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File No. 811-7436
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 6 (X)
THE DFA INVESTMENT TRUST COMPANY
(Exact Name of Registrant as Specified in Charter)
1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401
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(Address of Principal Executive Offices (Zip Code)
Registrant's Telephone Number, Including Area Code (310) 395-8005
Irene R. Diamant, 1299 Ocean Avenue, 11th Floor, Santa Monica CA 90401
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(Name and Address of Agent for Service of Process)
_______________
Please Send Copy of Communications to:
Stephen W. Kline, Esq.
Stradley, Ronon, Stevens & Young
Great Valley Corporate Center
30 Valley Stream Parkway
Malvern, Pennsylvania 19355
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THE DFA INVESTMENT TRUST COMPANY
The U.S. 6-10 Small Company Series
The U.S. Large Company Series
The Enhanced U.S. Large Company Series
The DFA One-Year Fixed Income Series
The DFA Two-Year Corporate Fixed Income Series
The DFA Two-Year Global Fixed Income Series
The DFA Two-Year Government Series
The U.S. Small Cap Value Series
The U.S. Large Cap Value Series
The DFA International Value Series
The Emerging Markets Series
FORM N-1A, Part A:
Responses to Items 1 through 3 have been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
(a)(i) The DFA Investment Trust Company (the "Trust") is an open-end
management investment company organized as a Delaware business trust on October
27, 1992 and registered under the Investment Company Act of 1940. The Trust
issues eleven series, each of which operates as a diversified investment company
and represents a separate class ("Series") of the Trust's shares of beneficial
interest: The U.S. 6-10 Small Company Series, The U.S. Large Company Series,
The Enhanced U.S. Large Company Series, The DFA One-Year Fixed Income Series,
The DFA Two-Year Corporate Fixed Income Series, The DFA Two-Year Global Fixed
Income Series, The DFA Two-Year Government Series, The U.S. Small Cap Value
Series, The U.S. Large Cap Value Series, The DFA International Value Series and
The Emerging Markets Series. Dimensional Fund Advisors Inc. (the "Advisor")
serves as investment advisor to each of the Series.
The investment objectives, policies and investment limitations of each Series
are set forth below. The investment objective of a Series may not be changed
without the affirmative vote of a majority of the outstanding voting securities
of that Series. The Trust sells its shares to institutional investors only.
Shares of each Series may be issued for cash and/or securities in which a Series
is authorized to invest. In addition, when acquiring securities from an
institutional investor in consideration of the issuance of its shares, a Series
may accept securities from the transferor which it would not otherwise purchase
pursuant to its investment policies, as described below. Any such acquisition
would be very small in relation to the then total current value of the assets
acquired by a Series in any such transaction.
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(a)(ii)
THE U.S. 6-10 SMALL COMPANY SERIES
The investment objective of The U.S. 6-10 Small Company Series is to achieve
long-term capital appreciation.
The Series will invest in a broad and diverse group of small U.S. companies
having readily marketable securities. References in this registration statement
to a "small U.S. company" mean a company whose securities are traded in the U.S.
securities markets and whose market capitalization is not larger than the
largest of those in the smaller one half (deciles 6 through 10) of companies
listed on the New York Stock Exchange ("NYSE"). The Series will purchase common
stocks of companies whose shares are listed on the NYSE, the American Stock
Exchange ("AMEX") and traded in the over-the-counter market ("OTC"). It is the
intention of The U.S. 6-10 Small Company Series to acquire a portion of the
common stock of each eligible NYSE, AMEX and OTC company on a market
capitalization weighted basis. In the future, The U.S. 6-10 Small Company
Series may purchase common stocks of small U.S. companies which are listed on
other U.S. securities exchanges. In addition, the Series is authorized to
invest in private placements of interest-bearing debentures that are convertible
into common stock. Such investments are considered illiquid, and the value
thereof together with the value of all other illiquid investments may not exceed
15% of the value of the Series' assets at the time of purchase.
SERIES STRUCTURE. The Series is structured by generally basing the amount of
each security purchased on the issuer's relative market capitalization with a
view to creating in the Series a reasonable reflection of the relative market
capitalizations of its portfolio companies. The decision to include or exclude
the shares of an issuer will be made on the basis of such issuer's relative
market capitalization determined by reference to other companies located in the
U.S. Even though a company's stock may meet the applicable market
capitalization criterion, it may not be included in the Series if, (i) in the
Advisor's judgment, the issuer is in extreme financial difficulty, (ii) the
issuer is involved in a merger or consolidation or is the subject of an
acquisition or (iii) a significant portion of the issuer's securities are
closely held. Further, securities of real estate investment trusts will not be
acquired (except as a part of a merger, consolidation or acquisition of assets).
In addition, the Advisor may exclude the stock of a company that otherwise meets
applicable market capitalization criterion if the Advisor determines in its best
judgment that other conditions exist that make the purchase of such stock for
the Series inappropriate.
Deviation from strict market capitalization weighting will also occur in the
Series because it intends to purchase round lots
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only. Furthermore, in order to retain sufficient liquidity, the relative amount
of any security held by the Series may be reduced from time to time from the
level which strict adherence to market capitalization weighting would otherwise
require. A portion, but generally not in excess of 20%, of the Series' assets
may be invested in interest-bearing obligations, such as money-market
instruments for this purpose, thereby causing further deviation from strict
market capitalization weighting.
The Series may make block purchases of eligible securities at opportune prices
even though such purchases exceed the number of shares which, at the time of
purchase, strict adherence to the policy of market capitalization weighting
would otherwise require. In addition, the Series may acquire securities
eligible for purchase or otherwise represented in its portfolio at the time of
the exchange in exchange for the issuance of its shares. (See "In Kind
Purchases" in Item 7(a).) While such purchases and acquisitions might cause a
temporary deviation from market capitalization weighting, they would ordinarily
be made in anticipation of further growth of the assets of the Series.
If securities must be sold in order to obtain funds to make redemption payments,
they may be repurchased by the Series as additional cash becomes available to
it. In most instances, however, management would anticipate selling securities
which had appreciated sufficiently to be eligible for sale and, therefore, would
not need to repurchase such securities.
Changes in the composition and relative ranking (in terms of market
capitalization) of the stocks which are eligible for purchase by the Series take
place with every trade when the securities markets are open for trading due,
primarily, to price fluctuations of such securities. On a not less than semi-
annual basis, the Advisor will determine the market capitalization of the
largest small company in which the Series may invest. Common stocks whose
market capitalizations are not greater than such company will be purchased for
the Series. Additional investments will generally not be made in securities
which have appreciated in value sufficiently to be excluded from the Advisor's
then current market capitalization limit for eligible portfolio securities.
This may result in further deviation from strict market capitalization
weighting, and such deviation could be substantial if a significant amount of
the Series' holdings increase in value sufficiently to be excluded from the
limit for eligible securities, but not by a sufficient amount to warrant their
sale. A further deviation from market capitalization weighting may occur if the
Series invests a portion of its assets in privately placed convertible
debentures.
It is management's belief that the stocks of small companies offer, over a long
term, a prudent opportunity for capital
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appreciation, but, at the same time, selecting a limited number of such issues
for inclusion in the Series involves greater risk than including a large number
of them. The Series intends to invest at least 80% of its assets in equity
securities of U.S. small companies as described above.
Generally, the Series does not seek current income as an investment objective,
and investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in the
Series do pay dividends. It is anticipated, therefore, that the Series will
receive dividend income. Also, the Series may lend securities to qualified
brokers, dealers, banks and other financial institutions for the purpose of
realizing additional income. (See "Securities Loans" under Item 4(a)(ii).)
PORTFOLIO TRANSACTIONS. On a periodic basis, the Advisor will review the
Series' holdings and determine which, at the time of such review, are no longer
considered small U.S. companies. As of the date of this registration statement,
the Advisor has established the following standard: securities held by the
Series which have appreciated in value will be considered for sale when the
market capitalization of the issuer has increased sufficiently to rank it in the
largest 45% (deciles 4.5 through 1) based on market capitalization of securities
listed on the NYSE.
The Advisor may, from time to time, revise such standard if, in the opinion of
the Advisor, such revision is necessary to maintain appropriate market
capitalization weighting. Securities which have depreciated in value since
their acquisition will not be sold by the Series solely because prospects for
the issuer are not considered attractive, or due to an expected or realized
decline in securities prices in general. Securities may be disposed of,
however, at any time when, in the Advisor's judgment, circumstances, such as
(but not limited to) tender offers, mergers and similar transactions, or bids
made for block purchases at opportune prices, warrant their sale. Generally,
securities will not be sold to realize short-term profits, but when
circumstances warrant, they may be sold without regard to the length of time
held. Generally, securities will be purchased with the expectation that they
will be held for longer than one year and will be held until such time as they
are no longer considered an appropriate holding in light of the policy of
maintaining portfolios of companies with small market capitalizations.
THE U.S. LARGE COMPANY SERIES
The U.S. Large Company Series seeks, as its investment objective, to approximate
the investment performance of the Standard & Poor's 500 Composite Stock Index
(the "S&P 500 Index"), both in
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terms of the price of the Series' shares and its total investment return. The
Series intends to invest in all of the stocks that comprise the S&P 500 Index in
approximately the same proportions as they are represented in the Index. The
amount of each stock purchased for the Series, therefore, will be based on the
issuer's respective market capitalization. The S&P 500 Index is comprised of a
broad and diverse group of stocks most of which are traded on the NYSE.
Generally, these are the U.S. stocks with the largest market capitalizations
and, as a group, they represent approximately 70% of the total market
capitalization of all publicly traded U.S. stocks. Under normal market
conditions, at least 95% of the Series' assets will be invested in the stocks
that comprise the S&P 500 Index.
Ordinarily, portfolio securities will not be sold except to reflect additions or
deletions of the stocks that comprise the S&P 500 Index, including mergers,
reorganizations and similar transactions and, to the extent necessary, to
provide cash to pay redemptions of the Series' shares. The Series may lend
securities to qualified brokers, dealers, banks and other financial institutions
for the purpose of earning additional income. For information concerning
Standard & Poor's Corporation ("S&P") and disclaimers of S&P with respect to the
Series, see "STANDARD & POOR'S INFORMATION AND DISCLAIMERS," below.
THE ENHANCED U.S. LARGE COMPANY SERIES
The Enhanced U.S. Large Company Series seeks, as its investment objective, to
achieve a total return which exceeds the total return performance of the S&P 500
Index. The Series may invest in all of the stocks represented in the S&P 500
Index, options on stock indices, stock index futures, options on stock index
futures, swap agreements on stock indices and, to the extent permissible
pursuant to the Investment Company Act of 1940, shares of investment companies
that invest in stock indices. The S&P 500 Index is comprised of a broad and
diverse group of stocks most of which are traded on the NYSE. Generally, these
are the U.S. stocks with the largest market capitalizations and, as a group,
they represent approximately 70% of the total market capitalization of all
publicly traded U.S. stocks.
The Series may, from time to time, also invest in options on stock indices,
stock index futures, options on stock index futures and swap agreements based on
indices other than, but similar to, the S&P 500 Index (such instruments whether
or not based on the S&P 500 Index hereinafter collectively referred to as "Index
Derivatives"). The Series may invest all of its assets in Index Derivatives
(See Item 4(c) "Risk Factors - All Series"). Assets of the Series not invested
in S&P 500 stocks or Index Derivatives may be invested in the same types of
short-term fixed income obligations as may be acquired by The DFA Two-Year
Global
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Fixed Income Series and, to the extent allowed by the Investment Company Act of
1940, shares of money market mutual funds (collectively, "Fixed Income
Investments"). (See "INVESTMENT OBJECTIVES AND POLICIES - FIXED INCOME SERIES -
Description of Investments.") Investments in the securities of other investment
companies will involve duplication of certain fees and expenses.
The percentage of assets of the Series that will be invested at any one time in
S&P 500 Index stocks, Index Derivatives and Fixed Income Investments may vary
from time to time, within the discretion of the Advisor and according to
restraints imposed by the Investment Company Act of 1940. The Series will
maintain a segregated account consisting of liquid assets, such as cash, U.S.
government securities or high-grade debt obligations (or, as permitted by
applicable regulation, enter into offsetting positions) to cover its open
positions in Index Derivatives to avoid leveraging of the Series.
The Series will enter into positions in futures and options on futures only to
the extent such positions are permissible with respect to applicable rules of
the Commodity Futures Trading Commission without registering the Series or the
Trust as a commodities pool operator. In addition, the Series may not be able
to utilize Index Derivatives to the extent otherwise permissible or desirable
because of constraints imposed by the Internal Revenue Code or by unanticipated
illiquidity in the marketplace for such instruments. For more information about
Index Derivatives, see Item 4(c) "Risk Factors - All Series."
The Series may only purchase put and call options to the extent premiums paid on
all such outstanding options do not exceed 20% of the Series' net assets. With
regard to the writing of put options, the Series will limit the aggregate value
of the obligations underlying such put options to 50% of its net assets. It is
the position of the Securities and Exchange Commission that over-the-counter
options are illiquid. Accordingly, the Series will invest in such options only
to the extent consistent with its 15% limit on investment in illiquid
securities.
STANDARD AND POOR'S - INFORMATION AND DISCLAIMERS
Neither The U.S. Large Company Series or The Enhanced U.S. Large Company Series
(together, the "Large Company Series") are sponsored, endorsed, sold or promoted
by S&P. S&P makes no representation or warranty, express or implied, to the
owners of the Large Company Series or any member of the public regarding the
advisability of investing in securities generally or in the Large Company Series
particularly or the ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to the Large Company Series is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without
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regard to the Large Company Series. S&P has no obligation to take the needs of
the Large Company Series or their respective owners into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of the prices and amount of
the Large Company Series or in the issuance or sale of the Large Company Series
or in the determination or calculation of the equation by which the Large
Company Series are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of the
Large Company Series.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN, AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INVESTMENT OBJECTIVES AND POLICIES - FIXED INCOME SERIES
THE DFA ONE-YEAR FIXED INCOME SERIES
The investment objective of The DFA One-Year Fixed Income Series is to achieve
a stable real value (i.e. a return in excess of the rate of inflation) of
invested capital with a minimum of risk. The Series will pursue its objective
by investing its assets in U.S. government obligations, U.S. government agency
obligations, dollar-denominated obligations of foreign issuers issued in the
U.S., bank obligations, including U.S. subsidiaries and branches of foreign
banks, corporate obligations, commercial paper, repurchase agreements and
obligations of supranational organizations. Generally, the Series will acquire
obligations which mature within one year from the date of settlement, but
substantial investments may be made in obligations maturing within two years
from the date of settlement when greater returns are available. It is the
Series' policy that the weighted average length of maturity of investments will
not exceed one year. The Series principally invests in certificates of deposit,
commercial paper, bankers' acceptances, notes and bonds. The Series will invest
more than
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25% of its total assets in obligations of U.S. and/or foreign banks and bank
holding companies when the yield to maturity on these instruments exceeds the
yield to maturity on all other eligible portfolio investments of similar quality
for a period of five consecutive days when the NYSE is open for trading. (See
"Investments in the Banking Industry" in Item 4(a)(ii).)
THE DFA TWO-YEAR CORPORATE FIXED INCOME SERIES
The investment objective of The DFA Two-Year Corporate Fixed Income Series is to
maximize total returns consistent with the preservation of capital. The Series
will invest in U.S. government obligations, U.S. government agency obligations,
dollar-denominated obligations of foreign issuers issued in the U.S., bank
obligations, including U.S. subsidiaries and branches of foreign banks,
corporate obligations, commercial paper, repurchase agreements and obligations
of supranational organizations. It is the Series' policy to acquire obligations
which mature within two years from the date of settlement. The Series
principally invests in certificates of deposit, commercial paper, bankers'
acceptances, notes and bonds. The Series will invest more than 25% of its total
assets in obligations of U.S. and/or foreign banks and bank holding companies
when the yield to maturity on these instruments exceeds the yield to maturity on
all other eligible portfolio investments of similar quality for a period of five
consecutive days when the NYSE is open for trading. (See "Investments in the
Banking Industry" in Item 4(a)(ii).)
THE DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
The investment objective of The DFA Two-Year Global Fixed Income Series is to
maximize total returns consistent with preservation of capital. The Series will
invest in obligations issued or guaranteed by the U.S. and foreign governments,
their agencies and instrumentalities, corporate debt obligations, bank
obligations, commercial paper, repurchase agreements, obligations of other
domestic and foreign issuers having quality ratings meeting the minimum
standards described in "Description of Investments," securities of domestic or
foreign issuers denominated in U.S. dollars but not trading in the United
States, and obligations of supranational organizations, such as the World Bank,
the European Investment Bank, European Economic Community and European Coal and
Steel Community. At the present time, the Advisor expects that most investments
will be made in the obligations of issuers which are in developed countries,
such as those countries which are members of the Organization of Economic
Cooperations and Development ("OECD"). However, in the future, the Advisor
anticipates investing in issuers located in other countries as well. Under
normal market conditions, the Series will invest at least 65% of the value of
its assets in issuers organized or having a majority of their assets in, or
deriving a
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majority of their operating income in, at least three different countries, one
of which may be the United States.
The Series will acquire obligations which mature within two years from the date
of settlement. Because many of the Series' investments will be denominated in
foreign currencies, the Series will also enter into forward foreign currency
contracts solely for the purpose of hedging against fluctuations in currency
exchange rates. The Series will invest more than 25% of its total assets in
obligations of U.S. and/or foreign banks and bank holding companies when the
yield to maturity on these instruments exceeds the yield to maturity on all
other eligible portfolio investments of similar quality for a period of five
consecutive days when the NYSE is open for trading. (See "Investments in the
Banking Industry" in Item 4(a)(ii).)
THE DFA TWO-YEAR GOVERNMENT SERIES
The investment objective of The DFA Two-Year Government Series is to maximize
total returns available from the universe of debt obligations of the U.S.
government and U.S. government agencies and consistent with the preservation of
capital. Generally, the Series will acquire U.S. government obligations and
U.S. government agency obligations that mature within two years from the date of
settlement. The Series will also acquire repurchase agreements.
DESCRIPTION OF INVESTMENTS
The following is a description of the categories of investments which may be
acquired by The DFA One-Year Fixed Income Series, Two-Year Corporate Fixed
Income Series, Two-Year Government Series and Two-Year Global Fixed Income
Series (the "Fixed Income Series").
Permissible
Categories:
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The DFA One-Year Fixed Income Series 1-6, 8
The DFA Two-Year Corporate Fixed Income Series 1-6, 8
The DFA Two-Year Government Series 1, 2, 6
The DFA Two-Year Global Fixed Income Series 1-10
1. U.S. GOVERNMENT OBLIGATIONS - Debt securities issued by the U.S.
Treasury which are direct obligations of the U.S. government, including bills,
notes and bonds.
2. U.S. GOVERNMENT AGENCY OBLIGATIONS - Issued or guaranteed by U.S.
government-sponsored instrumentalities and federal agencies, including the
Federal National Mortgage Association, Federal Home Loan Bank and the Federal
Housing Administration.
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3. CORPORATE DEBT OBLIGATIONS - Non-convertible corporate debt securities
(e.g., bonds and debentures) which are issued by companies whose commercial
paper is rated Prime-1 by Moody's Investors Services, Inc. ("Moody's") or A-1 by
S&P and dollar-denominated obligations of foreign issuers issued in the U.S. If
the issuer's commercial paper is unrated, then the debt security would have to
be rated at least AA by S&P or Aa2 by Moody's. If there is neither a commercial
paper rating nor a rating of the debt security, then the Advisor must determine
that the debt security is of comparable quality to equivalent issues of the same
issuer rated at least AA or Aa2.
4. BANK OBLIGATIONS - Obligations of U.S. banks and savings and loan
associations and dollar-denominated obligations of U.S. subsidiaries and
branches of foreign banks, such as certificates of deposit (including marketable
variable rate certificates of deposit) and bankers' acceptances. Bank
certificates of deposit will only be acquired from banks having assets in excess
of $1,000,000,000.
5. COMMERCIAL PAPER - Rated, at the time of purchase, A-1 or better by
S&P or Prime-1 by Moody's, or, if not rated, issued by a corporation having an
outstanding unsecured debt issue rated Aaa by Moody's or AAA by S&P, and having
a maximum maturity of nine months.
6. REPURCHASE AGREEMENTS - Instruments through which the Series purchase
securities ("underlying securities") from a bank, or a registered U.S.
government securities dealer, with an agreement by the seller to repurchase the
security at an agreed price, plus interest at a specified rate. The underlying
securities will be limited to U.S. government and agency obligations described
in (1) and (2) above. The Series will not enter into a repurchase agreement
with a duration of more than seven days if, as a result, more than 10% of the
value of the Series' total assets would be so invested. The Series will also
only invest in repurchase agreements with a bank if the bank has at least
$1,000,000,000 in assets and is approved by the Investment Committee of the
Advisor. The Advisor will monitor the market value of the securities plus any
accrued interest thereon so that they will at least equal the repurchase price.
7. FOREIGN GOVERNMENT AND AGENCY OBLIGATIONS - Bills, notes, bonds and
other debt securities issued or guaranteed by foreign governments, or their
agencies and instrumentalities.
8. SUPRANATIONAL ORGANIZATION OBLIGATIONS - Debt securities of
supranational organizations such as the European Coal and Steel Community, the
European Economic Community and the World Bank, which are chartered to promote
economic development.
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9. FOREIGN ISSUER OBLIGATIONS - Debt securities of non U.S. issuers rated
AA or better by S&P and Aa2 or better by Moody's.
10. EURODOLLAR OBLIGATIONS - Debt securities of domestic or foreign
issuers denominated in U.S. dollars but not trading in the United States.
Investors should be aware that the net asset values of the Fixed Income Series
may change as general levels of interest rates fluctuate. When interest rates
increase, the value of a portfolio of fixed-income securities can be expected to
decline. Conversely, when interest rates decline, the value of a portfolio of
fixed-income securities can be expected to increase.
INVESTMENTS IN THE BANKING INDUSTRY
The DFA One-Year Fixed Income, Two-Year Corporate Fixed Income and Two-Year
Global Fixed Income Series will invest more than 25% of their total respective
assets in obligations of U.S. and/or foreign banks and bank holding companies
when the yield to maturity on these investments exceeds the yield to maturity on
all other eligible portfolio investments for a period of five consecutive days
when the NYSE is open for trading. For the purpose of this policy, which is a
fundamental policy of each Series and can only be changed by a vote of the
shareholders of each Series, banks and bank holding companies are considered to
constitute a single industry, the banking industry. When investment in such
obligations exceeds 25% of the total net assets of any of these Series, such
Series will be considered to be concentrating its investments in the banking
industry. As of the date of this prospectus, The DFA One-Year Fixed Income
Series is not concentrating its investment in this industry.
The types of bank and bank holding company obligations in which The DFA One-Year
Fixed Income, Two-Year Corporate Fixed Income and Two-Year Global Fixed Income
Series may invest include: dollar-denominated certificates of deposit, bankers'
acceptances, commercial paper and other debt obligations issued in the United
States and which mature within two years of the date of settlement, provided
such obligations meet each Series' established credit rating criteria as stated
under "Description of Investments." In addition, all three Series are
authorized to invest more than 25% of their total assets in Treasury bonds,
bills and notes and obligations of federal agencies and instrumentalities.
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PORTFOLIO STRATEGY
The DFA One-Year Fixed Income, Two-Year Corporate Fixed Income and Two-Year
Global Fixed Income Series will be managed with a view to capturing credit risk
premiums and term or maturity premiums. As used herein, the term "credit risk
premium" means the anticipated incremental return on investment for holding
obligations considered to have greater credit risk than direct obligations of
the U.S. Treasury, and "maturity risk premium" means the anticipated incremental
return for holding securities having maturities of longer than one month
compared to securities having a maturity of one month. The Advisor believes
that credit risk premiums are available largely through investment in high grade
commercial paper, certificates of deposit and corporate obligations. The
holding period for assets of the Series will be chosen with a view to maximizing
anticipated monthly returns, net of trading costs.
The Fixed Income Series are expected to have high portfolio turnover rates due
to the relatively short maturities of the securities to be acquired. The rate
of portfolio turnover will depend upon market and other conditions; it will not
be a limiting factor when management believes that portfolio changes are
appropriate. It is anticipated that the annual turnover rate of The DFA
One-Year Fixed Income, Two-Year Corporate Fixed Income and Two-Year Global Fixed
Income Series, respectively, could be 0% to 200%, and Two-Year Government Series
could be 100% to 500%. While the Fixed Income Series acquire securities in
principal transactions and, therefore, do not pay brokerage commissions, the
spread between the bid and asked prices of a security may be considered to be a
"cost" of trading. Such costs ordinarily increase with trading activity.
However, as stated above, securities ordinarily will be sold when, in the
Advisor's judgment, the monthly return of the Fixed Income Series will be
increased as a result of portfolio transactions after taking into account the
cost of trading. It is anticipated that securities will be acquired in the
secondary markets for short term instruments.
THE U.S. LARGE CAP VALUE SERIES AND THE U.S. SMALL CAP VALUE SERIES
The investment objective of both The U.S. Large Cap Value Series (the "Large Cap
Value Series") and The U.S. Small Cap Value Series (the "Small Cap Value
Series") (collectively the "U.S. Value Series") is to achieve long-term capital
appreciation. The Series will invest in common stocks of U.S. companies with
shares that have a high book value in relation to their market value (a "book to
market ratio"). A company's shares will be considered to have a high book to
market ratio if the ratio equals or
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exceeds the ratios of any of the 30% of companies with the highest positive book
to market ratios whose shares are listed on the NYSE and, except as described
below under "Portfolio Structure", will be considered eligible for investment.
The Large Cap Value Series will purchase common stocks of companies whose market
capitalizations equal or exceed that of the company having the median market
capitalization of companies whose shares are listed on the NYSE, and the Small
Cap Value Series will purchase common stocks of companies whose market
capitalizations are smaller than such company.
PORTFOLIO STRUCTURE. Each Series will operate as a "diversified" investment
company. Further, neither Series will invest more than 25% of its total assets
in securities of companies in a single industry. Ordinarily, at least 80% of
each Series' assets will be invested in a broad and diverse group of readily
marketable common stocks of U.S. companies with high book to market ratios, as
described above. The Series may invest a portion of their assets, ordinarily
not more than 20%, in high quality, highly liquid fixed income securities such
as money market instruments, including short-term repurchase agreements. The
Series will purchase securities that are listed on the principal U.S. national
securities exchanges and traded OTC.
Each of the U.S. Value Series will be structured on a market capitalization
basis, by generally basing the amount of each security purchased on the issuer's
relative market capitalization, with a view to creating in each Series a
reasonable reflection of the relative market capitalizations of its portfolio
companies. However, the Advisor may exclude the securities of a company that
otherwise meets the applicable criteria described above if the Advisor
determines in its best judgment that other conditions exist that make the
inclusion of such security inappropriate.
Deviation from strict market capitalization weighting will also occur in the
Series because they intend to purchase round lots only. Furthermore, in order
to retain sufficient liquidity, the relative amount of any security held by a
Series may be reduced, from time to time, from the level which strict adherence
to market capitalization weighting would otherwise require. A portion, but
generally not in excess of 20%, of a Series' assets may be invested in interest-
bearing obligations, as described above, thereby causing further deviation from
strict market capitalization weighting. The Series may make block purchases of
eligible securities at opportune prices even though such purchases exceed the
number of shares which, at the time of purchase, strict adherence to the policy
of market capitalization weighting would otherwise require. In addition, the
Series may acquire securities eligible for purchase or otherwise represented in
their portfolios at the time of the exchange in exchange for the issuance of
their shares. (See "In
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Kind Purchases" in Item 7(a).) While such purchases and acquisitions might
cause a temporary deviation from market capitalization weighting, they would
ordinarily be made in anticipation of further growth of the assets of a Series.
On not less than a semi-annual basis, for each Series the Advisor will calculate
the book to market ratio necessary to determine those companies whose stocks are
eligible for investment.
PORTFOLIO TRANSACTIONS. The 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 above under
"Portfolio Structure", investments will be made in virtually all eligible
securities on a market capitalization weighted basis. This is a passive
approach to investment management that does not entail taking steps to reduce
risk by replacing portfolio equity securities with other securities that appear
to have the potential to provide better investment performance.
Generally, securities will be purchased with the expectation that they will be
held for longer than one year. The Large Cap Value Series may sell portfolio
securities when the issuer's market capitalization falls substantially below
that of the issuer with the minimum market capitalization which is then eligible
for purchase by the Series, and the Small Cap Value Series may sell portfolio
securities when the issuer's market capitalization increases to a level that
substantially exceeds that of the issuer with the largest market capitalization
which is then eligible for investment by the Series. However, securities may be
sold at any time when, in the Advisor's judgment, circumstances warrant their
sale.
In addition, the Large Cap Value Series may sell portfolio securities when their
book to market ratio falls substantially below that of the security with the
lowest such ratio that is then eligible for purchase by the Series. The Small
Cap Value Series may also sell portfolio securities in the same circumstances,
however, that Series anticipates generally to retain securities of issuers with
relatively smaller market capitalizations for longer periods, despite any
decrease in the issuer's book to market ratio. The annual portfolio turnover
rates of The U.S. Large Cap Value Series and The U.S. Small Cap Value Series are
not expected to exceed 15% and 10%, respectively.
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THE DFA INTERNATIONAL VALUE SERIES
The investment objective of The DFA International Value Series is to achieve
long-term capital appreciation. The Series operates as a diversified investment
company and seeks to achieve its objective by investing in the stocks of large
non-U.S. companies that have a high book to market ratio. The shares of a
company in any given country will be considered to have a high book to market
ratio if the ratio equals or exceeds the ratios of any of the 30% of companies
in that country with the highest positive book to market ratios whose shares are
listed on a major exchange, and, except as described below, will be considered
eligible for investment. The Series intends to invest in the stocks of large
companies in countries with developed markets. Initially, the Series will
invest in the stocks of large companies in Japan, the United Kingdom, Germany,
France, Switzerland, Italy, Belgium, Spain, the Netherlands, Hong Kong,
Singapore, Australia and Sweden. As the Series' asset growth permits, it may
invest in the stocks of large companies in other developed markets.
Under normal market conditions, at least 65% of the Series' assets will be
invested in companies organized or having a majority of their assets in or
deriving a majority of their operating income in at least three non-U.S.
countries and no more than 40% of the Series' assets will be invested in such
companies in any one country. The Series reserves the right to invest in index
futures contracts to commit funds awaiting investment or to maintain liquidity.
The Series will not purchase futures contracts if as a result more than 5% of
its total assets would then consist of initial and variation margin deposits on
such contracts. Such investments entail certain risks. (See Item 4(c).)
The Series intends to invest in companies having at least $500 million of market
capitalization, and the Series will be approximately market capitalization
weighted. In determining market capitalization weights, the Advisor, using its
best judgment, will seek to eliminate the effect of cross holdings on the
individual country weights. As a result, the weighting of certain countries in
the Series may vary from their weighting in international indices such as those
published by The Financial Times, Morgan Stanley Capital International or
Salomon/Russell. The Advisor, however, will not attempt to account for cross
holding within the same country. The Advisor may exclude the stock of a company
that otherwise meets the applicable criteria if the Advisor determines in its
best judgment that other conditions exist that make the purchase of such stock
for the Series inappropriate.
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Deviation from market capitalization weighting will occur because the Series
intends to purchase round lots only. Furthermore, in order to retain sufficient
liquidity, the relative amount of any security held by the Series may be reduced
from time to time from the level which adherence to market capitalization
weighting would otherwise require. A portion, but generally not in excess of
20%, of the Series' assets may be invested in interest-bearing obligations, such
as money-market instruments, thereby causing further deviation from market
capitalization weighting. Such investments would be made on a temporary basis
pending investment in equity securities pursuant to the Series' investment
objective.
The Series may make block purchases of eligible securities at opportune prices
even though such purchases exceed the number of shares which, at the time of
purchase, adherence to the policy of market capitalization weighting would
otherwise require. 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" in Item
7(a).) While such transactions might cause a temporary deviation from market
capitalization weighting, they would ordinarily be made in anticipation of
further growth of the assets of the Series.
Changes in the composition and relative ranking (in terms of market
capitalization and book to market ratio) of the stocks which are eligible for
purchase by the Series take place with every trade when the securities markets
are open for trading due, primarily, to price fluctuations of such securities.
On a periodic basis, the Advisor will prepare a list of eligible large companies
with high book to market ratios whose stock are eligible for investment; such
list will be revised not less than semi-annually. Only common stocks whose
market capitalizations are not less than such minimum will be purchased by the
Series. Additional investments will not be made in securities which have
depreciated in value to such an extent that they are not then considered by the
Advisor to be large companies. This may result in further deviation from market
capitalization weighting and such deviation could be substantial if a
significant amount of the Series' holdings decrease in value sufficiently to be
excluded from the then current market capitalization requirement for eligible
securities, but not by a sufficient amount to warrant their sale.
It is management's belief that the stocks of large 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 Series involves greater risk than including a large number
of them. The Advisor does not anticipate that a significant number
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of securities which meet the market capitalization criteria will be selectively
excluded from the Series.
The Series does not seek current income as an investment objective, and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in the
Series do pay dividends. It is anticipated, therefore, that the Series will
receive dividend income. The Series may lend securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional income. (See "Securities Loans" below.)
Securities which have depreciated in value since their acquisition will not be
sold by the Series solely because prospects for the issuer are not considered
attractive, or due to an expected or realized decline in securities prices in
general. Securities may be disposed of, however, at any time when, in the
Advisor's judgment, circumstances warrant their sale, such as tender offers,
mergers and similar transactions, or bids made for block purchases at opportune
prices. Generally, securities will not be sold to realize short-term profits,
but when circumstances warrant, they may be sold without regard to the length of
time held. Generally, securities will be purchased with the expectation that
they will be held for longer than one year, and will be held until such time as
they are no longer considered an appropriate holding in light of the policy of
maintaining a portfolio of companies with large market capitalizations and high
book to market ratios. The annual portfolio turnover rate of the Series is not
expected to exceed 20%.
In addition to the policies discussed in response to this Item 4(a), investment
limitations have been adopted by each Series and are noted in response to Item
13(b) of Part B.
THE EMERGING MARKETS SERIES
The investment objective of The Emerging Markets Series is to achieve long-term
capital appreciation. The Series operates as a diversified investment company
and seeks to achieve its investment objective by investing in emerging markets
designated by the Board of Trustees in consultation with the Advisor ("Approved
Markets"). The Series invests its assets primarily in Approved Market equity
securities listed on bona fide securities exchanges or actively traded on OTC
markets. These exchanges or OTC markets may be either within or outside the
issuer's domicile country, and the securities may be listed or traded in the
form of International Depository Receipts ("IDR's") or American Depository
Receipts ("ADR's").
Under normal market conditions, the Series will invest at least 65% of its
assets in Approved Market securities. Approved Market
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securities include (a) securities of companies organized in a country in an
Approved Market or for which the principal trading market is in an Approved
Market, (b) securities issued or guaranteed by the government of an Approved
Market country, its agencies or instrumentalities, or the central bank of such
country, (c) securities denominated in an Approved Market currency issued by
companies to finance operations in Approved Markets, (d) securities of companies
that derive at least 50% of their revenues primarily from either goods or
services produced in Approved Markets or sales made in Approved Markets and (e)
Approved Markets equity securities in the form of depositary shares. Securities
of Approved Markets may include securities of companies that have
characteristics and business relationships common to companies in other
countries. As a result, the value of the securities of such companies may
reflect economic and market forces in such other countries as well as in the
Approved Markets. The Advisor, however, will select only those companies which,
in its view, have sufficiently strong exposure to economic and market forces in
Approved Markets such that their value will tend to reflect developments in
Approved Markets to a greater extent than developments in other regions. For
example, the Advisor may invest in companies organized and located in the United
States or other countries outside of Approved Markets, including companies
having their entire production facilities outside of Approved Markets, when such
companies meet the definition of Approved Markets securities so long as the
Advisor believes at the time of investment that the value of the company's
securities will reflect principally conditions in Approved Markets.
The Advisor defines the term "emerging market" to mean a country which is
considered to be an emerging market by the International Finance Corporation.
Approved emerging markets may not include all such emerging markets. In
determining whether to approve markets for investment, the Board of Trustees
will take into account, among other things, market liquidity, investor
information, government regulation, including fiscal and foreign exchange
repatriation rules and the availability of other access to these markets by the
investors of the Series.
The following countries are currently designated as Approved Markets:
Argentina, Brazil, Chile, Indonesia, Malaysia, Mexico, Portugal, Thailand,
Turkey and Israel. Countries that may be approved in the future include but are
not limited to Republic of China (Taiwan), which is effectively closed to
foreign investors at present, and Colombia, Greece, India, Jordan, Nigeria,
Pakistan, Philippines, Venezuela and Zimbabwe.
The Series may invest up to 35% of its assets in securities of issuers that are
not Approved Markets securities, but whose issuers the Advisor believes derive a
substantial proportion, but
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less than 50%, of their total revenues from either goods and services produced
in, or sales made in, Approved Markets.
Pending the investment of new capital in Approved Market equity securities, the
Series will typically invest in money market instruments or other highly liquid
debt instruments denominated in U.S. dollars (including, without limitation,
repurchase agreements). In addition, the Series may, for liquidity, or for
temporary defensive purposes during periods in which market or economic or
political conditions warrant, purchase highly liquid debt instruments or hold
freely convertible currencies, although the Series does not expect the aggregate
of all such amounts to exceed 10% of its net assets under normal circumstances.
The Series also may invest in shares of other investment companies that invest
in one or more Approved Markets, although it intends to do so only where access
to those markets is otherwise significantly limited. The Series may also invest
in money-market mutual funds for temporary cash management purposes. The
Investment Company Act of 1940 limits investment by the Series in shares of
other investment companies as follows: (1) no more than 10% of the value of the
Series' total assets may be invested in shares of other investment companies;
(2) the Series may not own securities issued by an investment company having an
aggregate value in excess of 5% of the value of the total assets of the Series;
and (3) the Series may not own more than 3% of the total outstanding voting
stock of an investment company. If the Series invests in another investment
company, the Series' shareholders will bear not only their proportionate share
of expenses of the Series (including operating expenses and the fees of the
Advisor), but also will bear indirectly similar expenses of the underlying
investment company. In some Approved Markets it will be necessary or advisable
for the Series to establish a wholly-owned subsidiary or a trust for the purpose
of investing in the local markets.
PORTFOLIO STRUCTURE. The Series will seek a broad market coverage of larger
companies within each Approved Market. The Series will attempt to own shares of
companies whose aggregate overall share of the Approved Market's total public
market capitalization is at least the upper 40% of such capitalization, and can
be as large as 75%. The Series may not invest in all such companies or achieve
approximate market weights, due to constraints imposed within Approved Markets
(E.G., restrictions on purchases by foreigners), or by the Series' policy not to
invest more than 25% of its assets in any one industry. The Series may also
further limit the market coverage in the smaller emerging markets in order to
limit purchases of small market capitalization companies.
The policy of seeking broad market diversification means that the Advisor will
not utilize "fundamental" securities research
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techniques in identifying securities selections. The decision to include or
exclude the shares of an issuer will be made primarily on the basis of such
issuer's relative market capitalization determined by reference to other
companies located in the same country. Company size is measured in terms of
reference to other companies located in the same country and in terms of local
currencies in order to eliminate the effect of variations in currency exchange
rates. Even though a company's stock may meet the applicable market
capitalization criterion, it may not be included in the Series for one or more
of a number of reasons. For example, in the Advisor's judgment, the issuer may
be considered in extreme financial difficulty, a material portion of its
securities may be closely held and not likely available to support market
liquidity, or the issuer may be a "passive foreign investment company" (as
defined in the Internal Revenue Code of 1986, as amended). To this extent,
there will be the exercise of discretion and consideration by the Advisor which
would not be present in the management of a portfolio seeking to represent an
established index of broadly traded domestic securities (such as the S&P 500
Index). The Advisor will also exercise discretion in determining the allocation
of capital as between Approved Markets.
It is management's belief that equity investments offer, over a long term, a
prudent opportunity for capital appreciation, but, at the same time, selecting a
limited number of such issues for inclusion in the Series involves greater risk
than including a large number of them.
The Series does not seek current income as an investment objective, and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in the
Series do pay dividends. It is anticipated, therefore, that the Series will
receive dividend income.
Generally, securities will be purchased with the expectation that they will be
held for longer than one year. However, securities may be disposed of at any
time when, in the Advisor's judgment, circumstances warrant their sale.
Generally, securities will not be sold to realize short-term profits, but when
circumstances warrant, they may be sold without regard to the length of time
held. The portfolio turnover rate of the Series ordinarily is anticipated to be
low, and not expected to exceed 20% per year.
For the purpose of converting U.S. dollars to another currency, or vice versa,
or converting one foreign currency to another foreign currency, the Series may
enter into forward foreign exchange contracts. In addition, to hedge against
changes in the relative value of foreign currencies, the Series may purchase
foreign currency futures contracts. The Series will only enter into such a
futures contract if it is expected that the Series
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will be able readily to close out such contract. There can, however, be no
assurance that it will be able in any particular case to do so, in which case
the Series may suffer a loss.
SECURITIES LOANS
Each Series of the Trust may 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 the investment objective of a Series. 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 Trust could experience delay in
recovering the loaned securities. Management believes that this risk can be
controlled through careful monitoring procedures.
ITEM 4(b)
The U.S. 6-10 Small Company Series may invest in securities of foreign issuers
that are traded in the U.S. securities markets, but such investments may not
exceed 5% of the gross assets of the Series.
The U.S. Large Company Series may invest generally not more than 5% of its net
assets in the same types of short-term fixed income obligations as may be
acquired by The DFA One-Year Fixed Income Series, in order to maintain liquidity
or to invest temporarily uncommitted cash balances. (See "The DFA One-Year
Fixed Income Series" in Item 4(a)(ii).)
The U.S. Large Company Series, the U.S. Value Series and The DFA International
Value Series may acquire stock index futures contracts and options thereon in
order to commit funds awaiting investment in stocks or maintain cash liquidity.
However, each Series will not purchase stock index futures contracts or options
if as a result more than 5% of its total assets would then consist of initial
and variation margin deposits on such contracts or options. Such investments
entail certain risks. (See "Risk Factors - All Series" in Item 4(c).)
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ITEM 4(c) RISK FACTORS - ALL SERIES
SMALL COMPANY SECURITIES
Typically, securities of small companies are less liquid than securities of
large companies. Recognizing this factor, The U.S. 6-10 Small Company Series
and The U.S. Small Cap Value Series will endeavor to effect securities
transactions in a manner to avoid causing significant price fluctuations in the
market for these securities.
FOREIGN SECURITIES
The Enhanced U.S. Large Company Series, DFA One-Year Fixed Income, Two-Year
Corporate Fixed Income, Two-Year Global Fixed Income, The DFA International
Value and The Emerging Markets Series invest in foreign issuers. Such
investments involve risks that are not associated with investments in U.S.
public companies. Such risks may include legal, political and or diplomatic
actions of foreign governments, such as imposition of withholding taxes on
interest and dividend income payable on the securities held, possible seizure or
nationalization of foreign deposits, establishment of exchange controls or the
adoption of other foreign governmental restrictions which might adversely affect
the value of the assets held by the Series. Further, foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards comparable to those of U.S. public companies and there may be less
publicly available information about such companies than comparable U.S.
companies. The Enhanced U.S. Large Company Series, DFA One-Year Fixed Income,
Two-Year Corporate Fixed Income and Two-Year Global Fixed Income Series also may
invest in obligations of supranational organizations. The value of the
obligations of these organizations may be adversely affected if one or more of
their supporting governments discontinue their support. Also, there can be no
assurance that any of the Series will achieve its investment objective.
INVESTING IN EMERGING MARKETS
The investments of The Emerging Markets Series involve risks in addition to the
usual risks of investing in developed foreign markets. A number of emerging
securities markets restrict, to varying degrees, foreign investment in stocks.
Repatriation of investment income, capital and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some emerging
countries. In some jurisdictions, such restrictions and the imposition of taxes
are intended to discourage shorter- rather than longer-term holdings. While The
Emerging Markets Series will invest only in markets where these restrictions are
considered acceptable to the Advisor, new or additional repatriation
restrictions might be
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imposed subsequent to the Series' investment. If such restrictions were imposed
subsequent to investment in the securities of a particular country, the Series
might, among other things, discontinue the purchasing of securities in that
country. Such restrictions will be considered in relation to the Series'
liquidity needs and other factors and may make it particularly difficult to
establish the fair market value of particular securities from time to time. The
valuation of securities held by the Series is the responsibility of the Board of
Trustees, acting in good faith and with advice from the Advisor. (See Item
7(b).) Further, some attractive equity securities may not be available to the
Series because foreign shareholders hold the maximum amount permissible under
current laws.
Relative to the U.S. and to larger non-U.S. markets, many of the emerging
securities markets in which The Emerging Markets Series may invest are
relatively small, have low trading volumes, suffer periods of illiquidity and
are characterized by significant price volatility. Such factors may be even
more pronounced in jurisdictions where securities ownership is divided into
separate classes for domestic and non-domestic owners.
In addition, many emerging markets, including most Latin American countries,
have experienced substantial, and, in some periods, extremely high, rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have very negative effects on the economies and
securities markets of certain countries. In an attempt to control inflation,
wage and price controls have been imposed at times in certain countries.
Certain emerging markets have recently transitioned, or are in the process of
transitioning, from centrally controlled to market-based economies. There can
be no assurance that such transitions will be successful.
Brokerage commissions, custodial services and other costs relating to investment
in foreign markets generally are more expensive than in the United States; this
is particularly true with respect to emerging markets. Such markets have
different settlement and clearance procedures. In certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of The Emerging Markets Series to make intended securities purchases
due to settlement problems could cause the Series to miss investment
opportunities. Inability to dispose of a portfolio security caused by
settlement problems could result either in losses to the Series due to
subsequent declines in value of the portfolio security or, if the Series has
entered into a contract to sell the security, could result in possible liability
to the purchaser.
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The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for The Emerging Markets Series' portfolio
securities in such markets may not be readily available. The Series' portfolio
securities in the affected markets will be valued at fair value determined in
good faith by or under the direction of the Board of Trustees.
Government involvement in the private sector varies in degrees among the
emerging securities markets contemplated for investment by The Emerging Markets
Series. Such involvement may, in some cases, include government ownership of
companies in certain commercial business sectors, wage and price controls or
imposition of trade barriers and other protectionist measures. With respect to
any developing country, there is no guarantee that some future economic or
political crisis will not lead to price controls, forced mergers of companies,
expropriation, the creation of government monopolies, or other measures which
could be detrimental to the investments of The Emerging Markets Series.
Taxation of dividends and capital gains received by non-residents varies among
countries with emerging markets and, in some cases, is high in relation to
comparable U.S. rates. Particular tax structures may have the intended or
incidental effect of encouraging long holding periods for particular securities
and/or the reinvestment of earnings and sales proceeds in the same jurisdiction.
In addition, emerging market jurisdictions typically have less well-defined tax
laws and procedures than is the case in the United States, and such laws may
permit retroactive taxation so that The Emerging Markets Series could in the
future become subject to local tax liability that it had not reasonably
anticipated in conducting its investment activities or valuing its assets.
FOREIGN CURRENCIES AND RELATED TRANSACTIONS
Investments of The DFA International Value Series and The Emerging Markets
Series, many of the investments of The DFA Two-Year Global Fixed Income Series
and, to a lesser extent, the investments of The Enhanced U.S. Large Company
Series, will be denominated in foreign currencies. Changes in the relative
values of foreign currencies and the U.S. dollar, therefore, will affect the
value of investments of the Series. The Series may purchase foreign currency
futures contracts and options in order to hedge against changes in the level of
foreign currency exchange rates, provided not more than 5% of the Series' assets
are then invested as initial or variation margin deposits on such contracts or
options. Such contracts involve an agreement to purchase or sell a specific
currency at a future date at a price set in the contract and enable the Series
to protect against
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losses resulting from adverse changes in the relationship between the U.S.
dollar and foreign currencies occurring between the trade and settlement dates
of Series securities transactions, but they also tend to limit the potential
gains that might result from a positive change in such currency relationships.
Gains and losses on investments in futures and options thereon depend on the
direction of securities prices, interest rates and other economic factors.
BORROWING
Each Series, except The DFA One-Year Fixed Income Series, has reserved the right
to borrow amounts not exceeding 33% of its net assets for the purposes of making
redemption payments. When advantageous opportunities to do so exist, the Series
may also purchase securities when borrowings exceed 5% of the value of the
Series' 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.
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PORTFOLIO STRATEGIES
The method employed by the Advisor to manage each Series, except The U.S. Large
Company Series, The Enhanced U.S. Large Company Series and the Fixed Income
Series, will differ from the process employed by many other investment advisors
in that the Advisor will rely on fundamental analysis of the investment merits
of securities to a limited extent to eliminate potential portfolio 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. The U.S. Large Company Series will
operate as an index fund and, therefore, represents a passive method of
investing in all stocks that comprise the S&P 500 Index which does not entail
selection of securities based on the individual investment merits of their
issuers. The investment performance of The U.S. Large Company Series is
expected to approximate the investment performance of the S&P 500 Index, which
tends to be cyclical in nature, reflecting periods when stock prices generally
rise or fall.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
The U.S. Large Company Series, The Enhanced U.S. Large Company Series, the U.S.
Value Series, The DFA International Value Series and The Emerging Markets Series
may invest in index futures contracts and options on index futures, provided
that, in accordance with current regulations, not more than 5% of each Series'
total assets are then invested as initial margin deposits on such contracts or
options. In addition, to the extent that such Series invest in futures
contracts and options thereon for other than bona fide hedging purposes, no
Series will enter into such transactions if, immediately thereafter, the sum of
the amount of 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
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factors, and the loss from investing in futures transactions is potentially
unlimited. Certain restrictions imposed by the Internal Revenue Code may limit
the ability of a Series to invest in futures contracts and options on futures
contracts.
OPTIONS ON STOCK INDICES
The Enhanced U.S. Large Company Series may purchase put and call options and
write put and call options on stock indices and stock index futures listed on
national securities exchanges or traded in the over-the-counter market. The
Enhanced U.S. Large Company Series may use these techniques to hedge against
changes in securities prices or as part of its overall investment strategy. An
option on an index is a contract that gives the holder of the option, in return
for a premium, the right to buy from (in the case of a call) or sell to (in the
case of a put) the writer of the option the cash value of the index at a
specified exercise price at any time during the term of the option. Upon
exercise, the writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price multiplied by the
specified multiplier for the index option. (An index is designed to reflect
specified facets of a particular financial or securities market, a specific
group of financial instruments or securities, or certain economic indicators.)
A stock index fluctuates with changes in the market values of the stocks
included in the index.
With respect to the writing of options, the writer has no control over the time
when it may be required to fulfill its obligation. Prior to exercise or
expiration, an option may be closed out by an offsetting purchase or sale of an
option on the same series. There can be no assurance, however, that a closing
purchase or sale transaction can be effected when The Enhanced U.S. Large
Company Series desires.
The Enhanced U.S. Large Company Series may write covered straddles consisting of
a combination of a call and a put written on the same index. A straddle will be
covered when sufficient assets are deposited to meet The Enhanced U.S. Large
Company Series' immediate obligations. The Series may use the same liquid
assets to cover both the call and put options where the exercise price of the
call and the put are the same or the exercise price of the call is higher than
that of the put. In such cases, the Series will also segregate liquid assets
equivalent to the amount, if any, by which the put is "in the money."
The effectiveness of purchasing stock index options will depend upon the extent
to which price movements in The Enhanced U.S. Large Company Series' portfolio
correlate with price movements of the stock index selected. Because the value
of an index option depends upon movements in the level of the index rather than
the
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price of a particular stock, whether the Series will realize a gain or loss
from the purchase of options on an index depends upon movements in the level of
stock prices in the stock market generally or, in the case of certain indices,
in an industry or market segment, rather than movements in the price of a
particular stock. If The Enhanced U.S. Large Company Series takes positions in
options instruments contrary to prevailing market trends, the Series could be
exposed to the risk of a loss. Certain restrictions imposed on The Enhanced
U.S. Large Company Series by the Internal Revenue Code may limit the ability of
such Series to invest in options.
SWAPS
The Enhanced U.S. Large Company Series may enter into equity index swap
agreements for purposes of attempting to obtain a particular desired return at a
lower cost to the Series than if the Series had invested directly in an
instrument that yielded that desired return. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments. The
gross returns to be exchanged or "swapped" between the parties are generally
calculated with respect to a "notional amount," i.e., the return on or increase
in value of a particular dollar amount invested a group of securities
representing a particular index.
The "notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by The Enhanced U.S. Large Company
Series would calculate the obligations of the parties to the agreement on a "net
basis." Consequently, the Series' current obligations (or rights) under a swap
agreement will generally be equal only to the net amount to be paid or received
under the agreement based on the relative values of the positions held by each
party to the agreement (the "net amount"). The Enhanced U.S. Large Company
Series' current obligations under a swap agreement will be accrued daily (offset
against amounts owed to the Series) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of liquid assets such as cash, U.S. Government securities, or
high grade debt obligations, to avoid any potential leveraging of the Series'
portfolio. The Enhanced U.S. Large Company Series will not enter into a swap
agreement with any single party if the net amount owed or to be received under
existing contracts with that party would exceed 5% of the Series' assets.
Because they are two-party contracts and because they may have terms of greater
than seven days, swap agreements may be
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considered to be illiquid, and, therefore, swap agreements entered into by The
Enhanced U.S. Large Company Series and other illiquid securities will be limited
to 15% of the net assets of the Series. Moreover, The Enhanced U.S. Large
Company Series bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. The Advisor will cause The Enhanced U.S. Large Company
Series to enter into swap agreements only with counterparties that the
Investment Committee of The Advisor has approved. Certain restrictions imposed
on the Enhanced U.S. Large Company Series by the Internal Revenue Code may limit
the Series' ability to use swap agreements. The swap market is a relatively new
market and is largely unregulated. It is possible that developments in the
swaps market, including potential government regulation, could adversely affect
The Enhanced U.S. Large Company Series' ability to terminate existing swap
agreements or to realize amounts to be received under such agreements.
BANKING INDUSTRY CONCENTRATIONS
Concentrating in obligations of the banking industry may involve additional risk
by foregoing the safety of investing in a variety of industries. Changes in the
market's perception of the riskiness of banks relative to non-banks could cause
more fluctuations in the net asset value of The DFA One-Year Fixed Income, Two-
Year Corporate Fixed Income and Two-Year Global Fixed Income Series than might
occur in less concentrated portfolios.
REPURCHASE AGREEMENTS
In addition, all of the Series may invest in repurchase agreements. In the
event of the bankruptcy of the other party to a repurchase agreement, the Trust
could experience delay in recovering the securities underlying such agreements.
Management believes that this risk can be controlled through stringent security
selection criteria and careful monitoring procedures.
ITEM 5. MANAGEMENT OF THE TRUST
(a) The Trust has a Board of Trustees, which is responsible for establishing
Trust policies and for overseeing the management of the Trust.
(b)(i) Dimensional Fund Advisors Inc. (the "Advisor"), 1299 Ocean Avenue,
11th Floor, Santa Monica, California 90401, serves as investment advisor to each
of the Series. The Advisor was organized in May 1981 and is engaged in the
business of providing investment management services to institutional investors.
Assets under management total approximately $13 billion. David G. Booth and Rex
A. Sinquefield, directors and officers of
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the Advisor and trustees and officers of the Trust, together own approximately
64% of the Advisor's outstanding stock and may be deemed controlling persons of
the Advisor.
(b)(ii) Pursuant to an investment management agreement with the Trust with
respect to each Series, the Advisor manages the investment and reinvestment of
their assets. The Advisor also provides the Trust with records concerning the
Advisor's activities which the Trust is required to maintain and renders regular
reports to the Trust's officers and the Board of Trustees. The Advisor also
provides all of the Series with a trading department and selects brokers and
dealers to effect securities transactions.
(b)(iii) For the fiscal year ended November 30, 1995, (i) the Advisor received
a fee for its services which, on an annual basis, equaled the following
percentage of the average net assets of each Series; and (ii) the total expenses
of each Series were the following percentages of respective average net assets:
Series Management Fee Total Expenses
------ -------------- --------------
U.S. 6-10 Small Company 0.03% 0.15%
U.S. Large Company 0.025% .025%
U.S. Small Cap Value 0.20% 0.32%
U.S. Large Cap Value 0.10% 0.21%
DFA One-Year Fixed Income 0.05% 0.10%
DFA International Value
Series 0.20% 0.42%
Emerging Markets Series 0.10% 0.87%
The investment advisory fees applicable to The Enhanced U.S. Large Company
Series, The DFA Two-Year Corporate Fixed Income Series, The DFA Two-Year Global
Fixed Income Series and The DFA Two-Year Government Series, each of which had
not commenced operations as of November 30, 1995, are equal to .05%, .15%, .05%,
and .15%, respectively, of the average net assets of each Series on an annual
basis. Beginning December 1, 1993, the Advisor agreed to waive its fee under
the Investment Management Agreement with respect to The DFA International Value
Series to the extent necessary to keep the cumulative annual expenses of the
Series to not more than .45% of
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average net assets of the Series on an annualized basis. For the fiscal year
ended November 30, 1995, the Advisor was not required to waive any portion of
its fee pursuant to such agreement. The Advisor may eliminate this waiver at
any time in its discretion.
Pursuant to the terms of the investment management agreement relating to The
U.S. Large Company Series, for the fiscal year ended November 30, 1995, the
Advisor agreed to bear all of the ordinary operating expenses of the Series,
except the investment advisory fee; such expenses were not subject to
reimbursement. Absent this arrangement, the annualized ratio of expenses to
average net assets for The U.S. Large Company Series for the fiscal year ended
November 30, 1995 would have been 0.18%. Effective December 1, 1995, pursuant
to the terms of the current investment management agreement between the Trust on
behalf of The U.S. Large Company Series and the Advisor, the Series is obligated
to bear all of its operating expenses, including its investment management fee.
(c) Investment decisions for all 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.
(d) AND (e) PFPC Inc. ("PFPC"), 400 Bellevue Parkway , Wilmington, Delaware
19809, serves as the administrative services, dividend disbursing and transfer
agent for all Trust Series. The services provided by PFPC are subject to
supervision by the executive officers and the Board of Trustees of the Trust,
and include day-to-day keeping and maintenance of certain records, calculation
of the offering price of the shares, preparation of reports, liaison with its
custodians, and transfer and dividend disbursing agency services. For its
services, each Series pays PFPC annual fees which are set forth in the following
table:
U.S. 6-10 SMALL COMPANY SERIES
U.S. SMALL CAP VALUE SERIES
U.S. LARGE CAP VALUE SERIES
ENHANCED U.S. LARGE COMPANY SERIES
CHARGES FOR EACH SERIES:
.1025% of the first $300 million of net assets
.0769% of the next $300 million of net assets
.0513% of the next $250 million of net assets
.0205% of net assets over $850 million
Except for a minimum fee of $58,800 per year that PFPC charges to each of the
Large Cap Value and Small Cap Value Series, PFPC has agreed that it may from
time to time limit the fee rates for these Series. The Enhanced U.S. Large
Company Series is subject to a minimum fee of $75,000 per
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year which is to be phased in over the first year of the Series' operation.
DFA Two-Year Global Fixed Income Series
.1230% of the first $150 million of net assets
.0820% of the next $150 million of net assets
.0615% of the next $300 million of net assets
.0410% of the next $250 million of net assets
.0205% of net assets over $850 million
The Series is subject to a minimum fee of $75,000 per year which is to be phased
in over the first year of the Series' operation.
DFA INTERNATIONAL VALUE SERIES
EMERGING MARKETS SERIES
CHARGES FOR EACH SERIES:
.123% of the first $300 million of net assets
.0615% of the next $300 million of net assets
.0410% of the next $250 million of net assets
.0205% of net assets over $850 million
Each Series is subject to a minimum fee of $75,000 per year.
DFA ONE-YEAR FIXED INCOME SERIES
DFA TWO-YEAR CORPORATE FIXED INCOME SERIES
DFA TWO-YEAR GOVERNMENT SERIES
CHARGES FOR EACH SERIES:
.0513% of the first $100 million of net assets
.0308% of net assets
.0205% of net assets over $200 million
The DFA Two-Year Corporate Fixed Income and DFA Two-Year Government Series are
each subject to minimum fees of $54,000 per year which are to be phased in over
the first year of the Series' operation.
U.S. LARGE COMPANY SERIES
.05% of the first $250 million of net assets
.03% of the next $250 million of net assets
.02% of the next $250 million of net assets
.01% of the next $250 million of net assets
.005% of the next $1 billion of net assets
.001% of net assets over $2 billion
The Series is subject to a minimum fee of $75,000 per year.
Currently, The U.S. Large Company Series is classified as a corporation for
federal income tax purposes. The Series
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anticipates classification as a partnership for federal income tax purposes
during the fiscal year 1996; at such time, PFPC will receive annual fees of
.015% of average net assets.
(f) The Trust bears all of its own costs and expenses, including: services of
its independent accountants, legal counsel, brokerage fees, commissions and
transfer taxes in connection with the acquisition and disposition of portfolio
securities, taxes, insurance premiums, costs incidental to meetings of its
shareholders and trustees, the cost of filing its registration statement under
federal securities law, reports to shareholders, and transfer and dividend
disbursing agency, administrative services and custodian fees. Expenses
allocable to a particular Series are so allocated and expenses which are not
allocable to a particular Series are borne by each Series on the basis of the
fees of the Trust's administrative agent.
(g) The Advisor places portfolio securities transactions with a view to
obtaining best price and execution. Subject to that goal, transactions may be
placed with securities firms that are affiliated with an affiliate of the
Advisor.
Response to Item 5A has been omitted pursuant to paragraph 4 of Instruction F of
the General Instructions to Form N-1A.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
(a) All eleven Series issue shares of beneficial interest with a par
value of $.01 per share without a sales load. The shares of each Series,
when issued and paid for in accordance with this registration statement, will
be fully paid and nonassessable shares, with equal, non-cumulative voting
rights, except as described below, and no preferences as to conversion,
exchange, dividends, redemptions or any other feature. Shareholders shall
have the right to vote only (i) for removal of Trustees, (ii) with respect to
such additional matters relating to the Trust as may be required by the
applicable provisions of the 1940 Act, including Section 16(a) thereof, and
(iii) on such other matters as the Trustees may consider necessary or
desirable. In addition, the shareholders of each Series will be asked to
vote on any proposal to change a fundamental investment policy (i.e. a policy
that may be changed only with the approval of shareholders) of that Series.
If a shareholder of The Emerging Markets Series or The DFA Two-Year
Government Series redeems its entire interest in the Series or becomes
bankrupt, a majority in interest of the remaining shareholders in the Series
must vote within 120 days to approve the continuing existence of the Series
or the Series will be liquidated. All shares of the Trust entitled to vote
on a matter shall vote without differentiation between the separate Series on
a one-vote-per-share basis; provided however, if a matter to be voted on
affects only the interests of not all Series, then only the shareholders of
such affected Series shall be entitled to vote on the matter. Investments in
The Emerging Markets Series and The DFA Two-Year Government Series may not be
transferred, but an investor may withdraw all or any portion of their
investment at any time at net asset value. If
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liquidation of the Trust should occur, shareholders would be entitled to receive
on a per class basis the assets of the particular Series whose shares they own,
as well as a proportionate share of Trust assets not attributable to any
particular class. Ordinarily, the Trust does not intend to hold annual meetings
of shareholders, except as required by the Investment Company Act of 1940 or
other applicable law. The Trust's by-laws provide that meetings of shareholders
shall be called for the purpose of voting upon the question of removal of one or
more Trustees upon the written request of the holders of not less than 10% of
the outstanding shares.
(b) As of December 31, 1995, the following persons beneficially owned more than
25% of the voting securities of the following Series:
THE U.S. 6-10 SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc. -
The U.S. 6-10 Small Company Portfolio 83.97%
THE U.S. LARGE COMPANY SERIES
DFA Investment Dimensions Group Inc. -
The U.S. Large Company Portfolio 100.00%
THE DFA ONE-YEAR FIXED INCOME SERIES
DFA Investment Dimensions Group Inc. -
The DFA One-Year Fixed Income Portfolio 99.92%
THE U.S. SMALL CAP VALUE SERIES
DFA Investment Dimensions Group Inc. -
The U.S. Small Cap Value Portfolio 97.46%
THE U.S. LARGE CAP VALUE SERIES
DFA Investment Dimensions Group Inc. -
The U.S. Large Cap Value Portfolio 66.38%
Dimensional Investment Group Inc. -
U.S. Large Cap Value Portfolio III 31.88%
THE DFA INTERNATIONAL VALUE SERIES
Dimensional Investment Group Inc. -
DFA International Value Portfolio 40.26%
DFA Investment Dimensions Group Inc. -
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DFA International High Book to Market Portfolio 28.23%
THE EMERGING MARKETS SERIES
DFA Investment Dimensions Group Inc. -
Emerging Markets Portfolio 99.98%
Each of the above Portfolios of DFA Investment Dimensions Group Inc. ("DFA
IDG") and Dimensional Investment Group Inc. ("DIG") are deemed to control the
corresponding Series, as "control" is defined in the Investment Company Act of
1940. DFA IDG and DIG are both Maryland corporations and are located at the
same address as the Trust.
(c) Not applicable.
(d) Not applicable.
(e) Shareholder inquiries may be made by writing or calling the Trust at 1299
Ocean Avenue, 11th Floor, Santa Monica, California 90401 or (310) 395-8005.
(f) The Trust's policy is to distribute substantially all net investment income
from The U.S. 6-10 Small Company Series, U.S. Small Cap Value Series, DFA
International Value Series and The Emerging Markets Series, together with any
net realized capital gains in November and December of each year. Dividends
from net investment income of The U.S. Large Company Series, Enhanced U.S. Large
Company Series and U.S. Large Cap Value Series, are distributed quarterly, and
any net capital gains are distributed annually after November 30. Net
investment income, which is accrued daily, will be distributed monthly (except
January) by The DFA One-Year Fixed Income Series and quarterly by The DFA Two-
Year Global Fixed Income, Two-Year Corporate Fixed Income and Two-Year
Government Series. Any net realized capital gains of the Fixed Income Series
will be distributed annually after the end of the fiscal year. Shareholders of
the Trust will automatically receive all income dividends and capital gains
distributions in additional shares of the Series whose shares they hold at net
asset value (as of the business date following the dividend record date), unless
as to The U.S. 6-10 Small Company Series, the Fixed Income Series, The U.S.
Large Company Series and the U.S. Value Series upon written notice to PFPC, the
shareholder selects one of the following options: (i) Income Option -- to
receive income dividends in cash and capital gains distributions in additional
shares at net asset value; (ii) Capital Gains Option -- to receive capital gains
distributions in cash and income dividends in additional shares at net asset
value; or (iii) Cash Option -- to receive both income dividends and capital
gains distributions
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in cash. While shareholders of The Enhanced U.S. Large Company Series will
automatically receive all capital gains distributions in additional shares of
the Series, upon written notice to the Transfer Agent, they may receive all
income dividends in cash.
(g) Each Series of the Trust, other than The Emerging Markets Series and DFA
Two-Year Government Series, is classified as a separate corporation for federal
income tax purposes (collectively, referred to as the "Corporate Series").
Each Corporate Series intends to qualify each year as a regulated investment
company under Subchapter M of 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 Emerging Markets Series and The DFA Two-Year Government Series (together,
the "Partnership Series") are classified as partnerships for federal income tax
purposes. Currently, the U.S. Large Company Series is classified as a
corporation for federal income tax purposes. The Series anticipates
classification as a partnership for federal income tax purposes during the
fiscal year 1996. At such time, the Series will not qualify as a regulated
investment company under the Code.
If a Series of the Trust, including the Partnership Series, purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" ("PFIC"), the Series (and in the case of the Partnership Series, its
investors) 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
Corporate Series to its shareholders or, in the case of the Partnership Series,
even if such income is distributed to its investors (which may or may not be
taxable). (See below for a more detailed discussion of the Partnership Series).
The Series of the Trust, including the Partnership Series, may be subject to
foreign withholding taxes on income from certain of their foreign securities.
If more than 50% in value of the total assets of a Corporate Series at the end
of its fiscal year are invested in securities of foreign corporations, the
Corporate Series may elect to pass-through to its shareholders the pro rata
share of foreign income taxes paid by the Corporate Series. If this election is
made, shareholders will be (i) required to include in their gross income their
pro rata share of foreign source income (including any foreign taxes paid by the
Corporate Series), and (ii) entitled to either deduct
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their share of such foreign taxes in computing their taxable income or to claim
a credit for such taxes against their U.S. income tax, subject to certain
limitations under the Code.
Shareholders will be informed by the Corporate Series at the end of each
calendar year regarding the shareholder's proportionate share of taxes paid to
any foreign country or possession of the United States, and gross income derived
from sources within any foreign country or possession of the United States.
The Enhanced U.S. Large Company Series' investments in Index Derivatives are
subject to complex tax rules which may have the effect of accelerating income or
converting, in part, what otherwise would have been long-term capital gain into
short-term capital gain. These rules may affect both the amount, character and
timing of income distributed to shareholders of The Enhanced U.S. Large Company
Series.
For the Corporate Series with the principal investment policy of investing in
foreign equity securities and non-equity domestic investments, it is anticipated
that only a small portion of such Corporate Series' dividends will qualify for
the corporate dividends received deduction. To the extent that such Corporate
Series pay dividends which qualify for this deduction, the availability of the
deduction is subject to certain holding period and debt financing restrictions
imposed under the Code on the corporation claiming the deduction.
Since virtually all of the net investment income from The DFA One-Year Fixed
Income, Two-Year Global Fixed Income and Two-Year Corporate Fixed Income Series
is expected to arise from earned interest, it is not expected that any of such
Series' distributions will be eligible for the dividends received deduction for
corporations.
For federal income tax purposes, any income dividends which the shareholder
receives from a Corporate Series, as well as any distributions derived from the
excess of net short-term capital gain over net long-term capital loss, are
treated as ordinary income whether the shareholder has elected to receive them
in cash or in additional shares. Shareholders of a Corporate Series are
notified annually by the Trust as to the federal tax status of dividends and
distributions paid by the Corporate Series whose shares they own.
Dividends which are declared by a Corporate Series in October, November or
December 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
Corporate Series and received by the shareholder on December 31 of the calendar
year in which they are declared.
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The sale of shares of a Corporate Series by redemption is a taxable event and
may result in a capital gain or loss. Any loss incurred on sale or exchange of
shares of the Corporate Series, 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 Trust may accept securities or local currencies in exchange for shares of a
Series. A gain or loss for federal income tax purposes may be realized by
investors in a Corporate Series who are subject to federal taxation upon the
exchange depending upon the cost of the securities or local currency exchanged.
(See "In Kind Purchases" in Item 7.)
The Series may be required to report to the Internal Revenue Service ("IRS")
any taxable dividend or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer
identification number and made certain required certifications that appear in
the Shareholder Application form. A shareholder may also be subject to
backup withholding if the IRS or a broker notifies the Corporate Series that
the number furnished by the shareholder is incorrect or that the shareholder
is subject to backup withholding for previous under-reporting of interest or
dividend income.
Shareholders of the Corporate Series who are not U.S. persons for purposes of
federal income taxation, should consult with their financial or tax advisors
regarding the applicability of U.S. withholding and other taxes to distributions
received by them from the Corporate Series and the application of foreign tax
laws to these distributions.
Shareholders should also consult their tax advisors with respect to the
applicability of any state and local intangible property or income taxes to
their shares of the Corporate Series and distributions and redemption proceeds
received from the Corporate Series.
The Partnership Series are series of a trust organized under Delaware law.
Under the anticipated method of operation of the Partnership Series, they will
not be subject to any income tax. Instead, each investor will be required to
report separately on its own income tax return its distributive share (as
determined in accordance with the governing instruments of the Partnership
Series) of a Partnership Series' income, gains, losses, deductions and
credits. Each investor will be required to report its distributive share
regardless of whether it has received a corresponding distribution of cash or
property from a Partnership Series. An allocable share of a tax-exempt
investor's income will be "unrelated business taxable income" ("UBTI") only
to the extent that a Partnership Series borrows money to acquire property or
invests in assets that produce UBTI. In addition to federal taxes, investors
in the Partnership Series may also be subject to state and local taxes on
their distributive share of a Partnership Series' income.
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The Partnership Series' taxable year-end will be November 30. Although, as
described above, the Partnership Series will not be subject to federal income
tax, they will file appropriate income tax returns.
While the Partnership Series are not classified as "regulated investment
companies" under Subchapter M of the Code, the Partnership Series' assets,
income and distributions will be managed in such a way that an investor in
the Series will be able to satisfy the requirements of Subchapter M of the
Code, assuming that the investor invested all of its assets in a Partnership
Series for an entire year.
There are certain other tax issues that will be relevant to only certain of the
investors; for instance, investors that are segregated asset accounts and
investors who contribute assets rather than cash to the Partnership Series. It
is intended that contributions of assets will not be taxable provided certain
requirements are met. Such investors are advised to consult their own tax
advisors as to the tax consequences of an investment in the Partnership Series.
Redemptions of shares in a Partnership Series may be taxable. In general, a
redemption of shares resulting in a distribution of cash by a Partnership
Series to an investor in excess of that investor's tax basis in its shares of
such Partnership Series is taxable to the extent of such excess.
The Partnership Series will inform investors of the source of dividends and
distributions at the time they are paid and will promptly after the close of
each fiscal year advise investors of their allocable share of a Partnership
Series' income, gains, losses deductions and credits for federal income tax
purposes.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
(a) The Trust's shares have not been registered under the Securities Act of
1933, which means that its shares may not be sold publicly. However, the Trust
may sell its shares through private placements pursuant to available exemptions
from registration under that Act.
Shares of the Trust are sold only to other investment companies and certain
institutional investors. Shares of The Emerging Markets Series are sold at a
price which is equal to the net asset value of such shares plus a reimbursement
fee. (SEE Item 7(b).) Shares of the other Series are sold at net asset value
without a sales charge. Shares are purchased at the net asset value next
determined after the Trust receives the order in proper form. All investments
are credited to the shareholder's account in the form of full and fractional
shares of the Series calculated to three decimal places. In the interest of
economy and convenience, certificates for shares will not be issued.
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The Trust distributes its own shares. It has, however, entered into an
agreement with DFA Securities Inc., a wholly owned subsidiary of the Advisor,
pursuant to which DFA Securities Inc. is responsible for supervising the sale of
shares of each Series. No compensation is paid by the Trust to DFA Securities
Inc. under this agreement.
IN KIND PURCHASES
If accepted by the Trust, shares of the Series may be purchased in exchange for
securities which are eligible for purchase or otherwise represented in the
Series' portfolios at the time of the exchange as described in this registration
statement or which such securities of The DFA International Value Series, The
Emerging Markets Series, The DFA Two-Year Global Fixed Income Series and The
Enhanced U.S. Large Company Series are denominated. Securities and local
currencies to be exchanged which are accepted by the Trust and Trust shares to
be issued therefore will be valued, as set forth under "Valuation of Shares" in
Item 7(b), at the time of the next determination of net asset value after such
acceptance. All dividends, interest, subscription, or other rights pertaining
to such securities shall become the property of the Series whose shares are
being acquired and must be delivered to the Trust by the investor upon receipt
from the issuer. Investors who desire to purchase shares of The DFA
International Value Series or DFA Two-Year Global Fixed Income Series with local
currencies should first contact the Adviser for wire instructions.
The Trust will not accept securities in exchange for shares of a Series unless:
(1) such securities are eligible for purchase or otherwise represented in the
Series' portfolios at the time of exchange and current market quotations are
readily available for such securities; (2) the investor represents and agrees
that all securities offered to be exchanged are not subject to any restrictions
upon their sale by the Series under the Securities Act of 1933 or under the laws
of the country in which the principal market for such securities exists, or
otherwise; and (3) at the discretion of the Series, the value of any such
security (except U.S. Government Securities) being exchanged together with other
securities of the same issuer owned by the Series will not exceed 5% of the net
assets of the Series immediately after the transaction. (See Item 4(a)(i).)
Investors interested in such exchanges should contact the Advisor. Investors
should also know that an in-kind purchase of shares of a Series may result in
taxable income; an investor desiring to make an in-kind purchase should
consult its tax advisor.
(b) VALUATION OF SHARES
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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 the Series' investments and other
assets, less any liabilities, by the total outstanding shares of the stock of
the Series. The value of the shares of each Series will fluctuate in relation
to its own investment experience. Securities held by the Series which are
listed on the securities exchange and for which market quotations are available
are valued at the last quoted sale price of the day or, if there is no such
reported sale, The U.S. 6-10 Small Company, The U.S. Large Company, The DFA
International Value, the U.S. Value Series and The Emerging Markets Series value
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 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. The net asset values per share of The DFA International Value Series,
The DFA Two-Year Global Fixed Income Series and The Emerging Markets Series are
expressed in U.S. dollars by translating the net assets of each Series using the
bid price for the dollar as quoted by generally recognized reliable sources.
The value of the shares of the Fixed Income Series will tend to fluctuate with
interest rates because, unlike money-market funds, such Series do not seek to
stabilize the value of their shares by use of the "amortized cost" method of
asset valuation. Net asset value includes interest on fixed income securities
which is accrued daily. Securities which are traded OTC and on a stock exchange
will be valued according to the broadest and most representative market, and it
is expected that for bonds and other fixed-income securities this ordinarily
will be the OTC market. Securities held by the Fixed Income Series may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the current market value of such securities. Other assets
and securities for which quotations are not readily available will be valued in
good faith at fair value using methods determined by the Board of Trustees.
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 DFA International Value Series, DFA Two-Year Global Fixed Income
Series, The Emerging Markets Series and The Enhanced U.S. Large Company Series
are determined as of such times for the purpose of computing the net asset value
of the Series. If events which materially affect the value of the investments
of the Series occur subsequent to the close of the securities market on which
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such securities are primarily traded, the investments affected thereby will be
valued at "fair value" as described above.
Certain of the securities holdings of The Emerging Markets Series in Approved
Markets may be subject to tax, investment and currency repatriation regulations
of the Approved Markets that could have a material effect on the valuation of
the securities. For example, the Series might be subject to different levels of
taxation on current income and realized gains depending upon the holding period
of the securities. In general, a longer holding period (E.G., 5 years) may
result in the imposition of lower tax rates than a shorter holding period (E.G.,
1 year). The Series may also be subject to certain contractual arrangements
with investment authorities in an Approved Market which require the Series to
maintain minimum holding periods or to limit the extent of repatriation of
income and realized gains. As a result, the valuation of particular securities
at any one time may depend materially upon the assumptions that the Series makes
at that time concerning the anticipated holding period for the securities.
Absent special circumstances as determined by the Board of Trustees, it is
presently intended that the valuation of such securities will be based upon the
assumption that they will be held for at least the amount of time necessary to
avoid higher tax rates or penalties and currency repatriation restrictions.
However, the use of such valuation standards will not prevent the Series from
selling such securities in a shorter period of time if the Advisor considers the
earlier sale to be a more prudent course of action. Revision in valuation of
those securities will be made at the time of the transaction to reflect the
actual sales proceeds inuring to the Series.
It is management's belief that payment of a reimbursement fee by each investor,
which is used to defray significant costs associated with investing proceeds of
the sale of their shares to such investors, will eliminate a dilutive effect
such costs would otherwise have on the net asset value of shares held by
previous investors. Therefore, the shares of The Emerging Markets Series are
sold at an offering price which is equal to the current net asset value of such
shares plus a reimbursement fee. The amount of the reimbursement fee represents
management's estimate of the costs reasonably anticipated to be associated with
the purchase of securities by that Series, and is paid to the Series and used by
it to defray such costs. Such costs include brokerage commissions on listed
securities and imputed commissions on OTC securities. The reimbursement fee for
The Emerging Markets Series, expressed as a percentage of the net asset value of
its shares, is 0.50%. Reinvestments of dividends and capital gains
distributions paid by the Series and in-kind investments are not subject to a
reimbursement fee.
The offering price of shares of each Series, except for The Emerging Markets
Series, is the net asset value thereof next
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determined after the receipt of the investor's funds by the Custodian, provided
that the purchase order in good order has been received by the Transfer Agent;
no sales charge or reimbursement fee is imposed.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
ITEM 8. REDEMPTION OR REPURCHASE
(a) As stated above in response to Item 7(a), "Purchase of Securities Being
Offered," the Trust's shares have not been registered under the Securities Act
of 1933, which means that its shares are restricted securities which may not be
sold unless registered or pursuant to an available exemption from that Act.
Investors who desire to redeem shares of a Series must first contact the Advisor
at (310) 395-8005. Redemptions are processed on any day on which the Trust is
open for business and are effected at the Series' net asset value next
determined after the Series receives a redemption request in good form.
Redemption payments in cash will ordinarily be made within seven days after
receipt of the redemption request in good form. However, the right of
redemption may be suspended or the date of payment postponed in accordance with
the 1940 Act. The amount received upon redemption may be more or less than the
amount paid for the shares depending upon the fluctuations in the market value
of the assets owned by the Series.
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of any Series to make payment wholly or
partly in cash, a Series may pay the redemption price in whole or in part by a
distribution of portfolio securities from the Series of the shares being
redeemed in lieu of cash in accordance with Rule 18f-1 under the Investment
Company Act of 1940. Investors may incur brokerage charges and other
transaction costs selling securities that were received in payment of
redemptions.
For additional information about redemption of Trust shares, see Items 19(a) and
(b) in Part B.
(b) Not applicable.
(c) Not applicable.
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(d) 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 Trust 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.
ITEM 9. PENDING LEGAL PROCEEDINGS
Not applicable.
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Part B:
ITEM 10. COVER PAGE
Not applicable.
ITEM 11. TABLE OF CONTENTS
Not applicable.
ITEM 12. GENERAL INFORMATION AND HISTORY
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES
(a) SEE Item 4(a)(ii) of Part A for a discussion of the investment policies of
each Series of the Trust.
(b) In addition to the policies stated in response to Item 4(a)(ii) of Part A,
each of the Series has adopted certain limitations which may not be changed with
respect to any Series without the approval of a majority of the outstanding
voting securities of the Series. A "majority" is defined as the lesser of: (1)
at least 67% of the voting securities of the Series (to be affected by the
proposed change) present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Series are present or represented by proxy,
or (2) more than 50% of the outstanding voting securities of such Series.
The Series 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 all Series except The U.S. 6-10 Small Company Series and The DFA
One-Year Fixed Income Series may purchase or sell financial futures contracts
and options thereon; and The Enhanced U.S. Large Company Portfolio may purchase,
sell and enter into indices-related futures contracts, options on such futures
contracts, securities-related swap agreements and other derivative instruments;
(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 Series, invest in the securities of any
issuer (except obligations of the U.S. Government and its instrumentalities) if,
as a result more than
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5% of the Series' 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 trustees of
the Trust or officers and directors of the Advisor owning more than 1/2 of 1%
of such securities together own more than 5% of such securities;
(5) borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 5% of a Series' gross
assets valued at the lower of market or cost; provided that each Series, except
The DFA One-Year Fixed Income Series and The U.S. 6-10 Small Company Series, may
borrow amounts not exceeding 33% of their net assets from banks and pledge not
more than 33% of such assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an extent greater than
10% of its total assets at fair market value, except as described in (5) above;
(7) invest more than 10% of the value of the Series' 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 Enhanced U.S. Large Company, The DFA Two-Year Corporate Fixed
Income, The DFA Two-Year Government and The DFA Two-Year Global Fixed Income
Series are not subject to this limitation, and The DFA International Value
Series, the U.S. Value Series, The U.S. 6-10 Small Company Series and The
Emerging Markets Series may invest not more than 15% of their total assets in
illiquid securities;
(8) engage in the business of underwriting securities issued by others;
(9) invest for the purpose of exercising control over management of any company;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization, provided that (a) The Emerging Markets Series is not subject to
this limitation; and (b) The Enhanced U.S. Large Company Portfolio may invest
its assets in securities of investment companies and units of such companies
such as, but not limited to, S & P Depository Receipts;
(11) invest more than 5% of its total assets in securities of companies which
have (with predecessors) a record of less than three years' continuous
operation;
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(12) acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Series' total assets would
be invested in securities of companies within such industry, except The DFA One-
Year Fixed Income, Two-Year Corporate Fixed Income and Two-Year Global Fixed
Income Series shall invest more than 25% of their total assets in obligations of
banks and bank holding companies in the circumstances described in this
registration statement in "Investments in the Banking Industry" under Item
4(a)(ii) of Part A;
(13) write or acquire options (except as described in (1) above) or interests in
oil, gas or other mineral exploration, leases or development programs except the
Enhanced U.S. Large Company Series may write or acquire options;
(14) purchase warrants; however, each Series, except The DFA One-Year Fixed
Income Series, Two-Year Corporate Fixed Income Series, Two-Year Global Fixed
Income Series and Two-Year Government Series (the "Fixed Income Series"), may
acquire warrants as a result of corporate actions involving its holdings of
other equity securities;
(15) purchase securities on margin or sell short; or
(16) acquire more than 10% of the voting securities of any issuer, provided that
this limitation applies only to 75% of the assets of the U.S. Value Series and
The Emerging Markets Series.
The investment limitations described in (1) and (15) above do not prohibit each
Series that may purchase or sell financial futures contracts and options thereon
from making margin deposits to the extent permitted under applicable
regulations; and the investment limitations described in (1), (13) and (15)
above do not prohibit The Enhanced U.S. Large Company Series from (i) making
margin deposits in connection with transactions in options; and (ii) maintaining
a short position, or purchasing, writing or selling puts, calls, straddles,
spreads or combinations thereof in connection with transactions in options,
futures, and options on futures and transactions arising under swap agreements
or other derivative instruments;
For purposes of (5) above, The Emerging Markets Series may borrow in connection
with a foreign currency transaction or the settlement of a portfolio trade. The
only type of borrowing contemplated thereby is the use of a letter of credit
issued on The Emerging Markets Series' behalf in lieu of depositing initial
margin in connection with currency futures contracts, and the Series has no
present intent to engage in any other types of borrowing transactions under this
authority.
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Although (2) above prohibits cash loans, the Series are authorized to lend
portfolio securities. (See "Securities Loans" in Item 4(a)(ii) of Part A.)
For the purposes of (7) above, The DFA One-Year Fixed Income, Two-Year Corporate
Fixed Income and Two-Year Global Fixed Income Series may invest in commercial
paper that is exempt from the registration requirements of the Securities Act of
1933 (the "1933 Act") subject to the requirements regarding credit ratings
stated in this registration statement under Item 4. Further, pursuant to Rule
144A under the 1933 Act, the Series may purchase certain unregistered (i.e.
restricted) securities upon a determination that a liquid institutional market
exists for the securities. If it is decided that a liquid market does exist,
the securities will not be subject to the 10% or 15% limitation on holdings of
illiquid securities stated in (7) above. While maintaining oversight, the Board
of Trustees has delegated the day-to-day function of making liquidity
determinations to the Advisor. For 144A securities to be considered liquid,
there must be at least two dealers making a market in such securities. After
purchase, the Board of Trustees and the Advisor will continue to monitor the
liquidity of Rule 144A securities.
For the purposes of (12) above, utility companies will be divided according to
their services; e.g., gas, gas transmission, electric and gas, electric, water
and telephone will each be considered a separate industry.
(c) Although not a fundamental policy subject to shareholder approval: (1) The
U.S. 6-10 Small Company Series will not purchase interests in any real estate
investment trust and (2) The Enhanced U.S. Large Company, The DFA Two-Year
Corporate Fixed Income, Two-Year Government and Two-Year Global Fixed Income
Series do not intend to invest more than 15% of their total assets in illiquid
securities.
The DFA International Value Series, The DFA Two-Year Global Fixed Income Series
and The Emerging Markets 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
U.S. Value Series and The DFA International Value Series have retained authority
to buy and sell financial futures contracts and options thereon, they have no
present intention to do so.
Notwithstanding any of the above investment restrictions, The Emerging Markets
Series may establish subsidiaries or other similar vehicles for the purpose of
conducting its investment
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operations in Approved Markets, if such subsidiaries or vehicles are required by
local laws or regulations governing foreign investors such as the Series or
whose use is otherwise considered by the Series to be advisable. The Emerging
Markets Series would "look through" any such vehicle to determine compliance
with its investment restrictions.
Unless otherwise indicated, all limitations applicable to the Series'
investments apply only at the time that a transaction is undertaken. Any
subsequent change in a rating assigned by any rating service to a security or
change in the percentage of a Series' assets invested in certain securities or
other instruments resulting from market fluctuations or other changes in a
Series' total assets will not require a Series to dispose of an investment until
the Advisor determines that it is practicable to sell or closeout the investment
without undue market or tax consequences. In the event that ratings services
assign different ratings to the same security, the Advisor will determine which
rating it believes best reflects the security's quality and risk at that time,
which may be the higher of the several assigned ratings.
Because the structure of each Series, except the Fixed Income Series, is based
on the relative market capitalizations of eligible holdings, it is possible that
the Series might include at least 5% of the outstanding voting securities of one
or more issuers. In such circumstances, the Trust and the issuer would be
deemed "affiliated persons" under the Investment Company Act of 1940 and certain
requirements of the Act regulating dealings between affiliates might become
applicable.
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OPTIONS ON STOCK INDICES
The Enhanced U.S. Large Company Series may purchase and sell options on stock
indices. With respect to the sale of call options on stock indices, pursuant to
published positions of the Securities and Exchange Commission ("SEC"), The
Enhanced U.S. Large Company Series will either (1) maintain with its custodian
cash or cash equivalents equal to the contract value (less any margin deposits);
(2) hold a portfolio of stocks substantially replicating the movement of the
index underlying the call option; or (3) hold a separate call on the same index
as the call written where the exercise price of the call held is (a) equal to or
less than the exercise price of the call written, or (b) greater than the
exercise price of the call written, provided the difference is maintained by the
Series in cash or cash equivalents in a segregated account with its custodian.
With respect to the sale of put options on stock indices, pursuant to published
SEC positions, The Enhanced U.S. Large Company Series will either (1) maintain
cash or cash equivalents equal to the exercise price (less any margin deposits)
in a segregated account with its custodian; or (2) hold a put on the same index
as the put written where the exercise price of the put held is (a) equal to or
greater than the exercise price of the put written, or (b) less than the
exercise price of the put written, provided an amount equal to the difference is
maintained by the Series in cash or cash equivalents in a segregated account
with its custodian.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
underlying index, exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be effected when The
Enhanced U.S. Large Company Series desires.
The Enhanced U.S. Large Company Series will realize a gain from a closing
purchase transaction if the cost of the closing option is less than the premium
received from writing the option, or, if it is more, the Series will realize a
loss. The principal factors affecting the market value of a put or a call
option include supply and demand, interest rates, the current market price of
the underlying index in relation to the exercise price of the option, the
volatility of the underlying index, and the time remaining until the expiration
date.
If an option written by The Enhanced U.S. Large Company Series expires, the
Series realizes a gain equal to the premium received at the time the option was
written. If an option purchased by the Series expires unexercised, the Series
realizes a loss equal to the premium paid.
The premium paid for a put or call option purchased by The Enhanced U.S. Large
Company Series is an asset of the Series.
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The premium received for an option written by the Series is recorded as a
deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
RISKS ASSOCIATED WITH OPTIONS ON INDICES
There are several risks associated with transactions in options on indices. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. The value of an
option position will reflect, among other things, the current market price of
the underlying index, the time remaining until expiration, the relationship of
the exercise price, the term structure of interest rates, estimated price
volatility of the underlying index and general market conditions. A decision as
to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
Options normally have expiration dates of up to 90 days. The exercise price of
the options may be below, equal to or above the current market value of the
underlying index. Purchased options that expire unexercised have no value.
Unless an option purchased by The Enhanced U.S. Large Company Series is
exercised or unless a closing transaction is effected with respect to that
position, The Enhanced U.S. Large Company Series will realize a loss in the
amount of the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an exchange
that provides a secondary market for identical options. Although The Enhanced
U.S. Large Company Series intends to purchase or write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market will exist for any particular option at any specific
time. Closing transactions may be effected with respect to options traded in
the over-the-counter markets only by negotiating directly with the other party
to the option contract, or in a secondary market for the option if such a market
exists. There can be no assurance that The Enhanced U.S. Large Company Series
will be able to liquidate an over-the-counter option at a favorable price at any
time prior to expiration. In the event of insolvency of the counter-party, the
Series may be unable to liquidate an over-the-counter option. Accordingly, it
may not be possible to effect closing transactions with respect to certain
options, with the result that The Enhanced U.S. Large Company Series would have
to exercise those options which they have purchased in order to realize any
profit. With respect to
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options written by The Enhanced U.S. Large Company Series, the inability to
enter into a closing transaction may result in material losses to the Series.
Index prices may be distorted if trading of a substantial number of securities
included in the index is interrupted causing the trading of options on that
index to be halted. If a trading halt occurred, The Enhanced U.S. Large Company
Series would not be able to close out options which it had purchased and may
incur losses if the underlying index moved adversely before trading resumed. If
a trading halt occurred and restrictions prohibiting the exercise of options
were imposed through the close of trading on the last day before expiration,
exercises on that day would be settled on the basis of a closing index value
that may not reflect current price information for securities representing a
substantial portion of the value of the index.
The Enhanced U.S. Large Company Series' activities in the options markets may
result in higher fund turnover rates and additional brokerage costs; however,
the Series may also save on commissions by using options as a hedge rather than
buying or selling individual securities in anticipation or as a result of market
movements.
INVESTMENT LIMITATIONS ON OPTIONS TRANSACTIONS
The ability of The Enhanced U.S. Large Company Series to engage in options
transactions is subject to certain limitations. The Series may purchase call
and put options to the extent that the premiums paid by the Series on all such
outstanding options do not exceed 20% of the Series' net assets. The Enhanced
U.S. Large Company Series may only purchase put options to the extent that the
premiums on all outstanding put options do not exceed 20% of the Series' net
assets. With regard to the writing of put options, The Enhanced U.S. Large
Company Series will limit the aggregate value of the obligations underlying such
put options to 50% of the Series' net assets. The Enhanced U.S. Large Company
Series will only invest in over-the-counter options to the extent consistent
with the 15% limit on investments in illiquid securities.
FUTURES CONTRACTS
All Series except The U.S. 6-10 Small Company Series and The DFA One-Year Fixed
Income Series may enter into index futures contracts and options on index
futures contracts for the purpose of remaining fully invested and to maintain
liquidity to pay redemptions. In addition, The Enhanced U.S. Large Company
Series may use futures contracts and options thereon to hedge against securities
prices or as part of its overall investment strategy.
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Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of defined securities at a specified future
time and at a specified price. Futures contracts which are standardized as to
maturity date and underlying financial instrument are traded on national futures
exchanges. The Series will be required to make a margin deposit in cash or
government securities with a broker or custodian to initiate and maintain
positions in futures contracts. Minimal initial margin requirements are
established by the futures exchange, and brokers may establish margin
requirements which are higher than the exchange requirements. After a futures
contract position is opened, the value of the contract is marked to market
daily. If the futures contract price changes to the extent that the margin on
deposit does not satisfy margin requirements, payment of additional "variation"
margin will be required. Conversely, reduction in the contract value may reduce
the required margin resulting in a repayment of excess margin to the Series.
Variation margin payments are made to and from the futures broker for as long as
the contract remains open. The Series expect to earn income on their margin
deposits. Pursuant to current regulations, a Series will not enter into futures
contract transactions if, immediately thereafter, its margin deposits on open
contracts exceeds 5% of the market value of the Series' total assets. In
addition, 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 transactions if, immediately thereafter, the sum of the amount of initial
margin deposits and premiums paid for open futures options would exceed 5% of
the Series' total assets, after taking into account unrealized profits and
unrealized losses on such contracts it has entered into; provided, however,
that, in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%. Pursuant to
published positions of the SEC, the Series may be required to maintain
segregated accounts consisting of liquid assets, such as cash, U.S. government
securities, or other high grade debt obligations (or, as permitted under
applicable regulation, enter into offsetting positions) in connection with its
futures contract transactions in order to cover its obligations with respect to
such contracts.
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. Therefore, it might not be possible to close a futures position and, in
the event of adverse price movements, the Series would continue to be required
to continue to make variation margin deposits. In such circumstances, if the
Series has insufficient cash, it might have to sell portfolio securities to meet
daily margin requirements at a time when it might be disadvantageous to do so.
Management
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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.
(d) Because the relative market capitalizations of small companies compared
with larger companies generally do not change substantially over short periods
of time, the portfolio turnover rate of The U.S. 6-10 Small Company Series
ordinarily is anticipated to be low and is not expected to exceed 25% per year.
Generally, securities will be purchased with the expectation that they will be
held for longer than one year. Generally, securities will be held until such
time as, in the Advisor's judgment, they are no longer considered an appropriate
holding in light of the policy of maintaining portfolios of companies with small
market capitalization.
Ordinarily, portfolio securities in The U.S. Large Company Series will not be
sold except to reflect additions or deletions of the stocks that comprise the
S&P 500 Index, including mergers, reorganizations and similar transactions and,
to the extent necessary, to provide cash to pay redemptions of the Series'
shares.
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ITEM 14. MANAGEMENT OF THE REGISTRANT
(a) AND (b) TRUSTEES AND OFFICERS
The names, ages and addresses of the trustees and officers of the Trust and a
brief statement or their present positions and principal occupations during the
past five years is set forth below. As used below, "DFA Entities" refers to the
following: Dimensional Fund Advisors Inc., Dimensional Fund Advisors Ltd., DFA
Australia Pty. Limited, DFA Investment Dimensions Group Inc. (Registered
Investment Company), Dimensional Emerging Markets Fund Inc. (Registered
Investment Company), Dimensional Investment Group Inc. (Registered Investment
Company) and DFA Securities Inc.
Trustees
David G. Booth*, 49, Trustee, President and Chairman-Chief Executive Officer,
Santa Monica, CA. President, Chairman-Chief Executive Officer and Director of
all DFA Entities, except Dimensional Fund Advisors Ltd., of which he is Chairman
and Director.
George M. Constantinides, 48, Director, Chicago, IL. Leo Melamed Professor of
Finance, Graduate School of Business, University of Chicago. Director, DFA
Investment Dimensions Group Inc., Dimensional Investment Group Inc. and
Dimensional Emerging Markets Fund Inc.
John P. Gould, 57, Trustee, Chicago, IL. Steven G. Rothmeier Distinguished
Service Professor of Economics, Graduate School of Business, University of
Chicago. Trustee, First Prairie Funds (registered investment companies).
Director, DFA Investment Dimensions Group Inc., Dimensional Investment Group
Inc., Dimensional Emerging Markets Fund Inc. and Harbor Investment Advisors.
Executive Vice President, Lexecon Inc. (economics, law, strategy and finance
consulting).
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Roger G. Ibbotson, 52, Trustee, New Haven, CT. Professor in Practice of
Finance, Yale School of Management. Director, DFA Investment Dimensions Group
Inc., Dimensional Investment Group Inc., Dimensional Emerging Markets Fund Inc.,
Hospital Fund, Inc. (investment management services) and Birr Portfolio
Analysis, Inc. (software products). Chairman and President, Ibbotson
Associates, Inc., Chicago, IL (software, data, publishing and consulting).
Merton H. Miller, 72, Trustee, Chicago, IL. Robert R. McCormick Distinguished
Service Professor Emeritus, Graduate School of Business, University of Chicago.
Director, DFA Investment Dimensions Group Inc., Dimensional Investment Group
Inc. and Dimensional Emerging Markets Fund Inc. Public Director, Chicago
Mercantile Exchange.
Myron S. Scholes, 54, Trustee, Greenwich, CT. Limited Partner, Long-Term
Capital Management L.P. (money manager). Frank E. Buck Professor of Finance,
Graduate School of Business and Professor of Law, Law School, Senior Research
Fellow, Hoover Institution, (all) Stanford University (on leave). Director, DFA
Investment Dimensions Group Inc., Dimensional Investment Group Inc., Dimensional
Emerging Markets Fund Inc., Benham Capital Management Group of Investment
Companies and Smith Breedon Group of Investment Companies.
Rex A. Sinquefield*, 51, Trustee, Chairman and Chief Investment Officer, Santa
Monica, CA. Chairman-Chief Investment Officer and Director of all DFA Entities,
except Dimensional Fund Advisors Ltd., of which he is Chairman, Chief Executive
Officer and Director.
* Interested Trustee of the Trust.
Officers
Arthur Barlow, 40, Vice President, Santa Monica, CA. Vice President of all DFA
Entities.
Truman Clark, 54, Vice President, Santa Monica, CA. Vice President of all DFA
Entities. Consultant until October, 1995 and Principal and Manager of Product
Development, Wells Fargo Nikko Investment Advisors, San Francisco, CA from 1990-
1994.
Maureen Connors, 59, Vice President, Santa Monica, CA. Vice President of all
DFA Entities.
Robert Deere, 38, Vice President, Santa Monica, CA. Vice President of all DFA
Entities.
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Irene R. Diamant, 45, Vice President and Secretary, Santa Monica, CA. Vice
President and Secretary of all DFA Entities.
Eugene Fama, Jr., 35, Vice President, Santa Monica, CA. Vice President of all
DFA Entities.
David Plecha, 34, Vice President, Santa Monica, CA. Vice President of all DFA
Entities.
George Sands, 40, Vice President, Santa Monica, CA. Vice President of all DFA
Entities. Managing Director, Assets Strategy Consulting, Los Angeles, CA from
1991 to 1992 and previously Vice President of Wilshire Associates, Santa Monica,
CA.
Michael T. Scardina, 40, Vice President, Chief Financial Officer, Controller and
Treasurer, Santa Monica, CA. Vice President, Chief Financial Officer,
Controller and Treasurer of all DFA Entities.
Cem Severoglu, 32, Vice President, Santa Monica, CA. Vice President of all DFA
Entities.
Jeanne C. Sinquefield, Ph.D., 49, Executive Vice President, Santa Monica, CA.
Executive Vice President of all DFA Entities.
Rex A. Sinquefield, Trustee, Chairman and Chief Investment Officer of the Trust,
and Jeanne C. Sinquefield, Executive Vice President of the Trust, are husband
and wife.
(c) Set forth below is a table listing, for each Trustee entitled to receive
compensation, the compensation received from the Trust during the fiscal year
ended November 30, 1995 and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
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Aggregate Total Compensation
Compensation from Trust and
Trustee from Trust Fund Complex
- ------- ------------ ------------------
George M. Constantinides $ 5,000 $ 30,000
John P. Gould $ 5,000 $ 30,000
Roger G. Ibbotson $ 5,000 $ 30,000
Merton H. Miller $ 4,000 $ 24,000
Myron S. Scholes $ 5,000 $ 30,000
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
(a) See Item 6(b).
(b) As of December 31, 1995, the following shareholders own beneficially at
least 5% of the outstanding shares of the Series, as set forth below. Unless
otherwise indicated, the address of each shareholder is 1299 Ocean Avenue, 11th
Floor, Santa Monica, CA 90401
THE U.S. 6-10 SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc. -
The U.S. 6-10 Small Company Portfolio 83.97%
Dimensional Investment Group Inc. -
U.S. 6-10 Institutional Portfolio 9.70%
The California Wellness Foundation 6.33%
6320 Canoga Avenue, Suite 1700
Woodland Hills, CA 91367
THE U.S. LARGE COMPANY SERIES
DFA Investment Dimensions Group Inc. -
The U.S. Large Company Portfolio 100.00%
THE DFA ONE-YEAR FIXED INCOME SERIES
DFA Investment Dimensions Group Inc. -
The DFA One-Year Fixed Income Portfolio 99.92%
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THE U.S. SMALL CAP VALUE SERIES
DFA Investment Dimensions Group Inc. -
The U.S. Small Cap Value Portfolio 97.46%
THE U.S. LARGE CAP VALUE SERIES
DFA Investment Dimensions Group Inc. -
The U.S. Large Cap Value Portfolio 66.38%
Dimensional Investment Group Inc. -
U.S. Large Cap Value Portfolio III 31.88%
THE DFA INTERNATIONAL VALUE SERIES
Dimensional Investment Group Inc. -
DFA International Value Portfolio 40.26%
DFA Investment Dimensions Group Inc. -
DFA International High Book to Market Portfolio 28.23%
DFA International Value Portfolio III 24.16%
THE EMERGING MARKETS SERIES
DFA Investment Dimensions Group Inc. -
Emerging Markets Portfolio 99.98%
(c) Trustees and officers as a group own less than 1% of the Trust's
outstanding stock.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
(a) The information provided in response to this item is in addition to the
information provided in response to Item 5(b) in Part A.
David G. Booth and Rex A. Sinquefield together own 64% of the Advisor's
outstanding voting stock and may be considered controlling persons of the
Advisor.
For the services its provides as investment advisor to each Series of the Trust,
the Advisor is paid a monthly fee calculated as a percentage of average net
assets of the Series. For the
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fiscal years ending November 30, 1993, 1994 and 1995, the Series paid advisory
fees as set forth in the following table:
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1993 1994 1995
(000) (000) (000)
U.S. 6-10 Small Company $ 40 $ 46 $ 57
U.S. Large Company $ 7 $ 11 $ 19
DFA One-Year Fixed Income $241 $311 $310
U.S. Small Cap Value $ 94 $459 $976
U.S. Large Cap Value $ 45 $143 $306
DFA International Value n/a $380 $937
Emerging Markets n/a $ 6 $ 30
(b) The information provided in response to this item is in addition to the
information provided in response to Item 5(a) of Part A.
The investment management agreement with respect to each Series is in effect for
a period of two years. Thereafter, each agreement may continue in effect for
successive annual periods, provided such continuance is specifically approved at
least annually by a vote of the Trust's Board of Trustees or, by a vote of the
holders of a majority of the Series' outstanding voting securities, and in
either event by a majority of the trustees who are not parties to the agreement
or interested persons of any such party (other than as trustees of the Trust),
cast in person at a meeting called for that purpose. An investment management
agreement may be terminated without penalty at any time by the Series or by the
Advisor on 60 days' written notice and will automatically terminate in the event
of its assignment as defined in the 1940 Act.
(c) Beginning with the effective date of the Investment Management Agreement
with respect to The DFA International Value Series, the Advisor has agreed to
waive its fee under that Agreement to the extent necessary to keep the
cumulative annual expenses of the Series to not more than .45% of average net
assets of the Series on an annualized basis. The Advisor may eliminate its
waiver at any time in its discretion.
(d) Not applicable.
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(e) Not applicable.
(f) Not applicable.
(g) Not applicable.
(h) Boston Safe Deposit and Trust Company, Princess House, 1 Suffolk Lane,
London EC4R 0AN, England, serves as custodian for The DFA International Value
Series. Chase Manhattan Bank, N.A., 4 Chase Metrotech Center, Brooklyn, NY
11245, serves as custodian for The Emerging Markets Series. PNC Bank, National
Association, 200 Stevens Drive, Airport Business Center, Lester, PA 19113, acts
as custodian for all other Series. The custodians do not participate in
decisions relating to the purchase and sale of portfolio securities.
Coopers & Lybrand L.L.P., 2400 Eleven Penn Center, Philadelphia, Pennsylvania
19103, is the Trust's independent accountant.
(i) Not applicable.
ITEM 17. BROKERAGE ALLOCATION
(a) The following table depicts brokerage commissions paid by the following
Series:
BROKERAGE COMMISSIONS
FISCAL YEARS ENDED NOVEMBER 30, 1993, 1994 AND 1995
1993 1994 1995
U.S. 6-10 Small Company $274,151 $ 247,096 $ 361,784
U.S. Large Company $ 41,393 $ 10,610 $ 15,289
U.S. Small Cap Value $328,869 $1,471,320 $1,025,415
U.S. Large Cap Value $134,312 $ 361,154 $ 415,802
DFA International Value n/a $ 623,031 $ 542,306
Emerging Markets n/a $ 79,105 $ 166,601
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The substantial increases or decreases in the amount of brokerage commissions
paid by certain Series from year to year indicated in the foregoing table
resulted from increases or decreases in the amount of securities bought and sold
by those Series.
During fiscal year 1993, The U.S. 6-10 Small Company Series paid commissions of
$9,793 to Kemper Capital Markets, Inc., a securities firm which has been
succeeded by Kemper Securities, Inc., an affiliate of Kemper Financial Services,
Inc., which owned approximately 15.6% of the Advisor's outstanding stock during
that year. Such commissions represented .0126% of the total commissions paid by
the Trust for 1993 and the total value of transactions as to which such
commissions relate were $1,381,561 or .0071% of the Fund's total value of
transactions involving payment of commissions during the fiscal year ended
November 30, 1993. No commissions were paid to affiliates or affiliates of
affiliates during fiscal years 1994 or 1995.
The DFA One-Year Fixed Income Series acquires and sells securities on a net
basis with dealers which are major market markers in such securities. The
Investment Committee of the Advisor selects dealers on the basis of their size,
market making and credit analysis ability. When executing portfolio
transactions, the Advisor seeks to obtain the most favorable price for the
securities being traded among the dealers with whom such Series effects
transactions.
Portfolio transactions will be placed with a view to receiving the best price
and execution.
The OTC companies eligible for purchase by The U.S. 6-10 Small Company Series
and The U.S. Small Cap Value Series are thinly traded securities. Therefore,
the Advisor believes it needs maximum flexibility to effect OTC trades on a best
execution basis. To that end, the Advisor places buy and sell orders with
market makers, third market brokers, Instinet and with brokers 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 to sometimes trade larger blocks than would be possible by
going through a single market maker.
Instinet is an electronic information and communication network whose
subscribers include most market makers as well as many institutions. Instinet
charges a commission for each trade executed on its system. On any given trade,
The U.S. 6-10 Small Company Series and the U.S. Value Series, by trading through
Instinet, would pay a spread to a dealer on the other side of the trade plus a
commission to Instinet. However, placing a buy (or
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sell) order on Instinet communicates to many (potentially all) market makers
and institutions at once. This can create a more complete picture of the
market and thus increase the likelihood that the Series can effect transactions
at the best available prices.
During the fiscal year ended November 30, 1995, 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:
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VALUE OF
SECURITIES BROKERAGE
TRANSACTIONS COMMISSIONS
U.S. 6-10 Small Company $ 45,143,939 $ 176,059
U.S. Large Company 0 0
U.S. Small Cap Value $ 99,862,560 $ 493,455
U.S. Large Cap Value $155,807,866 $ 221,667
DFA International Value $ 34,304,000 $ 85,760
Emerging Markets 0 0
TOTAL: $335,118,365 $ 976,941
(b) Not applicable.
(c) The Series will seek to acquire and dispose of securities in a manner which
would cause as little fluctuation in the market prices of stocks being purchased
or sold as possible in light of the size of the transactions being effected, and
brokers will be selected with this goal in view. The Advisor monitors the
performance of brokers which effect transactions for the Series to determine the
effect that the Series' 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 Agreements permit
the Advisor knowingly to pay commissions on such transactions which are greater
than another broker might charge if the Advisor, in good faith, determines that
the commissions paid are reasonable in relation to the research or brokerage
services provided by the broker or dealer when viewed in terms of either a
particular transaction or the Advisor's overall responsibilities to the Trust.
Brokerage transactions may be placed with securities firms that are affiliated
with an affiliate of the Advisor. Commission paid on such transactions would be
commensurate with the rate of commissions paid on similar transactions to
brokers that are not so affiliated.
(d) Not applicable.
(e) Not applicable.
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ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
(a) The information provided in response to this item is in addition to the
information provided in response to Item 6(a) in Part A.
The Trust does not intend to hold annual meetings; it may, however, hold a
meeting for such purposes as changing fundamental investment limitations,
approving a new investment management agreement or any other matters which are
required to be acted on by shareholders under the 1940 Act. Shareholders may
receive assistance in communicating with other shareholders in connection with
the election or removal of Trustees similar to the provisions contained in
Section 16(c) of the 1940 Act.
(b) Not applicable.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF
SECURITIES BEING OFFERED
The information provided in response to this item is in addition to the
information provided in response to Items 7 and 8 in Part A.
(a) AND (b) The Trust will accept purchase and redemption orders on each day
that the NYSE is open for business, regardless of whether the Federal Reserve
System is closed. However, no purchases by wire may be made on any day that the
Federal Reserve System is closed. The Trust will generally be closed on days
that the NYSE is closed. The NYSE is scheduled to be open Monday through Friday
throughout the year except for days closed to recognize New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day. The Federal Reserve System is closed on the
same days as the NYSE, except that it is open on Good Friday and closed on
Martin Luther King, Jr. Day, Columbus Day and Veterans' Day. Orders for
redemptions and purchases will not be processed if the Trust is closed.
The Trust reserves the right, in its sole discretion, to suspend the offering of
shares of any or all Series or reject purchase orders when, in the judgement of
management, such suspension or rejection is in the best interest of the Trust or
a Series. Securities accepted in exchange for shares of a Series will be
acquired for investment purposes and will be considered for sale under the same
circumstances as other securities in the Portfolio.
The Trust may suspend redemption privileges or postpone the date of payment:
(1) during any period when the NYSE is closed, or trading on the Exchange is
restricted as determined by the SEC, (2)
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during any period when an emergency exists as defined by the rules of the SEC as
a result of which it is not reasonably practicable for the Trust to dispose of
securities owned by it, or fairly to determine the value of its assets and (3)
for such other periods as the SEC may permit.
(c) The Trust has filed a notice of election pursuant to Rule 18f-1 under the
1940 Act. (SEE Item 8(a) of Part A.)
ITEM 20. TAX STATUS
The information provided in response to this item is in addition to the
information provided in response to Item 6 in Part A.
FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS AND SIMILAR POSITIONS
The investment by a Series in options, futures contracts and options on futures
contracts are subject to many complex and special tax rules. For example,
options on stock and on narrowed-based stock indexes will generally produce
long-term or short-term capital gain or loss upon the exercise, lapse, or
closing out of the option or sale of the underlying stock or security. By
contrast, the treatment by a Series of certain other options, futures and
forward contracts is generally
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governed by Section 1256 of the Code. These "Section 1256" positions generally
include listed options on debt securities, options on broad-based stock indexes,
options on futures contracts, regulated futures contracts and certain foreign
currency contracts and options thereon.
Absent a tax election to the contrary, each such Section 1256 position held by a
Series will be marked-to-market (i.e., treated as if it were sold for fair
market value) on the last business day of a Series' fiscal year, and all gain or
loss associated with fiscal year transactions and mark-to-market positions at
fiscal year end (except certain currency gain or loss covered by Section 988 of
the Code) will generally be treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. The effect of Section 1256 mark-to-market
rules may be to accelerate income or to convert what otherwise would have been
long-term capital gains into short-term capital gains or short-term capital
losses into long-term capital losses within a Series. The acceleration of
income on Section 1256 positions may require a Series to accrue taxable income
without the corresponding receipt of cash. In order to generate cash to satisfy
the distribution requirements of the Code, a Series may be required to dispose
of portfolio securities that it otherwise would have continued to hold or to use
cash flows from other sources such as the sale of a Series' shares. In these
ways, any or all of these rules may affect both the amount, character and timing
of income distributed to shareholders by a Series.
When a Series holds an option or contract which substantially diminishes a
Series' risk of loss with respect to another position of a Series (as might
occur in some hedging transactions), this combination of positions could be
treated as a "straddle" for tax purposes, resulting in possible deferral of
losses, adjustments in the holding periods of a Series' securities and
conversion of short-term capital losses into long-term capital losses. Certain
tax elections exist for mixed straddles (i.e., straddles comprised of at least
one Section 1256 position and at least one non-Section 1256 position) which may
reduce or eliminate the operation of these straddle rules.
The Series taxable as regulated investment companies are also subject to the
requirement that less than 30% of their annual gross income be derived from the
sale or other disposition of securities and certain other investments held for
less than three months ("short-short income"). This requirement may limit a
Series ability to engage in options, straddles, hedging transactions and forward
or futures contracts because these
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transactions are often consummated in less than three months, may require the
sale of portfolio securities held less than three months and may, as in the case
of short sales of portfolio securities, reduce the holding periods of certain
securities within a Series, resulting in additional short-short income for a
Series.
A Series will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of a Series as a regulated investment
company under Subchapter M of the Code.
ITEM 21. UNDERWRITERS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
ITEM 22. CALCULATION OF PERFORMANCE DATA
(a) Not applicable.
(b) Following are quotations of the annualized percentage total returns for the
one-, five-, and ten-year periods ended November 30, 1995 (as applicable) using
the standardized method of calculation required by the SEC. For those Series in
effect for less than one, five or ten years, the time periods during which the
Series have been active have been substituted for the periods stated (which in
no case extends prior to the effective date of the registration statement
relating to a particular Series).
ONE FIVE TEN
YEAR YEARS YEARS
The U.S. 6-10 Small Company Series 29.17 32 MONTHS n/a
13.23
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The U.S. Large Company Series 36.75 32 MONTHS n/a
14.68
The DFA One-Year Fixed Income Series 7.90 32 MONTHS n/a
4.88
The U.S. Small Cap Value Series 28.82 32 MONTHS n/a
16.05
The U.S. Large Cap Value Series 39.27 32 MONTHS n/a
14.09
The DFA International Value Series 7.19 21 MONTHS n/a
4.64
The Emerging Markets Series 6.55 19 MONTHS n/a
3.91
As the following formula indicates, the annualized total return is
determined by finding the annualized total return over the stated time period
that would equate a hypothetical initial purchase order of $1,000 to its
redeemable value (including capital appreciation/depreciation and dividends and
distributions paid and reinvested less any fees charged to a shareholder
account) at the end of the stated time period. The calculation assumes that all
dividends and distributions are reinvested at the public offering price on the
reinvestment dates during the period. The quotation assumes the account was
completely redeemed at the end of each period and the deduction of all
applicable charges and fees. According to the SEC formula:
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P(1 + T)to the nth = ERV
where:
P = a hypothetical initial payment of $1,000
T = annualized compound rate of return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, and ten-year periods at the end of the one-,
five-, and ten-year periods (or fractional portion thereof).
ITEM 23. FINANCIAL STATEMENTS
The audited financial statements and financial highlights of the Trust for its
fiscal year ended November 30, 1995, as set forth in the Trust's annual report
to shareholders, and the report of Coopers & Lybrand L.L.P., independent
accountants, also appearing therein, are incorporated herein by reference. The
audited annual report does not contain any data regarding The Enhanced U.S.
Large Company Series, The DFA Two-Year Corporate Fixed Income, Two-Year Global
Fixed Income and Two-Year Government Series because such series had not
commenced operations as of November 30, 1995.
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THE DFA INVESTMENT TRUST COMPANY
FORM N-1A
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements**
(b) Exhibits:
The following exhibits are attached hereto, except as otherwise
noted:
(1) (i) Agreement and Declaration of Trust INCORPORATED BY
REFERENCE TO: Filing: Amendment No. 5 to the
Registration Statement of Registrant on Form N-1A
File No.: 811-7436
Filing Date: December 1, 1995
(ii) Certificate of Trust*
(iii) Certificate of Amendment of Certificate
of Trust*
(2) By-Laws*
(3) None
(4) Not applicable
(5) (i) Investment Management Agreement re The U.S. 6-10 Small
Company Series*
(ii) Investment Management Agreement re The U.S. Large
Company Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 5
to the Registration Statement of Registrant on Form
N-1A
File No.: 811-7436
Filing Date: December 1, 1995
(iii) Investment Management Agreement re The DFA One-Year
Fixed Income Series*
(iv) Investment Management Agreement re The U.S. Large Cap
High Book to Market Series*
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(v) Investment Management Agreement re The U.S. Small Cap
High Book to Market Series*
(vi) Investment Management Agreement re The DFA
International Value Series***
(vii) Investment Management Agreement re The Emerging Markets
Series****
(viii) Investment Management Agreement re: The Enhanced U.S.
Large Company Series
(ix) Investment Management Agreement re: The DFA Two-Year
Corporate Fixed Income Series
(x) Investment Management Agreement re: The DFA Two-Year
Global Fixed Income Series
(xi) Investment Management Agreement re: The DFA Two-Year
Government Series
(6) Agreement with DFA Securities Inc.*
(7) None
(8) (i) Form of Custodian Agreement between Registrant and
Provident National Bank*
(ii) Form of Custodian Agreement between Registrant and
Boston Safe Deposit and Trust Company***
(iii) Form of Custodian Agreement between Registrant and
Chase Manhattan Bank, N.A.****
(9) (i) Form of Transfer Agency Agreement with Provident
Financial Processing Corporation*
(ii) Form of Administration and Accounting Services
Agreement with Provident Financial Processing
Corporation*
(10) Not applicable
(11) Not applicable
(12) Not applicable
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(13) Not applicable
(14) Not applicable
(15) Not applicable
(16) Not applicable
(17) Financial Data Schedules
(18) Inapplicable
_________________________
* Filed with initial registration statement on January 15, 1993.
** Filed electronically via the EDGAR system on January 26, 1996 as the Fund's
annual report to shareholders for the fiscal year ended November 30, 1995,
pursuant to Rule 30b2-1 under the 1940 Act and incorporated in Part B by
reference.
*** Filed with Amendment Number 1 to the registration statement on December 1,
1993.
**** Filed with Amendment Number 2 to the registration statement on January 11,
1994.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
As disclosed in Items 6(b) and 15(b), as of December 31, 1995, each Series
is controlled by one or more corresponding Portfolios of DFA IDG and DIG, each a
Maryland corporation registered under the Investment Company Act of 1940. If a
person beneficially owns more than 25% of the outstanding voting securities of a
DFA IDG or DIG Portfolio that invests all of its investable assets in a
corresponding Series of the Trust, then that Portfolio and the Series in which
it invests may be deemed to be under common control by such person. As of
December 31, 1995, the following beneficially owned more than 25% of the
outstanding voting securities of DFA IDG or DIG:
DFAIDG
6-10 SMALL COMPANY PORTFOLIO
Washington University Endowment Fund
7425 Forsyth Boulevard
St. Louis, MO 63105-2103 31.30%
DIG
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6-10 INSTITUTIONAL PORTFOLIO
Washington University Endowment Fund
7425 Forsyth Boulevard
St. Louis, MO 63105-2103 67.49%
NI-GAS Trust
P.O. Box 190
Aurora, IL 60507 32.51%
INTERNATIONAL VALUE PORTFOLIO
BellSouth Corp. Master Pension Trust
1155 Peachtree Street NE
Atlanta, GA 30367 41.27%
ONE-YEAR FIXED INCOME II PORTFOLIO
Sisters of Charity
2600 N. Loop West
Houston, TX 77092 58.54%
Hewitt Services LLC
100 Half Day Road
Lincolnshire, IL 60069 35.25%
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Title of Class
-------------- Number of Record Holders
(Shares of Beneficial Interest, as of December 31, 1995
Par Value $.01) ------------------------
The U.S. 6-10 Small Company Series 3
The U.S. Large Company Series 1
The DFA One-Year Fixed Income Series 2
The U.S. Small Cap Value Series 2
The U.S. Large Cap Value Series 3
The DFA International Value Series 5
The Emerging Markets Series 2
ITEM 27. INDEMNIFICATION.
Reference is made to Article VII of the Registrant's Agreement and
Declaration of Trust (Exhibit 24(b)(1)(i)) and to Article X of the Registrant's
By-Laws (Exhibit 24(b)(2)), which are incorporated herein by reference.
Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking:
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<PAGE>
"Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue."
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Registrant's Investment Advisor (the "Advisor") was organized in May, 1981. The
principal place of business of the Advisor is 1299 Ocean Avenue, 11th Floor,
Santa Monica, California 90401. The Advisor is engaged in the business of
providing investment advice primarily to institutional investors.
The business, profession, vocation or employment of a substantial nature in
which each director and officer of the Advisor and DFAL is or has been, during
the past two fiscal years, engaged for his own account in the capacity of
director, officer, employee, partner or trustee is set forth below. As used
below, "DFA Entities" refers to the following: Dimensional Fund Advisors Inc.,
Dimensional Fund Advisors Ltd., DFA Australia Pty Limited, DFA Investment
Dimensions Group Inc. (Registered Investment Company), Dimensional Emerging
Markets Fund Inc. (Registered Investment Company), Dimensional Investment Group
Inc. (Registered Investment Company) and DFA Securities Inc.
David G. Booth is Chairman - Chief Executive Officer, President and a Director
of the Advisor and DFA Investment Dimensions Group Inc. Mr. Booth is President,
Chairman - Chief Executive Officer and a Trustee of the Registrant. Mr. Booth
is also Chairman - Chief Executive Officer and a Director of Dimensional
Investment Group Inc., Dimensional Emerging Markets Fund Inc., DFA Securities
Inc. and DFA Australia Pty Limited ("DFA Australia"). He is Chairman and
Director of Dimensional Fund Advisors Ltd. ("DFAL").
Rex A. Sinquefield is Chairman - Chief Investment Officer and a Director of the
Advisor and Chairman - Chief Investment Officer
-76-
<PAGE>
and a Trustee of the Registrant. He is also Chairman - Chief Investment Officer
and a Director of DFA Investment Dimensions Group Inc., Dimensional Investment
Group Inc., Dimensional Emerging Markets Fund, Inc., DFA Securities Inc. and DFA
Australia and Chairman, Chief Executive Officer and Director of DFAL.
Eugene Francis Fama, a Director of the Advisor, is the Robert R. McCormick
Distinguished Service Professor of Finance, and has been engaged in teaching and
research in finance and economics at the Graduate School of Business, University
of Chicago, Chicago, Illinois since September, 1963. Mr. Fama also is a
Director of DFA Securities Inc.
John Andrew McQuown, a Director of the Advisor, has been self employed since
1974 as an entrepreneur, financier and consultant to major financial
institutions. He is also a Director of Chalone Wine Group, Inc., Mortgage
Information Corporation, KMV Corporation, Microsource, Inc. and DFA Securities
Inc.
Lloyd Stockel, a Director of the Advisor, is a private investor and a retired
general partner of Goldman Sachs & Co. and a Director of DFA Securities Inc.
David Salisbury, a Director of the Advisor, is Chief Executive of Schroder
Capital Management International Inc., Joint Chief Executive of Schroder
International Management Ltd. and a Director of DFA Securities Inc.
Arthur Barlow is a Vice President of Registrant and all DFA Entities.
Truman Clark, is a Vice President of Registrant and all DFA Entities. Mr. Clark
was a consultant until October, 1995 and Principal and Manager of Product
Development, Wells Fargo Nikko Investment Advisors, San Francisco, CA from 1990-
1994.
Maureen Connors is a Vice President of Registrant and all DFA Entities.
Robert Deere is a Vice President of the Registrant and all DFA Entities.
Irene R. Diamant is a Vice President and Secretary of Registrant and all DFA
Entities.
-77-
<PAGE>
Eugene Fama, Jr. is a Vice President of Registrant and all DFA Entities.
David Plecha is a Vice President of Registrant and all DFA Entities.
George Sands is a Vice President of Registrant and DFA Entities. Mr. Sands was
a Managing Director of Asset Strategy Consulting in Los Angeles, CA from March
1991 to August 1992 and a Vice President of Wilshire Associates in Santa Monica,
CA from 1985 to February 1991.
Michael T. Scardina is a Vice President, Chief Financial Officer, Controller and
Treasurer of the Registrant and all DFA Entities.
Cem Severoglu is a Vice President of Registrant and all DFA Entities.
Jeanne C. Sinquefield is Executive Vice President of the Registrant and all DFA
Entities.
Daniel Wheeler is a Marketing Officer of the Advisor.
David Schneider is a Marketing Officer of the Advisor.
Lawrence Spieth is a Marketing Officer of the Advisor.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Not applicable
(b) Registrant distributes its own shares. It has entered
into an agreement, previously filed as Exhibit No. 6 to the
Registration Statement, which provides that DFA Securities Inc., 1299
Ocean Avenue, 11th Floor, Santa Monica, California 90401, will
supervise the sale of Registrant's shares.
(c) Not applicable
ITEM 30. LOCATIONS OF ACCOUNTS AND RECORDS.
All accounts and records are maintained by PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809.
ITEM 31. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Part A
or Part B.
-78-
<PAGE>
ITEM 32. UNDERTAKING.
(a) Not applicable
(b) Not applicable
(c) The Registrant undertakes to furnish each person to whom this Post-
Effective Amendment is delivered a copy of its latest annual report to
shareholders, upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee or trustees when requested in writing to do so by the record holders of
not less than 10 per centum of the Registrant's outstanding shares and to assist
its shareholders in accordance with the requirements of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
-79-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Monica, the State of California, on the 6th day
of February, 1996.
THE DFA INVESTMENT TRUST COMPANY
By:/s/ David G. Booth
---------------------------------------------
David G. Booth
President
-80-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
24(b)(5)(viii) Investment Management Agreement re: The Enhanced U.S. Large
Company Series
24(b)(5)(ix) Investment Management Agreement re: The DFA Two-Year
Corporate Fixed Income Series
24(b)(5)(x) Investment Management Agreement re: The DFA Two-Year Global
Fixed Income Series
24(b)(5)(xi) Investment Management Agreement re: The DFA Two-Year
Government Series
24(b)(17) Financial Data Schedules
-81-
<PAGE>
- ----------------------------COMPARISON OF FOOTERS-------------------------------
- -FOOTER 1-
150543.5
- -FOOTER 2-
Footer Discontinued
- -FOOTER 3-
*Owner of record only
- -FOOTER 4-
Footer Discontinued
-82-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- ------------
99 (b) (5) (viii) Investment Management Agreement re: The
Enhanced U.S. Large Company Series
99 (b) (5) (ix) Investment Management Agreement re: The DFA
Two-Year Corporate Fixed Income Series
99 (b) (5) (x) Investment Management Agreement re: The DFA
Two-Year Global Fixed Income Series
99 (b) (5) (xi) Investment Management Agreement re: The DFA
Two-Year Government Series
99 (b) (17) Financial Data Schedules
-75-
<PAGE>
<PAGE>
EXHIBIT NO. 99(b)(5)(viii)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 8th day of February, 1996, by and between THE DFA
INVESTMENT TRUST COMPANY, a Delaware business trust (the "Trust") and
DIMENSIONAL FUND ADVISORS INC., a Delaware corporation (the "Manager").
1. DUTIES OF ADVISOR
The Trust hereby employs the Manager to manage the investment and
reinvestment of the assets of The Enhanced U.S. Large Company Series of the
Trust (the "Series"), to continuously review, supervise and administer the
Series' investment program, to determine in its discretion the securities to be
purchased or sold and the portion of the Series' assets to be uninvested, to
provide the Trust with records concerning the Manager's activities which the
Trust is required to maintain, and to render regular reports to the Trust's
officers and the Board of Trustees of the Trust, all in compliance with the
objectives, policies and limitations set forth in the Trust's registration
statement and applicable laws and regulations. The Manager accepts such
employment and agrees to provide, at its own expense, the office space,
furnishings and equipment and the personnel required by it to perform the
services described herein on the terms and for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS
The Manager is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Series and is
directed to use its best efforts to obtain the best available price and most
favorable execution, except as prescribed herein. It is understood that the
Manager will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Series, or be in breach of any
obligation owing to the Trust or in respect of the Series under this Agreement,
or otherwise, solely by reason of its having caused the Series to pay a member
of a securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Series in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Manager determines in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or the Manager's
overall responsibilities with respect to its accounts, including the Trust, as
to which it exercises investment discretion. The
<PAGE>
Manager will promptly communicate to the officers and directors of the Trust
such information relating to transactions for the Series as they may reasonably
request.
3. COMPENSATION OF THE MANAGER
For the services to be rendered by the Manager as provided in Section
1 of this Agreement, the Trust shall pay to the Manager, at the end of each
month, a fee equal to one-twelfth of .05 percent of the net assets of the
Series. In the event that this Agreement is terminated at other than a
month-end, the fee for such month shall be prorated.
4. OTHER SERVICES
At the request of the Trust, the Manager, in its discretion, may make
available to the Trust office facilities, equipment, personnel and other
services. Such office facilities, equipment, personnel and service shall be
provided for or rendered by the Manager and billed to the Trust at the Manager's
cost and, where applicable, the cost thereof shall be apportioned among the
several Series of the Trust proportionate to their respective utilization
thereof.
5. REPORTS
The Trust and the Manager agree to furnish to each other information
with regard to their respective affairs as each may reasonably request.
6. STATUS OF THE MANAGER
The services of the Manager to the Trust or in respect of the Series,
are not to be deemed exclusive, and the Manager shall be free to render similar
services to others as long as its services to the Trust or in respect of the
Series, are not impaired thereby. The Manager shall be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust.
7. LIABILITY OF MANAGER
No provision of this Agreement shall be deemed to protect the Manager
against any liability to the Trust or its shareholders to which it might
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or the reckless disregard of its
obligations under this Agreement.
-2-
<PAGE>
8. PERMISSIBLE INTERESTS
Subject to and in accordance with the agreement and declaration of
trust of the Trust and the charter of the Manager, trustees, officers, and
shareholders of the Trust are or may be interested in the Manager (or any
successor thereof) as directors, officers or shareholders, or otherwise;
directors, officers, agents and shareholders of the Manager are or may be
interested in the Trust as trustees, officers, shareholders or otherwise; and
the Manager (or any successor) is or may be interested in the Trust as a
shareholder or otherwise and the effect of any such interrelationships shall be
governed by said agreement and declaration of trust and charter and the
provisions of the Investment Company Act of 1940.
9. DURATION AND TERMINATION
This Agreement shall become effective on February 8, 1996 (the
"Effective Date") and shall continue in effect until December 22, 1996, and
thereafter, only if such continuance is approved at least annually by a vote of
the Trust's Board of Trustees, including the vote of a majority of the trustees
who are not parties to this Agreement or interested persons of any such party,
cast in person, at a meeting called for the purpose of voting such approval. In
addition, the question of continuance of this Agreement may be presented to the
shareholders of the Trust; in such event, such continuance shall be effected
only if approved by the affirmative vote of the holders of a majority of the
outstanding voting securities of the Series.
This Agreement may at any time be terminated without payment of any
penalty either by vote of the Board of Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of the Series, on
sixty days written notice to the Manager.
This Agreement shall automatically terminate in the event of its
assignment.
This Agreement may be terminated by the Manager after ninety days
written notice to the Trust.
Any notice under this Agreement shall be given in writing, addressed
and delivered, or mailed postpaid, to the other party at any office of such
party.
As used in this Section 9, the terms "assignment," "interested
persons," and a "vote of the holders of a majority of the outstanding
securities" shall have the respective meanings set forth in Section 2(a)(4),
Section 2(a)(19), Section 2(a)(42) of the Investment Company Act of 1940 and
Rule l8f-2 thereunder.
-3-
<PAGE>
10. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed this 8th day of February, 1996.
DIMENSIONAL FUND THE DFA INVESTMENT TRUST
ADVISORS INC. COMPANY
By:/s/ Rex A. Sinquefield By:/s/ David G. Booth
--------------------------- ---------------------------
Chairman-Chief President
Investment Officer
-4-
<PAGE>
EXHIBIT NO. 99(b)(5)(ix)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 8th day of February, 1996, by and between THE DFA
INVESTMENT TRUST COMPANY, a Delaware business trust (the "Trust") and
DIMENSIONAL FUND ADVISORS INC., a Delaware corporation (the "Manager").
1. DUTIES OF ADVISOR
The Trust hereby employs the Manager to manage the investment and
reinvestment of the assets of The DFA Two-Year Corporate Fixed Income Series of
the Trust (the "Series"), to continuously review, supervise and administer the
Series' investment program, to determine in its discretion the securities to be
purchased or sold and the portion of the Series' assets to be uninvested, to
provide the Trust with records concerning the Manager's activities which the
Trust is required to maintain, and to render regular reports to the Trust's
officers and the Board of Trustees of the Trust, all in compliance with the
objectives, policies and limitations set forth in the Trust's registration
statement and applicable laws and regulations. The Manager accepts such
employment and agrees to provide, at its own expense, the office space,
furnishings and equipment and the personnel required by it to perform the
services described herein on the terms and for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS
The Manager is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Series and is
directed to use its best efforts to obtain the best available price and most
favorable execution, except as prescribed herein. It is understood that the
Manager will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Series, or be in breach of any
obligation owing to the Trust or in respect of the Series under this Agreement,
or otherwise, solely by reason of its having caused the Series to pay a member
of a securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Series in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Manager determines in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or the Manager's
overall responsibilities with respect to its accounts, including the Trust, as
to which it exercises investment discretion. The
<PAGE>
Manager will promptly communicate to the officers and directors of the Trust
such information relating to transactions for the Series as they may reasonably
request.
3. COMPENSATION OF THE MANAGER
For the services to be rendered by the Manager as provided in Section
1 of this Agreement, the Trust shall pay to the Manager, at the end of each
month, a fee equal to one-twelfth of .15 percent of the net assets of the
Series. In the event that this Agreement is terminated at other than a
month-end, the fee for such month shall be prorated.
4. OTHER SERVICES
At the request of the Trust, the Manager, in its discretion, may make
available to the Trust office facilities, equipment, personnel and other
services. Such office facilities, equipment, personnel and service shall be
provided for or rendered by the Manager and billed to the Trust at the Manager's
cost and, where applicable, the cost thereof shall be apportioned among the
several Series of the Trust proportionate to their respective utilization
thereof.
5. REPORTS
The Trust and the Manager agree to furnish to each other information
with regard to their respective affairs as each may reasonably request.
6. STATUS OF THE MANAGER
The services of the Manager to the Trust or in respect of the Series,
are not to be deemed exclusive, and the Manager shall be free to render similar
services to others as long as its services to the Trust or in respect of the
Series, are not impaired thereby. The Manager shall be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust.
7. LIABILITY OF MANAGER
No provision of this Agreement shall be deemed to protect the Manager
against any liability to the Trust or its shareholders to which it might
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or the reckless disregard of its
obligations under this Agreement.
-2-
<PAGE>
8. PERMISSIBLE INTERESTS
Subject to and in accordance with the agreement and declaration of
trust of the Trust and the charter of the Manager, trustees, officers, and
shareholders of the Trust are or may be interested in the Manager (or any
successor thereof) as directors, officers or shareholders, or otherwise;
directors, officers, agents and shareholders of the Manager are or may be
interested in the Trust as trustees, officers, shareholders or otherwise; and
the Manager (or any successor) is or may be interested in the Trust as a
shareholder or otherwise and the effect of any such interrelationships shall be
governed by said agreement and declaration of trust and charter and the
provisions of the Investment Company Act of 1940.
9. DURATION AND TERMINATION
This Agreement shall become effective on February 8, 1996 (the
"Effective Date") and shall continue in effect until December 22, 1996, and
thereafter, only if such continuance is approved at least annually by a vote of
the Trust's Board of Trustees, including the vote of a majority of the trustees
who are not parties to this Agreement or interested persons of any such party,
cast in person, at a meeting called for the purpose of voting such approval. In
addition, the question of continuance of this Agreement may be presented to the
shareholders of the Trust; in such event, such continuance shall be effected
only if approved by the affirmative vote of the holders of a majority of the
outstanding voting securities of the Series.
This Agreement may at any time be terminated without payment of any
penalty either by vote of the Board of Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of the Series, on
sixty days written notice to the Manager.
This Agreement shall automatically terminate in the event of its
assignment.
This Agreement may be terminated by the Manager after ninety days
written notice to the Trust.
Any notice under this Agreement shall be given in writing, addressed
and delivered, or mailed postpaid, to the other party at any office of such
party.
As used in this Section 9, the terms "assignment," "interested
persons," and a "vote of the holders of a majority of the outstanding
securities" shall have the respective meanings set forth in Section 2(a)(4),
Section 2(a)(19), Section 2(a)(42) of the Investment Company Act of 1940 and
Rule l8f-2 thereunder.
-3-
<PAGE>
10. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed this 8th day of February, 1996.
DIMENSIONAL FUND THE DFA INVESTMENT TRUST
ADVISORS INC. COMPANY
By:/s/ Rex A. Sinquefield By:/s/ David G. Booth
--------------------------- ---------------------------
Chairman-Chief President
Investment Officer
-4-
<PAGE>
EXHIBIT NO. 99(b)(5)(x)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 8th day of February, 1996, by and between THE DFA
INVESTMENT TRUST COMPANY, a Delaware business trust (the "Trust") and
DIMENSIONAL FUND ADVISORS INC., a Delaware corporation (the "Manager").
1. DUTIES OF ADVISOR
The Trust hereby employs the Manager to manage the investment and
reinvestment of the assets of The DFA Two-Year Global Fixed Income Series of the
Trust (the "Series"), to continuously review, supervise and administer the
Series' investment program, to determine in its discretion the securities to be
purchased or sold and the portion of the Series' assets to be uninvested, to
provide the Trust with records concerning the Manager's activities which the
Trust is required to maintain, and to render regular reports to the Trust's
officers and the Board of Trustees of the Trust, all in compliance with the
objectives, policies and limitations set forth in the Trust's registration
statement and applicable laws and regulations. The Manager accepts such
employment and agrees to provide, at its own expense, the office space,
furnishings and equipment and the personnel required by it to perform the
services described herein on the terms and for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS
The Manager is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Series and is
directed to use its best efforts to obtain the best available price and most
favorable execution, except as prescribed herein. It is understood that the
Manager will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Series, or be in breach of any
obligation owing to the Trust or in respect of the Series under this Agreement,
or otherwise, solely by reason of its having caused the Series to pay a member
of a securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Series in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Manager determines in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or the Manager's
overall responsibilities with respect to its accounts, including the Trust, as
to which it exercises investment discretion. The
<PAGE>
Manager will promptly communicate to the officers and directors of the Trust
such information relating to transactions for the Series as they may reasonably
request.
3. COMPENSATION OF THE MANAGER
For the services to be rendered by the Manager as provided in Section
1 of this Agreement, the Trust shall pay to the Manager, at the end of each
month, a fee equal to one-twelfth of .05 percent of the net assets of the
Series. In the event that this Agreement is terminated at other than a
month-end, the fee for such month shall be prorated.
4. OTHER SERVICES
At the request of the Trust, the Manager, in its discretion, may make
available to the Trust office facilities, equipment, personnel and other
services. Such office facilities, equipment, personnel and service shall be
provided for or rendered by the Manager and billed to the Trust at the Manager's
cost and, where applicable, the cost thereof shall be apportioned among the
several Series of the Trust proportionate to their respective utilization
thereof.
5. REPORTS
The Trust and the Manager agree to furnish to each other information
with regard to their respective affairs as each may reasonably request.
6. STATUS OF THE MANAGER
The services of the Manager to the Trust or in respect of the Series,
are not to be deemed exclusive, and the Manager shall be free to render similar
services to others as long as its services to the Trust or in respect of the
Series, are not impaired thereby. The Manager shall be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust.
7. LIABILITY OF MANAGER
No provision of this Agreement shall be deemed to protect the Manager
against any liability to the Trust or its shareholders to which it might
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or the reckless disregard of its
obligations under this Agreement.
-2-
<PAGE>
8. PERMISSIBLE INTERESTS
Subject to and in accordance with the agreement and declaration of
trust of the Trust and the charter of the Manager, trustees, officers, and
shareholders of the Trust are or may be interested in the Manager (or any
successor thereof) as directors, officers or shareholders, or otherwise;
directors, officers, agents and shareholders of the Manager are or may be
interested in the Trust as trustees, officers, shareholders or otherwise; and
the Manager (or any successor) is or may be interested in the Trust as a
shareholder or otherwise and the effect of any such interrelationships shall be
governed by said agreement and declaration of trust and charter and the
provisions of the Investment Company Act of 1940.
9. DURATION AND TERMINATION
This Agreement shall become effective on February 8, 1996 (the
"Effective Date") and shall continue in effect until December 22, 1996, and
thereafter, only if such continuance is approved at least annually by a vote of
the Trust's Board of Trustees, including the vote of a majority of the trustees
who are not parties to this Agreement or interested persons of any such party,
cast in person, at a meeting called for the purpose of voting such approval. In
addition, the question of continuance of this Agreement may be presented to the
shareholders of the Trust; in such event, such continuance shall be effected
only if approved by the affirmative vote of the holders of a majority of the
outstanding voting securities of the Series.
This Agreement may at any time be terminated without payment of any
penalty either by vote of the Board of Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of the Series, on
sixty days written notice to the Manager.
This Agreement shall automatically terminate in the event of its
assignment.
This Agreement may be terminated by the Manager after ninety days
written notice to the Trust.
Any notice under this Agreement shall be given in writing, addressed
and delivered, or mailed postpaid, to the other party at any office of such
party.
As used in this Section 9, the terms "assignment," "interested
persons," and a "vote of the holders of a majority of the outstanding
securities" shall have the respective meanings set forth in Section 2(a)(4),
Section 2(a)(19), Section 2(a)(42) of the Investment Company Act of 1940 and
Rule l8f-2 thereunder.
-3-
<PAGE>
10. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed this 8th day of February, 1996.
DIMENSIONAL FUND THE DFA INVESTMENT TRUST
ADVISORS INC. COMPANY
By:/s/ Rex A. Sinquefield By:/s/ David G. Booth
------------------------------ ------------------------------
Chairman-Chief President
Investment Officer
-4-
<PAGE>
EXHIBIT NO. 99(b)(5)(xi)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 8th day of February, 1996, by and between THE DFA
INVESTMENT TRUST COMPANY, a Delaware business trust (the "Trust") and
DIMENSIONAL FUND ADVISORS INC., a Delaware corporation (the "Manager").
1. DUTIES OF ADVISOR
The Trust hereby employs the Manager to manage the investment and
reinvestment of the assets of The DFA Two-Year Government Series of the Trust
(the "Series"), to continuously review, supervise and administer the Series'
investment program, to determine in its discretion the securities to be
purchased or sold and the portion of the Series' assets to be uninvested, to
provide the Trust with records concerning the Manager's activities which the
Trust is required to maintain, and to render regular reports to the Trust's
officers and the Board of Trustees of the Trust, all in compliance with the
objectives, policies and limitations set forth in the Trust's registration
statement and applicable laws and regulations. The Manager accepts such
employment and agrees to provide, at its own expense, the office space,
furnishings and equipment and the personnel required by it to perform the
services described herein on the terms and for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS
The Manager is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Series and is
directed to use its best efforts to obtain the best available price and most
favorable execution, except as prescribed herein. It is understood that the
Manager will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Series, or be in breach of any
obligation owing to the Trust or in respect of the Series under this Agreement,
or otherwise, solely by reason of its having caused the Series to pay a member
of a securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Series in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Manager determines in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or the Manager's
overall responsibilities with respect to its accounts, including the Trust, as
to which it exercises investment discretion. The
<PAGE>
Manager will promptly communicate to the officers and directors of the Trust
such information relating to transactions for the Series as they may reasonably
request.
3. COMPENSATION OF THE MANAGER
For the services to be rendered by the Manager as provided in Section
1 of this Agreement, the Trust shall pay to the Manager, at the end of each
month, a fee equal to one-twelfth of .15 percent of the net assets of the
Series. In the event that this Agreement is terminated at other than a
month-end, the fee for such month shall be prorated.
4. OTHER SERVICES
At the request of the Trust, the Manager, in its discretion, may make
available to the Trust office facilities, equipment, personnel and other
services. Such office facilities, equipment, personnel and service shall be
provided for or rendered by the Manager and billed to the Trust at the Manager's
cost and, where applicable, the cost thereof shall be apportioned among the
several Series of the Trust proportionate to their respective utilization
thereof.
5. REPORTS
The Trust and the Manager agree to furnish to each other information
with regard to their respective affairs as each may reasonably request.
6. STATUS OF THE MANAGER
The services of the Manager to the Trust or in respect of the Series,
are not to be deemed exclusive, and the Manager shall be free to render similar
services to others as long as its services to the Trust or in respect of the
Series, are not impaired thereby. The Manager shall be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust.
7. LIABILITY OF MANAGER
No provision of this Agreement shall be deemed to protect the Manager
against any liability to the Trust or its shareholders to which it might
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or the reckless disregard of its
obligations under this Agreement.
-2-
<PAGE>
8. PERMISSIBLE INTERESTS
Subject to and in accordance with the agreement and declaration of
trust of the Trust and the charter of the Manager, trustees, officers, and
shareholders of the Trust are or may be interested in the Manager (or any
successor thereof) as directors, officers or shareholders, or otherwise;
directors, officers, agents and shareholders of the Manager are or may be
interested in the Trust as trustees, officers, shareholders or otherwise; and
the Manager (or any successor) is or may be interested in the Trust as a
shareholder or otherwise and the effect of any such interrelationships shall be
governed by said agreement and declaration of trust and charter and the
provisions of the Investment Company Act of 1940.
9. DURATION AND TERMINATION
This Agreement shall become effective on February 8, 1996 (the
"Effective Date") and shall continue in effect until December 22, 1996, and
thereafter, only if such continuance is approved at least annually by a vote of
the Trust's Board of Trustees, including the vote of a majority of the trustees
who are not parties to this Agreement or interested persons of any such party,
cast in person, at a meeting called for the purpose of voting such approval. In
addition, the question of continuance of this Agreement may be presented to the
shareholders of the Trust; in such event, such continuance shall be effected
only if approved by the affirmative vote of the holders of a majority of the
outstanding voting securities of the Series.
This Agreement may at any time be terminated without payment of any
penalty either by vote of the Board of Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of the Series, on
sixty days written notice to the Manager.
This Agreement shall automatically terminate in the event of its
assignment.
This Agreement may be terminated by the Manager after ninety days
written notice to the Trust.
Any notice under this Agreement shall be given in writing, addressed
and delivered, or mailed postpaid, to the other party at any office of such
party.
As used in this Section 9, the terms "assignment," "interested
persons," and a "vote of the holders of a majority of the outstanding
securities" shall have the respective meanings set forth in Section 2(a)(4),
Section 2(a)(19), Section 2(a)(42) of the Investment Company Act of 1940 and
Rule l8f-2 thereunder.
-3-
<PAGE>
10. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed this 8th day of February, 1996.
DIMENSIONAL FUND THE DFA INVESTMENT TRUST
ADVISORS INC. COMPANY
By:/s/ Rex A. Sinquefield By:/s/ David G. Booth
------------------------- ------------------------------
Chairman-Chief President
Investment Officer
-4-
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