Domestic

Strong returns amidst positive signs: Continued strong performance was observed in April, with the iShares S&P 500 Index Fund (IVV) delivering 9.55% returns for the month, the highest monthly performance in more than 108 months. Signs of improvements were evidenced by the larger than expected increase in factory outputs, higher consumer confidence, and higher than expected new home sales. Earnings seasons also proved better than expected with more upside surprises. (For standardized returns, please see page 5 of this report. Certain sectors and markets may perform exceptionally well based on current market conditions and iShares funds can benefit from that performance. Achieving such exceptional returns involves the risk of volatility and investors should not expect that such results will be repeated.)

Cyclicals and small cap funds outperformed: During the month, cyclical sectors such as Energy, Technology, Materials and Financials outperformed as stronger upside is expected for these harder hit sectors during the downturn. Small cap also outperformed relative to large cap funds with the iShares S&P 600 Index Fund (IJR) posting 17.44% returns in April, the strongest monthly performance in more than 15 years. (For standardized returns, please see page 5 of this report. Certain sectors and markets may perform exceptionally well based on current market conditions and iShares funds can benefit from that performance. Achieving such exceptional returns involves the risk of volatility and investors should not expect that such results will be repeated.)

REITs led the charge: REITs was the strongest performing sector in April, with the iShares Cohen & Steers Realty Majors Index Fund (ICF) delivering 33.59% return for the month. Successful equity capital raising by 19 REIT companies totaling more than $6 billion with approximately 90% trading above the deal price¹, in combination with accessibility of government TALF loans for commercial mortgage backed securities calmed investors that the worst may be over. Investors poured $1.1 billion into real estate funds in April. (For standardized returns, please see page 5 of this report. Certain sectors and markets may perform exceptionally well based on current market conditions and iShares funds can benefit from that performance. Achieving such exceptional returns involves the risk of volatility and investors should not expect that such results will be repeated.)

International

Developed equity market strength despite economic weakness: All developed countries closed the month of April in the black, with many now recording year-to-date gains. However, the outlook for the year remained mixed with varying states of economic decline, causing many investors to shy away from strong calls in the developed market space. As a broad allocation to the developed world ex North America, the iShares MSCI EAFE Index Fund (EFA) returned 12.78% for the month and received among the strongest inflows at US$98 Million. (For standardized returns, please see page 5 of this report. Certain sectors and markets may perform exceptionally well based on current market conditions and iShares funds can benefit from that performance. Achieving such exceptional returns involves the risk of volatility and investors should not expect that such results will be repeated.)

Emerging Asia sees strength: Emerging market equities rallied in April with all countries except Peru and South Africa recording gains for the month, and all emerging Asian countries recording year-to-date gains. China and Taiwan took key steps to promote commercial ties between the two countries culminating in a month-end announcement that Taiwan would open its financial markets to Chinese investors for the first time in 60 years. The news caused the preponderance of the Taiwan equity market to trade limit up on the last day of the month. The iShares MSCI Taiwan Index Fund (EWT) (with a one-month return of 22.50%), and the iShares FTSE/Xinhua China 25 Index fund (FXI) (with a one-month return of 11.99%) received US$259 million and US$487 million in inflows in April, respectively. (For standardized returns, please see page 5 of this report. Certain sectors and markets may perform exceptionally well based on current market conditions and iShares funds can benefit from that performance. Achieving such exceptional returns involves the risk of volatility and investors should not expect that such results will be repeated.)

Fixed Income

Although economic news remains mixed, consumer confidence measures and gains in corporate bonds and stocks reflect investors' views that banks are stabilizing, credit is thawing, and the pace of economic decline is moderating. The recently released GDP report revealed a steeper-than-expected decline in the first quarter, but portrayed an economy that is poised to rebound when consumers begin to spend again. While first quarter GDP declined at an annualized rate of 6.1%, the drop was largely attributable to businesses slashing inventories in response to the sharp pull-back in consumer spending that occurred in the fourth quarter. Consumer spending actually made a positive, albeit modest, contribution to first quarter GDP.

Further, the Commerce Department reported that consumer spending rose at a 2.2% annual pace in the first quarter, the most in two years. In another sign that the economy may have bottomed, the Institute for Supply Management's factory index rose to 40.1 last month, higher than forecast, from 36.3 in March (levels under 50 indicate a contraction), marking the slowest pace of decline in seven months. Additionally, the Conference Board's measure of consumer confidence surged to 39.2 in April from 26.9 in March.

However, home prices continued to drop and job losses mounted; more than 5 million jobs have been claimed since the recession began. The decline in home prices was sharp, but slightly less so than in January. The Standard & Poor's/Case-Shiller price index declined 18.6% in February from one year earlier, just under January's -19.0% year-over-year figure.

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