1/ 3,097,600 $ 3,590,891
Cemex SA de CV Series CPO 387,200 1,929,858
Coca-Cola Femsa SA de CV Series L/1/ 308,000 666,361
Consorcio Ara SA de CV/1/ 308,000 667,198
Controladora Comercial Mexicana SA de CV 426,800 269,240
Fomento Economico Mexicano SA de CV Class UBD 268,400 998,381
Grupo Carso SA de CV Series A1 13,200 39,482
Grupo Continental SA 233,200 334,169
Grupo Elektra SA de CV Series CPO 61,600 189,272
Grupo Financiero Banorte SA de CV Series O 73,000 194,459
Grupo Financiero BBVA Bancomer SA de CV Class
B/1/ 1,518,000 1,236,909
Grupo Mexico SA de CV Series B/1/ 198,000 271,346
Grupo Modelo SA de CV Series C 576,400 1,379,222
Grupo Televisa SA Series CPO 906,400 1,695,649
Industrias Penoles SA de CV Series CP 39,600 82,014
Kimberly-Clark de Mexico SA de CV Class A 321,200 742,373
Telefonos de Mexico SA de CV Series L 3,260,400 4,949,850
TV Azteca SA de CV Series CPO 422,400 172,666
Vitro SA de CV Series A 642,400 501,320
Wal-Mart de Mexico SA de CV Series C 330,000 816,550
Wal-Mart de Mexico SA de CV Series V 545,600 1,494,923
22,656,789
PERU - 0.34%
Compania de Minas Buenaventura SAu ADR 26,444 1,009,896
1,009,896
PHILIPPINE ISLANDS - 1.66%
ABS-CBN Broadcasting Corp./1/ 1,249,796 545,663
Ayala Corp. 3,960,400 306,198
Ayala Land Inc. 1,249,600 131,848
Bank of the Philippine Islands 721,652 538,252
Equitable PCI Bank Inc./1/ 528,000 302,565
Filinvest Land Inc./1/ 5,280,000 93,171
Globe Telecom Inc. 25,080 282,874
Jollibee Foods Corp. 1,892,000 585,119
Manila Electric Co. Class B/1/ 484,000 176,096
Megaworld Corp./1/ 7,501,068 117,353
Metropolitan Bank & Trust Co./1/ 1,126,640 553,380
Petron Corp. 8,803,600 301,087
Philippine Long Distance Telephone Co./1/ 54,560 531,010
SM Prime Holdings Inc. 4,884,000 479,782
4,944,398
RUSSIA - 5.00%
JSC MMC Norilsk Nickel ADR 33,924 1,345,087
LUKOIL ADR 70,312 5,486,445
Rostelecom ADR 41,756 436,350
Surgutneftegaz ADR 167,332 3,636,124
Tatneft ADR 11,880 273,240
YUKOS ADR 64,681 3,712,043
14,889,289
SOUTH AFRICA - 14.28%
African Bank Investments Ltd. 375,540 371,441
Alexander Forbes Ltd. 386,804 569,916
Anglo American Platinum Corp. Ltd. 23,848 885,922
Anglo American PLC 597,872 11,219,276
AngloGold Ltd. 48,268 1,870,138
Anglovaal Industries Ltd. 178,336 389,274
Barloworld Ltd. 92,532 746,063
Bidvest Group Ltd. 128,568 766,497
Dimension Data Holdings PLC/1/ 555,060 234,746
FirstRand Ltd. 1,258,400 1,304,753
Foschini Ltd. 409,816 978,415
Gold Fields Ltd. 141,284 1,927,476
Harmony Gold Mining Co. Ltd. 20,196 287,786
Impala Platinum Holdings Ltd. 18,744 1,457,557
Imperial Holdings Ltd./1/ 114,444 917,269
Investec Ltd. 38,412 482,115
38 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI EMERGING MARKETS INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
Iscor Ltd. 157,300 $ 444,217
JD Group Ltd. 124,564 537,172
Liberty Group Ltd. 76,164 516,419
Metro Cash & Carry Ltd./1/ 1,312,402 390,319
MTN Group Ltd./1/ 457,028 1,131,659
Nampak Ltd. 337,524 601,833
Naspers Ltd. 171,556 643,628
Nedcor Ltd. 62,700 711,683
Network Healthcare Holdings Ltd./1/ 757,738 415,567
New Africa Capital Ltd. 387,992 322,886
Old Mutual PLC 1,539,912 2,321,423
Pick'n Pay Stores Ltd. 186,296 382,504
Sanlam Ltd. 1,193,808 1,180,779
Sappi Ltd. 85,140 1,086,029
Sasol Ltd. 252,164 2,924,139
Shoprite Holdings Ltd. 510,400 483,940
Standard Bank Group Ltd. 422,268 1,895,309
Telkom South Africa Ltd./1/ 53,064 291,816
Tiger Brands Ltd. 70,444 690,985
Tongaat-Hulett Group Ltd. 36,168 175,166
Truworths International Ltd. 362,208 397,786
Woolworths Holdings Ltd. 640,508 572,350
42,526,253
SOUTH KOREA - 18.00%
Kookmin Bank ADR 179,124 6,663,413
Korea Electric Power Corp. ADR 662,816 6,117,792
KT Corp. ADR 218,988 4,127,924
POSCO ADR 311,432 9,342,960
Samsung Electronics Co. Ltd. GDR 123,024 22,820,952
SK Telecom Co. Ltd. ADR 237,996 4,536,204
53,609,245
TAIWAN - 12.69%
AU Optronics Corp. ADR 525,800 7,119,332
Chunghwa Telecom Co. Ltd. ADR 98,296 1,387,940
Siliconware Precision Industries Co. ADR 1,619,068 6,961,992
Taiwan Semiconductor Manufacturing Co. Ltd.
ADR 1,095,173 12,901,138
United Microelectronics Corp. ADR 1,896,196 9,424,094
37,794,496
THAILAND - 3.67%
Advanced Info Service PCL 338,800 457,615
Bangkok Bank PCL/1/ 316,800 651,487
Bangkok Expressway PCL 818,400 458,097
BEC World PCL 52,800 316,106
Charoen Pokphand Food PCL 1,232,000 158,910
Electricity Generating PCL 321,200 492,470
GMM Grammy PCL 255,200 134,773
Industrial Finance Corp. of Thailand/1/ 2,120,800 325,165
Kasikornbank PCL/1/ 629,200 712,042
Kiatnakin Finance PCL 136,400 115,354
Land & House PCL 1,108,800 326,514
National Finance PCL 550,000 196,763
National Petrochemical PCL 176,000 308,396
PTT Exploration and Production PCL 140,800 541,407
PTT PCL 1,491,600 2,649,959
Ratchaburi Electricity Generating Holding PCL 1,447,600 1,021,670
Shin Corp. PCL 519,200 274,194
Siam Cement PCL 132,000 603,943
Siam City Cement PCL 26,400 136,208
Siam Makro PCL 594,000 491,506
Thai Union Frozen Products PCL 528,000 398,345
TISCO Finance PCL/1/ 61,600 45,349
United Broadcasting Corp. PCL/1/ 233,200 98,751
10,915,024
TURKEY - 0.69%
Adana Cimento Class A 67,584,000 174,776
Akbank TAS 116,045,998 360,121
Akcansa Cimento AS 13,420,000 36,620
Arcelik AS 42,945,250 148,589
Dogan Yayin Holding AS/1/ 49,020,400 83,580
Eregli Demir ve Celik Fabrikalari TAS/1/ 8,800,000 136,857
Hurriyet Gazetecilik ve Matbaacilik AS/1/ 57,995,440 122,052
SCHEDULES OF INVESTMENTS 39
Schedule of Investments (Continued)
iSHARES MSCI EMERGING MARKETS INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
Trakya Cam Sanayii AS 33,968,000 $ 85,420
Tupras-Turkiye Petrol Rafinerileri AS 44,616,000 362,848
Turk Sise ve Cam Fabrikalari AS/1/ 157,916,000 199,402
Turkiye Garanti Bankasi AS/1/ 83,398,323 128,511
Vestel Elektronik Sanayi/1/ 83,556,000 217,571
2,056,347
VENEZUELA - 0.17%
Compania Anonima Nacional Telefonos de
Venezuela (CANTV) ADR 38,940 515,176
515,176
TOTAL COMMON STOCKS
(COST: $255,996,011) 284,236,047
PREFERRED STOCKS - 1.20%
BRAZIL - 1.11%
Petroleo Brasileiro SA Pfd ADR 161,348 3,291,499
3,291,499
THAILAND - 0.09%
Siam Commercial Bank PCL/1/ 294,800 276,218
276,218
TOTAL PREFERRED STOCKS
(COST: $3,269,565) 3,567,717
EXCHANGE TRADED FUNDS - 3.03%
iShares MSCI Malaysia Index Fund/2/ 294,800 1,798,280
iShares MSCI South Korea Index Fund/2/ 123,200 2,881,648
iShares MSCI Taiwan Index Fund/2/ 391,600 4,358,508
TOTAL EXCHANGE TRADED FUNDS
(COST: $7,767,498) 9,038,436
SHORT TERM INVESTMENTS - 0.30%
MONEY MARKET FUNDS - 0.30%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/ 886,486 886,486
886,486
TOTAL SHORT TERM INVESTMENTS
(COST: $886,486) 886,486
TOTAL INVESTMENTS IN SECURITIES - 99.96%
(COST $267,919,560) 297,728,686
OTHER ASSETS, LESS LIABILITIES - 0.04% 117,523
-------------
NET ASSETS - 100.00% $ 297,846,209
=============
/1/ Non-income earning securities.
/2/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
40 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments
iSHARES MSCI HONG KONG INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.55%
Hutchison Whampoa Ltd. 5,180,800 $ 38,194,978
Cheung Kong (Holdings) Ltd. 3,330,000 25,830,999
Sun Hung Kai Properties Ltd. 2,960,000 21,347,933
Hang Seng Bank Ltd. 1,887,000 20,928,090
CLP Holdings Ltd. 3,515,200 15,504,225
Swire Pacific Ltd. Class A 2,220,000 12,467,193
Hong Kong & China Gas Co. Ltd. 8,510,663 11,457,617
Hongkong Electric Holdings Ltd. 2,590,000 10,228,032
Bank of East Asia Ltd. 3,626,100 8,554,590
BOC Hong Kong (Holdings) Ltd. 6,660,000 8,539,173
Wharf (Holdings) Ltd. (The) 2,960,000 6,945,194
Li & Fung Ltd. 3,700,000 6,285,780
MTR Corp. Ltd. 4,625,083 5,811,486
Henderson Land Development Co. Ltd. 1,480,000 5,588,414
Cathay Pacific Airways Ltd. 2,590,000 4,483,066
Johnson Electric Holdings Ltd. 2,775,000 4,322,956
Esprit Holdings Ltd. 1,665,000 4,141,499
PCCW Ltd./1/ 7,030,576 4,078,975
Hong Kong Exchanges & Clearing Ltd. 2,220,000 3,984,948
Hang Lung Properties Ltd. 3,330,000 3,842,628
Yue Yuen Industrial (Holdings) Ltd. 1,110,000 3,316,046
Television Broadcasts Ltd. 740,000 3,121,542
Cheung Kong Infrastructure Holdings Ltd. 1,480,000 3,064,614
Hysan Development Co. Ltd. 1,850,000 2,182,233
ASM Pacific Technology Ltd. 555,000 1,864,386
New World Development Co. Ltd. 2,590,000 1,859,642
Shangri-La Asia Ltd. 2,220,000 1,850,154
Sino Land Co. Ltd. 3,700,000 1,731,555
Hopewell Holdings Ltd. 1,480,000 1,679,371
Techtronic Industries Co. Ltd. 740,000 1,660,395
Giordano International Ltd. 3,700,000 1,541,795
SCMP Group Ltd. 2,960,000 1,252,412
Texwinca Holdings Ltd. 1,480,000 1,148,044
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
SmarTone Telecommunications Holdings Ltd. 555,000 $ 697,366
TOTAL COMMON STOCKS
(COST: $239,008,766) 249,507,331
SHORT TERM INVESTMENTS - 16.77%
MONEY MARKET FUNDS - 10.89%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 17,884,697 17,884,697
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/2/,/3/ 6,849,455 6,849,455
BlackRock Temp Cash Money Market Fund/2/ 360,406 360,406
Short Term Investment Co. -
Liquid Assets Money Market Portfolio/2/ 622,678 622,678
Short Term Investment Co. -
Prime Money Market Portfolio,
Institutional Shares/2/ 1,583,519 1,583,519
27,300,755
FLOATING RATE NOTES - 4.07%
Beta Finance Inc.
1.07%, 05/20/04 /2/ $ 311,339 311,306
1.16%, 08/23/04 /2/ 311,339 311,599
Canadian Imperial Bank of Commerce
1.07%, 10/30/03 /2/ 249,071 249,072
1.37%, 08/26/04 /2/ 622,678 622,678
CC USA Inc.
1.06%, 05/24/04 /2/ 622,678 622,633
1.07%, 04/19/04 /2/ 273,978 273,970
1.11%, 07/15/04 /2/ 311,339 311,436
Dorada Finance Inc.
1.07%, 05/20/04 /2/ 622,678 622,611
1.24%, 08/09/04 /2/ 155,669 155,648
Five Finance Inc.
1.08%, 04/15/04 /2/ 311,339 311,339
HBOS Treasury Services PLC
1.27%, 06/24/04 /2/ 622,678 622,678
SCHEDULES OF INVESTMENTS 41
Schedule of Investments (Continued)
iSHARES MSCI HONG KONG INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Holmes Financing PLC
1.07%, 04/15/04 /2/ $ 124,536 $ 124,536
K2 USA LLC
1.07%, 08/16/04 /2/ 155,669 155,647
1.08%, 04/13/04 /2/ 311,339 311,330
1.08%, 05/17/04 /2/ 311,339 311,328
Links Finance LLC
1.05%, 07/20/04 /2/ 249,071 249,027
1.07%, 05/04/04 /2/ 311,339 311,329
1.07%, 06/28/04 /2/ 311,339 311,288
1.08%, 03/29/04 /2/ 311,339 311,339
Nationwide Building Society
1.08%, 07/23/04 /2/ 467,008 467,008
Sigma Finance Inc.
1.05%, 07/20/04 /2/ 311,339 311,284
1.06%, 10/15/03 /2/ 622,678 622,670
1.06%, 07/01/04 /2/ 311,339 311,274
1.24%, 08/06/04 /2/ 155,669 155,655
Tango Finance Corp.
1.05%, 07/15/04 /2/ 186,803 186,750
1.06%, 07/06/04 /2/ 186,803 186,788
Toronto Dominion
1.33%, 08/23/04 /2/ 404,741 404,542
White Pine Finance LLC
1.06%, 07/06/04 /2/ 373,607 373,576
1.07%, 05/17/04 /2/ 373,607 373,607
1.08%, 04/20/04 /2/ 311,339 311,339
10,205,287
COMMERCIAL PAPER - 1.56%
Corporate Asset Funding Corp.
1.06%, 09/24/03 /2/ 186,803 186,682
CRC Funding LLC
1.05%, 09/25/03 /2/ 311,339 311,131
1.06%, 09/16/03 /2/ 124,536 124,484
Edison Asset Securitization
1.06%, 09/05/03 /2/ 311,339 311,311
1.06%, 09/15/03 /2/ 186,803 186,732
1.07%, 10/23/03 /2/ 585,317 584,430
Eureka Securitization Inc.
1.05%, 09/18/03 /2/ 311,339 311,194
Jupiter Securitization Corp.
1.07%, 09/02/03 /2/ 155,669 155,669
Park Avenue Receivables Corp.
1.06%, 09/16/03 /2/ 155,669 155,605
Preferred Receivables Funding Corp.
1.06%, 09/08/03 /2/ 155,669 155,642
Quincy Capital Corp.
1.06%, 09/17/03 /2/ 645,144 644,860
Receivables Capital Corp.
1.06%, 09/17/03 /2/ 454,555 454,355
UBS Finance (Delaware) Inc.
1.09%, 09/02/03 /2/ 311,339 311,339
3,893,434
TIME DEPOSITS - 0.25%
SunTrust Banks Inc.
1.00%, 09/02/03 /2/ 622,678 622,678
622,678
TOTAL SHORT TERM INVESTMENTS
(COST: $42,022,154) 42,022,154
TOTAL INVESTMENTS IN SECURITIES - 116.32%
(COST $281,030,920) 291,529,485
OTHER ASSETS, LESS LIABILITIES - (16.32%) (40,902,545)
-------------
NET ASSETS - 100.00% $ 250,626,940
=============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
42 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments
iSHARES MSCI MALAYSIA INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.88%
Malayan Banking Bhd 4,084,800 $ 9,943,263
Telekom Malaysia Bhd 2,708,400 5,523,711
Tenaga Nasional Bhd 2,220,000 5,257,895
Sime Darby Bhd 3,640,800 4,934,242
Commerce Asset Holdings Bhd 4,062,600 4,276,421
Genting Bhd 999,000 4,101,158
Resorts World Bhd 1,398,600 3,790,942
Public Bank Bhd 5,395,537 3,762,677
British American Tobacco (Malaysia) Bhd 333,000 3,592,895
Maxis Communications Bhd 2,086,800 3,542,068
Malaysian International Shipping Corp. Bhd 1,332,000 3,487,737
IOI Corp. Bhd 1,998,000 3,102,158
PLUS Expressways Bhd/1/ 4,284,600 2,852,642
Gamuda Bhd 1,354,200 2,262,939
Petronas Gas Bhd 1,132,200 2,189,913
Hong Leong Bank Bhd 1,346,200 1,983,874
Magnum Corp. Bhd 2,397,600 1,779,272
YTL Corp. Bhd 1,465,820 1,728,125
Malakoff Bhd 1,354,200 1,724,823
AMMB Holdings Bhd 1,420,800 1,675,048
OYL Industries Bhd 177,733 1,485,006
Tanj ong PLC 555,000 1,453,224
Berj aya Sports Toto Bhd 1,154,400 1,281,992
Perusahaan Otomobil Nasional Bhd 555,000 1,124,605
Kuala Lumpur Kepong Bhd 710,400 1,121,684
Nestle (Malaysia) Bhd 199,800 1,098,900
SP Setia Bhd 1,177,100 1,034,609
Road Builder (Malaysia) Holdings Bhd 1,021,700 1,016,323
IJM Corp. Bhd 777,000 1,014,189
DRB-Hicom Bhd 1,376,400 956,236
Hong Leong Credit Bhd 733,000 952,900
Malaysian Pacific Industries Bhd 222,000 893,842
Malaysian Airline System Bhd/1/ 710,400 826,307
Star Publications (Malaysia) Bhd 488,400 790,437
PPB Group Bhd 555,333 789,157
UMW Holdings Bhd 310,800 719,747
Malayan Cement Bhd 3,285,600 665,766
Golden Hope Plantations Bhd 732,600 663,196
RHB Capital Bhd 1,287,600 643,800
Petronas Dagangan Bhd 355,200 626,274
Oriental Holdings Bhd 511,000 607,821
Malaysia Mining Corp. Bhd 799,200 584,678
Malaysian Resources Corp. Bhd/1/,/2/ 1,435,600 540,995
IGB Corp. Bhd 1,620,600 537,357
Multi-Purpose Holdings Bhd/1/ 1,487,400 516,676
Malaysian Oxygen Bhd 177,600 514,105
Unisem (Malaysia) Bhd 244,200 494,826
Edaran Otomobil Nasional Bhd 199,800 475,840
Guinness Anchor Bhd 421,800 470,640
Highlands & Lowlands Bhd 421,800 370,740
TA Enterprise Bhd 1,909,200 366,767
Malaysia Airports Holdings Bhd 777,000 333,292
New Straits Times Press Bhd 333,000 333,000
Hong Leong Industries Bhd 244,200 324,529
Tan Chong Motor Holdings Bhd 954,600 316,525
Puncak Niaga Holdings Bhd/1/ 377,400 315,824
Mulpha International Bhd/1/ 2,553,000 315,766
IOI Properties Bhd 177,600 308,463
OSK Holdings Bhd 710,400 297,246
Courts Mammoth Bhd 355,200 277,617
Jaya Tiasa Holdings Bhd 288,600 226,323
TIME Engineering Bhd/1/ 710,400 216,859
WTK Holdings Bhd 155,400 194,659
Hume Industries Bhd 667 751
Media Prima Bhd/1/,/2/ 933,140 -
TOTAL COMMON STOCKS
(COST: $68,989,018) 99,611,296
SHORT TERM INVESTMENTS - 0.18%
MONEY MARKET FUNDS - 0.18%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/3/ 174,468 174,468
174,468
TOTAL SHORT TERM INVESTMENTS
(COST: $174,468) 174,468
TOTAL INVESTMENTS IN SECURITIES - 100.06%
(COST $69,163,486) 99,785,764
OTHER ASSETS, LESS LIABILITIES - (0.06%) (56,184)
-------------
NET ASSETS - 100.00% $ 99,729,580
=============
/1/ Non-income earning securities.
/2/ Security valued at fair value in accordance with procedures approved by the
Board of Directors. See Note 1.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 43
Schedule of Investments
iSHARES MSCI MEXICO INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.95%
Telefonos de Mexico SA de CV Series L 8,340,000 $ 12,661,561
America Movil SA de CV Series L/1/ 10,260,000 11,893,900
Cemex SA de CV Series CPO 1,144,000 5,701,854
Grupo Televisa SA Series CPO 1,620,000 3,030,617
Wal-Mart de Mexico SA de CV Series V 1,056,000 2,893,400
Grupo Financiero BBVA Bancomer SA de CV Class
B/1/ 3,484,000 2,838,862
Fomento Economico Mexicano SA de CV Class UBD 692,000 2,574,067
Grupo Modelo SA de CV Series C 964,000 2,306,680
Kimberly-Clark de Mexico SA de CV Class A 776,000 1,793,528
Grupo Carso SA de CV Series A1 528,000 1,579,262
TV Azteca SA de CV Series CPO 3,184,000 1,301,535
America Telecom SA de CV Series A1/1/ 1,149,988 1,239,315
Carso Global Telecom SA de CV Class A1/1/ 900,000 1,080,848
Coca-Cola Femsa SA de CV ADR/1/ 44,120 955,198
Alfa SA de CV Class A 360,000 846,733
Consorcio Ara SA de CV/1/ 386,546 837,347
Corporacion Interamericana de
Entretenimiento SA de CV Class B/1/ 488,000 834,638
Grupo Financiero Banorte SA de CV Series O 272,000 724,561
Apasco SA de CV 84,000 624,309
Grupo Elektra SA de CV Series CPO 200,020 614,582
Grupo Aeroportuario del Sureste SA de CV ADR 37,360 555,543
Organizacion Soriana SA de CV Series B/1/ 272,000 546,317
Controladora Comercial Mexicana SA de CV 852,000 537,471
Grupo Continental SA 320,000 458,552
Industrias Penoles SA de CV Series CP 204,000 422,496
Grupo Bimbo SA Series A 248,000 372,236
Grupo Mexico SA de CV Series B/1/ 256,000 350,831
Grupo Sanborns SA de CV Series B1/1/ 272,000 314,330
Vitro SA de CV Series A 300,000 234,116
TOTAL COMMON STOCKS
(COST: $67,264,948) 60,124,689
SHORT TERM INVESTMENTS - 0.04%
MONEY MARKET FUNDS - 0.04%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/ 26,731 26,731
26,731
TOTAL SHORT TERM INVESTMENTS
(COST: $26,731) 26,731
TOTAL INVESTMENTS IN SECURITIES - 99.99%
(COST $67,291,679) 60,151,420
OTHER ASSETS, LESS LIABILITIES - 0.01% 4,015
-------------
NET ASSETS - 100.00% $ 60,155,435
=============
/1/ Non-income earning securities.
/2/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
44 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments
iSHARES MSCI PACIFIC EX-JAPAN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 96.38%
AUSTRALIA - 60.06%
Alumina Ltd. 527,256 $ 1,723,396
Amcor Ltd. 389,412 2,275,984
AMP Ltd. 485,834 2,097,422
Ansell Ltd./1/ 81,870 357,685
Aristocrat Leisure Ltd. 130,320 140,864
Australia and New Zealand Banking Group Ltd. 707,364 8,021,380
Australian Gas Light Co. Ltd. 204,768 1,426,088
Australian Stock Exchange Ltd. 48,816 439,187
BHP Billiton Ltd. 1,744,020 12,337,969
BHP Steel Ltd. 369,049 1,105,954
Boral Ltd. 264,240 911,586
Brambles Industries Ltd. 535,788 1,782,494
Centro Properties Group 248,148 642,455
Coca-Cola Amatil Ltd. 207,900 761,628
Cochlear Ltd. 25,344 534,767
Coles Myer Ltd. 497,628 2,367,359
Commonwealth Bank of Australia 587,412 10,664,678
Commonwealth Property Office Fund 580,032 431,740
Computershare Ltd. 207,504 363,972
CSR Ltd. 443,052 579,266
Deutsche Office Trust 568,944 405,074
Foster's Group Ltd. 964,188 2,833,281
Futuris Corp. Ltd. 254,412 248,649
Gandel Retail Trust 568,587 485,784
General Property Trust 905,148 1,634,541
Harvey Norman Holdings Ltd. 257,508 446,681
Iluka Resources Ltd. 117,360 312,960
Insurance Australia Group Ltd. 773,820 1,993,403
Investa Property Group 393,048 496,081
James Hardie Industries NV 210,636 1,008,873
John Fairfax Holdings Ltd. 393,444 797,075
Leighton Holdings Ltd. 64,044 408,307
Lend Lease Corp. Ltd. 186,732 1,281,140
Macquarie Bank Ltd. 95,436 1,955,668
Macquarie Goodman Industrial Trust 437,580 441,829
Macquarie Infrastructure Group 883,152 1,840,617
Mayne Group Ltd. 407,340 867,411
Mirvac Group 313,200 896,017
National Australia Bank Ltd. 711,180 14,311,077
Newcrest Mining Ltd. 151,092 899,708
News Corp. Ltd. (The) 682,272 5,829,127
OneSteel Ltd. 243,396 310,350
Orica Ltd. 131,112 976,764
Origin Energy Ltd. 298,944 806,860
PaperlinX Ltd. 200,664 657,192
Patrick Corporation Ltd. 80,856 677,726
Principal Office Fund 444,815 457,771
Publishing & Broadcasting Ltd. 63,252 452,385
QBE Insurance Group Ltd. 287,028 1,822,491
Rinker Group Ltd. 435,060 1,636,053
Rio Tinto Ltd. 144,900 3,217,816
Santos Ltd. 271,656 1,026,843
Sonic Healthcare Ltd. 107,172 459,210
Southcorp Ltd. 491,940 983,881
Stockland Trust Group 506,993 1,604,659
Suncorp-Metway Ltd. 247,356 1,953,234
TAB Ltd. 220,608 471,202
TABCORP Holdings Ltd. 171,036 1,274,192
Telstra Corp. Ltd. 1,022,364 3,321,860
Toll Holdings Ltd. 105,012 489,377
Transurban Group 211,968 600,920
Wesfarmers Ltd. 177,228 3,233,698
Westfield Holdings Ltd. 196,560 1,895,630
Westfield Trust 1,014,948 2,167,853
Westpac Banking Corp. Ltd. 827,928 8,386,466
WMC Resources Ltd./1/ 525,636 1,388,089
Woodside Petroleum Ltd. 218,988 1,892,229
Woolworths Ltd. 472,644 3,597,605
134,121,533
HONG KONG - 22.04%
ASM Pacific Technology Ltd. 90,000 302,333
Bank of East Asia Ltd. 640,800 1,511,757
BOC Hong Kong (Holdings) Ltd. 1,224,000 1,569,362
Cathay Pacific Airways Ltd. 468,000 810,068
Cheung Kong (Holdings) Ltd. 720,000 5,585,081
SCHEDULES OF INVESTMENTS 45
Schedule of Investments (Continued)
iSHARES MSCI PACIFIC EX-JAPAN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
Cheung Kong Infrastructure Holdings Ltd. 216,000 $ 447,268
CLP Holdings Ltd. 828,000 3,651,997
Esprit Holdings Ltd. 270,000 671,594
Giordano International Ltd. 792,000 330,028
Hang Lung Properties Ltd. 540,500 623,706
Hang Seng Bank Ltd. 356,400 3,952,714
Henderson Land Development Co. Ltd. 288,000 1,087,475
Hong Kong & China Gas Co. Ltd. 1,728,600 2,327,155
Hong Kong Exchanges & Clearing Ltd. 504,000 904,691
Hongkong Electric Holdings Ltd. 648,000 2,558,982
Hopewell Holdings Ltd. 288,000 326,796
Hutchison Whampoa Ltd. 1,008,000 7,431,389
Hysan Development Co. Ltd. 288,000 339,721
Johnson Electric Holdings Ltd. 702,000 1,093,591
Li & Fung Ltd. 720,000 1,223,179
MTR Corp. Ltd. 594,000 746,370
New World Development Co. Ltd. 504,000 361,876
PCCW Ltd./1/ 600 348
SCMP Group Ltd. 504,000 213,248
Shangri-La Asia Ltd. 504,000 420,035
Sino Land Co. Ltd. 792,000 370,646
SmarTone Telecommunications Holdings Ltd. 198,000 248,790
Sun Hung Kai Properties Ltd. 612,000 4,413,829
Swire Pacific Ltd. Class A 432,000 2,426,048
Techtronic Industries Co. Ltd. 216,000 484,656
Television Broadcasts Ltd. 144,000 607,435
Texwinca Holdings Ltd. 288,000 223,403
Wharf (Holdings) Ltd. (The) 576,000 1,351,497
Yue Yuen Industrial (Holdings) Ltd. 198,000 591,511
49,208,579
NEW ZEALAND - 3.06%
Auckland International Airport Ltd. 111,719 406,180
Carter Holt Harvey Ltd. 423,036 419,911
Contact Energy Ltd. 137,556 392,949
Fisher & Paykel Appliances Holdings Ltd. 30,312 255,399
Fisher & Paykel Healthcare Corp. Ltd. 33,516 237,908
Fletcher Building Ltd. 187,848 455,310
Fletcher Challenge Forests Ltd./1/ 99,523 63,753
Independent Newspapers Ltd. 65,556 164,949
Lion Nathan Ltd. 128,304 437,646
NGC Holdings Ltd. 105,840 102,615
Sky City Entertainment Group Ltd. 97,416 504,282
Sky Network Television Ltd./1/ 42,768 117,237
Telecom Corp. of New Zealand Ltd. 880,416 2,565,845
Tower Ltd./1/ 673,761 474,370
Warehouse Group Ltd. (The) 77,436 228,804
6,827,158
SINGAPORE - 11.22%
Allgreen Properties Ltd. 180,000 103,714
Capitaland Ltd. 468,000 363,101
Chartered Semiconductor Manufacturing Ltd./1/ 792,000 506,041
City Developments Ltd. 216,000 628,444
ComfortDelGro Corp. Ltd./1/ 756,000 351,498
Creative Technology Ltd. 27,000 278,795
Cycle & Carriage Ltd. 36,000 96,115
Datacraft Asia Ltd./1/ 144,000 152,640
DBS Group Holdings Ltd. 504,000 3,622,797
Fraser & Neave Ltd. 108,700 604,612
Haw Par Corp. Ltd. 36,397 85,547
Keppel Corp. Ltd. 252,000 754,749
Keppel Land Ltd. 180,000 157,111
Neptune Orient Lines Ltd./1/ 396,000 415,677
Oversea-Chinese Banking Corp. Ltd. 432,000 2,710,936
Overseas Union Enterprise Ltd. 36,000 136,574
Parkway Holdings Ltd. 216,000 107,821
SembCorp Industries Ltd. 432,000 322,848
SembCorp Logistics Ltd. 144,000 135,547
SembCorp Marine Ltd. 216,000 118,295
Singapore Airlines Ltd. 252,000 1,610,132
Singapore Exchange Ltd. 360,000 338,867
Singapore Land Ltd. 72,000 159,370
Singapore Post Ltd. 504,000 221,393
Singapore Press Holdings Ltd. 180,000 1,920,246
46 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI PACIFIC EX-JAPAN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
Singapore Technologies Engineering Ltd. 612,000 $ 677,323
Singapore Telecommunications Ltd. 2,880,000 2,793,086
SMRT Corp. Ltd. 360,000 118,090
ST Assembly Test Services Ltd./1/ 144,000 184,015
United Overseas Bank Ltd. 540,000 3,912,374
United Overseas Land Ltd. 144,000 156,084
Venture Corp. Ltd. 108,000 1,244,566
Wing Tai Holdings Ltd. 180,000 71,367
25,059,775
TOTAL COMMON STOCKS
(COST: $193,682,029) 215,217,045
PREFERRED STOCKS - 3.16%
AUSTRALIA - 3.12%
News Corp. Ltd. (The) 972,252 6,953,656
6,953,656
NEW ZEALAND - 0.04%
Fletcher Challenge Forests Ltd./1/ 142,693 91,406
91,406
TOTAL PREFERRED STOCKS
(COST: $5,812,442) 7,045,062
SHORT TERM INVESTMENTS - 16.16%
MONEY MARKET FUNDS - 10.53%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 15,491,746 15,491,746
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/2/,/3/ 5,843,796 5,843,796
BlackRock Temp Cash Money Market Fund/2/ 307,490 307,490
Short Term Investment Co. -
Liquid Assets Money Market Portfolio/2/ 531,255 531,255
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Short Term Investment Co. -
Prime Money Market
Portfolio, Institutional Shares/2/ 1,351,022 $ 1,351,022
23,525,309
FLOATING RATE NOTES - 3.90%
Beta Finance Inc.
1.07%, 05/20/04 /2/ $ 265,627 265,599
1.16%, 08/23/04 /2/ 265,627 265,849
Canadian Imperial Bank of Commerce
1.07%, 10/30/03 /2/ 212,502 212,502
1.37%, 08/26/04 /2/ 531,254 531,255
CC USA Inc.
1.06%, 05/24/04 /2/ 531,254 531,216
1.07%, 04/19/04 /2/ 233,752 233,745
1.11%, 07/15/04 /2/ 265,627 265,710
Dorada Finance Inc.
1.07%, 05/20/04 /2/ 531,254 531,197
1.24%, 08/09/04 /2/ 132,814 132,795
Five Finance Inc.
1.08%, 04/15/04 /2/ 265,627 265,628
HBOS Treasury Services PLC
1.27%, 06/24/04 /2/ 531,254 531,255
Holmes Financing PLC
1.07%, 04/15/04 /2/ 106,251 106,251
K2 USA LLC
1.07%, 08/16/04 /2/ 132,814 132,795
1.08%, 04/13/04 /2/ 265,627 265,619
1.08%, 05/17/04 /2/ 265,627 265,618
Links Finance LLC
1.05%, 07/20/04 /2/ 212,502 212,464
1.07%, 05/04/04 /2/ 265,627 265,618
1.07%, 06/28/04 /2/ 265,627 265,584
1.08%, 03/29/04 /2/ 265,627 265,628
Nationwide Building Society
1.08%, 07/23/04 /2/ 398,441 398,441
Sigma Finance Inc.
1.05%, 07/20/04 /2/ 265,627 265,580
1.06%, 10/15/03 /2/ 531,254 531,248
1.06%, 07/01/04 /2/ 265,627 265,572
1.24%, 08/06/04 /2/ 132,814 132,801
SCHEDULES OF INVESTMENTS 47
Schedule of Investments (Continued)
iSHARES MSCI PACIFIC EX-JAPAN INDEX FUND
August 31, 2003
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Tango Finance Corp.
1.05%, 07/15/04 /2/ $ 159,376 $ 159,330
1.06%, 07/06/04 /2/ 159,376 159,363
Toronto Dominion
1.33%, 08/23/04 /2/ 345,315 345,146
White Pine Finance LLC
1.06%, 07/06/04 /2/ 318,753 318,727
1.07%, 05/17/04 /2/ 318,753 318,753
1.08%, 04/20/04 /2/ 265,627 265,628
8,706,917
COMMERCIAL PAPER - 1.49%
Corporate Asset Funding Corp.
1.06%, 09/24/03 /2/ 159,376 159,273
CRC Funding LLC
1.05%, 09/25/03 /2/ 265,627 265,449
1.06%, 09/16/03 /2/ 106,251 106,207
Edison Asset Securitization
1.06%, 09/05/03 /2/ 265,627 265,604
1.06%, 09/15/03 /2/ 159,376 159,315
1.07%, 10/23/03 /2/ 499,379 498,622
Eureka Securitization Inc.
1.05%, 09/18/03 /2/ 265,627 265,503
Jupiter Securitization Corp.
1.07%, 09/02/03 /2/ 132,814 132,814
Park Avenue Receivables Corp.
1.06%, 09/16/03 /2/ 132,814 132,759
Preferred Receivables Funding Corp.
1.06%, 09/08/03 /2/ 132,814 132,790
Quincy Capital Corp.
1.06%, 09/17/03 /2/ 550,422 550,179
Receivables Capital Corp.
1.06%, 09/17/03 /2/ 387,816 387,645
UBS Finance (Delaware) Inc.
1.09%, 09/02/03 /2/ 265,627 265,628
3,321,788
TIME DEPOSITS - 0.24%
SunTrust Banks Inc.
1.00%, 09/02/03 /2/ 531,254 531,255
531,255
TOTAL SHORT TERM INVESTMENTS
(COST: $36,085,269) 36,085,269
TOTAL INVESTMENTS IN SECURITIES - 115.70%
(COST $235,579,740) 258,347,376
OTHER ASSETS, LESS LIABILITIES - (15.70%) (35,049,851)
-------------
NET ASSETS - 100.00% $ 223,297,525
=============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
48 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments
iSHARES MSCI SINGAPORE INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.54%
United Overseas Bank Ltd. 2,211,000 $ 16,018,997
DBS Group Holdings Ltd. 2,211,000 15,892,863
Singapore Telecommunications Ltd. 10,452,000 10,136,574
Oversea-Chinese Banking Corp. Ltd. 1,608,000 10,090,707
Venture Corp. Ltd. 402,000 4,632,552
Singapore Press Holdings Ltd. 402,000 4,288,550
Keppel Corp. Ltd. 1,407,000 4,214,017
Singapore Technologies Engineering Ltd. 3,618,000 4,004,176
Singapore Airlines Ltd. 603,000 3,852,815
City Developments Ltd. 1,206,000 3,508,814
Fraser & Neave Ltd. 603,000 3,354,013
Singapore Exchange Ltd. 3,015,000 2,838,011
Neptune Orient Lines Ltd./1/ 2,010,000 2,109,875
Capitaland Ltd. 2,613,000 2,027,315
ComfortDelGro Corp. Ltd./1/ 4,020,000 1,869,074
SembCorp Industries Ltd. 2,211,000 1,652,353
Creative Technology Ltd. 150,750 1,556,606
Chartered Semiconductor Manufacturing Ltd./1/ 2,412,000 1,541,126
Haw Par Corp. Ltd. 603,909 1,419,422
SMRT Corp. Ltd. 3,618,000 1,186,805
Cycle & Carriage Ltd. 402,000 1,073,284
Datacraft Asia Ltd./1/ 1,005,000 1,065,300
Singapore Post Ltd. 2,412,000 1,059,524
ST Assembly Test Services Ltd./1/ 804,000 1,027,418
SembCorp Logistics Ltd. 1,005,000 946,004
Allgreen Properties Ltd. 1,608,000 926,510
Parkway Holdings Ltd. 1,809,000 903,004
Singapore Land Ltd. 402,000 889,817
SembCorp Marine Ltd. 1,608,000 880,644
United Overseas Land Ltd. 804,000 871,470
Overseas Union Enterprise Ltd. 201,000 762,537
Keppel Land Ltd. 804,000 701,763
Wing Tai Holdings Ltd. 1,005,000 398,468
TOTAL COMMON STOCKS
(COST: $110,978,868) 107,700,408
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 9.50%
MONEY MARKET FUNDS - 6.17%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 4,371,473 $ 4,371,473
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/2/,/3/ 1,677,345 1,677,345
BlackRock Temp Cash Money Market Fund/2/ 88,259 88,259
Short Term Investment Co. -
Liquid Assets Money Market Portfolio/2/ 152,486 152,486
Short Term Investment Co. -
Prime Money Market Portfolio,
Institutional Shares/2/ 387,784 387,784
6,677,347
FLOATING RATE NOTES - 2.31%
Beta Finance Inc.
1.07%, 05/20/04 /2/ $ 76,243 76,235
1.16%, 08/23/04 /2/ 76,243 76,307
Canadian Imperial Bank of Commerce
1.07%, 10/30/03 /2/ 60,994 60,994
1.37%, 08/26/04 /2/ 152,486 152,486
CC USA Inc.
1.06%, 05/24/04 /2/ 152,486 152,475
1.07%, 04/19/04 /2/ 67,094 67,092
1.11%, 07/15/04 /2/ 76,243 76,267
Dorada Finance Inc.
1.07%, 05/20/04 /2/ 152,486 152,470
1.24%, 08/09/04 /2/ 38,121 38,116
Five Finance Inc.
1.08%, 04/15/04 /2/ 76,243 76,243
HBOS Treasury Services PLC
1.27%, 06/24/04 /2/ 152,486 152,486
Holmes Financing PLC
1.07%, 04/15/04 /2/ 30,497 30,497
SCHEDULES OF INVESTMENTS 49
Schedule of Investments (Continued)
iSHARES MSCI SINGAPORE INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
K2 USA LLC
1.07%, 08/16/04 /2/ $ 38,121 $ 38,116
1.08%, 04/13/04 /2/ 76,243 76,241
1.08%, 05/17/04 /2/ 76,243 76,240
Links Finance LLC
1.05%, 07/20/04 /2/ 60,994 60,984
1.07%, 05/04/04 /2/ 76,243 76,240
1.07%, 06/28/04 /2/ 76,243 76,230
1.08%, 03/29/04 /2/ 76,243 76,243
Nationwide Building Society
1.08%, 07/23/04 /2/ 114,364 114,364
Sigma Finance Inc.
1.05%, 07/20/04 /2/ 76,243 76,229
1.06%, 10/15/03 /2/ 152,486 152,485
1.06%, 07/01/04 /2/ 76,243 76,227
1.24%, 08/06/04 /2/ 38,121 38,118
Tango Finance Corp.
1.05%, 07/15/04 /2/ 45,746 45,733
1.06%, 07/06/04 /2/ 45,746 45,742
Toronto Dominion
1.33%, 08/23/04 /2/ 99,116 99,067
White Pine Finance LLC
1.06%, 07/06/04 /2/ 91,492 91,484
1.07%, 05/17/04 /2/ 91,492 91,492
1.08%, 04/20/04 /2/ 76,243 76,243
2,499,146
COMMERCIAL PAPER - 0.88%
Corporate Asset Funding Corp.
1.06%, 09/24/03 /2/ 45,746 45,716
CRC Funding LLC
1.05%, 09/25/03 /2/ 76,243 76,192
1.06%, 09/16/03 /2/ 30,497 30,485
Edison Asset Securitization
1.06%, 09/05/03 /2/ 76,243 76,236
1.06%, 09/15/03 /2/ 45,746 45,728
1.07%, 10/23/03 /2/ 143,337 143,119
Eureka Securitization Inc.
1.05%, 09/18/03 /2/ 76,243 76,207
Jupiter Securitization Corp.
1.07%, 09/02/03 /2/ 38,121 38,121
Park Avenue Receivables Corp.
1.06%, 09/16/03 /2/ 38,121 38,106
Preferred Receivables Funding Corp.
1.06%, 09/08/03 /2/ 38,121 38,115
Quincy Capital Corp.
1.06%, 09/17/03 /2/ 157,988 157,918
Receivables Capital Corp.
1.06%, 09/17/03 /2/ 111,315 111,266
UBS Finance (Delaware) Inc.
1.09%, 09/02/03 /2/ 76,243 76,243
953,452
TIME DEPOSITS - 0.14%
SunTrust Banks Inc.
1.00%, 09/02/03 /2/ 152,486 152,486
152,486
TOTAL SHORT TERM INVESTMENTS
(COST: $10,282,431) 10,282,431
TOTAL INVESTMENTS IN SECURITIES - 109.04%
(COST $121,261,299) 117,982,839
OTHER ASSETS, LESS LIABILITIES - (9.04%) (9,780,409)
-------------
NET ASSETS - 100.00% $ 108,202,430
=============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
50 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments
iSHARES MSCI SOUTH AFRICA INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.67%
Anglo American PLC 1,055,285 $ 19,802,790
Sasol Ltd. 517,405 5,999,922
Old Mutual PLC 3,182,445 4,797,547
Impala Platinum Holdings Ltd. 59,645 4,638,070
Standard Bank Group Ltd. 950,740 4,267,305
AngloGold Ltd. 104,720 4,057,364
Gold Fields Ltd. 291,031 3,970,409
FirstRand Ltd. 2,735,355 2,836,112
Sappi Ltd. 214,900 2,741,221
Harmony Gold Mining Co. Ltd. 169,995 2,422,371
MTN Group Ltd./1/ 966,923 2,394,223
Sanlam Ltd. 2,420,495 2,394,078
Anglo American Platinum Corp. Ltd. 56,700 2,106,332
Bidvest Group Ltd. 310,835 1,853,136
Barloworld Ltd. 202,895 1,635,893
Tiger Brands Ltd. 157,150 1,541,485
Nedcor Ltd. 127,395 1,446,011
Imperial Holdings Ltd./1/ 156,765 1,256,473
Nampak Ltd. 574,875 1,025,050
Liberty Group Ltd. 139,020 942,605
Telkom South Africa Ltd./1/ 160,860 884,620
Naspers Ltd. 232,505 872,290
Woolworths Holdings Ltd. 851,935 761,279
Anglovaal Industries Ltd. 322,420 703,782
Network Healthcare Holdings Ltd./1/ 1,101,310 603,993
Dimension Data Holdings PLC/1/ 1,312,185 554,949
Foschini Ltd. 216,125 515,987
JD Group Ltd. 115,010 495,971
Truworths International Ltd. 434,315 476,976
Metro Cash & Carry Ltd./1/ 1,542,203 458,663
Pick'n Pay Stores Ltd. 219,765 451,223
Investec Ltd. 34,825 437,094
Alexander Forbes Ltd. 294,525 433,952
Iscor Ltd. 150,010 423,630
New Africa Capital Ltd. 507,150 422,048
African Bank Investments Ltd. 426,300 421,647
Shoprite Holdings Ltd. 387,115 367,046
Tongaat-Hulett Group Ltd. 47,075 227,989
TOTAL COMMON STOCKS
(COST: $69,181,175) 81,641,536
SHORT TERM INVESTMENTS - 0.01%
MONEY MARKET FUNDS - 0.01%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/ 13,404 13,404
13,404
TOTAL SHORT TERM INVESTMENTS
(COST: $13,404) 13,404
TOTAL INVESTMENTS IN SECURITIES - 99.68%
(COST $69,194,579) 81,654,940
OTHER ASSETS, LESS LIABILITIES - 0.32% 258,884
-------------
NET ASSETS - 100.00% $ 81,913,824
=============
/1/ Non-income earning securities.
/2/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 51
Schedule of Investments
iSHARES MSCI SOUTH KOREA INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS AND RIGHTS - 99.98%
Samsung Electronics Co. Ltd. 100,500 $ 37,103,756
Kookmin Bank 329,649 12,016,486
POSCO 95,140 11,223,815
SK Telecom Co. Ltd. 52,260 8,915,137
LG Electronics Inc. 121,946 6,623,844
Samsung SDI Co. Ltd. 69,680 6,534,810
Hyundai Motor Co. Ltd. 180,900 6,018,485
Korea Electric Power Corp. 333,660 5,465,426
KT Corp. 129,980 4,947,679
Samsung Electro-Mechanics Co. Ltd. 116,580 4,195,198
Shinhan Financial Group Ltd. 280,060 3,803,064
LG Corp. 76,380 3,351,450
Hyundai Mobis Co. 72,360 2,548,644
Samsung Fire & Marine Insurance Co. Ltd. 41,540 2,291,619
Shinsegae Department Store Co. Ltd. 12,060 2,139,223
Daeduck Electronics Co. Ltd. 215,781 2,087,760
Hana Bank 110,273 1,605,077
KT&G Corp. 96,480 1,596,741
Samsung Securities Co. Ltd. 61,640 1,564,215
Hyundai Heavy Industries Co. Ltd./1/ 58,960 1,516,221
KT Corp. ADR 77,597 1,462,703
Kangwon Land Inc. 12,998 1,459,483
Kia Motors Corp. 187,600 1,453,671
Daewoo Shipbuilding and Marine
Engineering Co. Ltd./1/ 125,960 1,432,518
LG Investments & Securities Co. Ltd. 109,880 1,324,249
Samsung Corp. 176,880 1,276,028
S-Oil Corp. 53,820 1,050,592
Hankook Tire Co. Ltd. 170,180 987,932
NCsoft Corp./1/ 18,484 950,673
Daishin Securities Co. Ltd. 50,920 918,353
Daum Communications Corp./1/ 16,482 916,250
Samsung Heavy Industries Co. Ltd. 210,380 915,977
Humax Co. Ltd. 64,454 875,251
LG Card Co. Ltd. 46,900 837,891
Cheil Jedang Corp. 18,760 827,940
S1 Corp. 41,540 800,304
LG Engineering & Construction Co. Ltd. 46,900 784,154
Honam Petrochemical Corp. 20,100 766,811
Daelim Industrial Co. Ltd. 34,840 765,844
LG Petrochemical Co. Ltd. 37,520 732,408
Cheil Communications Inc. 6,700 727,859
Cheil Industries Inc. 53,600 718,761
Amorepacific Corp. 5,360 673,270
Korea Exchange Bank/1/ 144,720 648,522
Hite Brewery Co. Ltd. 10,720 608,672
Hanjin Shipping Co. Ltd. 49,580 559,655
Good Morning Securities Co. Ltd./1/ 103,684 553,509
Kumgang Korea Chemical Co. Ltd. 6,700 549,306
Hyundai Department Store Co. Ltd. 18,760 525,423
Korean Air Co. Ltd. 40,200 506,658
Nong Shim Co. Ltd. 4,362 481,273
LG Cable Ltd. 26,800 336,635
LG Household & Health Care Ltd. 13,400 330,380
YuHan Corp. 5,364 301,832
Hyosung Corp. 25,460 283,069
Dongwon Financial Holding Co. Ltd./1/ 41,407 237,565
Samsung Fine Chemicals Co. Ltd. 16,080 227,229
Poongsan Corp. 13,400 105,426
Dong-A Pharmaceutical Co. Ltd. 9 132
LG Chem Investment Ltd. 6 46
TriGem Computer Inc./1/ 7 37
TriGem Computer Inc., Rights/1/,/2/ 2 3
TOTAL COMMON STOCKS AND RIGHTS
(COST: $108,395,926) 154,462,944
52 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI SOUTH KOREA INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 0.16%
MONEY MARKET FUNDS - 0.16%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/3/ 246,024 $ 246,024
246,024
TOTAL SHORT TERM INVESTMENTS
(COST: $246,024) 246,024
TOTAL INVESTMENTS IN SECURITIES - 100.14%
(COST $108,641,950) 154,708,968
OTHER ASSETS, LESS LIABILITIES - (0.14%) (223,453)
-------------
NET ASSETS - 100.00% $ 154,485,515
=============
/1/ Non-income earning securities.
/2/ Security valued at fair value in accordance with procedures approved by the
Board of Directors. See Note 1.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 53
Schedule of Investments
iSHARES MSCI TAIWAN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.68%
Taiwan Semiconductor Manufacturing Co. Ltd./1/ 20,010,726 $ 39,250,503
United Microelectronics Corp./1/ 19,575,473 16,046,409
Hon Hai Precision Industry Co. Ltd. 2,610,516 10,775,887
Nan Ya Plastic Corp. 6,525,992 7,833,177
Cathay Financial Holdings Co. Ltd. 6,091,055 7,596,432
Formosa Plastic Corp. 4,785,259 7,074,641
Asustek Computer Inc. 2,610,156 7,030,106
AU Optronics Corp./1/ 4,785,800 6,374,902
China Steel Corp. 7,830,684 6,258,495
MediaTek Inc. 569,050 5,664,178
Quanta Computer Inc. 2,175,468 5,381,669
Formosa Chemicals & Fibre Corp. 3,915,964 5,113,063
Mega Financial Holdings Co. Ltd. 10,005,137 4,862,266
Compal Electronics Inc. 3,045,910 4,636,903
Chinatrust Financial Holding Co. Ltd. 5,655,289 4,602,642
Fubon Financial Holding Co. Ltd. 5,220,000 4,538,732
China Development Financial Holding Co./1/ 11,745,939 4,401,546
Acer Inc. 2,610,512 3,859,444
Chunghwa Telecom Co. Ltd. 2,573,000 3,683,462
Benq Corp. 2,175,472 3,216,270
Lite-On Technology Corp. 2,610,632 2,957,768
First Financial Holding Co. Ltd./1/ 4,785,050 2,829,733
Winbond Electronics Corp./1/ 4,785,280 2,787,841
Advanced Semiconductor Engineering Inc./1/ 3,480,792 2,700,421
Hua Nan Financial Holdings Co. Ltd./1/ 3,480,186 2,475,804
CMC Magnetics Corp./1/ 3,045,400 2,282,401
Via Technologies Inc./1/ 1,305,764 2,006,927
Taishin Financial Holdings Co. Ltd. 3,480,441 1,986,902
Taiwan Cellular Corp. 2,701,920 1,937,966
Realtek Semiconductor Corp. 870,700 1,886,287
Pou Chen Corp. 1,740,616 1,875,246
Gigabyte Technology Co. Ltd. 914,116 1,873,299
Siliconware Precision Industries Co. Ltd./1/ 2,175,525 1,808,798
Ritek Corp./1/ 2,610,625 1,796,056
Chang Hwa Commercial Bank Ltd./1/ 3,480,958 1,793,573
Delta Electronics Inc. 1,305,405 1,719,750
Chunghwa Picture Tubes Ltd./1/ 3,045,000 1,586,773
SinoPac Holdings Co. 3,915,393 1,553,181
China Motor Co. Ltd. 870,331 1,528,774
Yulon Motor Co. Ltd. 1,305,331 1,513,294
Uni-President Enterprises Corp. 4,350,637 1,490,206
Tatung Co. Ltd./1/ 5,220,120 1,467,098
Inventec Co. Ltd. 2,175,500 1,324,738
Synnex Technology International Corp. 870,943 1,313,120
Ambit Microsystems Corp. 435,934 1,193,273
President Chain Store Corp. 870,654 1,149,555
Macronix International Co. Ltd./1/ 4,785,200 1,141,735
Far Eastern Textile Ltd. 2,610,975 1,131,285
Yang Ming Marine Transport Corp./1/ 1,305,000 1,115,580
Walsin Lihwa Corp./1/ 4,350,779 1,114,507
Yageo Corp./1/ 3,045,100 1,114,344
Cheng Shin Rubber Industry Co. Ltd. 870,604 1,067,929
International Bank of Taipei 2,175,245 1,018,909
Zyxel Communication Corp. 492,450 965,927
Taiwan Glass Industrial Corp. 1,305,012 878,719
Micro-Star International Co. Ltd. 492,103 871,603
Kinpo Electronics Inc. 1,305,235 802,446
Wan Hai Lines Ltd. 870,368 797,544
Nien Made Enterprise Co. Ltd. 435,000 751,361
Premier Image Technology Corp. 435,340 739,204
Teco Electric & Machinery Co. Ltd. 2,175,092 738,658
Advantech Co. Ltd. 435,567 707,710
Taiwan Styrene Monomer Corp. 870,600 690,710
Accton Technology Corp. 870,260 667,509
Taiwan Cement Corp. 1,771,188 653,345
Evergreen Marine Corp. Ltd. 886,320 609,770
Asia Cement Corp. 1,305,740 588,688
54 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI TAIWAN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
Sampo Corp./1/ 1,305,148 $ 573,137
Formosa Taffeta Co. Ltd. 1,305,763 539,003
Giant Manufacturing Co. Ltd. 435,914 524,506
Phoenixtec Power Co. Ltd. 437,438 512,252
Cathay Real Estate Development Co. Ltd./1/ 1,305,493 498,761
Systex Corp. 870,772 492,005
EVA Airways Corp./1/ 1,305,000 487,111
Nien Hsing Textile Co. Ltd. 435,800 470,783
Oriental Union Chemical Corp. 435,880 469,594
D-Link Corp. 435,585 466,725
Arima Computer Corp./1/ 1,305,600 462,491
Elitegroup Computer Systems Co. Ltd. 435,300 428,189
Prodisc Technology Inc./1/ 435,572 402,953
China Airlines Ltd./1/ 870,188 354,108
Compeq Manufacturing Co. Ltd./1/ 870,200 337,553
Taiwan Secom Co. Ltd. 435,487 336,579
Continental Engineering Corp. 870,572 319,857
Picvue Electronics Ltd./1/ 870,040 287,823
Shihlin Electric & Engineering Corp. 435,080 235,640
Eternal Chemical Co. Ltd. 435,100 221,639
BES Engineering Corp./1/ 1,305,160 182,641
WU'S Printed Circuit Co. Ltd./1/ 435,000 171,285
Aurora Corp. 610 389
Microelectronics Technology Inc./1/ 420 147
Tung Ho Steel Enterprise Corp./1/ 210 75
China Synthetic Rubber Corp./1/ 230 69
Far Eastern Department Stores Co. Ltd./1/ 160 43
Pacific Electric Wire & Cable Co. Ltd./1/ 986 15
TOTAL COMMON STOCKS
(COST: $216,475,847) 233,982,367
SHORT TERM INVESTMENTS - 0.10%
MONEY MARKET FUNDS - 0.10%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/ 225,566 225,566
225,566
TOTAL SHORT TERM INVESTMENTS
(COST: $225,566) 225,566
TOTAL INVESTMENTS IN SECURITIES - 99.78%
(COST $216,701,413) 234,207,933
OTHER ASSETS, LESS LIABILITIES - 0.22% 519,347
-------------
NET ASSETS - 100.00% $ 234,727,280
=============
/1/ Non-income earning securities.
/2/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 55
Statements of Assets and Liabilities
iSHARES, INC.
August 31, 2003
iSHARES MSCI
--------------------------------------------------------------------------------------------------
Australia Brazil Canada Emerging Markets Hong Kong Malaysia
Index Fund Index Fund Index Fund Index Fund Index Fund Index Fund
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at cost $ 91,575,536 $ 87,559,350 $ 416,231,102 $ 267,919,560 $ 281,030,920 $ 69,163,486
------------- ------------- ------------- ---------------- -------------- --------------
Foreign currency, at cost $ 120,041 $ - $ 624,514 $ 322,717 $ 345,364 $ -
------------- ------------- ------------- ---------------- -------------- --------------
Investments in
securities, at value
(including securities
on loan/1/) (Note 1) $ 102,627,483 $ 102,785,375 $ 502,614,980 $ 297,728,686 $ 291,529,485 $ 99,785,764
Foreign currency, at
value 119,157 - 620,094 320,323 345,348 -
Cash - - - - - 47,804
Receivables:
Investment securities
sold 260,984 130,260 570,807 833,160 - 1,236,254
Dividends and interest 418,783 588,021 884,890 618,357 949,724 21,835
iShares sold - 5,968,415 - - - -
------------- ------------- ------------- ---------------- -------------- --------------
Total Assets 103,426,407 109,472,071 504,690,771 299,500,526 292,824,557 101,091,657
------------- ------------- ------------- ---------------- -------------- --------------
LIABILITIES
Payables:
Investment securities
purchased 246,254 6,296,254 479,663 1,393,012 - 1,237,643
Collateral for
securities on loan
(Note 5) 15,507,114 - - - 41,874,133 -
Advisory fees (Note 2) 92,898 105,606 564,752 261,305 227,217 87,119
Distribution fees 39,376 35,600 239,542 - 96,267 37,315
------------- ------------- ------------- ---------------- -------------- --------------
Total Liabilities 15,885,642 6,437,460 1,283,957 1,654,317 42,197,617 1,362,077
------------- ------------- ------------- ---------------- -------------- --------------
NET ASSETS $ 87,540,765 $ 103,034,611 $ 503,406,814 $ 297,846,209 $ 250,626,940 $ 99,729,580
============= ============= ============= ================ ============== ==============
NET ASSETS CONSIST OF:
Paid-in capital $ 83,942,950 $ 191,568,086 $ 422,716,699 $ 267,817,496 $ 252,878,568 $ 95,322,920
Undistributed net
investment income 2,067,131 1,915,236 3,350,221 702,264 3,358,893 976,401
Accumulated net
realized loss (9,515,389) (105,650,262) (9,044,147) (480,445) (16,109,002) (27,192,019)
Net unrealized
appreciation on
investments and
translation of assets
and liabilities in
foreign currencies 11,046,073 15,201,551 86,384,041 29,806,894 10,498,481 30,622,278
------------- ------------- ------------- ---------------- -------------- --------------
NET ASSETS $ 87,540,765 $ 103,034,611 $ 503,406,814 $ 297,846,209 $ 250,626,940 $ 99,729,580
============= ============= ============= ================ ============== ==============
iShares outstanding 7,800,000 8,450,000 41,100,000 2,200,000 27,750,000 16,650,000
============= ============= ============= ================ ============== ==============
Net asset value per
iShare $ 11.22 $ 12.19 $ 12.25 $ 135.38 $ 9.03 $ 5.99
============= ============= ============= ================ ============== ==============
/1/ Securities on loan with market values of $14,725,920, $-, $-, $-,
$39,197,690 and $-, respectively. See Note 5.
SEE NOTES TO FINANCIAL STATEMENTS.
9 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Statements of Assets and Liabilities (Continued)
iSHARES, INC.
August 31, 2003
iSHARES MSCI
-----------------------------------------------------------------------------------------
Mexico Pacific ex-Japan Singapore South Africa South Korea Taiwan
Index Fund Index Fund Index Fund Index Fund Index Fund Index Fund
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at cost $ 67,291,679 $ 235,579,740 $ 121,261,299 $ 69,194,579 $ 108,641,950 $ 216,701,413
------------ ---------------- ------------- ------------ ------------- -------------
Foreign currency, at cost $ 77,919 $ 266,875 $ 229,865 $ 109,797 $ 3,486 $ 1,138,314
------------ ---------------- ------------- ------------ ------------- -------------
Investments in
securities, at value
(including securities
on loan/1/) (Note 1) $ 60,151,420 $ 258,347,376 $ 117,982,839 $ 81,654,940 $ 154,708,968 $ 234,207,933
Foreign currency, at
value 73,619 268,139 230,500 111,228 3,487 1,139,261
Receivables:
Investment securities
sold 276,254 201,447 2,551,685 2,012,758 - 5,170,914
Dividends and interest 27 948,729 526,875 276,606 151 926,410
iShares sold 1,923 - - - - -
------------ ---------------- ------------- ------------ ------------- -------------
Total Assets 60,503,243 259,765,691 121,291,899 84,055,532 154,712,606 241,444,518
------------ ---------------- ------------- ------------ ------------- -------------
LIABILITIES
Payables:
Investment securities
purchased 248,110 569,898 2,628,676 2,011,885 - 6,169,813
Collateral for
securities on loan
(Note 5) - 35,726,039 10,254,445 - - -
iShares redeemed - - 14,744 - - -
Foreign taxes on stock
dividends - - - - - 231,242
Advisory fees (Note 2) 70,055 172,229 98,293 97,069 169,922 236,488
Distribution fees 29,643 - 44,885 32,754 57,169 79,695
Custodian fees - - 7,800 - - -
Accrued expenses - - 40,626 - - -
------------ ---------------- ------------- ------------ ------------- -------------
Total Liabilities 347,808 36,468,166 13,089,469 2,141,708 227,091 6,717,238
------------ ---------------- ------------- ------------ ------------- -------------
NET ASSETS $ 60,155,435 $ 223,297,525 $ 108,202,430 $ 81,913,824 $ 154,485,515 $ 234,727,280
============ ================ ============= ============ ============= =============
NET ASSETS CONSIST OF:
Paid-in capital $ 74,445,440 $ 200,312,457 $ 125,378,746 $ 68,396,211 $ 115,537,342 $ 256,512,465
Undistributed net
investment income 597,687 4,181,906 1,491,917 1,587,853 1,142,788 637,002
Accumulated net
realized loss (7,743,026) (3,958,380) (15,389,889) (532,342) (8,261,634) (39,935,772)
Net unrealized
appreciation
(depreciation) on
investments and
translation of assets
and liabilities in
foreign currencies (7,144,666) 22,761,542 (3,278,344) 12,462,102 46,067,019 17,513,585
------------ ---------------- ------------- ------------ ------------- -------------
NET ASSETS $ 60,155,435 $ 223,297,525 $ 108,202,430 $ 81,913,824 $ 154,485,515 $ 234,727,280
============ ================ ============= ============ ============= =============
iShares outstanding 4,000,000 3,600,000 20,100,000 1,750,000 6,700,000 21,750,000
============ ================ ============= ============ ============= =============
Net asset value per
iShare $ 15.04 $ 62.03 $ 5.38 $ 46.81 $ 23.06 $ 10.79
============ ================ ============= ============ ============= =============
/1/ Securities on loan with market values of $-, $33,887,337, $9,639,408, $-,
$- and $-, respectively. See Note 5.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS 57
Statements of Operations
iSHARES, INC.
Year Ended August 31, 2003
iSHARES MSCI
-----------------------------------------------------------------------------------------------
Australia Brazil Canada Emerging Markets Hong Kong Malaysia
Index Fund Index Fund Index Fund Index Fund/2/ Index Fund Index Fund
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Dividends/1/ $ 3,314,025 $ 2,803,978 $ 7,417,740 $ 1,056,076 $ 5,198,103 $ 2,134,672
Interest 1,352 2,371 2,754 829 4,066 2,173
Securities lending
income 7,842 - 89,707 - 45,099 -
------------ ------------ ------------- ---------------- ------------- -------------
Total investment income 3,323,219 2,806,349 7,510,201 1,056,905 5,247,268 2,136,845
------------ ------------ ------------- ---------------- ------------- -------------
EXPENSES (Note 2)
Advisory fees 484,058 453,177 2,434,382 322,206 792,826 458,706
Distribution fees 205,109 153,100 1,031,966 - 335,943 194,367
Stock dividend tax
expense - - - 27,634 - -
------------ ------------ ------------- ---------------- ------------- -------------
Total expenses 689,167 606,277 3,466,348 349,840 1,128,769 653,073
------------ ------------ ------------- ---------------- ------------- -------------
Net investment income 2,634,052 2,200,072 4,043,853 707,065 4,118,499 1,483,772
------------ ------------ ------------- ---------------- ------------- -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
Net realized gain
(loss) from:
Investments (770,694) (37,862,231) (7,488,265) (480,445) (7,620,342) (1,297,328)
In-kind redemptions 4,147,809 - 51,216,925 - 6,062,840 -
Foreign currency
transactions 40,761 (246,836) 144,359 (4,801) (132) (8,856)
------------ ------------ ------------- ---------------- ------------- -------------
Net realized gain
(loss) 3,417,876 (38,109,067) 43,873,019 (485,246) (1,557,634) (1,306,184)
------------ ------------ ------------- ---------------- ------------- -------------
Net change in
unrealized
appreciation
(depreciation) on:
Investments 12,048,586 52,968,106 100,028,889 29,809,126 32,371,246 4,269,396
Translation of assets
and liabilities in
foreign currencies (9,724) 103,208 50 (2,232) (84) 58
------------ ------------ ------------- ---------------- ------------- -------------
Net change in
unrealized
appreciation
(depreciation) 12,038,862 53,071,314 100,028,939 29,806,894 32,371,162 4,269,454
------------ ------------ ------------- ---------------- ------------- -------------
Net realized and
unrealized gain 15,456,738 14,962,247 143,901,958 29,321,648 30,813,528 2,963,270
------------ ------------ ------------- ---------------- ------------- -------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $ 18,090,790 $ 17,162,319 $ 147,945,811 $ 30,028,713 $ 34,932,027 $ 4,447,042
============ ============ ============= ================ ============= =============
/1/ Net of foreign withholding tax of $93,512, $335,086, $1,272,827, $96,581,
$- and $568,826, respectively.
/2/ For the period from April 7, 2003 (commencement of operations) to August
31, 2003.
SEE NOTES TO FINANCIAL STATEMENTS.
58 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Statements of Operations (Continued)
iSHARES, INC.
Year Ended August 31, 2003
iSHARES MSCI
---------------------------------------------------------------------------------------------
Mexico Pacific ex-Japan Singapore South Africa South Korea Taiwan
Index Fund Index Fund Index Fund Index Fund/2/ Index Fund Index Fund
- ------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Dividends/1/ $ 1,238,496 $ 6,204,389 $ 2,885,211 $ 1,919,874 $ 2,259,677 $ 2,597,193
Interest 18,996 3,549 1,320 292 2,231 879
Securities lending
income - 20,489 13,052 - - -
------------- ---------------- ------------ ------------- ------------ ------------
Total investment income 1,257,492 6,228,427 2,899,583 1,920,166 2,261,908 2,598,072
------------- ---------------- ------------ ------------- ------------ ------------
EXPENSES (Note 2)
Advisory fees 327,547 784,366 311,428 292,742 850,510 1,100,203
Administration fee - - 41,335 - - -
Distribution fees 138,791 - 206,677 98,900 287,334 371,690
Custodian fees and
expenses - - 87,868 - - -
Directors' fees - - 6,132 - - -
Professional fees - - 29,252 - - -
Federal and state
registration fees - - 1,974 - - -
Insurance - - 3,030 - - -
Printing - - 6,119 - - -
AMEX listing fee - - 620 - - -
Stock dividend tax
expense - - - - 791 482,480
------------- ---------------- ------------ ------------- ------------ ------------
Total expenses 466,338 784,366 694,435 391,642 1,138,635 1,954,373
------------- ---------------- ------------ ------------- ------------ ------------
Net investment income 791,154 5,444,061 2,205,148 1,528,524 1,123,273 643,699
------------- ---------------- ------------ ------------- ------------ ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
Net realized gain (loss)
from:
Investments (4,422,733) (3,406,128) (5,564,986) (532,342) (4,761,516) (15,294,689)
In-kind redemptions (6,691,435) 3,538,509 922,805 - - -
Foreign currency
transactions (15,322) 56,348 (3,074) 59,329 28,166 2,747
------------- ---------------- ------------ ------------- ------------ ------------
Net realized gain
(loss) (11,129,490) 188,729 (4,645,255) (473,013) (4,733,350) (15,291,942)
------------- ---------------- ------------ ------------- ------------ ------------
Net change in
unrealized
appreciation
(depreciation) on:
Investments 16,150,674 27,857,795 11,587,609 12,460,361 18,288,992 52,060,764
Translation of assets
and liabilities in
foreign currencies (4,088) (9,586) (538) 1,741 (13) 14,575
------------- ---------------- ------------ ------------- ------------ ------------
Net change in
unrealized
appreciation
(depreciation) 16,146,586 27,848,209 11,587,071 12,462,102 18,288,979 52,075,339
------------- ---------------- ------------ ------------- ------------ ------------
Net realized and
unrealized gain 5,017,096 28,036,938 6,941,816 11,989,089 13,555,629 36,783,397
------------- ---------------- ------------ ------------- ------------ ------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $ 5,808,250 $ 33,480,999 $ 9,146,964 $ 13,517,613 $ 14,678,902 $ 37,427,096
============= ================ ============ ============= ============ ============
/1/ Net of foreign withholding tax of $-, $330,417, $761,796, $-, $446,785 and
$638,589, respectively.
/2/ For the period from February 3, 2003 (commencement of operations) to August
31, 2003.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS 59
Statements of Changes in Net Assets
iSHARES, INC.
iSHARES MSCI iSHARES MSCI iSHARES MSCI
AUSTRALIA BRAZIL CANADA
INDEX FUND INDEX FUND INDEX FUND
-------------------------------- -------------------------------- --------------------------------
For the For the For the For the For the For the
year ended year ended year ended year ended year ended year ended
August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 2,634,052 $ 1,661,926 $ 2,200,072 $ 3,197,076 $ 4,043,853 $ 256,056
Net realized gain
(loss) 3,417,876 (28,752) (38,109,067) (67,653,062) 43,873,019 140,024
Net change in
unrealized
appreciation
(depreciation) 12,038,862 (1,962,887) 53,071,314 (30,760,002) 100,028,939 (8,820,159)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease)
in net assets resulting
from operations 18,090,790 (329,713) 17,162,319 (95,215,988) 147,945,811 (8,424,079)
--------------- --------------- --------------- --------------- --------------- ---------------
Undistributed net
investment income
included in the price
of capital shares
issued or redeemed - 3,111 - 38,281 - (670)
--------------- --------------- --------------- --------------- --------------- ---------------
DISTRIBUTIONS TO
iSHAREHOLDERS:
From net investment
income (2,180,684) (256,001) (733,550) - (1,067,330) (24,000)
--------------- --------------- --------------- --------------- --------------- ---------------
Total distributions to
iShareholders (2,180,684) (256,001) (733,550) - (1,067,330) (24,000)
--------------- --------------- --------------- --------------- --------------- ---------------
iSHARES TRANSACTIONS:
iShares sold 8,283,804 23,805,539 52,276,580 235,842,533 505,287,212 49,188,050
iShares redeemed (13,383,892) (3,803,959) (49,458,528) (70,880,598) (215,179,302) (3,207,637)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease)
in net assets from
iShares transactions (5,100,088) 20,001,580 2,818,052 164,961,935 290,107,910 45,980,413
--------------- --------------- --------------- --------------- --------------- ---------------
INCREASE IN NET ASSETS 10,810,018 19,418,977 19,246,821 69,784,228 436,986,391 37,531,664
NET ASSETS:
Beginning of year 76,730,747 57,311,770 83,787,790 14,003,562 66,420,423 28,888,759
--------------- --------------- --------------- --------------- --------------- ---------------
End of year $ 87,540,765 $ 76,730,747 $ 103,034,611 $ 83,787,790 $ 503,406,814 $ 66,420,423
=============== =============== =============== =============== =============== ===============
Undistributed net
investment income
included in net assets
at end of year $ 2,067,131 $ 1,354,021 $ 1,915,236 $ 695,550 $ 3,350,221 $ 229,339
=============== =============== =============== =============== =============== ===============
iSHARES ISSUED AND
REDEEMED:
iShares sold 800,000 2,400,000 5,350,000 17,900,000 53,800,000 4,600,000
iShares redeemed (1,200,000) (400,030) (7,000,000) (9,050,000) (19,700,000) (300,030)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease)
in iShares outstanding (400,000) 1,999,970 (1,650,000) 8,850,000 34,100,000 4,299,970
=============== =============== =============== =============== =============== ===============
SEE NOTES TO FINANCIAL STATEMENTS.
60 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Statements of Changes in Net Assets (Continued)
iSHARES, INC.
iSHARES MSCI iSHARES MSCI iSHARES MSCI
EMERGING MARKETS HONG KONG MALAYSIA
INDEX FUND INDEX FUND INDEX FUND
----------------- -------------------------------- --------------------------------
For the period For the For the For the For the
April 7, 2003/1/ year ended year ended year ended year ended
to August 31, 2003 August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002
- ----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 707,065 $ 4,118,499 $ 1,955,056 $ 1,483,772 $ 1,260,921
Net realized gain
(loss) (485,246) (1,557,634) 860,719 (1,306,184) (2,073,441)
Net change in
unrealized
appreciation
(depreciation) 29,806,894 32,371,162 (18,574,344) 4,269,454 6,091,302
---------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from operations 30,028,713 34,932,027 (15,758,569) 4,447,042 5,278,782
---------------- ------------- ------------- ------------- -------------
Undistributed net
investment income
included in the price
of capital shares
issued or redeemed - - 9,753 - (49,579)
---------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS TO
iSHAREHOLDERS:
From net investment
income - (2,327,202) (387,060) (1,342,811) (411,751)
---------------- ------------- ------------- ------------- -------------
Total distributions to
iShareholders - (2,327,202) (387,060) (1,342,811) (411,751)
---------------- ------------- ------------- ------------- -------------
iSHARES TRANSACTIONS:
iShares sold 267,817,496 168,140,088 77,492,553 22,654,462 27,772,630
iShares redeemed - (49,620,095) (14,800,647) (19,290,970) (20,205,691)
---------------- ------------- ------------- ------------- -------------
Net increase in net
assets from iShares
transactions 267,817,496 118,519,993 62,691,906 3,363,492 7,566,939
---------------- ------------- ------------- ------------- -------------
INCREASE IN NET ASSETS 297,846,209 151,124,818 46,556,030 6,467,723 12,384,391
NET ASSETS:
Beginning of period - 99,502,122 52,946,092 93,261,857 80,877,466
---------------- ------------- ------------- ------------- -------------
End of period $ 297,846,209 $ 250,626,940 $ 99,502,122 $ 99,729,580 $ 93,261,857
================ ============= ============= ============= =============
Undistributed net
investment income
included in net assets
at end of period $ 702,264 $ 3,358,893 $ 1,567,728 $ 976,401 $ 844,296
================ ============= ============= ============= =============
iSHARES ISSUED AND
REDEEMED:
iShares sold 2,200,000 21,525,000 8,100,000 3,975,000 4,575,000
iShares redeemed - (6,225,000) (1,576,000) (3,750,000) (3,975,030)
---------------- ------------- ------------- ------------- -------------
Net increase in iShares
outstanding 2,200,000 15,300,000 6,524,000 225,000 599,970
================ ============= ============= ============= =============
/1/ Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS 61
Statements of Changes in Net Assets (Continued)
iSHARES, INC.
iSHARES MSCI iSHARES MSCI iSHARES MSCI
MEXICO PACIFIC EX-JAPAN SINGAPORE
INDEX FUND INDEX FUND INDEX FUND
-------------------------------- ------------------------------------ --------------------------------
For the period
For the For the For the October 25, 2001/1/ For the For the
year ended year ended year ended to year ended year ended
August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 791,154 $ 1,946,658 $ 5,444,061 $ 1,360,533 $ 2,205,148 $ 1,198,517
Net realized gain
(loss) (11,129,490) (3,016,406) 188,729 182,427 (4,645,255) (2,787,081)
Net change in
unrealized
appreciation
(depreciation) 16,146,586 (21,823,385) 27,848,209 (5,086,667) 11,587,071 (3,949,708)
------------ ------------ ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from operations 5,808,250 (22,893,133) 33,480,999 (3,543,707) 9,146,964 (5,538,272)
------------ ------------ ------------- ------------- ------------- -------------
Undistributed net
investment income
included in the price
of capital shares
issued or redeemed - (39,128) - 2,522 - 17,460
------------ ------------ ------------- ------------- ------------- -------------
DISTRIBUTIONS TO
iSHAREHOLDERS:
From net investment
income (1,985,056) (161,002) (2,734,116) (135,000) (1,331,268) (596,000)
------------ ------------ ------------- ------------- ------------- -------------
Total distributions to
iShareholders (1,985,056) (161,002) (2,734,116) (135,000) (1,331,268) (596,000)
------------ ------------ ------------- ------------- ------------- -------------
iSHARES TRANSACTIONS:
iShares sold 35,186,944 201,695,400 104,747,751 114,332,732 17,230,968 31,258,149
iShares redeemed (49,848,527) (153,663,820) (17,225,922) (5,627,734) (4,970,610) (10,718,594)
------------ ------------ ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets from
iShares transactions (14,661,583) 48,031,580 87,521,829 108,704,998 12,260,358 20,539,555
------------ ------------ ------------- ------------- ------------- -------------
INCREASE (DECREASE) IN
NET ASSETS (10,838,389) 24,938,317 118,268,712 105,028,813 20,076,054 14,422,743
NET ASSETS:
Beginning of period 70,993,824 46,055,507 105,028,813 - 88,126,376 73,703,633
------------ ------------ ------------- ------------- ------------- -------------
End of period $ 60,155,435 $ 70,993,824 $ 223,297,525 $ 105,028,813 $ 108,202,430 $ 88,126,376
============ ============ ============= ============= ============= =============
Undistributed net
investment income
included in net assets
at end of period $ 597,687 $ 1,806,911 $ 4,181,906 $ 1,225,006 $ 1,491,917 $ 621,111
============ ============ ============= ============= ============= =============
iSHARES ISSUED AND
REDEEMED:
iShares sold 2,500,000 12,200,000 1,900,000 2,100,000 3,500,000 5,700,000
iShares redeemed (3,700,000) (10,000,030) (300,000) (100,000) (1,000,000) (1,900,030)
------------ ------------ ------------- ------------- ------------- -------------
Net increase (decrease)
in iShares outstanding (1,200,000) 2,199,970 1,600,000 2,000,000 2,500,000 3,799,970
============ ============ ============= ============= ============= =============
/1/ Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
62 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Statements of Changes in Net Assets (Continued)
iSHARES, INC.
iSHARES MSCI iSHARES MSCI iSHARES MSCI
SOUTH AFRICA SOUTH KOREA TAIWAN
INDEX FUND INDEX FUND INDEX FUND
------------------- -------------------------------- --------------------------------
For the period
February 3, 2003/1/ For the For the For the For the
to year ended year ended year ended year ended
August 31, 2003 August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002
- --------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income
(loss) $ 1,528,524 $ 1,123,273 $ (7,986) $ 643,699 $ (418,999)
Net realized gain
(loss) (473,013) (4,733,350) 165,543 (15,291,942) (8,161,934)
Net change in
unrealized
appreciation
(depreciation) 12,462,102 18,288,979 30,105,280 52,075,339 2,228,562
------------ ------------- ------------ ------------- -------------
Net increase (decrease)
in net assets resulting
from operations 13,517,613 14,678,902 30,262,837 37,427,096 (6,352,371)
------------ ------------- ------------ ------------- -------------
Undistributed net
investment income
included in the price
of capital shares
issued or redeemed - - - - 4,467
------------ ------------- ------------ ------------- -------------
iSHARES TRANSACTIONS:
iShares sold 68,396,211 66,418,682 38,694,565 55,256,747 37,605,113
iShares redeemed - (22,948,093) (10,388,731) - -
------------ ------------- ------------ ------------- -------------
Net increase in net
assets from iShares
transactions 68,396,211 43,470,589 28,305,834 55,256,747 37,605,113
------------ ------------- ------------ ------------- -------------
INCREASE IN NET ASSETS 81,913,824 58,149,491 58,568,671 92,683,843 31,257,209
NET ASSETS:
Beginning of period - 96,336,024 37,767,353 142,043,437 110,786,228
------------ ------------- ------------ ------------- -------------
End of period $ 81,913,824 $ 154,485,515 $ 96,336,024 $ 234,727,280 $ 142,043,437
============ ============= ============ ============= =============
Undistributed net
investment income
included in net assets
at end of period $ 1,587,853 $ 1,142,788 $ (8,651) $ 637,002 $ (9,444)
============ ============= ============ ============= =============
iSHARES ISSUED AND
REDEEMED:
iShares sold 1,750,000 3,300,000 2,150,000 5,650,000 3,800,000
iShares redeemed - (1,150,000) (450,000) - -
------------ ------------- ------------ ------------- -------------
Net increase in iShares
outstanding 1,750,000 2,150,000 1,700,000 5,650,000 3,800,000
============ ============= ============ ============= =============
/1/ Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS 63
Financial Highlights
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI AUSTRALIA INDEX FUND
---------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 9.36 $ 9.24 $ 9.93 $ 9.99 $ 7.75
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/1/ 0.32 0.23 0.24 0.23 0.20
Net realized and
unrealized gain
(loss) 1.81 (0.07) (0.71) (0.04) 2.29
------------- ------------- ------------- ------------- -------------
Total from investment
operations 2.13 0.16 (0.47) 0.19 2.49
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.27) (0.04) (0.20) (0.23) (0.19)
Return of capital - - (0.02) (0.02) (0.06)
------------- ------------- ------------- ------------- -------------
Total distributions (0.27) (0.04) (0.22) (0.25) (0.25)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 11.22 $ 9.36 $ 9.24 $ 9.93 $ 9.99
============= ============= ============= ============= =============
TOTAL RETURN 23.33% 1.74% (4.77)% 1.84% 32.09%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 87,541 $ 76,731 $ 57,312 $ 61,574 $ 53,957
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 0.95% 1.00%
Ratio of net investment
income to average net
assets 3.21% 2.47% 2.54% 2.22% 2.03%
Portfolio turnover
rate/2/ 8% 5% 23% 36% 14%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
SEE NOTES TO FINANCIAL STATEMENTS.
64 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI BRAZIL INDEX FUND
------------------------------------------------------------------
Period from
Jul. 10, 2000/7/
Year ended Year ended Year ended to
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 8.30 $ 11.20 $ 19.25 $ 20.22
------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income/3/ 0.32 0.38 0.68 0.02
Net realized and unrealized
gain (loss) 3.68 (3.28) (8.09) (0.63)
------------- ------------- ------------- -------------
Total from investment
operations 4.00 (2.90) (7.41) (0.61)
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.11) - (0.56) (0.02)
Net realized gain - - - (0.34)
Return of capital - - (0.08) -
------------- ------------- ------------- -------------
Total distributions (0.11) - (0.64) (0.36)
------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 12.19 $ 8.30 $ 11.20 $ 19.25
============= ============= ============= =============
TOTAL RETURN 48.85% (25.89)% (38.52)% (2.97)%/5/
============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $ 103,035 $ 83,788 $ 14,004 $ 18,283
Ratio of expenses to average
net assets/6/ 0.99% 0.99% 0.99% 0.99%/1/
Ratio of net investment
income to average net
assets/6/ 3.59% 3.50% 4.44% 0.77%/2/
Portfolio turnover rate/4/ 85% 103% 43% 64%
/1/ Ratio of expenses to average net assets prior to waived fees and reimbursed
expenses for the period ended August 31, 2000 was 1.40%.
/2/ Ratio of net investment income to average net assets prior to waived fees
and reimbursed expenses for the period ended August 31, 2000 was 0.37%.
/3/ Based on average shares outstanding throughout the period.
/4/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/5/ Not annualized.
/6/ Annualized for periods of less than one year.
/7/ Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 65
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI CANADA INDEX FUND
----------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 9.49 $ 10.70 $ 16.94 $ 13.22 $ 9.90
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/3/ 0.10 0.07 0.05 0.70 0.07
Net realized and
unrealized gain (loss) 2.69 (1.27) (5.92) 8.08 3.87
------------- ------------- ------------- ------------- -------------
Total from investment
operations 2.79 (1.20) (5.87) 8.78 3.94
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.03) (0.01) (0.02) (0.55) (0.09)
Net realized gain - - (0.31) (4.39) (0.53)
Return of capital - - (0.04) (0.12) -
------------- ------------- ------------- ------------- -------------
Total distributions (0.03) (0.01) (0.37) (5.06) (0.62)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 12.25 $ 9.49 $ 10.70 $ 16.94 $ 13.22
============= ============= ============= ============= =============
TOTAL RETURN 29.47% (11.23)% (34.95)% 67.21% 39.71%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 503,407 $ 66,420 $ 28,889 $ 22,028 $ 9,253
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 1.17%/1/ 1.23%
Ratio of net investment
income to average net
assets 0.98% 0.70% 0.44% 4.07%/2/ 0.53%
Portfolio turnover
rate/4/ 10% 5% 63% 64% 12%
/1/ Ratio of expenses to average net assets prior to waived fees and reimbursed
expenses for the year ended August 31, 2000 was 1.19%.
/2/ Ratio of net investment income to average net assets prior to waived fees
and reimbursed expenses for the year ended August 31, 2000 was 4.05%.
/3/ Based on average shares outstanding throughout the period.
/4/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
SEE NOTES TO FINANCIAL STATEMENTS.
66 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI EMERGING MARKETS INDEX FUND
----------------------------------------
Period from
Apr. 7, 2003/5/
to
Aug. 31, 2003
- --------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 101.25
----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/1/ 0.78
Net realized and unrealized gain 33.35
----------------
Total from investment operations 34.13
----------------
NET ASSET VALUE, END OF PERIOD $ 135.38
================
TOTAL RETURN/2/ 33.72%
================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $ 297,846
Ratio of expenses to average net assets/3/ 0.78%
Ratio of expenses to average net assets
exclusive of foreign taxes on stock dividends/3/ 0.72%
Ratio of net investment income to average net
assets/3/ 1.58%
Portfolio turnover rate/4/ 10%
/1/ Based on average shares outstanding throughout the period.
/2/ Not annualized.
/3/ Annualized for periods of less than one year.
/4/ Excludes portfolio securities received or delivered as a result of
processing capital shares transactions in Creation Units.
/5/ Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 67
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI HONG KONG INDEX FUND
---------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 7.99 $ 8.93 $ 13.24 $ 11.83 $ 6.41
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income/1/ 0.23 0.23 0.23 0.33 0.29
Net realized and
unrealized gain (loss) 0.95 (1.11) (4.30) 1.42 5.49
------------- ------------- ------------- ------------- -------------
Total from investment
operations 1.18 (0.88) (4.07) 1.75 5.78
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.14) (0.06) (0.23) (0.32) (0.36)
Return of capital - - (0.01) (0.02) -
------------- ------------- ------------- ------------- -------------
Total distributions (0.14) (0.06) (0.24) (0.34) (0.36)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 9.03 $ 7.99 $ 8.93 $ 13.24 $ 11.83
============= ============= ============= ============= =============
TOTAL RETURN 15.14% (9.94)% (30.88)% 14.73% 90.51%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 250,627 $ 99,502 $ 52,946 $ 79,479 $ 77,200
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 0.94% 1.01%
Ratio of net investment
income to average net
assets 3.06% 2.56% 2.11% 2.57% 2.84%
Portfolio turnover
rate/2/ 10% 15% 43% 21% 43%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
SEE NOTES TO FINANCIAL STATEMENTS.
68 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI MALAYSIA INDEX FUND
------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 5.68 $ 5.11 $ 5.96 $ 5.59 $ 2.11
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income/1/ 0.10 0.08 0.06 0.05 0.01
Net realized and
unrealized gain (loss) 0.30 0.52 (0.85) 0.37 3.67
------------- ------------- ------------- ------------- -------------
Total from investment
operations 0.40 0.60 (0.79) 0.42 3.68
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.09) (0.03) (0.06) (0.05) (0.01)
Return of capital - - (0.00)/3/ (0.00)/3/ (0.19)
------------- ------------- ------------- ------------- -------------
Total distributions (0.09) (0.03) (0.06) (0.05) (0.20)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 5.99 $ 5.68 $ 5.11 $ 5.96 $ 5.59
============= ============= ============= ============= =============
TOTAL RETURN 7.39% 11.82% (13.22)% 7.57% 185.81%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 99,730 $ 93,262 $ 80,877 $ 99,206 $ 95,251
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 0.96% 1.43%
Ratio of net investment
income to average net
assets 1.91% 1.53% 1.19% 0.81% 0.33%
Portfolio turnover
rate/2/ 35% 37% 37% 18% 7%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/3/ Rounds to less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 69
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI MEXICO INDEX FUND
-----------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 13.65 $ 15.35 $ 16.72 $ 13.39 $ 8.11
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income/3/ 0.19 0.32 0.17 0.06 0.06
Net realized and
unrealized gain (loss) 1.72 (1.95) (1.36) 3.69 5.36
------------- ------------- ------------- ------------- -------------
Total from investment
operations 1.91 (1.63) (1.19) 3.75 5.42
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.52) (0.07) (0.15) - (0.07)
Net realized gain - - (0.03) (0.42) (0.01)
Return of capital - - - - (0.06)
------------- ------------- ------------- ------------- -------------
Total distributions (0.52) (0.07) (0.18) (0.42) (0.14)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 15.04 $ 13.65 $ 15.35 $ 16.72 $ 13.39
============= ============= ============= ============= =============
TOTAL RETURN 14.60% (10.67)% (7.02)% 28.20% 66.92%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 60,155 $ 70,994 $ 46,056 $ 40,127 $ 21,430
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 1.04%/1/ 1.26%
Ratio of net investment
income to average net
assets 1.43% 2.05% 1.12% 0.35%/2/ 0.52%
Portfolio turnover
rate/4/ 13% 8% 34% 24% 18%
/1/ Ratio of expenses to average net assets prior to waived fees and reimbursed
expenses for the year ended August 31, 2000 was 1.04%.
/2/ Ratio of net investment income to average net assets prior to waived fees
and reimbursed expenses for the year ended August 31, 2000 was 0.35%.
/3/ Based on average shares outstanding throughout the period.
/4/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
SEE NOTES TO FINANCIAL STATEMENTS.
70 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI PACIFIC EX-JAPAN INDEX FUND
----------------------------------------
Period from
Oct. 25, 2001/5/
Year ended to
Aug. 31, 2003 Aug. 31, 2002
- -----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 52.51 $ 50.03
------------- -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/1/ 1.87 1.35
Net realized and unrealized gain 8.53 1.40
------------- -------------
Total from investment operations 10.40 2.75
------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.88) (0.27)
------------- -------------
Total distributions (0.88) (0.27)
------------- -------------
NET ASSET VALUE, END OF PERIOD $ 62.03 $ 52.51
============= =============
TOTAL RETURN 20.15% 5.51%/3/
============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $ 223,298 $ 105,029
Ratio of expenses to average net
assets/4/ 0.50% 0.50%
Ratio of net investment income to
average net assets/4/ 3.47% 2.87%
Portfolio turnover rate/2/ 8% 5%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/3/ Not annualized.
/4/ Annualized for periods of less than one year.
/5/ Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 71
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI SINGAPORE INDEX FUND
---------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 5.01 $ 5.34 $ 7.58 $ 7.93 $ 3.30
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/1/ 0.12 0.07 0.07 0.13 0.05
Net realized and
unrealized gain (loss) 0.33 (0.36) (2.16) (0.21) 4.70
------------- ------------- ------------- ------------- -------------
Total from investment
operations 0.45 (0.29) (2.09) (0.08) 4.75
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.08) (0.04) (0.07) (0.11) (0.11)
Net realized gain - - (0.06) (0.14) -
Return of capital - - (0.02) (0.02) (0.01)
------------- ------------- ------------- ------------- -------------
Total distributions (0.08) (0.04) (0.15) (0.27) (0.12)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 5.38 $ 5.01 $ 5.34 $ 7.58 $ 7.93
============= ============= ============= ============= =============
TOTAL RETURN 9.30% (5.42)% (27.89)% (1.29)% 144.52%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 108,202 $ 88,126 $ 73,704 $ 88,719 $ 113,438
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 0.94% 0.97%
Ratio of net investment
income to average net
assets 2.67% 1.44% 1.15% 1.60% 0.76%
Portfolio turnover
rate/2/ 14% 9% 32% 52% 25%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
SEE NOTES TO FINANCIAL STATEMENTS.
72 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI SOUTH AFRICA INDEX FUND
------------------------------------
Period from
Feb. 3, 2003/5/
to
Aug. 31, 2003
- ----------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 38.72
-----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/1/ 0.89
Net realized and unrealized gain 7.20
-----------
Total from investment operations 8.09
-----------
NET ASSET VALUE, END OF PERIOD $ 46.81
===========
TOTAL RETURN/2/ 20.89%
===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $ 81,914
Ratio of expenses to average net assets/3/ 0.99%
Ratio of net investment income to average net
assets/3/ 3.86%
Portfolio turnover rate/4/ 17%
/1/ Based on average shares outstanding throughout the period.
/2/ Not annualized.
/3/ Annualized for periods less than one year.
/4/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/5/ Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 73
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI SOUTH KOREA INDEX FUND
------------------------------------------------------------------
Period from
May 9, 2000/8/
Year ended Year ended Year ended to
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 21.17 $ 13.25 $ 18.16 $ 20.36
------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)/3/ 0.19 (0.00)/5/ 0.09 (0.04)
Net realized and unrealized
gain (loss) 1.70 7.92 (4.90) (2.16)
------------- ------------- ------------- -------------
Total from investment
operations 1.89 7.92 (4.81) (2.20)
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income - - (0.03) -
Return of capital - - (0.07) -
------------- ------------- ------------- -------------
Total distributions - - (0.10) -
------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 23.06 $ 21.17 $ 13.25 $ 18.16
============= ============= ============= =============
TOTAL RETURN 8.93% 59.77% (26.49)% (10.81)%/6/
============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $ 154,486 $ 96,336 $ 37,767 $ 13,622
Ratio of expenses to average
net assets/7/ 0.99% 1.00% 1.01% 0.99%/1/
Ratio of expenses to average
net assets exclusive of
foreign taxes on stock
dividends/7/ 0.99% 0.99% 0.99% 0.99%
Ratio of net investment
income (loss) to average
net assets/7/ 0.98% (0.01)% 0.64% (0.63)%/2/
Portfolio turnover rate/4/ 39% 25% 39% 55%
/1/ Ratio of expenses to average net assets prior to waived fees and reimbursed
expenses for the period ended August 31, 2000 was 1.38%.
/2/ Ratio of net investment loss to average net assets prior to waived fees and
reimbursed expenses for the period ended August 31, 2000 was (1.02)%.
/3/ Based on average shares outstanding throughout the period.
/4/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/5/ Rounds to less than $0.01.
/6/ Not annualized.
/7/ Annualized for periods of less than one year.
/8/ Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
74 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI TAIWAN INDEX FUND
-------------------------------------------------------------------
Period from
Jun. 20, 2000/7/
Year ended Year ended Year ended to
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 8.82 $ 9.01 $ 16.41 $ 19.59
------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)/3/ 0.04 (0.03) (0.03) (0.01)
Net realized and unrealized
gain (loss) 1.93 (0.16) (7.37) (2.31)
------------- ------------- ------------- -------------
Total from investment
operations 1.97 (0.19) (7.40) (2.32)
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income - - - (0.32)
Net realized gain - - - (0.10)
Return of capital - - - (0.44)
------------- ------------- ------------- -------------
Total distributions - - - (0.86)
------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 10.79 $ 8.82 $ 9.01 $ 16.41
============= ============= ============= =============
TOTAL RETURN 22.45% (2.11)% (45.09)% (12.10)%/5/
============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $ 234,727 $ 142,043 $ 110,786 $ 42,667
Ratio of expenses to average
net assets/6/ 1.31% 1.33% 1.60% 1.56%/1/
Ratio of expenses to average
net assets exclusive of
foreign taxes on stock
dividends/6/ 0.99% 0.99% 0.99% 0.99%
Ratio of net investment
income (loss) to average
net assets/6/ 0.43% (0.28)% (0.23)% (0.28)%/2/
Portfolio turnover rate/4/ 15% 11% 30% 52%
/1/ Ratio of expenses to average net assets prior to waived fees and reimbursed
expenses for the period ended August 31, 2000 was 2.16%.
/2/ Ratio of net investment loss to average net assets prior to waived fees and
reimbursed expenses for the period ended August 31, 2000 was (0.89)%.
/3/ Based on average shares outstanding throughout the period.
/4/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/5/ Not annualized.
/6/ Annualized for periods of less than one year.
/7/ Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 75
Notes to the Financial Statements
iSHARES, INC.
1. SIGNIFICANT ACCOUNTING POLICIES
iShares, Inc. (the "Company") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company.
The Company was incorporated under the laws of the State of Maryland on
September 1, 1994. As of August 31, 2003, the Company offered 24 investment
portfolios or funds.
These financial statements relate only to the iShares MSCI Australia, iShares
MSCI Brazil, iShares MSCI Canada, iShares MSCI Emerging Markets, iShares MSCI
Hong Kong, iShares MSCI Malaysia, iShares MSCI Mexico, iShares MSCI Pacific
ex-Japan, iShares MSCI Singapore, iShares MSCI South Africa, iShares MSCI South
Korea and iShares MSCI Taiwan Index Funds (each a "Fund", collectively the
"Funds").
The investment objective of each Fund is to seek investment results that
correspond generally to the price and yield performance, before fees and
expenses, of publicly traded securities in the aggregate in a particular market,
as measured by a particular equity securities index compiled by Morgan Stanley
Capital International Inc. ("MSCI"). The investment advisor utilizes a "passive"
or index approach to achieve each Fund's investment objective. Each of the Funds
is classified as a non-diversified fund under the 1940 Act. Non-diversified
funds generally hold stocks in fewer companies than diversified funds and may be
more susceptible to the risks associated with these particular companies, or to
a single economic, political or regulatory occurrence.
Each Fund invests in the securities of foreign issuers of a single country or
region, which may involve certain considerations and risks not typically
associated with securities of U.S. issuers. Such risks include, but are not
limited to: generally less liquid and less efficient securities markets;
generally greater price volatility; exchange rate fluctuations and exchange
controls; imposition of restrictions on the expatriation of funds or other
assets of the Fund; less publicly available information about issuers; the
imposition of withholding or other taxes; higher transaction and custody costs;
settlement delays and risk of loss attendant in settlement procedures;
difficulties in enforcing contractual obligations; lesser regulation of
securities markets; different accounting, disclosure and reporting requirements;
more substantial governmental involvement in the economy; higher inflation
rates; greater social, economic and political uncertainties; the risk of
nationalization or expropriation of assets; and the risk of war.
Under the Funds' organizational documents, their officers and directors are
indemnified against certain liabilities that may arise out of the performance of
their duties to the Funds. Additionally, in the normal course of business, the
Funds enter into contracts with service providers that contain general
indemnification clauses. The Funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Funds
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
The following significant accounting policies are consistently followed by the
Company in the preparation of its financial statements in conformity with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") for investment companies. The preparation of financial statements in
conformity with U.S. GAAP requires management to make certain estimates and
assumptions. Actual results could differ from those estimates.
Certain prior year amounts in the financial statements have been reclassified to
be consistent with the current period presentation. Those reclassifications had
no impact on prior year net assets, net income or distributions.
SECURITY VALUATION
Portfolio securities for which market prices are readily available are valued
using the official closing price 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 Funds. Short-term investments are valued at
amortized cost,
76 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements (Continued)
iSHARES, INC.
which approximates market value. Mutual fund shares are valued at net asset
value. Any securities, including restricted securities or other assets for which
market quotations are not readily available, or for which a significant event
has occurred since the time of the most recent market quotation, are valued in
accordance with fair value pricing policies approved by the Company's Board of
Directors.
SECURITY TRANSACTIONS, INCOME RECOGNITION AND EXPENSES
Security transactions are accounted for on trade date. Dividend income is
recognized on the ex-dividend date, and interest income is accrued daily.
Realized gains and losses on investment transactions are determined using the
specific identification method. Common expenses incurred by the Company prior to
December 28, 2001 were allocated to the Funds based on the ratio of average net
assets of each Fund to the combined net assets of all funds offered by the
Company, or other appropriate method. Other expenses, directly related to a
specific fund, were charged to that fund. The expenses for the iShares MSCI
Singapore Index Fund are still allocated to that Fund using this methodology.
Additional details of the current expense structure may be found in Note 2.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in foreign currencies
are translated into U.S. dollars at the prevailing rates of exchange on the
valuation date. Purchases and sales of securities, income receipts and expense
payments are translated into U.S. dollars at the prevailing exchange rate on the
respective dates of such transactions.
Foreign currency and assets and liabilities denominated in foreign currency are
generally converted into U.S. dollars using the same exchange rates utilized 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 exchange
rate from the rate used by MSCI in the event that the investment advisor
concludes that such rate is more appropriate.
Each Fund does not isolate the effect of fluctuations in foreign exchange rates
from the effect of fluctuations in the market prices of securities. Such
fluctuations are reflected by the Funds as a component of realized and
unrealized gains and losses from investments for financial reporting purposes.
FOREIGN TAXES
South Korea and Taiwan levy taxes at rates of 16.5% and up to 20.0%,
respectively, based on the par value of stock dividends received by the iShares
MSCI Emerging Markets, iShares MSCI South Korea and iShares MSCI Taiwan Index
Funds. These taxes are paid by the Funds receiving the stock dividends and are
disclosed in their respective Statements of Operations.
EQUALIZATION
Prior to January 1, 2002, the Funds used the accounting practice of
equalization. This accounting method was used to keep the continuing
shareholders' per share equity in undistributed net investment income from being
affected by the continuous sales and redemptions of capital stock. Equalization
is calculated on a per share basis whereby a portion of the proceeds from sales
and costs of repurchases of capital stock is applied to undistributed net
investment income. The amounts of equalization are disclosed in the Statements
of Changes in Net Assets as undistributed net investment income included in the
price of capital shares issued or redeemed.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income, if any, including any
net foreign currency gains, are declared and distributed at least annually by
each Fund. Distributions of net realized gains, if any, generally are declared
and distributed once a year. Distributions are determined on a tax basis and may
differ from net investment income and net realized capital gains for financial
reporting purposes. Dividends and distributions are paid in U.S. dollars and
cannot be automatically reinvested in additional shares of the Funds.
NOTES TO THE FINANCIAL STATEMENTS 77
Notes to the Financial Statements (Continued)
iSHARES, INC.
At August 31, 2003, the tax year-end of the Funds, the components of
distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED TOTAL DISTRIBUTABLE
iSHARES MSCI INDEX FUND ORDINARY INCOME LONG-TERM GAIN EARNINGS
-----------------------------------------------------------------------------
Australia $ 2,821,102 $ - $ 2,821,102
Brazil 1,915,236 - 1,915,236
Canada 3,350,221 - 3,350,221
Emerging Markets 702,264 - 702,264
Hong Kong 3,456,795 - 3,456,795
Malaysia 976,401 - 976,401
Mexico 597,687 - 597,687
Pacific ex-Japan 5,183,483 - 5,183,483
Singapore 1,698,638 - 1,698,638
South Africa 1,587,853 - 1,587,853
South Korea 1,142,789 - 1,142,789
Taiwan 637,002 - 637,002
-----------------------------------------------------------------------------
For the year ended August 31, 2003, the tax characterization of distributions
paid was equal to the book characterization of distributions paid for all of the
Funds. The total distributions and distributions per share are disclosed in the
accompanying Statements of Changes in Net Assets and the Financial Highlights
for all Funds.
FEDERAL INCOME TAXES
Each Fund is treated as a separate entity for federal income tax purposes. It is
the policy of each Fund to qualify as a regulated investment company, as defined
in Subchapter M of the Internal Revenue Code of 1986, as amended, and to
annually distribute all of its net income and any net gains (taking into account
any capital loss carryforwards) sufficient to relieve it from all, or
substantially all, federal income and excise taxes. Accordingly, no provision
for federal income taxes was required for the year ended August 31, 2003.
From November 1, 2002 to August 31, 2003, the Funds incurred net realized
capital losses and net foreign exchange losses. As permitted by tax regulations,
the Funds have elected to defer those losses and treat them as arising in the
year ending August 31, 2004, as follows:
DEFERRED
NET REALIZED
CAPITAL/NET FOREIGN
iSHARES MSCI INDEX FUND CURRENCY LOSSES
---------------------------------------------
Australia $ 603,906
Brazil 1,169,403
Canada 259,289
Emerging Markets 470,743
Hong Kong 2,330,007
Malaysia 889,726
Mexico 3,516,601
Pacific ex-Japan 1,940,878
Singapore 4,245,784
South Africa 345,024
South Korea 3,370,831
Taiwan 9,179,727
---------------------------------------------
78 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements (Continued)
iSHARES, INC.
The Funds had tax basis net capital loss carryforwards at August 31, 2003, the
tax year-end of the Funds, as follows:
EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
iSHARES MSCI INDEX FUND 2007 2008 2009 2010 2011 TOTAL
- ----------------------------------------------------------------------------------------------------
Australia $ 674,889 $ 630,985 $ 1,971,994 $ 3,625,203 $ 650,082 $ 7,553,153
Brazil - - 94,163 1,993,420 90,139,850 92,227,433
Canada - - - 780,114 21,276 801,390
Hong Kong 4,085,707 - - 4,971,970 2,870,602 11,928,279
Malaysia 8,654,333 - - 9,819,029 2,898,105 21,371,467
Mexico - - - 1,319,032 2,329,290 3,648,322
Pacific ex-Japan - - - - 329,461 329,461
Singapore - - - 4,810,766 4,428,316 9,239,082
South Korea - - 556,540 666,642 504,041 1,727,223
Taiwan - - - 12,532,361 8,689,663 21,222,024
- ----------------------------------------------------------------------------------------------------
Net capital loss carryforwards may be applied against any net realized taxable
gains in each succeeding year, or until their respective expiration dates,
whichever occurs first.
If any of the Funds own shares in certain foreign investment entities, referred
to, under U.S. tax law code, as "passive foreign investment companies", such
Funds may elect to mark-to-market annually the shares of the passive foreign
investment company, and would be required to distribute to shareholders any such
mark-to-market gains.
For the year ended August 31, 2003, each Fund reclassified certain amounts to
paid-in-capital from accumulated net realized gain (loss) on investments and
foreign currency transactions and accumulated net investment income (loss),
respectively, as a result of permanent book and tax differences primarily
attributed to net investment loss, return of capital, passive foreign investment
companies, realized foreign currency gains and losses and gains and losses on
in-kind redemptions. These reclassifications have no effect on net assets or net
asset values per share.
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Barclays Global Fund Advisors ("BGFA") acts as investment advisor to the Company
and is responsible for the investment management of each Fund. BGFA is a
California corporation indirectly owned by Barclays Bank PLC. BGFA serves as
investment advisor to each Fund pursuant to an Advisory Agreement between the
Company and BGFA, as amended December 28, 2001. Under this agreement, BGFA is
responsible for placing purchase and sale orders, providing continuous
supervision of the investment portfolio of each Fund, and the general management
of the Company's affairs.
Under the Advisory Agreement, except for the iShares MSCI Singapore Index Fund,
BGFA is responsible for all of the expenses ("Covered Expenses") of each of the
Funds, other than interest, taxes, brokerage commissions and other expenses
connected with the executions of portfolio transactions, extraordinary expenses,
distribution fees and advisory fees. Prior to December 28, 2001 and pursuant to
the prior advisory agreement, the investment advisory fee earned by and paid to
BGFA with respect to each Fund was reduced by the aggregate of such Fund's fees
and expenses (subject to the exceptions in the prior sentence). BGFA also agreed
to reimburse each Fund to the extent that the expenses of any Fund (subject to
the same exceptions) exceeded the investment advisory fee as stated in the
advisory fee tables below. These fee reduction and reimbursement provisions
still apply to the iShares MSCI Singapore Index Fund.
NOTES TO THE FINANCIAL STATEMENTS 79
Notes to the Financial Statements (Continued)
iSHARES, INC.
For its investment management services to the iShares MSCI Australia, iShares
MSCI Canada, iShares MSCI Hong Kong, iShares MSCI Malaysia, iShares MSCI Mexico
and iShares MSCI Singapore Index Funds, BGFA is entitled to an annual investment
advisory fee based on each Fund's allocable portion of the aggregate net assets
of all the funds offered by the Company (except for the iShares MSCI Brazil,
iShares MSCI Emerging Markets, iShares MSCI Pacific ex-Japan, iShares MSCI South
Africa, iShares MSCI South Korea and iShares MSCI Taiwan Index Funds) as
follows:
ADVISORY FEE AGGREGATE NET ASSETS
----------------------------------------------------------------
0.59% First $7 billion
0.54 Over $7 billion, up to and including $11 billion
0.49 Over $11 billion
----------------------------------------------------------------
For its investment management services to the iShares MSCI Brazil, iShares MSCI
South Africa, iShares MSCI South Korea and iShares MSCI Taiwan Index Funds, BGFA
is entitled to an annual investment advisory fee based on each Fund's allocable
portion of the aggregate net assets of these four Funds as follows:
ADVISORY FEE AGGREGATE NET ASSETS
----------------------------------------------------------------
0.74% First $2 billion
0.69 Over $2 billion, up to and including $4 billion
0.64 Over $4 billion
----------------------------------------------------------------
For its investment management services to the iShares MSCI Pacific ex-Japan
Index Fund, BGFA is entitled to an annual investment advisory fee based on the
average net assets of the Fund of 0.50%. For its investment management services
to the iShares MSCI Emerging Markets Index Fund, BGFA is entitled to an annual
investment advisory fee based on the average net assets of the Fund excluding
any investments in other iShares Funds, of 0.75%.
Barclays Global Investors, N.A. ("BGI") has a license agreement with MSCI for
the use of the relevant MSCI indices. Under a sub-license agreement between BGI
and the Funds, the fees for the use of such MSCI indices are paid directly by
BGI to MSCI.
Investors Bank & Trust Company ("Investors Bank") serves as administrator,
custodian and transfer agent for the Company. As compensation for its services,
Investors Bank receives certain out-of-pocket costs, transaction fees, and
asset-based fees, which are accrued daily and paid monthly. These fees are
Covered Expenses as defined above.
Prior to February 24, 2003, Investors Bank served as securities lending agent
for the Company. Effective February 24, 2003, BGI began serving as securities
lending agent for the Company. BGI is an affiliate of BGFA, the Funds'
investment advisor. The Board of Directors has approved the selection of BGI as
securities lending agent subject to the conditions of the exemptive order that
was issued by the Securities and Exchange Commission ("SEC"). As securities
lending agent, BGI receives a fee based on a share of the income earned on
investment of
80 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements (Continued)
iSHARES, INC.
the cash collateral received for the loan of securities. For the period from
February 24, 2003 through August 31, 2003, BGI earned securities lending agent
fees as follows:
SECURITIES LENDING
iSHARES MSCI INDEX FUND AGENT FEES
-------------------------------------------
Australia $ 7,233
Hong Kong 48,013
Pacific ex-Japan Index 21,578
Singapore 13,921
-------------------------------------------
SEI Investments Distribution Co. (the "Distributor") serves as each Fund's
underwriter and distributor of the shares of each Fund, pursuant to a
Distribution Agreement with the Company. The Company has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Company's
Plan, the Distributor is entitled to receive a distribution fee from each Fund
(other than the iShares MSCI Pacific ex-Japan and iShares MSCI Emerging Markets
Index Funds), not to exceed 0.25% of the average daily net assets of such Fund,
for distribution-related services.
Pursuant to an exemptive order issued by the SEC, each Fund may invest in the
Institutional Shares of the Institutional Money Market Fund ("IMMF") and Prime
Money Market Fund ("PMMF") of Barclays Global Investors Funds. The IMMF and PMMF
are feeder funds in a master/feeder fund structure that invests substantially
all of its assets in the Money Market Master Portfolio and Prime Money Market
Master Portfolio, respectively, which are managed by BGFA, the Funds' investment
advisor. The IMMF and PMMF are open-end money market funds available only to
institutional investors, including other investment companies managed by BGFA.
The IMMF and PMMF seek a high level of income consistent with liquidity and the
preservation of capital. While the IMMF and PMMF do not directly charge an
advisory fee, the master portfolios in which they invest do charge an advisory
fee. Income distributions from the IMMF and PMMF are declared daily and paid
monthly from net investment income. Income distributions earned by the Funds
from temporary cash investments or from investment of securities lending
collateral are recorded as either interest income or securities lending income,
respectively, in the accompanying Statements of Operations.
As of August 31, 2003, certain directors and officers of the Company are also
employees of BGFA and its affiliates or employees of Investors Bank.
The iShares MSCI Emerging Markets Index Fund, in order to improve its portfolio
liquidity and its ability to track the MSCI Emerging Markets Free Index, may
invest in the shares of other iShares Funds that invest in securities in the
Fund's benchmark index. As of August 31, 2003, the iShares MSCI Emerging Markets
Index Fund held shares of the iShares MSCI Malaysia, iShares MSCI South Korea
NOTES TO THE FINANCIAL STATEMENTS 81
Notes to the Financial Statements (Continued)
iSHARES, INC.
and iShares MSCI Taiwan Index Funds. Transactions in shares of these affiliated
Exchange Traded Funds ("ETFs"), including dividend income and net realized
capital gains (losses) during the period ended August 31, 2003 were as follows:
NUMBER OF
SHARES HELD NUMBER OF NET
AFFILIATED BEGINNING GROSS GROSS SHARES HELD DIVIDEND REALIZED
ETF OF PERIOD ADDITIONS REDUCTIONS END OF PERIOD INCOME GAIN
- -----------------------------------------------------------------------------------------------------------
iShares MSCI Malaysia Index Fund - 987,300 692,500 294,800 $ - $ 6,520
iShares MSCI South Korea Index Fund - 208,200 85,000 123,000 - 43,501
iShares MSCI Taiwan Index Fund - 514,000 122,400 391,600 - 48,278
- -----------------------------------------------------------------------------------------------------------
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments (excluding in-kind transactions and
short-term securities) for the year ended August 31, 2003, were as follows:
iSHARES MSCI INDEX FUND PURCHASES SALES
---------------------------------------------------
Australia $ 7,311,522 $ 6,895,938
Brazil 58,180,200 54,084,994
Canada 44,842,334 41,126,471
Emerging Markets 15,503,297 14,423,553
Hong Kong 15,946,704 13,921,103
Malaysia 31,308,903 28,050,757
Mexico 7,402,364 8,496,455
Pacific ex-Japan 15,587,912 12,764,086
Singapore 12,276,557 11,448,889
South Africa 13,681,035 12,281,301
South Korea 89,034,865 44,449,359
Taiwan 78,737,248 23,226,908
---------------------------------------------------
82 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements (Continued)
iSHARES, INC.
In-kind transactions for the year ended August 31, 2003, were as follows:
IN-KIND IN-KIND
iSHARES MSCI INDEX FUND PURCHASES SALES
-----------------------------------------------------
Australia $ 8,245,559 $ 13,351,073
Canada 503,263,739 214,710,714
Emerging Markets 266,433,775 -
Hong Kong 167,279,218 49,532,262
Mexico 35,036,042 49,794,820
Pacific ex-Japan 104,076,256 17,136,327
Singapore 17,111,161 4,936,134
South Africa 68,313,783 -
-----------------------------------------------------
At August 31, 2003, the aggregate unrealized appreciation and depreciation based
on cost for federal income tax purposes were as follows:
NET UNREALIZED
TAX UNREALIZED UNREALIZED APPRECIATION
iSHARES MSCI INDEX FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- -------------------------------------------------------------------------------------
Australia $ 93,687,838 $ 12,767,198 $ (3,827,553) $ 8,939,645
Brazil 99,812,776 3,805,754 (833,155) 2,972,599
Canada 424,214,570 79,370,303 (969,893) 78,400,410
Emerging Markets 267,929,262 31,182,473 (1,383,049) 29,799,424
Hong Kong 282,979,539 13,970,316 (5,420,370) 8,549,946
Malaysia 74,094,311 26,906,823 (1,215,370) 25,691,453
Mexico 67,869,782 1,885,225 (9,603,587) (7,718,362)
Pacific ex-Japan 238,269,358 21,972,571 (1,894,553) 20,078,018
Singapore 123,373,042 4,889,956 (10,280,159) (5,390,203)
South Africa 69,381,897 12,563,143 (290,100) 12,273,043
South Korea 111,805,530 44,542,198 (1,638,760) 42,903,438
Taiwan 226,235,435 24,604,506 (16,632,007) 7,972,499
- -------------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS 83
Notes to the Financial Statements (Continued)
iSHARES, INC.
4. iSHARES TRANSACTIONS
The Company's authorized shares are 10.9 billion shares of $.001 par value
capital stock. The number of shares authorized to each Fund are as follows:
iSHARES MSCI INDEX FUND AUTHORIZED SHARES
-------------------------------------------
Australia 127,800,000
Brazil 500,000,000
Canada 340,200,000
Emerging Markets 500,000,000
Hong Kong 191,400,000
Malaysia 127,800,000
Mexico 255,000,000
Pacific ex-Japan 500,000,000
Singapore 191,400,000
South Africa 200,000,000
South Korea 200,000,000
Taiwan 200,000,000
-------------------------------------------
The Company issues and redeems shares ("iShares") of each Fund only in
aggregations of a specified number of iShares (each, a "Creation Unit") at net
asset value. Except when aggregated in Creation Units, iShares are not
redeemable. Transactions in iShares for each Fund are disclosed in detail in the
Statements of Changes in Net Assets.
The consideration for purchase of Creation Units of a Fund is generally the
in-kind deposit of a designated portfolio of equity securities constituting a
portfolio sampling representation of the corresponding MSCI Index and an amount
of cash (except for the iShares MSCI Brazil, iShares MSCI Malaysia, iShares MSCI
South Korea and iShares MSCI Taiwan Index Funds which are offered in Creation
Units solely for cash in U.S. dollars). A purchase transaction fee and a
redemption transaction fee are charged to offset transfer and other transaction
costs associated with the issuance and redemption of Creation Units of iShares.
5. LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its investment securities to approved borrowers such as
brokers, dealers and other financial institutions. The borrower pledges and
maintains with the Fund collateral consisting of cash, an irrevocable letter of
credit issued by a bank, or securities issued or guaranteed by the U.S.
Government. The initial collateral received is required to have a value of at
least 102% of the market value of the loaned securities denominated in U.S.
dollars and a value of at least 105% for all other securities. The collateral is
maintained thereafter, at a value equal to at least 100% of the current market
value of the securities on loan. The risks to a Fund of securities lending are
that the borrower may not provide additional collateral when required or return
the securities when due.
As of August 31, 2003, certain of the Funds had loaned securities which were
collateralized by cash. The cash collateral received was invested in a joint
account which invests in securities with remaining maturities of 397 days or
less and money market mutual funds. Income from the joint account is allocated
daily to each Fund, based on each Fund's portion of the total cash collateral
received. The market value of the securities on loan at August 31, 2003, and the
value of the related collateral received are disclosed in the Statements of
Assets and Liabilities.
6. LEGAL PROCEEDINGS
The Company has reached a settlement in an action in the U.S. District Court for
the Northern District of Illinois. In the action, a company named Mopex, Inc.
and a company named Realtimemutualfunds.com alleged that the actions of the
Company and others infringed a patent held by Mopex, and that the parties
engaged in a "conspiracy" amongst themselves to infringe the patent. The patent
itself was found to be invalid in a related action to which the Company was not
a party. In the settlement, the plaintiffs' claims and allegations are dismissed
with prejudice, and neither the Company nor any other defendant will pay any
compensation to the plaintiffs.
84 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Report of Independent Auditors
To the Shareholders and Board of Directors of
iShares, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the iShares MSCI Australia Index
Fund, iShares MSCI Brazil Index Fund, iShares MSCI Canada Index Fund, iShares
MSCI Emerging Markets Index Fund, iShares MSCI Hong Kong Index Fund, iShares
MSCI Malaysia Index Fund, iShares MSCI Mexico Index Fund, iShares MSCI Pacific
ex-Japan Index Fund, iShares MSCI Singapore Index Fund, iShares MSCI South
Africa Index Fund, iShares MSCI South Korea Index Fund and iShares MSCI Taiwan
Index Fund, each a portfolio of the iShares MSCI Index Fund Series (the
"Funds"), at August 31, 2003, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
three years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at August 31, 2003 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
The financial statements of the Funds as of August 31, 2000 and for the two
years then ended were audited by other auditors, whose report dated October 13,
2000 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
San Francisco, California
October 3, 2003
REPORT OF INDEPENDENT AUDITORS 85
Tax Information (Unaudited)
iSHARES, INC.
For the year ended August 31, 2003, certain of the Funds earned foreign source
income and paid foreign taxes which they intend to pass through to their
shareholders pursuant to Section 853 of the Internal Revenue Code as follows:
FOREIGN SOURCE FOREIGN
iSHARES MSCI INDEX FUND INCOME EARNED TAXES PAID
-----------------------------------------------------
Australia $ 3,407,537 $ 80,503
Brazil 3,139,064 300,928
Canada 8,690,567 1,167,185
Emerging Markets 1,152,657 118,487
Malaysia 2,703,498 568,826
Pacific ex-Japan 6,534,806 316,661
Singapore 3,647,007 761,350
South Africa 1,919,874 -
South Korea 2,706,462 446,599
Taiwan 3,718,262 1,097,970
-----------------------------------------------------
The following are estimates of qualified dividend income received by the Funds
through August 31, 2003 that qualify for a reduced tax rate pursuant to the Jobs
and Growth Tax Relief Reconciliation Act of 2003:
QUALIFIED
DIVIDEND
iSHARES MSCI INDEX FUND INCOME
-------------------------------------
Australia $ 3,034,223
Canada 8,690,567
Emerging Markets 948,854
Mexico 1,238,496
Pacific ex-Japan Index 3,316,630
South Africa 1,919,874
South Korea 2,706,462
-------------------------------------
86 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Supplemental Information (Unaudited)
iSHARES, INC.
The tables that follow present information about the differences between the
daily market price on secondary markets for shares of an iShares Fund and that
Fund's net asset value. Net asset value, or "NAV", is the price per share at
which each Fund issues and redeems shares. It is calculated in accordance with
the standard formula for valuing mutual fund shares. The "Market Price" of each
iShares Fund generally is determined using the midpoint between the highest bid
and the lowest offer on the Exchange on which the iShares of such Fund is listed
for trading, as of the time that the Fund's NAV is calculated. In the case of
the iShares MSCI Malaysia, iShares MSCI South Korea and iShares MSCI Taiwan
Index Funds, the NAVs of which are determined PRIOR to the opening of the
regular trading day on the American Stock Exchange (the "AMEX"), the Market
Price is determined using the midpoint of the bid/ask spread as of the OPENING
of regular trading on the AMEX. Each Fund's Market Price may be at, above or
below its NAV. The NAV of each Fund will fluctuate with changes in the market
value of its portfolio holdings. The Market Price of each Fund will fluctuate in
accordance with changes in its NAV, as well as market supply and demand.
Premiums or discounts are the differences (expressed as a percentage) between
the NAV and Market Price of a Fund on a given day, generally at the time NAV is
calculated. A premium is the amount that a Fund is trading above the reported
NAV, expressed as a percentage of the NAV. A discount is the amount that a Fund
is trading below the reported NAV, expressed as a percentage of the NAV.
The following information shows the frequency distributions of premiums and
discounts for each of the iShares Funds included in this report. The information
shown for each Fund is generally for the five-year period from July 1, 1998
through June 30, 2003, the date of the most recent calendar quarter-end. The
information shown for the iShares MSCI Brazil, iShares MSCI Pacific ex-Japan,
iShares MSCI South Africa, iShares MSCI South Korea and iShares MSCI Taiwan
Index Funds is for each full calendar quarter completed after the inception date
of each Fund through June 30, 2003. Information for the iShares MSCI Emerging
Markets Index Fund is not presented, as the Fund commenced operations on April
7, 2003 and did not have a full quarter of information as of June 30, 2003.
Each line in the table shows the number of trading days in which the iShares
Fund traded within the premium/discount range indicated. The number of trading
days in each premium/discount range is also shown as a percentage of the total
number of trading days in the period covered by each table. All data presented
here represents past performance, which cannot be used to predict future
results.
SUPPLEMENTAL INFORMATION 87
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI AUSTRALIA INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 3.0% .................................. 4 0.32%
Greater than 2.5% and Less than 3.0% ............... 9 0.72
Greater than 2.0% and Less than 2.5% ............... 23 1.83
Greater than 1.5% and Less than 2.0% ............... 70 5.57
Greater than 1.0% and Less than 1.5% ............... 148 11.77
Greater than 0.5% and Less than 1.0% ............... 272 21.64
BETWEEN 0.5% AND -0.5% ............................. 553 43.99
Less than -0.5% and Greater than -1.0% ............. 99 7.87
Less than -1.0% and Greater than -1.5% ............. 41 3.26
Less than -1.5% and Greater than -2.0% ............. 23 1.83
Less than -2.0% and Greater than -2.5% ............. 7 0.56
Less than -2.5% .................................... 8 0.64
------- -------------
1257 100.00%
======= =============
iSHARES MSCI BRAZIL INDEX FUND
PERIOD COVERED: OCTOBER 1, 2000 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 3.5% .................................. 2 0.29%
Greater than 3.0% and Less than 3.5% ............... 5 0.73
Greater than 2.5% and Less than 3.0% ............... 14 2.03
Greater than 2.0% and Less than 2.5% ............... 19 2.76
Greater than 1.5% and Less than 2.0% ............... 35 5.09
Greater than 1.0% and Less than 1.5% ............... 61 8.87
Greater than 0.5% and Less than 1.0% ............... 105 15.26
BETWEEN 0.5% AND -0.5% ............................. 253 36.76
Less than -0.5% and Greater than -1.0% ............. 68 9.88
Less than -1.0% and Greater than -1.5% ............. 31 4.51
Less than -1.5% and Greater than -2.0% ............. 31 4.51
Less than -2.0% and Greater than -2.5% ............. 25 3.63
Less than -2.5% and Greater than -3.0% ............. 11 1.60
Less than -3.0% and Greater than -3.5% ............. 7 1.02
Less than -3.5% and Greater than -4.0% ............. 7 1.02
Less than -4.0% and Greater than -4.5% ............. 6 0.87
Less than -4.5% and Greater than -5.0% ............. 5 0.73
Less than -5.0% .................................... 3 0.44
------- -------------
688 100.00%
======= =============
88 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI CANADA INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 3.0% .................................. 7 0.56%
Greater than 2.5% and Less than 3.0% ............... 17 1.35
Greater than 2.0% and Less than 2.5% ............... 27 2.15
Greater than 1.5% and Less than 2.0% ............... 61 4.85
Greater than 1.0% and Less than 1.5% ............... 124 9.86
Greater than 0.5% and Less than 1.0% ............... 234 18.62
BETWEEN 0.5% AND -0.5% ............................. 587 46.69
Less than -0.5% and Greater than -1.0% ............. 128 10.18
Less than -1.0% and Greater than -1.5% ............. 50 3.98
Less than -1.5% and Greater than -2.0% ............. 11 0.88
Less than -2.0% .................................... 11 0.88
------- -------------
1257 100.00%
======= =============
iSHARES MSCI HONG KONG INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 4.0% .................................. 10 0.80%
Greater than 3.5% and Less than 4.0% ............... 7 0.56
Greater than 3.0% and Less than 3.5% ............... 11 0.88
Greater than 2.5% and Less than 3.0% ............... 15 1.19
Greater than 2.0% and Less than 2.5% ............... 29 2.31
Greater than 1.5% and Less than 2.0% ............... 55 4.38
Greater than 1.0% and Less than 1.5% ............... 99 7.88
Greater than 0.5% and Less than 1.0% ............... 168 13.37
BETWEEN 0.5% AND -0.5% ............................. 397 31.56
Less than -0.5% and Greater than -1.0% ............. 159 12.65
Less than -1.0% and Greater than -1.5% ............. 99 7.88
Less than -1.5% and Greater than -2.0% ............. 76 6.05
Less than -2.0% and Greater than -2.5% ............. 50 3.98
Less than -2.5% and Greater than -3.0% ............. 29 2.31
Less than -3.0% and Greater than -3.5% ............. 14 1.11
Less than -3.5% and Greater than -4.0% ............. 14 1.11
Less than -4.0% and Greater than -6.0% ............. 12 0.95
Less than -6.0% .................................... 13 1.03
------- -------------
1257 100.00%
======= =============
SUPPLEMENTAL INFORMATION 89
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI MALAYSIA INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 6.0% .................................. 182 14.49%
Greater than 5.5% and Less than 6.0% ............... 11 0.88
Greater than 5.0% and Less than 5.5% ............... 8 0.64
Greater than 4.5% and Less than 5.0% ............... 6 0.48
Greater than 4.0% and Less than 4.5% ............... 12 0.96
Greater than 3.5% and Less than 4.0% ............... 19 1.51
Greater than 3.0% and Less than 3.5% ............... 19 1.51
Greater than 2.5% and Less than 3.0% ............... 21 1.67
Greater than 2.0% and Less than 2.5% ............... 19 1.51
Greater than 1.5% and Less than 2.0% ............... 31 2.47
Greater than 1.0% and Less than 1.5% ............... 47 3.74
Greater than 0.5% and Less than 1.0% ............... 83 6.61
BETWEEN 0.5% AND -0.5% ............................. 209 16.62
Less than -0.5% and Greater than -1.0% ............. 86 6.85
Less than -1.0% and Greater than -1.5% ............. 84 6.69
Less than -1.5% and Greater than -2.0% ............. 82 6.53
Less than -2.0% and Greater than -2.5% ............. 79 6.29
Less than -2.5% and Greater than -3.0% ............. 62 4.94
Less than -3.0% and Greater than -3.5% ............. 47 3.74
Less than -3.5% and Greater than -4.0% ............. 28 2.23
Less than -4.0% and Greater than -4.5% ............. 27 2.15
Less than -4.5% and Greater than -5.0% ............. 15 1.19
Less than -5.0% and Greater than -5.5% ............. 6 0.48
Less than -5.5% and Greater than -6.0% ............. 10 0.80
Less than -6.0% .................................... 63 5.02
------- -------------
1256 100.00%
======= =============
90 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI MEXICO INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 3.5% .................................. 4 0.32%
Greater than 2.5% and Less than 3.5% ............... 12 0.95
Greater than 2.0% and Less than 2.5% ............... 24 1.91
Greater than 1.5% and Less than 2.0% ............... 53 4.22
Greater than 1.0% and Less than 1.5% ............... 123 9.79
Greater than 0.5% and Less than 1.0% ............... 177 14.08
BETWEEN 0.5% AND -0.5% ............................. 480 38.18
Less than -0.5% and Greater than -1.0% ............. 178 14.16
Less than -1.0% and Greater than -1.5% ............. 106 8.43
Less than -1.5% and Greater than -2.0% ............. 48 3.82
Less than -2.0% and Greater than -2.5% ............. 21 1.67
Less than -2.5% and Greater than -3.0% ............. 16 1.27
Less than -3.0% and Greater than -3.5% ............. 9 0.72
Less than -3.5% .................................... 6 0.48
------- -------------
1257 100.00%
======= =============
iSHARES MSCI PACIFIC EX-JAPAN INDEX FUND
PERIOD COVERED: JANUARY 1, 2002 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 3.0% .................................. 4 1.06%
Greater than 2.5% and Less than 3.0% ............... 4 1.06
Greater than 2.0% and Less than 2.5% ............... 9 2.39
Greater than 1.5% and Less than 2.0% ............... 31 8.24
Greater than 1.0% and Less than 1.5% ............... 97 25.80
Greater than 0.5% and Less than 1.0% ............... 99 26.33
BETWEEN 0.5% AND -0.5% ............................. 122 32.46
Less than -0.5% and Greater than -1.0% ............. 7 1.86
Less than -1.0% .................................... 3 0.80
------- -------------
376 100.00%
======= =============
SUPPLEMENTAL INFORMATION 91
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI SINGAPORE INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 4.5% .................................. 7 0.56%
Greater than 4.0% and Less than 4.5% ............... 7 0.56
Greater than 3.5% and Less than 4.0% ............... 6 0.48
Greater than 3.0% and Less than 3.5% ............... 12 0.95
Greater than 2.5% and Less than 3.0% ............... 19 1.51
Greater than 2.0% and Less than 2.5% ............... 31 2.47
Greater than 1.5% and Less than 2.0% ............... 42 3.34
Greater than 1.0% and Less than 1.5% ............... 95 7.56
Greater than 0.5% and Less than 1.0% ............... 105 8.35
BETWEEN 0.5% AND -0.5% ............................. 308 24.50
Less than -0.5% and Greater than -1.0% ............. 171 13.60
Less than -1.0% and Greater than -1.5% ............. 152 12.09
Less than -1.5% and Greater than -2.0% ............. 89 7.08
Less than -2.0% and Greater than -2.5% ............. 79 6.28
Less than -2.5% and Greater than -3.0% ............. 46 3.66
Less than -3.0% and Greater than -3.5% ............. 31 2.47
Less than -3.5% and Greater than -4.0% ............. 26 2.07
Less than -4.0% and Greater than -4.5% ............. 11 0.88
Less than -4.5% and Greater than -5.0% ............. 8 0.64
Less than -5.0% .................................... 12 0.95
------- -------------
1257 100.00%
======= =============
iSHARES MSCI SOUTH AFRICA INDEX FUND
PERIOD COVERED: APRIL 1, 2003 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 1.5% .................................. 1 1.59%
Greater than 1.0% and Less than 1.5% ............... 1 1.59
Greater than 0.5% and Less than 1.0% ............... 15 23.81
BETWEEN 0.5% AND -0.5% ............................. 44 69.84
Less than -0.5% .................................... 2 3.17
------- -------------
63 100.00%
======= =============
92 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI SOUTH KOREA INDEX FUND
PERIOD COVERED: JULY 1, 2000 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 5.0% .................................. 5 0.67%
Greater than 4.5% and Less than 5.0% ............... 5 0.67
Greater than 4.0% and Less than 4.5% ............... 3 0.40
Greater than 3.5% and Less than 4.0% ............... 5 0.67
Greater than 3.0% and Less than 3.5% ............... 8 1.07
Greater than 2.5% and Less than 3.0% ............... 17 2.26
Greater than 2.0% and Less than 2.5% ............... 29 3.86
Greater than 1.5% and Less than 2.0% ............... 60 7.99
Greater than 1.0% and Less than 1.5% ............... 74 9.85
Greater than 0.5% and Less than 1.0% ............... 112 14.91
BETWEEN 0.5% AND -0.5% ............................. 218 29.04
Less than -0.5% and Greater than -1.0% ............. 70 9.32
Less than -1.0% and Greater than -1.5% ............. 52 6.92
Less than -1.5% and Greater than -2.0% ............. 39 5.19
Less than -2.0% and Greater than -2.5% ............. 22 2.93
Less than -2.5% and Greater than -3.0% ............. 11 1.46
Less than -3.0% and Greater than -3.5% ............. 11 1.46
Less than -3.5% and Greater than -4.0% ............. 4 0.53
Less than -4.0% .................................... 6 0.80
------- -------------
751 100.00%
======= =============
SUPPLEMENTAL INFORMATION 93
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI TAIWAN INDEX FUND
PERIOD COVERED: JULY 1, 2000 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 6.0% .................................. 8 1.07%
Greater than 5.0% and Less than 6.0% ............... 5 0.67
Greater than 4.5% and Less than 5.0% ............... 9 1.20
Greater than 4.0% and Less than 4.5% ............... 4 0.53
Greater than 3.5% and Less than 4.0% ............... 12 1.60
Greater than 3.0% and Less than 3.5% ............... 19 2.53
Greater than 2.5% and Less than 3.0% ............... 36 4.79
Greater than 2.0% and Less than 2.5% ............... 36 4.79
Greater than 1.5% and Less than 2.0% ............... 73 9.72
Greater than 1.0% and Less than 1.5% ............... 99 13.18
Greater than 0.5% and Less than 1.0% ............... 105 13.98
BETWEEN 0.5% AND -0.5% ............................. 164 21.85
Less than -0.5% and Greater than -1.0% ............. 54 7.19
Less than -1.0% and Greater than -1.5% ............. 46 6.13
Less than -1.5% and Greater than -2.0% ............. 33 4.39
Less than -2.0% and Greater than -2.5% ............. 11 1.46
Less than -2.5% and Greater than -3.0% ............. 16 2.13
Less than -3.0% and Greater than -3.5% ............. 11 1.46
Less than -3.5% and Greater than -4.5% ............. 4 0.53
Less than -4.5% .................................... 6 0.80
------- -------------
751 100.00%
======= =============
94 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Directors Information (Unaudited)
iSHARES, INC.
The Board of Directors has responsibility for the overall management and
operations of the Company, including general supervision of the duties performed
by BGFA and other service providers. Each Director serves until his or her
successor is duly elected or appointed and qualified.
iShares, Inc., iShares Trust, Barclays Global Investors Funds and Master
Investment Portfolio are considered to be members of the same fund complex, as
defined in Form N-1A under the 1940 Act. Each Director of iShares, Inc. also
serves as a Trustee for iShares Trust and oversees 81 portfolios within the fund
complex. In addition, Lee T. Kranefuss and Richard K. Lyons each serves as a
Trustee for Barclays Global Investors Funds and Master Investment Portfolio and
oversees 106 portfolios within the fund complex. Additional information about
the Funds' Directors may be found in the Funds' Statement of Additional
Information, which is available without charge upon request by calling toll-free
1-800-474-2737.
INTERESTED DIRECTORS+
POSITION(S), PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS LENGTH OF SERVICE DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD
- ----------------------------------------------------------------------------------------------------------------------
*LEE T. KRANEFUSS (41) Director, Chief Executive Officer of the Trustee (since June 18, 2003) of
Barclays Global Chairman, and Individual Investor Business of iShares Trust; Board of Trustees
Investors President (since Barclays Global Investors, N.A.; for Barclays Global Investors Funds
45 Fremont Street June 18, 2003) The Boston Consulting Group (until and Master Investment Portfolio
San Francisco, CA 94105 1997). (since 2001).
*NATHAN MOST (89) Director (since Consultant to BGI (1998-2002), Trustee (since 2000) and President
P.O. Box 193 1996) American Stock Exchange (1996-2000) (2000-2002) of iShares Trust
Burlingame, CA 94011 and the Hong Kong Stock Exchange
(1998 to present); Consultant to
the Amsterdam Stock Exchange
(1997-1998); Consultant to the
Pacific Stock Exchange
(1997-1998).
- ----------
+ Garrett F. Bouton served as Chairman, President and interested Director of
the Board through June 17, 2003.
* Lee T. Kranefuss and Nathan Most are deemed to be "interested persons" (as
defined in the 1940 Act) of the Company due to their affiliations with BGFA,
the Funds' investment advisor and BGI, the parent company of BGFA.
DIRECTORS INFORMATION 95
Directors Information (Unaudited) (Continued)
iSHARES, INC.
INDEPENDENT DIRECTORS
POSITION(S), PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS LENGTH OF SERVICE DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD
- ---------------------------------------------------------------------------------------------------------------------------
JOHN B. CARROLL (67) Director (since Retired Vice President of Trustee (since 2001) of iShares
520 Main Street 1996) Investment Management (1984-2000) Trust; Trustee and member of the
Ridgefield, CT 06877 of Verizon Corporation; Advisory Executive Committee (since 1991) of
Board member of Ibbotson The Common Fund Institutional Funds,
Associates (1992-1998); former a non-profit organization; Member of
Vice Chairman and Executive the Board of Managers of JP Morgan
Committee Member (1994-1998) Private Equity Funds.
of the Committee on Investment
of Employee Benefit Assets of the
Financial Executive Institute.
RICHARD K. LYONS (42) Director (since Professor, University of Trustee (since 2000) of iShares
Haas School of Business, 2001) California, Berkeley: Haas School Trust; Trustee (since 2001) of
UC Berkeley of Business (since 1993); Barclays Global Investors Funds and
Berkeley, CA 94720 Consultant for IMF World Bank, Master Investment Portfolio; Board
Federal Reserve Bank, and Citibank of Trustees: Matthews Asian Funds
N.A. (since 2000). since 1995 (oversees 6 portfolios).
GEORGE C. PARKER (64) Director (since Dean Witter Distinguished Professor Trustee (since 2000) of iShares
Graduate School of 2001) of Finance (since 1994); Associate Trust; Bailard, Biehl and
Business Dean for Academic Affairs, Director Kaiser, Inc. (since 1985);
(Room K301) of MBA Program, and Professor, California Casualty Group of
Stanford University Stanford University: Graduate Insurance Companies (since 1978);
521 Memorial Way School of Business (1993-2001). Continental Airlines, Inc. (since
Stanford, CA 94305 1996); Community First Financial
Group (since 1995); Dresdner/RCM
Mutual Funds (1994-2002); Tyon
Ranch Company (since 1999).
W. ALLEN REED (56) Director (since President and Chief Executive Trustee (since 2001) of iShares
General Motors Investment 1996) Officer (since 1994) of General Trust; Director (since 1994) of
Management Corp. Motors Investment Management General Motors Investment
767 Fifth Avenue Corporation. Management Corporation; Director
New York, NY 10153 (1995-1998) of Taubman Centers, Inc.
(a real estate investment trust);
Director (since 1992) of FLIR Systems
(an imaging technology company);
Director (since 1994) of General
Motors Acceptance Corporation;
Director (since 1994) of GMAC
Insurance Holdings, Inc.; Director
(since 1995) of Global Emerging
Markets Fund; Director (since 2000)
of Temple Inland Industries; Chairman
(since 1995) of the Investment Advisory
Committee of Howard Hughes Medical
Institute.
96 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Directors Information (Unaudited) (Continued)
iSHARES, INC.
OFFICERS WHO ARE NOT DIRECTORS
PRINCIPAL OCCUPATION(S) DIRECTORSHIPS HELD BY
NAME, AGE AND ADDRESS POSITION DURING PAST 5 YEARS OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
MICHAEL A. LATHAM (37) Secretary, Treasurer Director of Mutual Fund Delivery in None.
Barclays Global Investors and Principal the U.S. Individual Investor
45 Fremont Street Financial Officer Business of BGI (since 2000); Head
San Francisco, CA 94105 of Operations, BGI Europe
(1997-2000).
JEFFREY J. GABOURY (34) Assistant Treasurer Director (formerly Manager), Mutual None.
Investors Bank & Trust Co. Fund Administration, Reporting and
200 Clarendon Street Compliance, IBT (since 1996).
Boston, MA 02116
DANELL J. DOTY (40) Assistant Secretary Head of Mutual Fund Administration, None.
Barclays Global Investors BGI (since 1999); Vice President of
45 Fremont Street Operations, Berkeley Capital
San Francisco, CA 94105 Management (1994-1999); Vice
President and Secretary, The
Berkeley Funds (1997-1999).
SUSAN C. MOSHER (48) Assistant Secretary Senior Director & Senior Counsel, None.
Investors Bank & Trust Co. Mutual Fund Administration, IBT
200 Clarendon Street (since 1995).
Boston, MA 02116
SANDRA I. MADDEN (37) Assistant Secretary Senior Associate Counsel, Mutual None.
Investors Bank & Trust Co. Fund Administration, IBT (since
200 Clarendon Street 1999); Associate, Scudder Kemper
Boston, MA 02116 Investments, Inc. (1996-1999).
THEDA HABER (49) Chief Legal Officer Attorney/Managing Director, Deputy None.
Barclays Global Investors General Counsel and Head of U.S.
45 Fremont Street Legal, BGI (since 1997); Attorney/
San Francisco, CA 94105 Senior Counsel, BGI (1994-2000).
LOIS TOWERS (51) Assistant Vice U.S. Compliance Officer, BGI (since None.
Barclays Global Investors President -- AML 1999).
45 Fremont Street Compliance Officer
San Francisco, CA 94105
DIRECTORS INFORMATION 97
The iShares Family of Funds
The following is a list of iShares Funds being offered, along with their
respective exchange trading symbols. Please call iShares at 1-800-iSHARES
(1-800-474-2737) to obtain a prospectus for any iShares fund. The prospectus
contains more complete information, including charges and expenses.
BROAD MARKET
iShares Dow Jones U.S. Total Market Index Fund (IYY)
iShares Russell 3000 Index Fund (IWV)
iShares Russell 3000 Growth Index Fund (IWZ)
iShares Russell 3000 Value Index Fund (IWW)
LARGE CAP
iShares Russell 1000 Index Fund (IWB)
iShares Russell 1000 Growth Index Fund (IWF)
iShares Russell 1000 Value Index Fund (IWD)
iShares S&P 100 Index Fund (OEF)
iShares S&P 500 Index Fund (IVV)
iShares S&P 500/BARRA Growth Index Fund (IVW)
iShares S&P 500/BARRA Value Index Fund (IVE)
MID CAP
iShares Russell Midcap Index Fund (IWR)
iShares Russell Midcap Growth Index Fund (IWP)
iShares Russell Midcap Value Index Fund (IWS)
iShares S&P MidCap 400 Index Fund (IJH)
iShares S&P MidCap 400/BARRA Growth Index Fund (IJK)
iShares S&P MidCap 400/BARRA Value Index Fund (IJJ)
SMALL CAP
iShares Russell 2000 Index Fund (IWM)
iShares Russell 2000 Growth Index Fund (IWO)
iShares Russell 2000 Value Index Fund (IWN)
iShares S&P SmallCap 600 Index Fund (IJR)
iShares S&P SmallCap 600/BARRA Growth Index Fund (IJT)
iShares S&P SmallCap 600/BARRA Value Index Fund (IJS)
SECTOR & INDUSTRY
iShares Cohen & Steers Realty Majors Index Fund (ICF)
iShares Dow Jones U.S. Basic Materials Sector Index Fund (IYM)
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund (IYC)
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund (IYK)
iShares Dow Jones U.S. Energy Sector Index Fund (IYE)
iShares Dow Jones U.S. Financial Sector Index Fund (IYF)
iShares Dow Jones U.S. Financial Services Index Fund (IYG)
iShares Dow Jones U.S. Healthcare Sector Index Fund (IYH)
iShares Dow Jones U.S. Industrial Sector Index Fund (IYJ)
iShares Dow Jones U.S. Real Estate Index Fund (IYR)
iShares Dow Jones U.S. Technology Sector Index Fund (IYW)
iShares Dow Jones U.S. Telecommunications Sector Index Fund (IYZ)
iShares Dow Jones U.S. Utilities Sector Index Fund (IDU)
iShares Goldman Sachs Natural Resources Index Fund (IGE)
iShares Goldman Sachs Networking Index Fund (IGN)
iShares Goldman Sachs Semiconductor Index Fund (IGW)
iShares Goldman Sachs Software Index Fund (IGV)
iShares Goldman Sachs Technology Index Fund (IGM)
iShares Nasdaq Biotechnology Index Fund (IBB)
FIXED INCOME
iShares Lehman 1-3 Year Treasury Bond Fund (SHY)
iShares Lehman 7-10 Year Treasury Bond Fund (IEF)
iShares Lehman 20+ Year Treasury Bond Fund (TLT)
iShares Lehman Aggregate Bond Fund (AGG)
iShares GS $ InvesTop(TM) Corporate Bond Fund (LQD)
GLOBAL SECTOR
iShares S&P Global Energy Sector Index Fund (IXC)
iShares S&P Global Financials Sector Index Fund (IXG)
iShares S&P Global Healthcare Sector Index Fund (IXJ)
iShares S&P Global Technology Sector Index Fund (IXN)
iShares S&P Global Telecommunications Sector Index Fund (IXP)
INTERNATIONAL/BROAD MARKET
iShares MSCI EAFE Index Fund (EFA)
iShares MSCI Emerging Markets Index Fund (EEM)
INTERNATIONAL/REGIONAL
iShares MSCI EMU Index Fund (EZU)
iShares MSCI Pacific ex-Japan Index Fund (EPP)
iShares S&P Europe 350 Index Fund (IEV)
INTERNATIONAL/DEVELOPED COUNTRY
iShares MSCI Australia Index Fund (EWA)
iShares MSCI Austria Index Fund (EWO)
iShares MSCI Belgium Index Fund (EWK)
iShares MSCI Canada Index Fund (EWC)
iShares MSCI France Index Fund (EWQ)
iShares MSCI Germany Index Fund (EWG)
iShares MSCI Hong Kong Index Fund (EWH)
iShares MSCI Italy Index Fund (EWI)
iShares MSCI Japan Index Fund (EWJ)
iShares MSCI Netherlands Index Fund (EWN)
iShares MSCI Singapore Index Fund (EWS)
iShares MSCI Spain Index Fund (EWP)
iShares MSCI Sweden Index Fund (EWD)
iShares MSCI Switzerland Index Fund (EWL)
iShares MSCI United Kingdom Index Fund (EWU)
iShares S&P/TOPIX 150 Index Fund (ITF)
INTERNATIONAL/EMERGING COUNTRY
iShares MSCI Brazil Index Fund (EWZ)
iShares MSCI Malaysia Index Fund (EWM)
iShares MSCI Mexico Index Fund (EWW)
iShares MSCI South Africa Index Fund (EZA)
iShares MSCI South Korea Index Fund (EWY)
iShares MSCI Taiwan Index Fund (EWT)
iShares S&P Latin America 40 Index Fund (ILF)
GLOBAL/BROAD MARKET
iShares S&P Global 100 Index Fund (IOO)
This advertising section does not constitute part of the 2003 Annual Report.
iShares are not sponsored or endorsed by Goldman, Sachs & Co. or Lehman
Brothers, nor are they sponsored, endorsed, sold or promoted by Cohen & Steers
Capital Management, Inc., Dow Jones & Company, Inc., Morgan Stanley Capital
International, The Nasdaq Stock Market, Inc., Frank Russell Company, or
Standard & Poor's. None of these companies make any representation regarding the
advisability of investing in iShares. Neither SEI nor BGI, nor any of their
affiliates, are affiliated with Goldman, Sachs & Co. or Lehman Brothers. "GS
$ InvesTop(TM)" and "Goldman Sachs(R)" are trademarks of
Goldman, Sachs & Co.
98 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
iShares are distributed by SEI Investments Distribution Co. (SEI). Barclays
Global Funds Advisors (BGFA) serves as an advisor to iShares. Barclays Global
Investors Services (BGIS) assists in the marketing of iShares. BGFA and BGIS are
subsidiaries of Barclays Global Investors, N.A., a wholly owned subsidiary of
Barclays Bank PLC, none of which is affiliated with SEI.
iShares are not sponsored, endorsed, sold, or promoted by Morgan Stanley Capital
International, Inc., nor does this company make any representation regarding the
advisability of investing in iShares.
Investing involves risk, including possible loss of principal.
(C)2003 Barclays Global Investors. All rights reserved. iShares is a registered
trademark of Barclays Global Investors, N.A. All other trademarks, servicemarks
or registered trademarks are the property of their respective owners.
This report is intended for the Funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
prospectus.
iSHARES(R) INDUSTRIAL STRENGTH INVESTMENT TOOLS FROM BARCLAYS GLOBAL INVESTORS
1 800 iSHARES (1 800 474 2737) WWW.iSHARES.COM
BARCLAYS
BGI-F-005-09002
iShares(R)
2003 ANNUAL REPORT TO SHAREHOLDERS
AUGUST 31, 2003
[GRAPHIC APPEARS HERE]
INDUSTRIAL STRENGTH
INVESTMENT TOOLS
iSHARES MSCI AUSTRIA INDEX FUND iSHARES MSCI NETHERLANDS INDEX FUND
iSHARES MSCI BELGIUM INDEX FUND iSHARES MSCI SPAIN INDEX FUND
iSHARES MSCI EMU INDEX FUND iSHARES MSCI SWEDEN INDEX FUND
iSHARES MSCI FRANCE INDEX FUND iSHARES MSCI SWITZERLAND INDEX FUND
iSHARES MSCI GERMANY INDEX FUND iSHARES MSCI UNITED KINGDOM INDEX FUND
iSHARES MSCI ITALY INDEX FUND
Table of Contents
Shareholder Letter 1
Introduction 3
Managers' Discussion & Analysis 6
Schedules of Investments 28
iShares MSCI Austria Index Fund 28
iShares MSCI Belgium Index Fund 30
iShares MSCI EMU Index Fund 32
iShares MSCI France Index Fund 38
iShares MSCI Germany Index Fund 40
iShares MSCI Italy Index Fund 42
iShares MSCI Netherlands Index Fund 44
iShares MSCI Spain Index Fund 46
iShares MSCI Sweden Index Fund 48
iShares MSCI Switzerland Index Fund 50
iShares MSCI United Kingdom Index Fund 52
Financial Statements 55
Financial Highlights 63
Notes to Financial Statements 74
Report of Independent Auditors 82
Tax Information (Unaudited) 83
Supplemental Information (Unaudited) 84
Directors Information (Unaudited) 90
iShares Family of Funds 94
To Our Shareholders
For many investors, the last few years have been difficult and challenging. The
collapse of the stock market bubble, a tepid economy, corporate accounting
scandals, lackluster company earnings and the geopolitical situation all
contributed to a three-year bear market. Stock market gains during the first
half of 2003 give some hope that the markets have turned a corner, but there is
no guarantee that challenging market conditions will not return.
iShares have continued to innovate and expand, offering more tools that help
investors tailor their portfolios to achieve diversity and address volatility in
a complex market environment. For example, in April of this year, iShares
launched an emerging markets exchange traded fund based on the MSCI's Emerging
Market Free Index. Last year, iShares launched the first fixed income exchange
traded funds, which BUSINESS WEEK named one of the best new products of 2002.(1)
We have added a Lehman Aggregate Bond Fund to our fixed income menu, enabling
investors to track one of the most well-known U.S. fixed income market indexes.
Assets under management for the fixed income iShares funds were $4.3 billion as
of August 31, 2003.
With the addition of these iShares, investors can achieve even more diversity in
their portfolios -- and at lower cost, since iShares fees are, on average, about
half those of actively managed funds.(2) With over 80 different iShares to
choose from, investors have the ability to build a diverse portfolio that covers
a wide swath of market segments such as capitalization, sectors, value and
growth, international and fixed income. That is important because market
segments do not tend to move in tandem, particularly in volatile markets.
Economic conditions such as inflation, interest rate levels, currency valuations
or the price of oil, as well as the normal pace of the economic cycle, all may
result in one market segment outperforming another.
We encourage you to talk with your financial advisor about what blend of
investments or asset allocation can best help you meet your financial goals.
Throughout the coming year we will continue to work closely with the financial
advisor community to introduce innovative strategies and structures for their
client's portfolios. To learn more about iShares, we encourage you to visit our
web site, www.iShares.com.
At times like these, the importance of sound, disciplined investing is greater
than ever. Such investing should be grounded in two key concepts: keeping the
costs associated with investing as low as possible, and maintaining a
diversified portfolio. That is why we believe iShares are an indispensable tool
for investors in the current market. And that is also why more and more
investors have recognized the benefits of iShares. Assets under management for
iShares continue to grow, and as of August 31, 2003, had reached $43.0 billion.
On behalf of the iShares family of funds and our colleagues at Barclays Global
Investors, we thank you for making iShares a part of your portfolio. We look
forward to meeting your investment needs in the year ahead.
/s/ Lee T. Kranefuss
Lee T. Kranefuss
PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS FOR ISHARES, INC.
iShares are distributed by SEI Investments Distribution Co. (SEI). Barclays
Global Fund Advisors (BGFA) serves as an advisor to iShares. Barclays Global
Investors Services (BGIS) assists in the marketing of iShares. BGFA and BGIS are
subsidiaries of Barclays Global Investors, N.A., none of which is affiliated
with SEI.
- ----------
/1/ BUSINESS WEEK, 12/16/02.
/2/ Morningstar Principia, BGI analysis 5/03.
SHAREHOLDER LETTER 1
For complete information, including charges and expenses, request a prospectus
by calling 1 800 iSHARES (1 800 474 2737). Read it carefully before you invest.
There are risks involved with investing, including possible loss of principal.
Diversification may not protect against market risk. An investment in the fund
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The annual management fees of iShares may be
substantially less than those of most mutual funds. iShares transactions will
result in brokerage commissions, but the savings from lower annual fees can help
offset these costs. Past performance does not guarantee future results.
iShares are not sponsored, endorsed, or issued by Lehman Brothers, nor are they
sponsored, endorsed, issued, sold or promoted by Morgan Stanley Capital
International. None of these companies make any representation regarding the
advisability of investing in iShares. Neither SEI nor BGI, nor any of their
affiliates, are affiliated with the companies listed above.
This advertising section does not constitute part of the 2003 Annual Report.
2 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Introduction
In this section, Barclays Global Fund Advisors (the "Investment Advisor")
discusses the performance of the iShares MSCI Index Funds (each, a "Fund", and
collectively, the "Funds"). The introduction provides an overview of how each
Fund seeks to track its respective index. In addition, the introduction
identifies some of the key factors that contribute to a Funds' performance
against its benchmark index.
Each Fund invests in a representative sample of the component securities in its
underlying MSCI Index (using the analytic technique known as "portfolio
sampling"), as opposed to a full replication of the component securities of the
MSCI Index. Certain Funds may also invest to a limited extent in stocks that are
not included in the relevant MSCI Index to permit them additional flexibility.
There are several important factors that should be kept in mind when reviewing
the performance of each Fund.
PORTFOLIO SAMPLING: Portfolio sampling is a disciplined approach to capturing
index returns which involves maximizing float and liquidity, reflecting
accurately the market's size and industry profiles and minimizing
cross-ownership. Because of portfolio sampling, the composition of each Fund
will vary from that of its underlying MSCI Index. This may cause performance to
vary positively or negatively from that of its underlying MSCI Index during any
period.
FUND EXPENSES: The MSCI Indexes are only statistical composites that track
changes in the financial markets of a particular country or region. Since an
index does not actually hold a portfolio of securities, it does not bear
management, administration, distribution, transaction or other expenses, while a
Fund does incur such expenses, thereby negatively impacting the performance of a
Fund.
CONSTRAINTS ON PORTFOLIO MANAGEMENT: The Investment Advisor is subject to a
number of constraints when managing the iShares MSCI Index Funds' portfolios.
The "Single Issuer Rule" and the "5/50 Rule" are two constraints in the Internal
Revenue Code that affect the performance of a number of the Funds.
The "Single Issuer Rule" generally prohibits a Fund from investing more than 25%
of the value of a Fund's total assets in the securities of a single issuer. This
constraint applies to all share classes of an issuer. As an example, Samsung
Electronics ordinary and preferred shares made up 35.71% of the MSCI South Korea
Index as of August 31, 2003. Because of the "Single Issuer Rule", however, the
iShares MSCI South Korea Index Fund could not invest more than 25% of its assets
in Samsung Electronics. This contributed to the difference between the
performance of the iShares MSCI South Korea Index Fund and its benchmark index.
The "5/50 Rule" generally precludes the sum of all of the securities weighted
over 5% in a Fund's portfolio from exceeding 50% of a Fund's total assets. If a
security has more than one share class, then all of the share classes must be
considered as one security for 5/50 Rule purposes. Many of the benchmark MSCI
Indexes have a greater than 50% weighting of securities that account for more
than 5% of the respective index. For example, the sum of all the stocks with
weightings of 5% or greater in the MSCI Mexico Index was 75.77% as of
August 31, 2003. Therefore, the iShares MSCI Mexico Index Fund had to
underweight some of these stocks relative to the benchmark, and therefore
overweight its investment in other stocks. This contributed to the difference
between the performance of the iShares MSCI Mexico Index Fund and its benchmark
index
REVENUE DIFFERENTIAL: A fourth factor that causes performance of a Fund to
differ from that of its underlying MSCI Index is "revenue differential", or
differences between a Fund and the underlying MSCI Index in dividend
accruals/reinvestments. The Funds record dividend revenues on the "ex-dividend"
dates of the underlying stocks. Prior to January 1, 2001, for developed markets,
MSCI used smoothed dividends as opposed to actual dividends by allocating annual
dividend revenues evenly over a twelve-month period. Separately, the Funds might
have different dividend rates versus the Indexes due to portfolio sampling or
different withholding taxes. Finally, while the sole source of revenues for the
MSCI Indexes is dividends, the Funds receive interest on uninvested cash and, in
the case of most Funds, revenues from the lending of portfolio securities.
INTRODUCTION 3
EFFECT OF UNINVESTED ASSETS: Another factor that causes performance of a Fund to
differ from that of its underlying MSCI Index is the "effect of uninvested
assets". Uninvested assets held by a Fund affect performance relative to its
underlying benchmark index. In contrast, the MSCI Indexes are always fully
comprised of the underlying stocks and thus do not reflect any "unequitized"
assets. The "effect of uninvested assets" refers to the impact on performance of
the portion of a Fund that is not invested in stocks. Cash is the principal
"unequitized" asset of a Fund. The effect of uninvested assets will tend to
cause each Fund to outperform its underlying index in falling markets and
underperform the underlying index in rising markets. However, even within a
period that has a down market return there can be a short period of rising
market where the uninvested assets in a Fund have a negative impact on return.
In these circumstances, the effect of uninvested assets could worsen a loss for
the period.
SECURITIES LENDING: Finally, securities lending is when a Fund loans securities
in its portfolio to another party for a given time period and in return receives
cash collateral for the loan. Securities lending income is the income earned on
lending the securities, which is split between the Fund and the Fund's
securities lending agent. While securities lending is intended to improve the
performance of the Fund, it may also contribute to differences between the
performance of a Fund and its benchmark index.
4 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
THIS PAGE INTENTIONALLY LEFT BLANK.
5
Managers' Discussion & Analysis
iSHARES MSCI AUSTRIA INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- --------------------------- -------------------------- -----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
31.15% 32.92% 29.46% 1.89% 2.75% 1.66% 1.23% 1.22% 2.11%
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- --------------------------- -------------------------- -----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
31.15% 32.92% 29.46% 9.82% 14.55% 8.58% 9.54% 9.48% 16.84%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI AUSTRIA INDEX
[CHART APPEARS HERE]
Energy 13.96%
Financials 38.95%
Industrials 11.14%
Materials 13.92%
Telecommunications Services 18.38%
Utilities 3.65%
PERFORMANCE REVIEW
The total return of the iShares MSCI Austria Index Fund (the "Fund") was 31.15%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Austria Index (the "Index") over the
reporting period was 29.46%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund outperformed its benchmark by 1.69 percentage points during the
reporting period. This was due to the positive impact of portfolio sampling
(explained in more detail below), revenue differential, and securities lending,
which contributed 2.50, 0.08, and 0.02 percentage points, respectively, to the
Fund's return. Those factors were partially offset by the impact of expenses and
uninvested assets, which subtracted 0.84 and 0.07 percentage points,
respectively, from the Fund's return.
6 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
As discussed in the Introduction, portfolio management constraints can restrict
the Investment Advisor's ability to hold a given Index component at its
benchmark weight, resulting in differences between the Fund's holdings and the
securities in its benchmark index. To comply with the Single Issuer Rule, for
example, the Fund was obligated to underweight the Index's largest stock, Erste
Bank der Oesterreichischen Sparkassen AG. This underweight had a negative impact
on the Fund's performance relative to the Index's, as Erste Bank outperformed
the overall benchmark. The Fund held an overweight position in other Index
names, including VA Technologie AG and RHI AG, and also held non-Index names
BBAG Oesterreichishe Brau-Beteiligungs AG and Lenzing AG. Because all of these
performed particularly well, the net impact of portfolio sampling in this case
was positive for the Fund's return relative to the Index's return.
KEY MARKET CONDITIONS
The Austrian market overcame global slowdown and a U.S.-led war in Iraq to
deliver healthy returns during the twelve-month reporting period.
In the past several years, many Austrian companies have been supported by their
expansion into the emerging central and eastern European markets, including the
Czech Republic and Slovenia. Companies such as Erste Bank (the largest
constituent at 19.40% of the Index as of August 31, 2003) continued to benefit
from expansion into these markets.
Although sluggishness in the U.S. economy did place a drag on some Austrian
markets, the corresponding strength of the euro against the U.S. dollar
countered this, by enhancing returns for U.S. dollar-based investors. Germany,
Austria's main trading partner, struggled with a slow economy during the first
half of the period, and this weakness negatively impacted the Austrian market.
When Germany's market began to improve in the second half of the period, though,
the Austrian market was also buoyed.
During the reporting period, Austria's new government indicated that it would
sell the government's remaining stakes in Telekom Austria AG and Voest-Alpine AG
(respectively 18.38% and 6.11% of the Index as of August 31, 2003), among
others. In response, the share prices of these companies climbed.
iSHARES MSCI AUSTRIA INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
Austria Index Fund MSCI Austria Index
$ 10,000 $ 10,000
8/31/96 $ 9,661 $ 10,066
$ 9,401 $ 9,841
8/31/97 $ 9,764 $ 9,922
$ 10,535 $ 11,506
8/31/98 $ 9,975 $ 10,763
$ 9,402 $ 10,346
8/31/99 $ 9,108 $ 9,900
$ 7,622 $ 8,242
8/31/2000 $ 7,695 $ 8,331
$ 8,498 $ 9,147
8/31/2001 $ 8,342 $ 8,821
$ 7,852 $ 8,410
8/31/2002 $ 8,352 $ 9,025
$ 9,188 $ 9,960
8/31/2003 $ 10,954 $ 11,684
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 7
Managers' Discussion & Analysis
iSHARES MSCI BELGIUM INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
-------------------- ---------------------------- ----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
8.25% 8.78% 4.54% (5.98)% (5.47)% (7.42)% 2.19% 2.14% 2.44%
CUMULATIVE TOTAL RETURNS
--------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
-------------------- ---------------------------- ----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
8.25% 8.78% 4.54% (26.52)% (24.52)% (31.99)% 17.55% 17.16% 19.73%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI BELGIUM INDEX
[CHART APPEARS HERE]
Consumer Discretionary 4.83%
Consumer Staples 12.72%
Financials 53.34%
Health Care 4.85%
Industrials 1.37%
Information Technology 0.88%
Materials 8.13%
Telecommunications Services 1.61%
Utilities 12.27%
PERFORMANCE REVIEW
The total return of the iShares MSCI Belgium Index Fund (the "Fund") was 8.25%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Belgium Index (the "Index") over the
reporting period was 4.54%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund outperformed its benchmark by 3.71 percentage points during the
reporting period. This was due to the positive impact of portfolio sampling
(explained in more detail below), securities lending, and revenue differential,
which contributed 4.33, 0.26, and 0.13 percentage points, respectively, to the
Fund's return. Those factors were partially offset by the impact of expenses and
uninvested assets, which subtracted 0.84 and 0.17 percentage points,
respectively, from the Fund's return.
8 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
As discussed in the Introduction, portfolio management constraints can restrict
the Investment Advisor's ability to hold a given Index component at its
benchmark weight, resulting in differences between the Fund's holdings and the
securities in its benchmark Index. To comply with the Single Issuer Rule, for
example, the Fund was obligated to underweight the Index's largest stock, Fortis
(28.34% of the Index as of August 31, 2003), over the reporting period. By
holding less of Fortis, the negative performance of the security over the
reporting period had a lesser impact on the Fund's performance relative to the
Index's. In addition, the Fund held two non-index names, Almanij and Cofinimmo
(Cofinimmo was added to the Index in May 2003), which outperformed the Index for
the period. As a result, portfolio sampling had a positive impact on the Fund's
returns relative to the Index's over the reporting period.
KEY MARKET CONDITIONS
Because more than half of Belgium's stock market is represented by financial
stocks (53.34% of the Index as of August 31, 2003), their performance to a large
extent dictates the performance of the market. During much of the reporting
period, financial companies struggled with a global economic downturn, as well
as the war in Iraq.
Early in the period, financial companies suffered losses as their equity
portfolios declined in value. This was true of Fortis, Belgium's largest
company, which reported a record loss for the third quarter of 2002, attributing
the loss largely to declines in its equity portfolio. The second largest
constituent in the Index, Dexia Group (13.18% of the Index as of August 31,
2003) came under similar pressure, but speculation that the company might be the
target of a takeover briefly buoyed its share price.
As war in Iraq became imminent, financial stocks, particularly insurers,
struggled against a backdrop of risk and uncertainty. An official outcome to the
war, combined with indications of an improving economic environment in the U.S.
and elsewhere, eventually helped many stocks to recoup some of the losses of the
year, though not many were able to finish the reporting period in positive
territory. One firm that bucked this trend, however, was Delhaize Group (4.66%
of the Index as of August 31, 2003). The food chain overcame the ripple effects
of its Dutch counterpart, Ahold, whose disclosure of accounting irregularities
contributed to investor concerns about corporate irregularities, to log a return
of 15.73% for the reporting period.
iSHARES MSCI BELGIUM INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
Belgium Index Fund MSCI Belgium Index
$ 10,000 $ 10,000
8/31/96 $ 10,501 $ 10,479
$ 11,204 $ 11,576
8/31/97 $ 11,474 $ 11,643
$ 13,161 $ 13,745
8/31/98 $ 15,997 $ 17,603
$ 16,753 $ 19,604
8/31/99 $ 15,837 $ 18,153
$ 12,329 $ 14,154
8/31/2000 $ 13,382 $ 15,183
$ 13,025 $ 14,752
8/31/2001 $ 12,215 $ 14,016
$ 11,067 $ 12,382
8/31/2002 $ 10,859 $ 11,453
$ 8,964 $ 9,298
8/31/2003 $ 11,755 $ 11,973
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 9
Managers' Discussion & Analysis
iSHARES MSCI EMU INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
------------------------------------------------------------- ----------------------------
YEAR ENDED 8/31/03 INCEPTION TO 8/31/03 INCEPTION TO 8/31/03
---------------------------- ------------------------------- ----------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
10.05% 11.04% 10.51% (13.63)% (13.49)% (13.37)% (36.54)% (36.23)% (35.90)%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (7/25/00). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (7/31/00), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI EMU INDEX
[CHART APPEARS HERE]
Consumer Discretionary 11.71%
Consumer Staples 8.00%
Energy 12.64%
Financials 25.97%
Health Care 4.16%
Industrials 6.93%
Information Technology 8.25%
Materials 6.83%
Telecommunications Services 9.27%
Utilities 6.24%
PERFORMANCE REVIEW
The total return of the iShares MSCI EMU Index Fund (the "Fund") was 10.05%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI EMU (European Monetary Union) Index
(the "Index") over the reporting period was 10.51%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 0.46 percentage points during the
reporting period. This was due to the negative impact of expenses and uninvested
assets, which subtracted 0.84 and 0.15 percentage points, respectively, from the
Fund's return. Those factors were partially offset by the impact of revenue
differential, securities lending, and portfolio sampling, which contributed
0.27, 0.15, and 0.11 percentage points, respectively, to the Fund's return.
10 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
KEY MARKET CONDITIONS
Underlying the performance of the EMU market during the twelve-month reporting
period was a seesaw performance pattern in which markets declined, then
rebounded.
Driving the declines was an economic slowdown that included weakness across
Europe, as well as fears of a "double-dip" recession in the United States.
Compounding investor concerns, geopolitical tensions grew during the first half
of the reporting period, ultimately culminating in war in Iraq.
Declines were felt most severely among EMU banks and insurance companies, many
of which were forced to declare write-downs on their equity portfolios.
Financial company ING Groep NV (1.64% of the Index as of August 31, 2003)
experienced significant declines during the first half of the reporting period.
Exporters faced their own set of challenges, as the euro's rise against the U.S.
dollar sapped demand from the U.S. As the war drove the price of crude oil to
unsustainable levels, many oil companies such as Royal Dutch Petroleum Co.
(4.66% of the Index as of August 31, 2003) saw their share price drop.
During the second half of the reporting period, however, signs of economic
growth began to emerge. The U.S. experienced a healthier GDP growth level and
markets began to log positive returns, helping the outlook for financial
companies and exporters. The technology and telecommunications groups also
delivered impressive gains. Nokia OYJ and Telefonica SA (respectively 3.90% and
2.81% of the Index as of August 31, 2003) posted positive results.
iSHARES MSCI EMU INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
EMU Index Fund MSCI EMU Index
$ 10,000 $ 10,000
8/31/2000 $ 9,418 $ 9,422
$ 8,496 $ 8,523
2/28/2001 $ 8,213 $ 8,256
$ 7,689 $ 7,712
8/31/2001 $ 7,109 $ 7,137
$ 6,794 $ 6,830
2/28/2002 $ 6,581 $ 6,621
$ 6,859 $ 6,901
8/31/2002 $ 5,766 $ 5,800
$ 5,756 $ 5,800
2/28/2003 $ 5,074 $ 5,122
$ 6,112 $ 6,169
8/31/2003 $ 6,345 $ 6,410
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 11
Managers' Discussion & Analysis
iSHARES MSCI FRANCE INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- -------------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
10.22% 10.84% 10.50% (0.61)% 0.13% (0.30)% 6.49% 6.51% 6.71%
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- -------------------------- ------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
10.22% 10.84% 10.50% (2.99)% 0.64% (1.49)% 59.98% 60.21% 62.42%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI FRANCE INDEX
[CHART APPEARS HERE]
Consumer Discretionary 14.97%
Consumer Staples 13.11%
Energy 17.45%
Financials 17.57%
Health Care 9.86%
Industrials 6.92%
Information Technology 6.90%
Materials 6.00%
Telecommunications Services 4.24%
Utilities 2.98%
PERFORMANCE REVIEW
The total return of the iShares MSCI France Index Fund (the "Fund") was 10.22%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI France Index (the "Index") over the
reporting period was 10.50%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 0.28 percentage points during the
reporting period. This was due to the negative impact of expenses and uninvested
assets, which subtracted 0.84 and 0.19 percentage points, respectively, from the
Fund's return. Those factors
12 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
were partially offset by the impact of revenue differential, portfolio sampling,
and securities lending, which contributed 0.43, 0.25, and 0.07 percentage
points, respectively, to the Fund's return.
KEY MARKET CONDITIONS
During the course of the past twelve months, France has seen its economy dragged
down by the global slowdown and hurt even further by a strengthening euro. The
country faces its lowest levels of economic growth in a decade and a growing
public deficit. President Chirac upset EU constituents by pleading for an easing
of the Stability and Growth Pact rules, which restrict a country's public
deficit to a maximum 3% of national economic output. Meanwhile, the French
unions vowed to fight the government's plans to fully privatize France Telecom,
and the French Parliament backed pension reforms that will increase the number
of years public sector employees must work to earn a full pension.
The country's financial sector, which at 17.57% of the Index at August 31, 2003,
represents its largest industry group, struggled with the same conflicts as
their counterparts around the world. As equity prices declined, many financial
companies grappled with losses in their own portfolios. For insurance companies,
the losses were compounded by the risks associated with war. French insurer AXA
(4.28% of the Index as of August 31, 2003) was a good example of this
phenomenon. The company was one of the worst performers among the ten largest
constituents in the Index for the first half of the year. Then, as the war in
Iraq came to an official conclusion and as markets delivered positive
performance, the stock gained ground, finishing the reporting period with a
healthy 15.60% gain.
France Telecom also experienced a reversal in performance during the reporting
period. Participating in the global technology and telecommunications slowdown,
the company's share price languished early in the reporting period, and it saw
its credit rating lowered. By late 2002, however, its share price began to climb
as investors became more confident about the company's ability to trim its
enormous debt. The French government extended a 9 billion euro loan to the
company. Additionally, Thierry Breton was appointed as the new CEO, replacing
Michel Bon. For the twelve-month reporting period, France Telecom returned
104.52%.
iSHARES MSCI FRANCE INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
France Index Fund MSCI France Index
$ 10,000 $ 10,000
8/31/96 $ 10,495 $ 10,363
$ 12,177 $ 12,201
8/31/97 $ 12,237 $ 12,184
$ 14,879 $ 14,921
8/31/98 $ 16,492 $ 16,487
$ 18,010 $ 18,089
8/31/99 $ 19,958 $ 19,821
$ 24,562 $ 24,744
8/31/2000 $ 24,637 $ 24,749
$ 20,505 $ 20,704
8/31/2001 $ 18,266 $ 18,437
$ 16,723 $ 16,962
8/31/2002 $ 14,516 $ 14,698
$ 12,894 $ 13,099
8/31/2003 $ 15,999 $ 16,242
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 13
Managers' Discussion & Analysis
iSHARES MSCI GERMANY INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- -------------------------------- ---------------------------------- -------------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
5.39% 5.49% 5.73% (6.09)% (5.43)% (5.82)% 1.89% 1.90% 2.38%
CUMULATIVE TOTAL RETURNS
- -----------------------------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- -------------------------------- ---------------------------------- -------------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
5.39% 5.49% 5.73% (26.97)% (24.34)% (25.90)% 15.04% 15.11% 19.22%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI GERMANY INDEX
[CHART APPEARS HERE]
Consumer Discretionary 15.97%
Consumer Staples 3.62%
Financials 21.39%
Health Care 4.48%
Industrials 15.60%
Information Technology 8.14%
Materials 12.53%
Telecommunications Services 7.69%
Utilities 10.58%
PERFORMANCE REVIEW
The total return of the iShares MSCI Germany Index Fund (the "Fund") was 5.39%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Germany Index (the "Index") over the
reporting period was 5.73%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 0.34 percentage points during the
reporting period. This was due to the negative impact of expenses and uninvested
assets, which subtracted 0.84 and 0.25 percentage points, respectively, from the
Fund's return. Those factors were partially offset by the impact of portfolio
sampling, securities lending and revenue differential, which contributed 0.55,
0.15, and 0.05 percentage points, respectively, to the Fund's return.
14 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
KEY MARKET CONDITIONS
Underlying the German market's single-digit return for the year were two
distinct six-month periods in which it first logged declines that earned it the
status of the worst-performing market in Europe, and then rebounded fairly
sharply.
At the core of the German market decline in the first half of the reporting
period were its financial stocks, which represented 21.39% of the Index as of
August 31, 2003. Against a backdrop of declining asset values, the
cross-shareholdings among the banks and insurers in Germany created a snowball
effect. For example, insurance company Allianz AG (6.26% of the Index as of
August 31, 2003) suffered declines in its share price as a result of losses in
its own equity portfolio, as well as difficulties with its Dresdner bank unit.
Its decline, in turn, contributed to losses for companies with significant
stakes in Allianz. And, as war with Iraq became imminent, insurers' share prices
were hurt further.
The share prices of insurers, such as Allianz and Munich Re, rose as news of
progress in Iraq contributed to optimism about a brief war. Although Allianz
finished the reporting period with a 30.84% decline and Munich Re declined
49.81%, these losses actually reflected a rebound from sharper lows reached
during the period.
Siemens AG, the largest weighting at 12.73% of the Index climbed 17.35% during
the reporting period. After struggling early in the reporting period, the
company enjoyed gains after reporting profits above analysts' forecasts.
Deutsche Telekom AG, which had been dragged down early in the year by France
Telecom's lowered credit rating as well as a decline in technology share prices
worldwide, rebounded to finish the year with a 13.64% gain.
iSHARES MSCI GERMANY INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
Germany Index Fund MSCI Germany Index
$ 10,000 $ 10,000
8/31/96 $ 10,399 $ 10,443
$ 11,292 $ 11,467
8/31/97 $ 12,532 $ 12,769
$ 14,661 $ 15,096
8/31/98 $ 15,753 $ 16,091
$ 16,117 $ 16,630
8/31/99 $ 16,862 $ 17,099
$ 21,975 $ 22,820
8/31/2000 $ 18,286 $ 18,831
$ 16,588 $ 17,220
8/31/2001 $ 13,737 $ 14,166
$ 12,833 $ 13,257
8/31/2002 $ 10,916 $ 11,276
$ 8,310 $ 8,612
8/31/2003 $ 11,504 $ 11,922
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 15
Managers' Discussion & Analysis
iSHARES MSCI ITALY INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- ---------------------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ------------------------------ ------------------------------- ----------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
12.79% 12.96% 12.34% (1.40)% (1.09)% (1.82)% 7.92% 7.89% 7.73%
CUMULATIVE TOTAL RETURNS
- ---------------------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ------------------------------ ------------------------------- ----------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
12.79% 12.96% 12.34% (6.83)% (5.31)% (8.77)% 76.71% 76.42% 74.42%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI ITALY INDEX
[CHART APPEARS HERE]
Consumer Discretionary 8.00%
Consumer Staples 0.58%
Energy 17.68%
Financials 41.22%
Health Care 0.25%
Industrials 2.47%
Information Technology 0.69%
Materials 0.41%
Telecommunications Services 21.44%
Utilities 7.26%
PERFORMANCE REVIEW
The total return of the iShares MSCI Italy Index Fund (the "Fund") was 12.79%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Italy Index (the "Index") over the
reporting period was 12.34%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund outperformed its benchmark by 0.45 percentage points during the
reporting period. This was due to the positive impact of revenue differential,
securities lending, and portfolio sampling, which contributed 0.71, 0.37, and
0.25 percentage points, respectively, to the Fund's return. Those factors were
partially offset by the impact of expenses and uninvested assets, which
subtracted 0.84 and 0.04 percentage points, respectively, from the Fund's
return.
16 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
KEY MARKET CONDITIONS
Italy's market was one of the more stable performers in Europe over the course
of the reporting period. To a large degree, this was due to the insular nature
of Italy's financial companies, which represented 41.22% of the Index at
August 31, 2003.
During much of the twelve-month period, financial companies suffered losses due
to declines in the values of their own portfolios. Unlike their other European
counterparts, though, Italian insurer Assicurazioni Generali SpA and bank
UniCredito Italiano SpA (respectively 9.25% and 7.87% of the Index as of
August 31, 2003) did not have the same level of exposure to equities, and their
share prices were not as adversely affected.
News on individual companies was also a driver of performance during the year.
Banca Intesa SpA (4.79% of the Index as of August 31, 2003) saw its share price
climb on news that it planned to dispose of real estate assets. The electric
utility Enel SpA and the oil and gas company ENI SpA (respectively 5.82% and
17.68% of the Index as of August 31, 2003) both were driven up on the
announcement that the Italian Government would join the two companies in a
separately traded company that would be sold to investors.
iSHARES MSCI ITALY INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
Italy Index Fund MSCI Italy Index
$ 10,000 $ 10,000
8/31/96 $ 10,411 $ 10,325
$ 11,151 $ 11,093
8/31/97 $ 12,845 $ 12,852
$ 17,249 $ 17,284
8/31/98 $ 18,966 $ 19,115
$ 21,325 $ 21,650
8/31/99 $ 19,941 $ 19,948
$ 24,732 $ 24,619
8/31/2000 $ 22,604 $ 22,723
$ 21,017 $ 20,883
8/31/2001 $ 18,398 $ 18,294
$ 16,174 $ 16,123
8/31/2002 $ 15,668 $ 15,527
$ 15,858 $ 15,825
8/31/2003 $ 17,672 $ 17,442
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 17
Managers' Discussion & Analysis
iSHARES MSCI NETHERLANDS INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
----------------------- ---------------------------- ----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
(0.78)% (0.58)% 0.80% (7.01)% (6.63)% (4.91)% 2.03% 2.01% 3.64%
CUMULATIVE TOTAL RETURNS
-----------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
----------------------- ---------------------------- ----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
(0.78)% (0.58)% 0.80% (30.46)% (29.05)% (22.25)% 16.25% 16.04% 30.64%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI NETHERLANDS INDEX
[CHART APPEARS HERE]
Consumer Discretionary 16.17%
Consumer Staples 15.28%
Energy 30.10%
Financials 25.59%
Industrials 2.46%
Information Technology 2.60%
Materials 3.98%
Telecommunications Services 3.82%
PERFORMANCE REVIEW
The total return of the iShares MSCI Netherlands Index Fund (the "Fund") was
- -0.78% during the twelve-month period ended August 31, 2003 (the "reporting
period"). The total return of the corresponding MSCI Netherlands Index (the
"Index") over the reporting period was 0.80%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 1.58 percentage points during the
reporting period. This was due to the negative impact of expenses, portfolio
sampling, uninvested assets, and revenue differential, which subtracted 0.84,
0.68, 0.11 and 0.01 percentage points,
18 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
respectively, from the Fund's return. Those factors were partially offset by the
impact of securities lending, which contributed 0.06 percentage points to the
Fund's return.
KEY MARKET CONDITIONS
Dutch equities across the board struggled with sluggish conditions worldwide and
a war in Iraq. But one Dutch company significantly impacted the performance of
the entire Index during the reporting period.
In February 2003, Dutch supermarket chain Koninklijke Ahold NV ("Ahold")
revealed what it described as "significant accounting irregularities" at its
U.S. foodservice unit. In addition, the company's CEO and CFO resigned. The news
caused Ahold shares to decline 63% in one day, dropping further in subsequent
trading days.
The news from Ahold also created a ripple effect throughout the Netherlands'
market, because many Dutch corporations owned significant stakes in Ahold.
Financial services companies such as ING Groep NV and AEGON NV (respectively
10.44% and 5.29% of the Index as of August 31, 2003) were among the larger Dutch
stocks that declined significantly after Ahold's disclosure. Their share prices
had already been depressed by concerns about the declining value of their equity
positions and potential exposure to corporate defaults. ING and AEGON finished
the reporting period with losses of 20.22% and 19.65%, respectively.
Aside from the Ahold disclosure and its repercussions, the market moved in sync
with the global economy. Because the life-blood of Dutch prosperity is foreign
trade, the Dutch economy is sensitive to the strength of its trading partners.
During the reporting period, the combined effects of the economic slowdown in
the U.S. and Europe, and the war in Iraq, produced a nearly stagnant market for
the Netherlands, whose GDP declined by 0.9% (year-over-year) in the second
quarter of 2003. As GDP growth and market performance improved in the U.S.
during the final months of the reporting period, markets lifted somewhat in the
Netherlands, generally mitigating the severity of losses experienced earlier in
the period. Royal Dutch Petroleum Co. (the largest weighting at 29.61% of the
Index as of August 31, 2003), like many of its other European counterparts, was
directly affected by the war in Iraq. As the war drove the price of crude oil to
unsustainable levels, Royal Dutch Petroleum Co. saw its share price drop,
although the company retraced some of its losses as oil prices stabilized.
iSHARES MSCI NETHERLANDS INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
Netherlands Index Fund MSCI Netherlands Index
$ 10,000 $ 10,000
8/31/96 $ 11,119 $ 10,960
$ 12,934 $ 12,932
8/31/97 $ 14,236 $ 14,661
$ 16,810 $ 17,251
8/31/98 $ 16,715 $ 16,803
$ 16,958 $ 17,551
8/31/99 $ 18,216 $ 18,838
$ 18,076 $ 19,133
8/31/2000 $ 18,449 $ 19,706
$ 16,881 $ 18,192
8/31/2001 $ 14,791 $ 16,320
$ 13,264 $ 14,651
8/31/2002 $ 11,716 $ 12,960
$ 9,090 $ 10,473
8/31/2003 $ 11,624 $ 13,064
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 19
Managers' Discussion & Analysis
iSHARES MSCI SPAIN INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
---------------------- -------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
25.81% 26.56% 27.13% 0.92% 1.71% 0.85% 10.40% 10.43% 10.76%
CUMULATIVE TOTAL RETURNS
-----------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
---------------------- -------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
25.81% 26.56% 27.13% 4.70% 8.83% 4.32% 109.49% 109.96% 114.50%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI SPAIN INDEX
[CHART APPEARS HERE]
Consumer Discretionary 3.63%
Consumer Staples 3.15%
Energy 7.10%
Financials 35.78%
Health Care 0.46%
Industrials 5.72%
Information Technology 1.36%
Materials 0.96%
Telecommunications Services 25.96%
Utilities 15.88%
PERFORMANCE REVIEW
The total return of the iShares MSCI Spain Index Fund (the "Fund") was 25.81%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Spain Index (the "Index") over the
reporting period was 27.13%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 1.32 percentage points during the
reporting period. This was due to the negative impact of expenses, portfolio
sampling, revenue differential, and uninvested assets, which subtracted 0.84,
0.28, 0.18, and 0.09 percentage points,
20 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
respectively, from the Fund's return. Those factors were partially offset by the
impact of securities lending, which contributed 0.07 percentage points to the
Fund's return.
KEY MARKET CONDITIONS
The Spanish market performed well on multiple fronts during the reporting
period.
Spain enjoyed a healthy economy over the course of the past twelve months. While
its forecasted GDP growth rate for the year of 1.8% seems low, it is among the
highest of any EU country for the time period. Its currency, the euro,
strengthened against the U.S. dollar for most of the reporting period, boosting
returns for U.S. investors. In addition, some companies in the Index have
significant holdings in Latin America, and their share prices were affected by
the performance of those Latin American companies.
Two companies in the Index that had significant Latin American holdings include
Banco Santander Central Hispano SA ("BSCH") and the utility company Endesa SA
(respectively 16.81% and 6.43% of the Index as of August 31, 2003). In late 2002
and early 2003, Brazil and other Latin American markets declined and the
Brazilian currency slid, causing the value of these holdings to decline. In the
final months of the reporting period, however, the Brazilian market and its
currency rebounded along with its neighboring markets. Companies such as BSCH
and Endesa then saw their share prices bounce back to post solid gains for the
reporting period.
The largest weighting at 25.96% of the Index as of August 31, 2003, Telefonica
SA, also logged positive returns. The telephone company participated in a
general resurgence of the telecommunications sector worldwide.
iSHARES MSCI SPAIN INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
Spain Index Fund MSCI Spain Index
$ 10,000 $ 10,000
8/31/96 $ 10,845 $ 10,901
$ 12,893 $ 13,047
8/31/97 $ 15,091 $ 15,357
$ 20,476 $ 21,024
8/31/98 $ 20,008 $ 20,559
$ 24,387 $ 24,935
8/31/99 $ 22,686 $ 23,674
$ 24,902 $ 27,501
8/31/2000 $ 22,274 $ 24,240
$ 22,578 $ 23,557
8/31/2001 $ 19,786 $ 20,349
$ 18,376 $ 18,917
8/31/2002 $ 16,651 $ 16,872
$ 17,159 $ 17,480
8/31/2003 $ 20,949 $ 21,450
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 21
Managers' Discussion & Analysis
iSHARES MSCI SWEDEN INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ------------------------------ ---------------------------- --------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
29.04% 29.12% 29.06% (1.80)% (1.16)% (0.34)% 4.91% 4.90% 6.32%
CUMULATIVE TOTAL RETURNS
- ----------------------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
- ------------------------------ ---------------------------- --------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
29.04% 29.12% 29.06% (8.66)% (5.67)% (1.69)% 43.05% 42.97% 58.06%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI SWEDEN INDEX
[CHART APPEARS HERE]
Consumer Discretionary 14.77%
Consumer Staples 2.03%
Financials 23.20%
Health Care 3.47%
Industrials 24.07%
Information Technology 17.00%
Materials 8.00%
Telecommunications Services 7.46%
PERFORMANCE REVIEW
The total return of the iShares MSCI Sweden Index Fund (the "Fund") was 29.04%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Sweden Index (the "Index") over the
reporting period was 29.06%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 0.02 percentage points during the
reporting period. This was due to the negative impact of expenses and uninvested
assets, which subtracted 0.84 and 0.20 percentage points, respectively, from the
Fund's return. Those factors
22 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
were partially offset by the impact of portfolio sampling, securities lending,
and revenue differential, which contributed 0.82, 0.16 and 0.04 percentage
points, respectively, to the Fund's return.
KEY MARKET CONDITIONS
The Swedish market overcame losses posted early in the year to deliver one of
the best performances in Europe during the reporting period.
From an economic standpoint, little changed for the country during the
twelve-month period. Economic growth remained slow, hemmed in for much of the
reporting period by weak external demand. At its latest monetary policy meeting
on August 14th, the Riksbank (the central bank) left the benchmark interest rate
unchanged at 2.75%, but left the door open for a rate cut at its next meeting.
What accounted for the bulk of Sweden's performance was the renewed strength of
the telecommunications industry during the reporting period. Despite having its
credit rating lowered in September 2002, cellular phone maker LM Ericsson
(Class B shares were the largest weighting at 16.68% of the Index at August 31,
2003), climbed 79.02% for the reporting period. The newly formed TeliaSonera AB
(4.81% of the Index as of August 31, 2003), the result of a merger between
telecommunications companies Telia AB and Sonera Corporation, also contributed
positively to performance.
After struggling with a global slowdown early in the reporting period, some
Swedish exporters began to post better results as the economic outlook improved.
A decline in Sweden's currency, the krona, also helped external demand, as it
made Swedish products less expensive to foreigners. Increasing demand helped
drive up share prices for both appliance maker Electrolux AB (its Series B
shares were 4.94% of the Index as of August 31, 2003) and automobile maker Volvo
AB (5.77% of the Index as of August 31, 2003).
iSHARES MSCI SWEDEN INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
Sweden Index Fund MSCI Sweden Index
$ 10,000 $ 10,000
8/31/96 $ 11,413 $ 11,192
$ 13,357 $ 13,335
8/31/97 $ 14,848 $ 14,845
$ 16,354 $ 16,584
8/31/98 $ 15,661 $ 16,081
$ 16,750 $ 17,404
8/31/99 $ 19,590 $ 20,831
$ 31,615 $ 37,466
8/31/2000 $ 27,260 $ 31,604
$ 18,896 $ 21,499
8/31/2001 $ 14,451 $ 16,238
$ 14,496 $ 16,063
8/31/2002 $ 11,085 $ 12,247
$ 10,680 $ 11,828
8/31/2003 $ 14,305 $ 15,806
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 23
Managers' Discussion & Analysis
iSHARES MSCI SWITZERLAND INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
-------------------- ------------------------- ----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
5.89% 6.14% 6.68% (3.82)% (2.99)% (2.85)% 2.41% 2.44% 4.10%
CUMULATIVE TOTAL RETURNS
-----------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
-------------------- ------------------------- ----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
5.89% 6.14% 6.68% (17.68)% (14.07)% (13.46)% 19.49% 19.75% 34.99%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI SWITZERLAND INDEX
[CHART APPEARS HERE]
Consumer Discretionary 3.54%
Consumer Staples 19.58%
Financials 31.14%
Health Care 34.27%
Industrials 3.90%
Information Technology 0.74%
Materials 5.22%
Telecommunications Services 1.61%
PERFORMANCE REVIEW
The total return of the iShares MSCI Switzerland Index Fund (the "Fund") was
5.89% during the twelve-month period ended August 31, 2003 (the "reporting
period"). The total return of the corresponding MSCI Switzerland Index (the
"Index") over the reporting period was 6.68%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 0.79 percentage points during the
reporting period. This was due to the negative impact of expenses and uninvested
assets, which subtracted 0.84 and 0.10 percentage points, respectively, from the
Fund's return. Those factors
24 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
were partially offset by the impact of revenue differential, portfolio sampling,
and securities lending, which contributed 0.07, 0.07, and 0.01 percentage
points, respectively, to the Fund's return.
KEY MARKET CONDITIONS
Ironically, Switzerland struggled with the repercussions of its own strength
during the reporting period.
In the first few months of the reporting period, many investors sought the
relative stability of Switzerland's currency as a safe haven from the global
economic slowdown and growing geopolitical unease. The influx to the Swiss franc
caused the currency to appreciate, which in turn put Swiss exporters at a
competitive disadvantage in other countries, particularly the U.S.
Because the U.S. is one of Switzerland's main trading partners, the slowdown in
the U.S. has also contributed significantly to a slower Swiss economy, which
slipped into recession during the first quarter of 2003.
Swiss companies that rely on exports were hurt during the reporting period. For
example, Novartis AG and Nestle SA, the two largest constituents at 19.67% and
19.58% of the Index declined 15.44% and 5.28%, respectively. Financial
companies, on the other hand, were not as susceptible to the appreciation of the
currency, and in fact benefited from the influx of funds. Credit Suisse Group
(8.28% of the Index as of August 31, 2003) gained 25.36%, and Zurich Financial
Services AG (4.12% of the Index as of August 31, 2003) climbed 59.28%.
Toward the end of the reporting period, export-driven Swiss companies did regain
some ground after the release of a government report that showed the U.S.
economy growing at a faster rate than estimated.
iSHARES MSCI SWITZERLAND INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
Switzerland Index Fund MSCI Switzerland Index
$ 10,000 $ 10,000
8/31/96 $ 10,260 $ 10,314
$ 10,210 $ 10,342
8/31/97 $ 11,972 $ 11,992
$ 15,123 $ 16,262
8/31/98 $ 14,515 $ 15,601
$ 15,019 $ 16,698
8/31/99 $ 14,728 $ 15,966
$ 13,560 $ 14,302
8/31/2000 $ 15,017 $ 16,037
$ 14,988 $ 15,902
8/31/2001 $ 12,603 $ 13,728
$ 11,917 $ 13,201
8/31/2002 $ 11,284 $ 12,654
$ 9,879 $ 11,165
8/31/2003 $ 11,949 $ 13,499
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 25
Managers' Discussion & Analysis
iSHARES MSCI UNITED KINGDOM INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
-------------------- ---------------------------- ----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
4.20% 3.87% 5.14% (3.47)% (2.35)% (2.78)% 4.49% 4.43% 5.12%
CUMULATIVE TOTAL RETURNS
--------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
-------------------- ---------------------------- ----------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
4.20% 3.87% 5.14% (16.18)% (11.19)% (13.15)% 38.83% 38.28% 45.17%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return is
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI UNITED KINGDOM INDEX
[CHART APPEARS HERE]
Consumer Discretionary 10.68%
Consumer Staples 10.55%
Energy 14.52%
Financials 27.20%
Health Care 12.60%
Industrials 5.47%
Information Technology 0.80%
Materials 4.22%
Telecommunications Services 9.86%
Utilities 4.10%
PERFORMANCE REVIEW
The total return of the iShares MSCI United Kingdom Index Fund (the "Fund") was
4.20% during the twelve-month period ended August 31, 2003 (the "reporting
period"). The total return of the corresponding MSCI United Kingdom Index (the
"Index") over the reporting period was 5.14%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund underperformed its benchmark by 0.94 percentage points during the
reporting period. This was due to the negative impact of expenses, uninvested
assets, and portfolio sampling, which subtracted 0.84, 0.22, and 0.22 percentage
points, respectively, from the Fund's
26 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
return. Those factors were partially offset by the impact of revenue
differential and securities lending, which contributed 0.33 and 0.01 percentage
points, respectively, to the Fund's return.
KEY MARKET CONDITIONS
The U.K. market overcame economic slowdown and turmoil in the Middle East during
the reporting period to deliver a positive return.
The spike and subsequent decline in oil prices associated with the war in Iraq,
in addition to weaker demand for oil due to the economic slowdown, translated
into declines in share prices for many oil companies. U.K. oil stocks, a major
component of the British market, were negatively impacted during the year. Both
BP PLC, the largest weighting at 9.68% of the Index as of August 31, 2003, and
Shell Transport & Trading Co. PLC suffered losses.
Pharmaceutical companies also struggled during the year, largely due to growing
competition from generic producers. GlaxoSmithKline PLC (7.33% of the Index as
of August 31, 2003) lost ground for the reporting period. AstraZeneca PLC (4.24%
of the Index as of August 31, 2003), however, experienced higher revenues from
its popular prescription drug Nexium, and logged gains of 33.37%.
As the technology and telecommunications industry sector quietly gained ground
during the reporting period, so did the share price of Vodafone Group PLC (7.97%
of the Index as of August 31, 2003). Although the telecommunications company
retraced some of its gains in June when it announced plans to invest an
additional $92 million in its unprofitable Hungarian unit, it still returned
11.84% for the reporting period.
Following months of speculation and market encouragement, in July the Monetary
Policy Committee moved to lower the Bank of England's benchmark interest rate by
0.25%. At 3.50%, the rate now stands at its lowest level since Winston Churchill
was Prime Minister in 1955. This easing of rates resulted in a return to the
sterling depreciation trend, which, for U.S. dollar-based investors, erased some
gains.
iSHARES MSCI UNITED KINGDOM INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
United Kingdom Index Fund MSCI United Kingdom Index
$10,000 $10,000
8/31/96 $11,041 $11,059
$12,768 $12,973
8/31/97 $14,405 $14,576
$17,432 $17,820
8/31/98 $16,564 $16,714
$18,581 $18,939
8/31/99 $19,102 $19,428
$18,007 $18,520
8/31/2000 $18,528 $18,909
$16,727 $17,105
8/31/2001 $15,526 $16,003
$14,585 $15,081
8/31/2002 $13,323 $13,808
$11,843 $12,304
8/31/2003 $13,883 $14,517
Past performance is no guarantee of future results.
MANAGERS' DISCUSSION & ANALYSIS 27
Schedule of Investments
iSHARES MSCI AUSTRIA INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.85%
Telekom Austria AG/1/ 374,997 $ 3,915,354
Erste Bank der Oesterreichischen Sparkassen AG 41,559 3,828,158
OMV AG 20,496 2,407,999
Voest-Alpine AG 27,720 1,079,486
Immofinanz Immobillien Anlage AG/1/ 155,883 1,076,495
Wienerberger Baustoffindustrie AG 55,860 1,064,053
Bank Austria Creditanstalt/1/ 34,230 1,042,876
Oesterreichische
Elektrizitaetswirtschafts AG Class A 10,836 973,281
Mayr-Melnhof Karton AG 11,235 959,656
Boehler-Uddeholm AG 17,766 938,399
Flughafen Wien AG 25,179 937,962
VA Technologie AG/1/ 30,786 865,279
RHI AG/1/ 50,967 679,314
Generali Holding Vienna AG 28,392 670,501
BBAG Oesterreichische Brau-Beteiligungs AG 4,935 661,013
Lenzing AG 5,250 659,975
Austrian Airlines AG/1/ 42,567 298,632
BWT AG 16,401 195,012
TOTAL COMMON STOCKS
(COST: $18,945,421) 22,253,445
SHORT TERM INVESTMENTS - 8.63%
MONEY MARKET FUNDS - 5.61%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 821,679 821,679
Barclays Global Investors Funds Prime
Money Market Fund, Institutional Shares/2/,/3/ 312,764 312,764
BlackRock Temp Cash Money Market Fund/2/ 16,457 16,457
Short Term Investment Co. -
Liquid Assets Money Market Portfolio/2/ 28,433 28,433
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Short Term Investment Co. -
Prime Money Market Portfolio,
Institutional Shares/(2)/ 72,308 $ 72,308
1,251,641
FLOATING RATE NOTES - 2.09%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 14,217 14,215
1.16%, 08/23/04/2/ 14,217 14,228
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 11,373 11,373
1.37%, 08/26/04/2/ 28,433 28,433
CC USA Inc.
1.06%, 05/24/04/2/ 28,433 28,431
1.07%, 04/19/04/2/ 12,511 12,510
1.11%, 07/15/04/2/ 14,217 14,221
Dorada Finance Inc.
1.07%, 05/20/04/2/ 28,433 28,430
1.24%, 08/09/04/2/ 7,108 7,107
Five Finance Inc.
1.08%, 04/15/04/2/ 14,217 14,217
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ 28,433 28,433
Holmes Financing PLC
1.07%, 04/15/04/2/ 5,687 5,687
K2 USA LLC
1.07%, 08/16/04/2/ 7,108 7,107
1.08%, 04/13/04/2/ 14,217 14,217
1.08%, 05/17/04/2/ 14,217 14,216
Links Finance LLC
1.05%, 07/20/04/2/ 11,373 11,371
1.07%, 05/04/04/2/ 14,217 14,216
1.07%, 06/28/04/2/ 14,217 14,215
1.08%, 03/29/04/2/ 14,217 14,217
Nationwide Building Society
1.08%, 07/23/04/2/ 21,325 21,325
Sigma Finance Inc.
1.05%, 07/20/04/2/ 14,217 14,214
1.06%, 10/15/03/2/ 28,433 28,433
1.06%, 07/01/04/2/ 14,217 14,214
1.24%, 08/06/04/2/ 7,108 7,108
28 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI AUSTRIA INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Tango Finance Corp.
1.05%, 07/15/04/2/ $ 8,530 $ 8,527
1.06%, 07/06/04/2/ 8,530 8,529
Toronto Dominion
1.33%, 08/23/04/2/ 18,481 18,472
White Pine Finance LLC
1.06%, 07/06/04/2/ 17,060 17,058
1.07%, 05/17/04/2/ 17,060 17,060
1.08%, 04/20/04/2/ 14,217 14,217
466,001
COMMERCIAL PAPER - 0.80%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 8,530 8,524
CRC Funding LLC
1.05%, 09/25/03/2/ 14,217 14,207
1.06%, 09/16/03/2/ 5,687 5,684
Edison Asset Securitization
1.06%, 09/05/03/2/ 14,217 14,215
1.06%, 09/15/03/2/ 8,530 8,527
1.07%, 10/23/03/2/ 26,727 26,687
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 14,217 14,210
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 7,108 7,108
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 7,108 7,105
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 7,108 7,107
Quincy Capital Corp.
1.06%, 09/17/03/2/ 29,459 29,446
Receivables Capital Corp.
1.06%, 09/17/03/2/ 20,756 20,747
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 14,217 14,217
177,784
TIME DEPOSITS - 0.13%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 28,433 28,433
28,433
TOTAL SHORT TERM INVESTMENTS
(COST: $1,923,859) 1,923,859
TOTAL INVESTMENTS IN SECURITIES - 108.48%
(COST $20,869,280) 24,177,304
OTHER ASSETS, LESS LIABILITIES - (8.48%) (1,889,000)
------------
NET ASSETS - 100.00% $ 22,288,304
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 29
Schedule of Investments
iSHARES MSCI BELGIUM INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.75%
Fortis 278,761 $ 4,685,652
Dexia Group 218,932 2,728,148
Electrabel SA 6,468 1,621,918
Delhaize Group 33,075 1,282,214
Interbrew SA 45,962 1,134,379
Solvay SA 16,562 1,089,187
KBC Bankverzekeringsholding 27,440 1,067,076
Groupe Bruxelles Lambert SA 22,932 1,049,127
UCB SA 36,456 969,006
Algemene Maatschappij voor Nijverheidskredit NV 23,863 961,772
AGFA-Gevaert NV 40,131 898,820
Colruyt NV 11,662 848,886
Umicore 11,760 659,122
Cofinimmo 5,537 651,069
Bekaert NV 9,751 467,943
Omega Pharma SA 14,063 439,261
Mobistar SA/1/ 8,967 406,790
SA D'Ieteren NV 2,205 367,488
Barco NV 5,684 352,586
Compagnie Maritime Belge SA 3,136 137,376
TOTAL COMMON STOCKS
(COST: $23,503,476) 21,817,820
SHORT TERM INVESTMENTS - 38.04%
MONEY MARKET FUNDS - 24.69%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 3,532,479 3,532,479
Barclays Global Investors Funds Prime
Money Market Fund, Institutional Shares/2/,/3/ 1,358,244 1,358,244
BlackRock Temp Cash Money Market Fund/2/ 71,468 71,468
Short Term Investment Co. -
Liquid Assets Money Market Portfolio/2/ 123,477 123,477
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Short Term Investment Co. -
Prime Money Market Portfolio,
Institutional Shares/2/ 314,011 $ 314,011
5,399,679
FLOATING RATE NOTES - 9.25%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 61,738 61,732
1.16%, 08/23/04/2/ 61,738 61,790
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 49,391 49,391
1.37%, 08/26/04/2/ 123,477 123,477
CC USA Inc.
1.06%, 05/24/04/2/ 123,477 123,468
1.07%, 04/19/04/2/ 54,330 54,328
1.11%, 07/15/04/2/ 61,738 61,758
Dorada Finance Inc.
1.07%, 05/20/04/2/ 123,477 123,464
1.24%, 08/09/04/2/ 30,869 30,865
Five Finance Inc.
1.08%, 04/15/04/2/ 61,738 61,738
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ 123,477 123,477
Holmes Financing PLC
1.07%, 04/15/04/2/ 24,695 24,695
K2 USA LLC
1.07%, 08/16/04/2/ 30,869 30,865
1.08%, 04/13/04/2/ 61,738 61,737
1.08%, 05/17/04/2/ 61,738 61,737
Links Finance LLC
1.05%, 07/20/04/2/ 49,391 49,382
1.07%, 05/04/04/2/ 61,738 61,736
1.07%, 06/28/04/2/ 61,738 61,728
1.08%, 03/29/04/2/ 61,738 61,738
Nationwide Building Society
1.08%, 07/23/04/2/ 92,608 92,608
30 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI BELGIUM INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Sigma Finance Inc.
1.05%, 07/20/04/2/ $ 61,738 $ 61,727
1.06%, 10/15/03/2/ 123,477 123,475
1.06%, 07/01/04/2/ 61,738 61,726
1.24%, 08/06/04/2/ 30,869 30,866
Tango Finance Corp.
1.05%, 07/15/04/2/ 37,043 37,032
1.06%, 07/06/04/2/ 37,043 37,040
Toronto Dominion
1.33%, 08/23/04/2/ 80,260 80,221
White Pine Finance LLC
1.06%, 07/06/04/2/ 74,086 74,080
1.07%, 05/17/04/2/ 74,086 74,086
1.08%, 04/20/04/2/ 61,738 61,738
2,023,705
COMMERCIAL PAPER - 3.53%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 37,043 37,019
CRC Funding LLC
1.05%, 09/25/03/2/ 61,738 61,697
1.06%, 09/16/03/2/ 24,695 24,685
Edison Asset Securitization
1.06%, 09/05/03/2/ 61,738 61,733
1.06%, 09/15/03/2/ 37,043 37,029
1.07%, 10/23/03/2/ 116,068 115,892
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 61,738 61,710
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 30,869 30,869
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 30,869 30,856
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 30,869 30,864
Quincy Capital Corp.
1.06%, 09/17/03/2/ 127,932 127,875
Receivables Capital Corp.
1.06%, 09/17/03/2/ 90,138 90,098
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 61,738 61,738
772,065
TIME DEPOSITS - 0.57%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 123,477 123,477
123,477
TOTAL SHORT TERM INVESTMENTS (COST: $8,318,926) 8,318,926
TOTAL INVESTMENTS IN SECURITIES - 137.79%
(COST $31,822,402) 30,136,746
OTHER ASSETS, LESS LIABILITIES - (37.79%) (8,265,533)
------------
NET ASSETS - 100.00% $ 21,871,213
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 31
Schedule of Investments
iSHARES MSCI EMU INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 98.37%
AUSTRIA - 0.59%
Bank Austria Creditanstalt/1/ 2,508 $ 76,411
Boehler-Uddeholm AG 462 24,403
Erste Bank der Oesterreichischen Sparkassen AG 2,112 194,544
Flughafen Wien AG 924 34,421
Immofinanz Immobillien Anlage AG/1/ 10,890 75,204
Mayr-Melnhof Karton AG 462 39,462
Oesterreichische
Elektrizitaetswirtschafts AG Class A 528 47,425
OMV AG 1,188 139,574
RHI AG/1/ 2,838 37,826
Telekom Austria AG/1/ 16,038 167,453
VA Technologie AG/1/ 792 22,260
Voest-Alpine AG 1,914 74,536
Wienerberger Baustoffindustrie AG 2,310 44,002
977,521
BELGIUM - 3.11%
AGFA-Gevaert NV 9,372 209,906
Barco NV 858 53,223
Bekaert NV 1,584 76,015
Cofinimmo 396 46,564
Colruyt NV 1,518 110,496
Compagnie Maritime Belge SA 462 20,238
Delhaize Group 5,742 222,599
Dexia Group 52,998 660,417
Electrabel SA 2,508 628,907
Fortis 85,140 1,431,105
Groupe Bruxelles Lambert SA 5,940 271,752
Interbrew SA 13,134 324,158
KBC Bankverzekeringsholding 7,722 300,290
Mobistar SA/1/ 1,650 74,853
Omega Pharma SA 1,716 53,600
SA D'Ieteren NV 264 43,999
Solvay SA 5,148 338,554
UCB SA 7,194 191,218
Umicore 1,452 81,381
5,139,275
FINLAND - 5.66%
Amer Group Ltd. 1,716 53,976
Elisa OYJ Class A/1/ 10,626 103,830
Fortum OYJ 30,228 244,922
Instrumentarium OYJ 4,092 159,802
KCI Konecranes OYJ 924 27,096
Kesko OYJ 6,600 85,287
KONE OYJ Class B 2,640 119,271
Metso OYJ 7,854 81,055
Nokia OYJ 391,578 6,414,309
Nokian Renkaat OYJ 396 21,912
Orion-Yhtyma OYJ Class B 2,310 39,564
Outokumpu OYJ 7,920 80,432
Pohjola Group PLC Class D 1,518 27,116
Rautaruukki OYJ/1/ 9,570 50,223
Sampo OYJ Class A 21,912 168,881
Stora Enso OYJ Class R 54,054 703,842
TietoEnator OYJ 7,260 129,206
UPM-Kymmene OYJ 40,920 741,280
Uponor OYJ 3,498 78,729
Wartsila OYJ Class B 2,376 32,295
9,363,028
FRANCE - 27.94%
Accor SA 15,774 614,626
Air France 7,194 113,340
Alcatel SA Class A/1/ 99,924 1,086,095
Atos Origin SA/1/ 1,650 69,019
Autoroutes du Sud de la France 6,072 171,661
Aventis SA 55,704 2,705,604
AXA 115,962 2,056,132
BNP Paribas SA 66,066 3,291,587
Bouygues SA 16,434 432,668
Business Objects SA/1/ 5,016 133,822
Cap Gemini SA/1/ 8,778 360,919
Carrefour SA 47,058 2,345,590
CNP Assurances 2,706 107,696
32 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI EMU INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
Compagnie de Saint-Gobain 25,410 $ 992,877
Compagnie Generale des Etablissements
Michelin Class B 10,956 444,817
Credit Agricole SA 26,598 505,194
Dassault Systemes SA 3,300 119,199
Essilor International SA 7,722 313,685
Etablissements Economiques du Casino
Guichard-Perrachon SA 2,970 236,405
European Aeronautic Defence and Space Co. 24,750 391,292
France Telecom/1/ 64,086 1,590,136
Gecina SA 1,188 134,343
Groupe Danone 10,164 1,393,766
Groupe Wanadoo SA/1/ 31,482 207,039
Hermes International 726 113,982
Imerys SA 792 130,517
Klepierre 1,716 84,347
Lafarge SA 13,534 908,627
Lagardere S.C.A 10,560 479,752
L'Air Liquide SA 8,328 1,195,945
L'Oreal SA 27,786 1,931,046
LVMH Moet Hennessy Louis Vuitton SA 18,216 1,094,964
Pechiney Class A 6,072 307,790
Pernod Ricard 4,405 377,953
Pinault-Printemps-Redoute SA 5,610 481,959
PSA Peugeot Citroen 15,048 686,786
Publicis Groupe 8,052 235,859
Renault SA 13,530 815,517
Sagem SA 1,650 148,636
Sanofi-Synthelabo SA 30,096 1,691,771
Schneider Electric SA 16,236 876,658
Societe BIC SA 3,102 127,713
Societe Generale Class A 26,202 1,737,537
Societe Television Francaise 1 10,032 304,761
Sodexho Alliance SA 7,986 233,926
Suez SA 66,330 1,046,477
Technip-Coflexip SA 1,529 137,569
Thales SA 6,402 183,521
Thomson 14,784 268,954
Total SA 53,460 8,199,515
Unibail Holding 3,366 252,035
Valeo SA 6,204 235,401
Veolia Environnement 19,272 375,567
Vinci SA 5,478 355,445
Vivendi Universal SA/1/ 74,844 1,258,042
Zodiac SA 3,960 105,170
46,201,254
GERMANY - 18.58%
adidas-Salomon AG 3,762 315,018
Allianz AG 22,435 2,000,315
ALTANA AG 5,940 304,620
BASF AG 44,814 2,063,502
Bayer AG 54,318 1,161,108
Bayerische Hypo-und Vereinsbank AG/1/ 28,710 449,485
Beiersdorf AG 2,112 268,281
Celesio AG 2,046 83,360
Commerzbank AG 34,518 482,433
Continental AG 9,900 258,035
DaimlerChrysler AG 70,686 2,692,158
Deutsche Bank AG 42,966 2,483,154
Deutsche Boerse AG 8,118 392,428
Deutsche Lufthansa AG 15,114 206,591
Deutsche Post AG 31,944 512,041
Deutsche Telekom AG/1/ 172,194 2,457,673
Douglas Holding AG 2,442 59,654
E.ON AG 48,246 2,494,853
EPCOS AG/1/ 4,884 82,309
Fresenius Medical Care AG 2,970 150,321
HeidelbergerCement AG/1/ 4,000 147,119
Infineon Technologies AG/1/ 34,122 499,750
KarstadtQuelle AG 3,300 86,809
Linde AG 7,326 306,527
MAN AG 9,174 201,443
Merck KGaA 3,432 99,362
METRO AG 11,844 428,336
Muenchener Rueckversicherungs-Gesellschaft AG 9,372 958,983
Puma AG 1,056 119,880
SCHEDULES OF INVESTMENTS 33
Schedule of Investments (Continued)
iSHARES MSCI EMU INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
RWE AG 30,162 $ 812,308
SAP AG 16,830 2,019,608
Schering AG 13,992 562,857
Siemens AG 65,670 4,066,389
Suedzucker AG 3,960 62,128
ThyssenKrupp AG 26,466 358,564
TUI AG 10,890 173,364
Volkswagen AG 18,612 912,588
30,733,354
GREECE - 0.78%
Hellenic Telecommunications
Organization SA ADR 97,614 587,636
National Bank of Greece SA ADR 161,970 699,710
1,287,346
IRELAND - 2.24%
Allied Irish Banks PLC 70,620 985,453
Bank of Ireland 82,566 980,824
CRH PLC 43,626 831,013
DCC PLC 6,600 78,621
Fyffes PLC 25,806 40,799
Grafton Group PLC/1/ 12,672 65,111
Greencore Group PLC 11,088 35,181
Independent News & Media PLC 39,600 73,911
Irish Life & Permanent PLC 23,562 279,900
Kerry Group PLC Class A/1/ 11,286 179,296
Ryanair Holdings PLC/1/ 21,760 148,837
Waterford Wedgwood PLC 30,690 10,445
3,709,391
ITALY - 10.75%
Alleanza Assicurazioni SpA 38,148 344,276
Arnoldo Mondadori Editore SpA 13,200 95,794
Assicurazioni Generali SpA 78,672 1,690,339
Autogrill SpA/1/ 9,900 113,366
Banca Fideuram SpA 23,100 132,387
Banca Intesa SpA 294,107 883,132
Banca Monte dei Paschi di Siena SpA 84,084 220,635
Banca Nazionale del Lavoro SpA/1/ 132,000 205,356
Banca Popolare di Milano Scrl 36,102 165,284
Banca Popolare di Verona e Novaro Scrl 29,898 393,900
Banche Popolari Unite Scrl/1/ 24,354 371,394
Benetton Group SpA 4,488 45,578
Bulgari SpA 13,200 87,823
Capitalia SpA/1/ 107,004 216,163
Enel SpA 176,500 1,075,475
ENI SpA 213,114 3,219,535
Fiat SpA/1/ 35,244 238,357
Fineco SpA/1/ 168,432 97,084
Finmeccanica SpA 462,594 326,568
Gruppo Editoriale L'Espresso SpA 16,236 69,698
Italcementi SpA 8,514 98,616
Luxottica Group SpA 11,748 175,673
Mediaset SpA 49,038 430,711
Mediobanca SpA 38,412 379,131
Mediolanum SpA 19,800 120,213
Parmalat Finanziaria SpA 29,700 96,029
Pirelli SpA 128,787 92,614
Riunione Adriatica di Sicurta SpA 25,476 366,408
Sanpaolo IMI SpA 81,576 783,670
SEAT Pagine Gialle SpA/1/ 281,202 241,737
Snam Rete Gas SpA 72,270 264,220
Snia SpA 20,130 37,350
Telecom Italia Media SpA/1/ 115,325 32,287
Telecom Italia Mobile SpA 310,266 1,369,377
Telecom Italia SpA/1/ 752,497 1,767,996
Tiscali SpA/1/ 13,860 88,258
UniCredito Italiano SpA 309,342 1,436,620
17,773,054
LUXEMBOURG - 0.23%
Arcelor 29,436 379,734
379,734
34 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI EMU INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
NETHERLANDS - 15.87%
ABN AMRO Holding NV 124,014 $ 2,171,672
AEGON NV 109,687 1,358,398
Akzo Nobel NV 22,704 744,312
ASML Holding NV/1/ 37,950 597,897
Corio NV 3,432 105,165
DSM NV 6,534 297,349
Euronext NV 6,930 173,625
Heineken NV 16,566 633,118
IHC Caland NV 2,376 119,996
ING Groep NV 139,062 2,711,529
Koninklijke Ahold NV/1/ 52,734 497,911
Koninklijke KPN NV/1/ 145,332 1,006,824
Koninklijke Numico NA CVA 11,484 222,788
Koninklijke Philips Electronics NV 108,174 2,636,566
Koninklijke Vendex KBB NV 6,666 75,455
Oce NV 6,072 78,264
QIAGEN NV/1/ 10,428 134,639
Reed Elsevier NV 52,074 574,007
Rodamco Europe NV 3,564 178,312
Royal Dutch Petroleum Co. 172,128 7,682,010
TPG NV 28,446 530,925
Unilever NV CVA 46,860 2,608,393
Vedior NV 7,788 96,449
VNU NV 18,414 572,133
Wereldhave NV 1,518 88,497
Wolters Kluwer NV CVA 22,572 351,158
26,247,392
PORTUGAL - 1.07%
Banco BPI SA Registered 35,574 93,345
Banco Comercial Portugues SA Class R 171,089 304,299
Banco Espirito Santo SA 9,438 131,390
Brisa-Auto Estradas de Portugal SA 24,354 131,017
CIMPOR-Cimentos de Portugal SGPS SA 17,094 64,373
Electricidade de Portugal SA 153,120 332,859
Jeronimo Martins SGPS SA/1/ 3,894 29,841
Portugal Telecom SGPS SA 77,682 561,189
PT Multimedia-Servicos de Telecomunicacoes e
Multimedia SGPS SA/1/ 4,950 81,084
Sonae SGPS SA/1/ 83,754 44,138
1,773,535
SPAIN - 10.82%
Abertis Infraestructuras SA 17,094 224,272
Acciona SA 2,508 129,416
Acerinox SA 4,158 176,212
ACS, Actividades de Construccion y
Servicios SA 3,432 143,824
Altadis SA 24,156 570,199
Amadeus Global Travel Distribution SA
Class A 20,790 139,235
Banco Bilbao Vizcaya Argentaria SA 249,084 2,666,326
Banco Popular Espanol SA 12,672 570,416
Banco Santander Central Hispano SA 351,912 3,002,050
Corporacion Mapfre SA 8,118 89,128
Endesa SA 74,778 1,164,160
Fomento de Construcciones y Contratas SA 4,158 123,257
Gas Natural SDG SA 17,094 316,608
Grupo Dragados SA 9,966 201,874
Grupo Ferrovial SA 5,016 134,813
Iberdrola SA 63,360 1,076,834
Iberia Lineas Aereas de Espana SA 33,528 69,572
Indra Sistemas SA 8,976 99,336
Industria de Diseno Textil SA 18,025 448,236
NH Hoteles SA/1/ 7,260 80,106
Promotora de Infomaciones SA 6,534 67,146
Repsol YPF SA 75,570 1,276,053
Sacyr Vallehermoso SA 9,240 101,446
Sociedad General de Aguas de Barcelona SA 5,148 65,846
Telefonica Publicidad e Informacion SA 14,520 67,273
SCHEDULES OF INVESTMENTS 35
Schedule of Investments (Continued)
iSHARES MSCI EMU INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
Telefonica SA 386,719 $ 4,551,485
Union Fenosa SA 17,028 266,591
Zeltia SA 11,682 77,852
17,899,566
SWITZERLAND - 0.73%
STMicroelectronics NV 48,774 1,212,884
1,212,884
TOTAL COMMON STOCKS (COST: $181,320,072) 162,697,334
PREFERRED STOCKS - 1.29%
GERMANY - 0.73%
Fresenius Medical Care AG 1,914 71,279
Henkel KGaA 4,884 310,683
Porsche AG 660 281,150
ProSiebenSat.1 Media AG 6,600 71,375
RWE AG 3,894 92,430
Volkswagen AG 8,514 283,230
Wella AG 1,320 98,098
1,208,245
ITALY - 0.56%
Banca Intesa SpA RNC 71,214 159,108
Telecom Italia SpA RNC/1/ 482,432 761,654
920,762
TOTAL PREFERRED STOCKS
(COST: $2,037,448) 2,129,007
SHORT TERM INVESTMENTS - 25.05%
MONEY MARKET FUNDS - 16.26%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 17,583,558 17,583,558
Barclays Global Investors Funds Prime Money
Market Fund, Institutional Shares/2/,/3/ 6,768,877 6,768,877
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
BlackRock Temp Cash Money Market Fund/2/ 356,166 $ 356,166
Short Term Investment Co. - Liquid
Assets Money Market Portfolio/2/ 615,352 615,352
Short Term Investment Co. - Prime Money
Market Portfolio, Institutional Shares/2/ 1,564,891 1,564,891
26,888,844
FLOATING RATE NOTES - 6.10%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 307,676 307,644
1.16%, 08/23/04/2/ 307,676 307,933
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 246,141 246,141
1.37%, 08/26/04/2/ 615,352 615,352
CC USA Inc.
1.06%, 05/24/04/2/ 615,352 615,308
1.07%, 04/19/04/2/ 270,755 270,747
1.11%, 07/15/04/2/ 307,676 307,772
Dorada Finance Inc.
1.07%, 05/20/04/2/ 615,352 615,287
1.24%, 08/09/04/2/ 153,838 153,817
Five Finance Inc.
1.08%, 04/15/04/2/ 307,676 307,676
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ 615,352 615,352
Holmes Financing PLC
1.07%, 04/15/04/2/ 123,070 123,070
K2 USA LLC
1.07%, 08/16/04/2/ 153,838 153,816
1.08%, 04/13/04/2/ 307,676 307,667
1.08%, 05/17/04/2/ 307,676 307,665
Links Finance LLC
1.05%, 07/20/04/2/ 246,141 246,098
1.07%, 05/04/04/2/ 307,676 307,667
1.07%, 06/28/04/2/ 307,676 307,626
1.08%, 03/29/04/2/ 307,676 307,676
Nationwide Building Society
1.08%, 07/23/04/2/ 461,514 461,514
36 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI EMU INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Sigma Finance Inc.
1.05%, 07/20/04/2/ $ 307,676 $ 307,622
1.06%, 10/15/03/2/ 615,352 615,346
1.06%, 07/01/04/2/ 307,676 307,613
1.24%, 08/06/04/2/ 153,838 153,824
Tango Finance Corp.
1.05%, 07/15/04/2/ 184,606 184,553
1.06%, 07/06/04/2/ 184,606 184,590
Toronto Dominion
1.33%, 08/23/04/2/ 399,979 399,783
White Pine Finance LLC
1.06%, 07/06/04/2/ 369,211 369,182
1.07%, 05/17/04/2/ 369,211 369,211
1.08%, 04/20/04/2/ 307,676 307,676
10,085,228
COMMERCIAL PAPER - 2.32%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 184,606 184,486
CRC Funding LLC
1.05%, 09/25/03/2/ 307,676 307,470
1.06%, 09/16/03/2/ 123,070 123,020
Edison Asset Securitization
1.06%, 09/05/03/2/ 307,676 307,649
1.06%, 09/15/03/2/ 184,606 184,535
1.07%, 10/23/03/2/ 578,431 577,554
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 307,676 307,533
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 153,838 153,839
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 153,838 153,775
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 153,838 153,811
Quincy Capital Corp.
1.06%, 09/17/03/2/ 637,554 637,273
Receivables Capital Corp.
1.06%, 09/17/03/2/ 449,207 449,010
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 307,676 307,676
3,847,631
TIME DEPOSITS - 0.37%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 615,352 615,352
615,352
TOTAL SHORT TERM INVESTMENTS (COST: $41,437,055) 41,437,055
TOTAL INVESTMENTS IN SECURITIES - 124.71%
(COST $224,794,575) 206,263,396
OTHER ASSETS, LESS LIABILITIES - (24.71%) (40,874,930)
------------
NET ASSETS - 100.00% $165,388,466
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 37
Schedule of Investments
iSHARES MSCI FRANCE INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.82%
Total SA 60,336 $ 9,254,132
BNP Paribas SA 74,480 3,710,795
Aventis SA 62,640 3,042,493
Carrefour SA 52,864 2,634,988
AXA 130,320 2,310,715
L'Oreal SA 31,216 2,169,421
Societe Generale Class A 29,664 1,967,114
Sanofi-Synthelabo SA 33,760 1,897,733
France Telecom/1/ 71,712 1,779,357
Groupe Danone 11,424 1,566,547
Vivendi Universal SA/1/ 83,792 1,408,447
STMicroelectronics NV 54,000 1,342,841
L'Air Liquide SA 9,338 1,340,986
Alcatel SA Class A/1/ 113,104 1,229,351
LVMH Moet Hennessy Louis Vuitton SA 20,416 1,227,206
Suez SA 74,176 1,170,262
Compagnie de Saint-Gobain 28,368 1,108,459
Lafarge SA 15,120 1,015,105
Schneider Electric SA 18,288 987,455
Renault SA 15,536 936,428
PSA Peugeot Citroen 16,640 759,445
Accor SA 17,856 695,750
Credit Agricole SA 30,400 577,408
Pinault-Printemps-Redoute SA 6,256 537,457
Lagardere S.C.A 11,632 528,455
Bouygues SA 18,912 497,908
Compagnie Generale des Etablissements Michelin
Class B 12,240 496,948
Veolia Environnement 22,144 431,536
Pernod Ricard 4,960 425,572
European Aeronautic Defence and Space Co. 26,336 416,366
Arcelor 31,984 412,604
Cap Gemini SA/1/ 9,920 407,874
Vinci SA 6,224 403,850
Essilor International SA 9,296 377,625
Pechiney Class A 6,992 354,425
Societe Television Francaise 1 10,944 332,467
Thomson 16,848 306,502
Unibail Holding 3,984 298,309
Etablissements Economiques du Casino
Guichard-Perrachon SA 3,456 275,090
Valeo SA 7,248 275,014
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Publicis Groupe 9,024 $ 264,331
Sodexho Alliance SA 8,816 258,238
Groupe Wanadoo SA/1/ 34,576 227,386
Euronext NV 8,272 207,247
Thales SA 6,976 199,975
Autoroutes du Sud de la France 6,752 190,885
Gecina SA 1,392 157,413
Sagem SA 1,712 154,222
Technip-Coflexip SA 1,712 154,034
Business Objects SA/1/ 5,632 150,256
Dassault Systemes SA 3,856 139,282
Societe BIC SA 3,322 136,771
Hermes International 864 135,648
CNP Assurances 3,024 120,352
Imerys SA 702 115,686
Air France 6,608 104,108
Klepierre 2,080 102,238
Zodiac SA 3,840 101,984
Atos Origin SA/1/ 1,952 81,652
ALSTOM/1/ 26,576 65,358
TOTAL COMMON STOCKS
(COST: $63,967,864) 53,977,506
SHORT TERM INVESTMENTS - 12.31%
MONEY MARKET FUNDS - 8.02%
Barclays Global Investors Funds
Institutional Money Market Fund, Institutional
Shares/2/,/3/ 2,851,203 2,851,203
Barclays Global Investors Funds Prime
Money Market Fund, Institutional Shares/2/,/3/ 1,079,748 1,079,748
BlackRock Temp Cash Money Market Fund/2/ 56,814 56,814
Short Term Investment Co. -
Liquid Assets Money Market Portfolio/2/ 98,159 98,159
Short Term Investment Co. -
Prime Money Market Portfolio, Institutional
Shares/2/ 249,626 249,626
4,335,550
FLOATING RATE NOTES - 2.98%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 49,079 49,074
1.16%, 08/23/04/2/ 49,079 49,120
38 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI FRANCE INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ $ 39,264 $ 39,264
1.37%, 08/26/04/2/ 98,159 98,159
CC USA Inc.
1.06%, 05/24/04/2/ 98,159 98,152
1.07%, 04/19/04/2/ 43,190 43,189
1.11%, 07/15/04/2/ 49,079 49,095
Dorada Finance Inc.
1.07%, 05/20/04/2/ 98,159 98,148
1.24%, 08/09/04/2/ 24,540 24,536
Five Finance Inc.
1.08%, 04/15/04/2/ 49,079 49,079
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ 98,159 98,159
Holmes Financing PLC
1.07%, 04/15/04/2/ 19,632 19,632
K2 USA LLC
1.07%, 08/16/04/2/ 24,540 24,536
1.08%, 04/13/04/2/ 49,079 49,078
1.08%, 05/17/04/2/ 49,079 49,078
Links Finance LLC
1.05%, 07/20/04/2/ 39,264 39,257
1.07%, 05/04/04/2/ 49,079 49,078
1.07%, 06/28/04/2/ 49,079 49,071
1.08%, 03/29/04/2/ 49,079 49,079
Nationwide Building Society
1.08%, 07/23/04/2/ 73,619 73,619
Sigma Finance Inc.
1.05%, 07/20/04/2/ 49,079 49,071
1.06%, 10/15/03/2/ 98,159 98,158
1.06%, 07/01/04/2/ 49,079 49,069
1.24%, 08/06/04/2/ 24,540 24,537
Tango Finance Corp.
1.05%, 07/15/04/2/ 29,448 29,440
1.06%, 07/06/04/2/ 29,448 29,445
Toronto Dominion
1.33%, 08/23/04/2/ 63,803 63,773
White Pine Finance LLC
1.06%, 07/06/04/2/ 58,895 58,891
1.07%, 05/17/04/2/ 58,895 58,895
1.08%, 04/20/04/2/ 49,079 49,079
1,608,761
COMMERCIAL PAPER - 1.13%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 29,448 29,429
CRC Funding LLC
1.05%, 09/25/03/2/ 49,079 49,047
1.06%, 09/16/03/2/ 19,632 19,624
Edison Asset Securitization
1.06%, 09/05/03/2/ 49,079 49,076
1.06%, 09/15/03/2/ 29,448 29,436
1.07%, 10/23/03/2/ 92,269 92,129
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 49,079 49,057
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 24,540 24,540
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 24,540 24,530
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 24,540 24,535
Quincy Capital Corp.
1.06%, 09/17/03/2/ 101,700 101,656
Receivables Capital Corp.
1.06%, 09/17/03/2/ 71,656 71,624
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 49,079 49,079
613,762
TIME DEPOSITS - 0.18%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 98,159 98,159
98,159
TOTAL SHORT TERM INVESTMENTS
(COST: $6,656,232) 6,656,232
TOTAL INVESTMENTS IN SECURITIES - 112.13%
(COST $70,624,096) 60,633,738
OTHER ASSETS, LESS LIABILITIES - (12.13%) (6,558,562)
------------
NET ASSETS - 100.00% $ 54,075,176
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 39
Schedule of Investments
iSHARES MSCI GERMANY INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 95.00%
Siemens AG 206,577 $ 12,791,570
DaimlerChrysler AG 222,507 8,474,435
Deutsche Bank AG 139,455 8,059,586
Deutsche Telekom AG/1/ 533,952 7,620,937
E.ON AG 128,088 6,623,570
SAP AG 51,867 6,224,064
BASF AG 106,245 4,892,149
Allianz AG 53,271 4,749,667
Bayer AG 194,238 4,152,053
Muenchener Rueckversicherungs-Gesellschaft AG 31,239 3,196,508
RWE AG 114,831 3,092,570
Volkswagen AG 59,022 2,893,979
Schering AG 46,170 1,857,283
Deutsche Post AG 112,617 1,805,176
Commerzbank AG 119,664 1,672,456
Infineon Technologies AG/1/ 112,239 1,643,851
Bayerische Hypo-und Vereinsbank AG/1/ 96,822 1,515,850
METRO AG 41,607 1,504,710
Deutsche Boerse AG 31,023 1,499,668
ThyssenKrupp AG 92,421 1,252,128
ALTANA AG 20,196 1,035,710
adidas-Salomon AG 12,123 1,015,142
Linde AG 23,382 978,326
Beiersdorf AG 7,317 929,457
Deutsche Lufthansa AG 66,177 904,564
Continental AG 33,993 885,999
MAN AG 33,048 725,668
TUI AG 38,070 606,057
Puma AG 4,860 551,721
QIAGEN NV/1/ 42,066 543,127
HeidelbergerCement AG/1/ 13,078 481,004
Fresenius Medical Care AG 9,450 478,295
Celesio AG 9,693 394,923
Merck KGaA 12,717 368,178
KarstadtQuelle AG 13,014 342,342
EPCOS AG/1/ 16,659 280,750
MLP AG/1/ 18,765 261,853
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Suedzucker AG 16,686 $ 261,786
Douglas Holding AG 6,129 149,721
TOTAL COMMON STOCKS
(COST: $138,837,473) 96,716,833
PREFERRED STOCKS - 4.88%
Henkel KGaA 20,277 1,289,867
Volkswagen AG 29,106 968,251
Porsche AG 2,106 897,125
RWE AG 32,589 773,552
Wella AG 6,750 501,639
ProSiebenSat.1 Media AG 25,407 274,759
Fresenius Medical Care AG 7,020 261,430
TOTAL PREFERRED STOCKS
(COST: $4,605,958) 4,966,623
SHORT TERM INVESTMENTS - 36.45%
MONEY MARKET FUNDS - 23.66%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 15,751,912 15,751,912
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/2/,/3/ 6,059,551 6,059,551
BlackRock Temp Cash Money Market Fund/2/ 318,843 318,843
Short Term Investment Co. -
Liquid Assets Money Market
Portfolio/2/ 550,868 550,868
Short Term Investment Co. -
Prime Money Market Portfolio, Institutional
Shares/2/ 1,400,902 1,400,902
24,082,076
FLOATING RATE NOTES - 8.87%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 275,434 275,405
1.16%, 08/23/04/2/ 275,434 275,664
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 220,347 220,347
1.37%, 08/26/04/2/ 550,868 550,868
40 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI GERMANY INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
CC USA Inc.
1.06%, 05/24/04/2/ $ 550,868 $ 550,829
1.07%, 04/19/04/2/ 242,382 242,374
1.11%, 07/15/04/2/ 275,434 275,520
Dorada Finance Inc.
1.07%, 05/20/04/2/ 550,868 550,809
1.24%, 08/09/04/2/ 137,717 137,698
Five Finance Inc.
1.08%, 04/15/04/2/ 275,434 275,434
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ 550,868 550,868
Holmes Financing PLC
1.07%, 04/15/04/2/ 110,174 110,174
K2 USA LLC
1.07%, 08/16/04/2/ 137,717 137,697
1.08%, 04/13/04/2/ 275,434 275,426
1.08%, 05/17/04/2/ 275,434 275,424
Links Finance LLC
1.05%, 07/20/04/2/ 220,347 220,308
1.07%, 05/04/04/2/ 275,434 275,425
1.07%, 06/28/04/2/ 275,434 275,389
1.08%, 03/29/04/2/ 275,434 275,434
Nationwide Building Society
1.08%, 07/23/04/2/ 413,151 413,151
Sigma Finance Inc.
1.05%, 07/20/04/2/ 275,434 275,386
1.06%, 10/15/03/2/ 550,868 550,862
1.06%, 07/01/04/2/ 275,434 275,377
1.24%, 08/06/04/2/ 137,717 137,704
Tango Finance Corp.
1.05%, 07/15/04/2/ 165,260 165,213
1.06%, 07/06/04/2/ 165,260 165,246
Toronto Dominion
1.33%, 08/23/04/2/ 358,064 357,889
White Pine Finance LLC
1.06%, 07/06/04/2/ 330,521 330,494
1.07%, 05/17/04/2/ 330,521 330,521
1.08%, 04/20/04/2/ 275,434 275,434
9,028,370
COMMERCIAL PAPER - 3.38%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 165,260 165,153
CRC Funding LLC
1.05%, 09/25/03/2/ 275,434 275,249
1.06%, 09/16/03/2/ 110,174 110,128
Edison Asset Securitization
1.06%, 09/05/03/2/ 275,434 275,410
1.06%, 09/15/03/2/ 165,260 165,197
1.07%, 10/23/03/2/ 517,816 517,031
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 275,434 275,306
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 137,717 137,717
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 137,717 137,660
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 137,717 137,693
Quincy Capital Corp.
1.06%, 09/17/03/2/ 570,744 570,491
Receivables Capital Corp.
1.06%, 09/17/03/2/ 402,134 401,957
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 275,434 275,434
3,444,426
TIME DEPOSITS - 0.54%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 550,868 550,868
550,868
TOTAL SHORT TERM INVESTMENTS
(COST: $37,105,740) 37,105,740
TOTAL INVESTMENTS IN SECURITIES - 136.33%
(COST $180,549,171) 138,789,196
OTHER ASSETS, LESS LIABILITIES - (36.33%) (36,988,986)
------------
NET ASSETS - 100.00% $101,800,210
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 41
Schedule of Investments
iSHARES MSCI ITALY INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 95.58%
ENI SpA 334,176 $ 5,048,432
Telecom Italia SpA/1/ 1,179,216 2,770,575
Assicurazioni Generali SpA 120,120 2,580,887
Telecom Italia Mobile SpA 497,532 2,195,886
UniCredito Italiano SpA 313,452 1,455,708
Banca Intesa SpA 477,793 1,434,696
Enel SpA 232,956 1,419,481
Sanpaolo IMI SpA 137,748 1,323,293
Riunione Adriatica di Sicurta SpA 58,140 836,198
Mediaset SpA 90,180 792,069
Alleanza Assicurazioni SpA 87,552 790,134
Snam Rete Gas SpA 194,244 710,157
Mediobanca SpA 67,224 663,509
Banca Popolare di Verona e Novaro Scrl 42,288 557,136
Banche Popolari Unite Scrl/1/ 35,040 534,354
Finmeccanica SpA 650,904 459,506
Banca Popolare di Milano Scrl 99,900 457,367
Banca Monte dei Paschi di Siena SpA 161,172 422,912
Luxottica Group SpA 27,576 412,355
SEAT Pagine Gialle SpA/1/ 476,620 409,729
Capitalia SpA/1/ 166,536 336,425
Fiat SpA/1/ 49,094 332,026
Banca Nazionale del Lavoro SpA/1/ 209,604 326,086
Mediolanum SpA 46,860 284,505
Parmalat Finanziaria SpA 74,892 242,150
Banca Fideuram SpA 42,204 241,873
Autogrill SpA/1/ 19,260 220,548
Italcementi SpA 18,516 214,468
Arnoldo Mondadori Editore SpA 25,896 187,930
Tiscali SpA/1/ 27,204 173,230
Pirelli SpA 224,895 161,728
Snia SpA 70,788 131,344
Bulgari SpA 19,008 126,465
Fineco SpA/1/ 217,716 125,491
Benetton Group SpA 12,048 122,354
Gruppo Editoriale L'Espresso SpA 25,764 110,599
Telecom Italia Media SpA/1/ 211,675 59,262
TOTAL COMMON STOCKS
(COST: $33,270,860) 28,670,868
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
PREFERRED STOCKS - 4.09%
Telecom Italia SpA RNC/1/ 778,117 $ 1,228,475
TOTAL PREFERRED STOCKS
(COST: $1,121,571) 1,228,475
SHORT TERM INVESTMENTS - 41.83%
MONEY MARKET FUNDS - 27.16%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 5,330,375 5,330,375
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/2/,/3/ 2,047,734 2,047,734
BlackRock Temp Cash Money Market Fund/2/ 107,748 107,748
Short Term Investment Co. -
Liquid Assets Money Market
Portfolio/2/ 186,158 186,158
Short Term Investment Co. -
Prime Money Market
Portfolio, Institutional Shares/2/ 473,414 473,414
8,145,429
FLOATING RATE NOTES - 10.17%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 93,079 93,069
1.16%, 08/23/04/2/ 93,079 93,157
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 74,463 74,464
1.37%, 08/26/04/2/ 186,158 186,158
CC USA Inc.
1.06%, 05/24/04/2/ 186,158 186,144
1.07%, 04/19/04/2/ 81,809 81,907
1.11%, 07/15/04/2/ 93,079 93,108
Dorada Finance Inc.
1.07%, 05/20/04/2/ 186,158 186,138
1.24%, 08/09/04/2/ 46,539 46,533
Five Finance Inc.
1.08%, 04/15/04/2/ 93,079 93,079
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ 186,158 186,158
42 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI ITALY INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Holmes Financing PLC
1.07%, 04/15/04/2/ $ 37,232 $ 37,232
K2 USA LLC
1.07%, 08/16/04/2/ 46,539 46,533
1.08%, 04/13/04/2/ 93,079 93,077
1.08%, 05/17/04/2/ 93,079 93,076
Links Finance LLC
1.05%, 07/20/04/2/ 74,463 74,450
1.07%, 05/04/04/2/ 93,079 93,076
1.07%, 06/28/04/2/ 93,079 93,064
1.08%, 03/29/04/2/ 93,079 93,079
Nationwide Building Society
1.08%, 07/23/04/2/ 139,618 139,618
Sigma Finance Inc.
1.05%, 07/20/04/2/ 93,079 93,062
1.06%, 10/15/03/2/ 186,158 186,155
1.06%, 07/01/04/2/ 93,079 93,060
1.24%, 08/06/04/2/ 46,539 46,535
Tango Finance Corp.
1.05%, 07/15/04/2/ 55,847 55,831
1.06%, 07/06/04/2/ 55,847 55,842
Toronto Dominion
1.33%, 08/23/04/2/ 121,002 120,943
White Pine Finance LLC
1.06%, 07/06/04/2/ 111,695 111,686
1.07%, 05/17/04/2/ 111,695 111,695
1.08%, 04/20/04/2/ 93,079 93,079
3,051,008
COMMERCIAL PAPER - 3.88%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 55,847 55,811
CRC Funding LLC
1.05%, 09/25/03/2/ 93,079 93,016
1.06%, 09/16/03/2/ 37,232 37,216
Edison Asset Securitization
1.06%, 09/05/03/2/ 93,079 93,071
1.06%, 09/15/03/2/ 55,847 55,826
1.07%, 10/23/03/2/ 174,988 174,723
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 93,079 93,035
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 46,539 46,539
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 46,539 46,520
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 46,539 46,531
Quincy Capital Corp.
1.06%, 09/17/03/2/ 192,874 192,789
Receivables Capital Corp.
1.06%, 09/17/03/2/ 135,895 135,835
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 93,079 93,079
1,163,991
TIME DEPOSITS - 0.62%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 186,158 186,158
186,158
TOTAL SHORT TERM INVESTMENTS
(COST: $12,546,586) 12,546,586
TOTAL INVESTMENTS IN SECURITIES - 141.50%
(COST $46,939,017) 42,445,929
OTHER ASSETS, LESS LIABILITIES - (41.50%) (12,448,702)
------------
NET ASSETS - 100.00% $ 29,997,227
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 43
Schedule of Investments
iSHARES MSCI NETHERLANDS INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.06%
Royal Dutch Petroleum Co. 94,796 $ 4,230,711
ING Groep NV 124,150 2,420,764
Unilever NV CVA 34,268 1,907,478
Koninklijke Philips Electronics NV 38,922 948,661
Akzo Nobel NV 28,184 923,964
AEGON NV 69,031 854,901
TPG NV 44,538 831,271
ABN AMRO Holding NV 46,540 814,986
Heineken NV 20,722 791,951
Koninklijke KPN NV/1/ 107,900 747,504
Reed Elsevier NV 63,856 703,879
ASML Holding NV/1/ 34,086 537,020
VNU NV 14,456 449,156
IHC Caland NV 8,476 428,067
Koninklijke Ahold NV/1/ 37,492 353,997
Wolters Kluwer NV CVA 22,386 348,264
Koninklijke Numico NA CVA 16,640 322,814
Oce NV 19,318 248,996
Vedior NV 18,122 224,429
Koninklijke Vendex KBB NV 16,458 186,294
DSM NV 1,768 80,458
Rodamco Europe NV 884 44,228
Hagemeyer NV 6,630 24,094
TOTAL COMMON STOCKS
(COST: $23,826,868) 18,423,887
SHORT TERM INVESTMENTS - 8.06%
MONEY MARKET FUNDS - 5.23%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 635,304 635,304
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/2/,/3/ 245,188 245,188
BlackRock Temp Cash Money
Market Fund/2/ 12,901 12,901
Short Term Investment Co. -
Liquid Assets Money Market Portfolio/2/ 22,290 22,290
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Short Term Investment Co. -
Prime Money Market Portfolio, Institutional
Shares/2/ 56,685 $ 56,685
972,368
FLOATING RATE NOTES - 1.96%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 11,145 11,144
1.16%, 08/23/04/2/ 11,145 11,154
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 8,916 8,916
1.37%, 08/26/04/2/ 22,290 22,290
CC USA Inc.
1.06%, 05/24/04/2/ 22,290 22,288
1.07%, 04/19/04/2/ 9,808 9,808
1.11%, 07/15/04/2/ 11,145 11,148
Dorada Finance Inc.
1.07%, 05/20/04/2/ 22,290 22,287
1.24%, 08/09/04/2/ 5,572 5,572
Five Finance Inc.
1.08%, 04/15/04/2/ 11,145 11,145
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ 22,290 22,290
Holmes Financing PLC
1.07%, 04/15/04/2/ 4,458 4,458
K2 USA LLC
1.07%, 08/16/04/2/ 5,572 5,572
1.08%, 04/13/04/2/ 11,145 11,145
1.08%, 05/17/04/2/ 11,145 11,145
Links Finance LLC
1.05%, 07/20/04/2/ 8,916 8,914
1.07%, 05/04/04/2/ 11,145 11,145
1.07%, 06/28/04/2/ 11,145 11,143
1.08%, 03/29/04/2/ 11,145 11,145
Nationwide Building Society
1.08%, 07/23/04/2/ 16,717 16,717
Sigma Finance Inc.
1.05%, 07/20/04/2/ 11,145 11,143
1.06%, 10/15/03/2/ 22,290 22,290
1.06%, 07/01/04/2/ 11,145 11,143
1.24%, 08/06/04/2/ 5,572 5,572
44 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI NETHERLANDS INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Tango Finance Corp.
1.05%, 07/15/04/2/ $ 6,687 $ 6,685
1.06%, 07/06/04/2/ 6,687 6,686
Toronto Dominion
1.33%, 08/23/04/2/ 14,488 14,481
White Pine Finance LLC
1.06%, 07/06/04/2/ 13,374 13,373
1.07%, 05/17/04/2/ 13,374 13,374
1.08%, 04/20/04/2/ 11,145 11,145
365,318
COMMERCIAL PAPER - 0.75%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 6,687 6,683
CRC Funding LLC
1.05%, 09/25/03/2/ 11,145 11,137
1.06%, 09/16/03/2/ 4,458 4,456
Edison Asset Securitization
1.06%, 09/05/03/2/ 11,145 11,144
1.06%, 09/15/03/2/ 6,687 6,684
1.07%, 10/23/03/2/ 20,952 20,921
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 11,145 11,140
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 5,572 5,572
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 5,572 5,570
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 5,572 5,571
Quincy Capital Corp.
1.06%, 09/17/03/2/ 23,094 23,084
Receivables Capital Corp.
1.06%, 09/17/03/2/ 16,272 16,265
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 11,145 11,145
139,372
TIME DEPOSITS - 0.12%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 22,290 22,290
22,290
TOTAL SHORT TERM INVESTMENTS
(COST: $1,499,348) 1,499,348
TOTAL INVESTMENTS IN SECURITIES - 107.12%
(COST $25,326,216) 19,923,235
OTHER ASSETS, LESS LIABILITIES - (7.12%) (1,323,979)
------------
NET ASSETS - 100.00% $ 18,599,256
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 45
Schedule of Investments
iSHARES MSCI SPAIN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.95%
Telefonica SA 1,027,865 $ 12,097,445
Banco Santander Central Hispano SA 825,900 7,045,491
Banco Bilbao Vizcaya Argentaria SA 482,910 5,169,322
Repsol YPF SA 145,380 2,454,843
Iberdrola SA 143,760 2,443,272
Endesa SA 156,270 2,432,846
Banco Popular Espanol SA 39,960 1,798,755
Altadis SA 67,650 1,596,868
Industria de Diseno Textil SA 59,190 1,471,904
Union Fenosa SA 76,680 1,200,506
Gas Natural SDG SA 57,840 1,071,288
Bankinter SA 28,440 955,463
Abertis Infraestructuras SA 58,650 769,482
Sociedad General de Aguas de Barcelona SA 56,430 721,770
NH Hoteles SA/1/ 63,210 697,453
FAES FARMA SA 53,866 686,018
Acerinox SA 15,270 647,126
ACS, Actividades de Construccion y Servicios SA 15,000 628,603
Fomento de Construcciones y Contratas SA 20,490 607,391
Amadeus Global Travel Distribution SA Class A 78,360 524,792
Grupo Dragados SA 24,840 503,165
Promotora de Infomaciones SA 47,310 486,174
Corporacion Mapfre SA 43,320 475,610
Zeltia SA 68,760 458,234
Viscofan SA 55,950 419,550
Telefonica Publicidad e Informacion SA 82,530 382,373
Indra Sistemas SA 33,930 375,498
Sacyr Vallehermoso SA 33,330 365,930
Acciona SA 7,020 362,241
Grupo Ferrovial SA 12,960 348,321
Uralita SA 52,560 343,926
Ebro Puleva SA 31,297 283,478
Iberia Lineas Aereas de Espana SA 107,490 223,045
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Grupo Empresarial ENCE SA 12,000 $ 212,114
Prosegur Compania de Seguridad SA 5,340 87,062
TOTAL COMMON STOCKS
(COST: $46,941,613) 50,347,359
SHORT TERM INVESTMENTS - 25.63%
MONEY MARKET FUNDS - 16.66%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 5,503,339 5,503,339
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/2/,/3/ 2,101,468 2,101,468
BlackRock Temp Cash Money Market Fund/2/ 110,575 110,575
Short Term Investment Co. -
Liquid Assets Money Market Portfolio/2/ 191,043 191,043
Short Term Investment Co. -
Prime Money Market Portfolio,
Institutional Shares/2/ 485,837 485,837
8,392,262
FLOATING RATE NOTES - 6.22%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 95,521 95,511
1.16%, 08/23/04/2/ 95,521 95,601
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 76,417 76,417
1.37%, 08/26/04/2/ 191,043 191,043
CC USA Inc.
1.06%, 05/24/04/2/ 191,043 191,029
1.07%, 04/19/04/2/ 84,059 84,056
1.11%, 07/15/04/2/ 95,521 95,551
Dorada Finance Inc.
1.07%, 05/20/04/2/ 191,043 191,022
1.24%, 08/09/04/2/ 47,761 47,754
Five Finance Inc.
1.08%, 04/15/04/2/ 95,521 95,521
46 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI SPAIN INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ $ 191,043 $ 191,043
Holmes Financing PLC
1.07%, 04/15/04/2/ 38,209 38,209
K2 USA LLC
1.07%, 08/16/04/2/ 47,761 47,754
1.08%, 04/13/04/2/ 95,521 95,518
1.08%, 05/17/04/2/ 95,521 95,518
Links Finance LLC
1.05%, 07/20/04/2/ 76,417 76,404
1.07%, 05/04/04/2/ 95,521 95,519
1.07%, 06/28/04/2/ 95,521 95,506
1.08%, 03/29/04/2/ 95,521 95,521
Nationwide Building Society
1.08%, 07/23/04/2/ 143,282 143,282
Sigma Finance Inc.
1.05%, 07/20/04/2/ 95,521 95,504
1.06%, 10/15/03/2/ 191,043 191,040
1.06%, 07/01/04/2/ 95,521 95,502
1.24%, 08/06/04/2/ 47,761 47,757
Tango Finance Corp.
1.05%, 07/15/04/2/ 57,313 57,296
1.06%, 07/06/04/2/ 57,313 57,308
Toronto Dominion
1.33%, 08/23/04/2/ 124,178 124,117
White Pine Finance LLC
1.06%, 07/06/04/2/ 114,626 114,616
1.07%, 05/17/04/2/ 114,626 114,626
1.08%, 04/20/04/2/ 95,521 95,521
3,131,066
COMMERCIAL PAPER - 2.37%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 57,313 57,276
CRC Funding LLC
1.05%, 09/25/03/2/ 95,521 95,457
1.06%, 09/16/03/2/ 38,209 38,193
Edison Asset Securitization
1.06%, 09/05/03/2/ 95,521 95,513
1.06%, 09/15/03/2/ 57,313 57,291
1.07%, 10/23/03/2/ 179,580 179,308
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 95,521 95,477
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 47,761 47,761
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 47,761 47,741
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 47,761 47,752
Quincy Capital Corp.
1.06%, 09/17/03/2/ 197,935 197,848
Receivables Capital Corp.
1.06%, 09/17/03/2/ 139,461 139,400
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 95,521 95,521
1,194,538
TIME DEPOSITS - 0.38%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 191,043 191,043
191,043
TOTAL SHORT TERM INVESTMENTS
(COST: $12,908,909) 12,908,909
TOTAL INVESTMENTS IN SECURITIES - 125.58%
(COST $59,850,522) 63,256,268
OTHER ASSETS, LESS LIABILITIES - (25.58%) (12,884,316)
------------
NET ASSETS - 100.00% $ 50,371,952
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 47
Schedule of Investments
iSHARES MSCI SWEDEN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.95%
Telefonaktiebolaget LM Ericsson Class B/1/ 1,860,480 $ 2,848,173
Nordea AB 294,876 1,498,855
Hennes & Mauritz AB Class B 59,328 1,248,831
Svenska Handelsbanken AB Class A 68,832 1,090,781
Electrolux AB Series B 37,944 846,356
Telia AB 207,421 813,688
Svenska Cellulosa AB Class B 22,716 786,524
Sandvik AB 28,818 773,769
Volvo AB Class B 26,604 642,732
Skandinaviska Enskilda Banken AB Class A 61,560 589,006
Securitas AB Class B 38,214 468,466
Tele2 AB Class B/1/ 11,844 445,503
Atlas Copco AB Class A 14,202 424,640
SKF AB Class B 11,358 353,189
ASSA Abloy AB Class B 38,754 342,989
Skandia Forsakrings AB 106,290 339,418
Skanska AB Class B 50,202 327,227
Swedish Match AB 45,684 308,705
Atlas Copco AB Class B 8,640 237,669
Volvo AB Class A 10,332 236,638
Nobel Biocare Holding AG 2,592 204,912
Holmen AB Class B 6,534 199,665
Eniro AB 21,402 175,338
Drott AB Class B 12,132 168,315
Gambro AB Class A 24,228 163,718
Trelleborg AB Class B 11,790 146,649
Getinge AB Class B 4,698 144,965
Svenskt Stal AB Series A 9,036 123,201
Svenska Handelsbanken AB Class B 7,560 115,282
Modern Times Group AB Class B/1/ 6,300 100,213
Alfa Laval AB 8,226 94,940
Gambro AB Class B 14,058 94,155
SKF AB Class A 2,934 90,885
Billerud AB 6,768 84,993
SAS AB/1/ 10,548 84,523
Hoganas AB Class B 4,086 79,656
Svenskt Stal AB Series B 4,716 61,198
OM AB 5,886 52,093
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Castellum AB 3,078 $ 50,986
WM-Data AB Class B/1/ 27,594 46,863
Sapa AB 2,106 39,545
Axfood AB 2,340 38,621
TOTAL COMMON STOCKS
(COST: $18,208,385) 16,983,875
SHORT TERM INVESTMENTS - 25.58%
MONEY MARKET FUNDS - 16.60%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 1,844,126 1,844,126
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/2/,/3/ 709,930 709,930
BlackRock Temp Cash Money Market Fund/2/ 37,355 37,355
Short Term Investment Co. -
Liquid Assets Money Market Portfolio/2/ 64,539 64,539
Short Term Investment Co. -
Prime Money Market
Portfolio, Institutional Shares/2/ 164,128 164,128
2,820,078
FLOATING RATE NOTES - 6.23%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 32,270 32,266
1.16%, 08/23/04/2/ 32,270 32,297
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 25,816 25,816
1.37%, 08/26/04/2/ 64,539 64,539
CC USA Inc.
1.06%, 05/24/04/2/ 64,539 64,534
1.07%, 04/19/04/2/ 28,397 28,397
1.11%, 07/15/04/2/ 32,270 32,280
Dorada Finance Inc.
1.07%, 05/20/04/2/ 64,539 64,532
1.24%, 08/09/04/2/ 16,135 16,133
Five Finance Inc.
1.08%, 04/15/04/2/ 32,270 32,270
48 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI SWEDEN INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ $ 64,539 $ 64,539
Holmes Financing PLC
1.07%, 04/15/04/2/ 12,908 12,908
K2 USA LLC
1.07%, 08/16/04/2/ 16,135 16,132
1.08%, 04/13/04/2/ 32,270 32,269
1.08%, 05/17/04/2/ 32,270 32,269
Links Finance LLC
1.05%, 07/20/04/2/ 25,816 25,811
1.07%, 05/04/04/2/ 32,270 32,268
1.07%, 06/28/04/2/ 32,270 32,264
1.08%, 03/29/04/2/ 32,270 32,270
Nationwide Building Society
1.08%, 07/23/04/2/ 48,404 48,405
Sigma Finance Inc.
1.05%, 07/20/04/2/ 32,270 32,264
1.06%, 10/15/03/2/ 64,539 64,538
1.06%, 07/01/04/2/ 32,270 32,263
1.24%, 08/06/04/2/ 16,135 16,133
Tango Finance Corp.
1.05%, 07/15/04/2/ 19,362 19,356
1.06%, 07/06/04/2/ 19,362 19,360
Toronto Dominion
1.33%, 08/23/04/2/ 41,950 41,930
White Pine Finance LLC
1.06%, 07/06/04/2/ 38,720 38,720
1.07%, 05/17/04/2/ 38,723 38,723
1.08%, 04/20/04/2/ 38,723 32,270
1,057,756
COMMERCIAL PAPER - 2.37%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 19,362 19,349
CRC Funding LLC
1.05%, 09/25/03/2/ 32,270 32,248
1.06%, 09/16/03/2/ 12,908 12,902
Edison Asset Securitization
1.06%, 09/05/03/2/ 32,270 32,267
1.06%, 09/15/03/2/ 19,362 19,354
1.07%, 10/23/03/2/ 60,667 60,575
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 32,270 32,254
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 16,135 16,135
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 16,135 16,128
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 16,132 16,132
Quincy Capital Corp.
1.06%, 09/17/03/2/ 66,868 66,838
Receivables Capital Corp.
1.06%, 09/17/03/2/ 47,114 47,093
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 32,270 32,270
403,545
TIME DEPOSITS - 0.38%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 64,539 64,539
64,539
TOTAL SHORT TERM INVESTMENTS
(COST: $4,345,918) 4,345,918
TOTAL INVESTMENTS IN SECURITIES - 125.53%
(COST $22,554,303) 21,329,793
OTHER ASSETS, LESS LIABILITIES - (25.53%) (4,337,872)
------------
NET ASSETS - 100.00% $ 16,991,921
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 49
Schedule of Investments
iSHARES MSCI SWITZERLAND INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.67%
Novartis AG 170,154 $ 6,256,778
Nestle SA Registered 19,470 4,240,013
UBS AG Registered 48,761 2,630,319
Roche Holding AG Genusschein 33,440 2,560,737
Zurich Financial Services AG/1/ 13,189 1,695,063
Credit Suisse Group 53,869 1,682,745
Swiss Reinsurance Co. 25,075 1,539,717
Holcim Ltd. Registered 29,590 1,172,571
Swisscom AG Registered 3,454 944,545
Synthes-Stratec Inc. 1,144 930,360
Ciba Specialty Chemicals AG Registered/1/ 13,095 900,863
Compagnie Financiere Richemont AG Class A 44,000 841,955
Givaudan SA Registered 2,002 829,074
Serono SA 1,276 808,120
Syngenta AG 12,584 691,848
Adecco SA Registered 12,452 629,468
Lonza Group AG Registered 12,586 617,370
Schindler Holding AG
Participation Certificates/1/ 2,882 586,462
Swatch Group (The) AG Class B 4,972 482,805
Julius Baer Holding AG 1,644 464,835
Societe Generale de Surveillance Holding SA 946 448,498
Swatch Group (The) AG Registered 22,286 435,998
ABB Ltd./1/ 62,898 358,827
Banque Cantonale Vaudoise/1/ 4,998 349,544
Valora Holding AG Registered 1,606 309,607
Schindler Holding AG Registered/1/ 1,408 307,125
Clariant AG Registered/1/ 19,382 262,938
Vontobel Holding AG Registered 13,200 247,403
Logitech International SA Registered/1/ 3,080 98,961
Sulzer AG Registered 440 90,793
Geberit AG Registered 176 60,319
Kudelski SA Bearer/1/ 1,826 50,847
Kuoni Reisen Holding AG Registered 22 6,024
TOTAL COMMON STOCKS
(COST: $36,792,303) 33,532,532
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 2.64%
MONEY MARKET FUNDS - 1.72%
Barclays Global Investors Funds Institutional
Money Market Fund, Institutional Shares/2/,/3/ 378,497 $ 378,497
Barclays Global Investors Funds Prime Money
Market Fund, Institutional Shares/2/,/3/ 144,859 144,859
BlackRock Temp Cash Money Market Fund/2/ 7,622 7,622
Short Term Investment Co. -
Liquid Assets Money Market Portfolio/2/ 13,169 13,169
Short Term Investment Co. -
Prime Money Market Portfolio, Institutional
Shares/2/ 33,490 33,490
577,637
FLOATING RATE NOTES - 0.64%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 6,585 6,584
1.16%, 08/23/04/2/ 6,585 6,590
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 5,268 5,268
1.37%, 08/26/04/2/ 13,169 13,169
CC USA Inc.
1.06%, 05/24/04/2/ 13,169 13,168
1.07%, 04/19/04/2/ 5,794 5,794
1.11%, 07/15/04/2/ 6,585 6,587
Dorada Finance Inc.
1.07%, 05/20/04/2/ 13,169 13,168
1.24%, 08/09/04/2/ 3,292 3,292
Five Finance Inc.
1.08%, 04/15/04/2/ 6,585 6,585
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ 13,169 13,169
Holmes Financing PLC
1.07%, 04/15/04/2/ 2,634 2,634
50 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI SWITZERLAND INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
K2 USA LLC
1.07%, 08/16/04/2/ $ 3,292 $ 3,292
1.08%, 04/13/04/2/ 6,585 6,584
1.08%, 05/17/04/2/ 6,585 6,584
Links Finance LLC
1.05%, 07/20/04/2/ 5,268 5,267
1.07%, 05/04/04/2/ 6,585 6,584
1.07%, 06/28/04/2/ 6,585 6,583
1.08%, 03/29/04/2/ 6,585 6,585
Nationwide Building Society
1.08%, 07/23/04/2/ 9,877 9,877
Sigma Finance Inc.
1.05%, 07/20/04/2/ 6,585 6,583
1.06%, 10/15/03/2/ 13,169 13,169
1.06%, 07/01/04/2/ 6,585 6,583
1.24%, 08/06/04/2/ 3,292 3,292
Tango Finance Corp.
1.05%, 07/15/04/2/ 3,951 3,950
1.06%, 07/06/04/2/ 3,951 3,950
Toronto Dominion
1.33%, 08/23/04/2/ 8,560 8,556
White Pine Finance LLC
1.06%, 07/06/04/2/ 7,901 7,901
1.07%, 05/17/04/2/ 7,901 7,901
1.08%, 04/20/04/2/ 6,585 6,585
215,834
COMMERCIAL PAPER - 0.24%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 3,951 3,948
CRC Funding LLC
1.05%, 09/25/03/2/ 6,585 6,580
1.06%, 09/16/03/2/ 2,634 2,633
Edison Asset Securitization
1.06%, 09/05/03/2/ 6,585 6,584
1.06%, 09/15/03/2/ 3,951 3,949
1.07%, 10/23/03/2/ 12,379 12,360
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 6,585 6,581
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 3,292 3,292
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 3,292 3,291
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 3,292 3,292
Quincy Capital Corp.
1.06%, 09/17/03/2/ 13,644 13,638
Receivables Capital Corp.
1.06%, 09/17/03/2/ 9,613 9,609
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 6,585 6,585
82,342
TIME DEPOSITS - 0.04%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 13,169 13,169
13,169
TOTAL SHORT TERM INVESTMENTS
(COST: $888,982) 888,982
TOTAL INVESTMENTS IN SECURITIES - 102.31%
(COST $37,681,285) 34,421,514
OTHER ASSETS, LESS LIABILITIES - (2.31%) (778,226)
------------
NET ASSETS - 100.00% $ 33,643,288
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
SCHEDULES OF INVESTMENTS 51
Schedule of Investments
iSHARES MSCI UNITED KINGDOM INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS - 99.14%
BP PLC 2,110,794 $ 14,323,231
HSBC Holdings PLC 1,032,748 13,280,755
Vodafone Group PLC 6,505,918 11,911,527
GlaxoSmithKline PLC 571,764 10,915,960
Royal Bank of Scotland Group PLC 265,814 6,617,903
AstraZeneca PLC 163,560 6,286,678
Shell Transport & Trading Co. PLC 922,084 5,782,978
Barclays PLC/3/ 624,370 4,542,947
HBOS PLC 360,876 4,018,542
Lloyds TSB Group PLC 531,164 3,486,700
Diageo PLC 297,076 3,185,922
BT Group PLC 827,845 2,409,377
Tesco PLC 686,024 2,343,856
Rio Tinto PLC 102,022 2,244,703
Unilever PLC 262,624 2,137,261
National Grid Transco PLC 294,161 1,801,832
Aviva PLC 213,904 1,696,788
British American Tobacco PLC 155,092 1,567,574
BHP Billiton PLC 235,754 1,549,416
BG Group PLC 338,604 1,460,813
Prudential PLC 190,704 1,316,685
British Sky Broadcasting Group PLC/1/ 120,466 1,261,422
Cadbury Schweppes PLC 197,606 1,193,992
Compass Group PLC 211,874 1,173,799
Centrica PLC 405,246 1,139,374
Imperial Tobacco Group PLC 69,716 1,089,500
Reckitt Benckiser PLC 57,304 1,078,623
Marks & Spencer Group PLC 215,938 1,040,050
GUS PLC 96,106 1,039,787
WPP Group PLC 112,346 1,024,459
Scottish Power PLC 177,016 1,014,282
Legal & General Group PLC 625,322 984,158
Kingfisher PLC 218,428 939,756
Reed Elsevier PLC 121,220 929,938
Boots Group PLC 79,228 828,358
Scottish & Southern Energy PLC 82,882 825,921
BAE Systems PLC 291,450 787,159
Pearson PLC 76,792 750,658
BAA PLC 102,660 740,464
Wolseley PLC 55,854 640,516
BOC Group PLC 46,690 637,711
Land Securities Group PLC 45,197 611,242
J Sainsbury PLC 138,330 603,351
Smiths Group PLC 53,592 596,775
3i Group PLC 59,392 590,903
Rentokil Initial PLC 177,712 590,301
Smith & Nephew PLC 88,914 570,997
SABMiller PLC 74,704 558,616
InterContinental Hotels Group PLC/1/ 70,739 547,149
Amersham PLC 66,584 537,128
Reuters Group PLC 134,386 526,099
Carnival PLC 15,937 518,032
Man Group PLC 25,984 504,710
AMVESCAP PLC 63,800 500,794
Hanson PLC 71,804 468,501
Next PLC 27,144 461,981
Hilton Group PLC 149,872 461,082
Scottish & Newcastle PLC 76,618 455,676
Safeway PLC 98,078 439,807
Cable & Wireless PLC 229,854 432,650
Granada PLC 266,510 432,091
Dixons Group PLC 184,208 401,363
United Utilities PLC 52,896 390,312
British Land Co. PLC 47,444 372,784
Rolls-Royce Group PLC 136,532 366,591
Imperial Chemical Industries PLC 111,940 343,499
Severn Trent PLC 33,234 336,434
Whitebread PLC 28,246 333,522
Bunzl PLC 45,820 333,389
Friends Provident PLC 152,482 329,825
EMAP PLC 24,012 324,547
Johnson Matthey PLC 20,706 321,458
Sage Group PLC 114,202 305,280
Exel PLC 28,130 300,339
Tomkins PLC 71,572 297,457
Royal & Sun Alliance Insurance Group 135,662 297,198
GKN PLC 70,296 291,598
Signet Group PLC 168,200 290,660
Rexam PLC 44,776 290,203
Mitchells & Butlers PLC/1/ 70,740 281,970
Hays PLC 154,512 281,059
Peninsular & Oriental Steam Navigation Co. (The) 67,164 273,294
Daily Mail & General Trust Class A 30,160 266,078
Rank Group PLC 58,696 263,440
Electrocomponents PLC 42,108 253,096
Slough Estates PLC 42,572 251,845
International Power PLC/1/ 104,632 248,252
Provident Financial PLC 24,418 246,802
52 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI UNITED KINGDOM INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------
Kelda Group PLC 38,048 $ 246,447
Misys PLC 54,810 244,048
Liberty International PLC 22,910 241,526
Hammerson PLC 27,608 239,524
BPB PLC 46,400 235,409
Capita Group PLC 61,016 232,835
RMC Group PLC 25,694 225,662
Associated British Ports Holdings PLC 34,452 221,929
Tate & Lyle PLC 39,382 220,204
LogicaCMG PLC 68,675 217,525
Persimmon PLC 23,954 216,726
United Business Media PLC 31,088 216,363
Wimpey (George) PLC 34,916 215,391
Brambles Industries PLC 72,268 213,188
Enterprise Inns PLC 15,486 208,575
Barratt Developments PLC 24,592 201,883
Taylor Woodrow PLC 54,752 197,457
Yell Group PLC/1/ 38,628 195,519
Cobham PLC 10,672 193,281
FirstGroup PLC 40,774 185,260
EMI Group PLC 75,052 183,709
IMI PLC 34,684 182,688
Close Brothers Group PLC 15,312 182,254
BBA Group PLC 45,646 180,501
Alliance Unichem PLC 22,040 177,795
Kesa Electricals PLC/1/ 49,929 176,510
William Hill PLC 35,786 175,757
Canary Wharf Group PLC/1/ 43,210 174,628
Berkeley Group (The) PLC 12,238 172,185
ARM Holdings PLC/1/ 92,974 166,180
MFI Furniture Group PLC 58,000 165,135
Invensys PLC 322,422 164,472
Cattles PLC 29,232 163,681
Carlton Communications PLC 58,290 160,889
Aegis Group PLC 102,022 157,339
British Airways PLC/1/ 50,634 149,769
Pilkington PLC 99,702 139,568
Schroders PLC 12,412 139,147
Celltech Group PLC/1/ 25,346 133,804
Balfour Beatty PLC 38,222 130,437
Davis Service Group PLC 19,024 125,330
AMEC PLC 28,826 121,398
Kidde PLC 78,938 121,114
SHARES OR
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Stagecoach Group PLC 94,714 $ 115,357
Serco Group PLC 37,932 104,398
FKI PLC 48,082 86,701
Novar PLC 41,818 85,659
SSL International PLC 16,762 83,517
De La Rue PLC 19,140 81,439
Securicor PLC 55,711 75,343
Great Portland Estates PLC 17,922 66,193
Aggreko PLC 22,620 55,816
United Utilities PLC Rights/1/ 29,893 50,830
TOTAL COMMON STOCKS
(COST: $181,025,891) 149,519,850
SHORT TERM INVESTMENTS - 0.65%
MONEY MARKET FUNDS - 0.44%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/2/,/3/ 461,840 461,840
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/2/,/3/ 145,716 145,716
BlackRock Temp Cash Money Market Fund/2/ 7,667 7,667
Short Term Investment Co. -
Liquid Assets Money Market
Portfolio/2/ 13,247 13,247
Short Term Investment Co. -
Prime Money Market
Portfolio, Institutional Shares/2/ 33,688 33,688
662,158
FLOATING RATE NOTES - 0.14%
Beta Finance Inc.
1.07%, 05/20/04/2/ $ 6,623 6,623
1.16%, 08/23/04/2/ 6,623 6,629
Canadian Imperial Bank of Commerce
1.07%, 10/30/03/2/ 5,299 5,299
1.37%, 08/26/04/2/ 13,247 13,247
CC USA Inc.
1.06%, 05/24/04/2/ 13,247 13,246
1.07%, 04/19/04/2/ 5,829 5,828
1.11%, 07/15/04/2/ 6,623 6,626
SCHEDULES OF INVESTMENTS 53
Schedule of Investments (Continued)
iSHARES MSCI UNITED KINGDOM INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- ------------------------------------------------------------------------------
Dorada Finance Inc.
1.07%, 05/20/04/2/ $ 13,247 $ 13,245
1.24%, 08/09/04/2/ 3,312 3,311
Five Finance Inc.
1.08%, 04/15/04/2/ 6,623 6,623
HBOS Treasury Services PLC
1.27%, 06/24/04/2/ 13,247 13,247
Holmes Financing PLC
1.07%, 04/15/04/2/ 2,649 2,649
K2 USA LLC
1.07%, 08/16/04/2/ 3,312 3,311
1.08%, 04/13/04/2/ 6,623 6,623
1.08%, 05/17/04/2/ 6,623 6,623
Links Finance LLC
1.05%, 07/20/04/2/ 5,299 5,298
1.07%, 05/04/04/2/ 6,623 6,623
1.07%, 06/28/04/2/ 6,623 6,622
1.08%, 03/29/04/2/ 6,623 6,623
Nationwide Building Society
1.08%, 07/23/04/2/ 9,935 9,935
Sigma Finance Inc.
1.05%, 07/20/04/2/ 6,623 6,622
1.06%, 10/15/03/2/ 13,247 13,247
1.06%, 07/01/04/2/ 6,623 6,622
1.24%, 08/06/04/2/ 3,312 3,311
Tango Finance Corp.
1.05%, 07/15/04/2/ 3,974 3,973
1.06%, 07/06/04/2/ 3,974 3,974
Toronto Dominion
1.33%, 08/23/04/2/ 8,610 8,606
White Pine Finance LLC
1.06%, 07/06/04/2/ 7,948 7,948
1.07%, 05/17/04/2/ 7,948 7,948
1.08%, 04/20/04/2/ 6,623 6,623
217,105
COMMERCIAL PAPER - 0.06%
Corporate Asset Funding Corp.
1.06%, 09/24/03/2/ 3,974 3,971
CRC Funding LLC
1.05%, 09/25/03/2/ 6,623 6,619
1.06%, 09/16/03/2/ 2,649 2,648
Edison Asset Securitization
1.06%, 09/05/03/2/ 6,623 6,623
1.06%, 09/15/03/2/ 3,974 3,973
1.07%, 10/23/03/2/ 12,452 12,433
Eureka Securitization Inc.
1.05%, 09/18/03/2/ 6,623 6,620
Jupiter Securitization Corp.
1.07%, 09/02/03/2/ 3,312 3,312
Park Avenue Receivables Corp.
1.06%, 09/16/03/2/ 3,312 3,310
Preferred Receivables Funding Corp.
1.06%, 09/08/03/2/ 3,311 3,311
Quincy Capital Corp.
1.06%, 09/17/03/2/ 13,725 13,719
Receivables Capital Corp.
1.06%, 09/17/03/2/ 9,670 9,666
UBS Finance (Delaware) Inc.
1.09%, 09/02/03/2/ 6,623 6,623
82,828
TIME DEPOSITS - 0.01%
SunTrust Banks Inc.
1.00%, 09/02/03/2/ 13,247 13,247
13,247
TOTAL SHORT TERM INVESTMENTS
(COST: $975,338) 975,338
TOTAL INVESTMENTS IN SECURITIES - 99.79%
(COST $182,001,229) 150,495,188
OTHER ASSETS, LESS LIABILITIES - 0.21% 314,054
------------
NET ASSETS - 100.00% $150,809,242
============
/1/ Non-income earning securities.
/2/ All or a portion of this security represents investments of securities
lending collateral.
/3/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
54 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Statements of Assets and Liabilities
iSHARES, INC.
August 31, 2003
iSHARES MSCI
------------------------------------------------------------------------------------
Austria Belgium EMU France Germany Italy
Index Fund Index Fund Index Fund Index Fund Index Fund Index Fund
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at cost $ 20,869,280 $ 31,822,402 $ 224,794,575 $ 70,624,096 $ 180,549,171 $ 46,939,017
------------ ------------ ------------- ------------ ------------- ------------
Foreign currency, at cost $ 18,489 $ 27,984 $ 310,320 $ 91,078 $ 152,944 $ 50,336
------------ ------------ ------------- ------------ ------------- ------------
Investments in securities, at
value (including securities
on loan/1/) (Note 1) $ 24,177,304 $ 30,136,746 $ 206,263,396 $ 60,633,738 $ 138,789,196 $ 42,445,929
Foreign currency, at value 18,034 26,952 299,597 87,830 148,612 48,735
Receivables:
Investment securities sold 489,716 35,808 509,589 47,553 - 678,489
Dividends and interest 31,027 45,991 525,280 83,713 46,943 65,416
------------ ------------ ------------- ------------ ------------- ------------
Total Assets 24,716,081 30,245,497 207,597,862 60,852,834 138,984,751 43,238,569
------------ ------------ ------------- ------------ ------------- ------------
LIABILITIES
Payables:
Investment securities
purchased 485,396 35,326 593,847 100,395 - 678,517
Collateral for securities on
loan (Note 5) 1,912,081 8,303,623 41,381,518 6,601,036 37,045,053 12,518,814
Advisory fees (Note 2) 21,324 24,831 164,548 53,624 98,093 30,932
Distribution fees 8,976 10,504 69,483 22,603 41,395 13,079
------------ ------------ ------------- ------------ ------------- ------------
Total Liabilities 2,427,777 8,374,284 42,209,396 6,777,658 37,184,541 13,241,342
------------ ------------ ------------- ------------ ------------- ------------
NET ASSETS $ 22,288,304 $ 21,871,213 $ 165,388,466 $ 54,075,176 $ 101,800,210 $ 29,997,227
============ ============ ============= ============ ============= ============
NET ASSETS CONSIST OF:
Paid-in capital $ 22,722,704 $ 25,692,919 $ 193,396,288 $ 70,676,346 $ 171,892,932 $ 38,719,210
Undistributed net
investment income 176,004 805,281 3,037,701 794,879 1,804,102 824,876
Accumulated net realized
loss (3,916,456) (2,944,280) (12,517,918) (7,406,146) (30,132,219) (5,060,735)
Net unrealized appreciation
(depreciation) on
investments and translation
of assets and liabilities
in foreign currencies 3,306,052 (1,682,707) (18,527,605) (9,989,903) (41,764,605) (4,486,124)
------------ ------------ ------------- ------------ ------------- ------------
NET ASSETS $ 22,288,304 $ 21,871,213 $ 165,388,466 $ 54,075,176 $ 101,800,210 $ 29,997,227
============ ============ ============= ============ ============= ============
iShares outstanding 2,100,000 1,960,000 3,300,000 3,200,000 8,100,000 1,800,000
============ ============ ============= ============ ============= ============
Net asset value per
iShare $ 10.61 $ 11.16 $ 50.12 $ 16.90 $ 12.57 $ 16.67
============ ============ ============= ============ ============= ============
/1/ Securities on loan with market values of $1,819,379, $7,902,917,
$39,353,935, $6,280,420, $35,232,310 and $11,857,205, respectively. See
Note 5.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS 55
Statements of Assets and Liabilities (Continued)
iSHARES, INC.
August 31, 2003
iSHARES MSCI
----------------------------------------------------------------------
Netherlands Spain Sweden Switzerland United Kingdom
Index Fund Index Fund Index Fund Index Fund Index Fund
- -------------------------------------------------------------------------------------------------
ASSETS
Investments at cost $ 25,326,216 $ 59,850,522 $ 22,554,303 $ 37,681,285 $ 182,001,229
------------ ------------ ------------ ------------ --------------
Foreign currency, at cost $ 19,453 $ 136,023 $ 5,658 $ 62,657 $ 310,656
------------ ------------ ------------ ------------ --------------
Investments in
securities, at value
(including securities
on loan/1/) (Note 1) $ 19,923,235 $ 63,256,268 $ 21,329,793 $ 34,421,514 $ 150,495,188
Foreign currency, at
value 18,723 131,270 5,304 60,192 306,969
Receivables:
Investment securities
sold 177,901 1,202,448 71,789 505,302 300,888
Dividends and interest 162,891 6,068 847 84,619 1,232,048
------------ ------------ ------------ ------------ --------------
Total Assets 20,282,750 64,596,054 21,407,733 35,071,627 152,335,093
------------ ------------ ------------ ------------ --------------
LIABILITIES
Payables:
Investment securities
purchased 158,834 1,304,383 52,074 495,413 387,614
Collateral for
securities on loan
(Note 5) 1,498,956 12,847,321 4,340,155 885,597 890,835
iShares redeemed - - - - 24,768
Advisory fees (Note 2) 18,088 50,874 16,572 33,293 156,475
Distribution fees 7,616 21,524 7,011 14,036 66,159
------------ ------------ ------------ ------------ --------------
Total Liabilities 1,683,494 14,224,102 4,415,812 1,428,339 1,525,851
------------ ------------ ------------ ------------ --------------
NET ASSETS $ 18,599,256 $ 50,371,952 $ 16,991,921 $ 33,643,288 $ 150,809,242
============ =-========== ============ ============ ==============
NET ASSETS CONSIST OF:
Paid-in capital $ 31,482,586 $ 51,447,596 $ 24,962,414 $ 43,308,444 $ 201,512,678
Undistributed net
investment income 480,580 437,502 332,115 146,432 4,441,921
Accumulated net
realized loss (7,954,967) (4,913,908) (7,077,968) (6,552,149) (23,618,011)
Net unrealized
appreciation
(depreciation) on
investments and
translation of assets
and liabilities in
foreign currencies (5,408,943) 3,400,762 (1,224,640) (3,259,439) (31,527,346)
------------ ------------ ------------ ------------ --------------
NET ASSETS $ 18,599,256 $ 50,371,952 $ 16,991,921 $ 33,643,288 $ 150,809,242
============ ============ ============ ============ ==============
iShares outstanding 1,300,000 2,250,000 1,350,000 2,750,000 11,600,000
============ ============ ============ ============ ==============
Net asset value per
iShare $ 14.31 $ 22.39 $ 12.59 $ 12.23 $ 13.00
============ ============ ============ ============ ==============
/1/ Securities on loan with market values of $1,424,194, $12,222,629,
$4,121,382, $843,148 and $843,603, respectively. See Note 5.
SEE NOTES TO FINANCIAL STATEMENTS.
56 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Statements of Operations
iSHARES, INC.
Year Ended August 31, 2003
iSHARES MSCI
---------------------------------------------------------------------------
Austria Belgium EMU France Germany Italy
Index Fund Index Fund Index Fund Index Fund Index Fund Index Fund
- ------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Dividends/1/ $ 307,198 $ 925,103 $ 3,926,989 $ 1,120,332 $ 2,261,091 $ 963,745
Interest 212 728 3,213 762 3,177 2,042
Securities lending
income 2,916 49,879 207,342 34,642 121,389 105,152
----------- ----------- ------------ ----------- ------------ -----------
Total investment income 310,326 975,710 4,137,544 1,155,736 2,385,657 1,070,939
----------- ----------- ------------ ----------- ------------ -----------
EXPENSES (Note 2)
Advisory fees 100,716 116,502 836,046 283,982 498,846 171,764
Distribution fees 42,676 49,365 354,257 120,331 211,376 72,782
----------- ----------- ------------ ----------- ------------ -----------
Total expenses 143,392 165,867 1,190,303 404,313 710,222 244,546
----------- ----------- ------------ ----------- ------------ -----------
Net investment income 166,934 809,843 2,947,241 751,423 1,675,435 826,393
----------- ----------- ------------ ----------- ------------ -----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
Net realized gain
(loss) from:
Investments (1,050,830) (479,171) (6,009,818) (3,082,115) (10,482,324) (820,772)
In-kind redemptions 888,964 2,304,129 - - 3,069,055 409,476
Foreign currency
transactions 9,070 (3,951) 93,407 43,456 128,667 (1,517)
----------- ----------- ------------ ----------- ------------ -----------
Net realized gain
(loss) (152,796) 1,821,007 (5,916,411) (3,038,659) (7,284,602) (412,813)
----------- ----------- ------------ ----------- ------------ -----------
Net change in
unrealized
appreciation
(depreciation) on:
Investments 4,592,404 710,659 18,507,119 7,259,856 16,829,202 3,099,360
Translation of assets
and liabilities in
foreign currencies (3,039) 672 (15,156) (4,519) (28,189) 7,352
----------- ----------- ------------ ----------- ------------ -----------
Net change in
unrealized
appreciation
(depreciation) 4,589,365 711,331 18,491,963 7,255,337 16,801,013 3,106,712
----------- ----------- ------------ ----------- ------------ -----------
Net realized and
unrealized gain 4,436,569 2,532,338 12,575,552 4,216,678 9,516,411 2,693,899
----------- ----------- ------------ ----------- ------------ -----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $ 4,603,503 $ 3,342,181 $ 15,522,793 $ 4,968,101 $ 11,191,846 $ 3,520,292
=========== =========== ============ =========== ============ ===========
/1/ Net of foreign withholding tax of $90,352, $269,973, $821,753, $290,514,
$504,170 and $139,868, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS 57
Statements of Operations (Continued)
iSHARES, INC.
Year Ended August 31, 2003
iSHARES MSCI
-------------------------------------------------------------------
Netherlands Spain Sweden Switzerland United Kingdom
Index Fund Index Fund Index Fund Index Fund Index Fund
- ---------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Dividends/1/ $ 611,245 $ 707,964 $ 405,385 $ 364,707 $ 5,944,164
Interest 249 1,090 424 222 1,693
Securities lending
income 13,261 22,641 19,008 2,772 12,317
----------- ------------ ----------- ----------- --------------
Total investment income 624,755 731,695 424,817 367,701 5,958,174
----------- ------------ ----------- ----------- --------------
EXPENSES (Note 2)
Advisory fees 114,891 209,475 76,324 171,116 863,775
Distribution fees 48,683 88,761 32,341 72,507 366,006
----------- ------------ ----------- ----------- --------------
Total expenses 163,574 298,236 108,665 243,623 1,229,781
----------- ------------ ----------- ----------- --------------
Net investment income 461,181 433,459 316,152 124,078 4,728,393
----------- ------------ ----------- ----------- --------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
Net realized gain
(loss) from:
Investments (3,572,087) (1,937,111) (1,981,412) (2,812,965) (5,282,841)
In-kind redemptions 1,167,972 1,532,541 714,452 (138,972) 8,071,852
Foreign currency
transactions 19,399 4,043 15,962 22,356 81,672
----------- ------------ ----------- ----------- --------------
Net realized gain
(loss) (2,384,716) (400,527) (1,250,998) (2,929,581) 2,870,683
----------- ------------ ----------- ----------- --------------
Net change in
unrealized
appreciation
(depreciation) on:
Investments 2,580,356 10,548,498 5,001,259 4,343,378 4,883,828
Translation of assets
and liabilities in
foreign currencies (5,505) (5,439) (126) (22,253) (23,289)
----------- ------------ ----------- ----------- --------------
Net change in
unrealized
appreciation
(depreciation) 2,574,851 10,543,059 5,001,133 4,321,125 4,860,539
----------- ------------ ----------- ----------- --------------
Net realized and
unrealized gain 190,135 10,142,532 3,750,135 1,391,544 7,731,222
----------- ------------ ----------- ----------- --------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $ 651,316 $ 10,575,991 $ 4,066,287 $ 1,515,622 $ 12,459,615
=========== ============ =========== =========== ==============
/1/ Net of foreign withholding tax of $112,398, $124,574, $71,538, $155,143 and
$644,847, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
58 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Statements of Changes in Net Assets
iSHARES, INC.
iSHARES MSCI iSHARES MSCI iSHARES MSCI
AUSTRIA BELGIUM EMU
INDEX FUND INDEX FUND INDEX FUND
-------------------------------- -------------------------------- --------------------------------
For the For the For the For the For the For the
year ended year ended year ended year ended year ended year ended
August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 166,934 $ 202,143 $ 809,843 $ 217,967 $ 2,947,241 $ 1,434,550
Net realized gain
(loss) (152,796) 422,446 1,821,007 (245,202) (5,916,411) (782,880)
Net change in
unrealized
appreciation
(depreciation) 4,589,365 (1,428,183) 711,331 (1,311,491) 18,491,963 (22,502,973)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease)
in net assets resulting
from operations 4,603,503 (803,594) 3,342,181 (1,338,726) 15,522,793 (21,851,303)
--------------- --------------- --------------- --------------- --------------- ---------------
DISTRIBUTIONS TO
iSHAREHOLDERS:
From net investment
income (208,682) - (132,112) (58,802) (1,485,447) -
--------------- --------------- --------------- --------------- --------------- ---------------
Total distributions to
iShareholders (208,682) - (132,112) (58,802) (1,485,447) -
--------------- --------------- --------------- --------------- --------------- ---------------
iSHARES TRANSACTIONS:
iShares sold 6,782,294 9,081,694 36,573,861 1,907,060 20,183,374 62,239,581
iShares redeemed (3,629,301) (4,984,937) (28,339,593) (337) - -
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase in net
assets from iShares
transactions 3,152,993 4,096,757 8,234,268 1,906,723 20,183,374 62,239,581
--------------- --------------- --------------- --------------- --------------- ---------------
INCREASE IN NET ASSETS 7,547,814 3,293,163 11,444,337 509,195 34,220,720 40,388,278
NET ASSETS:
Beginning of year 14,740,490 11,447,327 10,426,876 9,917,681 131,167,746 90,779,468
--------------- --------------- --------------- --------------- --------------- ---------------
End of year $ 22,288,304 $ 14,740,490 $ 21,871,213 $ 10,426,876 $ 165,388,466 $ 131,167,746
=============== =============== =============== =============== =============== ===============
Undistributed net
investment income
included in net assets
at end of year $ 176,004 $ 208,682 $ 805,281 $ 72,170 $ 3,037,701 $ 1,482,500
=============== =============== =============== =============== =============== ===============
iSHARES ISSUED AND
REDEEMED:
iShares sold 700,000 1,000,000 3,840,000 160,000 450,000 1,250,000
iShares redeemed (400,000) (600,030) (2,880,000) (30) - -
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase in iShares
outstanding 300,000 399,970 960,000 159,970 450,000 1,250,000
=============== =============== =============== =============== =============== ===============
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS 59
Statements of Changes in Net Assets (Continued)
iSHARES, INC.
iSHARES MSCI iSHARES MSCI iSHARES MSCI
FRANCE GERMANY ITALY
INDEX FUND INDEX FUND INDEX FUND
-------------------------------- -------------------------------- --------------------------------
For the For the For the For the For the For the
year ended year ended year ended year ended year ended year ended
August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 751,423 $ 549,950 $ 1,675,435 $ 829,578 $ 826,393 $ 725,762
Net realized loss (3,038,659) (401,229) (7,284,602) (8,419,696) (412,813) (1,080,970)
Net change in
unrealized
appreciation
(depreciation) 7,255,337 (12,515,478) 16,801,013 (16,716,690) 3,106,712 (4,788,096)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease)
in net assets resulting
from operations 4,968,101 (12,366,757) 11,191,846 (24,306,808) 3,520,292 (5,143,304)
--------------- --------------- --------------- --------------- --------------- ---------------
Undistributed net
investment income
included in the price
of capital shares
issued or redeemed - - - 3,178 - -
--------------- --------------- --------------- --------------- --------------- ---------------
DISTRIBUTIONS TO
iSHAREHOLDERS:
From net investment
income (567,205) - (838,725) - (733,556) -
--------------- --------------- --------------- --------------- --------------- ---------------
Total distributions to
iShareholders (567,205) - (838,725) - (733,556) -
--------------- --------------- --------------- --------------- --------------- ---------------
iSHARES TRANSACTIONS:
iShares sold - 3,457,530 24,678,639 8,628,640 2,068,633 -
iShares redeemed - (18,419) (27,391,209) (8,690,553) (4,396,226) (501)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease)
in net assets from
iShares transactions - 3,439,111 (2,712,570) (61,913) (2,327,593) (501)
--------------- --------------- --------------- --------------- --------------- ---------------
INCREASE (DECREASE) IN
NET ASSETS 4,400,896 (8,927,646) 7,640,551 (24,365,543) 459,143 (5,143,805)
NET ASSETS:
Beginning of year 49,674,280 58,601,926 94,159,659 118,525,202 29,538,084 34,681,889
--------------- --------------- --------------- --------------- --------------- ---------------
End of year $ 54,075,176 $ 49,674,280 $ 101,800,210 $ 94,159,659 $ 29,997,227 $ 29,538,084
=============== =============== =============== =============== =============== ===============
Undistributed net
investment income
included in net assets
at end of year $ 794,879 $ 567,205 $ 1,804,102 $ 838,725 $ 824,876 $ 733,556
=============== =============== =============== =============== =============== ===============
iSHARES ISSUED AND
REDEEMED:
iShares sold - 200,000 2,700,000 600,000 150,000 -
iShares redeemed - (1,000) (2,400,000) (601,000) (300,000) (30)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease)
in iShares outstanding - 199,000 300,000 (1,000) (150,000) (30)
=============== =============== =============== =============== =============== ===============
SEE NOTES TO FINANCIAL STATEMENTS.
60 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Statements of Changes in Net Assets (Continued)
iSHARES, INC.
iSHARES MSCI iSHARES MSCI iSHARES MSCI
NETHERLANDS SPAIN SWEDEN
INDEX FUND INDEX FUND INDEX FUND
-------------------------------- -------------------------------- --------------------------------
For the For the For the For the For the For the
year ended year ended year ended year ended year ended year ended
August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 461,181 $ 320,850 $ 433,459 $ 180,995 $ 316,152 $ 98,146
Net realized loss (2,384,716) (1,566,433) (400,527) (2,148,169) (1,250,998) (1,617,301)
Net change in
unrealized
appreciation
(depreciation) 2,574,851 (3,765,109) 10,543,059 (2,580,215) 5,001,133 (956,433)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease)
in net assets resulting
from operations 651,316 (5,010,692) 10,575,991 (4,547,389) 4,066,287 (2,475,588)
--------------- --------------- --------------- --------------- --------------- ---------------
DISTRIBUTIONS TO
iSHAREHOLDERS:
From net investment
income (320,678) (52,040) (163,361) - (100,930) -
--------------- --------------- --------------- --------------- --------------- ---------------
Total distributions to
iShareholders (320,678) (52,040) (163,361) - (100,930) -
--------------- --------------- --------------- --------------- --------------- ---------------
iSHARES TRANSACTIONS:
iShares sold 12,435,251 - 34,361,557 11,025,560 14,403,629 -
iShares redeemed (13,270,048) (17,930) (13,252,013) (14,825,946) (9,531,073) (394)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease)
in net assets from
iShares transactions (834,797) (17,930) 21,109,544 (3,800,386) 4,872,556 (394)
--------------- --------------- --------------- --------------- --------------- ---------------
INCREASE (DECREASE) IN
NET ASSETS (504,159) (5,080,662) 31,522,174 (8,347,775) 8,837,913 (2,475,982)
NET ASSETS:
Beginning of year 19,103,415 24,184,077 18,849,778 27,197,553 8,154,008 10,629,990
--------------- --------------- --------------- --------------- --------------- ---------------
End of year $ 18,599,256 $ 19,103,415 $ 50,371,952 $ 18,849,778 $ 16,991,921 $ 8,154,008
=============== =============== =============== =============== =============== ===============
Undistributed net
investment income
included in net assets
at end of year $ 480,580 $ 320,678 $ 437,502 $ 163,361 $ 332,115 $ 100,930
=============== =============== =============== =============== =============== ===============
iSHARES ISSUED AND
REDEEMED:
iShares sold 1,050,000 - 1,875,000 525,000 1,500,000 -
iShares redeemed (1,050,000) (1,000) (675,000) (750,030) (975,000) (30)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease)
in iShares outstanding - (1,000) 1,200,000 (225,030) 525,000 (30)
=============== =============== =============== =============== =============== ===============
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS 61
Statements of Changes in Net Assets (Continued)
iSHARES, INC.
iSHARES MSCI iSHARES MSCI
SWITZERLAND UNITED KINGDOM
INDEX FUND INDEX FUND
-------------------------------- --------------------------------
For the For the For the For the
year ended year ended year ended year ended
August 31, 2003 August 31, 2002 August 31, 2003 August 31, 2002
- --------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 124,078 $ 65,396 $ 4,728,393 $ 4,083,808
Net realized gain (loss) (2,929,581) (1,137,054) 2,870,683 (7,051,788)
Net change in unrealized
appreciation
(depreciation) 4,321,125 (2,902,375) 4,860,539 (16,145,045)
--------------- --------------- --------------- ---------------
Net increase (decrease) in net
assets resulting from
operations 1,515,622 (3,974,033) 12,459,615 (19,113,025)
--------------- --------------- --------------- ---------------
Undistributed net investment
income included in the price
of capital shares issued or
redeemed - - - 19,118
--------------- --------------- --------------- ---------------
DISTRIBUTIONS TO
iSHAREHOLDERS:
From net investment income (73,589) (12,505) (2,770,755) (1,848,220)
--------------- --------------- --------------- ---------------
Total distributions to
iShareholders (73,589) (12,505) (2,770,755) (1,848,220)
--------------- --------------- --------------- ---------------
iSHARES TRANSACTIONS:
iShares sold 2,976,574 3,498,837 76,462,198 28,061,954
iShares redeemed (2,658,605) (13,350) (55,409,169) (4,935,208)
--------------- --------------- --------------- ---------------
Net increase in net assets
from iShares transactions 317,969 3,485,487 21,053,029 23,126,746
--------------- --------------- --------------- ---------------
INCREASE (DECREASE) IN NET
ASSETS 1,760,002 (501,051) 30,741,889 2,184,619
NET ASSETS:
Beginning of year 31,883,286 32,384,337 120,067,353 117,882,734
--------------- --------------- --------------- ---------------
End of year $ 33,643,288 $ 31,883,286 $ 150,809,242 $ 120,067,353
=============== =============== =============== ===============
Undistributed net investment
income included in net
assets at end of year $ 146,432 $ 73,589 $ 4,441,921 $ 2,402,611
=============== =============== =============== ===============
iSHARES ISSUED AND REDEEMED:
iShares sold 250,000 250,000 6,600,000 2,000,000
iShares redeemed (250,000) (1,000) (4,400,000) (401,000)
--------------- --------------- --------------- ---------------
Net increase in iShares
outstanding - 249,000 2,200,000 1,599,000
=============== =============== =============== ===============
SEE NOTES TO FINANCIAL STATEMENTS.
62 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI AUSTRIA INDEX FUND
-------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 8.19 $ 8.18 $ 7.67 $ 9.13 $ 10.11
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/3/ 0.09 0.13 0.13 0.04 0.10
Net realized and
unrealized gain
(loss) 2.43 (0.12) 0.52 (1.46) (0.98)
------------- ------------- ------------- ------------- -------------
Total from investment
operations 2.52 0.01 0.65 (1.42) (0.88)
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.10) - (0.14) (0.04) (0.08)
Return of capital - - (0.00)/5/ - (0.02)
------------- ------------- ------------- ------------- -------------
Total distributions (0.10) - (0.14) (0.04) (0.10)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 10.61 $ 8.19 $ 8.18 $ 7.67 $ 9.13
============= ============= ============= ============= =============
TOTAL RETURN 31.15% 0.12% 8.41% (15.51)% (8.69)%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 22,288 $ 14,740 $ 11,447 $ 10,741 $ 12,776
Ratio of expenses to
average net assets 0.84% 0.84% 0.84%/1/ 1.16%/1/ 1.31%
Ratio of net investment
income to average net
assets 0.98% 1.57% 1.69%/2/ 0.51%/2/ 1.04%
Portfolio turnover
rate/4/ 26% 32% 66% 34% 50%
/1/ Ratio of expenses to average net assets prior to waived fees and reimbursed
expenses for the years ended August 31, 2001 and August 31, 2000 were 0.97%
and 1.20%, respectively.
/2/ Ratio of net investment income to average net assets prior to waived fees
and reimbursed expenses for the years ended August 31, 2001 and August 31,
2000 were 1.55% and 0.47%, respectively.
/3/ Based on average shares outstanding throughout the period.
/4/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/5/ Rounds to less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 63
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI BELGIUM INDEX FUND
------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 10.43 $ 11.81 $ 13.23 $ 16.07 $ 18.40
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/3/ 0.41 0.25 0.19 0.19 0.08
Net realized and
unrealized gain
(loss) 0.43 (1.56) (1.34) (2.67) (0.30)
------------- ------------- ------------- ------------- -------------
Total from investment
operations 0.84 (1.31) (1.15) (2.48) (0.22)
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.11) (0.07) (0.27) (0.36) (0.01)
Net realized gain - - - - (1.19)
Return of capital - - - - (0.91)
------------- ------------- ------------- ------------- -------------
Total distributions (0.11) (0.07) (0.27) (0.36) (2.11)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 11.16 $ 10.43 $ 11.81 $ 13.23 $ 16.07
============= ============= ============= ============= =============
TOTAL RETURN 8.25% (11.10)% (8.72)% (15.50)% (1.00)%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 21,871 $ 10,427 $ 9,918 $ 13,230 $ 13,496
Ratio of expenses to
average net assets 0.84% 0.84% 0.84%/1/ 1.13% 1.24%
Ratio of net investment
income to average net
assets 4.10% 2.26% 1.60%/2/ 1.36% 0.45%
Portfolio turnover
rate/4/ 8% 18% 36% 53% 63%
/1/ Ratio of expenses to average net assets prior to waived fees and reimbursed
expenses for the year ended August 31, 2001 was 0.87%.
/2/ Ratio of net investment income to average net assets prior to waived fees
and reimbursed expenses for the year ended August 31, 2001 was 1.57%.
/3/ Based on average shares outstanding throughout the period.
/4/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
SEE NOTES TO FINANCIAL STATEMENTS.
64 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI EMU INDEX FUND
-----------------------------------------------------------------
Period from
Jul. 25, 2000/(8)/
Year ended Year ended Year ended to
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 46.02 $ 56.74 $ 76.02 $ 80.72
------------- ------------- ------------- ------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)/3/ 0.93 0.75 0.72 (0.00)/5/
Net realized and unrealized
gain (loss) 3.62 (11.47) (19.32) (4.70)
------------- ------------- ------------- ------------------
Total from investment
operations 4.55 (10.72) (18.60) (4.70)
------------- ------------- ------------- ------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.45) - (0.42) -
Return of capital - - (0.26) -
------------- ------------- ------------- ------------------
Total distributions (0.45) - (0.68) -
------------- ------------- ------------- ------------------
NET ASSET VALUE, END OF PERIOD $ 50.12 $ 46.02 $ 56.74 $ 76.02
============= ============= ============= ==================
TOTAL RETURN 10.05% (18.89)% (24.51)% (5.82)%/6/
============= ============= ============= ==================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $ 165,388 $ 131,168 $ 90,779 $ 41,811
Ratio of expenses to average
net assets/7/ 0.84% 0.84% 0.84% 0.84%/1/
Ratio of net investment
income to average net
assets/7/ 2.08% 1.44% 1.13% 0.03%/2/
Portfolio turnover rate/4/ 7% 3% 24% 0%
/1/ Ratio of expenses to average net assets prior to waived fees and reimbursed
expenses for the period ended August 31, 2000 was 1.57%.
/2/ Ratio of net investment loss to average net assets prior to waived fees and
reimbursed expenses for the period ended August 31, 2000 was (0.70)%.
/3/ Based on average shares outstanding throughout the period.
/4/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/5/ Rounds to less than $0.01.
/6/ Not annualized.
/7/ Annualized for periods of less than one year.
(8) Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 65
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI FRANCE INDEX FUND
------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 15.52 $ 19.53 $ 26.41 $ 22.90 $ 19.13
------------- ------------- ------------- -------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/1/ 0.23 0.18 0.06 0.10 0.14
Net realized and
unrealized gain
(loss) 1.33 (4.19) (6.89) 5.21 3.88
------------- ------------- ------------- -------------- -------------
Total from investment
operations 1.56 (4.01) (6.83) 5.31 4.02
------------- ------------- ------------- -------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.18) - (0.04) (0.11) (0.12)
Net realized gain - - (0.00)/3/ (1.67) (0.05)
Return of capital - - (0.01) (0.02) (0.08)
------------- ------------- ------------- -------------- -------------
Total distributions (0.18) - (0.05) (1.80) (0.25)
------------- ------------- ------------- -------------- -------------
NET ASSET VALUE, END OF
YEAR $ 16.90 $ 15.52 $ 19.53 $ 26.41 $ 22.90
============= ============= ============= ============== =============
TOTAL RETURN 10.22% (20.53)% (25.86)% 23.45% 21.01%
============= ============= ============= ============== =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 54,075 $ 49,674 $ 58,602 $ 95,116 $ 77,885
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 0.96% 1.06%
Ratio of net investment
income to average net
assets 1.56% 1.00% 0.28% 0.36% 0.67%
Portfolio turnover
rate/2/ 9% 3% 14% 17% 0%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/3/ Rounds to less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
66 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI GERMANY INDEX FUND
------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 12.07 $ 15.19 $ 20.46 $ 21.17 $ 20.25
------------- ------------- ------------- -------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/1/ 0.21 0.11 0.18 0.18 0.12
Net realized and
unrealized gain
(loss) 0.41 (3.23) (5.26) 1.64 1.31
------------- ------------- ------------- -------------- -------------
Total from investment
operations 0.62 (3.12) (5.08) 1.82 1.43
------------- ------------- ------------- -------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.12) - (0.19) (0.17) (0.11)
Net realized gain - - - (2.32) (0.39)
Return of capital - - (0.00)/3/ (0.04) (0.01)
------------- ------------- ------------- -------------- -------------
Total distributions (0.12) - (0.19) (2.53) (0.51)
------------- ------------- ------------- -------------- -------------
NET ASSET VALUE, END OF
YEAR $ 12.57 $ 12.07 $ 15.19 $ 20.46 $ 21.17
============= ============= ============= ============== =============
TOTAL RETURN 5.39% (20.54)% (24.87)% 8.44% 7.04%
============= ============= ============= ============== =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 101,800 $ 94,160 $ 118,525 $ 153,487 $ 101,645
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 0.94% 1.00%
Ratio of net investment
income to average net
assets 1.98% 0.77% 0.99% 0.73% 0.57%
Portfolio turnover
rate/2/ 11% 9% 20% 56% 14%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/3/ Rounds to less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 67
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI ITALY INDEX FUND
------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 15.15 $ 17.79 $ 22.23 $ 21.56 $ 22.89
------------- ------------- ------------- -------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/1/ 0.43 0.37 0.24 0.39 0.17
Net realized and
unrealized gain
(loss) 1.47 (3.01) (4.37) 2.51 1.05
------------- ------------- ------------- -------------- -------------
Total from investment
operations 1.90 (2.64) (4.13) 2.90 1.22
------------- ------------- ------------- -------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.38) - (0.24) (0.12) (0.06)
Net realized gain - - (0.07) (1.80) (2.24)
Return of capital - - (0.00)/3/ (0.31) (0.25)
------------- ------------- ------------- -------------- -------------
Total distributions (0.38) - (0.31) (2.23) (2.55)
------------- ------------- ------------- -------------- -------------
NET ASSET VALUE, END OF
YEAR $ 16.67 $ 15.15 $ 17.79 $ 22.23 $ 21.56
============= ============= ============= ============== =============
TOTAL RETURN 12.79% (14.84)% (18.61)% 13.35% 5.14%
============= ============= ============= ============== =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 29,997 $ 29,538 $ 34,682 $ 50,008 $ 58,224
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 0.99% 1.03%
Ratio of net investment
income to average net
assets 2.84% 2.34% 1.16% 1.61% 0.70%
Portfolio turnover
rate/2/ 22% 10% 20% 40% 8%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/3/ Rounds to less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
68 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI NETHERLANDS INDEX FUND
----------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 14.69 $ 18.59 $ 23.53 $ 23.45 $ 23.50
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/1/ 0.30 0.25 0.28 0.13 0.53
Net realized and
unrealized gain
(loss) (0.43) (4.11) (4.94) 0.18 1.60
------------- ------------- ------------- ------------- -------------
Total from investment
operations (0.13) (3.86) (4.66) 0.31 2.13
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.25) (0.04) (0.28) (0.08) (0.44)
Net realized gain - - - (0.11) (1.66)
Return of capital - - - (0.04) (0.08)
------------- ------------- ------------- ------------- -------------
Total distributions (0.25) (0.04) (0.28) (0.23) (2.18)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 14.31 $ 14.69 $ 18.59 $ 23.53 $ 23.45
============= ============= ============= ============= =============
TOTAL RETURN (0.78)% (20.79)% (19.83)% 1.28% 8.98%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 18,599 $ 19,103 $ 24,184 $ 30,613 $ 31,685
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 1.03% 1.07%
Ratio of net investment
income to average net
assets 2.37% 1.48% 1.34% 0.53% 2.20%
Portfolio turnover
rate/2/ 18% 15% 35% 22% 32%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 69
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI SPAIN INDEX FUND
------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 17.95 $ 21.33 $ 24.19 $ 25.59 $ 23.84
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/1/ 0.24 0.17 0.19 0.15 0.09
Net realized and
unrealized gain
(loss) 4.36 (3.55) (2.89) (0.60) 3.14
------------- ------------- ------------- ------------- -------------
Total from investment
operations 4.60 (3.38) (2.70) (0.45) 3.23
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.16) - (0.16) (0.14) (0.09)
Net realized gain - - - (0.80) (1.35)
Return of capital - - (0.00)/3/ (0.01) (0.04)
------------- ------------- ------------- ------------- -------------
Total distributions (0.16) - (0.16) (0.95) (1.48)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 22.39 $ 17.95 $ 21.33 $ 24.19 $ 25.59
============= ============= ============= ============= =============
TOTAL RETURN 25.81% (15.85)% (11.17)% (1.81)% 13.39%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 50,372 $ 18,850 $ 27,198 $ 39,913 $ 36,469
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 0.99% 1.04%
Ratio of net investment
income to average net
assets 1.22% 0.85% 0.82% 0.57% 0.31%
Portfolio turnover
rate/2/ 17% 14% 26% 39% 17%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/3/ Rounds to less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
70 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI SWEDEN INDEX FUND
------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 9.88 $ 12.88 $ 24.38 $ 22.26 $ 18.39
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/1/ 0.25 0.12 0.07 0.14 0.10
Net realized and
unrealized gain
(loss) 2.58 (3.12) (11.52) 8.38 4.52
------------- ------------- ------------- ------------- -------------
Total from investment
operations 2.83 (3.00) (11.45) 8.52 4.62
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.12) - (0.05) (0.14) (0.10)
Net realized gain - - - (6.22) (0.63)
Return of capital - - (0.00)/3/ (0.04) (0.02)
------------- ------------- ------------- ------------- -------------
Total distributions (0.12) - (0.05) (6.40) (0.75)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 12.59 $ 9.88 $ 12.88 $ 24.38 $ 22.26
============= ============= ============= ============= =============
TOTAL RETURN 29.04% (23.29)% (46.99)% 39.15% 25.09%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 16,992 $ 8,154 $ 10,630 $ 23,774 $ 20,034
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 1.03% 1.13%
Ratio of net investment
income to average net
assets 2.44% 0.98% 0.40% 0.46% 0.49%
Portfolio turnover
rate/2/ 12% 31% 43% 90% 33%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/3/ Rounds to less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 71
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI SWITZERLAND INDEX FUND
---------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 11.59 $ 12.95 $ 15.54 $ 15.39 $ 15.55
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/1/ 0.05 0.03 0.04 0.04 0.04
Net realized and
unrealized gain
(loss) 0.62 (1.38) (2.54) 0.27 0.19
------------- ------------- ------------- ------------- -------------
Total from investment
operations 0.67 (1.35) (2.50) 0.31 0.23
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.03) (0.01) (0.05) (0.04) (0.07)
Net realized gain - - (0.04) (0.11) (0.31)
Return of capital - - - (0.01) (0.01)
------------- ------------- ------------- ------------- -------------
Total distributions (0.03) (0.01) (0.09) (0.16) (0.39)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 12.23 $ 11.59 $ 12.95 $ 15.54 $ 15.39
============= ============= ============= ============= =============
TOTAL RETURN 5.89% (10.47)% (16.08)% 1.96% 1.47%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 33,643 $ 31,883 $ 32,384 $ 44,685 $ 38,499
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 1.01% 1.09%
Ratio of net investment
income to average net
assets 0.43% 0.20% 0.29% 0.23% 0.24%
Portfolio turnover
rate/2/ 10% 12% 34% 35% 35%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
SEE NOTES TO FINANCIAL STATEMENTS.
72 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights (Continued)
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI UNITED KINGDOM INDEX FUND
----------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 12.77 $ 15.11 $ 18.35 $ 20.25 $ 18.48
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/1/ 0.39 0.48 0.26 0.27 0.44
Net realized and
unrealized gain
(loss) 0.12 (2.60) (3.23) (0.85) 2.40
------------- ------------- ------------- ------------- -------------
Total from investment
operations 0.51 (2.12) (2.97) (0.58) 2.84
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.28) (0.22) (0.25) (0.25) (0.37)
Net realized gain - - (0.02) (1.03) (0.62)
Return of capital - - - (0.04) (0.08)
------------- ------------- ------------- ------------- -------------
Total distributions (0.28) (0.22) (0.27) (1.32) (1.07)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
YEAR $ 13.00 $ 12.77 $ 15.11 $ 18.35 $ 20.25
============= ============= ============= ============= =============
TOTAL RETURN 4.20% (14.19)% (16.20)% (3.00)% 15.33%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000s) $ 150,809 $ 120,067 $ 117,883 $ 146,803 $ 113,402
Ratio of expenses to
average net assets 0.84% 0.84% 0.84% 0.94% 0.97%
Ratio of net investment
income to average net
assets 3.23% 3.39% 1.57% 1.39% 2.16%
Portfolio turnover
rate/2/ 6% 14% 30% 33% 13%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS 73
Notes to the Financial Statements
iSHARES, INC.
1. SIGNIFICANT ACCOUNTING POLICIES
iShares, Inc. (the "Company"), is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company.
The Company was incorporated under the laws of the State of Maryland on
September 1, 1994. As of August 31, 2003, the Company offered 24 investment
portfolios or funds.
These financial statements relate only to the iShares MSCI Austria, iShares MSCI
Belgium, iShares MSCI EMU, iShares MSCI France, iShares MSCI Germany, iShares
MSCI Italy, iShares MSCI Netherlands, iShares MSCI Spain, iShares MSCI Sweden,
iShares MSCI Switzerland and iShares MSCI United Kingdom Index Funds (each a
"Fund", collectively the "Funds").
The investment objective of each Fund is to seek investment results that
correspond generally to the price and yield performance, before fees and
expenses, of publicly traded securities in the aggregate in a particular market,
as measured by a particular equity securities index compiled by Morgan Stanley
Capital International Inc. ("MSCI"). The investment advisor utilizes a "passive"
or index approach to achieve each Fund's investment objective. Each of the Funds
is classified as a non-diversified fund under the 1940 Act. Non-diversified
funds generally hold stocks in fewer companies than diversified funds and may be
more susceptible to the risks associated with these particular companies, or to
a single economic, political or regulatory occurrence.
Each Fund invests in the securities of foreign issuers of a single country or
region, which may involve certain considerations and risks not typically
associated with securities of U.S. issuers. Such risks include, but are not
limited to: generally less liquid and less efficient securities markets;
generally greater price volatility; exchange rate fluctuations and exchange
controls; imposition of restrictions on the expatriation of funds or other
assets of the Fund; less publicly available information about issuers; the
imposition of withholding or other taxes; higher transaction and custody costs;
settlement delays and risk of loss attendant in settlement procedures;
difficulties in enforcing contractual obligations; less regulation of securities
markets; different accounting, disclosure and reporting requirements; more
substantial governmental involvement in the economy; higher inflation rates;
greater social, economic and political uncertainties; the risk of
nationalization of expropriation of assets; and the risk of war.
Under the Funds' organizational documents, their officers and directors are
indemnified against certain liabilities that may arise out of the performance of
their duties to the Funds. Additionally, in the normal course of business, the
Funds enter into contracts with service providers that contain general
indemnification clauses. The Funds' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Funds
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
The following significant accounting policies are consistently followed by the
Company in the preparation of its financial statements in conformity with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") for investment companies. The preparation of financial statements in
conformity with U.S. GAAP requires management to make certain estimates and
assumptions. Actual results could differ from those estimates.
Certain prior year amounts in the financial statements have been reclassified to
be consistent with the current period presentation. These reclassifications had
no impact on prior year net assets, net income or distributions.
SECURITY VALUATION
Portfolio securities for which market prices are readily available are valued
using the official closing price 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 Funds. Short-term investments are valued at
amortized cost,
74 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements (Continued)
iSHARES, INC.
which approximates market value. Mutual fund shares are valued at net asset
value. Any securities, including restricted securities or other assets for which
market quotations are not readily available, or for which a significant event
has occurred since the time of the most recent market quotation, are valued in
accordance with fair value pricing policies approved by the Company's Board of
Directors.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on trade date. Dividend income is
recognized on the ex-dividend date, and interest income is accrued daily.
Realized gains and losses on investment transactions are determined using the
specific identification method.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in foreign currencies
are translated into U.S. dollars at the prevailing rates of exchange on the
valuation date. Purchases and sales of securities, income receipts and expense
payments are translated into U.S. dollars at the prevailing exchange rate on the
respective dates of such transactions.
Foreign currency and assets and liabilities denominated in foreign currency are
generally converted into U.S. dollars using the same exchange rates utilized 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 exchange
rate from the rate used by MSCI in the event that the investment advisor
concludes that such rate is more appropriate.
Each Fund does not isolate the effect of fluctuations in foreign exchange rates
from the effect of fluctuations in the market prices of securities. Such
fluctuations are reflected by the Funds as a component of realized and
unrealized gains and losses from investments for financial reporting purposes.
EQUALIZATION
Prior to January 1, 2002, the Funds used the accounting practice of
equalization. This accounting method was used to keep the continuing
shareholders' per share equity in undistributed net investment income from being
affected by the continuous sales and redemptions of capital stock. Equalization
is calculated on a per share basis whereby a portion of the proceeds from sales
and costs of repurchases of capital stock is applied to undistributed net
investment income. The amounts of equalization are disclosed in the Statements
of Changes in Net Assets as undistributed net investment income included in the
price of capital shares issued or redeemed.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income, if any, including any
net foreign currency gains, are declared and distributed at least annually by
each Fund. Distributions of net realized gains, if any, generally are declared
and distributed once a year. Distributions are determined on a tax basis and may
differ from net investment income and net realized capital gains for financial
reporting purposes. Dividends and distributions are paid in U.S. dollars and
cannot be automatically reinvested in additional shares of the Funds.
NOTES TO THE FINANCIAL STATEMENTS 75
Notes to the Financial Statements (Continued)
iSHARES, INC.
At August 31, 2003, the tax year-end of the Funds, the components of
distributable earnings on a tax basis were as follows:
- -----------------------------------------------------------------------------------------
UNDISTRIBUTED UNDISTRIBUTED TOTAL DISTRIBUTABLE
iSHARES MSCI INDEX FUND ORDINARY INCOME LONG-TERM GAIN EARNINGS
- -----------------------------------------------------------------------------------------
Austria $ 272,938 $ - $ 272,938
Belgium 884,836 - 884,836
EMU 3,047,220 - 3,047,220
France 794,879 - 794,879
Germany 1,804,102 - 1,804,102
Italy 824,876 - 824,876
Netherlands 480,580 - 480,580
Spain 437,502 - 437,502
Sweden 332,115 - 332,115
Switzerland 146,432 - 146,432
United Kingdom 4,486,489 - 4,486,489
- -----------------------------------------------------------------------------------------
For the year ended August 31, 2003, the tax characterization of distributions
paid was equal to the book characterization of distributions paid for all of the
Funds. The total distributions and distributions per share are disclosed in the
accompanying Statements of Changes in Net Assets and the Financial Highlights
for all the Funds.
FEDERAL INCOME TAXES
Each Fund is treated as a separate entity for federal income tax purposes. It is
the policy of each Fund to qualify as a regulated investment company, as defined
in Subchapter M of the Internal Revenue Code of 1986, as amended, and to
annually distribute all of its net income and any net gains (taking into account
any capital loss carryforwards) sufficient to relieve it from all, or
substantially all, federal income and excise taxes. Accordingly, no provision
for federal income taxes was required for the year ended August 31, 2003.
From November 1, 2002 to August 31, 2003, the Funds incurred net realized
capital losses and net foreign exchange losses. As permitted by tax regulations,
the Funds have elected to defer those losses and treat them as arising in the
year ending August 31, 2004, as follows:
-----------------------------------------------------------------------
DEFERRED
NET REALIZED
CAPITAL/NET FOREIGN
iSHARES MSCI INDEX FUND CURRENCY LOSSES
-----------------------------------------------------------------------
Austria $ 1,244,041
Belgium 241,979
EMU 4,448,021
France 2,627,205
Germany 7,995,081
Italy 541,985
-----------------------------------------------------------------------
-----------------------------------------------------------------------
DEFERRED
NET REALIZED
CAPITAL/NET FOREIGN
iSHARES MSCI INDEX FUND CURRENCY LOSSES
-----------------------------------------------------------------------
Netherlands $ 2,480,372
Spain 1,582,094
Sweden 1,498,014
Switzerland 2,149,170
United Kingdom 4,272,059
-----------------------------------------------------------------------
76 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements (Continued)
iSHARES, INC.
The Funds had tax basis net capital loss carryforwards at August 31, 2003, the
tax year-end of the Funds, as follows:
- ---------------------------------------------------------------------------------------------
EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
iSHARES MSCI INDEX FUND IN 2007 IN 2008 IN 2009 IN 2010 IN 2011 TOTAL
- ---------------------------------------------------------------------------------------------
Austria $ 4,273 $551,208 $336,553 $ 1,291,324 $ 370,948 $ 2,554,306
Belgium - 94,675 450,543 1,677,678 117,767 2,340,663
EMU - - 443 1,923,552 1,144,756 3,068,751
France - - - 3,807,513 236,944 4,044,457
Germany - - 86,860 13,573,336 5,469,732 19,129,928
Italy - - - 3,335,772 848,408 4,184,180
Netherlands - - 60,885 3,222,792 1,497,810 4,781,487
Spain - - 20,276 2,081,931 678,910 2,781,117
Sweden - - 126,557 3,350,244 1,577,551 5,054,352
Switzerland - - - 2,855,879 1,018,305 3,874,184
United Kingdom - - - 9,945,254 6,448,554 16,393,808
- ---------------------------------------------------------------------------------------------
Net capital loss carryforwards may be applied against any net realized taxable
gains in each succeeding year, or until their respective expiration date,
whichever occurs first.
If any of the Funds own shares in certain foreign investment entities, referred
to, under U.S. tax law code, as "passive foreign investment companies", such
Funds may elect to mark-to-market annually the shares of the passive foreign
investment company, and would be required to distribute to shareholders any such
mark-to-market gains.
For the year ended August 31, 2003, each Fund reclassified certain amounts to
paid-in-capital from accumulated net realized gain (loss) on investments and
foreign currency transactions and accumulated net investment income (loss),
respectively, as a result of permanent book and tax differences primarily
attributed to net investment loss, return of capital, passive foreign investment
companies and realized foreign currency gains and losses and gains and losses on
in-kind redemptions. These reclassifications have no effect on net assets or net
asset values per share.
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Barclays Global Fund Advisors ("BGFA") acts as investment advisor to the Company
and is responsible for the investment management of each Fund. BGFA is a
California corporation indirectly owned by Barclays Bank PLC. BGFA serves as
investment advisor to each Fund pursuant to an Advisory Agreement between the
Company and BGFA, as amended December 28, 2001. Under this agreement, BGFA is
responsible for placing purchase and sale orders, providing continuous
supervision of the investment portfolio of each Fund, and the general management
of the Company's affairs.
Under the Advisory Agreement, BGFA is responsible for all of the expenses
("Covered Expenses") of each of the Funds, other than interest, taxes, brokerage
commissions and other expenses connected with the executions of portfolio
transactions, extraordinary expenses, distribution fees and advisory fees.
For its investment management services to the Funds, BGFA is entitled to an
annual investment advisory fee based on each Fund's allocable portion of the
aggregate net assets of all the funds offered by the Company (except for the
iShares MSCI Brazil, iShares MSCI
NOTES TO THE FINANCIAL STATEMENTS 77
Notes to the Financial Statements (Continued)
iSHARES, INC.
Emerging Markets, iShares MSCI Pacific ex-Japan, iShares MSCI South Africa,
iShares MSCI South Korea, and iShares MSCI Taiwan Index Funds) as follows:
- ----------------------------------------------------------------
ADVISORY FEE AGGREGATE NET ASSETS
- ----------------------------------------------------------------
0.59% First $7 billion
0.54 Over $7 billion, up to and including $11 billion
0.49 Over $11 billion
- ----------------------------------------------------------------
Barclays Global Investors, N.A. ("BGI") has a license agreement with MSCI for
the use of the relevant MSCI indices. Under a sub-license agreement between BGI
and the Funds, the fees for the use of such MSCI indices are paid directly by
BGI to MSCI.
Investors Bank & Trust Company ("Investors Bank") serves as administrator,
custodian and transfer agent for the Company. As compensation for its services,
Investors Bank receives certain out-of-pocket costs, transaction fees, and
asset-based fees, which are accrued daily and paid monthly. These fees are
Covered Expenses as defined above.
Prior to February 24, 2003, Investors Bank served as securities lending agent
for the Company. Effective February 24, 2003, BGI began serving as securities
lending agent for the Company. BGI is an affiliate of BGFA, the Funds'
investment advisor. The Board of Directors has approved the selection of BGI as
securities lending agent subject to the conditions of the exemptive order that
was issued by the Securities and Exchange Commission ("SEC"). As securities
lending agent, BGI receives a fee based on a share of the income earned on
investment of the cash collateral received for the loan of securities. For the
period from February 24, 2003 through August 31, 2003, BGI earned securities
lending agent fees as follows:
- ----------------------------------------------------------------------
SECURITIES LENDING
iSHARES MSCI INDEX FUND AGENT FEES
- ----------------------------------------------------------------------
Austria $ 3,055
Belgium 49,593
EMU 182,955
France 30,642
Germany 110,279
Italy 89,519
Netherlands 11,926
Spain 21,460
Sweden 16,355
Switzerland 2,155
United Kingdom 11,404
- ----------------------------------------------------------------------
SEI Investments Distribution Co. (the "Distributor") serves as each Fund's
underwriter and distributor of the shares of each Fund, pursuant to a
Distribution Agreement with the Company. The Company has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Company's
Plan, the Distributor is entitled to receive a distribution fee from each Fund,
not to exceed 0.25% of the average daily net assets of such Fund, for
distribution-related services.
78 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements (Continued)
iSHARES, INC.
Pursuant to an exemptive order issued by the SEC, each Fund may invest in the
Institutional Shares of the Institutional Money Market Fund ("IMMF") and Prime
Money Market Fund ("PMMF") of Barclays Global Investors Funds. The IMMF and PMMF
are feeder funds in a master/feeder fund structure that invests substantially
all of its assets in the Money Market Master Portfolio and Prime Money Market
Master Portfolio, respectively, which are managed by BGFA, the Funds' investment
advisor. The IMMF and PMMF are open-end money market funds available only to
institutional investors, including other investment companies managed by BGFA.
The IMMF and PMMF seek a high level of income consistent with liquidity and the
preservation of capital. While the IMMF and PMMF do not directly charge an
advisory fee, the master portfolios in which they invest do charge an advisory
fee. Income distributions from the IMMF and PMMF are declared daily and paid
monthly from net investment income. Income distributions earned by the Funds
from temporary cash investments or from investment of securities lending
collateral are recorded as either interest income or securities lending income,
respectively, in the accompanying Statements of Operations.
As a result of using an index approach to investing, the iShares MSCI United
Kingdom Index Fund held shares of Barclays PLC, with a current market value of
$4,542,947 as of August 31, 2003. Barclays PLC is an affiliate of BGFA, the
Fund's investment advisor.
As of August 31, 2003, certain directors and officers of the Company are also
employees of BGFA and its affiliates or employees of Investors Bank.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments (excluding in-kind transactions and
short-term securities) for the year ended August 31, 2003, were as follows:
- ----------------------------------------------------------------
iSHARES MSCI INDEX FUND PURCHASES SALES
- ----------------------------------------------------------------
Austria $ 4,371,267 $ 4,374,737
Belgium 2,337,828 1,446,116
EMU 11,904,879 10,269,683
France 4,737,423 4,480,841
Germany 11,050,985 9,752,905
Italy 6,464,087 6,352,618
Netherlands 3,580,364 3,436,456
Spain 6,246,107 6,004,978
Sweden 1,800,379 1,628,691
Switzerland 3,322,282 3,010,346
United Kingdom 9,819,668 8,323,390
- ----------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS 79
Notes to the Financial Statements (Continued)
iSHARES, INC.
In-kind transactions for the year ended August 31, 2003, were as follows:
- ----------------------------------------------------------------
IN-KIND IN-KIND
iSHARES MSCI INDEX FUND PURCHASES SALES
- ----------------------------------------------------------------
Austria $ 6,761,236 $ 3,624,602
Belgium 36,273,069 28,260,293
EMU 20,102,367 -
France - -
Germany 24,529,948 27,238,019
Italy 2,064,040 4,385,912
Netherlands 12,437,549 13,222,708
Spain 34,321,596 13,173,807
Sweden 14,412,045 9,488,534
Switzerland 2,939,952 2,629,522
United Kingdom 76,142,043 54,890,614
- ----------------------------------------------------------------
At August 31, 2003, the aggregate unrealized appreciation and depreciation based
on cost for federal income tax purposes were as follows:
- ---------------------------------------------------------------------------------------
NET UNREALIZED
TAX UNREALIZED UNREALIZED APPRECIATION
iSHARES MSCI INDEX FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ---------------------------------------------------------------------------------------
Austria $ 21,084,323 $ 3,237,197 $ (144,216) $ 3,092,981
Belgium 32,263,595 285,708 (2,411,557) (2,126,849)
EMU 229,805,240 2,157,864 (25,699,708) (23,541,844)
France 71,358,580 5,019,271 (15,744,113) (10,724,842)
Germany 183,556,380 491,535 (45,258,719) (44,767,184)
Italy 47,273,587 1,751,189 (6,578,847) (4,827,658)
Netherlands 26,019,324 - (6,096,089) (6,096,089)
Spain 60,401,219 3,401,711 (546,662) 2,855,049
Sweden 23,079,904 846,437 (2,596,548) (1,750,111)
Switzerland 38,210,080 1,471,612 (5,260,178) (3,788,566)
United Kingdom 184,997,941 3,656,244 (38,158,997) (34,502,753)
- ---------------------------------------------------------------------------------------
80 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements (Continued)
iSHARES, INC.
4. iSHARES TRANSACTIONS
The Company's authorized shares are 10.9 billion shares of $.001 par value
capital stock. The number of shares authorized to each Fund are as follows:
---------------------------------------------------------------------
iSHARES MSCI INDEX FUND AUTHORIZED SHARES
---------------------------------------------------------------------
Austria 19,800,000
Belgium 136,200,000
EMU 500,000,000
France 340,200,000
Germany 382,200,000
Italy 63,600,000
---------------------------------------------------------------------
---------------------------------------------------------------------
iSHARES MSCI INDEX FUND AUTHORIZED SHARES
---------------------------------------------------------------------
Netherlands 255,000,000
Spain 127,800,000
Sweden 63,600,000
Switzerland 318,625,000
United Kingdom 943,200,000
---------------------------------------------------------------------
The Company issues and redeems shares ("iShares") of each Fund only in
aggregations of a specified number of iShares (each, a "Creation Unit") at net
asset value. Except when aggregated in Creation Units, iShares are not
redeemable. Transactions in iShares for each Fund are disclosed in detail in the
Statements of Changes in Net Assets.
The consideration for purchase of Creation Units of a Fund is generally the
in-kind deposit of a designated portfolio of equity securities constituting a
portfolio sampling representation of the corresponding MSCI Index and an amount
of cash. A purchase transaction fee and a redemption transaction fee are charged
to offset transfer and other transaction costs associated with the issuance and
redemption of Creation Units of iShares.
5. LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its investment securities to approved borrowers such as
brokers, dealers and other financial institutions. The borrower pledges and
maintains with the Fund collateral consisting of cash, an irrevocable letter of
credit issued by a bank, or securities issued or guaranteed by the U.S.
Government. The initial collateral received is required to have a value of at
least 102% of the market value of the loaned securities for securities
denominated in U.S. dollars and a value of at least 105% for all other
securities. The collateral is maintained thereafter, at a value equal to at
least 100% of the current market value of the securities on loan. The risks to
the Funds of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
As of August 31, 2003, certain of the Funds had loaned securities which were
collateralized by cash. The cash collateral received was invested in a joint
account which invests in securities with remaining maturities of 397 days or
less and money market mutual funds. Income from the joint account is allocated
daily to each Fund, based on each Fund's portion of the total cash collateral
received. The market values of the securities on loan at August 31, 2003, and
the value of the related collateral received are disclosed in the Statements of
Assets and Liabilities.
6. LEGAL PROCEEDINGS
The Company has reached a settlement in an action in the U.S. District Court for
the Northern District of Illinois. In the action, a company named Mopex, Inc.
and a company named Realtimemutualfunds.com alleged that the actions of the
Company and others infringed a patent held by Mopex, and that the parties
engaged in a "conspiracy" amongst themselves to infringe the patent. The patent
itself was found to be invalid in a related action to which the Company was not
a party. In the settlement, the plaintiffs' claims and allegations are dismissed
with prejudice, and neither the Company nor any other defendant will pay any
compensation to the plaintiffs.
NOTES TO THE FINANCIAL STATEMENTS 81
Report of Independent Auditors
To the Shareholders and Board of Directors of
iShares, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the iShares MSCI Austria Index
Fund, iShares MSCI Belgium Index Fund, iShares MSCI EMU Index Fund, iShares MSCI
France Index Fund, iShares MSCI Germany Index Fund, iShares MSCI Italy Index
Fund, iShares MSCI Netherlands Index Fund, iShares MSCI Spain Index Fund,
iShares MSCI Sweden Index Fund, iShares MSCI Switzerland Index Fund and iShares
MSCI United Kingdom Index Fund, each a portfolio of the iShares MSCI Index Fund
Series (the "Funds") at August 31, 2003, the results of each of their operations
for the year then ended, the changes in each of their net assets for each of the
two years in the period then ended and the financial highlights for each of the
three years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at August 31, 2003 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
The financial statements of the Funds as of August 31, 2000 and for the two
years then ended were audited by other auditors, whose report dated October 13,
2000 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
San Francisco, California
October 3, 2003
82 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Tax Information (Unaudited)
iSHARES, INC.
For the year ended August 31, 2003, the Funds earned foreign source income and
paid foreign taxes which they intend to pass through to their shareholders
pursuant to Section 853 of the Internal Revenue Code as follows:
--------------------------------------------------------------------
FOREIGN SOURCE FOREIGN
iSHARES MSCI INDEX FUND INCOME EARNED TAXES PAID
--------------------------------------------------------------------
Austria $ 397,551 $ 76,857
Belgium 1,195,076 64,205
EMU 4,748,743 314,420
France 1,410,846 145,424
Germany 2,765,261 120,225
Italy 1,103,613 17,756
Netherlands 723,643 89,508
Spain 832,538 55,411
Sweden 476,923 20,643
Switzerland 539,034 121,233
United Kingdom 6,589,011 569,252
--------------------------------------------------------------------
The following are estimates of qualified dividend income received by the Funds
through August 31, 2003 that qualify for a reduced tax rate pursuant to the Jobs
and Growth Tax Relief Reconciliation Act of 2003.
-------------------------------------------------------------
QUALIFIED
DIVIDEND
iSHARES MSCI INDEX FUND INCOME
-------------------------------------------------------------
Austria $ 397,550
Belgium 1,150,558
EMU 4,725,528
France 1,410,846
Germany 2,765,261
Italy 1,103,613
Netherlands 723,643
Spain 832,538
Sweden 476,923
Switzerland 519,850
United Kingdom 6,589,011
-------------------------------------------------------------
TAX INFORMATION 83
Supplemental Information (Unaudited)
iSHARES, INC.
The tables that follow present information about the differences between the
daily market price on secondary markets for shares of an iShares Fund and that
Fund's net asset value. Net asset value, or "NAV", is the price per share at
which each Fund issues and redeems shares. It is calculated in accordance with
the standard formula for valuing mutual fund shares. The "Market Price" of each
iShares Fund generally is determined using the midpoint between the highest bid
and the lowest offer on the Exchange on which the iShares of such Fund is listed
for trading, as of the time that the Fund's NAV is calculated. Each Fund's
Market Price may be at, above or below its NAV. The NAV of each Fund will
fluctuate with changes in the market value of its portfolio holdings. The Market
Price of each Fund will fluctuate in accordance with changes in its NAV, as well
as market supply and demand.
Premiums or discounts are the differences (expressed as a percentage) between
the NAV and Market Price of a Fund on a given day, generally at the time NAV is
calculated. A premium is the amount that a Fund is trading above the reported
NAV, expressed as a percentage of the NAV. A discount is the amount that a Fund
is trading below the reported NAV, expressed as a percentage of the NAV.
The following information shows the frequency distributions of premiums and
discounts for each of the iShares Funds included in this report. Except for the
iShares MSCI EMU Index Fund, the information shown for each Fund is for the
five-year period from July 1, 1998 through June 30, 2003, the date of the most
recent calendar quarter-end. The information shown for the iShares MSCI EMU
Index Fund is for each full calendar quarter completed after the launch date of
that Fund through June 30, 2003. The specific periods covered for each Fund are
disclosed in the table for such Fund.
EACH LINE IN THE TABLE SHOWS THE NUMBER OF TRADING DAYS IN WHICH THE iSHARES
FUND TRADED WITHIN THE PREMIUM/DISCOUNT RANGE INDICATED. THE NUMBER OF TRADING
DAYS IN EACH PREMIUM/DISCOUNT RANGE IS ALSO SHOWN AS A PERCENTAGE OF THE TOTAL
NUMBER OF TRADING DAYS IN THE PERIOD COVERED BY EACH TABLE. ALL DATA PRESENTED
HERE REPRESENTS PAST PERFORMANCE, WHICH CANNOT BE USED TO PREDICT FUTURE
RESULTS.
iSHARES MSCI AUSTRIA INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 3.0% ........................ 11 0.88%
Greater than 2.5% and Less than 3.0% ..... 12 0.95
Greater than 2.0% and Less than 2.5% ..... 17 1.35
Greater than 1.5% and Less than 2.0% ..... 40 3.18
Greater than 1.0% and Less than 1.5% ..... 99 7.88
Greater than 0.5% and Less than 1.0% ..... 187 14.88
BETWEEN 0.5% AND -0.5% 625 49.71
Less than -0.5% and Greater than -1.0% ... 168 13.37
Less than -1.0% and Greater than -1.5% ... 61 4.85
Less than -1.5% and Greater than -2.0% ... 22 1.75
Less than -2.0% and Greater than -2.5% ... 8 0.64
Less than -2.5% .......................... 7 0.56
----- ---------
1257 100.00%
===== =========
84 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI BELGIUM INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 2.5% ........................ 11 0.88%
Greater than 2.0% and Less than 2.5% ..... 11 0.88
Greater than 1.5% and Less than 2.0% ..... 30 2.39
Greater than 1.0% and Less than 1.5% ..... 95 7.56
Greater than 0.5% and Less than 1.0% ..... 240 19.09
BETWEEN 0.5% AND -0.5% ................... 560 44.53
Less than -0.5% and Greater than -1.0% ... 181 14.40
Less than -1.0% and Greater than -1.5% ... 85 6.76
Less than -1.5% and Greater than -2.0% ... 27 2.15
Less than -2.0% and Greater than -2.5% ... 11 0.88
Less than -2.5% .......................... 6 0.48
----- ---------
1257 100.00%
===== =========
iSHARES MSCI EMU INDEX FUND
PERIOD COVERED: OCTOBER 1, 2000 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 2.5% ........................ 6 0.87%
Greater than 2.0% and Less than 2.5% ..... 7 1.02
Greater than 1.5% and Less than 2.0% ..... 20 2.91
Greater than 1.0% and Less than 1.5% ..... 63 9.16
Greater than 0.5% and Less than 1.0% ..... 201 29.22
BETWEEN 0.5% AND -0.5% ................... 318 46.22
Less than -0.5% and Greater than -1.0% ... 53 7.70
Less than -1.0% and Greater than -1.5% ... 14 2.03
Less than -1.5% .......................... 6 0.87
----- ---------
688 100.00%
===== =========
SUPPLEMENTAL INFORMATION 85
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI FRANCE INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 2.0% ........................ 8 0.64%
Greater than 1.5% and Less than 2.0% ..... 13 1.03
Greater than 1.0% and Less than 1.5% ..... 54 4.30
Greater than 0.5% and Less than 1.0% ..... 146 11.61
BETWEEN 0.5% AND -0.5% ................... 868 69.04
Less than -0.5% and Greater than -1.0% ... 121 9.63
Less than -1.0% and Greater than -1.5% ... 33 2.63
Less than -1.5% and Greater than -2.0% ... 7 0.56
Less than -2.0% .......................... 7 0.56
----- ---------
1257 100.00%
===== =========
iSHARES MSCI GERMANY INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 2.5% ........................ 8 0.64%
Greater than 2.0% and Less than 2.5% ..... 9 0.72
Greater than 1.5% and Less than 2.0% ..... 36 2.86
Greater than 1.0% and Less than 1.5% ..... 85 6.76
Greater than 0.5% and Less than 1.0% ..... 200 15.91
BETWEEN 0.5% AND -0.5% ................... 680 54.09
Less than -0.5% and Greater than -1.0% ... 151 12.01
Less than -1.0% and Greater than -1.5% ... 54 4.30
Less than -1.5% and Greater than -2.0% ... 18 1.43
Less than -2.0% and Greater than -2.5% ... 6 0.48
Less than -2.5% .......................... 10 0.80
----- ---------
1257 100.00%
===== =========
86 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI ITALY INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 2.0% ........................ 11 0.88%
Greater than 1.5% and Less than 2.0% ..... 14 1.11
Greater than 1.0% and Less than 1.5% ..... 40 3.18
Greater than 0.5% and Less than 1.0% ..... 165 13.13
BETWEEN 0.5% AND -0.5% ................... 850 67.62
Less than -0.5% and Greater than -1.0% ... 128 10.18
Less than -1.0% and Greater than -1.5% ... 28 2.23
Less than -1.5% and Greater than -2.0% ... 14 1.11
Less than -2.0% .......................... 7 0.56
----- ---------
1257 100.00%
===== =========
iSHARES MSCI NETHERLANDS INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 2.5% ........................ 12 0.95%
Greater than 2.0% and Less than 2.5% ..... 8 0.64
Greater than 1.5% and Less than 2.0% ..... 25 1.99
Greater than 1.0% and Less than 1.5% ..... 64 5.09
Greater than 0.5% and Less than 1.0% ..... 241 19.17
BETWEEN 0.5% AND -0.5% ................... 738 58.72
Less than -0.5% and Greater than -1.0% ... 103 8.19
Less than -1.0% and Greater than -1.5% ... 46 3.66
Less than -1.5% and Greater than -2.0% ... 12 0.95
Less than -2.0% .......................... 8 0.64
----- ---------
1257 100.00%
===== =========
SUPPLEMENTAL INFORMATION 87
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI SPAIN INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 3.0% ........................ 6 0.48%
Greater than 2.0% and Less than 3.0% ..... 11 0.88
Greater than 1.5% and Less than 2.0% ..... 12 0.95
Greater than 1.0% and Less than 1.5% ..... 52 4.14
Greater than 0.5% and Less than 1.0% ..... 176 14.00
BETWEEN 0.5% AND -0.5% ................... 817 64.99
Less than -0.5% and Greater than -1.0% ... 128 10.18
Less than -1.0% and Greater than -1.5% ... 37 2.94
Less than -1.5% and Greater than -2.0% ... 11 0.88
Less than -2.0% .......................... 7 0.56
----- ---------
1257 100.00%
===== =========
iSHARES MSCI SWEDEN INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 2.5% ........................ 11 0.88%
Greater than 2.0% and Less than 2.5% ..... 18 1.43
Greater than 1.5% and Less than 2.0% ..... 29 2.31
Greater than 1.0% and Less than 1.5% ..... 93 7.40
Greater than 0.5% and Less than 1.0% ..... 232 18.46
BETWEEN 0.5% AND -0.5% ................... 668 53.14
Less than -0.5% and Greater than -1.0% ... 108 8.59
Less than -1.0% and Greater than -1.5% ... 52 4.14
Less than -1.5% and Greater than -2.0% ... 18 1.43
Less than -2.0% and Greater than -2.5% ... 14 1.11
Less than -2.5% .......................... 14 1.11
----- ---------
1257 100.00%
===== =========
88 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Supplemental Information (Unaudited) (Continued)
iSHARES, INC.
iSHARES MSCI SWITZERLAND INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 3.0% ........................ 3 0.24%
Greater than 2.5% and Less than 3.0% ..... 10 0.80
Greater than 2.0% and Less than 2.5% ..... 13 1.03
Greater than 1.5% and Less than 2.0% ..... 44 3.50
Greater than 1.0% and Less than 1.5% ..... 137 10.90
Greater than 0.5% and Less than 1.0% ..... 265 21.08
BETWEEN 0.5% AND -0.5% ................... 635 50.51
Less than -0.5% and Greater than -1.0% ... 92 7.32
Less than -1.0% and Greater than -1.5% ... 31 2.47
Less than -1.5% and Greater than -2.0% ... 18 1.43
Less than -2.0% .......................... 9 0.72
----- ---------
1257 100.00%
===== =========
iSHARES MSCI UNITED KINGDOM INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 3.5% ........................ 8 0.64%
Greater than 2.5% and Less than 3.5% ..... 9 0.72
Greater than 2.0% and Less than 2.5% ..... 19 1.51
Greater than 1.5% and Less than 2.0% ..... 77 6.13
Greater than 1.0% and Less than 1.5% ..... 199 15.83
Greater than 0.5% and Less than 1.0% ..... 294 23.39
BETWEEN 0.5% AND -0.5% ................... 554 44.06
Less than -0.5% and Greater than -1.0% ... 64 5.09
Less than -1.0% and Greater than -1.5% ... 19 1.51
Less than -1.5% and Greater than -2.5% ... 9 0.72
Less than -2.5% .......................... 5 0.40
----- ---------
1257 100.00%
===== =========
SUPPLEMENTAL INFORMATION 89
Directors Information (Unaudited)
iSHARES, INC.
The Board of Directors has responsibility for the overall management and
operations of the Company, including general supervision of the duties performed
by BGFA and other service providers. Each Director serves until his or her
successor is duly elected or appointed and qualified.
iShares, Inc., iShares Trust, Barclays Global Investors Funds and Master
Investment Portfolio are considered to be members of the same fund complex, as
defined in Form N-1A under the 1940 Act. Each Director of iShares, Inc. also
serves as a Trustee for iShares Trust and oversees 81 portfolios within the fund
complex. In addition, Lee T. Kranefuss and Richard K. Lyons each serves as a
Trustee for Barclays Global Investors Funds and Master Investment Portfolio and
oversees 106 portfolios within the fund complex. Additional information about
the Funds' Directors may be found in the Funds' Statement of Additional
Information, which is available without charge upon request by calling toll-free
1-800-474-2737.
INTERESTED DIRECTORS+
POSITION(S), PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS LENGTH OF SERVICE DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD
- --------------------------------------------------------------------------------------------------------------------
*LEE T. KRANEFUSS (41) Director, Chief Executive Officer of the Trustee (since June 18, 2003) of
Barclays Global Chairman, and Individual Investor Business of iShares Trust; Board of Trustees
Investors President (since Barclays Global Investors, N.A.; for Barclays Global Investors Funds
45 Fremont Street June 18, 2003) The Boston Consulting Group (until and Master Investment Portfolio
San Francisco, CA 94105 1997). (since 2001).
*NATHAN MOST (89) Director Consultant to BGI (1998-2002), Trustee (since 2000) and President
P.O. Box 193 (since 1996) American Stock Exchange (1996-2000) (2000-2002) of iShares Trust
Burlingame, CA 94011 and the Hong Kong Stock Exchange
(1998 to present); Consultant to
the Amsterdam Stock Exchange
(1997-1998); Consultant to the
Pacific Stock Exchange (1997-1998).
- ----------
+ Garrett F. Bouton served as Chairman, President and interested Director of
the Board through June 17, 2003.
* Lee T. Kranefuss and Nathan Most are deemed to be "interested persons" (as
defined in the 1940 Act) of the Company due to their affiliations with
BGFA, the Funds' investment advisor and BGI, the parent company of BGFA.
90 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Directors Information (Unaudited) (Continued)
iSHARES, INC.
INDEPENDENT DIRECTORS
POSITION(S), PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS LENGTH OF SERVICE DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD
- --------------------------------------------------------------------------------------------------------------------
JOHN B. CARROLL (67) Director Retired Vice President of Trustee (since 2001) of iShares
520 Main Street (since 1996) Investment Management (1984-2000) Trust; Trustee and member of the
Ridgefield, CT 06877 of Verizon Corporation; Advisory Executive Committee (since 1991) of
Board member of Ibbotson Associates The Common Fund Institutional
(1992-1998); former Vice Chairman Funds, a non-profit organization;
and Executive Committee Member Member of the Board of Managers of
(1994-1998) of the Committee on JP Morgan Private Equity Funds.
Investment of Employee Benefit
Assets of the Financial Executive
Institute.
RICHARD K. LYONS (42) Director Professor, University of Trustee (since 2000) of iShares
Haas School of (since 2001) California, Berkeley: Haas School Trust; Trustee (since 2001) of
Business, of Business (since 1993); Barclays Global Investors Funds and
UC Berkeley Consultant for IMF World Bank, Master Investment Portfolio; Board
Berkeley, CA 94720 Federal Reserve Bank, and Citibank of Trustees: Matthews Asian Funds
N.A. (since 2000). since 1995 (oversees 6 portfolios).
GEORGE C. PARKER (64) Director Dean Witter Distinguished Professor Trustee (since 2000) of iShares
Graduate School of (since 2001) of Finance (since 1994); Associate Trust; Bailard, Biehl and
Business (Room K301) Dean for Academic Affairs, Director Kaiser, Inc. (since 1985);
Stanford University of MBA Program, and Professor, California Casualty Group of
521 Memorial Way Stanford University: Graduate Insurance Companies (since 1978);
Stanford, CA 94305 School of Business (1993-2001). Continental Airlines, Inc. (since
1996); Community First Financial
Group (since 1995); Dresdner/RCM
Mutual Funds (1994-2002); Tyon
Ranch Company (since 1999).
W. ALLEN REED (56) Director President and Chief Executive Trustee (since 2001) of iShares
General Motors (since 1996) Officer (since 1994) of General Trust; Director (since 1994) of
Investment Motors Investment Management General Motors Investment
Management Corp. Corporation. Management Corporation; Director
767 Fifth Avenue (1995-1998) of Taubman
New York, NY 10153 Centers, Inc. (a real estate
investment trust); Director (since
1992) of FLIR Systems (an imaging
technology company); Director
(since 1994) of General Motors
Acceptance Corporation; Director
(since 1994) of GMAC Insurance
Holdings, Inc.; Director (since
1995) of Global Emerging Markets
Fund; Director (since 2000) of
Temple Inland Industries; Chairman
(since 1995) of the Investment
Advisory Committee of Howard Hughes
Medical Institute.
DIRECTORS INFORMATION 91
Directors Information (Unaudited) (Continued)
iSHARES, INC.
OFFICERS WHO ARE NOT DIRECTORS
PRINCIPAL OCCUPATION(S) DIRECTORSHIPS HELD BY
NAME, AGE AND ADDRESS POSITION DURING PAST 5 YEARS OFFICERS
- -------------------------------------------------------------------------------------------------
MICHAEL A. LATHAM (37) Secretary, Director of Mutual Fund Delivery in None.
Barclays Global Treasurer the U.S. Individual Investor
Investors and Business of BGI (since 2000); Head
45 Fremont Street Principal of Operations, BGI Europe
San Francisco, CA 94105 Financial (1997-2000).
Officer
JEFFREY J. GABOURY (34) Assistant Director (formerly Manager), Mutual None.
Investors Bank & Trust Treasurer Fund Administration, Reporting and
Co. Compliance, IBT (since 1996).
200 Clarendon Street
Boston, MA 02116
DANELL J. DOTY (40) Assistant Head of Mutual Fund Administration, None.
Barclays Global Secretary BGI (since 1999); Vice President of
Investors Operations, Berkeley Capital
45 Fremont Street Management (1994-1999); Vice
San Francisco, CA 94105 President and Secretary, The
Berkeley Funds (1997-1999).
SUSAN C. MOSHER (48) Assistant Senior Director & Senior Counsel, None.
Investors Bank & Trust Secretary Mutual Fund Administration, IBT
Co. (since 1995).
200 Clarendon Street
Boston, MA 02116
SANDRA I. MADDEN (37) Assistant Senior Associate Counsel, Mutual None.
Investors Bank & Trust Secretary Fund Administration, IBT (since
Co. 1999); Associate, Scudder Kemper
200 Clarendon Street Investments, Inc. (1996-1999).
Boston, MA 02116
THEDA HABER (49) Chief Attorney/Managing Director, Deputy None.
Barclays Global Legal General Counsel and Head of U.S.
Investors Officer Legal, BGI (since 1997);
45 Fremont Street Attorney/Senior Counsel, BGI
San Francisco, CA 94105 (1994-2000).
LOIS TOWERS (51) Assistant U.S. Compliance Officer, BGI (since None.
Barclays Global Vice 1999).
Investors President-AML
45 Fremont Street Compliance
San Francisco, CA 94105 Officer
92 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes:
NOTES 93
The iShares Family of Funds
The following is a list of iShares Funds being offered, along with their
respective exchange trading symbols. Please call iShares at 1-800-iSHARES
(1-800-474-2737) to obtain a prospectus for any iShares fund. The prospectus
contains more complete information, including charges and expenses.
BROAD MARKET
iShares Dow Jones U.S. Total Market Index Fund (IYY)
iShares Russell 3000 Index Fund (IWV)
iShares Russell 3000 Growth Index Fund (IWZ)
iShares Russell 3000 Value Index Fund (IWW)
LARGE CAP
iShares Russell 1000 Index Fund (IWB)
iShares Russell 1000 Growth Index Fund (IWF)
iShares Russell 1000 Value Index Fund (IWD)
iShares S&P 100 Index Fund (OEF)
iShares S&P 500 Index Fund (IVV)
iShares S&P 500/BARRA Growth Index Fund (IVW)
iShares S&P 500/BARRA Value Index Fund (IVE)
MID CAP
iShares Russell Midcap Index Fund (IWR)
iShares Russell Midcap Growth Index Fund (IWP)
iShares Russell Midcap Value Index Fund (IWS)
iShares S&P MidCap 400 Index Fund (IJH)
iShares S&P MidCap 400/BARRA Growth Index Fund (IJK)
iShares S&P MidCap 400/BARRA Value Index Fund (IJJ)
SMALL CAP
iShares Russell 2000 Index Fund (IWM)
iShares Russell 2000 Growth Index Fund (IWO)
iShares Russell 2000 Value Index Fund (IWN)
iShares S&P SmallCap 600 Index Fund (IJR)
iShares S&P SmallCap 600/BARRA Growth Index Fund (IJT)
iShares S&P SmallCap 600/BARRA Value Index Fund (IJS)
SECTOR & INDUSTRY
iShares Cohen & Steers Realty Majors Index Fund (ICF)
iShares Dow Jones U.S. Basic Materials Sector Index Fund (IYM)
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund (IYC)
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund (IYK)
iShares Dow Jones U.S. Energy Sector Index Fund (IYE)
iShares Dow Jones U.S. Financial Sector Index Fund (IYF)
iShares Dow Jones U.S. Financial Services Index Fund (IYG)
iShares Dow Jones U.S. Healthcare Sector Index Fund (IYH)
iShares Dow Jones U.S. Industrial Sector Index Fund (IYJ)
iShares Dow Jones U.S. Real Estate Index Fund (IYR)
iShares Dow Jones U.S. Technology Sector Index Fund (IYW)
iShares Dow Jones U.S. Telecommunications Sector Index Fund (IYZ)
iShares Dow Jones U.S. Utilities Sector Index Fund (IDU)
iShares Goldman Sachs Natural Resources Index Fund (IGE)
iShares Goldman Sachs Networking Index Fund (IGN)
iShares Goldman Sachs Semiconductor Index Fund (IGW)
iShares Goldman Sachs Software Index Fund (IGV)
iShares Goldman Sachs Technology Index Fund (IGM)
iShares Nasdaq Biotechnology Index Fund (IBB)
FIXED INCOME
iShares Lehman 1-3 Year Treasury Bond Fund (SHY)
iShares Lehman 7-10 Year Treasury Bond Fund (IEF)
iShares Lehman 20+ Year Treasury Bond Fund (TLT)
iShares Lehman Aggregate Bond Fund (AGG)
iShares GS $ InvesTop(TM) Corporate Bond Fund (LQD)
GLOBAL SECTOR
iShares S&P Global Energy Sector Index Fund (IXC)
iShares S&P Global Financials Sector Index Fund (IXG)
iShares S&P Global Healthcare Sector Index Fund (IXJ)
iShares S&P Global Technology Sector Index Fund (IXN)
iShares S&P Global Telecommunications Sector Index Fund (IXP)
INTERNATIONAL/BROAD MARKET
iShares MSCI EAFE Index Fund (EFA)
iShares MSCI Emerging Markets Index Fund (EEM)
INTERNATIONAL/REGIONAL
iShares MSCI EMU Index Fund (EZU)
iShares MSCI Pacific ex-Japan Index Fund (EPP)
iShares S&P Europe 350 Index Fund (IEV)
INTERNATIONAL/DEVELOPED COUNTRY
iShares MSCI Australia Index Fund (EWA)
iShares MSCI Austria Index Fund (EWO)
iShares MSCI Belgium Index Fund (EWK)
iShares MSCI Canada Index Fund (EWC)
iShares MSCI France Index Fund (EWQ)
iShares MSCI Germany Index Fund (EWG)
iShares MSCI Hong Kong Index Fund (EWH)
iShares MSCI Italy Index Fund (EWI)
iShares MSCI Japan Index Fund (EWJ)
iShares MSCI Netherlands Index Fund (EWN)
iShares MSCI Singapore Index Fund (EWS)
iShares MSCI Spain Index Fund (EWP)
iShares MSCI Sweden Index Fund (EWD)
iShares MSCI Switzerland Index Fund (EWL)
iShares MSCI United Kingdom Index Fund (EWU)
iShares S&P/TOPIX 150 Index Fund (ITF)
INTERNATIONAL/EMERGING COUNTRY
iShares MSCI Brazil Index Fund (EWZ)
iShares MSCI Malaysia Index Fund (EWM)
iShares MSCI Mexico Index Fund (EWW)
iShares MSCI South Africa Index Fund (EZA)
iShares MSCI South Korea Index Fund (EWY)
iShares MSCI Taiwan Index Fund (EWT)
iShares S&P Latin America 40 Index Fund (ILF)
GLOBAL/BROAD MARKET
iShares S&P Global 100 Index Fund (IOO)
This advertising section does not constitute part of the 2003 Annual Report.
iShares are not sponsored or endorsed by Goldman, Sachs & Co. or Lehman
Brothers, nor are they sponsored, endorsed, sold or promoted by Cohen & Steers
Capital Management, Inc., Dow Jones & Company, Inc., Morgan Stanley Capital
International, The Nasdaq Stock Market, Inc., Frank Russell Company, or
Standard & Poor's. None of these companies make any representation regarding the
advisability of investing in iShares. Neither SEI nor BGI, nor any of their
affiliates, are affiliated with Goldman, Sachs & Co. or Lehman Brothers. "GS $
InvesTop(TM)" and "Goldman Sachs(R)" are trademarks of
Goldman, Sachs & Co.
94 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
iShares are distributed by SEI Investments Distribution Co. (SEI). Barclays
Global Fund Advisors (BGFA) serves as an advisor to iShares. Barclays Global
Investors Services (BGIS) assists in the marketing of iShares. BGFA and BGIS are
subsidiaries of Barclays Global Investors, N.A., a wholly owned subsidiary of
Barclays Bank PLC, none of which is affiliated with SEI.
iShares are not sponsored, endorsed, sold, or promoted by Morgan Stanley Capital
International, Inc., nor does this company make any representation regarding the
advisability of investing in iShares.
Investing involves risk, including possible loss of principal.
(C)2003 Barclays Global Investors. All rights reserved. iShares is a registered
trademark of Barclays Global Investors, N.A. All other trademarks, servicemarks
or registered trademarks are the property of their respective owners.
This report is intended for the Funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
prospectus.
iSHARES(R) INDUSTRIAL STRENGTH INVESTMENT TOOLS FROM BARCLAYS GLOBAL INVESTORS
I 800 iSHARES (I 800 474 2737) WWW.iSHARES.COM
BARCLAYS
BGI-F-005-09003
iShares(R)
2003 ANNUAL REPORT TO SHAREHOLDERS
AUGUST 31, 2003
[GRAPHIC APPEARS HERE]
INDUSTRIAL STRENGTH
INVESTMENT TOOLS
iSHARES MSCI JAPAN INDEX FUND
Table of Contents
Shareholder Letter............................................... 1
Introduction..................................................... 3
Managers' Discussion & Analysis.................................. 6
Schedule of Investments.......................................... 8
Financial Statements............................................. 13
Financial Highlights............................................. 16
Notes to the Financial Statements................................ 17
Report of Independent Auditors................................... 22
Tax Information (Unaudited)...................................... 23
Supplemental Information (Unaudited)............................. 24
Directors Information (Unaudited)................................ 25
iShares Family of Funds.......................................... 30
To Our Shareholders
For many investors, the last few years have been difficult and challenging. The
collapse of the stock market bubble, a tepid economy, corporate accounting
scandals, lackluster company earnings and the geopolitical situation all
contributed to a three-year bear market. Stock market gains during the first
half of 2003 give some hope that the markets have turned a corner, but there is
no guarantee that challenging market conditions will not return.
iShares have continued to innovate and expand, offering more tools that help
investors tailor their portfolios to achieve diversity and address volatility in
a complex market environment. For example, in April of this year, iShares
launched an emerging markets exchange traded fund based on the MSCI's Emerging
Market Free Index. Last year, iShares launched the first fixed income exchange
traded funds, which BUSINESS WEEK named one of the best new products of 2002./1/
We have added a Lehman Aggregate Bond Fund to our fixed income menu, enabling
investors to track one of the most well-known U.S. fixed income market indexes.
Assets under management for the fixed income iShares funds were $4.3 billion as
of August 31, 2003.
With the addition of these iShares, investors can achieve even more diversity in
their portfolios -- and at lower cost, since iShares fees are, on average, about
half those of actively managed funds./2/ With over 80 different iShares to
choose from, investors have the ability to build a diverse portfolio that covers
a wide swath of market segments such as capitalization, sectors, value and
growth, international and fixed income. That is important because market
segments do not tend to move in tandem, particularly in volatile markets.
Economic conditions such as inflation, interest rate levels, currency valuations
or the price of oil, as well as the normal pace of the economic cycle, all may
result in one market segment outperforming another.
We encourage you to talk with your financial advisor about what blend of
investments or asset allocation can best help you meet your financial goals.
Throughout the coming year we will continue to work closely with the financial
advisor community to introduce innovative strategies and structures for their
client's portfolios. To learn more about iShares, we encourage you to visit our
web site, www.iShares.com.
At times like these, the importance of sound, disciplined investing is greater
than ever. Such investing should be grounded in two key concepts: keeping the
costs associated with investing as low as possible, and maintaining a
diversified portfolio. That is why we believe iShares are an indispensable tool
for investors in the current market. And that is also why more and more
investors have recognized the benefits of iShares. Assets under management for
iShares continue to grow, and as of August 31, 2003, had reached $43.0 billion.
On behalf of the iShares family of funds and our colleagues at Barclays Global
Investors, we thank you for making iShares a part of your portfolio. We look
forward to meeting your investment needs in the year ahead.
/s/ Lee T. Kranefuss
Lee T. Kranefuss
PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS FOR iSHARES, INC.
iShares are distributed by SEI Investments Distribution Co. (SEI). Barclays
Global Fund Advisors (BGFA) serves as an advisor to iShares. Barclays Global
Investors Services (BGIS) assists in the marketing of iShares. BGFA and BGIS are
subsidiaries of Barclays Global Investors, N.A., none of which is affiliated
with SEI.
- ----------
/1/ BUSINESS WEEK, 12/16/02.
/2/ Morningstar Principia, BGI analysis 5/03.
SHAREHOLDER LETTER 1
FOR COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES, REQUEST A PROSPECTUS
BY CALLING 1 800 iSHARES (1 800 474 2737). READ IT CAREFULLY BEFORE YOU INVEST.
THERE ARE RISKS INVOLVED WITH INVESTING, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Diversification may not protect against market risk. An investment in the fund
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The annual management fees of iShares may be
substantially less than those of most mutual funds. iShares transactions will
result in brokerage commissions, but the savings from lower annual fees can help
offset these costs. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
iShares are not sponsored, endorsed, or issued by Lehman Brothers, nor are they
sponsored, endorsed, issued, sold or promoted by Morgan Stanley Capital
International. None of these companies make any representation regarding the
advisability of investing in iShares. Neither SEI nor BGI, nor any of their
affiliates, are affiliated with the companies listed above.
This advertising section does not constitute part of the 2003 Annual Report.
2 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Introduction
In this section, Barclays Global Fund Advisors (the "Investment Advisor")
discusses the performance of the iShares MSCI Index Funds (each, a "Fund", and
collectively, the "Funds"). The introduction provides an overview of how each
Fund seeks to track its respective index. In addition, the introduction
identifies some of the key factors that contribute to a Funds' performance
against its benchmark index.
Each Fund invests in a representative sample of the component securities in its
underlying MSCI Index (using the analytic technique known as "portfolio
sampling"), as opposed to a full replication of the component securities of the
MSCI Index. Certain Funds may also invest to a limited extent in stocks that are
not included in the relevant MSCI Index to permit them additional flexibility.
There are several important factors that should be kept in mind when reviewing
the performance of each Fund.
PORTFOLIO SAMPLING: Portfolio sampling is a disciplined approach to capturing
index returns which involves maximizing float and liquidity, reflecting
accurately the market's size and industry profiles and minimizing
cross-ownership. Because of portfolio sampling, the composition of each Fund
will vary from that of its underlying MSCI Index. This may cause performance to
vary positively or negatively from that of its underlying MSCI Index during any
period.
FUND EXPENSES: The MSCI Indexes are only statistical composites that track
changes in the financial markets of a particular country or region. Since an
index does not actually hold a portfolio of securities, it does not bear
management, administration, distribution, transaction or other expenses, while a
Fund does incur such expenses, thereby negatively impacting the performance of a
Fund.
CONSTRAINTS ON PORTFOLIO MANAGEMENT: The Investment Advisor is subject to a
number of constraints when managing the iShares MSCI Index Funds' portfolios.
The "Single Issuer Rule" and the "5/50 Rule" are two constraints in the Internal
Revenue Code that affect the performance of a number of the Funds.
The "Single Issuer Rule" generally prohibits a Fund from investing more than 25%
of the value of a Fund's total assets in the securities of a single issuer. This
constraint applies to all share classes of an issuer. As an example, Samsung
Electronics ordinary and preferred shares made up 35.71% of the MSCI South Korea
Index as of August 31, 2003. Because of the "Single Issuer Rule", however, the
iShares MSCI South Korea Index Fund could not invest more than 25% of its assets
in Samsung Electronics. This contributed to the difference between the
performance of the iShares MSCI South Korea Index Fund and its benchmark index.
The "5/50 Rule" generally precludes the sum of all of the securities weighted
over 5% in a Fund's portfolio from exceeding 50% of a Fund's total assets. If a
security has more than one share class, then all of the share classes must be
considered as one security for 5/50 Rule purposes. Many of the benchmark MSCI
Indexes have a greater than 50% weighting of securities that account for more
than 5% of the respective index. For example, the sum of all the stocks with
weightings of 5% or greater in the MSCI Mexico Index was 75.77% as of August 31,
2003. Therefore, the iShares MSCI Mexico Index Fund had to underweight some of
these stocks relative to the benchmark, and therefore overweight its investment
in other stocks. This contributed to the difference between the performance of
the iShares MSCI Mexico Index Fund and its benchmark index.
REVENUE DIFFERENTIAL: A fourth factor that causes performance of a Fund to
differ from that of its underlying MSCI Index is "revenue differential", or
differences between a Fund and the underlying MSCI Index in dividend
accruals/reinvestments. The Funds record dividend revenues on the "ex-dividend"
dates of the underlying stocks. Prior to January 1, 2001, for developed markets,
MSCI used smoothed dividends as opposed to actual dividends by allocating annual
dividend revenues evenly over a twelve-month period. Separately, the Funds might
have different dividend rates versus the Indexes due to portfolio sampling or
different withholding taxes. Finally, while the sole source of revenues for the
MSCI Indexes is dividends, the Funds receive interest on uninvested cash and, in
the case of most Funds, revenues from the lending of portfolio securities.
INTRODUCTION 3
EFFECT OF UNINVESTED ASSETS: Another factor that causes performance of a Fund to
differ from that of its underlying MSCI Index is the "effect of uninvested
assets". Uninvested assets held by a Fund affect performance relative to its
underlying benchmark index. In contrast, the MSCI Indexes are always fully
comprised of the underlying stocks and thus do not reflect any "unequitized"
assets. The "effect of uninvested assets" refers to the impact on performance of
the portion of a Fund that is not invested in stocks. Cash is the principal
"unequitized" asset of a Fund. The effect of uninvested assets will tend to
cause each Fund to outperform its underlying index in falling markets and
underperform the underlying index in rising markets. However, even within a
period that has a down market return there can be a short period of rising
market where the uninvested assets in a Fund have a negative impact on return.
In these circumstances, the effect of uninvested assets could worsen a loss for
the period.
SECURITIES LENDING: Finally, securities lending is when a Fund loans securities
in its portfolio to another party for a given time period and in return receives
cash collateral for the loan. Securities lending income is the income earned on
lending the securities, which is split between the Fund and the Fund's
securities lending agent. While securities lending is intended to improve the
performance of the Fund, it may also contribute to differences between the
performance of a Fund and its benchmark index.
4 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
THIS PAGE INTENTIONALLY LEFT BLANK.
5
Managers' Discussion and Analysis
iSHARES MSCI JAPAN INDEX FUND
Performance as of 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
-------------------- -------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
6.69% 6.26% 6.66% 0.62% 1.81% 1.40% (6.90)% (6.85)% (6.20)%
CUMULATIVE TOTAL RETURNS
---------------------------------------------------------------------------
YEAR ENDED 8/31/03 FIVE YEARS ENDED 8/31/03 INCEPTION TO 8/31/03
-------------------- -------------------------- -------------------------
NAV MARKET INDEX NAV MARKET INDEX NAV MARKET INDEX
6.69% 6.26% 6.66% 3.16% 9.38% 7.20% (41.38)% (41.18)% (38.02)%
"Total returns for the period since inception" are calculated from the inception
date of the Fund (3/12/96). "Average annual total returns" represent the average
annual change in value of an investment over the periods indicated. "Cumulative
total returns" represent the total change in value of an investment over the
periods indicated.
A Fund's per share net asset value or "NAV" is the value of one share of a Fund
as calculated in accordance with the standard formula for valuing mutual fund
shares. The NAV return is based on the NAV of the Fund, and the market return in
based on the market price per share of the Fund. The price used to calculate
market return ("Market Price") is determined by using the midpoint between the
highest bid and the lowest offer on the Exchange on which the iShares of the
Fund are listed for trading, as of the time that the Fund's NAV is calculated.
Since Fund shares typically do not trade in the secondary market until several
days after Fund inception, for the period from inception to the first day of
secondary market trading in Fund shares (3/18/96), the NAV of the Fund is used
as a proxy for secondary market trading price to calculate market returns.
Market and NAV returns assume that dividends and capital gain distributions have
been reinvested in the Fund at Market Price and NAV, respectively.
An Index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the Index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table above do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
SECTOR BREAKOUT
MSCI JAPAN INDEX
[CHART APPEARS HERE]
Consumer Discretionary 22.44%
Consumer Staples 6.08%
Energy 0.73%
Financials 14.08%
Health Care 5.73%
Industrials 15.56%
Information Technology 17.49%
Materials 7.80%
Telecommunications Services 5.01%
Utilities 5.08%
PERFORMANCE REVIEW
The total return of the iShares MSCI Japan Index Fund (the "Fund") was 6.69%
during the twelve-month period ended August 31, 2003 (the "reporting period").
The total return of the corresponding MSCI Japan Index (the "Index") over the
reporting period was 6.66%.
SIGNIFICANT PERFORMANCE FACTORS
The Fund outperformed its benchmark by 0.03 percentage points during the
reporting period. This was due to the positive impact of portfolio sampling,
revenue differential and securities lending, which contributed 0.67, 0.20, and
0.06 percentage points, respectively, to
6 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
the Fund's return. Those factors were offset by the impact of expenses and
uninvested assets, which subtracted 0.84 and 0.06 percentage points,
respectively, from the Fund's return.
KEY MARKET CONDITIONS
In addition to the dampening effects of a global slowdown, Japan dealt with its
own set of problems during the year. As the reporting period opened, Japan's
banking woes had begun to resurface. Government attempts to cope with the impact
of non-performing loans caused significant concerns in the banking sector.
Corporate restructurings grew, and slumping export levels contributed to higher
unemployment rates by the end of 2002.
Early in 2003, the Nikkei fell to its lowest level in 20 years as Japan
struggled with the SARS outbreak and a weak U.S. dollar. Comments by U.S.
Treasury Secretary John Snow briefly caused concern, as it appeared to many
investors that the U.S. administration was willing to accept a weaker dollar.
Because much of Japan's economic hopes hinge on an export-led recovery, Japan's
markets generally reacted unfavorably to the implication that the U.S. was
willing to accept a weaker dollar. As the interpretations to these comments
changed, however, the Japanese market stabilized.
During the second half of the reporting period Japan appeared to be emerging
from some of its difficulties. The Nikkei 225 climbed from below 8,000 to above
the 10,000 mark by the end of August, a gain of about a third since April.
Perhaps more significantly, in August Japan logged its sixth successive quarter
of growth, with GDP rising 2.3% at an annual rate in the second quarter. This
exceeded expectations and nearly matched the U.S. growth rate over the same
period.
The central bank maintained its commitment to a weak yen through the ongoing
sale of yen throughout the period, and some of Japan's big exporters benefited.
Notably, automaker Nissan Motor Co. (1.95% of the Index as of August 31, 2003)
gained 44.69% and Canon Inc. (2.93% of the Index as of August 31, 2003) climbed
38.18%. Toyota Motor Corp., the largest weighting at 5.45% of the Index,
returned 9.71%. Not all exporters delivered positive returns, however. Sony
Corp. (2.10% of the Index as of August 31, 2003) declined 25.73%.
iSHARES MSCI JAPAN INDEX FUND
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION
[CHART APPEARS HERE]
iShares MSCI
Japan Index Fund MSCI Japan Index
---------------- ----------------
$ 10,000.00 $ 10,000.00
8/31/96 $ 9,688.99 $ 9,718.00
2/28/97 $ 8,059.51 $ 8,115.00
8/31/97 $ 8,529.13 $ 8,593.00
2/28/98 $ 7,366.29 $ 7,436.00
8/31/98 $ 5,682.35 $ 5,783.00
2/28/99 $ 6,867.58 $ 7,029.00
8/31/99 $ 8,986.20 $ 9,406.00
2/29/2000 $ 10,297.24 $ 10,739.00
8/31/2000 $ 9,772.14 $ 10,274.00
2/28/2001 $ 7,417.49 $ 7,813.00
8/31/2001 $ 6,413.41 $ 6,735.00
2/28/2002 $ 5,282.04 $ 5,580.00
8/31/2002 $ 5,494.17 $ 5,811.00
2/28/2003 $ 4,787.07 $ 5,053.00
8/31/2003 $ 5,861.87 $ 6,198.00
MANAGERS' DISCUSSION & ANALYSIS 7
Schedule of Investments
iSHARES MSCI JAPAN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------
COMMON STOCKS - 99.98%
Toyota Motor Corp. 3,331,200 $ 91,930,614
NTT DoCoMo Inc. 22,208 57,099,760
Canon Inc. 1,041,000 50,051,508
Honda Motor Co. Ltd. 971,600 39,553,480
Takeda Chemical Industries Ltd. 1,041,000 37,650,154
Sony Corp. 1,110,400 36,543,846
Matsushita Electic Industrial Co. Ltd. 2,776,015 35,402,043
Nomura Holdings Inc. 2,429,000 35,348,320
Nissan Motors Co. Ltd. 3,088,300 33,164,552
Mitsubishi Tokyo Financial Group Inc. 5,205 30,334,248
Nippon Telegraph & Telephone Corp. 6,593 29,043,555
Tokyo Electric Power Co. Inc. (The) 1,457,400 28,353,600
Fuji Photo Film Co. Ltd. 694,000 20,817,621
Hitachi Ltd. 3,470,000 18,914,296
Rohm Co. Ltd. 138,800 18,129,174
Millea Holdings Inc. 1,735 17,992,372
Murata Manufacturing Co. Ltd. 312,300 17,558,176
East Japan Railway Co. 3,817 16,127,708
Sumitomo Mitsui Financial Group Inc. 4,511 15,735,147
Sharp Corp. 1,041,000 15,613,216
Shin-Etsu Chemical Co. Ltd. 381,700 14,982,739
Tokyo Electron Ltd. 208,252 14,671,164
Chubu Electric Power Co. Inc. 798,100 14,535,160
Toshiba Corp. 3,470,000 14,185,722
Kansai Electric Power Co. Inc. (The) 867,500 13,687,586
Kyocera Corp. 208,200 13,382,756
Kao Corp. 694,000 13,085,362
Denso Corp. 694,000 12,966,404
NEC Corp./1/ 1,735,000 12,936,664
Ricoh Co. Ltd. 694,000 12,787,967
Nippon Steel Corp. 6,940,000 12,431,094
Mitsubishi Heavy Industries Ltd. 3,817,000 12,332,953
Secom Co. Ltd. 347,000 11,895,783
JFE Holdings Inc. 589,950 11,881,921
Mitsubishi Corp. 1,388,000 11,729,242
Nintendo Co. Ltd. 138,800 11,550,806
UFJ Holdings Inc./1/ 4,164 11,134,453
Mitsui & Co. Ltd. 1,735,000 11,077,948
Hoya Corp. 138,800 10,622,934
Ito-Yokado Co. Ltd. 347,000 9,962,719
Fujitsu Ltd. 2,082,000 9,956,771
Bridgestone Corp. 694,000 9,665,324
Tokyo Gas Co. Ltd. 3,123,000 9,501,757
Mizuho Financial Group Inc./1/ 7,634 9,486,887
Seven-Eleven Japan Co. Ltd. 347,000 9,486,887
Mitsubishi Estate Co. Ltd. 1,041,000 9,332,242
Fanuc Ltd. 138,800 9,159,753
Yamanouchi Pharmaceutical Co. Ltd. 347,000 9,100,274
TDK Corp. 138,800 9,040,795
Daiwa Securities Group Inc. 1,388,000 8,957,525
Dai Nippon Printing Co. Ltd. 694,000 8,844,515
Tohoku Electric Power Co. Inc. 589,900 8,695,818
Aeon Co. Ltd. 347,000 8,579,834
Mitsubishi Electric Corp. 2,082,000 8,547,120
SANYO Electric Co. Ltd. 2,082,000 8,457,902
Mitsui Fudosan Co. Ltd. 1,041,000 8,395,449
Nikko Cordial Corp. 1,735,000 8,341,918
Mitsui Sumitomo Insurance Co. Ltd. 1,388,000 8,291,361
Olympus Optical Co. Ltd. 347,000 7,970,175
Kyushu Electric Power Co. Inc. 520,500 7,882,443
SMC Corp. 69,400 7,720,363
Nitto Denko Corp. 173,500 7,657,911
Kirin Brewery Co. Ltd. 1,041,000 7,449,734
Central Japan Railway Co. 1,041 7,342,672
Asahi Glass Co. Ltd. 1,041,000 7,315,907
Eisai Co. Ltd. 347,000 7,256,428
Keyence Corp. 34,720 7,251,683
Advantest Corp. 104,100 7,217,767
Softbank Corp. 242,900 7,119,626
Kinki Nippon Railway Co. Ltd./1/ 2,429,000 7,098,809
Omron Corp. 347,000 7,063,121
NTT Data Corp. 1,735 6,988,773
ORIX Corp. 104,100 6,914,424
Nippon Oil Corp. 1,735,500 6,856,921
Ajinomoto Co. Inc. 694,000 6,834,127
8 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI JAPAN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------
Shizuoka Bank Ltd. (The) 1,041,000 $ 6,753,831
Fujisawa Pharmaceutical Co. Ltd. 347,000 6,661,639
Daikin Industries Ltd. 347,000 6,631,899
Asahi Kasei Corp. 1,735,000 6,572,420
Sompo Japan Insurance Inc. 1,041,000 6,414,801
Stanley Electric Co. Ltd. 347,000 6,126,329
Osaka Gas Co. Ltd. 2,429,000 6,099,563
Sekisui House Ltd. 694,000 6,096,589
Toray Industries Inc. 1,735,000 6,096,589
Japan Tobacco Inc. 1,041 6,084,693
Sumitomo Electric Industries Ltd. 694,000 6,054,954
Komatsu Ltd. 1,041,000 5,941,944
Toyota Industries Corp. 347,000 5,921,126
Alps Electric Co. Ltd. 347,000 5,900,309
JSR Corp. 347,000 5,894,361
Takefuji Corp. 104,100 5,888,413
OJI Paper Co. Ltd. 1,041,000 5,781,351
Nippon Yusen Kabushiki Kaisha 1,388,000 5,733,768
Tostem Inax Holding Corp. 347,000 5,620,758
Toppan Printing Co. Ltd. 694,000 5,614,810
Pioneer Corp. 242,900 5,454,217
Daiwa House Industry Co. Ltd. 694,000 5,406,634
Daiichi Pharmaceutical Co. Ltd. 347,000 5,305,519
Itochu Corp. 1,735,000 5,204,405
Shionogi & Co. Ltd. 347,000 5,103,291
Taisho Pharmaceutical Co. Ltd. 347,000 5,085,447
Sumitomo Chemical Co. Ltd. 1,388,000 5,020,021
Mitsubishi Chemical Corp. 2,082,000 4,835,636
West Japan Railway Co. 1,388 4,817,792
Nippon Unipac Holding 1,041 4,764,261
Konica Minolta Holdings Inc. 347,000 4,755,339
Matsushita Electric Works Ltd. 694,000 4,698,834
Terumo Corp. 242,900 4,694,374
Sumitomo Trust & Banking Co. Ltd. (The) 1,041,000 4,692,887
Sumitomo Realty & Development Co. Ltd. 694,000 4,496,606
Bank of Yokohama Ltd. (The) 1,388,000 4,330,065
Sumitomo Corp. 694,000 4,300,326
Nikon Corp./1/ 347,000 4,285,456
Sankyo Co. Ltd. 347,000 4,282,482
Nippon Express Co. Ltd. 1,041,000 4,264,638
Yamato Transport Co. Ltd. 347,000 4,130,811
Resona Holdings Inc./1/ 4,511,000 3,943,452
Marui Co. Ltd. 347,000 3,866,130
Promise Co. Ltd. 104,100 3,854,234
Toyo Seikan Kaisha Ltd. 347,000 3,809,625
Mitsui Chemicals Inc. 694,000 3,717,432
Hirose Electric Co. Ltd. 34,700 3,714,458
Chugai Pharmaceutical Co. Ltd. 347,000 3,675,797
Shiseido Co. Ltd. 347,000 3,631,188
Tokyu Corp. 1,041,000 3,631,188
Mitsui O.S.K. Lines Ltd. 1,041,000 3,613,344
Trend Micro Inc./1/ 173,500 3,494,386
UNY Co. Ltd. 347,000 3,476,543
Kubota Corp. 1,041,000 3,443,829
Yamaha Corp. 208,200 3,429,554
Keihin Electric Express Railway Co. Ltd. 694,000 3,420,038
Sumitomo Metal Industries Ltd. 3,817,000 3,402,194
Yokogawa Electric Corp. 347,000 3,357,585
Nippon Meat Packers Inc. 347,000 3,348,663
Keio Electric Railway Co. Ltd. 694,000 3,312,976
ACOM Co. Ltd. 79,810 3,310,596
Oriental Land Co. Ltd. 69,400 3,295,132
Toho Co. Ltd. 312,300 3,281,452
Daido Life Insurance Co. Ltd. 1,388 3,259,445
Uni-Charm Corp. 69,400 3,211,862
Sumitomo Metal Mining Co. Ltd. 694,000 3,158,330
Tobu Railway Co. Ltd. 1,041,000 3,042,347
Isetan Co. Ltd. 347,000 3,009,633
Credit Saison Co. Ltd. 173,500 3,003,685
Teijin Ltd. 1,041,000 2,962,050
Mabuchi Motor Co. Ltd. 34,700 2,929,337
AIFUL Corp. 52,050 2,908,519
Fast Retailing Co. Ltd. 69,400 2,884,727
Sekisui Chemical Co. Ltd. 694,000 2,878,779
Kajima Corp. 1,041,000 2,846,066
Joyo Bank Ltd. 1,041,000 2,837,144
Yamada Denki Co. Ltd. 104,100 2,819,301
Daito Trust Construction Co. Ltd. 104,100 2,801,457
Nidec Corp. 34,700 2,780,639
Toto Ltd. 347,000 2,777,665
NSK Ltd. 694,000 2,706,291
SCHEDULE OF INVESTMENTS 9
Schedule of Investments (Continued)
iSHARES MSCI JAPAN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------
Casio Computer Co. Ltd. 347,000 $ 2,691,421
Nissan Chemical Industries Ltd. 347,000 2,679,525
Kuraray Co. Ltd. 347,000 2,617,072
Marubeni Corp. 1,735,000 2,617,072
Citizen Watch Co. Ltd. 347,000 2,575,437
Kaneka Corp. 347,000 2,569,489
Taisei Corp. 1,041,000 2,542,724
Nisshin Seifun Group Inc. 347,000 2,533,802
THK Co. Ltd. 138,800 2,527,854
Furkukawa Electric Co. Ltd. 694,000 2,521,906
Bank of Fukuoka Ltd. 694,000 2,498,115
Oki Electric Industry Co. Ltd./1/ 694,000 2,367,261
TonenGeneral Sekiyu K.K. 347,000 2,361,313
Shimamura Co. Ltd. 34,700 2,340,495
Mitsui Mining & Smelting Co. Ltd. 694,000 2,331,574
Konami Corp. 104,100 2,306,295
Mitsui Trust Holdings Inc./1/ 694,000 2,295,886
Anritsu Corp./1/ 347,000 2,286,964
Obayashi Corp. 694,000 2,272,095
NGK Insulators Ltd. 347,000 2,269,121
Chiba Bank Ltd. (The) 694,000 2,260,199
CSK Corp. 69,400 2,242,355
JAFCO Co. Ltd. 34,700 2,239,381
Nippon Shokubai Co. Ltd. 347,000 2,227,485
Asahi Breweries Ltd. 347,000 2,224,512
Shimizu Corp. 694,000 2,218,564
Mitsubishi Rayon Co. Ltd. 694,000 2,206,668
Ishikawajima-Harima Heavy Industries Co. Ltd. 1,388,000 2,200,720
Kawasaki Heavy Industries Ltd. 1,735,000 2,200,720
Kikkoman Corp. 347,000 2,200,720
Nissin Food Products Co. Ltd. 104,100 2,199,233
Dainippon Screen Manufacturing Co. Ltd./1/ 347,000 2,168,007
Takashimaya Co. Ltd. 347,000 2,168,006
Taiheiyo Cement Corp. 1,041,000 2,123,397
Takara Holdings Inc. 347,000 2,066,892
Denki Kagaku Kogyo Kabushiki Kaisha 694,000 2,022,283
Lawson Inc. 69,400 2,022,283
Kamigumi Co. Ltd. 347,000 1,995,518
Showa Denko K.K./1/ 1,041,000 1,980,648
Suruga Bank Ltd. (The) 347,000 1,953,882
Kyowa Hakko Kogyo Co. Ltd. 347,000 1,950,908
Seino Transportation Co. Ltd. 347,000 1,950,908
Tosoh Corp. 694,000 1,933,065
Shimano Inc. 104,100 1,891,430
Sumitomo Bakelite Co. Ltd. 347,000 1,876,560
Ube Industries Ltd. 1,041,000 1,846,820
SEGA Corp./1/ 173,500 1,762,063
Daimaru Inc. (The) 347,000 1,739,758
Hino Motors Ltd. 347,000 1,736,784
Minebea Co. Ltd. 347,000 1,727,862
Suzuken Co. Ltd. 69,400 1,701,097
NTN Corp. 347,000 1,668,384
Fuji Television Network Inc. 347 1,650,540
Japan Airlines System Corp. 694,000 1,635,670
Ebara Corp. 347,000 1,629,722
Oracle Corp. 34,700 1,623,774
Nippon Kayaku Co. Ltd. 347,000 1,620,800
Fujikura Ltd. 347,000 1,564,296
Nisshinbo Industries Inc. 347,000 1,561,322
Mitsubishi Materials Corp./1/ 1,041,000 1,552,400
Toyoda Gosei Co. Ltd. 69,400 1,549,426
Fuji Electric Co. Ltd. 694,000 1,546,452
All Nippon Airways Co. Ltd./1/ 694,000 1,516,712
Sumitomo Heavy Industries Ltd./1/ 694,000 1,516,712
Amada Co. Ltd. 347,000 1,498,869
Bandai Co. Ltd. 34,700 1,489,947
Dainippon Ink & Chemicals Inc. 694,000 1,475,077
Namco Ltd. 69,400 1,439,390
Dowa Mining Co. Ltd. 347,000 1,424,520
Daicel Chemical Industries Ltd. 347,000 1,412,624
Gunma Bank Ltd. 347,000 1,409,650
Gunze Ltd. 347,000 1,409,650
77 Bank Ltd. (The) 347,000 1,391,807
FamilyMart Co. Ltd. 69,400 1,385,859
Mitsui Engineering & Shipbuilding Co. Ltd. 1,041,000 1,347,197
Teikoku Oil Co. Ltd. 347,000 1,323,406
Kinden Corp. 347,000 1,281,771
Benesse Corp. 69,400 1,275,823
Ito En Ltd. 34,700 1,263,927
Toyobo Co. Ltd. 694,000 1,255,005
10 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Schedule of Investments (Continued)
iSHARES MSCI JAPAN INDEX FUND
August 31, 2003
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------
Nippon Sanso Corp. 347,000 $ 1,252,031
Meitec Corp. 34,700 1,249,057
Nippon Mining Holdings Inc. 520,500 1,244,596
Shimachu Co. Ltd. 69,400 1,243,109
Aeon Credit Service Co. Ltd. 34,790 1,237,389
Hitachi Cable Ltd. 347,000 1,228,240
Meiji Dairies Corp. 347,000 1,195,526
Okumura Corp. 347,000 1,192,552
Kawasaki Kisen Kaisha Ltd. 347,000 1,183,630
Meiji Seika Kaisha Ltd. 347,000 1,174,709
Coca-Cola West Japan Co. Ltd. 69,400 1,135,453
Nichirei Corp. 347,000 1,124,152
Katokichi Co. Ltd. 69,400 1,111,661
Aoyama Trading Co. Ltd. 69,400 1,103,929
Nishimatsu Construction Co. Ltd. 347,000 1,094,412
Capcom Co. Ltd. 104,100 1,089,356
Nippon Sheet Glass Co. Ltd. 347,000 1,070,621
Itochu Techno-Science Corp. 34,700 996,272
Mitsukoshi Ltd./2/ 347,000 951,663
TIS Inc. 34,700 951,663
Hokuriku Bank Ltd. (The)/1/ 694,000 945,715
Hitachi Software Engineering Co. Ltd. 34,700 936,793
Ariake Japan Co. Ltd. 34,700 933,819
Mitsubishi Gas Chemical Co. Inc. 347,000 877,314
Toda Corp. 347,000 862,444
Kanebo Ltd./1/ 694,000 844,601
Sapporo Breweries Ltd. 347,000 826,757
Asatsu-DK Inc. 34,700 811,887
World Co. Ltd. 34,700 807,426
Ashikaga Financial Group Inc./1/ 694,000 761,330
Sumitomo Osaka Cement Co. Ltd. 347,000 695,903
Bellsystem24 Inc. 3,470 691,442
Ishihara Sangyo Kaisha Ltd./1/ 347,000 689,955
Autobacs Seven Co. Ltd. 34,700 661,703
Aderans Co. Ltd. 34,700 628,990
Saizeriya Co. Ltd. 69,490 589,605
Snow Brand Milk Products Co. Ltd./1/ 173,500 478,805
TOTAL COMMON STOCKS
(Cost: $1,771,177,593) 1,726,493,435
SHARES OR
SECURITY PRINCIPAL VALUE
- -----------------------------------------------------------------------------
SHORT TERM INVESTMENTS - 11.88%
MONEY MARKET FUNDS - 7.71%
Barclays Global Investors Funds
Institutional Money Market Fund,
Institutional Shares/3/,/4/ 87,201,509 $ 87,201,509
Barclays Global Investors Funds Prime
Money Market Fund, Institutional
Shares/3/,/4/ 33,451,175 33,451,175
BlackRock Temp Cash Money Market Fund/3/ 1,760,140 1,760,140
Short Term Investment Co. - Liquid
Assets Money Market Portfolio/3/ 3,041,016 3,041,016
Short Term Investment Co. - Prime Money
Market Portfolio, Institutional
Shares/3/ 7,733,547 7,733,547
133,187,387
FLOATING RATE NOTES - 2.89%
Beta Finance Inc.
1.07%, 05/20/04 /3/ $ 1,520,508 1,520,346
1.16%, 08/23/04 /3/ 1,520,508 1,521,778
Canadian Imperial Bank of Commerce
1.07%, 10/30/03 /3/ 1,216,406 1,216,406
1.37%, 08/26/04 /3/ 3,041,016 3,041,016
CC USA Inc.
1.06%, 05/24/04 /3/ 3,041,016 3,040,797
1.07%, 04/19/04 /3/ 1,338,047 1,338,005
1.11%, 07/15/04 /3/ 1,520,508 1,520,983
Dorada Finance Inc.
1.07%, 05/20/04 /3/ 3,041,016 3,040,691
1.24%, 08/09/04 /3/ 760,254 760,148
Five Finance Inc.
1.08%, 04/15/04 /3/ 1,520,508 1,520,508
HBOS Treasury Services PLC
1.27%, 06/24/04 /3/ 3,041,016 3,041,016
Holmes Financing PLC
1.07%, 04/15/04 /3/ 608,203 608,203
SCHEDULE OF INVESTMENTS 11
Schedule of Investments (Continued)
iSHARES MSCI JAPAN INDEX FUND
August 31, 2003
SECURITY PRINCIPAL VALUE
- -----------------------------------------------------------------------------
K2 USA LLC
1.07%, 08/16/04 /3/ $ 760,254 $ 760,146
1.08%, 04/13/04 /3/ 1,520,508 1,520,462
1.08%, 05/17/04 /3/ 1,520,508 1,520,455
Links Finance LLC
1.05%, 07/20/04 /3/ 1,216,406 1,216,192
1.07%, 05/04/04 /3/ 1,520,508 1,520,457
1.07%, 06/28/04 /3/ 1,520,508 1,520,259
1.08%, 03/29/04 /3/ 1,520,508 1,520,508
Nationwide Building Society
1.08%, 07/23/04 /3/ 2,280,762 2,280,762
Sigma Finance Inc.
1.05%, 07/20/04 /3/ 1,520,508 1,520,240
1.06%, 10/15/03 /3/ 3,041,016 3,040,980
1.06%, 07/01/04 /3/ 1,520,508 1,520,193
1.24%, 08/06/04 /3/ 760,254 760,183
Tango Finance Corp.
1.05%, 07/15/04 /3/ 912,305 912,043
1.06%, 07/06/04 /3/ 912,305 912,226
Toronto Dominion
1.33%, 08/23/04 /3/ 1,976,660 1,975,692
White Pine Finance LLC
1.06%, 07/06/04 /3/ 1,824,610 1,824,462
1.07%, 05/17/04 /3/ 1,824,610 1,824,610
1.08%, 04/20/04 /3/ 1,520,508 1,520,508
49,840,275
COMMERCIAL PAPER - 1.10%
Corporate Asset Funding Corp.
1.06%, 09/24/03 /3/ 912,305 911,714
CRC Funding LLC
1.05%, 09/25/03 /3/ 1,520,508 1,519,488
1.06%, 09/16/03 /3/ 608,203 607,952
Edison Asset Securitization
1.06%, 09/05/03 /3/ 1,520,508 1,520,374
1.06%, 09/15/03 /3/ 912,305 911,956
1.07%, 10/23/03 /3/ 2,858,555 2,854,222
Eureka Securitization Inc.
1.05%, 09/18/03 /3/ 1,520,508 1,519,798
Jupiter Securitization Corp.
1.07%, 09/02/03 /3/ 760,254 760,254
Park Avenue Receivables Corp.
1.06%, 09/16/03 /3/ 760,254 759,941
Preferred Receivables Funding Corp.
1.06%, 09/08/03 /3/ 760,254 760,120
Quincy Capital Corp.
1.06%, 09/17/03 /3/ 3,150,736 3,149,344
Receivables Capital Corp.
1.06%, 09/17/03 /3/ 2,219,942 2,218,966
UBS Finance (Delaware) Inc.
1.09%, 09/02/03 /3/ 1,520,508 1,520,508
19,014,637
TIME DEPOSITS - 0.18%
SunTrust Banks Inc.
1.00%, 09/02/03 /3/ 3,041,016 3,041,016
3,041,016
TOTAL SHORT TERM INVESTMENTS
(Cost: $205,083,315) 205,083,315
TOTAL INVESTMENTS IN SECURITIES - 111.86%
(Cost $1,976,260,908) 1,931,576,750
OTHER ASSETS, LESS LIABILITIES - (11.86%) (204,721,849)
---------------
NET ASSETS - 100.00% $ 1,726,854,901
===============
/1/ Non-income earning securities.
/2/ Security valued at fair value in accordance with procedures approved by the
Board of Directors. See Note 1.
/3/ All or a portion of this security represents investments of securities
lending collateral.
/4/ Issuer is an affiliate of the Fund's investment advisor. See Note 2.
SEE NOTES TO FINANCIAL STATEMENTS.
12 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Statement of Assets and Liabilities
iSHARES, INC.
August 31, 2003
iSHARES
MSCI JAPAN
INDEX FUND
- -----------------------------------------------------------------------------
ASSETS
Investments at cost $ 1,976,260,908
---------------
Foreign currency, at cost $ 1,266,193
---------------
Investments in securities, at value (including
securities on loan/1/) (Note 1) $ 1,931,576,750
Foreign currency, at value 1,283,300
Receivables:
Dividends and interest 600,696
---------------
Total Assets 1,933,460,746
---------------
LIABILITIES
Payables:
Collateral for securities on loan (Note 5) 204,503,705
Advisory fees (Note 2) 1,477,269
Distribution fees 624,871
---------------
Total Liabilities 206,605,845
---------------
NET ASSETS $ 1,726,854,901
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 1,854,005,314
Accumulated net investment loss (240,476)
Accumulated net realized loss (82,247,705)
Net unrealized depreciation on investments and
translation of assets and liabilities in
foreign currencies (44,662,232)
---------------
NET ASSETS $ 1,726,854,901
===============
iShares outstanding 208,200,000
===============
Net asset value per iShare $ 8.29
===============
/1/ Securities on loan with market value of $194,764,480. See Note 5.
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS 13
Statement of Operations
iSHARES, INC.
Year ended August 31, 2003
iSHARES
MSCI JAPAN
INDEX FUND
- -----------------------------------------------------------------------------
NET INVESTMENT INCOME
Dividends/1/ $ 6,253,519
Interest 35,640
Securities lending income 400,420
---------------
Total investment income 6,689,579
---------------
EXPENSES (NOTE 2)
Advisory fees 4,549,589
Distribution fees 1,927,792
---------------
Total expenses 6,477,381
---------------
Net investment income 212,198
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments (10,052,318)
In-kind redemptions 18,641,133
Foreign currency transactions 85,111
---------------
Net realized gain 8,673,926
---------------
Net change in unrealized appreciation (depreciation) on:
Investments 171,078,541
Translation of assets and liabilities in
foreign currencies 21,946
---------------
Net change in unrealized appreciation (depreciation) 171,100,487
---------------
Net realized and unrealized gain 179,774,413
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 179,986,611
===============
/1/ Net of foreign withholding tax of $831,913.
SEE NOTES TO FINANCIAL STATEMENTS.
14 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Statements of Changes in Net Assets
iSHARES, INC.
iSHARES
MSCI JAPAN
INDEX FUND
--------------------------------
For the For the
year ended year ended
August 31, 2003 August 31, 2002
- --------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 212,198 $ (665,377)
Net realized gain (loss) 8,673,926 (5,680,904)
Net change in unrealized appreciation
(depreciation) 171,100,487 (101,966,848)
--------------- ---------------
Net increase (decrease) in net assets
resulting from operations 179,986,611 (108,313,129)
--------------- ---------------
Undistributed net investment income
included in the price of capital
shares issued or redeemed - 88
--------------- --------------
iSHARES TRANSACTIONS:
iShares sold 1,146,153,031 316,156,642
iShares redeemed (265,660,262) (69,366,813)
--------------- ---------------
Net increase in net assets from iShares
transactions 880,492,769 246,789,829
--------------- ---------------
INCREASE IN NET ASSETS 1,060,479,380 138,476,788
NET ASSETS:
Beginning of year 666,375,521 527,898,733
--------------- ---------------
End of year $ 1,726,854,901 $ 666,375,521
=============== ===============
Accumulated net investment loss included
in net assets at end of year $ (240,476) $ (546,957)
=============== ===============
iSHARES ISSUED AND REDEEMED:
iShares sold 158,400,000 36,600,000
iShares redeemed (36,000,000) (9,001,000)
--------------- ---------------
Net increase in iShares outstanding 122,400,000 27,599,000
=============== ===============
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS 15
Financial Highlights
iSHARES, INC.
(For a share outstanding throughout each period)
iSHARES MSCI JAPAN INDEX FUND
------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
Aug. 31, 2003 Aug. 31, 2002 Aug. 31, 2001 Aug. 31, 2000 Aug. 31, 1999
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 7.77 $ 9.07 $ 13.82 $ 13.22 $ 8.39
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)/1/ 0.00/3/ (0.01) (0.01) (0.05) (0.03)
Net realized and unrealized
gain (loss) 0.52 (1.29) (4.74) 1.21 4.91
------------- ------------- ------------- ------------- -------------
Total from investment operations 0.52 (1.30) (4.75) 1.16 4.88
------------- ------------- ------------- ------------- -------------
LESS DISTRIBUTIONS FROM:
Net investment income - - - (0.00)/3/ (0.04)
Net realized gain - - - (0.53) -
Return of capital - - - (0.03) (0.01)
------------- ------------- ------------- ------------- -------------
Total distributions - - - (0.56) (0.05)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF YEAR $ 8.29 $ 7.77 $ 9.07 $ 13.82 $ 13.22
============= ============= ============= ============= =============
TOTAL RETURN 6.69% (14.33)% (34.37)% 8.75% 58.14%
============= ============= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000s) $ 1,726,855 $ 666,376 $ 527,899 $ 787,790 $ 713,653
Ratio of expenses to average
net assets 0.84% 0.84% 0.84% 0.88% 0.94%
Ratio of net investment income
(loss) to average net assets 0.03% (0.12)% (0.11)% (0.32)% (0.27)%
Portfolio turnover rate/2/ 2% 2% 21% 22% 0%
/1/ Based on average shares outstanding throughout the period.
/2/ Excludes portfolio securities received or delivered as a result of
processing capital share transactions in Creation Units.
/3/ Rounds to less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS.
16 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements
iSHARES, INC.
1. SIGNIFICANT ACCOUNTING POLICIES
iShares, Inc. (the "Company") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company.
The Company was incorporated under the laws of the State of Maryland on
September 1, 1994. As of August 31, 2003, the Company offered 24 investment
portfolios or funds.
These financial statements relate only to the iShares MSCI Japan Index Fund (the
"Fund").
The Fund's investment objective is to seek investment results that correspond
generally to the price and yield performance, before fees and expenses, of
publicly traded securities in the aggregate in the Japanese market, as measured
by the MSCI Japan Index compiled by Morgan Stanley Capital International Inc.
("MSCI"). The investment advisor utilizes a "passive" or index approach to
achieve the Fund's investment objective. The Fund is classified as a
non-diversified fund under the 1940 Act. Non-diversified funds generally hold
stocks in fewer companies than diversified funds and may be more susceptible to
the risks associated with these particular companies, or to a single economic,
political or regulatory occurrence.
The Fund invests in the securities of foreign issuers of a single country, which
may involve certain considerations and risks not typically associated with
securities of U.S. issuers. Such risks include, but are not limited to:
generally less liquid and less efficient securities markets; generally greater
price volatility; exchange rate fluctuations and exchange controls; imposition
of restrictions on the expatriation of funds or other assets of the Fund; less
publicly available information about issuers; the imposition of withholding or
other taxes; higher transaction and custody costs; settlement delays and risk of
loss attendant in settlement procedures; difficulties in enforcing contractual
obligations; lesser regulation of securities markets; different accounting,
disclosure and reporting requirements; more substantial governmental involvement
in the economy; higher inflation rates; greater social, economic and political
uncertainties; the risk of nationalization or expropriation of assets; and the
risk of war.
Under the Fund's organizational documents, the officers and directors are
indemnified against certain liabilities that may arise out of the performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts with service providers that contain general
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Fund expects the
risk of loss to be remote.
The following significant accounting policies are consistently followed by the
Company in the preparation of its financial statements in conformity with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") for investment companies. The preparation of financial statements in
conformity with U.S. GAAP requires management to make certain estimates and
assumptions. Actual results could differ from those estimates.
Certain prior year amounts in the financial statements have been reclassified to
be consistent with the current period presentation. These reclassifications had
no impact on prior year net assets, net income or distributions.
SECURITY VALUATION
Portfolio securities for which market prices are readily available are valued
using the official closing price 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 index used by the Fund. Short-term investments are valued at
amortized cost, which approximates market value. Mutual fund shares are valued
at net asset value. Any securities, including restricted securities or other
assets
NOTES TO THE FINANCIAL STATEMENTS 17
Notes to the Financial Statements (Continued)
iSHARES, INC.
for which market quotations are not readily available, or for which a
significant event has occurred since the time of the most recent market
quotation, are valued in accordance with fair value pricing policies approved by
the Company's Board of Directors.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on trade date. Dividend income is
recognized on the ex-dividend date, and interest income is accrued daily.
Realized gains and losses on investment transactions are determined using the
specific identification method.
FOREIGN CURRENCY TRANSLATION
The Fund's accounting records are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in foreign currencies
are translated into U.S. dollars at the prevailing rates of exchange on the
valuation date. Purchases and sales of securities, income receipts and expense
payments are translated into U.S. dollars at the prevailing exchange rate on the
respective dates of such transactions.
Foreign currency and assets and liabilities denominated in foreign currency are
generally converted into U.S. dollars using the same exchange rate utilized by
MSCI in the calculation of the MSCI Japan Index (currently, exchange rate as of
4:00 p.m. London time). However, the Company may use a different exchange rate
from the rate used by MSCI in the event that the investment advisor concludes
that such rate is more appropriate.
The Fund does not isolate the effect of fluctuations in foreign exchange rates
from the effect of fluctuations in the market prices of securities. Such
fluctuations are reflected by the Fund as a component of realized and unrealized
gains and losses from investments for financial reporting purposes.
EQUALIZATION
Prior to January 1, 2002, the Fund used the accounting practice of equalization.
This accounting method was used to keep the continuing shareholders' per share
equity in undistributed net investment income from being affected by the
continuous sales and redemptions of capital stock. Equalization is calculated on
a per share basis whereby a portion of the proceeds from sales and costs of
repurchases of capital stock is applied to undistributed net investment income.
The amounts of equalization are disclosed in the Statements of Changes in Net
Assets as undistributed net investment income included in the price of capital
shares issued or redeemed.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income, if any, including any
net foreign currency gains, are declared and distributed at least annually.
Distributions of net realized gains, if any, generally are declared and
distributed once a year. Distributions are determined on a tax basis and may
differ from net investment income and net realized capital gains for financial
reporting purposes. Dividends and distributions are paid in U.S. dollars and
cannot be automatically reinvested in additional shares of the Fund.
At August 31, 2003, the tax year-end of the Fund, the component of distributable
earnings on a tax basis was $474,213 from undistributed ordinary income.
FEDERAL INCOME TAXES
The Fund is treated as an entity separate from the Company's other funds for
federal income tax purposes. It is the policy of the Fund to qualify as a
regulated investment company, as defined in Subchapter M of the Internal Revenue
Code of 1986, as amended, and to annually distribute all of its net income and
any net gains (taking into account any capital loss carryforwards) sufficient to
relieve it from all, or substantially all, federal income and excise taxes.
Accordingly, no provision for federal income taxes was required for the year
ended August 31, 2003.
From November 1, 2002 to August 31, 2003, the Fund incurred net realized capital
losses of $5,627,048. As permitted by tax regulations, the Fund has elected to
defer those losses and treat them as arising in the year ended August 31, 2004.
18 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements (Continued)
iSHARES, INC.
At August 31, 2003, the tax year-end of the Fund, the Fund had tax basis net
capital loss carryforwards of $2,959,030, $62,572,173 and $3,621,148 expiring in
2009, 2010 and 2011, respectively. Such losses may be applied against any net
realized taxable gains in each succeeding year, or until their respective
expiration date, whichever occurs first.
If the Fund owns shares in certain foreign investment entities, referred to,
under U.S. tax law code, as "passive foreign investment companies", the Fund may
elect to mark-to-market annually the shares of the passive foreign investment
company, and would be required to distribute to shareholders any such
mark-to-market gains.
For the year ended August 31, 2003, the Fund reclassified certain amounts to
paid-in-capital from accumulated net realized gain (loss) on investments and
foreign currency transactions and accumulated net investment income (loss),
respectively, as a result of permanent book and tax differences primarily
attributed to net investment loss, return of capital, passive foreign investment
companies, realized foreign currency gains and losses and gains and losses on
in-kind redemptions. These reclassifications have no effect on net assets or net
asset value per share.
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Barclays Global Fund Advisors ("BGFA") acts as investment advisor to the Company
and is responsible for the investment management of the Fund. BGFA is a
California corporation indirectly owned by Barclays Bank PLC. BGFA serves as
investment advisor to the Fund pursuant to an Advisory Agreement between the
Company and BGFA, as amended December 28, 2001. Under this agreement, BGFA is
responsible for placing purchase and sale orders, providing continuous
supervision of the investment portfolio of the Fund, and the general management
of the Company's affairs.
Under the Advisory Agreement, BGFA is responsible for all of the expenses
("Covered Expenses") of the Fund, other than interest, taxes, brokerage
commissions and other expenses connected with the executions of portfolio
transactions, extraordinary expenses, distribution fees and advisory fees.
For its investment management services to the Fund, BGFA is entitled to an
annual investment advisory fee based on the Fund's allocable portion of the
aggregate net assets of all the funds offered by the Company (except for the
iShares MSCI Brazil, iShares MSCI Emerging Markets, iShares MSCI Pacific
ex-Japan, iShares MSCI South Africa, iShares MSCI South Korea, and iShares MSCI
Taiwan Index Funds) as follows:
--------------------------------------------------------------------
ADVISORY FEE AGGREGATE NET ASSETS
--------------------------------------------------------------------
0.59% First $7 billion
0.54 Over $7 billion, up to and including $11 billion
0.49 Over $11 billion
--------------------------------------------------------------------
Barclays Global Investors, N.A. ("BGI") has a license agreement with MSCI for
the use of the MSCI Japan Index. Under a sub-license agreement between BGI and
the Fund, the fee for the use of the MSCI Japan Index is paid directly by BGI to
MSCI.
Investors Bank & Trust Company ("Investors Bank") serves as administrator,
custodian and transfer agent for the Company. As compensation for its services,
Investors Bank receives certain out-of-pocket costs, transaction fees, and
asset-based fees, which are accrued daily and paid monthly. These fees are
Covered Expenses as defined above.
NOTES TO THE FINANCIAL STATEMENTS 19
Notes to the Financial Statements (Continued)
iSHARES, INC.
Prior to February 24, 2003, Investors Bank served as securities lending agent
for the Company. Effective February 24, 2003, BGI began serving as securities
lending agent for the Company. BGI is an affiliate of BGFA, the Funds'
investment advisor. The Board of Directors has approved the selection of BGI as
securities lending agent subject to the conditions of the exemptive order that
was issued by the Securities and Exchange Commission ("SEC"). As securities
lending agent, BGI receives a fee based on a share of the income earned on
investment of the cash collateral received for the loan of securities. For the
period from February 24, 2003 through August 31, 2003, BGI earned securities
lending agent fees of $297,662.
SEI Investments Distribution Co. (the "Distributor") serves as the Fund's
underwriter and distributor of the shares of the Fund, pursuant to a
Distribution Agreement with the Company. The Company has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Company's
Plan, the Distributor is entitled to receive a distribution fee from the Fund,
not to exceed 0.25% of the average daily net assets of the Fund, for
distribution-related services.
Pursuant to an exemptive order issued by the SEC, the Fund may invest in the
Institutional Shares of the Institutional Money Market Fund ("IMMF") and Prime
Money Market Fund ("PMMF") of Barclays Global Investors Funds. The IMMF and PMMF
are feeder funds in a master/feeder fund structure that invests substantially
all of its assets in the Money Market Master Portfolio and Prime Money Market
Master Portfolio, respectively, which are managed by BGFA, the Fund's investment
advisor. The IMMF and PMMF are open-end money market funds available only to
institutional investors, including other investment companies managed by BGFA.
The IMMF and PMMF seek a high level of income consistent with liquidity and the
preservation of capital. While the IMMF and PMMF do not directly charge an
advisory fee, the master portfolios in which they invest do charge an advisory
fee. Income distributions from the IMMF and PMMF are declared daily and paid
monthly from net investment income. Income distributions earned by the Fund from
temporary cash investments or from investment of securities lending collateral
are recorded as either interest income or securities lending income,
respectively, in the accompanying Statement of Operations.
As of August 31, 2003, certain directors and officers of the Company are also
employees of BGFA and its affiliates or employees of Investors Bank.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments (excluding in-kind transactions and
short-term securities) for the year ended August 31, 2003, aggregated
$22,322,028 and $18,216,287, respectively.
In-kind purchases and sales for the year ended August 31, 2003, aggregated
$1,141,392,395 and $265,014,115, respectively.
At August 31, 2003, the cost of investments for federal income tax purposes was
$1,984,443,903. Net unrealized depreciation aggregated $52,867,153, of which
$71,277,677 represented gross unrealized appreciation on securities and
$124,144,830 represented gross unrealized depreciation on securities.
4. iSHARES TRANSACTIONS
The Company's authorized shares are 10.9 billion shares of $.001 par value
capital stock. At August 31, 2003, 2,124,600,000 shares were authorized to the
Fund.
The Company issues and redeems shares ("iShares") of the Fund only in
aggregations of a specified number of iShares (each, a "Creation Unit") at net
asset value. Except when aggregated in Creation Units, iShares are not
redeemable. Transactions in iShares for the Fund are disclosed in detail in the
Statements of Changes in Net Assets.
20 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes to the Financial Statements (Continued)
iSHARES, INC.
The consideration for purchase of Creation Units of the Fund is generally the
in-kind deposit of a designated portfolio of equity securities constituting a
portfolio sampling representation of the MSCI Japan Index and an amount of cash.
A purchase transaction fee and a redemption transaction fee are charged to
offset transfer and other transaction costs associated with the issuance and
redemption of Creation Units of iShares.
5. LOANS OF PORTFOLIO SECURITIES
The Fund may lend its investment securities to approved borrowers such as
brokers, dealers and other financial institutions. The borrower pledges and
maintains with the Fund collateral consisting of cash, an irrevocable letter of
credit issued by a bank, or securities issued or guaranteed by the U.S.
Government. The initial collateral received is required to have a value of at
least 105% of the market value of the loaned securities. The collateral is
maintained thereafter, at a value equal to at least 100% of the current market
value of the securities on loan. The risks to the Fund of securities lending are
that the borrower may not provide additional collateral when required, or return
the securities when due.
As of August 31, 2003, the Fund had loaned securities which were collateralized
by cash. The cash collateral received was invested in a joint account which
invests in securities with remaining maturities of 397 days or less and money
market mutual funds. Income from the joint account is allocated daily to the
Fund, based on the Fund's portion of the total cash collateral received. The
market value of the securities on loan at August 31, 2003, and the value of the
related collateral are disclosed in the Statement of Assets and Liabilities.
6. LEGAL PROCEEDINGS
The Company has reached a settlement in an action in the U.S. District Court for
the Northern District of Illinois. In the action, a company named Mopex, Inc.
and a company named Realtimemutualfunds.com alleged that the actions of the
Company and others infringed a patent held by Mopex, and that the parties
engaged in a "conspiracy" amongst themselves to infringe the patent. The patent
itself was found to be invalid in a related action to which the Company was not
a party. In the settlement, the plaintiffs' claims and allegations are dismissed
with prejudice, and neither the Company nor any other defendant will pay any
compensation to the plaintiffs.
NOTES TO THE FINANCIAL STATEMENTS 21
Report of Independent Auditors
To the Shareholders and Board of Directors of
iShares, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the iShares MSCI Japan Index Fund
(the "Fund") at August 31, 2003, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
August 31, 2003 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
The financial statements of the Fund as of August 31, 2000 and for the two years
then ended were audited by other auditors, whose report dated October 13, 2000
expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
San Francisco, California
October 3, 2003
22 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Tax Information (Unaudited)
iSHARES, INC.
For the year ended August 31, 2003, the iShares MSCI Japan Index Fund earned
foreign source income of $7,085,432 and paid foreign taxes of $604,154 which it
intends to pass through to its shareholders pursuant to Section 853 of the
Internal Revenue Code.
An estimate of qualified dividend income of $7,059,077 was received by the Fund
through August 31, 2003 that qualifies for a reduced tax rate pursuant to the
Jobs and Growth Tax Relief Reconciliation Act of 2003.
TAX INFORMATION 23
Supplemental Information (Unaudited)
iSHARES, INC.
The table that follows presents information about the differences between the
daily market price on secondary markets for shares of the iShares MSCI Japan
Index Fund (the "Fund") and the Fund's net asset value. Net asset value, or
"NAV", is the price per share at which the Fund issues and redeems shares. It is
calculated in accordance with the standard formula for valuing mutual fund
shares. The "Market Price" of the Fund is determined using the midpoint between
the highest bid and the lowest offer on the Exchange on which the iShares of the
Fund is listed for trading, as of the time that the Fund's NAV is calculated.
The Fund's Market Price may be at, above or below its NAV. The NAV of the Fund
will fluctuate with changes in the market value of its portfolio holdings. The
Market Price of the Fund will fluctuate in accordance with changes in its NAV,
as well as market supply and demand.
Premiums or discounts are the differences (expressed as a percentage) between
the NAV and Market Price of the Fund on a given day, generally at the time NAV
is calculated. A premium is the amount that the Fund is trading above the
reported NAV, expressed as a percentage of the NAV. A discount is the amount
that the Fund is trading below the reported NAV, expressed as a percentage of
the NAV.
The following information shows the frequency distributions of premiums and
discounts for the Fund, for the five-year period from July 1, 1998 through
June 30, 2003, the date of the most recent calendar quarter-end.
EACH LINE IN THE TABLE SHOWS THE NUMBER OF TRADING DAYS IN WHICH THE FUND TRADED
WITHIN THE PREMIUM/DISCOUNT RANGE INDICATED. THE NUMBER OF TRADING DAYS IN EACH
PREMIUM/DISCOUNT RANGE IS ALSO SHOWN AS A PERCENTAGE OF THE TOTAL NUMBER OF
TRADING DAYS IN THE PERIOD COVERED BY EACH TABLE. ALL DATA PRESENTED HERE
REPRESENTS PAST PERFORMANCE, WHICH CANNOT BE USED TO PREDICT FUTURE RESULTS.
iSHARES MSCI JAPAN INDEX FUND
PERIOD COVERED: JULY 1, 1998 THROUGH JUNE 30, 2003
NUMBER PERCENTAGE OF
PREMIUM/DISCOUNT RANGE OF DAYS TOTAL DAYS
- ---------------------- ------- -------------
Greater than 3.0% ................................... 11 0.88%
Greater than 2.5% and Less than 3.0% ................ 15 1.19
Greater than 2.0% and Less than 2.5% ................ 29 2.31
Greater than 1.5% and Less than 2.0% ................ 62 4.93
Greater than 1.0% and Less than 1.5% ................ 144 11.46
Greater than 0.5% and Less than 1.0% ................ 228 18.14
BETWEEN 0.5% AND -0.5% .............................. 483 38.42
Less than -0.5% and Greater than -1.0% .............. 146 11.61
Less than -1.0% and Greater than -1.5% .............. 78 6.21
Less than -1.5% and Greater than -2.0% .............. 36 2.86
Less than -2.0% and Greater than -3.0% .............. 14 1.11
Less than -3.0% ..................................... 11 0.88
------- -------------
1,257 100.00%
======= =============
24 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Directors Information (Unaudited)
iSHARES, INC.
The Board of Directors has responsibility for the overall management and
operations of the Company, including general supervision of the duties performed
by BGFA and other service providers. Each Director serves until his or her
successor is duly elected or appointed and qualified.
iShares, Inc., iShares Trust, Barclays Global Investors Funds and Master
Investment Portfolio are considered to be members of the same fund complex, as
defined in Form N-1A under the 1940 Act. Each Director of iShares, Inc. also
serves as a Trustee for iShares Trust and oversees 81 portfolios within the fund
complex. In addition, Lee T. Kranefuss and Richard K. Lyons each serves as a
Trustee for Barclays Global Investors Funds and Master Investment Portfolio and
oversees 106 portfolios within the fund complex. Additional information about
the Funds' Directors may be found in the Funds' Statement of Additional
Information, which is available without charge upon request by calling toll-free
1-800-474-2737.
INTERESTED DIRECTORS+
POSITION(S), PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS LENGTH OF SERVICE DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------
*LEE T. KRANEFUSS (41) Director, Chief Executive Officer of the Trustee (since June 18, 2003) of
Barclays Global Chairman, and Individual Investor Business of iShares Trust; Board of Trustees
Investors President (since Barclays Global Investors, N.A.; for Barclays Global Investors Funds
45 Fremont Street June 18, 2003) The Boston Consulting Group (until and Master Investment Portfolio
San Francisco, CA 94105 1997). (since 2001).
*NATHAN MOST (89) Director Consultant to BGI (1998-2002), Trustee (since 2000) and President
P.O. Box 193 (since 1996) American Stock Exchange (1996-2000) (2000-2002) of iShares Trust
Burlingame, CA 94011 and the Hong Kong Stock Exchange
(1998 to present); Consultant to
the Amsterdam Stock Exchange
(1997-1998); Consultant to the
Pacific Stock Exchange (1997-1998).
- ----------
+ Garrett F. Bouton served as Chairman, President and interested Director of
the Board through June 17, 2003.
* Lee T. Kranefuss and Nathan Most are deemed to be "interested persons" (as
defined in the 1940 Act) of the Company due to their affiliations with
BGFA, the Funds' investment advisor and BGI, the parent company of BGFA.
DIRECTORS INFORMATION 25
Directors Information (Unaudited) (Continued)
iSHARES, INC.
INDEPENDENT DIRECTORS
POSITION(S), PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS LENGTH OF SERVICE DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------
JOHN B. CARROLL (67) Director Retired Vice President of Trustee (since 2001) of iShares
520 Main Street (since 1996) Investment Management (1984-2000) Trust; Trustee and member of the
Ridgefield, CT 06877 of Verizon Corporation; Advisory Executive Committee (since 1991) of
Board member of Ibbotson Associates The Common Fund Institutional
(1992-1998); former Vice Chairman Funds, a non-profit organization;
and Executive Committee Member Member of the Board of Managers of
(1994-1998) of the Committee on JP Morgan Private Equity Funds.
Investment of Employee Benefit
Assets of the Financial Executive
Institute.
RICHARD K. LYONS (42) Director Professor, University of Trustee (since 2000) of iShares
Haas School of (since 2001) California, Berkeley: Haas School Trust; Trustee (since 2001) of
Business, of Business (since 1993); Barclays Global Investors Funds and
UC Berkeley Consultant for IMF World Bank, Master Investment Portfolio; Board
Berkeley, CA 94720 Federal Reserve Bank, and Citibank of Trustees: Matthews Asian Funds
N.A. (since 2000). since 1995 (oversees 6 portfolios).
GEORGE C. PARKER (64) Director Dean Witter Distinguished Professor Trustee (since 2000) of iShares
Graduate School of (since 2001) of Finance (since 1994); Associate Trust; Bailard, Biehl and
Business (Room K301) Dean for Academic Affairs, Director Kaiser, Inc. (since 1985);
Stanford University of MBA Program, and Professor, California Casualty Group of
521 Memorial Way Stanford University: Graduate Insurance Companies (since 1978);
Stanford, CA 94305 School of Business (1993-2001). Continental Airlines, Inc. (since
1996); Community First Financial
Group (since 1995); Dresdner/RCM
Mutual Funds (1994-2002); Tyon
Ranch Company (since 1999).
W. ALLEN REED (56) Director President and Chief Executive Trustee (since 2001) of iShares
General Motors (since 1996) Officer (since 1994) of General Trust; Director (since 1994) of
Investment Motors Investment Management General Motors Investment
Management Corp. Corporation. Management Corporation; Director
767 Fifth Avenue (1995-1998) of Taubman
New York, NY 10153 Centers, Inc. (a real estate
investment trust); Director (since
1992) of FLIR Systems (an imaging
technology company); Director
(since 1994) of General Motors
Acceptance Corporation; Director
(since 1994) of GMAC Insurance
Holdings, Inc.; Director (since
1995) of Global Emerging Markets
Fund; Director (since 2000) of
Temple Inland Industries; Chairman
(since 1995) of the Investment
Advisory Committee of Howard Hughes
Medical Institute.
26 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Directors Information (Unaudited) (Continued)
iSHARES, INC.
OFFICERS WHO ARE NOT DIRECTORS
PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS POSITION DURING PAST 5 YEARS DIRECTORSHIPS HELD BY OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
MICHAEL A. LATHAM (37) Secretary, Treasurer Director of Mutual Fund Delivery in None.
Barclays Global and Principal the U.S. Individual Investor
Investors Financial Officer Business of BGI (since 2000); Head
45 Fremont Street of Operations, BGI Europe
San Francisco, CA 94105 (1997-2000).
JEFFREY J. GABOURY (34) Assistant Treasurer Director (formerly Manager), Mutual None.
Investors Bank & Trust Co. Fund Administration, Reporting and
200 Clarendon Street Compliance, IBT (since 1996).
Boston, MA 02116
DANELL J. DOTY (40) Assistant Secretary Head of Mutual Fund Administration, None.
Barclays Global Investors BGI (since 1999); Vice President of
45 Fremont Street Operations, Berkeley Capital
San Francisco, CA 94105 Management (1994-1999); Vice
President and Secretary, The
Berkeley Funds (1997-1999).
SUSAN C. MOSHER (48) Assistant Secretary Senior Director & Senior Counsel, None.
Investors Bank & Trust Co. Mutual Fund Administration, IBT
200 Clarendon Street (since 1995).
Boston, MA 02116
SANDRA I. MADDEN (37) Assistant Secretary Senior Associate Counsel, Mutual None.
Investors Bank & Trust Co. Fund Administration, IBT (since
200 Clarendon Street 1999); Associate, Scudder Kemper
Boston, MA 02116 Investments, Inc. (1996-1999).
THEDA HABER (49) Chief Legal Officer Attorney/Managing Director, Deputy None.
Barclays Global Investors General Counsel and Head of U.S.
45 Fremont Street Legal, BGI (since 1997);
San Francisco, CA 94105 Attorney/Senior Counsel, BGI
(1994-2000).
LOIS TOWERS (51) Assistant Vice U.S. Compliance Officer, BGI (since None.
Barclays Global Investors President -- AML 1999).
45 Fremont Street Compliance Officer
San Francisco, CA 94105
DIRECTORS INFORMATION 27
Notes:
28 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
Notes:
NOTES 29
The iShares Family of Funds
The following is a list of iShares Funds being offered, along with their
respective exchange trading symbols. Please call iShares at 1-800-iSHARES
(1-800-474-2737) to obtain a prospectus for any iShares fund. The prospectus
contains more complete information, including charges and expenses.
BROAD MARKET
iShares Dow Jones U.S. Total Market Index Fund (IYY)
iShares Russell 3000 Index Fund (IWV)
iShares Russell 3000 Growth Index Fund (IWZ)
iShares Russell 3000 Value Index Fund (IWW)
LARGE CAP
iShares Russell 1000 Index Fund (IWB)
iShares Russell 1000 Growth Index Fund (IWF)
iShares Russell 1000 Value Index Fund (IWD)
iShares S&P 100 Index Fund (OEF)
iShares S&P 500 Index Fund (IVV)
iShares S&P 500/BARRA Growth Index Fund (IVW)
iShares S&P 500/BARRA Value Index Fund (IVE)
MID CAP
iShares Russell Midcap Index Fund (IWR)
iShares Russell Midcap Growth Index Fund (IWP)
iShares Russell Midcap Value Index Fund (IWS)
iShares S&P MidCap 400 Index Fund (IJH)
iShares S&P MidCap 400/BARRA Growth Index Fund (IJK)
iShares S&P MidCap 400/BARRA Value Index Fund (IJJ)
SMALL CAP
iShares Russell 2000 Index Fund (IWM)
iShares Russell 2000 Growth Index Fund (IWO)
iShares Russell 2000 Value Index Fund (IWN)
iShares S&P SmallCap 600 Index Fund (IJR)
iShares S&P SmallCap 600/BARRA Growth Index Fund (IJT)
iShares S&P SmallCap 600/BARRA Value Index Fund (IJS)
SECTOR & INDUSTRY
iShares Cohen & Steers Realty Majors Index Fund (ICF)
iShares Dow Jones U.S. Basic Materials Sector Index Fund (IYM)
iShares Dow Jones U.S. Consumer Cyclical Sector Index Fund (IYC)
iShares Dow Jones U.S. Consumer Non-Cyclical Sector Index Fund (IYK)
iShares Dow Jones U.S. Energy Sector Index Fund (IYE)
iShares Dow Jones U.S. Financial Sector Index Fund (IYF)
iShares Dow Jones U.S. Financial Services Index Fund (IYG)
iShares Dow Jones U.S. Healthcare Sector Index Fund (IYH)
iShares Dow Jones U.S. Industrial Sector Index Fund (IYJ)
iShares Dow Jones U.S. Real Estate Index Fund (IYR)
iShares Dow Jones U.S. Technology Sector Index Fund (IYW)
iShares Dow Jones U.S. Telecommunications Sector Index Fund (IYZ)
iShares Dow Jones U.S. Utilities Sector Index Fund (IDU)
iShares Goldman Sachs Natural Resources Index Fund (IGE)
iShares Goldman Sachs Networking Index Fund (IGN)
iShares Goldman Sachs Semiconductor Index Fund (IGW)
iShares Goldman Sachs Software Index Fund (IGV)
iShares Goldman Sachs Technology Index Fund (IGM)
iShares Nasdaq Biotechnology Index Fund (IBB)
FIXED INCOME
iShares Lehman 1-3 Year Treasury Bond Fund (SHY)
iShares Lehman 7-10 Year Treasury Bond Fund (IEF)
iShares Lehman 20+ Year Treasury Bond Fund (TLT)
iShares Lehman Aggregate Bond Fund (AGG)
iShares GS $ InvesTop(TM) Corporate Bond Fund (LQD)
GLOBAL SECTOR
iShares S&P Global Energy Sector Index Fund (IXC)
iShares S&P Global Financials Sector Index Fund (IXG)
iShares S&P Global Healthcare Sector Index Fund (IXJ)
iShares S&P Global Technology Sector Index Fund (IXN)
iShares S&P Global Telecommunications Sector Index Fund (IXP)
INTERNATIONAL/BROAD MARKET
iShares MSCI EAFE Index Fund (EFA)
iShares MSCI Emerging Markets Index Fund (EEM)
INTERNATIONAL/REGIONAL
iShares MSCI EMU Index Fund (EZU)
iShares MSCI Pacific ex-Japan Index Fund (EPP)
iShares S&P Europe 350 Index Fund (IEV)
INTERNATIONAL/DEVELOPED COUNTRY
iShares MSCI Australia Index Fund (EWA)
iShares MSCI Austria Index Fund (EWO)
iShares MSCI Belgium Index Fund (EWK)
iShares MSCI Canada Index Fund (EWC)
iShares MSCI France Index Fund (EWQ)
iShares MSCI Germany Index Fund (EWG)
iShares MSCI Hong Kong Index Fund (EWH)
iShares MSCI Italy Index Fund (EWI)
iShares MSCI Japan Index Fund (EWJ)
iShares MSCI Netherlands Index Fund (EWN)
iShares MSCI Singapore Index Fund (EWS)
iShares MSCI Spain Index Fund (EWP)
iShares MSCI Sweden Index Fund (EWD)
iShares MSCI Switzerland Index Fund (EWL)
iShares MSCI United Kingdom Index Fund (EWU)
iShares S&P/TOPIX 150 Index Fund (ITF)
INTERNATIONAL/EMERGING COUNTRY
iShares MSCI Brazil Index Fund (EWZ)
iShares MSCI Malaysia Index Fund (EWM)
iShares MSCI Mexico Index Fund (EWW)
iShares MSCI South Africa Index Fund (EZA)
iShares MSCI South Korea Index Fund (EWY)
iShares MSCI Taiwan Index Fund (EWT)
iShares S&P Latin America 40 Index Fund (ILF)
GLOBAL/BROAD MARKET
iShares S&P Global 100 Index Fund (IOO)
This advertising section does not constitute part of the 2003 Annual Report.
iShares are not sponsored or endorsed by Goldman, Sachs & Co. or Lehman
Brothers, nor are they sponsored, endorsed, sold or promoted by Cohen & Steers
Capital Management, Inc., Dow Jones & Company, Inc., Morgan Stanley Capital
International, The Nasdaq Stock Market, Inc., Frank Russell Company, or Standard
& Poor's. None of these companies make any representation regarding the
advisability of investing in iShares. Neither SEI nor BGI, nor any of their
affiliates, are affiliated with Goldman, Sachs & Co. or Lehman Brothers. "GS $
InvesTop(TM)" and "Goldman Sachs(R)" are trademarks of Goldman, Sachs & Co.
30 2003 iSHARES ANNUAL REPORT TO SHAREHOLDERS
iShares are distributed by SEI Investments Distribution Co. (SEI). Barclays
Global Fund Advisors (BGFA) serves as an advisor to iShares. Barclays Global
Investors Services (BGIS) assists in the marketing of iShares. BGFA and BGIS are
subsidiaries of Barclays Global Investors, N.A., a wholly owned subsidiary of
Barclays Bank PLC, none of which is affiliated with SEI.
iShares are not sponsored, endorsed, sold, or promoted by Morgan Stanley Capital
International, Inc., nor does this company make any representation regarding the
advisability of investing in iShares.
INVESTING INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
(C)2003 Barclays Global Investors. All rights reserved. iShares is a registered
trademark of Barclays Global Investors, N.A. All other trademarks, servicemarks
or registered trademarks are the property of their respective owners.
THIS REPORT IS INTENDED FOR THE FUND'S SHAREHOLDERS. IT MAY NOT BE DISTRIBUTED
TO PROSPECTIVE INVESTORS UNLESS IT IS PRECEDED OR ACCOMPANIED BY THE CURRENT
PROSPECTUS.
iShares(R) INDUSTRIAL STRENGTH INVESTMENT TOOLS FROM BARCLAYS GLOBAL INVESTORS
1 800 iSHARES (1 800 474 2737) WWW.iSHARES.COM
[LOGO OF BARCLAYS]
BGI-F-005-09001
Item 2. Code of Ethics.
As of August 31, 2003, the Registrant has adopted a code of ethics that
applies to the Registrant's President and Principal Financial Officer. For
the year ended August 31, 2003, there were no amendments to a provision of
its code of ethics, nor were there any waivers granted from a provision of
the code of ethics. A copy of its code of ethics is filed with this Form
N-CSR under Item 10(a).
Item 3. Audit Committee Financial Expert.
The Registrant's Board of Directors has determined that the Registrant has
more than one audit committee financial expert serving on its audit
committee. The audit committee financial experts serving on the Registrant's
audit committee are John B. Carroll, Richard K. Lyons, George C. Parker and
W. Allen Reed, all of whom are independent.
Item 4. Principal Accountant Fees and Services.
Not applicable to this filing.
Item 5. Listed Company Audit Committees.
Not applicable to this filing.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable to this registrant.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) The President and Principal Financial Officer have concluded that, based
on their evaluation as of a date within 90 days of the filing date of this
report, the disclosure controls and procedures of iShares, Inc. are reasonably
designed to achieve the purposes described in the attached certification,
Section 4 (a).
(b) There were no significant changes in the iShares, Inc.'s internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
Item 10. Exhibits.
(a) Code of Ethics is attached.
(b) Certification letters are attached.
(c) Section 906 Certifications are attached.
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
iShares, Inc.
By: /s/ Lee T. Kranefuss
-------------------------------------
Lee T. Kranefuss, President
Date: November 3, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Lee T. Kranefuss
-------------------------------------
Lee T. Kranefuss, President
Date: November 3, 2003
By: /s/ Michael A. Latham
-------------------------------------
Michael A. Latham, Principal Financial Officer
Date: November 3, 2003