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Daily 30-Year Treasury Bull 3x Shares Daily 30-Year Treasury Bear 3x Shares NYSE Arca Current 30-Year U.S. Treasury Index

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•1

ETFs to the

Power

of X

For Financial Intermediary Use Only – Not For Use with Investing Public

Bull Funds Bear Funds Index / Benchmark

Daily Large Cap Bull 3x Shares Daily Large Cap Bear 3x Shares Russell 1000® Daily Small Cap Bull 3x Shares Daily Small Cap Bear 3x Shares Russell 2000® Daily Energy Bull 3x Shares Daily Energy Bear 3x Shares Russell 1000® Energy Index Daily Financial Bull 3x Shares Daily Financial Bear 3x Shares Russell 1000® Financial Service Index Daily Developed Markets Bull 3x Shares Daily Developed Markets Bear 3x Shares MSCI EAFE® Index Daily Emerging Markets Bull 3x Shares Daily Emerging Markets Bear 3x Shares MSCI Emerging Market Index Daily Technology Bull 3x Shares Daily Technology Bear 3x Shares Russell 1000® Technology Index

Direxion Shares Line-up

2

Daily Mid Cap Bull 3x Shares Daily Mid Cap Bear 3x Shares Russell MidCap® Index Daily 10-Year Treasury Bull 3x Shares Daily 10-Year Treasury Bear 3x Shares NYSE Arca Current 10-Year U.S. Treasury Index Daily 30-Year Treasury Bull 3x Shares Daily 30-Year Treasury Bear 3x Shares NYSE Arca Current 30-Year U.S. Treasury Index

Bull Funds Bear Funds Index/Benchmark

Domestic Equity

S&P 500® Bull 2.5x Fund S&P 500® Bear 2.5x Fund S&P 500® NASDAQ-100® Bull 2.5x Fund NASDAQ-100® Bear 2.5x Fund NASDAQ-100® Small Cap Bull 2.5x Fund Small Cap Bear 2.5x Fund Russell 2000®

International Equity

Emerging Markets Bull 2x Fund Emerging Markets Bear 2x Fund MSCI Emerging MarketsSM Developed Markets Bull 2x Fund Developed Markets Bear 2x Fund MSCI EAFE® Latin America Bull 2x Fund S&P® Latin America 40 China Bull 2x Fund FTSE/Xinhua China 25

Direxion Funds Line-up

3

China Bull 2x Fund FTSE/Xinhua China 25

Commodity

Commodity Bull 2.5x Fund Morgan Stanley® Commodity Related

Currency

Dollar Bull 2.5x Fund Dollar Bear 2.5x Fund U.S. Dollar®

Fixed Income

10 Year Note Bull 2.5x Fund 10 Year Note Bear 2.5x Fund 10 Year Treasury Note

Alternative Strategy Funds

HY Bear Fund Total Return in Declining High Yield Markets Dynamic HY Bond Fund Total Return in High Yield Markets Direxion/Wilshire Dynamic Fund

-Financial Trends Strategy Fund S&P® Financial Trends Indicator Commodity Trends Strategy Fund S&P Commodity Trends Indicator™

Leveraged ETF Growth

>

First leveraged ETF launched in 2006 by ProShares

>

2008 Net cash inflow of +$15 billion (up 126% YOY)

>

Combined assets of $30 billion (as of 4/30/09)

>

Proshares (+80% of assets)

>

Direxion Shares (+10% of assets)

4

(

)

>

PowerShares/Deutsche Bank (5% of assets)

>

Rydex (1%)

>

Average Daily trading volume +$18 billion.

>

Composition & Portfolio Management

>

Implications of Daily Beta Performance

>

Compounding

>

Counterparty Exposure

>

Leveraged ETF Myths

Agenda

5

>

Leveraged ETF Myths

>

Leveraged ETF’s role in Wealth Management

Portfolio Management: Composition & Exposure

Bull ETFs

>

80-100% equities

>

Replicate Indexes with Limited Constituents

>

Optimized Indexes with large numbers of securities

> Minimize transaction cost

6 > Replicates target index

>

200-220% derivatives (swaps or futures)

Bear ETFs

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•2

Portfolio Management: Rebalancing a Bull Fund

Hypothetical Example:

7

*These performance numbers do not reflect daily operating expenses and financing charges, are hypothetical in nature, and are not representative of actual Direxion Shares returns. There is no guarantee the funds will achieve their objective.

Portfolio Management: Rebalancing a Bull Fund

Hypothetical Example:

8

*These performance numbers do not reflect daily operating expenses and financing charges, are hypothetical in nature, and are not representative of actual Direxion Shares returns. There is no guarantee the funds will achieve their objective.

>

When Benchmark Trends in Favorable Direction

>

(Up for Bull Fund and Down for Bear Fund)

>

Fund’s gains may exceed product of

Index Return and Fund Beta

Implications of Daily Beta for Performance

Hypothetical Example:

9

Fund Return Product of Index

Return and Fund Beta

Implications of Daily Beta for Performance

>

When Benchmark Trends in Unfavorable Direction

>

(Down for Bull Fund and Up for Bear Fund)

>

Fund’s losses may be less than product of

Index Return and Fund Beta

Hypothetical Example:

10

Fund Return Index Return

Hypothetical Example:

Implications of Daily Beta for Performance

>

Volatile Markets (Now!)

>

Fund Return will trail product of Index

Return and Fund Beta

Hypothetical Example: 11 Fund Return Index Return -50 0 50 100 150 Re tu rn % Financial Bear 3x Russell LC Financial Index Financial Bull 3x

Compounding in Trending Markets

Financial Bear: 171.73%

Russell Fin Index: -30.42%

12 -100 11/6 /200811/7/200811/8/200811/9/200811/10/200811/11/200811/12/200811/13/200811/14/200811/15/200811/16/200811/17/200811/18/200811/19/200811/20/2008 Date Financial Bull: -70.19% As of 12/31/2008

Symbol Fund 1 Month

(%) 3 Month (%) YTD (%) 1 Year (%) Since Inception Inception Date Expense Ratio * (Gross/Net %) NAV -19.64 - -57.76 - -57.76 11/6/2008 0.94 / 0.94 FAS Financial Bull 3x

Shares MarketClose -17.47 - -57.47 - -57.47 11/6/2008 0.94 / 0.94 NAV -36.24 - -41.18 - -41.18 11/6/2008 0.94 / 0.94

FAZ Financial Bear 3x

Shares MarketClose -36.98 - -40.50 - -40.50 11/6/2008 0.94 / 0.94

The performance data quoted represents past performance; past performance does not guarantee future results; the investment return and principal value of an investment will fluctuate; an investor's shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. Short term performance, in particular, is not a good indication of the fund's future performance, and an investment should not be made based solely on returns. For additional information, see the fund's prospectus.

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•3

Compounding in Volatile Markets

-50 0 50 100 150 Re tu rn % Financial Bear 3x Russ LC Financial Index Financial Bull 3x

Financial Bear: -50.01% Russell Fin Index: -6.32%

13 -100 11 /6/2008 11/12 /2008 11/18 /2008 11/24 /2008 11/30 /2008 12 /6/2008 12/12 /2008 12/18 /2008 12/24 /2008 12/30 /2008 Date Financial Bull: -48.08%

Symbol Fund 1 Month

(%) 3 Month (%) YTD (%) 1 Year (%) Since Inception Inception Date Expense Ratio * (Gross/Net %) NAV -19.64 - -57.76 - -57.76 11/6/2008 0.94 / 0.94 FAS Financial Bull 3x

Shares Market Close -17.47 - -57.47 - -57.47 11/6/2008 0.94 / 0.94 NAV -36.24 - -41.18 - -41.18 11/6/2008 0.94 / 0.94

FAZ Financial Bear 3x

Shares Market Close -36.98 - -40.50 - -40.50 11/6/2008 0.94 / 0.94

As of 12/31/2008

The performance data quoted represents past performance; past performance does not guarantee future results; the investment return and principal value of an investment will fluctuate; an investor's shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. Short term performance, in particular, is not a good indication of the fund's future performance, and an investment should not be made based solely on returns. For additional information, see the fund's prospectus.

>

Is Counterparty Exposure a Risk?

>

YES

>

What do you do to mitigate that risk?

>

Constant credit analysis

>

Diversification

Counterparty Exposure

14

>

Diversification

>

Tri-party Collateral Management:

> Segregated Account held at Custodian for benefit of the CP

> Daily Margin Management

> Effectively reduces CP exposure to 1 day mark to market risk.

Myths about Leveraged ETFs

>

Myth 1:

They Exacerbate Market Volatility,

Especially At The Close

>

Myth 2:

Bear Funds Exacerbate Market Declines

15 50 60 70 80 90

Myth 1: Exacerbating Market Volatility

Volatility has declined substantially since Direxion launch

16 0 10 20 30 40 1/3/2 0 08 2/3/2 0 08 3/3/2 0 08 4/3/2 0 08 5/3/2 0 08 6/3/2 0 08 7/3/2 0 08 8/3/2 0 08 9/3/2 0 08 10 /3/2 008 11 /3/2 008 12 /3/2 008 1/3/2 0 09 2/3/2 0 09 3/3/2 0 09 4/3/2 0 09 5/3/2 0 09 Source: Bloomberg Direxion Shares Launch

Leveraged ETFs transact at (or near) the Close:

Buying on Up Days; Selling on Down Days

H

Myth 1: Exacerbating Market Volatility

17

However:

>

Rebalancing trades are highly transparent and are arbitraged

>

Trades in response to creations and redemptions have no

impact at the close because AP is going in opposite direction

Myth 1: Exacerbating Market Volatility

Volatility at the open is actually higher than the close

18 Source: NYSE

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•4

Myth 2: Intensifying Market Declines

Leveraged ETFs Were Net Long Financials Through the Most Volatile Markets

2,000,000,000.00 3,000,000,000.00 4,000,000,000.00 Net Long/Short 19 (3,000,000,000.00) (2,000,000,000.00) (1,000,000,000.00) -1,000,000,000.00 1 1 /6 /2 0 0 8 11 /2 0 /20 08 1 2 /5 /2 0 0 8 12 /1 9 /20 08 1/ 6 /20 09 1/ 2 1 /2 00 9 2/ 4 /20 09 2/ 1 9 /2 00 9 3/ 5 /20 09 3/ 1 9 /2 00 9 4/ 2 /20 09 4/ 1 7 /2 00 9 5/ 1 /20 09 5/ 1 5 /2 00 9

Myth 2: Intensifying Market Declines

Short Exposure of All Bear ETFs Is Small Fraction of Total Short Exposure

250,000,000,000 300,000,000,000 350,000,000,000 20 0 50,000,000,000 100,000,000,000 150,000,000,000 200,000,000,000

Total Short lnterest Leveraged Index

12/31/08 1/31/09 2/27/09 3/31/09 4/30/09

Myth 2: Intensifying Market Declines

Financial Short Exposure of All Bear ETFs Is Small Fraction of Overall Short Exposure

50,000,000,000 60,000,000,000 70,000,000,000 21 0 10,000,000,000 20,000,000,000 30,000,000,000 40,000,000,000

Total Short lnterest Leveraged Index

12/31/09 1/31/09 2/27/09 3/31/09 4/30/90

>

Volatile Trading Environment

(NOW)

>

Short term directional play

>

Tactical rebalancing

>

Day Trading

>

Intra-day hedge.

Leveraged ETFs Role in Wealth Management

22

y

g

>

Benign Volatility:

(NOT NOW)

>

Longer term positions

>

Hedging

>

Portable Alpha

200.00% 250.00%

Daily Volume as Percent of Outstanding Shares

April 2009 23 0.00% 50.00% 100.00% 150.00% BGU BG Z DPK DZ K EDC EDZ ER X ER Y FA S FAZ MWJ MW N TN A TY H TY P TZ A Average Daily Volume

Disclosures

Russell 1000 Financial Services Index – measures the performance of all financial services related securities in the Russell 1000 Index.

Indexes are unmanaged and cannot be invested in directly.

The Russell Indexes noted herein are trademarks of Russell Investments and have been licensed for use by Direxion Shares. These funds are not sponsored, endorsed, sold or promoted by Russell Investments and Russell Investments makes no representation regarding the advisability of investing in the funds.

An investor should consider the investment objectives, risks, charges, and expenses

24

An investor should consider the investment objectives, risks, charges, and expenses of Direxion Shares carefully before investing. The prospectus contains this and other information about Direxion Shares. To obtain a prospectus, please visit www.direxionshares.com. The prospectus should be read carefully before investing. Investing in index funds may be more volatile than investing in broadly diversified funds. The use of leverage by a fund increases the risk to the fund. The more a fund invests in leveraged instruments, the more the leverage will magnify gains or losses on those investments. The risks associated with each fund are detailed in the prospectus. These include adverse market condition risk, adviser's investment strategy risk, aggressive investment techniques risk, concentration risk, counterparty risk, credit and lower-quality debt securities risk, equity securities risk, currency exchange risk, daily correlation risk, daily rebalancing and market volatility risk, depository receipt risk, foreign and emerging markets securities risk, sector securities risk, interest rate risk, inverse correlation risk, leverage risk, market risk, non-diversification risk, shorting risk, small- and mid-cap company risk, tracking error risk, and special risks of exchange-traded funds.

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•5

25 Direxion Direxionsharesshares 275 Washington Street 275 Washington Street One Newton Place, Suite 310 One Newton Place, Suite 310

Newton, MA 02458 Newton, MA 02458

617 617--399399--88208820

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1

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Opportunities in the U.S. fixed income ETF market

16%

2%4%

4%

2% 22%

Aggregate Corp High-Yield

2

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Sources: BGI, Bloomberg, FactSet, as of 12/31/08.

5%

30%

15%

gg g pg Corp High-Yield Corp Investment Grade Govts TIPS Govt/Corp International Mortgage Muni

Fixed income correlations

Fixed income asset classes have lower historical correlations with each other.

This makes the impact of style drift much greater.

Total Return Historical Correlations

ABS TREASURY CREDIT HIGH YIELD CMBS

3

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Treasury 1.00

Credit .70 1.00

High Yield (.13) .47 1.00

ABS .34 .60 .42 1.00

CMBS .29 .51 .52 .41 1.00

Source: Barclays Capital, as of 3/99-3/09. Fixed income sectors as measured by the Barclays Treasury Index, Barclays Credit Index, Barclays High Yield Index, Barclays ABS Index and Barclays CMBS Index, respectively.

Fixed income markets are inefficient

Equities and ETFs are exchange traded

 Central execution

 2-sided markets supported by a market maker  Observable bid/offer spreads

 Direct measurement of t-costs

4

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

The fixed income market is an Over The Counter (OTC) market

 Transactions are done directly between participants  No exchange to ensure best execution

 Lack of transparency into what transaction costs are paid  Often large disparities in transaction costs paid by investors

Flexible fixed income?

Holding bonds directly creates challenges with:

Liquidity

Getting bids and offers in volatile markets

Trading when you need to trade

Access

5

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Exposure to high yield, emerging markets, and esoteric asset classes

Performing sufficient research on individual credits

Scale

Getting sufficient diversification, especially for smaller accounts

High transaction costs on odd lots

Tactical bond allocations can be executed only by

the most sophisticated investors

The paradox of active fixed income management

What is the role of fixed income in a portfolio?

“Ultimate security of principal”

“Clients want safety”

6

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

“Steady income” “Diversification”

“Provide a cushion in falling equity

markets”

(7)

The paradox of active fixed income management

Investors need to decide if they want alpha from their fixed

income manager

Understand that both alpha and downside protection are likely not possible

Take a close look at managers—look for ability to generate alpha and also

protect in down markets

There are good active managers—the challenge is finding them

7

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Index funds offer a lower-cost way of accessing market beta

More surety of fund performance in turbulent markets

Less downside loss in down markets than average active manager

The right choice depends on an investor’s view of the

role they want fixed income to play in their portfolio

The paradox of active fixed income management

The average active manager:

Outperforms in stable markets and when spreads narrow

Underperforms when credit spreads widen and markets dislocate

8

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Sources: Barclays and Morningstar, as of 12/31/08. High-Yield Index Excess Return is the excess return of the Barclays Capital U.S. High Yield Index over the Barclays Capital U.S. Aggregate Index. Active manager alpha represents average open-end mutual fund minus benchmark return within the universe of active mutual fund managers benchmarked to the Barclays Capital U.S. Aggregate Index within Morningstar. Past performance does not guarantee future results.

The paradox of active fixed income management

Overall, many active managers underperformed their benchmarks and

over a longer-term horizon nearly all active managers underperformed

9

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Source: Morningstar, as of 12/31/08. Taxable managers represent the Morningstar Intermediate Term Bond Category versus the Barclays Capital U.S. Aggregate Index. Past performance does not guarantee future results.

The paradox of active fixed income management

Not only have active managers historically failed to deliver on

performance, they have done so with increased risk

10

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Source: Morningstar, as of 12/31/08. Taxable managers represent the Morningstar Intermediate Term Bond Category versus the Barclays Capital U.S. Aggregate Index. Past performance does not guarantee future results.

The paradox of active fixed income management

Alpha turns negative exactly when an investor needs

diversification and stability

20% 30% 40% 50% 60% e tur n -2% 0% 2% lpha 11

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

-50% -40% -30% -20% -10% 0% 10% 20% 91 92 9394 95 96 97 98 99 00 01 02 03 04 05 06 07 08 S& P 500 R e -10% -8% -6% -4% M a na ge r A l

12-Month Rolling S&P 500 Return 12-Month Rolling Manager Alpha

Fixed income iShares ETFs

120 200 100 150 200 250 O ffer S p read ( bps ) iShares Bid/Offer Market Bid/Offer (est.)

12

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

6 8 20 6 4 2 30 20 25 5 0 50

AGG LQD HYG TIP TLT SHY

Bi d /O Source: BGI. * 30-day average as of 2/24/09. Bid/offer data as of 11/30/08. Barclays Capital U.S. Aggregate Index iBoxx $ Investment Grade Corporate Bond Index iBoxx $ High Yield Corporate Bond Index Barclays Capital U.S. TIPS Index Barclays Capital U.S. 20+ Year Treasury Index Barclays Capital 1-3 Year Treasury Index

iShares Avg. Daily

Volume ($M)* 67.7 152.6 58.7 110.6 307.8 101.9 Underlying

(8)

iShares modular family of fixed income ETFs

FIXED INCOME BROAD MARKET BOND FUND

iShares Barclays Aggregate AGG 0.20*

TREASURY BOND FUNDS

iShares Barclays Short Treasury SHV 0.15

iShares Barclays 1–3 Year Treasury SHY 0.15

iShares Barclays 3–7 Year Treasury IEI 0.15

iShares Barclays 7–10 Year Treasury IEF 0.15

iShares Barclays 10–20 Year Treasury TLH 0.15

iShares Barclays 20+ Year Treasury TLT 0.15

AGENCY BOND FUND

iShares Barclays Agency AGZ 0.20

CREDIT/CORPORATE BOND FUNDS

iShares Barclays 1–3 Year Credit CSJ 0.20

iShares Barclays Intermediate Credit CIU 0.20

iShares Barclays Credit CFT 0.20

iShares iBoxx $ Investment Grade Corporate LQD 0.15

iShares iBoxx $ High Yield Corporate HYG 0.50

GOVERNMENT/CREDIT BOND FUNDS

TRADING SYMBOL MGMT FEES(%)† TRADING SYMBOL MGMT FEES(%)† 13

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

† "Management Fees" are fees paid to Barclays Global Fund Advisors (BGFA), the Fund's investment advisor. A Fund may also incur indirect expenses on its investments, if any, in other investment companies. Please see the Fund's prospectus for more information on such expenses.

* The total annual operating expenses are shown for the iShares Barclays Aggregate Bond Fund and iShares Barclays MBS Bond Fund. In addition to the management fees, the total expenses include “acquired fund fees and expenses” of 0.04% and 0.11%, respectively, which are related to the funds' investments in the BGI Prime Money Market Fund (the “money market fund”). “Acquired fund fees and expenses” represent the funds' pro rata share of the fees and expenses charged by the money market fund and may vary based on the funds’ allocation of assets to the annualized net expenses of the money market fund. Annual operating expenses do not include the effect of interest earned by investments in the money market fund, which is expected to offset the money market fund's fees and expenses.

iShares Barclays TIPS TIP 0.20

MUNICIPAL BOND FUNDS

iShares S&P California Municipal CMF 0.25

iShares S&P National Municipal MUB 0.25

iShares S&P New York Municipal NYF 0.25

iShares S&P Short Term

National Municipal SUB 0.25

iShares Barclays Intermediate Govt./Credit GVI 0.20

iShares Barclays Government/Credit GBF 0.20

MORTGAGE-BACKED BOND FUND

iShares Barclays MBS MBB 0.25*

INTERNATIONAL FIXED INCOME

iShares JPMorgan USD Emerging Markets EMB 0.60

iShares S&P/Citigroup International Treasury IGOV 0.35 iShares S&P/Citigroup 1-3 Year Int’l Treasury ISHG 0.35

Carefully consider the iShares Funds’ investment

objectives, risk factors and charges and expenses

before investing. This and other information can be

found in the Funds’ prospectuses, which may be

obtained by calling 1-800-iShares or by visiting

www.iShares.com. Read the prospectus carefully

14

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

before investing.

Investing involves risk, including possible loss

of principal.

In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. An investment in the fund(s) is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

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

Diversification may not protect against market risk. Asset allocation models 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 individually redeemed 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. Trading shares of the iShares Funds will also generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well.

15

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

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

Neither Barclays Global Investors, N.A. and its affiliates nor SEI and its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein: and (iii) you should seek advice based on your particular 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. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Cohen & Steers Capital Management, Inc., Dow Jones & Company, Inc., European Public Real Estate Association ("EPRA®"), FTSE International Limited ("FTSE"), FTSE/Xinhua Index Limited ("FXI"), iBoxx®, J.P. Morgan Securities Inc., KLD Research & Analytics, Inc., MSCI Inc., Morningstar Inc., The NASDAQ Stock Market, Inc., National Association of Real Estate Investment Trusts ("NAREIT"), New York Stock Exchange, Inc., Frank Russell Company, or Standard & Poor's, nor are they sponsored or endorsed by Barclays Capital. None of these companies make any representation regarding the advisability of investing in the Funds. Neither SEI nor Barclays Global Investors, nor any of their affiliates, are affiliated with the companies listed above except Barclays Capital, which is an affiliate of Barclays Global Investors.

FXI does not make any warranty regarding the FTSE/Xinhua Index. All rights in the FTSE/Xinhua Index vest in FXI. Neither FTSE nor NAREIT makes any warranty regarding the FTSE NAREIT Real Estate 50 Index, FTSE NAREIT Residential Index, FTSE NAREIT Retail Index, FTSE NAREIT Mortgage REITs

16

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Not FDIC Insured • No Bank Guarantee • May Lose Value

, , , g g

Index or FTSE NAREIT Industrial/Office Index; all rights vest in NAREIT. Neither FTSE nor 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 Stock Exchange and The Financial Times Limited; "Xinhua" is a trade- and servicemark of Xinhua Financial Network Limited. “NAREIT®” is a trademark of NAREIT; “EPRA®” is a trademark of EPRA.

The iShares Funds are distributed by SEI Investments Distribution Co. (SEI). Barclays Global Fund Advisors (BGFA) serves as the investment advisor to the Funds. BGFA is a subsidiary of Barclays Global Investors, N.A., a majority-owned subsidiary of Barclays Bank PLC, none of which is affiliated with SEI.

2009 Barclays Global Investors. All rights reserved. iShares® is a registered trademark of Barclays Global Investors, N.A. All other trademarks, servicemarks or registered trademarks are the property of their respective owners. iS-0717-0509

For more information, visit

www.iShares.com

Get Started Track-based learning

Education Center Watch, listen, get credit

17

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

1-800-iShares

Product Information Holdings, price and return information

Document Library Client presentations and materials

(9)

Draft

1

ETF BASICS: AN INTRODUCTION TO

iSHARES

®

EXCHANGE

TRADED FUNDS

Growth of ETFs and Barclays Global Investors

The engine of ETFs

Unique benefits of ETFs and iShares

Low cost

Agenda

2 

Tax efficiency

Transparency

Risk management

Liquidity

Modularity and strategies

Consistent growth of

exchange traded funds (ETFs)

ETFs experienced rapid growth during bear and bull markets

There are 845 U.S. ETFs – covering global equity and

fixed income with AUM of over U.S. $542 billion.

700

1 400 1,600

U.S. ETF AUM

3 0 100 200 300 400 500 600 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 0 200 400 600 800 1,000 1,200 1,400 iShares Others S&P 500

Sources: FRC and Yahoo Finance, as of 12/31/08. Universe includes exchange traded grantor trusts.

iShares family of funds and mutual

fund markets in net new asset flows

Fund Family Net Flows ($B)2007 Net Flows ($B)2008

Vanguard 74.4 69.2

State Street Global Advisors 49.1 67.5

iShares 58.9 54.6 DFA 15.4 5.0 L i S l 10 1 2 7 4 Loomis Sayles 10.1 2.7 T. Rowe Price 18.6 2.6 Thornburg 10.5 1.2

Dodge & Cox 17.8 -11.6

American Funds 74.5 -16.4

Franklin Templeton 8.9 -20.2

Fund families serve different market segments.

Source: Strategic Insight,as of 12/31/08. 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.

WHAT IS AN ETF?

WHAT IS AN ETF?

Familiar ground…best of both worlds

Like a stock

Trading flexibility intraday on the exchange

Long or short*

Options

6

Like an index fund

Constructed to track benchmark indexes

Low expense ratios

Low turnover

(10)

Draft

2

What sets an ETF apart?

The creation/redemption process distinguishes

ETFs from mutual funds and closed-end funds

The creation/redemption process enables the

unique benefits of ETFs

7

How traditional mutual funds work

Buyers 8 Sellers Stock Exchange Fund Company

The innovative mechanism of iShares ETFs

ra ge A c c ount Investor Buyer k et M aker/ e d P a rticipant On Exchange ETF Liquidity In kind delivery dl i c e s of l iqui di ty ETF

Deliver ETF Shares

9

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. Trading shares of the iShares Funds will also generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well.

Br ok e Ma rk A u thoriz e BGI iShares Underlying Portfolio Liquidity underlying portfolio basket T w o S our c Cash

The creation/redemption process is the conductor of liquidity

between ETFs and their underlying assets

COSTS OF INVESTING

COSTS OF INVESTING

INTERNAL FEES AND TAXES

Internal expenses matter

$100,000 investment for 10 years

8% annualized return

$215,892

gross value

25 bps

50 bps

100 bps

11

For illustrative purposes only. www.sec.gov/investor/tools/mfcc/fund-label.htm Does not include commissions or sales charges.

Internal fees

$3,862

$1,475

$210,556

$7,625

$2,930

$14,866

$5,778

$205,338

$195,249

Foregone earnings

Net value

iShares Funds’ low management fees¹

Fund Category bps iShares ET F

Large-cap 9 15 iShares S&P 500 iShares Russell 1000 Small-cap 20 20

iShares S&P SmallCap 600 iShares Russell 2000

12

Fixed income 15

15 20

iShares Barclays Treasury Series iShares iBoxx $ Investment Grade Corporate Bond iShares Barclays Aggregate & TIPS

International 34

72

iShares MSCI EAFE iShares MSCI Emerging Markets

Sector 48

48

iShares Dow Jones Sectors iShares S&P Global Sectors

¹ “Management Fees” are fees paid to Barclays Global Fund Advisors (BGFA), the Fund’s investment advisor. A Fund may also incur indirect expenses on its investments, if any, in other investment companies. Please see the Fund’s prospectus for more information on such expenses. Transactions in shares of the iShares Funds will result in brokerage commissions.

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3

Tax efficiency of iShares ETFs

Index Funds

Low turnover

Baskets of securities for shares

Creation/redemption process

13

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).

RISK MANAGEMENT

RISK MANAGEMENT

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

E

h b

h

k

d fi

d

k

15

Each benchmark represents a defined market segment

Benchmark providers publish methodology

Manage risk

iShares ETFs are designed to closely track a benchmark

iShares funds track

iShares Funds 3-Year Average Annual T racking (as of 12/31/08) M anagement Fees¹ (as of 1/1/09) S&P 500 -0.03% 0.09% Russell 2000 0.05% 0.20% 16 Source: BGI.

Past tracking performance does not guarantee future performance.

¹ “Management Fees” are fees paid to Barclays Global Fund Advisors (BGFA), the Fund’s investment advisor. A Fund may also incur indirect expenses on its investments, if any, in other investment companies. Please see the Fund’s prospectus for more information on such expenses.

Russell 2000 0.05% 0.20%

Dow Jones U.S. -0.16% 0.20%

Dow Jones U.S. Technology -0.43% 0.48%

MSCI Japan -0.31% 0.52%

MSCI EAFE -0.22% 0.34%

LIQUIDITY

LIQUIDITY

iShares ETFs provide 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

I

t

i

i

i

t b t

ti

i th ETF

h

18

Investors receive price improvement by transacting in the ETF whenever

they buy/sell the ETF inside the spread cost of the underlying portfolio

basket of securities

(12)

Draft

4

iShares ETF liquidity

offers price improvement

iShares MSCI

Emerging Markets (EEM)

iShares Russell

2000 (IWM)

10,000 12,000 14,000 16,000 e d ( m ln s) $0.20 $0.25 $0.30 20,000 25,000 30,000 e d ( m ln s ) $0 03 $0.04 $0.05 19 Sources: NYSEArca, Stock Facts Pro, 12/08.

0 2,000 4,000 6,000 8,000 , 2003 2004 2005 2006 2007 2008 A n n u al S h ar es T rad e $0.00 $0.05 $0.10 $0.15 Sp re a d ($ ) 0 5,000 10,000 15,000 2003 2004 2005 2006 2007 2008 A n nu al S h ares Tr ad e $0.00 $0.01 $0.02 $0.03 Spr ea d ( $ ) Trading Volume ETF Spread ($) Underlying Portfolio Spread ($) Trading Volume ETF Spread ($) Underlying Portfolio Spread ($)

iSHARES MODULAR

FAMILY OF FUNDS

FAMILY OF FUNDS

A SOLUTIONS-DRIVEN APPROACH

Modularity and portfolio completion

U.S. Equity Portfolio

Large-cap stocks

S&P 1500

S&P 500

S&P 500 Growth S&P 500 Value 21

S&P

SmallCap

600

S&P SmallCap 600 Growth S&P SmallCap 600 Value

S&P

MidCap

400

S&P MidCap 400 Growth S&P MidCap 400 Value

Modularity and Core/Satellite

Portfolio of Active

Funds or Managers

Large-cap growth Large-cap value

Russell 3000

Russell

1000

Russell 1000 Growth Russell 1000 Value 22 Small-cap growth Small-cap value

Russell

2000

Russell

Midcap

Russell 2000 Growth Russell 2000 Value Russell Midcap Growth Russell Midcap Value

Modularity and tactical investing

Dow Jones U.S. Total Market

Basic Materials Consumer Goods Consumer Services Utilities Consumer Services 23 Consumer Goods Energy Financial Healthcare Industrial Technology Telecom Utilities Energy Technology

Barclays Capital 1–3 Year Treasury Barclays Capital 7–10 Year Treasury Barclays Capital 20+ Year Treasury

d

Modularity and duration management

24

iBoxx $ Investment Grade Corporate Bond Barclays Capital 1-3 Year Credit Barclays Capital Intermediate Credit iBoxx $ High Yield Corporate

Duration

Yi

e

(13)

Draft

5

Good for clients. Good for business.

Manage costs

Manage risks

Manage taxes

Complementary to your business

25

Complementary to your business

Portfolio managers and asset managers

Wealth managers

Consultants and advisors

PUTTING ETFs TO WORK

SIX ESSENTIAL STRATEGIES

26 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Before using iShares Funds presentation materials with your

clients, please check to ensure that the materials comply with your

firm's guidelines.

Terms of use

27 V e rs io n c ode

iShares strategies

Tax management

Opportunistic ideas

Fixed income solutions

Cash equitization for instant exposure

Portfolio completion

28 

Portfolio completion

Core/satellite

V e rs io n c ode

TAX

29 V e rs io n c ode

TAX

MANAGEMENT

iShares Funds used to help manage taxes

Tax management

Potential uses

Lower current year tax liabilities

Harvest losses, take gains

Potential uses

Position portfolios for long term tax efficiency

Ensure asset are located as tax

Short Term Tax Strategies

Long Term Tax Strategies

30 V e rs io n c ode

Bank losses for future use

Rebalance to move back to the

portfolio’s investment objectives

Help reduce capital gains payouts

Ensure asset are located as tax efficiently as possible

Replace tax-inefficient products with more tax efficient ones

Replace underperforming mutual funds with lower-cost index alternatives

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. Trading shares of the iShares Funds will also generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well.

(14)

Draft

6

S&P 500 Blend 61.0% 43.9% 1.01% 1.07% 0.94% 0.13%

S&P MidCap 400 Blend 43.9% 27.3% 1.16% -0.58% 1.36% -1.94%

S&P SmallCap 600 Blend 51.4% 31.4% 1.18% 0.18% 1.30% -1.12%

CATEGORY BENCHMARK BEFORE TAXAFTER TAX AVERAGE EXPENSE RATIO AVERAGE EXCESS RETURN AVERAGE TAX COST EXCESS RETURN LESS TAX COST OUTPERFORMANCE

Active manager after-tax performance

Ten year period ending 12/31/08

31

Together, fees and taxes represent major contributors to

the outperformance challenge faced by active managers.

V e rs io n c ode MSCI EAFE 56.1% 39.0% 1.25% 0.86% 1.13% -0.27%

MSCI Emerging Markets 54.0% 34.0% 1.46% 0.36% 1.15% -0.79%

Barclays Capital U.S Aggregate 7.4% 0.0% 0.73% -1.30% 1.92% -3.22%

Sources: Morningstar, BGI, 10-year period ending 12/31/08. Data is based on the oldest share class of active open-end mutual funds to avoid double counting of multiple share classes. Funds that were included had at least $50 million in total fund assets to eliminate the impact of small funds. Tax cost calculations are based on a 35% investor tax rate assumption for income and short-term capital gains and a 15% investor tax rate assumption for long-term capital gains. Actual tax costs depend on the investor’s tax situation and may differ from those shown. Past performance does not guarantee future results.

Tax “cost” matters

Growth of $100,000 (8% Return Per Annum)

$ $180,000 $200,000 $220,000 $240,000 $10,555 $20,643 $30,283 32

Source: BGI. For illustrative purposes only. Does not include commissions, sales charges, or fees.

Trading shares of the iShares Funds will also generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well. Annual Tax “Cost” Assumption

0.00% 0.50% 1.00% 1.50% Out-of-Pocket Tax Expense Portfolio Value in Year 10 $100,000 $120,000 $140,000 $160,000 $215,893 $205,338 $195,249 $185,609

Tax “cost” represents the annual amount an investor’s return has been

reduced due to paying taxes on income and capital gains distributions

1732

Tax efficiency of iShares Funds

Index funds

Low turnover

Protection from shareholder activity

Shareholders interact via exchange

33

Experienced portfolio management

Actively seeks to mitigate capital gains distributions

V e rs io n c ode

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. Trading shares of the iShares Funds will also generate tax consequences and transaction expenses. Certain traditional mutual funds can be tax efficient as well.

Capital gains distributions history

34 Sources: Morningstar, BGI, period ending 12/08. Past distributions are not indicative of future distributions. Distributions since fund inception shown for iShares Funds with at least one calendar year of performance.

Identify tax strategy candidates

35

www.iShares.com > Tools & Charts >

Portfolio Construction Tools > Correlation Calculator

Sample screenshots from the iShares.com website are for illustrative purposes only.

OPPORTUNISTIC

36

OPPORTUNISTIC

(15)

Draft

7

Opportunistic ideas

iShares Funds used to implement ideas across asset classes,

sectors, styles and market cap

Use to:

Overweight or underweight

based on technical, fundamental

or quantitative research

Biotech

37

Actively trade

around research,

earnings, data or sector calls

Seek relative outperformance

among asset classes or styles,

or among industry sectors

International

Small Cap

Opportunistic idea example:

Higher inflation outlook

Investment opportunities respond differently to different

economic environments

Financials

Solutions

Areas to limit

Real assets

38

Consumer Discretionary

TIPS

Commodity-producing economies (e.g., Australia, Brazil, Canada)

iShares ETFs are highly modular

39

iShares ETFs are highly modular

40

Index returns chart

Show relative performance by market slice as well as by time period

Market capitalization

Value/growth

Region/international

Sector/industry

41 

Fixed income

Specialty/real estate

www.iShares.com > Tools & Charts > Performance Charts >

Index Returns Chart

Sample screenshots from the iShares.com website are for illustrative purposes only. Data as of 01/06/09 and there is no representation that it is current, accurate, or complete, and should not be relied on as such. 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. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.For current iShares fund information, including past performance, visit iShares.com or call 1-800-iShares.

FIXED INCOME

42

FIXED INCOME

(16)

Draft

8

Fixed income solutions

iShares Funds offer the precision needed to build the foundation of a

fixed income strategy

Use to

Express views on fixed income sectors

Implement yield curve and credit spread strategies

B ild “

t

l l dd ”

ti

43 

Build “perpetual ladder” over time

Adjust duration

Add potential income/diversify income sources

Fixed income portfolio considerations

Construction

Transaction costs/retail pricing

Available inventory

Prudent diversification

Minimum purchase

44

Ongoing management

Aging of portfolio

Reinvestment risk and costs

Active manager performance review –

Taxable Fixed Income

5 0 5th to 25th Percentile 25th Percentile to Median Median to 75th Percentile Excess Performance to 12/08

Morningstar Intermediate Term Bond Category vs. Barclays Capital U.S. Aggregate Index

45 Source: Morningstar and MPI, period ending 12/08. Past performance does not guarantee future results.

-5

-10 -15 -20 -25

QTD YTD 1 Year 3 Years 5 Years 10 Years

75th to 95th Percentile

Benefits of iShares Fixed Income ETFs

Transparent

Exchange Traded

Fixed income active managers that outperform index are hard to find

Cost and tax efficient

No minimums

46 

No minimums

Potential monthly income

AMT-free solutions (iShares muni ETFs)

Access to difficult to reach fixed income sectors

Scalability

iShares modular family of fixed income ETFs

FIXED INCOME BROAD MARKET BOND FUND

iShares Barclays Aggregate AGG 0.24*

TREASURY BOND FUNDS

iShares Barclays Short Treasury SHV 0.15

iShares Barclays 1–3 Year Treasury SHY 0.15

iShares Barclays 3–7 Year Treasury IEI 0.15

iShares Barclays 7–10 Year Treasury IEF 0.15

iShares Barclays 10–20 Year Treasury TLH 0.15

iShares Barclays 20+ Year Treasury TLT 0.15

AGENCY BOND FUND

iShares Barclays Agency AGZ 0.20

CREDIT/CORPORATE BOND FUNDS

iShares Barclays 1–3 Year Credit CSJ 0.20

iShares Barclays Intermediate Credit CIU 0.20

iShares Barclays Credit CFT 0.20

iShares iBoxx $ Investment Grade Corporate LQD 0.15

iShares iBoxx $ High Yield Corporate HYG 0.50

GOVERNMENT/CREDIT BOND FUNDS

TRADING SYMBOL MGMT FEES(%)† TRADING SYMBOL MGMT FEES(%)† 47 † "Management Fees" are fees paid to Barclays Global Fund Advisors (BGFA), the Fund's investment advisor. A Fund may also incur indirect expenses on its investments, if any,

in other investment companies. Please see the Fund's prospectus for more information on such expenses.

* The total annual operating expenses are shown for the iShares Barclays Aggregate Bond Fund and iShares Barclays MBS Bond Fund. In addition to the management fees, the total expenses include “acquired fund fees and expenses” of 0.04% and 0.11%, respectively, which are related to the funds' investments in the BGI Prime Money Market Fund (the “money market fund”). “Acquired fund fees and expenses” represent the funds' pro rata share of the fees and expenses charged by the money market fund and may vary based on the funds’ allocation of assets to the annualized net expenses of the money market fund. Annual operating expenses do not include the effect of interest earned by investments in the money market fund, which is expected to offset the money market fund's fees and expenses.

iShares Barclays TIPS TIP 0.20

MUNICIPAL BOND FUNDS

iShares S&P California Municipal CMF 0.25

iShares S&P National Municipal MUB 0.25

iShares S&P New York Municipal NYF 0.25

iShares S&P Short Term

National Municipal SUB 0.25

iShares Barclays Intermediate Govt./Credit GVI 0.20

iShares Barclays Government/Credit GBF 0.20

MORTGAGE-BACKED BOND FUND

iShares Barclays MBS MBB 0.36*

INTERNATIONAL FIXED INCOME

iShares JPMorgan USD Emerging Markets EMB 0.60

iShares S&P/Citigroup International Treasury IGOV 0.35 iShares S&P/Citigroup 1-3 Year Int’l Treasury ISHG 0.35

Fixed Income Investing

Fixed Income ETF Traditional Open-End Bond Mutual Fund Individual Bond Closed-End Investment Company

Pricing Real-time, intraday End of day Net Asset Value

Subject to availability and broker discretion

Real-time, intraday

Accessibility1 Any brokerage firm, any account

Fund supermarkets, directly from fund company, and select brokers that have arrangements with fund company to sell their

Most brokers, subject to inventory availability

Any brokerage firm, any account

48

Investment comparisons are for illustrative purposes only and not meant to be all-inclusive. There may be significant differences between the investments that are not discussed here.

1ETFs may be bought or sold on exchange through any brokerage account. However, ETFs may only be redeemed directly from the Fund by Authorized Participants in very large creation/redemption units.

2The iShares Fixed Income Funds hold a representative sample of their underlying indexes.

3The annual management fees of ETFs may be substantially less than those of most mutual funds. ETF transactions will result in brokerage commissions, but the savings from lower annual fees can help offset these costs.

py funds

Transparency2 Portfolio of bonds and intraday prices known to investors

Portfolio of bonds required to be reported semi-annually; price known at end of day

Prior to trade, actual cost of bond not always clear (may include broker mark-up) Portfolio of bonds required to be reported semi-annually; intraday prices known to investors

(17)

Draft

9

Fixed Income Investing

Fixed Income ETF Traditional

Open-End Bond Mutual Fund Individual Bond Closed-End Investment Company Early Sales/

Redemption Impact1 Commission on sale of shares

Early Sales/redemption fee may be charged by some fund companies

Fee charged to liquidate bond; impact of call feature

Commission on sale of shares

Diversification2 Portfolio of bonds, broad industry and maturity representation across objective

Varies-bond index mutual funds are likely to be more diversified than actively managed bond funds

For ladders, limited diversification from different maturity holdings. For individual bonds,

Portfolio of bonds, broad industry and maturity representation across objective

49

Investment comparisons are for illustrative purposes only and not meant to be all-inclusive. There may be significant differences between the investments that are not discussed here.

1ETFs may be bought or sold on exchange through any brokerage account. However, ETFs may only be redeemed directly from the Fund by Authorized Participants in very large creation/redemption units.

2The iShares Fixed Income Funds hold a representative sample of their underlying indexes.

3There are special risks associated with margin investing. As with stocks, you may be called upon to deposit additional cash or securities if your account equity, including that which is attributable to ETFs, declines.

no diversification

Hedging Yes; Regulation T margin rules apply3

No Subject to availability and broker discretion

Yes; Regulation T margin rules apply3 Liquidity Open-end fund structure

and real-time, intraday prices

Open-end fund structure and end-of-day Net Asset Value

Depends on bond, available prices, mark-ups/downs

Closed-end structure limits initial supply of shares; real-time, intraday prices

Fixed Income Portfolio Builder

50

www.iShares.com > Tools & Charts > Portfolio Construction

Tools > Fixed Income Portfolio Builder

Sample screenshot from the iShares.com website is for illustrative purposes only.

CASH

51

EQUITIZATION

FOR INSTANT

EXPOSURE

Cash equitization

iShares Funds used to achieve immediate and focused

market exposure

Use to

Immediately invest the cash portfolio of a new client

Express conviction on opportunity for a sector, rather than an

individual name

52

individual name

Replace fund during manager transition

Search by fund category

53

www.iShares.com > iShares Fund Finder

Search by fund characteristics

54

(18)

Draft

10

PORTFOLIO

55

PORTFOLIO

COMPLETION

Portfolio completion

iShares Funds used to diversify an “incomplete” portfolio

Use to

Meet prudent standards that dictate broad diversification

Supplement portfolio managers who specialize in one or several

asset classes

Avoid availability expense or capacity issues that are present in

56 

Avoid availability, expense or capacity issues that are present in

separate account or mutual fund alternatives

Invest allocation that falls short of separate account minimum

Portfolio summary: client’s balanced portfolio

57

www.iShares.com > Tools & Charts >

Portfolio Construction Tools > Correlation Calculator

Sample screenshot from the iShares.com website is for illustrative purposes only.

Evaluating the impact of portfolio completion

return (%) 12 8

Benchmark

B

Initial Portfolio

Large-Cap Equity Fixed Income

I

Example

Example

58

www.iShares.com > Tools & Charts > Portfolio Construction

Tools > Asset Class Illustrator

A v erage annual 4 0 0 4 8 12 16 20 24

Risk (%) annualized standard deviation

B

I

Complete asset allocation with iShares ETFs

Real Estate

iShares fund

I t

ti

l

Large-Cap

Fixed Income

Example

59 Initial Portfolio

International

iShares fund

Small-Cap

iShares fund

Mid-Cap Value

iShares fund

iShares Funds

Illustrate complete portfolio

return (%) 12 8

Example

Example

Benchmark

B

Initial Portfolio

Large-Cap Equity Fixed Income

I

I

P

60

www.iShares.com > Tools & Charts > Portfolio Construction

Tools > Asset Class Illustrator

A v erage annual 4 0 0 4 8 12 16 20 24

Risk (%) annualized standard deviation

B

I

Complete Portfolio

Large-Cap Equity Fixed Income International iShares fund Small-Cap iShares fund Mid-Cap Value iShares fund Real Estate iShares fund

P

(19)

Draft

11

CORE/SATELLIT

61

CORE/SATELLIT

E

Core/satellite portfolio construction

iShares Funds combined with active investments to

manage trade-off between active risk and active return

Use to

Alter active risk/return characteristics of the portfolio

Address client sensitivity to benchmark underperformance

B l

li

l

ti

f

62 

Balance cyclical active manager performance

Why use core/satellite?

Active performance = Active risk

Establish asset allocation using benchmarks

Hire funds or managers to attempt to outperform the benchmark

Active risk is introduced to the portfolio

63 

Use Core/satellite to reduce active risk of high tracking

error investments on the asset allocation while leaving

room for potential outperformance

Active Manager

Performance

Versus the Russell 1000 Value Index

10 Years 0 5 10 20 15 e turns % 5 Years Total Average Returns 3.38% -0.27% 100% Active 1.36% -0.79% Russell 1000 Value 64

Source: Morningstar, BGI. Data as of 12/31/08. Active manager returns represent the performance of the median top quartile Large Cap Value manager. For illustrative purposes only. Not indicative of any fund, manager or investment.Index returns are for illustrative purposes only and do not represent actual iShares Fund performance. Index performance returns do not reflect any management fee, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.For actual iShares Fund performance, please visit www.iShares.com or request a prospectus by calling 1-800-iShares.

-25 -20 -15 -5 -10 R e 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Risk Dial:

100% Active Manager

1 2 3 5 4 n us index return (%) 10 Years 5 Years Total Average Returns 1.36% -0.79% Russell 1000 Value 3.38% -0.27% 100% Active Annualized Tracking Error 2.80% 65 Source: Morningstar, BGI. Data as of 12/31/08. Active manager returns represent the performance of the median top quartile Large Cap Value manager. For illustration only. Not indicative of any fund, manager or investment.Index returns are for illustrative purposes only and do not represent actual iShares Fund performance. Index performance returns do not reflect any management fee, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.For actual iShares Fund performance, please visitwww.iShares.comor request a prospectus by calling 1-800-iShares.

-3 0 1 -1 M a nager return m in -2 Russell 1000 Value 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Risk Dial:

50/50 Active/Index Blend

1 2 3 5 4 n us index return (%) 10 Years 5 Years Total Average Returns 1.36% -0.79% Russell 1000 Value 3.38% -0.27% 100% Active Annualized Tracking Error 2.80% 2.38% -0.52% 50/50 Blend 1.40% 66 Source: Morningstar, BGI. Data as of 12/31/08. Active manager returns represent the performance of the median top quartile Large Cap Value manager. For illustration only. Not indicative of any fund, manager or investment.Index returns are for illustrative purposes only and do not represent actual iShares Fund performance. Index performance returns do not reflect any management fee, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.For actual iShares Fund performance, please visitwww.iShares.comor request a prospectus by calling 1-800-iShares.

-3 0 1 -1 M a nager return m in -2 Russell 1000 Value 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

References

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