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PROSPECTUS
AUGUST 1, 1997
DFA INTERNATIONAL VALUE PORTFOLIO IV
EMERGING MARKETS PORTFOLIO II
____________________
This prospectus describes DFA INTERNATIONAL VALUE PORTFOLIO IV and EMERGING
MARKETS PORTFOLIO II (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, only to certain defined contribution plans (the "Plans").
The Fund issues thirteen 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 August 1, 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.
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TABLE OF CONTENTS
PAGE
HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE PORTFOLIOS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
DFA INTERNATIONAL VALUE PORTFOLIO IV - INVESTMENT OBJECTIVE AND
POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Portfolio Characteristics and Policies . . . . . . . . . . . . . . 7
Portfolio Structure. . . . . . . . . . . . . . . . . . . . . . . . 7
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . 9
EMERGING MARKETS PORTFOLIO II - INVESTMENT OBJECTIVE AND POLICIES . . . 9
Portfolio Characteristics and Policies . . . . . . . . . . . . . . 9
Portfolio Structure. . . . . . . . . . . . . . . . . . . . . . . . 10
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . 11
SECURITIES LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . 12
Investing in Emerging Markets. . . . . . . . . . . . . . . . . . . 12
Foreign Currencies and Related Transactions. . . . . . . . . . . . 13
Borrowing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Portfolio Strategies . . . . . . . . . . . . . . . . . . . . . . . 13
Repurchase Agreements. . . . . . . . . . . . . . . . . . . . . . . 14
Futures Contracts and Options on Futures . . . . . . . . . . . . . 14
MANAGEMENT OF THE PORTFOLIOS. . . . . . . . . . . . . . . . . . . . . . 14
Administrative Services. . . . . . . . . . . . . . . . . . . . . . 15
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES. . . . . . . . . . . . 15
PURCHASE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
In Kind Purchases. . . . . . . . . . . . . . . . . . . . . . . . . 17
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 17
DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
EXCHANGE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . 18
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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HIGHLIGHTS
PAGE
THE PORTFOLIOS 6
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. 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 IV 7
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 invests in the stocks of large non-U.S. companies that have a high
book value in relation to their market value. (See "DFA INTERNATIONAL VALUE
PORTFOLIO IV - INVESTMENT OBJECTIVE AND POLICIES.")
PAGE
INVESTMENT OBJECTIVE - EMERGING MARKETS PORTFOLIO II 9
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio will invest all of its assets in the Emerging
Markets Series of the Trust, which in turn invests in the equity securities of
larger companies in emerging markets. (See "EMERGING MARKETS PORTFOLIO II -
INVESTMENT OBJECTIVE AND POLICIES.")
PAGE
RISK FACTORS 12
Both Portfolios (indirectly through their investment in the corresponding
Series of the Trust) invest in foreign securities which are traded abroad, and
the Emerging Markets Portfolio II invests in emerging markets. The
corresponding Series 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
MANAGEMENT AND ADMINISTRATIVE SERVICES 14
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 15
Each Portfolio distributes dividends from its net investment income in
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.")
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PAGE
PURCHASE, VALUATION AND REDEMPTION OF SHARES 16
The shares of the DFA International Value Portfolio IV are offered at net
asset value, which is calculated as of the close of the New York Stock Exchange
("NYSE") on each day that the NYSE is open for business. The shares of the
Emerging Markets Portfolio II may be purchased at a public offering price which
is equal to the net asset value of its shares plus a reimbursement fee equal to
.50% of the value of such shares. 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.")
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SHAREHOLDER TRANSACTION EXPENSES
REIMBURSEMENT FEE (as a percentage of original purchase price)
Emerging Markets Portfolio II(1) 0.50%
(1)Reimbursement fees are charged to purchasers of the Emerging Markets
Portfolio II's shares for reimbursement of the Portfolio's corresponding
Trust Series. They serve to offset costs incurred by the Series when
investing the proceeds from the sale of shares and therefore stabilize the
return of the Series for all existing shareholders.
ANNUAL FUND OPERATING EXPENSES*
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
DFA INTERNATIONAL VALUE PORTFOLIO IV
Management Fee (after effect of sponsor contribution) 0.00%
Administration Fee (after effect of sponsor contribution)
0.00%
Other Expenses (after effect of sponsor contribution) 0.00%
Total Operating Expenses (after effect of sponsor contribution)
0.00%
EMERGING MARKETS PORTFOLIO II
Management Fee (after effect of sponsor contribution) 0.00%
Administration Fee (after fee waiver) 0.00%
Other Expenses (after effect of sponsor contribution) 0.00%
Total Operating Expenses (after effect of sponsor contribution) 0.00%
*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.
Each sponsor of a Plan which invests in a Portfolio will make a voluntary,
monthly contribution to the Portfolio in an amount equal to that portion of the
aggregate fees and expenses incurred by the Portfolio relating to the Plan's
investment. Such contributions will be made in accordance with the sponsor's
practice of bearing the expenses of administering the Plan's investments. In
addition, effective August 1, 1997, the Advisor has agreed to waive the
administration fee of 0.40% per year on the first $50 million of average net
assets payable by the Emerging Markets Portfolio II. Such fee waiver
arrangement may be terminated by the Advisor at any time. If not for the
sponsor's contributions and the Advisor's waiver of the administration fee with
respect to the Emerging Markets Portfolio II, the aggregate annual operating
expenses of the Portfolios for the fiscal year ending November 30, 1997, are
estimated to be 0.50% for the DFA International Value Portfolio IV and 1.66% for
the Emerging Markets Portfolio II. The Plan sponsors may terminate their
contributions to the Portfolios after sixty days written notice to the Fund.
The estimated expenses take into account the actual expenses of each Portfolio's
corresponding Series for the fiscal year ended November 30, 1996.
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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
------ -------
DFA International Value Portfolio IV $0 $0
Emerging Markets Portfolio II $0 $0
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 the Portfolios' 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
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 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 IV - INVESTMENT OBJECTIVE AND POLICIES" and
"EMERGING MARKETS PORTFOLIO II - 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.
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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.
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 IV -
INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of the DFA International Value Portfolio IV 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,
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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 index 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 bona fide 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 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
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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 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 and, is not
presently expected to exceed 25%.
EMERGING MARKETS PORTFOLIO II -
INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of the Emerging Markets Portfolio II is to achieve
long-term capital appreciation. Emerging Markets Portfolio II pursues its
objective by investing all of its assets in the Emerging Markets Series of the
Trust, which has the same investment objective and policies as the Portfolio.
The Series operates as a diversified investment company and seeks to achieve its
investment objective by investing in emerging markets designated by the
Investment Committee of the Advisor ("Approved Markets"). The Series invests
its assets primarily in Approved Market equity securities listed on bona fide
securities exchanges or actively traded on over-the-counter ("OTC") markets.
These exchanges or OTC markets may be either within or outside the issuer's
domicile country, and the securities may be listed or traded in the form of
International Depository Receipts ("IDRs") or American Depository Receipts
("ADRs").
The Emerging Markets Series will seek a broad market coverage of larger
companies within each Approved Market. This Series will attempt to own shares
of companies whose aggregate overall share of the Approved Market's total public
market capitalization is at least in the upper 40% of such capitalization, and
can be as large as 75%. The Emerging Markets Series may limit the market
coverage in the smaller emerging markets in order to limit purchases of small
market capitalization companies.
The Series may not invest in all such companies or Approved Markets
described above or achieve approximate market weights, for reasons which include
constraints imposed within Approved Markets (E.G.,
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restrictions on purchases by foreigners), and the Series' policy not to invest
more than 25% of its assets in any one industry.
Under normal market conditions, the Emerging Markets Series will invest at
least 65% of its assets in Approved Market securities. Approved Market
securities are defined to be (a) securities of companies organized in a country
in an Approved Market or for which the principal trading market is in an
Approved Market, (b) securities issued or guaranteed by the government of an
Approved Market country, its agencies or instrumentalities, or the central bank
of such country, (c) securities denominated in an Approved Market currency
issued by companies to finance operations in Approved Markets, (d) securities of
companies that derive at least 50% of their revenues primarily from either goods
or services produced in Approved Markets or sales made in Approved Markets and
(e) Approved Markets equity securities in the form of depositary shares.
Securities of Approved Markets may include securities of companies that have
characteristics and business relationships common to companies in other
countries. As a result, the value of the securities of such companies may
reflect economic and market forces in such other countries as well as in the
Approved Markets. The Advisor, however, will select only those companies which,
in its view, have sufficiently strong exposure to economic and market forces in
Approved Markets such that their value will tend to reflect developments in
Approved Markets to a greater extent than developments in other regions. For
example, the Advisor may invest in companies organized and located in the United
States or other countries outside of Approved Markets, including companies
having their entire production facilities outside of Approved Markets, when such
companies meet the definition of Approved Markets securities so long as the
Advisor believes at the time of investment that the value of the company's
securities will reflect principally conditions in Approved Markets.
The Advisor defines the term "emerging market" to mean a country which is
considered to be an emerging market by the International Finance Corporation.
Approved emerging markets may not include all such emerging markets. In
determining whether to approve markets for investment, the Advisor will take
into account, among other things, market liquidity, investor information,
government regulation, including fiscal and foreign exchange repatriation rules
and the availability of other access to these markets by the investors of the
Emerging Markets Series.
As of the date of this Prospectus, the following countries are designated
as Approved Markets: Argentina, Brazil, Chile, Indonesia, Israel, Malaysia,
Mexico, Philippines, Portugal, South Korea, Thailand and Turkey. Countries that
may be approved in the future include but are not limited to Colombia, Czech
Republic, Greece, Hungary, India, Jordan, Nigeria, Pakistan, Poland, Republic of
China (Taiwan), Venezuela and Zimbabwe.
The Series may invest up to 35% of its assets in securities of issuers that
are not Approved Markets securities, but whose issuers the Advisor believes
derive a substantial proportion, but less than 50%, of their total revenues from
either goods and services produced in, or sales made in, Approved Markets.
Pending the investment of new capital in Approved Market equity securities,
the Series will typically invest in money market instruments or other highly
liquid debt instruments denominated in U.S. dollars (including, without
limitation, repurchase agreements). In addition, the Series may, for liquidity,
or for temporary defensive purposes during periods in which market or economic
or political conditions warrant, purchase highly liquid debt instruments or hold
freely convertible currencies, although the Series does not expect the aggregate
of all such amounts to exceed 10% of its net assets under normal circumstances.
The Series also may invest in shares of other investment companies that
invest in one or more Approved Markets, although they intend to do so only where
access to those markets is otherwise significantly limited. The Series may also
invest in money market mutual funds for temporary cash management purposes. The
Investment Company Act of 1940 limits investment by the Series in shares of
other investment companies to no more than 10% of the value of the Series' total
assets. If the Series invests in another investment company, the Series'
shareholders will bear not only their proportionate share of expenses of the
Series (including operating expenses and the fees of the Advisor), but also will
bear indirectly similar expenses of the underlying investment company. In some
Approved Markets, it will be necessary or advisable for the Series to establish
a wholly-owned subsidiary or a trust
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for the purpose of investing in the local markets. The Series also may invest
up to 5% of its assets in convertible debentures issued by companies organized
in Approved Markets.
PORTFOLIO STRUCTURE
The Series' policy of seeking broad market diversification means that the
Advisor will not utilize "fundamental" securities research techniques in
identifying securities selections. The decision to include or exclude the
shares of an issuer will be made primarily on the basis of such issuer's
relative market capitalization determined by reference to other companies
located in the same country. Company size is measured in terms of reference to
other companies located in the same country and in terms of local currencies in
order to eliminate the effect of variations in currency exchange rates. Even
though a company's stock may meet the applicable market capitalization
criterion, it may not be included in the Series for one or more of a number of
reasons. For example, in the Advisor's judgment, the issuer may be considered
in extreme financial difficulty, a material portion of its securities may be
closely held and not likely available to support market liquidity, or the issuer
may be a "passive foreign investment company" (as defined in the Internal
Revenue Code of 1986, as amended). To this extent, there will be the exercise
of discretion and consideration by the Advisor which would not be present in the
management of a portfolio seeking to represent an established index of broadly
traded domestic securities (such as the S&P 500 Index). The Advisor will also
exercise discretion in determining the allocation of capital as between Approved
Markets.
It is management's belief that equity investments 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 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
Generally, securities will be purchased with the expectation that they will
be held for longer than one year. However, securities may be disposed of at any
time when, in the Advisor's judgment, circumstances 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. The annual portfolio turnover rate of the Emerging Markets Series for the
fiscal years ended November 30, 1995 and 1996 was 8.17% and 0.37%, respectively
and is not presently expected to exceed 25%.
For the purpose of converting U.S. dollars to another currency, or vice
versa, or converting one foreign currency to another foreign currency, the
Series may enter into forward foreign exchange contracts. In addition, to hedge
against changes in the relative value of foreign currencies, the Series may
purchase foreign currency futures contracts. The Series will only enter into
such a futures contract if it is expected that the Series will be able readily
to close out such contract. There can, however, be no assurance that it will be
able in any particular case to do so, in which case the Series may suffer a
loss.
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
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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, to the
extent it holds only shares of its corresponding Series, it will not do so.
RISK FACTORS
FOREIGN SECURITIES
The International Value Series and the Emerging Markets Series invest in
foreign issuers. Such investments involve risks that are not associated with
investments in U.S. public companies. Such risks may include legal, political
and or diplomatic actions of foreign governments, such as imposition of
withholding taxes on interest and dividend income payable on the securities
held, possible seizure or nationalization of foreign deposits, establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the value of the assets held by the 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.
INVESTING IN EMERGING MARKETS
The investments of the Emerging Markets Series involve risks in addition to
the usual risks of investing in developed foreign markets. A number of emerging
securities markets restrict, to varying degrees, foreign investment in stocks.
Repatriation of investment income, capital and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some emerging
countries. In some jurisdictions, such restrictions and the imposition of taxes
are intended to discourage shorter rather than longer-term holdings. While the
Emerging Markets Series will invest only in markets where these restrictions are
considered acceptable to the Advisor, new or additional repatriation
restrictions might be imposed subsequent to the Series' investment. If such
restrictions were imposed subsequent to investment in the securities of a
particular country, the Series might, among other things, discontinue the
purchasing of securities in that country. Such restrictions will be considered
in relation to the Series' liquidity needs and other factors and may make it
particularly difficult to establish the fair market value of particular
securities from time to time. The valuation of securities held by the Series is
the responsibility of the Trust's Board of Trustees, acting in good faith and
with advice from the Advisor. (See "VALUATION OF SHARES.") Further, some
attractive equity securities may not be available to the Series because foreign
shareholders hold the maximum amount permissible under current laws.
Relative to the U.S. and to larger non-U.S. markets, many of the emerging
securities markets in which the Emerging Markets Series may invest are
relatively small, have low trading volumes, suffer periods of illiquidity and
are characterized by significant price volatility. Such factors may be even
more pronounced in jurisdictions where securities ownership is divided into
separate classes for domestic and non-domestic owners.
In addition, many emerging markets, including most Latin American
countries, have experienced substantial, and, in some periods, extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had and may continue to have very negative effects on the
economies and securities markets of certain countries. In an attempt to control
inflation, wage and price controls have been imposed at times in certain
countries. Certain emerging markets have recently transitioned, or are in the
process of transitioning, from centrally controlled to market-based economies.
There can be no assurance that such transitions will be successful.
Brokerage commissions, custodial services and other costs relating to
investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such
markets have different settlement and clearance procedures. In certain markets
there have been times when settlements do not keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of the Series to make intended securities purchases due to settlement
problems could cause the Series to miss investment opportunities. Inability to
dispose of a portfolio security caused by settlement
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problems could result either in losses to the Series due to subsequent declines
in value of the portfolio security or, if the Series has entered into a contract
to sell the security, could result in possible liability to the purchaser.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Series' portfolio securities in such
markets may not be readily available. The Series' portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
Government involvement in the private sector varies in degrees among the
emerging securities markets contemplated for investment by the Series. Such
involvement may, in some cases, include government ownership of companies in
certain commercial business sectors, wage and price controls or imposition of
trade barriers and other protectionist measures. With respect to any developing
country, there is no guarantee that some future economic or political crisis
will not lead to price controls, forced mergers of companies, expropriation, the
creation of government monopolies, or other measures which could be detrimental
to the investments of the Series.
Taxation of dividends and capital gains received by non-residents varies
among countries with emerging markets and, in some cases, is high in relation to
comparable U.S. rates. Particular tax structures may have the intended or
incidental effect of encouraging long holding periods for particular securities
and/or the reinvestment of earnings and sales proceeds in the same jurisdiction.
In addition, emerging market jurisdictions typically have less well-defined tax
laws and procedures than is the case in the United States, and such laws may
permit retroactive taxation so that the Emerging Markets Series could in the
future become subject to local tax liability that it had not reasonably
anticipated in conducting its investment activities or valuing its assets.
FOREIGN CURRENCIES AND RELATED TRANSACTIONS
Investments of the International Value Series and the Emerging Markets
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 each Series. The Series may purchase foreign currency
futures contracts and options thereon 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 factors.
BORROWING
The International Value Series and the Emerging Markets 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 Emerging Markets Series differs from the process employed by many other
investment advisors in that the Advisor will rely on fundamental analysis of the
investment merits of securities to a limited extent to eliminate potential
acquisitions rather than rely on this technique to select securities. Further,
because securities generally will be held long-term and will not be eliminated
based on short-term price fluctuations, the Advisor generally will not act upon
general market movements or short-term price fluctuations of securities to as
great an extent as many other investment advisors.
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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 index futures contracts and options on index
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%. Certain index
futures contracts and options on index futures may be considered to be
derivative securities. 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
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 Advisor received a fee for
its advisory services to the Series, which on an annual basis, equaled the
following percentage of the average net assets of each Series:
Management Fee
--------------
DFA International Value Series 0.20%
Emerging Markets Series 0.10%
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. Effective August 1, 1997, the expenses of the Fund
which are not allocable to a particular Portfolio
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are to be borne by each Portfolio on the basis of its relative net assets.
Similarly, the expenses of the Trust which are not allocable to a particular
Series are to be borne by each Series on the basis of its relative net assets.
Each sponsor of a Plan which invests in the Portfolios intends to make a
voluntary contribution to each Portfolio on a monthly basis in an amount equal
to that portion of the fees and expenses incurred by the Portfolio relating to
the Plan's investment plus the Portfolio's proportionate share of its
corresponding Series' management fee and expenses. The Plan sponsors may
terminate their contributions to the Portfolio's fees and expenses at any time.
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 $21.9 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.
Effective July 18, 1997, the Advisor has entered into a Consulting Services
Agreement with Dimensional Fund Advisors Ltd. ("DFAL") and DFA Australia Limited
(formerly DFA Australia Ltd.) ("DFA Australia"), respectively. Pursuant to the
terms of each Consulting Services Agreement, DFAL and DFA Australia provide
certain trading and administrative services to the Advisor with respect to DFA
International Value Series and the Emerging Markets Series of the Trust.
The Board of Directors is responsible for establishing Portfolio policies
and for overseeing the management of the Portfolios. Each of the Directors and
officers of the Fund is also a Trustee and officer of the Trust. The Directors
of the Fund, including all of the disinterested Directors, have adopted written
procedures to monitor potential conflicts of interest that might develop between
the Portfolios and the Series. The statement of additional information relating
to the Portfolios furnishes information about the Directors and officers of the
Fund. (See "DIRECTORS AND OFFICERS" in the statement of additional
information.)
ADMINISTRATIVE SERVICES
The Fund has entered into an administration agreement with the Advisor on
behalf of each Portfolio. Pursuant to the administration agreement, the Advisor
will perform various services, including: supervision of the services provided
by the Portfolio's custodian and dividend disbursing agent and others who
provide services to the Fund for the benefit of the Portfolio; assisting the
Fund to comply with the provisions of federal, state, local and foreign
securities, tax and other laws applicable to the Portfolio; providing
shareholders of record with information about the Portfolio and their
investments as they or the Fund may request; assisting the Fund to conduct
meetings of shareholders; furnishing information as the Board of Directors may
require regarding the Series; and any other administrative services for the
benefit of the Portfolio as the Board of Directors may reasonably request. The
Advisor also provides the Fund with office space and personnel. For the
administrative services provided to the DFA International Value Portfolio IV,
the Advisor receives a monthly fee equal to one-twelfth of 0.20% of the
Portfolio's first $40 million of average net assets and no fee for assets
exceeding $40 million. Pursuant to the administration agreement relating to the
Emerging Markets Portfolio II, the Advisor receives a monthly fee equal to one-
twelfth of 0.40% of the Portfolio's first $50 million of average net assets and
no fee for assets exceeding $50 million. Effective August 1, 1997, the Advisor
has agreed to waive its administration fee with respect to the Emerging Markets
Portfolio II. Such fee waiver arrangement may be terminated by the Advisor at
any time. The sponsor of each Plan that is invested in a Portfolio intends to
make voluntary contributions to each Portfolio in an amount equal to the Plan's
proportionate share of the administrative services fees paid to the Advisor.
The Plan sponsors may terminate their contributions at any time.
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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 December of each year. Both Portfolios will distribute any realized net
capital gains annually after the end of the Fund's fiscal year.
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).
The DFA International Value Series intends to qualify as a regulated
investment company under the Code. The Emerging Markets Series is classified as
a partnership for U.S. federal income tax purposes.
The International Value Portfolio IV receives income in the form of income
dividends paid by its corresponding 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 its corresponding Series and may
realize capital gains upon the redemption of the shares of its corresponding
Series. Any net realized capital gains of the Portfolio will be distributed as
described above.
The Emerging Markets Portfolio II is allocated its proportionate share of
the income and realized and unrealized gains and losses of its corresponding
Series.
Dividends and distributions paid to a 401(k) plan accumulate free of
federal income taxes. In addition, the sale or redemption by a 401(k) plan of a
Portfolio's shares will not be subject to federal income taxes.
The International Value Series and Emerging Market Series may be subject to
foreign withholding taxes on income from certain of their foreign securities.
In the case of International Value Portfolio IV, if its corresponding Series
purchases shares in certain foreign investment 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 the Series to International Value Portfolio IV.
In the case of Emerging Markets Portfolio II, if its corresponding Series
purchases shares in PFICs, such Portfolio may be subject to U.S. federal income
tax and a related interest charge on a portion of any "excess distribution" or
gain from the disposition of such shares.
The Portfolios are 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 to fund deferred compensation plans
which are exempt from taxation under section 401(k) of the Code and whose
sponsors contribute to the Portfolios' fees and expenses as set forth in this
prospectus (see "Highlights - Annual Fund Operating Expenses."
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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 Fund does not impose a minimum purchase
requirement, but investors should determine whether their employer's plan
imposes a minimum transaction requirement.
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.
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 and Emerging Markets Series are denominated.
Securities and local currencies to be exchanged which are accepted by the Fund
and Portfolio 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 either
Portfolio 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.
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.
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 each 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
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Portfolio. The value of each Portfolio's shares will fluctuate in relation to
the investment experience of the corresponding Series.
Certain of the securities holdings of the Emerging Markets Series in
Approved Markets may be subject to tax, investment and currency repatriation
regulations of the Approved Markets that could have a material effect on the
valuation of the securities. For example, a Series might be subject to
different levels of taxation on current income and realized gains depending upon
the holding period of the securities. In general, a longer holding period
(E.G., 5 years) may result in the imposition of lower tax rates than a shorter
holding period (E.G.,1 year). The Series may also be subject to certain
contractual arrangements with investment authorities in an Approved Market which
require a Series to maintain minimum holding periods or to limit the extent of
repatriation of income and realized gains. As a result, the valuation of
particular securities at any one time may depend materially upon the assumptions
that a Series makes at that time concerning the anticipated holding period for
the securities. Absent special circumstances as determined by the Board of
Trustees, it is presently intended that the valuation of such securities will be
based upon the assumption that they will be held for at least the amount of time
necessary to avoid higher tax rates or penalties and currency repatriation
restrictions. However, the use of such valuation standards will not prevent the
Series from selling such securities in a shorter period of time if the Advisor
considers the earlier sale to be a more prudent course of action. Revision in
valuation of those securities will be made at the time of the transaction to
reflect the actual sales proceeds inuring to the Series.
Futures contracts are valued using the settlement price established each
day on the exchange on which they are traded. The value of such futures
contracts held by a Series are determined each day as of such close.
Provided that a service agent designated under a 401(k) plan has received
the investor's investment instructions in good order and a Portfolio's 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.
It is management's belief that payment of a reimbursement fee by investors,
which is used to defray significant costs associated with investing proceeds of
the sale of their shares to such investors, will eliminate a dilutive effect
such costs would otherwise have on the net asset value of shares held by
previous investors. Therefore, the shares of the Emerging Markets Portfolio II
are sold at an offering price which is equal to the current net asset value of
such shares plus a reimbursement fee equal to 0.50% of the net asset value per
share. The amount of the reimbursement fee represents management's estimate of
the costs reasonably anticipated to be associated with the purchase of
securities by the Emerging Markets Series and is paid to the Series and used by
it to defray such costs. Such costs include brokerage commissions on listed
securities and imputed commissions on OTC securities. Reinvestments of
dividends and capital gains distributions paid by the Emerging Markets Portfolio
II and in-kind investments are not subject to a reimbursement fee. The shares
of the DFA International Value Portfolio IV are currently sold at net asset
value, without imposition of a reimbursement fee.
DISTRIBUTION
The Fund acts as distributor of the Portfolios' shares. The Fund has,
however, entered into an agreement with DFA Securities Inc., a wholly owned
subsidiary of 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
Same-day exchanges are not accepted into or from either Portfolio.
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REDEMPTION OF SHARES
An investor who desires to redeem shares of a Portfolio must furnish a
redemption request to the service agent designated under a 401(k) plan in the
form required by such 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.
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 ending November 30, 1997, will contain additional performance
information. A copy of the annual report will be 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.
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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 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.
Shareholder inquiries may be made by writing or calling the Fund at the
address or telephone number appearing on the cover of this prospectus.
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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
CUSTODIANS - INTERNATIONAL
BOSTON SAFE DEPOSIT AND TRUST COMPANY
Princess House
1 Suffolk Lane
London EC4ROAN
England
THE CHASE MANHATTAN BANK
4 Chase Metrotech Center
Brooklyn, NY 11245
CUSTODIAN - DOMESTIC
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 IV
EMERGING MARKETS PORTFOLIO II
DIMENSIONAL INVESTMENT GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1997
This statement of additional information is not a prospectus but should be
read in conjunction with the prospectus of DFA International Value Portfolio IV
and Emerging Markets Portfolio II (collectively, the "Portfolios") of
Dimensional Investment Group Inc. (the "Fund"), dated August 1, 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 CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . -6-
DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . -7-
ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . -9-
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
PURCHASE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .-10-
REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . .-10-
CALCULATION OF PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . .-11-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the information set forth in the
prospectus under the captions "DFA INTERNATIONAL VALUE PORTFOLIO IV-INVESTMENT
OBJECTIVE AND POLICIES" and "EMERGING MARKETS PORTFOLIO II-INVESTMENT OBJECTIVE
AND POLICIES" and applies to the DFA International Value Series (the
"International Value Series") and the Emerging Markets Series (collectively, the
"Series") of The DFA Investment Trust Company (the "Trust").
Because the structure of the International Value Series and the Emerging
Markets 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 and the Emerging Markets Series each may
invest up to 5% of their 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 its investment objective and policies.
BROKERAGE TRANSACTIONS
The following table depicts brokerage commissions paid by the 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
Emerging Markets Series $437,088 $166,601 $79,105
The substantial increases or decreases in the amount of brokerage
commissions paid by the Series from year to year indicated in the foregoing
table resulted from increases or decreases in the amount of securities that were
bought and sold by the Series.
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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 the Series. 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
International Value Series paid commissions for securities transactions to
brokers which provided market price monitoring services, market studies and
research services to the Series as follows:
Value of Brokerage
Securities Transactions Commissions
----------------------- -----------
International Value Series $ 13,031,549 $ 78,952
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;
-3-
<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 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;
(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, provided that the Emerging Markets Portfolio may invest its
assets in securities of investment companies and units of such companies such
as, but not limited to, S&P Depository Receipts;
(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 Emerging Markets
Portfolio II.
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 the 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.
For purposes of (5) above, the Emerging Markets Portfolio II (indirectly
through its investment in the Emerging Markets Series) may borrow in connection
with a foreign currency transaction or the settlement of a portfolio trade. The
only type of borrowing contemplated thereby is the use of a letter of credit
issued on
-4-
<PAGE>
the Series' behalf in lieu of depositing initial margin in connection with
currency futures contracts, and the Series has no present intent to engage in
any other types of borrowing transactions under this authority.
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.
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 Portfolio IV and Emerging Markets Portfolio II
(indirectly through their investment in the Trust 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 International Value Series has retained authority to buy
and sell financial futures contracts and options thereon, it has no present
intention to do so.
Notwithstanding any of the above investment restrictions, the Emerging
Markets Series may establish subsidiaries or other similar vehicles for the
purpose of conducting their investment operations in Approved Markets, if such
subsidiaries or vehicles are required by local laws or regulations governing
foreign investors such as the Series or whose use is otherwise considered by the
Series to be advisable. The Series would "look through" any such vehicle to
determine compliance with its investment restrictions.
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 Emerging Markets 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
-5-
<PAGE>
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 (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 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 CONSIDERATIONS
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.
-6-
<PAGE>
FEDERAL TAX QUALIFICATION
In general, a corporation will not qualify as a regulated investment
company unless it distributes all of its income and satisfies certain other
requirements with respect to the source of its income and diversification of its
assets. One requirement is that at least 90 percent of its gross income is
derived from dividends, interest, gains from the sale or disposition of stocks
and securities and other sources derived with respect to the business of
investing in stocks, securities or currencies. It is the position of the
Portfolios that any contributions by a Plan sponsor to a Portfolio will
constitute a nonshareholder contribution to the capital of such Portfolio. The
Internal Revenue Code of 1986, as amended, (the "Code") provides for a basis
reduction of a corporation's property when the corporation receives money from a
nonshareholder as a contribution to its capital. Following the receipt by a
Portfolio of a contribution by a Plan sponsor, such Portfolio's basis in its
assets will be adjusted accordingly. If a contribution by a Plan sponsor to a
Portfolio is later determined to constitute income to such Portfolio, it is the
position of the Portfolios that such a constribution would constitute qualifying
income under the 90 percent qualification test. If such a contribution to a
Portfolio failed to satisfy the 90% qualification test for a taxable year, the
Portfolio would fail to qualify to be taxed as a regulated investment company
under the Code, resulting in the Portfolio being subject to federal income tax
on its taxable income for such taxable year.
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, 54, 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, 74, 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., Dimensional Emerging Markets Fund Inc. and
Public Director, Chicago Mercantile Exchange.
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Myron S. Scholes, 55, Director, Greenwich, CT. Limited Partner, Long-Term
Capital Management L.P. (money manager). Frank E. Buck Professor Emeritus of
Finance, Graduate School of Business and Professor of Law, Law School, Senior
Research Fellow, Hoover Institution, (all) Stanford University. Trustee, The
DFA Investment Trust Company. Director, DFA Investment Dimensions Group Inc.,
Dimensional Emerging Markets Fund Inc., Benham Capital Management Group of
Investment Companies and Smith Breeden 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, 56, 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 (Secretary for all
entities other than Dimensional Fund Advisors Ltd.), Santa Monica, CA.
Kamyab Hashemi-Nejad, 36, Vice President, Controller and Assistant
Treasurer, Santa Monica, CA.
Eugene Fama, Jr., 36, Vice President, Santa Monica, CA.
Karen McGinley, 31, Vice President, Santa Monica, CA.
Steve Manus, 46, Vice President, Santa Monica, CA. Managing Director, ANB
Investment Management and Trust Co. 1985-1993; President, ANB Investment
Management and Trust Co. 1993-1997.
Catherine Newell, 33, Vice President, Santa Monica, CA. Associate,
Morrison & Foerster LLP, 1989 to 1996.
David Plecha, 35, Vice President, Santa Monica, CA.
George Sands, 41, Vice President, Santa Monica, CA.
Scott Thornton, 34, Vice President, Santa Monica, CA.
Michael T. Scardina, 41, Vice President, Chief Financial Officer and
Treasurer, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica,
CA.
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<PAGE>
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 to the International
Value Portfolio IV, and the Emerging Markets Portfolio II, PFPC is paid monthly
fees of $1,000 and $2,600, respectively.
OTHER INFORMATION
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, 1994, 1995 and 1996, the
Series paid advisory fees as set forth in the following table:
SERIES 1996 1995 1994
International Value Series $2,124,000* $ 536,000* $ 105,000
Emerging Markets Series $ 111,000* 30,000* 6,000*
- ----------
*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.
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<PAGE>
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 IV. The Chase Manhattan Bank serves as custodian
for the Emerging Markets Series and PNC Bank, N.A. serves as custodian for
Emerging Markets Portfolio II. 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."
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.
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 and Emerging
Markets Series reserve the right to redeem its
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<PAGE>
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 ending May 31, 1997 (as applicable) using the
standardized method of calculation required by the SEC, which is net of the cost
of any current reimbursement fee charged to investors:
ONE YEAR FIVE YEARS TEN YEARS
---------- ---------- ---------
DFA International Value Portfolio IV 6.77 39 months n/a
8.03
Emerging Markets Portfolio II 8.84 37 months n/a
9.98
For purposes of calculating the performance of a Portfolio, the performance
of its corresponding Series will be utilized for the period prior to when the
Portfolio commenced operations, and, if applicable, restated to reflect the
Portfolio's fees and expenses. 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 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 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 and investments for which reliable performance
data is available. Such indices are generally unmanaged and are prepared by
entities and organizations which track the performance of
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<PAGE>
investment companies or investment advisors. Unmanaged indices often do not
reflect deductions for administrative and management costs and expenses. The
performance of the Portfolios may also be compared in publications to averages,
performance rankings, or other information prepared by recognized mutual fund
statistical services. Any performance information, whether related to the
Portfolios or to the Advisor, should be considered in light of a Portfolio's
investment objectives and policies, characteristics and the quality of the
portfolio and market conditions during the time period indicated and should not
be considered to be representative of what may be achieved in the future.
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