Investment Directions Monthly Market Outlook August 15, 2012

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

–0.6

–3 +3

Macroeconomic OverviewWhile central bankers appeared unable or unwilling to enact additional measures to ease monetary policy, the global economic slowdown dragged on. Equity markets eked out a modest 1.37% in July and closed the year-to-date period up 7.10%. US Treasury rates hit their lowest on record, and unemployment across the globe continued to soften.

Although some economies did buck the trend, overall the global economy seems to be slowing its pace of growth. However, we still believe there’s a 60% chance that the global economy will experience slow growth and avoid a recession in 2012. The United States no longer appears immune to this broader economic slowdown, with many investors continuing to question whether another recession is on the horizon. Uncertainty over Europe and the deceleration in China haven’t helped the US recovery either. Still, global equity markets gained 2.32% in August through August 10.*

In our opinion, the most likely outcome for the global economy for the remainder of the year continues to be slow, but positive, growth. Europe still represents the Achilles’ heel for financial markets. While Europe is struggling, its economic leaders appear incapable of coming up with solutions to stem the slowdown of growth and the growing debt problems that many European countries face. The ongoing crisis in Europe is also hurting both US manufacturing and Chinese exports.

Meanwhile, though growth appears to be slowing in the United States, we still believe the country will avoid a recession in 2012. That said, if US policy makers don’t avert the United States’ pending fiscal drag, recession fears will become justified.

We expect market volatility to rise in the fall as the event risks surrounding Europe and the US fiscal cliff intensify. While we expect stocks can move higher in 2012 and we continue to hold an overweight long-term view of global equities, especially relative to bonds, the road ahead for equities is still likely to be rocky.

As such, we continue to favor investments that potentially offer some downside protection while still potentially producing a reasonable yield and allowing for participation in market gains. We like high-quality, international dividend-paying stocks; 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: • DowngradeofGlobalTelecommunications toNeutral

• DowngradeofIndonesiatoNeutral

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

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

Our risk appetite measure recoveredmoderatelyfromlastmonthonsignsofstabilization in global equity marketsandaslightimprovementinUSgrowthexpectations. Still, credit spreads be-tweenlow-qualityandhigh-qualityUScorporatedebtremainelevated.

last month

Low High

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.

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 ]

GlobalRegionsWe have downgraded our view of Indonesia to neutral from a previous overweight (see below for discussion). All our other country outlooks remain the same.

Developed Markets: In the developed world, we still expect certain smaller developed countries—Canada, Australia, Singapore, Switzerland and Hong Kong (the CASSH countries)—to outperform 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, Germany and certain countries in northern Europe such as Norway.

There have been some tentative signs of progress in Europe, culminating most recently in European Central Bank (ECB) President Mario Draghi’s promise to do “whatever it takes” to save the euro. However, execution risks remain, with many details still to be worked out. To qualify for bond purchases Spain and Italy will need to formally request assistance. In addition, the European

banking system is still vulnerable to a run. Whether through a resumption of its Securities Market Program or through granting a banking license to the European Stability Mechanism (ESM), there is still much the ECB can do to lower European borrowing costs. Several structural issues remain unresolved including who will serve as the single regulator of the European banking system, how European sovereign debt will be pooled, whether there will be a Europe-wide deposit insurance scheme and how Europe will be lifted out of a recession. That said, we continue to believe a worsening eurozone crisis can be avoided if European politicians aggressively address their region’s problems. Investors will be closely watching the ECB governing council’s decision on market stabilization measures in early September, as well as the German constitutional court ruling on the European bailout fund. A continuation of the more hopeful investor sentiment that began in late June with the European leaders’ summit could result in the rally extending further.

* Please see appendix for an explanation of our factor methodology. ** Due to a confluence of factors, country views may be in the same spot on the chart though the countries’ outlooks are different. Please see Figure 2 for official outlooks. ***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.

Figure 3: Global Region Near-Term Outlooks and the Factors Behind Them*

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

– unattractive + attractive neutral

current underweight outlook current overweight outlook current neutral outlook previous month (if not shown – same as current)

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

Investors are wondering whether they should stick with German assets. For now, we think the answer is yes on German stocks, because in our view the most likely scenario is that the euro survives after a prolonged and costly transition toward fiscal union. While this process will be painful for both German stocks and bonds, as lower growth will hurt stocks and mutualizing the debt of other countries will hurt bonds, we believe that German stock prices already reflect this pain while bonds don’t.

We continue to hold a neutral view of US equities, which no longer look cheap on a relative valuation basis. After a string of weak payroll reports, the United States finally had good news on employment with July payrolls adding 163,000 new jobs, although these numbers aren’t nearly enough to indicate a trend. Contin-ued low numbers on productivity and new industrial orders, and rising oil prices all indicate we are likely to remain in a slow growth mode of around 2% for the foreseeable future. However, we still believe that the United States will not see a recession in 2012. US politicians still have 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, as well as significantly lower US growth in 2013, which could push the US economy back into a recession. That said, in our view the most likely outcome is a last-minute compromise to avert most or all of the tax hikes, assuming we don’t see a bitter and divisive election in November that would make it more difficult to avoid the pending fiscal drag.

We continue to hold an underweight view of UK equities. UK valuations appear a bit rich for an environment characterized by disappointing growth, due to both weak demand and continued fiscal consolidation. However, softening inflation could allow the Bank of England to increase its stimulus measures in the back half of the year.

Within developed Asia, we continue to hold a neutral view of Japan. While Japanese equities still appear cheap, corporate profitability in the country is very low in an international context. In addition, Japan’s relatively robust growth has been supported by the government’s reconstruction spending and will need a pickup in exports to continue.

Emerging Markets: 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 have the potential to offer stronger growth prospects than many developed markets. In addition, falling inflation in most emerging market countries has yet to translate into multiple expansions, and valuations remain compelling. In general, we prefer Brazil in Latin America, and China 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 for their generally more defensive nature.

Within Latin America, we continue to hold an underweight view of Mexico, as strong year-to-date return performance has turned the market’s valuations comparatively rich. Instead we prefer Brazil, where we think slowing growth has already been priced in.

We like emerging Asian countries thanks to their robust growth prospects and relatively attractive valuations. Within emerging

Sources: MSCI, FactSet, as of 7/31/12.

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

1.3

1.6

2.2

1.4

2.1

1.5

2.0

1.4

1.7

2.2

1.9

2.3

MSCI USEquity Index MSCI EAFE Index

MSCI EmergingMarkets Index

Current month 3 months ago 1 year ago 3 years ago0

5

10

15

20

13.1

11.5

14.9

12.6

20.9

15.2

13.8

11.9

13.7

18.0

16.0

14.6

Sources: MSCI, FactSet, as of 7/31/12.

Asia, we cut our overweight view on Indonesia to neutral in early August. After outperforming other emerging Asian countries over the summer, Indonesian stocks became relatively more expensive. Additionally, the Indonesian government recently adopted a less market-friendly stance on a number of policy issues.

Elsewhere in Asia, we continue to hold an overweight view of China. While data about the Chinese economy has been mixed, more forward-looking economic indicators still suggest that China can engineer a soft landing. In our view, China has both the motivation and ability to maintain growth at a respectable rate, as illustrated by recent rate cuts, as the country readies itself for a leadership transition later this year. As such, we expect that China’s growth will settle at around 8%, in which case China’s stock market looks cheap.

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 higher in July, cyclical and defensive sector performance was mixed. Telecommunications was once again the top performing sector, followed by energy and consumer staples. Utilities and materials performed the worst. This month, we have downgraded global telecom to a neutral stance, but have maintained our other sector outlooks.

As we expect markets to remain volatile in 2012, we continue to generally prefer more defensive global sectors to cyclical ones, and we like sectors with more mega cap exposure or an attrac-tive income stream.

We downgraded our overweight view on global telecommunica-tions to neutral in early August. Our original thesis was that the sector offered a compelling yield and the sector’s defensive characteristics meant that it was likely to hold up relatively well during periods of economic uncertainty. Since then, global telecom stocks have outpaced the S&P Global 1200 Index, resulting in rich valuations.

Within cyclicals, we continue to advocate an overweight alloca-tion to global energy stocks. We expect crude prices to benefit in the long term as marginal supply is increasingly coming from unconventional higher cost sources, many large oil producing countries require a high crude price to balance their budgets, OPEC has very little spare capacity, and global oil demand is likely to greatly outstrip supply by 2030. Any supply disruptions

related to unforeseen adverse geopolitical developments could further support energy prices. For investors looking for income, global energy stocks in aggregate have also offered a healthy dividend yield.

While we continue to hold a neutral view of global utilities, we hold an underweight view of US utilities. In our view, investors in their quest for yield and relative safety have pushed the price of US utility stocks to a point where they are now too expensive. We still believe in dividend-paying stocks, but in our view there are sectors with more compelling valuations and higher profitability.

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 rich relative to other cyclical sectors. In addition, technology stocks 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 it’s likely to remain under pressure due to uncertainty regarding the eurozone crisis, regulatory changes and earnings. That said, if investor appetite for risk rebounds, beaten down European financials would be likely to benefit. And in our view, US consumer discretionary stocks continue to look very expensive in an economy character-ized by no real wage growth and slow job creation.

* Please see appendix for an explanation of our factor methodology. ** This chart focuses on global sector views only. For US sector views, please see Figure 2. 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 SectorCyclical Sectors

Valuations (P/B)

Profitability Risk/ Sentiment

Our View underweight neutral overweight Related iShares ETF Tickers

Consumer Discretionary –

Energy + IXC,FILL,EMEY,AXEN

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

Industrials** IYJ,EXI,AXID

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

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

Defensive Sectors

Consumer Staples – + IYK,KXI,AXSL

Healthcare – + + IYH,IXJ,AXHE

Telecommunications – IXP,AXTE,IYZ

Utilities** + – IDV,JXI,AXUT

– unattractive + attractive neutral

current underweight outlook current overweight outlook current neutral outlook previous month (if not shown – same as current)

* Sector performance information is based on the performance of the S&P Global 1200 indices.

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

US Treasuries of all maturities reached record low yields during July, but gained back some of those yields late in the month as concerns escalated over Europe. After starting the month at 1.64%, the 10-year Treasury ended July at 1.47%. After a poor ISM manufacturing report early in the month, the Treasury market came under severe pressure toward the end of the month following ECB President Draghi’s speech saying he would do “whatever it takes” to defend the euro and yields rose from 1.39% to a high of 1.59% between July 26 and 27. However, there contin-ued to be buyers on dips and that, coupled with month-end buying and fund rebalancing, helped retrace over half the sell-off. Looking forward, we have maintained all of our outlooks this month.

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 continue to prefer municipals and investment grade credit over other fixed income sectors. Both of these asset classes have outperformed broader fixed income benchmarks lately and offer attractive yields relative to US Treasuries. In addition, current investment grade and municipal bond spread levels continue to look elevated relative to credit risk unless you believe the United States will experience another recession. Meanwhile, despite isolated local bankruptcy headlines, credit risks in the high grade municipal space are modest. There are few signs that Washington is seriously contemplating any change in the tax-exempt status of municipals and potential increases in investment income tax rates would make municipal valuations more attractive.

As we still believe that high yield bonds are close to fair value, we continue to advocate that investors generally maintain a bench-mark weight. That said, we believe investors should consider being more aggressive buyers in three instances: if spreads widen, if they have portfolios with high income needs and if they are worried about rising rates.

We continue to hold an underweight long-term and a neutral near-term view of Treasuries, which currently offer little more than cash in the way of yield and record-low coupons mean that duration risk is at a record high. In addition, even a small backup in Treasury yields would lead to significant losses.

We remain cautious on TIPS over the long term in light of negative real rates, and are neutral in the near term.

We continue to advocate a benchmark weight to mortgage-backed securities as they appear to be fairly priced given prepay-ment and extension risk. In addition, we believe the potential for further upside appreciation is limited by two factors: ambiguity over further quantitative easing efforts and prepayment uncer-tainty resulting from lower rates and from 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 attractive yields relative to the US Treasury market, and 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.

How do you use this market commentary and do you find it useful?

Please share your feedback and any questions or concerns you have at questions@iShares.com. You also can find the latest market commentary from the iShares Investment Strategy Group at iSharesblog.com and iShares.com.

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).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):This material is solely for educational purposes and 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. 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. In Hong Kong, this document is issued by BlackRock (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. In Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N).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.The MSCI Canada IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in Canada.

iS-7

811-

0812

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-7811-0812 3919-03RB-8/12

Not FDIC Insured • No Bank Guarantee • May Lose Value

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