<PAGE>
PROSPECTUS
DECEMBER 8, 1998
DFA INTERNATIONAL VALUE PORTFOLIO III
U.S. LARGE CAP VALUE PORTFOLIO III
TAX-MANAGED U.S. MARKETWIDE VALUE PORTFOLIO II
This prospectus describes DFA INTERNATIONAL VALUE PORTFOLIO III, U.S.
LARGE CAP VALUE PORTFOLIO III and TAX-MANAGED U.S. MARKETWIDE VALUE 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, to 401(k)
defined contribution plans and clients of registered financial advisers. The
Fund issues fourteen series of shares, each of which represents a separate class
of the Fund's common stock, having its own investment objective and policies and
three 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 December 8, 1998, as amended from time to time, which is
incorporated herein by reference, has been filed with the Securities and
Exchange Commission and is available upon request, without charge, by writing or
calling the Fund at the above address or telephone number.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
----
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
CONDENSED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .3
THE PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
DFA INTERNATIONAL VALUE PORTFOLIO III. . . . . . . . . . . . . . . . . . . . .6
PORTFOLIO CHARACTERISTICS. . . . . . . . . . . . . . . . . . . . . . . . . .6
PORTFOLIO STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .8
THE U.S. VALUE PORTFOLIOS. . . . . . . . . . . . . . . . . . . . . . . . . . .8
PORTFOLIO CHARACTERISTICS AND POLICIES . . . . . . . . . . . . . . . . . . .8
PORTFOLIO STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 10
TAX MANAGEMENT STRATEGIES. . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECURITIES LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FOREIGN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FOREIGN CURRENCIES AND RELATED TRANSACTIONS. . . . . . . . . . . . . . . . 12
INTRODUCTION OF THE EURO . . . . . . . . . . . . . . . . . . . . . . . . . 12
BORROWING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PORTFOLIO STRATEGIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
REPURCHASE AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
YEAR 2000 ISSUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
FUTURES CONTRACTS AND OPTIONS ON FUTURES . . . . . . . . . . . . . . . . . 13
MANAGEMENT OF THE PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . 14
ADMINISTRATIVE SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . 15
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . 15
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
IN KIND PURCHASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
VALUATION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
HIGHLIGHTS
PAGE
THE PORTFOLIOS 5
Each Portfolio, in effect, represents a separate mutual fund with its
own investment objective and policies. The investment objective of each
Portfolio is a fundamental policy and may not be changed without the affirmative
vote of a majority of its outstanding securities. Clients of financial advisors
may choose to invest in one, two or all of the Portfolios. Proceeds from the
sale of shares of a Portfolio will be invested in accordance with that
Portfolio's investment objective and policies.
PAGE
INVESTMENT OBJECTIVE - DFA INTERNATIONAL VALUE PORTFOLIO III 6
The investment objective of the Portfolio is to achieve long-term
capital appreciation. The Portfolio will invest all of its assets in the DFA
International Value Series of the Trust (the "International Value Series"),
which in turn will invest in the stocks of large non-U.S. companies that are
value stocks, primarily because they have a high book value in relation to their
market value. (See "DFA INTERNATIONAL VALUE PORTFOLIO III - INVESTMENT
OBJECTIVE AND POLICIES.")
PAGE
INVESTMENT OBJECTIVE - U.S. LARGE CAP VALUE PORTFOLIO III 8
AND TAX-MANAGED U.S. MARKETWIDE VALUE PORTFOLIO II
The investment objective of each of the U.S. Large Cap Value Portfolio
III and the Tax-Managed U.S. Marketwide Value Portfolio II (collectively, the
"U.S. Value Portfolios") is to achieve long-term capital appreciation. The
Tax-Managed U.S. Marketwide Value Portfolio II pursues this investment objective
while at the same time seeking to minimize the impact of federal taxes on
returns by managing its portfolio in a manner that will defer the realization of
net capital gains and may minimize the receipt of dividend income in order to
minimize taxable distributions to investors. The U.S. Large Cap Value Portfolio
III will invest all of its assets in the U.S. Large Cap Value Series of the
Trust (the "Large Cap Value Series") and the Tax-Managed U.S. Marketwide Value
Portfolio II will invest all of its assets in the Tax-Managed U.S. Marketwide
Value Series of the Trust (the "Tax-Managed Series"). Each of the Large Cap
Value Series and the Tax-Managed Series (collectively, the "U.S. Value Series")
will invest in the common stocks of U.S. companies that are value stocks,
primarily because they have a high book value in relation to their market value.
The Large Cap Value Series will purchase common stocks of companies whose market
capitalizations equal or exceed that of a company having the median market
capitalization of companies whose shares are listed on the New York Stock
Exchange (the "NYSE"). The Tax-Managed Series will purchase common stocks of
companies whose market capitalizations equal the market capitalizations of
companies in the 1st through 8th deciles of those companies listed on the NYSE.
(See "U.S. VALUE PORTFOLIOS - INVESTMENT OBJECTIVE AND POLICIES.")
PAGE
RISK FACTORS 11
The DFA International Value Portfolio III (indirectly through its
investment in the International Value Series) invests in foreign securities.
The International Value Series and the Large Cap Value Series, in which the
corresponding Portfolios invest, may invest in futures contracts and options
thereon. Each Portfolio is authorized to invest in repurchase agreements.
Those policies and the policy of the Portfolios to invest in the shares of
corresponding Series of the Trust involve certain risks. (See "RISK FACTORS.")
<PAGE>
PAGE
MANAGEMENT AND ADMINISTRATIVE SERVICES 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
November and December of each year and will distribute any realized net capital
gains annually after the end of the Fund's fiscal year in November. (See
"DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES.")
PAGE
PURCHASE, VALUATION AND REDEMPTION OF SHARES 17
The shares of the Portfolios are offered at net asset value, which is
calculated as of the close of the NYSE on each day that the NYSE is open for
business. The value of a Portfolio's shares will fluctuate in relation to the
investment experience of its corresponding Series. The redemption price of a
share of each Portfolio is equal to its net asset value. (See "PURCHASE OF
SHARES," "VALUATION OF SHARES" and "REDEMPTION OF SHARES.")
SHAREHOLDER TRANSACTION EXPENSES
None*
The expenses in the following tables are based on those incurred by
the Portfolios and their corresponding Series for the fiscal year ended November
30, 1997, except that for the Tax-Managed U.S. Marketwide Value Portfolio II,
"Other Expenses" are annualized estimates based on anticipated fees and expenses
through the fiscal year ending November 30, 1999.
ANNUAL FUND OPERATING EXPENSES**
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
DFA INTERNATIONAL VALUE PORTFOLIO III
Management Fee 0.20%
Administration Fee 0.01%
Other Expenses 0.17%
Total Operating Expenses 0.38%
U.S. LARGE CAP VALUE PORTFOLIO III
Management Fee 0.10%
Administration Fee 0.01%
Other Expenses 0.12%
Total Operating Expenses 0.23%
TAX-MANAGED U.S. MARKETWIDE VALUE PORTFOLIO II
Management Fee 0.20%
Administration Fee 0.00%
Other Expenses 0.13%
Total Operating Expenses 0.33%
2
<PAGE>
*Shares of the Portfolios that are purchased through omnibus accounts
maintained by securities firms may be subject to a service fee or commission on
such purchases.
**The "Management Fee" is payable by the Series and the
"Administration Fee" is payable by the Portfolio. The amount set forth in
"Other Expenses" represents the aggregate amount that is payable by both the
Series and the Portfolio.
EXAMPLE
You would pay the following transaction and annual operating expenses
on a $1,000 investment in each Portfolio, assuming a 5% annual return over each
of the following time periods and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
DFA International Value Portfolio III $4 $12 $21 $48
U.S. Large Cap Value Portfolio III $2 $7 $13 $29
Tax-Managed U.S. Marketwide Value Portfolio II $3 $11 n/a n/a
</TABLE>
The purpose of the above fee table and Example is to assist investors
in understanding the various costs and expenses that an investor in the
Portfolios will bear directly or indirectly. THE EXAMPLE SHOULD NOT BE
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 all of the Portfolios and the corresponding Series. (See "MANAGEMENT OF THE
PORTFOLIOS" for a description of Portfolio and Series expenses.) The Board of
Directors of the Fund has considered whether such expenses will be more or less
than they would be if each Portfolio were to invest directly in the securities
held by its corresponding Series. The aggregate amount of expenses for a
Portfolio and the corresponding Series may be greater than it would be if the
Portfolio were to invest directly in the securities held by the corresponding
Series. However, the total expense ratios for the Portfolios and their
corresponding Series are expected to be less over time than such ratios would be
if the Portfolios were to invest directly in the underlying securities. This is
because this arrangement enables institutional investors, including the
Portfolios, to pool their assets, which may be expected to result in economies
by spreading certain fixed costs over a larger asset base. Each shareholder in
a Series, including the corresponding Portfolio, will pay its proportionate
share of the expenses of the Series.
The Tax-Managed U.S. Marketwide Value Portfolio II (and its
corresponding Series) is new and consequently the above example is based on
estimated expenses for the current fiscal year and does not extend over five and
ten-year periods.
CONDENSED FINANCIAL INFORMATION
The following financial highlights are part of the financial
statements of each Portfolio of the Fund other than the Tax-Managed U.S.
Marketwide Value Portfolio II, which had not commenced operations by November
30, 1997. The information for each of the past fiscal years has been audited by
independent accountants. The financial statements for the six month period ended
May 31, 1998 have not been audited. The financial statements, related notes,
and the report of the independent accountants covering such financial
information and financial highlights for the Fund's most recent fiscal year
contained in the Fund's annual report to shareholders for the year ended
November 30, 1997 and unaudited financial statements contained in the Fund's
semi-annual report to shareholders for the period ended May 31, 1998 are
incorporated by reference into the Portfolios' statement of additional
information. Further information about the Portfolios' performance (other than
the Tax-Managed U.S. Marketwide Value Portfolio II) is contained in the Fund's
annual report to shareholders of the Portfolios for the year ended
November 30, 1997. A copy of the annual and semi-annual reports may be obtained
from the Fund upon request at no charge.
3
<PAGE>
DFA INTERNATIONAL VALUE PORTFOLIO III
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR FEB. 3,
ENDED ENDED ENDED TO
MAY 31, NOV. 30, NOV. 30, NOV. 30,
1998 1997 1996 1995
---------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . . . . . . . . . . . . $ 11.57 $ 12.39 $ 10.81 $ 10.00
---------- ----------- ----------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income. . . . . . . . . . . . . . . . . . . . . 0.07 0.21 0.21 0.17
Net Gains (Losses) on Securities (Realized and Unrealized) . . 2.05 (0.69) 1.38 0.84
---------- ----------- ----------- ----------
Total from Investment Operations . . . . . . . . . . . . . . . 2.12 (0.48) 1.59 1.01
---------- ----------- ----------- ----------
LESS DISTRIBUTIONS
Net Investment Income. . . . . . . . . . . . . . . . . . . . . (0.26) (0.22) (0.01) (0.17)
Net Realized Gains . . . . . . . . . . . . . . . . . . . . . . (0.15) (0.12) --- (0.03)
---------- ----------- ----------- ----------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . (0.41) (0.34) (0.01) (0.20)
---------- ----------- ----------- ----------
Net Asset Value, End of Period . . . . . . . . . . . . . . . . . $ 13.28 $ 11.57 $ 12.39 $ 10.81
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . 18.90%# (3.91)% 14.76% 10.04%#
Net Assets, End of Period (thousands). . . . . . . . . . . . . . $324,414 $282,818 $242,371 $146,952
Ratio of Expenses to Average Net Assets (1). . . . . . . . . . . 0.35%* 0.38% 0.45% 0.51%*
Ratio of Net Investment Income to Average Net Assets . . . . . 1.03%* 1.88% 2.03% 2.29%*
Portfolio Turnover Rate. . . . . . . . . . . . . . . . . . . . . N/A N/A N/A N/A
Average Commission Rate. . . . . . . . . . . . . . . . . . . . . N/A N/A N/A N/A
Portfolio Turnover Rate of Master Fund Series. . . . . . . . . 18.78%* 22.55% 12.23% 9.75%(a)
Average Commission Rate of Master Fund Series . . . . . . . . . $0.0167 $0.0068 $0.0112 N/A
</TABLE>
*Annualized
#Non-Annualized
(1) Represents the respective combined ratio for the Portfolio and its
respective pro-rata share of its Master Fund Series. N/A refers to the
respective master Fund Series.
(a) Master Fund Series Turnover calculated for the year ended
November 30, 1995.
4
<PAGE>
U.S. LARGE CAP VALUE PORTFOLIO III
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR FEB. 3,
ENDED ENDED ENDED TO
MAY 31, NOV. 30, NOV. 30, NOV. 30,
1998 1996 1996 1995
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 19.02 $ 15.76 $ 12.92 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . 0.10 0.32 0.28 0.23
Net Gains (Losses) on Securities (Realized and Unrealized). . . 2.99 3.52 2.60 3.09
-------- -------- -------- --------
Total from Investment Operations. . . . . . . . . . . . . . . . 3.09 3.84 2.88 3.32
-------- -------- -------- --------
LESS DISTRIBUTIONS
Net Investment Income (0.33) (0.29) (0.04) (0.23)
Net Realized Gains. . . . . . . . . . . . . . . . . . . . . . . (1.09) (0.29) --- (0.17)
-------- -------- -------- --------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . (1.42) (0.58) (0.04) (0.40)
-------- -------- -------- --------
Net Asset Value, End of Period. . . . . . . . . . . . . . . . . . $ 20.69 $ 19.02 $ 15.76 $ 12.92
-------- -------- -------- --------
-------- -------- -------- --------
Total Return. . . . . . . . . . . . . . . . . . . . . . . . . . . 17.59%# 25.23% 22.34% 33.27%#
Net Assets, End of Period (thousands) . . . . . . . . . . . . . . $506,503 $471,038 $379,974 $135,043
Ratio of Expenses to Average Net Assets (1) . . . . . . . . . . . 0.19%* 0.23% 0.26% 0.31%*
Ratio of Net Investment Income to Average Net Assets. . . . . . . 0.99%* 1.79% 2.29% 2.82%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A N/A
Average Commission Rate . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A N/A
Portfolio Turnover Rate of Master Fund Series . . . . . . . . . . 22.09%* 17.71% 20.12% 29.41%(a)
Average Commission Rate of Master Fund Series . . . . . . . . . . $ 0.0484 $ 0.0494 $ 0.0499 N/A
</TABLE>
*Annualized
#Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Master Fund Series Turnover calculated for the year ended
November 30, 1995.
THE PORTFOLIOS
Each of the Portfolios, unlike many other investment companies which
directly acquire and manage their own portfolio of securities, seeks to achieve
its investment objective by investing all of its investable assets in a
corresponding Series of the Trust, an open-end, management investment company,
registered under the Investment Company Act of 1940 ("1940 Act"), 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.
5
<PAGE>
This prospectus describes the investment objective, policies and
restrictions of each Portfolio and its corresponding Series. (See "DFA
INTERNATIONAL VALUE PORTFOLIO III - INVESTMENT OBJECTIVE AND POLICIES" and "U.S.
VALUE PORTFOLIOS - INVESTMENT OBJECTIVE AND POLICIES.") In addition, an
investor should read "MANAGEMENT OF THE PORTFOLIOS" for a description of the
management and other expenses associated with the Portfolios' investment in the
Trust. Other institutional investors, including other mutual funds, may invest
in each Series, and the expenses of such other investors and, correspondingly,
their returns may differ from those of the Portfolios. Please contact the Trust
at 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401, (310) 395-8005 for
information about the availability of investing in the Series other than through
the Portfolios.
The shares of the Series will be offered to institutional investors
for the purpose of increasing the funds available for investment, to reduce
expenses as a percentage of total assets and to achieve other economies that
might be available at higher asset levels. For example, a Series might be able
to place larger block trades at more advantageous prices and to participate in
securities transactions of larger denominations, thereby reducing the relative
amount of certain transaction costs in relation to the total size of the
transaction. Investment in a Series by other institutional investors offers
potential benefits to the Series and, through their investment in the Series,
also to the Portfolios. However such economies and expense reductions might not
be achieved and additional investment opportunities, such as increased
diversification, might not be available if other institutions do not invest in
the Series. Also, if an institutional investor were to redeem its interest in a
Series, the remaining investors in that Series could experience higher pro rata
operating expenses, thereby producing lower returns, and the Series' security
holdings may become less diverse, resulting in increased risk. Institutional
investors that have a greater pro rata ownership interest in a Series than the
corresponding Portfolio could have effective voting control over the operation
of the Series.
Further, if a Series changes its investment objective in a manner
which is inconsistent with the investment objective of a corresponding Portfolio
and the shareholders of the Portfolio fail to approve a similar change in the
investment objective of the Portfolio, the Portfolio would be forced to withdraw
its investment in the Series and either seek to invest its assets in another
registered investment company with the same investment objective as the
Portfolio, which might not be possible, or retain an investment advisor to
manage the Portfolio's assets in accordance with its own investment objective,
possibly at increased cost. A withdrawal by a Portfolio of its investment in
the corresponding Series could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) to the Portfolio. Should such a
distribution occur, the Portfolio could incur brokerage fees or other
transaction costs in converting such securities to cash in order to pay
redemptions. In addition, a distribution in kind to the Portfolio could result
in a less diversified portfolio of investments and could affect adversely the
liquidity of the Portfolio. Moreover, a distribution in kind by the Series
corresponding to the Portfolio may constitute a taxable exchange for federal
income tax purposes resulting in gain or loss to such Portfolio. Any net
capital gains so realized will be distributed to such Portfolio's shareholders
as described in "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES" below.
Finally, the Portfolios' investment in the shares of a registered
investment company such as the Trust is relatively new and results in certain
operational and other complexities. However, management believes that the
benefits to be gained by shareholders outweigh the additional complexities and
that the risks attendant to such investment are not inherently different from
the risks of direct investment in securities of the type in which the Series
invest.
DFA INTERNATIONAL VALUE PORTFOLIO III
INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS
The investment objective of the DFA International Value Portfolio III
is to achieve long-term capital appreciation. The Portfolio pursues its
objective by investing all of its assets in the International Value Series,
which has the same investment objective and policies as the Portfolio. The
International Value Series
6
<PAGE>
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, Denmark, France, Germany,
Hong Kong, Italy, Japan, the Netherlands, New Zealand, Norway, 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, Finland and Ireland. As of the date of
this prospectus, the International Value Series has ceased investing additional
funds in Malaysia as a consequence of certain restrictions imposed by the
Malaysian government on the repatriation of assets by foreign investors, such as
the Series. (See "RISK FACTORS - Foreign Securities.")
PORTFOLIO STRUCTURE
Under normal market conditions, at least 65% of the International
Value Series' assets will be invested in companies organized or having a
majority of their assets in or deriving a majority of their operating income in
at least three non-U.S. countries and no more than 40% of the Series' assets
will be invested in such companies in any one country. The International Value
Series reserves the right to invest in futures contracts and options on futures
contracts to commit funds awaiting investment or to maintain liquidity. To the
extent that the International Value Series invests in futures contracts for
other than 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
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<PAGE>
capitalization weighting, they would ordinarily be made in anticipation of
further growth of the assets of the International Value Series.
Changes in the composition and relative ranking (in terms of market
capitalization and book to market ratio) of the stocks which are eligible for
purchase by the International Value Series take place with every trade when the
securities markets are open for trading due, primarily, to price fluctuations of
such securities. On not less than a semi-annual basis, the Advisor will prepare
a current list of eligible large companies with high book to market ratios whose
stock are eligible for investment. Only common stocks whose market
capitalizations are not less than the minimum on such list will be purchased by
the International Value Series. Additional investments will not be made in
securities which have depreciated in value to such an extent that they are not
then considered by the Advisor to be large companies. This may result in
further deviation from market capitalization weighting and such deviation could
be substantial if a significant amount of the International Value Series'
holdings decrease in value sufficiently to be excluded from the then current
market capitalization requirement for eligible securities, but not by a
sufficient amount to warrant their sale.
It is management's belief that the value stocks of large companies
offer, over a long term, a prudent opportunity for capital appreciation but, at
the same time, selecting a limited number of such issues for inclusion in the
International Value Series involves greater risk than including a large number
of them. The Advisor does not anticipate that a significant number of
securities which meet the market capitalization criteria will be selectively
excluded from the International Value Series.
The International Value Series does not seek current income as an
investment objective and investments will not be based upon an issuer's dividend
payment policy or record. However, many of the companies whose securities will
be included in the International Value Series do pay dividends. It is
anticipated, therefore, that the International Value Series will receive
dividend income.
PORTFOLIO TRANSACTIONS
Securities which have depreciated in value since their acquisition
will not be sold by the International Value Series solely because prospects for
the issuer are not considered attractive or due to an expected or realized
decline in securities prices in general. Securities may be disposed of,
however, at any time when, in the Advisor's judgment, circumstances warrant
their sale, such as tender offers, mergers and similar transactions, or bids
made for block purchases at opportune prices. Generally, securities will not be
sold to realize short-term 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 rates of the International Value Series for the fiscal
years ended November 30, 1996 and 1997 were 12.23% and 22.55%, respectively.
THE U.S. VALUE PORTFOLIOS
INVESTMENT OBJECTIVE AND POLICIES
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of each of the U.S. Value Portfolios is to
achieve long-term capital appreciation. The U.S. Large Cap Value Portfolio III
pursues its objective by investing all of its assets in the Large Cap Value
Series, which has the same investment objective and policies as the U.S. Large
Cap Value Portfolio III. The Tax-Managed U.S. Marketwide Value Portfolio II
pursues its objective by investing all of its assets in the Tax-Managed Series,
which has the same investment objective and policies as the Tax-Managed U.S.
Marketwide Value Portfolio II. Each U.S. Value Series seeks to achieve its
objective by investing in the common stocks of large U.S. companies with shares
that have a high book to market ratio. A company's shares will be considered to
have a high book to market ratio if the ratio equals or exceeds the ratios of
any of the 30% of companies with the highest
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<PAGE>
positive book to market ratios whose shares are listed on the NYSE and, except
as described below, will be considered eligible for investment. The Large Cap
Value Series will purchase common stocks of companies whose market
capitalization (i.e., the market price of its common stock multiplied by the
number of outstanding shares) equals or exceeds that of the company having the
median market capitalization of companies whose shares are listed on the NYSE.
The Tax-Managed Series will purchase common stocks of companies whose market
capitalizations equal the market capitalizations of companies in the 1st through
8th deciles of companies on the NYSE. In addition, the U.S. Value Series are
authorized to invest in private placements of interest-bearing debentures that
are convertible into common stock ("privately placed convertible debentures").
Such investments are considered illiquid and the value thereof together with the
value of all other illiquid investments may not exceed 15% of the value of each
U.S. Value Series' net assets at the time of purchase.
In addition, the Tax-Managed Series will manage its portfolio in a
manner that will seek to defer the realization of net capital gains and may seek
to minimize the receipt of dividend income in order to minimize taxable
distributions to investors. These tax management strategies may, from time to
time, cause deviation from market capitalization weightings. Hence, the
Tax-Managed Series should not be expected to adhere to its market capitalization
weightings with the same precision as the Large Cap Value Series. (See "TAX
MANAGEMENT STRATEGIES" below.)
PORTFOLIO STRUCTURE
Each of the U.S. Value Series will operate as a diversified investment
company. Further, neither U.S. Value Series will invest more than 25% of its
total assets in securities of companies in a single industry. Ordinarily, at
least 80% of the assets of each U.S. Value Series will be invested in a broad
and diverse group of readily marketable common stocks of large U.S. companies
with high book to market ratios, as described above. Each U.S. Value Series may
invest a portion of its assets, ordinarily not more than 20%, in high quality,
highly liquid fixed income securities, such as money market instruments, and
short-term repurchase agreements. The U.S. Value Series may invest in futures
contracts and options on futures contracts. To the extent that the U.S. Value
Series invest in futures contracts for other than bona fide hedging purposes,
neither will purchase futures contracts if more than 5% of a Series' total
assets are then invested as initial margin deposits on such contracts or
options. The U.S. Value Series will purchase securities that are listed on the
principal U.S. national securities exchanges and traded over-the-counter.
The U.S. Value Series will be structured on a market capitalization
basis, generally by basing the amount of each security purchased on the issuer's
relative market capitalization, with a view to creating in each U.S. Value
Series a reasonable reflection of the relative market capitalizations of its
portfolio companies. However, the Advisor may exclude the securities of a
company that otherwise meets the applicable criteria described above if the
Advisor determines, in its best judgment, that other conditions exist that make
the inclusion of such security inappropriate.
Deviation from strict market capitalization weightings will also occur
because the U.S. Value Series intend to purchase round lots only. Furthermore,
in order to retain sufficient liquidity, the relative amount of any security
held by either of the U.S. Value Series may be reduced, from time to time, from
the level which adherence to market capitalization weightings would otherwise
require. A portion, but generally not in excess of 20%, of each U.S. Value
Series' assets may be invested in interest-bearing obligations, as described
above, for this purpose, thereby causing further deviation from market
capitalization weighting. Such investments would be made on a temporary basis
pending investment in equity securities pursuant to the U.S. Value Series'
investment objective. The U.S. Value Series may make block purchases of
eligible securities at opportune prices even though such purchases exceed the
number of shares which, at the time of purchase, strict adherence to the policy
of market capitalization weighting would otherwise require. In addition, the
U.S. Value Series may acquire securities eligible for purchase or otherwise
represented in their portfolios at the time of the exchange in exchange for the
issuance of their shares. (See "In Kind Purchases.") While such transactions
might cause a temporary deviation from market capitalization weightings, they
would ordinarily be made in anticipation of further growth of the assets of the
U.S. Value Series.
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<PAGE>
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 U.S. Value Series take place with every trade when the
securities markets are open for trading due, primarily, to price fluctuations of
such securities. On a periodic basis, the Advisor will prepare a current list
of large U.S. companies with high book to market ratios whose stock is eligible
for investment. Only common stocks whose market capitalizations are not less
than the minimum on each respective list will be purchased by the U.S. Value
Series. Additional investments will not be made in securities which have
depreciated in value to such an extent that they are not then considered by the
Advisor to be large companies. This may result in further deviation from market
capitalization weightings and such deviation could be substantial if a
significant amount of either of the U.S. Value Series' holdings decrease in
value sufficiently to be excluded from the then current market capitalization
requirement for eligible securities, but not by a sufficient amount to warrant
their sale.
It is management's belief that the stocks of large U.S. companies with
high book to market ratios offer, over a long term, a prudent opportunity for
capital appreciation but, at the same time, selecting a limited number of such
issues for inclusion in the U.S. 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 U.S. Value Series.
The U.S. Value Series do not seek current income as an investment
objective and investments will not be based upon an issuer's dividend payment
policy or record. The Tax-Managed Series may attempt to minimize taxable
dividend income. Nonetheless, many of the companies whose securities will be
included in the U.S. Value Series do pay dividends. It is anticipated,
therefore, that the U.S. Value Series will receive dividend income.
PORTFOLIO TRANSACTIONS
The U.S. Value Series do not intend to purchase or sell securities
based on the prospects for the economy, the securities markets or the individual
issuers whose shares are eligible for purchase. As described under "Portfolio
Structure," investments will be made in virtually all eligible securities on a
market capitalization weighted basis.
Generally, securities will be purchased with the expectation that they
will be held for longer than one year. Each U.S. Value Series may sell
portfolio securities when the issuer's market capitalization falls substantially
below that of the issuer with the minimum market capitalization which is then
eligible for purchase by the U.S. Value Series. However, securities may be sold
at any time when, in the Advisor's judgment, circumstances warrant their sale.
The annual portfolio turnover rates of the Large Cap Value Series for the fiscal
years ended November 30, 1996 and 1997 were 20.12% and 17.71%, respectively.
Annual portfolio turnover rates for the Tax-Managed Series for the same periods
are not available because the Tax-Managed Series had not commenced operations
prior to the date of this prospectus.
In addition, the U.S. Value Series may sell portfolio securities when
their book to market ratio falls substantially below that of the security with
the lowest such ratio that is then eligible for purchase by the Series. A
further discussion of the investment policies of the Tax-Managed Series,
including its portfolio structure and transactions, is contained in "TAX
MANAGEMENT STRATEGIES."
TAX MANAGEMENT STRATEGIES
The Tax-Managed Series seeks to minimize the impact of federal taxes
on returns by managing its portfolio in a manner that will defer the realization
of net capital gains where possible and may minimize dividend income.
When selling securities, the Tax-Managed Series typically will select
the highest cost shares of the specific security in order to minimize the
realization of capital gains. In certain cases, the highest cost shares may
produce a short-term capital gain. Since short-term capital gains are taxed at
higher tax rates than long-term capital gains, the highest cost shares with a
long-term holding period may be disposed of instead. The Tax-Managed Series
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also will seek, when possible, not to dispose of a security until the long-term
holding period for capital gains for tax purposes has been satisfied.
Additionally, the Tax-Managed Series may, when consistent with all other tax
management policies, sell securities in order to realize capital losses.
Realized capital losses can be used to offset realized capital gains, thus
reducing capital gains distributions. However, realization of capital gains is
not entirely within the Advisor's control. Capital gains distributions may vary
considerably from year to year; there will be no capital gains distributions in
years when the Tax-Managed Series realizes net capital losses. The timing of
purchases and sales of securities may be managed to minimize the receipt of
dividends to the extent possible. With respect to dividends that are received,
the Tax-Managed Series may not be eligible to flow through the dividends
received deduction attributable to holdings in U.S. equity securities to
corporate shareholders, if because of timing activities, the requisite holding
period of the dividend paying stock is not met. Portfolio holdings may be
managed to emphasize low-dividend yielding securities.
The Tax-Managed Series is expected to deviate from its market
capitalization weightings to a greater extent than the other Series. For
example, the Advisor may exclude the stock of a company that meets applicable
market capitalization criterion in order to avoid dividend income, and the
Advisor may sell the stock of a company that meets applicable market
capitalization criterion in order to realize a capital loss. Additionally,
while the U.S. Value Series are managed so that securities will generally be
held for longer than one year, the Tax-Managed Series may dispose of any
securities whenever the Advisor determines that such disposition would be
consistent with the Tax-Managed Series' tax management strategies.
Although the Advisor seeks to manage the Tax-Managed Series in order
to minimize the realization of capital gains and possible taxable dividend
income during a particular year, the Tax-Managed Series may nonetheless
distribute taxable gains and taxable income to shareholders from time to time.
Furthermore, shareholders may be required to pay taxes on the Tax-Managed
Series' capital gains, if any, realized upon the sale of the Tax-Managed Series'
assets to meet redemptions of shares of the Tax-Managed Series. The redeeming
shareholder will be required to pay taxes on the shareholder's capital gains
realized on a redemption, whether paid in cash or in kind, if the amount
realized on redemption is greater than the amount of the shareholder's tax basis
in the shares sold.
SECURITIES LOANS
The Series are authorized to lend securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of earning
additional income. While a Series may earn additional income from lending
securities, such activity is incidental to a Series' investment objective. The
value of securities loaned may not exceed 33 1/3% of the value of a Series'
total assets. In connection with such loans, a Series will receive collateral
consisting of cash or U.S. Government securities, which will be maintained at
all times in an amount equal to at least 100% of the current market value of the
loaned securities. In addition, the Series will be able to terminate the loan
at any time and will receive reasonable interest on the loan, as well as amounts
equal to any dividends, interest or other distributions on the loaned
securities. In the event of the bankruptcy of the borrower, the Series could
experience delay in recovering the loaned securities. Management believes that
this risk can be controlled through careful monitoring procedures. Each
Portfolio is also authorized to lend its portfolio securities. However, as long
as it holds only shares of its corresponding Series, it will not do so.
RISK FACTORS
FOREIGN SECURITIES
The International Value Series invests in foreign issuers. Such
investments involve risks that are not associated with investments in U.S.
public companies. Such risks may include legal, political and or diplomatic
actions of foreign governments, such as imposition of withholding taxes on
interest and dividend income payable on the securities held, possible seizure or
nationalization of foreign deposits, establishment of exchange controls or the
adoption of other foreign governmental restrictions which might adversely affect
the value of the assets held by the International Value Series. Further,
foreign issuers are not generally subject to uniform accounting, auditing and
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financial reporting standards comparable to those of U.S. public companies and
there may be less publicly available information about such companies than
comparable U.S. companies.
The economies of many countries in which the International Value
Series invests are not as diverse or resilient as the U.S. economy, and have
significantly less financial resources. Some countries are more heavily
dependent on international trade and may be affected to a greater extent by
protectionist measures of their governments, or dependent upon a relatively
limited number of commodities and, thus, sensitive to changes in world prices
for these commodities.
In many foreign countries, stock markets are more variable than U.S.
markets for two reasons. Contemporaneous declines in both (i) foreign
securities prices in local currencies and (ii) the value of local currencies in
relation to the U.S. dollar can have a significant negative impact on the net
asset value of the International Value Series and the DFA International Value
Portfolio III. The net asset value of the International Value Series is
denominated in U.S. dollars, and, therefore, declines in market price of both
the foreign securities held by the International Value Series and the foreign
currency in which those securities are denominated will be reflected in the net
asset value of the International Value Series' and the DFA International Value
Portfolio III's shares.
On September 1, 1998, the Malaysian government announced a series of
capital and foreign exchange controls on the Malaysian currency, the ringgit,
and on transactions on the Kuala Lampur Stock Exchange, that operate to severely
constrain or prohibit foreign investors, including the International Value
Series, from repatriating assets. While there is some confusion in the market
concerning the interpretations of these changes, it appears that the
International Value Series will not be permitted to convert the proceeds of the
sale of its Malaysian investments into U.S. dollars prior to September 1, 1999.
As a consequence of these developments, the International Value
Series has stopped investing additional funds in Malaysia. With respect to
the current Malaysian investments owned by the International Value Series,
the Series is presently valuing the securities in good faith at fair value by
discounting the current market prices of the Malaysian securities and/or
discounting the U.S. dollar-ringgit currency exchange rate. Pending further
clarification from Malaysian regulatory authorities regarding the controls
identified above, the International Value Series will treat its investments
in Malaysian securities as illiquid. As of the date of this prospectus,
Malaysian securities constitute less than one percent of the net asset value
of the International Value Series.
FOREIGN CURRENCIES AND RELATED TRANSACTIONS
Investments of the International Value Series will be denominated in
foreign currencies. Changes in the relative values of foreign currencies and
the U.S. dollar, therefore, will affect the value of investments of that Series.
The International Value Series may purchase foreign currency futures contracts
and options in order to hedge against changes in the level of foreign currency
exchange rates. Such contracts involve an agreement to purchase or sell a
specific currency at a future date at a price set in the contract and enable the
International Value Series to protect against losses resulting from adverse
changes in the relationship between the U.S. dollar and foreign currencies
occurring between the trade and settlement dates of Series securities
transactions, but they also tend to limit the potential gains that might result
from a positive change in such currency relationships. Gains and losses on
futures contracts and options thereon depend on interest rates and other
economic forces.
INTRODUCTION OF THE EURO
On January 1, 1999, The European Monetary Union ("EMU") will introduce
a common currency, the Euro, replacing its members' national currencies. This
development will affect the International Value Series' investments in EMU
countries to the extent it changes investment practices, opportunities, risks
and investor behavior or creates administrative problems. The Advisor and its
global custodians are attempting to assure that the International Value Series
will be unaffected by any transition related disruptions. However, they cannot
guarantee that the efforts will succeed completely. The relative value of the
U.S. dollar and Euro will fluctuate. Accordingly, currency risk (discussed
above) will continue to apply to the International Value Series' investments in
EMU countries.
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BORROWING
Each of the International Value Series and the U.S. Value Series has
reserved the right to borrow amounts not exceeding 33% of its net assets for the
purposes of making redemption payments. When advantageous opportunities to do
so exist, 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 U.S. Value Series differs from the process employed by many other
investment advisors in that the Advisor will rely on fundamental analysis of the
investment merits of securities to a limited extent to eliminate potential
acquisitions rather than rely on this technique to select securities. Further,
because securities generally will be held long-term and will not be eliminated
based on short-term price fluctuations, the Advisor generally will not act upon
general market movements or short-term price fluctuations of securities to as
great an extent as many other investment advisors.
REPURCHASE AGREEMENTS
In addition, each Series may invest in repurchase agreements. In the
event of bankruptcy of the other party to a repurchase agreement, the Trust
could experience delay in recovering the securities underlying such agreement.
Management believes that this risk can be controlled through stringent security
selection criteria and careful monitoring procedures.
YEAR 2000 ISSUE
Unless modified, many computers will not properly process information
from the Year 2000 on. While the issue is international in scope, there is a
particular concern with foreign entities. The Advisor has taken steps to ensure
that its computers and those of the Portfolios' and Series' service providers
(e.g., custodians) will operate properly. The Portfolios and Series may be
negatively affected if the Advisor's efforts prove inadequate, and/or Year 2000
problems hurt economic conditions generally.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
Each Series also may invest in futures contracts and options on
futures. To the extent that a Series invests in futures contracts and options
thereon for other than bona fide hedging purposes, it will not enter into such
transactions if, immediately thereafter, the sum of the amount of initial margin
deposits and premiums paid for open futures options would exceed 5% of the
Series' total assets, after taking into account unrealized profits and
unrealized losses on such contracts it has entered into; provided, however,
that, in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%. These investments
entail the risk that an imperfect correlation may exist between changes in the
market value of the stocks owned by the Series and the prices of such futures
contracts and options, and, at times, the market for such contracts and options
might lack liquidity, thereby inhibiting a Series' ability to close a position
in such investments. Gains or losses on investments in options and futures
depend on the direction of securities prices, interest rates and other economic
factors, and the loss from investing in futures contracts is potentially
unlimited. A Series' investment in futures and options are subject to special
tax rules that may affect the amount, timing and character of the income earned
by such Series and the corresponding Portfolio's distributions to its
shareholders. (These special rules are discussed in the statement of additional
information.)
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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, 1997, (i) the Advisor received
a fee for its advisory services to the designated Portfolios' corresponding
Series equal to the following percentage of the average net assets of each
Series and (ii) the total expenses of each designated Portfolio were the
following percentages of its average net assets:
<TABLE>
<CAPTION>
Management Fee Total Expenses
-------------- --------------
<S> <C> <C>
DFA International Value Portfolio III 0.20% 0.38%
U.S. Large Cap Value Portfolio III 0.10% 0.23%
</TABLE>
With regard to the Tax-Managed U.S. Marketwide Value Portfolio II, its
corresponding Series is obligated to pay a 0.20% investment management fee,
calculated as a percentage of the average net assets of the Series on an annual
basis.
Each Portfolio and Series bears all of its own costs and expenses,
including: services of its independent accountants, legal counsel, brokerage
commissions and transfer taxes in connection with the acquisition and
disposition of portfolio securities, taxes, insurance premiums, costs incidental
to meetings of its shareholders and directors or trustees, the cost of filing
its registration statements under federal securities laws and the cost of any
filings required under state securities laws, reports to shareholders, and
transfer and dividend disbursing agency, administrative services and custodian
fees. Expenses allocable to a particular Portfolio or Series are so allocated
and expenses which are not allocable to a particular Portfolio and its
corresponding Series are borne by such Portfolio and Series on the basis of
their relative net assets.
The Advisor was organized in May, 1981, and is engaged in the business
of providing investment management services to institutional investors. Assets
under management total approximately $26 billion. David G. Booth and Rex A.
Sinquefield (directors and officers of both the Fund and the Advisor, trustees
and officers of the Trust, and shareholders of the Advisor) may be deemed
controlling persons of the Advisor.
The Advisor has entered into a Consulting Services Agreement with
Dimensional Fund Advisors Ltd. ("DFAL") and DFA Australia Limited ("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 the International Value Series of the
Trust. The Advisor owns 100% of the outstanding shares of DFAL and beneficially
owns 100% of DFA Australia.
The Board of Directors is responsible for establishing Portfolio
policies and for overseeing the management of the Portfolios. Each of the
Directors and officers of the Fund is also a Trustee and officer of the Trust.
The Directors of the Fund, including all of the disinterested Directors, have
adopted written procedures to monitor potential conflicts of interest that might
develop between the Portfolios and the Series. The statement of additional
information relating to the Portfolios furnishes information about the Directors
and officers of the Fund. (See "DIRECTORS AND OFFICERS" in the statement of
additional information.)
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ADMINISTRATIVE SERVICES
The Fund has entered into an administration agreement with the Advisor
on behalf of each Portfolio. Pursuant to the administration agreement, the
Advisor will perform various services, including: supervision of the services
provided by the Portfolio's custodian and dividend disbursing agent and others
who provide services to the Fund for the benefit of the Portfolio; assisting the
Fund to comply with the provisions of federal, state, local and foreign
securities, tax and other laws applicable to the Portfolio; providing
shareholders of record with information about the Portfolio and their
investments as they or the Fund may request; assisting the Fund to conduct
meetings of shareholders; furnishing information as the Board of Directors may
require regarding the Series; and any other administrative services for the
benefit of the Portfolio as the Board of Directors may reasonably request. The
Advisor also provides the Fund with office space and personnel. For its
administrative services, the Portfolios each pay the Advisor a monthly fee equal
to one-twelfth of 0.01% of their respective average net assets, except for the
Tax-Managed U.S. Marketwide Value Portfolio II, which pays no fee.
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. Each Portfolio will distribute any realized net
capital gains annually after the end of the Fund's fiscal year.
The DFA International Value Portfolio III and the U.S. Large Cap Value
Portfolio III (collectively, the "Corporate Feeder Portfolios") seek to achieve
their investment objectives by investing all of their investable assets in a
corresponding Master Fund (collectively, the "Corporate Master Funds"). The
Corporate Master Funds intend to qualify each year as regulated investment
companies under the Code.
A Corporate Feeder Portfolio receives income in the form of income
dividends paid by the corresponding Corporate Master Fund. This income, less
the expenses incurred in operations, is a Corporate Feeder Portfolio's net
investment income from which income dividends are distributed as described
above. A Corporate Feeder Portfolio also may receive capital gains
distributions from the corresponding Corporate Master Fund and may realize
capital gains upon the redemption of the shares of the corresponding Corporate
Master Fund. Any net realized capital gains of a Corporate Feeder Portfolio
will be distributed as described above.
The Tax-Managed U.S. Marketwide Value Portfolio II (the "Partnership
Feeder Portfolio") seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Series of shares of the Trust (the
"Partnership Series"). The Partnership Series is classified as a partnership
for U.S. federal income tax purposes. The Partnership Feeder Portfolio is
allocated its proportionate share of the income and realized and unrealized
gains and losses of the Partnership Series.
Shareholders of the Portfolios will automatically receive all income
dividends and any capital gains distributions in additional shares of the
Portfolio whose shares they hold at net asset value (as of the business date
following the dividend record date). Shareholders of the U.S. Large Cap Value
Portfolio III and the Tax-Managed U.S. Marketwide Value Portfolio II, who do not
own their shares under a 401(k) plan, may select one of the following options
upon written notice to PFPC Inc., the transfer agent for each Portfolio:
Income Option - to receive income dividends in cash and capital
gains distributions in additional shares at net
asset value.
Capital Gains Option - to receive capital gains distributions in cash and
income dividends in additional shares at net asset
value.
Cash Option - to receive both income dividends and capital gains
distributions in cash.
15
<PAGE>
Whether paid in cash or additional shares and regardless of the length of time a
Portfolio's shares have been owned by shareholders who are subject to federal
income taxes, distributions from long-term capital gains are taxable as such.
Dividends from net investment income or net short-term capital gains will be
taxable as ordinary income, whether received in cash or in additional shares.
Dividends from net investment income of U.S. Large Cap Value and Tax-Managed
U.S. Marketwide Value Portfolios will generally qualify in part for the
corporate dividends received deduction, but the portion of dividends so
qualified depends on the aggregate qualifying dividend income received by the
corresponding Series from domestic (U.S.) sources. The Tax-Managed Series'
attempts to time investments in order to minimize receipt of dividends could
result in the Series being unable to flow through the dividends received
deduction to corporate shareholders. This will occur if the Tax-Managed Series
does not hold the stock of a domestic (U.S.) corporation for the requisite
holding period to be eligible for pass-through of the dividends received
deduction. It is anticipated that either none or only a small portion of the
distributions made by the DFA International Value Portfolio III will qualify for
the corporate dividends received deduction because of the corresponding Series'
investment in foreign equity securities.
For those investors subject to tax, if purchases of shares of the
Portfolios are made shortly before the record date for a dividend or capital
gains distribution, a portion of the investment will be returned as a taxable
distribution. Dividends from net investment income or net short-term capital
gains will be taxable as ordinary income. Shareholders are notified annually by
the Fund as to the federal tax status of dividends and distributions paid by the
Portfolios.
The Advisor seeks to manage the Tax-Managed Series in order to
minimize the realization of net capital gains where possible and may minimize
taxable dividend income during a particular year. However, the realization of
capital gains and receipt of income is not entirely within the Advisor's
control. Thus, capital gains distributions may vary considerably from year to
year. There will be no capital gains distributions in years when the
Tax-Managed Series realizes net capital losses. Furthermore, the realization of
capital gains by a shareholder on the sale of portfolio shares will depend on
whether his or her redemption price exceeds his or her tax basis in the shares
sold.
Dividends which are declared in November or December to shareholders
of record in such month but which, for operational reasons, may not be paid to
the shareholder until the following January, will be treated for tax purposes as
if paid by a Portfolio and received by the shareholder on December 31 of the
calendar year in which they are declared.
The sale of shares of a Portfolio is a taxable event and may result in
a capital gain or loss to shareholders subject to tax. Capital gain or loss may
be realized from an ordinary redemption of shares or an exchange of shares of a
Portfolio for shares of another portfolio of the Fund. Any loss incurred on
sale or exchange of a Portfolio's shares, held for six months or less, will be
treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares.
The International Value Series may be subject to foreign withholding
taxes on income and gains from certain of its foreign securities. These taxes
will, in turn, reduce the amount of distributions the International Value
Portfolio III pays to its shareholders. If International Value Series purchases
shares in certain foreign entities, called "passive foreign investment
companies," the 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 III.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions from a Portfolio to its shareholders and on gains
arising on redemption or exchange of a Portfolio's 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.
16
<PAGE>
The tax discussion set forth above is included for general information
only. Prospective investors should consult their own tax advisers concerning
the federal, state, local or foreign tax consequences of an investment in the
Portfolios.
PURCHASE OF SHARES
Shares of the Portfolios are sold only (i) to fund deferred
compensation plans which are exempt from taxation under section 401(k) of the
Code and (ii) to clients of financial advisers.
Provided that shares of the Portfolios are available under an
employer's 401(k) plan, shares may be purchased by following the procedures
adopted by the respective employer and approved by Fund management for making
investments. Shares are available through the service agent designated under
the employer's plan. Investors who are considering an investment in the
Portfolios should contact their employer for details. The Fund does not impose
a minimum purchase requirement, but investors should determine whether their
employer's plan imposes a minimum transaction requirement.
Investors who are clients of financial advisers should contact their
financial adviser with respect to a proposed investment and then follow the
procedures adopted by the financial adviser for making purchases. Shares that
are purchased or sold through omnibus accounts maintained by securities firms
may be subject to a service fee or commission for such transactions. Clients of
financial advisers may also be subject to investment advisory fees under their
own arrangements with their financial advisers.
Purchases of shares will be made in full and fractional shares
calculated to three decimal places. In the interest of economy and convenience,
certificates for shares will not be issued.
IN KIND PURCHASES
If accepted by the Fund, shares of a Portfolio may be purchased in
exchange for securities which are eligible for acquisition by its corresponding
Series or otherwise represented in the portfolios of the Series as described in
this prospectus or in exchange for local currencies in which such securities of
the International Value Series are denominated. Securities and local currencies
to be exchanged which are accepted by the Fund and Fund shares to be issued
therefore will be valued as set forth under "VALUATION OF SHARES" at the time of
the next determination of net asset value after such acceptance. All dividends,
interests, subscription, or other rights pertaining to such securities shall
become the property of the Portfolio whose shares are being acquired and must be
delivered to the Fund by the investor upon receipt from the issuer. Investors
who desire to purchase shares of the DFA International Value Portfolio III with
local currencies should first contact the Advisor for wire instructions.
The Fund will not accept securities in exchange for shares of a
Portfolio unless: (1) such securities are, at the time of the exchange,
eligible to be included, or otherwise represented, in the Series corresponding
to the Portfolio whose shares are to be issued and current market quotations are
readily available for such securities; (2) the investor represents and agrees
that all securities offered to be exchanged are not subject to any restrictions
upon their sale by the Portfolio under the Securities Act of 1933 or under the
laws of the country in which the principal market for such securities exists or
otherwise; and (3) at the discretion of the Fund, the value of any such security
(except U.S. Government securities) being exchanged together with other
securities of the same issuer owned by the corresponding Series may not exceed
5% of the net assets of the Series immediately after the transaction. The Fund
will accept such securities for investment and not for resale.
A gain or loss for federal income tax purposes will generally be
realized by investors who are subject to federal taxation upon the exchange
depending upon the cost of the securities or local currency exchanged.
Investors interested in such exchanges should contact the Advisor.
17
<PAGE>
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 International Value Series are determined as of such
times for the purpose of computing the net asset value of the Series. If events
which materially affect the value of the investments of the International Value
Series occur subsequent to the close of the securities market on which such
securities are primarily traded, the investments affected thereby will be valued
at "fair value" as described above. The net asset value per share of the
International Value Series is expressed in U.S. dollars by translating the net
assets of the Series using the bid price for the dollar as quoted by generally
recognized reliable sources.
The net asset value of each Portfolio is calculated as of the close of
the NYSE by dividing the total market value of its investments and other assets,
less any liabilities, by the total outstanding shares of the stock of the
Portfolio. The value of each Portfolio's shares will fluctuate in relation to
the investment experience of the corresponding Series.
Provided that a financial adviser or service agent designated under a
401(k) plan has received the investor's investment instructions in good order
and 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.
Management believes that any dilutive effect of the cost of investing
the proceeds of the sale of the shares of the Portfolios is minimal and,
therefore, the shares of the Portfolios are currently sold at net asset value,
without imposition of a fee that would be used to reimburse a Portfolio for such
cost ("reimbursement fee"). Reimbursement fees may be charged prospectively
from time to time based upon the future experience of the Portfolios and their
corresponding Series. Any such charges will be described in the prospectus.
DISTRIBUTION
The Fund acts as distributor of the Portfolios' shares. It has,
however, entered into an agreement with DFA Securities Inc., a wholly owned
subsidiary of DFA, pursuant to which DFA Securities Inc. is responsible for
supervising the sale of the Portfolios' shares. No compensation is paid by the
Fund to DFA Securities Inc. under this agreement.
EXCHANGE OF SHARES
An investor who is a client of a financial adviser may exchange shares
of one Portfolio for those of another Portfolio described in this prospectus or
a portfolio of DFA Investment Dimensions Group Inc., an open-end, management
investment company ("DFAIDG"), by first contacting its financial adviser and
completing the documentation required by the financial adviser. Exchanges are
accepted only into those portfolios of DFAIDG that are eligible for the exchange
privilege of DFAIDG. In addition, exchanges are not accepted into or from the
DFA
18
<PAGE>
International Value Portfolio III. Investors should contact their financial
advisor for a list of those portfolios of DFAIDG that accept exchanges.
In the case of an investor who has invested through an employer's
401(k) plan, investors may exchange shares of other Fund portfolios that are
offered through the plan by completing the necessary documentation as required
by the service agent designated under the employer's plan and the Advisor.
Please contact the service agent of your plan for further information.
The minimum amount for an exchange is $100,000. The exchange
privilege is not intended to afford shareholders a way to speculate on
short-term movements in the markets. Accordingly, in order to prevent excessive
use of the exchange privilege that may potentially disrupt the management of the
Portfolios or otherwise adversely affect the Fund or DFAIDG , the exchange
privilege may be terminated and any proposed exchange will be subject to the
approval of the Advisor. Such approval will depend on: (i) the size of the
proposed exchange; (ii) the prior number of exchanges by that shareholder; (iii)
the nature of the underlying securities and the cash position of the Portfolio
and of the portfolio of DFAIDG involved in the proposed exchange; (iv) the
transaction costs involved in processing the exchange; and (v) the total number
of redemptions by exchange already made out of the Portfolio.
With respect to shares held by clients of financial advisers, the
redemption and purchase prices of shares redeemed and purchased by exchange,
respectively, are the net asset values next determined after the Advisor has
received an Exchange Form in good order, plus any applicable reimbursement fee
on purchases by exchange. "Good order" means a completed Exchange Form
specifying the dollar amount to be exchanged, signed by all registered owners of
the shares; and if the Fund does not have on file the authorized signatures for
the account, a guarantee of the signature of each registered owner by a
commercial bank, trust company or member of a recognized stock exchange.
Exchanges will be accepted only if the registrations of the two accounts are
identical, stock certificates have not been issued and the Fund may issue the
shares of the portfolio being acquired in compliance with the securities laws of
the investor's state of residence.
With respect to shares held under a 401(k) plan, the redemption and
purchase prices of shares redeemed and purchased by exchange, respectively, are
the net asset values next determined after the plan's service agent has received
appropriate instructions in the form required by such service agent plus any
applicable reimbursement fee on purchases by exchange, and provided that such
service agent has provided proper documentation to the Advisor.
There is no fee imposed on an exchange. However, the Fund reserves
the right to impose an administrative fee in order to cover the costs incurred
in processing an exchange. Any such fee will be disclosed in the prospectus.
An exchange is treated as a redemption and a purchase. Therefore, an investor
could realize a taxable gain or loss on the transaction. The Fund reserves the
right to revise or terminate the exchange privilege, limit the amount of or
reject any exchange, or waive the minimum amount requirement as deemed
necessary, at any time.
REDEMPTION OF SHARES
An investor who desires to redeem shares of a Portfolio must furnish a
redemption request to its financial adviser or to the service agent designated
under a 401(k) plan in the form required by such financial adviser or service
agent. The Portfolio will redeem shares at the net asset value of such shares
next determined after receipt of a request for redemption in good order by PFPC
Inc.
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 account is $500
or less, whether because of redemptions, a decline in the Portfolio's
19
<PAGE>
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.
When in the best interest of a Portfolio, the Portfolio may make a
redemption payment, in whole or in part, by a distribution of portfolio
securities that the Portfolio receives from the Series in lieu of cash in
accordance with Rule 18f-1 under the 1940 Act. Investors may incur brokerage
charges and other transaction costs selling securities that were received in
payment of redemptions. The International Value Series reserves the right to
redeem its shares in the currencies in which its investments are denominated.
Investors may incur charges in converting such currencies to dollars and the
value of currencies may be affected by currency exchange fluctuations. The
Tax-Managed U.S. Marketwide Value Portfolio II and the Tax-Managed Series are
authorized to make redemption payments solely by a distribution of portfolio
securities, or a combination of securities and cash, when it is determined by
the Advisor to be consistent with the tax management strategies described in the
prospectus and applicable legal and regulatory requirements.
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. In all cases, disclosures are made when performance quotations
differ from the SEC Guidelines. Performance data is based on historical
earnings and is not intended to indicate future performance. Rates of return
expressed on an annual basis will usually not equal the sum of returns expressed
for consecutive interim periods due to the compounding of the interim yields.
The Fund's annual report to shareholders of the Portfolios for the fiscal year
ended November 30, 1997, and semi-annual report to shareholders for the period
ended May 31, 1998, contain additional performance information. A copy of the
annual and semi-annual reports are available upon request and without charge.
The Fund was incorporated under Maryland law on March 19, 1990. The
shares of each Portfolio, when issued and paid for in accordance with this
prospectus, will be fully paid and non-assessable shares, with equal,
non-cumulative voting rights and no preferences as to conversion, exchange,
dividends, redemption or any other feature. With respect to matters which
require shareholder approval, shareholders are entitled to vote only with
respect to matters which affect the interest of the class of shares (Portfolio)
which they hold, except as otherwise required by applicable law. If liquidation
of the Fund should occur, shareholders would be entitled to receive on a per
class basis the assets of the particular Portfolio whose shares they own, as
well as a proportionate share of Fund assets not attributable to any particular
Portfolio. Ordinarily, the Fund does not intend to hold annual meetings of
shareholders, except as required by the 1940 Act or other applicable law. The
Fund's by-laws provide that special meetings of shareholders shall be called at
the written request of at least 10% of the votes entitled to be cast at such
meeting. Such meeting may be called to consider any matter, including the
removal of one or more directors. Shareholders will receive shareholder
communications with respect to such matters as required by the 1940 Act,
including semi-annual and annual financial statements of the Fund, the latter
being audited.
The DFA Investment Trust Company was organized as a Delaware business
trust on October 27, 1992. The Trust offers shares of its Series only to
institutional investors in private offerings. The Fund may withdraw the
investment of a Portfolio in a Series at any time, if the Board of Directors of
the Fund determines that it is in the best interests of the Portfolio to do so.
Upon any such withdrawal, the Board of Directors of the Fund would consider what
action might be taken, including the investment of all of the assets of the
Portfolio in another
20
<PAGE>
pooled investment entity having the same investment objective as the Portfolio
or the hiring of an investment advisor to manage the Portfolio's assets in
accordance with the investment policies described above.
Whenever a Portfolio, as an investor in its corresponding Series, is
asked to vote on a shareholder proposal, the Fund will solicit voting
instructions from the Portfolio's shareholders with respect to the proposal.
The Directors of the Fund will then vote the Portfolio's shares in the Series in
accordance with the voting instructions received from the Portfolio's
shareholders. The Directors of the Fund will vote shares of the Portfolio for
which they receive no voting instructions in accordance with their best
judgment.
As of October 30, 1998, the following person(s) owned more than 25% of
the voting securities of the following Portfolios:
DFA INTERNATIONAL VALUE PORTFOLIO III
Charles Schwab & Co. Inc.-ALL REIN* 100%
101 Montgomery Street
San Francisco, CA 94104
U.S. LARGE CAP VALUE PORTFOLIO III
Charles Schwab & Co. Inc.-CAP REIN* 52.01%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Co. Inc.-ALL REIN* 45.51%
101 Montgomery Street
San Francisco, CA 94104
*Owner of record only
Shareholder inquiries may be made by writing or calling the Fund at
the address or telephone number appearing on the cover of this prospectus.
21
<PAGE>
DIMENSIONAL INVESTMENT GROUP INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue
11th floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
CUSTODIAN
PNC BANK, N.A.
200 Stevens Drive, Airport Business Center
Lester, PA 19113
ACCOUNTING SERVICES, DIVIDEND DISBURSING AND TRANSFER 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
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
19th and Market Streets
Philadelphia, PA 19103
<PAGE>
DFA INTERNATIONAL VALUE PORTFOLIO III
U.S. LARGE CAP VALUE PORTFOLIO III
TAX-MANAGED U.S. MARKETWIDE VALUE PORTFOLIO II
DIMENSIONAL INVESTMENT GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 8, 1998
This statement of additional information is not a prospectus but
should be read in conjunction with the prospectus of DFA International Value
Portfolio III, U.S. Large Cap Value Portfolio III and Tax-Managed U.S.
Marketwide Value Portfolio II (individually, a "Portfolio" and collectively,
the "Portfolios") of Dimensional Investment Group Inc. (the "Fund"), dated
December 8, 1998, as amended from time to time, which can be obtained from
the Fund by writing to the Fund at the above address or by calling the above
telephone number.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . . 1
BROKERAGE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FUTURES CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS . . . . . . . . . . . . . . . . . 6
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ADMINISTRATIVE SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . 10
CALCULATION OF PERFORMANCE DATA. . . . . . . . . . . . . . . . . . . . . . . 11
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the information set forth in the
prospectus under the captions "DFA INTERNATIONAL VALUE PORTFOLIO III-INVESTMENT
OBJECTIVE AND POLICIES" and "THE U.S. VALUE PORTFOLIOS-INVESTMENT OBJECTIVE AND
POLICIES" and applies to the DFA International Value Series (the "International
Value Series"), the DFA U.S. Large Cap Value Series (the "Large Cap Value
Series"), and the Tax-Managed U.S. Marketwide Value Series (the "Tax-Managed
Series")(collectively, the "Series") of The DFA Investment Trust Company (the
"Trust").
Because the structure of the International Value Series, the Large Cap
Value Series and the Tax-Managed Series are based on the relative market
capitalizations of eligible holdings, it is possible that the Series might
include at least 5% of the outstanding voting securities of one or more issuers.
In such circumstances, the Fund and the issuer would be deemed "affiliated
persons" under the Investment Company Act of 1940 (the "1940 Act") and certain
requirements of the 1940 Act regulating dealings between affiliates might become
applicable. However, based on the present capitalizations of the groups of
companies eligible for inclusion in the Series and the anticipated amount of the
Series' assets intended to be invested in such securities, management does not
anticipate that a Series will include as much as 5% of the voting securities of
any issuer.
The International Value Series may invest up to 5% of its assets in
convertible debentures issued by non-U.S. companies. Convertible debentures
include corporate bonds and notes that may be converted into or exchanged for
common stock. These securities are generally convertible either at a stated
price or a stated rate (that is, for a specific number of shares of common stock
or other security). As with other fixed income securities, the price of a
convertible debenture to some extent varies inversely with interest rates.
While providing a fixed-income stream (generally higher in yield than the income
derived from a common stock but lower than that afforded by a non-convertible
debenture), a convertible debenture also affords the investor an opportunity,
through its conversion feature, to participate in the capital appreciation of
the common stock into which it is convertible. As the market price of the
underlying common stock declines, convertible debentures tend to trade
increasingly on a yield basis and so may not experience market value declines to
the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the price of a convertible debenture tends to
rise as a reflection of the value of the underlying common stock. To obtain
such a higher yield, the International Value Series may be required to pay for a
convertible debenture an amount in excess of the value of the underlying common
stock. Common stock acquired by the International Value Series upon conversion
of a convertible debenture will generally be held for so long as the Advisor
anticipates such stock will provide the International Value Series with
opportunities which are consistent with its investment objective and policies.
BROKERAGE TRANSACTION
The following table depicts brokerage commissions paid by the
designated Series.
BROKERAGE COMMISSIONS
FISCAL YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
International Value Series $1,133,787 $1,251,242 $542,306
Large Cap Value Series 929,005 934,452 410,503
</TABLE>
The substantial increases or decreases in the amount of brokerage
commissions paid by the International Value Series from year to year resulted
from increases or decreases in the amount of securities that were bought and
sold by the International Value Series. The Tax-Managed Series had not
commenced operations prior to the date of this statement of additional
information.
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
2
<PAGE>
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 they invest.
The Advisor also checks the rate of commission being paid by the Series to their
brokers to ascertain that they are competitive with those charged by other
brokers for similar services.
Transactions also may be placed with brokers who provide the Advisor
with investment research, such as reports concerning individual issuers,
industries and general economic and financial trends and other research
services. The Investment Management Agreement of each Series permits the
Advisor knowingly to pay commissions on these transactions which are greater
than another broker might charge if the Advisor, in good faith, determines that
the commissions paid are reasonable in relation to the research or brokerage
services provided by the broker or dealer when viewed in terms of either a
particular transaction or the Advisor's overall responsibilities to assets under
its management. Research services furnished by brokers through whom securities
transactions are effected may be used by the Advisor in servicing all of its
accounts and not all such services may be used by the Advisor with respect to
the Series.
During fiscal year 1997, the Series paid commissions for securities
transactions to brokers which provided market price monitoring services, market
studies and research services to the Series as follows:
<TABLE>
<CAPTION>
VALUE OF BROKERAGE
SECURITIES TRANSACTIONS COMMISSIONS
----------------------- -----------
<S> <C> <C>
International Value Series $ 4,623,558 $ 13,922
Large Cap Value Series 78,961,638 122,527
----------- -------
Total 83,585,196 136,449
</TABLE>
The over-the-counter market ("OTC") companies eligible for purchase by
the Large Cap Value Series and Tax-Managed Series are thinly traded securities.
Therefore, the Advisor believes it needs maximum flexibility to effect OTC
trades on a best execution basis. To that end, the Advisor places buy and sell
orders with market makers, third market brokers, Instinet and with dealers on an
agency basis when the Advisor determines that the securities may not be
available from other sources at a more favorable price. Third market brokers
enable the Advisor to trade with other institutional holders directly on a net
basis. This allows the Advisor sometimes to trade larger blocks than would be
possible by going through a single market maker.
The Advisor places buy and sell orders on Instinet when the Advisor
determines that the securities may not be available from other sources at a more
favorable price. Instinet is an electronic information and communication
network whose subscribers include most market makers as well as many
institutions. Instinet charges a commission for each trade executed on its
system. On any given trade a Series, by trading through Instinet, would pay a
spread to a dealer on the other side of the trade plus a commission to Instinet.
However, placing a buy (or sell) order on Instinet communicates to many
(potentially all) market makers and institutions at once. This can create a
more complete picture of the market and thus increase the likelihood that the
Series can effect transactions at the best available prices.
The Portfolios will not incur any brokerage or other costs in
connection with a purchase or redemption of shares of a corresponding Series,
except if a Portfolio receives securities or currencies from the corresponding
Series to satisfy the Portfolio's redemption request.
3
<PAGE>
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; provided that the
Tax-Managed U.S. Marketwide Value Portfolio II is not subject to this
limitation;
(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; provided that the Tax-Managed U.S. Marketwide Value Portfolio II
is not subject to this limitation;
(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; provided that the Tax-Managed U.S. Marketwide Value Portfolio II is
not subject to this limitation;
(8) engage in the business of underwriting securities issued by
others;
(9) invest for the purpose of exercising control over management of
any company; provided that the Tax-Managed U.S. Marketwide Value Portfolio II is
not subject to this limitation;
(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 Tax-Managed U.S. Marketwide Value Portfolio II
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; provided that the Tax-Managed U.S. Marketwide Value
Portfolio II is not subject to this limitation;
4
<PAGE>
(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; provided that the Tax-Managed U.S. Marketwide Value Portfolio may
write or acquire options;
(14) purchase warrants, except that the Portfolios may acquire
warrants as a result of corporate actions involving their holdings of equity
securities; provided that the Tax-Managed U.S. Marketwide Value Portfolio II is
not subject to this limitation;
(15) purchase securities on margin or sell short provided that the
Tax-Managed U.S. Marketwide Value Portfolio II is not subject to the
limitation on selling securities short;
(16) acquire more than 10% of the voting securities of any issuer;
provided that this limitation applies only to 75% of the assets of the U.S.
Large Cap Value Portfolio III and the Tax-Managed U.S. Large Cap Value
Portfolio II; or
(17) issue senior securities (as such term is defined in Section 18(f)
of the 1940 Act), except to the extent permitted by the 1940 Act.
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.
Although not a fundamental policy subject to shareholder approval,
the Tax-Managed U.S. Marketwide Value Portfolio II, indirectly through its
investment in the Series, does not intend to invest more than 15% of its net
assets in illiquid securities.
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.
The International Value Series may acquire and sell forward foreign
currency exchange contracts in order to hedge against changes in the level of
future currency rates. Such contracts involve an obligation to purchase or sell
a specific currency at a future date at a price set in the contract. While the
Series have retained authority to buy and sell financial futures contracts and
options thereon, they have no present intention to do so.
Subject to future regulatory guidance, for purposes of those
investment limitations identified above that are based on total assets,
"total assets" refers to the assets that the Series owns, and does not
include assets which the Series does not own but over which it has effective
control. For example, when applying a percentage investment limitation that
is based on total assets, the Series will exclude from its total assets those
assets which represent collateral received by the Series for its securities
lending transactions.
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
5
<PAGE>
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. With respect to
illiquid securities, if a fluctation in value causes a Portfolio or Series to
go above its limitations on investments in illiquid securities, the Board of
Directors will consider what action, if any, should be taken to reduce the
percentage to the applicable limitation.
FUTURES CONTRACTS
Each Series may enter into futures contracts and options on futures
contracts for the purpose of remaining fully invested and to maintain
liquidity to pay redemptions. Futures contracts provide for the future sale
by one party and purchase by another party of a specified amount of defined
securities at a specified future time and at a specified price. Futures
contracts which are standardized as to maturity date and underlying financial
instrument are traded on national futures exchanges. A Series will be
required to make a margin deposit in cash or government securities with a
broker or custodian to initiate and maintain positions in futures contracts.
Minimal initial margin requirements are established by the futures exchange
and brokers may establish margin requirements which are higher than the
exchange requirements. After a futures contract position is opened, the
value of the contract is marked to market daily. If the futures contract
price changes, to the extent that the margin on deposit does not satisfy
margin requirements, payment of additional "variation" margin will be
required. Conversely, reduction in the contract value may reduce the
required margin resulting in a repayment of excess margin to a Series.
Variation margin payments are made to and from the futures broker for as long
as the contract remains open. The Series expect to earn income on their
margin deposits. To the extent that a Series invests in futures contracts
and options thereon for other than bona fide hedging purposes, no Series will
enter into such transaction if, immediately thereafter, the sum of the amount
of initial margin deposits and premiums paid for open futures options would
exceed 5% of the Series' total assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into;
provided, however, that in the case of an option that is in-the-money at the
time of purchase the in-the-money amount may be excluded in calculating the
5%. Pursuant to published positions of the Securities and Exchange
Commission (the "Commission"), the Series may be required to maintain
segregated accounts consisting of liquid assets such as cash, U.S. government
securities, or other high grade debt obligations (or, as permitted under
applicable regulation, enter into offsetting positions) in connection with
its futures contract transactions in order to cover its obligations with
respect to such contracts.
Positions in futures contracts may be closed out only on an exchange
which provides a secondary market. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Therefore, it might not be possible to close a futures position
and, in the event of adverse price movements, a Series would continue to be
required to continue to make variation margin deposits. In such circumstances,
if a Series has insufficient cash, it might have to sell portfolio securities to
meet daily margin requirements at a time when it might be disadvantageous to do
so. Management intends to minimize the possibility that it will be unable to
close out a futures contract by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
Except for transactions a Series has identified as hedging
transactions, the Series is required for federal income tax purposes to
recognize as income for each taxable year its net unrealized gains and losses on
certain futures contracts as of the end of the year as well as those actually
realized during the year. In most cases, any gain or loss recognized with
respect to a futures contract is considered to be 60% long-term gain or loss and
40% short-term capital gain or loss, without regard to the holding period of the
contract. Furthermore, sales of futures contracts which are intended to hedge
against a change in the value of securities held by a Series may affect
the holding period of such securities and, consequently, the nature of the
gain or loss on such securities upon disposition.
In order for a Series to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities and other income derived with respect to the Series' business of
investing in securities. It is anticipated that any net gain realized from
6
<PAGE>
closing futures contracts will be considered gain from the sale of securities
and, therefore, constitute qualifying income for purposes of the 90%
requirement. The Series will distribute to shareholders annually any net
capital gains which have been recognized for federal income tax purposes
(including unrealized gains at the end of the Series' fiscal year) on futures
transactions. Such distributions will be combined with distributions of
capital gains realized on the Series' other investments.
DIRECTORS AND OFFICERS
The names, locations and dates of birth of the directors and officers
of the Fund and a brief statement of their present positions and principal
occupations during the past five years is set forth below.
DIRECTORS
David G. Booth, Director*, (12/2/46), President and Chairman-Chief
Executive Officer, Santa Monica, CA. President, Chairman-Chief Executive
Officer and Director, of the following companies: Dimensional Fund Advisors
Inc., DFA Securities Inc., DFA Australia Limited, DFA Investment Dimensions
Group Inc. (registered investment company) and Dimensional Emerging Markets
Value 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, (9/22/47), 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 Value Fund Inc.
John P. Gould, (1/19/39), Director, Chicago, IL. Steven G. Rothmeier
Distinguished Service Professor of Economics, Graduate School of Business,
University of Chicago. Trustee, The DFA Investment Trust Company and First
Prairie Funds (registered investment companies). Director, DFA Investment
Dimensions Group Inc., Dimensional Emerging Markets Value Fund Inc. and Harbor
Investment Advisors. Executive Vice President, Lexecon Inc. (economics, law,
strategy and finance consulting).
Roger G. Ibbotson, (5/27/43), Director, New Haven, CT. Professor
in Practice of Finance, Yale School of Management. Trustee, The DFA
Investment Trust Company. Director, DFA Investment Dimensions Group Inc.,
Dimensional Emerging Markets Value 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, (5/16/23), 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
Value Fund Inc. and Public Director, Chicago Mercantile Exchange.
Myron S. Scholes, (7/1/41), 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 Value Fund
Inc., Benham Capital Management Group of Investment Companies and Smith
Breeden Group of Investment Companies.
Rex A. Sinquefield, (9/7/44), Director*, Chairman-Chief Investment
Officer, Santa Monica, CA. Chairman-Chief Investment Officer and Director,
Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Limited,
DFA Investment Dimensions Group Inc. and Dimensional Emerging Markets Value
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.
7
<PAGE>
OFFICERS
Each of the officers listed below hold the same office (except as
otherwise noted) in the following entities: Dimensional Fund Advisors Inc., DFA
Securities Inc., DFA Australia Limited, DFA Investment Dimensions Group Inc.,
The DFA Investment Trust Company, Dimensional Fund Advisors Ltd., and
Dimensional Emerging Markets Value Fund Inc.
Arthur Barlow, (11/7/55), Vice President, Santa Monica, CA.
Truman Clark, (4/18/41), Vice President, Santa Monica, CA. Consultant
until October 1995 and Principal and Manager of Product Development, Wells Fargo
Nikko Investment Advisors, San Francisco, CA from 1990-1994.
Maureen Connors, (11/17/36), Vice President and Assistant Secretary,
Santa Monica, CA.
Robert Deere, (10/8/57), Vice President, Santa Monica, CA.
Irene R. Diamant, (7/16/50), Vice President and Secretary (for all
entities other than Dimensional Fund Advisers Ltd.), Santa Monica, CA.
Richard Eustice, (8/5/65), Vice President and Assistant Secretary (for
all entities other than Dimensional Fund Advisors Ltd.), Santa Monica, CA.
Eugene Fama, Jr., (1/21/61), Vice President, Santa Monica, CA.
Kamyab Hashemi-Nejad, (1/22/61), Vice President, Controller and
Assistant Treasurer, Santa Monica, CA.
Stephen P. Manus, (12/26/50), Vice President, Santa Monica, CA.
Managing Director, ANB Investment Management and Trust Company from 1985-1993;
President, ANB Investment Management and Trust Company from 1993-1997.
Karen McGinley, (3/10/66), Vice President, Santa Monica, CA.
Catherine L. Newell, (5/7/64), Vice President and Assistant Secretary
(for all entities other than Dimensional Fund Advisors Ltd.), Santa Monica, CA.
Associate, Morrison & Foerster, LLP from 1989 to 1996.
David Plecha, (10/26/61), Vice President, Santa Monica, CA.
George Sands, (2/8/56), Vice President, Santa Monica, CA.
Michael T. Scardina, (10/12/55), Vice President, Chief Financial
Officer and Treasurer, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., (12/2/46), Executive Vice President,
Santa Monica, CA.
Scott Thornton, (3/1/63), Vice President, Santa Monica, CA.
Weston Wellington, (3/1/51), Vice President, Santa Monica, CA.
Director of Research, LPL Financial Services, Inc., Boston, MA from 1987 to
1994.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
Directors and officers as a group own less than 1% of each Portfolio's
outstanding stock.
8
<PAGE>
Set forth below is a table listing, for each director entitled to
receive compensation, the compensation received from the Fund during the fiscal
year ended November 30, 1997, and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION FROM
DIRECTOR COMPENSATION FUND
- -------- FROM FUND AND FUND COMPLEX
------------ -----------------------
<S> <C> <C>
George M. Constantinides $5,000 $30,000
John P. Gould $5,000 $30,000
Roger G. Ibbotson $5,000 $30,000
Merton H. Miller $5,000 $30,000
Myron S. Scholes $5,000 $30,000
</TABLE>
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. The Portfolios are all Feeder
Portfolios. PFPC's charges for its services to such Portfolios are based on the
number of Feeder Portfolios investing in each master series and whether the
master series is organized to be taxed as a corporation or partnership for tax
purposes. PFPC's charges are allocated amongst the feeders based on the
relative net assets of the feeders. PFPC's charges in the aggregate to a group
of Feeder Portfolios investing in master series which are taxed as corporations
are $1,000 per month multiplied by the number of Feeders. This applies to the
DFA International Value Portfolio III and the U.S. Large Cap Value Portfolio
III. The Tax-Managed U.S. Marketwide Value Portfolio II invests in a master
series which is taxed as a partnership, and will pay PFPC a monthly fee of
$2,600.
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 years ended November 30, 1997, 1996 and 1995, the
Series paid advisory fees as set forth in the following table (the Tax-Managed
Series had not commenced operations as of November 30, 1997):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
International Value Series* $2,997,000 $2,124,000 $937,000
Large Cap Value Series* $1,255,000 $ 699,000 $306,000
</TABLE>
*The Series has more than one investor; this dollar amount represents the total
dollar amount of advisory fees paid by the Series to the Advisor.
The Fund was known as DFA U.S. Large Cap Inc. from February, 1992,
until the Fund amended its Articles of Incorporation in April 1993, to change to
its present name. Prior to a February 1992, amendment to the Fund's Articles of
Incorporation, the Fund was known as DFA U.S. Large Cap Portfolio Inc.
9
<PAGE>
PNC Bank, N.A. serves as the custodian for the Portfolios and Series.
Citibank, N.A. ("Citibank"), 111 Wall Street, New York, New York 10005, serves
as the global custodian for the International Value Series. The custodians
maintain a separate account or accounts for the Portfolios and Series; receive,
hold and release portfolio securities on account of the Portfolios and Series;
make receipts and disbursements of money on behalf of the Portfolios and Series;
and collect and receive income and other payments and distributions on account
of the Portfolios' and Series' portfolio securities.
PricewaterhouseCoopers LLP, the Fund's independent accountants, audits
the Fund's financial statements on an annual basis.
PURCHASE OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that
the New York Stock Exchange ("NYSE") is open for business, regardless of whether
the Federal Reserve System is closed. However, no purchases by wire may be made
on any day that the Federal Reserve System is closed. The Fund will generally
be closed on days that the NYSE is closed. The NYSE is scheduled to be open
Monday through Friday throughout the year except for days closed to recognize
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The
Federal Reserve System is closed on the same days as the NYSE, except that it is
open on Good Friday and closed on Columbus Day and Veterans' Day. Orders for
redemptions and purchases will not be processed if the Fund is closed.
The Fund reserves the right, in its sole discretion, to suspend the
offering of shares of any or all Portfolios or reject purchase orders when, in
the judgment of management, such suspension or rejection is in the best interest
of the Fund or a Portfolio. Securities accepted in exchange for shares of a
Portfolio will be acquired for investment purposes and will be considered for
sale under the same circumstances as other securities in the Portfolio.
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 Commission, (2) during any period when an
emergency exists as defined by the rules of the Commission as a result of which
it is not reasonably practicable for the Fund to dispose of securities owned by
it, or fairly to determine the value of its assets, and (3) for such other
periods as the Commission may permit.
PRINCIPAL HOLDERS OF SECURITIES
As of October 31, 1998, the following person(s) beneficially owned 5%
or more of the outstanding stock of the Portfolios, as set forth below:
DFA INTERNATIONAL VALUE PORTFOLIO III
<TABLE>
<S> <C>
Charles Schwab & Co. Inc.-ALL REIN* 100%
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
10
<PAGE>
U.S. LARGE CAP VALUE PORTFOLIO III
<TABLE>
<S> <C>
Charles Schwab & Co. Inc.-CAP REIN* 52.01%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Co. Inc.-ALL REIN* 45.51%
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
*Owner of record only.
CALCULATION OF PERFORMANCE DATA
Following are quotations of the annualized percentage total returns
for DFA International Value Portfolio III and U.S. Large Cap Value Portfolio III
for the one-, five-, and ten-year periods ended November 30, 1997 (as
applicable) using the standardized method of calculation required by the
Commission.
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
<S> <C> <C> <C>
33 MOS. n/a
DFA International Value Portfolio III -3.83% 7.67%
33 MOS. n/a
U.S. Large Cap Value Portfolio III 25.29% 27.51%
</TABLE>
For purposes of calculating the performance of the Portfolios, the
performance of each Portfolio's corresponding Series will be utilized for the
period prior to when each Portfolio commenced operations and, if applicable,
restated to reflect a Portfolio's fees and expenses. As the following formula
indicates, each Portfolio and Series determines its average annual total return
by finding the average annual compounded rates of return over the stated time
period that would equate a hypothetical initial purchase order of $1,000 to its
redeemable value (including capital appreciation/depreciation and dividends and
distributions paid and reinvested less any fees charged to a shareholder
account) at the end of the stated time period. The calculation assumes that all
dividends and distributions are reinvested at the public offering price on the
reinvestment dates during the period. The calculation also assumes the account
was completely redeemed at the end of each period and the deduction of all
applicable charges and fees. According to the Commission's formula:
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one-, five- and ten-year periods at the end
of the one-, five- and ten-year periods (or fractional portion
thereof).
11
<PAGE>
In addition to the standardized method of calculating performance
required by the Commission, the Portfolios and Series may disseminate other
performance data and may advertise total return performance calculated on a
monthly basis.
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 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.
FINANCIAL STATEMENTS
The audited financial statements and financial highlights for the
Fund's fiscal year ended November 30, 1997, as set forth in the Fund's annual
report to shareholders of the Portfolios, and the report thereon of
PricewaterhouseCoopers LLP (formerly, Coopers & Lybrand L.L.P.), independent
accountants, also appearing therein, and the unaudited financial statements for
the period ended May 31, 1998, as set forth in the semi-annual report to
shareholders, are incorporated herein by reference.
The audited financial statements of the Series for the Trust's fiscal
year ended November 30, 1997, as set forth in the Trust's annual report to
shareholders, and the report thereon of PricewaterhouseCoopers LLP (formerly,
Coopers & Lybrand L.L.P.), independent accountants, also appearing therein, and
the unaudited financial statements for the period ended May 31, 1998, as set
forth in the semi-annual report to shareholders, are incorporated herein by
reference.
The annual and semi-annual reports do not contain any data regarding
the Tax-Managed U.S. Marketwide Value Portfolio II or the Tax-Managed Series
because they had not commenced operations as of May 31, 1998. A shareholder may
obtain a copy of the reports upon request and without charge, by contacting the
Fund at the address or telephone number appearing on the cover of this statement
of additional information.
12
