Fund Description: FlexShares iBoxx 5-Year Target Duration TIPS 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 iBoxx 5-Year Target Duration TIPS Index Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the iBoxx 5-Year Target Duration TIPS Index. INDEX DESCRIPTION: The iBoxx 5-Year Target Duration TIPS Index reflects the performance of a selection of inflation protected public obligations of the U.S. Treasury, commonly known as TIPS, with a targeted average duration of approximately five years. The Index includes publicly issued TIPS that have maturity dates of at least three years but not more than twenty years from an index rebalancing date. TIPS are securities issued by the U.S. Treasury that are designed to provide inflation protection to investors. TIPS’ principal and interest payments are linked to an official inflation measure (as measured by the Consumer Price Index for All Urban Consumers, or CPI-U) and the payments are supported by the full faith and credit of the United States. In addition to tracking the performance of the Index, the Investment Adviser seeks to minimize portfolio turnover and tax inefficiencies. As of August 31, 2011, there were 16 TIPS issues in the Index. The Index is both capitalization weighted and securities-duration weighted, and its composition is rebalanced monthly. The Index is governed by published, objective rules for security selection, exclusion, rebalancing and adjustments, including the daily re-investment of cash flows. The Fund’s Index Provider, Markit North America, Inc., determines the composition and relative weightings of the securities in the Index and publishes information regarding the market value of the Index. 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, duration, maturity 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. The Fund may also invest up to 20% of its assets in cash and cash equivalents, including shares of money market funds and options, as well as securities not included in the Underlying Index FUND MANAGEMENT: Northern Trust Investments, Inc. (NTI), an indirect subsidiary of Northern Trust Corporation, serves as the Investment Adviser of the Fund.