What you need to know to have a successful, long-term investment experience

1. Investment Philosophy
1
Asset Class Management
• Believes that in liquid markets, prices reflect all available information
• Focuses strategies on the dimensions of higher expected returns
• Adds value through portfolio design and implementation
Traditional Active Management
• Attempts to identify mispricing in securities on a consistent basis.
• Often relies on forecasting techniques to pick securities and/or time market
• Generates higher expenses, trading costs, and excess risk
Index Management
• Allows commercial benchmarks to define strategy
• Tethered to a benchmark, reducing flexibility
• Accepts lower returns and increased trading costs in favor of tracking
Value Added: Efficient Market Investing

2. Many Investors Follow Their Emotions
2
People may struggle to separate their emotions
from their investment decisions.
Following a reactive cycle of excessive optimism and
fear may lead to poor decisions at the worst times.

3. Reacting Can Hurt Performance
3
In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee
of future results. Performance data for January 1970–August 2008 provided by CRSP; performance data for September 2008–December 2012 provided by Bloomberg. S&P data provided by Standard &
Poor’s Index Services Group. US bonds and bills data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and
Rex A. Sinquefield).
Performance of the S&P 500 Index, 1970-2012
Missing only a few days of strong returns
can drastically impact overall performance.

4. Markets Have Rewarded Discipline
4In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of
future results. MSCI data © MSCI 2013, all rights reserved.
Growth of a dollar—MSCI World Index, 1970–2012
A disciplined investor looks beyond the
concerns of today to the long-term growth
potential of markets.

5. 1949
20.2
1951
20.7
1963
21.0
1970 1982
0.0 21.0
1953 1993 1944
0.7 11.1 21.3
2011 2004 1996
0.8 12.0 21.4
1960 1959 1983
1.2 12.7 22.0
1987 1952 1979
1.7 13.4 22.6
1948 1968 1998 1997
2.1 14.1 24.3 31.4
1939 1965 1955 2003
2.9 14.5 25.2 31.6
1947 2006 1999 1985
3.6 15.5 25.3 32.2
1973 1966 1934 1942 1976 1936
-18.1 -8.7 4.3 16.0 26.8 32.3
1929 1932 1984 1964 1961 1980
-14.6 -8.7 4.5 16.1 26.9 32.8
2000 1940 2007 1971 1938 1927
-11.4 -7.1 5.8 16.1 28.1 33.4
2001 1990 2005 2012 1943 1991
-11.1 -6.0 6.2 16.2 28.4 34.7
1969 1946 1978 1986 1967 1995
-10.9 -5.9 7.5 16.2 28.7 36.8
1930 1962 1977 1956 1972 2009 1945 1935
-28.5 -10.2 -4.3 8.3 16.8 28.8 38.1 44.3
2008 1974 1957 1981 1926 2010 1989 1975 1958
-36.7 -27.0 -10.1 -3.6 9.2 17.9 28.9 38.8 45.0
1931 1937 2002 1941 1994 1992 1988 1950 1928 1954 1933
-43.5 -34.7 -21.1 -10.0 -0.1 9.8 18.0 29.6 38.9 50.0 57.1
-50% to -40% -40% to -30% -30% to -20% -20% to -10% -10% to 0% 0% to 10% 10% to 20% 20% to 30% 30% to 40% 40% to 50% 50% to 60%
Annual Return Range
Distribution of US Market Returns
CRSP data provided by the Center for Research in Security Prices, University of Chicago. The CRSP 1-10 Index measures the performance of the total US stock market, which it defines as the aggregate capitalization of all securities listed on the NYSE, AMEX, and NASDAQ exchanges. Indices are not
available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.
CRSP 1-10 Index Returns by Year
1926–2012
• Positive Years: 65 (75%)
• Negative Years: 22 (25%)
• In 2008, the US stock market experienced its
second worst performance year since 1926.
• In 2009, US market performance was in the top
quartile of historical calendar year returns.

6. S&P 500
$2,980
Dec 2010
Long-Term Returns vs. Short-Term Volatility
The S&P data are provided by Standard & Poor's Index Services Group. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as
investment advice.
1999 S&P 500 Illustration
LT1388.6
April 1999 Daily Returns
Total Month of April Return: 3.9%
During this month, the S&P
500 had 10 days of negative
returns out of 21 trading days.
1999 Monthly Returns
Total Annual Return: 21%
During this year, the S&P 500
had 5 out of 12 months with
negative returns.
J F M A M J J A S O N D
1 15
30
-2.24%
-0.49%
-3.11% -2.36% -3.12% -2.74%
21.04
%
• Even during periods of positive stock returns,
investors may experience substantial volatility.
• Short-term volatility is a typical characteristic of stock market investing.
• Long-term returns are the sum of short-term volatility.

7. 20%
-2%
21%
1%
-4%
8%
35%
13%
21%
-5%
42%
12%
59%
50% 48% 50%
84%
Cumulative Total Return
After 1 year After 3 years After 5 years
October 1987:
Stock Market Crash
August 1989:
US Savings and
Loan Crisis
September 1998:
Asian Contagion
Russian Crisis
Long-Term Capital
Management Collapse
March 2000:
Dot-Com Crash
September 2001:
Terrorist Attack
The Market’s Response to Crisis
7
Balanced Strategy: 7.5% each S&P 500 Index, CRSP 6-10 Index, US Small Value Index, US Large Value Index; 15% each International Value Index, International Small Index; 40% BofA Merrill Lynch One-Year US Treasury Note Index.
The S&P data are provided by Standard & Poor’s Index Services Group. The Merrill Lynch Indices are used with permission; copyright 2012 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. CRSP data provided by the Center for Research in Security Prices, University of Chicago. US Small
Value Index and US Large Value Index provided by Fama/French. International Value Index provided by Fama/French. International Small Cap Index compiled by Dimensional from StyleResearch securities data; includes securities of MSCI EAFE countries in the bottom 10% of market capitalization, excluding
the bottom 1%; market-cap weighted; each country capped at 50%; rebalanced semiannually. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be
construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance.
Performance of a Normal Balanced Strategy: 60% Stocks, 40% Bonds
September 2008:
Bankruptcy of
Lehman Brothers

8. The Failure of Active Management
8Source: Standard & Poor’s Indices Versus Active Funds Scorecard, year-end 2012. Index used for comparison: US Large Cap—S&P 500 Index; US Mid Cap—S&P MidCap 400 Index; US Small Cap—S&P SmallCap 600 Index; Global Funds—S&P Global 1200 Index; International—S&P 700 Index; International
Small—S&P World ex. US SmallCap Index; Emerging Markets—S&P IFCI Composite. Data for the SPIVA study is from the CRSP Survivor-Bias-Free US Mutual Fund Database.
Percentage of active public equity funds that failed to beat the index
Five Years as of December 2012
75%
90%
83%
62%
74%
21%
76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
US Large Cap US Mid Cap US Small Cap Global International International Small Emerging Markets
%ofActiveFundsThatFailed
toOutperformBenchmark
Equity Fund Category

9. High Costs Make Outperformance Difficult
9The sample includes funds at the beginning of the one-, five-, and 10-year periods ending in 2012. Funds are ranked into quartiles based on average expense ratio over the sample period and performance is compared to their respective benchmarks. The chart shows the proportion of winner and loser funds
within each expense ratio quartile. See Data Appendix for more information. Data provided by the CRSP Mutual Fund Database. Source: CRSP data provided by the Center for Research in Security Prices, University of Chicago. Past performance is no guarantee of future results.
Winners and losers based on expense ratios (%)—equity funds

10. High Trading Costs Make Outperformance Difficult
10
The sample includes equity funds at the beginning of the one-, five, and 10-year periods ending in 2012. Funds are ranked into quartiles based on average turnover during the sample period and performance is compared to their respective benchmarks. The chart shows the proportion of winner and loser funds
within each turnover quartile. Fixed income funds are excluded from the analysis because turnover is not a good proxy for fixed income trading costs. See Data Appendix for more information. Data provided by the CRSP Mutual Fund Database. Source: CRSP data provided by the Center for Research in
Security Prices, University of Chicago. Past performance is no guarantee of future results.
Winners and losers based on turnover (%)—equity funds

11. Focus on What You Can Control
11Diversification neither ensures a profit nor guarantees against loss in a declining market.
No one can reliably forecast
the market’s direction or predict
which stock or investment
manager will outperform.
A financial advisor can help
you create a plan and focus
on actions that add value.

12. Dimensions Point to Differences in Expected Returns
12
Academic research has
identified these dimensions,
which are well documented
in markets around the
world and across different
time periods.
In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Market, value, and size premiums (1975-2012) provided
by Fama/French. Profitability premium computed by Dimensional using CRSP and Compustat data. Profitability is measured as operating income before depreciation and amortization minus interest expense, scaled by book.
The annual profitability premium is computed as the average annual return on six high profitability groups of stocks (Large High Book-to-Market High Profitability, Large Medium Book-to-Market High Profitability, Large Low
Book-to-Market High Profitability, Small High Book-to-Market High Profitability, Small Medium Book-to-Market High Profitability, and Small Low Book-to-Market High Profitability) minus the average annual return on six low
profitability groups of stocks (Large High Book-to-Market Low Profitability, Large Medium Book-to-Market Low Profitability, Large Low Book-to-Market Low Profitability, Small High Book-to-Market Low Profitability, Small Medium
Book-to-Market Low Profitability, and Small Low Book-to-Market Low Profitability). Term premium (1927–1972) provided by © Stocks, Bonds, Bills, and Inflation Yearbook ©, Ibbotson Associates, Chicago (annually updated
work by Roger G. Ibbotson and Rex A. Sinquefield). Credit premium data (1973–present) provided by Barclays Bank PLC.

13. Portfolios Can Be Structured to Pursue Dimensions
13
Investors can pursue higher expected returns
through a low-cost, well-diversified portfolio
that targets these dimensions.
1. Beta: A quantitative measure of the co-movement of a given stock, mutual fund, or portfolio with the overall market.
2. Price-to-Book Ratio: A company's capitalization divided by its book value. It compares the market's valuation of a company to the value of that company as indicated on its financial statements.
3. Direct Profitability: A measure of a company’s current profits. We define this as operating income before depreciation and amortization minus interest expense, scaled by book equity.

14. The Risk Dimensions Delivered
Periods based on rolling annualized returns. 739 total 25-year periods. 799 total 20-year periods. 859 total 15-year periods. 919 total 10-year periods. 979 total 5-year periods.
Performance based on Fama/French Research Factors. Securities of small companies are often less liquid than those of large companies. As a result, small company stocks may fluctuate relatively more in price. Mutual funds distributed by DFA Securities LLC.
July 1926–December 2012
Value beat growth 100% of the time.
Value beat growth 100% of the time.
Value beat growth 99% of the time.
Value beat growth 96% of the time.
Value beat growth 86% of the time.
US Value vs. US Growth
OVERLAPPING PERIODS
In 5-Year Periods
In 10-Year Periods
In 15-Year Periods
In 20-Year Periods
In 25-Year Periods Value beat growth 100% of the time.
Value beat growth 100% of the time.
Value beat growth 95% of the time.
Value beat growth 91% of the time.
Value beat growth 80% of the time.
US Small vs. US Large
Small beat large 97% of the time.
Small beat large 88% of the time.
Small beat large 82% of the time.
Small beat large 75% of the time.
Small beat large 60% of the time.