2017 INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE

Transcription

1 JUNE 30, INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE This interim management report of fund performance contains financial highlights but does not contain either semi-annual or annual financial statements of the investment fund(s). You may obtain a copy of the semi-annual or annual financial statements at your request, and at no cost, by calling iShares ( ), by visiting our website at or SEDAR at or by writing to us at ishares ETFs, c/o BlackRock Asset Management Canada Limited, 161 Bay Street, Suite 2500, P.O. Box 614, Toronto, ON M5J 2S1. Unitholders may also contact us using one of these methods to request a copy of the investment fund's proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. This report may contain forward-looking statements. Forward-looking statements involve risks and uncertainties and are predictive in nature and actual results could differ materially from those contemplated by the forward-looking statements.

2 Table of Contents

3 Management Discussion of Fund Performance BlackRock Asset Management Canada Limited ( BlackRock Canada ) is pleased to provide you with the ( MRFP ) for the ishares BRIC Index ETF (the Fund ) for the six-month period ended June 30, You and your financial advisor can use this information along with the annual and interim financial statements of the Fund to assess the Fund s performance and how your investment in the Fund aligns with your overall financial plan. The Fund is an exchange-traded fund which trades on the Toronto Stock Exchange (the Exchange ). Investors typically buy and sell units of the Fund through a brokerage account. The Fund s Exchange ticker symbol is CBQ for the common units ( Common Units ) and CBQ.A for the advisor class units ( Advisor Class Units ). References to net assets or net assets per unit in this MRFP are references to net assets attributable to holders of redeemable units determined in accordance with the International Financial Reporting Standards ( IFRS ) as presented in the Fund s financial statements. All references to net asset value or net asset value per unit in this MRFP are references to net asset value determined in accordance with National Instrument Investment Fund Continuous Disclosure which is used for all purposes except for the financial statements, including for Fund pricing purposes in connection with subscriptions, exchanges and redemptions. This report includes: Investment objective and strategies Risk Results of operations Recent developments Related party transactions Financial highlights Management fees Past performance Summary of investment portfolio

4 Investment Objective and Strategies The investment objective of the Fund is to replicate, to the extent possible, the performance of the BNY Mellon BRIC Select ADR Index CAD Hedged (the Index ), net of expenses. Under normal market conditions, the Fund will primarily invest in securities of one or more exchangetraded funds managed by BlackRock Canada or an affiliate and/or international equity securities and/or depositary receipts. The Index tracks the performance of U.S. exchange-listed depositary receipts of companies from Brazil, Russia, India, and China in American Depositary Receipts ( ADRs ) and Global Depositary Receipts ( GDRs ) form that are listed for trading on the New York Stock Exchange and the NASDAQ stock market and are members of the BNY Mellon ADR Index. The Index is hedged to Canadian dollars. The investment strategy of the Fund is to invest in and hold the constituent securities of the Index in substantially the same proportion as they are reflected in the Index or to invest in a manner that causes the Fund to replicate the performance of the Index. The Fund will enter into currency forwards that will seek to hedge some or all of its economic exposure to U.S. dollar or other foreign currency denominated assets. Risk The risks of investing in the Fund are described in the prospectus and there have been no changes to the Fund over the financial period that materially affected the risk level of the Fund. Results of Operations The Fund s net asset value increased from $59.7 million at December 31, 2016 to $67.8 million at June 30, This change in net asset value represents a decrease of $2.7 million due to net redemptions from the Fund and an increase of $10.8 million due to investment operations less distributions paid. For the six-month period ended June 30, 2017, the Fund s Common Units returned 18.78% and the Fund s Advisor Class Units returned 18.29%. For the same period, the Index returned 19.24%. The main reasons for the difference in performance of -0.46% between the Fund s Common Units and the Index were management fees (-0.30%) and other miscellaneous factors (-0.16%). The main reasons for the difference in performance of -0.95% between the Fund s Advisor Class Units and the Index were management fees (-0.30%), service fees (-0.37%) and other miscellaneous factors (-0.28%). The Fund has a distribution policy that requires it to distribute sufficient net income and net realized capital gains so that it will not be liable to pay income tax under Part I of the Income Tax Act (Canada). Amounts included in the calculation of net income and net realized capital gains of the Fund for a taxation year, that must be distributed in accordance with the distribution policy, sometimes include amounts that have not actually been received by the Fund. The Fund may borrow cash in accordance with the restrictions in National Instrument Investment Funds, and, in accordance with the terms of exemptive relief, as a temporary measure to fund the portion of any distributions payable to unitholders that represents amounts that have not yet been received by the Fund. Pursuant to such relief, the borrowing may not be for a period longer than 45 days, and the Fund is limited to borrowing up to the amount of the distribution that is payable to, but has not yet been received, by the Fund and, in any event, not more than 5% of the net assets of the Fund. For the six-month period ended June 30, 2017, the Fund did not borrow any cash.

5 Recent Developments Master Declaration of Trust The Fund s master declaration of trust was amended and restated as follows: On February 9, 2017 to reflect a change of listing venue for several funds, and On June 13, 2017 to reflect a name change for the ishares High Quality Canadian Bond Index ETF. Independent Review Committee As required by National Instrument Independent Review Committee for Investment Funds ( NI ), BlackRock Canada has established an independent review committee (the IRC ) to review all conflict of interest matters identified and referred to the IRC by BlackRock Canada and to give its approval or recommendation, depending on the nature of the conflict of interest matter. On June 1, 2017, Martha Fell became Chair of the IRC. Prior to June 1, 2017, Francis Enderle was Chair of the IRC. The table below sets out the members who served on the IRC of the funds managed by BlackRock Canada (including the Fund) for all or a portion of the period ended June 30, 2017: Name Martha Fell 1 Paul Batho Geoffrey Creighton Francis Enderle 2 Residence Toronto, Ontario Unionville, Ontario Oakville, Ontario Oakland, California 1 Chair of the IRC effective as of June 1, Chair of the IRC prior to June 1, Fund Closing BlackRock Canada has determined to terminate the Fund effective on or about September 27, 2017 (the Termination Date ). BlackRock Canada expects that the units of the Fund will cease trading on the Exchange and be delisted from the Exchange on or about September 20, In connection with the termination, the assets of the Fund will be liquidated. As soon as practicable following the Termination Date, the liquidation proceeds will be distributed, after paying or providing for all liabilities and obligations of the Fund, pro rata among unitholders of record on the Termination Date. Related Party Transactions Trustee, Manager and Portfolio Advisor BlackRock Canada, an indirect, wholly-owned subsidiary of BlackRock, Inc. ( BlackRock ), is the trustee, manager, and portfolio advisor of the Fund and is responsible for the operations of the Fund, including the management of the Fund s investment portfolio and the valuation of the Fund s assets. BlackRock Canada is entitled to an annual management fee for acting as trustee,

6 manager and portfolio advisor of the Fund. In addition, BlackRock Canada is entitled to charge Advisor Class Units a service fee paid to registered dealers whose clients hold Advisor Class Units of the Fund. The Fund is permitted to purchase, sell and hold securities of certain issuers that are directly or indirectly related to BlackRock Canada (currently including, but not limited to, BlackRock and PNC Financial Services Group, Inc.). With respect to investment in related issuers, BlackRock Canada has relied on the approval that it has received from the IRC. The approval requires BlackRock Canada to comply with its current policy and procedures regarding investments in related issuers and to report periodically to the IRC. The Fund may execute inter-fund trades. Inter-fund trading is the buying and selling of portfolio securities between funds for which BlackRock Canada serves as trustee and manager and managed accounts to which BlackRock Canada serves as manager. With respect to inter-fund trades, BlackRock Canada has relied on the approval that it has received from the IRC. The approval requires BlackRock Canada to comply with its current policy and procedures regarding inter-fund trading and to report periodically to the IRC. BlackRock Canada has agreed to be responsible for the fees and expenses of the Fund except the annual management fee (which, with respect to the Advisor Class Units, includes an additional amount equal to the service fee), any expenses related to the implementation and on-going operation of an IRC under NI , brokerage expenses and commissions, income taxes, withholding taxes, any applicable harmonized sales tax ( HST ), goods and services tax ( GST ), or other sales taxes, transaction costs incurred by the custodian, extraordinary expenses, the licensing fees relating to the Index and all expenses relating to investing in and trading forward and other derivative contracts including any forward or other fees payable thereunder. Securities Lending Agents The Fund has engaged BlackRock Institutional Trust Company, N.A. ( BTC ) and BlackRock Advisors (UK) Limited ( BRAL ), affiliates of BlackRock Canada, as securities lending agents. To mitigate risks from securities lending, the Fund benefits from a borrower default indemnity provided by BlackRock, an affiliate of BlackRock Canada. BlackRock s indemnity allows for full replacement of securities lent in the event that the borrower defaults on its obligation to return the loaned securities and collateral received is insufficient to reconstitute the portfolio of loaned securities. BTC and/or BRAL bear all operational costs directly related to securities lending as well as the cost of borrower default indemnification. For the six-month period ended June 30, 2017, the Fund earned $301 from counterparties in securities lending income. BTC and BRAL are entitled to receive a portion of the total securities lending income earned from counterparties for their role as lending agents. BlackRock Canada relies on a positive recommendation and standing instruction that it has received from the IRC with respect to the securities lending activities of the Fund, including the appointment of and payment to its affiliates as securities lending agents. The standing instruction requires BlackRock Canada to comply with its current policy and procedures regarding securities lending and to report periodically to the IRC.

7 Sub-Advisor BlackRock Canada has appointed its affiliate, BTC, as the sub-advisor of the Fund. As compensation for its services as sub-advisor, BlackRock Canada pays BTC a portion of the management fees paid by the Fund to BlackRock Canada. With respect to the appointment of and payment to its affiliate as sub-advisor for the Fund, BlackRock Canada has relied on the positive recommendation that it has received from the IRC. The recommendation requires BlackRock Canada to comply with its current policy and procedures regarding the selection of an affiliated sub-advisor and to report periodically to the IRC.

8 Financial Highlights The following tables show selected key financial information about each class of the Fund and are intended to help you understand its financial performance for the six-month period ended June 30, 2017 and for the past five years. June 30, December 31, Common Units Net Assets per Unit 1 Net assets, beginning of period $ $ $ $ $ $ Increase (decrease) from operations: Total revenue $ 0.17 $ 0.27 $ 0.39 $ 0.67 $ 0.63 $ 0.75 Total expenses (0.07) (0.12) (0.14) (0.16) (0.15) (0.16) Realized gains (losses) for the period 0.19 (0.60) (4.19) (1.75) (2.65) (0.57) Unrealized gains (losses) for the period (0.22) Total increase (decrease) from operations 2 $ 3.60 $ 1.53 $ (3.56) $ (1.46) $ (0.55) $ 1.18 Distributions: From income (excluding dividends) $ (0.06) $ (0.16) $ (0.28) $ (0.54) $ (0.62) $ (0.66) From dividends From capital gains Return of capital (0.03) (0.00) 3 (0.00) 3 Total distributions 4,5 $ (0.09) $ (0.16) $ (0.28) $ (0.54) $ (0.62) $ (0.66) Net assets, end of period $ $ $ $ $ $ Ratios and Supplemental Data 6 Total net asset value (000s) $ 65,027 $ 56,844 $ 62,491 $108,059 $153,188 $195,311 Number of units outstanding (000s) 2,900 3,000 3,550 5,000 6,500 7,950 Management expense ratio % 0.67% 0.68% 0.67% 0.66% 0.66% Trading expense ratio % 0.01% 0.02% 0.01% 0.01% 0.02% Portfolio turnover rate % 22.67% 24.60% 21.63% 14.40% 24.81% Net asset value per unit $ $ $ $ $ $ Closing market price 10 $ $ $ $ $ $ This information is derived from the Fund s unaudited interim financial statements and audited annual financial statements and is not a reconciliation of the beginning and ending net assets per unit. For financial periods beginning on or after January 1, 2013, the financial highlights are derived from financial statements prepared in accordance with IFRS. Periods prior to January 1, 2013 are derived from financial statements prepared in accordance with Canadian generally accepted accounting principles ( Canadian GAAP ). Under IFRS, the net assets per unit presented in the financial statements is the same as the net asset value per unit calculated for Fund pricing purposes, whereas the two values may differ under Canadian GAAP. 2 Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations is based on the weighted average number of units outstanding over the period. 3 Rounded to less than $ Distributions were paid in cash or automatically reinvested in additional units of the Fund, or both. 5 The tax characteristics of distributions are reported annually by the Fund to CDS Clearing and Depository Services Inc. ( CDS ). CDS makes this information available to brokers who provide it to unitholders through standard tax reporting. 6 This information is provided as at June 30, 2017 and December 31 of the years shown. 7 Management expense ratio ( MER ) is based on total fees and expenses (excluding commissions and other portfolio transaction costs) for the stated period, including the Fund s proportionate share of the MER, if any, of any underlying fund in which the Fund has invested, and is expressed as an annualized percentage of average daily net asset value during the period. 8 The trading expense ratio ( TER ) represents total commissions and other portfolio transaction costs expressed as an annualized percentage of average daily net asset value during the stated period. Where the Fund invests in any underlying fund, the TER includes the Fund s proportionate share of the commissions of any underlying fund in which the Fund has invested. 9 The Fund s portfolio turnover rate indicates how actively the Fund s portfolio manager trades its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the period. The higher a fund s portfolio turnover rate in a period, the greater the trading costs payable by the fund in the period, and the greater the chance of an investor receiving taxable capital gains in the period. There is not necessarily a relationship between a high turnover rate and the performance of a fund. 10 Closing market price on the last trading day of the period or year, as applicable, as reported on the Exchange.

9 June 30, December 31, Advisor Class Units Net Assets per Unit 1 Net assets, beginning of period $ $ $ $ $ $ Increase (decrease) from operations: Total revenue $ 0.16 $ 0.26 $ 0.39 $ 0.67 $ 0.62 $ 0.75 Total expenses (0.16) (0.28) (0.30) (0.35) (0.35) (0.37) Realized gains (losses) for the period 0.30 (0.45) (4.36) (1.69) (2.69) (0.57) Unrealized gains (losses) for the period Total increase (decrease) from operations 2 $ 3.80 $ 1.24 $ (2.88) $ (0.70) $ (0.95) $ 1.03 Distributions: From income (excluding dividends) $ $ (0.04) $ (0.12) $ (0.37) $ (0.45) $ (0.29) From dividends From capital gains Return of capital (0.00) 3 (0.00) 3 Total distributions 4,5 $ $ (0.04) $ (0.12) $ (0.37) $ (0.45) $ (0.29) Net assets, end of period $ $ $ $ $ $ Ratios and Supplemental Data 6 Total net asset value (000s) $ 2,807 $ 2,847 $ 3,091 $ 7,040 $ 10,639 $ 14,788 Number of units outstanding (000s) Management expense ratio % 1.50% 1.48% 1.49% 1.48% 1.48% Trading expense ratio % 0.01% 0.02% 0.01% 0.01% 0.02% Portfolio turnover rate % 22.67% 24.60% 21.63% 14.40% 24.81% Net asset value per unit $ $ $ $ $ $ Closing market price 10 $ $ $ $ $ $ This information is derived from the Fund s unaudited interim financial statements and audited annual financial statements and is not a reconciliation of the beginning and ending net assets per unit. For financial periods beginning on or after January 1, 2013, the financial highlights are derived from financial statements prepared in accordance with IFRS. Periods prior to January 1, 2013 are derived from financial statements prepared in accordance with Canadian generally accepted accounting principles ( Canadian GAAP ). Under IFRS, the net assets per unit presented in the financial statements is the same as the net asset value per unit calculated for Fund pricing purposes, whereas the two values may differ under Canadian GAAP. 2 Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations is based on the weighted average number of units outstanding over the period. 3 Rounded to less than $ Distributions were paid in cash or automatically reinvested in additional units of the Fund, or both. 5 The tax characteristics of distributions are reported annually by the Fund to CDS Clearing and Depository Services Inc. ( CDS ). CDS makes this information available to brokers who provide it to unitholders through standard tax reporting. 6 This information is provided as at June 30, 2017 and December 31 of the years shown. 7 Management expense ratio ( MER ) is based on total fees and expenses (excluding commissions and other portfolio transaction costs) for the stated period, including the Fund s proportionate share of the MER, if any, of any underlying fund in which the Fund has invested, and is expressed as an annualized percentage of average daily net asset value during the period. 8 The trading expense ratio ( TER ) represents total commissions and other portfolio transaction costs expressed as an annualized percentage of average daily net asset value during the stated period. Where the Fund invests in any underlying fund, the TER includes the Fund s proportionate share of the commissions of any underlying fund in which the Fund has invested. 9 The Fund s portfolio turnover rate indicates how actively the Fund s portfolio manager trades its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the period. The higher a fund s portfolio turnover rate in a period, the greater the trading costs payable by the fund in the period, and the greater the chance of an investor receiving taxable capital gains in the period. There is not necessarily a relationship between a high turnover rate and the performance of a fund. 10 Closing market price on the last trading day of the period or year, as applicable, as reported on the Exchange.

10 Management Fees The management fees are calculated based on 0.60% per annum of the average daily net asset value of the Fund. The fees are accrued daily and are paid monthly in arrears. For the six-month period ended June 30, 2017, the Fund accrued $196,511 (excluding GST and HST in the amount of $20,535) in management fees. These management fees were received by BlackRock Canada for managing the portfolio, maintaining portfolio systems used to manage the Fund, maintaining the website, and providing all other services including marketing and promotion. Service fees paid to registered dealers whose clients hold Advisor Class Units of the Fund are calculated based on 0.75% per annum of the average daily net asset value of the Advisor Class Units of the Fund. The fees are accrued daily and are paid at the end of each calendar quarter. For the six-month period ended June 30, 2017, the Fund accrued $10,488 (excluding GST and HST in the amount of $1,363) in service fees. Past Performance The following charts show past performance for each class of the Fund. The indicated rates of return (a) are the historical total returns including changes in net asset value per unit, and (b) assume reinvestment of all distributions during the period in additional units at the net asset value per unit at the time of the distribution. The reinvestment of distributions increases returns. These returns do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Prior to May 31, 2011, the investment objective of the Fund was to replicate, to the extent possible, the performance of the BNY Mellon BRIC Select ADR Index (in U.S. dollars). Consequently, performance prior to May 31, 2011 may have been materially different than it would have been under the current investment objective. These returns do not indicate how each class of the Fund will perform in the future.

11 Year-by-Year Returns The bar charts below show the annual performance of each class of the Fund for each of the periods shown and illustrate how its performance has changed from year to year with the exception of 2017, which shows the actual six-month return for the period ended June 30, The charts show, in percentage terms, how much an investment made in each class of the Fund on the first day of each period would have grown or decreased by the last day of the period. Common Units 90% 71.20% 74.98% 45% 0% -45% 18.78% 8.75% 5.02% 8.61% -1.35% -6.12% % % % -90% Advisor Class Units 105% 70% 69.84% 73.69% 35% 0% -35% 7.88% % 4.16% -2.16% -6.89% % 18.29% 7.71% -70% %

12 Summary of Investment Portfolio The Fund held no short positions as at June 30, The following Top Holdings table shows the 25 largest positions (or all positions if the total number of positions is less than 25) held by the Fund as at June 30, 2017 based on the fair value of the position, expressed as a percentage of the Fund s net asset value. TOP HOLDINGS %ofnet Position Asset Value Alibaba Group Holding Ltd., ADR China Mobile Ltd., ADR 7.12 Baidu Inc., ADR 5.27 JD.com Inc., ADR 4.94 HDFC Bank Ltd., ADR 4.54 Itau Unibanco Holding SA, ADR 4.35 Infosys Ltd., ADR 3.71 Vale SA, ADR 3.34 Petroleo Brasileiro SA, ADR 3.31 NetEase Inc., ADR 3.01 Ctrip.com International Ltd., ADR 2.96 China Life Insurance Co. Ltd., ADR 2.82 China Petroleum & Chemical Corp., ADR 2.49 Banco Bradesco SA, ADR 2.44 AMBEV SA, ADR 2.35 CNOOC Ltd., ADR 2.14 ICICI Bank Ltd., ADR 1.76 TAL Education Group, ADR 1.43 PetroChina Co. Ltd., ADR 1.38 Ultrapar Participacoes SA, ADR 1.26 China Unicom Hong Kong Ltd., ADR 1.14 BRF Brasil Foods SA, ADR 0.89 Tata Motors Ltd., ADR 0.87 China Telecom Corp. Ltd., ADR 0.84 Wipro Ltd., ADR 0.79 Total Total Net Asset Value (000s) $67,834 PORTFOLIO ALLOCATION %ofnet Country/Investment Type Asset Value China Brazil India Russia 1.06 Net unrealized appreciation on forward currency contracts 3.74 Cash 0.13 Other assets, less liabilities (3.42) Total This summary of investment portfolio may change due to the ongoing portfolio transactions of the Fund and quarterly updates are available on the internet at

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16 For more information visit or call iShares ( ) Additional information about the ishares Funds, including information about index provider licensing and trademark matters, can be found in the relevant fund s prospectus, available at or on SEDAR at BlackRock Asset Management Canada Limited. All rights reserved. ishares and BLACKROCK are registered trademarks of BlackRock, Inc. All other trademarks, servicemarks or registered trademarks are the property of their respective owners.