<PAGE> 1
This filing is made pursuant to Rule 497(c)
under the Securities Act of 1933 in
connection with Registration No. 33-33980
PROSPECTUS
FEBRUARY 28, 1996
RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO
RWB/DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
RWB/DFA TWO-YEAR GOVERNMENT PORTFOLIO
This prospectus describes RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO,
RWB/DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO and RWB/DFA TWO-YEAR
GOVERNMENT PORTFOLIO (collectively the "Portfolios"), each a series of shares
issued by Dimensional Investment Group Inc. (the "Fund"), 1299 Ocean Avenue,
11th floor, Santa Monica, California 90401, (310) 395-8005. Each Portfolio is
an open-end, management investment company whose shares are offered, without a
sales charge, to clients of Reinhardt Werba Bowen Advisory Services ("RWBAS").
The Fund issues eleven series of shares, each of which represents a
separate class of the Fund's common stock, having its own investment objective
and policies. This prospectus relates to three series of shares. The
investment objective of RWB/DFA U.S. High Book to Market Portfolio is to
achieve long-term capital appreciation. The investment objective of RWB/DFA
Two-Year Corporate Fixed Income Portfolio is to maximize total returns
consistent with the preservation of capital and the investment objective of
RWB/DFA Two-Year Government Portfolio is to maximize total returns available
from the universe of debt obligations of the U.S. government and U.S.
government agency obligations and consistent with preservation of capital.
EACH PORTFOLIO, UNLIKE MANY OTHER INVESTMENT COMPANIES WHICH DIRECTLY
ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, SEEKS TO ACHIEVE ITS
INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN THE SHARES OF
A CORRESPONDING SERIES OF THE DFA INVESTMENT TRUST COMPANY (THE "TRUST"), AN
OPEN-END, MANAGEMENT INVESTMENT COMPANY THAT OFFERS SERIES THAT HAVE THE SAME
INVESTMENT OBJECTIVES, POLICIES AND LIMITATIONS AS THE PORTFOLIOS. THE
INVESTMENT EXPERIENCE OF EACH PORTFOLIO WILL CORRESPOND DIRECTLY WITH THE
INVESTMENT EXPERIENCE OF ITS CORRESPONDING SERIES. INVESTORS SHOULD CAREFULLY
CONSIDER THIS INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION, SEE "SPECIAL
INFORMATION ABOUT THE PORTFOLIOS' STRUCTURE."
This prospectus sets forth information about the Portfolios that
prospective investors should know before investing and should be read carefully
and retained for future reference. A statement of additional information about
the Portfolios, dated February 28, 1996, which is incorporated herein by
reference, has been filed with the Securities and Exchange Commission and is
available upon request, without charge, by writing or calling the Fund at the
above address or telephone number.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2
TABLE OF CONTENTS
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PAGE
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HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SPECIAL INFORMATION ABOUT THE PORTFOLIOS' STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO - INVESTMENT
OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Portfolio Characteristics and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
INVESTMENT OBJECTIVES AND POLICIES - FIXED INCOME PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . 7
RWB/DFA Two-Year Corporate
Fixed Income Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RWB/DFA Two-Year Government Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Description of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investments in the Banking Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Portfolio Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECURITIES LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Portfolio Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Futures Contracts and Options in Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Banking Industry Concentration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
MANAGEMENT OF THE PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Administrative Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Client Service Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<TABLE>
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PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
In Kind Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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HIGHLIGHTS
THE PORTFOLIOS Page 4
This prospectus relates to three separate Portfolios of the Fund.
Each Portfolio, in effect, represents a separate mutual fund with its own
investment objective and policies. The investment objective of each Portfolio
is a fundamental policy and may not be changed without the affirmative vote of
a majority of its outstanding securities. Clients of RWBAS may choose to
invest in one or more of the Portfolios. Proceeds from the sale of shares of a
Portfolio will be invested in accordance with that Portfolio's investment
objective and policies. A shareholder will be entitled to a pro rata share of
all dividends and distributions arising from the assets of the Portfolio in
which he invests. Upon redeeming shares, a shareholder will receive the
current net asset value per share of the Portfolio represented by the redeemed
shares.
INVESTMENT OBJECTIVE - RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO Page 5
The investment objective of the Portfolio is to achieve long-term
capital appreciation. The Portfolio will invest all of its assets in U.S.
Large Cap Value Series of the Trust (the "Large Cap Value Series"), which in
turn will invest in the common stocks of U.S. companies with shares that have a
high book value in relation to their market value. The Large Cap Value Series
will purchase common stocks of companies whose market capitalizations equal or
exceed that of a company having the median market capitalization of companies
whose shares are listed on the New York Stock Exchange (the "NYSE"). (See
"RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO - INVESTMENT OBJECTIVE AND
POLICIES.")
INVESTMENT OBJECTIVE - RWB/DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO Page 7
The investment objective of the Portfolio is to maximize total returns
consistent with the preservation of capital. The Portfolio will invest all of
its assets in DFA Two-Year Corporate Fixed Income Series of the Trust (the
"Two-Year Corporate Fixed Income Series"). Generally, the Two-Year Corporate
Fixed Income Series will acquire high quality obligations which mature within
two years from the date of settlement. In addition, the Two-Year Corporate
Fixed Income Series intends to concentrate investments in the banking industry
under certain circumstances. (See "FIXED INCOME PORTFOLIOS - INVESTMENT
OBJECTIVES AND POLICIES" and "Investments in the Banking Industry.")
INVESTMENT OBJECTIVE - RWB/DFA TWO-YEAR GOVERNMENT PORTFOLIO Page 7
The investment objective of the Portfolio is to maximize total returns
available from the universe of debt obligations of the U.S. government and
U.S. government agencies and consistent with preservation of capital. The
Portfolio will invest all of its assets in DFA Two- Year Government Series of
the Trust (the "Two-Year Government Series"). Generally, the Two-Year
Government Series will acquire U.S. government obligations and U.S. government
agency obligations that mature within two years from the date of settlement and
repurchase agreements. (See "FIXED INCOME PORTFOLIOS -INVESTMENT OBJECTIVES
AND POLICIES.")
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RISK FACTORS Page 10
The RWB/DFA High Book to Market Portfolio (indirectly through its
investments in the Large Cap Value Series) may invest in financial futures
contracts and options thereon. The RWB/DFA Two-Year Corporate Fixed Income
Portfolio (indirectly through its investment in the Two- Year Corporate Fixed
Income Series) is authorized to invest in dollar-denominated obligations of
U.S. subsidiaries and branches of foreign banks and dollar-denominated
obligations of foreign issuers traded in the U.S. The Two-Year Corporate Fixed
Income Series is authorized to concentrate investments in the banking industry
in certain circumstances. Each Portfolio is authorized to invest in repurchase
agreements. Those policies and the policy of the Portfolios to invest in the
shares of corresponding Series of the Trust involve certain risks. (See "RISK
FACTORS.")
MANAGEMENT AND ADMINISTRATIVE SERVICES Page 11
Dimensional Fund Advisors Inc. (the "Advisor") provides each Portfolio
with administrative services and also serves as investment advisor to each
Series of the Trust. PFPC Inc. ("PFPC") provides the Portfolios and the Series
with certain accounting, transfer agency and other services. RWBAS serves as
client service agent to each Portfolio. (See "MANAGEMENT OF THE PORTFOLIOS.")
DIVIDEND POLICY Page 13
The RWB/DFA U.S. High Book to Market Portfolio and the Fixed Income
Portfolios distribute dividends from their net investment income quarterly.
Each of the Portfolios will make any distributions from realized net capital
gains on an annual basis. (See "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND
TAXES.")
PURCHASE, VALUATION AND REDEMPTION OF SHARES Page 14
The shares of the Portfolios are offered at net asset value, which is
calculated as of the close of the NYSE on each day that the Exchange is open
for business. The value of a Portfolio's shares will fluctuate in relation to
the investment experience of its corresponding Series. The redemption price of
a share of each Portfolio is equal to its net asset value. (See "PURCHASE OF
SHARES" and "REDEMPTION OF SHARES.")
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SHAREHOLDER TRANSACTION EXPENSES
None*
ANNUAL FUND OPERATING EXPENSES**
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO
Management Fee 0.10%
Administration Fee 0.01%
Other Expenses 0.29%
Total Operating Expenses 0.40%
RWB/DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
Management Fee 0.15%
Administration Fee 0.01%
Other Expenses 0.25%
Total Operating Expenses 0.41%
RWB/DFA TWO-YEAR GOVERNMENT PORTFOLIO
Management Fee 0.15%
Administration Fee 0.01%
Other Expenses 0.27%
Total Operating Expenses 0.43%
*MOST SHARES OF THE PORTFOLIOS THAT WILL BE PURCHASED THROUGH OMNIBUS
ACCOUNTS MAINTAINED BY SECURITIES FIRMS MAY BE SUBJECT TO A SERVICE FEE OR
COMMISSION ON SUCH PURCHASES.
**The "Management Fee" is payable by the Series and the
"Administration Fee" is payable by the Portfolio. The amount set forth in
"Other Expenses" represents the aggregate amount that is payable by both the
Series and the Portfolio, and also includes a client services fee of 0.09%
payable by the RWB/DFA U.S. High Book to Market Portfolio and a client services
fee of 0.03% payable by the Fixed Income Portfolios to RWBAS.
EXAMPLE
You would pay the following transaction and annual operating expenses
on a $1,000 investment in each Portfolio, assuming a 5% annual return over each
of the following time periods and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
RWB/DFA U.S. High Book to Market
Portfolio $4 $13 n/a n/a
RWB/DFA Two-Year Corporate
Fixed Income Portfolio $4 $13 n/a n/a
RWB/DFA Two-Year Government
Portfolio $4 $14 n/a n/a
</TABLE>
The purpose of the above fee table and Example is to assist investors
in understanding the various costs and expenses that an investor in the
Portfolios will bear directly or indirectly. THE EXAMPLE SHOULD NOT BE
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CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
The table summarizes the aggregate estimated annual operating expenses
of both the Portfolios and the corresponding Series. (See "MANAGEMENT OF THE
PORTFOLIOS" for a description of Portfolio and Series expenses.) The Board of
Directors of the Fund has considered whether such expenses will be more or less
than they would have been if each Portfolio were to have invested directly in
the securities held by its corresponding Series. The aggregate amount of
expenses for a Portfolio and the corresponding Trust Series may be greater than
it would have been if the Portfolio were to invest directly in the securities
held by the corresponding Trust Series. However, the total expense ratios for
the Portfolios and their corresponding Series are expected to be less over time
than such ratios would have been if the Portfolios would have invested directly
in the underlying securities. This is because this arrangement enables
institutional investors, including the Portfolios, to pool their assets, which
may be expected to result in economies by spreading certain fixed costs over a
larger asset base. Each shareholder in a Series, including the corresponding
Portfolio, will pay its proportionate share of the expenses of the Series.
The Portfolios are new and, therefore, their expenses included in the
table are the estimated annualized expenses that are expected to be incurred
through the fiscal period ending November 30, 1996; and the above example is
based on estimated expenses for the current and next two fiscal years and does
not extend those estimates over five and ten-year periods. The estimated
expenses with respect to the RWB/DFA U.S. High Book to Market Portfolio take
into account the actual expenses of the Large Cap Value Series for the fiscal
year ended November 30, 1995.
SPECIAL INFORMATION ABOUT THE PORTFOLIOS' STRUCTURE
Each of the Portfolios, unlike many other investment companies which
directly acquire and manage their own portfolio of securities, seeks to achieve
its investment objective by investing all of its investable assets in a
corresponding Series of the Trust, an open-end, management investment company,
registered under the Investment Company Act of 1940, that issues Series having
the same investment objective as each of the Portfolios. The investment
objective of a Portfolio may not be changed without the affirmative vote of a
majority of its outstanding securities and the investment objective of a Series
of the Trust may not be changed without the affirmative vote of a majority of
its outstanding securities. Shareholders of a Portfolio will receive written
notice thirty days prior to any change in the investment objective of its
corresponding Trust Series.
This prospectus describes the investment objective, policies and
restrictions of each Portfolio and its corresponding Series. (See "RWB/DFA
U.S. HIGH BOOK TO MARKET PORTFOLIO - INVESTMENT OBJECTIVE AND POLICIES" and
"FIXED INCOME PORTFOLIOS - INVESTMENT OBJECTIVES AND POLICIES.") In addition,
an investor should read "MANAGEMENT OF THE PORTFOLIOS" for a description of the
management and other expenses associated with the Portfolios' investment in the
Trust. Other institutional investors, including other mutual funds, may invest
in each Series and the expenses of such other investors and, correspondingly,
their returns may differ from those of the Portfolios. Please contact the
Trust at 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401, (310) 395-8005
for information about the availability of investing in the Series other than
through the Portfolios.
The shares of the Series 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. For example, a Series might be able
to place larger block trades at more advantageous prices and to participate in
securities transactions of larger denominations, thereby reducing the relative
amount of certain transaction costs in relation to the total size of the
transaction. While investment in a Series by other institutional investors
offers potential benefits to the Series and, through their investment in the
Series, the Portfolios also, institutional investment in the Series also
entails the risk that economies and expense
4
<PAGE> 8
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 Series. Also, if an institutional investor were to redeem
its interest in a Series, the remaining investors in that Series could
experience higher pro rata operating expenses, thereby producing lower returns,
and the Series' security holdings may become less diverse, resulting in
increased risk. Institutional investors that have a greater pro rata ownership
interest in a Series than the corresponding Portfolio could have effective
voting control over the operation of the Series.
Further, if a Series changes its investment objective in a manner
which is inconsistent with the investment objective of a corresponding
Portfolio and the shareholders of the Portfolio fail to approve a similar
change in the investment objective of the Portfolio, the Portfolio would be
forced to withdraw its investment in the Series and either seek to invest its
assets in another registered investment company with the same investment
objective as the Portfolio, which might not be possible, or retain an
investment advisor to manage the Portfolio's assets in accordance with its own
investment objective, possibly at increased cost. A withdrawal by a Portfolio
of its investment in the corresponding Series 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. Moreover, a distribution in
kind by the Series corresponding to the RWB/DFA U.S. High Book to Market
Portfolio and RWB/DFA Two-Year Corporate Fixed Income Portfolio may constitute
a taxable exchange for federal income tax purposes resulting in gain or loss to
these Portfolios. Any net capital gains so realized will be distributed to
such a Portfolio's shareholders as described below under "Dividends, Capital
Gains Distributions and Taxes."
Finally, the Portfolios' investment in the shares of a registered
investment company such as the Trust is new and results in certain operational
and other complexities. However, management believes that the benefits to be
gained by shareholders outweigh the additional complexities and that the risks
attendant to such investment are not inherently different from the risks of
direct investment in securities of the type in which the Trust Series invest.
RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO -
INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of the RWB/DFA U.S. High Book to Market
Portfolio is to achieve long-term capital appreciation. The Portfolio pursues
its objective by investing all of its assets in the U.S. Large Cap Value Series
of the Trust (the "Large Cap Value Series"), which has the same investment
objective and policies as the Portfolio. The Large Cap Value Series seeks to
achieve its objective by investing in common stocks of large U.S. companies
with shares that have a high book value in relation to their market value (a
"book to market ratio"). A company's shares will be considered to have a high
book to market ratio if the ratio equals or exceeds the ratios of any of the
30% of companies with the highest positive book to market ratios whose shares
are listed on the NYSE and, except as described below under "Portfolio
Structure," will be considered eligible for investment. A company will be
considered "large" if its market capitalization (i.e., the market price of its
common stock multiplied by the number of outstanding shares) equals or exceeds
that of the company having the median market capitalization of companies whose
shares are listed on the NYSE. In addition, the Large Cap Value Series is
authorized to invest in private placements of interest-bearing debentures that
are convertible into common stock ("privately placed convertible debentures").
Such investments are considered illiquid and the value thereof together with
the value of all other illiquid investments may not exceed 15% of the value of
the Large Cap Value Series' total assets at the time of purchase.
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<PAGE> 9
PORTFOLIO STRUCTURE
The Large Cap Value Series will operate as a "diversified" investment
company. Further, the Large Cap Value Series will not invest more than 25% of
its total assets in securities of companies in a single industry. Ordinarily,
at least 80% of the assets of the Large Cap Value Series will be invested in a
broad and diverse group of readily marketable common stocks of large U.S.
companies with high book to market ratios, as described above. The Large Cap
Value Series may invest a portion of its assets, ordinarily not more than 20%,
in high quality, highly liquid fixed income securities such as money market
instruments, including short-term repurchase agreements. The Large Cap Value
Series will purchase securities that are listed on the principal U.S. national
securities exchanges and traded over-the-counter.
The Large Cap Value Series will be structured on a market
capitalization basis, by generally basing the amount of each security purchased
on the issuer's relative market capitalization, with a view to creating in the
Large Cap Value Series a reasonable reflection of the relative market
capitalizations of its portfolio companies. However, the Advisor may exclude
the securities of a company that otherwise meets the applicable criteria
described above if the Advisor determines, in its best judgment, that other
conditions exist that make the inclusion of such security inappropriate.
Deviation from strict market capitalization weighing will also occur
because the Large Cap Value Series intends to purchase round lots only. In
order to retain sufficient liquidity, the relative amount of any security held
by the Large Cap Value Series may be reduced, from time to time, from the level
which adherence to market capitalization weighing would otherwise require. A
portion, but generally not in excess of 20%, of the Large Cap Value Series'
assets may be invested in interest-bearing obligations, as described above,
thereby causing further deviation from market capitalization weighing. The
Large Cap Value Series may make block purchases of eligible securities at
opportune prices even though such purchases exceed the number of shares which,
at the time of purchase, strict adherence to the policy of market
capitalization weighing would otherwise require. While such transactions might
cause a temporary deviation from market capitalization weighing, they would
ordinarily be made in anticipation of further growth of the assets of the Large
Cap Value Series. If securities must be sold in order to obtain funds to make
redemption payments, such securities may be repurchased by the Large Cap Value
Series as additional cash becomes available to it. However, the Portfolio and
the Large Cap Value Series each has retained the right to borrow to make
redemption payments and are also authorized to redeem their shares in kind.
(See "REDEMPTION OF SHARES.")
Changes in the composition and relative ranking (in terms of market
capitalization and book to market ratio) of the stocks which are eligible for
purchase by the Large Cap Value Series take place with every trade when the
securities markets are open for trading due, primarily, to price fluctuations
of such securities. On not less than a semi-annual basis, the Advisor will
prepare a current list of large U.S. companies with high book to market ratios
whose stock is eligible for investment. Only common stocks whose market
capitalizations are not less than the minimum on such list will be purchased by
the Large Cap Value Series. Additional investments will not be made in
securities of issuers which have depreciated in value to such an extent that
they are not then considered by the Advisor to be large companies. This may
result in further deviation from market capitalization weighing and such
deviation could be substantial if a significant amount of the Large Cap Value
Series' holdings decrease in value sufficiently to be excluded from the then
current market capitalization requirement for eligible securities, but not by a
sufficient amount to warrant their sale. A further deviation from market
capitalization weighing may occur if the Large Cap Value Series invests a
portion of its assets in privately placed convertible debentures. (See
"Portfolio Characteristics and Policies.")
It is management's belief that the stocks of large U.S. companies with
high book to market ratios offer, over a long term, a prudent opportunity for
capital appreciation but, at the same time, selecting a limited number of such
issues for inclusion in the Large Cap Value Series involves greater risk than
including a large number of them. The Advisor does not anticipate that a
significant number of securities which meet the market capitalization criteria
will be selectively excluded from the Large Cap Value Series.
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<PAGE> 10
The Large Cap Value Series does not seek current income as an
investment objective and investments will not be based upon an issuer's
dividend payment policy or record. However, many of the companies whose
securities will be included in the Large Cap Value Series do pay dividends. It
is anticipated, therefore, that the Large Cap Value Series will receive
dividend income.
PORTFOLIO TRANSACTIONS
The Large Cap Value Series does not intend to purchase or sell
securities based on the prospects for the economy, the securities markets or
the individual issuers whose shares are eligible for purchase. As described
under "Portfolio Structure," investments will be made in virtually all eligible
securities on a market capitalization weighted basis. This is a passive
approach to investment management that does not entail taking steps to reduce
risk by replacing portfolio equity securities with other securities that appear
to have the potential to provide better investment performance.
Generally, securities will be purchased with the expectation that they
will be held for longer than one year. The Advisor may, from time to time,
sell portfolio securities when, in its opinion, such action is necessary to pay
redemptions in cash. However, the Large Cap Value Series and the Portfolio are
authorized to borrow in order to pay redemptions in cash. The Large Cap Value
Series may sell portfolio securities when the issuer's market capitalization
falls substantially below that of the issuer with the minimum market
capitalization which is then eligible for purchase by the Large Cap Value
Series. In addition, the Large Cap Value Series may sell portfolio securities
when their book to market ratio falls substantially below that of the security
with the lowest such ratio that is then eligible for purchase by the Series.
However, securities may be sold at any time when, in the Advisor's judgment,
circumstances warrant their sale. The annual portfolio turnover rate is not
expected to exceed 25%.
INVESTMENT OBJECTIVES AND POLICIES - FIXED INCOME PORTFOLIOS
RWB/DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
The investment objective of RWB/DFA Two-Year Corporate Fixed Income
Portfolio is to maximize total returns consistent with the preservation of
capital. This objective will be pursued by investing the assets of the
Portfolio in the Two-Year Corporate Fixed Income Series. The Two-Year
Corporate Fixed Income Series has the same investment objective and policies as
the Portfolio. The Two-Year Corporate Fixed Income Series will invest in U.S.
government obligations, U.S. government agency obligations, dollar denominated
obligations of foreign issuers issued in the U.S., bank obligations, including
U.S. subsidiaries and branches of foreign banks, corporate obligations,
commercial paper, repurchase agreements and obligations of supranational
organizations. It is the Two-Year Corporate Fixed Income Series' policy to
acquire obligations which mature within two years from the date of settlement.
The Two-Year Corporate Fixed Income Series principally invests in certificates
of deposit, commercial paper, bankers' acceptances, notes and bonds. The
Series will invest more than 25% of its total assets in obligations of U.S.
and/or foreign banks and bank holding companies when the yield to maturity on
these instruments exceeds the yield to maturity on all other eligible portfolio
investments of similar quality for a period of five consecutive days when the
NYSE is open for trading. (See "Investments in the Banking Industry.")
RWB/DFA TWO-YEAR GOVERNMENT PORTFOLIO
The investment objective of the RWB/DFA Two-Year Government Portfolio
is to maximize total returns available from the universe of debt obligations of
the U.S. government and U.S. government agencies and consistent with the
preservation of capital. This objective will be pursued by investing the
assets of the Portfolio in the Two-Year Government Series. The Two-Year
Government Series has the same investment objective and policies as the
Portfolio. Generally, the Two-Year Government Series will acquire U.S.
government obligations and U.S.
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government agency obligations that mature within two years from the date of
settlement. The Two-Year U.S. Government Series will also acquire repurchase
agreements.
DESCRIPTION OF INVESTMENTS
The following is a description of the categories of investments which
may be acquired by the Fixed Income Portfolios:
<TABLE>
<CAPTION>
Permissible
Categories
<S> <C>
RWB/DFA Two-Year Corporate Fixed Income Portfolio 1-7
RWB/DFA Two-Year Government Portfolio 1, 2, 6
</TABLE>
1. U.S. Government Obligations - Debt securities issued by the
U.S. Treasury which are direct obligations of the U.S. government, including
bills, notes and bonds.
2. U.S. Government Agency Obligations - Issued or guaranteed by
U.S. government-sponsored instrumentalities and federal agencies, including the
Federal National Mortgage Association, Federal Home Loan Bank and the Federal
Housing Administration.
3. Corporate Debt Obligations - Non-convertible corporate debt
securities (e.g., bonds and debentures) which are issued by companies whose
commercial paper is rated Prime-1 by Moody's Investors Services, Inc.
("Moody's") or A-1 by Standard & Poor's Corporation ("S&P") and
dollar-denominated obligations of foreign issuers issued in the U.S. If the
issuer's commercial paper is unrated, then the debt security would have to be
rated at least AA by S&P or Aa2 by Moody's. If there is neither a commercial
paper rating nor a rating of the debt security, then the Advisor must determine
that the debt security is of comparable quality to equivalent issues of the
same issuer rated at least AA or Aa2.
4. Bank Obligations - Obligations of U.S. banks and savings and
loan associations and dollar-denominated obligations of U.S. subsidiaries and
branches of foreign banks, such as certificates of deposit (including
marketable variable rate certificates of deposit) and bankers' acceptances.
Bank certificates of deposit will be acquired only if the bank has assets in
excess of $1,000,000,000.
5. Commercial Paper - Rated, at the time of purchase, A-1 or
better by S&P or Prime-1 by Moody's, or, if not rated, issued by a corporation
having an outstanding unsecured debt issue rated Aaa by Moody's or AAA by S&P,
and having a maximum maturity of nine months.
6. Repurchase Agreements - Instruments through which the Series
purchases securities ("underlying securities") from a bank, or a registered
U.S. government securities dealer, with an agreement by the seller to
repurchase the security at an agreed price, plus interest at a specified rate.
The underlying securities will be limited to U.S. government and agency
obligations described in (1) and (2) above. The Series will not enter into a
repurchase agreement with a duration of more than seven days if, as a result,
more than 10% of the value of the Series' total assets would be so invested.
The Series will also only invest in repurchase agreements with a bank if the
bank has at least $1,000,000,000 in assets and is approved by the Investment
Committee of the Advisor. The Advisor will monitor the market value of the
securities plus any accrued interest thereon so that they will at least equal
the repurchase price.
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7. Supranational Organization Obligations - Debt securities of
supranational organizations such as the European Coal and Steel Community, the
European Economic Community and the World Bank, which are chartered to promote
economic development.
INVESTMENTS IN THE BANKING INDUSTRY
The Two-Year Corporate Fixed Income Series will invest more than 25%
of its total assets in obligations of U.S. and/or foreign banks and bank
holding companies when the yield to maturity on these investments exceeds the
yield to maturity on all other eligible portfolio investments for a period of
five consecutive days when the NYSE is open for trading. For the purpose of
this policy, which is a fundamental policy of the Two-Year Corporate Fixed
Income Series, which can only be changed by a vote of the shareholders of the
Series, banks and bank holding companies are considered to constitute a single
industry, the banking industry. The RWB/DFA Two-Year Corporate Fixed Income
Portfolio has the same fundamental policy, which can only be changed by a vote
of the Portfolio's shareholders, except that the Portfolio's policy does not
apply to the extent that all or substantially all of its net assets are
invested in the Two-Year Corporate Fixed Income Series. When investment in
such obligations exceeds 25% of the total net assets of the Two-Year Corporate
Fixed Income Series, the Series will be considered to be concentrating its
investments in the banking industry.
The types of bank and bank holding company obligations in which the
Two-Year Corporate Fixed Income Series may invest include: dollar-denominated
certificates of deposit, bankers' acceptances, commercial paper and other debt
obligations issued in the United States and which mature within two years of
the date of settlement, provided such obligations meet the Series' established
credit rating criteria as stated under "Description of Investments." In
addition, the Two-Year Corporate Fixed Income Series is authorized to invest
more than 25% of its total assets in Treasury bonds, bills and notes and
obligations of federal agencies and instrumentalities.
PORTFOLIO STRATEGY
The Two-Year Corporate Fixed Income Series will be managed with a view
to capturing credit risk premiums and term or maturity premiums. As used
herein, the term "credit risk premium" means the anticipated incremental return
on investment for holding obligations considered to have greater credit risk
than direct obligations of the U.S. Treasury, and "maturity risk premium" means
the anticipated incremental return for holding securities having maturities of
longer than one month compared to securities having a maturity of one month.
The Advisor believes that credit risk premiums are available largely through
investment in high grade commercial paper, certificates of deposit and
corporate obligations. The holding period for assets of the Two-Year Corporate
Fixed Income Series will be chosen with a view to maximizing anticipated
monthly returns, net of trading costs.
The Two-Year Corporate Fixed Income Series and the Two-Year Government
Series are expected to have high portfolio turnover rates due to the relatively
short maturities of the securities to be acquired. The rate of portfolio
turnover will depend upon market and other conditions; it will not be a
limiting factor when management believes that portfolio changes are
appropriate. It is anticipated that the annual turnover rate of the Two-Year
Corporate Fixed Income Series could be 0% to 200%, and the Two-Year Government
Series could be 100% to 500%. While the Two-Year Corporate Fixed Income Series
and Two-Year Government Series acquire securities in principal transactions
and, therefore, do not pay brokerage commissions, the spread between the bid
and asked prices of a security may be considered to be a "cost" of trading.
Such costs ordinarily increase with trading activity. However, as stated
above, securities ordinarily will be sold when, in the Advisor's judgment, the
monthly return of the Two-Year Corporate Fixed Income Series or the Two-Year
Government Series will be increased as a result of portfolio transactions after
taking in to account the cost of trading. It is anticipated that securities
will be acquired in the secondary markets for short term instruments.
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SECURITIES LOANS
The Portfolios and the corresponding Series of the Trust are
authorized to lend securities to qualified brokers, dealers, banks and other
financial institutions for the purpose of earning additional income, although
inasmuch as a Portfolio will only hold shares of its corresponding Series, the
Portfolios do not intend to lend those shares. While a Series may earn
additional income from lending securities, such activity is incidental to a
Series' investment objective. 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
Series will receive collateral consisting of cash or U.S. Government
securities, which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. In addition,
the Series will be able to terminate the loan at any time, 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 Series could experience delay in recovering the
loaned securities. Management believes that this risk can be controlled
through careful monitoring procedures.
RISK FACTORS
FOREIGN SECURITIES
The Two-Year Corporate Fixed Income Series invests in foreign issuers.
Such investments involve risks that are not associated with investments in U.S.
public companies. Such risks may include legal, political and or diplomatic
actions of foreign governments, such as imposition of withholding taxes on
interest and dividend income payable on the securities held, possible seizure
or nationalization of foreign deposits, establishment of exchange controls or
the adoption of other foreign governmental restrictions which might adversely
affect the value of the assets held by the Two-Year Corporate Fixed Income
Series. Further, foreign issuers are not generally subject to uniform
accounting, auditing and financial reporting standards comparable to those of
U.S. public companies and there may be less publicly available information
about such companies than comparable U.S. companies. The Two-Year Corporate
Fixed Income Series may also invest in obligations of supranational
organizations. The value of the obligations of these organizations may be
adversely affected if one or more of their supporting governments discontinue
their support.
BORROWING
Each Portfolio and each corresponding Series of the Trust has reserved
the right to borrow amounts not exceeding 33% of its net assets from banks as a
temporary measure for extraordinary or emergency purposes. When advantageous
opportunities to do so exist, each Portfolio and each Series may also purchase
securities when borrowings exceed 5% of the value of its net assets. Such
purchases can be considered to be "leveraging," and, in such circumstances, the
net asset value of the Series or Portfolio may increase or decrease at a
greater rate than would be the case if the Series or Portfolio had not
leveraged. The interest payable on the amount borrowed would increase the
Series' or Portfolios' expenses and if the appreciation and income produced by
the investments purchased when the Series or Portfolios has borrowed are less
than the cost of borrowing, the investment performance of each Series or
Portfolio will be reduced as a result of leveraging.
PORTFOLIO STRATEGY
The method employed by the Advisor to manage the Large Cap Value
Series differs from the process employed by many other investment advisors in
that the Advisor will rely on fundamental analysis of the investment merits of
securities to a limited extent to eliminate potential acquisitions rather than
rely on this technique to select securities. Further, because securities
generally will be held long-term and will not be eliminated based on short-term
price fluctuations, the Advisor generally will not act upon general market
movements or short-term price fluctuations of securities to as great an extent
as many other investment advisors.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Large Cap Value Series also may invest in index futures contracts
and options on index futures, provided that, in accordance with current
regulations, not more than 5% of the Series' total assets are then invested as
initial margin deposits on such contracts or options. In addition, to the
extent that the Series invests in futures contracts and options thereon for
other than bona fide hedging purposes, the Series will enter into such
transactions if, immediately thereafter, the sum of the amount of initial
margin deposits and premiums paid for open futures options would exceed 5% of
the Series' total 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%.
These investments entail the risk that an imperfect correlation may
exist between changes in the market value of the stocks owned by the Large Cap
Value Series and the prices of such futures contracts and options and, at
times, the market for such contracts and options might lack liquidity, thereby
inhibiting a Series' ability to close a position in such investments. Gains or
losses on investments in options and futures depends on the direction of
securities prices, interest rates and other economic factors and the loss from
investing in futures transactions is potentially unlimited.
BANKING INDUSTRY CONCENTRATION
Concentrating in obligations of the banking industry may involve
additional risk by foregoing the safety of investing in a variety of
industries. Changes in the market's perception of the riskiness of banks
relative to non-banks could cause more fluctuations in the net asset value of
the Two-Year Corporate Fixed Income Series (and thus, the RWB/DFA Two-Year
Corporate Fixed Income Portfolio) than might occur in a less concentrated
portfolio.
REPURCHASE AGREEMENTS
Each Series may invest in repurchase agreements. In the event of
bankruptcy of the other party to a repurchase agreement, the Trust could
experience delay in recovering the securities underlying such agreements.
Management believes that this risk can be controlled through stringent security
selection criteria and careful monitoring procedures.
MANAGEMENT OF THE PORTFOLIOS
Dimensional Fund Advisors Inc. serves as investment advisor to each
Series and, as such, is responsible for the management of their respective
assets. Investment decisions for the Series 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 each Series with a trading department and selects brokers and dealers
to effect securities transactions.
Securities transactions are placed with a view to obtaining the best
price and execution of such transactions. The Advisor is authorized to pay a
higher commission to a broker, dealer or exchange member than another such
organization might charge if it determines, in good faith, that the commission
paid is reasonable in relation to the research or brokerage services provided
by such organization. The Large Cap Value Series, for the fiscal year ended
November 30, 1995, paid an investment management fee to the Advisor equal to
.10% of its average net assets on an annual basis. Pursuant to the investment
management agreements between the Advisor and the Series, the Two-Year
Corporate Fixed Income Series and the Two-Year Government Series pay an
investment management fee equal to .15%, respectively, of the average net
assets of the Series on an annual basis.
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Each Portfolio and Series bears all of its own costs and expenses,
including: services of its independent accountants, legal counsel, brokerage
commissions and transfer taxes in connection with the acquisition and
disposition of portfolio securities, taxes, insurance premiums, costs
incidental to meetings of its shareholders and directors or trustees, the cost
of filing its registration statements under federal and, for only a Portfolio,
state securities laws, reports to shareholders, and transfer and dividend
disbursing agency, administrative services and custodian fees. Expenses
allocable to a particular Portfolio of the Fund or Series of the Trust are so
allocated and expenses which are not allocable to a particular Portfolio or
Series are borne by each Portfolio or Series on the basis of the amount of fees
paid by the Fund or Trust to PFPC, the dividend disbursing and accounting
services agent of the Fund.
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 $12.5 billion. David G. Booth and Rex A.
Sinquefield, directors and officers of both the Fund and the Advisor and
trustees and officers of the Trust, together own approximately 64% of the
Advisor's outstanding stock and may be deemed controlling persons of the
Advisor.
The Board of Directors is responsible for establishing Portfolio
policies and for overseeing the management of the Portfolios. 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 Series. The statement of
additional information relating to the Portfolios furnishes information about
the Directors and officers of the Fund. (See "DIRECTORS AND OFFICERS" in the
statement of additional information.)
ADMINISTRATIVE SERVICES
The Fund has entered into an administration agreement with the Advisor
on behalf of each Portfolio. Pursuant to the administration agreement, the
Advisor will perform various services, including: supervision of the services
provided by the Portfolio's custodian and dividend disbursing agent and others
who provide services to the Fund for the benefit of the Portfolio; assisting
the Fund to comply with the provisions of federal, state, local and foreign
securities, tax and other laws applicable to the Portfolio; providing
shareholders of record with information about the Portfolio and their
investments as they or the Fund may request; assisting the Fund to conduct
meetings of shareholders; furnishing information as the Board of Directors may
require regarding the Series; and any other administrative services for the
benefit of the Portfolio as the Board of Directors may reasonably request. The
Advisor also provides the Fund with office space and personnel. For these
administrative services, each Portfolio pays the Advisor a monthly fee which,
on an annual basis, equals .01% of the average daily net assets of each
Portfolio.
PFPC serves as the accounting services, dividend disbursing and
transfer agent for the Portfolios and the Series. 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 net asset value of the shares, preparation
of reports, liaison with the Portfolios' and the Series' custodian and dividend
disbursing agent. For its services, the RWB/DFA U.S. High Book to Market
Portfolio and RWB/DFA Two-Year Corporate Fixed Income Portfolio each pay PFPC a
monthly fee of $1,000 and RWB/DFA Two-Year Government Portfolio pays a monthly
fee of $2,600.
CLIENT SERVICE AGENT
Pursuant to a Client Service Agent Agreement with each Portfolio,
RWBAS performs various services for the Portfolios, including establishment of
a toll-free telephone number for shareholders of each Portfolio to use to
obtain or receive up-to-date account information; providing to shareholders
quarterly and other reports with respect to the performance of each Portfolio;
and providing shareholders with such information regarding the operations and
affairs of each Portfolio, and their investment in its shares, as the
shareholders or the Board of Directors may
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reasonably request. For its services, each Portfolio pays RWBAS a monthly fee
which, on an annual basis, equals .09% of the average daily net assets of the
RWB/DFA U.S. High Book to Market Portfolio and .03% of the other Portfolios.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Each Portfolio of the Fund intends to qualify each year as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), so that it will not be liable for federal income taxes to the extent
that its net investment income and net realized capital gains are distributed.
The RWB/DFA U.S. High Book to Market Portfolio and the Fixed Income Portfolios
distribute dividends from their net investment quarterly. The three Portfolios
will distribute any realized net capital gains annually after the end of the
Fund's fiscal year. Each Portfolio of the Fund is treated as a separate
corporation for federal tax purposes.
As noted above, the RWB/DFA U.S. High Book to Market Portfolio and the
Fixed Income Portfolios (collectively the "Corporate Feeder Portfolios") seek
to achieve their investment objectives by investing all of their investable
assets in a corresponding series of shares of the Trust (collectively
"Corporate Series"). The Corporate Series intend to qualify each year as
regulated investment companies under the Code.
A Corporate Feeder Portfolio receives income in the form of income
dividends paid by the corresponding Corporate Series. This income, less the
expenses incurred in operations, is a Corporate Feeder Portfolio's net
investment income from which income dividends are distributed as described
above. A Corporate Feeder Portfolio also may receive capital gains
distributions from the corresponding Corporate Series and may realize capital
gains upon the redemption of the shares of the corresponding Corporate Series.
Any net realized capital gains of a Corporate Feeder Portfolio will be
distributed as described below.
As noted above, the RWB/DFA Two-Year Government Portfolio seeks to
achieve its investment objective by investing all of its investable assets in
the Two-Year Government Series of the Trust. The Two-Year Government Series is
classified as a partnership for federal income tax purposes. The RWB/DFA
Two-Year Government Portfolio receives a proportionate share of the net
investment income and capital gains and losses realized by the Series. This
income, less the expenses incurred in operations, is the source from which such
Portfolio distributes income and capital gain dividends as described above.
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
federal income taxes, distributions from long-term capital gains are taxable as
such. Dividends from net investment income or net short-term capital gains
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
gains distribution, a portion of the investment will be returned as a taxable
distribution. Shareholders are notified annually by the Fund as to the federal
tax status of dividends and distributions paid by the Portfolio whose shares
they own.
Shareholders of all of the Portfolios will automatically receive all
income dividends and any capital gains distributions in additional shares of
the Portfolio whose shares they hold at net asset value (as of the business
date following the dividend record date), unless upon written notice to the
transfer agent the shareholder selects one of the following options:
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.
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Cash Option - to receive both income dividends and
capital gains distributions in cash.
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
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 subject to tax. Capital gain or loss
may be realized from an ordinary redemption of shares or an exchange of shares
between two Portfolios of the Fund. Any loss incurred on sale or exchange of a
Portfolio's shares, held for six months or less, will be treated as a long-term
capital loss to the extent of capital gain dividends received with respect to
such shares.
Since virtually all of the net investment income from the Fixed Income
Portfolios is expected to arise from earned interest, it is not expected that
either of the Portfolios' distributions will be eligible for the dividends
received deduction for corporations. The portion of dividends paid by the
RWB/DFA U.S. High Book to Market Portfolio from net investment income that is
eligible for the corporate dividends received deduction depends on the
Portfolio's pro rata share of the aggregate qualifying dividend income received
by its corresponding Series from domestic (U.S.) sources.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. Distributions of interest income and capital
gains realized from certain types of U.S. government securities may be exempt
from state personal income taxes.
A Portfolio is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not complied
with IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on the account registration form your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
The tax discussion set forth above is included for general information
only. Prospective investors should consult their own tax advisers concerning
the federal, state, local or foreign tax consequences of an investment in a
Portfolio.
PURCHASE OF SHARES
Only clients of RWBAS are eligible to purchase shares of the
Portfolios. Investors should first contact RWBAS at (800) 336-7266, ext. 124,
to notify RWBAS of the proposed investment.
Most shares of the Portfolios that will be purchased or sold through
omnibus accounts maintained by securities firms may be subject to a service fee
or commission for such transactions. Clients of RWBAS may also be subject to
investment advisory fees under their own arrangements with RWBAS.
IN KIND PURCHASES
If accepted by the Fund, shares of a Portfolio may be purchased in
exchange for securities which are eligible for acquisition by its corresponding
Series or otherwise represented in the Series' portfolios as described in this
prospectus. Securities to be exchanged which are accepted by the Fund and Fund
shares to be issued therefore 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, interests, subscription, or other rights pertaining
to such
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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 Series corresponding
to the Portfolio whose shares are to be issued 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 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 corresponding
Series may not exceed 5% of the net assets of the Series immediately after the
transaction. The Fund will accept such securities for investment and not for
resale.
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. 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 except at
the written request of stockholders. Certificates for fractional shares,
however, will not be issued.
VALUATION OF SHARES
The net asset value per share of each Portfolio and corresponding
Series is calculated as of the close of the NYSE by dividing the total market
value of its investments and other assets, less any liabilities, by the total
outstanding shares of the stock of the Series or Portfolio. The value of a
Portfolio's shares will fluctuate in relation to the investment experience of
the corresponding Series. Securities held by a Series 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 or, if there is no such reported sale,
the U.S. Large Cap Value Series values such securities at the mean between the
most recent quoted bid and asked prices. Price information on listed
securities is taken from the exchange where the security is primarily traded.
Unlisted securities for which market quotations are readily available are
valued at the mean between the most recent quoted 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 Trustees of
the Trust.
The value of the shares of the Fixed Income Portfolios, the Two-Year
Corporate Fixed Income Series and the Two-Year Government Series will tend to
fluctuate with interest rates because, unlike money market funds, these
Portfolios and the Series do not seek to stabilize the value of their
respective shares by use of the "amortized cost" method of asset valuation.
Net asset value includes interest on fixed income securities which is accrued
daily. Securities which are traded over-the-counter and on a stock exchange
will be valued according to the broadest and most representative market, and it
is expected that for bonds and other fixed-income securities this ordinarily
will be the over- the-counter market. Securities held by the Two-Year
Corporate Fixed Income Series and the Two-Year Government Series may be valued
on the basis of prices provided by a pricing service when such prices are
believed to reflect the current market value of such securities. Other assets
and securities for which quotations are not readily available will be valued in
good faith at fair value using methods determined by the Board of Directors.
Provided that RWBAS has received the investor's investment
instructions in good order and the Custodian has received the investor's
payment, shares of the Portfolio selected will be priced at the net asset value
calculated next after receipt of the order by PFPC. If an order to purchase
shares must be canceled due to non-payment, the purchaser will be responsible
for any loss incurred by the Fund arising out of such cancellation. To recover
any such loss, the Fund reserves the right to redeem shares owned by any
purchaser whose order is canceled, and such purchaser may be prohibited or
restricted in the manner of placing further orders.
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The public offering price of shares of each Portfolio is the net asset
value next determined after the purchase order is received by PFPC; no sales
charge is imposed. 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 Series. Any such charges will be described
in the prospectus.
DISTRIBUTION
The Fund acts as distributor of the Portfolios' shares. It has,
however, entered into an agreement with DFA Securities Inc., a wholly owned
subsidiary of DFA, pursuant to which DFA Securities Inc. is responsible for
supervising the sale of the Portfolios' shares. No compensation is paid by the
Fund to DFA Securities Inc. under this agreement.
EXCHANGE OF SHARES
An investor may exchange shares of one Portfolio for those of another
Portfolio described in this prospectus or a portfolio of DFA Investment
Dimensions Group Inc., an open-end, management investment company ("DFAIDG"),
by first contacting RWBAS and completing the documentation required by RWBAS.
Exchanges are accepted only into those portfolios of DFAIDG that are
eligible for the exchange privilege of DFAIDG. Investors should contact RWBAS
for a list of those portfolios of DFAIDG that accept exchanges.
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 Portfolio and of the portfolio of
DFAIDG 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 the Portfolio.
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 an Exchange Form in good order. "Good order" means a
completed Exchange Form 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, 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
registrations of the two accounts are identical, stock certificates have not
been issued and 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, the investor
could realize a taxable gain or loss on the transaction. The Fund reserves the
right to revise or terminate the exchange privilege or limit the amount of or
reject any exchange, as deemed necessary, at any time.
16
<PAGE> 20
REDEMPTION OF SHARES
An investor who desires to redeem shares of a Portfolio must furnish a
redemption request to RWBAS in the form required by RWBAS. The Portfolio will
redeem shares at the net asset value of such shares next determined after
receipt of a request for redemption in good order by PFPC.
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.
GENERAL INFORMATION
The Portfolios and the Series may disseminate reports of their
investment performance from time to time. Investment performance is calculated
on a total return basis; that is by including all net investment income and any
realized and unrealized net capital gains or losses during the period for which
investment performance is reported. If dividends or capital gains
distributions have been paid during the relevant period, the calculation of
investment performance will include such dividends and capital gains
distributions as though reinvested in shares of the Portfolio. Standard
quotations of total return are computed in accordance with SEC Guidelines and
are presented whenever any non-standard quotations are disseminated.
Non-standardized total return quotations may differ from the SEC Guideline
computations by covering different time periods and by linking the actual
return of a Portfolio with data for periods prior to the Portfolio's inception.
In all cases, disclosures are made when performance quotations differ from the
SEC Guidelines. Performance data is based on historical earnings and is not
intended to indicate future performance. Rates of return expressed on an
annual basis will usually not equal the sum of returns expressed for
consecutive interim periods due to the compounding of the interim yields.
The Fund was incorporated under Maryland law on March 19, 1990. The
DFA Investment Trust Company was organized as a Delaware business trust on
October 27, 1992. The Trust offers shares of its Series only to institutional
investors in private offerings. The Fund may withdraw the investment of a
Portfolio in a Series at any time, if the Board of Directors of the Fund
determines that it is in the best interests of the Portfolio to do so. Upon
any such withdrawal, the Board of Directors of the Fund would consider what
action might be taken, including the investment of all of the assets of the
Portfolio in another pooled investment entity having the same investment
objective as the Portfolio or the hiring of an investment advisor to manage the
Portfolio's assets in accordance with the investment policies described above.
Whenever a Portfolio, as an investor in its corresponding Trust
Series, is asked to vote on a shareholder proposal to change a fundamental
investment policy (i.e. a policy that may be changed only with the approval of
shareholders) of the Series, the Fund will hold a special meeting of the
Portfolio's shareholders to solicit their votes with respect to the proposal.
The Directors of the Fund will then vote the Portfolio's shares in the Series
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 the same proportion as the shares
for which they receive voting instructions.
Shareholder inquiries may be made by writing or calling the Client
Service Agent at the address or telephone number appearing on the back cover of
this prospectus. 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.
17
<PAGE> 21
DIMENSIONAL INVESTMENT GROUP INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
Client Service Agent
Reinhardt Werba Bowen Advisory Services
1190 Saratoga Avenue, Suite 200
San Jose, CA 95129
Tel. No. (800) 366-7266
Custodian
PNC BANK, N.A.
200 Stevens Drive, Airport Business Center
Lester, PA 19113
Accounting Service and Dividend Disbursing Agent
PFPC INC.
400 Bellevue Parkway
Wilmington, DE 19809
Legal Counsel
STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Independent Accountants
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
19th and Market Streets
Philadelphia, PA 19103
<PAGE> 22
DIMENSIONAL INVESTMENT GROUP INC.
RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO
RWB/DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
RWB/DFA TWO-YEAR GOVERNMENT PORTFOLIO
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1996
This statement of additional information is not a prospectus but should
be read in conjunction with the prospectus of RWB/DFA U.S. High Book to
Market Portfolio, RWB/DFA Two-Year Corporate Fixed Income Portfolio and
RWB/DFA Two-Year Government Portfolio (collectively the "Portfolios") of
Dimensional Investment Group Inc. (the "Fund"), dated February 28, 1996,
which can be obtained from the Fund by writing to the Fund at the above
address or by calling the above telephone number.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . 2
BROKERAGE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 3
FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS . . . . . . . . . . . . . . . 6
MANAGEMENT OF THE PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . 7
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 7
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 10
CALCULATION OF PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 23
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the information set forth in
the prospectus under the captions "RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO
- -INVESTMENT OBJECTIVE AND POLICIES" and "FIXED INCOME PORTFOLIOS-INVESTMENT
OBJECTIVES AND POLICIES," and applies to the DFA Two-Year Corporate Fixed
Income Series (the "Two-Year Corporate Fixed Income Series"), the DFA
Two-Year Government Series (the "Two-Year Government Series") and the DFA
U.S. Large Cap Value Series (the "Large Cap Value Series") of The DFA
Investment Trust Company (the "Trust").
Because the structure of the Large Cap Value Series is based on
the relative market capitalizations of eligible holdings, it is possible that
the Large Cap Value Series might include at least 5% of the outstanding
voting securities of one or more issuers. In such circumstances, the Fund
and the issuer would be deemed "affiliated persons" under the Investment
Company Act of 1940 and certain requirements of the Act regulating dealings
between affiliates might become applicable. However, based on the present
capitalizations of the groups of companies eligible for inclusion in the
Large Cap Value Series and the anticipated amount of the Series' assets
intended to be invested in such securities, management does not anticipate
that the Large Cap Value Series will include as much as 5% of the voting
securities in any issuer.
BROKERAGE TRANSACTIONS
The Two-Year Corporate Fixed Income Series and the Two-Year Government
Series acquire and sell securities on a net basis with dealers which are
major market makers in such securities. The Investment Committee of the
Advisor selects dealers on the basis of their size, market making and credit
analysis ability. When executing portfolio transactions for the Two-Year
Corporate Fixed Income Series and the Two-Year Government Series, the
Advisor seeks to obtain the most favorable price for the securities being
traded among the dealers with whom the Series effect transactions.
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, and brokers will be selected
with these goals in view. The Advisor monitors the performance of brokers
which effect transactions for the Series to determine the effect that their
trading has on the market prices of the securities in which it invests. The
Advisor also checks the rate of commission being paid by the Series to its
brokers to ascertain that they are competitive with those charged by other
brokers for similar services. For the fiscal years ended November 30, 1994
and 1993, the Large Cap Value Series paid brokerage commissions of $367,810
and $134,312, respectively. During the fiscal year ended November 30,
1994, the Large Cap Value Series paid $177,095 in commissions (on securities
transactions totalling $113,847,315 in value) to brokers which provided market
price monitoring services, market studies and research services to the Series.
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 Investment Management Agreement of each Series permits the
Advisor knowingly to pay commissions on these transactions which are greater
than another broker might charge if the Advisor, in good faith, determines that
the commissions paid are reasonable in relation to the research or brokerage
services provided by the broker or dealer when viewed in terms of either a
particular transaction or the Advisor's overall responsibilities to assets
under its management. Brokerage transactions may be placed with securities
firms that are affiliated with an affiliate of the Advisor. Commissions
paid on such transactions would be commensurate with the rate of
commissions paid on similar transactions to brokers that are not so
2
<PAGE> 24
affiliated and the frequency of, and the selection of brokers to effect, such
transactions would be fair and reasonable to the Portfolio's shareholders.
The over-the-counter market ("OTC") companies eligible for purchase
by the Large Cap Value Series are thinly traded securities. Therefore, the
Advisor believes it needs maximum flexibility to effect OTC trades on a best
execution basis. To that end, the Advisor places buy and sell orders with
market makers, third market brokers, Instinet and with 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.
The Advisor places buy and sell orders on Instinet when the
Advisor determines that the securities may not be available from other
sources at a more favorable price. Instinet is an electronic information
and communication network whose subscribers include most market makers as well
as many institutions. Instinet charges a commission for each trade executed
on its system. On any given trade the Large Cap Value Series, by trading
through Instinet, would pay a spread to a dealer on the other side of the
trade plus a commission to Instinet. However, placing a buy (or sell) order
on Instinet communicates to many (potentially all) market makers and
institutions at once. This can create a more complete picture of the market
and thus increase the likelihood that the Large Cap Value Series can effect
transactions at the best available prices.
Each Portfolio will not incur any brokerage or other costs in
connection with its purchase or redemption of shares of the corresponding
Series, except if a Portfolio receives securities from the corresponding
Series to satisfy the Portfolio's redemption request. (See "REDEMPTION OF
SHARES.")
INVESTMENT LIMITATIONS
Each of the Portfolios has adopted certain limitations which may not be
changed with respect to any Portfolio without the approval of the holders of a
majority of the outstanding voting securities of the Portfolio. A
"majority" is defined as the lesser of: (1) at least 67% of the voting
securities of the Portfolio (to be effected by the proposed change)
present at a meeting if the holders of more than 50% of the outstanding
voting securities of the Portfolio are present or represented by proxy, or
(2) more than 50% of the outstanding voting securities of such Portfolio.
The investment limitations of each Series are the same as those of the
corresponding Portfolio.
The Portfolios will not:
(1) invest in commodities or real estate, including limited
partnership interests therein, although they may purchase and sell
securities of companies which deal in real estate and securities which are
secured by interests in real estate and may purchase or sell financial
futures contracts and options thereon;
(2) make loans of cash, except through the acquisition of
repurchase agreements and obligations customarily purchased by institutional
investors;
(3) as to 75% of the total assets of a Portfolio, invest in the
securities of any issuer (except obligations of the U.S. Government and its
instrumentalities) if, as a result, more than 5% of the Portfolio's total
assets, at market, would be invested in the securities of such issuer;
(4) purchase or retain securities of an issuer if those
officers and directors of the Fund or the Advisor owning more than 1/2 of 1%
of such securities together own more than 5% of such securities;
3
<PAGE> 25
(5) borrow, except that the Portfolios may borrow from banks and
as a temporary measure for extraordinary or emergency purposes, amounts not
exceeding 33% of a Portfolio's net assets from banks and pledge not more than
33% of such assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an
extent greater than 10% of its total assets at fair market value, except as
described in (5) above;
(7) with respect to the U.S. Large Cap Value Portfolio invest
more than 15% of the value of the Portfolio's total assets in illiquid
securities which include certain restricted securities, repurchase agreements
with maturities of greater than seven days, and other illiquid investments;
(8) engage in the business of underwriting securities issued by
others;
(9) invest for the purpose of exercising control over management
of any company;
(10) invest its assets in securities of any investment company,
except in connection with a merger, acquisition of assets, consolidation or
reorganization;
(11) invest more than 5% of its total assets in securities of
companies which have (with predecessors) a record of less than three years'
continuous operation;
(12) acquire any securities of companies within one industry if,
as a result of such acquisition, more than 25% of the value of the
Portfolio's total assets would be invested in securities of companies
within such industry, except the RWB/DFA Two-Year Corporate Fixed Income
Portfolio shall invest more than 25% of its total assets in obligations of
banks and bank holding companies in the circumstances described in the
prospectus under "Investments in the Banking Industry" and as otherwise
described under "Portfolio Strategy;"
(13) write or acquire options (except as described in (1) above)
or interests in oil, gas or other mineral exploration, leases or development
programs;
(14) purchase warrants, except that the RWB/DFA U.S. High Book
to Market Portfolio may acquire warrants as a result of corporate actions
involving its holdings of equity securities;
(15) purchase securities on margin or sell short; or
(16) acquire more than 10% of the voting securities of any
issuer, provided that this limitation applies only to 75% of the assets of the
RWB/DFA U.S. High Book to Market Portfolio.
The investment limitations described in (3), (7), (9), (10), (11), (12)
and (16) 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 a Series of the Trust.
The investment limitations described in (1) and (15) above do not
prohibit a Portfolio that may purchase or sell financial futures contracts and
options thereon from making margin deposits to the extent permitted under
applicable regulations.
Although (2) above prohibits cash loans, the Portfolios are
authorized to lend portfolio securities. Inasmuch as the Portfolios will
only hold shares of a corresponding Series, the Portfolios do not intend
to lend those shares.
4
<PAGE> 26
For the purposes of (12) above, utility companies will be divided
according to their services; e.g., gas, gas transmission, electric and gas,
electric, water and telephone will each be considered a separate industry.
Although not a fundamental policy subject to shareholder approval,
the RWB/DFA Two-Year Corporate Fixed Income Portfolio and the RWB/DFA
Two-Year Government Portfolio do not intend to invest more than 15% of
their total assets in illiquid securities. The RWB/DFA Two-Year Corporate
Fixed Income Portfolio may invest in commercial paper that is exempt
from the registration requirements of the Securities Act of 1933 (the "1933
Act"), subject to the requirements regarding credit ratings stated in the
prospectus under "Description of Investments." Further, pursuant to Rule
144A under the 1933 Act, the Portfolios may purchase certain unregistered
(i.e. restricted) securities upon a determination that a liquid institutional
market exists for the securities. If it is decided that a liquid market does
exist, the securities will not be subject to the 15% limitation on holdings
of illiquid securities described below. While maintaining oversight, the
Board of Directors has delegated the day-to-day function of making
liquidity determinations to the Advisor. For 144A securities to be
considered liquid, there must be at least two dealers making a market in
such securities. After purchase, the Board of Directors and the Advisor will
continue to monitor the liquidity of Rule 144A securities.
While the Portfolios (indirectly through their investment in the
corresponding Series) have retained authority to buy and sell financial
futures contracts and options thereon, they have no present intention to do
so.
Unless otherwise indicated, all limitations applicable to the
Portfolios' and Series' investments apply only at the time that a
transaction is undertaken. Any subsequent change in a rating assigned by
any rating service to a security or change in the percentage of a Portfolio's
or Series' assets invested in certain securities or other instruments
resulting from market fluctuations or other changes in a Portfolio's or
Series' total assets will not require a Portfolio or Series to dispose of an
investment until the Advisor determines that it is practicable to sell or
closeout the investment without undue market or tax consequences. In the
event that ratings services assign different ratings to the same security,
the Advisor will determine which rating it believes best reflects the
security's quality and risk at that time, which may be the higher of the
several assigned ratings.
FUTURES CONTRACTS
Please note that while the following discussion relates to the
policies of a Portfolio with respect to futures contracts, it should be
understood that with respect to the Portfolio, the discussion applies to
the Series of the Trust in which the Portfolio invests all of its assets.
The Series may enter into futures contracts and options on futures
contracts only 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. A Series 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 a Series.
Variation margin payments are made to and
5
<PAGE> 27
from the futures broker for as long as the contract remains open. The Series
expect to earn income on their margin deposits. Pursuant to current
regulations, a Series will not enter into futures contract transactions if
immediately thereafter, its margin deposits on open contracts exceeds 5% of
the market value of its total assets. In addition, to the extent that the
Series invests in futures contracts and options thereon for other than bona
fide hedging purposes, no Series will enter into such transactions if,
immediately thereafter, the sum of the amount of initial margin deposits and
premiums paid for open futures options would exceed 5% of the Series' total
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 "SEC"), the
Portfolios or Series may be required to maintain segregated accounts
consisting of liquid assets, such as cash, U.S. Government securities, or
other high grade debt obligations (or, as permitted under applicable
regulation, enter into offsetting positions) in connection with their futures
contract transactions in order to cover their 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
Series would continue to be required to continue to make variation margin
deposits. In such circumstances, if a Series has insufficient cash, it might
have to sell portfolio securities to meet daily margin requirements at a time
when it might be disadvantageous to do so. Management intends to minimize
the possibility that it will be unable to close out a futures contract by
only entering into futures which are traded on national futures exchanges and
for which there appears to be a liquid secondary market.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
Except for transactions a Series has identified as hedging transactions,
the Series is required for federal income tax purposes to recognize as income
for each taxable year its net unrealized gains and losses on certain futures
contracts as of the end of the year as well as those actually realized during
the year. In most cases, any gain or loss recognized with respect to a
futures contract is considered to be 60% long-term gain or loss and 40%
short-term capital gain or loss, without regard to the holding period of the
contract. Furthermore, sales of futures contracts which are intended to hedge
against a change in the value of securities held by a Series may affect the
holding period of such securities and, consequently, the nature of the
gain or loss on such securities upon disposition.
In order for a Series to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income; i.e.,
dividends, interest, income derived from loans of securities, gains from the
sale of securities and other income derived with respect to the Series'
business of investing in securities. In addition, gains realized on the
sale or other disposition of securities held for less than three months must
be limited to less than 30% of the Series' annual gross income. It is
anticipated that any net gain realized from closing futures contracts will
be considered gain from the sale of securities and, therefore, constitute
qualifying income for purposes of the 90% requirement. In order to avoid
realizing excessive gains on securities held less than three months, a Series
may be required to defer the closing out of futures contracts beyond the time
when it would otherwise be advantageous to do so. It is anticipated that
unrealized gains on futures contracts which have been open for less than
three months as of the end of a Series' fiscal year and which are recognized
for tax purposes, will not be considered gains on sales of securities held less
than three months for the purpose of the 30% test. The Series will distribute
to shareholders annually any net capital gains which have been recognized for
federal income tax purposes (including unrealized gains at the end of the
Series' fiscal year) on futures
6
<PAGE> 28
transactions. Such distributions will be combined with distributions of
capital gains realized on the Series' other investments.
MANAGEMENT OF THE PORTFOLIOS
The Advisor has undertaken to reimburse each Portfolio to the extent
necessary to satisfy the most restrictive expense ratio required by any state
in which the particular Portfolio's shares are qualified for sale.
Presently, the most restrictive expense limitation is 2.5% on the first
$30,000,000 of average annual net assets of the Portfolio, 2.0% of the
next $70,000,000 of such assets, and 1.5% of any excess.
DIRECTORS AND OFFICERS
The names and addresses 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*, 49, Director, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA
Australia Pty Limited, DFA Investment Dimensions Group Inc. (registered
investment company) and Dimensional Emerging Markets Fund Inc. (registered
investment company). Trustee, President and Chairman-Chief Executive
Officer of The DFA Investment Trust Company. Chairman and Director,
Dimensional Fund Advisors Ltd.
George M. Constantinides, 48, Director, Chicago, IL. Leo Melamed
Professor of Finance, Graduate School of Business, University of Chicago.
Trustee, The DFA Investment Trust Company. Director, DFA Investment
Dimensions Group Inc. and Dimensional Emerging Markets Fund Inc.
John P. Gould, 57, Director, Chicago, IL. Steven G. Rothmeier
Distinguished Service Professor of Economics, Graduate School of Business,
University of Chicago. Trustee, The DFA Investment Trust Company and First
Prairie Funds (registered investment companies). Director, DFA
Investment Dimensions Group Inc., Dimensional Emerging Markets Fund Inc.
and Harbor Investment Advisors. Executive Vice President, Lexecon Inc.
(economics, law, strategy and finance consulting).
Roger G. Ibbotson, 52, Director, New Haven, CT. Professor in Practice
of Finance, Yale School of Management. Trustee, The DFA Investment Trust
Company. Director, DFA Investment Dimensions Group Inc., Dimensional Emerging
Markets Fund Inc., Hospital Fund, Inc. (investment management services) and
BIRR Portfolio Analysis, Inc. (software products). Chairman and President,
Ibbotson Associates, Inc., Chicago, IL (software, data, publishing and
consulting).
Merton H. Miller, 72, Director, Chicago, IL. Robert R. McCormick
Distinguished Service Professor Emeritus, Graduate School of Business,
University of Chicago. Trustee, The DFA Investment Trust Company. Director,
DFA Investment Dimensions Group Inc. and Dimensional Emerging Markets Fund
Inc. Public Director, Chicago Mercantile Exchange.
Myron S. Scholes, 54, Director, Greenwich, CT. Limited Partner,
Long-Term Capital Management L.P. (money manager). Frank E. Buck Professor
of Finance, Graduate School of Business and Professor of Law, Law School,
Senior Research Fellow, Hoover Institution, (all) Stanford University (on
leave). Trustee, The DFA Investment Trust Company. Director, DFA
Investment Dimensions Group Inc., Dimensional
7
<PAGE> 29
Emerging Markets Fund Inc., Benham Capital Management Group of Investment
Companies and Smith Breeden Group of Investment Companies.
Rex A. Sinquefield*, 51, Director, Chairman and Chief Investment
Officer, Santa Monica, CA. Chairman-Chief Investment Officer and Director,
Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Pty
Limited, DFA Investment Dimensions Group Inc., and Dimensional Emerging
Markets Fund Inc. Trustee, Chairman-Chief Investment Officer of The DFA
Investment Trust Company. Chairman, Chief Executive Officer and Director,
Dimensional Fund Advisors Ltd.
*Interested Director of the Fund.
Officers
Each of the officers listed below holds the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Pty Limited, DFA Investment Dimensions Group Inc., The DFA Investment Trust
Company, Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets
Fund Inc.
Arthur Barlow, 40, Vice President, Santa Monica, CA.
Truman Clark, 54, 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 to 1994.
Maureen Connors, 59, Vice President, Santa Monica, CA.
Robert Deere, 38, Vice President, Santa Monica, CA.
Irene R. Diamant, 45, Vice President and Secretary, Santa Monica, CA.
Eugene Fama, Jr., 35, Vice President, Santa Monica, CA.
David Plecha, 34, Vice President, Santa Monica, CA.
George Sands, 40, Vice President, Santa Monica, CA. Managing
Director, Asset Strategy Consulting, Los Angeles, CA from 1991 to
1992 and previously Vice President, Wilshire Associates, Santa
Monica, CA.
Michael T. Scardina, 40, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
Cem Severoglu, 32, Vice President, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 49, Executive Vice President, Santa Monica,
CA.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
Directors and officers as a group own less than 1% of 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, 1995, and the total compensation received
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<PAGE> 30
from all four registered investment companies for which the Advisor serves
as investment advisor during that same fiscal year.
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation Fund
Director from Fund and Fund Complex
-------- -------------- -------------------------
<S> <C> <C>
George M. Constantinides $ 5,000 $30,000
John P. Gould $ 5,000 $30,000
Roger G. Ibbotson $ 5,000 $30,000
Merton H. Miller $ 4,000 $24,000
Myron S. Scholes $ 5,000 $30,000
</TABLE>
OTHER INFORMATION
The Fund was known as DFA U.S. Large Cap Inc. from February, 1992
until the Fund amended its Articles of Incorporation in April, 1993 to
change to its present name. Prior to a February, 1992 amendment to the
Fund's Articles of Incorporation, the Fund was known as DFA U.S. Large Cap
Portfolio Inc. The Fund commenced offering shares of the Portfolios in May,
1996.
The shares of each Portfolio, when issued and paid for in accordance
with the Portfolios' prospectus, will be fully paid and nonassessable 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, 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 Portfolio. Ordinarily, the Fund
does not intend to hold annual meetings of shareholders, except as required
by the Investment Company Act of 1940 (the "1940 Act") or other applicable
law. The Fund's by-laws provide that special meetings of shareholders shall
be called at the written request of at least 10% of the votes entitled to be
cast at such meeting. Such meeting may be called to consider any matter,
including the removal of one or more directors. Shareholders will receive
shareholder communications with respect to such matters as required by the
1940 Act, including semi-annual and annual financial statements of the Fund,
the latter being audited.
PNC Bank, N.A. serves as the custodian for the Portfolios and the
Series. The custodian maintains a separate account or accounts for the
Portfolios and Series; receives, holds and releases portfolio securities on
account of the Portfolios and Series; makes receipts and disbursements of
money on behalf of the Portfolios and Series; and collects and receives income
and other payments and distributions on account of the Portfolios' and Series'
portfolio securities.
Coopers & Lybrand L.L.P., the Fund's independent accountants, audits the
Fund's financial statements on an annual basis.
PURCHASE OF SHARES
The following information supplements the information set forth in
the prospectus under the caption "PURCHASE OF SHARES."
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<PAGE> 31
The Fund will accept purchase and redemption orders on each day
that the New York Stock Exchange ("NYSE") is open for business. On other
days, the Fund will generally be closed. The NYSE is scheduled to be open
Monday through Friday throughout the year except for days closed to recognize
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas Day. 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.
REDEMPTION 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 Exchange is restricted as determined by the Securities and Exchange
Commission (the "SEC"), (2) during any period when an emergency exists as
defined by the rules of the SEC as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it, or fairly to
determine the value of its assets and (3) for such other periods as the SEC
may permit.
If the Board of Directors of the Fund determines that it would be
detrimental to the best interests of the remaining shareholders of a
Portfolio to make payment wholly or partly in cash, the Portfolio may pay the
redemption price by a distribution of readily marketable portfolio securities
from the Portfolio in lieu of cash. Upon such a determination by both the
Board of Directors of the Fund and Board of Trustees of the Trust, a
Portfolio may pay the redemption price, in lieu of cash, by a distribution of
portfolio securities that the Portfolio receives from the Series to satisfy
the Portfolio's redemption request. Any such redemption by the Series and/or
the Portfolio would be in accordance with Rule 18f-1 under the 1940 Act.
Investors may incur brokerage charges and other transaction costs selling
securities that were received in payment of redemptions.
Shareholders may transfer shares of any Portfolio to another person by
making a written request therefore to the Advisor who will transmit the
request to PFPC. The request should clearly identify the account and number
of shares to be transferred, and include the signature of all registered
owners and all stock certificates, if any, which are subject to the
transfer. The signature on the letter of request, the stock certificate 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.
CALCULATION OF PERFORMANCE DATA
As the following formula indicates, each Portfolio and Series
determines its annualized total return by finding the annualized total
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 calculation also assumes the account
was completely
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<PAGE> 32
redeemed at the end of each period and the deduction of all applicable
charges and fees. According to the SEC formula:
P(1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = annualized compounded rate of 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).
In addition to the standardized method of calculating performance
required by the SEC, the Portfolios and Series may disseminate other
performance data. Non-standardized return data may be presented over time
periods which extend prior to when a Portfolio or its corresponding
Series commenced investment operations by using simulated data consistent with
the investment policy of the Portfolio and the Series for that portion of the
period prior to the initial investment date. The simulated data would
exclude the deduction of Portfolio and Series expenses which would
otherwise reduce the returns quotations.
The Portfolios may compare their investment performance to appropriate
market and mutual fund indices.
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