BGI / CFA Institute Seminar

The Success of Exchange Traded Products (ETF/ETN) despite market downturnA review of usage, exposures, risks and applications

February 2009

Deborah Fuhr, Managing DirectorGlobal Head of ETF Research & Implementation Strategy

Phone: +44 20 7668 4276Email: Deborah.Fuhr@barclaysglobal.com

NOT FOR DISTRIBUTION INTO THE US OR CANADA

2

2008 was a very good year for Exchange Traded Funds “ETFs”

ETFs Listed Globally (refer to slides 5-11)• At the end of 2008 the Global ETF industry had 1,590 ETFs with 2,658 listings, assets of $711.0 billion, from 85 providers on 42 exchanges around the world. • In 2008 assets fell by 10.8% which is less than the 42.08% fall in the MSCI World index in USD terms.• In 2008 the number of ETFs increased by 36% with 472 new ETFs launched.• In 2008 exchanges with official listings increased by one to 42.• In 2008 the average daily trading volume in USD increased by 32.5% to US$80.4 Billion.• Standard & Poors (S&P) ranks 1st with US$203.09 Bn in ETF AUM tied to their benchmarks, while MSCI ranks 2nd with US$136.62 Bn, followed by Russell in 3rd with US$57.62 Bn.• There are currently plans to launch 604 new ETFs.• Globally, net sales of mutual funds (excluding ETFs) were minus US$256.7 Bn, while net sales of ETFs were US$187.5 Bn during the first 10 months of 2008 according to Strategic Insight.• Additionally, there were 271 other ETPs (Exchange Traded Products) with assets of US$53.23 Bn from 28 providers on 15 exchanges.

ETFs Listed in the United States (refer to slides 12-16)• At the end of 2008 the US ETF industry had 698 ETFs, assets of $497.12 billion, from 18 providers on 3 exchanges. • In 2008 assets fell by 14.4%, which is less than the 38.58% fall in the MSCI World index in USD terms. • In 2008 the number of ETFs increased by 16% with 144 new ETFs launched.• In 2008 the average daily trading volume in US dollar has increased by 33% to US$77 billion.• In the US net sales of mutual funds (excluding ETFs) were US$270.9 Bn, while net sales of ETFs domiciled in the US were US$109.6 Bn during the first 10 months of 2008 according to Strategic

Insight.• Additionally, there were 136 other ETPs (Exchange Traded Products) with assets of US$45.34 Bn from 18 providers on 2 exchanges.

ETFs Listed in Europe (refer to slides 17-20)• At the end of 2008 the European ETF industry had 632 ETFs with 1,539 listings, assets of $142.82 billion, from 29 providers on 19 exchanges. • In 2008 assets have risen by 11.2%, which is greater than the 47.87% fall in the MSCI Europe index in USD terms.• In 2008 the number of ETFs increased by 49% with 219 new ETFs launched.• In 2008 the average daily trading volume in US dollar has increased by 22% to US$2.03 billion.• In Europe net sales of mutual funds (excluding ETFs) were minus US$505.7 Bn while net sales of ETFs domiciled in Europe were US$61.6 Bn during the first 10 months of 2008 according to Lipper

Feri.• Additionally, there were 124 other ETPs (Exchange Traded Products) with assets of US$7.09 Bn from 2 providers on 6 exchanges.

Year End 2008 ETF Industry Review

Metric Dec-08YTD

Change (%) Dec-08YTD

Change (%) Dec-08YTD

Change (%) Dec-08YTD

Change (%) Dec-08YTD

Change (%)AUM (US$Bn) 711.00 -10.8% 497.12 -14.4% 142.82 11.2% 27.43 -19.8% 23.63 -12.7%# ETFs 1,590 35.8% 698 16.1% 632 49.4% 61 306.7% 95 37.7%# Providers 85 13.3% 18 5.9% 29 3.6% 5 25.0% 34 25.9%# Exchanges 42 2.4% 3 -25.0% 19 5.6% 2 0.0% 13 0.0%Daily Trading Volume (US$Mn) 80,387.20 32.5% 77,028.58 32.8% 2,025.09 21.6% 169.20 51.1% 527.83 85.5%

Asia ex-JapanGlobal US Europe Japan

3

Year End 2008 Market Review2008 was a very good year for Exchange Traded Funds “ETFs”

• While 2008 was a catastrophic year for the markets and many investment products. There was almost no where to hide from the crash of 2008. The crash of 2008 was fast, deep and volatile. Just about the only assets to prosper were government bonds of developed countries and gold.

• In the current market turmoil investors are becoming even more concerned about counterparty risk, transparency, liquidity and the use of derivatives and structured products. As a result, the use of ETFs to implement exposure to cash, fixed income, commodities and equity indices is becoming more popular.

• Just about the only product to see net inflows in 2008 were Exchange Traded Funds “ETFs”. On a global basis ETF net sales were US$ 187.5 billion while net sales of mutual funds were minus US$256.7 billion through the end of October according to Strategic Insight.

• Hedge Funds for the first time in their 18 year history had significant outflows according to Hedge Fund Research (HFR). TrimTabs expects the outflows to be more than US$ 100 billion for all of 2008. 1994 was the only previous time of net outflows, when the figure was US$ 1 million.

• First year since 1990 that hedge funds have seen a drop in assets – which is a combination of performance losses and investor redemptions which pushed assets down by US$ 500 million during the year to US$ 1,500 billion at the end of Oct (source HFR). Hedge funds lost on average 19% in 11 months to the end of November. A 1.5% loss was the only previous annual loss since records began in 1990.

• Stocks lost 42% in 2008, as represented by MSCI World index of 23 developed countries erasing more than US$ 29 trillion in value. The S+P 500 declined 38.5% which was its worst drop since 1937 when it dropped 38.6%. Dow Jones Industrial Average was down 34% its worst annual performance since 1931.

• The FTSE 100 decline of 31.3% in local currency ranks as its worst year since it was created in 1985. The MSCI Europe index of 16 European countries was down 47.9% in US$ terms. Japan’s Nikkei 225 logged its biggest annual fall on record – down 42.1% in local currency.

• The MSCI EM (emerging markets) index of 23 emerging markets dropped 54.5% in US$ terms. Stocks fell 55% - 72% in the BRIC countries – Brazil, Russia, China and India.

• Market volatility has increased significantly since Lehman Brother’s bankruptcy on Sept 15, 2008. Since then the S&P 500 index has moved by more than 5% on 18 days. There were only 17 days with moves of greater than 5% in the previous 53 years according to S&P. Equity volatility as measured by the VIX index soared to record levels, nearly double prior spikes in 2002 and 1998. The VIX started the year at 23 and ended the year at 40 with a spike of 80 and a low of 15.8.

• S&P GSCI index dropped 46.5% underperforming global stock markets which have delivered minus 43.5% according to MSCI AC World index of 23 developed and 23 emerging markets in US$ terms. The benchmark for US crude oil prices, NYMEX West Texas intermediate is down 53.5% at year-end 2008 after reaching a high of $147.27 a barrel in July.

4

Year End 2008 Market Review (continued)• Gold rose 5.8% in 2008 ending the year at US$882 per troy ounce, which was a record high reached in 1980.• 2008 has been indelibly marked as the year of financial crisis. Nobody predicted the scale: and nobody knows when and how it will end. • The attention of market participants has turned toward the outlook for the markets in 2009. Investors are hoping that 2009 will be better

than 2008. Strong headwinds will cause equities to struggle until credit market conditions improve. Fund managers are divided on the prospects for the markets and economies in 2009. Some see opportunities in infrastructure, fixed income credit, European equities.

• At some point, the markets will start anticipating economic recovery as the government stimulus packages and central bank rate-cutting start to have an impact.

• Banks are hoarding cash – the level has nearly tripled to more than US$ 1 trillion in the past three months according to the Federal Reserve in the US.

• The use of ETFs is likely to increase by independent financial advisers (IFAs) in the UK based on the regulatory proposals outlined on November 25th in the Retail Distribution Review (RDR) feedback statement by the UK’s Financial Services Authority (FSA). The proposals outline the changes the FSA wants to make for the retail investment market to establish a new level of consumer trust and confidence by distinguishing between independent advice and sales advice to create better clarity for consumers by:

– Providing greater clarity for consumers about the advice service being offered by making a distinction between independent advice and sales advice

– Raising professional standards of all advisers by setting minimum qualifications for different types of advice and establishing a Professional Standards Board to boost consumers’ confidence in the industry;

– Modernising the way advice is paid for by requiring independent advisers to agree the cost of financial advice with customers up-front, removing the possibility of commission-bias and ensuring the cost of all advice is clear to consumers whenever it is given; and

– Introducing a new standard for independent advice by ensuring advice is unbiased, unrestricted and extends to all types of investments.

• In the US fee-based advisors (paid from the consumer) have embraced the use of ETFs to a greater degree than commission-based advisors (paid by the product provider). In the UK the use of ETFs among IFAs is very limited as the are “multi-tied” and “tied”, which respectively describe those selling products from a limited range of providers, and those selling only the products of one provider, such as in a bank. ETFs are not currently included in the tied or multi-tied product sets.

5

Our forecast is: ETF AUM will exceed US$1 trillion in 2009 and US$2 trillion in 2011.

Data as of end December 2008Source: Global ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$2,200

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

ETF Assets Total $0.8 $1.1 $2.3 $5.3 $8.2 $17.6 $39.6 $74.3 $104.8 $141.6 $212.0 $309.8 $412.1 $565.6 $796.7 $764.1 $711.0 $1,000 $2,000

ETF Commodity Assets $0.0 $0.1 $0.3 $0.5 $1.2 $3.4 $6.3 $9.2 $9.9

ETF Fixed Income Assets $0.1 $0.1 $4.0 $5.8 $23.1 $21.3 $35.8 $59.9 $90.8 $104.0

ETF Equity Assets $0.8 $1.1 $2.3 $5.3 $8.2 $17.6 $39.6 $74.2 $104.7 $137.5 $205.9 $286.3 $389.6 $526.5 $729.9 $664.1 $596.4

ETP Assets Total $15.6 $28.1 $45.9 $58.3 $53.2

# ETFs 3 3 4 21 21 31 33 92 202 280 282 336 461 714 1171 1499 1,590

# ETPs 23 70 134 268 271

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Sep-08 Dec-08 2009-F 2011-F

Global ETF and ETP Growth

6

Global ETF ListingsData as of end December 2008

Australia P Listings: 4 T Listings: 20 Providers: 2 AUM: US$1.04 Bn

New Zealand P Listings: 6 T Listings: 6 Providers: 2 AUM: US$0.27 Bn

Canada P Listings: 77 T Listings: 77 Providers: 3 AUM: US$13.26 Bn

China P Listings: 5 T Listings: 5 Providers: 4 AUM: US$2.25 Bn

Finland P Listings: 2 T Listings: 2 Providers: 2 AUM: US$0.11 Bn

France P Listings: 174 T Listings: 316 Providers: 7 AUM: US$38.70 Bn

Germany P Listings: 252 T Listings: 404 Providers: 8 AUM: US$63.06 Bn

Hong Kong P Listings: 11 T Listings: 23 Providers: 5 AUM: US$13.43 Bn

Hungary P Listings: 1 T Listings: 1 Providers: 1 AUM: US$0.01 Bn

Iceland P Listings: 1 T Listings: 1 Providers: 1 AUM: US$0.00 Bn

Ireland P Listings: 1 T Listings: 1 Providers: 1 AUM: US$0.03 Bn

Japan P Listings: 61 T Listings: 63 Providers: 5 AUM: US$27.43 Bn

Malaysia P Listings: 3 T Listings: 3 Providers: 2 AUM: US$0.30 Bn

Mexico P Listings: 6 T Listings: 121 Providers: 2 AUM: US$4.48 Bn

Norway P Listings: 6 T Listings: 6 Providers: 2 AUM: US$0.14 Bn

Singapore P Listings: 5 T Listings: 21 Providers: 5 AUM: US$0.91 Bn

Slovenia P Listings: 1 T Listings: 1 Providers: 1 AUM: US$0.01 Bn

South Africa P Listings: 17 T Listings: 17 Providers: 5 AUM: US$1.25 Bn

South Korea P Listings: 36 T Listings: 36 Providers: 6 AUM: US$2.73 Bn

Spain P Listings: 9 T Listings: 25 Providers: 2 AUM: US$2.15 Bn

Sweden P Listings: 7 T Listings: 7 Providers: 1 AUM: US$1.47 Bn

Taiwan P Listings: 11 T Listings: 11 Providers: 2 AUM: US$1.35 Bn

Thailand P Listings: 2 T Listings: 2 Providers: 2 AUM: US$0.07 Bn

Turkey P Listings: 6 T Listings: 6 Providers: 2 AUM: US$0.11 Bn

United States P Listings: 698 T Listings: 698 Providers: 18 AUM: US$497.12Bn

Brazil P Listings: 4 T Listings: 4 Providers: 2 AUM: US$1.02 Bn

United Kingdom P Listings: 118 T Listings: 272 Providers: 6 AUM: US$24.83 Bn

Belgium P Listings: 1 T Listings: 1 Providers: 1 AUM: US$0.05 Bn

Austria P Listings: 1 T Listings: 21 Providers: 1 AUM: US$0.03 Bn

Netherlands P Listings: 14 T Listings: 72 Providers: 3 AUM: US$0.26 Bn

Indonesia P Listings: 1 T Listings: 1 Providers: 1 AUM: US$0.00 Bn

Greece P Listings: 1 T Listings: 1 Providers: 1 AUM: US$0.08Bn

Italy P Listings: 15 T Listings: 255 Providers: 5 AUM: US$0.95 Bn

India P Listings: 11 T Listings: 11 Providers: 6 AUM: US$1.28 Bn

Portugal P Listings: 1 T Listings: 1 Providers: 1 AUM: US$0.00 Bn

Switzerland P Listings: 21 T Listings: 146 Providers: 5 AUM: US$10.6 Bn

P Listings = Primary Listings, T Listings = Total ListingsSource: Global ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg

7

Global ETF Fund Flows

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Net New Flows (US$ Bn)

Asia Pacific (ex-Japan) 2.0 2.1 0.4 14.1

Japan -4.9 2.3 3.1 3.4

Europe 9.3 14.0 6.7 27.2

International/Offshore 5.1 7.6 17.7 33.2

US 53.7 68.7 149.7 109.6

2005 2006 2007 YTD 10/08

Includes ETFs and ETNsSource: Strategic Insight Simfund Global, ETF Research and Implementation Strategy, Barclays Global Investors.

8

Growth in Institutional Users of ETFs

Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, Thomson Financial

0

500

1,000

1,500

2,000

2,500

3,000

Number of Institutions

Total 165 278 431 762 1,103 1,297 1,427 1,627 1,924 2,214 2,616 2,717

Other 0 0 1 2 5 11 10 10 10 30 15 14

Latin America 0 0 0 4 5 8 7 19 40 36 57 65

Asia 1 1 4 11 23 19 23 35 38 51 60 78

Canada 3 7 24 32 55 68 62 58 73 77 95 93

Europe 16 29 60 152 233 302 315 351 430 461 608 591

United States 145 241 342 561 782 889 1,010 1,154 1,333 1,559 1,781 1,876

Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Sep-08

9

Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, Thomson Financial

Growth in Institutional Users of ETFsCountry Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Sep-08United States 145 241 342 561 782 889 1,010 1,154 1,333 1,559 1,781 1,876United Kingdom 9 12 15 25 37 55 61 55 79 87 112 114Canada 3 7 24 32 55 68 62 58 73 77 95 93Switzerland 0 3 7 19 26 35 31 48 62 62 92 87Spain 1 2 8 32 47 60 62 61 70 76 76 75Germany 1 1 1 6 14 19 21 29 35 43 60 66France 0 2 10 24 29 32 30 36 47 42 56 58Luxembourg 0 1 4 10 10 13 14 16 20 19 32 31Italy 4 6 7 14 20 26 26 25 24 23 41 26Mexico 0 0 0 0 0 0 0 0 7 11 19 23Sweden 0 0 2 7 12 15 17 16 17 19 20 21Austria 0 0 0 3 9 11 11 7 8 12 22 20Argentina 0 0 0 0 0 0 0 6 18 7 20 20Hong Kong 0 0 1 4 11 10 10 7 12 12 19 20Chile 0 0 0 4 5 6 6 12 15 18 18 18Taiwan 0 0 0 0 0 0 5 14 12 12 10 18Liechtenstein 0 0 0 0 0 1 0 2 3 10 14 16Singapore 0 0 2 4 6 5 5 9 7 10 13 15Portugal 0 0 0 2 3 3 5 7 13 16 16 14Belgium 1 1 4 6 9 9 11 12 13 13 16 11Greece 0 0 0 0 2 5 5 9 9 9 7 11Netherlands 0 0 0 0 0 1 4 8 13 10 11 10Australia 0 0 0 0 0 0 0 1 2 8 7 9Japan 1 1 1 3 6 4 3 4 5 8 9 7Norway 0 0 0 0 2 3 3 3 3 4 7 7Malaysia 0 0 0 0 0 0 0 0 0 1 2 7South Africa 0 0 0 0 3 7 7 5 4 20 7 6Finland 0 0 0 1 3 4 3 3 3 3 7 6Denmark 0 0 0 1 1 2 3 2 1 4 5 5Ireland 0 1 2 2 6 6 7 8 5 3 5 5Bermuda 0 0 0 1 2 3 3 3 3 6 4 4Brazil 0 0 0 0 0 0 0 0 0 0 0 3Iceland 0 0 0 0 1 1 1 1 2 2 2 3India 0 0 0 0 0 0 0 0 0 0 0 2Czech Republic 0 0 0 0 1 1 0 3 3 2 3 2Cayman Islands 0 0 0 0 0 0 0 1 1 1 2 2Poland 0 0 0 0 1 0 0 0 0 0 2 2Virgin Islands (US) 0 0 0 0 0 1 0 0 1 2 1 1Hungary 0 0 0 0 0 0 0 0 0 1 1 1Bahamas 0 0 0 0 0 0 0 0 0 0 1 1Peru 0 0 0 0 0 2 1 1 0 0 0 1Slovenia 0 0 0 0 0 0 0 0 0 1 1 0Barbados 0 0 1 1 0 0 0 1 1 1 0 0

Total 165 278 431 762 1,103 1,297 1,427 1,627 1,924 2,214 2,616 2,717

10

Types of Institutional Users of ETFs

Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, Thomson Financial

Type of Institution Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Sep-08Investment Advisor 109 200 319 549 802 923 1,023 1,167 1,380 1,564 1,946 2,014Hedge Fund 9 20 30 73 114 144 152 180 209 285 340 388Bank and Trust 14 19 30 67 92 109 120 139 161 174 189 181Pension Fund 5 8 9 15 22 28 28 33 45 36 45 48Brokerage Firm 14 11 15 15 16 25 28 31 37 40 45 44Insurance Company 13 19 27 39 50 60 65 66 74 80 23 14Endowment Fund 1 1 1 3 3 3 5 5 7 8 9 9Private Equity 0 0 0 0 0 0 0 0 1 4 7 8Holding Company 0 0 0 0 0 1 2 3 3 4 3 5Corporation 0 0 0 0 1 1 1 1 4 16 5 4Foundation 0 0 0 0 1 0 2 1 2 3 3 2Venture Capital 0 0 0 1 2 3 1 1 1 0 1 0

Grand Total 165 278 431 762 1,103 1,297 1,427 1,627 1,924 2,214 2,616 2,717

11

Global ETF Assets by Type of Exposure

Data as of end December 2008Source: Global ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg

North America - Equity

Fixed Income - All (ex-Cash)

Europe - Equity

Emerging Markets - Equity

Asia Pacific - Equity

Global (ex-US) - Equity

Fixed Income - Cash (Money Market)

Global - Equity

Commodities

Currency

Mixed (Equity & Fixed Income)

Region of Exposure # ETFsTotal

ListingsAUM

(US$ BN) % TOTAL # ETFsAUM

Change % AUMNorth America - Equity 471 625 $342.51 48.2% 22 -$47.28 -12.1%Fixed Income - All (ex-Cash) 149 269 $91.68 12.9% 33 $35.16 62.2%Europe - Equity 350 693 $75.59 10.6% 98 -$18.36 -19.5%Emerging Markets - Equity 227 442 $70.84 10.0% 79 -$31.48 -30.8%Asia Pacific - Equity 135 211 $52.10 7.3% 69 -$19.31 -27.0%Global (ex-US) - Equity 60 63 $44.48 6.3% 16 -$17.55 -28.3%Fixed Income - Cash (Money Market) 13 25 $12.35 1.7% 10 $8.94 261.8%Global - Equity 98 214 $10.91 1.5% 40 $0.56 5.4%Commodities 49 78 $9.90 1.4% 21 $3.13 46.3%Currency 13 13 $0.39 0.1% 13 $0.39 100.0%Mixed (Equity & Fixed Income) 25 25 $0.27 0.0% 18 $0.14 111.7%

Total 1,590 2,658 $711.00 100.0% 419 -$85.70 -10.8%

End 2008 YTD Change

12

Index Providers WorldwideRanked by ETF AUM

Data as of end December 2008Source: Global ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg

S&PMSCIRussellOtherBarCapDow JonesSTOXXFTSEMarkitDeutsche BoerseNASDAQTopixNikkeiEuroMTSHang SengCACAMEXIntellidexMorningstarValue LineZacks

Index Provider # ETFsTotal

ListingsAUM

(US$ BN) % TOTAL # ETFsAUM

(US$ BN) % AUMS&P 210 308 $203.09 28.6% 62 -$29.50 -12.7%MSCI 202 488 $136.62 19.2% 69 -$54.40 -28.5%Russell 51 62 $57.62 8.1% 16 -$7.37 -11.3%Other 419 537 $55.69 7.8% 102 $0.93 1.7%BarCap 45 100 $49.63 7.0% 5 $17.51 54.5%Dow J ones 110 163 $34.77 4.9% 20 -$2.50 -6.7%STOXX 159 363 $33.26 4.7% 38 -$5.54 -14.3%FTSE 121 240 $24.39 3.4% 23 -$1.11 -4.3%Markit 41 71 $20.60 2.9% 10 $11.00 114.5%Deutsche Boerse 28 59 $17.59 2.5% 5 $2.57 17.1%NASDAQ 28 42 $16.87 2.4% 14 -$9.86 -36.9%Topix 52 58 $14.83 2.1% 41 -$4.25 -22.3%Nikkei 7 7 $13.17 1.9% 2 -$2.63 -16.6%EuroMTS 13 35 $11.05 1.6% 3 $4.70 74.0%Hang Seng 10 19 $7.80 1.1% 3 -$2.09 -21.1%CAC 13 15 $6.76 1.0% 5 -$0.92 -12.0%AMEX 4 4 $2.79 0.4% 0 $1.06 61.4%Intellidex 45 55 $2.52 0.4% 1 -$1.97 -43.9%Morningstar 13 13 $1.36 0.2% 0 -$0.77 -36.2%Value Line 5 5 $0.31 0.0% 0 -$0.33 -51.2%Zacks 14 14 $0.30 0.0% 0 -$0.20 -40.3%

Total 1,590 2,658 $711.00 100.0% 419 -$85.70 -10.8%

End 2008 YTD Change

13

Source: Global ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg

Top 25 ETF Providers around the WorldRanked by AUM, as of end December 2008

PROVIDER # ETFsAUM

(US$ BN) % TOTAL#

PLANNED # ETFs % ETFsAUM

(US$ BN) % AUM

% MARKET SHARE

iShares 361 $324.84 45.7% 13 40 12.5% -$77.77 -19.3% -4.8%State Street Global Advisors 98 $146.00 20.5% 33 15 18.1% -$6.40 -4.2% 1.4%Vanguard 38 $45.15 6.4% 1 1 2.7% $3.18 7.6% 1.1%Lyxor Asset Management 113 $33.23 4.7% 2 26 29.9% $1.17 3.6% 0.6%db x-trackers 99 $24.06 3.4% 0 48 94.1% $13.24 122.4% 2.0%PowerShares 142 $22.28 3.1% 41 28 24.6% -$15.74 -41.4% -1.6%ProShares 64 $20.32 2.9% 90 6 10.3% $10.62 109.6% 1.6%Nomura Asset Management 29 $14.94 2.1% 0 22 314.3% -$2.51 -14.4% -0.1%Bank of New York 1 $6.69 0.9% 0 0 0.0% -$3.46 -34.1% -0.3%Nikko Asset Management 8 $6.19 0.9% 0 6 300.0% -$2.88 -31.8% -0.3%Daiwa Asset Management 23 $6.05 0.9% 1 18 360.0% -$1.58 -20.7% -0.1%Credit Suisse Asset Management 8 $5.94 0.8% 0 0 0.0% $0.97 19.6% 0.2%AXA IM/ BNP AM 54 $4.47 0.6% 8 24 80.0% -$2.22 -33.2% -0.2%Van Eck Associates Corp 16 $4.45 0.6% 14 8 100.0% $0.96 27.4% 0.2%Nacional Financiera 1 $3.64 0.5% 0 0 0.0% -$0.10 -2.7% 0.0%Zurich Cantonal Bank 4 $3.30 0.5% 0 0 0.0% $2.26 216.0% 0.3%WisdomTree Investments 50 $3.23 0.5% 68 11 28.2% -$1.30 -28.7% -0.1%Hang Seng Investment Management 3 $2.82 0.4% 0 0 0.0% -$1.89 -40.1% -0.2%Commerzbank 50 $2.59 0.4% 0 50 100.0% $2.59 100.0% 0.4%ETFlab Investment 10 $2.52 0.4% 0 10 100.0% $2.52 100.0% 0.4%BBVA Asset Management 8 $2.09 0.3% 0 1 14.3% $0.90 76.3% 0.1%Credit Agricole Structured AM 24 $1.86 0.3% 0 21 700.0% -$1.16 -38.5% -0.1%Rydex 31 $1.82 0.3% 82 8 34.8% -$0.83 -31.4% -0.1%Claymore Securities 54 $1.62 0.2% 11 4 8.0% -$0.84 -34.3% -0.1%XACT Fonder 11 $1.52 0.2% 0 2 22.2% -$0.99 -39.4% -0.1%

End 2008 YTD CHANGE

14

US ETF and ETP Growth

Data as of end December 2008Source: Global ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg

0

100

200

300

400

500

600

700Assets (US$ Bn)

0

100

200

300

400

500

600

700

800# Products

ETF Assets $0.46 $0.42 $1.05 $2.40 $6.70 $15.56 $33.86 $65.59 $84.60 $102.28 $150.71 $227.74 $299.38 $406.81 $580.71 $542.26 $497.12ETPs Assets $1.98 $5.02 $3.80 $4.00 $6.06 $8.86 $14.41 $25.94 $40.48 $50.16 $45.34# ETFs 1 1 2 19 19 29 30 81 101 113 117 152 201 343 601 681 698# ETPs 2 14 17 17 17 17 20 37 71 135 136

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Sep-08 Dec-08

15

ETF Providers in the United StatesRanked by AUM as of End December 2008

Source: Global ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg

PROVIDER # ETFsAUM

(US$ BN) % Total#

Planned # ETFs % ETFsAUM

(US$ BN) % AUM% Market

ShareiShares 175 $252.82 50.9% 11 24 15.9% -$72.08 -22.2% -5.1%State Street Global Advisors 79 $137.91 27.7% 32 15 23.4% -$5.05 -3.5% 3.1%Vanguard 38 $45.15 9.1% 1 1 2.7% $3.18 7.6% 1.9%Powershares 124 $21.82 4.4% 40 24 24.0% -$15.21 -41.1% -2.0%ProShares 64 $20.32 4.1% 90 6 10.3% $10.62 109.6% 2.4%Bank of New York 1 $6.69 1.3% 0 0 0.0% -$3.46 -34.1% -0.4%Van Eck Associates Corp 16 $4.45 0.9% 14 8 100.0% $0.96 27.4% 0.3%WisdomTree Investments 50 $3.23 0.6% 68 11 28.2% -$1.30 -28.7% -0.1%Rydex 31 $1.82 0.4% 82 8 34.8% -$0.83 -31.4% -0.1%Direxion Shares 14 $0.94 0.2% 32 14 100.0% $0.94 100.0% 0.2%Claymore Securities 33 $0.91 0.2% 7 -3 -8.3% -$1.00 -52.3% -0.1%First Trust Advisors 38 $0.74 0.1% 3 2 5.6% -$0.26 -25.5% 0.0%XShares Advisors 5 $0.13 0.0% 36 -26 -83.9% -$0.13 -50.5% 0.0%Fidelity Management & Research 1 $0.08 0.0% 0 0 0.0% -$0.03 -29.4% 0.0%RevenueShares 5 $0.07 0.0% 9 5 100.0% $0.07 100.0% 0.0%Northern Trust 17 $0.03 0.0% 16 17 100.0% $0.03 100.0% 0.0%SPA ETF International 6 $0.01 0.0% 7 0 0.0% $0.00 -15.8% 0.0%ALPS ETF Trust 1 $0.01 0.0% 0 1 100.0% $0.01 100.0% 0.0%Ziegler Capital Management 0 $0.00 0.0% 0 -1 -100.0% -$0.01 -100.0% 0.0%FocusShares 0 $0.00 0.0% 0 -4 -100.0% -$0.02 -100.0% 0.0%Ameristock 0 $0.00 0.0% 0 -5 -100.0% -$0.01 -100.0% 0.0%Bear Stearns Asset Management 0 $0.00 0.0% 0 0 100.0% $0.00 100.0% 0.0%AdvisorShares - - - 2 - - - - -Capital West Securities - - - 1 - - - - -Emerging Global Advisors - - - 12 - - - - -Exchange Traded Spreads Trust - - - 4 - - - - -Firsthand Capital - - - 1 - - - - -Global X Funds - - - 6Grail Advisors - - - 1 - - - - -IndexIQ - - - 25 - - - - -J avelin Investment Management - - - 1 - - - - -Macro Securities Depositor - - - 4 - - - - -Pax World Funds - - - 3 - - - - -PIMCO - - - 1 - - - - -

Total 698 $497.12 100.0% 509 97 16.1% -$83.59 -14.4%

YTD 2008 YTD Change

16

US ETF Fund Flows

Includes ETFs and ETNsSource: Strategic Insight Simfund MF, ETF Research and Implementation Strategy, Barclays Global Investors

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

Net New Flows (US$ Bn)

Total 42.6 29.1 44.0 14.7 54.6 53.7 68.7 149.7 109.6

Money Market 0.0 0.0 0.0 0.0 0.0 0.1 1.1 2.2 0.8

Bond 0.0 0.0 3.8 0.6 3.6 6.3 5.1 13.1 16.6

International Equity 0.7 1.3 3.8 5.7 15.3 23.0 26.8 45.8 7.5

Domestic Equity 41.9 27.7 36.5 8.4 35.6 24.3 35.7 88.5 84.7

2000 2001 2002 2003 2004 2005 2006 2007 Ytd-10/08

17

Types of ETF Exposure: United States

Source: Global ETF Research & Implementation Strategy Team, Barclays Global Investors, BloombergData as of end December 2008

Exposure # ETFsAUM

(US$ BN) % TOTAL # ETFs % ETFsAUM

(US$ BN) % AUM% Market

ShareLarge-Cap - Equity 33 $144.69 29.1% 3 10.0% -$17.72 -10.9% 1.1%International - Equity 188 $109.01 21.9% 57 43.5% -$61.88 -36.2% -7.5%Fixed Income 54 $56.81 11.4% 5 10.2% $22.07 63.5% 5.4%Sector - Equity 161 $52.93 10.6% -23 -12.5% -$13.21 -20.0% -0.7%Growth - Equity 27 $28.37 5.7% -1 -3.6% -$12.03 -29.8% -1.3%Value - Equity 25 $25.90 5.2% -3 -10.7% -$5.23 -16.8% -0.2%Broad Market - Equity 12 $18.65 3.8% 0 0.0% -$4.43 -19.2% -0.2%Small-Cap - Equity 18 $16.53 3.3% 0 0.0% -$1.44 -8.0% 0.2%Mid-Cap - Equity 13 $15.58 3.1% 0 0.0% -$4.73 -23.3% -0.4%Leveraged 38 $11.23 2.3% 12 46.2% $8.80 361.4% 1.8%Leveraged Inverse 44 $9.52 1.9% 14 46.7% $2.72 39.9% 0.7%Custom 56 $4.05 0.8% 13 30.2% $1.55 62.3% 0.4%Commodities 7 $2.83 0.6% 6 600.0% $1.46 106.3% 0.3%Inverse 10 $0.79 0.2% 2 25.0% $0.26 49.3% 0.1%Currency 7 $0.21 0.0% 7 100.0% $0.21 100.0% 0.0%Active 5 $0.02 0.0% 5 100.0% $0.02 100.0% 0.0%

Total 698 $497.12 100.0% 97 16.1% -$83.59 -14.4%

YTD ChangeYTD 2008

Large-Cap - Equity

International - Equity

Fixed Income

Sector - Equity

Grow th - Equity

Value - Equity

Broad Market - Equity

Small-Cap - Equity

Mid-Cap - Equity

Leveraged

Leveraged Inverse

Custom

Commodities

Inverse

Currency

Active

18

Source: Global ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg. Data as of mid December 2008

US Listed ETF & HOLDRS Short Interest

Short Interest• Short Interest in US-listed Exchange Traded Funds (ETFs)

have been the highest ever during 2008.– Based on data through December 2008 the average number

of ETF shares short during 2008 is 1,693 million shares which is significantly higher than the average of 1,242 million during 2007 and 837 million in 2006. The December 2008 short interest level for US-listed ETFs was 11.4% of shares outstanding or 1,439 million shares, up 3.3% from 1,393 million in December 2007.

• Investors are using ETFs for long/short and hedging strategies.

– At the end of December 2008, there are 698 ETFs listed in the US and 1,590 ETFs worldwide, which provide exposure to equity sectors, styles, countries and regional indices as well as fixed income, commodity indices and currencies.

• Security lending revenue on ETFs can be attractive.– For investors who own ETF shares, the lending revenue that

can be earned on ETFs, may at times and for some ETFs, more than cover the annual total expense ratio (TER).

• Inverse (short) and leverage inverse ETFs.– Investors can also use inverse (short) and leverage inverse

ETFs to implement hedges and short economic exposure. There are currently 54 inverse/inverse leveraged ETFs in the US and 40 inverse/inverse leveraged ETFs listed on exchanges outside the US.

• Short Interest is often considered an indication of the level of scepticism in the market.

– Short interest data is captured for US listed securities on the 15th of each month or the next business day and reflects the number of shares that have yet to be repurchased to give back to lenders. The higher the short interest the more investors are expecting a downturn. Short positions fall in value as stocks rise, and vice versa.

The rules on shorting ETFs on financial indices and the use of inverse and leveraged inverse ETFs on financial indices in the various markets are continually being updated as regulators react to market conditions and the actions of other regulators so the position in quite fluid.

DateShort Interest (MN Shares)

% of Shares Outstanding

S&P 500 Index Level Short Interest

2003 Avg 812 27.1% 983 812,125,1422004 Avg 952 26.3% 1,127 952,219,7662005 Avg 781 17.2% 1,206 781,047,4622006 Avg 837 13.5% 1,283 837,003,9352007 Avg 1,242 16.1% 1,475 1,241,587,1242008 Avg YTD 1,693 17.0% 1,209 1,693,145,303J an-08 1,435 16.3% 1,381 1,434,713,833Feb-08 1,526 17.5% 1,349 1,526,060,056Mar-08 1,715 19.2% 1,288 1,714,678,516Apr-08 1,617 17.9% 1,334 1,617,341,596May-08 1,829 18.8% 1,424 1,829,293,887J un-08 2,085 21.2% 1,360 2,084,675,332J ul-08 1,918 18.7% 1,228 1,917,965,694Aug-08 1,891 18.2% 1,298 1,891,010,654Sep-08 1,802 17.1% 1,193 1,801,781,310Oct-08 1,554 14.3% 908 1,554,014,625Nov-08 1,508 13.1% 873 1,507,577,674Dec-08 1,439 11.4% 869 1,438,630,463

19

European ETF and ETP GrowthOur forecast is: ETF AUM will exceed US$200 Billion in 2009

Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, BloombergData as of end December 2008

0

20

40

60

80

100

120

140

160

180

200

220

Assets US$ Bn

0

100

200

300

400

500

600

700# Products

ETF Assets Total $0.68 $5.66 $10.69 $20.44 $33.97 $54.92 $89.70 $128.46 $142.82 $200.00

ETF Commodity Assets $0.43 $1.98 $3.33 $4.81

ETF Fixed Income Assets $1.03 $2.93 $5.16 $12.06 $21.03 $41.10

ETF Equity Assets $0.68 $5.66 $10.69 $19.41 $31.04 $49.33 $75.65 $103.55 $96.70

ETPs Assets $1.10 $2.08 $4.88 $7.09

# ETFs 6 71 118 104 114 165 273 423 632

# ETPs 2 32 56 124

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-F

20

European Fund Industry 2008Net sales data through October 2008 - Lipper Feri

Source: Lipper FERI

-600,000.0

-400,000.0

-200,000.0

0.0

200,000.0

400,000.0

600,000.0

Est. Net Sales US$Mn

All ETF 8,782.5 4,105.8 11,755.1 13,109.9 19,354.3 20,961.0 61,638.8

All Index-tracking 17,607.6 14,292.8 23,662.7 26,880.9 30,234.9 26,598.2 60,292.0

All Europe (ex-ETFs) 149,202.0 288,513.5 234,604.6 450,509.1 413,256.6 115,780.6 -505,758.3

2002 2003 2004 2005 2006 2007 YTD Oct-08

21

ETF Managers in EuropeRanked by AUM, as of end December 2008

Source: Global ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg

PROVIDER # ETFsAUM

(US$ BN) % Total # Planned # ETFs % ETFsAUM

(US$ BN) % AUM% Market

ShareiShares 145 $55.89 39.1% 0 8 5.8% -$1.77 -3.1% -5.75%Lyxor Asset Management 113 $33.23 23.3% 2 26 29.9% $1.20 3.7% -1.67%db x-trackers 94 $23.96 16.8% 0 45 91.8% $13.31 124.8% 8.48%Credit Suisse Asset Management 8 $5.94 4.2% 0 0 0.0% $0.97 19.6% 0.29%AXA IM/ BNP AM 54 $4.47 3.1% 8 24 80.0% -$2.22 -33.2% -2.08%Zurich Cantonal Bank 4 $3.30 2.3% 0 0 0.0% $2.26 216.0% 1.50%Commerzbank 50 $2.59 1.8% 0 50 100.0% $2.59 100.0% 1.81%ETFlab Investment 10 $2.52 1.8% 0 10 100.0% $2.52 100.0% 1.76%BBVA Asset Management 8 $2.09 1.5% 0 1 14.3% $0.90 76.3% 0.54%Credit Agricole Structured AM 24 $1.86 1.3% 0 21 700.0% -$1.16 -38.5% -1.05%XACT Fonder 11 $1.52 1.1% 0 2 22.2% -$0.99 -39.4% -0.89%SG Asset Management 18 $1.40 1.0% 0 4 28.6% $0.63 81.8% 0.38%UBS Global Asset Management 8 $1.40 1.0% 0 -1 -11.1% -$0.74 -34.7% -0.69%State Street Global Advisors 13 $1.15 0.8% 0 0 0.0% -$1.20 -51.2% -1.03%PowerShares 18 $0.46 0.3% 1 4 28.6% -$0.53 -53.4% -0.45%J PM Structured Fund Management 6 $0.23 0.2% 0 5 500.0% $0.10 78.5% 0.06%ABN Amro 10 $0.23 0.2% 21 0 0.0% $0.03 15.0% 0.01%Finans Portfoy Yonetimi 5 $0.11 0.1% 0 0 0.0% -$0.11 -49.9% -0.09%Seligson & Co Fund Management 1 $0.10 0.1% 0 0 0.0% -$0.11 -52.1% -0.10%DnB NOR Asset Management 3 $0.09 0.1% 0 2 200.0% $0.05 93.7% 0.03%Beta1 ETFund 3 $0.09 0.1% 0 0 0.0% -$0.11 -56.3% -0.09%Alpha Asset Management 1 $0.08 0.1% 0 1 100.0% $0.08 100.0% 0.05%Bank of Ireland AM 1 $0.03 0.0% 0 0 0.0% -$0.05 -64.9% -0.04%SPA ETF International 7 $0.02 0.0% 0 1 16.7% -$0.02 -40.8% 0.02%ETF Securities 13 $0.02 0.0% 0 13 100.0% $0.02 100.0% 0.01%OTP Fund Management 1 $0.01 0.0% 0 0 0.0% -$0.02 -60.6% -0.01%Medvesek Pusnik AM 1 $0.01 0.0% 0 0 0.0% -$0.01 -42.6% -0.01%Kaupthing Bank Asset Management 1 $0.00 0.0% 0 0 0.0% -$0.12 -100.0% -0.10%Bizim Menkul Degerler 1 $0.00 0.0% 0 0 0.0% $0.00 32.9% 0.00%Santander Gestion de Activos 0 $0.00 0.0% 0 -3 -100.0% -$0.11 -100.0% -0.09%UNICO Asset Management 0 $0.00 0.0% 0 -2 -100.0% -$0.30 -100.0% -0.24%DVG-Deutsche Vermoegensbildung GmbH 0 $0.00 0.0% 0 -2 -100.0% -$0.70 -100.0% -0.10%Ak Securities - - - 1 - - - - -Amas Bank - - - 1 - - - - -

Total 632 $142.82 100.0% 34 209 49.4% $14.35 11.2%

End 2008 YTD Change

22

Types of ETF Exposure: Europe

ETFs should be viewed as a tool for both Active and Passive Managers

Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg. Data as of end December 2008

Fixed Income

Country Exposure Europe - Equity

Regional Exposure Eurozone - Equity

International / Emerging Markets - Equity

Country Exposure United States - Equity

Regional Exposure Europe - Equity

European Sector Exposure - Equity

Commodities

Global Exposure - Equity

Style - Equity

Inverse

Eurozone Sector Exposure - Equity

Leveraged Inverse

Leveraged

Currency

Alternative

Mixed (Equity & Fixed Income)

US Sector Exposure - Equity

Type of Exposure # ETFsAUM

(US$ BN) % TOTAL # ETFsAUM

(US$ BN) % AUMFixed Income 84 $40.87 28.6% 25 $19.84 94.4%Country Exposure Europe - Equity 72 $26.34 18.4% 13 -$1.78 -6.3%Regional Exposure Eurozone - Equity 28 $23.84 16.7% 6 -$0.79 -3.2%International / Emerging Markets - Equity 119 $14.13 9.9% 46 -$3.89 -21.6%Country Exposure United States - Equity 35 $8.41 5.9% 16 $3.46 69.9%Regional Exposure Europe - Equity 32 $6.98 4.9% 13 -$0.16 -2.2%European Sector Exposure - Equity 104 $5.45 3.8% 29 -$2.13 -28.1%Commodities 23 $4.81 3.4% 3 $1.30 36.8%Global Exposure - Equity 40 $4.42 3.1% 19 $1.63 58.4%Style - Equity 32 $2.63 1.8% 8 -$3.58 -57.7%Inverse 20 $1.73 1.2% 16 $1.27 272.5%Eurozone Sector Exposure - Equity 18 $1.37 1.0% 0 -$1.75 -56.1%Leveraged Inverse 5 $0.78 0.5% 2 $0.24 45.5%Leveraged 10 $0.65 0.5% 5 $0.32 95.1%Currency 6 $0.30 0.2% 6 $0.30 100.0%Alternative 2 $0.10 0.1% 2 $0.10 100.0%Mixed (Equity & Fixed Income) 1 $0.01 0.0% 1 $0.01 100.0%US Sector Exposure - Equity 1 $0.00 0.0% -1 -$0.04 -91.1%

Total 632 $142.82 100.0% 209 $14.35 11.2%

YTD ChangeEnd 2008

23

• Are open-ended index tracking funds1

• ETFs are managed by asset managers• ETFs are bought and sold through brokers• Trade on the exchange like any other stock• Pay commissions like shares• Settle like any other share on the exchange• Can be purchased, cleared and held in brokerage or custodial account • Can go long or short• Lendable & Marginable• Transparent underlying portfolios available daily• Real Time indicative NAV• ETFs will price around their NAV due to the creation/redemption process• Annual Total Expense Ratios (TERs) deducted daily from price• Dividends typically paid out annually/semi-annually

Please see strategist certification and other important disclosures at the end of this presentation.

1 Note a few active funds which disclose their portfolios daily have been approved and listed

ETFs Product Overview

24

ETFs Product Overview ETFs Are liquid.– Liquidity reflects liquidity of underlying basket of shares not the trading volume of the ETF –

as long as trading with a broker which is an authorised participant

– Creation/redemption process makes ETFS as liquid as underlying shares– Unique structure for brokers who enter into legal agreements with the ETF asset managers to

be Authorized Participants, Creation - Redemption agents or Liquidity Providers – Portfolio of securities can be exchanged for “Creation Units” – “Creation Units” can be redeemed for underlying portfolio– Creation/redemption (“in kind”) feature allows for arbitrage and results in the fund trading

near Net Asset Value

Please see strategist certification and other important disclosures at the end of this presentation.

25

New Asset Classes Will Continue to Squeeze the Traditional Core of Actively Managed Funds

Source : BCG Global Asset Management 2008, “Winning Strategies in Uncertain Times”, November 2008, Projections 2008-2012

26

ETF/ETP Tool Box

*Other ETPs (Exchange Traded Products) include HOLDRs (Holding Company Depository Receipts), ETCs (Exchange Traded Commodities), Exchange Traded Currency products, and Exchange Traded Notes. As of end December 2008

1,590 ETFs with 2,658 ETF Listings 271 other ETPs* with 529 ETP Listings Total: 1,861 Products with 3,187 Listings

Equity• Global• Capitalisation (Large, Mid, Small…)• Sectors• Broad Markets• Emerging Markets• Countries• Inverse / Leveraged• Styles

Active Dividend Fundamental Infrastructure Real Estate Shariah Thematic Private Equity

Fixed Income• Government• Corporate• Credit• Inflation• High Yield• Mortgage Backed• Emerging Markets

Commodities• Broad (S&P GSCI, DJAIG, RICI, CRB…)• Sub-indices (Energy, Livestock, Precious Metals, Industrial Metals, Agriculture...)• Individual Commodities• Based on Physically held Assets (Gold, Silver, Platinum, Palladium…)• Based on Futures• Based on Forwards• Inverse / Leveraged

Currency• Developed Currencies• Emerging Market Currencies• Inverse / Leveraged• Strategy (Carry, Momentum…)

Cash • EONIA, SONIA• Fed Funds

Alternatives• Hedge Funds• Carbon

27

How Should I Decide Which Product to Use?

ETFs

ETNs

•What is my Benchmark?•What are my Regulatory guidelines?•What are my Mandate Constraints?

•What are my counterparty risk guidelines? •What are my Tracking Risk guidelines?

•How can I gain Long and/or Short exposure?•How can Securities Lending add value?

•What is my Time Horizon? •What are the Tax implications?

•What are my Liquidity Requirements•What Costs are involved?

Securitised ProductsCertificates, Warrants, Equity Linked Notes, Local

Access Products

Swaps

Futures & Options

ETCs

Portfolio Trading

Products:Considerations:

Transparency

Client Service

Product Choice

Portfolio Management

Liquidity

28

How Are ETFs Used?

• Market Exposure: Implement wide variety of investment strategies using a broad range of market exposures

• Directional Views: Establish broad directional market position, use long & short trades to implement market view(s)

• Core Satellite: Achieve strategic focus • Rebalancing: Correct drift in a portfolio’s asset allocation or style• Completion: Add uncorrelated instruments and/or asset classes to strategy

• Interim Beta : Maintain exposure to given market while searching for specific market opportunity

• Cash Management : Able to invest cash rapidly and cost effectively to gain desired market exposures

• Derivatives Alternative : Broad opportunity set of Delta 1 exposures with single line cash based settlement

• Exposure Management : Easily shift portfolio emphasis by adjusting exposures (e.g. duration, credit)

• Thematic : Implement thematic exposures (e.g. dividends, alternatives)

Strategic

Tactical

29

Transparency

Flexibility

Diversification

Liquidity

Cost Effectiveness

ETFs offer a cost-effective route to diversified market exposure (139 benchmarks) The average total expense ratio (TER) for equity ETFs in Europe is 46 bps versus 100 bps (per

annum) for the average equity index tracking fund and 191 bps (per annum) for average active equity fund1

ETF units and underlying assets can be lent out to potentially offset holding costs

ETFs are listed on exchanges and can be traded at any time the market is open Pricing is continuous throughout the day

ETFs provide immediate exposure to a basket or group of securities for instant diversification Broad range of asset classes including equities, bonds, commodities, Investment Themes etc

ETFs offer two sources of liquidity Traditional liquidity measured by secondary market trading volume The liquidity of the underlying via the creation and redemption process

Securities Lending

Why Are ETFs Used?

Investors know the ETF composition at any given time

1. Lipper Fitzrovia (December 2006)

30

1. Lipper Fitzrovia (December 2006)

Portfolio Construction

Strategic Asset Allocations

Portfolio Management

Cash Equitization

Manage inflows, outflows, transitions Obtain a wider exposures than offered by other Delta 1 products

Fill allocations required by investment strategy Improve diversification Gain exposure to size, style, yield, sector, geography

Active risk budgeting Combine ETFs in managing total portfolio volatility or duration adjustments in fixed income portfolios

Establish core holdings Establish single country or sector satellites

Implement short-, long- term and/or neutral market views Hard to access asset classes, themes, sector, country Tactical Asset Allocations

Exposure Exposures to markets or asset classes where one has no expertise or

operational capabilities

Risk Control

ETFs Offer Solutions for a Range of Portfolio Strategies

31

Market Overview - European Fund of Funds Market Size

Source: Lipper FERI December 2007, Euro millions

Market FoF External FoF Internal Total % FoF External

France € 81,128 € 20,812 € 101,940 80%

Germany € 24,732 € 28,445 € 53,177 47%

United Kingdom € 28,231 € 19,196 € 47,428 60%

Luxem + Dublin € 21,803 € 13,933 € 35,736 61%

Italy € 24,711 € 6,737 € 31,448 79%

Belgium € 13,594 € 7,682 € 21,276 64%

Austria € 9,028 € 3,015 € 12,044 75%

Switzerland € 8,529 € 50 € 8,579 99%

Netherlands € 397 € 7,015 € 7,412 5%

Other € 39,779 € 11,889 € 51,668 77%

Total € 251,931 € 118,776 € 370,707 68%

• European Funds of Funds (FoF) represents EUR 370 billion as clients increasingly value easy access to managed asset allocations

32

Asset AllocationOther

10.0%

90.0%

Asset Allocation• Academic research suggests:

– Asset mix determines around 90% of variation in fund returns (1) – Asset allocation is not a one-off decision, it must be revisited regularly (2)

[1] “Determinants of Portfolio Performance”, Brinson, Hood & Beebower, 1986; "Asset Allocation Dynamics and Pension Fund Performance“, Blake et al, 1999[2 ] “Strategic Asset Allocation: Portfolio Choice for Long-Term Investors”, Campbell & Viciera, 2002

33

Expected RiskLower Higher

Lower HigherExpected Return

BGI ETF PortfoliosETF Allocation Q1 2009

EquitiesMSCI Europe ex-UK     FTSE 100S&P 500MSCI North America    Nikkei225

MSCI Emerging Markets

Fixed IncomeBarCap € Government Bond 1-3  BarCap € Government Bond 3-5BarCap € Government Bond 7-10iBoxx € Liquid Corporate Bond

PropertyFTSE EPRA/NAREIT Global Property Yield

AlternativesFTSE/Macquarie Global Infrastructure 100S&P Listed Private EquityDow Jones-AIG Commodity

Conservative Balanced Grow th Dynamic

34

Active Strategy 2

Active Strategy 3

Active Strategy 1

ETF(s)

ETF Satellite

ETF Satellite

ETFSatellite

Portfolio

Core-Satellite: ETFs Can be Used in the Core Portfolio, As Well As In the Satellite

• ETF(s) in the Core : – A broad market index

(DJ Euro Stoxx 50, MSCI World,iBoxx Government Bond)

– Exposure to diversified baskets – of securities– Optimized Core: sector, style or

country indices

• ETF in the Satellite :– Concentrated, focused ETFs:– Sector and style– Thematic – Individual countries and regions – Alternative asset class

35

ETF Overlay

Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg. YTD returns reflect USD price performance only from 31/12/2007 to 28/11/2008.

Index weights captured from Bloomberg on 08/12/2008.

MSCI World # Stocks % Weight % YTD ReturnAUSTRALIA 73 2.54% -54.66%AUSTRIA 9 0.14% -70.74%BELGIUM 14 0.34% -70.48%CANADA 97 3.61% -44.60%DENMARK 15 0.39% -50.26%FINLAND 17 0.60% -59.13%FRANCE 76 4.66% -49.01%GERMANY 51 3.65% -53.46%GREECE 11 0.22% -67.82%HONG KONG 43 0.93% -54.55%IRELAND 7 0.15% -71.60%ITALY 39 1.55% -55.36%J APAN 348 11.35% -35.28%NETHERLANDS 20 1.04% -54.14%NEW ZEALAND 5 0.04% -57.72%NORWAY 10 0.24% -66.76%PORTUGAL 10 0.15% -57.44%SINGAPORE 27 0.47% -52.60%SPAIN 31 1.93% -49.79%SWEDEN 32 0.87% -54.70%SWITZERLAND 38 3.66% -37.27%UNITED KINGDOM 115 9.31% -48.72%USA 608 52.17% -39.19%

Total 1,696 100.00% -43.80%

MSCI Emerging Markets # Stocks % Weight % YTD ReturnARGENTINA 4 0.15% -54.42%BRAZIL 69 12.41% -57.97%CHILE 16 1.45% -38.57%CHINA 98 19.38% -56.49%COLOMBIA 7 0.67% -33.35%CZECH REPUBLIC 6 0.93% -47.57%EGYPT 12 0.68% -60.28%HUNGARY 4 0.65% -63.56%INDIA 59 6.77% -68.14%INDONESIA 19 1.36% -65.78%ISRAEL 21 3.48% -33.42%MALAYSIA 42 3.17% -46.61%MEXICO 25 5.35% -46.44%MOROCCO 6 0.52% -16.35%PAKISTAN 8 0.21% -50.28%PERU 4 0.60% -50.88%PHILIPPINES 13 0.55% -53.21%POLAND 21 1.73% -58.16%RUSSIA 26 6.33% -71.96%SOUTH AFRICA 43 7.58% -47.01%SOUTH KOREA 95 12.25% -63.19%TAIWAN 100 11.00% -51.17%THAILAND 24 1.34% -61.07%TURKEY 24 1.47% -65.53%

Total 746 100.00% -57.69%

36

ETF Sector Strategies

Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, Bloomberg. YTD returns reflect USD price performance only from 31/12/2007 to 28/11/2008.

Index weights captured from Bloomberg on 08/12/2008.

Sector # Stocks Weight (%)YTD Return

(%) # Stocks Weight (%)YTD Return

(%)Automobiles & Parts 13 2.52% -50.84% 12 4.95% -50.41%Banks 57 14.15% -65.28% 39 15.58% -66.89%Basic Resources 27 3.48% -64.60% 12 1.86% -60.40%Chemicals 20 3.47% -47.70% 14 5.55% -49.40%Construction & Materials 30 2.28% -55.44% 23 3.49% -55.16%Financial Services 35 1.68% -58.34% 14 1.54% -57.63%Food & Beverage 25 7.27% -36.70% 12 4.06% -44.98%Health Care 34 11.59% -27.31% 14 4.39% -40.23%Industrial Goods & Services 91 6.80% -54.22% 41 6.87% -57.47%insurance 34 5.64% -54.28% 17 6.88% -57.19%Media 25 2.16% -46.69% 14 2.68% -44.22%Oil & Gas 40 10.54% -42.22% 16 8.28% -44.12%Personal & Household Goods 26 4.39% -46.75% 13 3.37% -49.81%Real Estate 20 0.94% -56.67% 12 0.98% -58.13%Retail 24 3.16% -50.29% 11 2.67% -48.36%Technology 24 3.07% -54.94% 15 4.69% -57.28%Telecommunications 19 7.65% -43.14% 11 9.19% -36.93%Travel & Leisure 25 1.26% -51.11% 9 1.25% -46.23%Utilities 32 7.94% -45.95% 21 11.72% -47.60%

Total 601 100.00% -50.72% 320 0.00% -53.31%

DJ STOXX 600 DJ Euro STOXX

Sector # StocksWeight

(%)YTD Return

(%)Consumer Discretionary 73 7.72% -51.91%Consumer Staples 40 12.24% -38.19%Energy 26 11.78% -39.51%Financials 113 22.04% -62.46%Healthcare 28 12.12% -28.35%Industrials 98 8.97% -55.98%Information Technology 16 2.97% -55.23%Materials 48 6.25% -59.90%Telecommunications 21 8.52% -43.96%Utilities 32 7.40% -45.60%

Total 495 100.00% -50.56%

MSCI Europe

Sector # StocksWeight

(%)YTD Return

(%) # StocksWeight

(%)YTD Return

(%) # StocksWeight

(%)YTD Return

(%) # StocksWeight

(%)YTD Return

(%) # StocksWeight

(%)YTD Return

(%)Consumer Discretionary 255 8.91% -45.91% 67 4.70% -57.68% 40 8.51% -33.21% 78 13.91% -46.91% 40 8.51% -33.21%Consumer Staples 128 11.45% -26.33% 57 5.94% -40.65% 28 14.41% -46.64% 34 6.32% -28.17% 28 14.41% -46.64%Energy 117 11.31% -37.15% 52 14.55% -63.78% 58 12.46% -41.86% 14 2.10% -43.97% 58 12.46% -41.86%Financials 361 18.88% -56.30% 168 23.40% -57.95% 80 13.94% -37.91% 116 28.67% -50.09% 80 13.94% -37.91%Healthcare 116 11.97% -28.16% 12 2.89% -21.97% 41 14.12% -17.02% 23 5.54% -19.68% 41 14.12% -17.02%Industrials 273 10.73% -46.80% 118 7.38% -67.71% 55 10.68% -29.17% 94 14.52% -41.30% 55 10.68% -29.17%Information Technology 148 10.47% -45.92% 71 10.60% -54.21% 84 15.24% -56.65% 50 9.39% -45.05% 84 15.24% -56.65%Materials 157 5.30% -53.54% 104 12.07% -63.97% 73 2.87% -44.61% 59 9.78% -51.01% 73 2.87% -44.61%Telecommunications 48 5.36% -38.88% 58 14.23% -47.95% 9 3.76% -34.20% 9 3.96% -22.31% 9 3.76% -34.20%Utilities 93 5.62% -34.21% 39 4.23% -45.29% 32 4.01% -29.82% 19 5.82% 2.17% 32 4.01% -29.82%

Total 1,696 100.00% -43.80% 746 100.00% -57.69% 500 100.00% -38.96% 496 100.00% -42.17% 500 100.00% -38.96%

S&P 500S&P 500MSCI World MSCI Emerging Markets MSCI Pacific

37

Market environment Yields on Credit

• Yields are at very high levels caused by big increases in Government yield curves

• Attractive entry levels for– Long term holdings– Income generation– Total Return Funds

• Currently recommended by consultants

*Source: BGI, www.iBoxx.com.

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

23-Ja

n-04

23-Ju

l-04

23-Ja

n-05

23-Ju

l-05

23-Ja

n-06

23-Ju

l-06

23-Ja

n-07

23-Ju

l-07

23-Ja

n-08

23-Ju

l-08

iBoxx € Non-Sovereigns A (L) iBoxx € Corporates BBB (L) iBoxx € Corporates (L)

38

Advantages of Fixed Income Products

• Government, Corporate, Credit, Inflation, Interest Rate Indices• Security: Government issued fixed income products are usually considered riskless. Corporate debt

is also considered less risky than the company’s equity. In the event of liquidation, bondholders are ranked above shareholders in the claim on company assets.

• Return of Capital: the redemption value of bonds is pre-determined at the time of purchase.• Income: The coupon rate of bonds is known before investing and provides the investor with a

reliable income stream.• Diversification: A diversified portfolio contains multiple asset classes and eliminates the

concentration risk embedded in a single asset class portfolio. • Benefit from falling interest rates: Interest rates can be locked in for a defined period. The inverse

relationship between bond prices and interest rates allows investors to benefit from rising bond prices during falling interest rate environments.

• Speculation: Fixed Income products provide investors with additional tools to speculate on future prices of interest rates.

39

Commodity Index ComparisonReuters Jefferies CRB IndexS&P GSCI Dow Jones – AIG Commodity Index Rogers International

Commodity Index

Source: ETF Research & Implementation Strategy Team, Barclays Global Investors, S&P, Dow Jones, Lyxor, RICI Handbook 2008.

Commodity Measure S&P GSCI

DJ AIG Commodity

IndexReuters

Jefferies CRB

Rogers International Commodity Index (RICI)

Energy 74.28% 35.10% 39.00% 44.00%WTI Crude Oil $/ barrel 39.00% 14.60% 23.00% 21.00%Brent Crude Oil $/ barrel 14.02% - - 14.00%RBOB Gasoline $cents/ gallon 4.06% 3.95% 5.00% 3.00%Heating Oil $cents/ gallon 5.22% 4.47% 5.00% 1.80%Gasoil $/ metric ton 5.34% - - 1.20%Natural Gas $/ mmBtu 6.64% 12.08% 6.00% 3.00%Livestock 4.16% 8.50% 7.00% 3.00%Live Cattle $cents/ pound 2.49% 5.43% 6.00% 2.00%Feeder Cattle $cents/ pound 0.44% - - -Lean Hogs $cents/ pound 1.23% 3.07% 1.00% 1.00%Precious Metals 2.58% 10.20% 7.00% 7.10%Gold $/ troy oz 2.36% 7.91% 6.00% 3.00%Silver $/ troy oz 0.22% 2.29% 1.00% 2.00%Palladium $/ troy oz - - - 0.30%Platinum $/ troy oz - - - 1.80%Industrial Metals 6.39% 17.78% 13.00% 14.00%Aluminium $/ metric ton 2.59% 7.27% 6.00% 4.00%Copper $/ metric ton 2.50% 6.75% 6.00% 4.00%Lead $/ metric ton 0.34% - - 2.00%Nickel $/ metric ton 0.49% 1.63% 1.00% 1.00%Tin $/ metric ton - - - 1.00%Zinc $/ metric ton 0.47% 2.13% - 2.00%

Commodity Measure S&P GSCI

DJ AIG Commodity

IndexReuters

Jefferies CRB

Rogers International Commodity Index (RICI)

Agriculture 12.58% 28.43% 34.00% 31.90%Wheat $cents/ bushels 3.35% 3.71% 1.00% 7.00%Kansas Wheat $cents/ bushels 0.82% - - -Corn $cents/ bushels 3.45% 6.20% 6.00% 4.75%Soybeans $cents/ bushels 2.09% 6.67% 6.00% 3.00%Soybean Oil $cents/ pound - 2.58% - 2.00%Soybean Meal $/ short ton - - - 0.75%Cotton $cents/ pound 0.75% 2.15% 5.00% 4.05%Sugar $cents/ pound 1.22% 4.00% 5.00% 2.00%Coffee $cents/ pound 0.64% 3.12% 5.00% 2.00%Cocoa $/ metric ton 0.26% - 5.00% 1.00%Orange J uice $cents/ pound - - 1.00% 0.66%Rubber J PY/ kilogram - - - 1.00%Lumber $/ 1k board fleet - - - 1.00%Canola CAD/ metric ton - - - 0.67%Rice $/ cwt - - - 0.50%Oats $cents/ bushels - - - 0.50%Azuki Beans J PY/ bag - - - 0.50%Barley CAD/ metric ton - - - 0.27%Greasy Wool AUD/ kilogram - - - 0.25%TOTAL 100.00% 100.00% 100.00% 100.00%

Data as of: 10-Oct-08 30-Sep-08 31-Aug-08 12-Dec-07

Energy

Livestock

Precious Metals

Industrial Metals

Agriculture

Energy

Livestock

Precious Metals

Industrial Metals

Agriculture

Energy

Livestock

Precious Metals

Industrial Metals

Agriculture

Energy

Livestock

Precious Metals

Industrial Metals

Agriculture

40

ETFs Product Overview

Benefits

• ETFs are not a derivative

• Simple

• Flexible

• Transparent

• Liquid

• Small minimum investment

• Ability to trade with multiple counterparties

41

Structures of ETFs and ETNsGeneral product features common to ETFs and ETNs are:• Exchange traded• Easy accessible investment vehicles for a wide range of asset classes• Low Tracking Error• Exposure to market risk of the asset class / indexSpecific features of in-specie ETFs are:• Fund holds underlying securities in a ring-fenced separate account exposing the investor to no

counterparty risk of the issuer. In the case of failure of the fund issuer, the investor has recourse directly to the pool of underlying shares or bonds.

• High transparency with regards to the holdings of the fund• Opportunity for additional income to further reduce costs (i.e. through securities lending inside

the ETF) is better than for other ETPs as in-specie ETFs hold index securities • Multiple market makers can create and redeem new shares with the fund company promoting a

highly competitive pricing, both on and off exchange ("multi dealer model")Specific features of swap-based ETFs are:• Fund holds a basket of securities (which can be different from the underlying index securities)

and an index swap. The swap counterparty risk is limited to a maximum of 10% of the value of the fund under UCITS rules. The investor has recourse to the basket of securities in the case of failure of the fund issuer.

• Structure allows compliance with UCITS rules on more indices than cash-based ETFs (i.e. commodity ETFs)

• Sometimes tax advantages possible (i.e. avoidance of stamp tax)• While multiple market makers can price swap-based ETFs on and off exchange, every creation

and redemption with the fund company generally involves a single swap counterpartySpecific features of ETNs are:• Investor owns a note, exposing the investor to the counterparty risk of the note issuer which is

sometimes mitigated through collateral or guarantees• More flexibility to issue products, i.e. on single commodities and currencies• Possible access to structured product type solutions

Exchange Traded Notes (ETNs)Exchange listed YesEasy accessible investment vehicles for a wide range of asset classes

Yes

Low Tracking Error YesLow costs MostlyExposure to market risk of the asset class / index Yes

Structure Note

UCITS Fund No

Underlying Holdings Index securities for in-specie ETFs

Index swap plus a basket of non-index securities for swap-

based ETFsNA

Fund/note issuer riskYes,

bears full exposure to credit worthiness of note issuer

Swap counterparty risk No,for in-specie ETFs

Yes, for swap-based ETFsLimited to 10% under

UCITS NA

Other counterparty risk considerations

Some notes are backed by physical assets or guarantees to decrease issuer

risk

TransparencyYes,

Full holdings disclosed for in-specie ETFs

Limitedfor swap-based ETFs Limited

Competitive Multi Dealer Model to trade on and off exchange

Yes, for in-specie ETFs

possibleLimited,

for swap-based ETFs Limited

Securities lending and dividend enhancement** activity

* with exemptions possible

** In addition to securities lending, the fund can earn extra income through dividend enhancement. Dividend enhancement describes partly recovering withholding taxes through the purchase of listed single stock notes during the period of dividend payments

Exchange Traded Funds (ETFs)Yes

Yes

Yes

No,mutual funds hold assets in ring-fenced segregated accounts or ring-fenced fund

company

Yes

Yes

Mutual Fund

Yes*

42

Delta 1 Products Comparison

Single dealerExchange / Multiple dealersExchange / Multiple dealers Liquidity provided

DerivativeDerivativeFund Legal structure

NoNoYes Available to lend

FixedQuarterlyNo Expiry

Variable on exposure1 contract1 share Minimum trade size

NoNoYes Tracking error

Financing Roll Total Expense Ratio Holding cost

None if held to expiry; break fee on notional

CommissionCommission Round trip execution costs

ETFs Futures Swaps

43

Liquidity: The ETF Transaction Process

44

ETF LandscapeTo sign up for these publications please send us an email: ETFresearch@barclaysglobal.com

45

Forecasts• European ETF Assets to exceed US$200 billion in 2009.• Global ETF Assets to exceed US$1 trillion in 2009.• Global ETF Assets to exceed US$2 trillion in 2011.

Thank youPlease send any questions or comments to ETFresearch@barclaysglobal.com

Upcoming Events:

• Indexing & ETF Investments Asia 2009, Singapore, 23-Feb-09: www.terrapinn.com/2009/index • UCITS Asia, Hong Kong, 10-Mar-09: www.iir-events.com/ucitsasia • NAPF Investment Conference 2009, Scotland, 11-Mar-09: http://www.napf.co.uk/Conferences/InvConf2009/index.cfm • SIX Swiss Exchange & Scoach "Exchange Traded Product Day", Zurich, 13-Mar-09.• 5th Annual Global ETF Awards Dinner, New York, 30-Apr-09: www.exchangetradedfunds.com• 5th Annual Global ETF Awards Voting Form (Closes Feb 19th 2009): www.exchangetradedfunds.com/2009/evote2008.php• Implementing Asset Allocation with ETFs, in association with Bloomberg: To reserve your place, you will need to register

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– Zurich, 19-Feb-09, 8:30am– Geneva, 20-Feb-09, 8:30am– Luxembourg, 05-Mar-09, 8:30am

46

DisclaimerRegulatory information• Barclays Global Investors Limited (“BGIL”), which is authorised and regulated by the Financial Services Authority in the United Kingdom, has

issued this document for access by professional clients and for information purposes only. This document or any portion hereof may not be reprinted, sold or redistributed without authorisation from BGIL.

• This communication is being made available to persons who are investment professionals as that term is defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion Order) 2005 or its equivalent under any other applicable law or regulation in the relevant jurisdiction. It is directed at persons who have professional experience in matters relating to investments.

• This document is an independent market commentary document based on publicly available information and is produced by the ETF Research & Implementation Strategy team. Specifically, this is not marketing nor is it an offer to buy or sell any security or to participate in any trading strategy. Affiliated companies of BGIL may make markets in the securities of ETFs and may provide ETFs. Further, BGIL and/or its affiliated companies and/or their employees may from time to time hold shares or holdings in the underlying shares of, or options on, any security of ETFs and may as principle or agent buy securities in ETFs.

• This document does not provide investment advice and the information contained within should not be relied upon in assessing whether or not to invest in the products mentioned. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this commentary may not be suitable for all investors. BGIL recommends that investors independently evaluate each issuer, security or instrument discussed in this publication and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.

• The value of and income from any investment may go up or down and an investor may not get back the amount invested. The value of the investment involving exposure to foreign currencies can be affected by exchange rate movements. We also remind you that the levels and bases of, and reliefs from, taxation can change and is dependent upon individual circumstances.

• Although BGIL endeavours to update and ensure the accuracy of the content of this document, BGIL does not warrant or guarantee its accuracy or correctness. Despite the exercise of all due care, some information in this document may have changed since publication. Investors should obtain and read the ETF prospectuses from ETF managers and confirm any relevant information with ETF managers before investing. Neither BGIL, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents.

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