iShares Trust

Table of Contents

Market Overview

iShares Trust

U.S. Bond Market Overview

The U.S. bond market declined slightly for the 12 months ended October 31, 2021 (“reporting period”). The Bloomberg U.S. Aggregate Bond Index, a broad measure of U.S. fixed-income performance, returned -0.48%.

The U.S. economy continued to recover from the effects of the coronavirus pandemic, growing at a brisk pace during the reporting period. Driven by strong consumer spending and significant fiscal and monetary stimulus, U.S. growth outpaced most other developed economies. An ongoing COVID-19 vaccination program helped accelerate the easing of pandemic-related restrictions, and consumers returned to activities that were previously curtailed, such as travel, restaurant dining, and in-person shopping. Spending on goods also remained elevated, leading imports to rise to an all-time high.

However, this robust consumer demand combined with continued pandemic-related disruptions to the global supply chain led to significantly higher inflation. Similarly, in the labor market, the reopening economy and pent-up demand meant that hiring accelerated, and the unemployment rate fell substantially. Nonetheless, total employment remained notably below pre-pandemic levels and job openings reached a record high despite rising wages. Elevated demand drove an increase in industrial production, although rising commodities prices and supply delays constrained growth, particularly late in the reporting period. The emergence of the highly contagious Delta variant, which was responsible for a significant rise in cases beginning late in summer 2021, also weighed on the economy.

The U.S. Federal Reserve Bank (“Fed”) continued to keep short-term interest rates at near-zero levels and maintained a significant bond-buying program for U.S. Treasuries and mortgage-backed securities, although it discontinued its corporate bond purchasing program. The Fed indicated that it would begin slowing its bond buying activities late in 2021 and signaled that an interest rate increase could be possible in 2022. However, the improving employment environment and a sharp rise in inflation led investors to anticipate a more accelerated tightening of monetary policy. Trading activity showed that investors view multiple interest rate increases as probable in 2022.

U.S. Treasuries declined, as inflation increased, and investors moved toward equities and lower-rated bonds. Rising domestic inflation expectations pressured U.S. Treasuries, which typically lose value in an inflationary environment. U.S. Treasury yields (which move inversely to prices) began the reporting period near historic lows, but generally rose as inflation increased and the economy continued to strengthen. Yields of U.S. Treasuries with intermediate- and long-term maturities, which are more sensitive to inflation, generally increased more than short-term U.S. Treasuries. However, long-term U.S. Treasury yields rose less than intermediate-term U.S. Treasury yields, with two-year, 10-year, and 30-year U.S. Treasury yields rising by 0.34%, 0.67%, and 0.28%, respectively.

Mortgage-backed securities (“MBS”) declined slightly, despite ongoing support from Fed bond purchasing. MBS performance was constrained by prepayments, as homeowners took advantage of low mortgage rates to refinance their mortgages at a lower interest rate.

On the upside, most corporate bonds advanced for the reporting period, particularly lower-rated corporate bonds. A narrowing yield spread (the difference between yields on corporate bonds and U.S. Treasuries) buoyed the performance of corporate bonds compared to U.S. Treasuries. Investors’ ongoing search for yield in a low interest rate environment drove the decline in the yield spread and supported corporate bond prices. High-yield bonds gained the most, as investors’ concerns about solvency abated alongside the growing economy, and the Fed’s support led to high investor confidence. Corporate bond issuance was elevated by historical standards as companies took advantage of low yields to refinance and lock in advantageous borrowing costs.

Investment Objective

The iShares Aaa - A Rated Corporate Bond ETF (the “Fund”) seeks to track the investment results of an index composed of Aaa to A, or equivalently rated, fixed rate U.S. dollar-denominated bonds issued by U.S. and non-U.S. corporations, as represented by the Bloomberg U.S. Corporate Aaa - A Capped Index (the “Index”) (formerly the Bloomberg Barclays U.S. Corporate Aaa - A Capped 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.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 2/14/12. The first day of secondary market trading was 2/16/12.

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 13 for more information.

Expense Example

Portfolio Management Commentary

Corporate bonds rated Aaa to A advanced modestly during the reporting period. The post-coronavirus pandemic economic recovery drove corporate bond yields lower, narrowing the difference in yield between investment-grade debt and U.S. Treasuries. However, ongoing inflation concerns and the prospect of interest rate increases dampened this momentum.

Investment-grade bonds from energy companies, particularly major oil and gas companies, were the largest contributors to the Index’s performance. Ratings downgrades in the first quarter of 2021, amid Environmental, Social, and Governance concerns, did little to taper investor sentiment, as persistent supply-demand imbalances increased oil and gas prices throughout the reporting period. This led to strong corporate earnings in the second and third quarters of 2021, which supported bonds.

Bonds from financial companies made a notable contribution to the Index’s performance. Multiple top-rated banks completed their largest debt issuance on record, reflecting confidence in a broad economic recovery. Yields for these bonds remained slightly higher than those of the investment-grade debt of industrial companies, further driving investor demand.

On the downside, bonds from technology companies detracted from the Index’s return. A large new bond issuance from a top-rated technology company led to a ratings downgrade that negatively impacted the prices of its outstanding debt. Additionally, supply-chain shortages and slower growth in the third quarter of 2021 reduced investor confidence in the sector.

In terms of interest rate sensitivity, bonds with maturities of 10 years or longer contributed significantly to the Index’s performance. Investors continued favoring bonds with these longer maturities for their higher yields.

Looking at credit quality, A-rated bonds contributed the most to the Index’s performance. An increase in U.S Treasury yields had a negative impact on the highest-rated bonds, encouraging investors to seek out lower-rated debt.

Portfolio Information

Investment Objective

The iShares BB Rated Corporate Bond ETF (the “Fund”) seeks to track the investment results of an index composed of BB (or its equivalent) fixed rate U.S. dollar-denominated bonds issued by U.S. and non-U.S. corporate issuers, as represented by the ICE BofA BB US High Yield Constrained 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.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 10/6/20. The first day of secondary market trading was 10/8/20.

On 3/1/2021 the Fund began to track the 4pm pricing variant of the ICE BofA BB US High Yield Constrained Index. Historical index data prior to 3/1/2021 is for the 3pm pricing variant of the ICE BofA BB US High Yield Constrained Index. Index data on and after 3/1/2021 is for the 4pm pricing variant of the ICE BofA BB US High Yield Constrained 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 13 for more information.

Expense Example

Portfolio Management Commentary

Corporate Bonds rated BB or equivalent advanced robustly for the reporting period amid a strong global economic recovery and investor demand for higher-yield investments in a low interest rate environment. Corporate earnings recovered as economies reopened, shifting the ratio of debt to profits back to pre-pandemic levels, which drove investor optimism about credit quality. On the supply side, bond issuance rose sharply as companies capitalized on rising investor demand and low interest rates to refinance. Robust financing for mergers and acquisitions also bolstered supply.

Corporate bonds issued by U.S. companies, which comprised approximately 87% of the Index on average for the reporting period, led contributions to the Index’s return, despite increasing concerns regarding ongoing inflation. High-yield credit spreads (the difference in yield between high-yield bonds and U.S. Treasuries) declined during the reporting period, which generally supported high-yield bonds. While the Fed maintained interest rates at historically low levels, corporate bond yields declined to record lows due to solid corporate balance sheets combined with strong investor demand. Previous downgrading of companies’ credit quality led to investor expectations of subsequent upgrades, further contributing to the decline in yields.

U.S. dollar-denominated Canadian corporate bonds contributed modestly to the Index’s return, as oil prices doubled due to rising demand and supply constraints. U.K. bonds denominated in U.S. dollars also contributed amid strong demand for the products of high-yield issuers, including luxury cars and financial services.

From a bond quality perspective, bonds rated Ba, which represented approximately 80% of the Index on average for the reporting period, contributed the most to the Index’s return. In terms of interest rate sensitivity, bonds with maturities of greater than 10 years led contributions amid declining high-yield spreads and demand for yield.

Portfolio Information

Investment Objective

The iShares Convertible Bond ETF (the “Fund”) seeks to track the investment results of an index composed of U.S. dollar-denominated convertible securities, specifically cash pay bonds, with outstanding issue sizes greater than $250 million, as represented by the Bloomberg U.S. Convertible Cash Pay Bond >$250MM Index (the “Index”) (formerly the Bloomberg Barclays U.S. Convertible Cash Pay Bond >$250MM 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.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 6/2/15. The first day of secondary market trading was 6/4/15.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 13 for more information.

Expense Example

Portfolio Management Commentary

U.S. dollar-denominated convertible bonds advanced strongly for the reporting period. Convertible bonds are hybrid securities that have features of both debt and equity. The bonds represented in the Index pay interest on a periodic basis, similar to standard corporate bonds, but they also have an equity conversion feature and can be redeemed for shares of the issuer’s stock. Due to their convertibility feature, these securities advance or decline with stocks but with less volatility given their fixed-income component. During the reporting period, companies issued convertible bonds in historically large quantities to secure financing at low interest rates, as investors increasingly sought convertible bonds amid growing inflation. The equity-like features of convertible debt drove the Index’s performance, as equity returns were high during the reporting period while interest rates and most bond returns were relatively low.

From an industry perspective, convertible bonds issued by consumer cyclicals companies contributed the most to the Index’s return, led by automotive companies. Profits rose for manufacturers of electric vehicles due to high consumer demand and increased production despite a global shortage of semiconductors. Retailers also gained, benefiting from the rise in consumer spending and pent-up demand that followed the reopening of the economy. Vaccination programs helped leisure companies improve sales, as vacationers were more likely to engage in activities such as cruises.

Convertible bonds issued by technology companies also contributed to the Index’s return, as investors sought securities from businesses with favorable growth prospects. Technology company earnings were helped by strong growth in e-commerce, gaming, and financial technology revenues, particularly from Southeast Asia. Cybersecurity was another area of growth, as a series of high-profile security and data breaches led many companies to accelerate plans to improve their online defenses.

Portfolio Information

Investment Objective

The iShares Floating Rate Bond ETF (the “Fund”) seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade floating rate bonds with remaining maturities between one month and five years, as represented by the Bloomberg US Floating Rate Note <5 Years Index (the “Index”) (formerly the Bloomberg Barclays US Floating Rate Note <5 Years 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.

Performance

GROWTH OF $10,000 INVESTMENT

(AT NET ASSET VALUE)

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 13 for more information.

Expense Example

Portfolio Management Commentary

Investment-grade floating-rate bonds posted a modestly positive performance for the reporting period. The Index is composed of U.S. dollar-denominated bonds with interest rates that reset periodically. As a consequence of this reset, floating-rate bonds typically advance in a rising interest rate environment, as their yields reset at higher levels. However, while yields rose for many bonds, particularly long- and intermediate-term bonds, most floating-rate bonds are benchmarked to short-term interest rates. The Fed kept short-term interest rates unchanged during the reporting period, and yields of U.S. Treasuries dated less than one year declined slightly, which supported the Index’s performance. Additionally, strong investor demand for fixed-income instruments with variable yields that rise with interest rates also benefited the Index’s return.

Measures that are commonly used as a reference for resetting the yields of floating-rate bonds, such as the London Interbank Offered Rate and the Secured Overnight Financing Rate, declined slightly. Consequently, the overall impact of the interest rate environment varied depending on the particular measures used to reset yields, and the majority of the Index’s return came from interest earned on the bonds in the Index rather than price appreciation.

Corporate and government-related bonds both contributed to the Index’s performance, with corporate bonds driving the majority of the gain. Among corporate bonds, banks, which represented approximately 51% of the Index on average for the reporting period, were the leading contributors to the Index’s return. Banks are typically the largest issuers of floating-rate corporate bonds because they help reduce sensitivity to changing interest rates. Strong balance sheets and diverse revenue streams led to improving balance sheets and robust investor demand for bank floating-rate bonds. Consumer cyclicals company bonds also advanced as automotive company debt gained despite production cuts due to a semiconductor shortage.

Portfolio Information

About Fund Performance

Past performance is not an indication of future results. Financial markets have experienced extreme volatility and trading in many instruments has been disrupted. These circumstances may continue for an extended period of time and may continue to affect adversely the value and liquidity of each Fund’s investments. As a result, current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end is available at 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 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. Beginning August 10, 2020, the price used to calculate market return (“Market Price”) is the closing price. Prior to August 10, 2020, Market Price was determined by using the midpoint between the highest bid and the lowest ask 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 trade in the secondary market until after the fund’s inception, for the period from inception to the first day of secondary market trading in shares of the fund, 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 your 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 at the beginning of the period (or from the commencement of operations if less than 6 months) and held through the end of the period, is intended to help you understand your ongoing costs (in dollars and cents) of investing in your 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 under the heading entitled “Expenses Paid During the Period.”

Hypothetical Example for Comparison Purposes – The table also provides information about hypothetical account values and hypothetical expenses based on your 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 and other fees 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.