Investment Directions Monthly Market Outlook June 2012

I N V E S T M E N T D I R E C T I O N S [ 2 ]

Macroeconomic OverviewThe state of the global economy is pretty much back to where it was in late 2011—an anemic recovery threatened by Europe. Amid renewed concerns about a worsening European crisis and a stalling recovery, stocks have erased most of their early 2012 gains.

Global equity markets finished May down 9%,* with European and emerging market stocks particularly suffering, and as investor sentiment turned more cautious, the yield on the 10-year Treasury retreated in May to 1.56%. While stocks gained somewhat in the first half of June, rising 2.7% through June 15 on hopes policy makers will continue to step in to save the day and revive slowing economies, many investors are still wondering whether we’re on the verge of another global recession.

In our opinion, the most likely outcome for the global economy for the remainder of the year continues to be slow, but positive, growth. The US economy is on firmer footing, we expect emerging market growth to stabilize and there are some signs of a soft landing in China.

That said, two big risks remain, either of which could send the global economy into a double-dip recession. First, the possibility of a full-blown eurozone crisis remains the major threat to the global recovery and, in particular, we’re concerned about a Spanish banking system crisis and the long-term risk of a Greek exit from the euro. Second, if US policy makers don’t avert the United States’ pending fiscal drag, the odds of a double dip rise.

In light of the uncertainty regarding the fate of the eurozone and of the United States’ fiscal policy, we believe markets are likely to remain highly volatile in the second half of the year. While we continue to hold an overweight long-term view of global equities, especially relative to bonds, and we expect that stocks can move higher in the remainder of the year, their ascent is likely to be anything but smooth.

As such, we continue to advocate a defensive portfolio positioning. We like high-quality, dividend-paying stocks, including those in emerging markets; defensive sectors such as global telecommunications; global mega capitalization (mega cap) stocks; and US and international minimum volatility funds. We also prefer to get equity exposure through select developed and emerging markets that have robust growth prospects and fewer debt and banking sector problems. Within fixed income, we like US spread products such as investment grade and municipal bonds.

*Global equity market performance data is based on the performance of the MSCI ACWI (All Country World Index).

What’s New: •UpgradeofIndonesia toOverweight

•DowngradeofMexico toUnderweight

•DowngradeofMortgage- BackedSecuritiesto Neutral

TABLE OF CONTENTS

Global Regions ..................................4

Global Sectors...................................6

Fixed Income Sectors ......................7

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research, investment advice or a recommendation regarding the iShares Funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change.

Underweight Neutral Overweight

Global Equities n

Treasury Bonds n

Corporate Bonds n

Municipals n

Treasury Inflation-Protected Securities n

Figure 1: Longer-Term Global Asset Allocation

Risk Appetite Dial

Low High

Our new global market risk appetite measure accounts for ongoing shifts in investor sentiment around the macro fundamentals that form the basis for our near-term investment views. Please see the appendix for an explanation of our risk appetite measure methodology.

Our riskappetitemeasure iscurrentlymildlynegative,signallingacontinuedcautiousmood in themarkets, thanksto both widening US corporate creditspreadsandthedropinequitymarketsfrom their March high amid renewedconcernsaboutEurope.

Global RegionDevelopedMarkets

Underweight Neutral Overweight Related iShares ETF Tickers

Global Equities x ACWI,HDV,IOO,OEF,IDV,URTH,ACWV

Developed Markets x EFA,IDV,ACWX,EFAV,SCZ

Australia x EWA,EPP,EWAS,DVYA

Canada x EWC,EWCS

France x EWQ

Germany x EWG,EWGS

Hong Kong x EWH,EWHS

Italy x EWI

Japan x EWJ,SCJ

Netherlands x EWN

Norway x ENOR

Singapore x EWS,EWSS

Spain x EWP

Sweden x EWD

Switzerland x EWL

United Kingdom x EWU,EWUS

United States x EUSA,IWV,IVV,USMV

EmergingMarkets

Emerging Markets x EEM,EEMV,DVYE,EEMS

Brazil x EWZ,EWZS

China x MCHI,ECNS

India x INDY,INDA,SMIN

Indonesia x EIDO

Mexico x EWW

Russia x ERUS

South Africa x EZA

South Korea x EWY

Taiwan x EWT

Global Sector Underweight Neutral Overweight Related iShares ETF TickersConsumer Discretionary xConsumer Staples x IYK,KXI,AXSL

Energy x IXC,FILL,EMEY,AXEN

European Banks x EUFN

Financials x IYF,IXG,AXFN,EMFN,EUFN,FEFN,IAT

Healthcare x IYH,IXJ,AXHE

Industrials x IYJ,EXI,AXID

Information Technology x IXN,AXIT,AAIT,IYW,SOXX

Materials x IYM,MXI,AXMT,EMMT,RING,PICK,SLVP

REITs x ICF,IYR

Telecommunications x IXP,AXTE,IYZ

US Industrials x IYJ

US Regional Banks x IAT

US Retail x N/A

US Technology x IYW

US Utilities x IDU

Utilities x IDV,JXI,AXUT

Fixed Income Sector Underweight Neutral Overweight Related iShares ETF TickersEmerging Markets x EMB,LEMB,CEMB,EMHY

High Yield Credit x HYG,HYXU,GHYG,QLTB,QLTC

Investment Grade Credit x LQD,FLOT,QLTA,MONY,ENGN,AMPS,CSJ,CIU,CFT,CLY,QLTA

Mortgage-Backed Securities x MBB,GNMA,CMBS

Municipals x SUB,MUB

Non-US Developed Markets x ISHG,IGOV

TIPS/Global Inflation-Linked x STIP,TIP,GTIP,ITIP

US Treasuries x SHY,IEI,IEF,TLH,TLT,GOVT,SHV

Global Style Underweight Neutral Overweight Related iShares ETF TickersGlobal Mega Caps x OEF,IOO,HDV,DVY,IDV

Small Caps x IWM

Figure 2: iShares Investment Strategy Group Near-Term Outlooks

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research, investment advice or a recommendation regarding the iShares Funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client.

Glossary:

I N V E S T M E N T D I R E C T I O N S [ 3 ]

I N V E S T M E N T D I R E C T I O N S [ 4 ]

GlobalRegionsWith the exception of a downgrade of Mexico and an upgrade of Indonesia, we have maintained all our country outlooks this month.

Developed Markets: In the developed world, we still expect certain smaller developed countries—Canada, Australia, Singapore, Switzerland and Hong Kong (the CASSH countries)—to outper-form other developed markets over the long term given their generally lower debt levels and more robust growth prospects. In the near term, among developed markets, we especially like Hong Kong and Singapore and certain countries in northern Europe.

Despite the outcome of the recent Greek election, Europe is not out of the woods. While, at the time of writing, we expect a likely New Democracy-led government to try to keep Greece in the euro, further Greek defaults and an eventual Grexit are still significant long-term risks. Meanwhile, the Spanish banking system is now a bigger threat than a Grexit. Looking forward, in addition to

watching events in Greece, we’re also watching for three other developments. First, further Greek banking system outflows would mean a worsening crisis. Second, we’re awaiting more clarity on the rescue plan for Spain and on how Spain plans to recapitalize its banking system. Finally, we’re watching for more evidence of a softening German position toward eurobonds, which would be a positive for markets. We believe a worsening eurozone crisis can be avoided if European politicians get more aggressive in address-ing their region’s problems. But as there’s little likelihood of an imminent solution, the region is likely to be a source of near-term market volatility. While we do like some countries in more econom-ically stable northern Europe, we continue to advocate under-weighting Italy and Spain, which look cheap for a reason.

We continue to hold a neutral view of US equities, which no longer look cheap on a relative valuation basis. While US growth remains

* Please see appendix for an explanation of our factor methodology. **Norway is not included in this table due to its size. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research, investment advice or a recommendation regarding the iShares Funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client.

– unattractive + attractive neutral previous month (if not shown—same as current) current month

Figure 3: Global Region Near-Term Outlooks

Global RegionDeveloped Markets

Valuations (P/B)

Growth Profitability Risk/ Sentiment

Our View Underweight Neutral Overweight

Related iShares

ETF Tickers

Australia + + EWA,EPP,EWAS,DVYA

Canada – – + EWC,EWCS

France + – – – EWQ

Germany + – + EWG,EWGS

Hong Kong + + EWH,EWHS

Italy + – – – EWI

Japan + + – EWJ,SCJ

Netherlands + – EWN

Singapore – – EWS,EWSS

Spain + – – – EWP

Sweden – + EWD

Switzerland – + EWL

United Kingdom – + EWU,EWUS

United States – + + + EUSA,IWV,IVV,USMV

Emerging Markets

Brazil + – EWZ,EWZS

China + + MCHI,ECNS

India – + INDY,INDA,SMIN

Indonesia + + EIDO

Mexico – + – EWW

Russia + + + – ERUS

South Africa – + + – EZA

South Korea EWY

Taiwan – + EWT

I N V E S T M E N T D I R E C T I O N S [ 5 ]

a bright spot in the world outlook and most measures continue to suggest that the United States will avoid another recession, the US recovery is still stuck in first gear thanks to the debt overhang of the last decade. Based on our estimates, US growth is likely to be around 2% this year and with job creation and wage growth at current slow paces, consumer spending is very likely going to slow down. US politicians have yet to address the pending tax hikes and spending cuts scheduled to take effect in January 2013 that could pose a headwind to the US market later this year and significantly lower US growth in 2013. Finally, Europe remains a major risk to the US economy due to the impact a worsening eurozone crisis would have on US exports and banks.

Within developed Asia, we are retaining our neutral view of Japan although the market has once again started to look more interesting thanks to compressed valuations on the back of foreign investor selling in May’s risk-off environment. But while Japan’s growth in the first quarter of 2012 was impressive, it was largely supported by post-earthquake government spending. In addition, the strengthening of the yen as a traditional safe haven is likely to provide headwinds for the country’s exporters. Still, market sentiment could benefit in coming months from further quantitative easing by the Bank of Japan. Also, resolution of the uncertainty surrounding a pending sales tax hike could help restore market confidence in the country’s fiscal position

Emerging Markets: Despite emerging markets’ weak performance in May, we continue to advocate overweighting select emerging market countries relative to their respective weights in the MSCI ACWI benchmark and overweighting emerging markets relative to developed markets. Emerging markets are generally experiencing a longer-term trend toward less volatility and offer stronger growth prospects than many developed markets. In addition, falling inflation in most emerging market countries has yet to translate into multiple expan-sions, and valuations remain compelling. In general, we prefer Brazil in Latin America, and China and Taiwan in emerging Asia at the expense of emerging Europe, the Middle East and Africa (EMEA). We also prefer gaining emerging market exposure through high-dividend funds.

Within Latin America, we have downgraded our view of Mexico to underweight from neutral as the market’s valuations currently look comparatively rich. While the country’s economic outlook is robust, Mexico’s inflation actually ticked up in May. In addition, with Mexico’s banking sector dominated by Spanish banks, Mexico is directly exposed to the Spanish banking crisis.

We like emerging Asian countries thanks to their robust growth prospects and relatively attractive valuations. Within emerging Asia, we have upgraded our view of Indonesia to overweight from neutral. The Indonesian market currently looks like a good value relative its own trading history, and as the country’s near-term growth prospects remain robust, Indonesia represents a rare growth play in a slow-growth environment. In addition, Indonesian companies are very profitable with a high aggregate return on assets (ROA). Risks to our view include a government-controlled fuel price hike, though the hike could improve the country’s financial position in the longer term.

Sources: MSCI, FactSet, as of 5/31/12.

Figure 4: Valuations and Market Returns–Price/Book

Figure 5: Valuations and Market Returns–Price/Earnings

MSCI USEquity Index MSCI EAFE Index

MSCI EmergingMarkets Index

0.0

0.5

1.0

1.5

2.0

2.5

Current month 3 months ago 1 year ago 3 years ago

1.2

1.5

2.3

1.5

2.0 2.0

1.4

1.8

2.2

1.4

1.8

2.1

MSCI USEquity Index MSCI EAFE Index

MSCI EmergingMarkets Index

Current month 3 months ago 1 year ago 3 years ago0

5

10

15

20

12.7

11.1

15.6

13.3

18.5

14.914.0

12.1

13.8 13.5 13.913.8

Sources: MSCI, FactSet, as of 5/31/12.

Elsewhere in Asia, we continue to hold an overweight view of China. Based on leading economic indicators, we expect China to be able to engineer a soft landing in the back half of the year, with growth settling at around 8%. In our view, China has both the motivation and ability to maintain growth at a respectable rate as the country readies itself for a leadership transition later this year. Government officials still have room for both fiscal and monetary stimulus measures such as the surprise early June rate cut.

Given India’s slowing growth, stubbornly high inflation, large current account deficit and chronic budget deficit, we continue to hold an underweight view of the market.

I N V E S T M E N T D I R E C T I O N S [ 6 ]

GlobalSectorsWhile the market finished down in May, defensive sectors suffered less than cyclical ones as investor sentiment remained cautious. Telecommunications was the top performing sector, followed by consumer staples and utilities. Materials performed the worst, followed by energy and financials. This month we have maintained all our sector outlooks.

As we expect markets to remain volatile in coming months, we continue to generally prefer more defensive global sectors to cyclical ones, and we like sectors with more mega cap exposure or an attractive income stream.

Our favorite defensive sector remains global telecommunications. In addition to the sector’s compelling valuations, telecommunica-tions’ low beta (a measure of the tendency of securities to move with the market at large) and relatively high yield should provide some cushion during market volatility and sell-offs.

Within cyclicals, we continue to advocate an overweight allocation to global energy stocks, which are currently cheaper than US large cap energy companies and may offer a healthy dividend yield. In addition, while weakness in global growth prospects and fears of a hard landing in China are likely to keep oil prices muted in the near term, we expect crude prices to rebound in the longer term.

This is because marginal supply is increasingly coming from unconventional sources where production costs are higher, many of the largest oil producing countries now require a higher crude price to balance their budgets and OPEC currently has very little spare capacity, meaning any supply disruptions are likely to push crude prices up sharply.

We continue to hold a neutral view of global and US technology stocks. While the technology sector still looks interesting over the longer term, current valuations appear a bit rich relative to their five-year history and to other cyclical sectors. It’s hard to justify this premium considering recent slippage in fundamentals, in particu-lar in capacity utilization, which suggests that technology compa-nies—Apple aside—may have modestly less pricing power going forward. In addition, technology stocks generally tend to be more sensitive to market volatility than stocks in more defensive sectors.

Our least preferred sectors are still global consumer discretion-ary, financials and US retail. We continue to hold an underweight view of the global financials sector as we believe it’s likely to remain under pressure due to uncertainty regarding the eurozone crisis, regulatory changes and earnings. In our view, US consumer discretionary stocks look very expensive in an economy charac-terized by no real wage growth and slow job creation.

– unattractive + attractive neutral previous month (if not shown—same as current) current month

* Please see appendix for an explanation of our factor methodology. ** This chart focuses on global sector views only. For US sector views, please see the chart on pg. 3. The view for US utilities is underweight, the view for US regional banks is neutral, the view for European banks is neutral and the view for US industrials is overweight.This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research, investment advice or a recommendation regarding the iShares Funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client.

Figure 6: Global Sector Near-Term Outlooks and the Factors Behind Them*

Global SectorValuations

(P/B)Profitability Risk/

SentimentOur View

underweight neutral overweight Related iShares ETF Tickers

Consumer Discretionary –

Consumer Staples – + IYK,KXI,AXSL

Energy + IXC,FILL,EMEY,AXEN

Financials** + – – IYF,IXG,AXFN,EMFN,EUFN,FEFN,IAT

Healthcare – + + IYH,IXJ,AXHE

Industrials** IYJ,EXI,AXID

Information Technology – + + IXN,AXIT,AAIT,IYW,SOXX

Materials + – IYM,MXI,AXMT,EMMT,RING,PICK,SLVP

Telecommunications + – IXP,AXTE,IYZ

Utilities** + – IDV,JXI,AXUT

I N V E S T M E N T D I R E C T I O N S [ 7 ]

FixedIncomeSectors

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research, investment advice or a recommendation regarding the iShares Funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client.

Figure 7: Fixed Income Sector Near-Term Outlooks

Fixed Income Sector Underweight Neutral Overweight Related iShares ETF Tickers

Emerging Markets xEMB,LEMB,CEMB,EMHY

High Yield Credit xHYG,HYXU,GHYG,QLTB,QLTC

Investment Grade Credit xLQD,FLOT,QLTA,MONY,ENGN,AMPS,CSJ,CIU,CFT,CLY,QLTA

Mortgage-Backed Securities x MBB,GNMA,CMBS

Municipals x SUB,MUB

Non-US Developed Markets x ISHG,IGOV

TIPS/Global Inflation-Linked x STIP,TIP,GTIP,ITIP

US Treasuries xSHY,IEI,IEF,TLH,TLT,GOVT,SHV

The search for perceived safety trumped the search for returns in May. Investors fled risky assets for the relative safety of the US Treasury market, in which yields hit new lows last month along with the yields on other safe-haven assets such as German and UK government bonds. The yield on the 10-year Treasury finished May at 1.56%. Eurozone peripheral government debt yields, meanwhile, hit levels close to November 2011 highs.

Looking forward, assuming a continued slow, but positive, global recovery, we believe that yields will rise modestly in 2012, with the 10-year Treasury yield drifting to around the 2.75% to 3% level. However, factors—including price insensitive government buyers—that have conspired to keep rates abnormally low for the past year are still in place. This month, we have only changed our view of mortgage-backed securities.

We continue to advocate reducing duration risk—for which we believe investors are not currently being adequately compensat-ed—and modestly adding exposure to spread products.

We still hold a neutral view of high yield, which continues to appear close to fair value on a risk-adjusted basis. However, for investors with a higher risk tolerance, recent spread widening may provide a near-term opportunity for additional positioning. Meanwhile, current investment grade bond spread levels look extreme unless you believe the United States is headed back toward another recession. As such, we believe investors should continue to consider a shift into investment grade credit.

We continue to believe that munis offer value relative to Treasur-ies, and muni/Treasury ratios remain wide. Munis outperformed in

2011 and are delivering again this year. At the same time, credit risks in the high grade muni space are modest and investors can pick up a significant incremental yield through this asset class. In addition, for now, there are few signs that Washington is seriously contemplating any change in the tax-exempt status of municipals.

We still hold an underweight long-term and a neutral near-term view of Treasuries and TIPS. We remain cautious on TIPS over the long term in light of negative real rates. Still, for aggressive investors with a short-term horizon, we are seeing a potential opportunity in shorter-duration TIPS as long as inflation remains at current levels. Currently, 2-year TIPS are implying that inflation over the next year—the breakeven level—is around 1%. At the same time, core inflation has been running at well over 2% for the past eight months.

While we continue to believe that investors are being fairly compensated for both prepayment and extension risk, we are now advocating a benchmark weight to mortgage-backed securities rather than an overweight position. We believe the potential for further upside appreciation is limited by ambiguity over further quantitative easing efforts as well as by prepayment uncertainty driven by lower rates and the potential for new policy tools to finally unfreeze the refinancing market.

Outside of the United States, we continue to see opportunities in emerging market bonds, which we believe investors should consider including at a benchmark weight. Emerging market debt is offering historically high yields relative to the US Treasury market and recent spread widening in this sector may allow for additional opportunistic positioning.

I N V E S T M E N T D I R E C T I O N S [ 8 ]

ContributorsRussKoesterich, CFA, is the Global Chief Investment Strategist for BlackRock’s iShares ETF business. He is a founding member of the BlackRock Investment Institute, delivering BlackRock’s insights on global investment issues. During his 20+ year career as an investment researcher and strategist, Mr. Koesterich has served as the Global Head of Investment Strategy for scientific active equities and as a senior portfolio manager in the US Market Neutral Group at BlackRock. Mr. Koesterich is a frequent contributor to financial news media and can regularly be seen on CNBC, Fox Business News and Bloomberg TV. He is the author of two books, including his most recent, The Ten Trillion Dollar Gamble, which details how to position portfolios for the impact of the growing U.S. deficit. Mr. Koesterich is also regularly quoted in print media including the Wall Street Journal, USA Today, MSNBC.com, and MarketWatch. He earned a BA degree in history from Brandeis University, a JD from Boston College and an MBA in capital markets from Columbia University.

NelliOster, PhD, is an Investment Strategist in BlackRock’s iShares business, where her responsibilities include developing tactical country, sector, commodity and asset allocation models implementable with iShares ETFs. Dr. Oster’s service with the firm dates back to 2008, including her time with Barclays Global Investors (BGI), which merged with BlackRock in 2009. Before joining iShares, Dr. Oster did research and portfolio management in BGI’s quantitative stock selection business, spanning US, Canada, Japan and emerging markets portfolios. Prior to joining BGI, Dr. Oster was an equity research analyst at Goldman Sachs, and she started her career in the mergers and acquisitions group of Salomon Smith Barney. Dr. Oster holds a BSc (Hons) in management sciences from the London School of Economics and a PhD in finance from the Stanford Graduate School of Business, where her Behavioral Finance dissertation focused on expectations formation and learning in the financial markets.

MatthewTucker, CFA, has spent the past 16 years focused on fixed income portfolio management, analytics and strategy. As Head of North American Fixed Income iShares Strategy within BlackRock’s Fixed Income Portfolio Management team, Mr. Tucker leads the investment strategy for fixed income ETFs in North America and Latin America, focusing on product development, client support, and thought leadership. He previously worked with Barclays Global Investors before it merged with BlackRock, and he led the US Fixed Income Investment Solutions team responsible for overseeing product strategy for active, index, enhanced index, iShares and long/short products. Mr. Tucker was also a portfolio manager and a trader in fixed income focused on U.S. government securities. He began his career at Barra, where he supported clients using the company’s fixed income analytics. He holds a bachelor of business administration degree from the University of California, Berkeley, and is a Chartered Financial Analyst charterholder.

StephenLaipply is a member of BlackRock’s Model-Based Fixed Income Portfolio Management Group. Mr. Laipply’s service with the firm dates back to 2009, including his years with Barclays Global Investors (BGI), which merged with BlackRock in 2009. At BGI, he was a senior investment strategist on the US Fixed Income Investment Solutions team, responsible for developing and delivering fixed income solutions to clients. Mr. Laipply focuses primarily on the iShares (ETF) fixed income product suite. Prior to joining BGI, he was a senior member in both the Strategic Solutions and Interest Rate Structuring Groups at Bank of America Merrill Lynch, where he structured and marketed fixed income solutions across interest rates, credit and mortgages to institu-tional investors. Mr. Laipply earned a BS degree, with honors, in finance from Miami University, and an MBA in finance from the University of Pennsylvania.

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I N V E S T M E N T D I R E C T I O N S [ 9 ]

AppendixTheanalysisbehindourviews: Our country and sector views are based on a systematic analysis of the extent to which macroeconomic factors have been priced in at the country and sector level.

In coming up with our country views, we use price-to-book (P/B) ratio as a measure of a country’s value. This ratio captures how the market prices a given country relative to the assets it has available for production. The higher the ratio, the more favorably the market views the country relative to its own history and to other countries.

The price the market is willing to pay for the assets of a country is positively related to its expected future growth and corporate sector profitability, and negatively related to the riskiness of its assets. We use factors such as leading economic indicators and retail sales growth as proxies for expected future growth. We use return on assets (ROA) as a proxy for future profitability and we use credit default swap (CDS) spreads as a measure of risk and sentiment. In addition, we consider factors such as commodity prices that affect importer and exporter countries in opposite ways.

In determining the sensitivity of a country’s valuations to these macroeconomic factors, we look at trends both over time and across countries. We are overweight (underweight) countries where market valuations are low (high) relative to what we would expect, with the expectation that the economic factors will be fully incorporated into prices in the future. We use a similar process for coming up with our sector views.

Factortablemethodology Here’s an explanation of the methodology of our country factor table:

Valuations: In determining whether a country looks cheap or expensive, we focus on price-to-book ratio (P/B), both over time and across countries. If a country has a low P/B relative to both its own trading history and to other countries, we assign it a “+”; if it has a high P/B, we assign it a “-.” We mainly compare developed market countries to other developed market countries and emerging market countries to other emerging market countries. We compare countries that benefit or suffer from their own specific issues, e.g., corporate governance problems in Russia, to their own trading histories.

Growthprospects: We focus on leading indicators that are constructed to predict a country’s future economic growth. We assign a “+” to countries that are expected to grow fast relative to their own past trends and to other countries, and a “-“ to coun-tries that are growing more slowly.

Corporatesectorprofitability: We focus on return on assets (ROA) and on cross-country comparisons, although we also take into account developments in a country’s ROA over time. A country with a highly profitable corporate sector is assigned a “+”; one with low profitability is assigned a “-.”

Risk / sentiment: We focus on sovereign credit default swap (CDS) spreads, which measure investor perception of the likelihood that a given country will default on its obligations. We mainly compare CDS spreads across countries, although we also take into account trends in a country’s CDS spreads over time. A country that is perceived as relatively safe is assigned a “+”; a risky country is assigned a “-.”

While the valuation, growth, profitability and risk / sentiment factor readings are discrete, we use continuous measures in our investment process. In addition, the factors are not equally important in driving returns at a given point in time. As a result, when it comes to formulating our final views, the various factor readings are not additive. For example, a “+” value factor, indicat-ing that a country looks cheap, may overshadow negative readings in other factors, leading us to still like the country.

We use a similar methodology in coming up with the readings in our sector factor table. We focus on a mix of cross-sectional and time-series comparisons of valuations (P/B), profitability (ROE) and risk / sentiment (sector spreads). In addition, we consider the global growth outlook for cyclical and defensive sectors.

Riskappetitedialmethodology Our global risk appetite dial measures current market sentiment. It is constructed from equity market returns, corporate credit spreads and expectations for future economic growth. High equity returns, narrow credit spreads and a good growth outlook tend to coincide with positive investor sentiment and stronger appetite for risky assets.

GlossaryUnderweight: Potentially decrease allocation Overweight: Potentially increase allocation Neutral: Consider benchmark allocation LongTerm: Longer than one year Near Term: 12 months or less

I N V E S T M E N T D I R E C T I O N S [ 1 0 ]

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 (1-800-474-2737) or by visiting www.iShares.com. Read the prospectuses carefully 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 and securities focusing on a single country may be subject to higher volatility. Bonds and bond funds will decrease in value as interest rates rise. A portion of a municipal bond fund’s income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains, if any, are subject to capital gains tax. High-yield securities may be more volatile, be subject to greater levels of credit or default risk, and may be less liquid and more difficult to sell at an advantageous time or price to value than higher-rated securities of similar maturity. Mortgage-backed securities are subject to prepayment and extension risk and therefore react differently to changes in interest rates than other bonds. Small movements in interest rates may quickly and significantly reduce the value of certain mortgage-backed securities. TIPS can provide investors a hedge against inflation, as the inflation adjustment feature helps preserve the purchasing power of the investment. Because of this inflation adjustment feature, inflation protected bonds typically have lower yields than conventional fixed rate bonds and will likely decline in price during periods of deflation, which could result in losses. Government backing applies only to government issued securities, not iShares exchange traded funds.An investment in the Fund(s) is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.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 actual iShares Fund performance, please visit www.iShares.com or request a prospectus by calling 1-800-iShares (1-800-474-2737).This material does not constitute an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction.The iShares Funds that are registered with the US Securities and Exchange Commission under the Investment Company Act of 1940 (“Funds”) are distributed in the US by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).In Latin America, for Institutional and Professional Investors Only (Not for Public Distribution):If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds mentioned or inferred to in this material have not been registered with the securities regulator of Brazil, Chile, Colombia, Mexico, Peru, Uruguay or any other securities regulator in any Latin American country, and thus, might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America. Notice to residents in Australia:Issued in Australia by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230523 (“BIMAL”) to institutional investors only. iShares® exchange traded funds (“ETFs”) that are made available in Australia are issued by BIMAL, iShares, Inc. ARBN 125 632 279 and iShares Trust ARBN 125 632 411. BlackRock Asset Management Australia Limited (“BAMAL”) ABN 33 001 804 566, AFSL 225 398 is the local agent and intermediary for iShares ETFs that are issued by iShares, Inc. and iShares Trust. BIMAL and BAMAL are wholly-owned subsidiaries of BlackRock, Inc. (collectively “BlackRock”). A Product Disclosure

Statement (“PDS”) or prospectus for each iShares ETF that is offered in Australia is available at iShares.com.au. You should read the PDS or prospectus and consider whether an iShares ETF is appropriate for you before deciding to invest. iShares securities trade on ASX at market price (not, net asset value (“NAV”)). iShares securities may only be redeemed directly by persons called “Authorised Participants.”The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Dow Jones Trademark Holdings, LLC, JPMorgan Chase & Co., MSCI Inc. Markit Indices Limited, or Standard & Poor’s, nor are they sponsored, endorsed or issued by Barclays Capital Inc. None of these companies make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with the companies listed above. The MSCI ACWI (All Country World Index) IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets. As of April 2012, the MSCI ACWI consisted of 45 country indices comprising 24 developed and 21 emerging market country indices. The developed market country indices included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indices included are: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.The MSCI ACWI (All Country World Index) ex USA IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets, excluding the USA. As of April 2012, the MSCI ACWI ex USA consisted of the following 44 developed and emerging market country indices: Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Malaysia, Mexico, Morocco, the Netherlands, New Zealand, Norway, Peru, Philippines, Poland, Portugal, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey and the United Kingdom.The MSCI EAFE® Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the USA & Canada. As of April 2012, the MSCI EAFE Index consisted of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.The MSCI Europe ex UK IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe, excluding the United Kingdom. As of April 2012, the MSCI Europe ex UK Index consisted of the following 15 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland.The MSCI Germany IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in Germany. The MSCI Korea IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in Korea.The MSCI Switzerland IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in Switzerland.The MSCI France IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in France.The MSCI UK IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the United Kingdom.The MSCI Japan IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in Japan.The MSCI Pacific Free ex Japan IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in the Pacific region, excluding Japan. As of April 2012, the MSCI Pacific Free ex Japan Index consisted of the following four developed market country indices: Australia, Hong Kong, New Zealand and Singapore.

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The MSCI Canada IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in Canada.The MSCI USA IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the United States.The MSCI Taiwan IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in Taiwan.The MSCI China IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in China.The MSCI EM (Emerging Markets) IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of April 2012, the MSCI Emerging Markets Index consisted of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.MSCI EM (Emerging Markets) Asia IndexSM is a free float-adjusted market capitalization index that is designed to measure emerging market equity performance in Asia. As of April 2012, the MSCI EM Asia Index consisted of the following eight emerging market country indices: China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan and Thailand.The MSCI EM (Emerging Markets) Latin America IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in Latin America. As of April 2012, the MSCI EM Latin America Index consisted of the following five emerging market country indices: Brazil, Chile, Colombia, Mexico and Peru.The MSCI EM (Emerging Markets) Europe, Middle East and Africa IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance

in the emerging market countries of Europe, the Middle East and Africa. As of April 2012, the MSCI EM EMEA Index consisted of the following eight emerging market country indices: Czech Republic, Hungary, Poland, Russia, Turkey, Egypt, Morocco, and South Africa.Source: MSCI. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent. The MSCI data may only be used for your internal use and may not be used to create any financial instruments or products (including funds and derivative instruments) or any indexes.Past performance is no guarantee of future results. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.©2012 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other trademarks, servicemarks or registered trademarks are the property of their respective owners. iS-7433-0612 3910-05RB-6/12

Not FDIC Insured • No Bank Guarantee • May Lose Value

Formoreinformationvisitwww.iShares.com orcall1-800-474-2737