Morningstar ratings do not reliably predict future fund performance. Funds with 5-star ratings from 2006 tended to underperform relative to lower-rated funds in subsequent years. Similarly, high Sharpe ratios from 2002-2006 did not correlate with strong performance in later periods. Past performance also generally failed to persist - top-performing funds from 1997-2006 often underperformed in 2007-2011 compared to benchmarks like the S&P 500 index. Across large and small value funds, most previous top performers went on to trail their respective Russell index in the following 5-10 years. Star ratings, risk-adjusted returns, and prior raw returns all showed little predictive power regarding future mutual fund success.

1. ME1170.2
Is There Predictive Power in Morningstar Ratings?
As of 12/31/06
5 Stars
Morningstar “Star” Rating
4 Stars
(as of 12/31/06)
3 Stars
2 Stars
1 Star
Fund Rank, Sorted by Overall “Star” Rating, then 3-Year Total Return % Rank in Category (as of 12/31/06)
2007–2011
Morningstar Category
5-Year % Rank within
(2007- 2011)
Dead
Funds
2,195
Fund Rank, Sorted by Overall “Star” Rating, then 3-Year Total Return % Rank in Category (as of 12/31/06)
For illustrative purposes only. Sources: Mutual fund universe statistical data and non-Dimensional money managers’ fund data provided by Morningstar, Inc. Sample
size (6,671 funds) taken from entire domestic equity mutual fund universe with an inception date prior to January 1, 2002. Subsequent 5-year period represents
existing funds with a Morningstar rating as of December 2006. Past performance is no guarantee of future results.

2. ME1170.2
Can Sharpe Ratios Predict Returns?
5-Year Sharpe Ratios (2002–2006)
5-Year Sharpe Ratios
(2002–2006)
Number of Funds = 5,849
Fund Rank, Sorted by 5-Year Sharpe Ratio (2002-2006)
5-Year Sharpe Ratios (2002–2006) vs. Subsequent Performance
20
5-Year Annualized Return %
10
0
2007- 2011
-10
-20
-30
Surviving Funds as of December 2011 (4,132 funds)
-40 Funds with no data as of December 2011 (1,717 funds)
-50
- 1,000 2,000 3,000 4,000 5,000 6,000
Fund Rank, sorted by Five-Year Sharpe Ratio, as of Dec 31, 2006
For illustrative purposes only. Eligible universe is all share classes of US Stock mutual funds with a five-year Sharpe ratio as of Dec 31, 2006, in Morningstar Direct 3.11. Sources:
Mutual fund universe statistical data and non-Dimensional money managers’ fund data provided by Morningstar, Inc. Past performance is no guarantee of future results, and there is
always the risk that an investor may lose money.

3. ME1170.2
Can Past Performance Predict Future Returns?
US Equity Mutual Funds
First Period: January 1997–December 2006
30% Funds that Outperformed S&P 500 Index (807)
10 Year Annualized Return
Funds that Underperformed S&P 500 Index (1,587)
20% S&P 500 Index: 8.42%
1997–2006
10%
0%
-10%
-20%
Number of Funds = 2,394
-30%
1 201 401 601 801 1001 1201 1401 1601 1801 2001 2201
Number of US Mutual Funds—placement in order of 10 Year Annualized Performance
Subsequent Period: January 2007–December 2011
Surviving Funds as of December 2011 (1,784)
15% Funds with no data as December 2011 (610)
5 Year Annualized Return:
S&P 500 Index
10%
5%
2007–2011
0%
-5%
-10%
S&P 500 Index: -0.25%
-15%
-20%
-25% Number of Surviving Funds = 1,784
1 201 401 601 801 1001 1201 1401 1601 1801 2001 2201
Subsequent 5 year performance of US Mutual Funds (same ordering as initial 10 year period)
For illustrative purposes only. Most recent 5-year period was chosen; then the preceding 10-year period. Mutual funds were placed in descending order of 10-year annualized performance,
and subsequent 5-year performance assumes the same ordering as the 10-year period. The number of funds for the subsequent 5-year period represent existing funds from the 10-year
period. Eligible universe is all share classes of US Stock mutual funds in the US Large Value Morningstar category with a ten-year annualized return as of Dec 31, 2006, in Morningstar
Direct 3.11. Sources: Mutual fund universe statistical data and non-Dimensional money managers’ fund data provided by Morningstar, Inc.; Russell data copyright © Russell Investment
Group 1995–2012, all rights reserved. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an
actual portfolio. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money.

4. ME1170.2
Persistence in Performance
US Large Value Mutual Funds
First Period: January 1997–December 2006
14% Russell 1000 Value Index: 11.00% Funds that Outperformed Russell 1000 Value Index (9)
10 Year Annualized Return
12% Funds that Underperformed Russell 1000 Value Index (343)
10% Number of Funds = 352
1997–2006
8%
6%
4%
2%
0%
1 28 55 82 109 136 163 190 217 244 271 298 325 352
Number of US Large Value Funds—placement in order of 10 Year Annualized Performance
Subsequent Period: January 2007–December 2011
15% Surviving Funds as of December 2011 (261)
Funds with no data as December 2011 (91)
5 Year Annualized Return
Russell 1000 Value Index
10%
Number of Surviving Funds = 261
2007-2011
5%
0%
-5%
Russell 1000 Value Index: -2.64%
-10%
1 28 55 82 109 136 163 190 217 244 271 298 325 352
Subsequent 5 year performance of US Large Value Funds (same ordering as initial 10 year period)
For illustrative purposes only. Most recent 5-year period was chosen; then the preceding 10-year period. Mutual funds were placed in descending order of 10-year annualized performance,
and subsequent 5-year performance assumes the same ordering as the 10-year period. The number of funds for the subsequent 5-year period represent existing funds from the 10-year
period. Eligible universe is all share classes of US Stock mutual funds in the US Large Value Morningstar category with a ten-year annualized return as of Dec 31, 2006, in Morningstar
Direct 3.11. Sources: Mutual fund universe statistical data and non-Dimensional money managers’ fund data provided by Morningstar, Inc.; Russell data copyright © Russell Investment
Group 1995–2012, all rights reserved. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an
actual portfolio. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money.

5. ME1170.2
Persistence in Performance
US Small Value Mutual Funds
First Period: January 1997–December 2006
20% Funds that Outperformed Russell 2000 Value Index (5)
Russell 2000 Value Index: 13.27% Funds that Underperformed Russell 2000 Value Index (74)
10 Year Annualized Return
16% Number of Funds = 79
1997–2006
12%
8%
4%
0%
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76
Number of US Small Value Funds—placement in order of 10 Year Annualized Performance
Subsequent Period: January 2007–December 2011
Surviving Funds as of December 2011 (68)
Funds with no data as December 2011 (11)
8%
5 Year Annualized Return
Russell 2000 Value Index
6%
2007–2011
4%
2%
0%
-2%
Russell 2000 Value Index: -1.87% Number of Surviving Funds = 68
-4%
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76
Subsequent 5 year performance of US Small Value Funds (same ordering as initial 10 year period)
For illustrative purposes only. Most recent 5-year period was chosen; then the preceding 10-year period. Mutual funds were placed in descending order of 10-year annualized performance, and
subsequent 5-year performance assumes the same ordering as the 10-year period. The number of funds for the subsequent 5-year period represent existing funds from the 10-year period
recognizable by ticker. Eligible universe is all share classes of US Stock mutual funds in the US Small Value Morningstar category with a ten-year annualized return as of Dec 31, 2006, in
Morningstar Direct 3.11. Sources: Mutual fund universe statistical data and non-Dimensional money managers’ fund data provided by Morningstar, Inc.; Russell data copyright © Russell Investment
Group 1995–2012, all rights reserved. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual
portfolio. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money.