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P R O S P E C T U S
AUGUST 16, 2000
PLEASE CAREFULLY READ THE IMPORTANT INFORMATION IT CONTAINS BEFORE INVESTING.
DFA INVESTMENT DIMENSIONS GROUP INC.
---------------------------------------------
The mutual fund described in this Prospectus offers a variety of investment
portfolios. Each of the Portfolios described in this Prospectus: - Has its own
investment objective and policies, and is the equivalent of a separate mutual
fund. - Is generally available only to institutional investors and
clients of registered investment advisors. - Does not charge sales commissions
or "loads". - Is designed for long-term investors.
U.S. MARKETWIDE VALUE PORTFOLIOS
LD U.S. Marketwide Value Portfolio
HD U.S. Marketwide Value Portfolio
U.S. LARGE COMPANY PORTFOLIOS
LD U.S. Large Company Portfolio
HD U.S. Large Company Portfolio
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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RISK/RETURN SUMMARY......................................... 1
HIGHLIGHTS ABOUT ALL THE PORTFOLIOS....................... 1
MANAGEMENT................................................ 1
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS............... 3
OTHER RISKS............................................... 4
PERFORMANCE............................................... 4
FEES AND EXPENSES........................................... 5
HIGHLIGHTS.................................................. 5
MANAGEMENT AND ADMINISTRATIVE SERVICES.................... 5
DIVIDEND POLICY........................................... 5
PURCHASE, VALUATION AND REDEMPTION OF SHARES.............. 6
ELECTRONIC SHAREHOLDER INFORMATION........................ 6
INVESTMENT OBJECTIVES AND POLICIES.......................... 6
PORTFOLIO CONSTRUCTION.................................... 6
DIVIDEND AND TAX MANAGEMENT STRATEGIES...................... 7
LD PORTFOLIOS AND MASTER FUNDS............................ 7
HD PORTFOLIOS AND MASTER FUNDS............................ 8
PORTFOLIO TRANSACTIONS...................................... 8
SECURITIES LOANS............................................ 8
DEVIATION FROM MARKET CAPITALIZATION WEIGHTING.............. 9
MANAGEMENT OF THE FUNDS..................................... 9
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES............. 10
ELECTRONIC SHAREHOLDER INFORMATION AND TRANSACTIONS......... 11
PURCHASE OF SHARES.......................................... 11
CASH PURCHASES............................................ 12
IN-KIND PURCHASES......................................... 12
VALUATION OF SHARES......................................... 13
NET ASSET VALUE........................................... 13
PUBLIC OFFERING PRICE..................................... 13
EXCHANGE OF SHARES.......................................... 13
REDEMPTION OF SHARES........................................ 14
REDEMPTION PROCEDURE...................................... 14
REDEMPTION OF SMALL ACCOUNTS.............................. 15
IN-KIND REDEMPTIONS....................................... 15
THE MASTER-FEEDER STRUCTURE................................. 15
SERVICE PROVIDERS........................................... 17
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RISK/RETURN SUMMARY
HIGHLIGHTS ABOUT ALL THE PORTFOLIOS
---------------------------------
THE PORTFOLIOS HAVE SPECIAL STRUCTURES: The Portfolios do not buy individual
securities directly. Instead, they invest in corresponding mutual funds called
"Master Funds." Master Funds in turn purchase stocks, bonds and/or other
securities.
POSSIBLE COMPLICATIONS: The Master-Feeder structure is relatively new and more
complex. As a result, a Portfolio might encounter operational or other
complications. While this structure is designed to reduce costs, it may not do
so.
A Master Fund buys securities directly. A corresponding Portfolio invests in the
Master Fund's shares. The two have the same gross investment returns.
MANAGEMENT
------------
Dimensional Fund Advisors Inc. (the "Advisor") is the investment manager for
each Master Fund. (A Portfolio does not need an investment manager.)
EQUITY INVESTMENT APPROACH: The Advisor believes that equity investing should
involve a long-term view and a focus on asset class (e.g., small company stocks)
selection, not stock picking. It places priority on limiting expenses, portfolio
turnover, and trading costs. Many other investment managers concentrate on
reacting to price movements and choosing individual securities.
NO MARKET TIMING OR STOCK PICKING: In contrast to some other managers, the
Advisor does not take defensive positions in anticipation of negative investment
conditions, or try to pick potentially outperforming securities.
Generally, the Advisor structures a portfolio by:
1. Selecting a starting universe of securities (for example, all publicly
traded U.S. common stocks).
2. Creating a sub-set of companies meeting the Advisor's investment guidelines.
3. Excluding certain companies after analyzing various factors (for example,
solvency).
4. Purchasing stocks so the portfolio is generally market cap weighted.
The Master Funds in which the Portfolios invest use a market capitalization
segmentation approach. Broadly speaking, this technique involves:
1. Dividing all the companies traded on the New York Stock Exchange ("NYSE")
into 10 groups or "deciles" based on market capitalization. Stocks in decile
1 have the biggest market capitalizations and those in decile 10, the
smallest.
2. Combining two or more of these deciles into a market cap segment or range.
MARKET CAPITALIZATION means the number of shares of a company's stock
outstanding times price per share.
MARKET CAPITALIZATION WEIGHTED means the amount of a stock in an index or
portfolio is keyed to that stock's market capitalization compared to all
eligible stocks. The higher the stock's relative market cap, the greater its
representation.
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3. Generally, considering a stock (it may not necessarily be NYSE traded) for
purchase only if its market capitalization falls within the range created.
The Master Funds in which the Marketwide Value Portfolios invest purchase stocks
with market caps in the range defined by stocks in NYSE deciles 1 through 8.
The Master Funds in which the Large Company Portfolios invest purchase stocks
with market caps in the range defined by stocks in NYSE deciles 1 through 5.
DIVIDEND AND TAX MANAGEMENT STRATEGIES:
-------------------------------------
LD U.S. MARKETWIDE VALUE PORTFOLIO ("LD MARKETWIDE VALUE PORTFOLIO")
LD U.S. LARGE COMPANY PORTFOLIO ("LD LARGE COMPANY PORTFOLIO")
The Advisor's dividend and tax management strategies for the Master Funds in
which the LD Marketwide Value Portfolio and the LD Large Company Portfolio (the
"LD Portfolios") invest are designed to achieve long-term capital appreciation
while minimizing taxable income distributions to shareholders. The Advisor
generally buys and sells these Master Funds' portfolio securities with the goals
of:
1. Minimizing dividend income distributions by minimizing recognition of
dividend and other income.
2. Delaying and controlling the realization of net capital gains (e.g.,
appreciated stocks might be sold later).
3. Maximizing the extent to which any realized net capital gains are long-term
in nature (i.e., taxable at lower capital gains tax rates).
"LD" in a Portfolio's name means that the Portfolio buys a Master Fund that
purchases non-dividend and low-dividend yielding stocks.
Shareholders of the LD Portfolios described in this Prospectus may receive fewer
distributions and therefore pay lower taxes while they hold their shares. They
will have to pay taxes if they sell their shares at a profit.
HD U.S. MARKETWIDE VALUE PORTFOLIO ("HD MARKETWIDE VALUE PORTFOLIO")
HD U.S. LARGE COMPANY PORTFOLIO ("HD LARGE COMPANY PORTFOLIO")
The Advisor's dividend strategies for the Master Funds in which the HD
Marketwide Portfolio and the HD Large Company Portfolio (the "HD Portfolios")
invest are designed to maximize dividend income. The Advisor generally buys and
sells these Master Funds' portfolio securities with the goal of maximizing
dividend income.
HOW THE MASTER FUNDS IN WHICH THE LD PORTFOLIOS AND HD PORTFOLIOS INVEST DIFFER:
The Master Funds in which the LD Portfolios invest will invest in the eligible
securities that are non-dividend and low-dividend yielding. In contrast, the
Master Funds in which the HD Portfolios invest will invest in the eligible
securities that are high-dividend yielding.
"HD" in a Portfolio's name means that the Portfolio buys a Master Fund that
purchases relatively high-dividend yielding stocks.
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INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
-----------------------------------------
MARKET RISK -- ALL PORTFOLIOS: Even a long-term investment approach cannot
guarantee a profit. Economic, political and issuer specific events will cause
the value of securities, and the Master Funds that own them, and, in turn, the
Portfolios to rise or fall. Although securities of larger firms fluctuate
relatively less, economic, political and issuer specific events will cause the
value of all securities to fluctuate.
SMALL COMPANY RISK -- MARKETWIDE VALUE PORTFOLIOS: Securities of small firms are
often less liquid than those of large companies. As a result, small company
stocks may fluctuate relatively more in price.
LD MARKETWIDE VALUE PORTFOLIO
- INVESTMENT OBJECTIVE: Long-term capital appreciation while minimizing income
dividends and controlling capital gains distributions.
- INVESTMENT STRATEGY: Buy a Master Fund that purchases non-dividend and
low-dividend yielding value stocks of United States companies within market
deciles 1 through 8 on a market capitalization weighted basis and which tries
to minimize the recognition of capital gains.
"VALUE STOCKS": Compared to other stocks, value stocks sell for low prices
relative to their earnings, dividends and book value.
HD MARKETWIDE VALUE PORTFOLIO
- INVESTMENT OBJECTIVE: Long-term capital appreciation while maximizing
dividend income.
- INVESTMENT STRATEGY: Buy a Master Fund that purchases relatively
high-dividend yielding value stocks of United States companies within market
deciles 1 through 8 on a market capitalization weighted basis.
In selecting value stocks, the Advisor primarily considers price relative to
book value.
LD LARGE COMPANY PORTFOLIO
- INVESTMENT OBJECTIVES: Long-term capital appreciation while minimizing income
dividends and controlling capital gains distributions.
- INVESTMENT STRATEGY: Buy a Master Fund that purchases non-dividend and
low-dividend yielding stocks of United States companies within market deciles
1 through 5, on a market capitalization weighted basis and which tries to
minimize the recognition of capital gains.
HD LARGE COMPANY PORTFOLIO
- INVESTMENT OBJECTIVE: Long-term capital appreciation while maximizing
dividend income.
- INVESTMENT STRATEGY: Buy a Master Fund that purchases relatively
high-dividend yielding stocks of United States companies within market
deciles 1 through 5 on a market capitalization weighted basis.
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OTHER RISKS
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DERIVATIVES:
----------
Derivatives are securities, such as futures contracts, whose value is derived
from that of other securities or indices. Derivatives can be used for hedging
(attempting to reduce risk by offsetting one investment position with another)
or speculation (taking a position in the hope of increasing return). Hedging
with derivatives may increase expenses, and there is no guarantee that a hedging
strategy will work.
SECURITIES LENDING:
----------------
The Master Funds may lend their portfolio securities to generate additional
income. If they do so, they will use various strategies (for example, only
making fully collateralized and bank guaranteed loans) to reduce related risks.
PERFORMANCE
-----------
The Portfolios and Master Funds are new, so no performance information is shown
for them.
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FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Portfolios. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT): None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS)
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TOTAL
ANNUAL
ANNUAL FUND OPERATING EXPENSES MANAGEMENT OTHER OPERATING
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FEE (1) EXPENSES (2) EXPENSES
----------------------------------------------------- ---------- ------------ ---------
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LD Marketwide Value Portfolio........................ 0.35% 0.35% 0.70%
HD Marketwide Value Portfolio........................ 0.35% 0.30% 0.65%
LD Large Company Portfolio........................... 0.15% 0.35% 0.50%
HD Large Company Portfolio........................... 0.15% 0.30% 0.45%
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(1) The "Management Fee" includes an investment advisory fee payable by the
Master Fund and an administration fee payable by the Portfolio.
(2) "Other Expenses" are annualized estimates based on anticipated fees and
expenses through the fiscal year ending November 30, 2000. These Portfolios
and Master Funds had not begun operations as of the date of this Prospectus.
EXAMPLE
This Example is meant to help you compare the cost of investing in the
Portfolios with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
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1 YEAR 3 YEARS
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LD Marketwide Value Portfolio $72 $224
HD Marketwide Value Portfolio $66 $208
LD Large Company Portfolio $51 $160
HD Large Company Portfolio $46 $144
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The Example summarizes the aggregate annual operating expenses of both the
Portfolios and the corresponding Master Funds in which the Portfolios invest.
The Portfolios and the corresponding Master Funds are new and, therefore, the
above example is based on estimated expenses for the current fiscal year and
does not extend over five and ten-year periods.
HIGHLIGHTS
MANAGEMENT AND ADMINISTRATIVE SERVICES
The Advisor serves as investment advisor to each Master Fund and provides
each Portfolio with certain administrative services. (See "MANAGEMENT OF THE
FUNDS.")
DIVIDEND POLICY
The policy of the Portfolios is to distribute dividends from net investment
income and net capital gains annually after November 30.
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PURCHASE, VALUATION AND REDEMPTION OF SHARES
The shares of the Portfolios are sold at net asset value. The redemption
price of the shares of all of the Portfolios is equal to the net asset value of
their shares. The value of the shares issued by each Portfolio will fluctuate in
relation to the investment experience of the Master Fund in which such Portfolio
invests. (See "PURCHASE OF SHARES," "VALUATION OF SHARES" and "REDEMPTION OF
SHARES.")
ELECTRONIC SHAREHOLDER INFORMATION
In order to keep costs to a minimum, the Portfolios intend in the future to
offer on-line delivery of particular shareholder information to investors. An
investor, when opening an account, may consent to the acceptance of all
shareholder information (prospectuses and annual and semi-annual reports) about
the Portfolios through e-mail and access to the Portfolios' website at
www.dfafunds.com. An investor may later revoke consent by requesting paper
versions of shareholder information. (See "ELECTRONIC SHAREHOLDER INFORMATION
AND TRANSACTIONS.")
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the LD Marketwide Value Portfolio and the LD
Large Company Portfolio is to achieve long-term capital appreciation while
minimizing income dividends and the recognition of capital gains. The investment
objective of the HD Marketwide Value Portfolio and the HD Large Company
Portfolio is to achieve long-term capital appreciation while maximizing dividend
income. Each Portfolio will pursue its investment objective by investing all of
its assets in a Master Fund. The LD Marketwide Value Portfolio and the HD
Marketwide Value Portfolio will invest in the LD Marketwide Value Series and the
HD Marketwide Value Series (collectively the "Marketwide Value Series") of The
DFA Investment Trust Company (the "Trust"), respectively. The LD Large Company
Portfolio and the HD Large Company Portfolio will invest in the LD Large Company
Series and the HD Large Company Series (collectively the "Large Company Series")
of the Trust, respectively. Each Series has the same investment objective and
policies as its respective Portfolio.
PORTFOLIO CONSTRUCTION
To be considered eligible for purchase by a Series, an investment generally
must be the common stock of a company whose market capitalization falls within
the range of such Series' investment strategy. Each Marketwide Value Series will
consider eligible for purchase common stocks of companies whose market
capitalizations fall within the range of market capitalizations of companies in
the 1st through 8th deciles of companies listed on the NYSE. Each Large Company
Series will consider eligible for purchase the common stocks of companies whose
market capitalizations fall within the range of market capitalizations of
companies in the 1st through 5th deciles of companies listed on the NYSE. Each
Series will purchase securities that are listed on the principal U.S. national
securities exchanges, quoted on NASDAQ and/or traded over the counter.
The LD Marketwide Value Series and LD Large Company Series will minimize
income dividend distributions by selecting non-dividend and lower-dividend
yielding securities from the universe of eligible securities and by following a
strategy that tries to minimize the recognition of capital gains.
The HD Marketwide Value Series and the HD Large Company Series (collectively
the "HD Series") will maximize dividend income by selecting relatively
high-dividend yielding securities from their respective universes of eligible
securities. Because each HD Series generally will focus on stocks which pay high
dividends, it is likely that, from time to time, each HD Series will have a
significant portion of its assets in one or more sectors or industries. In
focusing on particular sectors or industries, an HD Series carries greater risk
of adverse developments in a sector or industry than a Master Fund that always
invests in a wide variety of sectors.
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In addition, each Marketwide Value Series will ordinarily invest at least
80% of its assets in a broad and diverse group of readily marketable common
stocks of U.S. companies that the Advisor believes to be "value" stocks and that
are within the appropriate market deciles at the time of purchase. Securities
are considered value stocks primarily because the shares have a high book value
in relation to their current market price (a "book to market ratio"). Generally,
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 NYSE. In
measuring value, however, the Advisor may consider additional factors, such as a
company's cash flow, economic conditions and developments in the company's
industry.
Each Series may, but is not obligated to, 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
Series. Each Marketwide Value Series also may, but is not obligated to, sell a
portfolio security when its book to market ratio falls substantially below that
of the security with the lowest such book to market ratio that is then eligible
for purchase. Additionally, each Series, when consistent with other tax
management policies, may sell securities in order to realize capital losses.
DIVIDEND AND TAX MANAGEMENT STRATEGIES
LD PORTFOLIOS AND MASTER FUNDS
The LD Marketwide Value Series and the LD Large Company Series described in
this Prospectus seek to minimize the impact of federal taxes on investment
returns by selecting non-dividend and low-dividend yielding securities from the
universe of eligible securities and by managing their portfolios in a manner
that will defer the realization of net capital gains where possible. Portfolio
investments will be managed to select non-dividend yielding and low-dividend
yielding securities. The timing of purchases and sales of securities may be
managed to minimize the receipt of dividends when possible. With respect to
dividends that are received, the Master Funds may not be eligible to flow
through the dividends received deduction attributable to their holdings of U.S.
equity securities to the Portfolios, or in turn, the Portfolios to their
corporate shareholders, if, because of certain timing rules, hedging activities,
or debt financing activities at the level of the Master Funds, the Portfolios,
or the corporate shareholders of the Portfolios, the requisite holding period of
the dividend-paying stock is not met or the dividends-received deduction is
otherwise reduced.
When selling securities, a Master Fund typically will select the highest
cost shares of the specific security in order to minimize the realization of
capital gains. In certain cases, the highest cost shares may produce a
short-term capital gain. Since short-term capital gains generally are taxed at
higher tax rates than long-term capital gains, the highest cost shares with a
long-term holding period may be disposed of instead. Each Portfolio or Master
Fund, when possible, will refrain from disposing of a security until the
long-term holding period for capital gains for tax purposes has been satisfied.
Additionally, each Master Fund, when consistent with all other tax management
policies, may sell securities in order to realize capital losses. Realized
capital losses can be used to offset realized capital gains, thus reducing
capital gains distributions.
In addition to the selling practices used among all portfolios managed by
the Advisor, securities may be sold by a Master Fund to another Master Fund when
consistent with the investment objectives of both Master Funds. Specifically,
for example, the LD Marketwide Value Series may sell to and buy securities from
the Tax-Managed Marketwide Value Series, which is also a series of the Trust.
Such sales would be made to realize losses on securities which would be used to
offset gains on other securities realized by the selling Master Fund. Such
transactions are intended to benefit both Master Funds that are parties to the
transaction. The selling Master Fund will recognize a loss which it can use to
offset realized gains, while the purchasing Master Fund will acquire an eligible
portfolio security, at a current market price, but without payment of brokerage
commissions.
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The Advisor believes this strategy can be both tax and cost efficient.
However, applicable federal income tax law may disallow losses incurred on the
sale of securities by one Master Fund to another Master Fund if the purchasing
and selling Master Funds are considered related persons by reason of overlapping
ownership. In determining whether the Master Funds are related persons, the
shareholders of the Portfolio that invests in a Marketwide Value Series or a
Large Company Series may be considered to own the corresponding shares of the
Series. (See the Statement of Additional Information.) The Advisor intends to
control the composition of investors in each Portfolio in several ways. First,
as with all portfolios that the Advisor manages, it retains the right, in its
discretion, to reject any initial or additional investment for any reason and to
suspend the offering of shares of any Portfolio. Second, the Advisor intends to
offer the shares of each Portfolio to relatively few institutional investors and
anticipates that shares will be offered primarily to individual investors,
thereby creating a substantial number of shareholders in each Portfolio.
Finally, the Advisor intends to monitor closely all purchases of shares of each
Portfolio in order to increase the probability that this loss disallowance rule
will not apply by reason of overlapping ownership.
Although the Advisor intends to manage each LD Series in a manner to
minimize taxable dividend income each year, the Portfolios may nonetheless
distribute dividends and taxable gains to shareholders. Realization of capital
gains is not entirely within the Advisor's control. Capital gains distributions
may vary considerably from year to year; there will be no capital gains
distributions in years when a Master Fund realizes a net capital loss.
Furthermore, the redeeming shareholders will be required to pay taxes on their
capital gains, if any, on a redemption of a Portfolio's shares, whether paid in
cash or in kind, if the amount received on redemption is greater than the amount
of the shareholder's tax basis in the shares redeemed.
HD PORTFOLIOS AND MASTER FUNDS
Each HD Series described in this Prospectus selects high-dividend yielding
securities from its respective universe of eligible securities. The timing of
purchases and sales of securities may be managed to increase the receipt of
dividends when possible.
PORTFOLIO TRANSACTIONS
Securities will generally be eligible for purchase on a market
capitalization weighted basis. Securities will not be purchased or sold based on
the prospects for the economy, the securities markets or the individual issuers
whose shares are eligible for purchase. Securities 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 will not be sold to realize short-
term profits, but when circumstances warrant, they may be sold without regard to
the length of time held. Securities, including those eligible for purchase, may
be disposed of, however, at any time when, in the Advisor's judgment,
circumstances warrant their sale, including but not limited to tender offers,
mergers and similar transactions, or bids made for block purchases at opportune
prices. Generally, securities will be purchased with the expectation that they
will be held for longer than one year and will be held until such time as they
are no longer considered an appropriate holding in light of the investment
policy of each Series.
SECURITIES LOANS
The Master Funds are authorized to lend securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of earning
additional income, although inasmuch as the Portfolios will only hold shares of
a corresponding Series, these Portfolios do not intend to lend those shares.
While a Master Fund may earn additional income from lending securities, such
activity is incidental to the investment objective of a Master Fund. The value
of securities loaned may not exceed 33 1/3% of the value of a Series' total
assets. In connection with such loans, a Master Fund will receive collateral,
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned
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securities. In addition, each Master Fund will be able to terminate the loan at
any time and will receive reasonable interest on the loan, as well as amounts
equal to any dividends, interest or other distributions on the loaned
securities. In the event of the bankruptcy of the borrower, the Trust could
experience delay in recovering the loaned securities. Management believes that
this risk can be controlled through careful monitoring procedures.
DEVIATION FROM MARKET CAPITALIZATION WEIGHTING
The portfolio structure of each Master Fund involves market capitalization
weighting. Because of the dividend management and tax management strategies
followed by these Master Funds, their securities holdings will deviate from
their market capitalization weightings to a greater extent than non-dividend-
managed Portfolios managed by the Advisor. For example, the Advisor may exclude
the stock of a company that meets applicable market capitalization criteria in
order to avoid dividend income, and may sell stock of a company that meets
applicable market capitalization criteria in order to realize a capital loss.
Also, each Master Fund may dispose of securities whenever the Advisor determines
that disposition is consistent with its dividend management strategies or is
otherwise in the best interest of a Master Fund. Deviation from strict market
capitalization weighting may occur for several other reasons.
The Advisor may exclude the stock of a company that meets applicable market
capitalization criterion if the Advisor determines in its best judgment that the
purchase of such stock is inappropriate given other conditions. Deviation also
will occur because the Advisor intends to purchase in round lots only.
Furthermore, the Advisor may reduce the relative amount of any security held
from the level of strict adherence to market capitalization weighting in order
to retain sufficient portfolio liquidity. A portion, but generally not in excess
of 20% of assets, may be invested in interest bearing obligations, such as money
market instruments, thereby causing further deviation from strict market
capitalization weighting. A further deviation may occur due to investments in
privately placed convertible debentures.
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, securities eligible for purchase or
otherwise represented in a portfolio may be acquired in exchange for the
issuance of shares. (See "PURCHASE OF SHARES--In Kind Purchases.") While such
transactions might cause a temporary deviation from market capitalization
weighting, they would ordinarily be made in anticipation of further growth of
assets.
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 at least a semi-annual basis, the
Advisor will prepare lists of companies whose stock is eligible for investment
by a Master Fund. Additional investments generally will not be made in
securities which have changed in value sufficiently to be excluded from the
Advisor's then current market capitalization requirement for eligible portfolio
securities. This may result in further deviation from strict market
capitalization weighting. Such deviation could be substantial if a significant
amount of a Master Fund's holdings change in value sufficiently to be excluded
from the requirement for eligible securities, but not by a sufficient amount to
warrant their sale.
MANAGEMENT OF THE FUNDS
The Advisor serves as investment advisor to the Master Funds. As such, the
Advisor is responsible for the management of their respective assets. Investment
decisions for all Master Funds 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 Master Funds
with a trading department and selects brokers and dealers to effect securities
transactions. Securities transactions are placed with a view to obtaining best
price and execution. The Advisor is authorized to pay a higher commission to a
broker,
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dealer or exchange member than another such organization might charge if it
determines, in good faith, that the commission paid is reasonable in relation to
the research or brokerage services provided by such organization. The Advisor's
address is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
The Fund and the Trust bear all of their own costs and expenses, including:
services of their 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 their shareholders and directors or trustees, the cost of filing
their registration statements under the federal securities laws and the cost of
any filings required under state securities laws, reports to shareholders, and
transfer and dividend disbursing agency fees, administrative services and
custodian fees. Expenses allocable to a particular Portfolio or Master Fund are
so allocated. The expenses of the Fund which are not allocable to a particular
Portfolio are to be borne by each Portfolio of the Fund on the basis of its
relative net assets. Similarly, the expenses of the Trust which are not
allocable to a particular Master Fund are to be borne by each Master Fund on the
basis of its relative net assets.
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 $34 billion.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
The policy of the Portfolios is to distribute dividends from net investment
income and net capital gains annually after November 30.
Shareholders of each 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 day following the
dividend record date), unless, as to a Portfolio upon written notice to the
Advisor, the shareholder selects one of the options listed below.
Income Option--to receive income dividends in cash and capital
gains distributions in additional shares at net asset value.
Capital Gains Option--to receive capital gains distributions in
cash and income dividends in additional shares at net asset value.
Cash Option--to receive both income dividends and capital gains
distributions in cash.
Whether paid in cash or additional shares and regardless of the length of
time a Portfolio's shares have been owned by shareholders who are subject to
U.S. federal income tax, distributions derived from long-term capital gains of a
Series are taxable as such. Dividends from net investment income or net short-
term capital gains of a series will be taxable as ordinary income, whether
received in cash or in additional shares. For those investors subject to tax, if
purchases of shares of a Portfolio are made shortly before the record date for a
dividend or capital gain distribution, a portion of the investment will be
returned as a taxable distribution. Shareholders are notified annually as to the
U.S. federal tax status of dividends and distributions paid by the Portfolio
whose shares they own.
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 shareholder until the following January, will be treated for
U.S. federal income tax purposes as if paid by the Portfolio and received by the
shareholder on December 31 of the calendar year in which they are declared.
The sale of shares of a Portfolio is a taxable event and may result in a
capital gain or loss to shareholders that are subject to tax. Capital gain or
loss may be realized from an ordinary redemption of shares or an exchange of
shares between two Portfolios.
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In addition to federal taxes, shareholders of a Portfolio may be subject to
state and local taxes on distributions and on sales of shares of the Portfolio.
Non-U.S. shareholders may be subject to U.S. withholding and estate tax.
Each Portfolio is required to withhold 31% of taxable dividends, capital
gains distributions, and redemption proceeds paid to shareholders who have not
provided on the account registration form their correct Taxpayer Identification
Number and certification that they are not subject to backup withholding or with
respect to whom the IRS instructs the Portfolio to withhold tax.
The tax discussion set forth above is included for general information only.
Prospective investors should consult the statement of additional information and
their own tax advisers concerning the federal, state, local or foreign tax
consequences of an investment in a Portfolio.
ELECTRONIC SHAREHOLDER INFORMATION AND TRANSACTIONS
In order to keep costs to the Fund to a minimum, an investor, when opening
an account, may consent to the acceptance of all shareholder information about
the Portfolios through e-mail and access to the Portfolios' website at
www.dfafunds.com. An investor will be notified when a prospectus amendment or
annual or semi-annual report has been made available on the Portfolios' website.
Confirmations and monthly statements will initially be delivered on paper but,
in the future, the Fund intends to deliver them electronically.
Currently, the SEC requires an investor in the Portfolios be offered the
opportunity to revoke his or her consent to receive shareholder information
(including prospectuses and annual and semi-annual reports) electronically. In
order to revoke a prior consent, an investor may call the Fund collect at
(310) 395-8005, or write to the Fund at Dimensional Fund Advisors Inc., 1299
Ocean Avenue, 11th Floor, Santa Monica, CA 90401. After consent is revoked, the
Fund will send an investor a set of paper documents at no charge. If the SEC
allows shareholders who have revoked their consent to be charged for paper
delivery of shareholder information, the Fund may notify investors that the Fund
will charge the investor who has revoked consent a fee of up to $15 per year,
per set of copies delivered, to cover the costs of printing, shipping and
handling paper versions of shareholder information available on the Portfolios'
website.
The Portfolios' website address is www.dfafunds.com. The current prospectus
and recent shareholder reports of the Portfolios will be readily available for
viewing and printing on the website.
PURCHASE OF SHARES
Purchases of shares will be made in full and fractional shares calculated to
three decimal places. In the interest of economy and convenience, certificates
for shares will not be issued.
Investors may purchase shares of any Portfolio by first contacting the
Advisor at (310) 395-8005 to notify the Advisor of the proposed investment. All
investments are subject to approval of the Advisor, and all investors must
complete and submit the necessary account registration forms in good order. The
Fund reserves the right to reject any initial or additional investment and to
suspend the offering of shares of any Portfolio.
"Good order" with respect to the purchase of shares means that (1) a fully
completed and properly signed Account Registration Form and any additional
supporting legal documentation required by the Advisor has been received in
legible form and (2) the Advisor has been notified of the purchase by telephone
and, if the Advisor so requests, also in writing, no later than the close of
regular trading on the NYSE (ordinarily 1:00 p.m. PST) on the day of the
purchase. If an order to purchase shares must be canceled due to nonpayment, the
purchaser will be responsible for any loss incurred by the Fund arising out of
such cancellation. To recover any such loss, the Fund reserves the right to
redeem shares owned by
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<PAGE>
any purchaser whose order is canceled, and such purchaser may be prohibited or
restricted in the manner of placing further orders.
CASH PURCHASES
Investors having an account with a bank that is a member or a correspondent
of a member of the Federal Reserve System may purchase shares by first calling
the Advisor at (310) 395-8005 to notify the Advisor of the proposed investment,
then requesting the bank to transmit immediately available funds (Federal Funds)
by wire to PNC Bank, N.A. for the account of DFA Investment Dimensions Group
Inc. (specify Portfolio). Additional investments also may be made through the
wire procedure by first notifying the Advisor. Investors who wish to purchase
shares of any Portfolio by check should send their check to DFA Investment
Dimensions Group Inc., c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware
19809.
Payment of the total amount due should be made in U.S. dollars. Subject to
approval by the Advisor, payment may be made in any freely convertible currency
and the necessary foreign exchange transactions will be arranged on behalf of,
and at the expense of, the applicant. Applicants settling in any currency other
than U.S. dollars are advised that a delay in processing a purchase or
redemption may occur to allow for currency conversion.
Shares may also be purchased and sold by individuals through securities
firms which may charge a service fee or commission for such transactions. No
such fee or commission is charged on shares which are purchased or redeemed
directly from the Fund. Investors who are clients of investment advisory
organizations may also be subject to investment advisory fees under their own
arrangements with such organizations.
IN-KIND PURCHASES
If accepted by the Fund, shares of the Portfolios may be purchased in
exchange for securities which are eligible for acquisition by the Master Funds
as described in this Prospectus. Securities to be exchanged which are accepted
by the Fund and Fund shares to be issued therefor will be valued as set forth
under "VALUATION OF SHARES" at the time of the next determination of net asset
value after such acceptance. All dividends, interest, subscription, or other
rights pertaining to such securities shall become the property of the Portfolio
whose shares are being acquired and must be delivered to the Fund by the
investor upon receipt from the issuer.
The Fund will not accept securities in exchange for shares of a Portfolio
unless: (1) such securities are, at the time of the exchange, eligible to be
included, or otherwise represented in the corresponding Master Fund and current
market quotations are readily available for such securities; (2) the investor
represents and agrees that all securities offered to be exchanged are not
subject to any restrictions upon their sale by the Portfolio or Master Fund
under the Securities Act of 1933 or under the laws of the country in which the
principal market for such securities exists, or otherwise; and (3) at the
discretion of the Fund, the value of any such security (except U.S. Government
securities) being exchanged together with other securities of the same issuer
owned by the Master Fund may not exceed 5% of the net assets of the Portfolio or
Master Fund immediately after the transaction. The Fund will accept such
securities for investment.
A gain or loss for federal income tax purposes will generally be realized by
investors who are subject to federal taxation upon the exchange depending upon
the cost of the securities. Investors interested in such exchanges should
contact the Advisor.
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<PAGE>
VALUATION OF SHARES
NET ASSET VALUE
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 in the Master Fund and other assets, less any liabilities, by the
total outstanding shares of the Portfolio. The net asset value per share of each
corresponding Master Fund is calculated as of the close of the NYSE by dividing
the total market value of the Master Fund's investments and other assets, less
any liabilities, by the total outstanding shares of the Master Fund. The value
of the shares of the Portfolios will fluctuate in relation to the investment
experience of the Master Funds in which such Portfolios invest. Securities held
by the Master Funds which are listed on a securities exchange and for which
market quotations are available are valued at the last quoted sale price of the
day. 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.
Securities issued by open-end investment companies, such as the Master Funds,
are valued using their respective net asset values for purchase orders placed at
the close of the NYSE. 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.
Provided that the transfer agent has received the investor's Account
Registration Form in good order and the custodian has received the investor's
payment, shares of the Portfolio selected will be priced at the public offering
price calculated next after receipt of the investor's funds by the custodian.
The transfer agent or the Fund may from time to time appoint a sub-transfer
agent for the receipt of purchase orders and funds from certain investors. With
respect to such investors, the shares of the Portfolio selected will be priced
at the public offering price calculated after receipt of the purchase order by
the sub-transfer agent. The only difference between a normal purchase and a
purchase through a sub-transfer agent is that if the investor buys shares
through a sub-transfer agent, the purchase price will be the public offering
price next calculated after the sub-transfer agent receives the order, rather
than on the day the custodian receives the investor's payment (provided that the
sub-transfer agent has received the investor's purchase order in good order).
PUBLIC OFFERING PRICE
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 fee that would be used to reimburse a Portfolio for such cost
("reimbursement fee"). Reimbursement fees may be charged prospectively from time
to time based upon the future experience of the Portfolios and their
corresponding Master Funds. Any such charges will be described in the
prospectus.
EXCHANGE OF SHARES
Investors may exchange shares of one Portfolio for those of another
Portfolio by first contacting the Advisor at (310) 395-8005 to notify the
Advisor of the proposed exchange and then completing a letter of instruction and
mailing it to:
DFA Investment Dimensions Group Inc.
Attn: Client Operations
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
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<PAGE>
The minimum amount for an exchange is $100,000. Exchanges are accepted into
or from any of the Portfolios offered in this prospectus. Such exchange is
subject to any applicable reimbursement fee charged by a Portfolio in connection
with the sale of its shares.
Investors in any Portfolio eligible for the exchange privilege also may
exchange all or part of their Portfolio shares into portfolios of Dimensional
Investment Group Inc., subject to the minimum purchase requirement set forth in
the applicable portfolio's prospectus. Investors may contact the Advisor at the
above-listed phone number for more information on such exchanges and to request
a copy of the prospectuses of the portfolios of Dimensional Investment Group
Inc.
The exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the markets. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Portfolios or otherwise adversely affect the Fund, any
proposed exchange will be subject to the approval of the Advisor. Such approval
will depend on: (i) the size of the proposed exchange; (ii) the prior number of
exchanges by that shareholder; (iii) the nature of the underlying securities and
the cash position of the Portfolios involved in the proposed exchange; (iv) the
transaction costs involved in processing the exchange; and (v) the total number
of redemptions by exchange already made out of a Portfolio. Excessive use of the
exchange privilege is defined as any pattern of exchanges among portfolios by an
investor that evidences market timing.
The redemption and purchase prices of shares redeemed and purchased by
exchange, respectively, are the net asset values next determined after the
Advisor has received a letter of instruction in good order, plus any applicable
reimbursement fee on purchases by exchange. "Good order" means a completed
letter of instruction specifying the dollar amount to be exchanged, signed by
all registered owners of the shares; and if the Fund does not have on file the
authorized signatures for the account, proof of authority and a guarantee of the
signature of each registered owner by an "eligible guarantor institution." Such
institutions generally include national or state banks, savings associations,
savings and loan associations, trust companies, savings banks, credit unions and
members of a recognized stock exchange. Exchanges will be accepted only if the
shares of the Portfolio being acquired are registered in the investor's state of
residence.
There is no fee imposed on an exchange. However, the Fund reserves the right
to impose an administrative fee in order to cover the costs incurred in
processing an exchange. Any such fee will be disclosed in the prospectus. An
exchange is treated as a redemption and a purchase. Therefore, an investor could
realize a taxable gain or a loss on the transaction. The Fund reserves the right
to revise or terminate the exchange privilege, waive the minimum amount
requirement, limit the amount of or reject any exchange, as deemed necessary, at
any time.
REDEMPTION OF SHARES
REDEMPTION PROCEDURE
Investors who desire to redeem shares of a Portfolio must first contact the
Advisor at (310) 395-8005. Each Portfolio will redeem shares at the net asset
value of such shares next determined after receipt of a written request in good
order, by PFPC Inc. "Good order" means that the request to redeem shares must
include all necessary documentation, to be received in writing by the Advisor no
later than the close of regular trading on the NYSE (ordinarily 1:00 p.m. PST),
including but not limited to: a letter of instruction or a stock assignment
specifying the number of shares or dollar amount to be redeemed, signed by all
registered owners (or authorized representatives thereof) of the shares; and, if
the Fund does not have on file the authorized signatures for the account, proof
of authority and a guarantee of the signature of each registered owner by an
eligible guarantor institution; and any other required supporting legal
documents. A signature guarantee may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency or savings association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are Securities Transfer
Agents Medallion (STAMP), Stock Exchanges Medallion Program (SEMP) and New York
Stock Exchange, Inc. Medallion
14
<PAGE>
Signature Program (MSP). Signature guarantees which are not a part of these
programs will not be accepted.
Shareholders redeeming shares who have authorized redemption payment by wire
in writing, may request that redemption proceeds be paid in federal funds wired
to the bank they have designated in writing. The Fund reserves the right to send
redemption proceeds by check in its discretion. A shareholder may request
overnight delivery of such check at the shareholder's own expense. If the
proceeds are wired to the shareholder's account at a bank which is not a member
of the Federal Reserve System, there could be a delay in crediting the funds to
the shareholder's bank account. The Fund reserves the right at any time to
suspend or terminate the redemption by wire procedure after prior notification
to shareholders. No fee is charged for redemptions.
Although the redemption payments will ordinarily be made within seven days
after receipt, payment to investors redeeming shares which were purchased by
check will not be made until the Fund can verify that the payments for the
purchase have been, or will be collected, which may take up to fifteen days or
more. Investors may avoid this delay by submitting a certified check along with
the purchase order.
REDEMPTION OF SMALL ACCOUNTS
With respect to each Portfolio, the Fund reserves the right to redeem a
shareholder's account if the value of the shares in a specific Portfolio is $500
or less, whether because of redemptions, a decline in the Portfolio's net asset
value per share or any other reason. Before the Fund involuntarily redeems
shares from such an account and sends the proceeds to the shareholder, the Fund
will give written notice of the redemption to the shareholder at least sixty
days in advance of the redemption date. The shareholder will then have sixty
days from the date of the notice to make an additional investment in order to
bring the value of the shares in the account for a specific Portfolio to more
than $500 and avoid such involuntary redemption. The redemption price to be paid
to a shareholder for shares redeemed by the Fund under this right will be the
aggregate net asset value of the shares in the account at the close of business
on the redemption date.
IN-KIND REDEMPTIONS
When in the best interests of a Portfolio, the Portfolio may make a
redemption payment, in whole or in part, by a distribution of portfolio
securities that the Portfolio receives from the Master Fund in lieu of cash. The
Portfolios and Master Funds are also authorized to make redemption payments
solely by a distribution of portfolio securities (or a combination of securities
and cash) when it is determined by the Advisor to be consistent with the tax
management strategies described in this prospectus. Such distributions will be
made in accordance with the federal securities laws and regulations governing
mutual funds. Investors may incur brokerage charges and other transaction costs
when selling securities that were received in payment of redemptions.
THE MASTER-FEEDER STRUCTURE
Other institutional investors, including other mutual funds, may invest in
each Master Fund. The expenses of such other funds and, correspondingly, their
returns may differ from those of the Portfolios. Please contact The DFA
Investment Trust Company at 1299 Ocean Avenue, 11th Floor, Santa Monica, CA
90401, (310) 395-8005 for information about the availability of investing in a
Master Fund other than through a Portfolio.
The aggregate amount of expenses for a Portfolio and the corresponding
Master Fund may be greater than it would be if the Portfolio were to invest
directly in the securities held by the corresponding Master Fund. However, the
total expense ratios for the Portfolios and the Master Funds are expected to be
less over time than such ratios would be if the Portfolios were to invest
directly in the underlying securities. This arrangement enables various
institutional investors, including the Portfolios, to pool their assets,
15
<PAGE>
which may be expected to result in economies by spreading certain fixed costs
over a larger asset base. Each shareholder in a Master Fund, including a
Portfolio, will pay its proportionate share of the expenses of that Master Fund.
The shares of the Master Funds will be offered to institutional investors
for the purpose of increasing the funds available for investment, to reduce
expenses as a percentage of total assets and to achieve other economies that
might be available at higher asset levels. Investment in a Master Fund by other
institutional investors offers potential benefits to the Master Funds, and
through their investment in the Master Funds, the Portfolios also. However, such
economies and expense reductions might not be achieved, and additional
investment opportunities, such as increased diversification, might not be
available if other institutions do not invest in the Master Funds. Also, if an
institutional investor were to redeem its interest in a Master Fund, the
remaining investors in that Master Fund could experience higher pro rata
operating expenses, thereby producing lower returns, and the Master Fund's
security holdings may become less diverse, resulting in increased risk.
Institutional investors that have a greater pro rata ownership interest in a
Master Fund than the corresponding Portfolio could have effective voting control
over the operation of the Master Fund.
If the Board of Directors of the Fund determines that it is in the best
interest of a Portfolio, the Portfolio may withdraw its investment in a Master
Fund at any time. Upon any such withdrawal, the Board would consider what action
the Portfolio might take, including either seeking to invest its assets in
another registered investment company with the same investment objective as the
Portfolio, which might not be possible, or retaining an investment advisor to
manage the Portfolio's assets in accordance with its own investment objective,
possibly at increased cost. Shareholders of a Portfolio will receive written
notice thirty days prior to the effective date of any change in the investment
objective of its corresponding Master Fund. A withdrawal by a Portfolio of its
investment in the corresponding Master Fund could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) to the
Portfolio. Should such a distribution occur, the Portfolio could incur brokerage
fees or other transaction costs in converting such securities to cash in order
to pay redemptions. In addition, a distribution in kind to the Portfolio could
result in a less diversified portfolio of investments and could affect adversely
the liquidity of the Portfolio.
16
<PAGE>
SERVICE PROVIDERS
<TABLE>
<S> <C>
INVESTMENT ADVISOR CUSTODIAN
DIMENSIONAL FUND ADVISORS INC PFPC TRUST COMPANY
1299 Ocean Avenue, 11th Floor 400 Bellevue Parkway
Santa Monica, CA 90401 Wilmington, DE 19809
Tel. No. (310) 395-8005
ACCOUNTING SERVICES, DIVIDEND DISBURSING AND LEGAL COUNSEL
TRANSFER AGENT STRADLEY, RONON, STEVENS & YOUNG, LLP
PFPC INC. 2600 One Commerce Square
400 Bellevue Parkway Philadelphia, PA 19103-7098
Wilmington, DE 19809
</TABLE>
<TABLE>
<S> <C>
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Suite 1700
200 East Las Olas Boulevard
Fort Lauderdale, FL 33301
</TABLE>
17
<PAGE>
OTHER AVAILABLE INFORMATION
You can find more information about the Fund and the Portfolios in the Fund's
Statement of Additional Information ("SAI") and Annual and Semi-Annual Reports.
STATEMENT OF ADDITIONAL INFORMATION. The SAI supplements, and is technically
part of, this Prospectus. It includes an expanded discussion of investment
practices, risks, and fund operations.
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. These reports focus on
portfolio holdings and performance. The Annual Report also discusses the market
conditions and investment strategies that significantly affected the Portfolios
and Master Funds in their last fiscal year. The Portfolios and Master Funds are
new so the reports do not yet include any information about them.
To obtain documents:
- Access them on our website at www.dfafunds.com.
- If you represent an institutional investor, registered investment advisor or
other qualifying investor, call collect at (310) 395-8005.
- Access them on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov.
- Review and copy them at the SEC's Public Reference Room in Washington D.C.
(phone 1-800/SEC-0330).
- Request copies from the Public Reference Section of the SEC, Washington, D.C.
20549-0102 or at [email protected] (you will be charged a copying fee).
Information on the operation of the SEC's Public Reference Room is available
by calling the SEC at 1-202-942-8090.
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
(310) 395-8005
DFA INVESTMENT DIMENSIONS GROUP INC.--REGISTRATION NO. 811-3258
18
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 16, 2000
DFA Investment Dimensions Group Inc. (the "Fund") is an open-end
management investment company that offers thirty-eight series of shares. This
statement of additional information ("SAI") relates to four series of the Fund
(individually, a "Portfolio" and collectively, the "Portfolios"):
U.S. MARKETWIDE VALUE PORTFOLIOS
LD U.S. Marketwide Value Portfolio
HD U.S. Marketwide Value Portfolio
U.S. LARGE COMPANY PORTFOLIOS
LD U.S. Large Company Portfolio
HD U.S. Large Company Portfolio
This statement of additional information is not a prospectus but should
be read in conjunction with the Portfolios' prospectus dated August 16, 2000, as
amended from time to time. The prospectus and the annual report can be obtained
by writing to the above address or by calling the above telephone number. The
Portfolios did not operate prior to the date of this SAI, so no financial
information is shown for them in the Fund's annual report for the fiscal year
ended November 30, 1999.
<PAGE>
TABLE OF CONTENTS
PORTFOLIO CHARACTERISTICS AND POLICIES.....................................3
BROKERAGE COMMISSIONS......................................................3
INVESTMENT LIMITATIONS.....................................................4
FUTURES CONTRACTS..........................................................5
CASH MANAGEMENT PRACTICES..................................................6
DIRECTORS AND OFFICERS.....................................................6
SERVICES TO THE FUND.......................................................9
ADVISORY FEES.............................................................10
GENERAL INFORMATION.......................................................10
CODES OF ETHICS...........................................................10
SHAREHOLDER RIGHTS........................................................11
PRINCIPAL HOLDERS OF SECURITIES...........................................11
PURCHASE OF SHARES........................................................11
REDEMPTION AND TRANSFER OF SHARES.........................................12
TAXATION OF THE PORTFOLIOS................................................12
CALCULATION OF PERFORMANCE DATA...........................................14
FINANCIAL STATEMENTS......................................................15
2
<PAGE>
PORTFOLIO CHARACTERISTICS AND POLICIES
Each of the Portfolios seeks to achieve its investment objective by
investing all of its investable assets in a corresponding series of The DFA
Investment Trust Company (the "Trust"). The series of the Trust are referred to
as the "Master Funds." Dimensional Fund Advisors Inc. (the "Advisor") serves as
investment advisor to each of the Master Funds and provides administrative
services to the Portfolios. Capitalized terms not otherwise defined in this SAI
have the meaning assigned to them in the prospectus.
The following information supplements the information set forth in the
prospectus. Unless otherwise indicated, the following information applies to all
of the Master Funds and the Portfolios, through their investment in the Master
Funds.
Each of the Portfolios and the Master Funds is diversified under the
federal securities laws and regulations.
Because the structures of the Master Funds are based on the relative
market capitalizations of eligible holdings, it is possible that the Master
Funds might include at least 5% of the outstanding voting securities of one or
more issuers. In such circumstances, the Master Fund and the issuer would be
deemed affiliated persons and certain requirements under the federal securities
laws and regulations regulating dealings between mutual funds and their
affiliates might become applicable. However, based on the present
capitalizations of the groups of companies eligible for inclusion in the Master
Funds and the anticipated amount of a Master Fund's assets intended to be
invested in such securities, management does not anticipate that a Master Fund
will include as much as 5% of the voting securities of any issuer.
The Portfolios and Master Funds did not operate prior to the date of
this SAI, so no financial information is shown for them.
BROKERAGE COMMISSIONS
Portfolio transactions will be placed with a view to receiving the best
price and execution. In addition, the Advisor 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. Brokers will be selected with these goals in view.
The Advisor monitors the performance of brokers which effect transactions for
the Master Funds 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 Master Funds 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.
The over-the-counter market ("OTC") companies eligible for purchase by
each Master Fund 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, electronic communications networks ("ECNs") and with dealers 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 sometimes to trade larger blocks than would be
possible by going through a single market maker.
ECNs, such as Instinet, are electronic information and communication
networks whose subscribers include most market makers and many institutions.
Such ECNs charge a commission for each trade executed on its system. For
example, on any given trade, a Series, by trading through an ECN, would pay a
spread to a dealer on the other side of the trade plus a commission to the ECN.
However, placing a buy (or sell) order on an ECN 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 Master
Funds can
3
<PAGE>
effect transactions at the best available prices.
The investment advisory agreements permit the Advisor knowingly to pay
commissions on these transactions which are greater than another broker, dealer
or exchange member might charge if the Advisor, in good faith, determines that
the commissions paid are reasonable in relation to the 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 Master Funds.
Subject to obtaining best price and execution, transactions may be placed with
brokers that have assisted in the sale of the Portfolios' shares.
A Portfolio will not incur any brokerage or other costs in connection
with its purchase or redemption of shares of the corresponding Master Fund,
except if the Portfolio receives securities from the Master Fund to satisfy the
Portfolio's redemption request.
INVESTMENT LIMITATIONS
Each of the Portfolios and Master Funds has adopted certain limitations
which may not be changed without the approval of the holders of a majority of
its outstanding voting securities. A "majority" is defined as the lesser of: (1)
at least 67% of the voting securities of the Portfolio or Master Fund (to be
affected by the proposed change) present at a meeting, if the holders of more
than 50% of the outstanding voting securities of the Portfolio or Master Fund
are present or represented by proxy, or (2) more than 50% of the outstanding
voting securities of such Portfolio or Master Fund.
The Portfolios and Master Funds 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 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 or
Master Fund, invest in the securities of any issuer
(except obligations of the U.S. Government and its
agencies and instrumentalities or shares of an
investment company) if, as a result, more than 5% of
the Portfolio's or Master Fund's total assets, at
market, would be invested in the securities of such
issuer;
(4) borrow, except from banks and as a temporary measure
for extraordinary or emergency purposes and then, in
no event, in excess of 33% of its net assets; or
pledge in excess of 33% of such assets to secure such
loans;
(5) engage in the business of underwriting securities
issued by others;
(6) 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 or Master
Fund's total assets would be invested in securities
of companies within such industry;
(7) purchase securities on margin; or
(8) issue senior securities (as such term is defined in
Section 18(f) of the Investment Company Act of 1940
(the "1940 Act")), except to the extent permitted by
the 1940 Act.
4
<PAGE>
The investment limitations described in (3) and (6) above do not
prohibit each Portfolio from investing all or substantially all of its assets in
the shares of another registered, open-end investment company, such as one of
the Master Funds. The investment limitations of each Master Fund are the same as
those of the corresponding Portfolio.
The investment limitations described in (1), (4) and (7) above do not
prohibit each Portfolio or Master Fund that may purchase or sell financial
futures contracts and options thereon from making margin deposits to the extent
permitted under applicable regulations. The investment limitation described in
(5) above does not prohibit each Portfolio or Master Fund from acquiring private
placements to the extent permitted under applicable regulations.
Although (2) above prohibits cash loans, the Portfolios and Master
Funds are authorized to lend portfolio securities. Inasmuch as the Portfolios
will only hold shares of a corresponding Master Fund, the Portfolios do not
intend to lend those shares.
Although not a fundamental policy subject to shareholder approval, the
Portfolios and Master Funds do not intend to invest more than 15% of their net
assets in illiquid securities. Further, pursuant to Rule 144A under the
Securities Act of 1933, the Portfolios and Master Funds 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. While maintaining oversight, the Fund's Board
of Directors and the Trust's Board of Trustees have delegated the day-to-day
function of making liquidity determinations to the Advisor. For Rule 144A
securities to be considered liquid, there must be at least two dealers making a
market in such securities. After purchase, the Boards and the Advisor will
continue to monitor the liquidity of Rule 144A securities.
Subject to future regulatory guidance, for purposes of those investment
limitations identified above that are based on total assets, "total assets"
refers to the assets that the applicable Portfolio or Master Fund owns, and does
not include assets which the Portfolio or Master Fund does not own but over
which it has effective control. For example, when applying a percentage
investment limitation that is based on total assets, a Portfolio or Master Fund
will exclude from its total assets those assets which represent collateral
received by the Portfolio or Master Fund for its securities lending
transactions.
Unless otherwise indicated, all limitations applicable to a Portfolio's
or Master Fund's investments apply only at the time that a transaction is
undertaken. Any subsequent change in the percentage of a Portfolio's or Master
Fund's assets invested in certain securities or other instruments resulting from
market fluctuations or other changes in a Portfolio's or Master Fund's total
assets will not require a Portfolio or Master Fund to dispose of an investment
until the Advisor determines that it is practicable to sell or close out the
investment without undue market or tax consequences.
FUTURES CONTRACTS
The Master Funds 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 Master Funds will be 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 Master
Fund. Variation margin payments are made to and from the futures broker for as
long as the contract remains open. The Master Funds expect to earn income on
their margin deposits. To the extent that a Master Fund invests in futures
contracts and options thereon for other than bona fide hedging purposes, no
Master Fund will enter into such transactions if, immediately thereafter, the
sum of the amount of initial margin deposits and premiums required to establish
such positions would exceed 5% of the
5
<PAGE>
Master Fund's net assets, after taking into account unrealized profits and
unrealized losses on such contracts it has entered into; provided, however,
that, in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%. Pursuant to published
positions of the Securities and Exchange Commission (the "Commission"), each
Master Fund may be required to maintain segregated accounts consisting of liquid
assets, (or, as permitted under applicable interpretations, enter into
offsetting positions) in connection with its futures contract transactions in
order to cover its obligations with respect to such contracts.
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, a Master Fund would continue to be
required to make variation margin deposits. In such circumstances, if the Master
Fund has insufficient cash, it might have to sell portfolio securities to meet
daily margin requirements at a time when it might be disadvantageous to do so.
Management intends to minimize the possibility that it will be unable to close
out a futures contract by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market.
CASH MANAGEMENT PRACTICES
The Portfolios and Master Funds engage in cash management practices in
order to earn income on uncommitted cash balances. Generally cash is uncommitted
pending investment in other obligations, payment of redemptions or in other
circumstances where the Advisor believes liquidity is necessary or desirable.
All the Portfolios and Master Funds may invest cash in short-term repurchase
agreements and index futures contracts and options thereon. In addition, the
Master Funds in which the Marketwide Value Portfolios invest may invest up to
20% of their assets in high quality, highly liquid fixed income securities, such
as money market instruments. The Master Funds in which the Large Company
Portfolios invest may invest a portion of their assets, generally not more than
5% of net assets, in short-term fixed-income obligations. The percentage
guidelines set forth above are not absolute limitations but the Portfolios and
Master Funds do not expect to exceed these guidelines under normal
circumstances.
DIRECTORS AND OFFICERS
The Board of Directors of the Fund is responsible for establishing Fund
policies and for overseeing the management of the Fund. Each of the Directors
and officers of the Fund is also a Trustee and officer of the Trust. The
Directors of the Fund, including all of the disinterested directors, have
adopted written procedures to monitor potential conflicts of interest that might
develop between the Portfolios and the Master Funds.
The names, locations and dates of birth 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*, (12/2/46), Director, President and Chairman-Chief
Executive Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer
and Director of the following companies: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia Limited, DFA Investment Dimensions Group Inc.,
Dimensional Investment Group Inc. and Dimensional Emerging Markets Value Fund
Inc. Trustee, President and Chairman-Chief Executive Officer of The DFA
Investment Trust Company. Chairman and Director, Dimensional Fund Advisors Ltd.
Director, SA Funds (registered investment company) and Assante Corporation
(investment management).
George M. Constantinides, (9/22/47), Director, Chicago, IL. Leo Melamed
Professor of Finance, Graduate School of Business, University of Chicago.
Trustee, The DFA Investment Trust Company (registered investment company).
Director, DFA Investment Dimensions Group Inc., Dimensional Investment Group
Inc. and Dimensional Emerging Markets Value Fund Inc.
John P. Gould, (1/19/39), Director, Chicago, IL. Steven G. Rothmeier
Distinguished Service Professor of Economics, Graduate School of Business,
University of Chicago. President, Cardean University (Division of UNext.com).
Trustee, The DFA Investment Trust Company (registered investment company).
Director, DFA
6
<PAGE>
Investment Dimensions Group Inc., Dimensional Investment Group Inc., Dimensional
Emerging Markets Value Fund Inc. and Harbor Investment Advisors. Member of the
Boards of Milwaukee Mutual Insurance Company and UNext.com. Principal and
Executive Vice President, Lexecon Inc. (economics, law, strategy and finance
consulting). Formerly, Trustee, First Prairie Funds (registered investment
company).
Roger G. Ibbotson, (5/27/43), Director, New Haven, CT. Professor in
Practice of Finance, Yale School of Management. Trustee, The DFA Investment
Trust Company (registered investment company). Director, DFA Investment
Dimensions Group Inc., Dimensional Investment Group Inc., Dimensional Emerging
Markets Value Fund Inc. and BIRR Portfolio Analysis, Inc. (software products).
Chairman, Ibbotson Associates, Inc., Chicago, IL (software, data, publishing and
consulting). Formerly, Director, Hospital Fund, Inc. (investment management
services).
Myron S. Scholes, (7/1/41), Director, Menlo Park, CA. Frank E. Buck
Professor Emeritus of Finance, Stanford University. Trustee, The DFA Investment
Trust Company (registered investment company). Director, DFA Investment
Dimensions Group Inc., Dimensional Investment Group Inc., Dimensional Emerging
Markets Value Fund Inc. and American Century (Mountain View) Investment
Companies. Partner, Oak Hill Capital Management. Formerly, Limited Partner,
Long-Term Capital Management L.P. (money manager) and Consultant, Arbor
Investors.
Rex A. Sinquefield*#, (9/7/44), Director, Chairman-Chief Investment
Officer, Santa Monica, CA., Chairman-Chief Investment Officer and Director,
Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Limited, DFA
Investment Dimensions Group Inc., Dimensional Investment Group Inc. and
Dimensional Emerging Markets Value Fund Inc. Trustee, Chairman-Chief Investment
Officer of The DFA Investment Trust Company (registered investment company).
Chairman, Chief Executive Officer and Director, Dimensional Fund Advisors Ltd.
--------------------------------------------
* Interested Director of the Fund.
# Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
OFFICERS
Each of the officers listed below holds the same office (except as
otherwise noted) in the following entities: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia Limited, DFA Investment Dimensions Group Inc.,
Dimensional Investment Group Inc., The DFA Investment Trust Company, Dimensional
Fund Advisors Ltd., and Dimensional Emerging Markets Value Fund Inc. Unless
otherwise noted, each officer has held the indicated position for at least the
last five years.
Arthur Barlow, (11/7/55), Vice President, Santa Monica, CA.
Truman Clark, (4/8/41), Vice President, Santa Monica, CA. Consultant
until October 1995 and Principal and Manager of Product Development, Wells Fargo
Nikko Investment Advisors, San Francisco, CA from 1990-1994.
Jim Davis, (11/29/56), Vice President, Santa Monica, CA. Formerly,
Kansas State University, Arthur Anderson & Co., Phillips Petroleum Co.
Robert Deere, (10/8/57), Vice President, Santa Monica, CA.
Irene R. Diamant, (7/16/50), Vice President and Assistant Secretary
(Assistant Secretary for all entities other than Dimensional Fund Advisors
Ltd.), Santa Monica, CA.
7
<PAGE>
Richard Eustice, (8/5/65), Vice President and Assistant Secretary
(Assistant Secretary for all entities other than Dimensional Fund Advisors
Ltd.), Santa Monica, CA.
Eugene Fama, Jr., (1/21/61), Vice President, Santa Monica, CA.
Kamyab Hashemi-Nejad, (1/22/61), Vice President, Controller and
Assistant Treasurer, Santa Monica, CA.
Judith Jonas, (11/27/55), Vice President, Santa Monica, CA. Vice
President, Wells Fargo Bank, N.A. from 1989-1990. Vice President, Demko Baer &
Associates, 1991.
Stephen P. Manus, (12/26/50), Vice President, Santa Monica, CA.
Managing Director, ANB Investment Management and Trust Company from 1985-1993;
President, ANB Investment Management and Trust Company from 1993-1997.
Karen McGinley, (3/10/66), Vice President, Santa Monica, CA.
Catherine L. Newell, (5/7/64), Vice President and Secretary (Secretary
for all entities other than Dimensional Fund Advisors Ltd.), Santa Monica, CA.
Associate, Morrison & Foerster, LLP from 1989 to 1996.
David Plecha, (10/26/61), Vice President, Santa Monica, CA.
George Sands, (2/8/56), Vice President, Santa Monica, CA.
Michael T. Scardina, (10/12/55), Vice President, Chief Financial
Officer and Treasurer, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., # (12/2/46), Executive Vice President,
Santa Monica, CA.
Scott Thornton, (3/1/63), Vice President, Santa Monica, CA.
Weston Wellington, (3/1/51), Vice President, Santa Monica, CA. Vice
President, Director of Research, LPL Financial Services, Inc., Boston, MA from
1987 to 1994.
--------------------------------------------
# Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
Directors and officers as a group own less than 1% of each Portfolio'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, 1999, 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
Compensation From Fund
Director From the Fund and Fund Complex *
-------- ------------- ------------------
<S> <C> <C>
George M. Constantinides.................................. $13,715 $35,000
John P. Gould............................................. $13,715 $35,000
Roger G. Ibbotson......................................... $13,715 $35,000
Merton H. Miller**........................................ $10,396 $28,000
Myron S. Scholes.......................................... $13,396 $34,000
</TABLE>
--------------------------------------------
* The term Fund Complex refers to all registered investment companies for which
the Advisor performs advisory or administrative services and for which the
individuals listed above serve as directors or trustees.
** On June 3, 2000, Mr. Miller ceased serving as a Director of the Fund.
8
<PAGE>
SERVICES TO THE FUND
ADMINISTRATIVE SERVICES--THE PORTFOLIOS
The Fund has entered into an administration agreement with the Advisor,
on behalf of each Portfolio. Pursuant to each administration agreement, the
Advisor performs various services, including: supervision of the services
provided by the Portfolio's custodian and transfer and dividend disbursing agent
and others who provide services to the Fund for the benefit of the Portfolio;
providing shareholders with information about the Portfolio and their
investments as they or the Fund may request; assisting the Portfolio in
conducting meetings of shareholders; furnishing information as the Board of
Directors may require regarding the Master Funds, and any other administrative
services for the benefit of the Portfolio as the Board of Directors may
reasonably request. For its administrative services, each Portfolio pays the
Advisor a monthly fee equal to one-twelfth of the percentage of its average net
assets listed below:
<TABLE>
<S> <C>
LD Marketwide Value Portfolio.................................. 0.20%
HD Marketwide Value Portfolio.................................. 0.20%
LD Large Company Portfolio..................................... 0.10%
HD Large Company Portfolio..................................... 0.10%
</TABLE>
The Portfolios are new as of the date of this SAI, so they have not yet paid
administrative fees.
ADMINISTRATIVE SERVICES--ALL PORTFOLIOS AND MASTER FUNDS
PFPC Inc. ("PFPC"), 400 Bellevue Parkway, Wilmington, DE 19809, serves
as the accounting services, dividend disbursing and transfer agent for all the
Portfolios and Master Funds. 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
custodian, and transfer and dividend disbursing agency services. For its
services, each of the Portfolios listed below pays PFPC annual fees which are
set forth below:
The Portfolios are feeder portfolios. PFPC's charges for its services
to feeder portfolios are based on the number of feeder portfolios investing in
each Master Fund and whether the Master Fund is organized to be taxed as a
corporation or partnership for tax purposes. PFPC's charges are allocated
amongst the feeder portfolios.
LD U.S. MARKETWIDE VALUE PORTFOLIO
LD U.S. LARGE COMPANY PORTFOLIO
These Portfolios invest in Master Funds taxed as partnerships. PFPC
charges $2,600 per month multiplied by the number of feeder portfolios investing
in a Master Fund taxed as a partnership.
HD U.S. MARKETWIDE VALUE PORTFOLIO
HD U.S. LARGE COMPANY PORTFOLIO
These Portfolios invest in Master Funds taxed as corporations. PFPC
charges $1,000 per month multiplied by the number of feeder portfolios investing
in each Master Fund taxed as a corporation.
9
<PAGE>
CUSTODIAN
PFPC Trust Company, 400 Bellevue Parkway, Wilmington, DE 19809, serves
as the custodian for all of the Portfolios and Master Funds. The Custodian
maintains a separate account or accounts for the Portfolios and the Master
Funds; receives, holds and releases portfolio securities on account of the
Master Funds; makes receipts and disbursements of money on behalf of the
Portfolios and the Master Funds; and collects and receives income and other
payments and distributions on account of the Master Funds' portfolio securities.
DISTRIBUTOR
The Fund acts as distributor of the Portfolios' shares. The Fund 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.
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP serves as legal counsel to the
Fund. Its address is 2600 One Commerce Square, Philadelphia, PA 19103-7098.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP are the independent certified public
accountants to the Fund and audit the financial statements of the Fund
and the Trust. Their address is 200 East Las Olas Boulevard, Suite 1700,
Fort Lauderdale, FL 33301.
ADVISORY FEES
David G. Booth and Rex A. Sinquefield, as directors and officers of the
Advisor and shareholders of the Advisor's outstanding stock, may be deemed
controlling persons of the Advisor. For the services it provides as investment
advisor to each Master Fund, the Advisor is paid a monthly fee calculated as a
percentage of average net assets of the Master Fund. The Master Funds are new as
of the date of this SAI, so they have not yet paid management fees.
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. The Portfolios
described in this SAI have not commenced operations as of the date of this SAI.
The DFA Investment Trust Company was organized as a Delaware business
trust on October 27, 1992. The Trust offers shares of its Master Funds only to
institutional investors in private offerings.
CODES OF ETHICS
The Fund and the Trust have adopted a revised Code of Ethics, under
Rule 17j-1 of the 1940 Act, for certain access persons of the Portfolios and
Master Funds. In addition, the Advisor has adopted a revised Code of Ethics. The
Codes of Ethics are designed to ensure that access persons act in the interests
of the Portfolios and Master Funds, and their shareholders, with respect to any
personal trading of securities. Under the Codes, access persons are generally
prohibited from knowingly buying or selling securities (except for shares of
mutual funds, U.S. government securities and money market instruments) which are
being purchased, sold or considered for purchase or sale by a Portfolio or
Master Fund unless their proposed purchases are approved in advance. The Codes
also contain certain reporting requirements and securities trading clearance
procedures.
10
<PAGE>
SHAREHOLDER RIGHTS
The shares of each Portfolio, when issued and paid for in accordance
with the Portfolio'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.
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, the Fund's
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
1940 Act or other applicable law. The Fund's bylaws 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 1940 Act, including semi-annual and annual financial
statements of the Fund, the latter being audited.
Whenever a Portfolio, as an investor in its corresponding Master Fund,
is asked to vote on a shareholder proposal, the Fund will solicit voting
instructions from the Portfolio's shareholders with respect to the proposal. The
Directors of the Fund will then vote the Portfolio's shares in the Master Fund
in accordance with the voting instructions received from the Portfolio's
shareholders. The Directors of the Fund will vote shares of the Portfolio for
which they receive no voting instructions in accordance with their best
judgment. If a majority shareholder of a Master Fund becomes bankrupt, a
majority in interest of the remaining shareholders in the Master Fund must vote
to approve the continuing existence of the Master Fund or the Master Fund will
be liquidated.
PRINCIPAL HOLDERS OF SECURITIES
The Portfolios are new so there are not yet any public shareholders of
their shares. Shareholder inquiries may be made by writing or calling the Fund
at the address or telephone number appearing on the cover. Only those
individuals whose signatures are on file for the account in question may receive
specific account information or make changes in the account registration.
PURCHASE OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that
the New York Stock Exchange ("NYSE") is open for business, regardless of whether
the Federal Reserve System is closed. However, no purchases by wire may be made
on any day that the Federal Reserve System is closed. The Fund will generally be
closed on days that the NYSE is closed. The NYSE is scheduled to be open Monday
through Friday throughout the year except for days closed to recognize New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The Federal
Reserve System is closed on the same days as the NYSE, except that it is open on
Good Friday and closed on Columbus Day and Veterans' Day. Orders for redemptions
and purchases will not be processed if the Fund is closed.
The Fund reserves the right, in its sole discretion, to suspend the
offering of shares of 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. Securities accepted in exchange for shares of a
Portfolio will be acquired for investment purposes and will be considered for
sale under the same circumstances as other securities in the Portfolio.
Reimbursement fees may be charged prospectively from time to time based
upon the future experience of the Portfolios that are currently sold at net
asset value. Any such charges will be described in the prospectus.
11
<PAGE>
REDEMPTION AND TRANSFER OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "REDEMPTION OF SHARES."
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 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.
Shareholders may transfer shares of any Portfolio to another person by
making a written request to the Advisor who will transmit the request to the
Transfer Agent. The request should clearly identify the account and number of
shares to be transferred, and include the signature of all registered owners.
The signature on the letter of request or any stock power must be guaranteed in
the same manner as described in the prospectus under "REDEMPTION OF SHARES." As
with redemptions, the written request must be received in good order before any
transfer can be made.
TAXATION OF THE PORTFOLIOS
The following is a summary of some of the federal income tax
consequences of investing in the Portfolios. Unless a shareholder invests in a
Portfolio through a retirement plan, shareholders should consider the tax
implications of investing and consult their own tax advisors. Different tax
rules may apply, depending on whether for federal income tax purposes the Master
Funds are partnerships (as in the case of LD Marketwide Value Series and LD
Large Company Series) or corporations (as in the case of HD Marketwide Value
Series and HD Large Company Series). These rules could affect the amount,
timing, and character of the income received by shareholders of a Portfolio.
DISTRIBUTIONS OF NET INVESTMENT INCOME
Each Portfolio receives (or derives) income generally in the form of
dividends (in the case of a Master Fund taxed as a corporation) or dividends and
interest (in the case of a Master Fund taxed as a partnership) on its
investments. This income, less expenses incurred in the operation of a
Portfolio, constitutes its net investment income from which dividends may be
paid to its shareholders. Any distributions by a Portfolio from such income will
be taxable to a shareholder as ordinary income, whether they are received in
cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAIN
A Master Fund may derive capital gains and losses in connection with
sales or other dispositions of its portfolio securities. With respect to Master
Funds treated as partnerships for tax purposes, income derived from net
short-term capital gain of the Master Fund will be taxable to the Portfolios as
net short-term capital gain, and when distributed to their shareholders, will be
treated as ordinary income, and distributions derived from net long-term capital
gain of a Master Fund will be taxable to the Portfolios, and when distributed,
to their shareholders, as long-term capital gain, regardless of how long the
shares of the Portfolio have been held. With respect to Master Funds treated as
corporations for tax purposes, distributions from a Master Fund's net short-term
capital gain will be taxable to the Portfolio, and in turn to its shareholders,
as ordinary income, and distributions from a Master Fund's net long-term capital
gain will be taxable to the Portfolio, and in turn to its shareholders, as
long-term capital gain. Any net short-term or long-term capital gain realized by
a Portfolio (net of any capital loss carryovers) generally will be distributed
once each year, and may be distributed more frequently, if necessary, in order
to reduce or eliminate federal excise or income taxes on the Portfolio.
12
<PAGE>
Beginning in the year 2001 for shareholders in the 15% federal income
tax bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
capital gain distributions made by a Portfolio that are derived from a Master
Fund's sale of securities held for more than five years may be subject to a
reduced rate of tax.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY
Each Portfolio intends to qualify each year as a regulated investment
company ("RIC") by satisfying certain income distribution and asset
diversification requirements under the Internal Revenue Code (the "Code"). As a
RIC, each Portfolio generally pays no federal income tax on the income and gains
it distributes to its shareholders. The Board reserves the right not to maintain
the qualification of a Portfolio as a RIC, if it determines such course of
action to be beneficial to shareholders. In such case, a Portfolio will be
subject to federal, and possibly state, corporate taxes on its taxable income
and gains, and distributions to shareholders would be taxed as ordinary dividend
income to the extent of a Portfolio's available earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENT
The Code requires a Portfolio to distribute to shareholders by December
31 of each year at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the
twelve-month period ending October 31 (in addition to undistributed amounts from
the prior year) in order to avoid federal excise taxes. Each Portfolio intends
to declare and pay these distributions in December (or to pay them in January,
in which case shareholders must treat them as received in December) but can give
no assurances that its distributions will be sufficient to eliminate all taxes.
DIVIDENDS-RECEIVED DEDUCTION
With respect to dividends that are received on portfolio securities,
the Master Funds may not be eligible to flow through the corporate
dividends-received deduction attributable to their holdings of U.S. equity
securities to the Portfolios, and the Portfolios may not be eligible to flow
through the deduction to their corporate shareholders, if because of certain
timing rules, hedging activities, or debt financing activities at the level of
the Master Fund, the Portfolio, or the corporate shareholder, the requisite
holding period of the dividend-paying stock is not met or the dividends-received
deduction is reduced. Dividends from net investment income will generally
qualify in part for the dividends-received deduction, but the portion of
dividends so qualified depends on the aggregate qualifying dividend income
received by the Portfolio from domestic (U.S.) sources.
LIMITATION ON DEDUCTIBILITY OF LOSSES
Losses incurred on the sale of securities by one Master Fund to another
Master Fund will be disallowed if, as of the date of sale, the same persons (or,
in the case of a sale of securities by one Master Fund organized as a
corporation (each a "Corporate Master Fund") to another Corporate Master Fund,
five or fewer persons) own directly or indirectly more than 50% of the
outstanding shares in both the selling and purchasing Master Fund. Under
attribution rules, the shareholders of a Portfolio are considered to own the
shares of a corresponding Master Fund on a pro rata basis for purposes of
applying this loss disallowance rule. However, in applying the attribution rules
to a sale of securities by one Corporate Series to another Corporate Series,
only shareholders that own 5% or more of the shares of a Portfolio are
considered to own the shares of the corresponding Master Fund in proportion to
their ownership of Portfolio shares.
REDEMPTION OF PORTFOLIO SHARES
Redemptions (including redemptions in kind) and exchanges of Portfolio
shares are taxable transactions for federal and state income tax purposes and
can cause a shareholder to recognize a gain or loss. If a shareholder redeems
Portfolio shares or exchanges the shares for those of a different Portfolio in
the same or a
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different Master Fund, the IRS will require the shareholder to report any gain
or loss on the redemption or exchange. If a shareholder holds shares as a
capital asset, the gain or loss realized will be capital gain or loss and will
be long-term or short-term, generally depending on how long the shares are held.
Beginning in the year 2001 for shareholders in the 15% federal income
tax bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
gain from the sale of shares of a Master Fund or a Portfolio held for more than
five years may be subject to a reduced rate of tax.
Any loss incurred on the redemption or exchange of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributed to the shareholder by the Portfolio on those
shares. All or a portion of any loss that a shareholder realizes upon the
redemption of a Portfolio's shares will be disallowed to the extent that the
shareholder purchases other shares in the Portfolio (through reinvestment of
dividends or otherwise) within 30 days before or after the share redemption. Any
loss disallowed under these rules will be added to the shareholder's tax basis
in the new shares purchased by the shareholder.
U.S. GOVERNMENT OBLIGATIONS
To the extent a Master Fund invests in certain U.S. Government
obligations, dividends paid by the LD Marketwide Value Portfolio and the LD
Large Company Portfolio to shareholders that are derived interest on these
obligations should be exempt from state or local personal income tax. Dividends
derived from this interest income and paid to shareholders of the HD Marketwide
Value Portfolio or HD Large Company Portfolio will not be exempt from state and
local personal income taxes by virtue of the federal income tax status of these
Master Funds as corporations.
COMPLEX SECURITIES
A Master Fund may invest in complex securities, and such investments
may be subject to special and complicated tax rules. These rules could affect
whether gains or losses recognized by a Master Fund are treated as ordinary
income or capital gain, accelerate the recognition of income to the Master Fund
or defer a Master Fund's recognition of losses. In turn, these rules may affect
the amount, timing or character of the income distributed to a shareholder by a
Portfolio.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS
The Portfolios will inform shareholders of the amount and character of
distributions at the time they are paid, and will advise shareholders of the tax
status for federal income tax purposes of such distributions shortly after the
close of each calendar year. Shareholders who have not held shares of a
Portfolio a full year may have designated and distributed to them as ordinary
income or capital gain a percentage of income that is not equal to the actual
amount of such income earned during the period of their investment in the
Portfolio.
CALCULATION OF PERFORMANCE DATA
The Portfolios and the Master Funds 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 or Master Fund. Standard quotations
of total return are computed in accordance with Commission 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 Commission Guideline
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computations by covering different time periods. In all cases, disclosures
are made when performance uqotations differ from the Commission Guideline.
Performance data is based on historical earnings and is not intended to
indicate future performances. 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.
As the following formula indicates, the average annual total return is
determined 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 Commission
formula:
In addition to the standardized method of calculating performance
required by the Commission, the Portfolios and Master Funds may disseminate
other performance data and may advertise total return calculated on a monthly
basis.
n
P(1 + T) = 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).
The Portfolios and Master Funds may compare their investment
performance to appropriate market and mutual fund indices and investments for
which reliable performance data is available. Such indices are generally
unmanaged and are prepared by entities and organizations which track the
performance of investment companies or investment advisors. Unmanaged indices
often do not reflect deductions for administrative and management costs and
expenses. The performance of the Portfolios and Master Funds may also be
compared in publications to averages, performance rankings, or other information
prepared by recognized mutual fund statistical services. Any performance
information, whether related to the Portfolios or Master Funds or to the
Advisor, should be considered in light of a Portfolio's investment objectives
and policies, characteristics and the quality of the portfolio and market
conditions during the time period indicated and should not be considered to be
representative of what may be achieved in the future.
FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, 200 East Las Olas Boulevard, Suite 1700,
Fort Lauderdale, FL 33301, are the independent certified public accountants
to the Fund and the Trust. They audit the Fund's and the Trust's financial
statements. Because the Portfolios and Master Funds are new, the annual
reports of the Fund and the Trust for the fiscal year ended November 30,
1999, do not contain any data regarding the Portfolios and Master Funds.
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