Fund Description: FlexShares International Quality Dividend Dynamic Index Fund is an exchange-traded index fund or Index ETF which is a separate investment portfolio of the FlexShares Trust, an open-end investment management company. INVESTMENT OBJECTIVE: The FlexShares International Quality Dividend Dynamic Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust International Quality Dividend Dynamic Index. INDEX DESCRIPTION: The Northern Trust International Quality Dividend Dynamic Index is designed to provide exposure to a high-quality, income-oriented portfolio of international equity securities issued by non-U.S.-based companies, with an emphasis on long-term capital growth and a targeted overall volatility that is greater than that of the Northern Trust International Large Cap Index (the Parent Index). Companies included in the Index are a subset of the Parent Index, and are selected based on expected dividend payment and fundamental factors such as profitability, management expertise and cash flow, as determined by NTI (in its capacity as the index provider), pursuant to its index methodology. The Index is designed to outperform the Parent Index on a risk-adjusted basis, with respect to a combination of dividend yield and capital appreciation. The Index begins with the Parent Index, and then follows a rules-based methodology to calculate optimal weights for securities in the Index based upon a targeted overall beta generally between 1.0 to 1.5 times that of the Parent Index, dividend yield, quality factors and lower total risk. Beta represents the market sensitivity, relative to a given market index and time period, and is one measure of volatility. The Parent Index is a float-adjusted market capitalization weighted index comprised of eligible large capitalization securities of developed or emerging market countries as determined by the Index Provider. In addition to tracking the performance of the Index, the Investment Adviser seeks to minimize portfolio turnover and tax inefficiencies. As of January 31, 2013, there were 213 issues in the Index. The Index is governed by transparent, objective rules for security selection, exclusion, rebalancing and adjustments for corporate actions. FUND STRATEGY: A passive or indexing approach is used to try to achieve the Fund’s investment objective. Unlike many investment companies, the Fund does not try to beat the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued. Representative sampling is a strategy used to manage the Fund by investing in a representative sample of securities that collectively has an investment profile close to the Index. Securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the Index. The Fund may or may not hold all of the securities that are included in the Index. Funds that employ a representative sampling strategy may incur tracking error risk to a greater extent than a fund that seeks to replicate an index. The Fund generally will invest under normal circumstances at least 80% of its total assets in the securities of the Index and in American Depositary Receipts and Global Depositary Receipts based on the securities in its Index. The Fund may also invest up to 20% of its assets in cash and cash equivalents, including shares of money market funds, futures contracts, options on futures contracts, foreign currency contracts, options and total return swaps, as well as securities not included in the Index. FUND MANAGEMENT: Northern Trust Investments, Inc. (NTI), an indirect subsidiary of Northern Trust Corporation, serves as the Investment Adviser of the Fund.