Russ Koesterich iShares Chief Investment Strategist Understanding Inflation: Investing with Confidence in Any Inflationary Environment

2 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Year-over-Year Change 5 Year Rolling Volatility 1/521/631/721/811/901/991/08 Volatility of US InflationUS Consumer Price Index Source: Bloomberg, as of 6/30/10. The volatility of inflation is now at its highest level since % 0% 2% 4% 6% 8% 10% 12% 14% 16% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70%

Is Inflation at Risk?

4 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION No double dip No deleveraging Fed acted early and aggressively US is not Japan

5 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION What to watch: Excess capacity Capacity Utilization (%) CPI YoY (%) Sources: Bureau of Labor Statistics, Bloomberg, Federal Reserve, as of 2/28/10. Capacity Utilization and Inflation 3/683/743/803/863/923/983/043/10 Capacity Utilization (One-Year Lag)CPI YoY

6 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION What to watch: Jobs Non-farm Payroll YoY (%) CPI YoY (%) 3/683/743/803/863/923/983/04 Sources: Bureau of Labor Statistics, Bloomberg, Federal Reserve, as of 2/28/10. Job Creation and Inflation 3/10 Non-farm Payrolls YoY (One-Year Lag) CPI YoY

7 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION What to watch: Money and inflation 1/068/063/0710/075/0812/087/09 Sources: Federal Reserve, Bloomberg, as of 2/28/10. US M2 vs. Monetary Base M2 Monetary Base

8 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION What to watch: Money and inflation Quarterly Lag Correlation Quarter over Quarter (QoQ) Changes Money Supply vs. Inflation Sources: Bloomberg, as of 2/28/10. 0 Lag 2 Quarters 4 Quarters 6 Quarters 8 Quarters 10 Quarters 9 Quarters 7 Quarters 5 Quarters 3 Quarters 1 Quarter

9 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION In the “sweet spot” Average P/E CPI YoY Less than 1%15.62 CPI YoY 1% to 3%19.24 CPI YoY 3% to 5%16.95 CPI YoY 5% to 7%13.18 CPI YoY 7% to 9%10.34 CPI YoY Above 9%8.77 Sources: Bloomberg, as of 2/28/10. S&P 500 ® Multiples and Inflation Level

10 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Lower InflationHigher Inflation U.S. large cap Healthcare Consumer staples TIPS Energy Producer Commodities/Gold/ Precious Metals Energy TIPS Treasuries Financials Consumer discretionary Underweight Overweight The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

11 FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION Inflation and the Presidency Sources: Bloomberg, as of 2/28/10. Inflation Data 1871–Present RepublicansDemocrats 1.2% 4.5% Annual Inflation Rate Federal Spending Average Annual Increase 1914–Present RepublicansDemocrats 4.9% 13.5% Annual Inflation Rate Inflation Adjusted Inflation Adjusted

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The information included in this material has been taken from trade and other sources considered reliable. No representation is made that this information is complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date and are subject to change. This information should not be construed as research, investment advice or a recommendation regarding any security in particular. No part of this material may be reproduced in any manner without the prior written permission of BlackRock, Inc. Russ Koesterich is an affiliate of BlackRock Fund Distribution Company and BlackRock Execution Services, which are subsidiaries of BlackRock, Inc. ©2011 BlackRock Institutional Trust Company, N.A. All rights reserved. iShares® is a registered trademark of BlackRock Institutional Trust Company, N.A. All other trademarks, servicemarks or registered trademarks are the property of their respective owners. iSg RK-BR01- 9/10 Not FDIC Insured No Bank Guarantee May Lose Value

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