<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. -----
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Post-Effective Amendment No. 15 File No. 33-33980 X
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 16 File No. 811-6067 X
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DIMENSIONAL INVESTMENT GROUP INC.
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(Exact Name of Registrant as Specified in Charter)
1299 Ocean Avenue, 11th Floor, Santa Monica CA 90401
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (310) 395-8005
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Irene R. Diamant, 1299 Ocean Avenue, 11th Floor,
Santa Monica, California 90401
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(Name and Address of Agent for Service)
Copies of communications to Stephen W. Kline, Esquire, Stradley, Ronon, Stevens
& Young, LLP, Great Valley Corporate Center, 30 Valley Stream Parkway, Malvern,
PA 19355, (215) 640-5801.
It is proposed that this filing will become effective
(check appropriate box):
/x/ Immediately upon filing pursuant to paragraph (b)
/ / On (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On (date) pursuant to paragraph (a)(2) of Rule 485
75 days after filing pursuant to paragraph (a)(2).
This Registrant has registered an indefinite number of shares of common stock
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. On January 29, 1997, the Registrant filed a Rule 24f-2
Notice for Registrant's most recent fiscal year, which ended November 30, 1996.
[DFA TO CONFIRM.]
The Trustees and principal officers of The DFA Investment Trust Company also
have executed this registration statement.
<PAGE>
FORM N-1A
CROSS REFERENCE SHEET
(as required by Rule 404)
FORM N-1A PART A ITEM NO. PROSPECTUS LOCATION
- ------------------------- -------------------
Item 1. Cover Page......................... Cover Page
Item 2. Synopsis........................... Highlights
Item 3. Condensed Financial Information.... Condensed Financial
Information
Item 4. General Description of Registrant.. Cover Page; Highlights;
The Portfolio; Investment
Objective and Policies;
Securities Loans; Risk
Factors; General
Information
Item 5. Management of the Fund............. Highlights; Management of
the Portfolios
Item 6. Capital Stock and Other Securities. Highlights; Dividends,
Capital Gains
Distributions and Taxes;
General Information
Item 7. Purchase of Securities Being
Offered............................ Highlights; Purchase of
Shares; Valuation of
Shares; Distribution;
Exchange of Shares
Item 8. Redemption or Repurchase........... Highlights; Redemption of
Shares
Item 9. Pending Legal Proceedings.......... Not Applicable
<PAGE>
FORM N-1A PART B ITEM NO. LOCATION IN STATEMENT OF
- ------------------------- ADDITIONAL
INFORMATION
------------
Item 10. Cover Page......................... Cover Page
Item 11. Table of Contents.................. Table of Contents
Item 12. General Information and History.... Other Information
Item 13. Investment Objectives and Policies. Investment Objective and
Policies; Investment
Limitations
Item 14. Management of the Fund.............. Management of the
Portfolios; Directors and
Officers
Item 15. Control Persons and Principal
Holders of Securities.............. Principal Holders of
Securities
Item 16. Investment Advisory and Other
Services........................... Management of the
Portfolios
Item 17. Brokerage Allocation and Other
Practices.......................... Brokerage Transactions
Item 18. Capital Stock and Other Securities. Other Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered........ Purchase of Shares;
Redemption of Shares
Item 20. Tax Status......................... Federal Tax Treatment of
Futures Contracts
Item 21. Underwriters....................... Not Applicable
Item 22. Calculation of Performance Data.... Calculation of
Performance Data
Item 23. Financial Statements............... Financial Statements
<PAGE>
FORM N-1A PART C ITEM NO. LOCATION IN PART C
- ------------------------- ------------------
Item 24. Financial Statements and Exhibits.. Financial Statements and
Exhibits
Item 25. Persons Controlled by or Under
Common Control with Registrant..... Persons Controlled by or
Under Common Control with
Registrant
Item 26. Number of Holders of Securities.... Number of Holders of
Securities
Item 27. Indemnification.................... Indemnification
Item 28. Business and Other Connections of
Investment Advisor................. Business and Other
Connections of Investment
Advisor
Item 29. Principal Underwriters............. Principal Underwriters
Item 30. Location of Accounts and Records... Location of Accounts and
Records
Item 31. Management Services................ Management Services
Item 32. Undertakings....................... Undertakings
<PAGE>
PROSPECTUS
March 28, 1997
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 TWO-YEAR CORPORATE FIXED INCOME
PORTFOLIO and RWB/DFA TWO-YEAR GOVERNMENT PORTFOLIO (collectively the "Fixed
Income Portfolios") and RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO (together
with the Fixed Income Portfolios, 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 "THE
PORTFOLIOS."
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 March 28, 1997, 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>
TABLE OF CONTENTS
PAGE
HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . 4
THE PORTFOLIOS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO - INVESTMENT
OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . . . . 9
Portfolio Characteristics and Policies. . . . . . . . . . . . . . . . . 9
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . 9
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . 10
INVESTMENT OBJECTIVES AND POLICIES - FIXED INCOME PORTFOLIOS. . . . . . 10
RWB/DFA Two-Year Corporate
Fixed Income Portfolio. . . . . . . . . . . . . . . . . . . 10
RWB/DFA Two-Year Government Portfolio . . . . . . . . . . . . 11
Description of Investments. . . . . . . . . . . . . . . . . . 11
Investments in the Banking Industry. . . . . . . . . . . . . 12
Portfolio Strategy. . . . . . . . . . . . . . . . . . . . . . 13
SECURITIES LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Foreign Securities. . . . . . . . . . . . . . . . . . . . . . 13
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Portfolio Strategy. . . . . . . . . . . . . . . . . . . . . . 14
Futures Contracts and Options in Futures. . . . . . . . . . . 14
Banking Industry Concentration. . . . . . . . . . . . . . . . 14
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . 15
MANAGEMENT OF THE PORTFOLIOS. . . . . . . . . . . . . . . . . . . . . . 15
Administrative Services . . . . . . . . . . . . . . . . . . . 15
Client Service Agent. . . . . . . . . . . . . . . . . . . . . 16
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES. . . . . . . . . . . . 16
PURCHASE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
In Kind Purchases . . . . . . . . . . . . . . . . . . . . . . 18
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 18
DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
EXCHANGE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . 20
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
HIGHLIGHTS
THE PORTFOLIOS PAGE 8
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.
INVESTMENT OBJECTIVE - RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO PAGE 9
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 that are value stocks, primarily
because they 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 10
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 11
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.")
<PAGE>
RISK FACTORS PAGE 13
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 15
Dimensional Fund Advisors Inc. (the "Advisor") provides each Portfolio with
administrative services and also serves as investment advisor to each Series of
the Trust. RWBAS serves as client service agent to each Portfolio. (See
"MANAGEMENT OF THE PORTFOLIOS.")
DIVIDEND POLICY PAGE 16
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 17
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 NYSE 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.")
<PAGE>
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 0.17%
Total Operating Expenses 0.33%
RWB/DFA TWO-YEAR GOVERNMENT PORTFOLIO
Management Fee 0.15%
Administration Fee 0.01%
Other Expenses 0.19%
Total Operating Expenses 0.35%
*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 to RWBAS. A client services fee of
0.03% is also payable by the Fixed Income Portfolios to RWBAS; however, RWBAS
waived its fee through December 31, 1996. Absent such waiver by RWBAS, the
estimated annualized ratio of expenses to average net assets for the fiscal year
ending November 30, 1997 is 0.33% for RWB/DFA Two-Year Corporate Fixed
Income Portfolio and 0.35% for RWB/DFA Two-Year Government Portfolio.
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:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
RWB/DFA U.S. High Book to Market
Portfolio $4 $13 n/a n/a
RWB/DFA Two-Year Corporate
Fixed Income Portfolio $3 $12 n/a n/a
3
<PAGE>
RWB/DFA Two-Year Government
Portfolio $4 $12 n/a n/a
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
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 be if each Portfolio were to invest directly in the
securities held by its corresponding Series. The aggregate amount of
expenses for a Portfolio and the corresponding Series may be greater than it
would be if the Portfolio were to invest directly in the securities held by
the corresponding Series. However, the total expense ratios for the
Portfolios and their corresponding Series are expected to be less over time
than such ratios would be if the Portfolios were to invest 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, 1997; 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 each Portfolio take into account the actual expenses of its
corresponding Series for the fiscal year ended November 30, 1996.
CONDENSED FINANCIAL INFORMATION
The following financial highlights are part of the audited financial
statements of each Portfolio for the period from June 7, 1996 (date of initial
investment of each Portfolio) through November 30, 1996. The financial
statements, related notes and the report of the independent accountants
covering such financial information and financial highlights for the Fund's most
recent fiscal period ended November 30, 1996, are incorporated by reference
into the Statement of Additional Information. Further information about each
Portfolio's performance is contained in the Fund's Annual Report to
shareholders of such Portfolio for the period June 7, 1996 (commencement of
operations) to November 30, 1996. A copy of THE Annual Report may be
obtained from the Fund upon request at no charge.
4
<PAGE>
RWB/DFA TWO-YEAR GOVERNMENT PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD JUNE 7, 1996
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1996
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Net Asset Value, Beginning of Period . . . . . . . $ 10.00
-------
Income from Investment Operations
- ---------------------------------
Net Investment Income. . . . . . . . . . . . . . . 0.26
Net Gains (Losses) on Securities (Realized and
Unrealized) . . . . . . . . . . . . . . . . . . . 0.10
-------
Total from Investment Operations . . . . . . . 0.36
-------
Less Distributions
- ------------------
Net Investment Income . . . . . . . . . . . . . . (0.13)
Net Asset Value, End of Period . . . . . . . . . $ 10.23
-------
-------
Total Return . . . . . . . . . . . . . . . . . . . 3.60%#
Net Assets, End of Period (thousands) . . . . . . . $ 104,644
Ratio of Expenses to Average Net Assets (1) . . . . 0.38%*(a)(b)
Ratio of Net Investment Income to Average Net
Assets . . . . . . . . . . . . . . . . . . . . . . 5.81%*(a)(b)
Portfolio Turnover Rate . . . . . . . . . . . . . . N/A
Average Commission Rate . . . . . . . . . . . . . . N/A
________________
*Annualized
#Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Had certain waivers and reimbursements not been in effect, the ratio of
expenses to average net assets for the period ended November 30, 1996,
would have been 0.41% and the ratio of net investment income to average net
assets for the period ended November 30, 1996, would have been 5.78%.
(b) Because of commencement of operations and related preliminary transaction
costs, these ratios are not necessarily indicative of future ratios.
N/A Refer to the respective Master Fund Series.
5
<PAGE>
RWB/DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD JUNE 7, 1996
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1996
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Net Asset Value, Beginning of Period . . . . . . . . . . . $ 10.00
-------
Income from Investment Operations
---------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . 0.26
Net Gains (Losses) on Securities (Realized and
Unrealized). . . . . . . . . . . . . . . . . . . . . . . 0.11
-------
Total from Investment Operations . . . . . . . . . . . 0.37
-------
Less Distributions
------------------
Net Investment Income . . . . . . . . . . . . . . . . . . (0.13)
Net Asset Value, End of Period. . . . . . . . . . . . . . $ 10.24
-------
-------
Total Return . . . . . . . . . . . . . . . . . . . . . . . 3.69%#
Net Assets, End of Period (thousands). . . . . . . . . . . $122,807
Ratio of Expenses to Average Net Assets (1). . . . . . . . 0.31%*(a)(b)
Ratio of Net Investment Income to Average Net Assets . . . 5.72%*(a)(b)
Portfolio Turnover Rate. . . . . . . . . . . . . . . . . . N/A
Average Commission Rate. . . . . . . . . . . . . . . . . . N/A
________________
*Annualized
#Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Had certain waivers and reimbursements not been in effect, the ratio of
expenses to average net assets for the period ended November 30, 1996,
would have been 0.34% and the ratio of net investment income to average net
assets for the period ended November 30, 1996, would have been 5.69%.
(b) Because of commencement of operations and related preliminary transaction
costs, these ratios are not necessarily indicative of future ratios.
N/A Refer to the respective Master Fund Series.
6
<PAGE>
RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD JUNE 7, 1996
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1996
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Net Asset Value, Beginning of Period.. . . . . . . . . . . . . . $ 10.00
-------
Income from Investment Operations
- ---------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . 0.08
Net Gains (Losses) on Securities (Realized and
Unrealized) . . . . . . . . . . . . . . . . . . . . . . . . 0.72
-------
Total from Investment Operations.. . . . . . . . . . . . . . . 0.80
-------
Less Distributions
- ------------------
Net Investment Income. . . . . . . . . . . . . . . . . . . . . (0.03)
Net Asset Value, End of Period . . . . . . . . . . . . . . . . $ 10.77
-------
-------
Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . 8.06%#
Net Assets, End of Period (thousands). . . . . . . . . . . . . $40,708
Ratio of Expenses to Average Net Assets (1). . . . . . . . . . 0.71%*(a)
Ratio of Net Investment Income to Average Net Assets . . . . . 2.70%*(a)
Portfolio Turnover Rate. . . . . . . . . . . . . . . . . . . . N/A
Average Commission Rate. . . . . . . . . . . . . . . . . . . . N/A
________________
*Annualized
#Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Because of commencement of operations and related preliminary transaction
costs, these ratios are not necessarily indicative of future ratios.
N/A Refer to the respective Master Fund Series.
7
<PAGE>
THE PORTFOLIOS
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.
Investment in a Series by other institutional investors offers potential
benefits to the Series and, through their investment in the Series, also to
the Portfolios. However, economies and expense reductions might not be
achieved and additional investment opportunities, such as increased
diversification, might not be available if other institutions do not invest in
the 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
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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 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 which the Advisor believes to be value stocks at the time
of purchase. Securities are considered value stocks primarily because a
company's shares have a high book value in relation to their market value (a
"book to market ratio"). Generally, a company's shares will be considered to
have a high book to market ratio if the ratio equals or exceeds the ratios of
any of the 30% of companies with the highest positive book to market ratios
whose shares are listed on the NYSE and, except as described below under
"Portfolio Structure," will be considered eligible for investment. In
measuring value, the Advisor may consider additional factors such as cash flow,
economic conditions and developments in the issuer's industry. 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.
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, and short-term repurchase agreements. The Large Cap Value
Series may invest in futures contracts and options on futures contracts. to the
extent that the large cap value series invests in futures contracts for other
than bona fide hedging purposes, it will not purchase futures contracts if more
than 5% of its total assets are then invested in initial margin deposits on such
contracts or options. 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, generally by 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
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Large Cap Value Series' assets may be invested in interest-bearing obligations,
as described above, thereby causing further deviation from market capitalization
weighing. Such investments would be made on a temporary basis pending
investment in equity securities pursuant to the Large Cap Value Series'
investment objective. 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.
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.
It is management's belief that the value stocks of large U.S. companies
offer, over a long term, a prudent opportunity for capital appreciation but, at
the same time, selecting a limited number of such issues for 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.
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 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,
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in the Advisor's judgment, circumstances warrant their sale. The annual
portfolio turnover rate is not expected to exceed 25%. The annual portfolio
turnover rate of the Series for the fiscal years ended November 30, 1995 and
1996, respectively, was 29.41% and 20.12%.
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.") The
Two-Year Corporate Fixed Income Series may invest in futures contracts and
options on futures contracts. To the extent that the Two-Year Corporate Fixed
income series invests in futures contracts for other than bona fide hedging
purposes, it will not purchase futures contracts if more than 5% of its total
assets are then invested in initial margin deposits on such contracts or
options.
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. 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. The Two-Year Government Series may invest in
futures contracts and options on futures contracts. to the extent that the two-
year government series invests in futures contracts for other than bona fide
hedging purposes, it will not purchase futures contracts if more than 5% of its
total assets are then invested in initial margin deposits on such contracts or
options.
DESCRIPTION OF INVESTMENTS
The following is a description of the categories of investments which may
be acquired by the Fixed Income Portfolios:
Permissible
Categories
----------
RWB/DFA Two-Year Corporate Fixed Income Portfolio 1-7
RWB/DFA Two-Year Government Portfolio 1, 2, 6
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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 Rating Group, a Division of the McGraw-Hill Companies
("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.
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.
The categories of investments that may be acquired of the Two-Year
Corporate Fixed Income and Two-Year Government Series may include both fixed and
floating rate securities. Floating rate securities bear interest at rates that
vary with prevailing market rates. Interest rate adjustments are made
periodically (e.g., every six months), usually based on a money market index
such as the London Interbank Offered Rate (LIBOR) or the Treasury bill rate.
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
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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. As of
the date of this prospectus, the Two-Year Corporate Fixed Income Series is
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.
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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 on investment 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%. The annual portfolio turnover rates of the Two-Year Corporate Fixed
Income Series and the Two-Year Government Series for the fiscal period ended
November 30, 1996 were 81.97% and 200.59%, respectively. 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.
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. 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.
Each Portfolio is also authorized to lend its portfolio securities. However,
as long as it holds only shares of its corresponding series, it will not do so.
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
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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 for the purpose of
making redemption payments. 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
Each Series also may invest in futures contracts and options on
Futures. To the extent that a 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 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
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(and thus, the RWB/DFA Two-Year Corporate Fixed Income Portfolio) than might
occur in a less concentrated portfolio.
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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 agreement.
Management believes that this risk can be controlled through stringent security
selection criteria and careful monitoring procedures.
MANAGEMENT OF THE PORTFOLIOS
The Advisor 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. For the fiscal year ended November 30, 1996, the Large Cap
Value Series, the Two-Year Corporate Fixed Income Series and the Two-Year
Government Series each paid an investment management fee to the Advisor equal
to .10% , .15% and .15%, respectively, of ITS average net assets on an
annual basis.
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 SECURITIES LAWS AND THE COST OF ANY
FILINGS REQUIRED UNDER state securities laws, reports to shareholders, and
transfer and dividend disbursing agency, administrative services and custodian
fees. Expenses allocable to a particular Portfolio or Series are so allocated
and expenses which are allocable to a particular Portfolio AND Series are
borne by SUCH Portfolio or Series on the basis of the amount of fees paid by
the Fund (ON BEHALF OF SUCH PORTFOLIO) AND THE Trust (ON BEHALF OF SUCH
SERIES) to PFPC INC., the ACCOUNTING SERVICES, dividend disbursing and
TRANSFER agent of the PORTFOLIOS AND THE SERIES.
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 $20.7 billion. David G. Booth and Rex
A. Sinquefield (directors and officers of both the Fund and the Advisor ,
trustees and officers of the Trust AND SHAREHOLDERS OF THE ADVISOR) 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.)
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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.
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 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. RWBAS agreed to waive its client services fee for the Fixed
Income Portfolios through December 31, 1996.
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 Portfolios distribute dividends from their net investment quarterly. The
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
RWB/DFA Two-Year Corporate Fixed Income Portfolio (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
18
<PAGE>
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.
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.
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<PAGE>
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) 366-7266, 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.
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.
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
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.
20
<PAGE>
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 Inc., the transfer agent for the Portfolios. 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. The Fund reserves the right to redeem shares owned by any
purchaser whose order is canceled to recover any resulting loss to the Fund and
may prohibit or restrict the manner in which such purchaser may place further
orders.
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
21
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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 or
DFAIDG, 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 or 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 Fund may issue the shares of the portfolio being acquired
in compliance with the securities laws of 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.
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 Inc., the transfer
agent for the Portfolios.
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.
With respect to each Portfolio, the Fund reserves the right to redeem a
shareholder's account if the value of the shares in a specific portfolio is $500
or less, whether because of redemptions, a decline in the portfolio's net asset
value per share or any other reason. Before the fund involuntarily redeems
shares from such an account and sends the proceeds to the stockholder, the Fund
will give written notice of the redemption to the stockholder at least sixty
days in advance of the redemption date. The stockholder will then have sixty
days from the date of the notice to make an additional investment in the Fund in
order to bring the value of the shares in the account for a specific portfolio
to more than $500 and avoid such involuntary redemption.
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<PAGE>
The redemption price to be paid to a stockholder for shares redeemed by the fund
under this right will be the aggregate net asset value of the shares in the
account at the close of business on the redemption date.
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's annual reports to shareholders of the Portfolios
for the fiscal year ended November 30, 1996, contain additional performance
information. A copy of each annual report is available upon request and without
charge.
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.
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 Series, is asked
to vote on a shareholder proposal, the Fund will solicit voting instructions
from the Portfolio's shareholders with respect to the proposal. The Directors
of the Fund will then vote the Portfolio's shares in the 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 accordance with their best judgment.
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<PAGE>
As of February 28, 1997, the following person owns more than 5% of the voting
securities of each Portfolio:
RWB/DFA U.S. HIGH BOOK TO MARKET PORTFOLIO
Charles Schwab & Co.-REIN*
101 Montgomery Street
San Francisco, CA 94104 83.04%
RWB/DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
Charles Schwab & Co.-CASH*
101 Montgomery Street
San Francisco, CA 94104 89.86%
RWB/DFA TWO-YEAR GOVERNMENT PORTFOLIO
CHARLES SCHWAB & CO.-CASH*
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104 93.60%
*Owners of Record Only
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.
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<PAGE>
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<PAGE>
DIMENSIONAL INVESTMENT GROUP INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
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>
PROSPECTUS
MARCH 28, 1997
U.S. LARGE CAP VALUE PORTFOLIO II
_________________
This prospectus describes U.S. LARGE CAP VALUE PORTFOLIO II (the
"Portfolio"), a series of shares issued by Dimensional Investment Group Inc.
(the "Fund"), 1299 Ocean Avenue, 11th floor, Santa Monica, California 90401,
(310) 395-8005. The Portfolio is an open-end, management investment company
whose shares are offered, without a sales charge, to 401(k) defined contribution
plans and clients, customers or members of certain institutions. 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. The Fund
has not established a minimum initial purchase requirement for the Portfolio.
THE INVESTMENT OBJECTIVE OF THE PORTFOLIO IS TO ACHIEVE LONG-TERM CAPITAL
APPRECIATION. THE 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 THE U.S. LARGE CAP VALUE SERIES (THE "SERIES") OF THE DFA INVESTMENT TRUST
COMPANY (THE "TRUST"). THE SERIES IS AN OPEN-END, MANAGEMENT INVESTMENT COMPANY
THAT HAS THE SAME INVESTMENT OBJECTIVE, POLICIES AND LIMITATIONS AS THE
PORTFOLIO. THE INVESTMENT EXPERIENCE OF THE PORTFOLIO WILL CORRESPOND DIRECTLY
WITH THE INVESTMENT EXPERIENCE OF THE SERIES. INVESTORS SHOULD CAREFULLY
CONSIDER THIS INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION, SEE "THE
PORTFOLIO."
This prospectus sets forth information about the Portfolio that prospective
investors should know before investing and should be read carefully and retained
for future reference. A statement of additional information about the Portfolio
dated March 28, 1997, 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.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THE SHARES INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
_________________
<PAGE>
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.
TABLE OF CONTENTS
PAGE
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . 3
THE PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . 6
Portfolio Characteristics and Policies. . . . . . . . . . . . . . 6
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . . . 7
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . 7
SECURITIES LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Portfolio Strategies. . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . 8
Futures Contracts and Options on Futures. . . . . . . . . . . . . 8
MANAGEMENT OF THE PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . 8
Administrative Services . . . . . . . . . . . . . . . . . . . . . 9
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES . . . . . . . . . . . 10
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 11
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 11
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 12
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
HIGHLIGHTS
PAGE
INVESTMENT OBJECTIVE 6
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio will invest all of its assets in the Series,
which in turn will invest in the common stocks of U.S. companies that are value
stocks, primarily because they have a high book value in relation to their
market value. The 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"). The investment objective of the Portfolio is a
fundamental policy and may not be changed without the affirmative vote of a
majority of its outstanding securities. (See "INVESTMENT OBJECTIVE AND
POLICIES.")
PAGE
RISK FACTORS 7
The Portfolio (indirectly through its investment in the Series) may invest
in futures contracts and options thereon. Similarly, the Portfolio is also
authorized to invest in repurchase agreements. Those policies and the policy of
the Portfolio to invest in the shares of the Series involve certain risks. (See
"RISK FACTORS.")
PAGE
MANAGEMENT AND ADMINISTRATIVE SERVICES 8
Dimensional Fund Advisors Inc. (the "Advisor" or "DFA") provides the
Portfolio with administrative services and also serves as investment advisor to
the Series. The Fund contracts with Shareholder Services Agents to provide
certain recordkeeping and other services for the benefit of the Portfolio's
shareholders. (See "MANAGEMENT OF THE PORTFOLIO.")
PAGE
DIVIDEND POLICY 10
After the end of the Portfolio's fiscal year in November, the Portfolio
distributes dividends from its net investment income and any realized net
capital gains annually in December. (See "DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES.")
PAGE
PURCHASE, VALUATION AND REDEMPTION OF SHARES 11
The shares of the Portfolio are offered at net asset value, which is
calculated as of the close of the NYSE on each day that the NYSE is open for
business. The value of the Portfolio's shares will fluctuate in relation to the
investment experience of the Series. The redemption price of a share of the
Portfolio is equal to its net asset value. (See "PURCHASE OF SHARES,"
"VALUATION OF SHARES" and "REDEMPTION OF SHARES.")
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
None*
The expenses in the expense table below are based on those incurred by the
Portfolio and the Series for the fiscal year ended November 30, 1996, restated
to reflect current fees, waivers and arrangements to assume expenses.
ANNUAL FUND OPERATING EXPENSES**
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.10%
Administration Fee (after voluntary fee waiver) 0.00%
Other Expenses (after reimbursement) 0.65%
Total Operating Expenses*** 0.75%
* Shares of the Portfolio that are 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. "Other Expenses" include a fee paid to the Shareholder Services
Agent of each employer plan or institution at the annual rate of .10% of
the aggregate daily value of all shares of the Portfolio that are held in
an account maintained by such Shareholder Services Agent, paid on a monthly
basis. (See "Administrative Services.")
*** Restated to reflect current fee waivers and arrangements to assume
expenses. Actual aggregate expenses incurred by the Portfolio and Series
for the fiscal year ended November 30, 1996 were 0.82% of average net
assets.
EXAMPLE
You would pay the following transaction and annual operating expenses on a
$1,000 investment in the Portfolio, assuming a 5% annual return over each of the
following time periods and redemption at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$8 $24 $42 $93
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 Portfolio
will bear directly or indirectly. The table summarizes the aggregate estimated
annual operating expenses of both the Portfolio and the Series. (See
"MANAGEMENT OF THE PORTFOLIO.") The Board of Directors of the Fund has
considered whether such expenses will be more or less than they would be if the
Portfolio were to invest directly in the securities held by the Series. The
aggregate amount of expenses for the Portfolio and the Series may be greater
than it would be if the Portfolio were to invest directly in the securities held
by the Series. However, the total expense ratio for the Portfolio and the
Series is expected to be less over time than such ratio would be if the
Portfolio were to invest directly in the underlying securities. This is
because this arrangement enables institutional investors, including the
Portfolio, 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 the
Series, including the Portfolio, will pay its proportionate share of the
expenses of the Series.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
From July 1, 1994 through June 30, 1996, the Advisor waived its
administration fee with respect to the Portfolio and assumed expenses of the
Portfolio to the extent necessary to keep the cumulative annual expenses of the
Portfolio to not more than .96% of its average net assets on an annualized
basis. For the fiscal year ended November 30, 1996, the Advisor was not
required to waive any portion of its fee pursuant to such agreement. Beginning
on July 1, 1996, the Advisor agreed to waive its administration fee with
respect to the Portfolio and, to the extent that such waiver is insufficient,
to assume expenses of the Portfolio to the extent necessary to keep the
cumulative annual expenses to not more than .75% of the average net assets of
the Portfolio on an annualized basis. For purposes of this waiver and
assumption, annualized expenses are those expenses incurred in any period
commencing on or after July 1, 1996, consisting of twelve consecutive months.
The Advisor retains the right in its sole discretion to modify or eliminate the
waiver of a portion of its fees and the assumption of expenses of the Portfolio
in the future. If the Advisor modifies or eliminates the fee waiver or
assumption, such change will be set forth in the prospectus.
CONDENSED FINANCIAL INFORMATION
The following financial highlights are part of the financial statements of
the Portfolio. The information for each of the past fiscal years has been
audited by independent accountants. The financial statements, related notes
and the report of the independent accountants covering such financial
information and financial highlights for the Fund's most recent fiscal year
ended November 30, 1996, are incorporated by reference into the Statement of
Additional Information. Further information about the Portfolio's performance
is contained in the Fund's Annual Report to shareholders of the Portfolio for
the year ended November 30, 1996. A copy of the Annual Report may be obtained
from the Fund upon request at no charge.
3
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED AUGUST 3 TO
NOV. 30, 1996 NOV. 30, 1995 NOV. 30, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period . . . . . . . . . . . . . . . . . . $ 12.72 $ 9.48 $ 10.00
-------- ------- --------
Income from Investment Operations
- ---------------------------------
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . 0.20 0.17 0.11
Net Gains (Losses) on Securities (Realized and Unrealized) . . . . . . 2.54 3.40 (0.52)
-------- ------- --------
Total from Investment Operations. . . . . . . . . . . . . . . . . . 2.74 3.57 (0.41)
-------- ------- --------
Less Distributions
- -------------------
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.17) (0.11)
Net Realized Gains . . . . . . . . . . . . . . . . . . . . . . . . . . -- (0.16) --
-------- ------- --------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.33) (0.11)
-------- ------- --------
-------- ------- --------
Net Asset Value, End of Period . . . . . . . . . . . . . . . . . . . . . $ 15.43 $ 12.72 $ 9.48
-------- ------- --------
-------- ------- --------
Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.59% 37.76% (4.14)%#
Net Assets, End of Period (thousands). . . . . . . . . . . . . . . . . . $26,079 $ 7,110 $ 1,285
Ratio of Expenses to Average Net Assets (1). . . . . . . . . . . . . . . 0.82% 0.96%(a) 0.96%*(a)
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . 1.80% 2.37%(a) 5.39%*(a)
Portfolio Turnover Rate. . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A
Average Commission Rate. . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A
-------- ------- --------
-------- ------- --------
</TABLE>
________________
*Annualized
#Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Had certain waivers and reimbursements not been in effect, the ratios of
expenses to average net assets for the periods ended November 30, 1995 and
1994, would have been 2.35% and 8.45%, respectively, and the ratios of net
investment income to average net assets for the periods ended November 30,
1995 and 1994, would have been 0.98% and (2.10)%, respectively.
N/A Refer to the respective Master Fund Series.
4
<PAGE>
THE PORTFOLIO
The 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 Series, an
open-end, management investment company registered under the Investment Company
Act of 1940, having the same investment objective as the Portfolio. The
investment objective of the Portfolio may not be changed without the affirmative
vote of a majority of its outstanding shares and the investment objective of the
Series may not be changed without the affirmative vote of a majority of its
outstanding shares. Shareholders of the Portfolio will receive written notice
thirty days prior to any change in the investment objective of the Series. This
prospectus describes the investment objective, policies and restrictions of the
Portfolio and the Series. (See "INVESTMENT OBJECTIVE AND POLICIES.") In
addition, an investor should read "MANAGEMENT OF THE PORTFOLIO" for a
description of the management and other expenses associated with the Portfolio's
investment in the Series. Other institutional investors, including other mutual
funds, may invest in the Series, and the expenses of such other investors and,
correspondingly, their returns may differ from those of the Portfolio. 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 Portfolio.
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, the 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. Investment in the Series by other institutional investors offers
potential benefits to the Series and, through its investment in the Series,
also to the Portfolio. However, such economies and expense reductions might not
be achieved and additional investment opportunities, such as increased
diversification, might not be available if other institutions do not invest in
the Series. Also, if an institutional investor were to redeem its interest in
the Series, the remaining investors in the 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 the
Series than the Portfolio could have effective voting control over the operation
of the Series.
Further, if the Series changes its investment objective in a manner which
is inconsistent with the investment objective of the 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 the Portfolio of its investment in
the 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 may constitute a
taxable exchange for federal income tax purposes resulting in gain or loss to
the Portfolio. Any net capital gains so realized will be distributed to the
Portfolio's shareholders as described in "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS
AND TAXES" below.
Finally, the Portfolio's investment in the shares of a registered
investment company such as the Series 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 Series invests.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio pursues its objective by investing all of its
assets in the Series, which has the same investment objective and policies as
the Portfolio. The Series seeks to achieve its objective by investing in the
common stocks of large U.S. companies which the Advisor believes to be value
stocks at the time of purchase. Securities are considered value stocks
primarily because a company's shares have a high book value in relation to their
market value (a "book to market ratio"). Generally, a company's shares will
be considered to have a high book to market ratio if the ratio equals or exceeds
the ratios of any of the 30% of companies with the highest positive book to
market ratios whose shares are listed on the NYSE and, except as described
below, will be considered eligible for investment. In measuring value, the
Advisor may consider additional factors such as cash flow, economic conditions
and developments in the issuer's industry. 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.
PORTFOLIO STRUCTURE
The Series will operate as a "diversified" investment company. Further,
the 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
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 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, and short-term repurchase agreements. The Series may
invest in futures contracts and options on futures contracts . To the extent
that the Series invests in futures contracts for other than bona fide hedging
purposes, it will not purchase futures contracts if more than 5% of the Series'
total assets are then invested as initial margin deposits on such contracts or
options. The Series will purchase securities that are listed on the principal
U.S. national securities exchanges and traded over-the-counter.
The Series will be structured on a market capitalization basis, generally
by basing the amount of each security purchased on the issuer's relative market
capitalization, with a view to creating in the 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 weighting will also occur
because the Series intends to purchase round lots only. Furthermore, in order
to retain sufficient liquidity, the relative amount of any security held by the
Series may be reduced, from time to time, from the level which adherence to
market capitalization weighting would otherwise require. A portion, but
generally not in excess of 20%, of the Series' assets may be invested in
interest-bearing obligations, as described above, for this purpose, thereby
causing further deviation from market capitalization weighting. Such
investments would be made on a temporary basis pending investment in equity
securities pursuant to the Series' investment objective. The 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 weighting would otherwise
require. While such transactions might cause a temporary deviation from market
capitalization weighting, they would ordinarily be made in anticipation of
further growth of the assets of the Series.
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 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
6
<PAGE>
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 maximum on such list will be purchased by
the Series. Additional investments will not be made in securities which have
depreciated in value to such an extent that they are not then considered by the
Advisor to be large companies. This may result in further deviation from market
capitalization weighting and such deviation could be substantial if a
significant amount of the 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.
It is management's belief that the value stocks of large U.S. companies
offer, over a long term, a prudent opportunity for capital appreciation but, at
the same time, selecting a limited number of such issues for inclusion in the
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 Series.
The 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
Series do pay dividends. It is anticipated, therefore, that the Series will
receive dividend income.
PORTFOLIO TRANSACTIONS
The 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 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 Series. However, securities may be sold at any time when, in the Advisor's
judgment, circumstances warrant their sale. The annual portfolio turnover rate
of the Series for the fiscal years ended November 30, 1995 and 1996,
respectively, was 29.41% and 20.12%.
In addition, the 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.
SECURITIES LOANS
The Series is authorized to lend securities to qualified brokers, dealers,
banks and other financial institutions for the purpose of earning additional
income. While the Series may earn additional income from lending securities,
such activity is incidental to the Series' investment objective. The value of
securities loaned may not exceed 331/3% of the value of the Series' total
assets. In connection with such loans, the 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 and will receive reasonable interest on the loan, as well as amounts
equal to any dividends, interest or other distributions on the loaned
securities. In the event of the bankruptcy of the borrower, the Series could
experience delay in recovering the loaned securities. Management believes that
this risk can be controlled through careful monitoring procedures. The
Portfolio is also authorized to lend its portfolio securities. However, as long
as it holds only shares of the Series, it will not do so.
RISK FACTORS
7
<PAGE>
BORROWING
The Series has reserved the right to borrow amounts not exceeding 33% of
its net assets for the purposes of making redemption payments. When
advantageous opportunities to do so exist, the 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 may increase or decrease at a greater rate than
would be the case if the Series had not leveraged. The interest payable on the
amount borrowed would increase the Series' expenses and, if the appreciation and
income produced by the investments purchased when the Series has borrowed are
less than the cost of borrowing, the investment performance of the Series will
be reduced as a result of leveraging.
PORTFOLIO STRATEGIES
The method employed by the Advisor to manage the 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.
REPURCHASE AGREEMENTS
In addition, the 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 securities underlying such agreement. Management
believes that the risks associated with repurchase agreements can be controlled
through stringent security selection criteria and careful monitoring procedures.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Series also may invest in futures contracts and options on futures.
To the extent that the Series invests in futures contracts and options thereon
for other than bona fide hedging purposes, the Series will not 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 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
depend on the direction of securities prices, interest rates and other economic
factors, and the loss from investing in futures contracts is potentially
unlimited. Certain restrictions imposed by the Internal Revenue Code may limit
the ability of a Series to invest in futures contracts and options on futures
contracts.
MANAGEMENT OF THE PORTFOLIO
The Advisor serves as investment advisor to the Series and, as such, is
responsible for the management of its assets. Investment decisions for the
Series are made by the Investment Committee
8
<PAGE>
of the Advisor, which meets on a regular basis and also as needed to consider
investment issues. The Investment Committee is composed of certain officers and
directors of the Advisor who are elected annually. The Advisor provides the
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.
For the fiscal year ended November 30, 1996, the Advisor received a fee
for its advisory services to the Series equal to 0.10% of the average net assets
of the Series and the total expenses of the Portfolio were 0.82% of its
average net assets.
The Portfolio and the Series each 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 securities laws and the costs of any
filings required under state securities laws, reports to shareholders, and
transfer and dividend disbursing agency, administrative services and custodian
fees. Expenses allocable to the Portfolio or the Series are so allocated
and expenses which are allocable to the Portfolio and the Series are borne
by the Portfolio and the Series on the basis of the amount of fees paid by the
Fund (on behalf of the Portfolio) and the Trust (on behalf of the Series) to
PFPC Inc., the accounting services, dividend disbursing and transfer agent of
the Portfolio and the Series.
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 $20.7 billion. David G. Booth and Rex A.
Sinquefield (directors and officers of both the Fund and the Advisor, trustees
and officers of the Trust, and shareholders of the Advisor) 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 Portfolio. 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 Portfolio and the Series. The Portfolio's statement of additional
information 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 the 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 with information about the Portfolio and their investments as
they or the Fund may request; assisting the Fund to conduct meetings of
Portfolio 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.
Effective July 1, 1996, the annual fee paid monthly by the Portfolio to the
Advisor for administrative services was reduced from .15% of the Portfolio's
average monthly net assets to .01% of the Portfolio's average monthly
9
<PAGE>
net assets. Beginning July 1, 1996, the Advisor agreed to waive its fee
under the Administration Agreement and, to the extent that such waiver is
insufficient, to assume expenses of the Portfolio to the extent necessary to
keep the cumulative annual expenses to not more than .75% of the average net
assets of the Portfolio on an annualized basis. The Advisor retains the
right in its sole discretion to modify or eliminate the waiver of a portion
of its fees and assumption of expenses in the future.
The Fund intends to enter into shareholder service agreements with certain
Shareholder Service Agents on behalf of the Portfolio. The Shareholder Service
Agents ordinarily will include (i) with respect to participants in a 401(k) plan
that invests in the Portfolio, the person designated to service the employer's
plan, and (ii) institutions whose clients, customers or members invest in the
Portfolio. The services to be provided under the shareholder service agreements
may include any of the following: shareholder recordkeeping; sending statements
to shareholders reflecting account activities such as purchases, redemptions and
dividend payments; responding to shareholder inquiries regarding their accounts;
tax reporting with respect to dividends, distributions and redemptions;
receiving, aggregating and processing shareholder orders; and providing the
Portfolio with information necessary for the Fund to comply with state
securities laws. Effective July 1, 1996, the fee paid by the Portfolio to the
Shareholder Services Agent was reduced from the annual rate of .25% of the
aggregate daily value of all shares held in an account maintained by such
Shareholder Services Agent, paid on a monthly basis, to .10%.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
The Portfolio intends to qualify each year as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), so
that it will not be liable for federal income taxes to the extent that its net
investment income and net realized capital gains are distributed. The
Portfolio's policy is to distribute substantially all net investment income and
any realized net capital gains annually in December after the close of the
Fund's fiscal year on November 30. The Series also intends to qualify as a
regulated investment company under the Code.
Shareholders of the Portfolio will automatically receive all income
dividends and any capital gains distributions in additional shares of the
Portfolio at net asset value (as of the business date following the dividend
record date).
The Portfolio receives income in the form of income dividends paid by the
Series. This income, less the expenses incurred in operations, is the
Portfolio's net investment income from which income dividends are distributed as
described above. The Portfolio also may receive capital gains distributions
from the Series and may realize capital gains upon the redemption of the shares
of the Series. Any net realized capital gains of the Portfolio will be
distributed as described above. Dividends and distributions paid to a 401(k)
plan accumulate free of federal income taxes.
Whether paid in cash or additional shares and regardless of the length of
time the 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.
Dividends from net investment income will generally qualify in part for the
corporate dividends received deduction, but the portion of dividends so
qualified depends on the aggregate qualifying dividend income received by the
Series from domestic (U.S.) sources.
For those investors subject to tax, if purchases of shares of the 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.
Dividends which are declared in December to shareholders of record 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.
10
<PAGE>
The sale of shares of the 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 of
the Portfolio for shares of another Portfolio of the Fund. Any loss incurred on
sale or exchange of the 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.
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.
The 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 the
Portfolio.
11
<PAGE>
PURCHASE OF SHARES
Shares of the Portfolio are sold only (i) to fund deferred compensation
plans which are exempt from taxation under section 401(k) of the Code and (ii)
to clients, customers or members of certain institutions. Provided that shares
of the Portfolio are available under an employer's plan or through an
institution, shares may be purchased by following the procedures adopted by the
respective employer or institution and approved by the Fund's management for
making investments. Shares are available through the Shareholder Services Agent
designated under the employer's plan or by the institution. Investors who want
to consider investing in the Portfolio should contact their employer or
institution for details. Institutions which purchase shares of the Portfolio
for the accounts of their customers may impose separate charges on those
customers for account services. The Fund does not impose a minimum purchase
requirement, but investors who wish to purchase shares of the Portfolio should
determine whether their employer's plan or institution imposes a minimum
transaction requirement.
VALUATION OF SHARES
The net asset values per share of the Portfolio and the Series are
calculated as of the close of the NYSE by dividing the total market value of
their respective investments and other assets, less any liabilities, by the
total outstanding shares of the stock of the Portfolio and the Series,
respectively. The value of the Portfolio's shares will fluctuate in relation to
the investment experience of the Series. Securities held by the 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, such securities will be valued at the mean between the most
recent quoted bid and asked prices. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities for which market quotations are readily available are valued at the
mean between the most recent 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.
Provided that the Shareholder Services Agent has received the investor's
investment instructions in good order and the custodian has received the
investor's payment, shares of the Portfolio will be priced at the net asset
value calculated next after receipt of the order by PFPC Inc., the transfer
agent for the Portfolio. 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. The Fund reserves the right to redeem shares
owned by any purchaser whose order is canceled to recover any resulting loss to
the Fund and may prohibit or restrict the manner in which such purchaser may
place further orders.
Management believes that any dilutive effective of the cost of investing
the proceeds of the sale of the shares of the Portfolio is minimal and,
therefore, the shares of the Portfolio are currently sold at net asset value,
without imposition of a fee that would be used to reimburse the Portfolio for
such cost (a "reimbursement fee"). Reimbursement fees may be charged
prospectively from time to time based upon the future experience of the
Portfolio and the Series. Any such charges will be described in the prospectus.
DISTRIBUTION
The Fund acts as distributor of the Portfolio's 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 Portfolio's shares. No compensation is paid by the Fund to DFA
Securities Inc. under this agreement.
12
<PAGE>
EXCHANGE OF SHARES
Provided such transactions are permitted under the employer's 401(k) plan
or by the institution, investors may exchange shares of the Portfolio for those
of the DFA International Value Portfolio II or the U.S. Small Cap Value
Portfolio II by completing the necessary documentation as required by the
Shareholder Services Agent designated in the employer's plan or by the
institution.
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 any of the portfolios or otherwise adversely affect the Fund,
the exchange privilege may be terminated. Exchanges will be accepted only if
the Fund may issue the shares of the portfolio being acquired in compliance
with the securities laws of the investor's state of residence.
The redemption and purchase prices of shares redeemed and purchased by
exchange, respectively, are the net asset values next determined after the
Shareholder Services Agent has received appropriate instructions in the form
required by such Shareholder Services Agent.
There is no fee imposed on an exchange. However, the Fund reserves the
right to impose an administrative fee in order to cover the costs incurred in
processing an exchange. Any such fee will be disclosed in the prospectus. An
exchange is treated as a redemption and a purchase. Therefore, an investor
could realize a taxable gain or 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.
REDEMPTION OF SHARES
Investors who desire to redeem shares of the Portfolio must furnish a
redemption request to the respective Shareholder Services Agent in the form
required by such Shareholder Services Agent. 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.
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.
With respect to each Portfolio, the Fund reserves the right to redeem a
shareholder's account if the value of the shares in a specific portfolio is $500
or less, whether because of redemptions, a decline in the portfolio's net asset
value per share or any other reason. Before the Fund involuntarily redeems
shares from such an account and sends the proceeds to the stockholder, the Fund
will give written notice of the redemption to the stockholder at least sixty
days in advance of the redemption date. The stockholder will then have sixty
days from the date of the notice to make an additional investment in the Fund in
order to bring the value of the shares in the account for a specific portfolio
to more than $500 and avoid such involuntary redemption. The redemption price
to be paid to a stockholder for shares redeemed by the Fund under this right
will be the aggregate net asset value of the shares in the account at the close
of business on the redemption date.
13
<PAGE>
GENERAL INFORMATION
The Fund was incorporated under Maryland law on March 19, 1990. The shares
of the Portfolio, when issued and paid for in accordance with the Portfolio's
prospectus, will be fully paid and non-assessable shares, with equal, non-
cumulative voting rights and no preferences as to conversion, exchange,
dividends, redemptions 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 1940 Act or other applicable law. The
Fund's bylaws provide that special meetings of shareholders shall be called at
the written request of at least 10% of the votes entitled to be cast at such
meeting. Such meeting may be called to consider any matter, including the
removal of one or more directors. Shareholders will receive shareholder
communications with respect to such matters as required by the 1940 Act,
including semi-annual and annual financial statements of the Fund, the latter
being audited.
The Portfolio 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's annual report to shareholders of the Portfolio for
the fiscal year ended November 30, 1996, contains additional performance
information. A copy of the annual report is available upon request and without
charge.
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 the Portfolio in the 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 the Portfolio, as an investor in the Series, is asked to vote on a
shareholder proposal, the Fund will solicit voting instructions from the
Portfolio's shareholders with respect to the proposal. The Directors of the
Fund will then vote the Portfolio's shares in the 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 accordance with their best judgment.
As of February 28, 1997, the following person owned more than 25% of the
voting securities of the Portfolio:
BellSouth Corporation 100%
Bankers Trust Company as Trustee*
34 Exchange Place
Jersey City, NJ 07302
14
<PAGE>
* Owner of record only
Shareholder inquiries may be made by writing or calling the Shareholder
Services Agent at the address or telephone number set forth in the employer's
plan documents or in documents provided by the institution.
15
<PAGE>
DIMENSIONAL INVESTMENT GROUP INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
CUSTODIAN
PNC BANK, N.A.
200 Stevens Drive, Airport Business Center
Lester, PA 19113
ACCOUNTING SERVICES 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>
PROSPECTUS
MARCH 28, 1997
U.S. SMALL CAP VALUE PORTFOLIO II
_________________
This prospectus describes U.S. SMALL CAP VALUE PORTFOLIO II (the
"Portfolio"), a series of shares issued by Dimensional Investment Group Inc.
(the "Fund"), 1299 Ocean Avenue, 11th floor, Santa Monica, California 90401,
(310) 395-8005. The Portfolio is an open-end, management investment company
whose shares are offered, without a sales charge, to 401(k) defined contribution
plans and clients, customers or members of certain institutions. 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. The Fund
has not established a minimum initial purchase requirement for the Portfolio.
THE INVESTMENT OBJECTIVE OF THE PORTFOLIO IS TO ACHIEVE LONG-TERM CAPITAL
APPRECIATION. THE 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 THE DFA U.S. SMALL CAP VALUE SERIES (THE "SERIES") OF THE DFA INVESTMENT
TRUST COMPANY (THE "TRUST"). THE SERIES IS AN OPEN-END, MANAGEMENT INVESTMENT
COMPANY THAT HAS THE SAME INVESTMENT OBJECTIVE, POLICIES AND LIMITATIONS AS THE
PORTFOLIO. THE INVESTMENT EXPERIENCE OF THE PORTFOLIO WILL CORRESPOND DIRECTLY
WITH THE INVESTMENT EXPERIENCE OF THE SERIES. INVESTORS SHOULD CAREFULLY
CONSIDER THIS INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION, SEE "THE
PORTFOLIO."
This prospectus sets forth information about the Portfolio that prospective
investors should know before investing and should be read carefully and retained
for future reference. A statement of additional information about the
Portfolio, dated March 28, 1997, 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.
_________________
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THE SHARES INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
_________________
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>
TABLE OF CONTENTS
PAGE
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONDENSED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . 3
THE PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . 6
Portfolio Characteristics and Policies . . . . . . . . . . . . . . 6
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . . . 6
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . 7
SECURITIES LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Small Company Securities . . . . . . . . . . . . . . . . . . . . . 7
Borrowing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Portfolio Strategies . . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements. . . . . . . . . . . . . . . . . . . . . . . 8
Futures Contracts and Options on Futures . . . . . . . . . . . . . 8
MANAGEMENT OF THE PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . 8
Administrative Services . . . . . . . . . . . . . . . . . . . . . 9
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES. . . . . . . . . . . 10
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 11
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
EXCHANGE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . 12
REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 12
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
HIGHLIGHTS
PAGE
INVESTMENT OBJECTIVE 6
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio will invest all of its assets in the Series ,
which in turn will invest in the stocks of small U.S. companies that are value
stocks, primarily because they have a high book value in relation to their
market value. The investment objective of the Portfolio is a fundamental policy
and may not be changed without the affirmative vote of a majority of its
outstanding securities. (See "INVESTMENT OBJECTIVE AND POLICIES.")
PAGE
RISK FACTORS 7
The Portfolio (indirectly through its investment in the Series) may invest
in futures contracts and options thereon. The Portfolio is also authorized to
invest in repurchase agreements. These policies and the policy of the Portfolio
to invest in the shares of the Series involve certain risks. (See "RISK
FACTORS.")
PAGE
MANAGEMENT AND ADMINISTRATIVE SERVICES 8
Dimensional Fund Advisors Inc. (the "Advisor" or "DFA") provides the
Portfolio with administrative services and also serves as investment advisor to
the Series. The Fund contracts with Shareholder Services Agents to provide
certain recordkeeping and other services for the benefit of the Portfolio's
shareholders. (See "MANAGEMENT OF THE PORTFOLIO.")
PAGE
DIVIDEND POLICY 10
After the end of the Portfolio's fiscal year in November, the Portfolio
distributes dividends from its net investment income and any realized net
capital gains annually in December. (See "DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES.")
PAGE
PURCHASE, VALUATION AND REDEMPTION OF SHARES 11
The shares of the Portfolio are offered at net asset value, which is
calculated as of the close of the New York Stock Exchange (the "NYSE") on each
day that the NYSE is open for business. The value of the Portfolio's shares
will fluctuate in relation to the investment experience of the Series. The
redemption price of a share of the Portfolio is equal to its net asset value.
(See "PURCHASE OF SHARES," "VALUATION OF SHARES" and "REDEMPTION OF SHARES.")
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
None*
The expenses in the table below are based on those incurred by the
Portfolio and the Series for the fiscal year ended November 30, 1996, restated
to reflect current fees, waivers and arrangements to assume expenses.
ANNUAL FUND OPERATING EXPENSES**
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.20%
Administration Fee (after voluntary fee waiver) 0.00%
Other Expenses (after reimbursement) 0.55%
Total Operating Expenses 0.75%
*Shares of the Portfolio that are 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. "Other Expenses" include a fee paid to the Shareholder Services
Agent of each employer plan or institution at the annual rate of .10% of
the aggregate daily value of all shares of the Portfolio that are held in
an account maintained by such Shareholder Services Agent, paid on a monthly
basis. (See "Administrative Services.")
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$8 $24 $42 $93
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 Portfolio
will bear directly or indirectly. The table summarizes the aggregate estimated
annual operating expenses of both the Portfolio and the Series. (See
"MANAGEMENT OF THE PORTFOLIO.") The Board of Directors of the Fund has
considered whether such expenses will be more or less than they would be if the
Portfolio were to invest directly in the securities held by the Series. The
aggregate amount of expenses for the Portfolio and the Series may be greater
than it would be if the Portfolio were to invest directly in the securities held
by the Series. However, the total expense ratio for the Portfolio and the
Series is expected to be less over time than such ratio would be if the
Portfolio were to invest directly in the underlying securities. This is
because this arrangement enables institutional investors, including the
Portfolio, 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 the
Series, including the Portfolio, will pay its proportionate share of the
expenses of the Series.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
From July 1, 1994 through June 30, 1996, the Advisor waived its
administration fee with respect to the Portfolio and assumed expenses of the
Portfolio to the extent necessary to keep the cumulative annual expenses of the
Portfolio to not more than .96% of its average net assets on an annualized
basis. Beginning on July 1, 1996, the Advisor agreed to waive its
administration fee with respect to the Portfolio and, to the extent that such
waiver is insufficient, to assume expenses of the Portfolio to the extent
necessary to keep the cumulative annual expenses to not more than .75% of the
average net assets of the Portfolio on an annualized basis. For purposes of
this waiver and assumption, the annualized expenses are those expenses incurred
in any period commencing on or after July 1, 1996, consisting of twelve
consecutive months. Absent the Advisor's waiver of the administration fee and
assumption of expenses, the ratio of expenses to average net assets for the
Portfolio for the fiscal year ended November 30, 1996 would have been 0.88%.
The Advisor retains the right in its sole discretion to modify or eliminate the
waiver of a portion of its fees and the assumption of expenses of the Portfolio
in the future. If the Advisor modifies or eliminates the fee waiver or
assumption, such change will be set forth in the prospectus.
CONDENSED FINANCIAL INFORMATION
The following financial highlights are part of the financial statements of
the Portfolio. The information for each of the past fiscal years has been
audited by independent accountants. The financial statements, related notes
and the report of the independent accountants covering such financial
information and financial highlights for the Fund's most recent fiscal year
ended November 30, 1996, are incorporated by reference into the Statement of
Additional Information. Further information about the Portfolio's performance
is contained in the Fund's Annual Report to shareholders of the Portfolio for
the year ended November 30, 1996. A copy of the Annual Report may be obtained
from the Fund upon request at no charge.
3
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR YEAR AUGUST 3 TO
ENDED ENDED NOV. 30
NOV. 30, NOV. 30 1996
1996 1996
-------- ------- ---------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period . . . . . . . . . . . . . . . . . . . . $ 12.13 $ 9.65 $ 10.00
-------- ------- --------
Income from Investment Operations
- ---------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . 0.08 0.06 0.11
Net Gains (Losses) on Securities (Realized and Unrealized). . . . . . . . 2.51 2.63 (0.35)
-------- ------- --------
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . 2.59 2.69 (0.24)
-------- ------- --------
Less Distributions
- ------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . (0.01) (0.06) (0.11)
Net Realized Gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.04) (0.15) --
-------- ------- --------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05) (0.21) (0.11)
-------- ------- --------
Net Asset Value, End of Period . . . . . . . . . . . . . . . . . . . . . . . $ 14.67 $ 12.13 $ 9.65
Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.39% 27.90% (2.39)%#
Net Assets, End of Period (thousands). . . . . . . . . . . . . . . . . . . . $ 40,637 $ 14,290 $ 6,055
Ratio of Expenses to Average Net Assets (1). . . . . . . . . . . . . . . . . 0.85%(a) 0.96%(a) 0.96%*(a)
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . 0.77%(a) 0.68%(a) 4.78%*(a)
Portfolio Turnover Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A
Average Commission Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A
</TABLE>
________________
*Annualized
#Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Had certain waivers and reimbursements not been in effect, the ratios of
expenses to average net assets for the periods ended November 30, 1996,
1995 and 1994, would have been 0.88%, 1.50% and 2.33%, respectively, and
the ratios of net investment income to average net assets for the periods
ended November 30, 1996, 1995 and 1994, would have been 0.74%, 0.14% and
3.41%, respectively.
N/A Refer to the respective Master Fund Series.
4
<PAGE>
THE PORTFOLIO
The 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 Series, an
open-end, management investment company registered under the Investment Company
Act of 1940, having the same investment objective as the Portfolio. The
investment objective of the Portfolio may not be changed without the affirmative
vote of a majority of its outstanding shares and the investment objective of the
Series may not be changed without the affirmative vote of a majority of its
outstanding shares. Shareholders of the Portfolio will receive written notice
thirty days prior to any change in the investment objective of the Series. This
prospectus describes the investment objective, policies and restrictions of the
Portfolio and the Series. (See "INVESTMENT OBJECTIVE AND POLICIES.") In
addition, an investor should read "MANAGEMENT OF THE PORTFOLIO" for a
description of the management and other expenses associated with the Portfolio's
investment in the Series. Other institutional investors, including other mutual
funds, may invest in the Series, and the expenses of such other investors and,
correspondingly, their returns may differ from those of the Portfolio. 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 Portfolio.
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, the 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. Investment in the Series by other institutional investors offers
potential benefits to the Series and, through its investment in the Series,
also to the Portfolio. However, economies and expense reductions might not be
achieved and additional investment opportunities, such as increased
diversification, might not be available if other institutions do not invest in
the Series. Also, if an institutional investor were to redeem its interest in
the Series, the remaining investors in the 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 the
Series than the Portfolio could have effective voting control over the operation
of the Series.
Further, if the Series changes its investment objective in a manner which
is inconsistent with the investment objective of the 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 the Portfolio of its investment in
the 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 may constitute a
taxable exchange for federal income tax purposes resulting in gain or loss to
the Portfolio. Any net capital gains so realized will be distributed to the
Portfolio's shareholders as described in "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS
AND TAXES" below.
Finally, the Portfolio's investment in the shares of a registered
investment company such as the Series 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 Series invests.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio pursues its objective by investing all of its
assets in the Series, which has the same investment objective and policies as
the Portfolio. The Series seeks to achieve its objective by investing in common
stocks of small U.S. companies which the Advisor believes to be value stocks at
the time of purchase. Securities are considered value stocks primarily because
a company's shares have a high book value in relation to their market value (a
"book to market ratio"). Generally, the shares of a company will be considered
to have a high book to market ratio if the ratio equals or exceeds the ratios of
any of the 30% of companies with the highest positive book to market ratios
whose shares are listed on the New York Stock Exchange ("NYSE"), and, except as
described below, will be considered eligible for investment. In measuring
value, the Advisor may consider additional factors such as cash flow, economic
conditions and developments in the issuer's industry. A company will be
considered "small" if its market capitalization (i.e., the market price of its
common stock multiplied by the number of outstanding shares) is less than the
market capitalization of the NYSE-listed company with the median market
capitalization of all such listed companies.
PORTFOLIO STRUCTURE
The Series will operate as a "diversified" investment company. Further,
the 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
Series will be invested in a broad and diverse group of readily marketable
common stocks of small U.S. companies with high book to market ratios, as
described above. The 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, and short-term repurchase agreements. The Series may
invest in futures contracts and options on futures contracts . To the extent
that the Series invests in futures contracts for other than bona fide hedging
purposes, it will not purchase futures contracts if more than 5% of the Series'
total assets are then invested as initial margin deposits on such contracts or
options. The Series will purchase securities that are listed on the principal
U.S. national securities exchanges and traded over-the-counter.
The Series will be structured on a market capitalization basis, generally
by basing the amount of each security purchased on the issuer's relative market
capitalization, with a view to creating in the 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 weighting will also occur
because the Series intends to purchase round lots only. Furthermore, in order
to retain sufficient liquidity, the relative amount of any security held by the
Series may be reduced from time to time from the level which adherence to market
capitalization weighting would otherwise require. A portion, but generally not
in excess of 20%, of the Series' assets may be invested in interest-bearing
obligations, such as money-market instruments, for this purpose, thereby causing
further deviation from market capitalization weighting. Such investments would
be made on a temporary basis pending investment in equity securities pursuant to
the Series' investment objective. The 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, adherence to the policy of
market capitalization weighting would otherwise require. While such
transactions might cause a temporary deviation from market capitalization
weighting, they would ordinarily be made in anticipation of further growth of
the assets of the Series.
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 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
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will prepare a current list of small U.S. companies with high book to market
ratios whose stock is eligible for investment. Only common stocks whose market
capitalizations are not more than the maximum on such list will be purchased by
the Series. Additional investments will not be made in securities which have
appreciated in value to such an extent that they are not then considered by the
Advisor to be small companies. This may result in further deviation from market
capitalization weighting and such deviation could be substantial if a
significant amount of the Series' holdings increase 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.
It is management's belief that the value stocks of small U.S. companies
offer, over a long term, a prudent opportunity for capital appreciation but, at
the same time, selecting a limited number of such issues for inclusion in the
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 Series.
The 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
Series do pay dividends. It is anticipated, therefore, that the Series will
receive dividend income.
PORTFOLIO TRANSACTIONS
The 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 Series may sell portfolio
securities when the issuer's market capitalization increases to a level that
substantially exceeds that of the issuer with the largest market
capitalization which is then eligible for investment by the Series. In
addition, the 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. While the Series
anticipates that it will generally retain securities of issuers with
relatively smaller market capitalizations for longer periods, despite any
decrease in the issuer's book to market ratio, securities may be sold at any
time when, in the Advisor's judgment, circumstances warrant their sale. The
annual portfolio turnover rate of the Series for the fiscal years ended
November 30, 1995 and 1996, respectively, was 20.62% and 14.91%.
SECURITIES LOANS
The Series is authorized to lend securities to qualified brokers, dealers,
banks and other financial institutions for the purpose of earning additional
income. While the Series may earn additional income from lending securities,
such activity is incidental to the Series' investment objective. The value of
securities loaned may not exceed 331/3% of the value of the Series' total
assets. In connection with such loans, the 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 and will receive reasonable interest on the loan, as well as amounts
equal to any dividends, interest or other distributions on the loaned
securities. In the event of the bankruptcy of the borrower, the Series could
experience delay in recovering the loaned securities. Management believes that
this risk can be controlled through careful monitoring procedures. The
Portfolio is also authorized to lend its portfolio securities. However, as long
as it holds only shares of the Series, it will not do so.
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RISK FACTORS
SMALL COMPANY SECURITIES
Typically, securities of small companies are less liquid than securities of
large companies. Recognizing this factor, the Series will endeavor to effect
securities transactions in a manner to avoid causing significant price
fluctuations in the market for these securities.
BORROWING
The Series has reserved the right to borrow amounts not exceeding 33% of
its net assets for the purposes of making redemption payments. When
advantageous opportunities to do so exist, the 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 may increase or decrease at a greater rate than
would be the case if the Series had not leveraged. The interest payable on the
amount borrowed would increase the Series' expenses and, if the appreciation and
income produced by the investments purchased when the Series has borrowed are
less than the cost of borrowing, the investment performance of the Series will
be reduced as a result of leveraging.
PORTFOLIO STRATEGIES
The method employed by the Advisor to manage the 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.
REPURCHASE AGREEMENTS
In addition, the Series may invest in repurchase agreements. In the
event of a bankruptcy of the other party to a repurchase agreement, the Trust
could experience delay in recovering securities underlying the agreement.
Management believes that the risks associated with repurchase agreements can be
controlled through stringent security selection criteria and careful monitoring
procedures.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Series also may invest in futures contracts and options on index
futures. To the extent that the Series invests in futures contracts and options
thereon for other than bona fide hedging purposes, the Series will not 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 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
depend on the direction of securities prices, interest rates and other economic
factors, and the loss from investing in futures contracts is potentially
unlimited. Certain
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restrictions imposed by the Internal Revenue Code may limit the ability of a
Series to invest in futures contracts and options on futures contracts.
MANAGEMENT OF THE PORTFOLIO
The Advisor serves as investment advisor to the Series and, as such, is
responsible for the management of its 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 the 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.
For the fiscal year ended November 30, 1996, the Advisor received a fee
for its advisory services to the Series equal to 0.20% of the average net assets
of the Series and the total expenses of the Portfolio were 0.85% of its average
net assets. Absent the Advisor's waiver of its fee under the Administration
Agreement with respect to the Portfolio (see "Administrative Services") and its
assumption of portfolio expenses to the extent necessary to keep the cumulative
annual expenses of the Portfolio to not more than 0.96% (0.75% after July 1,
1996) of the average net assets of the Portfolio on an annual basis, the ratio
of expenses to average net assets for the fiscal year ended November 30, 1996
would have been 0.88%.
The Portfolio and the Series each 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 securities laws and the cost of any
filings required under state securities laws, reports to shareholders, and
transfer and dividend disbursing agency, administrative services and custodian
fees. Expenses allocable to the Portfolio or the Series are so allocated
and expenses which are allocable to the Portfolio and the Series are borne
by the Portfolio and the Series on the basis of the amount of fees paid by the
Fund (on behalf of the Portfolio) and the Trust (on behalf of the Series) to
PFPC Inc., the accounting services, dividend disbursing and transfer agent of
the Portfolio and the Series.
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 $20.7 billion. David G. Booth and Rex A.
Sinquefield (directors and officers of both the Fund and the Advisor , trustees
and officers of the Trust and shareholders of the Advisor) 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 Portfolio. 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 Portfolio and the Series. The Portfolio's statement of additional
information 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 the 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
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<PAGE>
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 of record; 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. Effective July 1, 1996, the annual fee paid monthly
by the Portfolio to the Advisor for administrative services was reduced from
.30% of the Portfolio's average monthly net assets to .01% of the Portfolio's
average monthly net assets. Beginning July 1, 1996, the Advisor agreed to
waive its fee under the Administration Agreement and, to the extent that such
waiver is insufficient, to assume expenses of the Portfolio to the extent
necessary to keep the cumulative annual expenses to not more than .75% of the
average net assets of the Portfolio on an annualized basis. The Advisor retains
the right in its sole discretion to modify or eliminate the waiver of a portion
of its fees and assumption of expenses in the future.
The Fund intends to enter into shareholder service agreements with certain
Shareholder Service Agents on behalf of the Portfolio. The Shareholder Service
Agents ordinarily will include (i) with respect to participants in a 401(k) plan
that invests in the Portfolio, the person designated to service the employer's
plan, and (ii) institutions whose clients, customers or members invest in the
Portfolio. These services to be provided under the shareholder service
agreements may include any of the following: individual recordkeeping for
401(k) plan participants and clients, customers or members of institutions
(collectively referred to herein as "Participants"); sending statements to
Participants reflecting account activities such as purchases, redemptions and
dividend payments; responding to Participant inquiries regarding their
accounts; tax reporting with respect to dividends, distributions and
redemptions; receiving, aggregating and processing Participant orders; and
providing the Portfolio with information necessary for the Fund to comply with
the state securities laws. Effective on or about July 1, 1996, the fee paid by
the Portfolio to the Shareholder Services Agent was reduced from the annual
rate of .25% of the aggregate daily value of all shares held in an account
maintained by such Shareholder Services Agent, paid on a monthly basis, to .10%.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
The Portfolio intends to qualify each year as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), so
that it will not be liable for federal income taxes to the extent that its net
investment income and net realized capital gains are distributed. The
Portfolio's policy is to distribute substantially all net investment income and
any realized net capital gains annually in December after the close of the
Fund's fiscal year on November 30. The Series also intends to qualify as a
regulated investment company under the Code.
Shareholders of the Portfolio will automatically receive all income
dividends and any capital gains distributions in additional shares of the
Portfolio at net asset value (as of the business date following the dividend
record date).
The Portfolio receives income in the form of income dividends paid by the
Series. This income, less the expenses incurred in operations, is the
Portfolio's net investment income from which income dividends are distributed as
described above. The Portfolio also may receive capital gains distributions
from the Series and may realize capital gains upon the redemption of the shares
of the Series. Any net realized capital gains of the Portfolio will be
distributed as described above. Dividends and distributions paid to a 401(k)
plan accumulate free of federal income tax.
Whether paid in cash or additional shares and regardless of the length of
time the 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.
Dividends from net investment income will generally qualify in part for the
corporate dividends received deduction, but the portion of dividends so
qualified depends on the aggregate qualifying dividend income received by the
Series from domestic (U.S.) sources.
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For those investors subject to tax, if purchases of shares of the 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.
Dividends which are declared in December to shareholders of record 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 the 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 of
the Portfolio for shares of another Portfolio of the Fund. Any loss incurred on
sale or exchange of the 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.
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.
The 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 the
Portfolio.
PURCHASE OF SHARES
Shares of the Portfolio are sold only (i) to fund deferred compensation
plans which are exempt from taxation under section 401(k) of the Code and (ii)
to clients, customers or members of certain institutions. Provided that shares
of the Portfolio are available under an employer's plan or through an
institution, shares may be purchased by following the procedures adopted by the
respective employer or institution and approved by the Fund's management for
making investments. Shares are available through the Shareholder Services Agent
designated under the employer's plan or by the institution. Investors who want
to consider investing in the Portfolio should contact their employer or
institution for details. Institutions which purchase shares of the Portfolio
for the accounts of their customers may impose separate charges on those
customers for account services. The Fund does not impose a minimum purchase
requirement, but investors who wish to purchase shares of the Portfolio should
determine whether their employer's plan or institution imposes a minimum
transaction requirement.
VALUATION OF SHARES
The net asset values per share of the Portfolio and the Series are
calculated as of the close of the NYSE by dividing the total market value of
their respective investments and other assets, less any liabilities, by the
total outstanding shares of the stock of the Portfolio and the Series,
respectively. The value of the Portfolio's shares will fluctuate in relation to
the investment experience of the Series. Securities held by the 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 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
11
<PAGE>
(including restricted securities) are determined in good faith at fair value in
accordance with procedures adopted by the Board of Trustees of the Trust.
Provided that the Shareholder Services Agent has received the investor's
investment instructions in good order and the Custodian has received the
investor's payment, shares of the Portfolio will be priced at the net asset
value calculated next after receipt of the order by PFPC Inc., the transfer
agent for the Portfolio. 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. The Fund reserves the right to redeem shares
owned by any purchaser whose order is canceled to recover any resulting loss to
the Fund and may prohibit or restrict the manner in which such purchaser may
place further orders.
Management believes that any dilutive effective of the cost of investing
the proceeds of the sale of the shares of the Portfolio will be minimal and,
therefore, the shares of the Portfolio are currently sold at net asset value,
without imposition of a fee that would be used to reimburse the Portfolio for
such cost (a "reimbursement fee"). However, a reimbursement fee may be charged
prospectively, from time, to time based upon the future experience of the Series
which would be used to defray the costs of investing in securities (such as
brokerage commissions taxes and other transaction costs). Any such charge will
be described in the prospectus.
DISTRIBUTION
The Fund acts as distributor of the Portfolio's 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 Portfolio's shares. No compensation is paid by the Fund to DFA
Securities Inc. under this agreement.
EXCHANGE OF SHARES
Provided such transactions are permitted under the employer's 401(k) plan
or by the institution, investors may exchange shares of the Portfolio for those
of the DFA International Value Portfolio II or the U.S. Large Cap Value
Portfolio II by completing the necessary documentation as required by the
Shareholder Services Agent designated in the employer's plan or by the
institution.
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 any of the portfolios or otherwise adversely affect the Fund,
the exchange privilege may be terminated. Exchanges will be accepted only if
the Fund may issue the shares of the portfolio being acquired in compliance
with the securities laws of the investor's state of residence.
The redemption and purchase prices of shares redeemed and purchased by
exchange, respectively, are the net asset values next determined after the
Shareholder Services Agent has received appropriate instructions in the form
required by such Shareholder Services Agent.
There is no fee imposed on an exchange. However, the Fund reserves the
right to impose an administrative fee in order to cover the costs incurred in
processing an exchange. Any such fee will be disclosed in the prospectus. An
exchange is treated as a redemption and a purchase. Therefore, an investor
could realize a taxable gain or a loss on the transaction. The Fund reserves
the right to revise or terminate the exchange privilege or limit the amount of
or reject any exchange, as deemed necessary, at any time.
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REDEMPTION OF SHARES
Investors who desire to redeem shares of the Portfolio must furnish a
redemption request to the respective Shareholder Services Agent in the form
required by such Shareholder Services Agent. 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.
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.
With respect to each Portfolio, the Fund reserves the right to redeem a
shareholder's account if the value of the shares in a specific portfolio is $500
or less, whether because of redemptions, a decline in the portfolio's net asset
value per share or any other reason. Before the Fund involuntarily redeems
shares from such an account and sends the proceeds to the stockholder, the Fund
will give written notice of the redemption to the stockholder at least sixty
days in advance of the redemption date. The stockholder will then have sixty
days from the date of the notice to make an additional investment in the Fund in
order to bring the value of the shares in the account for a specific portfolio
to more than $500 and avoid such involuntary redemption. The redemption price
to be paid to a stockholder for shares redeemed by the Fund under this right
will be the aggregate net asset value of the shares in the account at the close
of business on the redemption date.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on March 19, 1990. The shares
of the Portfolio, when issued and paid for in accordance with the Portfolio's
prospectus, will be fully paid and non-assessable shares, with equal, non-
cumulative voting rights and no preferences as to conversion, exchange,
dividends, redemptions 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 1940 Act or other applicable law. The
Fund's bylaws provide that special meetings of shareholders shall be called at
the written request of at least 10% of the votes entitled to be cast at such
meeting. Such meeting may be called to consider any matter, including the
removal of one or more directors. Shareholders will receive shareholder
communications with respect to such matters as required by the 1940 Act,
including semi-annual and annual financial statements of the Fund, the latter
being audited.
The Portfolio 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's annual report to shareholders of the Portfolio for
the fiscal year ended November 30, 1996, contains additional performance
information. A copy of the annual report is available upon request and without
charge.
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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 the Portfolio in the 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 the Portfolio, as an investor in the Series, is asked to vote on a
shareholder proposal , the Fund will solicit voting instructions from the
Portfolio's shareholders with respect to the proposal. The Directors of the
Fund will then vote the Portfolio's shares in the 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 accordance with their best judgment.
As of February 28, 1997, the following person owned more than 25% of the
voting securities of the Portfolio:
BellSouth Corporation 100%
Bankers Trust Company as Trustee*
34 Exchange Place
Jersey City, NJ 07302
* Owner of record only
Shareholder inquiries may be made by writing or calling the Shareholder
Services Agent at the address or telephone number set forth in the employer's
plan documents or in documents provided by the institution.
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DIMENSIONAL INVESTMENT GROUP INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
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>
PROSPECTUS
MARCH 28, 1997
THE DFA INTERNATIONAL VALUE PORTFOLIO
---------------
This prospectus describes THE DFA INTERNATIONAL VALUE PORTFOLIO (the
"Portfolio"), a series of shares issued by Dimensional Investment Group Inc.
(the "Fund"), 1299 Ocean Avenue, 11th floor, Santa Monica, California 90401,
(310) 395-8005. The Portfolio is an open-end, management investment company
whose shares are offered, without a sales charge, to institutional investors,
retirement plans and clients of registered investment advisers. 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. The Fund has
not established an initial minimum purchase requirement for the Portfolio.
THE INVESTMENT OBJECTIVE OF THE PORTFOLIO IS TO ACHIEVE LONG-TERM CAPITAL
APPRECIATION. THE 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 THE DFA INTERNATIONAL VALUE SERIES (THE "SERIES") OF THE DFA INVESTMENT TRUST
COMPANY (THE "TRUST"). THE SERIES IS AN OPEN-END, MANAGEMENT INVESTMENT COMPANY
THAT HAS THE SAME INVESTMENT OBJECTIVE, POLICIES AND LIMITATIONS AS THE
PORTFOLIO. THE INVESTMENT EXPERIENCE OF THE PORTFOLIO WILL CORRESPOND DIRECTLY
WITH THE INVESTMENT EXPERIENCE OF THE SERIES. INVESTORS SHOULD CAREFULLY
CONSIDER THIS INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION, SEE "THE
PORTFOLIO."
This prospectus sets forth information about the Portfolio that prospective
investors should know before investing and should be read carefully and retained
for future reference. A statement of additional information about the
Portfolio, dated March 28, 1997, 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>
TABLE OF CONTENTS
PAGE
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 3
THE PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . 6
Portfolio Characteristics and Policies . . . . . . . . . . . . . . . 6
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . . . . 6
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 7
SECURITIES LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Foreign Currencies and Related Transactions . . . . . . . . . . . . 8
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Portfolio Strategies . . . . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 8
Futures Contracts and Options on Futures . . . . . . . . . . . . . . 8
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Administrative Services . . . . . . . . . . . . . . . . . . . . . . . 10
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . 10
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES . . . . . . . . . . . . 10
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
In Kind Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . 12
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
HIGHLIGHTS
PAGE
INVESTMENT OBJECTIVE 6
The investment objective of the Portfolio is to achieve long-term
capital appreciation. The Portfolio will invest all of its assets in the
Series, which in turn will invest in the stocks of large non-U.S. companies
that are value stocks, primarily because they have a high book value in
relation to their market value. The investment objective of the Portfolio is
a fundamental policy and may not be changed without the affirmative vote of a
majority of its outstanding securities. (See "INVESTMENT OBJECTIVE AND
POLICIES.")
PAGE
RISK FACTORS 8
The Portfolio (indirectly through its investment in the Series) invests in
foreign securities and may invest in futures contracts and options thereon.
The Portfolio is also authorized to invest in repurchase agreements. Those
policies and the policy of the Portfolio to invest in the shares of the Series
involve certain risks. (See "RISK FACTORS.")
PAGE
MANAGEMENT AND ADMINISTRATIVE SERVICES 9
Dimensional Fund Advisors Inc. (the "Advisor" or "DFA") provides the
Portfolio with administrative services and also serves as investment advisor to
the Series. (See "MANAGEMENT OF THE FUND.")
PAGE
DIVIDEND POLICY 10
The Portfolio distributes dividends from its net investment income
quarterly and any realized net capital gains annually after the end of its
fiscal year. (See "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES.")
PAGE
PURCHASE, VALUATION AND REDEMPTION OF SHARES 11
The shares of the Portfolio are offered at net asset value, which is
calculated as of the close of the New York Stock Exchange (the "NYSE") on each
day that the NYSE is open for business. The Fund has not established an
initial minimum purchase requirement for the Portfolio, and there is no minimum
purchase requirement for subsequent purchases. The value of the Portfolio's
shares will fluctuate in relation to the investment experience of the Series.
The redemption price of a share of the Portfolio is equal to its net asset
value. (See "PURCHASE OF SHARES," "VALUATION OF SHARES" and "REDEMPTION OF
SHARES.")
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
None*
The expenses in the expense table below are based on those incurred by the
Portfolio and the Series for the fiscal year ended November 30, 1996, restated
to reflect current fees.
ANNUAL FUND OPERATING EXPENSES**
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.20%
Administration Fee 0.20%
Other Expenses 0.17%
Total Operating Expenses*** 0.57%
*Shares of the Portfolio that are 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.
***Restated to reflect the elimination of certain fee waivers and expense
reimbursements by the Advisor that are no longer in effect.
EXAMPLE
You would pay the following transaction and annual operating expenses on a
$1,000 investment in the Portfolio, assuming a 5% annual return over each of
the following time periods and redemption at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$ 6 $ 18 $ 32 $ 71
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 Portfolio
will bear directly or indirectly. The table summarizes the aggregate estimated
annual operating expenses of both the Portfolio and the Series. (See
"MANAGEMENT OF THE FUND.") The Board of Directors of the Fund has considered
whether such expenses will be more or less than they would be if the Portfolio
were to invest directly in the securities held by the Series. The aggregate
amount of expenses for the Portfolio and the Series may be greater than it would
be if the Portfolio were to invest directly in the securities held by the
Series. However, the total expense ratio for the Portfolio and the Series is
expected to be less over time than such ratio would be if the Portfolio were
to invest directly in the underlying securities. This is because this
arrangement enables institutional investors, including the Portfolio, 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 the Series, including
the Portfolio, will pay its proportionate share of the expenses of the Series.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
Beginning December 1, 1993 through August 8, 1996, the Advisor agreed to
waive its fee under the Investment Management Agreement with respect to the
Series to the extent necessary to keep the cumulative annual expenses of the
Series to not more than 0.45% of average net assets of the Series on an
annualized basis. For the fiscal year ended November 30, 1996, the Advisor was
not required to waive any portion of its fee pursuant to such agreement.
CONDENSED FINANCIAL INFORMATION
The following financial highlights are part of the financial statements of
the Portfolio. The information for each of the past fiscal years has been
audited by independent accountants. The financial statements, related notes
and the report of the independent accountants covering such financial
information and financial highlights for the Fund's most recent fiscal year
ended November 30, 1996, are incorporated by reference into the Statement of
Additional Information. Further information about the Portfolio's performance
is contained in the Fund's Annual Report to shareholders of the Portfolio for
the year ended November 30, 1996. A copy of the Annual Report may be obtained
from the Fund upon request at no charge.
3
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED YEAR ENDED FEB. 16 TO
NOV. 30, NOV. 30, NOV. 30,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.55 $ 10.06 $ 10.00
-------- -------- --------
Income from Investment Operations
- ---------------------------------
Net Investment Income 0.21 0.19 0.13
Net Gains (Losses) on Securities
(Realized and Unrealized) 1.31 0.51 0.06
-------- -------- --------
Total from Investment Operations 1.52 0.70 0.19
-------- -------- --------
Less Distributions
- ------------------
Net Investment Income (0.17) (0.19) (0.13)
Net Realized Gains -- (0.02) --
-------- -------- --------
Total Distributions 0.17) (0.21) (0.13)
-------- -------- --------
Net Asset Value, End of Period $ 11.90 $ 10.55 $ 10.06
-------- -------- --------
-------- -------- --------
Total Return 14.54% 6.95% 1.85%#
Net Assets, End of Period (thousands) $316,708 $245,243 $227,795
-------- -------- --------
-------- -------- --------
Ratio of Expenses to Average
Net Assets (1) 0.56%(a) 0.65%(a) 0.65%*(a)
Ratio of Net Investment Income
to Average Net Assets 2.22%(a) 1.79%(a) 1.80%*(a)
Portfolio Turnover Rate N/A N/A N/A
Average Commission Rate N/A N/A N/A
</TABLE>
- ----------------
* Annualized
# Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Had certain waivers and reimbursements not been in effect, the ratios of
expenses to average net assets for the periods ended November 30, 1996,
1995 and 1994, would have been 0.57%, 0.72% and 0.72%, respectively, and
the ratios of net investment income to average net assets for the periods
ended November 30, 1996, 1995 and 1994 would have been 2.21%, 1.71% and
1.75%, respectively.
N/A Refer to the respective Master Fund Series.
4
<PAGE>
THE PORTFOLIO
The 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 Series, an
open-end, management investment company registered under the Investment Company
Act of 1940 having the same investment objective as the Portfolio. The
investment objective of the Portfolio may not be changed without the affirmative
vote of a majority of its outstanding securities and the investment objective of
the Series may not be changed without the affirmative vote of a majority of its
outstanding securities. Shareholders of the Portfolio will receive written
notice thirty days prior to any change in the investment objective of the
Series. This prospectus describes the investment objective, policies and
restrictions of the Portfolio and the Series. (See "INVESTMENT OBJECTIVE AND
POLICIES.") In addition, an investor should read "MANAGEMENT OF THE FUND" for a
description of the management and other expenses associated with the Portfolio's
investment in the Series. Other institutional investors, including other mutual
funds, may invest in the Series, and the expenses of such other investors and,
correspondingly, their returns may differ from those of the Portfolio. 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 Portfolio.
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, the 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. Investment in the Series by other institutional investors offers
potential benefits to the Series and, through its investment in the Series,
also to the Portfolio. However, such economies and expense reductions might not
be achieved and additional investment opportunities, such as increased
diversification, might not be available if other institutions do not invest in
the Series. Also, if an institutional investor were to redeem its interest in
the Series, the remaining investors in the 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 the
Series than the Portfolio could have effective voting control over the operation
of the Series.
Further, if the Series changes its investment objective in a manner which
is inconsistent with the investment objective of the 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 the Portfolio of its investment in
the 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 may constitute a
taxable exchange for federal income tax purposes resulting in gain or loss to
the Portfolio. Any net capital gains so realized will be distributed to the
Portfolio's shareholders as described in "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS
AND TAXES" below.
Finally, the Portfolio's investment in the shares of a registered
investment company such as the Series is relatively 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 Series
invests.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio pursues its objective by investing all of its
assets in the Series, which has the same investment objective and policies as
the Portfolio. The Series operates as a diversified investment company and
seeks to achieve its objective by investing in the stocks of large non-U.S.
companies which the Advisor believes to be value stocks at the time of
purchase. Securities are considered value stocks primarily because a company's
shares have a high book value in relation to their market value (a "book to
market ratio"). In measuring value, the Advisor may consider additional
factors such as cash flow, economic conditions and developments in the issuer's
industry. Generally, the shares of a company in any given country 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 in that country with the highest
positive book to market ratios whose shares are listed on a major exchange, and,
except as described below, will be considered eligible for investment. The
Series intends to invest in the stocks of large companies in countries with
developed markets. As of the date of this prospectus, the Series may invest in
the stocks of large companies in Australia, Belgium, France, Germany, Hong
Kong, Italy, Japan, the Netherlands, Singapore, Spain, Sweden, Switzerland and
the United Kingdom. As the Series' asset growth permits, it may invest in the
stocks of large companies in other developed markets, including Austria,
Denmark, Finland, Ireland, Malaysia, New Zealand and Norway. (See "RISK
FACTORS.")
PORTFOLIO STRUCTURE
Under normal market conditions, at least 65% of the Series' assets will be
invested in companies organized or having a majority of their assets in or
deriving a majority of their operating income in at least three non-U.S.
countries and no more than 40% of the Series' assets will be invested in such
companies in any one country. The Series reserves the right to invest in
futures contracts and options on futures contracts to commit funds awaiting
investment or to maintain liquidity. To the extent that the Series invests in
futures contracts for other than bona fide hedging purposes, the Series will not
purchase futures contracts if as a result more than 5% of its total assets would
then consist of initial margin deposits on such contracts. Such investments
entail certain risks. (See "RISK FACTORS.") The Series also may invest up to
5% of its assets in convertible debentures issued by large non-U.S. companies.
As of the date of this Prospectus, the Series intends to invest in
companies having at least $800 million of market capitalization and the Series
will be approximately market capitalization weighted. The Advisor may reset
such floor from time to time to reflect changing market conditions. In
determining market capitalization weights, the Advisor, using its best judgment,
will seek to eliminate the effect of cross holdings on the individual country
weights. As a result, the weighting of certain countries in the Series may vary
from their weighting in international indices such as those published by The
Financial Times, Morgan Stanley Capital International or Salomon/Russell. The
Advisor, however, will not attempt to account for cross holding within the same
country. The Advisor may exclude the stock of a company that otherwise meets
the applicable criteria if the Advisor determines in its best judgment that
other conditions exist that make the purchase of such stock for the Series
inappropriate.
Deviation from market capitalization weighting also will occur because the
Series intends to purchase round lots only. Furthermore, in order to retain
sufficient liquidity, the relative amount of any security held by the Series may
be reduced from time to time from the level which adherence to market
capitalization weighting would otherwise require. A portion, but generally not
in excess of 20%, of the Series' assets may be invested in interest-bearing
obligations, such as money-market instruments, for this purpose, thereby causing
further deviation from market capitalization weighting. Such investments would
be made on a temporary basis pending investment in equity securities pursuant to
the Series investment objective. A further deviation from market capitalization
weighting may occur if the Series invests a portion of its assets in convertible
debentures.
6
<PAGE>
The 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, adherence to the policy of market capitalization weighting would
otherwise require. In addition, the Series may acquire securities eligible for
purchase or otherwise represented in its portfolio at the time of the exchange
in exchange for the issuance of its shares (See "In Kind Purchases"). While
such transactions might cause a temporary deviation from market capitalization
weighting, they would ordinarily be made in anticipation of further growth of
the assets of the Series.
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 Series take place with every trade when the securities markets
are open for trading due, primarily, to price fluctuations of such securities.
On a periodic basis, the Advisor will prepare a list of eligible large companies
with high book to market ratios whose stock are eligible for investment; such
list will be revised not less than semi-annually. Only common stocks whose
market capitalizations are not less than the minimum on such list will be
purchased by the Series. Additional investments will not be made in securities
which have depreciated in value to such an extent that they are not then
considered by the Advisor to be large companies. This may result in further
deviation from market capitalization weighting and such deviation could be
substantial, if a significant amount of the 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.
It is management's belief that the value stocks of large companies offer,
over a long term, a prudent opportunity for capital appreciation, but, at the
same time, selecting a limited number of such issues for inclusion in the 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 Series.
The 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
Series do pay dividends. It is anticipated, therefore, that the Series will
receive dividend income.
PORTFOLIO TRANSACTIONS
Securities which have depreciated in value since their acquisition will
not be sold by the Series solely because prospects for the issuer are not
considered attractive or due to an expected or realized decline in securities
prices in general. Securities may be disposed of, however, at any time when,
in the Advisor's judgment, circumstances warrant their sale, such as tender
offers, mergers and similar transactions, or bids made for block purchases at
opportune prices. Generally, securities will not be sold to realize
short-term profits, but, when circumstances warrant, they may be sold without
regard to the length of time held. Generally, securities will be purchased
with the expectation that they will be held for longer than one year and will
be held until such time as they are no longer considered an appropriate
holding in light of the policy of maintaining a portfolio of companies with
large market capitalizations and high book to market ratios. The annual
portfolio turnover rate of the Series for the fiscal years ended November 30,
1995 and 1996, respectively, was 9.75% and 12.23%.
SECURITIES LOANS
The Series is authorized to lend securities to qualified brokers, dealers,
banks and other financial institutions for the purpose of earning additional
income. While the Series may earn additional income from lending securities,
such activity is incidental to the Series' investment objective. The value of
securities loaned may not exceed 331/3% of the value of the Series' total
assets. In connection with such loans, the 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 and will receive reasonable interest on the loan, as well as amounts
equal to any dividends, interest or other distributions on the loaned
securities. In the event of the bankruptcy of the borrower, the Series could
experience delay in recovering the loaned securities. Management believes that
this risk can be controlled through careful monitoring procedures. The
Portfolio
7
<PAGE>
is also authorized to lend its portfolio securities. However, as long as it
holds only shares of the Series, it will not do so.
RISK FACTORS
FOREIGN SECURITIES
The 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
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.
FOREIGN CURRENCIES AND RELATED TRANSACTIONS
Investments of the Series will be denominated in foreign currencies.
Changes in the relative values of foreign currencies and the U.S. dollar,
therefore, will affect the value of investments of the Series. The Series may
purchase foreign currency futures contracts and options in order to hedge
against changes in the level of foreign currency exchange rates. Such contracts
involve an agreement to purchase or sell a specific currency at a future date at
a price set in the contract and enable the Series to protect against losses
resulting from adverse changes in the relationship between the U.S. dollar and
foreign currencies occurring between the trade and settlement dates of Series
securities transactions, but they also tend to limit the potential gains that
might result from a positive change in such currency relationships. Gains and
losses on investments in futures and options thereon depend on interest rates
and other economic forces.
BORROWING
The Series has reserved the right to borrow amounts not exceeding 33% of
its net assets for the purposes of making redemption payments. When
advantageous opportunities to do so exist, the 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 may increase or decrease at a greater rate than
would be the case if the Series had not leveraged. The interest payable on the
amount borrowed would increase the Series' expenses and, if the appreciation and
income produced by the investments purchased when the Series has borrowed are
less than the cost of borrowing, the investment performance of the Series will
be reduced as a result of leveraging.
PORTFOLIO STRATEGIES
The method employed by the Advisor to manage the Series will differ from
the process employed by many other investment advisors in that the Advisor will
rely on fundamental analysis of the investment merits of securities to a limited
extent to eliminate potential 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.
REPURCHASE AGREEMENTS
In addition, the Series may invest in repurchase agreements.
8
<PAGE>
In the event of a bankruptcy of the other party to a repurchase agreement,
the Trust could experience delay in recovering the securities underlying such
agreement. Management believes that the risks associated with repurchase
agreements can be controlled through stringent security selection criteria
and careful monitoring procedures.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Series also may invest in futures contracts and options on futures.
To the extent that the Series invests in futures contracts and options thereon
for other than bona fide hedging purposes, the Series will not enter into such
transactions if, immediately thereafter, the sum of the amount of initial margin
deposits and 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 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 the Series' ability to close a position in such investments. Gains
or losses on investments in options and futures depend on the direction of
securities prices, interest rates and other economic factors and the loss from
investing in futures contracts is potentially unlimited. Certain restrictions
imposed by the Internal Revenue Code may limit the ability of the Series to
invest in futures contracts and options on futures contracts.
MANAGEMENT OF THE FUND
The Advisor serves as investment advisor to the Series and, as such, is
responsible for the management of its 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 the Series with a trading department and
selects brokers and dealers to effect securities transactions.
Portfolio 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.
For the fiscal year ended November 30, 1996, the Advisor received a fee
for its advisory services to the Series equal to 0.20% of the average net assets
of the Series and the total expenses of the Portfolio were 0.56% of its average
net assets. The Advisor agreed to waive its fees and reimburse the Portfolio
through March 28, 1996 to the extent necessary to keep the annual aggregate
expenses of the Portfolio and its respective series to not more than 0.65% of
average daily net assets. Absent the Advisor's waiver of its fee and
reimbursement of Portfolio expenses pursuant to this agreement, the ratio of
expenses to average net assets for the fiscal year ended November 30, 1996
would have been 0.57%. Beginning December 1, 1993 through August 8, 1996, the
Advisor agreed to waive its fee under the investment management agreement with
respect to the Series to the extent necessary to keep the cumulative annual
expenses of
9
<PAGE>
the Series to not more than .45% of average net assets of the Series on an
annualized basis. For the fiscal year ended November 30, 1996, the Advisor
was not required to waive any portion of its fee pursuant to such agreement.
The Portfolio and the Series each bears all of its own costs and expenses,
including: services of its independent accountants, legal counsel, brokerage
fees, commissions and transfer taxes in connection with the acquisition and
disposition of portfolio securities, taxes, insurance premiums, costs incidental
to meetings of its shareholders and directors or trustees, the cost of filing
its registration statements under federal securities and the cost of any
filings required under state securities laws, reports to shareholders, and
transfer and dividend disbursing agency, administrative services and custodian
fees. Expenses allocable to the Portfolio or the Series are so allocated
and expenses which are allocable to the Portfolio and the Series are borne
by the Portfolio and the Series on the basis of the fees paid by the Fund (on
behalf of the Portfolio) and Trust (on behalf of the Series) to PFPC Inc., the
accounting services, dividend disbursing and transfer agent for the Portfolio
and the Series.
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 $20.7 billion. David G. Booth and Rex A.
Sinquefield (directors and officers of both the Fund and the Advisor , trustees
and officers of the Trust, and shareholders of the Advisor) may be deemed
controlling persons of the Advisor.
ADMINISTRATIVE SERVICES
The Fund has entered into an Administration Agreement with the Advisor, on
behalf of the Portfolio. Pursuant to the Administration Agreement, the Advisor
will perform various services, including: supervision of the services provided
by the Portfolio's custodian and transfer and dividend disbursing agent and
others who provide services to the Fund for the benefit of the Portfolio;
assisting the Fund in complying with the provisions of federal, state, local
and foreign securities, tax and other laws applicable to the Portfolio;
providing shareholders with information about the Portfolio and their
investments as they or the Fund may request; assisting the Portfolio in
conducting meetings of shareholders; furnishing information as the Board of
Directors may require regarding the 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. For
its administrative services, the Portfolio pays the Advisor a monthly fee equal
to one-twelfth of .20% of the average net assets of the Portfolio.
DIRECTORS AND OFFICERS
The Board of Directors is responsible for establishing Fund policies and
for overseeing the management of the Fund. Each of the Directors and
officers of the Fund is also a Trustee and officer of the Trust. The
Directors of the Fund, including all of the disinterested Directors, have
adopted written procedures to monitor potential conflicts of interest that
might develop between the Portfolio and the Series. Information as to the
Directors and officers of the Fund and the Trustees and officers of the Trust
is set forth in the Statement of Additional Information under "Directors and
Officers."
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
The Portfolio intends to qualify each year as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), so
that it will not be liable for federal income taxes to the extent that its
net investment income and net realized capital gains are distributed. The
Portfolio's policy is to distribute substantially all net investment
10
<PAGE>
income quarterly and any realized net capital gains annually after November
30, the close of the Fund's fiscal year. The Series also intends to qualify
as a regulated investment company under the Code.
Shareholders of the Portfolio 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).
The Portfolio receives income in the form of income dividends paid by the
Series. This income, less the expenses incurred in operations, is the
Portfolio's net investment income from which income dividends are distributed as
described above. The Portfolio also may receive capital gains distributions
from the Series and may realize capital gains upon the redemption of the shares
of the Series. Any net realized capital gains of the Portfolio will be
distributed as described above.
Whether paid in cash or additional shares and regardless of the length of
time the 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.
It is anticipated that either none or only a small portion of the distributions
made by the Portfolio will qualify for the corporate dividends received
deduction because of the Series' investment in foreign equity securities.
For those investors subject to tax, if purchases of shares of the 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.
Dividends which are declared in 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 the 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 of
the Portfolio for shares of another Portfolio of the Fund. Any loss incurred on
sale or exchange of the 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.
The Series may be subject to foreign withholding taxes on income from
certain of its foreign securities. If Series purchases shares in certain
foreign entities, called "passive foreign investment companies" ("PFIC"), such
Series may be subject to U.S. federal income tax and a related interest charge
on a portion of any "excess distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable dividend by Series to
Portfolio.
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.
The 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 the
Portfolio.
PURCHASE OF SHARES
11
<PAGE>
Investors may purchase shares of the Portfolio by first contacting the
Advisor at (310) 395-8005 to notify the Advisor of the proposed investment and
then completing an Account Registration Form and mailing it to:
Dimensional Investment Group Inc.
DFA International Value Portfolio
1299 Ocean Avenue, 11th floor
Santa Monica, CA 90401
The Fund has not established an initial minimum purchase requirement for
the Portfolio. The Fund reserves the right to reject any initial or
additional investment and to suspend the offering of shares of the Portfolio.
Investors having an account with a bank that is a member or a correspondent
of a member of the Federal Reserve System may purchase shares by first calling
the Advisor at (310) 395-8005 to notify the Advisor of the proposed investment,
then requesting the bank to transmit immediately available funds (Federal Funds)
by wire to the Custodian, for the account of Dimensional Investment Group Inc.
(DFA International Value Portfolio). Additional investments also may be made
through the wire procedure by first notifying the Advisor. Investors who wish
to purchase shares by check should send their check to Dimensional Investment
Group Inc., c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809.
PNC Bank, N.A. serves as custodian for the Portfolio.
Shares may also be purchased and sold by individuals through securities
firms which may charge a service fee or commission for such transactions. No
such fee or commission is charged on shares which are purchased or redeemed
directly from the Fund. Investors who are clients of investment advisory
organizations may also be subject to investment advisory fees under their own
arrangements with such organizations.
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 the
stockholder. Certificates for fractional shares, however, will not be issued.
IN KIND PURCHASES
If accepted by the Fund, shares of the Portfolio may be purchased in
exchange for securities which are eligible for acquisition by the Series or
otherwise represented in the portfolio of the Series as described in this
prospectus or in exchange for local currencies in which such securities of the
Series are denominated. Securities and local currencies 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, interest,
subscription, or other rights pertaining to such securities shall become the
property of the Portfolio and must be delivered to the Fund by the investor
upon receipt from the issuer. Investors who desire to purchase shares of the
Portfolio with local currencies should first contact the Advisor for wire
instructions.
The Fund will not accept securities in exchange for shares of the Portfolio
unless: (1) such securities are, at the time of the exchange, eligible to be
included, or otherwise represented, in the Series 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 Series 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 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 be realized by
investors who are subject to federal taxation upon the exchange depending upon
the cost of the securities exchanged. Investors interested in such exchanges
should contact the Advisor.
12
<PAGE>
VALUATION OF SHARES
The net asset values per share of the Portfolio and the Series are
calculated as of the close of the NYSE by dividing the total market value of
their respective investments and other assets, less any liabilities, by the
total outstanding shares of the stock of the Portfolio and the Series,
respectively. The value of the Portfolio's shares will fluctuate in relation to
the investment experience of the Series. Securities held by the 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 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.
Generally, trading in foreign securities markets is completed each day at
various times prior to the close of the NYSE. The values of foreign securities
held by the Series are determined as of such times for the purpose of computing
the net asset value of the Series. If events which materially affect the value
of the investments of the Series occur subsequent to the close of the securities
market on which such securities are primarily traded, the investments affected
thereby will be valued at "fair value" as described above. The net asset value
per share of the Series is expressed in U.S. dollars by translating the net
assets of the Series using the bid price for the dollar as quoted by generally
recognized reliable sources.
Provided that the Transfer Agent has received the investor's Account
Registration Form in good order and the Custodian has received the investor's
payment, shares of the Portfolio will be priced at the net asset value
calculated next after receipt of the investor's funds by the Custodian. "Good
order" with respect to the purchase of shares means that (1) a fully completed
and properly signed Account Registration Form and any additional supporting
legal documentation required by the Advisor has been received in legible form
and (2) the Advisor has been notified of the purchase by telephone and, if the
Advisor so requests, also in writing, no later than the close of regular trading
on the NYSE (ordinarily 1:00 p.m. PST) on the day of the purchase. If an order
to purchase shares must be canceled due to non-payment, the purchaser will be
responsible for any loss incurred by the Fund arising out of such cancellation.
The Fund reserves the right to redeem shares owned by any purchaser whose
order is canceled in order to recover any resulting loss to the Fund and may
prohibit or restrict in the manner in which such purchaser may place further
orders.
Management believes that any dilutive effect of the cost of investing the
proceeds of the sale of the shares of the Portfolio is minimal and, therefore,
the shares of the Portfolio are currently sold at net asset value, without
imposition of a fee that would be used to reimburse the Portfolio for such cost
("reimbursement fee"). Reimbursement fees may be charged prospectively from
time to time based upon the future experience of the Portfolio and the Series.
Any such charges will be described in the prospectus.
DISTRIBUTION
The Fund acts as distributor of the Portfolio's 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 Portfolio's shares. No compensation is paid by the Fund to DFA
Securities Inc. under this agreement.
13
<PAGE>
EXCHANGE OF SHARES
There is no exchange privilege between the Portfolio and any other
portfolio of the Fund or any portfolio of DFA Investment Dimensions Group Inc.
REDEMPTION OF SHARES
Investors who desire to redeem shares of the Portfolio must first contact
the Advisor at the telephone number shown under "PURCHASE OF SHARES." The
Portfolio will redeem shares at the net asset value of such shares next
determined, either: (1) where stock certificates have not been issued, after
receipt of a written request for redemption in good order by the Fund's Transfer
Agent or (2) if stock certificates have been issued, after receipt of the stock
certificates in good order at the office of the Transfer Agent. "Good order"
means that the request to redeem shares must include all necessary documentation
to be received in writing by the Advisor no later than the close of regular
trading on the NYSE (ordinarily 1:00 p.m. PST), including: the stock
certificate(s), if issued; a letter of instruction or a stock assignment
specifying the number of shares or dollar amount to be redeemed, signed by all
registered owners (or authorized representatives thereof) of the shares; 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; and any other required supporting legal documents.
Shareholders redeeming shares for which certificates have not been issued,
who have authorized redemption payment by wire on an authorization form filed
with the Fund, may request that redemption proceeds be paid in federal funds
wired to the bank they have designated on the authorization form. If the
proceeds are wired to the shareholder's account at a bank which is not a member
of the Federal Reserve System, there could be a delay in crediting the funds to
the shareholder's bank account. The Fund reserves the right at any time to
suspend or terminate the redemption by wire procedure after notification to
shareholders. No charge is made by the Fund for redemptions. The redemption of
all shares in an account will result in the account being closed. A new Account
Registration Form will be required for further investments. (See "PURCHASE OF
SHARES.")
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.
With respect to each Portfolio, the Fund reserves the right to redeem a
shareholder's account if the value of the shares in a specific portfolio is $500
or less, whether because of redemptions, a decline in the portfolio's net asset
value per share or any other reason. Before the Fund involuntarily redeems
shares from such an account and sends the proceeds to the stockholder, the Fund
will give written notice of the redemption to the stockholder at least sixty
days in advance of the redemption date. The stockholder will then have sixty
days from the date of the notice to make an additional investment in the Fund in
order to bring the value of the shares in the account for a specific portfolio
to more than $500 and avoid such involuntary redemption. The redemption price
to be paid to a stockholder for shares redeemed by the Fund under this right
will be the aggregate net asset value of the shares in the account at the close
of business on the redemption date.
14
<PAGE>
GENERAL INFORMATION
The Fund was incorporated under Maryland law on March 19, 1990. The shares
of the Portfolio, when issued and paid for in accordance with the Portfolio's
prospectus, will be fully paid and non-assessable shares, with equal, non-
cumulative voting rights and no preferences as to conversion, exchange,
dividends, redemptions 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 class whose shares they own, as well as
a proportionate share of Fund assets not attributable to any particular class.
Ordinarily, the Fund does not intend to hold annual meetings of shareholders,
except as required by the 1940 Act or other applicable law. The Fund's bylaws
provide that special meetings of shareholders shall be called at the written
request of at least 10% of the votes entitled to be cast at such meeting. Such
meeting may be called to consider any matter, including the removal of one or
more directors. Shareholders will receive shareholder communications with
respect to such matters as required by the 1940 Act, including semi-annual and
annual financial statements of the Fund, the latter being audited.
The Portfolio 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's annual report to shareholders of the Portfolio for
the fiscal year ended November 30, 1996, contains additional performance
information. A copy of the annual report is available upon request and without
charge.
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 the Portfolio in the 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 the Portfolio, as an investor in the Series, is asked to vote
on a shareholder proposal, the Fund will solicit voting instructions from the
Portfolio's shareholders with respect to the proposal. The Directors of
the Fund will then vote the Portfolio's shares in the 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 accordance with their best judgment.
As of February 28, 1997, the following person owned more than 25% of the
voting securities of the Portfolio:
Charles Schwab & Co.-REIN* 64.10%
101 Montgomery Street
15
<PAGE>
San Francisco, CA 94104
* Owner of record only
Shareholder inquiries may be made by writing or calling the Fund at the
address or telephone number appearing on the 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.
16
<PAGE>
DIMENSIONAL INVESTMENT GROUP INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
CUSTODIAN
PNC BANK, N.A.
200 Stevens Drive, Airport Business Center
Lester, PA 19113
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC INC.
400 Bellevue Parkway
Wilmington, DE 19809
LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG, 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>
PROSPECTUS
MARCH 28, 1997
DFA ONE-YEAR FIXED INCOME PORTFOLIO II
-----------------
This prospectus describes DFA ONE-YEAR FIXED INCOME PORTFOLIO II (the
"Portfolio"), a series of shares issued by Dimensional Investment Group Inc.
(the "Fund"), 1299 Ocean Avenue, 11th floor, Santa Monica, California 90401,
(310) 395-8005. The Portfolio is an open-end, management investment company
whose shares are offered, without a sales charge, to 401(k) defined contribution
plans and clients, customers or members of certain institutions. 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. The Fund
has not established a minimum initial purchase requirement for the Portfolio.
THE INVESTMENT OBJECTIVE OF THE PORTFOLIO IS TO ACHIEVE STABLE REAL VALUE
OF CAPITAL WITH A MINIMUM OF RISK BY INVESTING IN HIGH QUALITY OBLIGATIONS. THE
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 THE DFA
ONE-YEAR FIXED INCOME SERIES (THE "SERIES") OF THE DFA INVESTMENT TRUST COMPANY
(THE "TRUST"). THE SERIES IS AN OPEN-END, MANAGEMENT INVESTMENT COMPANY THAT
HAS THE SAME INVESTMENT OBJECTIVE, POLICIES AND LIMITATIONS AS THE PORTFOLIO.
THE INVESTMENT EXPERIENCE OF THE PORTFOLIO WILL CORRESPOND DIRECTLY WITH THE
INVESTMENT EXPERIENCE OF THE SERIES. INVESTORS SHOULD CAREFULLY CONSIDER THIS
INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION, SEE "THE PORTFOLIO."
This prospectus sets forth information about the Portfolio that prospective
investors should know before investing and should be read carefully and retained
for future reference. A statement of additional information about the
Portfolio, dated March 28, 1997, 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.
-----------------
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THE SHARES INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
-----------------
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>
TABLE OF CONTENTS
PAGE
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONDENSED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 3
THE PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . . 6
Description of Investments . . . . . . . . . . . . . . . . . . . . . . . 6
Investments in the Banking Industry. . . . . . . . . . . . . . . . . . . 7
Portfolio Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECURITIES LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Banking Industry Concentrations. . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 8
MANAGEMENT OF THE PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . . . . 8
Administrative Services. . . . . . . . . . . . . . . . . . . . . . . . . 9
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . 10
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
VALUATION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
HIGHLIGHTS
PAGE
INVESTMENT OBJECTIVE 6
The investment objective of the Portfolio is to achieve stable real value
of capital with a minimum of risk. The Portfolio invests all of its assets in
the Series. Generally, the Series will acquire high quality obligations which
mature within one year from the date of settlement; however, when greater
returns are available substantial investments may be made in securities maturing
within two years from the date of settlement as well. In addition, the Series
intends to concentrate investments in the banking industry under certain
circumstances. The investment objective of the Portfolio is a fundamental
policy and may not be changed without the affirmative vote of a majority of its
outstanding securities. (See "INVESTMENT OBJECTIVE AND POLICIES.")
PAGE
RISK FACTORS 8
The 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. and also is authorized to
concentrate investments in the banking industry in certain circumstances. The
Portfolio is authorized to invest in repurchase agreements. All of the
above-described policies involve certain risks. The policy of the Portfolio to
invest in the shares of the Series also involves certain risks. (See "RISK
FACTORS.")
PAGE
MANAGEMENT AND ADMINISTRATIVE SERVICES 8
Dimensional Fund Advisors Inc. (the "Advisor") serves as investment advisor
to the Series. The Advisor provides the Portfolio with certain administrative
services. The Fund contracts with Shareholder Services Agents to provide
certain recordkeeping and other services for the benefit of the Portfolio's
shareholders. (See "MANAGEMENT OF THE PORTFOLIO.")
PAGE
DIVIDEND POLICY 10
The Portfolio distributes dividends from its net investment income monthly
and makes any distributions from realized net capital gains on an annual basis.
(See "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES.")
PAGE
PURCHASE, VALUATION AND REDEMPTION OF SHARES 10
The shares of the Portfolio are sold at net asset value. The redemption
price of a share of the Portfolio is equal to the net asset value of the share.
The value of the shares issued by the Portfolio will fluctuate in relation to
the investment experience of the Series. Unlike money market funds, the shares
of the Portfolio will
<PAGE>
tend to reflect fluctuations in interest rates because the Series does not seek
to stabilize the price of its shares by use of the "amortized cost" method of
securities valuation. (See "PURCHASE OF SHARES," "VALUATION OF SHARES" and
"REDEMPTION OF SHARES.")
2
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
None*
The expenses in the following table are based on those incurred by the
Portfolio for the fiscal year ended November 30, 1996.
ANNUAL FUND OPERATING EXPENSES**
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.05%
Administration Fee (after voluntary fee waivers) 0.00%
Other Expenses (after reimbursement) 0.70%
Total Operating Expenses 0.75%
* Shares of the Portfolio that are 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. "Other Expenses" include a fee paid to the Shareholder Services
Agent of each employer plan or institution at the annual rate of .25% of
the average daily value of all shares of the Portfolio that are held in an
account maintained by such Shareholder Services Agent, paid on a monthly
basis. (See "Administrative Services.")
* 1 moved from here; text not shown
Effective December 1, 1995, the Advisor agreed to waive its fee under the
Administration Agreement with respect to the Portfolio, and to the extent that
such waiver is insufficient, to reimburse the Portfolio, to the extent necessary
to keep the cumulative annual expenses of the Portfolio to not more than .75% of
the average net assets of the Portfolio on an annualized basis. Absent the
Advisor's waiver of the administration fees and reimbursement, the ratio of
expenses to average net assets for the Portfolio for the fiscal year ended
November 30, 1996, would have been 2.80%. For purposes of this waiver and
reimbursement, the annual expenses are those expenses incurred in any period
consisting of twelve consecutive months. The Advisor retains the right in its
sole discretion to modify or eliminate the waiver of a portion of its fees and
the reimbursement of the Portfolio in the future. If the Advisor modifies or
eliminates the fee waiver or reimbursement, such change will be set forth in the
prospectus.
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:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$8 $24 42 93
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 Portfolio
will bear directly or indirectly. The table summarizes the aggregate estimated
annual operating expenses of both the Portfolio and the Series. (See
"MANAGEMENT OF THE PORTFOLIO" for a description of Portfolio and Series
expenses.) The Board of Directors of the Fund has
3
<PAGE>
considered whether such expenses will be more or less than they would be if the
Portfolio were to invest directly in the securities held by the Series. The
aggregate amount of expenses for the Portfolio and the Series may be greater
than it would be if the Portfolio were to invest directly in the securities held
by the Series. However, the total expense ratio for the Portfolio and the
Series is expected to be less over time than such ratio would have been if the
Portfolio were to invest directly in the underlying securities. This is because
this arrangement enables institutional investors, including the Portfolio, 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 the Series,
including the Portfolio, will pay its proportionate share of the expenses of the
Series.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
The following financial highlights are part of the financial statements of
the Portfolio. The information for each of the past fiscal years has been
audited by independent accountants. The financial statements, related notes and
the report of the independent accountants covering such financial information
and financial highlights for the Fund's most recent fiscal year ended November
30, 1996, are incorporated by reference into the Fund's Statement of Additional
Information. Further information about the Portfolio's performance is contained
in the Fund's Annual Report to shareholders of the Portfolio for the year ended
November 30, 1996. A copy of the Annual Report may be obtained from the Fund
upon request at no charge.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Year Ended Feb. 9 to
Nov. 30, Nov. 30,
1996 1995
----------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period . . . . . . . . . . . . . . . . . . . $ 10.16 $ 10.00
-------- --------
-------- --------
Income from Investment Operations
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . 0.46 0.24
Net Gains (Losses) on Securities (Realized and Unrealized) . . . . . . . 0.02 0.16
-------- --------
Total from Investment Operations . . . . . . . . . . . . . . . . . . . 0.48 0.40
-------- --------
LESS DISTRIBUTIONS
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . (0.46) (0.24)
-------- --------
Net Asset Value, End of Period (thousands) . . . . . . . . . . . . . . . . $ 10.18 $ 10.16
-------- --------
-------- --------
Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.86% 4.09%#
Net Assets, End of Period. . . . . . . . . . . . . . . . . . . . . . . . . $4,732 $569
Ratio of Expenses to Average Net Assets (1). . . . . . . . . . . . . . . . 0.75%(a) 1.50%*(a)
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . 4.66%(a) 2.80%*(a)
Portfolio Turnover Rate. . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A
</TABLE>
- ----------------
(Restated to reflect a 900% stock dividend as of January 2, 1996)
*Annualized
#Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Had certain waivers and reimbursements not been in effect, the ratios of
expenses for the periods ended November 30, 1996 and 1995, would have been
2.80% and 17.81%, respectively, and the ratios of net investment income
2.61% and (12.60%), respectively.
N/A Refer to the respective Master Fund Series.
5
<PAGE>
THE PORTFOLIO
The 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 Series, an
open-end, management investment company registered under the Investment Company
Act of 1940, having the same investment objective as the Portfolio. The
investment objective of the Portfolio may not be changed without the affirmative
vote of a majority of its outstanding securities and the investment objective of
the Series may not be changed without the affirmative vote of a majority of its
outstanding securities. Shareholders of the Portfolio will receive written
notice thirty days prior to any change in the investment objective of the
Series.
This prospectus describes the investment objective, policies and
restrictions of the Portfolio and the Series. (See "INVESTMENT OBJECTIVE AND
POLICIES.") In addition, an investor should read "MANAGEMENT OF THE PORTFOLIO"
for a description of the management and other expenses associated with the
Portfolio's investment in the Series. Other institutional investors, including
other mutual funds, may invest in the Series, and the expenses of such other
investors and, correspondingly, their returns may differ from those of the
Portfolio. 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 Portfolio.
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, the 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 the Series by other institutional investors
offers potential benefits to the Series and, through its investment in the
Series, also to the Portfolio, economies and expense reductions might not be
achieved and additional investment opportunities, such as increased
diversification, might not be available if other institutions do not invest in
the Series. Also, if an institutional investor were to redeem its interest in
the Series, the remaining investors in the 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 the
Series than the Portfolio could have effective voting control over the operation
of the Series.
Further, if the Series changes its investment objective in a manner which
is inconsistent with the investment objective of the 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 the Portfolio of its investment in
the 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 may constitute a
taxable exchange for federal income tax purposes resulting in gain or loss to
the Portfolio. Any net capital gains so realized will be distributed to the
Portfolio's shareholders as described in "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS
AND TAXES" below.
Finally, the Portfolio's investment in the shares of a registered
investment company such as the Series 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 Series invests.
6
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is to achieve a stable real value
(i.e. a return in excess of the rate of inflation) of invested capital with a
minimum of risk. This objective will be pursued by investing the assets of the
Portfolio in the Series, which has the same investment objective and policies as
the Portfolio. The 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. Generally, the Series will
acquire obligations which mature within one year from the date of settlement,
but substantial investments may be made in obligations maturing within two years
from the date of settlement when greater returns are available. It is the
Series' policy that the weighted average length of maturity of investments will
not exceed one year. The 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 New York Stock
Exchange (the "NYSE") is open for trading. (See "Investments in the Banking
Industry.")
DESCRIPTION OF INVESTMENTS
The following is a description of the categories of the investments which
may be acquired by the Series.
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 Rating Group, a Division of The McGraw-Hill Companies ("S&P")
and dollar-denominated obligations of foreign issuers issued in the U.S. If the
issuer's commercial paper is unrated, then the debt security would have to be
rated at least AA by S&P or Aa2 by Moody's. If there is neither a commercial
paper rating nor a rating of the debt security, then the Advisor must determine
that the debt security is of comparable quality to equivalent issues of the same
issuer rated at least AA or Aa2.
4. BANK OBLIGATIONS - Obligations of U.S. banks and savings and loan
associations and dollar-denominated obligations of U.S. subsidiaries and
branches of foreign banks, such as certificates of deposit (including marketable
variable rate certificates of deposit) and bankers' acceptances. Bank
certificates of deposit will only be acquired from banks having 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
7
<PAGE>
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.
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.
The categories of investments that may be acquired by the Series may
include both fixed and floating rate securities. Floating rate securities bear
interest at rates that vary with prevailing market rates. Interest rate
adjustments are made periodically (e.g., every six months), usually based on a
money market index such as the London Interbank Offered Rate (LIBOR) or the
Treasury bill rate.
INVESTMENTS IN THE BANKING INDUSTRY
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 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 Series and can only be changed by a vote of shareholders of the Series,
banks and bank holding companies are considered to constitute a single industry,
the banking industry. The 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 Series. When investment in such obligations
exceeds 25% of the total net assets of the Series, the Series will be considered
to be concentrating its investments in the banking industry. As of the date of
this prospectus, the Series is not concentrating its investment in this
industry.
The types of bank and bank holding company obligations in which the 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 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 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 on
investment 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 Series will be chosen with a view to maximizing
anticipated monthly returns, net of trading costs.
The Series is expected to have a high portfolio turnover rate 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 Series
could be 0% to 200%. The annual portfolio turnover rate of the Series for the
fiscal years ended November 30, 1995 and 1996, respectively, was 81.31% and
95.84%. While the Series acquires securities in principal transactions and,
therefore, does 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 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.
8
<PAGE>
SECURITIES LOANS
The Series is authorized to lend securities to qualified brokers, dealers,
banks and other financial institutions for the purpose of earning additional
income. While the Series may earn additional income from lending securities,
such activity is incidental to the investment objective of the Series. The
value of securities loaned may not exceed 33 1/3% of the value of the Series'
total assets. In connection with such loans, the 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 and will receive reasonable interest on the loan, as well as amounts
equal to any dividends, interest or other distributions on the loaned
securities. In the event of the bankruptcy of the borrower, the Series could
experience delay in recovering the loaned securities. Management believes that
this risk can be controlled through careful monitoring procedures. The Portfolio
is also authorized to lend its portfolio securities. However, as long as it
holds only shares of the Series, it will not do so.
RISK FACTORS
FOREIGN SECURITIES
The 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
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 Series may invest in
obligations of supranational organizations. The value of the obligations of
these organizations may be adversely affected if one or more of their supporting
governments discontinue their support.
BANKING INDUSTRY CONCENTRATIONS
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 riskiness of banks relative to non-banks could
cause more fluctuations in the net asset value of the Series (and, thus, the
Portfolio) than might occur in less concentrated portfolios.
REPURCHASE AGREEMENTS
In addition, the Series may invest in repurchase agreements. In the event
of the bankruptcy of the other party to a repurchase agreement, the Trust could
experience delay in recovering the securities underlying such agreement.
Management believes that this risk can be controlled through stringent security
selection criteria and careful monitoring procedures.
MANAGEMENT OF THE PORTFOLIO
The Advisor serves as investment advisor to the Series. As such, the
Advisor is responsible for the management of its 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 the Series with a
trading department and selects brokers and dealers to effect securities
transactions.
9
<PAGE>
Portfolio securities are placed with a view to obtaining best price and
execution and, subject to this goal, may be placed with brokers which have
assisted in the sale of the Portfolio's shares.
** 1 For the fiscal year ended November 30, 1996, the Advisor received a
fee for its advisory services to the Series equal to .05% of the average net
assets of the Series and the total expenses of the Portfolio were 0.75% of its
average net assets. Effective December 1, 1995, the Advisor agreed to waive its
fee under the Administration Agreement with respect to the Portfolio, and to
the extent that such waiver is insufficient, to reimburse the Portfolio, to the
extent necessary to keep the cumulative annual expenses of the Portfolio to not
more than .75% of the average net assets of the Portfolio on an annualized
basis. Absent the Advisor's waiver of the administration fees and
reimbursement, the ratio of expenses to average net assets for the Portfolio for
the fiscal year ended November 30 1996, would have been 2.80%. For purposes of
this waiver and reimbursement, the annual expenses are those expenses incurred
in any period consisting of twelve consecutive months. The Advisor retains the
right in its sole discretion to modify or eliminate the waiver of a portion of
its fees and the reimbursement of the Portfolio in the future. If the Advisor
modifies or eliminates the fee waiver or reimbursement, such change will be set
forth in the prospectus.
The Portfolio and the Series each 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 securities laws and the cost of any
filings required under state securities laws, reports to shareholders, and
transfer and dividend disbursing agency, administrative services and custodian
fees. Expenses allocable to the Portfolio or the Series are so allocated and
expenses which are allocable to the Portfolio and the Series are borne by the
Portfolio and the Series on the basis of the amount of fees paid by the Fund (on
behalf of the Portfolio) or Trust (on behalf of the Series) to PFPC, Inc., the
accounting services, dividend disbursing and transfer agent of the Portfolio and
the Series.
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 $20.7 billion. David G. Booth and Rex A.
Sinquefield (directors and officers of both the Fund and the Advisor, trustees
and officers of the Trust, and shareholders of the Advisor) 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 Portfolio. 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 Portfolio and the Series. The Portfolio's statement of additional
information
10
<PAGE>
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 the 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 of record; 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 its administrative services, the Portfolio pays the Advisor a
monthly fee equal to one-twelfth of .10% of the average net assets of the
Portfolio.
The Fund intends to enter into shareholder service agreements with certain
Shareholder Service Agents on behalf of the Portfolio. The Shareholder Service
Agents ordinarily will include (i) with respect to participants in a 401(k) plan
that invests in the Portfolio, the person designated to service the employer's
plan and (ii) institutions whose clients, customers or members invest in the
Portfolio. These services to be provided under the shareholder service
agreements may include any of the following: individual recordkeeping for
401(k) plan participants and clients, customers or members of institutions
(collectively referred to herein as "Participants"); sending statements to
Participants reflecting account activities such as purchases, redemptions and
dividend payments; responding to Participant inquiries regarding their
accounts; tax reporting with respect to dividends, distributions and
redemptions; receiving, aggregating and processing Participant orders; and
providing the Portfolio with information necessary for the Fund to comply with
the state securities laws.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
The Portfolio intends to qualify each year as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), so
that it will not be liable for federal income taxes to the extent that its net
investment income and net realized capital gains are distributed. Net
investment income, which is accrued daily, will be distributed monthly (except
for January) by the Portfolio. Any net realized capital gains of the Portfolio
will be distributed annually after the close of the fiscal year. The Series
also intends to qualify each year as a regulated investment company under the
Code.
Shareholders of the Portfolio will automatically receive all income
dividends and any capital gains distributions in additional shares of the
Portfolio at net asset value (as of the business date following the dividend
record date).
The Portfolio receives income in the form of income dividends paid by the
Series. This income, less the expenses incurred in operations, is the
Portfolio's net investment income from which income dividends are distributed as
described above. The Portfolio also may receive capital gains distributions
from the Series and may realize capital gains upon the redemption of the shares
of the Series. Any net realized capital gains of the Portfolio will be
distributed as described above. Dividends and distributions paid to a 401(k)
plan accumulate free of federal income tax.
11
<PAGE>
Since virtually all the net investment income from the Portfolio is
expected to arise from earned interest, it is not expected that any of the
Portfolio's distributions will be eligible for the dividends received deduction
for corporations.
Whether paid in cash or additional shares and regardless of the length of
time the 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. Shareholders are notified annually by the Fund
as to the federal tax status of dividends and distributions paid by the
Portfolio.
Dividends which are declared in 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 the 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 of
the Portfolio for shares of another portfolio of the Fund. Any loss incurred on
sale or exchange of the 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.
In addition to federal taxes, shareholders may be subject to state or 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.
The 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 the
Portfolio.
PURCHASE OF SHARES
Shares of the Portfolio are sold only (i) to fund deferred compensation
plans which are exempt from taxation under section 401(k) of the Code and (ii)
to clients, customers or members of certain institutions. Provided that shares
of the Portfolio are available under an employer's plan or through an
institution, shares may be purchased by following the procedures adopted by the
respective employer or institution and approved by the Fund's management for
making investments. Shares are available through the Shareholder Services Agent
designated under the employer's plan or by the institution. Investors who want
to consider investing in the Portfolio should contact their employer or
institution for details. Institutions which purchase shares of the Portfolio
for the accounts of their customers may impose separate charges on those
customers for account services. The Fund does not impose a minimum purchase
requirement, but investors who wish to purchase shares of the Portfolio should
determine whether their employer's plan or institution imposes a minimum
transaction requirement.
VALUATION OF SHARES
The net asset value per share of the 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. The value of the shares of the Series will tend to fluctuate with
interest rates because, unlike money market funds, the Series does not seek to
stabilize the value of its 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 held by the 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.
12
<PAGE>
Unlisted securities for which market quotations are readily available are valued
at the mean between the most recent quoted bid and asked prices. Securities
which are traded OTC and on a stock exchange will be valued according to the
broadest and most representative market; it is expected that for bonds and other
fixed-income securities this ordinarily will be the OTC market. Securities held
by the 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. 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 net asset value of the Portfolio 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 Portfolio. The value of the Portfolio's shares will fluctuate in
relation to the investment experience of the Series.
Provided that the Shareholder Services Agent has received the investor's
investment instructions in good order and the Custodian has received the
investor's payment, shares of the Portfolio will be priced at the net asset
value calculated next after receipt of the order by PFPC, Inc., the transfer
agent of the Fund. 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. The Fund reserves the right to redeem shares
owned by any purchaser whose order is canceled to recover any resulting loss to
the Fund and may prohibit or restrict in the manner in which such purchaser may
place further orders.
DISTRIBUTION
The Fund acts as distributor of the Portfolio's 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 Portfolio's shares. No compensation is paid by the Fund to DFA
Securities Inc. under this agreement.
EXCHANGE OF SHARES
Provided such transactions are permitted under the employer's 401(k) plan
or by the institution, investors may exchange shares of the Portfolio for those
of any other portfolio of the Fund or of DFA Investment Dimensions Group Inc.,
an open-end, management investment company ("DFAIDG"), that is eligible for the
exchange privilege, subject to the minimum purchase requirement set forth in the
portfolio's prospectus. Such exchanges may be effected by completing the
necessary documentation as required by the Shareholder Services Agent designated
in the employer's plan or by the institution.
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 Portfolio or otherwise adversely affect the Fund of DFAIDG,
the exchange privilege may be terminated. Exchanges will be accepted only if
the Fund may issue the shares of the portfolio being acquired in compliance
with the securities laws of the investor's state of residence.
The redemption and purchase prices of shares redeemed and purchased by
exchange, respectively, are the net asset values next determined after the
Shareholder Services Agent has received appropriate instructions in the form
required by such Shareholder Services Agent.
13
<PAGE>
There is no fee imposed on an exchange. However, the Fund reserves the
right to impose an administrative fee in order to cover the costs incurred in
processing an exchange. Any such fee will be disclosed in the prospectus. An
exchange is treated as a redemption and a purchase. Therefore, an investor
could realize a taxable gain or 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.
REDEMPTION OF SHARES
Investors who desire to redeem shares of the Portfolio must furnish a
redemption request to the respective Shareholder Services Agent in the form
required by such Shareholder Services Agent. 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.
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.
With respect to each Portfolio, the Fund reserves the right to redeem a
shareholder's account if the value of the shares in a specific portfolio is $500
or less, whether because of redemptions, a decline in the portfolio's net asset
value per share or any other reason. Before the Fund involuntarily redeems
shares from such an account and sends the proceeds to the stockholder, the Fund
will give written notice of the redemption to the stockholder at least sixty
days in advance of the redemption date. The stockholder will then have sixty
days from the date of the notice to make an additional investment in the Fund in
order to bring the value of the shares in the account for a specific portfolio
to more than $500 and avoid such involuntary redemption. The redemption price
to be paid to a stockholder for shares redeemed by the Fund under this right
will be the aggregate net asset value of the shares in the account at the close
of business on the redemption date.
GENERAL INFORMATION
The Portfolio 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 to provide comparability to other
investment companies. Non-standardized total return quotations may differ from
the SEC Guidelines computations by covering different time periods and 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's annual report to shareholders of the Portfolio for the fiscal year
ended November 30, 1996, contains additional performance information. A copy of
the annual report is available upon request and without charge.
The Fund was incorporated under Maryland law on March 19, 1990. The shares
of the Portfolio, when issued and paid for in accordance with the Portfolio's
prospectus, will be fully paid and non-assessable shares, with equal,
non-cumulative voting rights and no preferences as to conversion, exchange,
dividends, redemption or any other feature. With respect to matters which
require shareholder approval, shareholders are entitled to vote only with
respect to matters which affect the interest of the class of shares (Portfolio)
which they hold, except as otherwise required by applicable law. If liquidation
of the Fund should occur, shareholders would be entitled to receive on a per
class basis
14
<PAGE>
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.
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 the Portfolio in the 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 the Portfolio, as an investor in the Series, is asked to vote on a
shareholder proposal, the Fund will solicit voting instructions from the
Portfolio's shareholders with respect to the proposal. The Directors of the
Fund will then vote the Portfolio's shares in the 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 accordance with their best judgment.
As of February 28, 1997, the following person owned more than 25% of the
voting securities of the Portfolio:
Home Depot Future Builder and Stock 57.29%
Ownership Plan
Wachoria Bank of North Carolina or Trustee*
301 N. Main Street
Winston Salem, NC 27150
*Owner of record only.
Shareholder inquiries may be made by writing or calling the Shareholder
Services Agent at the address or telephone number set forth in the employer's
plan documents or in documents provided by the institution.
15
<PAGE>
DIMENSIONAL INVESTMENT GROUP INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
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
16
<PAGE>
PROSPECTUS
MARCH 28, 1997
DFA INTERNATIONAL VALUE PORTFOLIO II
_________________
This prospectus describes DFA INTERNATIONAL VALUE PORTFOLIO II (the
"Portfolio"), a series of shares issued by Dimensional Investment Group Inc.
(the "Fund"), 1299 Ocean Avenue, 11th floor, Santa Monica, California 90401,
(310) 395-8005. The Portfolio is an open-end, management investment company
whose shares are offered, without a sales charge, to 401(k) defined contribution
plans and clients, customers or members of certain institutions. 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. The Fund
has not established a minimum initial purchase requirement for the Portfolio.
THE INVESTMENT OBJECTIVE OF THE PORTFOLIO IS TO ACHIEVE LONG-TERM CAPITAL
APPRECIATION. THE 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 THE DFA INTERNATIONAL VALUE SERIES (THE "SERIES") OF THE DFA INVESTMENT TRUST
COMPANY (THE "TRUST"). THE SERIES IS AN OPEN-END, MANAGEMENT INVESTMENT COMPANY
THAT HAS THE SAME INVESTMENT OBJECTIVE, POLICIES AND LIMITATIONS AS THE
PORTFOLIO. THE INVESTMENT EXPERIENCE OF THE PORTFOLIO WILL CORRESPOND DIRECTLY
WITH THE INVESTMENT EXPERIENCE OF THE SERIES. INVESTORS SHOULD CAREFULLY
CONSIDER THIS INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION, SEE "THE
PORTFOLIO."
This prospectus sets forth information about the Portfolio that prospective
investors should know before investing and should be read carefully and retained
for future reference. A statement of additional information about the
Portfolio, dated March 28, 1997, 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.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THE SHARES INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
_________________
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>
TABLE OF CONTENTS
PAGE
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 3
THE PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . 6
Portfolio Characteristics and Policies . . . . . . . . . . . . . . . 6
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . . . . . 6
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 7
SECURITIES LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . 7
Foreign Currencies and Related Transactions . . . . . . . . . . . . . 8
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Portfolio Strategies . . . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . 8
Futures Contracts and Options on Futures . . . . . . . . . . . . . . 8
MANAGEMENT OF THE PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . 9
Administrative Services . . . . . . . . . . . . . . . . . . . . . . . 10
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . 10
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
HIGHLIGHTS
PAGE
INVESTMENT OBJECTIVE 6
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio will invest all of its assets in the Series ,
which in turn will invest in the stocks of large non-U.S. companies that are
value stocks, primarily because they have a high book value in relation to their
market value. The investment objective of the Portfolio is a fundamental policy
and may not be changed without the affirmative vote of a majority of its
outstanding securities. (See "INVESTMENT OBJECTIVE AND POLICIES.")
PAGE
RISK FACTORS 7
The Portfolio (indirectly through its investment in the Series) invests in
foreign securities and may invest in financial futures contracts and options
thereon. Similarly, the Portfolio is also authorized to invest in repurchase
agreements. Those policies and the policy of the Portfolio to invest in the
shares of the Series involve certain risks. (See "RISK FACTORS.")
PAGE
MANAGEMENT AND ADMINISTRATIVE SERVICES 9
Dimensional Fund Advisors Inc. (the "Advisor" or "DFA") provides the
Portfolio with administrative services and also serves as investment advisor to
the Series. The Fund contracts with Shareholder Services Agents to provide
certain recordkeeping and other services for the benefit of the Portfolio's
shareholders. (See "MANAGEMENT OF THE PORTFOLIO.")
PAGE
DIVIDEND POLICY 10
After the end of the Portfolio's fiscal year in November, the Portfolio
distributes dividends from its net investment income and any realized net
capital gains annually in December. (See "DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES.")
PAGE
PURCHASE, VALUATION AND REDEMPTION OF SHARES 11
The shares of the Portfolio are offered at net asset value, which is
calculated as of the close of the New York Stock Exchange (the "NYSE") on each
day that the NYSE is open for business. The value of the Portfolio's shares
will fluctuate in relation to the investment experience of the Series. The
redemption price of a share of the Portfolio is equal to its net asset value.
(See "PURCHASE OF SHARES," "VALUATION OF SHARES" and "REDEMPTION OF SHARES.")
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
None*
The expenses in the expense table below are based on those incurred by the
Portfolio and the Series for the fiscal year ended November 30, 1996, restated
to reflect current fees, waivers and arrangements to assume expenses.
ANNUAL FUND OPERATING EXPENSES**
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.20%
Administration Fee (after voluntary fee waivers) 0.00%
Other Expenses (after reimbursements) 0.55%
Total Operating Expenses 0.75%
*Shares of the Portfolio that are 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. "Other Expenses" include a fee paid to the Shareholder
Services Agent of each employer plan or institution at the annual rate of
.10% of the aggregate daily value of all shares of the Portfolio that are
held in an account maintained by such Shareholder Services Agent, paid on a
monthly basis. (See "Administrative Services.")
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$8 $24 $42 $93
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 Portfolio
will bear directly or indirectly. The table summarizes the aggregate estimated
annual operating expenses of both the Portfolio and the Series. (See
"MANAGEMENT OF THE PORTFOLIO.") The Board of Directors of the Fund has
considered whether such expenses will be more or less than they would be if the
Portfolio were to invest directly in the securities held by the Series. The
aggregate amount of expenses for the Portfolio and the Series may be greater
than it would be if the Portfolio were to invest directly in securities held by
the Series. However, the total expense ratio for the Portfolio and the Series
is expected to be less over time than such ratio would have been if the
Portfolio were to invest directly in the underlying securities. This is
because this arrangement enables institutional investors, including the
Portfolio, 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 the
Series, including the Portfolio, will pay its proportionate share of the
expenses of the Series.
2
<PAGE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
Beginning December 1, 1993 through August 8, 1996, the Advisor agreed to
waive its fee under the Investment Management Agreement with respect to the
Series to the extent necessary to keep the cumulative annual expenses of the
Series to not more than .45% of average net assets of the Series on an
annualized basis. For the fiscal year ended November 30, 1996, the Advisor was
not required to waive any portion of its fee pursuant to such agreement. From
July 1, 1994 through June 30, 1996, the Advisor waived its administration fee
with respect to the Portfolio and assumed the expenses of the Portfolio to the
extent necessary to keep the cumulative annual expenses of the Portfolio to not
more than .96% of the average net assets of the Portfolio on an annualized
basis. Beginning on July 1, 1996, the Advisor agreed to waive its
administration fee with respect to the Portfolio and, to the extent that such
waiver is insufficient, to assume expenses of the Portfolio to the extent
necessary to keep the cumulative annual expenses to not more than .75% of the
average net assets of the Portfolio on an annualized basis. For purposes of
this waiver and assumption, the annualized expenses are those expenses incurred
in any period commencing on or after July 1, 1996, consisting of twelve
consecutive months. Absent the Advisor's waiver of the administration fee and
assumption of expenses, the ratio of expenses to average net assets for the
fiscal year ended November 30, 1996, would have been 0.96%. The Advisor retains
the right in its sole discretion to modify or eliminate the waivers of a portion
of its fees or its assumption of expenses of the Portfolio in the future. If
the Advisor modifies or eliminates the fee waivers or assumption, such change
will be set forth in the prospectus.
CONDENSED FINANCIAL INFORMATION
The following financial highlights are part of the financial statements of
the Portfolio. The information for each of the past fiscal years has been
audited by independent accountants. The financial statements, related notes
and the report of the independent accountants covering such financial
information and financial highlights for the Fund's most recent fiscal year
ended November 30, 1996, are incorporated by reference into the Portfolio's
statement of additional information. Further information about the Portfolio's
performance is contained in the Fund's Annual Report to shareholders of the
Portfolio for the year ended November 30, 1996. A copy of the Annual Report
may be obtained from the Fund upon request at no charge.
3
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Year Ended Year Ended August 3 to
Nov. 30, Nov. 30, Nov. 30,
1996 1995 1994
---------- ---------- -----------
Net Asset Value, Beginning of Period . . $ 9.95 $ 9.48 $ 10.00
Income from Investment Operations
Net Investment Income . . . . . . . . 0.14 0.13 0.06
Net Gains (Losses) on Securities
(Realized and Unrealized). . . . . . 1.28 0.49 (0.52)
--------- --------- ----------
Total from Investment Operations . . 1.42 0.62 (0.46)
--------- --------- ----------
--------- --------- ----------
Less Distributions
Net Investment Income . . . . . . . . (0.01) (0.13) (0.06)
Net Realized Gains . . . . . . . . . -- (0.02) --
--------- --------- ----------
Total Distributions . . . . . . . . (0.01) (0.15) (0.06)
--------- --------- ----------
--------- --------- ----------
Net Asset Value, End of Period . . . . . $ 11.36 $ 9.95 $ 9.48
Total Return . . . . . . . . . . . . . . 14.28% 6.52% (4.73)%#
Net Assets, End of Period (thousands). . $ 30,018 $14,323 $ 7,643
Ratio of Expenses to Average
Net Assets (1) . . . . . . . . . . . . 0.86%(a) 0.96%(a) 0.96%*(a)
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . 1.67%(a) 1.63%(a) 2.56%*(a)
Portfolio Turnover Rate . . . . . . . . N/A N/A N/A
Average Commission Rate . . . . . . N/A N/A N/A
________________
* Annualized
# Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Had certain waivers and reimbursements not been in effect, the ratios of
expenses to average net assets for the periods ended November 30, 1996,
1995 and 1994, would have been 0.96%, 1.48% and 12.07%, respectively, and
the ratios of net investment income to average net assets for the periods
ended November 30, 1996, 1995 and 1994, would have been 1.57%, 1.11% and
1.46%, respectively.
N/A Refer to the respective Master Fund Series.
4
<PAGE>
THE PORTFOLIO
The 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 Series, an
open-end, management investment company registered under the Investment Company
Act of 1940, having the same investment objective as the Portfolio. The
investment objective of the Portfolio may not be changed without the affirmative
vote of a majority of its outstanding shares and the investment objective of the
Series may not be changed without the affirmative vote of a majority of its
outstanding shares. Shareholders of the Portfolio will receive written notice
thirty days prior to any change in the investment objective of the Series. This
prospectus describes the investment objective, policies and restrictions of the
Portfolio and the Series. (See "INVESTMENT OBJECTIVE AND POLICIES.") In
addition, an investor should read "MANAGEMENT OF THE PORTFOLIO" for a
description of the management and other expenses associated with the Portfolio's
investment in the Series. Other institutional investors, including other mutual
funds, may invest in the Series, and the expenses of such other investors and,
correspondingly, their returns may differ from those of the Portfolio. 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 Portfolio.
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, the 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. Investment in the Series by other institutional investors offers
potential benefits to the Series and, through its investment in the Series,
also to the Portfolio. However, such economies and expense reductions might not
be achieved and additional investment opportunities, such as increased
diversification, might not be available if other institutions do not invest in
the Series. Also, if an institutional investor were to redeem its interest in
the Series, the remaining investors in the 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 the
Series than the Portfolio could have effective voting control over the operation
of the Series.
Further, if the Series changes its investment objective in a manner which
is inconsistent with the investment objective of the 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 the Portfolio of its investment in
the 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 may constitute a
taxable exchange for federal income tax purposes resulting in gain or loss to
the Portfolio. Any net capital gains so realized will be distributed to the
Portfolio's shareholders as described in "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS
AND TAXES" below.
Finally, the Portfolio's investment in the shares of a registered
investment company such as the Series 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 Series invests.
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INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio pursues its objective by investing all of its
assets in the Series, which has the same investment objective and policies as
the Portfolio. The Series operates as a diversified investment company and
seeks to achieve its objective by investing in the stocks of large non-U.S.
companies which the Advisor believes to be value stocks at the time of the
purchase. Securities are considered value stocks primarily because a company's
shares have a high book value in relation to their market value (a "book to
market ratio"). In measuring value, the Advisor may consider additional
factors such as cash flow, economic conditions and developments in the issuer's
industry. Generally, the shares of a company in any given country 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 in that country with the highest
positive book to market ratios whose shares are listed on a major exchange, and,
as described below, will be considered eligible for investment. The Series
intends to invest in the stocks of large companies in countries with developed
markets. As of the date of this prospectus, the Series may invest in the
stocks of large companies in Australia, Belgium, France, Germany, Hong Kong,
Italy, Japan, the Netherlands, Singapore, Spain, Sweden, Switzerland and the
United Kingdom. As the Series' asset growth permits, it may invest in the
stocks of large companies in other developed markets, including Austria,
Denmark, Finland, Ireland, Malaysia, New Zealand and Norway. (See "RISK
FACTORS.")
PORTFOLIO STRUCTURE
Under normal market conditions, at least 65% of the Series' assets will be
invested in companies organized or having a majority of their assets in or
deriving a majority of their operating income in at least three non-U.S.
countries and no more than 40% of the Series' assets will be invested in such
companies in any one country. The Series reserves the right to invest in
futures contracts and options on futures contracts to commit funds awaiting
investment or to maintain liquidity. To the extent that the Series invests in
future contracts for other than bona fide hedging purposes, the Series will not
purchase futures contracts if as a result more than 5% of its total assets would
then consist of initial margin deposits on such contracts. Such investments
entail certain risks. (See "RISK FACTORS.") The Series also may invest up to
5% of its assets in convertible debentures issued by large non-U.S. companies.
As of the date of this Prospectus, the Series intends to invest in
companies having at least $800 million of market capitalization and the Series
will be approximately market capitalization weighted. The Advisor may reset
such floor from time to time to reflect changing market conditions. In
determining market capitalization weights, the Advisor, using its best judgment,
will seek to eliminate the effect of cross holdings on the individual country
weights. As a result, the weighing of certain countries in the Series may vary
from their weighing in international indices such as those published by The
Financial Times, Morgan Stanley Capital International or Salomon/Russell. The
Advisor, however, will not attempt to account for cross holding within the same
country. The Advisor may exclude the stock of a company that otherwise meets
the applicable criteria if the Advisor determines, in its best judgment, that
other conditions exist that make the purchase of such stock for the Series
inappropriate.
Deviation from market capitalization weighing also will occur because the
Series intends to purchase round lots only. Furthermore, in order to retain
sufficient liquidity, the relative amount of any security held by the 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 Series' assets may be invested in interest-bearing
obligations, such as money-market instruments, for this purpose, thereby causing
further deviation from market capitalization weighing. Such investments would
be made on a temporary basis pending investment in equity securities pursuant to
the Series investment objective. A further deviation from market capitalization
weighting may occur if the Series invests a portion of its assets in convertible
debentures.
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The 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, adherence to the policy of market capitalization weighing would
otherwise require. While such purchases might cause a temporary deviation from
market capitalization weighing, they would ordinarily be made in anticipation of
further growth of the assets of the Series.
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 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 eligible large companies with high book to market ratios
whose stock are eligible for investment. Only common stocks whose market
capitalizations are not less than the minimum on such list will be purchased
by the Series. Additional investments will not be made in securities which
have depreciated in value to such an extent that they are not then considered
by the Advisor to be large companies. This may result in further deviation
from market capitalization weighing and such deviation could be substantial
if a significant amount of the 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.
It is management's belief that the value stocks of large companies offer,
over a long term, a prudent opportunity for capital appreciation but, at the
same time, selecting a limited number of such issues for inclusion in the 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 Series.
The 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
Series do pay dividends. It is anticipated, therefore, that the Series will
receive dividend income.
PORTFOLIO TRANSACTIONS
Securities which have depreciated in value since their acquisition will
not be sold by the Series solely because prospects for the issuer are not
considered attractive or due to an expected or realized decline in securities
prices in general. Securities may be disposed of, however, at any time when,
in the Advisor's judgment, circumstances warrant their sale, such as tender
offers, mergers and similar transactions, or bids made for block purchases at
opportune prices. Generally, securities will not be sold to realize
short-term profits, but, when circumstances warrant, they may be sold without
regard to the length of time held. Generally, securities will be purchased
with the expectation that they will be held for longer than one year and will
be held until such time as they are no longer considered an appropriate
holding in light of the policy of maintaining a portfolio of companies with
large market capitalizations and high book to market ratios. The annual
portfolio turnover rate of the Series for the fiscal years ended November 30,
1995 and 1996, respectively, was 9.75% and 12.23%.
SECURITIES LOANS
The Series is authorized to lend securities to qualified brokers, dealers,
banks and other financial institutions for the purpose of earning additional
income. While the Series may earn additional income from lending securities,
such activity is incidental to the Series' investment objective. The value of
securities loaned may not exceed 331/3% of the value of the Series' total
assets. In connection with such loans, the 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 and will receive reasonable interest on the loan, as well as amounts
equal to any dividends, interest or other distributions on the loaned
securities. In the event of the bankruptcy of the borrower, the Series could
experience delay in recovering the loaned securities. Management believes that
this risk can be controlled through careful monitoring procedures. The
Portfolio is also authorized to lend its portfolio securities. However, as long
as it holds only shares of the Series, it will not do so.
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RISK FACTORS
FOREIGN SECURITIES
The 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
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.
FOREIGN CURRENCIES AND RELATED TRANSACTIONS
Investments of the Series will be denominated in foreign currencies.
Changes in the relative values of foreign currencies and the U.S. dollar,
therefore, will affect the value of investments of the Series. The Series may
purchase foreign currency futures contracts and options in order to hedge
against changes in the level of foreign currency exchange rates. Such contracts
involve an agreement to purchase or sell a specific currency at a future date at
a price set in the contract and enable the Series to protect against losses
resulting from adverse changes in the relationship between the U.S. dollar and
foreign currencies occurring between the trade and settlement dates of Series
securities transactions, but they also tend to limit the potential gains that
might result from a positive change in such currency relationships. Gains and
losses on futures contracts and options thereon depend on interest rates and
other economic forces.
BORROWING
The Series has reserved the right to borrow amounts not exceeding 33% of
its net assets for the purposes of making redemption payments. When
advantageous opportunities to do so exist, the 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 may increase or decrease at a greater rate than
would be the case if the Series had not leveraged. The interest payable on the
amount borrowed would increase the Series' expenses and, if the appreciation and
income produced by the investments purchased when the Series has borrowed are
less than the cost of borrowing, the investment performance of the Series will
be reduced as a result of leveraging.
PORTFOLIO STRATEGIES
The method employed by the Advisor to manage the 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.
REPURCHASE AGREEMENTS
In addition, the Series may invest in repurchase agreements.
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In the event of a bankruptcy of the other party to a repurchase agreement,
the Trust could experience delay in recovering the securities underlying such
agreement. Management believes that the risks associated with repurchase
agreements can be controlled through stringent security selection criteria
and careful monitoring procedures.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Series also may invest in futures contracts and options on futures.
To the extent that the Series invests in futures contracts and options thereon
for other than bona fide hedging purposes, the Series will not 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 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
depend on the direction of securities prices, interest rates and other economic
factors, and the loss from investing in futures contracts is potentially
unlimited. Certain restrictions imposed by the Internal Revenue Code may limit
the ability of a Series to invest in futures contracts and options on futures
contracts.
MANAGEMENT OF THE PORTFOLIO
The Advisor serves as investment advisor to the Series and, as such, is
responsible for the management of its 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 the 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.
For the fiscal year ended November 30, 1996, the Advisor received a fee
for its advisory services to the Series equal to 0.20% of the average net assets
of the Series and the total expenses of the Portfolio were 0.86% of its average
net assets. Absent waiver of fees and expense reimbursements by the Advisor,
the total expenses of the portfolio for the fiscal year ended November 30,
1996, would have been 0.96% of its average net assets. Beginning December 1,
1993 through August 8, 1996, the Advisor agreed to waive its fee under the
Investment Management Agreement with respect to the Series to the extent
necessary to keep the cumulative annual expenses of the Series to not more than
.45% of average net assets of the Series on an annualized basis. For the fiscal
year ended November 30, 1996, the Advisor was not required to waive any
portion of its fee pursuant to such agreement.
The Portfolio and the Series each 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 securities laws and the cost of any
filings required under state securities laws, reports to shareholders, and
transfer and dividend disbursing agency, administrative services and custodian
fees. Expenses allocable to the Portfolio or the Series are so allocated
and expenses which are allocable to the Portfolio and the Series are borne
by the Portfolio or Series on the basis of the amount of fees paid by the Fund
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(on behalf of the Portfolio) and the Trust (on behalf of the Series) to PFPC
Inc., the accounting services, dividend disbursing and transfer agent of the
Portfolio and the Series.
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 $20.7 billion. David G. Booth and Rex A.
Sinquefield (directors and officers of both the Fund and the Advisor , trustees
and officers of the Trust, and shareholders of the Advisor) 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 Portfolio. 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 the disinterested Directors, have adopted written
procedures to monitor potential conflicts of interest that might develop between
the Portfolio and the Series. The Portfolio's statement of additional
information 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 the 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 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. Effective July 1, 1996, the annual fee
paid monthly by the Portfolio to the Advisor for administrative services was
reduced from .20% of the average monthly net assets of the Portfolio to .01% of
the Portfolio's average monthly net assets. Also beginning July 1, 1996, the
Advisor agreed to waive its fee under the Administration Agreement for the
Portfolio and, to the extent that such waiver is insufficient, to assume
expenses of the Portfolio to the extent necessary to keep its cumulative annual
expenses to not more than .75% of the average net assets of the Portfolio on an
annualized basis. The Advisor retains the right in its sole discretion to
modify or eliminate the waiver of a portion of its fees and assumption of
expenses in the future.
The Fund intends to enter into shareholder service agreements with certain
Shareholder Service Agents on behalf of the Portfolio. The Shareholder Service
Agents ordinarily will include (i) with respect to participants in a 401(k) plan
that invests in the Portfolio, the person designated to service the employer's
plan and (ii) institutions whose clients, customers or members invest in the
Portfolio. The service to be provided under the shareholder service agreements
may include any of the following: shareholder recordkeeping; sending statements
to shareholders reflecting account activities such as purchases, redemptions and
dividend payments; responding to shareholder inquiries regarding their accounts;
tax reporting with respect to dividends, distributions and redemptions;
receiving, aggregating and processing shareholder orders; and providing the
Portfolio with information necessary for the Fund to comply with the state
securities laws. Effective July 1, 1996, the fee paid by the Portfolio to a
Shareholder Services Agent was reduced from the annual rate of .25% of the
aggregate daily value of all shares held in an account maintained by such
Shareholder Services Agent, paid on a monthly basis, to .10%.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
The Portfolio intends to qualify each year as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code") so that
it will not be liable for federal income taxes to the extent that its net
investment income and net realized capital gains are distributed. The
Portfolio's policy is to distribute substantially all net investment
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income and any realized net capital gains annually in December after the
close of the Fund's fiscal year on November 30. The Series also intends to
qualify as a regulated investment company under the Code.
Shareholders of the Portfolio will automatically receive all income
dividends and any capital gains distributions in additional shares of the
Portfolio at net asset value (as of the business date following the dividend
record date).
The Portfolio receives income in the form of income dividends paid by the
Series. This income, less the expenses incurred in operations, is the
Portfolio's net investment income from which income dividends are distributed as
described above. The Portfolio also may receive capital gains distributions
from the Series and may realize capital gains upon the redemption of the shares
of the Series. Any net realized capital gains of the Portfolio will be
distributed as described above. Dividends and distributions paid to a 401(k)
plan accumulate free of federal income tax.
Whether paid in cash or additional shares and regardless of the length of
time the 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.
It is anticipated that either none or only a small portion of the distributions
made by the Portfolio will qualify for the corporate dividends received
deduction because of the Series' investment in foreign equity securities.
For those investors subject to tax, if purchases of shares of the 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.
Dividends which are declared in December to shareholders of record 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 the 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 of
the Portfolio for shares of another Portfolio of the Fund. Any loss incurred on
sale or exchange of the 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.
The Series may be subject to foreign withholding taxes on income from
certain of its foreign securities. If Series purchases shares in certain
foreign entities, called "passive foreign investment companies" ("PFIC"), such
Series may be subject to U.S. federal income tax and a related interest charge
on a portion of any "excess distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable dividend by Series to
Portfolio.
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.
The 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 the
Portfolio.
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PURCHASE OF SHARES
Shares of the Portfolio are sold only (i) to fund deferred compensation
plans which are exempt from taxation under section 401(k) of the Code and (ii)
to clients, customers or members of certain institutions. Provided that shares
of the Portfolio are available under an employer's plan or through an
institution, shares may be purchase by following the procedures adopted by the
respective employer or institution and approved by the Fund's management for
making investments. Shares are available through the Shareholder Services Agent
designated under the employer's plan or by the institution. Investors who want
to consider investing in the Portfolio should contact their employer or
institution for details. Institutions which purchase shares of the Portfolio
for the accounts of their customers may impose separate charges on those
customers for account services. The Fund does not impose a minimum purchase
requirement, but investors who wish to purchase shares of the Portfolio should
determine whether their employer's plan or institution imposes a minimum
transaction requirement.
VALUATION OF SHARES
The net asset values per share of the Portfolio and the Series are
calculated as of the close of the NYSE by dividing the total market value of
their respective investments and other assets, less any liabilities, by the
total outstanding shares of the stock of the Portfolio and the Series,
respectively. The value of the Portfolio's shares will fluctuate in relation to
the investment experience of the Series. Securities held by the 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 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.
Generally, trading in foreign securities markets is completed each day at
various times prior to the close of the NYSE. The values of foreign securities
held by the Series are determined as of such times for the purpose of computing
the net asset value of the Series. If events which materially affect the value
of the investments of the Series occur subsequent to the close of the securities
market on which such securities are primarily traded, the investments affected
thereby will be valued at "fair value" as described above. The net asset value
per share of the Series is expressed in U.S. dollars by translating the net
assets of the Series using the bid price for the dollar as quoted by generally
recognized reliable sources.
Provided that the Shareholder Services Agent has received the investor's
investment instructions in good order and the Custodian has received the
investor's payment, shares of the Portfolio will be priced at the net asset
value calculated next after receipt of the order by PFPC Inc., the transfer
agent for the Portfolio. 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. The Fund reserves the right to redeem shares
owned by any purchaser whose order is canceled in order to recover any resulting
loss to the Fund and may prohibit or restrict the manner in which such purchaser
may place further orders.
Management believes that any dilutive effective of the cost of investing
the proceeds of the sale of the shares of the Portfolio is minimal and,
therefore, the shares of the Portfolio are currently sold at net asset value,
without imposition of a fee that would be used to reimburse the Portfolio for
such cost ("reimbursement fee"). Reimbursement fees may be charged
prospectively from time to time based upon the future experience of the
Portfolio and the Series. Any such charges will be described in the prospectus.
DISTRIBUTION
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The Fund acts as distributor of the Portfolio's 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 Portfolio's shares. No compensation is paid by the Fund to DFA
Securities Inc. under this agreement.
EXCHANGE OF SHARES
Provided such transactions are permitted under the employer's 401(k) plan
or by the institution, investors may exchange shares of the Portfolio for those
of the U.S. Small Cap Value Portfolio II or the U.S. Large Cap Value Portfolio
II by first completing the necessary documentation as required by the
Shareholder Services Agent designated in the employer's plan or by the
institution.
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 any of the portfolios or otherwise adversely affect the Fund,
the exchange privilege may be terminated. Exchanges will be accepted only if
the Fund may issue the shares of the portfolio being acquired in compliance
with the securities laws of the investor's state of residence.
The redemption and purchase prices of shares redeemed and purchased by
exchange, respectively, are the net asset values next determined after the
Shareholder Services Agent has received appropriate instructions in the form
required by such Shareholder Services Agent.
There is no fee imposed on an exchange. However, the Fund reserves the
right to impose an administrative fee in order to cover the costs incurred in
processing an exchange. Any such fee will be disclosed in the prospectus. An
exchange is treated as a redemption and a purchase. Therefore, an investor
could realize a taxable gain or 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.
REDEMPTION OF SHARES
Investors who desire to redeem shares of the Portfolio must furnish a
redemption request to the respective Shareholder Services Agent in the form
required by such Shareholder Services Agent. 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.
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.
With respect to each Portfolio, the Fund reserves the right to redeem a
shareholder's account if the value of the shares in a specific portfolio is $500
or less, whether because of redemptions, a decline in the portfolio's net asset
value per share or any other reason. Before the Fund involuntarily redeems
shares from such an account and sends the proceeds to the stockholder, the Fund
will give written notice of the redemption to the stockholder at least sixty
days in advance of the redemption date. The stockholder will then have sixty
days from the date of the notice to make an additional investment in the Fund in
order to bring the value of the shares in the account for a specific portfolio
to more than $500 and avoid such involuntary redemption. The redemption price
to be paid to a stockholder for shares redeemed by the Fund under this right
will be the aggregate net asset value of the shares in the account at the close
of business on the redemption date.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on March 19, 1990. The shares
of the Portfolio, when issued and paid for in accordance with the Portfolio's
prospectus, will be fully paid and non-assessable shares, with equal,
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non-cumulative voting rights and no preferences as to conversion, exchange,
dividends, redemptions 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
1940 Act or other applicable law. The Fund's bylaws provide that special
meetings of shareholders shall be called at the written request of at least
10% of the votes entitled to be cast at such meeting. Such meeting may be
called to consider any matter, including the removal of one or more
directors. Shareholders will receive shareholder communications with respect
to such matters as required by the 1940 Act, including semi-annual and annual
financial statements of the Fund, the latter being audited.
The Portfolio 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's annual report to shareholders of the Portfolio
for the fiscal year ended November 30, 1996, contains additional performance
information. A copy of the annual report is available upon request and
without charge.
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 the Portfolio in the 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 the Portfolio, as an investor in the Series, is asked to vote on a
shareholder proposal, the Fund will solicit voting instructions from the
Portfolio's shareholders with respect to the proposal. The Directors of the
Fund will then vote the Portfolio's shares in the 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 accordance with their best judgment.
As of February 28, 1997, the following person owned more than 25% of the
voting securities of the Portfolio:
BellSouth Corporation 100%
Bankers Trust Company as Trustee*
34 Exchange Place
Jersey City, NJ 07302
* Owner of record only
Shareholder inquiries may be made by writing or calling the Shareholder
Services Agent at the address or telephone number set forth in the employer's
plan documents or in documents provided by the institution.
14
<PAGE>
DIMENSIONAL INVESTMENT GROUP INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
CUSTODIAN
PNC BANK, N.A.
200 Stevens Drive
Airport Business Center
Lester, PA 19113
ACCOUNTING SERVICES 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>
PROSPECTUS
MARCH 28, 1997
THE DFA 6-10 INSTITUTIONAL PORTFOLIO
_________________
This prospectus describes THE DFA 6-10 INSTITUTIONAL PORTFOLIO (the
"Portfolio"), a series of shares issued by Dimensional Investment Group Inc.
(the "Fund"), 1299 Ocean Avenue, 11th floor, Santa Monica, California 90401,
(310) 395-8005. The Portfolio is an open-end, management investment company
whose shares are offered, without a sales charge, to institutional investors,
retirement plans and clients of registered investment advisers. 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. The minimum
initial purchase requirement for the Portfolio is $5,000,000.
THE INVESTMENT OBJECTIVE OF THE PORTFOLIO IS TO ACHIEVE LONG-TERM CAPITAL
APPRECIATION. THE 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 THE U.S. 6-10 SMALL COMPANY SERIES (THE "SERIES") OF THE DFA INVESTMENT TRUST
COMPANY (THE "TRUST"). THE SERIES IS AN OPEN-END, MANAGEMENT INVESTMENT COMPANY
THAT HAS THE SAME INVESTMENT OBJECTIVE, POLICIES AND LIMITATIONS AS THE
PORTFOLIO. THE INVESTMENT EXPERIENCE OF THE PORTFOLIO WILL CORRESPOND DIRECTLY
WITH THE INVESTMENT EXPERIENCE OF THE SERIES. INVESTORS SHOULD CAREFULLY
CONSIDER THIS INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION, SEE "THE
PORTFOLIO."
This prospectus sets forth information about the Portfolio that
prospective investors should know before investing and should be read
carefully and retained for future reference. A statement of additional
information about the Portfolio, dated March 28, 1997, 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>
TABLE OF CONTENTS
PAGE
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 3
THE PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . 5
Portfolio Characteristics and Policies . . . . . . . . . . . . . . . . 6
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . . . . . 6
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . 7
SECURITIES LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Small Company Securities . . . . . . . . . . . . . . . . . . . . . . . 8
Portfolio Strategies . . . . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . 8
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Administrative Services . . . . . . . . . . . . . . . . . . . . . . . 9
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . 9
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . 9
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
In Kind Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
HIGHLIGHTS
PAGE
INVESTMENT OBJECTIVE 5
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The investment objective of the Portfolio is a fundamental policy
and may not be changed without the affirmative vote of a majority of its
outstanding securities. The Portfolio seeks to achieve its investment objective
by investing all of its investable assets in the Series, which in turn invests
in the stocks of small companies traded in the U.S. securities markets. The
size of a company will be measured by its relative market capitalization. The
Series will be structured by generally basing the amount of each security
purchased on the issuer's relative market capitalization applied on a basis of
descending values, with a view to achieving a reasonable reflection of the
relative market capitalizations of its portfolio companies. (See "Portfolio
Characteristics and Policies.")
PAGE
RISK FACTORS 8
The Portfolio is authorized to invest in repurchase agreements. This
policy and the policy of the Portfolio to invest in the shares of the Series
involve certain risks. (See "RISK FACTORS.")
PAGE
MANAGEMENT AND ADMINISTRATIVE SERVICES 8
Dimensional Fund Advisors Inc. (the "Advisor" or "DFA") provides the
Portfolio with administrative services and also serves as investment advisor to
the Series. (See "MANAGEMENT OF THE FUND.")
PAGE
DIVIDEND POLICY 9
The Portfolio distributes substantially all of its net investment income
and any net realized capital gains in November and December of each year. (See
"DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES.")
PAGE
PURCHASE, VALUATION AND REDEMPTION OF SHARES 11
The shares of the Portfolio are offered at net asset value, which is
calculated as of the close of the New York Stock Exchange (the "NYSE") on each
day that the NYSE is open for business. The minimum initial purchase
requirement for the Portfolio's shares is $5,000,000. There is no minimum
purchase requirement for subsequent purchases. The value of the Portfolio's
shares will fluctuate in relation to the investment experience of the Series.
The redemption price of a share of the Portfolio is equal to its net asset
value. (See "PURCHASE OF SHARES," "VALUATION OF SHARES" and "REDEMPTION OF
SHARES.")
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
None*
The expenses in the expense table below are based on those incurred by the
Portfolio and the Series for the fiscal year ended November 30, 1996.
ANNUAL FUND OPERATING EXPENSES**
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.03%
Administration Fee (after fee waiver) 0.00%
Other Expenses (after reimbursement) 0.17%
Total Operating Expenses 0.20%
* Shares of the Portfolio that are 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.
EXAMPLE
You would pay the following transaction and annual operating expenses on a
$1,000 investment in the Portfolio, assuming a 5% annual return over each of the
following time periods and redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$2 $6 $11 $26
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 Portfolio
will bear directly or indirectly. The table summarizes the aggregate estimated
annual operating expenses of both the Portfolio and the Series. (See
"MANAGEMENT OF THE FUND.") The Board of Directors of the Fund has considered
whether such expenses will be more or less than they would be if the Portfolio
were to invest directly in the securities held by the Series. The aggregate
amount of expenses for the Portfolio and Series may be greater than it would be
if the Portfolio were to invest directly in the securities held by the Series.
However, the total expense ratio for the Portfolio and the Series is expected to
be less over time than such ratio would be if the Portfolio were to invest
directly in the underlying securities. This is because this arrangement enables
institutional investors, including the Portfolio, 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 the Series, including the Portfolio,
will pay its proportionate share of the expenses of the Series.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
Beginning November 30, 1993, the Advisor agreed to limit the total
expenses of the Portfolio to not more than 0.20% of the average net assets of
the Portfolio on an annualized basis. Pursuant to this agreement, the
Advisor first will waive its fee under the Administration Agreement with
respect to the Portfolio and, if
2
<PAGE>
necessary, will also reimburse the Portfolio to the extent necessary to keep
the cumulative annual expenses of the Portfolio to not more than 0.20% of the
average net assets of the Portfolio on an annualized basis. Pursuant to this
agreement, the effective administration fee for the year ending November 30,
1996 was 0.00% of the Portfolio's average net assets, rather than the 0.07%
payable under the Administration Agreement. Absent the Advisor's fee waiver
and reimbursement of expenses, the annualized ratio of expenses to average
net assets for the Portfolio for the fiscal year ended November 30, 1996
would have been 0.38%. For purposes of this waiver and reimbursement, the
annual expenses are those expenses incurred in any period consisting of
twelve consecutive months. The Advisor retains the right in its sole
discretion to modify or eliminate the waiver of a portion of its fees in the
future. If the Advisor modifies or eliminates the fee waiver, such change
will be set forth in the prospectus.
CONDENSED FINANCIAL INFORMATION
The following financial highlights are part of the financial statements of
the Portfolio. The information for each of the past fiscal years has been
audited by independent accountants. The financial statements, related notes
and the report of the independent accountants covering such financial
information and financial highlights for the Fund's most recent fiscal year
ended November 30, 1996, are incorporated by reference into the Statement of
Additional Information. Further information about the Portfolio's performance
is contained in the Fund's Annual Report to shareholders of the Portfolio for
the year ended November 30, 1996. A copy of the Annual Report may be obtained
from the Fund upon request at no charge.
3
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended May 4 to
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1996 1995 1994 1993
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.79 $10.29 $10.61 $10.00
---------- ---------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.13 0.13 0.13 0.10
Net Gains (Losses) on Securities
(Realized and Unrealized) 2.22 2.84 (0.08) 0.68
---------- ---------- ---------- ---------
Total from Investment Operations 2.35 2.97 0.05 0.78
---------- ---------- ---------- ---------
LESS DISTRIBUTIONS
Net Investment Income (0.02) (0.13) (0.21) (0.02)
Net Realized Gains (0.52) (0.34) (0.16) (0.15)
---------- ---------- ---------- ---------
Total Distributions (0.54) (0.47) (0.37) (0.17)
---------- ---------- ---------- ---------
Net Asset Value, End of Period $14.60 $12.79 $10.29 $10.61
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Total Return 19.04% 29.08% 0.53% 7.78%#
Net Assets, End of Period (thousands) $10,990 $21,192 $15,070 $1,801
Ratio of Expenses to Average Net Assets (1) 0.20%(a) 0.20%(a) 0.20%(a) 0.20%*(a)
Ratio of Net Investment Income to
Average Net Assets 0.47%(a) 1.12%(a) 1.93%(a) 1.90%*(a)
Portfolio Turnover Rate N/A N/A N/A N/A
Average Commission Rate N/A N/A N/A N/A
</TABLE>
________________
* Annualized
# Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Had certain waivers and reimbursements not been in effect, the ratios of
expenses to average net assets for the periods ended November 30, 1996,
1995, 1994 and 1993, would have been 0.38%, 0.56%. 0.82% and 2.29%,
respectively, and the ratios of net investment income to average net assets
for the periods ended November 30, 1996, 1995, 1994 and 1993, would have
been 0.28%, 0.77%, 1.31% and (0.19)%, respectively.
N/A Refer to the respective Master Fund Series.
4
<PAGE>
THE PORTFOLIO
The 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 Series,
an open-end, management investment company registered under the Investment
Company Act of 1940 having the same investment objective as the Portfolio.
The investment objective of the Portfolio may not be changed without the
affirmative vote of a majority of its outstanding securities and the
investment objective of the Series may not be changed without the affirmative
vote of a majority of the outstanding securities of that Series.
Shareholders of the Portfolio will receive written notice thirty days prior
to any change in the investment objective of the Series. This prospectus
describes the investment objective, policies and restrictions of the
Portfolio and the Series. (See "INVESTMENT OBJECTIVE AND POLICIES.") In
addition, an investor should read "MANAGEMENT OF THE FUND" for a description
of the management and other expenses associated with the Portfolio's
investment in the Trust. Other institutional investors, including other
mutual funds, may invest in the Series, and the expenses of such other
investors and, correspondingly, their returns may differ from those of the
Portfolio. 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 Portfolio.
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, the 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. Investment in the Series by other
institutional investors offers potential benefits to the Series and, through
its investment in the Series, also to the Portfolio. However, economies and
expense reductions might not be achieved and additional investment
opportunities, such as increased diversification, might not be available if
other institutions do not invest in the Series. Also, if an institutional
investor were to redeem its interest in the Series, the remaining investors
in the 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 the Series than the Portfolio could
have effective voting control over the operation of the Series.
Further, if the Series changes its investment objective in a manner
which is inconsistent with the investment objective of the 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 the Portfolio of its
investment in the 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 may constitute a taxable exchange for federal income tax
purposes resulting in gain or loss to the Portfolio. Any net capital gains
so realized will be distributed to the Portfolio's shareholders as described
in "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES" below.
Finally, the Portfolio's investment in the shares of a registered
investment company such as the Series is relatively 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 Series invests.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is to achieve long-term
capital appreciation. The Portfolio provides investors with access to a
securities portfolio consisting of small U.S. companies. Company size will
be determined for purposes of the Series solely on the basis of a company's
market capitalization. "Market capitalization" will be calculated by
multiplying the price of a company's stock by the number of its shares of
common stock. The Portfolio, indirectly through ownership of the Series,
will be structured to reflect reasonably the relative market capitalizations
of the Series' portfolio companies. The Advisor believes that over the long
term the investment performance of small companies in the U.S. is superior
to that of large companies. Institutional investors which, for a variety of
reasons, may choose not to make substantial, or any, direct investment in
companies whose securities will be held by the Series, may participate
indirectly in the investment performance of these companies through ownership
of the Portfolio's stock.
PORTFOLIO CHARACTERISTICS AND POLICIES
The Portfolio is a diversified investment company that pursues its
investment objective by investing all of its assets in the Series, which has
the same investment objective and policies as the Portfolio. The Series is a
diversified investment company that invests in a broad and diverse group of
small U.S. companies having readily marketable securities. Any reference in
this prospectus to a "small U.S. company" means a company whose securities
are traded in the U.S. securities markets and whose market capitalization is
not larger than the largest of those in the smaller one half (deciles 6
through 10) of companies listed on the NYSE. The Series will purchase common
stocks of companies whose shares are listed on the NYSE, the American Stock
Exchange (the "AMEX") and traded in the over-the-counter market ("OTC"). The
Series may invest in securities of foreign issuers which are traded in the
U.S. securities markets, but such investments may not exceed 5% of the gross
assets of the Series. It is the intention of the Series to acquire a portion
of the common stock of each eligible NYSE, AMEX and OTC company on a market
capitalization weighted basis. (See "Portfolio Structure.") In the future,
the Series may purchase common stocks of small U.S. companies which are
listed on other U.S. securities exchanges. In addition, the 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 Series' total assets at the time of purchase.
PORTFOLIO STRUCTURE
The investment portfolio of the Series is structured by generally
basing the amount of each security purchased on the issuer's relative market
capitalization with a view to creating in the Series a reasonable reflection
of the relative market capitalizations of its portfolio companies.
The decision to include or exclude the shares of an issuer will be made
on the basis of such issuer's relative market capitalization determined by
reference to other companies located in the United States. Even though a
company's stock may meet the market capitalization criterion, it may not be
purchased by the Series if (i) in the Advisor's judgment, the issuer is in
extreme financial difficulty, (ii) the issuer is involved in a merger or
consolidation or is the subject of an acquisition or (iii) a significant
portion of the issuer's securities are closely held. Further, securities of
real estate investment trusts will not be acquired (except as a part of a
merger, consolidation or acquisition of assets). In addition, the Advisor
may exclude the stock of a company that otherwise meets the market
capitalization criterion if the Advisor determines in its best judgment that
other conditions exist that make the purchase of such stock for the Series
inappropriate.
Deviation from strict market capitalization weighting will also occur
in the Series because the Series intends to purchase round lots only.
Furthermore, in order to retain sufficient liquidity, the relative amount of
any security held by the Series may be reduced from time to time from the
level which strict adherence to market capitalization weighting would
otherwise require. A portion, but generally not in excess of 20%, of the
Series' assets may be invested in interest-bearing obligations, such as
money-market instruments, for this purpose, thereby causing further deviation
from strict market capitalization weighting. Such investments would be made
on a temporary basis pending investment in equity securities pursuant to the
Series' investment objective.
6
<PAGE>
The 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
weighting would otherwise require. In addition, the Series may acquire
securities eligible for purchase or otherwise represented in its portfolio at
the time of the exchange in exchange for the issuance of its shares. (See
"In Kind Purchases.") While such transactions might cause a temporary
deviation from market capitalization weighting, they would ordinarily be made
in anticipation of further growth of the assets of the Series.
Changes in composition and relative ranking (in terms of market
capitalization) of the stocks which are eligible for purchase by the Series
take place with every trade when the securities markets are open for trading
due, primarily, to price fluctuations of such securities. On a not less than
semi-annual basis, the Advisor will determine the market capitalization of
the largest small company in which the Series may invest. Common stocks
whose market capitalizations are not greater than such company will be
purchased for the Series. Additional investments generally will not be made
in securities which have appreciated in value sufficiently to be excluded
from the Advisor's then current market capitalization limit for eligible
portfolio securities. This may result in further deviation from strict
market capitalization weighting and such deviation could be substantial if a
significant amount of the Series' holdings increase in value sufficiently to
be excluded from the limit for eligible securities, but not by a sufficient
amount to warrant their sale. (See "Portfolio Transactions.") A further
deviation from market capitalization may occur if the 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 small companies offer,
over a long term, a prudent opportunity for capital appreciation, but, at the
same time, selecting a limited number of such issues for inclusion in the
Series involves greater risk than including a large number of them. The
Series intends to invest at least 80% of its assets in equity securities of
U.S. small companies.
Generally, the 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 Series do pay dividends. It is anticipated, therefore, that
the Series will receive dividend income.
PORTFOLIO TRANSACTIONS
On a periodic basis, the Advisor will review the Series' holdings and
determine which, at the time of such review, are no longer considered small
U.S. companies. Securities which have depreciated in value since their
acquisition will not be sold by the Series solely because prospects for the
issuer are not considered attractive or due to an expected or realized
decline in securities prices in general. Securities may be disposed of,
however, at any time when, in the Advisor's judgment, circumstances, such as
(but not limited to) tender offers, mergers and similar transactions, or bids
made for block purchases at opportune prices, warrant their sale. Generally,
securities will not be sold to realize short-term profits, but, when
circumstances warrant, they may be sold without regard to the length of time
held. Generally, securities will be purchased with the expectation that they
will be held for longer than one year and will be held until such time as
they are no longer considered an appropriate holding in light of the policy
of maintaining portfolios of companies with small market capitalizations.
The annual portfolio turnover rate of the Series for the fiscal years ended
November 30, 1995 and 1996, respectively, was 21.16% and 32.38%.
7
<PAGE>
SECURITIES LOANS
The Series is authorized to lend securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of earning
additional income. While the Series may earn additional income from lending
securities, such activity is incidental to the Series' investment objective.
The value of securities loaned may not exceed 33 1/3% of the value of the
Series' total assets. In connection with such loans, the 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 and will receive reasonable interest on the
loan, as well as amounts equal to any dividends, interest or other
distributions on the loaned securities. In the event of the bankruptcy of
the borrower, the Series could experience delay in recovering the loaned
securities. Management believes that this risk can be controlled through
careful monitoring procedures. The Portfolio is also authorized to lend its
portfolio securities. However, as long as it holds only shares of the
Series, it will not do so.
RISK FACTORS
SMALL COMPANY SECURITIES
Typically, securities of small companies are less liquid than
securities of large companies. Recognizing this factor, the Series will
endeavor to effect securities transactions in a manner to avoid causing
significant price fluctuations in the market for these securities.
BORROWING
The Series has reserved the right to borrow amounts not exceeding 33%
of its net assets for the purposes of making redemption payments. When
advantageous opportunities to do so exist, the Series may also purchase
securities when borrowings exceed 5% of the value of its net assets. Such
purchases can be considered "leveraging" and, in such circumstances, the net
value of the Series may increase or decrease at a greater rate than would be
the case if the Series had not leveraged. The interest payable on the amount
borrowed would increase the Series' expenses and, if the appreciation and
income produced by the investments purchased when the Series has borrowed are
less than the cost of borrowing, the investment performance of the Series
will be reduced as a result of leveraging.
PORTFOLIO STRATEGIES
The method employed by the Advisor to manage the Series will differ
from the process employed by many other investment advisors in that the
Advisor will rely on fundamental analysis of the investment merits of
securities to a limited extent to eliminate potential 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.
REPURCHASE AGREEMENTS
In addition, the Series may invest in repurchase agreements. In the
event of a bankruptcy of the other party to a repurchase agreement, the Trust
could experience delay in recovering the securities underlying such
agreement. Management believes that the risk can be controlled through
stringent security selection criteria and careful monitoring procedures.
8
<PAGE>
MANAGEMENT OF THE FUND
The Advisor serves as investment advisor to the Series and, as such, is
responsible for the management of its 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 the Series with a
trading department and selects brokers and dealers to effect securities
transactions.
Portfolio securities transactions are placed with a view to obtaining the
best price and execution of such transactions and, subject to this goal, may be
placed with brokers which have assisted in the sale of the Portfolio's shares.
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.
For the fiscal year ended November 30, 1996, the Advisor received a
fee for its advisory services to the Series equal to 0.03% of the average net
assets of the Series and the total expenses of the Portfolio were 0.20% of
its average net assets. Absent the Advisor's waiver of its fee under the
Administration Agreement with respect to the Portfolio (see "Administrative
Services") and its reimbursement of portfolio expenses to the extent
necessary to keep the cumulative annual expenses of the Portfolio to not more
than 0.20% of the average net assets of the Portfolio on an annual basis, the
ratio of expenses to average net assets for the fiscal year ended November
30, 1996 would have been 0.38%.
The Portfolio and Series each bears all of its own costs and expenses,
including: services of its independent accountants, legal counsel, brokerage
fees, commissions and transfer taxes in connection with the acquisition and
disposition of portfolio securities, taxes, insurance premiums, costs
incidental to meetings of its shareholders and directors or trustees, the
cost of filing its registration statements under federal securities laws and
the cost of any filings required under state securities laws, reports to
shareholders, and transfer and dividend disbursing agency, administrative
services and custodian fees. Expenses allocable to the Portfolio or the
Series are so allocated and expenses which are allocable to the Portfolio
and the Series are borne by the Portfolio and Series on the basis of the
fees paid by the Fund (on behalf of the Portfolio) and the Trust (on behalf
of the Series) to PFPC Inc., the accounting services, dividend disbursing and
transfer agent for the Portfolio and the Series.
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 $20.7 billion. David G. Booth
and Rex A. Sinquefield (directors and officers of both the Fund and the
Advisor, trustees and officers of the Trust and shareholders of the Advisor)
may be deemed controlling persons of the Advisor.
ADMINISTRATIVE SERVICES
The Fund has entered into an administration agreement with the Advisor,
on behalf of the Portfolio. Pursuant to the administration agreement, the
Advisor will perform various services, including: supervision of the
services provided by the Portfolio's custodian and transfer and dividend
disbursing agent and others who provide services to the Fund for the benefit
of the Portfolio; assisting the Fund in complying with the provisions of
federal, state, local and foreign securities, tax and other laws applicable
to the Portfolio; providing shareholders with information about the Portfolio
and their investments as they or the Fund may request; assisting the
Portfolio in conducting meetings of shareholders; furnishing information as
the Board of Directors may require regarding the 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. For its administrative services, the Portfolio pays the
Advisor a monthly fee equal to one-twelfth of .07% of the average net assets
of the Portfolio. The Advisor has agreed to waive its fee under the
Administration Agreement with respect to the Portfolio to the extent
necessary to keep the cumulative annual expenses of the Portfolio to not more
than 0.20% of the average net assets of the Portfolio on an annualized basis.
9
<PAGE>
DIRECTORS AND OFFICERS
The Board of Directors is responsible for establishing Fund policies
and for overseeing the management of the Fund. Each of the Directors and
officers of the Fund is also a Trustee and officer of the Trust. The
Directors of the Fund, including all of the disinterested Directors, have
adopted written procedures to monitor potential conflicts of interest that
might develop between the Portfolio and the Series. Information as to the
Directors and officers of the Fund and the Trustees and officers of the
Trust is set forth in the Statement of Additional Information under
"Directors and Officers."
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
The Portfolio intends to qualify each year as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), so
that it will not be liable for federal income taxes to the extent that its
net investment income and net realized capital gains are distributed. The
Portfolio's policy is to distribute substantially all net investment income
together with any net realized capital gains in November and December of each
year. The Series also intends to qualify as a regulated investment company
under the Code.
Shareholders of the Portfolio will automatically receive all income
dividends and any capital gains distributions in additional shares of the
Portfolio 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.
Cash Option - to receive both income dividends and capital gains
distributions in cash.
The Portfolio receives income in the form of income dividends paid by
the Series. This income, less the expenses incurred in operations, is the
Portfolio's net investment income from which income dividends are distributed
as described above. The Portfolio also may receive capital gains
distributions from the Series and may realize capital gains upon the
redemption of the shares of the Series. Any net realized capital gains of
the Portfolio will be distributed as described above.
Whether paid in cash or additional shares and regardless of the length
of time the 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. Dividends from net investment income will generally
qualify in part for the corporate dividends received deduction, but the
portion of dividends so qualified depends on the aggregate qualifying
dividend income received by the Series from domestic (U.S.) sources.
For those investors subject to tax, if purchases of shares of the
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.
Dividends which are declared in 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
10
<PAGE>
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 the 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 of the Portfolio for shares of another Portfolio of the Fund. Any
loss incurred on sale or exchange of the 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.
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.
The 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 the
Portfolio.
PURCHASE OF SHARES
Investors may purchase shares of the Portfolio by first contacting the
Advisor at (310) 395-8005 to notify the Advisor of the proposed investment
and then completing an Account Registration Form and mailing it to:
Dimensional Investment Group Inc.
The DFA 6-10 Institutional Portfolio
1299 Ocean Avenue, 11th floor
Santa Monica, CA 90401
The minimum initial purchase requirement for the Portfolio's shares is
$5,000,000. Once the minimum purchase requirement is satisfied, further
investments in the Portfolio are not subject to any minimum purchase
requirement. The Fund reserves the right to reduce or waive the minimum
investment requirement, to reject any initial or additional investment and to
suspend the offering of shares of the Portfolio.
Investors having an account with a bank that is a member or a
correspondent of a member of the Federal Reserve System may purchase shares
by first calling the Advisor at (310) 395-8005 to notify the Advisor of the
proposed investment, then requesting the bank to transmit immediately
available funds (Federal Funds) by wire to the Custodian, for the account of
Dimensional Investment Group Inc. (The DFA 6-10 Institutional Portfolio).
Additional investments also may be made through the wire procedure by first
notifying the Advisor. Investors who wish to purchase shares by check should
send their check to Dimensional Investment Group Inc., c/o PFPC Inc., 400
Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank, N.A. serves as
custodian for the Portfolio.
Shares may also be purchased and sold by individuals through securities
firms which may charge a service fee or commission for such transactions. No
such fee or commission is charged on shares which are purchased or redeemed
directly from the Fund. Investors who are clients of investment advisory
organizations may also be subject to investment advisory fees under their own
arrangements with such organizations.
11
<PAGE>
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 the stockholder. Certificates for fractional shares, however,
will not be issued.
IN KIND PURCHASES
If accepted by the Fund, shares of the Portfolio may be purchased in
exchange for securities which are eligible for acquisition by the Series or
otherwise represented in its portfolio as described in this prospectus.
Securities to be exchanged which are accepted by the Fund and shares of the
Portfolio 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, interest, subscription, or other rights
pertaining to such securities shall become the property of the Portfolio 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 the
Portfolio unless: (1) such securities are, at the time of the exchange,
eligible to be included, or otherwise represented, in the Series 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 Series under the
Securities Act of 1933 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
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 exchanged. Investors interested in
such exchanges should contact the Advisor.
VALUATION OF SHARES
The net asset values per share of the Portfolio and the Series are
calculated as of the close of the NYSE by dividing the total market value of
their respective investments and other assets, less any liabilities, by the
total outstanding shares of the stock of the Portfolio and the Series,
respectively. The value of the Portfolio's shares will fluctuate in relation
to the investment experience of the Series. Securities held by the 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 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.
Provided that the Transfer Agent has received the investor's Account
Registration Form in good order and the Custodian has received the investor's
payment, shares of the Portfolio will be priced at the net asset value
calculated next after receipt of the investor's funds by the Custodian.
"Good order" with respect to the purchase of shares means that (1) a fully
completed and properly signed Account Registration Form and any additional
supporting legal documentation required by the Advisor has been received in
legible form and (2) the Advisor has been notified of the purchase by
telephone and, if the Advisor so requests, also in writing, no later than the
close of regular trading on the NYSE (ordinarily 1:00 p.m. PST) on the day of
the purchase. If an order to purchase shares must be canceled due to
non-payment, the purchaser will be responsible for any loss incurred
12
<PAGE>
by the Fund arising out of such cancellation. The Fund reserves the right to
redeem shares owned by any purchaser whose order is canceled in order to
recover any resulting loss to the Fund and may prohibit or restrict the
manner in which such purchaser may place further orders.
Management believes that any dilutive effect of the cost of investing
the proceeds of the sale of the shares of the Portfolio is minimal and,
therefore, the shares of the Portfolio are currently sold at net asset value,
without the imposition of a fee that would be used to reimburse the
Portfolio for such cost ("reimbursement fee"). Reimbursement fees may be
charged prospectively from time to time based upon the future experience of
the Portfolio and the Series. Any such charges will be described in the
prospectus.
DISTRIBUTION
The Fund acts as distributor of the Portfolio's 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 Portfolio's shares. No compensation is paid by
the Fund to DFA Securities Inc. under this agreement.
EXCHANGE OF SHARES
Investors may exchange shares of the Portfolio for those of another
eligible portfolio in the Fund or a portfolio of DFA Investment Dimensions
Group Inc., an open-end, management investment company ("DFAIDG"), by first
contacting the Advisor at (310) 395-8005 to notify the Advisor of the
proposed exchange and then completing an Exchange Form and mailing it to:
Dimensional Investment Group Inc.
Attn: Client Operations
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
The minimum amount for an exchange into a portfolio of DFAIDG is
$100,000. Exchanges are accepted only into those portfolios of DFAIDG that
are eligible for the exchange privilege of DFAIDG. Investors may contact the
Advisor at the above-listed phone number 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 Portfolio or otherwise adversely affect the Fund or
DFAIDG, 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
13
<PAGE>
two accounts are identical, stock certificates have not been issued and the
Fund may issue the shares of the portfolio being acquired in compliance
with the securities laws of the investor's state of residence.
There is no fee imposed on an exchange. However, the Fund reserves the
right to impose an administrative fee in order to cover the costs incurred in
processing an exchange. Any such fee will be disclosed in the prospectus.
An exchange is treated as a redemption and a purchase. Therefore, an
investor could realize a taxable gain or a loss on the transaction. The Fund
reserves the right to revise or terminate the exchange privilege, waive the
minimum amount requirement, limit the amount of or reject any exchange, as
deemed necessary, at any time.
REDEMPTION OF SHARES
Investors who desire to redeem shares of the Portfolio must first
contact the Advisor at the telephone number shown under "PURCHASE OF SHARES."
The Portfolio will redeem shares at the net asset value of such shares next
determined, either: (1) where stock certificates have not been issued, after
receipt of a written request for redemption in good order by the Fund's
Transfer Agent or (2) if stock certificates have been issued, after receipt
of the stock certificates in good order at the office of the Transfer Agent.
"Good order" means that the request to redeem shares must include all
necessary documentation, to be received in writing by the Advisor no later
than the close of regular trading on the NYSE (ordinarily 1:00 p.m. PST),
including: the stock certificate(s), if issued; a letter of instruction or a
stock assignment specifying the number of shares or dollar amount to be
redeemed, signed by all registered owners (or authorized representatives
thereof) of the shares; 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; and any other required supporting
legal documents.
Shareholders redeeming shares for which certificates have not been
issued, who have authorized redemption payment by wire on an authorization
form filed with the Fund, may request that redemption proceeds be paid in
federal funds wired to the bank they have designated on the authorization
form. If the proceeds are wired to the shareholder's account at a bank which
is not a member of the Federal Reserve System, there could be a delay in
crediting the funds to the shareholder's bank account. The Fund reserves the
right at any time to suspend or terminate the redemption by wire procedure
after notification to shareholders. No charge is made by the Fund for
redemptions. The redemption of all shares in an account will result in the
account being closed. A new Account Registration Form will be required for
further investments. (See "PURCHASE OF SHARES.")
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.
With respect to each Portfolio, the Fund reserves the right to redeem a
shareholder's account if the value of the shares in a specific portfolio is
$500 or less, whether because of redemptions, a decline in the portfolio's
net asset value per share or any other reason. Before the Fund involuntarily
redeems shares from such an account and sends the proceeds to the
stockholder, the Fund will give written notice of the redemption to the
stockholder at least sixty days in advance of the redemption date. The
stockholder will then have sixty days from the date of the notice to make an
additional investment in the Fund in order to bring the value of the shares
in the account for a specific portfolio to more than $500 and avoid such
involuntary redemption. The redemption price to be paid to a stockholder for
shares redeemed by the Fund under this right will be the aggregate net asset
value of the shares in the account at the close of business on the redemption
date.
14
<PAGE>
GENERAL INFORMATION
The Fund was incorporated under Maryland law on March 19, 1990. The
shares of the Portfolio, when issued and paid for in accordance with the
Portfolio's prospectus, will be fully paid and non-assessable shares, with
equal, non-cumulative voting rights and no preferences as to conversion,
exchange, dividends, redemption or any other feature. With respect to
matters which require shareholder approval, shareholders are entitled to vote
only with respect to matters which affect the interest of the class of shares
(Portfolio) which they hold, except as otherwise required by applicable law.
If liquidation of the Fund should occur, shareholders would be entitled to
receive on a per class basis the assets of the particular class whose shares
they own, as well as a proportionate share of Fund assets not attributable to
any particular class. Ordinarily, the Fund does not intend to hold annual
meetings of shareholders, except as required by the 1940 Act or other
applicable law. The Fund's bylaws provide that special meetings of
shareholders shall be called at the written request of at least 10% of the
votes entitled to be cast at such meeting. Such meeting may be called to
consider any matter, including the removal of one or more directors.
Shareholders will receive shareholder communications with respect to such
matters as required by the 1940 Act, including semi-annual and annual
financial statements of the Fund, the latter being audited.
The Portfolio 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 the Portfolio with data for periods prior to the Portfolio's
inception. For example, such data may include the total return of the
Series, which commenced operations in January, 1993, and the total return of
The U.S. 6-10 Small Company Portfolio of DFA Investment Dimensions Group Inc.
from its commencement of operations in March, 1992, until it invested all of
its investible assets in the Series in January, 1993. 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's annual report to shareholders of the Portfolio for the fiscal
year ended November 30, 1996, contains additional performance information.
A copy of the annual report is available upon request and without charge.
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 the Portfolio in the 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 the Portfolio, as an investor in the Series, is asked to vote
on a shareholder proposal, the Fund will solicit voting instructions from the
Portfolio's shareholders with respect to the proposal. The Directors of the
Fund will then vote the Portfolio's shares in the 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 accordance with their best judgment.
15
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As of February 28, 1997, the following person owned more than 25% of
the voting securities of the Portfolio:
NIGAS Savings Investment and Thrift Plans 100%
Pensions and Investments Department
P.O. Box 190
Aurora, IL 60507
Shareholder inquiries may be made by writing or calling the Fund at the
address or telephone number appearing on the 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.
16
<PAGE>
DIMENSIONAL INVESTMENT GROUP INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
CUSTODIAN
PNC BANK, N.A.
200 Stevens Drive, Airport Business Center
Lester, PA 19113
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC INC.
400 Bellevue Parkway
Wilmington, DE 19809
LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG, 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>
PROSPECTUS
MARCH 28, 1997
DFA INTERNATIONAL VALUE PORTFOLIO III
U.S. LARGE CAP VALUE PORTFOLIO III
--------------------
This prospectus describes DFA INTERNATIONAL VALUE PORTFOLIO III and U.S.
LARGE CAP VALUE PORTFOLIO III (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 401(k) defined contribution plans and
clients of registered financial advisers.
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 and two of which are set forth in this prospectus. The investment
objective of each Portfolio is to achieve long-term capital appreciation.
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 ISSUES SERIES (INDIVIDUALLY AND
COLLECTIVELY, THE "SERIES") HAVING 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 "THE PORTFOLIOS."
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 March 28, 1997, 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>
TABLE OF CONTENTS
PAGE
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
CONDENSED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .4
THE PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
DFA INTERNATIONAL VALUE PORTFOLIO III - INVESTMENT
OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Portfolio Characteristics and Policies . . . . . . . . . . . . . . . . . .8
Portfolio Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . .9
U.S. LARGE CAP VALUE PORTFOLIO III - INVESTMENT
OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Portfolio Characteristics and Policies . . . . . . . . . . . . . . . . . 10
Portfolio Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECURITIES LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Foreign Currencies and Related Transactions. . . . . . . . . . . . . . . 12
Borrowing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Portfolio Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Repurchase Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Futures Contracts and Options on Futures . . . . . . . . . . . . . . . . 13
MANAGEMENT OF THE PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . 13
Administrative Services. . . . . . . . . . . . . . . . . . . . . . . . . 14
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . 14
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
In Kind Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
VALUATION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
HIGHLIGHTS
PAGE
THE PORTFOLIOS 7
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 financial advisors may
choose to invest in one or both 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.
PAGE
INVESTMENT OBJECTIVE - DFA INTERNATIONAL VALUE PORTFOLIO III 8
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio will invest all of its assets in the DFA
International Value Series of the Trust (the "International Value Series"),
which in turn will invest in the stocks of large non-U.S. companies that are
value stocks, primarily because they have a high book value in relation to their
market value. (See "DFA INTERNATIONAL VALUE PORTFOLIO III-INVESTMENT OBJECTIVE
AND POLICIES.")
PAGE
INVESTMENT OBJECTIVE - U.S. LARGE CAP VALUE PORTFOLIO III 10
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio will invest all of its assets in the 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 that are value stocks, primarily
because they 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 "U.S. LARGE CAP VALUE PORTFOLIO III-INVESTMENT
OBJECTIVE AND POLICIES.")
PAGE
RISK FACTORS 12
The DFA International Value Portfolio III (indirectly through its
investment in the International Value Series) invests in foreign securities.
The International Value Series and the Large Cap Value Series, in which the
corresponding Portfolios invest, may invest in futures contracts and options
thereon. 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.")
<PAGE>
PAGE
MANAGEMENT AND ADMINISTRATIVE SERVICES 13
Dimensional Fund Advisors Inc. (the "Advisor" or "DFA") provides each
Portfolio with administrative services and also serves as investment advisor to
each Series. (See "MANAGEMENT OF THE PORTFOLIOS.")
PAGE
DIVIDEND POLICY 14
Each Portfolio distributes dividends from its net investment income in
November and December of each year and will distribute any realized net capital
gains annually after the end of the Fund's fiscal year in November. (See
"DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES.")
PAGE
PURCHASE, VALUATION AND REDEMPTION OF SHARES 16
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 NYSE 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," "VALUATION OF SHARES" and "REDEMPTION OF SHARES.")
2
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
None*
The expenses in the following tables are based on those incurred by the
Portfolios and their corresponding Series for the fiscal year ended November
30, 1996.
ANNUAL FUND OPERATING EXPENSES**
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
DFA INTERNATIONAL VALUE PORTFOLIO III
Management Fee 0.20%
Administration Fee 0.01%
Other Expenses 0.24%
Total Operating Expenses 0.45%
U.S. LARGE CAP VALUE PORTFOLIO III
Management Fee 0.10%
Administration Fee 0.01%
Other Expenses 0.15%
Total Operating Expenses 0.26%
*Shares of the Portfolios that are 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.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
DFA International Value Portfolio III $5 $14 $25 $57
U.S. Large Cap Value Portfolio III $3 $8 $15 $33
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 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 be if each Portfolio were to
invest directly in the securities held by its corresponding Series. The
aggregate amount of expenses for a Portfolio and the corresponding Series may
be greater than it
3
<PAGE>
would be if the Portfolio were to invest directly in the securities held by the
corresponding Series. However, the total expense ratios for the Portfolios and
their corresponding Series are expected to be less over time than such ratios
would be if the Portfolios were to invest 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 EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
Beginning December 1, 1993 through August 8, 1996, the Advisor agreed to
waive its fee under the Investment Management Agreement with respect to the
International Value Series to the extent necessary to keep the cumulative annual
expenses of the Series to not more than 0.45% of average net assets of the
Series on an annualized basis. For the fiscal year ended November 30, 1996,
the Advisor was not required to waive any portion of its fee pursuant to such
agreement.
CONDENSED FINANCIAL INFORMATION
The following financial highlights are part of the financial statements
of each Portfolio. The information for each of the past fiscal years has been
audited by independent accountants. The financial statements, related notes,
and the report of the independent accountants covering such financial
information and financial highlights for the Fund's most recent fiscal year
ended November 30, 1996, are incorporated by reference into the Portfolios'
Statement of Additional Information. Further information about the Portfolios'
performance is contained in the Fund's Annual Report to shareholders of the
Portfolios for the year ended November 30, 1996. A copy of the Annual Report
may be obtained from the Fund upon request at no charge.
4
<PAGE>
DFA INTERNATIONAL VALUE PORTFOLIO III
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended Feb. 3 to
Nov. 30, Nov. 30,
1996 1995
---------- ---------
<S> <C> <C>
Net Asset Value, Beginning of Period . . . . . . . . . . . . . . . . . . . . . $ 10.81 $ 10.00
-------- --------
Income from Investment Operations
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.21 0.17
Net Gains (Losses) on Securities (Realized and Unrealized) . . . . . . . . . 1.38 0.84
-------- --------
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . 1.59 1.01
-------- --------
LESS DISTRIBUTIONS
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.01) (0.17)
Net Realized Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- (0.03)
-------- --------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.01) 0.20
-------- --------
Net Asset Value, End of Period . . . . . . . . . . . . . . . . . . . . . . . . $ 12.39 $ 10.81
-------- --------
-------- --------
Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.76% 10.04%#
Net Assets, End of Period (thousands). . . . . . . . . . . . . . . . . . . . . $242,371 $146,952
Ratio of Expenses to Average Net Assets (1). . . . . . . . . . . . . . . . . . 0.45% 0.51%*
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . 2.03% 2.29%*
Portfolio Turnover Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A
Average Commission Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A
-------- --------
-------- --------
</TABLE>
- ----------------
*Annualized
#Non-Annualized
(1) Represents the respective combined ratio for the Portfolio and its
respective pro-rata share of its Master Fund Series.
N/A Refer to the respective Master Fund Series.
5
<PAGE>
U.S. LARGE CAP VALUE PORTFOLIO III
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Year Ended Feb. 3 to
Nov. 30, Nov. 30,
1996 1995
---------- ---------
<S> <C> <C>
Net Asset Value, Beginning of Period. . . . . . . . . . . . . . . . . . . . . $ 12.92 $ 10.00
-------- --------
Income from Investment Operations
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.28 0.23
Net Gains (Losses) on Securities (Realized and Unrealized). . . . . . . . . 2.60 3.09
-------- --------
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . 2.88 3.32
-------- --------
LESS DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.04) (0.23)
Net Realized Gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- (0.17)
-------- --------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.04) (0.40)
-------- --------
-------- --------
Net Asset Value, End of Period . . . . . . . . . . . . . . . . . . . . . . . . $ 15.76 $ 12.92
Total Return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.34% 33.27%#
Net Assets, End of Period (thousands) . . . . . . . . . . . . . . . . . . . . $379,974 $135,043
Ratio of Expenses to Average Net Assets (1) . . . . . . . . . . . . . . . . . 0.26% 0.31%*
Ratio of Net Investment Income to Average Net Assets. . . . . . . . . . . . 2.29% 2.82%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A
Average Commission Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A
-------- --------
-------- --------
</TABLE>
- ----------------
*Annualized
#Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
N/A Refer to the respective Master Fund Series.
6
<PAGE>
THE PORTFOLIOS
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
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 Series.
This prospectus describes the investment objective, policies and
restrictions of each Portfolio and its corresponding Series. (See "DFA
INTERNATIONAL VALUE PORTFOLIO III - INVESTMENT OBJECTIVE AND POLICIES" and "U.S.
LARGE CAP VALUE PORTFOLIO III - INVESTMENT OBJECTIVE 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.
Investment in a Series by other institutional investors offers potential
benefits to the Series and, through their investment in the Series, also to the
Portfolios. However such economies and expense reductions might not be achieved
and additional investment opportunities, such as increased diversification,
might not be available if other institutions do not invest in the 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 Portfolio may constitute a taxable exchange for federal
income tax purposes resulting in gain or loss to such Portfolio. Any net
capital gains so realized will be distributed to such Portfolio's shareholders
as described in "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES" below.
7
<PAGE>
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.
DFA INTERNATIONAL VALUE PORTFOLIO III -
INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of the DFA International Value Portfolio III is to
achieve long-term capital appreciation. The Portfolio pursues its objective by
investing all of its assets in the International Value Series, which has the
same investment objective and policies as the Portfolio. The International
Value Series operates as a diversified investment company and seeks to achieve
its objective by investing in the stocks of large non-U.S. companies which the
Advisor believes to be value stocks at the time of purchase. Securities are
considered value stocks primarily because a company's shares have a high book
value in relation to their market value (a "book to market ratio"). Generally,
the shares of a company in any given country 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 in that country with the highest positive book to market ratios
whose shares are listed on a major exchange, and, as described below, will be
considered eligible for investment. In measuring value, the Advisor may
consider additional factors such as cash flow, economic conditions and
developments in the issuer's industry. The International Value Series intends
to invest in the stocks of large companies in countries with developed markets.
As of the date of this prospectus, the International Value Series may invest in
the stocks of large companies in Australia, Belgium, France, Germany, Hong
Kong, Italy, Japan, the Netherlands, Singapore, Spain, Sweden, Switzerland and
the United Kingdom. As the International Value Series' asset growth permits, it
may invest in the stocks of large companies in other developed markets,
including Austria, Denmark, Finland, Ireland, Malaysia, New Zealand, and Norway.
(See "RISK FACTORS.")
PORTFOLIO STRUCTURE
Under normal market conditions, at least 65% of the International Value
Series' assets will be invested in companies organized or having a majority of
their assets in or deriving a majority of their operating income in at least
three non-U.S. countries and no more than 40% of the Series' assets will be
invested in such companies in any one country. The International Value Series
reserves the right to invest in futures contracts and options on futures
contracts to commit funds awaiting investment or to maintain liquidity. To the
extent that the International Value Series invests in futures contracts for
other than bonafide hedging purposes, it will not purchase futures contracts if,
as a result, more than 5% of its total assets would then consist of initial
margin deposits on such contracts. Such investments entail certain risks. (See
"RISK FACTORS.") The International Value Series also may invest up to 5% of its
assets in convertible debentures issued by large non-U.S. companies.
As of the date of this Prospectus, the International Value Series intends
to invest in companies having at least $800 million of market capitalization
and the Series will be approximately market capitalization weighted. The
Advisor may reset such floor from time to time to reflect changing market
conditions. In determining market capitalization weights, the Advisor, using
its best judgment, will seek to eliminate the effect of cross holdings on the
individual country weights. As a result, the weighting of certain countries in
the International Value Series may vary from their weighting in international
indices, such as those published by The Financial Times, Morgan
8
<PAGE>
Stanley Capital International or Salomon/Russell. The Advisor, however, will
not attempt to account for cross holding within the same country. The Advisor
may exclude the stock of a company that otherwise meets the applicable criteria
if the Advisor determines, in its best judgment, that other conditions exist
that make the purchase of such stock for the International Value Series
inappropriate.
Deviation from market capitalization weighting also will occur because the
International Value Series intends to purchase round lots only. Furthermore, in
order to retain sufficient liquidity, the relative amount of any security held
by the International Value Series may be reduced from time to time from the
level which adherence to market capitalization weighting would otherwise
require. A portion, but generally not in excess of 20%, of the International
Value Series' assets may be invested in interest-bearing obligations, such as
money-market instruments, for this purpose, thereby causing further deviation
from market capitalization weighting. Such investments would be made on a
temporary basis pending investment in equity securities pursuant to the
International Value Series' investment objective. A further deviation from
market capitalization weighting may occur if the International Value Series
invests a portion of its assets in convertible debentures.
The International 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, adherence to the policy of market
capitalization weighting would otherwise require. In addition, the Series may
acquire securities eligible for purchase or otherwise represented in its
portfolio at the time of the exchange in exchange for the issuance of its
shares. (See "In Kind Purchases.") While such transactions might cause a
temporary deviation from market capitalization weighting, they would ordinarily
be made in anticipation of further growth of the assets of the International
Value Series.
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 International 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 eligible large companies with high book to market ratios whose
stock are eligible for investment. Only common stocks whose market
capitalizations are not less than the minimum on such list will be purchased by
the International Value Series. Additional investments will not be made in
securities which have depreciated in value to such an extent that they are not
then considered by the Advisor to be large companies. This may result in
further deviation from market capitalization weighting and such deviation could
be substantial if a significant amount of the International 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.
It is management's belief that the value stocks of large companies offer,
over a long term, a prudent opportunity for capital appreciation but, at the
same time, selecting a limited number of such issues for inclusion in the
International 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 International Value Series.
The International 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 International Value Series do pay dividends. It is
anticipated, therefore, that the International Value Series will receive
dividend income.
PORTFOLIO TRANSACTIONS
Securities which have depreciated in value since their acquisition will not
be sold by the International Value Series solely because prospects for the
issuer are not considered attractive or due to an expected or realized decline
in securities prices in general. Securities may be disposed of, however, at any
time when, in the Advisor's judgment, circumstances warrant their sale, such as
tender offers, mergers and similar transactions, or bids made for block
purchases at opportune prices. Generally, securities will not be sold to
realize short-term
9
<PAGE>
profits, but, when circumstances warrant, they may be sold without regard to
the length of time held. Generally, securities will be purchased with the
expectation that they will be held for longer than one year and will be held
until such time as they are no longer considered an appropriate holding in light
of the policy of maintaining a portfolio of companies with large market
capitalizations and high book to market ratios. The annual portfolio turnover
rate of the International Value Series for the fiscal years ended November 30,
1995 and 1996 was 9.75% and 12.23%, respectively.
U.S. LARGE CAP VALUE PORTFOLIO III -
INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of the U.S. Large Cap Value Portfolio III is to
achieve long-term capital appreciation. The Portfolio pursues its objective by
investing all of its assets in 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 the common stocks of large U.S.
companies with shares that have a high 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, 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.
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, and short-term repurchase agreements. The Large Cap Value Series
may invest in futures contracts and options on futures contracts. To the
extent that the Large Cap Value Series invests in futures contracts for other
than bona fide hedging purposes, it will not purchase futures contracts if more
than 5% of the Series' total assets are then invested as initial margin deposits
on such contracts or options. 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, generally by 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 weighting will also occur
because the Large Cap Value Series intends to purchase round lots only.
Furthermore, 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
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adherence to market capitalization weighting 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, for
this purpose, thereby causing further deviation from market capitalization
weighting. Such investments would be made on a temporary basis pending
investment in equity securities pursuant to the Large Cap Value Series'
investment objective. 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 weighting would otherwise require. In addition, the
Series may acquire securities eligible for purchase or otherwise represented in
its portfolio at the time of the exchange in exchange for the issuance of its
shares. (See "In Kind Purchases.") While such transactions might cause a
temporary deviation from market capitalization weighting, they would ordinarily
be made in anticipation of further growth of the assets of the Large Cap Value
Series.
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 maximum on such list will be purchased by
the Large Cap Value Series. Additional investments will not be made in
securities which have depreciated in value to such an extent that they are not
then considered by the Advisor to be large companies. This may result in
further deviation from market capitalization weighting 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.
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.
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 Large Cap Value Series may sell portfolio
securities when the issuer's
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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. However, securities may be sold at any time when, in the
Advisor's judgment, circumstances warrant their sale. The annual portfolio
turnover rate of the Large Cap Value Series for the fiscal years ended November
30, 1995 and 1996 was 29.41% and 20.12%, respectively.
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.
SECURITIES LOANS
The Series are authorized to lend securities to qualified brokers, dealers,
banks and other financial institutions for the purpose of earning additional
income. 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 and will receive reasonable interest on the loan, as well as amounts equal
to any dividends, interest or other distributions on the loaned securities. In
the event of the bankruptcy of the borrower, the Series could experience delay
in recovering the loaned securities. Management believes that this risk can be
controlled through careful monitoring procedures. Each Portfolio is also
authorized to lend its portfolio securities. However, as long as it holds only
shares of its corresponding Series, it will not do so.
RISK FACTORS
FOREIGN SECURITIES
The International Value 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 International Value 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.
FOREIGN CURRENCIES AND RELATED TRANSACTIONS
Investments of the International Value Series will be denominated in
foreign currencies. Changes in the relative values of foreign currencies and
the U.S. dollar, therefore, will affect the value of investments of that Series.
The International Value Series may purchase foreign currency futures contracts
and options in order to hedge against changes in the level of foreign currency
exchange rates. Such contracts involve an agreement to purchase or sell a
specific currency at a future date at a price set in the contract and enable the
International Value Series to protect against losses resulting from adverse
changes in the relationship between the U.S. dollar and foreign currencies
occurring between the trade and settlement dates of Series securities
transactions, but they also tend to limit the potential gains that might result
from a positive
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change in such currency relationships. Gains and losses on futures contracts
and options thereon depend on interest rates and other economic forces.
BORROWING
The International Value Series and the Large Cap Value Series each has
reserved the right to borrow amounts not exceeding 33% of its net assets for the
purposes of making redemption payments. When advantageous opportunities to do
so exist, a 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 may increase or
decrease at a greater rate than would be the case if the Series had not
leveraged. The interest payable on the amount borrowed would increase the
Series' expenses and, if the appreciation and income produced by the investments
purchased when the Series has borrowed are less than the cost of borrowing, the
investment performance of the Series will be reduced as a result of leveraging.
PORTFOLIO STRATEGIES
The method employed by the Advisor to manage the International Value Series
and 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.
REPURCHASE AGREEMENTS
In addition, 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 agreement.
Management believes that this risk can be controlled through stringent security
selection criteria and careful monitoring procedures.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
Each Series also may invest in futures contracts and options on futures.
To the extent that a Series invests in futures contracts and options thereon for
other than bona fide hedging purposes, it will not 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 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 depend on the direction of
securities prices, interest rates and other economic factors, and the loss from
investing in futures contracts is potentially unlimited. Certain restrictions
imposed by the Internal Revenue Code may limit the ability of a Series to invest
in futures contracts and options on futures contracts.
MANAGEMENT OF THE PORTFOLIOS
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The Advisor 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.
For the fiscal year ended November 30, 1996, (i) the Advisor received a
fee for its advisory services to the Series equal to the following percentage
of the average net assets of each Series and (ii) the total expenses of each
Portfolio were the following percentages of its average net assets:
MANAGEMENT FEE TOTAL EXPENSES
-------------- --------------
DFA International Value Portfolio III 0.20% 0.45%
U.S. Large Cap Value Portfolio III 0.10% 0.26%
Beginning December 1, 1993 through August 8, 1996, the Advisor agreed to
waive its fee under the investment management agreement with respect to the
International Value Series to the extent necessary to keep the cumulative annual
expenses of the Series to not more than .45% of average net assets of the Series
on an annualized basis. For the fiscal year ended November 30, 1996, the
Advisor was not required to waive any portion of its fee pursuant to such
agreement.
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 securities laws and the cost of any
filings required under state securities laws, reports to shareholders, and
transfer and dividend disbursing agency, administrative services and custodian
fees. Expenses allocable to a particular Portfolio or Series are so allocated
and expenses which are allocable to a particular Portfolio and its
corresponding Series are borne by such Portfolio and Series on the basis of
the amount of fees paid by the Fund (on behalf of the Portfolio) and Trust (on
behalf of the Series) to PFPC Inc., the accounting services, dividend disbursing
and transfer agent for each Portfolio and Series.
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 $20.7 billion. David G. Booth and Rex A.
Sinquefield (directors and officers of both the Fund and the Advisor, trustees
and officers of the Trust, and shareholders of the Advisor) 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
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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 its
administrative services, the Portfolios each pay the Advisor a monthly fee equal
to one-twelfth of .01% of their respective average net assets.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Each Portfolio intends to qualify each year as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), so
that it will not be liable for federal income taxes to the extent that its net
investment income and net realized capital gains are distributed. The policy of
each Portfolio is to distribute substantially all of its net investment income
in November and December of each year. Both Portfolios will distribute any
realized net capital gains annually after the end of the Fund's fiscal year.
Each Series intends to qualify as a regulated investment company under the Code.
Shareholders 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). Shareholders of the U.S. Large Cap Value
Portfolio III, who do not own their shares under a 401(k) plan, may select one
of the following options upon written notice to the Transfer Agent:
Income Option - to receive income dividends in cash and capital
gains distributions in additional shares at net
asset value.
Capital Gains Option - to receive capital gains distributions in cash and
income dividends in additional shares at net asset
value.
Cash Option - to receive both income dividends and capital gains
distributions in cash.
Each Portfolio receives income in the form of income dividends paid by the
corresponding Series. This income, less the expenses incurred in operations, is
a Portfolio's net investment income from which income dividends are distributed
as described above. A Portfolio also may receive capital gains distributions
from the corresponding Series and may realize capital gains upon the redemption
of the shares of the Series. Any net realized capital gains of a Portfolio will
be distributed as described above. Dividends and distributions paid to a 401(k)
plan accumulate free of federal income taxes.
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Whether paid in cash or additional shares and regardless of the length of
time a Portfolios' 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.
Dividends from net investment income of U.S. Large Cap Value Portfolio will
generally qualify in part for the corporate dividends received deduction, but
the portion of dividends so qualified depends on the aggregate qualifying
dividend income received by the corresponding Series from domestic (U.S.)
sources. It is anticipated that either none or only a small portion of the
distributions made by the DFA International Value Portfolio III will qualify for
the corporate dividends received deduction because of the corresponding Series'
investment in foreign equity securities.
For those investors subject to tax, if purchases of shares of the
Portfolios 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. Dividends from net investment income or net short-term capital
gains will be taxable as ordinary income. Shareholders are notified annually by
the Fund as to the federal tax status of dividends and distributions paid by
the Portfolios.
Dividends which are declared in November or December to shareholders of
record in such 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 a 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 of a
Portfolio for shares of another portfolio of the Fund. Any loss incurred on
sale or exchange of a Portfolios' 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.
The International Value Series may be subject to foreign withholding taxes
on income from certain of its foreign securities. If International Value Series
purchases shares in certain foreign entities, called "passive foreign investment
companies" ("PFIC"), such Series may be subject to U.S. federal income tax and a
related interest charge on a portion of any "excess distribution" or gain from
the disposition of such shares even if such income is distributed as a taxable
dividend by Series to Portfolio.
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.
The 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 the
Portfolios.
PURCHASE OF SHARES
Shares of the Portfolios are sold only (i) to fund deferred compensation
plans which are exempt from taxation under section 401(k) of the Code; and (ii)
to clients of financial advisers.
Provided that shares of the Portfolios are available under an employer's
401(k) plan, shares may be purchased by following the procedures adopted by the
respective employer and approved by Fund management for making investments.
Shares are available through the service agent designated under the employer's
plan. Investors who are considering an investment in the Portfolios should
contact their employer for details. The
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<PAGE>
Fund does not impose a minimum purchase requirement, but investors should
determine whether their employer's plan imposes a minimum transaction
requirement.
Investors who are clients of financial advisers should contact their
financial adviser with respect to a proposed investment and then follow the
procedures adopted by the financial adviser for making purchases. Shares that
are purchased or sold through omnibus accounts maintained by securities firms
may be subject to a service fee or commission for such transactions. Clients of
financial advisers may also be subject to investment advisory fees under their
own arrangements with their financial advisers.
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.
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 portfolios of the Series as described in this
prospectus or in exchange for local currencies in which such securities of the
International Value Series are denominated. Securities and local currencies 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 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. Investors
who desire to purchase shares of the DFA International Value Portfolio III with
local currencies should first contact the Advisor for wire instructions.
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 or local currency exchanged. Investors
interested in such exchanges should contact the Advisor.
VALUATION OF SHARES
The net asset value per share of each 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. 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 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.
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Generally, trading in foreign securities markets is completed each day at
various times prior to the close of the NYSE. The values of foreign securities
held by the International Value Series are determined as of such times for the
purpose of computing the net asset value of the Series. If events which
materially affect the value of the investments of the International Value Series
occur subsequent to the close of the securities market on which such securities
are primarily traded, the investments affected thereby will be valued at "fair
value" as described above. The net asset value per share of the International
Value Series is expressed in U.S. dollars by translating the net assets of the
Series using the bid price for the dollar as quoted by generally recognized
reliable sources.
The net asset value of each Portfolio 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
Portfolio. The value of each Portfolio's shares will fluctuate in relation to
the investment experience of the corresponding Series.
Provided that a financial adviser or service agent designated under a
401(k) plan 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 Inc., the transfer agent for the Portfolios. 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.
The Fund reserves the right to redeem shares owned by any purchaser whose order
is canceled to recover any resulting loss to the Fund and may prohibit or
restrict the manner in which such purchaser may place further orders.
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 who is a client of a financial adviser 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 its financial adviser and
completing the documentation required by the financial adviser. Exchanges are
accepted only into those portfolios of DFAIDG that are eligible for the exchange
privilege of DFAIDG. In addition, exchanges are not accepted into or from the
DFA International Value Portfolio III. Investors should contact their financial
advisor for a list of those portfolios of DFAIDG that accept exchanges.
Provided such transactions are permitted under the employer's 401(k) plan,
investors may exchange shares of other Fund portfolios that are offered through
the plan by completing the necessary documentation as required by the service
agent designated under the employer's plan. Please contact the service agent of
your plan for further information.
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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 or DFAIDG,
the exchange privilege may be terminated and 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.
With respect to shares held by clients of financial advisers, 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 a commercial bank, trust company or member 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 Fund may
issue the shares of the portfolio being acquired in compliance with the
securities laws of the investor's state of residence.
With respect to shares held under a 401(k) plan, the redemption and
purchase prices of shares redeemed and purchased by exchange, respectively, are
the net asset values next determined after the plan's service agent has received
appropriate instructions in the form required by such service agent.
There is no fee imposed on an exchange. However, the Fund reserves the
right to impose an administrative fee in order to cover the costs incurred in
processing an exchange. Any such fee will be disclosed in the prospectus. An
exchange is treated as a redemption and a purchase. Therefore, an investor
could realize a taxable gain or 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.
REDEMPTION OF SHARES
An investor who desires to redeem shares of a Portfolio must furnish a
redemption request to its financial adviser or to the service agent designated
under a 401(k) plan in the form required by such financial adviser or service
agent. 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.
With respect to each Portfolio, the Fund reserves the right to redeem a
shareholder's account if the value of the shares in a specific portfolio is $500
or less, whether because of redemptions, a decline in the portfolio's net asset
value per share or any other reason. Before the Fund involuntarily redeems
shares from such an account and sends the proceeds to the stockholder, the Fund
will give written notice of the redemption to the stockholder at least sixty
days in advance of the redemption date. The stockholder will then have sixty
days from the date of the notice to make an additional investment in the Fund in
order to bring the value of the shares in the account for a specific portfolio
to more than $500 and avoid such involuntary redemption. The redemption price
to be paid to a stockholder for shares redeemed by the Fund under this right
will be the aggregate net asset value of the shares in the account at the close
of business on the redemption date.
19
<PAGE>
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's annual report to shareholders of the Portfolios for
the fiscal year ended November 30, 1996, contains additional performance
information. A copy of the annual report is available upon request and without
charge.
The Fund was incorporated under Maryland law on March 19, 1990. The shares
of each Portfolio, when issued and paid for in accordance with this prospectus,
will be fully paid and non-assessable shares, with equal, non-cumulative voting
rights and no preferences as to conversion, exchange, dividends, redemption or
any other feature. With respect to matters which require shareholder approval,
shareholders are entitled to vote only with respect to matters which affect the
interest of the class of shares (Portfolio) which they hold, except as otherwise
required by applicable law. If liquidation of the Fund should occur,
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 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.
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 Series, is asked
to vote on a shareholder proposal, the Fund will solicit voting instructions
from the Portfolio's shareholders with respect to the proposal. The Directors
of the Fund will then vote the Portfolio's shares in the 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 accordance with their best judgment.
As of February 28, 1997, the following persons owned more than 25% of the
voting securities of the following Portfolios:
20
<PAGE>
DFA INTERNATIONAL VALUE PORTFOLIO III
Charles Schwab & Co. Inc.- ALL REIN* 100%
101 Montgomery Street
San Francisco, CA 94104
U.S. LARGE CAP VALUE PORTFOLIO III
Charles Schwab & Co. Inc.- CAP REIN* 53.80%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Co. Inc.- ALL REIN* 46.20%
101 Montgomery Street
San Francisco, CA 94104
*Owner of record only
Shareholder inquiries may be made by writing or calling the Fund at the
address or telephone number appearing on the cover of this prospectus.
21
<PAGE>
DIMENSIONAL INVESTMENT GROUP INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
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>
DFA INTERNATIONAL VALUE PORTFOLIO II
DIMENSIONAL INVESTMENT GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
MARCH 28, 1997
This statement of additional information is not a prospectus but should be
read in conjunction with the prospectus of DFA International Value Portfolio II
(the "Portfolio") of Dimensional Investment Group Inc. (the "Fund"), dated March
28, 1997, which can be obtained by writing or calling the Shareholder Services
Agent for your employer's plan.
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . . .2
BROKERAGE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
FUTURES CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS . . . . . . . . . . . . . . . . . .5
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ADMINISTRATIVE SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . .9
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
CALCULATION OF PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . 10
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the information set forth in the
prospectus under the caption "INVESTMENT OBJECTIVE AND POLICIES" and applies to
the DFA International Value Series (the "Series") of The DFA Investment Trust
Company (the "Trust").
Because the structure of the Series is based on the relative market
capitalizations of eligible holdings, it is possible that the 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 (the "1940 Act") 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 Series and the anticipated amount of the
Series' assets intended to be invested in such securities, management does not
anticipate that the Series will include as much as 5% of the voting securities
of any issuer.
The Series may invest up to 5% of its assets in convertible debentures
issued by non-U.S. companies. Convertible debentures include corporate bonds
and notes that may be converted into or exchanged for common stock. These
securities are generally convertible either at a stated price or a stated rate
(that is, for a specific number of shares of common stock or other security).
As with other fixed income securities, the price of a convertible debenture to
some extent varies inversely with interest rates. While providing a
fixed-income stream (generally higher in yield than the income derived from a
common stock but lower than that afforded by a non-convertible debenture), a
convertible debenture also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying
common stock declines, convertible debentures tend to trade increasingly on a
yield basis and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the price of a convertible debenture tends to rise as a
reflection of the value of the underlying common stock. To obtain such a higher
yield, the Series may be required to pay for a convertible debenture an amount
in excess of the value of the underlying common stock. Common stock acquired by
the Series upon conversion of a convertible debenture will generally be held for
so long as the Advisor anticipates such stock will provide the Series with
opportunities which are consistent with the Series' investment objective and
policies.
BROKERAGE TRANSACTIONS
During the fiscal years ended November 30, 1994, 1995 and 1996, the Series
paid brokerage commissions of $623,031, $542,306 and $1,251,242, respectively.
Portfolio transactions of the Series will be placed with a view to
receiving the best price and execution. In addition, the Advisor will seek to
acquire and dispose of securities in a manner which would cause as little
fluctuation in the market prices of stocks being purchased or sold as possible
in light of the size of the transactions being effected. Brokers will be
selected with these goals in view. The Advisor monitors the performance of
brokers which effect transactions for the 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.
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
<PAGE>
other research services. The Investment Management Agreement of the 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.
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 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 Series can effect transactions at the
best available prices.
During fiscal year 1996, the Series paid commissions for securities transactions
to brokers which provided market price monitoring services, market studies and
research services to the Series of $78,952 with respect to securities
transactions valued at $13,031,549. Research services furnished by brokers
through whom securities transactions are effected may be used by the Advisor in
servicing all of its accounts and not all such services may be used by the
Advisor with respect to the Series.
The Portfolio will not incur any brokerage or other costs in connection
with its purchase or redemption of shares of the Series, except if the Portfolio
receives securities or currencies from the Series to satisfy the Portfolio's
redemption request. (See "REDEMPTION OF SHARES.")
INVESTMENT LIMITATIONS
The Portfolio has adopted certain limitations which may not be changed
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 the Series are the same as those of
the Portfolio.
The Portfolio will not:
(1) invest in commodities or real estate, including limited partnership
interests therein, although it 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;
4
<PAGE>
(3) as to 75% of its total assets, invest in the securities of any issuer
(except obligations of the U.S. Government and its agencies and
instrumentalities) if, as a result of 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;
(5) borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and, then, in no event in excess of 33% of its net assets,
or pledge more than 33% of such assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an extent greater than
10% of its total assets at fair market value, except as described in (5) above;
(7) invest more than 15% of the value of the Portfolio's total assets in
illiquid securities, which include certain restricted securities, repurchase
agreements with maturities of greater than seven days, and other illiquid
investments;
(8) engage in the business of underwriting securities issued by others;
(9) invest for the purpose of exercising control over management of any company;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization;
(11) 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;
(13) write or acquire options or interests in oil, gas or other mineral
exploration, leases or development programs, except as described in (1) above;
(14) purchase warrants, except that the Portfolio may acquire warrants as a
result of corporate actions involving its holding of equity securities;
(15) purchase securities on margin or sell short; or
(16) acquire more than 10% of the voting securities of any issuer.
The investment limitations described in (3), (7), (9), (10), (11), (12) and
(16) above do not prohibit the Portfolio from investing all or substantially all
of its assets in the shares of another registered open-end investment company,
such as the Series.
The investment limitations described in (1) and (15) above do not prohibit
the Portfolio from making margin deposits in connection with the purchase or
sale of financial futures contracts and options thereon to the extent permitted
under applicable regulations.
5
<PAGE>
Although (2) above prohibits cash loans, the Portfolio is authorized to
lend portfolio securities. Inasmuch as the Portfolio will only hold shares of
the Series, the Portfolio does not intend to lend those shares.
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.
Pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act"),
the Series 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 Series' limitations on holdings of illiquid securities. While
maintaining oversight, the Board of Trustees of the Trust has delegated the
day-to-day function of making liquidity determinations to the Advisor. For Rule
144A securities to be considered liquid, there must be at least two dealers
making a market in such securities. After purchase, the Board of Trustees and
the Advisor will continue to monitor the liquidity of Rule 144A securities.
The Series may acquire and sell forward foreign currency exchange contracts
in order to hedge against changes in the level of future currency rates. Such
contracts involve an obligation to purchase or sell a specific currency at a
future date at a price set in the contract. While the Series has retained
authority to buy and sell financial futures contracts and options thereon, it
has 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 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 close out the position without
undue market or tax consequences.
FUTURES CONTRACTS
The Series may enter into futures contracts and options on futures
contracts for the purpose of remaining fully invested and to maintain liquidity
to pay redemptions. Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of defined securities at a
specified future time and at a specified price. Futures contracts which are
standardized as to maturity date and underlying financial instrument are traded
on national futures exchanges. The 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 the Series. Variation margin payments are made to and from the futures
broker for as long as the contract remains open. The Series expects to earn
income on its margin deposits. To the extent that the Series invests in futures
contracts and options thereon for other than bona fide hedging purposes, the
Series will not enter into such transaction if, immediately thereafter, the sum
of the amount
6
<PAGE>
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 SEC, the 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
its futures contract transactions in order to cover its obligations with respect
to such contracts.
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. Therefore, it might not be possible to close a futures position and, in
the event of adverse price movements, the Series would continue to be required
to continue to make variation margin deposits. In such circumstances, if the
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 the 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 the 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 the 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, the 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 the
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
transactions. Such distributions will be combined with distributions of capital
gains realized on the Series' other investments.
7
<PAGE>
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, 50, Director*, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director, of the following companies: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia Ltd., 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 (registered investment
company). Chairman and Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, 49, 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, 58, 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, 53, 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. (software, data, publishing and consulting).
Merton H. Miller, 73, Director, Chicago, IL. Robert R. McCormick
Distinguished Service Professor, Graduate School of Business, University of
Chicago. Trustee, The DFA Investment Trust Company. Director, DFA Investment
Dimensions Group Inc., Dimensional Emerging Markets Fund Inc. Public Director,
Chicago Mercantile Exchange.
Myron S. Scholes, 55, 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 Emerging Markets Fund Inc., Benham Capital Management Group of
Investment Companies and Smith Breedon Group of Investment Companies.
8
<PAGE>
Rex A. Sinquefield, 52, Director*, Chairman-Chief Investment Officer, Santa
Monica, CA. Chairman-Chief Investment Officer and Director, Dimensional Fund
Advisors Inc., DFA Securities Inc., DFA Australia Ltd., 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 hold the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Ltd., DFA Investment Dimensions Group Inc., The DFA Investment Trust Company,
Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets Fund Inc.
Arthur Barlow, 41, Vice President, Santa Monica, CA.
Truman Clark, 55, Vice President, Santa Monica, CA. Consultant until
October 1995 and Principal and Manager of Product Development, Wells Fargo Nikko
Investment Advisors, San Francisco, CA from 1990-1994.
Maureen Connors, 60, Vice President, Santa Monica, CA.
Robert Deere, 39, Vice President, Santa Monica, CA.
Irene R. Diamant, 46, Vice President and Secretary, Santa Monica, CA.
Eugene Fama, Jr., 36, Vice President, Santa Monica, CA.
David Plecha, 35, Vice President, Santa Monica, CA. 41, Vice President,
Santa Monica, CA. Managing Director, Asset Strategy Consulting, Los Angeles, CA
from 1991 to 1992.
Michael T. Scardina, 41, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica,
CA.
Weston Wellington, 46, Vice President, Santa Monica, CA. Director of
Research, LPL Financial Services, Inc., Boston, MA from 1987 to 1994.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
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, 1996, and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
9
<PAGE>
Aggregate Total Compensation from
Compensation Fund
Director from Fund and Fund Complex
- -------- ----------------- -----------------------
George M. Constantinides $5,000 $30,000
John P. Gould $5,000 $30,000
Roger G. Ibbotson $5,000 $30,000
Merton H. Miller $5,000 $30,000
Myron S. Scholes $5,000 $30,000
Directors and officers as a group own less than 1% of the Portfolio's
outstanding stock.
ADMINISTRATIVE SERVICES
PFPC Inc. ("PFPC") serves as the accounting services, dividend disbursing
and transfer agent for the Portfolio 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 offering price of the shares, preparation of
reports, liaison with its custodian, and transfer and dividend disbursing agency
services. For its services, the Portfolio pays PFPC a monthly fee of $1,000.
OTHER INFORMATION
For the services it provides as investment advisor to the Series, the
Advisor is paid a monthly fee calculated as a percentage of average net assets
of the Series. For the fiscal years ended November 30, 1994, 1995 and 1996,
the Series paid advisory fees of $536,000, $937,000 and $2,124,000,
respectively. The Series has more than one investor; this dollar amount
represents the total dollar amount of advisory fees paid by the Series to the
Advisor.
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.
PNC Bank, N.A. serves as the custodian for the Portfolio, and Boston Safe
Deposit and Trust Company serves as the custodian for the Series. The
custodians maintain a separate
10
<PAGE>
account or accounts for the Portfolio and Series; receive, hold and release
portfolio securities on account of the Portfolio and Series; make receipts and
disbursements of money on behalf of the Portfolio and Series; and collect and
receive income and other payments and distributions on account of the
Portfolio's and Series' portfolio securities.
Coopers & Lybrand L.L.P., the Fund's independent accountants, audits the
Fund's financial statements on an annual basis.
PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 1997, the following stockholder owned beneficially at
least 5% of the outstanding stock of the Portfolio, as set forth below.
BellSouth Corporation 100%
Bankers Trust Company as Trustee
34 Exchange Place
Jersey City, NJ 07302
*Owner of record only
PURCHASE OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that the
NYSE is open for business, regardless of whether the Federal Reserve System is
closed. However, no purchases by wire may be made on any day that the Federal
Reserve System is closed. The Fund will generally be closed on days that the
NYSE is closed. The NYSE is scheduled to be open Monday through Friday
throughout the year except for days closed to recognize New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day. The Federal Reserve System is closed on the
same days that the NYSE is closed, except that it is open on Good Friday and
closed on Martin Luther King, Jr. Day, Columbus Day and Veterans' Day. Orders
for redemptions and purchases will not be processed if the Fund is closed.
The Fund reserves the right, in its sole discretion, to suspend the
offering of shares of the Portfolio or reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interest of
the Fund or 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 NYSE is
restricted as determined by the Securities and Exchange Commission (the
"Commission"), (2) during any period when an emergency exists
11
<PAGE>
as defined by the rules of the Commission as a result of which it is not
reasonably practicable for the Fund to dispose of securities owned by it, or
fairly to determine the value of its assets, and (3) for such other periods as
the Commission may permit.
If the Board of Directors of the Fund and the Board of Trustees of the
Trust determine that it would be detrimental to the best interests of the
remaining shareholders of the Portfolio and the shareholders of the Series,
respectively, to make payment wholly or partly in cash, the Portfolio may pay
the redemption price in whole or in part by a distribution of portfolio
securities that the Portfolio receives from the Series to satisfy the
Portfolio's redemption request in lieu of cash. The redemptions by both the
Series and 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. The Series reserves
the right to redeem its shares in the currencies in which its investments are
denominated. Investors may incur charges in converting such currencies to
dollars and the value of the currencies may be affected by currency exchange
fluctuations.
CALCULATION OF PERFORMANCE DATA
Following are quotations of the annualized percentage total returns for the
one-, five-, and ten-year periods ended November 30, 1996 (as applicable) using
the standardized method of calculation required by the Commission. Since the
Portfolio has been in operation for less than five years, the time period during
which the Portfolio has been active has been substituted for the period stated
(which does not extend prior to the effective date of the Portfolio's
registration statement with the Commission).
ONE YEAR FIVE YEARS TEN YEARS
14.27% 27 months n/a
6.81%
As the following formula indicates, the Portfolio and Series each
determines its average annual total return by finding the average annual
compounded rates of return over the stated time period that would equate a
hypothetical initial purchase order of $1,000 to its redeemable value (including
capital appreciation/depreciation and dividends and distributions paid and
reinvested less any fees charged to a shareholder account) at the end of the
stated time period. The calculation assumes that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The calculation also assumes the account was
completely redeemed at the end of each period and the deduction of all
applicable charges and fees. According to the Commission's formula:
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- and ten-year periods at the end of the one-, five-
and ten-year periods (or fractional portion thereof).
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<PAGE>
In addition to the standardized method of calculating performance required
by the Commission, the Portfolio and Series may disseminate other performance
data. Non-standardized return data may be presented over time periods which
extend prior to when the Portfolio or the 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.
FINANCIAL STATEMENTS
The audited financial statements and financial highlights of the Portfolio
for the Fund's fiscal year ended November 30, 1996, as set forth in the Fund's
annual report to shareholders of the Portfolio, and the report thereon of
Coopers & Lybrand L.L.P., independent accountants, also appearing therein, are
incorporated herein by reference.
The audited financial statements of the Series for the Trust's fiscal year
ended November 30, 1996, as set forth in the Trust's annual report to
shareholders, and the report thereon of Coopers & Lybrand L.L.P., independent
accountants, also appearing therein, are incorporated herein by reference.
A shareholder may obtain a copy of the reports upon request and without
charge, by contacting the Fund at the address or telephone number appearing on
the cover of the Statement of Additional Information.
13
<PAGE>
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
March 28, 1997
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 March 28, 1997, which can be obtained
from the Fund by writing to the Fund at the above address or by calling the
above telephone number.
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . . .2
BROKERAGE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
FUTURES CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS . . . . . . . . . . . . . . . . . .6
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ADMINISTRATIVE SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . .9
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
CALCULATION OF PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . 11
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
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. 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, 1996, 1995 and 1994, the Large Cap Value
Series paid brokerage commissions of $934,452, $410,503 and $367,810,
respectively.
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.
3
<PAGE>
During the fiscal year ended November 30, 1996, the Large Cap Value Series paid
$313,601 in commissions (on securities transactions totalling $211,163,255 in
value) to brokers which provided market price monitoring services, market
studies and research services to the Series.
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;
4
<PAGE>
(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;
(5) borrow, except from banks as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess of 33% of
its net assets, or pledge more than 33% of such assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value, except as described
in (5) above;
(7) invest more than 15% of the value of the Portfolio's total
assets in illiquid securities, which include certain restricted securities,
repurchase agreements with maturities of greater than seven days, and other
illiquid investments;
(8) engage in the business of underwriting securities issued by
others;
(9) invest for the purpose of exercising control over management of
any company;
(10) invest its assets in securities of any investment company, except
in connection with a merger, acquisition of assets, consolidation or
reorganization;
(11) 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), (4), (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.
5
<PAGE>
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.
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.
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 above. While
maintaining oversight, the Board of Directors has delegated the day-to-day
function of making liquidity determinations to the Advisor. For Rule 144A
securities to be considered liquid, there must be at least two dealers making a
market in such securities. After purchase, the 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
6
<PAGE>
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 from the futures broker for as long as the contract
remains open. The Series expect to earn income on their margin deposits. 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
7
<PAGE>
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 transactions. Such distributions
will be combined with distributions of capital gains realized on the Series'
other investments.
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, Director*, 50, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director, of the following companies: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia, Ltd., 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 (registered investment
company). Chairman and Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, 49, 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, 58, 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, 53, 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. (software, data, publishing and consulting).
8
<PAGE>
Merton H. Miller, 73, Director, Chicago, IL. Robert R. McCormick
Distinguished Service Professor, Graduate School of Business, University of
Chicago. Trustee, The DFA Investment Trust Company. Director, DFA Investment
Dimensions Group Inc., Dimensional Emerging Markets Fund Inc. and Public
Director, Chicago Mercantile Exchange.
Myron S. Scholes, 55, 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 Emerging Markets Fund Inc., Benham Capital Management Group of
Investment Companies and Smith Breedon Group of Investment Companies.
Rex A. Sinquefield, 52, Director*, Chairman-Chief Investment Officer,
Santa Monica, CA. Chairman-Chief Investment Officer and Director, Dimensional
Fund Advisors Inc., DFA Securities Inc., DFA Australia Ltd., 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 hold the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Ltd., DFA Investment Dimensions Group Inc., The DFA Investment Trust Company,
Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets Fund Inc.
Arthur Barlow, 41, Vice President, Santa Monica, CA.
Truman Clark, 55, Vice President, Santa Monica, CA. Consultant until
October 1995 and Principal and Manager of Product Development, Wells Fargo Nikko
Investment Advisors, San Francisco, CA from 1990-1994.
Maureen Connors, 60, Vice President, Santa Monica, CA.
Robert Deere, 39, Vice President, Santa Monica, CA.
Irene R. Diamant, 46, Vice President and Secretary, Santa Monica, CA.
Eugene Fama, Jr., 36, Vice President, Santa Monica, CA.
David Plecha, 35, Vice President, Santa Monica, CA.
George Sands, 41, Vice President, Santa Monica, CA. Managing Director,
Asset Strategy Consulting, Los Angeles, CA from 1991 to 1992.
Michael T. Scardina, 41, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
9
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Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica,
CA.
Weston Wellington, 46, Vice President, Santa Monica, CA. Director of
Research, LPL Financial Services, Inc., Boston, MA, 1987 to 1994.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
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, 1996, and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
Aggregate Total Compensation from
Compensation Fund
Director from Fund and Fund Complex
- -------- --------------- -----------------------
George M. Constantinides $5,000 $30,000
John P. Gould $5,000 $30,000
Roger G. Ibbotson $5,000 $30,000
Merton H. Miller $5,000 $30,000
Myron S. Scholes $5,000 $30,000
Directors and officers as a group own less than 1% of each Portfolio's
outstanding stock.
ADMINISTRATIVE SERVICES
PFPC Inc. ("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 agency services. 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.
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.
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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.
PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 1997, the following person/persons owns/own more than 5%
of the voting securities of each portfolio:
RWB/DFA U.S. High Book to Market Portfolio
Charles Schwab & Co.-REIN* 83.04%
101 Montgomery Street
San Francisco, CA 94104
Donaldson, Lufkin & Jenrette Securities Corp.-
Pershing Division* 15.47%
P.O. Box 2052
Jersey City, NJ 07303
RWB/DFA Two-Year Corporate Fixed Income Portfolio
Charles Schwab & Co.-CASH* 89.86%
101 Montgomery Street
San Francisco, CA 94104
Donaldson, Lufkin & Jenrette Securities Corp.-
Pershing Division* 8.08%
P.O. Box 2052
Jersey City, NJ 07303
RWB/DFA Two-Year Government Portfolio
Charles Schwab & Co.-CASH* 93.60%
101 Montgomery Street
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San Francisco, CA 94104
Donaldson, Lufkin & Jenrette Securities Corp.-
Pershing Division* 5.46%
P.O. Box 2052
Jersey City, NJ 07303
*Owner of record only.
PURCHASE OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that the
New York Stock Exchange ("NYSE") is open for business. 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 NYSE 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
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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
Following are quotations of the annualized percentage total returns for
each Portfolio for the one-, five-, and ten-year periods ended November 30, 1996
(as applicable) using the standardized method of calculation required by the
SEC. Since each Portfolio has been in operation for less than one year, the
time period during which each Portfolio has been in operation has been
substituted for the period stated (which does not extend prior to the effective
date of the Portfolio's registration statement with the SEC.)
One Five Ten
Year Years Years
RWB/DFA U.S. High Book to Market Portfolio 6 months n/a n/a
16.77%
RWB/DFA Two-Year Corporate Fixed Income
Portfolio 5 months n/a n/a
7.80%
RWB/DFA Two-Year Government Portfolio 5 months n/a n/a
8.08%
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 redeemed at the end of each period and
the deduction of all applicable charges and fees. According to the SEC formula:
n
P(1 + T) = 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).
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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.
FINANCIAL STATEMENTS
The audited financial statements and financial highlights of each Portfolio
for the Fund's fiscal period from June 7, 1996 (commencement of operations) to
November 30, 1996, as set forth in the Fund's annual report to shareholders of
each Portfolio, and the report thereon of Coopers & Lybrand L.L.P., independent
accountants, also appearing therein, are incorporated herein by reference.
The audited financial statements of the Series of the Trust corresponding
to the Portfolios for the Trust's fiscal year ended November 30, 1996, as set
forth in the Trust's annual report to shareholders and the report thereon of
Coopers & Lybrand L.L.P., independent accountants, also appearing therein, are
incorporated herein by reference.
A shareholder may obtain a copy of the reports upon request and without
charge, by contacting the Fund at the address or telephone number appearing on
the cover of this Statement of Additional Information.
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<PAGE>
U.S. LARGE CAP VALUE PORTFOLIO II
DIMENSIONAL INVESTMENT GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
MARCH 28, 1997
This statement of additional information is not a prospectus but should
be read in conjunction with the prospectus of U.S. Large Cap Value Portfolio
II (the "Portfolio") of Dimensional Investment Group Inc. (the "Fund"), dated
March 28, 1997, which can be obtained by writing or calling the Shareholder
Services Agent for your employer's plan.
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND POLICIES ................................... 2
BROKERAGE TRANSACTIONS .............................................. 2
INVESTMENT LIMITATIONS .............................................. 3
FUTURES CONTRACTS ................................................... 5
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS .......................... 5
DIRECTORS AND OFFICERS .............................................. 6
ADMINISTRATIVE SERVICES ............................................. 8
OTHER INFORMATION .................................................. 8
PRINCIPAL HOLDERS OF SECURITIES ..................................... 9
PURCHASE OF SHARES .................................................. 9
REDEMPTION OF SHARES ................................................ 9
CALCULATION OF PERFORMANCE DATA ..................................... 10
FINANCIAL STATEMENTS ................................................ 11
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the information set forth in the
prospectus under the caption "INVESTMENT OBJECTIVE AND POLICIES" and applies to
the U.S. Large Cap Value Series (the "Series") of The DFA Investment Trust
Company (the "Trust").
Because the structure of the Series is based on the relative market
capitalizations of eligible holdings, it is possible that the 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 (the "1940
Act") 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
Series and the anticipated amount of the Series' assets intended to be
invested in such securities, management does not anticipate that the Series
will include as much as 5% of the voting securities of any issuer.
BROKERAGE TRANSACTIONS
During the fiscal years ended November 30, 1994, 1995 and 1996, the
Series paid brokerage commissions of $367,810, $415,802 and $934,452,
respectively.
Portfolio transactions of the Series will be placed with a view to
receiving the best price and execution. In addition, the Advisor will seek
to acquire and dispose of securities in a manner which would cause as little
fluctuation in the market prices of stocks being purchased or sold as
possible in light of the size of the transactions being effected. Brokers
will be selected with these goals in view. The Advisor monitors the
performance of brokers which effect transactions for the 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.
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 the 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. During fiscal year 1996, the Series paid
commissions for securities transactions to brokers which provided market
price monitoring services, market studies and research services to the Series
of $313,601 with respect to securities transactions valued at $211,163,255.
Research services furnished by brokers through whom securities transactions
are effected may be used by the Advisor in servicing all of its accounts and
not all such services may be used by the Advisor with respect to the Series.
The over-the-counter market ("OTC") companies eligible for purchase by the
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
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<PAGE>
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 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 Series can effect transactions at the best
available prices.
The Portfolio will not incur any brokerage or other costs in connection
with its purchase or redemption of shares of the Series, except if the
Portfolio receives securities from the Series to satisfy the Portfolio's
redemption request. (See "REDEMPTION OF SHARES.")
INVESTMENT LIMITATIONS
The Portfolio has adopted certain limitations which may not be changed
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 the Series are the same as those of
the Portfolio.
The Portfolio will not:
(1) invest in commodities or real estate, including limited partnership
interests therein, although it 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 its total assets, invest in the securities of any issuer
(except obligations of the U.S. Government and its agencies and
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;
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<PAGE>
(5) borrow, except from banks as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33% of its net assets,
or pledge more than 33% of such assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value, except as described in (5)
above;
(7) invest more than 15% of the value of the Portfolio's total assets in
illiquid securities, which include certain restricted securities, repurchase
agreements with maturities of greater than seven days, and other illiquid
investments;
(8) engage in the business of underwriting securities issued by others;
(9) invest for the purpose of exercising control over management of any
company;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization;
(11) 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;
(13) write or acquire options or interests in oil, gas or other mineral
exploration, leases or development programs, except as provided in (1) above;
(14) purchase warrants, except that the 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 Portfolio.
The investment limitations described in (3), (4), (7), (9), (10), (11),
(12) and (16) above do not prohibit the Portfolio from investing all or
substantially all of its assets in the shares of another registered open-end
investment company, such as the Series.
The investment limitations described in (1) and (15) above do not prohibit
the Portfolio from making margin deposits in connection with the purchase or
sale of financial futures contracts and options thereon to the extent permitted
under applicable regulations.
Although (2) above prohibits cash loans, the Portfolio is authorized to
lend portfolio securities. Inasmuch as the Portfolio will only hold shares of
the Series, the Portfolio does not intend to lend those shares.
For the purposes of (12) above, utility companies will
4
<PAGE>
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.
Pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act"),
the Series 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 Series' limitations on holdings of illiquid
securities. While maintaining oversight, the Board of Trustees of the Trust
has delegated the day-to-day function of making liquidity determinations to
the Advisor. For Rule 144A securities to be considered liquid, there must be
at least two dealers making a market in such securities. After purchase, the
Board of Trustees and the Advisor will continue to monitor the liquidity of
Rule 144A securities.
While the Series has retained authority to buy and sell financial futures
contracts and options thereon, it has no present intention to do so.
Unless otherwise indicated, all limitations applicable to the Portfolio's
and Series' investments apply only at the time that a transaction is
undertaken. Any subsequent change in the percentage of the Portfolio's or
Series' assets invested in certain securities or other instruments resulting
from market fluctuations or other changes in the Portfolio's or Series' total
assets will not require the Portfolio or Series to dispose of an investment
until the Advisor determines that it is practicable to sell or close out the
position without undue market or tax consequences.
FUTURES CONTRACTS
The Series may enter into futures contracts and options on futures
contracts for the purpose of remaining fully invested and to maintain
liquidity to pay redemptions. Futures contracts provide for the future sale
by one party and purchase by another party of a specified amount of defined
securities at a specified future time and at a specified price. Futures
contracts which are standardized as to maturity date and underlying financial
instrument are traded on national futures exchanges. The 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 the Series.
Variation margin payments are made to and from the futures broker for as long
as the contract remains open. The Series expects to earn income on its
margin deposits. To the extent that the Series invests in futures contracts
and options thereon for other than bona fide hedging purposes, the Series
will not enter into such transaction 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 SEC, the 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 its futures contract transactions in
order to cover its obligations with respect to such contracts.
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular
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<PAGE>
futures contract at any specific time. Therefore, it might not be possible
to close a futures position and, in the event of adverse price movements, the
Series would continue to be required to continue to make variation margin
deposits. In such circumstances, if the 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 the 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 the 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 the 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, the 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 the 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 transactions. Such distributions will be
combined with distributions of capital gains realized on the Series' other
investments.
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.
6
<PAGE>
DIRECTORS
David G. Booth, Director*, 50, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director, of the following companies: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia, Ltd., 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 (registered investment
company). Chairman and Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, 49, 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, 58, 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, 53, 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. (software, data, publishing and consulting).
Merton H. Miller, 73, Director, Chicago, IL. Robert R. McCormick
Distinguished Service Professor, Graduate School of Business, University of
Chicago. Trustee, The DFA Investment Trust Company. Director, DFA Investment
Dimensions Group Inc., Dimensional Emerging Markets Fund Inc. and Public
Director, Chicago Mercantile Exchange.
Myron S. Scholes, 55, 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 Emerging Markets Fund Inc., Benham Capital Management Group of
Investment Companies and Smith Breedon Group of Investment Companies.
Rex A. Sinquefield, 52, Director*, Chairman-Chief Investment Officer,
Santa Monica, CA. Chairman-Chief Investment Officer and Director, Dimensional
Fund Advisors Inc., DFA Securities Inc., DFA Australia Ltd., 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 hold the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Ltd., DFA Investment Dimensions Group Inc., The DFA Investment Trust Company,
Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets Fund Inc.
Arthur Barlow, 41, Vice President, Santa Monica, CA.
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<PAGE>
Truman Clark, 55, Vice President, Santa Monica, CA. Consultant until
October 1995 and Principal and Manager of Product Development, Wells Fargo
Nikko Investment Advisors, San Francisco, CA from 1990-1994.
Maureen Connors, 60, Vice President, Santa Monica, CA.
Robert Deere, 39, Vice President, Santa Monica, CA.
Irene R. Diamant, 46, Vice President and Secretary, Santa Monica, CA.
Eugene Fama, Jr., 36, Vice President, Santa Monica, CA.
David Plecha, 35, Vice President, Santa Monica, CA.
George Sands, 41, Vice President, Santa Monica, CA. Managing Director,
Asset Strategy Consulting, Los Angeles, CA from 1991 to 1992.
Michael T. Scardina, 41, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica,
CA.
Weston Wellington, 46, Vice President, Santa Monica, CA. Director of
Research, LPL Financial Services, Inc., Boston, MA from 1987 to 1994.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
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, 1996, and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
Aggregate Total Compensation from
Compensation Fund
Director from Fund and Fund Complex
- -------- -------------- -----------------------
George M. Constantinides $5,000 $30,000
John P. Gould $5,000 $30,000
Roger G. Ibbotson $5,000 $30,000
Merton H. Miller $5,000 $30,000
Myron S. Scholes $5,000 $30,000
Directors and officers as a group own less than 1% of each Portfolio's
outstanding stock.
ADMINISTRATIVE SERVICES
PFPC Inc. ("PFPC") serves as the accounting services, dividend disbursing
and transfer agent for the Portfolio 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 offering price of the shares, preparation of
reports, liaison with its
8
<PAGE>
custodian, and transfer and dividend disbursing agency services. For its
services, the Portfolio pays PFPC a monthly fee of $1,000.
OTHER INFORMATION
For the services it provides as investment advisor to the Series, the
Advisor is paid a monthly fee calculated as a percentage of average net assets
of the Series. For the fiscal years ended November 30, 1994, 1995 and 1996,
the Series paid advisory fees of $143,000, $306,000 and $699,000,
respectively. The Series has more than one investor; this dollar amount
represents the total dollar amount of advisory fees paid by the Series to the
Advisor.
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.
PNC Bank, N.A. serves as the custodian for the Portfolio. The custodian
maintains a separate account or accounts for the Portfolio 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 Portfolio's and Series'
portfolio securities.
Coopers & Lybrand L.L.P., the Fund's independent accountants, audits the
Fund's financial statements on an annual basis.
PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 1997, the following stockholder owned beneficially at
least 5% of the outstanding stock of the Portfolio, as set forth below.
BellSouth Corporation 100%
Bankers Trust Company as Trustee*
34 Exchange Place
Jersey City, NJ 07302
* Owner of record only
9
<PAGE>
PURCHASE OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that the
NYSE is open for business, regardless of whether the Federal Reserve System is
closed. However, no purchases by wire may be made on any day that the Federal
Reserve System is closed. The Fund will generally be closed on days that the
NYSE is closed. The NYSE is scheduled to be open Monday through Friday
throughout the year except for days closed to recognize New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day. The Federal Reserve System is closed on the
same days that the NYSE is closed, except that it is open on Good Friday and
closed on Martin Luther King, Jr. Day, Columbus Day and Veterans' Day. Orders
for redemptions and purchases will not be processed if the Fund is closed.
The Fund reserves the right, in its sole discretion, to suspend the
offering of shares of the Portfolio or reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interest of
the Fund or 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 NYSE is
restricted as determined by the Securities and Exchange Commission (the
"Commission"), (2) during any period when an emergency exists as defined by the
rules of the Commission as a result of which it is not reasonably practicable
for the Fund to dispose of securities owned by it, or fairly to determine the
value of its assets, and (3) for such other periods as the Commission may
permit.
If the Board of Directors of the Fund and the Board of Trustees of the
Trust determine that it would be detrimental to the best interests of the
remaining shareholders of the Portfolio and the shareholders of the Series,
respectively, to make payment wholly or partly in cash, the Portfolio may pay
the redemption price in whole or in part by a distribution of portfolio
securities that the Portfolio receives from the Series to satisfy the
Portfolio's redemption request in lieu of cash. The redemptions by both the
Series and 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.
CALCULATION OF PERFORMANCE DATA
Following are quotations of the annualized percentage total returns for
the one-, five-, and ten-year periods ended November 30, 1996 (as
applicable) using the standardized method of calculation required by the
Commission. Since the Portfolio has been in operation for less than five
years, the time period during which the Portfolio has been in operation has
been substituted for the period stated (which does not extend prior to the
effective date of the Portfolio's registration with the Commission).
ONE YEAR FIVE YEARS TEN YEARS
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<PAGE>
27 MONTHS
21.68% 22.60% n/a
As the following formula indicates, the Portfolio and Series each
determines its average annual total return by finding the average annual
compounded rates of return over the stated time period that would equate a
hypothetical initial purchase order of $1,000 to its redeemable value
(including capital appreciation/depreciation and dividends and distributions
paid and reinvested less any fees charged to a shareholder account) at the
end of the stated time period. The calculation assumes that all dividends
and distributions are reinvested at the public offering price on the
reinvestment dates during the period. The calculation also assumes the
account was completely redeemed at the end of each period and the deduction
of all applicable charges and fees. According to the Commission's formula:
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- and ten-year periods at the end of the one-, five-
and ten-year periods (or fractional portion thereof).
In addition to the standardized method of calculating performance required
by the SEC, the Portfolio and Series may disseminate other performance data.
Non-standardized return data may be presented over time periods which extend
prior to when the Portfolio or the 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.
FINANCIAL STATEMENTS
The audited financial statements and financial highlights of the Portfolio
for the Fund's fiscal year ended November 30, 1996, as set forth in the Fund's
annual report to shareholders of the Portfolio, and the report thereon of
Coopers & Lybrand L.L.P., independent accountants, also appearing therein, are
incorporated herein by reference.
The audited financial statements of the Series for the Trust's fiscal year
ended November 30, 1996, as set forth in the Trust's annual report to
shareholders and the report thereon of Coopers & Lybrand L.L.P., independent
accountants, also appearing therein, are incorporated herein by reference.
A shareholder may obtain a copy of the reports upon request and without
charge, by contacting the Fund at the address or telephone number appearing on
the cover of this Statement of Additional Information.
11
<PAGE>
U.S. SMALL CAP VALUE PORTFOLIO II
DIMENSIONAL INVESTMENT GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
MARCH 28, 1997
This statement of additional information is not a prospectus but should be
read in conjunction with the prospectus of U.S. Small Cap Value Portfolio II
(the "Portfolio") of Dimensional Investment Group Inc. (the "Fund"), dated
March 28, 1997, which can be obtained by writing or calling the Shareholder
Services Agent for your employer's plan.
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND POLICIES ................................. 2
BROKERAGE TRANSACTIONS ............................................ 2
INVESTMENT LIMITATIONS ............................................ 3
FUTURES CONTRACTS ................................................. 5
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS ....................... 5
DIRECTORS AND OFFICERS ............................................ 6
ADMINISTRATIVE SERVICES ........................................... 8
OTHER INFORMATION ................................................. 8
PRINCIPAL HOLDERS OF SECURITIES ................................... 8
PURCHASE OF SHARES ................................................ 9
REDEMPTION OF SHARES .............................................. 9
CALCULATION OF PERFORMANCE DATA ................................... 9
FINANCIAL STATEMENTS ............................................. 10
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the information set forth in the
prospectus under the caption "INVESTMENT OBJECTIVE AND POLICIES" and applies to
the DFA U.S. Small Cap Value Series (the "Series") of The DFA Investment Trust
Company (the "Trust").
Because the structure of the Series is based on the relative market
capitalizations of eligible holdings, it is possible that the 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 (the "1940
Act") 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
Series and the anticipated amount of the Series' assets intended to be
invested in such securities, management does not anticipate that the Series
will include as much as 5% of the voting securities of any issuer.
BROKERAGE TRANSACTIONS
During the fiscal years ended November 30, 1994, 1995 and 1996, the
Series paid brokerage commissions of $1,860,712 and $1,027,015 and
$2,754,009, respectively.
Portfolio transactions of the Series 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.
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 the 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
the accounts under its management. During fiscal year 1996, the Series paid
commissions for securities transactions to brokers which provided market
price monitoring services, market studies and research services to the Series
of $1,074,452 with respect to securities transactions valued at $237,755,736.
Research services furnished by brokers through whom securities transactions
are effected may be used by the Advisor in servicing all of its accounts and
not all such services may be used by the Advisor with respect to the Series.
The over-the-counter ("OTC") companies eligible for purchase by the Series
are thinly traded securities. Therefore, the Advisor believes it needs
maximum flexibility to effect OTC trades on a best
<PAGE>
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 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 Series can effect transactions at the best
available prices.
The Portfolio will not incur any brokerage or other costs in connection
with its purchase or redemption of shares of the Series, except if the
Portfolio receives securities from the Series to satisfy the Portfolio's
redemption request. (See "REDEMPTION OF SHARES.")
INVESTMENT LIMITATIONS
The Portfolio has adopted certain limitations which may not be changed
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 the Series are the same as those of
the Portfolio.
The Portfolio will not:
(1) invest in commodities or real estate, including limited partnership
interests therein, although it 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 its total assets, invest in the securities of any issuer
(except obligations of the U.S. Government and its agencies and
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;
4
<PAGE>
(5) borrow, except from banks as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33% of its net assets,
or pledge not more than 33% of such assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value, except as
described in (5) above;
(7) invest more than 15% of the value of the Portfolio's total assets in
illiquid securities, which include certain restricted securities, repurchase
agreements with maturities of greater than seven days, and other illiquid
investments;
(8) engage in the business of underwriting securities issued by others;
(9) invest for the purpose of exercising control over management of any
company;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization;
(11) 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;
(13) write or acquire options or interests in oil, gas or other mineral
exploration, leases or development programs;
(14) purchase warrants, except that the Portfolio may acquire warrants as
a result of corporate actions involving its holding of other 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
Portfolio.
The investment limitations described in (3), (4), (7), (9), (10), (11),
(12) and (16) above do not prohibit the Portfolio from investing all or
substantially all of its assets in the shares of another registered open-end
investment company, such as the Series.
The investment limitations described in (1) and (15) above do not prohibit
the Portfolio from making margin deposits in connection with the purchase or
sale of financial futures contracts and options thereon to the extent
permitted under applicable regulations.
Although (2) above prohibits cash loans, the Portfolio is authorized to
lend portfolio securities. Inasmuch as the Portfolio will only hold shares
of the Series, the Portfolio does not intend to lend those shares.
For the purposes of (12) above, utility companies will
5
<PAGE>
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.
Pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act"),
the Series 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 Series' limitations on holdings of illiquid
securities. While maintaining oversight, the Board of Trustees of the Trust
has delegated the day-to-day function of making liquidity determinations to
the Advisor. For Rule 144A securities to be considered liquid, there must be
at least two dealers making a market in such securities. After purchase, the
Board of Trustees and the Advisor will continue to monitor the liquidity of
Rule 144A securities.
Although the Series has retained authority to buy and sell financial
futures contracts and options thereon, it has no present intention to do so.
Unless otherwise indicated, all limitations applicable to the Portfolio's
and Series' investments apply only at the time that a transaction is
undertaken. Any subsequent change in the percentage of the Portfolio's or
Series' assets invested in certain securities or other instruments resulting
from market fluctuations or other changes in the Portfolio's or Series' total
assets will not require the Portfolio or Series to dispose of an investment
until the Advisor determines that it is practicable to sell or close out the
position without undue market or tax consequences.
FUTURES CONTRACTS
The Series is authorized to enter into futures contracts and options on
futures contracts for the purpose of remaining fully invested and to maintain
liquidity to pay redemptions. Futures contracts provide for the future sale
by one party and purchase by another party of a specified amount of defined
securities at a specified future time and at a specified price. Futures
contracts which are standardized as to maturity date and underlying financial
instrument are traded on national futures exchanges. The 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 the Series.
Variation margin payments are made to and from the futures broker for as long
as the contract remains open. The Series expects to earn income on its
margin deposits. To the extent that the Series invests in futures contracts
and options thereon for other than bona fide hedging purposes, the Series
will not enter into such transaction 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 SEC, the
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 its futures contract transactions in
order to cover its obligations with respect to such contracts.
6
<PAGE>
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Therefore, it might not be possible to close a futures
position and, in the event of adverse price movements, the Series would
continue to be required to continue to make variation margin deposits. in
such circumstances, if the 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 the 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 the 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 the 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, the 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 the 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 transactions. Such distributions will be
combined with distributions of capital gains realized on the Series' other
investments.
DIRECTORS AND OFFICERS
7
<PAGE>
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, Director*, 50, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director, of the following companies: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia, Ltd., 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 (registered investment
company). Chairman and Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, 49, 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, 58, 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, 53, 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. (software, data, publishing and consulting).
Merton H. Miller, 73, Director, Chicago, IL. Robert R. McCormick
Distinguished Service Professor, Graduate School of Business, University of
Chicago. Trustee, The DFA Investment Trust Company. Director, DFA
Investment Dimensions Group Inc., Dimensional Emerging Markets Fund Inc. and
Public Director, Chicago Mercantile Exchange.
Myron S. Scholes, 55, 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 Emerging Markets Fund Inc., Benham Capital
Management Group of Investment Companies and Smith Breedon Group of
Investment Companies.
Rex A. Sinquefield, 52, Director*, Chairman-Chief Investment Officer,
Santa Monica, CA. Chairman-Chief Investment Officer and Director,
Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Ltd., 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 hold the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Ltd., DFA Investment Dimensions Group Inc., The DFA Investment Trust Company,
Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets Fund Inc.
8
<PAGE>
Arthur Barlow, 41, Vice President, Santa Monica, CA.
Truman Clark, 55, Vice President, Santa Monica, CA. Consultant until
October 1995 and Principal and Manager of Product Development, Wells Fargo
Nikko Investment Advisors, San Francisco, CA from 1990-1994.
Maureen Connors, 60, Vice President, Santa Monica, CA.
Robert Deere, 39, Vice President, Santa Monica, CA.
Irene R. Diamant, 46, Vice President and Secretary, Santa Monica, CA.
Eugene Fama, Jr., 36, Vice President, Santa Monica, CA.
David Plecha, 35, Vice President, Santa Monica, CA.
George Sands, 41, Vice President, Santa Monica, CA. Managing Director,
Asset Strategy Consulting, Los Angeles, CA from 1991 to 1992 .
Michael T. Scardina, 41, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica,
CA.
Weston Wellington, 46, Vice President, Santa Monica, CA. Director of
Research, LPL Financial Services, Inc., Boston, MA from 1987 to 1994.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
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, 1996, and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
Aggregate Total Compensation from
Compensation Fund
Director from Fund and Fund Complex
- -------- ------------- -----------------------
George M. Constantinides $5,000 $30,000
John P. Gould $5,000 $30,000
Roger G. Ibbotson $5,000 $30,000
Merton H. Miller $5,000 $30,000
Myron S. Scholes $5,000 $30,000
Directors and officers as a group own less than 1% of each Portfolio's
outstanding stock.
ADMINISTRATIVE SERVICES
9
<PAGE>
PFPC Inc. ("PFPC") serves as the accounting services, dividend disbursing
and transfer agent for the Portfolio 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 offering price of the shares, preparation
of reports, liaison with its custodian, and transfer and dividend disbursing
agency services. For its services, the Portfolio pays PFPC a monthly fee of
$1,000.
OTHER INFORMATION
For the services it provides as investment advisor to the Series, the
Advisor is paid a monthly fee calculated as a percentage of average net
assets of the Series. For the fiscal years ended November 30, 1994, 1995
and 1996, the Series paid advisory fees of $459,000, $976,000 and
$1,933,000, respectively. The Series has more than one investor; this dollar
amount represents the total dollar amount of advisory fees paid by the Series
to the Advisor.
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.
PNC Bank, N.A. serves as the custodian for the Portfolio and the Series.
The custodian maintains a separate account or accounts for the Portfolio 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 Portfolio's and Series'
portfolio securities.
Coopers & Lybrand L.L.P., the Fund's independent accountants, audits the
Fund's financial statements on an annual basis.
PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 1997, the following stockholders own beneficially at
least 5% of the outstanding stock of the Portfolio, as set forth below.
BellSouth Corporation 100%
Bankers Trust Company as Trustee*
34 Exchange Place
Jersey City, NJ 07302
* Owner of record only
10
<PAGE>
PURCHASE OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that the
NYSE is open for business, regardless of whether the Federal Reserve System
is closed. However, no purchases by wire may be made on any day that the
Federal Reserve System is closed. The Fund will generally be closed on days
that the NYSE is closed. The NYSE is scheduled to be open Monday through
Friday throughout the year except for days closed to recognize New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day. The Federal Reserve System is closed on the
same days that the NYSE is closed, except that it is open on Good Friday and
closed on Martin Luther King, Jr. Day, Columbus Day and Veterans' Day.
Orders for redemptions and purchases will not be processed if the Fund is
closed.
The Fund reserves the right, in its sole discretion, to suspend the
offering of shares of the Portfolio or reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interest
of the Fund or 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
NYSE is restricted as determined by the Securities and Exchange Commission
(the "Commission"), (2) during any period when an emergency exists as defined
by the rules of the Commission as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it, or fairly to
determine the value of its assets, and (3) for such other periods as the
Commission may permit.
If the Board of Directors of the Fund and the Board of Trustees of the
Trust determine that it would be detrimental to the best interests of the
remaining shareholders of the Portfolio and the shareholders of the Series,
respectively, to make payment wholly or partly in cash, the Portfolio may pay
the redemption price in whole or in part by a distribution of portfolio
securities that the Portfolio receives from the Series to satisfy the
Portfolio's redemption request in lieu of cash. The redemptions by both the
Series and 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.
CALCULATION OF PERFORMANCE DATA
Following are quotations of the annualized percentage total returns for
the one-, five-, and ten-year periods ended November 30, 1996 (as
applicable) using the standardized method of calculation required by the
Commission. Since the Portfolio has been in operation for less than five
years, the time period during which the Portfolio has been in operation has
been substituted for the period stated (which does not extend prior to the
effective date of the Portfolio's registration with the Commission).
11
<PAGE>
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
21.47% 27 MONTHS n/a
18.76%
As the following formula indicates, the Portfolio and Series each
determines its average annual total return by finding the average annual
compounded rates of return over the stated time period that would equate a
hypothetical initial purchase order of $1,000 to its redeemable value
(including capital appreciation/depreciation and dividends and distributions
paid and reinvested less any fees charged to a shareholder account) at the
end of the stated time period. The calculation assumes that all dividends
and distributions are reinvested at the public offering price on the
reinvestment dates during the period. The calculation also assumes the
account was completely redeemed at the end of each period and the deduction
of all applicable charges and fees. According to the Commission's formula:
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- and ten-year periods at the end of the one-,
five-and ten-year periods (or fractional portion thereof).
In addition to the standardized method of calculating performance required
by the SEC, the Portfolio and Series may disseminate other performance data.
Non-standardized return data may be presented over time periods which extend
prior to when the Portfolio or the 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.
FINANCIAL STATEMENTS
The audited financial statements and financial highlights of the Portfolio
for the Fund's fiscal year ended November 30, 1996, as set forth in the
Fund's annual report to shareholders of the Portfolio, and the report
thereon of Coopers & Lybrand L.L.P., independent accountants, also appearing
therein, are incorporated herein by reference.
The audited financial statements of the Series for the Trust's fiscal
year ended November 30, 1996, as set forth in the Trust's annual report to
shareholders, and the report thereon of Coopers & Lybrand L.L.P., independent
accountants, also appearing therein, are incorporated herein by reference.
A shareholder may obtain a copy of the reports upon request and without
charge, by contacting the Fund at the address or telephone number appearing on
the cover of this Statement of Additional Information.
12
<PAGE>
THE DFA INTERNATIONAL VALUE PORTFOLIO
DIMENSIONAL INVESTMENT GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
MARCH 28, 1997
This statement of additional information is not a prospectus but should be
read in conjunction with the prospectus of The DFA International Value Portfolio
(the "Portfolio") of Dimensional Investment Group Inc. (the "Fund"), dated March
28, 1997, which can be obtained from the Fund by writing to the above address or
by calling the above telephone number.
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . 2
BROKERAGE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . 3
FUTURES CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS . . . . . . . . . . . . . . 5
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 6
ADMINISTRATIVE SERVICES. . . . . . . . . . . . . . . . . . . . . . . . 8
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . . . . . 9
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 9
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 9
CALCULATION OF PERFORMANCE DATA. . . . . . . . . . . . . . . . . . . . 10
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the information set forth in the
prospectus under the caption "INVESTMENT OBJECTIVE AND POLICIES" and applies to
the DFA International Value Series (the "Series") of The DFA Investment Trust
Company (the "Trust").
Because the structure of the Series is based on the relative market
capitalizations of eligible holdings, it is possible that the 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 (the "1940 Act") 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 Series and the anticipated amount of the
Series' assets intended to be invested in such securities, management does not
anticipate that the Series will include as much as 5% of the voting securities
of any issuer.
The Series may invest up to 5% of its assets in convertible debentures
issued by non-U.S. companies. Convertible debentures include corporate bonds
and notes that may be converted into or exchanged for common stock. These
securities are generally convertible either at a stated price or a stated rate
(that is, for a specific number of shares of common stock or other security).
As with other fixed income securities, the price of a convertible debenture to
some extent varies inversely with interest rates. While providing a fixed-
income stream (generally higher in yield than the income derived from a common
stock but lower than that afforded by a non-convertible debenture), a
convertible debenture also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying
common stock declines, convertible debentures tend to trade increasingly on a
yield basis and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the price of a convertible debenture tends to rise as a
reflection of the value of the underlying common stock. To obtain such a higher
yield, the Series may be required to pay for a convertible debenture an amount
in excess of the value of the underlying common stock. Common stock acquired by
the Series upon conversion of a convertible debenture will generally be held
for so long as the Advisor anticipates such stock will provide the Series with
opportunities which are consistent with the Series' investment objective and
policies.
BROKERAGE TRANSACTIONS
During the fiscal years ended November 30, 1994 , 1995 and 1996, the
Series paid total commissions of $623,031 , $542,306 and $1,251,242,
respectively.
Portfolio transactions of the Series will be placed with a view to
receiving the best price and execution. In addition, the Advisor will seek to
acquire and dispose of securities in a manner which would cause as little
fluctuation in the market prices of stocks being purchased or sold as possible
in light of the size of the transactions being effected. Brokers will be
selected with these goals in view. The Advisor monitors the performance of
brokers which effect transactions for the 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.
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
<PAGE>
other research services. The Investment Management Agreement of the 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 the
Series.
During fiscal year 1996, the Series paid commissions for securities
transactions to brokers which provided market price monitoring services, market
studies and research services to the Series of $78,952 with respect to
securities transactions valued at $13,031,549. Research services furnished by
brokers through whom securities transactions are effected may be used by the
Advisor in servicing all of its accounts and not all such services may be used
by the Advisor with respect to the Series.
The Portfolio will not incur any brokerage or other costs in connection
with its purchase or redemption of shares of the Series, except if the Portfolio
receives securities or currencies from the Series to satisfy the Portfolio's
redemption request. (See "REDEMPTION OF SHARES.")
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 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
Series can effect transactions at the best available prices.
INVESTMENT LIMITATIONS
The Portfolio has adopted certain limitations which may not be changed
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 the
Portfolio. The investment limitations of the Series are the same as those of
the Portfolio.
3
<PAGE>
The Portfolio will not:
(1) invest in commodities or real estate, including limited partnership
interests therein, although it 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 its total assets, invest in the securities of any issuer
(except obligations of the U.S. Government and its agencies and
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;
(5) borrow, except from banks and as a temporary measure for extraordinary
emergency purposes and then, in no event, in excess of 33% of its net assets,
or pledge more than 33% of such assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value, except as described in (5)
above;
(7) invest more than 15% of the value of the Portfolio's total assets in
illiquid securities, which include certain restricted securities, repurchase
agreements with maturities of greater than seven days, and other illiquid
investments;
(8) engage in the business of underwriting securities issued by others;
(9) invest for the purpose of exercising control over management of any
company;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization;
(11) 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;
(13) write or acquire options or interests in oil, gas or other mineral
exploration, leases or development programs, except as described in (1) above;
(14) purchase warrants, except that the Portfolio may acquire warrants as a
result of corporate actions involving its holding of other equity securities;
(15) purchase securities on margin or sell short; or
(16) acquire more than 10% of the voting securities of any issuer.
4
<PAGE>
The investment limitations described in (3), (4), (7), (9), (10), (11),
(12) and (16) above do not prohibit the Portfolio from investing all or
substantially all of its assets in the shares of another registered open-end
investment company, such as the Series.
The investment limitations described in (1) and (15) above do not prohibit
the Portfolio from making margin deposits in connection with the purchase or
sale of financial futures contracts and options thereon to the extent permitted
under applicable regulations.
Although (2) above prohibits cash loans, the Portfolio is authorized to
lend portfolio securities. Inasmuch as the Portfolio will only hold shares of
the Series, the Portfolio does not intend to lend those shares.
Pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act"),
the Series 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 Series' limitations on holdings of illiquid securities. While
maintaining oversight, the Board of Trustees of the Trust has delegated the day-
to-day function of making liquidity determinations to the Advisor. For Rule
144A securities to be considered liquid, there must be at least two dealers
making a market in such securities. After purchase, the Board of Trustees and
the Advisor will continue to monitor the liquidity of Rule 144A securities.
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.
The Series may acquire and sell forward foreign currency exchange contracts
in order to hedge against changes in the level of future currency rates. Such
contracts involve an obligation to purchase or sell a specific currency at a
future date at a price set in the contract. While the Series has retained
authority to buy and sell financial futures contracts and options thereon, it
has 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 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 close out the position without
undue market or tax consequences.
FUTURES CONTRACTS
The Series may enter into futures contracts and options on futures
contracts for the purpose of remaining fully invested and to maintain liquidity
to pay redemptions. Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of defined securities at a
specified future time and at a specified price. Futures contracts which are
standardized as to maturity date and underlying financial instrument are traded
on national futures exchanges. The 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 the Series.
5
<PAGE>
Variation margin payments are made to and from the futures broker for as long as
the contract remains open. The Series expects to earn income on its margin
deposits. To the extent that the Series invests in futures contracts and
options thereon for other than bona fide hedging purposes, the Series will not
enter into such transaction 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 SEC, the 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 its futures contract transactions
in order to cover its obligations with respect to such contracts.
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. Therefore, it might not be possible to close a futures position and, in
the event of adverse price movements, the Series would continue to be required
to continue to make variation margin deposits. In such circumstances, if the
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 the 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 the 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 the 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, the 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 the
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
6
<PAGE>
the end of the Series' fiscal year) on futures transactions. Such distributions
will be combined with distributions of capital gains realized on the Series'
other investments.
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, Director*, 50, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director, of the following companies: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia Ltd., 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 (registered investment
company). Chairman and Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, 49, 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, 58, 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, 53, 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. (software, data, publishing and consulting).
Merton H. Miller, 73, Director, Chicago, IL. Robert R. McCormick
Distinguished Service Professor, Graduate School of Business, University of
Chicago. Trustee, The DFA Investment Trust Company. Director, DFA Investment
Dimensions Group Inc., Dimensional Emerging Markets Fund Inc. and Public
Director, Chicago Mercantile Exchange.
Myron S. Scholes, 55, Director, Greenwich, CT. Limited Partner, Long-Term
Capital Management L.P. (money manager). Frank E. Buck Professor of Finance,
Graduate School of Business
7
<PAGE>
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 Emerging
Markets Fund Inc., Benham Capital Management Group of Investment Companies and
Smith Breedon Group of Investment Companies.
Rex A. Sinquefield, 52, Director*, Chairman-Chief Investment Officer,
Santa Monica, CA. Chairman-Chief Investment Officer and Director, Dimensional
Fund Advisors Inc., DFA Securities Inc., DFA Australia Ltd., 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 hold the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Ltd., DFA Investment Dimensions Group Inc., The DFA Investment Trust Company,
Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets Fund Inc.
Arthur Barlow, 41, Vice President, Santa Monica, CA.
Truman Clark, 55, Vice President, Santa Monica, CA. Consultant until
October 1995 and Principal and Manager of Product Development, Wells Fargo Nikko
Investment Advisors, San Francisco, CA from 1990-1994.
Maureen Connors, 60, Vice President, Santa Monica, CA.
Robert Deere, 39, Vice President, Santa Monica, CA.
Irene R. Diamant, 46, Vice President and Secretary, Santa Monica, CA.
Eugene Fama, Jr., 36, Vice President, Santa Monica, CA.
David Plecha, 35, Vice President, Santa Monica, CA.
George Sands, 41, Vice President, Santa Monica, CA. Managing Director,
Asset Strategy Consulting, Los Angeles, CA from 1991 to 1992.
Michael T. Scardina, 41, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica,
CA.
Weston Wellington, 46, Vice President, Santa Monica, CA. Director of
Research, LPL Financial Services, Inc., Boston, MA from 1987 to 1994.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
8
<PAGE>
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, 1996, and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
Aggregate Total Compensation from
Compensation Fund
Director from Fund and Fund Complex
- -------- ------------ -----------------------
George M. Constantinides $5,000 $30,000
John P. Gould $5,000 $30,000
Roger G. Ibbotson $5,000 $30,000
Merton H. Miller $5,000 $30,000
Myron S. Scholes $5,000 $30,000
Directors and officers as a group own less than 1% of each Portfolio's
outstanding stock.
ADMINISTRATIVE SERVICES
PFPC Inc. ("PFPC") serves as the accounting services, dividend disbursing
and transfer agent for the Portfolio 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 offering price of the shares, preparation of
reports, liaison with its custodian, and transfer and dividend disbursing agency
services. For its services, the Portfolio pays PFPC a monthly fee of $1,000.
OTHER INFORMATION
For the services it provides as investment advisor to the Series, the
Advisor is paid a monthly fee calculated as a percentage of average net assets
of the Series. For the fiscal years ended November 30, 1994, 1995 and 1996,
the Series paid advisory fees of $536,000, $937,000 and $2,124,000,
respectively. The Series has more than one investor; this dollar amount
represents the total dollar amount of advisory fees paid by the Series to the
Advisor.
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.
9
<PAGE>
PNC Bank, N.A. serves as the custodian for the Portfolio, and Boston Safe
Deposit and Trust Company serves as custodian for the Series. The custodians
maintain a separate account or accounts for the Portfolio and Series; receive,
hold and release portfolio securities on account of the Portfolio and Series;
make receipts and disbursements of money on behalf of the Portfolio and the
Series; and collect and receive income and other payment and distributions on
account of the Portfolio's and Series' portfolio securities.
Coopers & Lybrand L.L.P, the Fund's independent accountants, audits the
Fund's financial statements on an annual basis.
PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 1997, the following stockholders owned of record only
at least 5% of the outstanding stock of the Portfolio, as set forth below.
Charles Schwab & Co.-REIN* 64.10%
101 Montgomery Street
San Francisco, CA 94104
Peoples Energy Corporate Retirement 9.68%
and Benefit Plans Committee
130 E. Randolph Drive
Chicago, IL 60601
Centerior Energy Corporation Retirement 6.21%
Key Trust Company As Trustee*
P.O. Box 94870
Cleveland, OH 44101
*Owner of record only
PURCHASE OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that the
NYSE is open for business, regardless of whether the Federal Reserve System is
closed. However, no purchases by wire may be made on any day that the Federal
Reserve System is closed. The Fund will generally be closed on days that the
NYSE is closed. The NYSE is scheduled to be open Monday through Friday
throughout the year except for days closed to recognize New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day. The Federal Reserve System is closed on the
same days as the NYSE, except that it is open on Good Friday and closed on
Martin Luther King,
10
<PAGE>
Jr. Day, Columbus Day and Veterans' Day. Orders for redemptions and purchases
will not be processed if the Fund is closed.
The Fund reserves the right, in its sole discretion, to suspend the
offering of shares of the Portfolio or reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interest of
the Fund or the Portfolio. Securities accepted in exchange for shares of the
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 NYSE is
restricted as determined by the Securities and Exchange Commission (the
"Commission"), (2) during any period when an emergency exists as defined by the
rules of the Commission as a result of which it is not reasonably practicable
for the Fund to dispose of securities owned by it, or fairly to determine the
value of its assets, and (3) for such other periods as the Commission may
permit.
If the Board of Directors of the Fund and the Board of Trustees of the
Trust determine that it would be detrimental to the best interests of the
remaining shareholders of the Portfolio and the shareholders of the Series,
respectively, to make payment wholly or partly in cash, the Portfolio may pay
the redemption price in whole or in part by a distribution of portfolio
securities that the Portfolio receives from the Series to satisfy the
Portfolio's redemption request in lieu of cash. The redemptions by both the
Series and 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. The Series reserves
the right to redeem its shares in the currencies in which its investments are
denominated. Investors may incur charges in converting such currencies to
dollars and the value of the currencies may be affected by currency exchange
fluctuations.
Shareholders may transfer shares of the Portfolio to another person by
making a written request therefore to the Advisor who will transmit the request
to the Fund's Transfer Agent. 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
Following are quotations of the annualized percentage total returns of the
Portfolio for the one-, five-, and ten-year periods ended November 30, 1996 (as
applicable) using the standardized method of calculation required by the
Commission. Since the Portfolio has been in operation for less than five years,
the time period during which the Portfolio has been active has been substituted
for the period stated (which does not extend prior to the effective date of the
Portfolio's registration with the Commission).
ONE YEAR FIVE YEARS TEN YEARS
14.64% 33 MONTHS n/a
8.03%
11
<PAGE>
As the following formula indicates, the Portfolio and Series each
determines its average annual total return by finding the average annual
compounded rates of 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 redeemed at the end of each period and the deduction of all
applicable charges and fees. According to the Commission's formula:
P(1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- and ten-year periods at the end of the one-, five-
and ten-year periods (or fractional portion thereof).
In addition to the standardized method of calculating performance required
by the Commission, the Portfolio and Series may disseminate other performance
data. Non-standardized return data may be presented over time periods which
extend prior to when the Portfolio or the 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.
FINANCIAL STATEMENTS
The audited financial statements and financial highlights of the Portfolio
for the Fund's fiscal year ended November 30, 1996, as set forth in the Fund's
annual report to shareholders of the Portfolio, and the report thereon of
Coopers & Lybrand L.L.P., independent accountants, also appearing therein, are
incorporated herein by reference.
The audited financial statements of the Series for the Trust's fiscal
year ended November 30, 1996, as set forth in the Trust's annual report to
shareholders, and the report thereon of Coopers & Lybrand L.L.P., independent
accountants, also appearing therein, are incorporated herein by reference.
A shareholder may obtain a copy of the reports upon request and without
charge, by contacting the Fund at the address or telephone number appearing on
the cover of this Statement of Additional Information.
12
<PAGE>
THE DFA 6-10 INSTITUTIONAL PORTFOLIO
DIMENSIONAL INVESTMENT GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
March 28, 1997
This statement of additional information is not a prospectus but should be
read in conjunction with the prospectus of The DFA 6-10 Institutional
Portfolio (the "Portfolio") of Dimensional Investment Group Inc. (the "Fund"),
dated March 28, 1997, which can be obtained from the Fund by writing to the
above address or by calling the above telephone number.
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND POLICIES ......................................... 2
BROKERAGE TRANSACTIONS .................................................... 2
INVESTMENT LIMITATIONS .................................................... 3
DIRECTORS AND OFFICERS .................................................... 5
ADMINISTRATIVE SERVICES ................................................... 7
OTHER INFORMATION ......................................................... 7
PRINCIPAL HOLDERS OF SECURITIES ........................................... 7
PURCHASE OF SHARES ........................................................ 7
REDEMPTION OF SHARES ...................................................... 8
CALCULATION OF PERFORMANCE DATA ........................................... 9
FINANCIAL STATEMENTS ...................................................... 10
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the information set forth in the
prospectus under the caption "INVESTMENT OBJECTIVE AND POLICIES" and applies
to the U.S. 6-10 Series (the "Series") of The DFA Investment Trust Company
(the "Trust").
Because the structure of the Series is based on the relative market
capitalizations of eligible holdings, it is possible that the 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 (the "1940 Act")
and certain requirements of the 1940 Act regulating dealings between
affiliates might become applicable. However, based on the present
capitalizations of the groups of companies eligible for inclusion in the
Series and the anticipated amount of the Series' assets intended to be
invested in such securities, management does not anticipate that the Series
will include as much as 5% of the voting securities of any issuer.
BROKERAGE TRANSACTIONS
During the fiscal years ended November 30, 1994, 1995 and 1996, the Series
paid total brokerage commissions of $398,610, $361,784 and $473,887,
respectively.
Portfolio transactions of the Series will be placed with a view to
receiving the best price and execution. In addition, the Advisor will seek to
acquire and dispose of securities in a manner which would cause as little
fluctuation in the market prices of stocks being purchased or sold as possible
in light of the size of the transactions being effected. Brokers will be
selected with these goals in view. The Advisor monitors the performance of
brokers which effect transactions for the 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.
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 the 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
the Series. During fiscal year 1996, the Series paid commissions for
securities transactions to brokers which
2
<PAGE>
provided market price monitoring services, market studies and research
services to the Series of $271,641 with respect to securities transactions
valued at $95,690,766. Research services furnished by brokers through whom
securities transactions are effected may be used by the Advisor in servicing
all of its accounts and not all such services may be used by the Advisor with
respect to the Series.
The OTC companies eligible for purchase by the 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.
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 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 Series can
effect transactions at the best available prices.
The Portfolio will not incur any brokerage or other costs in connection
with its purchase or redemption of shares of the Series, except if the
Portfolio receives securities or currencies from the Series to satisfy the
Portfolio's redemption request. (See "REDEMPTION OF SHARES.")
INVESTMENT LIMITATIONS
The Portfolio has adopted certain limitations which may not be changed
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 the
Portfolio. The Series' investment limitations are the same as those of the
Portfolio.
The Portfolio will not:
(1) invest in commodities or real estate, including limited partnership
interests therein, although it may purchase and sell securities of companies
which deal in real estate and securities which are secured by interests in
real estate;
(2) make loans of cash, except through the acquisition of repurchase
agreements and obligations customarily purchased by institutional investors;
3
<PAGE>
(3) as to 75% of the total assets of the Portfolio, invest in the securities
of any issuer (except obligations of the U.S. Government and its agencies and
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;
(5) borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33% of its net assets,
or pledge more than 33% of such assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value, except as described in (5)
above;
(7) invest more than 15% of the value of the Portfolio's total assets in
illiquid securities, which include certain restricted securities, repurchase
agreements with maturities of greater than seven days, and other illiquid
investments;
(8) engage in the business of underwriting securities issued by others;
(9) invest for the purpose of exercising control over management of any
company;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization;
(11) 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;
(13) write or acquire options or interests in oil, gas or other mineral
exploration, leases or development programs;
(14) purchase warrants, except that the Portfolio may acquire warrants as a
result of corporate actions involving its holding of other equity securities;
(15) purchase securities on margin or sell short; or
(16) acquire more than 10% of the voting securities of any issuer.
The investment limitations described in (3), (4), (7), (9), (10), (11),
(12) and (16) above do not prohibit the Portfolio from investing all or
substantially all of its assets in the shares of another registered open-end
investment company, such as the Series.
Although (2) above prohibits cash loans, the Portfolio is authorized to
lend portfolio securities. Inasmuch as the Portfolio will only hold shares of
the Series, the Portfolio does not intend to lend those shares.
For purposes of (7) above, although the Portfolio is authorized to invest
up to 15% of its total assets in illiquid securities, it does not intend to do
so.
4
<PAGE>
Pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act"),
the Series 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 Series' limitations on holdings of illiquid securities. While
maintaining oversight, the Board of Trustees of the Trust has delegated the
day-to-day function of making liquidity determinations to the Advisor. For
Rule 144A securities to be considered liquid, there must be at least two
dealers making a market in such securities. After purchase, the Board of
Trustees and the Advisor will continue to monitor the liquidity of Rule 144A
securities.
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
Portfolio indirectly through its investment in the Series, does not intend to
purchase interests in any real estate investment trust.
Unless otherwise indicated, all limitations applicable to the Portfolio's
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 the Portfolio's or Series' assets
invested in certain securities or other instruments resulting from market
fluctuations or other changes in the Portfolio's or Series' total assets will
not require the Portfolio or Series to dispose of an investment until the
Advisor determines that it is practicable to sell or close out the investment
without undue market or tax consequences.
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*, 50, Director, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director, of the following companies: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia Ltd., 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
5
<PAGE>
Investment Trust Company (registered investment company). Chairman and
Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, 49, 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, 58, 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, 53, 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. (software, data, publishing and consulting).
Merton H. Miller, 73, 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, 55, 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 Emerging Markets Fund Inc., Benham Capital Management Group
of Investment Companies and Smith Breedon Group of Investment Companies.
Rex A. Sinquefield*, 52, Director, Chairman-Chief Investment Officer,
Santa Monica, CA. Chairman-Chief Investment Officer and Director, Dimensional
Fund Advisors Inc., DFA Securities Inc., DFA Australia Ltd., 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 hold the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Ltd., DFA Investment Dimensions Group Inc., The DFA Investment Trust Company,
Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets Fund Inc.
Arthur Barlow, 41, Vice President, Santa Monica, CA.
Truman Clark, 55, Vice President, Santa Monica, CA. Consultant until
October 1995 and Principal and Manager of Product Development, Wells Fargo
Nikko Investment Advisors, San Francisco, CA from 1990-1994.
Maureen Connors, 60, Vice President, Santa Monica, CA.
6
<PAGE>
Robert Deere, 39, Vice President, Santa Monica, CA.
Irene R. Diamant, 46, Vice President and Secretary (for all entities
other than Dimensional Fund Advisors Ltd.), Santa Monica, CA.
Eugene Fama, Jr., 36, Vice President, Santa Monica, CA.
David Plecha, 35, Vice President, Santa Monica, CA.
George Sands, 41, Vice President, Santa Monica, CA. Managing Director,
Asset Strategy Consulting, Los Angeles, CA from 1991 to 1992.
Michael T. Scardina, 41, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica,
CA.
Weston Wellington, 46, Vice President, Santa Monica, CA. Director of
Research, LPL Financial Services, Inc., Boston, MA from 1987 to 1994.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
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, 1996 and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation Fund
Director from Fund and Fund Complex
- -------- ------------ -----------------------
<S> <C> <C>
George M. Constantinides $5,000 $30,000
John P. Gould $5,000 $30,000
Roger G. Ibbotson $5,000 $30,000
Merton H. Miller $5,000 $30,000
Myron S. Scholes $5,000 $30,000
</TABLE>
Directors and officers as a group own less than 1% of the Fund's outstanding
stock.
ADMINISTRATIVE SERVICES
PFPC Inc. ("PFPC") serves as the accounting services, dividend disbursing
and transfer agent for the Portfolio 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 offering price of the shares, preparation
of reports, liaison with its custodian, and transfer and dividend disbursing
agency services. For its services, the Portfolio pays PFPC a monthly fee of
$1,000.
7
<PAGE>
OTHER INFORMATION
For the services it provides as investment advisor to the Series, the
Advisor is paid a monthly fee calculated as a percentage of average net assets
of the Series. For the fiscal years ended November 30, 1994, 1995 and 1996,
the Series paid advisory fees of $46,000, $57,000 and $81,000,
respectively. The Series has more than one investor; this dollar amount
represents the total dollar amount of advisory fees paid by the Series to the
Advisor.
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.
PNC Bank, N.A. serves as a custodian for the Portfolio and the Series. The
custodian maintains a separate account or accounts for the Portfolio and the
Series; receives, holds and releases portfolio securities on account of the
Portfolio and the Series; makes receipts and disbursements of money on behalf
of the Portfolio and the Series; and collects and receives income and other
payments and distributions on account of the Portfolio's and Series' portfolio
securities.
Coopers & Lybrand L.L.P., the Fund's independent accountants, audits the
Fund's financial statements.
PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 1997, the following stockholders own beneficially at
least 5% of the outstanding stock of the Portfolio, as set forth below.
NI-Gas Savings Investment & Thrift Plans 100%
Northern Illinois Gas
P.O. Box 190
Aurora, IL 60507
PURCHASE OF SHARES
8
<PAGE>
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that the
NYSE is open for business, regardless of whether the Federal Reserve System is
closed. However, no purchases by wire may be made on any day that the Federal
Reserve System is closed. The Fund will generally be closed on days that the
NYSE is closed. The NYSE is scheduled to be open Monday through Friday
throughout the year except for days closed to recognize New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day. The Federal Reserve System is closed on the
same days as the NYSE, except that it is open on Good Friday and closed on
Martin Luther King, Jr. Day, Columbus Day and Veterans' Day. Orders for
redemptions and purchases will not be processed if the Fund is closed.
The Fund reserves the right, in its sole discretion, to suspend the
offering of shares of the Portfolio or reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interest of
the Fund or the Portfolio. Securities accepted in exchange for shares of the
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 NYSE is
restricted as determined by the Securities and Exchange Commission (the
"Commission"), (2) during any period when an emergency exists as defined by
the rules of the Commission as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it, or fairly to
determine the value of its assets, and (3) for such other periods as the
Commission may permit.
If the Board of Directors of the Fund and the Board of Trustees of the
Trust determine that it would be detrimental to the best interests of the
remaining shareholders of the Portfolio and the shareholders of the Series,
respectively, to make payment wholly or partly in cash, the Portfolio may pay
the redemption price in whole or in part by a distribution of portfolio
securities that the Portfolio receives from the Series to satisfy the
Portfolio's redemption request in lieu of cash. The redemptions by both the
Series and 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 the Portfolio to another person by
making a written request therefore to the Advisor who will transmit the
request to the Fund's Transfer Agent. 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.
9
<PAGE>
CALCULATION OF PERFORMANCE DATA
Following are quotations of the annualized percentage total returns of the
Portfolio for the one-, five-, and ten-year periods ended November 30, 1996
(as applicable) using the standardized method of calculation required by the
Commission. Since the Portfolio has been in operation for less than five
years, the time period during which the Portfolio has been active has been
substituted for the period stated (which does not extend prior to the
effective date of the Portfolio's registration with the Commission).
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
<S> <C> <C>
19.03% 43 MONTHS n/a
15.28%
</TABLE>
As the following formula indicates, the Portfolio and Series each
determines its average annual total return by finding the average annual
compounded rates of return over the stated time period that would equate a
hypothetical initial purchase order of $1,000 to its redeemable value
(including capital appreciation/depreciation and dividends and distributions
paid and reinvested less any fees charged to a shareholder account) at the end
of the stated time period. The calculation assumes that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The calculation also assumes the account was
completely redeemed at the end of each period and the deduction of all
applicable charges and fees. According to the Commission's formula:
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- and ten-year periods at the end of the one-,
five- and ten-year periods (or fractional portion thereof).
In addition to the standardized method of calculating performance required
by the Commission, the Portfolio and Series may disseminate other performance
data. Non-standardized return data may be presented over time periods which
extend prior to when the Portfolio or the 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. For example, with respect to the Portfolio, such
data may include the total return of the Series, which commenced operations in
January, 1993, and the total return of the U.S. 6-10 Small Company Portfolio
of DFA Investment Dimensions Group Inc., from its commencement of operations
in March, 1992, until it invested all of its investable assets in the Series
in January, 1993. The simulated data would exclude the deduction of Portfolio
and Series expenses which would otherwise reduce the returns quotations.
10
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and financial highlights of the Portfolio
for the Fund's fiscal year ended November 30, 1996, as set forth in the Fund's
annual report to shareholders of the Portfolio, and the report thereon of
Coopers & Lybrand L.L.P., independent accountants, also appearing therein, are
incorporated herein by reference.
The audited financial statements of the Series for the Trust's fiscal year
ended November 30, 1996, as set forth in the Trust's annual report to
shareholders, and the report thereon of Coopers & Lybrand L.L.P., independent
accountants, also appearing therein, are incorporated herein by reference.
A shareholder may obtain a copy of the reports upon request and without
charge, by contacting the Fund at the address or telephone number appearing on
the cover of this Statement of Additional Information.
11
<PAGE>
DFA ONE-YEAR FIXED INCOME PORTFOLIO II
DIMENSIONAL INVESTMENT GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
MARCH 28, 1997
This statement of additional information is not a prospectus but should be
read in conjunction with the prospectus of DFA One-Year Fixed Income Portfolio
II (the "Portfolio") of Dimensional Investment Group Inc. (the "Fund"), dated
March 28, 1997, which can be obtained by writing or calling the Shareholder
Services Agent for your employer's plan.
TABLE OF CONTENTS
PAGE
BROKERAGE TRANSACTIONS ................................................... 2
INVESTMENT LIMITATIONS ................................................... 2
DIRECTORS AND OFFICERS ................................................... 4
ADMINISTRATIVE SERVICES .................................................. 6
OTHER INFORMATION ........................................................ 6
PURCHASE OF SHARES ....................................................... 6
REDEMPTION OF SHARES ..................................................... 7
PRINCIPAL HOLDERS OF SECURITIES .......................................... 7
CALCULATION OF PERFORMANCE DATA .......................................... 8
FINANCIAL STATEMENTS ..................................................... 9
<PAGE>
BROKERAGE TRANSACTIONS
The DFA One-Year Fixed Income Series (the "Series") of The DFA Investment
Trust Company (the "Trust") acquires and sells 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,
the Advisor seeks to obtain the most favorable price and execution for the
securities being traded among the dealers with whom the Series effects
transactions.
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 Portfolio will not incur any brokerage or other costs in connection
with its purchase or redemption of shares of the Series, except if the
Portfolio receives securities from the Series to satisfy the Portfolio's
redemption request. (See "REDEMPTION OF SHARES.")
INVESTMENT LIMITATIONS
The Portfolio has adopted certain limitations which may not be changed
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 the Series are the same as those of
the Portfolio.
The Portfolio will not:
(1) invest in commodities or real estate, including limited partnership
interests therein, although it may purchase and sell securities of companies
which deal in real estate and securities which are secured by interests in
real estate;
(2) make loans of cash, except through the acquisition of repurchase
agreements and obligations customarily purchased by institutional investors;
(3) as to 75% of its total assets, invest in the securities of any issuer
(except obligations of the U.S. Government and its agencies and
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;
(5) borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 5% of its net
assets;
(6) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value;
2
<PAGE>
(7) invest more than 10% 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 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 or interests in oil, gas or other
mineral exploration, leases or development programs;
(14) purchase warrants;
(15) purchase securities on margin or sell short; or
(16) acquire more than 10% of the voting securities of any issuer.
The investment limitations described in (3), (4), (7), (9), (10), (11),
(12) and (16) above do not prohibit the Portfolio from investing all or
substantially all of its assets in the shares of another registered open-end
investment company, such as the Series.
Although (2) above prohibits cash loans, the Portfolio is authorized to
lend portfolio securities. Inasmuch as the Portfolio will only hold shares of
the Series, the Portfolio does not intend to lend those shares.
For purposes of (7) above, the Portfolio (indirectly through the Series)
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 Series 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 10% limitation on holdings of illiquid securities
stated in (7) above. While maintaining oversight, the Board of Trustees of
the Trust 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 Trustees and the Advisor will continue to monitor the
liquidity of Rule 144A securities.
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.
3
<PAGE>
Unless otherwise indicated, all limitations applicable to the Portfolio's
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 the Portfolio's or Series' assets
invested in certain securities or other instruments resulting from market
fluctuations or other changes in the Portfolio's or Series' total assets will
not require the Portfolio or Series to dispose of an investment until the
Advisor determines that 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.
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, 50, Director*, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director, of the following companies: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia Ltd., 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 (registered investment
company). Chairman and Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, 49, 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, 58, 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, 53, 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. (software, data, publishing and consulting).
Merton H. Miller, 73, Director, Chicago, IL. Robert R. McCormick
Distinguished Service Professor, Graduate School of Business, University of
Chicago. Trustee, The DFA Investment Trust Company. Director, DFA Investment
Dimensions Group Inc., Dimensional Emerging Markets Fund Inc. Public Director,
Chicago Mercantile Exchange.
4
<PAGE>
Myron S. Scholes, 55, 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 Emerging Markets Fund Inc., Benham Capital Management Group
of Investment Companies and Smith Breedon Group of Investment Companies.
Rex A. Sinquefield, 52, Director*, Chairman-Chief Investment Officer,
Santa Monica, CA. Chairman-Chief Investment Officer and Director, Dimensional
Fund Advisors Inc., DFA Securities Inc., DFA Australia Ltd., 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 hold the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Ltd., DFA Investment Dimensions Group Inc., The DFA Investment Trust Company,
Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets Fund Inc.
Arthur Barlow, 41, Vice President, Santa Monica, CA.
Truman Clark, 55, Vice President, Santa Monica, CA. Consultant until
October 1995 and Principal and Manager of Product Development, Wells Fargo
Nikko Investment Advisors, San Francisco, CA from 1990-1994.
Maureen Connors, 60, Vice President, Santa Monica, CA.
Robert Deere, 39, Vice President, Santa Monica, CA.
Irene R. Diamant, 46, Vice President and Secretary, Santa Monica, CA.
Eugene Fama, Jr., 36, Vice President, Santa Monica, CA.
David Plecha, 35, Vice President, Santa Monica, CA.
George Sands, 41, Vice President, Santa Monica, CA. Managing Director,
Asset Strategy Consulting, Los Angeles, CA from 1991 to 1992.
Michael T. Scardina, 41, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica,
CA.
Weston Wellington, 46, Vice President, Santa Monica, CA. Director of
Research, LPL Financial Services, Inc., Boston, MA from 1987 to 1994.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
5
<PAGE>
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, 1996, and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation Fund
Director from Fund and Fund Complex
- -------- ------------ -----------------------
<S> <C> <C>
George M. Constantinides $5,000 $30,000
John P. Gould $5,000 $30,000
Roger G. Ibbotson $5,000 $30,000
Merton H. Miller $5,000 $30,000
Myron S. Scholes $5,000 $30,000
</TABLE>
Directors and officers as a group own less than 1% of the Portfolio's
outstanding stock.
ADMINISTRATIVE SERVICES
PFPC, Inc. ("PFPC") serves as the accounting services, dividend disbursing
and transfer agent for the Portfolio 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 Portfolio's and the Series' custodian, and
transfer and dividend disbursing agency services. for its services, the
Portfolio pays PFPC a monthly fee of $1,000.
OTHER INFORMATION
For the services it provides as investment advisor to the Series, the
Advisor is paid a monthly fee calculated as a percentage of average net assets
of the Series. For the fiscal years ended November 30, 1995 and 1996, the
Series paid advisory fees of $310,000 and $386,000, respectively. The Series
has more than one investor; this dollar amount represents the total dollar
amount of advisory fees paid by the Series to the Advisor.
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.
6
<PAGE>
PNC Bank, N.A. serves as a custodian for the Portfolio and the Series. The
custodian maintains a separate account or accounts for the Portfolio and the
Series; receives, holds and releases portfolio securities on account of the
Portfolio and the Series; makes receipts and disbursements of money on behalf
of the Portfolio and the Series; and collects and receives income and other
payments and distributions on account of the Portfolio's and Series' portfolio
securities.
Coopers & Lybrand L.L.P., the Fund's independent accountants, audits the
Fund's financial statements.
PURCHASE OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that the
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 the Portfolio or reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interest
of the Fund or 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 NYSE 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 determines that it would be detrimental to the
best interests of the remaining shareholders of the Portfolio to make payment
wholly or partly in cash, the Portfolio may pay the redemption price by a
distribution of portfolio securities from the Portfolio in lieu of cash. Upon
such a determination by both the Board of Directors of the Fund and the Board
of Trustees of the Trust, the 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.
7
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 1997, the following stockholders owned 5% or more of
the outstanding stock of the Portfolio, as set forth below:
Home Depot Future Builder and Stock Ownership Plan 57.29%
Wachovia Bank of North Carolina as Trustee*
301 N. Main Street
Winston Salem, NC 27150
Starbucks Coffee 16.37%
Wachovia Bank of North Carolina as Custodian*
301 N. Main Street
Winston Salem, NC 27150
Sisters of Charity 13.97%
Northern Trust as Trustee*
Attn: Mutual Funds
P.O. Box 92956
Chicago, IL 60675
Hewitt IRA Portfolio 9.73%
Wachovia Bank of North Carolina as Custodian*
Attn: Mutual Funds
301 N. Main Street
Winston Salem, NC 27150
____________________
*Owner of record only.
CALCULATION OF PERFORMANCE DATA
Following are quotations of the annualized percentage total return for the
Portfolio for the one-, five-, and ten-year periods ended November 30, 1996
(as applicable), using the standardized method of calculation required by the
SEC. Since the Portfolio has been in operation for less than five years, the
time period during which the Portfolio has been active has been substituted
for the period stated (which does not extend prior to the effective date of
the Portfolio's registration statement with the SEC).
<TABLE>
<CAPTION>
One Year Five Years Ten Years
-------- ---------- ---------
<S> <C> <C>
21 Months
4.84% 4.73% n/a
</TABLE>
8
<PAGE>
As the following formula indicates, the Portfolio and Series each
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 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 compound 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 Portfolio and Series may disseminate other performance data.
Non-standardized return data may be presented over time periods which extend
prior to when the Portfolio or the 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.
FINANCIAL STATEMENTS
The audited financial statements and financial highlights of the Portfolio
for the Fund's fiscal year ended November 30, 1996 as set forth in the Fund's
annual report to shareholders of the Portfolio, and the report thereon of
Coopers & Lybrand L.L.P., independent accountants, also appearing therein, are
incorporated herein by reference.
The audited financial statements of the Series for the Trust's fiscal year
ended November 30, 1996, as set forth in the Trust's annual report to
shareholders and the report thereon of Coopers & Lybrand L.L.P., independent
accountants, also appearing therein, are incorporated herein by reference.
A shareholder may obtain a copy of the reports upon request and without
charge, by contacting the Fund at the address or telephone number appearing on
the cover of this Statement of Additional Information.
9
<PAGE>
DFA INTERNATIONAL VALUE PORTFOLIO III
U.S. LARGE CAP VALUE PORTFOLIO III
DIMENSIONAL INVESTMENT GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
MARCH 28, 1997
This statement of additional information is not a prospectus but should be
read in conjunction with the prospectus of DFA International Value Portfolio III
and U.S. Large Cap Value Portfolio III (collectively the "Portfolios") of
Dimensional Investment Group Inc. (the "Fund"), dated March 28, 1997, which can
be obtained from the Fund by writing to the Fund at the above address or by
calling the above telephone number.
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . 2
BROKERAGE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 3
FUTURES CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS . . . . . . . . . . . . . . . 6
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 7
ADMINISTRATIVE SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . 9
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PURCHASE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . 10
CALCULATION OF PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . 11
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the information set forth in the
prospectus under the captions "DFA INTERNATIONAL VALUE PORTFOLIO III-INVESTMENT
OBJECTIVE AND POLICIES" and "U.S. LARGE CAP VALUE PORTFOLIO III-INVESTMENT
OBJECTIVE AND POLICIES" and applies to the DFA International Value Series (the
"International Value Series") and the DFA U.S. Large Cap Value Series (the
"Large Cap Value Series" and, together with the International Value Series, the
"Series") of The DFA Investment Trust Company (the "Trust").
Because the structure of the International Value Series and the Large Cap
Value Series is based on the relative market capitalizations of eligible
holdings, it is possible that the 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 (the "1940 Act") 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 Series and the anticipated amount of the Series' assets
intended to be invested in such securities, management does not anticipate that
a Series will include as much as 5% of the voting securities of any issuer.
The International Value Series may invest up to 5% of its assets in
convertible debentures issued by non-U.S. companies. Convertible debentures
include corporate bonds and notes that may be converted into or exchanged for
common stock. These securities are generally convertible either at a stated
price or a stated rate (that is, for a specific number of shares of common stock
or other security). As with other fixed income securities, the price of a
convertible debenture to some extent varies inversely with interest rates.
While providing a fixed-income stream (generally higher in yield than the income
derived from a common stock but lower than that afforded by a non-convertible
debenture), a convertible debenture also affords the investor an opportunity,
through its conversion feature, to participate in the capital appreciation of
the common stock into which it is convertible. As the market price of the
underlying common stock declines, convertible debentures tend to trade
increasingly on a yield basis and so may not experience market value declines to
the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the price of a convertible debenture tends to
rise as a reflection of the value of the underlying common stock. To obtain
such a higher yield, the International Value Series may be required to pay for
a convertible debenture an amount in excess of the value of the underlying
common stock. Common stock acquired by the International Value Series upon
conversion of a convertible debenture will generally be held for so long as the
Advisor anticipates such stock will provide the International Value Series with
opportunities which are consistent with its investment objective and policies.
BROKERAGE TRANSACTIONS
The following table depicts brokerage commissions paid by the Portfolios'
corresponding Series.
BROKERAGE COMMISSIONS
FISCAL YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
1996 1995 1994
International Value Series $1,251,242 $542,306 $623,031
2
<PAGE>
Large Cap Value Series 934,452 410,503 367,810
Portfolio transactions of each Series will be placed with a view to
receiving the best price and execution. In addition, the Advisor will seek to
acquire and dispose of securities in a manner which would cause as little
fluctuation in the market prices of stocks being purchased or sold as possible
in light of the size of the transactions being effected. Brokers will be
selected with these goals in view. The Advisor monitors the performance of
brokers which effect transactions for the 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.
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. Research
services furnished by brokers through whom securities transactions are effected
may be used by the Advisor in servicing all of its accounts and not all such
services may be used by the Advisor with respect to the Series. During fiscal
year 1996, the Series paid commissions for securities transactions to brokers
which provided market price monitoring services, market studies and research
services to the Series as follows:
* 1 moved from here; text not shown
* 2 moved from here; text not shown
Value of Brokerage
Securities Transactions Commissions
----------------------- -----------
International Value Series $ 13,031,549 $ 78,952
Large Cap Value Series 211,163,255 313,601
Total $224,194,804 $392,553
** 1 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
3
<PAGE>
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.
** 2 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 a 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
Series can effect transactions at the best available prices.
Neither Portfolio will incur any brokerage or other costs in connection
with its purchase or redemption of shares of its corresponding Series, except if
a Portfolio receives securities or currencies 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 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 limitation of each Series is the same as 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 agencies and
instrumentalities) if, as a result of 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;
(5) borrow, except from banks as a temporary measure for extraordinary or
emergency purposes and, then, in no event, in excess of 33% of a Portfolio's
net assets , or pledge 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;
4
<PAGE>
(7) invest more than 15% of the value of the Portfolio's total assets in
illiquid securities, which include certain restricted securities, repurchase
agreements with maturities of greater than seven days, and other illiquid
investments;
(8) engage in the business of underwriting securities issued by others;
(9) invest for the purpose of exercising control over management of any
company;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization;
(11) 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;
(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 Portfolios may acquire warrants as
a result of corporate actions involving their 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 U.S.
Large Cap Value Portfolio III.
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.
The investment limitations described in (1) and (15) above do not prohibit
each Portfolio from making margin deposits in connection with the purchase or
sale of financial futures contracts and options thereon 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.
Pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act"),
the Series may purchase certain unregistered (i.e. restricted) securities upon a
determination that a liquid institutional market exists for the securities. If
it is decided that a liquid market does exist, the securities will not be
subject to the 15% limitation on holdings of illiquid securities stated in (7)
above. While maintaining oversight, the Board of Trustees of the Trust has
delegated the day-to-day function of making liquidity determinations to the
Advisor. For Rule 144A securities to be considered liquid, there must be at
least two dealers making a market in such securities. After purchase, the Board
of Trustees and the Advisor will continue to monitor the liquidity of Rule 144A
securities.
5
<PAGE>
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.
The International Value Series may acquire and sell forward foreign
currency exchange contracts in order to hedge against changes in the level of
future currency rates. Such contracts involve an obligation to purchase or sell
a specific currency at a future date at a price set in the contract. While the
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 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 close out the investment without
undue market or tax consequences.
FUTURES CONTRACTS
The International Value Series and the Large Cap Value Series each may
enter into futures contracts and options on futures contracts for the purpose of
remaining fully invested and to maintain liquidity to pay redemptions. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of defined securities at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges. 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 from the futures broker for as long as the contract
remains open. The Series expect to earn income on their margin deposits. To
the extent that a Series invests in futures contracts and options thereon for
other than bona fide hedging purposes, no Series will enter into such
transaction 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 SEC, the 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 its futures contract transactions
in order to cover its obligations with respect to such contracts.
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. Therefore, it might not be possible to close a futures position and, in
the event of adverse price movements, a 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
6
<PAGE>
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
transactions. Such distributions will be combined with distributions of capital
gains realized on the Series' other investments.
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, Director*, 50, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director, of the following companies: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA
7
<PAGE>
Australia, Ltd., 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 (registered investment company). Chairman and
Director, Dimensional Fund Advisors Ltd.
George M. Constantinides, 49, 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, 58, 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, 53, 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. (software, data, publishing and consulting).
Merton H. Miller, 73, Director, Chicago, IL. Robert R. McCormick
Distinguished Service Professor, Graduate School of Business, University of
Chicago. Trustee, The DFA Investment Trust Company. Director, DFA Investment
Dimensions Group Inc., Dimensional Emerging Markets Fund Inc. and Public
Director, Chicago Mercantile Exchange.
Myron S. Scholes, 55, 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 Emerging Markets Fund Inc., Benham Capital Management Group of
Investment Companies and Smith Breedon Group of Investment Companies.
Rex A. Sinquefield, 52, Director*, Chairman-Chief Investment Officer,
Santa Monica, CA. Chairman-Chief Investment Officer and Director, Dimensional
Fund Advisors Inc., DFA Securities Inc., DFA Australia Ltd., 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 hold the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Ltd., DFA Investment Dimensions Group Inc., The DFA Investment Trust Company,
Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets Fund Inc.
Arthur Barlow, 41, Vice President, Santa Monica, CA.
Truman Clark, 55, Vice President, Santa Monica, CA. Consultant until
October 1995 and Principal and Manager of Product Development, Wells Fargo Nikko
Investment Advisors, San Francisco, CA from 1990-1994.
Maureen Connors, 60, Vice President, Santa Monica, CA.
8
<PAGE>
Robert Deere, 39, Vice President, Santa Monica, CA.
Irene R. Diamant, 46, Vice President and Secretary, Santa Monica, CA.
Eugene Fama, Jr., 36, Vice President, Santa Monica, CA.
David Plecha, 35, Vice President, Santa Monica, CA.
George Sands, 41, Vice President, Santa Monica, CA. Managing Director,
Asset Strategy Consulting, Los Angeles, CA from 1991 to 1992 .
Michael T. Scardina, 41, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica,
CA.
Weston Wellington, 46, Vice President, Santa Monica, CA. Director of
Research, LPL Financial Services, Inc., Boston, MA from 1987 to 1994.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
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, 1996, and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
Aggregate Total Compensation from
Compensation Fund
Director from Fund and Fund Complex
- -------- ------------ -----------------------
George M. Constantinides $5,000 $30,000
John P. Gould $5,000 $30,000
Roger G. Ibbotson $5,000 $30,000
Merton H. Miller $5,000 $30,000
Myron S. Scholes $5,000 $30,000
Directors and officers as a group own less than 1% of each Portfolio's
outstanding stock.
ADMINISTRATIVE SERVICES
PFPC Inc. ("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' custodians, and transfer
and dividend disbursing agency services. For its services, each Portfolio pays
PFPC a monthly fee of $1,000.
OTHER INFORMATION
9
<PAGE>
For the services it provides as investment advisor to each Series, the
Advisor is paid a monthly fee calculated as a percentage of average net assets
of the Series. For the fiscal year ended November 30, 1996, the Series paid
advisory fees as set forth in the following table:
1996
International Value Series $2,124,000*
Large Cap Value Series $699,000*
--------------------------
*The Series has more than one investor; this dollar amount represents the total
dollar amount of advisory fees paid by the Series to the Advisor.
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.
Boston Safe Deposit and Trust Company serves as the custodian for the
International Value Series, and PNC Bank, N.A. serves as the custodian for DFA
International Value Portfolio III, U.S. Large Cap Value Portfolio III and the
Large Cap Value Series. The custodians maintain a separate account or accounts
for the Portfolios and Series; receive, hold and release portfolio securities on
account of the Portfolios and Series; make receipts and disbursements of money
on behalf of the Portfolios and Series; and collect and receive 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
Funds' 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."
10
<PAGE>
The Fund will accept purchase and redemption orders on each day that the
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.
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 NYSE 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. The International Value Series reserves the
right to redeem its shares in the currencies in which its investments are
denominated. Investors may incur charges in converting such currencies to
dollars and the value of the currencies may be affected by currency exchange
fluctuations.
PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 1997, the following stockholders owned 5% or more of
the outstanding stock of the Portfolios, as set forth below:
DFA INTERNATIONAL VALUE PORTFOLIO III
Charles Schwab & Co. Inc.- ALL REIN* 100%
101 Montgomery Street
San Francisco, CA 94104
U.S. LARGE CAP VALUE PORTFOLIO III
Charles Schwab & Co. Inc.- CAP REIN* 55.96%
101 Montgomery Street
San Francisco, CA 94104
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<PAGE>
Charles Schwab & Co. Inc.- ALL REIN* 44.04%
101 Montgomery Street
San Francisco, CA 94104
____________________
*Owner of record only.
CALCULATION OF PERFORMANCE DATA
Following are quotations of the annualized percentage total returns for DFA
International Value Portfolio III and U.S. Large Cap Value Portfolio III for the
one-, five-, and ten-year periods ended November 30, 1996 (as applicable) using
the standardized method of calculation required by the SEC. Since each
Portfolio has been in operation for less than five years, the time period during
which each Portfolio has been active has been substituted for the period stated
(which does not extend prior to the effective date of each Portfolio's
registration with the SEC).
One Year Five Years Ten Years
DFA International Value Portfolio III 14.76% 21 months n/a
14.85%
U.S. Large Cap Value Portfolio III 22.35% 21 months
28.80% n/a
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 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 compound 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).
12
<PAGE>
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.
FINANCIAL STATEMENTS
The audited financial statements of each Portfolio for the Fund's fiscal
year ended November 30, 1996, as set forth in the Fund's annual report to
shareholders of the Portfolios, and the report thereon of Coopers & Lybrand
L.L.P., independent accountants, also appearing therein, are incorporated herein
by reference.
The audited financial statements of the Series for the Trust's fiscal
year ended November 30, 1996, as set forth in the Trust's annual report to
shareholders, and the report thereon of Coopers & Lybrand L.L.P., independent
accountants, also appearing therein, are incorporated herein by reference.
A shareholder may obtain a copy of the reports upon request and without
charge, by contacting the Fund at the address or telephone number appearing on
the cover of this Statement of Additional Information.
13
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Audited financial statements dated November 30, 1996 for each series of
the Registrant were filed on January 24, 1997 via the U.S. Securities and
Exchange Commission's EDGAR System in the Annual Report to Shareholders of
DIMENSIONAL INVESTMENT GROUP INC. pursuant to Rule 30b2-1 under the
Investment Company Act of 1940 ("1940 Act"). Such financial statements are
incorporated into the Statement of Additional Information of DIMENSIONAL
INVESTMENT GROUP INC. dated March 28, 1997.
(b) Exhibits.
(1) Charter, as now in effect.
(a) Form of Articles of Restatement.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 11/12 to the
Registration Statement of the Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(2) BY-LAWS. Form of By-Laws.
<PAGE>
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 11/12 to the
Registration Statement of the Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(3) VOTING TRUST AGREEMENT.
None.
(4) INSTRUMENTS DEFINING RIGHTS OF HOLDERS OF SECURITIES BEING
REGISTERED.
(a) See Article Fifth of the Registrant's Articles of
Restatement
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 11/12 to the
Registration Statement of the Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(b) Specimen security on behalf of the:
(1) DFA 6-10 Institutional Portfolio**.
(2) DFA International Value Portfolio**.
(3) DFA International Value Portfolio II**.
(4) U.S. Small Cap Value Portfolio II**.
(5) U.S. Large Cap Value Portfolio II**.
(6) DFA One-Year Fixed Income Portfolio II**.
(7) U.S. Large Cap Value Portfolio III**.
(8) DFA International Value Portfolio III**.
(9) RWB/DFA U.S. High-Book-to-Market Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13 to
the Registration Statement of the Registrant on
Form N-1A.
C-2
<PAGE>
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(10) RWB/DFA Two-Year Corporate Fixed Income Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13 to the
Registration Statement of the Registrant on Form
N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(11) RWB/DFA Two-Year Government Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13 to the
Registration Statement of the Registrant on Form
N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(5) (a) Investment Advisory Contracts:
(1) Between the DFA Investment Trust Company
("DFA/ITC") and Dimensional Fund Advisors Inc.
("DFA") re: the DFA 6-10 Institutional
Portfolio**.
(2) Between DFA/ITC and DFA dated December 1, 1993 re:
the DFA International Value Portfolio (the
"Series"). The Series became a
C-3
<PAGE>
feeder portfolio
of DFA/ITC on December 1, 1993**.
(3) Between DFA/ITC and DFA re: the DFA International
Value Portfolio II**.
(4) Between DFA/ITC and DFA re: the U.S. Small Cap
Value Portfolio II**.
(5) Between DFA/ITC and DFA re: the U.S. Large Cap
Value Portfolio II**.
(6) Between DFA/ITC and DFA re: the DFA One-Year Fixed
Income Portfolio II (the "Series"). The Series
became a feeder portfolio of DFA/ITC on October 1,
1994**.
(7) Between DFA/ITC and DFA re: the U.S. Large Cap
Value Portfolio III (the "Series"). The Series
became a feeder portfolio of DFA/ITC on December
20, 1994**
(8) Between DFA/ITC and DFA re: the DFA International
Value Portfolio III (the "Series"). The Series
became a feeder portfolio of DFA/ITC on December
20, 1994**
(9) Between DFA/ITC and DFA re: the RWB/DFA U.S. High-
Book-to-Market Portfolio (the "Series"). The
Series became a feeder portfolio of DFA/ITC on
March 1, 1996**
(10) Between DFA/ITC and DFA re: the RWB/DFA Two-Year
Corporate Fixed Income Portfolio (the "Series").
The Series became a feeder portfolio of DFA/ITC on
March 1, 1996**
(11) Between DFA/ITC and DFA re: the RWB/DFA Two-Year
Government Portfolio (the "Series"). The Series
became a feeder portfolio of DFA/ITC on March 1,
1996**
(6) Underwriting Distribution Contract Between the Registrant
and a Principal Underwriter.
C-4
<PAGE>
Distribution Agreement dated April 16, 1993 between the
Registrant and DFA Securities Inc.**.
(7) None.
(8) CUSTODY AGREEMENTS.
(a) Form of Custodian Agreement between the Registrant and
PNC Bank, N.A. (formerly Provident National Bank) (the
"Custody Agreement")**.
(1) Form of Amendment Number One to the Custody
Agreement**.
(2) Form of Amendment Number Two to the Custody
Agreement***.
(3) Form of Amendment Number Three to the Custody
Agreement***.
(4) Form of Amendment Number Four to the Custody
Agreement***.
(5) Form of Amendment Number Five to the Custody
Agreement***.
(6) Form of Amendment Number Six to the Custody
Agreement.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13 to the
Registration Statement of the Registrant on Form
N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(9) (a) Form of Transfer Agency Agreement between the
Registrant and PFPC Inc. (formerly Provident
Financial Processing Corporation) (the "Transfer
Agency Agreement")**.
(1) Form of Amendment to the Transfer Agency
Agreement***.
C-5
<PAGE>
(2) Form of Amendment Number One to the Transfer
Agency Agreement***.
(3) Form of Amendment Number Two to the Transfer
Agency Agreement***.
(4) Form of Amendment Number Three to the
Transfer Agency Agreement***.
(5) Form of Amendment Number Four to the Transfer
Agency Agreement***.
(6) Form of Amendment Number Five to the Transfer
Agency Agreement***.
(7) Form of Amendment Number Six dated March 1,
1996 to the Transfer Agency Agreement re: the
RWB/DFA U.S. High Book to Market Portfolio,
RWB/DFA Two-Year Corporate Fixed Income
Portfolio and RWB/DFA Two-Year Government
Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13
to the Registration Statement of Registrant
on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(b) Form of Administration and Accounting Services
Agreement between the Registrant and PFPC Inc.
(formerly with Provident Financial Processing
Corporation) (the "Accounting Services
Agreement")**.
(1) Form of Amendment to the Accounting Services
Agreement**.
C-6
<PAGE>
(2) Form of Amendment Number One to the
Accounting Services Agreement***.
(3) Form of Amendment Number Two to the
Accounting Services Agreement***.
(4) Form of Amendment Number Three to the
Accounting Services Agreement***.
(5) Form of Amendment Number Four to the
Accounting Services Agreement***.
(6) Form of Amendment Number Five to the
Accounting Services Agreement***.
(7) Form of Amendment Number Six dated March 1,
1996 to the Accounting Services Agreement re:
RWB/DFA U.S. High Book to Market Portfolio,
RWB/DFA Two-Year Corporate Fixed Income
Portfolio and RWB/DFA Two-Year Government
Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13
to the Registration Statement of Registrant
on Form N-1A
File Nos.: 33-33980 and 811-6067
Filing Date: December 15, 1995.
(c) Administration Agreements.
(1) Form of between the Registrant and Dimensional
Fund Advisors Inc. ("DFA") dated May 3, 1993 re:
the DFA 6-10 Institutional Portfolio**.
(2) Form of between the Registrant and DFA dated
December 1, 1993 re: the
C-7
<PAGE>
DFA International Value Portfolio**.
(3) Form of between the Registrant and DFA re: the DFA
International Value Portfolio II**.
(4) Form of between the Registrant and DFA dated
January 1, 1994 re: the U.S. Small Cap Value
Portfolio II**.
(5) Form of between the Registrant and DFA dated July
1, 1994 re: the U.S. Large Cap Value Portfolio
II**.
(6) Form of between the Registrant and DFA dated
September 30, 1994 re: the DFA One-Year Fixed
Income Portfolio II**.
(7) Form of between the Registrant and DFA dated
December 20, 1994 re: the U.S. Large Cap Value
Portfolio III**.
(8) Form of between the Registrant and DFA dated
December 20, 1994 re: the DFA International Value
Portfolio III**.
(9) Form of between the Registrant and DFA dated March
1, 1996 re: the
C-8
<PAGE>
RWB/DFA U.S. High Book to Market
Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13 to the
Registration Statement of Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(10) Form of between the Registrant and DFA dated March
1, 1996 re: the RWB/DFA Two-Year Corporate Fixed
Income Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13 to the
Registration Statement of Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(11) Form of between the Registrant and DFA dated March
1, 1996 re: the RWB/DFA Two-Year Government
Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13 to the
Registration Statement of Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(12) Form of re: the DFA Five-Year Government Portfolio
II**.
(d) Client Service Agreements.
(1) Form of re: the RWB/DFA Two-Year Corporate Fixed
Income Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13 to the
Registration Statement of Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(2) Form of re: the
C-9
<PAGE>
RWB/DFA Two-Year Government
Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13 to the
Registration Statement of Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(3) Form of Client Service Agent Agreement re: the
RWB/DFA U.S. High Book-to-Market Portfolio.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 12/13 to the
Registration Statement of Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: December 15, 1995.
(e) Other.
(1) Form of Facility Agreement with Dimensional Fund
Advisors Inc.**.
(2) Form of Shareholders Agreement**.
(10) Opinion of Counsel. Opinion of counsel was filed on January
24, 1997 with the Registrant's Rule 24f-2 Notice.
(11) Consents. Consent of Coopers & Lybrand, L.L.P. is attached
hereto as Exhibit 24(b)(11).
(12) Financial Statements Omitted From Item 23.
Not applicable.
(13) Agreements of Understandings made in consideration for
providing initial capital.
(a) Form of Subscription Agreement under Section 14(a)(3)
of Investment Company Act of 1940**.
(14) Model Plan Used in the Establishment of Any Retirement Plan.
None.
(15) (a) Plans Entered into Pursuant to Rule 12b-1.
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<PAGE>
None.
(b) Agreements relating to Implementation with Plan.
None.
(16) Performance Calculations.
(17) Financial Data Schedules.
Financial Data Schedule dated November 30, 1996 relating
to the:
(a) DFA 6-10 Institutional Portfolio of the Registrant is
attached hereto as Exhibit 24(b)(17)(a).
(b) DFA International Value Portfolio of the Registrant is
attached hereto as Exhibit 24(b)(17)(b).
(c) DFA International Value Portfolio II of the Registrant
is attached hereto as Exhibit 24(b)(17)(c).
(d) U.S. Small Cap Value Portfolio II of the Registrant is
attached hereto as Exhibit 24(b)(17)(d).
(e) U.S. Large Cap Value Portfolio II of the Registrant is
attached hereto as Exhibit 24(b)(17)(e).
(f) DFA One-Year Fixed Income Portfolio II of the
Registrant is attached hereto as Exhibit 24(b)(17)(f).
(g) U.S. Large Cap Value Portfolio III of the Registrant is
attached hereto as Exhibit 24(b)(17)(g).
(h) DFA International Value Portfolio III of the Registrant
is attached hereto as Exhibit 24(b)(17)(h).
C-11
<PAGE>
(i) RWB/DFA U.S. High-Book-to-Market Portfolio of the
Registrant is attached hereto as Exhibit 24(b)(17)(i).
(j) RWB/DFA Two-Year Corporate Fixed Income Portfolio of
the Registrant is attached hereto as Exhibit
24(b)(17)(j).
(k) RWB/DFA Two-Year Government Portfolio of the Registrant
is attached hereto as Exhibit 24(b)(17)(k).
(18) Plans Pursuant to Rule 18f-3.
Not applicable.
(19) Powers-of-Attorney.
C-12
<PAGE>
(a) Powers-of-Attorney on behalf of the Registrant
appointing David G. Booth, Rex A. Sinquefield, Michael
Scardina, George Constantinides, John P. Gould, Roger
Ibbotson, Merton H. Miller and Myron S. Scholes as
attorneys in fact, and certified resolution relating
thereto.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 6/7 to the
Registration Statement of the Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: April 24, 1994.
(b) On behalf of the DFA Investment Trust Company
appointing David G. Booth, Rex A. Sinquefield, Michael
Scardina, George Constantinides, John P. Gould, Roger
Ibbotson, Merton H. Miller and Myron S. Scholes as
attorneys in fact, and certified resolution relating
thereto.
Incorporated herein by reference to:
Filing: Post-Effective Amendment No. 13/14 to the
Registration Statement of the Registrant on Form N-1A.
File Nos.: 33-33980 and 811-6067.
Filing Date: March 28, 1996.
** Previously filed with this registration statement and incorporated
herein by reference.
*** To be filed by amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
Number of Record
Title of Class Holders as of
(Par Value $.01) February 28, 1997
---------------- -----------------
DFA 6-10 Institutional Portfolio 1
DFA International Value Portfolio 85
DFA International Value Portfolio II 1
U.S. Small Cap Value Portfolio II 1
C-13
<PAGE>
U.S. Large Cap Value Portfolio II 1
DFA One-Year Fixed Income Portfolio II 6
DFA International Value Portfolio III 1
U.S. Large Cap Value Portfolio III 2
RWB/DFA U.S. High Book-to-Market
Portfolio 5
RWB/DFA Two-Year Corporate Fixed
Income Portfolio 5
RWB/DFA Two-Year Government
Portfolio 5
ITEM 27. INDEMNIFICATION.
(a) Section 1 of Article Ten of the Registrant's By-Laws, as approved
through December 20, 1995, provides for indemnification, as set
forth below (with respect to the indemnification of the Officers
and Directors of the corporation):
(1) The Corporation shall indemnify each Officer and Director
made party to a proceeding, by reason of service in such
capacity, to the fullest extent, and in the manner provided
under Section 2-418 of the Maryland General Corporation Law:
C-14
<PAGE>
(i) unless it is proved that the person seeking
indemnification did not meet the standard of conduct set
forth in subsection (b)(1) of such section; and (ii)
provided, that the Corporation shall not indemnify any
Officer or Director for any liability to the Corporation or
its security holders arising from the willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.
(2) The provisions of clause (i) of paragraph (a) herein
notwithstanding, the Corporation shall indemnify each
Officer and Director against reasonable expenses incurred in
connection with the successful defense of any proceeding to
which such Officer or Director is a party by reason of
service in such capacity.
(3) The Corporation, in the manner and to the extent provided by
applicable law, shall advance to each Officer and Director
who is made party to a proceeding by reason of service in
such capacity the reasonable expenses incurred by such
person in connection therewith.
(b) Registrant's Articles of Incorporation provide the following
under Article Seventh:
(1) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, as amended from time to time, no director
or officer of the Corporation shall have any liability to
the Corporation or its stockholders for money damages. This
limitation on liability applies to liabilities occurring for
acts or omissions occurring at the time a person serves as a
director or officer of the Corporation, whether or not such
person is a director or officer at the time of any
C-15
<PAGE>
proceeding in which liability is asserted.
(2) Notwithstanding the foregoing, this Article SEVENTH shall
not operate to protect any director or officer of the
Corporation against any liability to the Corporation or its
stockholders to which such person would otherwise be subject
by reason or willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in
the conduct of such person's office.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
(a) Registrant's Investment Advisor, Dimensional Fund Advisors Inc.
(the "Advisor"), was organized in May, 1981. The principal place
of business of the Advisor is 1299 Ocean Avenue, 11th Floor,
Santa Monica, CA 90401. The Advisor is engaged in the business
of providing investment advice primarily to institutional
investors.
(b) Information as to any other business, vocation or employment of a
substantial nature in which each director or officer of the
Registrant has been engaged for his own account or in the
capacity of director, officer, employee, partner or trustee is as
follows:
(1) David G. Booth.
Chairman, Chief Executive Officer and Director of the
following:
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Investment Dimensions Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
(2) Rex A. Sinquefield.
Chairman, Chief Investment Officer and Director of the
following:
C-16
<PAGE>
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Investment Dimensions Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
(3) Eugene Francis Fama.
Vice-President of the following:
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Investment Dimensions Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
Other: Mr. Fama is the Robert R. McCormick Distinguished
Service Professor of Finance and has engaged in teaching and
research in finance and economics at the Graduate School of
Business, University of Chicago, Chicago, Illinois since
September, 1963.
(4) Arthur Barlow.
Vice-President of the following:
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Investment Dimensions Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
(5) Truman Clark.
Vice-President of the following:
Registrant, Advisor, DFA Securities
C-17
<PAGE>
Inc., DFAL, DFA
Australia, Investment Dimensions Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
Other: Mr. Clark was a Consultant until October 1995;
formerly thereto, he was a Principal and Manager of Product
Development, Wells Fargo Nikko Investment Advisors, San
Francisco, CA (1990-1994).
(6) Maureen Connors.
Vice-President of the following:
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Investment Dimensions Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
(7) Robert Deere.
Vice-President of the following:
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Investment Dimensions Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
(8) Irene R. Diamant.
Vice-President and Secretary of the following:
Registrant, DFA Securities Inc., DFAL, DFA Australia,
Investment Dimensions Group Inc., Dimensional Emerging
Markets Inc. and DFA Investment Trust Company.
(9) David Plecha.
Vice-President of the following:
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Investment Dimensions Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
C-18
<PAGE>
(10) George Sands.
Vice-President of the following:
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Dimensional Investment Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
Other: Mr. Sands was a Managing Director of Asset Strategy
Consulting in Los Angeles, CA from March, 1991 to August,
1992; formerly thereto, he was a Vice President of Wilshire
Associates in Santa Monica, CA (1985 to February, 1991).
(11) Michael T. Scardina.
Vice President, Chief Financial Officer, Controller and
Treasurer of the following:
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Investment Dimensions Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
(12) Jeanne C. Sinquefield.
Executive Vice President of the following:
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Investment Dimensions Group Inc., Dimensional
Emerging Markets Inc. and DFA Investment Trust Company.
(13) Weston Wellington.
Vice President of the following:
Registrant, Advisor, DFA Securities Inc., DFAL, DFA
Australia, Dimensional Investment Group Inc., Dimensional
Emerging Markets Inc., and DFA Investment Trust Company.
C-19
<PAGE>
(c) Information as to any other business, vocation or
employment of a substantial nature in which each
director or officer of the Advisor has been engaged
for his own account or in the capacity of director,
officer, employee, partner or trustee is described on
Form ADV of Dimensional Fund Advisors Inc., currently
on file with the Securities and Exchange Commission in
compliance with the Investment Advisors Act of 1940.
ITEM 29. Principal Underwriters.
(a) Names of investment companies for which the Registrant's
principal underwriter also acts as principal underwriter.
Not Applicable.
(b) Registrant distributes its own shares. It has entered into an
agreement with DFA Securities Inc. dated April 16, 1993 which
provides that DFA Securities Inc., 1299 Ocean Avenue, 11th Floor,
Santa Monica, CA 90401, will supervise the sale of Registrant's
shares. This agreement is subject to the requirements of Section
15(b) of the Investment Company Act of 1940.
(c) Commissions and other Compensation received by each principal
underwriter who is not an affiliated person of the Registrant.
Not applicable.
C-20
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Most accounts and records are maintained by PFPC Inc., 400 Bellevue
Parkway, Wilmington, DE 19809. Other records are maintained by
Registrant at its business office at 1299 Ocean Avenue, 11th Floor,
Santa Monica, CA 90401.
ITEM 31. MANAGEMENT SERVICES.
None
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
C-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment No.
15/16 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Monica and State of
California on the 28th day of March, 1997.
DIMENSIONAL INVESTMENT GROUP INC.
By: DAVID G. BOOTH*
-------------------------------
David G. Booth
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 15/16 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------- ------------------- --------------
David G. Booth* Director and
- ----------------------------- Chairman-Chief March 28, 1997
David G. Booth Executive Officer
Rex A. Sinquefield* Director and
- ----------------------------- Chairman-Chief March 28, 1997
Rex A. Sinquefield Investment Officer
Michael T. Scardina Chief Financial
- ----------------------------- Officer, Treasurer March 28, 1997
Michael T. Scardina and Vice President
George M. Constantinides*
- ----------------------------- Director March 28, 1997
George M. Constantinides
John P. Gould*
- ----------------------------- Director March 28, 1997
John P. Gould
Roger G. Ibbotson*
- ----------------------------- Director March 28, 1997
Roger G. Ibbotson
Merton H. Miller*
- ----------------------------- Director March 28, 1997
Merton H. Miller
Myron S. Scholes*
- ----------------------------- Director March 28, 1997
Myron S. Scholes
C-22
<PAGE>
* By: MICHAEL T. SCARDINA
Michael T. Scardina, attorney-in-fact pursuant to power-of-attorney.
SIGNATURES
The DFA Investment Trust Company consents to the filing of this Amendment
No. 15/16 to the Registration Statement of Dimensional Investment Group Inc.
which is signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Santa Monica and State of California on the
28th day of March, 1997.
THE DFA INVESTMENT TRUST COMPANY
By: David G. Booth*
--------------------------------
David G. Booth
President and
Chairman-Chief Executive Officer
The undersigned Trustees and Principal Officers of The DFA Investment Trust
Company consent to the filing of this Amendment No. 15/16 to the Registration
Statement of Dimensional Investment Group Inc. on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------- ------------------- --------------
David G. Booth* Director and
- ----------------------------- Chairman-Chief March 28, 1997
David G. Booth Executive Officer
Rex A. Sinquefield* Director and
- ----------------------------- Chairman-Chief March 28, 1997
Rex A. Sinquefield Investment Officer
Michael T. Scardina Chief Financial
- ----------------------------- Officer, Treasurer March 28, 1997
Michael T. Scardina and Vice President
George M. Constantinides*
- ----------------------------- Director March 28, 1997
George M. Constantinides
John P. Gould*
- ----------------------------- Director March 28, 1997
John P. Gould
Roger G. Ibbotson*
- ----------------------------- Director March 28, 1997
Roger G. Ibbotson
C-23
<PAGE>
Merton H. Miller*
- ----------------------------- Director March 28, 1997
Merton H. Miller
Myron S. Scholes*
- ----------------------------- Director March 28, 1997
Myron S. Scholes
* By: MICHAEL T. SCARDINA
Michael T. Scardina, attorney-in-fact pursuant to power-of-attorney.
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
- ----------- ---------------------------------------------------------------
99(b)(11) Consent of Coopers & Lybrand, L.L.P.
27(b)(17) Financial Data Schedules
Schedule dated November 30, 1996 relating to the:
(a) DFA 6-10 Institutional Portfolio of the Registrant.
(b) DFA International Value Portfolio of the Registrant.
C-24
<PAGE>
(c) DFA International Value Portfolio II of the Registrant.
(d) U.S. Small Cap Value Portfolio II of the Registrant.
(e) U.S. Large Cap Value Portfolio II of the Registrant.
(f) DFA One-Year Fixed Income Portfolio II of the Registrant.
(g) U.S. Large Cap Value Portfolio III of the Registrant.
(h) DFA International Value Portfolio III of the Registrant.
(i) RWB/DFA U.S. High-Book-to-Market Portfolio of the
Registrant.
(j) RWB/DFA Two-Year Corporate Fixed Income Portfolio of the
Registrant.
(k) RWB/DFA Two-Year Government Portfolio of the Registrant.
C-25
<PAGE>
Exhibit 99(b)(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 15 to the Registration Statement on Form N-1A (File No. 33-33980) under the
Securities Act of 1933 of Dimensional Investment Group Inc. of our reports dated
January 17, 1997 on our audits of the financial statements and financial
highlights of Dimensional Investment Group Inc. and The DFA Investment Trust
Company as of November 30, 1996 and for the respective periods then ended, which
reports are included in the Annual Report to Shareholders.
We also consent to the reference to our Firm under the captions "Other
Information" and "Financial Statements" in the Statements of Additional
Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 28, 1997
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<EXPENSES-NET> 15189
<NET-INVESTMENT-INCOME> 113506
<REALIZED-GAINS-CURRENT> 3575543
<APPREC-INCREASE-CURRENT> 25465
<NET-CHANGE-FROM-OPS> 3714514
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31675
<DISTRIBUTIONS-OF-GAINS> 873174
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 373588
<NUMBER-OF-SHARES-REDEEMED> 1348408
<SHARES-REINVESTED> 70469
<NET-CHANGE-IN-ASSETS> (10201993)
<ACCUMULATED-NII-PRIOR> 2013
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 59899
<AVERAGE-NET-ASSETS> 24214367
<PER-SHARE-NAV-BEGIN> 12.79
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 2.22
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> .52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.60
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<RECEIVABLES> 300328
<ASSETS-OTHER> 56314
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<TOTAL-ASSETS> 317079282
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<OTHER-ITEMS-LIABILITIES> 78338
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