AUGUST 31, ANNUAL REPORT

Transcription

1 AUGUST 31, ANNUAL REPORT ishares Trust ishares Adaptive Currency Hedged MSCI Eurozone ETF DEZU BATS ishares Currency Hedged MSCI Eurozone ETF HEZU NYSE Arca ishares Currency Hedged MSCI Germany ETF HEWG NASDAQ ishares Currency Hedged MSCI Italy ETF HEWI NYSE Arca ishares Currency Hedged MSCI Spain ETF HEWP NYSE Arca ishares Currency Hedged MSCI Switzerland ETF HEWL NYSE Arca

2

3 Table of Contents Management s Discussions of Fund Performance... 5 About Fund Performance Shareholder Expenses Schedules of Investments ishares Adaptive Currency Hedged MSCI Eurozone ETF ishares Currency Hedged MSCI Eurozone ETF ishares Currency Hedged MSCI Germany ETF ishares Currency Hedged MSCI Italy ETF ishares Currency Hedged MSCI Spain ETF ishares Currency Hedged MSCI Switzerland ETF Financial Statements Financial Highlights Notes to Financial Statements Report of Independent Registered Public Accounting Firm Tax Information Board Review and Approval of Investment Advisory Contract Supplemental Information Trustee and Officer Information Additional Financial Information Schedules of Investments ishares MSCI Eurozone ETF ishares MSCI Germany ETF ishares MSCI Italy Capped ETF ishares MSCI Spain Capped ETF ishares MSCI Switzerland Capped ETF Financial Statements Financial Highlights Notes to Financial Statements Report of Independent Registered Public Accounting Firm

4 THIS PAGE INTENTIONALLY LEFT BLANK.

5 Management s Discussion of Fund Performance ishares TRUST GLOBAL EQUITY MARKET OVERVIEW Global equity markets posted strong returns for the 12 months ended August 31, 2017 (the reporting period ). The MSCI ACWI, a broad global equity index that includes both developed and emerging markets, returned 17.11% in U.S. dollar terms for the reporting period. The primary factor behind the robust performance of global equity markets was improving global economic growth, driven largely by the continuation of accommodative monetary policies from many of the world s central banks. Signs of stronger economic activity in Europe emerged as the European Central Bank ( ECB ) maintained policies such as quantitative easing and negative interest rates. Economic growth rates in China and Japan, the largest economies in Asia, also increased during the reporting period, reflecting efforts by the People s Bank of China ( PBOC ) and the Bank of Japan ( BOJ ) to stimulate economic activity. Stronger economic growth led several central banks to consider reducing their economic stimulus measures. For example, late in the reporting period, the ECB discussed the possibility of tapering its quantitative easing program, while the PBOC increased short-term interest rates during the first half of On a regional basis, European equity markets posted the best returns among developed markets, advancing by approximately 20% in U.S. dollar terms for the reporting period. European stocks benefited from improving economic conditions and stronger corporate earnings. In addition, election outcomes in France and the Netherlands eased investor concerns about nationalist presidential candidates and their opposition to the European Union ( E.U. ). Currency fluctuations also contributed meaningfully to European equity performance in U.S. dollar terms as the euro appreciated by approximately 6% against the U.S. dollar during the reporting period. The best-performing European stock markets included Austria, Italy, and Spain, while Ireland and Belgium posted the weakest returns. Equity markets in the Asia-Pacific region gained about 16% in U.S. dollar terms for the reporting period, led by Singapore and Hong Kong. Japanese stocks also posted strong returns, benefiting from improving consumer spending and employment trends that contributed to the ongoing recovery in the Japanese economy. However, equity market returns in Japan were hindered by a decline in the Japanese yen, which depreciated by approximately 6% against the U.S. dollar. The U.S. stock market returned approximately 15% for the reporting period. Despite mixed U.S. economic data, U.S. stocks advanced initially in anticipation of pro-business fiscal policies from the new presidential administration. Although the administration struggled to implement its fiscal agenda, stocks continued to move higher as better global economic conditions led to a notable improvement in corporate earnings growth, particularly for multinational companies with significant operations outside of the U.S. U.S. stocks advanced despite three short-term interest rate increases by the U.S. Federal Reserve Bank (the Fed ) during the reporting period, which increased the short-term interest rate target to its highest level since October The Fed also unveiled a plan to start reducing the amount of U.S. Treasury bonds and mortgage-backed securities on its balance sheet before the end of Emerging markets stocks outperformed those in developed markets, returning more than 23% in U.S. dollar terms for the reporting period. Emerging markets in Eastern Europe were the best performers, led by Poland, Greece, and Hungary. Equity markets in the Middle East trailed for the reporting period amid continued geopolitical conflict in the region. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 5

6 Management s Discussion of Fund Performance ishares ADAPTIVE CURRENCY HEDGED MSCI EUROZONE ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 22.75% 21.92% 22.76% 22.75% 21.92% 22.76% Since Inception 12.65% 12.61% 12.96% 21.82% 21.76% 22.32% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $13,000 $12,000 $12,232 $12,182 $11,000 $10,000 $9,000 $8,000 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 1/5/16. The first day of secondary market trading was 1/7/16. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 18 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a,b Expenses Paid During Period a,b Annualized Expense Ratio a $ 1, $ 1, $ 0.16 $ 1, $ 1, $ % a Annualized expense ratio and expenses paid during the period do not include fees and expenses of the underlying fund in which the Fund invests. b Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 18 for more information. The ishares Adaptive Currency Hedged MSCI Eurozone ETF (the Fund ) seeks to track the investment results of an index composed of large- and mid-capitalization equities from developed market countries which use the euro as their official currency while dynamically hedging currency risk for a U.S. dollar based investor, as represented by the MSCI EMU Adaptive Hedge to USD Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. The Fund currently seeks to achieve its investment objective by investing a substantial portion of its assets in one underlying fund, the ishares MSCI Eurozone ETF. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 22.75%, net of fees, while the total return for the Index was 22.76% ishares A NNUAL R EPORT TO S HAREHOLDERS

7 Management s Discussion of Fund Performance (Continued) ishares ADAPTIVE CURRENCY HEDGED MSCI EUROZONE ETF The Eurozone economy posted strong growth during the reporting period, though inflation remained low enough for the ECB to keep interest rates at zero percent, stating that a considerable amount of monetary accommodation remained necessary. Household consumption, which historically accounts for more than half of the Eurozone s average economic growth, was the largest driver of the economy, as consumer spending reached a record high in the second quarter of A declining unemployment rate helped increase consumer spending. The equity markets in France and Germany, which together represented approximately 62% of the Index on average during the reporting period, were the leading contributors to the Index s return in U.S. dollar terms. French stocks rose significantly after the election of the country s new president, Emmanuel Macron, while the German market was helped by a combination of low interest rates, low unemployment, and stable public finances. Spain, the Netherlands, and Italy also contributed to the Index s performance. In Spain, household consumption increased as households benefited from robust job creation and credit growth. The Netherlands economy benefited from strong employment growth and increased consumer optimism. Italy s economic acceleration was strengthened by business and consumer confidence levels that approached multi-year highs. From a sector standpoint, the financials sector, representing about 20% of the Index on average, contributed the most to the Index s return for the reporting period in U.S. dollar terms. Banks and insurance stocks contributed the most to the sector, as many companies in these industries restructured and streamlined in order to increase income in the low interest rate environment. The industrials and consumer discretionary sectors were also strong contributors to the Index s return. In terms of currency performance, the euro appreciated by 6% against the U.S. dollar during the reporting period, reflecting an improved economy in Europe and reduced political risk following the presidential election in France. Strong export growth helped support the euro, as foreigners purchased the currency in order to buy goods originating in the Eurozone. The euro s positive performance meant hedging activity detracted from the Index s return for the reporting period. The adaptive currency hedging component of the Index employs a hedge ratio that modifies currency exposure based on the difference in interest rates, relative valuation, currency momentum, and currency volatility. The adaptive hedge fluctuated within a range of approximately 25% to 75% of the Index s currency exposure during the reporting period, allowing the Index to benefit somewhat from the euro s appreciation against the U.S. dollar. ALLOCATION BY SECTOR 1 As of 8/31/17 Percentage of Sector Total Investments 2 Financials 20.84% Industrials Consumer Discretionary Consumer Staples Health Care 8.51 Materials 8.14 Information Technology 7.89 Utilities 5.29 Energy 5.08 Telecommunication Services 4.18 Real Estate 1.80 TOTAL % Country TEN LARGEST COUNTRIES 1 As of 8/31/17 Percentage of Total Investments 2 France 31.90% Germany Netherlands Spain Italy 7.48 Belgium 3.63 Finland 3.10 Ireland 1.34 Austria 0.78 Portugal 0.48 TOTAL 99.80% 1 Table shown is for the ishares MSCI Eurozone ETF, the underlying fund in which the Fund invests. 2 Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 7

8 Management s Discussion of Fund Performance ishares CURRENCY HEDGED MSCI EUROZONE ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 19.13% 19.05% 19.16% 19.13% 19.05% 19.16% Since Inception 7.37% 7.34% 7.80% 25.08% 24.98% 26.63% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $14,000 $13,000 $12,000 $12,663 $12,508 $11,000 $10,000 $9,000 Aug 14 Feb 15 Aug 15 Feb 16 Aug 16 Feb 17 Aug 17 Fund Index The inception date of the Fund was 7/9/14. The first day of secondary market trading was 7/10/14. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 18 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a,b Expenses Paid During Period a,b Annualized Expense Ratio a $ 1, $ 1, $ 0.16 $ 1, $ 1, $ % a Annualized expense ratio and expenses paid during the period do not include fees and expenses of the underlying fund in which the Fund invests. b Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 18 for more information. The ishares Currency Hedged MSCI Eurozone ETF (the Fund ) seeks to track the investment results of an index composed of large- and mid-capitalization equities from developed market countries which use the euro as their official currency while mitigating exposure to fluctuations between the value of the euro and the U.S. dollar, as represented by the MSCI EMU 100% Hedged to USD Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. The Fund currently seeks to achieve its investment objective by investing a substantial portion of its assets in one underlying fund, the ishares MSCI Eurozone ETF. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 19.13%, net of fees, while the total return for the Index was 19.16% ishares A NNUAL R EPORT TO S HAREHOLDERS

9 Management s Discussion of Fund Performance (Continued) ishares CURRENCY HEDGED MSCI EUROZONE ETF The Eurozone economy posted strong growth during the reporting period, though inflation remained low enough for the ECB to keep interest rates at zero percent, stating that a considerable amount of monetary accommodation remained necessary. Household consumption, which historically accounts for more than half of the Eurozone s average economic growth, was the largest driver of the economy, as consumer spending reached a record high in the second quarter of A declining unemployment rate helped increase consumer spending. The equity markets in France and Germany, which together represented approximately 62% of the Index on average during the reporting period, were the leading contributors to the Index s return when measured in U.S. dollars. French stocks rose significantly after the election of the country s new president, Emmanuel Macron, while the German market was helped by a combination of low interest rates, low unemployment, and stable public finances. Spain, the Netherlands, and Italy also contributed to the Index s performance. In Spain, private consumption increased as households benefited from robust job creation and credit growth. The Netherlands economy benefited from strong employment growth and increased consumer optimism. Italy s economic acceleration was strengthened by business and consumer confidence levels that approached multi-year highs. From a sector standpoint, the financials sector, representing about 20% of the Index on average, contributed the most to the Index s return for the reporting period, in U.S. dollar terms. Banks and insurance stocks contributed the most to the sector, as many companies in these industries restructured and streamlined in order to increase income in the low interest rate environment. The industrials and consumer discretionary sectors were also strong contributors to the Index s return. In terms of currency performance, the euro appreciated against the U.S. dollar by approximately 6% for the reporting period. Stronger growth across the Eurozone, rising export demand, and reduced political risk following the presidential election in France helped the euro s performance. The euro s positive performance meant hedging activity detracted from the Index s return for the reporting period. A fully hedged investor seeks to bypass the currency fluctuations both on the upside and on the downside related to holding foreigncurrency-denominated securities. The Index s hedging activity offset the positive impact of the euro s performance relative to the U.S. dollar, resulting in an Index return that was relatively close to the return of Eurozone equities measured in euros. ALLOCATION BY SECTOR 1 As of 8/31/17 Percentage of Sector Total Investments 2 Financials 20.84% Industrials Consumer Discretionary Consumer Staples Health Care 8.51 Materials 8.14 Information Technology 7.89 Utilities 5.29 Energy 5.08 Telecommunication Services 4.18 Real Estate 1.80 TOTAL % TEN LARGEST COUNTRIES 1 As of 8/31/17 Percentage of Country Total Investments 2 France 31.90% Germany Netherlands Spain Italy 7.48 Belgium 3.63 Finland 3.10 Ireland 1.34 Austria 0.78 Portugal 0.48 TOTAL 99.80% 1 Table shown is for the ishares MSCI Eurozone ETF, the underlying fund in which the Fund invests. 2 Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 9

10 Management s Discussion of Fund Performance ishares CURRENCY HEDGED MSCI GERMANY ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 13.88% 13.88% 14.24% 13.88% 13.88% 14.24% Since Inception 7.22% 7.21% 7.45% 28.37% 28.32% 29.35% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $14,000 $13,000 $12,935 $12,837 $12,000 $11,000 $10,000 $9,000 Feb 14 Aug 14 Feb 15 Aug 15 Feb 16 Aug 16 Feb 17 Aug 17 Fund Index The inception date of the Fund was 1/31/14. The first day of secondary market trading was 2/4/14. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 18 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a,b Expenses Paid During Period a,b Annualized Expense Ratio a $ 1, $ 1, $ 0.25 $ 1, $ 1, $ % a Annualized expense ratio and expenses paid during the period do not include fees and expenses of the underlying fund in which the Fund invests. b Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 18 for more information. The ishares Currency Hedged MSCI Germany ETF (the Fund ) seeks to track the investment results of an index composed of large- and mid-capitalization German equities while mitigating exposure to fluctuations between the value of the euro and the U.S. dollar, as represented by the MSCI Germany 100% Hedged to USD Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. The Fund currently seeks to achieve its investment objective by investing a substantial portion of its assets in one underlying fund, the ishares MSCI Germany ETF. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 13.88%, net of fees, while the total return for the Index was 14.24% ishares A NNUAL R EPORT TO S HAREHOLDERS

11 Management s Discussion of Fund Performance (Continued) ishares CURRENCY HEDGED MSCI GERMANY ETF The German economy expanded solidly on an annual basis through the second quarter of 2017, due to healthy domestic demand and government spending. Net trade negatively affected the economy, however, as sales to countries outside the European Union declined. The unemployment rate declined to 3.7%, the nation s lowest jobless rate in 37 years, which helped consumer spending increase. Inflation was volatile but remained low, while the ECB s benchmark interest rate remained at zero percent throughout the reporting period. The financials sector, representing about 15% of the Index on average, was the largest contributor to the Index s return in U.S. dollar terms for the reporting period. The insurance industry was the main contributor to the sector, as companies restructured, streamlined, and introduced digital applications to consumers to boost their bottom lines amid low interest rates. The materials and industrials sectors, each representing approximately 14% of the Index on average, also contributed to the Index s performance. Better-than-expected earnings for chemical companies boosted the materials sector. Within the industrials sector, transportation-related companies benefited from increased shipping demand amid the improved global economy. When measured in U.S. dollars, the information technology and healthcare sectors were notable contributors to the Index s performance as well during the reporting period, as was the consumer discretionary sector, the largest sector in the Index, comprising approximately 19% of the Index on average. In terms of currency performance, the euro appreciated against the U.S. dollar by approximately 6% for the reporting period. Stronger growth across the Eurozone, rising export demand, and reduced political risk following the presidential election in France helped the euro s performance. The euro s positive performance meant hedging activity detracted from the Index s return for the reporting period. A fully hedged investor seeks to bypass the currency fluctuations both on the upside and on the downside related to holding foreigncurrency-denominated securities. The Index s hedging activity offset the positive impact of the euro s performance relative to the U.S. dollar, resulting in an Index return that was relatively close to the return of German equities measured in euros. Sector ALLOCATION BY SECTOR 1 As of 8/31/17 Percentage of Total Investments 2 Consumer Discretionary 18.08% Financials Materials Industrials Health Care Information Technology Telecommunication Services 4.74 Consumer Staples 3.81 Utilities 3.30 Real Estate 2.63 TOTAL % Security TEN LARGEST FUND HOLDING 1 As of 8/31/17 Percentage of Total Investments 2 Bayer AG Registered 7.95% SAP SE 7.74 Siemens AG Registered 7.51 Allianz SE Registered 7.34 BASF SE 6.68 Daimler AG Registered 5.27 Deutsche Telekom AG Registered 4.44 adidas AG 3.17 Deutsche Post AG Registered 3.02 Linde AG 2.67 TOTAL 55.79% 1 Table shown is for the ishares MSCI Germany ETF, the underlying fund in which the Fund invests. 2 Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 11

12 Management s Discussion of Fund Performance ishares CURRENCY HEDGED MSCI ITALY ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 31.21% 31.34% 31.07% 31.21% 31.34% 31.07% Since Inception 2.18% 2.22% 1.65% 4.80% 4.90% 3.61% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $12,000 $11,000 $10,000 $10,480 $10,361 $9,000 $8,000 $7,000 Aug 15 Nov 15 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 6/29/15. The first day of secondary market trading was 7/1/15. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 18 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a,b Expenses Paid During Period a,b Annualized Expense Ratio a $ 1, $ 1, $ 0.00 $ 1, $ 1, $ % a Annualized expense ratio and expenses paid during the period do not include fees and expenses of the underlying fund in which the Fund invests. b Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 18 for more information. The ishares Currency Hedged MSCI Italy ETF (the Fund ) seeks to track the investment results of an index composed of large- and mid-capitalization Italian equities while mitigating exposure to fluctuations between the value of the euro and the U.S. dollar, as represented by the MSCI Italy 25/50 100% Hedged to USD Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. The Fund currently seeks to achieve its investment objective by investing a substantial portion of its assets in one underlying fund, the ishares MSCI Italy Capped ETF. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 31.21%, net of fees, while the total return for the Index was 31.07% ishares A NNUAL R EPORT TO S HAREHOLDERS

13 Management s Discussion of Fund Performance (Continued) ishares CURRENCY HEDGED MSCI ITALY ETF Italy posted a moderate level of economic growth during the reporting period, though its rate of growth trailed most other countries in the Eurozone. Nevertheless, Italy s recent increase in consumer confidence led to more willingness to spend generally and higher retail sales specifically. Business confidence also increased, due to expectations for growth amid the improving economies of its major trading partners. However, demand for Italy s exports generally did not affect the nation s economic growth in the second quarter of Italy also continued to have one of the highest jobless rates of any developed nation in the world. The financials sector, representing about 33% of the Index on average, was the most significant contributor to the Index s performance during the reporting period when measured in U.S. dollars. The stock prices of Italian banks, which had been low due to bad loans and insufficient capital, increased sharply after a taxpayer bailout package helped instill new optimism about the country s financial system. The consumer discretionary sector also contributed to the Index s performance, due largely to the strong sales of luxury Italian sports cars amid low global interest rates and the strong global economy. The utilities sector, particularly electric utilities, also was a notable contributor to the Index s return for the reporting period, as was the industrials sector, driven by the strong performance of machinery and transportation infrastructure stocks. In terms of currency performance, the euro appreciated against the U.S. dollar by approximately 6% for the reporting period. Stronger growth across the Eurozone, rising export demand, and reduced political risk following the presidential election in France helped the euro s performance. The euro s positive performance meant hedging activity detracted from the Index s return for the reporting period. A fully hedged investor seeks to bypass the currency fluctuations both on the upside and on the downside related to holding foreigncurrency-denominated securities. The Index s hedging activity offset the positive impact of the euro s performance relative to the U.S. dollar, resulting in an Index return that was relatively close to the return of Italian equities measured in euros. Sector ALLOCATION BY SECTOR 1 As of 8/31/17 Percentage of Total Investments 2 Financials 34.59% Energy Utilities Industrials Consumer Discretionary Telecommunication Services 4.51 Health Care 1.58 TOTAL % Security TEN LARGEST FUND HOLDINGS 1 As of 8/31/17 Percentage of Total Investments 2 Enel SpA 12.76% Intesa Sanpaolo SpA UniCredit SpA Eni SpA Fiat Chrysler Automobiles NV 4.64 Ferrari NV 4.55 Atlantia SpA 4.53 Assicurazioni Generali SpA 4.49 Snam SpA 4.11 CNH Industrial NV 4.11 TOTAL 70.51% 1 Table shown is for the ishares MSCI Italy Capped ETF, the underlying fund in which the Fund invests. 2 Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 13

14 Management s Discussion of Fund Performance ishares CURRENCY HEDGED MSCI SPAIN ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 25.70% 25.64% 26.14% 25.70% 25.64% 26.14% Since Inception 2.36% 2.34% 2.32% 5.20% 5.16% 5.09% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $12,000 $11,000 $10,000 $10,520 $10,509 $9,000 $8,000 $7,000 Aug 15 Feb 16 Aug 16 Feb 17 Aug 17 Fund Index The inception date of the Fund was 6/29/15. The first day of secondary market trading was 7/1/15. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 18 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a,b Expenses Paid During Period a,b Annualized Expense Ratio a $ 1, $ 1, $ 0.16 $ 1, $ 1, $ % a Annualized expense ratio and expenses paid during the period do not include fees and expenses of the underlying fund in which the Fund invests. b Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 18 for more information. The ishares Currency Hedged MSCI Spain ETF (the Fund ) seeks to track the investment results of an index composed of large- and mid-capitalization Spanish equities while mitigating exposure to fluctuations between the value of the euro and the U.S. dollar, as represented by the MSCI Spain 25/50 100% Hedged to USD Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. The Fund currently seeks to achieve its investment objective by investing a substantial portion of its assets in one underlying fund, the ishares MSCI Spain Capped ETF. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 25.70%, net of fees, while the total return for the Index was 26.14% ishares A NNUAL R EPORT TO S HAREHOLDERS

15 Management s Discussion of Fund Performance (Continued) ishares CURRENCY HEDGED MSCI SPAIN ETF Spain s economy increased at a 3.1% annual rate in the second quarter of 2017 due to the strong performance of both its domestic and external sectors. Private consumption solidly increased, as households benefited from an employment growth rate that topped 60% in the first half of Amid this environment, robust household spending outweighed the negative consequences of higher inflation and a decrease in wage growth. Export levels increased amid strong global demand for energy and chemical products, as well as food, beverages, and consumer goods. Tourism revenues increased during the second half of the reporting period, which also benefited the Spanish economy. The financials sector, which comprised about 41% of the Index on average during the reporting period, was the most significant contributor to the Index s return in U.S. dollar terms. The sector primarily benefited from Spanish banks. Despite ultra-low interest rates and capital constraints caused by bad loans, bank stocks increased after the ECB arranged a rescue of one bank by another, which investors felt could reduce competitive pressures in the industry and increase its overall profitability. The industrials sector also contributed to the Index s return. Transportation companies were strong contributors to the sector, reflective of the growing confidence in Spain s economic recovery. The utilities and energy sectors also contributed meaningfully to the Index s return. In terms of currency performance, the euro appreciated against the U.S. dollar by approximately 6% for the reporting period. Stronger growth across the Eurozone, rising export demand, and reduced political risk following the presidential election in France helped the euro s performance. The euro s positive performance meant hedging activity detracted from the Index s return for the reporting period. A fully hedged investor seeks to bypass the currency fluctuations both on the upside and on the downside related to holding foreigncurrency-denominated securities. The Index s hedging activity offset the positive impact of the euro s performance relative to the U.S. dollar, resulting in an Index return that was relatively close to the return of Spanish equities measured in euros. Sector ALLOCATION BY SECTOR 1 As of 8/31/17 Percentage of Total Investments 2 Financials 42.54% Industrials Utilities Telecommunication Services 8.57 Consumer Discretionary 5.55 Energy 5.53 Information Technology 4.96 Health Care 2.41 Consumer Staples 1.70 TOTAL % Security TEN LARGEST FUND HOLDINGS 1 As of 8/31/17 Percentage of Total Investments 2 Banco Santander SA 19.07% Banco Bilbao Vizcaya Argentaria SA Telefonica SA 8.57 Industria de Diseno Textil SA 5.56 Amadeus IT Group SA 4.96 Iberdrola SA 4.68 Repsol SA 4.58 CaixaBank SA 4.46 Abertis Infraestructuras SA 4.35 Aena SA 4.12 TOTAL 70.50% 1 Table shown is for the ishares MSCI Spain Capped ETF, the underlying fund in which the Fund invests. 2 Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 15

16 Management s Discussion of Fund Performance ishares CURRENCY HEDGED MSCI SWITZERLAND ETF Performance as of August 31, 2017 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 15.88% 15.97% 16.37% 15.88% 15.97% 16.37% Since Inception 7.38% 7.42% 7.27% 16.76% 16.84% 16.45% GROWTH OF $10,000 INVESTMENT (SINCE INCEPTION AT NET ASSET VALUE) $13,000 $12,000 $11,000 $11,676 $11,645 $10,000 $9,000 $8,000 Aug 15 Nov 15 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Fund Index The inception date of the Fund was 6/29/15. The first day of secondary market trading was 7/1/15. Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See About Fund Performance on page 18 for more information. Beginning Account Value (3/1/17) Actual Ending Account Value (8/31/17) Shareholder Expenses Beginning Account Value (3/1/17) Hypothetical 5% Return Ending Account Value (8/31/17) Expenses Paid During Period a,b Expenses Paid During Period a,b Annualized Expense Ratio a $ 1, $ 1, $ 0.16 $ 1, $ 1, $ % a Annualized expense ratio and expenses paid during the period do not include fees and expenses of the underlying fund in which the Fund invests. b Expenses are calculated using the Fund s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 18 for more information. The ishares Currency Hedged MSCI Switzerland ETF (the Fund ) seeks to track the investment results of an index composed of large- and mid-capitalization Swiss equities while mitigating exposure to fluctuations between the value of the Swiss franc and the U.S. dollar, as represented by the MSCI Switzerland 25/50 100% Hedged to USD Index (the Index ). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. The Fund currently seeks to achieve its investment objective by investing a substantial portion of its assets in one underlying fund, the ishares MSCI Switzerland Capped ETF. For the 12-month reporting period ended August 31, 2017, the total return for the Fund was 15.88%, net of fees, while the total return for the Index was 16.37% ishares A NNUAL R EPORT TO S HAREHOLDERS

17 Management s Discussion of Fund Performance (Continued) ishares CURRENCY HEDGED MSCI SWITZERLAND ETF The Swiss economy grew modestly during the reporting period. Expansion was mainly due to domestic demand, which increased amid the nation s lowest unemployment rate in nearly three years and increased consumer spending on healthcare and housing. The country s export activity in the second quarter of 2017 was positive, attributable to higher sales of chemical and pharmaceutical products, metals, and watches, particularly to non-eurozone countries such as Singapore, Hong Kong, and the U.S. The strength of the Swiss franc remained a concern, however, as it tends to reduce export growth and corporate profit margins. The healthcare sector, the Index s largest sector, comprising about 31% of the Index on average, was the largest contributor to the Index s return for the reporting period in U.S. dollars. Within the sector, the pharmaceuticals industry was the most significant contributor, as foreign demand helped increase Swiss pharmaceutical exports to record highs in the first half of The financials sector was also a notable contributor to the Index s return for the reporting period, as companies in the capital markets and insurance industries performed better than expected amid the negative interest rate policy of the Swiss central bank. Other contributions to the Index s return for the reporting period came from the consumer discretionary and consumer staples sectors. The former benefited from luxury jewelers and watchmakers, while, for the latter, food products companies helped the most. In terms of currency performance, the Swiss franc appreciated against the U.S. dollar by approximately 2% for the reporting period, recovering from a sharp decline following the U.S. presidential election. The Swiss franc, which tends to benefit from global uncertainty, rebounded thereafter amid North Korea s unexpected missile testing. The positive performance of the Swiss franc would typically mean a negative return from currency hedging. However, the currency hedge actually contributed a small amount to the Index s performance for the reporting period, as the implementation of the hedge led to a positive contribution despite the rising Swiss franc. Sector ALLOCATION BY SECTOR 1 As of 8/31/17 Percentage of Total Investments 2 Health Care 30.22% Consumer Staples Financials Industrials Consumer Discretionary 7.07 Materials 6.86 Telecommunication Services 1.42 Real Estate 0.85 TOTAL % TEN LARGEST FUND HOLDINGS 1 As of 8/31/17 Percentage of Security Total Investments 2 Nestle SA Registered 19.68% Novartis AG Registered Roche Holding AG UBS Group AG 4.42 Cie. Financiere Richemont SA Class A Registered 4.31 ABB Ltd. Registered 4.25 Zurich Insurance Group AG 4.16 Credit Suisse Group AG Registered 3.34 Swiss Re AG 2.80 LafargeHolcim Ltd. Registered 2.58 TOTAL 71.18% 1 Table shown is for the ishares MSCI Switzerland Capped ETF, the underlying fund in which the Fund invests. 2 Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 17

18 About Fund Performance Past performance is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end is available at Performance results assume reinvestment of all dividends and capital gain distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. The investment return and principal value of shares will vary with changes in market conditions. Shares may be worth more or less than their original cost when they are redeemed or sold in the market. Performance for certain funds may reflect a waiver of a portion of investment advisory fees. Without such a waiver, performance would have been lower. Net asset value or NAV is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. The price used to calculate market return ( Market Price ) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund s NAV is calculated. Certain funds may have a NAV which is determined prior to the opening of regular trading on its listed exchange and their market returns are calculated using the midpoint of the bid/ask spread as of the opening of regular trading on the exchange. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike a fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by a fund. These expenses negatively impact fund performance. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. Shareholder Expenses As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of fund shares and (2) ongoing costs, including management fees and other fund expenses. The expense example, which is based on an investment of $1,000 invested on March 1, 2017 and held through August 31, 2017, is intended to help you understand your ongoing costs (in dollars and cents) of investing in a Fund and to compare these costs with the ongoing costs of investing in other funds. Actual Expenses The table provides information about actual account values and actual expenses. Annualized expense ratios reflect contractual and voluntary fee waivers, if any. To estimate the expenses that you paid on your account over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number corresponding to your Fund under the heading entitled Expenses Paid During Period. Hypothetical Example for Comparison Purposes The table also provides information about hypothetical account values and hypothetical expenses based on each Fund s actual expense ratio and an assumed rate of return of 5% per year before expenses. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of fund shares. Therefore, the hypothetical examples are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher ishares A NNUAL R EPORT TO S HAREHOLDERS

19 Schedule of Investments ishares ADAPTIVE CURRENCY HEDGED MSCI EUROZONE ETF August 31, 2017 Security Shares Value INVESTMENT COMPANIES % EXCHANGE-TRADED FUNDS % ishares MSCI Eurozone ETF a 66,259 $2,771,614 2,771,614 TOTAL INVESTMENT COMPANIES (Cost: $2,261,802) 2,771,614 SHORT-TERM INVESTMENTS 0.05% MONEY MARKET FUNDS 0.05% BlackRock Cash Funds: Treasury, SL Agency Shares 0.96% a,b 1,353 1,353 1,353 Value TOTAL INVESTMENTS IN SECURITIES % (Cost: $2,263,155) c $2,772,967 Other Assets, Less Liabilities (0.19)% (5,211) NET ASSETS % $2,767,756 a Affiliated issuer. See Schedule 1. b The rate quoted is the annualized seven-day yield of the fund at period end. c The cost of investments (including short positions and derivatives, if any) for federal income tax purposes was $2,264,133. Net unrealized appreciation was $508,834, of which $513,475 represented gross unrealized appreciation on investments and $4,641 represented gross unrealized depreciation on investments. TOTAL SHORT-TERM INVESTMENTS (Cost: $1,353) 1,353 Schedule 1 Affiliates (Note 2) Investments in issuers considered to be affiliates of the Fund during the year ended August 31, 2017, for purposes of Section 2(a)(3) of the 1940 Act, and/or related parties of the Fund were as follows: Affiliated issuer Shares held at 08/31/16 Shares purchased Shares sold Shares held at 08/31/17 Value at 08/31/17 Change in unrealized Net realized appreciation gain (loss) a (depreciation) Income BlackRock Cash Funds: Institutional, SL Agency Shares b $ $ (19) $ $ c BlackRock Cash Funds: Treasury, SL Agency Shares 1, b 1,353 1,353 8 ishares MSCI Eurozone ETF 67,434 4,337 (5,512) 66,259 2,771,614 16, ,598 58,157 $2,772,967 $ 16,113 $ 506,598 $58,165 a b c Includes realized capital gain distributions from an affiliated fund, if any. Net of shares purchased and sold. Does not include income earned on investment of securities lending cash collateral which is not direct income of the Fund and is reflected as a component of securities lending income in the statement of operations. S CHEDULES OF I NVESTMENTS 19

20 Schedule of Investments (Continued) ishares ADAPTIVE CURRENCY HEDGED MSCI EUROZONE ETF August 31, 2017 Schedule 2 Forward Currency Contracts (Note 5) Forward currency contracts outstanding as of August 31, 2017 were as follows: Currency purchased Currency sold Counterparty Settlement date Unrealized appreciation (depreciation) EUR 590,000 USD 698,737 MS 09/06/2017 $ 3,663 3,663 USD 693,561 EUR 590,000 MS 09/06/2017 (8,839) USD 2,058,636 EUR 1,731,000 MS 10/04/2017 (5,277) (14,116) Net unrealized depreciation $ (10,453) Counterparties: MS Morgan Stanley and Co. International PLC Currency abbreviations: EUR Euro USD United States Dollar Schedule 3 Fair Value Measurements Various inputs are used in determining the fair value of financial instruments. For description of the input levels and information about the Fund s policy regarding valuation of financial instruments, see Note 1. The following table summarizes the value of the Fund s investments according to the fair value hierarchy as of August 31, The breakdown of the Fund s investments into major categories is disclosed in the schedule of investments above. Level 1 Level 2 Level 3 Total Investments: Assets: Investment companies $2,771,614 $ $ $2,771,614 Money market funds 1,353 1,353 Total $2,772,967 $ $ $2,772,967 Derivative financial instruments a : Assets: Forward currency contracts $ $ 3,663 $ $ 3,663 Liabilities: Forward currency contracts (14,116) (14,116) Total $ $(10,453) $ $ (10,453) a Shown at the unrealized appreciation (depreciation) on the contracts. See notes to financial statements ishares A NNUAL R EPORT TO S HAREHOLDERS

21 Schedule of Investments ishares CURRENCY HEDGED MSCI EUROZONE ETF August 31, 2017 Security Shares Value INVESTMENT COMPANIES 99.84% EXCHANGE-TRADED FUNDS 99.84% ishares MSCI Eurozone ETF a 42,763,824 $1,788,810,758 1,788,810,758 TOTAL INVESTMENT COMPANIES (Cost: $1,671,861,692) 1,788,810,758 TOTAL INVESTMENTS IN SECURITIES 99.84% (Cost: $1,671,861,692) b 1,788,810,758 Other Assets, Less Liabilities 0.16% 2,862,377 NET ASSETS % $1,791,673,135 a Affiliated issuer. See Schedule 1. b The cost of investments (including short positions and derivatives, if any) for federal income tax purposes was $1,684,676,814. Net unrealized appreciation was $104,133,944, of which $119,374,223 represented gross unrealized appreciation on investments and $15,240,279 represented gross unrealized depreciation on investments. Schedule 1 Affiliates (Note 2) Investments in issuers considered to be affiliates of the Fund during the year ended August 31, 2017, for purposes of Section 2(a)(3) of the 1940 Act, and/or related parties of the Fund were as follows: Affiliated issuer Shares held at 08/31/16 Shares purchased Shares sold Shares held at 08/31/17 Value at 08/31/17 Change in unrealized Net realized appreciation gain (loss) a (depreciation) Income BlackRock Cash Funds: Institutional, SL Agency Shares 7,434,000 (7,434,000) b $ $ 5,185 $ $ c BlackRock Cash Funds: Treasury, SL Agency Shares 763,278 (763,278) b 38 1,767 ishares MSCI Eurozone ETF 39,282,725 27,578,984 (24,097,885) 42,763,824 1,788,810,758 (11,051,685) 281,921,728 31,580,180 $1,788,810,758 $(11,046,462) $281,921,728 $31,581,947 a b c Includes realized capital gain distributions from an affiliated fund, if any. Net of shares purchased and sold. Does not include income earned on investment of securities lending cash collateral which is not direct income of the Fund and is reflected as a component of securities lending income in the statement of operations. S CHEDULES OF I NVESTMENTS 21