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PROSPECTUS
SEPTEMBER 21, 1995
DFA INVESTMENT DIMENSIONS GROUP INC.
DFA INVESTMENT DIMENSIONS GROUP INC. (the "Fund"), 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401, (310) 395-8005, is an open-end
management investment company.
The Fund issues twenty-four series of shares, each of which represents a
separate class of the Fund's common stock, having its own investment objective
and policies. This prospectus describes only VA Small Value Portfolio, VA Large
Value Portfolio, VA International Value Portfolio, VA International Small
Portfolio, VA Short-Term Fixed Portfolio and VA Global Bond Portfolio
(individually, a "Portfolio" and collectively, the "Portfolios"). Shares of the
Portfolios are offered only to separate accounts of insurance companies to fund
variable annuity contracts.
The investment objective of each of the Domestic Equity and International
Equity Portfolios is to achieve long-term capital appreciation. The investment
objectives of the Fixed Income Portfolios are: VA Short-Term Fixed Portfolio,
to achieve stable real value of capital with a minimum of risk by investing in
high quality obligations; and VA Global Bond Portfolio, to provide a market rate
of return for a global fixed income portfolio with low relative volatility of
returns.
DOMESTIC EQUITY PORTFOLIOS
VA SMALL VALUE PORTFOLIO VA LARGE VALUE PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIOS
VA INTERNATIONAL VALUE PORTFOLIO VA INTERNATIONAL SMALL PORTFOLIO
FIXED INCOME PORTFOLIOS
VA SHORT-TERM FIXED PORTFOLIO VA GLOBAL BOND PORTFOLIO
This prospectus sets forth concisely information about the Portfolios that
prospective investors should know before investing and should be read carefully
and retained for future reference. You should read this prospectus in
conjunction with the prospectus describing the related insurance company
separate account. A statement of additional information about the Portfolios,
dated September 21, 1995, which is incorporated herein by reference, has been
filed with the Securities and Exchange Commission and is available upon request,
without charge, by writing or calling the Fund at the above address or telephone
number.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
----
HIGHLIGHTS...................................................................2
CONDENSED FINANCIAL INFORMATION..............................................4
DOMESTIC EQUITY PORTFOLIOS...................................................6
Portfolio Characteristics and Policies.................................6
Portfolio Structure....................................................6
Portfolio Transactions.................................................7
INTERNATIONAL EQUITY PORTFOLIOS..............................................7
VA INTERNATIONAL VALUE PORTFOLIO.............................................7
Investment Objective and Policies......................................7
Portfolio Structure....................................................8
Portfolio Transactions.................................................9
VA INTERNATIONAL SMALL PORTFOLIO.............................................9
Investment Objective and Policies......................................9
Portfolio Structure...................................................11
Portfolio Transactions................................................12
SECURITIES LOANS............................................................13
FIXED INCOME PORTFOLIOS -
INVESTMENT OBJECTIVES AND POLICIES..........................................13
VA Short-Term Fixed Portfolio.........................................13
VA Global Bond Portfolio..............................................13
Description of Investments............................................14
Investments in the Banking Industry...................................15
Portfolio Strategy....................................................15
RISK FACTORS - ALL PORTFOLIOS...............................................16
MANAGEMENT OF THE FUND......................................................17
Investment Services - VA International Small Portfolio................18
Directors and Officers................................................19
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES............................19
PURCHASE AND REDEMPTION OF SHARES...........................................20
VALUATION OF SHARES.........................................................20
DISTRIBUTION................................................................21
GENERAL INFORMATION.........................................................21
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HIGHLIGHTS
PAGE
THE PORTFOLIOS
Each Portfolio, in effect, represents a separate mutual fund with its own
investment objective and policies. The investment objective of each Portfolio
is a fundamental policy and may not be changed without the affirmative vote of a
majority of its outstanding securities. Shares of the Portfolios are sold only
to separate accounts of insurance companies. Proceeds from the sale of shares
of a Portfolio will be invested in accordance with that Portfolio's investment
objective and policies. A Portfolio will pay its shareholders all dividends and
distributions arising from the assets of the Portfolio.
INVESTMENT OBJECTIVES - DOMESTIC EQUITY PORTFOLIOS 6
The investment objective of both the VA Small Value Portfolio and VA Large
Value Portfolio (collectively the "Domestic Equity Portfolios") is to achieve
long-term capital appreciation. The VA Small Value Portfolio and the VA Large
Value Portfolio will invest in common stocks of U.S. companies that have a high
book value in relation to their market value. The Domestic Equity Portfolios
operate as diversified investment companies.
INVESTMENT OBJECTIVE - VA INTERNATIONAL VALUE PORTFOLIO 7
The investment objective of the VA International Value Portfolio is to
achieve long-term capital appreciation. The Portfolio seeks to achieve its
objective by investing in the stocks of large non-U.S. companies that have a
high book value in relation to their market value. The VA International Value
Portfolio operates as a diversified investment company.
INVESTMENT OBJECTIVE - VA INTERNATIONAL SMALL PORTFOLIO 9
The investment objective of the VA International Small Portfolio is to
achieve long-term capital appreciation by investing in marketable stocks of
small non-U.S. companies. The Portfolio will be structured by generally basing
the amount of each security purchased on the issuer's relative market
capitalization, applied on a basis of descending values, with a view to
achieving a reasonable reflection of the relative market capitalization of its
portfolio companies. The Portfolio operates as a diversified investment
company.
INVESTMENT OBJECTIVES - FIXED INCOME PORTFOLIOS 13
The investment objective of VA Short-Term Fixed Portfolio is to achieve
stable real value of capital with a minimum of risk. Generally, the Portfolio
will acquire high quality obligations which mature within one year from the date
of settlement; however, when greater returns are available substantial
investments may be made in securities maturing within two years from the date of
settlement as well. The VA Short-Term Fixed Portfolio operates as a diversified
investment company. The Portfolio intends to concentrate investments in the
banking industry under certain circumstances. (See "FIXED INCOME PORTFOLIOS -
INVESTMENT OBJECTIVES AND POLICIES" and "Investments in the Banking Industry.")
The investment objective of VA Global Bond Portfolio is to provide a
market rate of return for a fixed income portfolio with low relative volatility
of returns. The Portfolio invests in obligations issued or guaranteed by the
U.S. and foreign governments and their agencies, obligations of other foreign
issuers rated AA or better and supranational organizations. The VA Global Bond
Portfolio operates as a non-diversified investment company. (See "FIXED INCOME
PORTFOLIOS - INVESTMENT OBJECTIVES AND POLICIES" and "Portfolio Strategy.")
2
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RISK FACTORS 16
VA International Small Portfolio and VA International Value Portfolio
(collectively, the "International Equity Portfolios") and VA Global Bond
Portfolio invest in foreign securities which are traded abroad. VA Short-Term
Fixed Portfolio is authorized to invest in dollar-denominated obligations of
U.S. subsidiaries and branches of foreign banks and dollar-denominated
obligations of foreign issuers traded in the U.S. and also is authorized to
concentrate investments in the banking industry in certain circumstances. The
Domestic Equity Portfolios and the VA International Value Portfolio may purchase
and sell index futures contracts and options thereon. All of the Portfolios are
authorized to invest in repurchase agreements. All of the above described
policies involve certain risks. (See "RISK FACTORS - ALL PORTFOLIOS.")
MANAGEMENT OF THE FUND 17
Dimensional Fund Advisors Inc. (the "Advisor") serves as investment
advisor to each Portfolio. Dimensional Fund Advisors Ltd. and DFA Australia Pty
Limited each serve as a sub-advisor to VA International Small Portfolio. (See
"MANAGEMENT OF THE FUND.")
DIVIDEND POLICY 19
The International Equity and Domestic Equity Portfolios, except for VA
Large Value Portfolio, each distribute substantially all of their net
investment income in November and December of each year. VA Large Value
Portfolio and VA Global Bond Portfolio distribute dividends from their net
investment income quarterly. VA Short-Term Fixed Portfolio distributes
dividends from its net investment income monthly. The Portfolios will make any
distributions from realized net capital gains on an annual basis. (See
"DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES.")
PURCHASE, VALUATION AND REDEMPTION OF SHARES 20
Shares of the Portfolios are sold only to separate accounts of insurance
companies to fund variable life and variable annuity insurance contracts.
Purchases and redemptions are made at net asset value. To purchase shares of a
Portfolio, please see the prospectus of the insurance company's separate account
for variable annuity insurance contracts.
The value of the shares issued by the Portfolios will fluctuate in
relation to their own investment experience. Unlike money market funds, the
shares of VA Short-Term Fixed Portfolio will tend to reflect fluctuations in
interest rates because the Portfolio does not seek to stabilize the price of its
shares by use of the "amortized cost" method of securities valuation. (See
"PURCHASE AND REDEMPTION OF SHARES" and "VALUATION OF SHARES.")
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ANNUAL FUND OPERATING EXPENSES MANAGEMENT OTHER TOTAL
(AS PERCENTAGE OF AVERAGE NET ASSETS) FEE EXPENSES OPERATING EXPENSES
---------- -------- ------------------
VA Small Value 0.50% 0.70% 1.20%
VA Large Value 0.25% 0.70% .95%
VA International Value 0.40% 0.93% 1.33%
VA International Small 0.50% 0.91% 1.41%
VA Short-Term Fixed 0.25% 0.59% 0.84%
VA Global Bond 0.25% 0.62% 0.87%
EXAMPLE
You would pay the following transaction and annual operating expenses on a
$1,000 investment in each Portfolio, assuming a 5% annual return over each of
the following time periods and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
VA Small Value $12 $38
VA Large Value 10 30
VA International Value 14 42
VA International Small 14 45
VA Short-Term Fixed 9 27
VA Global Bond 9 28
</TABLE>
The purpose of the above expense table and example is to assist investors
in understanding the various costs and expenses that an investor in the
Portfolios will bear directly or indirectly. The sales charges and expenses of
the separate account are not shown above and should be considered before
investing. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The Portfolios are new and, therefore, the expenses of the Portfolios
included in the table are the estimated annualized expenses that are expected to
be incurred through their fiscal periods ending November 30, 1995, and the above
example is based on estimated expenses for the current and next two fiscal years
and does not extend those estimates over five and ten year periods.
CONDENSED FINANCIAL INFORMATION
The following Financial Highlights are derived from the unaudited
financial statements of the Portfolios for the period from January 13, 1995,
(date of initial investment of the Portfolios) through May 31, 1995. The table
below sets forth financial data for a share of stock of VA Large Value Portfolio
(formerly DFA Global Value Portfolio) and VA Global Bond Portfolio (formerly DFA
Global Bond Portfolio) throughout the period presented.
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DFA INVESTMENT DIMENSIONS GROUP INC.
FINANCIAL HIGHLIGHTS
FOR THE PERIOD JANUARY 13, 1995 (COMMENCEMENT OF OPERATIONS) TO MAY 31, 1995
(UNAUDITED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
DFA GLOBAL DFA GLOBAL
BOND VALUE
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Net Asset Value, Beginning of Period............. $100.00 $10.00
------ -----
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...................... 2.47 0.09
Net Gains on Securities (Realized and Unrealized) 5.00 1.03
------ -----
Total from Investment Operations................ 7.47 1.12
------ -----
LESS DISTRIBUTIONS
Net Investment Income....................... (0.85) -
------ -----
Net Asset Value, End of Period................... $106.62 $11.12
------ -----
------ -----
Total Return ..................................... 7.52%# 11.20%#
Net Assets, End of Period (thousands)............. $3,226 $5,562
Ratio of Expenses to Average Net Assets........... 0.68%*(a) 0.88%*(a)
Ratio of Net Investment Income to Average Net Assets 6.33%*(a) 2.82%*(a)
Portfolio Turnover Rate........................... 60.92%* 1.72%*
<FN>
- ---------------------
*Annualized
#Non-Annualized
(a) Because of commencement of operations and related preliminary transactions
costs, these ratios are not necessarily indicative of future ratios.
</TABLE>
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The total return information shown in the Financial Highlights table does
not reflect the expenses that apply to a separate account or the related
insurance policies, and inclusion of these charges would reduce the total return
figures for all periods shown. Until October 1995, VA Large Value Portfolio
invested approximately 50% of its total assets in the stocks of large non-U.S.
companies and approximately 50% of its total assets in the stocks of U.S.
companies. The total return information presented in the Financial Highlights
table for VA Large Value Portfolio reflects the performance of the Portfolio
when it invested in the stocks of both U.S. and non-U.S. companies. The total
return information of VA Large Value Portfolio for the period ended May 31, 1995
should not be considered indicative of its future performance.
DOMESTIC EQUITY PORTFOLIOS
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of each of the Domestic Equity Portfolios is to
achieve long-term capital appreciation. VA Large Value Portfolio and VA Small
Value Portfolio will invest in common stocks of U.S. companies with shares that
have a high book value in relation to their market value (a "book to market
ratio"). A company's shares will be considered to have a high book to market
ratio if the ratio equals or exceeds the ratios of any of the 30% of companies
with the highest positive book to market ratios whose shares are listed on the
New York Stock Exchange ("NYSE") and, except as described under "Portfolio
Structure," will be considered eligible for investment. VA Large Value
Portfolio will purchase common stocks of companies whose market capitalizations
equal or exceed that of the company having the median market capitalization of
companies whose shares are listed on the NYSE, and the VA Small Value Portfolio
will purchase common stocks of companies whose market capitalizations are
smaller than such company.
PORTFOLIO STRUCTURE
Each Domestic Equity Portfolio will operate as a "diversified" investment
company. Further, neither Portfolio will invest more than 25% of its total
assets in securities of companies in a single industry. Ordinarily, at least
80% of the assets of each Portfolio will be invested in a broad and diverse
group of readily marketable common stocks of U.S. companies with high book to
market ratios, as described above. The Portfolios may invest a portion of their
assets, ordinarily not more than 20%, in high quality, highly liquid fixed
income securities such as money market instruments, including short-term
repurchase agreements. The Portfolios will purchase securities that are listed
on the principal U.S. national securities exchanges and traded in the
over-the-counter market ("OTC").
Each Domestic Equity Portfolio will be structured on a market
capitalization basis, by generally basing the amount of each security purchased
on the issuer's relative market capitalization, with a view to creating in each
Portfolio a reasonable reflection of the relative market capitalizations of its
portfolio companies. However, the Advisor may exclude the securities of a
company that otherwise meets the applicable criteria described above if the
Advisor determines in its best judgment that other conditions exist that make
the inclusion of such security inappropriate.
Deviation from strict market capitalization weighting will also occur in
the Domestic Equity Portfolios because they intend to purchase round lots only.
In order to retain sufficient liquidity, the relative amount of any security
held by a Portfolio may be reduced, from time to time, from the level which
strict adherence to market capitalization weighting would otherwise require. A
portion, but generally not in excess of 20%, of a Portfolio's assets may be
invested in interest-bearing obligations, as described above, thereby causing
further deviation from strict market capitalization weighting. The Portfolios
may make block purchases of eligible securities at opportune prices even though
such purchases exceed the number of shares which, at the time of purchase,
strict adherence to the policy of market capitalization weighting would
otherwise require. In addition, the Portfolios may acquire eligible
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securities in exchange for the issuance of their shares. While such purchases
and acquisitions might cause a temporary deviation from market capitalization
weighting, they would ordinarily be made in anticipation of further growth of
the assets of a Portfolio.
On not less than a semi-annual basis, for each Portfolio the Advisor will
calculate the book to market ratio necessary to determine those companies whose
stocks are eligible for investment.
PORTFOLIO TRANSACTIONS
The Domestic Equity Portfolios do not intend to purchase or sell
securities based on the prospects for the economy, the securities markets or the
individual issuers whose shares are eligible for purchase. As described under
"Portfolio Structure," investments will be made in virtually all eligible
securities on a market capitalization weighted basis. This is a passive
approach to investment management that does not entail taking steps to reduce
risk by replacing portfolio equity securities with other securities that appear
to have the potential to provide better investment performance.
Generally, securities will be purchased with the expectation that they
will be held for longer than one year. VA Large Value Portfolio may sell
portfolio securities when the issuer's market capitalization falls substantially
below that of the issuer with the minimum market capitalization which is then
eligible for purchase by the Portfolio, and VA Small Value Portfolio may sell
portfolio securities when the issuer's market capitalization increases to a
level that substantially exceeds that of the issuer with the largest market
capitalization which is then eligible for investment by the Portfolio. However,
securities may be sold at any time when, in the Advisor's judgment,
circumstances warrant their sale.
In addition, VA Large Value Portfolio may sell portfolio securities when
their book to market ratio falls substantially below that of the security with
the lowest such ratio that is then eligible for purchase by the Portfolio. VA
Small Value Portfolio may also sell portfolio securities in the same
circumstances; however, that Portfolio anticipates generally to retain
securities of issuers with relatively smaller market capitalizations for longer
periods, despite any decrease in the issuer's book to market ratio.
INTERNATIONAL EQUITY PORTFOLIOS
VA INTERNATIONAL VALUE PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of VA International Value Portfolio is to
achieve long-term capital appreciation. The Portfolio operates as a diversified
investment company and seeks to achieve its investment objective by investing in
the stocks of large non-U.S. companies that have a high book to market ratio. A
company's shares will be considered eligible for investment if such shares (i)
first, have a book to market ratio that equals or exceeds the ratios of any of
the 30% of companies in that country with the highest positive book to market
ratios and (ii) second, are shares of a company having a market capitalization
of at least $500 million and are listed on a major exchange in such country.
The Portfolio will be approximately market capitalization weighted. Although it
does not presently intend to do so, the Portfolio reserves the right to invest
in companies that have market capitalizations of less than $500 million.
Under normal market conditions, the Portfolio will invest at least 65% of
the value of its assets in issuers organized or having a majority of their
assets in or deriving a majority of their operating income in at least three
non-U.S. countries. The Portfolio will not invest more than 25% of its total
assets in securities of companies in a single industry.
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The Portfolio reserves the right to invest in index futures contracts to
commit funds awaiting investment or to maintain liquidity. The Portfolio will
not purchase futures contracts if as a result more than 5% of its total assets
would then consist of initial and variation margin deposits on such contracts.
Such investments entail certain risks. (see "RISK FACTORS - ALL PORTFOLIOS.")
A portion, but generally not in excess of 20% of the Portfolio's assets,
may be invested in the nine categories of interest-bearing obligations described
in "FIXED INCOME PORTFOLIOS - INVESTMENT OBJECTIVES AND POLICIES - Description
of Investments."
The Portfolio intends to invest in the stocks of large companies in
countries with developed markets. Initially, the Portfolio will invest in the
stocks of large companies in Japan, the United Kingdom, Germany, France,
Switzerland, Italy, Belgium, Spain, the Netherlands, Sweden, Hong Kong,
Singapore and Australia. As the Portfolio's growth permits, it may invest in
the stocks of large companies in other developed markets.
In determining market capitalization weights, the Advisor, using its best
judgment, will seek to eliminate the effect of cross holdings on the individual
country weights. As a result, the weighting of certain companies in the
Portfolio may vary from their weighting in international indices such as those
published by The Financial Times, Morgan Stanley Capital International or
Salomon/Russell. The Advisor, however, will not attempt to account for cross
holding within the same country. The Advisor may exclude the stock of a company
that otherwise meets the applicable criteria if the Advisor determines in its
best judgment that other conditions exist that make the purchase of stock for
the Portfolio inappropriate.
Changes in the composition and relative ranking (in terms of market
capitalization and book to market ratio) of the stocks which are eligible for
purchase by the Portfolio take place with every trade when the securities
markets are open for trading due, primarily, to price fluctuations of such
securities. On at least a semi-annual basis, the Advisor will prepare lists of
non-U.S. large companies (those with market capitalizations of $500 million or
more) with high book to market ratios. Only common stocks whose market
capitalizations are not less than the minimum on such list will be purchased by
the Portfolio. Additional investments will not be made in securities which have
depreciated in value to such an extent that they are not then considered by the
Advisor to be large companies. This may result in deviation from market
capitalization weighting and such deviation could be substantial if a
significant amount of the Portfolio's holdings decrease in value sufficiently to
be excluded from the then current market capitalization requirement for eligible
securities, but not by a sufficient amount to warrant their sale.
PORTFOLIO STRUCTURE
The Advisor may exclude the securities of a company that otherwise meets
the criteria described above if the Advisor determines in its best judgment that
other conditions exist that make the inclusion of such security inappropriate.
This will result in some deviation from strict market capitalization weighting.
Deviation from strict market capitalization weighting will also occur in the
Portfolio because it intends to purchase round lots only. In order to retain
sufficient liquidity, the relative amount of any security held by the Portfolio
may be reduced, from time to time, from the level which strict adherence to
market capitalization weighting would otherwise require. Any portion of the
Portfolio's assets invested in interest-bearing obligations would cause a
further deviation from strict market capitalization weighting. The Portfolio
may make block purchases of eligible securities at opportune prices even though
such purchases exceed the number of shares which, at the time of purchase,
strict adherence to the policy of market capitalization weighting would
otherwise require. In addition, the Portfolio may acquire eligible securities
in exchange for the issuance of its shares. While such purchases might cause a
temporary deviation from market capitalization weighting, they would ordinarily
be made in anticipation of further growth of the assets of the Portfolio. If
securities must be sold in order to obtain funds to make redemption payments,
such securities may be repurchased by the Portfolio as additional cash becomes
available to it. However, the Portfolio has retained the right to borrow to
make redemption payments and is also authorized to redeem its shares in kind.
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It is management's belief that the stocks of large companies with high
book to market ratios offer, over a long term, a prudent opportunity for capital
appreciation, but, at the same time, selecting a limited number of such issues
for inclusion in the Portfolio involves greater risk than including a large
number of them. The Advisor does not anticipate that a significant number of
securities which meet the market capitalization criteria will be selectively
excluded from the Portfolio.
The Portfolio does not seek current income as an investment objective and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in the
Portfolio do pay dividends. It is anticipated, therefore, that the Portfolio
will receive dividend income.
PORTFOLIO TRANSACTIONS
The Portfolio does not intend to purchase or sell a security based on the
prospects for an individual country's economy, the securities markets in that
country or the individual issuer whose shares are eligible for purchase. As
described above, investments will be made in virtually all eligible securities
on a market capitalization weighted basis. This is a passive approach to
investment management that does not entail taking steps to reduce risk by
replacing portfolio equity securities with other securities that appear to have
the potential to provide better investment performance. The Portfolio may sell
securities when the issuer's market capitalization falls substantially below
that of the issuer with the minimum market capitalization which is then eligible
for purchase by the Portfolio. In addition, the Portfolio may sell portfolio
securities when their book to market ratio falls substantially below that of the
security with the lowest such ratio that is then eligible for purchase by the
Portfolio. Generally, securities will be purchased with the expectation that
they will be held for longer than one year.
VA INTERNATIONAL SMALL PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES
VA International Small Portfolio operates as a diversified investment
company whose investment objective is to achieve long-term capital appreciation
and provides investors with access to securities portfolios consisting of small
Japanese, United Kingdom, Continental and Pacific Rim companies. The VA
International Small Portfolio will seek to achieve its investment objective by
investing its assets in a broad and diverse group of marketable stocks of (1)
Japanese small companies which are traded in the Japanese securities markets;
(2) United Kingdom small companies which are traded principally on the
International Stock Exchange of the United Kingdom and the Republic of Ireland
("ISE"); (3) small companies organized under the laws of certain European
countries; and (4) small companies located in Australia, New Zealand and Asian
countries whose shares are traded principally on the securities markets located
in those countries. The Advisor will determine the initial allocation of assets
among the four segments of VA International Small Portfolio and will
periodically review and adjust such allocation, all in its sole discretion.
Company size will be determined for purposes of this Portfolio solely on
the basis of a company's market capitalization. "Market capitalization" will be
calculated by multiplying the price of a company's stock by the number of its
shares of that stock outstanding. Each segment of VA International Small
Portfolio will be structured to reflect reasonably the relative market
capitalizations of the portfolio companies in that segment. The Advisor
believes that over the long term the investment performance of small companies
in developed countries is superior to large companies, and that investment in
the Portfolio is an effective way to improve global diversification.
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JAPANESE SMALL COMPANY SEGMENT
Reference in this prospectus to the term "Japanese small company" means a
company located in Japan whose market capitalization is not larger than the
largest of those in the smaller one-half (deciles 6 through 10) of companies
whose securities are listed on the First Section of the Tokyo Stock Exchange
("TSE"). While the Portfolio will invest primarily in the stocks of small
companies which are listed on the TSE, it may acquire the stocks of Japanese
small companies which are traded in other Japanese securities markets as well.
UNITED KINGDOM SMALL COMPANY SEGMENT
Reference in this prospectus to a "United Kingdom small company" means a
company organized in the United Kingdom, with shares listed on the ISE whose
market capitalization is not larger than the largest of those in the smaller
one-half (deciles 6 through 10) of companies included in the Financial
Times-Actuaries All Share Index ("FTA").
The FTA is an index of stocks traded on the ISE, which is similar to the
Standard & Poor's 500 Composite Stock Index ("S&P 500 Index"), and is used by
investment professionals in the United Kingdom for the same purposes as
investment professionals in the U.S. use the S&P 500 Index. While the FTA will
be used by the Portfolio to determine the maximum market capitalization of any
company whose stock the Portfolio will purchase, Portfolio acquisitions will not
be limited to stocks which are included in the FTA. The Portfolio will not,
however, purchase shares of any investment trust or of any company whose market
capitalization is less than $5,000,000.
CONTINENTAL SMALL COMPANY SEGMENT
The Portfolio is authorized to invest in readily marketable stocks of a
broad and diverse group of small companies organized under the laws of certain
European countries; specifically, France, Germany, Italy, Switzerland, the
Netherlands, Sweden, Belgium, Norway, Spain, Austria, Finland and Denmark, whose
shares are traded principally in securities markets located in those countries.
Company size will be determined by the Advisor in a manner that will compare the
market capitalizations of companies in all countries of this segment in which
the Portfolio invests (i.e., on a European basis). The Advisor will use the
appropriate country indices of the Financial Times-Actuaries World Index ("FTW")
converted to a common currency, the United States dollar, and aggregated to
define "small companies." The FTW consists of a series of country indices which
contain generally the largest companies in the major industry sectors in
proportion to their market capitalization whose shares are available for
purchase by non-resident investors. Its constituents represent about 70% of the
total market capitalization of the respective markets. Companies with publicly
traded stock whose market capitalizations are not greater than the largest of
those in the smallest 20% (9th and 10th deciles) of companies listed in the FTW
as combined for the countries in this segment will be considered to be
"Continental small companies" and will be eligible for purchase by the
Portfolio.
While the Advisor will use the aggregated FTW indices to determine the
maximum size of eligible portfolio companies, portfolio acquisitions will not be
limited to stocks listed on the FTW for any country. The Portfolio does not
intend, however, to purchase shares of any company whose market capitalization
is less than the equivalent of $5,000,000. The Advisor may in its discretion
either limit further investments in a particular country or divest the Portfolio
of holdings in a particular country. (See "Portfolio Structure.")
PACIFIC RIM SMALL COMPANY SEGMENT
The Portfolio is authorized to invest in stocks of small companies
located in Australia, New Zealand and Asian countries whose shares are traded
principally on the securities markets located in those countries. Company size
will be determined by the Advisor in a manner that will compare the market
capitalizations of the companies in all countries of this segment in which the
Portfolio invests (i.e., on a Pacific Rim basis). The Advisor will use the
appropriate country indices of the FTW converted to a common currency and
aggregated to define "small
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companies." Companies with publicly traded stock whose market capitalizations
are not greater than the largest of those in the smallest 30% (8th, 9th and 10th
deciles) of companies listed in the FTW as combined for the countries in this
segment will be considered to be "Pacific Rim small companies" and will be
eligible for purchase by the Portfolio.
While the Advisor will use the aggregated FTW indices to determine the
maximum size of eligible portfolio companies, portfolio acquisitions will not be
limited to stocks listed on the FTW for any country. The Portfolio does not
intend to purchase shares of any company whose market capitalization is less
than $5,000,000. The Advisor may in its discretion either limit further
investments in a particular country or divest the Portfolio of holdings in a
particular country.
PORTFOLIO STRUCTURE
With respect to each segment, VA International Small Portfolio intends to
acquire a portion of the stock of each eligible company on a market
capitalization basis. The Portfolio also may invest up to 5% of its assets in
convertible debentures issued by Japanese, United Kingdom, Continental and
Pacific Rim small companies.
VA International Small Portfolio is structured by generally basing the
amount of each security purchased in each segment on the issuer's relative
market capitalization within that segment with a view to creating in the
Portfolio a reasonable reflection of the relative market capitalizations of the
portfolio companies segment by segment. The decision to include or exclude the
shares of an issuer will be made on the basis of such issuer's relative market
capitalization determined by reference to other companies located in the same
country, except with respect to Continental and Pacific Rim small companies,
such determination shall be made by reference to other companies located in all
countries in the respective segment. Company size is measured in terms of local
currencies in order to eliminate the effect of variations in currency exchange
rates, except with respect to Continental and Pacific Rim small company
segments, in which segments company size will be measured in terms of a common
currency. Even though a company's stock may meet the applicable market
capitalization criterion, it may not be purchased if, (i) in the Advisor's
judgment, the issuer is in extreme financial difficulty, (ii) the issuer is
involved in a merger or consolidation or is the subject of an acquisition or
(iii) a significant portion of the issuer's securities are closely held.
Further, securities of real estate investment trusts will not be acquired
(except as a part of a merger, consolidation or acquisition of assets). In
addition, the Advisor may exclude the stock of a company that otherwise meets
applicable market capitalization criterion if the Advisor determines in its best
judgment that other conditions exist that make the purchase of such stock
inappropriate.
When, in the judgment of the Advisor, the indices described herein are no
longer appropriate benchmarks for determining company size or eligibility, the
Advisor may, in its sole discretion, utilize other indices that it considers
appropriate.
Deviation from strict market capitalization weighting will also occur
because the Advisor intends to purchase round lots only. In order to retain
sufficient liquidity, the relative amount of any security held may be reduced
from time to time from the level which strict adherence to market capitalization
weighting would otherwise require. A portion, but generally not in excess of
20%, of the Portfolio's assets may be invested in interest-bearing obligations,
such as money-market instruments for this purpose, thereby causing further
deviation from strict market capitalization weighting.
Block purchases of eligible securities may be made at opportune prices
even though such purchases exceed the number of shares which, at the time of
purchase, strict adherence to the policy of market capitalization weighting
would otherwise require. In addition, eligible securities may be acquired in
exchange for the issuance of shares. While such purchases and acquisitions
might cause a temporary deviation from market capitalization weighting, they
would ordinarily be made in anticipation of further growth of assets.
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If securities must be sold in order to obtain funds to make redemption
payments, they may be repurchased as additional cash becomes available. In most
instances, however, management would anticipate selling securities which had
appreciated sufficiently to be eligible for sale and, therefore, would not need
to repurchase such securities. (See "Portfolio Transactions.")
Changes in the composition and relative ranking (in terms of market
capitalization) of the stocks which are eligible for purchase take place with
every trade when the securities markets are open for trading due, primarily, to
price fluctuations of such securities. On a not less than semi-annual basis,
the Advisor will determine the market capitalization of the largest small
company eligible for investment in each segment. Common stocks whose market
capitalizations are not greater than such company will be purchased. Additional
investments generally will not be made in securities which have appreciated in
value sufficiently to be excluded from the Advisor's then current market
capitalization limit for eligible portfolio securities. This may result in
further deviation from strict market capitalization weighting and such deviation
could be substantial if a significant amount of holdings increase in value
sufficiently to be excluded from the limit for eligible securities, but not by a
sufficient amount to warrant their sale. (See "Portfolio Transactions.") A
further deviation from market capitalization weighting may occur if the
Portfolio invests a portion of its assets in convertible debentures.
It is management's belief that the stocks of small companies offer, over
a long term, a prudent opportunity for capital appreciation but, at the same
time, selecting a limited number of such issues for investment involves greater
risk than investing in a large number of them. The Portfolio intends to invest
at least 80% of its assets in equity securities of Japanese, United Kingdom,
Continental and Pacific Rim small companies.
Generally, current income is not sought as an investment objective and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be selected for
investment do pay dividends. It is anticipated, therefore, that dividend income
will be received.
PORTFOLIO TRANSACTIONS
On a periodic basis, the Advisor will review each Portfolio's holdings
and determine which, at the time of such review, are no longer considered small
Japanese, United Kingdom, Continental or Pacific Rim companies. The present
policy of the Advisor is to consider portfolio securities for sale when they
have appreciated sufficiently to rank, on a market capitalization basis, more
than one full decile higher than the company with the largest market
capitalization that is eligible for purchase by the Portfolio as determined
periodically by the Advisor. The Advisor may, from time to time, revise that
policy if, in the opinion of the Advisor, such revision is necessary to maintain
appropriate market capitalization weighting.
Securities which 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 may be disposed of, however, at any time when, in the
Advisor's judgment, circumstances, such as (but not limited to) tender offers,
mergers and similar transactions, or bids made for block purchases at opportune
prices, warrant their sale. Generally, 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. 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 policy of maintaining portfolios of companies with small market
capitalizations.
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SECURITIES LOANS
All of the Portfolios are authorized to lend securities to qualified
brokers, dealers, banks and other financial institutions for the purpose of
earning additional income. While a Portfolio may earn additional income from
lending securities, such activity is incidental to the investment objective of a
Portfolio. The value of securities loaned may not exceed 33 1/3% of the value
of a Portfolio's total assets. In connection with such loans, a Portfolio will
receive collateral consisting of cash or U.S. Government securities, which will
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. In addition, the Portfolios will be able
to terminate the loan at any time, will receive reasonable compensation on the
loan, as well as amounts equal to any dividends, interest or other distributions
on the loaned securities. In the event of the bankruptcy of the borrower, the
Fund could experience delay in recovering the loaned securities. Management
believes that this risk can be controlled through careful monitoring procedures.
FIXED INCOME PORTFOLIOS - INVESTMENT OBJECTIVES AND POLICIES
VA SHORT-TERM FIXED PORTFOLIO
The investment objective of VA Short-Term Fixed Portfolio is to achieve a
stable real value (i.e., a return in excess of the rate of inflation) of
invested capital with a minimum of risk. The Portfolio will invest in U.S.
government obligations, U.S. government agency obligations, dollar denominated
obligations of foreign issuers issued in the U.S., bank obligations, including
U.S. subsidiaries and branches of foreign banks, corporate obligations,
commercial paper, repurchase agreements and obligations of supranational
organizations. Generally, the Portfolio will acquire obligations which mature
within one year from the date of settlement, but substantial investments may be
made in obligations maturing within two years from the date of settlement when
greater returns are available. It is the Portfolio's policy that the weighted
average length of maturity of investments will not exceed one year. The
Portfolio principally invests in certificates of deposit, commercial paper,
bankers' acceptances, notes and bonds. The Portfolio will invest more than 25%
of its total assets in obligations of U.S. and/or foreign banks and bank holding
companies when the yield to maturity on these instruments exceeds the yield to
maturity on all other eligible portfolio investments of similar quality for a
period of five consecutive days when the NYSE is open for trading. (See
"Investments in the Banking Industry.")
VA GLOBAL BOND PORTFOLIO
The investment objective of VA Global Bond Portfolio is to provide a
market rate of return for a fixed income portfolio with low relative volatility
of returns. The Portfolio will invest primarily in obligations issued or
guaranteed by the U.S. and foreign governments, their agencies and
instrumentalities, obligations of other foreign issuers rated AA or better and
supranational organizations, such as the World Bank, the European Investment
Bank, European Economic Community, and European Coal and Steel Community and
corporate debt obligations. At the present time, the Advisor expects that most
investments will be made in the obligations of issuers which are developed
countries, such as those countries which are members of the Organization of
Economic Cooperation and Development (OECD). However, in the future, the
Advisor anticipates investing in issuers located in other countries as well.
Under normal market conditions, the Portfolio will invest at least 65% of the
value of its assets in issuers organized or having a majority of their assets
in, or deriving a majority of their operating income in, at least three
different countries, one of which may be the United States. The Portfolio will
acquire obligations which mature within ten years from the date of settlement.
Because many of the Portfolio's investments will be denominated in foreign
currencies, the Portfolio will also enter into forward foreign currency
contracts solely for the purpose of hedging against fluctuations in currency
exchange rates. Inasmuch as VA Global Bond Portfolio intends to continually
hedge against the risk of variations in currency exchange rates, the Advisor
believes that the variation of the Portfolio's investment performance in
relation to fluctuations in currency exchange rates will be minimized.
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DESCRIPTION OF INVESTMENTS
The following is a description of the categories of investments which may
be acquired by the Fixed Income Portfolios. VA Short-Term Fixed Portfolio may
invest in all of the securities and obligations listed in categories 1-6 and 8
and VA Global Bond Portfolio may invest in the securities and obligations listed
in categories 1-3 and 6-9.
1. U.S. GOVERNMENT OBLIGATIONS - Debt securities issued by the U.S.
Treasury which are direct obligations of the U.S. government, including bills,
notes and bonds.
2. U.S. GOVERNMENT AGENCY OBLIGATIONS - Issued or guaranteed by U.S.
government-sponsored instrumentalities and federal agencies, including the
Federal National Mortgage Association, Federal Home Loan Bank and the Federal
Housing Administration.
3. CORPORATE DEBT OBLIGATIONS - Non-convertible corporate debt
securities (e.g., bonds and debentures) which are issued by companies whose
commercial paper is rated Prime-1 by Moody's Investors Services, Inc.
("Moody's") or A-1 by Standard & Poor's Corporation ("S&P") and
dollar-denominated obligations of foreign issuers issued in the U.S. If the
issuer's commercial paper is unrated, then the debt security would have to be
rated at least AA by S&P or Aa2 by Moody's. If there is neither a commercial
paper rating nor a rating of the debt security, then the Advisor must determine
that the debt security is of comparable quality to equivalent issues of the same
issuer rated at least AA or Aa2.
4. BANK OBLIGATIONS - Obligations of U.S. banks and savings and loan
associations and dollar-denominated obligations of U.S. subsidiaries and
branches of foreign banks, such as certificates of deposit (including marketable
variable rate certificates of deposit) and bankers' acceptances. Bank
certificates of deposit will only be acquired from banks with assets in excess
of $1,000,000,000.
5. COMMERCIAL PAPER - Rated, at the time of purchase, A-1 or better
by S&P or Prime-1 by Moody's, or, if not rated, issued by a corporation having
an outstanding unsecured debt issue rated Aaa by Moody's or AAA by S&P, and
having a maximum maturity of nine months.
6. REPURCHASE AGREEMENTS - Instruments through which the Portfolios
purchase securities ("underlying securities") from a bank, or a registered U.S.
government securities dealer, with an agreement by the seller to repurchase the
security at an agreed price, plus interest at a specified rate. The underlying
securities will be limited to U.S. government and agency obligations described
in (1) and (2) above. The Portfolios will not enter into a repurchase agreement
with a duration of more than seven days if, as a result, more than 10% of the
value of the Portfolio's total assets would be so invested. The Portfolios will
also only invest in repurchase agreements with a bank if the bank has at least
$1,000,000,000 in assets and has a credit rating of not less than A as
determined by Moody's or S&P. The Advisor will monitor the market value of the
securities plus any accrued interest thereon so that they will at least equal
the repurchase price.
7. FOREIGN GOVERNMENT AND AGENCY OBLIGATIONS - Bills, notes, bonds
and other debt securities issued or guaranteed by foreign governments, or their
agencies and instrumentalities.
8. SUPRANATIONAL ORGANIZATION OBLIGATIONS - Debt securities of
supranational organizations such as the European Coal and Steel Community, the
European Economic Community and the World Bank, which are chartered to promote
economic development.
9. FOREIGN ISSUER OBLIGATIONS - Debt securities of non- U.S. issuers
rated AA or better by S&P and Aa2 or better by Moody's.
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INVESTMENTS IN THE BANKING INDUSTRY
VA Short-Term Fixed Portfolio will invest more than 25% of its total
assets in obligations of U.S. and/or foreign banks and bank holding companies
when the yield to maturity on these investments exceeds the yield to maturity on
all other eligible portfolio investments for a period of five consecutive days
when the NYSE is open for trading. For the purpose of this policy, which is a
fundamental policy of the Portfolio, which can only be changed by a vote of
shareholders of the Portfolio, banks and bank holding companies are considered
to constitute a single industry, the banking industry. When investment in such
obligations exceeds 25% of the total net assets of the Portfolio, the Portfolio
will be considered to be concentrating its investments in the banking industry.
The types of bank and bank holding company obligations in which VA
Short-Term Fixed Portfolio may invest include: dollar-denominated certificates
of deposit, bankers' acceptances, commercial paper and other debt obligations
issued in the United States and which mature within two years of the date of
settlement, provided such obligations meet the Portfolio's established credit
rating criteria as stated under "Description of Investments." In addition, the
Portfolio is authorized to invest more than 25% of its total assets in U.S.
Treasury bonds, bills and notes and obligations of federal agencies and
instrumentalities.
PORTFOLIO STRATEGY
VA Short-Term Fixed Portfolio will be managed with a view to capturing
credit risk premiums and term or maturity premiums. As used herein, the term
"credit risk premium" means the anticipated incremental return on investment for
holding obligations considered to have greater credit risk than direct
obligations of the U.S. Treasury, and "maturity risk premium" means the
anticipated incremental return for holding securities having maturities of
longer than one month compared to securities having a maturity of one month.
The Advisor believes that credit risk premiums are available largely through
investment in high grade commercial paper, certificates of deposit and corporate
obligations. The holding period for assets of the Portfolio will be chosen with
a view to maximizing anticipated monthly returns, net of trading costs.
VA Global Bond Portfolio will be managed with a view to capturing
maturity risk premiums. Ordinarily the Portfolio will invest primarily in
obligations issued or guaranteed by foreign governments and their agencies and
instrumentalities, obligations of other foreign issuers rated AA or better and
supranational organizations. Supranational issuers include the European
Economic Community, the European Coal and Steel Community, the Nordic Investment
Bank, the World Bank and the Japanese Development Bank. The Portfolio will own
obligations issued or guaranteed by the U.S. government and its agencies and
instrumentalities also. At times when, in the Advisor's judgment, eligible
foreign securities do not offer maturity risk premiums that compare favorably
with those offered by eligible U.S. securities, the Portfolio will be invested
primarily in the latter securities.
VA Global Bond Portfolio is "non-diversified," as defined in the
Investment Company Act of 1940, which means that, as to 75% of its total assets,
more than 5% may be invested in the securities of a single issuer. However, for
purposes of the Internal Revenue Code, the Portfolio is "diversified" because as
to 50% of its total assets, no more than 5% may be invested in the securities of
a single issuer, and the Portfolio intends to invest no more than 55% of the
value of its total assets in cash, cash items, government securities and other
regulated investment companies. The Portfolio will not invest more than 25% of
its assets in securities of companies in any one industry. Management does not
consider securities which are issued by the U.S. government or its agencies or
instrumentalities to be investments in an "industry." However, management
currently considers securities issued by a foreign government to be subject to
the 25% limitation, with the effect that not more than 25% of the Portfolio's
total assets will be invested in securities issued by any one foreign
government. The Portfolio will not invest more than 25% of its total assets in
obligations of supranational organizations. Finally, the Portfolio might invest
in certain securities issued by companies, such as Caisse Nationale des
Telecommunication, a communications company, whose obligations are guaranteed by
a foreign government. Management considers such a company to be within a
particular industry (in this case, the communications industry) and, therefore,
the Portfolio will invest in the securities of such a company only if it can do
so under the Portfolio's policy of not being concentrated in any single
industry.
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VA Short-Term Fixed Portfolio is expected to have a high portfolio
turnover rate due to the relatively short maturities of the securities to be
acquired. It is anticipated that the annual turnover rate of VA Short-Term
Fixed Portfolio could be 0% to 200%. The annual portfolio turnover rate of VA
Global Bond Portfolio is not expected to exceed 100%. The rate of portfolio
turnover will depend upon market and other conditions; it will not be a limiting
factor when management believes that portfolio changes are appropriate. While
the Fixed Income Portfolios acquire securities in principal transactions and,
therefore, do not pay brokerage commissions, the spread between the bid and
asked prices of a security may be considered to be a "cost" of trading. Such
costs ordinarily increase with trading activity. However, as stated above,
securities ordinarily will be sold when, in the Advisor's judgment, the monthly
return of a Portfolio will be increased as a result of portfolio transactions
after taking into account the cost of trading. It is anticipated that
securities will be acquired in the secondary markets for short term instruments.
However, as the size of each Portfolio increases, it is possible that
transactions also may be effected directly with the issuers of securities
acquired for the Portfolios.
RISK FACTORS - ALL PORTFOLIOS
Typically, securities of small companies are less liquid than securities
of large companies. Recognizing this factor, VA International Small Portfolio
and VA Small Value Portfolio will endeavor to effect securities transactions in
a manner to avoid causing significant price fluctuations in the market for these
securities.
The International Equity Portfolios and Fixed Income Portfolios invest 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
which might adversely affect the value of the assets held by the Portfolios.
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. Certain of the foreign markets in
which the Portfolios may invest have recently transitioned from or are in the
process of transitioning from centrally controlled economies. There can be no
assurance that such transitions will be successful. The Fixed Income Portfolios
may invest in obligations of supranational organizations. The value of the
obligations of these organizations may be adversely affected if one or more of
their supporting governments discontinue their support. Also, there can be no
assurance that any of the Portfolios will achieve its investment objective.
Investments of the International Equity Portfolios and VA Global Bond
Portfolio 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 these Portfolios. These Portfolios may purchase foreign
currency futures contracts and options in order to hedge against changes in the
level of foreign currency exchange rates, provided not more than 5% of each
Portfolio's assets are then invested as initial or variation margin deposits on
such contracts or options. Such contracts involve an agreement to purchase or
sell a specific currency at a future date at a price set in the contract and
enable the Portfolios 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 Portfolio securities transactions, but
they also tend to limit the potential gains that might result from a positive
change in such currency relationships.
Each Portfolio has reserved the right to borrow amounts not exceeding 33%
of its net assets for the purposes of making redemption payments. When
advantageous opportunities to do so exist, each Portfolio may also 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 Portfolio may increase or decrease at a greater
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rate than would be the case if the Portfolio had not leveraged. The interest
payable on the amount borrowed would increase the Portfolio's expenses and, if
the appreciation and income produced by the investments purchased when the
Portfolio has borrowed are less than the cost of borrowing, the investment
performance of the Portfolio will be reduced as a result of leveraging.
The method employed by the Advisor to manage the Domestic Equity and
International Equity Portfolios will differ from the process employed by many
other investment advisors in that the Advisor will rely on fundamental analysis
of the investment merits of securities to a limited extent to eliminate
potential portfolio acquisitions rather than rely on this technique to select
securities. Further, because securities generally will be held long-term and
will not be eliminated based on short-term price fluctuations, the Advisor
generally will not act upon general market movements or short-term price
fluctuations of securities to as great an extent as many other investment
advisors.
The Domestic Equity Portfolios and VA International Value Portfolio may
invest in index futures contracts and index options. These investments entail
the risk that an imperfect correlation may exist between changes in the market
value of the stocks owned by the Portfolio and the prices of such futures
contracts and options and, at times, the market for such contracts and options
might lack liquidity, thereby inhibiting a Portfolio's ability to close a
position in such investments.
Concentrating in obligations of the banking industry may involve
additional risk by foregoing the safety of investing in a variety of industries.
Changes in the market's perception of the riskiness of banks relative to
non-banks could cause more fluctuations in the net asset value of VA Short-Term
Fixed Portfolio than might occur in less concentrated portfolios.
In addition, all of the Portfolios may invest 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
agreements. Management believes that this risk can be controlled through
stringent security selection criteria and careful monitoring procedures.
MANAGEMENT OF THE FUND
Dimensional Fund Advisors Inc. (the "Advisor") serves as investment
advisor to each of the Portfolios. As such, the Advisor is responsible for the
management of their respective assets. Investment decisions for all Portfolios
of the Fund are made by the Investment Committee of the Advisor which meets on a
regular basis and also as needed to consider investment issues. The Investment
Committee is composed of certain officers and directors of the Advisor who are
elected annually. The Advisor provides the Portfolios with a trading department
and selects brokers and dealers to effect securities transactions. Portfolio
securities transactions are placed with a view to obtaining best price and
execution and, subject to this goal, may be placed with brokers which have
assisted in the sale of the Portfolios' shares. Brokerage transactions may be
placed with securities firms that are affiliated with an affiliate of the
Advisor.
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On an annual basis, the investment advisory fee payable by each Portfolio
to the Advisor as a percentage of the average net assets of each Portfolio is
set forth below:
VA Small Value Portfolio 0.50%
VA Large Value Portfolio 0.25%
VA International Value Portfolio 0.40%
VA International Small Portfolio 0.50%
VA Short-Term Fixed Portfolio 0.25%
VA Global Bond Portfolio 0.25%
The Fund bears all of its own costs and expenses, including: services of
its independent accountants, 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 directors, the cost of filing its registration statements under
federal and state securities laws, reports to shareholders, and transfer and
dividend disbursing agency, administrative services and custodian fees.
Expenses allocable to a particular Portfolio are so allocated and expenses which
are not allocable to a particular Portfolio are borne by each Portfolio on the
basis of the fees paid by the Fund to PFPC Inc., the accounting services,
dividend disbursing and transfer agent for each Portfolio.
The Advisor was organized in May 1981 and is engaged in the business of
providing investment management services to institutional investors. Assets
under management total approximately $11 billion. David G. Booth and Rex A.
Sinquefield, directors and officers of both the Fund and the Advisor, together
own approximately 55% of the Advisor's outstanding stock and may be deemed
controlling persons of the Advisor. The Advisor owns 100% of the outstanding
shares of Dimensional Fund Advisors Ltd. ("DFAL") and DFA Australia Pty Limited
("DFA Australia") (see "Investment Services - VA International Small Portfolio).
INVESTMENT SERVICES - VA INTERNATIONAL SMALL PORTFOLIO
Pursuant to a Sub-Advisory Agreement with the Advisor, DFAL, 14 Berkeley
Street, London, W1X 5AD, England, a company that is organized under the laws of
England, has the authority and responsibility to select brokers or dealers to
execute securities transactions for the United Kingdom and Continental small
company segments of VA International Small Portfolio. Pursuant to a
Sub-Advisory Agreement with the Advisor, DFA Australia, Suite 4403 Gateway, 1
MacQuarie Place, Sydney, New South Wales 2000, Australia, the successor to
Dimensional Fund Advisors Asia Inc., has the authority and responsibility to
select brokers and dealers to execute securities transactions for the Japanese
and Pacific Rim small company segments of VA International Small Portfolio. The
duties of DFAL with respect to the United Kingdom and Continental small company
segments of the Portfolio and DFA Australia with respect to the Japanese and
Pacific Rim small company segments of the Portfolio include the maintenance of a
trading desk for the Portfolio and the determination of the best and most
efficient means of executing securities transactions. The Advisor is
responsible for determining those securities which are eligible for purchase and
sale by the Portfolio and may delegate this task, subject to its own review, to
DFAL and DFA Australia. On at least a semi-annual basis, the Advisor reviews
the holdings of United Kingdom, Continental, Japanese and Pacific Rim small
company segments and reviews the trading process and the execution of securities
transactions.
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DFAL maintains and furnishes to the Advisor information and reports on
United Kingdom and Continental small companies, including its recommendations
of securities to be added to the securities in those segments that are eligible
for purchase by the Portfolio. The Advisor pays DFAL a fee equal to 50,000
pounds sterling total per year, payable on a quarterly basis, for services to
the Portfolio. DFAL is a member of the Investment Management Regulatory
Organization Limited ("IMRO"), a self regulatory organization for investment
managers operating under the laws of England. If a shareholder of VA
International Small Portfolio wishes to register a complaint against DFAL, that
shareholder may either make the complaint in writing to the Compliance Officer
of DFAL or may complain directly to IMRO.
DFA Australia maintains and furnishes to the Advisor information and
reports on Japanese and Pacific Rim small companies, including its
recommendations of securities to be added to the securities in those segments
that are eligible for purchase by the Portfolio. The Advisor pays DFA Australia
a fee equal to 100,000 Hong Kong dollars total per year, payable on a quarterly
basis, for services to VA International Small Portfolio.
DIRECTORS AND OFFICERS
The Board of Directors is responsible for establishing Fund policies and
for overseeing the management of the Fund. Information as to the Directors and
Officers of the Fund is set forth in the Statement of Additional Information
under "DIRECTORS AND OFFICERS."
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Each Portfolio intends to qualify each year as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), so
that it will not be liable for federal income taxes to the extent that its net
investment income and net realized capital gains are distributed. The policy of
VA Small Value and the International Equity Portfolios is to distribute
substantially all of their net investment income together with any net realized
capital gains in November and December of each year. Dividends from net
investment income of VA Large Value Portfolio are distributed quarterly and any
net realized capital gains are distributed in November and December of each
year. Net investment income, which is accrued daily, will be distributed
monthly (except for January) by VA Short-Term Fixed Portfolio and quarterly by
VA Global Bond Portfolio. Any net realized capital gains of the Fixed Income
Portfolios will be distributed in November and December of each year. Each
Portfolio is treated as a separate corporation for federal tax purposes.
Dividends which are declared in October, November or December to
shareholders of record in such a month but which, for operational reasons may
not be paid to the shareholders until the following January, will be treated for
tax purposes as if paid by a Portfolio and received by the shareholder on
December 31 of the calendar year in which they are declared.
If a Portfolio purchases shares in certain foreign investment entities,
called "passive foreign investment companies" ("PFIC"), such Portfolio may be
subject to U.S. federal income tax and a related interest charge on a portion of
any "excess distribution" or gain from the disposition of such shares even if
such income is distributed as a taxable dividend by the Portfolio to its
shareholders.
Also, dividends and interest received on investments made by the
Portfolios may be subject to foreign withholding taxes on income from certain of
their foreign securities.
Shareholders of the Portfolios will automatically receive all income
dividends and capital gains distributions in additional shares of the Portfolio
whose shares they hold at net asset value (as of the business date following the
dividend record date). Shareholders are notified annually by the Fund as to the
federal tax status of dividends and distributions paid by the Portfolio whose
shares they own.
19
<PAGE>
Shares of the Portfolio must be purchased through variable annuity
contracts. As a result, it is anticipated that any dividend or capital gains
distributions from a Portfolio of the Fund will be exempt from current taxation
if left to accumulate within a variable annuity contract. Withdrawals from such
contracts may be subject to ordinary income tax plus a 10% penalty tax if made
before age 59 1/2.
The tax status of your investment in the Portfolios depends upon the
features of your variable annuity contract. For further information, please
refer to the prospectus of the insurance company separate account that offers
your contract.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Portfolios are sold only to insurance company separate
accounts. Purchases and redemptions of shares of each Portfolio by a separate
account will be effected at the net asset value per share. (See "VALUATION OF
SHARES.") Contract owners do not deal directly with the Fund with respect to
the acquisition or redemption of shares of the Portfolios. Please see the
prospectus of the insurance company separate account for information regarding
the purchase and redemption of shares of the Portfolios.
VALUATION OF SHARES
The net asset value per share of each Portfolio is calculated as of the
close of the NYSE by dividing the total market value of the Portfolio's
investments and other assets, less any liabilities, by the total outstanding
shares of the stock of the Portfolio. The value of the shares of each Portfolio
will fluctuate in relation to its own investment experience. Securities held by
the Domestic Equity and International Equity Portfolios which are listed on the
securities exchange and for which market quotations are available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
such securities are valued at the mean between the most recent quoted bid and
asked prices. Price information on listed securities is taken from the exchange
where the security is primarily traded. Unlisted securities for which market
quotations are readily available are valued at the mean between the most recent
bid and asked prices. The value of other assets and securities for which no
quotations are readily available (including restricted securities) are
determined in good faith at fair value in accordance with procedures adopted by
the Board of Directors. The net asset values per share of the International
Equity Portfolios and VA Global Bond Portfolio are expressed in U.S. dollars by
translating the net assets of each Portfolio using the bid price for the dollar
as quoted by generally recognized reliable sources.
The value of the shares of the Fixed Income Portfolios will tend to
fluctuate with interest rates because, unlike money market funds, these
Portfolios do not seek to stabilize the value of their respective shares by use
of the "amortized cost" method of asset valuation. Net asset value includes
interest on fixed income securities which is accrued daily. Securities which
are traded OTC 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 OTC market. Securities held
by the Fixed Income Portfolios may be valued on the basis of prices provided by
a pricing service when such prices are believed to reflect the current market
value of such securities. Other assets and securities for which quotations are
not readily available will be valued in good faith at fair value using methods
determined by the Board of Directors.
Generally, trading in foreign securities markets is completed each day at
various times prior to the close of the NYSE. The values of foreign securities
held by the International Equity Portfolios and VA Global Bond Portfolio are
determined as of such times for the purpose of computing the net asset values of
these Portfolios. If events which materially affect the value of the
investments of a Portfolio occur subsequent to the close of the securities
market on which such securities are primarily traded, the investments affected
thereby will be valued at "fair value" as described above.
20
<PAGE>
DISTRIBUTION
The Fund acts as distributor of each series of its own shares of stock.
It has, however, entered into an agreement with DFA Securities Inc., a wholly
owned subsidiary of the Advisor, pursuant to which DFA Securities Inc. is
responsible for supervising the sale of each series of shares. No compensation
is paid by the Fund to DFA Securities Inc. under this agreement.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on June 15, 1981. Until
June 1983, the Fund was named DFA Small Company Fund Inc. Until September 18,
1995, VA Large Value Portfolio was named DFA Global Value Portfolio and VA
Global Bond Portfolio was named DFA Global Bond Portfolio. The shares of each
Portfolio, when issued and paid for in accordance with the Fund's prospectus,
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.
The Portfolios may disseminate reports of their investment performance
from time to time. Investment performance is calculated on a total return
basis; that is by including all net investment income and any realized and
unrealized net capital gains or losses during the period for which investment
performance is reported. If dividends or capital gains distributions have been
paid during the relevant period the calculation of investment performance will
include such dividends and capital gains distributions as though reinvested in
shares of the Portfolio. Standard quotations of total return, which include
deductions of any applicable reimbursement fees, are computed in accordance with
Securities and Exchange Commission ("SEC") Guidelines and are presented whenever
any non-standard quotations are disseminated to provide comparability to other
investment companies. Non-standardized total return quotations may differ from
the SEC Guideline computations by covering different time periods, excluding
deduction of reimbursement fees charged to investors and paid to the Portfolios
which would otherwise reduce returns quotations, and linking actual Portfolio
return with simulated data for periods prior to a Portfolio's inception. In all
cases, disclosures are made when performance quotations differ from the SEC
Guidelines which were established effective May 1, 1988. Performance data is
based on historical earnings and is not intended to indicate future performance.
Rates of return expressed on an annual basis will usually not equal the sum of
returns expressed for consecutive interim periods due to the compounding of the
interim yields.
With respect to the International Equity Portfolios and VA Global Bond
Portfolio, rates of return expressed as a percentage of U.S. dollars will
reflect applicable currency exchange rates at the beginning and ending dates of
the investment periods presented. The return expressed in terms of U.S. dollars
is the return one would achieve by investing dollars in the Portfolio at the
beginning of the period and liquidating the investment in dollars at the end of
the period. Hence, the return expressed as a percentage of U.S. dollars
combines the investment performance of the Portfolio as well as the performance
of the local currency or currencies of the Portfolio.
Pursuant to an exemptive order from the SEC, shares of the Portfolios may
be sold to registered separate accounts of various insurance companies offering
variable annuity and variable life products. At present, the Board of Directors
of the Fund does not foresee any disadvantage arising from the fact that each
Portfolio may offer its shares to separate accounts of various insurance
companies to serve as an investment vehicle for their variable separate
accounts. However, a material conflict could arise between the interest of the
different participating separate accounts. The Fund's Board of Directors would
monitor events in order to identify any material irreconcilable conflicts that
may possibly arise and to determine what action, if any, should be taken in
response to such conflicts of interest. If such conflicts were to occur, one or
more insurance companies' separate accounts might be required to withdraw its
investments in one or more Portfolios, or shares of another Portfolio may be
substituted
21
<PAGE>
by the Fund. As a result, a Portfolio might be forced to sell a portion of its
securities at a disadvantageous price. In the event of such a material
conflict, the affected insurance companies agree to take any necessary steps,
including removing its separate account from the Portfolio if required by law,
to resolve the matter.
As of June 30, 1995, the following persons owned more than 25% of the
voting securities of the following Portfolios:
<TABLE>
<CAPTION>
VA LARGE VALUE PORTFOLIO** (FORMERLY DFA GLOBAL VALUE PORTFOLIO)
<S> <C>
(formerly National Home Life) Providian Life and Health Separate Account* 85.73%
400 West Market Street
P.O. Box 32830
Louisville, KY 40232
VA GLOBAL BOND PORTFOLIO** (FORMERLY DFA GLOBAL BOND PORTFOLIO)
(formerly National Home Life) Providian Life and Health Separate Account* 28.15%
400 West Market Street
P.O. Box 32830
Louisville, KY 40232
(formerly National Home Life) Providian Life and Health General Account* 71.85%
400 West Market Street
P.O. Box 32830
Louisville, KY 40232
<FN>
____________________
* Owner of record only.
** As of May 31, 1995, the name of VA Large Value Portfolio was DFA Global Value
Portfolio and the name of VA Global Bond Portfolio was DFA Global Bond
Portfolio.
</TABLE>
Shareholder inquiries may be made by writing or calling the Fund at the
address or telephone number appearing on the cover of this prospectus.
22
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
SUB-ADVISORS
DIMENSIONAL FUND ADVISORS LTD.
14 Berkeley Street
London, W1X 5AD
England
Tel. No. (171) 495-2343
DFA AUSTRALIA PTY LIMITED
Suite 4403 Gateway
1 MacQuarie Place
Sydney, New South Wales 2000
Australia
Tel No. (61) 2-247-7822
CUSTODIAN - INTERNATIONAL
BOSTON SAFE DEPOSIT AND TRUST COMPANY
Princess House
1 Suffolk Lane
London EC4R 0AN
England
CUSTODIAN - DOMESTIC
PNC BANK, N.A.
200 Stevens Drive, Airport Business Center
Lester, PA 19113
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG
2600 One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
September 21, 1995
DFA Investment Dimensions Group Inc. (the "Fund") offers twenty-four
series of shares. This statement of additional information describes six of
those series: VA SMALL VALUE PORTFOLIO, VA LARGE VALUE PORTFOLIO, VA
International Value Portfolio, VA International Small Portfolio, VA Short-Term
Fixed Portfolio and VA GLOBAL BOND PORTFOLIO (individually, a "Portfolio" and
collectively, the "Portfolios"). The shares of the Portfolios are sold only to
separate accounts of insurance companies in conjunction with variable annuity
contracts. This statement of additional information is not a prospectus but
should be read in conjunction with the Portfolios' prospectus dated September
21, 1995, which can be obtained from the Fund by writing to the Fund at the
above address or by calling the above telephone number.
TABLE OF CONTENTS
PAGE
PORTFOLIO CHARACTERISTICS AND POLICIES......................................1
BROKERAGE TRANSACTIONS......................................................1
INVESTMENT LIMITATIONS......................................................3
FUTURES CONTRACTS...........................................................4
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS..................................5
DIRECTORS AND OFFICERS......................................................5
ADMINISTRATIVE SERVICES.....................................................7
OTHER INFORMATION...........................................................8
PRINCIPAL HOLDERS OF SECURITIES.............................................9
PURCHASE AND REDEMPTION OF SHARES..........................................10
CALCULATION OF PERFORMANCE DATA............................................10
FINANCIAL STATEMENTS.......................................................11
<PAGE>
PORTFOLIO CHARACTERISTICS AND POLICIES
The following information supplements the information set forth in the
prospectus under the captions "DOMESTIC EQUITY PORTFOLIOS," "VA INTERNATIONAL
VALUE PORTFOLIO," "VA INTERNATIONAL SMALL PORTFOLIO," and "FIXED INCOME
PORTFOLIOS - INVESTMENT OBJECTIVES AND POLICIES." The following information
applies to all the Portfolios.
Because the structure of the Domestic Equity and International Equity
Portfolios is based on the relative market capitalizations of eligible holdings,
it is possible that the Portfolios might include 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 and certain requirements of the Act regulating dealings between
affiliates might become applicable. However, based on the present
capitalizations of the groups of companies eligible for inclusion in the
Portfolios and the anticipated amount of a Portfolio's assets intended to be
invested in such securities, management does not anticipate that a Portfolio
will include as much as 5% of the voting securities of any issuer.
VA International Small Portfolio may invest up to 5% of its assets in
convertible debentures issued by non-U.S. companies. 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 so 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 Portfolio 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 Portfolio upon conversion of a convertible
debenture will generally be held for so long as the Advisor anticipates such
stock will provide the Portfolio with opportunities which are consistent with
the Portfolio's investment objective and policies.
The annual portfolio turnover rates of VA Small Value and VA Large Value
Portfolios are expected to be 15% and 20%, respectively. The annual portfolio
turnover rate of the VA International Value Portfolio is not expected to exceed
20%. Because the relative market capitalizations of small companies compared
with larger companies generally do not change substantially over short periods
of time, the portfolio turnover rate of VA International Small Portfolio
ordinarily is anticipated to be low and is not expected to exceed 25% per year.
Generally, securities will be purchased with the expectation that they will be
held for longer than one year. Generally, securities will be held until such
time as, in the Advisor's judgment, they are no longer considered an appropriate
holding in light of the policy of maintaining portfolios of companies with small
market capitalization.
BROKERAGE TRANSACTIONS
The Fixed Income Portfolios acquire and sell securities on a net basis
with dealers which are major market markers in such securities. The Investment
Committee of the Advisor selects dealers on the basis of their size, market
making and credit analysis ability. When executing portfolio transactions, the
Advisor
1
<PAGE>
seeks to obtain the most favorable price for the securities being traded among
the dealers with whom the Fixed Income Portfolios effect transactions.
Portfolio transactions will be placed with a view to receiving the best
price and execution. The Portfolios will seek to acquire and dispose of
securities in a manner which 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 which effect transactions
for the Portfolios to determine the effect that their trading has on the market
prices of the securities in which they invest. The Advisor also checks the rate
of commission being paid by the Portfolios to their brokers to ascertain that
they are competitive with those charged by other brokers for similar services.
Transactions also may be placed with brokers who provide the Advisor with
investment research, such as reports concerning individual issuers, industries
and general economic and financial trends and other research services.
Brokerage transactions may be placed with securities firms that are affiliated
with an affiliate of the Advisor. Commission paid on such transactions would be
commensurate with the rate of commissions paid on similar transactions to
brokers that are not so affiliated.
The over-the-counter market ("OTC") companies eligible for purchase by VA
Small Value Portfolio are thinly traded securities. Therefore, the Advisor
believes it needs maximum flexibility to effect OTC trades on a best execution
basis. To that end, the Advisor places buy and sell orders with market makers,
third market brokers, Instinet and with brokers on an agency basis when the
Advisor determines that the securities may not be available from other sources
at a more favorable price. Third market brokers enable the Advisor to trade
with other institutional holders directly on a net basis. This allows the
Advisor to sometimes trade larger blocks than would be possible by going through
a single market maker.
Instinet is an electronic information and communication network whose
subscribers include most market makers as well as many institutions. Instinet
charges a commission for each trade executed on its system. On any given trade,
the Domestic Equity Portfolios, by trading through Instinet, would pay a spread
to a dealer on the other side of the trade plus a commission to Instinet.
However, placing a buy (or sell) order on Instinet communicates to many
(potentially all) market makers and institutions at once. This can create a
more complete picture of the market and thus increase the likelihood that the
Portfolios can effect transactions at the best available prices.
The investment advisory agreements permit the Advisor knowingly to pay
commissions on securities transactions which are greater than another broker
might charge if the Advisor, in good faith, determines that the commissions paid
are reasonable in relation to 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 Fund. 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.
Brokerage commissions for transactions in securities listed on the TSE and
other Japanese securities exchanges are fixed. Under the current regulations of
the TSE and the Japanese Ministry of Finance, member and non-member firms of
Japanese exchanges are required to charge full commissions to all customers
other than banks and certain financial institutions, but members and licensed
non-member firms may confirm transactions to banks and financial institution
affiliates located outside Japan with institutional discounts on brokerage
commissions. The International Equity Portfolios expect to be able to avail
themselves of institutional discounts. The Portfolios' ability to effect
transactions at a discount from fixed commission rates depends on a number of
factors, including the size of the transaction, the relation between the cost to
the member or the licensed non-member firm of effecting such transaction
2
<PAGE>
and the commission receivable, and the law, regulation and practice discussed
above. There can be no assurance that the Portfolios will be able to realize
the benefit of discounts from fixed commissions.
INVESTMENT LIMITATIONS
Each of the Portfolios has adopted certain limitations which may not be
changed with respect to any Portfolio without the approval of a majority of the
outstanding voting securities of the Portfolio. A "majority" is defined as the
lesser of: (1) at least 67% of the voting securities of the Portfolio (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 Portfolio are present or
represented by proxy, or (2) more than 50% of the outstanding voting securities
of such Portfolio.
The Portfolios will not:
(1) invest in commodities or real estate, including limited partnership
interests therein, although they may purchase and sell securities of companies
which deal in real estate and securities which are secured by interests in real
estate, and all Portfolios, may purchase or sell financial futures contracts and
options thereon;
(2) make loans of cash, except through the acquisition of repurchase agreements
and obligations customarily purchased by institutional investors;
(3) as to 75% of the total assets of a Portfolio, invest in the securities of
any issuer (except obligations of the U.S. Government and its instrumentalities)
if, as a result, more than 5% of the Portfolio's total assets, at market, would
be invested in the securities of such issuer; provided that the VA Global Bond
Portfolio is not subject to this limitation;
(4) purchase or retain securities of an issuer if those officers and directors
of the Fund or the Advisor owning more than 1/2 of 1% of such securities
own more than 5% of such securities;
(5) borrow, except that each Portfolio may borrow, for temporary or emergency
purposes, amounts not exceeding 33% of their net assets from banks and pledge
not more than 33% of such assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an extent greater than
10% of its total assets at fair market value, except as described in (5) above;
(7) invest more than 15% of the value of the Portfolio's total assets in
illiquid securities which include certain restricted securities, repurchase
agreements with maturities of greater than seven days, and other illiquid
investments;
(8) engage in the business of underwriting securities issued by others;
(9) invest for the purpose of exercising control over management of any company;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization;
(11) acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Portfolio's total assets
would be invested in securities of companies within such
3
<PAGE>
industry; except VA Short-Term Fixed Portfolio shall invest more than 25% of its
total assets in obligations of banks and bank holding companies in the
circumstances described in the prospectus under "Investments in the Banking
Industry" and as otherwise described under "Portfolio Strategy";
(12) write or acquire options (except as described in (1) above) or interests in
oil, gas or other mineral exploration, leases or development programs;
(13) purchase warrants, however, the Portfolios may acquire warrants as a result
of corporate actions involving holdings of other securities;
(14) purchase securities on margin or sell short; or
(15) acquire more than 10% of the voting securities of any issuer and provided
that this limitation applies only to 75% of the assets of the Domestic Equity
Portfolios and VA International Value Portfolio.
For purposes of (1) above, each Portfolio that may purchase or sell
financial futures contracts and options thereon may not deposit as initial or
variation margin deposits more than 5% of its net assets.
Although (2) above prohibits cash loans, the Portfolios are authorized to
lend portfolio securities.
For the purposes of (7) above, VA Short-Term Fixed Portfolio may invest in
commercial paper that is exempt from the registration requirements of the
Securities Act of 1933 (the "1933 Act") subject to the requirements regarding
credit ratings stated in the prospectus under "Description of Investments."
Further, pursuant to Rule 144A under the 1933 Act, the Portfolios may purchase
certain unregistered (i.e., restricted) securities upon a determination that a
liquid institutional market exists for the securities. If it is decided that a
liquid market does exist, the securities will not be subject to the 15%
limitation on holdings of illiquid securities stated in (7) above. While
maintaining oversight, the Board of Directors has delegated the day-to-day
function of making liquidity determinations to the Advisor. For 144A securities
to be considered liquid, there must be at least two dealers making a market in
such securities. After purchase, the Board of Directors and the Advisor will
continue to monitor the liquidity of Rule 144A securities.
For the purposes of (11) above, utility companies will be divided
according to their services; e.g., gas, gas transmission, electric and gas,
electric, water and telephone will each be considered a separate industry.
The International Equity Portfolios and VA Global Bond Portfolio may
acquire and sell forward foreign currency exchange contracts in order to hedge
against changes in the level of future currency rates. Such contracts involve
an obligation to purchase or sell a specific currency at a future date at a
price set in the contract. While each Domestic Equity Portfolio and VA
International Value Portfolio have retained authority to buy and sell financial
futures contracts and options thereon, they have no present intention to do so.
FUTURES CONTRACTS
All Portfolios may enter into futures contracts and options on futures
contracts for the purpose of remaining fully invested 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 which are
standardized as to maturity date and underlying financial instrument are traded
on national futures exchanges. The Portfolios will be
4
<PAGE>
required to make a margin deposit in cash or government securities with a broker
or custodian to initiate and maintain positions in futures contracts. Minimal
initial margin requirements are established by the futures exchange and brokers
may establish margin requirements which 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 will be required. Conversely,
reduction in the contract value may reduce the required margin resulting in a
repayment of excess margin to the Portfolio. Variation margin payments are made
to and from the futures broker for as long as the contract remains open. The
Portfolios expect to earn income on their margin deposits. A Portfolio will not
enter into futures contract transactions if, immediately thereafter, the sum of
its initial and variation margin deposits on open contracts exceeds 5% of the
market value of its total assets.
Positions in futures contracts may be closed out only on an exchange which
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 Portfolio would continue to be
required to continue to make variation margin deposits. In such circumstances,
if the Portfolio 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
which are traded on national futures exchanges and for which there appears to be
a liquid secondary market.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
Except for transactions a Portfolio has identified as hedging
transactions, the Portfolio is required for federal income tax purposes to
recognize as income for each taxable year its net unrealized gains and losses on
certain futures contracts as of the end of the year as well as those actually
realized during the year. In most cases, any gain or loss recognized with
respect to a futures contract is considered to be 60% long-term gain or loss and
40% short-term capital gain or loss, without regard to the holding period of the
contract. Furthermore, sales of futures contracts which are intended to hedge
against a change in the value of securities held by the Portfolio may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition.
In order for a Portfolio to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities and other income derived with respect to the Portfolio's business of
investing in securities. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Portfolio's annual gross income. It is anticipated that
any net gain realized from closing futures contracts will be considered gain
from the sale of securities and, therefore, constitute qualifying income for
purposes of the 90% requirement. In order to avoid realizing excessive gains on
securities held less than three months, the Portfolio may be required to defer
the closing out of futures contracts beyond the time when it would otherwise be
advantageous to do so. It is anticipated that unrealized gains on futures
contracts which have been open for less than three months as of the end of the
Portfolio's fiscal year and which are recognized for tax purposes, will not be
considered gains on sales of securities held less than three months for the
purpose of the 30% test. The Portfolios will distribute to shareholders
annually any net capital gains which have been recognized for federal income tax
purposes (including unrealized gains at the end of each Portfolio's fiscal year)
on futures transactions. Such distributions will be combined with distributions
of capital gains realized on each Portfolio's other investments.
5
<PAGE>
DIRECTORS AND OFFICERS
The names, addresses and ages of the directors and officers of the Fund
and a brief statement of their present positions and principal occupations
during the past five years is set forth below.
DIRECTORS
David G. Booth*, 48, Director, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director, Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Pty
Limited, Dimensional Investment Group Inc. (registered investment company) and
Dimensional Emerging Markets Fund Inc. (registered investment company).
Trustee, President and Chairman-Chief Executive Officer of The DFA Investment
Trust Company. Chairman and Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, 47, Director, Chicago, IL. Leon Carroll
Marshall Professor of Finance, Graduate School of Business, University of
Chicago. Trustee, The DFA Investment Trust Company. Director, Dimensional
Investment Group Inc. and Dimensional Emerging Markets Fund Inc. Academic
Advisory Council Member, Merrill Lynch & Co.
John P. Gould, 56, Director, Chicago, IL. Distinguished Service Professor
of Economics, Graduate School of Business, University of Chicago. Trustee, The
DFA Investment Trust Company and First Prairie Funds (registered investment
company). Director, Dimensional Investment Group Inc., Dimensional Emerging
Markets Fund Inc. and Harbor Investment Advisors.
Roger G. Ibbotson, 52, Director, New Haven, CT. Professor in Practice of
Finance, Yale School of Management. Trustee, The DFA Investment Trust Company.
Director, Dimensional Investment Group Inc., Dimensional Emerging Markets Fund
Inc., Hospital Fund, Inc. (investment management services) and BIRR Portfolio
Analysis, Inc. (software products). Chairman, Institute Study of Security
Markets. Chairman and President, Ibbotson Associates, Inc., Chicago, IL
(software, data, publishing and consulting).
Merton H. Miller, 72, Director, Chicago, IL. Robert R. McCormick
Distinguished Service Professor Emeritus, Graduate School of Business,
University of Chicago. Trustee, The DFA Investment Trust Company. Director,
Dimensional Investment Group Inc. and Dimensional Emerging Markets Fund Inc.
Myron S. Scholes, 54, Director, Greenwich, CT. Frank E. Buck Professor of
Finance, Graduate School of Business and Professor of Law, Law School, Senior
Research Fellow, Hoover Institution, (all) Stanford University. Trustee, The
DFA Investment Trust Company. Director, Dimensional Investment Group Inc.,
Dimensional Emerging Markets Fund Inc., Benham Capital Management Group of
Investment Companies and Smith Breedon Group of Investment Companies. Limited
Partner, Long-Term Capital Management L.P. (money manager).
Rex A. Sinquefield*, 50, Director, Chairman and Chief Investment Officer,
Santa Monica, CA. Chairman-Chief Investment Officer and Director, Dimensional
Fund Advisors Inc., DFA Securities Inc., DFA Australia Pty Limited, Dimensional
Investment Group Inc. and Dimensional Emerging Markets Fund Inc. Trustee,
Chairman-Chief Investment Officer of The DFA Investment Trust Company.
Chairman, Chief Executive Officer and Director, Dimensional Fund Advisors Ltd.
* Interested Director of the Fund.
6
<PAGE>
OFFICERS
Each of the officers listed below hold the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Pty Limited, Dimensional Investment Group Inc., The DFA Investment Trust
Company, Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets Fund
Inc.
Arthur Barlow, 39, Vice President, Santa Monica, CA.
Maureen Connors, 58, Vice President, Santa Monica, CA.
Robert Deere, 37, Vice President, Santa Monica, CA.
Irene R. Diamant, 45, Vice President and Secretary, Santa Monica, CA.
Associate attorney, Cahill Gordon & Reindel, from 1987 to 1991.
Eugene Fama, Jr., 34, Vice President, Santa Monica, CA.
David Plecha, 33, Vice President, Santa Monica, CA.
George Sands, 39, Vice President, Santa Monica, CA. Managing Director,
Asset Strategy Consulting, Los Angeles, CA from 1991 to 1992 and previously Vice
President of Wilshire Associates, Santa Monica, CA.
Michael T. Scardina, 39, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
Cem Severoglu, 32, Vice President, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 48, Executive Vice President, Santa Monica,
CA.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
Directors and officers as a group own less than 1% of the Fund's outstanding
stock.
Set forth below is a table listing, for each director entitled to receive
compensation, the compensation received from the Fund during the fiscal year
ended November 30, 1994, and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation Fund
Director from Fund and Fund Complex
- -------- ------------ -----------------------
<S> <C> <C>
George M. Constantinides $ 15,375 $ 30,750
John P. Gould $ 15,375 $ 30,750
Roger G. Ibbotson $ 15,375 $ 30,750
Merton H. Miller $ 15,000 $ 30,000
Myron S. Scholes $ 12,000 $ 24,000
</TABLE>
7
<PAGE>
ADMINISTRATIVE SERVICES
PFPC Inc. ("PFPC") serves as the accounting services, dividend disbursing
and transfer agent for each Portfolio. The services provided by PFPC are
subject to supervision by the executive officers and the Board of Directors of
the Fund, and include day-to-day keeping and maintenance of certain records,
calculation of the offering price of the shares, preparation of reports, liaison
with its custodians, and transfer and dividend disbursing agency services. For
its services, each Portfolio pays PFPC fees at the annual rates set forth in the
following table:
DOMESTIC EQUITY PORTFOLIOS
.1025% of the first $300 million of net assets
.0769% of the next $300 million of net assets
.0513% of the next $250 million of net assets
.0205% of the net assets over $850 million
INTERNATIONAL EQUITY PORTFOLIOS
.1230% of the first $300 million of net assets
.0615% of the next $300 million of net assets
.0410% of the next $250 million of net assets
.0205% of net assets over $850 million
VA SHORT-TERM FIXED PORTFOLIO
.0513% of the first $100 million of net assets
.0308% of the next $100 million of net assets
.0205% of the next $200 million of net assets
VA GLOBAL BOND PORTFOLIO
.1230% of the first $150 million of net assets
.0820% of net assets between $150 million and $300 million
.0615% of net assets between $300 million and $600 million
.0410% of net assets between $600 million and $850 million
.0205% of net assets over $850 million
PFPC also charges minimum fees at the rates of $54,000 per year for VA Large
Value and the Fixed Income Portfolios and $75,000 per year for VA Small Value
and the International Equity Portfolios. The minimums are phased in on a pro
rata basis during each Portfolio's first 12-14 months of operation.
OTHER INFORMATION
For the services it provides as investment advisor to each Portfolio, the
Advisor is paid a monthly fee calculated as a percentage of average net assets
of the Portfolio.
Because of current federal securities law requirements, the Fund expects
that its life insurance company shareholders will offer their contract owners
the opportunity to instruct them as to how Portfolio shares allocable to their
variable contracts will be voted with respect to certain matters, such as
approval of investment advisory agreements. Generally, an insurance company
will vote all Portfolio shares held in a separate account in the same proportion
as it receives instructions from contract owners in that separate account.
Under certain circumstances described in the insurance company separate account
prospectus, the insurance company may not vote in accordance with the contract
owner's instructions.
8
<PAGE>
With respect to matters which require shareholder approval, shareholders
are entitled to vote only with respect to matters which affect the interest of
the class of shares (Portfolio) which 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 Portfolio
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 shareholders, except as required by the Investment
Company Act of 1940 or other applicable law. The Fund's by-laws provide that
special meetings of shareholders shall be called at the written request of at
least 10% of the votes entitled to be cast at such meeting. Such meeting may be
called to consider any matter, including the removal of one or more directors.
Shareholders will receive shareholder communications with respect to such
matters as required by the Investment Company Act of 1940, including semi-annual
and annual financial statements of the Fund, the latter being audited at least
once each year.
Boston Safe Deposit and Trust Company serves as the custodian for the
International Equity Portfolios and VA Global Bond Portfolio. PNC Bank, N.A.
serves as custodian for the Domestic Equity Portfolios and VA Short-Term Fixed
Portfolio. The custodians maintain a separate account or accounts for the
Portfolios; receive, hold and release portfolio securities on account of the
Portfolios; make receipts and disbursements of money on behalf of the
Portfolios; and collect and receive income and other payments and distributions
on account of the Portfolios' portfolio securities.
Coopers & Lybrand L.L.P., the Fund's independent accountants, audit the
Fund's financial statements.
PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the following stockholders owned at least 5% of the
outstanding stock of the Portfolios, as set forth below.
<TABLE>
<CAPTION>
VA LARGE VALUE PORTFOLIO (FORMERLY DFA GLOBAL VALUE PORTFOLIO)
<S> <C>
(formerly National Home Life) Providian Life and Health Separate Account* 85.73%
400 West Market Street
P.O. Box 32830
Louisville, KY 40232
(formerly National Home Life) Providian Life and Health General Account* 14.27%
400 West Market Street
P.O. Box 32830
Louisville, KY 40232
9
<PAGE>
VA GLOBAL BOND PORTFOLIO (FORMERLY DFA GLOBAL BOND PORTFOLIO)
(formerly National Home Life) Providian Life and Health Separate Account* 28.15%
400 West Market Street
P.O. Box 32830
Louisville, KY 40232
(formerly National Home Life) Providian Life and Health General Account* 71.85%
400 West Market Street
P.O. Box 32830
Louisville, KY 40232
<FN>
________________________
*Owner of record only.
</TABLE>
PURCHASE AND REDEMPTION OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE AND REDEMPTION 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 New York Stock Exchange is
scheduled to be open Monday through Friday throughout the year except for days
closed to recognize New Year's 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 is open on
Good Friday and closed on Martin Luther King, Jr. Day, Columbus Day and
Veterans' Day. Orders for redemptions and purchases will not be processed if
the Fund is closed.
Management believes that any dilutive effect of the cost of investing the
proceeds of the sale of the shares of the Portfolios is minimal and, therefore,
the shares of the Portfolios are currently sold at net asset value, without
imposition of a reimbursement fee. Reimbursement fees may be charged
prospectively from time to time based upon the future experience of the
Portfolios. Any such charges will be described in the prospectus.
The Fund reserves the right, in its sole discretion, to suspend the
offering of shares of any or all Portfolios or reject purchase orders when, in
the judgment of management, such suspension or rejection is in the best interest
of the Fund or a Portfolio.
The Fund may suspend redemption privileges or postpone the date of
payment: (1) during any period when the NYSE is closed, or trading on the NYSE
is restricted as determined by the Securities and Exchange Commission (the
"Commission"), (2) during any period when an emergency exists as defined by the
rules of the Commission 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 (3) for such other periods as the Commission may permit.
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of any Portfolio to make payment
wholly or partly in cash, any Portfolio may pay the redemption price in whole or
in part by a distribution of portfolio securities from the Portfolio of the
10
<PAGE>
shares being redeemed in lieu of cash. Any such redemption by a Portfolio would
be in accordance with Rule 18f-1 under the Investment Company Act of 1940.
Investors may incur brokerage charges and other transaction costs selling
securities that were received in payment of redemptions. The International
Equity Portfolios and the VA Global Bond Portfolio reserve the right to redeem
their shares in the currencies in which their investments are denominated.
Investors may incur charges in converting such securities to dollars and the
value of the securities may be affected by currency exchange fluctuations.
CALCULATION OF PERFORMANCE DATA
Following are quotations of the annualized percentage total returns for VA
Large Value and VA Global Bond Portfolios for the period from January 13, 1995
(date of initial investment) through May 31, 1995, using the standardized method
of calculation required by the Securities and Exchange Commission ("SEC"):
VA Large Value Portfolio 32.72%(1)
VA Global Bond Portfolio 21.33%
____________________
(1) Until October 1995, VA Large Value Portfolio invested approximately 50% of
its total assets in the stocks of large non-U.S. companies and approximately 50%
of its total assets in the stocks of U.S. companies. The total return
information for VA Large Value Portfolio reflects the performance of the
Portfolio when it invested in the stocks of both U.S. and non-U.S. companies.
The total return of the Portfolio for the period ended May 31, 1995 should not
be considered indicative of its future performance.
Each Portfolio determines its average annual total return by finding the
average annual compounded rates of return over the stated time period that would
equate a hypothetical initial purchase order of $1,000 to its redeemable value
(including capital appreciation/depreciation and dividends and distributions
paid and reinvested less any fees charged to a shareholder account) at the end
of the stated time period. The calculation assumes that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each period and the deduction of all applicable charges
and fees. According to the SEC formula:
P(1 + T)(n) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, and ten-year periods at the end of the one-,
five-, and ten-year periods (or fractional portion thereof).
11
<PAGE>
In addition to the standardized method required by the SEC, the Portfolios
may disseminate other performance data. Non-standardized return data may be
presented over time periods which extend prior to the initial investment in the
Portfolios by using simulated data for the investment strategies of the
Portfolios for that portion of the period prior to the initial investment dates.
The simulated data excludes the deduction of Portfolio expenses which would
otherwise reduce the returns quotations.
FINANCIAL STATEMENTS
With respect to VA Large Value Portfolio (formerly DFA Global Value
Portfolio) and VA Global Bond Portfolio (formerly DFA Global Bond Portfolio),
the unaudited financial statements for the period from January 13, 1995 (date of
initial investment) through May 31, 1995, as set forth in the report to
stockholders of DFA Global Value and DFA Global Bond Portfolios, are
incorporated herein by reference. A shareholder may obtain a copy of the
report, upon request and without charge, by contacting the Fund at the address
or telephone number appearing on the cover of the Statement of Additional
Information.
12
