Elisabeth Kashner, CFA, Moderator

Senior Vice President of Analytics, IndexUniverse

Anthony B. Davidow, CIMA®, Panelist

Managing Director, Portfolio Strategist, Guggenheim Investments

Scott Eldridge, CFA, Panelist

Managing Director – Portfolio Management, Caprin Asset Management

Matthew Tucker, CFA, Panelist

Managing Director, BlackRock

Fixed Income ETFs: The Good, The Bad and The Ugly

Elisabeth Kashner, CFA Moderator Senior Vice President of Analytics IndexUniverse

Fixed Income ETFs: The Good, The Bad and The Ugly

Scott Eldridge, CFA Panelist Managing Director – Portfolio Management Caprin Asset Management

Anthony B. Davidow, CIMA® Panelist Managing Director Portfolio Strategist Guggenheim Investments

Matthew Tucker, CFA Panelist Managing Director BlackRock

Stable Cash Flow Diversification

Economies of Scale

Bonds Bond Funds

Market Risk Concentration Risk

Expensive to Trade

Predictable Cash

Flows/Stable Principal Diversification Market Risk

Economies of Scale? Liquidity

Individual Bonds

Yes No Client's choice

No OTC (mostly)

SMAs Client's choice

Client's choice

Client's choice

Parital Negotiated

ETFs No Yes Yes Yes Exchange

Mutual Funds No Yes Yes Yes End-of-day

Closed-End Funds

No Yes Yes Yes Exchange

Fixed Income Vehicles

Fixed Income ETFs: The Good, The Bad and The Ugly

Matthew Tucker, CFA Panelist Managing Director BlackRock

Benchmark is divided into subsets (cells) based upon relative risk factor parameters

Portfolios are constructed by sampling bonds from each index cell

Mortgage-Backed Securities

Issuer (GNMA, FNMA, FHLMC)

Mortgage type (30 yr, 15 yr, balloon)

Coupon

Vintage (year of issuance)

Credit and Asset-Backed

Securities

Sector/issue type

Maturity/ average life

Credit rating

Call/payment structure

Sector

Ma

turity

Cell • BBB-rated • Industrial • 7–10 years

maturity

Government Bonds

Sector/issue type

Maturity

Call features

For illustrative purposes only.

Fixed Income ETF Portfolio Construction

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Fixed Income markets

Customer B

Broker A

Broker B

Customer A

Equity markets

Fixed Income ETFs Allow Investors to Trade Bonds Like Stocks

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Observable On Screen Volume

Contingent Liquidity

Underlying bond market

Secondary

Market ADV

ETF Market

Depth MARKET MAKER

INDICATIONS OF LIQUIDITY

Primary Market CREATION/REDEMPTION LIQUDITY

(UNDERLYING BASKET)

The Layers of Fixed Income ETF Liquidity

For illustrative purposes only. FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Pre

miu

m / d

isc

ou

nt

(%)

HY

G p

ric

e (

$)

Source: BlackRock and Bloomberg as of March 15, 2012. There can be no assurance that an active trading market for ETF shares will develop or be maintained.

Past performance does not guarantee future results. See slide 7 for standardized performance of the iShares iBoxx $ High Yield Corporate Bond Fund (HYG).

Average

premium:

63 bps

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Price Discovery in Action – High Yield

Statistical analysis of ETF market prices and NAVs suggest a cointegrated relationship

Implies the ETF market price may lead index values and NAVs

ETF market price contains information content with respect to the level and path of the underlying bond market

Half-life (days) convergence between market price and NAV

Ticker Category September 2008–September 2009

September 2009– September 2010

September 2010–September 2011

AGG Intermediate multi-sector 1.9 4.4 1.6

BND Intermediate multi-sector 1.0 1.0 0.7

HYG High-yield 2.3 2.6 2.2

JNK High-yield 2.0 1.6 1.7

MUB Intermediate municipal 3.2 1.1 3.8

SHM Short municipal 1.3 0.6 2.4

LQD Intermediate investment-grade 3.9 1.0 0.6

TLT Long US treasury 0.2 0.3 0.2

Source: BlackRock from September 30, 2008–September 30, 2011.

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Are the Market Prices Leading NAV, or NAV Leading Prices?

iShares iBoxx $ Yield Corporate Bond Fund

Ticker HYG

Inception date April 04, 2007

Total ret 1-year (qtr-end) 8.05

Total ret annlzd 3-year (qtr-end) 12.52

Total ret annlzd 5-year (qtr-end) 7.81

Total ret annlzd 10-year (qtr-end) -

Total ret inception (qtr-end) 6.30

Market ret 1-year (qtr-end) 8.30

Market ret annlzd 3-year (qtr-end) 11.41

Market ret annlzd 5-year (qtr-end) 7.66

Market ret annlzd 10-year (qtr-end) -

Market ret inception (qtr-end) 6.29

SEC yield 5.98

SEC yield date 08/17/2012

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling toll-free 1-800-iShares (1-800-474-2737) or by visiting www.iShares.com. Shares of iShares Funds are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Standardized Performance as of June 30, 2012

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 prospectus carefully before investing.

Investing involves risk, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. 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. The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”). When comparing stocks or bonds and iShares Funds, it should be remembered that management fees associated with fund investments, like iShares Funds, are not borne by investors in individual stocks or bonds. Although market makers will generally take advantage of differences between the NAV and the trading price of iShares Fund shares through arbitrage opportunities, there is no guarantee that they will do so. iShares Funds are not sponsored, endorsed, issued, sold or promoted by Markit Indices Limited nor does this company make any representation regarding the advisability of investing in iShares Funds. iS-7831-0812

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT FOR PUBLIC DISTRIBUTION

Fixed Income ETFs: The Good, The Bad and The Ugly

Anthony B. Davidow, CIMA® Panelist Managing Director Portfolio Strategist Guggenheim Investments

The Search for Yield in a Low Interest Rate Environment Finding opportunity in the new fixed income environment requires an

opportunistic approach

LOWER Yield/

Volatility

HIGHER Yield/

Volatility

Cash/1-3

Month T-Bills

Treasuries

Ginnie Mae

Bonds

(GNMA)

Corporate

Bonds

Commercial

Mortgage-

Backed

Securities

(CMBS)

Asset-

Backed

Securities

(ABS)

High Yield

Corporate

Bonds

Source: Barclays Capital.

FOR FINANCIAL PROFESSIONAL USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.

Navigating the Spectrum of Fixed Income Securities

Duration Risk Managing duration risk is an important consideration for advisors

LOWER Yield/

Volatility

HIGHER Yield/

Volatility

Cash Floating Rate

Securities

Shorter-Term

(under 5 yrs)

Intermediate

–Term

Fixed

Income

(5-10 yrs)

Long-Term

Fixed Income

(10+ yrs)

Higher

Duration:

Higher Interest

Rate

Sensitivity

Source: Barclays Capital.

FOR FINANCIAL PROFESSIONAL USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.

Navigating the Risk Spectrum

Managing interest rate risk and credit quality will conintue to be important factors for investors

Source: Morningstar

1 2 3

4 5 6

7 8 9

FOR FINANCIAL PROFESSIONAL USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.

Interest Rates & Credit Quality

Drives the investment exposure

May impact the ability of a manager to deliver on the fund’s investment objective

Can influence the tax efficiency of the ETF

Issues for Consideration - Index Methodology

Trading Fixed Income ETFs

Bid/Ask spreads

Depth of the market

Utilize limit orders

Issues for Consideration - Trading

Fixed Income ETFs: The Good, The Bad and The Ugly

Scott Eldridge, CFA Panelist Managing Director – Portfolio Management Caprin Asset Management

OPPORTUNITY

AHEAD

SHY

TUZ

BABS

BAB

CLY LQD

TFI

INVEST AT

YOUR OWN

RISK

TIP

HYG

Choose Your Path

Variables – Currency/Country

SPDR Barclays Capital International Treasury

Bond ETF (BWX)

iShares S&P/Citigroup International Treasury

Bond Fund (IGOV)

Average Maturity * 9.3 yrs 8.9 yrs

Average Duration * 7.0 6.9

Yield to Worst * 1.9% 2.1%

Underlying EUR Exposure ** 38% 54%

Greece Exposure ** 0% 3.8%

Italy Exposure ** 4.7% 8.6%

Source: *Bloomberg/Caprin Analytics as of 8/7/12

** Fund Providers/Bloomberg/Caprin Analytics as of 8/31/11

Country Exposure Matters

EUR

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

8/31/2011 11/30/2011 2/29/2012 5/31/2012

Yiel

d (

%).

...

August 31, 2011 to July 31, 2012

BWX IGOV

Total Return for Period * -1.88% -6.87%

* Assumes Trading At Day’s Last Price, Not NAV Returns

Source: Bloomberg

Multiple Variables - BABs

PowerShares Build America Bond Portfolio

(BAB)

SPDR Nuveen Barclays Capital Build America

Bond ETF (BABS)

Average Maturity 24.7 yrs 27.2 yrs

Average Duration 10.6 12.9

Yield to Worst 4.8% 5.1%

Underlying CA Exposure 22% 35%

Discount 10/14/11 0.82% -4.6%

Source: Bloomberg/Caprin Analytics as of 8/7/12

0.75

1.25

1.75

2.25

2.75

3.25

3.75

4.25

10/14/2011 11/14/2011 12/14/2011 1/14/2012 2/14/2012

Yiel

d (

%)…

.

AAAMuni10 YYield

Cal 10YSpread/AAA

Small Differences Add Up October 14, 2011 to February 16, 2012

Source: Bloomberg

* Assumes Trading At Day’s Last Price, Not NAV Returns

BAB BABS

Total Return for Period * 7.0% 16.2%

Disclosure

Caprin is a Registered Investment Advisor with the United States Securities and Exchange Commission and shall not be liable for the improper or incomplete transmission of the information contained in this communication. Caprin Asset Management, L.L.C. does not assume any legal liability or responsibility for any incorrect, misleading or altered information contained herein. This communication is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. You are encouraged to seek the advice of your investment advisor for help determining the applicability to your situation of any information, suggestions or implications referenced herein.

Third party research, references thereto, or information selected from are provided for information purposes only and have not been prepared by Caprin Asset Management, LLC. The information contained herein is based upon sources which we believe to be reliable, but no representation, express or implied, is made with respect to the accuracy, completeness or reliability of the information or opinions in the reports. Nothing herein shall be construed as an offer or a solicitation of an offer to buy, sell or otherwise engage in a transaction in the securities or strategy described in this presentation. The presentation is not intended to provide personal investment advice and does not take into account the specific investment objectives, financial situation or particular needs of any specific person. Past performance is not a guarantee of future results.

Thank You.

Questions?