UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number   811-22649                                                                                                                                            

The Corporation Trust Company

1209 Orange Street, Wilmington, DE 19801

(Name and address of agent for service)

Registrant’s telephone number, including area code:        (415) 670-2000                    

Item 1.      Reports to Stockholders.

Copies of the annual reports transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 are attached.

JULY 31, 2019

 

2019 ANNUAL REPORT

iShares U.S. ETF Trust

 

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iShares Evolved U.S. Consumer Staples ETF  |  IECS  |  Cboe BZX

 

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iShares Evolved U.S. Discretionary Spending ETF  |  IEDI  |  Cboe BZX

 

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iShares Evolved U.S. Financials ETF  |  IEFN  |  Cboe BZX

 

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iShares Evolved U.S. Healthcare Staples ETF  |  IEHS  |  Cboe BZX

 

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iShares Evolved U.S. Innovative Healthcare ETF  |  IEIH  |  Cboe BZX

 

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iShares Evolved U.S. Media and Entertainment ETF  |  IEME  |  Cboe BZX

 

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iShares Evolved U.S. Technology ETF  |  IETC  |  Cboe BZX

 

 

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of each Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

You may elect to receive all future reports in paper free of charge. If you hold accounts through a financial intermediary, you can follow the instructions included with this disclosure, if applicable, or contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. Please note that not all financial intermediaries may offer this service. Your election to receive reports in paper will apply to all funds held with your financial intermediary.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive electronic delivery of shareholder reports and other communications by contacting your financial intermediary. Please note that not all financial intermediaries may offer this service.

 

Table of Contents

Market Overview

iShares U.S. ETF Trust

Domestic Market Overview

The 12 months ended July 31, 2019 (“reporting period”) featured significant U.S. stock market volatility, as large-capitalization equities ended near record highs, while small-capitalization stocks declined. For the reporting period, the Russell 3000 Index, a broad measure of U.S. equity market performance, rose 7.05%, while the Russell 2000 Index of small-company stocks returned -4.42%. In addition, the S&P 500 declined the most in any December since the Great Depression, and calendar year 2018 was the worst full year since 2008. However, the subsequent recovery meant that the first six months of 2019 were the strongest start to a year since 1997.

The volatility was a function of changing economic growth, interest rates, corporate profits, and political conditions. In terms of the economy, the rate of growth slowed over the course of the reporting period to a 2.1% annualized rate during the second quarter of 2019. That was down from 3.5% the previous year. Industrial production declined from a 5.4% annual rate in September 2018 to 1.3% rate year-over-year through June 2019, and manufacturing growth in June 2019 was the slowest since late 2016. In the consumer segment of the economy, retail sales slowed from a 6.6% annual pace in July 2018 to 3.4% in June 2019 after reaching a low of 1.4% in December 2018.

Slowing economic growth caused a change in bond yields and the U.S. Federal Reserve Bank (“Fed”) interest rate policy. In early December 2018, a portion of the yield curve (a graphic representation of bond yields at different maturities) inverted for the first time since 2005. Investors took this as a sign that recession was imminent, exacerbating concerns about the economy and corporate profits. Similarly, concerns about the economy led to a change in the Fed’s interest rate policy. For example, the Fed increased rates four times in calendar year 2018, once each during September and December. The stock market was at a record high in early October 2018 when the Fed Chairman seemed to argue for more interest rate increases than expected, precipitating a sell-off. The final interest rate increase came amid the stock market decline, as the Fed cited strong growth in employment and economic activity. But by January 2019, the market decline and slowing growth caused the Fed’s view to change. Consequently, the Fed decreased rates in July 2019 for the first time since 2008.

Another significant contributor to market turmoil was uncertainty resulting from the ongoing trade conflict between the U.S. and China. The uncertainty caused by the government shutdown also weighed on market sentiment, as investors were concerned about the potential economic impacts of government policy mistakes.

The slowdown in economic growth also affected corporate profits. Corporate earnings growth turned negative in the first quarter of 2019 and again in the second quarter, for the companies in the S&P 500 that had reported earnings through July 2019. The last time the earnings growth for the Index was negative for two consecutive quarters was the first and second quarter of 2016.

Growth-oriented stocks outperformed value at all capitalization ranges. Stocks of large companies outperformed those of mid- and small-sized companies, which performed particularly poorly in the fourth quarter of 2018.

Investment Objective

The iShares Evolved U.S. Consumer Staples ETF (the “Fund”) seeks to provide access to U.S. companies with consumer staples exposure, as classified using a proprietary classification system. The Fund is an actively managed exchange-traded fund that does not seek to replicate the performance of a specified index.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 3/21/18. The first day of secondary market trading was 3/23/18.

The S&P Total Market Index^TM is an unmanaged index designed to track the broad equity market, including large-, mid-, small-, and micro-cap stocks.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 18 for more information.

Expense Example

Portfolio Management Commentary

Consumer staples stocks advanced for the reporting period, as the consumer segment of the economy remained strong despite a more general decrease in economic growth. Consumer spending held up reasonably well despite the broader economic slowdown, supported by solid income growth and strength in the job market. Concerns about the health of the economy also increased the appeal of the sector, whose earnings tend to be resilient during economic slowdowns.

Household products and beverages companies were among the largest contributors to the Fund’s performance. Procter & Gamble Co., a household products conglomerate, benefited from strong consumer demand and price increases for some of its leading brands. Business was buoyed by the effective use of technology to improve product innovation and distribution. Among beverage stocks, the Coca-Cola Company and PepsiCo, Inc. were significant contributors. Coca-Cola’s growth was driven by its sugar-free Coke Zero, water, enhanced water, and sports drinks product lines, as consumers moved away from high-sugar products. PepsiCo benefited from diversifying its business into snack foods, energy drinks, and sparkling water. Packaged foods and meats companies were another source of strength. Mondelez International, Inc. benefited from strong demand for its snack foods in emerging markets and succeeded in passing on higher input costs to consumers.

The Fund’s evolved investment process looks beyond traditional sector definitions by applying machine learning and natural language processing to group individual companies with related business activity. During the reporting period, the evolved process identified several consumer staples companies that traditionally have been categorized in sectors other than consumer staples. For example, the process classified restaurants Starbucks Corporation and McDonald’s Corporation, which are typically categorized in the consumer discretionary sector, as having significant exposure to both discretionary spending and recurring spending on consumer staples. As a result, the portion of the market capitalization that the process recognized as consumer staples was included in the Fund. These restaurants were strong contributors to the Fund’s return for the reporting period, as healthy consumer spending and innovations such as mobile payment, customer loyalty programs, and delivery services increased accessibility and drove transaction growth.

Portfolio Information

Investment Objective

The iShares Evolved U.S. Discretionary Spending ETF (the “Fund”) seeks to provide access to U.S. companies with discretionary spending exposure, as classified using a proprietary classification system. The Fund is an actively managed exchange-traded fund that does not seek to replicate the performance of a specified index.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 3/21/18. The first day of secondary market trading was 3/23/18.

The S&P Total Market Index^TM is an unmanaged index designed to track the broad equity market, including large-, mid-, small-, and micro-cap stocks.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 18 for more information.

Expense Example

Portfolio Management Commentary

Stocks tied to discretionary spending advanced for the reporting period, as the consumer segment of the economy held up well despite a broader slowdown in economic growth. Consumer spending remained relatively healthy, supported by solid income growth and strength in the job market. A key factor that was evident during the reporting period was the blending or breakdown of the distinction between brick-and-mortar and e-commerce retail, as retailers increasingly relied on multi-channel distribution to reach customers. This represents the latest step in the evolution of retail, as a number of less-competitive brands and retailers filed for bankruptcy or closed locations, while such technology-savvy companies as Apple Inc. and Amazon.com, Inc. invested heavily in retail outlets and strategy.

Restaurants were the largest contributor to the Fund’s return. Both Starbucks Corporation and McDonald’s Corporation advanced due to healthy consumer spending and innovations such as mobile payments, customer loyalty programs, and delivery services, which increased accessibility and drove transaction growth. As foot traffic decreased due to online shopping, these companies reaped the benefits of remaking their in-store experience and enhancing productivity with technology.

Specialty retailers were another source of strength, reflecting gains by The Home Depot, Inc. and AutoZone, Inc. Home Depot posted solid earnings growth amid strong demand from contractors and retail customers engaged in home-improvement projects. Automotive parts retailer AutoZone benefited from a slowdown in new car sales, which supported demand for auto parts as vehicles age.

The Fund’s evolved investment process looks beyond traditional sector definitions by applying machine learning and natural language processing to group individual companies with related business activity. During the reporting period, the evolved process identified several consumer discretionary companies that have traditionally been categorized in other sectors. For example, the process grouped a number of consumer staples companies in the consumer discretionary sector, including household products company The Procter & Gamble Company, and food and staples retailer Walmart Inc. Proctor & Gamble benefited from strong consumer demand and price increases for some of its leading brands. Business was buoyed by more effective use of technology to improve product innovation and distribution. Emblematic of the blending of e-commerce with traditional retail, Walmart’s ongoing investment in technology and its online presence led to sharp growth in its online business during the reporting period.

Portfolio Information

Investment Objective

The iShares Evolved U.S. Financials ETF (the “Fund”) seeks to provide access to U.S. companies with financials exposure, as classified using a proprietary classification system. The Fund is an actively managed exchange-traded fund that does not seek to replicate the performance of a specified index.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 3/21/18. The first day of secondary market trading was 3/23/18.

The S&P Total Market Index^TM is an unmanaged index designed to track the broad equity market, including large-, mid-, small-, and micro-cap stocks.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 18 for more information.

Expense Example

Portfolio Management Commentary

Financials stocks advanced for the reporting period, as financial technology (“fintech”) companies performed well in an environment that was challenging for more traditional financial institutions. As commerce increasingly migrates online and mobile technology continues to proliferate, fintech stocks benefited from the move away from checks and cash toward online and mobile payment systems. In contrast, banks performed poorly, as a flattening yield curve (the difference between short-term and long-term interest rates) reduced loan profitability and a slowing economy raised fears about reduced demand for financial services.

Reflecting the relative strength of fintech companies, the leading contributor to the Fund’s performance was data processing companies. Mastercard Incorporated, a leading credit card and payment processing company, benefited from the shift towards online payments, which drove strong growth in revenue and profitability. Another payment processor, Worldpay, Inc., gained after becoming targeted for acquisition by Fidelity National Information Services, Inc., which was also a leading contributor to the Fund. Investors anticipated that the acquisition would improve revenue while reducing costs by employing efficiencies of scale. Insurance companies also contributed to the Index’s performance, particularly property and casualty insurers. For example, The Progressive Corporation posted gains after growing its portfolio of written premiums and posting a high underwriting margin, a measure of profitability.

On the downside, regional banks were significant detractors from the Fund’s return, as smaller banks struggled with the investments required for digitization and modernization of online services. SVB Financial Group, which specializes in lending to venture capital companies from Silicon Valley, declined as investors became concerned about banks with higher risk profiles amid the economic slowdown. Comerica Incorporated also detracted from the Index’s performance, pressured by low interest rates following the Fed’s move toward looser monetary policy.

The Fund’s evolved investment process looks beyond traditional sector definitions by applying machine learning and natural language processing to group individual companies with related business activity. As of the end of the reporting period, the Fund’s portfolio consisted primarily of financials stocks, but also included companies in diverse industries such as data processing and outsourced services and application software. For example, Mastercard provides credit card services to banks, and Automatic Data Processing, Inc. creates outsourced human resource management services for businesses.

Portfolio Information

Investment Objective

The iShares Evolved U.S. Healthcare Staples ETF (the “Fund”) seeks to provide access to U.S. companies with healthcare staples exposure, as classified using a proprietary classification system. The Fund is an actively managed exchange-traded fund that does not seek to replicate the performance of a specified index.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 3/21/18. The first day of secondary market trading was 3/23/18.

The S&P Total Market Index^TM is an unmanaged index designed to track the broad equity market, including large-, mid-, small-, and micro-cap stocks.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 18 for more information.

Expense Example

Portfolio Management Commentary

U.S. healthcare staples stocks posted strong gains during the reporting period, benefiting from the expansion of an aging population, which led to greater demand for and increased spending on healthcare-related products, services, and facilities. Higher enrollment in healthcare coverage through the Affordable Care Act also bolstered utilization of healthcare services.

Healthcare equipment manufacturers were the largest and primary contributors to the Fund’s return amid ongoing innovation by companies making specialized equipment for the treatment of chronic illnesses. Abbott Laboratories was a noteworthy example, gaining amid increased adoption of treatments using minimally invasive, continuous monitoring technologies for conditions such as diabetes. Several healthcare equipment manufacturers benefited from the growing market for treating diseases and conditions related to growing older. For example, Edwards Lifescience Corp and Medtronic plc advanced due to rising demand for products used to treat coronary disease, such as heart valve replacements and coronary stents, while rising sales of surgical equipment and bio-implant devices, such as artificial joints, supported companies such as Stryker Corp.

Life sciences companies were modest, although meaningful, contributors. Strong global demand for genetic sequencing technologies used in areas such as diagnostics and research bolstered returns of scientific instruments makers like Thermo Fisher Scientific. Clinical research organizations like Iqvia that work with biotechnology companies to develop new treatments were also noteworthy contributors. The temporary suspension of a medical device tax, followed by a Congressional bid to entirely overturn the legislation, was also advantageous to medical device companies. Managed healthcare providers like Anthem Inc. benefited from higher enrollment in healthcare coverage and rising demand for Medicare Advantage plans.

The fund’s evolved investment process looks beyond traditional sector definitions by applying machine learning and natural language processing to group individual companies with related business activities. More specifically, the evolved investment process identified several companies with healthcare-related businesses. One example, Welltower Inc., which owns hospitals, senior living facilities, and other healthcare-related properties, performed well as the aging population in the U.S. drove demand for healthcare facilities and services.

Portfolio Information

Investment Objective

The iShares Evolved U.S. Innovative Healthcare ETF (the “Fund”) seeks to provide access to U.S. companies with innovative healthcare exposure, as classified using a proprietary classification system. The Fund is an actively managed exchange-traded fund that does not seek to replicate the performance of a specified index.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSET VALUE)

The inception date of the Fund was 3/21/18. The first day of secondary market trading was 3/23/18.

The S&P Total Market Index^TM is an unmanaged index designed to track the broad equity market, including large-, mid-, small-, and micro-cap stocks.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 18 for more information.

Expense Example

Portfolio Management Commentary

U.S. innovative healthcare stocks declined for the reporting period, amid ongoing concerns about the future structure of the U.S. healthcare system. With pressure for universal healthcare and lower drug prices mounting as the 2020 presidential race began, stock prices of many healthcare-related companies declined.

The Fund’s performance was driven primarily by biotechnology stocks, which faced a number of headwinds, including several disappointing clinical trial results. For example, biotechnology company Biogen Inc. declined sharply after revealing it would discontinue two late-stage trials for an Alzheimer’s disease treatment, which was considered the treatment with the highest potential in the company’s pipeline. Regeneron Pharmaceuticals Inc. also faced setbacks during clinical research due to several patient deaths during its non-Hodgkin lymphoma drug trial. Many biotechnology companies also weakened amid market share losses to biosimilars and generic versions of name-brand drugs, with companies such as AbbVie Inc. and Gilead Sciences Inc. declining under competitive pressure. A wave of initial public offerings also pressured the stocks of industry leaders as investors shifted capital to new healthcare ventures.

On the upside, several healthcare equipment and supplies stocks contributed meaningfully, supported by the development of innovative new technologies. For example, companies like Abbott Laboratories and Dexcom Inc. benefited from growing adoption of treatments employing minimally invasive, continuous monitoring technologies for conditions such as diabetes. Pharmaceuticals stocks also advanced. For example, pharmaceuticals stocks such as Merck & Co. Inc. and Eli Lilly & Co. benefited from strong demand for medications to treat diseases such as cancer and diabetes, and rising sales of vaccines amid a resurgence of preventable diseases such as measles.

The Fund’s evolved investment process looks beyond traditional sector definitions by applying machine learning and natural language processing to group individual companies with related business activity. As of the end of the reporting period, the Fund’s portfolio consisted primarily of biotechnology and pharmaceuticals companies that emphasize innovation, but also included companies in diverse industries such as life sciences tools and services and semiconductors. One example is Universal Display Corp, which makes organic light emitting diodes that are used in medical imaging and diagnostics equipment. The company posted sharply higher revenues, driven by strong demand from Chinese customers.

Portfolio Information

Investment Objective

The iShares Evolved U.S. Media and Entertainment ETF (the “Fund”) seeks to provide access to U.S. companies with media and entertainment exposure, as classified using a proprietary classification system. The Fund is an actively managed exchange-traded fund that does not seek to replicate the performance of a specified index.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSETVALUE)

The inception date of the Fund was 3/21/18. The first day of secondary market trading was 3/23/18.

The S&P Total Market Index^TM is an unmanaged index designed to track the broad equity market, including large-, mid-, small-, and micro-cap stocks.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 18 for more information.

Expense Example

Portfolio Management Commentary

U.S. media and entertainment stocks advanced for the reporting period, as demand for original entertainment and high-speed internet offset losses from customers migrating away from traditional cable plans. Higher advertising revenues and licensing fees bolstered returns, and large investments in new programming drove increases in the subscriber base. Video streaming continued to grow in popularity, with over half of U.S. households subscribing to at least one streaming service as options for digital delivery proliferated.

The Walt Disney Company was the largest single contributor to the Fund’s return, driven by strength in its theme park business and the popularity of its movies, which included the highest-grossing movie in cinema history. Investors were also optimistic about the future of the Disney+ streaming service, which was announced during the reporting period and is scheduled to launch in late 2019. Comcast was also a standout performer, buoyed by strong growth in its internet business and its forthcoming streaming service for NBCUniversal Media, LLC. Increased demand for internet services also benefited cable and internet provider Charter Communications, Inc., which grew revenues from both residential and commercial customers. Sinclair Broadcast Group also contributed amid higher advertising revenues and investor enthusiasm surrounding its acquisition of 21 regional sports networks.

On the downside, video game makers were the leading detractors from the Fund’s performance, pressured by competition from popular free-to-play games. Activision Blizzard, Inc. dropped on a year-over-year decrease in monthly active users and lower revenue from in-game spending. Another games company, Electronic Arts Inc., experienced disappointing performance due to poor performances from games such as FIFA 19, Anthem, and Apex Legends.

The Fund’s evolved investment process looks beyond traditional sector definitions by applying machine learning and natural language processing to group individual companies with related business activity. As of the end of the reporting period, the Fund’s portfolio consisted primarily of media and entertainment companies, but also included companies in diverse industries such as leisure products and research and consulting services. For example, Hasbro, Inc., in addition to manufacturing toys, sells popular games such as Magic: The Gathering, and the company benefits from notable entertainment properties such as Transformers, Power Rangers, and My Little Pony. Hasbro was a solid contributor to the Fund’s performance for the reporting period.

Portfolio Information

Investment Objective

The iShares Evolved U.S. Technology ETF (the “Fund”) seeks to provide access to U.S. companies with technology exposure, as classified using a proprietary classification system. The Fund is an actively managed exchange-traded fund that does not seek to replicate the performance of a specified index.

Performance

GROWTH OF $10,000 INVESTMENT

(SINCE INCEPTION AT NET ASSETVALUE)

The inception date of the Fund was 3/21/18. The first day of secondary market trading was 3/23/18.

The S&P Total Market Index^TM is an unmanaged index designed to track the broad equity market, including large-, mid-, small-, and micro-cap stocks.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 18 for more information.

Expense Example

Portfolio Management Commentary

The Fund advanced significantly during the reporting period, reflecting overall strength in the information technology sector, which advanced due to continued investment in information technology infrastructure. The sector showed resilience despite concerns about possible interventions by regulators in the U.S. and possible effects of trade tensions between the U.S. and China, including restrictions on the sale of chips to Chinese companies. The sector also benefited from the rapid migration of information technology to the cloud for both storage and software.

Software and services stocks contributed the majority of the Fund’s return for the reporting period, as businesses adopting cloud computing sought efficiency gains and to update aging software. Companies such as Microsoft Corporation are among the primary beneficiaries of increased adoption of cloud computing, along with other systems software companies, such as Oracle Corporation and ServiceNow, Inc. The move toward subscription-based software drove profitability by providing consistent revenues while reducing training costs. Application software stocks such as Adobe Inc. and Intuit Inc. also contributed to the Fund’s return, driven by increasing demand for cloud-based applications, particularly from small businesses attracted to lower upfront costs. IT services companies, particularly data processing companies such as Visa Inc. and Mastercard Incorporated, contributed to the Fund’s performance, as they increased their use of digital technologies to facilitate cashless payments. Hardware companies also contributed, led by companies such as Apple Inc., which contributed the most to the Fund’s return. Although smartphone sales declined, demand for Apple’s services and wearable products grew.

The Fund’s evolved investment process looks beyond the traditional sector definitions by applying machine learning and natural language processing to group individual companies with related business activity. The evolved process identified several information technology companies with similar businesses that have traditionally been categorized in other sectors. For example, the evolved process recognized that Facebook, Inc., a communication services sector company, had some business segments related to communications, but also had significant exposure to the information technology sector. As a result, the portion of the market capitalization that the process recognized as information technology was included in the Fund. The company, which announced their cryptocurrency project built on blockchain technology during the reporting period, advanced as customers increased their use of the site, leading to increased revenue from mobile advertising.

Portfolio Information

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 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 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 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.

Affiliates

Investments in issuers considered to be affiliates of the Fund during the year ended July 31, 2019, for purposes of Section 2(a)(3) of the 1940 Act, were as follows:

Fair Value Measurements

Various inputs are used in determining the fair value of financial instruments. For description of the input levels and information about the Fund’s policy regarding valuation of financial instruments, refer to the Notes to Financial Statements.

Fair Value Measurements (continued)

The following table summarizes the value of the Fund’s investments according to the fair value hierarchy as of July 31, 2019. The breakdown of the Fund’s investments into major categories is disclosed in the Schedule of Investments above.

See notes to financial statements.