MARCH 31, ANNUAL REPORT

Transcription

1 MARCH 31, ANNUAL REPORT Trust Core U.S. Growth ETF IUSG NYSE Arca Core U.S. Value ETF IUSV NYSE Arca Micro-Cap ETF IWC NYSE Arca Russell 3000 ETF IWV NYSE Arca Russell Mid-Cap ETF IWR NYSE Arca Russell Mid-Cap Growth ETF IWP NYSE Arca Russell Mid-Cap Value ETF IWS NYSE Arca

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3 Table of Contents Management s Discussions of Fund Performance... 5 About Fund Performance Shareholder Expenses Summary Schedules of Investments Core U.S. Growth ETF Core U.S. Value ETF Micro-Cap ETF Russell 3000 ETF Russell Mid-Cap ETF Russell Mid-Cap Growth ETF Russell Mid-Cap Value ETF Financial Statements Financial Highlights Notes to Financial Statements Report of Independent Registered Public Accounting Firm Tax Information Supplemental Information Trustee and Officer Information... 91

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5 Management s Discussion of Fund Performance ishares TRUST U.S. EQUITY MARKET OVERVIEW The U.S. equity market declined fractionally for the 12 months ended March 31, 2016 (the reporting period ). The Russell 3000 Index, a broad U.S. equity index, returned -0.34% for the reporting period. The relatively flat U.S. equity market performance reflected an inconsistent and uncertain economic environment. Overall, the U.S. economy grew by 2.4% in 2015, matching its growth rate for 2014, but this moderate level of growth masked significant quarter-to-quarter volatility. After a weak first quarter, the economy rebounded sharply in the second quarter before gradually slowing over the final two quarters of the year. In the first quarter of 2016, modest consumer spending and weak global growth signaled that the economic slowdown had extended into the New Year. Employment growth was consistently robust during the reporting period, sending the unemployment rate down to an eight-year low. In contrast, industrial production contracted during the reporting period, while consumer spending remained muted despite a sharp decline in energy prices. In that environment, overall corporate earnings growth was relatively flat, reflecting intense competition for marginal demand. Inflation generally remained modest, with the consumer price index rising by 1.0% for the reporting period. Falling commodities prices, including a decline of 26% in the price of oil, contributed to the subdued inflation rate. Mixed economic data and a lack of inflationary pressure kept the U.S. Federal Reserve Bank (the Fed ) in check for much of the reporting period. Despite initial indications that the Fed planned to raise its short-term interest rate target in mid-2015, the Fed held off until December, when it implemented its first interest rate increase since June The Fed s rate hike increased the federal funds target rate from a range of 0%-0.25% to a range of 0.25%-0.50%, ending a seven-year period of near-zero interest rates. Stocks generally followed the contours of the economy for the reporting period, as gains in the first half of the reporting period faded amid volatility in the second half of the reporting period. In the slow growth environment, investors generally bid up stocks with higher growth rates, contributing to the outperformance of growth-oriented stocks over value-oriented equities during the reporting period. A relatively small number of large companies led the broad market, which meant the largest U.S. stocks outperformed small and mid-sized equities. The economic uncertainty in the second half of the reporting period led to periods of risk aversion and negative performance. Slowing growth in China sent the first shockwave through global markets in August 2015, followed by fear of defaults by commodity-related companies in early That led to broad-based risk aversion, which drove sector performance for the reporting period. Energy stocks were the worst performing sector, as a supply glut in oil and gas drove down energy prices. Similarly, commodity-related stocks in various sectors struggled due to weakness in commodities prices. Overall, some of the most economically sensitive sectors financials and materials delivered disappointing results, while some of the least economically sensitive sectors telecommunication services, utilities, and consumer staples posted positive returns. The healthcare sector, which had been buoyed by a virtuous cycle of innovation, growth, and acquisition, declined as investors took profits when pharmaceuticals pricing came under scrutiny. However, investors appetite for faster growth helped the information technology sector as many companies in the sector continued to deliver robust earnings growth. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 5

6 Management s Discussion of Fund Performance ishares CORE U.S. GROWTH ETF Performance as of March 31, 2016 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year 1.31% 1.35% 1.34% 1.31% 1.35% 1.34% 5 Years 11.83% 11.83% 12.00% 74.89% 74.90% 76.25% 10 Years 7.90% 7.90% 8.09% % % % GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $25,000 $20,000 $21,778 $21,393 $15,000 $10,000 $5,000 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 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 20 for more information. Beginning Account Value (10/1/15) Actual Ending Account Value (3/31/16) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (10/1/15) Hypothetical 5% Return Ending Account Value (3/31/16) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 0.36 $ 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 (183 days) and divided by the number of days in the year (366 days). See Shareholder Expenses on page 20 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

7 Management s Discussion of Fund Performance (Continued) ishares CORE U.S. GROWTH ETF The Core U.S. Growth ETF (the Fund ) seeks to track the investment results of a broad-based index composed of U.S. equities that exhibit growth characteristics, as represented by the Russell 3000 Growth 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. For the 12-month reporting period ended March 31, 2016, the total return for the Fund was 1.31%, net of fees, while the total return for the Index was 1.34%. As represented by the Index, U.S. growth stocks posted a modest positive return for the reporting period. Half of the sectors in the Index contributed to performance for the reporting period, led by the information technology sector. The gains in the information technology sector were driven in part by the outsized returns of several of the largest stocks in the sector. However, robust growth in smartphone usage, cloud computing, and online security also helped fuel the positive returns in the information technology sector. Consumer-based stocks were also among the largest contributors to the Index s return. Economic uncertainty drove up stock prices in the food, beverage, and tobacco industry, as investors gravitated toward the industry s relatively stable revenues. The consumer discretionary sector also posted a solid contribution to the Index s return for the reporting period, even though retail sales remained sluggish despite strong job growth, low interest rates, and declining energy prices. At the other end of the spectrum, the healthcare sector was the largest detractor from the Index s performance, reflecting profit taking amid relatively high valuations. The biotechnology and pharmaceuticals industries were hardest hit as the high prices of prescription drugs made headlines, resulting in pricing pressure and political scrutiny for the industries. The energy sector also produced negative overall returns for the reporting period as oil and gas prices declined by approximately 24% and 38%, respectively. Similarly, declining commodity prices and weak economic growth weighed on the industrials and materials sectors. ALLOCATION BY SECTOR As of 3/31/16 Percentage of Sector Total Investments* Information Technology 28.12% Consumer Discretionary Health Care Industrials Consumer Staples Financials 5.81 Materials 3.57 Telecommunication Services 2.28 Energy 0.54 Utilities 0.06 TOTAL % TEN LARGEST FUND HOLDINGS As of 3/31/16 Percentage of Security Total Investments* Apple Inc. 5.55% Microsoft Corp Facebook Inc. Class A 2.18 Amazon.com Inc Alphabet Inc. Class A 1.94 Alphabet Inc. Class C 1.94 Verizon Communications Inc Coca-Cola Co. (The) 1.61 Home Depot Inc. (The) 1.53 Walt Disney Co. (The) 1.49 TOTAL 22.29% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 7

8 Management s Discussion of Fund Performance ishares CORE U.S. VALUE ETF Performance as of March 31, 2016 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year (2.05)% (2.04)% (2.05)% (2.05)% (2.04)% (2.05)% 5 Years 9.77% 9.78% 9.95% 59.41% 59.45% 60.71% 10 Years 5.44% 5.44% 5.60% 69.83% 69.91% 72.51% GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $20,000 $18,000 $16,000 $17,251 $16,983 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 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 20 for more information. Beginning Account Value (10/1/15) Actual Ending Account Value (3/31/16) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (10/1/15) Hypothetical 5% Return Ending Account Value (3/31/16) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 0.36 $ 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 (183 days) and divided by the number of days in the year (366 days). See Shareholder Expenses on page 20 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

9 Management s Discussion of Fund Performance (Continued) ishares CORE U.S. VALUE ETF The Core U.S. Value ETF (the Fund ) seeks to track the investment results of a broad-based index composed of U.S. equities that exhibit value characteristics, as represented by the Russell 3000 Value 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. For the 12-month reporting period ended March 31, 2016, the total return for the Fund was -2.05%, net of fees, while the total return for the Index was -2.05%. As represented by the Index, U.S. value stocks declined modestly for the reporting period. Half of the sectors in the Index declined for the reporting period, including two of the Index s largest sectors. The energy sector detracted substantially from the Index s return as oil and gas prices fell by approximately 24% and 38%, respectively. Energy markets continued to face slowing demand and oversupply, forcing U.S. energy companies to downsize through capital spending cuts and layoffs. The financials sector, the largest sector weighting in the Index, was another significant detractor from the Index s return for the reporting period. Banks continued to struggle with low net interest margins, while heightened market volatility and declining assets weighed on the performance of diversified financial services stocks. The consumer discretionary sector also detracted from the Index s return for the reporting period as retail sales remained sluggish despite strong job growth, low interest rates, and declining energy prices. At the other end of the spectrum, the telecommunication services and utilities sectors, which tend to be more stable and less economically sensitive, were among the most significant positive contributors to the Index s return during the reporting period. Both sectors offered relatively high dividend yields and steady revenues. Information technology stocks were also meaningful contributors to Index performance for the reporting period. Robust growth in smartphone usage, cloud computing, and online security helped fuel the positive returns in the information technology sector. ALLOCATION BY SECTOR As of 3/31/16 Percentage of Sector Total Investments* Financials 29.30% Energy Information Technology Health Care Industrials Utilities 7.14 Consumer Staples 7.08 Consumer Discretionary 5.65 Materials 2.89 Telecommunication Services 2.70 TOTAL % TEN LARGEST FUND HOLDINGS As of 3/31/16 Percentage of Security Total Investments* Exxon Mobil Corp. 3.27% General Electric Co Johnson & Johnson 2.45 Berkshire Hathaway Inc. Class B 2.31 Wells Fargo & Co Procter & Gamble Co. (The) 2.09 JPMorgan Chase & Co AT&T Inc Microsoft Corp Pfizer Inc TOTAL 22.51% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 9

10 Management s Discussion of Fund Performance ishares MICRO-CAP ETF Performance as of March 31, 2016 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year (12.98)% (12.96)% (13.05)% (12.98)% (12.96)% (13.05)% 5 Years 6.50% 6.53% 6.61% 37.00% 37.18% 37.70% 10 Years 2.67% 2.68% 3.09% 30.17% 30.22% 35.58% GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $18,000 $16,000 $14,000 $12,000 $13,558 $13,017 $10,000 $8,000 $6,000 $4,000 $2,000 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Fund Index Index performance through July 1, 2006 reflects the performance of the Russell Microcap X TM Index. Index performance beginning on July 2, 2006 reflects the performance of the Russell Microcap 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 20 for more information. Beginning Account Value (10/1/15) Actual Ending Account Value (3/31/16) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (10/1/15) Hypothetical 5% Return Ending Account Value (3/31/16) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ $ 2.97 $ 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 (183 days) and divided by the number of days in the year (366 days). See Shareholder Expenses on page 20 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

11 Management s Discussion of Fund Performance (Continued) ishares MICRO-CAP ETF The Micro-Cap ETF (the Fund ) seeks to track the investment results of an index composed of micro-capitalization U.S. equities, as represented by the Russell Microcap 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. For the 12-month reporting period ended March 31, 2016, the total return for the Fund was %, net of fees, while the total return for the Index was %. As represented by the Index, micro-capitalization U.S. stocks declined for the reporting period. Based on the Russell indexes, micro-capitalization stocks underperformed all other capitalization segments of the U.S. stock market for the reporting period. Eight of the ten sectors in the Index declined for the reporting period. The healthcare sector had the most significant negative impact on Index performance, reflecting profit taking amid relatively high valuations. The biotechnology and pharmaceuticals industries were hardest hit as the high prices of prescription drugs made headlines, resulting in pricing pressure and political scrutiny for the industries. The healthcare sector accounted for approximately one third of the Index s negative performance for the reporting period. The energy and industrials sectors were also meaningful detractors from Index performance. The energy sector continued to struggle with sharp declines in oil and gas prices as slowing demand and oversupply forced U.S. energy companies to downsize through capital spending cuts and layoffs. Industrials stocks fell as slowing global economic growth and a stronger U.S. dollar reduced demand for manufactured goods. Another noteworthy detractor from Index performance was the consumer discretionary sector. Retail sales remained sluggish despite strong job growth, low interest rates, and declining energy prices, putting downward pressure on many consumer discretionary stocks. The only two sectors in the Index with positive returns were telecommunication services and utilities. Both sectors tend to be less economically sensitive while offering relatively high dividend yields and steady revenues. In addition, telecommunication services stocks benefited from recent updates to their network technology, while utilities stocks achieved greater energy efficiency. ALLOCATION BY SECTOR As of 3/31/16 Percentage of Sector Total Investments* Financials 30.37% Health Care Information Technology Consumer Discretionary Industrials Energy 3.28 Materials 2.62 Consumer Staples 2.39 Telecommunication Services 2.22 Utilities 1.52 TOTAL % TEN LARGEST FUND HOLDINGS As of 3/31/16 Percentage of Security Total Investments* Smith & Wesson Holding Corp. 0.44% Inphi Corp Renasant Corp Shenandoah Telecommunications Co Comfort Systems USA Inc Affymetrix Inc Neenah Paper Inc Yadkin Financial Corp ServisFirst Bancshares Inc MaxLinear Inc. Class A 0.31 TOTAL 3.62% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 11

12 Management s Discussion of Fund Performance ishares RUSSELL 3000 ETF Performance as of March 31, 2016 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year (0.47)% (0.47)% (0.34)% (0.47)% (0.47)% (0.34)% 5 Years 10.82% 10.83% 11.01% 67.18% 67.20% 68.60% 10 Years 6.76% 6.75% 6.90% 92.29% 92.22% 94.94% GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $22,000 $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 $19,494 $19,229 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 20 for more information. Beginning Account Value (10/1/15) Actual Ending Account Value (3/31/16) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (10/1/15) Hypothetical 5% Return Ending Account Value (3/31/16) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 1.04 $ 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 (183 days) and divided by the number of days in the year (366 days). See Shareholder Expenses on page 20 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

13 Management s Discussion of Fund Performance (Continued) ishares RUSSELL 3000 ETF The Russell 3000 ETF (the Fund ) seeks to track the investment results of a broad-based index composed of U.S. equities, as represented by the Russell 3000 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. For the 12-month reporting period ended March 31, 2016, the total return for the Fund was -0.47%, net of fees, while the total return for the Index was -0.34%. As represented by the Index, the broad U.S. stock market posted a fractionally negative return for the reporting period. Just four of the ten sectors in the Index declined for the reporting period, but they included two relatively large sectors in the Index healthcare and financials. The biotechnology and pharmaceuticals industries dragged the healthcare sector lower as the high prices of prescription drugs made headlines, resulting in pricing pressure and political scrutiny for the industries. In the financials sector, banks continued to struggle with low net interest margins, while heightened market volatility and declining assets weighed on the performance of diversified financial services stocks. The most significant detractor from Index performance, however, was the energy sector, which tumbled as oil and gas prices declined by approximately 24% and 38%, respectively. Energy markets continued to struggle with slowing demand and oversupply, forcing U.S. energy companies to downsize through capital spending cuts and layoffs. On the positive side, the information technology sector, the largest sector weighting in the Index, contributed the most to Index performance. Robust growth in smartphone usage, cloud computing, and online security helped fuel the positive returns in the information technology sector. Several of the less economically sensitive sectors of the Index including consumer staples, telecommunication services, and utilities also contributed positively to the Index s return for the reporting period. Economic uncertainty drove up stock prices in these sectors, as investors gravitated toward sectors with relatively stable revenues. ALLOCATION BY SECTOR As of 3/31/16 Percentage of Sector Total Investments* Information Technology 20.06% Financials Health Care Consumer Discretionary Industrials Consumer Staples 9.20 Energy 6.16 Utilities 3.50 Materials 3.24 Telecommunication Services 2.49 TOTAL % TEN LARGEST FUND HOLDINGS As of 3/31/16 Percentage of Security Total Investments* Apple Inc. 2.85% Microsoft Corp Exxon Mobil Corp Johnson & Johnson 1.36 General Electric Co Berkshire Hathaway Inc. Class B 1.20 Facebook Inc. Class A 1.12 AT&T Inc Amazon.com Inc Wells Fargo & Co TOTAL 14.64% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 13

14 Management s Discussion of Fund Performance ishares RUSSELL MID-CAP ETF Performance as of March 31, 2016 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year (4.18)% (4.22)% (4.04)% (4.18)% (4.22)% (4.04)% 5 Years 10.14% 10.14% 10.30% 62.07% 62.08% 63.28% 10 Years 7.30% 7.29% 7.45% % % % GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $22,000 $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 $20,509 $20,221 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 20 for more information. Beginning Account Value (10/1/15) Actual Ending Account Value (3/31/16) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (10/1/15) Hypothetical 5% Return Ending Account Value (3/31/16) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 1.03 $ 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 (183 days) and divided by the number of days in the year (366 days). See Shareholder Expenses on page 20 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

15 Management s Discussion of Fund Performance (Continued) ishares RUSSELL MID-CAP ETF The Russell Mid-Cap ETF (the Fund ) seeks to track the investment results of an index composed of mid-capitalization U.S. equities, as represented by the Russell Midcap 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. For the 12-month reporting period ended March 31, 2016, the total return for the Fund was -4.18%, net of fees, while the total return for the Index was -4.04%. As represented by the Index, mid-capitalization U.S. stocks declined for the reporting period. Based on the Russell indexes, midcapitalization stocks underperformed large-capitalization stocks but outpaced the small-capitalization segment of the U.S. equity market for the reporting period. Eight of the ten sectors in the Index declined for the reporting period. The energy sector detracted the most from Index performance as oil and gas prices declined by 24% and 38%, respectively. Energy markets continued to struggle with slowing demand and oversupply, forcing U.S. energy companies to downsize through capital spending cuts and layoffs. The healthcare and consumer discretionary sectors were also meaningful detractors from Index performance. In the healthcare sector, the biotechnology and pharmaceuticals industries were hardest hit as the high prices of prescription drugs made headlines, resulting in pricing pressure and political scrutiny for the industries. Meanwhile, retail sales remained sluggish despite strong job growth, low interest rates, and declining energy prices, putting downward pressure on the consumer discretionary sector. Another noteworthy detractor from Index performance was the information technology sector, which fell amid weakness in midsized Internet software and services companies. The only two sectors in the Index with positive returns were utilities and consumer staples, both of which tend to be more stable and less economically sensitive. The utilities sector s relatively high dividend yields and steady revenues were attractive to investors amid the uncertain economic outlook. In the consumer staples sector, the food, beverage, and tobacco industry generated solid performance, as investors gravitated toward the industry s relatively stable revenues. ALLOCATION BY SECTOR As of 3/31/16 Percentage of Sector Total Investments* Financials 22.67% Consumer Discretionary Information Technology Industrials Health Care 9.04 Utilities 6.77 Consumer Staples 6.34 Materials 5.62 Energy 4.67 Telecommunication Services 1.04 TOTAL % TEN LARGEST FUND HOLDINGS As of 3/31/16 Percentage of Security Total Investments* Southwest Airlines Co. 0.50% Aon PLC 0.49 Crown Castle International Corp Sysco Corp O Reilly Automotive Inc Intercontinental Exchange Inc McGraw Hill Financial Inc Intuit Inc Sempra Energy 0.43 PPL Corp TOTAL 4.60% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 15

16 Management s Discussion of Fund Performance ishares RUSSELL MID-CAP GROWTH ETF Performance as of March 31, 2016 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year (4.91)% (4.95)% (4.75)% (4.91)% (4.95)% (4.75)% 5 Years 9.79% 9.78% 9.99% 59.51% 59.47% 61.01% 10 Years 7.22% 7.22% 7.43% % % % GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $24,000 $22,000 $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 $20,482 $20,085 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 20 for more information. Beginning Account Value (10/1/15) Actual Ending Account Value (3/31/16) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (10/1/15) Hypothetical 5% Return Ending Account Value (3/31/16) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 1.28 $ 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 (183 days) and divided by the number of days in the year (366 days). See Shareholder Expenses on page 20 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

17 Management s Discussion of Fund Performance (Continued) ishares RUSSELL MID-CAP GROWTH ETF The Russell Mid-Cap Growth ETF (the Fund ) seeks to track the investment results of an index composed of midcapitalization U.S. equities that exhibit growth characteristics, as represented by the Russell Midcap Growth 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. For the 12-month reporting period ended March 31, 2016, the total return for the Fund was -4.91%, net of fees, while the total return for the Index was -4.75%. As represented by the Index, mid-capitalization U.S. growth stocks declined for the reporting period. Based on the Russell indexes, mid-capitalization stocks underperformed large-capitalization stocks but outpaced the small-capitalization segment of the U.S. equity market for the reporting period. Within the Russell Midcap Index, growth stocks underperformed value stocks. Nine of the ten sectors in the Index declined for the reporting period. The healthcare sector had the most significant negative impact on Index performance, reflecting profit taking amid relatively high valuations. The biotechnology and pharmaceuticals industries were hardest hit as the high prices of prescription drugs made headlines, resulting in pricing pressure and political scrutiny for the industries. The information technology and consumer discretionary sectors were also meaningful detractors from Index performance. Internet software and services companies detracted the most in the information technology sector as investors grew concerned about slowing user growth and its impact on profitability. In the consumer discretionary sector, consumer durables manufacturers and consumer services providers led the decline. Falling commodity prices put downward pressure on the energy and materials sectors of the Index. An economic slowdown in China the world s largest consumer of commodities dampened demand for energy and other commodities, resulting in lower prices. The only sector in the Index to post a positive return for the reporting period was the consumer staples sector, which tends to be relatively stable and less economically sensitive. Economic uncertainty drove up stock prices in the food, beverage, and tobacco industry, as investors gravitated toward the industry s relatively stable revenues. ALLOCATION BY SECTOR As of 3/31/16 Percentage of Sector Total Investments* Consumer Discretionary 25.12% Information Technology Industrials Health Care Financials Consumer Staples 8.32 Materials 5.11 Energy 0.85 Telecommunication Services 0.38 Utilities 0.11 TOTAL % TEN LARGEST FUND HOLDINGS As of 3/31/16 Percentage of Security Total Investments* Southwest Airlines Co. 1.01% Aon PLC 1.00 Crown Castle International Corp O Reilly Automotive Inc McGraw Hill Financial Inc Intuit Inc AutoZone Inc Constellation Brands Inc. Class A 0.84 Dollar General Corp Ross Stores Inc TOTAL 9.07% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 17

18 Management s Discussion of Fund Performance ishares RUSSELL MID-CAP VALUE ETF Performance as of March 31, 2016 Average Annual Total Returns Cumulative Total Returns NAV MARKET INDEX NAV MARKET INDEX 1 Year (3.56)% (3.58)% (3.39)% (3.56)% (3.58)% (3.39)% 5 Years 10.29% 10.29% 10.52% 63.20% 63.16% 64.86% 10 Years 7.06% 7.05% 7.23% 97.75% 97.68% % GROWTH OF $10,000 INVESTMENT (AT NET ASSET VALUE) $22,000 $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 $20,098 $19,775 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 20 for more information. Beginning Account Value (10/1/15) Actual Ending Account Value (3/31/16) Expenses Paid During Period a Shareholder Expenses Beginning Account Value (10/1/15) Hypothetical 5% Return Ending Account Value (3/31/16) Expenses Paid During Period a Annualized Expense Ratio $ 1, $ 1, $ 1.29 $ 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 (183 days) and divided by the number of days in the year (366 days). See Shareholder Expenses on page 20 for more information ishares A NNUAL R EPORT TO S HAREHOLDERS

19 Management s Discussion of Fund Performance (Continued) ishares RUSSELL MID-CAP VALUE ETF The Russell Mid-Cap Value ETF (the Fund ) seeks to track the investment results of an index composed of midcapitalization U.S. equities that exhibit value characteristics, as represented by the Russell Midcap Value 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. For the 12-month reporting period ended March 31, 2016, the total return for the Fund was -3.56%, net of fees, while the total return for the Index was -3.39%. As represented by the Index, mid-capitalization U.S. value stocks declined for the reporting period. Based on the Russell indexes, mid-capitalization stocks underperformed large-capitalization stocks but outpaced the small-capitalization segment of the U.S. equity market for the reporting period. Within the Russell Midcap Index, value stocks outperformed growth stocks. Seven of the ten sectors in the Index declined for the reporting period. The energy sector detracted the most from Index performance as oil and gas prices declined by 24% and 38%, respectively. Energy markets continued to struggle with slowing demand and oversupply, forcing U.S. energy companies to downsize through capital spending cuts and layoffs. The financials and consumer discretionary sectors were also meaningful detractors from Index performance. In the financials sector, banks continued to struggle with low net interest margins, while heightened market volatility and declining assets weighed on the performance of diversified financial services stocks. Meanwhile, retail sales remained sluggish despite strong job growth, low interest rates, and declining energy prices, putting downward pressure on specialty and multiline retailers in the consumer discretionary sector. The three sectors in the Index with positive returns were utilities, consumer staples, and information technology. The utilities and consumer staples sectors tend to be more stable and less economically sensitive, which were attractive characteristics in an environment of economic uncertainty. Utilities stocks also benefited from their relatively high dividend yields. Strong results among semiconductor manufacturers paced the advance in the information technology sector. ALLOCATION BY SECTOR As of 3/31/16 Percentage of Sector Total Investments* Financials 32.87% Utilities Industrials 9.71 Information Technology 9.51 Energy 8.43 Consumer Discretionary 8.36 Materials 6.13 Health Care 5.64 Consumer Staples 4.43 Telecommunication Services 1.69 TOTAL % TEN LARGEST FUND HOLDINGS As of 3/31/16 Percentage of Security Total Investments* Sempra Energy 0.85% PPL Corp AvalonBay Communities Inc Synchrony Financial 0.79 Public Service Enterprise Group Inc Edison International 0.77 Boston Scientific Corp Prologis Inc Pioneer Natural Resources Co Consolidated Edison Inc TOTAL 7.89% * Excludes money market funds. M ANAGEMENT S D ISCUSSIONS OF F UND P ERFORMANCE 19

20 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 October 1, 2015 and held through March 31, 2016, 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

21 Summary Schedule of Investments ishares CORE U.S. GROWTH ETF March 31, 2016 COMMON STOCKS AEROSPACE & DEFENSE Boeing Co. (The) 49,918 $ 6,336, % Honeywell International Inc. 59,900 6,711, Other securities a 9,805, ,854, AIR FREIGHT & LOGISTICS United Parcel Service Inc. Class B 53,760 5,670, Other securities a 3,197, ,868, AIRLINES Other securities a 10,691, ,691, AUTO COMPONENTS Other securities a 4,581, ,581, AUTOMOBILES Other securities a 2,389, ,389, BANKS Other securities a 1,498, ,498, BEVERAGES Coca-Cola Co. (The) 300,443 13,937, PepsiCo Inc. 113,096 11,590, Other securities a 6,916, ,443, BIOTECHNOLOGY AbbVie Inc. 126,837 7,244, Amgen Inc. 58,259 8,734, Biogen Inc. b 17,083 4,447, Celgene Corp. b 60,778 6,083, Gilead Sciences Inc. 104,744 9,621, Other securities a 17,218, ,350, BUILDING PRODUCTS Other securities a 3,546, ,546, CAPITAL MARKETS BlackRock Inc. c 3,073 1,046, Other securities a $ 8,819, % 9,866, CHEMICALS Other securities a 24,446, ,446, COMMERCIAL SERVICES & SUPPLIES Other securities a 5,326, ,326, COMMUNICATIONS EQUIPMENT Other securities a 4,385, ,385, CONSTRUCTION & ENGINEERING Other securities a 455, , CONSTRUCTION MATERIALS Other securities a 744, , CONSUMER FINANCE Other securities a 1,378, ,378, CONTAINERS & PACKAGING Other securities a 4,702, ,702, DISTRIBUTORS Other securities a 2,197, ,197, DIVERSIFIED CONSUMER SERVICES Other securities a 1,850, ,850, DIVERSIFIED FINANCIAL SERVICES Other securities a 7,494, ,494, DIVERSIFIED TELECOMMUNICATION SERVICES Verizon Communications Inc. 289,988 15,682, Other securities a 4,008, ,691, ELECTRIC UTILITIES Other securities a 202, , S UMMARY S CHEDULES OF I NVESTMENTS 21

22 Summary Schedule of Investments (Continued) ishares CORE U.S. GROWTH ETF March 31, 2016 ELECTRICAL EQUIPMENT Other securities a $ 5,577, % 5,577, ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS Other securities a 4,843, ,843, ENERGY EQUIPMENT & SERVICES Other securities a 1,374, ,374, FOOD & STAPLES RETAILING Costco Wholesale Corp. 33,716 5,312, CVS Health Corp. 80,146 8,313, Other securities a 6,566, ,193, FOOD PRODUCTS Kraft Heinz Co. (The) 45,366 3,563, Other securities a 11,109, ,673, HEALTH CARE EQUIPMENT & SUPPLIES Other securities a 18,656, ,656, HEALTH CARE PROVIDERS & SERVICES UnitedHealth Group Inc. 69,292 8,931, Other securities a 21,507, ,439, HEALTH CARE TECHNOLOGY Other securities a 2,681, ,681, HOTELS, RESTAURANTS & LEISURE McDonald s Corp. 67,684 8,506, Starbucks Corp. 114,978 6,864, Other securities a 16,102, ,473, HOUSEHOLD DURABLES Other securities a 5,496, ,496, HOUSEHOLD PRODUCTS Colgate-Palmolive Co. 60,795 4,295, Other securities a 5,287, ,582, INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS Other securities a $ 102, % 102, INDUSTRIAL CONGLOMERATES 3M Co. 48,606 8,099, Other securities a 1,496, ,595, INSURANCE Other securities a 4,541, ,541, INTERNET & CATALOG RETAIL Amazon.com Inc. b 29,205 17,337, Netflix Inc. b,d 32,524 3,324, Priceline Group Inc. (The) b 3,973 5,121, Other securities a 2,877, ,660, INTERNET SOFTWARE & SERVICES Alphabet Inc. Class A b 22,087 16,850, Alphabet Inc. Class C b 22,538 16,789, Facebook Inc. Class A b 165,802 18,918, Other securities a 9,163, ,721, IT SERVICES Accenture PLC Class A 48,135 5,554, International Business Machines Corp. 38,619 5,848, MasterCard Inc. Class A 76,600 7,238, PayPal Holdings Inc. b 93,104 3,593, Visa Inc. Class A d 149,980 11,470, Other securities a 19,694, ,401, LEISURE PRODUCTS Other securities a 1,625, ,625, LIFE SCIENCES TOOLS & SERVICES Other securities a 6,587, ,587, MACHINERY Other securities a 13,200, ,200, ishares A NNUAL R EPORT TO S HAREHOLDERS

23 Summary Schedule of Investments (Continued) ishares CORE U.S. GROWTH ETF March 31, 2016 MARINE Other securities a $ 120, % 120, MEDIA Comcast Corp. Class A 173,256 10,582, Time Warner Cable Inc. 21,664 4,432, Walt Disney Co. (The) 130,006 12,910, Other securities a 16,166, ,093, METALS & MINING Other securities a 516, , MULTI-UTILITIES Other securities a 171, , MULTILINE RETAIL Other securities a 5,195, ,195, OIL, GAS & CONSUMABLE FUELS Other securities a 3,336, ,336, PAPER & FOREST PRODUCTS Other securities a 486, , PERSONAL PRODUCTS Other securities a 2,144, ,144, PHARMACEUTICALS Allergan PLC b 13,595 3,643, Bristol-Myers Squibb Co. 127,731 8,159, Eli Lilly & Co. 74,982 5,399, Other securities a 10,432, ,635, PROFESSIONAL SERVICES Other securities a 5,301, ,301, REAL ESTATE INVESTMENT TRUSTS (REITS) American Tower Corp. 32,427 3,319, Simon Property Group Inc. 23,854 4,954, Other securities a 15,637, ,911, REAL ESTATE MANAGEMENT & DEVELOPMENT Other securities a $ 1,279, % 1,279, ROAD & RAIL Union Pacific Corp. 67,097 5,337, Other securities a 2,876, ,214, SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Texas Instruments Inc. 79,727 4,577, Other securities a 15,863, ,441, SOFTWARE Adobe Systems Inc. b 38,341 3,596, Microsoft Corp. 351,427 19,409, Oracle Corp. 145,676 5,959, salesforce.com inc. b 50,275 3,711, Other securities a 16,871, ,548, SPECIALTY RETAIL Home Depot Inc. (The) 99,527 13,279, Lowe s Companies Inc. 72,929 5,524, TJX Companies Inc. (The) 52,142 4,085, Other securities a 18,508, ,398, TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS Apple Inc. 441,376 48,105, Other securities a 1,189, ,294, TEXTILES, APPAREL & LUXURY GOODS NIKE Inc. Class B 103,915 6,387, Other securities a 7,256, ,644, THRIFTS & MORTGAGE FINANCE Other securities a 385, , TOBACCO Altria Group Inc. 141,794 8,884, Philip Morris International Inc. 59,117 5,799, Other securities a 3,331, ,015, S UMMARY S CHEDULES OF I NVESTMENTS 23

24 Summary Schedule of Investments (Continued) ishares CORE U.S. GROWTH ETF March 31, 2016 TRADING COMPANIES & DISTRIBUTORS Other securities a $ 3,680, % 3,680, WATER UTILITIES Other securities a 12,523 12,523 WIRELESS TELECOMMUNICATION SERVICES Other securities a 94, , TOTAL COMMON STOCKS (Cost: $891,393,778) 866,314, RIGHTS TEXTILES, APPAREL & LUXURY GOODS Other securities a TOTAL RIGHTS (Cost: $0) 446 WARRANTS OIL, GAS & CONSUMABLE FUELS Other securities a TOTAL WARRANTS (Cost: $0) SHORT-TERM INVESTMENTS MONEY MARKET FUNDS BlackRock Cash Funds: Institutional, SL Agency Shares 0.50% c,e,f 37,701,739 $ 37,701, % BlackRock Cash Funds: Prime, SL Agency Shares 0.51% c,e,f 1,914,998 1,914, BlackRock Cash Funds: Treasury, SL Agency Shares 0.28% c,e 849, , ,466, TOTAL SHORT-TERM INVESTMENTS (Cost: $40,466,386) 40,466, TOTAL INVESTMENTS IN SECURITIES (Cost: $931,860,164) 906,781, Other, Less Liabilities (39,498,636) (4.55) NET ASSETS $867,283, % a Other securities are those securities, which individually, are not one of the 50 largest unaffiliated issuers and which represent less than one percent of the net assets of the Fund as of March 31, Other securities may include securities on loan and non-income earning securities. b Non-income earning security. c Affiliated issuer. See Note 2. d All or a portion of this security represents a security on loan. See Note 1. e The rate quoted is the annualized seven-day yield of the fund at period end. f All or a portion of this security represents an investment of securities lending collateral. See Note 1. Open futures contracts as of March 31, 2016 were as follows: Issue Number of Contracts Purchased (Sold) Expiration Exchange Notional Value Unrealized Appreciation (Depreciation) Russell 2000 Mini 2 Jun ICE Markets Equity $221,920 $ 8,234 S&P 500 E-Mini 6 Jun Chicago Mercantile 615,450 21,539 Net unrealized appreciation $29,773 See notes to financial statements ishares A NNUAL R EPORT TO S HAREHOLDERS