By Mark Roberts, Head of iShares Product StrategyBARCLAYS GLOBAL INVESTORS

Insider’s Guide to Exchange Traded Funds (ETFs) Younger Members Convention

What are Exchange Traded Funds (ETFs)

History of ETFs and iShares

Global ETF market overview

Benefits of ETFs

Practical applications

Comparisons to other funds

Costs & Spreads

Mechanics of ETFs

Liquidity

CONTENTS

EXCHANGE

TRADED

FUNDS (ETFs) Index tracking funds that are listed and

traded intraday on a stock exchange

Allows investors to buy or sell an entire

market index in one trade – like a share

Bought and sold through any broker

Structured and registered for sale to the

public in respective jurisdictions Mutual Fund, VCC, Sicav, etc

Not a derivative or SPV

Standard & Poors Depositary Receipts™ (SPY)

TIPS/HIPS (Canada) MidCap SPDR™ WEBS (World Equity Benchmark Shares) Diamonds™ (DJIA) Sector SPDRs™

BGI makes strategic commitment to ETFs QQQ (NASDAQ-100 Index Tracking

Stock™)

iShares Launch in US and UK WEBS re-branded

Merrill Lynch – LDRS™ launch in Europe

1993

1995199619971998

1999

2000

HISTORY

of ETFs

and iShares

Barclays Global Investors – iShares™

BoNY – QQQ (NASDAQ-100 Index Tracking Stock™)

Merrill Lynch – LDRS™

HVB – IndEXChange™

SocGen/Lyxor – MasterShare™

AXA – EasyETFs™

UBS – Fresco Index Shares™

SSgA – StreetTracks® & SPDRs

Nikko, Nomura, Daiwa - Japan

SPONSORS

of ETFs

0

20

40

60

80

100

120

140

1993

1995

1997

1999

2001

Total Global ETF AUM (30-Sept-2002)€ Bil

Since launch in 1993, ETFs have grown to >270 funds with >340 listings, trading in 17 countries with >€130 Bil in assets

ETF assets more than doubled ever year through 2000 and continue to see growth in bear market

Growth through 3Q 2003 is 11% globally, 37% in Europe

GLOBAL

ETF MARKET

OVERVIEW

BENEFITS of ETFs

Intraday Trading – buy and sell anytime the

market is open

Diversification - reduces single stock risk

Low cost – low internal management fees

Benchmark performance – reduces active risk

Transparent – daily disclosure of holdings

Liquid – access underlying stocks

Simple – trade and settle like ordinary share

Dividends paid – index yield minus fund

expenses

CURRENT

USERS of

ETFs Asset managers

Insurance companies

Private banks

Hedge funds

Retail investors

Unit trust managers

Proprietary trading desks

Arbitrageurs

Fund of fund managers

PRACTICAL

APPLICATIONS Access to Global Markets

Hedging

Tax Loss Harvesting

Equitizing Cash

Transition Tool

Alternative to Futures

Core / Satellite Strategies

Buy-and-hold Long Positions

Sector Rotation

Long / Short Strategies – Pair Trades

COMPARISONS TO OTHER FUNDS

Closed-End Funds Open-End Funds Exchange Traded Funds

(UK Investment Trusts) (UK Unit Trusts) (iShares)

Often trade at discount or No premium or discount Slight premium premium to NAV or discount*

Accessible from any Accessible by direct Accessible from anybrokerage account transactions with the Fund brokerage account

Company or distributors

Traded and priced Traded and priced Traded and pricedthroughout exchange only at end of day NAV throughout

trading day

Can sell short if allowed No short selling Can sell short if allowed by local jurisdiction by local jurisdiction

* Although BGI believes that market makers will take advantage of differences between the NAV and the trading price of iShares through arbitrage opportunities, BGI cannot guarantee that they will do so.

COSTS

Total expense ratio of fund (0.35% to

0.55%)

Bid/offer spread

Brokerage commission

ETFs do not charge loads, trailers, or

similar

BID/OFFER

SPREADS

Factors will include:

Spreads/liquidity on underlying shares in

basket

Cost of hedging for market makers

Market demand for ETF

On exchange or OTC

Transaction costs – (e.g. stamp tax)

In general:

Spreads on ETFs should be close to spreads

on buying underlying basket in cash market

ETF

MECHANICS

INVESTORS(Buyer)

iSharesMarketMakers

CAPITALMARKETS

BR

OK

ER

AG

E

EX

CH

AN

GE

iShares FundiShares plc

Cash

iShares

Cash

Securities

Basket ofSecurities

iShares

WHY do

ETFs TRADE

CLOSE to

NAV? Open-end structure

Arbitrage opportunities for market

makers should the trading price of an

ETF deviate too far away from value of

underlying basket of stocks

ETF

LIQUIDITY

An Important Take-Away For ETFs:

Trading Volume Liquidity

ETF liquidity is derived from the

liquidity of the underlying securities

and is not constrained by volume on

exchange

=

DISCLOSURES Regulatory information

Barclays Global Investors Limited, regulated by the FSA, has issued this document for access in the United Kingdom (UK). iShares is not regulated by the FSA: it is authorised by the Central Bank of Ireland. Most of the protections provided by the UK regulatory system do not apply to its operation, and compensation will not be available under the UK Investors Compensation Scheme on its default. iShares plc (“iShares”) is an investment company with variable capital incorporated in Ireland. iShares plc is a recognized scheme for the purposes of the Financial Services and Markets Act 2000.

Any subscription to any iShares fund is made on the basis of the fund prospectus, which is available by calling iShares on 0845 357 7000.

Restricted Investors

Various iShares funds have been authorised in the UK, France and The Netherlands. Accordingly, such shares are not to be marketed in any other jurisdiction. For further details please see the Prospectus of iShares plc. Specifically this document is not aimed at persons who are resident in the United States, where the Company is not authorised or registered for distribution. Shares may not except pursuant to a relevant exemption, be acquired or owned by, or acquired with the assets of, an ERISA Plan.

iShares have not been, nor will they be, qualified for distribution to the public in Canada as no prospectus for iShares has been filed with any securities commission or regulatory authority in Canada or any province or territory thereof. This document is not, and under no circumstances is to be construed, as an advertisement or any other step in furtherance of a public offering of Shares in Canada. No person resident in Canada for the purposes of the Income Tax Act (Canada) may purchase or accept a transfer of iShares unless he or she is eligible to do so under applicable Canadian or provincial laws.

Risk warnings

iShares may not be suitable for all investors. Barclays Global Investors Limited does not guarantee the performance of iShares.

The price of the investments (which may trade in limited markets) may go up or down and the investor may not get back the amount invested. Past performance will not necessarily be repeated. The value of an investment involving exposure to foreign currencies can be affected by exchange rate movements. We remind you that the levels and bases of and reliefs from taxation may change.

You are buying shares in a company that will be listed on a stock exchange. The price of the shares will be determined by supply and demand. It is not necessarily the same as the value per share of iShares plc’s assets. At any time the share price may be at a discount or premium to the asset value. However, because of the exchange traded fund structure, it is expected that a significant discount or premium of price to asset value will not be sustainable over the long term. Any projections or examples (including calculations used therein) are for illustrative purposes only and are not guaranteed to be accurate or complete. Important information about iShares is contained in the Key Features document, copies of which can be obtained by calling iShares on 0845 357 7000, or from your broker or financial adviser.

This presentation does not constitute an offer to purchase shares in any iShares funds.

“iShares” is a trademark owned by Barclays Global Investors Limited.

© August 2002Barclays Global Investors LimitedAll rights reserved