APRIL 30, ANNUAL REPORT

Transcription

1 APRIL 30, ANNUAL REPORT ishares Trust ishares U.S. Basic Materials ETF IYM NYSE Arca ishares U.S. Consumer Goods ETF IYK NYSE Arca ishares U.S. Consumer Services ETF IYC NYSE Arca ishares U.S. Financial Services ETF IYG NYSE Arca ishares U.S. Financials ETF IYF NYSE Arca ishares U.S. Industrials ETF IYJ Cboe BZX ishares MSCI KLD 400 Social ETF DSI NYSE Arca ishares MSCI USA ESG Select ETF SUSA NYSE Arca

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3 Table of Contents Management s Discussions of Fund Performance... 5 About Fund Performance Shareholder Expenses Schedules of Investments ishares U.S. Basic Materials ETF ishares U.S. Consumer Goods ETF ishares U.S. Consumer Services ETF ishares U.S. Financial Services ETF ishares U.S. Financials ETF ishares U.S. Industrials ETF ishares MSCI KLD 400 Social ETF ishares MSCI USA ESG Select ETF Financial Statements Financial Highlights Notes to Financial Statements Report of Independent Registered Public Accounting Firm Tax Information Supplemental Information Trustee and Officer Information General Information... 99

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5 Management s Discussion of Fund Performance ishares TRUST U.S. EQUITY MARKET OVERVIEW U.S. stocks advanced for the 12 months ended April 30, 2018 ( reporting period ). The Russell 3000 Index, a broad measure of U.S. equity market performance, returned 13.05% for the reporting period. An improving U.S. economy was one contributing factor to the positive performance of U.S. stocks during the reporting period. The final nine months of 2017 featured the strongest three consecutive quarters of U.S. economic growth in more than 12 years. Key economic drivers included a meaningful increase in manufacturing activity and the lowest unemployment rate since December The healthy job market contributed to a recovery in wages. Another beneficial factor for the U.S. equity market during the reporting period was U.S. income tax reform legislation. Passed in December 2017, the tax reform legislation included a steep reduction in corporate tax rates, which translated directly into higher corporate profits, and a modest decrease in individual tax rates. In addition, tax reform incentivized companies to repatriate cash held outside of the U.S., raising expectations for capital spending, acquisitions, dividends, and stock repurchases by U.S. companies. However, the tax changes also led to concerns about reduced government tax revenues and higher federal budget deficits. The stronger economy and tax code changes contributed to record corporate profit growth across virtually all sectors of the U.S. stock market. Deregulation in selected segments of the economy and a recovery in commodities prices also benefited corporate earnings. In addition, there was a significant international element to increases in corporate profits, as the sectors that posted the largest gains in profitability (energy, materials, and information technology) were also those with the largest exposure to improving global economic activity. After rising steadily for much of the reporting period, reaching record highs in January 2018, stocks declined during the last three months as market volatility increased markedly, largely related to expectations of higher interest rates and inflation. Increases in interest rates lead to higher borrowing costs for companies, consumers, and the U.S. government, which can have a negative impact on economic growth, corporate profits, and stock prices. Higher inflation prompted the U.S. Federal Reserve Bank ( Fed ) to increase the short-term interest rate target to its highest level in a decade, leading to a four-year high for U.S. Treasury bond yields. The Fed also began to reduce its balance sheet in October The interest rate increases and balance sheet reduction were part of the Fed s plan to gradually reverse the unprecedented economic stimulus measures, implemented in response to the 2008 credit crisis, and re-establish more normal monetary policy conditions. Geopolitical issues also weighed on the U.S. equity market late in the reporting period. In addition to ongoing geopolitical turmoil in North Korea and the Middle East, the U.S. government announced plans to implement tariffs on steel, aluminum, and some Chinese products, leading to fears of a broader trade war and corresponding economic disruption. For the reporting period, large-capitalization stocks outperformed mid- and small-capitalization equities, while growth-oriented stocks outperformed value-oriented equities across all market capitalizations. Consequently, large-capitalization growth stocks were the best-performing segment of the market, largely due to the significant outperformance of information technology companies, which benefited from strengthening international demand and an ongoing shift toward e-commerce, digital advertising, cloud computing, mobile devices, and streaming services. In contrast, the underperforming value-oriented stocks tended to be those with less international business and little or no exposure to these technological trends. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 5

6 Management s Discussion of Fund Performance ishares U.S. BASIC MATERIALS ETF Performance as of April 30, 2018 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 10.74% 10.78% 11.06% 10.74% 10.78% 11.06% 5 Years 8.72% 8.73% 9.16% 51.92% 51.96% 54.98% 10 Years 3.87% 3.88% 4.29% 46.20% 46.30% 52.27% GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $18,000 $16,000 $14,000 $15,227 $14,620 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Fund Index 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 22 for more information. Beginning Account Value (11/1/17) Actual Ending Account Value (4/30/18) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (11/1/17) Hypothetical 5% Return Ending Account Value (4/30/18) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ $ 2.07 $ 1, $ 1, $ % a 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 (181 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 22 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

7 Management s Discussion of Fund Performance (Continued) ishares U.S. BASIC MATERIALS ETF The ishares U.S. Basic Materials ETF (the Fund ) seeks to track the investment results of an index composed of U.S. equities in the basic materials sector, as represented by the Dow Jones U.S. Basic Materials Index TM (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. For the 12-month reporting period ended April 30, 2018, the total return for the Fund was 10.74%, net of fees, while the total return for the Index was 11.06%. Materials stocks benefited from increased demand for raw materials as global economic growth improved, pushing commodities prices higher. The Thomson Reuters/CoreCommodity CRB Index, a broad measure of commodities prices, rose by more than 10% for the reporting period. Prices for many basic materials rose, including precious metals, such as gold; base metals, including copper and aluminum; and paper and pulp products. Prices for crude oil, gasoline, and heating oil also increased, ending the reporting period significantly higher. In addition, prices for many agricultural commodities advanced, particularly in early 2018 amid strong demand and weather-related shortages. From an industry perspective, chemicals companies were the leading contributors to the Index s return for the reporting period. The chemicals industry benefited from improving global economic growth and strength in several key end markets, including commercial construction, electronics, and automotive manufacturing. Chemicals companies also benefited from a recovery in the energy sector, another important end market. The metals and mining industry was another significant contributor to the Index s performance. Metals stocks were the beneficiaries of strong demand for industrial metals ranging from cobalt and lithium, which are key components in electric vehicle batteries, to palladium and rhodium, which are used in emissions control systems for gasoline-powered vehicles. Other metals prices, such as steel and aluminum, were very volatile amid uncertainty around U.S. trade tariffs and potential retaliation from U.S. trading partners. Ultimately, steel and aluminum prices finished the reporting period higher. Consequently, steel, copper, and aluminum stocks all contributed to the Index s return, as did gold mining stocks, which benefited from improved supply and demand and higher prices for the precious metal. With such strong commodities price performances during the reporting period, no industry detracted from the Index s return. ALLOCATION BY SECTOR As of 4/30/18 Percentage of Sector Total Investments* Chemicals 82.07% Metals & Mining Paper & Forest Products 0.89 Oil, Gas & Consumable Fuels 0.13 TOTAL % TEN LARGEST FUND HOLDINGS As of 4/30/18 Percentage of Security Total Investments* DowDuPont Inc % Monsanto Co Praxair Inc Ecolab Inc Air Products & Chemicals Inc LyondellBasell Industries NV Class A 4.71 PPG Industries Inc Newmont Mining Corp Freeport-McMoRan Inc Nucor Corp TOTAL 66.48% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 7

8 Management s Discussion of Fund Performance ishares U.S. CONSUMER GOODS ETF Performance as of April 30, 2018 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year (2.41)% (2.44)% (2.02)% (2.41)% (2.44)% (2.02)% 5 Years 7.68% 7.68% 8.13% 44.78% 44.75% 47.83% 10 Years 8.96% 8.96% 9.43% % % % GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $30,000 $25,000 $24,633 $23,586 $20,000 $15,000 $10,000 $5,000 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Fund Index 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 22 for more information. Beginning Account Value (11/1/17) Actual Ending Account Value (4/30/18) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (11/1/17) Hypothetical 5% Return Ending Account Value (4/30/18) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ $ 2.04 $ 1, $ 1, $ % a 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 (181 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 22 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

9 Management s Discussion of Fund Performance (Continued) ishares U.S. CONSUMER GOODS ETF The ishares U.S. Consumer Goods ETF (the Fund ) seeks to track the investment results of an index composed of U.S. equities in the consumer goods sector, as represented by the Dow Jones U.S. Consumer Goods Index TM (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. For the 12-month reporting period ended April 30, 2018, the total return for the Fund was -2.41%, net of fees, while the total return for the Index was -2.02%. Despite a growing economy and steadily rising consumer spending, cost pressure and intense competition weighed on consumer goods stocks for the reporting period. Higher interest rates and rising inflation expectations led to concerns that consumer goods companies costs would increase faster than they could raise prices. In addition, competition from lower-cost producers limited the ability of companies to pass costs on to consumers, which weakened profitability. Structural changes in the U.S. consumer market also affected consumer goods companies. Consolidation has given retailers more market power when they purchase consumer goods from manufacturers. The continued growth of online retailing, with its emphasis on low prices, also weighed on the earnings of consumer goods companies. Lower barriers to entry, flexible production, and online marketing have made it easier for new, smaller entrants to gain market share. From an industry perspective, tobacco companies detracted the most from the Index s performance, reflecting an ongoing consumer shift away from tobacco products. Smoking rates continued to fall, which affected sales of cigarettes and alternative tobacco products. Regulatory action also negatively impacted tobacco stocks, particularly several adverse decisions by the U.S. Food and Drug Administration. Within the food products industry, packaged foods and meats companies also struggled as higher costs weighed on the industry. Household products stocks also detracted meaningfully from the Index s return. Shifting preferences and eroding brand loyalty worked against companies in this industry, with consumers increasingly willing to switch brands for lower prices. Packaged foods and meats companies also struggled as higher costs weighed on the industry. On the upside, consumer durables such as apparel accessories and luxury goods and footwear companies contributed to the Index s performance, with makers of high-end consumer goods benefiting from expansion into foreign markets and increased sales to younger consumers. Auto components manufacturers and home entertainment software producers were also contributors to the Index s return. ALLOCATION BY SECTOR As of 4/30/18 Percentage of Sector Total Investments* Food, Beverage & Tobacco 47.12% Household & Personal Products Consumer Durables & Apparel Automobiles & Components Software & Services 4.78 Capital Goods 1.38 Retailing 0.90 Diversified Financials 0.37 Food & Staples Retailing 0.24 Commercial & Professional Services 0.16 TOTAL % TEN LARGEST FUND HOLDINGS As of 4/30/18 Percentage of Security Total Investments* Procter & Gamble Co. (The) 8.90% Coca-Cola Co. (The) 8.09 PepsiCo Inc Philip Morris International Inc Altria Group Inc NIKE Inc. Class B 4.33 Mondelez International Inc. Class A 2.87 Colgate-Palmolive Co Activision Blizzard Inc General Motors Co TOTAL 50.10% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 9

10 Management s Discussion of Fund Performance ishares U.S. CONSUMER SERVICES ETF Performance as of April 30, 2018 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 13.35% 13.32% 13.67% 13.35% 13.32% 13.67% 5 Years 14.26% 14.26% 14.73% 94.75% 94.73% 98.74% 10 Years 13.18% 13.17% 13.64% % % % GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $40,000 $35,000 $30,000 $35,914 $34,476 $25,000 $20,000 $15,000 $10,000 $5,000 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Fund Index 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 22 for more information. Beginning Account Value (11/1/17) Actual Ending Account Value (4/30/18) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (11/1/17) Hypothetical 5% Return Ending Account Value (4/30/18) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 2.22 $ 1, $ 1, $ % a 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 (181 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 22 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

11 Management s Discussion of Fund Performance (Continued) ishares U.S. CONSUMER SERVICES ETF The ishares U.S. Consumer Services ETF (the Fund ) seeks to track the investment results of an index composed of U.S. equities in the consumer services sector, as represented by the Dow Jones U.S. Consumer Services Index TM (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. For the 12-month reporting period ended April 30, 2018, the total return for the Fund was 13.35%, net of fees, while the total return for the Index was 13.67%. Consumer services stocks benefited from a continued increase in consumer spending during the reporting period. Steady economic growth and relatively low inflation created conditions favorable for spending as wages rose and unemployment declined. Optimism about employment rates and federal tax cuts made consumers more likely to spend, which was evidenced by the highest measure of consumer confidence in 17 years. Reflecting an ongoing shift toward a more service-based economy, the increase in consumer spending was stronger in services than goods, providing an additional boost to consumer services stocks. The retail industry was the principal contributor to the Index s return, with internet and direct marketing retail stocks providing the most significant contribution. Online retailers were bolstered by record spending over the holiday season, benefiting in particular from increased mobile device purchases. Investments in web services, distribution, and mobile technology helped the industry gain relative to traditional retailers. Benefiting from the improving economy, the hotels, restaurants, and leisure industry was a solid contributor to the Index s performance. Restaurant stocks performed well; sales increased following a long downturn and are expected to continue improving as the effects of the tax bill become widespread. Increased spending on travel benefited hotels, resorts, and cruise line companies. Reflecting this increase in purchasing, two important indicators of the hotel segment s health, occupancy and average daily rate, improved during the reporting period. On the downside, the media industry detracted meaningfully from the Index s return, with cable and satellite companies the primary detractors. Traditional cable companies lost subscribers to online streaming services at an accelerating rate. Although cable companies have benefited from increased sales of broadband services, investors were concerned that cable subscription losses would exceed any gain received from the broadband expansion. ALLOCATION BY SECTOR As of 4/30/18 Percentage of Sector Total Investments* Retailing 46.71% Media Consumer Services Food & Staples Retailing 9.99 Transportation 3.58 Commercial & Professional Services 1.33 Health Care Equipment & Services 1.05 Software & Services 0.17 Capital Goods 0.10 TOTAL % TEN LARGEST FUND HOLDINGS As of 4/30/18 Percentage of Security Total Investments* Amazon.com Inc % Home Depot Inc. (The) 6.16 Walt Disney Co. (The) 4.49 Comcast Corp. Class A 4.34 Netflix Inc McDonald s Corp Walmart Inc Booking Holdings Inc Costco Wholesale Corp Starbucks Corp TOTAL 53.47% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 11

12 Management s Discussion of Fund Performance ishares U.S. FINANCIAL SERVICES ETF Performance as of April 30, 2018 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 22.53% 22.53% 23.09% 22.53% 22.53% 23.09% 5 Years 15.89% 15.90% 16.38% % % % 10 Years 5.00% 5.01% 5.39% 62.95% 63.12% 69.03% GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $20,000 $18,000 $16,000 $16,903 $16,295 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Fund Index 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 22 for more information. Beginning Account Value (11/1/17) Actual Ending Account Value (4/30/18) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (11/1/17) Hypothetical 5% Return Ending Account Value (4/30/18) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 2.15 $ 1, $ 1, $ % a 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 (181 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 22 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

13 Management s Discussion of Fund Performance (Continued) ishares U.S. FINANCIAL SERVICES ETF The ishares U.S. Financial Services ETF (the Fund ) seeks to track the investment results of an index composed of U.S. equities in the financial services sector, as represented by the Dow Jones U.S. Financial Services Index TM (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. For the 12-month reporting period ended April 30, 2018, the total return for the Fund was 22.53%, net of fees, while the total return for the Index was 23.09%. Banks were the most significant contributors to the Index s return for the reporting period despite tepid demand for new loans. Rising interest rates served as a catalyst for growth, increasing banks net interest margins (the difference between the interest rate paid to depositors and the interest rate earned on loans and investments). In the fourth quarter of 2017, the net interest margin for U.S. banks as a whole rose to a five-year high. Banks also benefited from the corporate tax cut, which increased their profitability and provided additional cash flows for acquisitions, stock buybacks, and higher dividends. Late in the reporting period, the Senate passed legislation to ease requirements in a portion of the 2010 Dodd-Frank financial reform law. The Senate bill would change the threshold for required Fed oversight and capital constraints from $50 billion to $250 billion in assets, reducing the number of banks subject to Fed scrutiny. Many financial companies anticipated that the Senate bill would eventually be signed into law, which led to increased merger and acquisition ( M&A ) activity among regional banks during the reporting period. Gains in the capital markets industry, another solid contributor to the Index s return, were led by investment banking and brokerage companies. Investment banks benefited from growing M&A activity, which grew by 67% year-over-year in the first quarter of 2018, the strongest first quarter on record. An increase in initial public offerings, which reached a three-year high in the first quarter of 2018, was also positive for investment banks. Brokerage companies benefited from increased trading volumes, which accompanied the rising stock market. IT services companies also contributed meaningfully to the Index s return. Within the industry, credit card companies benefited from increased e-commerce spending, as well as declining costs for card acceptance internationally. The consumer finance industry, which is expected to be a beneficiary of the banking regulation rollback, was also a notable contributor to the Index s performance. ALLOCATION BY SECTOR As of 4/30/18 Percentage of Sector Total Investments* Banks 54.66% Diversified Financials Software & Services Insurance 0.33 TOTAL % TEN LARGEST FUND HOLDINGS As of 4/30/18 Percentage of Security Total Investments* JPMorgan Chase & Co % Bank of America Corp Visa Inc. Class A 7.43 Wells Fargo & Co Citigroup Inc Mastercard Inc Goldman Sachs Group Inc. (The) 2.74 U.S. Bancorp Morgan Stanley 2.32 American Express Co TOTAL 57.26% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 13

14 Management s Discussion of Fund Performance ishares U.S. FINANCIALS ETF Performance as of April 30, 2018 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 15.21% 15.21% 15.64% 15.21% 15.21% 15.64% 5 Years 12.90% 12.91% 13.37% 83.45% 83.54% 87.26% 10 Years 4.94% 4.95% 5.33% 62.01% 62.07% 68.08% GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $18,000 $16,000 $14,000 $16,808 $16,201 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Fund Index 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 22 for more information. Beginning Account Value (11/1/17) Actual Ending Account Value (4/30/18) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (11/1/17) Hypothetical 5% Return Ending Account Value (4/30/18) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 2.12 $ 1, $ 1, $ % a 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 (181 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 22 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

15 Management s Discussion of Fund Performance (Continued) ishares U.S. FINANCIALS ETF The ishares U.S. Financials ETF (the Fund ) seeks to track the investment results of an index composed of U.S. equities in the financials sector, as represented by the Dow Jones U.S. Financials Index TM (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. For the 12-month reporting period ended April 30, 2018, the total return for the Fund was 15.21%, net of fees, while the total return for the Index was 15.64%. Banks were the largest contributors to the Index s return during the reporting period despite tepid demand for new loans. Rising interest rates increased banks net interest margins (the difference between the interest rate paid to depositors and the interest rate earned on loans and investments), while corporate tax cuts increased profitability and provided additional cash flows for acquisitions, stock buybacks, and higher dividends. Late in the reporting period, the Senate passed legislation to ease requirements in a portion of the 2010 Dodd-Frank financial reform law. Most notably, the Senate bill would change the asset threshold for required Fed oversight and capital constraints, reducing the number of banks subject to Fed scrutiny. The capital markets industry contributed significantly to the Index s performance. Investment banks benefited from growing merger and acquisition activity, which increased by 67% year-over-year in the first quarter of An increase in initial public offerings, which reached a three-year high in the first quarter of 2018, was also positive for investment banks. Brokerage companies benefited from increased trading volumes. IT services companies also contributed meaningfully to the Index s return. Credit card companies benefited from increased e-commerce spending, as well as declining costs for card acceptance internationally. The insurance industry contributed notably to the Index s performance. Rising interest rates benefited insurance stocks, enabling insurers to earn higher investment income on the premiums they hold. For property and casualty insurance companies, federal tax reform closed an important loophole, which would create more equal tax treatment for U.S. insurers. On the downside, real estate investment trusts (REITs) detracted from the Index s return amid rising interest rates, which increased borrowing costs for REITs and made their relatively high dividend yields less attractive compared with bond yields. This was especially true in early 2018, when U.S. interest rates rose sharply in anticipation of stronger domestic economic growth and rising inflation. In addition, commercial property transaction volumes declined in 2017 for the second consecutive year. ALLOCATION BY SECTOR As of 4/30/18 Percentage of Sector Total Investments* Banks 32.52% Diversified Financials Real Estate Insurance Software & Services 7.60 Commercial & Professional Services 0.26 TOTAL % TEN LARGEST FUND HOLDINGS As of 4/30/18 Percentage of Security Total Investments* JPMorgan Chase & Co. 7.21% Berkshire Hathaway Inc. Class B 7.21 Bank of America Corp Visa Inc. Class A 4.42 Wells Fargo & Co Citigroup Inc Mastercard Inc. Class A 3.18 Goldman Sachs Group Inc. (The) 1.63 U.S. Bancorp Morgan Stanley 1.38 TOTAL 39.89% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 15

16 Management s Discussion of Fund Performance ishares U.S. INDUSTRIALS ETF Performance as of April 30, 2018 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 11.57% 11.57% 12.08% 11.57% 11.57% 12.08% 5 Years 13.40% 13.41% 13.91% 87.55% 87.61% 91.78% 10 Years 8.97% 8.98% 9.44% % % % GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $30,000 $25,000 $20,000 $24,638 $23,611 $15,000 $10,000 $5,000 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Fund Index 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 22 for more information. Beginning Account Value (11/1/17) Actual Ending Account Value (4/30/18) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (11/1/17) Hypothetical 5% Return Ending Account Value (4/30/18) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 2.09 $ 1, $ 1, $ % a 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 (181 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 22 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

17 Management s Discussion of Fund Performance (Continued) ishares U.S. INDUSTRIALS ETF The ishares U.S. Industrials ETF (the Fund ) seeks to track the investment results of an index composed of U.S. equities in the industrials sector, as represented by the Dow Jones U.S. Industrials Index TM (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. For the 12-month reporting period ended April 30, 2018, the total return for the Fund was 11.57%, net of fees, while the total return for the Index was 12.08%. U.S. industrials stocks benefited from rising prices for oil and coal, which helped drive production increases in these industries, pushing U.S. manufacturing activity to a seven-year high during the reporting period. Outside of energy-related companies, the manufacturers of electrical equipment, appliances, and components saw significant increases in production; industrial capacity utilization rose to a three-year high, signifying a decrease in the slack, or idle, capacity at U.S. factories. From an industry perspective, producers of capital goods were the largest contributors to the Index s return for the reporting period. Within the capital goods industry, the leading contributors were aerospace and defense stocks, which benefited from growing global demand for aircraft amid a sharp increase in air travel. Machinery companies were also significant contributors to the Index s performance, benefiting from increased demand for heavy mining machinery and equipment. In contrast, the industrial conglomerates industry was the only significant detractor from the Index s performance as a leading company reduced its dividend in response to a decline in cash flow. Another solid contributor to the Index s return was the software and services industry, led by the data processing and outsourced services industry, which includes companies that process payments and other electronic data. These companies benefited from increases in economic growth and transaction volumes, as well as taking a larger share of existing transactions. The information technology consulting and other services industry was also a notable contributor, reflecting strong spending by cloud computing companies. Transportation stocks were significant contributors to the Index s return as well. Railroads stocks benefited from higher revenues as coal shipments increased, while trucking stocks benefited from increased merger activity. Companies that provide air freight and logistics services were also meaningful contributors as global air traffic increased by more than 7% in 2017 and air freight grew by 9%. ALLOCATION BY SECTOR As of 4/30/18 Percentage of Sector Total Investments* Capital Goods 56.72% Software & Services Transportation Materials 5.65 Technology Hardware & Equipment 5.30 Commercial & Professional Services 4.65 Pharmaceuticals, Biotechnology & Life Sciences 0.25 TOTAL % TEN LARGEST FUND HOLDINGS As of 4/30/18 Percentage of Security Total Investments* Boeing Co. (The) 5.61% General Electric Co M Co Honeywell International Inc Union Pacific Corp Accenture PLC Class A 2.83 United Technologies Corp Caterpillar Inc PayPal Holdings Inc Lockheed Martin Corp TOTAL 32.50% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 17

18 Management s Discussion of Fund Performance ishares MSCI KLD 400 SOCIAL ETF Performance as of April 30, 2018 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 12.99% 12.99% 13.57% 12.99% 12.99% 13.57% 5 Years 12.14% 12.15% 12.71% 77.33% 77.41% 81.86% 10 Years 8.87% 8.88% 9.42% % % % GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $30,000 $25,000 $20,000 $24,591 $23,390 $15,000 $10,000 $5,000 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Fund Index 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 22 for more information. Beginning Account Value (11/1/17) Actual Ending Account Value (4/30/18) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (11/1/17) Hypothetical 5% Return Ending Account Value (4/30/18) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 2.32 $ 1, $ 1, $ % a 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 (181 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 22 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

19 Management s Discussion of Fund Performance (Continued) ishares MSCI KLD 400 SOCIAL ETF The ishares MSCI KLD 400 Social ETF (the Fund ) seeks to track the investment results of an index composed of U.S. companies that have positive environmental, social and governance characteristics, as represented by the MSCI KLD 400 Social Index (the Index ). The Index excludes companies involved in tobacco, alcohol, gambling, military weapons, sales of civilian firearms, nuclear power, adult entertainment and GMOs. 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. For the 12-month reporting period ended April 30, 2018, the total return for the Fund was 12.99%, net of fees, while the total return for the Index was 13.57%. Strong sales of software, cloud-based services, and hardware boosted the performance of information technology companies with positive ESG characteristics, the largest contributors to the Index s return for the reporting period. Positive economic conditions and relatively low inflation helped information technology companies meet rising customer demand without significant strain on input prices or labor costs, leading to strong earnings for the sector. The software and services industry drove sector performance, as businesses continued to move toward cloud computing solutions. Semiconductors and semiconductor equipment companies also contributed to the Index s performance, driven by chip-based solutions for data centers and rising demand for connected devices. Socially responsible companies in the financials sector were also key contributors to the Index s return, benefiting from a steadily improving economic environment and from anticipated benefits of corporate tax cuts, including investors expectations that corporate tax savings would stimulate economic merger and underwriting activity. The capital markets industry performed well, as growth in assets under management and the anticipated development of new products and services offset the ongoing pressure on management fees. Consumer discretionary companies with positive ESG characteristics were solid contributors to the Index s return. The sector s advance was supported by strong consumer spending as steady job growth drove the unemployment rate to 3.9%, a 17-year low. Optimism about employment, wage increases, and tax cuts translated to the highest level of consumer confidence in 17 years. The industrials sector was another strong contributor to the Index s performance amid large increases in industrial production and manufacturing. Other contributors included the energy, healthcare, and materials sectors. The consumer staples sector was the only sector to detract from the Index s return. Pressure from low-cost competitors forced prices for many consumer goods lower, which weighed on the profitability of socially responsible companies in the household products and food products industries. ALLOCATION BY SECTOR As of 4/30/18 Percentage of Sector Total Investments* Information Technology 32.83% Consumer Discretionary Health Care Financials Industrials Consumer Staples 7.03 Energy 4.84 Real Estate 3.86 Materials 2.64 Telecommunication Services 2.04 Utilities 1.59 TOTAL % TEN LARGEST FUND HOLDINGS As of 4/30/18 Percentage of Security Total Investments* Microsoft Corp. 6.18% Facebook Inc. Class A 3.70 Alphabet Inc. Class C NVS 2.88 Alphabet Inc. Class A 2.74 Intel Corp Cisco Systems Inc Verizon Communications Inc Procter & Gamble Co. (The) 1.65 Coca-Cola Co. (The) 1.58 Merck & Co. Inc TOTAL 26.15% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 19

20 Management s Discussion of Fund Performance ishares MSCI USA ESG SELECT ETF Performance as of April 30, 2018 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 12.76% 12.81% 13.33% 12.76% 12.81% 13.33% 5 Years 12.06% 12.07% 12.63% 76.69% 76.80% 81.21% 10 Years 8.49% 8.50% 9.03% % % % GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $30,000 $25,000 $20,000 $23,741 $22,587 $15,000 $10,000 $5,000 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Fund Index 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 22 for more information. Beginning Account Value (11/1/17) Actual Ending Account Value (4/30/18) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (11/1/17) Hypothetical 5% Return Ending Account Value (4/30/18) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 2.32 $ 1, $ 1, $ % a 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 (181 days) and divided by the number of days in the year (365 days). See Shareholder Expenses on page 22 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

21 Management s Discussion of Fund Performance (Continued) ishares MSCI USA ESG SELECT ETF The ishares MSCI USA ESG Select ETF (the Fund ) seeks to track the investment results of an index composed of U.S. companies that have positive environmental, social and governance characteristics, as represented by the MSCI USA ESG Select Index (the Index ). The Index further excludes companies whose primary revenue is derived from alcohol, gambling, nuclear power, conventional and controversial weapons, and civilian firearms. 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. For the 12-month reporting period ended April 30, 2018, the total return for the Fund was 12.76%, net of fees, while the total return for the Index was 13.33%. Strong sales of software, cloud-based services, and hardware boosted the performance of information technology companies with positive ESG characteristics, the largest contributors to the Index s return for the reporting period. Positive economic conditions and relatively low inflation helped information technology companies meet rising customer demand without significant strain on input prices or labor costs, leading to strong earnings for the sector. The software and services industry drove sector performance, as businesses continued to move toward cloud computing solutions. Despite slowing demand for optical networking products, the technology hardware and equipment industry was another solid contributor, as new, highly profitable smartphone models allayed investors near-term concerns about the broader slowdown in smartphone sales. Socially responsible companies in the financials sector were also key contributors to the Index s return, benefiting from a steadily improving economic environment and from anticipated benefits of corporate tax cuts, including investors expectations that corporate tax savings would stimulate economic merger and underwriting activity. The capital markets industry performed well, as growth in assets under management and the anticipated development of new products and services offset the ongoing pressure on management fees. The industrials sector was another strong contributor to the Index s performance amid large increases in industrial production and manufacturing. Socially responsible capital goods companies were the sector s principal performance drivers, advancing on improved economic conditions, innovations in manufacturing technology, and rebuilding activity after several destructive hurricanes. The consumer discretionary sector was a meaningful contributor to the Index s return as well, supported by strong consumer spending as optimism about employment, wage increases, and tax cuts translated to the highest level of consumer confidence in 17 years. The consumer staples sector was the only sector to detract from the Index s return. Pressure from low-cost competitors forced prices for many consumer goods lower, which weighed on the profitability of socially responsible companies in the household products and food products industries. ALLOCATION BY SECTOR As of 4/30/18 Percentage of Sector Total Investments* Information Technology 28.03% Industrials Financials Health Care Consumer Discretionary Consumer Staples 9.16 Materials 5.97 Real Estate 4.90 Energy 3.30 Utilities 2.76 TOTAL % TEN LARGEST FUND HOLDINGS As of 4/30/18 Percentage of Security Total Investments* Ecolab Inc. 5.33% Microsoft Corp M Co Accenture PLC Class A 4.01 Apple Inc Henry Schein Inc BlackRock Inc Rockwell Collins Inc Alphabet Inc. Class A 2.34 Northern Trust Corp TOTAL 34.67% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 21

22 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 November 1, 2017 and held through April 30, 2018, 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