Print

Print View

Table of Contents

MARCH 31, 2014

2014 ANNUAL REPORT

iShares Trust

Table of Contents

Table of Contents

Table of Contents

Management’s Discussion of Fund Performance

iSHARES^® TRUST

U.S. MUNICIPAL BOND MARKET OVERVIEW

Short- and intermediate-term municipal bonds posted a modest positive return during the 12-month period ended March 31, 2014 (the “reporting period”). Early in the reporting period, the combination of slow economic growth and uncertainty about the U.S. Federal Reserve Bank’s (the “Fed’s”) monetary policy contributed to substantial volatility. Clarification of the Fed’s monetary support led to a sustained rally in municipal bonds. In the last month of the reporting period, rising interest rates pressured municipal bonds and the broader bond market.

The U.S. economy grew at a modest 2.5% annual rate during the first quarter of the reporting period, rebounding from very slow growth in the prior six months. In May 2013, the Fed responded to the improving growth by announcing that it was considering slowing the pace of bond purchases, a key element of its stimulus program. The announcement caused strong volatility through global markets, as investors sold higher-risk investments, as well as lower-risk U.S. Treasury bonds, leading to a sharp rise in interest rates. In July and September 2013, the Fed clarified its intention to maintain its policy of monthly purchases of $85 billion in U.S. Treasury and mortgage bonds. The municipal bond market rebounded in early 2014, as investors were reassured by the Fed’s continued economic stimulus and better economic growth.

The performance drivers for U.S municipal bonds continued to be improving fiscal landscapes in many states, reduced supply of new bond issuance, and rising interest rates. On average, state budgets improved, as tax revenues benefited from the improving labor and housing markets, as well as the refinancing of existing debt in recent years. Nationwide, defaults declined during the reporting period despite headlines about the city of Detroit’s default and concerns regarding Puerto Rico’s credit conditions. On the supply side, new bond issuance also declined. Debt refinancing over the last several years and budget cuts helped many states rely less on the bond market for financing. New issuances increased somewhat in the first quarter of 2014, partially driven by a large Puerto Rican municipal bond sale. On the demand side, municipal bond mutual funds continued to experience persistent outflows during 2013, as investors sold $64 billion in municipal bonds during 2013, according to Lipper, Inc. These outflows reversed course during the first quarter of 2014, as investors became net buyers of municipal bonds. For the reporting period, the supply and demand dynamics weighed on the municipal bond market despite improving credit conditions.

Table of Contents

Management’s Discussion of Fund Performance

iSHARES^® 2014 AMT-FREE MUNI TERM ETF

Performance as of March 31, 2014

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 1/7/10. The first day of secondary market trading was 1/8/10.

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 17 for more information.

Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES^® 2014 AMT-FREE MUNI TERM ETF

The iShares 2014 AMT-Free Muni Term ETF (the “Fund”) seeks to track the investment results of an index composed of investment-grade U.S. municipal bonds maturing after May 31 and before September 1, 2014, as represented by the S&P AMT-Free Municipal Series 2014 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 March 31, 2014, the total return for the Fund was 0.06%, net of fees, while the total return for the Index was 0.30%.

The Fund will be liquidating on or about August 31, 2014, following the termination of the Index, on or about the same date. All bonds in the Index will mature between June 1 and August 31 of this year. As each bond matures, an amount representing its value at maturity will be included in the Index throughout the remaining life of the Index. By August 31, 2014, the Index is expected to consist entirely of cash carried in this manner.

Table of Contents

Management’s Discussion of Fund Performance

iSHARES^® 2015 AMT-FREE MUNI TERM ETF

Performance as of March 31, 2014

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 1/7/10. The first day of secondary market trading was 1/8/10.

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 17 for more information.

Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES^® 2015 AMT-FREE MUNI TERM ETF

The iShares 2015 AMT-Free Muni Term ETF (the “Fund”) seeks to track the investment results of an index composed of investment-grade U.S. municipal bonds maturing after May 31 and before September 1, 2015, as represented by the S&P AMT-Free Municipal Series 2015 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 March 31, 2014, the total return for the Fund was 0.56%, net of fees, while the total return for the Index was 0.63%.

Table of Contents

Management’s Discussion of Fund Performance

iSHARES^® 2016 AMT-FREE MUNI TERM ETF

Performance as of March 31, 2014

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 1/7/10. The first day of secondary market trading was 1/8/10.

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 17 for more information.

Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES^® 2016 AMT-FREE MUNI TERM ETF

The iShares 2016 AMT-Free Muni Term ETF (the “Fund”) seeks to track the investment results of an index composed of investment-grade U.S. municipal bonds maturing after May 31 and before September 1, 2016, as represented by the S&P AMT-Free Municipal Series 2016 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 March 31, 2014, the total return for the Fund was 0.71%, net of fees, while the total return for the Index was 0.71%.

Table of Contents

Management’s Discussion of Fund Performance

iSHARES^® 2017 AMT-FREE MUNI TERM ETF

Performance as of March 31, 2014

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 1/7/10. The first day of secondary market trading was 1/8/10.

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 17 for more information.

Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES^® 2017 AMT-FREE MUNI TERM ETF

The iShares 2017 AMT-Free Muni Term ETF (the “Fund”) seeks to track the investment results of an index composed of investment-grade U.S. municipal bonds maturing after May 31 and before September 1, 2017, as represented by the S&P AMT-Free Municipal Series 2017 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 March 31, 2014, the total return for the Fund was 0.31%, net of fees, while the total return for the Index was 0.43%.

Table of Contents

Management’s Discussion of Fund Performance

iSHARES^® 2018 AMT-FREE MUNI TERM ETF

Performance as of March 31, 2014

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 3/19/13. The first day of secondary market trading was 3/21/13.

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 17 for more information.

Table of Contents

Management’s Discussion of Fund Performance (Continued)

iSHARES^® 2018 AMT-FREE MUNI TERM ETF

The iShares 2018 AMT-Free Muni Term ETF (the “Fund”) seeks to track the investment results of an index composed of investment-grade U.S. municipal bonds maturing after May 31 and before September 1, 2018, as represented by the S&P AMT-Free Municipal Series 2018 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 March 31, 2014, the total return for the Fund was 1.44%, net of fees, while the total return for the Index was 0.21%.

Table of Contents

Management’s Discussion of Fund Performance

iSHARES^® 2019 AMT-FREE MUNI TERM ETF

Performance as of March 31, 2014

The inception date of the Fund was 2/4/14. The first day of secondary market trading was 2/6/14.

For the fiscal period ended 3/31/2014, the Fund did not have six months of performance and therefore line graphs are not presented.

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 17 for more information.

The iShares 2019 AMT-Free Muni Term ETF (the “Fund”) seeks to track the investment results of an index composed of investment-grade U.S. municipal bonds maturing after May 31 and before September 1, 2019, as represented by the S&P AMT-Free Municipal Series 2019 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 period from February 4, 2014 (inception date of the Fund) through March 31, 2014, the total return for the Fund was -0.05%, net of fees, while the total return for the Index was -0.33%.

Table of Contents

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 www.iShares.com. 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 management fees. Without such 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. Since shares of a fund may not have traded in the secondary market until after the fund’s inception, for the period from inception to the first day of secondary trading, the NAV of the fund is used as a proxy for the Market Price to calculate market returns. 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, 2013 (or commencement of operations, as applicable) and held through March 31, 2014, 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. 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 for 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.

Table of Contents

Schedule of Investments

iSHARES^® 2014 AMT-FREE MUNI TERM ETF

March 31, 2014

Table of Contents

Schedule of Investments (Continued)

iSHARES^® 2014 AMT-FREE MUNI TERM ETF

March 31, 2014