Etf Basics

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ETF BASICS: AN INTRODUCTION TO

iSHARES EXCHANGETRADED FUNDS


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Growth of ETFs

The engine of ETFs

Benefits of ETFs and iShares ETFs

Low cost

Tax efficiency

Transparency

Risk management

Liquidity

Modularity and strategies

Agenda


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Consistent growth ofexchange traded funds (ETFs)

ETFs experienced rapid growth during bear and bull markets

There are over 900 U.S. ETFs covering global equity andfixed income with AUM of over U.S. $789 billion.

0

100

200

300

400

500

600

700

800900

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

200

400

600

800

1,000

1,200

1,4001,600

U.S. ETF AUM

iShares ETFs

Others

S&P 500

Sources: FRC and Yahoo Finance, as of 12/31/09. Universe includes exchange traded grantor trusts.

AUM

($Billion)


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iShares family of funds and mutualfund markets in net new asset flows

Fund Family 2008Net Flows ($B) 2009Net Flows ($B)

Vanguard 69.2 121.4

PIMCO 23.6 80.4

iShares 54.6 44.2

Franklin Templeton -20.2 18.4

Fidelity -34.6 14.9

T. Rowe Price 2.6 14.8

State Street Global Advisors 67.5 2.8

Dodge & Cox -11.6 -1.3

Oppenheimer -11.3 -3.4

American Funds -16.4 -22.4

Fund families serve different market segments.

Source: Strategic Insight, as of 12/31/09. Excludes funds of funds and money market funds.

Information on American Funds, Vanguard Group, Dodge & Cox, State Street Global Advisors, T. Rowe Price, Dimensional Investment Group,Franklin Templeton Investments, Thornburg and Loomis Sayles is provided strictly for illustrative purposes and should not be deemed an offer

to sell or a solicitation of an offer to buy shares of securities, other than the iShares Funds, that are described in this presentation.


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WHAT IS AN ETF?


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Familiar groundbest of both worlds

Like a stock Trading flexibility intraday on the exchange

Long or short*

Options

Like an index fund

Constructed to track benchmark indexes Low expense ratios

Low turnover

* With short sales, you risk paying more for a security than you received from its sale. Short sales subject to availability.


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What sets an ETF apart?

The creation/redemption process distinguishesETFs from mutual funds and closed-end funds

The creation/redemption process enables theunique benefits of ETFs


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How traditional mutual funds work

Sellers

Buyers

Stock

Exchange

Fund

Company


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The innovative mechanism of iShares ETFs

Mutual funds and iShares Funds are obliged to distribute portfolio gains to shareholders by year-end. These gains may begenerated due to index rebalancing or to meet diversification requirements. Trading shares of the iShares Funds will alsogenerate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well.

Investor FinancialIntermediary

Stock Exchange

AuthorizedParticipants Fund Company


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iShares ETFs Active Mutual Funds

iShares ETFs seek to track a market

index, before fees and expenses

Most mutual funds are actively

managed, seeking to outperformmarket indexes

Trading Trade on exchanges intraday atmarket price, which may be greateror less than its NAV

Accessed directly through the fundcompany or through a select broker.Pricing generally occurs once a day.

Redemption process Shares not individually redeemed

through the fund

Redeemed through fund company at

end-of-day NAV, less applicable fees

Fees Expense ratio plus transaction costs Expense ratios (typically higher thanindex-linked products2); may chargesales loads or redemption fees

Tax implications Transactions generate taxconsequences for the transacting

shareholder only; obliged to distributegains to all shareholders

Shareholder transactions may generatetax consequences for all shareholders;

obliged to distribute gains toshareholders

Transparency Daily holdings disclosure3 Generally quarterly holdings disclosure

2. Active funds typically charge higher fees than index-linked products due to increased trading and research expensesthat may be incurred

3. In accordance with MSCI licensing, holdings for MSCI-indexed funds are updated monthly.

Accessibility

Costs

Trans-

parency

Strategy

Know the Differences


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The benefits of iShares ETFs

Low cost

Tax efficiency

Transparency

Risk management

Liquidity

Modularity and strategies


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COSTS OF INVESTINGINTERNAL FEES AND TAXES


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Internal expenses matter

$100,000 investment for 10 years 8% annualized return

www.sec.gov/investor/tools/mfcc/fund-label.htmDoes not include commissions or sales charges.

Internal fees $3,862$1,475

$210,556

$7,625$2,930

$14,866$5,778

$215,892gross value

25 bps 50 bps 100 bps

$205,338 $195,249

Foregone earnings

Net value


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iShares Funds low expense ratios

Fund Category bps iShares ETF

Large cap 9

15

iShares S&P 500

iShares Russell 1000

Small cap 20

20

iShares S&P SmallCap 600

iShares Russell 2000

Fixed income 1515

20

iShares Barclays Treasury SeriesiShares iBoxx $ Investment Grade Corporate Bond

iShares Barclays Aggregate & TIPS

International 55-73

35

72

50

iShares MSCI International Series

iShares MSCI EAFE

iShares MSCI Emerging Markets

iShares MSCI Pacific ex-Japan

Sector 4848

iShares Dow Jones SectorsiShares S&P Global Sectors

Transactions in shares of the iShares Funds will result in brokerage commissions.


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Tax efficiency of iShares ETFs

Index funds

Low turnover

Baskets of securities for shares

Creation/redemption process

Capital gain control Shareholders interact via exchange

Taxed as an equity transaction

ETFs can produce capital gain distributions. For example, during an underlying index reconstitution or corporate actions (especially foreign).


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RISK MANAGEMENT


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iShares ETFs are transparent

Manage the unknown know what you own

iShares holdings are published daily on iShares.com*

Pricing of underlying holdings is refreshed continually

No style drift

Each benchmark represents a defined market segment

Benchmark providers publish methodology

Manage risk

iShares ETFs are designed to closely track a benchmark

* In accordance with MSCI licensing, holdings for MSCI-indexed funds are updated monthly.


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Tracking of iShares Funds

Source: BlackRock.

Past tracking performance does not guarantee future performance.

iShares Funds 3-Year AverageAnnual Tracking(as of 12/31/09)

Expense Ratio(as of 1/1/10)

S&P 500 0.01% 0.09%

Russell 2000 0.09% 0.20%

Dow Jones U.S. Total Market 0.16% 0.20%

Dow Jones U.S. Technology 0.53% 0.48%

MSCI Japan 0.38% 0.56%

MSCI EAFE 0.02% 0.35%


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LIQUIDITY


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iShares ETFs offer enhanced liquidity

Liquidity of underlying securities provides foundation for ETF liquidity.Exchange traded attribute provides additional layers of liquidity.

Market participants compete for client orders, leading to tighter spreads.

Investors receive price improvement by transacting in the ETF wheneverthey buy/sell the ETF inside the spread cost of the underlying portfoliobasket of securities.

Trading volume is not indicative of total liquidity in an ETF


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iShares ETF liquidity offers price improvement

Sources: NYSEArca, Bloomberg, as of 12/31/09.

iShares MSCI Emerging Markets (EEM)

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2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2004 2005 2006 2007 2008 2009

AnnualSharesTraded(millions)

$0.00

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

$0.18

Spre

ad($)

0

5,000

10,000

15,000

20,000

25,000

30,000

2004 2005 2006 2007 2008 2009

AnnualSharesTraded(millions)

$0.00

$0.01

$0.02

$0.03

$0.04

$0.05

Spre

ad($)

EEM Volume

ETF Spread ($)

Current bid/ask spread inunderlying = 7.5 cents.

Current bid/ask spread inunderlying = 6 cents.

iShares Russell 2000 (IWM)

IWM Volume

ETF Spread ($)


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iSHARES MODULAR

FAMILY OF FUNDSA SOLUTIONS-DRIVEN APPROACH


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The benefits of modularity

Building block format

Enables implementation of strategies

Indexing pre-2000 and post-2000

Source: FRC, as of 2/28/07. Universe includes exchange traded grantor trusts.


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Modularity and portfolio completion

U.S. Equity Portfolio

Large CapStocks

S&P 1500

S&P 500S&P 500Growth

S&P 500Value

S&PSmallCap

600

S&P SmallCap600 Growth

S&P SmallCap600 Value

S&PMidCap

400

S&P MidCap400 Growth

S&P MidCap400 Value

For illustrative purposes only.


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Modularity and core/satellite

Portfolio of ActiveFunds or Managers

Small CapGrowth

Large CapGrowth

Large CapValue

Small CapValue

Russell 3000

Russell1000

Russell2000

RussellMidcap

Russell 2000Growth

Russell 2000Value

Russell 1000Growth

Russell 1000

Value

Russell MidcapGrowth

Russell MidcapValue



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Modularity and tactical investing

Dow JonesU.S. Total Market

Basic Materials

Consumer Goods

Energy

Financial

Healthcare

Industrial

Technology

Telecom

Utilities

Consumer Services

Utilities ConsumerServices

EnergyTechnology



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Modularity and duration management

Barclays Capital 13 Year Treasury

Barclays Capital 710 Year Treasury

Barclays Capital 20+ Year Treasury

iBoxx $ Investment

Grade Corporate Bond

Barclays Capital 13 Year Credit

Barclays Capital Intermediate Credit

iBoxx $ High Yield Corporate

Duration

Yield



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Good for clients. Good for business.

Manage costs

Manage risks

Manage taxes

Complementary to your business

Portfolio managers and asset managers

Wealth managers

Consultants and advisors


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Carefully consider the iShares Funds investment

objectives, risk factors and charges and expenses beforeinvesting. This and other information can be found in theFunds prospectuses, which may be obtained by calling

1-800-iShares or by visiting www.iShares.com. Read theprospectuses carefully before investing.

Investing involves risk, including possible loss of principal.

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The information provided is not intended to be a complete analysis of every material fact respecting anystrategy and has been presented for educational purposes only.

Asset allocation models and diversification do not promise any level of performance or guarantee against

loss of principal.Shares of iShares Funds are bought and sold at market price (not NAV) and are not individuallyredeemed from the Fund.

Mutual funds and iShares Funds are obliged to distribute portfolio gains to shareholders by year-end.These gains may be generated due to index rebalancing or to meet diversification requirements. Tradingshares of the iShares Funds will also generate tax consequences and transaction expenses. Certaintraditional mutual funds can be tax efficient as well.

When comparing stocks or bonds and iShares Funds, it should be remembered that management feesassociated with fund investments, like iShares Funds, are not borne by investors in individual stocks orbonds. The annual management fees of iShares Funds may be substantially less than those of mostmutual funds. Buying and selling shares of iShares Funds will result in brokerage commissions, but thesavings from lower annual fees can help offset these costs.

Neither BlackRock Institutional Trust Company, N.A. and its affiliates nor SEI and its affiliates provide taxadvice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot beused by you for the purpose of avoiding tax penalties; (ii) this communication was written to support thepromotion or marketing of the matters addressed herein; and (iii) you should seek advice based on yourparticular circumstances from an independent tax advisor.

Index returns are for illustrative purposes only and do not represent actual iShares Fund performance.Index performance returns do not reflect any management fees, transaction costs or expenses. Indexesare unmanaged and one cannot invest directly in an index. Past performance does not guaranteefuture results.

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The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Cohen & Steers CapitalManagement, Inc., Dow Jones & Company, Inc., European Public Real Estate Association (EPRA),FTSE International Limited (FTSE), FTSE/Xinhua Index Limited (FXI), iBoxx, J.P. Morgan SecuritiesInc., MSCI Inc., Morningstar Inc., The NASDAQ OMX Group, Inc., National Association of Real Estate

Investment Trusts (NAREIT), New York Stock Exchange, Inc., Frank Russell Company, or Standard &Poors, nor are they sponsored, endorsed, or issued by Barclays Capital. None of these companies makeany representation regarding the advisability of investing in the Funds. Neither SEI, nor BlackRockInstitutional Trust Company, N.A., nor any of their affiliates, are affiliated with the companies listed above.

FXI does not make any warranty regarding the FTSE/Xinhua Index. All rights in the FTSE/Xinhua Indexvest in FXI. Neither FTSE nor NAREIT makes any warranty regarding the FTSE NAREIT Real Estate50/Residential/Retail/Mortgage REITs or Industrial/Office Index; all rights vest in NAREIT. Neither FTSEnor NAREIT makes any warranty regarding the FTSE EPRA/NAREIT Global Real Estate ex-US/North

America/Europe/Asia Index; all rights vest in FTSE, NAREIT, and EPRA. All rights in the FTSE Developed

Small Cap ex-North America Index vest in FTSE. "FTSE" is a trade- and servicemark of London StockExchange and The Financial Times Limited; "Xinhua" is a trade- and servicemark of Xinhua FinancialNetwork Limited.

The iShares Funds are distributed by SEI Investments Distribution Co. (SEI). BlackRock Fund Advisors(BFA) serves as the investment advisor to the Funds. BFA is a subsidiary of BlackRock Institutional TrustCompany, N.A., neither of which is affiliated with SEI.

2010 BlackRock Institutional Trust Company, N.A. All rights reserved. iShares is a registered trademarkof BlackRock Institutional Trust Company, N.A. All other trademarks, servicemarks, or registered trade-marks are the property of their respective owners. iS-1944-0110 DB-1562-KM10-1/10

Not FDIC Insured No Bank Guarantee May Lose Value

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Etf Basics

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