The Dimensional Funds Respond to Frequently Asked Questions (FAQs) From our Clients

December 10, 2003

Updated January 8, 2004

The US mutual funds (the "Funds") advised by Dimensional Fund Advisors ("Dimensional") issued a statement, dated September 15, 2003, informing clients of the position of the Funds on certain issues raised by regulators relating to market timing and late trading. Since that time, we have received inquiries from certain of our clients, most stemming from practices discussed in the media relating to other mutual fund companies' activities. We have prepared these FAQs to clarify our position with respect to those practices.

  1. Do the Funds allow late trading or what is sometimes referred to in the industry as market timing in the Funds?

    No. The Funds have not entered, and will not enter, into any arrangements with any investors, financial intermediaries or any other third parties that authorize late trading or excessive short-term trading in any of the Funds.

  2. What is the Funds' trading policy?

    As discussed in the Funds' prospectuses, the Funds' policy requires that orders received prior to 4:00 p.m. EST be executed at that day's closing price. Orders received after 4:00 p.m. EST are executed at the following day's closing price. This policy also applies to investors who place their orders through financial intermediaries, such as retirement plan administrators. However, these financial intermediaries are permitted to transmit their customers' orders after 4:00 p.m. EST to the Funds, provided the financial intermediaries had received the orders from their customers before that time.

  3. Have the Funds communicated with financial intermediaries about the Funds' policies on late trading and short-term trading?

    In September, Dimensional, on behalf of the Funds, sent letters to the financial intermediaries that are authorized to transmit orders for the Funds' shares to the Funds after 4:00 p.m. EST, requesting that the financial intermediaries certify their compliance with the terms of the agreements with the Funds, with applicable law, and with policies and procedures designed to screen market timing and late trading. Dimensional is in the process of collecting and reviewing the responses. All responses received to date confirm the respondents' compliance.

  4. Why do the Funds discourage short-term trading?

    Short-term trading, which may increase the number of trades in the Funds, may disrupt the Funds' investment strategies and increase the Funds' transaction costs. This, in turn, may reduce the Funds' overall returns for long-term investors. The Funds' prospectuses clearly state that the Funds are not designed for short-term trading.

  5. What are the Funds' policies with respect to transactions in shares of Funds by portfolio managers and officers?

    All portfolio managers and officers are required to report quarterly all transactions in the Funds' shares. To date, our review of such reported transactions does not indicate that such employees engaged in market timing or other short-term investment transactions to the detriment of investors. In addition, we requested and received certifications from all employees of Dimensional that they have not engaged in any such transactions.

  6. What compliance processes are in place for the Funds?

    Dimensional has a compliance committee, headed by Dimensional's Chief Financial Officer, which reviews matters relating to compliance by the Funds, and reports to the Chief Executive Officer of Dimensional.

  7. Does Dimensional manage hedge funds?

    No, Dimensional does not manage any hedge funds.

  8. Are the Funds sold with 12b-1 fees that are paid to brokers?

    No, the Funds are a no load fund family, and the Funds do not pay 12b-1 fees to brokers.

  9. Have Dimensional or the Funds received a subpoena from any state's attorney general relating to their mutual fund activities?

    Neither Dimensional, nor the Funds, have been contacted by the office of any state attorney general.

  10. Are Dimensional or the Funds under investigation by the Securities and Exchange Commission?

    The SEC has not advised Dimensional or the Funds that they are the subjects of any investigation.

    The Funds did receive two letters of inquiry from the SEC in September, regarding the Funds' practices, and two follow-up inquiries related to those initial letters. We understand the first SEC letter was sent to the 80 largest fund companies, and requested information about market timing, late trading and distribution of portfolio holdings information. We understand the second letter was sent to mutual fund families with funds that invest at least a majority of their assets in international securities, and asked about the fair value pricing of those securities. The Funds responded to the SEC's letters and will continue to fully cooperate with all requests. To be clear, these SEC requests for information in no way imply any wrongdoing by the Funds or any other fund family.

  11. Do the Funds use fair value prices?

    Consistent with the 2001 letter from the SEC's Doug Scheidt, the Boards of Directors/Trustees (the "Board") of the Funds previously had approved a policy of fair value pricing the Funds' portfolio securities when a significant event occurs, which the Funds have been following. More recently, the Board has been considering the impact of the correlation between foreign market securities prices and domestic market securities price movements. The Funds have retained a third party pricing vendor to assist in pricing the non-U.S. equity securities owned by the Funds, pursuant to the pricing procedures approved by the Board.

  12. How many independent directors are on the Funds' Board?

    Six out of eight of the Funds' Board members are independent directors.