As filed with the U.S. Securities and Exchange Commission on October 30, 2009
File No. 811-7440
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 25 (X)
Dimensional Emerging Markets Value Fund
(Exact Name of Registrant as Specified in Charter)
6300 Bee Cave Road, Building One
Austin, Texas78746
(Address of Principal Executive Offices)
(512) 306-7400
(Registrant's Telephone Number, including Area Code)
___________
Catherine L. Newell, Esq.
Dimensional Fund Advisors LP
6300 Bee Cave Road, Building One
Austin, TX78746
(Name and Address of Agent for Service)
___________
Please Send Copies of Communications to:
Mark A. Sheehan, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA19103
Dimensional Emerging Markets Value Fund, a Delaware statutory trust, as
successor to Dimensional Emerging Markets Value Fund Inc., a Maryland
corporation, is filing this amendment to the registration statement of
Dimensional Emerging Markets Value Fund Inc., and expressed adopts the
registration statement of Dimensional Emerging Markets Value Fund Inc. as its
own for all purposes of the Investment Company Act of 1940, as amended.
DIMENSIONAL EMERGING MARKETS VALUE FUNDPart AOctober 30, 2009
Introduction
DIMENSIONAL EMERGING MARKETS VALUE FUND (formerly, Dimensional Emerging
Markets Value Fund Inc.) (the "Fund"), 6300 Bee Cave Road, Building One, Austin,
TX78746, (512) 306-7400, offers its shares to other investment companies and
institutional investors. The investment objective of the Fund is to seek
long-term capital growth through investment in emerging market equity
securities.
Shares of the Fund are issued solely in private placements pursuant to
available exemptions from registration under the Securities Act of 1933, as
amended ("Securities Act"). This Part A of the Fund's registration statement
("Part A") does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" to the public within the meaning of the Securities Act.
TABLE OF CONTENTS
Page
DIMENSIONAL EMERGING MARKETS VALUE FUND........................................1
INVESTMENT OBJECTIVE AND POLICIES...........................................1
FUND CHARACTERISTICS AND POLICIES...........................................1
PORTFOLIO CONSTRUCTION......................................................3
SECURITIES LOANS...............................................................4
PRINCIPAL RISKS................................................................5
MARKET RISK.................................................................5
SMALL COMPANY RISK..........................................................5
FOREIGN SECURITIES RISK.....................................................5
EMERGING MARKETS RISK.......................................................5
FOREIGN CURRENCIES AND RELATED TRANSACTIONS.................................7
BORROWING...................................................................7
DERIVATIVES.................................................................7
FUTURES CONTRACTS AND OPTIONS ON FUTURES....................................8
SECURITIES LENDING..........................................................8
MANAGEMENT OF THE FUND.........................................................8
CONSULTING SERVICES........................................................10
DISTRIBUTIONS AND TAXES.......................................................10
PURCHASE OF SHARES............................................................11
CASH PURCHASES.............................................................11
IN-KIND PURCHASES..........................................................12
POLICY REGARDING EXCESSIVE OR SHORT-TERM TRADING..............................12
VALUATION OF SHARES...........................................................14
NET ASSET VALUE............................................................14
PUBLIC OFFERING PRICE......................................................16
EXCHANGE OF SHARES............................................................17
REDEMPTION OF SHARES..........................................................17
REDEMPTION PROCEDURES......................................................17
REDEMPTION OF SMALL ACCOUNTS...............................................18
IN-KIND REDEMPTIONS........................................................18
DISCLOSURE OF PORTFOLIO HOLDINGS..............................................18
SERVICE PROVIDERS.............................................................19
DIMENSIONAL EMERGING MARKETS VALUE FUNDInvestment Objective and Policies
The investment objective of the Fund is to achieve long-term capital growth
by investing primarily in emerging market equity securities. The Fund seeks to
achieve its investment objective by investing in companies associated with
emerging markets designated by the Investment Committee of Dimensional Fund
Advisors LP (the "Advisor") ("Approved Markets"). The Fund invests its assets
primarily in Approved Market equity securities listed on bona fide securities
exchanges or actively traded on over-the-counter markets. These exchanges or
over-the-counter markets may be either within or outside the issuer's domicile
country. For example, the securities may be listed or traded in the form of
European Depositary Receipts, Global Depository Receipts, American Depository
Receipts or other types of depositary receipts (including non-voting depositary
receipts) or may be listed on bona fide securities exchanges in more than one
country.
The Fund seeks to achieve its objective by purchasing emerging market
equity securities that are deemed by the Advisor to be value stocks at the time
of purchase. Securities are considered value stocks primarily because they have
a high book value in relation to their market value. In assessing value, the
Advisor may consider additional factors, such as price to cash flow or price to
earnings ratios, as well as economic conditions and developments in the issuer's
industry. The criteria the Advisor uses for assessing value are subject to
change from time to time. No assurance can be given that the Fund's investment
objective will be achieved. As a non-fundamental policy, under normal
circumstances, the Fund will invest at least 80% of its net assets in emerging
markets that are defined in this Part A as Approved Market securities. If the
Fund changes this investment policy, the Fund will notify shareholders at least
60 days before the change, and will change the name of the Fund.
Fund Characteristics and Policies
The Fund's policy is to seek to achieve its investment objective by
purchasing emerging market equity securities across all market capitalizations,
and specifically those that are deemed by the Advisor to be value stocks at the
time of purchase, as described in the paragraph above.
The Fund may not invest in all such companies or Approved Markets described
in this Part A for reasons that include constraints imposed within Approved
Markets, restrictions on purchases by foreigners and the Fund's policy not to
invest more than 25% of its assets in any one industry.
Approved Market securities are defined as securities that are associated
with an Approved Market, and include, among others: (a) securities of companies
organized under the laws of, or maintain their principal place of business in,
an Approved Market; (b) securities for which the principal trading market is in
an Approved Market; (c) securities issued or guaranteed by the government of an
Approved Market country, its agencies or instrumentalities, or the central bank
of such country; (d) securities denominated in an Approved Market currency
issued by companies to finance operations in Approved Markets; (e) securities of
companies that derive at least 50% of their revenues or profits from goods
produced or sold, investments made, or
1
services performed in Approved Markets or have at least 50% of their assets in
Approved Markets; (f) Approved Market equity securities in the form of
depositary shares; (g) securities of pooled investment vehicles that invest
primarily in Approved Market securities or derivative instruments that derive
their value from Approved Markets securities; or (h) securities included in the
Fund's benchmark index.
Securities of Approved Markets may include securities of companies that
have characteristics and business relationships common to companies in other
countries. As a result, the value of the securities of such companies may
reflect economic and market forces in such other countries as well as in the
Approved Markets. The Advisor, however, will select only those companies that,
in its view, have sufficiently strong exposure to economic and market forces in
Approved Markets. For example, the Advisor may invest in companies organized and
located in the United States or other countries outside of Approved Markets,
including companies having their entire production facilities outside of
Approved Markets, when such companies meet the criteria discussed above to be
considered associated with Approved Markets.
In determining what countries are eligible markets for the Fund, the
Advisor may consider various factors, including without limitation, the data,
analysis, and classification of countries published or disseminated by the
International Bank for Reconstruction and Development (commonly known as the
World Bank), the International Finance Corporation, FTSE International, Morgan
Stanley Capital International, Citigroup and the Heritage Foundation. Approved
emerging markets may not include all such emerging markets. In determining
whether to approve markets for investment, the Advisor will take into account,
among other things, market liquidity, relative availability of investor
information, government regulation, including fiscal and foreign exchange
repatriation rules, and the availability of other access to these markets for
the Fund.
As of the date of this Part A, the Fund invests in the following countries
that are designated as Approved Markets: Brazil, Chile, China, Czech Republic,
Hungary, India, Indonesia, Israel, Malaysia, Mexico, the Philippines, Poland,
South Africa, South Korea, Taiwan, Thailand and Turkey. The Advisor will
determine in its discretion when and whether to invest in countries that have
been authorized, depending on a number of factors, such as asset growth in the
Fund and characteristics of each country's markets. Countries that may be
approved in the future include, but are not limited to, Argentina, Colombia,
Egypt, and Venezuela. In addition to the Approved Markets listed above, the Fund
may continue to hold securities in countries that are not currently authorized
for investment, but that had been authorized for investment in the past and may
reinvest distributions received in connection with such existing investments in
such previously Approved Markets.
Pending the investment of new capital in Approved Markets securities, the
Fund will typically invest in money market instruments or other highly liquid
debt instruments including those denominated in U.S. dollars (including, without
limitation, repurchase agreements). In addition, the Fund may, for liquidity, or
for temporary defensive purposes during periods in which market or economic or
political conditions warrant, purchase highly liquid debt instruments or hold
freely convertible currencies, although the Fund does not expect the aggregate
of all such amounts to exceed 10% of its net assets under normal circumstances.
The Fund may also invest in Exchange Traded Funds ("ETFs") and similarly
structured pooled
2
investments that provide exposure to Approved Markets or other equity markets,
including the United States, for the purposes of gaining exposure to the equity
markets while maintaining liquidity.
To the extent permitted by the Investment Company Act of 1940, as amended
(the "1940 Act"), the Fund also may invest in shares of other investment
companies that invest in one or more Approved Markets, although it intends to do
so only where access to those markets is otherwise significantly limited. In
some Approved Markets, it will be necessary or advisable for the Fund to
establish a wholly-owned subsidiary or a trust for the purpose of investing in
the local markets.
The Fund may use derivatives, such as futures contracts and options on
futures contracts, to gain market exposure on uninvested cash pending investment
in securities or to maintain liquidity to pay redemptions. The Fund may enter
into futures contracts and options on futures contracts for Approved Market or
other equity market securities and indices, including those of the United
States. In addition to money market instruments and other short-term
investments, the Fund may invest in affiliated and unaffiliated registered and
unregistered money market funds to manage cash pending investment in other
securities or to maintain liquidity for the payment of redemptions or other
purposes. Investments in money market funds may involve duplication of certain
fees and expenses.
Portfolio Construction
Even though a company's stock may meet the Fund's criterion for investment,
it may not be included in the Fund for a number of reasons. For example, in the
Advisor's judgment, the issuer may be considered in extreme financial
difficulty, a material portion of its securities may be closely held and not
likely available to support market liquidity, or the issuer may be a "passive
foreign investment company" (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")). To this extent, there will be the exercise of discretion
and consideration by the Advisor in purchasing securities in an Approved Market
and in determining the allocation of investments among Approved Markets.
Changes in the composition and relative ranking (in terms of book to market
ratio) of the stocks that are eligible for purchase by the Fund take place with
every trade when the securities markets are open for trading due primarily to
price fluctuations of such securities. On a periodic basis, the Advisor will
prepare lists of value stocks that are eligible for investment. Such lists will
be revised no less than semi-annually.
Securities will not be purchased or sold based on the prospects for the
economy, the securities markets, or the individual issuers whose shares are
eligible for purchase. Securities that have depreciated in value since their
acquisition will not be sold solely because prospects for the issuer are not
considered attractive or due to an expected or realized decline in securities
prices in general. Securities will not be sold to realize short-term profits,
but when circumstances warrant, they may be sold without regard to the length of
time held. Securities, including those eligible for purchase, may be disposed
of, however, at any time when, in the Advisor's judgment, circumstances warrant
their sale, including but not limited to tender offers, mergers and similar
transactions, or bids made for block purchases at opportune prices.
3
Generally, securities will be purchased with the expectation that they will be
held for longer than one year and will be held until such time as they are no
longer considered an appropriate holding in light of the investment policy of
the Fund.
For the purpose of converting U.S. dollars to another currency, or vice
versa, or converting one foreign currency to another foreign currency, the Fund
may enter into forward foreign exchange contracts. In addition, to hedge against
changes in the relative value of foreign currencies, the Fund may purchase
foreign currency futures contracts. However, the Fund generally does not hedge
foreign currency risk. The Fund will only enter into such a futures contract if
it is expected that the Fund will be able readily to close out such contract.
However, there can be no assurance that the Fund will be able in any particular
case to do so, and if it cannot, the Fund may suffer a loss.
SECURITIES LOANS
The Fund is authorized to lend securities to qualified brokers, dealers,
banks, and other financial institutions for the purpose of earning additional
income. While the Fund may earn additional income from lending securities, such
activity is incidental to the investment objective of the Fund. The value of
securities loaned may not exceed 33?% of the value of the Fund's total assets,
which includes the value of collateral received. To the extent the Fund loans a
portion of its securities, the Fund will receive collateral consisting generally
of cash or U.S. government securities, which will be maintained by marking to
market daily in an amount equal to at least (i) 100% of the current market value
of the loaned securities with respect to securities of the U.S. government or
its agencies; (ii) 102% of the current market value of the loaned securities
with respect to U.S. securities; and (iii) 105% of the current market value of
the loaned securities with respect to foreign securities. Subject to its stated
investment policies, the Fund may invest the cash collateral received for the
loaned securities in securities of the U.S. government or its agencies,
repurchase agreements collateralized by securities of the U.S. government or its
agencies, and affiliated and unaffiliated registered and unregistered money
market funds. For purposes of this paragraph, agencies include both agency
debentures and agency mortgage backed securities. In addition, the Fund will be
able to terminate the loan at any time and will receive reasonable interest on
the loan, as well as amounts equal to any dividends, interest, or other
distributions on the loaned securities. However, dividend income received from
loaned securities may not be eligible to be taxed at qualified dividend income
rates. See Part B "TAXATION OF THE FUND--Complex Securities--Securities lending"
for a further discussion of the tax consequences related to securities lending.
The Fund will be entitled to recall a loaned security in time to vote proxies or
otherwise obtain rights to vote proxies of loaned securities if the Fund knows a
material event will occur. In the event of the bankruptcy of the borrower, the
Fund could experience delay in recovering the loaned securities or only recover
cash or a security of equivalent value. See "PRINCIPAL RISKS--SecuritiesLending" for a discussion of the risks related to securities lending.
4
PRINCIPAL RISKSMarket Risk
Even a long-term investment approach cannot guarantee a profit. Economic,
political, and issuer specific events will cause the value of securities and the
net asset value of the Fund's shares to rise and fall. Because the value of an
investment in the Fund will fluctuate, there is the risk that an investor will
lose money.
Small Company Risk
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.
Foreign Securities Risk
The Fund invests in foreign issuers. Such investments involve risks that
are not associated with investments in U.S. public companies. Such risks may
include legal, political, and/or diplomatic actions of foreign governments, such
as imposition of withholding taxes on interest and dividend income payable on
the securities held, possible seizure or nationalization of foreign deposits,
establishment of exchange controls, or the adoption of other foreign
governmental restrictions that might adversely affect the value of the assets
held by the Fund. Further, foreign issuers are not generally subject to uniform
accounting, auditing, and financial reporting standards comparable to those of
U.S. public companies, and there may be less publicly available information
about such companies than comparable U.S. companies.
The economies of many countries in which the Fund invests are not as
diverse or resilient as the U.S. economy, and have significantly less financial
resources. Some countries are more heavily dependent on international trade and
may be affected to a greater extent by protectionist measures of their
governments, or dependent upon a relatively limited number of commodities and,
thus, sensitive to changes in world prices for these commodities.
In many foreign countries, stock markets are more variable than U.S.
markets for two reasons. Contemporaneous declines in both (i) foreign securities
prices in local currencies, and (ii) the value of local currencies in relation
to the U.S. dollar can have a significant negative impact on the net asset value
of the Fund. The net asset value of the Fund is denominated in U.S. dollars,
and, therefore, declines in market price of both the foreign securities held by
the Fund and the foreign currency in which those securities are denominated will
be reflected in the net asset value of the Fund's shares.
Emerging Markets Risk
The investments of the Fund involve risks in addition to the usual risks of
investing in developed foreign markets. A number of emerging markets restrict,
to varying degrees, foreign investment in stocks. Repatriation of investment
income, capital, and the proceeds of sales by foreign investors may require
governmental registration and/or approval in some emerging countries. In some
jurisdictions, such restrictions and the imposition of taxes are intended to
discourage shorter rather than longer-term holdings. While the Fund will invest
only in markets
5
where these restrictions are considered acceptable to the Advisor, new or
additional repatriation restrictions might be imposed subsequent to the Fund's
investment. If such restrictions were imposed subsequent to investment in the
securities of a particular country, the Fund, among other things, might
discontinue the purchase of securities in that country. Such restrictions will
be considered in relation to the Fund's liquidity needs and other factors and
may make it particularly difficult to establish the fair market value of
particular securities from time to time. Further, some attractive equity
securities may not be available to the Fund because foreign shareholders hold
the maximum amount permissible under current laws.
Relative to the U.S. and to larger non-U.S. markets, many of the emerging
markets in which the Fund may invest are relatively small, have low trading
volumes, suffer periods of illiquidity, and are characterized by significant
price volatility. Such factors may be even more pronounced in jurisdictions
where securities ownership is divided into separate classes for domestic and
non-domestic owners. These risks are heightened for investments in small company
emerging markets securities.
In addition, many emerging markets, including most Latin American
countries, have experienced substantial and, in some periods, extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the economies
and securities markets of certain countries. In an attempt to control inflation,
wage and price controls have been imposed at times in certain countries. Certain
emerging markets have recently transitioned, or are in the process of
transitioning, from centrally controlled to market-based economies. There can be
no assurance that such transitions will be successful.
Brokerage commissions, custodial services, and other costs relating to
investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets, there
have been times when settlements do not keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability of
the Fund to make intended securities purchases due to settlement problems could
cause the Fund to miss investment opportunities. Inability to dispose of a
portfolio security caused by settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, possible liability to
the purchaser.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees of the Fund (the "Board").
Government involvement in the private sector varies in degree among the
emerging markets contemplated for investment by the Fund. Such involvement may,
in some cases, include government ownership of companies in certain commercial
business sectors, wage and price controls, or imposition of trade barriers and
other protectionist measures. With respect to any developing country, there is
no guarantee that some future economic or political crisis will
6
not lead to price controls, forced mergers of companies, expropriation, the
creation of government monopolies, or other measures that could be detrimental
to the investments of the Fund.
Taxation of dividends and capital gains received by non-residents varies
among countries with emerging markets and, in some cases, is high in relation to
comparable U.S. rates. Particular tax structures may have the intended or
incidental effect of encouraging long holding periods for particular securities
and/or the reinvestment of earnings and sales proceeds in the same jurisdiction.
In addition, emerging market jurisdictions typically have less well-defined tax
laws and procedures than is the case in the U.S., and such laws may permit
retroactive taxation so that the Fund could in the future become subject to
local tax liability that it had not reasonably anticipated in conducting its
investment activities or valuing its assets.
Foreign Currencies and Related Transactions
Investments of the Fund will be denominated in foreign currencies. Changes
in the relative values of foreign currencies and the U.S. dollar, therefore,
will affect the value of investments of the Fund. The Fund may (but typically
does not) purchase foreign currency futures contracts and options thereon in
order to hedge against changes in the level of foreign currency exchange rates.
Such contracts involve an agreement to purchase or sell a specific currency at a
future date at a price set in the contract and would enable the Fund to protect
against losses resulting from adverse changes in the relationship between the
U.S. dollar and foreign currencies occurring between the trade and settlement
dates of the Fund's securities transactions, but they also tend to limit the
potential gains that might result from a positive change in such currency
relationships. Gains and losses on investments in futures and options thereon
depend on the direction of interest rates and other economic factors.
Borrowing
The Fund has reserved the right to borrow amounts not exceeding 33% of its
net assets for the purpose of making redemption payments. When advantageous
opportunities to do so exist, the Fund may purchase securities when borrowings
exceed 5% of the value of its net assets. Such purchases can be considered to be
"leveraging" and, in such circumstances, the net asset value of the Fund may
increase or decrease at a greater rate than would be the case if the Fund had
not leveraged. The interest payable on the amount borrowed would increase the
Fund's expenses and, if the appreciation and income produced by the investments
purchased when the Fund has borrowed are less than the cost of borrowing, the
investment performance of the Fund will be reduced as a result of leveraging.
Derivatives
Derivatives are securities, such as futures contracts, whose value is
derived from that of other securities or indices. Derivatives can be used for
hedging (attempting to reduce risk by offsetting one investment position with
another) or non-hedging purposes. Hedging with derivatives may increase
expenses, and there is no guarantee that a hedging strategy will work. While
hedging can reduce or eliminate losses, it can also reduce or eliminate gains.
7
The Fund may use derivatives, such as futures contracts and options on
futures contracts, to gain market exposure on the Fund's uninvested cash pending
investment in securities or to maintain liquidity to pay redemptions. The use of
derivatives for non-hedging purposes may be considered more speculative than
other types of investments. When the Fund uses derivatives for non-hedging
purposes, the Fund will be directly exposed to the risks of that derivative.
Gains or losses from derivative investments may be substantially greater than
the derivative's original cost.
Futures Contracts and Options on Futures
The Fund may invest in index futures contracts and options on index
futures. Index futures contracts and options on index futures are derivative
securities. These investments entail the risk that an imperfect correlation may
exist between changes in the market value of the stocks owned by the Fund and
the prices of such futures contracts and options, and, at times, the market for
such contracts and options might lack liquidity, thereby inhibiting the Fund's
ability to close a position in such investments. Gains or losses on investments
in options and futures depend on the direction of securities prices, interest
rates and other economic factors, and the loss from investing in futures
transactions is potentially unlimited. Certain restrictions imposed by the Code
may limit the ability of the Fund to invest in futures contracts and options on
futures contracts.
The Fund is operated by a person that has claimed an exclusion from the
definition of the term "commodity pool operator" under the Commodity Exchange
Act ("CEA"), and, therefore, such person is not subject to registration or
regulation as a commodity pool operator under the CEA.
Securities Lending
The Fund may lend its portfolio securities to generate additional income.
Securities lending involves the risk that the borrower may fail to return the
securities in a timely manner or at all. As a result, the Fund may lose money
and there may be a delay in recovering the loaned securities. The Fund could
also lose money if it does not recover the securities and/or the value of the
collateral falls, including the value of investments made with cash collateral.
Securities lending may have certain potential adverse tax consequences. See
"SECURITIES LOANS" for further information on securities lending.
MANAGEMENT OF THE FUND
Dimensional Fund Advisors LP (the "Advisor") serves as investment advisor
to the Fund. As such, the Advisor is responsible for the management of the
Fund's assets. The Fund is managed using a team approach. The investment team
includes the Investment Committee of the Advisor, portfolio managers, and
trading personnel.
The Investment Committee is composed primarily of certain officers and
directors of the Advisor who are appointed annually. As of the date of this Part
A, the Investment Committee has seven members. Investment strategies for the
Fund are set by the Investment Committee, which meets on a regular basis and
also as needed to consider investment issues. The Investment
8
Committee also sets and reviews all investment related policies and procedures
and approves any changes in regards to approved countries, security types, and
brokers.
In accordance with the team approach used to manage the portfolios, the
portfolio managers and portfolio traders implement the policies and procedures
established by the Investment Committee. The portfolio managers and portfolio
traders also make daily investment decisions regarding the Fund, including
running buy and sell programs based on the parameters established by the
Investment Committee. Karen E. Umland is the portfolio manager that coordinates
the efforts of all other portfolio managers with respect to the day-to-day
management of the Fund.
Ms. Umland is a Senior Portfolio Manager and Vice President of the Advisor
and a member of the Investment Committee. She received her BA from Yale
University in 1988 and her MBA from the University of California at Los Angeles
in 1993. Ms. Umland joined the Advisor in 1993 and has been responsible for the
international equity funds since 1998.
Part B, the statement of additional information, provides information about
the portfolio manager's compensation, other accounts managed by the portfolio
manager, and the portfolio manager's ownership of the Fund's shares.
The Advisor provides the Fund with a trading department and selects brokers
and dealers to effect securities transactions. Securities transactions are
placed with a view to obtaining the best price and execution of such
transactions. The Advisor is authorized to pay a higher commission to a broker,
dealer, or exchange member than another such organization might charge if it
determines, in good faith, that the commission paid is reasonable in relation to
the research or brokerage services provided by such organization. A discussion
regarding the basis for the Board approving the investment management agreement
with respect to the Fund is available in the semi-annual report for the Fund for
the six-month period ended April 30, 2009.
In 2008, the fiscal year end for the Fund was changed from November 30 to
October 31. For the fiscal period from December 1, 2007 to October 31, 2008, the
Advisor received a fee for its services from the Fund that, on an annual basis,
equaled 0.10% of the average daily net assets of the Fund.
The Fund bears all of its own costs and expenses, including: services of
its independent registered public accounting firm; legal counsel; brokerage
fees; commissions and transfer taxes in connection with the acquisition and
disposition of portfolio securities; taxes; insurance premiums; costs incidental
to meetings of its shareholders and Trustees; the cost of filing its
registration statements under the federal securities laws and the cost of any
filings required under state securities laws; reports to shareholders; and
transfer and dividend disbursing agency, administrative services, and custodian
fees.
The Advisor has been engaged in the business of providing investment
management services since May 1981. The Advisor is currently organized as a
Delaware limited partnership and is controlled and operated by its general
partner, Dimensional Holdings Inc., a Delaware corporation. As of August 31,2009, assets under management of all Dimensional affiliated advisors totaled
approximately $148 billion.
9
Consulting Services
The Advisor has entered into a Consulting Services Agreement with
Dimensional Fund Advisors Ltd. ("DFAL") and DFA Australia Limited ("DFA
Australia"), respectively. Pursuant to the terms of each Consulting Services
Agreement, DFAL and DFA Australia provide certain trading and administrative
services to the Advisor with respect to the Fund. The Advisor controls DFAL and
DFA Australia.
DISTRIBUTIONS AND TAXES
Prior to November 1, 2009, the Fund was classified as a corporation that
elected and qualified to be taxed as a regulated investment company for U.S.
federal income tax purposes. Effective on and after November 1, 2009, the Fund
elected to be classified as a partnership and will not be a regulated investment
company for U.S. federal income tax purposes. As a partnership, the Fund will
not be subject to U.S. federal income tax. Instead, if you are an investor in
the Fund, you report separately on your own income tax return your distributive
share of the Fund's income, gains, losses, deductions, and credits (including
foreign tax credits for creditable foreign taxes imposed on the Fund). The
Fund's taxable year-end will be October 31, but may be subject to change
depending on the tax years of the investors in the Fund. Although, as described
above, the Fund will not be subject to U.S. federal income tax, it will file
appropriate U.S. federal income tax returns.
The Fund may be subject to foreign withholding taxes on income from foreign
securities.
In general, distributions of money by the Fund to an investor will
represent a non-taxable return of capital to the investor up to the amount of
the investor's adjusted tax basis in its entire interest in Fund. The Fund,
however, does not currently intend to declare and pay distributions to investors
except as may be determined by the Board of Trustees.
The sale of shares of the Fund is a taxable event and may result in a
capital gain or loss to you. A distribution in partial or complete redemption of
your shares in the Fund is taxable as a sale or exchange only to the extent the
amount of money received exceeds your tax basis in the entire interest in the
Fund. Any loss may be recognized only if you redeem your entire interest in the
Fund for money.
If you are a tax-exempt investor, an allocable share of your income will be
"unrelated business taxable income" ("UBTI") to the extent that the Fund borrows
money to acquire property or invests in assets that produce UBTI.
In addition to federal taxes, you may be subject to state and local taxes
on your distributive share of the Fund's income and gains and on gains arising
on redemption or exchange of the Fund's shares. Investors should consult their
tax advisors to determine the applicability of state, local, or foreign taxes to
their distributive share of the Fund's income, gains, losses, deductions, and
credits.
This discussion of "Distributions and Taxes" is not intended or written to
be used as tax advice. Prospective investors should consult the Part B. Because
everyone's tax
10
situation is unique, you should also consult your tax professional about
federal, state, local, or foreign tax consequences before making an investment
in the Fund.
PURCHASE OF SHARES
Shares issued by the Fund are not registered under the Securities Act,
which means that the Fund's shares may not be sold publicly. However, the Fund
may sell its shares through private placements pursuant to available exemptions
from registration under the Securities Act. Shares of the Fund are sold only to
other investment companies and certain institutional investors.
One shareholder of the Fund is an open-end investment company that seeks to
achieve its investment objective by investing all of its investable assets in
the Fund (the "Feeder Portfolio"). The Feeder Portfolio has a similar investment
objective and investment policies and limitations as the Fund. The master-feeder
structure is unlike many other investment companies that directly acquire and
manage their own portfolio of securities. The investment experience of the
Feeder Portfolio will correspond directly with the investment experience of the
Fund.
Cash Purchases
Investors may purchase shares of the Fund by first contacting the Advisor
at (888) 576-1167 or (512) 306-7400 to notify the Advisor of the proposed
investment. All investments are subject to approval of the Advisor, and all
investors must complete and submit the necessary account registration forms. The
Fund reserves the right to reject any initial or additional investment and to
suspend the offering of shares of the Fund.
Investors having an account with a bank that is a member or a correspondent
of a member of the Federal Reserve System may purchase shares by first calling
the Advisor at (888) 576-1167 or (512) 306-7400 to notify the Advisor of the
proposed investment, then requesting the bank to transmit immediately available
funds (Federal Funds) by wire to PNC Bank, N.A., for the account of Dimensional
Emerging Markets Value Fund Additional investments also may be made through the
wire procedure by first notifying the Advisor. Investors who wish to purchase
shares of the Fund by check should send their check to Dimensional Emerging
Markets Value Fund, c/o PNC Global Investment Servicing (U.S.) Inc., P.O. Box
8916, Wilmington, Delaware19899-8916. Citibank, N.A. serves as custodian for
the Fund.
Payment of the total amount due should be made in U.S. dollars. However,
subject to approval by the Advisor, payment may be made in any freely
convertible currency and the necessary foreign exchange transactions will be
arranged on behalf of, and at the expense of, the applicant. Applicants settling
in any currency other than U.S. dollars are advised that a delay in processing a
purchase or redemption may occur to allow for currency conversion.
Under certain circumstances, shares also may be purchased and sold by
investors through securities firms that may charge a service fee or commission
for such transactions. No such fee or commission is charged on shares that are
purchased or redeemed directly from the Fund.
Purchases of shares will be made in full and fractional shares calculated
to three decimal places. In the interest of economy and convenience,
certificates for shares will not be issued.
11
In-Kind Purchases
If accepted by the Fund, shares may be purchased in exchange for securities
that are eligible for acquisition by the Fund or otherwise represented in its
portfolio, as described in this Part A, or as otherwise consistent with the
Fund's policies and procedures, or in exchange for local currencies in which
such securities of the Fund are denominated. Securities and local currencies to
be exchanged that are accepted by the Fund and Fund shares to be issued in the
exchange will be valued as set forth under "VALUATION OF SHARES" at the time of
the next determination of net asset value after such acceptance. All dividends,
interest, subscriptions, or other rights pertaining to such securities shall
become the property of the Fund and must be delivered to the Fund by the
investor upon receipt from the issuer. Investors who desire to purchase shares
of the Fund with local currencies should first contact the Advisor.
The Fund will not accept securities in exchange for shares of the Fund
unless: (i) such securities are, at the time of the exchange, eligible to be
included, or otherwise represented, in the Fund and current market quotations
are readily available for such securities; (ii) the investor represents and
agrees that all securities offered to be exchanged are not subject to any
restrictions upon their sale by the Fund under the Securities Act or under the
laws of the country in which the principal market for such securities exists, or
otherwise; and (iii) at the discretion of the Fund, the value of any such
security (except U.S. government securities) being exchanged, together with
other securities of the same issuer owned by the Fund, may not exceed 5% of the
net assets of the Fund immediately after the transaction.
A gain or loss for federal income tax purposes will generally be realized
by investors who are subject to federal taxation upon the exchange, depending
upon the cost of the securities or local currency exchanged. Investors
interested in such exchanges should contact the Advisor. Purchases of shares
will be made in full and fractional shares calculated to three decimal places.
In the interest of economy and convenience, certificates for shares will not be
issued.
POLICY REGARDING EXCESSIVE OR SHORT-TERM TRADING
The Fund is designed for long-term investors and is not intended for
investors that engage in excessive short-term trading activity that may be
harmful to the Fund, including but not limited to market timing. Short-term or
excessive trading into and out of the Fund can disrupt portfolio management
strategies, harm performance and increase Fund expenses for all shareholders,
including long-term shareholders who do not generate these costs.
In addition, the nature of the Fund's holdings may present opportunities
for a shareholder to engage in a short-term trading strategy that exploits
possible delays between changes in the price of the Fund's holdings and the
reflection of those changes in the Fund's net asset value (called "arbitrage
market timing"). Such delays may occur because the Fund has significant
investments in foreign securities where, due to time zone differences, the
values of those securities are established some time before the Fund calculates
its net asset value. In such circumstances, the available market prices for such
foreign securities may not accurately reflect the latest indications of value at
the time the Fund calculates its net asset value. There is a possibility that
arbitrage market timing may dilute the value of the Fund's shares if redeeming
12
shareholders receive proceeds (and purchasing shareholders receive shares) based
upon a net asset value that does not reflect appropriate fair value prices.
The Board has adopted a policy (the "Trading Policy") and the Advisor and
DFA Securities LLC (formerly DFA Securities Inc.) (collectively, "Dimensional")
and Dimensional's agents have implemented the following procedures, which are
designed to discourage and prevent market timing or excessive short-term trading
in the Fund: (i) trade activity monitoring and purchase blocking procedures; and
(ii) use of fair value pricing.
The Fund, Dimensional, and their agents monitor trades and flows of money
in and out of the Fund from time to time in an effort to detect excessive
short-term trading activities, and for consistent enforcement of the Trading
Policy. The Fund reserves the right to take the actions necessary to stop
excessive or disruptive trading activities, including refusing or canceling
purchase orders for any reason, without prior notice, particularly purchase
orders that the Fund believes are made on behalf of market timers. The Fund,
Dimensional, and their agents reserve the right to restrict, refuse, or cancel
any purchase request made by an investor indefinitely if the Fund or Dimensional
believes that any combination of trading activity in the accounts is potentially
disruptive to the Fund. In making such judgments, the Fund and Dimensional seek
to act in a manner that is consistent with the interests of shareholders. For
purposes of applying these procedures, Dimensional may consider an investor's
trading history in the Fund, and accounts under common ownership, influence, or
control.
In addition to the Fund's general ability to restrict potentially
disruptive trading activity, as described above, the Fund also has adopted
purchase blocking procedures. Under the Fund's purchase blocking procedures,
where an investor has engaged in any two purchases and two redemptions in the
Fund in any rolling thirty- (30) calendar day monitoring period (i.e., two
"round trips"), the Fund and Dimensional intend to block the investor from
making any additional purchases in the Fund for ninety (90) calendar days (a
"purchase block"). If implemented, a purchase block will begin at some point
after the transaction that caused the investor to have engaged in the prohibited
two round-trips is detected by the Fund, Dimensional, or their agents. The Fund
and Dimensional are permitted to implement a longer purchase block, or
permanently bar future purchases by an investor, if they determine that it is
appropriate.
Under the Fund's purchase blocking procedures, the following purchases and
redemptions will not trigger a purchase block: (i) purchases and redemptions of
shares having a value in each transaction of less than $5,000; (ii) purchases
and redemptions by U.S. registered investment companies that operate as fund of
funds and non-U.S. investment companies that operate as fund of funds that the
Fund or Dimensional, in their sole discretion, have determined are not designed
and/or are not serving as vehicles for excessive short-term or other disruptive
trading (in each case, the fund of funds shall agree to be subject to monitoring
by Dimensional); (iii) purchases and redemptions by a feeder portfolio of a
master fund's shares; (iv) systematic or automated transactions where the
shareholder, financial advisor, or investment fiduciary does not exercise direct
control over the investment decision; (v) retirement plan contributions, loans,
loan repayments, and distributions (including hardship withdrawals) identified
as such in the retirement plan recordkeeper's system; (vi) purchase transactions
involving transfers of assets, rollovers, Roth IRA conversions, and IRA
recharacterizations; (vii) purchases of shares with Fund dividends or capital
gain distributions; (viii) transfers and reregistrations of shares within
13
the Fund; and (ix) transactions by 529 Plans. Notwithstanding the Fund's
purchase blocking procedures, all transactions in Fund shares are subject to the
right of the Fund and Dimensional to restrict potentially disruptive trading
activity (including purchases and redemptions described above that will not be
subject to the purchase blocking procedures).
In addition, the purchase blocking procedures will not apply to a
redemption transaction in which the Fund distributes portfolio securities to a
shareholder in-kind, where the redemption will not disrupt the efficient
portfolio management of the Fund and the redemption is consistent with the
interests of the remaining shareholders of the Fund.
As of the date of this registration statement, the ability of the Fund and
Dimensional to apply the purchase blocking procedures on purchases by all
investors may be restricted due to systems limitations of the Fund's service
providers. The Fund expects that the application of the Trading Policy as
described above, including the purchase blocking procedures (subject to the
limitations described above), will be able to be implemented by Intermediaries
in compliance with Rule 22c-2 under the 1940 Act.
In addition to monitoring trade activity, the Board has adopted fair value
pricing procedures that govern the pricing of the securities of the Fund. These
procedures are designed to help ensure that the prices at which Fund shares are
purchased and redeemed are fair, and do not result in dilution of shareholder
interests or other harm to shareholders. See the discussion under "VALUATION OFSHARES--Net Asset Value" for additional details regarding fair value pricing of
the Fund's securities.
Although the procedures are designed to discourage excessive short-term
trading, none of the procedures individually, nor all of the procedures taken
together, can completely eliminate the possibility that excessive short-term
trading activity in the Fund may occur. The Fund does not knowingly accommodate
excessive or disruptive trading activities, including market timing.
VALUATION OF SHARESNet Asset Value
The net asset value per share of the Fund is generally calculated on days
that the New York Stock Exchange ("NYSE") is open for trading. The net asset
value per share of the Fund is calculated after the close of the NYSE (normally,
1:00 p.m. PT) by dividing the total value of the Fund's investments and other
assets, less any liabilities, by the total outstanding shares of the stock of
the Fund. Note: The time at which transactions and shares are priced may be
changed in case of an emergency or if the NYSE closes at a time other than 1:00
p.m. PT.
The value of the shares of the Fund will fluctuate in relation to its own
investment experience. Securities held by the Fund will be valued in accordance
with applicable laws and procedures adopted by the Board, and generally, as
described below.
Securities held by the Fund (including over-the-counter securities) are
valued at the last quoted sale price of the day. Securities held by the Fund
that are listed on Nasdaq are valued at the Nasdaq Official Closing Price
("NOCP"). If there is no last reported sale price or NOCP of the day, the Fund
values the securities at the mean of the most recent quoted bid and asked
11
prices. Price information on listed securities is taken from the exchange where
the security is primarily traded. Generally, securities issued by open-end
investment companies, such as the Fund, are valued using their respective net
asset values or public offering prices, as appropriate, for purchase orders
placed at the close of the NYSE.
To the extent the Fund purchases fixed income securities, net asset value
includes interest on fixed income securities, which is accrued daily. Debt
securities will be valued on the basis of prices provided by one or more pricing
services or other reasonably reliable sources including broker/dealers that
typically handle the purchase and sale of such securities. Securities that are
traded over-the-counter and on a stock exchange will be valued according to the
broadest and most representative market, and it is expected that for bonds and
other fixed income securities this ordinarily will be the over-the-counter
market.
The value of the securities and other assets of the Fund for which no
market quotations are readily available (including restricted securities), or
for which market quotations have become unreliable, are determined in good faith
at fair value in accordance with procedures adopted by the Board. Fair value
pricing may also be used if events that have a significant effect on the value
of an investment (as determined in the discretion of the Investment Committee of
the Advisor) occur before the net asset value is calculated. When fair value
pricing is used, the prices of securities used by the Fund may differ from the
quoted or published prices for the same securities on their primary markets or
exchanges.
As of the date of this registration statement, the Fund will also fair
value price in the circumstances described below. Generally, trading in foreign
securities markets is completed each day at various times prior to the close of
the NYSE. For example, trading in the Japanese securities markets is completed
each day at the close of the Tokyo Stock Exchange (normally, 11:00 p.m. PT),
which is fourteen hours prior to the close of the NYSE (normally, 1:00 p.m. PT)
and the time that the net asset value of the Fund is computed. Due to the time
differences between the closings of the relevant foreign securities exchanges
and the time the Fund prices its shares at the close of the NYSE, the Fund will
fair value its foreign investments when it is determined that the market
quotations for the foreign investments are either unreliable or not readily
available. The fair value prices will attempt to reflect the impact of the U.S.
financial markets' perceptions and trading activities on the Fund's foreign
investments since the last closing prices of the foreign investments were
calculated on their primary foreign securities markets or exchanges. For these
purposes, the Board has determined that movements in relevant indices or other
appropriate market indicators, after the close of the Tokyo Stock Exchange or
the London Stock Exchange, demonstrate that market quotations may be unreliable,
and may trigger fair value pricing. Consequently, fair valuation of portfolio
securities may occur on a daily basis. The fair value pricing by the Fund
utilizes data furnished by an independent pricing service (and that data draws
upon, among other information, the market values of foreign investments). The
fair value prices of portfolio securities generally will be used when it is
determined that the use of such prices will have a material impact on the net
asset value of the Fund. When the Fund uses fair value pricing, the values
assigned to the Fund's foreign investments may not be the quoted or published
prices of the investments on their primary markets or exchanges. The Board
monitors the operation of the method used to fair value price the Fund's foreign
investments.
15
Valuing securities at fair value involves greater reliance on judgment than
valuing securities that have readily available market quotations. There can be
no assurance that the Fund could obtain the fair value assigned to a security if
it were to sell the security at approximately the time at which the Fund
determines its net asset value per share. As a result, the sale or redemption by
the Fund of its shares at net asset value, at a time when a holding or holdings
are valued at fair value, may have the effect of diluting or increasing the
economic interest of existing shareholders.
The net asset value per share of the Fund is expressed in U.S. dollars by
translating the net assets of the Fund using the mean of the most recent bid and
asked prices for the dollar as quoted by generally recognized reliable sources.
Since the Fund owns securities that are primarily listed on foreign exchanges
that may trade on days when the Fund does not price its shares, the net asset
value of the Fund may change on days when shareholders will not be able to
purchase or redeem shares.
Certain of the securities holdings of the Fund in Approved Markets may be
subject to tax, investment, and currency repatriation regulations of the
Approved Markets that could have a material effect on the values of the
securities. For example, the Fund might be subject to different levels of
taxation on current income and realized gains depending upon the holding period
of the securities. In general, a longer holding period (e.g., five years) may
result in the imposition of lower tax rates than a shorter holding period (e.g.,
one year). The Fund may also be subject to certain contractual arrangements with
investment authorities in an Approved Market that require the Fund to maintain
minimum holding periods or to limit the extent of repatriation of income and
realized gains.
Futures contracts are valued using the settlement price established each
day on the exchange on which they are traded. The value of such futures
contracts held by the Fund is determined each day as of such close.
Public Offering Price
Provided that PNC Global Investment Servicing (U.S.) Inc., the Fund's
transfer agent (the "Transfer Agent"), has received the investor's Account
Registration Form in good order and the custodian has received the investor's
payment, shares of the Fund will be priced at the public offering price, which
is the net asset value of the shares next determined after receipt of the
investor's funds by the custodian. "Good order" with respect to the purchase of
shares means that (1) a fully completed and properly signed Account Registration
Form and any additional supporting legal documentation required by the Advisor
has been received in legible form, and (2) the Advisor has been notified of the
purchase by telephone and, if the Advisor so requests, also in writing, no later
than the close of regular trading on the NYSE (normally, 1:00 p.m. PT) on the
day of the purchase. If an order to purchase shares must be canceled due to
non-payment, the purchaser will be responsible for any loss incurred by the Fund
arising out of such cancellation. To recover any such loss, the Fund reserves
the right to redeem shares owned by any purchaser whose order is canceled. The
Fund also may prohibit or restrict the manner in which such purchaser may place
further orders. No reimbursement fee or sales charge is imposed on purchases.
16
EXCHANGE OF SHARES
There is no exchange privilege between the Fund and the series of The DFA
Investment Trust Company or any portfolio of DFA Investment Dimensions Group
Inc. or Dimensional Investment Group Inc.
REDEMPTION OF SHARES
Shares issued by the Fund are not registered under the Securities Act,
which means that the Fund's shares are restricted securities that may not be
sold unless registered or pursuant to an available exemption from that Act.
Redemption Procedures
Investors who desire to redeem shares of the Fund must first contact the
Advisor at the telephone number shown under "PURCHASE OF SHARES." The Fund will
redeem shares at the net asset value of such shares next determined, either: (i)
after receipt by the Fund's Transfer Agent (or by an Intermediary or a
Sub-designee, if applicable) of a written request for redemption in good order,
or (ii) if stock certificates have been issued, after receipt of the stock
certificates in good order at the office of the Transfer Agent. Good order means
that the request to redeem shares must include all necessary documentation, to
be received in writing by the Advisor no later than the close of regular trading
on the NYSE (normally, 1:00 p.m. PT), including but not limited to: the stock
certificate(s), if issued; a letter of instruction or a stock assignment
specifying the number of shares or dollar amount to be redeemed, signed by all
registered owners (or representatives thereof) of the shares; and, if the Fund
does not have on file the authorized signatures for the account, proof of
authority.
Shareholders redeeming shares for which certificates have not been issued,
who have authorized redemption payment by wire on an authorization form filed
with the Fund, may request that redemption proceeds be paid in federal funds
wired to the bank they have designated on the authorization form. The Fund
reserves the right to send redemption proceeds by check in its discretion; a
shareholder may request overnight delivery of such check at the shareholder's
own expense. If the proceeds are wired to the shareholder's account at a bank
that is not a member of the Federal Reserve System, there could be a delay in
crediting the funds to the shareholder's bank account. The Fund reserves the
right at any time to suspend or terminate the redemption by wire procedure after
prior notification to shareholders. No fee is charged by the Fund for
redemptions. The redemption of all shares in an account will result in the
account being closed. A new Account Registration Form will be required for
future investments. (See "PURCHASE OF SHARES.") In the interests of economy and
convenience, certificates for shares are not issued.
Although the redemption payments will ordinarily be made within seven days
after receipt, payment to investors redeeming shares that were purchased by
check will not be made until the Fund can verify that the payments for the
purchase have been, or will be, collected, which may take up to ten days or
more. Investors may avoid this delay by submitting a certified check along with
the purchase order.
17
Redemption of Small Accounts
The Fund reserves the right to redeem an account if the value of the shares
in the Fund is $500 or less because of redemptions. Before the Fund
involuntarily redeems shares from such an account and sends the proceeds to the
stockholder, the Fund will give written notice of the redemption to the
stockholder at least sixty days before the redemption date. The stockholder will
then have sixty days from the date of the notice to make an additional
investment in the Fund in order to bring the value of the shares in the account
to more than $500 and avoid such involuntary redemption. The redemption price to
be paid to a stockholder for shares redeemed by the Fund under this right will
be the aggregate net asset value of the shares in the account at the close of
business on the redemption date. This right to redeem small accounts applies to
accounts established with the Fund's transfer agent.
The Fund reserves the right to automatically redeem shares of the Fund
owned by a stockholder if the investment advisory agreement between the
stockholder and the Advisor is terminated.
In-Kind Redemptions
When in the best interests of the Fund, the Fund may make a redemption
payment, in whole or in part, by a distribution of portfolio securities in lieu
of cash. Such distributions will be made in accordance with the federal
securities laws and regulations governing mutual funds. Investors may incur
brokerage charges and other transaction costs selling securities that were
received in payment of redemptions. The Fund reserves the right to redeem its
shares in the currencies in which its investments are denominated. Investors may
incur charges in converting such currencies to dollars and the value of the
securities may be affected by currency exchange fluctuations.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Fund generally will disclose up to 25 of its largest portfolio holdings
(other than cash and cash equivalents) and the percentages that each of these
largest portfolio holdings represent of the total assets of the Fund, as of the
most recent month-end by providing this information for portfolios that invest
in the Fund as feeder portfolios. This information is disclosed online at the
Advisor's Web site, http://www.dimensional.com, which is accessible by
shareholders, within twenty (20) days after the end of each month. The Fund also
generally will disclose its complete portfolio holdings (other than cash and
cash equivalents), as of month-end, online at the Advisor's Web site, which is
accessible by shareholders, two months following the month-end or more
frequently and at different periods when authorized in accordance with the
Fund's policies and procedures. Please consult Part B, the statement of
additional information, for a description of the other policies and procedures
that govern disclosure of the portfolio holdings by the Fund.
18
SERVICE PROVIDERS
Investment Advisor
DIMENSIONAL FUND ADVISORS LP
6300 Bee Cave Road, Building One
Austin, TX78746
Tel. No. (512) 306-7400
Custodian
CITIBANK, N.A.
111 Wall Street
New York, NY10005
Transfer and Dividend Disbursing Agent
PNC GLOBAL INVESTMENT SERVICING (U.S.) INC.
301 Bellevue Parkway
Wilmington, DE19809
Legal Counsel
STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 One Commerce Square
Philadelphia, PA19103-7098
Independent Registered Public Accounting Firm
PRICEWATERHOUSECOOPERS LLP
Two Commerce Square
Suite 1700
2001 Market Street
Philadelphia, PA19103-7042
19
DIMENSIONAL EMERGING MARKETS VALUE FUND
6300 Bee Cave Road, Building One, Austin TX, 78746
Telephone: (512) 306-7400
PART B
STATEMENT OF ADDITIONAL INFORMATION
October 30, 2009
This statement of additional information is not a prospectus but should be
read in conjunction with Part A of the Fund's registration statement dated
October 30, 2009. A free copy of the Fund's Part A, annual and semi-annual
reports to shareholders can be obtained from the Fund by writing to the Fund at
the above address or by calling the above telephone number. Information from the
Fund's annual and semi-annual reports to shareholders is incorporated by
reference into this statement of additional information.
TABLE OF CONTENTS
Page
FUND CHARACTERISTICS AND POLICIES..............................................1
BROKERAGE COMMISSIONS..........................................................1
INVESTMENT LIMITATIONS.........................................................2
FUTURES CONTRACTS..............................................................4
FORWARD FOREIGN CURRENCY TRANSACTIONS..........................................5
CASH MANAGEMENT PRACTICES......................................................5
CONVERTIBLE DEBENTURES.........................................................6
EXCHANGE TRADED FUNDS..........................................................6
TRUSTEES AND OFFICERS..........................................................6
SERVICES TO THE FUND..........................................................16
ADVISORY FEES.................................................................17
PORTFOLIO MANAGERS............................................................17
GENERAL INFORMATION...........................................................20
CODE OF ETHICS................................................................20
SHAREHOLDER RIGHTS............................................................20
PRINCIPAL HOLDERS OF SECURITIES...............................................21
PURCHASE OF SHARES............................................................21
REDEMPTION OF SHARES..........................................................22
TAX MATTERS...................................................................22
PROXY VOTING POLICIES.........................................................30
DISCLOSURE OF PORTFOLIO HOLDINGS..............................................32
FINANCIAL STATEMENTS..........................................................36
FUND CHARACTERISTICS AND POLICIES
The following information supplements the information set forth in Part A.
Capitalized terms not otherwise defined in this Part B have the meaning assigned
to them in Part A.
Dimensional Emerging Markets Value Fund is a diversified, open-end
management investment company. The investment objective of the Fund is to seek
long-term capital growth through investment in emerging market equity
securities.
It is possible that the Fund might own at least 5% of the outstanding
voting securities of one or more issuers. In such circumstances, the Fund and
the issuer would be deemed "affiliated persons" under the Investment Company Act
of 1940 Act, as amended (the "1940 Act"), and certain requirements of the 1940
Act regulating dealings between affiliates might become applicable.
BROKERAGE COMMISSIONS
In 2008, the fiscal year end for the Fund was changed from November 30 to
October 31. For the fiscal period ending October 31, 2008, and the fiscal years
ending November 30, 2007 and 2006, the Fund paid brokerage commissions of
$2,557,695, $3,742,311, and $4,533,467, respectively.
Portfolio transactions will be placed with a view to receiving the best
price and execution. The Fund will seek to acquire and dispose of securities in
a manner that would cause as little fluctuation in the market prices of stocks
being purchased or sold as possible in light of the size of the transactions
being effected, and brokers will be selected with this goal in view. The Advisor
monitors the performance of brokers that effect transactions for the Fund to
determine the effect that the brokers' trading has on the market prices of the
securities in which the Fund invests. The Advisor also checks the rates of
commissions being paid by the Fund to its brokers to ascertain that they are
competitive with those charged by other brokers for similar services.
Transactions also may be placed with brokers who have assisted in the sale of
the Fund's shares and who provide the Advisor with investment research, such as
reports concerning individual issuers, industries, and general economic and
financial trends, and other research services.
Subject to obtaining best price and execution, transactions may be placed
with brokers that have assisted in the sale of Fund shares. The Advisor,
however, pursuant to policies and procedures approved by the Board of Trustees
of the Fund (the "Board"), is prohibited from selecting brokers and dealers to
effect the Fund's portfolio securities transactions based (in whole or in part)
on a broker's or dealer's promotion or sale of shares issued by the Fund or any
other registered investment companies.
The Advisor believes that it needs maximum flexibility to effect trades on
a best execution basis. As deemed appropriate, the Advisor places buy and sell
orders for the Fund with various brokerage firms that may act as principal or
agent. The Advisor may also make use of direct market access and algorithmic,
program, or electronic trading methods. The Advisor
1
may extensively use electronic trading systems as such systems can provide the
ability to customize the orders placed and can assist in the Advisor's execution
strategies.
During the fiscal period ended October 31, 2008, the Fund paid brokerage
commissions of $198,986 for securities transactions valued at $395,958,444 to
brokers that provided market price monitoring services, market studies and
research services.
The investment management agreement permits the Advisor knowingly to pay
commissions on these transactions that are greater than another broker, dealer,
or exchange member might charge if the Advisor, in good faith, determines that
the commissions paid are reasonable in relation to the value of the research or
brokerage services provided by the broker or dealer when viewed in terms of
either a particular transaction or the Advisor's overall responsibilities to the
accounts under its management. Research services furnished by brokers through
whom securities transactions are effected may be used by the Advisor in
servicing all of its accounts and not all such services may be used by the
Advisor with respect to the Fund.
The Fund may purchase securities of its regular brokers or dealers (as
defined in Rule 10b-1 under the 1940 Act). The Fund did not purchase securities
of its regular brokers or dealers (or securities of the broker's or dealer's
parent company) during the fiscal period ended October 31, 2008.
INVESTMENT LIMITATIONS
The Fund has adopted certain limitations that may not be changed without
the approval of a majority of the outstanding voting securities of the Fund. A
"majority" is defined as the lesser of: (i) at least 67% of the voting
securities of the Fund (to be affected by the proposed change) present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of the Fund.
The Fund will not:
(1) borrow money, except to the extent permitted by the 1940 Act, or any rules,
exemptions or interpretations thereunder that may be adopted, granted or
issued by the SEC;
(2) make loans, except to the extent permitted by the 1940 Act, or any rules,
exemptions or interpretations thereunder that may be adopted, granted or
issued by the SEC; provided that in no event shall the Fund be permitted to
make a loan to a natural person;
(3) purchase or sell real estate, unless acquired as a result of ownership of
securities or other instruments, and provided that this restriction does
not prevent the Fund from: (i) purchasing or selling securities or
instruments secured by real estate or interests therein, securities or
instruments representing interests in real estate or securities or
instruments of issuers that invest, deal or otherwise engage in
transactions in real estate or interests therein; and (ii) purchasing or
selling real estate mortgage loans;
2
(4) purchase or sell physical commodities, unless acquired as a result of
ownership of securities or other instruments, and provided that this
restriction does not prevent the Fund from: (i) engaging in transactions
involving currencies and futures contracts and options thereon; or (ii)
investing in securities or other instruments that are secured by physical
commodities;
(5) purchase the securities of any one issuer, if immediately after such
investment, the Fund would not qualify as a "diversified company" as that
term is defined by the 1940 Act, as amended, and as modified or interpreted
by regulatory authority having jurisdiction, from time to time;
(6) engage in the business of underwriting securities issued by others, except
to the extent that the sale of securities originally acquired for
investment purposes may be deemed an underwriting;
(7) acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Fund's total assets
would be invested in securities of companies within such industry; or
(8) issue senior securities (as such term is defined in Section 18(f) of the
1940 Act), except to the extent permitted under the 1940 Act.
For purposes of the investment limitation described in (1) above, the Fund
may borrow in connection with a foreign currency transaction or the settlement
of a portfolio trade. Additionally, with respect to the investment limitation
described in (1) above, the Fund will maintain asset coverage of at least 300%
(as described in the 1940 Act), inclusive of any amounts borrowed, with respect
to any borrowings made by the Fund.
Although the investment limitation described in (2) above prohibits loans,
the Fund is authorized to lend portfolio securities.
The Fund is required to operate in accordance with the SEC staff's current
position on illiquid securities, which limits investments in illiquid securities
to 15% of a fund's net assets. Pursuant to Rule 144A under the Securities Act,
the Fund may purchase certain unregistered (i.e., restricted) securities upon a
determination that a liquid institutional market exists for the securities. If
it is determined that a liquid market does exist, the securities will not be
subject to the Fund's 15% limitation on holdings of illiquid securities. While
maintaining oversight, the Board has delegated the day-to-day function of making
liquidity determinations to the Advisor. For Rule 144A securities to be
considered liquid, there must be at least two dealers making a market in such
securities. After purchase, the Board and the Advisor will continue to monitor
the liquidity of Rule 144A securities.
Notwithstanding any of the above investment limitations, the Fund may
establish subsidiaries or other similar vehicles for the purpose of conducting
its investment operations in Approved Markets if such subsidiaries or vehicles
are required by local laws or regulations governing foreign investors such as
the Fund or whose use is otherwise considered by the Fund to be advisable. The
Fund would "look through" any such vehicle or subsidiary to determine compliance
with its investment limitations.
3
Unless otherwise indicated, all limitations applicable to the Fund's
investments apply only at the time that a transaction is undertaken.
FUTURES CONTRACTS
The Fund may enter into futures contracts and options on future contracts
to gain market exposure on the Fund's uninvested cash pending investments in
securities and to maintain liquidity to pay redemptions.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of defined securities at a specified future
time and at a specified price. Futures contracts that are standardized as to
maturity date and underlying financial instrument are traded on national futures
exchanges. The Fund will be required to make a margin deposit in cash or
government securities with a futures commission merchant (an "FCM") to initiate
and maintain positions in futures contracts. Minimal initial margin requirements
are established by the futures exchange and FCMs may establish margin
requirements that are higher than the exchange requirements. After a futures
contract position is opened, the value of the contract is marked to market
daily. If the futures contract price changes to the extent that the margin on
deposit does not satisfy margin requirements, payment of additional "variation"
margin to be held by the FCM will be required. Conversely, reduction in the
contract value may reduce the required margin resulting in a repayment of excess
margin to custodial account of the Fund. Variation margin payments may be made
to and from the futures broker for as long as the contract remains open. The
Fund expects to earn income on its margin deposits. The Fund intends to limit
its futures-related investment activity so that, other than with respect to bona
fide hedging activity (as defined in Commodity Futures Trading Commission
("CFTC") General Regulations Section): (i) the aggregate initial margin and
premiums paid to establish commodity futures and commodity option contract
positions (determined at the time the most recent position was established) does
not exceed 5% of the liquidation value of the Fund's portfolio, after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into (provided that, in the case of an option that is in-the-money
at the time of purchase, the in-the-money amount may be excluded in calculating
such 5% limitation); or (ii) the aggregate net "notional value" (i.e., the size
of a commodity futures or commodity option contract in contract units (taking
into account any multiplier specified in the contract), multiplied by the
current market price (for a futures contract) or strike price (for an option
contract) of each such unit) of all non-hedge commodity futures and commodity
option contracts that the Fund has entered into (determined at the time the most
recent position was established) does not exceed the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and unrealized
losses on any such contracts that the Fund has entered into. Pursuant to
published positions of the Securities and Exchange Commission (the "SEC") and
interpretations of the staff of the SEC, the Fund (or its custodian) is required
to maintain segregated accounts or to segregate assets through notations on the
books of the custodian, consisting of liquid assets (or, as permitted under
applicable interpretations, enter into offsetting positions) in connection with
its futures contract transactions in order to cover its obligations with respect
to such contracts. These requirements are designed to limit the amount of
leverage the Fund may use by entering into futures transactions.
4
Positions in futures contracts may be closed out only on an exchange that
provides a secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. Therefore, it might not be possible to close a futures position and, in
the event of adverse price movements, the Fund would be required to continue to
make variation margin deposits. In such circumstances, if the Fund has
insufficient cash, it might have to sell portfolio securities to meet daily
margin requirements at a time when it might be disadvantageous to do so.
Management intends to minimize the possibility that it will be unable to close
out a futures contract by only entering into futures that are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
FORWARD FOREIGN CURRENCY TRANSACTIONS
The Fund may acquire and sell forward foreign currency exchange contracts
in order to protect against uncertainty in the level of future foreign currency
exchange rates. The Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or by entering into forward contracts to purchase or
sell foreign currencies. A forward foreign currency exchange contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days (usually less than one year) from the date of
the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the spread)
between the price at which they are buying and selling various currencies.
The Fund may enter into a forward contract in connection with the purchase
or sale of foreign equity securities, typically to "lock in" the value of the
transaction with respect to a different currency. In addition, from time to
time, the Fund may enter into a forward contract to transfer balances from one
currency to another currency.
CASH MANAGEMENT PRACTICES
The Fund engages in cash management practices in order to earn income on
uncommitted cash balances. Generally, cash is uncommitted pending investment in
other securities, payment of redemptions, or in other circumstances where the
Advisor believes liquidity is necessary or desirable. For example, cash
investments may be made for temporary defensive purposes during periods in which
market, economic or political conditions warrant.
Pending the investment of new capital in Approved Market equity securities,
the Fund may invest cash in short-term repurchase agreements. In addition, the
Fund may invest a portion of its assets, ordinarily not more than 10%, in money
market instruments, highly liquid debt securities, freely convertible
currencies, index futures contracts and options thereon, and affiliated and
unaffiliated registered and unregistered money market funds (which may involve
duplication of certain fees and expenses). The 10% guideline is not an absolute
limitation but the Fund does not expect to exceed this guideline under normal
circumstances.
5
With respect to the Fund's investment in repurchase agreements, in the
event of the bankruptcy of the other party to a repurchase agreement, the Fund
could experience delay in recovering the securities underlying such agreement.
Management believes that this risk can be controlled through stringent security
selection criteria and careful monitoring procedures.
CONVERTIBLE DEBENTURES
The Fund may invest up to 5% of its assets in convertible debentures issued
by non-U.S. companies organized in Approved Markets. Convertible debentures
include corporate bonds and notes that may be converted into or exchanged for
common stock. These securities are generally convertible either at a stated
price or a stated rate (that is, for a specific number of shares of common stock
or other security). As with other fixed income securities, the price of a
convertible debenture to some extent varies inversely with interest rates. While
providing a fixed income stream (generally higher in yield than the income
derived from a common stock but lower than that afforded by a non-convertible
debenture), a convertible debenture also affords the investor an opportunity,
through its conversion feature, to participate in the capital appreciation of
the common stock into which it is convertible. As the market price of the
underlying common stock declines, convertible debentures tend to trade
increasingly on a yield basis and, therefore, may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the price of a convertible
debenture tends to rise as a reflection of the value of the underlying common
stock. To obtain such a higher yield, the Fund may be required to pay for a
convertible debenture an amount in excess of the value of the underlying common
stock. Common stock acquired by the Fund upon conversion of a convertible
debenture will generally be held for so long as the Advisor anticipates such
stock will provide the Fund with opportunities that are consistent with the
Fund's investment objective and policies.
EXCHANGE TRADED FUNDS
The Fund may also invest in Exchange Traded Funds ("ETFs") and similarly
structured pooled investments for the purpose of gaining exposure to the equity
markets while maintaining liquidity. An ETF is an investment company whose goal
is to track or replicate a desired index, such as a sector, market, or global
segment. ETFs are passively managed, and traded similar to a publicly traded
company. The risks and costs of investing in ETFs are comparable to investing in
a publicly traded company. The goal of an ETF is to correspond generally to the
price and yield performance, before fees and expenses, of its underlying index.
The risk of not correlating to the index is an additional risk to the investors
of ETFs. When the Fund invests in an ETF, shareholders of the Fund bear their
proportionate share of the underlying ETF's fees and expenses.
TRUSTEES AND OFFICERS
Trustees
The Board is responsible for establishing Fund policies and for overseeing
the management of the Fund. The Trustees of the Fund, including all of the
disinterested Trustees,
6
have adopted written procedures to monitor potential conflicts of interest that
might develop between the Feeder Portfolio and the Fund.
The Board has three standing committees, an Audit Committee, a Nominating
Committee, and a Portfolio Performance and Service Review Committee (the
"Performance Committee"). The Board's Audit Committee is comprised of George M.
Constantinides, Roger G. Ibbotson, and Abbie J. Smith. Each member of the Audit
Committee is a disinterested Trustee. The Audit Committee for the Board oversees
the Fund's accounting and financial reporting policies and practices, the Fund's
internal controls, the Fund's financial statements and the independent audits
thereof, and performs other oversight functions as requested by the Board. The
Audit Committee for the Board recommends the appointment of the Fund's
independent registered public accounting firm and acts as a liaison between the
Fund's independent registered public accounting firm and the full Board. There
were three Audit Committee meetings for the Fund held during the fiscal period
ended October 31, 2008.
The Board's Nominating Committee is comprised of George M. Constantinides,
John P. Gould, Roger G. Ibbotson, Robert C. Merton, Myron S. Scholes, and Abbie
J. Smith. Each member of the Nominating Committee is a disinterested Trustee.
The Nominating Committee for the Board makes recommendations for nominations of
disinterested and interested members on the Board to the disinterested Board
members and to the full Board. The Nominating Committee of the Board evaluates a
candidate's qualification for Board membership and the independence of such
candidate from the Advisor and other principal service providers. The Board
established the Nominating Committee as of September 2008; there was one
Nominating Committee meeting held for the Fund during the fiscal period ended
October 31, 2008.
The Nominating Committee will consider nominees recommended by Qualifying
Fund Shareholders if a vacancy occurs among Board members. A Qualifying Fund
Shareholder is a shareholder, or group of shareholders, that: (i) owns of
record, or beneficially through a financial intermediary, 5% or more of the
Fund's outstanding shares; and (ii) has owned such shares for 12 months or more
prior to submitting the recommendation to the Committee. Such recommendations
shall be directed to the Secretary of the Fund at 6300 Bee Cave Road, Building
One, Austin, Texas78746. The Qualifying Fund Shareholder's letter should
include: (i) the name and address of the Qualifying Fund Shareholder making the
recommendation; (ii) the number of shares of the Fund that are owned of record
and beneficially by such Qualifying Fund Shareholder, and the length of time
that such shares have been so owned by the Qualifying Fund Shareholder; (iii) a
description of all arrangements and understandings between such Qualifying Fund
Shareholder and any other person or persons (naming such person or persons)
pursuant to which the recommendation is being made; (iv) the name and address of
the nominee; and (v) the nominee's resume or curriculum vitae. The Qualifying
Fund Shareholder's letter must be accompanied by a written consent of the
individual to stand for election if nominated for the Board and to serve if
elected by shareholders. The Committee also may seek such additional information
about the nominee as the Committee considers appropriate, including information
relating to such nominee that is required to be disclosed in solicitations or
proxies for the election of Board members.
The Board's Performance Committee is comprised of George M. Constantinides,
John P. Gould, Roger G. Ibbotson, Robert C. Merton, Myron S. Scholes, and Abbie
J. Smith. Each
7
member of the Fund's Performance Committee is a disinterested Trustee. The
Performance Committee regularly reviews and monitors the investment performance
of the Fund, and reviews the performance of the Fund's service providers. There
were five Performance Committee meetings for the Fund held during the fiscal
period ended October 31, 2008.
Certain biographical information for each disinterested Trustee and each
interested Trustee of the Fund is set forth in the tables below, including a
description of each Trustee's experience as a Trustee of the Fund and as a
director or trustee of other funds, as well as other recent professional
experience.
Disinterested Trustees
--------------------- --------- ----------- ------------------------------------------- ------------- -----------------
Term of Portfolios
Office(1) within the Other
and DFA Fund Directorships
Name, Address and Length of Complex(2) of Public
Age Position Service Principal Occupation During Past 5 Years Overseen Companies Held
--------------------- --------- ----------- ------------------------------------------- ------------- -----------------
George M. Trustee Since Leo Melamed Professor of Finance, 89 None
Constantinides 1993 University of Chicago Booth School of portfolios
University of Business. in 4
Chicago Booth investment
School of Business companies
5807 S. Woodlawn
Avenue
Chicago, IL60637
Age: 61
--------------------- --------- ----------- ------------------------------------------- ------------- -----------------
John P. Gould Trustee Since Steven G. Rothmeier Distinguished Service 89 Trustee, Harbor
University of 1993 Professor of Economics, University of portfolios Fund
Chicago Booth Chicago Booth School of Business (since in 4 (registered
School of Business 1965). Member of the Board of Milwaukee investment investment
5807 S. Woodlawn Insurance Company (since 1997). Member companies company) (27
Avenue and Chair, Competitive Markets Advisory Portfolios)
Chicago, IL60637 Council, Chicago Mercantile Exchange (since 1994).
Age: 70 (futures trading exchange) (since 2004).
Formerly, Director of UNext Inc.
(1999-2006). Formerly, Senior Vice
President, Lexecon Inc. (economics, law,
strategy, and finance consulting)
(1994-2004).
--------------------- --------- ----------- ------------------------------------------- ------------- -----------------
Roger G. Ibbotson Trustee Since Professor in Practice of Finance, Yale 89 None
Yale School of 1993 School of Management (since 1984). portfolios
Management Director, BIRR Portfolio Analysis, Inc. in 4
P.O. Box 208200, (software products) (since 1990). investment
135 Prospect Street Consultant to Morningstar, Inc. (since companies
New Haven, CT06520 2006). Chairman, CIO and Partner, Zebra
Age: 66 Capital Management, LLC (hedge fund
manager) (since 2001). Formerly,
Chairman, Ibbotson Associates, Inc.,
Chicago, IL (software, data, publishing
and consulting) (1977-2006).
--------------------- --------- ----------- ------------------------------------------- ------------- -----------------
Robert C. Merton Trustee Since John and Natty McArthur University 89 Director, Vical
Harvard Business 2003 Professor, Graduate School of Business portfolios Incorporated
School Administration, Harvard University (since in 4 (biopharmaceutical
353 Baker Library 1998). Director, MFRisk, Inc. (risk investment product
Soldiers Field management software) (since 2001). companies development)
Boston, MA02163 Director, Peninsula Banking Group (bank) (since 2002).
Age: 64 (since 2003). Director, Community First
Financial Group (bank holding company)
(since 2003). Member, Competitive Markets
Advisory Council, Chicago Mercantile
Exchange (futures trading exchange)
(since 2004). Chairman and Director,
Daedalus Software (medical software)
(since 2008). Formerly, Advisory Board
Member, Alpha Simplex Group (hedge fund)
(2001-2007). Formerly, Co-founder, Chief
Science Officer and Director, Trinsum
Group, a successor to Integrated Finance
Limited (investment banking advice and
strategic consulting) (2002-2008).
--------------------- --------- ----------- ------------------------------------------- ------------- -----------------
8
--------------------- --------- ----------- ------------------------------------------- ------------- -----------------
Myron S. Scholes Trustee Since Frank E. Buck Professor Emeritus of 89 Director,
Platinum Grove 1993 Finance, Stanford University (since portfolios American
Asset Management, 1981). Chairman, Platinum Grove Asset in 4 Century Fund
L.P. Reckson Management L.P. (hedge fund) (formerly, investment Complex
Executive Park Oak Hill Platinum Partners) (since 1999). companies (registered
1100 King Street, Formerly, Managing Partner, Oak Hill investment
Building 4 Capital Management (private equity firm) companies) (37
Rye Brook, (until 2004). Formerly, Director, Chicago Portfolios)
NY10573 Mercantile Exchange (2001-2008). (since 1981).
Age: 67
--------------------- --------- ----------- ------------------------------------------- ------------- -----------------
Abbie J. Smith Trustee Since Boris and Irene Stern Professor of 89 Director, HNI
University of 2000 Accounting, University of Chicago Booth portfolios Corporation
Chicago Booth School of Business (since 1980); in 4 (formerly known
School of Business Co-Director Investment Research, investment as HON
5807 S. Woodlawn Fundamental Investment Advisors (hedge companies Industries
Avenue fund) (since 2008). Inc.) (office
Chicago, IL60637 furniture)
Age: 55 (since 2000)
and Director,
Ryder System,
Inc.
(transportation,
logistics and
supply-chain
management)
(since 2003);
and
Director/Trustee,
UBS Funds (fund
complex) (55
portfolios)
(since 2008).
--------------------- --------- ----------- ------------------------------------------- ------------- -----------------
Interested Trustees
The following Interested Trustees are described as such because they are
deemed to be "interested persons," as that term is defined under the 1940 Act,
due to their positions with the Advisor.
----------------- ----------- ---------- -------------------------------------------- ------------ -------------------
Term of
Office(1) Portfolios
and within the Other
Length DFA Fund Directorships of
Name, Address of Complex(2) Public Companies
and Age Position Service Principal Occupation During Past 5 Years Overseen Held
----------------- ----------- ---------- -------------------------------------------- ------------ -------------------
David G. Booth Chairman, Since Chairman, Director/Trustee, President, 89 None
6300 Bee Cave Trustee, 1993 Chief Executive Officer and, formerly, portfolios
Road, Building President Chief Investment Officer (2003 to in 4
One and Chief 3/30/2007) of the following companies: investment
Austin, TX78746 Executive Dimensional Fund Advisors LP, DFA companies
Age: 62 Officer Securities LLC, the Fund, DFA Investment
Dimensions Group Inc., Dimensional
Investment Group Inc., and The DFA
Investment Trust Company. Chairman,
Director, President and Chief Executive
Officer of Dimensional Holdings Inc. and
formerly Chief Investment Officer.
Director of Dimensional Fund Advisors Ltd.
and formerly, Chief Investment Officer.
Director of DFA Australia Limited and
formerly, President and Chief Investment
Officer. Formerly, Director of Dimensional
Funds PLC. Limited Partner, Oak Hill
Partners (since 2001) and VSC Investors,
LLC (since 2007). Trustee, University of
Chicago Booth School of Business.
Formerly, Director, SA Funds (registered
investment company). Chairman, Director
and Chief Executive Officer of Dimensional
Fund Advisors Canada ULC.
--------------------- --------- ----------- ------------------------------------------- ------------- -----------------
9
----------------- ----------- ---------- -------------------------------------------- ------------ -------------------
Eduardo A. Trustee, Since Chief Investment Officer (beginning March 89 None
Repetto Vice 2009 2007) and Vice President of Dimensional portfolios
6300 Bee Cave President Fund Advisors LP, Dimensional Holdings in 4
Road, and Chief Inc., DFA Securities LLC, the Fund, DFA investment
Building One Investment Investment Dimensions Group Inc., companies
Austin, TX Officer Dimensional Investment Group Inc., The DFA
78746 Investment Trust Company, DFA Australia
Age: 42 Limited, Dimensional Fund Advisors Ltd.,
and Dimensional Fund Advisors Canada Inc.
Formerly, Research Associate for
Dimensional Fund Advisors LP (June 2000 to
April 2002).
----------------- ----------- ---------- -------------------------------------------- ------------ -------------------
(1) Each Trustee holds office for an indefinite term until his or her successor
is elected and qualified.
(2) Each Trustee is a director or trustee of each of the four registered
investment companies within the DFA Fund Complex, which are: the Fund; DFA
Investment Dimensions Group Inc.; Dimensional Investment Group Inc.; and
The DFA Investment Trust Company. Each disinterested Trustee also serves on
the Independent Review Committee of the Dimensional Funds, mutual funds
registered in the provinces of Canada and managed by the Advisor's
affiliate, Dimensional Fund Advisors Canada ULC.
Information relating to each Trustee's ownership (including the ownership of his or her immediate
family) in the Fund and in all registered investment companies in the DFA Fund Complex as of December 31, 2008 is
set forth in the chart below.
------------------------------ ----------------------------------------------------- ----------------------------
Aggregate Dollar Range of
Shares Owned in All Funds
Overseen by Trustee in
Family of Investment
Name Dollar Range of Fund Shares Owned Companies
------------------------------ ----------------------------------------------------- ----------------------------
Disinterested Trustees:
------------------------------ ----------------------------------------------------- ----------------------------
George M. Constantinides None None Directly; Over
$100,000 in Simulated
Funds**
------------------------------ ----------------------------------------------------- ----------------------------
John P. Gould None None Directly; Over
$100,000 in Simulated
Funds**
------------------------------ ----------------------------------------------------- ----------------------------
Roger G. Ibbotson None Over $100,000; Over
$100,000 in Simulated
Funds**
------------------------------ ----------------------------------------------------- ----------------------------
Robert C. Merton None None Directly; Over
$100,000 in Simulated
Funds**
------------------------------ ----------------------------------------------------- ----------------------------
Myron S. Scholes None $10,001-$50,000;
Over $100,000 in Simulated
Funds**
------------------------------ ----------------------------------------------------- ----------------------------
Abbie J. Smith None None Directly; Over
$100,000 in Simulated
Funds**
------------------------------ ----------------------------------------------------- ----------------------------
------------------------------ ----------------------------------------------------- ----------------------------
Interested Trustees:
------------------------------ ----------------------------------------------------- ----------------------------
David G. Booth None Over $100,000
------------------------------ ----------------------------------------------------- ----------------------------
Eduardo A. Repetto None Over $100,000
------------------------------ ----------------------------------------------------- ----------------------------
** As discussed below, the compensation to certain of the disinterested
Trustees may be in amounts that correspond to a hypothetical investment in
a cross-section of the DFA Funds. Thus, the disinterested Trustees who are
so compensated experience the same investment returns that are experienced
by shareholders of the DFA Funds although the disinterested Trustees do not
directly own shares of the DFA Funds.
10
Set forth below is a table listing, for each Trustee entitled to receive
compensation, the compensation received from the Fund during the fiscal period
from December 1, 2007 to October 31, 2008 and the total compensation received
from all four registered investment companies for which the Advisor served as
investment advisor during that same fiscal period. The table also provides the
compensation paid by the Fund to the Fund's Chief Compliance Officer for the
fiscal period from December 1, 2007 to October 31, 2008.
Pension or
Retirement Total Compensation
Aggregate Benefits as Estimated from Funds and DFA
Compensation Part of Annual Benefit Fund Complex Paid
Name and Position from the Fund* Expenses upon Retirement to Trustees+
George M. Constantinides....... $6,720 N/A N/A $150,000
Trustee
John P. Gould.................. $6,720 N/A N/A $150,000
Trustee
Roger G. Ibbotson.............. $7,167 N/A N/A $160,000
Trustee
Robert C. Merton............... $6,720 N/A N/A $150,000
Trustee
Myron S. Scholes............... $6,720 N/A N/A $150,000
Trustee
Abbie J. Smith $6,720 N/A N/A $150,000
Trustee
Christopher S. Crossan......... $13,586 N/A N/A N/A
Chief Compliance Officer
-------------------------------------------------------------------------------------------------------------------
+ The term DFA Fund Complex refers to the four registered investment
companies for which the Advisor performs advisory or administrative
services and for which the individuals listed above serve as
directors/trustees on the Boards of Directors/Trustees of such companies.
* Under a deferred compensation plan (the "Plan") adopted effective January1, 2002, the disinterested Trustees of the Fund may defer receipt of all or
a portion of the compensation for serving as members of the four Boards of
Directors/Trustees of the investment companies in the DFA Fund Complex (the
"DFA Funds"). Amounts deferred under the Plan are treated as though
equivalent dollar amounts had been invested in shares of a cross-section of
the DFA Funds (the "Reference Funds" or "Simulated Funds"). The amounts
ultimately received by the disinterested Trustees under the Plan will be
directly linked to the investment performance of the Reference Funds.
Deferral of fees in accordance with the Plan will have a negligible effect
on a fund's assets, liabilities, and net income per share, and will not
obligate a fund to retain the services of any disinterested Trustee or to
pay any particular level of compensation to the disinterested Trustee. The
total amount of deferred compensation accrued by the disinterested Trustees
from the DFA Fund Complex who participated in the Plan during the
eleven-month period ended October 31, 2008 is as follows: $160,000 (Mr.
Ibbotson), $150,000 (Mr. Scholes), and $150,000 (Ms. Smith). A
disinterested Trustee's deferred compensation will be distributed at the
earlier of: (a) January in the year after the disinterested Trustee's
resignation from the Boards of Directors/Trustees of the DFA Funds, or
death or disability; or (b) five years following the first deferral, in
such amounts as the disinterested Trustee has specified. The obligations of
the DFA Funds to make payments under the Plan will be unsecured general
obligations of the DFA Funds, payable out of the general assets and
property of the DFA Funds.
Officers
Below is the name, age, and information regarding positions with the Fund
and the principal occupation for each officer of the Fund. The address of each
officer is 6300 Bee Cave Road, Building One, Austin, TX78746. Each of the
officers listed below holds the same office
11
(except as otherwise noted) in the following entities: Dimensional Fund
Advisors LP, Dimensional Holdings Inc., DFA Securities LLC, DFA Investment
Dimensions Group Inc., Dimensional Investment Group Inc., The DFA Investment
Trust Company, and the Fund (collectively, the "DFA Entities").
------------------------------ ---------------------- ---------- -----------------------------------------------------
Term of
Office(1)
and
Length
of
Name and Age Position Service Principal Occupation During Past 5 Years
------------------------------ ---------------------- ---------- -----------------------------------------------------
April A. Aandal Vice President and Since Vice President of all the DFA Entities. Chief
Age: 46 Chief Learning 2008 Learning Officer of Dimensional Fund Advisors LP
Officer (since September 2008). Formerly Regional Director
of Dimensional Fund Advisors LP (2004-2008); Vice
President of Professional Development at Assante
Asset Management (1997-2004).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Darryl D. Avery Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 42 2005 institutional client service representative of
Dimensional Fund Advisors LP (June 2002 to January
2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Arthur H. Barlow Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 53 1993 Vice President of DFA Australia Limited and
Dimensional Fund Advisors Ltd.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Scott A. Bosworth Vice President Since Vice President of all the DFA Entities. Regional
Age: 40 2007 Director of Dimensional Fund Advisors LP (since
November 1997).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Valerie A. Brown Vice President and Since Vice President and Assistant Secretary of all the
Age: 42 Assistant Secretary 2001 DFA Entities, DFA Australia Limited, Dimensional
Fund Advisors Ltd., and Dimensional Fund Advisors
Canada ULC.
------------------------------ ---------------------- ---------- -----------------------------------------------------
David P. Butler Vice President Since Vice President of all the DFA Entities. Director of
Age: 44 2007 Global Financial Advisor Services of Dimensional
Fund Advisors LP (since 2008). Formerly, Director
US Financial Advisor Services of Dimensional Fund
Advisors LP (since January 2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Patrick E. Carter Vice President Since Vice President of all the DFA Entities. Regional
Age: 47 2007 Director of Dimensional Fund Advisors LP (since
March 2006). Formerly, Director of Merrill Lynch
Retirement Group (December 1998 to March 2006).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Joseph H. Chi Vice President Since Vice President of all the DFA Entities. Portfolio
Age: 42 2009 Manager for Dimensional Fund Advisors LP (since
October 2005). Prior to October 2005, Corporate
Counsel at Hewitt Associates (July 2002 - August
2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Stephen A. Clark Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 36 2004 Portfolio Manager of Dimensional Fund Advisors LP
(April 2001 to April 2004).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Robert P. Cornell Vice President Since Vice President of all the DFA Entities. Regional
Age: 59 2007 Director of Financial Services Group of Dimensional
Fund Advisors LP (since August 1993).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Christopher S. Crossan Vice President and Since Vice President and Chief Compliance Officer of all
Age: 43 Chief Compliance 2004 the DFA Entities.
Officer
------------------------------ ---------------------- ---------- -----------------------------------------------------
James L. Davis Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 52 1999 Vice President of DFA Australia Limited and
Dimensional Fund Advisors Ltd.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Robert T. Deere Vice President Since Vice President of all the DFA Entities and DFA
Age: 51 1994 Australia Limited.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Robert W. Dintzner Vice President Since Vice President of all the DFA Entities.
Age: 38 2001
------------------------------ ---------------------- ---------- -----------------------------------------------------
Kenneth Elmgren Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 54 2007 Managing Principal of Beverly Capital (May 2004 to
September 2006).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Richard A. Eustice Vice President and Since Vice President and Assistant Secretary of all the
Age: 43 Assistant Secretary 1998 DFA Entities and DFA Australia Limited. Chief
Operating Officer of Dimensional Fund Advisors Ltd.
(since July 2008). Formerly, Vice President of
Dimensional Fund Advisors Ltd.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Eugene F. Fama, Jr. Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 48 1993 Vice President of DFA Australia Limited and
Dimensional Fund Advisors Ltd.
------------------------------- ---------------------- ---------- -----------------------------------------------------
Gretchen A. Flicker Vice President Since Vice President of all the DFA Entities. Prior to
Age: 37 2004 April 2004, institutional client service
representative of Dimensional Fund Advisors LP.
------------------------------- ---------------------- ---------- -----------------------------------------------------
12
------------------------------ ---------------------- ---------- -----------------------------------------------------
Jed S. Fogdall Vice President Since Vice President of all the DFA Entities. Portfolio
Age: 34 2008 Manager for Dimensional Fund Advisors LP (since
September 2004). Prior to September 2004, Staff
Engineer at The Boeing Company (1997-2004).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Glenn S. Freed Vice President Since Vice President of all the DFA Entities.
Age: 47 2001
------------------------------ ---------------------- ---------- -----------------------------------------------------
Jeremy P. Freeman Vice President Since Vice President of all the DFA Entities. Senior
Age: 38 2009 Technology Manager for Dimensional Fund Advisors LP
(since June 2006). Formerly, Principal at AIM
Investments/Amvescap PLC (now Invesco) (June 1998 -
June 2006).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Mark R. Gochnour Vice President Since Vice President of all the DFA Entities. Regional
Age: 41 2007 Director of Dimensional Fund Advisors LP.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Henry F. Gray Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 41 2000 Vice President of DFA Australia Limited.
------------------------------ ---------------------- ---------- -----------------------------------------------------
John T. Gray Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 34 2007 Regional Director of Dimensional Fund Advisors LP
(January 2005 to February 2007).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Darla M. Hastings Vice President Since Vice President of all the DFA Entities. Chief
Age: 53 2007 Marketing Officer of Dimensional Fund Advisors LP.
Formerly, Senior Vice President, Customer
Experience for Benchmark Assisted Living (May 2005
to April 2006); Executive Vice President and Chief
Marketing Officer of State Street Corporation
(September 2001 to October 2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Joel H. Hefner Vice President Since Vice President of all the DFA Entities. Regional
Age: 41 2007 Director of Dimensional Fund Advisors LP (since
June 1998).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Julie C. Henderson Vice President and Since Vice President and Fund Controller of all the DFA
Age: 34 Fund Controller 2005 Entities. Formerly, Senior Manager at
PricewaterhouseCoopers LLP (July 1996 to April
2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Kevin B. Hight Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 41 2005 Regional Director of Dimensional Fund Advisors LP
(March 2003 to March 2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Christine W. Ho Vice President Since Vice President of all the DFA Entities. Prior to
Age: 41 2004 April 2004, Assistant Controller of Dimensional
Fund Advisors LP.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Jeff J. Jeon Vice President Since Vice President of all the DFA Entities. Prior to
Age: 35 2004 April 2004, Counsel of Dimensional Fund Advisors
LP.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Patrick M. Keating Vice President Since Vice President of all the DFA Entities and Chief
Age: 54 2003 Operating Officer of Dimensional Fund Advisors LP.
Director, Vice President, and Chief Privacy Officer
of Dimensional Fund Advisors Canada ULC. Director
of DFA Australia Limited.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Joseph F. Kolerich Vice President Since Vice President of all the DFA Entities. Portfolio
Age: 37 2004 Manager for Dimensional Fund Advisors LP (since
April 2001).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Michael F. Lane Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 41 2004 Vice President of Advisor Services at TIAA-CREF
(July 2001 to September 2004).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Kristina M. LaRusso Vice President Since Vice President of all DFA Entities. Formerly,
Age: 33 2006 Operations Supervisor of Dimensional Fund Advisors
LP (March 2003 to December 2006).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Inmoo Lee Vice President Since Vice President of all DFA Entities. Associate
Age: 42 2007 Professor, Department of Finance and Accounting,
Business School, National University of Singapore
(July 2, 2004 to present) Associate Professor,
College of Business Administration, Korea
University (September 2001 to May 2006).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Juliet H. Lee Vice President Since Vice President of all the DFA Entities. Human
Age: 38 2005 Resources Manager of Dimensional Fund Advisors LP
(since January 2004).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Apollo D. Lupesco Vice President Since Vice President of all the DFA Entities. Regional
Age: 39 2009 Director for Dimensional Fund Advisors LP (since
February 2004).
------------------------------- ---------------------- ---------- -----------------------------------------------------
13
------------------------------ ---------------------- ---------- -----------------------------------------------------
Aaron M. Marcus Vice President and Since Vice President and Head of Global Human Resources
Age: 38 Head of Global Human 2008 of Dimensional Fund Advisors LP. Formerly, Global
Resources Head of Recruiting and Vice President of Goldman
Sachs & Co. (June 2006 to January 2008); Global
Co-Head of HR of the Equities & FICC Division, and
Vice President of Goldman Sachs & Co. (May 2005 to
May 2006); Head of Americas Campus Recruiting and
Vice President of Goldman Sachs & Co. (April 2003
to May 2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
David R. Martin Vice President, Since Vice President, Chief Financial Officer and
Age: 52 Chief Financial 2007 Treasurer of Dimensional Fund Advisors LP.
Officer and Treasurer Director, Vice President, Chief Financial Officer
and Treasurer of Dimensional Fund Advisors Ltd. and
DFA Australia Limited. Chief Financial Officer,
Treasurer, and Vice President of Dimensional Fund
Advisors Canada ULC. Director of Dimensional Funds
PLC and Dimensional Funds II PLC. Formerly,
Executive Vice President and Chief Financial
Officer of Janus Capital Group Inc. (June 2005 to
March 2007); Senior Vice President of Finance at
Charles Schwab & Co., Inc. (March 1999 to May 2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Catherine L. Newell Vice President and Vice Vice President and Secretary of all the DFA
Age: 44 Secretary President Entities. Director, Vice President and Secretary of
since DFA Australia Limited. Director, Vice President and
1997 and Secretary of Dimensional Fund Advisors Ltd. (since
Secretary February 2002, April 1997, and May 2002,
since respectively). Vice President and Secretary of
2000 Dimensional Fund Advisors Canada ULC. Director of
Dimensional Funds PLC and Dimensional Funds II PLC
(since 2002 and 2006, respectively). Formerly,
Assistant Secretary of all DFA Entities, DFA
Australia Limited and Dimensional Fund Advisors Ltd.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Christian Newton Vice President Since Vice President of all the DFA Entities. Web
Age: 33 2009 Services Manager for Dimensional Fund Advisors LP
(since January 2008). Formerly, Design Manager
(2005 - 2008) and Web Developer (2002 - 2005) of
Dimensional Fund Advisors LP.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Gerard K. O'Reilly Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 32 2007 Research Associate of Dimensional Fund Advisors LP
(2004 to 2006); Research Assistant in PhD program,
Aeronautics Department California Institute of
Technology (1998 to 2004).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Daniel C. Ong Vice President Since Vice President of all the DFA Entities. Portfolio
Age: 35 2009 Manager for Dimensional Fund Advisors LP (since
July 2005). Prior to 2005, Graduate Student at the
University of Chicago Booth School of Business
(2003-2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Carmen Palafox Vice President Since Vice President of all the DFA Entities. Operations
Age: 34 2006 Manager of Dimensional Fund Advisors LP (since May
1996).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Sonya K. Park Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 36 2005 Institutional client service representative of
Dimensional Fund Advisors LP (February 2002 to
January 2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
David A. Plecha Vice President Since Vice President of all the DFA Entities, DFA
Age: 47 1993 Australia Limited and Dimensional Fund Advisors Ltd.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Theodore W. Randall Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 35 2008 Research Associate of Dimensional Fund Advisors LP
(2006 to 2008); Systems Developer of Dimensional
Fund Advisors LP (2001 to 2006).
------------------------------ ---------------------- ---------- -----------------------------------------------------
L. Jacobo Rodriguez Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 37 2005 Institutional client service representative of
Dimensional Fund Advisors LP (August 2004 to July
2005); Financial Services Analyst, Cato Institute
(September 2001 to June 2004); Book Review Editor,
Cato Journal, Cato Institute (May 1996 to June
2004).
------------------------------ ---------------------- ---------- -----------------------------------------------------
David E. Schneider Vice President Since Vice President of all the DFA Entities. Director of
Age: 63 2001 Institutional Services.
------------------------------- ---------------------- ---------- -----------------------------------------------------
14
------------------------------ ---------------------- ---------- -----------------------------------------------------
Bruce A. Simmons Vice President Since Vice President of all the DFA Entities. Investment
Age: 44 2009 Operations Manager for Dimensional Fund Advisors LP
(since May 2007). Formerly, Vice President Client
and Fund Reporting at Mellon Financial (September
2005 - May 2007); Vice President Business
Development at CUADPRO Marketing (July 2003 -
September 2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Ted R. Simpson Vice President Since Vice President of all the DFA Entities. Regional
Age: 40 2007 Director of Dimensional Fund Advisors (since
December 2002).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Bryce D. Skaff Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 34 2007 Regional Director of Dimensional Fund Advisors
(December 1999 to January 2007).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Grady M. Smith Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 52 2004 Portfolio Manager of Dimensional Fund Advisors LP
(August 2001 to April 2004).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Carl G. Snyder Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 45 2000 Vice President of DFA Australia Limited.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Lawrence R. Spieth Vice President Since Vice President of all the DFA Entities. Prior to
Age: 61 2004 April 2004, Regional Director of Dimensional Fund
Advisors LP.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Bradley G. Steiman Vice President Since Vice President of all the DFA Entities and Director
Age: 35 2004 and Vice President of Dimensional Fund Advisors
Canada ULC.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Robert C. Trotter Vice President Since Vice President of all the DFA Entities. Senior
Age: 50 2009 Manager Technology for Dimensional Fund Advisors LP
(since March 2007). Formerly, Director of
Technology at AMVESCAP (2002 - 2007).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Karen E. Umland Vice President Since Vice President of all the DFA Entities, DFA
Age: 42 1997 Australia Limited, Dimensional Fund Advisors Ltd.,
and Dimensional Fund Advisors Canada ULC.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Sunil Wahal Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 42 2009 Research Associate for Dimensional Fund Advisors LP
(July 2008 - January 2009); Consultant to
Dimensional Fund Advisors LP (September 2005 - July
2008); Jack D. Furst Professor of Finance at
Arizona State University, WP Carey School of
Business (July 2005 - July 2008); Associate
Professor of Finance at Goizueta Business School,
Emory University (1997 - 2005).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Brian J. Walsh Vice President Since Vice President of all the DFA Entities. Portfolio
Age: 39 2009 Manager for Dimensional Fund Advisors LP (since
2004). Formerly, Trader for Dimensional Fund
Advisors LP (1997-2004).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Carol W. Wardlaw Vice President Since Vice President of all the DFA Entities. Prior to
Age: 50 2004 April 2004, Regional Director of Dimensional Fund
Advisors LP.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Weston J. Wellington Vice President Since Vice President of all the DFA Entities. Formerly,
Age: 57 1997 Vice President of DFA Australia Limited.
------------------------------ ---------------------- ---------- -----------------------------------------------------
Daniel M. Wheeler Vice President Since Vice President of all the DFA Entities. Previously,
Age: 63 2001 Director of Global Financial Advisor Services of
Dimensional Fund Advisors LP. Director of
Dimensional Fund Advisors Ltd. (since October 2003)
and President of Dimensional Fund Advisors Canada
ULC. (since June 2003).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Ryan J. Wiley Vice President Since Vice President of all the DFA Entities. Senior
Age: 32 2007 Trader of Dimensional Fund Advisors LP. Formerly,
Portfolio Manager (2006 to 2007) and Trader (2001
to 2006).
------------------------------ ---------------------- ---------- -----------------------------------------------------
Paul E. Wise Vice President Since Vice President of all the DFA Entities. Chief
Age: 53 2005 Technology Officer for Dimensional Fund Advisors LP
(since 2004). Formerly, Principal of Turnbuckle
Management Group (January 2002 to August 2004).
------------------------------ ---------------------- ---------- -----------------------------------------------------
(1) Each officer holds office for an indefinite term at the pleasure of the
Board and until his or her successor is elected and qualified.
------------------------------- ---------------------- ---------- -----------------------------------------------------
15
------------------------------ ---------------------- ---------- -----------------------------------------------------
As of July 31, 2009, Trustees and officers as a group own less than 1% of
the Fund's outstanding stock.
SERVICES TO THE FUND
Administrative Services
PNC Global Investment Servicing (U.S.) Inc. ("PNC Global"), 301 Bellevue
Parkway, Wilmington, DE19809, serves as the administrative and accounting
services, dividend disbursing and transfer agent for the Fund. The services
provided by PNC Global are subject to supervision by the executive officers and
the Board, and include day-to-day keeping and maintenance of certain records;
calculation of the offering price of the shares; preparation of reports; liaison
with the Fund's custodian; and transfer and dividend disbursing agency services.
For the administrative and accounting services provided by PNC Global, the Fund
pays PNC Global annual fees that are calculated daily and paid monthly according
to a fee schedule based on the aggregate average net assets of the Fund Complex,
which includes four registered investment companies and a group trust. The fee
schedule is set forth in the table below:
.0110% of the Fund Complex's first $50 billion of average net assets;
.0085% of the Fund Complex's next $25 billion of average net assets; and
.0075% of the Fund Complex's average net assets in excess of $75 billion.
The fees charged to the Fund under the fee schedule are allocated to the Fund
based on the Fund's pro rata portion of the aggregate net assets of the Fund
Complex.
The Fund is also subject to a monthly base fee of $2,083. In addition, the
Fund pays separate fees to PNC Global with respect to the services PNC Global
provides as transfer agent and dividend disbursing agent of the Fund.
Custodian
Citibank, N.A., 111 Wall Street, New York, New York, 10005, the custodian
for the Fund, maintains a separate account or accounts for the Fund; receives,
holds and releases portfolio securities on account of the Fund; makes receipts
and disbursements of money on behalf of the Fund; and collects and receives
income and other payments and distributions on account of the Fund's portfolio
securities.
Distributor
The Fund's shares are distributed by DFA Securities LLC ("DFAS"), a
wholly-owned subsidiary of the Advisor. DFAS is registered as a limited purpose
broker-dealer under the Securities Exchange Act of 1934 and is a member of the
Financial Industry Regulatory Authority. The principal business address of DFAS
is 1299 Ocean Avenue, Santa Monica, CA90401.
DFAS acts as an agent of the Fund by serving as the principal underwriter
of the Fund's shares. Pursuant to the Fund's Distribution Agreement, DFAS uses
its best efforts to seek or arrange for the sale of shares of the Fund, which
are continuously offered. No sales charges are
16
paid by investors or the Fund. No compensation is paid by the Fund to DFAS under
the Distribution Agreement.
Legal Counsel
Stradley, Ronon, Stevens & Young, LLP serves as legal counsel to the Fund.
Its address is 2600 One Commerce Square, Philadelphia, PA19103-7098.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP ("PwC") is the independent registered public
accounting firm to the Fund and audits the annual financial statements of the
Fund. The address of PwC is Two Commerce Square, Suite 1700, 2001 Market Street,
Philadelphia, PA19103-7042.
ADVISORY FEES
For the services it provides as investment advisor to the Fund, the Advisor
is entitled to receive from the Fund a fee, payable monthly, at the annual rate
of 0.10% of the aggregate net assets of the Fund. For the fiscal period from
December 1, 2007 to October 31, 2008 and the fiscal years ending November 30,2007 and 2006, the Fund paid management fees to the Advisor for its services of
$6,904,000, $6,669,000, and $3,397,000, respectively. David G. Booth and Rex A.
Sinquefield, directors and/or officers of the Advisor and shareholders of the
outstanding voting stock of the Advisor's general partner, may be considered
controlling persons of the Advisor. Mr. Booth also serves as Trustee and officer
of the Fund.
PORTFOLIO MANAGERS
In accordance with the team approach used to manage the Fund, the portfolio
managers and portfolio traders implement the policies and procedures established
by the Investment Committee. The portfolio managers and portfolio traders also
make daily investment decisions regarding the Fund, including running buy and
sell programs based on the parameters established by the Investment Committee.
Karen E. Umland is the portfolio manager that coordinates the efforts of all
other portfolio managers with respect to the day-to-day management of the Fund.
Investments in the Fund
The portfolio manager and her immediate family did not own any shares of
the Fund or any feeder funds that invest solely in the Fund as of October 31,2008.
Description of Compensation Structure
Portfolio managers receive a base salary and bonus. Compensation of a
portfolio manager is determined at the discretion of the Advisor and is based on
a portfolio manager's experience, responsibilities, the perception of the
quality of his or her work efforts, and other subjective factors. The
compensation of portfolio managers is not directly based upon the performance of
the funds or other accounts that the portfolio managers manage. The Advisor
reviews the compensation of each portfolio manager annually and may make
modifications in
17
compensation as it deems necessary to reflect changes in the market. Each
portfolio manager's compensation consists of the following:
o Base salary. Each portfolio manager is paid a base salary. The Advisor
considers the factors described above to determine each portfolio
manager's base salary.
o Semi-Annual Bonus. Each portfolio manager may receive a semi-annual
bonus. The amount of the bonus paid to each portfolio manager is based
upon the factors described above.
Portfolio managers may be awarded the right to purchase restricted shares
of the Advisor's stock as determined from time to time by the Board of Directors
of the Advisor or its delegees. Portfolio managers also participate in benefit
and retirement plans and other programs available generally to all employees.
In addition, portfolio managers are given the option of participating in
the Advisor's Long Term Incentive Plan. The level of participation for eligible
employees may be dependent on overall level of compensation, among other
considerations. Participation in this program is not based on or related to the
performance of any individual strategies or any particular client accounts.
Other Managed Accounts
In addition to the Fund, the portfolio manager manages: (i) other U.S.
registered investment companies advised or sub-advised by the Advisor; (ii)
other pooled investment vehicles that are not U.S. registered mutual funds; and
(iii) other accounts managed for organizations and individuals. The following
table sets forth information regarding the total accounts for which the
portfolio manager has the day-to-day management responsibilities.
Name of Portfolio Manager Number of Accounts Managed and Total
Assets by Category As of October 31, 2008
---------------------------------- -------------------------------------------------------------------------
o 37 U.S. registered mutual funds with $27,993 million in total
Karen E. Umland assets under management.
o 5 unregistered pooled investment vehicles with $582 million in
total assets under management.
o 17 other accounts with $2,459 million in total assets under
management, of which one account with $315 million in assets may be
subject to a performance fee.
---------------------------------- -------------------------------------------------------------------------
Potential Conflicts of Interest
Actual or apparent conflicts of interest may arise when a portfolio manager
has the primary day-to-day responsibilities with respect to the Fund and other
accounts. Other accounts include registered mutual funds (other than the Fund),
other unregistered pooled investment vehicles, and other accounts managed for
organizations and individuals ("Accounts"). An Account may have similar
investment objectives to the Fund, or may purchase, sell or hold
18
securities that are eligible to be purchased, sold or held by the Fund. Actual
or apparent conflicts of interest include:
o Time Management. The management of the Fund and Accounts may result in
a portfolio manager devoting unequal time and attention to the
management of the Fund and Accounts. The Advisor seeks to manage such
competing interests for the time and attention of portfolio managers
by having portfolio managers focus on a particular investment
discipline. Most Accounts managed by a portfolio manager are managed
using the same investment models that are used in connection with the
management of the Fund.
o Investment Opportunities. It is possible that at times identical
securities will be held by the Fund and other Accounts. However,
positions in the same security may vary and the length of time that
the Fund or any Account may choose to hold its investment in the same
security may likewise vary. If a portfolio manager identifies a
limited investment opportunity that may be suitable for the Fund or
other Accounts, the Fund may not be able to take full advantage of
that opportunity due to an allocation of filled purchase or sale
orders across the Fund and all eligible Accounts. To deal with these
situations, the Advisor has adopted procedures for allocating
portfolio transactions across the Fund and multiple Accounts.
o Broker Selection. With respect to securities transactions for the
Fund, the Advisor determines which broker to use to execute each
order, consistent with its duty to seek best execution of the
transaction. However, with respect to certain Accounts (such as
separate accounts), the Advisor may be limited by the client with
respect to the selection of brokers or may be instructed to direct
trades through a particular broker. In these cases, the Advisor or its
affiliates may place separate, non-simultaneous, transactions for the
Fund and another Account that may temporarily affect the market price
of the security or the execution of the transaction, or both, to the
detriment of the Fund or the Account.
o Performance-Based Fees. For some Accounts, the Advisor may be
compensated based on the profitability of the Account, such as by a
performance-based management fee. These incentive compensation
structures may create a conflict of interest for the Advisor with
regard to Accounts where the Advisor is paid based on a percentage of
assets because the portfolio manager may have an incentive to allocate
securities preferentially to the Accounts where the Advisor might
share in investment gains.
o Investment in an Account. The portfolio manager or her relatives may
invest in the Fund or a fund that solely invests in the Fund and a
conflict may arise where she may therefore have an incentive to treat
the Fund in which the portfolio manager or her relatives invest
preferentially as compared to other Accounts for which she has
portfolio management responsibilities.
19
The Advisor and the Fund have adopted certain compliance procedures that
are reasonably designed to address these types of conflicts. However, there is
no guarantee that such procedures will detect each and every situation in which
a conflict arises.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on January 9, 1991. The shares
of the Fund, when issued and paid for in accordance with the Fund's registration
statement, will be fully paid and non-assessable shares with equal,
non-cumulative voting rights and no preferences as to conversion, exchange,
dividends, redemption, or any other feature. On December 2, 1998, the Fund
changed its name from Dimensional Emerging Markets Fund Inc. to Dimensional
Emerging Markets Value Fund Inc.
On November 21, 1997, the shareholders of Dimensional Emerging Markets
Value Fund approved its conversion from a closed-end management investment
company to an open-end management investment company; and at the shareholder
meeting held on June 2, 2009, the shareholders of the Fund approved the
redomestication of the Fund from a Maryland corporation to a Delaware statutory
trust, which became effective on October 30, 2009.
CODE OF ETHICS
The Fund, the Advisor, and DFAS have adopted a Code of Ethics, pursuant to
Rule 17j-1 under the 1940 Act, for certain access persons of the Fund. The Code
is designed to ensure that access persons act in the interest of the Fund and
its shareholders with respect to any personal trading of securities. Under the
Code, access persons are generally prohibited from knowingly buying or selling
securities (except for mutual funds, U.S. government securities and money market
instruments) which are being purchased, sold or considered for purchase or sale
by the Fund, unless their proposed purchases are approved in advance. The Code
also contains certain reporting requirements and securities trading clearance
procedures.
SHAREHOLDER RIGHTS
The shares of the Fund, when issued and paid for in accordance with Part A,
will be fully paid and non-assessable shares. Each share of the Fund represents
an equal proportional interest in the assets and liabilities of the Fund and has
identical, non-cumulative voting, dividend, redemption, liquidation, and other
rights and preferences.
With respect to matters that require shareholder approval, shareholders are
entitled to vote only with respect to matters which affect the interest of the
class of shares that they hold, except as otherwise required by applicable law.
If liquidation of the Fund should occur, shareholders would be entitled to
receive, on a per class basis, the assets of the particular class whose shares
they own, as well as a proportionate share of Fund assets not attributable to
any particular class. Ordinarily, the Fund does not intend to hold annual
meetings of its shareholders, except as required by the 1940 Act or other
applicable law. The Fund's Bylaws provide that special meetings of its
shareholders shall be called at the request of holders of 10% of the Fund's
shares, unless the purpose of the meeting is to consider any matter that is
substantially the same as a matter voted upon at a meeting during the preceding
twelve months, in which case the meeting may be called at the request of the
holders of a majority of the outstanding shares
20
entitled to vote at such meeting. Shareholders will receive shareholder
communications with respect to such matters as required by the 1940 Act,
including semi-annual and annual financial statements of the Fund, the latter
being audited.
Shareholder inquiries may be made by writing or calling the Fund at the
address or telephone number appearing on the cover of this Part B. Only those
individuals whose signatures are on file for the account in question may receive
specific account information or make changes in the account registration.
PRINCIPAL HOLDERS OF SECURITIES
As of September 30, 2009, no person may be deemed to control the Fund
either by owning more than 25% of the voting securities of the Fund directly or,
through the operation of pass-through voting rights, by owning more than 25% of
the voting securities of the Feeder Portfolio that invests its assets in the
Fund.
As of September 30, 2009, the following shareholders owned beneficially at
least 5% of the outstanding shares of the Fund, as set forth below. Unless
otherwise indicated, the address of each shareholder is 6300 Bee Cave Road,
Building One, Austin, TX78746:
Emerging Markets Value Portfolio 92.84%
of DFA Investment Dimensions Group Inc.
PURCHASE OF SHARES
The following information supplements the information set forth in Part A
under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that the
New York Stock Exchange ("NYSE") is open for business, regardless of whether the
Federal Reserve System is closed. However, no purchases by wire may be made on
any day that the Federal Reserve System is closed. The Fund will generally be
closed on days that the NYSE is closed. The NYSE is scheduled to be open Monday
through Friday throughout the year except for days closed to recognize New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The Federal
Reserve System is closed on the same days as the NYSE, except that it is open on
Good Friday and closed on Columbus Day and Veterans' Day. Orders for redemptions
and purchases will not be processed if the Fund is closed.
The Fund reserves the right, in its sole discretion, to suspend the
offering of shares of the Fund or reject purchase orders when, in the judgment
of management, such suspension or rejection is in the best interest of the Fund.
Securities accepted in exchange for shares of the Fund will be acquired for
investment purposes and will be considered for sale under the same circumstances
as other securities in the Fund.
21
Reimbursement fees may be charged prospectively from time to time based
upon the future experience of the Fund, which is currently sold at net asset
value. Any such charges will be described in the prospectus.
REDEMPTION OF SHARES
The following information supplements the information set forth in Part A
under the caption "REDEMPTION OF SHARES."
The Fund may suspend redemption privileges or postpone the date of payment:
(i) during any period when the NYSE is closed or trading on the NYSE is
restricted, as determined by the SEC; (ii) during any period when an emergency
exists, as defined by the rules of the SEC, as a result of which it is not
reasonably practicable for the Fund to dispose of securities owned by it, or
fairly to determine the value of its assets; and (iii) for such other periods as
the SEC may permit.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in Part
A. No attempt is made to present a detailed explanation of the tax treatment of
the Fund or its shareholders, and the discussion here and in Part A is not
intended as a substitute for careful tax planning.
This "Tax Matters" section is based on the Code and applicable regulations
in effect on the date of this Statement of Additional Information. Future
legislative, regulatory or administrative changes or court decisions may
significantly change the tax rules applicable to the Fund and its shareholders.
Any of these changes or court decisions may have a retroactive effect.
This is for general information only and not tax advice. All investors
should consult their own tax advisors as to the federal, state, local and
foreign tax provisions applicable to them.
Taxation of the Fund
Effective on and after November 1, 2009, the Fund elected to be treated as
a partnership for U.S. federal income tax purposes rather than as an association
taxable as a corporation. As a partnership, the Fund will not be subject to U.S.
federal income tax. Instead, each shareholder will be required to report
separately on its income tax return for each year its distributive share of the
Fund's items of income, gain, loss and deduction and credit.
The Fund will be taxable as a partnership if it is not a publicly traded
partnership. Under the Code, a "publicly traded partnership" generally is
treated as a corporation. It is not intended that the Fund, as currently
structured and intended to operate, will be classified as a publicly traded
partnership. A partnership such as the Fund will not be treated as a publicly
traded partnership if, among other reasons, (i) all interests in the partnership
were issued in a transaction (or transactions) that was not required to be
registered under the Securities Act of 1933, and (ii) the partnership does not
have more than 100 partners at any time during the taxable year of the
partnership.
22
Taxation of Shareholders on Income or Losses of the Fund
Each investor will be required to report separately on its own U.S. federal
income tax return its distributive share (as determined in accordance with the
governing instruments of the Fund) of the Fund's income, gains, losses,
deductions and credits. Each investor will be required to report its
distributive share regardless of whether it has received a corresponding
distribution of cash or property from the Fund. The characterization of an item
of profit or loss usually will be determined at the Fund level (rather than at
the shareholder level). Because the Fund does not contemplate making cash
distributions to investors, the amount of income that may be realized by an
investor likely will exceed the cash distributions to the investor. An allocable
share of a tax-exempt investor's income will be UBTI to the extent that the Fund
borrows money to acquire property or invests in assets that produce UBTI. In
addition to U.S. federal income taxes, investors in the Fund also may be subject
to state and local taxes on their distributive share of the Fund's income and on
gains arising on redemption or exchange of the Fund's shares.
While the Fund is not classified as a "regulated investment company" under
Subchapter M of the Internal Revenue Code (the "Code"), the Fund's assets,
income and distributions will be managed in such a way that an investor in the
Fund will be able to satisfy the requirements of Subchapter M of the Code,
assuming that the investor invested all of its assets in the Fund for the Fund's
entire fiscal year.
Investment in Foreign Securities
The Fund may be subject to foreign withholding taxes on income from certain
foreign securities. This, in turn, could reduce the Fund's income dividends
allocated to shareholders.
Pass-through of foreign tax credits. The Fund will be permitted to pass
through to you a credit or deduction for your pro rata share of foreign
withholding taxes paid by the Fund.
Effect of foreign investments on allocations. Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
Fund. Similarly, foreign exchange losses realized on the sale of debt securities
generally are treated as ordinary losses. These gains when allocated are taxable
to you as ordinary income, and any losses reduce the Fund's ordinary income
otherwise available for allocation to you. This treatment could increase or
decrease the Fund's ordinary income allocations to you.
PFIC securities. The Fund may invest in securities of foreign entities that
could be deemed for tax purposes to be passive foreign investment companies
("PFICs"). In general, a PFIC is any foreign corporation if 75% or more of its
gross income for its taxable year is passive income, or 50% or more of its
average assets (by value) are held for the production of passive income. If a
foreign corporation is a PFIC at any time during a United States person's
holding period for stock in the PFIC, certain distributions with respect to, and
gain upon the disposition of, the PFIC stock generally will be taxed at the time
of the distribution or disposition as if the income or gain were ratably
allocated over the United States person's holding period for the PFIC stock. The
amount allocated to the year of the distribution or disposition or to years
prior to the corporation becoming a PFIC are treated as ordinary income, and the
amounts allocated to earlier years for which the corporation was a PFIC are
taxed at the highest rate applicable to
23
individuals or corporations, as the case may be, for the taxable year to which
the income is allocated. Further, the tax on an amount allocated to such an
earlier year is subject to an interest charge that accrues from the due date of
the return for that earlier year. If a U.S. shareholder of the Fund is a
tax-exempt person, the above rules relating to distributions and dispositions
will apply only if dividends paid by the PFIC and allocated by the Fund to such
shareholder are taxable as unrelated business taxable income (UBTI).
The above rules relating to distributions and dispositions also generally
will not apply if (i) the United States person elects to treat the PFIC as a
qualified electing fund (a "QEF election") for all taxable years that such
person held the stock and the corporation was a PFIC, or (ii) the stock in the
PFIC is "marketable stock" for which a mark-to-market election is made. If a QEF
election is made, a United States person generally will pay tax currently on its
pro-rata share of the PFIC's ordinary earnings and net capital gains (at
ordinary income and capital gains rates, respectively), even if no dividends are
actually paid. If the mark-to-market election is made, United States persons
generally account for changes in the value of the PFIC stock on an annual basis
as ordinary income or loss.
When investing in PFIC securities, the Fund is required to file Form 8621,
Return by a Shareholder of a Passive Foreign Investment Company or Qualified
Electing Fund, in any year the Fund recognizes gain, receives certain
distributions or makes an election with respect to the PFIC. U.S. shareholders
of the Fund are required to file Form 8621 if either the Fund fails to do so or
the U.S. shareholder is subject to tax on excess inclusion income. While not
entirely clear, a U.S. shareholder of the Fund, as an indirect owner of a PFIC,
may also be entitled to file Form 8621 to make either a mark-to-market or QEF
election with respect to a PFIC. You also should be aware that the designation
of a foreign security as a PFIC will cause its income dividends to fall outside
of the definition of qualified foreign corporation dividends. These dividends
generally will not qualify for the reduced rate of taxation on qualified
dividends.
Because the determination of whether a foreign corporation is a PFIC is
made annually on the basis of facts and circumstances that may be beyond the
Fund's control or information, there can be no assurance that the Fund will be
able to identify a security as a PFIC in which case neither the Fund nor the
shareholders may be able to make a QEF or mark-to-market election with respect
to the PFIC.
Transfers to foreign persons. In general, each U.S. person who transfers
property with a value in excess of $100,000 to a foreign corporation or foreign
partnership in (among other exchanges) a contribution to capital is required to
file an information return on Form 926, Return by a U.S. Transferor of Property
to a Foreign Corporation, with the U.S. Internal Revenue Service. In the case of
a partnership, such as the Fund, the U.S. shareholders of the Fund, rather than
Fund, are required to file Form 926. The penalty for failure to furnish the
information required equals the lesser of 10% of the fair market value of the
property transferred or $100,000, unless the penalty was due to intentional
disregard.
Report Of Foreign Bank And Financial Accounts. Each U.S. person that has a
financial interest in or signature authority over any foreign financial
accounts, including bank, securities, or other types of financial accounts, in a
foreign country, if the aggregate value of these financial accounts exceeds
$10,000 at any time during the calendar year, must report that relationship each
24
calendar year by filing Form TD F 90-22.1, Report Of Foreign Bank And Financial
Accounts, with the Department of the Treasury on or before June 30, of the
succeeding year. A United States person has a financial interest in each bank,
securities, or other financial account in a foreign country for which the owner
of record or holder of legal title is (among other things) a partnership in
which the United States person owns an interest in more than 50% of the profits
or more than 50% of the capital of the partnership. Civil and criminal
penalties, including in certain circumstances a fine of not more than $500,000
and imprisonment of not more than five years, are provided for failure to file
TD F 90-22.1.
Sales, Exchanges and Redemption of Fund Shares
If you are a taxable investor, sales and exchanges are taxable transactions
for federal and state income tax purposes. If you held your shares as a capital
asset, the gain or loss that you realize generally will be capital gain or loss
and will be long-term or short-term, generally depending on how long you have
held your shares. Any loss may be recognized only if an investor redeems its
entire interest in the Fund for money. A distribution in partial or complete
redemption of your shares in the Fund is taxable as a sale or exchange only to
the extent the amount of money received exceeds your tax basis in the entire
interest in Fund.
Generally, a distribution or series of distributions by the Fund to a
shareholder that results in termination of its entire interest in the Fund
results in gain to the distributee shareholder only to the extent that any money
and the fair market value on the date of distribution of marketable securities
(within the meaning of Section 731(c) of the Code) distributed exceeds the
shareholder's adjusted basis in its Fund shares. When only money (including any
marketable securities treated as a distribution of money) and unrealized
receivables are distributed, loss will be recognized to the extent that the
shareholder's adjusted basis in its Fund shares exceeds the amount of money
distributed and the basis to the shareholder of any unrealized receivables
distributed. Any gain or loss recognized as a result of such distributions will
be considered as gain or loss from the sale or exchange of the distributee
shareholder's Fund shares and generally will be capital gain or loss.
The tax basis of a shareholder's interest in the Fund will include the
amount of money, and/or the basis in securities that the shareholder contributes
to the Fund, increased principally by (i) any additional contributions made by
the shareholder to the Fund; (ii) the shareholder's allocable share of any Fund
profit, income, or gain; and (iii) the amount, if any, of the shareholder's
share of the Fund indebtedness, and decreased, but not below zero, principally
by (x) distributions from the Fund to the shareholder, (y) the amount of the
shareholder's allocable share of Fund losses, and (z) any reduction in the
shareholder's share of Fund indebtedness. In the case of non-liquidating
distributions other than cash (and other than certain ordinary income type
assets, like accounts receivable) basis is reduced (but not below zero) by the
basis of the property distributed.
U.S. Government Securities
To the extent the Fund invests in certain U.S. government obligations,
income allocated by the Fund to shareholders that is derived from interest on
these obligations should be exempt from state and local personal income taxes.
The income on portfolio investments in certain
25
securities, such as repurchase agreements, commercial paper and federal
agency-backed obligations (e.g., Ginnie Mae or Fannie Mae securities), generally
does not qualify for tax-free treatment. The rules on exclusion of this income
are different for corporate shareholders.
Qualified Dividend Income
For individual shareholders, a portion of the income allocated from the
Fund may be qualified dividends eligible for taxation at long-term capital gain
rates. This reduced rate generally is available for dividends paid by the Fund
out of dividends allocated from the Fund's investment in stocks of domestic
corporations and qualified foreign corporations.
The Fund must meet certain holding period requirements to qualify Fund
dividends for this treatment. Specifically, the Fund must hold the stock for at
least sixty-one (61) days during the 121-day period beginning sixty (60) days
before the stock becomes ex-dividend. The ex-dividend date is the first date
following the declaration of a dividend on which the purchaser of stock is not
entitled to receive the dividend payment. When counting the number of days you
held your Fund shares, include the day you sold your shares but not the day you
acquired these shares.
While the income received in the form of a qualified dividend is taxed at
the same rates as long-term capital gains, such income will not be considered as
a long-term capital gain for other federal income tax purposes. For example, you
will not be allowed to offset your long-term capital losses against qualified
dividend income on your federal income tax return. Any qualified dividend income
that you elect to be taxed at these reduced rates also cannot be used as
investment income in determining your allowable investment interest expense. For
other limitations on the amount of or use of qualified dividend income on your
income tax return, please contact your personal tax advisor.
Dividends-Received Deduction for Corporations
For corporate shareholders, a portion of the income allocated by the Fund
may qualify for the dividends-received deduction. The portion of the income
allocated by the Fund that so qualifies will be designated each year in a notice
mailed to the Fund's shareholders, and cannot exceed the gross amount of
dividends received by the Fund from domestic (U.S.) corporations that would have
qualified for the dividends-received deduction in the hands of the Fund if the
Fund was a regular corporation. Income allocated by the Fund from interest on
debt securities or dividends earned on portfolio securities of non-U.S. issuers
are not expected to qualify for the corporate dividends-received deduction.
The availability of the dividends-received deduction is subject to certain
holding period and debt financing restrictions imposed under the Code on the
corporation claiming the deduction. The amount that the Fund may designate as
eligible for the dividends-received deduction will be reduced or eliminated if
the shares on which the dividends earned by the Fund were debt-financed or held
by the Fund for less than a minimum period of time, generally forty-six (46)
days during a ninety-one- (91) day period beginning forty-five (45) days before
the stock becomes ex-dividend. Even if designated as dividends eligible for the
dividends-received
26
deduction, all dividends (including any deducted portion) must be included in
your alternative minimum taxable income calculation.
Investment in Complex Securities
The Fund may invest in complex securities and such investments may be
subject to numerous special and complicated tax rules. These rules could affect
whether gains or losses recognized by the Fund are treated as ordinary income or
capital gain, accelerate the recognition of income to the Fund, defer the Fund's
ability to recognize losses, and subject the Fund to U.S. federal income tax on
income from certain of the Fund's foreign investments. In turn, these rules may
affect the amount, timing and/or tax character of the Fund's income and, in
turn, of the income distributed to you.
Derivatives. The Fund is permitted to invest in certain options, futures
and foreign currency contracts. If the Fund makes these investments, it could be
required to mark-to-market these contracts and realize any unrealized gains and
losses at its fiscal year end even though it continues to hold the contracts.
Under these rules, gains or losses on the contracts generally would be treated
as 60% long-term and 40% short-term gains or losses, but gains or losses on
certain foreign currency contracts would be treated as ordinary income or
losses.
Securities lending. The Fund's entry into securities lending transactions
may cause the replacement income earned on the loaned securities to fall outside
of the definition of qualified dividend income. This replacement income
generally will not be eligible for reduced rates of taxation on qualified
dividend income and, to the extent that debt securities are loaned, will
generally not qualify as qualified interest income for foreign withholding tax
purposes.
Short sales. The Fund's entry into a short sale transaction or an option or
other contract could be treated as the "constructive sale" of an "appreciated
financial position," causing it to realize gain, but not loss, on the position.
Convertible debt. Convertible debt is ordinarily treated as a "single
property" consisting of a pure debt interest until conversion, after which the
investment becomes an equity interest. If the security is issued at a premium
(i.e., for cash in excess of the face amount payable on retirement), the
creditor-holder may amortize the premium over the life of the bond. If the
security is issued for cash at a price below its face amount, the
creditor-holder must accrue original issue discount in income over the life of
the debt.
Tax straddles. The Fund's investment in options, futures and foreign
currency contracts in connection with certain hedging transactions could cause
the Fund to hold offsetting positions in securities. If the Fund's risk of loss
with respect to specific securities in its portfolio is substantially diminished
by the fact that it holds other securities, the Fund could be deemed to have
entered into a tax "straddle" or to hold a "successor position" that would
require any loss realized by it to be deferred for tax purposes.
Investment in taxable mortgage pools (excess inclusion income). The Fund
may invest in U.S.-REITs that hold residual interests in REMICs or which are, or
have certain wholly-owned subsidiaries that are, "taxable mortgage pools." Under
a Notice issued by the IRS, the Code and Treasury regulations to be issued, a
portion of the Fund's income from a U.S.-REIT that is
27
attributable to the REIT's residual interest in a REMIC or equity interests in a
taxable mortgage pool (referred to in the Code as an excess inclusion) will be
subject to federal income tax in all events. The excess inclusion income of the
Fund will be allocated to Fund shareholders (as determined in accordance with
the governing instruments of the Fund) with the same consequences as if the
shareholders held the related REMIC residual interest or, if applicable, taxable
mortgage pool directly. In general, excess inclusion income allocated to
shareholders (i) cannot be offset by net operating losses (subject to a limited
exception for certain thrift institutions); (ii) will constitute UBTI to
entities (including a qualified pension plan, an individual retirement account,
a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on UBTI,
thereby potentially requiring such an entity that is allocated excess inclusion
income, and otherwise might not be required to file a tax return, to file a tax
return and pay tax on such income; and (iii) in the case of a non-U.S.
shareholder, will not qualify for any reduction in U.S. federal withholding tax.
In addition, if at any time during any taxable year a "disqualified
organization" (which generally includes certain cooperatives, governmental
entities and tax-exempt organizations that are not subject to tax on UBTI) is a
record holder of a share in the Fund, then the Fund will be subject to a tax
equal to that portion of its excess inclusion income for the taxable year that
is allocable to the disqualified organization, multiplied by the highest federal
income tax rate imposed on corporations. The Notice imposes certain reporting
requirements upon pass-through entities such as the Fund that have excess
inclusion income. While there can be no assurance that the Fund will not
allocate to shareholders excess inclusion income, it is unlikely that these
rules will apply to a pass-through entity such as the Fund that has a non-REIT
strategy.
Investments in securities of uncertain tax character. The Fund may invest
in securities the U.S. Federal income tax treatment of which may not be clear or
may be subject to recharacterization by the IRS. To the extent the tax treatment
of such securities or the income from such securities differs from the tax
treatment expected by the Fund, it could affect the timing or character of
income recognized by the Fund, and, in turn, shareholders.
Non-U.S. Investors
Investors in the Fund who are not U.S. persons for purposes of U.S. federal
income taxation should consult with their tax advisors to determine the
applicability of U.S. withholding by the Fund on interest, dividends and any
other items of fixed or determinable annual or periodical gains, profits and
income included in such investors' distributive share of the Fund's income.
Non-U.S. investors also may wish to contact their tax advisors to determine the
applicability of foreign tax laws.
Fund income not derived from the conduct of a U.S. trade or business.
Non-U.S. investors should be aware of certain U.S. federal income tax
consequences of investing in the Fund. Provided that the Fund is not deemed to
be engaged in a trade or business in the United States for U.S. federal income
tax purposes, the Fund generally will be required to withhold tax on certain
items of gross income (including fees received in connection with the Fund's
lending activities, dividends and certain types of interest income derived from
U.S. sources) included in the distributive share of each non-U.S. investor at a
rate of 30%, unless the tax is reduced or eliminated by treaty. Certain other
categories of income from U.S. sources, generally including interest on certain
portfolio debt obligations (which may include U.S. Government securities),
28
capital gains (including those derived from options transactions), original
issue discount obligations having an original maturity of 183 days or less, and
certificates of deposit, will not be subject to this 30% tax.
Income effectively connected with the conduct of a U.S. trade or business.
If, on the other hand, the Fund derives income which is effectively connected
with a U.S. trade or business carried on by the Fund (for example, by investing
in REITs or other entities holding U.S. real property interests or by investing
in an entity that is classified as a partnership for U.S. federal tax purposes),
this 30% tax will not apply to such effectively connected income of the Fund,
and the Fund generally will be required to withhold quarterly amounts of tax
from the amount of effectively connected taxable income allocable to each
non-U.S. shareholder at the highest rate of tax applicable to U.S. taxpayers.
Thus, non-U.S. investors would be taxable on capital gains, as well as other
income that is treated as effectively connected with the Fund's trade or
business, and generally would be required to file U.S. tax returns. Furthermore,
a foreign corporation investing in the Fund would be subject to an additional
30% branch profits tax, unless the tax were reduced or eliminated by treaty.
U.S. tax certification rules. Special U.S. tax certification requirements
apply to non-U.S. shareholders.
U.S. estate tax. An individual who, at the time of death, is a non-U.S.
shareholder will nevertheless be subject to U.S. federal estate tax with respect
to Fund shares at the graduated rates applicable to U.S. citizens and residents,
unless a treaty exemption applies. If a treaty exemption is available, a
decedent's estate may nonetheless need to file a U.S. estate tax return to claim
the exemption. In the absence of a treaty, there is a $13,000 statutory estate
tax credit. Transfers by gift of shares of the Fund by a non-U.S. shareholder
who is a nonresident alien individual will not be subject to U.S. federal gift
tax. The tax consequences to a non-U.S. shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Non-U.S. shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign tax.
Other Tax Issues
The Board reserves the right to change the entity classification of the
Fund for U.S. federal income tax purposes at any time, as may be permitted or
required under the Code. For instance, the Board might cause the Fund, which is
classified as a partnership, to elect to be classified as a corporation and
taxable as a regulated investment company. Such a change in entity
classification may be prompted by, among other things, changes in law, the
investment strategy of the Fund, or the nature and number of shareholders of the
Fund or other factors or events adversely affecting the ability of the Fund to
comply with the Code. A change in entity classification of the Fund may be a
taxable event, causing the Fund and shareholders of the Fund that are subject to
tax to recognize a taxable gain or loss. Such a change in entity classification
also would cause the shareholders of the Fund to be subject to a different
taxation regime, which may adversely affect some shareholders depending upon
their particular circumstances.
29
The Fund may accept securities or local currencies in exchange for shares
of the Fund. A gain or loss for U.S. federal income tax purposes may be realized
by investors who are subject to U.S. federal taxation upon the exchange,
depending upon the U.S. dollar cost of the securities or local currency
exchanged. Investors should consult their tax advisers. (See "In-kind Purchases"
in Item 6(b).)
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein. Rules
of state and local taxation of ordinary income, qualified dividend income and
capital gain dividends may differ from the rules for U.S. federal income
taxation described above. Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's particular situation.
Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly
from those summarized above. Shareholders are urged to consult their tax
advisors as to the consequences of these and other state and local tax rules
affecting investment in the Fund.
PROXY VOTING POLICIES
The Board has delegated the authority to vote proxies for the portfolio
securities held by the Fund to the Advisor in accordance with the Proxy Voting
Policies and Procedures (the "Voting Policies") and Proxy Voting Guidelines
("Voting Guidelines") adopted by the Advisor. The Voting Guidelines have been
developed by Institutional Shareholder Services, a wholly owned subsidiary of
RiskMetrics Group Inc. ("ISS"), an independent third party, except with respect
to certain matters for which the Advisor has modified the standard voting
guidelines. A concise summary of the Voting Guidelines is provided in an
Appendix to this SAI.
The Investment Committee at the Advisor is generally responsible for
overseeing the Advisor's proxy voting process. The Investment Committee has
formed a Corporate Governance Committee composed of certain officers, directors,
and other personnel of the Advisor and has delegated to its members authority
to: (i) oversee the voting of proxies; (ii) make determinations as to how to
vote certain specific proxies; (iii) verify the on-going compliance with the
Voting Policies; and (iv) review the Voting Policies from time to time and
recommend changes to the Investment Committee. The Corporate Governance
Committee may designate one or more of its members to oversee specific, ongoing
compliance with respect to the Voting Policies and may designate other personnel
of the Advisor to vote proxies on behalf of the Fund, including all authorized
traders of the Advisor.
The Advisor votes (or refrains from voting) proxies in a manner consistent
with the best interests of the Fund as understood by the Advisor at the time of
the vote. Generally, the Advisor analyzes proxy statements on behalf of the Fund
in accordance with the Voting Policies and the Voting Guidelines. Most proxies
that the Advisor receives will be voted in accordance with the Voting
Guidelines. Since most proxies are voted in accordance with the Voting
Guidelines, it normally will not be necessary for the Advisor to make an actual
determination of
30
how to vote a particular proxy, thereby largely eliminating conflicts of
interest for the Advisor during the proxy voting process. However, the Proxy
Policies do address the procedures to be followed if a conflict of interest
arises between the interests of the Fund and the interests of the Advisor or its
affiliates. If a Corporate Governance Committee ("Committee") member has actual
knowledge of a conflict of interest and recommends a vote contrary to the Voting
Guidelines (or in the case where the Voting Guidelines do not prescribe a
particular vote and the proposed vote is contrary to the recommendation of ISS,
the Committee member will bring the vote to the Committee which will (a)
determine how the vote should be cast keeping in mind the principle of
preserving shareholder value, or (b) determine to abstain from voting, unless
abstaining would be materially adverse to the interest of the Fund. To the
extent the Committee makes a determination regarding how to vote or to abstain
for a proxy on behalf of the Fund in the circumstances described in this
paragraph, the Advisor will report annually on such determinations to the Board.
The Advisor will usually vote proxies in accordance with the Voting
Guidelines. The Voting Guidelines provide a framework for analysis and
decision-making; however, the Voting Guidelines do not address all potential
issues. In order to be able to address all the relevant facts and circumstances
related to a proxy vote, the Advisor reserves the right to vote counter to the
Voting Guidelines if, after a review of the matter, the Advisor believes that
the best interests of the Fund would be served by such a vote. In such a
circumstance, the analysis will be documented in writing and periodically
presented to the Corporate Governance Committee. To the extent that the Voting
Guidelines do not cover potential voting issues, the Advisor will vote on such
issues in a manner that is consistent with the spirit of the Voting Guidelines
and that the Advisor believes would be in the best interests of the Fund.
The Advisor votes (or refrains from voting) proxies in a manner that the
Advisor determines is in the best interests of the Fund and which seeks to
maximize the value of the Fund's investments. In some cases, the Advisor may
determine that it is in the best interests of the Fund to refrain from
exercising proxy voting rights. The Advisor may determine that voting is not in
the best interest of the Fund and refrain from voting if the costs, including
the opportunity costs, of voting would exceed, in the view of the Advisor, the
expected benefits of voting. For securities on loan, the Advisor will balance
the revenue-producing value of loans against the difficult-to-assess value of
casting votes. It is the Advisor's belief that the expected value of casting a
vote generally will be less than the securities lending income, either because
the votes will not have significant economic consequences or because the outcome
of the vote would not be affected by the Advisor recalling loaned securities in
order to ensure they are voted. The Advisor does intend to recall securities on
loan if it determines that voting the securities is likely to materially affect
the value of the Fund's investment and that it is in the Fund's best interests
to do so. In cases where the Advisor does not receive a solicitation or enough
information within a sufficient time (as reasonably determined by the Advisor)
prior to the proxy-voting deadline, the Advisor may be unable to vote.
With respect to non-U.S. securities, it is typically both difficult and
costly to vote proxies due to local regulations, customs, and other requirements
or restrictions. The Advisor does not vote proxies of non-U.S. companies if the
Advisor determines that the expected economic costs from voting outweigh the
anticipated economic benefit to the Fund associated with voting. The Advisor
determines whether to vote proxies of non-U.S. companies on a
portfolio-by-portfolio
31
basis, and generally implements uniform voting procedures for all proxies of
companies in a country. The Advisor periodically reviews voting logistics,
including costs and other voting difficulties, on a portfolio-by-portfolio and
country-by-country basis, in order to determine if there have been any material
changes that would affect the Advisor's decision of whether or not to vote. In
the event the Advisor is made aware of and believes an issue to be voted is
likely to materially affect the economic value of the Fund, that its vote is
reasonably likely to influence the ultimate outcome of the contest, and the
expected benefits of voting the proxies exceed the costs, the Advisor will make
every reasonable effort to vote such proxies.
The Advisor and the Fund have retained ISS to provide certain services with
respect to proxy voting. ISS will: provide information on shareholder meeting
dates and proxy materials; translate proxy materials printed in a foreign
language; provide research on proxy proposals and voting recommendations in
accordance with the Voting Guidelines; effect votes on behalf of the Fund; and
provide reports concerning the proxies voted. Although the Advisor may consider
the recommendations of ISS on proxy issues, the Advisor remains ultimately
responsible for all proxy voting decisions.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12-month period ended June 30 of each year is available,
no later than August 31 of each year, without charge, (i) upon request, by
calling collect (512) 306-7400, or (ii) on the Advisor's Web site at
http://www.dimensional.com, or (iii) on the SEC's Web site at
http://www.sec.gov.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Advisor and the Board have adopted a policy (the "Policy") to govern
disclosure of the portfolio holdings of the Fund ("Holdings Information"), and
to prevent the misuse of material non-public Holdings Information. The Advisor
has determined that the Policy and its procedures (i) are reasonably designed to
ensure that disclosure of Holdings Information is in the best interests of the
shareholders of the Fund, and (ii) appropriately address the potential for
material conflicts of interest.
Disclosure of Holdings Information as Required by Applicable Law. Holdings
Information (whether a partial listing of portfolio holdings or a complete
listing of portfolio holdings) shall be disclosed to any person as required by
applicable law, rules and regulations.
Online Disclosure of Portfolio Holdings Information. The Fund generally
discloses up to twenty-five of its largest portfolio holdings and the
percentages that each of these largest portfolio holdings represent of the
Fund's total assets ("largest holdings"), as of the most recent month-end by
presenting the information for the portfolios that invest in the Fund as feeder
portfolios. This information is disclosed online at the Advisor's Web site,
http://www.dimensional.com, which is accessible by shareholders, within twenty
(20) days after the end of each month. This online disclosure may also include
information regarding the Fund's industry allocations. The Fund also generally
discloses its complete Holdings Information (other than cash and cash
equivalents), as of month-end, online at the Advisor's Web site, which is
accessible by shareholders, two months following the month-end.
32
Disclosure of Holdings Information to Recipients. Each of the Advisor's
Chairmen, Director of Institutional Services, Head of Portfolio Management and
Trading, and General Counsel (together, the "Designated Persons") may authorize
disclosing non-public Holdings Information more frequently or at different
periods than as described above solely to those financial advisors, registered
accountholders, authorized consultants, authorized custodians, or third-party
data service providers (each a "Recipient") who (i) specifically request the
more current non-public Holdings Information and (ii) execute a Use and
Nondisclosure Agreement (each a "Nondisclosure Agreement"). Each Nondisclosure
Agreement subjects the Recipient to a duty of confidentiality with respect to
the non-public Holdings Information, and prohibits the Recipient from trading
based on the non-public Holdings Information. Any non-public Holdings
Information that is disclosed shall not include any material information about
the Fund's trading strategies or pending portfolio transactions. The non-public
Holdings Information provided to a Recipient under a Nondisclosure Agreement is
not subject to a time delay before dissemination.
As of January 31, 2009, the Advisor and the Fund had ongoing arrangements
with the following Recipients to make available non-public Holdings Information:
--------------------------------- -------------------------------------- ------------------
Recipient Business Purpose Frequency
--------------------------------- -------------------------------------- ------------------
Citibank, N.A. Fund Custodian Daily
--------------------------------- -------------------------------------- ------------------
PNC Global Investment Servicing Fund Transfer Agent Daily
(U.S.) Inc.
--------------------------------- -------------------------------------- ------------------
PricewaterhouseCoopers LLP Independent registered public Semi-Annually
accounting firm (based on a
fiscal year)
--------------------------------- -------------------------------------- ------------------
Pricing Service Vendor Fair value information services Daily
--------------------------------- -------------------------------------- ------------------
Citibank North American, Inc. Middle office operational support Daily
service provider to the Advisor
--------------------------------- -------------------------------------- ------------------
Victorian Fund Management Monitoring investor exposure and Upon request
Corporation investment strategy
--------------------------------- -------------------------------------- ------------------
Northern Trust Company Monitoring investor exposure and Upon request
investment strategy
--------------------------------- -------------------------------------- ------------------
Bank of New York Monitoring investor exposure and Upon request
investment strategy
--------------------------------- -------------------------------------- ------------------
Consulting Services Group LLC Advisor evaluation Upon request
--------------------------------- -------------------------------------- ------------------
Evaluation Associates LLC Monitoring investor exposure and Quarterly
investment strategy
--------------------------------- -------------------------------------- ------------------
Strategic Investment Solutions Monitoring investor exposure and Quarterly
investment strategy
--------------------------------- -------------------------------------- ------------------
33
--------------------------------- -------------------------------------- ------------------
Wurts & Associates Monitoring investor exposure and Monthly
investment strategy
--------------------------------- -------------------------------------- ------------------
Segal Advisors, Inc. Monitoring investor exposure and Upon request
investment strategy
--------------------------------- -------------------------------------- ------------------
CTC Consulting, Inc. Monitoring investor exposure and Quarterly
investment strategy
--------------------------------- -------------------------------------- ------------------
Meketa Investment Group, Inc. Monitoring investor exposure and Upon request
investment strategy
--------------------------------- -------------------------------------- ------------------
Ranchor Investment Advisory Monitoring investor exposure and Quarterly
investment strategy
--------------------------------- -------------------------------------- ------------------
Edelman Financial Monitoring investor exposure and Quarterly
investment strategy
--------------------------------- -------------------------------------- ------------------
Curprum AFP Monitoring investor exposure and Quarterly
investment strategy
--------------------------------- -------------------------------------- ------------------
Finance-Doc Monitoring investor exposure and Quarterly
investment strategy
--------------------------------- -------------------------------------- ------------------
Kansas University Endowment Monitoring investor exposure and Upon request
Assoc. investment strategy
--------------------------------- -------------------------------------- ------------------
Lockheed Martin Monitoring investor exposure and Upon request
investment strategy
--------------------------------- -------------------------------------- ------------------
Stratford Advisory Group Monitoring investor exposure and Monthly
investment strategy
--------------------------------- -------------------------------------- ------------------
Watershed Investment Consultants Monitoring investor exposure and Quarterly
investment strategy
--------------------------------- -------------------------------------- ------------------
Strategic Investment Solutions Monitoring investor exposure and Quarterly
investment strategy
--------------------------------- -------------------------------------- ------------------
Wilshire Associates Monitoring investor exposure and Quarterly
investment strategy
--------------------------------- -------------------------------------- ------------------
Complementa Monitoring investor exposure and Monthly
investment strategy
--------------------------------- -------------------------------------- ------------------
In addition, certain employees of the Advisor and its subsidiaries receive
Holdings Information on a quarterly, monthly, or daily basis, or upon request,
in order to perform their business functions. Neither the Fund, nor the Advisor,
nor any other party receives any compensation in connection with these
arrangements.
34
The Policy includes the following procedures to ensure that disclosure of
Holdings Information is in the best interests of shareholders, and to address
any conflicts between the interests of shareholders, on the one hand, and the
interests of the Advisor, DFAS, or any affiliated person of the Fund, the
Advisor or DFAS, on the other. In order to protect the interests of shareholders
and the Fund, and to ensure no adverse effect on shareholders, in the limited
circumstances where a Designated Person is considering making non-public
Holdings Information available to a Recipient, the Advisor's Director of
Institutional Services and the Chief Compliance Officer will consider any
conflicts of interest. If the Chief Compliance Officer, following appropriate
due diligence, determines that (i) the Fund has a legitimate business purpose
for providing the non-public Holdings Information to a Recipient, and (ii)
disclosure of non-public Holdings Information to the Recipient would be in the
best interests of shareholders and will not adversely affect the shareholders,
then the Chief Compliance Officer may approve the proposed disclosure.
The Chief Compliance Officer documents all disclosures of non-public
Holdings Information (including the legitimate business purpose for the
disclosure), and periodically reports to the Board on such arrangements. The
Chief Compliance Officer is also responsible for ongoing monitoring of the
distribution and use of non-public Holdings Information. Such arrangements are
reviewed by the Chief Compliance Officer on an annual basis. Specifically, the
Chief Compliance Officer requests an annual certification from each Recipient
that the Recipient has complied with all terms contained in the Nondisclosure
Agreement. Recipients who fail to provide the requested certifications are
prohibited from receiving non-public Holdings Information.
The Board exercises continuing oversight of the disclosure of Holdings
Information by: (i) overseeing the implementation and enforcement of the Policy
by the Chief Compliance Officer of the Advisor and of the Funds and Trust; (ii)
considering reports and recommendations by the Chief Compliance Officer
concerning the implementation of the Policy and any material compliance matters
that may arise in connection with the Policy; and (iii) considering whether to
approve or ratify any amendments to the Policy. The Advisor and the Board
reserve the right to amend the Policy at any time, and from time to time without
prior notice, in their sole discretion.
Prohibitions on Disclosure of Portfolio Holdings and Receipt of
Compensation. No person is authorized to disclose Holdings Information or other
investment positions (whether online at http://www.dimensional.com, in writing,
by fax, by e-mail, orally, or by other means) except in accordance with the
Policy. In addition, no person is authorized to make disclosure pursuant to the
Policy if such disclosure is otherwise in violation of the antifraud provisions
of the federal securities laws.
The Policy prohibits the Fund, the Advisor or an affiliate thereof from
receiving any compensation or other consideration of any type for the purpose of
obtaining disclosure of non-public Holdings Information or other investment
positions. "Consideration" includes any agreement to maintain assets in the Fund
or in other investment companies or accounts managed by the Advisor or by any
affiliated person of the Advisor.
The Policy and its procedures are intended to provide useful information
concerning the Fund to existing and prospective shareholders, while at the same
time preventing the improper
35
use of Holdings Information. However, there can be no assurance that the
furnishing of any Holdings Information is not susceptible to inappropriate uses,
particularly in the hands of sophisticated investors, or that the Holdings
Information will not in fact be misused in other ways, beyond the control of the
Advisor.
FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, Two Commerce Square, Suite 1700, 2001 Market
Street, Philadelphia, PA19103-7042, is the Fund's independent registered public
accounting firm. PwC audits the Fund's annual financial statements on an annual
basis. The audited financial statements and financial highlights of the Fund for
its fiscal period ended October 31, 2008, as set forth in the Fund's annual
report to shareholders, including the report of PwC, are incorporated by
reference into this Part B. The unaudited financial statements and financial
highlights of the Fund for the period ended April 30, 2009, as set forth in the
Fund's semi-annual report to shareholders, are also incorporated by reference
into this Part B.
36
APPENDIX
ISS Governance Services
Concise Summary of 2009
U.S. Proxy Voting Guidelines
Effective for Meetings on or after Feb. 1, 2009
1. Operational Items:
Auditor Ratification
Vote FOR proposals to ratify auditors, unless any of the following apply:
o An auditor has a financial interest in or association with the company, and
is therefore not independent;
o There is reason to believe that the independent auditor has rendered an
opinion which is neither accurate nor indicative of the company's financial
position;
o Poor accounting practices are identified that rise to a serious level of
concern, such as: fraud; misapplication of GAAP; and material weaknesses
identified in Section 404 disclosures; or
o Fees for non-audit services ("Other" fees) are excessive.
Non-audit fees are excessive if:
o Non-audit ("other") fees exceed audit fees + audit-related fees + tax
compliance/preparation fees
Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit
their auditors from engaging in non-audit services.
Vote CASE-BY-CASE on shareholder proposals asking for audit firm rotation,
taking into account:
o The tenure of the audit firm;
o The length of rotation specified in the proposal;
o Any significant audit-related issues at the company;
o The number of Audit Committee meetings held each year;
o The number of financial experts serving on the committee; and
o Whether the company has a periodic renewal process where the auditor is
evaluated for both audit quality and competitive price.
2. Board of Directors:
Voting on Director Nominees in Uncontested Elections
Vote on director nominees should be determined on a CASE-BY-CASE basis.
Vote AGAINST or WITHHOLD from individual directors who:
o Attend less than 75 percent of the board and committee meetings without a
valid excuse, such as illness, service to the nation, work on behalf of the
company, or funeral obligations. If the company provides meaningful public
or private disclosure explaining the director's absences, evaluate the
information on a CASE-BY-CASE basis taking into account the following
factors:
- Degree to which absences were due to an unavoidable conflict;
- Pattern of absenteeism; and
- Other extraordinary circumstances underlying the director's absence;
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o Sit on more than six public company boards;*
o Are CEOs of public companies who sit on the boards of more than two public
companies besides their own-- withhold only at their outside boards.
Vote AGAINST or WITHHOLD from all nominees of the board of directors, (except
from new nominees, who should be considered on a CASE-BY-CASE basis) if:
o The company's proxy indicates that not all directors attended 75% of the
aggregate of their board and committee meetings, but fails to provide the
required disclosure of the names of the directors involved. If this
information cannot be obtained, vote against/withhold from all incumbent
directors;
o The company's poison pill has a dead-hand or modified dead-hand feature.
Vote against/withhold every year until this feature is removed;
o The board adopts or renews a poison pill without shareholder approval, does
not commit to putting it to shareholder vote within 12 months of adoption
(or in the case of an newly public company, does not commit to put the pill
to a shareholder vote within 12 months following the IPO), or reneges on a
commitment to put the pill to a vote, and has not yet received a
withhold/against recommendation for this issue;
o The board failed to act on a shareholder proposal that received approval by
a majority of the shares outstanding the previous year (a management
proposal with other than a FOR recommendation by management will not be
considered as sufficient action taken);
o The board failed to act on a shareholder proposal that received approval of
the majority of shares cast for the previous two consecutive years (a
management proposal with other than a FOR recommendation by management will
not be considered as sufficient action taken);
o The board failed to act on takeover offers where the majority of the
shareholders tendered their shares;
o At the previous board election, any director received more than 50 percent
withhold/against votes of the shares cast and the company has failed to
address the underlying issue(s) that caused the high withhold/against vote;
o The board is classified, and a continuing director responsible for a
problematic governance issue at the board/committee level that would
warrant a withhold/against vote recommendation is not up for election- any
or all appropriate nominees (except new) may be held accountable;
o The board lacks accountability and oversight, coupled with sustained poor
performance relative to peers. Sustained poor performance is measured by
one- and three-year total shareholder returns in the bottom half of a
company's four-digit GICS industry group (Russell 3000 companies only).
Vote AGAINST or WITHHOLD from Inside Directors and Affiliated Outside Directors
(per the Classification of Directors below) when:
o The inside or affiliated outside director serves on any of the three key
committees: audit, compensation, or nominating;
o The company lacks an audit, compensation, or nominating committee so that
the full board functions as that committee;
------------------------------
* Dimensional will screen votes otherwise subject to this policy based on the
qualifications and circumstances of the directors involved.
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o The company lacks a formal nominating committee, even if board attests that
the independent directors fulfill the functions of such a committee;
o The full board is less than majority independent.
Vote AGAINST or WITHHOLD from the members of the Audit Committee if:
o The non-audit fees paid to the auditor are excessive;
o The company receives an adverse opinion on the company's financial
statements from its auditor; or
o There is persuasive evidence that the audit committee entered into an
inappropriate indemnification agreement with its auditor that limits the
ability of the company, or its shareholders, to pursue legitimate legal
recourse against the audit firm.
Vote CASE-by-CASE on members of the Audit Committee and/or the full board if
poor accounting practices, which rise to a level of serious concern are
indentified, such as: fraud; misapplication of GAAP; and material weaknesses
identified in Section 404 disclosures.
Examine the severity, breadth, chronological sequence and duration, as well as
the company's efforts at remediation or corrective actions in determining
whether negative vote recommendations are warranted against the members of the
Audit Committee who are responsible for the poor accounting practices, or the
entire board.
Vote AGAINST or WITHHOLD from the members of the Compensation Committee if:
o There is a negative correlation between the chief executive's pay and
company performance (see discussion under Equity Compensation Plans);
o The company reprices underwater options for stock, cash or other
consideration without prior shareholder approval, even if allowed in their
equity plan;
o The company fails to submit one-time transfers of stock options to a
shareholder vote;
o The company fails to fulfill the terms of a burn rate commitment they made
to shareholders;
o The company has backdated options (see "Options Backdating" policy);
The company has poor compensation practices (see "Poor Pay Practices" policy).
Poor pay practices may warrant withholding votes from the CEO and potentially
the entire board as well.
Vote AGAINST or WITHHOLD from directors, individually or the entire board, for
egregious actions or failure to replace management as appropriate.
Independent Chair (Separate Chair/CEO)
Generally vote FOR shareholder proposals requiring that the chairman's position
be filled by an independent director, unless the company satisfies all of the
following criteria:
The company maintains the following counterbalancing features:
o Designated lead director, elected by and from the independent board members
with clearly delineated and comprehensive duties. (The role may
alternatively reside with a presiding director, vice chairman, or rotating
lead director; however the director must serve a minimum of one year in
order to qualify as a lead director.) The duties should include, but are
not limited to, the following:
- presides at all meetings of the board at which the chairman is not
present, including executive sessions of the independent directors;
- serves as liaison between the chairman and the independent directors;
- approves information sent to the board;
- approves meeting agendas for the board;
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- approves meeting schedules to assure that there is sufficient time for
discussion of all agenda items;
- has the authority to call meetings of the independent directors;
- if requested by major shareholders, ensures that he is available for
consultation and direct communication;
o Two-thirds independent board;
o All independent key committees;
o Established governance guidelines;
o A company in the Russell 3000 universe must not have exhibited sustained
poor total shareholder return (TSR) performance, defined as one- and
three-year TSR in the bottom half of the company's four-digit GICS industry
group within the Russell 3000 only), unless there has been a change in the
Chairman/CEO position within that time;
o The company does not have any problematic governance or management issues,
examples of which include, but are not limited to:
- Egregious compensation practices;
- Multiple related-party transactions or other issues putting director
independence at risk;
- Corporate and/or management scandals;
- Excessive problematic corporate governance provisions; or
- Flagrant board or management actions with potential or realized
negative impact on shareholders.
Majority Vote Shareholder Proposals
Generally vote FOR precatory and binding resolutions requesting that the board
change the company's bylaws to stipulate that directors need to be elected with
an affirmative majority of votes cast, provided it does not conflict with the
state law where the company is incorporated. Binding resolutions need to allow
for a carve-out for a plurality vote standard when there are more nominees than
board seats.
Companies are strongly encouraged to also adopt a post-election policy (also
know as a director resignation policy) that provides guidelines so that the
company will promptly address the situation of a holdover director.
Performance/Governance Evaluation for Directors
Vote WITHHOLD/AGAINST on all director nominees if the board lacks accountability
and oversight, coupled with sustained poor performance relative to peers,
measured by one- and three-year total shareholder returns in the bottom half of
a company's four-digit GICS industry group (Russell 3000 companies only).
Evaluate board accountability and oversight at companies that demonstrate
sustained poor performance. Problematic provisions include but are not limited
to:
o a classified board structure;
o a supermajority vote requirement;
o majority vote standard for director elections with no carve out for
contested elections;
o the inability of shareholders to call special meetings;
o the inability of shareholders to act by written consent;
o a dual-class structure; and/or
o a non-shareholder approved poison pill.
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If a company exhibits sustained poor performance coupled with a lack of board
accountability and oversight, also take into consideration the company's
five-year total shareholder return and five-year operational metrics in the
evaluation.
3. Proxy Contests
Voting for Director Nominees in Contested Elections
Vote CASE-BY-CASE on the election of directors in contested elections,
considering the following factors:
o Long-term financial performance of the target company relative to its
industry;
o Management's track record;
o Background to the proxy contest;
o Qualifications of director nominees (both slates);
o Strategic plan of dissident slate and quality of critique against management;
o Likelihood that the proposed goals and objectives can be achieved (both
slates);
o Stock ownership positions.
Reimbursing Proxy Solicitation Expenses
Vote CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When
voting in conjunction with support of a dissident slate, vote FOR the
reimbursement of all appropriate proxy solicitation expenses associated with the
election.
Generally vote FOR shareholder proposals calling for the reimbursement of
reasonable costs incurred in connection with nominating one or more candidates
in a contested election where the following apply:
o The election of fewer than 50% of the directors to be elected is contested
in the election;
o One or more of the dissident's candidates is elected;
o Shareholders are not permitted to cumulate their votes for directors; and
o The election occurred, and the expenses were incurred, after the adoption
of this bylaw.
4. Antitakeover Defenses and Voting Related Issues
Advance Notice Requirements for Shareholder Proposals/Nominations
Vote CASE-BY-CASE on advance notice proposals, giving support to proposals that
allow shareholders to submit proposals/nominations reasonably close to the
meeting date and within the broadest window possible, recognizing the need to
allow sufficient notice for company, regulatory and shareholder review.
To be reasonable, the company's deadline for shareholder notice of a proposal/
nominations must not be more than 60 days prior to the meeting, with a submittal
window of at least 30 days prior to the deadline.
In general, support additional efforts by companies to ensure full disclosure in
regard to a proponent's economic and voting position in the company so long as
the informational requirements are reasonable and aimed at providing
shareholders with the necessary information to review such proposal.
Poison Pills
Vote FOR shareholder proposals requesting that the company submit its poison
pill to a shareholder vote or redeem it UNLESS the company has: (1) A
shareholder approved poison pill
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in place; or (2) The company has adopted a policy concerning the adoption of a
pill in the future specifying that the board will only adopt a shareholder
rights plan if either:
o Shareholders have approved the adoption of the plan; or
o The board, in exercising its fiduciary responsibilities, determines that it
is in the best interest of shareholders under the circumstances to adopt a
pill without the delay that would result from seeking stockholder approval
(i.e., the "fiduciary out" provision). A poison pill adopted under this
"fiduciary out" will be put to a shareholder ratification vote within 12
months of adoption or expire. If the pill is not approved by a majority of
the votes cast on this issue, the plan will immediately terminate.
Vote FOR shareholder proposals calling for poison pills to be put to a vote
within a time period of less than one year after adoption. If the company has no
non-shareholder approved poison pill in place and has adopted a policy with the
provisions outlined above, vote AGAINST the proposal. If these conditions are
not met, vote FOR the proposal, but with the caveat that a vote within 12 months
would be considered sufficient.
Vote CASE-by-CASE on management proposals on poison pill ratification, focusing
on the features of the shareholder rights plan. Rights plans should contain the
following attributes:
o No lower than a 20% trigger, flip-in or flip-over;
o A term of no more than three years;
o No dead-hand, slow-hand, no-hand or similar feature that limits the ability
of a future board to redeem the pill;
o Shareholder redemption feature (qualifying offer clause); if the board
refuses to redeem the pill 90 days after a qualifying offer is announced,
10 percent of the shares may call a special meeting or seek a written
consent to vote on rescinding the pill.
In addition, the rationale for adopting the pill should be thoroughly explained
by the company. In examining the request for the pill, take into consideration
the company's existing governance structure, including: board independence,
existing takeover defenses, and any problematic governance concerns.
For management proposals to adopt a poison pill for the stated purpose of
preserving a company's net operating losses ("NOL pills"), the following factors
should be considered:
o the trigger (NOL pills generally have a trigger slightly below 5%);
o the value of the NOLs;
o the term;
o shareholder protection mechanisms (sunset provision, causing expiration of
the pill upon exhaustion or expiration of NOLs); and
o other factors that may be applicable.
In addition, vote WITHHOLD/AGAINST the entire board of directors, (except new
nominees, who should be considered on a CASE-by-CASE basis) if the board adopts
or renews a poison pill without shareholder approval, does not commit to putting
it to a shareholder vote within 12 months of adoption (or in the case of a newly
public company, does not commit to put the pill to a shareholder vote within 12
months following the IPO), or reneges on a commitment to put the pill to a vote,
and has not yet received a withhold recommendation for this issue.
5. Mergers and Corporate Restructurings
Overall Approach
For mergers and acquisitions, review and evaluate the merits and drawbacks of
the proposed transaction, balancing various and sometimes countervailing factors
including:
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o Valuation - Is the value to be received by the target shareholders (or paid
by the acquirer) reasonable? While the fairness opinion may provide an
initial starting point for assessing valuation reasonableness, emphasis is
placed on the offer premium, market reaction and strategic rationale.
o Market reaction - How has the market responded to the proposed deal? A
negative market reaction should cause closer scrutiny of a deal.
o Strategic rationale - Does the deal make sense strategically? From where is
the value derived? Cost and revenue synergies should not be overly
aggressive or optimistic, but reasonably achievable. Management should also
have a favorable track record of successful integration of historical
acquisitions.
o Negotiations and process - Were the terms of the transaction negotiated at
arm's-length? Was the process fair and equitable? A fair process helps to
ensure the best price for shareholders. Significant negotiation "wins" can
also signify the deal makers' competency. The comprehensiveness of the
sales process (e.g., full auction, partial auction, no auction) can also
affect shareholder value.
o Conflicts of interest - Are insiders benefiting from the transaction
disproportionately and inappropriately as compared to non-insider
shareholders? As the result of potential conflicts, the directors and
officers of the company may be more likely to vote to approve a merger than
if they did not hold these interests. Consider whether these interests may
have influenced these directors and officers to support or recommend the
merger.
o Governance - Will the combined company have a better or worse governance
profile than the current governance profiles of the respective parties to
the transaction? If the governance profile is to change for the worse, the
burden is on the company to prove that other issues (such as valuation)
outweigh any deterioration in governance.
6. State of Incorporation
Reincorporation Proposals
Evaluate management or shareholder proposals to change a company's state of
incorporation on a CASE-BY-CASE basis, giving consideration to both financial
and corporate governance concerns including the following:
o Reasons for reincorporation;
o Comparison of company's governance practices and provisions prior to and
following the reincorporation; and
o Comparison of corporation laws of original state and destination state
Vote FOR reincorporation when the economic factors outweigh any neutral or
negative governance changes.
7. Capital Structure
Common Stock Authorization
Vote CASE-BY-CASE on proposals to increase the number of shares of common stock
authorized for issuance. Take into account company-specific factors which
include, at a minimum, the following:
o Specific reasons/ rationale for the proposed increase;
o The dilutive impact of the request as determined through an allowable cap
generated by ISS' quantitative model;
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o The board's governance structure and practices; and
o Risks to shareholders of not approving the request.
Vote FOR proposals to approve increases beyond the allowable cap when a
company's shares are in danger of being delisted or if a company's ability to
continue to operate as a going concern is uncertain.
Preferred Stock
Vote CASE-BY-CASE on proposals to increase the number of shares of preferred
stock authorized for issuance. Take into account company-specific factors which
include, at a minimum, the following:
o Specific reasons/ rationale for the proposed increase;
o The dilutive impact of the request as determined through an allowable cap
generated by ISS' quantitative model;
o The board's governance structure and practices; and
o Risks to shareholders of not approving the request.
Vote AGAINST proposals authorizing the creation of new classes of preferred
stock with unspecified voting, conversion, dividend distribution, and other
rights ("blank check" preferred stock).
Vote FOR proposals to create "declawed" blank check preferred stock (stock that
cannot be used as a takeover defense).
Vote FOR proposals to authorize preferred stock in cases where the company
specifies the voting, dividend, conversion, and other rights of such stock and
the terms of the preferred stock appear reasonable.
Vote AGAINST proposals to increase the number of blank check preferred stock
authorized for issuance when no shares have been issued or reserved for a
specific purpose.
8. Executive and Director Compensation
Equity Compensation Plans
Vote CASE-BY-CASE on equity-based compensation plans. Vote AGAINST the equity
plan if any of the following factors apply:
o The total cost of the company's equity plans is unreasonable;
o The plan expressly permits the repricing of stock options/stock
appreciation rights (SARs) without prior shareholder approval;
o The CEO is a participant in the proposed equity-based compensation plan and
there is a disconnect between CEO pay and the company's performance where
over 50 percent of the year-over-year increase is attributed to equity
awards;
o The company's three year burn rate exceeds the greater of 2% and the mean
plus one standard deviation of its industry group;
o The plan provides for the acceleration of vesting of equity awards even
though an actual change in control may not occur (e.g., upon shareholder
approval of a transaction or the announcement of a tender offer); or
o The plan is a vehicle for poor pay practices.
Poor Pay Practices
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Vote AGAINST or WITHHOLD from compensation committee members, CEO, and
potentially the entire board, if the company has poor compensation practices.
Vote AGAINST equity plans if the plan is a vehicle for poor compensation
practices.
The following practices, while not exhaustive, are examples of poor compensation
practices that may warrant withhold vote recommendations:
o Egregious employment contracts - Contracts containing multi-year guarantees
for salary increases, bonuses and equity compensation;
o Excessive perks/tax reimbursements:
- Overly generous perquisites, which may include, but are not limited to
the following: personal use of corporate aircraft, personal security
system maintenance and/or installation, car allowances;
- Reimbursement of income taxes on executive perquisites or other
payments;
- Perquisites for former executives, such as car allowances, personal
use of corporate aircraft or other inappropriate arrangements;
Abnormally large bonus payouts without justifiable performance linkage or proper
disclosure
- Performance metrics that are changed, canceled or replaced during the
performance period without adequate explanation of the action and the
link to performance;
o Egregious pension/SERP (supplemental executive retirement plan) payouts:
- Inclusion of additional years of service not worked that result in
significant payouts;
- Inclusion of performance-based equity awards in the pension
calculation;
o New CEO with overly generous new hire package:
- Excessive "make whole" provisions;
- Any of the poor pay practices listed in this policy;
o Excessive severance and/or change in control provisions:
- Inclusion of excessive change in control or severance payments,
especially those with a multiple in excess of 3X cash pay;
- Payments upon an executive's termination in connection with
performance failure;
- Change in control payouts without loss of job or substantial
diminution of job duties (single-triggered);
- New or materially amended employment or severance agreements that
provide for modified single triggers, under which an executive may
voluntarily leave for any reason and still receive the
change-in-control severance package;
- Liberal change in control definition in individual contracts or equity
plans which could result in payments to executives without an actual
change in control occurring;
- New or materially amended employment or severance agreements that
provide for an excise tax gross-up. Modified gross-ups would be
treated in the same manner as full gross-ups;
- Perquisites for former executives such as car allowances, personal use
of corporate aircraft or other inappropriate arrangements;
o Dividends or dividend equivalents paid on unvested performance shares or
units;
o Poor disclosure practices:
- Unclear explanation of how the CEO is involved in the pay setting
process;
- Retrospective performance targets and methodology not discussed;
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- Methodology for benchmarking practices and/or peer group not disclosed
and explained;
o Internal Pay Disparity:
- Excessive differential between CEO total pay and that of next highest
paid named executive officer (NEO);
o Options backdating (covered in a separate policy);
o Other excessive compensation payouts or poor pay practices at the company.
Other Compensation Proposals and Policies
Advisory Vote on Executive Compensation (Say-on-Pay) Management Proposals
Vote CASE-BY-CASE on management proposals for an advisory vote on executive
compensation. Vote AGAINST these resolutions in cases where boards have failed
to demonstrate good stewardship of investors' interests regarding executive
compensation practices.
For U.S. companies, consider the following factors in the context of each
company's specific circumstances and the board's disclosed rationale for its
practices:
Relative Considerations:
o Assessment of performance metrics relative to business strategy, as
discussed and explained in the CD&A;
o Evaluation of peer groups used to set target pay or award opportunities;
o Alignment of company performance and executive pay trends over time (e.g.,
performance down: pay down);
o Assessment of disparity between total pay of the CEO and other Named
Executive Officers (NEOs).
Design Considerations:
o Balance of fixed versus performance-driven pay;
o Assessment of excessive practices with respect to perks, severance
packages, supplemental executive pension plans, and burn rates.
Communication Considerations:
o Evaluation of information and board rationale provided in CD&A about how
compensation is determined (e.g., why certain elements and pay targets are
used, and specific incentive plan goals, especially retrospective goals);
o Assessment of board's responsiveness to investor input and engagement on
compensation issues (e.g., in responding to majority-supported shareholder
proposals on executive pay topics).
Employee Stock Purchase Plans-- Non-Qualified Plans
Vote CASE-by-CASE on nonqualified employee stock purchase plans. Vote FOR
nonqualified employee stock purchase plans with all the following features:
o Broad-based participation (i.e., all employees of the company with the
exclusion of individuals with 5 percent or more of beneficial ownership of
the company);
o Limits on employee contribution, which may be a fixed dollar amount or
expressed as a percent of base salary;
o Company matching contribution up to 25 percent of employee's contribution,
which is effectively a discount of 20 percent from market value;
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o No discount on the stock price on the date of purchase since there is a
company matching contribution.
Vote AGAINST nonqualified employee stock purchase plans when any of the plan
features do not meet the above criteria. If the company matching contribution
exceeds 25 percent of employee's contribution, evaluate the cost of the plan
against its allowable cap.
Option Exchange Programs/Repricing Options
Vote CASE-by-CASE on management proposals seeking approval to exchange/reprice
options, taking into consideration:
o Historic trading patterns--the stock price should not be so volatile that
the options are likely to be back "in-the-money" over the near term;
o Rationale for the re-pricing--was the stock price decline beyond
management's control?
o Is this a value-for-value exchange?
o Are surrendered stock options added back to the plan reserve?
o Option vesting--does the new option vest immediately or is there a
black-out period?
o Term of the option--the term should remain the same as that of the replaced
option;
o Exercise price--should be set at fair market or a premium to market;
o Participants--executive officers and directors should be excluded.
If the surrendered options are added back to the equity plans for re-issuance,
then also take into consideration the company's total cost of equity plans and
its three-year average burn rate. In addition to the above considerations,
evaluate the intent, rationale, and timing of the repricing proposal. The
proposal should clearly articulate why the board is choosing to conduct an
exchange program at this point in time. Repricing underwater options after a
recent precipitous drop in the company's stock price demonstrates poor timing.
Repricing after a recent decline in stock price triggers additional scrutiny and
a potential AGAINST vote on the proposal. At a minimum, the decline should not
have happened within the past year. Also, consider the terms of the surrendered
options, such as the grant date, exercise price and vesting schedule. Grant
dates of surrendered options should be far enough back (two to three years) so
as not to suggest that repricings are being done to take advantage of short-term
downward price movements. Similarly, the exercise price of surrendered options
should be above the 52-week high for the stock price.
Vote FOR shareholder proposals to put option repricings to a shareholder vote.
Other Shareholder Proposals on Compensation
Advisory Vote on Executive Compensation (Say-on-Pay)
Generally, vote FOR shareholder proposals that call for non-binding shareholder
ratification of the compensation of the Named Executive Officers and the
accompanying narrative disclosure of material factors provided to understand the
Summary Compensation Table.
Golden Coffins/Executive Death Benefits
Generally vote FOR proposals calling on companies to adopt a policy of obtaining
shareholder approval for any future agreements and corporate policies that could
oblige the company to make payments or awards following the death of a senior
executive in the form of unearned salary or bonuses, accelerated vesting or the
continuation in force of unvested equity grants, perquisites and other payments
or awards made in lieu of compensation. This would not apply to any benefit
programs or equity plan proposals for which the broad-based employee population
is eligible.
Share Buyback Holding Periods
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Generally vote AGAINST shareholder proposals prohibiting executives from selling
shares of company stock during periods in which the company has announced that
it may or will be repurchasing shares of its stock. Vote FOR the proposal when
there is a pattern of abuse by executives exercising options or selling shares
during periods of share buybacks.
Stock Ownership or Holding Period Guidelines
Generally vote AGAINST shareholder proposals that mandate a minimum amount of
stock that directors must own in order to qualify as a director or to remain on
the board. While ISS favors stock ownership on the part of directors, the
company should determine the appropriate ownership requirement.
Vote on a CASE-BY-CASE on shareholder proposals asking companies to adopt
policies requiring Named Executive Officers to retain 75% of the shares acquired
through compensation plans while employed and/or for two years following the
termination of their employment, and to report to shareholders regarding this
policy. The following factors will be taken into account:
o Whether the company has any holding period, retention ratio, or officer
ownership requirements in place. These should consist of:
- Rigorous stock ownership guidelines, or
- A holding period requirement coupled with a significant long-term
ownership requirement, or
- A meaningful retention ratio,
o Actual officer stock ownership and the degree to which it meets or exceeds
the proponent's suggested holding period/retention ratio or the company's
own stock ownership or retention requirements.
o Problematic pay practices, current and past, which may promote a short-term
versus a long-term focus.
Tax Gross-Up Proposals
Generally vote FOR proposals asking companies to adopt a policy of not providing
tax gross-up payments to executives, except where gross-ups are provided
pursuant to a plan, policy, or arrangement applicable to management employees of
the company, such as a relocation or expatriate tax equalization policy.
9. Corporate Social Responsibility (CSR) Issues
Overall Approach
When evaluating social and environmental shareholder proposals, ISS considers
the following factors:
o Whether adoption of the proposal is likely to enhance or protect
shareholder value;
o Whether the information requested concerns business issues that relate to a
meaningful percentage of the company's business as measured by sales,
assets, and earnings;
o The degree to which the company's stated position on the issues raised in
the proposal could affect its reputation or sales, or leave it vulnerable
to a boycott or selective purchasing;
o Whether the issues presented are more appropriately/effectively dealt with
through governmental or company-specific action;
o Whether the company has already responded in some appropriate manner to the
request embodied in the proposal;
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o Whether the company's analysis and voting recommendation to shareholders
are persuasive;
o What other companies have done in response to the issue addressed in the
proposal;
o Whether the proposal itself is well framed and the cost of preparing the
report is reasonable;
o Whether implementation of the proposal's request would achieve the
proposal's objectives;
o Whether the subject of the proposal is best left to the discretion of the
board;
o Whether the requested information is available to shareholders either from
the company or from a publicly available source; and
o Whether providing this information would reveal proprietary or confidential
information that would place the company at a competitive disadvantage.
Genetically Modified Ingredients
Generally vote AGAINST proposals asking suppliers, genetic research companies,
restaurants and food retail companies to voluntarily label genetically
engineered (GE) ingredients in their products and/or eliminate GE ingredients.
The cost of labeling and/or phasing out the use of GE ingredients may not be
commensurate with the benefits to shareholders and is an issue better left to
regulators.
Vote CASE-BY-CASE on proposals asking for a report on the feasibility of
labeling products containing GE ingredients taking into account:
o The company's business and the proportion of it affected by the resolution;
o The quality of the company's disclosure on GE product labeling, related
voluntary initiatives, and how this disclosure compares with industry peer
disclosure; and
o Company's current disclosure on the feasibility of GE product labeling,
including information on the related costs.
Generally vote AGAINST proposals seeking a report on the social, health, and
environmental effects of genetically modified organisms (GMOs). Studies of this
sort are better undertaken by regulators and the scientific community.
Generally vote AGAINST proposals to completely phase out GE ingredients from the
company's products or proposals asking for reports outlining the steps necessary
to eliminate GE ingredients from the company's products. Such resolutions
presuppose that there are proven health risks to GE ingredients (an issue better
left to regulators) that may outweigh the economic benefits derived from
biotechnology.
Pharmaceutical Pricing, Access to Medicines, and Product Reimportation
Generally vote AGAINST proposals requesting that companies implement specific
price restraints on pharmaceutical products unless the company fails to adhere
to legislative guidelines or industry norms in its product pricing.
Vote CASE-BY-CASE on proposals requesting that the company report on their
product pricing policies or their access to medicine policies, considering:
o The nature of the company's business and the potential for reputational and
market risk exposure;
o The existing disclosure of relevant policies;
o Deviation from established industry norms;
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o The company's existing, relevant initiatives to provide research and/or
products to disadvantaged consumers;
o Whether the proposal focuses on specific products or geographic regions;
and
o The potential cost and scope of the requested report.
Generally vote FOR proposals requesting that companies report on the financial
and legal impact of their prescription drug reimportation policies unless such
information is already publicly disclosed.
Generally vote AGAINST proposals requesting that companies adopt specific
policies to encourage or constrain prescription drug reimportation. Such matters
are more appropriately the province of legislative activity and may place the
company at a competitive disadvantage relative to its peers.
Gender Identity, Sexual Orientation, and Domestic Partner Benefits
Generally vote FOR proposals seeking to amend a company's EEO statement or
diversity policies to prohibit discrimination based on sexual orientation and/or
gender identity, unless the change would result in excessive costs for the
company.
Generally vote AGAINST proposals to extend company benefits to, or eliminate
benefits from domestic partners. Decisions regarding benefits should be left to
the discretion of the company.
Climate Change
Generally vote FOR resolutions requesting that a company disclose information on
the impact of climate change on the company's operations and investments
considering whether:
o The company already provides current, publicly-available information on the
impacts that climate change may have on the company as well as associated
company policies and procedures to address related risks and/or
opportunities;
o The company's level of disclosure is at least comparable to that of
industry peers; and
o There are no significant, controversies, fines, penalties, or litigation
associated with the company's environmental performance.
Lobbying Expenditures/Initiatives
Vote CASE-BY-CASE on proposals requesting information on a company's lobbying
initiatives, considering:
o Significant controversies, fines, or litigation surrounding a company's
public policy activities,
o The company's current level of disclosure on lobbying strategy, and
o The impact that the policy issue may have on the company's business
operations.
Political Contributions and Trade Association Spending
Generally vote AGAINST proposals asking the company to affirm political
nonpartisanship in the workplace so long as:
o There are no recent, significant controversies, fines or litigation
regarding the company's political contributions or trade association
spending; and
o The company has procedures in place to ensure that employee contributions
to company-sponsored political action committees (PACs) are strictly
voluntary and prohibits coercion.
Vote AGAINST proposals to publish in newspapers and public media the company's
political contributions. Such publications could present significant cost to the
company without providing commensurate value to shareholders.
Vote CASE-BY-CASE on proposals to improve the disclosure of a company's
political contributions and trade association spending, considering:
o Recent significant controversy or litigation related to the company's
political contributions or governmental affairs; and
o The public availability of a company policy on political contributions and
trade association spending including information on the types of
organizations supported, the business rationale for supporting these
organizations, and the oversight and compliance procedures related to such
expenditures of corporate assets.
Vote AGAINST proposals barring the company from making political contributions.
Businesses are affected by legislation at the federal, state, and local level
and barring political contributions can put the company at a competitive
disadvantage.
Vote AGAINST proposals asking for a list of company executives, directors,
consultants, legal counsels, lobbyists, or investment bankers that have prior
government service and whether such service had a bearing on the business of the
company. Such a list would be burdensome to prepare without providing any
meaningful information to shareholders.
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Labor and Human Rights Standards
Generally vote FOR proposals requesting a report on company or company supplier
labor and/or human rights standards and policies unless such information is
already publicly disclosed.
Vote CASE-BY-CASE on proposals to implement company or company supplier labor
and/or human rights standards and policies, considering:
o The degree to which existing relevant policies and practices are disclosed;
o Whether or not existing relevant policies are consistent with
internationally recognized standards;
o Whether company facilities and those of its suppliers are monitored and
how;
o Company participation in fair labor organizations or other internationally
recognized human rights initiatives;
o Scope and nature of business conducted in markets known to have higher risk
of workplace labor/human rights abuse;
o Recent, significant company controversies, fines, or litigation regarding
human rights at the company or its suppliers;
o The scope of the request; and
o Deviation from industry sector peer company standards and practices.
Sustainability Reporting
Generally vote FOR proposals requesting the company to report on its policies,
initiatives, and oversight mechanisms related to social, economic, and
environmental sustainability, unless:
o The company already discloses similar information through existing reports
or policies such as an Environment, Health, and Safety (EHS) report; a
comprehensive Code of Corporate Conduct; and/or a Diversity Report; or
o The company has formally committed to the implementation of a reporting
program based on Global Reporting Initiative (GRI) guidelines or a similar
standard within a specified time frame
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ISS Governance Services
Concise Summary of 2009
Non-U.S. Proxy Voting Guidelines
Effective for Meetings on or after Feb. 1, 2009
1. Operational Items
Financial Results/Director and Auditor Reports
Vote FOR approval of financial statements and director and auditor reports,
unless:
o There are concerns about the accounts presented or audit procedures used;
or
o The company is not responsive to shareholder questions about specific items
that should be publicly disclosed.
Appointment of Auditors and Auditor Fees
Vote FOR the reelection of auditors and proposals authorizing the board to fix
auditor fees, unless:
o There are serious concerns about the accounts presented or the audit
procedures used;
o The auditors are being changed without explanation; or
o Non-audit-related fees are substantial or are routinely in excess of
standard annual audit-related fees.
Vote AGAINST the appointment of external auditors if they have previously served
the company in an executive capacity or can otherwise be considered affiliated
with the company.
Appointment of Internal Statutory Auditors
Vote FOR the appointment or reelection of statutory auditors, unless:
o There are serious concerns about the statutory reports presented or the
audit procedures used;
o Questions exist concerning any of the statutory auditors being appointed;
or
o The auditors have previously served the company in an executive capacity or
can otherwise be considered affiliated with the company.
Allocation of Income
Vote FOR approval of the allocation of income, unless:
o The dividend payout ratio has been consistently below 30 percent without
adequate explanation; or
o The payout is excessive given the company's financial position.
Stock (Scrip) Dividend Alternative
Vote FOR most stock (scrip) dividend proposals.
Vote AGAINST proposals that do not allow for a cash option unless management
demonstrates that the cash option is harmful to shareholder value.
Amendments to Articles of Association
Vote amendments to the articles of association on a CASE-BY-CASE basis.
Change in Company Fiscal Term
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Vote FOR resolutions to change a company's fiscal term unless a company's
motivation for the change is to postpone its AGM.
Lower Disclosure Threshold for Stock Ownership
Vote AGAINST resolutions to lower the stock ownership disclosure threshold below
5 percent unless specific reasons exist to implement a lower threshold.
Amend Quorum Requirements
Vote proposals to amend quorum requirements for shareholder meetings on a
CASE-BY-CASE basis.
Transact Other Business
Vote AGAINST other business when it appears as a voting item.
2. Board of Directors
Director Elections
Vote FOR management nominees in the election of directors, unless:
o Adequate disclosure has not been provided in a timely manner;
o There are clear concerns over questionable finances or restatements;
o There have been questionable transactions with conflicts of interest;
o There are any records of abuses against minority shareholder interests; or
o The board fails to meet minimum corporate governance standards.
Vote FOR individual nominees unless there are specific concerns about the
individual, such as criminal wrongdoing or breach of fiduciary responsibilities.
Vote AGAINST individual directors if repeated absences at board meetings have
not been explained (in countries where this information is disclosed).
Vote on a CASE-BY-CASE basis for contested elections of directors, e.g. the
election of shareholder nominees or the dismissal of incumbent directors,
determining which directors are best suited to add value for shareholders.
Vote FOR employee and/or labor representatives if they sit on either the audit
or compensation committee and are required by law to be on those committees.
Vote AGAINST employee and/or labor representatives if they sit on either the
audit or compensation committee, if they are not required to be on those
committees. ISS Classification of Directors - International Policy 2009
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Executive Director
o Employee or executive of the company;
o Any director who is classified as a non-executive, but receives salary,
fees, bonus, and/or other benefits that are in line with the highest-paid
executives of the company.
Non-Independent Non-Executive Director (NED)
o Any director who is attested by the board to be a non-independent NED;
o Any director specifically designated as a representative of a significant
shareholder of the company;
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o Any director who is also an employee or executive of a significant
shareholder of the company;
o Beneficial owner (direct or indirect) of at least 10% of the company's
stock, either in economic terms or in voting rights (this may be aggregated
if voting power is distributed among more than one member of a defined
group, e.g., family members who beneficially own less than 10%
individually, but collectively own more than 10%), unless market best
practice dictates a lower ownership and/or disclosure threshold (and in
other special market-specific circumstances);
o Government representative;
o Currently provides (or a relative[1] provides) professional services[2] to
the company, to an affiliate of the company, or to an individual officer of
the company or of one of its affiliates in excess of $10,000 per year;
o Represents customer, supplier, creditor, banker, or other entity with which
company maintains transactional/commercial relationship (unless company
discloses information to apply a materiality test[3]);
o Any director who has conflicting or cross-directorships with executive
directors or the chairman of the company;
o Relative[1] of a current employee of the company or its affiliates;
o Relative[1] of a former executive of the company or its affiliates;
o A new appointee elected other than by a formal process through the General
Meeting (such as a contractual appointment by a substantial shareholder);
o Founder/co-founder/member of founding family but not currently an employee;
o Former executive (5 year cooling off period);
o Years of service is generally not a determining factor unless it is
recommended best practice in a market and/or in extreme circumstances, in
which case it may be considered.[4]
Independent NED
o No material[5] connection, either directly or indirectly, to the company
other than a board seat.
Employee Representative
o Represents employees or employee shareholders of the company (classified as
"employee representative" but considered a non-independent NED).
Footnotes:
[1] "Relative" follows the U.S. SEC's definition of "immediate family members"
which covers spouses, parents, children, stepparents, step-children, siblings,
in-laws, and any person (other than a tenant or employee) sharing the household
of any director, nominee for director, executive officer, or significant
shareholder of the company.
[2] Professional services can be characterized as advisory in nature and
generally include the following: investment banking/financial advisory services;
commercial banking (beyond deposit services); investment services; insurance
services; accounting/audit services; consulting services; marketing services;
and legal services. The case of participation in a banking syndicate by a
non-lead bank should be considered a transaction (and hence subject to the
associated materiality test) rather than a professional relationship.
[3] If the company makes or receives annual payments exceeding the greater of
$200,000 or five percent of the recipient's gross revenues (the recipient is the
party receiving the financial proceeds from the transaction).
[4] For example, in continental Europe, directors with a tenure exceeding 12
years will be considered non-independent. In the United Kingdom and Ireland,
directors with a tenure exceeding nine years will be considered non-independent,
unless the company provides sufficient and clear justification that the director
is independent despite his long tenure.
[5] For purposes of ISS director independence classification, "material" will be
defined as a standard of relationship financial,
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personal or otherwise) that a reasonable person might conclude could potentially
influence one's objectivity in the boardroom in a manner that would have a
meaningful impact on an individual's ability to satisfy requisite fiduciary
standards on behalf of shareholders.
--------------------------------------------------------------------------------
Discharge of Directors
Generally vote FOR the discharge of directors, including members of the
management board and/or supervisory board, unless there is reliable information
about significant and compelling controversies that the board is not fulfilling
its fiduciary duties warranted by:
o A lack of oversight or actions by board members which invoke shareholder
distrust related to malfeasance or poor supervision, such as operating in
private or company interest rather than in shareholder interest; or
o Any legal issues (e.g. civil/criminal) aiming to hold the board responsible
for breach of trust in the past or related to currently alleged actions yet
to be confirmed (and not only the fiscal year in question), such as price
fixing, insider trading, bribery, fraud, and other illegal actions; or
o Other egregious governance issues where shareholders will bring legal
action against the company or its directors.
For markets which do not routinely request discharge resolutions (e.g. common
law countries or markets where discharge is not mandatory), analysts may voice
concern in other appropriate agenda items, such as approval of the annual
accounts or other relevant resolutions, to enable shareholders to express
discontent with the board.
Director Compensation
Vote FOR proposals to award cash fees to non-executive directors unless the
amounts are excessive relative to other companies in the country or industry.
Vote non-executive director compensation proposals that include both cash and
share-based components on a CASE-BY-CASE basis.
Vote proposals that bundle compensation for both non-executive and executive
directors into a single resolution on a CASE-BY-CASE basis.
Vote AGAINST proposals to introduce retirement benefits for non-executive
directors.
Director, Officer, and Auditor Indemnification and Liability Provisions
Vote proposals seeking indemnification and liability protection for directors
and officers on a CASE-BY-CASE basis.
Vote AGAINST proposals to indemnify auditors.
Board Structure
Vote FOR proposals to fix board size.
Vote AGAINST the introduction of classified boards and mandatory retirement ages
for directors.
Vote AGAINST proposals to alter board structure or size in the context of a
fight for control of the company or the board.
3. Capital Structure
Share Issuance Requests
General Issuances:
Vote FOR issuance requests with preemptive rights to a maximum of 100 percent
over currently issued capital.
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Vote FOR issuance requests without preemptive rights to a maximum of 20 percent
of currently issued capital.
Specific Issuances:
Vote on a CASE-BY-CASE basis on all requests, with or without preemptive rights.
Increases in Authorized Capital
Vote FOR non-specific proposals to increase authorized capital up to 100 percent
over the current authorization unless the increase would leave the company with
less than 30 percent of its new authorization outstanding. Vote FOR specific
proposals to increase authorized capital to any amount, unless:
o The specific purpose of the increase (such as a share-based acquisition or
merger) does not meet ISS guidelines for the purpose being proposed; or
o The increase would leave the company with less than 30 percent of its new
authorization outstanding after adjusting for all proposed issuances.
Vote AGAINST proposals to adopt unlimited capital authorizations.
Reduction of Capital
Vote FOR proposals to reduce capital for routine accounting purposes unless the
terms are unfavorable to shareholders.
Vote proposals to reduce capital in connection with corporate restructuring on a
CASE-BY-CASE basis.
Capital Structures
Vote FOR resolutions that seek to maintain or convert to a one-share, one-vote
capital structure.
Vote AGAINST requests for the creation or continuation of dual-class capital
structures or the creation of new or additional supervoting shares.
Preferred Stock
Vote FOR the creation of a new class of preferred stock or for issuances of
preferred stock up to 50 percent of issued capital unless the terms of the
preferred stock would adversely affect the rights of existing shareholders.
Vote FOR the creation/issuance of convertible preferred stock as long as the
maximum number of common shares that could be issued upon conversion meets ISS
guidelines on equity issuance requests.
Vote AGAINST the creation of a new class of preference shares that would carry
superior voting rights to the common shares.
Vote AGAINST the creation of blank check preferred stock unless the board
clearly states that the authorization will not be used to thwart a takeover bid.
Vote proposals to increase blank check preferred authorizations on a
CASE-BY-CASE basis.
Debt Issuance Requests
Vote non-convertible debt issuance requests on a CASE-BY-CASE basis, with or
without preemptive rights.
Vote FOR the creation/issuance of convertible debt instruments as long as the
maximum number of common shares that could be issued upon conversion meets ISS
guidelines on equity issuance requests.
Vote FOR proposals to restructure existing debt arrangements unless the terms of
the
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restructuring would adversely affect the rights of shareholders.
Pledging of Assets for Debt
Vote proposals to approve the pledging of assets for debt on a CASE-BY-CASE basis.
Increase in Borrowing Powers
Vote proposals to approve increases in a company's borrowing powers on a
CASE-BY-CASE basis.
Share Repurchase Plans
Generally vote FOR share repurchase programs/market repurchase authorities,
provided that the proposal meets the following parameters:
o Maximum volume: 10 percent for market repurchase within any single
authority and 10 percent of outstanding shares to be kept in treasury ("on
the shelf");
o Duration does not exceed 18 months.
For markets that either generally do not specify the maximum duration of the
authority or seek a duration beyond 18 months that is allowable under market
specific legislation, ISS will assess the company's historic practice. If there
is evidence that a company has sought shareholder approval for the authority to
repurchase shares on an annual basis, ISS will support the proposed authority.
In addition, vote AGAINST any proposal where:
o The repurchase can be used for takeover defenses;
o There is clear evidence of abuse;
o There is no safeguard against selective buybacks;
o Pricing provisions and safeguards are deemed to be unreasonable in light of
market practice.
ISS may support share repurchase plans in excess of 10 percent volume under
exceptional circumstances, such as one-off company specific events (e.g. capital
re-structuring). Such proposals will be assessed case-by-case based on merits,
which should be clearly disclosed in the annual report, provided that following
conditions are met:
o The overall balance of the proposed plan seems to be clearly in
shareholders' interests;
o The plan still respects the 10 percent maximum of shares to be kept in
treasury.
Reissuance of Repurchased Shares
Vote FOR requests to reissue any repurchased shares unless there is clear
evidence of abuse of this authority in the past.
Capitalization of Reserves for Bonus Issues/Increase in Par Value
Vote FOR requests to capitalize reserves for bonus issues of shares or to
increase par value.
4. Other
Reorganizations/Restructurings
Vote reorganizations and restructurings on a CASE-BY-CASE basis.
Mergers and Acquisitions
Vote CASE-BY-CASE on mergers and acquisitions taking into account the following:
For every M&A analysis, ISS reviews publicly available information as of the
date of the report
A-21
and evaluates the merits and drawbacks of the proposed transaction, balancing
various and sometimes countervailing factors including:
o Valuation - Is the value to be received by the target shareholders (or paid
by the acquirer) reasonable? While the fairness opinion may provide an
initial starting point for assessing valuation reasonableness, ISS places
emphasis on the offer premium, market reaction, and strategic rationale.
o Market reaction - How has the market responded to the proposed deal? A
negative market reaction will cause ISS to scrutinize a deal more closely.
o Strategic rationale - Does the deal make sense strategically? From where is
the value derived? Cost and revenue synergies should not be overly
aggressive or optimistic, but reasonably achievable. Management should also
have a favorable track record of successful integration of historical
acquisitions.
o Conflicts of interest - Are insiders benefiting from the transaction
disproportionately and inappropriately as compared to non-insider
shareholders? ISS will consider whether any special interests may have
influenced these directors and officers to support or recommend the merger.
o Governance - Will the combined company have a better or worse governance
profile than the current governance profiles of the respective parties to
the transaction? If the governance profile is to change for the worse, the
burden is on the company to prove that other issues (such as valuation)
outweigh any deterioration in governance.
Vote AGAINST if the companies do not provide sufficient information upon request
to make an informed voting decision.
Mandatory Takeover Bid Waivers
Vote proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE
basis.
Reincorporation Proposals
Vote reincorporation proposals on a CASE-BY-CASE basis.
Expansion of Business Activities
Vote FOR resolutions to expand business activities unless the new business takes
the company into risky areas.
Related-Party Transactions
Vote related-party transactions on a CASE-BY-CASE basis.
Compensation Plans
Vote compensation plans on a CASE-BY-CASE basis.
Antitakeover Mechanisms
Generally vote AGAINST all antitakeover proposals, unless they are structured in
such a way that they give shareholders the ultimate decision on any proposal or
offer.
Shareholder Proposals
Vote all shareholder proposals on a CASE-BY-CASE basis.
Vote FOR proposals that would improve the company's corporate governance or
business profile at a reasonable cost.
A-22
Vote AGAINST proposals that limit the company's business activities or
capabilities or result in significant costs being incurred with little or no
benefit.
A-23
DIMENSIONAL EMERGING MARKETS VALUE FUND (the "Registrant")
(Amendment No. 25)
PART C
OTHER INFORMATION
Item 23. Exhibits.
(a) Charter.
(1) Agreement and Declaration of Trust effective as of March 18, 2009
is filed herewith as Exhibit EX-99.a.1.
(2) Certificate of Trust dated March 18, 2009 is filed here with as
Exhibit EX-99.a.2.
(b) Bylaws.
Bylaws as adopted March 18, 2009 are filed herewith as Exhibit EX-99.b.
(c) Instruments Defining the Rights of Security Holders.
(1) No specimen securities are issued on behalf of the Registrant.
(2) Relevant portion of Agreement and Declaration of Trust filed
herewith as Exhibit EX-99.a.1. See Article V.
(3) Relevant portion of Bylawsfiled herewith as Exhibit EX-99.b. See
Article II.
(d) Investment Advisory Contracts
Form of Investment Advisory Agreement between the Registrant and
Dimensional Fund Advisors LP ("DFA") dated October 30, 2009 is filed
herewith as Exhibit EX-99.d.
(e) Underwriting Contracts.
Form of Distribution Agreement between the Registrant and DFA Securities
dated October 30, 2009 is filed herewith as Exhibit EX-99.e.
(f) Bonus or Profit Sharing Contracts.
Not applicable.
(g) Custodian Agreements.
(1) Global Custody Agreement between the Registrant and The Chase
Manhattan Bank, dated March 31, 1998.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 13 to the Registrant's
Registration Statement on Form N-1A.
File No.: 811-7440.
Filing Date: March 29, 2001.
(2) Form of Assignment and Assumption Agreement between the
Registrant, Dimensional Emerging Markets Value Fund, Inc. and
Citibank, N.A. related to the Custodial Services Agreement is
filed herewith as Exhibit EX-99.g.2.
(h) Other Material Contracts.
(1) Transfer Agency Agreement between the Registrant and PFPC Inc.,
dated January 20, 1993.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on Form
N-1A.
File No.: 811-7440.
Filing Date: March 30, 1998.
(i) Amendment No. 1 to Transfer Agency Agreement dated December26, 1997. Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on Form
N-1A.
File No.: 811-7440.
Filing Date: March 30, 1998.
(ii) Form of Assignment and Assumption Agreement between the
Registrant, Dimensional Emerging Markets Value Fund, Inc.
and PNC Global Investment Servicing (U.S.) Inc. related to
the Transfer Agency Agreement is filed herewith as Exhibit
EX-99.h.1.ii.
(2) Administration and Accounting Services Agreement between the
Registrant and PFPC Inc., dated January 20, 1993.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on Form
N-1A.
File No.: 811-7440.
Filing Date: March 30, 1998.
(i) Form of Assignment and Assumption Agreement between the
Registrant, Dimensional Emerging Markets Value Fund, Inc.
and PNC Global Investment Servicing (U.S.) Inc. related to
the Administration and Accounting Services Agreement is
filed herewith as Exhibit EX-99.h.2.i.
(i) Legal Opinion.
Not applicable.
(j) Other Opinions.
None.
(k) Omitted Financial Statements.
Not applicable.
(l) Initial Capital Agreements.
Subscription Agreement dated as of February 1, 1993.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 13 to the Registrant's
Registration Statement on Form N-1A.
File No.: 811-7440.
Filing Date: March 29, 2001.
(m) Rule 12b-1 Plan.
Not applicable.
(n) Rule 18f-3 Plan.
Not applicable.
(o) Power-of-Attorney.
Power-of-Attorney dated as of October 27, 2009, appointing David G.
Booth, David R. Martin, Catherine L. Newell, Valerie A. Brown and Jeff
J. Jeon as attorneys-in-fact to David G. Booth, George M.
Constantinides, John P. Gould, Roger G. Ibbotson, Robert C. Merton,
Eduardo A. Repetto, Myron S. Scholes, Abbie J. Smith and David R.
Martin is filed herewith as Exhibit EX-99.o.
(p) Code of Ethics.
Code of Ethics of Registrant, Advisor and Underwriter
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A.
File No.: 811-7440.
Filing Date: March 29, 2004.
Item 24. Persons Controlled by or Under Common Control with Registrant.
If an investor beneficially owns more than 25% of the outstanding
voting securities of the feeder fund that invests all of its
investable assets in a Series of the Registrant, then the feeder fund
and its corresponding Series may be deemed to be under the common
control of such investor. Accordingly, the feeder portfolio of DFA
Investment Dimensions Group ("DFAIDG"), a Maryland corporation and
registered investment company, may be deemed to be under common
control with its corresponding Series of the Registrant. As of
September 30, 2009, no person beneficially owned more than 25% of the
outstanding voting securities of the feeder portfolio investing in the
Registrant.
Item 25. Indemnification.
Reference is made to Article VII of the Registrant's Agreement and
Declaration of Trust, which is filed herewith as Exhibit EX-99.a.1.
Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking:
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act"); may be permitted to the directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act, and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, an officer
or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Advisor.
Dimensional Fund Advisors LP (formerly, Dimensional Fund Advisors
Inc.), the investment manager for the Registrant, is also the
investment manager for three other registered open-end investment
companies, DFA Investment Dimensions Group Inc., The DFA Investment
Trust Company and Dimensional Investment Group Inc. The Advisor also
serves as sub-advisor for certain other registered investment
companies.
For additional information, please see "Management of the Fund" in
Part A of this Registration Statement.
Additional information as to the Advisor and the directors and
officers of the Advisor is included in the Advisor's Form ADV filed
with the Commission (File No. 801-16283), which is incorporated herein
by reference, and sets forth the officers and directors of the Advisor
and information as to any business, profession, vocation or employment
of a substantial nature engaged in by those officers and directors
during the past two years.
Item 27. Principal Underwriters.
(a) DFA Securities LLC, ("DFAS") is the principal underwriter for the
Registrant. DFAS also serves as principal underwriter for
Dimensional Investment Group Inc., DFA Investment Dimensions
Group Inc. and The DFA Investment Trust Company.
(b) The following table sets forth information as to the
Distributor's Directors, Officers, Partners and Control Persons.
The address of each officer is 1299 Ocean Avenue, Santa Monica,
CA90401:
----------------------------------------- -------------------------------- -------------------------------
Name and Principal Business Address Positions and Offices with Positions and Offices with
Underwriter Fund
----------------------------------------- -------------------------------- -------------------------------
April A. Aandal Vice President Vice President and Chief
Learning Officer
----------------------------------------- -------------------------------- -------------------------------
Darryl D. Avery Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Arthur H. Barlow Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Scott A. Bosworth Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Valerie A. Brown Vice President and Assistant Vice President and Assistant
Secretary Secretary
----------------------------------------- -------------------------------- -------------------------------
David P. Butler Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Patrick E. Carter Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Joseph H. Chi Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Stephen A. Clark Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Robert P. Cornell Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Christopher S. Crossan Vice President and Chief Vice President and Chief
Compliance Officer Compliance Officer
----------------------------------------- -------------------------------- -------------------------------
James L. Davis Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Robert T. Deere Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Robert W. Dintzner Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Kenneth Elmgren Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Richard A. Eustice Vice President and Assistant Vice President and Assistant
Secretary Secretary
----------------------------------------- -------------------------------- -------------------------------
Eugene F. Fama, Jr. Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Gretchen A. Flicker Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Jed S. Fogdall Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Glenn S. Freed Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Mark R. Gochnour Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Henry F. Gray Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
John T. Gray Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Darla Hastings Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Joel H. Hefner Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Julie C. Henderson Vice President and Fund Vice President and Fund
Controller Controller
----------------------------------------- -------------------------------- -------------------------------
Kevin B. Hight Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Christine W. Ho6 Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Jeff J. Jeon Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Patrick M. Keating Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Joseph F. Kolerich Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Michael F. Lane Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Kristina M. LaRusso Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Immoo Lee Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Juliet H. Lee Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Apollo D. Lupesco Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
David R. Martin Vice President, Chief Vice President, Chief
Financial Officer and Treasurer Financial Officer and
Treasurer
----------------------------------------- -------------------------------- -------------------------------
Catherine L. Newell Vice President and Secretary Vice President and Secretary
----------------------------------------- -------------------------------- -------------------------------
Christian Newton Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Gerard K. O'Reilly Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Daniel C. Ong Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Carmen Palafox Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Sonya K. Park Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
David A. Plecha Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Ted Randall Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Eduardo A. Repetto Vice President and Chief Director, Vice President and
Investment Officer Chief Investment Officer
----------------------------------------- -------------------------------- -------------------------------
L. Jacobo Rodriguez Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
David E. Schneider Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Bruce A. Simmons Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Ted R. Simpson Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Bryce D. Skaff Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Grady M. Smith Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Carl G. Snyder Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Lawrence R. Spieth Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Bradley G. Steiman Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Robert C. Trotter Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Karen E. Umland Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Sunil Wahal Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Brian J. Walsh Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Carol W. Wardlaw Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Weston J. Wellington Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Daniel M. Wheeler Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Ryan J. Wiley Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
Paul E. Wise Vice President Vice President
----------------------------------------- -------------------------------- -------------------------------
David G. Booth Chairman, Director, President Chairman, Director, President
and Chief Executive Officer and Chief Executive Officer
----------------------------------------- -------------------------------- -------------------------------
Kenneth R. French Director Not Applicable
----------------------------------------- -------------------------------- -------------------------------
John A. McQuown Director Not Applicable
----------------------------------------- -------------------------------- -------------------------------
Dimensional Fund Advisors LP Shareholder Not Applicable
----------------------------------------- -------------------------------- -------------------------------
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant will be located at the
office of the Registrant and at additional locations, as follows:
Name Address
Dimensional Emerging Markets Value 6300 Bee Cave Road, Building One
Fund Austin, TX78746
PNC Global Investment Servicing 301 Bellevue Parkway
Wilmington, DE19809
The Chase Manhattan Bank 4 Chase MetroTech Center
Brooklyn, NY11245Item 29. Management Services.
None.
Item 30. Undertakings.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Post-Effective Amendment
No. 25 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Monica,
the State of California, as of the 30th day of October 2009.
DIMENSIONAL EMERGING MARKETS VALUE FUND
(Registrant)
By: /s/ Valerie A. BrownValerie A. Brown (Attorney-in-Fact to Registrant
pursuant to a Power of Attorney incorporated herein
by reference)
Vice President and Assistant Secretary
(Signature and Title)
EXHIBIT INDEX
N-1A Exhibit No. EDGAR Exhibit No. Description
23(a)(1) EX-99.a.1 Agreement and Declaration of Trust
23(a)(2) EX-99.a.2 Certificate of Trust
23(b) EX-99.b Bylaws
23(d) EX-99.d Form of Investment Advisory Agreement
23(e) EX-99.e Form of Distribution Agreement
23(g)(2) EX-99.g.2 Form of Assignment and Assumption Agreement
related to the Custodial Services Agreement
23(h)(1)(ii) EX-99.h.1.ii Form of Assignment and Assumption Agreement
related to the Transfer Agency Agreement
23(h)(2)(i) EX-99.h.2.i Form of Assignment and Assumption Agreement
related to the Administration and Accounting
Services Agreement
23(o) EX-99.o Power of Attorney
Dates Referenced Herein and Documents Incorporated by Reference
