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.

Fixed Income, continued

The Fed, acknowledging that the economy remains weak, signaled its intention to push forward with its plans to purchase U.S. Treasury and mortgage-backed securities in an attempt to pump capital into the system and keep a lid on longer-term interest rates. Simultaneously, the Federal Open Market Committee reiterated that it would be keeping the Federal Funds rate near 0% for an extended period. Meanwhile, interest rates climbed to the highest levels this year with the 10-year U.S. Treasury hitting 3.1% at month-end. While short-term rates remained anchored at levels under 1%, longer term rates edged up. The 30-year U.S. Treasury yield rose nearly 50 basis points to close the month at 4.0%, a level not seen since November 2008. As a result, the long duration Treasury iShares funds were the worst performers in April.

Outside of the U.S. Treasury sectors, both investment grade and high yield enjoyed their best month ever in terms of performance versus U.S. Treasuries. Investment grade credit spreads tightened 87 basis points in April, producing 460 basis points of excess return as measured by the Barclays Capital Investment Grade Credit Index. The Barclays Capital High Yield Index spread compressed 295 basis points and delivered a lofty 12.1% total return in April, generating excess returns of 13.2% and bringing year-to-date excess returns to 20.3%. Lower quality issues outpaced higher quality securities in both the investment grade and high yield markets. As a result, the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) was the top performing iShares fixed income fund 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.)

A Look at ... "The Future of ETFs in 401(k)s"

The defined contribution (DC) retirement plan as we know it could soon be set for a major change. Not only have many workers suffered major losses within their 401(k) plans, many employers have stopped contributing to their employees' plans, creating a bleak outlook for the future of working America.

The driving force behind changing 401(k) plans is securing the retirement income of future retirees. As recent news has shown, many Americans are having to delay or call off their plans for retirement as a result of the loss or sharp decrease in the assets in their 401(k)s. Future retirees are longing for the safety of old-fashioned defined benefit (DB) pensions plans -yet the fallout of these benefits and plans was the catalyst for the creation of the 401(k).

One solution to this national problem may be the use of ETFs in 401(k) plans. ETFs offer low costs, transparency and flexibility. Some companies have begun to switch their retirement plans to ETF platforms. This system represents a big change for retirement markets. In the past, people in 401(k) plans could only invest indirectly in ETFs, typically through third-party unitized funds or collective trusts. With this new platform, participants can create their own portfolios and freely transact using ETFs, which trade throughout the day.

The need for 401(k) reform has also been echoed by many consultants, financial advisors and companies, whose interest is more unique and specific - they're interested in adding ETF options for alternative asset classes to target date retirement funds, while micro-and small-sized plans interest is very broad in terms of type and number of ETFs.²

Since many smaller companies are new to the 401(k) process, the bulk of growth in retirement plan assets is expected to be driven by those size firms according to Barclays Global Investors. At this point, penetration by ETFs into the 401(k) is less than 5%, but as a result, iShares is expecting to see a period of strong growth for ETFs in retirement plans in the next several years.²

To help address the need for more information regarding ETFs in 401(k)s, iShares recently launched a new program that identifies administrative providers and networks that offer competitively priced and straightforward access to ETFs in 401(k) accounts. This makes it easier for financial advisors to provide ETFs in clients' retirement programs alongside traditional mutual funds.

Endnotes

1. Source: Bloomberg News
2. Source: Wojnar, Darek. Head of iShares' Product Research and Strategy Group, Barclays Global Investors

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 <file://www.iShares.com>. Read the prospectus 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. Securities focusing on a single country may be subject to higher volatility. Investments in smaller companies and 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. Diversification and asset allocation may not protect against market risk.

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. 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 stock in particular.

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.

The iShares Funds ("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., neither of which is affiliated with SEI.

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by iBoxx®, MSCI 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.

©2009 Barclays Global Investors. All rights reserved. iShares is a registered trademark of Barclays Global Investors, N.A. All other trademarks, service marks or registered trademarks are the property of their respective owners. iS-0686-0409

* Not FDIC Insured * No Bank Guarantee * May Lose Value

Michael Latham is managing director and head of Americas iShares.