N-CSR 1 dncsr.htm FORM N-CSR FOR ISHARES TRUST Form N-CSR for iShares Trust
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-09729

 

 

iShares Trust

(Exact name of registrant as specified in charter)

c/o: State Street Bank and Trust Company

200 Clarendon Street, Boston, MA 02116-5021

(Address of principal executive offices) (Zip code)

 

 

CT Corporation System

1209 Orange Street, Wilmington, DE 19801

(Name and address of agent for service)

 

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

 

Date of fiscal year end: March 31, 2008

 

Date of reporting period: March 31, 2008


Table of Contents
Item 1. Reports to Stockholders.

 

LOGO

 


Table of Contents

Table of Contents

 

Management’s Discussions of Fund Performance

   1

Shareholder Expenses (Unaudited)

   50

Schedules of Investments

   52

iShares S&P Global 100 Index Fund

   52

iShares S&P Global Consumer Discretionary Sector Index Fund

   55

iShares S&P Global Consumer Staples Sector Index Fund

   59

iShares S&P Global Energy Sector Index Fund

   61

iShares S&P Global Financials Sector Index Fund

   63

iShares S&P Global Healthcare Sector Index Fund

   68

iShares S&P Global Industrials Sector Index Fund

   70

iShares S&P Global Infrastructure Index Fund

   74

iShares S&P Global Materials Sector Index Fund

   76

iShares S&P Global Technology Sector Index Fund

   79

iShares S&P Global Telecommunications Sector Index Fund

   82

iShares S&P Global Utilities Sector Index Fund

   84

iShares S&P Asia 50 Index Fund

   86

iShares S&P Europe 350 Index Fund

   88

iShares S&P Latin America 40 Index Fund

   94

iShares S&P/TOPIX 150 Index Fund

   96

iShares S&P World ex-U.S. Property Index Fund

   100

Financial Statements

   104

Financial Highlights

   123

Notes to Financial Statements

   140

Report of Independent Registered Public Accounting Firm

   150

Tax Information (Unaudited)

   151

Supplemental Information (Unaudited)

   153

Trustee and Officer Information (Unaudited)

   161

iShares Family of Funds

   165


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL 100 INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
0.37%   0.12%   0.65%   13.53%   13.47%   14.13%   1.55%   1.54%   2.21%
Cumulative Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
0.37%   0.12%   0.65%   88.57%   88.08%   93.67%   11.89%   11.83%   17.32%

Total returns for the period since inception are calculated from the inception date of the Fund (12/05/00). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (12/08/00), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   1


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL 100 INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Sector*    Percentage of
Net Assets
 

Consumer Non-Cyclical

   21.95 %

Financial

   19.52  

Energy

   14.84  

Technology

   10.33  

Industrial

   9.29  

Consumer Cyclical

   8.08  

Communications

   7.99  

Basic Materials

   4.67  

Utilities

   2.54  

Diversified

   0.34  

Short-Term and Other Net Assets

   0.45  
      

TOTAL

   100.00 %
      

 

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Exxon Mobil Corp.

   5.41 %

General Electric Co.

   4.40  

Microsoft Corp.

   2.70  

Procter & Gamble Co. (The)

   2.56  

Nestle SA Registered (Switzerland)

   2.35  

HSBC Holdings PLC (United Kingdom)

   2.33  

BP PLC (United Kingdom)

   2.27  

Johnson & Johnson

   2.19  

Chevron Corp.

   2.12  

Total SA (France)

   2.11  
      

TOTAL

   28.44 %
      

The iShares S&P Global 100 Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global 100 Index (the “Index”). The Index is designed to measure the performance of 100 large-capitalization global companies. These companies are highly liquid and represent some of the largest multinational businesses in the world. The Index is a subset of the S&P Global 1200 Index and contains 100 common stocks, screened for sector representation, liquidity and size. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund returned 0.37%, while the Index returned 0.65%.

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

U.S. stocks, which comprised more than 45% of the Index as of March 31, 2008, declined for the reporting period against a similar backdrop of increasing volatility. Many banks and financial institutions announced large subprime-related losses, some financial institutions struggled under the weight of deteriorating credit conditions, and corporate earnings growth slowed. Energy and commodity prices climbed as the U.S. dollar declined, driving inflation worries despite evidence of slowing economic activity. Responding to signs of a slowing economy, the Federal Reserve (the “Fed”) took decisive action. The Fed lowered its federal funds rate target for the first time since June 2003, cutting rates six times in the final seven months of the reporting period bringing the rate down to 2.25%. Late in the first quarter of 2008, the Fed also made less routine moves, initiating several actions aimed at increasing liquidity levels in financial markets.

European stocks, which also made up approximately 45% of the Index as of March 31, 2008, rose modestly during the reporting period. Strong economic data across the continent led both the European Central Bank (“ECB”) and the Bank of England (“BOE”) to raise short-term interest rates early in the reporting period. However, as the subprime and credit problems began to weigh on the European economy,

 

2   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL 100 INDEX FUND

 

the ECB shifted to a stable interest rate policy, remaining mindful of inflation. Meanwhile, the BOE cut interest rates twice in the last few months of the reporting period to help stabilize the ailing mortgage and financial markets. Despite the changing environment, the euro continued to strengthen versus the U.S. dollar – the dollar declined by 18% against the euro during the reporting period, boosting European equity returns for U.S. investors.

In the Asia/Pacific region, the Australian stock market gained ground during the period, driven by strong global demand for natural resources, particularly from regional neighbors China and India. South Korea enjoyed strong gains in the first half of the reporting period, but the changing global economic environment led to a sharp reversal during the last few months of the period. Overall, however, the South Korean market advanced. In contrast, Japan was one of the world’s worst-performing stock markets during the reporting period. Weak consumer spending and a difficult political environment appeared to create challenges domestically, while slowing economic conditions in the U.S.– Japan’s largest trading partner – also had a dampening effect on Japanese stocks. However, the U.S. dollar declined by approximately 15% versus the Japanese yen during the reporting period, partially mitigating the negative stock market returns for U.S. investors.

Sector performance within the Index was mixed for the reporting period. Materials and energy stocks generated the best returns, boosted by surging commodity prices and healthy demand for power and raw materials in emerging markets. Consumer staples stocks, which tend to hold up well in a slowing economic environment, also enjoyed solid gains for the reporting period. The worst-performing sector in the Index was financials, which fell sharply as mortgage-related losses and the “credit crunch” hurt many financial companies. Consumer discretionary stocks also declined notably amid forecasts of deteriorating global economic conditions.

Eight of the Fund’s ten largest holdings as of March 31, 2008, delivered positive returns for the reporting period. Swiss food products company Nestle SA produced the best return as the company enjoyed strong sales growth and hedged against higher raw materials prices. U.S. energy producers Chevron Corp. and Exxon Mobil Corp. – the Fund’s largest holding – also posted robust returns due to record-high oil prices. The only two stocks among the top ten to decline during the reporting period were two U.K.-based companies – energy producer BP PLC and financial services company HSBC Holdings PLC.

 

* Sector classifications used to describe the portfolio may differ from sector classifications used to describe the Fund’s corresponding index elsewhere in this report.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   3


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL CONSUMER DISCRETIONARY SECTOR INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns   Cumulative Total Returns
Year Ended 3/31/08   Inception to 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(13.77)%   (13.49)%   (13.25)%   (0.07)%   0.19%   0.63%   (0.11)%   0.29%   0.98%

Total returns for the period since inception are calculated from the inception date of the Fund (9/12/06). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (9/21/06), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

4   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL CONSUMER DISCRETIONARY SECTOR INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry    Percentage of
Net Assets
 

Retail

   24.42 %

Media

   22.28  

Auto Manufacturers

   20.46  

Auto Parts & Equipment

   5.12  

Home Furnishings

   4.68  

Apparel

   3.58  

Lodging

   2.22  

Advertising

   2.16  

Leisure Time

   1.90  

Home Builders

   1.66  

Entertainment

   1.49  

Distribution & Wholesale

   1.40  

Internet

   1.37  

Holding Companies - Diversified

   1.33  

Electrical Components & Equipment

   0.88  

Food Service

   0.84  

Manufacturing

   0.64  

Commercial Services

   0.62  

Hand & Machine Tools

   0.53  

Toys, Games & Hobbies

   0.52  

Household Products & Wares

   0.48  

Cosmetics & Personal Care

   0.30  

Housewares

   0.29  

Chemicals

   0.22  

Health Care - Products

   0.18  

Short-Term and Other Net Assets

   0.43  
      

TOTAL

   100.00 %
      

 

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Toyota Motor Corp. (Japan)

   5.99 %

Daimler AG Registered (Germany)

   3.94  

McDonald’s Corp.

   2.94  

Walt Disney Co. (The)

   2.66  

Comcast Corp. Class A

   2.64  

Time Warner Inc.

   2.25  

Home Depot Inc.

   2.13  

Vivendi (France)

   2.04  

Honda Motor Co. Ltd. (Japan)

   1.94  

News Corp. Class A

   1.94  
      

TOTAL

   28.47 %
      

The iShares S&P Global Consumer Discretionary Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Consumer Discretionary Sector Index (the “Index”). The Index is a subset of the S&P Global 1200 Index, and measures the performance of companies that S&P® deems to be part of the consumer discretionary sector of the economy and that it believes are important to global markets. Component companies include manufacturing and service companies. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund declined 13.77%, while the Index declined 13.25%.

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   5


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL CONSUMER DISCRETIONARY SECTOR INDEX FUND

 

in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

On a regional basis, European stocks advanced modestly, benefiting from healthy economic growth early in the reporting period and the euro’s continued strength versus the U.S. dollar. The U.S. equity market declined as problems within the subprime industry and an associated “credit crunch” led to a marked slowdown in the U.S. economy. At the same time, surging prices for oil, food, and other commodities led to higher inflation in the U.S. Among markets along the Pacific Rim, Australia and South Korea edged higher thanks to strong exports to regional neighbors China and India. In contrast, the Japanese market posted a substantial decline amid weak consumer spending, a difficult political environment, persistent deflation, and high public debt levels.

Consumer discretionary stocks worldwide, as represented by the Index, posted a double-digit decline for the reporting period, reflecting a broad slowdown in the global economy. Higher fuel prices also had a dampening effect on consumer spending. Retailers, which are highly sensitive to consumer spending trends, suffered the largest declines, while homebuilders struggled with a sharp downturn in the housing market, particularly in the U.S. Media companies also declined as advertising spending waned. Restaurants and hotels were among the better performers in the consumer discretionary sector during the reporting period.

Seven of the Fund’s ten largest holdings as of March 31, 2008, produced negative returns for the reporting period. Time Warner Inc. and the Class A shares of Comcast Corp. posted the largest declines as the cable industry faced stiff competition from satellite providers and telecommunications companies. U.S. home improvement retailer Home Depot Inc. experienced a decline in sales as the housing market slumped, while Japanese automaker Toyota Motor Corp. saw a drop-off in North American car sales. Among the three positive performers, U.S. fast-food chain McDonald’s Corp. posted the strongest gain, benefiting from strong international growth and successful new products. German automaker Daimler AG and French media company Vivendi were the other stocks among the ten largest holdings to advance during the reporting period.

 

6   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL CONSUMER STAPLES SECTOR INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns   Cumulative Total Returns
Year Ended 3/31/08   Inception to 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
9.59%   9.23%   10.11%   13.16%   13.26%   13.84%   21.14%   21.30%   22.31%

Total returns for the period since inception are calculated from the inception date of the Fund (9/12/06). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (9/21/06), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   7


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL CONSUMER STAPLES SECTOR INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry    Percentage of
Net Assets
 

Food

   33.73 %

Beverages

   20.75  

Cosmetics & Personal Care

   14.10  

Agriculture

   13.54  

Retail

   12.70  

Household Products & Wares

   3.25  

Manufacturing

   1.05  

Food Service

   0.29  

Forest Products & Paper

   0.10  

Short-Term and Other Net Assets

   0.49  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Procter & Gamble Co. (The)

   9.13 %

Nestle SA Registered (Switzerland)

   8.28  

Wal-Mart Stores Inc.

   5.21  

Coca-Cola Co. (The)

   5.11  

PepsiCo Inc.

   4.87  

Philip Morris International Inc.

   4.45  

CVS Caremark Corp.

   2.49  

Tesco PLC (United Kingdom)

   2.47  

Unilever NV (Netherlands)

   2.44  

British American Tobacco PLC
(United Kingdom)

   2.25  
      

TOTAL

   46.70 %
      

 

The iShares S&P Global Consumer Staples Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Consumer Staples Sector Index (the “Index”). The Index is a subset of the S&P Global 1200 Index, and measures the performance of companies that S&P deems to be part of the consumer staples sector of the economy and that it believes are important to global markets. Component companies include manufacturers and distributors of food, producers of non-durable household goods, and food and drug retailing companies. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund returned 9.59%, while the Index returned 10.11%.

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

On a regional basis, European stocks advanced modestly, benefiting from healthy economic growth early in the reporting period and the euro’s continued strength versus the U.S. dollar. The U.S. equity market declined as problems within the subprime industry and an associated “credit crunch” led to a marked slowdown in the U.S. economy. At the same time, surging prices for oil, food, and other commodities led to higher inflation in the U.S. Among markets along the Pacific Rim, Australia and South Korea edged higher thanks to strong exports to regional neighbors China and India. In contrast, the Japanese market posted a substantial decline amid weak consumer spending, a difficult political environment, persistent deflation, and high public debt levels.

 

 

8   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL CONSUMER STAPLES SECTOR INDEX FUND

 

Consumer staples stocks worldwide, as represented by the Index, enjoyed solid gains for the reporting period. The consumer staples sector consists of defensive stocks that tend to be resilient in a slowing economic environment because they make or sell products and services that are in demand regardless of economic conditions. Beverage makers and household products companies were among the best performers in the consumer staples sector, as were tobacco producers. Personal products companies also advanced but posted smaller gains.

Eight of the Fund’s ten largest holdings as of March 31, 2008, gained ground for the reporting period. Swiss food products company Nestle SA produced the best return as the company enjoyed strong sales growth and hedged against higher raw materials prices. U.S. beverage maker Coca-Cola Co. and U.K. tobacco company British American Tobacco PLC both benefited from strong demand outside of the U.S. The only two stocks among the ten largest holdings to decline were U.S. tobacco firm Philip Morris International Inc., which was spun off from parent Altria at the end of the reporting period, and U.K. grocery chain Tesco PLC, which faced a challenging domestic environment while expanding into the U.S. market.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   9


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL ENERGY SECTOR INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
18.87%   18.70%   19.15%   25.75%   25.61%   26.17%   18.00%   17.99%   18.09%
Cumulative Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
18.87%   18.70%   19.15%   214.50%   212.75%   219.67%   187.71%   187.48%   189.30%

Total returns for the period since inception are calculated from the inception date of the Fund (11/12/01). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or ”NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (11/16/01), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

10   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL ENERGY SECTOR INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry    Percentage of
Net Assets
 

Oil & Gas

   86.13 %

Oil & Gas Services

   8.87  

Pipelines

   2.86  

Coal

   0.92  

Mining

   0.46  

Metal Fabricate & Hardware

   0.44  

Engineering & Construction

   0.15  

Short-Term and Other Net Assets

   0.17  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Exxon Mobil Corp.

   15.84 %

BP PLC (United Kingdom)

   6.69  

Chevron Corp.

   6.23  

Total SA (France)

   6.16  

Royal Dutch Shell PLC Class A
(United Kingdom)

   4.29  

ConocoPhillips

   4.23  

Schlumberger Ltd.

   3.63  

Royal Dutch Shell PLC Class B
(United Kingdom)

   3.22  

Eni SpA (Italy)

   2.95  

BG Group PLC (United Kingdom)

   2.72  
      

TOTAL

   55.96 %
      

 

The iShares S&P Global Energy Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Energy Sector Index (the “Index”). The Index is a subset of the S&P Global 1200 Index, and measures the performance of companies that S&P deems to be part of the energy sector of the economy and that it believes are important to global markets. Component companies include oil equipment and services, oil exploration and production, and oil refineries. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund returned 18.87%, while the Index returned 19.15%.

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

On a regional basis, European stocks advanced modestly, benefiting from healthy economic growth early in the reporting period and the euro’s continued strength versus the U.S. dollar. The U.S. equity market declined as problems within the subprime industry and an associated “credit crunch” led to a marked slowdown in the U.S. economy. At the same time, surging prices for oil, food, and other commodities led to higher inflation in the U.S. Among markets along the Pacific Rim, Australia and South Korea edged higher thanks to strong exports to regional neighbors China and India. In contrast, the Japanese market posted a substantial decline amid weak consumer spending, a difficult political environment, persistent deflation, and high public debt levels.

In contrast to the relatively flat performance of the global equity markets, energy stocks worldwide, as represented by the Index, posted double-digit gains for the reporting period. Energy stocks benefited from a sharp rise in energy prices as demand from emerging economies, particularly China and India, remained strong. The price of oil surged by 54% during the reporting period, peaking at a record high of more

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   11


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL ENERGY SECTOR INDEX FUND

 

than $110 a barrel in mid-March 2008 before falling back to $102 at the end of the period. Natural gas prices rose by 38% for the reporting period, with the bulk of the increase occurring in early 2008 amid colder-than-expected winter weather.

Nine of the Fund’s ten largest holdings as of March 31, 2008, advanced during the reporting period, led by British natural gas producer BG Group PLC and U.S. oil services provider Schlumberger Ltd. BG Group PLC benefited from strong volume and higher profit margins in its liquefied natural gas unit, while Schlumberger Ltd. enjoyed increased demand for its services as global oil exploration increased. The large U.S. energy producers – Exxon Mobil Corp., Chevron Corp., and ConocoPhillips – also posted double-digit gains for the reporting period. The sole decliner among the ten largest holdings was U.K.-based energy producer BP PLC, which fell modestly.

 

12   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL FINANCIALS SECTOR INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(18.81)%   (18.92)%   (18.71)%   14.12%   13.97%   14.92%   6.98%   6.98%   7.73%
Cumulative Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(18.81)%   (18.92)%   (18.71)%   93.57%   92.32%   100.45%   53.86%   53.82%   60.96%

Total returns for the period since inception are calculated from the inception date of the Fund (11/12/01). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (11/16/01), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   13


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL FINANCIALS SECTOR INDEX FUND

 

PORTFOLIO ALLOCATION
As of 3/31/08
 
Industry    Percentage of
Net Assets
 

Banks

   53.11 %

Insurance

   22.04  

Diversified Financial Services

   16.27  

Real Estate

   3.72  

Real Estate Investment Trusts

   2.33  

Holding Companies - Diversified

   0.70  

Savings & Loans

   0.41  

Investment Companies

   0.30  

Commercial Services

   0.14  

Forest Products & Paper

   0.13  

Venture Capital

   0.12  

Short-Term and Other Net Assets

   0.73  
      

TOTAL

   100.00 %
      

 

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

HSBC Holdings PLC (United Kingdom)

   3.39 %

Bank of America Corp.

   2.95  

JPMorgan Chase & Co.

   2.53  

Banco Santander SA (Spain)

   2.24  

Citigroup Inc.

   1.95  

American International Group Inc.

   1.94  

Wells Fargo & Co.

   1.70  

BNP Paribas (France)

   1.60  

Allianz SE Registered (Germany)

   1.59  

UniCredito SpA (Italy)

   1.56  
      

TOTAL

   21.45 %
      

The iShares S&P Global Financials Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Financials Sector Index (the “Index”). The Index is a subset of the S&P Global 1200 Index, and measures the performance of companies that S&P deems to be part of the financial sector of the economy and that it believes are important to global markets. Component companies include major banks, diversified financial companies, insurance companies, real estate companies, savings and loan associations, and securities brokers. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund declined 18.81%, while the Index declined 18.71%.

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

On a regional basis, European stocks advanced modestly, benefiting from healthy economic growth early in the reporting period and the euro’s continued strength versus the U.S. dollar. The U.S. equity market declined as problems within the subprime industry and an associated “credit crunch” led to a marked slowdown in the U.S. economy. At the same time, surging prices for oil, food, and other commodities led to higher inflation in the U.S. Among markets along the Pacific Rim, Australia and South Korea edged higher thanks to strong exports to regional neighbors China and India. In contrast, the Japanese market posted a substantial decline amid weak consumer spending, a difficult political environment, persistent deflation, and high public debt levels.

Financial stocks worldwide, as represented by the Index, declined sharply during the reporting period, posting the weakest returns of any sector in the global equity markets. Problems associated with the subprime mortgage industry in the U.S. led to substantial

 

14   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL FINANCIALS SECTOR INDEX FUND

 

mortgage-related losses at many financial services companies around the world, shrinking corporate earnings in the sector. In addition, the “credit crunch” reduced liquidity in the debt markets, making it difficult for many financial companies to raise capital. Consequently, a number of financial firms were forced to seek cash infusions or buyouts to remain in business. Every segment of the financial sector declined during the reporting period, with mortgage and consumer finance companies generally suffering the largest losses.

Eight of the Fund’s ten largest holdings as of March 31, 2008, declined for the reporting period. U.S. diversified financial services firm Citigroup Inc. reported significant losses from its exposure to subprime mortgages and mortgage-related securities. Insurance broker American International Group Inc. and commercial bank Bank of America Corp. also declined, due, in part, to subprime concerns. The only two stocks among the ten largest holdings to advance during the reporting period were European banks – Banco Santander SA of Spain and BNP Paribas of France. Although both banks saw profits rise in 2007 despite some exposure to the subprime mortgage problems, the gains on these stocks were driven primarily by the weakness in the U.S. dollar; the dollar fell by 18% versus the euro during the reporting period.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   15


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL HEALTHCARE SECTOR INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(6.91)%   (7.27)%   (6.54)%   6.76%   6.68%   7.42%   1.82%   1.77%   2.37%
Cumulative Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(6.91)%   (7.27)%   (6.54)%   38.69%   38.15%   43.00%   12.18%   11.87%   16.13%

Total returns for the period since inception are calculated from the inception date of the Fund (11/13/01). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (11/21/01), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

16   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL HEALTHCARE SECTOR INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry    Percentage of
Net Assets
 

Pharmaceuticals

   63.62 %

Health Care - Products

   21.49  

Health Care - Services

   5.86  

Biotechnology

   5.35  

Electronics

   1.77  

Commercial Services

   0.71  

Insurance

   0.53  

Software

   0.19  

Manufacturing

   0.05  

Short-Term and Other Net Assets

   0.43  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Johnson & Johnson

   8.72 %

Pfizer Inc.

   6.72  

Novartis AG Registered (Switzerland)

   6.63  

Roche Holding AG
Genusschein (Switzerland)

   6.27  

GlaxoSmithKline PLC (United Kingdom)

   5.50  

Abbott Laboratories

   4.02  

Merck & Co. Inc.

   3.90  

Sanofi-Aventis (France)

   3.70  

Wyeth

   2.63  

AstraZeneca PLC (United Kingdom)

   2.57  
      

TOTAL

   50.66 %
      

 

The iShares S&P Global Healthcare Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Healthcare Sector Index (the “Index”). The Index is a subset of the S&P Global 1200 Index, and measures the performance of companies that S&P deems to be a part of the healthcare sector of the economy and that it believes are important to global markets. Component companies include health care providers, biotechnology companies and manufacturers of medical supplies, advanced medical devices and pharmaceuticals. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund declined 6.91%, while the Index declined 6.54%.

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

On a regional basis, European stocks advanced modestly, benefiting from healthy economic growth early in the reporting period and the euro’s continued strength versus the U.S. dollar. The U.S. equity market declined as problems within the subprime industry and an associated “credit crunch” led to a marked slowdown in the U.S. economy. At the same time, surging prices for oil, food, and other commodities led to higher inflation in the U.S. Among markets along the Pacific Rim, Australia and South Korea edged higher thanks to strong exports to regional neighbors China and India. In contrast, the Japanese market posted a substantial decline amid weak consumer spending, a difficult political environment, persistent deflation, and high public debt levels.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   17


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL HEALTHCARE SECTOR INDEX FUND

 

Healthcare stocks worldwide, as represented by the Index, declined for the reporting period, underperforming the broad global equity indexes. Much of the decline in the healthcare sector was driven by pharmaceutical companies and healthcare providers. Drug makers struggled with increased price pressures and greater generic competition, while healthcare providers fell amid rising medical costs and weaker subscriber growth in a slowing economic environment. On the positive side, biotechnology firms and medical equipment makers, which benefited from favorable demographic and aging trends, advanced for the reporting period.

Pharmaceutical companies dominated the Fund’s ten largest holdings as of March 31, 2008. Seven of the ten largest holdings declined for the reporting period, led by U.K. drug makers AstraZeneca PLC and GlaxoSmithKline PLC. Both companies initiated restructuring efforts during the period to lower costs and improve profitability in a challenging competitive environment. Two American pharmaceutical companies, Pfizer Inc. and Wyeth, also suffered double-digit declines during the reporting period. Among the three positive performers within the top ten holdings, Johnson & Johnson posted the largest gain, benefiting from strong results in its consumer products and medical equipment units. The other two advancers were Swiss pharmaceutical company Roche Holding AG and U.S. drug maker Abbott Laboratories.

 

18   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL INDUSTRIALS SECTOR INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns   Cumulative Total Returns
Year Ended 3/31/08   Inception to 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
2.99%   2.68%   3.98%   12.48%   12.45%   13.70%   20.00%   19.95%   22.07%

Total returns for the period since inception are calculated from the inception date of the Fund (9/12/06). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or ”NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (9/21/06), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   19


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL INDUSTRIALS SECTOR INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry    Percentage of
Net Assets
 

Manufacturing

   27.01 %

Transportation

   15.67  

Aerospace & Defense

   13.00  

Engineering & Construction

   6.97  

Machinery

   6.53  

Distribution & Wholesale

   5.15  

Commercial Services

   4.47  

Electrical Components & Equipment

   3.33  

Electronics

   2.74  

Building Materials

   2.33  

Hand & Machine Tools

   2.23  

Airlines

   1.90  

Metal Fabricate & Hardware

   1.59  

Holding Companies - Diversified

   1.34  

Machinery - Diversified

   1.05  

Auto Manufacturers

   0.95  

Machinery - Construction & Mining

   0.84  

Environmental Control

   0.82  

Investment Companies

   0.43  

Food

   0.37  

Office & Business Equipment

   0.20  

Household Products & Wares

   0.18  

Energy - Alternate Sources

   0.14  

Textiles

   0.13  

Auto Parts & Equipment

   0.10  

Housewares

   0.04  

Short-Term and Other Net Assets

   0.49  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

General Electric Co.

   13.34 %

Siemens AG (Germany)

   3.55  

United Parcel Service Inc. Class B

   2.72  

United Technologies Corp.

   2.39  

ABB Ltd. Registered (Switzerland)

   2.24  

Boeing Co. (The)

   2.06  

3M Co.

   2.00  

Caterpillar Inc.

   1.82  

Mitsubishi Corp. (Japan)

   1.53  

Koninklijke Philips Electronics
NV (Netherlands)

   1.50  
      

TOTAL

   33.15 %
      

 

The iShares S&P Global Industrials Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Industrials Sector Index (the “Index”). The Index is a subset of the S&P Global 1200 Index, and measures the performance of companies that S&P deems to be part of the industrials sector of the economy and that it believes are important to global markets. Component companies include manufacturers and distributors of capital goods, providers of commercial services and supplies, and transportation service providers. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund returned 2.99%, while the Index returned 3.98%.

 

 

20   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL INDUSTRIALS SECTOR INDEX FUND

 

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

On a regional basis, European stocks advanced modestly, benefiting from healthy economic growth early in the reporting period and the euro’s continued strength versus the U.S. dollar. The U.S. equity market declined as problems within the subprime industry and an associated “credit crunch” led to a marked slowdown in the U.S. economy. At the same time, surging prices for oil, food, and other commodities led to higher inflation in the U.S. Among markets along the Pacific Rim, Australia and South Korea edged higher thanks to strong exports to regional neighbors China and India. In contrast, the Japanese market posted a substantial decline amid weak consumer spending, a difficult political environment, persistent deflation, and high public debt levels.

Industrial stocks worldwide, as represented by the Index, advanced modestly for the reporting period, outperforming the broad global equity indexes. Industrial companies, which tend to be economically sensitive, generally tracked the global markets’ reactions to the economic slowdown that began in the U.S. and spread to many other parts of the world. However, efforts of many emerging markets to build infrastructure helped blunt the effects of the economic weakness in the U.S., enabling industrial stocks to post modest gains. Railroad companies and machinery manufacturers were the best performers for the reporting period, while airline companies posted the weakest returns amid higher fuel costs and increased competition.

Nine of the Fund’s ten largest holdings as of March 31, 2008, gained ground for the reporting period. The best performer was Swiss electrical equipment manufacturer ABB Ltd., which generated strong profits as its power infrastructure unit enjoyed robust demand from developing economies around the world. Japanese conglomerate Mitsubishi Corp. and American machinery manufacturer Caterpillar Inc. also produced double-digit gains amid growing global demand. The only stock among the ten largest holdings to decline for the reporting period was aircraft manufacturer Boeing Co.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE

  21


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL INFRASTRUCTURE INDEX FUND

Performance as of March 31, 2008

 

Cumulative Total Returns
Inception to 3/31/08
NAV   MARKET   INDEX
(10.10)%   (9.99)%   (10.13)%

 

“Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated and are calculated from an inception date of 12/10/07.

The Fund’s per share net asset value or ”NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (12/12/07), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

As of the fiscal year ended 3/31/08, the Fund did not have six months of performance and therefore line graphs are not presented.

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry    Percentage of
Net Assets
 

Electric

   33.48 %

Commercial Services

   22.11  

Pipelines

   18.71  

Engineering & Construction

   6.32  

Water

   5.03  

Investment Companies

   4.83  

Transportation

   3.64  

Holding Companies - Diversified

   2.49  

Gas

   1.09  

Storage & Warehousing

   0.86  

Aerospace & Defense

   0.64  

Oil & Gas

   0.31  

Chemicals

   0.23  

Short-Term and Other Net Assets

   0.26  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

E.ON AG (Germany)

   4.67 %

Abertis Infraestructuras SA (Spain)

   4.61  

TransCanada Corp. (Canada)

   4.38  

Williams Companies Inc. (The)

   4.21  

Atlantia SpA (Italy)

   3.86  

Suez SA (France)

   3.83  

Iberdrola SA (Spain)

   3.48  

Enbridge Inc. (Canada)

   3.41  

Spectra Energy Corp.

   3.16  

Transurban Group (Australia)

   3.07  
      

TOTAL

   38.68 %
      

 

The iShares S&P Global Infrastructure Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Infrastructure Index (the “Index”). The Index is designed to track performance of the stocks of large infrastructure companies around the world. The Index includes companies involved in utilities, energy and transportation infrastructure, such as the management or ownership of oil and gas storage and transportation; airport services; highway and rail tracks; marine ports and services; and electric, gas and water utilities. The Fund invests in a representative sample of securities

 

22   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL INFRASTRUCTURE INDEX FUND

 

included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the period from December 10, 2007 (inception date of the Fund) through March 31, 2008 (the “reporting period”), the Fund declined 10.10%, while the Index declined 10.13%.

In an increasingly volatile market environment, the global equity markets fell sharply during the reporting period. Stock markets worldwide declined as a deepening “credit crunch” brought on by problems associated with the U.S. subprime lending industry threatened to slow economic activity and profit growth around the globe. Many of the world’s central banks injected liquidity into the financial system to relieve some of the pressure on the global credit markets, and the Federal Reserve cut interest rates aggressively to stave off slowing economic conditions in the U.S. economy. Nonetheless, stock markets in most regions of the world suffered double-digit declines for the reporting period.

European stocks held up the best due to resilient economic growth and the euro’s continued strength versus the U.S. dollar. A slowing U.S. economy, combined with higher inflation as oil and commodity prices surged, weighed on the U.S. equity market. Asian and Pacific Rim markets posted the largest declines during the reporting period. Despite the strength of neighboring markets such as China, many Asian economies were hurt by weaker exports to the U.S. and, to a lesser extent, Europe.

Infrastructure stocks worldwide, as represented by the Index, declined for the reporting period, performing in line with the broad global equity indexes. Infrastructure stocks – which include companies engaged in the utilities, energy distribution, and transportation industries – had surged in recent years as infrastructure development in many emerging markets led to outsized profits for these businesses. However, during the reporting period, slowing economic growth on a global scale reduced demand for infrastructure-based services. Utilities stocks were among the bigger decliners despite persistently high power prices, most notably a 41% increase in the price of natural gas during the reporting period. Transportation stocks generally lost ground as well, with the exception of selected port and airport operators.

Nine of the Fund’s ten largest holdings as of March 31, 2008, posted negative returns for the reporting period. The weaker performers included Atlantia SpA, Italy’s largest toll road builder and operator, and German utility E.ON AG, both of which produced double-digit declines. Other noteworthy decliners included U.S. oil & gas pipeline companies Williams Companies Inc. and Spectra Energy Corp. The only stock among the ten largest holdings to advance for the reporting period was Canadian pipeline company Enbridge Inc., which benefited from its exposure to the booming oil sands development in Canada.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   23


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL MATERIALS SECTOR INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns   Cumulative Total Returns
Year Ended 3/31/08   Inception to 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
22.49%   21.57%   23.22%   33.85%   33.73%   34.92%   57.16%   56.95%   59.25%

Total returns for the period since inception are calculated from the inception date of the Fund (9/12/06). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or ”NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (9/21/06), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

24   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL MATERIALS SECTOR INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry    Percentage of
Net Assets
 

Mining

   40.20 %

Chemicals

   27.99  

Iron & Steel

   15.72  

Building Materials

   4.74  

Forest Products & Paper

   3.34  

Agriculture

   2.97  

Packaging & Containers

   1.47  

Engineering & Construction

   0.93  

Textiles

   0.82  

Manufacturing

   0.44  

Oil & Gas

   0.43  

Coal

   0.33  

Biotechnology

   0.19  

Short-Term and Other Net Assets

   0.43  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

BHP Billiton Ltd. (Australia)

   5.37 %

Rio Tinto PLC (United Kingdom)

   4.51  

Anglo American PLC (United Kingdom)

   3.88  

BASF SE (Germany)

   3.37  

BHP Billiton PLC (United Kingdom)

   3.24  

ArcelorMittal (Netherlands)

   3.20  

Bayer AG (Germany)

   3.03  

Monsanto Co.

   2.97  

Companhia Vale do Rio Doce Preferred SP ADR (Brazil)

   2.71  

Potash Corp. of Saskatchewan
Inc. (Canada)

   2.43  
      

TOTAL

   34.71 %
      

 

The iShares S&P Global Materials Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Materials Sector Index (the “Index”). The Index is a subset of the S&P Global 1200 Index, and measures the performance of companies that S&P deems to be part of the materials sector of the economy and that it believes are important to global markets. Component companies include those companies engaged in a wide variety of commodity-related manufacturing. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund returned 22.49%, while the Index returned 23.22%.

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

On a regional basis, European stocks advanced modestly, benefiting from healthy economic growth early in the reporting period and the euro’s continued strength versus the U.S. dollar. The U.S. equity market declined as problems within the subprime industry and an associated “credit crunch” led to a marked slowdown in the U.S. economy. At the same time, surging prices for oil, food, and other commodities led to higher inflation in the U.S. Among markets along the Pacific Rim, Australia and South Korea edged higher thanks to strong exports to regional neighbors China and India. In contrast, the Japanese market posted a substantial decline amid weak consumer spending, a difficult political environment, persistent deflation, and high public debt levels.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   25


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL MATERIALS SECTOR INDEX FUND

 

Materials stocks, as represented by the Index, were the best-performing sector in the global equity markets for the reporting period. The main factor behind the strong performance of materials stocks was a sharp increase in commodity prices powered by enormous demand for raw materials in rapidly growing economies such as China and India. Mining and metals companies were among the better performers as demand for steel, copper, iron ore, and other metals boosted the prices of many of these materials to record highs. Chemicals companies also fared well, led by agricultural chemicals producers, which benefited from increased planting of corn for ethanol production. The main area of weakness was construction materials, which were hurt by the significant slowdown in the U.S. housing market.

Each of the Fund’s ten largest holdings as of March 31, 2008, produced double-digit gains for the reporting period, with two holdings delivering triple-digit gains – Canadian fertilizer maker Potash Corp. of Saskatchewan Inc. and U.S. agricultural products maker Monsanto Co. Both companies reported very strong earnings amid an agricultural boom driven primarily by ethanol demand and rising food prices. Two mining companies, Rio Tinto PLC of the U.K. and Companhia Vale do Rio Doce of Brazil, were also among the best performers. The only top-ten holding to return less than 20% for the reporting period was U.K.-based mining company Anglo American PLC.

 

26   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL TECHNOLOGY SECTOR INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(0.81)%   (0.97)%   0.06%   11.45%   11.30%   12.30%   1.24%   1.22%   2.10%
Cumulative Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(0.81)%   (0.97)%   0.06%   71.99%   70.80%   78.61%   8.20%   8.06%   14.17%

Total returns for the period since inception are calculated from the inception date of the Fund (11/12/01). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or ”NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (11/16/01), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   27


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL TECHNOLOGY SECTOR INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry    Percentage of
Net Assets
 

Computers

   23.66 %

Semiconductors

   19.73  

Software

   18.32  

Telecommunications

   17.65  

Internet

   7.98  

Electronics

   3.84  

Office & Business Equipment

   3.23  

Toys, Games & Hobbies

   2.18  

Electrical Components & Equipment

   1.60  

Manufacturing

   0.94  

Commercial Services

   0.64  

Short-Term and Other Net Assets

   0.23  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Microsoft Corp.

   8.66 %

International Business Machines Corp.

   5.98  

Cisco Systems Inc.

   5.53  

Apple Inc.

   4.78  

Intel Corp.

   4.72  

Nokia OYJ (Finland)

   4.71  

Hewlett-Packard Co.

   4.46  

Google Inc. Class A

   3.87  

Samsung Electronics Co. Ltd. GDR (South Korea)

   3.02  

Oracle Corp.

   2.93  
      

TOTAL

   48.66 %
      

 

The iShares S&P Global Technology Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Information Technology Sector Index (the “Index”). The Index is a subset of the S&P Global 1200 Index, and measures the performance of companies that S&P deems to be part of the information technology sector of the economy and that it believes are important to global markets. Component companies include those involved in the development and production of technology products, including computer hardware and software, telecommunications equipment, microcomputer components, integrated computer circuits and office equipment utilizing technology. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund declined 0.81%, while the Index returned 0.06%.

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

On a regional basis, European stocks advanced modestly, benefiting from healthy economic growth early in the reporting period and the euro’s continued strength versus the U.S. dollar. The U.S. equity market declined as problems within the subprime industry and an associated “credit crunch” led to a marked slowdown in the U.S. economy. At the same time, surging prices for oil, food, and other commodities led to higher inflation in the U.S. Among markets along the Pacific Rim, Australia and South Korea edged higher thanks to strong exports to regional neighbors China and India. In contrast, the Japanese market posted a substantial decline amid weak consumer spending, a difficult political environment, persistent deflation, and high public debt levels.

 

28   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL TECHNOLOGY SECTOR INDEX FUND

 

Global information technology stocks, as represented by the Index, performed in line with the broad global equity markets, posting flat returns for the reporting period. Technology stocks advanced early in the period, boosted by demand for consumer electronics and new software products. However, the tech sector reversed course later in the period as the slowing global economy led to concerns about a reduction in spending on technology, both from businesses and consumers. Information technology services providers were among the top performers, benefiting from increased outsourcing as companies looked to cut costs and boost productivity. Software and computer hardware makers also generated positive results for the reporting period. On the downside, semiconductor manufacturers and communications equipment makers declined amid a challenging competitive environment and weaker economic conditions.

Eight of the Fund’s ten largest holdings as of March 31, 2008, advanced for the reporting period, led by U.S. consumer electronics maker Apple Inc. Apple’s new iPhone® and the continued popularity of its iPod® music player helped provide a significant boost to profits. Finnish cell phone maker Nokia OYJ gained additional market share in the handset market during the reporting period, most notably in emerging markets. Information technology services provider International Business Machines Corp. rallied thanks to strength in its international business. The only two stocks among the ten largest holdings to decline during the reporting period were the Class A shares of online search and advertising company Google Inc. and networking products maker Cisco Systems Inc.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   29


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL TELECOMMUNICATIONS SECTOR INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
4.60%   4.10%   5.16%   17.20%   16.94%   17.83%   6.36%   6.33%   6.94%
Cumulative Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
4.60%   4.10%   5.16%   121.09%   118.72%   127.13%   48.25%   47.97%   53.54%

Total returns for the period since inception are calculated from the inception date of the Fund (11/12/01). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or ”NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (11/16/01), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

30   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL TELECOMMUNICATIONS SECTOR INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry    Percentage of
Net Assets
 

Telecommunications

   95.93 %

Media

   1.46  

Engineering & Construction

   1.32  

Internet

   0.97  

Short-Term and Other Net Assets

   0.32  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

AT&T Inc.

   16.91 %

Vodafone Group PLC (United Kingdom)

   11.51  

Telefonica SA (Spain)

   10.10  

Verizon Communications Inc.

   7.73  

China Mobile Ltd. (China)

   5.10  

America Movil SAB de CV Series L ADR (Mexico)

   3.75  

France Telecom SA (France)

   3.71  

Deutsche Telekom AG (Germany)

   3.64  

Nippon Telegraph and Telephone
Corp. (Japan)

   2.58  

BT Group PLC (United Kingdom)

   2.57  
      

TOTAL

   67.60 %
      

 

The iShares S&P Global Telecommunications Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Telecommunications Sector Index (the “Index”). The Index is a subset of the S&P Global 1200 Index, and measures the performance of companies that S&P deems to be part of the telecommunications sector of the economy and that it believes are important to global markets. Component companies include diversified communication carriers and wireless communications companies. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund returned 4.60%, while the Index returned 5.16%.

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

On a regional basis, European stocks advanced modestly, benefiting from healthy economic growth early in the reporting period and the euro’s continued strength versus the U.S. dollar. The U.S. equity market declined as problems within the subprime industry and an associated “credit crunch” led to a marked slowdown in the U.S. economy. At the same time, surging prices for oil, food, and other commodities led to higher inflation in the U.S. Among markets along the Pacific Rim, Australia and South Korea edged higher thanks to strong exports to regional neighbors China and India. In contrast, the Japanese market posted a substantial decline amid weak consumer spending, a difficult political environment, persistent deflation, and high public debt levels.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   31


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL TELECOMMUNICATIONS SECTOR INDEX FUND

 

Telecommunications stocks worldwide, as represented by the Index, advanced for the reporting period, outperforming the broad global equity markets. The bulk of the outperformance was driven by strong returns for wireless services providers, particularly in rapidly growing emerging markets where cellular phone penetration is limited. The landline telephone units of diversified telecommunication services providers continued to deteriorate as more and more customers shifted to cellular or Internet-based phones. However, solid growth in the companies’ broadband offerings – television and Internet services – helped offset the weakness in the landline business.

Eight of the Fund’s ten largest holdings as of March 31, 2008, gained ground for the reporting period. The top performers were wireless providers in emerging markets – China Mobile Ltd., which serves the most populous nation in the world, and America Movil SAB de CV in Mexico, which has a considerable presence throughout Latin America. European telecommunication providers France Telecom SA and Telefonica SA (Spain) also benefited from strength in their wireless businesses. The only two holdings within the top ten to decline for the reporting period were Japanese telecommunications company Nippon Telegraph and Telephone Corp. and British telecommunications provider BT Group PLC.

 

32   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P GLOBAL UTILITIES SECTOR INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns   Cumulative Total Returns
Year Ended 3/31/08   Inception to 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
6.26%   5.87%   6.62%   17.73%   17.85%   18.61%   28.81%   29.00%   30.35%

Total returns for the period since inception are calculated from the inception date of the Fund (9/12/06). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or ”NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (9/21/06), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   33


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL UTILITIES SECTOR INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry    Percentage of
Net Assets
 

Electric

   80.37 %

Water

   10.71  

Gas

   7.80  

Pipelines

   0.82  

Short-Term and Other Net Assets

   0.30  
      

TOTAL

   100.00 %
      

 

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

E.ON AG (Germany)

   10.31 %

Suez SA (France)

   7.10  

Iberdrola SA (Spain)

   6.42  

RWE AG (Germany)

   4.72  

Exelon Corp.

   4.47  

Enel SpA (Italy)

   3.69  

National Grid PLC (United Kingdom)

   2.89  

Tokyo Electric Power Co. Inc. (The) (Japan)

   2.53  

Southern Co. (The)

   2.24  

FPL Group Inc.

   2.11  
      

TOTAL

   46.48 %
      

 

The iShares S&P Global Utilities Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global Utilities Sector Index (the “Index”). The Index is a subset of the S&P Global 1200 Index, and measures the performance of companies that S&P deems to be part of the utilities sector of the economy and that it believes are important to global markets. Component companies include providers of electric, gas or water utilities, or companies that operate as independent producers and/or distributors of power. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund returned 6.26%, while the Index returned 6.62%.

The global equity markets, as measured by the S&P Global 1200 Index, posted virtually flat returns for the reporting period, though this performance masked a substantial increase in the volatility of returns experienced during the period. Stock markets worldwide rallied early in the period as economic and corporate earnings growth remained robust. Problems within the U.S. subprime lending industry caused a pullback in mid-2007, but global stock markets recovered due to rising commodity prices and infrastructure development in many emerging markets. However, as 2008 began, a deepening “credit crunch” brought on by problems associated with the subprime industry threatened to slow economic activity and profit growth worldwide. As a result, global stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing nearly all of their gains from earlier in the period.

On a regional basis, European stocks advanced modestly, benefiting from healthy economic growth early in the reporting period and the euro’s continued strength versus the U.S. dollar. The U.S. equity market declined as problems within the subprime industry and an associated “credit crunch” led to a marked slowdown in the U.S. economy. At the same time, surging prices for oil, food, and other commodities led to higher inflation in the U.S. Among markets along the Pacific Rim, Australia and South Korea edged higher thanks to strong exports to regional neighbors China and India. In contrast, the Japanese market posted a substantial decline amid weak consumer spending, a difficult political environment, persistent deflation, and high public debt levels.

Utilities stocks worldwide, as represented by the Index, advanced for the reporting period, outperforming the broad global equity indexes. Continued strong demand for power in rapidly growing emerging economies such as China and India provided a boost to global utilities stocks. In addition, power demand remained solid in developed countries despite the slowing economic environment. Barriers for the

 

34   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P GLOBAL UTILITIES SECTOR INDEX FUND

 

utilities sector included a difficult credit environment and the possibility of stricter emissions standards going forward. Gas utilities posted the best returns, benefiting from a 38% rise in the price of natural gas during the reporting period, with the bulk of the increase occurring in early 2008 amid colder-than-expected winter weather.

Eight of the Fund’s ten largest holdings as of March 31, 2008, advanced for the reporting period. The top performers were European utilities E.ON AG of Germany and Iberdrola SA of Spain. E.ON AG benefited from strong demand for power in central Europe, while Iberdrola SA rallied amid strong operating results and takeover speculation. French utility Suez SA and German utility RWE AG also generated solid returns. The only two stocks among the ten largest holdings to decline for the reporting period were U.K. utility National Grid PLC and Japanese utility Tokyo Electric Power Co. Inc.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   35


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P ASIA 50 INDEX FUND

Performance as of March 31, 2008

 

Cumulative Total Returns
Inception to 3/31/08
NAV   MARKET   INDEX
(10.82)%   (10.05)%   (10.50)%

 

“Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated and are calculated from an inception date of 11/13/07.

The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (11/16/07), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

As of the fiscal year ended 3/31/08, the Fund did not have six months of performance and therefore line graphs are not presented.

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Sector*    Percentage of
Net Assets
 

Financial

   29.67 %

Technology

   18.39  

Communications

   12.31  

Industrial

   10.37  

Basic Materials

   9.65  

Energy

   5.67  

Consumer Cyclical

   5.39  

Diversified

   4.12  

Utilities

   2.72  

Consumer Non-Cyclical

   1.23  

Short-Term and Other Net Assets

   0.48  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Samsung Electronics Co. Ltd. (South Korea)

   8.77 %

China Mobile Ltd. (China)

   8.12  

Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan)

   5.98  

POSCO (South Korea)

   3.68  

Industrial and Commercial Bank of China Class H (China)

   3.48  

Hon Hai Precision Industry Co. Ltd. (Taiwan)

   3.46  

China Life Insurance Co. Ltd.
Class H (China)

   2.79  

China Construction Bank Class H (China)

   2.72  

PetroChina Co. Ltd. Class H (China)

   2.55  

Sun Hung Kai Properties Ltd. (Hong Kong)

   2.54  
      

TOTAL

   44.09 %
      

 

The iShares S&P Asia 50 Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Asia 50 Index (the “Index”). The Index is a free float-adjusted market capitalization index that is designed to measure the performance of the 50 leading companies from four Asian markets: Hong Kong, South Korea, Singapore and Taiwan. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the period from November 13, 2007 (inception date of the Fund) through March 31, 2008 (the “reporting period”), the Fund declined 10.82%, while the Index declined 10.50%.

 

36   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P ASIA 50 INDEX FUND

 

In an increasingly volatile market environment, the global equity markets fell sharply during the reporting period. Stock markets worldwide declined as a deepening “credit crunch” brought on by problems associated with the U.S. subprime lending industry threatened to slow economic activity and profit growth around the globe. Many of the world’s central banks injected liquidity into the financial system to relieve some of the pressure on the global credit markets, and the U.S. Federal Reserve cut the federal funds target rate aggressively to stave off slowing economic conditions in the U.S. economy. Nonetheless, stock markets in most regions of the world suffered double-digit declines for the reporting period.

The Asian markets represented in the Index declined in line with broad global equity indexes. Many Asian economies were hurt by weaker exports to the U.S. and, to a lesser extent, Europe in a slowing economic environment. China, which had been the best-performing stock market in Asia over the past several years due to a robust economic expansion and a substantial infrastructure build-out, fell the most during the reporting period. Taiwan was the only Asian market to advance for the period, rallying amid expectations that the country’s new ruling party will establish closer economic ties to mainland China.

Eight of the Fund’s ten largest holdings as of March 31, 2008, posted negative returns for the reporting period. The weakest performers were all Chinese companies, including insurance firm China Life Insurance Co. Ltd., energy producer PetroChina Co. Ltd., and commercial bank China Construction Bank. Other noteworthy decliners included South Korean steelmaker POSCO and Hong Kong-based real estate developer Sun Hung Kai Properties Ltd. The only two stocks among the ten largest holdings to advance for the reporting period were South Korean electronics maker Samsung Electronics Co. Ltd., which benefited from strong demand for LCD television screens, and Taiwan Semiconductor Manufacturing Co. Ltd., which reported strong earnings thanks to better-than-expected demand and improving cost management.

 

* Sector classifications used to describe the portfolio may differ from sector classifications used to describe the Fund’s corresponding index elsewhere in this report.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   37


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P EUROPE 350 INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(0.08)%   (0.36)%   0.00%   22.17%   22.14%   23.21%   5.70%   5.70%   6.48%
Cumulative Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(0.08)%   (0.36)%   0.00%   172.16%   171.85%   183.92%   53.16%   53.08%   62.06%

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 period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (7/28/00), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

38   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P EUROPE 350 INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Sector*    Percentage of
Net Assets
 

Financial

   27.42 %

Consumer Non-Cyclical

   18.63  

Communications

   10.55  

Energy

   10.14  

Industrial

   9.10  

Basic Materials

   8.34  

Utilities

   7.55  

Consumer Cyclical

   6.26  

Technology

   0.97  

Diversified

   0.47  

Short-Term and Other Net Assets

   0.57  
      

TOTAL

   100.00 %
      

 

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Nestle SA Registered (Switzerland)

   2.32 %

HSBC Holdings PLC (United Kingdom)

   2.31  

BP PLC (United Kingdom)

   2.26  

Total SA (France)

   2.09  

Vodafone Group PLC (United Kingdom)

   1.86  

Telefonica SA (Spain)

   1.68  

Novartis AG Registered (Switzerland)

   1.63  

Roche Holding AG
Genusschein (Switzerland)

   1.56  

E.ON AG (Germany)

   1.51  

Nokia OYJ (Finland)

   1.47  
      

TOTAL

   18.69 %
      

The iShares S&P Europe 350 Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Europe 350 Index (the “Index”). The Index measures the performance of the stocks of leading companies in the following countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund declined 0.08%, while the Index returned 0.00%.

European stocks, as represented by the Index, were largely unchanged for the reporting period, though the flat return masked a substantial increase in volatility and wide performance differential across individual countries. European shares rallied early in the period as economic and corporate earnings growth remained robust across the continent, leading both the European Central Bank (“ECB”) and the Bank of England (“BOE”) to raise short-term interest rates. Problems associated with the U.S. subprime lending industry caused a pullback in mid-2007, but European markets recovered as domestic demand remained resilient, as did exports to emerging markets.

However, as 2008 began, a deepening global “credit crunch” brought on by the subprime concerns in the U.S. took its toll on economic activity and profit growth worldwide. In response, the ECB injected liquidity into the financial system and shifted to a stable interest rate policy, remaining mindful of inflationary pressures driven by rising commodity prices. Nonetheless, European equity markets peaked in late 2007 and then declined sharply through the end of the reporting period, erasing all of their gains from earlier in the period.

The severity of the decline in European stocks was mitigated by currency fluctuations. The U.S. dollar declined by approximately 18% versus the euro during the reporting period, enhancing returns for U.S investors. In local currency terms, the Index generated negative performance.

The top-performing European markets included Finland and Denmark, which together comprised approximately 3% of the Index as of March 31, 2008. Among the larger European markets, Germany and Spain generated the best returns. Markets in Ireland, Austria, and Belgium suffered the largest declines. The United Kingdom, the largest country weighting in the Index (comprised more than 30% of the Index as of reporting period-end), also declined notably during the reporting period.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   39


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P EUROPE 350 INDEX FUND

 

Sector performance within the Index was mixed for the reporting period. Materials and utilities stocks generated the best returns, boosted by surging commodity prices and healthy demand for power and raw materials. Consumer staples stocks, which tend to hold up well in a slowing economic environment, also enjoyed solid gains for the reporting period. The worst-performing sector in the Index was financials, which fell sharply as mortgage-related losses and the associated “credit crunch” hurt many financial companies.

Seven of the Fund’s ten largest holdings as of March 31, 2008, posted positive results for the reporting period. The best performers were Finnish cell phone maker Nokia OYJ and German electric utility E.ON AG. Nokia OYJ continued to gain global market share, particularly in emerging markets, while E.ON AG benefited from strong demand for power. Other top performers included Spanish telecommunication services provider Telefonica SA and Swiss food products company Nestle SA. Among the three decliners, the most notable was Swiss pharmaceutical company Novartis AG, which went through a restructuring to lower costs in the face of stiff price pressures and increased generic competition. The other two decliners were two British companies – energy producer BP PLC and financial services company HSBC Holdings PLC.

 

* Sector classifications used to describe the portfolio may differ from sector classifications used to describe the Fund’s corresponding index elsewhere in this report.

 

40   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P LATIN AMERICA 40 INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
43.74%   43.57%   44.67%   50.18%   49.61%   51.25%   34.55%   34.49%   35.14%
Cumulative Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
43.74%   43.57%   44.67%   663.96%   649.58%   691.54%   574.73%   572.67%   595.31%

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 period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

Certain sectors and markets performed exceptionally well based on market conditions during the one-year period. Achieving such exceptional returns involves the risk of volatility and investors should not expect that such exceptional returns will be repeated.

The Fund’s per share net asset value or ”NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (10/26/01), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the tables 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.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   41


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P LATIN AMERICA 40 INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Sector*    Percentage of
Net Assets
 

Basic Materials

   30.69 %

Communications

   18.06  

Energy

   13.61  

Financial

   13.29  

Industrial

   7.28  

Consumer Non-Cyclical

   6.65  

Utilities

   5.60  

Consumer Cyclical

   3.04  

Diversified

   1.42  

Short-Term and Other Net Assets

   0.36  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Companhia Vale do Rio Doce Preferred SP ADR (Brazil)

   11.36 %

America Movil SAB de CV
Series L (Mexico)

   10.34  

Petroleo Brasileiro SA ADR (Brazil)

   10.29  

Companhia Vale do Rio Doce
ADR (Brazil)

   10.06  

Banco Bradesco SA Preferred SP
ADR (Brazil)

   4.13  

Banco Itau Holding Financiera SA Preferred ADR (Brazil)

   4.11  

Companhia Siderurgica Nacional SA SP ADR (Brazil)

   4.01  

Cemex SA de CV Series CPO (Mexico)

   3.89  

Companhia de Bebidas das Americas Preferred ADR (Brazil)

   3.43  

Petroleo Brasileiro SA Preferred SP ADR (Brazil)

   3.32  
      

TOTAL

   64.94 %
      

 

The iShares S&P Latin America 40 Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Latin America 40 Index (the “Index”). The Index is comprised of selected equities trading on the exchanges of four Latin American countries. The Index includes highly liquid securities from major economic sectors of the Mexican and South American equity markets. Companies from Mexico, Brazil, Argentina and Chile are represented in the Index. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund returned 43.74%, while the Index returned 44.67%.

Latin American stocks, as represented by the Index, continued to deliver robust returns for the reporting period. The region’s economy grew by 5.4% in 2007, the second straight year that growth exceeded 5%. A main driver behind the robust growth in Latin American economies continued to be surging global demand – and rising prices – for commodities, primarily minerals and agricultural products. Although markets grew more volatile during the reporting period, the region’s economy and stock markets performed well despite problems within the U.S. subprime lending industry and a deepening “credit crunch” that threatened to slow economic activity and profit growth worldwide.

The stock markets in each of the four countries represented in the Index advanced for the reporting period, with Brazil producing the best return. The largest of the four markets, Brazil comprised nearly two-thirds of the Index at the end of the reporting period. Strong commodity exports, particularly iron ore and soybeans, lifted economic growth above 5% in 2007 and contributed to the sharp rise in the Brazilian stock market. Chile also benefited from increased demand for commodities – Chile produces approximately one-third of the world’s copper supply – which boosted both the Chilean economy and equity market. Mexico, which has the greatest exposure to the economic slowdown in the U.S., posted more moderate gains, while Argentina produced the smallest gain as investors appeared to focus on the downside of the country’s powerhouse economy – double-digit inflation and a potential energy shortage.

 

42   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P LATIN AMERICA 40 INDEX FUND

 

Nearly every sector in the Index posted double-digit gains for the reporting period. Energy and materials stocks, boosted by robust global demand and rising prices, posted the best returns. Telecommunications services stocks also enjoyed strong returns, particularly in the wireless industry. The only sector of the Index to decline during the reporting period was the consumer discretionary sector, which fell amid expectations of a slowdown in global economic growth.

Nine of the Fund’s ten largest holdings as of March 31, 2008, advanced for the reporting period. The best performer by far was Brazilian steelmaker Companhia Siderurgica Nacional SA. The company, which owns the source of its raw materials, benefited substantially from a sharp increase in steel prices. Other top performers included two Brazilian commodity-based companies – oil producer Petroleo Brasileiro SA and mining concern Companhia Vale do Rio Doce. The only decliner among the ten largest holdings was Mexican cement company Cemex SA de CV, which fell amid concerns about an acquisition that increased its exposure to the U.S. economy.

 

* Sector classifications used to describe the portfolio may differ from sector classifications used to describe the Fund’s corresponding index elsewhere in this report.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   43


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P/TOPIX 150 INDEX FUND

Performance as of March 31, 2008

 

Average Annual Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(14.58)%   (13.95)%   (14.57)%   14.24%   14.23%   14.90%   6.00%   6.08%   6.45%
Cumulative Total Returns
Year Ended 3/31/08   Five Years Ended 3/31/08   Inception to 3/31/08
NAV   MARKET   INDEX   NAV   MARKET   INDEX   NAV   MARKET   INDEX
(14.58)%   (13.95)%   (14.57)%   94.60%   94.47%   100.24%   45.55%   46.19%   49.57%

Total returns for the period since inception are calculated from the inception date of the Fund (10/23/01). “Average Annual Total Returns” represent the average annual change in value of an investment over the period(s) indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated.

The Fund’s per share net asset value or ”NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (10/26/01), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

44   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P/TOPIX 150 INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Sector*    Percentage of
Net Assets
 

Consumer Cyclical

   28.54 %

Industrial

   20.25  

Financial

   18.38  

Consumer Non-Cyclical

   9.84  

Basic Materials

   7.57  

Technology

   4.90  

Communications

   4.62  

Utilities

   4.50  

Energy

   0.50  

Short-Term and Other Net Assets

   0.90  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Toyota Motor Corp.

   6.63 %

Mitsubishi UFJ Financial Group Inc.

   4.16  

Nintendo Co. Ltd.

   2.78  

Canon Inc.

   2.67  

Sumitomo Mitsui Financial Group Inc.

   2.51  

Honda Motor Co. Ltd.

   2.16  

Mitsubishi Corp.

   2.12  

Matsushita Electric Industrial Co. Ltd.

   2.12  

Sony Corp.

   1.96  

Mizuho Financial Group Inc.

   1.94  
      

TOTAL

   29.05 %
      

 

The iShares S&P/TOPIX 150 Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P/Tokyo Stock Price 150 Index (the “Index”). The Index includes 150 highly liquid securities selected from each major sector of the Tokyo market. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the 12-month period ended March 31, 2008 (the “reporting period”), the Fund declined 14.58%, while the Index declined 14.57%.

The Japanese stock market declined sharply during the reporting period as the country’s economy faced a number of obstacles to sustained growth. Japan’s economy grew by approximately 2% in 2007, consistent with its annual growth rate during its current five-year expansion. However, Japanese economic growth continued to be restrained by weak consumer spending, persistent deflation, low productivity, and a high level of public debt.

Additional challenges to Japan’s economic recovery surfaced during the reporting period. Problems associated with the U.S. subprime mortgage market and an accompanying “credit crunch” had a negative impact on Japanese financial companies, and the housing market in Japan remained in a severe slump. An economic slowdown in the U.S. – Japan’s largest trading partner – threatened to curb exports, which have been a main driver of economic growth in recent years. Finally, Japan is heavily dependent on imported energy and industrial commodities, the prices of which continued to rise during the reporting period, further dampening economic growth. As a result, consumer sentiment fell to its lowest level in five years, and business sentiment also waned.

The economic difficulties created significant obstacles for the Japanese stock market. After a modest rise in the first few months of the reporting period, the Index generally followed a downward path for the remainder of the period. The market fell despite a stronger currency – the U.S. dollar declined by approximately 15% versus the Japanese yen for the reporting period.

Every sector within the Index declined during the reporting period. Financial stocks generally suffered the largest declines as issues in the U.S. subprime market and a deepening “credit crunch” led to mortgage-related write-downs, and historically low interest rates kept a lid on net interest margins. Energy and materials stocks also struggled as higher prices for imported raw materials crimped profit margins. Consumer staples stocks, which tend to hold up well in a slowing economic environment, were the best performers for the reporting period, followed by industrial and information technology stocks.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   45


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P/TOPIX 150 INDEX FUND

 

Seven of the Fund’s ten largest holdings as of March 31, 2008, posted negative returns for the reporting period. The three biggest decliners were all financial stocks – Mizuho Financial Group Inc., Sumitomo Mitsui Financial Group Inc., and Mitsubishi UFJ Financial Group Inc. Automaker Toyota Motor Corp. and consumer electronics maker Sony Corp. both fell as consumer spending remained weak domestically and began to slow elsewhere in the world. On the positive side, video game maker Nintendo Co. Ltd. generated the best return due to blockbuster sales of its new Wii® gaming system. Conglomerate Mitsubishi Corp. and electronics manufacturer Matsushita Electric Industrial Co. Ltd. were the other two positive performers among the ten largest holdings for the reporting period.

 

* Sector classifications used to describe the portfolio may differ from sector classifications used to describe the Fund’s corresponding index elsewhere in this report.

 

46   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance

iSHARES® S&P WORLD EX-U.S. PROPERTY INDEX FUND

Performance as of March 31, 2008

 

Cumulative Total Returns
Inception to 3/31/08
NAV   MARKET   INDEX
(10.17)%   (9.44)%   (10.75)%

“Cumulative Total Returns” represent the total change in value of an investment over the period(s) indicated and are calculated from an inception date of 7/30/07.

The Fund’s per share net asset value or ”NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund (8/3/07), the NAV of the Fund is used as a proxy for the 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, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns shown in the table(s) above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption or sale of fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future results.

LOGO

Performance figures assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance is no guarantee of future results.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   47


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P WORLD EX-U.S. PROPERTY INDEX FUND

 

PORTFOLIO ALLOCATION

As of 3/31/08

 
Industry/Investment Type    Percentage of
Net Assets
 

Real Estate Operating/Development

   33.31 %

REITs - Diversified

   26.99  

Real Estate Management/Services

   15.74  

REITs - Shopping Centers

   11.48  

REITs - Office Property

   8.29  

REITs - Warehouse/Industrial

   1.13  

REITs - Apartments

   0.98  

Closed-End Funds

   0.37  

REITs - Health Care

   0.26  

REITs - Hotels

   0.21  

REITs - Storage

   0.20  

Diversified Operations

   0.15  

Building - Residential/Commercial

   0.14  

Storage/Warehousing

   0.09  

Investment Management/Advisory Services

   0.06  

Retirement/Aged Care

   0.03  

REITs - Regional Malls

   0.02  

Short-Term and Other Net Assets

   0.55  
      

TOTAL

   100.00 %
      

TEN LARGEST FUND HOLDINGS

As of 3/31/08

 
Security    Percentage of
Net Assets
 

Westfield Group (Australia)

   6.28 %

Mitsubishi Estate Co. Ltd. (Japan)

   5.52  

Sun Hung Kai Properties Ltd. (Hong Kong)

   4.25  

Unibail-Rodamco (France)

   4.17  

Cheung Kong (Holdings) Ltd. (Hong Kong)

   3.87  

Mitsui Fudosan Co. Ltd. (Japan)

   3.16  

Land Securities Group PLC
(United Kingdom)

   2.78  

British Land Co. PLC (United Kingdom)

   1.87  

Stockland Corp. Ltd. (Australia)

   1.73  

CapitaLand Ltd. (Singapore)

   1.57  
      

TOTAL

   35.20 %
      

 

The iShares S&P World ex-U.S. Property Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P/Citigroup BMI World ex-U.S. Property Index (the “Index”). The Index is a free float-adjusted market capitalization weighted index that defines and measures the investable universe of publicly traded real estate companies domiciled in developed countries outside of the United States. The companies in the Index are engaged in real estate related activities, such as property ownership, management, development, rental and investment. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. For the period from July 30, 2007 (inception date of the Fund) through March 31, 2008 (the “reporting period”), the Fund declined 10.17%, while the Index declined 10.75%.

In an increasingly volatile market environment, overseas equity markets fell during the reporting period. Stock markets worldwide declined early in the period in response to problems associated with the U.S. subprime lending industry, but the markets recovered as the world’s central banks injected liquidity into the financial system to relieve some of the pressure on global credit markets. However, as 2008 began, a deepening “credit crunch” brought on by the subprime concerns threatened to slow economic activity and profit growth worldwide. Consequently, international stock markets peaked in late 2007 and then declined sharply through the end of the reporting period, resulting in negative overall returns.

European stocks held up the best as economic growth across the continent remained reasonably healthy. The euro’s continued strength versus the U.S. dollar – the dollar declined by more than 13% relative to the euro for the reporting period – also contributed favorably to European equity performance. Asian and Pacific Rim markets posted the largest declines during the reporting period. Despite the strength

 

48   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES® S&P WORLD EX-U.S. PROPERTY INDEX FUND

 

of emerging markets such as China, many economies in this region were hurt by weaker exports to the U.S. and, to a lesser extent, Europe in a slowing economic environment. Japan struggled due to slowing economic conditions in the U.S. – Japan’s largest trading partner – and weak consumer spending and a difficult political environment domestically also had a dampening effect on the Japanese economy and stock market.

International property-related stocks, as represented by the Index, declined for the reporting period and underperformed the broad global equity indexes. The broad slowdown in the global economy put downward pressure on commercial property rental rates, and the lack of liquidity in the credit markets resulted in fewer commercial property transactions, leading to a decline in property values. The housing market downturn, which began in the U.S. but spread to Europe and other regions of the world, also had a negative impact on commercial property values. The decrease in liquidity hit European property stocks the hardest, and they suffered the largest declines. Property stocks in the Asia-Pacific region were more resilient, benefiting from the robust property development boom in China.

Among the Fund’s ten largest holdings as of March 31, 2008, the top performers included Hong Kong–based real estate developer Sun Hung Kai Properties Ltd. and French property company Unibail-Rodamco, both of which delivered double-digit gains for the reporting period. Strength in the property markets of China boosted Sun Hung Kai Properties Ltd., while Unibail-Rodamco advanced on favorable earnings and relatively low debt levels. Australian retail property owner Westfield Group and Hong Kong property developer Cheung Kong (Holdings) Ltd. were the only other holdings in the top ten to gain ground for the reporting period. The biggest decliners among the ten largest holdings included U.K. property company British Land Co. PLC and Japanese property firm Mitsui Fudosan Co. Ltd.

 

MANAGEMENTS DISCUSSIONS OF FUND PERFORMANCE   49


Table of Contents

Shareholder Expenses (Unaudited)

iSHARES® TRUST

 

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

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from October 1, 2007 to March 31, 2008.

ACTUAL EXPENSES

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

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

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

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

 

iShares Index Fund    Beginning
Account Value
(10/1/07)a
   Ending
Account Value
(3/31/08)a
   Annualized
Expense Ratio
    Expenses Paid
During Periodb
(10/1/07 to 3/31/08)

S&P Global 100

          

Actual

   $1,000.00    $    895.70    0.40 %   $1.90

Hypothetical (5% return before expenses)

   1,000.00    1,023.00    0.40     2.02

S&P Global Consumer Discretionary Sector

          

Actual

   1,000.00    853.10    0.48     2.22

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

S&P Global Consumer Staples Sector

          

Actual

   1,000.00    1,013.30    0.48     2.42

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

S&P Global Energy Sector

          

Actual

   1,000.00    959.30    0.48     2.35

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

S&P Global Financials Sector

          

Actual

   1,000.00    805.30    0.48     2.17

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

S&P Global Healthcare Sector

          

Actual

   1,000.00    892.50    0.48     2.27

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

 

50   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Shareholder Expenses (Unaudited) (Continued)

iSHARES® TRUST

 

iShares Index Fund    Beginning
Account Value
(10/1/07)a
   Ending
Account Value
(3/31/08)a
   Annualized
Expense Ratio
    Expenses Paid
During Periodb
(10/1/07 to 3/31/08)

S&P Global Industrials Sector

          

Actual

   $1,000.00    $    900.00    0.48 %   $2.28

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

S&P Global Infrastructure

          

Actual

   1,000.00    899.00    0.48     1.39

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

S&P Global Materials Sector

          

Actual

   1,000.00    966.10    0.48     2.36

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

S&P Global Technology Sector

          

Actual

   1,000.00    846.90    0.48     2.22

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

S&P Global Telecommunications Sector

          

Actual

   1,000.00    883.60    0.48     2.26

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

S&P Global Utilities Sector

          

Actual

   1,000.00    984.40    0.48     2.38

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

S&P Asia 50

          

Actual

   1,000.00    891.80    0.50     1.80

Hypothetical (5% return before expenses)

   1,000.00    1,022.50    0.50     2.53

S&P Europe 350

          

Actual

   1,000.00    906.60    0.60     2.86

Hypothetical (5% return before expenses)

   1,000.00    1,022.00    0.60     3.03

S&P Latin America 40

          

Actual

   1,000.00    1,067.40    0.50     2.58

Hypothetical (5% return before expenses)

   1,000.00    1,022.50    0.50     2.53

S&P/TOPIX 150

          

Actual

   1,000.00    866.80    0.50     2.33

Hypothetical (5% return before expenses)

   1,000.00    1,022.50    0.50     2.53

S&P World ex-U.S. Property

          

Actual

   1,000.00    828.00    0.48     2.19

Hypothetical (5% return before expenses)

   1,000.00    1,022.60    0.48     2.43

 

a

Account values are based on a start date of November 13, 2007 (commencement of operations) for the iShares S&P Asia 50 Index Fund and a start date of December 10, 2007 (commencement of operations) for the iShares S&P Global Infrastructure Index Fund.

b

Except for the actual expenses of the iShares S&P Global Infrastructure Index Fund and iShares S&P Asia 50 Index Fund, actual and hypothetical expenses are calculated using each Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (183 days) and divided by the number of days in the year (366 days). Actual expenses for the iShares S&P Asia 50 Index Fund, which commenced operations on November 13, 2007, are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (139 days) and divided by the number of days in the year (366 days). Actual expenses for the iShares S&P Global Infrastructure Index Fund, which commenced operations on December 10, 2007, are calculated using the Fund’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (112 days) and divided by the number of days in the year (366 days).

 

SHAREHOLDER EXPENSES   51


Table of Contents

Schedule of Investments

iSHARES® S&P GLOBAL 100 INDEX FUND

March 31, 2008

 

Security   Shares   Value

COMMON STOCKS – 99.55%

   

AUSTRALIA – 1.30%

   

BHP Billiton Ltd.

  374,358   $ 12,237,448
       
      12,237,448

BELGIUM – 0.67%

   

Fortis

  248,454     6,283,257
       
      6,283,257

CANADA – 0.04%

   

Nortel Networks Corp.a

  49,210     335,724
       
      335,724

FINLAND – 1.50%

   

Nokia OYJ

  14,631     464,598

Nokia OYJ SP ADR

  430,728     13,710,072
       
      14,174,670

FRANCE – 9.18%

   

Alcatel-Lucent

  256,627     1,472,031

AXA

  201,553     7,342,335

BNP Paribas

  101,394     10,264,814

Carrefour SA

  68,886     5,334,322

France Telecom SA

  170,538     5,755,814

L’Oreal SA

  26,058     3,321,384

LVMH Moet Hennessy Louis Vuitton SA

  28,525     3,186,550

Sanofi-Aventis

  116,874     8,800,357

Societe Generale

  52,224     5,132,250

Societe Generale NV Newa,b

  13,050     1,260,347

Suez SA

  145,770     9,601,833

Total SA

  266,772     19,884,446

Vivendi

  130,032     5,099,545
       
      86,456,028

GERMANY – 8.09%

   

Allianz SE Registered

  50,310     10,003,104

BASF SE

  54,180     7,323,942

Bayer AG

  85,140     6,847,960

Daimler AG Registered

  115,842     9,939,635

Deutsche Bank AG Registered

  58,824     6,683,126

Deutsche Telekom AG Registered

  328,950     5,499,058

E.ON AG

  76,884     14,285,380

Siemens AG Registered

  101,910     11,085,704

Volkswagen AG

  15,738     4,579,550
       
      76,247,459

 

Security   Shares   Value

ITALY – 0.63%

   

Assicurazioni Generali SpA

  131,322   $ 5,926,297
       
      5,926,297

JAPAN – 4.76%

   

Bridgestone Corp.

  74,600     1,271,876

Canon Inc.

  131,050     6,043,296

FUJIFILM Holdings Corp.

  51,800     1,837,082

Honda Motor Co. Ltd.

  174,100     4,976,285

Matsushita Electric Industrial Co. Ltd.

  213,800     4,639,654

Nissan Motor Co. Ltd.

  233,100     1,929,717

Seven & I Holdings Co. Ltd.

  88,620     2,225,850

Sony Corp.

  109,600     4,371,447

Toshiba Corp.

  311,400     2,083,613

Toyota Motor Corp.

  309,600     15,459,004
       
      44,837,824

NETHERLANDS – 2.43%

   

Aegon NV

  139,202     2,055,736

ING Groep NV

  251,034     9,435,245

Koninklijke Philips Electronics NV NYS

  129,134     4,950,998

Unilever NV

  9,250     311,756

Unilever NV NYS

  182,548     6,157,344
       
      22,911,079

SOUTH KOREA – 0.94%

   

Samsung Electronics Co. Ltd. GDRc

  28,333     8,846,979
       
      8,846,979

SPAIN – 4.48%

   

Banco Bilbao Vizcaya Argentaria SA

  419,766     9,278,706

Banco Santander SA

  699,438     13,986,676

Repsol YPF SA

  101,041     3,499,885

Telefonica SA

  534,834     15,423,976
       
      42,189,243

SWEDEN – 0.34%

   

Telefonaktiebolaget LM Ericsson AB Class B

  366,003     719,668

Telefonaktiebolaget LM Ericsson AB Class B SP ADR

  128,524     2,525,497
       
      3,245,165

SWITZERLAND – 5.76%

   

Credit Suisse Group Registered

  113,520     5,801,968

Nestle SA Registered

  44,118     22,135,946

Novartis AG Registered

  305,988     15,747,221

 


 

52   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Schedule of Investments (Continued)

iSHARES® S&P GLOBAL 100 INDEX FUND

March 31, 2008

 

Security   Shares   Value

Swiss Reinsurance Co. Registered

  41,538   $ 3,643,316

UBS AG Registered

  236,070     6,888,408
       
      54,216,859

UNITED KINGDOM – 14.01%

 

Anglo American PLC

  148,092     8,912,399

AstraZeneca PLC

  163,572     6,124,872

Barclays PLCd

  737,364     6,638,765

BP PLC

  2,105,796     21,428,580

Diageo PLC

  286,638     5,788,081

GlaxoSmithKline PLC

  612,750     12,982,181

HSBC Holdings PLC

  1,330,506     21,948,360

Reuters Group PLC

  142,416     1,641,701

Royal Dutch Shell PLC Class A

  18,428     636,188

Royal Dutch Shell PLC
Class A ADR

  189,706     13,085,920

Royal Dutch Shell PLC Class B

  308,052     10,383,817

Standard Chartered PLC

  133,644     4,573,933

Vodafone Group PLC

  5,958,252     17,869,617
       
      132,014,414

UNITED STATES – 45.42%

   

American International Group Inc.

  282,252     12,207,399

Bristol-Myers Squibb Co.

  221,106     4,709,558

Caterpillar Inc.

  70,215     5,497,132

Chevron Corp.

  234,006     19,974,752

Citigroup Inc.

  582,048     12,467,468

Coca-Cola Co. (The)

  222,912     13,568,653

Colgate-Palmolive Co.

  56,502     4,402,071

Covidien Ltd.

  56,244     2,488,797

Dell Inc.a

  247,938     4,938,925

Dow Chemical Co. (The)

  104,490     3,850,456

E.I. du Pont de Nemours and Co.

  100,362     4,692,927

EMC Corp.a

  231,684     3,322,349

Exxon Mobil Corp.

  602,688     50,975,351

Ford Motor Co.a

  243,294     1,391,642

General Electric Co.

  1,119,720     41,440,837

General Motors Corp.

  62,792     1,196,188

Hewlett-Packard Co.

  281,994     12,875,846

Intel Corp.

  649,644     13,759,460

International Business
Machines Corp.

  154,542     17,793,966

Johnson & Johnson

  317,598     20,602,582

JPMorgan Chase & Co.

  379,776     16,311,379

Kimberly-Clark Corp.

  46,698     3,014,356

 

Security   Shares   Value  

McDonald’s Corp.

  131,064   $ 7,309,439  

Merck & Co. Inc.

  242,262     9,193,843  

Microsoft Corp.

  895,260     25,407,479  

Morgan Stanley

  122,808     5,612,326  

News Corp. Class A

  256,194     4,803,637  

Nike Inc. Class B

  42,828     2,912,304  

PepsiCo Inc.

  178,794     12,908,927  

Pfizer Inc.

  757,230     15,848,824  

Philip Morris International Inc.

  233,748     11,822,974  

Procter & Gamble Co. (The)

  344,430     24,134,210  

Texas Instruments Inc.

  155,058     4,383,490  

3M Co.

  78,948     6,248,734  

Tyco Electronics Ltd.

  55,009     1,887,909  

Tyco International Ltd.

  55,009     2,423,146  

United Technologies Corp.

  109,392     7,528,357  

Wal-Mart Stores Inc.

  264,192     13,917,635  
         
      427,825,328  
         

TOTAL COMMON STOCKS
(Cost: $892,966,475)

    937,747,774  

SHORT-TERM INVESTMENTS – 0.94%

 

MONEY MARKET FUNDS – 0.94%

 

Barclays Global Investors Funds
Institutional Money Market Fund, Institutional Shares
3.18%
d,e

  7,550,884     7,550,884  

BGI Cash Premier Fund LLC
3.22%
d,e,f

  1,352,565     1,352,565  
         
      8,903,449  
         

TOTAL SHORT-TERM INVESTMENTS
(Cost: $8,903,449)

    8,903,449  
         

TOTAL INVESTMENTS IN
SECURITIES – 100.49%
(Cost: $901,869,924)

    946,651,223  

Other Assets, Less Liabilities – (0.49)%

    (4,650,336 )
         

NET ASSETS – 100.00%

    $ 942,000,887  
         

 

SCHEDULES OF INVESTMENTS   53


Table of Contents

Schedule of Investments (Continued)

iSHARES® S&P GLOBAL 100 INDEX FUND

March 31, 2008

 

ADR – American Depositary Receipts

GDR – Global Depositary Receipts

NYS – New York Registered Shares

SP ADR – Sponsored American Depositary Receipts

 

a

Non-income earning security.

b

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

c

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

d

Affiliated issuer. See Note 2.

e

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

f

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

See notes to financial statements.


 

54   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Schedule of Investments

iSHARES® S&P GLOBAL CONSUMER DISCRETIONARY SECTOR INDEX FUND

March 31, 2008

 

 

Security

   Shares    Value

COMMON STOCKS – 99.20%

     

AUSTRALIA – 0.77%

     

Crown Ltd.a

   6,456    $ 61,880

John Fairfax Holdings Ltd.

   19,584      62,034

Tabcorp Holdings Ltd.

   8,280      106,951
         
        230,865

CANADA – 1.92%

     

Canadian Tire Corp. Ltd. Class A

   1,056      68,184

Gildan Activewear Inc.a

   1,632      61,587

Magna International Inc. Class A

   1,488      108,244

Shaw Communications Inc. Class B

   5,064      92,687

Thomson Corp.

   2,460      82,763

Tim Hortons Inc.

   2,628      89,517

Yellow Pages Income Fund

   7,104      72,629
         
        575,611

FRANCE – 8.85%

     

Accor SA

   2,760      202,312

Christian Dior SA

   816      90,652

Compagnie Generale des

     

Etablissements Michelin Class B

   2,040      213,732

Hermes International

   1,068      133,861

Lagardere SCA

   1,680      126,074

LVMH Moet Hennessy Louis Vuitton SA

   3,564      398,137

PPR SA

   1,020      151,684

PSA Peugeot Citroen SA

   2,112      164,350

Publicis Groupe SA

   2,064      79,146

Renault SA

   2,640      293,243

Societe Television Francaise 1

   1,152      25,428

Sodexo

   1,359      83,853

Thomson

   3,936      27,442

Valeo SA

   1,356      53,974

Vivendi

   15,624      612,736
         
        2,656,624

GERMANY – 8.41%

     

Adidas AG

   2,868      191,368

Bayerische Motoren Werke AG

   4,176      231,532

Continental AG

   2,376      243,174

Daimler AG Registered

   13,788      1,183,057

 

Security

   Shares    Value

Puma AG

   91    $ 35,175

TUI AGa

   3,185      82,010

Volkswagen AG

   1,920      558,695
         
        2,525,011

HONG KONG – 0.97%

     

Esprit Holdings Ltd.

   15,700      188,412

Li & Fung Ltd.

   28,000      103,792
         
        292,204

ITALY – 1.35%

     

Fiat SpA

   9,888      229,537

Luxottica Group SpA

   2,118      53,597

Mediaset SpA

   11,508      106,857

Seat Pagine Gialle SpAb

   80,664      14,009
         
        404,000

JAPAN – 17.34%

     

Bridgestone Corp.

   8,400      143,214

Daiwa House Industry Co. Ltd.

   9,000      89,245

Denso Corp.

   6,000      194,103

Dentsu Inc.

   36      82,102

Honda Motor Co. Ltd.

   20,400      583,091

Marui Group Co. Ltd.

   3,600      38,374

Matsushita Electric Industrial Co. Ltd.

   26,000      564,224

Nikon Corp.

   3,000      80,022

Nippon Television Network Corp.

   240      32,817

Nissan Motor Co. Ltd.

   28,800      238,421

NOK Corp.

   2,600      53,288

Oriental Land Co. Ltd.

   1,200      70,528

Pioneer Corp.

   2,400      23,871

SANYO Electric Co. Ltd.a

   28,000      59,075

Sekisui House Ltd.

   7,000      64,841

Sharp Corp.

   12,000      204,230

Sony Corp.

   14,400      574,351

Suzuki Motor Corp.

   4,800      121,284

Toyota Industries Corp.

   2,400      85,357

Toyota Motor Corp.

   36,000      1,797,559

Yamada Denki Co. Ltd.

   1,200      103,682
         
        5,203,679

MEXICO – 0.48%

     

Grupo Televisa SA Series CPO

   30,000      145,829
         
        145,829

 

SCHEDULES OF INVESTMENTS   55


Table of Contents

Schedule of Investments (Continued)

iSHARES® S&P GLOBAL CONSUMER DISCRETIONARY SECTOR INDEX FUND

March 31, 2008

 

Security    Shares    Value

NETHERLANDS – 0.93%

     

Reed Elsevier NV

   8,820    $ 168,827

Wolters Kluwer NV

   4,140      110,012
         
        278,839

SOUTH KOREA – 1.09%

     

Hyundai Motor Co. Ltd. Class A GDRc

   8,323      326,262
         
        326,262

SPAIN – 0.59%

     

Industria de Diseno Textil SA

   3,180      177,318
         
        177,318

SWEDEN – 1.87%

     

Electrolux AB Class B

   4,853      79,793

Hennes & Mauritz AB Class B

   7,812      480,844
         
        560,637

SWITZERLAND – 1.75%

     

Compagnie Financiere Richemont

     

AG Class A Bearer

   7,152      402,777

Swatch Group AG (The) Bearer

   456      122,408
         
        525,185

UNITED KINGDOM – 7.78%

     

Aegis Group PLC

   15,013      37,074

British Sky Broadcasting Group PLC

   14,832      164,048

Carnival PLC

   2,556      101,652

Compass Group PLC

   26,244      168,085

Daily Mail & General Trust PLC Class A

   4,120      35,395

Enterprise Inns PLC

   7,620      60,768

GKN PLC

   12,056      72,902

Home Retail Group PLC

   12,240      63,554

InterContinental Hotels Group PLC

   4,332      65,435

ITV PLC

   46,968      59,090

Kesa Electricals PLC

   6,948      28,412

Kingfisher PLC

   31,128      81,664

Ladbrokes PLC

   9,132      56,491

Marks & Spencer Group PLC

   22,464      172,896

Next PLC

   3,036      68,728

Pearson PLC

   10,704      144,984

Persimmon PLC

   4,488      68,237

Punch Taverns PLC

   4,384      46,964

Rank Group PLC

   5,604      9,829

Reed Elsevier PLC

   14,870      189,442

Reuters Group PLC

   17,352      200,025

 

Security    Shares    Value

Taylor Wimpey PLC

   16,140    $ 60,147

Trinity Mirror PLC

   3,696      21,670

United Business Media PLC

   3,446      36,916

W.H. Smith PLC

   2,720      20,056

Whitbread PLC

   2,636      61,140

William Hill PLC

   5,412      40,417

WPP Group PLC

   16,764      200,244
         
        2,336,265

UNITED STATES – 45.10%

     

Abercrombie & Fitch Co. Class A

   1,176      86,013

Amazon.com Inc.a

   4,188      298,604

Apollo Group Inc. Class Aa

   1,896      81,907

AutoNation Inc.a

   912      13,653

AutoZone Inc.a

   516      58,736

Bed Bath & Beyond Inc.a,b

   3,696      109,032

Best Buy Co. Inc.

   4,752      197,018

Big Lots Inc.a,b

   1,036      23,103

Black & Decker Corp. (The)

   924      61,076

Brunswick Corp.

   1,248      19,931

Carnival Corp.

   5,928      239,965

CBS Corp. Class B

   8,952      197,660

Centex Corp.

   1,632      39,511

Clear Channel Communications Inc.

   6,612      193,203

Coach Inc.a

   4,968      149,785

Comcast Corp. Class A

   40,956      792,089

D.R. Horton Inc.

   4,092      64,449

Darden Restaurants Inc.

   2,076      67,574

Dillard’s Inc. Class A

   876      15,076

DIRECTV Group Inc. (The)a

   9,708      240,661

E.W. Scripps Co. Class A

   953      40,035

Eastman Kodak Co.

   4,025      71,122

Expedia Inc.a

   2,916      63,831

Family Dollar Stores Inc.

   1,944      37,908

Ford Motor Co.a

   28,032      160,343

Fortune Brands Inc.

   2,053      142,683

GameStop Corp. Class Aa

   2,172      112,314

Gannett Co. Inc.

   2,868      83,315

Gap Inc. (The)

   6,324      124,456

General Motors Corp.

   7,644      145,618

Genuine Parts Co.

   3,216      129,347

Goodyear Tire & Rubber Co. (The)a

   3,384      87,307

H&R Block Inc.

   4,560      94,666

 

56   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Schedule of Investments (Continued)

iSHARES® S&P GLOBAL CONSUMER DISCRETIONARY SECTOR INDEX FUND

March 31, 2008

 

Security    Shares    Value

Harley-Davidson Inc.

   3,336    $ 125,100

Harman International Industries Inc.

   879      38,272

Hasbro Inc.

   1,980      55,242

Home Depot Inc.

   22,872      639,730

IAC/InterActiveCorpa

   2,484      51,568

International Game Technology Inc.

   4,308      173,225

Interpublic Group of
Companies Inc. (The)
a

   6,545      55,043

J.C. Penney Co. Inc.

   2,988      112,677

Johnson Controls Inc.

   8,352      282,298

Jones Apparel Group Inc.

   852      11,434

KB Home

   1,104      27,302

Kohl’s Corp.a

   4,236      181,682

Leggett & Platt Inc.

   2,472      37,698

Lennar Corp. Class A

   1,884      35,438

Limited Brands Inc.

   4,068      69,563

Lowe’s Companies Inc.

   19,740      452,836

Macy’s Inc.

   5,808      133,932

Marriott International Inc. Class A

   4,272      146,786

Mattel Inc.

   5,064      100,774

McDonald’s Corp.

   15,816      882,058

McGraw-Hill Companies Inc. (The)

   4,296      158,737

Meredith Corp.

   101      3,863

New York Times Co. (The) Class Ab

   1,260      23,789

Newell Rubbermaid Inc.

   3,824      87,455

News Corp. Class A

   30,996      581,175

Nike Inc. Class B

   5,100      346,800

Nordstrom Inc.

   2,532      82,543

Office Depot Inc.a

   3,684      40,708

OfficeMax Inc.

   948      18,145

Omnicom Group Inc.

   4,476      197,750

Polo Ralph Lauren Corp.

   879      51,237

Pulte Homes Inc.

   3,276      47,666

RadioShack Corp.

   1,784      28,990

Sears Holdings Corp.a,b

   1,008      102,907

Sherwin-Williams Co. (The)

   1,320      67,373

Snap-On Inc.

   840      42,714

Stanley Works (The)

   1,224      58,287

Staples Inc.

   9,432      208,541

Starbucks Corp.a

   9,960      174,300

Starwood Hotels & Resorts

     

Worldwide Inc.

   2,712      140,346

 

Security    Shares    Value  

Target Corp.

   11,160    $ 565,589  

Tiffany & Co.

   1,732      72,467  

Time Warner Inc.

   48,264      676,661  

TJX Companies Inc. (The)

   5,808      192,071  

VF Corp.

   1,171      90,764  

Viacom Inc. Class Ba

   8,688      344,219  

Walt Disney Co. (The)

   25,464      799,060  

Washington Post Co. (The) Class B

   72      47,628  

Wendy’s International Inc.

   1,421      32,768  

Whirlpool Corp.

   1,104      95,805  

Wyndham Worldwide Corp.

   2,520      52,114  

Yum! Brands Inc.

   6,660      247,819  
           
        13,534,940  
           

TOTAL COMMON STOCKS
(Cost: $30,909,894)

     29,773,269  

PREFERRED STOCKS – 0.37%

 

GERMANY – 0.37%

 

Porsche Automobil Holding SE

   600      110,076  
           
        110,076  
           

TOTAL PREFERRED STOCKS
(Cost: $93,223)

     110,076  

SHORT-TERM INVESTMENTS – 0.78%

  

MONEY MARKET FUNDS – 0.78%

  

Barclays Global Investors Funds
Institutional Money Market Fund, Institutional Shares
3.18%
d,e

   8,421      8,421  

BGI Cash Premier Fund LLC
3.22%
d,e,f

   227,617      227,617  
           
        236,038  
           

TOTAL SHORT-TERM INVESTMENTS
(Cost: $236,038)

     236,038  
           

TOTAL INVESTMENTS IN
SECURITIES – 100.35%
(Cost: $31,239,155)

        30,119,383  

Other Assets, Less Liabilities – (0.35)%

     (106,323 )
           

NET ASSETS – 100.00%

      $ 30,013,060  
           

 

SCHEDULES OF INVESTMENTS   57


Table of Contents

Schedule of Investments (Continued)

iSHARES® S&P GLOBAL CONSUMER DISCRETIONARY SECTOR INDEX FUND

March 31, 2008

 

GDR – Global Depositary Receipts

 

a

Non-income earning security.

b

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

c

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

d

Affiliated issuer. See Note 2.

e

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

f

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

See notes to financial statements.


 

58   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Schedule of Investments

iSHARES® S&P GLOBAL CONSUMER STAPLES SECTOR INDEX FUND

March 31, 2008

 

Security   Shares   Value

COMMON STOCKS – 98.65%

   

AUSTRALIA – 2.79%

   

Foster’s Group Ltd.

  258,894   $ 1,210,017

Wesfarmers Ltd.

  89,291     3,259,556

Woolworths Ltd.

  157,182     4,161,024
       
      8,630,597

BELGIUM – 1.13%

   

Delhaize Group

  13,173     1,040,324

InBev

  27,642     2,441,419
       
      3,481,743

CANADA – 0.44%

   

Shoppers Drug Mart Corp.

  26,949     1,364,194
       
      1,364,194

CHILE – 0.05%

   

Distribucion y Servicio D&S SA ADR

  6,126     150,945
       
      150,945

FRANCE – 6.23%

   

Carrefour SA

  79,460     6,153,141

Casino Guichard-Perrachon SA

  6,433     774,088

Groupe Danone

  67,422     6,051,051

L’Oreal SA

  29,988     3,822,307

Pernod Ricard SA

  23,562     2,432,759
       
      19,233,346

GERMANY – 0.33%

   

METRO AG

  12,448     1,009,499
       
      1,009,499

JAPAN – 5.06%

   

AEON Co. Ltd.

  91,800     1,095,679

Ajinomoto Co. Inc.

  70,000     710,303

Asahi Breweries Ltd.

  61,800     1,275,923

Japan Tobacco Inc.

  612     3,068,147

Kao Corp.

  67,000     1,901,592

Kirin Holdings Co. Ltd.

  106,000     2,007,435

Nippon Meat Packers Inc.

  9,000     133,099

Nissin Food Products Co. Ltd.a

  10,600     357,824

Seven & I Holdings Co. Ltd.

  114,300     2,870,849

Shiseido Co. Ltd.

  44,000     1,164,816

Uni-Charm Corp.

  5,400     395,499

Yakult Honsha Co. Ltd.

  20,600     639,514
       
      15,620,680

 

Security   Shares   Value

MEXICO – 1.12%

   

Fomento Economico Mexicano SAB de CV BD Unitsa

  275,400   $ 1,155,913

Grupo Modelo SAB de CV Series C

  91,800     401,054

Kimberly-Clark de Mexico SAB de CV Series A

  71,400     316,014

Wal-Mart de Mexico SAB de CV Series V

  378,300     1,598,091
       
      3,471,072

NETHERLANDS – 3.83%

   

Heineken NV

  31,620     1,843,307

Koninklijke Ahold NVb

  164,119     2,444,515

Unilever NV

  224,094     7,552,725
       
      11,840,547

SOUTH KOREA – 0.46%

   

KT&G Corp. Class A GDRc

  36,582     1,426,698
       
      1,426,698

SWEDEN – 0.23%

   

Swedish Match AB

  32,540     710,618
       
      710,618

SWITZERLAND – 8.28%

   

Nestle SA Registered

  51,009     25,593,465
       
      25,593,465

UNITED KINGDOM – 15.23%

   

Associated British Foods PLC

  51,842     901,565

British American Tobacco PLC

  185,232     6,961,690

Cadbury Schweppes PLC

  276,026     3,036,510

Diageo PLC

  336,926     6,803,547

Imperial Tobacco Group PLC

  87,210     4,017,786

J Sainsbury PLC

  188,102     1,282,315

Reckitt Benckiser PLC

  78,846     4,373,676

SABMiller PLC

  107,814     2,365,655

Scottish & Newcastle PLC

  104,354     1,638,488

Tate & Lyle PLC

  54,774     587,862

Tesco PLC

  1,013,485     7,634,202

Unilever PLC

  170,646     5,762,310

Wm Morrison Supermarkets PLC

  307,237     1,674,662
       
      47,040,268

UNITED STATES – 53.47%

   

Altria Group Inc.

  271,932     6,036,890

Anheuser-Busch Companies Inc.

  94,768     4,496,742

 

SCHEDULES OF INVESTMENTS   59


Table of Contents

Schedule of Investments (Continued)

iSHARES® S&P GLOBAL CONSUMER STAPLES SECTOR INDEX FUND

March 31, 2008

 

Security    Shares    Value

Archer-Daniels-Midland Co.

   83,743    $ 3,446,862

Avon Products Inc.

   55,086      2,178,100

Brown-Forman Corp. Class B

   11,424      756,497

Campbell Soup Co.

   29,590      1,004,580

Clorox Co. (The)

   18,874      1,069,023

Coca-Cola Co. (The)

   259,590      15,801,243

Coca-Cola Enterprises Inc.

   37,540      908,468

Colgate-Palmolive Co.

   66,198      5,157,486

ConAgra Foods Inc.

   65,510      1,568,964

Constellation Brands Inc. Class Ab

   28,061      495,838

Costco Wholesale Corp.

   56,416      3,665,348

CVS Caremark Corp.

   189,627      7,681,790

Estee Lauder Companies Inc. (The) Class A

   15,207      697,241

General Mills Inc.

   43,070      2,579,032

H.J. Heinz Co.

   41,121      1,931,453

Hershey Co. (The)

   23,460      883,738

Kellogg Co.

   33,370      1,753,927

Kimberly-Clark Corp.

   54,496      3,517,717

Kraft Foods Inc.

   201,042      6,234,312

Kroger Co. (The)

   89,760      2,279,904

McCormick & Co. Inc. NVS

   19,301      713,558

Molson Coors Brewing Co. Class B

   16,748      880,442

Pepsi Bottling Group Inc.

   17,665      599,020

PepsiCo Inc.

   208,236      15,034,639

Philip Morris International Inc.

   271,932      13,754,321

Procter & Gamble Co. (The)

   402,492      28,202,614

Reynolds American Inc.

   22,242      1,312,945

Safeway Inc.

   57,351      1,683,252

Sara Lee Corp.

   96,703      1,351,908

SUPERVALU Inc.

   27,661      829,277

Sysco Corp.

   78,234      2,270,351

Tyson Foods Inc. Class A

   36,229      577,853

UST Inc.

   21,034      1,146,774

Walgreen Co.

   127,500      4,856,475

Wal-Mart Stores Inc.

   305,664      16,102,380

Wm. Wrigley Jr. Co.

   27,744      1,743,433
         
        165,204,397
         

TOTAL COMMON STOCKS
(Cost: $296,933,160)

     304,778,069

 

Security    Shares    Value

PREFERRED STOCKS – 0.86%

  

BRAZIL – 0.52%

     

Companhia de Bebidas das Americas ADR

   21,012    $ 1,587,457
         
        1,587,457

GERMANY – 0.34%

     

Henkel KGaA

   22,858      1,060,511
         
        1,060,511
         

TOTAL PREFERRED STOCKS
(Cost: $2,569,989)

     2,647,968

SHORT-TERM INVESTMENTS – 0.08%

MONEY MARKET FUNDS – 0.08%

Barclays Global Investors Funds Institutional Money Market
Fund, Institutional Shares
3.18%
d,e

   227,984      227,984

BGI Cash Premier Fund LLC 3.22%d,e,f

   21,450      21,450
         
        249,434
         

TOTAL SHORT-TERM INVESTMENTS

  

(Cost: $249,434)

        249,434
         

TOTAL INVESTMENTS IN
SECURITIES – 99.59%
(Cost: $299,752,583)

     307,675,471

Other Assets, Less Liabilities – 0.41%

     1,277,910
         

NET ASSETS – 100.00%

   $ 308,953,381
         

ADR – American Depositary Receipts

GDR – Global Depositary Receipts

NVS – Non-Voting Shares

 

a

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

b

Non-income earning security.

c

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

d

Affiliated issuer. See Note 2.

e

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

f

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

See notes to financial statements.


 

60   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Schedule of Investments

iSHARES® S&P GLOBAL ENERGY SECTOR INDEX FUND

March 31, 2008

 

Security    Shares    Value

COMMON STOCKS – 97.48%

ARGENTINA – 0.44%

     

Tenaris SA ADR

   82,874    $ 4,131,269
         
        4,131,269

AUSTRALIA – 1.49%

     

Origin Energy Ltd.

   297,504      2,487,641

Santos Ltd.

   193,536      2,561,705

Woodside Petroleum Ltd.

   150,912      7,507,921

WorleyParsons Ltd.

   44,928      1,372,689
         
        13,929,956

AUSTRIA – 0.34%

     

OMV AG

   47,808      3,171,069
         
        3,171,069

CANADA – 10.67%

     

Cameco Corp.

   117,072      3,861,134

Canadian Natural Resources Ltd.

   177,264      12,140,092

Canadian Oil Sands Trust

   161,424      6,529,015

Enbridge Inc.

   119,952      4,948,656

EnCana Corp.

   245,952      18,745,136

Enerplus Resources Fund

   47,376      2,061,633

Husky Energy Inc.

   83,309      3,263,183

Imperial Oil Ltd.

   91,008      4,771,922

Nexen Inc.

   178,992      5,313,675

Penn West Energy Trust

   106,416      2,986,970

Petro-Canada

   162,432      7,079,537

Suncor Energy Inc.

   152,352      14,731,097

Talisman Energy Inc.

   344,448      6,113,150

TransCanada Corp.

   171,936      6,627,424

Uranium One Inc.a

   147,168      484,799
         
        99,657,423

CHINA – 1.60%

     

CNOOC Ltd.

   4,896,000      7,234,368

PetroChina Co. Ltd. ADR

   61,194      7,668,220
         
        14,902,588

FRANCE – 6.45%

     

Technip SA

   34,642      2,707,821

Total SA

   771,408      57,498,617
         
        60,206,438

 

Security    Shares    Value

ITALY – 3.30%

     

Eni SpA

   805,104    $ 27,555,715

Saipem SpA

   80,928      3,287,932
         
        30,843,647

JAPAN – 0.42%

     

Nippon Oil Corp.

   432,000      2,699,593

TonenGeneral Sekiyu K.K.

   144,000      1,234,058
         
        3,933,651

NORWAY – 1.28%

     

StatoilHydro ASA SP ADR

   400,110      11,951,286
         
        11,951,286

SPAIN – 1.12%

     

Repsol YPF SA

   151,212      5,237,721

Repsol YPF SA SP ADR

   152,332      5,241,744
         
        10,479,465

UNITED KINGDOM – 16.93%

BG Group PLC

   1,096,849      25,440,453

BP PLC

   6,140,160      62,482,268

Royal Dutch Shell PLC Class A

   1,161,504      40,098,457

Royal Dutch Shell PLC Class B

   892,224      30,075,087
         
        158,096,265

UNITED STATES – 53.44%

Anadarko Petroleum Corp.

   152,496      9,611,823

Apache Corp.

   108,146      13,066,200

Baker Hughes Inc.

   103,681      7,102,148

BJ Services Co.

   95,184      2,713,696

Cameron International Corp.a

   70,128      2,920,130

Chesapeake Energy Corp.

   148,032      6,831,677

Chevron Corp.

   681,696      58,189,571

ConocoPhillips

   517,824      39,463,367

CONSOL Energy Inc.

   60,336      4,174,648

Devon Energy Corp.

   145,731      15,204,115

El Paso Corp.

   234,864      3,908,137

ENSCO International Inc.

   47,376      2,966,685

EOG Resources Inc.

   81,648      9,797,760

Exxon Mobil Corp.

   1,748,592      147,895,911

Halliburton Co.

   286,849      11,281,771

 

SCHEDULES OF INVESTMENTS   61


Table of Contents

Schedule of Investments (Continued)

iSHARES® S&P GLOBAL ENERGY SECTOR INDEX FUND

March 31, 2008

 

Security    Shares    Value

Hess Corp.

   91,584    $ 8,075,877

Marathon Oil Corp.

   229,968      10,486,541

Murphy Oil Corp.

   61,776      5,074,281

Nabors Industries Ltd.a

   91,584      3,092,792

National Oilwell Varco Inc.a

   116,352      6,792,630

Noble Corp.

   86,112      4,277,183

Noble Energy Inc.

   56,592      4,119,898

Occidental Petroleum Corp.

   268,272      19,629,462

Peabody Energy Corp.

   86,436      4,408,236

Range Resources Corp.

   44,500      2,823,525

Rowan Companies Inc.

   36,689      1,510,853

Schlumberger Ltd.

   389,664      33,900,768

Smith International Inc.

   65,376      4,199,100

Spectra Energy Corp.

   208,299      4,738,802

Sunoco Inc.

   39,744      2,085,368

Tesoro Corp.

   45,072      1,352,160

Transocean Inc.a

   105,252      14,230,070

Valero Energy Corp.

   178,560      8,769,082

Weatherford International Ltd.a

   109,872      7,962,424

Williams Companies Inc. (The)

   196,561      6,482,582

XTO Energy Inc.

   161,136      9,967,873
         
        499,107,146
         

TOTAL COMMON STOCKS
(Cost: $772,768,393)

     910,410,203

PREFERRED STOCKS – 2.35%

BRAZIL – 2.35%

     

Petroleo Brasileiro SA SP ADR

   258,912      21,927,257
         
        21,927,257
         

TOTAL PREFERRED STOCKS
(Cost: $11,250,792)

     21,927,257

 

Security    Shares    Value

SHORT-TERM INVESTMENTS – 0.06%

MONEY MARKET FUNDS – 0.06%

Barclays Global Investors Funds Institutional Money Market
Fund, Institutional Shares
3.18%
b,c

   556,947    $ 556,947
         
        556,947
         

TOTAL SHORT-TERM INVESTMENTS

  

(Cost: $556,947)

     556,947
         

TOTAL INVESTMENTS IN
SECURITIES – 99.89%
(Cost: $784,576,132)

     932,894,407

Other Assets, Less Liabilities – 0.11%

     1,007,880
         

NET ASSETS – 100.00%

   $ 933,902,287
         

ADR – American Depositary Receipts

SP ADR – Sponsored American Depositary Receipts

 

a

Non-income earning security.

b

Affiliated issuer. See Note 2.

c

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

See notes to financial statements.


 

62   2008 iSHARES ANNUAL REPORT TO SHAREHOLDERS


Table of Contents

Schedule of Investments

iSHARES® S&P GLOBAL FINANCIALS SECTOR INDEX FUND

March 31, 2008

 

Security    Shares    Value

COMMON STOCKS – 98.28%

     

AUSTRALIA – 5.66%

  

AMP Ltd.

   82,280    $ 589,608

ASX Ltd.

   6,732      229,834

Australia and New Zealand Banking Group Ltd.

   74,936      1,542,540

AXA Asia Pacific Holdings Ltd.

   47,124      236,594

Babcock & Brown Ltd.

   10,540      141,628

Commonwealth Bank of Australia

   55,594      2,121,815

Goodman Groupa

   65,824      258,977

GPT Group

   80,580      239,062

Insurance Australia Group Ltd.

   88,740      296,483

Lend Lease Corp. Ltd.

   16,456      199,040

Macquarie Group Ltd.a

   11,424      550,828

Mirvac Group

   44,608      163,696

National Australia Bank Ltd.

   67,660      1,862,167

QBE Insurance Group Ltd.

   37,808      766,534

St. George Bank Ltd.

   24,140      566,551

Stockland Corp. Ltd.

   58,548      373,584

Suncorp-Metway Ltd.

   40,188      472,144

Westfield Group

   70,516      1,145,795

Westpac Banking Corp.

   78,812      1,708,659
         
        13,465,539

AUSTRIA – 0.21%

  

Erste Bank der Oesterreichischen Sparkassen AG

   7,888      513,081
         
        513,081

BELGIUM – 2.09%

  

Dexia SA

   32,300      923,816

Fortis

   95,812      2,423,030

Groupe Bruxelles Lambert SA

   3,672      449,709

KBC Group NV

   9,044      1,177,121
         
        4,973,676

BRAZIL – 0.25%

  

Unibanco - Uniao de Bancos Brasileiros SA Units GDR

   5,032      586,932
         
        586,932

CANADA – 5.27%

  

Bank of Montreal

   20,468      916,626

Bank of Nova Scotia

   41,412      1,878,786

 

Security    Shares    Value

Brookfield Asset Management Inc. Class A

   20,604    $ 555,437

Canadian Imperial Bank of Commerce

   15,980      1,029,461

Manulife Financial Corp.

   64,396      2,465,883

National Bank of Canada

   6,120      285,347

Royal Bank of Canada

   52,700      2,462,809

Sun Life Financial Inc.

   23,936      1,119,525

Toronto-Dominion Bank (The)

   29,852      1,836,129
         
        12,550,003

CHILE – 0.13%

Banco de Chile ADR

   1,740      92,533

Banco Santander Chile SA ADR

   4,082      213,325
         
        305,858

CHINA – 1.42%

China Construction Bank
Class H

   1,496,000      1,116,784

China Life Insurance Co. Ltd. Class H

   272,000      934,876

Industrial and Commercial Bank of China Class H

   1,904,000      1,325,951
         
        3,377,611

DENMARK – 0.31%

Danske Bank A/S